Li-Cycle (LICY) SC 13D/ALi-Cycle / Glencore ownership change

On March 11, 2024, Glencore Canada Corporation entered into a Note Purchase Agreement (the “New Note Purchase Agreement”) with the Issuer and Glencore Ltd., pursuant to which the Issuer agreed to issue and sell to Glencore Canada Corporation a senior secured convertible note (the “Senior Secured Convertible Note”) in an aggregate principal amount of $75,000,000 (the “Transaction”). Glencore Canada Corporation will use working capital to purchase the Senior Secured Convertible Note. The closing of the Transaction is expected to occur on or about March 25, 2024.

The Senior Secured Convertible Note will mature on the fifth anniversary of the closing of the Transaction. Interest on the Senior Secured Convertible Note is payable either in cash or by payment-in-kind (“PIK”) at the Issuer’s election, on a semi-annual basis from the date of issuance, and will be based on the secured overnight financing rate plus 5% per year if interest is paid in cash and plus 6% per year if interest is paid in PIK. In the case that an event of default has occurred and is continuing, the interest rate will be the rate stated above, plus 1% per year (which additional 1% will be payable in cash).

The principal and accrued interest owing under the Senior Secured Convertible Note may be converted at any time by the holder into Common Shares at a conversion price of $0.53 per share (the “New Note Conversion Price”), subject to adjustments.

The Issuer may redeem all or any portion of the Senior Secured Convertible Note at any time by payment of an amount in cash equal to 100% of the principal amount of the portion of the Senior Secured Convertible Note being redeemed plus all accrued and unpaid interest thereon. Commencing with the delivery of financial statements for the fiscal year ending December 31, 2026, the Issuer will be required to redeem a portion of the outstanding principal amount of the Senior Secured Convertible Note in an amount equal to a specified percentage of the excess cash flow generated by the Issue and its subsidiaries for the applicable fiscal year (less certain deductions and subject to pro rata application to certain other debt of the Issuer). The Issuer is also required to redeem the Senior Secured Convertible Note for an amount in cash equal to the outstanding principal amount of the Senior Secured Convertible Note being redeemed and all accrued and unpaid interest thereon, plus a make-whole amount equal to the undiscounted interest payments that would have otherwise been payable through maturity in the event of: (1) certain events of default that are continuing, upon request by Glencore Canada Corporation, (2) certain bankruptcy-related events of default, and (3) upon a change of control transaction, unless, in each case, the Senior Secured Convertible Note is first converted by Glencore Canada Corporation.

In connection with any optional or mandatory redemption and provided that Glencore Canada Corporation has not elected to convert the Senior Secured Convertible Note into Common Shares following receipt of notice of such redemption, the Issuer is required to issue a number of warrants (the “New Warrants”) to Glencore Canada Corporation that entitle it to acquire a number of Common Shares equal to the principal amount of the Senior Secured Convertible Note being redeemed divided by the then applicable New Note Conversion Price and expiring on the sixth anniversary of the issuance of the Senior Secured Convertible Note. The initial exercise price of the New Warrants will be equal to the New Note Conversion Price as of the redemption date.

The Senior Secured Convertible Note is subject to certain reporting and affirmative and negative operational covenants applicable to the Issuer and its subsidiaries (subject to customary baskets and exceptions to permit ordinary course transactions as set forth in the Senior Secured Convertible Note), including satisfaction of a minimum liquidity covenant, monthly, quarterly and annual financial reporting requirements, delivery of an annual operating budget and limitations on (a) the incurrence of indebtedness and liens, (b) dividends, distributions and repurchases or redemptions of capital stock, (c) certain payments in cash of indebtedness which is subordinated, junior lien or unsecured indebtedness, (d) acquisitions and other investments, (e) asset sales (including with respect to Issuer’s spoke facilities), (f) affiliate transactions, and (g) capital expenditures that exceed the established budget by a specific threshold.

Pursuant to the terms of the New Note Purchase Agreement, Glencore Canada Corporation is permitted to transfer the Senior Secured Convertible Note, the New Warrants and any Common Shares issued upon conversion of the Senior Secured Convertible Note or exercise of any of the New Warrants subject to certain transfer restrictions including compliance with U.S. and Canadian securities laws, and a prohibition on private transfers to activist investors, foreign entities of concern or, without the Issuer’s consent, any material competitor. Any transferees will be required to execute a joinder to the New Note Purchase Agreement and any transferee that would beneficially own at least 5.0% of the Common Shares (on an as-converted basis) following the transfer will be subject to a standstill agreement. The Common Shares issued upon conversion of the Senior Secured Convertible Note or exercise of any of the New Warrants are also subject to a 12-month lock-up from the closing of the Transaction.

The New Note Purchase Agreement may be terminated prior to the closing of the Transaction (i) by the mutual written agreement of each of the parties thereto, (ii) if any final judgment, order, law rule or regulation is enacted that prohibits the consummation of the Transaction, (iii) by Glencore Canada Corporation, subject to certain conditions, if the Issuer breaches certain provisions of the New Note Purchase Agreement, (iv) by the Issuer, subject to certain conditions, if Glencore Canada Corporation breaches certain provisions of the New Note Purchase Agreement, and (v) by either Glencore Canada Corporation or the Issuer if closing of the Transaction has not been consummated on or before April 15, 2024.

As contemplated by the New Note Purchase Agreement, at the closing of the Transaction the Issuer will amend and restate the terms of the Glencore Convertible Notes (i.e., unsecured convertible notes issued by the Issuer on May 31, 2022) in two tranches (and such resulting two tranches of the amended and restated unsecured convertible notes, the “A&R Glencore Convertible Notes”). Prior to the closing, the Glencore Convertible Notes will be assigned to Glencore Canada Corporation. Each A&R Glencore Convertible Note includes an event-driven modification to the Glencore Convertible Note, with the first such modification occurring on the date (the “First Modification Date”) that is the earlier of (a) the date that is one month after the effectiveness and initial funding, if any, of a project loan financing for the Issuer’s Rochester hub, and (b) December 31, 2024, and the second such modification occurring on the date (the “Second Modification Date” with either the First Modification Date or the Second Modification Date referred to herein as a “Modification Date”) that is the earliest to occur of (a) the first commercial production from the Rochester hub, (b) construction costs exceeding the construction budget set forth in the project loan financing, and (c) June 1, 2026. Upon the occurrence of each Modification Date, the terms of the applicable A&R Glencore Convertible Note will mirror the following incremental terms of the Senior Secured Convertible Note: the maturity will be amended to be five years from the applicable Modification Date, the interest rate will be amended to match the interest rate applicable to the Senior Secured Convertible Note, mandatory redemption will be required (including, from the First Modification Date and the Second Modification Date, the amount equal to a specified percentage of the excess cash flow generated by the Issuer and its subsidiaries for the applicable fiscal year (less certain deductions and subject to pro rata application to certain other debt of the Issuer) in a pro rata amount across the A&R Glencore Convertible Notes (to the extent modified), and the Issuer will provide guarantees and security for the A&R Glencore Convertible Notes consistent with the Senior Secured Convertible Note. In addition, at each Modification Date, the conversion price for the applicable tranche will be adjusted to be the lesser of (x) an amount determined on the basis of a 30-Day VWAP (volume weighted average trading price) having a reference date equal to the applicable Modification Date plus a 25% premium per share, and (y) $9.95 per share (the current conversion price of the Glencore Convertible Note).

As contemplated by the New Note Purchase Agreement, at the closing of the Transaction Glencore Canada Corporation, Glencore Ltd., Glencore plc and the Issuer will enter into a governance letter agreement (the “Governance Letter Agreement”), which will terminate the existing amended and restated Standstill Agreement dated May 31, 2022. Pursuant to the Governance Letter Agreement, the Issuer will grant to Glencore Canada Corporation the right to nominate two additional directors (the “Glencore Nominees”) to the Board of Directors of the Issuer, for a total of three nominees, with the first additional nominee to be identified by Glencore Canada Corporation and (subject to customary approvals by the Issuer) proposed for election at the Issuer’s annual general meeting of shareholders to be held in 2024 and the second additional nominee to be proposed (subject to customary approvals by the Issuer) for election at the Issuer’s annual general meeting of shareholders to be held in 2025 or, if earlier, upon the occurrence of a vacancy on the Board of Directors of the Issuer, subject to the Issuer and Glencore Canada Corporation mutually agreeing on such second nominee. Both additional Glencore Nominees are not to be a Glencore Related Party (as defined in the Governance Letter Agreement) and are to be independent under applicable Ontario securities laws, as well as SEC and New York Stock Exchange (“NYSE”) rules. Both additional nominees will be entitled to payment and indemnification consistent with other non-employee directors and will be eligible for appointment to the committees of the Board of Directors of the Issuer. Glencore Canada Corporation will agree to cause its nominated directors to recuse themselves from any meeting, decision or discussion relating to the Transaction or related matters.

Pursuant to the Governance Letter Agreement, Glencore Canada Corporation have also agreed, among other things, to not (a) acquire beneficial ownership of additional Common Shares in excess of 5.0% of the then outstanding voting securities of the Issuer (subject to certain exceptions, including PIK interest and other Permitted Events (as defined in the Rights Agreement Amendment (as defined below)), or (b) seek to take the Issuer private, in each case, without the approval of a committee of disinterested directors of the Issuer and, in the case of a take-private transaction, the approval of a majority of the disinterested shareholders of the Issuer. Glencore Canada Corporation has also committed to not rely or cause the Issuer to rely on any exemption available to a “Controlled Company” pursuant to the NYSE rules.

The Issuer entered into an amendment (the “Rights Agreement Amendment”), effective as of March 11, 2024, to its shareholder rights plan entered into on October 31, 2023, to amend the definition of “Acquiring Person” to exempt Glencore Canada Corporation and its affiliates from the definition of Acquiring Person and to permit Glencore Canada Corporation’s and its affiliates’ beneficial ownership in certain circumstances that would otherwise be in excess of the 20% trigger threshold calculated in the manner set forth in the rights plan. See a copy of the Rights Agreement Amendment, which is Exhibit 4.4 to the Issuer’s Form 8-K filed with the SEC on March 12, 2024.

The foregoing description of the Senior Secured Convertible Note, New Note Purchase Agreement, A&R Glencore Convertible Notes and Governance Letter Agreement is qualified in its entirety by reference to the full text of the form of the Senior Secured Convertible Note, New Note Purchase Agreement, forms of A&R Glencore Convertible Notes and form of Governance Letter Agreement, copies of which are incorporated by reference as Exhibits 99.2, 99.3, 99.4 and 99.5, respectively, hereto.

As of such date, and assuming the closing of the Transaction and the transactions contemplated thereby, and assuming all applicable regulatory conditions have been satisfied, the Reporting Persons may be deemed to have shared power to vote, direct the vote, dispose of or direct the disposition of (and therefore beneficially own), an aggregate of 164,158,436 Common Shares issuable upon the conversion of the Senior Secured Convertible Note and A&R Glencore Convertible Notes directly owned by Glencore Canada Corporation, plus 59,385 Common Shares awarded to Mr. Kunal Sinha under the Issuer’s 2021 Incentive Award Plan. This amount of Common Shares represents approximately 47.8% of the outstanding Common Shares and is calculated based on 179,047,118 Common Shares of the Issuer outstanding as of February 29, 2024 (as disclosed by the Issuer in the New Note Purchase Agreement), plus the 164,158,436 Common Shares of the Issuer issuable to Glencore Canada Corporation upon conversion of all of the Senior Secured Convertible Note and A&R Glencore Convertible Notes directly owned by Glencore Canada Corporation. Mr. Sinha is the Global Head of Recycling at the Glencore group and holds the securities reported herein for the benefit of the Reporting Persons, and will, after vesting, if applicable, transfer the securities directly to the Reporting Persons. As of the date hereof, the aggregate outstanding principal of $225,357,584.66 of the Glencore Convertible Notes includes $200,000,000 in initial principal and $25,357,584.66 in PIK interest.

In connection with the Transaction, Glencore Canada Corporation and the Issuer will enter into an amended and restated registration rights agreement substantially on the same terms as the existing Registration Rights Agreement between the Issuer and Glencore Ltd., dated as of May 31, 2022 (the “Amended and Restated Registration Rights Agreement”).

The foregoing description of the Amended and Restated Registration Rights Agreement is qualified in its entirety by reference to the full text of the form of the Amended and Restated Registration Rights Agreement, a copy of which is incorporated by reference as Exhibit 99.6 hereto.