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April 21, 2021 – The Court hearing the Carla’s Pasta cases issued a bench ruling approving the $27.5mn sale of the Debtors' assets to CP Foods LLC and NFP Real Estate LLC (affiliates of stalking horse Tribe 9 Foods (“Tribe 9” or the “Stalking Horse”)) [Docket No. 454]. The Court's bench ruling makes significant amendments to the stalking horse arrangements, with the revised treatment of certain third-parties detailed in excerpted pages from a proposed order that is attached to the ruling.
More generally, the Court was unhappy with the Debtors' efforts to identify impacted third parties and give them fair notice as to how they might be impacted by an approved section 363 sale. Nonetheless, the Court is allowing the sale to proceed largely along the agreed commercial terms; with the Stalking Horse having to accept the Court's curtailing of successor liability protections to balance shortcomings as to adequate protection
The ruling reads in part: "As the Debtors’ Motion otherwise fails to comply with L. Rule 6004-1 [ie Rule 6004-1 Sale and Sale Procedures Motions], the Court respectfully declines to issue a wide ranging free and clear order at variance therewith.
The noncompliance with the aforementioned Local Rule, and the resulting failure to identify affected parties, implicates fundamental fairness, due process and the right to be heard. Without such compliance, the Court cannot fulfill its obligation to determine, with particularity, which parties might require adequate protection under 11 U.S.C. § 363(e) and which affected parties are unable to advance their positions.
Critically, the Debtors may not simply eliminate liens, claims and interest in a factual or legal vacuum.
The Court herein believes that it, nonetheless, has the authority under 11 U.S.C. § 105 to facilitate and enhance 11 U.S.C. § 363 by providing an appropriately reasoned, tailored and measured successor liability protection to the Purchasers.
Mindful of what the Debtors have cast in the Proposed Sale Orders as expansive free and clear provisions and redundant releases and bars on successor liability, this Court finds that such provisions are overreaching, unnecessary, possibly beyond the jurisdiction of this Court, procedurally infirm, ambiguous and in certain instances, at variance with compelling governmental public policies. Therefore, this Court has revised the parameters of the proposed successor liability protections to reduce their complexity, the potential for confusion and any variance from fundamental notions of fairness or governmental or regulatory prerogative.
On April 20, 2021, further to a 21-round, section 363 auction concluded on April 15th and an April 19th sale hearing, the Debtors filed an amended $27.5mn asset purchase agreement (the “APA”), executed with CP Foods LLC and NFP Real Estate LLC (assignees and affiliates of stalking horse Tribe 9 Foods (“Tribe 9” or the "Stalking Horse"). In addition to naming the Tribe 9 affiliates as the successful bidder, the Debtors noted that KB Partners had been designated as the back-up bidder. A summary of the bids is found below.
On March 19th, Tribe 9 was designated as stalking horse [Docket No. 313] and on March 29th the Debtors filed a first (and now replaced) asset purchase agreement [Docket No. 336].
Tribe 9 describes itself as follows: "Tribe 9 Foods, a specialty food company based in Madison, Wisconsin, was founded in February of 2017 in order to create delicious, nourishing and functional food to improve the lives of others. By combining the unique and diverse skills of three fast-growing companies, the idea was together we could do more: Create more nutritious products; Provide more great local jobs for employees; Contribute more to our communities; and Demonstrate more how to be a responsible and sustainable manufacturer."
In a response to limited objections filed in respect of the proposed sale order [Docket No. 419], the Debtors provide the following summary of the auction process: “The Debtors, with the assistance of the Lenders, the Committee, and Stalking Horse (and now Successful) Bidder, have made significant progress towards closing a value-maximizing sale of substantially all of the Debtors’ assets. The Debtors filed their Sale Motion on February 8, 2021 [ECF 28]. Thereafter, the Bidding Procedures approved by this Court [ECF 247] (the ‘Bidding Procedures Order’) established a clear framework for a successful sale, including the designation of a Stalking Horse that set the base total consideration to the Debtors’ estates of approximately $22.5 million [ECF 313 and 333] (the ‘Original Stalking Horse APA’).
After a competitive sale process, two Qualified Bidders participated in a thirteen-hour, twenty-one round Auction on March 15, 2021. At the conclusion of the Auction, the Debtors designated the Stalking Horse as the Successful Bidder for the Debtors’ assets at a total consideration of approximately $27.5 million, as well as a strong Backup Bidder should the Stalking Horse fail to close. Approval of the Sale to the Successful Bidder pursuant to the terms of the Successful Bidder APA is the only viable outcome for these Chapter 11 Cases. Any other outcome would jeopardize the successful results of the Auction, likely derail the prospects for a going concern sale, and result in an immediate cessation of Debtors’ business operations, including the termination of nearly 150 dedicated employees’ jobs.
Key Terms of the Amended APA:
- Seller: Carla’s Pasta, Inc. and Suri Realty, LLC
- Buyer: CP Foods LLC and NFP Real Estate LLC, affiliates of Natural Food Partners (itself an affiliate of Tribe 9)
- Purchase Price: The purchase price for the Purchased Assets under this Agreement is an amount (the “Purchase Price”) equal to the sum of (i) (A) $24,891,123, plus (B) the amount, if any, by which the Working Capital exceeds $12,620,000, minus (C) the amount, if any, by which $9,580,000 exceeds the Working Capital (such total, the “Cash Purchase Price”); (ii) the amount of the Accrued PTO Liability for the Transferred Employees; (iii) the Cure Amounts (Buyer’s total aggregate Cure Amounts shall not exceed $2.1mn).
- Bidder Protections:
- A Break-Up fee of $450k (no expense reimbursement) and
- an Initial Overbid Amount of $100k.
- Credit Bidding: In the event that the Debtors’ Lender Agent — for itself and for and on behalf of the Lenders — provides notice to the Debtors by the Bid Deadline of its intention to participate in the Auction and potentially credit bid, it is entitled to credit bid some or all of the claim secured by its collateral pursuant to section 363(k) of the Bankruptcy Code
The bidding procedures motion [Docket No. 28] states, “[t]he Debtors determined it was in the best interests of their creditors to engage an investment banker to market the Assets for sale or other strategic transaction. The Debtors interviewed several reputable investment bankers with expertise in the food industry market and selected Cowen and Company, LLC (‘Cowen’), subject to the Bankruptcy Court’s approval, to represent the Debtors in their sale efforts. Cowen was engaged in December 2020 and commenced its marketing process in early January 2021. As of the Petition Date, Cowen and has already received significant interest from over 75 financial and strategic investors. Many of these interested parties have already executed confidentiality agreements, have been given access to a data room that is populated with various types of information regarding the Debtors and the Assets (the ‘Data Room’) and have participated in direct calls with the Debtors and their financial advisors. Furthermore, the Debtors, with the assistance of Cowen, have already hosted a ‘town hall’ webinar on February 3, 2021 with over 60 various interested parties so that such parties can educate themselves on the value proposition proposed by the Debtors in this sale process. Based on the initial indication of interest, the Debtors have determined to proceed with an efficient sale of substantially all of their Assets inside of these Chapter 11 Cases.”
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