AKAO 2017 Annual Report

132 The fair value was estimated at the grant date using a Monte-Carlo simulation model (“Monte-Carlo”), which requires the use of a range of assumptions. The expected life assumption is not used in the Monte-Carlo simulation model, but the output of the model indicates an expected term. The associated stock-based compensation expense is being recognized on a straight-line basis over the implicit service period (expected time to vest) derived from that simulation model. The fair value of awards granted to non-employees was estimated using Monte-Carlo with the following assumptions: Year Ended December 31, 2017 2016 Expected term ................................................................................. 0.5–3.5 years 2.2–6.0 years Expected volatility .......................................................................... 75-80% 70% Risk-free interest rate ...................................................................... 2.1–2.4% 1.4%–2.3% Expected dividend yield.................................................................. —% —% 11. Contingently Redeemable Common Stock In May 2017, the Company entered into a Common Stock Purchase Agreement with the Gates Foundation, pursuant to which the Company agreed to sell 407,331 shares of its contingently redeemable common stock (the “Shares”) to the Gates Foundation in a private placement at a purchase price per share equal to $24.55, for gross proceeds to the Company of $10.0 million (the “Gates Investment”). In connection with the Gates Investment, the Company entered into the Letter Agreement, which includes terms of Global Access Commitments (see Note 1). Under the Letter Agreement, if the Company defaults in its obligation to conduct certain mutually-agreed upon work, use the proceeds from the Gates Investment as described in the Letter Agreement, or otherwise triggers certain other events of default as described in the Letter Agreement (“Charitable Default”), subject to a cure period, the Gates Foundation will have the right to request that (a) the Company redeem, or facilitate the purchase by a third party of, the Shares then held by the Gates Foundation at a price per share equal to the greater of (i) the fair market value of the common stock (if the Shares are freely tradable, the closing price of the Company’s common stock on the trading day prior to the redemption or purchase, as applicable), or (ii) an amount equal to $24.55 plus a compounded annual return of 5% from the date of issuance of the Shares, or (b) if the Shares then held by the Gates Foundation are not freely tradeable, the Company register the resale of the Shares held by the Gates Foundation on an effective registration statement, subject to certain conditions and qualifications. The Company concluded that certain potential events of the Charitable Default are not solely within the control of the Company and, accordingly, has classified the Shares outside of permanent equity, as temporary equity (“Mezzanine Equity”). The 407,331 shares classified as Mezzanine Equity were recorded as contingently redeemable common stock at an initial carrying value equal to the gross proceeds of approximately $10.0 million, which approximated their fair value at the date of issuance. The Company has determined that the 407,331 shares of contingently redeemable common stock are not currently redeemable and that a Charitable Default is not currently probable. If, and at the time when, a Charitable Default becomes probable, then the Company will record a change in the carrying value to adjust it to the redemption value of the contingently redeemable common stock. At the time of such an occurrence, the contingently redeemable common stock will be adjusted to equal the redemption value at the end of each reporting period.