Case KG Doc 372 Filed 10/17/18 Page 1 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case KG Doc 372 Filed 10/17/18 Page 1 of 10 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: HERITAGE HOME GROUP LLC, et al., Debtors. 1 Chapter 11 Case No (KG) Jointly Administered Hearing Date: October 23 at 10:00 a.m (EDT) Objections Due: October p.m. (EDT) Related to D.I.s 217, 312, 346 & 357 OBJECTION OF STORK CRAFT (ASIA) SRL TO THE ASSUMPTION AND ASSIGNMENT OF TRADEMARK LICENSE AGREEMENT TO HHG IPCo. Stork Craft (Asia) SRL ( Stork Craft ), a counterparty to a certain Trademark License Agreement dated January 1, 2013, as amended (the License ), by and through its undersigned counsel, submits this objection (the Objection ) to the assumption and assignment of the License to HHG IPCo., LLC ( IPCo ), the Stalking Horse bidder pursuant to the Debtors Motions for Orders: (I)(A) Approving Bidding Procedures for the Sale of Debtors Intellectual Property and Other Assets Related to the Broyhill, Thomasville, Drexel, Drexel Heritage and Henredon Brands; (B) Approving the Form and Manner of Notices Related Thereto; (C) Approving a Form of Asset Purchase Agreement, Including Bid Protections; (D) Scheduling Dates to Conduct Auction and Hearing to Consider Final Approval of Sale, Including Treatment of Executory Contracts and Unexpired Leases; (II)(A)Approving the Sale of the Acquired Assets and (B) Authorizing Assumption and Assignment of Executory Contracts and Unexpired Leases; and (III) Granting Related Relief [D.I. 217] (the Sale Motion ), as implemented pursuant to the 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s tax identification number, as applicable are: Heritage Home Group LLC (9506); HH Global II B.V. (0165); HH Group Holdings US, Inc. (7206); HHG Real Property LLC (3221); and HHG Global Designs LLC (1150). The Debtors corporate headquarters is located at 1925 Eastchester Drive, High Point, North Carolina

2 Case KG Doc 372 Filed 10/17/18 Page 2 of 10 Court s Order (I)(A) Approving Bidding Procedures for the Sale of Debtors Intellectual Property and Other Assets Related to the Broyhill, Thomasville, Drexel, Drexel Heritage and Henredon Brands; (B) Approving the Form and Manner of Notices Related Thereto; (C) Approving a Form of Asset Purchase Agreement, Including Bid Protections; (D) Scheduling Dates to Conduct Auction and Hearing to Consider Final Approval of Sale, Including Treatment of Executory Contracts and Unexpired Leases [D.I. 322] ( the Bid Procedures Order ) and by the Notice of Proposed Sale, Bid Procedures, Auction, and Sale Hearing Related to the Broyhill, Thomasville, Drexel, Drexel Heritage, and Herendon Brands [D.I. 327] (the Sale Notice ); the Notice of Filing of Proposed Sale Order Related to the Debtors Broyhill, Thomasville, Drexel, Drexel Heritage, and Herendon Brands [D.I. 357] (the Proposed Order ); and the Notice of Potential Assumption and Assignment of Certain Executory Contracts and Unexpired Leases in Connection with the Proposed Sale of Debtors Assets Related to the Broyhill, Thomasville, Drexel, Drexel Heritage, and Herendon Brands [D.I. 346] (the Assumption/Assignment Notice ) 2. According to the Assumption/Assignment Notice, the Debtors intend to assume and assign the License to IPCo and have designated $0.00 as the proposed cure amount. As detailed below, Stork Craft objects to the assumption and assignment of the License to IPCo, given that the Debtors and IPCo are incapable of providing adequate assurance of future performance of the Debtors obligations under the license in light of, inter alia, the imminent liquidation and closing of the Debtors retail stores (and the fact that IPCo does not operate retail outlets). Stork Craft also objects to the proposed zero dollar cure amount; Stork Craft estimates the cure amount to be not less than $40,000 and potentially much larger. In further support of this objection, Stork Craft states as follows: 2 To the extent not defined herein, capitalized terms shall have the meaning set forth in the Sale Motion, Bid Procedures order, Sale Notice and Assumption/Assignment Notice. 2

3 Case KG Doc 372 Filed 10/17/18 Page 3 of On July 29, 2018, the Debtors filed voluntary petitions for relief under chapter 11 of the United States Code (the Bankruptcy Code ) in this Court. 2. Upon information and belief, the Debtors are operating their businesses and liquidating their assets as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 3. This Objection is supported by the Declaration of David Nelson in Support of Objections of Stork Craft (Asia) SRL to (A) Sale of IP Assets to HHG IPCo., LLC, Including the Proposed Order Approving the Sale, and (B) Assumption and Assignment of Trademark License Agreement to HHG IPCo (the Nelson Decl. ), filed substantially contemporaneously herewith. The License 4. Stork Craft entered into the License with Furniture Brands International, Inc. ( FBI ). See Nelson Decl. 12. The License is attached to the Nelson Decl. as Exhibit B. The License, among other things, granted both nonexclusive and exclusive licenses to Stork Craft to use the trade names and trademarks Thomasville, Broyhill, Lane Furniture, and Drexel Heritage to manufacture, distribute and sell infant and juvenile furniture within a designated territory and in designated channels of distribution, which channels of distribution included the Debtors trademarked retail stores, along with other wholesale and retail outlets (the Channels of Distribution Provisions ). Id. at 9. In addition, section 19 of the License provided that the Debtors (as Licensor) [agree] to provide Licensee with marketing support, as set forth in the attached Schedule A. Id., Ex. B at 19. Schedule A lists ten separate sets of obligations of the Debtor, many of which are directly dependent on the Debtors maintaining a network of retail stores and other sales outlets (the Licensor Support Provisions ). Id., Ex. B at Sched. A. The Channels of Distribution Provisions and the Licensor Support Provisions were critically 3

4 Case KG Doc 372 Filed 10/17/18 Page 4 of 10 important to Stork Craft, were specifically bargained for, and were integral to the bargained for exchange between the parties. Stork Craft would not have entered into the License in the absence of these key provisions, and without the implementation and enforcement of these provisions, Stork Craft is deprived of the benefit of its bargain. 3 Id. at 8, The License was to be governed by Missouri law. 5. The License was assumed and assigned to Heritage Home Group, LLC ( HHG ). On or about July 17, 2014, Stork Craft and HHG executed the First Amendment to Trademark License Agreement (the First Amendment ). See Nelson Decl. at 14. The First Amendment is attached to the Nelson Decl. as Exhibit C. The First Amendment changed the Licensor address to that of HHG, changed the law governing the agreement to North Carolina law, and provided a choice of venue provision. Id. Otherwise, the First Amendment provided that all other provisions, terms and conditions of the [License] remain in full force and effect. Id. 6. The License was further amended by the Second Amendment to Trademark License Agreement executed by HHG and Stork Craft as of December 22, 2017 (the Second Amendment ). See Nelson Decl. at 15. The Second Amendment is attached to the Nelson Decl. as Exhibit D. The Second Amendment replaced the provisions relating to minimum guarantees, extended the initial term of the license, provided that the licensed trade names and trademarks were Thomasville, Broyhill, and Drexel Heritage, and replaced Exhibit C relating to minimum sales objectives and guaranteed minimum royalties. Id. Otherwise, the 3 The Channels of Distribution Provisions and Licensor Support Provisions were specifically included in multiple drafts of term sheets exchanged between Stork Craft and FBI s agent. See Nelson Decl. at 11. This alone shows that the terms were integral to the bargained-for exchange and material. Chex Systems, Inc. v. Microbilt Corp. (In re Microbilt Corp.), 2013 WL at *15 (D.N.J., June 26, 2013)(inclusion of audit provision in Memorandum and Mandatory Material Terms document negotiated between parties is a strong indication that Chex viewed the audit provision as critical to its ability to obtain the benefit of its bargain. 4

5 Case KG Doc 372 Filed 10/17/18 Page 5 of 10 Second Amendment provided that all other provisions, terms and conditions of the [License] remain in full force and effect. Id According to the Assumption/Assignment Notice, the Debtors intend to assume and assign the License to IPCo. And have designated $0.00 as the proposed cure amount. The License Cannot Be Assumed or Assigned Because Adequate Assurance of Future Performance Cannot Be Provided by IPCo 8. The License cannot be assumed and assigned to IPCo because IPCo cannot provide adequate assurance of future performance under section 365(f)(2)(B) of the Bankruptcy Code. The party seeking to become the assignee in this case IPCo has the burden of proving it meets the requirements of 365(f)(2)(B); the putative assignee must show by a preponderance of the evidence that future performance is likely. In re Resource Tech. Corp., 624 F.3d 376, (7 th Cir. 2010). 9. As noted above, the Channels of Distribution Provisions and the Licensor Support Provisions were critically important to Stork Craft, were specifically bargained for, and were central to the bargained for exchange between the parties. Stork Craft would not have entered into the License in the absence of those key provisions, and if such provisions are not 4 Due to a scrivener s error, the definition of Channels of Distribution refers to Licensee brand retail stores, direct-mail catalogs, website and contract sales division. See Nelson Decl. at 16. This unequivocally should have said Licensor, because that was the obvious object of the transaction, and Stork Craft did not at the time have, and still does not have, retail stores or a contract sales division. See id. It did not then have a website usable for sales. See id. As written, the provision creates a nonsensical and unintended result. Testimony and documents will establish this reference as a mutual mistake. Under either Missouri or North Carolina law, the contract would be reformed to use the proper reference: Licensor. Wildflowers Community Ass n v. Rinderknecht, 25 S.W.3d 530, 536 (Mo. Ct. App. 2000)(contracts interpreted to avoid absurd results); Hardin v. Ray, 404 S.W. 2d 764, 771 (Mo. Ct. App. 1966)(where contract language is wrong and fails to express the intention of the parties, remedy of reformation is available to correct the mistake); Williams v. United Ins. Co. of Am., 618 S.W. 2d 229, 231 (Mo. Ct. App. 1981)( A written instrument which does not conform to the contract agreed to by the parties will be reformed in equity to reflect the contract agreed to ); Wells Fargo Bank N.A. v. Coleman, 768 S.E. 2d 604, 606 (N.C. Ct. App. 2015)( A claim for reformation does not require proof that the party seeking reformation acted with reasonable diligence. Indeed, even if the mistake was a result of negligence or neglect, a trial court still has the authority to reform the instrument if there is clear, cogent, and convincing evidence that the mutual mistake prevents the instrument from embodying the parties actual, original agreement. ). 5

6 Case KG Doc 372 Filed 10/17/18 Page 6 of 10 implemented and enforced, Stork Craft loses the benefit of its bargain. See Nelson Decl. at 8, Accordingly, the License cannot be assumed and assigned to IPCo unless IPCo can prove by a preponderance that it can fully perform under those provisions, which it clearly cannot. In re Fleming Cos., Inc., 499 F.3d 300 (3 rd Cir. 2007); In re Joshua Slocum Ltd., 922 F.2d 1081, (3 rd Cir. 1990); Chex Systems, Inc. v. Microbilt Corp. (In re Microbilt Corp.), 2013 WL at *14-16 (D.N.J., June 26, 2013). 5 Under separate motions approved by the Court, the Debtors are closing all of their retail stores and distribution centers and liquidating all inventory. Clearly, those critical channels of distribution are and will be unavailable, and, upon information and belief, neither IPCo nor its affiliate Authentic Brands Group operates any retail furniture stores. Neither IPCo nor its affiliate can provide the licensor support mandated by the License given the lack of retail and wholesale outlets, as well as the nature of the specific support obligations listed in the License. The Sale Motion does not even suggest that such adequate assurance will be provided. 10. This case is foursquare with Fleming. In Fleming, the contract to be assumed and assigned contained a provision requiring that the counterparty s stores receive distribution from a specified location in Tulsa. At the insistence of the buyer and proposed assignee of the subject contract, the Tulsa warehouse lease had been rejected, making service from that location impossible. Since the buyer-assignee could not perform under that provision (which the court found integral to the bargain struck between the parties and necessary to give the counterparty 5 See also In re DBSI, Inc., 405 B.R. 698, 708 (Bankr. D. Del. 2009)(regarding definition of adequate assurance); In re Alltech Plastics, Inc., 1987 WL at *11 (Bankr. W.D. Tenn., Dec. 30, 1987)(license agreement in its entirety must be read to determine the definition of adequate assurance; where proposed assignee and licensee could not meet obligations under license as to safety and quality control, license could not be assumed and assigned); Rockland Center Assoc. v. TSW Stores of Nanuet, Inc., (In re TSW Stores of Nanuet, Inc.), 34 B.R. 299, 306 (Bankr. S.D.N.Y. 1983)(where assignee could not perform in accordance with terms of lease, but rather needed to modify lease to allow its proposed use, assignee could not provide adequate assurance of future performance); In re Luce Indus., Inc., 14 B.R. 529, (S.D.N.Y. 1981)(de facto assignment disallowed where assignee in fact could not perform under license as written). 6

7 Case KG Doc 372 Filed 10/17/18 Page 7 of 10 the full benefit of his bargain ), and the provision could not be excised or ignored, approval of the assumption and assignment was properly withheld. 499 B.R. at Similarly here, the Debtors are closing and liquidating their stores and distribution centers with the assistance of an agent in which IPCo or its affiliate has an interest. As a consequence of that liquidation and such store closings, the bargained for channels of distribution and licensor support under the License cannot be provided. The Channels of Distribution Provisions and the Licensor Support Provisions cannot be excised or ignored as they were integral to the bargain struck between FBI (and HHG) and Stork Craft and if those provisions are not implemented, Stork Craft loses the benefit of its bargain. Id.; see also Nelson Decl. at 13. Assumption and assignment of the License to IPCo cannot be approved. The Shared Outbound Licensing Agreement Provisions Are Improper and Unenforceable 11. Even if assumption and assignment were otherwise possible, which is not the case, assumption and assignment under the Shared Outbound Licensing Agreement Provisions would be improper and contrary to law. The Shared Outbound Licensing Agreement Provisions go into effect if the Broyhill IP becomes an Excluded Asset because a purchaser other than IPCo has acquired the Broyhill IP (since at the Auction, the Broyhill IP can be offered separately). If that occurs, IPCo and the Debtors will attempt to obtain the consent of the counterparty to any license covering the Broyhill brand and other brands to create separate contracts (one with IPCo and one with the successful Broyhill bidder, the Broyhill Buyer ). Failing that, the provisions provide for the applicable Debtor to assume such contract and assign it to IPCo (even though IPCo will have not acquired the licensed IP rights), for the Broyhill Buyer to license the Broyhill IP to IPCo solely for the purpose of [IPCo s] granting a sublicense of such Broyhill IP to the licensee, and for IPCo to collect royalties from the licensee and to split them with the Broyhill 7

8 Case KG Doc 372 Filed 10/17/18 Page 8 of 10 Buyer. The Stalking Horse APA is silent as to who would perform any obligations attached to the Broyhill IP in this instance, although since the applicable license is assumed and assigned to IPCo, it would be bound to do so even though it will keep none of the royalties with respect to the Broyhill IP. 12. The Debtors are attempting, through the Shared Outbound Licensing Agreement Provisions, to do indirectly what they could not do directly under the Bankruptcy Code. Assumption or rejection of an executory contract or unexpired lease must be done in its entirety; the executory contract or unexpired lease cannot be assumed or rejected in part. In re Contract Research Solutions, Inc., 2013 WL at *2 (Bankr. D. Del., May 1, 2013)(citing In re Fleming Co., 499 F.3d 300, 303 (3 rd Cir. 2007). If a contract is a single, indivisible agreement, it cannot be assumed in part and rejected in part, or assumed in parts and assigned in parts. Id. See also, Huron Consulting Services, LLC v. Physiotherapy Holdings, Inc. (In re Physiotherapy Holdings, Inc), 538 B.R. 225, (D. Del. 2015); In re Buffets Holdings, Inc., 387 B.R. 115, (Bankr. D. Del. 2008). The determination of whether a specific contract or lease is an indivisible agreement or is several agreements in one is a question of state law. Buffets Holdings, 387 B.R. at 120; Contract Research, 2013 WL at * The cum onere principle will require the rights and obligations under [indivisible] agreements to be transferred together, if at all. DB Structured Prods., Inc. v. AmericanHome Mortgage Holdings, Inc. (In re American Home Mortgage Holdings, Inc.), 402 B.R. 87, 98 (Bankr. D. Del. 2009). That principle applies equally to the transfer of rights and obligations under a contract pursuant to section 363 of the Bankruptcy Code as to the assumption and assignment of contracts and leases pursuant to section 365. Id. Thus, if the License is an 8

9 Case KG Doc 372 Filed 10/17/18 Page 9 of 10 indivisible contract, as it is 6, the Debtors could not assume the Broyhill part of the agreement and assign it to one buyer, and assume the remainder and assign it to a different buyer. Id. However, the Shared Outbound Licensing Agreement Provisions do exactly that via the transparent artifice of sublicensing between the buyers. The cum onere principle cannot be so easily circumvented and form cannot be elevated over substance. The Shared Outbound Licensing Agreement Provisions simply divide indivisible agreements without the counter-party s consent for the sole purpose of selling indivisible parts to different buyers. 14. In addition, the Shared Outbound Licensing Agreement Provisions, if implemented as to the License, will result in a lack of adequate assurance of future performance. Any buyer to whom the License is assigned will have ongoing support obligations under the license. If these provisions are implemented, IPCo will have support obligations as to the Broyhill products (as the assignee of the entire License Agreement), yet will collect no royalties on sales of Broyhill products. One can hardly expect IPCo to heartily pursue the marketing and support of products as to which it will receive no remuneration; indeed, its motivation will be precisely the opposite. And the situation created by these provisions makes Stork Craft the victim of what is sure to be an ongoing battle between IPCo and the Broyhill Buyer as to whether IPCo is doing enough to generate royalties payable to the Broyhill Buyer. In any event, Stork Craft has less, rather than more, assurance of licensor support. 6 The License is indivisible under both Missouri and North Carolina law. Christenbury Eye Center, P.A. v. Medflow, Inc., 802 S.E. 2d 888, 893 (N.C. 2017) (presumption against finding a contract divisible unless divisibility is expressly stated in the contract itself, or the intent of the parties to treat the contract as divisible is otherwise clearly manifested); Sanfillippo v. Oehler, 869 S. W. 2d 159, 161 (Mo. Ct. App. 1993)(Question of divisibility is primarily a question of the intent of the parties determined from the language used and the subject matter of the agreement. ) 9

10 Case KG Doc 372 Filed 10/17/18 Page 10 of 10 The Cure Amount is Understated 15. The cure amount under the License is not zero. The Debtors have defaulted under the Channels of Distribution Provisions and the Licensor Support Provisions in both the prepetition and post-petition periods, resulting in lost sales by Stork Craft. The lost profits from those sales, while still being realized and calculated, are estimated at not less than $40,000 and are likely much higher. See Nelson Decl. at 18. The cure amount is thus at least $40,000 and Stork Craft reserves the right to establish a considerably greater amount. WHEREFORE, Stork Craft respectfully requests this Court to enter an order (a) sustaining its objection to assumption and assignment of the License; (b) denying the Sale Motion to the extent it constitutes a request to assume and assign the License; and (c) granting such other and further relief as this Court deems just and appropriate under the circumstances. Respectfully submitted, Dated: October 17, 2018 /s/ Joseph H. Huston, Jr. Wilmington, Delaware Joseph H. Huston Jr. (No. 4035) Stevens & Lee, P.C. 919 North Market Street, Suite 1300 Wilmington, DE (302) jhh@stevenslee.com -and- Robert J. Keach Bernstein Shur Sawyer & Nelson 100 Middle Street, West Tower Portland, ME (207) rkeach@bernsteinshur.com 10

11 Case KG Doc Filed 10/17/18 Page 1 of 45 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: HERITAGE HOME GROUP LLC, et al., Debtors. 1 Chapter 11 Case No (KG) Jointly Administered DECLARATION OF DAVID NELSON IN SUPPORT OF OBJECTIONS OF STORK CRAFT (ASIA) SRL TO (A) SALE OF IP ASSETS TO HHG IPCO., LLC, INCLUDING THE PROPOSED ORDER APPROVING THE SALE, AND (B) ASSUMPTION AND ASSIGNMENT OF TRADEMARK LICENSE AGREEMENT TO HHG IPCO. I, David Nelson, pursuant to 28 U.S.C. 1746, state as follows: 1. I am Chief Financial Officer ( CFO ) of Stork Craft Manufacturing Inc. ( SCM ) and Manager of Stork Craft (Asia) SRL, a West Indies corporation ( Stork Craft ), which is an affiliate of SCM. I have been the CFO of SCM and/or the Manager of Stork Craft for approximately twenty-four years. 2. As Manager of Stork Craft, I am responsible for, among other things, analyzing the financial impact of and understanding the significant components of Stork Craft s business arrangements with its major business partners. 3. This Declaration is submitted in connection with and in support of the (a) Objection of Stork Craft (Asia) SRL to the Sale of IP Assets to HHG IPCo., LLC, Including the Proposed Order Approving the Sale Plaintiff (the Sale Objection ) and (b) Objection of Stork Craft (Asia) SRL to the Assumption and Assignment of Trademark License Agreement to 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s tax identification number, as applicable are: Heritage Home Group LLC (9506); HH Global II B.V. (0165); HH Group Holdings US, Inc. (7206); HHG Real Property LLC (3221); and HHG Global Designs LLC (1150). The Debtors corporate headquarters is located at 1925 Eastchester Drive, High Point, North Carolina

12 Case KG Doc Filed 10/17/18 Page 2 of 45 HHG IPCo. (the A&A Objection ), each filed substantially contemporaneously herewith (together, the Objections ) All facts set forth herein are based on my personal knowledge, including my personal knowledge of the operations, contracts, business relationships, and strategic initiatives of Stork Craft. If I were called to testify, I could and would testify competently to the facts set forth herein. In my capacity as manager of Stork Craft, I have custody of and control over the relevant records, including but not limited to, contracts, agreements, shipping documents, sales records and related documents, that pertain to the transactions that are the basis of the Objections. The records are kept by persons over whom I have direct supervisory and managerial authority in the course of Stork Craft s regularly conducted business, created as part of such business, and such records were made at or near the time of each relevant transaction, by persons knowledgeable about the transaction. A. Negotiation of the License Terms 5. During 2012, Jim Moore was President and Chief Executive Officer of SCM. As CFO of SCM and Manager of Stork Craft, I worked closely with Mr. Moore, including in regard to the negotiation of significant business arrangements with contract and license counterparties. 6. In the fall of 2012, under the authorization of the Stork Craft board, Mr. Moore negotiated with Brand Capital Marketing ( BCM ) the exclusive licensing agent for Furniture Brands International, Inc. ( FBI ) in regard to a license for Stork Craft to use the trade names and trademarks Thomasville, Broyhill, Lane Furniture, and Drexel Heritage. Mr. Moore discussed those negotiations with me frequently and kept me apprised of the details. 2 Capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Objections, as applicable. 2

13 Case KG Doc Filed 10/17/18 Page 3 of Over the course of those negotiations, Mr. Moore and BCM exchanged several versions of a term sheet containing the business terms most salient to the contemplated license transaction. Mr Moore described iterations of that term sheet to me, and we discussed them as well as revisions that would be included in the next turn of the term sheet. A true and correct copy of one such iteration of the term sheet is attached hereto as Exhibit A (the Term Sheet ). 8. Two of the business terms most salient to Stork Craft pertained to the channels in which Stork Craft could distribute the licensed goods and the obligations of FBI in supporting Stork Craft s exercise of its rights under the contemplated license. Of critical importance to Stork Craft was the ability to sell branded products in FBI s retail stores and take advantage of all of FBI s distribution system. Moreover, the specific licensor support provisions were critical to the launch of the products and growing future sales. Mr. Moore and I discussed those terms extensively. 9. In short, the Channels of Distribution Provisions granted both nonexclusive and exclusive licenses to Stork Craft to use the trade names and trademarks Thomasville, Broyhill, Lane Furniture, and Drexel Heritage to manufacture, distribute and sell infant and juvenile furniture within a designated territory and in designated channels of distribution, which channels of distribution specifically included FBI s trademarked retail stores and distribution centers, along with other wholesale and retail outlets. 10. By the Licensor Support Provisions, FBI [agreed] to provide Licensee with marketing support, as set forth in the attached Schedule A. Schedule A lists ten separate sets of obligations of FBI as Licensor, many of which are directly dependent on the Licensor maintaining a network of retail stores and other sales outlets, such as the provisions for Stork Craft to have access to, and an opportunity to train, FBI retail personnel about the branded products in order to better drive retail sales. 3

14 Case KG Doc Filed 10/17/18 Page 4 of As a result of those discussions and due to the importance of the Channels of Distribution Provisions and the Licensor Support Provisions to Stork Craft, Mr. Moore and I included those provisions in the Term Sheet. See Ex. A at 1, On January 1, 2013, I on behalf of Stork Craft executed that certain Trademark License Agreement dated January 1, 2013, as amended (the License ) with FBI, a true and correct copy of which is attached hereto as Exhibit B. The License contained the Channels of Distribution Provisions and the Licensor Support Provisions, as contemplated by the Term Sheet. See Ex. B. at sections 1, 2, Ex. A (regarding Channels of Distribution Provisions); section 19, Sch. A (regarding Licensor Support Provisions). 13. The Channels of Distribution Provisions and the Licensor Support Provisions were critical to the value of the License to Stork Craft, and integral to the bargained-for exchange between the parties. For this reason, they were specifically included at the outset of the negotiations in the Term Sheet, as well as in the finalized agreement embodied in the License. Indeed, Stork Craft would not have entered into the License in the absence of those key provisions, and Stork Craft will not receive the benefit of its bargain without the implementation of these provisions. B. Assignment of the License to HHG and Amendments Thereto 14. On or about July 17, 2014, Stork Craft and Heritage Home Group, LLC ( HHG ) executed the First Amendment to Trademark License Agreement (the First Amendment ). I had direct knowledge of the negotiation and execution of the First Amendment. The First Amendment changed the Licensor address to that of HHG, changed the law governing the agreement to North Carolina law, and provided a choice of venue provision. Otherwise, the First Amendment provided that all other provisions, terms and conditions of the 4

15 Case KG Doc Filed 10/17/18 Page 5 of 45 [License] remain in full force and effect. A true and correct copy of the First Amendment is attached hereto and incorporated herein as Exhibit C. 15. The License was further amended by the Second Amendment to Trademark License Agreement executed by HHG and Stork Craft as of December 22, 2017 (the Second Amendment ). I had direct knowledge of the negotiation and execution of the Second Amendment. The Second Amendment replaced the provisions relating to minimum guarantees, extended the initial term of the license, provided that the licensed trade names and trademarks were Thomasville, Broyhill, and Drexel Heritage, and replaced the License s Exhibit C relating to minimum sales objectives and guaranteed minimum royalties. Otherwise, the Second Amendment provided that all other provisions, terms and conditions of the [License] remain in full force and effect. A true and correct copy of the Second Amendment is attached hereto and incorporated herein as Exhibit D. C. Scrivener s Error in License 16. Due to a scrivener s error, the definition of Channels of Distribution included in section 1(a) of the License refers to Licensee brand retail stores, direct-mail catalogs, website and contract sales division. When negotiating the Term Sheet and the License, the parties intended that definition to have referred to Licensor, as Licensee Stork Craft did not at the time have, and still does not have, retail stores or a contract sales division. Licensee Stork Craft also did not then have a website usable for sales. It would have made no sense for the parties to have intended that Stork Craft distribute through retail stores, a contract sales division, or a website usable for sales that it did not then have or intend to create, but which Licensor did then have. Indeed, access to Licensor s retail stores, contract sales division, and website was a material reason that Stork Craft entered into the License. This error was thus committed by mutual mistake of the parties. 5

16 Case KG Doc Filed 10/17/18 Page 6 of Stork Craft did not consult counsel when negotiating the Term Sheet or the License. I am not aware of FBI having consulted counsel when negotiating the Term Sheet or the License. D. Existing Damages to Stork Craft Under the License 18. HHG has defaulted under the Channels of Distribution Provisions and the Licensor Support Provisions in both the prepetition and post-petition periods, resulting in lost sales by Stork Craft. The lost profits from those sales, while still being realized and calculated, are estimated at not less than $40,000. [signature on following page] 6

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18 Case KG Doc Filed 10/17/18 Page 8 of 45 FurnitureBrands LICENSING TERM SHEET LICENSOR BCM REPRESENTATIVE LICENSEE Furniture Brands International, Inc. Michael Stein Stork Craft (Asia) SRL. J' rore, CEO Suite 4, Edghill House Widley Business Park Widley, St. Michael Barbados, West Indies zl LICENSED PROPERTY fi'rademarks The trademarks, symbols, emblems, logos, designs, photographs, name(s), and/or visual images or representations as set forth in EXHIBIT A. LICENSED PRODUCTS Juvenile/Kids Furnishings (Cribs & Mattresses, Changing Tables, Toddler & Twin Beds, Bunk Beds); Juvenile/Kids Case Goods (Dressers, Chests, Hutches, Night Tables and Bookcases); Gliders Rockers and Ottomans LICENSE TYPE An exclusive, non-transferable license to sell the Products using the Marks in the Channels of Distribution within the Marketing Territory for the Term of the Agreement MARKETING TERRITORY RIGHTS The United States its territories and possessions, Canada, Mexico and Central America DISTRIBUTION CHANNELS Mass/Big Box Retailers (Wal-Mart, Target Kmart, etc.), Juvenile/Kids Specialty Chains (Babies R Us, Buy Buy Baby, Toys R Us), Juvenile/Kids Independent Retailers (USA Baby, member stores ofninfra, BFP, etc.), Traditional Furniture Retailers (Rooms-to-Go, RC Wiley, NFM, etc.), Department Stores (JCP, Sears, Kohl's, Dillard's, Burlington Coat-Baby Depot, Macy's, etc.), Specialty Sleep Retailers, Club Warehouse (Costco, Sam's, etc.), Home Shopping Networks (HSN, QVC, ShopNBC, etc.), Online I E-Commerce (Amazon, Wayfair, Hayneedle and Overstock) and Licensee's web site(s) (see Special Terms & Conditions). Web sites and catalogs for all retailers granted herein. All other stand-alone catalog and e-commerce retail customer opportunities will be on a case by case basis upon approval of Licensor. INITIAL TERM Effective Date: December 1, 2012 End Date: December 31, Contract Period 1 shall begin 12/ and shall end 12/ Each consecutive twelve-month period thereafter shall be deemed a Contract Period.

19 \.. - Case KG Doc Filed 10/17/18 Page 9 of 45 ADVANCE PAYMENT The Advance payment of$50,000 will be credited against Contract Period One (CP1) 12/1/12 to 12/31114 and is to be paid upon execution of the Term Sheet. The remaining payment of $150,000 would be paid in equal quarterly installments over CP 1. GUARANTEED MINIMUM ROYALTY During the Initial Term, Licensee shall pay to Licensor the Annual Royalty Guarantee listed below in equal installments on a pro-rated quarterly basis, unless earlier satisfied by the payment of earned royalties: Contract Begin Date End Date Wholesale Sales Targeted Guaranteed Est. Earn Out Sales Period Targets Earned Royalty Minimum_Royalty Guar. CP1 12/1/ /31/2014 $ 10,000,000 $ 400,000 $ 200,000 $ 5,000,000 CP2 1/1/ /31/2015 $ 15,000,000 $ 600,000 $ 300,000 $ 7,500,000 CP3 1/1/ /31/2016 $ 20,000,000 $ 800,000 $ 400,000 $ 10,000,000 CP4 1/ /31/2017 $ 25,000,000 $ 1,000,000 $ 500,000 $ 12,500,000 CP5 1/ /31/2018 $ 35,000,000 $ 1,200,000 $ 600,000 $ 15,000,000 Quarterly Minimum Royalties would be paid within 30 days of the end of every quarter; unless Earned Royalties is higher, then the higher of the two is payable. In CP1 however, as stated above, Royalty payments are calculated less the $50,000 deposit. ROYALTY RATES 4% of each Contract Period's Net Wholesale Sales of Licensed Products up to $25 million 5% of each Contract Period's Net Wholesale Sales of Licensed Products in excess of $25 million RENEWAL Upon mutual agreement and based on the achievement of the below referenced performance requirements. Provided the licensee is in good standing and has generated net sales volume at or reasonably below the wholesale sales targets the Licensor agrees that it will, upon Licensee's express request, renew the Agreement at the end of each term for additional two (2) year periods. All such renewal requests must be made sixty (60) days prior to the expiration of a Term and must be confirmed in writing to be valid. Licensor reserves the right to modify the terms of any renewal of this Agreement. ADVERTISING & PROMOTION COMMITMENT In addition to Licensee's other obligations, Licensee shall use its best efforts to maximize the sales, marketing, and distribution of the Licensed Products, but which shall be no less than a Minimum Advertising & Promotion Commitment for each Contract Year of 5% of Net Sales. This includes any consumer and trade advertising, trade shows, promotions, in-store signage, online/social media advertising, floor samples, and retail co-op advertising where appropriate. The licensing program is administered by Stork Craft (Asia) SRL and proof of expenditure is available to Furniture Brands International upon request. INSURANCE Not less than $5,000,000; Deductible not to exceed 10%.

20 \. Case KG Doc Filed 10/17/18 Page 10 of 45 SPECIAL TERMS & CONDITIONS: 1. Licensor Support: Licensor will use reasonable efforts to provide Licensee the following marketing support and related benefits: a) Internet I Web Site- Feature a link on the licensed brand's web site to a web site develop by Licensee featuring the licensed products. Licensor will register the domain name for the category (examples: or and authorize Licensee to market the licensed products through such website at its own expense. Licensee shall have the right to use the domain name only during the Term(s) of the license. b) Social Media Platforms- Profiling the licensed products on Furniture Brands' Social Media platforms (e.g. Furniture Brands Website, Facebook) and catalogs as appropriate. c) Press Release- Collaborate with the Licensee to produce a press release announcing the licensing partnership then distribute the press release across all of Licensor's typical press release outlets. d) Brand Imagery- Licensor will provide Licensee access to its database of brand and product imagery for the purposes of advertising and promotion of the licensed products. e) Brand Marketing Activities- Communicate planned advertising, promotional, and marketing activities with the Licensee, when possible and appropriate, and consider ways to allow the Licensee to participate (at its own expense) to market the Licensed Products. f) Tradeshows- Selectively showcase products in Furniture Brands' tradeshow exhibits (Licensee responsible for costs associated with providing and shipping products, working the exhibit it its relevant space, travel related to the show, marketing materials for the show, etc.). g) New Construction Model Homes Builder Program- It is understood that Furniture Brands Builder Services (FBBS), a division of Furniture Brands, works closely with several key builders and as a result they provide home furnishings products for several hundred model /showroom homes annually. FBBS agrees to work collaboratively with the Licensee to identify opportunities wherein the licensed products could be sold and showcased in the model/showroom homes based on the parties mutual agreement. h) Customer Introduction/Communication- Assist in the communication of the Licensed Product Line, Launch and overall program. This includes providing contact information and facilitating introductions as appropriate to Licensor customers (i.e. Furniture Brands Sales Associates, Retailers, and Trade customer accounts). i) Corporate/Sales Training/Communication- Facilitate and coordinate opportunities for the Licensee to inform, educate, and train Furniture Brands sales associates on basic details regarding the licensed products I program information to ensure a general understanding of the product line, licensing partner relationship, and contact information for field, dealer, trade, retailer and contractor support. This could include ongoing press release collaboration. mailings, communication of the Licensed Product program, and providing Licensee with contact information and introductions to Licensor customers (e.g.- Retailers and related sales channel partners). j) Product Development- Collaborate with licensees as appropriate to identify effective synergies towards the development of quality licensed products. 2. Additional Territories: Licensee will have the opportunity to present Licensor, opportunities in additional territories. The decision to grant additional distribution channels and territories shall be in Licensor's sole and absolute discretion. 3. Reasonable Efforts. Licensee shall use commercially reasonable efforts in selling and advertising the Products to maximize the sales ofproducts during the Term of this Agreement. During the Term and any Renewal Term, Licensee agrees not to enter into a license or other business agreement similar to this Agreement for Products with any other furniture company that competes with Licensor's portfolio of brands. Nothing contained in this Agreement shall prevent, inhibit or otherwise limit Licensee from selling products which originate from other manufacturers except for products similar to the Products sold under trademarks, trade names, or corporate names which are associated with furniture and which compete with the Licensor's portfolio of brands in the furniture or furniture accessory industry

21 ~. ' Case KG Doc Filed 10/17/18 Page 11 of 45 MISCELLANEOUS EXECUTION OF DEFINITNE AGREEMENT. Licensee acknowledges that this Term Sheet is solely intended as an expression of the parties' current business intent and is not binding on either party. A binding agreement does not exist between the parties unless and until the parties have fully-executed a definitive, long-form license agreement. No Licensed Products and/or collateral materials shall be sold or otherwise distributed until a definitive, long-form license agreement has been fully executed. NO SEPARATE PROMISES. This Term Sheet supersedes all prior and/or contemporaneous oral or written agreements, representations, and understandings between Licensor and Licensee regarding the subject matter of this Term Sheet. Licensor and Licensee acknowledge that no other statements, promises, representations or inducements, except as herein set forth, have been made other than those made herein, each party acknowledge that its acceptance and execution of this Term Sheet is made in reliance solely on the representations made herein. No supplement, modification, or amendment of this Term Sheet or any representations concerning the subject matter of this Term Sheet shall be binding unless executed in writing and signed by both Parties. OWNERSHIP. All use of the Licensed Property!frademarks (Exhibit A) shall inure to the benefit of the Licensor. (LICENSEE) (LICENSOR) BY: BY: NAME: NAME: TITLE: TITLE: DATE: DATE:

22 Case KG Doc Filed 10/17/18 Page 12 of 45 EXHffiiT A- LICENSED PROPERTYffRADEMARKS TRADEMARKS: Thomasville Broyhill Lane Drexel Heritage LOGOS: Broyhill. Lane FURNITURE DRE XEL HERITAGE

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56 Case KG Doc Filed 10/17/18 Page 1 of 2 CERTIFICATE OF SERVICE The undersigned certifies that on October 17, 2018, he caused a true copy of the foregoing Objection of Stork Craft (Asia) SRL to the Assumption and Assignment of Trademark License Agreement to HHG IPCo. to be served on all parties in interest electronically through the Court s CM/ECF System and on the following parties directly via /s/ Joseph H. Huston, Jr. Joseph H. Huston, Jr. (No. 4035) Pauline K. Morgan, Esquire Kenneth J. Enos, Esquire Jaime Luton Chapman, Esquire Young Conaway Stargatt & Taylor, LLP Rodney Square, 1000 North King Street Wilmington, Delaware pmorgan@ycst.com kenos@ycst.com jchapman@ycst.com Counsel to the Debtors Regina Kelbon, Esquire Stanley B. Tarr, Esquire Blank Rome LLP 1201 North Market Street Suite 800 Wilmington, Delaware kelbon@blankrome.com Tarr@BlankRome.com Counsel to the Pre-Petition Agent and DIP Agent Linda Richenderfer, Trial Attorney Office of the United States Trustee for the District of Delaware 844 King Street, Suite 2207 Wilmington, Delaware, Linda.richenderfer@usdoj.gov Mark Felger, Esquire Cozen O Connor 1201 North Market Street, Suite 1001 Wilmington, Delaware mfelger@cozen.com Jeffrey D. Saferstein, Esquire Jacob A. Adlerstein, Esquire Sarah Harnett, Esquire Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas New York, New York JSaferstein@paulweiss.com JAdlerstein@paulweiss.com SHarnett@paulweiss.com Counsel to the Pre-Petition Term Agent Jay Dubiner, General Counsel c/o Authentic Brands Group Richard J. Bernard, Esquire Leah M. Eisenberg, Esquire 11

57 Case KG Doc Filed 10/17/18 Page 2 of Broadway, 4th Floor New York, New York JDubiner@abg-nyc.com with copies to: Jay R. Indyke, Esquire Cooley LLP th Avenue, #46, New York, New York jindyke@cooley.com Robert Raskin SB360 Capital Partners, LLC 1010 Northern Boulevard Great Neck, New York rraskin@sb360.com Stalking Horse Bidder Foley & Lardner LLP 90 Park Avenue New York, New York rbernard@foley.com leisenberg@foley.com Christopher M. Samis, Esquire L. Katherine Good, Esquire Aaron H. Stulman, Esquire Whiteford, Taylor & Preston LLC The Renaissance Centre 405 North King Street, Suite 500 Wilmington, Delaware csamis@wtplaw.com kgood@wtplaw.com astulman@wtplaw.com Counsel to the Committee 12