Derivative Liability

12 Months Ended

Sep. 30, 2018

Derivative Liability [Abstract]

Derivative Liability

16. Derivative Liability

The Company’s Board of Directors adopted the Inspired Entertainment, Inc. 2018 Omnibus Incentive Plan (the “Third Incentive Plan”) in September 2018 subject to the approval by the Company’s stockholders, and approved initial grants of restricted stock units (“RSUs”) thereunder to members of management and other participants in the aggregate amount of 534,188 shares contingent on approval by the Company’s stockholders. These awards of RSUs are scheduled to vest in one-third installments on each of December 31, 2019, 2020 and 2021; however, in the event the Company’s stockholders do not approve the plan by December 31, 2019, the first scheduled vesting date, the awards will be cancelled and award recipients would be eligible to receive a cash payment (provided they remain service providers to the Company) with respect to the value of one-third of the RSUs (to be determined based on the volume weighted average price of the Company’s common stock over the 30 trading days prior to the date of cancellation). This contingent cash payment obligation, which is not within the Company’s control, in conjunction with the cancellation of RSUs results in the awards being classified as a derivative liability until stockholder approval is obtained with fair value changes being recorded in the consolidated statements of operations and comprehensive loss. The fair value of the liability is calculated based on the value of the underlying common stock which was $6.10 per share on the grant date. Until stockholder approval is obtained, these awards are not considered issued and outstanding equity grants.

In addition, the awards of RSUs that were granted under the Company’s Second Long-Term Incentive Plan (“Second Incentive Plan”) prior to approval by the Company’s stockholders, which was obtained in March 2018, were initially classified as a derivative liability due to the Company’s obligation to settle those awards in cash in the event stockholders did not approve the plan. The awards under the Second Incentive Plan included RSUs approved at the time of the Merger and RSUs approved in December 2017 for the Company’s Executive Chairman and Chief Strategy Officer in connection with the cancellation of awards of restricted stock they received under the Company’s 2016 Long-Term Incentive Plan (the “First Incentive Plan”) (see Note 18). The awards of RSUs to such executives under the Second Incentive Plan were considered a modification that resulted in the original classification of their awards as an equity instrument being switched to a liability instrument, and in $1,482 of previously recognized compensation expense being reclassified from additional paid in capital to derivative liability. The derivative liability associated with awards under the Second Incentive Plan was eliminated upon stockholder approval, and the liability was reclassified to additional paid in capital at the fair value amount of $2,848 during the year ended September 30, 2018.

See Note 13, “Derivatives and Hedging Activities,” for a discussion of the Company’s cross-currency swap.