ASHLAND Given a granted extension request for the state to keep its investment in Unity Aluminum — formerly Braidy Industries — is the proposed mill at EastPark a boom or a bust?
In a recent letter to Commonwealth Seed Capital LLC — the state’s startup investment fund — acquired and first reported by WDRB’s Chris Otts in Louisville, Unity CEO Don Foster stated the company has met all its goals by the end of 2020 of having 51% of its employees working in Kentucky, 51% of its assets in Kentucky and maintaining its headquarters in Ashland — all the goals, with the exception of $1 billion in investments for building the mill.
The CSC approved the 18-month extension on Thursday.
When Unity originally secured a $15 million investment from the state, it set the deadline to raise the mill’s funds for Dec. 31, 2017, with a publicly stated goal of the mill turning out aluminum by 2020. In May 2018, the state agreed to rejigger that deadline to the end of 2020 — now with 2020 come and gone and no still no mill, Foster has asked the state to move the goal post to the middle of 2022.
Last June, Foster told The Daily Independent the projected opening date for the mill is May 2023 — in a follow-up this week, Foster stuck by his date, although he did not say if the extension request is a part of that effort.
According to the Jan. 13 letter from Foster, the company so far has $165 million in equity — roughly $10 million more than at the end of 2019, per WDRB’s analysis of the company’s SEC reports.
Foster also stated another round of funding launched by Headwall Partners in 2020 should close in March and financing is currently being hashed out with KFW IPEX-Bank, an investment bank owned by the German government.
Foster declined in this week’s follow-up inquiry to discuss financing, citing federal and state SEC laws and regulations.
However, he did state, “the Unity Aluminum rolling mill is a more valuable project today than when it started.”
Of course, 2020 was a rough a year for Unity — the company was embroiled for roughly half the year in a bitter legal dispute with the founding CEO, Craig Bouchard, when the board ousted him in late January. During the course of the suit, Bouchard was found to have misled the board, potential investors and the public at large. Following a $6 million settlement in June 2020, Unity hired Foster as the CEO in July and rebranded in October.
In early 2018, a Nicholasville nurse — Sammi Carr — heard about an opportunity to get in on the Braidy/Unity action.
A Boyd County native, Carr knew an potential investor in the company. As Carr recalled, she went and heard a pitch from Bouchard — the idea was the company would raise $75 million to buy a company called Veloxint, a Massachusetts-based company owning patents in developing stronger and lighter metals.
The company was helmed by Chris Schuh, who, then and now, sits on the Unity board. Prior fundraisers for Veloxint listed in SEC records show the company raised $380,000 out of a $1 million offering in 2015 and $3.1 million out of an $11 million push in March 2017.
There were about 10 investors from the local area tapped for potentially throwing money at the effort — an email dated Feb. 27, 2018, shows the Clark family (of Clark’s Pump-N-Shop), and other prominent community members were a part of that pool of private investment.
The idea was simple — Veloxint was projected to be worth $300 million, but Unity/Braidy would buy it at $27 million, according to an executive summary published Feb. 7, 2018, for the investors. In the funding round, Braidy was trying to raise $75 million — with $35 to $45 million put in by Bouchard and Chairman of the Board Charles Price. The rest would be raised through offerings to outside investors, per the summary, at $10 a share.
While any fundraising was technically for Unity shares, the executive summary states “Braidy cannot exercise the Veloxint option if it does not successfully issue $75 million of stock in the month of February (2018).”
The latest SEC report also shows a $75 million fundraiser closed in March 2018 for the “organic growth and scale-up of Veloxint” as well as design permitting in general corporate use.
At the time, Carr thought the investment was a good idea — her father had retired from Armco and she was dismayed at seeing her friends and family displaced by its closure. Plus, the return on investment was sweet, she recalled.
“This was a win-win for everyone, this was a win for Ashland, we could double our money in a year and they saw it going 10-fold if we could stick with the investment for another five to 10,” Carr said. “Not one of those things have come to fruition.”
Projections listed in the summary show investors were told that within five years, the shares would jump to $103.20 per share. At the time, investors were also told that a deal was being worked out for $100-$125 million from a fund in the United Arab Emirates, according to the summary.
So Carr bought 10,000 shares — about $100,000 worth. With a combination of other investors talking up the stock, and the state kicking in its money, Carr thought the investment was fairly safe.
“This was a home run for everybody because Kentucky has $15 million in, they were saying this is too big to fail, too many jobs were at stake, they were not going to let this go under,” Carr said. “It made investors feel very safe.”
Rick Clark, one of the other investors in the round, said he wasn’t naïve about the proposal — even then.
“I think what a lot of people don’t understand is that’s a whole lot of money to raise,” Clark said. “I didn’t think that could be done in that timeline. I still got a lot of hope for it.”
Like Carr, Clark also felt the investment was a way to help establish a venture that would uplift the region.
“My reason for doing this is it would help our region, including our restaurants and motels and housing market,” Clark said. “Of course, when they started building the mill, all those constructions crews would benefit us, too, but the main focus is on the entire region.”
Despite support from the local investors and the large sum kicked in by Charles Price and Bouchard, the fundraiser still came up short — roughly $15 million. According to Securities and Exchange Commission Reports, Bouchard had to borrow $15 million from Braidy to invest into the offering.
Bouchard subsequently sold off the shares he had bought at cost — $2 million worth of shares still held by Bouchard in 2019 was written off and he paid the interest on the loan, per the reports.
Of course, it wasn’t the first fundraiser for Braidy — in 2017, the company raised around $20 million, with $15 million from the state and rest from Bouchard (4.5 million shares) and a plurality of the board at the time (Charles Price, John Preston, Chris Schuh and Michael Porter) and some outside investors like the Robert J. Stucker Trust in Illinois and Charles Westin Limited, a company owned by Carl Westin and his family, a Swedish entrepreneur who primarily invests in Scandinavian ventures.
That’s in addition to nearly $45 million Bouchard is reported to have kicked in when the company was transferred from an LLC to a corporation prior to announcing its move to northeastern Kentucky.
At the end of that 2017, an audit conducted by KMPG, an accounting firm that reviews the company’s books for shareholder reports, shows the shareholder’s deficit listed as about $56 million.
A shareholder’s deficit or equity is when the liabilities of the company are subtracted from its assets and is a measurement of financial health. Positive equity represents a healthy company, while a negative equity (a deficit) is a financially unhealthy company.
Companies in startup mode, like Unity, typically lose money at first before the operation is in full swing.
In September 2018, Unity/Braidy started opened another round of fundraising — this time for the wider public. With multiple extensions in the stock offering until July 2019, the company was authorized to sell 59,444 shares to anyone and 27,777,778 shares to registered investors.
The offering was a hit with main street investors, resulting in 57,721 shares sold at $18 a share. However, it was a dud with the accredited investors, with almost 81,000 sold to them. About $2.5 million was raised.
The idea there was to raise $500 million for the mill. That $500 million would result in debt servicing by lenders. Think of it like a down payment on a car or a house — a lender doesn’t put in more than $1 billion unless there’s skin in the game.
In the middle of that round, Rusal — the Russian steel magnet indirectly owned by oligarch Oleg Deripaska — fresh off trade sanctions imposed by the United States, declared they’d be putting in $200 million into the mill, for a 40% stake in its operations.
Rusal would put $60 million up front, then pay $5 million a month until reaching $100 million. After that, Braidy/Unity would have to cough up $300 million in coin before the Russians would kick in the other $100 million.
Even with the target lowered, the fundraiser was still a flop. Rusal cut off the payments at $75 million, and then subsequently received $10 million back in June 2020 due to “excess and underutilized cash on hand,” per the SEC report.
During 2018 and 2019, the shareholder’s deficit — which is carried from year to year — grew to $152.928 million, according to the SEC reports.
Assets, too, grew — to roughly $153.771 million. According to the latest SEC Report (June 2020) — which Foster said are generally conservative — auditors stated that “the company has incurred net losses and negative cash flows from operations since its inception, has an accumulated deficit and has stated that substantial doubt exists about the company’s ability to continue as a going concern.”
By the start of 2020, the board realized Braidy Industries — the parent company to Braidy Atlas (the mill), Veloxint and NanoAl — had $11 million cash on hand. More cash could be extracted through the subsidiaries, but it was enough to cause the board to take a more active approach toward management and boot Bouchard out of his role as CEO.
That’s when Carr said she began having her doubts about her investment.
“If you followed the whole Bouchard fallout on Facebook — he posted everything and you know, he befriended all of us, not that I knew him,” Carr said. “He posted updates about Braidy, about Veloxint, yada, yada. Then things started to fall apart with him … and with all the things he was posting, if I as a nurse posted about what a physician did wrong with a patient or with administration, I would be canned.”
Carr continued, “It blew my mind when I saw him going back and forth with all of his employees and them accusing him of breaches of fiduciary duty, embezzlement, misuse of funds, co-mingling and it just went on and on. So he puts all this on blast — how do you expect anybody to invest your company then? It’s like putting a for-sale sign in your front yard, then setting your house on fire.”
After the dust settled with the litigation and Foster was firmly in the driver’s seat (he’d been brought in as a consultant in while the company was paused due to legal proceedings), getting Veloxint to market became a priority.
Those millions of shares Bouchard had in Braidy were bought out for $6 million in the settlement — roughly a $1.25 a share, the price of a cup of coffee at a gas station.
In a letter to investors dated Oct. 14, 2020, Foster wrote that Veloxint has been shopped around by Jeffries (the firm lined up for a Nasdaq offering in Braidy that never came to fruition) to 71 firms, but none took a bite. Veloxint was a cash burn and Braidy/Unity didn’t have the $46 million to keep the doors open on the operation.
By the time Carr got that letter, she said she was already feeling pessimistic due to the layoffs at the subsidiary. Veloxint was sold at a firesale price in a move Clark felt like was the right step.
“When we got into it on Veloxint, we were told they had some patents on some things that would really help the mill. Most everybody thought they were farther along than they were, so it made a lot sense to sell it since it was draining the cash flow,” Clark said.
Clark continued, “I think they were getting the cart before the horse with that. They should’ve focused on building the plant first. It was a smart move by Foster and his team.”
When Carr received word on the sale, she began corresponding with various Unity officials about the move, but said she didn’t receive much response. Foster told The Daily Independent communications with private investors is “as is standard practice.”
By this time, Carr was sick with a potentially life-threatening illness. Concerned about leaving her children in poor financial shape in the event of her passing, Carr said she wanted Unity to buy her stocks out — even if it was pennies on the dollar.
“I need some closure to these things, because these are things that if and when I’m more sick, my kids aren’t going to be able to handle it,” she said. “If I close it out and get back 50 bucks, then at least I know what it is. I’m looking at mortality and figuring out my estate — this needs to be done.”
After some spotty email correspondence in November and December 2020 and January 2021, Unity CFO Bruce Kramer informed Carr that the company was unable to buy back her shares “for certain reasons, including actions that the company is currently undertaking.”
In the next two lines in the email, Kramer appears to indicate the project was not moving forward and therefore the funds were not available to buy back the stocks. When presented with the email, Kaylee Price — the Unity spokesperson — denied those lines were written, stating it was false information.
However, when asked for the original email to compare to the one obtained by The Daily Independent, Kaylee Price said she could not provide it, citing private investor correspondence.
When asked about the email, Carr replied, “How do you falsify an email? If I did falsify it, wouldn’t I have written way worse stuff?”
In her reply to Kramer, Carr expressed her frustration with the whole situation:
“WE, as Ashlanders, only wanted to see our city rebuilt with industry. Being bilked of our savings with out concern for our families was not part of the equation. Years without progress, zero dividends, and no communication. Fiduciary duty conflicts, terminations, and massive buyouts are all we have witnessed. I am certain my family, in the wake of my cancer battle, will not be the only Kentuckians appalled and disgusted with your ‘hide behind my legal team’ response.”
Carr has subsequently filed a complaint with the Kentucky Division of Securities, citing a bait-and-switch in regards to the Veloxint deal, according to a copy obtained by The Daily Independent.
However, not everyone is unhappy — Kaylee Price sent The Daily Independent letters dated in November 2020 sent by various community stakeholders to the Kentucky Cabinet for Economic Development praising the project and voicing their support.
Among those letters of support include then-Ashland Mayor Steve Gilmore, Boyd County Judge-Executive Eric Chaney, Greenup County Judge-Executive Bobby Carpenter, union officials with the Plumbers, Steamfitters and HVACR and the Tri-State Building Trades Union, AEP, Ashland Alliance, SMS and Clayco, which are vendors involved in the project, ACTC, Tri-State Angel Investment Group, Harbor Aluminum and Shaping Our Appalachian Region.
As an investor, Clark said he still has hope and optimism as well.
“Anything is a risk, but if it all happens the way I got hope, I know this will be a long-term investment in our community,” Clark said. “I’m still upbeat, but I think a lot of the stuff we’ve put on the back burner due to COVID will start back up again.”
Carr said she can’t afford the hit.
“The Clarks can write this off,” Carr said. “But everyone else — they’re going to want some ROI.”
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THE FOLLOWING CORRECTIONS HAVE BEEN MADE FROM THE ORIGINAL STORY:
•Unity spokesperson Kaylee Price did not cite any sort of confidentiality laws when referring to the email correspondence with Sammi Carr. She cited private investor correspondence.
•The Daily Independent originally printed a Unity spokesperson denied there was ever a fundraising round specifically for buying Veloxint. To clarify, the spokesperson could not comment on the record regarding fundraising rounds.