Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (“Flow” or the “Company”) recently announced the completion of the first tranche of a non-brokered private placement offering (the “Private Placement”). This offering involves unsecured convertible debenture units (collectively referred to as the “Convertible Debenture Units”). In this initial tranche, Flow issued and sold 172.992 Convertible Debenture Units, priced at CDN$10,000 per unit, raising gross proceeds of CDN$1.73 million. The Beverage Company plans to close additional tranches of the Private Placement, targeting total gross proceeds of up to CDN$7 million, including this first tranche, at dates determined by the Company.
Structure of the Convertible Debenture Units
Each Convertible Debenture Unit consists of:
- A Convertible Debenture:
- Each debenture is valued at a principal amount of CDN$10,000.
- The debenture is unsecured and carries an annual interest rate of 12%, compounding annually.
- It can be converted into subordinate voting shares (“SVS”) at a conversion price of CDN$0.41 per share (“Conversion Price”).
- SVS Purchase Warrants:
- Each unit includes 4,878 warrants.
- Each warrant allows the holder to purchase one SVS (“Warrant SVS”) at a price of CDN$0.41 per share.
- The warrants have a validity of three years from the date of issuance.
- In the first tranche, Flow issued a total of 843,855 warrants.
Key Terms of the Convertible Debentures
- Maturity Date:
- The Convertible Debentures mature three years from their date of issuance.
- On the Maturity Date, the principal amount of the Convertible Debentures will not be repaid in cash but rather converted into Conversion SVS at the Conversion Price.
- Interest Payments:
- Interest accrues at a rate of 12% per annum, compounding annually.
- The accrued interest is payable in cash on the Maturity Date.
- Conversion Option for Holders:
- Starting six months after issuance, holders can convert the principal amount of the Convertible Debentures into Conversion SVS, either in full or in part, at the Conversion Price.
- Upon conversion, holders will also receive accrued and unpaid interest for the period from the issuance date to the conversion date. Beverage This interest will be paid in cash on the Maturity Date.
- Mandatory Conversion:
- Flow has the right to force the conversion of the Convertible Debentures if, for five consecutive trading days, the daily volume-weighted average trading price of the SVS on the Toronto Stock Exchange (“TSX”) exceeds CDN$0.85.
- In such cases, holders will receive accrued and unpaid interest on the principal amount, payable in cash on the Maturity Date.
- Redemption Rights:
- Provided there is no default, Flow can redeem all or part of the outstanding principal amount without any premium or penalty. The Beverage redemption price includes the outstanding principal amount plus accrued and unpaid interest up to the redemption date.
Key Terms of the Warrants
- Exercise Price and Expiry:
- The warrants are exercisable at CDN$0.41 per share.
- They expire three years from the issuance date.
- Mandatory Exercise Provision:
- If, at any time after six months from issuance and before the expiry date, the closing trading price of the SVS exceeds CDN$0.85 for five consecutive trading days, Flow can require warrant holders to exercise their warrants in full.
Regulatory and Statutory Considerations
The Convertible Debentures, Warrants, Conversion SVS, and Warrant SVS are subject to a statutory hold period of four months and one day from the issuance date, ending on May 1, 2025. This Beverage means these securities cannot be sold or traded publicly within this period.
Use of Proceeds
Flow intends to use the proceeds from the Private Placement for working capital and general corporate purposes. The Private Placement is subject to final approval by the TSX.
Important Legal Notices
This press release does not constitute an offer to sell or solicit an offer to buy any securities in jurisdictions where such an offer, solicitation, or sale would be unlawful. The Beverage securities have not been and will not be registered under the United States Securities Act of 1933, as amended Beverage (the “1933 Act”), and may not be offered or sold in the United States or to “U.S. persons” (as defined in Regulation S under the 1933 Act) without registration or an applicable exemption.
Disclaimer
The Beverage TSX assumes no responsibility for the accuracy or adequacy of this release and has neither approved nor disapproved its content.
Analysis of the Private Placement
Flow Beverage Corp.’s decision to raise funds through a private placement of Convertible Debenture Units reflects a strategic move to secure financing while providing flexibility to both the Beverage Company and investors. By offering a high-interest rate of 12% and a conversion feature tied to the SVS’s market performance, Flow appeals to investors seeking both income and equity upside.
Investor Incentives:
- Attractive Returns:
- A 12% annual interest rate, compounded annually, is highly competitive in today’s market, particularly for unsecured instruments.
- Equity Upside Potential:
- The conversion feature allows investors to benefit if the Company’s stock price appreciates significantly above the Conversion Price of CDN$0.41.
- Warrants further amplify this potential, enabling investors to purchase shares at the same price for three years.
Risk Considerations:
- Market Dependency:
- The value of the Convertible Debentures and Warrants is tied to the Company’s stock performance, introducing market risk for investors.
- Unsecured Nature:
- As unsecured instruments, the Convertible Debentures are not backed by collateral, increasing risk in case of financial difficulties for Flow.
Strategic Benefits for Flow:
- Non-Dilutive Financing (Initial):
- By issuing convertible debentures, Flow delays immediate dilution of its equity base while securing necessary funds.
- Alignment with Growth Goals:
- The proceeds are earmarked for working capital and general corporate purposes, supporting the Company’s operational and strategic initiatives.
Conclusion: Flow’s Private Placement of Convertible Debenture Units showcases a well-structured financing approach designed to balance investor appeal and corporate needs. With the potential for substantial equity upside and a high-interest return, the offering is likely to attract interest from a broad range of investors. The structure also aligns with Flow’s goal of maximizing flexibility while driving growth.
