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

June 30

2020

and

December 31, 2019,

the estimated fair value of the embedded derivatives was

$0.3

million and

$0,

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 Company recorded a

$0.2

million and

$0.3

million loss from the change in fair value of

2020/21

Notes embedded derivatives for the

three

and

six

months ended

June 30

2020.

The Company recorded a

$0.1

million and

$0.4

million gain from the change in fair value of

2020

Notes embedded derivatives or the

three

and

six

months ended

June 30

2019.

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

	June 30,			December 31,
	2020			2019

Stock price	$	0.79		$	2.31
Conversion Rate per $1,000		409.50			67.95
Conversion Price	$	2.44		$	14.72
Maturity date	April 1, 2021			March 15, 2020
Risk-free interest rate		0.17	%		1.52	%
Estimated stock volatility		92	%		60	%
Estimated credit spread		38	%		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.

Derivative Warrant Liability

There were

warrants sold by the Company during the

six

months ended

June 30, 2020.

The following table sets forth information pertaining to shares issued upon the exercise of such warrants as of

June 30, 2020:

	Issuance Date	Expiration Date	Exercise Price as of June 30, 2020		Shares Underlying Warrants on Issuance Date		Shares Issued upon Warrant Exercises as of June 30, 2020		Shares Underlying Warrants Outstanding as of June 30, 2020

Series D Warrants	12/11/2015	12/11/2020	$	40.00		25,125		25,078		47
Series F Warrants	04/01/2016	04/01/2021	$	40.00		25,733		11,692		14,041
Series I Warrants	09/13/2016	09/13/2021	$	220.00		35,368		—		35,368
Series K Warrants	02/17/2017	2/17/2022	$	3.80		310,016		308,660		1,356

						396,242		345,430		50,812

The agreements governing the above warrants include the following terms:

•

certain warrants have exercise prices which are subject to adjustment for certain events, including the issuance of stock dividends on the Company's common stock and, in certain instances, the issuance of the Company's common stock or instruments convertible into the Company's common stock at a price per share less than the exercise price of the respective warrants;

•

warrant holders

may

exercise the warrants through a cashless exercise if, and only if, the Company does

not

have an effective registration statement then available for the issuance of the shares of its common stock. If an effective registration statement is available for the issuance of its common stock a holder

may

only exercise the warrants through a cash exercise;

•

the exercise price and the number and type of securities purchasable upon exercise of the warrants are subject to adjustment upon certain corporate events, including certain combinations, consolidations, liquidations, mergers, recapitalizations, reclassifications, reorganizations, stock dividends and stock splits, a sale of all or substantially all of the Company's assets and certain other events; and

•

in the event of an “extraordinary transaction” or a “fundamental transaction” (as such terms are defined in the respective warrant agreements), generally including any merger with or into another entity, sale of all or substantially all of the Company's assets, tender offer or exchange offer, or reclassification of its common stock, in which the successor entity (as defined in the respective warrant agreements) that assumes the successor entity is

not

a publicly traded company, the Company or any successor entity will pay the warrant holder, at such holder's option, exercisable at any time concurrently with or within

days after the consummation of the extraordinary transaction or fundamental transaction, an amount of cash equal to the value of such holder's warrants as determined in accordance with the Black-Scholes option pricing model and the terms of the respective warrant agreement. In some circumstances, the Company or successor entity

may

be obligated to make such payments regardless of whether the successor entity that assumes the warrants is a publicly traded company.

There were

warrants exercised during the

six

months ended

June 30, 2020.