5E Advanced Materials, Inc. Debt Disclosure

7. Debt

Long Term Debt

Interest Expense

Convertible Notes - Background

On August 11, 2022, the Company executed a $60.0 million private placement of senior secured convertible notes (the “August 2022 Notes”) with Bluescape, which were secured by substantially all of the Company’s assets. The August 2022 Notes bore interest at an annual rate of 4.5% if paid in cash, and 6.0% if paid through the issuance of additional notes. Interest was paid semi-annually on February 15 and August 15 of each year. The August 2022 Notes contained a financial covenant requiring the Company to maintain a cash balance of at least $10 million. Prior to fiscal year 2024, the Company elected to issue additional notes as payment for approximately $1.7 million of interest accrued on the August 2022 Notes during the period from issuance through June 30, 2023.

On August 15, 2023, the Company elected to issue additional notes as payment for approximately $1.9 million of interest accrued on the August 2022 Notes during the period from February 16, 2023 through August 15, 2023.

On January 18, 2024 (the “Modification Date”), the Company entered into an amended and restated note purchase agreement (the “January 2024 Amended and Restated Note Purchase Agreement”) which modified certain terms of the August 2022 Notes, including (i) to extend the maturity date of the August 2022 Notes to August 15, 2028, (ii) a reduction to the conversion rate applicable to the August 2022 Notes, (iii) fifty percent (50%) of the outstanding August 2022 Notes being acquired by Ascend, (iv) increasing the annual interest rate to 10.0% if future interest was paid through the issuance of additional notes, and (v) waiver of the minimum cash covenant through June 28, 2024 and reduction in amount to $7.5 million.

On February 15, 2024, the Company elected to issue additional notes as payment for approximately $2.1 million of interest accrued on the August 2022 Notes during the period from August 16, 2023 through February 15, 2024.

On May 28, 2024, the Company entered into a second amendment (“Amendment No. 2”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the August 2022 Notes, as amended, in an aggregate principal amount of $6.0 million (the “June 2024 Notes”) to Bluescape and Ascend, (ii) a waiver of the minimum cash covenant through December 31, 2024, and (iii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 2 (the “May 2024 Amended and Restated Note Purchase Agreement”).

On August 15, 2024, the Company elected to issue additional notes as payment for approximately $3.4 million of interest accrued on the August 2022 Notes during the period from February 16, 2024 through August 15, 2024, and on the June 2024 Notes during the period from issuance through August 15, 2024.

On September 16, 2024, the Company entered into a third amendment (“Amendment No. 3”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the June 2024 Notes, in an aggregate principal amount of $6.0 million (the “September 2024 Notes”) to Bluescape and Ascend, and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 3 (the “September 2024 Amended and Restated Note Purchase Agreement”).

On January 14, 2025, the Company entered into a fourth amendment (“Amendment No. 4”) to the January 2024 Amended and Restated Note Purchase Agreement and agreed, among other things, to (i) issue and sell new senior secured convertible notes in substantially the same form and under the same terms as the September 2024 Notes, in an aggregate principal amount of $5.0 million (the “January 2025 Notes” and, together with the August 2022 Notes, the June 2024 Notes and the September 2024 Notes, the “Convertible Notes”) to Bluescape and Ascend, and (ii) amend and restate the January 2024 Amended and Restated Note Purchase Agreement in the form attached as Annex A to Amendment No. 4 (as amended, the “Amended and Restated Note Purchase Agreement”). The Amended and Restated Note Purchase Agreement also extended the date to which the Company must comply with a financial covenant for the Company to maintain a cash balance of at least $7.5 million from December 31, 2024 to March 31, 2025 (the “Minimum Cash Covenant”). Concurrently with the execution of Amendment No. 4, the Company entered into the 2025 Restructuring Support Agreement, and other related agreements, as discussed in Note 1–Description of Company and Summary of Significant Accounting.

On February 17, 2025, the Company elected to issue additional notes as payment for approximately $4.0 million of interest accrued on the August 2022 Notes and June 2025 Notes during the period from August 15, 2024 through February 15, 2025, and on the September 2024 Notes and January 2025 Notes during the period from their respective issuance through February 15, 2025.

In connection with its entry into the January 2024 Amended and Restated Note Purchase Agreement, May 2024 Amended and Restated Note Purchase Agreement, September 2024 Amended and Restated Note Purchase Agreement, and January 2025 Amended and Restated Note Purchase Agreement, the Company incurred approximately $2.6 million, $541 thousand, $454 thousand, and $283 thousand of debt issuance costs, respectively.

As discussed in Note 1–Description of Company and Summary of Significant Accounting, on March 4, 2025, at a special meeting of stockholders, the Company’s stockholders voted in favor of the 2025 Out-of-Court Restructuring, and on March 5, 2025 the Exchange was completed and resulted in 13,586,524 shares of the Company’s Common Stock issued to Bluescape and Ascend, the termination of the Amended and Restated Note Purchase Agreement and related Minimum Cash Covenant, and the extinguishment of all indebtedness owed by the Company under the Amended and Restated Note Purchase Agreement.

Convertible Notes - Conversion Terms

Prior to entering into the January 2024 Amended and Restated Note Purchase Agreement, the Company had the right to convert the Convertible Notes, including interest paid-in-kind, into shares of the Company’s Common Stock based upon the

Company’s Common Stock trading above certain threshold prices at certain dates. However, in connection with the January 2024 Amended and Restated Note Purchase Agreement, the Company’s ability to convert the Convertible Notes and force conversion into Common Stock was eliminated.

Prior to the Exchange, the Convertible Notes, including accrued interest paid-in-kind, were convertible into shares of the Company’s Common Stock at any time before the Convertible Notes matured, at conversion rates (the “Conversion Rates”) applicable to each separate issuance of Convertible Notes, at the election of the holder of the Convertible Notes. In addition, the Amended and Restated Note Purchase Agreement provided for certain adjustments to the Conversion Rates to increase the number of shares of Common Stock issuable upon conversion of the Convertible Notes in the event of certain change of control transactions or other events specified in the Amended and Restated Note Purchase Agreement (a “Make-Whole Fundamental Change”). The adjustment to the Conversion Rates in the event of a Make-Whole Fundamental Change was to be based on the timing of a Make-Whole Fundamental Change and the trading price of the Common Stock at such time or the cash received by holders of the Common Stock in connection with such Make-Whole Fundamental Change.

The Conversion Rate applicable to the June 2024 Notes and September 2024 Notes was subject to adjustment if, after the issuance date of such notes and on or prior to December 31, 2024, the Company sold Common Stock or any other equity-linked securities in one or more transactions at an effective price per share that was less than the respective conversion price then in effect, subject to certain exemptions (a “Degressive Issuance”). In the event of a Degressive Issuance, the Conversion Rate applicable to the respective Convertible Notes was subject to adjustment based on the weighted average issuance price of the securities sold in such Degressive Issuance, as set forth in the Amended and Restated Note Purchase Agreement. As part of the August 2024 Equity Offering (as further described and defined in Note 10–Equity), a Degressive Issuance provision applicable to the June 2024 Notes resulted in an adjustment to the Conversion Rate applicable only to the June 2024 Notes. A Degressive Issuance did not occur with respect to the September 2024 Notes prior to the expiration of such feature on December 31, 2024.

During the period over which the Convertible Notes were outstanding, and prior to the Exchange, no holder of Convertible Notes elected to convert such Convertible Notes into the Company’s Common Stock.

Convertible Notes – Derivatives

The terms of the Amended and Restated Note Purchase Agreement permitted a change to the Conversion Rates applicable to the June 2024 Notes and September 2024 Notes upon a Digressive Issuance by the Company on or before December 31, 2024. As a result, these conversion features were deemed to be embedded derivatives requiring bifurcation and separate accounting as stand-alone derivative instruments (the “June 2024 Convertible Note Derivative” and “September 2024 Convertible Note Derivative,” respectively, and together, the “Convertible Note Derivatives”) through December 31, 2024. The June 2024 Notes were initially recorded at their face amount of $6.0 million less debt issuance costs of $541 thousand and the fair value of the June 2024 Convertible Note Derivative, which was determined to be $4.1 million. Similarly, the September 2024 Notes were initially recorded at their face amount of $6.0 million less debt issuance costs of $454 thousand and the fair value of the September 2024 Convertible Note Derivative, which was determined to be $1.6 million.

The provisions that resulted in separate accounting for the Convertible Note Derivatives expired on December 31, 2024, and accordingly, the fair value of the Convertible Note Derivatives on such date was transferred to additional paid-in capital. Refer to Note 8–Convertible Note Derivatives and the discussion immediately below for additional details regarding the fair values of the Convertible Note Derivatives.

Convertible Notes – Fair Value

The fair value model for the Convertible Notes and related Convertible Note Derivatives requires the input of subjective assumptions including expected share price volatility, risk-free interest rate and debt rate. Changes in the input assumptions as well as the Company's underlying share price can materially affect the fair value estimates. Changes in the reported fair value of the Convertible Notes between periods are not recognized in net income and therefore have no effect on reported net income (loss).

January 2024 Convertible Notes – Loss on Extinguishment

For accounting purposes, the modification of the terms of the Convertible Notes in connection with the January 2024 Amended and Restated Note Purchase Agreement was evaluated and determined to be representative of an in-substance extinguishment of the Convertible Notes outstanding at that date, and establishment of new debt, primarily due to the significance of the changes to the terms of the conversion features. As a result, the Company wrote-off the remaining principal, accrued interest, unamortized discount and debt issuance costs associated with the prior debt on the Modification Date and recognized the modified debt on the balance sheet at its fair value of $65.2 million. The fair value of the modified debt was determined utilizing a binomial lattice model, and the significant inputs to such model are described in more detail in the table under the heading Convertible Notes – Fair Value within this footnote. The difference in value between the prior debt and the modified debt resulted in a loss on extinguishment of debt of $21.0 million, the calculation of which is summarized in the following table.

March 2025 Convertible Notes – Debt Exchange

The Exchange Transaction described in Note 1–Description of Company and Summary of Significant Accounting, was evaluated for accounting purposes, and determined to constitute a single transaction that was accounted for as a troubled debt restructuring. The Exchange Transaction is considered a troubled debt restructuring as the Company was experiencing financial difficulty at the time of the transaction and the noteholders granted a concession to the Company. A concession was determined to be granted to the Company, as the fair value of equity interests received by the noteholders was less than the net carrying value of the long-term debt on such date.

In accordance with the accounting for troubled debt restructurings, the Company derecognized the remaining principal, accrued interest, unamortized discount and debt issuance costs associated with the Convertible Notes upon the effectiveness of the

Exchange Transaction, and recognized the equity interest issued to the noteholders at fair value, less issuance costs paid. Refer to Note 10–Equity, for information related to the determination of fair value of the equity interests issued and issuance costs paid. The difference in value between the prior debt and the fair value of the equity interest issued, less proceeds received by the Company in the Exchange Transaction, resulted in a gain on extinguishment of debt of approximately $17.3 million, the calculation of which is summarized in the following table.

The gain on extinguishment of debt decreased basic loss per share of Common Stock for the year ended June 30, 2025, by $2.17.