Long-term Debt, Convertible Debt and Redeemable Convertible Preference Shares |
12 Months Ended |
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Dec. 31, 2021 | |
| Debt Disclosure [Abstract] | |
| Long-term Debt, Convertible Debt and Redeemable Convertible Preference Shares | Long-term Debt, Convertible Debt and Redeemable Convertible Preference Shares Long-Term Debt
On July 7, 2020, Legacy Canoo entered into a promissory note for loan proceeds under the Paycheck Protection Program (the “PPP”) (the “PPP Loan”) administered by the Small Business Administration (“SBA”) established under Division A, Title I of the CARES Act. Loan advance proceeds were received by the Company in April 2020, and therefore were accounted for as a financing cash inflow in the consolidated statement of cash flows for the twelve months ended December 31, 2020.
The PPP provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the business, subject to certain limitations. The Company used the PPP Loan proceeds for purposes consistent with the provisions of the PPP. On May 14, 2021, the Company repaid its PPP Loan in full, which was accounted for as a financing cash outflow in the consolidated statement of cash flows for the twelve months ended December 31, 2021.
Convertible Debt
In August 2019, Legacy Canoo issued $100 million aggregate principal amount of secured convertible notes (the “$100M Notes”) to certain existing investors in Legacy Canoo. The $100M Notes accrued simple interest at 12% per year. Unless earlier repaid, converted or extended by the investors, outstanding principal and unpaid accrued interest on the $100M Notes were due on February 28, 2021 (“Maturity Date”). The original terms of the $100M Notes stated that in the event the Company consummates, after August 1, 2019 and on or prior to the Maturity Date, an equity financing pursuant to which it sells shares of its equity securities with an aggregate sales price of not less than $200 million, excluding any and all indebtedness under the $100M Notes that is converted, then all principal, together with all unpaid accrued interest under the $100M Notes, would automatically convert into shares of the equity securities at 80% of the cash price per share paid by the other purchasers of equity securities.
In March 2020, certain terms of the $100M Notes were amended such that (1) the Maturity Date was extended from February 28, 2021 to September 23, 2021 and (2) the $100M Notes are automatically converted into the next round of equity securities at the lesser of (a) 80% of the cash price per share paid by the other purchasers of equity securities; or (b) $500 million divided by the total number of outstanding shares at the time of conversion. In addition, the amendment provided that the noteholders can elect to convert the $100M Notes if there is a change in control after September 2020 at the lesser of (a) 80% of the inferred value per share paid for control of Legacy Canoo and (b) $500 million divided by the total number of outstanding shares at the time of conversion. In consideration of these more favorable conversion terms, the equity holders of the $100M Notes agreed to forgive all unpaid and accrued interest through the amendment date, which totaled $7.4 million.
The Company accounted for these changes in terms of its $100M Notes as a debt extinguishment. The Company recognized a gain on extinguishment of $8.3 million as an effective capital contribution within additional paid-in capital as each of the holders of the $100M Notes were existing equity holders in the Company. The extinguishment gain represents the difference between: (a) the sum of the carrying value of the pre-amendment $100M Notes of $88.7 million, the value of unpaid accrued interest through the amendment date of $7.4 million, and the fair value of the embedded derivative of $17.7 million; and (b) the fair value of the amended $100M Notes of $105.6 million at the time of the amendment.
Prior to the March 23, 2020 amendment, the Company had not elected the fair value option to record the notes at fair value in its entirety, and as such bifurcated the contingent redemption feature embedded in the $100M Notes and recorded it at fair value separately as an embedded derivative liability. The fair value of the embedded derivative liability at issuance was recorded as a discount to the $100M Notes. From January 1, 2020 through March 23, 2020, Legacy Canoo recorded expense of $2.6 million for the accretion of the debt discount in interest expense. Legacy Canoo assessed the fair value of the derivative liability as of March 23, 2020 and determined there was no material change in the fair value of the derivative liability from December 31, 2019 through the March 23, 2020 amendment date.
At the time of the extinguishment, Legacy Canoo elected to account for the $100M Notes at fair value in their entirety. The fair value of the $100M Notes on March 23, 2020 was $105.6 million. The significant unobservable inputs used in the fair value measurement of the $100M Notes were the financial and operational performance of the Company, debt issued by Legacy Canoo with similar terms, and the probability of principal recovery of the investment. The difference in the fair value as compared to the principal value of the $100M Notes is primarily driven by the difference in interest rates between convertible debt issued by Legacy Canoo with similar terms.
In March 2020, Legacy Canoo issued $15.0 million aggregate principal amount of secured convertible notes (the “$15M Notes”), of which $10.0 million was issued to certain existing investors in Legacy Canoo and the remaining $5.0 million to new noteholders. In April 2020, Legacy Canoo issued $10.3 million aggregate principal amount of secured convertible notes (“$10.3M Notes”) to new noteholders. The $15M Notes and the $10.3M Notes accrue simple interest at 8% per year. Unless earlier repaid, converted or extended by the noteholders, the outstanding principal and unpaid accrued interest on the $15M Notes and the $10.3M Notes are due on September 3, 2021 and September 23, 2021, respectively. In the event Legacy Canoo consummates an equity financing on or prior to the maturity date of the notes, pursuant to which it sells shares of its equity securities with an aggregate sales price of not less than $200 million, excluding any and all indebtedness under the note that is converted, then all principal, together with all unpaid accrued interest under the notes, shall automatically convert into shares of the equity securities at the lesser of (a) 80% of the cash price per share paid by the other purchasers of equity securities or (b) the price obtained by dividing $500 million by the number of outstanding shares. In addition, the noteholders of the $15M Notes and the $10.3M Notes can elect to convert the notes if there is a change in control after September 2020 at the lesser of (a) 80% of the inferred value per share paid for control of the Company and (b) $500 million divided by the total number of outstanding shares at the time of conversion. At the date of issuance, Legacy Canoo assessed the fair values of the $15M Notes and $10.3M Notes to be equal to the principal amount of these notes. There were no changes in the fair values of the $15M Notes and the $10.3M Notes between their respective issuance dates and August 16, 2020 when these convertible notes were included in the exchange of all convertible notes into A series and A-1 series of Legacy Canoo redeemable convertible preference shares.
During the period from July to August 2020, Legacy Canoo issued a total of $155.3 million aggregate principal amount of secured and unsecured convertible notes (“$155.3M Notes”), of which $80.0 million were issued to certain related party investors and the remaining $75.3 million to new noteholders. The $155.3M Notes accrued simple interest at 8% per year. Other than the change in the interest rate, these new notes had the same terms and conditions as the amended $100M Notes. At the date of issuance, Legacy Canoo assessed the fair values of the $155.3M Notes to be equal to the principal amount of these notes.
For notes recorded at fair value, any change in fair value from a change in instrument-specific credit risk is recognized in our consolidated statement of operations. During the year ended December 31, 2020, there was no gain or loss recognized attributable to instrument-specific credit risk of the underlying convertible notes based upon the Company’s assessment of its own creditworthiness and risk of default.
Exchange of Debt and Preference Shares
Exchange of Debt:
On August 16, 2020, all of Legacy Canoo’s outstanding convertible notes with an aggregate principal amount of $280.5 million were exchanged for 31.6 million of Legacy Canoo A series redeemable convertible preference shares and 19.4 million of Legacy Canoo A-1 series redeemable convertible preference shares.
Immediately prior to the exchange, Legacy Canoo assessed the fair value of all of its convertible debt to be $286.1 million. The significant unobservable inputs used in the fair value measurement of the outstanding Legacy Canoo convertible notes were the financial and operational performance of Legacy Canoo, debt issued by Legacy Canoo with similar terms, and the fair value of the Legacy Canoo redeemable convertible preference shares issued in exchange for the Legacy Canoo convertible notes. Legacy Canoo recorded $0.1 million as a change in fair value from March 2020 through August 2020 in interest expense in the consolidated statement of operations. No other fair value adjustments related to the Legacy Canoo convertible debt were recorded during the year ended December 31, 2020.
Since the issuance of the new Legacy Canoo A series redeemable convertible preference shares and Legacy Canoo A-1 series redeemable convertible preference shares on the exchange of the Legacy Canoo convertible debt was outside the contractual terms of the Legacy Canoo debt agreements, Legacy Canoo accounted for the exchange of all of Legacy Canoo’s outstanding convertible notes as an extinguishment of debt. Legacy Canoo recognized a total gain on extinguishment of $41.6 million, of which $36.5 million was treated as an effective capital contribution within stockholders’ equity as this portion related to existing investors in Legacy Canoo, and $5.0 million was recorded within gain on extinguishment of debt in the consolidated statement of operations for the year ended December 31, 2020. The extinguishment gain represents the difference between: (a) the sum of the adjusted carrying value of the Legacy Canoo Notes of $286.1 million, and the value of unpaid accrued interest through the amendment date of $5.2 million; and (b) the fair value of the Legacy Canoo A series and A-1 series redeemable convertible preference shares issued of $249.8 million. At the date of the exchange, the holders of the Legacy Canoo convertible notes agreed to forgive all unpaid and accrued interest through that date. The fair value was determined based on the most recent conversion price of the Legacy Canoo convertible debt for Legacy Canoo A series redeemable convertible preference shares and A-1 series redeemable convertible preference shares.
Exchange of Preference Shares:
Concurrently with the conversion of the Legacy Canoo convertible debt, 77.0 million Legacy Canoo Angel series redeemable convertible preference shares and 33.3 million Legacy Canoo seed series redeemable convertible preference shares were exchanged for 59.3 million Legacy Canoo A series redeemable convertible preference shares.
The Company quantitatively assessed the terms of the exchange and accounted for the exchange as an extinguishment of its Legacy Canoo Seed series redeemable convertible preference shares and Legacy Canoo Angel series redeemable convertible preference shares, and recorded the Legacy Canoo A series redeemable convertible preference shares at their fair values as of the recapitalization date. Accordingly, Legacy Canoo recognized a loss on extinguishment of $90.5 million as a deemed dividend to the Legacy Canoo redeemable convertible preference shareholders. The loss represents the difference between: (1) the $200.0 million aggregate carrying amount of the Legacy Canoo Seed series redeemable convertible preference shares and Legacy Canoo Angel series redeemable convertible preference shares immediately prior to the exchange; and (2) the $290.5 million fair value of the Legacy Canoo A series redeemable convertible preference shares issued. The fair value was determined based on the most recent conversion price of the Legacy Canoo convertible debt for the Legacy Canoo A series redeemable convertible preference shares. The loss on extinguishment first reduced Legacy Canoo’s additional paid-in capital (“APIC”) to zero and then the excess was recorded in accumulated deficit. When these Legacy Canoo A series preference shares were exchanged to Legacy Canoo ordinary shares on December 21, 2020, the $90.5 million of gain in the fair value of the Legacy Canoo A series preference shares and the corresponding loss of $90.5 million on extinguishment recorded to APIC and accumulated deficit for Legacy Canoo ordinary shares were net to zero dollar impact within APIC and accumulated deficit given the equity recast upon recapitalization. See Note 2 for additional discussion on the recapitalization recast.
Dividends
The holders of the Legacy Canoo redeemable convertible preference shares were entitled to receive cumulative and compounding dividends in an amount equal to 8% of the original issuance price per share per annum. Dividends
accrued from day to day, whether or not declared, and were cumulative; provided, however, that such accrued dividends were payable only in the event of either a Liquidation Event or a Non-Liquidation Sale. Such cumulative dividends in arrears were approximately $42.0 million at December 21, 2020. For the years ended December 31, 2021 and 2020, no dividends were declared.
Exchange of A Series and A-1 Series Redeemable Convertible Preference Shares at The Business Combination
At the Business Combination on December 21, 2020, all 110.3 million shares of the Legacy Canoo A series and A-1 series redeemable convertible preference shares were exchanged into 110.3 million shares of Legacy Canoo ordinary shares, which were subsequently converted to 136.8 million shares of our Common Stock at the Exchange Ratio of 1.239434862. The cumulative dividends of $42.0 million accrued for the Legacy Canoo A series and A-1 series redeemable convertible preference shares at December 21, 2020 were not declared nor converted to our Common Stock.
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