Local Bounti Corporation/DE

Current report

U.S. Bounti, LLC (“U.S. Bounti”), following conversion of our Series A Preferred Stock, will control the direction of our business and the concentrated ownership of our common stock will prevent other stockholders from influencing significant decisions.

Current report

U.S. Bounti, an entity controlled by Charles R. Schwab, will hold the voting power over approximately 56.2% of our outstanding common stock following the conversion of our Series A Preferred Stock upon removal of the current conversion blocker for NYSE change of control rule purposes (the "Conversion Blocker"). The removal of the Conversion Blocker is subject to approval by our stockholders at our upcoming annual stockholders’ meeting to be held on June 11, 2025. Once the Conversion Block is removed and the Series A Preferred Stock is converted to common stock, Mr. Schwab, through his control of other entities which also hold shares of our common stock, will beneficially own approximately 61.5% of our outstanding common stock. Mr. Schwab, through his control of U.S. Bounti and other entities holding shares of our common stock, will be able to significantly influence our decisions, including the election of directors (and U.S. Bounti has the right to appoint two of our directors), and the approval of significant corporate transactions, such as mergers and related party transactions. Mr. Schwab, through his control of U.S. Bounti and other entities holding shares of our common stock, will also have the ability to delay or block, by ownership of our common stock, an unsolicited tender offer. This concentration of ownership could have the effect of delaying, deterring or preventing a change in control of the Company that stockholders might view favorably. Additionally, U.S. Bounti’s interests may not align with the interests of our other stockholders. U.S. Bounti may make investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us and may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

Current report

Although we do not expect to rely on the "controlled company" exemption, we may soon become a "controlled company" within the meaning of the NYSE rules, and we would qualify for exemptions from certain corporate governance requirements.

Current report

A "controlled company," as defined in the NYSE rules, is a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company. Controlled companies are not required to comply with certain NYSE continued listing standards relating to corporate governance, including:

Current report

•the requirement that a majority of a company’s board of directors consist of independent directors;

Current report

•the requirement that a company’s nominating and corporate governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

Current report

•the requirement that a company’s compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

Current report

Upon the conversion of the Series A Preferred Stock owned by U.S. Bounti, we would meet the definition of a "controlled company." As a result, these requirements would not apply to us as long as we remain a "controlled company."

Current report

Although we may soon qualify as a "controlled company," we currently do not, and we do not expect to, rely on this exemption and we currently comply with, and we expect to continue to comply with, all relevant corporate governance requirements under the NYSE rules. However, if we were to utilize some or all of these exemptions, our stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE continued listing standards that relate to corporate governance.

Previous report

Item 1A. Risk Factors

Previous report

Risks Related to Local Bounti's Business

Previous report

There is substantial doubt regarding Local Bounti’s ability to continue as a going concern. Local Bounti will require additional financing to continue as a going concern, and a failure to obtain this necessary capital on acceptable terms, or at all, may force Local Bounti to delay, limit, reduce or terminate its operations and future growth. If additional financing is available, financing terms may lead to significant dilution of our stockholders’ equity.

Previous report

The CEA business is highly capital-intensive. Local Bounti has incurred losses and generated negative cash flows from operations since its inception. At September 30, 2024, Local Bounti had an accumulated deficit of $387.0 million and cash and cash equivalents and restricted cash of $6.8 million. Currently, our primary sources of liquidity and capital resources are cash on hand, cash flows generated from the sale of our products, and the Facilities with Cargill Financial.

Previous report

Local Bounti’s current operating plan indicates that it will continue to incur losses from operations and generate negative cash flows from operating activities until the Texas and Washington facilities start operating at full commercial scale and begin generating sufficient positive gross profit to cover its losses. These conditions raise substantial doubt about Local Bounti’s ability to continue as a going concern through the next twelve months. This substantial doubt about our ability to continue as a going concern may adversely affect our stock price and our ability to raise capital.

Previous report

Our ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, and to generate profitable operations in the future. We plan to provide for our capital requirements through amounts available under our credit facilities with Cargill Financial, our current cash position, cash generated from product sales, anticipated additional deferrals of future cash interest and principal payments under the Company's credit facilities with Cargill Financial, and additional working capital through other sources of debt and equity financings. There can be no assurance that we will be able to raise additional capital to fund operations with terms acceptable to us, or at all, and failure to obtain this necessary capital may force Local Bounti to delay, limit, reduce or terminate its operations and future growth.

Previous report

Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend and other rights more favorable than common stock, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect Local Bounti’s business.

Previous report

Risks Related to Local Bounti's Term Loan Facility

Previous report

Local Bounti has entered into agreements with Cargill Financial for term loan credit facilities. The credit facilities are secured by all of the Company's and its subsidiaries' assets, including their intellectual property. If we are unable to meet certain conditions precedent, we may not be able to draw down funds available under the facilities, which could materially and adversely affect our business and operations. Additionally, if there is an occurrence of an uncured event of default, Cargill Financial has the right to foreclose on all of the Company's and its subsidiaries' assets, and securities in the Company could be rendered worthless.

Previous report

Local Bounti's credit facilities with Cargill Financial are secured by all of the Company's and its subsidiaries' assets, including their intellectual property. Additionally, the definitive documentation for the credit facilities states that if Local Bounti defaults on its obligations, Cargill Financial could foreclose on all Local Bounti assets, which would materially harm Local Bounti's business, financial condition and results of operations. The credit facilities with Cargill Financial contain various financial and non-financial covenants and certain restrictions on our business, which include restrictions on additional indebtedness, minimum liquidity and other financial covenants, and material adverse effects, that could cause us to be at risk of default. We are currently in compliance with the financial covenants under the credit facilities, but in the past, we have periodically failed to meet certain quarterly financial covenants. While we were able to obtain permanent waivers for all past covenant violations, there can be no assurances that we will be able to obtain waivers for any future covenant compliance violations. A failure to comply with the covenants and other provisions of these debt instruments, including any failure to make payments when required, would generally result in events of default under such instruments, which could result in the acceleration of a substantial portion of such indebtedness.

Previous report

The pledge of our assets and other restrictions may also limit Local Bounti's flexibility in raising capital for other purposes. Because all of Local Bounti's assets are pledged under the credit facility, Local Bounti's ability to incur additional secured indebtedness or to sell or dispose of assets to raise capital may be impaired, which could have an adverse effect on Local Bounti's financial flexibility. Further, there are numerous conditions precedent to drawing down amounts available under the credit facility, including that amounts remaining to be drawn are at Cargill Financial's discretion. If we are unable to meet these conditions precedent, we may not be able to draw down funds available under the facilities, which could materially and adversely affect our business and operations. Refer to Note 6, Debt, of the Unaudited Condensed Consolidated Financial Statements for more information about the credit facility.