Rizo-Lopez Foods - Chapter 11 APA Summary

Sale / Asset Purchase Agreement Summary

Parties Involved

• Seller: Rizo-López Foods, Inc., a California corporation, as debtor and debtor in possession under Case No. 25-25004 in the United States Bankruptcy Court for the Eastern District of California, Sacramento Division.
• Buyer: Francisco Foods, LLC, a Delaware limited liability company, or its designee.
  • As of the date of the Purchase Agreement, Valley Milk owns 60% of the equity interest and Rilosa, LLC (which is wholly owned by the RLF Parties indirectly) owns 40% of the equity interest of the Buyer.
  • Contingent upon consummation of the transaction, I&E McClure, LLC, which is wholly owned by the RLF Parties indirectly, will contribute certain real property and assets related thereto to the Buyer.
  • "RLF Parties" refers to Ivan Rizo and Edwin Rizo. "RLF D&Os" includes Edwin Rizo, Ivan Rizo, and Tomas Rizo.
• The Buyer is not an "insider" of the Debtor as defined in section 101 of the Bankruptcy Code.
• The Purchase Agreement was negotiated at arm's length and in good faith, without collusion, and is subject to approval of the Bankruptcy Court.
• The Seller is in the business of manufacturing, selling, and distributing Mexican-style cheese and dairy products. The Seller filed a voluntary petition for relief under Chapter 11 on Sept. 15, 2025.

Assets Being Sold

• The Debtor is authorized to sell substantially all of its assets (the "Purchased Assets") to the Buyer free and clear of all liens, claims, and encumbrances, on an "as is" and "where is" basis. Purchased Assets include:
  • All inventory;
  • All equipment, furniture, appliances, computers, information technology systems, office equipment, and other tangible personal property;
  • All intellectual property, including trademarks, designs, logos, label artwork, marketing and advertising materials, website content, domain names, source code, and all goodwill associated with the business, together with associated licenses, sublicenses, rights to license fees and royalties, and remedies against infringement;
  • All of the Seller's right, title, and interest in and to the Assigned Contracts;
  • All permits (to the extent legally transferable) and all governmental permits (the "Assigned Permits");
  • All records (except Excluded Records), sales and marketing plans, strategic plans, customer and supplier lists, and training materials;
  • All deposits and other prepaid charges and expenses (other than Excluded Assets);
  • Rights to indemnification, contribution, advancement of expenses, or reimbursement, or similar rights of the Seller;
  • All actions and rights of recovery, including actions against the RLF Parties, RLF D&Os, and the Buyer or its affiliates; provided that the Purchased Assets shall not include any other avoidance actions or causes of action under applicable California and bankruptcy law against other parties;
  • All insurance policies and rights thereunder and insurance proceeds arising in connection with casualties during the interim period that remain unrepaired or unrestored as of closing (subject to carve-outs for Excluded Insurance Policies);
  • All rights under intellectual property assignments, work-for-hire agreements, and assignment of inventions with current or former employees, directors, consultants, and agents;
  • All accounts receivable relating to goods or services provided by the Seller prior to, on, or after the closing date;
  • All goodwill, guarantees, warranties, and indemnities relating to the Purchased Assets; and
  • Any other assets listed in Schedule 2.1(p), including certain captive fund payments.

Excluded Assets

• The following assets are excluded from the sale:
  • All proceeds paid or payable to the Seller, and rights to defense and indemnification for legal fees and costs, with respect to insurance recoveries related to the Listeria Matter for any period prior to the closing date;
  • All non-transferable prepaid expenses and deposits, including unused retainers paid to the Seller's professionals related to the Bankruptcy Case;
  • Any cash or cash equivalents;
  • All contracts that are not Assigned Contracts;
  • The Leases, which shall be deemed terminated upon closing (with all unpaid prepetition lease obligations waived by the RLF Parties and their affiliates);
  • The Seller's employee benefit plans, employment agreements, and any related liabilities, including wages, salaries, vacation, paid time off, or termination liabilities;
  • All claims, rights, defenses, offsets, and causes of action against third parties with respect to Excluded Assets or Excluded Liabilities;
  • All minute books, seals, stock records, tax returns, tax records, and other books and records related to Excluded Assets or necessary for administration of the Bankruptcy Case;
  • All tax refunds and rights or other tax benefits arising from the Seller's net operating losses arising prior to the closing date;
  • Any assets the Buyer elects not to purchase by written notice prior to closing (without reducing the Aggregate Consideration);
  • All refundable tax credits under the CARES Act ERTC program issued to the Seller; and
  • Certain Excluded Insurance Policies, including policies issued by Alesco/Chubb, Arch, Indian Harbor, Great American, Everest, and Endurance covering 2023-2025 periods, together with all proceeds thereof and rights thereunder.

Purchase Price

• The aggregate purchase price is comprised of:
  • $14,186,240 in cash to the bankruptcy estate (the "Cash Purchase Price");
  • Assumption and payment of the debts owed to the RLF Parties by the Seller under the DIP financing facility agreement in an amount not less than $2,900,000 (the "DIP Loan Amount");
  • Assumption and payment of the Wells Fargo TI Loan Agreements and all debts, fees, and expenses owed to Wells Fargo pursuant thereto in an amount not less than $2,361,374 (the "Wells Fargo TI Loan Amount"); and
  • Assumption of the Assumed Liabilities,
• for an aggregate Purchase Price of $19,447,614.
• As additional consideration, the Buyer shall waive the RLF Parties' and their affiliates' rights to receive $15,552,713.51 owed by the Seller under any contract (including the Leases), including related costs, fees, and expenses, for a total Aggregate Consideration of not less than $35,000,327.51.
• Further, all postpetition nonresidential real property lease obligations owed by the Debtor to the RLF Parties and their affiliates shall be subordinated to an aggregate payment of $1,000,000 to the holders of general unsecured claims.
• The court found that the consideration constitutes the highest and best offer for the Purchased Assets and reasonably equivalent value and fair consideration under the Bankruptcy Code and applicable law. The Buyer is expected to hire approximately 154 employees of the Debtor.

Distribution of Proceeds

• Upon closing, proceeds from the Cash Purchase Price shall be distributed as follows:
  • First, $8,295,000 to Wells Fargo Bank, N.A. (or its designee) or Wells Fargo Equipment Finance, Inc. (or its designee) to pay all secured claims held by Wells Fargo against the Debtor on account of prepetition debt; and
  • Second, the remaining amount to the bankruptcy estate.
• In addition, the Wells Fargo TI Loan Amount shall be paid to Wells Fargo by the Buyer at closing following assumption of such liability, and the DIP Loan Amount shall be paid to the Rizo Parties by the Buyer at closing following assumption of such liability.
• No sale may be consummated unless the proceeds distributed to the bankruptcy estate are sufficient to pay all secured personal property tax obligations owed to the Stanislaus County Tax Collector and all judgment liens owed to Blower Dempsay Corporation dba Pac West Paper and Packaging and Rexel USA in full in cash at closing.

Assumed Liabilities

• At closing, the Buyer shall assume and be responsible only for:
  • Liabilities under the Assigned Contracts, including any cure amounts, but only to the extent such liabilities are required to be performed after the closing date and were incurred in the ordinary course of business;
  • The debts owed to the RLF Parties by the Seller under the DIP Loan Agreements; and
  • The outstanding amount of principal and interest owed to Wells Fargo pursuant to the Wells Fargo TI Loan Agreements.

Excluded Liabilities

• All liabilities not expressly assumed are Excluded Liabilities, including:
  • Any liabilities of the Seller's shareholders, members, directors, officers, affiliates, creditors, or parent or subsidiary companies;
  • Any liabilities owed by the Seller to its affiliates and their respective directors, managers, officers, employees, and representatives, including any postpetition obligations associated with the Leases;
  • All UCC liens and title liens;
  • All trade payables, accounts payable, and other current liabilities;
  • Any liability arising out of compliance or noncompliance with any law, order, or regulation, including any claim related to the Listeria Matter, payments due to the USDA Dairy Promotion Program, or the California Department of Food and Agriculture;
  • All liabilities relating to Excluded Assets, storage or warehouse agreements, or any asserted warehouse liens;
  • All tax liabilities arising from the Seller's operation of the business or ownership of the Purchased Assets prior to closing; and
  • Any actions or claims arising out of, relating to, or connected with the Listeria Matter.

Listeria Matter and Consent Order

• The "Listeria Matter" refers to the listeria outbreak pursuant to which the Seller and the United States Department of Justice, Consumer Protection Branch, on behalf of the FDA, entered into a Consent Decree of Permanent Injunction in the United States District Court, Eastern District of California (Case No. 2:24-cv-02624-DJC-JDP).
• On and after the closing date, the Buyer shall comply with the terms of the Consent Order that are made expressly applicable to "Associated Persons" as defined in paragraph 9 of the Consent Order, as required to use and operate the Purchased Assets. The Buyer shall be entitled to any legal fees or costs of defense reimbursable from insurance policies (other than the Excluded Insurance Policies) or otherwise to the extent any such legal fees or costs are incurred on or after the closing date. However, the Buyer does not assume any liability or responsibility under the Consent Order imposed solely on "Defendants" as defined in the opening paragraph of the Consent Order.
• The Buyer shall have no liability with respect to any interests in or against the Debtor or any Purchased Assets arising out of, relating to, or connected with the Listeria Matter.
• The Seller will petition the FDA for leave to ask the court for relief from the Consent Order at the earliest time permitted under paragraph 31 of the Consent Order and will promptly notify the Buyer of any proposed modification thereto.

Sale Free and Clear

• Pursuant to sections 105(a) and 363(f) of the Bankruptcy Code, upon closing, the Purchased Assets shall be transferred to the Buyer free and clear of all interests, including liens (including tax liens), claims, encumbrances, security interests, mortgages, pledges, easements, restrictions, rights of first refusal, and options to purchase, with such interests to attach to the net proceeds of the sale.
• All persons and entities holding interests against the Debtor or the Purchased Assets are forever barred, estopped, and permanently enjoined from asserting such interests against the Purchased Assets or the Buyer or any of the Buyer's successors or assigns.
• The provisions authorizing the sale free and clear of interests, including DIP obligations, shall be self-executing and neither the Debtor nor the Buyer shall be required to execute or file releases, termination statements, or other instruments to effectuate the terms of the Sale Order.

Successor Liability

• The Buyer and its affiliates are not successors or mere continuations of the Debtor, and there is no continuity, no common identity (except as otherwise disclosed), and no continuity of enterprise between the Buyer and its affiliates and the Debtor.
• The Buyer and its affiliates are not holding themselves out to the public as a continuation of the Debtor and are not successors to the Debtor by reason of any theory of law or equity. The transaction does not amount to a consolidation, merger, or de facto merger.
• The Buyer and its affiliates will not assume or be responsible for any obligation or liability of the Debtor, except as expressly provided in the Purchase Agreement.
• The sale is free and clear of, among other things, successor, vicarious, or transferee liability, whether known or unknown, now existing or hereafter occurring, relating to claims or actions brought by any governmental authority, accrediting body, or third party relating to the operation of the Purchased Assets prior to closing.

Good Faith Purchaser

• The Buyer is a "good faith purchaser" under section 363(m) of the Bankruptcy Code and is entitled to all protections afforded thereby.
• Neither the Debtor nor the Buyer has engaged in any conduct that would cause or permit the Purchase Agreement to be avoided or costs or damages to be imposed under section 363(n) of the Bankruptcy Code.
• The Purchase Agreement was not entered into for the purposes of hindering, delaying, or defrauding present or future creditors of the Debtor. All payments to be made by the Buyer in connection with the sale have been disclosed.

Assumption and Assignment of Contracts

• The Debtor has made available to the Buyer a list of all of its contracts that may be assumed and assigned (the "Proposed Agreements") along with proposed cure amounts (the "Cure Schedule"). The Debtor shall file the Cure Schedule and give notice to counterparties at least 14 days before the closing date.
• As of the closing date, each Proposed Agreement set forth on the Assigned Agreements Schedule that is an executory contract or unexpired lease shall be deemed assumed by the Debtor and assigned to the Buyer pursuant to section 365(f) of the Bankruptcy Code. Assigned Agreements that are not executory contracts shall be assigned pursuant to section 363(b), free and clear of all interests.
• The Buyer shall pay the applicable cure amounts promptly following closing. Upon payment, all defaults shall be deemed cured and counterparties shall be enjoined from seeking to terminate such Assigned Agreements or enforce remedies against the Buyer on account of the Debtor's defaults.
• Anti-assignment provisions, as well as provisions requiring additional payments, rent accelerations, assignment fees, or other charges as a result of the assumption and assignment, are unenforceable.
• All counterparties that did not timely file an objection are deemed to consent to the assumption and assignment. The Buyer has provided adequate assurance of future performance under the Assigned Agreements.
• The Buyer may, in its sole discretion, designate or remove any agreement from the Assigned Agreements Schedule by written notice to the Debtor, without any adjustment to the Purchase Price (other than any cure amount). If a counterparty files an objection, the Buyer may seek to resolve the objection or remove the agreement from the schedule.
• No later than 14 days following the closing date, the Debtor shall file a final list of all Assigned Agreements and the final cure amounts.
• Other than with respect to Assumed Liabilities, the Buyer shall have no liability for any defaults or breaches under any Assigned Agreement, or any claims, counterclaims, offsets, or defenses, that relate to acts or omissions occurring prior to the effective date of assignment.

Assigned Permits

• As of the closing date, the Assigned Permits shall be deemed assigned to the Buyer pursuant to section 363(b) of the Bankruptcy Code, free and clear of all interests. The Debtor shall be relieved from any further liability with respect to the Assigned Permits arising on or accruing after the closing.
• Anti-assignment provisions and provisions requiring additional payments or fees as a result of the assignment of the Assigned Permits are unenforceable. No default shall exist under any Assigned Permits on account of the Debtor's financial condition, bankruptcy, or failure to perform.
• To the extent provided by section 525 of the Bankruptcy Code, no governmental unit may revoke or suspend any permit or other permission relating to the operation of the Purchased Assets on account of the filing or pendency of the chapter 11 case or the consummation of the sale.
• To the extent any license or permit is determined not to be an executory contract that may be assumed and assigned under section 365, the Buyer may apply for and obtain a new license or permit after closing, and the Debtor's existing license or permit shall remain in place for the Buyer's benefit until a new one is obtained.

Lease Termination and Waiver of Rizo Claims

• The Gardenia Property Lease and the Modesto Property Lease (the "Leases") shall be deemed terminated upon closing, and all prepetition obligations owed by the Debtor to the lessors shall be deemed waived and released.
• Any claims held by the landlords under the Leases arising from postpetition obligations shall be subordinated to the payment of $1,000,000 in cash to the general unsecured creditors pursuant to a plan of reorganization or otherwise, unless otherwise agreed by the Official Committee of Unsecured Creditors and ordered by the court.
• As of the closing, the Rizo Parties (Ivan Rizo and Edwin Rizo), I&E McClure, LLC, and R.L. Gardena, LLC (the "Lessors") shall be deemed to have waived any right to recovery or payment on account of their respective prepetition claims, including claims related to prepetition secured or unsecured loans and unpaid prepetition lease obligations (the "Rizo Claims"). If the closing does not occur, the Rizo Claims shall be preserved in all respects.

Employees

• The Buyer is expected to hire approximately 154 employees of the Debtor.
• At least three business days prior to the closing date, the Seller and the Buyer will mutually agree on a list of all or substantially all current employees to whom the Buyer will offer employment effective immediately after closing, including all accrued but unpaid vacation balances (the "New Employee List").
• Subject to the Seller's compliance with federal and California WARN Act requirements, the Seller shall terminate all employees as of the closing date, and the Buyer shall offer employment on the closing date to each employee on the New Employee List, subject to the Buyer's reasonable application of its standard hiring and employment practices.
• The Seller shall have sole responsibility for all accrued but unpaid wages, bonuses, employee benefits, retention bonuses, sick leave, severance, and other compensation due and owing to employees on or before 12:01 a.m. Pacific Time on the closing date. The Buyer shall provide credit for accrued but unused vacation balances.
• The Seller shall also remain responsible for COBRA continuation coverage obligations for qualifying events on or before the closing date and all workers' compensation claims relating to events occurring on or prior to the closing date.

Operating Covenants

• During the interim period, the Seller shall operate the business only in the ordinary course and use commercially reasonable efforts to maintain the Purchased Assets consistent with past practice, subject to the understanding that the Seller's business operations are severely restricted due to a lack of liquidity.
• Without the Buyer's prior written consent, the Seller shall not, with respect to the Purchased Assets: (a) amend, modify, reject, or terminate any contracts; (b) sell, assign, lease, convey, mortgage, license, encumber, or otherwise transfer or dispose of any Purchased Assets other than inventory in the ordinary course; (c) increase the rate of compensation of any employee outside of the ordinary course; or (d) authorize, agree, resolve, or consent to any of the foregoing.

Releases

• Effective upon closing, the Seller, on behalf of itself, its bankruptcy estate, and its past, present, and future subsidiaries, members, parents, directors, managers, officers, equity holders, affiliates, agents, representatives, insurers, attorneys, successors, and assigns (the "Seller Releasing Parties"), releases the Buyer and its affiliates, successors, assigns, and related parties (the "Buyer Released Parties") from any and all claims, demands, causes of action, disputes, torts, losses, damages, liabilities, costs, and expenses arising on or prior to the closing date, whether known or unknown, fixed or contingent, accrued or not.
• If the Seller files a plan, such plan shall be consistent with the Purchase Agreement and shall include releases and exculpation provisions in favor of the Buyer Released Parties to the maximum extent permitted by law.
• The Seller Releasing Parties specifically waive all rights and benefits afforded by Section 1542 of the California Civil Code.

Purchase Price Allocation

• The Purchase Price shall be allocated among the Purchased Assets for U.S. federal income tax purposes in accordance with the following methodology:
  • Class I (Cash and Cash Equivalents): N/A
  • Class II (Actively Traded Personal Property and Certificates of Deposit): Net book value as of immediately before closing
  • Class III (Accounts Receivable and Other Class III Assets): Net book value as of immediately before closing
  • Class IV (Inventories and Supplies): Book value
  • Class V (Furniture, Fixtures and Equipment, Leasehold Improvements): Tangible personal property at $1,250,000; all other Class V Assets at $13,581,996
  • Class VI (Licenses, Permits, Trade Name, and Other Section 197 Intangibles): Net book value as of immediately before closing
  • Class VII (Goodwill and Going Concern Value): The remainder after allocations to Classes I through VI

Tax Provisions

• The Seller shall be responsible for all taxes arising out of the business or ownership of the Purchased Assets attributable to periods ending on or before the closing. All state and local sales and use taxes attributable to periods prior to closing shall be paid by the Seller.
• All transfer, sales, use, or other such taxes incurred solely in connection with the Purchase Agreement shall be borne and paid by the Buyer.
• Personal property taxes, real property taxes, and other similar taxes for any straddle period shall be prorated on a per diem basis between the Buyer and the Seller as of the closing date.
• The RLF Parties shall retain all right, title, and interest in and to any personal tax refunds, credits, offsets, reductions, rights, and other tax benefits or attributes arising from the Seller's net operating losses arising prior to the closing, to the extent owned, claimable, credited, or otherwise issued to the RLF Parties as stockholders of the Seller.

Conditions Precedent to Closing

• Conditions precedent to the Buyer's obligation to close include, among others:
  • The representations and warranties of the Seller shall be true, complete, and accurate as of the closing date;
  • All covenants and obligations of the Seller shall have been performed in all material respects;
  • The Buyer shall have received evidence that the RLF Parties and their affiliates waived their rights to receive $15,552,713.51 owed by the Seller;
  • No governmental authority shall have issued any order or enacted any law prohibiting consummation of the transaction;
  • No material adverse effect shall have occurred;
  • The Buyer has completed its due diligence investigation, and closing is not subject to further due diligence;
  • The Sale Order shall have been entered and shall not have been vacated, stayed, reversed, or materially modified; and
  • The Buyer shall have concluded, in its sole opinion and judgment, that all conditions precedent to closing all components of the transaction, including the contribution of non-bankruptcy estate assets to the Buyer by its members, have been satisfied.
• Conditions precedent to the Seller's obligation to close include: the accuracy of the Buyer's representations and warranties; the Buyer's compliance with its covenants and obligations; and entry of the Sale Order.

Termination

• The Purchase Agreement may be terminated prior to closing:
  • By mutual written consent of the Buyer and the Seller;
  • By the Buyer, if the Seller breaches its representations, warranties, or obligations in a manner incapable of being cured by the closing date;
  • By the Seller, if the Buyer breaches its representations, warranties, or obligations in a manner incapable of being cured by the closing date;
  • By the Buyer, in the event the Seller is in default of the Consent Order before closing; or
  • By either party upon the occurrence of: (1) the Bankruptcy Court's approval of an alternative transaction; (2) dismissal or conversion of the Bankruptcy Case to chapter 7 or the granting of relief from the automatic stay with respect to the Purchased Assets; (3) the Sale Order is not entered within 14 days after the Sale Hearing; or (4) the closing has not occurred by June 4, 2026 (the "Drop Dead Date"), provided the terminating party's breach was not a contributing cause of the failure to close by such date.

Marketing of Assets and Business Justification

• Before execution of the Purchase Agreement, the Debtor marketed the Purchased Assets for sale, and such efforts afforded a full, fair, and reasonable opportunity for other entities to make higher or better offers. As of the date of the Sale Order, no higher or better offer has been made.
• The court found that the Debtor's entry into and performance under the Purchase Agreement constitutes a sound and reasonable exercise of its business judgment consistent with its fiduciary duties, provides value to and is beneficial to the Debtor's estate, and is in the best interests of the Debtor, parties in interest, and creditors.
• Neither the Purchase Agreement nor the transaction constitutes a sub rosa chapter 11 plan, and the Purchase Agreement does not impermissibly restructure the rights of the Debtor's creditors.

Post-Closing Arrangements

• If, after closing, either party discovers that any asset that should have been included in the Purchased Assets was not transferred, or that any Excluded Asset was transferred, the parties shall cooperate in good faith to promptly transfer such asset to the appropriate party at no additional cost.
• The Purchase Agreement and related agreements may be amended by the parties without further court order, provided that any material adverse modification to the Debtor's estate shall be filed on the court's docket and subject to an opportunity for parties in interest to object.
• The Buyer shall provide the Seller and its representatives reasonable access to records included in the Purchased Assets for periods prior to closing and shall preserve such records for a minimum of seven years after the closing date or through the conclusion of all bankruptcy proceedings, whichever is later.
• The Sale Order is not stayed by operation of any provision of the Bankruptcy Code or Bankruptcy Rules and is effective and enforceable immediately upon entry. The court retains jurisdiction over all matters arising from the interpretation or implementation of the Sale Order notwithstanding the conversion, dismissal, or closure of the case.

Key Dates

• Bankruptcy Filing Date: Sept. 15, 2025
• Effective Date of the Purchase Agreement: March 6, 2026
• Sale Hearing: April 1, 2026
• Sale Order Entered: April 2, 2026
• Drop Dead Date: June 4, 2026