Harry & David's backstop agreement unfair, says creditors committee

By Lisa Kerner

Charlotte, N.C., April 25 - Harry & David Holdings, Inc.'s official committee of unsecured creditors filed an objection to the company's request for an order approving and assuming the backstop stock purchase agreement, according to an April 25 filing with the U.S. Bankruptcy Court for the District of Delaware.

A hearing is set for April 27.

The backstop motion unfairly benefits Wasserstein & Company, LP, or its affiliates, that "wear nearly every hat possible in connection with these cases," the filing said.

Wasserstein, the majority owner of the debtors, receives 40% of the backstop fee, plus reimbursement of its professionals' fees and expenses without a budget or cap.

Also, the backstop parties are entitled to a break-up fee of $1.1 million upon the occurrence of certain events that prevent the rights offering from proceeding or which prevent the backstop parties from proceeding pursuant to the terms of the backstop agreement, the filing said.

Approving the agreement would place the bankruptcy cases "on an unstoppable track towards confirmation of a plan of reorganization that will primarily and unfairly benefit Wasserstein and leave general unsecured creditors receiving a de minimis recovery," the committee said.

Noteholder agreement

In March, Harry & David made a pre-packaged Chapter 11 bankruptcy filing to implement an agreement reached with holders of roughly 81% of its senior notes on the terms of a reorganization plan that will eliminate substantial debt and provide equity financing to restructure the company's balance sheet.

As previously reported, the company entered into an agreement with some of the senior noteholders. Supporting noteholders agreed to vote in favor of the company's pre-packaged plan of reorganization and exchange their notes for common equity.

In addition, the supporting noteholders agreed to backstop a $55 million rights offering that will provide Harry & David with the necessary equity financing to emerge from Chapter 11. Other noteholders and pre-bankruptcy creditors will be offered the opportunity to participate in the rights offering.

Harry and David is a Medford, Ore.-based gourmet food and fruit gifts purveyor. The Chapter 11 case number is 11-10884.

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