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6. Biogas LLC - Series A Preferred Financing | 3 Months Ended
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Mar. 31, 2021
Stockholders' deficit: |
6. Biogas LLC - Series A Preferred Financing | On December 20, 2018, Aemetis Biogas LLC entered into a Series A Preferred Unit Purchase Agreement (the “Preferred Unit Agreement”) by selling Series A Preferred Units to Protair-X Americas, Inc. (the “Purchaser”), with Third Eye Capital acting as an agent for the purchaser (the “Agent”). ABGL plans to construct and collect bio-methane from dairies located near the Keyes Plant. Bio-methane is a blend along with CO₂ and other impurities that can be captured from dairies, landfills and other sources. After a gas cleanup and compression process, bio-methane can be converted into renewable natural gas, which is a direct replacement of petroleum natural gas and can be transported in existing natural gas pipelines. ABGL is authorized to issue 11,000,000 common units, and up to 6,000,000 convertible, redeemable, secured, preferred membership units (the “Series A Preferred Units”). ABGL issued 6,000,000 common units to the Company. ABGL also issued 1,660,000 Series A Preferred Units to the Purchaser for $8,300,000 with the ability to issue an additional 4,340,000 Series A Preferred Units at $5.00 per Unit for a total of up to $30,000,000 in funding. Additionally, 5,000,000 common units of ABGL are held in reserve as potential conversion units issuable to the Purchaser upon certain triggering events discussed below. The Preferred Unit Agreement includes (i) preference payments of $0.50 per unit on the outstanding Series A Preferred Units commencing on the second anniversary, (ii) conversion rights for up to 1,200,000 common units or up to maximum number of 5,000,000 common units (also at a one Series A Preferred Unit to one common unit basis) if certain triggering events occur, (iv) one board seat of the three available to be elected by Series A Preferred Unit holders, (iii) mandatory redemption value at $15 per unit payable at an amount equal to 75% of free cash flow generated by ABGL, up to $90 million in the aggregate (if all units are issued), (iv) full redemption of the units on the sixth anniversary, (v) minimum cash flow requirements from each digester, and (vi) $0.9 million paid as fees to the Agent from the proceeds. Until paid, the obligations of ABGL under the Preferred Unit Agreement are secured by the assets of ABGL in an amount not to exceed the sum of (i) $30,000,000, plus (ii) all interest, fees, charges, expenses, reimbursement obligations and indemnification obligations of ABGL. Triggering events occur upon ABGL’s failure to redeem units, comply with covenants, any other defaults or cross defaults, or to perform representations or warranties. Upon a triggering event: (i) the obligation of the Purchaser to purchase additional Series A Preferred Units is terminated, (ii) cash flow payments for redemption payments increases from 75% to 100% of free cash flows, and (iii) total number of common units into which preferred units may be converted increases from 1,200,000 common units to 5,000,000 common units on a one for one basis. As of March 31, 2021, ABGL has not generated minimum quarterly operating cash flows by operating the dairies. As a result of the violation of this covenant, free cash flows, when they occur, may be applied for redemption payments at the increased rate of 100% instead of the initial rate of 75% of free cash flows. From inception of the agreement to date, ABGL issued 3,200,000 Series A Preferred Units on first tranche for a value of $16.0 million and also issued 2,800,000 of Series A Preferred Units on second tranche for a value of $14.0 million, reduced by a redemption of 20,000 Series A Preferred Units for $0.3 million. The Company is accreting these two tranches to the redemption value of $89.7 million over the estimated future cash flow periods of six years using the effective interest method. In addition, the Company identified freestanding future tranche rights and the accelerated redemption feature related to a change in control provision as derivatives which required bifurcation. These derivative features were assessed to have minimal value as of March 31, 2021 and December 31, 2020 based on the evaluation of the other conditions included in the agreement. During the three months ended March 31, 2021, ABGL issued 626,000 of Series A Preferred Units for incremental proceeds of $3.1 million and redeemed 20,000 of Series A Preferred Units for $0.3 million as part of the second tranche of the Preferred Unit Agreement. Consistent with the previous issuances, the units are treated as a liability as the conversion option was deemed to be non-substantive. The Company recorded Series A Preferred Unit liabilities, net of unit issuance costs and inclusive of accretive preference pursuant to this agreement, classified as other current liabilities, of $3.0 million and $2.0 million, and long-term liabilities of $36.3 million and $32.0 million as of March 31, 2021 and December 31, 2020, respectively. Variable interest entity assessment After consideration of ABGL’s operations and the above agreement, we concluded that ABGL did not have enough equity to finance its activities without additional subordinated financial support. ABGL is capitalized with Series A Preferred Units that are recorded as liabilities under U.S. GAAP. Hence, we concluded that ABGL is a VIE. Through the Company's ownership interest in all of the outstanding common stock, its current ability to control the board of directors, the management fee paid to Aemetis and control of subordinated financing decisions, Aemetis has been determined to be the primary beneficiary and accordingly, the assets, liabilities, and operations of ABGL are consolidated into those of the Company. Total assets of ABGL were $27.9 million primarily related to biodigesters at two dairies and a pipeline which serve as collateral for the Series A Preferred shares totaling $39.3 million. The Series A Preferred Shares are not collateralized by any other assets or guarantees from Aemetis or its subsidiaries.

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