BURLINGTON — An attorney for the owner of Koffee Kup assets is taking the receiver of the assets to task for his lack of transparency in negotiating a sales agreement with a Georgia-based bakery conglomerate.
Alexandra E. Edelman, attorney for the “Koffee Kup Entities” — Koffee Kup Bakery, Vermont Bread and Superior Bakery — is asking Chittenden County Superior Court Judge Samuel Hoar to direct the court-appointed receiver of the assets “to immediately disclose” the terms and conditions of the receiver’s proposed sale to Flowers Foods.
Edelman accused the receiver of acting in a way that lacks transparency and reliability, “starting with the incorrect claim that the [paid-time-off] obligation is invalid and his attempts to shift responsibility for paying same. Now he agrees the PTO obligation should be paid immediately. He even motioned the court to withhold payment of the PTO, claiming the bank was undersecured. We now know that is not accurate.”
Edelman wrote that her clients want to know exactly how much the receiver is getting for conducting his responsibilities as outlined by the court.
“It is abundantly clear that the matter of compensation remains a mystery to all parties other than the receiver and possibly the bank,” she wrote.
On April 26, just 25 days after American Industrial Acquisition Corporation acquired a majority interest in the bakeries, AIAC ceased operations of Koffee Kup in Burlington, Vermont Bread Company in Brattleboro, and Superior Bakery in North Grosvenor Dale, Conn.
Jeff Sands, the senior advisor in North America for American Industrial Acquisition Corporation, said at the time that AIAC had undertaken “very substantial efforts” to obtain additional financing or investors but was unsuccessful, resulting in the closure.
“However, none of these investors have made an offer acceptable to [KeyBank] and they have declined to further extend the forbearance agreement and declined to loan any additional funds to the company,” wrote Sands.
“Four years of losses are the culprit,” Sands told the Reformer on April 28. “Everyone wants a villain storyline, but there’s just not one there. This one just wasn’t salvageable.”
Since then, the assets were transferred to a receiver, who has been collecting accounts receivable and conducting talks with interested buyers. Two buyers, East Baking Company in Holyoke, Mass., and Mrs. Dunster’s, in Sussex, New Brunswick, showed interest, with Mrs. Dunster’s being named “the preferred buyer,” by the receiver.
But during a court hearing on June 7, the receiver announced he had accepted an offer from Flowers Foods, located in Thomasville, Georgia, which also owns brands such as Wonder Bread, Dave’s Killer Breads, Home Pride and Canyon Bakehouse.
Flowers Foods said in a statement it was involved “in good-faith discussions” concerning the purchase of the assets of Koffee Kup Bakery since April.
“We had signed an NDA and were waiting to hear back regarding our interest in the assets,” stated Flowers Foods. “When it was announced that there was a preferred buyer, we were surprised — and realized the process had started moving forward without consideration of our interest. So, we immediately contacted the court appointed receiver to ensure our offer was considered.”
But Edelman wrote in her emergency filing on June 10 that such an agreement “is antithetical to and inconsistent with [the receiver’s] role as a fiduciary and officer of the court ... The Koffee Kup Entities question whether the receiver, who was appointed by and must report to the court, was even authorized to enter into a confidentiality agreement.”
Because the receiver, under Vermont law, is an administrative officer of the court, wrote Edelman, the receiver “does not have the authority to keep the sale information confidential. Rather, the receiver is required to provide transparency in both the sale process and ultimate sale of the collateral at issue ...”
In addition to the receiver’s compensation, Edelman is asking for, under seal, the purchase-and-sale agreement, the sale price, which assets were sold, the fees and expenses to be paid to KeyBank and other secured lenders, detailed payoff figures, identities and outstanding principal and accrued interest for each of the lenders, and any other proposed fees and expenses associated with the sale.
While Flowers Foods promised to pay the former employees of the three bakeries their paid-time-off balances, it stated it has “no immediate plans” to reopen the facilities.
“While we are contractually bound to keep the purchase price confidential,” said Justin Heller, attorney for the receiver, “we are authorized to disclose that the price is sufficient to pay KeyBank and others secured, in full, and to pay the PTO claims ... in full.”
The surprise sale was met with consternation by representatives from both East Baking and Mrs. Dunster’s.
“We went through a fair and clearly set process and there is a fiduciary responsibility to follow the fair process,” Blair Hyslop, owner of Mrs. Dunster’s with his wife Rosalyn, told Huddle on June 9. “Once the auctioneer’s gavel comes down, somebody shouldn’t be able to go back to the auctioneer and say, ‘Hey, wait, what did he pay? I’ll pay more.’ At the end of the day, that feels to us like that’s what happened here. “
Hyslop told Huddle he was particularly stressed to learn that the more than 200 employees will not be returning to work soon. Hyslop said the plan of the newly formed North Atlantic Baking Company was to restart operations on June 8, and had been working to be ready to meet that date with workers lined up, insurance acquired, and operations ready to go.
“The impact that it had on the employees and the communities that were involved, I mean, they’re really the losers in this game that’s been played,” he told Huddle. “We feel that for the workers and for those communities.”
In an email to the Reformer, Jeff McCaroll, vice president of East Baking Company, said their major concern is that Flowers “is not a qualified buyer.”
“By allowing them to buy, it would cause an anticompetitive environment in Vermont and New Hampshire,” he wrote. “KeyBank and the other secured parties along with the state of Vermont shouild know better.”
Both Hyslop and McCarroll said they are considering filing an objection to the sale.
In 2012, Flowers Foods purchased Lepage Bakeries, which owned the Country Kitchen bakery in Brattleboro. In 2018, Flowers closed that facility and now uses it solely as a warehouse.