IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ...

Case 16-10296-BLS Doc 131 Filed 02/12/16 PaDgoeck1eto#f011331 Date Filed: 02/12/2016

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

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In re: : Chapter 11
HANCOCK FABRICS, INC., et al.,1 :
: Case No. 16-10296 (BLS)
Debtors. :
: Jointly Administered
:
: Obj. Deadline: Feb. 25, 2016 at 4:00 p.m. (ET)
Hearing Date: Mar. 3, 2016 at 10:00 a.m. (ET)

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DEBTORS’ APPLICATION FOR ENTRY OF AN
ORDER AUTHORIZING THE EMPLOYMENT AND RETENTION OF

O’MELVENY & MYERS LLP AS ATTORNEYS FOR THE
DEBTORS, NUNC PRO TUNC TO THE PETITION DATE

Hancock Fabrics, Inc., and its affiliated debtors and debtors in possession

(collectively, the “Debtors”) respectfully request entry of an order authorizing the employment

and retention of O’Melveny & Myers LLP (“OMM”) as the Debtors’ attorneys in these

chapter 11 cases, effective nunc pro tunc to the Petition Date, in accordance with OMM’s

customary hourly rates and reimbursement policies in effect when services are rendered. In

support of this application (the “Application”), the Debtors submit the declaration of Stephen H.
Warren, a senior partner at OMM (the “Warren Declaration”),2 and the declaration of Dennis

Lyons, Senior Vice President and Chief Administrative Officer of the Debtors (the “Lyons
Declaration”).3 In further support of this Application, the Debtors respectfully state as follows:

1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are
Hancock Fabrics, Inc. (0905), Hancock Fabrics, LLC (9837), Hancock Fabrics of MI, Inc. (5878),
hancockfabrics.com, Inc. (9698), HF Enterprises, Inc. (7249), HF Merchandising, Inc. (8522) and HF Resources,
Inc. (9563). The Debtors’ corporate headquarters is located at One Fashion Way, Baldwyn, MS 38824.

2 The Warren Declaration is attached to this Application as Exhibit B.

3 The Lyons Declaration is attached to this Application as Exhibit C.

RLF1 13901164v.1 ¨1¤]"¡0", ,8«

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JURISDICTION AND VENUE
1. This Court has jurisdiction to consider this Application pursuant to
28 U.S.C. §§ 157 and 1334 and venue is proper under 28 U.S.C. §§ 1408 and 1409. This is a
core proceeding under 28 U.S.C. § 157(b).4

BACKGROUND
2. On February 2, 2016 (the “Petition Date”), each of the Debtors filed a
voluntary petition with this Court for relief under chapter 11 of the Bankruptcy Code. The
Debtors continue to manage and operate their businesses as debtors in possession under
sections 1107(a) and 1108 of the Bankruptcy Code.
3. On February 10, 2016, the Office of the United States Trustee for the
District of Delaware (the “U.S. Trustee”) appointed an official committee of unsecured creditors
in these chapter 11 cases pursuant to section 1102 of the Bankruptcy Code (the “Committee”).
No trustee, examiner, or other statutory committee has been appointed in these chapter 11 cases.
4. The Debtors operate more than 260 stores in 37 states under the name of
“Hancock Fabrics,” a large national fabric and specialty retailer offering an extensive selection
of high-quality fashion and home decorating textiles, sewing accessories, needlecraft supplies
and sewing machines, along with in-store sewing advice. Founded in 1957, the Debtors’
corporate headquarters and national distribution center are located in Baldwyn, Mississippi.
Additional information on the Debtors’ businesses and capital structure, as well as a description
of the reasons for filing these cases and the Debtors’ goals for these cases, is set forth in the

4 Pursuant to rule 9013-1(f) of the Local Rules of Bankruptcy Practice and Procedure of the United States
Bankruptcy Court for the District of Delaware (the “Local Rules”), the Debtors hereby expressly confirm their
consent to the entry of a final order by this Court in connection with this motion if it is later determined that this
Court, absent consent of the parties, cannot enter final orders or judgments in connection therewith consistent with
Article III of the United States Constitution.

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Declaration of Dennis Lyons in Support of Chapter 11 Petitions and Request for First Day Relief
(the “First Day Declaration”) filed on the Petition Date.5

RELIEF REQUESTED
5. By this Application, pursuant to sections 327(a), 328(a), 329, and 330 of
the Bankruptcy Code, Bankruptcy Rules 2014(a) and 2016(a), and Local Rules 2014-1 and 2016-
2, the Debtors respectfully request entry of an order, substantially in the form attached as
Exhibit A, authorizing the employment and retention of OMM as the Debtors’ attorneys in these
chapter 11 cases, effective nunc pro tunc to the Petition Date, in accordance with OMM’s
customary hourly rates and reimbursement policies in effect when services are rendered.

BASIS FOR RELIEF REQUESTED
I. FACTS SPECIFIC TO RELIEF REQUESTED
A. OMM’s Qualifications

6. The Debtors have selected OMM as their attorneys because of OMM’s
recognized experience in the field of debtors’ and creditors’ rights and business reorganizations
under chapter 11 of the Bankruptcy Code. As described in the Warren Declaration, OMM has
experience practicing before this Court and has been actively involved in a wide variety of major
chapter 11 cases.

7. OMM began providing restructuring-related advice to the Debtors in or
about October 2015 and, since that time, has advised the Debtors on various refinancing and
restructuring alternatives. In that regard, OMM assisted the Debtors in the preparation for filing
these chapter 11 cases, among other things. Prior to that time, OMM served as a corporate and
finance counsel to the Debtors, providing a wide variety of legal services to the Debtors.
Without limiting the generality of the foregoing, OMM advised the Debtors concerning

5 Capitalized terms used but not defined in this motion have the meanings used in the First Day Declaration.

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corporate matters, finance issues agreements, and securities reporting obligations. OMM also

advised committees of the Debtors’ board of directors and provided litigation services. These

services span the course of nearly five years.

8. In the course of its relationship with the Debtors, OMM has become

familiar with the Debtors’ businesses, financial affairs, and capital structure. OMM thus has the

necessary background to deal effectively with the potential legal issues and problems that may

arise in the context of these chapter 11 cases. The Debtors believe that OMM is both well-

qualified and uniquely able to represent them in these chapter 11 cases in an efficient and

effective manner.

B. Services to be Provided
9. The Debtors anticipate that, in these chapter 11 cases, OMM will render

general legal services as needed, including in the areas of restructuring, corporate, finance,

litigation, and tax. The professional services that OMM will render to the Debtors may include

the following:

(a) advising the Debtors of their rights, powers, and duties as debtors and
debtors in possession in the management and operation of their businesses;

(b) preparing on behalf of the Debtors all necessary and appropriate
applications, motions, draft orders, other pleadings, notices, schedules, and
other documents, and reviewing all financial and other reports to be filed
in the Debtors’ chapter 11 cases;

(c) advising the Debtors on, and preparing responses to, applications,
motions, other pleadings, notices, and other papers that may be filed and
served in the Debtors’ chapter 11 cases;

(d) advising the Debtors on actions that they might take to collect and recover
property for the benefit of their estates;

(e) advising the Debtors on executory contracts and unexpired lease
assumptions, assignments, and rejections;

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(f) assisting the Debtors in reviewing, estimating, and resolving any claims
asserted against their estates;

(g) advising the Debtors in connection with potential sales of assets;
(h) commencing and conducting litigation necessary or appropriate to assert

rights held by the Debtors, protect assets of their estates, or otherwise
further the goals of the Debtors’ restructuring;
(i) assisting the Debtors in obtaining the Court’s approval of the postpetition
debtor in possession financing facilities;
(j) attending meetings and representing the Debtors in negotiations with
representatives of creditors and other parties in interest;
(k) advising the Debtors on tax matters;
(l) advising and assisting the Debtors in connection with the preparation,
solicitation, confirmation, and consummation of a chapter 11 plan; and
(m) performing all other necessary legal services in connection with the
Debtors’ chapter 11 cases and other general corporate matters concerning
the Debtors’ businesses.
10. The Debtors may, from time to time, request that OMM undertake specific

matters beyond the scope of the responsibilities set forth above. Should OMM agree to

undertake any such specific matters, the Debtors further request authority in this Application to

employ OMM for such matters, in addition to those set forth above, without further order of this

Court.

11. The Debtors require knowledgeable counsel to render these essential

professional services, and, as described in the Warren Declaration, OMM has substantial

expertise in each of these areas. As a result, OMM is well-qualified to perform these services

and represent the Debtors’ interests in these chapter 11 cases. Subject to the Court’s approval of

this Application, OMM is willing to serve as the Debtors’ counsel and to perform the services

described above.

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C. Professional Compensation
12. OMM intends to apply to the Court for allowance of compensation and

reimbursement of out-of-pocket expenses incurred after the Petition Date in connection with the

Debtors’ chapter 11 cases on an hourly basis, subject to Court approval and in accordance with

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

any other applicable procedures or orders of this Court. Additionally, OMM recognizes that the

U.S. Trustee is charged with reviewing applications for compensation when the U.S. Trustee

deems it appropriate and that the U.S. Trustee will utilize the “Guidelines for Reviewing

Applications for Compensation and Reimbursement of Expenses Filed Under 11 U.S.C. § 330 by

Attorneys in Larger Chapter 11 Cases Effective as of November 1, 2013” (the “U.S. Trustee

Guidelines”) in the event that the U.S. Trustee decides a review of OMM’s compensation in this

case is appropriate.

13. OMM will be compensated at its standard hourly rates, which are based on

the professionals’ level of experience. As set forth in the Warren Declaration, OMM’s current

hourly rates for partners range from $835 to $1,300; other attorneys’ hourly rates, including

counsel positions, range from $435 to $815; the hourly rates charged for OMM’s

paraprofessionals and legal assistants range from $110 to $350; and the hourly rates charged for

OMM’s administrative support staff range from $30 to $35. The Debtors understand that

OMM’s rates are subject to annual and customary firm-wide adjustments in the ordinary course

of OMM’s business. The hourly rates and corresponding rate structure that OMM will use in

these chapter 11 cases are consistent with the rates that OMM charges other comparable clients,

regardless of the location of the clients or any associated case.

14. As is set more fully in the Warren Declaration, prior to the Petition Date,

the Debtors paid OMM certain advances including a retainer of $500,000.00 which together with

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other advances paid pre-petition resulted in a net retainer of approximately $580,000.00 as of the

petition date (the “Retainer”) in connection with and in contemplation of these chapter 11 cases.

The Debtors request that the retainer monies paid to OMM and not expended for prepetition

services and disbursements be treated as an evergreen retainer to be held by OMM as security

throughout these chapter 11 cases until OMM’s fees and expenses are awarded by final order and

paid to OMM.

15. OMM submits that an evergreen retainer is appropriate here. First,

evergreen retainer agreements reflect normal business practices in the marketplace. See In re

Insilco Techs., Inc., 291 BR. 628, 634 (Bankr. D. Del. 2003) (“[I]t is not disputed that the taking

of evergreen retainers is a practice now common in the marketplace . . . [and] the practice in this

district has been engaged in since at least the early 1990s.”). Second, OMM and the Debtors are

sophisticated business entities that have negotiated the Retainer at arms’ length. Approval of the

proposed evergreen retainer is therefore warranted under the standards articulated in Insilco. Id.

16. OMM will maintain detailed, contemporaneous records of time and any

necessary costs and expenses incurred in connection with rendering the legal services described

above. It is OMM’s policy to charge its clients for all disbursements and expenses incurred in

rendering services, including, among other things, costs for telephone and facsimile charges,

photocopying, travel, business meals, computerized research, messengers, couriers, postage,

witness fees, and other fees related to trials and hearings.

D. Compensation Received by OMM from the Debtors
17. Other than as set forth above, there is no proposed arrangement between

the Debtors and OMM for compensation to be paid in these chapter 11 cases. OMM has no

agreement with any other entity to share any compensation received, nor will any be made,

except as permitted under section 504(b)(1) of the Bankruptcy Code. Information regarding the

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Debtors’ payments to OMM before the commencement of these cases is provided in the Warren
Declaration. As of the Petition Date, the Debtors do not owe OMM any prepetition fees for
services performed or expenses incurred.
E. No Duplication Of Services

18. The Debtors intend and believe that OMM’s services will complement,
and not duplicate, the services rendered by any other professional retained in these chapter 11
cases. Contemporaneously with filing this Application, the Debtors are filing an application to
retain Richards, Layton & Finger, P.A. (“RLF”) as bankruptcy co-counsel. The Debtors have
also filed applications seeking to employ and retain (i) the Clear Thinking Group LLC, as
financial advisor; (ii) Lincoln Partners Advisors LLC, as investment bankers; (iii) Retail
Consulting Services, Inc., doing business as RCS Real Estate Advisors, as real estate advisors;
and (iv) Kurtzman Carson Consultants LLC, as noticing and claims agent and administrative
agent. OMM has advised the Debtors that it intends to carefully monitor and coordinate the
efforts of all professionals retained by the Debtors in these chapter 11 cases and will clearly
delineate their respective duties so as to prevent duplication of effort, whenever possible. Rather
than resulting in any extra expense to the Debtors’ estates, the Debtors anticipate that the
coordination of efforts of the Debtors’ attorneys and other professionals will add to the progress
and effective administration of these chapter 11 cases. Further, RLF will serve as counsel with
respect to matters or parties as to which OMM has a conflict and determines that it cannot (or
should not) represent the Debtors.
F. Disinterestedness of OMM

19. To the best of the Debtors’ knowledge, (i) OMM is a “disinterested
person” within the meaning of section 101(14) of the Bankruptcy Code, as required by
section 327(a) of the Bankruptcy Code, and does not hold or represent an interest adverse to the

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Debtors’ estates and (ii) OMM has no connection to the Debtors, their creditors, or any parties in
interest, except as may be disclosed in the Warren Declaration or herein.

20. In the course of its services as the Debtors’ corporate and finance counsel,
OMM delivered customary financing related opinions on behalf of the Debtors to their lenders in
connection with (i) the Prepetition Senior Credit Documents, (ii) the Prepetition Subordinated
Indenture Documents and (iii) the Debtor in Possession Loan Agreement. If and to the extent
that any issue related to OMM’s opinions become an issue in these cases, RLF is positioned to
address them.

21. OMM has fully informed the Debtors of its ongoing representations of
entities that may have a connection to the Debtors as described in the Warren Declaration, and
the Debtors have consented to OMM continuing to represent such entities in matters unrelated to
these proceedings.

22. OMM will periodically review its files during these chapter 11 cases to
ensure that no conflicts or other disqualifying circumstances exist or arise. If any new relevant
facts or relationships are discovered or arise, OMM will use reasonable efforts to identify such
further developments and will promptly file a supplemental declaration, as required by
Bankruptcy Rule 2014(a).

23. As set forth in the Warren Declaration, no partner or employee of OMM is
a relative of, or has been so connected with, any United States Bankruptcy Judge for the District
of Delaware, any of the District Court Judges for the District of Delaware who handle
bankruptcy cases, the United States Trustee for Region 3, the Assistant United States Trustee for
the District of Delaware, the attorney for the United States Trustee who has been assigned to

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these chapter 11 cases, or any other employee of the U.S. Trustee. Accordingly, the employment
of OMM is not prohibited by Bankruptcy Rule 5002.
II. LEGAL BASIS FOR RELIEF REQUESTED
A. Retention and Employment of OMM as the Debtors’ Attorneys is Permitted

Pursuant to Sections 327 and 328 of the Bankruptcy Code
24. The Debtors seek approval of the employment and retention of OMM as

their attorneys pursuant to sections 327(a) and 328(a) of the Bankruptcy Code. Section 327(a)
provides that a debtor “may employ one or more attorneys, accountants, appraisers, auctioneers,
or other professional persons, that do not hold or represent an interest adverse to the estate, and
that are disinterested persons, to represent or assist” the debtor in carrying out its duties. 11
U.S.C. § 327(a).

25. The Debtors respectfully request retention of OMM in accordance with
OMM’s customary hourly rates and reimbursement policies in effect when services are rendered,
pursuant to section 328(a) of the Bankruptcy Code, which provides in relevant part, that debtors
“with the court’s approval, may employ or authorize the employment of a professional person
under section 327 . . . on any reasonable terms and conditions of employment, including on a
retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis . . . .”
Id. § 328(a).

26. Section 330 of the Bankruptcy Code permits the court to award to a
professional person “reasonable compensation for actual, necessary services rendered . . . and . . .
reimbursement for actual, necessary expenses.” Id. § 330(a)(1). In determining the amount of
reasonable compensation to be awarded, a court will consider the nature, extent, and value of
services provided by the professional, taking into account factors such as the time spent on such
services, the rates charged for such services, whether such services were necessary, whether such

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services were performed within a reasonable amount of time commensurate with the complexity,

importance, and nature of the issue, and whether the compensation is reasonable based on the

customary compensation charged by comparably skilled practitioners. See id. § 330(a)(3).

27. Bankruptcy Rule 2014(a) requires that an application for retention include:

[S]pecific facts showing the necessity for the employment, the
name of the [firm] to be employed, the reasons for the selection,
the professional services to be rendered, any proposed arrangement
for compensation, and, to the best of the applicant’s knowledge, all
of the [firm’s] connections with the debtor, creditors, any other
party in interest, their respective attorneys and accountants, the
United States trustee, or any person employed in the office of the
United States trustee.
Fed. R. Bankr. P. 2014(a).

28. Additionally, Local Rule 2014-1 requires an entity seeking approval of

employment under section 327(a) of the Bankruptcy Code to file a motion, supporting affidavit,

and proposed order, all of which have been satisfied by this Application, the Warren Declaration,

and the proposed order. Further, in accordance with Local Rule 2014-1, OMM acknowledges its

continuing duty to supplement the Warren Declaration with additional material information

relating to the employment of OMM, if necessary.

29. Bankruptcy Rule 2016 and Local Rule 2016-2 require retained

professionals to submit applications for payment of compensation in chapter 11 cases. Local

Rule 2016-2(d) also requires retained professionals to submit detailed time entries that set forth,

among other things, a detailed description of each activity performed, the amount of time spent

on the activity (in tenth of an hour increments), the subject matter of the activity, and the parties

involved with the activity at issue.

30. As stated in the Warren Declaration, OMM is a “disinterested person”

within the meaning of section 101(14) of the Bankruptcy Code, as required by section 327(a) of

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the Bankruptcy Code, and does not hold or represent an interest adverse to the Debtors’ estates

and has no connection to the Debtors, their creditors, or any parties in interest, except as may be

disclosed in the Warren Declaration or herein. Further, the Debtors submit that the retention of

OMM is appropriate and complies with the applicable provisions of the Bankruptcy Code, the

Bankruptcy Rules, the Local Rules, and the U.S. Trustee Guidelines.

B. Nunc Pro Tunc Relief is Appropriate
31. At the Debtors’ request, OMM has agreed to serve as the Debtors’

attorneys on and after the Petition Date with assurances that the Debtors would seek approval of

its employment and retention, effective nunc pro tunc to the Petition Date, so that OMM may be

compensated for its pre-application services. The Debtors believe that no party in interest will be

prejudiced by the granting of the nunc pro tunc employment, as provided in this Application,

because OMM has provided and continues to provide valuable services to the Debtors’ estates in

the interim period. Accordingly, the Debtors submit that for all the reasons stated above and in

the Warren Declaration, the employment and retention of OMM as their attorneys, nunc pro tunc

to the Petition Date, is warranted.

NOTICE

32. The Debtors will provide notice of this Application by facsimile, e-mail,

overnight delivery, or hand delivery to: (i) U.S. Trustee; (ii) counsel to the Creditors’

Committee; (iii) counsel to Wells Fargo Bank, National Association, as Administrative and

Collateral Agent; (iv) counsel to GACP Finance Company, LLC, as Term Agent; (v) counsel to

Deutsche Bank National Trust Company, as trustee under the indenture for the Floating Rate

Series A Secured Notes due 2017; (vi) John A. Bicks, Esq., K&L Gates, as counsel to certain

secured noteholders, and (vii) all parties having filed requests for notice in these chapter 11

cases. A copy of the Application is also available on the Debtors’ case website at

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https://www.kccllc.net/hancockfabrics.com. The Debtors submit that no other or further notice

is necessary under the circumstances.

NO PRIOR APPLICATION

33. The Debtors have not made any prior application for the relief sought in

this Application to this Court or any other.

The Debtors respectfully request entry of an order granting the relief requested in

its entirety and any other relief as is just and proper.

Dated: February 12, 2016

/s/ Dennis Lyons
Dennis Lyons
Senior Vice President and
Chief Administrative Officer
Hancock Fabrics, Inc.

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

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In re: : Chapter 11
HANCOCK FABRICS, INC., et al.,1 : Case No. 16-10296 (BLS)
:
Debtors. : Jointly Administered
:
: Objection Deadline: 02/25/16 at 4:00 p.m. (ET)
: Hearing Date: 03/03/16 at 10:00 a.m. (ET)
:

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NOTICE OF APPLICATION AND HEARING

PLEASE TAKE NOTICE that, on February 12, 2016, Hancock Fabrics, Inc. and its

affiliated debtors and debtors in possession (collectively, the “Debtors”) filed the Debtors’

Application for Entry of an Order Authorizing the Employment and Retention of O’Melveny &

Myers LLP as Attorney for the Debtors, Nunc Pro Tunc, to the Petition Date (the “Application”)

with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”).

PLEASE TAKE FURTHER NOTICE that any responses or objections to the Application

must be in writing, filed with the Clerk of the Bankruptcy Court, 824 North Market Street, 3rd

Floor, Wilmington, Delaware 19801, and served upon and received by the undersigned counsel for

the Debtors on or before February 25, 2016 at 4:00 p.m. (ET).

PLEASE TAKE FURTHER NOTICE that if any objections to the Application are

received, the Application and such objections shall be considered at a hearing before The

Honorable Brendan L. Shannon, Chief United States Bankruptcy Judge for the District of

1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are
Hancock Fabrics, Inc. (0905), Hancock Fabrics, LLC (9837), Hancock Fabrics of MI, Inc. (5878),
hancockfabrics.com, Inc. (9698), HF Enterprises, Inc. (7249), HF Merchandising, Inc. (8522) and HF Resources, Inc.
(9563). The Debtors’ corporate headquarters is located at One Fashion Way, Baldwyn, MS 38824.

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Delaware, at the Bankruptcy Court, 824 North Market Street, 6th Floor, Courtroom 1, Wilmington,

Delaware 19801 at 10:00 a.m. (ET) on March 3, 2016.

PLEASE TAKE FURTHER NOTICE THAT IF NO OBJECTIONS TO THE

APPLICATION ARE TIMELY FILED, SERVED AND RECEIVED IN ACCORDANCE

WITH THIS NOTICE, THE BANKRUPTCY COURT MAY GRANT THE RELIEF

REQUESTED IN THE APPLICATION WITHOUT FURTHER NOTICE OR HEARING.

Dated: February 12, 2016
Wilmington, Delaware

/s/ Rachel L. Biblo
RICHARDS, LAYTON & FINGER, P.A.
Mark D. Collins (No. 2981)
Michael J. Merchant (No. 3854)
Rachel L. Biblo (No. 6012)
Brett M. Haywood (No. 6166)
One Rodney Square
920 North King Street
Wilmington, DE 19801
Telephone: (302) 651-7700
Facsimile: (302) 651-7701

- and -

O’MELVENY & MYERS LLP
Stephen H. Warren (admitted pro hac vice)
Karen Rinehart (admitted pro hac vice)
Michael S. Neumeister (admitted pro hac vice)
400 South Hope Street
Los Angeles, CA 90071-2899
Telephone: (213) 430-6000
Facsimile: (213) 430-6407

Jennifer Taylor
Two Embarcadero Center, 28th Floor
San Francisco, CA 94111
Telephone: (415) 984-8900
Facsimile: (415) 984-8701

Proposed Attorneys for the
Debtors and Debtors in Possession

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Exhibit A

Proposed Order

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

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

:

In re: : Chapter 11
Case No. 16-10296 (BLS)
HANCOCK FABRICS, INC., et al.,1 : Jointly Administered
:

:

Debtors. :

:

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

ORDER AUTHORIZING THE EMPLOYMENT AND RETENTION OF
O’MELVENY & MYERS LLP AS ATTORNEYS FOR

THE DEBTORS, NUNC PRO TUNC TO THE PETITION DATE
Upon the application (the “Application”)2 of the Debtors for entry of an order
(this “Order”) authorizing and approving the employment and retention of
O’Melveny & Myers LLP (“OMM”) as the Debtors’ attorneys in these chapter 11 cases,
effective nunc pro tunc to the Petition Date, all as more fully set forth in the Application; and
due and sufficient notice of the Application having been provided under the particular
circumstances, and it appearing that no other or further notice need be provided; and the Court
having jurisdiction to consider the Application and the relief requested therein in accordance
with 28 U.S.C. §§ 157 and 1334; and consideration of the Application and the relief requested
therein being a core proceeding pursuant to 28 U.S.C. § 157(b)(2); and that this Court may enter
a final order consistent with Article III of the United States Constitution; and venue being proper
before this Court under 28 U.S.C. §§ 1408 and 1409; and a hearing having been scheduled and,

1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are
Hancock Fabrics, Inc. (0905), Hancock Fabrics, LLC (9837), Hancock Fabrics of MI, Inc. (5878),
hancockfabrics.com, Inc. (9698), HF Enterprises, Inc. (7249), HF Merchandising, Inc. (8522) and HF Resources,
Inc. (9563). The Debtors’ corporate headquarters is located at One Fashion Way, Baldwyn, MS 38824.
2 Capitalized terms used but not defined in this Order have the meanings used in the Application.

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to the extent necessary, held to consider the relief requested in the Application (the “Hearing”);

and upon the Warren Declaration and the Lyons Declaration submitted in support of the

Application, the record of the Hearing (if any was held), and all of the proceedings before the

Court; and the Court having found and determined that the relief requested in the Application is

in the best interests of the Debtors, their estates and creditors, and any parties in interest; and that

the legal and factual bases set forth in the Application and at the Hearing establish just cause for

the relief granted herein; and after due deliberation thereon and sufficient cause appearing

therefor, it is HEREBY ORDERED THAT:

1. The Application is granted as set forth herein.

2. The Debtors are authorized to employ and retain OMM as their attorneys

in these chapter 11 cases, effective nunc pro tunc to the Petition Date, in accordance with

OMM’s customary hourly rates and reimbursement policies in effect when services are rendered,

as set forth in the Application and the Warren Declaration.

3. OMM is authorized to provide the Debtors with the professional services

as described in the Application. Specifically, but without limitation, OMM is authorized to

render the following legal services:

(a) advising the Debtors of their rights, powers, and duties as debtors and
debtors in possession in the management and operation of their businesses;

(b) preparing on behalf of the Debtors all necessary and appropriate
applications, motions, draft orders, other pleadings, notices, schedules, and
other documents, and reviewing all financial and other reports to be filed
in the Debtors’ chapter 11 cases;

(c) advising the Debtors on, and preparing responses to, applications,
motions, other pleadings, notices, and other papers that may be filed and
served in the Debtors’ chapter 11 cases;

(d) advising the Debtors on actions that they might take to collect and recover
property for the benefit of their estates;

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(e) advising the Debtors on executory contracts and unexpired lease
assumptions, assignments, and rejections;

(f) assisting the Debtors in reviewing, estimating, and resolving any claims
asserted against their estates;

(g) advising the Debtors in connection with potential sales of assets;

(h) commencing and conducting litigation necessary or appropriate to assert
rights held by the Debtors, protect assets of their estates, or otherwise
further the goals of the Debtors’ restructuring;

(i) assisting the Debtors in obtaining the Court’s approval of the postpetition
debtor in possession financing facilities;

(j) attending meetings and representing the Debtors in negotiations with
representatives of creditors and other parties in interest;

(k) advising the Debtors on tax matters;

(l) advising and assisting the Debtors in connection with the preparation,
solicitation, confirmation, and consummation of a chapter 11 plan; and

(m) performing all other necessary legal services in connection with the
Debtors’ chapter 11 cases and other general corporate matters concerning
the Debtors’ businesses.

4. Should OMM agree to undertake specific matters beyond the scope of the

responsibilities set forth above, the Debtors are authorized to employ OMM for such matters, in

addition to those set forth above, without further order of this Court.

5. OMM shall apply for compensation for professional services rendered and

reimbursement of expenses incurred in connection with the Debtors’ chapter 11 cases in

compliance with sections 330 and 331 of the Bankruptcy Code and applicable provisions of the

Bankruptcy Rules, the Local Rules, and any other applicable procedures and orders of this Court.

OMM shall make a reasonable effort to comply with the U.S. Trustee’s requests for information

and additional disclosures as set forth in the U.S. Trustee Guidelines, both in connection with the

Application and the interim and final fee applications to be filed by OMM in these chapter 11

cases.

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6. The Retainer shall be treated as an evergreen retainer and shall be held by
OMM as security throughout the Debtors’ bankruptcy cases until OMM’s fees and expenses are
awarded and paid to OMM on a final basis.

7. In the event of any inconsistency between the terms of the Application, the
Warren Declaration, the Lyons Declaration, and this Order, the terms of this Order shall govern.

8. The Debtors and OMM are authorized and empowered to take all actions
necessary or appropriate to implement the relief granted in this Order.

9. Notwithstanding any provision in the Bankruptcy Rules to the contrary,
this Order shall be immediately effective and enforceable upon its entry.

10. This Court shall retain jurisdiction over all matters arising from or related
to the implementation or interpretation of this Order.

Dated: _____________, 2016
Wilmington, Delaware

THE HONORABLE BRENDAN L. SHANNON
CHIEF UNITED STATES BANKRUPTCY JUDGE

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Exhibit B

Warren Declaration

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

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

:

In re: : Chapter 11
Case No. 16-10296 (BLS)
HANCOCK FABRICS, INC., et al.,1 : Jointly Administered
:

:

Debtors. :

:

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

DECLARATION OF STEPHEN H. WARREN IN SUPPORT OF THE DEBTORS’
APPLICATION FOR ENTRY OF AN ORDER AUTHORIZING THE EMPLOYMENT

AND RETENTION OF O’MELVENY & MYERS LLP AS ATTORNEYS FOR
THE DEBTORS, NUNC PRO TUNC TO THE PETITION DATE
I, Stephen H. Warren, under penalty of perjury, declare as follows:

1. I am a partner and member of the Restructuring Practice of the law firm of

O’Melveny & Myers LLP (“OMM”), proposed counsel to Hancock Fabrics, Inc., and its

affiliated debtors and debtors in possession (collectively, the “Debtors”).

2. I submit this declaration (the “Declaration”) pursuant to sections 327(a),

328(a), 329, and 330 of the Bankruptcy Code, Bankruptcy Rules 2014(a) and 2016(a), and Local

Rules 2014-1 and 2016-2, in support of the Debtors’ Application for Entry of An Order

Authorizing the Employment and Retention of O’Melveny & Myers LLP as Attorneys for the
Debtors, Nunc Pro Tunc to the Petition Date (the “Application”).2

1 The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are
Hancock Fabrics, Inc. (0905), Hancock Fabrics, LLC (9837), Hancock Fabrics of MI, Inc. (5878),
hancockfabrics.com, Inc. (9698), HF Enterprises, Inc. (7249), HF Merchandising, Inc. (8522) and HF Resources,
Inc. (9563). The Debtors’ corporate headquarters is located at One Fashion Way, Baldwyn, MS 38824.
2 Capitalized terms used but not defined in this Declaration have the meanings ascribed to such terms in the
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3. Unless otherwise stated in this Declaration, I have personal knowledge of
the facts set forth herein and, if called as a witness, I would testify thereto.3

OMM’s Qualifications
4. OMM is a full service international law firm, having fifteen offices located
in the United States and abroad.4 In addition to restructuring, reorganization, and bankruptcy
expertise, attorneys at OMM provide legal services in virtually every major practice area,
including corporate, finance, securities, intellectual property, tax, and litigation.
5. Attorneys in OMM’s restructuring practice have been actively involved in
many significant restructurings and served as counsel to debtors and creditors in various large
and complex bankruptcy cases, including, among others: In re Colt Holdings Company LLC
(Case No. 15-11296) (LSS) (Bankr. D. Del.); In re Cal Dive International, Inc. (Case No. 15-
10458) (CSS) (Bankr. D. Del.); In re Entegra Power Group LLC (Case No. 14 11859) (PJW)
(Bankr. D. Del); In re Energy Future Holdings Corp. (Case No. 14-10979) (CSS) (Bankr. D.
Del.); In re Revel AC, Inc. (Case No. 13-16253) (JHW) (Bankr. D.N.J.); In re CHL Ltd. (Case
No. 12-12437) (KJC) (Bankr. D. Del.); In re Edison Mission Energy (Case No. 12-49219) (JPC)
(Bankr. N.D. Ill.); In re Homer City Funding LLC (Case No. 12-13024) (KG) (Bankr. D. Del.);
In re Vertis Holdings, Inc. (Case No. 12-12821) (CSS) (Bankr. D. Del.); In re AES Eastern
Energy, L.P. (Case No. 11-14138) (KJC) (Bankr. D. Del.); In re Dynegy Holdings, LLC (Case
No. 11-38111) (CGM) (Bankr. S.D.N.Y.); In re Caribbean Petroleum Corp. (Case No.10-
12553) (KG) (Bankr. D. Del.); In re Xerium Technologies, Inc. (Case No. 10-11031) (KJC)
(Bankr. D. Del.); In re Escada (USA), Inc. (Case No. 09-15008) (SMB) (Bankr. S.D.N.Y.); In re

3 Certain of the disclosures set forth herein relate to matters not within my personal knowledge but rather within the
knowledge of other attorneys and employees at OMM and are based on information provided to me by them.
4 OMM has offices in Los Angeles, Newport Beach, San Francisco, Century City and Silicon Valley in California;
Washington, DC; New York; and international offices in Beijing, Brussels, Hong Kong, London, Seoul, Shanghai,
Singapore, and Tokyo.

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Lyondell Chemical Company (Case No. 09-10023) (REG) (Bankr. S.D.N.Y.); In re Gottschalks
Inc. (Case No. 09-10157) (KJC) (Bankr. D. Del.); In re New Century TRS Holdings, Inc. (Case
No. 07-10416) (KJC) (Bankr. D. Del.); In re Advanced Marketing Services, Inc. (Case No. 06-
11480) (CSS) (Bankr. D. Del.); and In re M T S, Inc. d/b/a Tower Records (Case No. 06-10891)
(BLS) (Bankr. D. Del.).

6. OMM began providing restructuring-related advice to the Debtors in or
about October 2015 and, since that time, has advised the Debtors on various refinancing and
restructuring alternatives. In that regard, OMM assisted the Debtors in the preparation for filing
these chapter 11 cases, among other things. Prior to that time, OMM served as a general
corporate and finance counsel to the Debtors, providing a wide variety of legal services to the
Debtors. Without limiting the generality of the foregoing, OMM advised the Debtors concerning
corporate matters, finance issues and agreements, and securities reporting obligations. OMM
also advised committees of the Debtors’ board of directors and provided litigation services.
These services span the course of nearly five years.

7. Having represented the Debtors as set forth above, OMM is extensively
familiar with the Debtors’ businesses, financial affairs, and capital structure and is therefore
uniquely qualified to immediately and knowledgeably assist the Debtors in their reorganization
efforts. To maximize the value of such efforts to date, and because of OMM’s experience in
bankruptcy law, the Debtors have requested that OMM represent them in these chapter 11 cases.

Services to be Provided
8. The Debtors have requested that OMM render general legal services, as
needed, including in the areas of restructuring, corporate, finance, litigation, and tax. The
professional services OMM will render to the Debtors may include the following:

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(a) advising the Debtors of their rights, powers, and duties as debtors and
debtors in possession in the management and operation of their businesses;

(b) preparing on behalf of the Debtors all necessary and appropriate
applications, motions, draft orders, other pleadings, notices, schedules, and
other documents, and reviewing all financial and other reports to be filed
in the Debtors’ chapter 11 cases;

(c) advising the Debtors on, and preparing responses to, applications,
motions, other pleadings, notices, and other papers that may be filed and
served in the Debtors’ chapter 11 cases;

(d) advising the Debtors on actions that they might take to collect and recover
property for the benefit of their estates;

(e) advising the Debtors on executory contracts and unexpired lease
assumptions, assignments, and rejections;

(f) assisting the Debtors in reviewing, estimating, and resolving any claims
asserted against their estates;

(g) advising the Debtors in connection with potential sales of assets;

(h) commencing and conducting litigation necessary or appropriate to assert
rights held by the Debtors, protect assets of their estates, or otherwise
further the goals of the Debtors’ restructuring;

(i) assisting the Debtors in obtaining the Court’s approval of the postpetition
debtor in possession financing facilities;

(j) attending meetings and representing the Debtors in negotiations with
representatives of creditors and other parties in interest;

(k) advising the Debtors on tax matters;

(l) advising and assisting the Debtors in connection with the preparation,
solicitation, confirmation, and consummation of a chapter 11 plan; and

(m) performing all other necessary legal services in connection with the
Debtors’ chapter 11 cases and other general corporate matters concerning
the Debtors’ businesses.

9. I understand that the Debtors may, from time to time, request that OMM

undertake specific matters beyond the scope of the responsibilities set forth above. Should

OMM agree to undertake any such specific matters, the Debtors are requesting authority in the

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Application to employ OMM for such matters, in addition to those set forth above, without

further order of the Court. Subject to approval of the Court, OMM is willing to serve as the

Debtors’ attorneys and to perform the services described above.

10. By separate application, the Debtors are also requesting that the Court

approve the retention of Richards, Layton & Finger, P.A. (“RLF”) as bankruptcy co-counsel

with respect to the Debtors’ chapter 11 cases. OMM will continue to coordinate with RLF, as

well as the other professionals retained by the Debtors, to ensure a clear delineation of the

professionals’ respective roles and duties in these chapter 11 cases so as to prevent duplication of

effort. More specifically, OMM will take the lead on, among other things, (i) obtaining court

approval of the Debtors’ postpetition financing facilities; (ii) negotiating and consummating

asset sales and other strategic transactions; (iii) advising the Debtors and communicating and

negotiating with the Debtors’ creditors and other parties in interest with respect to a chapter 11

plan; and (iv) formulating, soliciting and obtaining confirmation of a chapter 11 plan. RLF’s

duties will include, among other things, (i) providing Delaware law expertise, including advising

the Debtors and OMM on issues of local practice and the Local Rules; (ii) communicating with

the Court and the U.S. Trustee with respect to the Debtors’ filings and the chapter 11 cases;

(iii) reviewing, commenting on, and coordinating the filing of various pleadings; and

(iv) appearing in court on behalf of the Debtors. Further, RLF will serve as counsel with respect

to matters or parties as to which OMM has a conflict and determines that it cannot (or should

not) represent the Debtors.

Professional Compensation
11. OMM intends to apply to the Court for allowance of compensation and

reimbursement of out-of-pocket expenses incurred after the Petition Date in connection with the

Debtors’ chapter 11 cases on an hourly basis, subject to Court approval and in accordance with

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the applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, and
any other applicable procedures or orders of the Court. Additionally, OMM recognizes that the
U.S. Trustee is charged with reviewing applications for compensation when the U.S. Trustee
deems it appropriate and that the U.S. Trustee will utilize the U.S. Trustee Guidelines in the
event that the U.S. Trustee decides a review of OMM’s compensation in this case is appropriate.

12. OMM intends to apply to the Court for allowance of compensation at its
standard hourly rates, which are based on the professionals’ level of experience. OMM’s current
hourly rates for partners range from $835 to $1,300; other attorneys’ hourly rates, including
counsel positions, range from $435 to $815; the hourly rates charged for OMM’s
paraprofessionals and legal assistants range from $110 to $350; and the hourly rates charged for
OMM’s administrative support staff range from $30 to $35. These hourly rates are subject to
annual and customary firm-wide adjustments in the ordinary course of OMM’s business. The
hourly rates and corresponding rate structure that OMM will use in these chapter 11 cases are
consistent with the rates that OMM charges other comparable clients and regardless of the
location of the clients or any associated case.

13. OMM will maintain detailed, contemporaneous records of time and any
necessary costs and expenses incurred in connection with rendering the legal services described
above. It is OMM’s policy to charge its clients for all disbursements and expenses incurred
rendering services, including, among other things, costs for telephone and facsimile charges,
photocopying, travel, business meals, computerized research, messengers, couriers, postage,
witness fees, and other fees related to trials and hearings.

14. Consistent with the U.S. Trustee Guidelines, I provide the following
information:

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(a) OMM has not agreed to a variation of its standard or customary
billing arrangements for representing the Debtors during their
chapter 11 cases. In the prepetition period, OMM had charged the
Debtors a flat fee of $100,000 per year, billed in monthly
installments, for services in relation to matters involving the U.S.
Securities and Exchange Commission (the “SEC”). In the post-
petition period, OMM will discontinue the flat fee arrangement and
will bill for its SEC-related services on an hourly basis in
accordance with its standard or customary billing arrangements.
All other matters on which OMM represents or has represented the
Debtors were billed at OMM’s standard hourly rates and in
accordance with OMM’s incremental time reporting practices.

(b) None of OMM’s professionals included in this engagement have
varied their rate based on the geographic location of these
chapter 11 cases.

(c) OMM has represented the Debtors for almost five years prior to
the Petition Date. Except as noted above, the billing rates and
material financial terms in connection with such representation
have not changed postpetition other than due to annual and
customary firm-wide adjustments to OMM’s hourly rates in the
ordinary course of OMM’s business.

(d) OMM will work with the Debtors to finalize a prospective budget
and staffing plan for OMM’s engagement, commencing with these
chapter 11 cases and incrementally thereafter, with the first such
budget and staffing plan covering the first 90 days of these chapter
11 cases. Consistent with the U.S. Trustee Guidelines, the budget
may be amended as necessary to reflect changed or unanticipated
developments.

Compensation Received by OMM from the Debtors

15. Other than as set forth herein, there is no proposed arrangement between

the Debtors and OMM for compensation to be paid in these chapter 11 cases. OMM has no

agreement with any other entity to share any compensation received, nor will any be made,

except as permitted under section 504(b)(1) of the Bankruptcy Code.

16. According to OMM’s books and records, payments received from the

Debtors during the ninety days prior to the Petition Date for legal services performed and

expenses incurred are shown in Schedule 2 hereof. These matters include corporate matters,

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litigation, securities and services in contemplation of, or in connection with, the Debtors’
refinancing and restructuring efforts, including, among other things, the preparation for the filing
of these chapter 11 cases. In addition, certain payments OMM received from the Debtors were
advances for legal services rendered and costs incurred, owned by OMM upon receipt and to be
held on account, to be drawn at OMM’s discretion to apply to fees and costs incurred. As of the
Petition Date, the Debtors do not owe OMM any fees for services performed or expenses
incurred.

Evergreen Retainer
17. Prior to the Petition Date, the Debtors paid OMM certain advances
including a retainer of $500,000.00 which together with other advances paid pre-petition resulted
in a net retainer of approximately $580,000.00 as of the petition date (the “Retainer”) in
connection with and in contemplation of these chapter 11 cases. The Retainer and other
advances were drawn and replenished as shown in the accounting summary of payments that is
included as Schedule 2 hereof. OMM intends to perform a reconciliation of the fees and expense
actually incurred prior to the Petition Date and submit an invoice to the Debtors detailing such
amount. The Debtors request, and OMM’s engagement letter with the Debtors requires, that the
retainer monies paid to OMM and not expended for prepetition services and disbursements be
treated as an evergreen retainer to be held by OMM as security throughout these chapter 11 cases
until OMM’s fees and expenses are awarded by final order and paid to OMM on a final basis.
18. In this District, I believe that evergreen retainer agreements reflect normal
business terms in the marketplace. See In re Insilco Tech., Inc., 291 B.R. 628, 634 (Bankr. D.
Del. 2003) (“[I]t is not disputed that the taking of evergreen retainers is a practice now common
in the marketplace . . . [and] the practice in this district has been engaged in since at least the

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early 1990s.”). Moreover, the Debtors and OMM are sophisticated business entities that have
negotiated the Retainer at arm’s length. The Retainer secures OMM’s fees and expenses for
work performed in connection with the Debtors’ chapter11 cases. Therefore, I believe, under the
circumstances articulated in the Insilco decision, the facts and circumstances of these cases
support the approval of the security retainer requested herein.

19. Given the extensive services that OMM will provide to the Debtors, I
believe that providing OMM with an evergreen retainer is appropriate and necessary to enable
the Debtors to faithfully execute their duties as debtor and debtors in possession and to
implement their reorganization.

OMM’s Disinterestedness
20. To the best of my knowledge, OMM does not represent and will not
represent any entity, other than the Debtors, in matters related to these chapter 11 cases.
21. To the best of my knowledge, OMM (i) is not a creditor, an equity interest
holder, or an insider of the Debtors; (ii) is not and was not, within two years before the Petition
Date, a director, officer, or employee of the Debtors; and (iii) does not have any interest
materially adverse to the interests of the Debtors’ estates or of any class of creditors or equity
interest holders, by reason of any direct or indirect relationship to, connection with, or interest in,
the Debtors or for any other reason. In the course of its services as the Debtors’ corporate and
finance counsel, OMM delivered customary financing related opinions on behalf of the Debtors
to their lenders in connection with (i) the Prepetition Senior Credit Documents, (ii) the
Prepetition Subordinated Indenture Documents and (iii) the Debtor in Possession Financing
Agreement. If and to the extent that any issue related to OMM’s opinions become an issue in
these cases, RLF is positioned to address them. Accordingly, I believe that OMM is a

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“disinterested person,” as that term is defined in section 101(14) of the Bankruptcy Code, as
modified by section 1107(b) of the Bankruptcy Code.

22. To the best of my knowledge, the partners, counsel, associates, and
employees of OMM do not have any connection with the Debtors, their known creditors, other
known or potential parties in interest, the U.S. Trustee or any person employed in the office of
the U.S. Trustee, any United States Bankruptcy Judge for the District of Delaware, or the Clerk
of the Bankruptcy Court for the District of Delaware, or any person employed by the office of
such clerk.

23. In connection with its proposed retention by the Debtors in these
chapter 11 cases, OMM has conducted a check for conflicts of interest and other conflicts and
connections based upon information provided to OMM by the Debtors. OMM maintains a
database containing the names of current and former clients and other principal parties related to
such clients and has a department devoted to the research and analysis of conflicts of interest and
other conflict issues.

24. I caused OMM to review and analyze the conflicts database to determine
whether OMM has any relationships with the principal parties in interest in these cases
(the “Potential Parties in Interest”), including (a) equity interest holders holding 5.00% or
more of the equity interests in the Debtors; (b) the Debtors’ Prepetition Secured Creditors and
their respective professionals; (c) the holders of the 30 largest unsecured claims against the
Debtors on a consolidated basis; (d) the entities revealed by a search of Uniform Commercial
Code filings in the state of Delaware; (e) the members of the Debtors’ boards of directors and
certain senior employees; (f) the professionals representing the Debtors and other interested
parties in the chapter 11 cases; (g) the United States Bankruptcy Judges for the District of

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Delaware, the U.S. Trustee, and their respective key staff members; and (h) contract and lease
counterparties, vendors, customers, insurance providers, taxing authorities, utility providers, and
other potential parties in interest set forth on Schedule 3 hereof.

25. OMM also made a general inquiry to all OMM employees requesting
disclosure of any relationship with (a) any Bankruptcy Judge in the District of Delaware;
(b) anyone employed by the Office of the Clerk of the Bankruptcy Court for the District of
Delaware; or (c) any trustee, attorney or staff employed by the office of the U.S. Trustee.
Additionally, OMM requested disclosure by all employees, to the best of their knowledge, of any
claims held against, or equity interest in, any of the Debtors and whether any OMM employee is
or was a director, officer, or general partner of any of the Debtors or a relative of a director,
officer, or general partner of any of the Debtors.

26. To the extent that such searches indicated that OMM has or had a
relationship with any Potential Parties in Interest within the last five years, the identity of such
entity, and OMM’s relationship therewith, are set forth on the attached Schedule 1.5 Given the
size and diversity of OMM’s practices and the number of Potential Parties in Interest, OMM
represents certain Potential Parties in Interest in ongoing matters unrelated to the Debtors’
chapter 11 cases. Pursuant to section 327(c) of the Bankruptcy Code, OMM is not disqualified
from acting as the Debtors’ counsel merely because it represents certain Potential Parties in
Interest in matters unrelated to these chapter 11 cases. One potential party in interest listed in
Schedule 1, Ace Insurance Company (a letter of credit counterparty) is or may be an affiliate of a
client of OMM that accounts for more than 1% of OMM’s gross revenue in 2015. In any event,

5 OMM’s inclusion of parties on Schedule 1 is solely to illustrate OMM’s conflict search process and is not an
admission that any party has a valid claim against the Debtors or that any party properly belongs in the Debtors’
schedules or has a claim or legal relationship to the Debtors of the nature described in the schedules.

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OMM will not represent any of the potential parties in interest listed in Schedule 1 in any aspect
relating to the Debtors or the chapter 11 cases.

27. As noted on Schedule 1, OMM has represented various stakeholders and
parties in interest. As described herein, OMM has taken steps to confirm that the services
provided by OMM to the persons and entities listed on Schedule 1 did not include legal advice
concerning this bankruptcy case. Based upon that review, we have confirmed that we have not
acted as counsel to such parties concerning the case. Included on Schedule 1 are certain matters
over the last five years that appear to have had an incidental relationship to the Debtors. For
example, certain matters involved providing disclosure, securities, asset-investment disposition
or corporate services to entities concerning their securities portfolios that include, inter alia, the
Debtors’ securities.

28. The proposed employment of OMM is not prohibited by, or improper
under, Bankruptcy Rule 5002. To the best of my knowledge, no OMM attorney or employee is
related to any United States Bankruptcy Judge for the District of Delaware or to the U.S. Trustee
or any employee in the office thereof.

29. In addition, certain of the Potential Parties in Interest are or were, from
time to time, members of ad hoc or other committees represented by OMM in matters unrelated
to the Debtors’ chapter 11 cases. However, no attorney-client relationship exists or existed
between OMM and such Potential Parties in Interest unless specifically noted. From time to
time, OMM works with certain professional firms that have been retained by the Debtors or other
parties in these chapter 11 cases and that may be rendering advice to other Potential Parties in
Interest in these chapter 11 cases.

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30. The Debtors have numerous relationships and creditors. Consequently,
although every reasonable effort has been made to discover and eliminate the possibility of any
connection or conflict, including the efforts outlined above, OMM is unable to state with
certainty which of its clients or such clients’ affiliates hold claims or otherwise are parties in
interest in these chapter 11 cases. If OMM discovers any information that is contrary or
pertinent to the statements made herein, OMM will promptly disclose such information to the
Court on notice to such creditors and to the U.S. Trustee and such other creditors or other parties
in interest as may be required under noticing procedures applicable in the Debtors’ chapter 11
cases.

Pursuant to 28 U.S.C. § 1746, I declare under penalty of perjury that the foregoing
is true and correct to the best of my information, knowledge, and belief.

Executed on February 12, 2016

/s/ Stephen H. Warren
Stephen H. Warren
Partner
O’Melveny & Myers LLP

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Schedule 1

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CONNECTIONS TO POTENTIAL PARTIES IN INTEREST

Party Name Relationship to Debtors Relationship to OMM1
Ace Insurance Company Letter of Credit Current client on matters not including the
Counterparty Debtors’ chapter 11 cases
AMCAP Austin Bluffs Landlord Affiliate of current client on matters not
LLC Contract counterparty including the Debtors’ chapter 11 cases
American Express Card As American Express Travel Related
Acceptance Contract counterparty Services Company, Inc., current client on
matters not including the Debtors’
American Express Travel Landlord chapter 11 cases
Related Services Landlord Current client on matters not including the
Company, Inc. Debtors’ chapter 11 cases
American National Utility provider
Insurance Company Insurance carrier Current client on matters not including the
ASC/Bearcreek Contract counterparty Debtors’ chapter 11 cases
Properties, LTD Equity holder and Possible affiliate of former client on
noteholder matters not including the Debtors’
AT&T Corp. Utility provider chapter 11 cases
Utility provider Current client on matters not including the
Axis Insurance Company Debtors’ chapter 11 cases
Letter of credit Current client on matters not including the
Bazaarvoice, Inc. counterparty Debtors’ chapter 11 cases
Former client on matters not including the
Berg, Carl E. Debtors’ chapter 11 cases
Potential affiliate of current client on
Centurylink matters not including the Debtors’
chapter 11 cases
Charter Communications Current client on matters not including the
Debtors’ chapter 11 cases
CIT Group/Commercial Former client and affiliate of current
Services, Inc. client on matters not including the
Debtors’ chapter 11 cases
Affiliate of current client on matters not
including the Debtors’ chapter 11 cases

1 A “current client” is an entity for which there are, as of the date hereof, active matters on which OMM is engaged.
A “former client” is an entity for which there are no active matters as of the date hereof, but there may in the future
be active matters. Use of the word “potential” before such designations signifies entities for which OMM was
unable to determine whether the similarities of names was a coincidence or whether the party in interest is related to
a client in OMM’s databases, or for which OMM is unaware of a possible business relationship unrelated to these
chapter 11 cases. OMM does not represent any “potential” clients in matters related to these chapter 11 cases.
Please note that the identification of a party in interest on this Schedule 2 is not an admission of a conflict, disabling
or otherwise. Due to the similarity of names of certain entities, OMM has not been able to determine whether all
entities listed herein are actually affiliates of current or former clients. However, in an abundance of caution, OMM
has listed those entities which it reasonably believes may be affiliates of such clients.

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Party Name Relationship to Debtors Relationship to OMM1
Comcast Cable Utility provider Current client on matters not including the
Debtors’ chapter 11 cases
Deutsche Bank National Indenture trustee Affiliate of current client on matters not
Trust Company including the Debtors’ chapter 11 cases
Direct Energy Utility provider Current client on matters not including the
Debtors’ chapter 11 cases
Duke Energy Utility provider Former client on matters not including the
Debtors’ chapter 11 cases
Equifax Workforce Contract counterparty Former client on matters not including the
Solutions Debtors’ chapter 11 cases
FedEx Corporation Common carrier Current client on matters not including the
Debtors’ chapter 11 cases
FPL/Florida Power & Utility provider Affiliate of former client on matters not
Light including the Debtors’ chapter 11 cases
Hecht, Nikos Affiliate of securities Affiliate of current client on matters not
holder (bonds and/or including the Debtors’ chapter 11 cases
Hughes Network equity)
Systems Utility provider Former client on matters not including the
Indemnity Insurance Debtors’ chapter 11 cases
Company of North Insurance carrier Current client on matters not including the
America Debtors’ chapter 11 cases
JP Morgan Chase: Chase Banking services
Bank Current client on matters not including the
Lenado Capital Advisors Securities holder (bonds Debtors’ chapter 11 cases
LLC and/or equity) Current client on matters not including the
Liberty Mutual Fire Insurance carrier Debtors’ chapter 11 cases
Insurance Company Former client on matters not including the
Liberty Utilities Georgia Utility provider Debtors’ chapter 11 cases
Gas Affiliate of former client on matters not
Lincoln Electric System Utility provider including the Debtors’ chapter 11 cases
Electricity Current client on matters not including the
National Union Fire Insurance carrier Debtors’ chapter 11 cases
Insurance Co. of Affiliate of current client on matters not
Pittsburgh, PA Utility provider including the Debtors’ chapter 11 cases
Nicor, Inc.
Utility provider Affiliate of current client on matters not
Pacific Gas & Electric including the Debtors’ chapter 11 cases
Counsel to GACP Current client on matters not including the
Paul Hastings LLP Finance Co., LLC, Debtors’ chapter 11 cases
Debtors’ secured lender Current client on matters not including the
Southern California Utility provider Debtors’ chapter 11 cases
Edison
SPV Uno, LLC Securities holder (bonds Current client on matters not including the
Debtors’ chapter 11 cases
Current client on matters not including the

2

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Party Name Relationship to Debtors Relationship to OMM1
Subin, Neil and/or equity holder) Debtors’ chapter 11 cases
Former Board member; Current client on matters not including the
Suntrust Bank possible affiliate of Debtors’ chapter 11 cases
securities holder (bonds
and/or equity) Affiliate of former client on matters not
Banking services including the Debtors’ chapter 11 cases
Former client on matters not including the
Trilegent Corporation Contract counterparty Debtors’ chapter 11 cases
Affiliate of current client on matters not
TXU Energy Utility provider including the Debtors’ chapter 11 cases
Current client on matters not including the
U.S. Bancorp / U.S. Bank Banking services Debtors’ chapter 11 cases
Current client on matters not including the
Verizon Utility provider Debtors’ chapter 11 cases
Affiliate of current client on matters not
Walmart Stores East Landlord including the Debtors’ chapter 11 cases
Affiliate of current client on matters not
Wells Fargo Secured lender including the Debtors’ chapter 11 cases
Current client on matters not including the
XPO Logistics, Inc. Common carrier Debtors’ chapter 11 cases
Former client on matters not including the
Zurich American Insurance carrier Debtors’ chapter 11 cases
Insurance Company

3

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Schedule 2

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ACCOUNTING SUMMARY

Invoices Rendered and Payments Received By OMM in 90 Days Prior to February 1, 2016

Hancock Fabrics - Payment Ledger November 1, 2015 - Present

Date Item Type Amount Balance
$119,787.40
11/01/15 Beginning Balance 57,057.18
48,723.85
11/02/15 Payment / Invoice 929452 ($62,730.22) 21,595.90
11/02/15 Payment / Invoice 929453 (8,333.33) 1,253.40
11/02/15 Payment / Invoice 929454 (27,127.95) 144,624.01
11/02/15 Payment / Invoice 929455 (20,342.50) 97,939.11
11/10/15 Invoices / October Services 143,370.61 89,605.78
12/01/15 Payment / Invoice 930721 (46,684.90) 1,253.40
12/01/15 Payment / Invoice 930722 (8,333.33) (5,375.99)
12/01/15 Payment / Invoice 930723 (88,352.38) (6,629.39)
12/01/15 Payment / Unallocated (6,629.39) (305,375.99)
12/08/15 Payment / Invoice 926452 (1,253.40) (505,375.99)
12/08/15 Payment / Unallocated (381,090.55)
12/21/15 Payment / Unallocated (298,746.60) (881,090.55)
01/06/16 Invoices / November Services (200,000.00) (507,811.63)
01/08/16 Payment / Unallocated (881,090.55)
01/19/16 Invoices / December Services 124,285.44
01/25/16 Payment / Unallocated (500,000.00) (1,481,090.55)
1/29/16 Payment / Unallocated
373,278.92
(373,278.92)
(600,000.00)

1/31/16 Invoices / January Services 900,809.13 580,281.42

  

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Schedule 3

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

1 - DEBTORS

Hancock Fabrics, Inc.
Hancock Fabrics, LLC
Hancock Fabrics of MI, Inc.
hancockfabrics.com, Inc.
HF Enterprises, Inc.
HF Merchandising, Inc.
HF Resources, Inc.

2 - CURRENT OFFICERS AND DIRECTORS

Andrew T. Panaccione
Anthony Gillette
Cheryl McDonald
Deborah Seydel Hettinger
Dennis Lyons
Gary Nagle
James A. Hayes
John Cooper
Kathy A. Lacks
Mark Puhnaty
Mary S. Stawikey
Michele Chappell
Neil S. Subin
O. Pierce Crockett
Rebecca Flick
Sam P. Cortez
Steven D. Scheiwe
Steven R. Morgan

1

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

Susan van Benten Odle

3 - DEBTORS’ PROFESSIONALS
O’Melveny & Myers LLP
Richards, Layton & Finger, P.A.
Kurtzman Carson Consultants LLC
Clear Thinking Group LLC
Lincoln International LLC
Retail Consulting Services, Inc., dba RCS Real Estate Advisors

4 - LOAN AND SECURED NOTEHOLDERS PARTIES AND PROFESSIONALS
Choat, Hall & Stewart LLP
Deutsche Bank National Trust Company
GACP Finance Co., LLC
GACP I, LP
General Electric Capital Corporation
K&L Gates LLP
Lenado Capital Advisors, LLC
Lenado Capital, LLC
Lenado DP, Series A of Lenado DP, L.P.
Lenado Partners, Series A of Lenado Capital Parters, L.P,
Lightpointe Communications, Inc.
Paul Hastings LLP
SPV Quattro, LLC
SPV Uno, LLC
Wells Fargo Bank, N.A.

2

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

5 - EQUITY OWNERS, 5% OR GREATER

Berg & Berg Enterprises, LLC
Carl E. Berg
Nikos Hecht
Dennis Lyons
Kevin T. Tolbert
Lenado Capital Advisors LLC
Lightpointe Communications, Inc.
Neil S. Subin
Sam P. Cortez
Steven D. Scheiwe
Steven R. Morgan
Susan van Benten

6 - TOP 30 UNSECURED CREDITORS 3
Averitt Express
Myletex International
Coats and Clark
Springs Creative Products Group LLC
Fabric Editions Inc.
Prym Dritz
Fairfield Processing
Fiskars Mfg Corp
Sykel
UPS - 577
Wright’s
Perfect Textiles Inc.
Fabri-Quilt

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

McCall Patterns
ACG Media
Surge Staffing LLC
Sulky of America
Warm Products
Santee Print Works
Simplicity Pattern Co.
PCP Group, LLC
Jaftex Corp.
Ottlite Technologies Inc.
June Tailor Inc.
Brother International Corporation
Dyno Merchandise Corp.
Berwick Offray, LLC
Logantex Inc.
Cranston
American & Efird, Inc.

7 - TRADEMARKS

Absolutely Cotton
Accessory Workshop Notions, Embellishments & Crafts
America's Fabric Store
Buy Retail, Add Detail
Creative Sewing Solutions
Designer Gallery Home Fabric & Décor
Discover the Designer in You
Everything Begins with Fabric
Hancock Fabrics

4

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

Hancock Fabrics - Canada
Hancock Fabrics Crafts & More
Hancock Fabrics Crafts & More (Logo)
Lauren Hancock Collection
Make it Green
Sew Perfect (bobbins, needles, etc.)
Sew Perfect (tools)
Spot the Bolt Fabric Reductions
Spot the Bolt for Home
Style Studio Fashion Fabrics
The Fabric Card
The Stitch

Wishes & Dreams

8 - UCC-1 PARTIES

Wells Fargo Bank, National Association, as Collateral Agent
Deutsche Bank National Trust Company, as Trustee
Ikon Financial Services
Ikon

9 - BANK ACCOUNTS 5
American National Bank
Associated Bank N.A.
BancFirst
Bank of Oklahoma
BancorpSouth
BMO Harris Bank
Commerce Bank

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

Commercial National Bank
First Bank
First Merit Bank
First National Bank
Genoa Bank
Independence Bank
JP Morgan Chase
PNC Bank
Regions Financial Corporation dba Regions Bank
Simmons First National Corporation
Simmons Bank
SunTrust Bank
U.S. Bank
Wachovia
Wells Fargo Bank, N.A.
Wells Fargo LLC

10 - LETTERS OF CREDIT
ACE Insurance Company
Avalon Risk Management, Inc.
Averitt
Goodman Factors, a Division of Independent Bank
Liberty Mutual Insurance Company
National Union Fire Insurance Company of Pittsburgh, PA
The CIT Group / Commercial Services, Inc.
Travelers Casualty and Surety Company of America

6

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

11 - ASSERTED LIENHOLDERS
IKON Financial Services
Janome America, Inc.
Stiles Machinery, Inc.

12 - CONTRACT COUNTERPARTIES

A&I Travel Service, Inc.
Action Services Group
ADP
ADP, LLC
American Communications Group, Inc.
American Express Card Acceptance
American Express Travel Related Services Company, Inc.
Anthony Gillette
Associated Adjusters, International
AT&T Corp.
AT&T Mobility National Accounts LLC
Avalara
Avanti Press, Inc.
Averitt Express, Inc.
Bazaarvoice, Inc.
BB&T Commercial Finance
Berwick Offray, LLC
Blue Mountain Arts
BMC Group VDR LLC
Burr Pilger Meyer, Inc.
Canon Financial Services, Inc.
Cheryl McDonald

7

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

CIT Group/Commercial Services, Inc.
CKSource - Frederico Knabben
Clarus Marketing Group, LLC
Clear Thinking Group, LLC
Communication Consulting Services, Inc.
Comm-Works, LLC
Continental Stock Transfer & Trust Company
CyberSource Corporation
Demandware, Inc.
Dennis Lyons
Designs Direct, LLC
Dynamix Group, Inc.
EarthLink, Inc.
Elavon, Inc.
Fairfield
ForeSee (Answers Cloud Services)
Govenda, LLC
Great American Group, LLC
Interface Security Systems, LLC
James Hayes
Janome America, Inc.
June Tailor
Level 10, LLC
Listrak, Inc.
Live Area Labs, Inc.
Mainstreet Commerce, LLC
Marcus Brothers Textiles
Marjack Company, Inc.
Marsh USA, Inc.

8

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HANCOCK FABRICS MASTER CONFLICTS SEARCH LIST (1/29/16)

MBK, Inc. (Paytek)
McCall Pattern Company
Merchant-Link, LLC
Milberg Factors, Inc.
Muzak LLC
MyBuys, Inc.
Narvar, Inc.
NDAs
Neil Subin
NT Graphics Printing & Mailing
Optimum Solutions, Inc.
Perfect Textiles, Inc.
Prestige Global Co., Ltd.
RCS Real Estate Advisors
Republic Services National Accounts, LLC
RJ Young Company, Inc.
Rosenthal & Rosenthal, Inc.
RTC Group, Inc.
Sam P. Cortez
Samdash, Inc.
ShopLocal, LLC
Silvon Software, Inc.
SOHO Publishing Company, Inc.
SPS Commerce, Inc.
Stan Johnson Company
Steven R. Morgan
Steven Scheiwe
StrikeIron, Inc.
Susan van Benten

9

OMM_US:74682521.12