NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 1—Description
of Organization and Business Operations
Star Peak Energy Transition Corp., formerly known
as Star Peak Energy Acquisition Corp. (the “Company”), is a blank check company incorporated in Delaware on October 29,
2018 (inception) for the purpose of effecting a merger, capital stock exchange, asset acquisition, share purchase, reorganization or
similar business combination with one or more businesses (the “Business Combination”). While the Company may pursue an acquisition
opportunity in any business, industry, sector or geographical location, it intends to focus its efforts primarily on identifying businesses
seeking to be a market leader in, and/or benefit from the increasing global initiatives to improve the efficiency of our energy ecosystems
and reduce emissions (the “Energy Transition”). The Company is an emerging growth company and, as such, the Company is subject
to all of the risks associated with emerging growth companies.
On December 3, 2020, the Company entered
into an Agreement and Plan of Merger with STPK Merger Sub Corp., a newly formed Delaware corporation and wholly-owned subsidiary of the
Company, and Stem, Inc., a Delaware corporation. See the consumated Business Combination described below.
As of March 31, 2021, the Company had not
commenced any operations. All activity for the period from October 29, 2018 (inception) through March 31, 2021 relates to the
Company’s formation and the initial public offering (the “Initial Public Offering”) and since the closing of the Initial
Public Offering, the search for a prospective initial Business Combination. The Company temporary halted the Initial Public Offering
in September 2019 and recapitalized and continued in July 2020. The Company will not generate any operating revenues until
after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form
of interest income on investments held in trust account from the proceeds derived from the Initial Public Offering.
The Company’s sponsor is Star Peak Sponsor
LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public
Offering was declared effective on August 17, 2020. On August 20, 2020, the Company consummated its Initial
Public Offering of 35,000,000 units (the “Units” and, with respect to the Class A common stock included in
the Units being offered, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of $350.0 million,
and incurring offering costs of approximately $20.0 million, inclusive of approximately $12.3 million in deferred underwriting commissions
(Note 5). On August 26, 2020, the Company consummated the sale of 3,358,504 Units at the Initial Public Offering price
at $10.00 per Unit pursuant to the notice of partial exercise from the underwriters, generating additional gross proceeds of approximately
$33.6 million, and incurring additional offering costs of approximately $1.9 million, inclusive of approximately $1.2 million
in deferred underwriting commissions.
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (“Private Placement”) of 6,733,333 warrants (each,
a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.50 per Private
Placement Warrant to the Sponsor, generating gross proceeds of $10.1 million (Note 4). In connection with the consummation of the
sale of additional Units pursuant to the underwriters’ over-allotment option, on August 26, 2020, the Company sold 447,801
Private Placement Warrants to the Sponsor, generating additional gross proceeds of approximately $0.7 million.
Upon the closing of the Initial Public
Offering and the Private Placement on August 20, 2020, $350.0 million ($10.00 per Unit) of the net proceeds of
the sale of the Units in the Initial Public Offering and the Private Placement were placed in a trust account (“Trust
Account”), located in the United States at J.P. Morgan Chase Bank, N.A. with Continental Stock Transfer & Trust
Company acting as trustee, and invested only in U.S. “government securities” within the meaning of Section 2(a)(16)
of the Investment Company Act (the "Investment Company Act") having a maturity of 185 days or less or in money market funds
meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S.
government treasury obligations, until the earlier of: (i) the completion of a Business Combination and (ii) the
distribution of the assets held in the Trust Account as described below. Upon closing of the sale of Units and Private Placement
Warrants upon exercise of the over-allotment, on August 26, 2020, $34.3 million of the net proceeds of the sale of the
Units and Private Placement Warrants were placed in the Trust Account.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. If the Company’s securities are
listed on a national securities exchange, the Company must complete one or more initial Business Combinations having an aggregate fair
market value of at least 80% of the assets held in the Trust Account (as defined below) (excluding the deferred underwriting commissions
and taxes payable on income earned on the Trust Account) at the time of the agreement to enter into the initial Business Combination.
However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding
voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register
as an investment company under the Investment Company Act 1940, as amended.
Prior to consummation of the Merger, the
Company’s amended and restated certificate of incorporation provided that the Company would provide the
holders of its outstanding Class A common stock, par value $0.0001 (the “Class A common stock”), sold in the
Initial Public Offering (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public
Shares (as defined in Note 3) upon the completion of a Business Combination. The
Public Stockholders were entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust
Account (initially anticipated to be $10.00 per Public Share). These Public Shares were recorded at a redemption value and classified as temporary equity upon the
completion of the Initial Public Offering in accordance with the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.”
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Consummated Business
Combination
On
April 28, 2021, the Company and STPK Merger Sub Corp., a newly formed wholly-owned subsidiary of the Company, and Stem, Inc.,
a Delaware corporation (“Stem”), consummated the previously-announced merger pursuant to that certain Agreement and Plan
of Merger, dated December 3, 2020. See the Form 8-K, filed with the SEC on May 4, 2021 for additional information.
Liquidity, Capital
Resources and Going Concern
The accompanying unaudited
consolidated condensed financial statements have been prepared assuming the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and satisfaction of liabilities in the normal course of business. As of March 31,
2021, the Company had approximately $426,000 in its operating bank account and working capital deficit of approximately $1.7 million.
Further, the Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans.
The Company’s
liquidity needs to date have been satisfied through a capital contribution of $25,000 from the Sponsor to purchase the Founder
Shares (as defined below), the loan of up to $300,000 under the Note (see Note 4), and the net proceeds from the consummation of the
Private Placement not held in the Trust Account. The Company fully repaid the Note on August 20, 2020. In addition, in order to
finance transaction costs in connection with a Business Combination, the Company’s officers, directors and initial
stockholders may, but are not obligated to, provide the Company Working Capital Loans (see Note 4). To date, there have been no
borrowings under any Working Capital Loans.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In connection with the
Company’s assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ASU”) 2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined
that the lack of liquidity raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments
have been made to the carrying amounts of assets or liabilities.
Management continues
to evaluate the impact of the COVID-19 pandemic and has concluded that the specific impact is not readily determinable as of the date
of the balance sheet. The unaudited consolidated condensed financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Note 2—Basic
of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited
consolidated condensed financial statements of the Company, including the accounts of the Company’s wholly-owned subsidiary, STPK
Merger Sub Corp, have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”)
for interim financial information and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by U.S. GAAP. all adjustments (consisting of normal accruals) considered for a fair presentation have been included. All intercompany
accounts and transactions have been eliminated in consolidation. In the opinion of management, operating results for the periods presented
are not necessarily indicative of the results that may be expected for the year ending December 31, 2021, or any other future period.
The accompanying unaudited consolidated condensed
financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s
Annual Report on Form 10K/A filed with the SEC on April 26, 2021.
Emerging Growth
Company
The Company is an “emerging
growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of
the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company
has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different
application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard
at the time private companies adopt the new or revised standard.
This may make comparison
of the Company’s unaudited consolidated condensed financial statements with another public company that is neither an emerging
growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because
of the potential differences in accounting standards used.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Use of Estimates
The preparation of unaudited
consolidated condensed financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date
of the unaudited consolidated condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect
of a condition, situation or set of circumstances that existed at the date of the unaudited consolidated condensed financial statements,
which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly,
the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. There were no cash equivalents at March 31,
2021 and December 31, 2020.
Investments Held in Trust Account
The Company’s portfolio of investments
is comprised solely of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act,
with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities, or a combination
thereof. The Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented
on the consolidated condensed balance sheets at fair value at the end of each reporting period. Gains and losses resulting
from the change in fair value of these securities is included in gain on investment (net), dividends and interest held in Trust Account
in the accompanying unaudited consolidated condensed statements of operations. The estimated fair values of investments held in the Trust
Account are determined using available market information.
Concentration
of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at
times, may exceed the Federal Depository Insurance Coverage of $250,000, and investments held in Trust Account. The Company has not experienced
losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of
Financial Instruments
Fair value is defined
as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market
participants at the measurement date. U.S. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring
fair value.
The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
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Level 1,
defined as observable inputs such as quoted prices for identical instruments in active markets;
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Level 2,
defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices
for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
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Level 3,
defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,
such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
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In some circumstances,
the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances,
the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant
to the fair value measurement.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
As of March 31,
2021 and December 31, 2020, the carrying values of cash, accounts payable, accrued expenses, and franchise tax payable approximate
their fair values due to the short-term nature of the instruments. The Company’s portfolio of investments held in the Trust Account
is comprised of investments in U.S. Treasury securities with an original maturity of 185 days or less or investments in money market
funds that invest in U.S. government securities, or a combination thereof. The fair value for trading securities is determined using
quoted market prices in active markets.
Offering Costs
Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and
other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are
allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared
to total proceeds received. Offering costs associated with warrant liabilities are expensed as incurred, presented as non-operating expenses
in the statements of operations. Offering costs associated with the Class A common stock were charged to stockholders’ equity upon
the completion of the Initial Public Offering.
Class A Common
Stock Subject to Possible Redemption
The Company accounts
for its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing
Liabilities from Equity.” Class A common stock subject to mandatory redemption (if any) is classified as a liability instrument
and measured at fair value. Shares of conditionally redeemable Class A common stock (including Class A common stock that features
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company’s control) are classified as temporary equity. At all other times, Class A common stock are classified
as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to
be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at March 31, 2021
and December 31, 2020, 8,640,832 and 24,275,528 shares of Class A common stock subject to possible redemption are presented
as temporary equity, respectively, outside of the stockholders’ equity section of the Company’s consolidated condensed
balance sheets.
Income Taxes
The Company complies with the accounting and
reporting requirements of Financial Accounting Standards Board Accounting Standard Codification, or FASB ASC, 740, “Income Taxes,”
which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment
date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in
a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing
authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense.
Net Income (Loss)
Per Share of Common Stock
Net income (loss) per share of common stock
is computed by dividing net income (loss) by the weighted-average number of common stock outstanding during the periods. The Company
has not considered the effect of the warrants sold in the Initial Public Offering and the Private Placement to purchase up to an
aggregate of 19,967,302 shares of the Company’s Class A common stock in the calculation of the diluted income per share,
since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted earnings per share of common
stock is the same as basic earnings per share of common stock for the periods presented.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company’s unaudited consolidated condensed
statements of operations include a presentation of income (loss) per share for common stock subject to redemption in a manner similar
to the two-class method of income (loss) per share. Net income per share, basic and diluted for Class A common stock is calculated
by dividing the gain on investment (net), dividends and interest held in Trust Account of approximately $35,000, net of applicable taxes
available to be withdrawn from the Trust Account of approximately $35,000, by the weighted average number of Class A common stock
outstanding for the three months ended March 31, 2021. Net loss per share, basic and diluted for Class B common stock is calculated
by dividing the net loss of approximately $156.3 million and $0 for the three months ended March 31, 2021 and 2020, respectively,
less income attributable to Class A common stock of $0 for each period, by the weighted average number of Class B common stock
outstanding for the periods.
Derivative warrant liabilities
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments,
including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should
be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Company accounts for its
19,967,302 common stock warrants issued in connection with its Initial Public Offering (12,786,168) and Private Placement (7,181,134)
as derivative warrant liabilities in accordance with ASC 815-40. Accordingly, the Company recognizes the warrant instruments as liabilities
at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each
balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the Private Placement Warrants have been estimated
using a Monte Carlo simulation model each measurement date. The fair value of the warrants issued in connection with the Public Offering
were initially measured at fair value using a Monte Carlo simulation model and subsequently measured based on the listed market price
of such warrants.
Recent Adopted
Accounting Standards
In August 2020, the FASB issued Accounting Standards Update (“ASU”)
No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),
which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also
removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and
it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption
of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Recent Issued
Accounting Standards
The Company’s management does not believe
that any recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on
the accompanying financial statement.
Note 3—Initial
Public Offering
Public Units
On August 20,
2020, the Company consummated its Initial Public Offering of 35,000,000 Units at $10.00 per Unit, generating gross proceeds
of $350.0 million, and incurring offering costs of approximately $20.0 million, inclusive of approximately $12.3 million
in deferred underwriting commissions. On August 26, 2020, the Company consummated the sale of 3,358,504 Units at the Initial
Public Offering price at $10.00 per Unit pursuant to the notice of partial exercise from the underwriters, generating additional gross
proceeds of approximately $33.6 million, and incurring additional offering costs of approximately $1.9 million, inclusive of approximately
$1.2 million in deferred underwriting commissions.
Each Unit consists of
one share of Class A common stock (such shares of Class A common stock included in the Units being offered, the “Public
Shares”), and one-third of one redeemable warrant (each, a “Public Warrant”). Each whole Public Warrant entitles the
holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 6).
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Note 4—Related
Party Transactions
Founder Shares
On November 8,
2018, the Sponsor purchased 2,875,000 shares (the “Founder Shares”) of the Company’s Class B common stock, par
value $0.0001 per share, for an aggregate price of $25,000. On July 13, 2020, the Company effected a stock split resulting in the
Sponsor holding 10,062,500 Founder Shares. All shares and the associated amounts have been retroactively restated to reflect the aforementioned
stock split. On July 29, 2020, the Sponsor transferred 40,000 Founder Shares to each of Desirée Rogers and C. Park Shaper,
the Company’s independent director nominees. The initial stockholders agreed to forfeit up to 1,312,500 Founder Shares to the extent
that the over-allotment option is not exercised in full by the underwriters, so that the Founder Shares would represent 20% of the outstanding
shares after the Initial Public Offering. The underwriters partially exercised their over-allotment option on August 26, 2020, with
the remaining portion of the over-allotment option expiring at the conclusion of the 45-day option period. As a result, an aggregate
of 472,874 Founder Shares were forfeited upon the expiration of the over-allotment option.
The Founder Shares
automatically converted into common stock on a one-for-one basis at the time of the Merger and are subject to certain transfer
restrictions, as described below.
The initial
stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares, or shares of
common stock issued upon conversion there of, until the earlier to occur of: (A) one year after the completion of the initial
Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of the Class A
common stock equals or exceeds $12.00 per share (as adjusted for share splits, share dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business
Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar
transaction that results in all of the Company’s stockholders having the right to exchange their common stock for cash,
securities or other property.
Private Placement
Warrants
Simultaneously with
the closing of the Initial Public Offering, the Company consummated the Private Placement of 6,733,333 Private Placement Warrants
at a price of $1.50 per Private Placement Warrant to the Sponsor, generating gross proceeds of $10.1 million. In connection with
the consummation of the sale of additional Units pursuant to the underwriters’ over-allotment option, on August 26, 2020,
the Company sold an additional 447,801 Private Placement Warrants to the Sponsor, generating additional gross proceeds of approximately
$0.7 million.
Each Private Placement
Warrant is exercisable for one share of Class A common stock at a price of $11.50 per share. A portion of the proceeds from the
sale of the Private Placement Warrants will be added to the proceeds from the Initial Public Offering to be held in the Trust Account.
If the Company does not complete a Business Combination within the Combination Period, the Private Placement Warrants will expire worthless.
The Private Placement Warrants will be non-redeemable and exercisable on a cashless basis so long as they are held by the Sponsor or
its permitted transferees.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Sponsor and the
Company’s officers and directors have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private
Placement Warrants until 30 days after the completion of the initial Business Combination.
Related Party
Loans
The Company’s
Sponsor has agreed to loan the Company up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory
note, dated November 8, 2018 and later amended on July 10, 2020 (the “Note”). This loan is non-interest bearing
and payable upon the completion of the Initial Public Offering. In 2018 and 2019, the Company borrowed approximately $182,000 under the
Note and repaid approximately $125,000 when it temporary halted the Initial Public Offering in September 2019. The Company recapitalized
and continued in July 2020, and borrowed an additional of $235,000 under the Note. The Company fully repaid the remaining balance
the Note of approximately $292,000 on August 20, 2020.
In addition, in order
to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the
Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital
Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds
of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the
Trust Account. In the event that a Business Combination is not completed, the Company may use a portion of the proceeds held outside
the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital
Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements
exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without
interest, or, at the lenders’ discretion, up to $1.5 million of such Working Capital Loans may be convertible into warrants
of the post Business Combination entity at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants.
As of March 31, 2021 and December 31, 2020, no Working Capital Loan was outstanding.
Administrative
Service Agreement
Commencing on the date that the Company’s
securities were first listed on the NYSE, the Company agreed to pay an affiliate of the Sponsor of total $10,000 per month for office
space, utilities, secretarial support and administrative services. Upon completion of the initial Business Combination or the liquidation,
the Company will cease paying these monthly fees. The Company incurred approximately $30,000 in administrative expenses under the agreement,
which is recognized in the accompanying unaudited consolidated condensed statements of operations for the three months ended March 31,
2021 within general and administrative expenses – related party. As of March 31, 2021 and December 31, 2020, there were
$0 and $50,000 in accounts payable – related party outstanding, as reflected in the accompanying consolidated condensed
balance sheets.
Note 5—Commitments and
Contingencies
Registration Rights
The holders of Founder
Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any, are entitled to
registration rights (in the case of the Founder Shares, only after conversion of such shares into Class A common stock) pursuant
to the registration and shareholder rights agreement. These holders will be entitled to certain demand and “piggyback” registration
rights. However, the registration and shareholder rights agreement provides that the Company will not permit any registration statement
filed under the Securities Act to become effective until the termination of the applicable lock-up period for the securities to be registered.
The Company will bear the expenses incurred in connection with the filing of any such registration statements.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Underwriting Agreement
The Company granted
the underwriters a 45-day option from the closing date of the Initial Public Offering to purchase up to 5,250,000 additional Units to
cover over-allotments, if any, at $10.00 per Unit, less underwriting discounts and commissions. On August 26, 2020, the Company
consummated the sale of an additional 3,358,504 Units at the Initial Public Offering price at $10.00 per Unit pursuant to the notice
of partial exercise from the underwriters.
The underwriters were
entitled to an underwriting discount of $0.20 per Unit, or $7.0 million in the aggregate, paid upon the closing of the Initial Public
Offering. In addition, $0.35 per Unit, or approximately $12.3 million in the aggregate will be payable to the underwriters for deferred
underwriting commissions. The deferred underwriting commissions became payable to the underwriters from the amounts held in the
Trust Account in connection with the consummation of the Business Combination on
April 28, 2021.
In connection with the
consummation of the sale of Units pursuant to the over-allotment option on August 26, 2020, the underwriters were entitled to an
aggregate of approximately $0.7 million in fees payable upon closing and an additional deferred underwriting commissions of approximately
$1.2 million.
Note 6—Stockholders’
Equity
Class A
common stock — The Company is authorized to issue 400,000,000 Class A common stock with a par value of
$0.0001 per share. As of March 31, 2021 and December 31, 2020, there were 38,358,504 shares of Class A common stock outstanding,
including 8,640,832 and 24,275,528 shares of Class A common stock subject to possible redemption that were classified as temporary
equity in the accompanying unaudited consolidated condensed balance sheets, respectively.
Class B
common stock — The Company is authorized to issue 40,000,000 shares of Class B common stock with a par
value of $0.0001 per share. On July 13, 2020, the Company effected a stock split resulting in the Sponsor holding 10,062,500 shares
of Class B common stock. All shares and the associated amounts have been retroactively restated to reflect the aforementioned stock
split. Of the 10,062,500 shares of Class B common stock outstanding, up to 1,312,500 shares were subject to forfeiture to the Company
by the Sponsor for no consideration to the extent that the underwriters’ over-allotment option is not exercised in full or in part,
so that the initial stockholders would collectively own 20.0% of the Company’s issued and outstanding common stock after the Initial
Public Offering. The underwriters partially exercised their over-allotment option on August 26, 2020, with the remaining portion
of the over-allotment option expiring at the conclusion of the 45-day option period. As a result, an aggregate of 472,874 Founder Shares
were forfeited upon the expiration of the over-allotment option.
Common stockholders
of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of the Class A common
stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders
except as required by law.
Preferred
Stock — The Company is authorized to issue 1,000,000 shares of preferred stock, with such designations, voting
and other rights and preferences as may be determined from time to time by the Company’s board of directors. As of March 31,
2021 and December 31, 2020, there were no shares of preferred stock issued or outstanding.
Warrants
— Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be
issued upon separation of the Units and only whole Public Warrants will trade. The Public Warrants will become exercisable on the later
of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public
Offering; provided in each case that the Company has an effective registration statement under the Securities Act covering the Class A
common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permits
holders to exercise their Public Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities
Act). The Company has agreed that as soon as practicable, but in no event later than 20 business days, after the closing of a Business
Combination, the Company will use its commercially reasonable efforts to file with the SEC a registration statement for the registration,
under the Securities Act, of the Class A common stock issuable upon exercise of the Public Warrants. The Company will use its commercially
reasonable efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current
prospectus relating thereto, until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement.
If a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective by the sixtieth
(60th) day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration
statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants
on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. The Public
Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Redemption
of Warrants when the price per Class A common stock equals or exceeds $18.00. Once the warrants become exercisable,
the Company may redeem the Public Warrants (except as described herein with respect to the Private Placement Warrants):
|
·
|
in whole and not in part;
|
|
·
|
at a price of $0.01 per
warrant;
|
|
·
|
upon a minimum of 30 days’
prior written notice of redemption; and
|
|
·
|
if, and only if, the reported
closing price of the Company’s Class A common stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading
days within a 30-trading day period ending three trading days prior to the date on which the Company sends the notice of redemption
to the warrant holders
|
The Company will not redeem the warrants as described
above unless a registration statement under the Securities Act covering the issuance of the Class A common stock issuable upon exercise
of the warrants is then effective and a current prospectus relating to those Class A common stock is available throughout the 30-day
redemption period. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it
is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption
of Warrants when the price per Class A common stock equals or exceeds $10.00. Once the warrants become exercisable, the
Company may redeem the outstanding Public Warrants:
|
·
|
in whole and not in part;
|
|
·
|
at $0.10 per warrant upon
a minimum of 30 days’ prior written notice of redemption; provided that holders will be able to exercise
their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the “fair
market value” of the Company’s Class A common stock;
|
|
·
|
if, and only if, the last
reported sale price (the “closing price”) of the Company’s Class A common stock equals or exceeds $10.00 per
Public Share (as adjusted) for any 20 trading days within the 30-trading day period ending three trading days before the Company
sends the notice of redemption to the warrant holders; and
|
|
·
|
if the closing price of
the Class A common stock for any 20 trading days within a 30-trading day period ending on the third trading day prior to the
date on which we send the notice of redemption to the warrant holders is less than $18.00 per share (as adjusted), the Private Placement
Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above.
|
If and when the Public Warrants become redeemable
by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for
sale under all applicable state securities laws.
The exercise price and number of common stock
issuable upon exercise of the Public Warrants may be adjusted in certain circumstances, including in the event of a share dividend, or
recapitalization, reorganization, merger or consolidation. However, except as described below, the Public Warrants will not be adjusted
for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash
settle the warrants. If the Company has not completed a Business Combination within the Combination Period and the Company liquidates
the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their Public Warrants, nor
will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants.
Accordingly, the warrants may expire worthless.
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In addition, if (x) the Company issues additional
Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination
at an issue price or effective issue price of less than $9.20 per common stock (with such issue price or effective issue price to be
determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates,
without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly
Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds,
and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net
of redemptions), and (z) the volume weighted average trading price of the Class A common stock during the 20 trading day period
starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”)
is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher
of the Market Value and the Newly Issued Price, the $18.00 per share redemption trigger price and the “Redemption of Warrants when
the price per Class A common stock equals or exceeds $10.00” described above will be adjusted (to the nearest cent) to be
equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price described
above under “Redemption of Warrants when the price per Class A common stock equals or exceeds $10.00” will be adjusted
(to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants will be identical
to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Placement Warrants and
the Class common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable
until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement
Warrants will be exercisable on a cashless basis and be non-redeemable (except as described above under “Redemption of Warrants
when the price per Class A common stock equals or exceeds $10.00”) so long as they are held by the initial purchasers or their
permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees,
the Private Placement Warrants will be redeemable under all redemption scenarios by the Company and exercisable by such holders on the
same basis as the Public Warrants.
Note 7—Fair
Value Measurements
The following table presents information about
the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2021 and
indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
|
|
Fair Value Measured as of March 31, 2021
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account - U.S. Treasury Securities
|
|
$
|
383,585,733
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
383,585,733
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities - public warrants
|
|
|
171,878,063
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,878,063
|
|
Warrant liabilities - private warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
104,995,656
|
|
|
|
104,995,656
|
|
Total fair value
|
|
$
|
555,463,796
|
|
|
$
|
-
|
|
|
$
|
104,995,656
|
|
|
$
|
660,459,452
|
|
The following table presents information about
the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2020
by level within the fair value hierarchy:
|
|
Fair Value Measured as of December 31, 2020
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments held in Trust Account - U.S. Treasury Securities
|
|
$
|
383,721,747
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
383,721,747
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities - public warrants
|
|
|
64,339,997
|
|
|
|
-
|
|
|
|
-
|
|
|
|
64,339,997
|
|
Warrant liabilities - private warrants
|
|
|
-
|
|
|
|
-
|
|
|
|
56,751,981
|
|
|
|
56,751,981
|
|
Total fair value
|
|
$
|
448,061,744
|
|
|
$
|
-
|
|
|
$
|
56,751,981
|
|
|
$
|
504,813,725
|
|
STEM, INC.
(Formerly Known as
Star Peak Energy Transition Corp.)
NOTES TO UNAUDITED
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Transfers to/from Levels 1, 2, and 3 are recognized
at the end of the reporting period. There were no transfers between levels for the three months ended March 31, 2021.
The fair value of the Private Placement Warrants have been estimated
using a Monte Carlo simulation model each measurement date. The fair value of the warrants issued in connection with the Public Offering
were initially measured at fair value using a Monte Carlo simulation model and subsequently measured based on the listed market price
of such warrants. The Company estimate the fair value of the warrants at each reporting period, with changes in fair value recognized in
the statements of operations. For the three months ended March 31, 2021, the Company recognized a charge from an increase in the
fair value of liabilities of approximately $155.8 million presented as change in fair value of derivative warrant liabilities on the
accompanying statements of operations.
The change in the fair value
of the derivative warrant liabilities for three months ended March 31, 2021 is summarized as follows:
Warrant liabilities at December 31, 2020
|
|
$
|
121,091,978
|
|
Change in fair value of warrant liabilities
|
|
|
155,781,741
|
|
Warrant liabilities at March 31, 2021
|
|
$
|
276,873,719
|
|
The estimated fair value of the
derivative warrant liabilities is determined using Level 3 inputs. Inherent in a Monte-Carlo simulation are assumptions related to expected
stock-price volatility, expected life, risk-free interest rate, dividend yield, probability of completing a Business Combination
and discount for lack of marketability. The Company estimates the volatility of its common
stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free
interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining
life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend
rate is based on the historical rate, which the Company anticipates remaining at zero. The Company estimates the probability of completing a Business Combination
to be 95.0% based on its proposed business combination.
The following table provides quantitative information
regarding Level 3 fair value measurements inputs as their measurement dates:
|
|
As of March 31, 2021
|
|
Exercise price
|
|
$
|
11.50
|
|
Stock Price
|
|
$
|
20.58
|
|
Term (in years)
|
|
|
5.09
|
|
Volatility
|
|
|
15.00
|
%
|
Risk-free interest rate
|
|
|
0.94
|
%
|
Dividend yield
|
|
|
-
|
|
Probability of completing a Business Combination
|
|
|
95.00
|
%
|
Discount for lack of marketability
|
|
|
1.5
|
%
|
Note 8—Subsequent
Events
The Company evaluated subsequent
events and transactions that occurred after the balance sheet date up to the date that the unaudited consolidated condensed financial
statements were available to be issued, and determined that there have been no events that have occurred that would require adjustments
to the disclosures in the unaudited consolidated condensed financial statements, except as noted below.
On
April 28, 2021, the Company and STPK Merger Sub Corp., a newly formed wholly-owned subsidiary of the Company, and Stem, Inc.,
a Delaware corporation, consummated the previously-announced merger pursuant to that certain Agreement and Plan of Merger, dated December 3,
2020.