Flow Beverage Corp. Announces $2M Business Purpose Loan, Binding Term Sheet for $4M Secured Loans and Binding Term Sheet for $6M Secured Convertible Loan, Intention to Seek Shareholder Approval via Written Consent

National Post

26-05-2025

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TORONTO — Flow Beverage Corp. (TSX:FLOW; OTCQX:FLWBF) (' Flow ' or the ' Company ') announced today that NFS Leasing Canada Ltd. (' NFS ') has advanced to the Company a $2 million senior secured business purpose loan pursuant to a term note (the ' NFS Term Note ') and has entered into a binding term sheet for an additional senior secured term loan of up to $4 million (the ' NFS Term Loan '). The Company also announced today that it has entered into a binding term sheet with RI Flow LLC (' RI Flow ') for a secured convertible loan of up to $6 million (the ' RI Flow Convertible Loan '). NFS and RI Flow are existing senior secured lenders of the Company and are affiliated with Clifford L. Rucker, an insider of the Company. RI Flow, NFS Canada and Clifford L. Rucker collectively own, or have control or direction over, more than 10% of the voting rights attached to all of the Company's outstanding voting securities on a partially diluted basis. All currency amounts stated in this press release are denominated in Canadian dollars unless specified otherwise.
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Nicholas Reichenbach, Chairman and Chief Executive Officer of Flow, stated: 'We are extremely pleased to have secured necessary funding from RI Flow and NFS to help the Company continue its path towards profitability, as it explores strategic alternatives. Our goal remains to grow the Flow brand while reducing costs and building a long-term and sustainable future for the Company. We sincerely thank RI Flow, NFS and Clifford L Rucker for their ongoing support and look forward to the journey ahead.'
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The NFS Term Note will mature on May 23, 2028 three years from the date of issue (the ' NFS Note Maturity Date '), and bear interest at a rate of 15% per annum (' NFS Note Interest ') accruing on the funded amount of $2 million (the ' NFS Note Amount ') from the date of issue and compounding annually. The NFS Note Amount and the NFS Note Interest will be payable in arrears beginning on the first calendar day of the first month after the date of issue, with no payments required for the first three consecutive months, followed by thirty-three equal monthly payments. In connection with the NFS Term Note, the Company will retain the services of a restructuring specialist for an initial six (6) month contract. The proceeds of the NFS Term Note will be used toward general corporate and working capital purposes.
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The NFS Term Loan, once issued, will mature on a date that is three years from the date of issue (the ' NFS Loan Maturity Date ') and bear interest at a rate of 15% per annum (' NFS Loan Interest ') accruing on the funded amount of up to $4 million (the ' NFS Loan Amount ') from the date the applicable portion of the NFS Term Loan is advanced and compounding annually. The NFS Loan Amount and the NFS Loan Interest will be payable in arrears beginning on the first calendar day of the first month after the date of issue with no payments required for the first three consecutive months, followed by thirty-three equal monthly payments. The NFS Loan Amount will be advanced in tranches, with each tranche subject to the satisfaction of certain lending conditions, including the Company's achievement of certain monthly net revenue milestones. The proceeds of the NFS Term Loan will be used solely for general corporate and working capital purposes.
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The NFS Term Note and the NFS Term Loan will be secured against all assets of the Company and its subsidiaries on the same basis as the security provided pursuant to the Term Loan and Security Agreement dated as of December 30, 2022 between the Company and NFS (the ' NFS Loan Agreement ') and will rank in right of payment of principal and interest pari passu with the other secured obligations pursuant to the NFS Loan Agreement and senior to all other obligations of the Company and its subsidiaries.
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In connection with the NFS Term Note, Mr. Nicholas Reichenbach (' Mr. Reichenbach '), Executive Chairman and Chief Executive Officer of the Company, entered into a deficiency agreement with NFS (the ' Deficiency Agreement '). Pursuant to the Deficiency Agreement, Mr. Reichenbach agreed to personally guarantee certain loans and leases between NFS and the Company based on certain terms and conditions as set out in the Deficiency Agreement.
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RI Flow Convertible Loan
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The RI Flow Convertible Loan will be issued for an aggregate principal amount of up to $6 million (the ' RI Flow Convertible Loan Amount ') and mature eighteen months from the date of issuance (the ' RI Flow Loan Maturity Date '). The RI Flow Convertible Loan will bear interest at a rate of 15% per annum (' RI Flow Loan Interest ') from the date the applicable portion of the RI Flow Convertible Loan Amount is advanced, compounded annually on the basis of a 365-day year, and paid on the RI Loan Maturity Date (' RI Flow Loan Interest '). On the RI Flow Loan Maturity Date, the outstanding principal amount of the RI Flow Convertible Loan (together with all accrued and unpaid interest thereon) not elected for conversion into SV Share shall become immediately due and payable by the Company in full in cash. The RI Flow Loan Amount will be advanced in tranches, subject to the satisfaction of certain lending conditions, including the Company's achievement of certain monthly net revenue milestones.
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Beginning one year following the issuance of the RI Flow Convertible Loan, RI Flow will have the right to convert all or any portion of the outstanding principal amount of the RI Flow Convertible Loan (and any accrued and unpaid interest thereon) into subordinate voting shares in the capital of the Company (each, a ' SV Share ') at a conversion price of $0.065 per SV Share (the ' Conversion Price ') on not less than ten business days' notice to the Company. Upon a change of control of the Company or a divestiture of the Company's packaging facility in Aurora, Ontario, and related operations, RI Flow will have the right to either (a) convert all or any portion of the outstanding principal amount of the RI Flow Convertible Loan (and any accrued and unpaid interest thereon) into SV Shares at the Conversion Price or (b) provided the Company receives net proceeds at the closing of such change of control or divestiture transaction results of at least $12 million, accelerate payment of the whole or any part of the outstanding principal amount of the RI Flow Convertible Loan (and any accrued and unpaid interest thereon) in cash. The RI Flow Convertible Loan will provide for customary anti-dilution provisions pursuant to which the Conversion Price will be subject to adjustment in certain customary events and will be non-transferable, other than to wholly-owned affiliates of RI Flow.
The maximum number of SV Shares issuable on conversion of the RI Flow Convertible Loan is 114,115,385 SVS, which represents 127.19% of the total number of issued and outstanding SV Shares and multiple voting shares on a non-diluted basis. The Conversion Price of $0.065 represents an 8.9% premium to the SV Share market price of $0.0597 as at May 22, 2025.
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The RI Flow Convertible Loan will be secured against all assets of the Company and its subsidiaries on the same basis as the security provided pursuant to the Term Loan and Security Agreement dated as of October 31, 2024 between, inter alios, the Company, and RI Flow (the ' RI Flow Loan Agreement '), and will rank in right of payment of principal and interest subordinate only to the obligations secured pursuant to the NFS Loan Agreement, pari passu with the secured obligations pursuant to the RI Flow Loan Agreement and senior to all other obligations of the Company and its subsidiaries.
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Proceeds from the RI Flow Convertible Loan will be used for general working capital and corporate purposes.
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NFS and RI Flow each agreed to extend the waivers they previously provided in respect of the Company's accrued vendor payables through to August 1, 2025. NFS and RI Flow have each also agreed to waive the Company's non-compliance with the indebtedness covenants under their respective loan agreements as it relates to certain performance guarantees provided by a subsidiary of the Company.
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Being transactions with NFS and RI Flow, each an insider and/or a related party of the Company, notice of the NFS Term Note, the NFS Term Loan and the RI Flow Convertible Loan (collectively, the ' Business Purposes Loans ') was provided to the Toronto Stock Exchange (the ' TSX ') pursuant to section 501 of the Toronto Stock Exchange Company Manual (the ' Manual '). Being transactions with insiders and/or related parties of the Company where the value of consideration received by such insiders and other related parties exceeding 2% of the Company's market capitalization , the TSX requires each of the all independent members (excluding Nicholas Reichenbach, the ' Independent Directors ') of the Board of Directors of the Company (the ' Board ') and for the value of the consideration to be received by NFS and RI Flow thereunder to be established in an independent report (the ' Report '). The Report, which was delivered by the Board's independent financial advisor retained by the Board, concluded that the consideration to be received by NFS and RI Flow under the Business Purpose Loans exceeded 10% of the Company's market capitalization and that, based upon and subject to the assumptions, limitations and qualifications described in such Report, the terms of the Business Purpose Loans are reasonable in the circumstances of the Company. Each of the Business Purpose Loans were negotiated at arm's length and approved by the Independent Directors.
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The aggregate value of the consideration to be received by each of NFS and RI Flow, each an 'insider' and a 'related party' of the Company under the rules and policies of the TSX, pursuant to each of the NFS Term Note and the NFS Term Loan, in each case if fully drawn, will exceed 10% of the Company's market capitalization, which requires security holder approval in accordance with section 501(c) of the Manual. Additionally, and solely in respect of the RI Flow Convertible Loan, security holder approval is also required in accordance with:
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Section 607(g)(i) of the Manual, as the maximum number of SV Shares potentially issuable pursuant to the RI Flow Convertible Loan represents more than 25% of the number of SV Shares outstanding, on a non-diluted basis, prior to the date of closing of the RI Flow Convertible Loan:
Section 604(a)(ii) and 607(g)(ii) of the Manual, as the maximum number of SV Shares potentially issuable to RI Flow, an 'insider' of the Company under the rules and policies of the TSX, pursuant to the RI Flow Convertible Loan represents more than 10% of the number of SV Shares outstanding, on a non-diluted basis, prior to the date of closing of the RI Flow Convertible Loan:
Section 604(a)(i) of the Manual, as after giving effect to the issuance of the maximum number of SV Shares potentially issuable to RI Flow pursuant to the RI Flow Convertible Loan, the number of voting securities in the capital of the Company held by RI Flow would increase from 12,050,000 SV Shares (representing an 13.43% equity interest and a 8.33% voting interest (each on an undiluted basis)) to 126,165,385 SV Shares (representing an 61.89% equity interest and a 48.75% voting interest (each on an undiluted basis)) and this increased voting interest materially affects control of the Company
Sections 607(e) and 610 of the Manual, as the issuance of SV Shares issuable upon conversion of any principal amount and any accrued interest, at the Conversion Price of $0.065 per SV Share, could be less than the market price less the applicable discount at the time of issuance of the RI Flow Convertible Loan or at the time of conversion of such security, in each case, as determined in accordance with Sections 607(e) and 610 of the Manual
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Instead of seeking security holder approval at a duly called meeting of security holders, TSX is permitting the Company, pursuant to section 604(d) of the Manual, to provide written evidence that holders of more than 50% of the outstanding voting securities of the Company (other than those securities excluded as required by the TSX) who are familiar with the terms of each of the Business Purpose Loans and are in favour of them. The vote of the disinterested shareholders will exclude the 12,050,000 SV Shares of the Company currently held by RI Flow, which represents approximately 13.43% of the issued and outstanding SV Shares and 8.33% of the voting rights attaching to the SV Shares and the Company's multiple voting shares (on an undiluted basis).
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Each of the Business Purpose Loans remain subject to the approval of the TSX.
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RI Flow, NFS Canada and Clifford L. Rucker collectively own, or have control or direction over, more than 10% of the voting rights attached to all of the Company's outstanding voting securities (on a partially diluted basis). Accordingly, the Business Purpose Loans constitute 'related party transactions' under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (' MI 61-101 '). Flow is relying on the 'financial hardship' exemptions from the formal valuation and minority shareholder approval requirements of MI 61-101 available respectively under Sections 5.5(g) and 5.7(e). The Independent Directors, having taken into account the liquidity, financial position and cash needs of the Company, the objectives of the Business Purposes Loans, the alternatives available to the Company, relevant benefits, risks and other factors, including the relative impacts on applicable stakeholders, and such matters they considered relevant or appropriate, have unanimously determined that the Company is in serious financial difficulty, that the Business Purposes Loans are designed to improve the Company's financial situation, that the terms of the Business Purposes Loans are reasonable in the circumstances, and that the Business Purposes Loans are the best interests of the Corporation. The Company did not file a material change report in respect of the Business Purpose Loans 21 days in advance of the entering into of the NFS Term Note or the Binding Term Sheets in respect of the NFS Term Loan or the RI Flow Convertible Loan as the terms of such Business Purpose Loans had not been confirmed at that time.
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Flow is one of the fastest-growing premium water companies in North America. Founded in 2014, Flow's mission since day one has been to reduce environmental impacts by providing sustainably sourced natural mineral spring water in the most sustainable product formats. Today, the brand is B-Corp Certified with a best-in-class score of 114.5, offering a diversified line of health and wellness-oriented beverage products: original mineral spring water, award-winning organic flavours and sparkling mineral spring water in sizes ranging from 300-ml to 1-litre. All products contain naturally occurring electrolytes and essential minerals and support Flow's overarching purpose to 'bring wellness to the world through the positive power of water.' Flow beverage products are available at retailers in Canada and the United States, and online at flowhydration.com.
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This press release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (' Forward-Looking Statements '). The Forward-Looking Statements contained in this press release relate to future events or Flow's future plans, operations, strategy, performance or financial position and are based on Flow's current expectations, estimates, projections, beliefs and assumptions, including, among other things, in respect of issuance of each of the NFS Term Note, the NFS Term Loan and the RI Flow Convertible Loan, the Company's ability to satisfy the conditions for drawing future advances under the NFS Term Loan and/or the RI Flow Convertible Loan, including achieving the monthly revenue milestones thereunder, the Company's ability to maintain compliance with covenants under the its loan agreements with NFS, RI Flow and its other lenders. In particular, there is no assurance that the NFS Term Loan or the RI Flow Convertible Loan will be issued (or if issued, the principal amount that will be advanced thereunder), that the Company will satisfy all or any of the conditions for drawing future advances under the NFS Term Loan and/or the RI Flow Convertible Loan, including achieving the monthly revenue milestones thereunder, or that the Company maintain compliance with covenants under its loan agreements with NFS, RI Flow and its other lenders or provide future waivers in respect of the Company's non-compliance with certain covenants under its loan agreements with NFS and/or RI Flow . Such Forward-Looking Statements have been made by Flow in light of the information available to it at the time the statements were made and reflect its experience and perception of historical trends. All statements and information other than historical fact may be forward‐looking statements. Such Forward-Looking Statements are often, but not always, identified by the use of words such as 'may', 'would', 'should', 'could', 'expect', 'intend', 'estimate', 'anticipate', 'plan', 'foresee', 'believe', 'continue', 'expect', 'believe', 'anticipate', 'estimate', 'will', 'potential', 'proposed' and other similar words and expressions.
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Forward-Looking Statements are based on certain expectations and assumptions and are subject to known and unknown risks and uncertainties and other factors, many of which are beyond Flow's control, that could cause actual events, results, performance and achievements to differ materially from those anticipated in these Forward-Looking Statements. Forward-Looking Statements are provided for the purpose of assisting the reader in understanding Flow and its business, operations, prospects, and risks at a point in time in the context of historical and possible future developments, and the reader is therefore cautioned that such information may not be appropriate for other purposes. Forward-Looking Statements should not be read as guarantees of future performance or results. Readers are cautioned not to place undue reliance on these Forward-Looking Statements, which speak only as of the date of this press release. Unless otherwise noted or the context otherwise indicates, the Forward-Looking Statements contained herein are provided as of the date hereof, and the Company disclaims any intention or obligation, except to the extent required by law, to update or revise any Forward-Looking Statements as a result of new information or future events, or for any other reason.
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The following press release should be read in conjunction with the management's discussion and analysis and unaudited condensed consolidated interim financial statements and notes thereto as at and for the three months ended January 31, 2025. Additional information about Flow is available on the Company's profile on SEDAR+ at www.sedar.com, including the Company's Annual Information Form for the year ended October 31, 2024 dated January 29, 2025.
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Contacts
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Trent MacDonald, Chief Financial Officer
1-844-356-9426
[e-mail]
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