Kaixin Holdings (KXIN) shares surged 21.61% in after-hours trading Tuesday, climbing to $3.77 after the company disclosed a securities purchase agreement tied to its latest acquisition.

The stock had closed the regular session at $3.10, down 25.48% on the day.

The Acquisition Structure

The after-hours rally followed a Form 6-K filing with the Securities and Exchange Commission detailing the deal. Kaixin's wholly owned subsidiary, Zhejiang Kaixin Auto Co., Ltd., will acquire 100% of the equity in Zhejiang Ordinary Smile Auto Sales Co., Ltd. from sole shareholder Fangle Lai.

The target company operates in the automobile wholesale and retail business.

How the Payment Works

Here's where it gets interesting: Kaixin will issue up to $15 million worth of newly issued Class A ordinary shares as payment. But the seller doesn't get everything upfront. The shares will be held in escrow by AUTOA2A, LTD. and released only when specific performance targets are met over five years.

The Performance Hurdles

According to the SEC filing, the target company faces escalating annual revenue requirements. It needs to hit RMB 665 million (about $94.2 million) in the first year, climbing to RMB 974 million ($137.9 million) by year five.

One-fifth of the consideration shares get released each year upon achieving the corresponding audited revenue target. Miss a target, and those shares stay locked up.

The Bigger Picture

Despite Tuesday's after-hours jump, KXIN shares are down 93.42% year to date. The Chinese holding company has a market capitalization of just $3.53 million and a 52-week trading range of $2.94 to $75.