SCHEDULE: Local Bounti Secures $10M PIPE from Schwab Entities

Local Bounti Corporation has secured a $10 million private investment from entities associated with Charles R. Schwab, involving a convertible note and stock warrants.

Summary

• Local Bounti Corporation entered into a Convertible Note and Warrant Purchase Agreement with U.S. Bounti, LLC, an entity associated with Charles R. Schwab, for a $10,000,000 private investment (PIPE).
• The investment consists of a convertible note with an initial principal balance of $10,000,000 and a common stock purchase warrant for 550,000 shares.
• The convertible note bears 6.0% annual interest, payable semi-annually as PIK (Payment-in-Kind) interest, and has an initial conversion price of $2.50 per share.
• Conversion of the initial note principal would result in 4,000,000 shares, subject to increase by any PIK interest added to the principal.
• The warrant is exercisable immediately at an exercise price of $0.125 per share and will expire 10 years from its initial exercise date.
• The issuance of shares upon conversion of the Note or exercise of the Warrant exceeding 1% of the issued and outstanding Common Stock as of August 1, 2025, requires New York Stock Exchange stockholder approval.
• The company is required to seek this stockholder approval at a special stockholders meeting within three months of the August 1, 2025 closing.
• Charles R. Schwab's beneficial ownership increased to 59.9% (13,361,427 shares), and U.S. Bounti, LLC's to 54.7% (12,221,031 shares), based on 22,103,180 shares outstanding as of August 1, 2025.
• These beneficial ownership percentages exclude 4,328,969 aggregate shares issuable upon exercise of the Note and Warrant, which are subject to stockholder approval.

Sentiment

Score: 6

Explanation: The filing indicates a successful capital raise, which is positive for liquidity and continued operations. However, the terms of the raise, particularly the low warrant exercise price and PIK interest, are highly favorable to the investor and imply significant potential dilution for existing shareholders. The large increase in Charles Schwab's beneficial ownership further solidifies his control.

Positives

• Secured $10,000,000 in new funding, providing capital for operations and strategic initiatives.
• The investment comes from a significant existing shareholder (Charles R. Schwab and associated entities), indicating continued support and confidence in the company.
• The convertible note structure, with PIK interest, provides flexibility for the company by conserving cash in the short term, as cash interest payments are not required until after December 31, 2028, if certain conditions are met.

Negatives

• The transaction involves significant potential dilution for existing shareholders, with up to 4,000,000 shares from the Note and 550,000 shares from the Warrant potentially being issued.
• The warrant exercise price of $0.125 per share is substantially lower than the note conversion price of $2.50, indicating very favorable terms for the investor.
• The 6.0% PIK interest means the principal amount of the note will increase over time, leading to even greater potential dilution upon conversion.
• The Note is subordinated to existing obligations under the Credit Agreement with Cargill Financial Services International, Inc., which means senior lenders have priority in repayment.

Risks

• The full issuance of shares from the Note and Warrant is contingent on obtaining Required Stockholder Approval from the New York Stock Exchange, which, if not obtained, could limit the investor's ability to convert/exercise fully.
• Failure to obtain stockholder approval could lead to uncertainty regarding the full conversion of the investment, potentially impacting future financing options or investor confidence.
• The increasing principal balance due to PIK interest could lead to higher debt obligations or greater dilution if converted.
• The subordination of the Note to the Cargill Credit Agreement means that in a liquidation scenario, Cargill's debt would be repaid before the Note.

Future Outlook

The company is required to seek stockholder approval for the issuance of shares from the convertible note and warrant at a special stockholders meeting within three months of August 1, 2025. This approval is crucial for the full conversion of the investment and lifting the 1% issuance limitation.

Industry Context

Local Bounti operates in the controlled environment agriculture (CEA) or vertical farming industry, a capital-intensive sector requiring significant investment for expansion and technology. This capital raise provides necessary funding, and the involvement of a prominent investor like Charles Schwab could signal confidence in the long-term prospects of the company or the broader CEA sector, despite the challenging economics often faced by companies in this space.

Comparison to Industry Standards

• The 6.0% PIK interest rate on the convertible note is a relatively standard rate for private convertible debt, though the PIK feature indicates a desire to conserve cash.
• The warrant exercise price of $0.125 is significantly below the note conversion price of $2.50, suggesting a substantial incentive for the investor, potentially reflecting the company's need for capital or the perceived risk.
• The requirement for stockholder approval for share issuance exceeding 1% is a standard New York Stock Exchange rule for related-party transactions or large issuances, ensuring shareholder protection against excessive dilution without consent.
• The subordination of the note to existing credit facilities is common in debt structures, prioritizing senior lenders.

Related Party Transactions

• The August 2025 Purchase Agreement for the $10,000,000 PIPE investment was entered into with U.S. Bounti, LLC, an entity managed by Charles R. Schwab, who is a significant beneficial owner of Local Bounti Corporation.
• Other reporting persons, including Live Oak Ventures, LLC and The Charles & Helen Schwab Living Trust, are also associated with Charles R. Schwab and hold significant stakes in the company.

Stakeholder Impact

• Shareholders: Potential for significant dilution due to the conversion of the note and exercise of the warrant. The increased beneficial ownership by Charles R. Schwab and his associated entities further concentrates control.
• Company (Local Bounti): Receives $10,000,000 in capital, which can support operations, growth, or debt repayment. The PIK interest structure helps conserve cash in the short term.
• Creditors (e.g., Cargill): The new convertible note is subordinated to existing obligations, meaning their position is not adversely affected in terms of priority.
• Employees/Customers/Suppliers: Indirectly impacted by the company's improved financial stability, which could support continued operations and strategic initiatives.

Next Steps

• Local Bounti Corporation is required to seek Required Stockholder Approval at a special stockholders meeting within three months of August 1, 2025 (by November 1, 2025).
• Semi-annual PIK interest payments on the Note will commence on December 31, 2025.
• Cash interest payments on the Note may commence quarterly after December 31, 2028, if certain conditions are met.
• Automatic conversion of 50% of the Note Obligations Amount will occur on the fourth anniversary of the Issuance Date (August 1, 2029).
• The remaining 50% of the Note Obligations Amount will automatically convert on the maturity date of August 1, 2030.

Key Dates

Recommendation

The capital infusion provides essential liquidity and signals continued support from a major investor, which is positive for the company's stability. However, the terms of the financing, particularly the low warrant exercise price and the potential for substantial dilution from the convertible note, are highly favorable to the investor and could pressure the stock price. The increased concentration of ownership by Charles R. Schwab and his entities also warrants consideration. For a seasoned investor, holding allows observation of how the company utilizes this capital and progresses towards profitability, while acknowledging the dilutive impact.

Keywords

Local Bounti, LBON, SEC filing, Schedule 13D, convertible note, warrant, PIPE investment, Charles Schwab, U.S. Bounti, beneficial ownership, capital raise, dilution, vertical farming, controlled environment agriculture