Embedded Derivatives Liabilities

2020

Notes Embedded Derivative

June 2017,

the Company issued its

12%

convertible senior secured notes due

2020

(the

“2020

Notes”) in exchange for its

12.0%

convertible senior secured notes due

2017

(the

“2017

Notes”). The

2020

Notes contained the following embedded derivatives: (i) a Make-Whole Payment (as defined in the indenture governing the

2020

Notes (the

“2020

Notes Indenture”)) upon either conversion or redemption; (ii) right to redeem the outstanding principal upon a Fundamental Change (as defined in the

2020

Notes Indenture); (iii) issuer rights to convert into a limited number of shares in any given

three

-month period commencing

nine

months from the issuance date and dependent on the stock price exceeding

150%

of the then in-effect conversion price over a

ten

-business day period; and (iv) holder rights to convert into either shares of the Company’s common stock or pre-funded warrants upon the election of the holders of the

2020

Notes.

Embedded derivatives are separated from the host contract and the

2020

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 has concluded that certain embedded derivatives within the

2020

Notes meet these criteria and, as such, must be valued separate and apart from the

2020

Notes as

one

embedded derivative and recorded at fair value each reporting period.

The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the

2020

Notes. A binomial lattice model generates

two

probable outcomes, whether up or down, 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

2020

Notes would be converted by the holder, called by the issuer, or held at each decision point. Within the lattice model, the following assumptions were made: (i) the

2020

Notes will be converted by the holder if the conversion value plus the holder’s Make-Whole Payment is greater than the holding value; or (ii) the

2020

Notes will be called by the issuer if (a) the stock price exceeds

150%

of the then in-effect conversion price over a

ten

-business day period and (b) if the holding value is greater than the conversion value plus the Make-Whole Payment at the time.

Using this lattice model, the Company valued the embedded derivative using a “with-and-without method”, where the value of the

2020

Notes including the embedded derivative were defined as the “with”, and the value of the

2020

Notes excluding the embedded derivative is defined as the “without”. This method estimates the value of the embedded derivative by comparing the difference in the values between the

2020

Notes with the embedded derivative and the value of the

2020

Notes without the embedded derivative. The lattice model requires the following inputs: (i) price of Gevo common stock; (ii) Conversion Rate (as defined in the

2020

Notes Indenture); (iii) Conversion Price (as defined in the

2020

Notes Indenture); (iv) maturity date; (v) risk-free interest rate; (vi) estimated stock volatility; and (vii) estimated credit spread for the Company.

2020/21

Notes Embedded Derivative

January 2020,

the Company issued

12%

convertible senior secured notes due

2020/2021

(the

“2020/21

Notes”) in exchange for its

12.0%

convertible senior secured notes due

March 2020 (

the

“2020

Notes”). The

2020/21

Notes contain the following embedded derivatives: (i) a Make-Whole Payment (as defined in the

2020/21

Notes Indenture (as defined below) upon either conversion or redemption in certain circumstances; (ii) holder right to require the Company to repurchase the outstanding principal upon a Fundamental Change (as defined in the

2020/21

Notes Indenture); and (iii) holder rights to convert into either shares of the Company’s common stock or pre-funded warrants upon the election of the holders of the

2020/21

Notes.

Embedded derivatives are separated from the host contract and the

2020/21

Notes, and carried at fair value when: (a) the embedded derivative possesses economic characteristics that are

not

2020/21

Notes meet these criteria and, as such, must be valued separate and apart from the

2020/21

Notes as

one

embedded derivative and recorded at fair value each reporting period.

The Company used a binomial lattice model in order to estimate the fair value of the embedded derivative in the

2020/21

Notes. Using this lattice model, the Company valued the embedded derivative using a “with-and-without method”.

As of

March 31, 2020

and

December 31, 2019,

the estimated fair value of the embedded derivatives was

$0.1

million and

$0,

respectively. The change in the estimated fair value of the embedded derivatives represents an unrealized gain (loss). The Company recorded a

$0.1

million loss from the change in fair value of

2020/21

Notes embedded derivatives and

$0.2

million gain from the change in fair value of

2020

Notes embedded derivatives in the consolidated statements of operations for the

three

months ended

March 31, 2020

and

March 31, 2019,

respectively. The Company recorded the estimated fair value of the embedded derivative with the

2020/21

Notes and

2020

Notes, net in the Consolidated Balance Sheets.

The following table sets forth the inputs to the lattice models that were used to value the embedded derivatives:

	March 31,			January 10,			December 31,
	2020			2020			2019

Stock price	$	0.82		$	2.27		$	2.31
Conversion Rate per $1,000		409.50			409.50			67.95
Conversion Price	$	2.44		$	2.44		$	14.72
Maturity date	December 31, 2020			December 31, 2020			March 15, 2020
Risk-free interest rate		0.16	%		1.52	%		1.52	%
Estimated stock volatility		70	%		40	%		60	%
Estimated credit spread		40	%		36	%		27	%

Changes in certain inputs into the lattice model can have a significant impact on changes in the estimated fair value of the embedded featured within the

2020/21

Notes and

2020

Notes. For example, the estimated fair value will generally decrease with: (

) a decline in the stock price; (

) decreases in the estimated stock volatility; and (

) a decrease in the estimated credit spread.