NOTE 7 - REDEEMABLE SERIES A UNITS
As part of the Sponsor Equity Investment, the Company authorized and issued 600,000 of its Series A Units. The holders of the Series A Units are not entitled to receive any ordinary distributions from the Company, are subject to certain drag-along rights, and do not have any preemptive rights relating to the Company. Pursuant to the terms of our Amended and Restated Limited Liability Company Agreement (the “Company Agreement”), ORB has the right to appoint all of the members of the Company's Board of Managers, except for one position on the Board of Managers which is required to be filled by the Company's Chief Executive Officer. The Board of Managers is to have the discretion to manage and conduct all the business and affairs of the Company.
The holders of Series A Units, in certain instances, are entitled to have their Series A Units redeemed by the Company for a distribution in an amount that provides each Series A Unit holder with an internal rate of return of 13% on their investment with respect to their Series A Units. The payment of the redemption price to Series A Unit holders shall be paid, upon the occurrence of one of the following triggering events: (i) a liquidation of the Company (whether by consent of the Company’s Board of Managers and ORB, or withdrawal of all members or in accordance with Section 18-202 of the Delaware Limited Liability Company Act), (ii) a transfer of all of the assets or units of the Company, a merger or similar transaction or certain initial public offerings of the Company’s or its successor’s securities, or (iii) February 17, 2017. The payment of the redemption price to the Series A Unit holders shall occur before any distribution is made to the holders of the Series B, C or D Units.
The Series A Units have an optional redemption feature pursuant to which, subject to the prior approval of ORB, the Company retains the option to redeem all or any portion of the Series A Units at any time in exchange for payment of an amount that provides each Series A Unit holder with an internal rate of return of 13% on their capital contribution with respect to their Series A Units.
Because of the mandatory redemption features of the Series A Units (which include a date certain redemption feature) that unconditionally obligate the Company to provide each holder with an internal rate of return of 13% on their investment, regardless of the triggering events, the units demonstrate characteristics of debt and therefore are accounted for as a long-term liability.
At December 31, 2013, the mandatorily redeemable Series A Units totaling $29,994,000 are reported as a long-term liability on the balance sheet with accrued interest in the amount of $7,938,917. The maximum amount the Company could be required to pay to redeem the units on the mandatory redemption date of February 17, 2017 includes the face value of the units of $29,994,000 and interest to be accrued of $26,213,401.
As discussed in Note 13 – Subsequent Events, the Company redeemed all of its 600,000 Series A Units in February 2014.