IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 ) APPLESEED S INTERMEDIATE, ) Case No (KG) HOLDINGS LLC, et al., ) ) Jointly Administered Debtors. ) ) Re: Docket Nos. 19 & 303 NOTICE OF FILING OF OFFICIAL COMMITTEE OF UNSECURED CREDITORS LETTER OF RECOMMENDATION IN FAVOR OF THE DEBTORS CHAPTER 11 PLAN OF REORGANIZATION PLEASE TAKE NOTICE that attached hereto as Exhibit A is a true and correct copy of the Official Committee of Unsecured Creditors Letter of Recommendation in Favor of the Debtors Chapter 11 Plan of Reorganization. Dated: March 1, 2011 DRINKER BIDDLE & REATH LLP /s/ Howard A. Cohen Howard A. Cohen (DE 4082) Robert K. Malone (admitted pro hac vice) Michael P. Pompeo (admitted pro hac vice) 1100 North Market Street, Suite 1000 Wilmington, Delaware Telephone: (302) Facsimile: (302) and - COOLEY LLP Jay R. Indyke Cathy R. Hershcopf 1114 Avenue of the Americas New York, New York Telephone: (212) Facsimile: (212) Proposed Counsel to the Official Committee of Unsecured Creditors WM01/

2 WM01/ EXHIBIT A

3 Jay R. Indyke Cathy Hershcopf Re: Recommendation of Creditors Committee in Favor of Chapter 11 Plan of Reorganization Dear Creditor: We represent the official committee of unsecured creditors (the Committee ) of (collectively, the Debtors ). The Committee supports the Debtors chapter 11 plan of reorganization (the Plan ) and urges you to vote to accept it. A copy of, among other things, the Plan, the related disclosure statement (the Disclosure Statement ) and a ballot is being distributed to each holder of a General Unsecured Claim. Since its appointment on January 28, 2011, the Committee has participated in all aspects of these cases, including active negotiations concerning an agreement which is embodied in the Plan and upon which the Committee s support of the Plan is premised. The Plan contemplates, among other things, the continuation of the Debtors as a going concern and a waiver of preference actions against trade creditors. Additionally, a robust critical vendor program was implemented with Committee input and approval. If the Plan is confirmed, allowed Bankruptcy Code 503(b)(9) claims (for goods delivered to the Debtors within the 20 days prior to the filing of these cases) will be paid in full. Importantly, under a prior version of the Plan filed by the Debtors before the formation of the Committee, unsecured creditors were to receive no recovery on account of unsecured claims, whereas under the Plan being solicited there is now the prospect of recovery through the potential Litigation Causes of Action described below. Pursuant to the agreement, the Debtors (through their lenders) have agreed to provide funding in connection with the investigation and/or prosecution of certain causes of action. These causes of action include, among other things, claims against various parties referred to as the Golden Gate Parties concerning, or on account of, the Golden Gate Transaction (as defined in the Plan, the Litigation Trust Causes of Action ). The Golden Gate Parties include, among others, the Debtors indirect majority equity holder, Golden Gate Private Equity, Inc. The Golden Gate Transaction refers to, among other things, a 2007 transaction in which certain of the Golden Gate Parties received substantial sums. The actual proceeds of the Litigation Trust Causes of Action, if any, after payment of certain expenses, will be used to repay certain funding of litigation fees and expenses, and, thereafter, will be shared between the Litigation Trust (for the ratable benefit of the Holders of Allowed General Unsecured Claims) and the Reorganized Debtors, as described more fully below.

4 Page Two Absent the agreement reflected in the Plan, the Committee believes there would be no prospect for recovery for unsecured creditors as illustrated in the liquidation analysis annexed as Exhibit G to the Disclosure Statement. The Committee s evaluation of sale and other alternatives also led the Committee to conclude that no alternative existed that would have resulted in recovery. Indeed, there likely would not have been sufficient funds to pay the First Lien Lenders and Second Lien Lenders in full, whether in a chapter 7 or a chapter 11, and as a result, the First Lien Lenders and Second Lien Lenders are converting their debt to equity under the Plan, subject to certain agreed-upon dilutions, and are providing certain funding as described more fully below, through the Debtors and Reorganized Debtors. The agreement provides for, among other things, the following: 1 1. Litigation Trust. A Litigation Trust will be established, which will be administered by a Litigation Trustee. The form of Litigation Trust Agreement will be included in the Plan Supplement, and the Litigation Trustee will be identified in the Plan Supplement. The Litigation Trustee will be governed by an Oversight Committee, the members of which will also be identified in the Plan Supplement and who will be persons or entities of the Committee as of the Effective Date. On the Effective Date, the Debtors will transfer and be deemed to transfer the Litigation Trust Assets, including, without limitation, the Litigation Trust Causes of Action, to the Litigation Trust. Pursuant to the terms of the final financing order entered in these cases, certain of the Litigation Trust Causes of Action have been transferred to the Committee, subject to the limitations set forth therein, and the Committee has the exclusive right, and full standing, to, among other things, investigate and prosecute such actions. On the Effective Date, the Debtors will pay the Litigation Trust a $1 million non-refundable payment, which payment will be used to fund a distribution to Holders of Allowed General Unsecured Claims, to provide funding in connection with the investigation and/or prosecution of the Litigation Trust Causes of Action, and/or or for such other purposes determined by the Litigation Trustee. On or before the Effective Date, the Debtors will deposit an amount up to $1.5 million to provide funding in connection with the investigation and/or prosecution of the Litigation Trust Causes of Action (the First Financing ). 1 Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Plan. In the event of any discrepancy between this summary and the terms of the Plan, the Plan shall control.

5 Page Three This amount will be reduced on a dollar-for-dollar basis (up to $750,000) for any amounts in excess of those provided to the Committee in the DIP financing budget actually paid to the Committee before the Effective Date to fund the investigation and/or prosecution of the Litigation Trust Causes of Action. The Reorganized Debtors have the option, but not the obligation, to provide additional litigation funding in excess of the First Financing, before the Litigation Trustee seeks financing from any third party. If the Reorganized Debtors decline to fund in accordance with the terms of the Plan, the Reorganized Debtors will not participate in sharing Litigation Trust Distributable Proceeds (defined below), although the First Financing will be paid first out of such proceeds in accordance with the Plan. Any and all actual proceeds of the Litigation Trust, after payment of certain expenses (the Litigation Trust Distributable Proceeds ) shall be shared between the Holders of Litigation Trust Interests and the Reorganized Debtors as follows: (a) the first $30 million will be shared 50/50 between the Reorganized Debtors and the Litigation Trust; (b) the next $100 million will be shared 60% to the Reorganized Debtors and 40% to the Litigation Trust; and (c) anything over $130 million will be shared 75% to the Reorganized Debtors and 25% to the Litigation Trust. The First Lien Lenders and the Second Lien Lenders will not share in any Litigation Trust Distributable Proceeds on account of their deficiency claims. Holders of the AIH Note Claims and insiders likewise will not share in any Litigation Trust Distributable Proceeds. See Article IV.R of the Plan and Sections III, V.L, V.M, V.N, V.O, V.P and V.Q of the Disclosure Statement for further information concerning the Litigation Trust. 2. Waiver of Released Preference Actions. As of the Effective Date, except as otherwise provided in the Plan, the Reorganized Debtors and Litigation Trustee will each discharge, waive and release all claims and defenses of the Debtors or Reorganized Debtors arising under section 547 of the Bankruptcy Code (i.e., preference claims) against trade creditors. See Articles I.A.159 and IV.P.2 of the Plan and Section V.S of the Disclosure Statement for further information concerning the release of Released Preference Actions, and the limitations thereof.

6 Page Four 3. Releases of Certain Parties. The Plan includes a release of the Debtors, the Reorganized Debtors and various Released Parties (which expressly exclude the Golden Gate Parties), subject in all respects to the provisions of the Plan. See Article VIII.E of the Plan for further information concerning the releases of certain parties. 4. Ballot/Voting. All holders of General Unsecured Claims will receive a ballot. The ballot contains a section for you to indicate whether you vote to accept or reject the Plan. The ballot also contains a section for you to indicate whether you choose to opt-out of the release provision set forth on the ballot. The Committee voted unanimously to support the Plan. The Committee believes that acceptance of the Plan and the resulting reorganization of the Debtors is in the best interest of the holders of General Unsecured Claims and has concluded that the projected recovery represents a substantial improvement over the recovery, if any, that unsecured creditors might expect in a liquidation under chapter 7 of the Bankruptcy Code or in a chapter 11 absent the settlement. The Committee recommends that creditors vote in favor of the Plan. However, you should make your own determination on whether to accept or reject the Plan after reading and giving careful consideration to both the Plan and Disclosure Statement, and in consultation with your own advisors and professionals. In order to count, ballots must be returned by first-class mail, overnight courier, or personal delivery to: Appleseed s Ballot Processing c/o Kurtzman Carson Consultants LLC Voting and Claims Agent for 2335 Alaska Avenue El Segundo, CA and be received no later than [April 7], 2011 at 4:00 p.m. (Eastern). Ballots transmitted by facsimile, telecopy, or other means of electronic transmission will not be counted. The description in this letter of the terms of the Plan is qualified in its entirety by and is subject to the discussion and provisions contained in the Plan and Disclosure Statement. The Disclosure Statement contains extensive information with respect to the Plan that you should review. The Committee urges you to read the Plan and the Disclosure Statement carefully

7 Page Five before you cast a vote(s) to accept or reject the Plan. The Bankruptcy Court hearing on confirmation of the Plan is set for [April 14], 2011 at 2:30 p.m. (Eastern). If you have any questions, please contact the undersigned. Very truly yours, /s/ /s/ Jay R. Indyke Cathy Hershcopf Cooley LLP Counsel for the Official Committee of Unsecured Creditors (212) Committee Financial Advisor Carl Marks Advisory Group LLC Peter Schaeffer Charles C. Reardon Committee Delaware Counsel Drinker Biddle & Reath LLP Robert K. Malone Michael P. Pompeo Howard A. Cohen Committee Members RR Donnelley & Sons Co. Gould Paper Corp. News America Marketing Valassis Dan Pevonka (Chairperson) Carl Degisi Joseph M. Borrow Hal Manoian and Gabriel Grijalva