Case BLS Doc 97 Filed 08/08/18 Page 1 of 14 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE.

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1 Case BLS Doc 97 Filed 08/08/18 Page 1 of 14 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: BROOKSTONE HOLDINGS CORP., et al., 1 Debtors. Chapter 11 Case No (BLS) (Jointly Administered) Hearing Date: August 29, 2018 at 1:00 p.m. (ET) Objection Deadline: August 22, 2018 at 4:00 p.m. (ET) DEBTORS APPLICATION FOR ORDER AUTHORIZING THE RETENTION AND EMPLOYMENT OF BERKELEY RESEARCH GROUP, LLC AS FINANCIAL ADVISORS TO THE DEBTORS, NUNC PRO TUNC TO THE PETITION DATE Brookstone Holdings Corp. and its affiliated debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the Debtors or the Company ) hereby submit this application (this Application ) for entry of an order (the Proposed Order ), substantially in the form annexed hereto as Exhibit A, pursuant to sections 105(a), 327(a), 328(a) and 1107(b) of title 11 of the United States Code (the Bankruptcy Code ), Rules 2014 and 2016 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ), and Rules and of the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the Local Rules ), (i) authorizing the Debtors to retain and employ Berkeley Research Group, LLC ( BRG ) as financial advisors to the Debtors, effective as of August 2, 2018, the date the Debtors filed their chapter 11 petitions (the Petition Date ) and commenced these chapter 11 cases (collectively, the Chapter 11 Cases ), on the terms and 1 The Debtors, along with the last four digits of each Debtor s tax identification number, are: Brookstone Holdings Corp. (4638), Brookstone, Inc. (2895), Brookstone Company, Inc. (3478), Brookstone Retail Puerto Rico, Inc. (5552), Brookstone International Holdings, Inc. (8382), Brookstone Purchasing, Inc. (2514), Brookstone Stores, Inc. (2513), Brookstone Hong Kong Holdings Limited (N/A), Big Blue Audio LLC (N/A), Brookstone Holdings, Inc. (2515); and, Brookstone Properties, Inc. (2517). The Debtors corporate headquarters and the mailing address for each Debtor is One Innovation Way, Merrimack, NH

2 Case BLS Doc 97 Filed 08/08/18 Page 2 of 14 conditions set forth herein and in that engagement agreement by and between BRG and Debtor Brookstone Company, Inc., dated June 25, 2018 (the Engagement Letter ), a copy of which is annexed hereto as Exhibit B. 2 In support of this Application, the Debtors submit the Declaration of Stephen Coulombe in Support of Debtors Application for Order Authorizing the Retention and Employment of BRG as Financial Advisors to the Debtors, Nunc Pro Tunc to the Petition Date (the Coulombe Declaration ), a copy of which is annexed hereto as Exhibit C. In further support of this Application, the Debtors respectfully represent as follows: JURISDICTION AND VENUE 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334(b), and the Amended Standing Order of Reference from the United States District Court for the District of Delaware dated as of February 29, This is a core proceeding pursuant to 28 U.S.C. 157(b) and, pursuant to Local Rule (f), the Debtors consent to the entry of a final order by the Court in connection with this Application to the extent that it is later determined that the Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. Venue is proper before this Court pursuant to 28 U.S.C and The statutory and legal predicates for the relief requested herein are sections 327, 328, 330 and 331 of the Bankruptcy Code. BACKGROUND 3. On the Petition Date, each of the Debtors commenced a voluntary case under chapter 11 of the Bankruptcy Code. Pursuant to sections 1107(a) and 1108 of the Bankruptcy 2 Each capitalized term used, but not otherwise defined, herein shall have the meaning ascribed to such term in the Engagement Letter. 2

3 Case BLS Doc 97 Filed 08/08/18 Page 3 of 14 Code, the Debtors are continuing to manage their financial affairs as debtors in possession. To date, no trustee, examiner or statutory committee has been appointed in the Chapter 11 Cases. 4. Information regarding the Debtors history, business operations, capital structure and primary secured indebtedness, and the events leading up to the commencement of these Chapter 11 Cases, can be found in the Declaration of Greg Tribou in Support of the Debtors Chapter 11 Petitions and Requests for First Day Relief [Docket No. 2] (the First Day Declaration ), which is incorporated by reference herein. RELIEF REQUESTED 5. By this Application, the Debtors seek authority, pursuant to sections 327(a) and 328(a) of the Bankruptcy Code, to retain and employ BRG to provide services to the Debtors in accordance with the terms of the Engagement Letter, nunc pro tunc to the Petition Date. The Debtors believe, in the exercise of their business judgment, that the retention and employment of BRG on the terms set forth in the Engagement Letter will ensure that the Debtors are able to maximize the value of their estates for the benefit of all interested parties. Accordingly, the Debtors submit that the retention of BRG on the terms described herein is in the best interest of the Debtors estates and should be approved. BASIS FOR RELIEF REQUESTED A. BRG s Qualifications 6. The Debtors seek to retain BRG as their financial advisors because, among other things, the Debtors understand that BRG has a wealth of experience in providing financial advisory services in restructuring, sale and wind down scenarios, and enjoys an excellent reputation for services it has rendered in large and complex chapter 11 cases on behalf of debtors and creditors throughout the United States. In selecting a financial advisor, the Debtors sought an advisor with experience in providing similar services in complex cases, specifically those 3

4 Case BLS Doc 97 Filed 08/08/18 Page 4 of 14 relating to retail operations. BRG professionals have significant restructuring and industry experience assisting distressed companies with financial and operational challenges, and BRG regularly assists large and complex businesses similar to the Debtors. BRG s business, experience, and expertise are further described in the Coulombe Declaration. 7. On June 25, 2018, pursuant to the Engagement Letter, BRG was engaged to provide consulting and financial advisory services to the Debtors. BRG developed an in-depth understanding of the Debtors financial history, business operations, and the industry in which the Debtors operate. BRG has worked closely with the Debtors management and other professionals since it was retained, and has become well acquainted with the Debtors operations, debt structure, creditors, business, and related matters. Moreover, BRG has played a pivotal role in structuring the relief sought by the Debtors at the outset of these cases. Accordingly, BRG has developed significant relevant experience regarding the Debtors that will assist BRG in providing effective and efficient services in these Chapter 11 Cases. 8. In light of the size and complexity of these Chapter 11 Cases, the resources, capabilities and experience of BRG in advising the Debtors are crucial to the success of the Debtors chapter 11 strategies. An experienced financial advisor, such as BRG, fulfills a critical need that complements the services offered by the Debtors other professionals. B. Scope of Services to be Provided by BRG 9. The parties have entered into the Engagement Letter, which governs the relationship between the Debtors and BRG. The terms and conditions of the Engagement Letter were negotiated between the Debtors and BRG at arms length and in good faith, and reflect the parties mutual agreement as to the substantial efforts that will be required in this engagement. Under the Engagement Letter, in consideration for the compensation contemplated thereby, BRG 4

5 Case BLS Doc 97 Filed 08/08/18 Page 5 of 14 has provided and has agreed to provide the following services as reasonably requested by the Debtors: 3 a. Preparing various financial analysis to support restructuring alternatives, including liquidity forecast, four wall profitability, expense levels and others as necessary; b. Providing advice to management regarding cash conservation measures and liquidity forecasting; c. Supporting the development of restructuring plans, financing and strategic alternatives for maximizing the Debtors enterprise value; d. Assisting the Debtors with contingency planning, including the evaluation, planning and execution of a potential restructuring; e. Assisting the Debtors with communications and negotiations with various third parties to support restructuring alternatives; f. Providing other services as requested or directed by the Debtors management team; and g. If requested, providing testimony in connection with any of the above during the Chapter 11 Cases. 10. The services that BRG will provide to the Debtors are necessary to enable the Debtors to maximize the value of their estates through the restructuring initiatives described in further detail in the First Day Declaration. The Debtors believe that the services will not duplicate the services that other professionals will be providing to the Debtors in these Chapter 11 Cases. Specifically, BRG will carry out unique functions and will use reasonable efforts to coordinate with the Debtors other retained professionals to avoid the unnecessary duplication of services. 3 The summaries of the Engagement Letter contained in this Application are provided for purposes of convenience only. In the event of any inconsistency between the summaries contained herein and the terms and provisions of the Engagement Letter, the terms of the Engagement Letter shall control. 5

6 Case BLS Doc 97 Filed 08/08/18 Page 6 of 14 C. BRG s Disinterestedness 11. BRG has informed the Debtors that, except as may be set forth in the Coulombe Declaration, it (i) has no connection with the Debtors, their creditors or other parties in interest in these cases, (ii) does not hold any interest adverse to the Debtors estates, and (iii) believes it is a disinterested person as defined within section 101(14) of the Bankruptcy Code. 12. BRG will conduct an ongoing review of its files to ensure that no conflicts or other disqualifying circumstances exist or arise. If any new material facts or relationships are discovered or arise, BRG will supplement its disclosure to the Court. 13. BRG has agreed not to share with any person or firm, excluding its independent contractors, the compensation to be paid for professional services rendered in connection with these Chapter 11 Cases. D. Professional Compensation and Fee Applications 14. BRG is not owed any amounts with respect to its pre-petition fees and expenses. 15. The Debtors understand that BRG intends to apply to the Court for allowances of compensation and reimbursement of expenses for financial advisory support services in accordance with the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules and further orders of the Court. structure: 16. The Debtors propose to compensate BRG according to the following fee a. Hourly Rates: All services will be provided at BRG s customary hourly rates, subject to periodic adjustments, charged by the BRG professionals anticipated to be assigned to this case are as follows: Per Hour (USD) Managing Directors $ Directors $ Professional Staff $ Support Staff $

7 Case BLS Doc 97 Filed 08/08/18 Page 7 of 14 b. Completion Fee: The Debtors have agreed to pay BRG a fee of $750,000 upon the consummation of a restructuring of all or substantially all of the Debtors debt or the sale of the Company or substantially all of its assets, as applicable. 17. BRG will bill for reasonable and necessary direct expenses which are incurred on the Debtors behalf during its engagement (the Reasonable Direct Expenses ). The Reasonable Direct Expenses include reasonable and customary third-party out-of-pocket expenses which are billed directly to the engagement such as certain telephone, overnight mail, messenger, travel, meals, accommodations and other expenses specifically related to the engagement and billed at actual cost. Further, if BRG and/or any of its employees are required to testify or provide evidence at or in connection with any judicial or administrative proceeding relating to this matter, BRG will be compensated by the Debtors at its regular hourly rates and reimbursed for reasonable allocated and direct expenses (including reasonable counsel fees) with respect thereto. 18. BRG provided pre-petition services to the Debtors and, in the ninety days prior to the Petition Date, the Debtors paid BRG $449, for professional services performed and expenses incurred. The Debtors also paid BRG $150,000, in cash on account (the Initial Cash on Account ), which BRG holds in retainer pursuant to the Engagement Letter. Prior to the Petition Date, BRG estimates, subject to further reconciliation and review, that approximately $20,000 of fees and expenses were incurred but not invoiced. BRG intends to apply such amounts against the Initial Cash on Account. The remainder of the Initial Cash on Account, in an estimated amount of $130,000, will continue to be hold as a general retainer as security for postpetition services and expenses. 19. As a material part of the consideration for which BRG has agreed to provide the Services described herein, the Debtors have agreed to the indemnification provisions set forth in the Engagement Letter (the Indemnification Provisions ). The Indemnification Provisions provide that the Debtors indemnify and hold harmless BRG, its directors, officers, affiliates, 7

8 Case BLS Doc 97 Filed 08/08/18 Page 8 of 14 agent and employees from and against any and all liability, claims, demands, damages, losses and expenses, including but not limited to reasonable attorneys fees. All requests of BRG for the payment of indemnity pursuant to the Indemnification Provisions will be made by means of an application to, and shall be subject to review by, the Court to ensure that payment of such indemnity (a) conforms to the terms of the Engagement Letter and (b) is reasonable based upon the circumstances. 20. The Debtors and BRG believe that the Indemnification Provisions, as modified by the Proposed Order, are customary and reasonable for firms providing financial advisory services such as those to be provided by BRG during the pendency of the Chapter 11 Cases. 21. Moreover, the terms and conditions of the Indemnification Provisions were negotiated by the Debtors and BRG at arm s length and in good faith. The provisions contained in the Engagement Letter, viewed in conjunction with the other terms of BRG s proposed retention, are reasonable and in the best interests of the Debtors, their estates, and creditors in light of the fact that the Debtors require BRG s services to successfully navigate the Chapter 11 Cases. Accordingly, as part of this Application, the Debtors request that the Court approve the Indemnification Provisions as set forth in the Engagement Letter, as modified by the Proposed Order attached hereto. E. Arbitration Provisions 22. The Debtors and BRG have agreed, subject to the Court s approval of this Application, that: (a) any controversy or claim with respect to, in connection with, arising out of, or in any way related to this Application or the services provided by BRG to the Debtors as outlined in this Application, including any matter involving a successor in interest or agent of any of the Debtors or of BRG, shall be resolved by final and binding arbitration administered by 8

9 Case BLS Doc 97 Filed 08/08/18 Page 9 of 14 Judicial Arbitration & Mediation Services, Inc. on the terms set forth in the Engagement Letter. By this Application, the Debtors seek Court approval of the arbitration provisions. F. The Fee and Expense Structure is Appropriate and Reasonable and Should be Approved under Section 328(a) of the Bankruptcy Code 23. BRG and the Debtors believe that the fees set forth in the Engagement Letter are both reasonable and market based. The Debtors submit that BRG has obtained valuable institutional knowledge of the Debtors businesses and financial affairs as a result of providing services to the Debtors prior to the Petition Date, and that BRG is both well qualified and uniquely able to perform these services and assist the Debtors in the Chapter 11 Cases. Moreover, the Debtors believe that BRG s services will assist the Debtors in achieving a successful outcome with respect to these Chapter 11 Cases, and BRG will play an instrumental role in maximizing value for the Debtors, their estates and all interested parties. 24. The Debtors believe that BRG s fee schedule is comparable to compensation generally charged by financial advisors of similar stature to BRG for comparable engagements, both in and out of bankruptcy proceedings. 25. BRG s fee schedule is consistent with BRG s normal and customary billing practices for comparably sized and complex cases and transactions, both in-and out-of-court, involving the services to be provided in connection with the Chapter 11 Cases. Moreover, this fee schedule is consistent with and typical of arrangements entered into by BRG and other financial advisors in connection with rendering comparable services to clients such as the Debtors. 26. In light of the foregoing, and given the numerous issues that BRG may be required to address in the performance of its services hereunder, BRG s commitment to the variable level of time and effort necessary to address all such issues as they arise, and the market 9

10 Case BLS Doc 97 Filed 08/08/18 Page 10 of 14 prices for BRG s services for engagements of this nature both out-of-court and in a chapter 11 context, the Debtors believe that BRG s fee schedule is fair and reasonable and market based under the standards set forth in section 328(a) of the Bankruptcy Code. 27. Accordingly, as more fully described below, the Debtors believe that the Court should approve BRG s retention subject to the standard of review set forth in section 328(a) of the Bankruptcy Code and that BRG s compensation should not be subject to any additional standard of review under section 330 of the Bankruptcy Code, except as set forth in the Proposed Order with respect to the Office of the United States Trustee for the District of Delaware (the U.S. Trustee ). As set forth in the Coulombe Declaration, BRG has not shared or agreed to share any of its compensation from the Debtors with any other person, except for its independent contractors, other than as permitted by section 504 of the Bankruptcy Code. APPLICABLE LAW 28. The Debtors seek authority to employ and retain BRG as their financial advisors under section 327 of the Bankruptcy Code, which provides that a debtor is authorized to employ professional persons that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the [Debtors] in carrying out their duties under this title. 11 U.S.C. 327(a). Section 1107(b) of the Bankruptcy Code elaborates upon sections 101(14) and 327(a) of the Bankruptcy Code in cases under chapter 11 of the Bankruptcy Code and provides that a person is not disqualified for employment under section 327 of [the Bankruptcy Code] by a debtor in possession solely because of such person s employment by or representation of the debtor before the commencement of the case. 11 U.S.C. 1107(b). 29. In addition, the Debtors seek approval of the Engagement Letter pursuant to section 328(a) of the Bankruptcy Code, which provides, in relevant part, that the Debtors with 10

11 Case BLS Doc 97 Filed 08/08/18 Page 11 of 14 the court s approval, may employ or authorize the employment of a professional person under section on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis U.S.C. 328(a). Section 328 of the Bankruptcy Code permits the compensation of professionals, including financial advisors and investment bankers, on more flexible terms that reflect the nature of their services and market conditions. As the United States Court of Appeals for the Fifth Circuit recognized in Donaldson Lufkin & Jenrett Sec. Corp. v. Nat l Gypsum Co. (In re Nat l Gypsum Co.), 123 F.3d 861 (5th Cir. 1997): Prior to 1978 the most able professionals were often unwilling to work for bankruptcy estates where their compensation would be subject to the uncertainties of what a judge thought the work was worth after it had been done. That uncertainty continues under the present 330 of the Bankruptcy Code, which provides that the court award to professional consultants reasonable compensation based on relevant factors of time and comparable costs, etc. Under present 328 the professional may avoid that uncertainty by obtaining court approval of compensation agreed to with the trustee (or debtor or committee). Id. at 862 (citations omitted), cited in Riker, Danzig, Scherer, Hyland & Perretti LLP v. Official Comm. of Unsecured Creditors (In re Smart World Techs. LLC), 383 B.R. 869, 874 (S.D.N.Y. 2008). Owing to this inherent uncertainty, courts have approved similar arrangements that contain reasonable terms and conditions under section 328 of the Bankruptcy Code. See, e.g., In re U.S. Airways, Inc., Case No (SJM) (Bankr. E.D. Va. Aug. 12, 2002); see also In re J.L. French Auto. Castings, Inc., Case No (MFW) (Bankr. D. Del. March 24, 2006). 30. The Engagement Letter appropriately reflects (i) the nature and scope of services to be provided by BRG, (ii) BRG s substantial experience with respect to financial advisory services, and (iii) the fee structures typically utilized by BRG and other leading financial advisors. 11

12 Case BLS Doc 97 Filed 08/08/18 Page 12 of Notwithstanding approval of the Engagement Letter under section 328(a) of the Bankruptcy Code, BRG will apply to the Court for allowance of compensation and reimbursement of expenses in accordance with the procedures set forth in the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, and the Local Rules, as those procedures may be modified or supplemented by order of the Court. Request for Approval of Retention of BRG Nunc Pro Tunc as of the Petition Date 32. The Debtors request that BRG s retention be made effective as of the Petition Date, in order to allow BRG to be compensated for the work performed for the Debtors prior to the Court s consideration and approval of this Application. The Debtors submit that under the circumstances, and to avoid irreparable harm to the Debtors estates that may occur if BRG is not immediately retained, retroactive approval to the Petition Date is warranted. 4 See, e.g., FIS Airlease II, Inc. v. Simon (In re FIS Airlease II, Inc.), 844 F.2d 99, 103 (3d Cir. 1988), cent. denied, 488 U.S. 852 (1988); In re Garden Ridge Corp., 326 B.R. 278, 281 (Bankr. D. Del. 2005); Indian River Homes, Inc. v. Sussex Trust Co., 108 B.R. 46, 51 (D. Del. 1989) (approval of debtor s employment of attorney and real estate agent as of a prior date was not an abuse of discretion). NOTICE 33. The Debtors have provided notice of this Application to: (a) the U.S. Trustee; (b) holders of the thirty (30) largest unsecured claims on a consolidated basis against the Debtors; (c) Wells Fargo Bank, National Association in its capacity as Agent under the Credit Agreement, dated as July 7, 2014 and counsel thereto; (d) Gordon Brothers Finance Company, in its capacity as Term Loan Lender under the Term Note dated June 3, 2015 and counsel thereto; (e) 4 Local Rule (b) provides, in relevant part: If the retention motion is granted, the retention shall be effective as of the date the motion was filed, unless the Court orders otherwise. 12

13 Case BLS Doc 97 Filed 08/08/18 Page 13 of 14 Wilmington Trust, National Association, in its capacity as Trustee under the Indenture dated as of July 7, 2014 pursuant to which the 10.0% Second Lien Subordinated Secured Notes Due 2021 were issued and counsel thereto; (f) Sanpower (Hong Kong) Company Limited as Lender under fifteen separate secured notes and counsel thereto; (g) the DIP lender and counsel thereto; and (h) all parties that have filed a notice of appearance and request for service of papers pursuant to Bankruptcy Rule In light of the nature of the relief requested herein, the Debtors submit that no other or further notice is necessary. [Remainder of Page Intentionally Left Blank] 13

14 Case BLS Doc 97 Filed 08/08/18 Page 14 of 14 WHEREFORE, the Debtors respectfully request that the Court grant the relief requested herein and such other and further relief as the Court may deem just and proper. Dated: August 8, 2018 Brookstone Holdings Corp., et al., Debtors and Debtors in Possession /s/ Stephen Gould Stephen Gould Senior Vice President and General Counsel Brookstone Holdings, Corp. 14