CONVERTIBLE LOAN WITH SHAREHOLDER MEASURED AT FAIR VALUE

9 Months Ended

Sep. 30, 2024

Related Party Transactions [Abstract]

CONVERTIBLE LOAN WITH SHAREHOLDER MEASURED AT FAIR VALUE

CONVERTIBLE LOAN WITH SHAREHOLDER MEASURED AT FAIR VALUE

On May 28, 2024, Microvast Inc. entered into a $25,000 convertible loan agreement ("Loan Agreement") with Mr. Yang Wu, the Company’s Chief Executive Officer and Chairman.

The loan includes an Initial Term Loan of $12,000 and a Delayed Draw Term Loan of $13,000 at an initial interest rate equal to Secured Overnight Financing Rate ("SOFR"), plus an initial Applicable Margin of 9.75% per annum, 3.75% of which shall be paid in kind rather than in cash. The maturity date is November 28, 2025, which may be accelerated upon the occurrence and continuance of an event of default in accordance with the terms of the Loan Agreement. The Loan Agreement also provides Mr. Wu with the right to convert the outstanding principal balance of the Loan, into shares of common stock at an initial conversion rate equal to two shares of Common Stock per $1.00 of principal amount to be converted.

The Initial Term Loans of $12,000 was received in May 2024 and the Delayed Draw Term loan of $13,000 was received in July 2024.

The loan is secured by a first priority security interest in substantially all of its assets by Microvast Inc. and all other entities within the Group as guarantors.

The Group has elected fair value option to account for the convertible loan. Direct costs and fees related to the convertible loan were expensed as incurred. The fair value was determined by using a discounted cash flow model for the bond component and a Black-Scholes-Merton model for the conversion option, which is considered a Level 3 fair value measurement. Subsequent changes in the fair value are recorded as gains (losses) in the unaudited condensed consolidated statement of operation. During the three and nine months ended September 30, 2024, a gain of $2,764 and $1,174 on fair value change of convertible loan with shareholder was recorded, respectively. The outstanding balance for the Convertible loan with shareholder was $24,423 as of September 30, 2024.

In connection with the convertible loan from Mr. Wu Yang, on May 28, 2024, the Company issued to Mr. Wu a warrant exercisable for 5,500,000 shares of Common Stock at an initial exercise price of $2.00 per share. The warrant expires on May 28, 2029. No warrants were exercised during the period ended September 30, 2024. As of September 30, 2024, 5,500,000 warrants were outstanding and the Group recorded the warrant value of $779 in additional paid in capital. Equity classified warrants were recorded at fair value at issuance with no changes recognized subsequent to the issuance date.

The significant input of the discounted cash flow model for the bond component is the discount rate. Below are the key inputs used in Black-Scholes-Merton model for the conversion option:

	September 30, 2024
Market price of public stock	$	0.25
Exercise price	$	0.50
Expected term (years)	1.16
Volatility	55.50		%
Risk-free interest rate	3.85		%
Dividend rate	0.00		%

The market price of public stock is the quoted market price of the Company’s Common Stock as of the valuation date. The exercise price is extracted from the warrant agreements. The expected term is derived from the exercisable years based on the warrant agreements. The expected volatility is estimated using a blend of the average volatility of peer companies and the Company's historical volatility. The risk-free interest rate was estimated based on the market yield of U.S. Government Bond with maturity close to the expected term of the warrants. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the warrants.