united states bankruptcy court southern district of …€¦ · first and final application of...

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ) In re: ) Chapter 11 ) HOUGHTON MIFFLIN HARCOURT ) Case No. 12-12171 (REG) PUBLISHING COMPANY, et al., ) ) (Jointly Administered) Debtors. ) )

FIRST AND FINAL APPLICATION OF BLACKSTONE ADVISORY PARTNERS L.P. ASFINANCIAL ADVISOR TO THE DEBTORS FOR ALLOWANCE (AND FINAL APPROVAL)

OF COMPENSATION FOR ACTUAL AND NECESSARY SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY OUT-OF-POCKET EXPENSES

INCURRED FOR THE PERIOD OF MAY 21, 2012 THROUGH JUNE 22, 2012

SUMMARY SHEET

Name of Applicant: Blackstone Advisory Partners L.P.

Authorized to Provide Professional Services to: Debtors

Date of Retention: June 13, 2012 nunc pro tunc to May 21, 2012

Period for which Compensation And Reimbursement are sought May 21, 2012 through June 22, 2012

Amount of Compensation Sought as Actual, Reasonable, And Necessary: $8,690,430.11

Amount of Expense Reimbursement sought as Actual, Reasonable, and Necessarily Incurred: $181.47

Total Cash Payment Sought: $8,613,867.92

The total time expended for the preparation of this application was 10 hours and the corresponding compensation requested is $0.00.

This is a monthly interim x final application

Case 12-15610 Doc 167 Filed 08/06/12 Entered 08/06/12 15:25:12 Desc Main Document of 54

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Docket #0167 Date Filed: 8/6/2012


FIRST AND FINAL APPLICATION OF BLACKSTONE ADVISORY PARTNERS L.P. ASFINANCIAL ADVISOR TO THE DEBTORS FOR ALLOWANCE (AND FINAL APPROVAL)

OF COMPENSATION FOR ACTUAL AND NECESSARY SERVICES RENDERED AND REIMBURSEMENT OF ACTUAL AND NECESSARY OUT-OF-POCKET EXPENSES

INCURRED FOR THE PERIOD OF MAY 21, 2012 THROUGH JUNE 22, 2012

Blackstone Advisory Partners L.P. (“Blackstone”) financial advisor to the above captioned

debtors and debtors-in-possession (collectively, the “Debtors”), respectfully represents:

I. Background

1. On May 21, 2012 (the "Petition Date"), each of the Debtors filed a voluntary petition for

relief under chapter 11 of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq., as amended

(the "Bankruptcy Code"). The Debtors operated their business and managed their property as

debtors-in-possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code.

2. On May 25, 2012, the Debtors applied to the Court for an order authorizing the retention and

employment of Blackstone nunc pro tunc to the Petition Date (D.I. 54) pursuant to the engagement

agreement dated February 2, 2012 (the "Engagement Agreement"). A copy of the Engagement

Agreement is attached hereto as Appendix A.

3. On May 30, 2012, the United States Trustee filed a motion to transfer venue of the Debtors’

cases (D.I. 57).

4. On June 13, 2012, the Court entered an order (the “Retention Order”) pursuant to Sections

327(a) and 328(a) of the Bankruptcy Code authorizing the employment and retention of Blackstone


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as financial advisor to the Debtors nunc pro tunc to the Petition Date (D.I. 97). A copy of the

Retention Order is attached hereto as Appendix B.

5. On June 21, 2012, the Court issued its Findings Of Fact, Conclusions Of Law, and Order (I)

Approving 16 The Debtors (A) Disclosure Statement Pursuant To Sections 1125 And 1126(b) Of

The Bankruptcy Code, (B) Solicitation Of Votes And Voting Procedures, and (C) Forms Of Ballots;

(II) Confirming The Prepackaged Joint Plan Of Reorganization Of The Debtors Under Chapter 11

Of The Bankruptcy Code; And (III) Authorizing The Conversion Of The DIP Credit Facility Into

The Exit Facility (D.I. 122).

6. On June 28, 2012, the Court entered an order granting the United States Trustee’s motion to

transfer venue to the United States Bankruptcy Court for the District of Massachusetts (Boston

Division) (D.I. 131).

7. This is the first and final fee application (the "Final Application") of Blackstone for

allowance (and final approval) of compensation for services rendered and reimbursement of out-of-

pocket expenses recognized during the period of May 21, 2012 through June 22, 2012 (the

"Compensation Period").

8. This Final Application is made pursuant to the provisions of Sections 328(a), 330 and 331 of

the Bankruptcy Code, the Retention Order, the Bankruptcy Rules, and, to the extent applicable,

MLBR 2016-1 and the fee guidelines promulgated by the Office of the United States Trustee (the

“U.S. Trustee Guidelines”), and the Amended Guidelines for Fees and Disbursements or

Professionals in Southern District of New York Bankruptcy Cases (together with the U.S. Trustee

Guidelines, the “Fee Guidelines”), and further orders of the Court for all services performed and

expenses incurred after the Petition Date.


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II. The Blackstone Engagement

9. Blackstone was retained by the Debtors as financial advisor to provide the following

financial advisory services:

(a) Assist in the evaluation of the Debtors’ businesses and prospects;

(b) Assist in the development of the Debtors’ long-term business plan and related financial projections;

(c) Assist in the development of financial data and presentations to the Debtors’ Board of Directors, various creditors and other third parties;

(d) Analyze the Debtors’ financial liquidity and evaluate alternatives to improve such liquidity;

(e) Analyze various restructuring scenarios and the potential impact of these scenarios on the recoveries of those stakeholders impacted by the Restructuring;

(f) Provide strategic advice with regard to restructuring or refinancing the Debtors’ Obligations;

(g) Evaluate the Debtors’ debt capacity and alternative capital structures;

(h) Participate in negotiations among the Debtors and its creditors, suppliers, lessors and other interested parties;

(i) Value securities offered by the Debtors in connection with a Restructuring;

(j) Advise the Debtors and negotiate with lenders with respect to potential waivers or amendments of various credit facilities;

(k) Assist in arranging debtor-in-possession (“DIP”) financing for the Debtors, as requested;

(l) Provide expert witness testimony concerning any of the subjects encompassed by other financial advisory services;

(m)Assist the Debtors in preparing marketing materials in conjunction with a possible Transaction;

(n) Assist the Debtors in identifying potential buyers or parties in interest to a Transaction and assist in the due diligence process; and

(o) Assist and advise the Debtors concerning the terms, conditions and impact of any proposed Transaction.


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10. Pursuant to the terms of the Engagement Agreement, as approved by the Retention Order,

Blackstone is entitled to be compensated for its services under the Engagement Agreement as

follows:1

(a) A monthly advisory fee (the “Monthly Fee”) in the amount of $175,000.00 in cash, with the first Monthly Fee payable upon the execution of the Engagement Agreement by both parties and additional installments of such Monthly Fee payable in advance on each monthly anniversary of the Effective Date; provided, however, that from and after August 1, 2012, 50% of any Monthly Fee shall be credited against the Restructuring Fee when and if paid;

(b) A capital raising fee (the “Capital Raising Fee”) for any financing arranged by Blackstone, at the Debtors’ request, earned and payable upon closing of the financing. If access to the financing is limited by orders of bankruptcy court, a proportionate fee shall be payable with respect to each available commitment (irrespective of availability blocks, borrowing base or other similar restrictions). The capital raising fee will be calculated as 1.0% of the total issuance size for senior debt financing, 3.0% of the total issuance size for the junior debt financing, and 5.0% of the issuance amount for equity financing; provided, however, that no fee shall be due on any capital raised from the Debtors’ existing lenders, creditors or shareholders;

(c) An additional fee (the “Restructuring Fee”) equal to $7,000,000.00. Except as otherwise provided herein, a Restructuring shall be deemed to have been consummated upon 1) the binding execution and effectiveness of necessary waivers, consents, amendments or restructuring agreements between the Debtors and its creditors involving the compromise of the face amount of such Obligations or conversion of all or part of such Obligations into alternative securities, including equity, in the case of an out-of-court restructuring; or 2) the execution, confirmation and consummation of a Plan of Reorganization pursuant to an order of the Bankruptcy Court, in the case of an in-court restructuring. The Restructuring Fee will be:

i. Earned on the earliest of:

1. Consummation of the Restructuring, and

2. In the event that the Debtors solicit acceptances for a prepackaged plan of reorganization under Chapter 11 to implement the Restructuring, one-half (50%) of the Restructuring Fee on the date established as the voting deadline for acceptances or rejections, provided that at least two-thirds in amount of one class of creditors impaired by such plan has accepted such plan, and one-half (50%) of the Restructuring Fee on the consummation of the Restructuring; and

1 This description of Blackstone’s compensation structure is for summary and illustrative purposes only. The terms of the Engagement Agreement and the Retention Order shall apply to any such compensation awarded to Blackstone.


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ii. Payable, in immediately available funds, on the earliest of:

1. Consummation of the Restructuring; provided that, with respect to a Restructuring pursuant to a prepackaged plan of reorganization as described in paragraph (i)(2) immediately above, one-half (50%) of the Restructuring Fee shall be payable with in one business day following the voting deadline referred to in (i)(2) immediately above and one-half (50%) shall be payable upon consummation of the Restructuring; and

2. Consummation of the exchange offer.

(d) Upon the consummation of a Transaction, a Transaction fee (the “Transaction Fee”) payable in cash and to be determined in accordance with conventional compensation terms for nationally recognized investment banking firms; and

(e) Reimbursement of all reasonable out-of-pocket expenses incurred during this engagement, including, but not limited to, travel and lodging, direct identifiable data processing, document production, publishing services and communication charges, courier services, working meals, reasonable fees and expenses of Blackstone’s counsel and other necessary expenditures, payable upon rendition of invoices setting forth in reasonable detail the nature and amount of such expenses. In connection therewith, the Debtors shall pay Blackstone on the Effective Date and maintain thereafter a $25,000.00 expense advance for which Blackstone shall account upon termination of the Engagement Agreement.

III. Services Provided By Blackstone during Compensation Period

11. The transaction was executed through a consensual prepackaged restructuring that required a

majority of the negotiations and structuring to be completed prior to filing. Most of Blackstone’s

services in the transaction were provided prior to the Compensation Period in order to prepare the

Company for filing and the resultant successful outcome. The nature of the work performed by

Blackstone prior to and during the Compensation Period included the following:

Consensual Prepackaged Bankruptcy

� Successfully negotiated prepackaged bankruptcy plan to eliminate approximately $3.1 billion of debt with support from 90% of creditors and 76% of equity holders in advance of solicitation;

� Ultimately garnered support from 96% of creditors and 96% of equity holders;


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Business and Operations

� Facilitated business and legal due diligence processes with Debtors’ secured creditors and their advisors;

� Assisted in the development and weekly maintenance of the Debtors’ cash flow budget;

� Assisted in facilitating the process for selecting new board members and proposed candidates;

Strategic and Business Plans

� Assisted the Debtors in developing a six-year business plan that served as the foundation for the entire restructuring;

� Analyzed the Debtors’ liquidity and evaluated alternatives to improve such liquidity;

� Provided strategic advice to the Debtors with regards to restructuring and refinancing alternatives;

� Developed a financial model to forecast the Debtors’ financial statements and analyze various restructuring scenarios and the potential impact of these scenarios on the business;

� In coordination with the Debtors counsel, created and delivered presentations to the Debtors’ Board of Directors regarding its financial position, restructuring/refinancing alternatives, Chapter 11 process and other related items;

DIP Financing

� Arranged successful, fully committed DIP-to-Exit financing;

� Solicited and negotiated proposals from multiple capital providers in an effort to obtain favorable financing terms;

� Supported all diligence and analytical efforts as part of the financing process;

Plan of Reorganization

� Developed the timeline and strategy of the reorganization process with the Debtors' management and the Debtors' legal advisors;

� Participated in frequent meetings and calls with Management and Debtors’ counsel to discuss the Debtors’ bankruptcy and various issues related thereto;

� Advised Debtors and actively participated in negotiations to develop a transaction framework;


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� Coordinated with the Debtors and the Debtors' legal advisors in the development, discussion and review of the amended Plan and Disclosure Statement;

o Prepared, reviewed, and finalized the Projections, Pro Forma Financial Statements, Liquidation Analysis and Valuation Analysis for incorporation into the Disclosure Statement;

� Reviewed draft credit documents and other documents filed;

� Worked with the Debtors and the Debtors' legal advisors to complete all necessary items leading up to the Plan Confirmation hearing;

� Assisted in structuring and negotiating the Management Incentive Plan; and

� Provided such other advisory services as are customarily provided in connection with the analysis and negotiation of a restructuring.

IV. The Blackstone Team

12. The financial advisory services set forth above were performed primarily by: Timothy

Coleman, Senior Managing Director; Paul Huffard, Senior Managing Director; Jamie Baird, Vice

President; Paul Sheaffer, Associate; Ronak Amin, Analyst; and other professionals of Blackstone, as

needed. Details of the background and experience of the professionals are provided in Appendix C.

V. Blackstone’s Request for Allowance (and Final Approval) of Compensation and Reimbursement of Out-Of-Pocket Expenses

A. Payment Received During Blackstone’s Pre-Petition Retention

13. Prior to the Petition Date, Blackstone was retained by the Debtors on a pre-petition basis to

represent the Debtors in their restructuring and reorganization efforts (the “Pre-Petition Retention”).

In connection with the Pre-Petition Retention, and pursuant to the Engagement Agreement, the

Debtors paid Blackstone a sum total of $4,240,446.85 (which includes 50% of the Restructuring Fee

and a $25,000.00 expense advance (the “Pre-Petition Expense Advance”)) for services rendered and

out-of-pocket expenses incurred for the period of February 2, 2012 through June 1, 2012.

14. Of the $4,240,446.85 Blackstone received during the Pre-Petition Retention, Blackstone

earned pre-petition Monthly Fees of $632,258.06 for 109 calendar days covering the period of


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February 2, 2012 through May 20, 2012, $3,500,000.00 representing 50% of the Restructuring Fee,

and was reimbursed for $15,446.85 of pre-petition out-of-pocket expenses incurred. After crediting

the earned pre-petition fees and reimbursable out-of-pocket expenses from the total amount of pre-

petition payments received prior to the Petition Date, Blackstone was holding net unearned Monthly

Fees in the amount of $67,741.941 (the “Pre-Petition Fee Payment”), and the Pre-Petition Expense

Advance as of the Petition Date. Accordingly, Blackstone will apply the Pre-Petition Fee Payment

towards post-petition Monthly Fees earned and requested in this Final Application.

15. With respect to the Pre-Petition Expense Advance, Blackstone has identified unbilled pre-

petition out-of-pocket expenses incurred in the amount of $15,998.28. Accordingly, Blackstone has

applied $15,998.28 of the Pre-Petition Expense Advance against said unbilled pre-petition out-of-

pocket expenses, leaving a net balance of $9,001.72 of the Pre-Petition Expense Advance.

Blackstone will apply the remaining portion of the Pre-Petition Expense Advance towards fees and

expenses requested in this Final Application.

B. Blackstone’s Final Application

16. During the Compensation Period, Blackstone has provided advisory services to the Debtors

and earned Monthly Fees for such services totaling $190,430.11. In connection with the advisory

services rendered during the Compensation Period, Blackstone has recognized actual and necessary

out-of-pocket expenses in the amount of $181.47.

1 Amount represents payment of advisory fee for the period of May 21, 2012 through June 1, 2012.


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17. In addition to the Monthly Fee earned and out-of-pocket expenses recognized during the

Compensation Period, Blackstone has earned a Capital Raising Fee in the amount of $5,000,000.001

and a Restructuring Fee in the amount of $3,500,000.002.

18. A summary of all fees earned and out-of-pocket expenses recognized during the

Compensation Period is outlined in the chart below:

Fee Period Fees Expenses Amount Due 05/21/12 – 05/31/123 $62,096.77 $181.47 $62,278.2406/01/12 – 06/22/124 128,333.33 -- 128,333.33Capital Raising Fee 5,000,000.00 -- 5,000,000.0050% of Restructuring Fee 3,500,000.00 -- 3,500,000.00Less: Pre-Petition Fee Payment -- -- (67,741.94)Less: Pre-Petition Expense Advance -- -- (9,001.72)Total $8,690,430.11 $181.47 $8,613,867.92

19. Blackstone respectfully submits that the compensation sought in this Final Application for

services rendered by Blackstone to the Debtors during the Compensation Period is fully justified and

reasonable based upon (a) the time and labor required, (b) the complexity of the issues presented, (c)

the skill necessary to perform the financial advisory services properly, (d) the preclusion of other

employment, (e) the customary fees charged to clients in non-bankruptcy situations for similar

services rendered, (f) time constraints required by the exigencies of the case and (g) the experience,

reputation and ability of the professionals rendering services.

20. Blackstone respectfully submits that the services it has rendered to the Debtors have been

necessary and in the best interest of the Debtors and have furthered the goals of all parties in interest.

1 Amount consists of 1% on $500 million DIP/exit facility or ($5,000,000.00) comprised of 1% of $400 million interim DIP facility(or $4,000,000.00), and 1% on incremental $100 million DIP/exit facility (or $1,000,000.00). 2 In May 2012, Blackstone received approximately $4.2 million in fees and expenses as compensation for pre-petition financial advisory services rendered by it to the Debtors between February 2012 and May 2012. Said amount includes $700,000.00 of MonthlyFees, and $3.5 million (or 50%) of the $7,000,000.00 Restructuring Fee as earned pursuant to the terms of the Engagement Agreement. Blackstone seeks allowance (and final approval) of the remaining $3.5 million of the Restructuring Fee as earned pursuant to the Engagement Agreement. 3 Calculated as follows: 11 out of 31 days multiplied by $175,000.00. 4 Calculated as follows: 22 out of 30 days multiplied by $175,000.00.


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The effort expended by Blackstone in representing the Debtors, the complexity of the issues and the

difficulty in negotiating these cases have been substantial.

21. Blackstone respectfully submits that under all of the criteria normally examined in chapter 11

reorganization cases, the compensation requested by Blackstone is reasonable in light of the work

performed by Blackstone in these cases.

22. The amount of the fees and out-of-pocket expenses sought in this Final Application and

Blackstone’s billing processes are consistent with market practices both in and out of a bankruptcy

context. Blackstone has never billed its clients based on the number of hours expended by its

professionals. Blackstone has, however, maintained contemporaneous time records in the Debtors’

case in one-half hour increments. Time records of the 246.0 hours expended by Blackstone

professionals in providing financial advisory services to the Debtors during the Compensation

Period are provided in Appendix D by professional.

23. A summary of the hours worked by Blackstone professionals during the Compensation

Period is summarized below:

Professional Total Hours Tim Coleman 3.0Paul Huffard 21.5Jamie Baird 66.0Paul Sheaffer 65.5Ronak Amin 90.0Total(s) 246.0

24. Because Blackstone’s engagement is not based on its hourly fees, Blackstone respectfully

submits that it cannot provide the summary chart required by MLBR 2016-1(2).

VI. Blackstone’s Request for Allowance of Reimbursement of Out-Of-Pocket Expenses

25. The consensual, swift nature of these chapter 11 proceedings – the hallmarks of a

prepackaged plan of reorganization – was made possible in large part by Blackstone’s significant

contributions during the Pre-Petition Retention. Blackstone’s efforts prior to and during the


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Compensation Period enabled the Debtors to achieve a successful chapter 11 outcome, providing

them with significant runway to continue to improve its balance sheet while protecting the interests

of its existing shareholders.

26. During the Compensation Period, Blackstone recognized actual and necessary out-of-pocket

expenses aggregating $181.47. Blackstone respectfully requests the allowance of its out-of-pocket

expenses recognized during the Compensation Period in connection with its performance of services

for the Debtors in the aggregate amount of $181.47. Details of the expenses recognized during the

Compensation Period are provided in Appendix E.

27. Out-of-pocket expenses incurred by Blackstone are charged to a client if the expenses are

incurred for the client or are otherwise necessary in connection with services rendered for such

particular client. Blackstone does not factor general overhead expenses into disbursements charged

to its clients in connection with chapter 11 cases. Blackstone has followed its general internal

policies with respect to out-of-pocket expenses billed to the Debtors as set forth below, with any

exceptions specifically explained:

(a) All airfare charges billed to the Debtors are based on coach rates.

(b) With respect to local travel, Blackstone's general policy enables employees to travel by taxi or, in certain circumstances private car service, to and from meetings while rendering services to a client on a client related matter, for which the client is charged. Further, and primarily for safety reasons, employees are permitted to charge to a client the cost of transportation home if an employee is required to work past 9:00 p.m. on client specific matters.

(c) Blackstone's general policy permits its professionals to charge in-office dinner meals to a client who have worked 3 hours beyond their regularly scheduled workday if the employee is required to provide services to the client during such dinnertime.

(d) The Document Production category of expenses includes charges from outside service companies that provide, for a fee, high volume photocopying services on an expedited basis to Blackstone; and charges for internal photocopying services provided by Blackstone. Blackstone bills internal Document Production charges at the rate of $0.10 per page for black and white photocopies, and $0.25 per page for


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color photocopies. However, and for purposes of these cases, Blackstone will bill the Debtors at a rate of $0.15 per page for color photocopies in accordance with the local rules.

(e) The Publishing Services category of expenses includes charges for the production of text-based publications such as memoranda and presentations, and printing and binding services.

(f) The External Research category of expenses includes charges from outside computer/electronic service companies that supply, for a fee, research and/or financial documents to Blackstone. The services provided by these companies primarily consist of the retrieval of financial documents from regulatory agencies and/or the retrieval of research that would not otherwise be available to Blackstone. The Internal Research category of expenses are the charges for time spent by Blackstone research staff in operating the computer/electronic terminals related to these computer/electronic service companies.

(g) Blackstone bills outgoing long-distance facsimile charges at a rate of $1.25 per page. Blackstone does not bill local or incoming facsimile charges to clients.

28. Pursuant to MLBR 2016-1(2)(F), also included in Appendix E is a summary chart detailing

the total amount of each type of out-of-pocket expense for which reimbursement is sought.

29. Blackstone respectfully submits that the out-of-pocket expenses for which Blackstone seeks

allowance and reimbursement of were necessary and reasonable both in scope and amount.

30. All services provided by Blackstone for which compensation is requested were performed for

and on behalf of the Debtors after the filing of these cases and were not rendered on behalf of any

other person.

31. There is currently no agreement or understanding between Blackstone and any other person

for the sharing of compensation received or to be received for services rendered in connection with

these proceedings.


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VII. Requested Relief

WHEREFORE, Blackstone requests the Court to:

(a) Approve the allowance of Blackstone’s (i) Monthly Fees in the amount of $190,430.11; (ii) Capital Raising Fee in the amount of $5,000,000.00, (iii) remaining 50% of the Restructuring Fee in the amount of $3,500,000.00, and (iv) the reimbursement of out-of-pocket expenses incurred in the amount of $181.47 for the Compensation Period;

(b) Authorize and direct the Debtors to pay Blackstone's advisory fees and out-of-pocket expenses for the Compensation Period as follows:

Monthly Fees $190,430.11 Capital Raising Fee 5,000,000.00 Remaining 50% of the Restructuring Fee 3,500,000.00 Out-Of-Pocket Expenses 181.47 Less: Pre-Petition Fee Payment (67,741.94) Less: Remaining Expense Advance (9,001.72) Amount Due Blackstone $8,613,867.92

(c) Deem all fees and out-of-pocket expenses applied for in this Final Application as final; and

(d) Grant such other and further relief as the Court deems just and proper.


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Dated: August 6, 2012 Blackstone Advisory Partners L.P. Financial Advisor to the Debtors

By: /s/ Paul Huffard___________ Paul Huffard Senior Managing Director 345 Park Avenue New York, NY 10154 (212) 583-5000 (212) 583-5707 (Fax)



CERTIFICATION UNDER GUIDELINES FOR FEES AND OUT-OF-POCKETEXPENSES FOR PROFESSIONALS IN RESPECT OF FINAL APPLICATION OF

BLACKSTONE ADVISORY PARTNERS L.P. FOR COMPENSATION ANDREIMBURSEMENT OF OUT-OF POCKET EXPENSES

I, Paul Huffard, hereby certify that:

1. I am a Senior Managing Director with the applicant firm, Blackstone Advisory Partners L.P.

(“Blackstone”), with responsibility for the chapter 11 cases of the above captioned debtors and

debtors in possession in these chapter 11 cases (collectively, “Debtors”).

2. Because these Chapter 11 cases were originally filed with the Bankruptcy Court of the

Southern District of New York, and because all of Blackstone’s work for the Debtors was

undertaken while the cases were pending in New York, Blackstone is submitting this certification in

accordance with the guidelines established by the Office of the United States Trustee (the “UST

Guidelines”), the Guidelines for Fees and Disbursements for Professionals in Southern District of

New York Bankruptcy Cases adopted by the Court on June 20, 1991 (the “Fee and Disbursement

Guidelines”), the Amended Guidelines for Fees and Disbursements for Professionals in Southern

District of New York Bankruptcy Cases, adopted by the Court on November 25, 2009 (together with

the Fee and Disbursement Guidelines, the “Local Guidelines”), and the UST Guidelines, the Fee and

Disbursement Guidelines and the Local Guidelines, the “Guidelines”), with respect to Blackstone’s

first and final fee application (the “Final Application”), dated July 27, 2012, for allowance (and final


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approval) of compensation for services rendered and reimbursement of out-of-pocket expenses as

financial advisor to the above-captioned debtors and debtors-in-possession (collectively, the

“Debtors”) for the period of May 21, 2012 through June 22, 2012.

3. In respect of section B.1 of the Local Guidelines, I certify that:

a. I have read the Final Application;

b. To the best of my knowledge, information, and belief formed after reasonable inquiry, the fees and disbursements sought fall within the Local Guidelines and the UST Guidelines;

c. The fees and out-of-pocket expenses sought are customarily charged by Blackstone and generally accepted by Blackstone’s clients; and

d. In providing a reimbursable service, Blackstone does not make a profit on that service, whether the service is performed by Blackstone in-house or through a third party.

4. In accordance with section B.2 of the Local Guidelines and as required by the Administrative

Order, I certify that Blackstone has complied with those provisions requiring it to provide the

Debtors and any official committee appointed in these cases with a statement of Blackstone’s fees

and out-of-pocket expenses.

5. In respect of section B.3 of the Local Guidelines, I certify that the Debtors and the Office of

the United States Trustee for the Southern District of New York are being provided with copies of

the Final Application.


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Dated: August 6, 2012 By: /s/ Paul Huffard Paul Huffard Senior Managing Director


APPENDIX A


APPENDIX B


UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - xIn re:

HOUGHTON MIFFLINHARCOURT PUBLISHING COMPANY, et al.,

Debtors.

::::::

Chapter 11

Case No. 12-12171 (REG)]

Jointly Administered

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

ORDER PURSUANT TO SECTIONS 327(a) AND 328 (a) OF THE BANKRUPTCY

CODE, BANKRUPTCY RULE 2014(a), AND LOCAL RULE 2014-1, AUTHORIZING THE EMPLOYMENT AND RETENTION OF

BLACKSTONE ADVISORY PARTNERS L.P. AS FINANCIAL ADVISOR TO THE DEBTORS NUNC PRO TUNC TO THE PETITION DATE

Upon the application (the “Application”)1 of Houghton Mifflin Harcourt

Publishing Company and its affiliated debtors and debtors-in-possession in the above-

captioned cases (each a “Debtor,” and collectively, the “Debtors”), pursuant to sections

327(a) and 328(a) of title 11 of the United States Code (the “Bankruptcy Code”), Rule

2014(a) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and

Rule 2014-1 of the Local Bankruptcy Rules for the Southern District of New York (the

“Local Rules”), for authorization to employ and retain Blackstone Advisory Partners

L.P. (“Blackstone Advisory Partners”) as its financial advisor nunc pro tunc to the date

on which the Debtors commenced their chapter 11 cases (the “Petition Date”) on the

terms set forth in the engagement letter between the Debtors and Blackstone Advisory

Partners, effective as of February 2, 2012 (the “Retention Letter”), and the related

indemnification agreement, dated as of February 2, 2012 (the “Indemnification Letter”

1 All capitalized terms used and not defined herein shall have the meaning ascribed to them in the Application.

Case 12-15610 Doc 96 Filed 06/13/12 Entered 07/02/12 16:32:48 Desc Main Document Page 1 of 8


and together with the Retention Letter, the “Blackstone Agreement”), all as more fully

described in the Application; and upon consideration of the Declaration of Flip Huffard

Pursuant to Sections 327(a) and 328(a) of the Bankruptcy Code, Bankruptcy Rule

2014(a) and Local Rule 2014-1, for Authorization to Employ and Retain Blackstone

Advisory Partners L.P. as Financial Advisor Nunc Pro Tunc to the Petition Date (the

“Huffard Declaration”); and the Declaration of Robert J. Gentile Pursuant to Sections

327(a) and 328(a) of the Bankruptcy Code, Bankruptcy Rule 2014(a) and Local Rule

2014-1, for Authorization to Employ and Retain Blackstone Advisory Partners L.P. as

Financial Advisor Nunc Pro Tunc to the Petition Date (the “Gentile Declaration”); and

the Court having subject matter jurisdiction to consider the Application and the relief

requested therein in accordance with 28 U.S.C. § 1334 and the Standing Order M-61

Referring to Bankruptcy Judges for the Southern District of New York Any and All

Proceedings Under Title 11, dated July 10, 1984 (Ward, Acting C.J.); and consideration

of the Application and the relief requested therein being a core proceeding pursuant to 28

U.S.C. § 157(b); and due and proper notice of the Application having been provided, and

it appearing that no other or further notice need be provided; and no objections having

been filed prior to the scheduled hearing to consider the relief requested in the

Application; and upon all of the proceedings had before the Court; and the Court being

satisfied that Blackstone Advisory Partners represents or holds no interest adverse to the

Debtors or their estate and is disinterested under section 101(14) of the Bankruptcy Code,

as modified by section 1107(b) of the Bankruptcy Code; and the Court being satisfied

that the terms of the Blackstone Agreement are reasonable terms for purposes of section

328(a) of the Bankruptcy Code; and the Court having determined that the relief sought in



the Application is in the best interests of the Debtors, their estate, their creditors and all

Parties-in-Interest; and that the legal and factual bases set forth in the Application

establish just cause for the relief granted herein; and after due deliberation and sufficient

cause appearing therefor, it is hereby ORDERED that:

1. The Application is granted as provided for herein.

2. Pursuant to sections 327(a) and 328(a) of the Bankruptcy Code,

Bankruptcy Rule 2014 and Local Rule 2014-1, the Debtors are authorized to employ and

retain Blackstone Advisory Partners as financial advisor to the Debtors in accordance

with the terms and conditions set forth in the Blackstone Agreement, except for as

otherwise provided for herein.

3. Blackstone Advisory Partners is authorized to provide the

following services:

a. Assist in the evaluation of the Debtors’ businesses and prospects;

b. Assist in the development of the Debtors’ long-term business plan and related financial projections;

c. Assist in the development of financial data and presentations to the Debtors’ board of directors, various creditors and other third parties;

d. Analyze the Debtors’ financial liquidity and evaluate alternatives to improve such liquidity;

e. Analyze various restructuring scenarios and the potential impact of these scenarios on the recoveries of those stakeholders impacted by the restructuring;

f. Provide strategic advice with regard to restructuring or refinancing the Debtors’ obligations;

g. Evaluate the Debtors’ debt capacity and alternative capital structures;

h. Participate in negotiations among the Debtors and their creditors, suppliers, lessors and other interested parties;



i. Value securities offered by the Debtors in connection with a restructuring;

j. Advise the Debtors and negotiate with lenders with respect to potential waivers or amendments of various credit facilities;

k. Assist in arranging debtor-in-possession financing for the Debtors, as requested;

l. Provide expert witness testimony concerning any of the subjects encompassed by the other financial advisory services;

m. Assist the Debtors in preparing marketing materials in conjunction with a possible transaction;

n. Assist the Debtors in identifying potential buyers or parties in interest to a transaction and assist in the due diligence process; and

o. Assist and advise the Debtors concerning the terms, conditions and impact of any proposed transaction

4. Blackstone Advisory Partners’ compensation as set forth in the

Blackstone Agreement, including, without limitation, the Monthly Fee, the Capital

Raising Fee and the Restructuring Fee (each as defined in the Retention Letter), are

approved pursuant to section 328(a) of the Bankruptcy Code.

5. Blackstone Advisory Partners shall apply for compensation and

reimbursement in accordance with the procedures set forth in sections 330 and 331 of the

Bankruptcy Code, applicable provisions of the Bankruptcy Rules, the Local Rules, the

U.S. Trustee Guidelines, and such other procedures as may be fixed by order of this

Court; provided, however, that Blackstone Advisory Partners shall be compensated and

reimbursed pursuant to section 328(a) of the Bankruptcy Code and that Blackstone

Advisory Partners’ fees and expenses shall not be evaluated under the standard set forth

in section 330 of the Bankruptcy Code; provided further, however, that notwithstanding

anything to the contrary in the Bankruptcy Code, the Bankruptcy Rules, the Local Rules,



the U.S. Trustee Guidelines, orders of this Court, or any other applicable rules, in light of

services to be provided by Blackstone Advisory Partners and the structure of Blackstone

Advisory Partners’ compensation pursuant to the Retention Letter, (i) Blackstone

Advisory Partners shall be required only to keep summary time records in one half-hour

increments, and (ii) Blackstone Advisory Partners and its professionals shall not be

required to provide or conform to any schedule of hourly rates.

6. The Debtors are authorized to pay Blackstone Advisory Partners’

Monthly Fee and Restructuring Fee and to reimburse Blackstone Advisory Partners for its

costs and expenses as provided in the Blackstone Agreement, in accordance with the

monthly, interim and final fee application process approved by this Court. The Debtors

are also authorized to pay Blackstone Advisory Partners’ Capital Raising Fee on the close

of the financing (on a pro-rata basis for the interim and final funding). None of the fees

payable to Blackstone Advisory Partners shall constitute a “bonus” or fee enhancement

under applicable law.

7. Notwithstanding anything contained herein to the contrary, the

United States Trustee retains all rights to object to Blackstone Advisory Partners’ interim

and final fee applications (including any Monthly Fees, Capital Raising Fees,

Restructuring Fees, Transaction Fees and expense reimbursements) on all grounds

including, but not limited to, the reasonableness standard provided for in section 330 of

the Bankruptcy Code, and the Court retains the right to review the interim and final

applications pursuant to section 330 of the Bankruptcy Code.

8. Prior to any increases in Blackstone Advisory Partners’ rates for

any individual retained by Blackstone Advisory Partners’ and providing services in these



cases, Blackstone Advisory Partners shall file a supplemental affidavit with the Court and

provide ten business days’ notice to the Debtors, the United States Trustee, any official

committee, and counsel to the ad hoc group of first lien lenders. The supplemental

affidavit shall explain the basis for the requested rate increases in accordance with

Section 330(a)(3)(F) of the Bankruptcy Code and state whether Blackstone Advisory

Partners’ client has consented to the rate increase. The United States Trustee retains all

rights to object to any rate increase on all grounds including, but not limited to, the

reasonableness standard provided for in section 330 of the Bankruptcy Code, and the

Court retains the right to review any rate increase pursuant to Section 330 of the

Bankruptcy Code.

9. Blackstone Advisory Partners shall apply any remaining amounts

of its prepetition retainer as a credit toward postpetition fees and expenses, after such

postpetition fees and expenses are approved pursuant to the first Order of the Court

awarding fees and expenses to Blackstone Advisory Partners.

10. Blackstone Advisory Partners shall not be entitled to the

reimbursement of attorney fees and expenses other than in connection with

indemnification, as set forth herein.

11. All requests by Blackstone Advisory Partners for the payment of

indemnification as set forth in the Blackstone Agreement shall be made by means of an

application to the Court and shall be subject to review by the Court to ensure that

payment of such indemnity conforms to the terms of the Blackstone Agreement and is

reasonable under the circumstances of the litigation or settlement in respect of which

indemnity is sought, provided however, that in no event shall Blackstone Advisory



Partners be indemnified in the case of its own bad-faith, self-dealing, breach of fiduciary

duty (if any), gross negligence or willful misconduct.

12. In no event shall Blackstone Advisory Partners be indemnified if

the Debtors or a representative of the Debtors’ estates, asserts a claim for, and a court

determines by final order that such claim arose out of, Blackstone Advisory Partners’

own bad-faith, self-dealing, breach of fiduciary duty (if any), gross negligence, or willful

misconduct.

13. In the event Blackstone Advisory Partners seeks reimbursement

from the Debtors for attorneys’ fees and expenses in connection with the payment of an

indemnity claim pursuant to the Blackstone Agreement, the invoices and supporting time

records from such attorneys shall be included in Blackstone Advisory Partners’ own

applications, both interim and final, and such invoices and time records shall be subject to

the U.S. Trustee Guidelines without regard to whether such attorneys have been retained

under section 327 of the Bankruptcy Code and without regard to whether such attorneys’

services satisfy section 330(a)(3)(C) of the Bankruptcy Code.

14. The Debtors shall be bound by the indemnification, contribution,

reimbursement, exculpation and other provisions of the Blackstone Agreement and will

indemnify and hold harmless Blackstone Advisory Partners, its affiliates, their respective

directors, officers, members, agents, employees and controlling persons, and their

respective successors and assigns (collectively, the “Indemnified Persons”), during the

pendency of these chapter 11 cases, subject to the approval of this Court and the

conditions in the Indemnification Agreement.



15. The Debtors are authorized, empowered and directed to take all

actions necessary to implement the relief granted pursuant to this Order.

16. To the extent the Application or the Blackstone Agreement is

inconsistent with this Order, the terms of this Order shall govern.

17. Notwithstanding any provision to the contrary in the Application

or Engagement Letter the Court shall retain jurisdiction to hear and to determine all

matters arising from or related to implementation of this Order.

Dated: June 13, 2012New York, New York

s/ Robert E. GerberUNITED STATES BANKRUPTCY JUDGE



APPENDIX C


Biographies of Blackstone Professionals

� Timothy Coleman. Timothy Coleman is a Senior Managing Director and Head of the Restructuring & Reorganization Group. Mr. Coleman also serves as a member of Blackstone's Executive Committee. Since joining Blackstone in 1992, Mr. Coleman has worked on a variety of restructuring and reorganization assignments for companies, creditor groups, special committees of corporate boards, corporate parents of troubled companies and acquirers of distressed assets. Mr. Coleman’s most notable assignments include Adelphia, AMBAC, Asian Art Museum, AT&T (in the restructurings of AT&T Canada, Alestra, AT&T Broadband and Excite@Home), Barneys New York, Bear Stearns Asset Management, Bidermann Industries USA, Inc., Cable & Wireless Holdings, Camelot Music, Inc., CellNet Data Systems Inc., Credit-Based Asset Servicing and Securitization LLC (“C-BASS”), Criimi Mae, Delta Air Lines, Edison Brothers Stores, Inc., Ermis Maritime Shipping, Financial Guaranty Insurance Company (“FGIC”), FLAG Telecom, Ford, Geneva Steel Company, Guangdong Enterprises, Harnischfeger Industries, Harrah’s Jazz Company, ILFC, Koll Real Estate, Los Angeles Dodgers, Mirant Corp., Mohegan Sun, Molten Metal Technology, Inc., RCN, R.H. Macy & Co., Stratosphere Corporation, Supercanal Holding, S.A., Travelport, Vencor, Inc., Williams Communications, Xerox Corporation and XL Capital. The International Financing Review recognized Mr. Coleman's efforts in the restructurings of C-BASS and Ford Motor Company by naming the transactions the Restructuring of the Year in 2008 and 2009, respectively. Mr. Coleman was named Global Investment Banker of the Year in 2011 by the Turnaround Atlas Awards. Before joining Blackstone, Mr. Coleman was a Vice President at Citibank N.A. for twelve years, where he divided his time between corporate restructuring, real estate restructuring, and loan syndications. Mr. Coleman is a frequent guest lecturer at Columbia University. He is a member of the inMotion Board of Directors, the Teach for America New York Board of Directors, the Board of Leaders of the Marshall School of Business at the University of Southern California and the Yale-New Haven Children's Hospital Council. Mr. Coleman received a BA from the University of California at Santa Barbara and an MBA from the University of Southern California.

� Paul Huffard. Paul Huffard is a Senior Managing Director in the Restructuring & Reorganization Group. Since joining Blackstone in 1995, Mr. Huffard has worked on a variety of restructuring and reorganization assignments for companies, creditor groups, corporate parents of troubled companies and acquirers of distressed assets. These assignments include LA Dodgers, Lee Enterprises, Princeton Review, Homer City, Tribune Companies, Flying J, Minneapolis Star Tribune, Winn-Dixie Stores, Fleming Companies, New World Pasta, Adelphia, Dade Behring, The LTV Corporation, and Harnischfeger Industries. Mr. Huffard has provided expert witness testimony in numerous bankruptcy cases on valuation and capital structure issues and is a frequent public speaker on restructuring topics. Before joining Blackstone, Mr. Huffard worked at Hellmold Associates, Inc., and Smith Barney, Harris Upham & Co., Inc. Mr. Huffard received a BA from Harvard College and an MBA from the Kellogg Graduate School of Management at Northwestern University.

� Jamie Baird. Jamie Baird is a Vice President in the Restructuring & Reorganization Group. Since joining Blackstone in 2002, Mr. Baird has advised companies such as American General


Finance (AGF), American International Group (AIG), Ford, General Motors, Horsehead Industries, International Lease Finance Corp (ILFC), the Minneapolis Star Tribune, the Mohegan Tribal Gaming Authority, the Pacific Lumber Company, Sea Research Foundation (Mystic Aquarium) and SemGroup. Mr. Baird has also advised creditors in the restructurings of Borders Group, Dura Automotive Systems, Jefferson County (Birmingham, Ala.) and Meridian Automotive Systems. Mr. Baird received an AB from Bowdoin College and an MBA with honors from Columbia Business School.

� Paul Sheaffer. Paul Sheaffer is an Associate in the Restructuring & Reorganization Group. Prior to joining Blackstone in 2010, Mr. Sheaffer was an Associate at Angelo, Gordon & Co. in the Special Situations and Private Equity group, working on transactions and restructurings in a variety of industries, including retail and specialty finance. Before working at Angelo, Gordon, Mr. Sheaffer was an Analyst in Blackstone's Restructuring & Reorganization Group, advising on a variety of restructuring transactions. Mr. Sheaffer received a BS in Analytical Finance and a MS in Accountancy from Wake Forest University.

� Ronak Amin. Ronak Amin is an Analyst in the Restructuring & Reorganization Group. Since joining the firm, Mr. Amin has worked on several transactions in a variety of industries. Mr. Amin received a B.S. in Economics from The Wharton School at the University of Pennsylvania with concentrations in Finance and Management. Mr. Amin graduated summa cum laude and was a member of Beta Gamma Sigma Honor Society.


APPENDIX D


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APPENDIX E


August 6, 2012

Mr. Eric ShumanChief Financial OfficerHoughton Mifflin Harcourt Publishing Company222 Berkeley StreetBoston, MA 02116

Monthly Fee pro-rated for the period of May 21, 2012 through May 31, 2012: 62,096.77$

Monthly Fee pro-rated for the period of June 1, 2012 through June 22, 2012: 128,333.33

50% of Restructuring Fee: 3,500,000.00

Capital Raise Fee: 5,000,000.00

Out-of-pocket expenses processed for the period through June 20, 2012:

Ground Transportation 31.25Communications 15.02Meals 135.20 181.47

Less: Pre-Petition Fee Payment(1) (67,741.94)

Less: Expense Advance Remaining(2) (9,001.72)

Total Amount Due 8,613,867.92$

Please wire transfer funds to:

JP Morgan ChaseOne Chase Manhattan PlazaNew York, NY 10017ABA# 021 000 021Credit Account: Blackstone Advisory Partners L.P.Accounts Receivable Dept. 16th FloorAccount # 066-287472

Invoice Number: 70492

(1) See paragraphs 13 and 14 of Blackstone's First and Final Application. Blackstone Advisory Partners L.P.(2) See paragraphs 13 through 15 of Blackstone's First and Final Application. 345 Park Avenue

New York, NY 10154212 583-5000

Blackstone Advisory Partners L.P.


GL Detail TotalJun-2012 Expenses

Ground Transportation - Local Travel 31.25$ 31.25$ Communications - Teleconferencing 15.02 15.02 Employee Meals 135.20 135.20 Total Expenses 181.47$ 181.47$

Ground Transportation 31.25 Communications 15.02 Meals 135.20

Total Expenses 181.47$

Houghton Mifflin HarcourtSummary of Expenses Processed

Through June 20, 2012Invoice Number: 70492


Ground Transportation - Local TravelAmin (weeknight taxi home from Blackstone after working late) 05/21/12 10.50 Baird (taxi to Blackstone from bankruptcy court in New York, NY) 05/22/12 20.75

Subtotal - Ground Transportation - Local Travel 31.25

Communications - TeleconferencingBaird 06/19/12 15.02

Subtotal - Communications - Teleconferencing 15.02

Employee MealsAmin (weeknight working dinner meal @ Blackstone while working late) 05/21/12 19.28 Amin (weeknight working dinner meal @ Blackstone while working late) 05/22/12 15.92 Amin (weeknight working dinner meal @ Blackstone while working late) 05/31/12 20.00 Baird (weeknight working dinner meal @ Blackstone while working late) 05/24/12 20.00 Sheaffer (weeknight working dinner meal @ Blackstone while working late) 05/31/12 20.00 Sheaffer (weeknight working dinner meal @ Blackstone while working late) 06/05/12 20.00 Sheaffer (weeknight working dinner meal @ Blackstone while working late) 06/06/12 20.00

Subtotal - Employee Meals 135.20

Total Expenses 181.47$

Houghton Mifflin HarcourtDetail of Expenses Processed

Through June 20, 2012Invoice Number: 70492

Page 3 of 3


UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS

__________________________________________ ) In re: ) ) HOUGHTON MIFFLIN ) HARCOURT PUBLISHING COMPANY, et al., ) Chapter 11 ) Case No. 12-15610-JNF ) (Jointly Administered) Debtors. ) ) __________________________________________)

DECLARATION RE: ELECTRONIC FILING

I, Paul P. Huffard, hereby declare under penalty of perjury that all of the information contained in the First and Final Application of Blackstone Advisory Partners L.P. as Financial Advisor to the Debtors for Allowance (and Final Approval) of Compensation for Actual and Necessary Services Rendered and Reimbursement of Actual and Necessary Out-Of-Pocket Expenses Incurred for the Period of May 21, 2012 through June 22, 2012 (the “FINAL APPLICATION”), filed electronically, is true and correct. I understand that this DECLARATION is to be filed with the Clerk of Court electronically concurrently with the electronic filing of the FINAL APPLICATION. I understand that failure to file this DECLARATION may cause the FINAL APPLICATION to be struck and any request contained or relying thereon to be denied, without further notice.

I further understand that, pursuant to the Massachusetts Electronic Filing Local Rule (MEFR) 7(a) all paper documents containing original signatures executed under the penalties of perjury and filed electronically with the Court are the property of the bankruptcy estate and shall be maintained by the authorized CM/ECF Registered User for a period of five (5) years after closing this case.

Dated: August 6, 2012

/s/ Paul P. Huffard Paul P. Huffard

Case 12-15610 Doc 167-1 Filed 08/06/12 Entered 08/06/12 15:25:12 Desc Declaration of Electronic Filing Paul P. Huffard Page 1 of 2

- 2 -

I certify that the declarant signed this form before I submitted the Document, I gave the affiant a copy of the Document and this DECLARATION, and I have followed all other electronic filing requirements currently established by local rule and standing order. This DECLARATION is based on all information of which I have knowledge and my signature below constitutes my certification of the forgoing under Fed. R. Bankr. P. 9011. I have reviewed and will comply with the provisions of MEFR 7.

Dated: August 6, 2012

/s/ Kenneth S. Leonetti Kenneth S. Leonetti (BBO# 629515) FOLEY HOAG LLP Seaport World Trade Center West 155 Seaport Boulevard Boston, Massachusetts 02210-2600 Telephone: (617) 832-1000 Facsimile: (617) 832-7000 e-mail: [email protected]

Case 12-15610 Doc 167-1 Filed 08/06/12 Entered 08/06/12 15:25:12 Desc Declaration of Electronic Filing Paul P. Huffard Page 2 of 2

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