IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION. Chapter 11

Transcription

1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: ROOMSTORE, INC., Debtor. Chapter 11 Case No DOT MOTION OF DEBTOR FOR ENTRY OF ORDERS PURSUANT TO SECTIONS 105(A), 363, AND 365 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULES 6004 AND 6006 APPROVING AUCTION PROCEDURES FOR THE SALE OF ASSETS FREE AND CLEAR, THE ASSUMPTION AND ASSIGNMENT OF LEASES AND CONTRACTS AND/OR SALE OF LEASE DESIGNATION RIGHTS, AND RELATED RELIEF RoomStore, Inc., the debtor and debtor-in-possession (the Debtor ) in the abovecaptioned chapter 11 bankruptcy case (the Bankruptcy Case ) seeks entry of orders: (a) authorizing it to conduct an auction sale on June 25, 2012 ( Auction ) of its Assets (defined below); (b) scheduling a hearing on June 26, 2012 to approve of the sale of these Assets at the conclusion of the Auction ( Sale ) free and clear of all liens, claims and encumbrances; (c) authorizing the assumption and assignment of leases and contracts and/or sale of lease designation rights; and (d) granting related relief (the Motion ), pursuant to a proposed form of LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) Bruce D. Buechler (NJ Bar No ) Mary E. Seymour (NJ Bar No ) Cassandra M. Porter (NJ Bar No ) Andrew David Behlmann (NJ Bar No ) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC Troy Savenko (Va. Bar No ) Christopher J. Hoctor (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East 2nd Street ( ) Post Office Box 2470 Richmond, Virginia (804) Counsel to the Debtor and Debtor-in-Possession

2 order in the form attached hereto as Exhibit A (the Auction Procedures Order ). In support of this Motion, the Debtor respectfully represents as follows: PRELIMINARY STATEMENT 1. As part of its reorganization strategy, the Debtor, in its business judgment, has decided to sell its remaining retail stores (the Remaining Stores ) 1 and sell the following assets (collectively, the Assets ): (a) (b) (c) (d) (e) all inventory ( Inventory ), and owned furniture, fixtures, and equipment ( Owned FF&E ) located at the Remaining Stores and the warehouse/distribution center located in Rocky Mount, North Carolina; the leases for the Remaining Stores that it leases ( Leases ) from lessors ( Lessors ) and/or Lease Designation Rights (defined below); 2 certain intellectual property, including its URL address, rights to its trademark, and brand name ( Intellectual Property ); the retail store located in Myrtle Beach, South Carolina, including the building, improvements, and assignment of the underlying land-lease ( Myrtle Beach Building ); 3 and the right to conduct closing-store sales ( GOB Sales ) at the Remaining Stores ( GOB Sale Rights ; to collectively sell Inventory and Owned FF&E. 4 1 The Debtor leases all of the Remaining Stores except one located in Myrtle Beach, SC. A list of the leased Remaining Stores is attached as Exhibit 1 to the Auction Procedures Order along with a list of cure costs for each Lease. The Debtor owns its remaining warehouse facility located in Rocky Mount, North Carolina. 2 A form of Assignment and Assumption of Lease Agreement ( Assignment Agreement ) is attached as Exhibit 2 to the Auction Procedures Order. 3 The Myrtle Beach Building is subject to a security interest and mortgage ( GE Mortgage ) in favor of General Electric Commercial Finance Business Property Corporation ( GE ). The Debtor will consider an offer to purchase the Myrtle Beach Building if it provides the Debtor s estate sufficient funds to satisfy the GE Mortgage which is approximately $2.3 million. 4 By this motion, the Debtor is not seeking permission to sell the following: (a) the distribution center located in Rocky Mount, North Carolina, including the land, building, and improvements ( Rocky Mount Property ); (b) its 65% ownership interest in Mattress Discounters Group, LLC; (c) its 31% ownership interest in Creative Distribution -2-

3 2. The Debtor submits that, in its business judgment, the most efficient process for selling the Assets is to offer them for Sale at the Auction. 3. To effectuate the Sale, the Debtor seeks approval of proposed Auction Procedures (defined below). Pursuant to the Auction Procedures, as more fully described herein, a party interested in bidding on any of the Assets must submit to the Debtor by June 19, 2012 at 2:00 p.m. (ET) (the Bid Deadline ): (a) a Bid (defined below) setting forth a proposed price ( Bid Price ) and including either: a purchase agreement ( Purchase Agreement ) or an agency agreement ( Agency Agreement ), 5 (b) good funds in an amount equivalent to ten percent (10%) of the Bid Price (the Security Deposit ), and (c) a Bid Statement consisting of a written statement: (i) identifying the bidder and its true owners, (ii) stating which Assets are contemplated for purchase; and (iii) confirmation that the Bid is not subject to any further due diligence, financing contingency, and that all required approvals for the proposed transaction have been obtained. 4. The Debtor will provide a copy of all Bids received by the Bid Deadline to counsel for the Committee and Debtor s postpetition secured lender, Salus Capital Partners, LLC ( Salus Capital ). 5. The Debtor proposes to sell the Assets either as a package or in various lots. For this reason, the Debtor will consider any Bid for any of the Assets. If more than one offer is received by the Bid Deadline, after consultation with the Committee and Salus Capital, the Debtor will select the best offer received and this offer will serve as the leading offer at the Auction. The Debtor reserves the right, after consultation with the Committee and Salus Capital, to conduct the Auction in one or more lots. Services, LLC; (d) any accounts receivables, prepaid insurance, taxes, expenses, or deposits; (e) customer lists or other customer data; or (f) cause of action belonging to its estate (collectively, the Excluded Assets ). 5 A model form of Agency Agreement is attached hereto as Exhibit B. -3-

4 6. At the conclusion of the Auction, the Debtor, in consultation with the Committee and Salus Capital, will select the highest and best offer (or offers, as may apply) for the Assets for presentation to the Court for approval. 7. The Debtor seeks to have the Court conduct a hearing to approve the Sale ( Sale Hearing ) to be scheduled for June 26, 2012, at 11:00 a.m., the day following the Auction. A proposed form of order approving the sale is attached hereto as Exhibit C ( Sale Order ). 8. The Debtor also seeks authorization, as applicable, to conduct any going out of business sales ( GOB Sales ) notwithstanding and, waiving compliance with, (a) any Lease restrictions, (b) state laws, (c) and Fast Pay Laws (as defined below). 9. The Debtor also seeks authorization, as applicable, to sell and assume and assign it s Leases for non-residential real property and/or lease designation rights ( Lease Designation Rights ) to its Leases notwithstanding any provisions in the Leases restricting the Debtor from doing otherwise. 10. Upon the consummation of the sale(s) contemplated by this Motion, the Debtor will no longer operate as a retail furniture store chain. The Debtor, instead, will operate in a reduced manner at its corporate headquarters and provide back office services for Mattress Discounts Group, LLC while winding down its business affairs and sell its remaining assets, which includes the Excluded Assets, in due course. RELEVANT FACTS 11. On December 12, 2011 (the Petition Date ), the Debtor commenced the Bankruptcy Case by filing with the Court a voluntary petition for relief under chapter 11 of the Bankruptcy Code. 12. The Debtor continues to manage and operate its business as a debtor-inpossession pursuant to sections 1107 and 1108 of the Bankruptcy Code. -4-

5 13. General information about the Debtor, its business, its capital structure, the events leading to the filing of its Bankruptcy Case, is contained in the Declaration of Lewis M. Brubaker, Jr., Senior Vice President and Chief Financial Officer of RoomStore, Inc., in Support of Chapter 11 Petition and First-Day Pleadings filed with the Court on the Petition Date (the Brubaker Declaration ) [Docket No. 15]. 14. On December 16, 2011, the Debtor filed a Motion for Entry of an Order Pursuant to 11 U.S.C. 105(A) and 363(B) of the Bankruptcy Code and Bankruptcy Rule 6004 (I) Approving Auction Procedures for Agency Agreement, (II) Authorizing the Debtor to Enter into Agency Agreement and Sell Inventory and Furniture, Fixtures, and Equipment Free and Clear of Liens, Claims, and Encumbrances, (III) Authorizing the Debtor to Conduct Sales, and (IV) Granting Related Relief [Docket No. 76] ( First Sale Motion ). Pursuant to the First Sale Motion, the Debtor held an auction to sell the right to conduct going-out-of-business sales at certain of its retail locations along with the inventory, furniture, fixtures, and equipment located therein. An auction pursuant to the First Sale Motion took place on January 4, The sale of the Debtor s assets identified in the First Sale Motion was approved by the Court on January 5, 2012 [Docket No. 223], and closed thereafter. 15. On January 27, 2012, the Debtor filed a Motion for Entry of an Order (I) Authorizing Amendments to Postpetition Financing Agreements and (II) Modifying Final DIP Financing Order [Docket No. 289]. The motion was granted on February 8, 2012 [Docket Nos. 339 and 342]. Pursuant to this motion, Salus Capital replaced Wells Fargo Bank, NA as the Debtor s post-petition lender. 16. On March 29, 2012, the Debtor filed a Motion For Entry Of Orders Pursuant To 11 U.S.C. 105(A) And 363 Of The Bankruptcy Code And Bankruptcy Rule 6004 (I) Approving Auction Procedures, (II) Authorizing The Debtor To Enter Into Agency Agreement And Sell Inventory And Furniture, Fixtures, And Equipment Located In Closing Stores Free And Clear Of -5-

6 Liens, Claims, And Encumbrances, (III) Authorizing The Conduct Of GOB Sales, And (IV) Granting Related Relief [Docket No. 420] ( Second Sale Motion ). 17. Similar to the First Sale Motion, the Debtor sought permission to hold an auction at which it would sell the right to conduct going-out-of-business sales along with certain inventory, furniture, fixtures, and equipment. However, the relief sought in the Second Sale Motion was limited to the Debtor s locations in Arlington, Dallas, Denton, Forth Worth, Grand Prairie, Grapevine, Mesquite, Plano, Temple, and Waco, Texas. After filing the Second Sale Motion, Furniture Asset Acquisition, LLC ( FAA ) and the Debtor reached an agreement wherein FAA agreed to purchase the Debtor s assets identified in the Second Sale Motion along with certain other assets. For this reason, an auction was not held. Instead, the Debtor sought permission to sell to FAA the assets identified in the Second Sale Motion along with certain other assets identified in two subsequent pleadings: (i) Motion of Debtor for Entry of an Order Authorizing the Debtor to Sell Lease Designation Rights for Certain Leases and Certain Other Assets to Furniture Asset Acquisition LLC and Such Other Relief [Docket No. 469] and (ii) Motion of Debtor for Entry of an Order Pursuant to Sections 105 and 363 of the Bankruptcy Code and Rule 6004 of the Federal Rules of Bankruptcy Procedure Approving of Sale of the Texas Closing Store Customer List to Furniture Asset Acquisition, LLC [Docket No. 496]. 18. The relief sought in the Second Sale Motion and two-subsequently filed motions was granted by the Court by orders dated April 12, 2012 and May 8, 2012, respectively [Docket Nos. 492, 500, and 560]. The transactions with FAA were consummated. PROPOSED BID AND AUCTION PROCEDURES 19. The Debtor requests that the Court approve the following procedures for a bidder to become a Qualified Bidder (defined below) and conduct the Auction (the Auction Procedures ): -6-

7 (a) (b) (c) (d) (e) A bid ( Bid ) shall consist of: (i) either a Purchase Agreement or an Agency Agreement identifying the initial offer for the Assets identified for purchase in the Agreement ( Bid Price ), (ii) a cash deposit of at least ten percent (10%) of the Bid Price, (iii) a written statement: (a) identifying the bidder or its true owners, (b) stating which Assets are contemplated for purchase; and (c) confirmation that the Bid is not subject to any further due diligence, financing contingency, and that all required approvals for the proposed transaction have been obtained ( Bid Statement ). Any Agency Agreement submitted with a Bid must be presented in substantially the same form as the model Agency Agreement. Any bidder that modifies the Agency Agreement must submit both a clean and marked copy of the modified Agency Agreement as part of its Bid. In order to be a Qualified Bidder, a bidder must submit its Bid by no later than June 19, 2012 at 2:00 p.m. (ET) (the Bid Deadline ) to: (i) Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068, Attn: Bruce Buechler, Esq., bbuechler@lowenstein.com; (ii) Roomstore, Inc., Patterson Avenue, Richmond, Virginia, Attn: Steve Gidumal, sgidumal@virtuscapital.com; (iii) FTI Consulting, 200 State Street, 8th Floor, Boston, Massachusetts 02109, Attn: Steve Coulombe, steve.coulombe@fticonsulting.com; and (iv) Julius M. Feinblum Real Estate, Inc., 25 Fairchild Avenue, Suite 500, Plainview, New York Attn: Julius M. Feinblum, jmfrealty@aol.com. Only Qualified Bidders, the Debtors, and representatives of the Committee and Salus Capital may attend the Auction. No Bid shall include the proposed acquisition or right to sell or otherwise convey the Debtor s: (a) 65% ownership interest in Mattress Discounters Group, LLC; (b) 31% ownership interest in Creative Distribution Services, LLC; (c) the Rocky Mount Property; (d) any receivables; (e) prepaid insurance, taxes, expenses, or deposits (f) customer lists or other consumer data; or (g) causes of action belonging to the Debtor s estate (collectively, the Excluded Assets ). -7-

8 (f) Any Bid that includes the purchase and assumption and assignment of Leases or Lease Designation Rights must identify in the Bid Statement which Leases are included in the Bid. A list of Leases is attached to the Auction Procedures Order as Exhibit 1. (i) The Bid must also include an Assignment and Assumption of Lease Agreement ( Assignment Agreement ) substantially in the form attached to the Auction Procedures Order as Exhibit 2. Any bidder that modifies the Assignment Agreement must submit both a clean and marked copy of the Assignment Agreement as part of its Bid. (ii) (iii) If a Bid seeks assumption and assignment of a Lease that has a July 9, 2012 deadline for the Debtor to assume or reject the Lease, the Bid Statement must indicate that (a) the Bidder will notify the Debtor in writing by June 26, 2012 to assume the Lease and assign it to the Bidder (unless written consent permitting otherwise is obtained from both the Debtor and Lessor) and (b) Bidder agrees to fund the Debtor s July 2012 obligations under the Lease(s) whether or not the Lease(s) is ultimately assigned to the Bidder. If a Bid seeks to purchase Lease Designation Rights for a Lease (or Leases) that has a deadline for the Debtor to assume or reject the Lease by no later than July 9, 2012, the Bid Statement must indicate that (a) the Bidder will notify the Debtor in writing by June 26, 2012 to assume the Lease and assign it to the Bidder (unless written consent permitting otherwise is obtained from both the Debtor and Lessor) and (b) Bidder agrees to fund the Debtor s July 2012 obligations under the Lease(s) whether or not the Lease(s) Designation Rights are purchased by the Bidder. -8-

9 (g) (h) The Debtor reserves its right to sell the Assets in groups or lots which shall be identified at the Auction prior to announcement of the Opening Bid (defined below). The offer that the Debtor deems, after consultation with Salus Capital and the Committee, to be the highest and best offer shall be the opening bid at the Auction (the Opening Bid ). (i) If the Opening Bid includes an Agency Agreement, the first overbid above the Opening Bid shall be for a Guaranty Percentage (as that term is defined in the Agency Agreement) of not less than onequarter percentage point (0.25%) greater than the Guaranty Percentage set forth in the Opening Bid, with successive overbids in increments of not less than one-quarter percentage point (0.25%) above the Guaranty Percentage of the prior bid. (ii) If the Opening Bid includes a Purchase Agreement, the first overbid above the Opening Bid shall be at least ten percent (10%) greater than the Opening Bid with successive overbids increments of at least five percent (5%) above the prior bid. (i) (j) (k) (l) The Bid(s) that the Debtor determines, after consultation with the Committee and Salus Capital, is the highest and best bid for a particular Asset(s) at the conclusion of the Auction and the terms and conditions set forth in the respective Agreement, shall be deemed the Winning Bid (defined below). Each Bid must be for an all-cash purchase price, with no contingencies to closing other than Bankruptcy Court approval of the respective Agreement. Each bid shall be to acquire the Assets proposed to be purchased on an as-is, where-is basis, without warranty or representation of any kind by the Debtor. The Auction will be conducted at the Hilton Garden Inn Hotel, 501 East Broad Street, Richmond, Virginia, on June -9-

10 25, 2012, commencing at 11:00 a.m. (Prevailing Eastern Time). At the Auction, the Debtor will entertain bids from Qualified Bidders, with the Opening Bid to serve as the initial bid. (m) (n) (o) (p) (q) (r) The Auction will conclude when no further proposals are presented by Qualified Bidders or at such other time as the Debtor, after consultation with the Committee and Salus Capital, shall determine. The Debtor will select the highest and best bid or combination of bids (the Winning Bid ), subject to Court approval and after consultation with the Committee and Salus Capital, and the Bidder or Bidders submitting the Winning Bid (the Winning Bidder(s) ) will be required to enter into a definitive Agreement (as modified by the bids submitted at the Auction) within one (1) business day of the Court s order approving the Sale to the Winning Bidder. If for any reason the Winning Bidder fails to consummate the respective Agreement or any of the transactions contemplated thereby, the entity submitting the next highest or best bid for the respective Asset(s) (the Backup Bidder ) will automatically be deemed to have submitted the highest and best bid and, which shall become the Winning Bid. The Bid of any Bidder failing to comply with these requirements may not be considered by the Debtor. The Debtor, after consultation with the Committee and Salus Capital, reserves the right to waive any Bid requirements set forth in these Auction Procedures. The Debtor reserves the right to select a stalking horse bidder for any of the Assets, after consultation with the Committee and Salus Capital. JURISDICTION AND VENUE 20. This Court has jurisdiction over this Motion under 28 U.S.C. 157 and This is a core proceeding under 28 U.S.C. 157(b). -10-

11 21. Venue of this case and this Motion in this District is proper under 28 U.S.C and The statutory predicates for the relief sought herein are sections 105(a), 363, and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, and RELIEF REQUESTED 23. By this Motion, the Debtor seeks entry of orders (I)(A) approving Auction Procedures, (B) scheduling the Auction to take place on June 25, 2012 at 11:00 a.m., and (C) scheduling a Sale Hearing for June 26, 2012 at 11:00 a.m.; (II) authorizing Sale the Assets free and clear of all liens, claims, and encumbrances (with said liens to attach to the proceeds of the Sale) pursuant to either an: (A) Agency Agreement or (B) Purchase Agreement; (III) authorizing, as applicable, the conduct of GOB Sales notwithstanding and waiving compliance with (A) any Lease Restrictions, (B) state laws, (C) and Fast Pay Laws; (IV) authorizing, as applicable, the assumption and assignment of Leases and/or sale of Lease Designation Rights; (V) waiving 14- day stay on all orders granting the relief sought herein; and (VI) and any such other relief as the Court deems just and proper. BASIS FOR RELIEF 24. The Debtor has identified Assets those that are unnecessary for its restructuring and emergence from chapter 11. To efficiently and effectively sell these Assets and recover the best value for these Assets for the Debtor s estate, the Debtor proposes to sell these Assets pursuant to an Auction. The proceeds will be used to satisfy, in the first instance, the claims of the Debtor s secured lender, Salus Capital. 25. Accordingly, the relief requested herein should be granted because it represents both an efficient method for the Debtor to accomplish this goal and an exercise of the Debtor s -11-

12 sound business judgment; and will enable the Debtor to maximize the value realized by its estate, creditors, and other parties-in-interest. I. THE PROPOSED AUCTION PROCEDURES SHOULD BE APPROVED. 26. To ensure that the Debtor obtains the maximum value for the Assets in connection with the Sale, the Debtor has determined to conduct the Auction pursuant to the terms and conditions set forth herein and in the proposed Auction Procedures Order attached hereto as Exhibit A. 27. Both before and since the Petition Date, the Debtor has been in consultation with various retail liquidators and other parties (both strategic and financial buyers) with regard to the potential Sale of the Assets. The Debtor has already conducted going out of business sales at a number of its retail store locations and sold certain of its assets located various Texas locations to a purchaser pursuant to a prior Court Orders [Docket Nos. 76, 492, 500, and 560]. This current Motion is an attempt by the Debtor to sell the Assets in an efficient and cost-effective manner. 28. To facilitate the Auction, the Debtor has already distributed (and will continue to distribute) information about the Assets and this Sale process ( Bid Packages ) to interested parties and invite them to the Auction. 6 As of the date hereof, the Debtor has transmitted Bid Packages to at least twenty-eight (28) interested parties. Accordingly, the Debtor believes that there will be robust bidding at the Auction for the Assets. 29. Pursuant to the Auction Procedures Order, the Debtor requests a hearing to approve the sale to the Winning Bidder (or Winning Bidders, as the case may be) be held before the Honorable Douglas O. Tice, United States Bankruptcy Judge, at the United States Bankruptcy Court for the Eastern District of Virginia, 701 East Broad Street, Courtroom 5100, Richmond, Virginia, 23219, on June 26, 2012 at 11:00 a.m. 6 The Debtor reserves the right to amend or otherwise change any information in the Bid Packages in any such manner as the Debtor deems to be in the best interest of its estate and creditors. -12-

13 30. The Debtor submits that the Auction Procedures set forth herein provide an appropriate framework for selling its Assets in an efficient and cost-effective manner and will enable the Debtor, in consultation with the Committee and Salus Capital, to analyze Bids received and select the Winning Bid(s) that maximizes the value of the Assets. 31. Accordingly the proposed Auction Procedures are in the best interests of the Debtor, its estate, and creditors, and should be approved. II. THE DEBTOR SHOULD BE AUTHORIZED TO SELL THE ASSETS FREE AND CLEAR OF LIENS, CLAIMS, AND ENCUMBRANCES. A. Selling the Assets Is an Exercise of the Debtor s Sound Business Judgment. 32. A chapter 11 debtor after notice and a hearing, may... sell... other than in the ordinary course of business, property of the estate[.] 11 U.S.C. 363(b)(1). A court can authorize a debtor to sell property of the estate outside of the ordinary course of business pursuant to Section 363(b)(1) of the Bankruptcy Code when there is a sound business purpose that justifies such use. See In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983); In re Delaware & Hudson R.R. Co., 124 BR. 169, 176 (D. Del. 1991); In re Ames Dept. Stores, Inc., 136 BR 357, 359 (Bankr. S.D.N.Y. 1992) (noting that store-closing sales are governed by Section 363(b)). Section 105(a) of the Bankruptcy Code provides in relevant part that [t]he court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. 105(a). 33. The Debtor submits that approval of, and authorization to implement, either a Purchase Agreement, an Agency Agreement, an Assignment Agreement, sale of Lease Designation Rights, or other agreement, is in the best interests of the Debtor s estate and creditors. The liens and security interests on any of the Assets sold shall attach to the proceeds of the sale in the same manner and priority as their pre-petition liens and encumbrances. -13-

14 B. Free and Clear Sale. 34. Pursuant to section 363(f)(3) of the Bankruptcy Code, a debtor may sell property of its estate free and clear of interests of entities other than the estate if 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.... Salus Capital, which holds a security interest in the majority of the Assets, has or will consent to the Sale. The Debtor does not believe that any other party holds a lien, claim, or encumbrance against the Assets besides Salus Capital, with the exception of GE s first mortgage lien on the Myrtle Beach Building. 35. The Debtor proposes that any liens, claims, and encumbrances against the Assets be transferred to and attach with equal priority (subject to any and all rights, claims, defenses, and objections thereto) to the proceeds of the Sale, consistent with section 363(f) of the Bankruptcy Code. C. Sale of the Assets Does Not Require Appointment of a Consumer Privacy Ombudsman. 36. Under section 363(b)(1) of the Bankruptcy Code, a chapter 11 debtor may sell or lease its consumer customer list or other personally identifiable information; however, if such sale is inconsistent with the debtor s privacy policy, section 332 governs appointment of a consumer privacy ombudsman (a CPO ). 37. Here, however, the Debtor does not propose to sell any customer data or personally identifiable information of customers in connection with the Sale and therefore submits that appointment of a CPO is unnecessary. In the event the Debtor later proposes to sell or transfer its customer lists or other personally identifiably information, the Debtor will promptly inform the Court and the U.S. Trustee and seek the appointment of a CPO in accordance with section 332 of the Bankruptcy Code. -14-

15 IV. WAIVER OF COMPLIANCE WITH LEASE RESTRICTIONS, SALE LAWS, AND FAST-PAY LAWS IS NECESSARY AND APPROPRIATE. 38. In the event the GOB Sale Rights are sold at Auction, the Debtor requests that the Court waive compliance with any Lease Restrictions, Sale Laws, and Fast-Pay Laws potentially applicable to the GOB Sales, because such provisions unduly restrict the Debtor s ability to maximize the value of its estate. A. Lease Restrictions Are Unenforceable in Chapter The Debtor believes that certain of the Leases for the Remaining Stores may contain provisions purporting to prohibit the Debtor from conducting the GOB Sales (the Lease Restrictions ). Courts have held that such provisions are unenforceable against a chapter 11 debtor, as they impermissibly restrain a debtor s ability to maximize the value realized for its assets under section 363 of the Bankruptcy Code. See In re R. H. Macy and Co., Inc., 170 BR. 69, (Bankr. S.D.N.Y. 1994) (lessor could not recover damages for breach of a covenant to stay open where debtor fulfilled fiduciary obligation by holding a store closing sale and closing the store); In re Ames Dep t Stores, Inc., 136 B.R. 357 (Bankr. S.D.N.Y. 1992); In re Tobago Bay Trading Co., 112 B.R. 463, 467 (Bankr. N.D. Ga. 1990) (finding that debtor s efforts to reorganize would be significantly impaired to detriment of creditors if lease provisions prohibiting debtor from liquidating its inventory were enforced); In re Lisbon Shops, Inc., 24 B.R. 693, 695 (Bankr. E.D. Mo. 1982) (holding restrictive lease provisions unenforceable in Chapter 11 case when debtor sought to conduct going-out-of-business sale). 40. Bankruptcy courts in this District and in other jurisdictions have granted similar relief in numerous cases, including this Court s prior approval of the Debtor s GOB Sales on January 3, [Docket No.192]. See In re Circuit City Stores, Inc., Case No (Bankr. E.D. Va. Nov. 10, 2008); In re The Rowe Companies, Case No (Bankr. E.D. -15-

16 Va. Sept. 25, 2006); In re Borders Group, Inc., Case No (Bankr. S.D.N.Y. July 21, 2011). 41. To the extent that any of the Leases contain Lease Restrictions, any attempt by the applicable landlords to enforce such provisions would harm the Debtor s estate and creditors by preventing the Debtor from conducting the GOB Sales. The Sale Guidelines annexed hereto as Exhibit 8.1 to the Agency Agreement, and incorporated into the Agency Agreement, adequately protect the interests of landlords and other affected parties by setting forth restrictions on advertising, permitted signage, and the manner in which the GOB Sales may be conducted. 42. For the foregoing reasons, the Debtor respectfully requests that the Court, as applicable: (i) authorize the Debtor and the Winning Bidder to conduct the GOB Sales without the need for compliance with any Lease Restrictions and (ii) confirm that the automatic stay pursuant to section 362 of the Bankruptcy Code precludes any landlord under any of the Leases or any other entity from taking any action to prevent, interfere with, or otherwise hinder the conduct of the GOB Sales or advertisement thereof. Cf. Missouri v. United States Bankruptcy Court, 647 F.2d 768, 776 (8th Cir. 1981) (any attempt to enforce regulations governing liquidation of grain warehouses directly conflicted with the bankruptcy court s control over property of debtor s estate and therefore violated automatic stay). B. The Court Should Waive Compliance With State and Local Sale Laws, Which Are Preempted by the Bankruptcy Code and Unnecessary. 43. Many state and local laws, statutes, rules, and ordinances contain special and often burdensome licensing or permitting requirements, waiting periods, time limits, and creditor notification provisions that a retailer conducting going-out-of-business sales must comply with outside of bankruptcy. Some states and localities may also have statutes, ordinances, or regulations requiring creditor notification before a company conducts a bulk sale (collectively, the Sale Laws ). However, the Debtor submits that compliance with such Sale Laws is -16-

17 unnecessary in the context of a chapter 11 bankruptcy case, where creditors receive notice of the proposed sale and have an opportunity to be heard by the Court. 44. Moreover, because the Debtor and the property of its estate are subject to this Court s jurisdiction, this Court will be able to supervise the GOB Sales and the liquidation of any assets sold via GOB Sales. GOB Sales are a legitimate and frequently used method by which a debtor can maximize the value realized from its property for the benefit of its estate and creditors. Accordingly, the Court should dispense with any state or local restrictions on retail liquidation sales, as such technical requirements are (a) unnecessarily burdensome on the Debtor s estate, to the detriment of the estate and creditors, (b) duplicative of the Court s existing supervision over the Debtor s conduct of the GOB Sales, and (c) preempted by the Bankruptcy Code. 45. Bankruptcy courts in this District and in other jurisdictions have granted similar relief in numerous cases, including this Court s prior approval of the Debtor s GOB Sales on January 3, [Docket No.192]. See, e.g., In re Circuit City Stores, Inc., Case No (Bankr. E.D. Va. Nov. 10, 2008); In re The Rowe Companies, Case No (Bankr. E.D. Va. Sept. 25, 2006); In re Mazur & Myer, Inc., Case No (Bankr. E.D. Va. Dec. 9, 2005); see also In re Borders Group, Inc., Case No (Bankr. S.D.N.Y. July 21, 2011); In re Footstar, Inc., Case No (Bankr. S.D.N.Y. Mar. 16, 2004); In re CWT Specialty Stores, Inc., Case No (Bankr. S.D.N.Y. Mar. 7, 2000); In re Just For Feet, Inc., Case No (Bankr. D. Del. Nov. 26, 1999); In re London Fog, Inc., Case No (Bankr. D. Del. Oct. 7, 1999). 1. Sale Laws Are Duplicative of Bankruptcy Court Supervision over the GOB Sales. 46. As a general matter, a debtor-in-possession must manage and operate the property according to the requirements of the valid laws of the state in which such property is -17-

18 situated U.S.C. 959(b). However, courts have held that 28 U.S.C. 959(b) does not apply to a debtor-in-possession or its agent that is liquidating estate assets. See, e.g., In re N.P. Mining Co., Inc., 963 F.2d 1449, (11th Cir. 1992) (section 959(b) does not apply when a debtor-in-possession is liquidating property and not operating its business); see also Missouri v. United States Bankruptcy Court, 647 F.2d 768, 778 n.18 (8th Cir. 1981) (same), cert. denied, 454 U.S (1982); In re Valley Steel Products Co., Inc., 157 B.R. 442, (Bankr. E.D. Mo. 1993) (same); In re Scott Housing Sys., Inc., 91 B.R. 190, 196 (Bankr. S.D. Ga. 1988) (same); Matter of Bourne Chemical Co., 54 B.R. 126, 135 (Bankr. D.N.J. 1984) (same). 47. Because the Debtor seeks to liquidate the inventory, furniture, fixtures, and equipment at the Remaining Stores and the Rocky Mount, North Carolina distribution center and thereafter will close the Remaining Stores completely, 28 U.S.C. section 959(b) does not require compliance with Sale Laws, especially when the Debtor will conduct the GOB Sales with the knowledge and oversight of the creditors and this Court. 2. Sale Laws Hinder the Purpose of Section 363 and Are Preempted by the Bankruptcy Code. 48. Compliance with Sale Laws would undermine the fundamental purpose of section 363(b) of the Bankruptcy Code by inhibiting the Debtor s ability to marshal and maximize the value realized for estate assets. Even if a Sale Law does not expressly except bankruptcy sales from its ambit, the Debtor submits that, to the extent that any Sale Law conflicts with the Bankruptcy Code, the Bankruptcy Rules, or applicable case law, such Sale Law is preempted by the applicable federal law, pursuant to the Supremacy Clause of the United States Constitution. To hold otherwise would severely impair the relief otherwise available under section 363 of the Bankruptcy Code. Courts have frequently recognized that federal bankruptcy law preempts state and local laws that contravene the underlying policies of the Bankruptcy Code. See, e.g., In re Shenango Group, Inc., 186 B.R. 623, 628 (Bankr. W.D. Pa. 1995) ( Trustees and debtors-in-possession have unique -18-

19 fiduciary and legal obligations pursuant to the bankruptcy code....[a] state statute [] cannot place burdens on them where the result would contradict the priorities established by the federal bankruptcy code. ). 49. Preemption of state law is not appropriate where the affected law governs conduct affecting public health and safety; however, where the state and local laws in issue involve only economic regulation, preemption is appropriate. See In re Baker & Drake, Inc., 35 F.3d 1348, (9th Cir. 1994) (finding no preemption when state law prohibiting taxicab leasing was promulgated in part as a public safety measure, but stating that federal bankruptcy preemption is more likely... where a state statute is concerned with economic regulation rather than with protecting the public health and safety ). Moreover, pursuant to section 105 of the Bankruptcy Code, the Court has the authority to permit the GOB Sales to proceed notwithstanding contrary Sale Laws. See 11 U.S.C. 105(a); In re Circuit City Stores, Inc., Case No (Bankr. E.D. Va. Nov. 10, 2008); In re The Rowe Companies, Case No (Bankr. E.D. Va. Sept. 25, 2006); see also In re Borders Group, Inc., Case No (Bankr. S.D.N.Y. July 21, 2011). 50. The requested relief is necessary to facilitate the successful consummation of the GOB Sale Rights, if being sold at the Auction, and is narrowly tailored to achieve that purpose. Specifically, the Debtor does not seek a blanket waiver of compliance with all state and local regulations, but only those that apply specifically to liquidation sales. The Debtor fully intends to be bound by and comply with all applicable state and local health and safety laws. 51. For the foregoing reasons, the Debtor respectfully requests that the Court, as applicable: (i) authorize the Debtor and the Winning Bidder to conduct the GOB Sales without the need for compliance with state and local Sale Laws and (ii) confirm that the automatic stay pursuant to section 362 of the Bankruptcy Code precludes any federal, state, or local agency, department, authority, or other governmental unit (as that term is defined in section 101(27) of -19-

20 the Bankruptcy Code) (collectively Governmental Units ) from taking any action to prevent, interfere with, or otherwise hinder the conduct of the GOB Sales or advertisement thereof. See Missouri, 647 F.2d at 776. C. Exemption from State Fast-Pay Regulations. 52. Many states have laws and regulations that require employers to pay an employee substantially contemporaneously with his or her termination. In many cases, these laws require the payment to occur either immediately or within a period of only a few days from the date such employee is terminated. The number of GOB Sales to be conducted simultaneously may result in a number of the Debtor s employees being terminated at the conclusion of the GOB Sales. The Debtor s payroll staff, systems, and processes will simply be unable to process the payroll information associated with these terminations in a manner that will be compliant with applicable Fast-Pay Laws, if any. 53. As discussed above, the Bankruptcy Code preempts state and local laws that conflict with its underlying policies, so long as the only state laws preempted concern economic regulation rather than the protection of public health and safety. Any Fast-Pay Laws in issue here are purely economic in nature, with no bearing on public health or safety, and are thus preempted by the Bankruptcy Code. The Court approved such relief in connection with the prior sales approved in this case. See Docket Nos. 192 and 492. See In re Borders Group, Inc., Case No (Bankr. S.D.N.Y. July 21, 2011); In re Linens Holding Co., Case No (Bankr. D. Del. Oct. 28, 2008). 54. The Debtor intends to pay employees terminated from the Remaining Stores and the Rocky Mount, North Carolina distribution center as expeditiously as possible, consistent with the Debtor s ordinary-course payroll procedures. The requirements imposed by Fast-Pay Laws are infeasible under these circumstances, are contrary to the purposes of the Bankruptcy Code, and their enforcement would be detrimental to the Debtor s estate and creditors. Forced -20-

21 compliance with the Fast-Pay Laws would require the Debtor to continue to pay employees after the conclusion of the GOB Sales during the period of several days while final payroll is being processed, causing the Debtor s estate to incur substantial administrative expense with no corresponding benefit. Accordingly, the Debtor respectfully requests that the Court grant the Debtor relief from compliance with any applicable Fast-Pay Laws. V. THE ASSUMPTION AND ASSIGNMENT OF LEASES AND/OR SALE OF LEASE DISGNATION RIGHTS IS VALID EXERCISE OF THE DEBTOR S BUSINESS JUDGMENT. 55. A court may authorize a debtor to sell property of its estate outside the ordinary course of business pursuant to section 363(b)(1) of the Bankruptcy Code where a sound business purpose justifies the sale. See In re W.A. Mallory Co., 214 B.R, 834 (Bankr. E.D. Va. 1997) (setting forth test to determine if debtor met the business judgment standard under Bankruptcy Code 363(b)(1): (i) sound business reason or emergency justifies preconfirmation sale, (ii) adequate and reasonable notice of sale was provided, (iii) sale proposed in good faith, and (iv) purchase price fair and reasonable); In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir. 1983). Moreover, the sale and assumption and assignment of a non-residential real property lease and/or the sale of lease designation rights for such leases is fully permissible in bankruptcy cases and nothing in either bankruptcy or non-bankruptcy prohibits this plainly salutary means of making available for the benefit of creditors the underlying economic value in a debtor s leases. In re Ames Department Stores, Inc., 287 B.R. 112, 115 (Bankr. S.D.N.Y. 2002). 56. Notice of the Debtor s intent to close certain locations was provided at the outset of its chapter 11 case. The Debtor s decision to close the Remaining Stores was made in consultation with the Debtor s secured lender Salus Capital and the Committee. 57. By this Motion, the Debtor has notified the Remaining Stores Lessors of its intent to sell and assume and assign and/or sell Lease Designation Rights and cure amounts, if any. The Debtor also seeks permission to provide Lessors with an opportunity to appear at the -21-

22 Sale Hearing if they object to the proposed cure amount for a particular Lease or for any other reason. A. Assumption and Assignment of the Leases to the Winning Bidder Should Be Approved. 58. A chapter 11 debtor, subject to the court s approval, may assume or reject any... unexpired lease of the debtor. 11 U.S.C. 365(a). A debtor s decision to assume or reject a lease is governed by the deferential business judgment standard, whereby the decision should be approved unless it is the product of bad faith, whim, or caprice. Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc. (In re Richmond Metal Finishers, Inc.), 756 F.2d 1043, 1046 (4th Cir. 1985) (establishing business judgment standard); In re A.H. Robins Co., Inc., 68 B.R. 705, 710 (Bankr. E.D. Va. 1986); see also, NLRB v. Bildisco & Bildisco, 465 U.S. 513, 523 (1984). 59. Any provision in a Lease prohibiting, restricting, or conditioning assignment of a lease, or purporting to modify or terminate the lease upon assignment, are not enforceable in the context of an assumption and assignment pursuant to section 365 of the Bankruptcy Code. See 11 U.S.C. 365(f)(1)( [N]otwithstanding a provision in an executory contract or unexpired lease of the debtor, or in applicable law, that prohibits, restricts, or conditions the assignment of such contract or lease, the trustee may assign such contract or lease. ) and 11 U.S.C. 365(f)(3)( Notwithstanding a provision in an executory contract or unexpired lease of the debtor such lease may not be terminated or modified because of the assumption or assignment of such lease by [the Debtor]. ). Accordingly, as a preliminary matter, any such provisions contained in a particular Lease are inoperative and unenforceable in the context of the assignment of the Lease to the Assignee. See Cinicola v. Scharffenberger, 248 F. 3d 110, 120 (3d Cir. 2001)(citing Leonard v. General Motors Corp. (In re Headquarters Dodge, Inc.), 13 F.3d 674, 682 (3d Cir.1993)( Section 365(f)(1) was designed to prevent anti-alienation or other -22-

23 clauses... from defeating... [the trustee s] ability to realize the full value of the debtor s assets. )(further citations omitted)). 60. Assumption of a Lease by the Debtor, and assignment thereof to the Winning Bidder, is a valid exercise of the Debtor s business judgment. The Debtor s assumption of a Lease a Winning Bidder wishes to assume is a necessary intermediate step before the assignment of the particular Lease. As stated herein, the Debtor is seeking to sell the GOB Sale Rights for the Remaining Stores, and, if successful, the Leases will not be part of the Debtor s reorganization efforts. Therefore, the Leases must be disposed of at the conclusion of any GOB Sales. Moreover, as a precondition to any assignment, the Winning Bidder must agree to pay the associated cure costs for any Lease(s) it wishes to assume. 61. Pursuant to section 365(k) of the Bankruptcy Code, upon assignment of a Lease prior to the deadline to assume or reject a lease under section 365(d), the Debtor proposes that it and its estate be relieved of any liability under that particular Lease for any breach occurring after the assignment of the Lease. See Cinicola v. Scharffenberger, 248 F. 3d at 120; see also, Kinder Morgan/Pinney Dock & Trans., LLC v. Mittal Steel USA, Inc. (In re Weirton Steel Corp.), 2007 W.L (Bankr. N.D. Va. July 6, 2007)(debtor s obligation to pay rent ended once the bankruptcy court entered an order approving the assumption and assignment of the underlying lease agreement) The assignment of a Lease is beneficial to the Debtor s estate, as it (a) eliminates any claim for damages that would result from the Debtor s rejection of the Lease, (b) enables the Debtor to pay the cure costs associated with that Lease without expending any existing funds of its estate, and (c) will result in a net cash benefit to the Debtor s estate. As the assumption of a Lease facilitates its assignment, which is beneficial to the estate, the Debtor s decision to assume a Lease represents a valid exercise of the Debtor s business judgment. Accordingly, the Debtor 7 A copy of this unpublished opinion as attached hereto as Exhibit D. -23-

24 should be authorized to assume and sell any Leases sought by a Qualified Bidder. See In re U.S. Airways Group, Inc., 287 B.R. 643, (Bankr. E.D. Va. 2002) (where burden of lease outweighs benefit to the estate, the debtor is allowed to reject a lease so as not to saddle the estate with an unwarranted expense.) 63. Finally, rights of interested parties will not impacted anymore than already permitted under the Bankruptcy Code. Any cure costs associated with the assumption of a particular Lease (or Leases) will be assumed by the proposed purchaser. For any Lease (or Leases) not assumed, Lessors will be permitted to assert a claim against the Debtor through the proof of claim process. 64. Relief similar to that requested herein was previously granted by this Court. See Docket No Accordingly, the assignment of the Debtor s interest in the Leases will reduce the amount of claims against the Debtor s estate while bolstering the estate s cash position, and is beneficial to the Debtor s estate, is supported by a sound business purpose, and should be approved. Alternatively, the sale of Lease Designation Rights should be approved. VI. IMMEDIATE RELIEF UNDER BANKRUPTCY RULES 6004(H) AND 6006(D) IS APPROPRIATE. 65. Unless the court orders otherwise, an order authorizing the sale of a debtor s property is stayed until the expiration of 14 days after entry of the order[.] Fed. R. Bankr. P. 6004(h) and 6006(d). The Debtor respectfully requests that any order granting the relief sought herein be effective immediately and provide that the 14-day stay set forth in Bankruptcy Rules 6004(h) and 6006(d) shall not apply thereto. 66. The failure to conduct the Auction and approve the Sale expeditiously will have a significant adverse effect on the value realized by the Debtor s estate from the designation of the Assets. Accordingly, the Debtor submits that waiver of the 14-day stay is appropriate. -24-

25 NOTICE 67. Notice of this Motion will be given to (i) the Office of the United States Trustee for the Eastern District of Virginia; (ii) counsel to Salus Capital; (iii) counsel to the Committee; (iv) the Securities and Exchange Commission; (v) the Internal Revenue Service; (vi) all relevant state and local taxing and governmental authorities; (vii) the landlords of the Remaining Stores; (viii) the National Association of Attorneys General; and (ix) all parties who have filed a Notice of Appearance in this case. In addition, notice of the Motion has been provided to various parties who have expressed an interest in the Assets. WAIVER OF MEMORANDUM OF LAW 68. Pursuant to Local Bankruptcy Rule (G), and because this Motion raises no novel issues of law and all applicable authority is set forth herein, the Debtor respectfully requests that the Court waive the requirement that this Motion be accompanied by a separate memorandum of law. NO PRIOR REQUEST 69. No previous request for the relief sought herein has been made to this or any other Court. WHEREFORE, the Debtor respectfully requests that the Court enter Orders, substantially in the forms annexed hereto, granting the relief requested herein and such other and further relief as the Court may deem just and proper. -25-

26 Dated: June 7, 2012 Richmond, Virginia Respectfully submitted, /s/ Troy Savenko LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) Bruce D. Buechler (NJ Bar No ) Mary E. Seymour (NJ Bar No ) Cassandra M. Porter (NJ Bar No ) Andrew David Behlmann (NJ Bar No ) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC Troy Savenko (Va. Bar No ) Christopher J. Hoctor (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East Second Street ( ) Post Office Box 2470 Richmond, Virginia (804) Counsel to the Debtor and Debtor in Possession -26-

27 EXHIBIT A AUCTION PROCEDURES ORDER

28 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: ROOMSTORE, INC., Debtor. Chapter 11 Case No DOT ORDER APPROVING AUCTION PROCEDURES AND SCHEDULING HEARING TO APPROVE SALE OF ASSETS Upon the motion (the Motion ), the Debtor seeks entry of orders (I)(A) approving Auction Procedures, 1 (B) scheduling the Auction to take place on June 25, 2012 at 11:00 a.m., and (C) scheduling a Sale Hearing for June 26, 2012 at 11:00 a.m.; (II) authorizing Sale the Assets free and clear of all liens, claims, and encumbrances (with said liens to attach to the proceeds of the Sale) pursuant to either an: (A) Agency Agreement or (B) Purchase Agreement; (III) authorizing, as applicable, the conduct of GOB Sales notwithstanding and waiving compliance with (A) any Lease Restrictions, (B) state laws, (C) and Fast Pay Laws; (IV) authorizing, as applicable, the assumption and assignment of Leases and/or sale of Lease 1 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion. LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) Bruce D. Buechler (NJ Bar No ) Mary E. Seymour (NJ Bar No ) Cassandra M. Porter (NJ Bar No ) Andrew David Behlmann (NJ Bar No ) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC Troy Savenko (Va. Bar No ) Christopher J. Hoctor (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East 2nd Street ( ) Post Office Box 2470 Richmond, Virginia (804) Counsel to the Debtor and Debtor-in-Possession

29 Designation Rights; (V) waiving 14-day stay on all orders granting the relief sought herein; and (VI) and any such other relief as the Court deems just and proper; and upon the record herein; and after due deliberation thereon; and good and sufficient cause appearing therefor, it is hereby FOUND AND DETERMINED THAT: 2 A. This Court has jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and Approval of the procedures and the transactions contemplated thereby is a core proceeding under 28 U.S.C. 157(b)(2)(A), (D), (N), and (O). Venue of this case in this district is proper pursuant to 28 U.S.C. 1409(a). B. Proper, timely, adequate, and sufficient notice of the Motion has been provided in accordance with sections 102(1), 105(a), and 363 of the Bankruptcy Code and Bankruptcy Rules 2002 and 6004, and no other or further notice is required. A reasonable opportunity to object or be heard regarding the relief requested in the Motion has been afforded to all interested persons and entities. Objections, if any, to the Motion have been withdrawn or otherwise resolved. C. The Debtor has demonstrated a compelling and sound business justification for this Court to grant the relief requested in the Motion regarding the sale process, including but not limited to approval of the Auction Procedures. D. Entry of this Order is in the best interests of the Debtor and its estate and creditors and all other parties-in-interest in this Bankruptcy Case. NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT: 1. The Motion is GRANTED as set forth herein, with respect to approval of the Auction Procedures. 2 Findings of fact shall be construed as conclusions of law and conclusions of law shall be construed as findings of fact where appropriate. See Fed. R. Bankr. P

30 2. Any remaining objections to the Motion or the relief requested therein that have not been withdrawn, waived, or settled, and all reservations of rights included in such objections are overruled in all respects and denied. 3. The Debtor is hereby authorized, but not directed, to conduct an Auction on June 25, 2012 at 11:00 a.m. 4. A hearing to approve sale of the Assets will take place before the Court on June 26, 2012 at 11:00 a.m. 5. The following Auction Procedures are approved: (a) (b) (c) A bid ( Bid ) shall consist of: (i) either a Purchase Agreement or an Agency Agreement identifying the initial offer for the Assets identified for purchase in the Agreement ( Bid Price ), (ii) a cash deposit of at least ten percent (10%) of the Bid Price, (iii) a written statement: (a) identifying the bidder or its true owners, (b) stating which Assets are contemplated for purchase; and (c) confirmation that the Bid is not subject to any further due diligence, financing contingency, and that all required approvals for the proposed transaction have been obtained ( Bid Statement ). Any Agency Agreement submitted with a Bid must be presented in substantially the same form as the model Agency Agreement. Any bidder that modifies the Agency Agreement must submit both a clean and marked copy of the modified Agency Agreement as part of its Bid. In order to be a Qualified Bidder, a bidder must submit its Bid by no later than June 19, 2012 at 2:00 p.m. (ET) (the Bid Deadline ) to: (i) Lowenstein Sandler PC, 65 Livingston Avenue, Roseland, New Jersey 07068, Attn: Bruce Buechler, Esq., bbuechler@lowenstein.com; (ii) Roomstore, Inc., Patterson Avenue, Richmond, Virginia, Attn: Steve Gidumal, sgidumal@virtuscapital.com; (iii) FTI Consulting, 200 State Street, 8th Floor, Boston, Massachusetts 02109, Attn: Steve Coulombe, steve.coulombe@fticonsulting.com; and (iv) Julius M. Feinblum Real Estate, Inc., 25 Fairchild -3-

31 Avenue, Suite 500, Plainview, New York Attn: Julius M. Feinblum, (d) (e) (f) Only Qualified Bidders, the Debtors, and representatives of the Committee and Salus Capital may attend the Auction. No Bid shall include the proposed acquisition or right to sell or otherwise convey the Debtor s: (a) 65% ownership interest in Mattress Discounters Group, LLC; (b) 31% ownership interest in Creative Distribution Services, LLC; (c) the Rocky Mount Property; (d) any receivables; (e) prepaid insurance, taxes, expenses, or deposits (f) customer lists or other consumer data; or (g) causes of action belonging to the Debtor s estate (collectively, the Excluded Assets ). Any Bid that includes the purchase and assumption and assignment of Leases or Lease Designation Rights must identify in the Bid Statement which Leases are included in the Bid. A list of Leases is attached hereto as Exhibit 1. (i) The Bid must also include an Assignment and Assumption of Lease Agreement ( Assignment Agreement ) substantially in the form attached hereto as Exhibit 2. Any bidder that modifies the Assignment Agreement must submit both a clean and marked copy of the Assignment Agreement as part of its Bid. (ii) If a Bid seeks assumption and assignment of a Lease that has a July 9, 2012 deadline for the Debtor to assume or reject the Lease, the Bid Statement must indicate that (a) the Bidder will notify the Debtor in writing by June 26, 2012 to assume the Lease and assign it to the Bidder (unless written consent permitting otherwise is obtained from both the Debtor and Lessor) and (b) Bidder agrees to fund the Debtor s July 2012 obligations under the Lease(s) whether or not the Lease(s) is ultimately assigned to the Bidder. -4-

32 (iii) If a Bid seeks to purchase Lease Designation Rights for a Lease (or Leases) that has a deadline for the Debtor to assume or reject the Lease by no later than July 9, 2012, the Bid Statement must indicate that (a) the Bidder will notify the Debtor in writing by June 26, 2012 to assume the Lease and assign it to the Bidder (unless written consent permitting otherwise is obtained from both the Debtor and Lessor) and (b) Bidder agrees to fund the Debtor s July 2012 obligations under the Lease(s) whether or not the Lease(s) Designation Rights are purchased by the Bidder. (g) (h) The Debtor reserves its right to sell the Assets in groups or lots which shall be identified at the Auction prior to announcement of the Opening Bid (defined below). The offer that the Debtor deems, after consultation with Salus Capital and the Committee, to be the highest and best offer shall be the opening bid at the Auction (the Opening Bid ). (i) If the Opening Bid includes an Agency Agreement, the first overbid above the Opening Bid shall be for a Guaranty Percentage (as that term is defined in the Agency Agreement) of not less than onequarter percentage point (0.25%) greater than the Guaranty Percentage set forth in the Opening Bid, with successive overbids in increments of not less than one-quarter percentage point (0.25%) above the Guaranty Percentage of the prior bid. (ii) If the Opening Bid includes a Purchase Agreement, the first overbid above the Opening Bid shall be at least ten percent (10%) greater than the Opening Bid with successive overbids increments of at least five percent (5%) above the prior bid. (i) The Bid(s) that the Debtor determines, after consultation with the Committee and Salus Capital, is the highest and -5-

33 best bid for a particular Asset(s) at the conclusion of the Auction and the terms and conditions set forth in the respective Agreement, shall be deemed the Winning Bid (defined below). (j) (k) (l) (m) (n) (o) (p) Each Bid must be for an all-cash purchase price, with no contingencies to closing other than Bankruptcy Court approval of the respective Agreement. Each bid shall be to acquire the Assets proposed to be purchased on an as-is, where-is basis, without warranty or representation of any kind by the Debtor. The Auction will be conducted at the Hilton Garden Inn Hotel, 501 East Broad Street, Richmond, Virginia, on June 25, 2012, commencing at 11:00 a.m. (Prevailing Eastern Time). At the Auction, the Debtor will entertain bids from Qualified Bidders, with the Opening Bid to serve as the initial bid. The Auction will conclude when no further proposals are presented by Qualified Bidders or at such other time as the Debtor, after consultation with the Committee and Salus Capital, shall determine. The Debtor will select the highest and best bid or combination of bids (the Winning Bid ), subject to Court approval and after consultation with the Committee and Salus Capital, and the Bidder or Bidders submitting the Winning Bid (the Winning Bidder(s) ) will be required to enter into a definitive Agreement (as modified by the bids submitted at the Auction) within one (1) business day of the Court s order approving the Sale to the Winning Bidder. If for any reason the Winning Bidder fails to consummate the respective Agreement or any of the transactions contemplated thereby, the entity submitting the next highest or best bid for the respective Asset(s) (the Backup Bidder ) will automatically be deemed to have submitted the highest and best bid and, which shall become the Winning Bid. The Bid of any Bidder failing to comply with these requirements may not be considered by the Debtor. -6-

34 (q) The Debtor, after consultation with the Committee and Salus Capital, reserves the right to waive any Bid requirements set forth in these Auction Procedures. (r) The Debtor reserves the right to select a stalking horse bidder for any of the Assets, after consultation with the Committee and Salus Capital. 6. To the extent that any provision of this Order is inconsistent with any prior order or pleading with respect to the Motion, the terms of this Order shall govern. The provisions of this Order are non-severable and mutually dependent. 7. This Court shall retain jurisdiction over this Order and any disputes relating hereto or arising herefrom. 8. This Order is effective immediately upon entry and the stay of Bankruptcy Rules 6004(h) and 6006(d) are hereby waived. ENTERED: UNITED STATES BANKRUPTCY JUDGE -7-

35 WE ASK FOR THIS: LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) Bruce D. Buechler (NJ Bar No ) Mary E. Seymour (NJ Bar No ) Cassandra M. Porter (NJ Bar No ) Andrew David Behlmann (NJ Bar No ) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC Troy Savenko (Va. Bar No ) Christopher J. Hoctor (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East Second Street ( ) Post Office Box 2470 Richmond, Virginia (804) Counsel to the Debtor and Debtor in Possession CERTIFICATION UNDER LOCAL RULE (C) I hereby certify that notice of the Debtor s intent to seek entry of the foregoing proposed order was provided to the parties identified in the Motion. -8-

36 EXHIBIT 1 TO AUCTION PROCEDURES ORDER LIST OF 28 LOCATIONS

37 Store Number Store Name Street Address City State Cure Amount Marlow Heights 4350 Branch Ave. Marlow Heights MD $ 43, Lanham 7970 Annapolis Rd. Lanham MD 58, Charleston Heights 7558 Rivers Ave Charleston HGTS SC 42, Bel Air 5 S. Belair Pkwy, Suite 701 Bel Air MD 38, Rockville 1150 Rockville Pike Rockville MD 82, Durham 4521 Chapel Hill Blvd. Durham NC 31, Raleigh - Glenwood 8331 Glenwood Ave. Raleigh NC 113, Raleigh (Capital Blvd.) 5220 Capital Blvd. Raleigh NC 94, Seven Corners 6230 Seven Corners Center Falls Church VA 79, Annapolis 150 L Jennifer Rd. Annapolis MD Baltimore (Catonsville) 6501-D Baltimore National Pike Catonsville MD 113, Westminster 15 Engler Road Westminster MD 9, Virginia Beach 5144 Virginia Beach Blvd. Virginia Beach VA 43, Glen Burnie 7425 N. Ritchie Hwy Glen Burnie MD 33, Fairfax 13055A Lee Jackson Mem Hwy Fairfax VA 97, Manassas Bulloch Drive Manassas VA 115,205 1 Cure Amounts do not include December 2011 stub rent and other charges due under the leases.

38 Store Cure Number Store Name Street Address City State Amount Columbia 6141 Columbia Crossing Circle Columbia MD 96, Newport News 365 Chatham Drive Newport News VA 54, Sterling Community Plaza, # 140 Sterling VA 112, Myrtle Beach (Ground Lease) 1214 Port Drive Myrtle Beach SC 39, Waldorf 3015 Festival Way Waldorf MD 94, Woodbridge 2542 Prince William Parkway Woodbridge VA Fredericksburg 4040 Plank Rd Fredericksburg VA 19, Fayetteville 1918-B Skibo Road Fayetteville NC 78, Wilmington 524 S. College Road Wilmington NC 61, Winchester 150 Delco Plaza Winchester VA 9, Laurel (Bargain Depot) Richmond RS World 201 Fort Meade Road Laurel MD 96, W. Broad Street Glen Allen VA 97,322-2-

39 EXHIBIT 2 TO AUCTION PROCEDURES ORDER FORM OF ASSIGNMENT AGREEMENT

40 ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT THIS ASSIGNMENT AND ASSUMPTION OF LEASE AGREEMENT (this Assignment and Assumption Agreement ), is entered into as of, 2012 by and between RoomStore, Inc, a Virginia Corporation, Debtor-in-Possession ( Assignor or Tenant ), and ( Assignee ). RECITALS: A. ( Landlord ) and Assignor, as Tenant, entered into that certain Lease Agreement, dated (as amended, the Lease ), relating to Store No. (the Demised Premises ) located. B. Assignor desires to assign all of its right, title, interest and obligation in, to, and under the Lease to Assignee, and Assignee desires to assume, observe and perform all of the Assignor s right, title, interest and obligations in, to, and under the Lease, in accordance with the terms, covenants, and conditions described in this Assignment and Assumption Agreement. C. Assignor (the Debtor ) is currently a debtor in a case (the Chapter 11 Case ) under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) currently pending before the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court ), styled and numbered In re RoomStore, Inc., Case No (DOT). The Chapter 11 Case was filed by the Debtor on December 12, 2011 (the Petition Date ). D. Subject to the satisfaction of the Conditions (as defined in Paragraph 7), effective as of the Delivery Date (as defined in Paragraph 8), Assignor desires to assign all of its right, title, interest and obligation in to, and under the Lease to Assignee, and Assignee desires to assume, observe and perform all of the Assignor s right, title, interest and obligations in, to, and under the Lease, in accordance with the terms, covenants, and conditions described below. NOW, THEREFORE, in consideration of the Consideration (as defined in Paragraph 6), the mutual covenants of the parties herein set forth, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Incorporation of Recitals. The Recitals set forth above are hereby incorporated by reference as if fully set forth herein. 2. Lease. A true and correct copy of the Lease, as it may have been amended, has been exchanged by the parties. 3. Assignment. Subject to the satisfaction of the Conditions, effective as of the Delivery Date, (a) Assignor hereby assigns to Assignee all of Assignor s right, title, and interest in the Lease, (b) Assignee hereby accepts such assignment, and (c) Assignor shall deliver possession of the Demised Premises to Assignee in accordance with the terms of Paragraph 8. Any rent and other charges (including, without limitation, annual or base rent, additional rent, Tenant s proportionate share of ad valorem real estate taxes and assessments, utility charges, and Tenant s proportionate share of the costs of maintaining the common areas, in each case which accrue under the Lease for the period from the date of the filing of the Chapter 11 Cases to the Delivery Date (the Post-

41 Petition Period )), shall be prorated between Assignor and Assignee as of the Delivery Date (with all such rent and charges attributable to the Delivery Date being payable by Assignor), and Assignor s payment of such rent and other charges under the Lease for the month in which the Delivery Date occurs shall be adjusted accordingly. If actual amounts of any variable or additional rent or charges are not determinable as of the Delivery Date, then the parties shall prorate such charges based on the most recent prior charges available. Assignor shall be responsible for payment to Landlord of all Lease obligations relating to the Post-Petition Period, which Assignor shall pay to Landlord within five business days of entry of an order approving this Assignment and Assumption Agreement. Notwithstanding the foregoing, Assignee shall be responsible for any year-end reconciliations of such charges that may be payable to the Landlord, whether such reconciliations apply to periods before or after the Delivery Date. 4. Assumption. Subject to the satisfaction of the Conditions, effective as of the Delivery Date, Assignee hereby assumes all of the terms, covenants, and conditions of the Lease to be satisfied or performed by the Tenant under the Lease, including all such terms, covenants, and conditions to pay the Annual Rent and Additional Rent until the expiration or earlier termination of the Lease, in each case that first arise or accrue and first become due and payable under the Lease from and after the Delivery Date, all with full force and effect as if the Assignee had signed the Lease originally as the Tenant named therein and as a party thereto. Assignee covenants and agrees that it will recognize Landlord as the Landlord under the Lease in the same manner and to the same extent as if Assignee were the original Tenant thereunder. 5. Assignor Released and Transfer Taxes. Notwithstanding anything contained in the Lease to the contrary, pursuant to Section 365 of the Bankruptcy Code, including, without limitation subsection (k) thereof, this Assignment and Assumption Agreement shall operate to release Assignor as of the Delivery Date from any and all obligations arising under or in connection with the Lease, with respect to the period from and after the Delivery Date. The Assignee shall be solely responsible for payment of any and all sales, transfer and recording taxes, stamp taxes or other taxes relating to the assignment of the Lease. 6. Consideration. In consideration for Assignor s assignment of the Lease to Assignee on the date on which all of the Conditions set forth in paragraph 7 below are satisfied, Assignee shall pay to Assignor by certified check or wire transfer the sum of $ (the Consideration ). 7. Conditions. This Assignment and Assumption Agreement is conditioned upon, and shall only take effect upon, the satisfaction of the following conditions precedent (each a Condition and, collectively, the Conditions ): (a) Assignee has paid the Consideration and Cure Costs (defined in paragraph 10 below) to the Assignor; (b) This Assignment and Assumption Agreement has been fully executed by Assignor and Assignee; and (c) The Bankruptcy Court enters an Order authorizing the Debtor to assume and assign the Lease to the Assignee and approving the Consideration (the Bankruptcy Court Order ). 8. Possession; Delivery Date. Subject to the satisfaction of the Conditions, Assignor shall deliver possession of the Demised Premises (together with all master keys, alarm codes, all permits, licenses, warranties, guarantees that have not yet expired, plans and specifications, all to the -2-

42 extent in Tenant s possession), to Assignee on the Delivery Date on an as is, where is basis and without any representation or warranty from Assignor whatsoever, and Assignee hereby releases Assignor from and against all claims, liability, cost, loss, damage, or expense arising out of the condition of the Demised Premises on the Delivery Date. As used herein, the phrase Delivery Date shall mean the first business day immediately following the date on which all Conditions have been satisfied. Any property of Assignor remaining in the Demised Premises after the Delivery Date shall be deemed abandoned by Tenant. 9. Condemnation and Casualty. (a) Condemnation. If after the full execution and delivery of this Assignment and Assumption Agreement and prior to the Delivery Date, any entity having the power of condemnation initiates proceedings to acquire by eminent domain or condemnation any material portion of or interest in the Demised Premises (a Taking ), Assignor shall promptly notify Assignee and Assignee shall have the right to terminate this Assignment and Assumption Agreement by notice to Assignor given prior to the earlier of (a) twenty (20) days from the date Assignee receives the foregoing notice from Assignor and (b) the Delivery Date. If Assignee does not elect to so terminate this Assignment and Assumption Agreement, then this Assignment and Assumption Agreement shall not terminate, and provided that the Delivery Date occurs, Assignee shall be entitled to receive any award payable to Tenant as the result of the Taking, subject to the terms of the Lease. (b) Casualty. If after the full execution and delivery of this Assignment and Assumption Agreement and prior to the Delivery Date, all or a material portion of the Demised Premises is materially damaged or destroyed by any cause ( Casualty ), Assignor shall promptly notify Assignee and Assignee shall have the right to terminate this Assignment and Assumption Agreement by notice to Assignor given prior to the earlier of (a) twenty (20) days from the date Assignee receives the foregoing notice from Assignor and (b) the Delivery Date. If Assignee does not elect to terminate this Assignment and Assumption Agreement, then this Assignment and Assumption Agreement shall not terminate, and provided that the Delivery Date occurs, Assignor shall pay to Assignee all insurance proceeds payable to Assignor with respect to the Casualty, subject to the terms of the Lease. 10. Cure Costs. In addition to performing its obligations under paragraph 3 of this Assumption and Assignment Agreement and paying the Consideration required in paragraph 6 above, Assignee shall cure all monetary defaults required to be cured pursuant to section 365(b)(1) of the Bankruptcy Code in connection with the assumption of the Lease. 11. Notices. All notices, requests, demands, and other communications hereunder shall be in writing and shall be given by (a) established express delivery service, such as Federal Express, which maintains delivery records, or (b) certified mail with signed return receipt, or (c) hand delivery to the parties at the following addresses, or to such other or additional persons or at such other address as the parties may designate by notice in the above manner: To Assignor: RoomStore, Inc Patterson Avenue Richmond, VA Attn: Legal Department -3-

43 To Assignee: 12. Brokers. Each party represents and warrants that, except for Julius M. Feinblum Real Estate, Inc. (whose fee or commission shall be paid by Assignor pursuant to separate agreement), it dealt with no broker or brokers in connection with the negotiation, execution and delivery of this Assignment and Assumption Agreement. Each party shall, and does hereby, indemnify, defend and save the other parties harmless from and against any losses, damages, penalties, claims or demands of whatsoever nature arising from a breach of its foregoing representation including, without limitation, reasonable attorneys fees and expenses. The foregoing indemnity shall survive the Assignment and Assumption Agreement and the Delivery Date. 13. Authority. Each of the parties hereto represents and warrants to the other the following: (a) it has the authority to enter into this Assignment and Assumption Agreement; and (b) the person(s) executing this Assignment and Assumption Agreement on its behalf are duly authorized to do so and this Assignment and Assumption Agreement is a legally binding obligation. 14. Entire Understanding. Except as set forth in the Order of the Bankruptcy Court authorizing the Debtors to enter into this Assignment and Assumption Agreement, this Assignment and Assumption Agreement sets forth the entire understanding of the parties in connection with the subject matter hereof. None of the parties hereto has made any statement, representation, or warranty in connection herewith which has been relied upon by any other party hereto or which has been an inducement for any party to enter into this Assignment and Assumption Agreement, except as expressly set forth herein. It is expressly understood and agreed that this Assignment and Assumption Agreement may not be altered, amended, modified, or otherwise changed in any respect whatsoever except by a writing duly executed by authorized representatives of the parties hereto. The parties agree that all agreements are merged into this Assignment and Assumption Agreement which alone sets forth the understanding of the parties, and that they will make no claim at any time that this Assignment and Assumption Agreement has been altered or modified or otherwise changed by oral communication of any kind or character. The Parties agreed that this Assumption and Assignment Agreement shall be construed as jointly drafted by the Parties. 15. Binding Effect. The terms and conditions of this Assignment and Assumption Agreement shall be binding upon and shall inure to the benefit of the parties hereto, and their respective heirs, successors and assigns. 16. Headings. This section and paragraph heading contained in this Assignment and Assumption Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Assignment and Assumption Agreement. 17. Counterparts. This Assignment and Assumption Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall together constitute one and the same instrument. The parties shall be bound by their signatures transmitted by facsimile or electronic mail (in.pdf format) as if such signatures were original ink signatures. They further agree to forward original ink signatures promptly following the transmission of facsimile or electronic signatures. This Assignment and Assumption Agreement shall be enforceable with facsimile or electronic signatures if one or more parties does not deliver an original signature. -4-

44 18. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the state of Virginia without regard to conflicts of law principals thereof, except where governed by the Bankruptcy Code. 19. Consent to Jurisdiction. Each of the parties hereto irrevocably and unconditionally submits, for itself and its properties, to the exclusive jurisdiction of the Bankruptcy Court, in any action or proceeding arising out of or relating to this Assignment and Assumption Agreement. 20. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS ASSIGNMENT AND ASSUMPTION AGREEMENT. EACH PARTY HERETO ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS PARAGRAPH. IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Assumption Agreement to be made this as of the date first written above. ASSIGNOR: RoomStore, Inc. By: Its: ASSIGNEE: By: Its: -5-

45 EXHIBIT B MODEL AGENCY AGREEMENT

46 AGENCY AGREEMENT This Agency Agreement (the Agreement ) is made as of this [ ] day of June 2012, by and between RoomStore, Inc., a Virginia corporation with a principal place of business located at Patterson Avenue Richmond, VA (the Merchant ), and [ ], a [ ] company with a principal place of business located at [ ] (the Agent and together with the Merchant, the Parties ). RECITALS WHEREAS, on December 12, 2011, the Merchant filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) in the United States Bankruptcy Court for the Eastern District of Virginia (the Bankruptcy Court ), and the Merchant s bankruptcy case is currently pending before the Bankruptcy Court under case number WHEREAS, on June [ ], 2012, the Merchant filed the Motion of Debtor for Entry of Orders Pursuant to 11 U.S.C. 105(a), 363, and 365 of the Bankruptcy Code and Bankruptcy Rules 6004 and 6006 Approving Auction Procedures for the Sale of Assets Free and Clear, the Assumption and Assignment of Leases and Contracts and/or Sale of Lease Designation Rights, and Related Relief [Docket No. [ ]] with the Bankruptcy Court seeking, amongst other relief, approval of procedures for an auction (the Auction ) of the inventory and furniture, fixtures, and equipment located at the Remaining Stores (defined below). WHEREAS, on June [ ], 2012, the Bankruptcy Court entered the Order Approving Auction Procedures and Scheduling Hearing to Approve Sale of Assets ( Auction Procedures Order ) [Docket No. [ ]] approving the Merchant s proposed procedures for the Auction, scheduling the Auction, and scheduling a final hearing (the Sale Hearing ) to approve of the Merchant s entry into this Agreement with the successful bidder at the Auction. WHEREAS, the Merchant conducted the Auction on June [ ], 2012, commencing at [ ]:00 a.m. (Prevailing Eastern Time), and at the conclusion of the Auction, the Agent s proposal was selected as the highest and best bid. WHEREAS, the Bankruptcy Court held the Sale Hearing on June [ ], 2012, at [ ]:00 a.m. (Prevailing Eastern Time), and at the conclusion thereof, entered the Order Approving Entry Into Agency Agreement and Sale Procedures and Authorizing the Debtor and the Agent to Conduct GOB Sales (the Approval Order ) [Docket No. [ ]], authorizing the Merchant and the Agent to, among other things, enter into this Agreement and consummate all of the transactions contemplated hereby. WHEREAS, the Merchant operates retail stores and a warehouse in the United States and desires that the Agent act as the Merchant s exclusive agent for the limited purpose of selling all of the Merchandise (as hereinafter defined) located in the Distribution Center (as hereinafter defined) and the Merchant s retail stores identified on Exhibit 1 attached hereto (each

47 individually a Remaining Store and collectively the Remaining Stores ) and the locations thereof ( Remaining Store Locations ) and any Additional Agent Merchandise that has been or will be transferred to the Stores, by means of a store closing, sale on everything, everything must go, bankruptcy liquidation going out of business, GOB or similarly themed sale (as further described below, the Sale ). NOW THEREFORE, in consideration of the mutual covenants and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent and Merchant hereby agree as follows: Section 1. Definitions and Exhibits 1.1 Defined Terms. The terms set forth below are defined in the Sections referenced of this Agreement: Defined Term Section Reference Additional Agent Merchandise Section 8.9(a)(i) Additional Taxes and Penalties Section 8.3 Adjustment Amount Section 3.3(a) Agency Accounts Section 3.3(e) Agency Documents Section 11.1(b) Agent Preamble Agent Claim Section 12.5 Agent Indemnified Parties Section 13.1 Agreement Preamble Augment Recovery Amount Section 3.1(c) Approval Order Section 2.3 Bankruptcy Code Recitals Bankruptcy Court Recitals Benefits Cap Section 4.1(c) Central Services Expenses Section 4.1 Definitions Remaining Store(s) Recitals Confirmation Order Section 6.1 Cost File Section 5.3(a) Cost Value Section 5.3(a) Customer List Amount Section 3.1(d) Customer List Order Section 8.13 Defective Merchandise Section 5.2(b) Designated Deposit Accounts Section 3.3(g) Distribution Center Section 15 Estimated Guaranteed Amount Section 3.3(a) Excluded Benefits Section 4.1 Definitions Excluded Defective Merchandise Section 5.2(b)(ii) Expenses Section 4.1 Expense L/C Section 4.2(b) -3-

48 Event of Default Section 14 Final Inventory Report Section 3.3(a) Final Reconciliation Section 8.7(b)(i) Fulfillment Merchandise Section 5.2(b)(iii) Fulfillment Processing Expenses Section 8.10 Global Inventory Adjustments Section 5.3(b) Gross Rings Section 6.3 Gross Rings Period Section 6.3 Guaranteed Amount Section 3.1(a) Guaranty Percentage Section 3.1(a) Guaranty L/C Section 3.3(d) Initial Guaranty Payment Section 3.3(a) Inventoried Location(s) Section 5.1(a) Inventory Completion Date Section 5.1(a) Inventory Date Section 5.1(a) Inventory Taking Section 5.1(a) Inventory Taking Instructions Section 5.1(a) Inventory Taking Service Section 5.1(a) Lease Assumption Notice Section 8.11(a) Lender Section 3.3(a) Liens Section 2.3(c) Merchandise Section 5.2(a) Merchant Preamble Merchant Consignment Goods Section 5.4 Merchant Indemnified Parties Section 13.2 Occupancy Expenses Section 4.1 Definitions On Hand Fulfillment Orders Section 8.10 Owned FF&E Section 15 Proceeds Section 7.1 Recovery Amount Section 3.1(b) Remaining Merchandise Section 3.2 Remaining Stores Recital Remaining Store Locations Recital Retained Employee Section 9.1 Retention Bonus Section 9.4 Returned Merchandise Section 8.5 Sale Recitals Sale Commencement Date Section 6.1 Sale Guidelines Section 8.1 Sale Term Section 6.1 Sale Termination Date Section 6.1 Sales Taxes Section 8.3 Salus Capital Section 3.3(a) Third Party Section 4.1 Definitions Vacate Date Section 6.2 WARN Act Section

49 1.2 Exhibits. The Exhibits annexed to this Agreement, as listed below, are an integral part of this Agreement: Exhibit Section Reference Description Exhibit 1 Recitals Remaining Stores Exhibit 3.3(a) Section 3.3(a) Wire Transfer Instructions Exhibit 3.3(d) Section 3.3(d) Form of Guaranty L/C Exhibit 4.1(a) Section 4.1(a) Occupancy Expense Schedule for Remaining Stores Exhibit 4.2(b) Section 4.2(b) Form of Expense L/C Exhibit 5.1(a) Section 5.1(a) Inventory Taking Instructions Exhibit 5.2(b) Section 5.2(b) Excluded Defective Merchandise Exhibit 8.1 Section 8.1 Sale Guidelines Exhibit 11.1(d) Section 11.1(d) Pre-Existing Liens Exhibit 11.1(m) Section 11.1(m) Pending Matters Exhibit 11.1(p) Section 11.1(p) Merchandise Mix Section 2. Appointment of Agent and Sale of Certain Assets and Rights 2.1 Appointment of Agent. Effective on the date hereof and subject to the entry of the Approval Order, the Merchant hereby irrevocably appoints Agent, and Agent hereby agrees to serve, as Merchant s exclusive agent for the limited purpose of conducting the Sale at the Remaining Stores and disposing of Merchant s Owned FF&E and Merchandise, in accordance with the terms and conditions of this Agreement. 2.2 Approval Order. On June [ ], 2012, the Bankruptcy Court entered the Approval Order, which is in form and substance satisfactory to Agent and Merchant. The Approval Order provides, among other things, that (i) this Agreement is in the best interests of Merchant, Merchant s estate, creditors, and other parties in interest; (ii) this Agreement (and each of the transactions contemplated hereby) is approved in its entirety; (iii) Merchant and Agent shall be authorized to take any and all actions as may be necessary or desirable to implement this Agreement and each of the transactions contemplated hereby; (iv) upon the payment of the Guaranteed Amount Deposit and delivery of the Guaranty L/C and Expense L/C, Agent shall be entitled to sell all Merchandise and Owned FF&E (subject to Merchant s rights in Section 15 hereof) at the Inventoried Locations (if any), free and clear of all liens, claims, or encumbrances thereon; (v) upon the payment of the Guaranteed Amount Deposit and delivery of the Guaranty L/C and the Expense L/C to Lender, presently existing liens encumbering all or any portion of the Merchandise or the Proceeds shall attach only to the Guaranteed Amount, the net proceeds from the sale of the Owned FF&E, and amounts reimbursed by the Agent to Merchant on account of Expenses; (vi) Agent shall have the right to use the Stores and all related Store services, furniture, fixtures, equipment, and other assets of Merchant as designated hereunder for the purpose of conducting the Sale, free of any interference from any entity or person; (vii) Agent, as agent for Merchant, is authorized to conduct, advertise, post signs, and otherwise promote the Sale as a store closing, sale on everything, everything must go, or similarly themed sale, without further consent of any person (other than Merchant as provided for herein), -5-

50 in accordance with the terms and conditions of this Agreement and the form of sale guidelines attached hereto as Exhibit 8.1 (as the same may be modified and approved by the Bankruptcy Court and subject to the reasonable satisfaction of Merchant and Agent) and without further compliance with applicable federal, state or local laws governing, inter alia, the conduct of store closing sales (the Liquidation Sale Laws ), other than those designed to protect public health and safety (the Sale Guidelines ); (viii) Agent shall be granted a limited license and right to use until the Sale Termination Date the trade names, customer lists (consistent with the Debtor s consumer privacy policy), and logos relating to and used in connection with the operation of the Stores, solely for the purpose of advertising the Sale in accordance with the terms of the Agreement; (ix) each and every federal, state, or local agency, department, or governmental authority with regulatory authority over the Sale and all newspapers and other advertising media in which the Sale is advertised shall be directed to accept the Approval Order as binding and to allow Merchant and Agent to consummate the transactions provided for in this Agreement, including (without limitation) the conducting and advertising of the Sale in the manner contemplated by this Agreement, and no further approval, license, or permit of any governmental authority shall be required; (x) all utilities, landlords, creditors, and all persons acting for or on their behalf shall not interfere with or otherwise impede the conduct of the Sale, institute any action in any court (other than in the Bankruptcy Court) or before any administrative body that in any way directly or indirectly interferes with or obstructs or impedes the conduct of the Sale; (xi) the Bankruptcy Court shall retain jurisdiction over the parties to enforce this Agreement; (xii) Agent shall not be liable for any claims against Merchant other than as expressly provided for in this Agreement and the Approval Order, and Agent shall have no successor liabilities whatsoever with respect to the Merchant; (xiii) Agent s security interest provided herein and sales of Merchandise shall be protected in the event that the Approval Order is reversed or modified on appeal pursuant to Sections 364(e) and 363(m); (xiv) any amounts owed by Merchant to Agent under this Agreement shall be granted the status of administrative expense claims in Merchant's bankruptcy case pursuant to Section 503(b) and 507(a) of the Bankruptcy Code and secured by valid and perfected first-priority security interests in accordance with and subject to Section of this Agreement; (xv) a finding that time is of the essence in entering into this Agreement and commencing the Sale at the Stores uninterrupted; (xvi) a finding that the Merchant s decisions to (a) enter into this Agreement and (b) make payments required by this Agreement are a reasonable exercise of the Merchant s sound business judgment consistent with its fiduciary duties and are in the best interests of the Merchant, its estate, its creditors, and other parties in interest; (xvii) a finding that this Agreement was negotiated in good faith and at arms length between the Merchant and the Agent; (xviii) a finding that Agent's performance and continued performance under this Agreement was and will be, and payment of the Guaranteed Amount under this Agreement was and will be so made, in good faith and for valid business purposes and uses, as a consequence of which Agent is entitled to the protection and benefits of section 364(e) of the Bankruptcy Code; and (xix) in the event any or all of the provisions of the Approval Order are modified, amended or vacated by a subsequent order of the Bankruptcy Court or any other court, Agent shall be entitled to the protections provided in Bankruptcy Code section 364(e) and, no such appeal, modification, amendment or vacateur shall affect the validity and enforceability of the liens or priority authorized or created under this Agreement or the Approval Order. -6-

51 2.3 Authority. Except for incurring Expenses in connection with the Sale and as otherwise specifically provided in this Agreement, Agent shall have no authority, and shall not represent that it has any authority, to enter into any contract, agreement or other arrangement or take any other action, by or on behalf of Merchant, that would have the effect of creating any obligation or liability, present or contingent, on behalf of or for the account of Merchant without Merchant s prior written consent. Section 3. Guaranteed Amount and Other Payments 3.1 Payments to Merchant and Agent. (a) As a guaranty of Agent s performance hereunder, in addition to the payment of Expenses as provided for in Section 4.1 hereof and any other amounts payable by Agent to Merchant hereunder, Agent guarantees that Merchant shall receive the sum of [ ] percent ([ ]%) (the Guaranty Percentage ) of the aggregate Cost Value of Merchandise located in the Inventoried Locations (the Guaranteed Amount ). The Guaranteed Amount will be calculated based upon the aggregate Cost Value of the Merchandise as determined by (A) the final certified report of the Inventory Taking Service after verification and reconciliation thereof by Agent and Merchant, (B) the aggregate amount of Gross Rings (as adjusted for shrinkage per this Agreement) and (C) the aggregate Cost Value of Returned Merchandise not otherwise included in the Inventory Taking. (b) To the extent that Proceeds exceed the sum of: (x) the Guaranteed Amount and (y) Expenses of the Sale (the Sharing Threshold ), then all remaining Proceeds of the Sale above the Sharing Threshold shall be shared [ ] percent ([ ]%) to Merchant and [ ] percent ([ ]%) to Agent. All amounts, if any, to be received by Merchant from Agent in excess of the Sharing Threshold shall be referred to as the Recovery Amount. (c) In addition to the Guaranteed Amount, Agent hereby guarantees that the Merchant shall receive the greater of (x) [ ] percent ([ ]%) from the net proceeds of the sale of Additional Agent Merchandise in the Remaining Stores (subject to the terms of Section 8.9 hereof), or (y) $[ ] (the Minimum Augment Recovery Amount ; the greater of (x) or (y), the Augment Recovery Amount ). For purposes of this Section 3.1(c), net proceeds shall be deemed to exclude Sales Taxes, charges to customers for delivery services, and credit card fees associated with the sale of Additional Agent Merchandise. (d) Agent shall pay to Merchant the Guaranteed Amount, the Recovery Amount, and the Augment Recovery Amount in the manner and at the times specified in Section 3.3 below. (e) To insure accurate sales audit functions, as well as accurate calculations of the Recovery Amount and Augment Recovery Amount, if any, Agent shall be required to utilize the Agent s existing point-of-sale system for recording all sales of goods and Additional Agent Merchandise in the Remaining Stores. (f) Merchant agrees that any undisputed amounts due by Agent to Merchant pursuant to this Section 3 may in Agent s discretion be offset by the undisputed amount of -7-

52 Proceeds which have not, as of the applicable date of payment by Agent to Merchant, been transferred by Merchant to Agent. Merchant and Agent further agree that if at any time during the Sale Term Agent holds any amounts due to Merchant under this Agreement, Agent may, in its discretion, offset such amounts being held by it against any amounts due and owing by, or required to be paid by, Merchant hereunder. (g) If and to the extent that Agent over-funds any amounts due hereunder, then Merchant agrees to promptly reimburse such undisputed overpayment amounts to Agent. To the extent that any over-funded amounts have been transferred by Merchant to Lender, Merchant and/or Agent shall inform Lender of such overpayment and Lender agrees to disgorge such overpayment to Agent within three (3) business days after demand by Agent and receipt by Lender of a calculation in reasonable detail evidencing such overpayment. 3.2 Payments to Agent. After payment in full of the Guaranteed Amount, Recovery Amount, the Augment Recovery Amount, and the payment of all Expenses, Agent shall be entitled to retain (or be paid by Merchant, if Merchant s systems and accounts are used in the conduct of the Sale) any remaining Proceeds of the Sale. Provided that no Event of Default has occurred and continues to exist on the part of the Agent, all Merchandise remaining at the conclusion of the Sale shall become the property of Agent, free and clear of all liens, claims and encumbrances of any kind or nature ( Remaining Merchandise ); provided, however, the proceeds realized upon a sale or other disposition of the Remaining Merchandise shall constitute Proceeds hereunder for purposes of, inter alia, calculating the Recovery Amount due Merchant. 3.3 Time of Payments; Control of Proceeds. (a) Payment of Guaranteed Amount. On the first business day following entry of the Approval Order, Agent shall pay (the Initial Guaranty Payment ) to Salus Capital Partners, LLC, in its capacity as Merchant s secured lender and designee (the Lender ), ninety percent (90%) of the product of the Guaranty Percentage and the estimated aggregate Cost Value of the Merchandise to be included in the Sale from the Remaining Stores, as reflected on Merchant s books and records on the last business day immediately preceding the Sale Commencement Date and after giving effect to the Global Inventory Adjustment (the Estimated Guaranteed Amount ), with such Initial Guaranty Payment being made by wire transfer pursuant to the wiring instructions annexed hereto as Exhibit 3.3(a). Subject to the foregoing and Section 3.1(f) hereof, the Agent or Merchant, as the case may be, shall pay to the Lender or Agent, as the case may be, the amount (the Adjustment Amount ) by which the actual Guaranteed Amount exceeds or is less than the Initial Guaranty Payment actually paid as set forth above, within two (2) business days after the issuance of the final audited report of the aggregate Cost Value of the Merchandise by the Inventory Taking Service, after verification and reconciliation thereof by Agent, Merchant, and Lender (the Final Inventory Report ). Upon Agent s failure to timely pay the Adjustment Amount in the event the Guaranteed Amount exceeds the Initial Guaranty Payment, Lender or Merchant, as the case may be, shall be entitled to immediately draw upon the Guaranty L/C to the extent of such balance. Funds paid to Lender in excess of the Merchant s outstanding debt owed to the Lender shall be remitted to Merchant within one (1) business day of receipt by Lender. -8-

53 (b) Payment of Augment Recovery Amount. Agent shall tender payment of an amount equal to the Minimum Augment Recovery Amount to the Lender, as Merchant s designee, on the first business day after the Sale Commencement Date. The balance, if any, of the Augment Recovery Amount shall be paid by Agent to Merchant (or its designee) as part of the weekly reconciliation conducted pursuant to Section 8.7(a), and subject to the Final Reconciliation under Section 8.7(b). (c) Payment of Recovery Amount. Agent shall tender payment of an amount equal to the Recovery Amount to the Lender, as Merchant s designee, on the first business day after the completion of the Final Reconciliation conducted pursuant to Section 8.7(b). (d) Guaranty Security. To secure payment of the balance of any unpaid portion of the Guaranteed Amount, Agent shall deliver to the Lender, as Merchant s designee, an irrevocable standby letter of credit in the original face amount equal to ten percent (10%) of the Estimated Guaranteed Amount, naming the Lender, as Merchant s designee, as the beneficiary, substantially in the form of Exhibit 3.3(e) attached hereto (the Guaranty L/C ). The Guaranty L/C shall be delivered to the Lender, as Merchant s designee, one (1) business day following the Sale Commencement Date, and shall be issued by a U.S. national bank selected by Agent and reasonably acceptable to Merchant and the Lender. Provided no Event of Default by Merchant has occurred, in the event that Agent shall fail to timely pay to the Lender, as Merchant s designee, any portion of the Guaranteed Amount as required under this Agreement, or fail to perform any obligation hereunder, the Lender, as Merchant s designee, shall be entitled to draw on the Guaranty L/C to fund such amount or obligation following five (5) days written notice to Agent of the Lender s intention to do so, except as otherwise provided in Section 3.3(a) hereof. The Guaranty L/C shall expire no earlier than sixty (60) days after the Sale Termination Date; provided that, in the event that at the scheduled expiration date of the Guaranty L/C there remains any unresolved dispute as to the amount of the Guaranteed Amount, the Agent shall have the expiration date of the Guaranty L/C extended for thirty (30) day intervals (or such other longer duration as Merchant, the Lender, and Agent may agree) until such time as the subject dispute has been resolved and any additional amounts due hereunder on account of the Guaranteed Amount have been paid to the Lender, as Merchant s designee. If Agent has for any reason not so extended the expiration date of the Guaranty L/C by the date that is five (5) business days prior to the expiration date of the Guaranty L/C (as may have been extended previously), the Lender shall have the right to make a drawing under the Guaranty L/C in an amount equal to the amounts Merchant asserts are then owing to Merchant. Merchant, the Lender, and Agent agree that the face amount of the Guaranty L/C shall be reduced from timeto-time in an amount(s) to be agreed upon by Merchant, the Lender and Agent to account for payment made by the Agent in respect of the Guaranteed Amount, as the case may be. Merchant and the Lender further agree that after payment of the Guaranteed Amount, in full, the Lender shall surrender the original Guaranty L/C to the issuer thereof together with written notification that the Guaranty L/C may be terminated. (e) Control of Proceeds. (i) Within five (5) business days after entry of the Approval Order, Agent shall establish its own bank accounts, dedicated solely for the deposit of the Proceeds and the disbursement of amounts payable to Agent hereunder (the Agency Accounts ) and Merchant shall promptly upon Agent s request execute and deliver all necessary -9-

54 documents to open and maintain the Agency Accounts. Agent shall exercise sole signatory authority and control with respect to the Agency Accounts. Merchant shall not be responsible for and Agent shall pay as an Expense hereunder, all bank fees and charges, including wire transfer charges, related to the Agency Accounts, whether received during or after the Sale Term. Upon Agent s designation of the Agency Accounts, all Proceeds of the Sale (including credit card proceeds) shall be deposited into the Agency Accounts. (f) Designated Deposit Accounts. During the period, if any, between the Sale Commencement Date and the date Agent establishes the Agency Accounts, all Proceeds of the Sale (including credit card proceeds), shall be collected by Agent and deposited on a daily basis into depository accounts designated by Merchant for the Remaining Stores (the Designated Deposit Accounts ). Commencing on the first business day after the later to occur of (i) payment of the Initial Guaranty Payment, Designation Rights Amount, and Exclusive Amount and (ii) posting of the Guaranty L/C and Expense L/C, and twice per week thereafter (or as soon thereafter as is practicable), Merchant shall promptly pay to Agent by wire funds transfer all collected funds constituting Proceeds (including credit card proceeds) deposited into the Designated Deposit Accounts (but not any other funds, including, without limitation, any proceeds of Merchant s inventory sold prior to the Sale Commencement Date). Section 4. Expenses of the Sale 4.1 Expenses. Agent shall be unconditionally responsible for all Expenses incurred in conducting the Sale during the Sale Term, which expenses shall be paid by Agent in accordance with Section 4.2 below. Agent shall be obligated to pre-fund the Occupancy Expenses for the period beginning on the Sale Commencement Date consistent with the Merchant s customary rent funding practices and timing. Agent, on the Commencement Date, shall pre-fund Occupancy Expenses every month beginning each month and continuing thereafter, but the GOB Sales must be concluded by the dates set forth in the attached Schedule 4.1 which reflects lease termination dates for each Remaining Store Locations. If an Agent wishes to vacate a Remaining Store Location prior to September 7, 2012 through November 15, 2012 (the respective last dates the Debtor can occupy the Remaining Store Locations), it must provide the Merchant with twenty (20) days written advance notice as provided in Section 6.1. As used herein, Expenses shall mean Remaining Store-level operating expenses of the Sale that arise during the Sale Term, limited to the following: (a) actual Occupancy Expenses for the Inventoried Locations on a per location and per diem basis in an amount not to exceed the aggregate per diem totals per location set forth on Exhibit 4.1(a) hereto, plus (i) the portion of any percentage rent obligations allocable to the sale of Merchandise during the Sale and (ii) all of the percentage rent obligations attributable to the sale of Additional Agent Merchandise during the Sale (as determined in the manner described in the definition of Occupancy Expenses below in this Section 4.1), in each case, incurred by Merchant under applicable leases or occupancy agreements but only to the extent that such percentage rent obligations are set forth and described on Exhibit 4.1(a) hereto. (b) actual payroll and commissions, including but not limited to payroll taxes if applicable, for all Retained Employees used in conducting the Sale (and during the Inventory Taking), as well as payroll for any employees hired by Agent for the Sale as independent -10-

55 contractors or otherwise; (c) any amounts payable by Merchant for benefits for Retained Employees (including FICA, unemployment taxes, workers compensation and health care insurance benefits, but excluding Excluded Benefits) for Retained Employees used in the Sale, in an amount not to exceed [ ] percent ([ ]%) of base payroll for all Retained Employees in the Inventoried Locations (the Benefits Cap ); 9.4 below; (d) any Retention Bonuses for Retained Employees, as provided for in Section (e) actual costs of Agent s employees, independent contractors, on-site supervision, supervisor travel and supervisor bonuses, on-site living/housing expenses and all other reasonable compensation and expenses paid or reimbursed to such persons; Sale; (f) banners, sign-walker signs and in-store signs that are produced for the (g) promotional costs including, without limitation, advertising, sign walkers and direct mail relating to the Sale; (h) the costs and expenses of obtaining additional supplies used at the Remaining Stores as may be required by Agent in the conduct of the Sale; (i) telephone, Internet, satellite broadband connections, and T-1 line expenses actually incurred at the Remaining Stores; (j) (k) postage/overnight delivery/courier charges; copier and other Remaining Store-level equipment lease expenses; (l) credit card and bank card fees, chargebacks, and discounts with respect to Merchandise and Additional Agent Merchandise sold during the Sale, and costs of the Agency Accounts and Designated Merchant Accounts for any period utilized during the Sale Term, including wire transfer fees; (m) costs of moving, transferring, or consolidating Merchandise between the Inventoried Locations; (n) costs of moving, transferring, or consolidating Merchandise between the Distribution Center and the Inventoried Locations; any purpose; (o) (p) costs of moving or transferring Merchandise from Distribution Center for to the extent set forth on Exhibit 4.1(a) hereto, a pro rata portion for the -11-

56 Sale Term of Merchant s premiums in respect of general liability, casualty, property, inventory, boiler, earthquake and other insurance policies attributable to the Merchandise and the Inventoried Locations; (q) (r) third-party payroll processing fees; armored car service, alarm service, and security personnel; (s) actual cost of Agent s capital and letter of credit fees, insurance costs, corporate travel and legal expenses; (t) (u) trash removal, snow removal and ordinary course third-party cleanings; 100% of the Agent s fees and cost of the Inventory Taking; (v) costs and expenses of delivery of Merchandise to customers other than Fulfillment Merchandise; (w) Central Service Expenses in an amount equal to $400 per week per Inventoried Location during the applicable Sale Term; (x) (y) cash thefts and other cash shortfalls in registers; to the extent set forth on Exhibit 4.1(a) hereto, pest control services; (z) routine repair and maintenance costs, including landscaping and other repairs, solely to the extent such costs result from the Agent s acts or omissions during the term of the Sale; and (aa) all costs and expenses associated with the acquisition, handling, sale, and delivery of any Additional Agent Merchandise. Expenses shall not include: (i) Central Service Expenses in excess of the amount set forth in Section 4.1(u); (ii) Excluded Benefits; (iii) any rent or other occupancy expenses other than Occupancy Expenses in accordance with Section 4.1(a) hereof; (iv) any costs, expenses or liabilities arising during the Sale Term in connection with the Sale of Merchandise, other than the Expenses listed above, all of which shall be paid by Merchant promptly when due during the Sale Term; and (v) any costs, expenses or liabilities arising during the Sale Term in connection with the Fulfillment Merchandise. Notwithstanding anything herein to the contrary, to the extent that any Expense listed in Section 4.1 is also included on Exhibit 4.1(a), then Exhibit 4.1(a) shall control and such Expense shall not be double-counted. As used herein, the following terms have the following respective meanings: -12-

57 Central Services Expenses means costs and expenses for Merchant s central administrative services necessary for the Sale including but not limited to Merchant s (a) inventory control system, (b) payroll system, and (c) accounting system. Excluded Benefits means employee benefits (including vacation days or vacation pay, sick days or sick leave, maternity leave or other leaves of absence, termination or severance pay, ERISA coverage and pension, 401(k) and similar contributions) in excess of the Benefits Cap set forth in Section 4.1(c) above. Occupancy Expenses means rent, percentage rent, common-area maintenance, real estate and use taxes, HVAC, utilities, telecom/telephone charges, point-of-sale systems maintenance, store security systems, repairs and maintenance, taxes and licenses and all other categories of expenses at the Inventoried Locations as set forth on Exhibit 4.1(a) attached hereto, not to exceed the specific amounts set forth on Exhibit 4.1(a) attached hereto plus the pro rata portion of percentage and/or overage rent attributable to Agent based on sales of Merchandise and Additional Agent Merchandise during the Sale Term as a proportion of sales generated by Merchant and Agent for the applicable percentage rent measurement period under each lease which contains a provision for percentage or overage rent (but only to the extent that such percentage and/or overage rent is set forth and described on Exhibit 4.1(a) attached hereto). Third-party means, with reference to any Expenses, a party that is not affiliated with or related to Merchant. 4.2 Payment of Expenses; Security. Effective from and after entry of the Approval Order, Agent shall be responsible for the payment of all Expenses, whether or not there are sufficient Proceeds collected to pay such Expenses: (a) All Expenses incurred during each week of the Sale (i.e., Sunday through Saturday) shall be paid by Agent to or on behalf of Merchant, immediately following the weekly Sale reconciliation by Merchant and Agent pursuant to Section 8.7(a) below, based upon invoices and other documentation reasonably satisfactory to Agent; provided, however, Agent shall, before [ ]:00 a.m. (Prevailing Eastern Time) every second Tuesday beginning June [ ], 2012, pre-fund payroll-related Expenses for the pay period that ended on the preceding Wednesday. (b) To secure Agent s obligations to pay Expenses, Agent shall deliver to the Lender, as Merchant s designee, an irrevocable and unconditional standby letter of credit (the Expense L/C ) in an original face amount representing an amount equal to three (3) weeks estimated Expenses, naming the Lender, as Merchant s designee, as beneficiary, substantially in the form annexed hereto as Exhibit 4.2(b). The Expense L/C shall be delivered to the Lender, as Merchant s designee, no later than one (1) business day after the Sale Commencement Date, and shall be issued by a U.S. national bank selected by Agent and reasonably acceptable to Merchant and Lender. Merchant, the Lender, and Agent agree that at such time as there is less than one (1) week remaining in the Sale Term and all Expenses theretofore due from Agent to Merchant have been timely paid, the face amount of the Expense L/C shall be reduced in amount(s) to be agreed upon by Merchant, the Lender, and Agent; provided, however, that the face amount of the -13-

58 Expense L/C shall not be reduced to an amount less than $250,000 until all Expenses shall have been paid by Agent; provided, further, that upon payment in full by Agent of all Expenses prior to the expiration date of the Expense L/C, the Lender agrees to surrender the original Expense L/C to the issuer thereof together with written notification that the Expense L/C may be terminated. (c) In the event that Agent fails to pay any Expense(s) or other amounts payable hereunder when due, or within three (3) business days after Merchant and/or the Lender notifies Agent that any Expense(s) or other undisputed amounts are unpaid and past due, or in the event the Expense L/C will expire within five (5) business days and one or more Expenses or other amounts hereunder are then unpaid, the Lender, as Merchant s designee, shall be entitled to draw on the Expense L/C to fund such unpaid amount. The Expense L/C shall expire not earlier than the date that is sixty (60) days after the Sale Termination Date; provided that, in the event that at the scheduled expiration date of the Expense L/C there remains any unresolved dispute as to the amount of any unpaid Expense hereunder, the Agent shall have the expiration date of the Expense L/C extended for thirty (30) day intervals (or such other longer duration as Merchant, the Lender, and Agent may agree) until such time as the subject dispute has been resolved and any additional amounts due hereunder have been paid to Merchant. Section 5. Inventory Valuation; Merchandise 5.1 Inventory Taking. (a) Commencing on the Sale Commencement Date, Merchant and Agent shall cause to be taken a SKU-level physical inventory of the Merchandise located in the Remaining Stores (collectively, the Inventory Taking ), which Inventory Taking shall be completed in each of the Remaining Stores (each an Inventoried Location and collectively, the Inventoried Locations ) no later than three (3) business days after the Sale Commencement Date for the Remaining Stores (the Inventory Completion Date, and the date of the Inventory Taking at each Inventoried Location being the Inventory Date for each such Inventoried Location). If the Agent requests additional time to complete the Inventory Taking, the Merchant can consent provided that the Agent pays all Expenses and costs in connection with that Remaining Store(s), including but not limited to rent, employee payroll and other employee obligations (including vacation pay and expenses) and Occupancy Expenses. Merchant and Agent shall jointly employ [RGIS] or another mutually acceptable independent inventory taking service (the Inventory Taking Service ) to conduct the Inventory Taking, or if Merchant and Agent mutually agree, shall jointly conduct the Inventory Taking without utilizing a third party inventory taking service. (b) The Inventory Taking shall be conducted in accordance with the procedures and instructions to be mutually agreed upon by Merchant and Agent and made a part of this Agreement as Exhibit 5.1(a) (the Inventory Taking Instructions ). (c) As an Expense, Agent shall be responsible for 100% of the fees and expenses of the Inventory Taking Service, if such service is utilized. The balance of such fees and expenses, if applicable, shall be paid by Merchant. In the event that no third party Inventory Taking -14-

59 Service is utilized, then each of Merchant and Agent shall bear their respective expenses incurred in the Inventory Taking. Except as provided in the immediately preceding sentence as concerns allocation of the fees and expenses of the Inventory Taking Service, Merchant and Agent shall each bear their respective costs and expenses relative to the Inventory Taking. Merchant, Agent, and Lender shall each have the right to have representatives present during the Inventory Taking, and shall each have the right to review and verify the listing and tabulation of the Inventory Taking Service. Merchant agrees that during the conduct of the Inventory Taking in each of the Inventoried Locations, the applicable Inventoried Location shall be closed to the public and no sales or other transactions shall be conducted until the Inventory Taking has been completed, as agreed by Merchant and Agent. Merchant and Agent further agree that until the Inventory Taking in each particular Inventoried Location is completed, Agent shall not (i) transfer any Merchandise to or from that Inventoried Location, (ii) deliver any Additional Agent Merchandise to such Inventoried Location, (iii) move Merchandise within or about the Inventoried Locations, or (iv) remove any Merchant hang tags, price tickets, or inventory control tags affixed to any Merchandise. The Inventory Taking, including, but not limited to, the determination of the aggregate Cost Value of the Merchandise, shall be reconciled by Merchant and Agent within ten (10) days after its completion, and the Agent and Merchant shall use their reasonable best efforts to accomplish such reconciliation within such ten (10) day period; provided, further that the Final Inventory Report shall be completed not later than thirty (30) days after the Sale Commencement Date. In the event there is any dispute with respect to the reconciliation of the aggregate Cost Value of the Merchandise following completion of the Inventory Taking, then any such dispute shall be resolved in the manner and at the times set forth in Section 8.7(b)(ii) hereof. 5.2 Merchandise Subject to this Agreement. (a) For purposes of this Agreement, including, without limitation, the calculation of the Guaranteed Amount, Merchandise shall mean: all finished goods inventory that is owned by Merchant and customarily sold to customers in the ordinary course of Merchant s business, including, but not limited to, (y) Defective Merchandise, and (z) Merchandise subject to Gross Rings. Notwithstanding anything to the contrary in this Agreement, Merchandise shall not include (i) goods that belong to sublessees, licensees, or concessionaires of Merchant; (ii) goods held by Merchant on memo, on consignment, or as bailee; (iii) Fulfillment Merchandise; (iv) furnishings, trade fixtures furniture, and equipment and improvements to real property that are located in the Inventoried Locations; (v) Excluded Defective Merchandise; and (vi) Additional Agent Merchandise. (b) below: As used herein, the following terms shall have the respective meanings set forth (i) Defective Merchandise means either (a) inventory that is intended to be sold as part of a set and cannot be sold as an individual piece, and not all of the set is available for sale or (b) item(s) of inventory that are non-first quality inventory, incomplete sets, mismatched, damaged, dented, scratched, broken, faded, torn, shopworn, or soiled inventory, (subject to the limitation provided in Section 5.3(b)), (provided that they have assigned to them a SKU in the ordinary course of business); provided, however, that, -15-

60 notwithstanding anything to the contrary contained in this Agreement, merchandise that is Excluded Defective Merchandise shall not be Defective Merchandise. (ii) Excluded Defective Merchandise means solely those items of merchandise that are as described or otherwise fall within the categories of items set forth in Exhibit 5.2(b) hereto. (iii) Fulfillment Merchandise means those items of merchandise located in the Inventoried Locations that have been fully or partially reserved from available merchandise and designated by Merchant for fulfillment of Fulfillment Orders. Prior to the Inventory Taking at each Inventoried Location, Merchant shall identify to Agent and segregate from other Merchandise all items of Fulfillment Merchandise at each Inventoried Location, and the Inventory Taking Instructions shall provide that any Fulfillment Merchandise located in an Inventoried Location on the Inventory Date shall not be counted as part of the Inventory Taking. Any revenue generated from the delivery of any Fulfillment Merchandise shall be paid to Merchant and any expense incurred in connection with Fulfillment Merchandise shall be an expense of Merchant. 5.3 Valuation. (a) For purposes of this Agreement, Cost Value shall mean, with respect to each item of Merchandise: (i) the landed actual cost for such items of Merchandise as reflected in Merchant s master cost file as of the Sale Commencement Date (the Cost File ); which landed actual cost values Merchant hereby represents and warrants to be inclusive of customs duties and fees and shipping charges. The Cost File does not account for any volume discounts, advertising co-op allowances, or discounts associated with expedited payment terms offered by any vendor, and the Cost Value of any item of Merchandise shall not be adjusted for any such amounts. The Cost Value of all Merchandise plus the Excluded Defective Merchandise shall not exceed $[ ] in the aggregate. (b) Other than with respect to Excluded Defective Merchandise or as otherwise set forth in this Agreement, with respect to Defective Merchandise, for purposes of determining the Cost Value thereof, and in lieu of any other adjustments to the Cost Value of Merchandise under this Agreement (e.g., adjustments for Defective Merchandise, clearance merchandise, mis-mates and near-mates, sample merchandise), the aggregate Cost Value of the Merchandise shall be adjusted (i.e., reduced) by means of a single global downward adjustment equal to [ ] percent ([ ]%) of the aggregate Cost Value of the Merchandise (the Global Inventory Adjustment ). 5.4 Excluded Goods. Merchant shall retain all rights and responsibility for any goods not included as Merchandise hereunder and shall remove, at Merchant s expense, such goods from the Inventoried Locations prior to the Sale Commencement Date, or as soon thereafter as reasonably practicable. If Merchant so elects at the beginning of the Sale Term, Agent shall accept those goods not included as Merchandise hereunder and as identified by Merchant for sale as Merchant Consignment Goods. The Agent shall retain [ ] percent ([ ]%) of the sale price (less applicable Sales Taxes) for all sales of Merchant Consignment Goods, and Merchant -16-

61 shall receive [ ] percent ([ ]%) of the sale price (less applicable Sales Taxes) in respect of such sales. Merchant shall receive its share of the receipts of sales of Merchant Consignment Goods on a weekly basis, immediately following the weekly reconciliation by Merchant and Agent pursuant to Section 8.7(a) below. Except as expressly provided in this Section 5.4, Agent shall have no cost, expense, or responsibility in connection with any goods not included in Merchandise, including but not limited to sales commissions and percentage rent. Section 6. Sale Term 6.1 Term. The Sale shall commence at the Inventoried Locations on June [ ], 2012 (the Sale Commencement Date ). The Agent shall complete the Sale, and shall vacate the premises of each Inventoried Location in favor of Merchant or its representative or assignee on or before September 7, 2012 through November 15, 2012 based upon the date the lease for each Inventoried Location expires pursuant to Schedule 4.1 (the Sale Termination Date ). The period from the Sale Commencement Date to the Sale Termination Date shall be referred to herein as the Sale Term. The Sale Termination Date as to any Inventoried Location may be (a) extended by mutual written agreement of Agent and Merchant or (b) accelerated by Agent. If the Sale Term is extended by Agent, Agent shall provide Merchant with not less than twenty (20) days advance written notice of any such planned extended Sale Termination Date. If the Sale Term is accelerated by Agent, Agent shall provide Merchant with not less than thirty (30) days advance written notice of any such planned accelerated Sale Termination Date. In the event that Agent fails to provide Merchant with such timely notice, Agent shall be liable for and shall pay any Occupancy Expenses for the days by which notice of a Store Closing was less than ten (10) days. 6.2 Vacating the Inventoried Locations. Subject to the terms of Section 6.1 hereof, Agent shall provide Merchant with not less than twenty (20) days advance written notice of its intention to vacate any Inventoried Location (the date on which Agent vacates an Inventoried Location is, as applicable, the Vacate Date ). On the Vacate Date, Agent shall vacate such Inventoried Location in favor of Merchant or its representatives or assignee, remove all Remaining Merchandise therefrom, and leave such Inventoried Location in broom clean condition (ordinary wear and tear excepted) subject to the right to abandon, neatly in place, the unsold Owned FF&E at such Inventoried Location. For the avoidance of doubt, under no circumstances shall the Merchant be obligated to remove any residual Inventory from the Remaining Stores. Agent s obligations to pay all Expenses, including Occupancy Expenses, for each Inventoried Location shall continue until the applicable Vacate Date for such Inventoried Location, provided that, as set forth in Section 4.1, Agent shall not be entitled to a refund or proration of Occupancy Expenses for any Inventoried Location notwithstanding the fact that the Vacate Date for such Inventoried Location occurs prior to the end of a month. All assets of Merchant used by Agent in the conduct of the Sale (e.g., Owned FF&E, supplies, etc.) shall be returned by Agent to Merchant or left at the Remaining Stores, to the extent same have not been used in the conduct of the Sale or have not been otherwise disposed of through no fault of the Agent. Any reference in this Section 6 to vacating the Remaining Stores shall mean vacating the Remaining Stores, as applicable, in favor of Merchant, its representatives, or assignee and shall not mean vacating possession or disclaimer of lease in favor of the landlord or owner of the Remaining Store premises. Agent agrees that it shall be obligated to repair any damage caused -17-

62 by Agent (or any representative, agent, or licensee thereof) to any Remaining Store during the Sale Term, ordinary wear and tear excepted. 6.3 Gross Rings. In the event that the Sale commences prior to the completion of the Inventory Taking at any Remaining Store, then for the period from the Sale Commencement Date until the Inventory Date for such Remaining Store (the Gross Rings Period ), Agent and Merchant shall jointly keep (i) a strict count of gross register receipts less applicable Sales Taxes but excluding any prevailing discounts ( Gross Rings ) and (ii) cash reports of sales within Store. Agent and Merchant shall keep a strict count of register receipts and reports to determine the actual Cost Value of the Merchandise sold by SKU. All such records and reports shall be made available to Merchant and Agent during regular business hours upon reasonable notice. Any Merchandise included in the Sale using this Gross Rings method shall be included in Merchandise using the actual Cost Value of the Merchandise sold plus [ ] percent ([ ] %) shrink provision. Agent shall pay that portion of the Guaranteed Amount calculated on the Gross Rings basis to account for shrinkage on the basis of [ ] percent ([ ] %) of the aggregate Cost Value of the Merchandise sold during the Gross Rings Period. 6.4 Removal of Merchandise from Distribution Center. Agent shall remove Merchandise from the Distribution Center within thirty (30) days of entry of the Approval Order. Section 7. Sale Proceeds 7.1 Proceeds. For purposes of this Agreement, Proceeds shall mean the total amount (in dollars) of all sales of Merchandise made under this Agreement, including the proceeds of any fabric protection sales, warranty sales, and charges to customers for delivery services and assembly services, but exclusive of Sales Taxes, returns, allowances, and customer credits, provided that Agent shall not sell any fabric protection product or warranty agreement that would create any obligation on the part of Merchant other than the remittance of Proceeds hereunder. All proceeds of Merchant s insurance (net of any deductible) directly attributable to loss or damage to Merchandise or loss of cash arising from events occurring during the Sale Term shall constitute Proceeds under this Agreement. 7.2 Credit Card Proceeds. Agent may be allowed to use Merchant s current credit card systems and servicing arrangements (including Merchant s credit card terminals and processor(s), credit card processor coding) during the course of the Sale; provided, however, Agent shall have the sole option at Remaining Stores designated by Agent to establish its own credit card systems, servicing arrangements, credit card terminals and processor(s), credit card processor coding, merchant identification numbers as soon as practicable following the Sale Commencement Date; provided further, however, Agent shall not be permitted to accept Merchant s proprietary or private label credit card for processing sales of Merchandise in the Remaining Stores, unless Agent reaches an agreement with a private label card processor reasonably satisfactory to the Merchant. Merchant shall process credit card transactions, applying customary practices and procedures. In the event that Merchant is unable to maintain credit card systems and servicing arrangements, it shall give Agent not less than one (1) week s prior notice. At Agent s request and expense which shall constitute an Expense hereunder, Merchant shall cooperate with Agent to establish merchant identification numbers under Agent s -18-

63 name to enable Agent to process all credit card sales for Agent s account. Merchant shall deposit the net settlement received from any credit card sales receipts into the Designated Deposit Accounts until Agent opens the Agency Accounts, after which time any credit card sales receipts shall be deposited into the Agency Accounts. Merchant shall prepare a weekly reconciliation of the amounts deposited with respect to the sales of Merchandise by credit plus Sales Taxes less credit card and bank card fees, chargebacks and service charge adjustments, returns allowances, and customer credits. Merchant shall not be responsible for paying, and Agent shall pay as an Expense hereunder, all credit card fees charges, and chargebacks related to the Sale, whether received during or after the Sale Term. Section 8. Conduct of the Sale; Designation Rights; Exclusive License; Cost Files 8.1 Rights of Agent. Subject to the Approval Order, Agent (and its agents, independent contractors, and designees) shall be permitted to conduct a store closing, sale on everything, everything must go, bankruptcy liquidation, going out of business, GOB or similarly themed sale at the Inventoried Locations throughout the Sale Term. The Agent (and its agents, independent contractors, and designees) shall conduct the Sale in the name of and on behalf of the Merchant in a commercially reasonable manner and in compliance with the terms of this Agreement and, except as modified by the Approval Order, all governing laws and applicable agreements to which Merchant is a party. The Agent (and its agents, independent contractors, and designees) shall conduct the Sale in accordance with the Sale guidelines ( Sale Guidelines ) annexed hereto as Exhibit 8.1 and approved by the Approval Order applicable to the Inventoried Locations, whether by in-store promotion, media advertising, sign walkers or other promotional materials. In addition to any other rights granted to Agent hereunder, in conducting the Sale, Agent (and its agents, independent contractors, and designees), in the exercise of Agent s sole discretion, shall have the following rights, limited by the Sale Guidelines: (a) except as may otherwise be provided in the Approval Order, to establish Inventoried Locations hours, which are consistent with the terms of applicable leases, mortgages, or other occupancy agreements and local laws or regulations, including, without limitation, Sunday closing laws; provided, however, to the extent that Agent extends the hours of operation at one or more of the Remaining Stores beyond the hours historically operated by Merchant and/or goes dark and closes the Remaining Stores to the public for a period after the Sale Commencement, Agent shall reimburse Merchant for all utility charges, employee costs for Retained Employees, and increased Occupancy Expenses in excess of the amounts set forth on [Exhibit 4.1(r)] and such additional costs shall constitute Expenses of the Sale; (b) to use without charge during the Sale Term (except where otherwise designated as an Expense pursuant to Section 4.1 hereof), all Owned FF&E, bank accounts (other than Agent s obligation to pay bank fees pursuant to Sections 3.3(f) and 4.1(l) hereof), Inventoried Location-level (and to the extent available, corporate computer hardware and software, mailing lists, lists, website and URL (consistent with the Merchant s consumer privacy policy)), existing supplies located at the Inventoried Locations, intangible assets (including Merchant s names, logos, and tax identification numbers), Inventoried Locations keys, case keys, security codes, and safe and lock combinations required to gain access to and -19-

64 operate the Inventoried Locations, and any other assets of Merchant located at the Inventoried Locations (whether owned, leased, or licensed) consistent with applicable terms of leases or licenses. Agent shall exercise due care and return to the Merchant immediately at the end of the Sale all materials and supplies except materials or supplies expended; (c) to use Merchant s central office facilities, central administrative services, and personnel to process payroll, perform MIS, and provide other central office services necessary for the Sale to the extent that such services are normally provided by Merchant in house, at no additional cost to Agent (except where otherwise designated as an Expense pursuant to Section 4.1 hereof); provided, however, that, in the event Agent expressly requests Merchant to provide services other than those normally provided to the Inventoried Locations and relating to the sale of Merchandise by Merchant in the ordinary course of business and as expressly contemplated by this Agreement, Agent shall be responsible to reimburse Merchant for the actual incremental cost of such services incurred by Merchant as an Expense of the Sale hereunder; (d) to establish Sale prices and implement advertising, signage (including exterior banners, sign walkers and signs), and promotional programs consistent with the sale theme described herein, and as otherwise provided in the Approval Order and the Sale Guidelines, as and where applicable (including, without limitation, by means of media advertising, A-frame, interior and exterior banners and similar signage); (e) once the Inventory Taking is complete at both the transferring Inventoried Location and the receiving Inventoried Location, to transfer Merchandise between and among the Inventoried Locations; (f) as Exhibit 8.1. to conduct the Sale in accordance with the Sale Guidelines attached hereto 8.2 Terms of Sales to Customers. Subject to Agent s compliance with applicable law, all sales of Merchandise will be final sales and as is and all advertisements will reflect the same. Agent shall not warrant the Merchandise in any manner, but will, to the extent legally permissible, pass on all manufacturers warranties to customers. All sales will be made only for cash, nationally recognized bank credit cards, and, in Agent s discretion, personal checks, provided, however, if Agent determines to accept personal checks, Agent shall exclusively bear the risk of nonpayment or loss with respect thereto. 8.3 Sales Taxes. During the Sale Term, all sales, excise, gross receipts and other taxes attributable to sales of Merchandise (other than taxes on income, but specifically including, without limitation, gross receipts taxes) payable to any taxing authority having jurisdiction (collectively, Sales Taxes ) shall be added to the sales price of Merchandise and collected by Agent on Merchant s behalf at time of sale, and provided to Merchant on no less than a biweekly basis for deposit in Merchant s existing accounts, trust accounts, or other accounts, as designated by Merchant. Provided that Agent has collected all Sales Taxes during the Sale and remitted the proceeds thereof to Merchant, Agent shall have no further obligations with respect to Sales Taxes. Merchant shall promptly pay all Sales Taxes and file all applicable reports and documents required by the applicable taxing authorities; provided, however, notwithstanding -20-

65 anything to the contrary herein, Agent shall reimburse Merchant for any additional Sales Taxes, interest, fines, penalties, and the like payable to any taxing authority as the result of a Sales Tax audit conducted by or on behalf of such authority which discloses that the Sales Taxes collected by Agent for any period during the Sale Term were less than those mandated by applicable law for the sale of Merchandise that is sold by Agent under this Agreement (any such additional Sales Taxes and other amounts are collectively referred to herein as Additional Taxes and Penalties ). Merchant will be given access to the computation of gross receipts for verification of all such Sales Tax collections. Provided Agent performs its responsibilities in accordance with this Section 8.3, Merchant shall indemnify and hold harmless Agent from and against any and all costs, including but not limited to reasonable attorneys fees, assessments, fines, or penalties that Agent sustains or incurs as a result or consequence of the failure by Merchant to promptly pay such taxes to the proper taxing authorities and/or the failure by Merchant to promptly file with such taxing authorities all reports and other documents required, by applicable law, to be filed with or delivered to such taxing authorities. Agent shall add Sales Tax to the sales price of all Additional Agent Merchandise sold and Agent shall collect Sales Taxes attributable to the sales of Additional Agent Merchandise and deposit such amounts into existing accounts, trust accounts, or other accounts designated by Agent, for remittance by Merchant, on behalf of Agent, to the appropriate taxing authority. If Agent fails to perform its responsibilities in accordance with this Section 8.3, and provided Merchant complies with its obligations in accordance with this Section 8.3, Agent shall indemnify and hold harmless Merchant from and against any and all costs, including, but not limited to, reasonable attorneys fees, assessments, fines, or penalties that Merchant sustains or incurs as a result or consequence of the failure by Agent to collect Sales Taxes and remit them to Merchant and/or, to the extent Agent is required hereunder to prepare reports and other documents, the failure by Agent to promptly deliver any and all reports and other documents required to enable Merchant to file any requisite returns with such taxing authorities. Without limiting the generality of Section 8.3 hereof, it is hereby agreed that, as Agent is conducting the Sale solely as agent for Merchant, various payments that this Agreement contemplates that one party make to the other party (including the payment by Agent of the Guaranteed Amount) do not represent the sale of tangible personal property and, accordingly, are not subject to Sales Taxes. 8.4 Supplies. Agent shall have the right to use all existing supplies necessary to conduct the Sale (e.g., boxes, bags, and twine, but not gift certificates, rain checks, merchandise credits, or the like) located at the Inventoried Locations at no charge to Agent. In the event that additional supplies are required in any of the Inventoried Locations during the Sale, the acquisition of such additional supplies shall be the responsibility of Agent as an Expense; provided, however, that if reasonably requested by Agent, Merchant shall assist Agent in obtaining supplies from Merchant s vendors at Merchant s cost. Subject to Section 11.1(j) herein, Merchant does not warrant that the existing supplies as of the Sale Commencement Date are adequate for purposes of the Sale. 8.5 Returns of Merchandise. During the first fourteen (14) days after the reopening of an Inventoried Location following completion of the Inventory Taking at such Inventoried Location, Agent shall accept returns at such Inventoried Location of Merchandise sold by -21-

66 Merchant prior to the Sale Commencement Date in accordance with Merchant s return policies in effect at the time of purchase; provided that (i) such item was purchased within seven (7) days prior to the date of such return, (ii) the customer presents the original transaction/register receipt at the time of such return, (iii) such return is not being made in contemplation of such customer repurchasing the item at the sale price being offered by Agent, (iv) the merchandise is not a floor sample sale and was not purchased as part of a final sale transaction, and (v) such return is consistent with Merchant s prior practices ( Returned Merchandise ). Agent shall maintain and deliver to Merchant a detailed Returned Merchandise log, including copies of all relevant merchandise receipts and credits, and shall mark the Returned Merchandise in such a fashion so as to render such merchandise readily identifiable by Merchant and Agent. Merchant shall reimburse Agent in cash or credit against the following week s payment for the amount of any store credit or refund given to any customer in respect of Returned Merchandise. To the extent Returned Merchandise is saleable, it shall be included in Merchandise and for purposes of the calculation of the Guaranteed Amount and shall be valued at the Cost Value applicable to such item. Subject to Merchant s reimbursement to Agent of the amount of any store credit or refund granted for any such Returned Merchandise, the aggregate Cost Value of the Merchandise shall be increased by the Cost Value of any Returned Merchandise, and the Guaranteed Amount shall be adjusted accordingly. Any Returned Merchandise that is not included in Merchandise (including Returned Merchandise constituting Excluded Defective Merchandise) shall constitute excluded goods in accordance with Section 5.4 hereof, provided that if an item of Returned Merchandise is non-saleable, Agent and Merchant shall negotiate in good faith to determine an appropriate Cost Value applicable to such Returned Merchandise for purposes of determining the Guaranteed Amount payable with respect thereto. Any reimbursements due to Agent as a result of Returned Merchandise shall be accounted for and paid by Merchant immediately following the weekly Sale reconciliation pursuant to Section 8.7(a) hereof. Any increases in payment on account of the Guaranteed Amount as a result of Returned Merchandise shall be paid by Agent pursuant to Section 3.1 hereof Gift Cards. Agent shall accept Merchant s gift cards during the Sale Term. Merchant shall reimburse Agent in cash for gift card amounts redeemed during the weekly sale reconciliation provided for in Section 8.7(a) Sale Reconciliation. (a) Weekly Reconciliation. On each Wednesday during the Sale Term, commencing on the second Wednesday after the Sale Commencement Date, Agent and Merchant shall cooperate to reconcile Expenses, Gross Rings, and such other Sale-related items such as, but not limited to Sales Taxes (as defined in Section 8.3), Owned FF&E (as defined in Section 15), Excluded Goods (as defined in Section 5.4), Merchant Consignment Goods (as defined in Section 5.4), as either party shall reasonably request, in each case for the prior week or partial week (i.e., Sunday through Saturday), all pursuant to procedures agreed upon by Merchant and Agent. On a weekly basis, Agent shall also provide Merchant with a report (in electronic format acceptable to Merchant) of the sales of Additional Agent Merchandise, which report shall detail by Inventoried Location, at a minimum, gross and net sales and type of items sold. (b) Final Reconciliation. -22-

67 (i) Within thirty (30) days after the Sale Termination Date, Agent and Merchant shall jointly prepare a final reconciliation of the Sale including, without limitation, a summary of Proceeds, Sales Taxes, Expenses, and any other accountings required hereunder (the Final Reconciliation ). Within five (5) days after completion of the Final Reconciliation, any undisputed and unpaid Expenses shall be paid by Agent. In the absence of an order of the Bankruptcy Court, no such disputed amounts shall be paid until the dispute has been resolved by agreement of the Parties or as determined in the manner prescribed in Section 8.7(b)(ii) hereof. During the Sale Term, and until all of Agent s obligations under this Agreement have been satisfied, Merchant and Agent shall have reasonable access to Merchant s and Agent s records with respect to Proceeds, Sales Taxes, and other Sale-related items to review and audit such records. (ii) In the event that there is any dispute with respect to either (x) the determination of the aggregate Cost Value of the Merchandise as reflected in the Final Inventory Report and/or (y) the Final Reconciliation, such dispute shall be promptly (and in no event later than the third business day following the request by either Merchant or Agent) submitted to the Bankruptcy Court for resolution. In the event of a dispute as to (x) or (y) above, Agent shall extend the Guaranty L/C and/or Expense L/C, as the case may be, in accordance with the provisions of Sections 3.3(d) or 4.2(c) hereof, as applicable. If Agent has for any reason not so extended the expiration date of the Guaranty L/C and/or the Expense L/C by the date that is five (5) business days prior to the applicable expiration date (as may have been extended previously), Lender shall have the right to make a drawing under the Guaranty L/C and/or the Expense L/C, as applicable, in an amount or amounts equal to the amounts Merchant asserts are then owing to Merchant. 8.8 Force Majeure. If any casualty, act of war or terrorism or act of God prevents the conduct of business in the ordinary course at any Inventoried Location for a period in excess of five (5) consecutive days, such Inventoried Location and the Merchandise located at such Inventoried Location shall be eliminated from the Sale and considered to be deleted from this Agreement as of the last date of such event, and Agent and Merchant shall have no further rights or obligations hereunder with respect thereto; provided, however, that, in the event of a force majeure or otherwise, (i) the proceeds of any insurance attributable to such Merchandise shall constitute Proceeds hereunder, and (ii) the Guaranteed Amount shall be reduced to account for any Merchandise eliminated from the Sale that is not the subject of insurance proceeds or consolidated by Agent into another Inventoried Location or Inventoried Locations, and, to the extent the Agent has paid the Guaranteed Amount, Merchant, to the extent such insurance proceeds are actually received, shall reimburse Agent for the amount by which the Guaranteed Amount is so reduced prior to the end of the Sale Term. Agent will use its commercially reasonable efforts to consolidate and transfer at the expense of the Merchant all Merchandise that is not the subject of insurance proceeds and include said Merchandise in the Sale at other Inventoried Locations. Merchant shall have the right to observe the Sale and activities attendant thereto and to be present in the Remaining Stores during the hours when the Remaining Stores are open for Business; provided however, that Merchant s presence does not disrupt or disturb the conduct of the Sale. Merchant shall also have a right of access to the Remaining Stores at any time in the event of an emergency situation and shall promptly notify Agent of such emergency. -23-

68 8.9 Additional Agent Merchandise. (a) Agent shall be entitled, at its expense, to include in the Sale at the Inventoried Locations additional merchandise procured by Agent that is of like kind and quality to the Merchandise located in the Inventoried Locations as well as rugs, bedding, accessories, chandeliers, home furnishings and wall coverings (collectively defined as Additional Agent Merchandise ). (b) At all times and for all purposes, the Additional Agent Merchandise and its proceeds shall be the exclusive property of Agent. The transactions relating to the Additional Agent Merchandise are, and shall be construed as, a true consignment from Agent to Merchant. The Additional Agent Merchandise shall be at all times subject to the control of Agent. If requested by Agent, Merchant shall, at Agent s expense as an Expense hereunder, insure the Additional Agent Merchandise and, if required, promptly file any proofs of loss with regard to same with Merchant s insurers. (c) In order to distinguish the Additional Agent Merchandise from the Merchandise located in the Inventoried Locations, Agent shall affix distinctive tags and/or other identifying markings on all items of Additional Agent Merchandise, which shall enable Merchant and Agent to distinguish the sales of the Additional Agent Merchandise from the sale of the Merchandise presently included in the Sale at the Inventoried Locations. Additionally, Agent shall provide signage in the Inventoried Locations notifying customers that the Additional Agent Merchandise has been included in the Sale. Agent shall pay for all costs and expenses related to, or incurred in connection with, the marketing and sale of the Additional Agent Merchandise and shall not charge such costs and expenses to Merchant directly or indirectly. (d) Agent shall be authorized to establish third party licensed departments for the sale of Additional Agent Merchandise with third parties at the Remaining Stores Fulfillment of Pre-Sale Customer Orders. Agent shall assist Merchant in connection with its efforts to fulfill certain orders placed with Merchant prior to the Sale Commencement Date for which the Merchant has received deposits from customers and with respect to which some or all of the goods related to such orders are on hand at the Inventoried Locations as of the Sale Commencement Date (the On Hand Fulfillment Orders ). Prior to or during the Inventory Taking, the Fulfillment Merchandise related to On Hand Fulfillment Orders shall be earmarked to fill the respective On Hand Fulfillment Orders and segregated by Merchant and Agent and shall not be made available for sale by Agent. Agent shall use reasonable efforts to fulfill and deliver the On Hand Fulfillments Orders within two (2) weeks after the Sale Commencement Date. The customary expenses incurred in connection with the satisfaction of On Hand Fulfillment Orders, including labor and delivery and all sales commissions attributable to the Fulfillment Merchandise (collectively, the Fulfillment Processing Expenses ), shall be borne by Merchant. Any additional funds received from customers on account of the On Hand Fulfillment Orders, net of Fulfillment Processing Expenses, shall be remitted to Merchant on a weekly basis and included in the weekly reconciliation prepared pursuant to Section 8.7(a) -24-

69 hereunder. Subject to this Section 8.10, the Fulfillment Merchandise shall be excluded from the definition of Merchandise hereunder. Section 9. Employee Matters 9.1 Merchant s Employees. Subject to the applicable provisions of the Approval Order and any other provisions in this Agreement relating to employees, Agent may use Merchant s employees in the conduct of the Sale to the extent Agent in its sole discretion deems expedient, and Agent may select and, with Merchant, schedule the number and type of Merchant s employees required for the Sale (each such employee designated in writing by the Agent, a Retained Employee ). Retained Employees shall at all times remain employees of Merchant, and shall not be considered or deemed to be employees of Agent. Merchant and Agent agree that except to the extent that wages, payroll taxes, benefits, and other costs relating to the employment of Retained Employees constitute Expenses hereunder and except as otherwise expressly provided in this Agreement, nothing contained in this Agreement and none of Agent s actions taken in respect of the Sale shall be deemed to constitute an assumption by Agent of any of Merchant s obligations relating to any of Merchant s employees including, without limitation, Excluded Benefits, Worker Adjustment Retraining Notification Act ( WARN Act ) claims, and other termination-type claims and obligations, or any other amounts required to be paid by statute or law (except to the extent such items are amounts for which Merchant is entitled to indemnification pursuant hereto), nor shall Agent become liable under any collective bargaining or employment agreement or be deemed a joint or successor employer with respect to such employees. Merchant shall not, without Agent s prior written consent, raise the salary or wages or increase the benefits for, or pay any bonuses or make any other extraordinary payments to, any of the Retained Employees, except as otherwise provided in this Agreement. 9.2 Termination of Employees by Merchant. Agent may in its discretion stop using any Retained Employee at any time during the Sale. In the event Agent determines to discontinue its use of any Retained Employee in connection with the conduct of the Sale, Agent will provide written notice to Merchant at least seven (7) days prior thereto, except for termination for cause (such as dishonesty, fraud, or breach of employee duties), in which event no prior notice to Merchant shall be required, provided Agent shall notify Merchant as soon as practicable after such termination. From and after the date of this Agreement and during the Sale Term, Merchant shall not transfer or dismiss employees of the Remaining Stores except for cause without Agent s prior consent. Notwithstanding any other provision hereof, Agent will indemnify Merchant with respect to any claims by Retained Employees arising from Agent s treatment of such Retained Employees. 9.3 Payroll Matters. Subject to Section 4.1 hereof, Merchant shall, during the Sale Term, process and pay the base payroll and all related payroll taxes, worker s compensation, employment and unemployment insurance, and benefits for all Retained Employees (except for Agent s employees and independent contractors hired by Agent) in accordance with its usual and customary procedures to the extent requested by Agent. At Agent s expense as an Expense hereunder, Merchant shall also process payroll for additional personnel hired by Agent for the Sale. -25-

70 9.4 Employee Retention Bonuses. Agent may (in its sole discretion) pay, as an Expense hereunder, retention bonuses ( Retention Bonuses ) (which bonuses shall be inclusive of payroll taxes but as to which no benefits shall be payable) to certain Retained Employees (selected by Agent in its sole discretion) who do not voluntarily leave employment and are not terminated for cause. The amount of such Retention Bonuses, which will be payable within thirty (30) days after the Sale Termination Date, shall be in an amount to be determined by Agent, in its discretion, and shall be processed through Merchant s payroll system. Agent shall not utilize the Retention Bonus as a mechanism to encourage Retained Employees to act contrary to Merchant s best interests. Section 10. Conditions Precedent. The willingness of Agent and Merchant to enter into the transactions contemplated under this Agreement are directly conditioned upon the satisfaction of the following conditions at the time or during the time periods indicated, unless specifically waived in writing by the applicable party: (a) All representations and warranties of Merchant and Agent hereunder shall be true and correct in all material respects and no Event of Default shall have occurred at and as of the date hereof and as of the Sale Commencement Date. (b) Notwithstanding anything in this Agreement or any Agency Document to the contrary, the enforceability of this Agreement is subject in all respect to the Merchant s express written approval and acceptance of any Exhibit or Agency Document not fully executed by the Parties and attached hereto. (c) The Bankruptcy Court shall have entered the Approval Order, mutually acceptable to Merchant and Agent, on or before June [ ], Section 11. Representations, Warranties and Covenants Merchant s Representations, Warranties, and Covenants. Merchant hereby represents, warrants and covenants in favor of Agent as follows: (a) Merchant (i) is a corporation duly organized, validly existing, and in good standing under the laws of the State of Virginia; (ii) has all requisite power and authority to own, lease, and operate its assets and properties and to carry on its business as presently conducted; and (iii) is and during the Sale Term will continue to be, duly authorized and qualified to do business and in good standing in each jurisdiction where the nature of its business or properties requires such qualification, including all jurisdictions in which the Inventoried Locations are located, except, in each case, to the extent that the failure to be in good standing or so qualified could not reasonably be expected to have a material adverse effect on the ability of Merchant to execute and deliver this Agreement and perform fully its obligations hereunder. -26-

71 (b) (c) (d) Subject to the issuance and entry of the Approval Order, Merchant has the right, power and authority to execute and deliver this Agreement and each other document and agreement contemplated hereby (collectively, together with this Agreement, the Agency Documents ) and to perform fully its obligations hereunder. Subject to the issuance and entry of the Approval Order, Merchant has taken all necessary actions required to authorize the execution, delivery and performance of the Agency Documents, and no further consent or approval on the part of Merchant is required for Merchant to enter into and deliver the Agency Documents, to perform its obligations thereunder, and to consummate the Sale. Subject to the issuance and entry of the Approval Order, each of the Agency Documents has been duly executed and delivered by Merchant and constitutes the legal, valid and binding obligation of Merchant enforceable in accordance with its terms. Subject to the issuance and entry of the Approval Order, no court order or decree of any federal, state, local, or provincial governmental authority or regulatory body is in effect that would prevent or materially impair, or is required for the Merchant s consummation of, the transactions contemplated by this Agreement, and no consent of any third party which has not been obtained is required therefore, other than as shall be obtained prior to the Sale Commencement Date, except for any such consent the failure of which to be obtained could not reasonably be expected to have a material adverse effect on the ability of Merchant to execute and deliver this Agreement and perform fully its obligations hereunder. Other than for any consent as shall be obtained prior to the Sale Commencement Date, and those contracts or agreements identified by Merchant to Agent on or prior to the Sale Commencement Date, if any, no contract or other agreement to which the Merchant is a party or by which the Merchant is otherwise bound will prevent or materially impair the consummation of the Sale and the other transactions contemplated by this Agreement. Merchant has ceased normal replenishment of the Remaining Stores. Merchant (i) except as set forth on Exhibit 11.1(c), owns and will own at all times during the Sale Term, good and marketable title to all of the Merchandise free and clear of all liens, claims and encumbrances of any nature and (ii) Merchant shall not create, incur, assume or suffer to exist any security interest, lien or other charge or encumbrance upon or with respect to any of the Merchandise or the Proceeds, in each case, except for such pre-existing liens and security interests as shall have been disclosed by Merchant to Agent and identified in Exhibit 11.1(c) hereof, which liens and security interests shall, pursuant to the Approval Order, attach only to the Guaranteed Amount, the Recovery Amount, the Augment Recovery Amount, Expenses and any other amounts payable to Merchant hereunder. -27-

72 (e) (f) (g) (h) (i) (j) (k) (l) Merchant has maintained its pricing files at all Inventoried Locations (including the Cost File) in the ordinary course of business, and prices charged to the public for goods (whether in-store, by advertisement or otherwise) are the same in all material respects as set forth in such pricing files for the periods indicated therein (without consideration of any point of sale markdowns, advertised sales, and other customary in-store promotional or clearance activities). All pricing files and records relative to the Merchandise have been made available to Agent. Merchant shall ticket or mark all items of inventory received at the Remaining Stores prior to the Sale Commencement Date in a manner consistent with similar Merchandise located at the Remaining Stores and in accordance with Merchant s past practices and policies relative to pricing and marking inventory. To the best of Merchant s knowledge, all Merchandise is in material compliance with all applicable federal, state or local product safety laws, rules and standards. Merchant shall provide Agent with its historic policies and practices, if any, regarding product recalls prior to the Sale Commencement Date. Subject to the terms of this Agreement and entry of the Approval Order, Agent shall have the right to the unencumbered use and occupancy of, and peaceful and quiet possession of, each of the Inventoried Locations, the assets currently located at the Inventoried Locations to the extent Merchant is entitled to use the same, and the services provided at the Inventoried Locations to the extent Merchant is entitled to such services. As of the date hereof, Merchant has paid all self-insured or Merchant funded employee benefit programs for Inventoried Locations employees, including health and medical benefits and insurance and all proper claims made or to be made in accordance with such programs. As of the date hereof, supplies have not been, and shall not be, prior to the Sale Commencement Date, transferred by Merchant to or from the Inventoried Locations so as to alter the mix or quantity of supplies at the Inventoried Locations from that existing on such date, other than in the ordinary course of business. As of the date hereof, Merchant has not, and shall not, up to the Sale Commencement Date, marked up or raised the price of any items of Merchandise, or removed or altered any tickets or any indicia of clearance merchandise, except in the ordinary course of business. Merchant has not and shall not purchase or transfer to or from the Inventoried Locations any merchandise or goods outside the ordinary -28-

73 course in anticipation of the Sale or of the Inventory Taking, with the exception of inventory that the Merchant intends to sell to fulfill existing customer orders. Merchant will provide the Agent with a listing of all inventory located in the Remaining Stores as of June [ ], 2012 and make a good faith effort to identify and project the inventory that will be present in the Inventoried Locations as of the Sale Commencement Date. (m) (n) Except as set forth on Exhibit 11.1 (l), no action, arbitration, suit, notice, or legal, administrative or other proceeding before any court or governmental body has been instituted by or against the Merchant, or has been settled or resolved, or to Merchant s knowledge, is threatened against or affects Merchant, relative to Merchant s business or properties, or which questions the validity of this Agreement, or that if adversely determined, would adversely affect the conduct of the Sale. Merchant is not a party to any collective bargaining agreements with its employees; to the best of Merchant s knowledge, no labor unions represent Merchant s employees at the Inventoried Locations; and to the best of Merchant s knowledge, there are currently no strikes, work stoppages or other labor disturbances affecting the Inventoried Locations or Merchant s central office facilities Agent s Representations, Warranties and Covenants. Agent hereby represents, warrants and covenants in favor of Merchant as follows: (a) (b) Agent (and each member thereof) (i) is a corporation, partnership, or limited liability company, as the case may be, duly and validly existing and in good standing under the laws of the State of its organization; (ii) has all requisite power and authority to carry on its business as presently conducted and to consummate the transactions contemplated hereby; and (iii) is and during the Sale Term will continue to be duly authorized and qualified as a foreign company to do business and in good standing in each jurisdiction where the nature of its business or properties requires such qualification. Agent has the right, power and authority to execute and deliver each of the Agency Documents to which it is a party and to perform fully its obligations thereunder. Agent has taken all necessary actions required to authorize the execution, delivery, and performance of the Agency Documents, and no further consent or approval is required on the part of Agent for Agent to enter into and deliver the Agency Documents, to perform its obligations thereunder, and to consummate the Sale. Each of the Agency Documents has been duly executed and delivered by the Agent and constitutes the legal, valid and binding obligation of Agent enforceable in accordance with its terms. No court order or decree of any federal, provincial, state or local governmental authority or regulatory body is in -29-

74 effect that would prevent or impair or is required for Agent s consummation of the transactions contemplated by this Agreement, and no consent of any third party which has not been obtained is required therefor other than as provided herein. No contract or other agreement to which Agent is a party or by which Agent is otherwise bound will prevent or impair the consummation of the transactions contemplated by this Agreement. (c) No action, arbitration, suit, notice, or legal administrative or other proceeding before any court or governmental body has been instituted by or against Agent, or has been settled or resolved, or to Agent s knowledge, has been threatened against or affects Agent, which questions the validity of this Agreement or any action taken or to be taken by Agent in connection with this Agreement, or which if adversely determined, would have a material adverse effect upon Agent s ability to perform its obligations under this Agreement. Section 12. Insurance Merchant s Liability Insurance. Merchant shall continue until the Sale Termination Date, in such amounts as it currently has in effect, all of its liability insurance policies including, but not limited to, products liability, comprehensive public liability, auto liability and umbrella liability insurance, covering injuries to persons and property in, or in connection with Merchant s operation of the Inventoried Locations, and shall cause Agent to be named an additional named insured with respect to all such policies. Prior to the Sale Commencement Date, Merchant shall deliver to Agent certificates evidencing such insurance setting forth the duration thereof and naming Agent as an additional named insured, in form reasonably satisfactory to Agent. All such policies shall require at least thirty (30) days prior notice to Agent of cancellation, non-renewal or material change. In the event of a claim under any such policies Merchant shall be responsible for the payment of all deductibles, retentions or self-insured amounts to the extent said claim arises from or relates to the alleged acts or omissions of Merchant or its employees, agents (other than Agent s employees), or independent contractors (other than Agent and independent contractors hired by Agent in conjunction with the Sale) Merchant s Casualty Insurance. Merchant shall continue until the Sale Termination Date, in such amounts as it currently has in effect, fire, flood, theft, and extended coverage casualty insurance covering the Merchandise in a total amount equal to no less than the Cost Value thereof, which coverage shall be reduced from time to time to take into account the sale of Merchandise. In the event of a loss to the Merchandise on or after the date of this Agreement, the proceeds of such insurance attributable to the Merchandise (net of any deductible) shall constitute Proceeds. Prior to the Sale Commencement Date, Merchant shall deliver to Agent certificates evidencing such insurance setting forth the duration thereof, in form and substance reasonably satisfactory to Agent. All such policies shall require at least thirty (30) days prior notice to Agent of cancellation, non-renewal, or material change. Merchant shall not make any change in the amount of any deductibles or self-insurance amounts prior to the Sale -30-

75 Termination Date (as may be extended from time to time as set forth herein) without Agent s prior written consent Worker s Compensation Insurance. Merchant shall continue until the Sale Termination Date, in such amounts as it currently has in effect, worker s compensation insurance (including employer liability insurance) covering all Retained Employees in compliance with all statutory requirements. Prior to the Sale Commencement Date, Merchant shall deliver to Agent a certificate of its insurance broker or carrier evidencing such insurance Agent s Insurance. Agent shall maintain at Agent s cost and expense throughout the Sale Term, in such amounts as it currently has in effect, comprehensive public liability insurance policies covering injuries to persons and property in or in connection with Agent s agency at the Inventoried Locations, and shall cause Merchant to be named an additional insured with respect to such policies. Prior to the Sale Commencement Date, Agent shall deliver to Merchant certificates evidencing such insurance policies, setting forth the duration thereof and naming Merchant as an additional insured, in form and substance reasonably satisfactory to Merchant. In the event of a claim under such policies, Agent shall be responsible for the payment of all deductibles, retentions, or self-insured amounts thereunder, to the extent such claim arises from or relates to the alleged acts or omissions of Agent or Agent s employees, agents or independent contractors Risk of Loss. Without limiting any other provision of this Agreement, Merchant acknowledges that Agent is conducting the Sale on behalf of Merchant solely in the capacity of an agent, and that in such capacity (i) Agent shall not be deemed to be in possession or control of the Inventoried Locations or the assets located therein or associated therewith, or of Merchant s employees located at the Inventoried Locations, and (ii) except as expressly provided in this Agreement, Agent does not assume any of Merchant s obligations or liabilities with respect to any of the foregoing. Agent shall not be deemed to be a successor employer. Merchant and Agent agree that, subject to the terms of this Agreement, Merchant shall bear all responsibility for liability claims of customers, employees, and other persons arising from events occurring at the Inventoried Locations during and after the Sale Term, except to the extent any such claim arises directly from the acts or omissions of Agent or its supervisors, agents, independent contractors, or employees located at the Inventoried Locations (an Agent Claim ). In the event of any liability claim other than an Agent Claim, Merchant shall administer such claim and shall present such claim to Merchant s liability insurance carrier in accordance with Merchant s policies and procedures existing immediately prior to the Sale Commencement Date, and shall provide a copy of the initial documentation relating to such claim to Agent at the address listed in this Agreement. To the extent that Merchant and Agent agree that a claim constitutes an Agent Claim, Agent shall administer such claim and shall present such claim to its liability insurance carrier, and shall provide copies of the initial documentation relating to such claim to Merchant. In the event that Merchant and Agent cannot agree whether a claim constitutes an Agent Claim, each party shall present the claim to its own liability insurance carrier, and a copy of the initial claim documentation shall be delivered to the other party to the address designated for delivery of notices hereunder. -31-

76 Section 13. Indemnification Merchant Indemnification. Merchant shall indemnify and hold Agent and its officers, directors, employees, agents and, independent contractors (collectively, Agent Indemnified Parties ) harmless from and against all claims, demands, penalties, losses, liability or damage, including, without limitation, reasonable attorneys fees and expenses, asserted directly or indirectly against Agent resulting from, or related to (including acts or omissions of persons or entities affiliated with or acting on behalf of the Merchant): (a) Merchant s material breach of or failure to comply with any of its agreements, covenants, representations or warranties contained in any Agency Document (provided, however, Agent shall not be entitled to any indemnity hereunder in the event Merchant is in breach of any of its obligations under any Agency Document representation contained in Sections 11.1(o) or 11.1(p) hereof, in which case Agent s sole remedy shall be such adjustment to the Guaranteed Amount in accordance with Sections 11.1(o) and 11.1(p)); (b) subject to Agent s performance and compliance with its obligations pursuant to Sections 4.1(b), 4.1(c), and 9 hereof, any failure of Merchant to pay to its employees any wages, salaries, or benefits due to such employees during the Sale Term or other claims asserted against Agent by Merchant s employees resulting from Merchant s (and not Agent s) treatment of its employees; (c) subject to Agent s compliance with its obligations under Section 8.3 hereof, any failure by Merchant to pay any Sales Taxes to the proper taxing authorities or to properly file with any taxing authorities any reports or documents required by applicable law to be filed in respect thereof; (d) any consumer warranty or products liability claims except to the extent such claims arise from representations made by the Agent relating to the Merchandise; (e) the gross negligence, fraud, or willful misconduct of Merchant or any of its officers, directors, employees, agents (other than Agent), or representatives Agent Indemnification. Agent shall jointly and severally indemnify and hold Merchant and its officers, directors, employees, agents, and representatives harmless from and against all claims, demands, penalties, losses, liability or damage, including, without limitation, reasonable attorneys fees and expenses, asserted directly or indirectly against Merchant resulting from, or related to (including acts or omissions of persons or entities affiliated with or acting on behalf of the Agent): (a) Agent s material breach of or failure to comply with any Safety Laws (as defined in the Approval Order) or any of its agreements, covenants, representations or warranties contained in any Agency Document; (b) any harassment, discrimination or violation of any laws or regulations or any other unlawful, tortuous, or otherwise actionable treatment of any employees or agents of -32-

77 Merchant by Agent or any of its employees, agents, independent contractors or other officers, directors or representatives of Agent; (c) any claims by any party engaged by Agent as an employee or independent contractor arising out of such engagement; (d) any Agent Claims; (e) in the event that Agent uses any system other than Merchant s point of sale system to compute Sales Taxes relating to the Sale, any Additional Taxes and Penalties; and (f) the gross negligence, fraud, or willful misconduct of Agent or any of its officers, directors, employees, agents or representatives. (g) any consumer warranty or products liability claims arising out of or related to the sale of Additional Agent Merchandise. Section 14. Defaults. The following shall constitute Events of Default hereunder: (a) Merchant s or Agent s failure to perform any of their respective material obligations hereunder, which failure shall continue uncured seven (7) days after receipt of written notice thereof to the defaulting party; or (b) Any representation or warranty made by Merchant or Agent proves untrue in any material respect as of the date made or at any time and throughout the Sale Term; or (c) Subject to Section 8.8 hereof, the Sale is terminated or materially interrupted or impaired at any Remaining Store for any reason other than (i) an Event of Default by Agent, or (ii) any other material breach or action by Agent not authorized hereunder. In the event of an Event of Default, the non-defaulting party may, in its discretion, elect to terminate this Agreement upon seven (7) business days written notice to the other party and pursue any and all rights and remedies and damages resulting from such default hereunder in the event such cure is not effected by the defaulting party. Section 15. Fixtures. With respect to furniture, fixtures and equipment owned by Merchant and located at the Inventoried Locations (collectively, the Owned FF&E ), Agent shall, at the request of the Merchant, sell the Owned FF&E in any such Inventoried Locations; provided, however, Merchant, with the consent of the Lender, shall have the right to designate certain Owned FF&E located at any of the Inventoried Locations that Merchant does not elect to have Agent sell. For the avoidance of doubt, the definition of Owned F&E does not include any furniture, fixtures and equipment owned by Merchant located at the Merchant s distribution center in Rocky Mount, North Carolina ( Distribution Center ). Agent shall be entitled to receive a commission equal to [ ] percent ([ ]%) of the net proceeds from the sale of such Owned -33-

78 FF&E, net of expenses incurred in connection with the disposition of the Owned FF&E in accordance with a budget to be mutually agreed upon between Merchant and Agent; provided, further, however, Merchant may elect to receive, in lieu of proceeds net of expenses and Agent s commission, a lump sum payment, on a per Inventoried Location basis, in an amount to be agreed upon between Merchant, in consultation with the Lender and Agent, in which case all costs and expenses associated with the disposition thereof shall be borne by Agent. In either event, as of the Sale Termination Date, Agent may abandon in place in a neat and orderly manner any unsold Owned FF&E at the Inventoried Locations. Section 16. Miscellaneous Notices. All notices and communications provided for pursuant to this Agreement shall be in writing, and sent by hand, by facsimile, or a recognized overnight delivery service, as follows: If to Agent: With copies by electronic mail and facsimile to: If to the Merchant: RoomStore, Inc. Lewis Brubaker, CFO Patterson Avenue Richmond, VA lbrubaker@roomstore.com With copies by electronic mail and facsimile to: Lowenstein Sandler PC. Bruce Buechler 65 Livingston Avenue Roseland, New Jersey Fax: (973) bbuechler@lowenstein.com FTI Consulting, Inc. Steve Coulombe 200 State St. 8 th Fl. Boston, MA Fax: (617) steve.coulombe@fticonsulting.com If to Salus Capital Partners, LLC: Salus Capital Partners, LLC -34-

79 Kyle C. Shonak 197 First Avenue, Suite 250 Needham, MA With copies by electronic mail and facsimile to: Greenberg Traurig, LLP Jeffrey M. Wolf One International Place Boston, MA Fax: (617) Governing Law; Consent to Jurisdiction. This Agreement shall be governed and construed in accordance with the laws of the State of Virginia, without regard to conflicts of laws principles thereof. The Parties agree that the Bankruptcy Court for the Eastern District of Virginia (and the District Court and Circuit Court of Appeal with appellate jurisdiction over the Bankruptcy Court) shall retain exclusive jurisdiction to hear and finally determine any disputes arising from or under this Agreement, and by execution of this Agreement each party hereby irrevocably accepts and submits to the jurisdiction of such court with respect to any such action or proceeding and to service of process by certified mail, return receipt requested to the address listed above for each party Entire Agreement. This Agreement and the Exhibits referred to herein and the Agency Documents contain the entire agreement between the Parties with respect to the transactions contemplated hereby and supersedes and cancels all prior agreements, including, but not limited to, all proposals, letters of intent or representations, written or oral, with respect thereto Amendments. This Agreement and the Exhibits referred to herein and the Agency Documents may not be modified except in a written instrument executed by each of the Parties No Waiver. No consent or waiver by any party, express or implied, to or of any breach or default by the other in the performance of its obligations hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance by such other party of the same or any other obligation of such party. Failure on the part of any party to complain of any act or failure to act by the other party or to declare the other party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon Agent and Merchant, including, but not limited to, any chapter 11 or chapter 7 trustee. Agent shall not be permitted to assign its obligations under this Agreement. -35-

80 16.7 Execution in Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one agreement. This Agreement may be executed by facsimile, and such facsimile signature shall be treated as an original signature hereunder Section Headings. The headings of sections of this Agreement are inserted for convenience only and shall not be considered for the purpose of determining the meaning or legal effect of any provisions hereof Survival. All representations, warranties, covenants and agreements made herein, by the Parties, shall be continuing, shall be considered to have been relied upon by the Parties and shall survive the execution, delivery and performance of this Agreement Termination. This Agreement shall remain in full force and effect until the first to occur of (i) receipt by Merchant of written notice from Agent that any of the conditions specified in Section 10 hereof have not been satisfied within five (5) days of the anticipated Sale Commencement Date set forth in Section 6.1; or (ii) the expiration of the Sale Term and completion and certification by Merchant and Agent of the Final Reconciliation pursuant to Section 8.7(b) above. Notwithstanding the foregoing, (a) the representations, warranties and indemnities of Merchant and Agent contained herein and the provisions of Section 11 above, and (b) any claim arising from a breach of this Agreement prior to its termination, shall survive the termination of this Agreement pursuant to this Section Security Interest. Upon payment of the Initial Guaranty Payment and issuance of the Guaranty L/C and Expense L/C, and in consideration of the Agent s payment of the Guaranteed Amount, the Recovery Amount and the Augment Recovery Amount, and Expenses, and the provision of services hereunder to Merchant, Merchant hereby grants to Agent a security interest in and lien upon the Merchandise and the Proceeds to secure all obligations of Merchant to Agent hereunder. Until the payment of the Guaranteed Amount and the Augment Recovery Amount, if any, in full, the security interest granted to Agent hereunder shall remain junior to the security interest of the Lender to the extent of the unpaid portion of the Guaranteed Amount, the Recovery Amount, the Augment Recovery Amount and Expenses. Upon entry of the Approval Order and payment of the Initial Guaranty Payment and the issuance of the Guaranty L/C and the Expense L/C, the security interest granted to Agent hereunder shall be deemed properly perfected without the need for further filings or documentation Obligations Joint and Several. All obligations of Agent to Merchant hereunder shall be joint and several. Agent may utilize the services of subcontractors and or licensees in connection with the performance of its obligations hereunder. -36-

81 IN WITNESS WHEREOF, Agent and Merchant hereby execute this Agency Agreement as of the day and year first written above. AGENT: [ ] By: Name: Title: MERCHANT: RoomStore Inc. By: Name: Lewis Brubaker Title: Chief Financial Officer THE PROVISIONS OF SECTIONS [ ] and [ ] ARE HEREBY CONSENTED AND AGREED TO: SALUS CAPITAL PARTNERS, LLC As Lender By: Name: Title: -37-

82 EXHIBIT 1 REMAINING STORES Store No. Location Name Address City State Zip Deadline to Assume or Reject Lease 2120 Marlow Heights 4530 Branch Avenue Marlow Heights MD /9/ Lanham 7970 Annapolis Road Lanham MD /15/ Charleston 7558 Rivers Avenue Charleston Heights SC /15/ Bel Air 5 South Bel Air Parkway #701 Bel Air MD /15/ Rockville 1150 Rockville Pike Rockville MD /9/ Durham 4521 Chapel Hill Road Durham NC /15/ Raleigh Glenwood 8331 Glenwood Avenue Raleigh NC /15/ Raleigh Capital 5220 Capital Boulevard Raleigh NC /15/ Seven Corners 6320 Seven Corners Center Falls Church VA /15/ Annapolis 150 L Jennifer Road Annapolis MD /15/ Catonsville 6501 Baltimore National Pike Baltimore MD /15/ Westminster 15 Carroll Plaza Westminster MD /15/ Virginia Beach 5144 Virginia Beach Blvd Virginia Beach VA /9/ Glen Burnie 7425 North Ritchie Hwy Glen Burnie MD /9/ Fairfax 13055A Lee Jackson Mem. Hwy. Fairfax VA /9/ Manassas Bulloch Drive Manassas VA /15/ Columbia 6141 Columbia Crossing Circle Columbia MD /9/ Newport News 365 Chatham Drive Newport News VA /15/ Sterling Community Plaza Sterling VA /15/ Myrtle Beach 1214 Port Drive Myrtle Beach SC /15/ Waldorf 3015 Festival Way Waldorf MD /15/ Woodbridge 2542 Prince William Parkway Woodbridge VA /15/ Fredericksburg 4040 Plank Road Fredericksburg VA /15/2012

83 Store No. Location Name Address City State Zip Deadline to Assume or Reject Lease 8630 Fayetteville 1918 B Skibo Road Fayetteville NC /15/ Wilmington 524 S College Road Wilmington NC /15/ Winchester 150 Delco Plaza Winchester VA /15/ Laurel 201 Fort Meade Road Laurel MD /9/ Richmond World 9901 West Broad Street Glen Allen VA /9/

84 EXHIBIT 3.3(a) WIRE TRANSFER INSTRUCTIONS [TO BE PROVIDED UPON EXECUTION OF THE AGENCY AGREEMENT]

85 EXHIBIT 3.3(e) FORM OF GUARANTY L/C

86 [ISSUING BANK] [ADDRESS] Date: June [ ], 2012 Irrevocable Standby Letter of Credit No. BENEFICIARIES: ROOMSTORE, INC Patterson Avenue Richmond, Virginia SALUS CAPITAL PARTNERS, LLC 197 First Avenue, Suite 250 Needham, MA Ladies and Gentlemen: BY ORDER OF: [AGENT] We hereby open in your favor our Irrevocable Standby Letter of Credit (this Letter of Credit ) for the account of [AGENT] (the Agent ) for a sum or sums not exceeding a total of [AMOUNT] U.S. Dollars ($ ), available by your drafts at SIGHT on OURSELVES, effective immediately and expiring at our counters on, 2012, or such earlier date on which either RoomStore, Inc. or Salus Capital Partners, LLC (together the Beneficiaries ) shall notify us in writing that this Letter of Credit shall be terminated, accompanied by the original Letter of Credit (the Expiration Date ). Drafts must be accompanied by the original of this Letter of Credit and a signed statement in the form annexed hereto as Exhibit A, signed by an officer of either or both of the Beneficiaries. This Letter of Credit may be reduced from time to time when accompanied by a signed statement from the Beneficiaries in the form annexed hereto as Exhibit B. If a draft is received by at or prior to 12:00 Noon (Prevailing Eastern Time) on a Business Day, and provided that such draft confirms to the terms and conditions hereof, payment of the amount of such draft shall be made to the Beneficiaries, as directed below, in immediately available funds on the same Business Day. If, however, a draft is received by after 12:00 Noon (Prevailing Eastern Time) on a Business Day, and provided that such draft conforms with the terms and conditions hereof, payment of the draft amount shall be made to the Beneficiaries, as directed below, in immediately available funds on the next Business Day. As used in this Letter of Credit, Business Day shall mean any day other than Saturday, Sunday, or a day on which banking institutions in New York City, New York are required or authorized to close.

87 Partial and/or multiple drawings are permitted. Each draft must bear upon its face the clause, Drawn under Letter of Credit No., dated, 2012 of [ISSUING BANK]. Except so far as otherwise expressly stated herein, this Letter of Credit is subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No We hereby agree that drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored if presented to the above-mentioned drawee bank on or before the Expiration Date. Kindly address all correspondence regarding this Letter of Credit to the attention of our Letter of Credit Operations, [ADDRESS], Attention:, and mention our reference number as it appears above. Telephone inquires can be made to at. Very truly yours, Authorized Official [ISSUING BANK] -2-

88 EXHIBIT A TO GUARANTY L/C FORM OF STATEMENT FOR DRAWING [Date] [Issuing Bank] [Issuing Bank Address] Attention: [Contact] Re: Your Letter of Credit No. [_] (the Guaranty L/C ) 11 In Favor of RoomStore, Inc. and Salus Capital Partners, LLC To Whom It May Concern: The undersigned, a duly authorized official of [RoomStore, Inc.] [Salus Capital Partners, LLC] (the Beneficiary ), hereby states, with respect to the above-referenced Guaranty L/C, that the Agent has failed to comply with its payment obligations under [Section Reference] of that certain Agency Agreement dated as of June [ ], 2012 by and between the Agent and RoomStore, Inc. in the amount of $[_] (the Drawing Amount ). Remit the Drawing Amount by wire transfer of immediately available funds to the account of Salus Capital Partners, LLC at Sovereign Bank, ABA # , Account # , Reference RoomStore, Inc. [BENEFICIARY] By: Name: Title: 11 Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Guaranty L/C.

89 EXHIBIT B TO GUARANTY L/C FORM OF STATEMENT FOR REDUCTION [Date] [Issuing Bank] [Issuing Bank Address] Attention: [Contact] Re: Your Letter of Credit No. [_] (the Guaranty L/C ) 1 In Favor of RoomStore, Inc. and Salus Capital Partners, LLC To Whom It May Concern: This statement authorizes reduction in the amount of $[_] of the Guaranty L/C. The remaining undrawn stated amount of the Guaranty L/C is $[_]. ROOMSTORE, INC. By: Name: Title: SALUS CAPITAL PARTNERS, LLC By: Name: Title: 1 Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Guaranty L/C.

90 EXHIBIT 4.1(a) OCCUPANCY EXPENSES FOR REMAINING STORES

91 EXHIBIT 4.2(b) FORM OF EXPENSE L/C -2-

92 [ISSUING BANK] [ADDRESS] Date: June, 2012 Irrevocable Standby Letter of Credit No. BENEFICIARIES: ROOMSTORE, INC Patterson Avenue Richmond, Virginia SALUS CAPITAL PARTNERS, LLC 197 First Avenue, Suite 250 Needham, MA Ladies and Gentlemen: BY ORDER OF: [AGENT] We hereby open in your favor our Irrevocable Standby Letter of Credit (this Letter of Credit ) for the account of [AGENT] (the Agent ) for a sum or sums not exceeding a total of [AMOUNT] U.S. Dollars ($ ), available by your drafts at SIGHT on OURSELVES, effective immediately and expiring at our counters on, 2012, or such earlier date on which either RoomStore, Inc. or Salus Capital Partners, LLC (together the Beneficiaries ) shall notify us in writing that this Letter of Credit shall be terminated, accompanied by the original Letter of Credit (the Expiration Date ). Drafts must be accompanied by the original of this Letter of Credit and a signed statement in the form annexed hereto as Exhibit A, signed by an officer of either or both of the Beneficiaries. This Letter of Credit may be reduced from time to time when accompanied by a signed statement from the Beneficiaries in the form annexed hereto as Exhibit B. If a draft is received by at or prior to 12:00 Noon (Prevailing Eastern Time) on a Business Day, and provided that such draft confirms to the terms and conditions hereof, payment of the amount of such draft shall be made to the Beneficiaries, as directed below, in immediately available funds on the same Business Day. If, however, a draft is received by after 12:00 Noon (Prevailing Eastern Time) on a Business Day, and provided that such draft conforms with the terms and conditions hereof, payment of the draft amount shall be made to the Beneficiaries, as directed below, in immediately available funds on the next Business Day. As used in this Letter of Credit, Business Day shall mean any day other than Saturday, Sunday, or a day on which banking institutions in New York City, New York are required or authorized to close.

93 Partial and/or multiple drawings are permitted. Each draft must bear upon its face the clause, Drawn under Letter of Credit No., dated, 2012 of [ISSUING BANK]. Except so far as otherwise expressly stated herein, this Letter of Credit is subject to the Uniform Customs and Practices for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No We hereby agree that drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored if presented to the above-mentioned drawee bank on or before the Expiration Date. Kindly address all correspondence regarding this Letter of Credit to the attention of our Letter of Credit Operations, [ADDRESS], Attention:, and mention our reference number as it appears above. Telephone inquires can be made to at. Very truly yours, Authorized Official [ISSUING BANK] -2-

94 EXHIBIT A TO EXPENSE L/C FORM OF STATEMENT FOR DRAWING [Date] [Issuing Bank] [Issuing Bank Address] Attention: [Contact] Re: Your Letter of Credit No. [_] (the Expense L/C ) 1 In Favor of RoomStore, Inc. and Salus Capital Partners, LLC To Whom It May Concern: The undersigned, a duly authorized official of [RoomStore, Inc.] [Salus Capital Partners, LLC] (the Beneficiary ), hereby states, with respect to the above-referenced Guaranty L/C, that the Agent has failed to comply with its payment obligations under [Section Reference] of that certain Agency Agreement dated as of April 6, 2012 by and between the Agent and RoomStore, Inc. in the amount of $[_] (the Drawing Amount ). Remit the Drawing Amount by wire transfer of immediately available funds to the account of Salus Capital Partners, LLC at Sovereign Bank, ABA # , Account # , Reference RoomStore, Inc. [BENEFICIARY] By: Name: Title: 1 Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Expense L/C.

95 EXHIBIT B TO EXPENSE L/C FORM OF STATEMENT FOR REDUCTION [Date] [Issuing Bank] [Issuing Bank Address] Attention: [Contact] Re: Your Letter of Credit No. [_] (the Expense L/C ) 1 In Favor of RoomStore, Inc. and Salus Capital Partners, LLC To Whom It May Concern: This statement authorizes reduction in the amount of $[_] of the Expense L/C. The remaining undrawn stated amount of the Guaranty L/C is $[_]. ROOMSTORE, INC. By: Name: Title: SALUS CAPITAL PARTNERS, LLC By: Name: Title: 1 Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Expense L/C.

96 EXHIBIT 5.1(a) INVENTORY TAKING INSTRUCTIONS TO BE AGREED UPON PRIOR TO THE INVENTORY TAKING

97 EXHIBIT 5.2(b) EXCLUDED DEFECTIVE MERCHANDISE

98 EXHIBIT 8.1 SALE GUIDELINES 1 The GOB Sales shall be conducted so that the Remaining Stores remain open no longer than the normal hours of operation provided for in the respective leases or other occupancy agreements for such Remaining Stores. The GOB Sales 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 Debtor had been operating such Remaining Store on a Sunday prior to commencement of the GOB Sales. All in-store display and hanging signs used by the Debtor and the Agent in connection with the GOB Sales shall be professionally produced and all hanging signs shall be hung in a professional manner. The Debtor and the Agent may advertise the Sales using the terms store closing, sale on everything, GOB, Going Out of Business, Bankruptcy, Liquidation, or any similar theme. The Debtor and the Agent shall not use neon or day-glo signs. Furthermore, with respect to enclosed mall locations, no exterior signs or signs in common areas of a mall shall be used. In addition, the Debtor and the Agent shall be permitted to utilize exterior banners at (i) Remaining Stores located in non-enclosed malls and (ii) Remaining Stores located in enclosed malls, to the extent the applicable Remaining Store entrance does not require entry into the enclosed mall common area; provided, however, that such banners shall be located or hung so as to make clear that the GOB Sale is being conducted only at the affected store, and shall not be wider than the storefront of the Remaining Store. The Debtor and the Agent shall be permitted to utilize sign walkers. Conspicuous signs shall be posted in the cash register areas of each Remaining Store to the effect that all sales are final and that customers with any questions or complaints 1 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the [Debtor s Motion] [Docket No. []]. -2-

99 subsequent to the conclusion of the GOB Sale may contact a named representative of the Debtor at a specified telephone number. Within a shopping center, the Agent shall not distribute handbills, leaflets, or other written materials to customers outside of any of the Remaining Stores, unless permitted by the applicable lease or unless distribution is customary in the shopping center in which such Remaining Store is located. Otherwise, the Agent may solicit customers in the Remaining Stores themselves. The Agent shall not use any flashing lights or amplified sound to advertise the Sales or solicit customers, except as permitted under a particular lease or agreed to by the affected landlord. The Agent shall keep Remaining Store premises and surrounding area clear and orderly, consistent with present practices. At the conclusion of the Sales, Agent shall vacate the Remaining Stores in broom-clean condition and shall otherwise leave the Remaining Stores in the same condition as on Sale Commencement Date of the Sales, ordinary wear and tear excepted; provided that the Debtor does not hereby undertake any greater obligation than as set forth in an applicable lease with respect to a Remaining Store. Landlords will be provided with the name and telephone number of a representative of the Debtor to notify of any problem arising during the Sales. The Agent shall not make any alterations to interior or exterior Remaining Store lighting. No property of any landlord of a Remaining Store shall be removed or sold during the Sale. The hanging of exterior banners or other signage shall not constitute an alteration to a Remaining Store. At the conclusion of the GOB Sale at each Remaining Store, pending assumption or rejection of applicable leases, the landlord of a Remaining Store shall have reasonable access to the Remaining Store s premises as set forth in the applicable lease or occupancy agreement. The Debtor and, to the extent provided for in the Agency Agreement, the Agent, and each of their agents and representatives shall continue to have exclusive and unfettered access to the Remaining Stores. -3-

100 The Debtor shall notify a representative of the relevant landlord of the date on which the Sale is scheduled to conclude at a given Remaining Store, within three (3) business days of the Debtor s receipt of such notice from the Agent. Nothing contained herein shall be construed to create or impose upon the Debtor or the Agent any additional restrictions not contained in the applicable lease or other occupancy agreement. In the event of any conflict between the provisions of these Sale Guidelines and the Agency Agreement with respect to the relative rights of the Debtor and the Agent, the Agency Agreement shall control, and nothing herein shall be deemed to modify, limit, or expand such provisions of the Agency Agreement. In the event of any conflict between these Sale Guidelines and the Agency Agreement with respect to landlords rights, these Sale Guidelines shall control, and nothing in the Agency Agreement shall be deemed to modify, limit, or expand any landlord s rights hereunder. -4-

101 EXHIBIT 11.1(d) PRE-EXISTING LIENS (1) Postpetition senior liens of Salus Capital Partners, LLC (as assignee of Wells Fargo Bank, N.A.), granted pursuant to the Final Order (A) Authorizing Debtor To Obtain Post- Petition Financing and Grant Security Interests and Superpriority Administrative Expense Status Pursuant to 11 U.S.C. 105 and 364(c); (B) Authorizing the Use of Cash Collateral; (C) Modifying the Automatic Stay Pursuant to 11 U.S.C. 362; and (D) Authorizing Debtor To Enter Into Agreements With Wells Fargo Bank, N.A., in Its Capacity as Agent [Docket No. 222], as supplemented by the Order (I) Authorizing Debtor To Enter Into Amendment Agreement With Salus Capital Partners, LLC and (II) Supplementing Final Financing Order [Docket No. 339]. (2) Alleged liens, if any, of applicable local taxing authorities. (3) Mortgage lien in favor of GE Commercial Finance Business Property Corporation on that certain building located at 1214 Port Drive, Myrtle Beach, South Carolina.

102 EXHIBIT 11.1(m) PENDING MATTERS Chapter 11 Bankruptcy Case No (DOT), currently pending in the United States Bankruptcy Court for the Eastern District of Virginia

103 EXHIBIT 11.1(p) MERCHANDISE MIX

104 EXHIBIT C PROPOSED SALE ORDER

105 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: ROOMSTORE, INC., Debtor. Chapter 11 Case No DOT ORDER APPROVING ENTRY INTO AUTHORIZING AGENCY AGREEMENT AND SALE OF ASSETS FREE AND CLEAR Upon the motion (the Motion ) 1 of the Debtor for entry of an order, (I)(A) approving Auction Procedures, (B) scheduling the Auction, and (C) scheduling a Sale Hearing; (II) authorizing Sale the Assets free and clear of all liens, claims, and encumbrances (with said liens to attach to the proceeds of the Sale) pursuant to either an: (A) Agency Agreement or (B) Purchase Agreement; (III) authorizing, as applicable, the conduct of GOB Sales notwithstanding and waiving compliance with (a) any Lease Restrictions, (b) State Laws, (c) and Fast Pay Laws; (IV) authorizing, as applicable, the assumption and assignment of Leases and/or of Lease Designation Rights; (V) waiving 14-day stay on all orders granting the relief sought herein; and 1 Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Motion or the Agency Agreement attached hereto as Exhibit 1. LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) Bruce D. Buechler (NJ Bar No ) Mary E. Seymour (NJ Bar No ) Cassandra M. Porter (NJ Bar No ) Andrew David Behlmann (NJ Bar No ) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC Troy Savenko (Va. Bar No ) Christopher J. Hoctor (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East 2nd Street ( ) Post Office Box 2470 Richmond, Virginia (804) Counsel to the Debtor and Debtor-in-Possession

106 (VI) granting any such other relief as the Court deems just and proper; and the Court having reviewed the Motion; and the Court having determined that the relief sought by the Debtor in the Motion is in the best interest of the Debtor, its estate and creditors, and other parties-in-interest; and it appearing that proper and adequate notice of the Motion has been given and that no other or further notice is necessary; and upon the record herein; and after due deliberation thereon; and good and sufficient cause appearing therefor, it is hereby FOUND AND DETERMINED THAT: 2 A. This Court has jurisdiction to consider the Motion and the relief requested therein pursuant to 28 U.S.C. 157 and Approval of the Debtor s entry into the Agency Agreement and the transactions contemplated thereby is a core proceeding under 28 U.S.C. 157(b)(2)(A), (D), (N), and (O). Venue of this case in this District is proper pursuant to 28 U.S.C. 1409(a). B. Proper, timely, adequate, and sufficient notice of the Motion, the Auction, entry into the Agency Agreement, and the Sale Hearing has been provided in accordance with sections 102(1), 105(a), and 363 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004 and 6006 and no other or further notice is required. A reasonable opportunity to object or be heard regarding the relief requested in the Motion has been afforded to all interested persons and entities. Objections, if any, to the Motion have been withdrawn or otherwise resolved. C. The Debtor thoroughly marketed the Assets and conducted the Auction fairly, with sufficient opportunity for parties that expressed an interest in serving as Agent or that the Debtor believed may have an interest in serving as Agent to submit competing bids. The Debtor 2 Findings of fact shall be construed as conclusions of law and conclusions of law shall be construed as findings of fact where appropriate. See Fed. R. Bankr. P

107 and the Agent have negotiated the terms of the Agency Agreement at arms length, in good faith, and without collusion. D. The Agency Agreement annexed hereto as Exhibit 1 between the Debtor and [_] (the Agent ) represents the highest and best offer received by the Debtor for the Assets identified in the Agency Agreement at the Auction, is fair and reasonable, and is in the best interest of the Debtor, its estate and creditors, and all other parties-in-interest. The Debtor s decision to enter into the Agency Agreement, and to consummate the transactions contemplated thereby, is a sound exercise of the Debtor s business judgment. There exists no legal or equitable basis for delaying the Debtor s and the Agent s entry into the Agency Agreement or the commencement of the transactions contemplated thereby. E. The conduct of a store closing, sale on everything, everything must go, bankruptcy liquidation or similarly themed sale (collectively, the GOB Sale ) at the Remaining Stores by the Agent will provide efficient means for the Debtor to dispose of the Assets at the Remaining Stores. F. The transactions contemplated by the Agency Agreement do not include the sale or lease of personally identifiable information, as defined in section 101(41A) of the Bankruptcy Code ( Personally Identifiable Information ). G. Time is of the essence in executing the Agency Agreement and consummating the transactions contemplated thereby. The Debtor has determined that the Sale must commence immediately in order to maximize the value realized by its estate from the Sale. Accordingly, cause exists to waive the fourteen-day stay of the effectiveness of this Order pursuant to Bankruptcy Rules 6004(h) and 6006(d). -3-

108 H. The designation of the Assets pursuant to the Agency Agreement other than one free and clear of liens, claims, encumbrances, defenses (including, without limitation, rights of setoff and recoupment), and interests, including, without limitation, security interests of whatever kind or nature, mortgages, conditional sales or title retention agreements, pledges, deeds of trust, hypothecations, liens, encumbrances, assignments, preferences, debts, easements, charges, suits, licenses, options, rights-of-recovery, judgments, orders and decrees of any court or foreign or domestic governmental entity, taxes (including foreign, state and local taxes), licenses, covenants, restrictions, indentures, instruments, leases, options, off-sets, claims for reimbursement, contribution, indemnity or exoneration, successor, product, environmental, tax, labor, ERISA, CERCLA, alter ego and other liabilities, causes of action, contract rights and claims, to the fullest extent of the law, in each case, of any kind or nature (including, without limitation, all claims as defined in section 101(5) of the Bankruptcy Code), known or unknown, whether pre-petition or post-petition, secured or unsecured, choate or inchoate, filed or unfiled, scheduled or unscheduled, perfected or unperfected, liquidated or unliquidated, noticed or unnoticed, recorded or unrecorded, contingent or non-contingent, material or non-material, statutory or non-statutory, matured or unmatured, legal or equitable (collectively, Encumbrances ) and without the protections of this Order would hinder the Debtor s ability to obtain the consideration provided for in the Agency Agreement and, thus, would impact materially and adversely the value that the Debtor s estate would be able to obtain for the sale of such Assets. Each entity with an Encumbrance upon the Assets, (i) has consented to the Sale or is deemed to have consented to the Sale, (ii) could be compelled in a legal or equitable proceeding to accept money satisfaction of such interest, or (iii) otherwise falls within the -4-

109 provisions of section 363(f) of the Bankruptcy Code and, therefore, in each case, one or more of the standards set forth in section 363(f)(1)-(5) of the Bankruptcy Code has been satisfied. Those holders of Encumbrances who did not object, or who withdrew their objections, to the Motion are deemed to have consented to the sale of any assets subject to such Encumbrances, pursuant to section 363(f)(2) of the Bankruptcy Code. Therefore, approval of the Agency Agreement and the consummation of the Sale free and clear of Encumbrances are appropriate pursuant to section 363(f) of the Bankruptcy Code and are in the best interest of the Debtor s estate and creditors and other parties-in-interest. I. The consideration to be paid by the Agent under the Agency Agreement was negotiated at arms length and constitutes reasonably equivalent value and fair and adequate consideration for the assets being conveyed for all purposes under the Bankruptcy Code, the Uniform Fraudulent Transfer Act, the Uniform Fraudulent Conveyance Act, and the laws of the United States, any state, territory, or possession thereof, or the District of Columbia. The terms and conditions set forth in the Agency Agreement are fair and reasonable and were not entered into for the purpose of, nor do they have the effect of, hindering, delaying, or defrauding the Debtor or its creditors under any applicable laws. J. The Debtor and its management, officers, employees and board of directors, on the one hand, the Agent, on the other hand, and their respective officers, directors, employees, agents, and representatives actively participated in the Auction and acted in good faith. The Agent and the Debtor negotiated and entered into the Agency Agreement in good faith, based upon arms -length bargaining, and without collusion or fraud. The Debtor was free to deal with any other party interested in buying or selling on behalf of the Debtor s estate some or all of the -5-

110 Assets. Neither the Debtor nor the Agent has engaged in any conduct that would cause or permit the Agency Agreement or any related action or the transactions contemplated thereby to be avoided under section 363(n) of the Bankruptcy Code, or that would prevent the application of sections 363(m) and 364(e) of the Bankruptcy Code. The Agent has not violated section 363(n) of the Bankruptcy Code by any action or inaction. Specifically, the Agent has not acted in a collusive manner with any person and was not controlled by any agreement among bidders. The Agent s prospective performance and payment of amounts owing under the Agency Agreement are in good faith and for valid business purposes and uses. The Agent is not an insider of the Debtor, as that term is defined in section 101(31) of the Bankruptcy Code. No common identity of directors or controlling stockholders exists between the Agent and the Debtor. K. The Debtor (i) has full corporate or other power to execute, deliver, and perform its obligations under the Agency Agreement and all other transactions contemplated thereby, and entry into the Agency Agreement has been duly and validly authorized by all necessary corporate or similar action; (ii) has all of the corporate or other power and authority necessary to consummate the transactions contemplated by the Agency Agreement; and (iii) has taken all actions necessary to authorize and approve the Agency Agreement and the transactions contemplated thereby. No consents or approvals other than those expressly provided for herein or in the Agency Agreement are required for the Debtor to consummate such transactions. L. No sale, transfer, or other designation of the Assets pursuant to the Agency Agreement or entry into the Agency Agreement will subject the Agent to any liability for claims, obligations, or Encumbrances asserted against the Debtor or its interests in such Assets by reason of such transfer under any laws, including, without limitation, any bulk-transfer laws or any -6-

111 theory of successor or transferee liability, antitrust, environmental, product line, de facto merger or substantial continuity, or similar theories. The Agent is not a successor to the Debtor or its estate. M. Entry into the Agency Agreement and the transactions contemplated thereby neither impermissibly restructure the rights of the Debtor s creditors, nor impermissibly dictates the terms of a liquidating plan of reorganization for the Debtor. Entry into the Agency Agreement does not constitute a sub rosa chapter 11 plan. NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED AND DECREED THAT: 1. The Motion is GRANTED as set forth herein. 2. Any remaining objections to the Motion or the relief requested therein that have not been withdrawn, waived, or settled, and all reservations of rights included in such objections are overruled in all respects and denied. 3. The Agency Agreement (including each of the transactions contemplated thereby) is hereby approved in its entirety pursuant to section 363 of the Bankruptcy Code and the Agency Agreement is incorporated herein by reference. The failure to include specifically any particular provision of the Agency Agreement in this Order shall not diminish or impair the effectiveness of such provisions, it being the intent of the Court that the Agency Agreement and all of its provisions be authorized and approved in their entirety. Likewise, all of the provisions of this Order are nonseverable and mutually dependent. 4. All amounts payable to the Agent under the Agency Agreement shall be payable to the Agent without the need for any application of the Agent therefor or any further order of the Court. -7-

112 5. The Debtor and the Agent are hereby authorized, pursuant to sections 105(a) and 363(b)(1) of the Bankruptcy Code, to conduct a store closing, sale on everything, everything must go, bankruptcy liquidation, or similarly themed sale the Sale in accordance with the Agency Agreement and the sale guidelines (the Sale Guidelines ) annexed to the Agency Agreement as Exhibit 8.1. The Sale Guidelines are hereby approved in their entirety. Pursuant to section 363(b) of the Bankruptcy Code, the Debtor, the Agent, and each of their respective officers, employees, and agents are hereby authorized and directed to execute such documents and to do such acts as are necessary or desirable to carry out the Sale and effectuate the Agency Agreement and each of the transactions and related actions contemplated or set forth thereby. 6. This Order shall be binding upon and shall govern the acts of all entities, including, without limitation all filing agents, filing officers, title agents, title companies, recorders of mortgages, recorders of deeds, registrars of deeds, administrative agencies, governmental departments, secretaries of state, federal, state and local officials, and all other persons and entities who may be required by operation of law, the duties of their office, or contract, to accept, file, register or otherwise record or release any documents or instruments, or who may be required to report or insure any title or state of title in or to the Assets. 7. The provisions of this Order and the terms and provisions of the Agency Agreement shall be binding on all of the Debtor s creditors (whether known or unknown), the Debtor, the Agent, and their respective affiliates, successors and assigns, and any affected third parties including, but not limited to, all persons asserting an interest in the Assets, notwithstanding any subsequent appointment of any trustee, party, entity, or other fiduciary under any section of the Bankruptcy Code with respect to the forgoing parties, and as to any such trustee, party, entity, or other fiduciary, such terms and provisions likewise shall be binding. The provisions of this Order and the terms and provisions of the Agency Agreement, and any actions -8-

113 taken pursuant hereto or thereto, shall survive the entry of any order which may be entered confirming or consummating any plan of the Debtor or converting the Bankruptcy Case to a case under chapter 7 of the Bankruptcy Code, and the terms and provisions of the Agency Agreement, as well as the rights and interests granted pursuant to this Order and the Agency Agreement, shall continue in these or any superseding cases and shall be binding upon the Debtor, the Agent, and their respective successors and permitted assigns, including any trustee or other fiduciary hereafter appointed as a legal representative of the Debtor under chapter 7 or chapter 11 of the Bankruptcy Code. Any trustee appointed in this case shall be and hereby is authorized to operate the business of the Debtor to the fullest extent necessary to permit compliance with the terms of this Order and the Agency Agreement, and Agent and any such trustee shall be and hereby are authorized to perform under the Agency Agreement upon the appointment of the trustee without the need for further order of this Court. 8. Entry into the Agency Agreement is undertaken by the parties thereto in good faith, as that term is used in sections 363(m) and 364(e) of the Bankruptcy Code, and Agent shall be protected by sections 363(m) and 364(e) of the Bankruptcy Code in the event that this Order is reversed or modified on appeal. The reversal or modification on appeal of the authorization provided herein to enter into the Agency Agreement and consummate the transactions contemplated thereby, the authorization provided in this Order to obtain credit or incur debt, and the granting of a lien and establishing the priority thereof in favor of the Agent shall not affect the validity of such transactions, unless any such actions is duly stayed pending such appeal. The Agent is entitled to all of the benefits and protections afforded by sections 363(m) and 364(e) of the Bankruptcy Code. The transactions contemplated by the Agency Agreement are not subject to avoidance pursuant to section 363(n) of the Bankruptcy Code. 9. Pursuant to section 363(f) of the Bankruptcy Code, the Agent shall be authorized to sell all Assets to be sold pursuant to the Agency Agreement free and clear of any and all -9-

114 Encumbrances, including, without limitation, the liens and security interests, as the same may have been amended from time to time, of Salus Capital, whether arising by agreement, any statute, or otherwise, and whether arising before, on, or after the Petition Date, with any Encumbrances attaching only to the Guaranteed Amount, the Recovery Amount and the Augment Recovery Amount with the same priority, validity, force, and effect as the same had with respect to the Assets, subject to any and all defenses, claims, and counterclaims or setoffs that may exist. 10. If any person or entity that has filed financing statements, mortgages, construction or mechanic s liens, lis pendens, or other documents or agreements evidencing Encumbrances with respect to the Assets shall not have delivered to the Debtor, in proper form for filing and executed by the appropriate parties, termination statements, instruments of satisfaction, or releases of all such Encumbrances, the Debtor is hereby authorized and shall execute and file such statements, instruments, releases, and other documents on behalf of the person or entity asserting such Encumbrances, and the Debtor and the Agent are authorized to file a copy of this Order which, upon filing, shall be conclusive evidence of the release and termination of such Encumbrances. Each and every federal, state, and local Governmental Unit is hereby directed to accept any and all documents and instruments necessary or appropriate to give effect to the transactions contemplated by the Agency Agreement. 11. All entities that are presently in possession of some or all of the Assets or other property in which the Debtor holds an interest and that are or may be subject to the Agency Agreement are hereby directed to surrender possession of such Assets or other property to the Agent. 12. Unless otherwise ordered by the Court, all newspapers and other advertising media in which the Sale may be advertised and all landlords are directed to accept this Order as binding authority authorizing the Debtor and the Agent to consummate the Agency Agreement -10-

115 and to consummate the transactions contemplated thereby, including but not limited to conducting and advertising the Sale in the manner contemplated by the Agency Agreement, including but not limited to conducting and advertising of the Sale (at the contractual rates, if any, charged to the Debtor prior to the Petition Date) in accordance with the Agency Agreement, the Sale Guidelines, and this Order. 13. Nothing in this Order or the Agency Agreement releases, nullifies, or enjoins the enforcement of any liability to a Governmental Unit under environmental laws or regulations (or any associated liabilities for penalties, damages, cost recovery, or injunctive relief) that any entity would be subject to as the owner, lessor, lessee, or operator of real property after the date of entry of this Order. Nothing contained in this Order or in the Agency Agreement shall in any way (i) diminish the obligation of any entity to comply with environmental laws or (ii) diminish the obligations of the Debtor to comply with environmental laws consistent with its rights and obligations as a debtor-in-possession under the Bankruptcy Code. Nothing herein shall be construed to be a determination that the Agent is an operator with respect to any environmental law or regulation. Moreover, the Sale shall not be exempt from, and the Agent and the Debtor shall be required to comply with state and local public health and safety, criminal, tax, labor, employment, environmental, antitrust, consumer protection laws, and consumer laws regulating deceptive practices and false advertising (collectively, General Laws ). Nothing in this Order shall alter or affect the Debtor s and Agent s obligations to comply with all applicable federal safety laws and regulations. Nothing in this Order shall be deemed to bar any Governmental Unit (as defined in section 101(27) of the Bankruptcy Code) from enforcing General Laws in the applicable non-bankruptcy forum, subject to the Debtor s or the Agent s right to assert in that forum or before this Court that any such laws are not in fact General Laws or that enforcement thereof is impermissible under the Bankruptcy Code, this Order, or otherwise. Notwithstanding any other provision in this Order, no party waives any rights to argue any position with respect to -11-

116 whether such party s conduct was in compliance with this Order or any applicable law, or that enforcement of such applicable law is preempted by the Bankruptcy Code. Nothing in this Order shall be deemed to have made any rulings on any such issues. 14. To the extent that the Sale is subject to any federal, state, or local statute, ordinance, or rule, or licensing requirement solely directed at regulating going out of business, store closing, similar inventory liquidation sales, or bulk sale laws, including laws restricting safe, professional, and non-deceptive, customary advertising such as signs, banners, posting of signage, and use of sign-walkers solely in connection with the Sale and including ordinances establishing license or permit requirements, waiting periods, time limits or bulk sale restrictions that would otherwise apply solely to Sale (collectively, the Sale Laws ), the following provisions shall apply: a. Provided that the Sale is conducted in accordance with the terms of this Order, the Agency Agreement and the Sale Guidelines, and in light of the provisions in the laws of many Governmental Units that exempt court-ordered sales from their provisions, the Debtor and the Agent shall be presumed to be in compliance with any General Laws and Sale Laws and, subject to the provisions hereof, are authorized to conduct the Sale in accordance with the terms of this Order, the Agency Agreement and the Sale Guidelines without the necessity of further showing compliance with any such Sale Laws. b. Within two (2) business days of entry of this Order, the Debtor shall serve copies of this Order, the Agency Agreement, and the Sale Guidelines via , facsimile, or regular mail, on (i) the Attorney General s office for each state where the Sale is being held, (ii) the division of consumer protection for each state where the Sale will be held; and (iii) the chief legal counsel for the local jurisdiction. c. To the extent there is a dispute arising from or relating to any Sale Laws and the conduct of the Sale, this Order, the Agency Agreement, or the Sale Guidelines (a Dispute ), -12-

117 the Court shall retain exclusive jurisdiction to resolve the Dispute. At any time within fifteen (15) days following service of this Order, any Governmental Unit may assert that a Dispute exists by serving written notice of such Dispute to counsel for the Debtor and counsel for the Agent at the addresses set forth in the Agency Agreement so as to ensure delivery thereof within one (1) business day thereafter. If the Debtor, the Agent, and the Governmental Unit are unable to resolve the Dispute within fifteen (15) days of service of the notice, the aggrieved party may file a motion with this Court requesting that this Court resolve the Dispute (a Dispute Resolution Motion ). d. In the event a Dispute Resolution Motion is filed, nothing in this Order shall preclude the Debtor, a landlord, the Agent, or any other interested party from asserting (i) that the provisions of any Sale Laws are preempted by the Bankruptcy Code, or (ii) that neither the terms of this Order nor the Debtor s or the Agent s conduct pursuant to this Order, violates such Sale Laws. Filing a Dispute Resolution Motion as set forth herein shall not be deemed to affect the finality of this Order or to limit or interfere with the Debtor s or the Agent s ability to conduct or to continue to conduct the Sale pursuant to this Order, the Agency Agreement and the Sale Guidelines, absent further order of this Court. The Court grants authority for the Debtor and the Agent to conduct the Sale pursuant to the terms of this Order, the Agency Agreement, and the Sale Guidelines and to take all actions reasonably related thereto or arising in connection therewith. A Governmental Unit asserting a Dispute shall be entitled to assert any jurisdictional, procedural, or substantive arguments it wishes with respect to the requirements of its Sale Laws or the lack of any preemption of such Sale Laws by the Bankruptcy Code. Nothing in this Order shall constitute a ruling with respect to any issues to be raised in any Dispute Resolution Motion. e. Notwithstanding anything herein to the contrary, and in view of the importance of the use of sign-walkers, banners, and other advertising to the Sale, to the extent that disputes arise during the course of the Sale regarding laws regulating the use of sign-walkers and banner advertising and the Debtor and the Agent are unable to resolve the -13-

118 matter consensually with the Governmental Unit, any party may request an immediate telephonic hearing with this Court pursuant to these provisions. Such hearing will, to the extent practicable, be scheduled initially within two (2) business days of such request. This scheduling shall not be deemed to preclude additional hearings for the presentation of evidence or arguments as necessary. 15. Except to the extent of the reserved rights of Governmental Units expressly granted in paragraphs 13 and 14 of this Order, the Debtor and the Agent are hereby authorized to take such actions as may be necessary and appropriate to implement the Agency Agreement and to conduct the Sale as provided in the Agency Agreement or the Sale Guidelines, including but not limited to advertising the Sale as store closing, sale on everything, everything must go, bankruptcy liquidation or similarly themed sale through the posting of signs (including the use of exterior banners at non-enclosed mall Remaining Stores, and at enclosed mall Remaining Stores to the extent the applicable Closing Store entrance does not require entry into the enclosed mall common area), use of signwalkers, and street signage, without necessity of further order of this Court. 16. The Sale shall be conducted by the Debtor and the Agent notwithstanding any restrictive provision of any lease, sublease, or other agreement relative to occupancy affecting or purporting to restrict the conduct of the Sale, or advertising the Sale as a store closing, sale on everything, everything must go, bankruptcy liquidation or similarly themed sale, or use of signwalkers and street signage, pursuant to the Agency Agreement and the Sale Guidelines, the rejection of leases, abandonment of assets, or going dark provisions. The Debtor, Agent and landlords of the Remaining Stores are authorized to enter into agreements ( Landlord Agreements ) between themselves modifying the Sale Guidelines without further order of the Court, and such Landlord Agreements shall be binding as among the Debtor, the Agent, and any such landlords, provided that nothing in such Landlord Agreements affects the provisions of -14-

119 paragraphs 13 and 14 of this Order. In the event of any conflict between the Sale Guidelines, the Agency Agreement, or this Order, and any Landlord Agreement, the terms of such Landlord Agreement shall control. 17. Except with respect to any Governmental Unit (as to which paragraphs 13 and 14 of this Order shall apply), no person or entity, including but not limited to any landlord, licensor, or creditor, shall take any action to directly or indirectly prevent, interfere with, or otherwise hinder consummation of the Sale, or the advertising and promotion (including the posting of signs or the use of signwalkers) of such Sale, and all such parties and persons of every nature and description, including landlords, licensors, creditors, and utility companies and all those acting for or on behalf of such parties, are prohibited and enjoined from (i) interfering in any way with, or otherwise impeding, the conduct of the Sale or (ii) instituting any action or proceeding in any court or administrative body seeking an order or judgment against, among others, the Debtor, the Agent, or the landlords at the Remaining Stores that might in any way directly or indirectly obstruct or otherwise interfere with or adversely affect the conduct of the Sale or other liquidation sales at the Remaining Stores or seek to recover damages for breach(es) of covenants or provisions in any lease, sublease, or license based upon any relief authorized herein. 18. The Agent shall have the right to use the Remaining Stores and all related store services, furniture, fixtures, equipment, and other assets of the Debtor for the purpose of conducting the Sale, free of any interference from any entity or person, subject to compliance with this Order, the Agency Agreement and the Sale Guidelines, and subject to paragraphs 13 and 14 of this Order. 19. Nothing in this Order shall (a) alter or affect the Debtor s obligations to comply with section 365(d)(3) of the Bankruptcy Code or (b) alter or modify the rights of any lessor or other counterparty to a lease with the Debtor to file an appropriate motion or otherwise seek appropriate relief if the Debtor fails to comply with section 365(d)(3) of the Bankruptcy Code; -15-

120 provided that the conduct of the Sale in accordance with the Sale Guidelines shall not be a violation of section 365(d)(3) of the Bankruptcy Code. 20. Before any sale, abandonment, or other designation of the Debtor s computers (including software) or cash registers and any other point-of-sale Owned FF&E located at the Remaining Stores (collectively, POS Equipment ) that may contain customer lists, identifiable personal or confidential information about the Debtor s employees or customers, or credit card numbers ( Confidential Information ) takes effect, the Debtor shall remove or cause to be removed the Confidential Information from the POS Equipment. 21. During the Sale Term, the Agent shall accept Debtor s gift cards and store credits that were issued by the Debtor prior to the Sale Commencement Date, and the Debtor shall reimburse the Agent for such amounts during the weekly sale reconciliation provided for in Section 8.7(a) of the Agency Agreement. During the Sale Term, the Agent shall accept Returned Merchandise in accordance with Section 8.5 of the Agency Agreement, and the Debtor shall reimburse the Agent for any refunds Agent issues to customers in respect of any Returned Merchandise during the weekly sale reconciliation provided for in Section 8.7(a) of the Agency Agreement. 22. As of the Sale Commencement Date, Agent shall indicate that all sales of Assets will be final sale and as is. 23. During the Sale Term, the Agent shall be granted a limited license and right to use the trade names, logos, and customer, mailing, and lists relating to and used in connection with the operation of the Remaining Stores, solely for the purpose of advertising the Sale in accordance with the terms of the Agency Agreement. 24. Except as expressly provided for in the Agency Agreement, nothing in this Order or the Agency Agreement, and none of the Agent s actions taken in respect of the Sale shall be deemed to constitute an assumption by Agent of any of the Debtor s obligations relating to any -16-

121 of the Debtor s employees. Moreover, the Agent/Purchaser shall not become liable under any collective bargaining or employment agreement or be deemed a joint or successor employer with respect to such employees. 25. The Agent shall not be liable for sales taxes except as expressly provided in the Agency Agreement. Payment of any and all sales taxes is the responsibility of the Debtor, in accordance with the Agency Agreement. 26. Subject to the terms set forth in the Agency Agreement, the Debtor and the Agent, as applicable, are authorized and empowered to transfer Assets among the Remaining Stores. As set forth in the Agency Agreement, the Agent is authorized to include in the Sale, the Additional Agent Merchandise in accordance with the terms of the Agency Agreement. The Agent is authorized to sell the Owned FF&E as provided for and in accordance with the terms of the Agency Agreement. Notwithstanding the foregoing, the Agent is authorized to abandon in place any Owned FF&E, supplies and such other items identified in the Agency Agreement at the Remaining Stores in accordance with the terms of the Agency Agreement without liability to the Agent. 27. In accordance with the terms of the Agency Agreement and effective upon payment by the Agent of the Initial Guaranty Payment and posting by the Agent of the Guaranty L/C (as those terms are defined in the Agency Agreement), pursuant to section 364(d) of the Bankruptcy Code, Agent is granted a valid, binding, enforceable, and perfected first-priority security interest and lien upon (x) the Merchandise in the Initial Remaining Stores, (y) proceeds realized from the designation of the Owned FF&E up to the amount of the Agent s commission from the sale of the Owned FF&E, as set forth in section 15 of the Agency Agreement, and (z) the Proceeds (as that term is defined in the Agency Agreement), to secure all obligations of the Debtor to the Agent under the Agency Agreement, provided, however, that until payment in full of the Guaranteed Amount, Recovery Amount, the Augment Recovery Amount, and Expenses, -17-

122 the security interest granted to Agent hereunder shall remain junior and subordinate in all respects to the liens, security interests, and claims of the Lender or any successor lender (including the liens, security interests, and claims granted to the Lenders pursuant to the Financing Order referred to below). Upon entry of this Order, payment by the Agent of the Initial Guaranty Payment, and posting by the Agent of the Guaranty L/C, the security interest granted to the Agent shall be deemed properly perfected without the necessity of filing financing statements or other documentation. Subject to the Agent having satisfied its payment obligations under the Agency Agreement, any amounts owed by the Debtor to the Agent under the Agency Agreement are granted and shall have the status and priority of superpriority claims pursuant to section 364(c) of the Bankruptcy Code, junior to any superpriority claims of the Lender, any successor lender (including the superiorpriority claims granted to Lender in the Financing Order referred to below), or any other entity holding a superpriority claim. For purposes hereof, the term Lender shall mean, Salus Capital as such terms are defined in the Final Order (A) Authorizing Debtor to Obtain Post-Petition Financing and Grant Security Interests and Superpriority Administrative Expense Status Pursuant to 11 U.S.C. 105 and 364(c); (B) Authorizing the Use of Cash Collateral; (C) Modifying the Automatic Stay Pursuant to 11 U.S.C. 362; and (D) Authorizing Debtor to Enter into Agreements with Wells Fargo Bank, N.A., in its capacity as Agent [Docket No. 222], as supplemented by the Order (I) Authorizing Debtor To Enter Into Amendment Agreement With Salus Capital Partners, LLC and (II) Supplementing Final Financing Order [Docket No. 339] (collectively, the Financing Order ) entered by this Court in this Case. 28. In accordance with the Financing Order and the Loan Documents (as defined in the Final Financing Order), the Debtor is authorized and directed to remit, and to instruct the Agent to remit, the Guaranteed Amount, the Recovery Amount, the Augment Recovery Amount and any other amounts that the Debtor is entitled to receive under the Agency Agreement, other -18-

123 than Expenses, to the Lender, to be applied against the Liabilities (as defined in the Financing Order) owing to the Lender under and in connection with the Financing Order and the Loan Documents. 29. The Agent is a party-in-interest in the Bankruptcy Case, and shall have the ability to appear and be heard on all issues related to or otherwise connected to this Order, the various procedures contemplated herein, any issues related to or otherwise connected to the Sale, and the Agency Agreement. 30. Nothing contained in any plan confirmed in the Bankruptcy Case or any order of this Court confirming such plan or in any other order entered by the Court in the Bankruptcy Case (including any order entered after any conversion of the Bankruptcy Case to a case under chapter 7 of the Bankruptcy Code) shall alter, conflict with, or derogate from the provisions of the Agency Agreement or the terms of this Order. 31. The Agency Agreement and related documents may be modified, amended, or supplemented by the parties thereto in accordance with the terms thereof without further order of this Court, provided that, any such modification, amendment, or supplement is not material and adverse to the Debtor. 32. Except with respect to any Governmental Unit (as to which the provisions of paragraphs 13 and 14 of this Order shall apply), this Court shall retain exclusive jurisdiction with regard to all issues or disputes arising out of or relating to this Order, the Agency Agreement, and the Sale, including but not limited to (i) any claim or issue relating to any efforts by any party or person to prohibit, restrict, or in any way limit banner and signwalker advertising, including with respect to any allegations that such advertising is not being conducted in a safe, professional, and non-deceptive manner, (ii) any claim of the Debtor, any landlords, or the Agent for protection from interference with the Sale, (iii) any other disputes related to the Sale, and (iv) to protect the Debtor or the Agent against any assertions of Encumbrances. No entity shall take -19-

124 any action against the Debtor, the Agent, any landlord, or the Sale until this Court has resolved such dispute. This Court shall hear the request of such parties or persons with respect to any such disputes on an expedited basis, as may be appropriate under the circumstances. 33. Notwithstanding Bankruptcy Rules 4001, 6004 and 6006 or any other law that would serve to stay or limit the immediate effect of this Order, this Order shall be effective and enforceable immediately upon entry and its provisions shall be self-executing. In the absence of any person or entity obtaining a stay pending appeal, the Debtor and the Agent are free to perform under the Agency Agreement at any time, subject to the terms thereof. 34. To the extent that anything contained in this Order explicitly conflicts with a provision of the Agency Agreement or the Sale Guidelines, this Order shall govern and control. ENTERED: UNITED STATES BANKRUPTCY JUDGE -20-

125 WE ASK FOR THIS: LOWENSTEIN SANDLER PC Kenneth A. Rosen (NJ Bar No ) Bruce D. Buechler (NJ Bar No ) Mary E. Seymour (NJ Bar No ) Cassandra M. Porter (NJ Bar No ) Andrew David Behlmann (NJ Bar No ) 65 Livingston Avenue Roseland, New Jersey (973) and - KAPLAN VOEKLER CUNNINGHAM & FRANK, PLC Troy Savenko (Va. Bar No ) Christopher J. Hoctor (Va. Bar No ) Leslie A. Skiba (Va. Bar No ) 7 East Second Street ( ) Post Office Box 2470 Richmond, Virginia (804) Counsel to the Debtor and Debtor in Possession CERTIFICATION UNDER LOCAL RULE (C) I hereby certify that notice of the Debtor s intent to seek entry of the foregoing proposed order was provided to the parties identified in the Motion. -21-

126 EXHIBIT D UNPUBLISHED OPINION

127 Not Reported in B.R., 2007 WL (Bkrtcy.N.D.W.Va.), 48 Bankr.Ct.Dec. 148 (Cite as: 2007 WL (Bkrtcy.N.D.W.Va.)) Page 1 to ISG as part of ISG's purchase of the Debtor's assets. United States Bankruptcy Court, N.D. West Virginia. In re WEIRTON STEEL CORPORATION, et al., Debtors. Kinder Morgan/Pinney Dock & Transport, LLC., Plaintiff, v. Mittal Steel USA, Inc., International Steel Group, Inc., and ISG Weirton, Inc., Defendants. Bankruptcy No Adversary No July 6, Christopher S. Smith, Hoyer, Hoyer & Smith, PLLC, Charleston, WV, Patricia Williams Prewitt, Locke, Liddell & Sapp LLP, Houston, TX, for Plaintiff. Mark E. Freedlander, McGuireWoods LLP, Pittsburgh, PA, for Debtors. Nancy White, Wahsington, DC, Patrick J. Brooks, Cleveland, OH, Richard M. Francis, Charleston, WV, for Defendant. International Steel Group, Inc., pro se. ISG Weirton, Inc., pro se. MEMORANDUM OPINION RONALD PEARSON, United States Bankruptcy Judge. *1 Kinder Morgan/Pinney Dock & Transport, LLC ( Kinder Morgan ), filed this adversary complaint against International Steel Group, Inc., and ISG Weirton, Inc. (collectively ISG ), the entities that purchased substantially all the assets of Weirton Steel Corporation (the Debtor ). Mittal Steel USA, Inc. ( Mittal Steel ), is the successor in interest to ISG. Kinder Morgan seeks to recover about $523,000 from Mittal Steel and/or ISG based on an alleged failure to pay the remaining cure amount of an Iron Ore Handling and Storage Agreement that was allegedly assumed and assigned On March 22, 2007, Mittal Steel filed a motion for a judgment on the pleadings, as amended on April 20, 2007, arguing that Kinder Morgan did not have a legitimate, contractual claim against it for the unpaid cure amount. Kinder Morgan responded to Mittal Steel's motion, and has submitted exhibits outside of the pleadings in this case that purport to demonstrate ISG's promise to pay Kinder Morgan the outstanding cure amount. Consequently, Kinder Morgan requests that the court transform Mittal Steel's motion to one for summary judgment pursuant to Fed.R.Civ.P. 12(c) and 56, as made applicable to this proceeding by Fed. R. Bankr.P. 7012(b) and In its reply, Mittal Steel objects to transforming this motion into one for summary judgment on the basis that consideration of the exhibits submitted by Kinder Morgan constitute parol evidence, which cannot be used to vary the terms of the express contract between the parties. The court held a hearing in this adversary proceeding on March 26, 2007, in Wheeling, West Virginia, at which time the court afforded the parties time to submit additional briefing. That briefing is now complete, and for the reasons stated herein, the court will dismiss the adversary complaint filed by Kinder Morgan without prejudice because the court finds that it lacks subject matter jurisdiction to adjudicate this proceeding. I. STANDARD OF REVIEW A motion for a judgment on the pleadings is brought pursuant to Fed.R.Civ.P. 12(c), as made applicable to bankruptcy proceedings by Fed. R. Bankr.P. 7012(b). The standard of review to be followed by the court in adjudicating a Rule 12(c) motion to dismiss is identical to that used to adjudicate motions for failure to state a claim under Rule 12(b)(6). E.g., Fed.R.Civ.P. 12(h)(2) (providing that the defense of failure to state a claim on which relief may be granted as set forth in Rule 12(b)(6) may be raised by motion for judgment on the pleadings... ); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir.1999) (stating that the court employs the same standards in adjudicating both a Rule 2012 Thomson Reuters. No Claim to Orig. US Gov. Works.