Company: AIRJW
Filing Date: 2025-03-25
Form Type: 10-K
Source: 0001013762-25-002263
Chunk: 492

Company: AirJoule Technologies Corp.
Filing Date: 2025-03-25
Form: 10-K
Item: Item 1C
Chunk 492
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 vesting condition being satisfied
or deemed probable.

Earnout Shares Liability

In connection with the reverse recapitalization and pursuant to the
Merger Agreement, eligible former Predecessor equity holders are entitled to receive the Earnout Shares upon us achieving certain Earnout
Milestones. The settlement of the Earnout Shares to the holders of the Predecessor’s common units contain variations in something
other than the fair value of the issuer’s equity shares. As such, management determined that they should be classified as a liability
and recognized at fair value at each reporting period with changes in fair value included in earnings.

We estimated fair value of the Earnout Shares with a Monte Carlo simulation
using a distribution of potential outcomes for expected earnings before interest, taxes, depreciation, and amortization, or EBITDA, and
stock price at expected commission dates, utilizing a correlation coefficient for EBITDA and stock price, and assuming $50.0 million of
Annualized EBITDA per production line, with each of the production lines commissioned over a five-year period. EBITDA was discounted to
the valuation date with a weighted average cost of capital estimate and forecasted to each estimated commission date. Earnout mechanics
at each estimated commission date were assessed, and if the Earnout Thresholds were achieved, the future value of the Earnout Shares was
discounted to the valuation date utilizing a risk-free rate commensurate with the overall term. Expected EBITDA assumes that each production
line will achieve equivalent production generating $50.0 million of Annualized EBITDA. The commission dates used reflected management’s
best estimates regarding the time to complete full construction and operational viability of a production line, including all permitting,
regulatory approvals and necessary or useful inspections. The Earnout term of 5 years and the Earnout mechanics represent contractual
inputs. The contingent Earnout Shares liability involves certain assumptions requiring significant judgment and actual results may differ
from assumed and estimated amounts.

Derivative Financial Instruments and Other
Financial Instruments Carried at Fair Value

We do not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. We evaluate all of its financial instruments, including the True Up Shares issued in connection with
the Subscription Agreement and the Subject Vesting Shares issued in connection with the Business Combination, to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 (defined below) and FASB ASC 815, Derivatives
and Hed