CE Brands Announces Commitments for Debt and Equity Financings
CALGARY, Alberta, Nov. 01, 2021 (GLOBE NEWSWIRE) — CE Brands Inc. (TSXV: CEBI; CEBI.WT) (“CE Brands”, “we”, “our”, or the “Company”), a data-driven consumer-electronics company, is pleased to announce that it has secured binding commitments for a private placement (the “Debt Financing”) of senior secured convertible notes (the “Convertible Notes”) for aggregate committed capital of $4,000,000, with a potential upsize in the amount of $2,000,000, led by certain investment entities managed or advised by Vesta Wealth Partners Ltd. (“Vesta”), a leading Canadian investment firm. In addition, the Company is announcing that it has entered into subscription agreements under a non-brokered private placement equity financing (the “Equity Financing” and together with the Debt Financing, the “Private Placement”) with existing institutional investors for aggregate gross proceeds of $1,400,000.
“We are very pleased to be able to announce these financings which will significantly improve CE Brands’ financial position, strengthen our business and position CE Brands to overcome our current working capital constraints due to the operational and logistical challenges in Asia,” said Craig Smith, CEO of CE Brands. “With these financings, CE Brands believes that it now has access to appropriate near-term working capital and does not anticipate raising further financing at this time,” continued Mr. Smith.
The Debt Financing
The Convertible Notes are expected to be issued on or about November 12, 2021 (the “Closing Date”) with an aggregate principal amount of $4,000,000 subject to delayed draws to address the Company’s working capital needs, including for the purchase of inventory and for general corporate purposes. The Convertible Notes will bear interest at a rate of 15.0% per annum on outstanding principal amounts, payable on the first and second anniversary of the issue date, unless earlier redeemed or converted. Interest may be payable, at the option of the holders, either in cash or through the issuance of common shares of the Company based on the then market price of the Company’s common shares. The Convertible Notes will be senior secured obligations of the Company and mature on the second anniversary of the issue date (the “Maturity Date”). Prior to maturity, the Convertible Notes are convertible into common shares of the Company, at the option of the holders, at a conversion price per share of $1.50. The Convertible Notes are not redeemable by the Company prior to the first anniversary of the issue date.
The holders of the Convertible Notes will receive an aggregate of 2,000,000 common share purchase warrants (“Warrants”) with each Warrant having an exercise price of $1.00 per share and being exercisable on or before the second anniversary of the issue date.
In addition, the Company has granted the holders of the Convertible Notes the option to purchase an additional $2,000,000 aggregate principal amount of senior secured convertible notes (the “Upsize Convertible Notes”) on substantially similar terms to the Convertible Notes at any time prior to the six (6) month anniversary of the Closing Date. The Upsize Convertible Notes, if and when issued, will be convertible into common shares of the Company, at the option of the holders, at a conversion price per share equal to the market price of the Company’s common shares at the time the option is exercised. No Warrants will be issuable in connection with the purchase of the Upsize Convertible Notes.
The Equity Financing
The Company has entered into subscription agreements for the sale of 2,500,000 common shares of the Company for aggregate gross proceeds of approximately $1,400,000 at price of $0.56 per common share, representing the closing price on the TSX Venture Exchange (the “TSXV”) on October 29, 2021.
In connection with the Equity Financing and in accordance with the policies of the TSXV, the Company will pay or issue to certain eligible finders: (i) a cash fee equal to 8.0% (the “Cash Fee”) of the aggregate gross proceeds raised from an investor under the Equity Financing, and (ii) common share purchase warrants (“Finder’s Warrants”) exercisable into such number of common shares of the Company equivalent to the applicable Cash Fee based upon an exercise price of $1.00 per share, which Finder’s Warrants will expire 24 months following the Closing Date.
Closing of the Equity Financing is conditional on the closing of the Debt Financing and both the Debt Financing and the Equity Financing are anticipated to close contemporaneously with each other on or about November 12, 2021. The Debt Financing and the Equity Financing are subject to customary closing conditions, including the approval of the TSXV and the listing of the Common Shares underlying the Convertible Notes, the Upsize Convertible Notes and the Warrants by the TSXV. The Common Shares are currently listed on the TSX under the symbol “CEBI”. Neither the Convertible Notes, the Upsize Convertible Notes nor the Warrants will be listed on the TSXV.
Required Disclosure under MI 61-101
Mr. Jared Wolk is a director of the Company and the Chief Investment Officer of Vesta, the lead investor in the Debt Financing. In such capacity, Mr. Wolk has certain discretionary control over investment decisions of Vesta and certain investment entities managed or advised by Vesta, including with respect to their respective participation in the Debt Financing. The Board has therefore determined that (i) Vesta is a “related party” of the Company pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), and (ii) the Debt Financing constitutes a “related party transaction” for the purposes of MI 61-101, as it will involve the Company issuing securities to and borrowing money from entities over which Vesta exercises certain discretionary control.
In connection with negotiating and reviewing the terms of the Debt Financing, three independent and disinterested members (the “Independent Directors”) of the Company’s board of directors (the “Board”) considered and reviewed a variety of matters, including an assessment of the Company’s liquidity position, financial outlook and financing alternatives reasonably available to the Company, and consulted with the legal advisors. Following their deliberations in respect of the Debt Financing, the Independent Directors determined that the Debt Financing is in the best interests of the Company and recommended that the Board approve the Debt Financing. After considering the recommendation of, and the factors considered by, the Independent Directors, the Board (with Mr. Wolk abstaining) unanimously approved the Debt Financing.
While the Board has determined that the Debt Financing is a “related party transaction”, the Debt Financing will be exempt from both the formal valuation requirements and minority approval requirements of MI 61-101 for related party transactions by virtue of Sections 5.5(g) and 5.7(e) of MI 61-101 which provides that a “related party transaction” is exempt from each of the formal valuation and minority shareholder approval requirements of MI 61-101 if the issuer is in serious financial difficulty and the transaction is designed to improve the financial position of the issuer (among other criteria), and in respect of the minority shareholder approval requirement, there is no other requirement, corporate or otherwise, to hold a meeting to obtain any approval of the holders of any class of affected securities.
As part of their deliberations in respect of the Debt Financing, the Independent Directors considered the liquidity and financial and position of the Company, the objectives of the Debt Financing, and the criteria and conditions with respect to the financial hardship exemptions described above, and in this regard unanimously determined that: (i) the Company is in serious financial difficulty; (ii) the Debt Financing is designed to improve the financial position of the Company; and (iii) the terms of the Debt Financing are reasonable in the circumstances of the Company.
A further discussion and description of the review and approval process adopted by the Independent Directors and other information required by MI 61-101 in connection with the Debt Financing will be set forth in the Company’s material change report to be filed under the Company’s SEDAR profile at www.sedar.com.
The Company anticipates closing of the Debt Financing will take place less than 21 days following the anticipated filing of the Company’s material change report. In the context of the Company’s liquidity and working capital constraints, it is necessary for the Company to close the Private Placement on an expedited basis to improve the Company’s financial position and as such, it was not possible to delay closing of the Debt Financing.
All securities issued in connection with the Private Placement will be subject to statutory hold periods in accordance with applicable securities legislation.
This press release shall not constitute an offer to sell or the solicitation of an offer to buy securities of the Company in the United States nor shall there be any sale of securities of the Company in any jurisdiction in which such offer, solicitation or sale would be unlawful. The securities described herein have not been, and will not be, registered under the United States Securities Act of 1933, as amended, or the securities laws of any state of the United States. Accordingly, any of the securities described herein may not be offered or sold in the United States or to U.S. persons unless an exemption from registration is available.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
For more information, please visit www.cebrands.ca.
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About CE Brands
CE Brands Inc. develops products with leading manufacturers and iconic brand licensors by utilizing proprietary data that identifies key market opportunities. With sales today in over 70 countries, our innovative, highly repeatable process, which we call the “CE Method”, has created an optimal growth path for CE Brands to be the premier global licensed brand manufacturer.
Neither the TSX Venture Exchange nor its regulation services provider (as defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
This press release contains forward-looking information within the meaning of applicable securities laws. In general, forward-looking information refers to disclosure about future conditions, courses of action, and events. The use of any of the words “anticipates”, “believes”, “expects”, “intends”, “plans”, “will”, “would”, and similar expressions are intended to identify forward-looking information. More particularly and without limitation, this press release includes forward-looking information with respect to the completion of the Private Placement, the potential benefits and effects of the Private Placement, the timing for the completion of the Private Placement and related matters, the conditions to closing of the Private Placement, the Company’s expectations with respect to the exemptions for the formal valuation requirements and minority approval requirements of MI 61-101 in respect of the Debt Financing, the anticipated use of the proceeds from the Private Placement, the receipt of any required regulatory and TSXV approvals for the Private Placement and the Company’s ability to manage manufacturing, supply chain and inventory constraints and continue to operate its business in the ordinary course.
The forward-looking information is based on certain key expectations and assumptions, including the receipt of all regulatory and related approvals for the Private Placement, timing of the resumption of manufacturing operations at the Company’s partner factories in Asia, the timing of product shipments and deliveries, forecast sales price and sales volume of the Company’s products and the ability of the Company to secure additional sources of inventory debt funding in 2022.
There can be no assurance that the Company will be able to successfully complete the Private Placement on the terms contemplated, in a timely manner or at all. If the Company fails to complete the Private Placement or otherwise fails to secure additional financing, then the Company may have insufficient liquidity and capital resources to operate its business resulting in material uncertainty regarding the Company’s ability to meet its financial obligations as they become due and continue as a going concern.
Although CE Brands believes that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because CE Brands cannot give any assurance that they will prove to be accurate. By its nature, forward-looking information is subject to various risks and uncertainties, which could cause the actual results and expectations to differ materially from the anticipated results or expectations expressed in this press release. Such risks and uncertainties include, among others, the impact of the evolving COVID-19 pandemic on the Company’s business, operations and sales; reliance on third party manufacturers and suppliers; the Company’s ability to stabilize its business and secure sufficient capital, including the contemplated Private Placement, which may not be completed in a timely manner or at all; the Company’s available liquidity being insufficient to operate its business and meet its financial commitments, which could result in the Company having to refinance or restructure its debt, sell assets or seek to raise additional capital, which may be on unfavorable terms; the inability to implement the Company’s objectives and priorities for 2021 and beyond, which could result in financial strain on the Company and continued pressure on the Company’s business; risks associated with developing and launching new products; increased indebtedness and leverage; the fact that historical and projected financial information may not be representative of the Company’s future results; the inability to position the Company for long-term growth; risks associated with issuing new equity including the possible dilution of the Company’s outstanding common shares; the value of existing equity following the completion of any financing transaction; the Company defaulting on its obligations, which could result in the Company having to file for bankruptcy or undertake a restructuring proceeding; the Company being put into a bankruptcy or restructuring proceeding; and the risk factors included in CE Brand’s continuous disclosure documents available on www.sedar.com. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date of this press release, and to not use such forward-looking information other than for its intended purpose. CE Brands undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events, or otherwise, except as required by applicable securities legislation.
For further information about CE Brands or its principal operating subsidiary, eBuyNow eCommerce Ltd., please contact: