NewAge, Inc – Following Resolution of Post-Sale Dispute Over Ownership of Cash, Court Confirms Third Amended Combined Plan of Liquidation

March 1, 2023 – The Court hearing the Compute NewAge cases issued an order confirming the Debtors’ Third Amended Combined Plan of Liquidation and Disclosure Statement [Docket No. 527].

Case Evolution

On August 30, 2022, NewAge, Inc. and three affiliated Debtors (Nasdaq: NBEV; “NewAge” or the “Debtors”) filed for Chapter 11 protection noting estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn (Petition lists $310.9mn in total assets and $149.4mn in total debts as of December 31, 2021). At filing, the Debtors, a Utah-based direct-to-consumer organic and healthy products company, cited “the global COVID-19 pandemic and supply chain issues, uncertainty related to business operations in China, issues in fully integrating numerous brands, changes in management, and expense related to an investigation and defense of a potential violation of the Foreign Corrupt Practices Act (‘FCPA’)” as compelling them to seek bankruptcy protection

On September 30th, the Court hearing the NewAge cases issued a final order authorizing the Debtors to access the $7.0mn balance of a $16.0mn new money, debtor-in-possession (“DIP”) financing facility provided by DIP Financing, LLC (an entity controlled by John R Wadsworth, see further below)  A September 1st order had allowed access to to a first $9.0mn tranche of the DIP financing.

On October 17th, further to a September 21st bidding procedures order [Docket No. 105] and an October 11th sale hearing, the Court hearing the NewAge cases issued an order approving the sale of substantially all of the Debtors’ assets to DIP Financing, LLC [Docket No. 224]. The nominally $28.0mn purchase price included a credit bid of $12.0mn outstanding under the prepetition EWB Credit Facility and $16.0mn of closing cash (with latter reduced for amounts outstanding under a $16.0mn DIP facility). The sale closed on October 17, 2022. See "Asset Sale," below.

On November 30, 2022, following the October 17th closing of their asset sale, the Debtors filed an initial iteration of their Combined Plan of Liquidation and Disclosure Statement (the “Combined Document”) [Docket No. 320]. That turn of the Combined Document was followed by the filing of the Second Amended Combined Plan on December 30th and the Third Amended Combined Plan on January 6th (this also the solicitation version).

On January 6th, the Debtors' Disclosure Statement and solicitation procedures were approved and the Debtors' confirmation hearing scheduled for February 8th (with that hearing later slipping to to February 24th).

As discussed below, Plan confirmation was held up pending resolution of a dispute "regarding the ownership of certain cash that was transferred to DIP Financing [ie the Purchaser] in connection with the Sale," with resolution memorialized in a settlement approved on February 9th.

Plan Overview

The Debtors' memorandum of law in support of Plan confirmation provides: "The Plan represents the culmination of extensive negotiations among the Debtors and various stakeholders, including, without limitation, DIP Financing and the Committee. The GUC Settlement, as approved by the Court in connection with the Sale, provides joint funding for the Liquidation Trust and was offered, accepted, and approved, for the benefit of all unsecured creditors in the Chapter 11 Cases, without allocating portions of the funding to any particular assets. There is no question that the unsecured creditors in the Chapter 11 Cases would not receive anything of value in a chapter 7 liquidation. This Plan, by incorporating the GUC Settlement to fund the Liquidation Trust, therefore provides the unsecured creditors with at least as much as they would have received in a chapter 7 case.

On October 6, 2022, after receiving no alternative qualified bids, the Debtors filed the Notice of Successful Bidder, designating the Stalking Horse Bidder as the successful bidder….On October 17, 2022, the Court entered the Sale Order approving the Sale to DIP Financing as the stalking horse bidder. The Sale Order also included the GUC Settlement reached among the Committee, the Debtors, and DIP Financing, which ensures, inter alia, a minimum recovery for the unsecured creditors under the Plan that exceeds the amount they would have received in a chapter 7 case. Specifically, paragraph 32 of the Sale Order requires the Purchaser to make a cash payment to the Debtors, only if necessary, for the sole purpose of funding the Liquidation Trust. Thus, pursuant to the GUC Settlement, the remaining property in the Debtors’ estates will provide the Liquidation Trust a cash balance of no less than $1,500,000 for the benefit of general unsecured creditors after payment of allowed administrative expense and priority claims.

On January 30, 2023, the Debtors filed the 9019 Motion seeking approval of a settlement agreement (the 'Settlement Agreement') between the Debtors, the Committee, and DIP Financing to resolve a dispute between the Debtors and DIP Financing regarding the ownership of certain cash that was transferred to DIP Financing in connection with the Sale (the 'Purchase Price Dispute') and the administrative expense claims filed on December 16, 2022 by DIP Financing against the Debtors’ estates (collectively, the 'Purchaser Claims'). The Settlement Agreement provides, among other things, that: (i) the Purchaser Claims shall be allowed, on a consolidated basis, as a single administrative expense claim in the amount of $8,231,144.47 (the 'Allowed Claim'); and (ii) the Allowed Claim is capped by the following conditions (a) the Purchaser Assignee (as defined in the 9019 Motion) shall retain $1.3 million of the disputed cash, (b) the Purchaser Assignee shall return $4,483,665.73 of the disputed cash to the Debtors’ estates ($1.5 million of which shall fund the Liquidation Trust), and (c) the balance of the Allowed Claim, up to a capped amount of $6.4 million, shall be paid from excess cash (if any) after payment of allowed administrative expense claims and net proceeds of recoveries from litigation claims pursuant to the waterfall contained in the Settlement Agreement….On February 9, 2023, the Court entered the Interim 9019 Order approving the Settlement Agreement on an interim basis, subject to a final hearing in conjunction with the Combined Hearing."

The Amended Combined Document [Docket No. 383] provides, “After entry of the Sale Order, the Debtors have worked toward preparing an orderly wind-down of the Chapter 11 Cases and the proposal of a liquidating Chapter 11 plan… To streamline the process and save costs, the Debtors decided the best course of action was to file a combined plan and disclosure statement, and to seek preliminary approval of the disclosures and the scheduling of a combined, final hearing on plan confirmation and the adequacy of the disclosures.

Assets Available for Distribution

As of the date hereof, the Remaining Assets that will be used for distribution to creditors consist of (i) the Liquidation Trust with an initial principal amount of at least $1,500,000; (ii) causes of action against certain of the Debtors’ officers and directors in the Kwikclick Lawsuit, which are being assigned to the Liquidation Trust, and of which there may or may not be up to $35,000,000.00 of D&O insurance coverage available; (iii) all other Causes of Action, all of which causes of action are specifically preserved and assigned to the Liquidation Trust; and (iv) any remaining Cash on hand.

As illustrated in the Liquidation Analysis attached as Appendix C, the Debtors project that there will be approximately $1,500,000.00 of net distributable assets to the Liquidation Trust, in addition to claim recoveries which amounts are currently undetermined. The Debtors have no accurate way to value the Kwikclick Lawsuit and any other potential causes of action. The actual net distributable assets may be materially different from the Debtors’ estimates.”

The following is a summary of classes, claims, voting rights and expected recoveries, showing changes in blue (defined terms are as defined in the Combined Document, see Liquidation Analysis below):

• Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
• Class 2A (“General Unsecured Claims Against NewAge (Liquidation Trust Class)”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $279,142 and estimated recovery is between 0% and 100%. Each Holder will receive its Pro Rata Share of an interest in the Liquidation Trust. A holder of a General Unsecured Claim greater than the Convenience Claim Threshold may opt to reduce its claim to the Convenience Claim Threshold to participate in Class 3; however, a holder making such election will be forever barred and waives its right to receive a Distribution for the waived amount.
• Class 2B (“General Unsecured Claims Against Morinda (Liquidation Trust Class)”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $14,808,711 and estimated recovery is 0% – 100%. Each Holder will receive its Pro Rata Share of an interest in the Liquidation Trust. A holder of a General Unsecured Claim greater than the Convenience Claim Threshold may opt to reduce its claim to the Convenience Claim Threshold to participate in Class 3; however, a holder making such election will be forever barred and waives its right to receive a Distribution for the waived amount.
• Class 2C (“General Unsecured Claims Against Ariix (Liquidation Trust Class)”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $942,263 and estimated recovery is 0% – 100%. Each Holder will receive its Pro Rata Share of an interest in the Liquidation Trust. A holder of a General Unsecured Claim greater than the Convenience Claim Threshold may opt to reduce its claim to the Convenience Claim Threshold to participate in Class 3; however, a holder making such election will be forever barred and waives its right to receive a Distribution for the waived amount.
• Class 3A (“General Unsecured Claims Against NewAge (Administrative Convenience Class)”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $6,104 and estimated recovery is 0% – 100%. Each Holder will receive a Distribution within 30 days of the Effective Date equal to 50% of its General Unsecured Claim unless the amount deposited in the GUC Administrative Convenience Account is not sufficient to allow for this percentage distribution, in which case the holders of a Class 3 Claim will receive their Pro Rata Share, which will be less than 50% of each General Unsecured Claim. The Distributions made to holders of Allowed Class 3 Claims will be made by the Liquidation Trustee from the GUC Administrative Convenience Account.
• Class 3B (“General Unsecured Claims Against Morinda (Administrative Convenience Class)”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $211,642 and estimated recovery is 0% – 100%. Each Holder will receive a Distribution within 30 days of the Effective Date equal to 50% of its General Unsecured Claim unless the amount deposited in the GUC Administrative Convenience Account is not sufficient to allow for this percentage distribution, in which case the holders of a Class 3 Claim will receive their Pro Rata Share, which will be less than 50% of each General Unsecured Claim. The Distributions made to holders of Allowed Class 3 Claims will be made by the Liquidation Trustee from the GUC Administrative Convenience Account.
• Class 3C (“General Unsecured Claims Against Ariix (Administrative Convenience Class)”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $31,694 and estimated recovery is 0% – 100%. Each Holder will receive a Distribution within 30 days of the Effective Date equal to 50% of its General Unsecured Claim unless the amount deposited in the GUC Administrative Convenience Account is not sufficient to allow for this percentage distribution, in which case the holders of a Class 3 Claim will receive their Pro Rata Share, which will be less than 50% of each General Unsecured Claim. The Distributions made to holders of Allowed Class 3 Claims will be made by the Liquidation Trustee from the GUC Administrative Convenience Account.
• Class 4 (“Subordinated Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $0.00 and estimated recovery is 0% – 100%. Each Holder will receive a Pro Rata Share of an interest in the Liquidation Trust that is subordinated to the holders of General Unsecured Claims in Class 2 and will only receive a Distribution after Class 2 claimants are Paid in Full.
• Class 5 (“Intercompany Claims”) is impaired, deemed to reject and the right to claim has been waived.
• Class 6 (“Equity Interests in NewAge”) is impaired and entitled to vote on the Plan. Each Holder will receive a Pro Rata Share of an interest in the Liquidation Trust that is subordinated to the holders of General Unsecured Claims in Class 2 and Subordinated Claims in Class 4 and will only receive a Distribution after Classes 2 and 4 claimants are Paid in Full. On the Effective Date all Interests in NewAge will be cancelled.
• Class 7 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Voting Results

On February 22, 2023, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 499] which were as follows.

• Class 2A (“General Unsecured Claims Against NewAge (Liquidation Trust Class)”): 15 claim holders, representing $9,173,401.94 (75.1%) in amount and 78.9% in number, voted in favor of the Plan. 4 Opt outs. 4 claims holders, representing $3,046,008.73 (24.9%) in amount and 21.1% in number, rejected the Plan. 4 Opt outs.
• Class 2B (“General Unsecured Claims Against Morinda (Liquidation Trust Class)”): 5 claim holders, representing $185,838.54 (8.2%) in amount and 38.5% in number, voted in favor of the Plan. 1 Opt outs. 8 claims holders, representing $2,069,186.92 (91.8%) in amount and 61.5% in number, rejected the Plan. 8 Opt outs.
• Class 2C (“General Unsecured Claims Against Ariix (Liquidation Trust Class)”): 3 claim holders, representing $5,240,031.57 (95.3%) in amount and 60.0% in number, voted in favor of the Plan. 2 Opt outs. 2 claims holders, representing $259,590.08 (4.7%) in amount and 40.0% in number, rejected the Plan. 2 Opt outs.
• Class 3A (“General Unsecured Claims Against NewAge (Administrative Convenience Class)”): 3 claim holders, representing $16,339.00 (75.9%) in amount and 75% in number, voted in favor of the Plan. 1 Opt outs. 1 claims holder, representing $5,197.62 (24.1%) in amount and 25.0% in number, rejected the Plan. 1 Opt outs.
• Class 3B (“General Unsecured Claims Against Morinda (Administrative Convenience Class)”): 25 claim holders, representing $93,823.84 (84.7%) in amount and 86.2% in number, voted in favor of the Plan. 3 Opt outs. 4 claims holders, representing $16,935.33 (15.3%) in amount and 13.8% in number, rejected the Plan. 4 Opt outs.
• Class 3C (“General Unsecured Claims Against Ariix (Administrative Convenience Class)”): 2 claim holders, representing $13,569.41 (57.6%) in amount and 66.7% in number, voted in favor of the Plan. 1 claims holder, representing $10,000.00 (42.4%) in amount and 33.3% in number, rejected the Plan. 1 Opt outs.
• Class 4 (“Subordinated Claims”): 4 claims holders, representing $102,978,706.00 (100%) in amount and 100% in number, rejected the Plan. 4 Opt outs.
• Class 6 (“Equity Interests in NewAge”): 888 claim holders, representing 4,413,457.12 (38.0%) in amount and 66.4% in number, voted in favor of the Plan. 554 Opt outs. 449 claims holders, representing 7,186,182.31 (33.6%) in amount and 62.0% in number, rejected the Plan. 69 Opt outs.

Key Documents

The Third Amended Combined Document [Docket No. 383] attaches the following documents:

• Appendix A: Organizational Chart 
• Appendix B: Wind Down Budget 
• Appendix C: Chapter 7 Liquidation Analysis

The Debtors filed a Plan Supplement on January 20th [Docket No. 418] which attaches the below exhibit.

• Exhibit A: Liquidation Trust Agreement and Declaration of Trust

Asset Sale

On October 17, 2022, further to September 21st bidding procedures order [Docket No. 105], the Court hearing the NewAge cases issued an order approving the $28.0mn sale of substantially all of the Debtors’ assets to DIP Financing, LLC (the “Buyer,” an entity controlled by John R.* Wadsworth) [Docket No. 224]. The sale closed on October 17, 2022.

An execution version of the Buyer’s August 31, 2022 APA, which details consideration that the Debtors value at $28.0mn**, is attached as Exhibit A to the order. 

* At the outset of these cases, there was some confusion as to Mr. Wadsworth's historical connection with the Debtors which caused him to be labeled an insider by the Debtors' creditors' committee. It turns out that there are two John Wadsworths, with John J Wadsworth, who does have a lengthy relationship with the Debtors, being the relevant Mr. Wadsworth's uncle. John R provides in a September 20th filing: "John J. Wadsworth ('Uncle') is my uncle, who is approximately fifteen years my senior. He was a founder of Morinda and served, for a period of time, as its president. He also served, for a period of time, as the chief executive officer of Zennoa. Joseph Wadsworth ('Brother') is my brother and is an area president of NewAge for the North Asia Area. By comparison with my Uncle and Brother, I am not now, nor have I ever been an employee, officer or director of NewAge or its affiliates. By comparison, I have always been a wholly independent sales agent/distributor of Morinda, both before and since it was acquired by the Debtors. During the last two years, I had nothing to do with the decline of the company.

** NB: Includes credit bid of $12.0mn outstanding under the prepetition EWB Credit Facility and $16.0mn of closing cash (with latter reduced for amounts outstanding under the DIP). 

Petition Date Perspective

Events Leading to the Chapter 11 Filing

In a declaration in support of first day filings (the “Perkins Declaration”) [Docket No. 12], Lawrence Perkins, the Debtor’s Chief Restructuring Officer, provides: “…recently, the Debtors faced several challenges, which, in cumulation, have necessitated the filing of the Chapter 11 Cases. The challenges include the global COVID-19 pandemic and supply chain issues, uncertainty related to business operations in China, issues in fully integrating numerous brands, changes in management, and expense related to an investigation and defense of a potential violation of the Foreign Corrupt Practices Act (‘FCPA’). 

It cannot be overstated to say that the Debtors’ businesses have been significantly impacted by the global COVID-19 pandemic…in large part, because Brand Partners had a significant decrease in sales due to their inability to plan and/or attend in-person sales events. The pandemic also disrupted global supply chains which, in turn, adversely affected the Debtors’ productivity and costs because their businesses are heavily dependent on efficient supply chains to produce and deliver products to customers throughout the world. 

The Debtors’ operations have also been negatively impacted by a difficult regulatory environment in China, which accounts for approximately 20% of business. For example, in 2019, several departments of the Chinese government initiated a review of healthy product and direct selling companies in China. During this review, the government instructed direct selling companies, such as the Debtors, not to hold large distributor meetings. China’s review and authorization of direct sale licenses has also been suspended. 

The NewAge Enterprise has also suffered from substantial turnover, including the separation from the founding CEO and subsequent dispute and regulatory investigations around  acts conducted during his tenure. An interim CEO was named in January of this year to stabilize the operations. In addition, there were multiple CFOs over the last 3 years that have further harmed the continuity of the executive suite through the integration phase of large-scale acquisitions as well as a challenging operating environment. 

NA Inc.’s acquisition of Ariix in December 2020, which was intended to complement the Enterprise’s operations to give it an advantage in a highly competitive industry, has given rise to at least two challenges. First, the Debtors have incurred expense and faced challenges integrating the new lines of business acquired. Second, after it acquired Ariix, the Debtors conducted an independent investigation of their international business practices, including engaging external counsel, accountants, and other advisors. The investigation identified potential FCPA violations and, in August 2021, a voluntary self-disclosure was made to the U.S. Department of Justice and U.S. Securities Exchange Commission. As of the Petition Date, reporting continues, and no penalties or fines have been imposed against the Debtors. In conducting its own investigation and cooperating with the governmental entities, however, the Debtors have incurred significant expenses.”

Prepetition Indebtedness

• Secured Claims. On March 9, 2022, NA Inc. entered into a Loan and Security Agreement with EWB (the “Loan Agreement”) which provides for a $12.0 million revolving loan facility (the “EWB Credit Facility”). Shortly after entering into the Loan Agreement, NA Inc. borrowed the entire $12.0 million of funding under the EWB Credit Facility.
• Unsecured Claims. General unsecured claims against each Debtor as of the Petition Date is summarized as follows: a. NA Inc. had estimated debt in excess of $1.0mn, consisting primarily of notes payable, accounts payables to trade creditors and professionals, and a lease liability.
• Holdings had estimated debt in excess of $18.0mn, consisting primarily of intercompany debt, payroll and employee benefits and taxes payable.
• Morinda had estimated debt in excess of $34.0mn, consisting primarily of intercompany debt, accounts payable, commissions payable, payroll and employee benefits and other current liabilities.
• Ariix had estimated debt in excess of $235.0mn, consisting primarily of intercompany debt, accounts payable and notes payable.
• Equity. As of August 10, 2022, there were 244 holders of record of NA Inc. common stock and 168,213,761 shares outstanding. Because NA Inc.’s common stock is held through several brokerage firms, the number of beneficial stockholders is far greater than the number of holders of record.

Wind-Down Budget [Appendix B of Docket No. 373]

Chapter 7 Liquidation Analysis [Appendix C of Docket No. 373]

About the Debtors

According to the Debtors: “NewAge is a purpose-driven firm dedicated to inspiring the planet to Live Healthy™. The Utah-based Company commercializes a portfolio of organic and healthy products worldwide primarily through a direct-to-consumer (D2C) route to market distribution system across more than 50 countries. The company competes in three major category platforms including health and wellness, inner and outer beauty, and nutritional performance and weight management — through a network of exclusive independent Brand Partners, empowered with the leading social selling tools and technology available worldwide.”

The Perkins Declaration adds: “The Debtors and their non-debtor affiliates (the ‘NewAge Enterprise’ or the ‘Enterprise’) develop, sell, and distribute health and nutritional products, including through a robust direct sales distribution network across more than 50 countries, primarily in North America, Japan, China, and Europe. Products are predominantly sold through an extensive direct sales network, utilizing a team of over 400,000 brand partners (the ‘Brand Partners’). The Enterprise also includes an e-commerce sales platform and a store distribution business—one of the largest in Colorado—that provides beverages and snacks to grocers, big box retailers, and convenience stores.

NewAge Enterprise’s health and nutritional products are in the following areas: (i) health and wellness; (ii) health appearance; and (iii) nutritional performance. Its largest brand is known as Tahitian Noni®, which includes products focused on reducing inflammation and strengthening the body’s protection against viruses, primarily through a consumable beverage derived from the Noni plant, an antioxidant-rich, natural resource found in French Polynesia (the ‘Noni Plant”).”

Updated Corporate Structure Chart (see Appendix A of Docket No. 362 for full structure chart)

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