Case KG Doc 327 Filed 05/21/18 Page 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case KG Doc 327 Filed 05/21/18 Page 1 of 5 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: Chapter 11 VER TECHNOLOGIES HOLDCO LLC, et al., 1 Case No (KG Debtors. (Jointly Administered Re: Dkt. No. 148 LIMITED OBJECTION OF PRODUCTION RESOURCE GROUP TO THE DEBTORS APPLICATION FOR ENTRY OF AN ORDER AUTHORIZING THE EMPLOYMENT AND RETENTION OF PJT PARTNERS LP AS INVESTMENT BANKER FOR THE DEBTORS AND DEBTORS IN POSSESSION, EFFECTIVE NUNC PRO TUNC TO THE PETITION DATE Production Resource Group ( PRG by and through its undersigned counsel hereby submits this limited objection to the Debtors Application for Entry of an Order Authorizing the Employment and Retention of PJT Partners LP as Investment Banker for the Debtors and Debtors in Possession, Effective Nunc Pro Tunc to the Petition Date (the Retention Application [Dkt. No. 148]. In support of this limited objection, PRG respectfully states as follows: 1. On April 27, 2018, the Debtors filed the Retention Application seeking authorization to retain PJT Partners LP ( PJT as investment banker to the Debtors nunc pro tunc to the Petition Date pursuant to sections 327(a and 328(a of the Bankruptcy Code. The terms of the PJT engagement are set forth in the Engagement Letter, a copy of which was attached to the Retention Application [Dkt. No ]. 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, include: VER Technologies HoldCo LLC (7239; VER Technologies MidCo llc (7482; VER Technologies LLC (7501; Full Throttle Films, LLC (0487; FAAST Leasing California, LLC (7857; Revolution Display, LLC (6711; VER Finco, LLC (5625; CPV Europe Investments LLC (2533; and Maxwell Bay Holdings LLC (3433. The location of the Debtors service address is: 757 West California Avenue, Building 4, Glendale, California # v1 \ \0005

2 Case KG Doc 327 Filed 05/21/18 Page 2 of 5 2. The Retention Application provides that PJT will be (i paid a monthly fee in the amount of $150,000, (ii a capital raising fee for any financing arranged by PJT (the Capital Raising Fee, and (iii a restructuring fee equal to $5,000,000 (the Restructuring Fee, and together with the Capital Raising Fee, the Success Fees. 3. As proposed, the Capital Raising Fee would earned and payable upon the closing of any financing arranged by PJT (using the calculations as provided in the Retention Application. Retention Application 12(b. 4. Additionally, as proposed, the Restructuring Fee would be paid upon the consummation of the Restructuring. Retention Application 12(c. A Restructuring, pursuant to the Engagement Letter, shall mean collectively, (i any restructuring, reorganization (whether or not pursuant to chapter 11 of the United States Bankruptcy Code ( Chapter 11 and/or recapitalization of the Company affecting any of its existing or potential debt obligations or other claims against the Company, including, without limitation, senior debt, junior debt trade claims, general unsecured claims, and preferred stock (collectively, the Obligations, and/or (ii a sale or other acquisition or disposition of a majority of the assets and order equity of the Company, and/or (iii any complete or partial repurchase, refinancing, extension or repayment by the Company or any of the Obligations. Retention Application at 6 n PRG does not object to the Debtors proposed retention of PJT entirely. PRG takes no issue with PJT s qualifications as an investment banker and takes no issue with the monthly fee paid to PJT. However, the proposed Success Fees do not currently satisfy the reasonableness standard for approval under section 328(a of the Bankruptcy Code. 6. Section 328(a of the Bankruptcy Code provides: (a The trustee... with the court s approval, may employ or authorize the employment of a professional person under section # v1 \ \0005 2

3 Case KG Doc 327 Filed 05/21/18 Page 3 of 5 11 U.S.C. 328(a of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed percentage or fee basis, or on a contingent fee basis. Notwithstanding such terms and conditions, the court may allow compensation different from the compensation provided under such terms and conditions after the conclusion of such employment, if such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of the fixing of such terms and conditions. 7. Approval of retention terms under section 328(a focuses on the reasonableness of such terms. It is imperative to establish reasonable compensation in connection with PJT s retention because retention pursuant to section 328(a fix[es]... such terms and conditions of employment which cannot be modified by the Court unless such terms and conditions prove to have been improvident in light of developments not capable of being anticipated at the time of approval. 11 U.S.C. 328(a. Courts may utilize the criteria set forth in section 330(a to analyze the reasonableness of proposed compensation under section 328(a. See Committee of Equity Sec. Holders of Federal-Mogul Corp. v. Official Comm. of Unsecured Creditors (In re Federal Mogul-Global, Inc., 348 F.3d 390, (3d Cir. 2003; In re Boomerang Tube, Inc., 548 B.R. 69, (Bankr. D. Del In order to satisfy its burden of reasonableness, a debtor must demonstrate that its proposed section 328(a retention (1 reflects normal business terms in the marketplace, (2 resulted from arm s-length negotiations, and (3 is in the best interests of the estate. See In re Energy Partners, Ltd., 409 B.R. 211, (Bankr. S.D. Tex Courts have also held that pre-approval of a fee arrangement under section 328(a depends on the totality of the circumstances. See In re Smart World Techs., LLC, 552 F.3d 228, (2d Cir Furthermore, a court need not approve or reject an application as presented but may approve an application with modified terms that the Court finds necessary to # v1 \ \0005 3

4 Case KG Doc 327 Filed 05/21/18 Page 4 of 5 render the proposed employment reasonable. In re Federal Mogul-Global, 348 F.3d at 398 (affirming bankruptcy court s authority under section 328(a to reduce proposed monthly fees of committee financial advisor. 8. The Debtors have not demonstrated that the Success Fees are reasonable at this time (nor could they at this stage of the case. The reasonableness of PJT s fees must be considered holistically and should be determined in light of the record of all PJT s contributions. In the PJT retention application, the Debtors have provided no evidence of how PJT contributed to the current restructuring. It is worth noting in this regard that PJT did not bring PRG to the table and was not involved in the proposed restructuring until late in the process. As such, it is too early to burden the Debtors estates with pre-approved Success Fees in excess of $5,000,000 under a 328(a retention that would be payable in numerous scenarios. 9. The Debtors assertion that the PJT compensation provisions were negotiated at arms -length and as a result are reasonable is not sufficient to demonstrate that the Success Fees are reasonable under section 330. See 11 U.S.C. 330(a(3. Moreover, to the extent that this case concludes with a successful merger with PRG, as contemplated by the RSA and the as filed Plan and Disclosure Statement, these fees will be paid with monies borrowed by PRG, which does not consent to pre-approval of this fee under section 328 of the Bankruptcy Code. 10. The Court should require the Debtors to demonstrate the reasonableness of the Success Fees if and when they are earned, which, given the broad scope of financing arranged by PJT and the definition of Restructuring in the Engagement Letter, could be under any number of circumstances. For many of those circumstances, capital raising fees and/or a $5 million fee may not be reasonable. If and when the Success Fees are triggered, PJT should file a # v1 \ \0005 4

5 Case KG Doc 327 Filed 05/21/18 Page 5 of 5 fee application and all parties should be able to object to the reasonableness of the Success Fees pursuant to section 330 and For the foregoing reasons, the PRG respectfully requests that the Court enter an order (1 denying pre-approval of the Success Fees under section 328(a, (2 requiring that PJT seek Court approval of the Success Fees, when earned, subject to the standard of review set forth in Bankruptcy Code sections 330 and 331, and (3 preserving the rights of all parties in interest to challenge the reasonableness of the Success Fees under Bankruptcy Code sections 330 and 331. Dated: Wilmington, Delaware May 21, 2018 PACHULSKI STANG ZIEHL & JONES LLP /s/ Laura Davis Jones Laura Davis Jones (DE Bar No N. Market Street, 17th Floor P.O. Box 8705 Wilmington, DE (Courier Telephone: ( Facsimile: ( ljones@pszjlaw.com and- Joseph T. Moldovan (Pro Hac Vice Robert K. Dakis (Pro Hac Vice MORRISON COHEN LLP 909 Third Avenue New York, NY Telephone: ( Facsimile: ( bankruptcy@morrisoncohen.com rdakis@morrisoncohen.com Co-Counsel For Production Resource Group # v1 \ \0005 5