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November 12, 2020 – The Court hearing the NORPAC Foods cases confirmed the Debtors' Second Amended Joint Plan of Liquidation (the Plan was filed in conjunction with the Debtors’ Official Committee of Unsecured Creditors’ (the “Committee,” and together with the Debtors, the "Plan Proponents")) [Docket No. 1057].
On August 22, 2019, NORPAC Foods, Inc. and two affiliated Debtors (“NORPAC” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Oregon, lead case number 19-62584. At filing, the Debtors, a farmer-owned cooperative and the largest independent, standalone processor of organic and conventional frozen vegetables and fruits in the Pacific Northwest, noted estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn. In a subsequently amended Schedule A/B, the Debtors noted $315.4mn of assets and $165.2mn of liabilities [Docket No. 652].
Overview of the Plan
In a Memorandum of Law in Support of the Plan [Docket No. 1045], the Debtors stated: "[The] Debtors have already liquidated virtually all of the assets and hold millions of dollars in Available Cash for a robust and prompt Initial Distribution; (b) the Plan reserves ample Cash for the Plan Agent to manage the remaining assets, reconcile and object to certain Claims and liquidate the remaining limited assets, including pursuing litigation the Plan Agent deems appropriate, and (c) the Plan sets a reasonable expectation and timeline for a final distribution and closing of the case."
The Second Amended Disclosure Statement [Docket No. 977] provides: “Nearly all of Debtors’ assets have been sold pursuant to sales approved by the Bankruptcy Court. The proceeds of such sales have been primarily utilized to pay secured creditors pursuant to orders entered by the Bankruptcy Court.
The Plan provides for the appointment of a Plan Agent for the purposes of marshalling and liquidating all of Debtors’ remaining assets, reconciling and compromising Claims, making distributions to Creditors and winding up Debtors’ affairs.
On the Effective Date, the Plan Agent will administer Debtors’ consolidated assets pursuant to the Plan and make distributions in accordance with the Plan and the Confirmation Order.
The Plan provides that all Secured Claims, Administrative Expense Claims and Priority Tax Claims will be paid in full on the Effective Date. The Plan provides that each holder of a Convenience Class Unsecured Claim will receive Cash in an amount equal to 50% of such holder’s Claim as soon as practicable after the Effective Date. Debtors anticipate that such distribution will be made before the end of 2020. The Plan provides that on each Distribution Date, each holder of a General Unsecured Claim will receive such holder’s pro rata share of Available Cash. Distributions to holders of General Unsecured Claims shall be made as soon as practicable following the Effective Date, as the Plan Agent may determine in the Plan Agent’s sole discretion, after consultation with the Committee, consistent with the Plan. Debtors anticipate that there will be at least two Distributions to each holder of a General Unsecured Claim, the first of which will likely be made before the end of the year in the range of 20% to 30% of the total amount of such General Unsecured Claim.
The Plan provides that Claims of Members who are not a party to the Member Settlement Agreement (more on Member Settlement Agreement below) are subordinate to the prior payment in full of all other Claims. Because all other Claims will not be paid in full under the Plan, Members who are not a party to the Member Settlement Agreement will not receive any payment or Distribution on account of their Claims under the Plan. Members will only receive compensation on their Claim if they execute the Member Settlement Agreement prior to the Effective Date. Any Member holding a Claim that has not yet executed the Member Settlement Agreement may execute the Member Settlement Agreement prior to the Effective Date and return it to Debtors prior to the Effective Date to receive their contemplated compensation under the Member Settlement Agreement.”
The following is an updated summary of classes, claims, voting rights and expected recoveries (defined terms are as in the Plan and/or Disclosure Statement):
- Class 1 (“Secured Claims.”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Convenience Class Unsecured Claims”) is impaired and entitled to vote on the Plan. Each holder shall receive Cash in an amount equal to 50% of such holder’s Claim as soon as practicable after the Effective Date. Any Creditor holding a General Unsecured Claim in excess of $10,000 may “opt in” to Class 3. Creditors holding Claims in excess of $10,000 who elect to “opt in” to Class 3 shall agree to reduce their Claim to $10,000 and to consent to the treatment of their reduced Claim as called for within Class 3. Debtors currently estimate that there are approximately 600 holders of claims in Class 3 with total Unsecured Claims of approximately $1,150,000 who would receive a total distribution of approximately $575,000, promptly following the Effective Date.
- Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The Plan provides that on each Distribution Date, Debtors shall make pro rata distributions of Available Cash to the holders of Class 4 General Unsecured Claims. Distributions to holders of Class 4 General Unsecured Claims shall be made as soon as practicable, as the Plan Agent may determine in the Plan Agent’s sole discretion, after consultation with the Committee, consistent with the Plan. Debtors estimate that the percentage recovery on General Unsecured Claims may range between 25% and 35%. Debtors further estimate that, absent unforeseen delays, an Initial Distribution to each holder of a General Unsecured Claim in the range of 20% to 30% of the total amount of such General Unsecured Claim will be made before the end of 2020.
- Class 5 (“Member Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 6 (“Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
On November 4, 2020, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 1046], which were as follows:
- Class 3 (“Convenience Class Unsecured Creditors”): 198 claim holders, representing $524,512.59 in amount and 100% in number, accepted the Plan.
- Class 4 (“General Unsecured Creditors”): 42 claim holders, representing $51,002,635.24 (or 95.45%) in amount and 99.50% in number, accepted the Plan. 2 claim holders, representing $254,588.97 (or 4.55%) in amount and 0.50% in number, rejected the Plan.
On January 15, 2020, the Court issued an order [Docket No. 561] approving the asset purchase agreement (the “APA”), dated December 18, 2019, amongst the Debtors and Lineage Master RE, LLC (the “Buyer,” an affiliate of Lineage Logistics) further to which the Buyer agreed to purchase a substantial portion of the Debtors’ assets for $49.0mn. These assets included the Debtors’ Brooks Campus, the Salem Campus, the Stayton Facility, the Quincy Field Shop and certain tangible personal property associated with those properties.
Member Settlement Agreement
The Memorandum of Law provides, "Debtors brought an adversary proceeding against certain of NORPAC’s member-growers seeking a declaration that, among other things, all claims of former member-growers were subordinated and should not be paid unless and until all general unsecured claims were paid in full pursuant to NORPAC’s Bylaws and Articles of Incorporation. Further, as the adversary proceeding asserted, even if the Court concludes that the Class 5 Member Claims are not subordinated, the formula in NORPAC’s Bylaws used to calculate the Members’ compensation for their goods, provided on an annual basis, establishes that all of Defendants’ pre- and postpetition claims are $0 due to NORPAC’s significant net losses. The defendants in the adversary proceeding were Members who delivered produce to Debtors during the 2019 crop year and asserted that their claims were allowable as secured and administrative claims.
Debtors and the Creditors’ Committee resolved the dispute by negotiating over a long period with the Growers’ Committee and directly with certain represented Members to settle claims of Members that delivered goods to Debtors in 2019. However, there are a significant number of Class 5 Member Claims asserted in amounts totaling millions of dollars that do not arise from 2019 deliveries and are not subject to the settlement. Those claims, disclosed in Exhibit 2 to the Disclosure Statement, are subordinated under NORPAC’s Bylaws and subordination is necessary for successful consummation of the Plan. Without a separate Class 5, the Plan Agent would have to expend enormous resources objecting to Class 5 Member claims, wasting valuable time and delaying Distributions to other creditors."
The Debtors filed a motion for approval of the Member Settlement Agreement on August 18, 2020 [Docket No. 939]. The settlement was approved by the Court on September 14, 2020 [Docket No. 978].
Under the Member Settlement Agreement, the Debtors’ estates will pay $4.5mn on account of 2019 crop deliveries by all Members (the “Settlement Payment”), which will be allocated amongst Members based on the economic value of the crops delivered by each Member during the 2019 crop year, net of all advances paid and other charges by Debtors to such Member in relation to the 2019 crop year. Only Settling Members may receive a distribution of the Settlement Payment. Any portion of the Settlement Payment that is allocated on the Settlement Schedule to a Member that does not become a Settling Member will be retained by the Debtors’ estates and will be distributed in accordance with the Plan.
Events Leading to the Chapter 11 Filing
The Debtors filings do not provide any substantive background as to why they are filing for Chapter 11 protection, beyond that it is required by the APA "to facilitate a free and clear sale." Further clues perhaps lie in the Debtors failure to generate sale interest outside of Chapter 11, with the Debtors ultimately dismissing a financial advisor following pre-petition sales efforts that failed to yield a deal.
In a Court filing [Docket No. 16], the Debtors state: "In May of 2018, NORPAC engaged the investment banking firm of D.A. Davidson & Co. to render financial advisory and investment banking services in connection with NORPAC’s financial and strategic alternatives, including purchase, merger, consolidation, reorganization, or other transaction of a like nature….D.A. Davidson contacted 166 potential strategic and financial investors. Seventy-two non-disclosure agreements were executed. Four letters of intent or indications of interest were executed. Extensive negotiations were conducted with a highly qualified and motivated party. However, D.A. Davidson was unable to conclude a transaction and their engagement was terminated in June of 2019."
Was OPC that "highly qualified and motivated party?" Quite possibly, as the subsequent retention of SierraConstellation suggest and the ability of the Debtors to close the deal just weeks later. The Court filing continues: "With the assistance of SierraConstellation Partners, LLC ('Sierra') and after almost six weeks of negotiation, Debtors entered into an Asset Purchase Agreement (the 'APA') with Oregon Potato Company ('OPC').
Local press coverage adds some operational insight, with Marion County Commissioner Sam Brentano quoted as saying that farmers in Marion County have been struggling with changes in the types of crops grown and minimum wage increases in recent years.
“It’s such a mainstay of our economy and agriculture,” Brentano said. “It’s our No. 1 industry.” The bankruptcy will allow NORPAC to continue operations at least through the end of the season."
About the Debtors
Founded in 1924 and headquartered in Salem, Oregon, NORPAC Foods, Inc. (“NORPAC”) is the largest processor of frozen vegetables and fruits in the Pacific Northwest. NORPAC is a cooperative owned by over 140 members. Affiliate Debtors Hermiston Foods, LLC (“Hermiston Foods”) and Quincy Foods, LLC (“Quincy Foods”) and together with Hermiston Foods and NORPAC, the “Debtors”) are single-member limited liability companies whose sole member is NORPAC. The Debtors own and operate raw processing plants in Brooks, Oregon, and Stayton, Oregon, a packaging plant in Salem, Oregon, and a raw processing, packaging, and roasting facility in Quincy, Washington. Each of the plants have associated cold storage facilities. Debtors also have a harvesting operation in Hermiston, Oregon. Debtors have cultivated a diverse supplier base built on a network of over 220 contract growers spanning more than 40,000 acres. Debtors’ growers are made up of family-owned and run farms focused on providing quality vegetables and fruits. Debtors have the ability to process 23 different fruits and vegetables and have established relationships with a customer base of over 1,250 buyers spanning the retail, food service, club, export, and industrial markets worldwide.
The Debtors’ sales have exceeded $310.0mn in each of the last three fiscal years and the Debtors employ more than 1,125 full-time employees and over 1,100 seasonal employees during the harvest and processing season. Debtors are the largest unionized agricultural employer in Oregon, with approximately 2,000 union members.
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