NORPAC Foods, Inc. – Subject to Resolution of Union Dispute, Court Approves APA in Respect of $49mn Sale to Refrigerated Transport Leader Lineage Logistics

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January 15, 2020 – The Court hearing the NORPAC Foods cases 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 include the Debtors’ Brooks Campus, the Salem Campus, the Stayton Facility, the Quincy Field Shop, and certain tangible personal property associated with those properties. The order includes several amendments and direction as to the use of proceeds; with the amendments notably including the resolution of an objection filed by a local union concerning the treatment of collective bargaining arrangements.

The order states: "The Sale is authorized and approved, provided however that the Sale shall not close unless one of the following conditions has been satisfied: 

  1. The Teamsters’ Local Unions withdraw their objection to the Sale (ECF No. 544) or otherwise consent in writing to the closing of the Sale in a filing in Debtors’ bankruptcy case; or 
  2. The Court enters an Order approving Debtors' rejection of Local 670 Collective Bargaining Agreement pursuant to 11 U.S.C. § 1113; or 
  3. The Court enters an order determining that Article 12—Successor Clause—of the Local 670 Collective Bargaining Agreement is inapplicable to the Sale transaction."

The order also reduces the "survival" period during which the Debtors remain liable for the APA's representations and warranties from six months to three months and reduces the "cap" on those liabilities from $6.0m to $3.5mn.

On the use of proceeds, which has been disputed for some time based on disagreements as to application of collateral between lender CoBank and just about everyone else, the Court determined the following waterfall: "

  1. first, to pay Closing costs and expenses incurred by Debtors in connection with the Sale (excluding legal fees); 
  2. second, to pay allowed secured claims that are senior in priority to CoBank’s security interests, and to reserve in escrow an amount sufficient to pay any asserted lien claims that are senior in priority to CoBank’s security interests (whether or not disputed by Debtors, Purchaser, CoBank, or any other party-in-interest) until such time as those asserted lien claims are allowed or disallowed; 
  3. third, to repay the balance owed to CoBank on the DIP loan and CoBank’s secured prepetition claim; 
  4. fourth, to pay allowed secured claims against the Assets junior in priority to CoBank; and 
  5. fifth, to Debtors, to be distributed pursuant to a Chapter 11 Plan or in accordance with further orders of the Court."

Further Background

According to recent courtroom statements made by Debtors' counsel, it is the Buyers's intention that Oregon Potato Company ("OPC") lease and operate the Salem and Brooks plants. In mid-November, the Debtors' on-again, off-again sale of assets to OPC appeared to be on again, with the November 20th receipt of a $5.0mn deposit indicating that this time it might stick. The November 15th asset purchase agreement between OPC and the Debtors relating to OPC's purchase of the Debtors' Quincy facility noted consideration of $21.5mn plus estimated inventory value. The Debtors estimated the total value of OPC's consideration at $92.0mn.

Key Terms of the Lineage Master RE, LLC APA:

  • Purchased Assets: The Purchased Assets consist primarily of the Brooks Campus, the Salem Campus, the Stayton Facility, and the Quincy Field Shop, and certain tangible personal property associated with the Brooks Campus, the Salem Campus, the Stayton Facility, and the Quincy Field Shop.
  • Purchase Price: $49.0mn.
  • Earnest Deposit: $2.5mn
  • Expense Reimbursement Fee: Subject to Bankruptcy Court approval, expense reimbursement fee in the amount of $1.225mn if the assets are sold to a competing bidder at auction.

About Bay Grove Lineage Logistics

Bay Grove controls and operates Lineage Logistics, LLC (“Lineage”), the world’s largest and most innovative provider of temperature-controlled logistics solutions. Starting with just one warehouse in 2008, Bay Grove quickly scaled Lineage through nearly 40 acquisitions to create the industry’s highest-quality and best-positioned network of temperature-controlled real estate, with over 1.4 billion cubic feet of temperature-controlled capacity and 40 million square feet of real estate over 200+ facilities across North America, Europe and Asia.

Lineage is the industry’s leading innovator in temperature-controlled supply chain and logistics. Lineage’s expertise in end-to-end logistical solutions, its unrivaled real estate network, and its use of technology combine to promote food safety, increase distribution efficiency, advance sustainability, lessen environmental impact, and minimize supply chain waste. As a result, Lineage helps customers ranging from Fortune 500 companies to small family-owned businesses increase the efficiency and protect the integrity of their temperature-controlled supply chain. In recognition of the company’s leading innovations, Lineage was recognized as the No 1. Data Science company on Fast Company’s Annual list of The World’s Most Innovative Companies in 2019, in addition to ranking 23rd overall in an evaluation of thousands of companies worldwide.

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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