Today, AONE put out an announcement that they would be issuing more stock/warrants, and also disclosed some grim financial metrics. Here are the highlights:
Registered Direct Offering of Common Stock and WarrantsSelling equity and raising cash: good for the long bonds/short stock trade.
On July 5, 2012, A123 Systems, Inc. (the “Company”) entered into a placement agent agreement with Lazard Capital Markets LLC (the “Placement Agent”) relating to a registered direct offering by the Company of an aggregate of 7,692,308 shares of the Company’s common stock (the “Shares”) and warrants to purchase additional shares of such common stock for an exercise price of $0.001 per share (the “Warrants”). The Company expects to sell the Shares at a negotiated purchase price of $1.30, subject to certain adjustments, based upon the exercise of the Warrants per Share in order to raise gross proceeds of approximately $10.0 million, based upon the exercise of the Warrants from the offering of the Shares and Warrants. The sale of the Shares and Warrants is being made pursuant to a subscription agreement between the Company and certain existing investors (the “Investors”). The net offering proceeds to the Company from the sale of the Shares and Warrants, after deducting the Placement Agent’s fees and other estimated offering expenses payable by the Company, are expected to be approximately $9.0 million.
Pursuant to the Warrants, the Company will issue to the Investors additional shares of common stock such that, the Investors will receive the aggregate number of shares of the Company’s common stock equal to (i) $5.0 million divided by 82% of the VWAP of the Company’s common stock over a period covering July 9, 2012, July 10, 2012 and July 11, 2012 or, if lower, 82% of the VWAP of the Company’s common stock on July 11, 2012 and (ii) $5.0 million divided by 82% of the VWAP of the Company’s common stock over a period covering July 25, 2012, July 26, 2012 and July 27, 2012 or, if lower, 82% of the VWAP of the Company’s common stock on July 27, 2012. The Warrants have a nominal exercise price per share. In no event will the total number of shares of the Company’s common stock issued in this offering exceed the amount permitted without shareholder approval under the applicable provisions of NASDAQ Rule 5635. However, in the event that the Company would otherwise be obligated to issue shares of common stock above that maximum number upon exercise of the warrants, the Company agreed to pay the value of such shares of common stock in cash.
The initial closing of the transaction is expected to occur on or about July 10, 2012, subject to customary closing conditions.
Satisfaction of Account Control Agreement Conditions; Cash for Ongoing Operations
As of May 31, 2012, the Company’s cash and cash equivalents were approximately $68 million. At that time, the Company also had approximately $40 million of restricted cash. Included in this $40 million is approximately $10 million required to be reserved by a credit facility, as well as $30 million related to the Company’s previously issued 6.00% senior convertible notes, or the Notes, and the warrants issued in connection therewith that is subject to an account control agreement. Pursuant to the Company’s agreements with the holders of the Notes and credit facility provider, the Company must maintain a minimum cash balance of $40 million. On July 5, 2012, the Company notified the holders of the Notes that it has fulfilled the conditions under the account control agreement to the release of the $30 million of proceeds from the Notes and related warrants from the control account. The Company expects that the $30 million will become unrestricted and available for general corporate purposes subject to the delivery of administrative release documentation on or about July 6, 2012.
During the five months ended May 31, 2012, the Company used on average $18 million to $25 million per month in net operating and investing cash flows. Assuming the $30 million of restricted cash becomes unrestricted and available for general corporate purposes, and that the Company’s historical monthly use of cash continues, as of May 31, 2012, the Company expects to have approximately four to five months of cash to support its ongoing operations.
As previously reported in the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 15, 2012, the Company has stated that there is substantial doubt about its ability to continue as a going concern. The Company is considering a broad set of solutions to improve its liquidity, including measures to reduce costs and improve efficiency, accessing additional sources of capital through existing and potentially new arrangements, and other strategic options, including additional equity and debt financing. If successful, the Company believes that it will have sufficient liquidity to manage operations into 2013.