ZGallerie MidSize Turnaround

Entry Deadline: May 3, 2010, 5:00 P.M. Central www.turnaround.org - 1
TMA 2010 Awards Program
Entries Due: Monday, May 3, 2010, 5:00 P.M. Central
Entry form—Turnaround of the Year
Award Category
Place an “x” in the appropriate category to the left
Person Submitting the Entry
Name Jeffrey W. Dulberg
Company Pachulski Stang Ziehl & Jones LLP
Address 10100 Santa Monica Blvd.
City, State, Zip, Country Los Angeles, CA 90004
Telephone number (310) 277-6910
Fax number (310) 201-0760
E-mail address jdulberg@pszjlaw.com
Nominee(s)
If same as above, indicate “Self Nomination” on the name line below. To the extent applicable, please nominate all
contributing team members: at least one attorney, one financial advisor, one turnaround manager, one company
leader and/or one investment banker. Please note individual contributions made by each of the contributing team
members, and explain why that member's contributions to the team were award-worthy. TMA membership is a
requirement for nomination of each team member. (To check current TMA membership status, please visit
www.turnaround.org/Default.aspx.)
Name Jeffrey W. Dulberg
Fax number (310) 201-0760
Name Teddy M. Kapur
Fax number (310) 201-0760
E-mail address tkapur@pszjlaw.com
Name Thomas S Paccioretti
Company Broadway Advisors, LLC
Address 511 30th Street
City, State, Zip, Country Newport Beach, CA, 92663
Fax number (213) 947-1833
E-mail address tsp@broadwayadvisors.com
Large company Revenue of $300 million USD or greater at onset of turnaround
X Mid-size company Revenue between $300 million and $50 million USD at onset of turnaround
Small company Revenue of $50 million USD or less at time of transaction
International company Company has significant cross-border operations
Pro Bono company No payment for services for the turnaround

Nominee(s) (cont’d.)
Name Benjamin F. Cary
City, State, Zip, Country Newport Beach, CA, 92663
Fax number (213) 947-1833
E-mail address bfc@broadwayadvisors.com
Name Robert L. LeHane
Company Kelley Drye & Warren LLP
Address 101 Park Avenue
City, State, Zip, Country New York, NY 10178
Fax number (212) 808-7897
E-mail address rlehane@kelleydrye.com
Reorganized Company Information
Company Name Z Gallerie
Address 1855 West 139th Street
City, State, Zip, Country Gardena, CA, 90249
Contact name Michael Zeiden
Contact telephone (310) 630-1211
Contact E-mail Mzeiden@ZGallerie.com
Dun & Bradstreet Rating --
SIC Code 5719; 5999
Ownership: Indicate
NYSE, NASD, AMEX, or
Private. List ticker number
if applicable.
Private
Next page for additional questions and information

Key Players
Using the enclosed “Key Players Contact Sheet,” please list the contact information requested for the following key
players. This contact sheet is a required component of the entry. Members of the awards committee may contact and
interview these key players.
CEO
COO
CRO
Chairman of the Board
CFO
Lead Banker
Primary Attorney
Primary Financial Advisor
Primary Accountant
Creditors Committee Counsel
Chair of the Creditors Committee
Debtors Counsel
Lender
Major Unsecured Creditor
Narrative Descriptions
Each response below should not exceed a maximum of 750 words per question.
1. Describe the company PRIOR TO reorganization. Do not include details about the turnaround. That
information will be discussed separately.
Z Gallerie is a family-owned retailer of home furnishings and decorative accessories that was founded by two brothers
and a sister in 1979 as a small poster shop in Sherman Oaks, California. Over the next 29 years, they enjoyed steady
growth. By 2006 there were 86 locations, 1,000 employees, $236M in annual revenue and $6.4M in EBITDA.
In November 2008, the Debtor renewed its long-standing revolving secured financing arrangement with City National
Bank that provided the Debtor with a line of credit and other accommodations for financing up to $13 million until
January 31, 2009 and $10 million thereafter until April 1, 2009, when the outstanding amount became due and payable
(the “Revolving Credit Facility”).
As of the Petition Date, April 10, 2009, the Debtor had approximately $25 million of priority and general unsecured
obligations that were held by approximately 134,000 creditors. The Debtor owed approximately $1.6 million of unpaid
prepetition priority taxes (including payroll withholding, FUTA and sales taxes) to 55 taxing authorities. 16,275
customers had deposits of approximately $4.4 million (of which amount $3.5 million had priority status), and customers
held approximately 118,000 gift cards with an outstanding balance of $5.9 million (all of which had priority status).
Moreover, the Debtor had no means to identify the customers that held gift cards.
2. What were the company’s problems leading up to the involvement of a turnaround team?
As the housing boom turned to bust, Z Gallerie (the “Debtor”) did a belly-flop and in 2008 posted a EBITDA loss of
$4.7M, a (173)% swing from 2006.
Competitive pricing pressures in the Debtor’s business sector – retail home furnishings – due to wide-spread promotional
activity and “going out of business” sales, the maturity of the Revolving Credit Facility and the continued decline of the
economy in general put further pressure on the Debtor’s business, making it necessary for it to seek protection under
chapter 11 of the Bankruptcy Code.
The Debtor engaged an investment banking firm, The Sage Group, LLC and Sage Partners Securities, LLC (“Sage”), in
March, 2009 to assist the Debtor pursue a sale of substantially all of its assets as a going concern. Sage contacted more

than 114 parties regarding a potential sale transaction, and indications of interest and letters of intent were submitted by
only two potential going concern buyers and two liquidators at valuations below expectations.
Sage’s efforts revealed that 363 sale offers left no recovery for general unsecured creditors nor did a straight liquidation –
neither was surprising. There had to be a better solution.
3. What actions did the turnaround team take?
The Z Gallerie turnaround team performed a perfect Triple Lindy: Rodney Dangerfield’s über difficult high dive in the
film Back to School. Confirm a plan of reorganization for a 56-store retail chain, save 865 jobs, and recover 50 cents on
the dollar for the unsecured creditors. In less than six months. “Impossible – retail 11s are either sold or liquidated,
period” they said. See Circuit City, Linen & Things, Whitehall Jewelers. Z Gallerie was different.
Under the direction of Debtor's professionals, 26 underperforming locations and an East Coast warehouse were closed
BEFORE a Chapter 11 filing. By creatively utilizing cost-effective in-house resources to monetize inventory, vacate
premises and sell assets, Z Gallerie gained staying power and a stronger negotiating position to restructure its balance
sheet AND improve its income statement metrics through a bankruptcy filing.
Z Gallerie faced three challenges during the bankruptcy: (1) obtaining product and exiting bankruptcy before the holiday
season, (2) obtaining exit financing, and (3) working with an uninterested incumbent lender.
Seasonal inventory needed to be ordered, delivered and stocked before Thanksgiving. Both domestic and off-shore
vendors were hungry to ship but were wary to give credit. The Company needed to conserve its cash to satisfy
administrative claims upon the planned September, 2009 exit. No cash, no exit.
The Team and Z Gallerie developed a creative plan to assure its vendors of the Company’s long term prospects. They
brought vendors “under the tent” and provided unprecedented transparency and access to the company’s plans and
performance. Regular meetings and conference calls updated vendors on the Debtor’s performance and provided a forum
for Q&A. Management visited vendors’ facilities and the reorganization plan was discussed openly and in great detail.
The vendors came around. Credit was extended. Cash was conserved.
The prevailing sentiment in the Spring and Summer of 2009 for obtaining financing for a home furnishings retailer exiting
bankruptcy was “don’t even think about it.” The current lender was not interested and thrice replaced key contacts,
wrecking havoc on exit timing. In response, the Team identified potential new lenders and began the lender/borrower
dance. The Team built the story: store closures completed, creditors support plan, rent concessions negotiated, meeting
projections, plenty of collateral. What’s not to like?
Potential lenders balked at gift card and deposits liabilities. They were showed that the liability was measurable and
moderate. Still, lenders took larger reserves. The Team strategized with ownership to assume the $12M in gift card and
deposit liabilities from 134,000 claimants, priority claims that if not assumed would be paid before the unsecured
creditors. Inventory valuations were argued despite current data from recently closed stores. The inventory that would
fuel availability was on the water and not scheduled to land until AFTER the company exited bankruptcy. More
availability was needed. And then the unexpected happened.
The new lender now required that all landlords sign a rights waiver or it would reserve rights against the inventory value
of non-compliant locations. This was a serious challenge as 80% of the inventory was at the store level. As
administrative expenses mounted, increasing the cash needed to exit, the Team worked diligently with counsel to get the
waivers, but not fast enough. The exit was delayed a month, more availability was required, again.
Needing a miracle, the Team made the argument to the owners that as landlords of the HQ/warehouse - why not pledge
the real estate? Brilliant. The last financing hurdle was cleared and the Z Gallerie reorganization was completed.

4. What was the outcome of the turnaround in relation to the actions discussed in Number 3?
Z Gallerie partnered with its professionals: counsel to landlords, debtor and committee counsels, financial advisors and
real estate advisors, to negotiate rent relief and prepare a new business model based on current economic realities. The
Team created a climate of trust and cooperation needed to craft an out-of-the-box solution rarely used in retail cases: new
value, continued operations, and a 50% recovery to the $16.1M in unsecured claims. In short, a plan of reorganization.
A Triple Lindy.
For six months Z Gallerie worked diligently with all parties and hit every mark. The plan was approved by 97.7% of the
unsecured class. Z Gallerie emerged from Chapter 11 and delivered a 2009 EBITDA of $5.2M, a 211% improvement, a
perfect 10.
This deal (1) saved 865 jobs and provided a platform to create more jobs, (2) cost effectively refocused Z Gallerie’s
geographical footprint, (3) improved business processes, gross margins and increased EBITDA by 200% to $5M, and (4)
improved customer service and satisfaction.
The successful reorganization helped recapitalize Z Gallerie’s balance sheet and eliminate more than $40 million in long-
term liabilities through the surgical rejection of unfavorable leases, closure of an East Coast warehouse and the reduction
of lease costs at remaining locations.
With the Team’s assistance, Z Gallerie refocused its sourcing, merchandising and pricing efforts to restore gross margins
to historical levels (better than 50%) and reduced mark-down dependency. Along with overhead reductions rationalized
to the new footprint, these process improvements contributed significantly to the bottom line.
This deal left Z Gallerie in the hands of its original owners, something that vendors and landlords found important - they
now all have skin in the game. The essence of the Company remains. Its hip but accessible lifestyle continues under the
guidance of Carole Malfatti, Z Gallerie’s chief merchandising officer. Carole was named one of the 50 most powerful
people in fashion and design in Home Furnishings News’ “Fashion 50 List” outranking Ralph Lauren, Tommy Hilfiger
and Vera Wang. Without this turnaround there would be no retailer to fill that niche.
Because of this turnaround, Z Gallerie has retained its unique look and feel and special connection to its customers. 5,000
Facebook fans are connected to their lifestyle retailer of choice. The company has continued all of its principal
merchandising and customer affinity programs, including its private label credit card used to extend responsible credit to
an underserved market. And Z Gallerie continues to enhance its website and social networking capabilities, Twitter and
RSS, to inspire its customers with home and lifestyle visions.
Without this turnaround, there’s another 56 “dark” retail locations in prime regional malls, another 56,000 square feet of
vacant retail space, 865 people added to the unemployment rolls, job losses at more than 600 long-time vendors, no
recovery for the unsecured creditors and a consumer left with pedestrian options to improve their living style and attitude.
Luckily, and with an impressive collaboration between many interested parties, the turnaround was a success.
5. If applicable, submit a copy of any final disclosure statement and confirmed plan of reorganization, and
include a key point summary, such as recovery to each class.
A copy of the confirmed Disclosure Statement and Chapter 11 Plan of Reorganization is enclosed as Exhibit A.

SUMMARY OF CLAIMS AND INTERESTS UNDER THE PLAN
CLASS CLAIM/INTEREST TREATMENT ESTIMATED
AGGREGATE
AMOUNT
ESTIMATED
PERCENTAGE
RECOVERY
n/a Administrative Claims Allowed Administrative Claims will be paid in
full on the later of the Effective Date and the
date on which such Administrative Claim
becomes an Allowed Claim.
$3,781,020.00 100%
n/a Priority Tax Claims Allowed Priority Tax Claims will be paid in
equal monthly installments with the first
installment being made on the Effective Date, or
when the Priority Tax Claim becomes an
Allowed Priority Tax Claim, whichever is later,
and last installment being made on April 10,
2014 as required by 11 U.S.C. § 1129(a)(9)(C).
$0—The Debtor
believes that all
Priority Tax
Claims have
been paid
pursuant to
previous order
of the Court
100%
1 Reclamation Claims An Allowed Reclamation Claim will be paid in
full on the later of the Effective Date and the
date on which such Reclamation Claim becomes
an Allowed Claim.
$24,917.46 100%
2 Priority Non-Tax Claims
–consisting of employee
vacation claims and other
Unsecured Claims other
than Administrative
Claims and Priority Tax
Claims that are entitled to
priority in payment
pursuant to section 507(a)
of the Bankruptcy Code.
The Debtor believes that all such vacation claims
are being or have been satisfied by the Debtor’s
honoring its prepetition policies in the ordinary
course of its business pursuant to previous Order
of the Court.
To the extent any Allowed Priority Non-Tax
Claims exist, the Debtor shall pay the Allowed
amount of such Claims on the later of the
Effective Date and the date such Claim becomes
an Allowed Claim.
$234,421.65 100%
3 CNB Secured Claim The CNB Secured Claim will be paid in full on
the later of the Effective Date and the date on
which such CNB Secured Claim becomes an
Allowed Claim.
$8,531,000.00 100%
4 Other Secured Claims—
consisting of all Secured
Claims other than the
CNB Secured Claim.
The Debtor is not aware of any Other Secured
Claims.
$0, none known 100%
5 General Unsecured
Claims—consisting of all
Claims that are not
classified in another Class
under the Plan
Subject to the terms of the Subordination
Agreement and the Escrow Agreement, each
Holder of an Allowed General Unsecured Claim
will receive a pro-rata share, based on the
amount of the Allowed General Unsecured
Claim, of $8.045 million in cash (i.e., the
Maximum General Unsecured Distribution), less
the amount required to fund the Post-Effective
Date Committee Reserve, paid in installments,
without interest, as follows: (1) $3.25 million on
$16,107,017.00 50%

January 1, 2010, (2) $3.25 million on January 1,
2011 and (3) $1.545 million on January 1, 2012;
provided, however, if the Cash and inventory on
the Effective Date exceeds the amounts set forth
in the Plan Cash Flow Projections, an amount
equal to 50% of such excess shall be held in trust
and shall be paid on a pro rata basis with the
January 1, 2010 payment and deducted from the
January 1, 2012 payment.
The Allowed General Unsecured Claims are
secured by a lien in the amount of $8.045 million
against all of the Reorganized Debtor’s assets
that is junior in priority only to any lien securing
the Senior Debt and cannot be enforced in any
manner whatsoever until such time as the Senior
Debt is Paid in Full; provided further, that
neither the lien securing the Senior Debt nor the
lien securing the Maximum General Unsecured
Distributions shall attach to the Reorganized
Debtor’s leases, leasehold interests or
improvements (i.e., such liens shall attach only
to the proceeds of the Reorganized Debtor’s
leases and leasehold interests).
6 Insider Unsecured
Claims—Unsecured
Claims held by the
Zeidens
Each Holder of an Allowed Insider Unsecured
Claim will receive a pro-rata share of $1.705
million in cash to be distributed only after all
distributions to the Holders of Allowed Class 5
Claims have been made.
The payment of interest on Allowed Insider
Unsecured Claims will be deferred until all Plan
Distributions have been made to Holders of
Allowed Class 5 Claims.
$3,410,000.00 50%
7 All Interests—Common
Stock in Debtor
Common stock in Debtor is cancelled. Holders
of Allowed Interests will receive on account of
their New Equity Contributions 100% of the
stock of the Reorganized Debtor, with each
Insider receiving one-third of the stock.
N/A N/A

Key Players Contact Sheet
(Indicate “N/A” for positions that are not applicable.)
You are strongly encouraged to submit a statement from a representative of each key constituency in the case—
e.g., lenders, unsecured creditors, equity holders—to enable judges to better understand how the turnaround was
viewed by the constituents affected.
CEO
Name Joseph Zeiden
Company Z Gallerie
City, State, Zip, Country Gardena/CA/90249
Fax number (310) 527-2955
E-mail address jzeiden@zgallerie.com
COO
Name N/A
Company
Address
City, State, Zip, Country
Telephone number
Fax number
E-mail address
CRO
Name N/A
Company
Address
City, State, Zip, Country
Telephone number
Fax number
E-mail address
Name Michael Zeiden
Company Z Gallerie
Fax number (310) 527-2955
E-mail address Mzeiden@ZGallerie.com

Key Players Contact Sheet–Page 2
CFO
Name Michael Zeiden
Company Z Gallerie
Fax number (310) 527-2955
E-mail address Mzeiden@ZGallerie.com
Lead Banker
Name Frederick Schmidtt
Company The Sage Group
Address 11111 Santa Monica Boulevard
City, State, Zip, Country Los Angeles/CA/90025
Fax number (310) 478-6619
E-mail address fschmitt@sagellc.com
Primary Attorney
Name Jeffery Dulberg
Company Pachulski Stang Ziehl and Jones, LP
Fax number (310) 201-0760
Name Thomas S Paccioretti
City, State, Zip, Country Newport Beach/CA/92663
Fax number (213) 947-1833
E-mail address tsp@broadwayadvisors.com
Primary Accountant
Name Ronald J. Friedman
Company Stonefield Josephson
Address 2049 Century Park East, Suite 400
Fax number (310) 453-1187
E-mail address rfriedman@sjaccounting.com

Key Players Contact Sheet–Page 3
Name Robert L. LeHane
Company Kelley Drye & Warren LLP
Address 101 Park Avenue
City, State, Zip, Country New York/NY/10178
Fax number (212) 808-7897
E-mail address rlehane@kelleydrye.com
Name Ron Tucker
Company Simon Property Group, Inc.
Address 225 W. Washington Street
City, State, Zip, Country Indianapolis, IN 46204
Fax number (317) 263-7901
E-mail address rtucker@simon.com
Debtors Counsel
Name Jeffery Dulberg
Company Pachulski Stang Ziehl and Jones, LLP
Fax number (310) 201-0760
Lender
Name Robert A. Willner, Esq.
Company Buchalter Nemer, counsel to Wells Fargo, N.A.
Address 1000 Wilshire Blvd., Suite 1500
City, State, Zip, Country Los Angeles, CA 90017-2457
Fax number (213) 630-5607
E-mail address rwillner@buchalter.com
Name Ivan Gold
Company Allen Matkins Leck Gamble Mallory & Natsls LLP,
counsel to Federal Realty Trust Investment
Address Three Embarcadero Center, 12th Floor
City, State, Zip, Country San Francisco/CA/94111-4074
Fax number
E-mail address igold@allenmatkins.com

Entry Deadline: May 3, 2010, 5:00 P.M. Central www.turnaround.org
Information Release Form
Questions or concerns regarding this release may be directed to Donna Steigerwald at 1-312-242-6040 or dsteigerwald@turnaround.org.
Please note: If the person completing the entry form and the nominee are not the same person,
each person must submit an information release form.
To the best of my knowledge, the information provided on the entry form is true and complete. I understand that all
financial information shall remain confidential unless I agree to its release. By submitting this entry, I acknowledge that I
accept the Awards Committee’s decision as final. If I am selected as an award recipient, I hereby authorize the use of the
following (in connection with the TMA Awards Program): my name; my company/organization name; non-financial
information; photographs; video and audio recordings of myself or others related to the award from the awards ceremony
or an alternate source. I agree that no compensation shall be due to me or my company for such usage.
X By placing an “x” in the box to the left and providing my name and the date below, I
indicate my understanding and compliance with the terms of this information release.
Name: Jeffrey Dulberg
Date: May 3, 2010
Award category (Turnaround or Transaction):
Turnaround of the Year – Midsize Company
Award entry (“Nominee for Nominated Company”):
Chapter 11 Reorganization of Z Gallerie

Entry Deadline: May 3, 2010, 5:00 P.M. Central www.turnaround.org
Key Players Confirmation Letter
The award entry must contain at least two completed Key Players Confirmation Letters supporting the nomination from two of the
unrelated key parties in the transaction. The letters must be submitted in this provided format. Key parties are: CEO, COO, CRO,
Chairman of the Board, CFO, Lead Banker, Primary Attorney, Primary Financial Advisor, Primary Accountant, Creditors Committee
Counsel, Chair of the Creditors Committee, Debtors Counsel, Lender, or a Major Unsecured Creditor.
Nominated company: ZGallerie
Award category: Turnaround of the Year – Mid-size Company
I have reviewed the nomination of the company listed above for the TMA award category listed above, and I fully support the
nomination. My role in this turnaround/transaction was as:
Please place a check next to the appropriate descriptor:
CEO
COO
CRO
CFO
Lead Banker
Primary Attorney
Primary Accountant
X Debtors Counsel
Lender
I was and am aware of the many challenges and circumstances of the turnaround/transaction and that the nominee was the principal
architect and/or driving force for this turnaround/transaction. If any member of the TMA Awards Committee has additional questions
or would like to discuss this nomination further, I am willing to be contacted.
X By placing an “x” in the box to the left and providing my name and the date below, I indicate my signature
of this letter.
Printed name: Jeffrey Dulberg
Date: May 3, 2010
X By placing an “x” in the box to the left and providing my name and the date below, I indicate my permission
for TMA to use this application for academic research in its efforts to enhance the practice of corporate
renewal.
Printed name: Jeffrey Dulberg
Date: May 3, 2010

Z Gallerie Historical Financial Statements (000's)
Interim Period Fiscal Years Ended December 31,
3 Months Certified Certified Certified Projected
3/31/2010 Year: 2007 Year: 2008 Year: 2009 Year: 2010
Sales - Gross 30,800$ 223,800$ 195,249$ 133,000$ 121,700$
Returns & Allowances - - - - -
Sales - Net 30,800$ 223,800$ 195,249$ 133,000$ 121,700$
Cost of Goods Sold 13,200 106,142 91,800 67,300 60,200
Gross Profit 17,600$ 117,658$ 103,449$ 65,700$ 61,500$
Gross Profit, % 57.14% 52.57% 52.98% 49.40% 50.53%
Operating Expenses 13,900 116,940 105,700 60,200 56,060
Operating Expenses, % 45.13% 52.25% 54.14% 45.26% 46.06%
Operating Profit 3,700$ 718$ (2,251)$ 5,500$ 5,440$
Operating Profit, % 57.14% 52.57% 52.98% 49.40% 50.53%
Interest Expense 90 650 500 400 300
Other Income (Expense) 60 - - (6,000) -
Other Income (Expense) 30 - - - -
Pre-Tax Income 3,700$ 68$ (2,751)$ (900)$ 5,140$
Plus: Depr & Amor. - - - - -
Net Advances (Payments) on Debt (1,000) - - - -
Less: CAPX - - - - -
Other (see attachment) (2,500) - - - -
Net Cash Flow 200$ 68$ (2,751)$ (900)$ 5,140$
Balance Sheet - Assets
Cash & Equivalents 5,800$ 5,300$ 9,860$ 7,500$ 5,000$
Accounts Receivable 1,100 - 200 - -
Inventory 13,900 30,800 26,300 14,200 12,600
Prepaid Expenses 300 500 700 - -
Deferred Income Taxes - - - - -
Other Current Assets - - 100 1,000 -
Current Assets 21,100$ 36,600$ 37,160$ 22,700$ 17,600$
PP&E - NBV 20,037 43,700 41,300 22,200 21,000
Intangibles - - - - -
Other Assets 3,800 1,000 1,000 3,800 17,000
Other Assets 900 - - - -
Other Assets - - - - 400
Total Assets 45,837$ 81,300$ 79,460$ 48,700$ 56,000$
Balance Sheet - Liabilities
Accounts Payable 6,000$ 21,000$ 14,900$ 15,000$ 10,000$
N/P Bank - - - - -
Accrued/Other Current 18,300 10,500 11,000 6,700 2,000
Income Taxes Payable - - - - -
Current Portion LTD - 4,500 8,500 2,950 3,000
Current Liabilities 24,300$ 36,000$ 34,400$ 24,650$ 15,000$
Long-Term Debt - - - 4,500 3,000
Deferred Taxes - - - - -
Intercompany Loans 1,700 1,570 3,450 2,000 2,000
Other Liabilities 16,500 38,000 40,000 18,000 30,000
Other Liabilities 1,337 730 810 2,550 -
Total Liabilities 43,837$ 76,300$ 78,660$ 51,700$ 50,000$
Book Net Worth 2,000 5,000 800 (3,000) 6,000
Total Liab. & NW 45,837$ 81,300$ 79,460$ 48,700$ 56,000$
Book Net Worth 2,000 5,000 800 (3,000) 6,000
Additions - - - - -
Subtractions - - - - -
Adj.-Tangible N.W. 2,000$ 5,000$ 800$ (3,000)$ 6,000$
Key ratios and metrics
Working Capital (3,200)$ 600$ 2,760$ (1,950)$ 2,600$
Current ratio 0.9 1.0 1.1 0.9 1.2
Debt to Equity 0.9 1.2 14.9 (3.2) 1.3
Number of employees - - - -
Sales per employee NA NA NA NA NA
Days Accounts Receivable 12.85714286 0 0.368759891 0 0
Days Inventory 162.4675325 49.54423592 48.49192569 38.43609023 37.27198028
Days Accounts Payable 163.6363636 71.22533964 58.43137255 80.23774146 59.80066445
Revenue growth -12.8% -31.9% -8.5%
Return on Invested Capital 0 0 0 0 0
Order Backlog -$ -$ -$ -$ -$

ATTACHMENTS
Exhibit A Second Amended Disclosure Statement and Chapter 11 Plan of Reorganization
for Z Gallerie (Dated August 13, 2009)
Exhibit B Recent Awards and Distinctions
Exhibit C New Chapter -- Z Gallerie, Unlike Many Home Furnishings Chains, Has Bounced
Back, Steve McLinden, Retailing Today, March, 2010

PACHULSKISTANGZIEHL&JONESLLP
ATTORNEYSATLAW
LOSANGELES,CALIFORNIA
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98002-002DOCS_LA:206319.9
Jeffrey W. Dulberg (CA Bar No. 181200)
Scotta E. McFarland (CA Bar No. 165391)
Teddy M. Kapur (CA Bar No. 242486)
PACHULSKI STANG ZIEHL & JONES LLP
10100 Santa Monica Blvd., 11th Floor
Los Angeles, California 90067-4100
Telephone: 310/277-6910
Facsimile: 310/201-0760
E-mail: jdulberg@pszjlaw.com
smcfarland@pszjlaw.com
tkapur@pszjlaw.com
Attorneys for Z Gallerie,
Debtor and Debtor in Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re:
Z GALLERIE,
Debtor.
Fed. Tax I.D. No. 95-3733816
Case No.: 2-bk-09-18400-VZ
Chapter 11
SECOND AMENDED DISCLOSURE
STATEMENT AND CHAPTER 11 PLAN OF
REORGANIZATION FOR Z GALLERIE
(DATED AUGUST 13, 2009)
Disclosure Statement Approval Hearing
Date: August 6, 2009
Time: 1:30 p.m.
Place: Courtroom 1368
Edward R. Roybal Federal Building
255 East Temple Street
Los Angeles, California 90012
Judge: Vincent P. Zurzolo
Plan Confirmation Hearing
Date: October 1, 2009
Time: 1:30 p.m.
Place: Courtroom 1368
Edward R. Roybal Federal Building
255 East Temple Street
Los Angeles, California 90012
Judge: Vincent P. Zurzolo
Case 2:09-bk-18400-VZ Doc 315 Filed 08/13/09 Entered 08/13/09 19:58:25 Desc
Main Document Page 1 of 77

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TABLE OF CONTENTS
Page
I INTRODUCTION.........................................................................................................................1
II DISCLAIMER .............................................................................................................................5
III OVERVIEW OF THE PLAN.....................................................................................................7
IV DESCRIPTION OF THE DEBTOR ........................................................................................14
A. Description of the Debtor’’s Past and Future Business...........................................14
B. The Debtor’’s Recent Financial History .................................................................15
C. The Debtor’’s Corporate Structure and Ownership. ...............................................16
D. The Debtor’’s Principal Pre-Petition Secured Indebtedness...................................16
E. The Debtor’’s Other Indebtedness. .........................................................................17
F. The Debtor’’s Management ....................................................................................18
G. Marketing Efforts...................................................................................................19
H. Amendments to Non-Residential Real Property Leases........................................20
V THE DEBTOR’’S CHAPTER 11 CASE....................................................................................20
A. Events Preceding the Chapter 11 Filings...............................................................20
B. Events During the Chapter 11 Case.......................................................................20
1. Retention of Debtor’’s Professionals ..........................................................20
2. Appointment of Committee and Retention of Committee Professionals...21
3. Use of Cash Collateral ...............................................................................21
4. Rejection of Executory Contracts and Unexpired Leases..........................23
5. Summary of Other First Day Orders..........................................................23
6. The Claims Bar Dates................................................................................24
C. Investigation and Analysis of Causes of Action....................................................25
VI THE PLAN OF REORGANIZATION ....................................................................................25
A. Treatment of Unclassified Claims Under the Plan ................................................25
1. Treatment of Administrative Claims .........................................................25
2. Bar Dates for Administrative Claims.........................................................26

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3. Treatment of Priority Tax Claims..............................................................26
B. Classification and Treatment of Claims and Interests Under the Plan ..................27
1. Class 1 (Reclamation Claims)....................................................................28
2. Class 2 (Priority Non-Tax Claims). ...........................................................28
3. Class 3 (CNB Secured Claim). ..................................................................29
4. Class 4 (Other Secured Claims).................................................................29
5. Class 5 (General Unsecured Claims).........................................................31
6. Class 6 (Insider Unsecured Claims)...........................................................32
7. Class 7 (Interests).......................................................................................32
C. Executory Contracts and Unexpired Leases ..........................................................33
1. Assumption of Executory Contracts and Leases .......................................33
2. Rejection of Executory Contracts or Leases..............................................34
D. The Source of Money to Pay Claims.....................................................................34
E. Distribution of Property Under the Plan................................................................35
1. Collateral and Disbursement Agent...........................................................35
2. Timing of Distributions..............................................................................36
3. Compliance with Tax Requirements..........................................................36
4. Manner of Cash Payments .........................................................................36
5. Setoffs ........................................................................................................36
6. De Minimis Distributions...........................................................................37
7. No Distributions With Respect to Disputed, Contingent or
Unliquidated Claims ..................................................................................37
8. Delivery of Distributions ...........................................................................38
9. Undeliverable or Unclaimed Distributions................................................38
F. Objections to and Estimation of Claims ................................................................39
G. Litigation................................................................................................................40
1. Existing and Potential Causes of Action....................................................40
2. Preservation of All Litigation and Causes of Action Not Expressly
Settled and Released ..................................................................................42

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H. The Releases ..........................................................................................................44
VII MODIFICATION AND REVOCATION OF THE PLAN; CONDITIONS TO
CONFIRMATION AND THE EFFECTIVE DATE; REQUEST TO CRAM-DOWN
PLAN.................................................................................................................................45
A. Modification of the Plan ........................................................................................45
B. Revocation of the Plan...........................................................................................46
C. Conditions Precedent to Confirmation...................................................................46
D. The Effective Date.................................................................................................46
E. Conditions to the Effective Date............................................................................47
F. Confirmation Request............................................................................................47
G. Effect of Failure of the Plan to Become Effective.................................................47
VIII EFFECT OF CONFIRMATION OF THE PLAN.................................................................47
A. Binding Effect of Confirmation.............................................................................47
B. Revesting of the Property in the Reorganized Debtor ...........................................48
C. Good Faith .............................................................................................................48
D. Authority to Implement Plan .................................................................................48
E. Discharge and Injunction.......................................................................................48
F. Post-Confirmation Effectiveness of Proofs of Claim ............................................49
G. Post-Effective Date Committee .............................................................................49
H. Reorganized Debtor’’s Reports to the Post-Effective Date Committee..................51
IX OTHER PLAN PROVISIONS.................................................................................................51
A. Corporate Action....................................................................................................51
B. Reorganized Debtor’’s Board of Directors .............................................................52
C. Further Assurances.................................................................................................52
D. Payment of Statutory Fees .....................................................................................52
E. Services by and Fees for Professionals..................................................................52
1. Prior to the Effective Date. ........................................................................52
2. From the Effective Date.............................................................................52
F. Post-Confirmation Status Reports..........................................................................52

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G. No Recourse...........................................................................................................53
H. Severability of Plan Provisions..............................................................................53
I. Entry of a Final Decree..........................................................................................53
J. Governing Law ......................................................................................................54
K. Retention of Jurisdiction........................................................................................54
L. Successors and Assigns..........................................................................................56
M. Saturday, Sunday, or Legal Holiday......................................................................56
N. Headings ................................................................................................................56
X CERTAIN RISK FACTORS TO BE CONSIDERED ..............................................................56
A. Risks that the Debtor Will Have Insufficient Cash for the Plan to Become
Effective.................................................................................................................56
B. Bankruptcy Risks...................................................................................................56
C. Business Risks .......................................................................................................57
1. Industry Conditions....................................................................................58
2. Competition................................................................................................58
3. Seasonality.................................................................................................58
4. Operating....................................................................................................58
XI VOTING PROCEDURES AND REQUIREMENTS ..............................................................59
A. Parties in Interest Entitled to Vote.........................................................................59
B. Classes Impaired and Entitled to Vote Under the Plan..........................................60
C. Vote Required for Acceptance by Classes of Claims ............................................61
XII CONFIRMATION OF THE PLAN........................................................................................61
A. Confirmation Hearing............................................................................................61
B. Who May Object to Confirmation of the Plan.......................................................61
C. Requirements for Confirmation of the Plan...........................................................62
1. Acceptance.................................................................................................62
2. Fair and Equitable Test..............................................................................63
3. Feasibility...................................................................................................64
4. ““Best Interests”” Test ..................................................................................65

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XIII FINANCIAL INFORMATION.............................................................................................66
XIV ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN .....67
XV CERTAIN U.S. FEDERAL AND STATE INCOME TAX CONSEQUENCES OF THE
PLAN.................................................................................................................................67
A. Federal Income Tax Consequences to the Creditors..............................................68
B. Tax Consequences to the Debtor ...........................................................................68
XVI RECOMMENDATION.........................................................................................................69

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Index of Exhibits to Z Gallerie Plan and Disclosure Statement
Exhibit “A” - Definitions for capitalized terms
Exhibit “B” - List of Claims that are deemed Allowed for voting purposes because (i) they are
listed on the Bankruptcy Schedules and are not shown as disputed, contingent or unliquidated or (ii) a proof
of Claim was timely filed to which no objection has yet been filed
Exhibit “C” - Plan Cash Flow Projections
Exhibit “D” - Three types of financial documents, including balance sheets, cash flow statements
and income and expense statements for the period including the most recent twelve-month calendar year and
all months subsequent thereto
Exhibit “E” - List of the officers of the Reorganized Debtor and the proposed salary effective as of
the Effective Date for each
Exhibit “F” - List of the leases of its retail store locations and other designated agreements the
Debtor seeks to assume
Exhibit “G” - Liquidation Analysis
Exhibit “H” - List of the Debtor's Assets as of May 31, 2009
Exhibit “I” - List of the liabilities as of May 31, 2009
Exhibit “J” - Schedule of Source of Funds
Exhibit “K”” Exit Financing Term Sheet Agreement between Debtor and Wells Fargo, National
Association.

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98002-002DOCS_LA:206319.9 vii
IMPORTANT DATES
Date by which Ballots must be received: September 18, 2009, at 5:00 p.m. Pacific Time
Date by which objections to Confirmation of the Plan must be filed and served: September 18,
2009, at 5:00 p.m. Pacific Time
Hearing on Confirmation of the Plan: October 1, 2009, at 1:30 p.m. Pacific Time.
11 U.S.C. § 1125(b) PROHIBITS SOLICITATION OF AN ACCEPTANCE OR REJECTION OF THE PLAN
UNLESS A COPY OF THE PLAN, OR A SUMMARY THEREOF, IS ACCOMPANIED OR PRECEDED BY A
COPY OF A DISCLOSURE STATEMENT APPROVED BY THE BANKRUPTCY COURT. THIS PROPOSED
DISCLOSURE STATEMENT HAS NOT YET BEEN APPROVED BY THE BANKRUPTCY COURT, AND,
THEREFORE, THE FILING AND DISSEMINATION OF THIS PROPOSED DISCLOSURE STATEMENT IS
NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS, AN AUTHORIZED SOLICITATION
PURSUANT TO 11 U.S.C. § 1125 AND RULE 3017 OF THE FEDERAL RULES OF BANKRUPTCY
PROCEDURE. NO SUCH SOLICITATION WILL BE MADE EXCEPT AS AUTHORIZED PURSUANT TO
SUCH LAW AND RULES.
Jeffrey W. Dulberg
Scotta E. McFarland
Teddy M. Kapur
PACHULSKI STANG ZIEHL & JONES LLP
10100 Santa Monica Blvd., 11th Floor
Los Angeles, California 90067-4100
Telephone: 310/277-6910
Counsel to Debtor and Debtor in Possession
Dated: August 13, 2009

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I
INTRODUCTION
Z Gallerie, debtor and debtor in possession herein, filed a bankruptcy petition under chapter
11 of the Bankruptcy Code on April 10, 2009. The document you are reading is both the Debtor’’s
Plan of Reorganization and the Disclosure Statement. The Plan sets forth the proposal of how the
Debtor intends to treat the claims of the Debtor’’s Creditors and Interest Holders. The Disclosure
Statement describes the assumptions that underlie the Plan and how the Plan will be executed. The
Plan and Disclosure Statement contain a number of capitalized terms. The definitions for these
capitalized terms, unless otherwise defined herein, are contained in Exhibit “A” attached hereto.
The Bankruptcy Court has scheduled a hearing on confirmation of the Plan for
October 1, 2009 at 1:30 p.m. Pacific Time at the United States Bankruptcy Court for the
Central District of California, Los Angeles Division, Courtroom 1368, 255 East Temple Street,
Los Angeles, California. Any objections to confirmation of the Plan must be in writing and
filed with the Bankruptcy Court, and served so as to be received by 5:00 p.m. Pacific Time on
September 18, 2009, upon counsel to the Debtor, Pachulski Stang Ziehl & Jones LLP, 10100
Santa Monica Blvd., 11th Floor, Los Angeles, California 90067, Attn: Jeffrey W. Dulberg.
The Disclosure Statement sets forth information (a) regarding the history of the Debtor, its
business, and this chapter 11 case, (b) concerning the Plan and alternatives to the Plan, (c) advising
the Holders of Claims and Interests of their rights under the Plan, (d) assisting the Holders of Claims
and Interests in making an informed judgment regarding whether they should vote to accept or reject
the Plan, and (e) assisting the Bankruptcy Court in determining whether the Plan complies with the
provisions of the Bankruptcy Code, and should be confirmed.
By Order entered August __, 2009 (the ““Disclosure Statement Order””), the Bankruptcy
Court, after notice and a hearing, approved the Disclosure Statement as containing ““adequate
information”” to permit affected Holders of Claims and Interests to make an informed judgment in
exercising their rights to vote to accept or reject the Plan, and authorized its use in connection with
the solicitation of votes with respect to the Plan. THE BANKRUPTCY COURT’’S APPROVAL OF
THIS DISCLOSURE STATEMENT DOES NOT MEAN THAT THE BANKRUPTCY COURT

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RECOMMENDS EITHER ACCEPTANCE OR REJECTION OF THE PLAN. No solicitation of
votes may be made except pursuant to this Disclosure Statement and section 1125 of the Bankruptcy
Code. In voting on the Plan, Holders of Claims should not rely on any information relating to the
Debtor and its business other than that contained in this Disclosure Statement, the Plan, and all
exhibits hereto and thereto.
The Plan is a reorganization plan in that Joseph Zeiden, Carole Malfatti and Michael Zeiden
(the ““Zeidens””), the current owners of 100% of the stock of the Debtor, will reorganize the Debtor’’s
business around a core group of stores. The Zeidens will receive, in exchange for the New Equity
Contribution, 100% of the stock of the Reorganized Debtor and will manage and operate the
Reorganized Debtor. The Plan provides for the payment of the CNB Secured Claim, Administrative
Claims, Priority Tax Claims, valid Reclamation Claims, and Priority Non-Tax Claims in full, in
Cash on the Effective Date of the Plan and for satisfaction of the General Unsecured Claims by
payment of annual installment payments over three years. The Allowed Claims will be satisfied
pursuant to the Plan from Available Cash, cash contributed by the Zeidens, the proceeds of the Exit
Financing arranged by the Debtor and income generated by the Reorganized Debtor. The Court has
not yet confirmed the Plan, which means that the terms of the Plan are not yet binding on anyone.
Only Holders of Claims that are Allowed under section 502 of the Bankruptcy Code or
temporarily allowed for voting purposes under Bankruptcy Rule 3018 and whose Claims are in those
Classes of Claims that are ““impaired”” (as defined in section 1124 of the Bankruptcy Code) under the
Plan (with the exception discussed below) are entitled to vote to accept or reject the Plan. A Claim
is defined by the Code to include a right of payment from the Debtor.
A Claim is Allowed if proof of the Claim is properly filed before the applicable bar date and
no party in interest has objected to the Claim, or if the Court has entered an order allowing the
Claim. Please refer to Section V.B.6 below for specific information regarding the bar dates in this
Case. Under certain circumstances a creditor may have an Allowed Claim even if a proof of claim
was not filed and the applicable bar date for filing the proof of claim has passed. A Claim is deemed
allowed if the Claim is listed on the Debtor’’s Bankruptcy Schedules and is not scheduled as
disputed, contingent or unliquidated. Exhibit “B” hereto contains a list of Claims that are deemed

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98002-002DOCS_LA:206319.9 3
Allowed for voting purposes because (i) they are listed on the Bankruptcy Schedules and are not
shown as disputed, contingent or unliquidated or (ii) a proof of Claim was timely filed to which no
objection has yet been filed.
A Class of Claims is impaired if the legal, equitable, or contractual rights of the Claims in the
Class are altered. Generally, all Holders of Claims that are impaired are entitled to vote on the Plan,
however, Classes of impaired Claims that are not entitled to receive or retain any property under the
Plan are deemed to have rejected the Plan pursuant to section 1126(g) of the Bankruptcy Code and,
therefore, are not entitled to vote on the Plan. Classes of Claims that are not impaired are
conclusively presumed to have voted to accept the Plan pursuant to section 1126(f) of the
Bankruptcy Code and, therefore, are not entitled to vote on the Plan. The following chart
summarizes which Classes of Claims are impaired, which Classes of Claims are not impaired under
the Plan and which Classes are entitled to vote.
CLASS DESCRIPTION
IMPAIRED/
UNIMPAIRED
VOTING
STATUS
Class 1 Reclamation Claims Unimpaired Deemed to
have accepted
Class 2 Priority Non-Tax Claims Unimpaired Deemed to
have accepted
Class 3 CNB Secured Claim Unimpaired Deemed to
have accepted
Class 4 Other Secured Claims Impaired Voting
Class 5 General Unsecured Claims Impaired Voting
Class 6 Insider Unsecured Claims Impaired Voting
Class 7 Interests in Debtor Impaired Voting
To summarize, there are two prerequisites to voting: a Claim must be both Allowed and
impaired under the Plan.
All Holders of Claims, including Holders of Claims in Classes that do not have the right to
vote, have the right to file objections to the Plan if they determine that such objections are warranted.
Also, even if all impaired classes do not accept the Plan, the Plan may nonetheless be confirmed if

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the dissenting class is treated in a manner prescribed by the Code and at least one Class of non-
Insider impaired Claims accepts the Plan. Please refer to Section XII.C.2 below for information
regarding confirmation of the Plan even in the event a class rejects the Plan.
If you are a Holder of a Claim in a Class that is entitled to vote to accept or reject the Plan,
accompanying this Disclosure Statement and Plan is a Ballot for casting your vote on the Plan and a
pre-addressed envelope for the return of the Ballot. BALLOTS FOR ACCEPTANCE OR
REJECTION OF THE PLAN ARE BEING PROVIDED ONLY TO HOLDERS OF CLAIMS IN
CLASSES LISTED IN THE ABOVE CHART WHICH ARE ENTITLED TO VOTE TO ACCEPT
OR REJECT THE PLAN. If you are the Holder of a Claim in such a Class, and (a) did not receive a
Ballot, (b) received a damaged or illegible Ballot, (c) lost your Ballot, or (d) if you are a party in
interest and have any questions concerning the Disclosure Statement, any of the Exhibits hereto, the
Plan, or the voting procedures in respect thereof, please contact the Debtor’’s counsel Jeffrey W.
Dulberg, Esq., Pachulski Stang Ziehl & Jones LLP, 10100 Santa Monica Blvd., Suite 1100, Los
Angeles, California 90067; Telephone: (310) 277-6910; e-mail: jdulberg@pszjlaw.com.
THE DEBTOR RECOMMENDS THAT THE HOLDERS OF CLAIMS IN ALL CLASSES
ENTITLED TO VOTE SUBMIT A BALLOT TO ACCEPT THE PLAN.
VOTING ON THE PLAN, BY EACH HOLDER OF A CLAIM ENTITLED TO VOTE, IS
IMPORTANT. EACH SUCH CLAIM HOLDER SHOULD READ THIS DISCLOSURE
STATEMENT WITH ITS EXHIBITS, INCLUDING THE PLAN, IN ITS ENTIRETY. AFTER
CAREFULLY REVIEWING THESE DOCUMENTS, PLEASE FOLLOW THE DIRECTIONS
FOR VOTING CONTAINED ON THE BALLOT AND RETURN THE BALLOT IN THE
ENVELOPE PROVIDED. TO BE COUNTED, YOUR BALLOT MUST BE RECEIVED BY
SEPTEMBER 18, 2009, AT 5:00 P.M. (THE ““VOTING DEADLINE””) AT THE ADDRESS SET
FORTH ON THE ENCLOSED PRE-ADDRESSED ENVELOPE AND IN YOUR BALLOT.
Votes cannot be transmitted orally, by fax or by e-mail. Accordingly, you are urged to return
your signed and completed Ballot promptly. Ballots not received by the Voting Deadline and
unsigned Ballots will not be counted. Any executed Ballots that are timely received, but that do not

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indicate either an acceptance or rejection of the Plan, shall be deemed to constitute an acceptance of
the Plan.
II
DISCLAIMER
THE DISCLOSURE STATEMENT CONTAINS INFORMATION THAT MAY BEAR
UPON YOUR DECISION TO ACCEPT OR REJECT THE PLAN. PLEASE READ THIS
DOCUMENT WITH CARE. THE PURPOSE OF THE DISCLOSURE STATEMENT IS TO
PROVIDE ““ADEQUATE INFORMATION”” OF A KIND, AND IN SUFFICIENT DETAIL, AS
FAR AS IS REASONABLY PRACTICABLE IN LIGHT OF THE NATURE AND HISTORY OF
THE DEBTOR AND THE CONDITION OF THE DEBTOR’’S BOOKS AND RECORDS, THAT
WOULD ENABLE A HYPOTHETICAL REASONABLE INVESTOR, TYPICAL OF HOLDERS
OF CLAIMS OR INTERESTS OF THE RELEVANT CLASS, TO MAKE AN INFORMED
JUDGMENT CONCERNING THE PLAN. SEE 11 U.S.C. § 1125(a). UNLESS OTHERWISE
INDICATED, THE DATE OF ALL OF THE FINANCIAL INFORMATION PROVIDED IN THIS
DISCLOSURE STATEMENT IS AS OF MAY 31, 2009.
FOR THE CONVENIENCE OF CREDITORS, THIS DISCLOSURE STATEMENT
CONTAINS A SUMMARY OF THE TERMS OF THE PLAN, BUT THE PLAN ITSELF
QUALIFIES ANY SUMMARY. IF ANY INCONSISTENCY EXISTS BETWEEN THE PLAN
AND THE SUMMARY OF THE PLAN CONTAINED IN THE DISCLOSURE STATEMENT,
THE TERMS OF THE PLAN CONTROL.
OTHER THAN AS SET FORTH IN THIS DISCLOSURE STATEMENT, NO
REPRESENTATIONS CONCERNING THE DEBTOR, ITS FINANCIAL CONDITION, OR ANY
ASPECT OF THE PLAN ARE AUTHORIZED BY THE DEBTOR. ANY REPRESENTATIONS
OR INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE OR REJECTION OF THE
PLAN, WHICH ARE OTHER THAN AS CONTAINED IN, OR INCLUDED WITH, THIS
DISCLOSURE STATEMENT, SHOULD NOT BE RELIED UPON BY YOU IN ARRIVING AT
YOUR DECISION.

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98002-002DOCS_LA:206319.9 6
THE FINANCIAL INFORMATION CONTAINED HEREIN, UNLESS OTHERWISE
INDICATED, IS UNAUDITED. THE DEBTOR IS UNABLE TO WARRANT OR REPRESENT
THAT THE INFORMATION CONTAINED HEREIN IS WITHOUT ANY INACCURACIES.
GREAT EFFORT, HOWEVER, HAS BEEN MADE TO ENSURE THAT ALL SUCH
INFORMATION IS PRESENTED FAIRLY.
PACHULSKI STANG ZIEHL & JONES LLP (““PSZJ””) COMMENCED REPRESENTING
THE DEBTOR AND DEBTOR IN POSSESSION IN OR ABOUT JANUARY 2009, AS
GENERAL BANKRUPTCY COUNSEL. PSZJ HAS NOT AT ANY TIME IN THE PAST, NOR
DOES IT PRESENTLY, REPRESENT THE DEBTOR IN A GENERAL WAY, OR IN ANY
OTHER WAY, OTHER THAN AS GENERAL BANKRUPTCY COUNSEL.
PSZJ HAS RELIED UPON INFORMATION PROVIDED BY THE DEBTOR’’S
EMPLOYEES IN CONNECTION WITH PREPARATION OF THIS DISCLOSURE
STATEMENT. ALTHOUGH PSZJ HAS PERFORMED CERTAIN LIMITED DUE DILIGENCE
IN CONNECTION WITH THE PREPARATION OF THIS DISCLOSURE STATEMENT, IT HAS
NOT INDEPENDENTLY VERIFIED THE INFORMATION CONTAINED HEREIN.
THIS DISCLOSURE STATEMENT HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
REGULATORY AUTHORITY HAS ASSESSED THE ACCURACY OR ADEQUACY OF THIS
DISCLOSURE STATEMENT, THE EXHIBITS HERETO, OR THE STATEMENTS
CONTAINED HEREIN.
THE CONTENTS OF THIS DISCLOSURE STATEMENT SHOULD NOT BE
CONSTRUED AS LEGAL, BUSINESS, OR TAX ADVICE. ANY TAX INFORMATION
CONTAINED HEREIN WAS NOT INTENDED TO BE USED, AND IT CANNOT BE USED,
FOR THE PURPOSE OF AVOIDING ANY TAX PENALTIES THAT MAY BE IMPOSED ON
ANY PERSON. THERE IS NO LIMITATION IMPOSED ON ANYONE READING THIS
DISCLOSURE STATEMENT ON DISCLOSURE OF THE TAX TREATMENT OR TAX
STRUCTURE OF ANY TRANSACTION. NOTHING IN THIS DISCLOSURE STATEMENT

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98002-002DOCS_LA:206319.9 7
MAY BE USED OR REFERRED TO IN PROMOTING, MARKETING OR RECOMMENDING A
PARTNERSHIP OR OTHER ENTITY, INVESTMENT PLAN, OR ARRANGEMENT TO ANY
PERSON. ALL CREDITORS AND/OR INTEREST HOLDERS SHOULD CONSULT THEIR
OWN LEGAL COUNSEL AND/OR ACCOUNTANT(S) AS TO LEGAL, TAX, AND OTHER
MATTERS CONCERNING THEIR CLAIMS OR INTERESTS.
III
OVERVIEW OF THE PLAN
The following is a brief overview of the material provisions of the Plan and is qualified in its
entirety by reference to the full text of the Plan. For a more detailed description of the terms and
provisions of the Plan, see Article VI below, entitled The Plan of Reorganization.
As discussed in more detail below, the Debtor, via Available Cash, a cash infusion from the
Zeidens, Exit Financing and the Debtor’’s ongoing sales, will have sufficient funds to make
distributions to Holders of Allowed Claims and permit the Debtor to reorganize its business around a
core group of approximately 55 stores. The Plan designates a series of Classes of Claims and one
Class of Interests, which include all Claims against, and Interests in, the Debtor. These Classes take
into account the differing nature and priority under the Bankruptcy Code of the various Claims and
Interests, as well as the compromises and settlements among the Classes reflected therein. Pursuant
to the Plan, the CNB Secured Claim, Allowed Reclamation Claims, and Allowed Administrative
Claims will be paid in full, in cash, on the Effective Date or when they become Allowed Claims,
whichever is later. Allowed Priority Tax Claims will be paid over a period ending not later than five
(5) years after the Petition Date. Allowed Non-Priority Tax Claims, which, to the Debtor’’s
knowledge, consist of claims for accrued and unused vacation pay1
will be honored in the ordinary
course of the Debtor’’s business. Holders of Allowed General Unsecured Claims will receive a pro-
rata share of $8.045 million in Cash (the ““Maximum General Unsecured Distribution””), paid to the
Escrow Agent in three installments on the following dates: (1) January 1, 2010, (2) January 1, 2011
and (3) January 1, 2012; however, if the Debtor’’s Available Cash and inventory on the Effective
1
The customer deposits and gift card obligations are not included in this Class because the Debtor is providing the
customers with the property purchased in the ordinary course of business and, therefore, under the terms of section
507(a)(7) of the Bankruptcy Code, these obligations are not Non-Priority Tax Claims.

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98002-002DOCS_LA:206319.9 8
Date exceeds the amounts set forth in the Plan Cash Flow Projections, attached hereto as Exhibit
“C”, an amount equal to 50% of that excess will be held in trust and distributed on a pro rata basis
the Holders of the Allowed General Unsecured Claims along with the January 1, 2010 payment and
will be deducted from the amount of the January 1, 2012 payment. On the 46th
day after the
transfers to the Escrow Agent, if no Blockage Period is in effect, the Escrow Agent shall transfer the
applicable Distribution amount plus any interest that has accrued thereon to the
Collateral/Disbursement Agent who will distribute such amount, subject to the amounts necessary to
fund the Post-Effective Date Committee Reserve, on a pro rata basis to the Holders of Allowed
General Unsecured Claims. The Allowed General Unsecured Claims are secured in the amount of
the Maximum General Unsecured Distribution by a lien against all of the Reorganized Debtor’’s
assets that is junior in priority only to any lien securing the Senior Debt; provided, however, that any
lien securing the Senior Debt and the junior lien securing the Maximum General Unsecured
Distribution shall not attach to the Reorganized Debtor’’s leases, leasehold interests or improvements
(i.e. such liens shall attach only to the proceeds of the Reorganized Debtor’’s leases and leasehold
interests).. The Allowed Insider Unsecured Claims are subordinated in payment to the Allowed
General Unsecured Claims and the Holders of the Allowed Insider Unsecured Claims will receive a
pro-rata share of $1.705 million to be distributed only after all Plan distributions to the Holders of
Allowed General Unsecured Claims in Class 5 of the Plan have been made. Allowed Insider
Unsecured Claims shall not receive interest on such claims until payment of all Plan Distributions to
Holders of Allowed General Unsecured Claims are complete. The stock of the Debtor will be
cancelled and the Holders of Allowed Interests in the Debtor will receive the common stock in the
Reorganized Debtor in exchange for their New Equity Contributions. Further, the Plan includes
releases between various parties.
The following table (the ““Plan Summary Table””) summarizes the treatment of Claims and
Interests under the Plan with: (a) the Debtor’’s estimates of the Allowed amount of Claims in each
Class that have not previously been satisfied in the ordinary course of the Debtor’’s business or
pursuant to an Order of the Court, and (b) a description of the treatment provided for in the Plan for
each Class of Claims and Interests. The dollar amounts included in the Plan Summary Table have

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98002-002DOCS_LA:206319.9 9
been estimated by the Debtor as of May 31, 2009, and do not constitute an admission by the Debtor
as to the validity or amount of any particular Claim or Interest. The Debtor reserves the right to
dispute the validity or amount of any Claim or Interest that has not already been Allowed by the
Bankruptcy Court or by agreement of the parties. Accordingly, no representation can be, or is being,
made with respect to whether (a) the estimated Allowed amount of Claims in each Class is accurate,
or (b) the estimated recoveries that will actually be realized by the Holder of an Allowed Claim in
any particular Class.
SUMMARY OF CLAIMS AND INTERESTS UNDER THE PLAN
CLASS CLAIM/INTEREST TREATMENT
ESTIMATED
AGGREGATE
AMOUNT
ESTIMATED
PERCENTAGE
RECOVERY
n/a
Administrative
Claims-- consisting of
accrued and unpaid
Professional Fee
Claims, fees payable
to the Office of the
United States Trustee,
section 503(b)(9)
Claims and other
miscellaneous
Administrative Claims
under section 503(b)
of the Bankruptcy
Code.
Allowed Administrative Claims will
be paid in full on the later of the
Effective Date and the date on which
such Administrative Claim becomes
an Allowed Claim. The Plan
describes the bar dates applicable to
various types of Administrative
Claims.
$3,781,020.00 100%
n/a
Priority Tax Claims--
Allowed Claims of
governmental units
for taxes owed by the
Debtor that are
entitled to priority in
payment pursuant to
section 507(a)(8) of
the Bankruptcy Code.
The Debtor believes
that all Priority Tax
Claims have been paid
pursuant to Order of
the Court
Allowed Priority Tax Claims will be
paid in equal monthly installments
with the first installment being made
on the Effective Date, or when the
Priority Tax Claim becomes an
Allowed Priority Tax Claim,
whichever is later, and last
installment being made on April 10,
2014 as required by 11 U.S.C. §
1129(a)(9)(C). Each payment shall
include interest on the unpaid amount
at the rate set forth in 11 U.S.C. §
511.
$0——The Debtor
believes that all
Priority Tax
Claims have
been paid
pursuant to
previous order
of the Court
100%

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98002-002DOCS_LA:206319.9 10
1
Reclamation Claims An Allowed Reclamation Claim will
be paid in full on the later of the
Effective Date and the date on which
such Reclamation Claim becomes an
Allowed Claim.
$24,917.46 100%
2
Priority Non-Tax
Claims ––consisting of
employee vacation
claims and other
Unsecured Claims
other than
Administrative Claims
and Priority Tax
Claims that are
entitled to priority in
payment pursuant to
section 507(a) of the
Bankruptcy Code. The
Debtor does not
believe that any Claim
based upon a deposit
or gift card is a valid
Priority Non-Tax
Claim because the
property purchased
has been or will be
delivered or provided
in the Debtor’’s
ordinary course of
business. The Debtor
is not aware of any
other Priority Non-
Tax Claims.
The Debtor believes that all such
vacation claims are being or have
been satisfied by the Debtor’’s
honoring its prepetition policies in
the ordinary course of its business
pursuant to previous Order of the
Court. The Debtor intends to object
to any such claim on the grounds that
vacation has either been utilized, will
be utilized or paid to the employee
upon separation from the company in
the ordinary course of business. To
the extent any Allowed Priority Non-
Tax Claims exist, the Debtor shall
pay the Allowed amount of such
Claims on the later of the Effective
Date and the date such Claim
becomes an Allowed Claim.
$234,421.65 100%
3
CNB Secured Claim The CNB Secured Claim will be paid
in full on the later of the Effective
Date and the date on which such
CNB Secured Claim becomes an
Allowed Claim.
$8,531,000.00 100%
4
Other Secured
Claims——consisting of
all Secured Claims
other than the CNB
Secured Claim. The
Debtor is not aware of
any Other Secured
Claims
After the Debtor makes its election as
set forth below, each Holder of an
Allowed Other Secured Claim,
except to the extent that the Holder of
a particular Claim has agreed to a
different treatment, shall receive, at
the election of the Reorganized
Debtor in its sole discretion, one of
the following treatments in full
satisfaction, discharge, exchange and
release of its Allowed Other Secured
Claim:
1. The Reorganized Debtor
shall abandon the collateral
$0, none known 100%

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98002-002DOCS_LA:206319.9 11
securing such Allowed Other
Secured Claim to the Holder
of the Claim in full
satisfaction and release of
such Claim;
shall pay the Holder of the
Allowed Other Secured
Claim cash equal to the
amount of its Allowed Other
Secured Claim, or such lesser
amount to which the Holder
of such Claim shall agree, in
full satisfaction and release
of such Claim;
shall reinstate the Other
Allowed Secured Claim in
compliance with section
1124(2) of the Bankruptcy
Code and shall not otherwise
alter the legal, equitable, or
contractual rights to which
such claim entitles the
Holder;
shall pay the Holder of the
Allowed Other Secured
Claim, on account of such
Claim, deferred Cash
payments, pursuant to section
1129(b)(2)(A)(i)(II) of the
Bankruptcy Code, totaling at
least the Allowed amount of
such Claim, of a present
value, as of the Effective
Date, of at least the value of
such Holder's interest in the
Debtor’’s interest in property
that serves as collateral for
such Claim; or
shall deliver to the Holder of
the Allowed Other Secured
Claim the indubitable
equivalent of such Claim..
5
General Unsecured
Claims——consisting of
all Claims that are not
classified in another
Class under the Plan
Subject to the terms of the
Subordination Agreement and the
Escrow Agreement, each Holder of
an Allowed General Unsecured
Claim will receive a pro-rata share,
based on the amount of the Allowed
General Unsecured Claim, of $8.045
$16,107,017.00 50%

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98002-002DOCS_LA:206319.9 12
million in cash (i.e., the Maximum
General Unsecured Distribution), less
the amount required to fund the Post-
Effective Date Committee Reserve
(defined below), paid in installments,
without interest, as follows: (1) $3.25
million on January 1, 2010, (2) $3.25
million on January 1, 2011 and (3)
$1.545 million on January 1, 2012;
provided, however, if the Cash and
inventory on the Effective Date
exceeds the amounts set forth in the
Plan Cash Flow Projections, an
amount equal to 50% of such excess
shall be held in trust and shall be paid
on a pro rata basis with the January 1,
2010 payment and deducted from the
January 1, 2012 payment. Each of the
above described Distributions shall
be disbursed to the Escrow Agent on
the dates indicated in accordance
with the Terms of the Escrow
Agreement. The account maintained
by the Escrow Agent shall be an
interest bearing account. On the 46th
day after each Distribution is made,
the Escrow Agent shall either (i)
disburse the applicable Distribution
plus accrued interest to the
Collateral/Disbursement Agent if no
Blockage Period is in effect, or (ii) if
a Blockage Period is in effect, return
the applicable Distribution plus
accrued interest to the Reorganized
Debtor, in either case in accordance
with the terms and conditions of the
Escrow Agreement.
The Allowed General Unsecured
Claims are secured by a lien in the
amount of $8.045 million against all
of the Reorganized Debtor’’s assets
that is junior in priority only to any
lien securing the Senior Debt and
cannot be enforced in any manner
whatsoever until such time as the
Senior Debt is Paid in Full; provided
further, that neither the lien securing
the Senior Debt nor the lien securing
the Maximum General Unsecured
Distributions shall attach to the
Reorganized Debtor’’s leases,
leasehold interests or improvements

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98002-002DOCS_LA:206319.9 13
(i.e., such liens shall attach only to
the proceeds of the Reorganized
Debtor’’s leases and leasehold
interests).
The Collateral/Disbursement Agent,
as agent for the Holders of the
Allowed General Unsecured Claims,
will enter into the Subordination
Agreement with Wells Fargo, which
Subordination Agreement will set
forth additional terms and conditions
governing the payment of
Distributions and the priority of the
lien securing the Maximum General
Unsecured Distributions. Each
Holder of an Allowed General
Unsecured Claim agrees to be bound
by the terms and conditions of the
Subordination Agreement as a
““Subordinated Creditor”” thereunder
to the same extent as if a signatory
thereto. The Subordination
Agreement is incorporated herein by
reference.
6
Insider Unsecured
Claims——Unsecured
Claims held by the
Zeidens
Each Holder of an Allowed Insider
Unsecured Claim will receive a pro-
rata share of $1.705 million in cash to
be distributed only after all
distributions to the Holders of
Allowed Class 5 Claims have been
made. The payment of interest on
Allowed Insider Unsecured Claims
will be deferred until all Plan
Distributions have been made to
Holders of Allowed Class 5 Claims.
$3,410,000.00 50%
7
All Interests——
Common Stock in
Debtor
Common stock in Debtor is
cancelled. Holders of Allowed
Interests will receive on account of
their New Equity Contributions
100% of the stock of the Reorganized
Debtor, with each Insider receiving
one-third of the stock.
N/A N/A
THE TREATMENT AND DISTRIBUTIONS PROVIDED TO HOLDERS OF
ALLOWED CLAIMS AND ALLOWED INTERESTS PURSUANT TO THE PLAN ARE IN
FULL AND COMPLETE SATISFACTION OF THE ALLOWED CLAIMS AND ALLOWED

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98002-002DOCS_LA:206319.9 14
INTERESTS ON ACCOUNT OF WHICH SUCH TREATMENT IS GIVEN AND
DISTRIBUTIONS ARE MADE.
IV
DESCRIPTION OF THE DEBTOR
A. Description of the Debtor’s Past and Future Business.
The Debtor, a privately held California corporation, is a leading specialty home furnishing
retailer selling a variety of high-quality, reasonably priced merchandise for the home and office,
including furniture, artwork, lighting, tabletop items, textiles and decorative accessories from around
the world. Z Gallerie was founded in June 1979 by three siblings, Joseph Zeiden, Carole Malfatti
and Mike Zeiden, as a poster shop located in Sherman Oaks, California.
As of the Petition Date, the Debtor was operating 57 retail stores located in 18 states with the
largest concentration of its stores located in the western and southeastern United States. Since the
Petition Date, the Debtor has ceased operations in two additional retail stores, leaving 55 stores (54
locations and 1 outlet) currently operating. Each of the retail stores that remains open contains
approximately 10,000 square feet of merchandise. The Debtor also operates an e-commerce site at
www.zgallerie.com, allowing customers to shop 24 hours a day.
During this Case, as a result of the elimination of the burdensome store and warehouse
locations, the Debtor has streamlined its retail operations. The Debtor and its professionals have
also negotiated various key amendments to certain leases of the Debtor’’s retail store locations
(subject to definitive documentation) that will further reduce the financial burdens on the
Reorganized Debtor. The Debtor has also executed a term sheet regarding the Exit Financing to
support the Reorganized Debtor’’s obligations under the Plan and its post-Effective Date operations.
(See Article VI for more details of the Debtor’’s Plan obligations.) Based upon these measures in
combination with the restructuring of its indebtedness as provided in the Plan, the Debtor believes
that the Reorganized Debtor will be able to successfully operate the remaining retail store locations
and perform under the Plan.

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98002-002DOCS_LA:206319.9 15
B. The Debtor’s Recent Financial History
The Debtor experienced uninterrupted sales growth through 2006 when sales peaked at $236
million out of 74 nationwide locations. Sales decreased 5.6% and 15.2% for the years 2007 and
2008, respectively, and the Debtor’’s net income declined from a $56,530 gain in 2007 to a loss of
$4.7 million in 2008. The sales decline continued in 2009. January 2009 sales decreased to $12.3
million as compared to $15.3 million for the same period a year earlier, which was a decrease of
19.4% and 23.7% when compared to the previous year’’s performance in both total sales and
comparable store sales, respectively. As a result, the Debtor’’s management took several corrective
steps to resize the business to fit the current market environment. These steps included:
Performing an extensive analysis of all store locations, resulting in the closing of 23
locations and rejection of three additional locations under development. These
actions reduced outstanding lease liabilities by $40.5 million. In addition, these
stores were projected to deliver EBITDA losses in excess of $1.3 million on an
annualized basis.
Actively renegotiating lease terms for the remaining 54 retail locations. These efforts
are being achieved through internal and external resources, at a minimum reducing
annual projected rent expenses at the store level from $18.9 million to $11.7 million.
The Debtor is in the process of negotiating definitive documentation memorializing
these lease amendments.
Refocused sourcing, merchandising and pricing efforts to restore gross margins to
historical levels, which were in excess of 50%, resulting in projected EBITDA
improvements of $1.2 million on an annualized basis.
Reduced corporate overhead and expenses through increased efficiency and
rationalization of staff. These efforts resulted in $5.4 million in annualized cost
savings and are expected to increase as additional efficiencies are identified as a
result of the Debtor’’s reduced retail footprint
Attached hereto as Exhibit “D” are three types of financial documents, including balance
sheets, cash flow statements and income and expense statements for the calendar years of 2007

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98002-002DOCS_LA:206319.9 16
(audited) and 2008 (unaudited), for January 1, 2009 through April 9, 2009 and for April 10, 2009
through May 31, 2009 (both unaudited) (collectively, the ““Financial Statements””). The Debtor has
also prepared cash flow projections through the life of the Plan that are attached hereto as Exhibit
“C”. For detailed information about the Debtor’’s financial projections, see Section XII.C.3 below.
C. The Debtor’s Corporate Structure and Ownership.
The Debtor is a privately held California corporation. As of the Petition Date the Debtor was
owned 40% by Joseph Zeiden, 30% by Carole Malfatti and 30% by Michael Zeiden. The Debtor
will remain a California corporation after the Effective Date. In exchange for the New Equity
Contribution, the Zeidens each will receive one-third of the stock of the Reorganized Debtor.
D. The Debtor’s Principal Pre-Petition Secured Indebtedness.
In November 2008, the Debtor renewed its long standing revolving secured financing
arrangement with CNB that provided the Debtor with a line of credit and other accommodations for
financing up to $13 million until January 31, 2009 and $10 million thereafter until April 1, 2009,
when the outstanding amount became due and payable (the ““Revolving Credit Facility””). The
outstanding balance under the Revolving Credit Facility as of the Petition Date was approximately
$10,563,000.00, including approximately $2,063,000.00 held as collateral for various letters of
credit. The Debtor pledged substantially all of its assets to CNB as security for the repayment and
performance of the terms of the Revolving Credit Facility. The Revolving Credit Facility is also
secured by real estate owned by Zeiden Properties, LLC (the members of which are the Zeidens) and
personal guarantees from each of the Zeidens. After the Petition Date, the Debtor entered into a
Cash Collateral Stipulation that was approved by the Court whereby the Debtor is utilizing CNB’’s
cash collateral, pursuant to an agreed upon budget, to operate its business. For more information on
the Cash Collateral Stipulation, see Section V.B.3 below. It also has been paying CNB interest and
account fees. The outstanding balance under the Revolving Credit Facility, therefore, has remained
substantially the same and will be paid in full pursuant to the terms of the Plan.
The Debtor and Wells Fargo, National Association (““Wells Fargo””), have entered into a term
sheet (the ““Term Sheet””) regarding proposed terms of the Debtor’’s Exit Financing. A copy of the
Term Sheet is attached hereto as Exhibit “K”. Such Exit Financing is subject to, among other

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98002-002DOCS_LA:206319.9 17
things, due diligence to be conducted by Wells Fargo and the execution and delivery of a Landlord
Disclaimer and Consent on Wells Fargo’’s standard form (or another form acceptable to Wells Fargo
in its sole discretion) from each of the Reorganized Debtor’’s landlords. The Debtor expects to enter
into a binding Exit Financing agreement with Wells Fargo that formally documents the provisions of
the financing as set forth in the Term Sheet, subject to Court approval as part of the Confirmation
Order. This Exit Financing will be utilized, in part, to pay the Revolving Credit Facility in full.
E. The Debtor’s Other Indebtedness.
As of the Petition Date, the Debtor had approximately $25 million of priority and general
unsecured obligations that were held by approximately 134,000 creditors, including holders of gift
cards that the Debtor has no means to identify and the customers who had made deposits for
purchases. Pursuant to various orders entered by the Court at the beginning of this Case, as
discussed in more detail in Article V below, the Debtor has honored or paid some of these
obligations in the ordinary course of its business and will continue to do so.
On the Petition Date, the Debtor owed approximately $1.6 million of unpaid prepetition
priority taxes (including payroll withholding, FUTA and sales taxes) to 55 taxing authorities.
However, pursuant to the Order Authorizing the Debtor to Pay (i) Prepetition Sales and Use and Similar
Taxes in the Ordinary Course of Business and (ii) Directing Banks and Financial Institutions to Honor and
Process Checks and Transfers Related Thereto (Docket No. 48), the Debtor has paid these taxes in the
ordinary course of its business pursuant to the Tax Order. The Debtor does not believe any amount of
prepetition taxes remains outstanding.
As of the Petition Date, 16,275 customers had deposits of approximately $4.4 million (of
which amount $3.5 million had priority status) and customers held approximately 118,000 gift cards
with an outstanding balance of $5.9 million all of which had priority status. Pursuant to the Order
Authorizing the Debtor to Honor Certain Prepetition Obligations to Customers and to Otherwise
Continue Customer Programs and Practices (Docket No. 44), the Debtor has been honoring these
obligations in the ordinary course of its business and intends to continue doing so. As of May 31,
2009, 15,158 customers had deposits of approximately $1,160,599. In addition, 114,804 gift cards
with an approximate balance of $5,536,633 remained outstanding. Because these obligations,

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98002-002DOCS_LA:206319.9 18
pursuant to section 507(a)(7) of the Bankruptcy Code, are Priority Claims only in the event that the
property purchased is not delivered or provided and the Debtor is providing the purchased property
to the customers in the ordinary course of the Debtor’’s business, these obligations are not included
as Non-Priority Tax Claims under the Plan.
Additionally, approximately $12,576,810 in unsecured claims is held by 26 landlords under
leases that the Debtor has rejected during the course of this Case. The Debtor owed other landlords
approximately $2,957,015.00 for prepetition rent as of the Petition Date, but the Debtor is assuming
the leases related to those Claims and will cure the defaults thereunder. For a list of contracts and
leases to be assumed and the amounts that the Debtor asserts are due to cure defaults under those
contracts and leases, see Exhibit “F”. Further, the Debtor owed its vendors approximately
$2,137,529 as of the Petition Date and that amount remains due.
F. The Debtor’s Management
Joseph Zeiden, the Debtor’’s Chief Executive Officer and President, Michael Zeiden, the
Debtor’’s Chief Financial Officer and Secretary, and Carole Malfatti, the Debtor’’s Senior Vice
President of Merchandising, started the Debtor when they were all young adults. Since that time,
they have jointly operated the business, each holding a variety of positions with the company,
including, but not limited to, purchasing inventory, selling inventory, leasing retail and warehouse
locations, and performing accounting, operational, human resource and information technology
functions.
Today, in addition to overseeing the daily operations of the business, each of the Zeidens
primarily focuses on a different critical component of the Debtor’’s operations: Joseph Zeiden
focuses on all real estate matters including negotiations with landlords, identification of new
locations, and management of tenant improvement projects; Michael Zeiden focuses on all financial
matters including financial reporting, cash management, budget projections and financing; and
Carole Malfatti, who was named one of the 50 most powerful people in fashion and design in Home
Furnishings News’’ ““Fashion 50 List””, outranking such well-known designers as Ralph Lauren,
Tommy Hilfiger and Vera Wang, concentrates on the merchandizing function of the business,
including the identification of merchandise that best reflects the buying habits and style of the

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98002-002DOCS_LA:206319.9 19
Debtor’’s customer base, the procurement of merchandise from local, national and off-shore vendors
and the management of vendor relations. It is anticipated that the Reorganized Debtor’’s
management will be substantially the same as the Debtor’’s.
The Plan places a cap on shareholder compensation equal to two times the current
shareholder salaries, excluding dividends or draws required for tax purposes (Debtor is an S Corp)
and interest on shareholder debt, until all Plan Distributions have been made to Holders of Allowed
General Unsecured Claims. Attached hereto as Exhibit “E” is a list of the officers of the
Reorganized Debtor and the proposed salary effective as of the Effective Date for each. The
amounts shown on Exhibit “E” do not include accrued, unpaid interest on shareholder debt.
Payment of interest on shareholder debt will be deferred until all distributions to Holders of allowed
General Unsecured Claims are made and interest shall not be used to calculate the cap on
shareholder compensation under the Plan.
The Debtor, prior to filing this Case, retained the services of a turnaround consultant,
Broadway Advisors, LLC (““Broadway””), a boutique management consulting firm focused solely on
advising and assisting financially and operationally troubled companies. The firm consists of
seasoned professionals with over fifty years of combined turnaround, restructuring and crisis
management experience. Thomas Paccioretti, a principal and founder of Broadway, and Benjamin
F. Cary, a senior associate, have assisted the Debtor with (among other things) cash flow forecasting,
identification and implementation of cost reduction initiatives, store closure analysis, and the
management and completion of the reorganization process in the Case.
G. Marketing Efforts
The Debtor has been pursuing a ““right-sizing”” strategy to reorganize its business around its
strongest performing stores and eliminate burdensome locations and related assets unnecessary to the
Debtor’’s reorganization. In addition to this effort, the Debtor also engaged an investment banking
firm, The Sage Group, LLC and Sage Partners Securities, LLC (““Sage””), in March, 2009 to assist the
Debtor in pursuing a sale of substantially all of its assets as a going concern. Sage contacted more
than 114 parties regarding a potential sale transaction, and indications of interest and letters of intent

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have been submitted by only two potential going concern buyers and two liquidators at valuations
below expectations.
H. Amendments to Non-Residential Real Property Leases
The Debtor and its professionals have negotiated amendments to various of the Debtor’’s
leases of its retail store locations. The Debtor is in the process of documenting these amendments.
In each case, the amendments provide for reduced lease obligations for the Debtor. The Debtor
seeks to assume each of the leases of its retail store locations and other designated agreements as set
forth on Exhibit “F”.
V
THE DEBTOR’S CHAPTER 11 CASE
A. Events Preceding the Chapter 11 Filings
The Debtor experienced a severe drop in sales beginning in 2006, with this decline
accelerating in the last quarter of 2008 and continuing unabated in the first quarter of 2009.
Competitive pricing pressures in the Debtor’’s business sector –– retail home furnishings ––
due to wide-spread promotional activity and ““going out of business”” sales, the maturity of the
Revolving Credit Facility and the continued decline of the economy in general put further pressure
on the Debtor’’s business, making it necessary for it to seek protection under chapter 11 of the
Bankruptcy Code.
B. Events During the Chapter 11 Case
1. Retention of Debtor’’s Professionals
Prior to the commencement of the Case, the Debtor retained PSZJ as bankruptcy counsel and
Broadway Advisors, LLC as its financial advisor. The Bankruptcy Court approved the retention of
those professionals effective as of the Petition Date, pursuant to orders entered on May 1, 2009
(Docket Nos. 81 and 83, respectively).
The Debtor also has retained (i) The Abernathy McGregor Group, Inc. as its corporate
communications consultant, approved by Order of the Bankruptcy Court entered May 1, 2009
(Docket No. 82); (ii) The Sage Group LLC, and Sage as investment bankers, approved by Order of
the Bankruptcy Court entered May 4, 2009 (Docket No. 91); (iii) Retail Consulting Services, Inc.

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d/b/a RCS Real Estate Advisors as real estate advisor, approved by Order of the Bankruptcy Court
entered May 4, 2009 (Docket No. 92); (iv) Salmon, Lewis & Weldon, PLC as special real estate
counsel, approved by Order of the Bankruptcy Court entered June 5, 2009 (Docket No. 158); and (v)
Omni Management Group, LLC as claims and noticing agent, approved by Order to the Bankruptcy
Court entered April 14, 2009 (Docket No. 38).
2. Appointment of Committee and Retention of Committee Professionals
On May 4, 2009, the United States Trustee formed the Official Committee of Unsecured
Creditors (the ““Committee””) to represent the interest of the general unsecured creditors of the Estate,
and appointed four (4) members thereto: (i) Simon Property Group, Inc., (ii) Oakbrook Shopping
Center, LLC, (iii) World Wide Fabric, Inc., and (iv) Portfolio Productions, Inc. dba Sitcom. Since
the formation of the Committee, the Debtor has consulted extensively and cooperated with the
Committee concerning various aspects of the Case. The Committee has employed (i) Kelley Drye &
Warren LLP as its bankruptcy counsel, approved by the Bankruptcy Court by Order entered June 23,
2009; (ii) Landsberg Margulies LLP as its local California and conflicts counsel, approved by the
Bankruptcy Court by Order entered June 22, 2009; (iii) and Scouler & Company LLC as its financial
advisor, as approved by the Bankruptcy Court by Order entered July 7, 2009.
3. Use of Cash Collateral
At the commencement of the Case, as a result of discussions between the Debtor and CNB,
the parties entered into the Stipulation Between Creditor City National Bank and Debtor-in-
Possession Z Gallerie re Interim Use of Cash Collateral (the ““Initial Stipulation””) (Docket No. 8).
The Court approved the Debtor’’s use of CNB’’s cash collateral in accordance with the Initial
Stipulation, on a short term basis, pursuant to the Interim Order Granting Emergency Motion of
Debtor (A) Authorizing Use of Cash Collateral Pursuant to Stipulation, (B) Granting Adequate
Protection for Use of Prepetition Collateral, and (C) Granting Related Relief entered by the Court
on April 15, 2009 (the ““Interim Cash Collateral Order””) (Docket No. 43).2
2
The Debtor and CNB entered into an (Amended) Stipulation Between Secured Creditor City National Bank and
Debtor-in-Possession Z Gallerie Re Use of Cash Collateral (the ““Stipulation””) in connection with the Interim Cash
Collateral Order.

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