SEC Info℠

Home

Search

My Interests

Help

Sign In

Please Sign In

Brookstone Inc – ‘DEFM14A’ on 8/22/05

On:  Monday, 8/22/05, at 5:12pm ET   ·   Effective:  8/22/05   ·   Accession #:  1193125-5-172511   ·   File #:  0-21406

in

this entire Filing. an “Entity” Search.

Show

Documents searched

and

each “hit”. the 1st “hit”.

↓↑Hints

 Text Wildcards:  ? (any letter/digit),  * (many).  Search Logic:  for Documents:  & (and),  | (or);  for Text:  | (anywhere),  "(&)" (near).  Details... 

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/22/05  Brookstone Inc                    DEFM14A     8/22/05    1:2.4M                                   RR Donnelley/FA

Document/Exhibit                   Description                      Pages   Size 

 1: DEFM14A     Definitive Proxy Statement                          HTML   1.80M 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(A)

OF THE SECURITIES EXCHANGE ACT OF 1934,

AS AMENDED

Filed by the Registrant x   Filed by a Party other than the Registrant ¨

Check the appropriate box:

BROOKSTONE, INC.

(Name of Registrant as Specified In Its Charter)

N/A

(Name of Person(s) Filing Proxy Statement, if other than Registrant)

Payment of Filing Fee (Check the appropriate box):

 Common stock, par value $0.001 per share, of Brookstone, Inc. (“Brookstone common stock”)

 20,428,452 shares of Brookstone common stock

 1,638,887 shares of options to purchase Brookstone common stock

 156,274 deferred stock awards for shares of Brookstone common stock

 9,612 restricted stock awards for shares of Brookstone common stock

The filing fee of $50,996.38 was calculated by multiplying 0.0001177 by the sum of (a) the product of (i) 20,428,452 shares of Brookstone common stock and (ii) $20.00; (b) the product of (i) 1,638,887 shares of Brookstone common stock subject to outstanding identified options and (ii) the excess of $20.00 over the per share exercise price with respect to each such identified option, (c) the product of (i) 156,274 shares of identified deferred stock awards and (ii) the excess of $20.00 over $0, the unpaid purchase price with respect to such identified deferred stock awards, and (d) the product of (i) 9,612 shares of identified restricted stock awards and (ii) the excess of $20.00 over $0, the unpaid purchase price with respect to such identified restricted stock awards.

 $433,274,235

 $52,291.96

Table of Contents

Brookstone, Inc.

One Innovation Way

Merrimack, NH 03054

(603) 880-9500

August 22, 2005

Dear Stockholder:

We cordially invite you to attend the 2005 Annual Meeting of Stockholders of Brookstone, Inc. (“we”, “Brookstone” or the “Company”), which will be held on September 22, 2005, beginning at 2:00 p.m. (local time), at the Bank of America Conference and Training Center, One Federal Street, 7^th Floor, Boston, Massachusetts.

Details of business to be conducted at the Annual Meeting of Stockholders are given in the attached Notice of Annual Meeting of Stockholders and Proxy Statement.

On April 15, 2005, the board of directors of Brookstone approved a merger agreement, providing for the acquisition of the Company by Brookstone Holdings Corp., a Delaware corporation whose owners currently consist of OSIM International Ltd, a Singapore-listed healthy lifestyle products company, J.W. Childs Associates, L.P., a Boston-based private equity firm and Temasek Capital (Private) Limited, a Singapore-based investment company, and on July 15, 2005, the board of directors approved an amendment to the merger agreement. If the merger is completed, you will be entitled to receive $20.00 in cash, without interest, for each share of the Brookstone common stock you own.

At the annual meeting, you will be asked to adopt the amended merger agreement, among other matters. Our executive officers and other members of senior management, including myself, have interests in the merger that are different from, or in addition to, those of our other stockholders, all as described in greater detail in the accompanying proxy statement. In order to evaluate the merger and represent the interests of our public stockholders unaffiliated with our executive officers and other members of senior management, the board of directors appointed a special committee, consisting of two independent directors. OUR BOARD OF DIRECTORS HAS, BASED ON THE UNANIMOUS RECOMMENDATION OF THE SPECIAL COMMITTEE, DETERMINED THAT THE AMENDED MERGER AGREEMENT AND THE MERGER, ON THE TERMS AND SUBJECT TO THE CONDITIONS SET FORTH IN THE AMENDED MERGER AGREEMENT, ARE ADVISABLE, FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS UNAFFILIATED STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THE ADOPTION OF THE AMENDED MERGER AGREEMENT.

The proxy statement accompanying this letter provides you with information about the proposed merger and the annual meeting. We encourage you to read the entire proxy statement carefully. You may also obtain more information about the Company from documents we have filed with the Securities and Exchange Commission.

Your vote is very important. The merger cannot be completed unless the amended merger agreement is adopted by the affirmative vote of the holders of a majority of the outstanding shares of Brookstone common stock.

IF YOU FAIL TO VOTE ON THE AMENDED MERGER AGREEMENT, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE ADOPTION OF THE AMENDED MERGER AGREEMENT FOR PURPOSES OF THE VOTE REFERRED TO ABOVE. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE VOTE YOUR SHARES BY INTERNET, TELEPHONE OR MAIL. IF YOU RECEIVE MORE THAN ONE PROXY CARD BECAUSE YOU OWN SHARES THAT ARE REGISTERED DIFFERENTLY, PLEASE VOTE ALL OF YOUR SHARES SHOWN ON ALL OF YOUR PROXY CARDS. THANK YOU.

Table of Contents

Voting by proxy will not prevent you from voting your shares in person if you subsequently choose to attend the annual meeting.

We hope you will join us on September 22, 2005 for our Annual Meeting of Stockholders, but we know that not every stockholder will be able to do so. Whether or not you plan to attend, please return your signed proxy as soon as possible.

Thank you for your cooperation and continued support.

Sincerely,

MICHAEL F. ANTHONY

President and Chief

Executive Officer

YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO READ THE ACCOMPANYING PROXY STATEMENT CAREFULLY AND THEN SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR USE THE ELECTRONIC VOTING PROCEDURES BY FOLLOWING THE INSTRUCTIONS IN THE ACCOMPANYING PROXY CARD(S). IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, INCLUDING IF YOU INTEND TO ATTEND AND VOTE AT THE ANNUAL MEETING IN PERSON, YOU MAY DO SO IN THE MANNER SET FORTH IN THE ACCOMPANYING PROXY STATEMENT.

Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved the merger, passed upon the merits or fairness of the merger or passed upon the adequacy or accuracy of the disclosure in this document. Any representation to the contrary is a criminal offense.

THIS PROXY STATEMENT IS DATED AUGUST 22, 2005 AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT AUGUST 24, 2005.

Table of Contents

Brookstone, Inc.

One Innovation Way

Merrimack, NH 03054

(603) 880-9500

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

SEPTEMBER 22, 2005

To Our Stockholders:

Notice is hereby given that the Annual Meeting of Stockholders of Brookstone, Inc., a Delaware corporation (“we” “Brookstone” or the “Company”), will be held at the Bank of America Conference and Training Center, One Federal Street, 7^th Floor, Boston, Massachusetts on September 22, 2005 at 2:00 p.m. (local time) for the following purposes:

Only stockholders of record at the close of business on July 29, 2005 are entitled to notice of, and to vote at, the Annual Meeting of Stockholders and any and all adjourned sessions thereof. A list of stockholders entitled to vote at the Annual Meeting of Stockholders will be open to examination by stockholders at the meeting and during normal business hours from September 12, 2005 to the date of the meeting at the offices of Ropes & Gray LLP (attn: David B. Walek, Esq.), One International Place, Boston, Massachusetts 02110.

Your vote is important, regardless of the number of shares of the Company’s common stock you own. The adoption of the amended merger agreement requires the affirmative approval of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon. Even if you plan to attend the meeting in person, we request that you complete, sign, date and return the enclosed proxy or submit your proxy by telephone or the Internet prior to the meeting and thus ensure that your shares will be represented at the meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by phone or the internet, the effect will be that your shares will not be counted for purposes of determining whether a quorum

Table of Contents

is present at the meeting and will have the same effect as a vote against the adoption of the amended merger agreement. If you are a stockholder of record and do attend the meeting and wish to vote in person, you may withdraw your proxy and vote in person.

Stockholders of Brookstone who do not vote in favor of the adoption of the amended merger agreement will have the right to seek appraisal of the fair value of their shares if the merger is completed, but only if they submit a written demand for appraisal to Brookstone before the vote is taken on the amended merger agreement and they comply with all requirements of Delaware law, which are summarized in the accompanying proxy statement.

BY ORDER OF THE BOARD OF DIRECTORS:

PHILIP W. ROIZIN

Executive Vice President, Finance

and Administration, Treasurer and

Secretary

Merrimack, New Hampshire

August 22, 2005

Table of Contents

SUMMARY TERM SHEET

The following summary briefly describes the material terms of the proposed merger. While this summary describes the material terms that you should consider when evaluating the merger, the proxy statement contains a more detailed description of these terms. We encourage you to read the proxy statement before voting your shares of Brookstone common stock. We have included section and page references to the proxy statement to direct you to a more complete description of the topics described in this summary.

Table of Contents

Table of Contents

Table of Contents

TABLE OF CONTENTS

i

Table of Contents

ii

Table of Contents

iii

Table of Contents

BROOKSTONE, INC.

Annual Meeting of Stockholders

September 22, 2005

PROXY STATEMENT

The enclosed form of proxy is solicited on behalf of the board of directors of Brookstone, Inc., a Delaware corporation (“we”, “Brookstone” or the “Company”), for use at the 2005 Annual Meeting of Stockholders of Brookstone (the “annual meeting”) to be held at the Bank of America Conference and Training Center, One Federal Street, 7^th Floor, Boston, Massachusetts, on September 22, 2005 at 2;00 p.m. (local time) and at any and all adjourned sessions thereof. It is expected that this proxy statement and the enclosed form of proxy will be mailed to stockholders commencing on or about August 24, 2005. A proxy may be revoked by a stockholder at any time before it is voted (i) by filing with the Secretary of Brookstone, at or before the annual meeting, a written notice of revocation that is dated a later date than the proxy, (ii) by returning to the Company another properly signed proxy bearing a later date, (iii) by submitting a later-dated vote over the Internet or by telephone, or (iv) by attending the annual meeting or any adjourned session thereof and voting the shares covered by the proxy in person. Shares represented by the enclosed form of proxy properly executed and returned or voted by telephone or over the Internet, and not properly revoked, will be voted at the annual meeting.

Brookstone will pay the cost of the proxy solicitation, which will be primarily by mail. In addition to soliciting proxies by mail, directors, officers and employees of Brookstone may solicit proxies personally and by telephone, facsimile or other similar means. These persons will not receive additional or special compensation for such solicitation services. In addition, Georgeson Shareholder Services will provide solicitation services to us for a fee of approximately $8,500 plus out-of-pocket expenses. Brookstone will, upon request, reimburse brokers, banks and other nominees for their reasonable expenses in forwarding solicitation materials to their customers who are beneficial owners of the Brookstone common stock they hold of record.

In the absence of contrary instructions, the persons named as proxies will vote for (i) the adoption of the Agreement and Plan of Merger, dated as of April 15, 2005 and amended as of July 15, 2005, among Brookstone Holdings Corp., Brookstone Acquisition Corp. and the Company, pursuant to which, upon the merger becoming effective, each share of common stock, par value $0.001 per share, of the Company (the “Common Stock”) will be converted into the right to receive $20.00 in cash, without interest, (ii) any proposal to adjourn or postpone the meeting to solicit additional proxies, (iii) the election of the Company’s nominees for director named herein, (iv) the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm to examine the financial statements of the Company and its subsidiaries for the fiscal year ending January 28, 2006, (v) approval of the amendment to and restatement of the Company’s Management Incentive Bonus Plan and (vi) any recommendation of the board of directors on any matters properly brought before the meeting for a vote. The holders of record of shares of the Common Stock at the close of business on July 29, 2005 are entitled to receive notice of, and to vote at, the annual meeting. Each such share of Common Stock is entitled to one vote on each matter to come before the annual meeting. As of July 29, 2005 the Company had issued and outstanding 20,436,689 shares of Common Stock held by 3,185 holders of record.

The Annual Report of the Company, including consolidated financial statements for the fiscal year ended January 29, 2005 (“Fiscal 2004”), is being mailed to the Company’s stockholders with this Proxy Statement.

1

Table of Contents

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND THE MERGER

The following discussion addresses briefly some questions you may have regarding the annual meeting of stockholders and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder of Brookstone. Please refer to the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement. In this proxy statement, unless the context indicates otherwise, the terms “Brookstone” “Company” “we” “our” “ours” and “us” refer to Brookstone, Inc. and its subsidiaries.

Voting Procedures

2

Table of Contents

Internet and telephone voting provide the same authority to vote your shares as if you returned your proxy card by mail. In addition, Internet and telephone voting will reduce our proxy-related postage expenses.

If you hold shares in street name through a broker, bank or other nominee, you may vote those shares in person at the meeting only if you obtain and bring with you a signed proxy from the necessary nominees giving you the right to vote the shares. To do this, you should contact your nominee.

3

Table of Contents

For the proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not count as votes cast on the proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, but will count for the purpose of determining whether a quorum is present. As a result, if you ABSTAIN, it has the same effect as if you vote AGAINST adjournment or postponement of the meeting, if necessary or appropriate, to solicit additional proxies.

For the election of directors, you may vote FOR all of the Company’s nominees or you may WITHHOLD your vote for one or more of the nominees. Withheld votes will not count as votes cast for the nominee, but will count for the purpose of determining whether a quorum is present. As a result, if you withhold your vote, it has no effect on the outcome of the vote to elect directors.

For the proposal to approve the amendment and restatement of the Company’s Management Incentive Bonus Plan, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not count as votes cast on the proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, but will count for the purpose of determining whether a quorum is present. As a result, if you ABSTAIN, it has the same effect as if you vote AGAINST approving the amendment and restatement of the Company’s Management Incentive Bonus Plan.

For the proposal relating to ratification of Brookstone’s independent registered public accounting firm, you may vote FOR, AGAINST or ABSTAIN. Abstentions will not count as votes cast on the proposal relating to ratification of Brookstone’s independent registered public accounting firm, but will count for the purpose of determining whether a quorum is present. As a result, if you ABSTAIN, it has the same effect as if you vote AGAINST ratification of Brookstone’s independent registered public accounting firm.

If you sign your proxy card without indicating your vote, your shares will be voted “FOR” the adoption of the amended merger agreement, “FOR” any proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, “FOR” the election of each of Brookstone’s nominees for director named herein, “FOR” the approval of the amendment and restatement of the Company’s Management Incentive Bonus Plan, “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, and in accordance with the recommendations of the Company’s board of directors on any other matters properly brought before the meeting for a vote.

A broker non-vote generally occurs when a broker, bank or other nominee holding shares on your behalf does not vote on a proposal because the nominee has not received your voting instructions and lacks discretionary power to vote the shares. Generally, nominees have the discretion to vote for directors and the ratification of the appointment of our independent registered public accounting firm, unless you instruct otherwise. Broker non-votes will not count as votes cast on a proposal, but will count for the purpose of determining whether a quorum is present. As a result, broker non-votes will have the same effect as a vote against the adoption of the amended merger agreement. Broker non-votes will also have the same effect as a vote against any proposal to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, the approval of the amendment and restatement of the Company’s Management Incentive Bonus Plan and the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, but will not affect the outcome of the vote relating to the election of directors.

4

Table of Contents

The Merger

5

Table of Contents

In addition, Mr. Anthony, our Chairman, President and Chief Executive Officer, will become fully vested in benefits he has accrued under the Company’s Supplemental Executive Retirement Plan through the date the merger is consummated, and will be entitled to payment of such benefits upon termination of his employment with us. Pursuant to the terms of his Change in Control Agreement with the Company, if Mr. Anthony’s employment is terminated under certain circumstances within twelve months following the effective time of the merger (or April 15, 2005, if the merger is approved by the stockholders but not consummated), he will be entitled to a lump-sum cash payment equal to 300% of the sum of his annual base salary in effect at the time of termination plus 300% of the average of his annual bonuses earned with respect to the three full years preceding the termination of employment. Mr. Anthony will also be entitled to receive a lump-sum payment from the Company in an amount sufficient (on a net basis) to pay any excise tax imposed pursuant to Sections 280G and 4999 of the Internal Revenue Code with respect to payments or benefits received by Mr. Anthony in connection with the merger. Notwithstanding the foregoing, Mr. Anthony has agreed that, so long as Brookstone, Inc. or one of its affiliates enters into an employment agreement pursuant to certain terms of a binding management agreement entered into by Mr. Anthony with Parent on April 15, 2005, as described in greater detail below under “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 67, or agrees in writing to assume those obligations to Mr. Anthony undertaken in connection with such management agreement, any existing agreements or arrangements between Mr. Anthony and the Company regarding the terms of Mr. Anthony’s employment and compensation, including the Company’s Supplemental Executive Retirement Plan and Change in Control Agreement, will terminate effective upon the completion of the merger.

Mr. Anthony has agreed with Parent to reinvest at least 80% of the net after-tax cash proceeds he receives under the merger in respect of his stock options to acquire shares of Brookstone common stock in equity securities of an affiliate of Parent. At the closing of the merger, Mr. Anthony will also receive fully-vested profit sharing interests in the same affiliate of Parent. As a result of these arrangements, it is anticipated that Mr. Anthony will hold in the aggregate approximately 2.9% of the fully-diluted equity of

6

Table of Contents

such affiliate of Parent, without giving effect to the grant of any profit-sharing interests under a management equity incentive program to be established by Brookstone following the merger. In addition, Mr. Anthony will be awarded 40% of the profit-sharing interests in the same affiliate of Parent that will be available under a management equity incentive program to be established by Brookstone in connection with the merger. These interests will be subject to vesting requirements. Mr. Anthony also will enter into a new employment agreement with the Company or one of its affiliates. Additional executive officers and members of senior management of the Company, including Philip Roizin, Alexander Winiecki, Gregory Sweeney, Rufus Woodard, Steven Strickland and Carol Lambert, may agree with Parent in the future to reinvest a portion of their merger consideration in equity securities of the same affiliate of Parent. Michael Anthony and these executive officers and members of senior management will also receive equity interests in OSIM Brookstone Holdings, Inc., the general partner of OSIM Brookstone Holdings, L.P., having a nominal economic value and having voting rights proportionate with their ownership of certain equity interests of OSIM Brookstone Holdings, L.P. In addition, these executive officers and members of senior management also may enter into new employment agreements with the Company or one of its affiliates and may be awarded profit-sharing interests in such affiliate of Parent that will be available under the management equity incentive program to be established by Brookstone in connection with the merger.

These interests are more fully described under “Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 67. The special committee of independent directors and the board of directors were aware of these interests and considered them, among other factors, when approving the amended merger agreement.

7

Table of Contents

8

Table of Contents

Georgeson Shareholder Services 17 State Street New York, NY 10004 Telephone: (212) 805-7000

9

Table of Contents

SUMMARY

The following summary highlights selected information from this proxy statement and may not contain all of the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that item elsewhere in this proxy statement.

The Parties to the Amended Merger Agreement (Page 80)

Brookstone, Inc.

One Innovation Way

Merrimack, New Hampshire 03054

(603) 880-9500

We are a Delaware corporation and a product development and specialty retail company that operates 288 Brookstone-brand stores nationwide and in Puerto Rico. Typically located in high-traffic regional shopping malls, lifestyle centers and airports, the stores feature unique and innovative consumer products. We also operate five stores under the Gardeners Eden brand, and a direct-marketing business that consists of three catalog titles—Brookstone, Hard-to-Find Tools and Gardeners Eden—as well as e-commerce web sites at www.brookstone.com and www.gardenerseden.com. On June 29, 2005, we announced our decision to divest the Gardeners Eden business.

Brookstone Holdings Corp.

c/o J.W. Childs Associates, L.P.

111 Huntington Avenue—Suite 2900

Boston, MA 02199-7610

(617) 753-1100

Brookstone Holdings Corp., which we refer to as “Parent,” is a Delaware corporation that was incorporated on April 13, 2005 solely for the purpose of holding 100% of the outstanding common stock of Brookstone Acquisition Corp. Parent is currently owned by the investor group and will be wholly-owned by OSIM Brookstone Holdings, L.P. as of the closing of the merger. Parent has not participated in any activities to date other than activities incident to its formation and the transactions contemplated by the amended merger agreement.

Brookstone Acquisition Corp.

c/o J.W. Childs Associates, L.P.

111 Huntington Avenue—Suite 2900

Boston, MA 02199-7610

(617) 753-1100

Brookstone Acquisition Corp., which we refer to as “Acquisition,” is a Delaware corporation that was incorporated on April 13, 2005 solely for the purpose of completing the merger. Acquisition is a direct, wholly-owned subsidiary of Parent. Acquisition has not participated in any activities to date other than activities incident to its formation and the transactions contemplated by the amended merger agreement. In connection with the merger, Acquisition will be merged with and into Brookstone, Inc. and its separate existence will cease.

Other Participants (Page 81)

OSIM Brookstone Holdings, L.P.

OSIM Brookstone Holdings, Inc.

c/o J.W. Childs Associates, L.P.

111 Huntington Avenue—Suite 2900

Boston, MA 02199-7610

(617) 753-1100

10

Table of Contents

OSIM Brookstone Holdings, L.P. is an exempted limited partnership formed and registered under the laws of the Cayman Islands on May 19, 2005 for the purpose of directly and indirectly holding 100% of the capital stock of Parent and Acquisition, and, after the merger, the surviving corporation. OSIM Brookstone Holdings, Inc. is an exempted company incorporated under the laws of the Cayman Islands on May 19, 2005, for the purpose of serving as the general partner of OSIM Brookstone Holdings, L.P. J.W. Childs Equity Partners III, L.P. (and/or other designees of J.W. Childs Associates, L.P.), OSIM International Ltd (and/or its designees) and Century Private Equity Holdings (S) Pte Ltd (and/or other designees of Temasek Capital (Private) Limited) as of the effective date of the merger will be, together with Mr. Anthony and certain other members of our management, including Philip Roizin, Alexander Winiecki, Gregory Sweeney, Rufus Woodard, Steven Strickland and Carol Lambert, who agree to reinvest a portion of the proceeds they receive in the merger in equity securities of an affiliate of Parent, the owners of all of outstanding interests in OSIM Brookstone Holdings, L.P. and OSIM Brookstone Holdings, Inc. Neither OSIM Brookstone Holdings, L.P. nor OSIM Brookstone Holdings, Inc. will have participated in any activities prior to the merger other than activities incident to its formation and the transactions contemplated by the amended merger agreement.

OSIM International Ltd

65, Ubi Avenue 1

OSIM Headquarters

Singapore 408939

(65) 6747-6866.

OSIM International Ltd, a corporation organized under the laws of Singapore, was established in 1980 and is a global leader in healthy lifestyle products and is listed on the main board of the Singapore Exchange. It is the leading Asian brand for healthy lifestyle products. OSIM is a brand management and niche marketing company with a focus on the consumer. OSIM uses innovative selling approaches and constantly enhances its innovation capabilities to produce successful products with superior designs, features and quality. Today, OSIM operates a wide point-of-sales network of over 700 outlets in Asia, Australia, Africa, the Middle East, United Kingdom and North America.

J.W. Childs Equity Partners III, L.P.

J.W. Childs Advisors III, L.P.

J.W. Childs Associates, L.P.

111 Huntington Avenue—Suite 2900

Boston, MA 02199-7610

(617) 753-1100.

J.W. Childs Equity Partners III, L.P., a Delaware limited partnership, is an investment fund with committed capital from financial institutions, pension funds, insurance companies and university endowments. The general partner of J.W. Childs Equity Partners III, L.P. is J.W. Childs Advisors III, L.P., whose general partner is J.W. Childs Associates, L.P. Each of J.W. Childs Advisors III, L.P. and J.W. Childs Associates, L.P. is a Delaware limited partnership principally engaged in the business of investing and managing the investments, in a general partner capacity, of J.W. Childs Equity Partners III, L.P., and with respect to J.W. Childs Associates, L.P., other investment funds.

11

Table of Contents

Century Private Equity Holdings (S) Pte Ltd

Seletar Investments Pte Ltd

Temasek Capital (Private) Limited

60B Orchard Road #06-18 Tower 2,

The Atrium@Orchard,

Singapore 238891

(65) 6828 6828

Century Private Equity Holdings (S) Pte Ltd is an investment holding company organized in Singapore. The sole shareholder of Century Private Equity Holdings (S) Pte Ltd is Seletar Investments Pte Ltd, whose sole shareholder is Temasek Capital (Private) Limited. Each of Seletar Investments Pte Ltd and Temasek Capital (Private) Limited are investment holding companies organized in Singapore.

12

Table of Contents

The following diagram depicts the ownership structure of Brookstone, Inc. after the completion of the merger.

13

Table of Contents

The Annual Meeting

Time, Place and Date (Page 82)

The annual meeting will be held on September 22, 2005, starting at 2:00 p.m. (local time), at the Bank of America Conference and Training Center, One Federal Street, 7^th Floor, Boston, Massachusetts.

Purpose (Page 82)

At the annual meeting, you will be asked to consider and vote upon a proposal to adopt the amended merger agreement, to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, to elect directors, to ratify the appointment of Brookstone’s independent registered public accounting firm and to transact such other business as may properly come before the meeting and any and all adjourned sessions thereof. The amended merger agreement provides that Acquisition will be merged with and into the Company, and that each outstanding share of the Company’s common stock (other than shares held in our treasury or owned by Parent, Acquisition or any of their respective subsidiaries or shares as to which a stockholder validly exercises and perfects appraisal rights in compliance with Delaware law) will be converted into the right to receive $20.00 in cash, without interest.

Vote Required (Page 82)

For us to complete the merger, stockholders holding at least a majority of the shares of Brookstone common stock outstanding at the close of business on the record date must vote “FOR” the adoption of the amended merger agreement. The five nominees who receive the greatest number of votes properly cast for the election of directors will be elected as directors. The proposals to adjourn or postpone the meeting, if necessary or appropriate, to solicit additional proxies, approve of the amendment and restatement of the Management Incentive Bonus Plan, and the ratification of the appointment of our independent registered public accounting firm each require the affirmative vote of a majority of the shares present and entitled to vote.

Share Ownership of Directors and Executive Officers (Page 83)

As of July 29, 2005, the record date, the directors and executive officers of Brookstone held and are entitled to vote, in the aggregate, 127,919 shares of Brookstone common stock, representing approximately 0.6% of the outstanding shares of Brookstone common stock. The directors and executive officers have informed Brookstone that they intend to vote all of their shares of Brookstone common stock “FOR” the adoption of the amended merger agreement, “FOR” the adjournment or postponement of the meeting, if necessary or appropriate, to solicit additional proxies “FOR” the approval of the amendment and restatement of the Management Incentive Bonus Plan, “FOR” the election of the Company’s nominees for director and “FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as Brookstone’s independent registered public accounting firm.

Opinion of CIBC World Markets Corp. (Page 46 and Annex B)

In connection with the merger, the special committee of independent directors received a written opinion of CIBC World Markets Corp. (“CIBC World Markets”), as to the fairness, from a financial point of view, of the merger consideration to be received by holders of Brookstone common stock (other than any management participant or affiliates thereof). The full text of CIBC World Markets’ written opinion, dated July 15, 2005, is attached to this proxy statement as Annex B. We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken. CIBC World Markets’ opinion was provided to the special committee of independent directors in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration. The opinion does not address any other aspect of the merger and does not constitute a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger.

14

Table of Contents

Financing (Page 60)

The total amount of funds required to complete the merger and related transactions, including any amounts necessary to pay fees and expenses associated with the merger and such related transactions, is anticipated to be approximately $447.6 million. This amount, together with related working capital requirements of Brookstone following completion of the merger, is expected to be provided through proceeds of a new senior secured credit facility, a private offering of senior unsecured notes (or, if the offering of such senior unsecured notes is not consummated at the time of the completion of the merger, a bridge loan facility), cash on hand at the Company and an equity financing. The commitments of the lenders to provide the new senior secured credit facility and bridge loan facility and the commitments of the members of the investor group to provide their respective portions of the equity financing are subject to the satisfaction of the conditions set forth in their respective commitment letters pursuant to which such financings will be provided. See “Special Factors—Financing of the Merger” beginning on page 60. The following arrangements are in place to provide financing for the merger and related transactions, including the payment of related transaction fees and expenses, and the ongoing working capital requirements of Brookstone following the merger:

Equity Financing Arrangements

Parent has received equity commitment letters from each member of the investor group, pursuant to which such members have agreed, subject to the terms and conditions set forth therein, severally to make aggregate capital contributions of up to $240.0 million to Parent.

Debt Financing Arrangements

It is contemplated that the proceeds from an offering of new senior unsecured notes by Brookstone Company, Inc., a wholly owned subsidiary of Brookstone, Inc., yielding gross proceeds of $190.0 million will be used, together with other sources of funds, to fund the merger (including refinancing or retiring certain existing debt of Brookstone and paying fees, commissions and expenses in connection with the merger). The senior unsecured notes will not be registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

The members of the investor group have entered into a second amended and restated debt commitment letter with Bank of America, N.A. (“BANA”), Goldman Sachs Credit Partners L.P. (“GSCP”), UBS Loan Finance LLC (“UBS”) and UBS Securities LLC, pursuant to which and subject to the terms and conditions set forth therein, (a) BANA, GSCP and UBS have committed to provide a new $100.0 million senior secured asset based revolving credit facility and (b) GSCP and UBS have committed to provide a new $190.0 million senior unsecured increasing rate bridge loan facility (if the contemplated offering of the senior unsecured notes is not consummated at the time the merger is completed).

Management Reinvestment

Mr. Anthony has agreed to reinvest at least 80% of the net after-tax proceeds he receives under the amended merger agreement in respect of his stock options to acquire shares of Brookstone common stock, in the equity of OSIM Brookstone Holdings, L.P. In addition, it is currently anticipated that certain other members of management, including Philip Roizin, Alexander Winiecki, Gregory Sweeney, Rufus Woodard, Steven Strickland and Carol Lambert, will reinvest a portion of the net after-tax proceeds they receive under the amended merger agreement in respect of the equity securities of Brookstone held by such members of senior management, in equity securities of OSIM Brookstone Holdings, L.P. Michael Anthony and these executive officers and members of senior management will also receive equity interests in OSIM Brookstone Holdings, Inc., the general partner of OSIM Brookstone Holdings, L.P., having a nominal economic value and having voting rights proportionate with their ownership of certain equity interests of OSIM Brookstone Holdings, L.P.

15

Table of Contents

Certain Effects of the Merger (Page 57)

Immediately following the merger, the Company, as the surviving corporation of the merger, will be indirectly owned by members of the investor group and Mr. Michael Anthony, our Chairman, President and Chief Executive Officer. If the merger is completed, Brookstone will no longer be a public company and will apply to The NASDAQ Stock Market for the delisting of its shares of common stock and to the Securities and Exchange Commission for the deregistration of its shares of common stock under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Plans for the Company after the Merger (Page 56)

Upon completion of the merger, it is currently expected that the operations of Brookstone will be conducted substantially as they currently are being conducted. In addition, following the merger the investor group expects that OSIM and Brookstone will broaden the scope of their commercial relationships. The investor group has advised Brookstone that it does not have any current plans or proposals that relate to, or would result in, an extraordinary corporate transaction following completion of the merger involving Brookstone’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or sale or transfer of a material amount of assets. We expect, however, that following the merger, Brookstone’s management and the investor group will continuously evaluate and review from time to time Brookstone’s business, operations, corporate structure, personnel, properties and assets and may at any time develop new plans and proposals that they consider appropriate. The investor group expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

Post-Merger Ownership (Page 73)

Immediately after the completion of the merger, Parent will own all of the outstanding capital stock of Brookstone and all of the capital stock of Parent will be indirectly owned by the members of the investor group (or their designees), Mr. Michael Anthony and certain other members of our senior management, including Philip Roizin, Alexander Winiecki, Gregory Sweeney, Rufus Woodard, Steven Strickland and Carol Lambert, who agree with Parent to reinvest a portion of their merger consideration, through their respective ownership in OSIM Brookstone Holdings, L.P., the ultimate parent of Parent. It is anticipated that the members of the investor group (or their designees) will hold in the aggregate approximately 97.1% of the fully diluted equity of OSIM Brookstone Holdings, L.P. and Mr. Anthony will hold in the aggregate approximately 2.9% of the fully diluted equity of OSIM Brookstone Holdings, L.P., in each case, without giving effect to the grant at or following the merger of any profit-sharing interests in OSIM Brookstone Holdings, L.P. under a management equity incentive program to be established by Brookstone following the effective time of the merger, and, in the case of the investor group (or their designees), without giving effect to any reinvestment made by certain other members of our senior management.

Regulatory Approvals (Page 76)

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “Hart-Scott-Rodino Act”) provides that transactions such as the merger may not be completed until certain information has been submitted to the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice and certain waiting period requirements have been satisfied. The required notification and report forms under The Hart-Scott-Rodino Act have been filed with the Federal Trade Commission and the Antitrust Division and we have received early termination of the waiting period.

Except as noted above with respect to the required filings under the Hart-Scott-Rodino Act and the filing of a certificate of merger in Delaware at or before the effective time of the merger, we are unaware of any material federal, state or foreign regulatory requirements or approvals required for the execution of the amended merger agreement or completion of the merger.

16

Table of Contents

No Solicitation of Transactions; Superior Proposal (Page 94)

The amended merger agreement generally restricts our ability to, among other things, solicit, initiate, facilitate or engage in discussions or negotiations with any third party regarding specified transactions involving the Company or furnish nonpublic information to any third party that has proposed a specified transaction involving the Company. Notwithstanding these restrictions, under certain circumstances, we may respond to a certain written non-binding indication of interest received by our board of directors on April 7, 2005 from a third-party buyer group, as described in greater detail below under “Special Factors—Background of the Merger” beginning on page 22, or an unsolicited written proposal for an alternative acquisition received after April 15, 2005 and we may terminate the amended merger agreement in connection with our receipt of a superior proposal from a third party, so long as we comply with certain terms of the amended merger agreement, including paying a termination fee of $11 million to Parent and reimbursing Parent for its transaction expenses up to $2 million.

Conditions to Closing (Page 97)

Under the terms of the amended merger agreement, before we can complete the merger, a number of conditions must be satisfied or waived. These conditions include, among other matters, the following:

17

Table of Contents

We received early termination of the waiting period under the Hart-Scott-Rodino Act for the merger in May 2005. OSIM’s shareholders approved OSIM’s equity commitment at an extraordinary general meeting of OSIM’s shareholders held on July 11, 2005.

Termination of the Amended Merger Agreement (Page 99)

Brookstone, Inc. and Parent may agree in writing to terminate the amended merger agreement at any time without completing the merger, even after our stockholders have adopted the amended merger agreement. The amended merger agreement may also be terminated in certain other circumstances, including:

18

Table of Contents

Termination Fees and Expenses (Page 101)

If the amended merger agreement is terminated under the following circumstances:

then the Company will be obligated to pay the following fees and expenses to Parent:

19

Table of Contents

We will also be obligated to pay a termination fee to Parent (up to $11 million) and to reimburse Parent for its transaction expenses (up to $2 million) if the amended merger agreement is terminated in certain other circumstances.

If the amended merger agreement is terminated in accordance with its terms other than as a result of our breach, the aggregate amount of fees, including any termination fee, and expenses paid to Parent as a result of such termination will not exceed $13 million.

Investor Group Keepwells (Page 67)

Subject to the terms and conditions of their respective equity commitment letters, each member of the investor group has committed to fund Parent with an amount in cash up to such member’s equity commitment to Parent for purposes of satisfying any obligations of Parent or Acquisition to Brookstone as a result of any breach by Parent or Acquisition prior to the effective time of the merger of their respective covenants under the amended merger agreement.

Market Price of Brookstone Common Stock (Page 103)

Brookstone common stock is listed on the NASDAQ National Market tier of The NASDAQ Stock Market under the trading symbol “BKST.” On April 14, 2005, which was the last trading day prior to the execution and announcement of the original merger agreement, Brookstone common stock closed at $15.60 per share. On July 14, 2005, which was the last trading day prior to the execution of the amendment to the original merger agreement, Brookstone common stock closed at $19.48 per share. On August 19, 2005, which was the last trading day before the date of this proxy statement, Brookstone common stock closed at $19.65 per share.

20

Table of Contents

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

Statements in this proxy statement and the documents to which we refer you in this proxy statement which are not historical facts, including statements about the Company’s confidence or expectations, earnings, anticipated operations, and other statements about the Company’s business outlook, are forward-looking statements, subject to risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties include, without limitation, risks of changing market conditions in the overall economy and the retail industry, consumer demand, the effectiveness of marketing efforts, availability of existing products, our ability to develop and/or identify new and innovative products, the performance of our vendors, availability of adequate transportation of such products, availability of suitable retail space on favorable terms, increased competition from other retailers, defects in products sold by us, changes in the legal, regulatory or political environment in which we or our key vendors operate, concentration of our sales during the winter holiday season, effects of war, terrorism or catastrophic events, and other factors detailed from time to time in the Company’s annual and other reports filed with the Securities and Exchange Commission. Words such as “estimate”, “project”, “plan”, “believe”, “feel”, “anticipate”, “expect”, “assume”, “may”, “will”, “should” and similar words and phrases may identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements. All forward-looking statements speak only as of the date hereof and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. Except as required by law, the Company undertakes no obligations to update or publicly release any revisions to these forward-looking statements or reflect events or circumstances after the date hereof.

Statements about the expected timing, completion and effects of the proposed merger or the possibility of satisfying the conditions of the debt financing for the merger, also constitute forward-looking statements. The Company may not be able to complete the proposed merger on the terms described herein or other acceptable terms or at all because of a number of factors, including the failure to obtain shareholder approval, the failure to obtain the necessary financing for the merger or the failure to satisfy the other closing conditions. In addition to other factors and matters contained in this document, we believe the following factors could cause actual results to differ materially from those discussed in the forward-looking statements:

21

Table of Contents

SPECIAL FACTORS

Background of the Merger

Goldman, Sachs & Co. (“Goldman Sachs”), financial advisor to OSIM International Ltd (“OSIM”), arranged an introductory meeting between Ron Sim, Founder, Chairman and Chief Executive Officer of OSIM and Michael Anthony, our Chairman, President and Chief Executive Officer, which occurred on October 18, 2003 in Hong Kong. At the meeting, which was also attended by a representative of Goldman Sachs and M. Rufus Woodard, our Vice President and General Merchandise Manager, Mr. Sim and Mr. Anthony were formally introduced and they each presented a description of their respective companies, including the background of and the respective businesses conducted by the companies. At the conclusion of that meeting, Messrs. Sim and Anthony agreed that it would be appropriate to maintain contact and to meet at the next convenient juncture.

On December 15, 2003, Mr. Sim and Peter Lee Hwai Kiat, the Chief Financial Officer of OSIM, were traveling in the U.S. and took the opportunity to visit the Company’s headquarters in New Hampshire and meet with members of the Company’s senior management team in order to obtain a better understanding of the Company’s business. Later that evening, Mr. Sim raised the idea with Mr. Anthony of OSIM and the Company entering into a business relationship, including the possibility of OSIM acquiring an equity interest in the Company. Mr. Sim invited Mr. Anthony to visit OSIM’s headquarters on his next visit to Asia in order to learn more about OSIM. Messrs. Sim and Anthony also discussed the possibility of the Company ordering massage chairs from OSIM for sale in Brookstone stores or a possible joint venture between the two companies.

In early January, Mr. Anthony informed Michael Glazer, an independent member of the Company’s board of directors, of his meetings and conversations with Mr. Sim, including Mr. Sim’s expression of interest in acquiring an equity interest in the Company. Mr. Glazer suggested that Mr. Anthony gather more information about OSIM and continue discussions regarding possible business relationships, including a possible joint venture or purchase of massage chairs.

On January 11, 2004, OSIM executed a confidentiality agreement with the Company, in preparation for Mr. Anthony’s visit to OSIM headquarters, which visit occurred on January 26, 2004. At a meeting with Mr. Anthony held during his visit, which was also attended by a representative of Alpha Advisory, OSIM’s financial advisor, Mr. Sim made a presentation that dealt with the concept of a possible joint venture or other relationship between OSIM and the Company, and highlighted the benefits of such a relationship to each party. Mr. Sim also raised the possibility of OSIM acquiring an interest in the Company. At the conclusion of this meeting Mr. Anthony requested time to confer with senior members of the board of directors of the Company to take direction on the matter.

On March 7, 2004, Messrs. Sim, and representatives of Goldman Sachs and Alpha Advisory met with Messrs. Anthony and Philip Roizin, our Executive Vice President, Finance and Administration, in New York to discuss the concept of a potential relationship or transaction between OSIM and the Company in greater detail. Each of the parties gave a presentation that described their respective companies in more detail and included certain publicly available short-term projections of each of the companies. OSIM executed a new confidentiality agreement with the Company which included a “standstill” provision. The following day, Messrs. Anthony and Roizin met with representatives of Goldman Sachs who presented a general overview of factors to consider in leveraging a company and notable leverage buyout transactions which occurred in 2003.

On March 11, 2004, Mr. Anthony updated Mr. Glazer with respect to his recent conversations with OSIM and Goldman Sachs. Although Mr. Anthony did not believe at that time that a transaction was likely, Messrs. Anthony and Glazer decided that Mr. Anthony would continue his dialogue with Mr. Sim regarding possible business ventures.

On April 27, 2004, during a previously-scheduled trip to Asia, Mr. Anthony visited OSIM’s headquarters at Mr. Sim’s invitations. During this meeting, Mr. Anthony met Temasek Capital (Private) Limited (“Temasek”), a possible co-investor of OSIM’s for a potential relationship or transaction with the Company by OSIM.

22

Table of Contents

In anticipation of the greater level of information that OSIM would require from the Company prior to entering into a business relationship or transaction, on June 4, 2004, OSIM sent a preliminary business diligence request list to the Company. In response, the Company provided additional publicly available documentation regarding the Company and its operations.

On August 13, 2004, OSIM arranged for a meeting in Boston among Messrs. Anthony and Roizin and Temasek to discuss a potential acquisition of the Company by OSIM. In September 2004, Temasek reconfirmed to OSIM its support for a potential transaction but expressed an interest in understanding the financing structure in more detail, and indicated a desire to syndicate its investment with a U.S. investor. Accordingly, on October 19, 2004, Goldman Sachs arranged a meeting at their New York office at which Mr. Roizin discussed publicly available data regarding the Brookstone business to assist OSIM and Temasek in this process.

At OSIM’s invitation, on November 9, 2004, Messrs. Anthony and Roizin met with members of OSIM, Temasek and J.W. Childs Associates, L.P., an additional potential co-investor of OSIM’s (“J.W. Childs” and collectively with OSIM and Temasek, the “investor group”), at the offices of J.W. Childs in Boston to discuss a possible acquisition of the Company by the investor group. At this meeting, Messrs. Anthony and Roizin made a presentation of publicly available information on the Company. The investor group indicated at this meeting that it would only be willing to pursue a possible acquisition transaction that was endorsed by the board of directors of the Company and that also provided for the participation of certain members of the Company’s management in the equity capitalization of the Company following such acquisition. At the request of Mr. Anthony, both J.W. Childs and Temasek signed a confidentiality agreement with the Company relating to such a transaction.

At the conclusion of this meeting, the investor group explained that it would require additional information regarding the Company’s business prior to proceeding with further discussions regarding such a transaction and proposed providing Mr. Anthony with a preliminary business due diligence checklist. OSIM provided such checklist to Mr. Anthony in December 2004. Mr. Anthony also requested additional detail regarding the proposed structure of a possible acquisition of the Company by the investor group.

On November 11, 2004, Mr. Anthony updated Mr. Glazer regarding his November 9^th meeting with the investor group. Mr. Anthony informed Mr. Glazer that he believed that with the addition of Temasek and J.W. Childs, the investor group might be able to obtain the necessary financing to acquire the Company. Messrs. Anthony and Glazer decided that Mr. Anthony would continue his dialogue with the investor group

In December 2004, Mr. Anthony contacted Mr. Sim and notified him that, while the Company would endeavor to gather the information reflected on the preliminary business due diligence request list, the majority of the Company’s resources would be devoted to the business generated by the upcoming holiday season. Later in December, Mr. Anthony notified Mr. Sim that he expected that such preliminary business due diligence information would be available by the end of January 2005.

During the week of January 3, 2005, Mr. Anthony telephoned Mr. Glazer to inform him as to Mr. Anthony’s conversations with the investor group. Messrs. Glazer and Anthony agreed that Mr. Anthony would update each member of the board of directors of the Company as to his conversations with the investor group. In early January 2005, Messrs. Anthony and Roizin called each director to report on the conversations the Company had with the investor group.

In early January 2005, Mr. Anthony notified Goldman Sachs that the board of directors’ outside counsel, Ropes & Gray LLP (“Ropes & Gray”), would contact the investor group’s outside counsel for the transaction, Kaye Scholer LLP (“Kaye Scholer”), to discuss certain preliminary matters relating to the proposed acquisition.

23

Table of Contents

In addition, Mr. Anthony informed Goldman Sachs that the Company would need more time to collect the preliminary business due diligence items requested in the list provided to the Company in December 2004.

In late January 2005, the Company sent the investor group certain preliminary business due diligence items for review. In late January 2005 and early February 2005, certain members of the investor group and Goldman Sachs called Messrs. Anthony and Roizin on several occasions to discuss the preliminary business due diligence information provided to the investor group.

In late January 2005 and early February 2005, potential tax structures for management’s participation in the equity capitalization of the Company following the acquisition were discussed by certain members of the investor group with Mr. Anthony in response to concerns raised by Mr. Anthony regarding the general tax treatment of the proposed management reinvestment.

In early February 2005, Goldman Sachs and J.W. Childs spoke with Mr. Roizin regarding the investor group’s intention to provide the Company with an indication of its preliminary per share valuation of the Company’s common stock and its view of the likely procedural steps for effectuating a transaction.

On February 7, 2005, the Company received from Goldman Sachs, on behalf of the investor group, a verbal indication of interest to acquire the Company for a cash purchase price of $18.00 per share. Goldman Sachs reported to the Company that, at that time, the investor group did not have committed financing in place in connection with the proposed transaction. The indication of interest was subject to the satisfactory completion of due diligence by the investor group and its financing sources, management’s participation in the transaction on terms and conditions satisfactory to the investor group and the grant of a 30-day exclusivity period in favor of the investor group during which the investor group would be able to conduct due diligence, arrange financing and negotiate definitive documentation, and during which the Company would be precluded from soliciting an indication of interest and engaging in discussions with another party regarding any possible transactions to acquire the Company.

On February 8, 2005, CIBC World Markets Corp. (“CIBC World Markets”), the financial advisor retained by the Company, contacted Goldman Sachs to inform them that, while the full board had not yet had an opportunity to review the investor group’s proposal, certain members of the board had advised CIBC World Markets that they believed that $18.00 per share was insufficient and that the process would not be likely to move forward at the $18.00 purchase price. Later that evening, Mr. Sim telephoned Mr. Anthony, who reiterated to Mr. Sim that the $18.00 per share price to purchase the Company was considered too low.

During the morning of February 9, 2005, Goldman Sachs telephoned CIBC World Markets to inform them that the investor group believed it would be able to arrive at a valuation of $19.00 to $20.00 per share of Brookstone common stock upon completion of its due diligence. Goldman Sachs specified that $20.00 per share was the maximum price the investor group was willing to offer and reiterated the investor group’s strong desire for a 30-day exclusivity period to complete its due diligence.

On February 9, 2005, a special meeting of the board of directors of the Company was held by telephone. Representatives from Ropes & Gray and CIBC World Markets participated during the meeting. The board was informed of the indication of interest from the investor group to acquire the Company and the fact that the investor group did not yet have financing commitments in place for such acquisition. The board was also informed that the investor group was seeking an exclusivity period. Ropes & Gray reviewed with the board its fiduciary duties with respect to a potential transaction, including its duties to act on an independent and disinterested basis and to endeavor to maximize shareholder value in the event of a transaction. Mr. Anthony was instructed by the board of directors that he and other members of management were not permitted to negotiate the material terms of any potential management and investment agreements with the investor group until otherwise permitted by the board of directors. Following discussion, the board decided not to pursue any potential transaction with the investor group at the price range proposed by the investor group. At the conclusion

24

Table of Contents

of the meeting, the board instructed CIBC World Markets to advise Goldman Sachs of its decision, which decision was relayed to Goldman Sachs.

Later that day on February 9, 2005, Goldman Sachs telephoned CIBC World Markets and specified, on behalf of the investor group, that the investor group believed that it would be willing to offer $20.00 per share upon the completion of its due diligence. Goldman Sachs informed CIBC World Markets that the investor group would be reluctant to start the process if the per share price range that the board was willing to consider did not include $20.00 per share. In accordance with the board’s directions, CIBC World Markets continued during the next several days to indicate to Goldman Sachs that the investor group would need to raise its purchase price.

On February 14, 2005, a special meeting of the board of directors was held by telephone with representatives of Ropes & Gray and CIBC World Markets participating. During the meeting, Mr. Anthony reported to the board the substance of his February 9^th conversation with Mr. Sim. CIBC World Markets then updated the board regarding its discussions with Goldman Sachs noting that after several days of negotiations, Goldman Sachs, on behalf of the investor group, increased its proposed purchase price to $20.00 per share. In addition, the board was informed that the investor group had repeated its request for an exclusivity period during which the investor group could conduct its due diligence, arrange committed financing and seek to negotiate the terms of a possible transaction to acquire the Company. CIBC World Markets reviewed with the board certain stock market and financial information pertaining to the Company and selected companies in the specialty retail industry, including the historical stock price performance and trading volumes for Brookstone common stock over various periods ended February 11, 2005, current trading multiples of Brookstone common stock and the selected companies and implied multiples and premiums for the Company based on hypothetical per share purchase prices. CIBC World Markets also reviewed with the board implied transaction multiples in selected publicly announced transactions in the specialty retail industry and implied premiums paid in selected publicly announced cash merger or acquisition transactions. Following further discussion, the board determined that, in view of the investor group’s indication of interest at $20.00 per share, the Company should engage in discussions with the investor group concerning a possible transaction for a purchase price above $20.00 per share, but not to grant exclusivity to the investor group.

Later on February 14, 2005, in accordance with instructions from the board of directors, CIBC World Markets telephoned Goldman Sachs to inquire as to whether the investor group would be able to offer a price higher than $20.00 per share and Goldman Sachs responded that the investor group would not be able to offer a price above $20.00 per share.

On February 16, 2005, the board of directors of the Company met again by telephone with representatives of Ropes & Gray and CIBC World Markets in attendance. During this telephone conference, the board was informed that the investor group’s offer to acquire the Company remained at $20.00 per share and that the investor group continued to request an exclusivity period. The board then discussed a timetable for due diligence by the investor group. Following this discussion, the board elected to take several days to further consider the indication of interest in view of, in particular, the future business prospects of the Company, including potential future organic growth as well as other expansion opportunities, and the risks associated with such opportunities.

On February 22, 2005, a special meeting of the board of directors was held by telephone to further consider the indication of interest from the investor group. Representatives from Ropes & Gray and CIBC World Markets were in attendance at the meeting. Mr. Anthony reviewed with the board management’s estimates and assumptions with respect to the Company’s future financial performance and the potential impact on such financial performance of the Company’s Gardeners Eden business. CIBC World Markets again reviewed the information previously reviewed with the board at its February 14th board meeting, which information was updated to the extent relevant for closing stock prices as of February 18, 2005. CIBC World Markets also reviewed with the board the Company’s latest 12 months EBITDA and forward 12 months earnings per share multiples over various periods ended February 11, 2005. In addition, CIBC World Markets reviewed with the board estimated present values of the theoretical future trading price of Brookstone common stock based on estimated financial data for the Company prepared by the Company’s management. After further discussion, the

25

Table of Contents

board directed CIBC World Markets to inform Goldman Sachs that the investor group could commence limited due diligence of the Company over a two-week period but that the board would not grant an exclusivity period to the investor group, which decision was relayed to Goldman Sachs later that same day.

On February 23, 2005, Goldman Sachs delivered to CIBC World Markets additional due diligence request lists prepared by the investor group and its legal and accounting advisors. On February 24, 2005, Goldman Sachs and J.W. Childs called CIBC World Markets and the Company’s management to discuss the additional business due diligence request list. On March 1, 2005, representatives of Kaye Scholer, Ropes & Gray and the Company participated on a conference call to discuss the legal due diligence request lists. Beginning on March 2, 2005 and during various times throughout March 2005, information was provided to Goldman Sachs, acting on behalf of the investor group, in response to the investor group’s business due diligence requests.

A special meeting of the board of directors was held by telephone on March 2, 2005, with representatives of Ropes & Gray and CIBC World Markets in attendance. CIBC World Markets updated the board regarding its recent discussions with Goldman Sachs and, in particular, its discussions with Goldman Sachs regarding the investor group’s timetable for initial due diligence and submission of a more definitive proposal. The board then considered whether other potential strategic buyers should be contacted to solicit proposals to acquire the Company prior to proceeding further with the investor group or whether the Company should rely instead on a public announcement of any agreement eventually reached with the investor group to apprise other interested parties. The board determined that, due to the unique nature of the Company’s business, the historical absence of alternative credible competitive proposals to acquire the Company and the potential risks of leaks and other complications that could jeopardize the investor group’s current offer and disrupt the Company’s business and workforce, it would not initiate such contacts. Ropes & Gray advised the board that a decision not to solicit additional offers was within the board’s discretion and noted that the Company would not be precluded from considering alternative offers arising after the execution of a definitive transaction agreement so long as the agreement included customary exceptions to the Company’s obligation not to solicit alternative transactions. CIBC World Markets and Ropes & Gray suggested that the Company attempt to negotiate a break-up fee in the merger agreement that would not preclude or make unduly burdensome the receipt of alternative offers after the merger agreement was signed. After further discussion, the board determined not to solicit additional offers at such time.

On March 7 and 8, 2005, Messrs. Anthony and Roizin and CIBC World Markets met with the investor group at J.W. Childs’ offices to discuss business diligence matters, including, among other things, product category trends and store-by-store data, and to discuss certain matters relating to the financing of the proposed acquisition. Also in attendance at this meeting were representatives of Goldman Sachs and Bank of America, N.A., the investor group’s potential financing sources. At this March 7^th meeting, the members of the investor group agreed in principle to sign a “standstill” agreement. During the period following such meetings, Goldman Sachs, Messrs. Anthony and Roizin, CIBC World Markets and the investor group periodically discussed certain aspects of the business due diligence review and the proposed debt and equity financing structure for the proposed acquisition. The investor group continued to conduct its limited business due diligence review of the Company during the week of March 7, 2005.

On March 8, 2005, a financial advisor to a potential third-party financial buyer contacted CIBC World Markets on an unsolicited basis to express interest in a possible acquisition of the Company on unspecified terms.

On March 10, 2005 a regular meeting of the board of directors was held at the Company’s headquarters, with representatives of Ropes & Gray and CIBC World Markets in attendance. The board discussed the projected timetable for the transaction with the investor group. CIBC World Markets discussed with the board current market conditions. CIBC World Markets informed the board of directors that it had been contacted by the financial advisor to a potential third-party financial buyer concerning its possible interest in a transaction with the Company. At the March 10^th meeting, Ms. Andrea Weiss, a board member, disclosed to the board of directors that she had a consulting relationship with an affiliate of the potential third-party financial buyer. Ms. Weiss agreed to abstain from any involvement in future board discussions concerning the potential third-party buyer

26

Table of Contents

and did not participate in any further board meetings until the board’s regularly scheduled May 12^th board meeting. The board of directors instructed CIBC World Markets to respond to the potential third-party financial buyer to ascertain whether such potential third-party financial buyer would be interested in making a more specific expression of interest in acquiring the Company. Following the meeting and in accordance with the board’s instructions, CIBC World Markets communicated this to the financial advisor of the potential third-party financial buyer. Over the course of the two weeks that followed, occasional telephone conversations took place between CIBC World Markets and the financial advisor to the potential third-party financial buyer without further meaningful developments or any indication of the terms of a formal expression of interest.

On March 18, 2005, the Company received from Goldman Sachs, on behalf of the investor group, a written, non-binding indication of interest to purchase the Company for a cash purchase price of $20.00 per share based on the following assumptions:

The March 18^th letter described the investor group’s anticipated equity and debt financing structure arrangements, including approximately $255.0 million of equity financing and approximately $200.0 million of debt financing in the form of high-yield notes and a revolving credit facility of approximately $80.0 million available to fund the Company’s post-closing working capital needs to be arranged by Goldman Sachs and Bank of America Securities. The investor group did not provide the Company with written financing commitment letters at that time.

Following the Company’s receipt of the March 18^th letter, a special meeting of the board of directors of the Company was held by telephone on March 21^st with representatives of Ropes & Gray and CIBC World Markets participating. CIBC World Markets reviewed the information previously reviewed with the board at its February 22^nd board meeting, which information was updated to the extent relevant for closing stock prices as of March 18, 2005. Ropes & Gray reviewed with the board its fiduciary duties with respect to the potential transaction, including its duties to act on an informed, independent and disinterested basis and, if the board decided to pursue such a transaction, to endeavor to obtain the highest value reasonably attainable for the shareholders. At that time, the board resolved to form a special committee of independent directors to receive, evaluate and negotiate, on behalf of the Company’s public stockholders unaffiliated with members of senior management, any proposals to acquire the Company, including the investor group’s March 18^th letter. The special committee was formed at this time because the Company had received a formal, non-binding indication of intent from the investor group following months of informal, non-binding discussions, and because it was likely that, in light of the formal indication of intent, Mr. Anthony would need to begin negotiating any potential management and investment agreements with the investor group, and that such negotiations would be conducted at the same time the Company would be negotiating the terms of the possible acquisition. Until the special committee was formed, Mr. Anthony and other members of management were not permitted by the board of directors to negotiate the material terms of any potential management and investment agreements with the investor group and no material definitive decisions were made by the board of directors regarding the proposed transaction until the special committee was formed. Following a discussion of the possible candidates for such a committee, the board appointed Messrs. Mone Anathan, III and Michael Glazer as the members of the special committee. The special committee was authorized by the board of directors to, among other things, receive, evaluate, negotiate and reject proposals received to acquire the Company, and to solicit third party offers.

27

Table of Contents

The special committee of independent directors held an organizational meeting immediately following the March 21^st board meeting. Since Ropes & Gray and CIBC World Markets had represented the board and because the board had delegated the authority to negotiate the terms of a possible transaction for the investor group to acquire the Company to the special committee, the special committee selected Ropes & Gray as its legal counsel and CIBC World Markets as its financial advisor with respect to the evaluation and negotiation of potential offers to acquire the Company. In making this determination as to the qualifications and independence of the advisors, the special committee considered the familiarity of Ropes & Gray and CIBC World Markets with the Company and the proposed transaction and noted that the advisors previously had worked with the Company only on specified matters and that the advisors had not separately represented any members of management with respect to the potential acquisition or any other matter which the special committee believed would compromise the advisors’ independence. The special committee also considered the fact that CIBC World Markets had not previously received fees from the Company for financial advisory or other investment banking services and that Ropes & Gray’s fees received from the Company for legal services represent a minimal portion of that firm’s overall revenues. On the basis of these considerations, the special committee concluded that CIBC World Markets and Ropes & Gray were sufficiently independent from the Company and its management to represent the special committee of the board of directors.

On March 24, 2005, the Company and the members of the investor group entered into a new confidentiality and “standstill” agreement that provided, among other things, that the members of the investor group could not disclose to, or share with, anyone, other than their advisors and financial sources, any confidential information regarding the Company. The investor group commenced additional due diligence and meetings with executive management after execution of the revised confidentiality agreement.

On March 24, 2005, Mr. Anthony retained Weil Gotshal & Manges LLP as his legal counsel to represent him in connection with the negotiation of his employment and equity arrangements. On March 28, 2005, Mr. Anthony delivered an initial draft of a term sheet relating to his employment and equity arrangements to the investor group.

On March 28, 2005, the financial advisor to the potential third-party financial buyer contacted CIBC World Markets to inform CIBC World Markets that the financial buyer no longer was interested in exploring a transaction with the Company.

On March 30, 2005, Kaye Scholer, on behalf of the investor group, delivered an initial draft of the merger agreement to Ropes & Gray.

On April 1, 2005, the Company and the members of the investor group entered into an exclusivity agreement, which was effective as of March 22, 2005, pursuant to which the Company agreed that, until after April 12, 2005, the Company and its agents and representatives would not solicit or initiate any inquiries or proposals with respect to certain transactions involving the Company. This exclusivity agreement, however, expressly permitted the Company to take action with respect to proposals or inquiries received by the Company that did not result from the Company soliciting or initiating any inquiry or proposal.

On April 1, 2005, the financial advisor to the potential third-party financial buyer contacted CIBC World Markets to indicate that the financial buyer was again interested in a possible acquisition of the Company on unspecified terms and also identified a potential third-party strategic buyer (together with the potential third-party financial buyer, the “third-party buyer group”) with which the potential third-party financial buyer would partner in connection with any such transaction.

On April 4, 2005, a meeting of the special committee was held by telephone with representatives of Ropes & Gray and CIBC World Markets in attendance. The special committee was informed of the status of the new indication of interest from the third-party buyer group and that the group had not yet specified a potential purchase price for the Company. The special committee was also informed of the status of the investor group’s

28

Table of Contents

on-going due diligence. Ropes & Gray then reviewed with the special committee the provisions of the initial draft of the merger agreement, including a prohibition on the solicitation of alternative transactions by the Company, representations and warranties, closing conditions and other conditions affecting the obligations of the parties to complete the merger and provisions regarding the termination of the merger agreement and the provisions triggering the payment of a break-up fee. In particular, Ropes & Gray noted the investor group’s initial proposal for the payment by the Company of a break-up fee in the amount of $17.0 million in the event that the merger agreement were terminated under certain situations. Following discussion, the special committee provided Ropes & Gray and CIBC World Markets with guidance as to how to proceed in negotiating key terms of the merger agreement.

On April 6, 2005, the financial advisor to the third-party buyer group informed CIBC World Markets that the third-party buyer group intended to send a letter by April 8, 2005 outlining its interest in acquiring the Company, but gave no specific information regarding the potential proposal during this telephone conversation.

On April 6, 2005, Ropes & Gray, on behalf of the special committee, provided Kaye Scholer with comments and revisions to the initial draft of the merger agreement.

Over the period of April 6-8, 2005, Messrs. Anthony and Roizin met with the investor group at J.W. Childs’ Boston offices to begin negotiating the terms of Mr. Anthony’s employment and equity arrangements. The parties also generally discussed possible equity arrangements for other members of senior management. On April 7, 2005, Kaye Scholer sent a proposed term sheet of Mr. Anthony’s employment terms and equity arrangements to Mr. Anthony’s independent legal counsel. This term sheet was circulated on the basis that it would serve as the basis for continuing discussions of Mr. Anthony’s employment and equity arrangements. Periodic negotiations between Mr. Anthony and the investor group continued, and multiple drafts of the term sheet were exchanged by Mr. Anthony on the one hand, and by the investor group on other hand, during the period from April 11, 2005 to April 15, 2005, when the equity arrangements were finalized.

On April 7, 2005, the board of directors of the Company received a written, non-binding indication of interest from the third-party buyer group. In this letter, the third-party buyer group indicated, based upon its review of publicly available information about the Company and its familiarity with the retail industry, an interest in acquiring the Company at a cash purchase price in the range of $21.00 to $23.00 per share and that this range might be subject to increase pending the group’s due diligence. The third-party buyer group stated in its letter that it would need three to four weeks to complete its due diligence and finalize a transaction agreement and raised the possibility of the Company granting an exclusivity period to the group. The letter also described the third-party buyer group’s financial resources.

Following receipt of the April 7^th letter, in subsequent discussions between CIBC World Markets and the third-party buyer group, the third-party buyer group indicated that it contemplated a stand-alone structure with each member of the group contributing equity financing to the newly-formed entity. In these discussions, CIBC World Markets attempted to confirm with the third-party buyer group its interest in the Company, financial wherewithal and ability to become engaged in the sale process.

On the evening of April 7, 2005, a meeting of the special committee was held by telephone with representatives of Ropes & Gray and CIBC World Markets participating. The special committee was informed of the third-party buyer group’s April 7^th letter and the subsequent conversations held with representatives of the third-party buyer group. The special committee discussed the appropriate manner to address the new indication of interest from the third-party buyer group in light of on-going negotiations with the investor group. The special committee directed Ropes & Gray and CIBC World Markets to attempt to engage the third-party buyer group in the sale process and to request that the group enter into a confidentiality and “standstill” agreement with the Company. The special committee specified a deadline date of April 12, 2005 for the third-party buyer group to present a more definitive proposal to acquire the Company.

29

Table of Contents

On the morning of April 8, 2005, in accordance with the special committee’s directives, CIBC World Markets contacted a member of the third-party buyer group and informed that member that the Company would be prepared to enter into discussions and negotiations with the group and to supply material non-public information regarding the Company to the group immediately upon receipt of an executed confidentiality and “standstill” agreement. CIBC World Markets informed the third-party buyer group that, in the event the group sought to negotiate an acquisition of the Company, the special committee expected to receive a more definitive proposal from the group no later than mid-day on April 12, 2005. On that same day, Ropes & Gray sent to a representative of the third-party buyer group an initial draft of a confidentiality and “standstill” agreement that was in substantially the form of the agreement executed by the investor group.

Later in the day on April 8, 2005, Kaye Scholer called Ropes & Gray to review the special committee’s comments on, and revisions to, the initial draft of the merger agreement sent on April 6^th in order to identify open issues.

Later, on April 8, 2005, a meeting of the special committee of the board of directors was held by telephone with representatives of Ropes & Gray and CIBC World Markets participating. At this meeting, the special committee was updated regarding the on-going communications with the third-party buyer group. The special committee discussed the Company’s ability to accommodate the third-party buyer group’s requests for information on an accelerated basis to enable it to conduct its due diligence review of the Company. The special committee directed CIBC World Markets to contact representatives of the third-party buyer group to communicate to them the importance of the group executing the confidentiality and “standstill” agreement as a prerequisite for the group’s participation in the sale process. The special committee also discussed how, in the event that the group executed the confidentiality and “standstill” agreement and commenced due diligence, the Company should proceed with negotiations with the investor group in order to maintain its continued interest and participation in the process.

During the period from April 8 through April 10, 2005, in accordance with the special committee’s instructions, CIBC World Markets attempted to communicate with representatives of the third-party buyer group to facilitate their stated interest in pursuing a possible acquisition of the Company but did not receive a response from the third-party buyer group.

A meeting of the special committee was held by telephone on April 9, 2005, with representatives of Ropes & Gray and CIBC World Markets participating. During the meeting, CIBC World Markets informed the special committee of its attempts to contact the third-party buyer group concerning the ongoing process and the availability of due diligence materials and senior management over the weekend if it received an executed confidentiality and “standstill” agreement. Ropes & Gray then reviewed with the special committee the current status, following its discussions with Kaye Scholer on April 8^th, of the remaining open items relating to the merger agreement, including conditions to the obligations of the parties to complete the merger, the scope of the Company’s obligation to not solicit alternative transactions, provisions regarding the termination of the merger agreement and the payment of a break-up fee, Brookstone Holdings Corp.’s (“Parent’s”) obligation to obtain alternate debt financing arrangements in the event of an inability to proceed under the existing debt financing commitment and the definition of “company material adverse effect.” In addition, Ropes & Gray advised the special committee to continue to require a guarantee of Parent’s obligations under the merger agreement from each member of the investor group. Following a discussion, Ropes & Gray received guidance from the special committee as to how to negotiate these unresolved business issues.

On April 9, 2005, J.W. Childs and OSIM arranged to meet with Messrs. Anthony and Roizin at the Company’s headquarters. At this meeting, J.W. Childs and OSIM were introduced to Messrs. Alexander Winiecki, our Executive Vice President, Store Operations, Customer Sales and Contact Center, and Gregory Sweeney, our Vice President and General Manager of the Direct Marketing segment. Mr. Woodard also attended.

30

Table of Contents

On April 10, 2005, representatives of the investor group delivered a revised draft of the merger agreement and initial drafts of the debt financing commitment letters.

On April 11, 2005, when the third-party buyer group failed to send comments on or return the executed confidentiality and “standstill” agreement, CIBC World Markets contacted the third-party buyer group to inquire as to the status of the confidentiality and “standstill” agreement and to gauge the group’s interest in the Company. A member of the third-party buyer group responded that the group would soon send to the Company a letter proposing a specific timetable for the completion of its due diligence and the possible submission of a more definitive proposal. Later that day, the board of directors received a letter from the third-party buyer group in which the group reaffirmed its non-binding indication of interest in the Company as outlined in its April 7^th letter and proposed that the Company and the group schedule a preliminary meeting to discuss certain prerequisites to the group’s participation in the process, including the third-party buyer group’s demand that the Company commit to a specified period during which the group could conduct due diligence and determine whether to make an offer to acquire the Company. The third-party buyer group stated that it would only execute a mutually agreeable confidentiality and “standstill” agreement which also contained an exclusivity period after such preliminary meeting was held. The third-party buyer group further indicated that it would complete its due diligence within three weeks from the date of the meeting and, at the end of such period, it would determine whether to submit a more definitive proposal to acquire the Company.

On April 11, 2005, at the request of the special committee, CIBC World Markets and the third-party buyer group discussed the group’s April 11^th letter. A representative of the third-party buyer group reiterated the group’s current unwillingness to execute the confidentiality and “standstill” agreement and commence its due diligence in the absence of a commitment from the Company to a mutually agreeable timetable for the third-party buyer group to complete its due diligence and determine whether to make an offer to purchase the Company. The third-party buyer group’s representative proposed to CIBC World Markets, on a tentative basis, a 10-day period for such a timetable.

In the late afternoon of April 11, 2005, the special committee received initial drafts of the respective equity financing commitment letters from the members of the investor group. During the evening of April 11, 2005, Ropes & Gray and CIBC World Markets provided Goldman Sachs with the special committee’s comments to the initial drafts of the debt financing commitment letter and the various equity financing commitment letters.

Two telephonic meetings of the special committee, with representatives of Ropes & Gray and CIBC World Markets in attendance at each, were held on April 11, 2005. At these meetings, the special committee received updates on the current status of the third-party buyer group’s involvement in the process. The special committee discussed the perceived level of interest that the third-party buyer group had in pursuing a transaction with the Company and the best manner to engage the third-party buyer group in the process without jeopardizing the on- going negotiations with the investor group. Subject to its compliance with its fiduciary duties and the exercise of its business judgment, the special committee determined to provide the third-party buyer group with the 10-day period, requested earlier by the group, in which to conduct its due diligence and present a more definitive proposal, should it choose to do so.

On the morning of April 12, 2005, the third-party buyer group sent to CIBC World Markets its comments on the confidentiality and “standstill” agreement. In addition, the third-party buyer group requested an extension of the timetable to complete its due diligence and submit any definitive proposal to April 25^th.

On April 12, 2005, the special committee sent a letter to representatives of the third-party buyer group, outlining the following arrangements and timetable:

31

Table of Contents

The special committee also included with its letter a revised confidentiality and “standstill” agreement responsive to the comments received from the third-party buyer group.

On April 12, 2005, Mr. Anathan and Mr. Anthony telephoned Mr. Sim to inform Mr. Sim of the indication of interest from the third-party buyer group. Mr. Anathan and Mr. Sim agreed that the Company would continue to provide comments on and negotiate with the investor group the revised merger agreement sent on April 10^th while providing information to, and potentially negotiating with, the third-party buyer group. In addition, at the special committee’s request, CIBC World Markets telephoned a representative of J.W. Childs to advise J.W. Childs of the new indication of interest from the third-party buyer group.

Following these calls, Kaye Scholer contacted Ropes & Gray to confirm the parties’ intentions to proceed with the negotiation of the merger agreement.

In addition, on April 12, 2005, three separate meetings of the special committee were held by telephone with representatives of Ropes & Gray and CIBC World Markets in order to update the special committee regarding developments throughout the day and to discuss, in light of such developments, the alternative means of accommodating the third-party buyer group’s need to conduct its due diligence while continuing to facilitate the participation of the investor group in the process. In particular, the special committee discussed the importance, if a merger agreement were to be executed with the investor group, that the merger agreement contain a fiduciary- out and a non-preclusive break-up fee so that unsolicited bona fide offers could be made by other third parties and considered by the board. Following this discussion, Ropes & Gray reviewed the terms and conditions of the investor group’s revised merger agreement sent on April 10^th and received guidance from the special committee with respect to negotiation of those terms, including with respect to the definition of “company material adverse effect,” the amount of the break-up fee and the circumstances under which such a fee would be payable.

Following the April 12^th meetings, Ropes & Gray contacted Kaye Scholer to discuss the terms and conditions of the revised merger agreement which was delivered to the special committee on April 10^th, including those regarding conditions to parties obligations to complete the merger, termination of the merger agreement and possible payment of a break-up fee. As part of these negotiations and in light of the new indication of interest and the third-party buyer group’s stated intention to enter the process, Ropes & Gray discussed with Kaye Scholer alternative break-up fee structures if the merger agreement were terminated under certain situations.

Representatives of Goldman Sachs and Kaye Scholer met with representatives of CIBC World Markets and Ropes & Gray by telephone the morning of April 13, 2005 to discuss the investor group’s position as to the continuation of negotiations regarding the merger in light of the third-party buyer group’s indication of interest. Goldman Sachs informed the meeting participants that the investor group continued to be interested in pursuing

32

Table of Contents

the transaction with the Company. With respect to the open merger termination and break-up fee issues, Goldman Sachs, on behalf of the investor group, proposed that if the merger agreement were terminated within two weeks from its date of execution, the Company would pay an initial break-up fee of $8.0 million, and the Company would pay a subsequent break-up fee in the amount of $12.75 million if the merger agreement were terminated thereafter.

On April 13, 2005, the special committee met by telephone with representatives of Ropes & Gray and CIBC World Markets participating. The special committee was informed that the investor group had conveyed to CIBC World Markets earlier in the morning that negotiations would be terminated if an agreement could not be signed on April 14, 2005. Thereafter, the special committee reviewed the current state of certain provisions in the draft merger agreement, including the conditions to the obligations of the investor group to complete the merger. Following this review, the special committee was updated on the status of discussions with the third-party buyer group and informed that the third-party buyer group had returned an executed confidentiality and “standstill” agreement and had been sent by electronic transmission on April 12^th substantial due diligence materials identical to those previously provided to the investor group. In addition, the special committee was informed that representatives of senior management of the third-party buyer group were scheduled to meet with the Company’s senior management for due diligence meetings beginning on April 15^th. The special committee then discussed the likelihood that the investor group would press to conclude negotiations of the merger agreement quickly. The special committee also considered the circumstances under which it might recommend entering into a merger agreement with the investor group while the third-party buyer group was conducting its due diligence and determining whether to make an offer to acquire the Company. CIBC World Markets was instructed by the special committee to respond to the investor group’s proposal with a counter-proposal of an initial break-up fee of $6.0 million payable if the merger agreement were terminated within four weeks from its date of execution and a subsequent break-up fee in the amount of $10.0 million if the merger agreement were terminated thereafter.

After the meeting, Ropes & Gray and CIBC World Markets contacted Kaye Scholer and Goldman Sachs to discuss various provisions of the revised merger agreement, including the special committee’s counter-proposal regarding the break-up fee. Following this discussion, in accordance with instructions from the special committee, CIBC World Markets proposed that the investor group consider raising its cash purchase price for the Company from its current bid of $20.00 per share to $22.00 per share to induce the Company to enter into the merger agreement with the investor group. Goldman Sachs responded that the magnitude of this increase would not be acceptable to the investor group but that the investor group might consider a smaller increase following further discussions among the members of the investor group.

Following the call, another meeting of the special committee was held by telephone with representatives of Ropes & Gray and CIBC World Markets to update the special committee on the status of these negotiations and receive further guidance from the special committee.

In the early evening on April 13, 2005, Ropes & Gray and CIBC World Markets again spoke with Kaye Scholer and Goldman Sachs to continue to discuss various provisions of the revised merger agreement, including the break-up fee. Goldman Sachs indicated that the investor group would require an initial break-up fee amount of $8.0 million but would agree to extend the initial termination period during which this fee would remain in effect from two weeks to three weeks and would lower the amount of the subsequent break-up fee from $12.75 million to $11.375 million in the event of termination anytime thereafter. Goldman Sachs also indicated that the investor group would raise its cash purchase price for the Company from $20.00 per share to $20.25 per share.

Following this discussion, the special committee met with representatives of Ropes & Gray and CIBC World Markets by telephone to discuss the current purchase price and break-up fee proposals from the investor group. The special committee was informed that the proposed three-week period during which the initial break-up fee would remain in effect was consistent with the anticipated timetable of the third-party buyer group. Ropes & Gray also summarized for the special committee the current status of negotiations regarding the conditions to the obligations of the investor group to complete the merger. The special committee determined that the proposed

33

Table of Contents

reduced break-up fee payable during the initial three-week period, as well as the amount of the subsequent break-up fee payable, would not, in its view, unduly discourage competing bids from other prospective purchasers, including the third-party buyer group.

After the meeting, and upon instruction from the special committee, CIBC World Markets telephoned Goldman Sachs to make a counter-offer for the purchase price of the Company to be increased to $20.75 per share and for the amount of the initial break-up fee to be reduced to $7.0 million upon a termination within three weeks after execution of a definitive merger agreement and to $11.0 million thereafter. On a subsequent telephonic meeting, Goldman Sachs agreed, on behalf of the investor group, to the $7.0 million initial and $11.0 million subsequent break-up fee and indicated a final purchase price of $20.50 per share. In the evening on April 13, 2005, the special committee authorized proceeding with final documentation on these terms.

During April 14 and April 15, 2005, representatives of Ropes & Gray and Kaye Scholer met at Kaye Scholer’s offices in New York City to finalize the terms of the merger agreement, the debt financing commitment letter and the equity financing commitment letters. In addition, during this period, the Company’s management, members of the investor group and their respective advisors continued to negotiate the terms on which management would participate in the merger.

In the late afternoon of April 14, 2005, a telephonic meeting of the special committee of the board of directors was held with representatives of Ropes & Gray and CIBC World Markets to update the special committee regarding the current status of the negotiation of the terms of the merger agreement. Ropes & Gray described the process by which the principal unresolved issues discussed at the April 12^th and April 13^th meetings were being resolved and reviewed with the special committee the other principal final terms of the merger agreement. In particular, with respect to the break-up fee, Ropes & Gray reported to the special committee that the investor group had accepted the Company’s proposed amount of $7.0 million for the initial break-up fee applicable for the three-week period following the execution of a definitive agreement and had agreed to a subsequent break-up fee in the amount of $11.0 million for thereafter. Ropes & Gray also reported to the special committee that the investor group had made its final offer to purchase the Company at $20.50 per share.

Following the meeting of the special committee, a meeting of the full board of directors (other than Ms. Andrea Weiss who did not attend or participate in the meeting) was held. CIBC World Markets reviewed with the board its financial analysis of the proposed $20.50 per share price based on a number of valuation methodologies similar to those described under “Special Factors—Opinion of CIBC World Markets” and implied premiums paid in selected all-cash merger or acquisition transactions publicly announced since January 1, 2003 with transaction values of between $300 million and $800 million.

On the morning of April 15^th, the special committee reconvened to approve the terms of the merger agreement and the merger. CIBC World Markets rendered to the special committee a written opinion, as of that date and based on and subject to the matters described in its opinion, as to the fairness, from a financial point of view, of the $20.50 per share merger consideration to be received by the holders of Brookstone common stock (other than any management participant or affiliates thereof). After discussion, the special committee unanimously resolved that the merger agreement and the merger, upon the terms and conditions set forth in the merger agreement, are advisable, fair to, and in the best interests of the Company and it unaffiliated stockholders and further resolved to recommend that the board of directors approve the merger agreement.

Immediately following the April 15^th meeting of the special committee, a meeting of the entire board of directors of the Company (other than Ms. Andrea Weiss who did not attend or participate in the meeting) was held by telephone with representatives of Ropes & Gray and CIBC World Markets participating. The special committee reported to the board of directors on its recommendations of the merger agreement and its determination of the advisability and fairness of the merger agreement and the merger. At the conclusion of that discussion, the board of directors, by unanimous vote, with Mr. Michael Anthony abstaining from the vote, the board of directors, determined that the merger agreement and the merger, upon the terms and conditions set forth

34

Table of Contents

in the merger agreement, are advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders and approved the form, terms and provisions of the merger agreement and the merger.

On April 15, 2005, the Company publicly announced that it had entered into the merger agreement with the investor group.

On April 15 and 16, 2005, Messrs. Anthony and Roizin met with representatives of the third-party buyer group to facility the group’s due diligence review of the Company. Messrs. Roizin and Anthony made a presentation of publicly available and other information regarding the Company, all of which had been previously provided to the investor group. Over the course of the next several weeks, the third-party buyer group and its legal and financial representatives continued their due diligence review of the Company. On April 28, 2005, Mr. Anthony met with representatives of the third-party buyer group who informed him that the group and its advisors were continuing to review and evaluate due diligence materials relating to the Company. The representatives indicated that the third-party buyer group was uncertain at that time whether it would submit a definitive bid to acquire the Company but that, in any case, the group would not be submitting a proposal prior to May 6, 2005, the date through which the lower initial break-up fee of $7.0 million would be applicable under the merger agreement.

On May 10, 2005, a representative of the third-party buyer group telephoned Mr. Anthony. The representative expressed the third-party buyer group’s continued interest in acquiring the Company. The representative indicated that, in the third-party buyer group’s opinion, the Company had negotiated a reasonable price per share in its transaction with the investor group. Mr. Anthony informed the board of directors of the Company of these developments at the regularly-scheduled meeting of the board on May 12, 2005. At the May 12, 2005 board meeting, the board recommended that the Company continue drafting a preliminary proxy statement to solicit shareholder approval for the merger with the investor group. Since the May 10, 2005 phone conversation with the third-party buyer group, the Company and the third-party buyer group have discussed ordinary course business relationships, but there has been no active dialogue with the third-party buyer group regarding its potential acquisition of the Company and the third-party buyer group has not made a proposal to acquire the Company.

On June 22, 2005, the board of directors reviewed the Company’s performance to date after the Father’s Day holiday, which included significantly decreased sales compared to prior periods. As a result, the board of directors concluded that the Company’s loss per share for the remainder of the fiscal quarter ending July 31, 2005 was likely to be greater than previously projected and the Company’s sales were likely to be less than projected, which would also have an impact on the Company’s projected long-term performance. The board of directors requested that management prepare revised projections.

On June 24, 2005, the Company provided the investor group with revised financial projections for the Company for the 2005 through 2007 fiscal years as more fully described under “Special Factors—Certain Projections—Updated Projections.”

On June 29, 2005, the board of directors approved and publicly announced a plan to divest the Company’s Gardeners Eden business and the Company also publicly announced (consistent with the information furnished to the investor group) decreased sales for the eight weeks ended June 25, 2005 of 6.5%, as compared to the same period in the prior year, and an anticipated loss for the second quarter ended July 31, 2005 of between $0.20 and $0.22 per fully diluted share, before any one-time charges related to the Gardeners Eden divestiture.

On July 1, 2005, Goldman Sachs, on behalf of the investor group, contacted CIBC World Markets to inform them that the investor group’s debt financing sources did not believe they could consummate the debt financing

35

Table of Contents

as originally contemplated due to the revised projections and resulting impact on the Company’s pro forma leverage ratio. Goldman Sachs indicated that if the projected financial results for the Company reflected in the revised projections were to materialize as forecast by the Company in the second quarter, the Total Debt to EBITDA ratio condition in the debt commitment letter for the financing of the merger would not be met, and the investor group’s debt financing for the merger would not be committed. In order to return the leverage ratio under the revised projections to a level consistent with the condition contained in the debt commitment letter, Goldman Sachs stated that the amount of the debt financing would have to be reduced by $20 million. Goldman Sachs further stated that the investor group was unwilling to commit additional equity to maintain the original merger consideration. Goldman Sachs indicated that the investor group would require a $20 million reduction in the aggregate merger consideration to make up the shortfall, which implied a revised merger consideration of approximately $19.60 per fully diluted share. CIBC World Markets contacted Ropes & Gray and the members of the special committee to convene a meeting of the special committee to apprise them of the investor group’s proposal.

On the morning of July 2, 2005, the special committee met by telephone to discuss the investor group’s proposal, with representatives of Ropes & Gray and CIBC World Markets participating, and Michael Anthony and Philip Roizin also participating for part of the meeting solely to answer any questions the special committee may have had relating to the Company’s financial performance and updated projections. The special committee was briefed on what the investor group had conveyed to CIBC World Markets on July 1, 2005. CIBC World Markets reviewed with the special committee management’s revised projections as compared to the projections previously provided to the investor group and implied transaction value multiples and leverage statistics based on the revised proposal as compared to corresponding data based on the original terms of the merger. The special committee asked questions of Mr. Anthony and Mr. Roizin regarding the revised projections before they were excused from the meeting. The special committee then discussed the revised projections and the new proposed merger price from the investor group. The special committee also discussed the conditionality of the current debt financing commitment letters and the risks to the Company of proceeding with the transaction without firm debt financing commitments from the investor group’s debt financing sources. Specifically, the special committee took note of and discussed the fact that if the projected financial results reflected in the revised projections were to actually materialize in the second quarter, the Total Debt to EBITDA ratio condition in the debt commitment letter for the financing of the merger would not be met, the investor group’s debt financing of the merger would not be committed and the investor group might have the right not to consummate the merger. In addition, the special committee noted that the revised long-term projections were significantly lower than those previously provided to the investor group. After discussion, the special committee decided to further consider the matter and reconvene another meeting on the afternoon of July 3, 2005.

In the afternoon of July 3, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, to continue its consideration of the investor group’s revised proposal. The special committee discussed and considered the fact that the debt commitment letters could terminate as a result of the financial results reflected in the revised projections, creating uncertainty as to the consummation of the merger. The special committee also considered the potential impact of the Company’s negative second quarter outlook and performance implied by the revised projections on the likelihood of consummating the merger. The special committee instructed CIBC World Markets to respond to the investor group that, in light of the revised projections, the Company would be willing to consider a reduction in the merger consideration to $20.25 per share, combined with updated debt commitment letters from the investor group’s debt financing sources that would not terminate if the financial results reflected in the revised projections were achieved, which response was relayed by CIBC World Markets to Goldman Sachs later the same day.

On July 5, 2005, Goldman Sachs contacted CIBC World Markets indicating that the investor group was considering the special committee’s response would provide a response on July 7, 2005.

On July 7, 2005, Goldman Sachs informed CIBC World Markets that the investor group would require a reduction in the merger consideration of $10 million, which implied a revised merger consideration of

36

Table of Contents

approximately $20.05 per share, but that it would be necessary to add a new condition regarding credit ratings to the debt commitment letters.

On the afternoon of July 7, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, to discuss the investor group’s revised proposal. CIBC World Markets reviewed the revised proposal with the special committee and discussed with the special committee the risks of having the financing commitments conditioned upon third-party rating agency credit assessments. After discussion of the proposed merger consideration and rating condition, the special committee instructed CIBC World Markets to reject the investor group’s new proposal and request that the investor group submit a new proposal without the credit rating condition, which request was relayed to Goldman Sachs later that day.

In the morning of July 8, 2005, Goldman Sachs informed CIBC World Markets that the investor group would be willing to eliminate the credit rating contingency on the debt financing, but would also require a reduction in the merger consideration of $15 million, which implied a revised merger consideration of approximately $19.82 per share and require a funding condition in the revised debt commitment letters that would limit the ratio of Total Adjusted Debt (Total Debt, plus rent expense capitalized at an 8x multiple) to EBITDAR (net income before interest, taxes, depreciation, amortization and rent) to 5.94:1.

On the afternoon of July 8, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, to discuss the investor group’s revised proposal. CIBC World Markets reviewed the revised proposal with the special committee. In addition, the special committee was informed that, based upon discussions with Michael Anthony and Phillip Roizin, the outlook for the second quarter ended July 31, 2005 was improving somewhat from that announced on June 29, 2005 (from a projected loss of $0.20 to $0.22 per share to a newly projected loss of approximately $0.16 to $0.19 per fully diluted share, including the Gardeners Eden business but excluding charges related to the planned Gardeners Eden divestiture). The special committee discussed that the leverage ratio condition in the existing debt commitment letters would still not be satisfied, even under the improved second quarter outlook, and that the Company’s long-term financial performance would still likely be negatively impacted by the trends indicated by the second quarter results. After discussion of this revised outlook for the second quarter and the revised proposal, the special committee instructed CIBC World Markets to contact Goldman Sachs and request that the investor group increase the proposed merger consideration above $19.82 per share, which request was relayed to Goldman Sachs later the same day. On July 8, 2005, Mr. Roizin informed members of the investor group that the Company’s adjusted EBITDA for the month of June was ahead of the projections the Company had previously provided to the investor group for the month of June.

In the morning of July 9, 2005, Goldman Sachs informed CIBC World Markets that the investor group would be willing to increase the merger consideration to $20.00 per share, if coupled with a condition in the debt commitment letter of a Total Adjusted Debt to EBITDAR ratio of no more that 5.94:1. Goldman Sachs further proposed that such ratio would be tested for the twelve months ending on the last day of the most recent fiscal quarter and excluding the Gardeners Eden business, but noted that such proposal was subject to approval of the debt financing sources.

On the morning of July 9, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, to discuss the investor group’s revised proposal. CIBC World Markets reviewed the revised proposal with the special committee. After discussion of the revised merger consideration and the new leverage ratio condition, the special committee determined it was necessary to discuss with Company management the likelihood of whether the new condition could be satisfied. The special committee agreed to reconvene in the afternoon with representatives of Company management participating to make this assessment.

Prior to the special committee meeting on the afternoon of July 9, 2005, Goldman Sachs informed CIBC World Markets that the condition in the most recent proposal from the investor group regarding the Total

37

Table of Contents

Adjusted Debt to EBITDAR ratio of no more than 5.94:1 would need to be tested on a rolling latest twelve-months basis as of the end of each month, until the effective date of the merger.

In the evening of July 9, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Michael Anthony and Philip Roizin of the Company to answer questions that might arise concerning the Company’s prospective financial performance, to discuss the investor group’s revised proposal. CIBC World Markets reviewed with the special committee the revised proposal, including the requirement that the leverage ratio test be applied on a monthly basis. CIBC World Markets also reviewed various leverage statistics for the Company based on internal estimates of the Company’s management. The special committee discussed the revised merger consideration and asked the members of Company management whether they believed the leverage ratio test could be satisfied on a rolling latest twelve-months basis. The special committee discussed the revised merger consideration and the updated leverage ratio condition and also gave special consideration to the fact that many of the timing aspects of the merger were controlled by the investor group. After discussion, the special committee instructed CIBC World Markets to contact Goldman Sachs to indicate that the special committee would be willing to consider merger consideration of $20.00 per share, but that the leverage ratio condition should only apply for the quarter ended July 31, 2005, which was conveyed to Goldman Sachs later that same evening.

On the morning of July 10, 2005, the full board of directors of the Company met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Philip Roizin of the Company. The members of the special committee and representatives of CIBC World Markets and Ropes & Gray updated the members of the board of directors regarding the special committee’s recent deliberations regarding the investor group’s revised merger proposals. The board of directors discussed the current proposal in light of the revised projections. Given that Goldman Sachs had informed CIBC World Markets that it would respond to the special committee’s latest proposal that afternoon, the special committee agreed to reconvene on the afternoon of July 10, 2005 for further discussion.

On the afternoon of July 10, 2005, Goldman Sachs reiterated to CIBC World Markets that, in order to complete the financing of the merger at $20.00 per share, the investor group’s debt financing sources were requiring that the leverage ratio be tested on a monthly basis until the effective date of the merger. However, as a further modification of the investor group’s proposal, Goldman Sachs indicated that the investor group would be willing to utilize up to $5 million in cash from the Company’s balance sheet upon effectiveness of the merger to reduce the amount of debt financing required to consummate the merger and allow the leverage ratio test to be satisfied if the Company would not otherwise be able to satisfy the leverage ratio test at the effective time of the merger. In addition, Goldman Sachs notified CIBC World Markets that an additional condition to funding would be required under the revised debt commitment letter specifying a minimum level of EBITDA, plus other identified additions, equal to or exceeding $45 million on a rolling latest twelve-months basis.

In the afternoon of July 10, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Michael Anthony and Philip Roizin of the Company, to discuss the investor group’s response. CIBC World Markets updated the members of the special committee on the latest response of the investor group. The special committee asked Company management to assess the likelihood that the leverage ratio condition could be met as of the end of each month after July 31, 2005 and prior to the October 31, 2005 termination date provided for in the merger agreement. Company management indicated they would review the leverage ratio condition and report back to the special committee. The special committee agreed to reconvene on July 11, 2005 to discuss the investor group’s proposal further in light of the Company management’s assessment.

On July 11, 2005, the special committee met twice by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Michael Anthony and Philip Roizin of the Company, to discuss the Company’s likelihood of compliance with the leverage ratio condition. The special committee discussed the financial requirements for the Company to meet the proposed leverage ratio conditions, and instructed Messrs. Roizin and Anthony to describe the process management was undertaking to assess potential compliance. No

38

Table of Contents

definitive assessments were made by management or the special committee, so the special committee agreed to reconvene on July 12, 2005 for further discussion.

In the morning of July 12, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Michael Anthony and Philip Roizin of the Company, to further discuss Company management’s assessment of the Company’s likelihood of compliance with the leverage ratio and minimum adjusted EBITDA condition. Based on forecasts prepared by Company management, Company management was confident that the relevant condition would be met during the period prior to closing. After discussion, the special committee determined that the monthly leverage ratio and minimum adjusted EBITDA tests would be appropriate only for July and August given a target closing date of no later than September 2005 and the special committee instructed CIBC World Markets to relay this decision to Goldman Sachs.

On July 13, 2005, Mr. Roizin provided the investor group with updated actual financial data for the months of May and June, as well as selected new projections for the month ended July 31, 2005, excluding the Gardeners Eden business, of gross margin of $12.7 million, operating income of negative $2.9 million, EBITDA of negative $1.8 million and adjusted EBITDA of negative $1.5 million.

On the morning of July 14, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Michael Anthony and Philip Roizin of the Company, to discuss the investor group’s response to the special committee’s latest proposal. CIBC World Markets updated the members of the special committee that Goldman Sachs had indicated to CIBC World Markets that the investor group proposed changing the termination date of the merger agreement to October 14, 2005 from October 31, 2005 in order to accommodate the special committee’s view that the monthly leverage ratio and minimum EBITDA tests would only be appropriate for July and August given a target closing date of no later than September 30, 2005. After review and discussion by the special committee, the special committee instructed CIBC World Markets to inform Goldman Sachs that the special committee would require the termination date to be moved to October 5, 2005 in order to improve the prospects for completing the debt financing and the merger no later than the end of September. This proposal was relayed to Goldman Sachs.

On the evening of July 14, 2005, the special committee met by telephone, with representatives of Ropes & Gray and CIBC World Markets participating, as well as Michael Anthony and Philip Roizin of the Company, to discuss the investor group’s response to the special committee’s latest proposal. CIBC World Markets updated the members of the special committee that the investor group had indicated to CIBC World Markets that it would be willing to change the termination date of the merger agreement to October 5, 2005. At the time of the special committee meeting, final drafts of an amendment to the merger agreement and revised debt commitment letters reflecting the current proposal were not available for review by the special committee and its advisors. In addition, CIBC World Markets informed the special committee that the investor group had indicated to CIBC World Markets that the senior unsecured note financing is unlikely to close by August, and that the senior unsecured note financing was more likely to be pursued in September. The special committee considered the current proposal and instructed Ropes & Gray and CIBC World Markets to obtain drafts of the amendment to the merger agreement and debt financing letters so that the special committee and the board of directors could consider the final terms of the proposal.

On the afternoon of July 15, 2005, the special committee reconvened to discuss and approve the terms of the amended merger agreement. Ropes & Gray and CIBC World Markets reviewed with the special committee the other principal final terms of the amended merger agreement and revised debt commitment letters. CIBC World Markets presented to the special committee its financial analysis of the proposed $20.00 per share price based on a number of valuation methodologies as more fully described under “Special Factors—Opinion of CIBC World Markets.” CIBC World Markets rendered to the special committee a written opinion, dated July 15, 2005, to the effect that, as of that date and based on and subject to the matters described in its opinion, the merger consideration of $20.00 per share was fair, from a financial point of view, to the holders of the Company’s

39

Table of Contents

common stock (other than any management participant or affiliates thereof). After discussion, the special committee unanimously resolved that the amended merger agreement and the merger, upon the terms and conditions set forth in the amended merger agreement, are advisable, fair to, and in the best interests of the Company and it stockholders and further resolved to recommend that the board of directors approve the amended merger agreement.

Immediately following the meeting of the special committee, a meeting of the board of directors was held by telephone with representatives of Ropes & Gray and CIBC World Markets participating. CIBC World Markets reviewed with the board its financial analysis of the proposed $20.00 per share price as presented to the special committee earlier that afternoon. The special committee reported to the board of directors on its recommendations of the amended merger agreement and its determination of the advisability and fairness of the amended merger agreement and the merger. At the conclusion of that discussion, the board of directors, by vote of all members in attendance, with Mr. Michael Anthony abstaining from the vote, determined that the merger agreement and the merger, upon the terms and conditions set forth in the merger agreement, are advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders and approved the form, terms and provisions of the amended merger agreement and the merger.

On July 15, 2005, the Company publicly announced that it had entered into the amended merger agreement with the investor group.

Reasons for the Merger

After careful consideration, the Company’s board of directors, with Mr. Michael Anthony abstaining from the vote of the board of directors because of his participation in the merger, by unanimous vote of those present at the meeting of the board of directors called for that purpose, determined that the amended merger agreement and the merger, upon the terms and conditions set forth in the amended merger agreement, are advisable, fair to, and in the best interest of, the Company and its unaffiliated stockholders. In the course of reaching its decision to approve the amended merger agreement, the Company’s board of directors considered the determination and recommendation of the special committee of independent directors and the factors examined by the special committee as described below.

In reaching its determination and making its recommendation, the special committee of independent directors considered a number of factors:

40

Table of Contents

41

Table of Contents

Our special committee and board of directors consider our business to be a viable going concern. Our special committee considered that, as a specialty retailer with significant value in its employees and goodwill, liquidation value would likely be significantly lower than the valuation of Brookstone as a going concern and, as such, would not provide a useful comparison for evaluating the $20.00 per share consideration. In addition, our special committee considered that book value ($8.30 per share as of January 29, 2005), which is based on the historical cost value of our assets, also would not provide a fair value for the business as compared to current period measurements of our operational performance, such as EBITDA and earnings per share. In evaluating the merger, the special committee also considered that the investor group was the first potential purchaser with financing arrangements in place to fund the merger consideration that has approached the board of directors concerning a potential acquisition of the Company since the Company’s initial public offering in April 1, 1993.

In addition, the special committee believed that sufficient procedural safeguards were and are present to ensure the fairness of the merger and to permit the special committee to represent effectively the interests of our unaffiliated stockholders. These procedural safeguards include the following:

42

Table of Contents

In light of the procedural safeguards discussed above, the special committee did not consider it necessary to require adoption of the amended merger agreement by at least a majority of the Company’s stockholders other than the interested persons. In that regard, stockholders should note that as of July 29, 2005, the record date, our directors and executive officers held and are entitled to vote, in the aggregate, less than 1% of the outstanding shares of Brookstone common stock.

The special committee also considered a variety of risks and other factors potentially weighing against the merger, including:

43

Table of Contents

The foregoing discussion summarizes the material factors considered by our board of directors and the special committee in reaching their respective conclusions and recommendations, but is not meant to be exhaustive. As part of its determination with respect to the fairness of the merger, the board of directors adopted the conclusion of the special committee and the factors considered by the special committee in arriving at such conclusion, based upon the board of directors’ view as to the reasonableness of such conclusion and factors. After considering these factors, our board of directors and the special committee concluded that the positive factors relating to the amended merger agreement and the merger outweighed the negative factors. In view of the wide variety of factors considered in reaching their determinations, neither the board of directors nor the special committee found it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching their conclusions and recommendations. In addition, the individual members of the board of directors and the special committee may have assigned different weights to various factors. The board of directors and the special committee viewed their determinations and recommendations as being based on the totality of the information presented to, and considered by, them.

Reasons for Amending the Merger Agreement

At the meeting of the board of directors held on July 15, 2005, the Company’s board of directors, with Mr. Michael Anthony abstaining from the vote of the board of directors because of his participation in the merger, unanimously determined to enter into an amendment to the merger agreement reducing the purchase price per share of the Company’s common stock from $20.50 to $20.00, modifying certain other terms of the original merger agreement and providing for the modification of the financing commitments obtained by the investor group in connection with the merger. In reaching its determination to enter into the amendment to the merger agreement, the Company’s board of directors considered the determination and recommendation of the special committee of independent directors and the additional factors examined by the special committee as described below:

44

Table of Contents

Members of the Special Committee

Mr. Mone Anathan, III, the chairman of the special committee, has been a director of Brookstone, Inc. since December 1989. Presently an independent investor, from July 1988 through June 1997, Mr. Anathan served as President, Treasurer and a director of Filene’s Basement Corp., an off-price specialty apparel chain. From June 1997 until November 1999, he served Filene’s Basement Corp. in the capacity of Vice Chairman of the board of directors and Chairman of the Executive Committee. He served as President of the Filene’s Basement division of Federated Department Stores, Inc. from February 1984 until Filene’s Basement was purchased from Federated Department Stores, Inc. in a management-led buyout in July 1988. Mr. Anathan is a trustee of Boston Advisors Trust and was formerly a director of Beth Israel Hospital and Harvard Pilgrim Health Care. In addition, Mr. Anathan serves on the Dean’s Council at the Harvard Divinity School and serves as a Trustee on the Board of Trustees of Discovering Justice, a nonprofit organization dedicated to teaching the role of the justice system in American democracy. Mr. Anathan also serves as a director of Lebenthal Funds, Inc., a municipal bond management firm.

Mr. Michael Glazer has been a director of Brookstone, Inc. since June 1996. Mr. Glazer has been President and Chief Executive Officer of KB Toys, Inc. since May 1996. In January 2004, KB Toys filed for protection under Chapter 11 of the U.S. Bankruptcy Code. From May 1995 to May 1996, Mr. Glazer was President of Big Lots Stores, Inc. (formerly Consolidated Stores Corporation) and from September 1990 to January 1995, he served as President of The Bombay Company, Inc., a specialty home furnishings retailer. Mr. Glazer is a director of KB Toys, Inc. and Stage Stores, Inc.

Fees and Other Benefits for Special Committee Members

Each member of the special committee has been paid a fee of $10,000 in connection with his service on the committee.

The members of the special committee hold 33,724 shares of Brookstone common stock. In addition, the members of the special committee hold stock options to acquire Brookstone common stock, with a weighted average exercise price of $7.06 per share. As a result of the merger, all of these shares of Brookstone common stock will be cancelled and converted into the right to receive $20.00 in cash in the same manner as all other shares of Brookstone common stock and stock options. Accordingly, Messrs. Anathan and Glazer will receive approximately $1,092,068 and $922,320, (excluding the fees paid for their services as special committee members) respectively, in connection with the completion of the merger. The merger agreement includes customary indemnification and liability insurance provisions for Brookstone, Inc.’s directors.

Recommendation of the Board of Directors

On July 15, 2005, the special committee unanimously determined that the amended merger agreement and the merger, upon the terms and conditions set forth in the amended merger agreement, are advisable, fair to, and in the best interest of, the Company and its unaffiliated stockholders and recommended that the board of directors approve the amendment to the original merger agreement. In making its determination, the special committee considered a number of factors, as more fully described above under “Special Factors—Reasons for the Merger” beginning on page 40.

45

Table of Contents

On July 15, 2005, at a meeting of the entire board of directors with representatives of Ropes & Gray LLP and CIBC World Markets participating, the special committee reported to the entire board of directors on its recommendation of the amended merger agreement and its determination of the advisability and fairness of the amended merger agreement and the merger. On that same date, the board of directors of Brookstone, with Mr. Michael Anthony abstaining from the vote of the board of directors because of his participation in the merger, by unanimous vote of those present at the meeting of the board of directors called for that purpose, determined that the amended merger agreement and the merger, upon the terms and conditions set forth in the amended merger agreement, are advisable, fair to, and in the best interest of, the Company and its unaffiliated stockholders and approved the form, terms and provisions of the amendment to the original merger agreement and the merger.

Accordingly, the board of directors recommends that you vote “FOR” the adoption of the amended merger agreement.

Opinion of CIBC World Markets Corp.

Brookstone and the special committee of independent directors requested CIBC World Markets to act as its financial advisor in connection with the merger. In connection with this engagement, the special committee requested that CIBC World Markets evaluate the fairness, from a financial point of view, of the merger consideration. On April 15, 2005, in connection with the special committee’s evaluation of the merger, CIBC World Markets rendered to the special committee a written opinion as to the fairness, from a financial point of view and as of that date, of the $20.50 per share merger consideration proposed to be received by the holders of Brookstone common stock (other than any management participant or affiliates thereof) prior to amendment of the merger agreement. Beginning on July 1, 2005, representatives of the investor group held discussions with representatives of the special committee regarding a possible reduction in the per share merger consideration in light of Brookstone’s weaker than expected financial performance and revised financial projections provided to the investor group following the execution of the merger agreement and the resulting impact on the investor group’s ability to secure its debt financing for the merger. The special committee and the investor group subsequently agreed to amend the merger agreement to provide for, among other things, a reduction in the per share merger consideration from $20.50 to $20.00. In light of the reduced merger consideration, the special committee requested an updated opinion from CIBC World Markets. On July 15, 2005, in connection with the special committee’s evaluation of the amendment to the merger agreement, CIBC World Markets rendered to the special committee a written opinion, dated July 15, 2005, to the effect that, as of that date and based on and subject to the matters described in its opinion, the $20.00 per share merger consideration was fair, from a financial point of view, to the holders of Brookstone common stock (other than any management participant or affiliates thereof).

The full text of CIBC World Markets’ written opinion, dated July 15, 2005, which describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken, is attached to this proxy statement as Annex B. CIBC World Markets’ opinion was provided to the special committee in connection with its evaluation of the merger consideration and relates only to the fairness, from a financial point of view, of the merger consideration. The opinion does not address any other aspect of the merger and does not constitute a recommendation as to how any stockholder should vote or act with respect to any matters relating to the merger. The summary of CIBC World Markets’ opinion described below is qualified in its entirety by reference to the full text of its opinion. Holders of Brookstone common stock are encouraged to read the opinion carefully in its entirety.

In arriving at its opinion, CIBC World Markets:

46

Table of Contents

In rendering its opinion, CIBC World Markets relied on and assumed, without independent verification or investigation, the accuracy and completeness of all of the financial and other information provided to or discussed with CIBC World Markets by Brookstone and its employees, representatives and affiliates or otherwise reviewed by CIBC World Markets. With respect to financial forecasts and estimates relating to Brookstone referred to above, CIBC World Markets assumed, at the direction of Brookstone’s management, without independent verification or investigation, that the financial forecasts and estimates were reasonably prepared on bases reflecting the best available information, estimates and judgments of Brookstone’s management as to Brookstone’s future financial condition and operating results. CIBC World Markets assumed, with Brookstone’s consent, that the merger would be consummated in accordance with its terms without waiver, modification or amendment of any material term, condition or agreement and in compliance with all applicable laws and that, in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Brookstone or the merger.

CIBC World Markets did not make or obtain any independent evaluations or appraisals of the assets or liabilities, contingent or otherwise, of Brookstone. CIBC World Markets’ opinion did not address any terms or other aspects of the merger (other than the merger consideration to the extent expressly specified in the opinion), including, without limitation, any aspect or implication of any agreements or arrangements entered into in connection with, or contemplated by, the merger. CIBC World Markets expressed no opinion as to Brookstone’s underlying valuation, future performance or long-term viability. CIBC World Markets expressed no view as to, and its opinion did not address, Brookstone’s underlying business decision to effect the merger, and its opinion did not address the relative merits of the merger as compared to any alternative business strategies that might exist for Brookstone or the effect of any other transaction in which Brookstone might engage. In connection with its engagement, CIBC World Markets was not requested to, and it did not, solicit third party indications of interest in the possible acquisition of all or a part of Brookstone. CIBC World Markets’ opinion was necessarily based on the information available to CIBC World Markets and general economic, financial and stock market conditions and circumstances as they existed and could be evaluated by CIBC World Markets as of the date of its opinion. Although subsequent developments may affect its opinion, CIBC World Markets does not have any obligation to update, revise or reaffirm its opinion. Brookstone imposed no other instructions or limitations on CIBC World Markets with respect to the investigations made or the procedures followed by it in rendering its opinion.

The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description.

47

Table of Contents

CIBC World Markets arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole, and did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion. Accordingly, CIBC World Markets believes that its analyses and this summary must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying CIBC World Markets’ analyses and opinion.

In performing its analyses, CIBC World Markets considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Brookstone and the investor group. No company, transaction or business used in the analyses as a comparison is identical to Brookstone or the merger, and an evaluation of the results of those analyses is not entirely mathematical. Rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, business segments or transactions analyzed.

The estimates contained in CIBC World Markets’ analyses and the ranges of valuations resulting from any particular analysis are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than those suggested by its analyses. In addition, analyses relating to the value of businesses or securities do not necessarily purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, CIBC World Markets’ analyses are inherently subject to substantial uncertainty.

The type and amount of consideration payable in the merger was determined through negotiation between Brookstone and the investor group and the decision to enter into the merger was solely that of the special committee and Brookstone’s board of directors. CIBC World Markets’ opinion was only one of many factors considered by the special committee in its evaluation of the merger and should not be viewed as determinative of the views of the special committee or Brookstone’s board of directors with respect to the merger or the merger consideration.

Copies of CIBC World Markets’ written presentations to the special committee have been filed as exhibits to the Rule 13e-3 Transaction Statement on Schedule 13E-3 filed with the Securities and Exchange Commission and also will be available for inspection and copying at Brookstone’s principal executive offices during regular business hours by any interested stockholder of Brookstone or any representative of such stockholder who has been so designated in writing and also may be inspected and copied at the office of, and obtained by mail from, the Securities and Exchange Commission.

The following is a summary of the material financial analyses presented to the special committee in connection with CIBC World Markets’ opinion dated July 15, 2005. The financial analyses summarized below include information presented in tabular format. In order to fully understand CIBC World Markets’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of CIBC World Markets’ financial analyses.

Selected Companies Analysis.

CIBC World Markets performed a selected companies analysis in order to derive an implied per share equity reference range for Brookstone from selected financial and stock market information of other publicly traded companies in the specialty retail industry and then compared this implied per share equity reference range with the merger consideration. In this analysis, CIBC World Markets compared financial and stock market information for Brookstone and the following 11 selected publicly held companies in the specialty retail industry.

48

Table of Contents

These companies, which are listed below, were selected primarily because they were specialty retailers with one or more of the following characteristics: (i) a mall-based store format, (ii) a home products focus and/or (iii) seasonality of sales.

CIBC World Markets reviewed, among other things, enterprise values, calculated as market value, plus debt and preferred stock, including out-of-the-money convertible securities, plus minority interests, less investments in unconsolidated affiliates and cash and cash equivalents, as a multiple of latest 12 months earnings before interest, taxes, depreciation and amortization, commonly referred to as “EBITDA.” CIBC World Markets also reviewed closing stock prices as a multiple of calendar years 2005 and 2006 estimated earnings per share, commonly referred to as “EPS.” Multiples for Electronics Boutique Holdings Corp., Finlay Enterprise, Inc., Restoration Hardware, Inc. and Sharper Image Corporation were excluded as outliers because they differed significantly from the mean multiples derived from the other selected companies. CIBC World Markets then applied a range of selected multiples of latest 12 months EBITDA and calendar years 2005 and 2006 estimated EPS, excluding outliers, of 5.6x to 7.6x, 12.9x to 17.5x and 11.8x to 14.5x, respectively, derived from the selected companies to Brookstone’s latest 12 months ended July 31, 2005 EBITDA and fiscal years ended January 31, 2006 and 2007 estimated EPS, in order to derive an implied per share equity reference range for Brookstone based on these operational measures. Multiples for the selected companies were based on “First Call” estimates and closing stock prices as of July 14, 2005. Estimated financial data for Brookstone were based on internal estimates of Brookstone’s management. Based on the average of the lows and the average of the highs of the implied per share equity reference ranges derived, this analysis indicated the following mean implied per share equity reference range for Brookstone, as compared to the merger consideration:

Selected Precedent Transactions Analysis.

CIBC World Markets performed a selected precedent transactions analysis in order to derive an implied per share equity reference range for Brookstone from enterprise values and implied transaction value multiples paid in merger and acquisition transactions involving other publicly traded companies in the specialty retail industry and then compared this implied per share equity reference range with the merger consideration. In this analysis, CIBC World Markets reviewed the enterprise values and implied transaction value multiples paid in the following 19 selected transactions in the specialty retail industry since June 2000:

49

Table of Contents

CIBC World Markets reviewed, among other things, enterprise values, calculated as the equity value implied for the target company based on the consideration payable in the selected transaction, plus debt and preferred stock, including out-of-the-money convertible securities, plus minority interests, less investments in unconsolidated affiliates and cash and cash equivalents, as a multiple of latest 12 months EBITDA. CIBC World Markets noted that the target companies in the Dick’s Sporting Goods, Inc./Galyan’s Trading Company, Inc., Boise Cascade Corporation/OfficeMax, Inc. and Apollo Management, L.P./General Nutrition Companies, Inc. transactions, referred to as the excluded transactions, had depressed profitability. CIBC World Markets then applied a range of selected multiples of latest 12 months EBITDA derived from the selected transactions, other than the excluded transactions, of 7.1x to 8.7x to Brookstone’s latest 12 months ended July 31, 2005 EBITDA, in order to derive an implied per share equity reference range for Brookstone based on this operational measure. Estimated financial data for the selected transactions were based on publicly available information at the time of announcement of the relevant transaction. Estimated financial data for Brookstone were based on internal estimates of Brookstone’s management. This analysis indicated the following implied per share equity reference range for Brookstone, as compared to the merger consideration:

Discounted Cash Flow Analysis.

CIBC World Markets performed a discounted cash flow analysis in order to derive an implied per share equity reference range for Brookstone on a stand-alone basis based on its future cash flows and then compared this implied per share equity reference range with the merger consideration. In this analysis, CIBC World Markets calculated the estimated present value of the stand-alone unlevered, after-tax free cash flows that Brookstone could generate over fiscal years ended January 31, 2006 through 2010 based on internal estimates of Brookstone’s management for Brookstone’s core business excluding its Gardeners Eden business, which

50

Table of Contents

Brookstone has publicly announced it plans to divest. CIBC World Markets calculated a range of terminal values for Brookstone by applying to Brookstone’s fiscal year ended January 31, 2010 estimated EBITDA a range of EBITDA terminal value multiples of 6.5x to 7.5x, which range of terminal value multiples was derived taking into consideration Brookstone’s historical EBITDA trading multiples, the EBITDA trading multiples, excluding outliers, of the selected companies referred to above under “Selected Companies Analysis,” and the implied EBITDA multiples paid for the target companies in the selected transactions, other than the excluded transactions, referred to above under “Selected Precedent Transactions Analysis.” The cash flows and terminal values were then discounted to present value using discount rates ranging from 13.0% to 15.0%, which discount rate range was derived taking into consideration the estimated weighted average cost of capital for Brookstone derived from selected financial and market data of the selected companies, excluding outliers referred to above under “Selected Companies Analysis.” This analysis indicated the following implied per share equity reference range for Brookstone, as compared to the merger consideration:

Leveraged Buyout Analysis.

CIBC World Markets performed a leveraged buyout analysis in order to derive an implied per share equity reference range for Brookstone by estimating theoretical purchase prices that could be paid by a hypothetical financial buyer in an acquisition of Brookstone and then compared this implied per share equity reference range with the merger consideration. In this analysis, CIBC World Markets reviewed the debt capacity of Brookstone by applying a multiple of 5.9x, which multiple was derived taking into consideration credit ratios generally observed among highly leveraged specialty retailers, to Brookstone’s latest 12 months ended July 31, 2005 EBITDA plus rent expense. CIBC World Markets assumed that a financial buyer would attempt to realize a return on its investment in Brookstone in fiscal year ended January 31, 2010 and calculated a range of exit values for Brookstone by applying to Brookstone’s fiscal year ended 2010 estimated EBITDA a range of exit value multiples of 7.0x to 8.0x, which range of exit value multiples was derived taking into consideration the EBITDA trading multiples, excluding outliers, of the selected companies referred to above under “Selected Companies Analysis” and the implied EBITDA multiples paid for the target companies in the selected transactions, other than the excluded transactions, referred to above under “Selected Precedent Transactions Analysis.” CIBC World Markets then derived a range of theoretical purchase prices based on an assumed required internal rate of return for a financial buyer of approximately 25.0%, which percentage is within the range of required internal rates of return commonly assumed when performing a leveraged buyout analysis. Estimated financial data for Brookstone were based on internal estimates of Brookstone’s management. This analysis indicated the following implied per share equity reference range for Brookstone, as compared to the merger consideration:

Other Factors.

In rendering its opinion, CIBC World Markets also reviewed and considered other factors, including:

Miscellaneous.

Brookstone has agreed to pay CIBC World Markets for its financial advisory services in connection with the merger an aggregate fee equal to 0.80% of the total consideration, including liabilities assumed, payable in the

51

Table of Contents

merger. It is currently estimated that the aggregate fee payable to CIBC World Markets will be approximately $3.3 million. In addition, Brookstone has agreed to reimburse CIBC World Markets for its reasonable expenses, including reasonable fees and expenses of its legal counsel, and to indemnify CIBC World Markets and related parties against liabilities, including liabilities under the federal securities laws, relating to, or arising out of, its engagement. CIBC World Markets and its affiliates in the past have provided services to affiliates of the members of the investor group unrelated to the proposed merger, for which services CIBC World Markets and its affiliates have received compensation, including having arranged or otherwise participated in various financings for portfolio companies of J.W. Childs Associates, L.P. in 2003 and 2004. In the ordinary course of business, CIBC World Markets and its affiliates may actively trade securities of Brookstone and affiliates of the members of the investor group for their own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in those securities.

Brookstone and the special committee selected CIBC World Markets as its financial advisor in connection with the merger based on CIBC World Markets’ reputation and experience. CIBC World Markets is an internationally recognized investment banking firm and, as a customary part of its investment banking business, is regularly engaged in valuations of businesses and securities in connection with acquisitions and mergers, underwritings, secondary distributions of securities, private placements and valuations for other purposes.

Position of Mr. Michael Anthony and Mr. Philip Roizin as to Fairness

Under a potential interpretation of the Exchange Act rules governing “going private” transactions, Mr. Michael Anthony, our Chairman, President and Chief Executive Officer, and Mr. Philip Roizin, our Executive Vice President, Finance and Administration may be deemed to be affiliates of Brookstone. Messrs. Anthony and Roizin are making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

Messrs. Anthony and Roizin have interests in the merger different from, and in addition to, the other stockholders of Brookstone. These interests are described under “Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 67.

Messrs. Anthony and Roizin did not undertake a formal evaluation of the fairness of the merger or engage a financial advisor for such purposes. Messrs. Anthony and Roizin believe that the amended merger agreement and the merger are substantively and procedurally fair to the unaffiliated stockholders of Brookstone based upon the following factors and the factors considered by, and the findings of, the special committee of independent directors and the Company’s board of directors with respect to the fairness of the merger to such stockholders (see “Special Factors—Reasons for the Merger” beginning on page 40, “Special Factors—Reasons for Amending the Merger Agreement” beginning on page 44 and “Special Factors—Recommendation of the Board of Directors” beginning on page 45) and Messrs. Anthony and Roizin have adopted the conclusion of the Company’s special committee of the board of directors and its analysis of the factors considered in arriving at such conclusion based upon their views as to the reasonableness of such conclusion and factors considered by the special committee:

52

Table of Contents

In considering the fairness of the merger to the unaffiliated stockholders, Messrs. Anthony and Roizin did not independently consider the going concern value, the liquidation value or net book value of Brookstone. Messrs. Anthony and Roizin did not independently establish a pre-merger going concern value of Brookstone’s equity for such purpose because neither believes there is a single method of determining going concern value, although each of them did consider historical market prices for Brookstone common stock over various periods prior to the public announcement of the signing of the original merger agreement, including the fact that the Company’s common stock traded near or above the merger consideration within the twelve-month period prior to the public announcement of the merger. With respect to liquidation value, Michael Anthony and Philip Roizin, based on their familiarity with Brookstone’s business, considered that, as a specialty retailer with significant value in its employees and goodwill, liquidation value would likely be significantly lower than the valuation of Brookstone as a going concern and, as such, would not provide a useful comparison for assessing the fairness of the $20.00 per share merger consideration. In addition, Messrs. Anthony and Roizin considered that book value ($8.30 per share as of January 29, 2005), which is based on the historical cost value of Brookstone’s assets, also would not provide fair value for the business as compared to current period measurements of Brookstone’s operational performance, such as EBITDA and earnings per share.

While Mr. Anthony is a director of Brookstone, because of his differing interests in the merger, he did not participate in the negotiation of the amended merger agreement or the evaluation or approval of the amended merger agreement and the merger. In particular, Mr. Anthony abstained from the vote of the Brookstone’s board of directors determining that the amended merger agreement and the merger, upon the terms and conditions set forth in the amended merger agreement, are advisable, fair to, and in the best interest of the Company and its unaffiliated stockholders and approving the form, terms and provisions of the amended merger agreement and the merger. For these reasons, Messrs. Anthony and Roizin do not believe that Mr. Anthony’s interests in the merger influenced the decision of the special committee of independent directors or the Brookstone’s board of directors with respect to the amended merger agreement or the merger.

The foregoing discussion of the information and factors considered and given weight by Messrs. Anthony and Roizin in connection with the fairness of the amended merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by Messrs. Anthony and Roizin. Messrs.

53

Table of Contents

Anthony and Roizin did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the amended merger agreement and the merger. Messrs. Anthony and Roizin believe that these factors provide a reasonable basis for their belief that the merger is fair to Brookstone’s unaffiliated stockholders. This belief should not, however, be construed in any way as a recommendation to any stockholder of Brookstone common stock as to whether such holder should vote in favor of the adoption of the amended merger agreement. Messrs. Anthony and Roizin do not make any recommendation as to how Brookstone’s stockholders should vote their shares relating to the merger or any related transactions.

Position of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited as to Fairness

Under a potential interpretation of the Exchange Act rules governing “going private” transactions, Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited may each be deemed to be an affiliate of Brookstone, Inc. Each of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited is making the statements included in this section solely for the purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act.

None of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd or Temasek Capital (Private) Limited has participated in the deliberations of the special committee of independent directors regarding, or received advice from the special committee’s legal or financial advisors as to, the substantive and procedural fairness of the merger, nor did they undertake any independent evaluation of the fairness of the merger or engage a financial advisor for such purposes. Each of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited believes that the amended merger agreement and the merger are substantively and procedurally fair to Brookstone’s unaffiliated stockholders based upon the following factors and upon the factors considered by, and the findings of, the special committee of independent directors and the Company’s board of directors with respect to the fairness of the merger to such stockholders (See “Special Factors—Reasons for the Merger” beginning on page 40, “Special Factors—Reasons for Amending the Merger Agreement” beginning on page 44 and “Special Factors—Recommendation of the Board of Directors” beginning on page 45), and each of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited has adopted the conclusion of the Company’s special committee of the board of directors based upon their view as to reasonableness of such conclusion and factors considered by the special committee, without any independent investigation with respect thereto:

54

Table of Contents

Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited did not consider net book value in determining the fairness of the merger to the unaffiliated stockholders because they believe that net book value, which is an accounting concept, does not reflect, or have any meaningful impact on, the market trading prices for Brookstone common stock. They note, however, that the merger consideration of $20.00 per share of Brookstone common stock is higher than the book value of the common stock. Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited did not consider liquidation value in determining the fairness of the merger to the unaffiliated stockholders because Brookstone will continue to operate its businesses following the consummation of the merger. Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited did not establish a pre-merger going concern value for the Brookstone common stock as a public company to determine the fairness of the merger consideration to the unaffiliated stockholders because they do not believe there is a single method of determining going concern value and because, following the merger, Brookstone will have a significantly different capital structure, which will result in different opportunities and risks for the business as a highly-leveraged private company.

55

Table of Contents

While the historical trading price of the Company’s common stock, including the fact that the Company’s common stock traded near or above the merger consideration within the twelve-month period prior to the public announcement of the merger, was considered by Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited during the negotiations of the amended merger agreement with the Company, they negotiated the terms of the merger agreement based on the totality of information available to them at the time of such negotiations, including without limitation, information made available by the Company to them regarding its business, financial condition, results of operations, trends and prospects, then-current market conditions in the retail industry and then-current conditions of the financial markets.

The foregoing discussion of the information and factors considered and given weight by Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited in connection with the fairness of the amended merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by them. None of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd or Temasek Capital (Private) Limited found it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching its position as to the fairness of the amended merger agreement and the merger. Each of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited believes these analyses and factors provide a reasonable basis upon which to form its belief that the merger is fair to Brookstone’s unaffiliated stockholders.

While each of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited believes that the merger is substantively and procedurally fair to Brookstone’s unaffiliated stockholders, they, along with the members of the investor group, attempted to negotiate the terms of a transaction that would be most favorable to them, and not to such stockholders and, accordingly, did not negotiate the amended merger agreement with the goal of obtaining terms that were fair to such stockholders.

The position of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd and Temasek Capital (Private) Limited as to the fairness of the merger is not a recommendation to any stockholder as to how such stockholder should vote on the merger. None of Parent, Acquisition, OSIM Brookstone Holdings, L.P., OSIM Brookstone Holdings, Inc., J.W. Childs Equity Partners III, L.P., J.W. Childs Advisors III, L.P., J.W. Childs Associates, L.P., OSIM International Ltd, Century Private Equity Holdings (S) Pte Ltd, Seletar Investments Pte Ltd or Temasek Capital (Private) Limited makes any recommendation as to how Brookstone’s stockholders should vote their shares relating to the merger or any related transactions.

Purposes, Reasons and Plans for the Company after the Merger

The purpose of the merger for Brookstone is to enable its stockholders (other than Mr. Anthony and certain other members of our senior management, including Philip Roizin, Alexander Winiecki, Gregory Sweeney,

Rufus Woodard, Steven Strickland and Carol Lambert, who will invest in OSIM Brookstone Holdings, L.P. as described below under “Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 67) to immediately realize the value of their investment in Brookstone through their receipt of the per

56

Table of Contents

share merger consideration of $20.00 in cash, representing a premium of approximately 28.2% over the closing price of the Brookstone common stock on April 14, 2005, the last trading day prior to the execution and announcement of the original merger agreement. The board of directors of Brookstone has determined, based upon the reasons discussed under “Reasons For the Merger” beginning on page 40 that the amended merger agreement and the merger, upon the terms and conditions set forth in the amended merger agreement, are advisable, fair to, and in the best interests of, the Company and its unaffiliated stockholders.

For Parent, the purpose of the merger is to allow its indirect stockholders to own Brookstone and to bear the rewards and risks of such ownership after Brookstone’s common stock ceases to be publicly traded. As described in the section entitled “Background of the Merger” beginning on page 22 of the proxy statement, members of the investor group were in discussions with the Company periodically since December 15, 2003 regarding the possible acquisition of equity interests in the Company. The decision by Parent, Acquisition, OSIM Brookstone Holdings, L.P. and OSIM Brookstone Holdings, Inc. to undertake the transaction at this time represents the culmination of such discussions, as more specifically described in such section.

Upon completion of the merger, it is currently expected that the operations of Brookstone will be conducted substantially as they currently are being conducted, including the publicly announced divestiture of the Gardeners Eden business. In addition, following the merger the investor group expects that OSIM and Brookstone will broaden the scope of their commercial relationships. The investor group has advised Brookstone that it does not have any current plans or proposals that relate to, or would result in, an extraordinary corporate transaction following completion of the merger involving Brookstone’s corporate structure, business or management, such as a merger, reorganization, liquidation, relocation of any operations or sale or transfer of a material amount of assets. We expect, however, that following the merger, Brookstone’s management and the investor group will continuously evaluate and review from time to time Brookstone’s business, operations, corporate structure, personnel, prospectus and assets and may at any time develop new plans and proposals that they consider appropriate to maximize the value of Brookstone. The investor group expressly reserves the right to make any changes it deems appropriate in light of such evaluation and review or in light of future developments.

Certain Effects of the Merger

At the effective time of the merger, Acquisition will be merged with and into Brookstone, with Brookstone continuing as the surviving corporation. When the merger is completed: