Flower One Advances Restructuring by Closing the Second Tranche of its Convertible Debenture Offering
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The Company closes second tranche of CAD$8.7M, for an aggregate of CAD$21.6M (USD$17.4M), along with satisfying certain conditions precedent of the previously announced restructurings
LAS VEGAS & TORONTO--(BUSINESS WIRE)-- Flower One Holdings Inc. (“Flower One” or the “Company”) (CSE: FONE) (OTCQX: FLOOF) (FSE: F11), a leading cannabis cultivator and producer in Nevada, today announced: (A) the closing of the second tranche of its 2021 convertible debenture offering; (B) the satisfaction of certain conditions pursuant to the previously announced term loan modification agreement and the lease modification agreement with the Company’s secured lender and lessor; (C) agreements to convert amounts owed to certain vendors and brand partners of the Company into common shares; and (D) updates related to the Company’s proposed restructuring transaction involving its March 2019 and November 2019 convertible debentures.
“We would like to thank all of our stakeholders for the role they have played as we work towards a successful restructuring,” said Kellen O’Keefe, Flower One’s President and Interim CEO. “In a very short period of time, we have made tremendous improvements to our operations and balance sheet, properly capitalizing the business to achieve our goals for 2021 and beyond. With this convertible debenture financing completed, we can now focus on progressing the previously announced restructuring transaction involving the March 2019 and November 2019 convertible debentures and the continued improvement of all aspects of operations – especially given recent increases in product demand and the resurgence of tourism in Nevada.”
A. Closing of 2021 Convertible Debenture Financing
The Company has closed the second tranche of its previously announced convertible debenture unit financing (the “Offering”), raising aggregate gross proceeds of CAD$8,757,643.92 (USD$6,896,217.02) (the “Second Tranche”) from a number of strategic investors, including JW Asset Management. The second tranche of the Offering includes the issuance of an additional 8,751 convertible debenture units (each, a “Debenture Unit”) at a price of CAD$1,000 per Debenture Unit. Together with the first tranche of the Offering, the Company has issued a total of 21,575 Debenture Units, for aggregate gross proceeds of approximately CAD$21,583,835.90 (USD$16,996,217.02).
Each Debenture Unit consists of one 9.0% unsecured convertible debenture of the Company (each a “Convertible Debenture”) having a maturity date of three years from the date of issuance (the “Maturity Date”) and 1,923 common share purchase warrants (each a “Warrant” and collectively, the “Warrants”), representing a 50% warrant coverage, with each whole Warrant entitling the holder thereof to purchase one common share of the Company (a “Warrant Share”) at an exercise price of CAD$0.39 at any time up to 36 months from the date of issuance. In the event that the common shares of the Company (each, a “Common Share” and collectively, the “Common Shares”) trade on the Canadian Securities Exchange (the “CSE”) at a closing price equal to or greater than CAD$0.90 for a period of twenty (20) consecutive trading days, the Company may implement an accelerated expiry date of the Warrants by giving notice to the holders of the Warrants of the accelerated expiry date and, thereafter, any unexercised Warrants will expire on the date that is ninety (90) days following the delivery of such notice.
The principal amount of each Convertible Debenture (the “Principal Amount”) will be convertible, for no additional consideration, into Common Shares (each a “Conversion Share” and collectively, the “Conversion Shares”) at the option of the holder at any time prior to the earlier of: (i) the close of business on the Maturity Date, and (ii) the business day immediately preceding the date specified by the Company for conversion of the Convertible Debentures upon the Common Shares trading on the CSE at a price greater than CAD$0.50 for a period of ten (10) consecutive trading days at a conversion price equal to CAD$0.26 (the “Conversion Price”).
The Company may force the conversion of the principal amount of the then outstanding Convertible Debentures at the Conversion Price should the trading price of the Common Shares on the CSE be greater than $0.50 for a period of ten (10) consecutive trading days. The Principal Amount and the interest accrued thereon will otherwise be payable in cash on the Maturity Date, and have a default interest rate of an additional 3%, for a total aggregate default interest rate of 12%.
The Convertible Debentures issued under the Second Tranche also provide the holders thereof with the option to receive the early repayment of their Convertible Debentures (the “Early Repayment Right”) in the event that the previously announced amendments (the “Amendments”) to the Company’s debenture indenture dated March 28, 2019 (the “March Debenture Indenture”) are not completed on or before June 15, 2021. The Early Repayment Right will terminate and be of no further force and effect upon holders representing 66 2/3% of the unsecured convertible debentures issued pursuant to the March Debenture Indenture agreeing with the Company to vote in favour of the Amendments.
In connection with the Offering, the Company will pay finder’s fees to certain finders as follows: (i) payment in cash in amounts equal to between 2% and 4% of the aggregate gross proceeds from investors introduced to the Company by such finders; and (ii) units consisting of one share of common stock and one half warrant or, in one case, just warrants to acquire common stock, ranging from 4% to 6% of the aggregate gross proceeds.
The net proceeds received by the Company from the Offering, including the Second Tranche, are intended to be used for working capital, previous debt obligations, general corporate purposes, along with regular maintenance and improvements to the facility.
B. Debt Restructuring: Satisfying the New Equity Condition in Modified Agreements with Term Lender and Lessor
As previously announced on January 26, 2021, the Company and its various subsidiaries entered into: (i) a Loan Modification Agreement with RB Loan Portfolio II, LLC (the “Term Lender”) with respect to its existing USD$30 million term debt (the “Loan Modification Agreement”); and (ii) a Lease Modification Agreement with RB Loan Portfolio I, LP (the “Lessor”) with respect to its existing USD$16.9 million equipment financing (the “Lease Modification Agreement”, together with the Loan Modification Agreement, the “Modified Agreements”). Pursuant to the Modified Agreements, the Term Lender and Lessor agreed to forbear certain existing events of default and make amendments to the term loan and financing documents which included, among other things, the condition that the Company complete convertible debt financing in an amount in aggregate that is equal to or greater than USD$15 million (the “New Equity Condition”). As such, the Company is pleased to announce that the consummation of the Offering has satisfied the New Equity Condition.
C. Vendor Debt to Equity Conversions
In addition to the consummation of the Offering, the Company has agreed to convert accounts payable in the aggregate amount of CAD$413,490, held by certain vendors of the Company, and various brand partners including Old Pal, Heavy Hitters, 22Red and Huxton, into Common Shares at a deemed conversion price of CAD$0.26 per Common Share for an aggregate of 1,590,347 Common Shares. These transactions are in addition to the Company’s vendor conversions announced by the Company on February 23, 2021.
“We appreciate the confidence these vendors have placed in the Company – both as suppliers of critical goods and services and now also as shareholders. With the support of our brands and other critical vendors, the various restructuring advancements led by our CEO and new Board, and the recent dramatic improvement of our cultivation, production and sales, the Company now is well-positioned to blossom,” said Richard Groberg, Flower One’s Interim CFO. “Coupled with the recent momentum of our business and increasing interest from various strategic parties to provide us nondilutive funding, this closing provides us a strong financial foundation going forward.”
D. Proposed Restructuring Transaction Updates
The Company is pleased to announce that, further to its press release dated March 2, 2021, pursuant to the certain support agreement (including related joinder agreements, the “Support Agreement”) with respect to its proposed restructuring transaction involving the convertible debentures issued by Flower One in March 2019 and November 2019, the Company has now secured the support from holders of convertible debentures holding over 60% of the principal amount of each of March 2019 and November 2019 debentures outstanding. The Company also is pleased to announce that it has reached an agreement in principle with the Term Lender to extend the maturity date under its loan agreement with the Company to January 26, 2023, which, subject to the approval of the Amendments at the Meetings and upon the execution of definitive documentation by the parties, would satisfy a condition precedent in the Support Agreement to the consummation of the restructuring transaction involving the March 2019 and November 2019 debentures.
In connection with the Support Agreement, the Company’s notice of meeting was filed on March 2, 2021, providing holders of the Company’s 9.5% convertible debentures due March 28, 2022 and holders of the Company’s 9.5% convertible debentures due November 15, 2022 with notice of the Company’s intention to hold an extraordinary meeting for the holders of each such class of debentures virtually on April 15, 2021 (together, the “Meetings”), with the record date for voting at the Meetings set for March 12, 2021. The Company will provide further details on the Meetings in due course.
Flower One’s legal advisor is Osler, Hoskin & Harcourt LLP and financial advisor is Canaccord Genuity Corp.
About Flower One Holdings Inc.
Flower One is the largest cannabis cultivator, producer, and full-service brand fulfillment partner in the state of Nevada. By combining more than 20 years of greenhouse operational excellence with best-in-class cannabis operators, Flower One offers consistent, reliable, and scalable fulfillment to a growing number of industry-leading cannabis brands (Cookies, Kiva, 22Red Old Pal, Heavy Hitters, Lift Ticket’s, Huxton, The Clear, and Flower One’s leading in-house brand, NLVO, and more). Flower One currently produces a wide range of products from flower, full-spectrum oils, and distillates to finished consumer packaged goods, including a variety of: pre-rolls, concentrates, edibles, topicals, and more for top-performing brands in cannabis. Flower One’s Nevada footprint includes the Company’s flagship facility, a 400,000 square-foot high-tech greenhouse and 55,000 square-foot production facility, as well as a second site with a 25,000 square-foot indoor cultivation facility and commercial kitchen. Flower One has built an industry-leading team focused on becoming the first high-quality, low-cost brand fulfillment partner.
The Company’s common shares are traded on the Canadian Securities Exchange under the Company’s symbol “FONE”, in the United States on the OTCQX Best Market under the symbol “FLOOF” and on the Frankfurt Stock Exchange under the symbol “F11”. For more information, visit: https://flowerone.com.
Cautionary Note Regarding Forward-Looking Information Statements in this press release that are not statements of historical or current fact constitute "forward-looking information" within the meaning of Canadian securities laws and "forward-looking statements" within the meaning of United States securities laws (collectively, "forward-looking statements"). Such forward-looking statements involve known and unknown risks, uncertainties, and other unknown factors that could cause the actual results of the Company to be materially different from historical results or from any future actual results expressed or implied by such forward-looking statements. In addition to statements which explicitly describe such risks and uncertainties, readers are urged to consider statements labeled with the terms "believes," "belief," "expects," "intends," "anticipates," "potential," "should," "may," "will," "plans," "continue" or other similar expressions to be uncertain and forward-looking.
Forward-looking statements may include, without limitation, the conversion of the Convertible Debentures and Warrants; the Amendments to the March Debenture Indenture; the use of proceeds from the Offering; the Meetings to be held in connection with the Support Agreement; the Company’s leadership as a cannabis cultivator, producer, innovator and full-service brand fulfillment partner; the Company’s ability to offer consistent, reliable and scalable fulfilment to a growing number of industry-leading brand partners; and the production of a wide range of products for the nation’s top-performing brands.
The Company is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational and medicinal cannabis marketplaces in the United States through its subsidiary Cana Nevada Corp. Local state laws where Cana Nevada Corp. operates permit such activities; however, these activities are currently illegal under United States federal law. Additional information regarding this and other risks and uncertainties relating to the Company’s business are contained under the heading "Risk Factors" in the Company’s management’s discussion and analysis for the nine and three months ended September 30, 2020 (the "MD&A").
The forward-looking statements contained in this press release are expressly qualified in their entirety by this cautionary statement, the "Forward-Looking Statements" section contained in the MD&A. All forward-looking statements in this press release are made as of the date of this press release. The forward-looking statements contained herein are also subject generally to assumptions and risks and uncertainties that are described from time to time in the Company’s public securities filings with the Canadian securities commissions, including the Company’s MD&A.
Although Flower One has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended, including, but not limited to: dependence on obtaining debentureholder and regulatory approvals; satisfying the conditions precedent to the Support Agreement; investing in target companies or projects that are engaged in activities currently considered illegal under United States federal law; changes in laws; limited operating history; reliance on management; requirements for additional financing; competition; hindering market growth and state adoption due to inconsistent public opinion and perception of the medical-use and adult-use marijuana industry and; regulatory or political change.
Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. Flower One disclaims and does not undertake any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
NEITHER THE CANADIAN SECURITIES EXCHANGE NOR THEIR REGULATIONS SERVICES PROVIDER HAVE REVIEWED OR ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
Source: Flower One Holdings Inc.
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