Case Document 675 Filed in TXSB on 08/31/18 Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

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1 Case Document 675 Filed in TXSB on 08/31/18 Page 1 of 11 IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: Chapter 11 LOCKWOOD HOLDINGS, INC., et al., 1 Case No (DRJ) Debtors. (Jointly Administered) EMERGENCY AGREED MOTION TO REJECT HOUSTON TEXANS NRG STADIUM SUITE LEASE AGREEMENT NUNC PRO TUNC THIS MOTION SEEKS ENTRY OF AN ORDER THAT MAY ADVERSELY AFFECT YOU. IF YOU OPPOSE THE MOTION, YOU SHOULD IMMEDIATELY CONTACT THE MOVING PARTY TO RESOLVE THE DISPUTE. IF YOU AND THE MOVING PARTY CANNOT AGREE, YOU MUST FILE A RESPONSE AND SEND A COPY TO THE MOVING PARTY. YOUR RESPONSE MUST STATE WHY THE MOTION SHOULD NOT BE GRANTED. IF YOU DO NOT FILE A TIMELY RESPONSE, THE RELIEF MAY BE GRANTED WITHOUT FURTHER NOTICE TO YOU. IF YOU OPPOSE THE MOTION AND HAVE NOT REACHED AN AGREEMENT, YOU MUST ATTEND THE HEARING. UNLESS THE PARTIES AGREE OTHERWISE, THE COURT MAY CONSIDER EVIDENCE AT THE HEARING AND MAY DECIDE THE MOTION AT THE HEARING. EMERGENCY RELIEF HAS BEEN REQUESTED. IF THE COURT CONSIDERS THE MOTION ON AN EMERGENCY BASIS, THEN YOU WILL HAVE LESS THAN 21 DAYS TO ANSWER. IF YOU OBJECT TO THE REQUESTED RELIEF OR IF YOU BELIEVE THAT THE EMERGENCY CONSIDERATION IS NOT WARRANTED, YOU SHOULD FILE AN IMMEDIATE RESPONSE. REPRESENTED PARTIES SHOULD ACT THROUGH THEIR ATTORNEY. The above-captioned debtors and debtors in possession (collectively, the Debtors ) together with the non-debtor counterparty Houston NFL Holdings, L.P. ( NFL Holdings ) file this their Emergency Agreed Motion to Reject Houston Texas NRG Stadium Suite Lease Agreement Nunc Pro Tunc (the Motion ) and respectfully state as follows in support: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Lockwood Holdings, Inc. (9726); LH Aviation, LLC (6984); Piping Components, Inc. (0197); Lockwood International, Inc. (8597); Lockwood Enterprises, Inc. (6504); LMG Manufacturing, Inc. (9468); and 7807 Eagle Lane, LLC (7382).

2 Case Document 675 Filed in TXSB on 08/31/18 Page 2 of 11 I. RELIEF REQUESTED 1. The Debtors and NFL Holdings seek entry of an order authorizing the Debtors to reject that certain Houston Texans NRG Stadium Suite Lease Agreement to which NFL Holdings is a party (the Suite Lease ), effective as of August 29, The Suite Lease has a term that extends through and including the 2020 NFL season. 2. The Debtors and NFL Holdings have entered into an agreement with respect to the agreed rejection of the Suite Lease requested herein. Under the general terms of the agreement, NFL Holdings has agreed to waive its rejection damages claim (in the approximate amount of over $330,000, and after application of a $50,750 security deposit held by NFL Holdings) in exchange for the Debtors agreement to seek immediate authority to retroactively reject the Suite Lease as of August 29, The Debtors have located no buyer for the Suite Lease. NFL Holdings has located a potential new tenant who has expressed interest in moving forward with a one-year lease of the subject Suite, albeit at a rate materially lower than the rate under the existing Suite Lease. 4. Emergency relief is requested because NFL Holdings needs the requested rejection to be authorized immediately to permit it to move forward with its prospective tenant for the Suite Lease. The prospective tenant has indicated that it is only interested in moving forward if the new lease can be negotiated and finalized in time for it to use the space the subject of the Suite Lease by September 23, 2018 the Texans next home game. Given the agreement with NFL Holdings, rejection of the Suite Lease as requested herein will benefit the Debtors estate by eliminating a significant rejection damages claim. 5. Under the circumstances, the Debtors and NFL Holdings request that the Court grant this Motion and enter the accompanying proposed order on an emergency basis. 2

3 Case Document 675 Filed in TXSB on 08/31/18 Page 3 of 11 II. JURISDICTION, VENUE, AND PROCEDURAL BACKGROUND 6. This Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). Venue is proper pursuant to 28 U.S.C and The bases for the relief requested herein are 105(a) and 365(a) of title 11 of the United States Code (the Bankruptcy Code ) and rule 6006 of the Federal Rules of Bankruptcy Procedure (the Bankruptcy Rules ). 8. On January 18, 2018, Lockwood Holdings, Inc.; LH Aviation, LLC; and Piping Components, Inc. filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On January 24, 2018, Lockwood International, Inc.; Lockwood Enterprises, Inc,; LMG Manufacturing, Inc.; and 7807 Eagle Lange, LLC filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. 9. Pursuant to 1107 and 1108 of the Bankruptcy Code, the Debtors each remain in possession of their property and each is managing its business as a debtor in possession. 10. On February 20, 2018, the United States Trustee (the U.S. Trustee ) appointed an official committee of unsecured creditors (the Committee ), which was amended on March 2, [Docket Nos. 131 and 171]. No trustee or examiner has been appointed. 11. On June 29, 2018, the Debtors filed their Expedited Motion Pursuant to Sections 363 and 365 of the Bankruptcy Code and Bankruptcy Rules 2002, 6004, and 6006 for Order (A) Approving Comprehensive Sale Process, (B) Approving Bidding Procedures and Certain Bid Protections, (C) Scheduling an Auction and a Sale Hearing; (D) Approving Form and Manner of Notice Related Thereto, (E) Authorizing Sale Free and Clear of All Liens, Claims, Interests, and Encumbrances, (F) Authorizing Assumption and Assignment of Certain Executory Contracts and 3

4 Case Document 675 Filed in TXSB on 08/31/18 Page 4 of 11 Unexpired Leases and Proposed Cure Amounts with Respect Thereto; and (G) Granting Related Relief (the Sale Motion ) [Docket No. 483]. 12. On July 17, 2018, the Court entered its Order (A) Approving Comprehensive Sale Process, (B) Approving Bidding Procedures and Certain Bid Protections, (C) Scheduling an Auction and a Sale Hearing; (D) Approving Form and Manner of Notice Related Thereto, (E) Authorizing Sale Free and Clear of All Liens, Claims, Interests, and Encumbrances, (F) Authorizing Assumption and Assignment of Certain Executory Contracts and Unexpired Leases and Proposed Cure Amounts with Respect Thereto; and (G) Granting Related Relief (the Bidding Procedures Order ) [Docket No. 513]. 13. On August 17, 2018, the Debtors filed their Notice of Executory Contracts and Unexpired Leases Subject to Possible Assumption and Assignment and Proposed Cure Amounts (the Cure Notice ) [Docket No. 613]. Listed on the Cure Notice was the Suite Lease On August 28, 2018, the Court conducted a hearing on the Sale Motion (the Sale Hearing ). No bidders through the sale process sought the assumption and assignment of the Suite Lease. III. ARGUMENT & AUTHORITIES A. Rejection of the Suite Lease is a Sound Exercise of Business Judgment 15. In connection with their sale efforts, the Debtors attempted to market and sell the Suite Lease. They have learned that the Suite Lease at present is priced above-market, and as result, believe they will not locate a buyer. As a result of this analysis, the Debtors determined, in their business judgment, that the Suite Lease is unnecessary and burdensome to the Debtors estates, and should be rejected. 2 In the Cure Notice, the non-debtor counterparty under the Suite Lease was incorrectly listed as NRG Stadium. As set forth herein, the counterparty under the Suite Lease is Houston NFL Holdings, LP. 4

5 Case Document 675 Filed in TXSB on 08/31/18 Page 5 of Section 365(a) of the Bankruptcy Code provides that a debtor in possession subject to the court s approval, may... reject any executory contract or unexpired lease of the debtor. 11 U.S.C. 365(a). This provision allows a trustee to relieve the bankruptcy estate of burdensome agreements which have not been completely performed. Stewart Title Guar. Co. v. Old Republic Nat l Title Ins. Co., 83 F.3d 735, 741 (5th Cir. 1996) (citing In re Murexco Petrol., Inc., 15 F.3d 60, 62 (5th Cir. 1994)); see also In re Orion Pictures Corp., 4 F.3d 1095, 1098 (2d Cir. 1993) (noting that purpose of rejection is to permit debtor-in-possession to renounce title to and abandon burdensome property ) (internal quotation marks omitted); Savoy IBP 8, Ltd. v. Nucentrix Broadband Networks, Inc., 333 B.R. 114, 125 (N.D. Tex (noting rejection can release the debtor s estate from burdensome obligations that can impede a successful reorganization ) (quoting NLRB v. Bildisco & Bildisco, 465 U.S. 513, 528 (1984)). 17. Pursuant to 365(a) of the Bankruptcy Code, a debtor may, subject to court approval, reject unexpired leases and executory contracts. Section 365(a) provides, in pertinent part, that a debtor-in-possession subject to the court s approval, may assume or reject any executory contract or unexpired lease of the debtor. See NLRB v. Bildisco & Bildisco & Bildisco, 465 U.S. 513, 521 (1984); See In re Mirant Corp., 378 F.3d 511, 526, n.5 (5th Cir. 2004) ( The rejection decision under 365 is generally left to the business judgment of the bankruptcy estate. ) (citing See Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303, 1309 (5th Cir. 1985) ( It is well established that the question [of] whether a lease should be rejected... is one of business judgment. ) (quoting Group of Institutional Investors v. Chicago, Milwaukee, St. Paul & Pac. R.R. Co., 318 U.S. 523 (1943)). In determining whether the rejection of an unexpired lease or executory contract should be authorized, courts apply the business judgment standard. See Orion Pictures Corp. v. Showtime Networks, Inc. (In re Orion Pictures 5

6 Case Document 675 Filed in TXSB on 08/31/18 Page 6 of 11 Corp.), 4 F.3d 1095, 1099 (2d Cir. 1003); In re Pilgrim s Pride Corp., 403 B.R. 413 (Bankr. N.D. Tex. 2009). Courts agree that the business judgment standard is satisfied when a debtor determines that such rejection will benefit the estate. See In re Ionosphere Clubs, Inc., 100 B.R. 670, 673 (Bankr. S.D.N.Y. 1989). 18. A court should approve a rejection decision upon finding that a debtor determined, in its business judgment, that rejection is in the estate s best interests. See In re Pisces Energy, LLC, 2009 WL , at *6 (KKB) (Bankr. S.D. Tex. Dec. 21, 2009) ( Transposed to the bankruptcy context, the [business judgment] rule as applied to a bankrupt s decision to reject an executory contract because of perceived business advantage requires that the decision be accepted by courts unless it is shown that the bankrupt s decision was one taken in bad faith or in gross abuse of the bankrupt s retained business discretion. ) (quoting Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985)). See also In re Enron Corp., No , 2006 WL , at *4 (Bankr. S.D.N.Y. Mar. 24, 2006) (stating business judgment test is met if the rejection is beneficial to the estate ); GBL Holding Co. v. Blackburn/Travis/Cole, Ltd., 331 B.R. 251, 254 (N.D. Tex. 2005) ( Great judicial deference is given to the Trustee s exercise of business judgment. ); In re Trans World Airlines, Inc., 261 B.R. 103, 121 (Bankr. D. Del. 2001) ( A debtor s decision to reject an executory contract must be summarily affirmed unless it is the product of bad faith, or whim or caprice. ) (internal quotation marks omitted). 19. Here, rejection of the Suite Lease is well within the Debtors business judgment and is in the best interest of their estates. Absent rejection, the Suite Lease imposes obligations on the Debtors without any corresponding benefit, and given the failure of the Debtors sale efforts with respect to the Suite Lease, will not yield any benefit to the estates. Moreover, given 6

7 Case Document 675 Filed in TXSB on 08/31/18 Page 7 of 11 the agreement with NFL Holdings, the Debtors can effectively rid their estates of the Suite Lease, without incurring a significant rejection damages claim. 20. The Debtors respectfully submit that rejecting the Suite Lease is appropriate under the circumstances and reflects the Debtors sound business judgment. B. This Court Should Deem the Suite Lease Rejected Nunc Pro Tunc to August 29, It is appropriate for the Court to approve rejection of the Suite Lease effective as of August 29, Rejection of the Suite Lease effective August 29, 2018 is a key feature of the agreement with NFL Holdings because NFL Holdings has located a tenant willing to lease the space. The potential new tenant, however, is only willing to lease the space the subject of the Suite Lease if the new lease can be finalized in time for the new tenant to enjoy it at the Houston Texans next home game, scheduled for September 23, If the rejection is not effective nunc pro tunc to August 29, 2018, NFL Holdings is at greater risk of losing the prospective new tenant for the Suite Lease, and its corresponding economic incentive to waive any rejection damages claim with the Debtors. Accordingly, the Debtors request that the Court exercise its discretion to authorize rejection retroactively under the circumstances. 22. Section 365 of the Bankruptcy Code does not address whether a bankruptcy court may apply rejection retroactively. See In re Jamesway Corp., 179 B.R. 33, 37 (S.D.N.Y. 1995) (stating that section 365 does not include restrictions as to the manner in which the court can approve rejection ); see also In re CCI Wireless, LLC, 297 B.R. 133, 138 (D. Colo. 2003) (noting that section 365 does not prohibit the bankruptcy court from allowing the rejection of [leases] to apply retroactively ). Courts have held, however, that a bankruptcy court may, in its discretion, authorize rejection retroactively to a date prior to entry of an order authorizing such rejection where the balance of equities favors such relief. See In re Thinking Machs. Corp., 7

8 Case Document 675 Filed in TXSB on 08/31/18 Page 8 of F.3d 1021, (1st. Cir. 1995) (stating rejection under 365(a) does not take effect until judicial approval is secured, but the approving court has the equitable power, in suitable cases, to order a rejection to operate retroactively ); In re Chi-Chi s, Inc., 305 B.R. 396, 399 (Bankr. D. Del. 2004) (stating the court s power to grant retroactive relief is derived from the bankruptcy court s equitable powers so long as it promotes the purposes of 365(a) ); CCI Wireless, 297 B.R. at 140 (holding that a court has authority under section 365(d)(3) to set the effective date of rejection at least as early as the filing date of the motion to reject ); BP Energy Co. v. Bethlehem Steel Corp., 2002 WL , at *3 (S.D.N.Y. Nov. 15, 2002) ( We cannot conclude... that a bankruptcy court s assignment of a retroactive rejection date falls outside of its authority when the balance of the equities favors this solution. ); see also In re At Home Corp., 392 F.3d 1064, (9th Cir. 2004) (holding that a bankruptcy court may approve retroactively the rejection of an unexpired nonresidential lease ). Furthermore, courts in this district have authorized rejection of executory contracts nunc pro tunc, even to the petition date. See, e.g., In re HII Techs., Inc., No (DRJ) (Bankr. S.D.T.X. Oct. 14, 2015) (granting rejection of executory contracts nunc pro tunc to petition date); In re Buccaneer Res., LLC, No (DRJ) (Bankr. S.D.T.X. June 10, 2014) (same) The balance of equities favor rejection nunc pro tunc to August 29, Without retroactive application, the Debtors will lose the economically beneficial agreement with NFL Holdings. If the Debtors cannot enter into the agreement with NFL Holdings, they will still proceed to reject the Suite Lease, but will also incur a significant rejection damages claim against their estates. Under the proposed agreement, the Debtors will reject the Suite Lease and not incur the significant rejection damages claim (after application of a $50,750 3 Because of the voluminous nature of the orders cited herein, such orders have not been attached to this Motion. Copies of these orders are available upon request. 8

9 Case Document 675 Filed in TXSB on 08/31/18 Page 9 of 11 security deposit held by NFL Holdings). Accordingly, to eliminate a significant rejection damages claim, the Debtors respectfully submit that it is appropriate for the Court to authorize the rejection of the Suite Lease effective nunc pro tunc to August 29, 2018, as requested herein. WHEREFORE, the Debtors request that the Court permit the Debtors to reject the Suite Lease nunc pro tunc to August 29, 2018, and grant to the Debtors and NFL Holdings such other relief as the Court deems appropriate under the circumstances. Houston, Texas August 30, 2018 Respectfully submitted, GRAY REED & MCGRAW LLP By: /s/ Micheal W. Bishop Jason S. Brookner State Bar No Post Oak Blvd., Suite 2000 Houston, Texas Telephone: (713) Facsimile: (713) jbrookner@grayreed.com -and- Micheal W. Bishop Texas Bar No Amber M. Carson Texas Bar No Elm Street, Suite 4600 Dallas, Texas Telephone: (214) Facsimile: (214) mbishop@grayreed.com acarson@grayreed.com COUNSEL FOR THE DEBTORS 9

10 Case Document 675 Filed in TXSB on 08/31/18 Page 10 of 11 JACKSON WALKER LLP 1401 McKinney Street, Suite 1900 Houston, Texas Telephone: (713) Facsimile: (713) /s/ Bruce J. Ruzinsky Bruce J. Ruzinsky State Bar No (713) direct dial (713) direct fax Matthew D. Cavenaugh State Bar No (713) direct dial (713) direct fax COUNSEL FOR HOUSTON NFL HOLDINGS, L.P. 10

11 Case Document 675 Filed in TXSB on 08/31/18 Page 11 of 11 Certificate of Service I certify that on August 30, 2018, I caused a copy of the foregoing document to be served by the Electronic Case Filing System for the United States Bankruptcy Court for the Southern District of Texas. /s/ Matthew D. Cavenaugh

12 Case Document Filed in TXSB on 08/31/18 Page 1 of 3 IN THE UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION In re: Chapter 11 LOCKWOOD HOLDINGS, INC., et al., 1 Case No (DRJ) Debtors. (Jointly Administered) AGREED ORDER AUTHORIZING REJECTION OF HOUSTON TEXANS NRG STADIUM SUITE LEASE AGREEMENT EFFECTIVE AS OF AUGUST 29, 2018 (Relates To ECF No. ) CAME ON TO BE CONSIDERED the Emergency Agreed Motion to Reject Houston Texans NRG Stadium Suite Lease Agreement Nunc Pro Tunc (the Motion ) 2 filed by the above-captioned debtors and debtors in possession (collectively, the Debtors ) and Houston NFL Holdings, L.P. ( NFL Holdings ). The Court, having considered same, any response(s) thereto, and found that notice of the Motion was proper, and based upon the agreement of the Debtors and NFL Holdings, as evidenced by the signatures of their respective counsel hereto, is of the opinion that the Motion should be, and is hereby granted in its entirety; therefore, it is HEREBY ORDERED THAT: 1. The Motion is granted as set forth herein. 2. The Houston Texans NRG Stadium Suite Lease Agreement (as defined in the Motion, the Suite Lease ) is hereby rejected effective as of August 29, The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, are: Lockwood Holdings, Inc. (9726); LH Aviation, LLC (6984); Piping Components, Inc. (0197); Lockwood International, Inc. (8597); Lockwood Enterprises, Inc. (6504); LMG Manufacturing, Inc. (9468); and 7807 Eagle Lane, LLC (7382). 2 Capitalized terms used but not otherwise defined herein have the meanings ascribed to them in the Motion.

13 Case Document Filed in TXSB on 08/31/18 Page 2 of 3 3. The rejection of the Suite Lease (a) constitutes an exercise of sound business judgment by the Debtors, made in good faith and for legitimate commercial reasons; (b) is appropriate and necessary under the circumstances described in the Motion; and (c) is warranted and permissible under 105 and 365 of the Bankruptcy Code and Bankruptcy Rule NFL Holdings waives any and all affirmative claims against Debtors and Debtors bankruptcy estates and is permitted to retain the $50, prepetition security deposit it holds in connection with the Suite Lease. 5. Notice of the Motion as provided therein shall be deemed good and sufficient, and the requirements of the Local Bankruptcy Rules are satisfied by such notice. 6. Notwithstanding the possible applicability of Bankruptcy Rules 6004(h), 7062, 9014 or otherwise, the terms and conditions of this Final Order shall be immediately effective and enforceable upon its entry. 7. All time periods set forth in this Final Order shall be calculated in accordance with Bankruptcy Rule 9006(a). 8. The Debtors are authorized to take all actions necessary to effectuate the relief granted in this Order in accordance with the Motion. 9. This Court retains exclusive jurisdiction with respect to all matters arising from or related to the implementation, interpretation, and enforcement of this Order. SIGNED this day of, UNITED STATES BANKRUPTCY JUDGE 2

14 Case Document Filed in TXSB on 08/31/18 Page 3 of 3 AGREED: GRAY REED & MCGRAW LLP By: /s/ Micheal W. Bishop Jason S. Brookner State Bar No Post Oak Blvd., Suite 2000 Houston, Texas Telephone: (713) Facsimile: (713) jbrookner@grayreed.com -and- Micheal W. Bishop Texas Bar No Amber M. Carson Texas Bar No Elm Street, Suite 4600 Dallas, Texas Telephone: (214) Facsimile: (214) mbishop@grayreed.com acarson@grayreed.com COUNSEL FOR THE DEBTORS JACKSON WALKER LLP 1400 McKinney Street, Suite 1900 Houston, Texas Telephone: (713) Facsimile: (713) /s/ Bruce J. Ruzinsky Bruce J. Ruzinsky State Bar No Matthew D. Cavenaugh State Bar No bruzinsky@jw.com mcavenaugh@jw.com COUNSEL FOR HOUSTON NFL HOLDINGS, L.P. 3