NOTE 5 —SENIOR NOTES

In December 2014, the Company sold and issued 85,350 Units of Convertible Notes (the “Notes”) with warrants (the “Notes Warrants”) to qualified buyers pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, of which 23,750 Units were sold and issued to related parties, including several directors and each of our named executive officers. The Convertible Notes are unsecured obligations and are senior to any of the Company's future secured obligations to the extent of the value of the collateral securing such obligations.

The transaction value of $8.5 million was allocated between debt for the Convertible Notes and equity for the Notes Warrants based on the relative fair value of the two instruments. This resulted in recording $0.8 million in Additional Paid In Capital for the relative fair value of the Notes Warrants and $7.7 million as Convertible Notes. The Company received net proceeds from the sale of the Convertible Notes of approximately $8.0 million, after deducting offering expenses of approximately $0.5 million, which was allocated between debt and equity, As a result, the Company recognized $0.4 million as Debt Issuance Costs to be amortized over the expected redemption period, and $0.1 million recognized as a reduction to Additional Paid in Capital. Net proceeds from the sale were used to fund ongoing operations.

The Convertible Notes bore interest at a rate of 10.0% per annum, payable in cash quarterly in arrears on each March 31, June 30, September 30, and December 31. The Convertible Notes mature on December 26, 2019 unless earlier redeemed, repurchased or converted. The Convertible Notes for were redeemable by the Company for cash, either in whole or in part, at any time, in exchange for the sum of (i) a cash payment equal to the unpaid principal plus all accrued but unpaid interest through the date of redemption and (ii) the present value of the remaining scheduled interest payments discounted to the maturity date at the annual percentage yield on U.S. Treasury securities with maturity similar to the notes plus 25 basis points (the “Optional Redemption”). The Convertible Notes were mandatorily redeemable at par plus the present value of remaining coupons upon (i) the availability of cash from a financing for Mt. Hope and (ii) any other debt financing by the Company. In addition, 50% of any proceeds from the sale of assets cumulatively exceeding $250,000 were to be used to prepay the Convertible Notes at par plus the present value of remaining coupons (the “Mandatory Redemption”).

The Convertible Notes were convertible at any time in an amount equal to 80% of the greater of (i) the average VWAP for the 30 Business Day period ending on the Business Day prior to the date of the conversion, or (ii) the average VWAP for the 30 Business Day period ending on the original issuance date of this note. Each Convertible Note will convert into a maximum of 100 shares per note, resulting in the issuance of 8,535,000 shares, or 9.3% of shares outstanding (the “Conversion Option”). General Moly’s executive management team and board of directors who participated in the offering were restricted from converting at a price less than $0.32, the most recent closing price at the time that the Convertible Notes were issued.

If the Company underwent a “fundamental change”, the Convertible Notes were to be redeemed for cash at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased plus accrued and unpaid interest, including contingent interest and additional amounts, if any. Examples of a “fundamental change” include the reclassification of the common stock, consolidation or merger of the Company with another entity or sale of all or substantially all of the Company’s assets.

During the year ended December 31, 2015, certain holders of the Convertible Notes, including both directors and named executive officers of the Company, elected to convert notes totaling $2.6 million, reducing the principal balance of the Convertible Notes to $5.9 million. Upon conversion, the Convertible Notes holders received 2,625,000 shares of common stock, at conversion prices ranging from $0.3462 to $0.5485, and were issued non-convertible Senior Promissory Notes (“Promissory Notes”) of $1.3 million, pursuant to the terms of the share maximum provision of the Conversion Option. The Promissory Notes have identical terms to the Convertible Notes, with the exception that the holder no longer has a Conversion Option. Accordingly, the Promissory Notes bore interest equal to 10.0% per annum, payable in cash quarterly in arrears on each March 31, June 30, September 30, and December 31 and mature on December 26, 2019. The conversions resulted in a $0.2 million annual reduction in interest payments made by the Company in the servicing of the Convertible Notes.

On December 27, 2019, the Company closed the Exchange Offer, upon the terms and subject to the conditions set forth in the confidential Offer to Exchange and Subscription Offer dated November 27, 2019.

Eligible holders tendered Old Notes with an original principal amount of $6.89 million of the total outstanding of $7.25 million, representing 95% of the outstanding, in the Exchange Offer. For each $1 principal amount of, and accrued and unpaid interest on, Old Notes tendered and accepted by the Company, one unit consisting of $1 principal amount of Exchange Notes and one New Warrant was settled. The Exchange Notes bear interest at an initial rate of 12% per annum. Interest on the Exchange Notes will be paid on March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 2020. The Exchange Notes will mature on December 26, 2022, unless otherwise earlier redeemed. Each New Warrant is exercisable for one share of Common Stock at a price of $0.35 per share for a period of three years. One New Warrant was issued for each dollar of original principal amount of, and accrued and unpaid interest on, Old Notes exchanged for Exchange Notes for a total of 7.2 million New Warrants issued.

The Company paid at maturity the unpaid principal and all accrued and unpaid interest in the approximate amount of $368,000 to those eligible holders that elected not to participate in the Exchange Offer. The original principal amount of Old Notes paid at maturity represented approximately 5% of the total outstanding. The maturity date was December 26, 2019. The Notes Warrants issued in connection with the Old Notes expired by their terms on December 26, 2019.

The Company may redeem the Exchange Notes for cash, either in whole or in part, at any time, in exchange for the sum of (i) 101% of the amount of unpaid principal and (ii) all accrued but unpaid interest through the date of redemption. The Exchange Notes are mandatorily redeemable (i) upon obtaining debt or equity financing sufficient to cover the construction of Mt. Hope and (ii) upon a “fundamental change” such as a reclassification of the common stock, consolidation or merger of the Company with another entity or sale of all or substantially all of the Company’s assets. In addition, 50% of the proceeds exceeding a specified threshold amount of approximately $6.3 million from a financing in which the Company issues debt securities senior to the Exchange Notes will be used to redeem Exchange Notes. In all cases of mandatory redemption, the redemption amount is equal to the sum of (i) the unpaid principal plus all accrued but unpaid interest through the date of redemption and (ii) the present value of the remaining scheduled interest payments discounted to maturity date at the annual percentage yield on U.S. Treasury securities with maturity similar to the Exchange Notes plus 25 basis points.

The Company accounted for the Exchange Offer as an extinguishment of the Old Notes and recorded a gain on extinguishment of $0.1 million. The Exchange Notes and the Exchange Warrants were recorded at fair value at December 27, 2019 of $6.8 million and $0.3 million, respectively. The Company incurred $0.2 million of offering expenses related to the Exchange Offer which was allocated between debt and equity. As a result, the Company recognized $0.2 million as Debt Issuance Costs to be amortized over the term of the Exchange Notes and recognized $8,000 as a reduction of Additional Paid In Capital.

New 13% Senior Promissory Notes due December 2022

In addition to the Exchange Offer, certain Participating Holders also elected to participate in the accompanying Subscription Offer to purchase 13,355 units for $100 each, consisting of its newly issued Supplemental Notes and accompanying Warrant, including participation by the largest Old Noteholder investor, as well as the Company’s CEO, Bruce Hansen. One Warrant was also issued for each dollar invested in the Supplemental Notes. The New Warrants have an exercise price of $0.35 per share and have a three-year term. The Participating Holders increased their respective note investment by approximately 20% as additional consideration for the Supplemental Notes, resulting in approximately $1.34 million of new capital to the Company. The supplemental notes are redeemable at any time at the Company’s option, and must be redeemed by the Company under certain circumstances. The Company has agreed not to issue, assume or guarantee any indebtedness that is senior to or pari passu with the Supplemental Notes, provided, however, that the Company may issue no more than $15 million of additional debt securities that rank pari passu with the Supplemental Notes.

The transaction value of $1.3 million was allocated between debt for the Supplemental Notes and equity for the accompanying Warrants based on their relative fair value. This resulted in recording $47,000 in Additional Paid in Capital for the Warrants and the remainder as Supplemental Notes. The Company incurred $40,000 of offering expenses related to the Subscription Offer which was allocated between debt and equity. As a result, the Company recognized $38,000 as Debt Issuance Costs to be amortized over the term of the Supplemental Notes and recognized $2,000 as a reduction to Additional Paid in Capital.

The Supplemental Notes bear interest at a rate of 13.0% per annum, payable in cash quarterly in arrears on each March 31, June 30, September 30, and December 31. The Supplemental Notes mature December 26, 2022 unless earlier redeemed. The Company may redeem the Supplemental Notes for cash, either in whole or in part, at any time, in exchange for the sum of (i) 101% of the amount of unpaid principal and (ii) all accrued but unpaid interest through the date of redemption. The Supplemental Notes are mandatorily redeemable (i) upon obtaining debt or equity financing sufficient to cover the construction of Mt. Hope and (ii) upon a “fundamental change” such as a reclassification of the common stock, consolidation or merger of the Company with another entity or sale of all or substantially all of the Company’s assets. In either case, the mandatory redemption amount is equal to the sum of (i) the unpaid principal plus all accrued but unpaid interest through the date of redemption and (ii) the present value of the remaining scheduled interest payments discounted to maturity date at the annual percentage yield on U.S. Treasury securities with maturity similar to the Supplemental Notes plus 25 basis points.

Embedded Derivatives

Based on the redemption and conversion features discussed above, the Company determined that there were embedded derivatives that require bifurcation from the debt instrument and accounted for under ASC 815. Embedded derivatives are separated from the host contract, the Convertible Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract; and (b) a separate, stand-alone instrument with the same terms would qualify as a derivative instrument. The Company concluded that the Mandatory Redemption and Conversion Option features embedded within the Convertible Notes as well as the Mandatory Redemption feature embedded within the Exchange Notes and the Supplemental Notes meet these criteria and, as such, must be valued separate and apart from the respective notes as one embedded derivative and recorded at fair value each reporting period (the “Embedded Derivatives”).

A probability-weighted calculation was utilized to estimate the fair value of the Mandatory Redemption.

The Company used a binomial lattice model in order to estimate the fair value of the Conversion Option in the Convertible Notes. A binomial lattice model generates two probable outcomes, arising at each point in time, starting from the date of valuation until the maturity date. A lattice was initially used to determine if the Convertible Notes would be converted or held at each decision point. Within the lattice model, the Company assumes that the Convertible Notes will be converted early if the conversion value is greater than the holding value.

As of December 31, 2018, the carrying value of the Convertible Notes, absent the embedded derivatives, was $5.8 million inclusive of an unamortized debt discount $0.1 million, all of which is considered current debt. The fair value of the Convertible Notes was $4.0 million at December 31, 2018. As of December 31, 2018, the carrying value of the Promissory Notes was $1.3 million. The fair value of the Promissory Notes was $0.9 million at December 31, 2018. As of December 31, 2019, the carrying value of the Exchange Notes, absent the embedded derivative, was $6.2 million inclusive of an unamortized debt discount of $1.1 million. The fair value of the Exchange Notes was $6.2 million at December 31, 2019. As of December 31, 2019, the carrying value of the Supplemental Notes, absent the embedded derivative, was $1.2 million inclusive of an unamortized debt discount of $0.2 million. The fair value of the Supplemental Notes was $1.2 million at December 31, 2019.

The embedded derivatives recorded in Convertible Notes at fair value were $(14,150) at December 31, 2018. The changes in the estimated fair value of the embedded derivatives during the year ended December 31, 2019 resulted in a loss of $14,150. The embedded derivatives in the Exchange Notes and the Supplemental Notes had a fair value of $0.6 million and $0.1 million, respectively, at December 31, 2019. Gain or loss on embedded derivatives is recognized as Interest Expense in the Statement of Operations.

The Company has estimated the fair value of the Convertible Notes, Promissory Notes, Exchange Notes, Supplement Notes, and embedded derivatives based on Level 3 inputs. Changes in certain inputs into the valuation models can have a significant impact on changes in the estimated fair value. For example, the estimated fair value of the embedded derivatives will generally decrease with: (1) a decline in the stock price; (2) increases in the estimated stock volatility; and (3) an increase in the estimated credit spread.

The following inputs were utilized to measure the fair value of the Convertible Notes and embedded derivatives: (i) price of the Company’s common stock; (ii) Conversion Rate (as defined in the Convertible Note); (iii) Conversion Price (as defined in the Convertible Note); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; (vii) estimated credit spread for the Company; (viii) default intensity; and (ix) recovery rate.

The following tables set forth the inputs to the models that were used to value the embedded derivatives for the Convertible Notes at December 31, 2018:


	December 31, 2018
Stock Price	$	0.22
Maturity Date		December 31, 2019
Risk-Free Interest Rate		2.63%
Estimated Stock Volatility		40.00%
Default Intensity		2.00%
Recovery Rate		30.00%


Type of Event	Expected Date	Probability of Event
Mandatory Redemption	October 17, 2019	10%
Conversion Option	March 31, 2019	0%
Note Reaches Maturity	December 31, 2019	90%

The following assumptions were utilized to measure the fair value of the Exchange Notes, the Supplemental Notes, and the embedded derivatives at December 31, 2019: (i) estimated market yield; and (ii) estimated probabilities of mandatory redemption