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Lacks Store Closing Procedures Motion

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					                                                           Docket #0012 23
         Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 1 ofDate Filed: 11/16/2010



                       IN THE UNITED STATES BANKRUPTCY COURT
                         FOR THE SOUTHERN DISTRICT OF TEXAS
                                  VICTORIA DIVISION

    IN RE:                                                  §
                                                            §   CASE NO. 10-60149
    LACK’S STORES, INCORPORATED, ET                         §   (Chapter 11)
    AL.,1                                                   §   (Jointly Administered)
                                                            §
          DEBTORS.                                          §


DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE
    CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II)
 APPLICATION FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE
   COMPRISED OF HILCO MERCHANT RESOURCES, LLC AND SB CAPITAL
             GROUP, LLC AS CONSULTANT TO THE DEBTORS

        Lack’s Stores, Incorporated and its affiliated debtor entities, as debtors and debtors in

possession (collectively, the “Debtors”), file this Debtors’ Emergency (I) Motion for Authority to

(A) Conduct Store Closing Sales and (B) Assume Consulting Agreement and (II) Application for

Order Authorizing Retention of A Joint Venture Comprised of Hilco Merchant Resources, LLC

and SB Capital Group, LLC as Consultant to the Debtors (the “Motion and Application”). In

support of the Motion and Application, the Debtors incorporate the statements contained in the

Declaration of Melvin Lack in Support of First Day Pleadings and Papers and would

respectfully show the Court as follows:

                     JURISDICTION AND PROCEDURAL BACKGROUND

        1.       The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and

157. This Motion and Application concerns the administration of the estates; and therefore, it is


1
  The Debtors and the last four digits of their tax identification numbers are Lack’s Stores, Incorporated (6528),
Merchandise Acceptance Corporation (0972), Lack’s Furniture Centers, Inc. (9468), and Lack Properties, Inc.
(8961).



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 1 of 23
US 634530v.12

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                                                      1060149101116000000000015
       Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 2 of 23



a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A).

       2.     Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409.

       3.     On the date of this Motion (the “Petition Date”), the Debtors each filed a

voluntary petition for relief under chapter 11 of title 11 of the United States Code (the

“Bankruptcy Code”), commencing the above-referenced cases (the “Case”).

       4.     Since the Petition Date, the Debtors have continued to operate and manage their

businesses as debtors in possession pursuant to Bankruptcy Code §§ 1107(a) and 1108.

       5.     As of the Date of this Motion and Application, no official committee of unsecured

creditors has been appointed.

       6.     Contemporaneously with the filing of this Motion and Application, the Debtors

filed the Debtors’ Emergency Motion for Joint Administration of Cases and their Debtors’

Request for Emergency Consideration of Certain “First Day” Matters.

                                 STATEMENT OF FACTS

A.     The Debtors and Their 70-Year History

       7.     Lack's Stores, Incorporated (“Lack’s”) is a Texas corporation with its corporate

headquarters located in Victoria, Texas. It is one of the largest independently-owned retail

furniture chains in the United States. Lack’s operates under the trade names “Lack’s” and

“Lack’s Home Furnishings” and sells a complete line of furnishings for the home, including

furniture, bedding, major appliances and home electronics.

       8.     The nucleus of the current company was formed on February 28, 1938 by David

and Rebecca Lack, when they opened a small auto supply store in Beeville, Texas. Because of

the chronic shortage of cars and new auto parts during World War II, the company diversified



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 2 of 23
US 634530v.12
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into furniture in an attempt to maintain sales volume. Furniture did well, and so became a

growing segment of Lack’s total business.

         9.       In 1952, by which time the company had expanded to five retail stores, Lack’s

made a commitment to become a furniture and appliance chain. It continued to carry auto

supplies, tires and other hardware items at all locations, but the merchandising emphasis

switched to home furnishings.              The original automotive and hardware merchandise was

eventually phased out in the 1970’s.

         10.      Today, Lack’s remains a family owned business that operates 36 retail home

furnishing stores in 26 cities located in Texas.2 These stores are supported by a 380,000 square

foot state-of-the-art distribution center in Schertz, Texas, several cross-docking central delivery

facilities, and a service center. According to surveys by Furniture/Today, an industry newspaper,

Lack’s sales volume place it among the top furniture retailers in the country. In 2007, Lack’s

was named Retailer of the Year by the National Home Furnishings Association.

         11.      Lack Properties, Inc. (“Lack Properties”), a wholly-owned subsidiary of Lack’s, is

the owner of the real property and improvements associated with approximately fourteen store

and warehouse locations that are leased to Lack’s.3 The remaining store locations are leased by

Lack’s from third party lessors, including locations that are leased from lessors that are affiliated

with various members of the Lack’s family.




2
  Lack’s retail stores are located in Abilene, Alice, Austin (3), Bay City, Beeville, College Station, Corpus Christi
(2), Del Rio, El Campo, Killeen, Longview, Lubbock (2), Lufkin, Midland, New Braunfels, Odessa, Port Lavaca,
Portland, San Angelo, San Antonio (5), Sinton, Temple, Tyler, Uvalde, Victoria (2), and Waco.
3
 Merchandise Acceptance Corporation (“Merchandise Acceptance”) and Lack’s Furniture Centers, Inc. (“Lack’s
Furniture”) are also wholly-owned subsidiaries of Lack’s, each of which own limited or no assets and have no
operations.

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 3 of 23
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        12.     Since its inception, Lack’s has financed a significant portion of its customers’

purchases through the underwriting of “in store” financing. Indeed, over the last several years,

Lack’s has financed approximately 70% of all customer sales. The book amount of the customer

notes receivable portfolio as of the Petition Date is more than $130,000,000. There are currently

in excess of 75,000 customer notes receivable, the average balance of each note is approximately

$1,700, and the weighted average remaining term of each note is approximately eighteen to

twenty-four months.

        13.     Lack’s services the customer notes portfolio with in-house employees. Lack’s has

historically collected approximately 95% of the balance of the customer notes receivable, even

though they are generally considered to be “sub-prime” by many credit institutions.

        14.     Lack’s revenue is derived from the sale of home furnishings and the interest

earned from financing customer notes receivable. From February 1, 2010 (the beginning of

Lack’s fiscal year) through the Petition Date, Lack’s has generated revenue of more than

$122,000,000 and has operating profit of more than $1,000,000. Lack’s currently employs

approximately 886 persons.

B.      Secured Credit Facility

        15.     Lack’s is the borrower under that certain Second Amended and Restated Loan and

Security Agreement dated as of July 10, 2007 (as amended from time to time, the “Senior Credit

Agreement”) among Lack’s, The CIT Group / Business Credit, Inc., as agent (in such capacity,

the “Agent”), and the other lenders from time to time party thereto (together with the Agent, the

“Senior Lenders”).4 Lack’s relationship with many of the Senior Lenders under the Senior


4
 The current Senior Lenders include The CIT Group / Business Credit, Inc.; U.S. Bank National Association; PNC
Bank, National Association; Capital One Leverage Finance Corp.; and JPMorgan Chase Bank, N.A.

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 4 of 23
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Credit Agreement (or prior versions thereof) dates back to 1999. The Senior Credit Agreement,

with a stated maturity date of October 31, 2010,5 is a revolving credit facility. From 1999

through the maturity date, Lack’s had never been in monetary default under the operative credit

documents.

           16.     As of the Petition Date, the aggregate principal amount of the advances currently

outstanding under the Senior Credit Agreement is approximately $86,000,000, having been

gradually reduced from $105,000,000 since January of 2009. Lack’s obligations under the

Senior Credit Agreement are guaranteed by Merchandise Acceptance, Lack’s Furniture, Lack

Properties, and Melvin Lack.6 The Senior Lenders allege that the obligations under the Senior

Credit Agreement are secured by a lien on substantially all of the Debtors’ assets excluding

certain real estate. The Senior Lenders do not, however, have dominion over all of the Debtors’

bank accounts.

           17.     In addition to liens held by the Senior Lenders, certain of the properties owned by

Lack Properties and leased to Lack’s are subject to mortgages held by third party lenders,

including stores in Bay City, Abilene, Wichita Falls (now closed), and Longview, as well as

warehouse/distribution centers in Schertz and San Antonio.

C.         Trade Creditors

           18.     In the ordinary course of business, the Debtors purchase merchandise from an

assortment of vendors, including furniture, bedding, home electronics and appliance

manufacturers. The Debtors estimate that, as of the Petition Date, the general unsecured claims



5
    By agreement, the maturity date was subsequently extended through and including November 12, 2010.
6
 Mr. Lack’s obligations under the guarantee are limited. Mr. Lack is not a debtor in these Cases and is represented
by separate counsel in the Cases.

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 5 of 23
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held by trade vendors against their respective estates are no more than $12,000,000 in the

aggregate. The Debtors’ three largest vendors7 account for approximately 60% of the amounts

payable to trade creditors.

D.         Events Leading to the Chapter 11 Cases

           19.     As a result of the economic slowdown, consumer demand in general – and the

demand for home furnishings in particular – decreased sharply starting in the second half of

2008. The decreased demand caused an approximate 20% decrease in Lack’s revenues starting

at the end of its 2008 fiscal year. Notwithstanding this decrease, Lack’s was able to reduce

expenses and reach a monthly breakeven position by February 2009. The effort to recover

revenues and control expenses has continued. Revenue and profitability have continued to

improve during 2010.

           20.     At the same time, the national economic slowdown resulted in an unprecedented

tightening of credit markets.           The Senior Lenders stated that they would not refinance or

restructure the obligations under the Senior Credit Agreement on terms which would allow the

Debtors to continue their operations. The Debtors have been unable to identify an alternative

financing source for their business operations since the overwhelming majority of their

customers are rated sub-prime, notwithstanding those customers’ and Lack’s great historical and

current track record of payment and collection, respectively.

           21.     Without an alternative funding source, Lack’s will be unable to finance the

purchase of new inventory or to underwrite additional customer notes receivable.               As a

consequence, the Debtors determined that it was appropriate to commence these Cases in order



7
    Comprised of Sealy Mattress Company, Lane Furniture Industries, and Brownchild Ltd. Inc.

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 6 of 23
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to maximize the value of their assets for the benefit of their creditors and equity holders and to

conduct an orderly – as opposed to forced – liquidation, utilizing cash collateral to effect the

wind-down which is anticipated to pay all creditors in full.

E.      The Chapter 11 Cases

        22.     The Debtors submit that these Cases will have two macro components or goals.

First, the Debtors will request that the Court approve the commencement of “Store Closing

Sales” so that the Debtors (working with Hilco Merchant Resources, LLC (“Hilco”)8) may sell

their remaining inventory in a prompt and efficient manner designed to maximize recoveries and

reduce the costs of operations. Second, the Debtors intend to propose a chapter 11 plan that will

provide for the collection of the customer notes receivable portfolio in the ordinary course of

business and the marketing and disposition of their real estate interests over time and in such a

manner as to maximize their value for the benefit of the estates.

        23.     The Debtors anticipate that the orderly liquidation of their inventory and fixtures,

ordinary course collection of customer notes receivable, and the marketing and disposition of

real property interests and other miscellaneous assets will satisfy in full the claims of the Senior

Lenders under the Senior Credit Agreement and likely the claims of all other creditors with a

return available to the equity holders.

F.      Store Closing Sales

        24.     After exploring alternative strategies to maximize the value of the Debtors’

estates, the Debtors, in an exercise of their business judgment, have decided to close all of their

stores (the “Stores”) and sell, among other things, their remaining inventory pursuant to an


8
 Pursuant to the Debtors’ agreement with Hilco, Hilco is permitted to joint venture with SB Capital Group, LLC
with respect to the “Store Closing” sales.

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 7 of 23
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orderly liquidation process.              The Debtors have determined that utilizing the services of a

nationally-recognized liquidation firm to assist in the sale of certain assets at the Stores and at the

Debtors’ distribution center (the “Distribution Center”) will maximize value to the Debtors’

estates and creditors.

           25.       The Debtors considered a number of possibilities regarding the timing and

structure of the Store Closing Sales (as defined below), including whether to conduct the Store

Closing Sales themselves, to engage a liquidation firm under a consulting agreement, or to sell

the rights to dispose of the inventory to a liquidation firm. The Debtors received proposals (on

both sale and consulting bases) from three liquidation firms and ultimately accepted an offer

from the joint venture comprised of Hilco Merchant Resources, LLC and SB Capital Group,

LLC (“Hilco/SB”) to serve as consultant in connection with the Store Closing Sales. In order to

facilitate the Store Closing Sales, the Debtors and Hilco/SB entered into a consulting agreement

(the “Consulting Agreement”) dated November 15, 2010, which is attached hereto as

Exhibit “A”. The Debtors determined that it is appropriate to commence the Store Closing

Sales immediately upon receipt of Court approval. The Debtors expect the Store Closing Sales

to wrap up in sixty to ninety days.

           26.       Pursuant to the Consulting Agreement, Hilco/SB will advise the Debtors with

respect to the sale of the Debtors’ merchandise (the “Merchandise”) and furniture, fixtures,9 and

equipment (the “FF&E,” and together with the Merchandise and Additional Goods (as defined

below), the “Assets”)) at the Stores and the Distribution Center. Pursuant to the Consulting

Agreement, certain additional inventory (“Additional Goods”), such as bedding and other



9
    Sales of fixtures will be effectuated to the extent such sales are consistent with the relevant real property leases.

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 8 of 23
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accessories, may be included in the Store Closing Sales to compliment and enhance the

Merchandise to be sold.10 No inventory will be sold to Hilco/SB; rather, Hilco/SB will earn a

“Base Fee” and an “Incentive Fee” relating to sales of Merchandise and Additional Goods and a

commission relating to the sale of FF&E, as more fully set forth in the Consulting Agreement.11

                                          RELIEF REQUESTED

A.      Introduction

        27.      By this Motion and Application, the Debtors seek entry of interim and final orders

(the “Order”) pursuant to §§ 105, 327, 328, 363, and 365 of the Bankruptcy Code and Rule

2014(a) of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”): (a) authorizing

and approving their implementation of store closing or similarly themed sales (the “Store

Closing Sales”) in accordance with the Consulting Agreement and the Store Closing Guidelines

(the “Sale Guidelines”) attached hereto as Exhibit “B”; (b) authorizing the assumption of the

Consulting Agreement with Hilco/SB; and (c) authorizing the employment of Hilco/SB.



B.      Authority to Conduct Store Closing Sales

        28.      Bankruptcy Code § 363(b)(1) provides that “[t]he trustee, after notice and a

hearing, may use, sell, or lease, other than in the ordinary course of business, property of the



10
  Hilco may also provide services to third parties, including the equity owners of Lack’s and entities owned by one
or more of them, to liquidate certain of their assets which are currently located at the Stores or the Distribution
Center. All such assets are separately identified, and the proceeds from the sales of those assets will be accounted
for and segregated. Such services will be on similar terms to the services to be rendered to the Debtors.
11
  Hilco/SB will earn a fee equal to $4,500 per Store (the “(“Base Fee”) plus 20% of Net Proceeds of the Sale (each,
as defined in the Consulting Agreement) of the Merchandise and the Additional Goods at the Stores in excess of
64.4% of Cost Value for such Merchandise and Additional Goods (the “Incentive Fee”). The Base Fee is to be paid
weekly in 10 installments. The Incentive Fee is to be paid in connection with a final reconciliation. Hilco/SB will
also earn a commission equal to 15 percent of the proceeds (net of applicable sales taxes) from the sale of FF&E.



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 9 of 23
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estate.” 11 U.S.C. § 363(b)(1). Bankruptcy Code § 1107(a) provides the Debtors, as debtors-in-

possession, the same authority as a trustee to use, sell or lease property under § 363(b)(1).

       29.     To approve the use, sale, or lease of property outside the ordinary course of

business, this Court need only determine that the Debtors’ decision is supported by “some

articulated business justification, as set forth by the Second Circuit in Comm. of Equity Sec.

Holders v. Lionel Corp. (In re Lionel Corp.) , 722 F.2d 1063, 1071 (2d Cir. 1983), which

decision has been adopted in the Fifth Circuit. See Institutional Creditors of Continental Air

Lines, Inc. v. Continental Air Lines, Inc., et al. (In re Continental Air Lines, Inc,) , 780 F.2d

1223, 1226 (5th Cir. 1986); see also Official Comm. of Unsecured Creditors of LTV

Aerospace & Def. Co. v. LTV Corp. (In re Chateaugay Corp.) , 973 F.2d 141, 143-45 (2d

Cir. 1992) (holding that a judge determining a § 363(b) application must find from the

evidence presented before him a good business reason to grant such application); Fulton State

Bank v. Schipper (In re Schipper), 933 F.2d 513, 515 (7th Cir. 1991) (holding that a debtor in

possession can sell assets of his estate outside the ordinary course of business if he has an

articulated business justification); Stephens Indus., Inc. v. McClung, 789 F.2d 386, 390 (6th Cir.

1986) (holding that “a bankruptcy court can authorize a sale of all a Chapter 11 debtor’s

assets under § 363(b)(1) when a sound business purpose dictates such action”); In re

Delaware & Hudson Ry. Co., 124 B.R. 169, 175-76 (D. Del. 1991) (holding that a trustee must

show that “there is a sound business purpose for conducting the sale prior to confirmation of a

plan”); In re Gulf States Steel, Inc. of Alabama, 285 B.R. 497, 514 (Bankr. N.D. Ala. 2002)

(“[T]he Trustee has the burden to establish sound business reasons for the terms of the proposed

sale”); In re San Jacinto Glass Indus., Inc., 93 B.R. 934, 944 (Bankr. S.D. Tex. 1988).



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 10 of 23
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       Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 11 of 23



       30.     If a sound business reason exists, the law vests a debtor’s decision to sell

property out of the ordinary course of business with a strong presumption “that in making a

business decision the directors of a corporation acted on an informed basis, in good faith and in

the honest belief that the action taken was in the best interests of the company.” Official

Comm. Of Subordinated Bondholders v. Integrated Resources, Inc. (In re Integrated

Resources, Inc.), 147 B.R. 650, 656 (S.D.N.Y. 1992) (quoting Smith v. Van Gorkom, 488 A.2d

858, 872 (Del. 1985)). Accordingly, parties challenging a debtor’s decision must make a

showing of “bad faith, self-interest, or gross negligence.” Id.

       31.     The Debtors have decided to conduct an orderly wind down of their businesses.

As an exercise of their business judgment, the Debtors have determined that a necessary

component of the orderly wind down of their businesses is an orderly liquidation of the Assets in

the Stores and Distribution Center. The sale of the Assets pursuant to the Consulting Agreement

will ensure that the highest possible price will be received for the Assets and that the Assets will

be sold in an efficient and expeditious fashion. Additionally, selling the Assets in the Store

Closing Sales will maximize recovery for the Debtors’ estates because the sales will increase

customer traffic in the Stores and because such orderly sales will yield more value for the estates

than would any other alternatives. Maximizing recovery for the Debtors’ estates from the Store

Closing Sales is the best option available to the Debtors, is in the best interests of the Debtors,

their estates, creditors, equity holders, and other parties in interest, and is necessary to maximize

the value of the Debtors’ estates for the benefit of all stakeholders.

       32.     Moreover, the Debtors solicited and obtained bids from the other reputable and

industry-leading liquidators prior to selecting Hilco/SB. The Debtors believe that the services to

be rendered by Hilco/SB would be superior to those to be rendered by the two other liquidators,
DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 11 of 23
US 634530v.12
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and Hilco/SB’s pricing and fee structure is competitive with the other proposals. The retention

of Hilco/SB to run the Store Closing Sales will be beneficial relative to the alternative of

conducting such sales without assistance.

       33.    Bankruptcy courts routinely approve requests by debtors to conduct store

closing sales, finding that such relief is entirely consistent with the applicable provisions of

the Bankruptcy Code. See, e.g., In re BFW Liquidation, LLC, f/k/a Bruno’s Supermarkets,

LLC, Case No. 09-00634, Dkt. No. 306 (Bankr. N.D. Ala. March 2, 2009); In re Circuit City

Stores, Inc., Case No. 08-35653, Dkt. No. 82 (Bankr. E.D. Va. Nov. 10, 2008); In re Winn-

Dixie Stores, Inc., Case No. 05-03817-3F1, Dkt. No. 2537 (Bankr. M.D. Fla. July 27, 2005);

In re Breuners Home Furnishings Corp. , Case No. 04-12030, Dkt. No. 171 (Bankr. D. Del.

July 30, 2004); In re Mansour’s, Inc., Case No. 04-10979, Dkt. No. 39 (Bankr. N.D. Ga.

Apr. 20, 2004); In re Gadzooks, Inc., Case No. 04-31486, Dkt. No. 209 (Bankr. N.D. Tex.

Feb. 26, 2004); In re Ames Dept. Stores, Inc., 136 B.R. 357, 359 (Bankr. S.D.N.Y. 1992)

(holding that “going-out-of-business” sales are an important part of “overriding federal

policy requiring Debtor to maximize estate assets”).

C.     Authority to Conduct Sales Free and Clear of Liens, Claims, and Encumbrances

       34.    The Debtors seek authority to conduct the Store Closing Sales pursuant to the

Consulting Agreement free and clear of all liens, claims, and encumbrances, if any, with such

liens, claims, and encumbrances, including, without limitation, the liens of the Debtors’ Senior

Lenders, to attach to the amounts payable to the Debtors from the Store Closing Sales, in the

same order, priority, force, and effect as such liens, claims, or encumbrances presently

enforceable against the Debtors’ Merchandise and FF&E.



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 12 of 23
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       35.     Under Bankruptcy Code § 363(f), a debtor in possession may sell property free

and clear of any lien, claim, or interest of an entity in such property if, among other things:

               (1)    Applicable nonbankruptcy law permits sale of such property free and
                      clear of such interest;

               (2)    Such entity consents;

               (3)    Such interest is a lien and the price at which such property is to be sold is
                      greater than the aggregate value of all liens on such property;

               (4)    Such interest is in bona fide dispute; or

               (5)    Such entity could be compelled, in a legal or equitable proceeding, to
                      accept a money satisfaction of such interest.

11 U.S.C. § 363(f).

       36.     The provisions of § 363(f) of the Bankruptcy Code are satisfied because, among

other things, the Senior Lenders, who assert a lien on all of the Debtors’ inventory have stopped

funding the Debtors pre-petition and requested that the Debtors conduct such sales.

Accordingly, the Agent and the Senior Lenders have implicitly consented to the commencement

of the Store Closing Sales.

D.     Compliance with Applicable State and Local Law

       37.     Section 17.91 of the Texas Business & Commerce Code provides that the

subchapter concerning restrictions and administrative requirements relating to store closing sales

“does not apply to . . . a sale for which an accounting must be made to a court of law” or “a sale

conducted pursuant to an order of a court.” TEX. BUS. & COMM. CODE § 17.91 (2007). The

Debtors’ Store Closing Sales (if approved by this Court) are thus not subject to the requirements

set forth in the Texas Business and Commerce Code §§ 17.81-17.93. The Debtors and Hilco/SB

will, however, conduct the Store Closing Sales in accordance with applicable state and local


DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 13 of 23
US 634530v.12
         Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 14 of 23



health and safety laws and consumer protection laws. Further, the Debtors and Hilco/SB are

implementing the Sale Guidelines, which set forth reasonable parameters for the Store Closing

Sales.   Notwithstanding the foregoing, in the event that the Store Closing Sales would be

contrary to laws relating to store closing, liquidation, or “going out of business” sales, the

Debtors hereby seek to be relieved of compliance with such laws.

         38.   Federal bankruptcy law preempts state and local laws that conflict with the

underlying policies of the Bankruptcy Code. Belculfine v. Aloe (In re Sheango Grp., Inc.) ,

186 B.R. 623, 628 (Bankr. W.D. Pa. 1995), aff’d, 112 F.3d 633 (3d Cir. 1997); P.K.R.

Convalescent Ctrs., Inc. v. Virginia (In re P.K.R. Convalescent Ctrs., Inc.) , 189 B.R. 90, 93

(Bankr. E.D. Va. 1995); see also Baker J. Drake, Inc. v. Public Serv. Comm’s of Nev. , 35

F.3d 1348, 1352 (9th Cir. 1994) (“It is a familiar and well-established principle that the

Supremacy Clause invalidates state laws that interfere with, or are contrary to federal law”)

(quoting Hillsborough City v. Automated Med. Labs, Inc. , 471 U.S. 707, 712 (1985)).

         39.   Additionally, the Debtors request that the Court provide that the automatic stay

and the Court’s injunctive powers apply to any actions involving the Store Closing Sales that

may be taken by any parties or persons pursuant to such state and local laws. See Missouri v.

United States Bankruptcy Court, 647 F.2d 768, 776 (8th Cir. 1981), cert. denied, 454 U.S. 1162

(1982) (holding that an attempt to enforce state regulation governing liquidation of grain

warehouses directly conflicted with bankruptcy court’s control over property of the estate and

thus violated the automatic stay); In re First Alliance Mortgage Co., 264 B.R. 634, 652 (C.D.

Cal. 2001) (noting that bankruptcy courts have the power to enjoin governmental regulatory

actions under Bankruptcy Code § 105).



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 14 of 23
US 634530v.12
       Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 15 of 23



       40.     Many bankruptcy courts, under similar circumstances, have permitted debtors

to conduct store closing sales notwithstanding such local laws in chapter 11 cases. See, e.g.,

In re BFW Liquidation, LLC, f/k/a Bruno’s Supermarkets, LLC, Case No. 09-00634, Dkt.

No. 306 (Bankr. N.D. Ala. March 2, 2009); In re Circuit City Stores, Inc., Case No. 08-

35653, Dkt. No. 82 (Bankr. E.D. Va. Nov. 10, 2008); In re Winn-Dixie Stores, Inc., Case

No. 05-03817-3F1, Dkt. No. 2537 (Bankr. M.D. Fla. July 27, 2005); In re Breuner’s Home

Furnishings Corp., Case No. 04-12030, Dkt. No. 171 (Bankr. D. Del. July 30, 2004); In re

Gadzooks, Inc., Case No. 04-31486, Dkt. No. 209 (N.D. Tex. Feb. 26, 2004).

E.     Authority to Conduct Store Closing Sales Notwithstanding Contrary Lease
       Provisions

       41.     The Debtors seek authority to conduct the Store Closing Sales notwithstanding

any provisions in any of the Debtors’ leases that prohibit, limit, or seek to prevent such Store

Closing Sales.   Some of the leases governing the Stores contain provisions restricting or

prohibiting Debtors from conducting “going out of business sales,” liquidations, or similar sales;

however, such provisions are unenforceable in bankruptcy. See In re Friedman’s, Inc., 336 B.R.

880, 882-84 (Bankr. S.D. Ga. 2005) (permitting retail jeweler to conduct going out of business

sales despite prohibition against such in the lease); In re T.A.C. Group, Inc., 294 B.R. 199, 202-

03 (Bankr. D. Mass. 2003) (holding lease’s purported automatic termination due to debtor's

going-out-of-business sale was not effective, and lease remained property of the estate of chapter

11 debtor); In re R.H. Macy & Co., Inc., 170 B.R. 69, 74-75 (Bankr. S.D.N.Y. 1994) (finding

that lease provision requiring lessee to remain open was not “obligation” that must be timely

performed by debtor within meaning of Bankruptcy Code § 365); In re Ames Dept. Stores, Inc.,

136 B.R. 357, 359 (Bankr. S.D.N.Y. 1992) (“This Court believes that to enforce the anti-GOB


DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 15 of 23
US 634530v.12
         Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 16 of 23



sale clause of the Lease would contravene overriding federal policy requiring Debtor to

maximize estate assets”); In re Tobago Bay Trading Co., 112 B.R. 463, 467-68 (Bankr. N.D. Ga.

1990) (using equitable powers of the court to preclude lessors from enforcing anti-liquidation

sale lease restriction); In re Libson Shops, Inc., 24 B.R. 693, 695 (Bankr. E.D. Mo. 1982)

(permitting debtor to conduct going out of business sale in contravention of express prohibition

in lease agreement). The Debtors request that the Order authorize the Store Closing Sales

notwithstanding any provisions in leases relating to the Stores that would prohibit, limit, or seek

to prevent such Store Closing Sales and order that lessors of any of the Debtors’ leases shall not

interfere with or otherwise restrict or impede the Debtors or Hilco/SB from conducting such

sales.

F.       Assumption of the Consulting Agreement

         42.   The Debtors seek to assume the Consulting Agreement with Hilco/SB. Under

Bankruptcy Code § 365 a debtor-in-possession may “subject to the Court’s approval . . . assume

or reject any executory contract and unexpired lease of the debtor.” 11 U.S.C. § 365(a).

         43.   Whether an executory contract or unexpired lease should be assumed or rejected

is a question left to a debtor’s business judgment. See Richmond Leasing Co. v. Capital Bank,

N.A., 762 F.2d 1303, 1309 (5th Cir. 1985); see also, Lifemark Hospitals, Inc. v. Liljeberg Enters.,

Inc. (Matter of Liljeberg Enters., Inc.), 304 F.3d 410, 438 (5th Cir. 2002); Sharon Steel Corp. v.

Nat’l Fuel Gas Distr. Corp., 872 F.2d 36, 40 (3d Cir. 1989); In re Gardinier, Inc., 831 F.2d 974,

976 n.2 (11th Cir. 1987).     In applying the business judgment standard, courts show great

deference to the debtor’s decision to assume or reject.       See, e.g., Lubrizol Enters. Inc. v.

Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1047

(4th Cir. 1985), cert. denied, 475 U.S. 1057 (1985); Summit Land Co. v. Allen (In re Summit

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 16 of 23
US 634530v.12
        Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 17 of 23



Land Co.), 13 B.R. 310, 315 (Bankr. D. Utah 1981). “As long as assumption . . . appears to

enhance a debtor’s estate, court approval of a debtor-in-possession’s decision to assume the

[contract] should only be withheld if the debtor’s judgment is clearly erroneous, too speculative,

or contrary to the provisions of the Bankruptcy Code.” Richmond Leasing Co., 762 F.2d at

1309.   “The act of assumption must be grounded, at least in part, in the conclusion that

maintenance of the contract is more beneficial to the estate than doing without the other party’s

services.” Matter of Liljeberg Enters., Inc., 304 F.3d at 438 (citing Century Indem. Co. v. Nat’l

Gypsum Co. Settlement Trust (In re Nat’l Gypsum Co.), 208 F.3d 498, 505 (5th Cir.), cert.

denied, 531 U.S. 871 (2000)).

        44.    As set forth above, in an exercise of their business judgment, the Debtors have

determined that a necessary component of the orderly wind down of their business is an orderly

and expeditious liquidation of the Merchandise and FF&E in the Stores and Distribution Center.

The Debtors solicited and received multiple bids from nationally-competitive retail liquidation

firms and determined that the bid from Hilco/SB is the best offer and that Hilco/SB is best able

to provide liquidation services to the Debtors. The Debtors engaged in good faith, arms-length

negotiations with Hilco/SB regarding the terms of the Consulting Agreement, and the Debtors

believe that the terms of the Consulting Agreement are fair and reasonable and are designed to

maximize the value of the Assets to be sold.

        45.    Prior to the filing of these Cases, the Debtors advanced $400,000 (the “Advance”)

to Hilco/SB to cover certain start-up expenses for the Store Closing Sales, such as advertising

(costs related to purchasing and shipping the appropriate sign packages for the Store Closing

Sales) and supervision (costs related to travel and supervision fees associated with the Hilco/SB

personnel who travels to the various stores to supervise the Store Closing Sales). The Debtors
DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 17 of 23
US 634530v.12
         Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 18 of 23



anticipate making additional payments in the amount of approximately $600,000 to cover the

remaining start-up expenses to be incurred during the first three weeks of the Store Closing

Sales.   To the extent that the advances are insufficient to satisfy such reasonable start-up

expenses and to the extent necessary to satisfy start-up expenses incurred thereafter, Hilco/SB

has agreed to cover such expenses (at the election of the Debtors) subject to reimbursement out

of proceeds related to the sale of Merchandise, FF&E and Additional Goods.

         46.    Hilco/SB has extensive experience in conducting store closing sales and can

oversee and assist in the management and implementation of the Store Closing Sales in an

efficient and cost-effective manner. Assumption of the Consulting Agreement will enable the

Debtors to utilize the experience, skills, and resources of Hilco/SB to effectively and efficiently

conduct the Store Closing Sales and, thus, significantly improve the potential value to be

received by the Debtors’ estates from the Assets, which will inure to the benefit of all

stakeholders.

         47.    Therefore, assuming the Consulting Agreement is a sound exercise of the

Debtors’ business judgment, is in the best interests of the Debtors, their estate, creditors, and

other parties in interest, and is necessary in order to maximize the value of the Debtors’ estate for

the benefit of all stakeholders.

         48.    Bankruptcy Code § 365(b)(1) requires as a condition to assumption that a debtor

(i) cure, or provide adequate assurance that the trustee will promptly cure any defaults under the

executory contracts to be assumed, (ii) compensate, or provide adequate assurance of

compensation, for actual pecuniary loss of the contract counterparty associated with such default,

and (iii) provide adequate assurance of future performance under the contract.                    11

U.S.C. § 365(b)(1). There are no defaults under the Consulting Agreement, and thus, no cure
DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 18 of 23
US 634530v.12
       Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 19 of 23



costs or compensation relating to any defaults are owed to Hilco/SB relating to the requested

assumption. If the Motion and Application is approved, the Debtors will continue to perform

under the Consulting Agreement in order to effectuate their goal with respect to the Store

Closing Sales. Because liquidating the Merchandise and FF&E in the Stores and Distribution

Center in the most orderly and value-maximizing way is in the Debtors’ best interests, the

Debtors submit that they have provided adequate assurance of future performance under the

Consulting Agreement.

G.     Employment of Hilco/SB

       49.     In an abundance of caution, in the event that Hilco/SB is determined to be a

professional as such term is used in Bankruptcy Code § 327, the Debtors seek to employ and

retain Hilco/SB as a consultant to the Debtors.

       50.     Section 327(a) of the Bankruptcy Code authorizes the trustee, subject to the

court’s approval, to employ one or more professional persons, such as attorneys, accountants,

appraisers and auctioneers, or other professional persons to represent or perform services for the

estate. 11 U.S.C. § 327(a).

       51.     Section 328(a) of the Bankruptcy Code authorizes the Court to review the terms

and conditions of employment of any professional person employed under Bankruptcy Code

§ 327, and to allow different compensation if the original terms and conditions “prove to have

been improvident in light of developments not capable of being anticipated at the time of the

fixing of such terms and conditions.” 11 U.S.C. § 328(a).

       52.     The Debtors submit that Hilco/SB’s fee provisions, as described herein, are

reasonable terms and conditions of retention and should be approved under Bankruptcy Code

§§ 327 and 328. The fee provisions comport with the nature of the services to be provided by

DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 19 of 23
US 634530v.12
         Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 20 of 23



Hilco/SB, and the fee provisions typically utilized by Hilco/SB and other leading liquidation

firms.

         53.   Subject to the Court’s approval of this Motion and Application, Hilco/SB has

indicated that it is willing to provide the above-mentioned services to the Debtors in these Cases.

         54.   For purposes of this Motion and Application and any further notices, the name,

mailing address, and telephone number of the professional primarily responsible for the services

rendered by Hilco/SB is:

               Name:          Hilco Merchant Resources, LLC
                              Joseph A. Malfitano, VP, Deputy General Counsel, Member
               Address:       One Northbrook Place
                              5 Revere Drive, Suite 206
                              Northbrook, IL 60062
               Tel:           847-504-3257
               Fax:           847-897-0868
               Email:         jmalfitano@hilcotrading.com

         55.   As discussed above, the employment of Hilco/SB as consultant to the Debtors is

in the best interest of the Debtors’ estates and their constituents and will help the Debtors

maximize the value of the Assets in the stores and Distribution Center.

         56.   Based on, and except as otherwise provided in, the Affidavit of Joseph A.

Malfitano in Support of Retention of a Joint Venture Comprised of Hilco Merchant Resources,

LLC and SB Capital Group, LLC as Consultants to the Debtors (the “Malfitano Affidavit”), a

copy of which is attached hereto as Exhibit “C” and the Affidavit of Robert Raskin in Support of

Retention of a Joint Venture Comprised of Hilco Merchant Resources, LLC and SB Capital

Group, LLC as Consultants to the Debtors (the “Raskin Affidavit” and together with the

Malfitano Affidavit, the “Affidavits”), a copy of which is attached hereto as Exhibit “D,”

Hilco/SB does not have any connection with or any interest adverse to the Debtors, the creditors


DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 20 of 23
US 634530v.12
       Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 21 of 23



of the estates, or any other party in interest or their respective attorneys and accountants in any

matter relating to the Debtors or their estates. Hilco/SB may, however, have consulted or may

currently consult creditors of the Debtors or parties in interest in connection with matters

unrelated to these Cases.

       57.     To the best of the Debtors’ knowledge, information, and belief, Hilco/SB

represents no interest adverse to the Debtors or their estates in the matters for which it is

proposed to be retained, and is a “disinterested person” as defined in Bankruptcy Code

§ 101(14). Except as otherwise set forth in the Affidavits, Hilco/SB has not provided, and will

not provide, professional services to any of the creditors, or other parties in interest, or their

attorneys with regard to any matter relating to these Cases.

       58.     The Debtors request that the Court approve the employment of Hilco/SB pursuant

to the Consulting Agreement, §§ 327 and 328 of the Bankruptcy Code, and Bankruptcy Rule

2014(a).

                            REQUEST FOR IMMEDIATE RELIEF

       59.     Bankruptcy Rule 6003 prohibits the use, sale, or lease of property outside the

ordinary course of business and the employment of professionals under Bankruptcy Rule 2014,

within the first twenty-one (21) days of these Cases, except as necessary to prevent immediate

and irreparable harm. Similarly, Bankruptcy Rule 2002(a)(2) requires twenty-one (21) days’

notice of a proposed use, sale, or lease of property outside the ordinary course of business absent

approval of the Court. For the reasons stated previously herein, the Debtors submit that the relief

requested is necessary to prevent immediate and irreparable harm to the Debtors’ estate, and they

request a waiver of those Bankruptcy Rules.



DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 21 of 23
US 634530v.12
       Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 22 of 23



       60.     Furthermore, to successfully implement the foregoing, the Debtors request a

waiver of the fourteen (14) day stay under Bankruptcy Rule 6004(h). The exigent nature of the

relief sought herein justifies immediate relief, which is necessary for the Debtors to be able to

continue to operate their businesses and preserve value in their estates.

                                             NOTICE

       61.     Notice of this pleading has been provided by e-mail, facsimile, or overnight

delivery to: (a) the U.S. Trustee; (b) counsel for The CIT Group/Business Credit, Inc., as Agent

for the Senior Lenders, and each Debtor’s other secured creditors; (c) each Debtor’s 20 largest

unsecured creditors; (d) the Internal Revenue Service and all governmental agencies required to

receive notice under the Bankruptcy Rules and the Local Bankruptcy Rules; and (e) landlords of

the Debtors’ store leases; and (f) those persons or entities that have formally appeared and

requested service in these Cases pursuant to Rule 9010(b) of the Bankruptcy Rules.

                                             PRAYER

       62.     The Debtors respectfully request that this Court enter an interim and then a final

Order (a) authorizing and approving their implementation of Store Closing Sales in accordance

with the Consulting Agreement and the Sale Guidelines, (b) authorizing the assumption of the

Consulting Agreement with Hilco/SB, (c) authorizing the employment and retention of

Hilco/SB, and (d) granting such other and further relief both at law and in equity to which they

may be justly entitled.

Dated: November 16, 2010




DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 22 of 23
US 634530v.12
      Case 10-60149 Document 12 Filed in TXSB on 11/16/10 Page 23 of 23



                                       Respectfully submitted,

                                       VINSON & ELKINS LLP

                                       By: /s/ Michaela C. Crocker
                                           Daniel C. Stewart, SBT #19206500
                                           Paul E. Heath, SBT #093555050
                                           Michaela C. Crocker, SBT #24031985
                                           Richard H. London, SBT #24032678
                                           2001 Ross Avenue, Suite 3700
                                           Dallas, Texas 75201
                                           Tel: 214.220.7700
                                           Fax: 214.999.7787
                                           mcrocker@velaw.com
                                           rlondon@velaw.com

                                       PROPOSED ATTORNEYS FOR THE
                                       DEBTORS




DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT STORE CLOSING
SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION FOR ORDER
AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS Page 23 of 23
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         Case 10-60149 Document 12-2 Filed in TXSB on 11/16/10 Page 1 of 3



                                  STORE CLOSING GUIDELINES


        The following procedures shall apply to the Sale1 to be held at the closing Stores and the disposal
of the FF&E in the closing Stores:

       1.      The Sale shall be conducted so that the closing Stores in which sales are to occur remain
open no longer than the normal hours of operation provided for in the respective leases or other
occupancy agreements for the closing Stores.

        2.      The Sale shall be conducted in accordance with applicable state and local “Blue Laws,”
and thus, where applicable, no Sale shall be conducted on Sunday unless the Merchant had been operating
such Stores on a Sunday.

         3.       All display and hanging signs used by the Merchant and the Consultant in connection
with Sale shall be professionally produced and all hanging signs shall be hung in a professional manner.
The Merchant and the Consultant may advertise the Sale as a “going out of business”, “sale on
everything”, “store closing”, or similar theme sale at the closing Stores as provided by the Consulting
Agreement. The Merchant and the Consultant shall not use neon or day-glo signs. Nothing contained
herein shall be construed to create or impose upon the Merchant and the Consultant any additional
restrictions not contained in the applicable lease or other occupancy agreement. In addition, the Merchant
and the Consultant shall be permitted to utilize exterior banners, sign walkers and street signage,
notwithstanding any state, county or local law or ordinance; provided however the use of sign walkers
and use of street signage shall be done in a safe manner and shall not be permitted on mall or shopping
center property.

          4.      Conspicuous signs shall be posted in the cash register areas of each Store to the effect
that all sales are “final” and that customers with any questions or complaints subsequent to the conclusion
of the Sale may contact a named representative of the Merchant or the Consultant at a specified telephone
number. Conspicuous signage shall be posted in the cash register area of each Store to the effect that the
manufacturer’s warranty, if any, may still exist and customers should consult the packaging materials to
see what, if any, manufacturer’s warranties are available.

        5.      Within a “Shopping Center”, the Consultant shall not distribute handbills, leaflets or
other written materials to customers outside of any of the closing Stores, unless permitted by the
applicable lease or, if distribution is customary in the shopping center in which the closing Store is
located. Otherwise, the Consultant may solicit customers in the closing Stores themselves. The
Consultant shall not use any flashing lights or amplified sound to advertise the Sale or solicit customers,
except as permitted under the applicable lease or agreed to by the landlord.

         6.      At the conclusion of the Sale, Consultant shall vacate the closing Stores in “broom-clean”
condition, and shall otherwise leave the closing Stores in the same condition as on the commencement of
the Sale, ordinary wear and tear excepted; provided, however, that the Merchant and Consultant hereby
do not undertake any greater obligation than as set forth in an applicable lease with respect to a Store.
The Merchant may abandon any FF&E or other materials (the “Abandoned Property”) not sold in the Sale
at the closing Store premises at the conclusion of the Sale. Any Abandoned Property left in a Store after a
lease is rejected shall be deemed abandoned with the landlord having the right to dispose of the same as
the landlord chooses without any liability whatsoever on the part of the landlord to any party.

1
         Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in
         the Consulting Agreement.


DB02:7681795.2                                                                                   067961.1001
         Case 10-60149 Document 12-2 Filed in TXSB on 11/16/10 Page 2 of 3




         7.     Subject to the provisions of the Consulting Agreement, the Consultant shall have the right
to sell FF&E located in the closing Stores. The Consultant may advertise the sale of the FF&E consistent
with the guidelines provided in paragraphs 4 and 6 hereof. For the avoidance of doubt, as of the Sale
Termination Date, Consultant may abandon, in place, and without further responsibility, any unsold
FF&E located at the closing Stores; provided that any abandonment of the FF&E by the Debtor’s shall
only be authorized by order of the Court.

        8.      The Consultant shall not make any alterations to interior or exterior Store lighting. No
property of any landlord of a Store shall be removed or sold during the Sale. The hanging of exterior
banners or other signage shall not constitute an alteration to a Store.

         9.      At the conclusion of the Sale at each Store, pending assumption or rejection of applicable
leases, the landlords of the closing Stores shall have reasonable access to the closing Store premises as set
forth in the applicable leases. The Merchant, the Consultant and their agents and representatives shall
continue to have exclusive and unfettered access to the closing Stores.

       10.       Post-petition obligations shall be paid by the Merchant as required by the Bankruptcy
Code until the rejection or assumption and assignment of each lease.

       11.     The rights of the landlords for any damages to the closing Stores shall be reserved in
accordance with the applicable leases, and subject to the jurisdiction of the Court.

        12.      The Merchant shall notify a representative of the relevant landlord of the date on which
the Sale is scheduled to conclude at a given Store, within three business days of the Merchant’s receipt of
such notice from the Consultant.

        13.      To the extent that any Store landlord affected hereby contends that the Merchant is in
breach or default under these Store Closing Guidelines, such landlord shall provide at least five (5) days’
written notice, served by facsimile and overnight delivery, on the Merchant and the Merchant’s counsel,
and the Consultant, at the following facsimile numbers and addresses:




                                                    -2-
DB02:7681795.2                                                                                     067961.1001
         Case 10-60149 Document 12-2 Filed in TXSB on 11/16/10 Page 3 of 3



                 If to the Merchant:     Lack’s Stores, Incorporated
                                         200 South Ben Jordan
                                         Victoria, Texas 77901
                                         Attn: Melvin Lack
                                         Tel:    (361) 578-3571
                                         Fax: (361) 576-9814

                 With a copy to:         Vinson & Elkins LLP
                                         Trammell Crow Center
                                         2001 Ross Avenue, Suite 3700
                                         Dallas, Texas 75201
                                         Attn: Daniel C. Stewart
                                         Tel:    (214) 220-7700
                                         Fax: (214) 999-7716

                 If to the Consultant:   Hilco Merchant Resources, LLC
                                         One Northbrook Place
                                         5 Revere Drive
                                         Suite 206
                                         Northbrook, IL 60062
                                         Attn: Joseph Malfitano
                                         Deputy General Counsel
                                         Tel:    (847) 504-3257
                                         Fax: (847) 224-5725

If the parties are unable to resolve the dispute between themselves, either the landlord or the Merchant
shall have the right to schedule a “status hearing” before the Bankruptcy Court on no less than five (5)
days notice to the other parties.




                                                   -3-
DB02:7681795.2                                                                                    067961.1001
Case 10-60149 Document 12-3 Filed in TXSB on 11/16/10 Page 1 of 5
Case 10-60149 Document 12-3 Filed in TXSB on 11/16/10 Page 2 of 5
Case 10-60149 Document 12-3 Filed in TXSB on 11/16/10 Page 3 of 5
Case 10-60149 Document 12-3 Filed in TXSB on 11/16/10 Page 4 of 5
Case 10-60149 Document 12-3 Filed in TXSB on 11/16/10 Page 5 of 5
         Case 10-60149 Document 12-4 Filed in TXSB on 11/16/10 Page 1 of 5



                       IN THE UNITED STATES BANKRUPTCY COURT
                         FOR THE SOUTHERN DISTRICT OF TEXAS
                                  VICTORIA DIVISION

    IN RE:                          §
                                    §                           CASE NO. [__]
    LACK’S STORES, INCORPORATED, ET §
    AL.,1                           §                           (Chapter 11)
                                    §                           (Joint Administration Requested)
          DEBTORS.

    AFFIDAVIT OF ROBERT RASKIN IN SUPPORT OF APPLICATION FOR ORDER
      AUTHORIZING EMPLOYMENT AND RETENTION OF A JOINT VENTURE
      COMPRISED OF HILCO MERCHANT RESOURCES, LLC AND SB CAPITAL
               GROUP, LLC AS CONSULTANT TO THE DEBTORS

STATE OF NEW YORK                          §
                                           §
COUNTY OF NASSAU                           §

        BEFORE ME, the undersigned authority, on this day personally appeared Robert

Raskin, who, after being duly sworn, upon his oath deposed and stated as follows:

“My name is Robert Raskin. I am more than twenty-one (21) years of age. I am competent and

authorized to make this affidavit. I have personal knowledge of the facts set forth herein.

Despite the efforts to identify and disclose SB Capital Group, LLC’s (“SB”) connections with

parties-in-interest in these chapter 11 cases, because the Debtors are a large enterprise, SB is

unable to state with certainty that every client relationship or other connection has been

disclosed. In this regard, if SB discovers additional material information that it determines

requires disclosure, it will promptly file a supplemental disclosure with this Court.

        1.       I am a Managing Director of SB, which maintains an office at 1010 Northern

Boulevard, Great Neck, N.Y. 11021. I am an authorized signatory of SB.


1
  The Debtors and the last four digits of their tax identification numbers are Lack’s Stores, Incorporated (6528),
Merchandise Acceptance Corporation (0972), Lack’s Furniture Centers, Inc. (9468), and Lack Properties, Inc.
(8961).

AFFIDAVIT OF ROBERT RASKIN IN SUPPORT OF APPLICATION FOR ORDER AUTHORIZING
EMPLOYMENT AND RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS
                       Page 1 of 5
US 637351v.1
        Case 10-60149 Document 12-4 Filed in TXSB on 11/16/10 Page 2 of 5



        2.      SB Capital Group, a Schottenstein affiliate, has businesses and investments which

cut across a wide area of retail related sectors including retail, consumer products, franchising,

licensing and real estate. SB Capital is one of the country’s leading asset disposition firms. SB’s

management team and its partners have managed thousands of stores and billions of dollars in

inventory. SB has been involved in some of the largest retail furniture liquidations here in North

America and the United Kingdom, including Rhodes Furniture, Furniture World, Land of

Leather, Furnitureland, Levitz Furniture, Wickes Furniture, Heilig Meyers and Sofa Express.

        3.      SB along with Hilco Merchant Resources, LLC (“Hilco”) has been requested by

Lack’s Stores, Incorporated and its affiliates, as debtors and debtors in possession (collectively,

the “Debtors”), to act as their consultant with respect to store closing or other similarly themed

sales (“Store Closing Sales”) in these chapter 11 bankruptcy cases (the “Cases”). This Affidavit

is submitted in connection with the Debtors’ Emergency Application for Order Authorizing the

Employment and Retention of A Joint Venture Comprised of Hilco Merchant Resources, LLC

and SB Capital Group, LLC as Consultant to the Debtors (the “Application”).



                                         General Statement

        4.      SB Capital has provided appraisal services in the past to affiliates of Well Fargo

Bank, N.A and has a credit facility with an affiliate of Wells Fargo. To the best of my

knowledge, after reviewing the list of creditors provided by the Debtors, insofar as I have been

able to ascertain, after due diligence, and except as set forth in this affidavit, SB:

                a.      does not hold or represent any interests adverse to these estates, are
disinterested, and are eligible to serve as consultant to the Debtors under the Bankruptcy Code;




AFFIDAVIT OF ROBERT RASKIN IN SUPPORT OF APPLICATION FOR ORDER AUTHORIZING
EMPLOYMENT AND RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS
                     Page 2 of 5
US 637351v.1
        Case 10-60149 Document 12-4 Filed in TXSB on 11/16/10 Page 3 of 5



               b.      are not creditors, equity security holders, or insiders of the Debtors and do
not represent any entity (or its attorneys and accountants) other than the Debtors, in connection
with these Cases;

              c.     are not, and were not within the past two years, a director, officer, or
employee of the Debtors;

                d.    have no interests materially adverse to the interests of the Debtors or of
any class of the Debtors’ creditors or equity security holders; and

                e.     have no connections, other than as disclosed herein, with the Debtors, their
creditors, any other party in interest, their respective attorneys and accountants, the United States
Trustee or any person employed in the office of the United States Trustee.



        5.        Accordingly, SB is a “disinterested person” within the meaning of § 101(14) of

the Bankruptcy Code, as modified by § 1107(b) of the Bankruptcy Code.

        6.        In addition to the foregoing, SB has no connection (as prescribed by Bankruptcy

Rule 2014(a)) with the United States Trustee or any person employed by the Office of the United

States Trustee.

        7.        From time to time, SB and its affiliates have provided services, may currently

provide services, and likely will continue to provide services, to certain creditors of the Debtors,

professionals that may have been retained in these cases, other parties-in-interest and various

other parties potentially adverse to the Debtors in matters unrelated to these chapter 11 cases.

As noted herein, certain of these creditors, other parties-in-interest, attorneys, or accountants

have or may have provided goods or services to, currently provide or may currently provide

goods or services to, and may in the future provide goods or services to SB and its affiliates in

matters unrelated to these chapter 11 cases

        8.        No promises have been received by SB as to compensation in connection with

these Cases other than in accordance with the provisions of the Bankruptcy Code, the


AFFIDAVIT OF ROBERT RASKIN IN SUPPORT OF APPLICATION FOR ORDER AUTHORIZING
EMPLOYMENT AND RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS
                      Page 3 of 5
US 637351v.1
        Case 10-60149 Document 12-4 Filed in TXSB on 11/16/10 Page 4 of 5



Bankruptcy Rules and the Local Rules, as set forth in the Consulting Agreement. Other than

Hilco, which is SB’s joint venture partner, Hilco has no agreement with any other entity to share

with such entity any compensation received by Hilco.




AFFIDAVIT OF ROBERT RASKIN IN SUPPORT OF APPLICATION FOR ORDER AUTHORIZING
EMPLOYMENT AND RETENTION OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT
RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS
                   Page 4 of 5
US 637351v.1
Case 10-60149 Document 12-4 Filed in TXSB on 11/16/10 Page 5 of 5
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 1 of 9



                    IN THE UNITED STATES BANKRUPTCY COURT
                      FOR THE SOUTHERN DISTRICT OF TEXAS
                               VICTORIA DIVISION

 IN RE:                          §
                                 §                       CASE NO. 10-60149
 LACK’S STORES, INCORPORATED, ET §
 AL.,1                           §                       (Chapter 11)
                                 §                       (Joint Administration Requested)
       DEBTORS.                  §

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO
    (A) CONDUCT STORE CLOSING SALES AND (B) ASSUME CONSULTING
AGREEMENT AND (II) APPLICATION FOR ORDER AUTHORIZING RETENTION
 OF A JOINT VENTURE COMPRISED OF HILCO MERCHANT RESOURCES, LLC
      AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE DEBTORS

                                    [Related to Dkt. No. ____]

        The Court has considered the Debtors’ Emergency (I) Motion for Authority to

(A) Conduct Store Closing Sales and (B) Assume Consulting Agreement and (II) Application for

Order Authorizing Retention of A Joint Venture of Hilco Merchant Resources, LLC and SB

Capital Group, LLC as Consultant to the Debtors (the “Motion and Application”)2 filed by the

above-captioned debtors (the “Debtors”). The Court finds that (a) it has jurisdiction over the

matters raised in the Motion and Application pursuant to 28 U.S.C. § 1334(b), (b) this is a core

proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (c) the relief requested in the Motion and

Application is in the best interests of the Debtors’ estates, creditors, and equity security holders,

(d) under the circumstances, proper and adequate notice of the Motion and Application and

hearing thereon has been given and that, except as set forth herein, no other or further notice is

necessary, (e) conducting the Store Closing Sales is an exercise of the sound business judgment




ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 1 of 9
US 634594v.7
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 2 of 9



of the Debtors; (f) any provisions in the Debtors’ store leases that prohibit, limit, or seek to

prevent such sales are an impermissible restraint on the Debtors’ ability to maximize their assets

under § 363 of the Bankruptcy Code; (g) assuming the Consulting Agreement is an exercise of

the sound business judgment of the Debtors; (h) employment and retention of Hilco/SB is in the

best interest of the Debtors and their estates; and (i) good and sufficient cause exists for granting

the relief requested in the Motion and Application after due deliberation upon the Motion and

Application and all proceedings before the Court in connection with the Motion. Therefore, it is

        ORDERED that the Motion and Application is GRANTED. It is further

        ORDERED that the Debtors and the joint venture comprised of Hilco Merchant

Resources, LLC and SB Capital Group, LLC (“Hilco/SB”) are authorized to sell the

Merchandise and FF&E (collectively, the “Assets”) and the Additional Goods through the Store

Closing Sales in accordance with the Consulting Agreement and the Sale Guidelines. No bulk

sale, “going-out-of-business”, or similar law shall prohibit the Debtors or Hilco/SB from taking

any action contemplated by the Consulting Agreement. It is further

        ORDERED that Hilco/SB is authorized to advertise the Store Closing Sales in the name

of the Debtors. It is further

        ORDERED that pursuant to § 363(f) of the Bankruptcy Code, all Assets sold at the Store

Closing Sales shall be sold free and clear of any and all liens, claims, and encumbrances, if any,

with such liens, claims, and encumbrances, including without limitation the liens of the Debtors’

Lenders, to attach to the amounts payable to the Debtors under the Consulting Agreement, in the

1
  The Debtors and the last four digits of their tax identification numbers are Lack’s Stores, Incorporated (6528),
Merchandise Acceptance Corporation (0972), Lack’s Furniture Centers, Inc. (9468), and Lack Properties, Inc.
(8961).

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 2 of 9
US 634594v.7
           Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 3 of 9



same order, priority, and force and effect as such liens, claims, and encumbrances presently hold

on such Assets. It is further

           ORDERED that the Sale Guidelines attached hereto as Exhibit “A” are hereby

approved, and the Debtors and Hilco/SB are authorized to take all of the actions contemplated

thereby. It is further

           ORDERED that the Debtors and Hilco/SB shall not be required to comply with

applicable state and local laws governing store closing, liquidation, or “going out of business

sales,” including the regulations set forth Texas Business and Commerce Code §§ 17.81-17.93,

in connection with the Store Closing Sales; provided, however, the Debtors and Hilco/SB shall

comply with applicable state and local public health and safety laws and applicable general laws

with respect to the Store Closing Sales. It is further

           ORDERED that provided that the Store Closing Sales are conducted in accordance with

this Order, the Debtors, Hilco/SB, and the Debtors’ landlords shall be presumed to be in

compliance with any State, county, parish, or municipal or other local government’s (hereinafter

referred to as “Local”) requirements governing the conduct of the Store Closing Sales, including

but not limited to Local statutes, regulation and ordinances establishing licensing or permitting

requirements, waiting periods, time limits, or bulk sale restrictions that would otherwise apply to

the Store Closing Sales (collectively, the “Liquidation Sale Laws”) of any Local governmental

unit (which means all governmental units other than the States or federal governmental units)

served with a copy of the Motion. It is further




2
    Capitalized terms not defined herein shall have the meaning given to them in the Motion.

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 3 of 9
US 634594v.7
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 4 of 9



        ORDERED that subject only to applicable state and local public health and safety laws

(“Safety Laws”), and applicable tax, labor, employment, environmental, and consumer

protection laws, including consumer laws regulating deceptive practices and false advertising

(collectively, “General Laws”), the Debtors and Hilco/SB be, and they hereby are, authorized to

take such actions necessary and appropriate to implement the Consulting Agreement and to

conduct the Store Closing Sales without the necessity of a further order of this Court as provided

by the Consulting Agreement, including, but not limited to, advertising the Store Closing Sales

through the posting of signs (including the use of exterior banners, use of sign walkers and street

signage, in accordance with the Consulting Agreement and as otherwise provided in the Sale

Guidelines). It is further

        ORDERED that the Store Closing Sales shall be conducted by the Debtors and Hilco/SB

without the necessity of compliance with any federal, state or local statute or ordinance,

including any landmark ordinance; lease provision or licensing requirement affecting store

closing, “going out of business,” liquidation or auction sales, or affecting advertising, including

signs, banners, posting of signage, and use of sign walkers, other than Safety Laws and General

Laws, except as may otherwise expressly be provided for in the Sale Guidelines.

NOTWITHSTANDING THE FOREGOING SENTENCE, OR ANY OTHER PROVISION OF

THIS ORDER, OR OF THE CONSULTING AGREEMENT, OR OF THE SALE

GUIDELINES TO THE CONTRARY, with respect solely to Hilco/SB’s use of (i) signwalkers;

(ii) interior store signage and banners; and (iii) exterior banners (“Banner and Signwalker

Advertising”), (A) Hilco/SB is unconditionally authorized to use Banner and Signwalker

Advertising (except only to the extent limited by an agreement between Hilco/SB and a landlord

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 4 of 9
US 634594v.7
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 5 of 9



entered into in connection with the Store Closing Sales) notwithstanding any Local laws, Safety

Laws, General Laws, or lease provision which purports to regulate, prohibit, restrict, or in any

way limit such activity so long as such activity is undertaken by Hilco/SB in a safe and

professional manner; (B) any person (including without limitation any landlord or governmental

unit who, after having received a copy of this Order, and after having been specifically advised

in writing of the provisions of this Section, continues to interfere with any Banner and

Signwalker Advertisement, including any action by a governmental unit taken against a landlord

based on the activities of Hilco/SB undertaken pursuant to this Order (other than by seeking

redress to this Court) shall be liable to Hilco/SB and/or Debtors and affected landlord(s) for any

and all damages resulting from such continued interference; and (C) this Court shall retain

exclusive jurisdiction with respect to any claim or issue by any person (including without

limitation any State, governmental unit, or landlord) that seeks to regulate, prohibit, restrict, or in

any other way limit Banner and Signwalker Advertising, or that alleges that Banner and

Signwalker Advertising is not being undertaken in a safe and professional manner, with any such

claim or issue to be heard by this Court on an expedited basis. It is further

        ORDERED that except as expressly provided for in the Consulting Agreement, nothing

in this Order and none of Hilco/SB’s actions taken in respect of the Store Closing Sales shall be

deemed to constitute an assumption by Hilco/SB of any of Debtors’ obligations relating to any of

the Debtors’ employees, nor shall Hilco/SB become liable under any collective bargaining or

employment agreement or be deemed a joint or successor employer with respect to such

employees. It is further




ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 5 of 9
US 634594v.7
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 6 of 9



        ORDERED that the provisions of this Order shall be self-executing notwithstanding any

restrictions in the Consulting Agreement on Hilco/SB’s ability to conduct the Store Closing

Sales in compliance with applicable laws or leases. Unless otherwise ordered by the Court, all

newspapers and other advertising media in which the Store Closing Sales may be advertised, and

all landlords are directed to accept this Order as binding authority so as to authorize the Debtors

and Hilco/SB to consummate the Consulting Agreement and to conduct the Store Closing Sales,

including, without limitation, conducting and advertising of the Store Closing Sales (at the

contractual rates charged to the Debtors prior to the Petition Date) in accordance with the

Consulting Agreement, the Sale Guidelines and this Order; and no further approval, license or

permits of any governmental authority shall be required. It is further

        ORDERED that the Debtors and Hilco/SB are authorized to sell the Assets through the

Store Closing Sales notwithstanding any provisions in any of the leases relating to the Stores or

Distribution Center that prohibit, limit, or seek to prevent such Store Closing Sales. Landlords of

any of the Debtors’ leases shall not in any way interfere with or otherwise restrict or impede the

Debtors or Hilco/SB from conducting the Store Closing Sales. It is further

        ORDERED, that pursuant to and in accordance with the terms of the Consulting

Agreement, the Debtors and Hilco/SB may supplement Merchandise in the Stores only with

additional goods which are of like kind and quality to the Merchandise located in the Stores

(“Additional Goods”). In order to distinguish the Additional Goods from the Merchandise

located in the Stores, the Debtors and/or Hilco/SB shall affix distinctive tags and/or other

identifying markings on all items of Additional Goods, which shall enable the Debtors and

Hilco/SB to distinguish the sales of the Additional Goods from the sale of the Merchandise

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 6 of 9
US 634594v.7
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 7 of 9



presently included in the Store Closing Sales at the Stores or distribution center. Additionally,

Hilco/SB shall provide signage in the Stores notifying customers that the Additional Goods has

been included in the Store Closing Sales. To the extent Hilco/SB and the Debtors comply with

the foregoing procedures, the Debtors and Hilco/SB shall be deemed to be in compliance with

Liquidation Sales Laws and consumer protection laws including consumer laws relating to

deceptive practices and false advertising.

        ORDERED that if any parties or persons, including but not limited to landlords,

subtenants, utility companies, governmental agencies, sheriffs, marshals, or other public officers,

creditors and any person acting for or on their behalf, directly or indirectly: (a) seek to prohibit

Hilco/SB from advertising the Store Closing Sales (including the posting of signs, use of banners

and use of sign walkers), to the extent the same is consistent with the Consulting Agreement, (b)

in any way interfere with or otherwise impede the conduct of the Store Closing Sales or the use

or maintenance of the Debtors’ assets located at the Stores, (c) institute any action or proceeding

in any court or other administrative body having as its objective the obtaining of an order or

judgment against the Debtors or Hilco/SB, or (d) in any way directly or indirectly obstruct or

otherwise interfere with or adversely affect the conduct of the Store Closing Sales and/or seek to

recover damages for breach(es) of covenants or provisions in any lease or sublease based upon

any relief authorized by this Order, this Court shall retain exclusive jurisdiction to resolve such

dispute, and such parties or persons shall take no action against the Debtors or Hilco/SB until

this Court has resolved such dispute. This Court shall hear the request of such persons or parties

with respect to any such disputes on an expedited basis, as may be appropriate under the

circumstances. It is further

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 7 of 9
US 634594v.7
          Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 8 of 9



          ORDERED that all of the transactions contemplated by the Consulting Agreement shall

be protected by § 363(m) of the Bankruptcy Code in the event that this Order is reversed or

modified on appeal. It is further

          ORDERED that the Debtors are authorized to assume the Consulting Agreement. It is

further

           ORDERED that Hilco/SB is a party in interest and shall have the ability to appear and

be heard on all issues related to or otherwise connected to this Consulting Agreement and the

conduct of the Store Closing Sales. It is further

          ORDERED that, pursuant to 11 U.S.C. §§ 327 and 328, the Debtors are authorized to

employ and retain Hilco/SB as their Consultant pursuant to the Consulting Agreement effective

nunc pro tunc to the Petition Date. It is further

          ORDERED that Hilco/SB shall be compensated, without the need to file a fee

application, in accordance with the terms of the Consulting Agreement. It is further

          ORDERED that the Debtors and their officers, employees, and agents are hereby

authorized to take any and all actions and/or execute any and all documents as may be necessary

or desirable to consummate the transactions contemplated by the Consulting Agreement, and any

actions taken by the Debtors necessary or desirable to consummate such transactions prior to the

entry of this Order are hereby ratified. It is further

          ORDERED that, notwithstanding any other order entered by this Court, to the extent

Hilco/SB advances funds with the prior approval of the Debtors to cover out of pocket expenses

associated with advertising and supervision in accordance with the Expense Budget, Hilco/SB

shall be entitled to recover the amount of the advanced funds from the first proceeds from the

ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 8 of 9
US 634594v.7
        Case 10-60149 Document 12-5 Filed in TXSB on 11/16/10 Page 9 of 9



liquidation of the Assets notwithstanding any other party’s claim to such proceeds provided that

any expenses paid with the advanced funds is reasonable. It is further

        ORDERED that the granting of the protections set forth in the preceding paragraph shall

constitute a transfer of estate assets and shall be afforded all the protections of sections 363(n)

and 363(m) of the Bankruptcy Code and, accordingly, the reversal or modification on appeal of

the authorization provided herein to consummate the transactions contemplated by the

Consulting Agreement pursuant to this Order shall not affect the validity of such transactions,

unless such authorization and consummation are properly stayed pending appeal. It is further

        ORDERED that the provisions of Bankruptcy Rules 6003 and 6004 are hereby waived.

The Debtors are authorized to conduct the Store Closing Sales, assume the Consulting

Agreement, and retain and employ Hilco/SB immediately, and this Order shall be immediately

effective upon its entry. It is further

        ORDERED that this Order shall be binding upon the Debtors, all creditors of the

Debtors, and any trustee appointed in this proceeding or any trustee appointed in any subsequent

proceeding under chapter 7 or chapter 11 of the Bankruptcy Code; and it is further

        ORDERED, that a final hearing on this matter will be held on _______________, 2010

at ________________ am/pm.

        ORDERED that this Court retains jurisdiction to hear and determine all matters arising

from or related to the implementation, interpretation and/or enforcement of this Order.

SIGNED THIS ____ day of ___________, 2010.

                                             _____________________________________
                                             Jeff Bohm
                                             United States Bankruptcy Judge


ORDER APPROVING DEBTORS’ EMERGENCY (I) MOTION FOR AUTHORITY TO (A) CONDUCT
STORE CLOSING SALES AND (B) ASSUME CONSULTING AGREEMENT AND (II) APPLICATION
FOR ORDER AUTHORIZING RETENTION OF A JOINT VENTURE COMPRISED OF HILCO
MERCHANT RESOURCES, LLC AND SB CAPITAL GROUP, LLC AS CONSULTANT TO THE
DEBTORS                                                              Page 9 of 9
US 634594v.7

				
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