Case GLT Doc 1070 Filed 09/06/17 Entered 09/06/17 16:16:10 Desc Main Document Page 1 of 10

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1 Document Page 1 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA In re: Case No (GLT rue21, inc., et al., 1 Chapter 11 Debtors. (Jointly Administered rue21, inc., et al., Movants, v. No Respondent. Respondent. Hearing Date: October 13, 2017 at 10:00 a.m. (prevailing Eastern Time Objection Deadline: October 6, 2017 at 5:00 p.m. (prevailing Eastern Time DEBTORS AMENDED APPLICATION FOR ENTRY OF AN ORDER AUTHORIZING RETENTION AND EMPLOYMENT OF ERNST & YOUNG LLP AS FRESH START ACCOUNTING ADVISORS FOR THE DEBTORS AND DEBTORS IN POSSESSION AND STATEMENT PURSUANT TO FEDERAL RULE OF BANKRUPTCY PROCEDURE 2014(A AND SECTION 327(A OF THE BANKRUPTCY CODE NUNC PRO TUNC TO AUGUST 16, 2017 rue21, inc. and its debtor affiliates, as debtors and debtors in possession in the abovecaptioned chapter 11 cases (collectively, the Debtors, 2 respectfully state the following: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: rue21, inc. (1645; Rhodes Holdco, Inc. (6922; r services llc (9425; and rue services corporation (0396. The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania

2 Document Page 2 of 10 Relief Requested 3 1. By this amended application (this Application, the Debtors seek entry of an order, substantially in the form attached hereto as Exhibit A (the Order authorizing the Debtors to employ Ernst & Young LLP ( EY LLP as their fresh start accounting advisors nunc pro tunc to August 16, 2017, upon the terms and conditions set forth in the audit services statement of work between the Debtors and EY LLP, dated August 16, 2017 (the Audit Services SOW, a true and correct copy of which is attached hereto as Exhibit A-1. Jurisdiction and Venue 2. The United States Bankruptcy Court for the Western District of Pennsylvania (the Bankruptcy Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b. The Debtors confirm their consent, pursuant to rule 7008 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules, to the entry of a final order by the Bankruptcy Court in connection with this Application to the extent that it is later determined that the Bankruptcy Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith consistent with Article III of the United States Constitution. 3. Venue is proper pursuant to 28 U.S.C and A detailed description of the Debtors and their business is set forth in greater detail in the Declaration of Todd M. Lenhart, Acting Chief Financial Officer and Senior Vice President of Accounting of rue21, inc. in Support of Chapter 11 Petitions and First Day Motions [Docket No. 8], filed contemporaneously with the Debtors voluntary petitions for relief filed under chapter 11 of title 11 of the United States Code, 11 U.S.C (the Bankruptcy Code, on May 15, 2017 (the Petition Date, as supplemented by the Addendum to Declaration of Todd M. Lenhart, Acting Chief Financial Officer and Senior Vice President of Accounting of Rue21, Inc., In Support of Debtors Chapter 11 Petitions and First Day Motions [Docket No. 194] (the First Day Declaration. The First Day Declaration is fully incorporated herein by reference. 3 Capitalized terms used and not defined have the same meanings given to such terms elsewhere in this Application, the Services Agreement or in the First Day Declaration, as applicable. 2

3 Document Page 3 of The bases for the relief requested herein are sections 327(a and 328 of title 11 of the United States Code (the Bankruptcy Code, Bankruptcy Rules 2014 and 2016, and rules and of the Local Bankruptcy Rules of the United States Bankruptcy Court for the Western District of Pennsylvania (the W.PA.LBR. Background 5. On the Petition Date, each of the Debtors filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Debtors are operating their business and managing their properties as debtors-in-possession pursuant to sections 1107(a and 1108 of the Bankruptcy Code. On May 17, 2017, the court entered an order [Docket No. 120] authorizing joint administration and procedural consolidation of these chapter 11 cases pursuant to Bankruptcy Rule 1015(b. On May 23, 2017, the United States Trustee for the Western District of Pennsylvania (the U.S. Trustee appointed an Official Committee of Unsecured Creditors (the Creditors Committee [Docket No. 203]. No request for the appointment of a trustee or examiner has been made in these chapter 11 cases. 6. On June 24, 2017, the Debtors filed the Debtors Application for Entry of an Order Authorizing Retention and Employment of Ernst & Young LLP as Tax Advisory Services Provider for the Debtors and Debtors in Possession and Statement Pursuant to Federal Rule of Bankruptcy Procedure 2014(A and Section 327(A of the Bankruptcy Code Nunc Pro Tunc to the Petition Date [Docket No. 589] (the EY LLP Tax Advisory Retention Application. 7. On July 14, 2017, the Bankruptcy Court entered the Modified Default Order Authorizing the Retention and Employment of Ernst & Young LLP as Tax Advisory Services Provider for the Debtors and Debtors in Possession Nunc Pro Tunc to the Petition Date [Docket No. 717]. 3

4 Document Page 4 of 10 EY LLP s Qualifications 8. The Debtors seek to employ and retain EY LLP because of its existing advisory relationship with the Debtors, and EY LLP s extensive knowledge of fresh start accounting and related valuation issues. In connection with its previous employment by the Debtors, EY LLP has considerable knowledge concerning the Debtors and is already familiar with the Debtors business affairs to the extent necessary for the scope of the proposed and anticipated services under the Audit Services SOW. EY LLP is familiar with the relevant financial information and other data maintained by the Debtors and is qualified and best positioned to provide the fresh start accounting and related valuation services to the Debtors in an efficient and cost effective manner. Services to be Provided 9. As set forth in further detail in the Audit SOW, EY LLP has agreed to provide the following fresh start accounting services to the Debtors during these chapter 11 cases: 4 Audit Services SOW 10. As set forth in detail in the Audit Services SOW attached hereto as Exhibit A-1, EY LLP will provide the following audit advisory services to the Debtors: Advise on fresh start accounting. Perform inventory observations to support fresh start accounting. 4 The summaries of certain terms of the Audit Services SOW herein are qualified in their entirety by reference to the provisions of the Audit Services SOW itself. To the extent there is any discrepancy between the summaries contained in this Application and the terms of the Audit Services SOW, the terms of the Audit Services SOW shall control. Unless otherwise defined, capitalized terms used in these summaries shall have the meanings ascribed to them in the Audit Services SOW. 4

5 Document Page 5 of 10 Efforts to Avoid Duplication of Services 11. All of the services that EY LLP will provide to the Debtors will be appropriately directed by the Debtors in an effort to avoid duplication of services among the other professionals retained in these chapter 11 cases. The Debtors believe that the services to be provided by EY LLP will complement and will not be duplicative of any services of the Debtors other professionals. Professional Compensation 12. Pursuant to section 328(a of the Bankruptcy Code, the Debtors request that the Court approve the retention of EY LLP at the rates expressed in the Audit Services SOW. EY LLP s current hourly rates under the Audit Services SOW are as follows: Classification Hourly Rate Partner/Principal/Executive Director $613 $712 Senior Manager $526 $597 Manager $483 $523 Senior Staff $341 $424 Staff $205 $ EY LLP s fees are exclusive of taxes or similar charges, as well as customs, duties, or tariffs imposed in respect of the Services, all of which the Debtors shall pay (other than taxes imposed on EY LLP s income generally. 14. In the normal course of EY LLP s business, its hourly rates are subject to periodic increase. To the extent such hourly rates are increased, EY LLP requests that, with respect to the work to be performed after such increase, the rates listed above be amended to reflect the increase. 15. In addition to the hourly rates set forth above, the Debtors shall reimburse EY LLP for any direct expenses incurred in connection with EY LLP s retention in these cases and 5

6 Document Page 6 of 10 the performance of the Services set forth in the Audit Services SOW. EY LLP s direct expenses shall include, but not be limited to, reasonable and customary out-of-pocket expenses for items such as travel, meals, accommodations and other expenses (including any fees or reasonable expenses of EY LLP s legal counsel specifically related to this engagement. Additionally, the Debtors shall also pay any potential value-added taxes (VAT, sales taxes, and other indirect taxes incurred in connection with the delivery of the Services, including any such taxes and related administrative costs that result from billing arrangements specifically requested by the Debtors. 16. EY LLP intends to apply for compensation for professional services rendered and reimbursement of expenses incurred in connection with these chapter 11 cases, subject to the Court s approval and in compliance with applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, U.S. Trustee guidelines, and any other applicable procedures and orders of the Court, on an hourly basis. Further, the Bankruptcy Court has entered the Modified Default Order (I Establishing Procedures for Interim Compensation and Reimbursement of Expenses for Professionals and (II Granting Related Relief [Docket No. 632], pursuant to which EY LLP intends to submit requests for compensation. EY LLP s Disinterestedness 17. To the best of the Debtors knowledge and except to the extent disclosed herein, EY LLP: (a is a disinterested person within the meaning of section 101(14 of the Bankruptcy Code; (b does not hold or represent an interest adverse to the Debtors estates; and (c has no connection to the Debtors, their creditors, or their related parties. To the extent that EY LLP discovers any new relevant facts or relationships bearing on the matters described herein during the period of its retention, EY LLP will use reasonable efforts to file promptly a supplemental declaration, as required by Bankruptcy Rule 2014(a. 6

7 Document Page 7 of 10 Basis for Relief 18. Section 327(a of the Bankruptcy Code allows the Debtors to employ and retain EY LLP as a professional person to represent the Debtors in carrying out their duties under the Bankruptcy Code. See 11 U.S.C. 327(a. A court may authorize a debtor to employ professionals that do not hold or represent an interest adverse to the estate, and that are disinterested persons. Id. As discussed herein and in the Grande Affidavit attached as Exhibit B to the EY LLP Tax Advisory Retention Application, EY LLP is a disinterested professional person Section 328 of the Bankruptcy Code provides, in relevant part, that a debtor with 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. 11 U.S.C. 328(a. Thus, section 328(a permits the Court to approve the terms of EY LLP s engagement as set forth in the Audit Services SOW. 20. As recognized by numerous courts, Congress intended section 328(a of the Bankruptcy Code to enable debtors to retain professionals pursuant to specific fee arrangements to be determined at the time of the Court s approval of the retention, subject to reversal only if the terms are found to be improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions. 11 U.S.C. 328(a. See Donaldson, Lufkin & Jenrette Sec. Corp. v. Nat l Gypsum Co. (In re Nat l Gypsum Co., 123 F.3d 861, (5th Cir ( If the most competent professionals are to be available for complicated capital 5 The Grande Affidavit filed on June 24, 2017 as Exhibit B to the EY LLP Tax Advisory Retention Application remains current. 7

8 Document Page 8 of 10 restructuring and the development of successful corporate reorganization, they must know what they will receive for their expertise and commitment The Debtors believe that the fee structures set forth in the Audit Services SOW are reasonable and should be approved under section 328(a of the Bankruptcy Code. The Debtors submit that EY LLP s fees are reasonable in light of (a industry practice; (b market rates charged for comparable services both in and out of the chapter 11 context; and (c EY LLP s substantial experience providing fresh start accounting services. 22. Likewise, the Debtors believe that the terms and conditions of the hourly services provided in the Audit Services SOW are customary and reasonable for fresh start accounting engagements and are in the best interests of the Debtors estates, creditors, and all parties in interest. As such, the Debtors submit that retention of EY LLP pursuant to the Audit Services SOW should be approved under section 327(a of the Bankruptcy Code, with compensation and expenses earned pursuant to the Audit Services SOW to be subject to review under sections 330 and 331 of the Bankruptcy Code. Nunc Pro Tunc Relief Is Warranted 23. The Debtors believe that employment of EY LLP effective nunc pro tunc to the August 16, 2017 is warranted under the circumstances of these chapter 11 cases (a so that EY LLP may be compensated for its services prior to entry of an order approving EY LLP s retention and (b because the Debtors believe that no party in interest will be prejudiced by the granting of the nunc pro tunc employment as EY LLP has provided, and will continue to provide, valuable services to the Debtors estates in the interim period. 8

9 Document Page 9 of 10 Motion Practice 24. This Application is accompanied by an Order attached hereto as Exhibit A. Accordingly, the Debtors submit that this Application satisfies W.PA.LBR (a and Notice 25. The Debtors will provide notice of this Application to: (a the Office of the United States Trustee for the Western District of Pennsylvania (the U.S. Trustee ; (b counsel to the Creditors Committee; (c counsel to the ABL Agent and the DIP ABL Agent; (d counsel to the Term Loan Agent and the DIP Term Loan Agent; (e counsel to the Indenture Trustee; (f counsel to Apax Partners, L.P.; (g the United States Attorney s Office for the Western District of Pennsylvania; (h the Internal Revenue Service; (i the office of the attorneys general for the states in which the Debtors operate; (j the Securities and Exchange Commission; and (k any party that has requested notice pursuant to Bankruptcy Rule The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. No Prior Request 26. No prior request for the relief sought in this Application has been made to this or any other court. 9

10 Document Page 10 of 10 WHEREFORE, the Debtors respectfully request that the Bankruptcy Court enter the Order granting the relief requested herein and such other relief as the Bankruptcy Court deems appropriate under the circumstances. Dated: September 6, 2017 Warrendale, Pennsylvania /s/ Todd M. Lenhart Todd M. Lenhart Senior Vice President, Treasurer, Chief Financial Officer, and Chief Accounting Officer rue21, inc. and its Debtor affiliates

11 Case GLT Doc Filed 09/06/17 Entered 09/06/17 16:16:10 Desc Proposed Order Page 1 of 7 EXHIBIT A Proposed Order

12 Case GLT Doc Filed 09/06/17 Entered 09/06/17 16:16:10 Desc Proposed Order Page 2 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA In re: Case No (GLT rue21, inc., et al., 1 Chapter 11 Debtors. (Jointly Administered Related to Docket No. rue21, inc., et al., Movants, v. No Respondent. Respondent. ORDER AUTHORIZING THE RETENTION AND EMPLOYMENT OF ERNST & YOUNG LLP AS FRESH START ACCOUNTING ADVISORS FOR THE DEBTORS AND DEBTORS IN POSSESSION NUNC PRO TUNC TO AUGUST 16, 2017 Upon the application (the Application 2 of the Debtors for entry of an order (this Order authorizing the Debtors to employ Ernst & Young LLP ( EY LLP as their fresh start accounting advisors nunc pro tunc to August 16, 2017, upon the terms and conditions set forth in the audit services statement of work between the Debtors and EY LLP, dated August 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: rue21, inc. (1645; Rhodes Holdco, Inc. (6922; r services llc (9425; and rue services corporation (0396. The location of the Debtors service address is: 800 Commonwealth Drive, Warrendale, Pennsylvania Unless otherwise defined, capitalized terms used herein shall have the meanings ascribed to them in the Application.

13 Case GLT Doc Filed 09/06/17 Entered 09/06/17 16:16:10 Desc Proposed Order Page 3 of 7 16, 2017 (the Audit Services SOW, a true and correct copy of which is attached hereto as Exhibit A-1; and this Court having jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; and this Court having found that this is a core proceeding pursuant to 28 U.S.C. 157(b(2; and this Court having found that it may enter a final order consistent with Article III of the United States Constitution; and this Court having found that venue of this proceeding and the Application in this district is proper pursuant to 28 U.S.C and 1409; and this Court having found that the Debtors notice of the Application and opportunity for a hearing on the Application were appropriate under the circumstances and that no other notice need be provided; and this Court having reviewed the Application and having heard the statements in support of the relief requested therein at a hearing before this Court (the Hearing ; and this Court having determined that the legal and factual bases set forth in the Application and at the Hearing establish just cause for the relief granted herein; and upon all of the proceedings had before this Court; and after due deliberation and sufficient cause appearing therefor, it is HEREBY ORDERED THAT: 1. The Application is granted to the extent set forth herein, nunc pro tunc to August 16, The Debtors are authorized to employ and retain EY LLP as their fresh start accounting advisors in accordance with the terms and conditions set forth in the Audit Services SOW, effective nunc pro tunc to August 16, 2017, and to pay fees and reimburse expenses to EY LLP on the terms and at the times specified in the Audit Services SOW. 3. EY LLP is a disinterested person as defined in section 101(14 of the Bankruptcy Code and as required by section 327(a of the Bankruptcy Code.

14 Case GLT Doc Filed 09/06/17 Entered 09/06/17 16:16:10 Desc Proposed Order Page 4 of 7 4. Notice of the Application as provided therein is deemed good and sufficient notice of such Application and the requirements of Bankruptcy Rule 6004(a and the local rules of this Court are satisfied by such notice. 5. The relief granted herein shall be binding upon any chapter 11 trustee appointed in any of these chapter 11 cases, or upon any chapter 7 trustee appointed in the event of a subsequent conversion of any of these chapter 11 cases to cases under chapter The Debtors and EY LLP are authorized to take all actions necessary to effectuate the relief granted in this Order in accordance with the Application. 7. To the extent that this Order is inconsistent with the Audit Services SOW, the terms of this Order shall govern. 8. This Court retains jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order. Prepared by: Kirkland & Ellis LLP (proposed counsel to the Debtors and the Debtors in Possession Pittsburgh, Pennsylvania Dated:, 2017 THE HONORABLE GREGORY L. TADDONIO UNITED STATES BANKRUPTCY JUDGE

15 Case GLT Doc Filed 09/06/17 Entered 09/06/17 16:16:10 Desc Proposed Order Page 5 of 7 EXHIBIT A-1 Audit Services SOW

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