Business Context and Reporting Period
Company: Aqua Metals, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: May 18, 2016 (Event Date)
Closing Date: May 24, 2016
Context: The company entered into definitive agreements to raise capital and secure feedstock for its AquaRefinery recycling operations through a strategic partnership with Interstate Battery System International, Inc. and a national securities placement.
Key Financial Metrics and Transaction Details
Total Capital Raised: Approximately $15.1 million in equity and debt securities.
- Interstate Battery Investment: $10 million total ($5 million equity, $5 million debt).
- National Securities Placement: $5.12 million gross proceeds from accredited investors.
Debt Instrument Details:
- Principal: $5,000,000 secured convertible promissory note.
- Interest Rate: 11% per annum, compounding monthly.
- Maturity: May 24, 2019.
- Conversion Price: $7.12 per share.
- Collateral: Second priority lien on real estate, fixtures, and equipment at the McCarran, Nevada facility.
Equity Issuance Details:
- Interstate Battery: 702,247 shares at $7.12/share.
- Accredited Investors: 719,333 shares at $7.12/share.
- Warrants Issued to Interstate Battery:
- 702,247 shares at $7.12/share (expires May 24, 2018).
- 1,605,131 shares at $9.00/share (expires May 24, 2019).
Transaction Costs: $307,299 in placement agent commissions (6% of gross proceeds) and $32,645 in reimbursed expenses/legal fees for the national placement. No commissions were paid for the Interstate Battery transaction.
Material Changes and Agreements
Supply Agreement: Aqua Metals entered into an 18-month agreement (with automatic renewals) to purchase used lead acid batteries (LABs) from Interstate Battery on a cost-plus basis. The agreement includes minimum purchase/sale requirements and grants Interstate Battery limited rights to supply future AquaRefineries.
Investor Rights: Interstate Battery received demand and piggyback registration rights, board observation rights for three years, and preemptive rights for future equity issuances.
Key-Man Provisions: The company agreed to pay Interstate Battery liquidated damages of $2,000,000 per occurrence if CEO Stephen Clarke or COO Selwyn Mould cease to hold their positions or devote substantially all business time to the company within two years of the agreement date. A similar $2,000,000 payment applies for events occurring in the third year.
Outlook, Risks, and Contingencies
Ownership Dilution: If Interstate Battery converts its note and exercises all warrants, it will own slightly less than 20% of the company's common stock at an average price of approximately $7.93 per share.
Registration Obligations: Aqua Metals must file a resale registration statement for the national placement shares by August 1, 2016. Failure to file timely or unavailability of Rule 144 resale exemptions triggers liquidated damages payments to investors.
Insurance Requirement: The company must procure directors and officers insurance coverage for Interstate Battery's board observer within 20 business days.
Financial Reporting: This filing does not provide updated revenue, profit, cash flow, or margin data for the reporting period; it focuses solely on the capital raise and contractual agreements.
Investor Verification Checklist
- Verify the closing of the $15.1 million capital raise and the receipt of funds as of May 24, 2016.
- Confirm the filing of the resale registration statement by the August 1, 2016 deadline to avoid liquidated damages.
- Monitor the status of the $5 million convertible note and potential conversion activity at the $7.12 price point.
- Assess the impact of the "key-man" clauses on executive retention and potential future cash outflows ($2M per event).
- Review the operational impact of the new supply agreement for used lead acid batteries on production capacity.