Contingent Earnout Shares Liability
|9 Months Ended|
Sep. 30, 2021
|Contingent Earnout Shares Liability||
11. Contingent Earnout Shares Liability
As part of the Business Combination, certain stockholders and employees are entitled to additional consideration in the form of Earnout Shares of the Company’s common stock to be issued when the Company’s common stock’s price achieves certain market share price milestones within specified periods following the Business Combination on December 21, 2020. The Earnout Shares do not have employment requirement and will be issued in tranches based on the following conditions:
Pursuant to the guidance under ASC 815, Derivatives and Hedging, the right to Earnout Shares was classified as a Level 3 fair value measurement liability, and the increase or decrease in the fair value during the reporting period is recognized as other expense or other income in the condensed consolidated statement of operations accordingly. The fair value of the Earnout Shares liability was estimated using the Monte Carlo simulation of the stock prices based on historical and implied market volatility of a peer group of public companies.
As of December 21, 2020, the initial fair value of the Earnout Shares liability was recognized at $248.9 million with a corresponding reduction from the additional paid-in capital in stockholders’ (deficit) equity. As of September 30, 2021 and December 31, 2020 the fair value of the Earnout Shares liability was estimated to be $32.3 million and $133.5 million, respectively. The Company recognized a gain on the fair value change in Earnout Shares liability of $25.8 million and $101.2 million as other income (expense) in its condensed consolidated statement of operations for the three and nine months ended September 30, 2021, respectively.
The entire disclosure for hybrid instruments and embedded derivatives, including discussion of the process used in evaluating whether a hybrid instrument in the form of a share constitutes a debt or equity security, and on what basis an embedded derivative was deemed to be separable or inseparable from the host instrument.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef