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EDISON, NJ—A supermarket operator doing business as “99 Ranch Market” is slated to open in Edison as soon as next fall, after remodeling the recently-closed Pathmark on Route 1 into an Asian-American grocery store, according to a legal filing in the A&P bankruptcy reorganization case.
The California-based company, Tawa Inc., was declared the successful bidder at the A&P bankruptcy auction on October 2, agreeing to purchase the lease, which dates back to 1986, and its “related assets” for $3.7 million.
According to the company, 99 Ranch was first established in Westminster (Little Saigon), California in 1984 and is now one of the largest Asian American supermarket chains in the United States with over 40 locations.
A Supermarket News report published in September pins the number of locations at 35 stores in California, Nevada, Texas and Washington. According to FindTheCompany.com, the corporation “has 1,300 full time employees and generates an estimated $120.4 million in annual revenue.”
In a 2011 Supermarket News roundup of the “Top 50 Small Chains and Independents,” Tawa’s estimated volume was $315 million a year. The company’s main supplier was listed as “Self.”
According to Dun & Bradstreet, “The company was founded in 1984 by Taiwanese expatriate Roger Chen to serve immigrants who craved the food products of their homeland. 99 Ranch Market has grown to become the largest Asian supermarket chain in the US.”
Tawa appears to be a family run business, and several people with the last name “Chen” hold various corporate or board titles, according to documents.
While there is a back-up bidder listed, A&P’s Chief Restructuring Officer (CRO) Christopher W. McGarry, has strongly supported the sale on behalf of the company, according to a November 22 bankruptcy filing.
A longtime A&P insider, McGarry was appointed CRO on July 19, the same day the supermarket chain filed for bankruptcy.
“As CRO, I report and provide strategic business advice to A&P’s Board of Directors and Chief Executive Officer in connection with these Cases, and am responsible for carrying out the Debtors’ chapter 11 strategy and objectives described herein,” wrote McGarry in the filing.
FORMER WORKERS TO GET FULL SEVERANCE PAY
The Edison store is one of the three stores where A&P has offered to pay full severance benefits due to laid off workers. A&P plans to pay these severances with the money it receives from the sale of the leases, or asset purchase agreements.
A&P also increased its severance offer to 100 percent at its Pathmark store in Jersey City, which Tawa scooped up as well, for $2.8 million at the same auction.
The third store offered the full severance is in Jericho, New York, where the unions have thus far rejected A&P’s offer with no counterproposal.
The purchase agreement does not require Tawa to extend offers of employment to the laid off store employees. And Tawa has not been willing to negotiate with the unions “over their objections to its purchase of the leases.”
However, A&P has kept in contact with the unions regarding the two New Jersey stores. The bankrupt company has “communicated a desire to reach a consensual resolution of [the Unions] objections,” states the November 22 document.
A&P’s severance obligation was earlier decreased to 52-54% of each terminated Union employee’s contractual cash entitlement, as determined by collective bargaining agreements.
But in order to help facilitate an agreement: “Debtors extended an offer to the affected Unions to increase the amount of severance payable in cash … to 100%, with the payment being made out of the funds received from sale of the Jersey City Lease and Edison Lease,” reads the document.
A&P finally closed the Edison Pathmark on September 19 after selling off as much merchandise as possible with an extended 25%-50% off “Going Out of Business” sale.
“The debtors have liquidated or begun a process for liquidating any remaining assets at the locations of each of the [Edison and Jersey City] Leases. The debtors will not provide an opportunity for ongoing employment at either location,” read an earlier court document.
Tawa can still back out of the deal, as the agreements for the two New Jersey leases contain a “drop dead” date of December 1.
“If the sales to Tawa are not approved before the occurrence of the drop dead date, the debtors believe there is considerable risk that Tawa would exercise its right to terminate.”
Furthermore, A&P has concluded that if the sale of the two Leases is not approved it will not be able to “secure a viable Union-approved back-up offer for the Leases.”
And without a sale to Tawa, continues the filing, A&P expects “to lose $6,117,504 in value otherwise obtainable pursuant to the sale to Tawa.”
On October 23, attorneys representing A&P wrote: “Each of the Proposed Sales should be approved,” according to a filing.
“They have the full support of, or were not objected to by, the Official Committee of Unsecured Creditors, the Debtors’ pre- and post petition secured lenders… There is no dispute that the Debtors have provided ample business justification for the Proposed Sales, that the Proposed Sales yield fair and reasonable prices, that buyers have proceeded in good faith, or that sufficient notice of the Proposed Sales has been provided.”
EXECUTIVES POCKETED MILLIONS BEFORE BANKRUPTCY
We know that A&P executives pocketed millions of dollars in 2014, before the supermarket chain filed for bankrkuptcy on July 19, and the timing of the pay-outs is suspicious.
While court documents filed in September revealed that A&P paid out $9.4 million in bonuses and other extra payments to executives during the 12 months leading up to the bankruptcy, they didn’t disclose any specific names.
However, by the end of October, a 452-page revised financial statement did name the employees who accepted monies.
McGarry, as Chief Adminstrative Officer, received $2.3 million, while Chairman of the board, Greg Mays, was paid $4.6 million in consulting fees, and Chief Executive Paul Hertz accepted a $1.5 million trust payment plus a $225,000 bonus, according to the document.
“I think it brings up an issue of what their fiduciary duty was to the creditors and whether they were operating the company for the benefit of themselves,” bankruptcy lawyer, David Stein of Wilentz Goldman & Spitzer in Woodbridge, told NorthJersey.com.
“I would think the creditors’ committee or the office of the U.S. bankruptcy trustee would look at these to determine the appropriateness of these payments. … They clearly did it in anticipation of filing for bankruptcy.”
And NorthJersey.com on October 1 quoted John Niccollai, president of Local 464A of the United Food and Commercial Workers as saying: “I think it’s obscene. I don’t understand why these individuals are entitled to these bonuses when they’ve destroyed a company. … They’re squandering millions of dollars, and we’re fighting over pennies for our members.”
PUSHBACK FROM POWERFUL LANDLORD
Robert Paulus’ Wick Enterprises, the property owner and landlord for the shopping center objected to the lease sale on the grounds that Tawa is underfinanced and won’t be able to operate a business.
However, the bankruptcy Judge ruled that A&P had sufficiently demonstrated that the company is qualified.
Paulus is one of the most powerful businessmen in Middlesex County, and his firm owns several industrial and commercial properties, including two buildings that have been used as public schools on Van Dyke Avenue in New Brunswick.
For its part, Tawa obtained a letter from its bank saying that it would provide $25 million in financing.
Wick says that the only information they received “regarding adequate assurance of future performance by Tawa,” is a letter from Union Bank saying it would bankroll the company for $25 million.
The author made it very clear the letter “is simply a ‘reference,’ and is not a ‘commitment’ and is “… given without responsibility on the part of the bank or any of its signing officers.”
According to the bidding procedures in bankruptcy under section 365 b code: “The purchaser provided information regarding adequate assurance of its future performance (the “Adequate Assurance Information”)
But Wick went further and did a Business Search with the California Secretary of State, which revealed that Tawa only incorporated in February of 2014.
Wick Plaza and its attorneys also rejected to a “Cure Amount” of $146,304 as set forth in the bankruptcy court, as the amount owed to them by A&P.
According to a late September filing, Wick asserted the correct amount should be $331,093.91.
“The actual Cure Amount which must be paid if the Lease is assumed and assigned is the aggregate amount of $331,093.91, consisting of unpaid prepetition rent and additional rent and unpaid post-petition rent and additional rent which is expressly due and owing under the terms of the Lease. A calculation of this Cure Amount together with supporting documentation is attached hereto as Exhibit A,” says the filing.
But in a ruling on December 1, most of Wick’s objections were rejected:
Objections Overruled. All objections (except for objections to Cure Amounts, if any, that have been adjourned (the “Adjourned Cure Objections”), solely to the extent such objections relate to any asserted cure obligations pursuant to sections 365(b)(1)(A) and (B) of the Bankruptcy Code) if any, to the Sale Motion or the relief requested therein that have not been withdrawn, waived or settled as announced to the Court at the Sale Hearing or by stipulation filed with the Court, and all reservations of rights included therein, are hereby overruled on the merits. Notwithstanding the foregoing and consistent with the Court’s ruling at the Sale Hearing, the Debtors shall not be required to establish a Cure Cost Reserve for the $750,000 claim asserted by Wick Shopping Plaza Associates in connection with the Fourth Amendment to the Lease referenced in the Adjourned Cure Objections (Docket Nos. 1099 and 1221).
It’s not clear why on November 30, the day before the deal was officially approved, Wick withdrew its objection for A&P to pay “Post-Petition” rent. The deadline was December 3.
Tawa Inc., and Wick Enterprises, didn’t respond to a request for comment.