UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from November 1, 2022 to December 31, 2022
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report: Not applicable.
Commission File Number: 001-40733
Li-Cycle Holdings Corp.
(Exact name of Registrant as specified in its charter)
| | | | | | | | | | | | | | |
Not applicable | | Province of Ontario, Canada |
(Translation of Registrant’s name into English) | | (Jurisdiction of incorporation or organization) |
| | |
| 207 Queen’s Quay West, Suite 590, Toronto, ON, M5J 1A7, Canada
(Address of principal executive offices) | |
| | |
| Carl DeLuca
207 Queen’s Quay West, Suite 590, Toronto, ON, M5J 1A7, Canada (877) 542-9253
carl.deluca@li-cycle.com
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person) | |
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common shares, without par value | | LICY | | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 176,122,015 common shares issued and outstanding as of December 31, 2022.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer ☒ | Accelerated filer ☐ | Non-accelerated filer ☐ |
| | Emerging growth company ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| | | | | | | | |
U.S. GAAP ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☒ | Other ☐ |
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☐
LI-CYCLE HOLDINGS CORP.
TABLE OF CONTENTS
Page
| | | | | |
FORWARD-LOOKING STATEMENTS | iii |
IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES | v |
FREQUENTLY USED TERMS | vi |
PART I | 1 |
Item 5. Operating and Financial Review and Prospects | 1 |
Item 8. Financial Information | 1 |
PART II | 1 |
Item 13. Defaults, Dividend Arrearages and Delinquencies | 1 |
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds | 1 |
PART III | 1 |
Item 17. Financial Statements | 1 |
Item 18. Financial Statements | 1 |
Item 19. Exhibits | 2 |
EXPLANATORY NOTE
On December 21, 2022, Li-Cycle Holdings Corp. (the “Company” or “Li-Cycle”) announced that it would be changing its financial year end from October 31 to December 31. This change is being made to better align Li-Cycle’s financial reporting calendar with peer companies. As a result, the Company is required to file this Transition Report on Form 20-F (the “Transition Report”) for the transition period, which is the two-month period from November 1, 2022 to December 31, 2022. After filing the Transition Report, the Company’s next fiscal year end will be December 31, 2023. The Company’s unaudited condensed consolidated financial statements for the two months ended December 31, 2022 and 2021 are included in this Transition Report. A comparison of our operating results for the two-month period ended December 31, 2022 and December 31, 2021 has been included in Item 5 “Operating and Financial Review and Prospects.” The Company notes that this Transition Report is filed pursuant to Rule 13a-10(g)(4) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which permits the Company to respond to only Items 5, 8.A.7., 13, 14 and 17 or 18 of Form 20-F.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Transition Report may be considered “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, Section 21 of the U.S. Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws. Forward-looking statements may generally be identified by the use of words such as “believe”, “may”, “will”, “continue”, “anticipate”, “intend”, “expect”, “should”, “would”, “could”, “plan”, “potential”, “future”, “target” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. Forward-looking statements in this Transition Report include but are not limited to statements about: anticipated growth in global demand for and production of lithium-ion batteries and the growth of related industries; Li-Cycle’s expectation that growing mega-factory investments in North America and globally will drive significant increases in the Company’s total addressable market; Li-Cycle’s ability to capitalize on global growth opportunities; Li-Cycle’s expectation that it will attract new suppliers and that its supply pipeline will grow; Li-Cycle’s expectation to recognize revenue from the sale of end products; expected settlement dates for the metric tonnes of BM&E subject to fair value price adjustments by quarter for the last twelve months; Li-Cycle’s expectation of having total lithium-ion battery processing capacity of more than 80,000 tonnes per year in calendar 2023; Li-Cycle’s plan to gradually shift to a strategy of retaining BM&E production for future internal use as feedstock at the Rochester Hub; Li-Cycle’s expectation that it will secure a loan of up to $375 million through United States Department of Energy Loan Programs Office Advanced Technology Vehicles Manufacturing program; Li-Cycle’s expectation that it will need to secure additional equity and debt financing to fund its growth strategy; the expectation that the Rochester Hub will be the first hydrometallurgical battery resource recovery facility in North America; Li-Cycle’s expectation that it will invest $35 million to $45 million towards its Spoke expansion plans in 2023 and that it will invest $250 million to $300 million towards the Rochester Hub project in 2023; Li-Cycle’s expectation that its 2023 outlook for BM&E production will double fiscal 2022 production levels; the timing of expected commencement of commissioning of the Rochester Hub, its expected annual input capacity and production output capacity, its total capital cost and the expected size of its workforce; the expected timing and capital investment requirements for the Company’s Spokes in development and the expected main line processing capacity and ancillary processing capacity of Li-Cycle’s Germany Spoke, Norway Spoke, France Spoke and New Ontario Spoke; and Li-Cycle’s expectation that it will enter into premises leases for additional Spokes and Hubs by end of 2023. These statements are based on various assumptions, whether or not identified in this Transition Report made by Li-Cycle management, including but not limited to assumptions regarding the timing, scope and cost of Li-Cycle’s projects; the processing capacity and production of Li-Cycle’s facilities; Li-Cycle’s ability to source feedstock and manage supply chain risk; Li-Cycle’s ability to increase recycling capacity and efficiency; Li-Cycle’s ability to obtain financing on acceptable terms; Li-Cycle’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners; Li-Cycle’s ability to attract new suppliers or expand its supply pipeline from existing suppliers; general economic conditions; currency exchange and interest rates; compensation costs; and inflation. There can be no assurance that such assumptions will prove to be correct and, as a result, actual results or events may differ materially from expectations expressed in or implied by the forward-looking statements.
Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle, and which may cause actual results to differ materially from the forward-looking information. The risk factors and cautionary language discussed in this Transition Report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations described by us in such forward-looking statements, including among other things:
•changes adversely affecting the industry in which we operate;
•our ability to achieve our business strategies, develop our capital projects or to manage our growth;
•our ability to increase recycling capacity and efficiency and maintain operations at our facilities;
•maintaining our supplier and customer relationships;
•our ability to raise funds for our capital requirements;
•general economic and political conditions;
•the effects of the COVID-19 pandemic on the global economy, on the markets in which we compete and on our business;
•our ability to maintain the listing of our securities on the NYSE;
•our ability to retain our key employees; and
•the outcome of any legal proceedings or arbitrations that may be instituted against us or in which we may be involved.
These and other risks and uncertainties related to Li-Cycle’s business and the assumptions on which the forward-looking information is based are described in greater detail in the section entitled “Item 3D. Risk Factors” of our annual report on Form 20-F filed with the SEC on February 6, 2023 and the section entitled “Item 5. Operating and Financial Review and Prospects—Key Factors Affecting Li-Cycle’s Performance” included elsewhere in this Transition Report. Because of these risks, uncertainties and assumptions, readers should not place undue reliance on these forward-looking statements. Actual results could differ materially from those contained in any forward-looking statement.
Li-Cycle assumes no obligation to update or revise any forward-looking statements, except as required by applicable laws. These forward-looking statements should not be relied upon as representing Li-Cycle’s assessments as of any date subsequent to the date of this Transition Report.
IMPORTANT INFORMATION ABOUT IFRS AND NON-IFRS FINANCIAL MEASURES
Our financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and referred to in this Transition Report as “IFRS.” The Company makes references to certain non-IFRS measures, including Adjusted EBITDA. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing a further understanding of the Company’s results of operations from management’s perspective. Accordingly, they should not be considered in isolation nor as a substitute for the analysis of the Company’s financial information reported under IFRS.
FREQUENTLY USED TERMS
As used in Transition Report, unless the context otherwise requires or indicates otherwise, references to “we,” “us,” “our,” “Li-Cycle” or the “Company” refer to Li-Cycle Holdings Corp., an Ontario corporation, and its consolidated subsidiaries.
In this document:
“Alabama Spoke” means Li-Cycle’s Spoke near Tuscaloosa, Alabama, which commenced operations on October 13, 2022.
“Amalgamation” means the amalgamation of Peridot Ontario and NewCo in accordance with the terms of the Arrangement.
“ancillary processing capacity” means, in relation to Li-Cycle’s Spokes, the capacity to process LIB through dry shredding, powder processing and baling.
“Arizona Spoke” means Li-Cycle’s operational Spoke in Gilbert, Arizona, which commenced operations on May 17, 2022.
“Arrangement” means the plan of arrangement (including the Business Combination) in substantially the form attached as Annex C to the proxy statement/prospectus forming a part of the registration statement on Form F-4, filed by the Company with the SEC on July 6, 2021.
“black mass” means a powder-like substance which contains a number of valuable metals, including nickel, cobalt and lithium.
“Black Mass & Equivalents” or “BM&E” means black mass and products analogous to black mass that have a similar metal content.
“Business Combination” means the transactions contemplated by the Business Combination Agreement.
“Business Combination Agreement” means the Business Combination Agreement, dated as of February 15, 2021, as amended, by and among Peridot, Li-Cycle Corp. and NewCo.
“common shares” means the common shares of the Company, without par value.
“Continuance” means the continuance of Peridot from the Cayman Islands under the Companies Act to the Province of Ontario, Canada as a corporation existing under the OBCA.
“EV” means electric vehicles.
“France Spoke” means Li-Cycle’s planned Spoke in Harnes, France that is currently under development.
“Germany Spoke” means Li-Cycle’s planned Spoke in Magdeburg, Germany that is currently under development.
“Glencore” means Glencore Ltd.
“Glencore Convertible Note” means the unsecured convertible note in the principal amount of $200 million due May 31, 2027 issued to Glencore pursuant to the Glencore Note Purchase Agreement on May 31, 2022, as such note may be amended from time to time.
“Glencore Convertible Notes” means the Glencore Convertible Note together with any PIK Notes issued in satisfaction of interest due and payable thereon.
“Glencore Note Purchase Agreement” means the note purchase agreement, dated as of May 5, 2022, between the Company and Glencore Ltd.
“Glencore Warrants” means warrants to be issued by Li-Cycle to the holder of the Glencore Convertible Note in connection with an optional redemption of the Glencore Convertible Note that entitle the holder to acquire, until the maturity date of the Glencore Convertible Note, a number of common shares equal to the principal amount of the Glencore Convertible Note being redeemed divided by the then applicable conversion price.
“Hub” means a centralized facility for large-scale production of specialty materials that achieves economies of scale in recycling. Our first commercial Hub will be located in Rochester, New York and is currently in the project execution phase.
“KSP Convertible Note” means the unsecured convertible note in the principal amount of $100 million due September 29, 2026 originally issued to Spring Creek Capital, LLC (an affiliate of Koch Strategic Platforms, LLC, being a company within the Koch Investments Group) pursuant to the KSP Note Purchase Agreement on September 29, 2021 and subsequently assigned on May 1, 2022, to one of its affiliates, Wood River Capital, LLC, as such note may be amended from time to time.
“KSP Convertible Notes” means the KSP Convertible Note together with any PIK Notes issued in satisfaction of interest due and payable thereon.
“KSP Note Purchase Agreement” means the Note Purchase Agreement, dated as of September 29, 2021, between the Company and Spring Creek Capital, LLC, and assigned on May 1, 2022, to Wood River Capital, LLC.
“LGC” means LG Chem, Ltd.
“LGES” means LG Energy Solution, Ltd.
“LIB” means lithium-ion batteries, including lithium-ion battery manufacturing scrap and end-of-life lithium-ion batteries.
“Long-Term Incentive Plan” means the Company’s 2021 Incentive Award Plan.
“main line processing capacity” means, in relation to Li-Cycle’s Spokes, the capacity to process materials using Li-Cycle’s patented submerged shredding process or “wet shredding” designed specifically for battery materials that contain electrolyte and have risk of thermal runaway
“NewCo” means Li-Cycle Holdings Corp. prior to the Amalgamation.
“New Ontario Spoke” means the expanded Spoke and warehouse facility that is planned to replace the existing Ontario Spoke.
“New York Spoke” means Li-Cycle’s operational Spoke in Rochester, New York.
“Norway Spoke” means Li-Cycle’s planned Spoke in Moss, Norway that is currently under development.
“NYSE” means the New York Stock Exchange.
“OBCA” means the Ontario Business Corporations Act.
“Ohio Spoke” means Li-Cycle’s planned, co-located Spoke with Ultium near Warren, Ohio.
“Ontario Spoke” means Li-Cycle’s operational Spoke in Kingston, Ontario.
“Peridot” means, before the Continuance, Peridot Acquisition Corp., a Cayman Islands exempt company and, after the Continuance, Peridot Ontario.
“Peridot Ontario” means Peridot as continued under the OBCA following the Continuance.
“PIK Notes” means the additional unsecured convertible notes that may be issued by Li-Cycle from time to time in satisfaction of the interest due and payable on the KSP Convertible Notes or the Glencore Convertible Notes, as the case may be, as such notes may be amended from time to time.
“PIPE Financing” means the issuance and sale to the PIPE Investors, following the Amalgamation and prior to the closing date of the Business Combination, of an aggregate of 31,549,000 common shares for a purchase price of $10.00 per share, for aggregate gross proceeds of $315,490,000.
“PIPE Investors” means those certain investors, including an affiliate of Peridot’s Sponsor, who entered into Subscription Agreements to purchase common shares in the PIPE Financing.
“private placement warrants” means 8,000,000 warrants to purchase common shares that were issued to the Sponsor in exchange for outstanding warrants of Peridot in connection with the Business Combination, which were exercised or surrendered for common shares or redeemed on January 26, 2022 pursuant to the notice of redemption dated December 27, 2021.
“public warrants” means 15,000,000 warrants to purchase common shares that were issued in exchange for outstanding warrants of Peridot that were issued in Peridot’s initial public offering, which were exercised or surrendered for common shares or redeemed on January 26, 2022 pursuant to the notice of redemption dated December 27, 2021.
“Rochester Hub” means Li-Cycle’s first commercial-scale Hub that is currently under construction in Rochester, New York.
“SEC” means the U.S. Securities and Exchange Commission.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Spoke” means a decentralized facility that mechanically processes batteries close to sources of supply and handles the preliminary processing of end-of-life batteries and battery manufacturing scrap.
“Sponsor” means Peridot Acquisition Sponsor, LLC, a Delaware limited liability company.
“Subscription Agreements” means the subscription agreements entered into with the PIPE Investors, in connection with the PIPE Financing.
“Traxys” means Traxys North America LLC.
“Ultium” means Ultium Cells LLC.
“warrants” means the public warrants and the private placement warrants.
References to “dollar,” “USD,” “US$” and “$” are to U.S. dollars and references to “CA$” and “Cdn. $” are to Canadian dollars.
This Transition Report includes certain trademarks, service marks and trade names that we own or otherwise have the right to use, such as “Li-Cycle” and “Spoke & Hub Technologies” which are protected under applicable intellectual property laws and are our property. This Transition Report also contains additional trademarks, tradenames, and service marks belonging to other parties, which are the property of their respective owners. Solely for convenience, our trademarks, service marks and trade names referred to in this Transition Report may appear without the® or™ symbol, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trademarks, service marks and trade names. We do not intend our use or display of other parties’ trademarks, tradenames, or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
PART I
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The information called for by this Item is set forth in Exhibit 99.2 of this Transition Report and is incorporated by reference into this Transition Report.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Legal Proceedings
From time to time, we are subject to various litigation and regulatory proceedings arising in the normal course of business. Where it is determined, in consultation with counsel based on litigation and settlement risks, that a loss is both probable and estimable, we establish an accrual. We expect that we may not be able to predict with certainty the outcome of any litigation or the potential for future litigation. We expect to continuously monitor any proceedings as they develop and adjust any accrual or disclosure as needed. Regardless of the outcome, litigation could have an adverse impact on us due to defense costs, diversion of management resources, potential reputational harm and other factors, and it could have a material effect on our results of operations for a given reporting period.
On April 19, 2022, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York against the Company, its CEO, and its former CFO, on behalf of a proposed class of purchasers of the Company’s publicly traded securities during the period from February 16, 2021 through March 23, 2022. The complaint, which is captioned as Barnish v. Li-Cycle Holdings Corp., et al., 1:22-cv-02222 (E.D.N.Y.), alleges that the defendants issued false and misleading statements concerning Li-Cycle’s business, which were revealed when Blue Orca Capital published a short seller report on March 24, 2022. The complaint seeks compensatory damages and an award of costs. The original complaint asserted claims under Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). On July 22, 2022, the court appointed The Lanigan Group, Inc. as lead plaintiff. On October 11, 2022, the lead plaintiff filed an amended complaint asserting claims pursuant to Section 14(a) of the Exchange Act and Sections 11 and 15 of the U.S. Securities Act of 1933 on behalf of a proposed class comprising: (a) all persons who were eligible to vote at Peridot Acquisition Corp.’s extraordinary general meeting held during August 2021, and (b) all persons who acquired Li-Cycle publicly traded securities pursuant to Li-Cycle’s March 2021 Registration Statement. Unlike the original complaint, the amended complaint does not assert any claims under either Section 10(b) or Section 20(a) of the Exchange Act. The claims in the amended complaint are asserted against both the Company and certain individual defendants, including Li-Cycle’s two Co-Founders, Li-Cycle’s former CFO, two current directors of Li-Cycle (who were also directors and/or officers of Peridot Acquisition Corp. at the time of the Business Combination), and certain other directors or officers of Peridot Acquisition Corp. at the time of the Business Combination. On December 19, 2022, the Company and each of the individual defendants moved to dismiss the amended complaint in its entirety. The motion to dismiss is not yet fully briefed. The Company believes that the allegations in the amended complaint are without merit and intends to vigorously defend against this matter. No amounts have been recorded for any potential liability arising from this matter. [See also Note 11 in our financial statements for the transition period ended December 31, 2022, included as Exhibit 99.1 of this Transition Report.]
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
PART III
ITEM 17. FINANCIAL STATEMENTS
See Item 18.
ITEM 18. FINANCIAL STATEMENTS
On December 21, 2022, Li-Cycle announced that it would be changing its financial year end from October 31 to December 31. This change is being made to better align Li-Cycle’s financial reporting calendar with peer companies. As a result, the Company is required to file this Transition Report for the transition period, which is the
two-month period from November 1, 2022 to December 31, 2022. After filing the Transition Report, the Company’s next fiscal year end will be December 31, 2023.
The financial statements of the Company for the transition period from November 1, 2022 to December 31, 2022 are included in this Transition Report in Exhibit 99.1.
The financial statements have not been audited by the Company’s independent registered public accounting firm.
Auditor Name: KPMG LLP
Auditor Location: Vaughan, Ontario
Auditor Firm Id: 85
ITEM 19. EXHIBITS
EXHIBIT INDEX
| | | | | |
Exhibit No. | Description |
| 1.1 | |
| 1.2 | |
| 2.1 | |
| 2.2 | |
4.1†† | |
| 4.2 | |
| 4.3 | |
| 4.4 | |
| | | | | |
| 4.5 | |
| 4.6 | |
4.7† | |
4.8† | |
4.9† | |
4.10† | |
4.11††† | |
4.12††† | |
| 4.13 | |
| 4.14 | |
| 4.15 | |
| | | | | |
| 4.16 | |
| 4.17 | |
| 4.18 | |
| 4.19 | |
| 4.20 | |
| 4.21 | |
| 4.22 | |
| 4.23 | |
| 4.24 | |
| 4.25 | |
| 4.26 | |
| | | | | |
| 4.27 | |
| 4.28 | |
| 4.29 | |
| 4.30 | |
| 4.31 | |
| 4.32 | |
| 4.33 | |
| 4.34 | |
| 4.35 | |
| | | | | |
| 4.36 | |
| 4.37 | |
| 4.38 | |
| 4.39 | |
| 4.40 | |
| 8.1 | |
| 12.1 | |
| 12.2 | |
| 13.1 | |
| 13.2 | |
| 99.1 | |
| 99.2 | |
| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. |
| | | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
___________________
** Previously filed.
† Indicates management contract or compensatory plan or arrangement.
†† Certain of the exhibits and schedules to these exhibits have been omitted in accordance with Regulation S-K Item 601(a)(5). The registrant agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
††† Pursuant to Item 601(b)(10)(iv) of Regulation S-K, portions of this exhibit have been omitted because Li-Cycle Corp. customarily and actually treats the omitted portions as private or confidential, and such portions are not material and would likely cause it competitive harm if publicly disclosed. Li-Cycle Holdings Corp. will supplementally provide an unredacted copy of this exhibit to the SEC or its staff upon request.
All schedules have been omitted because they are not required, are not applicable or the information is otherwise set forth in the financial statements or notes thereto.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this report on its behalf.
March 30, 2023
| | | | | | | | |
| LI-CYCLE HOLDINGS CORP. |
| | |
| By: | /s/ Ajay Kochhar |
| | Name: Ajay Kochhar |
| | Title: Chief Executive Officer |
DESCRIPTION OF SECURITIES
General
The following description of the material terms of our share capital includes a summary of certain provisions of our articles that became effective upon the closing of the Business Combination (the “articles”). This description is qualified in its entirety by reference to our articles which are incorporated by reference as exhibits to the transition report on Form 20-F of which this Exhibit 2.2 is a part.
Share Capital
Our authorized share capital consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. As of December 31, 2022, there were 176,122,015 common shares outstanding and no preferred shares outstanding.
Common Shares
Voting Rights. Under our articles, the common shares are entitled to receive notice of, and to attend and vote at all meetings of shareholders, except meetings at which only holders of a specified class of shares are entitled to vote. Each common share entitles its holder to one vote.
Dividend Rights. The holders of outstanding common shares are entitled to receive dividends at such times and in such amounts and form as the board may from time to time determine, but subject to the rights of the holders of any preferred shares. The Company is permitted to pay dividends unless there are reasonable grounds for believing that: (i) the Company is, or would after such payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of the Company’s assets would, as a result of such payment, be less than the aggregate of its liabilities and stated capital of all classes of shares. The timing, declaration, amount and payment of any future dividends will depend on the Company’s financial condition, earnings, capital requirements and debt service obligations, as well as legal requirements, industry practice and other factors that our board deems relevant.
Preemptive Rights. There are no pre-emptive rights relating to the common shares.
Repurchase of Common Shares. Under the OBCA, the Company will be entitled to purchase or otherwise acquire any of its issued shares, subject to restrictions under applicable securities laws and provided that the Company will not be permitted to make any payment to purchase or otherwise acquire any of its issued shares if there are reasonable grounds for believing that: (i) the Company is, or would after such payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of the Company’s assets would, as a result of such payment, be less than the aggregate of its liabilities and stated capital of all classes of shares.
Liquidation. Upon the dissolution, liquidation or winding up of the Company, or any other distribution of assets of the Company, among its shareholders for the purpose of winding up its affairs, subject to the rights of the holders of any outstanding series of preferred shares, the holders of common shares will be entitled to receive the remaining property and assets of the Company available for distribution to its shareholders ratably in proportion to the number of common shares held by them.
Preferred Shares
The Company is authorized to issue an unlimited number of preferred shares, issuable in series. Subject to any limitations prescribed by law, including the OBCA, each series of preferred shares will consist of such number of shares and have such rights, privileges, restrictions and conditions as may be determined by the board prior to the issuance of such series. No rights, privileges, restrictions or conditions attaching to any series of preferred shares will confer upon the shares of such series a priority in respect of dividends or distribution of assets or return of capital in the event of the liquidation, dissolution or winding up of the Company over the shares of any other series of preferred shares. The preferred shares of each series will, with respect to the right of payment of dividends and the distribution of assets or return of capital in the event of liquidation, dissolution or winding up of the Company, rank on parity with the shares of every other series of preferred shares.
The issuance of preferred shares and the terms selected by the board could decrease the amount of earnings and assets available for distribution to holders of common shares or adversely affect the rights and powers, including the voting rights, of the holders of common shares without any further vote or action by the holders of common shares. The issuance of preferred shares, or the issuance of rights to purchase preferred shares, could make it more difficult for a third-party to acquire a majority of the outstanding voting shares and thereby have the effect of delaying,
deferring or preventing a change of control of the Company or an unsolicited acquisition proposal or of making the removal of management more difficult. Additionally, the issuance of preferred shares may have the effect of decreasing the market price of the common shares.
Dissent Rights
Under the OBCA, shareholders of a corporation are entitled to exercise dissent rights in respect of certain matters and to be paid the fair value of their shares in connection therewith. The dissent right is applicable where the corporation resolves to: (i) amend its articles to add, remove or change restrictions on the issue, transfer or ownership of shares of a class or series of the shares of the corporation; (ii) amend its articles to add, remove or change any restrictions on the business it is permitted to carry on or the powers it may exercise; (iii) amalgamate with another corporation, subject to certain exceptions; (iv) be continued under the laws of another jurisdiction; or (v) sell, lease or exchange all or substantially all of its property. In addition, holders of a class or series of shares of an OBCA corporation are, in certain circumstances and, in the case of items (a), (b) and (e) below, unless the articles of the corporation provide otherwise, entitled to exercise dissent rights and be paid the fair value of their shares if the corporation resolves to amend its articles to (a) increase or decrease any maximum number of authorized shares of such class or series, or increase any maximum number of authorized shares of a class or series having rights or privileges equal or superior to shares of such class or series; (b) effect an exchange, reclassification or cancellation of the shares of such class or series; (c) add to, remove or change the rights, privileges, restrictions or conditions attached to the shares of such class or series; (d) add to the rights or privileges of any class or series of shares having rights or privileges equal or superior to the shares of such class or series; (e) create a new class or series of shares equal or superior to the shares of such class or series, except in certain circumstances; (f) make a class or series of shares having rights or privileges inferior to the shares of such class or series equal or superior to the shares of such class or series; (g) effect an exchange or create a right of exchange of the shares of another class or series into the shares of such class of series; or (h) add, remove or change restrictions on the issue, transfer or ownership of the shares of such class of series.
Transfer of Shares
Subject to the rules of any stock exchange on which shares are posted or listed for trading, no transfer of a security issued by the Company will be registered except upon (i) presentation of the security certificate representing the security with an endorsement which complies with the OBCA, together with such reasonable assurance that the endorsement is genuine and effective as the directors may require, (ii) payment of all applicable taxes and fees, and (iii) compliance with the articles of the Company. If no security certificate has been issued by the Company in respect of a security issued by the Company, clause (i) above may be satisfied by presentation of a duly executed security transfer power, together with such reasonable assurance that the security transfer power is genuine and effective as the directors may require.
Registration Rights
Investor Agreement
On August 10, 2021, the Company, the Peridot Class B Holders and the Li-Cycle Holders (collectively for the purposes of this subsection referred to as the “Holders”) entered into the Investor Agreement. The Company has granted certain registration rights to the Holders. The Company has filed with the SEC a shelf registration statement covering the resale of the common shares held by the Holders, which has been declared effective by the SEC. In addition, pursuant to the terms of the Investor Agreement and subject to certain requirements and customary conditions, including with regard to the number of demand rights that may be exercised, the Holders may demand at any time or from time to time, that the Company file a registration statement on Form F-3 (or on Form F-1 if Form F-3 is not available) to register the securities of the Company held by such Holders, and each may specify that such demand registration take the form of an underwritten offering, in each case subject to limitations on the number of demands and underwritten offerings that can be requested by each Holder, as specified in the Investor Agreement. Holders will also have “piggy-back” registration rights, subject to certain requirements and customary conditions. The Investor Agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the Holders against (or make contributions in respect of) certain liabilities that may arise under the Securities Act.
Subscription Agreements
Contemporaneously with the execution of the Business Combination Agreement, Subscription Agreements were entered into by and among each PIPE Investor, Peridot, and NewCo., Peridot obtained commitments from the PIPE Investors to purchase common shares for a purchase price of $10.00 per share for aggregate gross proceeds of $315,490,000. Certain offering related expenses were payable by Peridot under the Subscription Agreements, including customary fees payable to the placement agents. The purpose of the sale of common shares to the PIPE
Investors under the Subscription Agreements was to raise additional capital for use in connection with the Business Combination.
The common shares sold to the PIPE Investors were identical to the common shares that were held by our other shareholders at the time of the Closing, except that when initially issued by Peridot, such shares were restricted securities. The PIPE Financing occurred on the date of, and immediately prior to, the consummation of the Business Combination.
The closing of the PIPE Financing was subject to customary conditions, including, among other conditions, the Company’s agreement to, as soon as practicable (but in any case no later than 30 calendar days after the consummation of the Business Combination), file with the SEC (at its sole cost and expense) a registration statement registering the resale of the shares received by the PIPE Investors in the PIPE Financing and to use its commercially reasonable efforts to have such resale registration statement declared effective as soon as practicable after the filing thereof. The registration statement on Form F-3 filed by the Company on September 14, 2022 and declared effective by the SEC on September 23, 2022 is intended to satisfy this requirement.
KSP Note Purchase Agreement
On September 29, 2021, in connection with the Company’s entry into the KSP Note Purchase Agreement and issuance of the KSP Convertible Note, the Company granted certain registration rights to the holder of the KSP Convertible Notes under the KSP Note Purchase Agreement. The Company has filed a registration statement covering the resale of the common shares issued or issuable upon conversion of the KSP Convertible Notes in accordance with those registration rights and has agreed to keep the registration statement (or another shelf registration statement covering the common shares issued or issuable upon conversion of the KSP Convertible Notes) effective until the earlier of (x) the third anniversary of the first issuance of the KSP Convertible Notes or (y) the date on which the holder of the KSP Convertible Notes ceases to hold any common shares issued or upon conversion of the KSP Convertible Notes. The registration statement on Form F-3 filed by the Company on September 14, 2022 and declared effective by the SEC on September 23, 2022 is intended to satisfy this requirement.
LG Subscription Agreements
On December 13, 2021, Li-Cycle entered into subscription agreements with each of LGES and LGC, each of which were subsequently amended and restated on March 11, 2022 and April 21, 2022 (the “LG Subscription Agreements” and each, an “LG Subscription Agreement”), pursuant to which each of LGES and LGC agreed, subject to the satisfaction of certain conditions, to subscribe for an equal number of the Company’s common shares in transactions exempt from registration under the Securities Act (the “LG Subscription”). The LG Subscription was completed on May 11, 2022 and consisted of the issuance by the Company in accordance with the LG Subscription Agreements of (i) an initial tranche of 4,416,960 common shares, in the aggregate, at a price of $10.00 per share, for an aggregate initial tranche subscription price of approximately $44.2 million, and (ii) a second tranche of 883,392 common shares, in the aggregate, at a price of $6.60 per share (based on the volume-weighted average trading price of the Company’s common shares for the 5 trading days ending immediately prior to April 29, 2022), for an aggregate second tranche subscription price of approximately $5.8 million, for a total subscription price of approximately $50.0 million.
The Company has granted certain registration rights to LGES and LGC under the LG Subscription Agreements. The Company has filed with the SEC a shelf registration statement covering the resale of the common shares issued pursuant to the LG Subscription Agreements, which has been declared effective by the SEC. The Company has agreed to keep such shelf registration statement (or another shelf registration statement covering the common shares issued pursuant to the LG Subscription Agreements) effective until the earlier of (x) May 11, 2025 or (y) the date on which LGES or LGC, as applicable, ceases to hold any of the common shares acquired pursuant to the LG Subscription Agreements.
Glencore Registration Rights Agreement
Concurrently with the issuance of the Glencore Convertible Note, the Company entered into a registration rights agreement with Glencore (the “Glencore Registration Rights Agreement”). The Glencore Registration Rights Agreement provides that upon request of the holder of the Glencore Convertible Note, the Company will file with the SEC within 45 days after notice of such request, a resale registration statement covering the resale of the common shares issuable upon conversion of the Glencore Convertible Note and upon exercise of the Glencore Warrants and held by such holder. The Company is required to use commercially reasonable efforts to have such registration statement declared effective by the SEC as soon as practicable and no later than the earlier of (A) 45 days after the filing of such registration statement (or 75 days after the filing of such registration statement if the SEC notifies the Company that it will review the registration statement) or (B) 15 business days after the SEC
notifies the Company in writing that it will not review the registration statement. The Company agreed to keep the registration statement (or another shelf registration statement covering the common shares issued or issuable upon conversion of the Glencore Convertible Note and upon exercise of the Glencore Warrants) effective until three years after the holder’s receipt of the common shares issued upon conversion of the Glencore Convertible Note or upon exercise of the Glencore Warrants, as applicable.
In addition, subject to certain requirements and customary conditions, including with regard to the number of demand rights that may be exercised, the holder of the Glencore Convertible Note may demand at any time or from time to time, that the Company file a registration statement on Form F-3 (or on Form F-1 if Form F-3 is not available) to register the common shares issuable upon conversion of the Glencore Convertible Note and upon exercise of the Glencore Warrants and held by such holder. In addition, the holder of the Glencore Convertible Note may specify that such demand registration take the form of an underwritten offering, subject to limitations on the number of demands and underwritten offerings that can be requested by the holder, as specified in the Glencore Registration Rights Agreement. The holder of the Glencore Convertible Note will also have “piggy-back” registration rights, subject to certain requirements and customary conditions.
The Glencore Registration Rights Agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the holder of the Glencore Convertible Note against (or make contributions in respect of) certain liabilities that may arise under the Securities Act.
Transfer Restrictions
The common shares issued pursuant to the LG Subscription Agreements are subject to certain transfer restrictions.
Glencore has agreed to certain transfer restrictions with respect to the common shares issued or issuable upon conversion of the Glencore Convertible Note, including that Glencore will not transfer such common shares other than to permitted transferees until May 5, 2024.
Listing
Our common shares are listed on the NYSE under the symbol “LICY”. Holders of our common shares should obtain current market quotations for their securities. There can be no assurance that our common shares will remain listed on NYSE. If we fail to comply with the NYSE listing requirements, our common shares could be delisted from NYSE. A delisting of our common shares would affect the liquidity of our common shares and could inhibit or restrict our ability to raise additional financing.
Transfer Agent
A register of holders of our common shares is maintained by Continental Stock Transfer and Trust Company in the United States, who serves as registrar and transfer agent for our equity securities.
CONSENT TO NEW DEBT AND AMENDMENT TO CONVERTIBLE NOTE
This CONSENT TO NEW DEBT AND AMENDMENT TO CONVERTIBLE NOTE is being entered into as of May 5, 2022 (this “Consent and Amendment”), by and between Li-Cycle Holdings Corp., a company existing under the laws of the Province of Ontario (the “Company”), and Wood River Capital, LLC, a Delaware limited liability company (the “Holder”).
WHEREAS, on September 29, 2021, the Company issued a Convertible Note, dated as of September 29, 2021, to Spring Creek Capital, LLC, a Delaware limited liability company (the “Original Holder”) (such note, and any payment-in-kind notes issued thereunder referred to collectively as the “Original Note”);
WHEREAS, on May 1, 2022, the Original Holder transferred its rights and obligations under the Original Note to the Holder pursuant to that certain Joinder Agreement, dated as of May 1, 2022, by and among the Company, the Original Holder and the Holder;
WHEREAS, on the date hereof, the Company and Glencore Ltd. are entering into that certain Note Purchase Agreement (the “Glencore Note Purchase Agreement”) providing for the issuance by the Company of a convertible note to Glencore in the amount of $200,000,000, pursuant to the terms of the Glencore Note Purchase Agreement and on the terms set forth in the form of note attached as exhibit A thereto (the “Glencore Note”);
WHEREAS, pursuant to Section 9 of the Original Note, the Holder desires to consent to the entry into the Glencore Note Purchase Agreement by the Company and the consummation of the transactions contemplated thereby; and
WHEREAS, in connection with the entry into the Glencore Note Purchase Agreement by the Company, the Company and the Holder wish to amend Section 9 of the Original Note to mirror the analogous terms in the Glencore Note.
NOW, THEREFORE, in consideration of the rights and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Pursuant to Section 9 of the Original Note, the Holder hereby consents to the incurrence by the Company of additional indebtedness in the form of the entry into the Glencore Note Purchase Agreement by the Company and the consummation of all transactions contemplated thereby (including the issuance of the Glencore Note).
Section 2. Section 9 of the Original Note is hereby deleted in its entirety and replaced with the following:
“ 9. HOLDER CONSENT RIGHT OVER DEBT INCURRENCE. The Company agrees that it shall not incur additional Indebtedness without the consent of the Holder, which consent shall not be unreasonably withheld, conditioned or delayed, other than:
(a)Indebtedness incurred during any rolling 12-month period that does not exceed $75,000,000 individually or in the aggregate;
(b)Indebtedness incurred in the ordinary course of business, including trade payables and intercompany debt;
(c)Indebtedness incurred in connection with any agreement entered into with the DOE Loans Program Office; or
(d)Indebtedness incurred in connection with any agreement entered into with the Export Development Canada Project Finance and Sustainable Development Technology Canada.”
Section 3. Section 27 of the Original Note is hereby amended by inserting the following new definition in the appropriate alphabetical order:
“(o) “Indebtedness” shall mean (i) any indebtedness for borrowed money, including accrued interest, (ii) any obligations evidenced by bonds, debentures, notes or other similar instruments, including accrued interest, (iii) obligations, contingent or otherwise, under acceptance, letters of credit or similar facilities, (iv) swaps, options, derivatives and other hedging arrangements or arrangements that will be payable upon termination thereof, and (v) any guaranty of any of the foregoing. For the avoidance of doubt, Indebtedness shall not include any obligations as lessee under capitalized leases incurred in the ordinary course of business.”
Section 4. This Consent and Amendment amends the Original Note and shall be effective upon its execution and delivery by the parties hereto.
Section 5. Except as expressly amended by this Consent and Amendment, the Original Note shall continue in full force and effect and is hereby ratified and confirmed and this Consent and Amendment will not constitute any other modification, amendment or waiver to the Original Note.
Section 6. On and after the date hereof, each reference in the Original Note to “this Note,” “hereunder,” “hereof,” “herein” or words of like import referring to the Original Note, and each reference in any other document relating to the “Note,” “thereunder,” “thereof,” or words of like import referring to the Original Note, means and references the Original Note as amended hereby.
Section 7. Each party hereby represents to the other parties hereto that this Consent and Amendment has been duly authorized, executed and delivered by such party and constitutes a valid and binding obligation of such party enforceable against such party in accordance with its terms.
Section 8. The terms of Section 23 of the Original Note are hereby incorporated into this Consent and Amendment as if fully set forth herein.
Section 9. This Consent and Amendment may be executed and delivered in one or more counterparts including by email or other electronic transmission, each of which shall be deemed an original and all of which shall be considered one and the same agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Consent and Amendment or any document to be signed in connection with this Consent and Amendment shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
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IN WITNESS WHEREOF, the parties have caused this Consent and Amendment to be executed as of the date first set forth above by their respective officers thereunto duly authorized.
LI-CYCLE HOLDINGS CORP.
By: /s/ Ajay Kochhar__________
Name: Ajay Kochhar
Title: Chief Executive Officer
WOOD RIVER CAPITAL, LLC
By: /s/ Eric K. Butcher _________
Name: Eric K. Butcher
Title: President
AMENDMENT NO. 2 TO CONVERTIBLE NOTE
This AMENDMENT NO. 2 TO CONVERTIBLE NOTE is being entered into as of February 13, 2023 (this “Amendment”), by and between Li-Cycle Holdings Corp., a company existing under the laws of the Province of Ontario (the “Company”), and Wood River Capital, LLC, a Delaware limited liability company (the “Holder”). The Company and the Holder desire to amend the Note (as defined below) as set forth herein. Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the Note.
WHEREAS, on September 29, 2021, the Company issued a Convertible Note to Spring Creek Capital, LLC, a Delaware limited liability company (the “Original Holder”) in the Original Principal Amount of $100,000,00 (such note, as amended by the May 2022 Consent, and any payment-in-kind notes issued thereunder referred to collectively herein as the “Note”);
WHEREAS, on May 1, 2022, the Original Holder transferred its rights and obligations under the Note to the Holder pursuant to that certain Joinder Agreement, dated as of May 1, 2022, by and among the Company, the Original Holder and the Holder; and
WHEREAS, on May 5, 2022, the Company and the Holder entered into that certain Consent to New Debt and Amendment to Convertible Note (the “May 2022 Consent”), whereby certain provisions of the Note were amended.
WHEREAS, the Company and the Holder desire to further amend the Note as set forth herein.
NOW, THEREFORE, in consideration of the rights and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Sections 4(a) and 4(b) of the Note are each hereby deleted in its entirety and replaced with the following:
“(a) Holder Conversion Right. The Holder shall be entitled at its option at any time to convert all or a portion of the Conversion Amount into that number of validly issued, fully paid and non-assessable Common Shares determined by dividing the Conversion Amount being so converted by the Conversion Price on the Conversion Date. To convert any Conversion Amount into Common Shares on any Trading Day (the date of such conversion, a “Conversion Date”), the Holder shall deliver, for receipt by no earlier than 4:00 p.m. New York time, and no later than 11:59 p.m., New York time, on the Conversion Date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Holder Conversion Notice”) to the Company, which Holder Conversion Notice shall set forth (i) the Conversion Amount being so converted, (ii) the detailed calculation of the accrued and unpaid Interest included in the Conversion Amount being so converted as of the Conversion Date, and (iii) the detailed calculation of the number of Common Shares required to be delivered in respect of such Holder Conversion Notice.
(b) Company Conversion Right. At any time and from time to time, provided that the closing bid price for the Company’s Common Shares is equal to or exceeds $17.46 each Trading Day for the prior consecutive twenty (20) Trading Day period (the “Mandatory Conversion Measurement Period”), the Company shall have the option to convert all or a portion of the Conversion Amount into that number of validly issued, fully paid and non-assessable Common Shares determined by dividing the Conversion Amount being so converted by the Conversion Price on the Conversion Date by delivering written notice to the Holder (the “Mandatory Conversion Notice”), which notice must be delivered on or prior to the third Trading Day following the last Trading Day of the Mandatory Conversion Measurement Period. The
Mandatory Conversion Notice shall set forth (i) the Conversion Amount being so converted, (ii) detailed calculations of the accrued and unpaid Interest and Make-Whole Amount included in the Conversion Amount being so converted as of the Conversion Date, and (iii) the detailed calculation of the number of Common Shares required to be delivered in respect of such Mandatory Conversion Notice.”
Section 2. Section 19(a)(i) of the Note is hereby deleted in its entirety and replaced with the following:
“(a) Submission to Dispute Resolution.
(i) In the case of a dispute relating to a Conversion Price, the Optional Redemption Price or the Forced Redemption Price (as the case may be) (including a dispute relating to the determination of any of the foregoing), the Company or the Holder (as the case may be) shall submit the dispute to the other party via electronic mail or otherwise (A) if by the Company, within five (5) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by the Holder within five (5) Business Days after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to promptly resolve such dispute relating to such Conversion Price or such Redemption Price (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case may be) of such dispute to the Company or the Holder (as the case may be), then the Company shall select an independent, reputable investment bank acceptable to the Holder, acting reasonably, to resolve such dispute and the Company shall promptly send written confirmation of such joint selection to the Holder.”
Section 3. Section 27(j) of the Note is hereby deleted in its entirety and replaced with the following:
“[Intentionally omitted.]”.
Section 4. This Amendment amends the Note and shall be effective upon its execution and delivery by the parties hereto.
Section 5. Except as expressly amended by this Amendment, the Note shall continue in full force and effect and is hereby ratified and confirmed and this Amendment will not constitute any other modification, amendment or waiver to the Note.
Section 6. On and after the date hereof, each reference in the Note to “this Note,” “hereunder,” “hereof,” “herein” or words of like import referring to the Note, and each reference in any other document relating to the “Note,” “thereunder,” “thereof,” or words of like import referring to the Note, means and references the Note as amended hereby.
Section 7. Each party hereby represents to the other parties hereto that this Amendment has been duly authorized, executed and delivered by such party and constitutes a valid and binding obligation of such party enforceable against such party in accordance with its terms.
Section 8. The terms of Section 23 of the Original Note are hereby incorporated into this Amendment as if fully set forth herein.
Section 9. This Amendment may be executed and delivered in one or more counterparts including by email or other electronic transmission, each of which shall be deemed an original and all of which shall be considered one and the same agreement. The words
“execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Amendment or any document to be signed in connection with this Amendment shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
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IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first set forth above by their respective officers thereunto duly authorized.
LI-CYCLE HOLDINGS CORP.
By: /s/ Debbie Simpson________
Name: Debbie Simpson
Title: Chief Financial Officer
WOOD RIVER CAPITAL, LLC
By: /s/ Matthew J. Orr_________
Name: Matthew J. Orr
Title: President
AMENDMENT NO. 1 TO CONVERTIBLE NOTE
This AMENDMENT NO. 1 TO CONVERTIBLE NOTE is being entered into as of February 13, 2023 (this “Amendment”), by and between Li-Cycle Holdings Corp., a company existing under the laws of the Province of Ontario (the “Company”), and Glencore Ltd., a Swiss company having an office at 330 Madison Ave., New York, NY 10017 (the “Holder”). The Company and the Holder desire to amend the Note (as defined below) as set forth herein. Capitalized terms used and not otherwise defined herein shall have the meanings given to them in the Note.
WHEREAS, on May 31, 2022, the Company issued a Convertible Note to Holder in the Original Principal Amount of $200,000,000 (such note and any payment-in-kind notes issued thereunder referred to collectively herein as the “Note”);
WHEREAS, the Company and the Holder desire to amend the Note as set forth herein.
NOW, THEREFORE, in consideration of the rights and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Section 4(a) of the Note is hereby deleted in its entirety and replaced with the following:
“(a) Holder Conversion Right. The Holder shall be entitled at its option at any time to convert all or a portion of the Conversion Amount into that number of validly issued, fully paid and non-assessable Common Shares determined by dividing the Conversion Amount being so converted by the Conversion Price on the Conversion Date. To convert any Conversion Amount into Common Shares on any Trading Day (the date of such conversion, a “Conversion Date”), the Holder shall deliver, for receipt by no earlier than 4:00 p.m. New York time, and no later than 11:59 p.m., New York time, on the Conversion Date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Holder Conversion Notice”) to the Company, which Holder Conversion Notice shall set forth (i) the Conversion Amount being so converted, (ii) the detailed calculation of the accrued and unpaid Interest included in the Conversion Amount being so converted as of the Conversion Date, and (iii) the detailed calculation of the number of Common Shares required to be delivered in respect of such Holder Conversion Notice.”
Section 2. Section 8(d) of the Note is hereby deleted in its entirety and replaced with the following:
“(d) If the Company or any of its subsidiaries makes a payment in respect of a tender offer or exchange offer for Common Shares (other than solely pursuant to an odd-lot tender offer pursuant to Rule 13e-4(h)(5) under the 1934 Act), and the value (determined as of the Expiration Time by the Company’s board of directors) of the cash and other consideration paid per Common Share in such tender or exchange offer exceeds the last reported sale price per Common Share on the Trading Day immediately after the last date (the “Expiration Date”) on which tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended), then the Conversion Price will be increased based on the following formula:
CP1 = CP0 x (OS0 x SP)
AC + (SP x OS1)
where:
CP0 = the Conversion Price in effect immediately before the close of business on the last Trading Day of the Tender/Exchange Offer Valuation Period for such tender or exchange offer;
CP1 = the Conversion Price in effect immediately after the close of business on the last Trading Day of the Tender/Exchange Offer Valuation Period;
AC = the aggregate value (determined as of the time (the “Expiration Time”) such tender or exchange offer expires by the Company’s board of directors) of all cash and other consideration paid for Common Shares purchased or exchanged in such tender or exchange offer;
OS0 = the number of Common Shares outstanding immediately before the Expiration Time (including all Common Shares accepted for purchase or exchange in such tender or exchange offer);
OS1 = the number of Common Shares outstanding immediately after the Expiration Time (excluding Common Shares accepted for purchase or exchange in such tender or exchange offer); and
SP = the average of the last reported sale prices per Common Shares over the ten (10) consecutive Trading Day period (the “Tender/Exchange Offer Valuation Period”) beginning on, and including, the Trading Day immediately after the Expiration Date;
provided, however, that the Conversion Price will in no event be adjusted down pursuant to this Section 8(d), except to the extent provided in the immediately following paragraph. Notwithstanding anything to the contrary in this Section 8(d), if the Conversion Date for this Note to be converted occurs during the Tender/Exchange Offer Valuation Period for such tender or exchange offer, then, solely for purposes of determining the Conversion Price for such conversion, such Tender/Exchange Offer Valuation Period will be deemed to consist of the Trading Days occurring in the period from, and including, the Trading Day immediately after the Expiration Date to, and including, such Conversion Date. To the extent such tender or exchange offer is announced but not consummated (including as a result of the Company being precluded from consummating such tender or exchange offer under applicable law), or any purchases or exchanges of Common Shares in such tender or exchange offer are rescinded, the Conversion Price will be readjusted to the Conversion Price that would then be in effect had the adjustment been made on the basis of only the purchases or exchanges of Common Shares, if any, actually made, and not rescinded, in such tender or exchange offer.”
Section 3. Section 20(a)(i) of the Note is hereby deleted in its entirety and replaced with the following:
“(a) Submission to Dispute Resolution.
(i) In the case of a dispute relating to a Conversion Price, the Optional Redemption Price or the Forced Redemption Price (as the case may be) (including a dispute relating to the determination of any of the foregoing), the Company or the Holder (as the case may be) shall submit the dispute to the other party via electronic mail or otherwise (A) if by the Company, within five (5) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by the Holder within five (5) Business Days after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to promptly resolve such dispute relating to such Conversion Price or such Redemption Price (as the case may be), at any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case may be) of such dispute to the Company or the Holder (as the case may be), then the Company shall select an independent, reputable investment bank acceptable to the Holder, acting reasonably, to resolve such dispute and the Company shall promptly send written confirmation of such joint selection to the Holder.”
Section 4. Section 28(l) of the Note is hereby deleted in its entirety and replaced with the following:
“[Intentionally omitted.]”.
Section 5. Exhibit III of the Note is hereby deleted in its entirety and replaced with Exhibit A hereof.
Section 6. This Amendment amends the Note and shall be effective upon its execution and delivery by the parties hereto.
Section 7. Except as expressly amended by this Amendment, the Note shall continue in full force and effect and is hereby ratified and confirmed and this Amendment will not constitute any other modification, amendment or waiver to the Note.
Section 8. On and after the date hereof, each reference in the Note to “this Note,” “hereunder,” “hereof,” “herein” or words of like import referring to the Note, and each reference in any other document relating to the “Note,” “thereunder,” “thereof,” or words of like import referring to the Note, means and references the Note as amended hereby.
Section 9. Each party hereby represents to the other parties hereto that this Amendment has been duly authorized, executed and delivered by such party and constitutes a valid and binding obligation of such party enforceable against such party in accordance with its terms.
Section 10. The terms of Section 24 of the Original Note are hereby incorporated into this Amendment as if fully set forth herein.
Section 11. This Amendment may be executed and delivered in one or more counterparts including by email or other electronic transmission, each of which shall be deemed an original and all of which shall be considered one and the same agreement. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Amendment or any document to be signed in connection with this Amendment shall be deemed to include electronic signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, and the parties hereto consent to conduct the transactions contemplated hereunder by electronic means.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date first set forth above by their respective officers thereunto duly authorized.
LI-CYCLE HOLDINGS CORP.
By: /s/ Debbie Simpson_________
Name: Debbie Simpson
Title: Chief Financial Officer
GLENCORE LTD.
By: /s/ Stephan Huber /s/ Martin Haering
Name: Stephan Huber Martin Haering
Title: Authorized signatories
Exhibit A
See attached.
WARRANTS
THIS WARRANT CERTIFICATE SHALL BE VOID IF NOT EXERCISED PRIOR TO THE EXPIRATION OF THE EXERCISE PERIOD PROVIDED FOR BELOW.
THE WARRANTS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS WARRANT MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON OR A PERSON IN THE UNITED STATES UNLESS AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE. “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT. HEDGING TRANSACTIONS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
Li-Cycle Holdings Corp.
Incorporated Under the Laws of Ontario
Warrant Certificate
This Warrant Certificate certifies that [ ], or registered assigns, is the registered holder (the “Holder”) of [ ] warrant(s) (the “Warrants” and each, a “Warrant”) to purchase common shares (“Common Shares”), of Li-Cycle Holdings Corp., an Ontario corporation (the “Company”).
This Warrant Certificate is issued in connection with the redemption and cancellation of the convertible note issued by the Company to Glencore Ltd. as of May 31, 2022 (the “Note”).
Each Warrant entitles the Holder, upon exercise during the period set forth in this Warrant Certificate, to receive from the Company that number of fully paid and nonassessable Common Shares as set forth below, at the exercise price (the “Exercise Price”) as determined pursuant to this Warrant Certificate, payable in lawful money of the United States of America upon surrender of this Warrant Certificate and payment of the Exercise Price at the principal office of the Company, located at 207 Queen’s Quay West, Suite 590, Toronto, Ontario M5J 1A7 (Attention: Ajay Kochhar; Email: ajay.kochhar@li-cycle.com), subject to the conditions set forth herein.
Each whole Warrant is initially exercisable for one fully paid and non-assessable Common Share. Fractional shares shall not be issued upon exercise of any Warrant. If, upon the exercise of Warrants, a Holder would be entitled to receive a fractional interest in a Common Share, the Company shall, upon exercise, round down to the nearest whole number the number of Common Shares to be issued to the Holder.
The initial Exercise Price per one Common Share for any Warrant is equal to $[●]1 per share. The Exercise Price is subject to adjustment upon the occurrence of certain events as set forth in this Warrant Certificate.
Subject to the conditions set forth in this Warrant Certificate, the Warrants may be exercised only during the Exercise Period and to the extent not exercised by the end of such Exercise Period, such Warrants shall become void.
Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place.
1 NTD: Equal to the applicable Conversion Price as of the date of redemption of the Note.
This Warrant Certificate shall be governed by and construed in accordance with the internal laws of the State of New York.
IN WITNESS WHEREOF the Company has caused this Warrant Certificate to be signed by its duly authorized officer as of this ____ day of , 20 .
LI-CYCLE HOLDINGS CORP.
By:
Name:
Title:
[Form of Warrant Certificate]
[Reverse]
1.Terms and Exercise of Warrants.
1.1. Exercise Price. Each Warrant shall entitle the Holder thereof, subject to the provisions of this Warrant Certificate, to purchase from the Company the number of Common Shares stated herein, at the price of $[●] per share, subject to the adjustments provided in Section 2 hereof and in the last sentence of this Section 1.1. The term “Exercise Price” as used in this Warrant Certificate shall mean the price per share described in the prior sentence at which Common Shares may be purchased at the time a Warrant is exercised. The Company in its sole discretion may lower the Exercise Price at any time prior to the Expiry Date (as defined below) for a period of not less than fifteen (15) Business Days (unless otherwise required by the Commission, any national securities exchange on which the Warrants are listed or Applicable Law); provided that the Company shall provide at least five days’ prior written notice of such reduction to Holders of the Warrants; and provided further, that any such reduction shall be identical among all of the Warrants.
1.2. Duration of Warrants. A Warrant may be exercised only during the period (the “Exercise Period”) commencing on the date hereof and terminating on the earliest to occur (the “Expiry Time”) of (i) 5:00 p.m., New York City time, on [●], 2027 (the “Exercise Period”) and (ii) immediately prior to the closing of a Change of Control Transaction. Each Warrant not exercised on or before the Expiry Time shall become void, and all rights thereunder and all rights in respect thereof under this Warrant Certificate shall cease at the Expiry Time. The Company in its sole discretion may extend the duration of the Warrants by delaying the Expiry Time; provided that the Company shall provide at least twenty (20) days prior written notice of any such extension to Holders of the Warrants and, provided further that any such extension shall be identical in duration among all the Warrants.
1.3. Exercise of Warrants.
1.3.1. Payment. Subject to the provisions of this Warrant Certificate, a Warrant may be exercised by the Holder thereof by delivering to the Company at its principal office (i) this definitive Warrant Certificate evidencing the Warrants to be exercised, or, in the case of a Warrant represented by a book-entry position, the Warrants to be exercised (the “Book-Entry Warrants”) on the records of the applicable Warrant Agent (the “Agent”) to an account of the Company or its agent at the Agent designated for such purposes in writing by the Company to the Holder from time to time, (ii) a subscription form (“Subscription Form”) for any Common Shares to be issued pursuant to the exercise of a Warrant, properly completed and executed by the Holder on the reverse of this definitive Warrant Certificate or, in the case of a Book-Entry Warrant, properly delivered by the Holder in accordance with the Agent’s procedures, and (iii) the payment in full of the Exercise Price for each Common Share as to which the Warrant is exercised and any and all applicable taxes due in connection with the exercise of the Warrant, the exchange of the Warrant for the Common Shares and the issuance of such Common Shares, in lawful money of the United States, in good certified check or good bank draft payable to the order of the Company, or by transmitting same day payable funds in the lawful money of the United States by wire to such account as the Company shall direct to the Holder. Any Warrant Certificate so surrendered shall be deemed to be surrendered only upon delivery thereof to the Company at its principal office set forth herein in the manner provided in Section 12 (or to such other address as the Company may notify the Holder).
1.3.2. Issuance of Common Shares on Exercise. As soon as practicable (and in any event within 5 Business Days) after the exercise of any Warrant and the clearance of the funds in payment of the Exercise Price, the Company shall issue to the Holder of such Warrant a book-entry position or certificate, as applicable, for the number of Common Shares to which it is entitled, registered in such name or names as may be directed by him, her or it on the register of shareholders of the Company, and if such Warrant shall not have been exercised in full, a new book-entry position or countersigned Warrant Certificate, as applicable, for the number of Common Shares as to which such Warrant shall not have been exercised.
1.3.3. Valid Issuance. All Common Shares issued upon the proper exercise of a Warrant in conformity with this Warrant Certificate shall be validly issued, fully paid and nonassessable.
1.3.4. Date of Issuance. Each person in whose name any book-entry position or certificate, as applicable, for Common Shares is issued and who is registered in the register of shareholders of the Company shall for all purposes be deemed to have become the holder of record of such Common Shares on the date on which the Warrant, or book-entry position representing such Warrant, was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate in the case of a certificated Warrant, except that, if the date of such surrender and payment is a date when the register of shareholders of the Company or book-entry system of the Company are closed, such person shall be deemed to have become the holder of such Common Shares at the close of business on the next succeeding date on which the share transfer books or book-entry system are open.
1.3.5. Market Regulation. The Company shall only issue Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate or otherwise pursuant to the terms of this Warrant Certificate to the extent the issuance of such Common Shares would not exceed the aggregate number of Common Shares that the Company may issue without violating the rules or regulations of any Eligible Market on which the Common Shares are then listed (including without limitation Section 312.03(c) of the NYSE Listed Company Manual), except that such limitation shall not apply in the event that the Company (i) obtains the approval of its shareholders as required by the applicable rules of any Eligible Market on which the Common Shares are then listed for issuances of Common Shares in excess of such amount or (ii) obtains a written opinion from counsel to the Company that such approval is not required. In the event that shareholder approval is required with respect to the issuance of Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate (or otherwise pursuant to the terms of this Warrant Certificate) under the rules or regulations of any Eligible Market on which the Common Shares are then listed, as contemplated by clause (i) above, the Company shall use its reasonable best efforts to promptly obtain such approval. For the avoidance of doubt, the Company’s non-compliance with the limitations contained in this Section 1.3.5 shall not constitute a breach of this Warrant Certificate by the Company, and the Company shall not have any liability under this Warrant Certificate resulting therefrom.
1.3.6. Antitrust and Foreign Investment Laws. The Company shall only issue Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate or otherwise pursuant to the terms of this Warrant Certificate to the extent the issuance of such Common Shares would not exceed the aggregate number of Common Shares that the Company may issue without violating the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) or any antitrust laws of other jurisdictions or any foreign investment laws applicable in
connection with the issuance of the Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate, except that such limitation shall not apply in the event that (i) the Holder (and, if applicable, the Company) obtains the necessary regulatory approvals as required by any applicable antitrust laws or foreign investment laws or (ii) the Holder (and, if applicable, the Company) obtains a written opinion from counsel to the Holder (or, in the case of the Company, counsel to the Company) that such approval(s) are not required. For the avoidance of doubt, the Company’s non-compliance with the limitations contained in this Section 1.3.6 shall not constitute a breach of this Warrant Certificate by the Company, and the Company shall not have any liability under this Warrant Certificate or otherwise resulting therefrom, but in the event that exercise of the Warrants evidenced by this Warrant Certificate requires any filing or approval under the HSR Act or any applicable antitrust laws of any other jurisdiction and any foreign investment laws the Holder and, if applicable, the Company shall endeavor to make such filings and obtain such approval in accordance with, and subject to the following limitations:
1.3.6.1.The Company and the Holder acknowledge that one or more filings under the HSR Act or antitrust laws of other jurisdictions and/or foreign investment laws may be necessary in connection with the issuance of the Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate. The Holder will promptly notify the Company if any such filing is required on the part of the Holder or the Company. The Company, the Holder and any other applicable Holder Affiliate will use reasonable best efforts to cooperate in making or causing to be made all applications and filings under the HSR Act or any antitrust laws of other jurisdictions or any foreign investment laws required in connection with the issuance of the Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate held by the Holder or any Holder Affiliate in a timely manner and as required by the law of the applicable jurisdiction; provided, that, notwithstanding anything in this Warrant Certificate to the contrary, the Company shall not have any responsibility or liability for failure of the Holder or any of its Affiliates to comply with any Applicable Law. For as long as this Warrant Certificate is outstanding, the Company shall as promptly as reasonably practicable provide (no more than four (4) times per calendar year) such information regarding the Company and its Subsidiaries as the Holder may reasonably request in order to determine what antitrust or foreign investment requirements may exist with respect to any potential exercise of the Warrants evidenced by this Warrant Certificate. Promptly upon request by the Holder, the Company will use its reasonable best efforts to make all such filings and obtain all approvals and clearances as required under applicable antitrust or foreign investment laws in connection with the issuance of the Common Shares and investment in the Common Shares upon exercise of the Warrants evidenced by this Warrant Certificate.
1.3.6.2.Notwithstanding anything in this Warrant Certificate to the contrary, it is expressly understood and agreed that: (i) the Company shall not have any obligation to litigate or contest any administrative or judicial action or proceeding or any decree, judgment, injunction or other order, whether temporary, preliminary or permanent; and (ii) the Company shall not be under any obligation to make proposals, execute or carry out agreements, enter into consent decrees or submit to orders providing for (A) the sale, divestiture, license or other disposition or holding separate (through the establishment of a trust or otherwise) of any assets or categories of assets of the Company or any of its subsidiaries or Affiliates, (B) the imposition
of any limitation or regulation on the ability of the Company or any of its subsidiaries or Affiliates to freely conduct their business or own such assets or (C) the holding separate of the Common Shares or any limitation or regulation on the ability of the Holder or any of its Affiliates to exercise full rights of ownership of the Common Shares. The Company and the Holder will cooperate, provide all necessary information, and keep each other fully apprised with respect to such filing and regulatory processes. The Holder shall be responsible for the payment of the filing fees associated with any such applications or filings.
2.Adjustments.
2.1. If and whenever, at any time prior to the Expiry Time, the Company shall: (i) subdivide or re-divide its outstanding Common Shares into a greater number of Common Shares; (ii) reduce, combine or consolidate the outstanding Common Shares into a smaller number of Common Shares; (iii) issue options, rights, warrants or similar securities to the holders of all of the outstanding Common Shares; or (iv) issue Common Shares or securities convertible into Common Shares to the holders of all of the outstanding Common Shares by way of a dividend or distribution; the number of Common Shares issuable upon exercise of the Warrants on the date of the subdivision, re-division, reduction, combination or consolidation or on the record date for the issue of options, rights, warrants or similar securities or on the record date for the issue of Common Shares or securities convertible into Common Shares by way of a dividend or distribution, as the case may be, shall be adjusted so that the Holder shall be entitled to receive the kind and number of Common Shares or other securities of the Company which it would have owned or been entitled to receive after the happening of any of the events described in this Section 2.1 had the Warrants evidenced by this Warrant Certificate been exercised immediately prior to the happening of such event or any record date with respect thereto. Any adjustments made pursuant to this Section 2.1 shall become effective immediately after the effective time of such event retroactive to the record date, if any, for such event.
2.2. If and whenever at any time prior to the Expiry Time, there is a reclassification of the Common Shares or a capital reorganization of the Company other than as described in Section 2.1 or a consolidation, amalgamation, arrangement, binding share exchange, merger of the Company with or into any other Person or other entity or acquisition of the Company or other combination pursuant to which the Common Shares are converted into or acquired for cash, securities or other property; or a sale or conveyance of the property and assets of the Company as an entirety or substantially as an entirety to any other Person (other than a direct or indirect wholly-owned subsidiary of the Company) or other entity or a liquidation, dissolution or winding-up of the Company, the Holder, if it has not exercised its Warrants prior to the effective date of such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, share exchange, acquisition, combination, sale or conveyance or liquidation, dissolution or winding-up, upon the exercise of such Warrants thereafter, shall be entitled to receive and shall accept, in lieu of the number of Common Shares then sought to be acquired by it, such amount of cash or the number of shares or other securities or property of the Company or of the Person or other entity resulting from such merger, amalgamation, arrangement, acquisition, combination or consolidation, or to which such sale or conveyance may be made or which holders of Common Shares receive pursuant to such liquidation, dissolution or winding-up, as the case may be, that the Holder would have been entitled to receive on such reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, share exchange, acquisition, combination, sale or conveyance or liquidation, dissolution or winding-up, if, on the record date or the effective date thereof, as the case may be, the Holder had been the registered holder of
the number of Common Shares sought to be acquired by it and to which it was entitled to acquire upon the exercise of its Warrants at the Exercise Price.
2.3. If, and whenever at any time prior to the Expiry Time, the Company shall issue Additional Shares of Common Stock, without consideration or for a consideration per share less than Fair Market Value as of the date of issue thereof, then the Exercise Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula:
EP2 = EP1* (A + B) ÷ (A + C).
For purposes of the foregoing formula, the following definitions shall apply:
“EP2” shall mean the Exercise Price in effect immediately after such issue of Additional Shares of Common Stock;
“EP1” shall mean the Exercise Price in effect immediately prior to such issue of Additional Shares of Common Stock;
“A” shall mean the number of Common Shares outstanding immediately prior to such issue of Additional Shares of Common Stock (treating for this purpose as outstanding all Common Shares issuable upon exercise of options outstanding immediately prior to such issue or upon conversion or exchange of securities or notes convertible into Common Shares outstanding immediately prior to such issue);
“B” shall mean the number of Common Shares that would have been issued if such Additional Shares of Common Stock had been issued at a price per share equal to EP1 (determined by dividing the aggregate consideration received by the Company (as determined in good faith by the Company’s board of directors) in respect of such issue by EP1); and
“C” shall mean the number of such Additional Shares of Common Stock issued in such transaction.
2.4. If the Company or any of its subsidiaries makes a payment in respect of a tender offer or exchange offer for Common Shares (other than solely pursuant to an odd-lot tender offer pursuant to Rule 13e-4(h)(5) under the 1934 Act), and the value (determined as of the Expiration Time by the Company’s board of directors) of the cash and other consideration paid per Common Share in such tender or exchange offer exceeds the last reported sale price per Common Share on the Trading Day immediately after the last date (the “Expiration Date”) on which tenders or exchanges may be made pursuant to such tender or exchange offer (as it may be amended), then the Exercise Price will be increased based on the following formula:
EP1 = EP0 x __(OS0 x SP) ___
AC + (SP x OS1)
where:
EP0 = the Exercise Price in effect immediately before the close of business on the last Trading Day of the Tender/Exchange Offer Valuation Period for such tender or exchange offer;
EP1 = the Exercise Price in effect immediately after the close of business on the last Trading Day of the Tender/Exchange Offer Valuation Period;
AC = the aggregate value (determined as of the time (the “Expiration Time”) such tender or exchange offer expires by the Company’s board of directors) of all cash and other consideration paid for Common Shares purchased or exchanged in such tender or exchange offer;
OS0 = the number of Common Shares outstanding immediately before the Expiration Time (including all Common Shares accepted for purchase or exchange in such tender or exchange offer);
OS1 = the number of Common Shares outstanding immediately after the Expiration Time (excluding Common Shares accepted for purchase or exchange in such tender or exchange offer); and
SP = the average of the last reported sale prices per Common Shares over the ten (10) consecutive Trading Day period (the “Tender/Exchange Offer Valuation Period”) beginning on, and including, the Trading Day immediately after the Expiration Date;
provided, however, that the Exercise Price will in no event be adjusted down pursuant to this Section 2.4, except to the extent provided in the immediately following paragraph. Notwithstanding anything to the contrary in this Section 2.4, if the date of exercise of the Warrants occurs during the Tender/Exchange Offer Valuation Period for such tender or exchange offer, then, solely for purposes of determining the Exercise Price for such exercise, such Tender/Exchange Offer Valuation Period will be deemed to consist of the Trading Days occurring in the period from, and including, the Trading Day immediately after the Expiration Date to, and including, such date of exercise. To the extent such tender or exchange offer is announced but not consummated (including as a result of the Company being precluded from consummating such tender or exchange offer under Applicable Law), or any purchases or exchanges of Common Shares in such tender or exchange offer are rescinded, the Exercise Price will be readjusted to the Exercise Price that would then be in effect had the adjustment been made on the basis of only the purchases or exchanges of Common Shares, if any, actually made, and not rescinded, in such tender or exchange offer.
2.5. If, and whenever at any time prior to the Expiry Time, the Company shall make or issue, or fix a record date for the determination of holders of Common Shares entitled to receive (and subsequently make or issue), a dividend or other distribution payable in cash or other property not involving Common Shares or securities convertible into Common Shares (which is the subject of Section 2.1), then and in each such event the Holder of a Warrant shall receive, and shall accept, upon the exercise of a Warrant for Common Shares, a dividend or other distribution of such cash or other property in an amount equal to the amount of such cash or other property as it would have received if this Warrant had been exercised for Common Shares on the date of such event.
2.6. On the occurrence of any reclassification of, or other change in, the outstanding Common Shares or any other event or addressed in Sections 2.1, 2.2, 2.3, 2.4 or 2.5 (each, an “Unanticipated Event”), the parties will, in good faith, make such further adjustments and changes and take all necessary actions, subject to the approval of the Holder, so as to ensure that the Holder receives, upon the exercise of a Warrant occurring at any time after the date of the occurrence of the Unanticipated Event, such shares, securities, rights, cash or property that the Holder would have received if, immediately prior to the date of such Unanticipated Event, the Holder had been the registered holder of the number of Common Shares to which the Holder would be entitled upon the exercise of a Warrant for Common Shares.
2.7. The adjustments provided for in Sections 2.1, 2.2, 2.3, 2.4, 2.5 and 2.6 are cumulative and will be made successively whenever an event referred to therein occurs.
2.8. If at any time a question or dispute arises with respect to the adjustments provided for in Sections 2.1, 2.2, 2.3, 2.4, 2.5 or 2.6, such question or dispute will be conclusively
determined by a firm of nationally recognized chartered professional accountants appointed by the Company (who may be the auditors of the Company) and acceptable to the Holder. Such accountants shall have access to all necessary records of the Company and any such determination will be binding upon the Company and the Holder.
2.9. The Company shall, from time to time immediately after the occurrence of any event which requires an adjustment or re-adjustment as provided in Sections 2.1, 2.2, 2.3, 2.4, 2.5 or 2.6, deliver a certificate of the Company to the Holder specifying the nature of the event requiring the same and the amount of the necessary adjustment (or, in the case of Section 2.5, entitlement to cash or other property upon conversion) and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based, and, if reasonably required by the Holder, such certificate and the amount of the adjustment specified therein shall be verified by an opinion of a firm of nationally recognized chartered professional accountants appointed by the Company (who may be the auditors of the Company) and acceptable to the Holder.
2.10. Notwithstanding anything to the contrary in Sections 2.1, 2.2, 2.3, 2.4, 2.5 or 2.6, if the Holder would otherwise be entitled to receive, upon the exercise of its right of conversion, any property (including cash) or securities that would not constitute “prescribed securities” for the purposes of clause 212(1)(b)(vii)(E) of the Tax Act as it applied immediately before January 1, 2008 (“Ineligible Consideration”), the Holder shall not be entitled to receive such Ineligible Consideration and the Company or the successor or acquiror, as the case may be, shall have the right (at the sole option of the Company or the successor or acquiror, as the case may be) to deliver to the Holder “prescribed securities” for the purposes of clause 212(1)(b)(vii)(E) of the Tax Act as it applied immediately before January 1, 2008 with a market value (as conclusively determined by the board of directors of the Company) equal to the market value of such Ineligible Consideration.
2.11. No Fractional Shares. Notwithstanding any provision contained in this Warrant Certificate to the contrary, the Company shall not issue fractional Common Shares upon the exercise of Warrants. If, by reason of any adjustment made pursuant to this Section 2, the Holder of any Warrant would be entitled, upon the exercise of such Warrant, to receive a fractional interest in a share, the Company shall, upon such exercise, round down to the nearest whole number the number of Common Shares to be issued to such holder.
2.12. Form of Warrant. The form of Warrant need not be changed because of any adjustment pursuant to this Section 2, and Warrants issued after such adjustment may state the same Exercise Price and the same number of shares as is stated in the Warrants initially issued pursuant to this Warrant Certificate; provided, however, that the Company may at any time in its sole discretion make any change in the form of Warrant that the Company may deem appropriate and that does not affect the substance thereof, and any Warrant thereafter issued or countersigned, whether in exchange or substitution for an outstanding Warrant or otherwise, may be in the form as so changed.
2.13. To the extent any amendment or modification is made to Section 8 of the Note, the Company shall simultaneously amend or modify this Warrant Certificate to reflect similar terms.
3. Register and Transferability.
3.1. The Company shall use reasonable best efforts to maintain a register (the “Register”) for the registration in book-entry form of the original issuance of the Warrants and the registration of transfer of any Warrants. Upon the initial issuance of the Warrants in book-entry form, the Agent shall issue and register the Warrants in the names of the
respective holders thereof in such denominations and otherwise in accordance with instructions delivered to the Agent by the Company. The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company shall treat the Holder for all purposes as the owner hereof notwithstanding notice to the contrary, however, that upon its receipt of a written request to assign, transfer or sell all or part of the Warrants evidenced by this Warrant Certificate by the Holder to a Permitted Transferee, the Company shall record the information contained therein in the Register and issue a new certificate in respect of the remaining balance of the Warrants evidenced by this Warrant Certificate; provided, however, that the Company will not register any assignment, transfer or sale of any Warrants not made in accordance with Regulation S or pursuant to registration under the 1933 Act or an available exemption therefrom. Notwithstanding anything to the contrary set forth in this Section 3, following exercise of the Warrants evidenced by this Warrant Certificate in accordance with the terms hereof, the Holder shall not be required to physically surrender this Warrant Certificate to the Company unless (A) all Warrants represented by this Warrant Certificate are being exercised (in which event this Warrant Certificate shall be delivered to the Company following exercise thereof as contemplated by Section 1.3) or (B) the Holder has provided the Company with prior written notice requesting reissuance of this Warrant Certificate upon physical surrender of this Warrant Certificate. If the Company does not update the Register to record the exercise of the Warrants evidenced by this Warrant Certificate and the dates of such exercise and/or payments (as the case may be), then the Register shall be automatically deemed updated to reflect such occurrence on the Business Day immediately prior to such occurrence.
3.2. The Company may appoint an Agent for the purpose of maintaining the Register, issuing the Common Shares or other securities then issuable upon the exercise of the rights under the Warrants, exchanging the Warrants, replacing the Warrants or conducting related activities.
3.3. The Warrants may not be offered, sold, assigned or transferred (including through hedging or derivative transactions) by the Holder other than to one or more Permitted Transferees in each case in accordance with the provisions of Regulation S of the 1933 Act or pursuant to registration under the 1933 Act or an available exemption therefrom and by registration of such assignment or sale on the Register.
4.No Rights as Shareholder. A Warrant does not entitle the Holder thereof to any of the rights of a shareholder of the Company, including, without limitation, the right to receive dividends, or other distributions, exercise any preemptive rights to vote or to consent or to receive notice as shareholders in respect of the meetings of shareholders or the election of directors of the Company or any other matter.
5.No Obligation to Purchase. Nothing herein contained or done pursuant hereto shall obligate the Holder to subscribe for, or the Company to issue, any shares except those shares in respect of which the Holder shall have exercised its right to purchase hereunder in the manner provided herein.
6.U.S. Legend. Certificates representing Common Shares issued pursuant to the Subscription Form, and all certificates issued in exchange thereof or in substitution therefor, until such time as it is no longer required under the applicable requirements of the 1933 Act or applicable United States state laws and regulations, shall bear the following legend:
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE ISSUER, (B) OUTSIDE THE UNITED STATES PURSUANT TO RULE 904 OF REGULATION S UNDER THE U.S. SECURITIES ACT AND IN ACCORDANCE
WITH APPLICABLE LOCAL LAWS AND REGULATONS, (C) PURSUANT TO THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY RULE 144 OR RULE 144A THEREUNDER, IF AVAILABLE, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) PURSUANT TO ANOTHER APPLICABLE EXEMPTION UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, AFTER, IN THE CASE OF TRANSFERS PURSUANT TO CLAUSE (C) OR (D), PROVIDING TO THE COMPANY A LEGAL OPINION OR OTHER EVIDENCE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT.”
Notwithstanding the foregoing, the Company or the Company’s transfer agent may impose additional requirements for the removal of legends from securities sold in compliance with Rule 904 of Regulation S of the 1933 Act in the future.
7.Covenants:
7.1. So long as any Warrants evidenced hereby remain outstanding, the Company shall at all times reserve and keep available a number of its authorized but unissued Common Shares that shall be sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Warrant Certificate.
7.2. The Company covenants and agrees that until the Expiry Time, while the Warrants (or remaining portion thereof) shall be outstanding, the Company shall use its commercially reasonable efforts to remain listed on the Principal Market, and to maintain its status as a “reporting issuer” not in default of the requirements of the applicable securities laws in the jurisdictions in which the Company is currently a reporting issuer, provided that this covenant shall not prevent the Company from completing any transaction which would result in the Company to cease to be listed on the Principal Market or cease to be a reporting issuer, respectively, so long as the holders of the Common Shares receive securities of an entity which is listed on an Eligible Market or cash or the holders of the Common Shares have approved the transaction in accordance with the requirements of applicable corporate laws and the rules and policies of the Principal Market.
7.3. The Company agrees to perform, execute, acknowledge, and deliver or cause to be performed, executed, acknowledged, and delivered all such further and other acts, instruments, and assurances as may reasonably be required for the carrying out or performing of the provisions of this Warrant Certificate.
7.4. In the event of a Change of Control Transaction in which the consideration to be received by the Company’s shareholders consists of cash and/or marketable securities, if this Warrant Certificate is outstanding upon the consummation of such Change of Control Transaction then (a) if the Fair Market Value of one Common Share is greater than the then applicable Exercise Price, this Warrant Certificate may be exercised at the election of the Holder on a net exercise issue basis as of immediately prior to such Change of Control Transaction and (b) if the Fair Market Value of one Common Share is less than or equal to the then applicable Exercise Price, this Warrant Certificate will expire immediately prior to the consummation of such Change of Control Transaction.
7.5. The covenants of the Company referenced in Sections 9(c), (d), (e) and (f) of the Note are incorporated herein by reference. Such covenants of the Company shall not merge in or be prejudiced by and shall survive the redemption of the Note and shall continue in full force and effect so long as the Warrants are outstanding.
7.6. Upon request of the Holder, the Company shall use commercially reasonable efforts to issue to the Holder Book-Entry Warrants settled through the Agent in lieu of this Warrant Certificate.
8.Lost, Stolen or Mutilated Warrant Certificate. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant Certificate (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Warrant Certificate, the Company shall execute and deliver to the Holder a new Warrant Certificate representing the outstanding number of Warrants.
9.Payment of Collection, Enforcement and Other Costs. If (a) this Warrant Certificate is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Warrant Certificate or to enforce the provisions of this Warrant Certificate or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting the Holder’s rights and involving a claim under this Warrant Certificate, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including attorneys’ fees and disbursements.
10.Construction; Headings. This Warrant Certificate shall be deemed to be jointly drafted by the Company and the initial Holder and shall not be construed against any such Person as the drafter hereof. The headings of this Warrant Certificate are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant Certificate. Unless the context clearly indicates otherwise, each pronoun herein shall be deemed to include the masculine, feminine, neuter, singular and plural forms thereof. The terms “including,” “includes,” “include” and words of like import shall be construed broadly as if followed by the words “without limitation.” The terms “herein,” “hereunder,” “hereof” and words of like import refer to this entire Warrant Certificate instead of just the provision in which they are found. Unless expressly indicated otherwise, all section references are to sections of this Warrant Certificate.
11.Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.
12.Dispute Resolution.
12.1Submission to Dispute Resolution.
12.1.1. In the case of a dispute relating to the Exercise Price, the Company or the Holder (as the case may be) shall submit the dispute to the other party via electronic mail or otherwise (A) if by the Company, within five (5) Business Days after the occurrence of the circumstances giving rise to such dispute or (B) if by the Holder within five (5) Business Days after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Company are unable to promptly resolve such dispute relating to such Exercise Price at any time after the second (2nd) Business Day following such initial notice by the Company or the Holder (as the case may be) of such dispute to the Company or the Holder (as the case may be), then the Company shall select an independent, reputable investment bank acceptable to the Holder, acting
reasonably, to resolve such dispute and the Company shall promptly send written confirmation of such joint selection to the Holder.
12.1.2. The Holder and the Company shall each deliver to such investment bank (A) a copy of the initial dispute submission so delivered in accordance with the first sentence of this Section 12.1 and (B) written documentation supporting its position with respect to such dispute, in each case, no later than 5:00 p.m., New York time, by the fifth (5th) Business Day immediately following the date on which the Company provided notice to the Holder of the joint selection of such investment bank (the “Dispute Submission Deadline”) (the documents referred to in the immediately preceding clauses (A) and (B) are collectively referred to herein as the “Required Dispute Documentation”) (it being understood and agreed that if either the Holder or the Company fails to so deliver all of the Required Dispute Documentation by the Dispute Submission Deadline, then the party who fails to so submit all of the Required Dispute Documentation shall no longer be entitled to (and hereby waives its right to) deliver or submit any written documentation or other support to such investment bank with respect to such dispute and such investment bank shall resolve such dispute based solely on the Required Dispute Documentation that was delivered to such investment bank prior to the Dispute Submission Deadline). Unless otherwise agreed to in writing by both the Company and the Holder or otherwise requested by such investment bank, neither the Company nor the Holder shall be entitled to deliver or submit any written documentation or other support to such investment bank in connection with such dispute (other than the Required Dispute Documentation). Any and all communications between the Company, on the one hand, and the Holder, on the other hand, and such investment bank shall be made in writing and a copy provided simultaneously to the Company and the Holder and no meeting between such investment bank and the Company or the Holder shall take place unless each of the Company and the Holder are in attendance.
12.1.3. The Company and the Holder shall cause such investment bank to determine the resolution of such dispute and notify the Company and the Holder of such resolution no later than ten (10) Business Days immediately following the Dispute Submission Deadline. The fees and expenses of such investment bank shall be shared equally between the Company and the Holder, and such investment bank’s resolution of such dispute shall be final and binding upon all parties absent manifest error.
13.Notices; Currency; Payments.
13.1. Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant Certificate must be in writing and will be deemed to have been delivered: (i) upon receipt by the recipient, when delivered personally; (ii) upon receipt by the recipient, when sent by electronic mail (provided that such sent email is kept on file (whether electronically or otherwise) by the sending party and the sending party does not receive an automatically generated message from the recipient’s email server that such e-mail could not be delivered to such recipient); or (iii) one (1) Business Day after deposit with an overnight courier service with next day delivery specified, in each case, properly addressed to the party to receive the same. The addresses and e-mail addresses for such communications shall be:
If to the Company:
Li-Cycle Holdings Corp.
207 Queen’s Quay West, Suite 590
Toronto, Ontario M5J 1A7
Attention: Ajay Kochhar
Email: ajay.kochhar@li-cycle.com
with a copy (which shall not constitute notice) to:
Freshfields Bruckhaus Deringer LLP
601 Lexington Avenue, 31st Floor
New York, New York
Attention: Paul M. Tiger, Andrea M. Basham
Email: Paul.Tiger@Freshfields.com
Andrea.Basham@Freshfields.com
If to the Holder:
Glencore Ltd.
330 Madison Ave.
New York, NY 10017
Attention: Legal Department
Email: legalnotices@glencore-us.com
with a copy to:
Glencore International AG
Baarermattstrasse 3
CH – 6340 Baar
Switzerland
Attention: General Counsel
Email: general.counsel@glencore.com
with a copy (which shall not constitute notice) to:
Weil, Gotshal & Manges LLP
767 5th Avenue
New York, NY 10153
Attention: Heather Emmel, David Avery-Gee
Email: Heather.emmel@weil.com
David.Avery-Gee@weil.com
or to such other address or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s e-mail containing the time and date or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by e-mail or receipt from an overnight courier service in accordance with clauses (i), (ii) or (iii) above, respectively.
13.2. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant Certificate, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) within three (3) Business Days after any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Shares, (B) with respect to any grant, issuances, or
sales of any or rights to purchase shares, warrants, securities or other property to holders of Common Shares or (C) for determining rights to vote with respect to any change of control transaction, dissolution or liquidation, provided in each case that any material non-public information in any such notice shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
13.3. Calculation of Time. When computing any time period in this Warrant Certificate, the following rules shall apply:
13.3.1. the day marking the commencement of the time period shall be excluded but the day of the deadline or expiry of the time period shall be included;
13.3.2. for time periods measured in Business Days, any day that is not a Business Day shall be excluded in the calculation of the time period; and, if the day of the deadline or expiry of the time period falls on a day which is not a Business Day, the deadline or time period shall be extended to the next following Business Day;
13.3.3. for time periods measured in Trading Days, any day that is not a Trading Day shall be excluded in the calculation of the time period; and, if the day of the deadline or expiry of the time period falls on a day which is not a Trading Day, the deadline or time period shall be extended to the next following Trading Day;
13.3.4. if the end date of any deadline or time period in this Warrant Certificate refers to a specific calendar date and that date is not a Business Day, the deadline or time period shall be extended to the next Business Day following the specific calendar date; and
13.3.5. when used in this Warrant Certificate the term “month” shall mean a calendar month.
13.4. Currency. Unless otherwise specified or the context otherwise requires all dollar amounts referred to in this Warrant Certificate are in United States Dollars (“U.S. Dollars”).
13.5. Payments. Whenever any payment of cash is to be made pursuant to this Warrant Certificate, unless otherwise expressly set forth herein, such payment shall be made in U.S Dollars by wire transfer of immediately available funds. Whenever any amount expressed to be due by the terms of this Warrant Certificate is due on any day which is not a Business Day, the same shall instead be due on the next succeeding day which is a Business Day.
14.Waiver of Notice. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Warrant Certificate and the Registration Rights Agreement.
15.Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Warrant Certificate shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or thereby,
and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Warrant Certificate and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude a Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Company’s obligations to a Holder or to enforce a judgment or other court ruling in favor of a Holder. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF, IN CONNECTION WITH OR RELATING TO THIS WARRANT CERTIFICATE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF SUCH ACTION OR PROCEEDING. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT: (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF SUCH ACTION OR PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER; (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (C) IT MAKES THIS WAIVER VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS WARRANT CERTIFICATE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.
16.Severability. If any provision of this Warrant Certificate is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant Certificate so long as this Warrant Certificate as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
17.Certain Definitions. For purposes of this Warrant Certificate, the following terms shall have the following meanings:
(a)“1933 Act” means the U.S. Securities Act of 1933, as amended, and the rules and regulations thereunder.
(b)“1934 Act” means the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
(c)“Additional Shares of Common Stock” shall mean all Common Shares or securities or notes convertible or exchangeable for Common Shares issued by the Company after the date of this Warrant Certificate, other than (1) the following Common Shares and (2) Common Shares deemed issued pursuant to the following options and securities or notes convertible into or exchangeable for Common Shares:
(i)Common Shares or securities or notes convertible into or exchangeable for Common Shares issued by way of a dividend or distribution that is covered by Section 2.1;
(ii)Common Shares or securities or notes convertible into or exchangeable for Common Shares issued to employees or directors of, or consultants or advisors to, the Company or any of its subsidiaries, whether issued before or after the date of this Warrant Certificate, pursuant to any option or incentive plan of the Company adopted by the board of directors of the Company (or any predecessor governing body); and
(iii)Common Shares or securities or notes convertible into or exchangeable for Common Shares issued upon the exercise of options or warrants or Common Shares issued upon the conversion or exchange of securities or notes convertible into or exchangeable for Common Shares which are outstanding as of the date hereof, in each case provided such issuance is pursuant to the terms of such option or warrants or securities or notes convertible into or exchangeable for Common Shares.
(d)“Affiliate” means, in relation to any Person (the “first named person”), any other Person that controls, is controlled by or is under common control with the first named person; provided that, for greater certainty, the Company is not an Affiliate of the Holder or any of its subsidiaries for the purposes of this Warrant Certificate.
(e)“Applicable Law” means all laws (statutory or common), rules, ordinances, regulations, grants, concessions, franchises, licenses, orders, directives, judgments, decrees, and other governmental restrictions, including permits and other similar requirements, whether legislative, municipal, administrative or judicial in nature, having application, directly or indirectly, to the Company, and includes the rules and policies of any stock exchange upon which the Company has securities listed or quoted.
(f)“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in New York City or the City of Toronto are authorized or required by law to remain closed; provided, however, for clarification, commercial banks shall not be deemed to be authorized or required by law to remain closed due to “stay at home”, “shelter-in-place”, “non-essential employee” or any other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of commercial banks in New York City or the City of Toronto generally are open for use by customers on such day.
(g)“Change of Control Transaction” means any of the following events: (i) a “person” or “group” (within the meaning of Section 13(d)(3) of the 1934 Act), other than the Company or one or more employee benefit plans of the Company, files any report with the SEC indicating that such person or group has become the direct or indirect “beneficial owner” (as defined below) of Common Shares representing more than fifty percent (50%) of the Company’s then outstanding Common Shares (other than Common Shares held by the Company as treasury stock or owned by a subsidiary of the Company); (ii) the consummation of (A) any sale, lease or other transfer, in one transaction or a series of transactions, of all or substantially all of the assets of the Company, taken as a whole, to any Person; or (B) any transaction or series of related transactions in connection with which (whether by means of merger, consolidation, amalgamation, arrangement, share exchange, combination, reclassification, recapitalization, acquisition, liquidation or otherwise) more than fifty percent (50%) of the outstanding Common Shares (other than Common Shares held by the Company as treasury stock or owned by a subsidiary of the Company) are exchanged for, converted into, acquired for, or constitute solely the right to receive, other securities, cash or other property (other than a subdivision or combination, or solely a change in par
value, of the Common Shares); provided, however, that any merger, consolidation, amalgamation, arrangement, share exchange or combination of the Company pursuant to which the Persons that directly or indirectly “beneficially owned” (as defined below) all classes of the Company’s common equity immediately before such transaction directly or indirectly “beneficially own,” immediately after such transaction, more than fifty percent (50%) of all classes of common equity of the surviving, continuing or acquiring company or other transferee, as applicable, or the parent thereof, in substantially the same proportions vis-à-vis each other as immediately before such transaction will be deemed not to be a Change of Control Transaction pursuant to this clause (ii); (iii) the Company’s shareholders approve any plan or proposal for the liquidation or dissolution of the Company; or (iv) the Common Shares cease to be listed on any Eligible Market. For the purposes of this definition, whether a Person is a “beneficial owner” and whether shares are “beneficially owned” will be determined in accordance with Rule 13d-3 under the 1934 Act.
(h)“Common Shares” means (i) the Company’s common shares, (ii) any share capital into which such common shares shall have been changed or any share capital resulting from a reclassification of such common shares and (iii) for purposes of Section 2.1(iv) only, the common shares or other securities of any of the Company’s subsidiaries in addition to the common shares of the Company.
(i)“Eligible Market” means the New York Stock Exchange, the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the Toronto Stock Exchange, the TSX Venture Exchange, the Canadian Securities Exchange or the OTC US Market so long as, in the case of the OTC US Market only, the market capitalization of the Company is $150,000,000 or more.
(j)“Exercise Period” has the meaning given to such term in Section 1.2.
(k)“Exercise Price” has the meaning given to such term in Section 1.1.
(l)“Expiry Time” has the meaning given to such term in Section 1.2.
(m)“Fair Market Value” means, with respect to any issuance of Additional Shares of Common Stock, the volume weighted average price of the Common Shares for the seven (7) Trading Days immediately preceding the issue date of such Additional Shares of Common Stock.
(n)“Ineligible Consideration” has the meaning given to such term in Section 2.10.
(o)“Permitted Transferees” means as to the Holder, any of the following: (i) if a natural person, his/her ancestors, descendants, siblings, or spouse, any executor or administrator of his/her estate, or to a custodian, trustee (including a trustee of a voting trust), executor, or other fiduciary primarily for the account of the Holder or his/her ancestors, descendants, siblings, or spouse, whether step, in-law or adopted, and, in the case of any such trust or fiduciary, to the Holder who transferred this Note to such trust or fiduciary, but only with respect to transfers made for bona fide estate planning purposes, either during his or her lifetime or on death by will or intestacy; (ii) if an entity, (A) the then-existing members, shareholders or other investors in the Holder in connection with the dissolution or winding-up of the Holder, or (B) any Person in connection with any consolidation or reorganization of the Holder directly or indirectly with or into one or more other investment vehicles; or (iii) any Affiliate of the Holder (in respect of clause (iii) only, other than any investment portfolio company of the Holder that is an Affiliate).
(p)“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.
(q)“Principal Market” means The New York Stock Exchange or any Eligible Market on which the Company’s Common Shares are listed (and, in the case of
multiple listing, the majority of the Company’s Common Shares trade) at the applicable time.
(r)“Registration Rights Agreement” means the registration rights agreement dated as of May 31, 2022 between the Company and the Holder, as amended from time to time.
(s)“SEC” means the United States Securities and Exchange Commission or any successor thereto.
(t)“Subscription Form” means the subscription form attached hereto as Exhibit A.
(u)“Tax Act” means the Income Tax Act (Canada).
(v)“Trading Day” means, as applicable, (i) with respect to all price or trading volume determinations relating to the Common Shares, any day on which the Common Shares are traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Shares, then on the principal securities exchange or securities market on which the Common Shares are then traded, provided that “Trading Day” shall not include any day on which the Common Shares are scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Shares are suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder or (ii) with respect to all determinations other than price determinations relating to the Common Shares, any day on which the Principal Market (or any successor thereto) is open for trading of securities.
(w)“Transfer Form” means the transfer form attached hereto as Exhibit B.
18.Disclosure. Upon delivery by the Company to the Holder (or receipt by the Company from the Holder) of any notice in accordance with the terms of this Warrant Certificate, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company, the Company shall on or prior to 9:00 a.m., New York City time on the Business Day immediately following such notice delivery date, publicly disclose such material, non-public information on a Current Report on Form 6-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company, the Company so shall indicate to the Holder explicitly in writing in such notice (or immediately upon receipt of notice from the Holder, as applicable), and in the absence of any such written indication in such notice (or notification from the Company immediately upon receipt of notice from the Holder), the Holder shall be entitled to presume that information contained in the notice does not constitute material, non-public information relating to the Company.
19.Absence of trading and disclosure restrictions. The Company acknowledges and agrees that the Holder is not a fiduciary or agent of the Company and that the Holder shall have no obligation to (a) maintain the confidentiality of any information provided by the Company or (b) refrain from trading any securities while in possession of such information in the absence of a written non-disclosure agreement signed by an officer of the Holder that explicitly provides for such confidentiality and trading restrictions. In the absence of such an executed, written non-disclosure agreement, the Company acknowledges that the Holder may freely trade in any securities issued by the Company, may possess and use any information provided by the Company in connection with such trading activity, and may disclose any such information to any third party.
Exhibit A
Subscription Form
Capitalized terms used herein have the meanings ascribed thereto in the Warrant Certificate (the “Warrant Certificate”) to which this Subscription Form is attached.
The undersigned holder of the attached Warrant Certificate hereby subscribes for ______________ common shares (the “Shares”) of LI-CYCLE HOLDINGS CORP. (the “Company”) pursuant to the terms of the Warrant Certificate at the Exercise Price on the terms specified in the Warrant Certificate and contemporaneously with the execution and delivery hereof makes payment therefor on the terms specified in the Warrant Certificate. If any Warrants represented by this Warrant Certificate are not being exercised, a new Warrant Certificate representing the unexercised Warrants will be issued and delivered with the certificate representing the Shares.
The undersigned hereby directs that the Shares be issued as follows:
| | | | | | | | |
| Names(s) in Full | Address(es) | Number of Common Shares |
| | |
| | |
| | |
| | |
Date: [ ], 20
[ ]
By:
Name:
Title:
Exhibit B
Transfer Form
Assignor:
Company: LI-CYCLE HOLDINGS CORP. (the “Company”)
Warrant: Warrant No. _______ to purchase common shares issued on ______________________ (the “Warrant”)
Date:
In the case of a warrant certificate that contains the U.S. restricted legend, the undersigned hereby represents, warrants and certifies that (one (only) of the following must be checked):
| | | | | |
| (A) the transfer is being made only to the Company; |
| (B) the transfer is being made outside the United States in compliance with Rule 904 of Regulation S under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), and in compliance with any applicable local securities laws and regulations and the undersigned has furnished to the Company any other evidence in form and substance required by the Company to such effect, or |
| (C) the transfer is being made in a transaction that does not require registration under the U.S. Securities Act or any applicable state securities laws or the filing of a prospectus or similar document under the securities laws of any jurisdiction of Canada, including, without limitation, the Securities Act (Ontario) and the rules and regulations made thereunder, and the undersigned has furnished to the Company an opinion of counsel of recognized standing or other evidence in form and substance reasonably satisfactory to the Company to such effect. |
Assignment. The undersigned registered holder of the Warrant (the “Assignor”) assigns and transfers to the assignee named below all of the rights of Assignor under the accompanying Warrant Certificate with respect to the number of Warrants set forth below:
Name of Assignee:
Address of Assignee:
Number of Warrants Assigned:
and does irrevocably constitute and appoint ______________________ as attorney to make such transfer on the books of LI-CYCLE HOLDINGS CORP. maintained for the purpose, with full power of substitution in the premises.
In the event of the transfer of less than the total number of Warrants represented by the accompanying Warrant Certificate, the Company is hereby instructed to deliver to or as directed by the Assignor, without charge, a new Warrant Certificate in respect of the balance of the Warrants which have not been transferred.
ASSIGNOR
(Print name of Assignor)
(Signature of Assignor)
(Print name of signatory, if applicable)
(Print title of signatory, if applicable)
Address:
CERTIFICATION PURSUANT TO RULE 13a-14(a) and 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Ajay Kochhar, certify that:
1.I have reviewed this Transition Report on Form 20-F of Li-Cycle Holdings Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
A.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
B.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
C.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
D.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
A.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
B.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 30, 2023
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| | | | | | | | |
| | /s/ Ajay Kochhar |
| | Ajay Kochhar |
| | Chief Executive Officer |
| | |
| | |
CERTIFICATION PURSUANT TO RULE 13a-14(a) and 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Deborah K. Simpson, certify that:
1.I have reviewed this Transition Report on Form 20-F of Li-Cycle Holdings Corp.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
A.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
B.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
C.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
D.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
A.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
B.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: March 30, 2023
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | /s/ Deborah K. Simpson |
| | Deborah K. Simpson |
| | Chief Financial Officer |
| | |
| | |
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the transition report on Form 20-F of Li-Cycle Holdings Corp. (the “Company”) for the transition period from November 1, 2022 to December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 30, 2023
| | | | | |
By: | /s/ Ajay Kochhar |
| Name: Ajay Kochhar |
| Title: Chief Executive Officer (principal executive officer) |
|
|
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the transition report on Form 20-F of Li-Cycle Holdings Corp. (the “Company”) for the transition period from November 1, 2022 to December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 30, 2023
| | | | | |
By: | /s/ Deborah K. Simpson |
| Name: Deborah K. Simpson |
| Title: Chief Financial Officer (principal financial officer) |
|
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| | |
|
| Condensed consolidated financial statements of |
| Li-Cycle Holdings Corp. |
Two months ended December 31, 2022 and 2021 |
| (Unaudited) |
|
| | | | | |
| CONDENSED CONSOLIDATED FINANCIAL STATEMENTS | Page |
| |
| 2 |
| 3 |
| 4 |
| 5 |
| NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | |
| Note 1 - Corporate information | 6 |
| Note 2 - Basis of preparation | 6 |
| Note 3 - Revenue - product sales and recycling services | 9 |
| Note 4 - Other income (expense) | 9 |
| Note 5 - Accounts receivable | 9 |
| Note 6 - Prepayment and deposits | 10 |
| Note 7 - Inventories | 11 |
| Note 8 - Plant and equipment | 11 |
| |
| Note 9 - Related party transactions | 12 |
Note 10 - Accounts payable and accrued liabilities | 12 |
| |
| Note 11 - Convertible debt | 12 |
| |
| |
| Note 12 - Financial instruments and financial risk factors | 15 |
| Note 13 - Commitments and contingencies | 17 |
| Note 14 - Earnings per share | 18 |
| Note 15 - Segment reporting | 18 |
| |
| |
| Note 16 - Notes to the consolidated statement of cash flows | 19 |
| Note 17 - Subsequent events | 19 |
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| | | | | | | | | | | | |
| Li-Cycle Holdings Corp. | |
| Condensed consolidated statements of income and comprehensive income | |
| |
| Unaudited $ millions except for per share amounts, for the two months ended December 31, | Notes | 2022 | 2021 | |
| | | | |
| Revenue | | | | |
| Product sales | 3 | | $ | 5.8 | | $ | 2.7 | | |
| Recycling services | 3 | | 0.1 | | 0.1 | | |
| | 5.9 | | 2.8 | | |
| | | | |
| Expenses | | | | |
| Employee salaries and benefits | | 9.0 | | 4.8 | | |
| Share-based compensation | | 2.1 | | 1.1 | | |
| Office, administrative and travel | | 3.8 | | 1.7 | | |
| Professional fees | | 3.3 | | 1.9 | | |
| Raw materials and supplies | | 2.5 | | 1.3 | | |
| Depreciation | | 2.4 | | 1.2 | | |
| Plant facilities | | 1.2 | | 0.3 | | |
| Marketing | | 0.3 | | 0.3 | | |
| Freight and shipping | | 0.2 | | 0.1 | | |
| Research and development | | 0.5 | | 0.3 | | |
| Change in finished goods inventory | | — | | (0.5) | | |
| Operating expenses | | 25.3 | | 12.5 | | |
| | | | |
| Loss from operations | | (19.4) | | (9.7) | | |
| | | | |
| Other income (expense) | | | | |
| | | | |
| Interest income | 4 | 3.5 | | 0.1 | | |
| Interest expense and other costs | 4 | (3.8) | | (2.5) | | |
| Gain on financial instruments | 11 | 21.4 | | 16.0 | | |
| | 21.1 | | 13.6 | | |
| | | | |
| Net income before taxes | | 1.7 | | 3.9 | | |
| Income tax | | — | | — | | |
| Net income | | $ | 1.7 | | $ | 3.9 | | |
| | | | |
| Net income attributable to | | | | |
| Shareholders of Li-Cycle Holdings Corp. | | $ | 1.7 | | $ | 3.9 | | |
| Non-controlling interest | | — | | — | | |
| | | | |
| | | | |
| | | | |
| Net income and comprehensive income | | $ | 1.7 | | $ | 3.9 | | |
| | | | |
| Earnings per common share - basic | 14 | $ | 0.01 | | $ | 0.02 | | |
| Earnings per common share - diluted | 14 | $ | 0.01 | | $ | 0.02 | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | | |
| Li-Cycle Holdings Corp. | | | | |
| Condensed consolidated statements of financial position |
| | December 31, | October 31, | |
| Unaudited $ millions, as at | Notes | 2022 | 2022 | |
| | | | |
| Assets | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 517.9 | | $ | 578.3 | | |
| Accounts receivable | 5 | 4.3 | | 1.5 | | |
| Other receivables | 5 | 10.0 | | 7.8 | | |
| Prepayment and deposits | 6 | 95.2 | | 85.8 | | |
| Inventories | 7 | 8.3 | | 7.5 | | |
| | 635.7 | | 680.9 | | |
| | | | |
| Non-current assets | | | | |
| Plant and equipment | 8 | 210.4 | | 147.7 | | |
| Right-of-use assets | | 50.8 | | 50.1 | | |
| Other assets | 6 | 4.2 | | 3.6 | | |
| | 265.4 | | 201.4 | | |
| Total assets | | $ | 901.1 | | $ | 882.3 | | |
| | | | |
| Liabilities | | | | |
| Current liabilities | | | | |
| Accounts payable and accrued liabilities | 10 | $ | 75.9 | | $ | 47.5 | | |
| Lease liabilities | | 5.6 | | 5.2 | | |
| | 81.5 | | 52.7 | | |
| | | | |
| Non-current liabilities | | | | |
| Lease liabilities | | 48.3 | | 46.6 | | |
| Convertible debt | 11 | 272.9 | | 288.5 | | |
| Restoration provisions | | 0.4 | | 0.4 | | |
| | 321.6 | | 335.5 | | |
| Total liabilities | | 403.1 | | 388.2 | | |
| | | | |
| Equity | | | | |
| Share capital | | 772.4 | | 771.8 | | |
| Other reserves | | 18.7 | | 17.1 | | |
| Accumulated deficit | | (293.0) | | (294.7) | | |
| Accumulated other comprehensive loss | | (0.3) | | (0.3) | | |
| Equity attributable to the Shareholders of Li-Cycle Holdings Corp. | | 497.8 | | 493.9 | | |
| Non-controlling interest | | 0.2 | | 0.2 | | |
| Total equity | | 498.0 | | 494.1 | | |
| Total liabilities and equity | | $ | 901.1 | | $ | 882.3 | | |
Commitments and contingencies (Note 13)
Subsequent events (Note 17)
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Li-Cycle Holdings Corp. | | | | | | | |
| Condensed consolidated statements of changes in equity |
|
| Unaudited $ millions, except for number of shares | | Number of common shares | Share capital | Contributed surplus | Accumulated deficit | Accumulated other comprehensive loss | Equity attributable to the Shareholders of Li-Cycle Holdings Corp. | Non-controlling interest | Total |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Balance, October 31, 2021 | | 163.3 | $ | 672.1 | | $ | 3.0 | | $ | (241.1) | | $ | (0.3) | | $ | 433.7 | | $ | — | | $ | 433.7 | |
| | | | | | | | | |
| Stock option expense | | — | — | 6.6 | — | — | 6.6 | — | 6.6 |
| Exercise of stock options | | 1.4 | 0.4 | (0.4) | — | — | — | — | — |
| Shares issued for cash | | 5.3 | 49.7 | — | — | — | 49.7 | — | 49.7 |
| Exercise of warrants | | 5.7 | 46.0 | — | — | — | 46.0 | — | 46.0 |
| RSUs expense | | — | — | 11.5 | — | — | 11.5 | — | 11.5 |
| Settlement of RSUs | | 0.3 | 3.6 | (3.6) | — | — | — | — | — |
| Non-controlling interest in subsidiary | | — | — | — | — | — | — | 0.3 | 0.3 |
| Comprehensive loss | | — | — | — | (53.6) | — | (53.6) | (0.1) | (53.7) |
| Balance, October 31, 2022 | | 176.0 | 771.8 | 17.1 | (294.7) | (0.3) | 493.9 | 0.2 | 494.1 |
| Stock option expense | | — | — | 0.6 | — | — | 0.6 | — | 0.6 |
| Exercise of stock options | | 0.1 | 0.1 | (0.1) | — | — | — | — | — |
| RSUs expense | | — | — | 1.6 | — | — | 1.6 | — | 1.6 |
| Settlement of RSUs | | — | 0.5 | (0.5) | — | — | — | — | — |
| Non-controlling interest in subsidiary | | — | — | — | — | — | — | — | — |
| Comprehensive income | | — | — | — | 1.7 | — | 1.7 | — | 1.7 |
| Balance, December 31, 2022 | | 176.1 | $ | 772.4 | | $ | 18.7 | | $ | (293.0) | | $ | (0.3) | | $ | 497.8 | | $ | 0.2 | | $ | 498.0 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | | | | | | | | | |
| Li-Cycle Holdings Corp. | | | |
| Condensed consolidated statements of cash flows |
| | | |
| Unaudited $ millions, for the two months ended December 31, | Notes | 2022 | 2021 |
| Operating activities | | | |
| Net income for the period | | $ | 1.7 | $ | 3.9 |
| Items not affecting cash | | | |
| Share-based compensation | | 2.1 | 1.1 |
| Depreciation | | 2.4 | 1.2 |
| Foreign exchange (gain) loss on translation | | 0.8 | (0.3) | |
| Gains on financial instruments | 11 | (21.4) | | (16.0) | |
| Interest expense | 4 | 3.0 | 2.5 |
| Interest paid | 4 | (0.7) | | (0.3) | |
| Interest received | | 2.7 | 0.1 |
| Interest income | 4 | (3.5) | | (0.1) | |
| | (12.9) | | (7.9) | |
| Changes in non-cash working capital items | | | |
| Accounts receivable | 5 | (2.8) | | (1.2) | |
| Other receivables | | (1.4) | | 0.1 |
| Prepayments and deposits | | (0.3) | | 3.1 | |
| Inventories | | (0.8) | | (0.9) | |
| Accounts payable and accrued liabilities | | (20.2) | | (7.5) | |
| Cash used by operating activities | | (38.4) | | (14.3) | |
| | | |
| Investing activities | | | |
| Purchases of plant and equipment | 8 | (11.8) | | (2.2) | |
| Prepaid equipment deposits | 6 | (9.7) | | (16.0) | |
| | | |
| Cash used by investing activities | | (21.5) | | (18.2) | |
| | | |
| Financing activities | | | |
| | | |
| Repayment of lease principal | | (0.5) | | (0.6) | |
| | | |
| Cash provided by financing activities | | (0.5) | | (0.6) | |
| | | |
| Net change in cash and cash equivalents | | (60.4) | | (33.1) | |
| Cash and cash equivalents, beginning of period | | 578.3 | 596.9 |
| Cash and cash equivalents, end of period | | $ | 517.9 | $ | 563.8 |
| | | |
| Non-cash investing activities | | | |
| Purchase of plant and equipment in payables and accruals | 8 | | $ | 48.6 | | $ | 2.3 | |
| | | |
| | | |
| | | |
| | | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
1.Corporate information
Company overview
Li-Cycle’s core business model is to build, own and operate recycling plants tailored to regional needs. Li-Cycle’s Spoke & Hub Technologies™ provide an environmentally-friendly resource recovery solution that addresses the growing global lithium-ion battery recycling challenges supporting the global transition toward electrification.
Li-Cycle Holdings Corp. and its subsidiaries, collectively ("Li-Cycle" or the "Company") started their business as Li-Cycle Corp. Li-Cycle Corp. was incorporated in Ontario, Canada under the Business Corporations Act (Ontario) on November 18, 2016. The Company's registered address is 207 Queens Quay West, Suite 590, Toronto, Ontario.
On March 28, 2019, Li-Cycle Corp. incorporated a wholly-owned subsidiary, Li-Cycle Inc., under the General Corporation Law of the State of Delaware. This subsidiary operates the Company’s U.S. Spoke facilities.
On September 2, 2020, Li-Cycle Corp. incorporated a wholly-owned subsidiary, Li-Cycle North America Hub, Inc., under the General Corporation Law of the State of Delaware. This subsidiary is developing the Company’s first commercial Hub, in Rochester, New York.
On August 10, 2021, in accordance with the plan of arrangement to reorganize Li-Cycle Corp., the Company finalized a business combination (the "Business Combination") with Peridot Acquisition Corp., and the combined company was renamed Li-Cycle Holdings Corp. On closing, the common shares of Li-Cycle Holdings Corp. were listed on the New York Stock Exchange and commenced trading under the symbol “NYSE:LICY”.
2. Basis of preparation
2.1 Statement of compliance
On December 21, 2022, the Company announced a change in its financial year end from October 31 to December 31. The change is being made to better align Li-Cycle’s financial reporting calendar with peer group companies. As a result, the Company has prepared these condensed consolidated financial statements for the two-month period from November 1, 2022 through December 31, 2022. The Company’s next financial year will cover the period from January 1, 2023 to December 31, 2023. These financial statements do not include all the notes required in annual financial statements.
These condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") under International Accounting Standard (IAS) 34 - Interim Financial Reporting. Except as described below, these condensed consolidated financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as set forth in Note 2, Significant accounting policies in the Company's consolidated financial statements for the year ended October 31, 2022.
These condensed consolidated financial statements were approved and authorized for issue by the Board of Directors on March 30, 2023.
2.2 Basis of measurement
These condensed consolidated financial statements have been prepared on a going concern basis, using historical cost basis, except for financial assets and liabilities that have been measured at amortized cost or fair value through profit and loss.
2.3 Basis of consolidation
These condensed consolidated financial statements include the financial information of the Company and its subsidiaries. The Company’s subsidiaries are entities controlled by the Company. Control exists when the Company has power over an investee, when the Company is exposed, or has rights, to variable returns from the investee and when the Company has the ability to affect those returns through its power over the investee. The
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
subsidiaries are included in the condensed consolidated financial statements of the Company from the effective date of incorporation up to the effective date of disposition or loss of control. In assessing control, potential voting rights that are presently exercisable or convertible is taken into account. The accounting policies of subsidiaries are aligned with policies adopted by the Company.
The Company’s principal subsidiaries and their geographic location as at December 31, 2022 are set forth in the table below:
| | | | | | | | |
| Company | Location | Ownership interest |
| Li-Cycle Corp. | Ontario, Canada | 100% |
| Li-Cycle Americas Corp. | Ontario, Canada | 100% |
| Li-Cycle U.S. Holdings Inc. | Delaware, U.S. | 100% |
| Li-Cycle Inc. | Delaware, U.S. | 100% |
| Li-Cycle North America Hub, Inc. | Delaware, U.S. | 100% |
| Li-Cycle Europe AG | Switzerland | 100% |
| Li-Cycle APAC PTE. LTD. | Singapore | 100% |
Li-Cycle Germany GmbH | Germany | 100% |
| | |
| | |
| | |
| | |
| Li-Cycle Norway AS | Norway | 67% |
Intercompany transactions, balances and unrealized gains/losses on transactions between the Company and its subsidiaries have been eliminated.
2.4 Presentation currency
These condensed consolidated financial statements are presented in U.S. dollars, which is the Company's functional currency. All figures are presented in millions of U.S. dollars unless otherwise specified.
2.5 Comparative figures
Certain of the comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year.
2.6 Foreign currencies
The reporting and functional currency of the Company is the U.S. dollar. Transactions in currencies other than the U.S. dollar are recorded at the rates of exchange prevailing on the dates of transactions. At the end of each reporting period, monetary assets and liabilities that are denominated in foreign currencies are translated at the rates prevailing at that date.
2.7 Recently adopted IFRS Standards
In September 2020, the IASB issued an amendment to IFRS 3 - Business Combinations to refer to the 2018 Conceptual Framework instead of the 1989 Conceptual Framework. The amendment also includes a requirement that, for obligations within the scope of IAS 37- Provisions, Contingent Liabilities and Contingent Assets ("IAS 37"), an acquirer applies IAS 37 to determine whether at the acquisition date a present obligation exists as a result of past events. For a levy that would be within the scope of IFRIC 21 Levies, the acquirer applies IFRIC 21 to determine whether the obligating event that gives rise to a liability to pay the levy has occurred by the acquisition date. Finally, the amendment added an explicit statement that an acquirer does not recognize contingent assets acquired in a business combination.
The amendment is effective for business combinations for which the date of acquisition is on or after the beginning of the first annual period beginning on or after 1 January 2022. The application of this amendment did not have an impact on the Company's condensed consolidated financial statements.
In September 2020, the IASB issued an amendment to IAS 37 - Provisions, Contingent Liabilities and Contingent Assets. The amendment specifies that the cost of fulfilling a contract consists of both the incremental costs of fulfilling that contract and an allocation of other costs that relate directly to fulfilling contracts. The amendment applies to contracts for which the entity has not yet fulfilled all its obligations at the beginning of the annual
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
reporting period in which the entity first applies the amendments. Comparatives are not restated. Instead, the entity shall recognize the cumulative effect of initially applying the amendment as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application.
The amendment is effective for annual periods beginning on or after 1 January 2022. The application of this amendment did not have an impact on the Company's condensed consolidated financial statements.
2.8 New and revised IFRS Standards issued but not yet effective
At the date of authorization of these financial statements, the Company has not applied the following new and revised IFRS Standards that have been issued but are not yet effective.
| | | | | |
| New/Revised Standard | Description |
| IFRS 17 (including the December 2021 amendments to IFRS 17) | Insurance Contracts |
| Amendments to IAS 1 | Disclosure of Accounting Policies and
Classifying liabilities as current or non-current |
| |
| Amendments to IAS 8 | Definition of Accounting Estimates |
| Amendments to IAS 12 | Deferred Tax related to Assets and Liabilities arising from a Single Transaction |
| Amendments to IFRS 16 | Lease liability in a sale & leaseback |
| |
| Amendments to IFRS 10 and IAS 28 | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture |
| |
The adoption of the IFRS Standards listed above are not expected to have a material impact on the financial statements of the Company in future periods.
The following amendment will not have a material impact on the numbers disclosed on the financial statements, but would impact and change wording in certain disclosures.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgments - Disclosure of Accounting Policies
These amendments change the requirements in IAS 1 with regard to disclosure of accounting policies. The amendments replace all instances of the term ‘significant accounting policies’ with ‘material accounting policy information’. Accounting policy information is material if, when considered together with other information included in an entity’s financial statements, it can reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements.
The supporting paragraphs in IAS 1 are also amended to clarify that accounting policy information that relates to immaterial transactions, other events or conditions is immaterial and need not be disclosed. Accounting policy information may be material because of the nature of the related transactions, other events or conditions, even if the amounts are immaterial. However, not all accounting policy information relating to material transactions, other events or conditions is itself material.
The amendments to IAS 1 and IFRS practice statements 2 are effective for annual periods beginning on or after 1 January 2023, with earlier application permitted and are applied prospectively. The Company is assessing the potential impact of these amendments.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
3. Revenue – product sales and recycling services
| | | | | | | | |
| For the two months ended December 31, | 2022 | 2021 |
Product revenue recognized in the period | $ | 3.5 | | $ | 1.5 | |
| Fair value pricing adjustments | 2.3 | | 1.2 | |
| Product sales | 5.8 | | 2.7 | |
| Recycling services | 0.1 | | 0.1 | |
| Revenue | $ | 5.9 | | $ | 2.8 | |
| | | | | | | | |
| For the two months ended December 31, | 2022 | 2021 |
| Product revenue recognized in the period | $ | 3.5 | | $ | 1.5 | |
| Recycling services | 0.1 | | 0.1 | |
| Total revenue before FV pricing adjustment | $ | 3.6 | | $ | 1.6 | |
Product revenue from black mass and black mass equivalents ("Black Mass & Equivalents" or "BM&E") and shredded metal, and the related trade accounts receivable, are measured at initial recognition using provisional prices for the constituent metals on initial recognition. Any unsettled sales at the end of each reporting period are remeasured using the market prices of the constituent metals at the period end. Changes in fair value are recognized as an adjustment to product revenue, and the related accounts receivable, and can result in gains and losses when the applicable metal prices increase or decrease from the date of initial recognition.
Refer to Note 12 for the impact of movements in the cobalt and nickel prices.
4. Other income (expense)
The following table summarizes the Company's other income (expense):
| | | | | | | | | |
| For the two months ended December 31, | 2022 | 2021 | |
| Interest income on short-term investments | $ | 3.5 | | $ | 0.1 | | |
| Interest income | 3.5 | | 0.1 | | |
| | | |
| Interest expense and accretion on convertible debt | (2.3) | | (2.2) | | |
| Interest expense on leases | (0.7) | | (0.3) | | |
| | | |
| Foreign exchange losses | (0.8) | | — | | |
| Interest expense and other costs | (3.8) | | (2.5) | | |
| | | |
| Fair value gain (loss) on embedded derivatives (Note 11) | 21.4 | | (9.1) | | |
| Fair value gain on warrants | — | | 25.1 | | |
| | | |
| Gains (losses) on financial instruments | 21.4 | | 16.0 | | |
| | | |
| | | |
| | | |
| Total | $ | 21.1 | | $ | 13.6 | | |
5. Accounts receivable
| | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 |
| Trade receivables | $ | 4.3 | $ | 1.5 |
| Total accounts receivable | 4.3 | 1.5 |
| | |
| Non-trade receivables | $ | 3.5 | $ | 2.1 |
| Sales taxes receivable | 4.1 | 3.7 |
| Other | 2.4 | 2.0 |
| Total other receivables | $ | 10.0 | $ | 7.8 |
Other receivables consist principally of interest receivable.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
| | | | | | | | |
| Aging Summary | | |
| As at | December 31, 2022 | October 31, 2022 |
| Current | $ | 3.3 | $ | 0.3 |
| 1-30 days | 0.5 | 0.6 |
| 31-60 days | — | 0.3 |
| 61-90 days | 0.3 | 0.1 |
| 91 days and over | 0.2 | 0.2 |
| Total accounts receivable | $ | 4.3 | $ | 1.5 |
For product revenue, the Company estimates the amount of consideration to which it expects to be entitled under provisional pricing arrangements, which is based on the initial assay results and market prices of certain constituent metals on the date control is transferred to the customer. For the two months ended December 31, 2022, the fair value gain arising from changes in estimates was $2.3 million (2021: fair value gain of $1.2 million), which is included in the respective accounts receivable balances. Refer to Note 3 for additional details on product revenue and fair value adjustments recognized in the period.
The Company assesses the need for allowances related to credit loss for service related receivables based on its past experience, the credit ratings of its existing customer and economic trends. For the two months ended December 31, 2022, the Company recorded a $nil credit allowance (2021:$nil).
The Company's revenue primarily comes from three key customers, as shown in the table below. The Company's remaining customers do not make up significant percentages of these balances. For additional details on product sales and fair value adjustments recognized in the period, refer to Note 3.
| | | | | | | | |
| Revenue | | |
| For the two months ended December 31, | 2022 | 2021 |
| Customer A | 10.3 | % | 36.9 | % |
| Customer B | 62.1 | % | 56.1 | % |
| Customer C | 26.2 | % | 0.0 | % |
| | |
| | |
| | | | | | | | |
| Trade Accounts Receivable | |
| As at | December 31, 2022 | October 31, 2022 |
| Customer A | 17.3 | % | 18.3 | % |
| Customer B | 43.8 | % | 42.8 | % |
| Customer C | 27.8 | % | 0.0 | % |
6. Prepayment and deposits
| | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 |
| Prepaid lease deposits | $ | 2.9 | $ | 2.8 |
| Prepaid transaction costs | 0.6 | 0.3 |
| Prepaid construction charges | 1.4 | 1.4 |
| Prepaid equipment deposits | 86.1 | 76.4 |
| Prepaid insurance | 6.0 | 5.7 |
| Other prepaids | 2.4 | 2.8 |
| Total prepaids and deposits | 99.4 | 89.4 |
| Non-current portion of prepaids and deposits | (4.2) | | (3.6) | |
| Current prepaids and deposits | $ | 95.2 | | $ | 85.8 | |
Other prepaids consist principally of other deposits and subscriptions.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
7. Inventories
| | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 |
| Raw materials | $ | 5.8 | $ | 4.7 |
| Finished goods | 1.8 | 1.7 |
| Parts and tools | 0.7 | 1.1 |
| Total inventories | $ | 8.3 | $ | 7.5 |
The cost of inventories recognized as an expense during the two months ended December 31, 2022 was $3.8 million (2021: $2.2 million).
The inventory balances for finished goods and raw materials are adjusted to reflect the lower of cost or net realizable value. For the two months ended December 31, 2022, the adjustment for finished goods inventory was $nil (2021: $nil). For the two months ended December 31, 2022, the adjustment for raw materials inventory included in the Raw materials and supplies line was a $0.9 million partial reversal of a prior period write down (2021: write down of $0.4 million). Refer to Note 12 for additional details on commodity prices.
8. Plant and equipment
| | | | | | | | | | | | | | | | | | | | |
| For the two months ended December 31, | | | | 2022 |
| Assets under construction | Plant equipment and other | Computer equipment | Vehicles | Leasehold improvements | Total |
| Cost | | | | | | |
| Balance, beginning of the period | $ | 107.4 | | $ | 34.3 | | $ | 1.8 | | $ | 0.3 | | $ | 9.8 | | $ | 153.6 | |
| Additions | 63.6 | | — | | 0.3 | | — | | 0.1 | | 64.0 | |
| Transfers | (3.9) | | 3.9 | | — | | — | | — | | — | |
| Balance, end of the period | 167.1 | | 38.2 | | 2.1 | | 0.3 | | 9.9 | | 217.6 | |
| | | | | | |
| Accumulated depreciation | | | | |
| Balance, beginning of the period | — | | (4.3) | | (0.2) | | (0.1) | | (1.3) | | (5.9) | |
| Depreciation | — | | (1.0) | | (0.1) | | — | | (0.2) | | (1.3) | |
| Balance, end of the period | — | | (5.3) | | (0.3) | | (0.1) | | (1.5) | | (7.2) | |
| Net book value | $ | 167.1 | | $ | 32.9 | | $ | 1.8 | | $ | 0.2 | | $ | 8.4 | | $ | 210.4 | |
| | | | | | | | | | | | | | | | | | | | |
| For the year ended October 31, | | | | 2022 |
| Assets under construction | Plant equipment and other | Computer equipment | Vehicles | Leasehold improvements | Total |
| Cost | | | | | | |
| Balance, beginning of the year | $ | 15.6 | | $ | 6.4 | | $ | 0.2 | | $ | 0.2 | | $ | 6.2 | | $ | 28.6 | |
| Additions | 119.5 | | 0.2 | | 1.6 | | 0.1 | | 3.6 | | 125.0 | |
| Transfers | (27.7) | | 27.7 | | — | | — | | — | | — | |
| Balance, end of the year | 107.4 | | 34.3 | | 1.8 | | 0.3 | | 9.8 | | 153.6 | |
| | | | | | |
| Accumulated depreciation | | | | |
| Balance, beginning of the year | — | | (1.6) | | — | | (0.1) | | (0.5) | | (2.2) | |
| Depreciation | — | | (2.7) | | (0.2) | | — | | (0.8) | | (3.7) | |
| Balance, end of the year | — | | (4.3) | | (0.2) | | (0.1) | | (1.3) | | (5.9) | |
| Net book value | $ | 107.4 | | $ | 30.0 | | $ | 1.6 | | $ | 0.2 | | $ | 8.5 | | $ | 147.7 | |
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
For the two months ended December 31, 2022, $1.4 million in employee salaries and $0.1 million in share-based compensation costs (2021: $nil) were capitalized to assets under construction.
For the two months ended December 31, 2022, $3.5 million in borrowing costs (2021: $nil) were capitalized to assets under construction. The capitalization rate used to determine the amount of borrowing costs eligible for capitalization in the period was a weighted average effective interest rate of 12.6%.
Refer to Note 13 for details of contractual commitments to purchase fixed assets.
9. Related party transactions
The remuneration of the executive officers and directors, who are the key management personnel of the Company, is set out below:
| | | | | | | | |
| For the two months ended December 31, | 2022 | 2021 |
| Salaries | $ | 0.6 | | $ | 0.5 | |
| Share-based compensation | 1.4 | | 0.8 | |
| Fees and benefits | 0.6 | | 0.5 | |
| | |
| Total remuneration of key management personnel | $ | 2.6 | | $ | 1.8 | |
Total amounts paid to directors in respect of director services in the period was $0.1 million (2021: $0.1 million).
Outstanding balances of remuneration of the executive officers and directors are summarized as follows:
| | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 |
| Accounts payable and accrued liabilities | $ | 2.8 | $ | 2.3 |
| Outstanding balances | 2.8 | 2.3 |
Related party expenses are recorded at exchange amount. For the two months ended December 31, 2022, total transactions with related parties are $nil (2021: $nil).
10. Accounts payable and accrued liabilities
| | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 |
| Trade payables | $ | 26.5 | | $ | 16.3 | |
| Accrued fixed assets | 35.4 | | 7.2 | |
| Accrued expenses | 4.4 | | 16.3 | |
| Accrued compensation | 9.6 | | 7.7 | |
| Total accounts payable and accrued liabilities | $ | 75.9 | | $ | 47.5 | |
11. Convertible Debt
| | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 |
| KSP Convertible Notes (a) | $ | 91.5 | | $ | 92.4 | |
| Glencore Convertible Notes (b) | 181.4 | | 196.1 | |
| Total convertible debt at end of period | $ | 272.9 | | $ | 288.5 | |
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
(a) KSP Convertible Notes
| | | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 | |
| Principal of convertible notes at beginning of period | $ | 105.9 | | $ | 100.0 | | |
| Issuance of convertible notes | 4.3 | | 5.9 | | |
| Principal of convertible notes at end of period | 110.2 | | 105.9 | | |
| | | |
| Conversion feature at beginning of period | 9.1 | | 29.0 | | |
| | | |
| Fair value gain on embedded derivative | (3.1) | | (19.9) | | |
| | | |
| Conversion feature at end of period | 6.0 | | 9.1 | | |
| | | |
| Debt component at beginning of period | 83.3 | | 71.9 | | |
| Debt component issued | 4.3 | | 5.9 | | |
| | | |
| | | |
| Accrued interest paid in kind | (4.3) | | (5.9) | | |
| | | |
| Accrued interest expense | 2.2 | | 11.4 | | |
| Debt component at end of period | 85.5 | | 83.3 | | |
| Total convertible debt at end of period | $ | 91.5 | | $ | 92.4 | | |
On September 29, 2021, the Company entered into a Note Purchase Agreement (the “KSP Note Purchase Agreement”) with Spring Creek Capital, LLC (an affiliate of Koch Strategic Platforms, LLC, being a subsidiary of Koch Investments Group) and issued an unsecured convertible note (the "KSP Convertible Note”) for a principal amount of $100 million to Spring Creek Capital, LLC. The KSP Convertible Note will mature on September 29, 2026 unless earlier repurchased, redeemed or converted. Interest on the KSP Convertible Note is payable semi-annually, and Li-Cycle is permitted to pay interest on the KSP Convertible Note in cash or by payment in-kind (“PIK”), at its election. Interest payments made in cash are based on an interest rate of LIBOR plus 5.0% per year, and PIK interest payments are based on an interest rate of LIBOR plus 6.0% per year. Under the terms of the KSP Convertible Note, LIBOR has a floor of 1% and a cap of 2%. Once LIBOR interest rate is no longer published, the interest rate will instead be based on the sum of the Secured Overnight Financing Rate ("SOFR") and the average spread between the SOFR and LIBOR during the three-month period ending on the date on which LIBOR ceases to be published, subject to a floor of 1% and cap of 2%. The PIK election results in the issuance of a new note under the same terms as the KSP Convertible Note, issued in lieu of interest payments with an issuance date on the applicable interest date. On May 1, 2022, Spring Creek Capital, LLC assigned the KSP Convertible Note and the PIK note outstanding at that time to an affiliate, Wood River Capital, LLC. The Company has elected to pay interest by PIK since the first interest payment date of December 31, 2021. The KSP Convertible Note and the PIK notes issued thereunder are referred to collectively as the "KSP Convertible Notes”, and as at December 31, 2022, comprised the following:
| | | | | | | | |
| Note | Date Issued | Amount Issued |
| KSP Convertible Note | September 29, 2021 | $ | 100.0 | |
| PIK Note | December 31, 2021 | 1.8 | |
| PIK Note | June 30, 2022 | 4.1 | |
| PIK Note | December 31, 2022 | 4.3 | |
| Total | | $ | 110.2 | |
| | |
The conversion feature under the KSP Convertible Notes has been recorded as an embedded derivative liability since the conversion ratio does not always result in a conversion of a fixed dollar amount of liability for a fixed number of shares. The KSP Convertible Note had an initial conversion price of approximately $13.43 per Li-Cycle common share, subject to customary anti-dilution adjustments, for which price was established based on 125% of the 7-day volume-weighted average price of Li-Cycle’s common shares prior to the date of the KSP Convertible Note Purchase Agreement. Should the Company’s share price be equal to or greater than $17.46, for a period of twenty consecutive days, the Company can force conversion of the KSP Convertible Notes. Li-Cycle will settle its conversion obligations through the delivery of its own common shares. As at December 31, 2022, no conversions had taken place.
The fair value of the embedded derivatives upon issuance of the KSP Convertible Note was determined to be a liability of $27.7 million whereas the remaining $72.3 million, net of transaction costs of $1.6 million, was allocated to the principal portion of the debt. During the
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
two months ended December 31, 2022, the Company recognized a fair value gain of $3.1 million on the embedded derivatives. The embedded derivatives were valued using the Binomial Option Pricing Model. The assumptions used in the model were as follows:
| | | | | | | | | | | |
| (Issuance date)
September 29, 2021 | October 31, 2022 | December 31, 2022 |
| Risk free interest rate | 1.1% | 4.4% | 4.2% |
| Expected life of options | 5 years | 3.9 years | 3.8 years |
| Expected dividend yield | 0.0% | 0.0% | 0.0% |
| Expected stock price volatility | 66% | 63% | 63% |
| Share Price | $12.56 | $5.96 | $4.76 |
Expected volatility was determined by calculating the average implied volatility of a group of listed entities that are considered similar in nature to the Company.
(b) Glencore Convertible Notes
| | | | | | | | | |
| As at | December 31, 2022 | October 31, 2022 | |
| Principal of convertible notes at beginning of period | $ | 200.0 | | $ | — | | |
| Issuance of convertible notes | 8.1 | | 200.0 | | |
| Principal of convertible notes at end of period | 208.1 | | 200.0 | | |
| | | |
| Conversion feature at beginning of period | 34.8 | | — | | |
| Conversion feature issued | — | | 46.2 | | |
| Fair value gain on embedded derivative | (18.3) | | (11.4) | | |
| | | |
| Conversion feature at end of period | 16.5 | | 34.8 | | |
| | | |
| Debt component at beginning of period | 161.3 | | — | | |
| Debt component issued | 8.1 | | 153.8 | | |
| Transaction costs | — | | (1.3) | | |
| | | |
| Accrued interest paid in kind | (8.1) | | — | | |
| Accrued interest expense | 3.6 | | 8.8 | | |
| Debt component at end of period | 164.9 | | 161.3 | | |
| Total convertible debt at end of period | $ | 181.4 | | $ | 196.1 | | |
On May 31, 2022, the Company issued an unsecured convertible note (the “Glencore Convertible Note”) for a principal amount of $200 million to Glencore Ltd. (“Glencore”), a subsidiary of Glencore plc (LON: GLEN). The Glencore Convertible Note will mature on May 31, 2027 unless repurchased, redeemed or converted earlier. Interest on the Glencore Convertible Note is payable semi-annually, with Li-Cycle permitted to pay interest on the Glencore Convertible Note in cash or by payment in-kind (“PIK”), at its election. Interest payments made in cash are based on an interest rate of the Secured Overnight Financing Rate ("SOFR") for a tenor comparable to the relevant interest payment period plus 0.42826% (the “Floating Rate”) plus 5% per annum if interest is paid in cash and plus 6% per annum if interest is paid in PIK. The Floating Rate has a floor of 1% and a cap of 2%. The PIK election results in the issuance of a new note under the same terms as the Glencore Convertible Note, issued in lieu of interest payments with an issuance date on the applicable interest date.
In connection with any optional redemption and provided that Glencore has not elected to convert the Glencore Convertible Note into common shares, the Company must issue warrants (the “Glencore Warrants”) to Glencore on the optional redemption date that entitle the holder to acquire, until the maturity date of the Glencore Convertible Note, a number of common shares equal to the principal amount of the Glencore Convertible Note being redeemed divided by the then applicable conversion price. The initial exercise price of the Glencore Warrants will be equal to the conversion price as of the optional redemption date. As at December 31, 2022, no conversions had taken place.
The conversion feature under the Glencore Convertible Note has been recorded as an embedded derivative liability as the conversion ratio does not always result in a conversion of a fixed dollar amount of liability for a fixed number of shares. The Glencore Convertible Note has a conversion price of approximately $9.95 per Li-Cycle common share, subject to customary anti-dilution
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
adjustments. The Company has elected to pay interest by PIK since the first interest payment on November 30, 2022. The Glencore Convertible Note and the PIK notes issued thereunder are referred to collectively as the "Glencore Convertible Notes", and as at December 31, 2022, comprised the following:
| | | | | | | | |
| Note | Date Issued | Amount Issued |
| Glencore Convertible Note | May 31, 2022 | $ | 200.0 | |
| PIK Note | November 30, 2022 | 8.1 | |
| Total | | $ | 208.1 | |
| | |
The fair value of the embedded derivative liability upon issuance of the Glencore Convertible Note was determined to be $46.2 million with the remaining $153.8 million, net of transaction costs of $1.3 million, allocated to the initial amortized cost of the host debt instrument. During the two months ended December 31, 2022, the Company recognized a fair value gain of $18.3 million on the embedded derivatives. The embedded derivatives were valued using the Black-Scholes Option Pricing Model. The assumptions used in the model were as follows:
| | | | | | | | | | | |
| (Issuance date)
May 31, 2022 | October 31, 2022 | December 31, 2022 |
| Risk free interest rate | 2.9% | 4.4% | 4.2% |
| Expected life of options | 5 years | 4.6 years | 4.4 years |
| Expected dividend yield | 0.0% | 0.0% | 0.0% |
| Expected stock price volatility | 68% | 63% | 63% |
| Share Price | $8.15 | $5.96 | $4.76 |
Expected volatility was determined by calculating the average implied volatility of a group of listed entities that are considered similar in nature to the Company.
12. Financial instruments and financial risk factors
Fair values
The Company’s financial instruments consist of cash equivalents, accounts receivable, other receivables, accounts payable and accrued liabilities, and convertible debt. The carrying amounts of other receivables, accounts payable and accrued liabilities approximate fair value due to the short-term maturity of these instruments.
Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable:
•Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
•Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
•Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
There were no transfers between the levels during the current or prior period.
The Company’s financial assets measured at fair value on a recurring basis are measured under level 2 of the hierarchy and were calculated as follows:
| | | | | | | | | | |
As at December 31, 2022 | Balance | | Level 2 | |
| Accounts receivable | $ | 4.3 | | $ | 4.3 | |
| $ | 4.3 | | $ | 4.3 | |
| | | | |
| As at October 31, 2022 | | | | |
| Accounts receivable | 1.5 | | 1.5 | |
| $ | 1.5 | | $ | 1.5 | |
Refer to Note 5 above for additional details related to measurement of accounts receivable.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
The Company’s financial liabilities measured at fair value on a recurring basis are measured under level 1 and 2 of the hierarchy and were calculated as follows:
| | | | | | | | | | | | |
As at December 31, 2022 | Balance | Level 1 | Level 2 | |
| | | | |
| Conversion feature of convertible debt (refer to Note 11) | $ | 22.5 | $ | — | $ | 22.5 | |
| | | | |
| $ | 22.5 | $ | — | $ | 22.5 | |
| | | | |
| As at October 31, 2022 | | | | |
| | | | |
| Conversion feature of convertible debt (refer to Note 11) | 43.9 | — | | 43.9 | |
| $ | 43.9 | $ | — | $ | 43.9 | |
Currency risk
The Company is exposed to currency risk as its cash is mainly denominated in U.S. dollars, while its operations also require Canadian dollars and other currencies in addition to U.S. dollars. As at December 31, 2022, the impact of a 5% change in these respective currencies versus the U.S. dollar, would result in an immaterial impact.
Interest rate risk
Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on the Company’s financial instruments. The Company is exposed to interest rate risk, as it has variable interest rate debt that includes an interest rate floor and cap. Refer to Note 11.
Credit risk
Credit risks associated with cash are minimal as the Company deposits the majority of its cash with large Canadian and U.S. financial institutions above a minimum credit rating and with a cap on maximum deposits with any one institution. The Company’s credit risks associated with receivables are managed and exposure to potential loss is also assessed as minimal.
The Company's revenue and accounts receivable primarily come from three key customers under long-term contracts. The Company manages this risk by engaging with reputable multi-national corporations in stable jurisdictions and performing a review of a potential customer’s financial health prior to engaging in business.
Liquidity risk
Management has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium and long-term funding and liquidity requirements.
The Corporation’s undiscounted significant contractual obligations and interest and principal repayments in respect of its financial liabilities and provisions are presented in the following table:
| | | | | | | | | | | | | | | | | | |
| Undiscounted, at December 31, | | | | | | 2022 |
| | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
| Accounts payable and accrued liabilities | | $ | 75.9 | | $ | 75.9 | | $ | — | | $ | — | | $ | — | |
| Lease liabilities | | 78.6 | | 8.8 | | 15.3 | 13.7 | 40.8 |
| | | | | | |
| Restoration | | 0.5 | | 0.2 | | 0.1 | — | | 0.2 |
| Convertible debt principal | | 318.4 | | — | | — | | 318.4 | — | |
| Convertible debt interest | | 127.7 | | — | | — | | 127.7 | — | |
| Total | | $ | 601.1 | | $ | 84.9 | | $ | 15.4 | | $ | 459.8 | | $ | 41.0 | |
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
| | | | | | | | | | | | | | | | | | |
| Undiscounted, at October 31, | | | | | | 2022 |
| | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years |
| Accounts payable and accrued liabilities | | $ | 47.5 | | $ | 47.5 | | $ | — | | $ | — | | $ | — | |
| Lease liabilities | | 76.6 | | 8.0 | | 14.3 | | 13.0 | | 41.3 | |
| | | | | | |
| Restoration | | 0.4 | | — | | 0.2 | | — | | 0.2 | |
| Convertible debt principal | | 300.0 | | — | | — | | 300.0 | | — | |
| Convertible debt interest | | 146.1 | | — | | — | | 146.1 | | — | |
| Total | | $ | 570.6 | | $ | 55.5 | | $ | 14.5 | | $ | 459.1 | | $ | 41.5 | |
Market risk
The Company is exposed to commodity price movements for the inventory it holds and the products it produces. Commodity price risk management activities are currently limited to monitoring market prices. The Company’s revenues are sensitive to the market prices of the constituent payable metals contained in its products, notably cobalt and nickel.
The following table sets out the Company's exposure, as at December 31, 2022 and October 31, 2022, in relation to the impact of movements in the cobalt and nickel price for the provisionally invoiced sales volume of Black Mass & Equivalents by metric tonne:
| | | | | | | | | | | | | | |
| Cobalt | Nickel |
| As at | December 31, 2022 | October 31, 2022 | December 31, 2022 | October 31, 2022 |
| BM&E Metric tonnes subject to fair value pricing adjustments | 4,428 | 4,202 | 4,428 | 4,202 |
| 10% increase in prices | $ | 0.8 | $ | 1.1 | $ | 1.4 | $ | 1.0 |
| 10% decrease in prices | $ | (0.8) | | $ | (1.1) | | $ | (1.4) | | $ | (1.0) | |
The following table sets out the period end commodity prices for cobalt and nickel as at December 31, 2022 and October 31, 2022:
| | | | | | | | |
| Market price per tonne |
| As at | December 31, 2022 | October 31, 2022 |
| Cobalt | $ | 41,337 | $ | 53,462 |
| Nickel | 30,400 | 21,710 |
Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance.
The capital structure of the Company consists of net cash (cash and cash equivalents after deducting convertible debt) and equity of the Company (comprising issued share capital and other reserves).
The Company is not subject to any externally imposed capital requirements as of December 31, 2022.
13. Commitments and contingencies
As of December 31, 2022, there were $9.5 million in committed purchase orders or agreements for equipment and services (October 31, 2022: $9.2 million).
Legal Proceedings
The Company is and may be subject to various claims and legal proceedings in the ordinary course of its business. Due to the inherent risks and uncertainties of the litigation process, we cannot predict the final outcome or timing of claims or legal proceedings. The Company records
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
provisions for such claims when an outflow of resources is considered probable and a reliable estimate can be made. No such provisions have been recorded by the Company.
U.S. Shareholder Class Action
On April 19, 2022, a putative securities class action lawsuit was filed in the U.S. District Court for the Eastern District of New York against the Company, its CEO, and its former CFO, on behalf of a proposed class of purchasers of the Company’s publicly traded securities during the period from February 16, 2021 through March 23, 2022. The complaint, which is captioned as Barnish v. Li-Cycle Holdings Corp., et al., 1:22-cv-02222 (E.D.N.Y.), alleges that the defendants issued false and misleading statements concerning Li-Cycle’s business, which were revealed when Blue Orca Capital published a short seller report on March 24, 2022. The complaint seeks compensatory damages and an award of costs. The original complaint asserted claims under Sections 10(b) and 20(a) of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). On July 22, 2022, the court appointed The Lanigan Group, Inc. as lead plaintiff. On October 11, 2022, the lead plaintiff filed an amended complaint asserting claims pursuant to Section 14(a) of the Exchange Act and Sections 11 and 15 of the U.S. Securities Act of 1933 on behalf of a proposed class comprising: (a) all persons who were eligible to vote at Peridot Acquisition Corp.’s extraordinary general meeting held during August 2021, and (b) all persons who acquired Li-Cycle publicly traded securities pursuant to Li-Cycle’s March 2021 Registration Statement. Unlike the original complaint, the amended complaint does not assert any claims under either Section 10(b) or Section 20(a) of the Exchange Act. The claims in the amended complaint are asserted against both the Company and certain individual defendants, including Li-Cycle’s two Co-Founders, Li-Cycle’s former CFO, two current directors of Li-Cycle (who were also directors and/or officers of Peridot Acquisition Corp. at the time of the Business Combination), and certain other directors or officers of Peridot Acquisition Corp. at the time of the Business Combination. On December 19, 2022, the Company and each of the individual defendants moved to dismiss the amended complaint in its entirety. The motion to dismiss is not yet fully briefed. The Company believes that the allegations in the amended complaint are without merit and intends to vigorously defend against this matter. No amounts have been recorded for any potential liability arising from this matter.
14. Earnings per share
| | | | | | | | | |
| For the two months ended December 31, | 2022 | 2021 | |
| Total net income | $ | 1.7 | $ | 3.9 | |
| | | |
| Weighted average number of common shares | 176.0 | 163.2 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Effect of dilutive securities | | | |
| Stock options | 2.1 | 4.0 | |
| Restricted share units | 2.0 | 0.9 | |
| Warrants | — | 0.7 | |
| | | |
| Dilutive number of common shares | 180.1 | 168.8 | |
| | | |
| Basic earnings per common share | $ | 0.01 | $ | 0.02 | |
| Diluted earnings per common share | $ | 0.01 | $ | 0.02 | |
15. Segment reporting
The condensed consolidated financial information presented in the accompanying financial statements is reviewed regularly by the Company’s chief operating decision maker (“CODM”) for making strategic decisions, allocations resources and assessing performance. The information review by CODM for decision making purposes aligns with the information provided above in the statements of loss and comprehensive loss, financial position, and cash flows. The Corporation’s CODM is its Chief Executive Officer.
During the two months ended December 31, 2022, the Company operated in Canada and the United States. The Company also has invested in future operations in Europe. Management has concluded that the customers, and the nature and method of distribution of goods and services delivered, if any, to these geographic regions are similar in nature. The risks and returns across the geographic regions are not dissimilar; therefore, the Company operates as a single operating segment.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
The following is a summary of the Company’s geographical information:
| | | | | | | | | | | | | | | | | |
| Canada | United States | Germany | Other | Total |
Revenues | | | | | |
| Two months ended December 31, 2022 | $ | 0.9 | $ | 5.0 | $ | — | $ | — | $ | 5.9 |
| Two months ended December 31, 2021 | 0.1 | 2.7 | — | — | 2.8 |
| | | | | |
| Non-current assets | | | | | |
| As at December 31, 2022 | 38.1 | 213.0 | 11.6 | 2.7 | 265.4 |
| As of October 31, 2022 | $ | 26.8 | $ | 161.4 | $ | 10.7 | $ | 2.5 | $ | 201.4 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Revenue is attributed to each geographical location based on location of sale.
The Company does not currently have active operations in any other geographical regions.
16. Notes to the consolidated statement of cash flows
As at December 31, 2022, the Company had cash on hand of $110.6 million (October 31, 2022: $269.3 million) and cash equivalents in the form of short term guaranteed investment certificates of $407.3 million (October 31, 2022: $309.0 million).
Changes in liabilities arising from financing activities comprise the following:
| | | | | | | | | | | | | | | |
| For the two months ended December 31, | | | | | 2022 |
| Lease liabilities | | Restoration provisions | Convertible debt | Conversion feature of convertible debt |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Balance, beginning of the period | $ | 51.8 | | | $ | 0.4 | | $ | 244.6 | | $ | 43.9 | |
| Cash changes: | | | | | |
| Repayments of lease liabilities | (0.5) | | | — | | — | | — | |
| | | | | |
| | | | | |
| Total changes from financing cash flows | (0.5) | | | — | | — | | — | |
| Non-cash changes: | | | | | |
| New leases | 1.8 | | | — | | — | | — | |
| | | | | |
| | | | | |
| Accrued interest and accretion | — | | | — | | (6.6) | | — | |
| Foreign exchange gain or (loss) | 0.8 | | | — | | — | | — | |
Fair value gain/loss on conversion feature of convertible debt | — | | | — | | — | | (21.4) | |
| Accrued interest paid in kind | — | | | — | | 12.4 | | — | |
| Total non-cash changes | $ | 2.6 | | | $ | — | | $ | 5.8 | | $ | (21.4) | |
| Balance, end of the period | $ | 53.9 | | | $ | 0.4 | | $ | 250.4 | | $ | 22.5 | |
17. Subsequent events
Hub Warehouse Agreement
On January 12, 2023, the Company entered into a sublease agreement (the “Hub Warehouse Agreement”) with Pike Conductor DEV 1, LLC (the “Landlord”) outlining the parties’ respective rights and obligations with respect to the construction, financing and leasing of a warehouse and administrative building (the “Building”) for the Rochester Hub on leased property of the Landlord (the “Property”). As outlined in the Hub Warehouse Agreement, the Company will directly advance up to a maximum of $58.6 million to the Landlord for the design, engineering and construction of the Building, and as at December 31, 2022, the Company had advanced $41.5 million of the $58.6 million maximum. Upon the successful closing of the Landlord’s financing transaction, the Landlord will reimburse the Company for a portion of its advances, such that the Company will have made a net investment of $14.5 million for leasehold improvements.
Li-Cycle Holdings Corp.
Notes to the condensed consolidated financial statements
| | |
Unaudited, all dollar amounts presented are expressed in millions of US dollars except share and per share amounts |
Once construction of the Building is complete, the Landlord will lease the Building and Property (together, the “Premises”) to the Company. The term of the Premises lease will be the earlier of the issuance of a certificate of occupancy for the Building or September 1, 2023 and (subject to renewal) may extend for up to 48 years. In the event that the Landlord does not complete its financing transaction, the Hub Warehouse Agreement will be amended and restated as a ground lease agreement for the Property.
Conditional Commitment for up to $375 million loan from U.S. Department of Energy Loan Programs Office
On February 27, 2023, the Company announced that it had entered into a conditional commitment with the U.S. Department of Energy ("DOE") Loan Programs Office for a loan of up to $375.0 million through the DOE's Advanced Technology Vehicles Manufacturing program, to be used for the development of the Rochester Hub. The loan would have a term of up to 12 years from financial close, and interest on the loan would be the 10-year U.S. Treasury rates from the date of each advance under the loan. The loan remains subject to documentation of long-form agreements and certain conditions to be satisfied prior to closing.
Table of Contents
| | | | | |
| Title | Page |
| Summary | 2 |
| Company Overview | 2 |
| Comparability of Financial Information | 3 |
| Strategic Priorities and Business Outlook | 3 |
| Select Financial Information | 5 |
| Financial Results | 5 |
| Operational Updates | 8 |
| Liquidity and Capital Resources | 10 |
| Contractual Obligations and Commitments | 13 |
| Quantitative and Qualitative Disclosures about Market Risk | 13 |
Key Factors Affecting Li-Cycle’s Performance | 15 |
| Related Party Transactions | 17 |
| Outstanding Share Data | 17 |
| Summary of Quarterly Results and Transition Period Results | 17 |
| |
| Off-Balance Sheet Arrangements | 17 |
| Significant Accounting Policies and Critical Estimates | 18 |
| Disclosure Controls and Procedures | 19 |
| Internal Control Over Financial Reporting | 20 |
| Non-IFRS Measures | 21 |
| Cautionary Note Regarding Forward-Looking Statements | 21 |
LI-CYCLE HOLDINGS CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Li-Cycle Holdings Corp. (“Li-Cycle” or the “Company”) has changed its financial year end from October 31 to December 31, to better align with peer group companies. As a result, the Company has prepared condensed consolidated interim financial statements for the two-month period from November 1, 2022 through December 31, 2022 (the “Transition Period Financial Statements”), in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), in accordance with International Accounting Standard 34 “Interim Financial Reporting”.
The following discussion and analysis of financial condition and results of operations (“MD&A”) is dated March 30, 2023 and provides information which the management of Li-Cycle believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of Li-Cycle for the two months ended December 31, 2022 and 2021. This MD&A should be read together with both the Transition Period Financial Statements and Li-Cycle’s consolidated annual financial statements and related notes, included in the Company’s Annual Report on Form 20-F for the year ended October 31, 2022 (the “Annual Report”). The Transition Period Financial Statements were prepared using the same basis of presentation, accounting policies and methods of computation as in the Company’s consolidated annual financial statements included in the Annual Report, but do not include all of the notes required to be included in annual financial statements. All amounts are in U.S. dollars except as otherwise indicated. For more information about the basis of presentation of Li-Cycle’s financial statements, see Note 2 “Basis of Presentation” in the Transition Period Financial Statements. In addition to historical financial information, this MD&A contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions. For more information about forward-looking statements, refer to the section entitled “Cautionary Note Regarding Forward-Looking Statements”. Actual results and timing of selected events may differ materially from those anticipated by these forward-looking statements as a result of various factors, including those set forth under the section entitled “Key Factors Affecting Li-Cycle’s Performance” and under “Item 3. Key Information—D. Risk Factors” included in the Annual Report.
Certain figures, such as interest rates and other percentages included in this MD&A, have been rounded for ease of presentation. Percentage figures included in this MD&A have in all cases been calculated on the basis of the amounts prior to rounding. For this reason, percentage amounts may vary slightly from those obtained by performing the same calculations using the figures in Li-Cycle’s financial statements or in the associated text. Certain other amounts that appear in this MD&A may similarly not sum due to rounding.
Company Overview
Li-Cycle is an industry leader in lithium-ion battery (“LIB”) resource recovery and the leading LIB recycler in North America. When Li-Cycle refers to itself as the leading LIB recycler in North America, it is referring to its status based on installed permitted capacity for LIB recycling measured in tonnes per year. The Company’s proprietary “Spoke & Hub” recycling and resource recovery process is designed (a) at its Spokes, to process battery manufacturing scrap and end-of-life batteries to produce “black mass” and other intermediate products, and (b) at its Hubs, to process black mass to produce battery grade materials, including nickel sulphate, cobalt sulphate, and lithium carbonate. The Company produces certain products analogous to black mass that have a similar metal content, and, as a result, the Company tracks its production using a unit of measure called black mass and black mass equivalents (“Black Mass & Equivalents” or “BM&E”). Li-Cycle has a market-leading position in North America through its four operational Spokes in Kingston, Ontario (the “Ontario Spoke”), Rochester, New York (the “New York Spoke”), Gilbert, Arizona (the “Arizona Spoke”) and Tuscaloosa, Alabama (the “Alabama Spoke”). The Company is currently developing its first commercial-scale Hub in Rochester, New York (the “Rochester Hub”). Li-Cycle is working on plans to develop an expanded Spoke and warehouse facility that will replace its existing Spoke in Kingston, Ontario (the “New Ontario Spoke”). Li-Cycle is also developing new Spokes in Europe, including in Magdeburg, Germany (the “Germany Spoke”), which is expected to commence operations in mid-2023, in Moss, Norway (the “Norway Spoke”), which is expected to commence logistics operations in 2023 and operations in 2024, and in Harnes, France (the “France Spoke”), which is expected to commence operations in 2024. Refer to the section entitled “Operational Updates” for additional details.
Until 2020, Li-Cycle was a development stage company with no commercial revenues. To date, Li-Cycle has financed its operations primarily through proceeds received in connection with: (i) the business combination it completed with Peridot Acquisition Corp. (“Peridot”) on August 10, 2021 (the “Business Combination”); (ii) the concurrent $315.5 million private placement of common shares (the “PIPE Financing”); and (iii) private placements of other Li-Cycle securities (including convertible notes and common shares). Refer to the section entitled “Liquidity and Capital Resources” for definitions and additional details.
Comparability of Financial Information
Li-Cycle’s future results of operations and financial position may not be comparable to historical results as a result of the Business Combination and the factors described below, among other things.
Li-Cycle included certain projected financial information in the proxy statement/prospectus on Form F-4 dated July 15, 2021 and filed with the U.S. Securities and Exchange Commission (the “SEC”) in connection with the Business Combination (as amended, the “Proxy/Registration Statement”), which information was also incorporated by reference in Li-Cycle’s non-offering final prospectus dated August 10, 2021 filed with the Ontario Securities Commission (the “Canadian Prospectus”) and Shell Company Report on Form 20-F filed with the SEC.
As a result of the developments described below, the assumptions underlying the projected financial information included in the Proxy/Registration Statement and the Canadian Prospectus, including a number of assumptions regarding capital expenditures and the timing of the roll-out of new operational facilities, no longer reflect a reasonable basis on which to project the Company’s future results, and therefore those projections should not be relied on as indicative of future results. Demand for LIB recycling has continued to exceed its internal projections and, in order to meet this growing demand, the Company decided to increase and accelerate its investment in the build-out of its recycling capacity in certain respects. For example, since the date of effectiveness of the Proxy/Registration Statement and the date of the Canadian Prospectus, respectively, the Company has, among other things, opened the Arizona Spoke and the Alabama Spoke, and announced the development of other Spoke projects, increasing its processing capacity beyond that of the Company’s previous plans and projections. Li-Cycle has also announced the increase of expected processing capacity and development costs at its Rochester Hub. The Company’s actual results could differ substantially from the projected financial information contained in the Proxy/Registration Statement and the Canadian Prospectus.
Strategic Priorities and Business Outlook
Strategic priorities for the year ending December 31, 2023
•Capitalizing on strong secular market and government policy – The U.S. Inflation Reduction Act of 2022 favors the development of a domestic electric vehicle (“EV”) supply chain which will help the Company as a U.S. domestic operator. In addition, growing mega-factory investments in North America and globally are expected to drive significant increases in the Company's total addressable market;
•Advancing first mover roll-out of the Spoke & Hub network in North America and Europe – The Rochester Hub is on track to commence commissioning in stages in late 2023. The Company is also scheduled to open its first European Spoke in 2023. The Company expects to continue to add key commercial contracts underpinning its investments in both North America and Europe;
•Funding flexibility and building further balance sheet strength – The Company intends to pursue potential
debt financing options from both traditional and government sources in support of future growth;
•Optimizing European asset rollout plan – The Company is scheduled to commence operations at its first European Spoke in Magdeburg, Germany in the second half of 2023. The Germany Spoke is expected to have total capacity of 30,000 tonnes of LIB input per year including two main lines with the capacity to process 20,000 tonnes of LIB per year and ancillary processing of a further 10,000 tonnes of LIB per year. Li-Cycle is also advancing its Norway Spoke project, which is expected to commence logistics operations in 2023 and production in 2024;
•Maximizing significant lithium value within black mass – The lithium content within the Black Mass & Equivalents has no payable value under the Company’s current third-party sales contracts. To unlock that value, which has increased in the current market context, Li-Cycle is planning to gradually shift to a strategy of retaining BM&E production for future internal use as feedstock at the Rochester Hub, which is on track to commence commissioning in stages in late 2023. The Rochester Hub will produce battery grade lithium carbonate, among other battery grade materials, from the Company’s BM&E feedstock and the sale of these finished products is expected to unlock the additional metal value contained within the Company’s BM&E.
Update on Strategic Priorities
•Funding flexibility and building further balance sheet strength – On February 27, 2023, the Company announced that it had entered into a conditional commitment with the United States Department of Energy (“DOE”) Loan Programs Office for a loan of up to $375 million (the “DOE Loan”) through the DOE’s Advanced Technology Vehicles Manufacturing program. The loan, which is to be used for the development of the Rochester Hub, would have a term of up to 12 years from financial close, and interest on the loan would be the 10-year U.S. Treasury rates from the date of each advance under the loan. The Company expects to close this transaction in Q2 2023, subject to completion of long form agreements and certain conditions to be satisfied prior to closing. The DOE Loan will build further balance sheet strength and liquidity in support of future growth for the Company;
•Advancing first mover roll-out of the Spoke & Hub network in North America and Europe – Li-Cycle has made significant progress on the construction and development of the Rochester Hub to date, with life to date spending at $123.1 million as at December 31, 2022, which includes the achievement of key engineering, permitting, procurement and construction milestones and is on track to initiate commissioning in stages in late 2023. Refer to the section entitled “Operational Updates” for further details. Li-Cycle also completed the New York Spoke upgrade in November 2022, which improved the processing capability to a wider range of battery materials. The Company continues to diversify its strategic long-term commercial agreements by working with a broad pool of customers over multiple year agreements to underpin its capital investments;
•Optimizing European asset rollout plan – The Company continues to advance the Germany Spoke which is expected to have two main lines operational in the second half of 2023. The Company has also announced the development of the France Spoke, a facility with an initial main line processing capacity of 10,000 tonnes of LIB input per year, and the optionality to expand to up to 25,000 tonnes per year. Refer to the section entitled “Operational Updates” for additional details on the Company’s Spoke network rollout plan.
Business outlook for the year ending December 31, 2023
| | | | | | |
| Outlook | |
| $ millions, except production in tonnes | Year ended December 31, 2023 | |
| Production Volume | | |
| BM&E Production | 7,500 - 8,500 | |
| | |
| Growth capital for Hub & Spoke Networks | | |
| Rochester Hub1 | $250-300 | |
| Spokes in development | 35-45 | |
| | |
Li-Cycle produced 4,023 tonnes of Black Mass & Equivalents in fiscal 2022 and 898 tonnes BM&E for the two months ended December 31, 2022, which is at the top end of transition period guidance of 850 - 900 tonnes. Li-Cycle’s 2023 outlook for BM&E production is expected to double fiscal 2022 production levels and grow in-line with its strategy to work with key customers as the Company ramps up toward production requirements to satisfy the
1 Rochester Hub capital spend does not include capitalized labour.
needs of the Rochester Hub. The 2023 production outlook is based on current mainline and ancillairy capacity of the Company’s operating Spokes, being the Ontario Spoke, New York Spoke, Arizona Spoke and Alabama Spoke, combined with the Germany Spoke, which is currently in development and expected to have two operational main lines by late 2023.
The Company’s 2023 capital spending outlook is primarily related to the Rochester Hub, which is expected to enter the commissioning phase by late 2023, and developing the Spoke network. The Company continues to advance its Spokes in development in 2023, including the installation of the first and second main lines at the Germany Spoke, initial work on the France Spoke and the New Ontario Spoke, and further work on the Norway Spoke. Refer to the section entitled “Operational Updates” for further details.
The Company expects to have other capital expenditures in 2023 related to sustaining and improvement capital for the existing Spoke network, research and development, capital spare parts and other items which are not included in the growth capital outlook above.
Select Financial Information
| | | | | | | | | |
Unaudited $ millions, except for per share data, for the two months ended December 31, | 2022 | 2021 | |
| Revenue | $ | 5.9 | | $ | 2.8 | | |
| Loss from operations | (19.4) | | (9.7) | | |
| Net income | 1.7 | | 3.9 | | |
| Earnings per common share - basic | 0.01 | | 0.02 | | |
| Earnings per common share - diluted | 0.01 | | 0.02 | | |
| | | |
| As at | December 31, 2022 | October 31, 2022 | |
| Total assets | $ | 901.1 | | $ | 882.3 | |
| Total non-current financial liabilities | 321.6 | | 335.5 | |
| | | |
Financial Results
| | | | | | | | | | | | | | | | |
| | | | Two months ended |
| | | December 31, |
| Unaudited $ millions, except per share data | | | | 2022 | 2021 | | Change |
| Financial highlights | | | | | | | | |
| Revenues | | | | | $ | 5.9 | | $ | 2.8 | | | $ | 3.1 | |
| Operating expenses | | | | | 25.3 | | 12.5 | | | 12.8 | |
| Other income | | | | | 21.1 | | 13.6 | | | 7.5 | |
| Net income | | | | | 1.7 | | 3.9 | | | (2.2) | |
| Net income attributable to the Shareholders of Li-Cycle Holdings Corp. | | | | | 1.7 | | 3.9 | | | (2.2) | |
| Adjusted EBITDA2 | | | | | (17.8) | | (8.5) | | | (9.3) | |
| Earnings per common share - basic | | | | | $ | 0.01 | | $ | 0.02 | | | $ | (0.01) | |
| Earnings per common share - diluted | | | | | $ | 0.01 | | $ | 0.02 | | | $ | (0.01) | |
| | | | | | | | |
| As at | | | | | December 31, 2022 | October 31, 2022 | | Change |
| Cash | | | | | | | | |
| Cash balance | | | | | $ | 517.9 | | $ | 578.3 | | | $ | (60.4) | |
| Cash used in operating activities | | | | | (38.4) | | (14.3) | | | (24.1) | |
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Revenue
Li-Cycle recognizes revenue from: (i) sales of intermediate products from Li-Cycle’s Spokes, being Black Mass & Equivalents, and shredded metal; and (ii) providing services relating to recycling of LIB, which includes coordination of logistics and destruction of batteries. Sales of intermediate products are presented net of fair value
2 Adjusted EBITDA is a non-IFRS financial measure and does not have a standardized meaning under IFRS. Refer to the section entitled "non-IFRS Measures" in this MD&A for details, including a reconciliation to the most comparable IFRS financial measure.
losses recognized in the period. Refer to the section entitled “Significant Accounting Policies and Critical Estimates” for additional details on the Company’s revenue recognition policy.
| | | | | | | | | | | |
| | Two months ended December 31, | |
| Unaudited $ millions, except sales volume | | | 2022 | 2021 | |
| Product revenue recognized in the period | | | $ | 3.5 | | $ | 1.5 | | |
| Recycling service revenue recognized in the period | | | 0.1 | | 0.1 | | |
| Revenue before FMV adjustments | | | 3.6 | | 1.6 | | |
| Fair value pricing adjustments | | | 2.3 | | 1.2 | | |
| Revenue | | | $ | 5.9 | | $ | 2.8 | | |
| | | | | |
| Tonnes of Black Mass & Equivalents sold | | | 756 | | 427 | | |
|
For the two months ended December 31, 2022, revenues were $5.9 million, compared to $2.8 million in the corresponding period of 2021. Sales of Black Mass & Equivalents were 756 tonnes in the two months ended December 31, 2022, compared to 427 tonnes in the corresponding period of 2021. The increase in product revenue for the period was primarily attributable to increased production of BM&E, directly related to the ramp up of operations at the Company’s Spoke facilities, and an expanded customer base. The ramp up of operations included the Arizona Spoke, which came on line in May 2022, and the Alabama Spoke, which came on line in October 2022. The Company’s revenues are impacted by market prices of certain constituent metals contained in its products, notably cobalt and nickel. For the two months ended December 31, 2022, fair value adjustments were $2.3 million, compared to $1.2 million in the corresponding period of 2021, driven by increasing nickel prices offset by a decline in cobalt prices.
The following table sets out the period end and period average commodity prices for cobalt and nickel:
| | | | | | | | | | | | | | | |
| Market price per tonne | Average market price per tonne |
| As at December 31, | Two months ended December 31, |
| 2022 | 2021 | | 2022 | 2021 |
| Cobalt | $ | 41,337 | | $ | 73,855 | | | $ | 45,944 | | $ | 68,241 | |
| Nickel | 30,400 | | 20,740 | | | 27,029 | | 20,346 |
As of December 31, 2022, 4,428 metric tonnes of Black Mass & Equivalents are subject to fair value pricing adjustments. The table below shows the expected settlement dates for the metric tonnes of BM&E subject to fair value price adjustments by quarter for the last twelve months:
| | | | | | | | | | | | | | | | | | |
| Expected settlement dates for metric tonnes subject to fair value pricing adjustments |
| December 31, 2022 | October 31, 2022 | July 31, 2022 | April 30, 2022 | January 31, 2022 | |
| 271+ days | 1,195 | | 1,816 | | 1,559 | | 1,358 | | 1,088 | | |
| 181-270 days | 925 | | 1,178 | | 678 | | 530 | | 344 | | |
| 91-180 days | 1,406 | | 678 | | 530 | | 344 | | 270 | | |
| 1-90 days | 902 | | 530 | | 445 | | 367 | | 394 | | |
| Total metric tonnes | 4,428 | | 4,202 | | 3,212 | | 2,599 | | 2,096 | | |
Operating expenses
Primary expense categories for Li-Cycle include employee salaries and benefits and share-based compensation (together, “personnel costs”), office, administrative and travel, professional fees (which include consulting and other advisor fees), raw materials and supplies, depreciation, and plant facilities. Personnel costs are presented net of any employee and share based compensation capitalized to assets under construction.
For the two months ended December 31, 2022, operating expenses were $25.3 million, $12.8 million higher than in the corresponding period of 2021. The main drivers were increases in personnel costs ($5.2 million) related to the addition of corporate, operational, and engineering personnel as Li-Cycle continued to expand its Spoke
operations, and increases in office, administrative, and travel costs ($2.1 million), which were driven by additional insurance costs and coverage, increased information technology costs associated with the growth in headcount and global footprint, and increased levels of travel reflecting the Company’s expanding global footprint and a return to pre-pandemic frequency of travel. The increased level of professional fees ($1.4 million) reflects the addition of legal, tax advisory and corporate consulting services in support of the Company’s growth plans and required services. The increases in raw materials and supplies ($1.2 million) were primarily driven by increased volume of production in the period as a result of additional processing capacity in the Spoke network coupled with higher average material costs in the two months ended December 31, 2022, compared to the corresponding period of 2021.
Other income
Other income consists of interest income, foreign exchange gain or loss and interest expense (together, “interest expense and other costs”), and fair value gain (loss) on financial instruments. Interest expense represents interest paid in kind, actual cash interest costs incurred and any accrued interest payable at a future date, net of interest costs capitalized for qualifying assets if they are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset.
For the two months ended December 31, 2022, other income increased by $7.5 million, compared to the corresponding period of 2021. The main driver of the increase compared with the corresponding period in 2021 was fair value gains on financial instruments ($5.4 million), and interest income ($3.4 million), partly offset by an increase in interest expense and other costs ($1.3 million). The increase in interest income reflects interest earned on short-term cash deposits. The increases in fair value gains were primarily driven by fair value revaluations of the conversion feature of convertible debt and warrants. The increase in interest expense was due to interest accrued on the Company’s convertible debt, comprised of the KSP Convertible Notes and the Glencore Convertible Notes. Refer to the section entitled “Liquidity and Capital Resources” for further details on the Company’s convertible debt. Netted in the above expenses were $3.5 million of interest costs which were capitalized in the two months ended December 31, 2022 related to borrowings directly attributable to qualifying Rochester Hub assets (2021: $nil).
Net income and Adjusted EBITDA
Net income was $1.7 million in the two months ended December 31, 2022, compared to a net income of $3.9 million in the two months ended December 31, 2021. Net income for the two months ended December 31, 2022 was driven by the factors discussed above. Adjusted EBITDA loss was $17.8 million in the two months ended December 31, 2022, compared to $8.5 million in the corresponding period of 2021. The primary difference between Adjusted EBITDA and net income for the period is the exclusion of fair value gains on financial instruments, as well a higher balance for interest income and depreciation. A reconciliation of Adjusted EBITDA loss to net income (loss) is provided in the section “Non-IFRS Measures” below.
Cash and cash equivalents
Cash and cash equivalents were $517.9 million as at December 31, 2022, compared to $578.3 million as at October 31, 2022. The Company incurred capital expenditure of $21.5 million in the period, primarily comprising purchases of equipment and construction materials for the Rochester Hub and the Germany Spoke in addition to outflows for ongoing operating expenses of $38.4 million. Refer to the section entitled “Liquidity and Capital Resources” for further details of the Company’s cash flows.
Cash flows used in operational activities
For the two months ended December 31, 2022, cash flows used by operating activities were approximately $38.4 million, and were primarily driven by the growth and expansion of Li-Cycle’s operations and commercial footprint, the ramp up of operations in the period, and working capital changes related to the timing of receipts and payments.
Operational Updates
| | | | | | | | | | | | | | | |
| | | | Two months ended |
| | | December 31, |
| Unaudited $ millions, except production data in tonnes | | | | 2022 | 2021 | Change |
| Operational Highlights | | | | | | | |
| Capital Expenditure | | | | | $ | 21.5 | $ | 18.2 | 18% |
| Production - Black Mass & Equivalents | | | | | 898 | 505 | 78% |
Capital expenditure
Capital expenditures for the two months ended December 31, 2022 were $21.5 million, compared to $18.2 million in the two months ended December 31, 2021. Capital expenditures for the two months ended December 31, 2022 were primarily driven by purchases of equipment and construction materials for the Rochester Hub of $16.6 million. Capital spend for detailed engineering, equipment and installation and facility related expenditures for the Company’s Spokes for the two months ended December 31, 2022 were $4.9 million, and include the Germany Spoke and upgrades to the New York Spoke as well as other Spoke projects in development.
Included in the capital expenditures for the two months ended December 31, 2022 are $1.5 million in personnel costs, which were capitalized to assets under construction as they are costs that are directly attributable to bringing the Company’s Rochester Hub and Spoke development projects to a condition and location necessary for the assets to be capable of operating in the manner intended by management (2021: $nil).
Production – Black Mass & Equivalents
The Company produced 898 tonnes of Black Mass & Equivalents in the two months ended December 31, 2022, compared to 505 tonnes in the two months ended December 31, 2021. The increase in production of BM&E was primarily attributable to the Company’s expanding Spoke network, including the addition of the Arizona Spoke, the Alabama Spoke, and ancillary processing lines at the New York Spoke subsequent to the comparative period.
Capital Projects
The Company has a major design and build project underway to establish its first Hub and is developing and evolving a network of Spokes.
Rochester Hub
Li-Cycle’s first commercial Hub is currently under construction in Rochester, New York. Li-Cycle’s Spoke facilities in North America will be the primary suppliers of Black Mass & Equivalents feedstock for the Rochester Hub. The location for the Rochester Hub was specifically selected due to the nature of the infrastructure available at the site, including utilities and road/rail networks.
Li-Cycle completed a definitive feasibility study for the Rochester Hub in December 2021. Based on the definitive feasibility study, Li-Cycle expects the Rochester Hub will have nameplate input capacity to process 35,000 tonnes of Black Mass & Equivalents annually (equivalent to approximately 90,000 tonnes or 18 GWh of LIB equivalent feed annually). Based on the definitive feasibility study, the facility is expected to have an output capacity of battery grade materials of approximately 42,000 to 48,000 tonnes per annum of nickel sulphate, 7,500 to 8,500 tonnes per annum of lithium carbonate and 6,500 to 7,500 tonnes per annum of cobalt sulphate.
Li-Cycle has engaged Hatch Associates Consultants, Inc. as its engineering and procurement contractor for the Rochester Hub. Hatch Associates Consultants, Inc. is also providing select construction management services such as onsite field engineering support and overall project scheduling for the project. Li-Cycle has engaged MasTec Inc. as its general contractor. Procurement activities are well advanced and have commenced on all equipment and select construction materials for the Rochester Hub. Site works and construction commenced on the Rochester Hub site in January 2022. The Rochester Hub has made significant progress to date on key engineering, procurement and construction milestones and is expected to initiate commissioning in stages in late 2023.
Li-Cycle has been granted a special use permit for hydrometallurgical facility operations, overall site plan approval, and a special use permit with an area variance for hazardous material storage tanks at the Rochester Hub by the Town of Greece, New York, all subject to certain conditions. Li-Cycle will continue to apply for construction-related building permits from the Town of Greece, as plans for specific structures become finalized. Li-Cycle completed the New York State Environmental Quality Review Act process for the Rochester Hub in November 2021. The New York State Department of Environmental Conservation (“NYSDEC”) issued a state facility air permit for the expected emissions from the Rochester Hub in March 2022. A general permit for stormwater discharges from construction activity, and a related stormwater pollution prevention plan that meets criteria set forth by the NYSDEC, is also in place for the Rochester Hub. The remaining anticipated regulatory approvals required to complete and operate the Rochester Hub consist of the granting by the NYSDEC of a general permit for stormwater discharges associated with industrial activity, a chemical bulk storage permit, a petroleum bulk storage registration and an amendment to the state facility air permit.
Li-Cycle estimates that the Rochester Hub will require a total capital investment of approximately $486 million (+/-15%) based on the definitive feasibility study. Costs for the Rochester Hub are trending towards the higher end of the budgeted range, with spend to date of $123.1 million at December 31, 2022.
Li-Cycle expects that the Rochester Hub will result in a workforce of approximately 270 employees at its operations.
Spoke Network
Li-Cycle currently has four operational Spokes in North America: the Ontario Spoke, the New York Spoke, the Arizona Spoke and the Alabama Spoke. As of December 31, 2022, the Alabama Spoke was in the ramp-up phase. The Company is also continuing to add capacity to its Spoke network with new development and expansions, as described below.
The Company continues to innovate its Spoke technology with each Spoke roll out, incorporating upgrades and improvements from the development of the preceding Spokes. Since the build and installation of the Company’s first Spoke (the “Generation 1” Ontario Spoke in 2020), the Company has significantly evolved its Spoke design. The Ontario Spoke was a stick build format with a single shredder design. The Company’s next Spoke facility (the “Generation 2” New York Spoke) was a modular build with increased recovery rates, including added ancillary processing capacity. Both the Arizona Spoke and the Alabama Spoke are “Generation 3” Spokes and incorporate a modular build, multi-stage shredding with capabilities to shred full-pack EV batteries, further increases to recovery rates, and optionality for multiple main lines and flex capacity with ancillary processing.
The table below outlines current available Spoke capacity and additional 2023 expected Spoke capacity, by Spoke location:
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| | Ancillary Processing | |
| Annual tonnes of material processed | Main Line¹ | Dry Shredding² | Powder Processing³ | Baling4 | Total Processing Capacity |
| Ontario Spoke | 5,000 | | — | | — | | — | | 5,000 | |
| New York Spoke | 5,000 | | 5,000 | | 3,000 | | 5,000 | | 18,000 | |
| Arizona Spoke | 10,000 | | 5,000 | | 3,000 | | — | | 18,000 | |
| Alabama Spoke | 10,000 | | — | | — | | — | | 10,000 | |
| Current available capacity | 30,000 | | 10,000 | | 6,000 | | 5,000 | | 51,000 | |
| Germany Spoke | 20,000 | | 5,000 | | — | | 5,000 | | 30,000 | |
| | | | | |
| 2023 expected capacity | 50,000 | | 15,000 | | 6,000 | | 10,000 | | 81,000 | |
Notes
¹ Processes materials using Li-Cycle’s patented submerged shredding process or “wet shredding” specifically for battery materials that contain
electrolyte and have risk of thermal runaway.
² Processes materials that don’t contain electrolyte with less risk of thermal runaway, such as electrode foils.
³ Processes electrode powders to minimize dusting in downstream processes.
4 Processes electrode foils into formed cubes for optimizing logistics and downstream processing.
Germany Spoke
In 2022, Li-Cycle announced the development of a European Spoke to be based in Magdeburg, Germany, approximately 160 kilometers from Berlin. The Germany Spoke was planned to have an initial recycling capacity of at least 10,000 tonnes (2 GWh equivalent) per year, with the first main line expected to be operational in mid-2023. To meet customer demand and increase cost efficiencies, Li-Cycle now plans to install a second main line with capacity of 10,000 tonnes (2 GWh equivalent) per year in Germany by the end of 2023. In addition, the Germany Spoke is expected to have capacity of 10,000 tonnes per year for ancillary processing.
Norway Spoke
In 2022, Li-Cycle entered into a joint venture agreement with ECO STOR AS (“ECO STOR”) and Morrow Batteries AS (“Morrow”) to form Li-Cycle Norway AS for the purpose of constructing the Norway Spoke. Li-Cycle is the majority owner of Li-Cycle Norway AS, with ECO STOR and Morrow being minority owners and Nordic-headquartered strategic partners. The Norway Spoke will be a Generation 3 Spoke, expected to have a main line recycling capacity of 10,000 tonnes (2 GWh equivalent). The Company has leased a site in Moss, Norway, approximately 60 kilometers from Oslo, for this operation, and the building is currently under construction. To prioritize the expansion plans for the Germany Spoke, the Company will initially use the Norway Spoke as a consolidation and warehouse facility, with the installation of a Generation 3 Spoke line and start of operations at this facility now planned for 2024.
France Spoke
In March 2023, Li-Cycle announced the development of a third European Spoke to be based in Northern France. The France Spoke will be a Generation 3 Spoke, and is expected to have main line recycling capacity of 10,000 tonnes (2 GWh equivalent) per year, with optionality to expand to up to 25,000 tonnes (5 GWh equivalent) per year. The Company expects the initial main line to be operational in 2024.
Other Spoke Updates
Li-Cycle completed improvements to its New York Spoke in November 2022 including upgrading the shredder and adding baling to supplement ancillary processing capacity. The New York Spoke now has variable capacity of up to 18,000 tonnes per year for processing a range of LIB feedstock types.
Li-Cycle is currently working on plans to develop an expanded Generation 3 Spoke and warehouse facility that will replace its existing Ontario Spoke. Li-Cycle expects initial site work to commence during 2023. The New Ontario Spoke is currently expected to have a main line recycling capacity of 10,000 tonnes (2 GWh equivalent) of LIB per year.
The Company prioritizes the fastest growing electrification demand centers and prudently directing capital. As disclosed previously, the Ohio Spoke has been deferred. Li-Cycle does not expect the Ohio Spoke to be operational in 2023.
Liquidity and Capital Resources
Sources of Liquidity
Li-Cycle intends to meet its currently anticipated capital requirements through cash on hand, cash flow from operations, the DOE Loan (expected to close in Q2 2023), and additional ongoing fund-raising activities. Li-Cycle has no material debt maturities until September 29, 2026. As at December 31, 2022, the Company had $517.9 million of cash and cash equivalents on hand and convertible debt of $272.9 million.
The Company’s primary need for liquidity is to fund working capital requirements of its business, capital expenditures related to the development and construction of its Rochester Hub and new Spoke facilities, and general corporate purposes. The Company’s primary source of liquidity is the funds raised from the Business Combination, the PIPE Financing, the KSP Convertible Note financing, the LGC and LGES share subscription and the Glencore Convertible Note financing, and, subject to closing expected in Q2 2023, the DOE Loan.
Li-Cycle’s capital and operating expenditures have increased, and Li-Cycle expects that they will continue to increase, in connection with its ongoing activities and growth, as the Company: completes the development and construction of the Rochester Hub; progresses the development of the Spoke network; develops additional Hubs, including through joint ventures or other contractual arrangements; continues to invest in its technology, R&D efforts and the expansion of its intellectual property portfolio; obtains, maintains and improves its operational, financial and management information systems; hires additional personnel; and operates as a public company.
The Company’s ability to fund its capital and operating expenditures, make scheduled debt payments and repay or refinance indebtedness depends on its future operating performance and cash flows, which will be affected by prevailing economic conditions and financial, business and other factors, some of which are beyond its control. Over the short to mid-term, Li-Cycle expects it will need to secure additional equity and debt financing to fund its growth strategy. Additional funds may not be available when the Company needs them on terms that are acceptable to the Company, or at all.
Cash Flows Summary
Presented below is a summary of Li-Cycle’s operating, investing, and financing cash flows for the periods indicated:
| | | | | | | | | | | |
| | Two months ended |
| December 31, | |
| $ millions | | | 2022 | 2021 | |
| | | | | |
| | |
| Cash flows used in operating activities | | | $ | (38.4) | $ | (14.3) | |
| Cash flows used in investing activities | | | (21.5) | (18.2) | |
| Cash flows used in financing activities | | | (0.5) | (0.6) | |
| Net change in cash | | | $ | (60.4) | $ | (33.1) | |
Cash Flows Used in Operating Activities
For the two months ended December 31, 2022, cash flows used by operating activities were approximately $38.4 million, compared to $14.3 million in the corresponding period of 2021, reflecting the growth and expansion of Li-Cycle’s operations and commercial footprint. The increases in the cash flows used in operating activities were driven by an increase in raw material costs, as well as increased other operating expenses including personnel costs, and changes in non-cash working capital. The increase also reflects the addition of two operational Spokes in the two months ended December 31, 2022 relative to the corresponding period of 2021, as well as the addition of new corporate personnel as the Company has implemented its expansion plans.
For the two months ended December 31, 2021, cash flows used by operating activities were primarily driven by the growth and commercialization of Li-Cycle’s operations, which included adding employees, production costs from the ramp-up phase at the New York Spoke, R&D expenses, and consulting costs relating to the development of the Rochester Hub.
Cash Flows Used in Investing Activities
For the two months ended December 31, 2022, cash flows used in investing activities were $21.5 million, compared to $18.2 million in the corresponding period of 2021, and were primarily driven by the capital investment in the Rochester Hub and acquisition of equipment, construction materials and leasehold improvements for the Rochester Hub and the Germany Spoke. Cash flows used in investing activities in the prior year were for similar activities for the Rochester Hub and Arizona Spoke at a lesser scale.
Cash Flows Used In Financing Activities
Cash flows used in financing activities in the two months ended December 31, 2022 were $0.5 million, compared to $0.6 million in the corresponding period of 2021, and were primarily related to lease repayments, consistent with the two months ended December 31, 2021.
Debt Obligations
KSP Convertible Notes
On September 29, 2021, the Company entered into a Note Purchase Agreement (the “KSP Note Purchase Agreement”) with Spring Creek Capital, LLC (an affiliate of Koch Strategic Platforms, LLC, being a company within the Koch Investments Group) and issued a convertible note (the “KSP Convertible Note”) in the principal amount of $100 million to Spring Creek Capital, LLC. The KSP Convertible Note will mature on September 29, 2026. Interest on the KSP Convertible Note is payable semi-annually, and Li-Cycle is permitted to pay interest on the KSP Convertible Note in cash or by payment in-kind (“PIK”), at its election. Interest payments made in cash are based on an interest rate of LIBOR plus 5.0% per year, and PIK interest payments are based on an interest rate of LIBOR plus 6.0% per year. Under the terms of the KSP Convertible Note, LIBOR has a floor of 1% and a cap of 2%. Once LIBOR interest rate is no longer published, the interest rate will instead be based on the sum of the Secured Overnight Financing Rate (“SOFR”) and the average spread between the SOFR and LIBOR during the three-month period ending on the date on which LIBOR ceases to be published. The PIK election results in the issuance of a new note under the same terms as the KSP Convertible Note, issued in lieu of interest payments with an issuance date on the applicable interest date. The Company has elected to pay interest by PIK since the first interest payment date on the KSP Convertible Note of December 31, 2021. The KSP Convertible Note and the PIK notes issued thereunder are referred to collectively as the “KSP Convertible Notes”, and as at December 31, 2022, comprised the following:
| | | | | | | | |
| Note | Date Issued | Amount Issued |
| KSP Convertible Note | September 29, 2021 | $ | 100.0 | |
| PIK Note | December 31, 2021 | 1.8 | |
| PIK Note | June 30, 2022 | 4.1 | |
| PIK Note | December 31, 2022 | 4.3 | |
| Total | | $ | 110.2 | |
| | |
On May 1, 2022, Spring Creek Capital, LLC assigned the KSP Convertible Note and the PIK note outstanding at that time to an affiliate, Wood River Capital, LLC. On May 5, 2022, the KSP Convertible Notes were amended to permit the issuance of the Glencore Convertible Note and to amend certain investor consent related provisions. The KSP Convertible Notes were further amended on February 13, 2023 to clarify the conversion calculation.
The principal and accrued interest owing under the KSP Convertible Notes may be converted at any time by the holder into the Company’s common shares, at a per share price equal to $13.43 (the “Conversion Price”). If the closing price per share of the Company’s common shares on the New York Stock Exchange is above $17.46 for 20 consecutive trading days, then the Company may elect to convert the principal and accrued interest owing under the KSP Convertible Notes, plus a make-whole amount equal to the undiscounted interest payments that would have otherwise been payable through maturity (the “Make-Whole Amount”) into the Company’s common shares at the Conversion Price.
The Company may redeem the KSP Convertible Notes at any time by payment in cash of an amount equal to 130% of the principal amount of the KSP Convertible Notes and all accrued interest owing under the KSP Convertible Notes, plus the Make-Whole Amount.
Glencore Convertible Note
On May 31, 2022, the Company issued to Glencore a convertible note in the aggregate principal amount of $200.0 million (the “Glencore Convertible Note”), in a transaction exempt from registration under the U.S. Securities Act of 1933, as amended. The Glencore Convertible Note matures five years from the date of issuance and interest on the Glencore Convertible Note is payable on a semi-annual basis, either in cash or by PIK, at the Company’s option. The Glencore Convertible Note accrues interest from the date of issuance at the forward-looking term rate based on SOFR for a tenor comparable to the relevant interest payment period plus 0.42826% (the “Floating Rate”) plus 5% per annum if interest is paid in cash and plus 6% per annum if interest is paid in PIK. The Floating Rate has a floor of 1% and a cap of 2%. The Company has elected to pay interest by PIK since the first
interest payment date on the Glencore Convertible Note of November 30, 2022. The Glencore Convertible Note and the PIK notes issued thereunder are referred to collectively as the “Glencore Convertible Notes”, and as at December 31, 2022, comprised the following:
| | | | | | | | |
| Note | Date Issued | Amount Issued |
| Glencore Note | May 31, 2022 | $ | 200.0 | |
| PIK Note | November 30, 2022 | 8.1 | |
| Total | | $ | 208.1 | |
| | |
The principal and accrued interest owing under the Glencore Convertible Notes may be converted at any time by the holder into the Company’s common shares at a per share price equal to $9.95 (the “Conversion Price”), subject to adjustments. The Company may redeem the Glencore Convertible Notes at any time by payment of an amount in cash equal to 100% of the outstanding principal amount of the Glencore Convertible Notes and all accrued interest owing under the Glencore Convertible Notes. In connection with any optional redemption and provided that the holder of the Glencore Convertible Notes has not elected to convert the Glencore Convertible Notes into common shares following receipt of an optional redemption notice, the Company must issue warrants (the “Glencore Warrants”) to the holder of the Glencore Convertible Notes on the optional redemption date that entitle the holder to acquire, until the maturity date of the Glencore Convertible Notes, a number of common shares equal to the principal amount of the Glencore Convertible Notes being redeemed divided by the then applicable Conversion Price. The initial exercise price of the Glencore Warrants will be equal to the Conversion Price as of the optional redemption date.
The obligations of the Company to make any payment on account of the principal of and interest on the KSP Convertible Notes and the Glencore Convertible Notes are subordinate and junior in right of payment and upon liquidation to the Company’s obligations to the holders of all current and future senior indebtedness of the Company. The Glencore Convertible Notes were amended on February 13, 2023 to clarify the conversion calculation.
Contractual Obligations and Commitments
The following table summarizes Li-Cycle’s contractual obligations and other commitments for cash expenditures as of December 31, 2022, and the years in which these obligations are due:
| | | | | | | | | | | | | | | | | |
| Unaudited $ millions, undiscounted | Payment due by period |
| |
| Contractual Obligations | Total | Less than | 1 - 3 years | 3 - 5 years | More than |
| 1 year | 5 years |
| Accounts payable and accrued liabilities | $ | 75.9 | $ | 75.9 | $ | — | $ | — | $ | — |
| Lease liabilities | 78.6 | 8.8 | 15.3 | 13.7 | 40.8 |
| Restoration provisions | 0.5 | 0.2 | 0.1 | — | 0.2 |
| Convertible debt principal | 318.4 | — | — | 318.4 | — |
| Convertible debt interest | 127.7 | — | — | 127.7 | — |
Total as of December 31, 2022 | $ | 601.1 | | $ | 84.9 | | $ | 15.4 | $ | 459.8 | $ | 41.0 |
As of December 31, 2022, there were $9.5 million in committed purchase orders or agreements for equipment and services, compared to $9.2 million as of October 31, 2022.
Li-Cycle expects to enter into premises leases for additional Spokes and Hubs in the twelve months following December 31, 2022.
Quantitative and Qualitative Disclosures About Market Risk
Li-Cycle is exposed to various risks in relation to financial instruments. The main types of risks are currency risk and interest rate risk. While Li-Cycle may enter into hedging contracts from time to time, any change in the fair value of the contracts could be offset by changes in the underlying value of the transactions being hedged.
Furthermore, Li-Cycle does not have foreign-exchange hedging contracts in place with respect to all currencies in which it does business.
Currency Risk
The Company is exposed to currency risk as its cash is mainly denominated in U.S. dollars, while its operations also require Canadian dollars and other currencies in addition to U.S. dollars. As at December 31, 2022, the impact of a 5% change in these respective currencies versus the U.S. dollar, would result in an immaterial impact.
Interest Rate Risk
Interest rate risk is the risk arising from the effect of changes in prevailing interest rates on the Company’s financial instruments. The Company is exposed to interest rate risk, as it has variable interest rate debt that includes an interest rate floor and cap.
Credit, liquidity, and market risks
Credit risks associated with cash are minimal as the Company deposits the majority of its cash with large Canadian and U.S. financial institutions above a minimum credit rating and with a cap on maximum deposits with any one institution. The Company’s credit risks associated with receivables are managed and exposure to potential loss is also assessed as minimal.
The Company’s revenue and accounts receivable primarily come from three key customers under long-term contracts. The Company manages this risk by engaging with reputable multi-national corporations in stable jurisdictions and performing a review of a potential customer’s financial health prior to engaging in business.
Management has established an appropriate liquidity risk management framework for the management of the Company’s short-term, medium and long-term funding and liquidity requirements.
The Company is exposed to commodity price movements for the inventory it holds and the products it produces. Commodity price risk management activities are currently limited to monitoring market prices. The Company’s revenues are sensitive to the market prices of the constituent payable metals contained its products, notably cobalt and nickel.
The following table sets out the Company’s exposure, as of December 31, 2022 and October 31, 2022, in relation to the impact of movements in the cobalt and nickel price for the provisionally invoiced sales volume of Black Mass & Equivalents by metric tonne:
| | | | | | | | | | | | | | |
| Cobalt | Nickel |
| December 31, 2022 | October 31, 2022 | December 31, 2022 | October 31, 2022 |
| BM&E Metric tonnes subject to fair value pricing adjustments | 4,428 | | 4,202 | | 4,428 | | 4,202 | |
| 10% increase in prices | $ | 0.8 | $ | 1.1 | $ | 1.4 | $ | 1.0 |
| 10% decrease in prices | $ | (0.8) | | $ | (1.1) | | $ | (1.4) | | $ | (1.0) | |
The following table sets out the period end commodity prices for cobalt and nickel as at December 31, 2022 and October 31, 2022:
| | | | | | | | |
| Market price per tonne |
| As at | December 31, 2022 | October 31, 2022 |
| Cobalt | $ | 41,337 | $ | 53,462 |
| Nickel | 30,400 | | 21,710 | |
Capital risk management
The Company manages its capital to ensure that entities in the Company will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance.
The capital structure of the Company consists of net cash (cash and cash equivalents after deducting convertible debt) and equity of the Company (comprising issued share capital and other reserves).
The Company is not subject to any externally imposed capital requirements as of December 31, 2022.
Key Factors Affecting Li-Cycle’s Performance
The Company believes that its performance and future success is dependent on multiple factors that present significant opportunities for Li-Cycle, but also pose significant risks and challenges, including those discussed below and in the section of the Annual Report entitled “Item 3. Key Information—D. Risk Factors.”
Availability of Lithium-Ion Battery Materials for Recycling
Li-Cycle is reliant on obtaining lithium-ion batteries and battery manufacturing scrap for recycling at its Spokes through its contracts with third-party suppliers. The Company maintains commercial contracts with leaders in the EV and LIB ecosystem, including battery manufacturers and automotive original equipment manufacturers, as well as energy storage, consumer electronics and transportation companies. Li-Cycle currently has over 150 suppliers of end-of-life lithium-ion batteries and battery manufacturing scrap and expects to attract new suppliers by differentiating itself based on the sustainability of its process and the robustness of its technology, which in turn will enable Li-Cycle to offer competitive terms to suppliers.
Li-Cycle expects its supply pipeline to grow as suppliers increase volumes of batteries and manufacturing scrap available for recycling due to the continuing trend toward EVs, and as Li-Cycle continues to source additional supplier relationships. The Company's commercial agreements with Glencore also provide for the procurement of battery material for its Spoke facilities, providing access to an additional source of supply to supplement the volumes it is independently sourcing. There can be no assurance that Li-Cycle will attract new suppliers or expand its supply pipeline from existing suppliers, and any decline in supply volume from existing suppliers or an inability to source new supplier relationships could have a negative impact on Li-Cycle’s results of operations and financial condition.
Customer Demand for Recycled Materials
Li-Cycle currently recognizes revenue from, among other things, sales of two intermediate products produced at Li-Cycle’s Spokes: Black Mass & Equivalents and shredded metal. After the Rochester Hub becomes operational, and Li-Cycle starts processing black mass internally, Li-Cycle expects to recognize revenue from the sale of end products, including nickel sulphate, cobalt sulphate and lithium carbonate. The demand for Li-Cycle’s recycling services and products is driven in part by projected increases in the demand for EVs (including automobiles, e-bikes, scooters, buses and trucks) and other energy storage systems. A decline in the adoption rate of EVs, or a decline in the support by governments for “green” energy technologies could reduce the demand for Li-Cycle’s recycling services and products.
Li-Cycle relies on a limited number of customers from whom it generates most of its revenue. Li-Cycle has entered into two agreements with Traxys North America LLC (“Traxys”) covering the off-take of black mass from its Spokes in North America and certain specialty products from the Rochester Hub. Refer to the section titled “Item 4. Information on the Company—B. Business Overview —our Broad and Diversified Intake and Off-Take Commercial Contracts” in the Annual Report. Li-Cycle has also entered into additional off-take agreements with Glencore, covering substantially all of its other Spoke and Hub products. If the Company's off-take partners are unwilling or unable to fulfil their contractual obligations to the Company, if either party fails to perform under the relevant contract, or if these off-take partners otherwise terminate these agreements prior to their expiration, the
Company's business could suffer and Li-Cycle may not be able to find other off-take partners on similar or more favorable terms, which could have a material adverse effect on its business, results of operations and financial condition.
Fluctuations in Commodity Prices
The prices that Li-Cycle pays for battery feedstock for its Spokes, and the revenue that Li-Cycle currently recognizes from the sale of Black Mass & Equivalents and shredded metal produced at Li-Cycle’s Spokes, are impacted by the commodity prices for the metals contained in those battery feedstocks or products, notably nickel, cobalt and copper. As a result, fluctuations in the prices of these commodities will affect Li-Cycle’s costs and revenues. After the Rochester Hub becomes operational, and Li-Cycle starts processing black mass internally, Li-Cycle expects to recognize revenue from the sale of end products, including lithium carbonate, nickel sulphate and cobalt sulphate. The amount of revenue that Li-Cycle will recognize from the sale of these end products will also be impacted by the commodity prices for the metals contained in these end products, notably lithium, nickel, and cobalt. While Li-Cycle’s costs and revenues may vary with commodity prices and specialty product prices, the Company believes the wide range of end products that Li-Cycle expects to produce will result in a diversification effect that will provide it with a natural hedge against significant variations in the commodity pricing related to a single product.
Ability to Build Out Additional Facilities
Li-Cycle’s continued growth is dependent on its ability to scale the business as currently planned, and build out additional facilities in North America and internationally. Li-Cycle has a market-leading position in North America through its operational Spokes in Kingston, Ontario, Rochester, New York, Gilbert, Arizona and Tuscaloosa, Alabama. Li-Cycle is also advancing the construction of its first commercial Hub, in Rochester, New York. Li-Cycle has also announced its first European Spokes, in Germany and Norway, and is evaluating additional opportunities to scale its operations with a range of potential partners and expansion opportunities that may include acquisitions, joint ventures or other commercial arrangements in North America, Europe, and Asia Pacific.
The development of Li-Cycle’s Rochester Hub, its Spoke network and other future projects is subject to risks, including engineering, permitting, procurement, construction, commissioning and ramp-up, and Li-Cycle cannot guarantee that these projects will be completed within expected timeframes or at all, that costs will not be significantly higher than estimated, that it will have sufficient capital to cover any increased costs or that the completed projects will meet expectations with respect to their production rates, unit costs or specifications of their end products, among others. While the expansion of Li-Cycle’s business in international markets, including the construction and operation of the Germany Spoke, the Norway Spoke and the France Spoke, is an important element of its strategy, but it also involves exposure to risks inherent in doing business globally, which could delay or otherwise adversely affect the Company’s expansion plans.
Global Supply Chain
The COVID-19 pandemic and geopolitical events, including Russia’s invasion of Ukraine, have resulted in significant disruptions in the global supply chain. Shortages, price increases and/or delays in shipments of supplies, equipment and raw materials have occurred and may continue to occur in the future which may result in operational or construction slowdowns. Such disruptions to the global supply chain may have a material adverse effect on Li-Cycle’s operations, development and construction activities and financial condition.
Research and Development
Li-Cycle continues to conduct R&D centered on various aspects of its business. R&D work is ongoing in support of its Spoke operations and its Rochester Hub project and is specifically focused on continuous optimization of operating parameters and preparation for operations. Li-Cycle also continues to develop and evaluate new concepts with an eye to the future, including solid-state battery processing and other technologies and concepts related to its Spoke & Hub Technologies™.
Related Party Transactions
For information about Li-Cycle’s related party transactions refer to Note 9 in the Transition Period Financial Statements and the section of the Annual Report entitled “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions.”
Outstanding Share Data
As of March 28, 2023, and including the results of the redemption of outstanding warrants to purchase common shares of the Company, Li-Cycle had the following issued and outstanding common shares, and common shares issuable upon conversion of convertible debt, exercise of stock options and settlement of restricted share units:
| | | | | |
| Number of common shares outstanding or issuable upon conversion or exercise |
| Common shares outstanding | 176,542,264 | |
| Convertible debt | 30,801,411 | |
| Stock options | 5,312,183 | |
| Restricted share units | 3,483,220 | |
| Total | 216,139,078 | |
Summary of Quarterly and Transition Period Results
The table below sets forth certain summarized unaudited quarterly financial data for the eight most recently completed quarters and the two-month period ended December 31, 2022 and 2021. This information has been prepared in accordance with IFRS. The operating results for any period are not necessarily indicative of the results to be expected for any future period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Two months ended | Three months ended |
| Unaudited $ millions, except per share data | December 31, | October 31, | July 31, | April 30, | January 31, |
| 2022 | 2021 | 2022 | 2021 | 2022¹ | 2021 | 2022 | 2021 | 2022 | 2021 |
| Revenues | $ | 5.9 | | $ | 2.8 | | $ | 3.0 | | $ | 4.4 | | $ | (2.0) | | $ | 1.7 | | $ | 8.6 | | $ | 0.2 | | $ | 3.8 | | $ | 1.0 | |
| Net profit (loss) | 1.7 | | 3.9 | | (33.9) | | (204.9) | | (27.5) | | (7.0) | | (20.8) | | (7.9) | | 28.5 | | (6.8) | |
| Net profit (loss) attributable to: | | | | | | | | | | |
| Shareholders of Li-Cycle Holdings Corp. | 1.7 | | 3.9 | | (33.9) | | (204.9) | | (27.6) | | (7.0) | | (20.6) | | (7.9) | | 28.5 | | (6.8) | |
| Non-controlling interest | — | | — | | — | | — | | (0.1) | | — | | — | | — | | — | | — | |
| Earnings (loss) per share, basic and diluted | $ | 0.01 | | $ | 0.02 | | $ | (0.19) | | $ | (1.31) | | $ | (0.16) | | $ | (0.07) | | $ | (0.12) | | $ | (0.08) | | $ | 0.17 | | $ | (0.07) | |
| | | | | | | | | | |
¹ The decrease in cobalt and nickel prices over the three months ended July 31, 2022 has resulted in fair value adjustment losses which exceed the new product sales revenue recognized in the period.
Li-Cycle became a reporting issuer for the purposes of Ontario securities laws on August 10, 2021. Over the last eight quarters, the Company’s results were primarily impacted by the continued development, construction and commissioning of its Spoke network; the development and construction of the Rochester Hub; and costs and expenses incurred in connection with its growth plan, including personnel and facilities costs and legal, audit and tax advisory services in support of the Company’s growth plans as a public company. The results were also impacted by costs and expenses incurred in connection with the completion of the Business Combination in August 2021, including excess of fair value over consideration transferred of $152.7 million in the three months ended October 31, 2021, and by fair value gain (loss) on financial instruments relating to warrants and convertible debt.
Off-Balance Sheet Arrangements
During the periods presented, Li-Cycle did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, which were established for the purpose of facilitating off-balance sheet arrangements.
Significant Accounting Policies and Critical Estimates
Li-Cycle’s condensed consolidated financial statements for the two months ended December 31, 2022 and 2021 have been prepared in accordance with IFRS as issued by the IASB.
Revenue
The Company’s principal activities generate revenues from the operation of LIB recycling plants. The Company uses the following five step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Company recognizes revenue from the following major sources:
•Services for recycling lithium-ion batteries which includes coordination of logistics and destruction of batteries; and
•Sale of products which includes Black Mass & Equivalents and shredded metal.
Revenue is measured based on the consideration to which the Company expects to be entitled under a contract with a customer. The Company recognizes revenue when it transfers control of a product or service to a customer. There are no significant financing components associated with the Company’s payment terms.
For sale of products, revenue is recognized when control of the goods has transferred, typically when the goods have been transferred to the customer. A receivable is recognized by the Company when the goods are transferred to the customer as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due. The Company estimates the amount of consideration to which it expects to be entitled under provisional pricing arrangements, which is based on the initial assay results and market prices of certain constituent metals on the date control is transferred to the customer. The final consideration for BM&E and shredded metal sales is based on the mathematical product of: (i) market prices of certain constituent metals at the date of settlement, (ii) product weight, and (iii) final assay results (ratio of the constituent metals initially estimated by management and subsequently trued up to customer confirmation). Certain adjustments like handling and refining charges are also made per contractual terms with customers. Depending on the contractual terms with customers, the payment of receivables may take up to 12 months from date of shipment. Product sales and the related trade accounts receivable are measured using provisional prices for the constituent metals on initial recognition and any unsettled sales are remeasured at the end of each reporting period using the market prices of the constituent metals at the respective measurement dates. Changes in fair value are recognized as an adjustment to product revenue and the related accounts receivable.
Recycling service revenue is recognized at a point in time upon completion of the services. The price for services is separately identifiable within each contract. A receivable is recognized by the Company when the services are completed as this represents the point in time at which the right to consideration becomes unconditional, as only the passage of time is required before payment is due.
The Company has elected to use the practical expedient for financing components related to its sales contracts. The Company does not recognize interest expense on contracts for which the period between receipt of customer payments and sale to the customer is one year or less.
Convertible debt instruments
The components of convertible debt instruments issued by the Company are recorded as financial liabilities, in accordance with the substance of the contractual arrangements and the definitions of a financial liability. The debt element of the instruments is classified as a liability and recorded as the present value of the Company’s obligation to make future interest payments in cash and settle the redemption value of the instrument in cash. The carrying value of the debt element is accreted to the original face value of the instruments, over their life, using the effective interest method. If the conversion option is classified as a liability and requires bifurcation, it is bifurcated as an embedded derivative unless the Company elects to apply the fair value option to the convertible debt. The embedded derivative liability is initially recognized at fair value and classified as derivatives in the statement of financial position. Changes in the fair value of the embedded derivative liability are subsequently accounted for directly through the income statement.
Accounting Treatment of the Business Combination
The Business Combination has been accounted for as a reverse acquisition in accordance with IFRS. Under this method of accounting, Li-Cycle Holdings Corp. (as the continuing entity after the amalgamation of Li-Cycle Holdings Corp. and Peridot pursuant to the Business Combination) is treated as the “acquired” company for accounting purposes. As Peridot does not meet the definition of a business as defined in IFRS 3 — Business Combinations (“IFRS 3”), the acquisition, net assets of Li-Cycle Holdings Corp. were stated at historical cost, with no goodwill or other intangible assets recorded.
Li-Cycle has been determined to be the accounting acquirer based on an evaluation of the following facts and circumstances, and accordingly the Business Combination is treated as an equivalent to an acquisition of Peridot
accompanied by a recapitalization.
•Li-Cycle’s shareholders prior to the Business Combination have the greatest voting interest in the combined entity relative to other shareholders (including following the redemptions discussed under “—Liquidity and Capital Resources — Sources of Liquidity”);
•the largest individual minority shareholder of the combined entity is an existing shareholder of Li-Cycle;
•the Company’s senior management is the senior management of Li-Cycle;
•Li-Cycle is the larger entity based on historical total assets and revenues; and
•Li-Cycle’s operations comprise the ongoing operations of the Company.
Upon consummation of the Business Combination and the closing of the PIPE Financing, the most significant change in Li-Cycle’s financial position and results of operations was an increase in cash and cash equivalents (as compared to Li-Cycle’s balance sheet at July 31, 2021) of $581.9 million, including $315.5 million in gross proceeds from the PIPE Financing. Total direct and incremental transaction costs of Peridot and Li-Cycle were $29.6 million and $27.0 million, respectively. Li-Cycle’s transaction costs were treated as a reduction of the cash proceeds and deducted from Li-Cycle Holdings Corp.’s additional paid-in capital.
As a result of the Business Combination, Li-Cycle Holdings Corp. became the successor to an SEC-registered and NYSE-listed company, which has required Li-Cycle to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Li-Cycle expects to continue to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, legal and administrative resources, including increased audit and legal fees.
Recently Issued Accounting Standards Not Yet Adopted
From time to time, new accounting standards, amendments to existing standards, and interpretations are issued by the IASB. Unless otherwise discussed, and as further highlighted in Note 2 to the Transition Period Financial Statements, Li-Cycle is in the process of assessing the impact of recently issued standards or amendments to existing standards that are not yet effective.
Disclosure Controls and Procedures
Li-Cycle's management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Canadian Securities Administrators National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings) as of the end of the period covered by this report. Based on such evaluation, its Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2022, its disclosure controls and procedures were not effective, due to the material weaknesses in the Company's internal control over financial reporting described below.
Internal Control Over Financial Reporting
Management is responsible for establishing, maintaining and assessing the effectiveness of adequate internal control over financial reporting (“ICFR”) as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act and Canadian Securities Administrators National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings. The Company’s ICFR is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.
Prior to August 10, 2021, Li-Cycle was a private company and addressed internal control over financial reporting with internal accounting and financial reporting personnel and other resources. In the course of preparing for the Business Combination, Li-Cycle identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of Li-Cycle’s annual or interim condensed consolidated interim financial statements may not be prevented or detected on a timely basis.
As of December 31, 2022, management assessed the effectiveness of the Company’s ICFR based on the criteria established in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO 2013 Framework”). Based on this assessment, management identified the following material weaknesses as of December 31, 2022:
•an ineffective control environment, resulting from an insufficient number of experienced personnel with the appropriate technical training to allow for a detailed review of transactions that would identify errors in a timely manner;
•an ineffective risk assessment process to identify all relevant risks of material misstatement and to evaluate the implications of relevant risks on its internal control over financial reporting, resulting from the insufficient number of experienced personnel described above;
•an ineffective information and communication process to ensure the relevance, timeliness and quality of information used in control activities, resulting from: (i) insufficient communication of internal control information, including objectives and responsibilities; and (ii) ineffective general IT controls and controls over information from a service organization;
•an ineffective monitoring process, resulting from the evaluation and communication of internal control deficiencies not being performed in a timely manner; and,
•ineffective control activities related to the design, implementation and operation of process level controls and financial statement close controls, as a consequence of the above, which had a pervasive impact on the Company’s internal control over financial reporting.
As a result, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2022, based on the COSO 2013 Framework described above. These material weaknesses create a reasonable possibility that a material misstatement to the Company’s condensed consolidated financial statements will not be prevented or detected on a timely basis.
Plan for Remediation of Material Weaknesses
Li-Cycle has taken steps to address these material weaknesses and expect to continue to implement the remediation plan, which Li-Cycle believes will address the underlying causes. The Company has engaged external
advisors with subject matter expertise and additional resources to provide assistance with all elements of the internal control over financial reporting program, including: performance of a risk assessment; documentation of process flows; design and remediation of control deficiencies; and evaluation of the design and operational effectiveness of the Company's internal controls. Li-Cycle also expects to engage additional external advisors to provide assistance in the areas of information technology and financial accounting. The Company continues to monitor the longer-term resource needs of its various financial functions, as the Company grows its capability, capacity, and competency. Li-Cycle has made some improvements to its various IT platforms, including our enterprise resource planning (“ERP”) system, and work on further upgrades is ongoing with the intent to further improve and enhance system functionality. Although Li-Cycle has strengthened its controls in these areas, the Company will not be able to conclude that it has remediated the material weaknesses until all relevant controls are fully implemented and have operated effectively for a sufficient period of time. The Company will continue to provide updates as it progresses through the remediation plan.
Changes in internal control over financial reporting
Except for the steps taken to address the material weaknesses in the Company’s ICFR as described above in Plan for Remediation of Material Weakness”, no changes in the Company's ICFR occurred during the two months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR.
Non-IFRS Measures
The Company uses the non-IFRS measure of Adjusted EBITDA. Management believes that this non-IFRS measures provides useful information to investors in measuring the financial performance of the Company and is provided as additional information to complement IFRS measures by providing a further understanding of the Company’s results of operations from management’s perspective. Adjusted EBITDA does not have a standardized meaning prescribed by IFRS and the term therefore may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. Accordingly, it should not be considered in isolation nor as a substitute for the analysis of the Company’s financial information reported under IFRS.
Adjusted EBITDA is defined as earnings before depreciation and amortization, interest expense (income), income tax expense (recovery) adjusted for items that are not considered representative of ongoing operational activities of the business and items where the economic impact of the transactions will be reflected in earnings in future periods. Adjustments relate to fair value (gains) losses on financial instruments. Foreign exchange (gain) loss is excluded from the calculation of adjusted EBITDA. The following table provides a reconciliation of net profit (loss) to Adjusted EBITDA loss.
| | | | | | | | | | | |
| | Two months ended |
| December 31, |
| Unaudited $ millions | | | 2022 | 2021 | |
| Net income before taxes | | | $ | 1.7 | $ | 3.9 | |
| Income Tax | | | — | — | |
| Depreciation | | | 2.4 | 1.2 | |
| Interest expense | | | 3.0 | 2.5 | |
| Interest income | | | (3.5) | | (0.1) | | |
| EBITDA | | | 3.6 | 7.5 | |
| Fair value gain on financial instruments¹ | | | (21.4) | | (16.0) | | |
| Adjusted EBITDA (loss) | | | $ | (17.8) | | $ | (8.5) | | |
| | |
| ¹ Fair value gain on financial instruments relates to convertible debt, and to warrants, which were redeemed and no longer outstanding as of January 31, 2022. |
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Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this MD&A may be considered “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, Section 27A of the U.S. Securities Act of 1933, as amended, Section 21 of the U.S. Securities Exchange Act of 1934, as amended, and applicable Canadian securities laws. Forward-looking statements may generally be identified by the use of words such as “believe”, “may”, “will”, “continue”, “anticipate”, “intend”, “expect”, “should”, “would”, “could”, “plan”, “potential”, “future”, “target” or other similar expressions that predict or indicate future events or trends or that are not statements of historical matters, although not all forward-looking statements contain such identifying words. Forward-looking statements in this MD&A include but are not limited to statements about: anticipated growth in global demand for and production of lithium-ion batteries and the growth of related industries; the expectation that growing megafactory investments in North America and globally will drive significant increases in the Company’s total addressable market; Li-Cycle’s ability to capitalize on global growth opportunities; Li-Cycle’s expectation that it will attract new suppliers and that its supply pipeline will grow; the Company’s intention to pursue potential debt financing options from both traditional and government sources in support of future growth; Li-Cycle’s expectation that it will secure a loan of up to $375 million through United States Department of Energy Loan Programs Office Advanced Technology Vehicles Manufacturing program; Li-Cycle’s expectation to recognize revenue from the sale of end products; expected settlement dates for the metric tonnes of BM&E subject to fair value price adjustments by quarter for the last twelve months; the Company’s plan to gradually shift to a strategy of retaining BM&E production for future internal use as feedstock at the Rochester Hub; the expectation that the Rochester Hub will be the first hydrometallurgical battery resource recovery facility in North America; the timing of expected commencement of commissioning of the Rochester Hub, its input and output capacities, its total capital cost and the expected size of its workforce; the expected timing and capital investment requirements for the Company’s Spokes in development and the expected main line processing capacity and ancillary processing capacity of the Germany, Norway, France and expanded Ontario Spokes; Li-Cycle’s expectation that it will enter into premises leases for additional Spokes and Hubs by end of 2023; the Company’s expectation to increase the total main line processing capacity and ancillary processing capacity at its Spokes to just over 80,000 tonnes LIB material input/year in 2023; Li-Cycle’s expectation that it will invest $35 million to $45 million towards its Spoke expansion plans in 2023 and that it will invest $250 million to $300 million towards the Rochester Hub project in 2023; Li-Cycle’s expectation that its 2023 outlook for BM&E production will double fiscal 2022 production levels; and the Company’s expectation that it will need to secure additional equity and debt financing to fund its growth strategy and its intention to meet its currently anticipated capital requirements through cash on hand, cash flow from operations, and additional ongoing fundraising activities. These statements are based on various assumptions, whether or not identified in this communication, including but not limited to assumptions regarding the timing, scope and cost of Li-Cycle’s projects; the processing capacity and production of Li-Cycle’s facilities; Li-Cycle’s ability to source feedstock and manage supply chain risk; Li-Cycle’s ability to increase recycling capacity and efficiency; Li-Cycle’s ability to obtain financing on acceptable terms; Li-Cycle’s ability to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners; Li-Cycle’s ability to attract new suppliers or expand its supply pipeline from existing suppliers; general economic conditions; currency exchange and interest rates; compensation costs; and inflation. There can be no assurance that such assumptions will prove to be correct and, as a result, actual results or events may differ materially from expectations expressed in or implied by the forward-looking statements.
These forward-looking statements are provided for the purpose of assisting readers in understanding certain key elements of Li-Cycle’s current objectives, goals, targets, strategic priorities, expectations and plans, and in obtaining a better understanding of Li-Cycle’s business and anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes and is not intended to serve as, and must not be relied on, by any investor as a guarantee, an assurance, a prediction or a definitive statement of fact or probability.
Forward-looking statements involve inherent risks and uncertainties, most of which are difficult to predict and many of which are beyond the control of Li-Cycle, and which may cause actual results to differ materially from the forward-looking information. Li-Cycle believes that these risks and uncertainties include, but are not limited to, the following: Li-Cycle’s inability to economically and efficiently source, recover and recycle lithium-ion batteries and lithium-ion battery manufacturing scrap, as well as third party black mass, and to meet the market demand for
an environmentally sound, closed-loop solution for manufacturing waste and end-of-life lithium-ion batteries; Li-Cycle’s inability to successfully implement its global growth strategy, on a timely basis or at all; Li-Cycle’s inability to manage future global growth effectively; Li-Cycle’s inability to develop the Rochester Hub, and other future projects including its Spoke network expansion projects in a timely manner or on budget or that those projects will not meet expectations with respect to their productivity or the specifications of their end products; Li-Cycle’s failure to materially increase recycling capacity and efficiency; Li-Cycle may engage in strategic transactions, including acquisitions, that could disrupt its business, cause dilution to its shareholders, reduce its financial resources, result in incurrence of debt, or prove not to be successful; one or more of Li-Cycle’s current or future facilities becoming inoperative, capacity constrained or disrupted; additional funds required to meet Li-Cycle’s capital requirements in the future not being available to Li-Cycle on acceptable terms or at all when it needs them; Li-Cycle expects to continue to incur significant expenses and may not achieve or sustain profitability; problems with the handling of lithium-ion battery cells that result in less usage of lithium-ion batteries or affect Li-Cycle’s operations; Li-Cycle’s inability to maintain and increase feedstock supply commitments as well as secure new customers and off-take agreements; a decline in the adoption rate of EVs, or a decline in the support by governments for “green” energy technologies; decreases in benchmark prices for the metals contained in Li-Cycle’s products; changes in the volume or composition of feedstock materials processed at Li-Cycle’s facilities; the development of an alternative chemical make-up of lithium-ion batteries or battery alternatives; Li-Cycle’s revenues for the Rochester Hub are derived significantly from a single customer; Li-Cycle’s insurance may not cover all liabilities and damages; Li-Cycle’s heavy reliance on the experience and expertise of its management; Li-Cycle’s reliance on third-party consultants for its regulatory compliance; Li-Cycle’s inability to complete its recycling processes as quickly as customers may require; Li-Cycle’s inability to compete successfully; increases in income tax rates, changes in income tax laws or disagreements with tax authorities; significant variance in Li-Cycle’s operating and financial results from period to period due to fluctuations in its operating costs and other factors; fluctuations in foreign currency exchange rates which could result in declines in reported sales and net earnings; unfavourable economic conditions, such as consequences of the global COVID-19 pandemic; natural disasters, unusually adverse weather, epidemic or pandemic outbreaks, cyber incidents, boycotts and geo-political events; failure to protect or enforce Li-Cycle’s intellectual property; Li-Cycle may be subject to intellectual property rights claims by third parties; Li-Cycle’s failure to effectively remediate the material weaknesses in its internal control over financial reporting that it has identified or its failure to develop and maintain a proper and effective internal control over financial reporting. These and other risks and uncertainties related to Li-Cycle’s business and the assumptions on which the forward-looking information is based are described in greater detail in the section entitled “Item 3. Key Information—D. Risk Factors” included in the Annual Report “, under “Key Factors Affecting Li-Cycle’s Performance” hereof and elsewhere in this MD&A. Because of these risks, uncertainties and assumptions, readers should not place undue reliance on these forward-looking statements. Actual results could differ materially from those contained in any forward-looking statement.
Li-Cycle assumes no obligation to update or revise any forward-looking statements, except as required by applicable laws. These forward-looking statements should not be relied upon as representing Li-Cycle’s assessments as of any date subsequent to the date of this MD&A.