In re: SERVICE MERCHANDISE COMPANY, INC., et. al., Chapter 11, Debtors.

Case No. 399-02649, Jointly AdministeredUnited States Bankruptcy Court, M.D. Tennessee, Nashville Division
April 4, 2003

ORDER UNDER 11 U.S.C. § 327 AND 328
AND FED. R. BANKR. P. 2014 AND 2016 AUTHORIZING EMPLOYMENT AND RETENTION OF INNISFREE MA INCORPORATED AS SPECIAL NOTICING AND VOTING AGENT NUNC PRO TUNC TO JANUARY 15, 2003

GEORGE C. PAINE II, United States Bankruptcy Judge

Upon the application, dated March 14, 2003 (the “Application”),[1] of Service Merchandise Company, Inc. (“Service Merchandise”) and 31 of its affiliates (the “Affiliate Debtors”), debtors and debtors-in-possession in the above-captioned cases (Service Merchandise and the Affiliate Debtors, collectively, the “Debtors”), for entry of an order (the “Order”), pursuant to 11 U.S.C. § 327 and 328 and F.R.Bankr.P. 2014, approving an agreement with Innisfree MA Incorporated (“Innisfree”) appointing Innisfree as noticing and voting agent nunc pro tunc to January 15, 2003; and upon the Affidavit of Jane Sullivan, sworn to on March 11, 2003; and upon the record of the hearing on the Application; and the Court having determined that the relief requested in the Application is in the best interests of the Debtors, their estates, their creditors and other parties-in-interest; and it appearing that proper and adequate notice of the Application has been given and that no other or further notice is necessary; and after due deliberation thereon; and good and sufficient cause appearing therefor; it is hereby

ORDERED, ADJUDGED, AND DECREED that:

1. The Application is wanted.

2. The Debtors are authorized to retain and compensate Innisfree, nunc pro tunc to January 15, 2003, pursuant to the terms of the Agreement annexed hereto as Exhibit 1.

3. Innisfree is hereby retained as noticing and voting agent in these cases with respect to the holders of the Debtors’ debt and equity securities (the “Securities”) and is authorized to perform, among other things, the following services:

(a) Provide advice to the Debtors regarding all aspects of the plan vote, including timing issues, voting and tabulation procedures, and documents needed for the vote.
(b) Review the voting portions of the disclosure statement and ballots, particularly as they may relate to beneficial owners of securities held in Street name.
(c) Work with the Debtors to request appropriate information from the trustee(s) of the bonds, the transfer agent of common stock, and The Depository Trust Company.
(d) Mail documents to the registered record holders of bonds and common stock.
(e) Coordinate the distribution of voting documents and non-voting documents to Street name holders of securities by forwarding the appropriate documents to the banks and brokerage firms holding the securities (or their agent), who in turn will forward it to beneficial owners.
(f) Distribute copies of the master ballots to the appropriate nominees in order that firms may cast votes on behalf of beneficial owners.

(g) Prepare a certificate of service for filing with the court.

(h) Handle requests for documents from parties in interest, including brokerage firm and bank back-offices and institutional holders.
(i) Respond to telephone inquiries from security holders regarding the disclosure statement and the voting procedures.[2]
(j) If requested. Innisfree will make telephone calls to confirm receipt of plan documents and respond to questions about the voting procedures.
(k) If requested, Innisfree will assist with an effort to identify beneficial owners of the bonds.
(l) Receive and examine all ballots and master ballots cast by bondholders. Innisfree will date-and time-stamp the originals of all such ballots and master ballots upon receipt.
(m) Tabulate all ballots and master ballots received prior to the voting deadline in accordance with established procedures, and prepare a vote certification for filing with the Court.
(n) Coordinate such tasks with Berger to avoid any duplication of efforts;
(o) Undertake such other duties as may be agreed upon by the Debtors and Innisfree.

4. Innisfree is authorized to assist the Debtors in distributing to the holders of Securities the various notices and other documents required to be served under the Code, the Bankruptcy Rules, and the Local Rules of this Court.

5. Innisfree shall, on a periodic basis, submit detailed invoices to the Debtors for services rendered, with a copy to the office of the United States Trustee.

6. The fees and expenses of Innisfree incurred in performance of the above services are to be treated as an administrative expense of the Debtors’ Chapter 11 estates and shall be paid by the Debtors in the ordinary course of business.

AGREEMENT
This Agreement sets forth the terms and conditions under which Innisfree MA Incorporated (“Innisfree”) will serve Service Merchandise Company, Inc. (“Service Merchandise” or the “Debtor”) as noticing agent, ballot agent, tabulator, and consultant with respect to the privately placed secured notes and publicly held securities of Service Merchandise.

Assumptions

For the purpose of this Agreement we are making the following assumptions about the parties entitled to vote on the plan or receive non-voting documents:

— 1 issue of privately placed secured notes; — 2 issues of publicly traded bonds; and — 1 issue of publicly traded equity.

Balloting and Tabulation Services

As balloting agent, in addition to handling the mailing of voting and non-voting documents, we will take calls from any creditor or security holder who may have questions about the plan, and conduct the tabulation of votes. A more detailed breakdown of the elements we would handle as balloting and tabulation agent follows:

1. Provide advice to the company and its counsel regarding all aspects of the plan vote, including timing issues, voting and tabulation procedures, and documents needed for the vote.

2. Review the voting portions of the disclosure statement and ballots, particularly as they may relate to beneficial owners of securities held in Street name.

3. Work with the company to request appropriate information from the trustee(s) of the bonds, the transfer agent of common stock, and The Depository Trust Company.

4. Mail documents to the registered record holders of bonds and common stock.

EXHIBIT I
5. Coordinate the distribution of voting documents and non-voting documents to Street name holders of securities by forwarding the appropriate documents to the banks and brokerage firms holding the securities (or their agent), who in turn will forward it to beneficial owners.

6. Distribute copies of the master ballots to the appropriate nominees in order that firms may cast votes on behalf of beneficial owners.

7. Prepare a certificate of service for filing with the court.

8. Handle requests for documents from parties in interest, including brokerage firm and bank back-offices and institutional holders.

9. Respond to telephone inquiries from security holders regarding the disclosure statement and the voting procedures. Innisfree will restrict its answers to the information contained in the plan documents. We will seek assistance from the company or their counsel on any questions that fall outside of the voting documents.

10. If requested to do so, Innisfree will make telephone calls to confirm receipt of plan documents and respond to questions about the voting procedures.

11. If requested to do so, we will assist with an effort to identify beneficial owners of the bonds.

12. Receive and examine all ballots and master ballots cast by bondholders. Innisfree will date-and time-stamp the originals of all such ballots and master ballots upon receipt.

13. Tabulate all ballots and master ballots received prior to the voting deadline in accordance with established procedures, and prepare a vote certification for filing with the court.

14. Undertake such other duties as may be agreed upon by the Debtor and Innisfree.

Fees for Balloting and Tabulation

Our fee structure for the balloting portion of this assignment follows:

Our pricing structure for the balloting portion of the assignment follows:

1. A project fee of $10,000, plus $2,000 for each issue (i.e., each cusip number or ISIN number) of public securities entitled to vote on the Plan, and $1,500 for each issue of public securities not entitled to vote on the Plan but entitled to receive notice. This covers the coordination with all brokerage firms, banks, institutions and other interested parties, including the distribution of voting materials, as further described in Innisfree’s proposal. This assumes one distribution of materials, which will be directed to the firms’ proxy departments, and no extensions of the voting deadline.

2. For the mailing to creditors and record holders of securities, we would estimate labor charges at $1.75 — $2.25 per package, depending on the complexity of the mailing. The charge indicated assumes the package would include the disclosure statement, a ballot, a return envelope, and one other document. It also assumes that a window envelope will be used for the mailing, and will therefore not require a matched mailing.

3. A minimum charge of $4,000 to take up to 500 telephone calls from creditors and security holders within a 30-day solicitation period. If more than 500 calls are received within the period, those additional calls will be charged at $8.00 per call. Any calls to creditors or security holders will be charged at $8.00 per call.

4. A charge of $100 per hour for the tabulation of ballots and master ballots, plus set up charges of $1,000 for each tabulation element (e.g., each security). Standard hourly rates (as enumerated below) will apply for any time spent by senior executives reviewing and certifying the tabulation and dealing with special issues that may develop.

5. We will bill for consulting hours at our standard hourly rates, as listed below, or at the standard hourly rates for other professionals that may work on the case. Consulting services by Innisfree would include the review and development of materials, including the disclosure statement, plan, ballots, and master ballots; participation in telephone conferences, strategy meetings or the development of strategy relative to the project; efforts related to special balloting procedures, including issues that may arise during the balloting or tabulation process; computer programming or other project-related data processing services; visits to cities outside of New York for client meetings or legal or other matters; efforts related to the preparation of testimony and attendance at court hearings; and the preparation of affidavits, certifications, fee applications (if required by the court), invoices, and reports.

Hourly rates: Co-Chairman $375 per hour Managing Director $350 per hour Practice Director $275 per hour Director $250 per hour Account Executive $225 per hour Staff Assistant $150 per hourNotice Mailings

Apart from the mailing of voting materials, notices may need to be forwarded to creditors and security holders at other times. Innisfree would receive printed copies of the notice (or print them) and work with the Debtors to request appropriate information to ensure that the mailing can be done correctly. Mailings are completed as quickly and efficiently as possible. A certificate of service will be prepared for filing with the court.

Notice mailings to registered holders of securities (and other creditors, if needed) are straightforward, because their identities are known and notices can be sent directly to them. The mailing process is more complex for security holders in street name, because the notices need to be forwarded to beneficial owners of securities by the brokers or banks holding the securities, or their agent. We will coordinate with the firms in question, deliver the appropriate documents to them with instructions for mailing, and follow-up to be certain the notices are forwarded to beneficial owners.

Pricing for Notice Mailings

Mailings to Registered Holders of Securities: Mailings to registered record holders of debt securities and common stock would be charged at $0.50 — $0.65 per holder, plus postage. This assumes that labels and/or electronic data for these holders would be provided by the trustee, transfer agent, or party maintaining the records.

Mailings to Holders of Public Securities in “Street” name: Innisfree will charge a fee of $3,500 for a notice mailing to the Street name holders of all securities, including the debt and common stock.

Out of Pocket Expenses

All out-of-pocket expenses relating to any work undertaken by Innisfree will be charged separately, and will include such items as travel costs, postage, messengers and couriers, etc., expenses incurred by Innisfree in obtaining or converting depository participant, creditor, shareholder and/or lists of Non-Objecting Beneficial Owners; and appropriate charges for supplies, in-house photocopying, telephone usage, etc.

Governing Law

This Agreement shall be governed by the laws of the State of New York, without regard to the principles of conflicts of laws. Service Merchandise represents to Innisfree that it will comply with, and Innisfree represents to Service Merchandise that it will comply with, applicable requirements of law relating to the performance of services under this Agreement.

Indemnity

Service Merchandise agrees to indemnify and hold Innisfree harmless against any loss, damage, expense (including, without limitation, legal and other related fees and expenses), liability or claim arising out of Innisfree’s fulfillment of the Agreement (except for any loss, damage, expense, liability or claim resulting out of Innisfree’s own negligence or misconduct). At its election, Service Merchandise may assume the defense of any such action. Innisfree hereby agrees to advise Service Merchandise of any such liability or claim promptly after receipt of the notice thereof; provided however, that Innisfree’s right to indemnification hereunder shall not be limited by its failure to promptly advise Service Merchandise of any such liability or claim. except to the extent that Service Merchandise is prejudiced by such failure. The indemnification contained in this paragraph will survive the term of the Agreement.

Confidentiality

Innisfree agrees to preserve the confidentiality of all non-public information provided by Service Merchandise or its agents for its use in providing services under this Agreement, or information developed by Innisfree based upon such non-public information.

If the above is agreed to by you, please sign and return the enclosedduplicate of this Agreement to Innisfree MA Incorporated, Attention:Jane Sullivan, 501 Madison Avenue, 20th Floor, New York, NY, 10022.

[1] Capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Application.
[2] Innisfree will restrict its answers to the information contained in the plan documents. Innisfree will seek assistance from the Debtors and their counsel on any questions that fall outside of the voting documents.