Scalare Partners Announces $5 Million Convertible Note Deal with Blackstone Mercantile, Proposes 60:1 Share Consolidation and Bonus Option Plan

Scalare Partners and Blackstone Mercantile Group Establish $25 Million Convertible Note Facility Framework

Scalare Partners Holdings Limited has entered into a Convertible Security Funding Agreement with The Blackstone Mercantile Group Ltd. SAC, identified as a new investor. This agreement provides potential access to up to $25 million in funding, subject to various conditions and approvals required before any tranches beyond the initial $5,000,000 can be drawn.

The company clarified that any tranches beyond the initial $5,000,000 depend on investor request and company approval and are not guaranteed. However, the commercial framework, including a fixed share price for conversion, has been agreed in principle. This announcement marks a significant capital markets event for Scalare, which has faced limited daily trading volumes, a decline in share price, and reduced market capitalization amid current market conditions.

Details of the Initial $5 Million Tranche and $1.5 Million Fairfax Marketing Fee

The initial tranche is composed of two parts: an immediate $500,000 loan already advanced, and a subsequent $4,500,000 tranche contingent on shareholder approval, totaling $5,000,000 before costs. The funds will support new investments, market communications, and general working capital needs.

Importantly, $1,500,000 of the initial $5,000,000 must be paid as a service fee to Fairfax, an independent marketing firm engaged by Scalare under a separate agreement to provide marketing services. This represents a significant portion of the initial tranche, which investors should consider when assessing the net capital available for investment and operations. The company has not disclosed the full details or duration of the Fairfax marketing agreement in this update.

Mandatory 60:1 Share Consolidation Required for Facility

A critical condition of the convertible note facility is a mandatory 60:1 share consolidation, whereby every 60 existing shares will be consolidated into one. This consolidation requires shareholder approval, with the board recommending shareholders vote in favor. Approval is a prerequisite for the facility; failure to secure it would have material consequences.

If shareholder approval is not granted, the $500,000 loan already advanced must be repaid immediately in shares at $0.167 per share. This fallback underscores the binding nature of the initial loan and the importance of the forthcoming shareholder vote. While the consolidation will significantly reduce the number of shares, it sets the foundation for the planned bonus option issue intended to mitigate dilution concerns for existing shareholders.

Bonus Option Issue Designed to Limit Dilution for Existing Shareholders

To acknowledge existing shareholders' support and as negotiated with the investor, Scalare plans a non-renounceable bonus option issue following completion of the share consolidation. Shareholders will receive 8.7 new options for every 10 shares held (fractions rounded up), based on a record date of 21 August 2026. These new options will be exercisable at $0.01 each (post-consolidation) between 5 February 2027 and 31 March 2027.

Each new option, upon exercise, grants the holder one share and one additional piggyback option exercisable at $0.02 each anytime from issuance through 31 March 2028. Neither the new options nor the piggyback options will be listed on ASX or transferable. The company stated that if all new and piggyback options are exercised, and no further securities are issued, the dilution from converting $5,000,000 of convertible notes would decrease from 67.2% to 42.8% for shareholders maintaining full holdings.

Dilution Impact Under Full $25 Million Facility Conversion

Scalare provided indicative dilution scenarios: if all new and piggyback options are exercised, existing shareholders would retain about 57.2% ownership if only the initial $5,000,000 tranche converts, assuming no other securities are issued. However, if the full $25 million facility is drawn and converted, existing shareholders' ownership would decline to approximately 25.1% under the same assumptions.

These figures highlight the substantial potential dilution from full facility conversion. The company has been transparent that note conversion is expected at a significant discount to the post-consolidation market price. Scalare views the bonus option issue primarily as a shareholder value protection mechanism rather than a means to capture share price appreciation. The company intends to remind shareholders to exercise their options during the designated windows.

Board’s Rationale for Rejecting Alternative Funding Options

The Scalare board explored multiple funding alternatives before selecting the Blackstone Mercantile facility. All other options were considered less favorable. The company acknowledged that the proposed terms—including the discount to post-consolidation market price and the Fairfax service fee—reflect its limited negotiating leverage but concluded the overall package was superior to alternatives.

One alternative considered was a convertible note facility with a floating conversion price tied to the company's weighted average share price at conversion. Scalare noted such floating-price facilities risk conversion at progressively lower prices, increasing dilution—a phenomenon sometimes called a "death spiral." Traditional placements and rights issues were also considered but deemed likely only achievable at steep discounts and with attached options, potentially causing long-term dilution and stock overhang.

Scalare’s Business Model and Capital Constraints

The update provides context on Scalare’s business model and the urgency of the capital raise. Scalare advises and invests in early-stage technology companies, aiming to invest in up to eight companies annually. However, financial constraints have prevented meeting this target.

Limited daily share trading volumes and reduced market capitalization have restricted Scalare’s ability to raise capital conventionally. The convertible note facility aims to restore capacity to execute its investment strategy and expand its portfolio. After accounting for the Fairfax fee and working capital, proceeds allocated for new investments will be critical to resuming the target investment pace.

Investor Ownership Cap and Shareholder Approval under Listing Rules

The Blackstone Mercantile Group Ltd. SAC has agreed not to exceed 19.99% ownership of Scalare’s issued capital, a standard provision to avoid triggering takeover thresholds under the Corporations Act 2001.

Issuance and conversion of notes exceed Scalare’s existing Listing Rule 7.1 capacity, which limits equity issuance without shareholder approval. Consequently, Scalare will seek shareholder approval under Listing Rule 7.1 for both note issuance and resulting shares from conversion, preserving full placement capacity for future capital needs. The shareholder meeting notice has not yet been released.

Upcoming Milestones for Shareholders

Key upcoming dates include the 21 August 2026 record date for the bonus option issue, entitling shareholders on that date to receive new options. These options will be exercisable between 5 February and 31 March 2027, with piggyback options exercisable through 31 March 2028. Further bonus issue details will be announced formally.

The immediate priority is the shareholder meeting to approve the convertible note issue, share consolidation, and related matters. Approval will determine release of the $4,500,000 second tranche and continuation of the transaction. Without approval, the $500,000 loan must be repaid immediately in shares at $0.167 each. Shareholders should monitor announcements for the meeting notice and updates on the Fairfax agreement and conversion pricing.

Implications for Scalare’s Capital Position and Fundraising Ability

If completed as planned, Scalare will have access to a structured funding pathway of up to $25 million, potentially transforming its financial position. The fixed conversion price provides certainty on dilution compared to floating-price alternatives, though conversion is expected at a discount to the post-consolidation market price.

The option to draw additional tranches beyond the initial $5,000,000—up to $20,000,000 more subject to conditions—is a key advantage over other financing options. The immediate share price impact is unclear. Investors are advised to review the full Convertible Security Funding Agreement annexures and seek independent financial advice before the shareholder vote.