10000014606

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KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 AVENUE OF THE STARS, 39TH FLOOR LOS ANGELES, CALIFORNIA 90067-6049 TELEPHONE: (310) 407-4000
LEE R. BOGDANOFF (State Bar No. 119542) JONATHAN S. SHENSON (State Bar No. 184250) DAVID M. GUESS (State Bar No. 238241) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 Proposed Bankruptcy Counsel for Debtors and Debtors In Possession Debtors' Mailing Address 3411 N. Perris Blvd. Perris, CA 92571 National R.V. Holdings, Inc.'s Tax I.D. #XX-XXX-1079 National R.V., Inc.'s Tax I.D. #XX-XXX-5022 UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; NATIONAL R.V., INC., a California corporation, Debtors. MOTION PURSUANT TO LOCAL BANKRUPTCY RULE 2081-1(g) FOR ORDER DIRECTING JOINT ADMINISTRATION OF RELATED CASES UNDER BANKRUPTCY RULE 1015(b); MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF Hearing Date: Time: Place: December 12, 2007 1:30 p.m. Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501-3819 Case No.: 6:07-17941-PC Case No.: 6:07-17937-PC Chapter 11
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TO THE HONORABLE PETER H. CARROLL, UNITED STATES BANKRUPTCY JUDGE; THE OFFICE OF THE UNITED STATES TRUSTEE; THE DEBTORS' TWENTY LARGEST UNSECURED CREDITORS; THE DEBTORS' SECURED LENDERS; AND OTHER PARTIES IN INTEREST: National R.V. Holdings, Inc., a Delaware corporation ("NRVH"), and National R.V., Inc., a California corporation ("NRV", and collectively, the "Debtors"), hereby move this Court, pursuant to Local Bankruptcy Rule ("LBR") 2081-1(g), for entry of an order under Rule 1015(b) of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules") authorizing and directing joint administration of their chapter 11 cases listed in the foregoing caption (the "Motion"). The basis for the relief requested in the Motion is set forth below and in the Declaration of Thomas J. Martini in Support of First-Day Motions, which is being filed concurrently with this Motion and is incorporated herein by reference. Jointly administering the Debtors' estates will eliminate unnecessary and expensive duplication of effort by the Debtors, their professionals, their creditors, parties in interest, and this Court. If these cases are not jointly administered, parties filing papers with this Court will have to prepare multiple sets of papers that will often be identical but for the captions. Moreover, many of the Debtors creditors will unnecessarily receive multiple copies of the papers. Joint administration will avoid such problems. Pursuant to this Motion and consistent with LBR 2081-1(g), the Debtors request joint administration only, not substantive consolidation. For example, the Debtors request that this Court maintain a joint pleadings docket, approve a joint pleadings caption, and permit the Debtors to combine notices to creditors.
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Motion For Joint Administration
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WHEREFORE, the Debtors respectfully request that the Court enter an order granting this Motion in its entirety, and: (1) authorizing and directing the joint administration of the Debtors' chapter 11 cases under the case number for National R.V. Holdings, Inc.; (2) approving the form of joint caption annexed hereto as Exhibit 1; and (3) granting such other relief as this Court deems necessary and appropriate. DATED: December 10, 2007 /s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Proposed Bankruptcy Counsel for Debtors and Debtors in Possession
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MEMORANDUM OF POINTS AND AUTHORITIES I. STATEMENT OF FACTS A. General Background.
The Debtors commenced these cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code on November 30, 2007 (the "Petition Date"). The Debtors filed these cases in order to conduct an orderly disposition of their assets, and to maximize the value of those assets for the benefit of the economic stakeholders of their estates. The Debtors' principal business is the manufacture and distribution of recreational vehicles ("RVs") throughout the United States and Canada. Since 1964, from their Perris, California facility, the Debtors have designed, manufactured, and marketed some of the industry's highest quality "Class A" gas and diesel RVs across several branded product lines, including Dolphin, Pacifica, Sea Breeze, Surf Side, Tradewinds, and Tropi-Cal. As of the Petition Date, the Debtors were the ninth largest manufacturer of "Class A" motor homes in the country. Prior to commencing these cases, the Debtors explored a variety of approaches to their continuing liquidity crisis, including a sale, a sale of certain underperforming assets, and the infusion of new equity capital. Despite many efforts, it became increasingly clear that the Debtors simply could not continue to operate for any extended period of time. As a result, the Debtors determined they had no choice other than to pursue an orderly liquidation of their assets. To that end, after having conducted substantial "reductions in force," resulting in more than a 90% reduction of their work force, they commenced these cases. The objective of these cases is to maximize value as quickly as possible. This likely will be accomplished through an orderly disposition of the Debtors' assets for the best price. The Debtors believe that value for the benefit of creditors and, with perseverance, shareholders, can be derived from primarily three sources: (a) the successful prosecution of the Kemlite
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Litigation;1 (b) the orderly sale of inventory, both finished and unfinished motor homes, parts and replacements, and other valuable items on hand; and (c) the collection of accounts receivable, general intangibles (including intellectual property) and other assets. Before the filing, and during the brief period since these cases were commenced, the Debtors' efforts have been directed toward maximizing their recovery from these assets. As noted, while the Debtors conducted a substantial reduction in force prepetition, the Debtors have nonetheless maintained a skeletal staff comprised of key employees, many of whom have
important relationships with dealers and their flooring lenders, vendors, and customers. These relationships should prove to be invaluable to the Debtors as they proceed with an orderly disposition of their assets. Indeed, specific work teams already have been organized to
coordinate the liquidation efforts, to work with dealers, and to address customer concerns.
Additional information concerning the Debtors, their operations, their turnaround efforts, and the commencement of these cases, can be found in the Declaration of Thomas J. Martini in Support of First-Day Motions, on file with the Court. B. The Affiliated Entities.
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These cases are suitable for joint administration for several reasons. First, the Debtors are affiliates as defined by Bankruptcy Code section 101(2) and Bankruptcy Rule 1015(b). NRVH is the direct parent of NRV. The Debtor entities share common management and ultimately the same ownership. The affairs of the two Debtor entities are centrally managed by the same management team and corporate staff, and their financial activities are accounted for on a consolidated basis. There is also some overlap in the creditor bodies of the two Debtors. If these estates are jointly administered, creditors will receive joint notices of the matters involving each of the affiliated entities, thereby ensuring that creditors are
1
In June 2006, NRV commenced a multi-million lawsuit against Crane Composites, Inc. and its parent company for breach of contract, breach of warranty, misrepresentation and other causes of action. The lawsuit seeks both compensatory and punitive damages. This matter is now pending before District Judge Stephen G. Larson in the U.S. District Court for the Central District of California, and is scheduled to go to trial in Riverside in January 2008. At a hearing held before District Judge Larson on December 1, 2007, the Court reaffirmed that trial would start in January. The Debtors believe that this action represents a valuable asset of the estates and are eager to proceed to trial.
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fully informed of all matters potentially affecting their claims. It is almost certain that many (if not all) of the motions filed in these cases will concern both NRVH and NRV. If these cases are not jointly administered, parties filing papers with this Court will have to prepare multiple sets of papers that will often be identical but for the captions. Moreover, many of the Debtors' creditors will unnecessarily receive multiple copies of the papers. expensive duplication. In short, jointly administering these related cases will expedite the Debtors' cases and reduce their expense without prejudicing any creditor's substantive rights. Creditors will receive a joint notice of all matters that affect multiple entities and will only have to refer to a single docket, thereby ensuring that they are fully informed of matters that potentially affect their claims. The earlier the Debtors can implement these streamlined procedures, the greater the savings to the Debtors' estates and their creditors. C. The Scope of Joint Administration. Joint administration will avoid such unnecessary and
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The Debtors propose that all pleadings relating to these cases shall bear a joint caption substantially in the form attached as Exhibit 1 to this Motion, and that the Debtors be permitted to combine notices to parties in interest of matters affecting multiple Debtors. The Debtors request that the Clerk of the Court file and maintain all of the pleadings filed in these cases under the docket for National R.V. Holdings, Inc. Nothing contained in this Motion is intended to request or compel substantive consolidation of these estates. This Motion requests only joint administration of the estates. Therefore, the relief requested in this Motion will not prejudice any entity's substantive rights and will result in no conflicts. If the Debtors conclude that substantive consolidation of these estates is warranted, the Debtors will bring a separate motion in this Court requesting such relief.
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II. ARGUMENT A. Joint Administration Of These Cases Will Yield Substantial Administrative Benefits.
Bankruptcy Rule 1015 states that joint administration may be appropriate when two or more related debtor entities whether spouses, partnerships, or corporations have filed for protection under the Bankruptcy Code: (b) Cases Involving Two or More Related Debtors. If a joint petition or two or more petitions are pending in the same court by or against . . . a debtor and an affiliate, the court may order a joint administration of the estates . . . . (c) Expediting and Protective Orders. When an order for . . . joint administration of a joint case or two or more cases is entered pursuant to this rule, while protecting the rights of the parties under the Code, the court may enter orders as may tend to avoid unnecessary costs and delay.2 Bankruptcy Rule 1015 promotes the efficient and economical administration of affiliated debtors' related cases while also ensuring that individual creditor's rights are not unduly prejudiced.3 As stated in the Official Committee Note, joint administration expedites cases and reduces their overall cost: Joint administration . . . may include combining the estates by using a single docket for the matters occurring in the administration, including the listing of filed claims, the combining of notices to creditors of the different estates, and the joint handling of other purely administrative matters that may aid in expediting the cases and rendering the process less costly.4 Joint administration and substantive consolidation differ significantly. In substantive consolidation, assets and liabilities are pooled, and generally, the separate entities' creditors
2 3
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4
Fed. R. Bankr. P. 1015(b) (c). See 9 COLLIER ON BANKRUPTCY 1015.03 (15th ed. 2005); see also In re Brookhollow Assocs., 435 F. Supp. 763, 766 (D. Mass. 1977) (joint administration "help[s] the bankruptcy court to administer economically and efficiently different estates with substantial interests in common"), aff'd, 575 F.2d 1003 (1st Cir. 1978); In re N.S. Garrott & Sons, 63 B.R. 189, 191 (Bankr. E.D. Ark. 1986). Fed. R. Bankr. P. 1015 (Committee Note 4).
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share pro rata in the estates' aggregate net value.5 Joint administration, however, is merely procedural; it has no impact on creditors' substantive rights.6 Thus, joint administration does not in itself prejudice any creditor's rights. Joint administration is warranted in these cases. By definition, the Debtors are
affiliates under Bankruptcy Code section 101(2) and Bankruptcy Code section 1015(b), and are closely related entities that share ultimate ownership. As stated above, NRV is a wholly owned subsidiary of NRVH. Additionally, the Debtor entities share common management and ultimately the same ownership. The affairs of the two Debtor entities are centrally managed by the same management team and corporate staff, and their financial activities are accounted for on a consolidated basis. There also is also some overlap in the creditor bodies of the two Debtors. If these cases were administered separately, each Debtor would need to provide the same creditors with duplicate copies of many of the same notices and motions in these cases. This unnecessary duplication would be costly without creating any
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counterbalancing benefit for creditors. Joint administration will greatly reduce the cost of administering these cases and will eliminate the substantial confusion and waste that would otherwise be created by maintaining separate dockets. In many instances, the only material differences between each set of pleadings that would be filed in these cases would be in the captions. Matters affecting one estate may often affect the other. Requiring each of the debtor entities to file separate pleadings in each matter will entail considerable duplication at substantial cost. This
duplication would not generate any additional benefit to stakeholders. To the contrary, it would impose an unnecessary burden on the estates, the stakeholders, the Court, and the Clerk of the Court. B. Joint Administration Will Not Prejudice Any Creditors.
There will be no material prejudice to creditors if these estates are jointly

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6
See In re Standard Brands Paint Co., 154 B.R. 563 (Bankr. C.D. Cal. 1993); In re I.R.C.C., Inc., 105 B.R. 237, 241 (Bankr. S.D.N.Y. 1989). N.S. Garrott, 63 B.R. at 191; In re Arnold, 33 B.R. 765, 767 (Bankr. E.D.N.Y. 1983).
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administered.
As discussed above, joint administration would benefit all creditors by
substantially reducing costs and administrative burdens in general. III. CONCLUSION WHEREFORE, the Debtors respectfully request that the Court enter an order granting this Motion in its entirety, and: (1) authorizing and directing the joint administration of the Debtors' chapter 11 cases under the case number for National R.V. Holdings, Inc.; (2) approving the form of joint caption annexed hereto as Exhibit 1; and (3) granting such other relief as this Court deems necessary and appropriate. DATED: December 10, 2007 /s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Proposed Bankruptcy Counsel for Debtors and Debtors in Possession
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KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 AVENUE OF THE STARS, 39TH FLOOR LOS ANGELES, CALIFORNIA 90067 TELEPHONE: (310) 407-4000
LEE R. BOGDANOFF (State Bar No. 119542) JONATHAN S. SHENSON (State Bar No. 184250) DAVID M. GUESS (State Bar No. 238241) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, 39th Floor Los Angeles, California 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 Proposed Bankruptcy Counsel for Debtors and Debtors In Possession Debtors' Mailing Address 3411 N. Perris Blvd. Perris, CA 92571 National R.V. Holdings, Inc.'s Tax I.D. #XX-XXX-1079 National R.V., Inc.'s Tax I.D. #XX-XXX-5022
UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; NATIONAL R.V., INC., a California corporation, Debtors. DECLARATION OF THOMAS J. MARTINI IN SUPPORT OF FIRST-DAY MOTIONS Hearing Date: Time: Place: December 12, 2007 1:30 p.m. Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501-3819 Case No.: 6:07-17941-PC Case No.: 6:07-17937-PC Chapter 11
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I, Thomas J. Martini, declare as follows: I. DECLARANT'S BACKGROUND 1. I am the Chief Financial Officer and Treasurer of National R.V. Holdings, Inc.,
a Delaware corporation ("NRVH"), and the Chief Financial Officer and Treasurer of National R.V., Inc., a California corporation ("NRV"). NRVH and NRV (together, the "Debtors") are debtors and debtors in possession in the above-captioned chapter 11 cases. 2. In these capacities, and in conjunction with the efforts of other members of the
Debtors' senior management, I am involved on a day-to-day basis with all aspects of the Debtors' affairs, including business operations, strategic planning, financial reporting, human resources, legal affairs and other management activities, including the Debtors' efforts to address their current financial difficulties. 3. As a consequence, I review and work extensively with the books and records of
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the Debtors, including their business plans, financial statements and projections, business analyses and reports, contracts and other legal documents, notes and correspondence and the like. On a regular basis, I witness and/or participate in negotiations with lenders, vendors and other creditors of the Debtors, and have worked closely with personnel from all aspects of the Debtors' business operations. 4. Based upon all of the foregoing, I have developed an intimate familiarity with:
(a) the Debtors' books and records, which are maintained in the ordinary course of business under my supervision and control as custodian (and under the control of other members of senior management), (b) the Debtors' business and financial history, and their current business and financial situation, and (c) the financial and operational details of the Debtors' business operations, and (d) the recreation vehicle industry generally. 5. I hold a B.S. in accounting from Pennsylvania State University. I am a certified
public accountant and a member of the AICPA. I began working in the recreation vehicle industry nearly 30 years ago. From 1978 to 1984, I served as a controller for Coachmen
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Industries, Inc ("Coachmen"), which manufactures recreational vehicles ("RVs"), travel trailers, camping trailers, single family homes and multi-family residential structures, distributes to over 500 dealerships throughout the United States, and sells products directly from its companyowned dealership under such brand names as Coachmen, Georgie Boy, Sportscoach, Adrenaline, and Viking. From 1986 to 2001, I worked for Starcraft Industries, Inc. and Miller Building Systems, Inc. where I served as Chief Financial Officer for both companies. In 2001, I returned to Coachmen, where I assumed the role of Vice President and Treasurer. In 2004, I joined the Debtors as Treasurer and in 2005 I assumed the additional position of Chief Financial Officer. 6. Except as otherwise stated herein, if called as a witness, I could and would
competently testify to the matters set forth herein from my own personal knowledge. II. THE EMERGENCY MOTIONS 7. I submit this Declaration in support of the Debtors' motions for "first-day,"
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1
emergency relief with respect to: (a) use of cash collateral, (b) maintenance of the Debtors' bank accounts and cash management system, (c) utility services and the provision of adequate assurance of payment, (d) joint administration of the Debtors' cases, (e) an extension of the time for the Debtors to file their schedules of assets and liabilities and statements of financial affairs, and (f) the establishment of notice procedures and limiting notice in these cases.1 III. COMPANY BACKGROUND A. 8. General Background. The Debtors commenced these cases by filing voluntary petitions for relief
under chapter 11 of the Bankruptcy Code on November 30, 2007 ("Petition Date"). The Debtors filed these cases in order to conduct an orderly liquidation of their assets, and to maximize the
In addition, the Debtors are also moving for an order authorizing them to implement a severance plan that will cover all full-time employees, including insiders of the Debtors, which will be supported by a separate declaration by David J. Humphreys, the interim Chief Executive Officer of the Debtors and the Chairman of the Board of Directors for NRVH, who is not included in the proposed severance plan.
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value of those assets for the benefit of the economic stakeholders of their estates. 9. The Debtors consist of two entities: NRVH and NRV. NRVH is a holding
company whose principal asset is 100% of the equity in NRV, and NRV the operating entity.2 10. The Debtors' principal business is the manufacture and distribution of RVs
throughout the United States and Canada. Since 1964, from their Perris, California facility, the Debtors have designed, manufactured, and marketed some of the industry's highest quality "Class A" gas and diesel motor homes across several branded product lines, including Dolphin, Pacifica, Sea Breeze, Surf Side, Tradewinds, and Tropi-Cal. Over the last three years, the Debtors manufactured and distributed over 1,500 RVs annually, and currently are the ninth largest manufacturer of "Class A" motor homes in the country. "Class A" motor homes, such as those manufactured and distributed by the Debtors, resemble oversized buses. They are
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typically 29 to 40 feet long, have several slide-outs, and include state-of-the-art appliances. The Debtors' current dealership network is comprised of approximately 75 dealer locations in 30 states and 5 Canadian provinces. 11. The Debtors are headquartered in Perris, California, approximately 20 miles
southeast of Riverside. In Perris, the Debtors essentially have two operating facilitiesone on each side of Perris Boulevard, comprised of 607,000 square feet in five buildings and on 49 acres. In addition, NRV owns premises in Lakeland, Florida, where the Debtors operate a service center. Prior to the Debtors' recent "reductions in force" just prior to the Petition Date, which are described below, the Debtors employed roughly 676 people in Perris and 18 people in Lakeland.
NRVH historically provided and continues to provide certain services to NRV. Among other things, NRVH is responsible for procuring legal and other administrative type services for itself and NRV (the cost of which NRVH allocates between itself and NRV, based on which entity benefited from the services). NRVH also provides certain engineering and product marketing services to NRV. The obligations of NRV to NRVH are denoted on the Debtors' books and records as intercompany payables and receivables, respectively.
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B. 12.
The Debtors' Capital Structure. Based on the Debtors' unaudited, consolidating balance sheet, as of September
30, 2007, on a consolidated basis, the Debtors' assets totaled approximately $53.4 million at book value, including: (a) net property, plant and equipment of approximately $5.5 million, (b) inventories of approximately $23.9 million, (c) accounts receivable of approximately $8.5 million, (d) cash and cash equivalents of approximately negative $1.8 million, (e) restricted cash in the amount of approximately $0.4 million, (f) other assets (including deposits) of approximately $1.0 million, and (g) prepaid goods and services of approximately $0.8 million. 13. Based on the Debtors' unaudited, consolidating balance sheet, as of September
30, 2007, on a consolidated basis, the Debtors' liabilities included totaled approximately $35.5 million at book value, including: (a) approximately $11.3 million in prepetition accounts payable, (b) approximately $8.6 million in accrued expenses, (c) approximately $1.3 million in other current liabilities, and (d) approximately $14.3 million in long-term liabilities. 1. Secured Debt. a. 14. Wells Fargo Bank, N.A.
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Wells Fargo Bank, N.A. ("Wells Fargo") is the Debtors' principal secured
creditor. The Debtors are parties to that certain Credit Agreement, dated as of August 12, 2005, with UPS Capital Corp. ("UPS"), as agent and a lender, and Wells Fargo, as a lender (as amended, restated, supplemented and modified from time to time, the "Prepetition Credit Agreement", and together with any and all agreements, documents and instruments entered into or executed in connection therewith, the "Prepetition Loan Documents"). UPS subsequently assigned all of its rights, title, and interest in the Prepetition Loan Documents to Wells Fargo. As such, Wells Fargo currently is the agent and the sole lender. 15. Through the Prepetition Credit Agreement, the Debtors obtained a revolving line
of credit originally in the amount of $25 million, and now in the amount of $15 million inclusive
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of a $7.5 million letter of credit sub-facility.3 Prepetition, the amount available to the Debtors under the revolving line of credit facility was determined by a borrowing base formula that in turn was based on the amount of "eligible" accounts receivable and inventory on hand.4 The obligations to Wells Fargo under the Prepetition Loan Documents are secured by a security interest in and lien upon all or substantially of the Debtors' personal property. (Wells Fargo does not have a security interest in, inter alia, the land that NRV owns in Lakeland, Florida.)5 The non-default rate of interest was "prime" plus 1.5%. 16. Prepetition, Wells Fargo swept the Debtors' cash from operations daily and, as a
result, as of the Petition Date, the Debtors only had cash on hand in the approximate amount of $968,000. As of the Petition Date, approximately $9.5 million of principal was outstanding under the Prepetition Loan Documents, including approximately $7.155 million in outstanding letters of credit,6 and approximately $2.35 million under the revolver (which includes interest accrued through the Petition Date and a $150,000 early termination fee). Since the Petition Date, approximately an additional $200,000 has been remitted to the Debtors' accounts. b. 17. Other Potentially Secured Debt.
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Several of the Debtors' prepetition vendors may hold security interests in certain
raw materials and other inventory items provided to the Debtors for the manufacture of RVs, namely chassis (i.e., the frame, wheels, and machinery of a motor vehicle, on which the body is supported). As of the Petition Date, the Debtors' liability on their inventory of chassis was
In previous amendments, the loan commitment amount was adjusted above the original loan commitment amount of $25 million up to as high as $40 million. The Debtors' access to liquidity under the line was further constrained by having to limit the amount of obligations outstanding to no more than a daily average of $10 million in order to avoid triggering an event of default due to their failure to meet certain EBITDA performance covenants. On June 4, 2004, NRV purchased certain real estate located at 8030 Highway 98 N. in Lakeland, Florida for $850,000. The Debtors believe this property to be unencumbered. The letters of credit support the Debtors' certain workers' compensation obligations and obligations under the Perris Leases.
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estimated to be approximately $6.3 million.7 In addition, the Debtors have certain limited capital lease obligations (i.e., covering photocopiers). 2. 18. Other Debt.
Based upon the a review of the Debtors' books and records, including the
Debtors' unaudited, consolidating balance sheet, as of September 30, 2007, on a consolidated basis, the Debtors' unsecured debt as of the Petition Date included the following: a. approximately $11.4 million in accounts payable, approximately
$0.7 million in accrued sales incentives, approximately $1.0 million in other accrued expenses, and approximately $0.5 million in deferred long-term compensation (for a total of approximately $13.6 million); b. c. d. approximately $3.8 million in estimated warranty liability; approximately $1.7 million in accrued expenses and taxes; and approximately $0.1 million in long term debt.
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7
Other possible unsecured claims include potential reclamation claims and workers' compensation claims (to the extent that actual liabilities exceed the amounts of the letters of credit and security deposits that the Debtors have posted to secure those claims), among others. 3. 19. Equity.
NRVH has issued and outstanding 10,339,484 shares of common stock.
Approximately half of the NRVH common stock is held by roughly a half-dozen individual investors and institutions. The Debtors' executive officers and directors collectively hold
approximately 3% of the NRVH common stock. NRVH has also issued and outstanding 4,000 shares of preferred stock. These preferred shares are not entitled to receive any dividends, the preferred stock has no voting rights, the preferred stockholders are entitled to a liquidation preference of $0.01 per share, and the preferred stock is redeemable at the sole discretion of
The Debtors are in the process of determining whether, and to what extent, any of the tangible, personal property in their possession is actually owned by third parties. By way of example, it may be the case that certain vendors which provided the Debtors with chassis, which have not been utilized in production, still hold legal title to such assets. It is the Debtors intention to return such property to their rightful owners.
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NRVH. As of the Petition Date there were outstanding options with respect to a total of approximately 1,311,965 shares of NRVH's common stock that had been granted. 20. NRV has issued and outstanding 100 shares of common stock. One-hundred
percent of the issued and outstanding NRV stock is held by NRVH. C. 21. The Events Leading to The Present Chapter 11 Cases. The Debtors operated successfully for many years. The year 2004, however,
marked the beginning of an industry-wide down turn, which continues to this day. In 2006, for example, according to the Recreational Vehicle Industry Association's wholesale statistics, total industry-wide sales of "Class A" motor homes decreased 13.7% to 32,700 from 37,900 in 2005. During the second quarter of 2004, the Debtors' quarterly net sales were approximately $61.7 million. In comparison, during the second quarter of 2007, that number was only $22.5 million. Due to this dramatic decline in sales over the past 18 months, the Debtors have been forced to reduce their workforce by approximately 40%. Shortly before the Petition Date, as discussed below, further layoffs were implemented. 22. The Debtors undertook a number of steps to deal with these circumstances,
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including launching the Pacifica diesel motor home in 2006 and introducing a first-of-its-kind, full-length slide room and a teleslide (telescoping slide) for use in their units. However, the success of these efforts was stymied due to a serious defect in the fiberglass sidewall material supplied by Crane Composites, Inc. ("Crane"), which had been used in over 70 of the Debtors' RVs (the "Kemlite Problem"). The Kemlite Problem has had a significant negative effect on the Debtors' profitability and liquidity, as the Debtors absorbed costs relating to the Kemlite Problem, and carried the burden of extra inventory while the affected units were repaired and ultimately sold at significant discounts. 23. In June 2006, NRV commenced a multi-million dollar lawsuit against Crane and
its parent company for breach of contract, breach of warranty, misrepresentation and other causes of action (the "Kemlite Litigation"). The lawsuit seeks both compensatory and punitive damages. This matter is now pending before District Judge Stephen G. Larson in the U.S.
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District Court for the Central District of California, and is scheduled to go to trial in Riverside in January 2008. (At a hearing held on December 1, 2007, District Judge reaffirmed that trial would start in early or mid-January at the latest.) The Debtors are represented in this action by O'Melveny & Myers LLP. The Debtors believe that this action represents a valuable asset of the estates and are eager to proceed to trial. 24. In the face of these deleterious developments, the Debtors nonetheless
endeavored to develop new and innovative products, the Debtors' best hope for gaining market share in a year-over-year declining market. To that end, the Debtors developed a new
construction technique for the sidewall construction for their newly developed entry-level gas and diesel products, the Riptide and the Nautica. This new, patent-pending, interlocking
sidewall design, promised to reduce the cost of manufacture, to reduce the overall weight of the motor home, to allow for more storage space, and to provide for a stronger motor home construction. (The Riptide and the Nautica were recently successfully introduced at the
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45th Annual National R.V. Trade Show in Louisville, Kentucky.) 25. In early 2007, the Debtors entered into two major transactions to raise capital in
order to pay down debt and obtain the necessary liquidity and resources to sustain the Debtors and their operations through an industry-wide slump and enable them to capitalize on these new innovations (which would also reduce their manufacturing cost structure), despite the continuing drag on the Debtors' liquidity due to the continuing Kemlite Problem. 26. First, on February 20, 2007, NRVH sold one of its subsidiaries, Country Coach,
Inc., a maker of high-end, luxury "Class A" motor homes, and certain related assets for $38.75 million to an entity owned primarily by Bryant R. Riley, who was and still is NRVH's largest shareholder. NRVH used approximately $24.5 million of these proceeds to significantly pay down amounts then owing to Wells Fargo, and approximately $8.6 million was used to pay vendor payables. The remaining proceeds were retained for working capital purposes. 27. Roughly three months later, the Debtors entered into a sale-leaseback
transaction with First Industrial, L.P. In this transaction, NRVH sold the real estate underlying
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its manufacturing facilities, which up until that time it had owned fee title to, for approximately $31.1 million. Thereafter, NRV leased the properties pursuant to two triple-net leases (the "Perris Leases") with NRVH guaranteeing the underlying obligations.8 The Perris Leases have an initial term of ten years with two five year renewal options, and provide for approximately $2.7 million in annual lease payments, which amounts increase 3% annually. Most of the proceeds from the sale-leaseback transaction (approximately $19 million) were used by NRVH to pay down amounts owed to Wells Fargo and cash collateralize the Debtors' obligation to reimburse Wells Fargo for any draws on outstanding letters of credit. Approximately
$1.3 million was also used to pay vendor payables, and the Debtors retained approximately $10.8 million for working capital purposes. 28. The Debtors' operating capital was further constrained, however, in mid-2007,
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when the State of California, Department of Industrial Relations Self-Insurance Plans (the "State of California") notified the Debtors that they did not meet the minimum credit rating criteria for participation in the alternative security program with respect to their self-insured workers' compensation program. The State of California specifically required the NRV to post a security deposit in the amount of $5.5 million, which it did by obtaining a $2 million letter of credit from Wells Fargo and advancing $3.5 million in cash to the State of California for the balance. In addition, the Debtors continued to experience operational losses. During the second quarter of 2007, the Debtors lost nearly $8 million. The Debtors projected a loss of roughly $7 million for the third quarter. 29. Also, in October 2007, NYSE Arca, an online securities exchange on which
NRVH's common stock had traded since October 2006, delisted NRVH due to its failure to comply with NYSE Arca's listing standards relating to minimum share price and minimum market value. As of November 8, 2007, NRVH has ceased filing SEC filing statements as it qualifies for an exemption. Its securities are currently trading in the "Pink Sheets."
The Debtors also posted a $5 million letter of credit in favor of the landlord as a security for its obligations under the Perris Leases.
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30.
Prior to commencing these cases, the Debtors explored a variety of approaches
to their continuing liquidity crisis, including a sale, a sale of certain underperforming assets, and/or the infusion of new equity capital. Most recently, and just prior to the commencement of these cases, the Debtors also explored a merger with a strategic partner. Despite many efforts, the Debtors were unable to effectuate that transaction. It became increasingly clear that the Debtors simply could not continue to operate for any extended period of time in light of the operational losses they projected would persist, which would result in the Debtors burning through any remaining availability under their prepetition revolver. 31. Although the Debtors believe their underlying brand and assets are valuable,
they could no longer sustain operations as a going concern. As a result, just prior to their bankruptcy filing, the Debtors laid off all but 41 employees (the layoffs approximated 653 people), and ceased producing vehicles. (All employees were paid all outstanding amounts then owing to them before these cases were filed.) While the events described above are highly negative, the Debtors believe that the silver lining is that, if properly managed, the disposition of their remaining assets should generate significant value for all constituencies. D. 32. The Chapter 11 Cases. The objective of these cases is to maximize value as quickly as possible. This
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likely will be accomplished through an orderly disposition of the Debtors' assets for the best price. The Debtors believe that value for the benefit of creditors and, with perseverance, shareholders, can be derived from primarily three sources: (a) the successful prosecution of the Kemlite Litigation (discussed above); (b) the orderly sale of inventory, both finished and unfinished motor homes, parts and replacements and other valuable items on hand; and (c) the collection of accounts receivable, general intangibles (including intellectual property) and other assets. Before the filing, and during the brief period since these cases were commenced, the Debtors' efforts have been directed toward maximizing their recovery from these assets. 33. With respect to the Kemlite Litigation, the Debtors believe they have chosen
their professionals wisely. O'Melveny & Myers LLP, which has been representing the Debtors
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in this matter, boasts one of the leading litigation departments in the country.
The lead
O'Melveny attorney on this matter, Daniel Petrocelli, has a well-deserved reputation for achieving successful commercial results. The trial is set to begin no later than mid-January. The prosecution of this suit has been vigorous, and the Debtors are optimistic. Management's time and attention will be required as this trial proceeds. 34. With respect to inventory, the Debtors have been working to reach an agreement
with a professional liquidation firm to assist the Debtors in liquidating the Debtors' tangible, personal property assets. A motion to approve that agreement, once finalized, will be presented for approval, along with proposed overbid procedures. In coordination with the professional liquidation firm, the Debtors have been analyzing their current work-in-progress to determine whether it is rational to convert it into finished goods. In the meantime, the Debtors have used their time since the filing to secure and videotape their inventory, attempt to bundle parts and replacement inventory into packages that might be attractive to purchasers, and consider how best to derive top dollar. 35. Finally, the Debtors have been fielding multiple phone calls from interested
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parties seeking to buy some or all of the Debtors remaining assets. Efforts to maximize value are well underway. In particular, the Debtors have been identifying all fixed assets that relate to intellectual property (i.e., custom molds), as potential strategic assets. Other assets that may have significant value now and "down the road" include replacement parts. The Debtors'
management has even identified potential purchasers of unique assets, including emission credits, and are actively engaging in ongoing discussions and negotiations. 36. The Debtors' remaining employees are motivated and dedicated. Specific work
teams have been organized to coordinate the sale efforts, to work with dealers and to address customer concerns. Working with their professionals, the Debtors have developed a series of "emergency" requests designed to facilitate their objectives. The Debtors paid their remaining employees all or substantially all amounts owed to them before the filing of these chapter 11
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cases. As such, the Debtors are not moving for authorization to pay any employee compensation or honor any employee benefits at this time. IV. THE IMMEDIATE AND CRITICAL NEED TO USE CASH COLLATERAL 37. In light of the fact that the Debtors are required to fund payroll on Wednesday,
December 12, 2007 and need to fund security services and other essential items, the Debtors require immediate authorization to use Cash Collateral. 38. The Debtors have no access to cash other than Cash Collateral to satisfy the
outstanding obligations that are necessary to facilitate an orderly liquidation and wind down of operations, let alone one that can maximize value for these estates. As noted, prepetition, pursuant to the Prepetition Loan Documents, Wells Fargo swept the Debtors' cash collections on a daily basis. Accordingly, the Debtors have access to a limited amount of cash, approximately $1 million. Access to these funds is a necessary precondition to the success of the liquidation. Unless the Court immediately enters an order authorizing the Debtors to use cash collateral (as contemplated in the subject motion), the Debtors will suffer immediate and irreparable harm. 39. In order to liquidate the Debtors' assets effectively, the Debtors need time and
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money to help ensure that the Debtors continue to have the capability to aggressively find, negotiate and enter into arrangements that will yield the largest recoveries for the economic stakeholders in the estates. The Debtors currently are actively exploring other mechanisms to fund operations other than through use of Cash Collateral. 40. Wells Fargo is substantially over-secured. It currently holds approximately $7.8
million in restricted cash (the "Restricted Cash"), which is designed to secure the Debtors' liability relating to any draw of the letters of credit issued in favor of the Debtors' landlord, and the State of California due to the Debtors' workers' compensation liabilities. The remaining liquidated obligations owing to Wells Fargo as of the Petition Date total approximately $2.35 million, which is substantially less than the value of the collateral securing this indebtedness
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(without taking into account the extent to which the amount of the Restricted Cash exceeds the amount of the letters of credit). As of the Petition Date, the Debtors' gross inventory and accounts receivable alone were estimated to be nearly $29 million, approximately $25 million in inventory, and $4 million in accounts receivable. Even if only "eligible" inventory and accounts receivable (as those terms are used in the Prepetition Loan Documents) are considered, the Debtors had approximately $2.5 million in "eligible" accounts receivable and approximately $9.0 million in "eligible" inventory, for a total of approximately $11.5 million. In addition, the Debtors believe that their intellectual property has significant value, as could NRVH's status as a publicly traded company. Interest has even been expressed in purchasing the Debtors' emission credits. There very well may be other salable assets as well.9 41. Prior to the Petition Date, the Debtors' management and persons acting on the
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Debtors' behalf attempted to obtain alternative sources of liquidity to enable the Debtors to meet their financing needs, including a cash infusion in conjunction with a strategic merger. Ultimately, these attempts never fully materialized. In light of the circumstances confronting the Debtors, it is impossible for the Debtors to finance their remaining, limited operating needs solely from an extension of unsecured credit. 42. The Debtors require immediate access to Cash Collateral, among other things, to
maintain their facilities on a limited basis as they proceed to orderly liquidation and wind down of their operations. The Debtors need both time and money to orderly collect accounts
receivable and sell their remaining assets. Time is needed to market the Debtors' assets for sale either in whole or in part. Although the Debtors' employees have been reaching out to their contacts within the industry in an attempt to find potential strategic buyers, it will take time to negotiate, document and close any deal. Further, any such deal would be subject to overbid. Money is needed, for example, to compensate the Debtors' remaining employees, who are indispensable to the success of this liquidation. In addition, the Debtors will have to pay utilities and otherwise maintain their facilities.
9
The Debtors have not yet had an opportunity to determine whether there is a salable NOL.
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43.
In addition, the Kemlite Litigation is now pending before District Judge Stephen
G. Larson in the U.S. District Court for the Central District of California, and is scheduled to go to trial in Riverside in January 2008. At a hearing held on December 1, 2007, District Judge reaffirmed that trial would start in early or mid-January at the latest. The Debtors believe that the Kemlite Litigation represents a valuable asset of the estates and are eager to proceed to trial. However, to even get to trial at this point requires the Debtors to make certain payments.10 The Debtors' recovery in the Kemlite Litigation is likely to have a material effect on the how much is left in these estates for general unsecured creditors and equity holders. At this point, the Debtors simply cannot afford to delay in making these payments. 44. In sum, if not authorized to use Cash Collateral, the Debtors will be unable to
satisfy those obligations that enable the Debtors to maximize value from this liquidation obligations directly related to the sale of assets, to the collection of receivables, and to the wind down of operations. Consequently, absent immediate authority to use Cash Collateral on an interim basis, the Debtors' estates would suffer irreparable harm and will have no meaningful option other than to convert these cases to ones under chapter 7, which the Debtors believe would result in diminished asset values. 45.
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In working with Bruce Cox Conklin, Jr. of Kibel Green, Inc., the Debtors'
proposed financial and management consultant, the Debtors' financial and operating staff has examined the Debtors' operations to determine how much cash they will need to continue to finance their orderly liquidation over the next three weeks (with the first day of this three week period being December 12, 2007). The Debtors' projected cash needs covering the
period from December 12, 2007 to and through December 20, 2007 are set forth in the budget
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In order to successfully make it to and through trial, the Debtors need to immediately pay $260,000 in trial expenses to Debtors' various expert witnesses and litigation consultants. In addition, as a condition of its continued representation, O'Melveny & Myers LLP, the Debtors' proposed special litigation counsel, requires the payment of a $200,000 postpetition retainer. O'Melveny & Myers LLP shall not be entitled to receive its proposed postpetition retainer until the Court subsequently enters an order approving its application for employment as special litigation counsel, and provided, further, that such order provides that O'Melveny shall be entitled to receive such retainer.
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attached as Exhibit 2 to the Cash Collateral Motion11 (the "Budget"). The projections in the Budget are conservative, inasmuch as the Debtors do not assume any extensions of new trade credit. The Budget also assumes that the Debtors start with approximately $1 million in Cash Collateral, and receive minimal collections over the next week. 46. To the best of my knowledge, Wells Fargo is the only secured creditor
potentially entitled to adequate protection in connection with the Cash Collateral Motion and no other creditor holds an interest in Cash Collateral. V. CASH MANAGEMENT SYSTEM 47. The Debtors' existing cash management system has developed over a number of
years, and is a part of the Debtors' ordinary, usual and essential business practices. Prepetition, the Debtors used a series of bank accounts to manage their cash flow and comply with the requirements imposed by the Debtors' prepetition credit facility with Wells Fargo. A
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comprehensive chart detailing the Debtors' cash management system (including the flow of the Debtors' funds among the various accounts) is attached as Exhibit 1 to the Emergency Motion Pursuant to Local Bankruptcy Rule 2081-1(b) for Order Authorizing Debtors and Debtors in Possession to Maintain Components of Existing Cash Management System and Certain Prepetition Bank Accounts filed concurrently herewith (the "Cash Management Motion"). 48. The Debtors' cash management system enables the Debtors to expeditiously
transfer funds and obtain ongoing balance reporting by computer. The Debtors believe it would be difficult for the Debtors to effectively generate essential financial information on a timely basis without their existing system. The Debtors conceivably could create a new cash
management system, but would likely incur increased costs and delays, disruption in the
11
"Cash Collateral Motion" means Emergency Motion of Debtors in Possession Pursuant to Local Bankruptcy Rule 2081-1(c) for Order: (1) Granting Debtors and Debtors in Possession Interim Use of Cash Collateral; (2) Scheduling Deadlines Relating to a Final Hearing on Permanent Use of Cash Collateral; and (3) After Conclusion of a Final Hearing, Authorizing Permanent Use of Cash Collateral.
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Debtors' accounting processes, and significant administrative burdens attendant to the creation of such a new system. 49. The Debtors' smooth operations require that they be permitted to leave their cash
management system essentially intact for the foreseeable future, notwithstanding the commencement of these chapter 11 cases. While it may be necessary to make some adjustments to the cash management system to reflect the requirements of chapter 11 (i.e., ensuring that funds are not used to satisfy prepetition obligations and claims), any undue disruption to the core of the cash management system could jeopardize the success of the Debtors' orderly liquidation. 50.
What follows (in paragraphs 54 through 60) is a detailed description of the
Debtors' cash management system (by accounts): Depository and Merchant Credit Card Accounts
51. The Debtors maintain a single lockbox, concentration account at Wells Fargo,
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Acct. No. 4121226807 (the "Depository Account") solely for the purposes of collecting funds from business operations. The Debtors also maintain a merchant credit card account at Wells Fargo, Acct. No. 4121343404 as well as a general credit card account with Wells Fargo, Acct. No. 4121226773 to process credit card payments (together, the "Merchant Accounts"). Checks are not issued from the Depository Account or from either of the Merchant Accounts. 52.
The Depository Account is the Debtors' primary means of concentrating
funds collected from business operations. While the Debtors may not be operating as a going concern postpetition, they are still owed money by customers and others, many of whom historically have wired money to the Debtors via the Depository Account. Moreover, the above-referenced credit card accounts are the Debtors' sole means of processing credit card transactions. The Cash Sweep in Favor of Wells Fargo
53.
Pursuant to the terms of the Prepetition Loan Documents, proceeds in the
Depository Account were swept daily (prepetition) by Wells Fargo with the proceeds thereof
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applied to reduce the obligations then owing to Wells Fargo, with any surpluses being transferred to the Funding Account (discussed below). The Funding Account
54. The Debtors maintain a funding account at Wells Fargo, Acct. No. 4121226799
(the "Funding Account"), which holds funds swept from the Depository Account that are not first swept to pay outstanding obligations under the Prepetition Loan Documents, as well as any advances Wells Fargo makes to the Debtors under the revolving line of credit, the proceeds of which are used by the Debtors to fund their various disbursement accounts (described below). Checks are not issued from the Funding Account. 55.
The Funding Account is the Debtors' primary means of receiving funds and
funding their new debtor-in-possession disbursement accounts, which the Debtors are in the process of opening. The Controlled Disbursements Accounts.
56. The Debtors maintain six checking accounts with Wells Fargo for the purposes
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of paying corporate, administrative, and production/engineering expenses, which have been frozen since the Petition Date and are in the process of being closed. The Debtors are also in the process of opening debtor-in-possession disbursement accounts. 57.
In addition, since Wells Fargo does not operate service branches in Florida,
the Debtors maintained a checking account there with Bank of America for the purpose of making disbursements to provide for the miscellaneous needs of their facility in Florida. The Bank of America account has already been closed.
58. Maintaining the Debtors' non-disbursement accounts and the non-disbursement
components of their cash management system is necessary and appropriate to ensure as smooth a transition into chapter 11 as possible. In addition to avoiding the administrative costs and delays associated with having to open new accounts, the Debtors believe that maintaining the Debtors' non-disbursement accounts will help facilitate their collection efforts, particularly in light of the
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fact that the Debtors are no longer operating as a going concern and payors are not likely to be incentivized to go out of their way to pay amounts owed to these estates. 59. Maintaining the Debtors' cash management system (as contemplated herein) will
not interfere with the Debtors' obligation to segregate and separately account for their prepetition and postpetition financial activities as they do not seek to re-open or maintain any of their prepetition disbursement accounts. Moreover, in accordance with the guidelines for debtors promulgated by the Office of the United States Trustee, the Debtors also are in the process of closing their books and opening "new" books and records for the postpetition period. These measures are reasonable and sufficient to ensure that the Debtors separately account for their postpetition financial activities. 60. If the Debtors are not immediately authorized to continue using much of their
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cash management system, as described, the Debtors' ability to sell their remaining assets, collect receivables, and wind down operations will be immediately disrupted. For example, a shut down of the Non-Disbursement Accounts even temporarily could result in a severe cash shortage during the critical early stages of these cases, particularly given that the Debtors intend to fund these cases (at least initially) through the use of cash collateral. VI. UTILITIES 61. As the Debtors proceed with an orderly liquidation and wind down, they will
require the use of electricity, natural gas, telephone and telecommunication, waste removal, and other utility services from eleven different Utilities spread over thirteen different accounts, with an average monthly aggregate cost of approximately $102,912. A complete list of the
companies that provide these utility services (collectively, the "Utilities" and each, a "Utility") and the proposed Deposit for each Utility is attached as Exhibit 1 to the Emergency Motion Pursuant to Local Bankruptcy Rule 2081-1(b) for Order Determining Adequate Assurance of Payment for Postpetition Utility Services (the "Utilities Motion"). The Debtors' estimates of their usage are
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based on an average of each Utility's bills in the past eleven months, which were typical of monthly expenses generally incurred by the Debtors prepetiton. 62. Two Utilities hold prepetition cash deposits far in excess of the Debtors' average
monthly cost of service provided by such Utilities. The Debtors have a prepetition cash deposit with Southern California Edison in the amount of $178,806.02, compared to an average monthly cost of $65,480 for such Utility's services. Similarly, the Debtors have a prepetition cash deposit with Lakeland Electric in the amount of $7,500, compared to an average monthly cost of $1,001 for such Utility's services. As of the Petition Date, neither of these utilities had a claim against the Debtors for unpaid utility services. 63. Uninterrupted utility services are essential to the success of these chapter 11
cases as the Debtors simply cannot accomplish many of these objectives absent continued utility services, including water services, local and long distance telephone services, waste services, internet, gas and electricity. Indeed, if one or more of the Utilities refuse or discontinue service even for a brief period, I believe the Debtors' ability to maximize value for all constituencies in these cases would be irreparably impaired. I believe the procedures set forth in the Utilities Motion will prevent such harm from occurring. VII. JOINT ADMINISTRATION 64. NRVH is the direct parent of NRV. The Debtor entities are affiliates, share
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common management and ultimately the same ownership. The affairs of the two Debtor entities are centrally managed by the same management team and corporate staff, and their financial activities are accounted for on a consolidated basis. There also is also some overlap in the creditor bodies of the two Debtors. VIII. SCHEDULES EXTENSION 65. I am familiar with the forms for the Schedules of Assets and Liabilities and
Statement of Financial Affairs (collectively, the "Schedules") that the Debtors are required to file
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with the Court. Based upon my knowledge of the nature and scope of the Debtors' business and financial affairs, I do not believe that the Debtors can carefully, thoroughly, and accurately prepare the Schedules within 15 days of the Petition Date. 66. There are a large number of creditors and potential creditors, meaning that a
substantial number of claims could be asserted against the estates. Prepetition, the Debtors distributed RVs throughout 30 states and 5 Canadian provinces, and have been generating approximately $110 million in annual revenue as recently as 2007. In addition, the Debtors employed approximately 694 individuals prior to the Petition Date, and are parties to a substantial number of contracts and leases, including various agreements with vendors, dealers, and flooring lenders. In addition, the Debtors provide a basic one-year warranty covering defects in material or workmanship and a three-year warranty on certain structural components. As such, it is anticipated that there will be numerous potential claims against the Debtors based on these outstanding warranties. The master mailing matrix lists approximately 11,847 creditors and potential creditors. 67. The challenge of compiling the documents and information necessary to make
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the required disclosures regarding the Debtors' business will further be exacerbated by the fact that many of the same key persons that will be responsible for completing this task, also will need to dedicate their time and attention to handling their other responsibilities attendant to the chapter 11 cases. There is a limited number of qualified staff available to perform and oversee all of the Debtors' chapter 11 reporting obligations, and the Debtors have numerous other pressing demands in connection with the orderly administration of these cases. IX. PROPOSED NOTICE PROCEDURES 68. Mailing of notices of all matters to all creditors in these cases would be
impractical and would impose an enormous administrative and economic burden upon the Debtors' estates, as would serving every notice on each depository institution entitled to notice by certified mail rather than first class mail also would impose a burden. The Debtors have
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proposed procedures to ameliorate these burdens.
Until the Court approves these notice
procedures, the Debtors' estates will incur significant and unnecessary costs associated with noticing thousands of persons of the numerous matters arising during the active early stages of these cases. The earlier the Debtors can implement the notice procedures, the greater the savings to the Debtors' estates and their creditors. I declare under penalty of perjury that the foregoing is true and correct.
Executed this 10th day of December, 2007 at Perris, California.
/s/ Thomas J. Martini
THOMAS J. MARTINI
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PETER C. ANDERSON UNITED STATES TRUSTEE TERRI HAWKINS-ANDERSEN, State Bar No. 133491 ASSISTANT U.S. TRUSTEE TIMOTHY J. FARRIS, State Bar No. 102678 TRIAL ATTORNEY ELIZABETH A. LOSSING, State Bar No. 144100 TRIAL ATTORNEY United States Dept. Of Justice / United States Trustee 3685 Main Street, Suite 300 Riverside, Ca. 92501-3839 Telephone (951) 276-6990 Fax (951) 276-6973
UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re: NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; and NATIONAL R.V., INC., a California corporation, Case No. 6:07-17941-PC Chapter 11 UNITED STATES TRUSTEES OPPOSITION TO MOTION OF AD HOC COMMITTEE FOR APPOINTMENT OF OFFICIAL COMMITTEE OF EQUITY HOLDERS; DECLARATIONS OF UNITED STATES TRUSTEE, PETER C. ANDERSON, AND ATTORNEY, TIMOTHY J. FARRIS DATE: TIME: CTRM: February 19, 2008 10:30 am.. 303, 3420 Twelfth St, 3rd Floor Riverside, California 92501
Debtor(s).
COMES NOW THE UNITED STATES TRUSTEE FOR THE CENTRAL DISTRICT OF CALIFORNIA and opposes the Motion Of Ad Hoc Committee Of Equity Holders for Appointment Of Official Committee Of Equity Holders in the Chapter 11 cases of National R.V. Holdings, Inc. (hereinafter referred to as Holdings) and National R.V., Inc. (hereinafter referred to as R. V.), at this time. This Opposition is based on the within Memorandum of Points and Authorities, certain matters of record in the above-captioned cases, the Declaration of United States Trustee Peter C. Anderson In Support Of United States Trustees Opposition To Motion Of Ad Hoc Committee For Appointment Of Official Committee Of Equity Holders, the 1
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Declaration Of Trial Attorney for the United States Trustee Timothy J. Farris In Support Of United States Trustees Opposition To Motion Of Ad Hoc Committee For Appointment Of Official Committee Of Equity Holders, and such other and further evidence as the Court may consider at the time of the hearing on this matter.
DATED: February 14, 2008
Respectfully submitted, PETER C. ANDERSON United States Trustee TERRI HAWKINS-ANDERSEN Assistant U.S. Trustee by: /s/ Timothy J. Farris TIMOTHY J. FARRIS Trial Attorney
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. B. IV. III. II.
TABLE OF CONTENTS
MEMORANDUM OF POINTS AND AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 I. THE APPOINTMENT OF OFFICIAL EQUITY HOLDERS COMMITTEES SHOULD BE THE RARE EXCEPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 THE STANDARD TO ORDER THE APPOINTMENT OF AN EQUITY HOLDERS COMMITTEE IS NECESSITY, NOT MERELY THAT IT WOULD BE USEFUL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE UNITED STATES TRUSTEE HAS DISCRETION OVER THE APPOINTMENT OF EQUITY HOLDERS COMMITTEES WHICH CAN ONLY BE OVERTURNED UPON A SHOWING OF AN ABUSE OF DISCRETION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 THE UNITED STATES TRUSTEE DID NOT ABUSE HIS BROAD DISCRETION IN DECLINING TO APPOINT AN EQUITY HOLDERS COMMITTEE TO PROTECT THE INTERESTS OF THE AD HOC COMMITTEE OF EQUITY HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A. THE UNITED STATES TRUSTEE CONSIDERED ALL THE RELEVANT FACTS IN MAKING THE DECISION TO NOT APPOINT THE EQUITY HOLDERS COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . 5 HE UNITED STATES TRUSTEE CONSULTED WITH ALL OF THE APPROPRIATE PARTIES IN INTEREST AND HIS STAFF BEFORE MAKING HIS DECISION TO NOT APPOINT THE EQUITY HOLDERS COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 THE SIX FACTORS THAT THE AD HOC COMMITTEE OF EQUITY HOLDERS RELIES UPON TO SUPPORT THEIR MOTION ARE FOUND IN IN RE KALVAR MICROFILM, INC., 195 B. R. 599 (Bankr. D. Del. 1996); A CASE WHICH DENIED THE APPOINTMENT OF AN EQUITY HOLDERS COMMITTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 i
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 VII. VI.
A.
EACH CHAPTER 11 PROCEEDING MUST BE DETERMINED ON A CASE BY CASE BASIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
B.
HOLDINGS SHARES ARE PUBLICLY TRADED, BUT NOT WIDELY HELD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. D.
HOLDINGS IS NOT A LARGE OR COMPLEX CASE. . . . . . . . . . . . . 9 APPOINTMENT OF AN EQUITY HOLDERS COMMITTEE IN THE HOLDINGS CASE WOULD RESULT IN DELAY AND ADDITIONAL COST WHICH WOULD OUTWEIGH THE POTENTIAL BENEFIT OF EXCLUSIVE REPRESENTATION. . . . . . 9
E.
THE MOST RECENT ESTIMATION BY HOLDINGS STRONGLY SUGGESTS THAT IT IS INSOLVENT. . . . . . . . . . . . . . . . . . . . . . . . . 10
F.
THE EQUITY HOLDERS WILL NOT BE PREJUDICED IF THE MOTION IS DENIED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
G.
THE EQUITY HOLDERS ARE ADEQUATELY REPRESENTED. . . 11
THE AD HOC COMMITTEE OF EQUITY HOLDERS HAS FAILED TO IDENTIFY ANY AUTHORITY IN SUPPORT OF THEIR CONTENTION THAT AN EQUITY COMMITTEE IS APPROPRIATE IN A LIQUIDATION CASE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
DECLARATION OF UNITED STATES TRUSTEE PETER C. ANDERSON . . . . . . . . . . . . 15
DECLARATION OF TRIAL ATTORNEY TIMOTHY J. FARRIS . . . . . . . . . . . . . . . . . . . . . 18
ii
1 2 FEDERAL CASES 3 4 5 6 7 8
TABLE OF AUTHORITIES
In re Williams Communications Group, Inc., 281 B. R. 216, 224 (Bankr. S.D.N.Y. 2002) . 3, 9, 12 7 King, Collier on Bankruptcy 1102.03[2] at 1102-22 (15th Ed. Rev. 2001) . . . . . . . . . . . . . . . 3 Commodities Futures Trading Company v. Weintraub, 471 U.S. 343,355 (1985) . . . . . . . . . . . 11 Exide Technologies v. State of Wisconsin Investment Board, 2002 WL 32332000 (D. Del. 2002) .............................................................................3 In re Barneys, Inc., 197 B. R. 431 (Bankr. S.D.N.Y. 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9 In re Beker Industries Corp., 55 B. R. 945 (Bankr. S.D.N.Y. 1995) . . . . . . . . . . . . . . . . . . . . 9, 13 10 In re Edison Brothers Stores, Inc., 1996 WL 534853 (D. Del. September 17, 1996) . . . . . . . . . 11 11 In re Emons Industries, Inc., 50 B. R. 692 (Bankr. S.D.N.Y. 1985) . . . . . . . . . . . . . . . . . . . . . . 13 12 In re FAS Mart Convenience Stores, Inc., 265 B. R. 427, 431 (Bankr. E.D. Va. 2001) . . . . . . . . 5 13 In re Johns-Manville Corp., 68 B.R. 155, 158 (Dist. Ct. S.D.N.Y. 1986) . . . . . . . . . . . . . . 3, 5, 12 14 In re Kalvar Microfilm, Inc., 195 B.R. 599,600 (Bankr. D. Del. 1996) . . . . . . . . . . . . . . 8-10, 14 15 16 17 18 19 20 21 22 FEDERAL STATUTES 23 11 U.S.C. 1102(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 24 25 26 27 28 iii In re Kasper A.S.L., Ltd., Oral Opinion, Case No. 02-10497 (LAG)(Bankr.S.D.N.Y. July 15, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 In re Leap Wireless International, Inc., 295 B. R. 135 (Bankr. S.D. Cal. 2003) . . . . . . . . . . . 9-13 In re Mercury Finance Co., 240 B.R. 270, 277 (N.D. Ill. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . 5 In re Oneida, LTD., 2006 WL 1288576 (Bankr.S.D.N.Y. 2006) . . . . . . . . . . . . . . . . . . . . . . . . . 4 In re Pierce, 237 B. R. 748 (Bankr.E.D. Cal. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 In re Wang Laboratories, Inc., 149 B. R. 1 (Bankr. D. Mass. 1992) . . . . . . . . . . . . . . . . . 9, 12, 13
1 2 3 4 5 I.
MEMORANDUM OF POINTS AND AUTHORITIES
THE APPOINTMENT OF OFFICIAL EQUITY HOLDERS COMMITTEES SHOULD BE THE RARE EXCEPTION.
Appointment of committees of equity holders is the rare exception rather than the rule in 6 chapter 11 cases. Exide Technologies v. State of Wisconsin Investment Board, 2002 WL 7 32332000 (D. Del. 2002); In re Williams Communications Group, Inc., 281 B. R. 216, 224 8 9 Ed. Rev. 2001). Such committees should not be appointed unless equity holders establish that (i) 10 there is a substantial likelihood that they will receive a meaningful distribution in the case under 11 a strict application of the absolute priority rule, and (ii) they are unable to represent their 12 interests in the bankruptcy case without an official committee. The second factor is critical 13 because, in most cases, even those equity holders who do expect a distribution in the case can 14 adequately represent their interest without an official committee and can seek compensation if 15 they make a substantial contribution in the case. Thus the Williams court set forth the general 16 rule for the appointment of equity holders committees, namely no committee should be 17 appointed without proof of a substantial likelihood of a meaningful distribution coupled with 18 an inability to represent their interests without an official committee. 19 The burden of proof rests squarely on the Ad Hoc Committee of Equity Holders to 20 demonstrate the factors set forth hereinabove. [T]he burden of demonstrating the need for 21 adequate representation ... is borne, in the first instance, by the party seeking appointment. In re 22 Johns-Manville Corp., 68 B.R. 155, 158 (Dist. Ct. S.D.N.Y. 1986). For all of the reasons set 23 forth hereinbelow, the Ad Hoc Committee Of Equity Holders has not and cannot meet its burden 24 of proof. 25 /// 26 /// 27 /// 28 3 (Bankr. S.D.N.Y. 2002). See also 7 King, Collier on Bankruptcy 1102.03[2] at 1102-22 (15th
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II.
THE STANDARD TO ORDER THE APPOINTMENT OF AN EQUITY HOLDERS COMMITTEE IS NECESSITY, NOT MERELY THAT IT WOULD BE USEFUL.
The statute requires the Court to find that the appointment of an equity committee is 4 necessary, a high standard that is far more onerous than if the statute merely provided that a 5 committee be useful. In re Kasper A.S.L., Ltd., Oral Opinion, Case No. 02-10497 6 (LAG)(Bankr.S.D.N.Y. July 15, 2003) as cited in In re Oneida, LTD., 2006 WL 1288576 7 (Bankr.S.D.N.Y. 2006). While it might be useful to have a committee to represent equity 8 holders in every chapter 11 reorganization case where equity holders are in the money, the 9 statute requires more. The burden on the Ad Hoc Committee of Equity Holders includes a 10 showing that there is a necessity for an official committee. Given the facts of the Holdings case, 11 they cannot do so. R. V. is the operating entity which manufactured recreational vehicles. The 12 Official Creditors Committee has been appointed in that case. R. V. has no publicly traded 13 stock; all of its stock being held by Holdings. Holdings is a holding company whose major asset 14 is the stock of R. V. It has publicly traded stock and it is in that case that the Ad Hoc Committee 15 of Equity Holders seeks the appointment of an official Equity Holders Committee. 16 17 III. 18 19 20 Section 1102(a) of the Bankruptcy Code provides for the appointment of an unsecured 21 creditors committee and other committees. It states in relevant part, 22 23 24 25 26 27 11 U.S.C. 1102(a). 28 4 (1) [A]s soon as practicable after the order for relief under chapter 11 of this title, the United States trustee shall appoint a committee of creditors holding unsecured claims and may appoint additional committees of creditors or of equity security holders as the United States trustee deems appropriate. (2) On request of a party in interest, the court may order the appointment of additional committees of creditors or of equity security holders if necessary to assure adequate representation of creditors or of equity security holders. The United States trustee shall appoint any such committee. THE UNITED STATES TRUSTEE HAS DISCRETION OVER THE APPOINTMENT OF EQUITY HOLDERS COMMITTEES WHICH CAN ONLY BE OVERTURNED UPON A SHOWING OF AN ABUSE OF DISCRETION.
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The permissive language (may appoint additional committees of creditors or of equity security holders as the United States trustee deems appropriate) indicates that the appointment of an equity holders committee is a discretionary act of the United States Trustee. The standard of review to be exercised by the Court in reviewing the United States Trustees committee decision is the abuse of discretion standard. See In re Mercury Finance Co., 240 B.R. 270, 277 (N.D. Ill. 1999); In re Pierce, 237 B. R. 748 (Bankr.E.D. Cal. 1999); In re Barneys, Inc., 197 B. R. 431 (Bankr. S.D.N.Y. 1996). Under the abuse of discretion standard, the decision of the United States Trustee will not be disturbed unless it shown that the United States Trustee acted in an irrational, arbitrary or capricious manner, clearly contrary to reason and not justified by the evidence. In re FAS Mart Convenience Stores, Inc., 265 B. R. 427, 431 (Bankr. E.D. Va. 2001) quoting In re Pierce, 237 B. R. at 754.
IV.
THE UNITED STATES TRUSTEE DID NOT ABUSE HIS BROAD DISCRETION IN DECLINING TO APPOINT AN EQUITY HOLDERS COMMITTEE TO PROTECT THE INTERESTS OF THE AD HOC COMMITTEE OF EQUITY HOLDERS. A. THE UNITED STATES TRUSTEE CONSIDERED ALL THE RELEVANT FACTS IN MAKING THE DECISION TO NOT APPOINT THE EQUITY HOLDERS COMMITTEE.
Among the facts considered by the United States Trustee in making his decision to not 19 appoint an equity holders committee, none is more important than the very nature of the 20 Holdings case, namely that it is and always has been an orderly liquidation. Perhaps the 21 most important aspect of a committees role is to negotiate the terms of a reorganization. 22 Johns-Manville Corp. supra at 161. Reorganization has never been the goal of the debtors-in23 possession. Both R.V. and Holdings have clearly stated their intention to accomplish an orderly 24 liquidation in these proceedings, rather than a reorganization. This is important as every one of 25 the cases cited by the Ad Hoc Committee of Equity Holders involves a reorganization. In a 26 reorganization, either equity will survive the bankruptcy proceeding or new equity will be 27 created. That is not the case in Holdings. In a liquidation case, the interest of equity is 28 5
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significantly less than in a reorganization case, because equity will not survive the bankruptcy proceeding. At best, equity holders may receive a liquidation dividend. Another relevant factor considered by the United States Trustee is that Holdings has over 10.3 million shares outstanding and over 100 holders, as the Debtors Chief Financial Officer pointed out in his declaration in support of the First Day Motions. Six holders hold almost 50% of the outstanding shares. Although the Ad Hoc Committee of Equity Holders speculates that some of these entities may be street names who hold equity on behalf of a larger number of beneficial owners, the Ad Hoc Committee fails to provide any factual support for this contention. Holdings is not a widely-held corporation. By contrast, the cases cited by the Ad Hoc Committee of Equity Holders have thousands and tens of thousands of equity holders. Additionally, many of those companies were actively traded on major stock markets, while Holdings stock is only traded on the Pink Sheets. Another relevant factor taken into account by the United States Trustee is that the assets scheduled as having an unknown value, to wit, the Intellectual Property and the Kemlite litigation, are assets of R.V. and not Holdings. The proceeds of these assets would have to be upstreamed to Holdings before there are any monies available to Holdings creditors and/or equity holders. The cases are not substantively consolidated. Yet another relevant factor taken into account by the United States Trustee is that Holdings prepared its Schedules of Assets and Liabilities from a September 30, 2007 consolidating balance sheet, which commingled the assets and debts of both R.V. and Holdings and was two months out of date when the case was filed. While the Ad Hoc Committee of Equity Holders relied on these Schedules, much more relevant is the testimony of Holdings Chief Financial Officer and Treasurer, Thomas Martini, at the First Meeting of Creditors which was conducted on January 28, 2008. At that meeting, Mr. Martini testified that the aforesaid Schedules were prepared using book value, instead of market value. He also testified that R.V. was in the process of selling all of its inventory, including parts and chassis, and that the Debtors had collected all but $300,000.00 of their outside accounts receivables and had utilized the proceeds to cover operating expenses and pay secured creditors. He also testified that Wells 6
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Fargos operating loan should be paid in full on or before February 8, 2008, and that therefore, there should be no further secured creditors with cash collateral. This significantly simplifies the case and underscores the ongoing liquidation of the Debtors assets. A final and yet key factor is the present status of both R.V. and Holdings as insolvent. Both Intellectual Property and the Kemlite litigation are scheduled as having an unknown value. They are contingent and unliquidated assets. As such, they should not be included in any rational analysis of solvency, absent estimation of their value by the Court. Mr. Martini testified at the First Meeting of Creditors that he and Kibel Green have estimated the likely liquidation value of all the Debtors assets at $21-22 million, the likely amount of claims that will need to be paid at $21-22 million dollars, not including an additional estimated amount of $7 million dollars of administrative claims. Based upon Mr. Martinis testimony, equity holders are seven million dollars out of the money. When all of these factors are taken into account, it becomes abundantly clear that the United States Trustees decision included a consideration of all of the relevant facts and that it was proper. See Declarations of United States Trustee Peter C. Anderson and Trial Attorney for the United States Trustee Timothy J. Farris.
B.
HE UNITED STATES TRUSTEE CONSULTED WITH ALL OF THE APPROPRIATE PARTIES IN INTEREST AND HIS STAFF BEFORE MAKING HIS DECISION TO NOT APPOINT THE EQUITY HOLDERS COMMITTEE.
As set forth in the Declarations of United States Trustee Peter C. Anderson and Trial Attorney for the United States Trustee Timothy J. Farris filed in support of this Opposition, the United States Trustee consulted with all of the appropriate parties in interest, provided an opportunity to be heard and an opportunity to reply to the objections of the Official Creditors Committee to the Ad Hoc Committee of Equity Holders. Therefore, there was no abuse of discretion and the decision of the United States Trustee should not be disturbed. /// /// 7
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V.
THE SIX FACTORS THAT THE AD HOC COMMITTEE OF EQUITY HOLDERS RELIES UPON TO SUPPORT THEIR MOTION ARE FOUND IN IN RE KALVAR MICROFILM, INC., 195 B. R. 599 (Bankr. D. Del. 1996); A CASE WHICH DENIED THE APPOINTMENT OF AN EQUITY HOLDERS COMMITTEE.
Other factors that are relevant in determining whether there is adequate representation under 5 Section 1102(a)(2) are: 1) whether the shares are widely held and actively traded; 2) the size 6 and complexity of the chapter 11 case; 3) the delay and additional cost that would result if the 7 Court grants the motion; 4) the likelihood of whether the debtors are insolvent; 5) the timing of 8 the motion relative to the status of the chapter 11 case; and 6) other factors relevant to the 9 adequate representation issue. In re Kalvar Microfilm, Inc., 195 B.R. 599,600 (Bankr. D. Del. 10 1996). 11 12 A. 13 14 No one factor is dispositive, and the amount of weight that the court should place on 15 each factor may depend on the circumstances of the particular Chapter 11 case. Kalvar, supra 16 at 600-1. As set forth below, the Ad Hoc Committee of Equity Holders failed to meet its burden 17 of proof in establishing that there is an immediate need for the appointment of an Official 18 Committee of Equity Holders. 19 20 B. 21 22 Holdings shares are traded on the Pink Sheets, but no evidence has been brought 23 forward as to how actively traded those shares are. Further, all of the cases cited by the Ad Hoc 24 Committee of Equity Holders have many times the number of shares outstanding when 25 compared to Holdings 10.3 million shares and have significantly more holders than the well 26 over 100" holders found in the Holdings case. Finally, almost half of Holdings shares are held 27 by only 6 holders. The Ad Hoc Committee of Equity Holders has failed to provide sufficient 28 8 HOLDINGS SHARES ARE PUBLICLY TRADED, BUT NOT WIDELY HELD. EACH CHAPTER 11 PROCEEDING MUST BE DETERMINED ON A CASE BY CASE BASIS.
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evidence to meet its burden of proof on the first of the Kalvar factors.
C.
HOLDINGS IS NOT A LARGE OR COMPLEX CASE.
Holdings assets and debts are not large by comparison to the assets and debts of In re 5 Wang Laboratories, Inc., 149 B. R. 1 (Bankr. D. Mass. 1992) or In re Beker Industries Corp., 55 6 B. R. 945 (Bankr. S.D.N.Y. 1995), the only two cases cited by the Ad Hoc Committee of Equity 7 Holders that granted the motion to appoint an equity committee. Indeed, its assets and debts are 8 smaller than those found in Williams Communications and In re Leap Wireless International, 9 Inc., 295 B. R. 135 (Bankr. S.D. Cal. 2003). The Ad Hoc Committee of Equity Holders has 10 failed to meet its burden of showing that Holdings is a large case. 11 Both the Kalvar court and the Wang Laboratories court used the number of docket entries 12 to determine the complexity of the case. In Kalvar, the court found that 220 entries over three 13 months did not render the debtors case to be sufficiently complex. In Wang Laboratories, the 14 court found that 398 entries over two months rendered it a complex case. In the Holdings case 15 there were 209 entries as of February 8, 2008, less than Kalvar and in a time frame longer than 16 Wang Laboratories. By either standard, the Ad Hoc Committee of Equity Holders has failed to 17 meet its burden of proof of showing that Holdings is a complex case. 18 19 D. 20 21 22 As the Kalvar court noted at page 601 of that decision, ..., undoubtedly additional cost 23 would result if the court grants the motion. These costs result not only from the costs of 24 professionals employed by an equity holders committee, but also by attendant costs of 25 correspondence, discovery, etc. between the equity holders committees professionals and the 26 other professionals employed in the case by the debtors-in-possession and the Official Creditors 27 Committee. Likewise, such interaction may well result in delay in the completion of the 28 9 APPOINTMENT OF AN EQUITY HOLDERS COMMITTEE IN THE HOLDINGS CASE WOULD RESULT IN DELAY AND ADDITIONAL COST WHICH WOULD OUTWEIGH THE POTENTIAL BENEFIT OF EXCLUSIVE REPRESENTATION.
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liquidation of the assets of these estates. The Ad Hoc Committee of Equity Holders has not even estimated the costs or the delay, and so, has left the Court without any basis to determine this factor. The key to this determination is, as the Leap Wireless court put it at page 220 of that decision, is whether the debtor is insolvent and therefore the shareholders have no economic interest and any distribution would amount to a gift.
E.
THE MOST RECENT ESTIMATION BY HOLDINGS STRONGLY SUGGESTS THAT IT IS INSOLVENT.
The testimony of Holdings Chief Financial Officer and Treasurer at the First Meeting of Creditors was that, exclusive of the Intellectual Property and the Kemlite litigation, the estates have approximately a negative $7,000,000.00 net worth on a balance sheet basis when the liquidation is complete and the claims objections are over. As noted in the Leap Wireless decision, there was an asset which was listed as having an unknown value. That court denied the motion to appoint an equity committee. In Kalvar, the court again denied the motion to appoint an equity committee while noting that there is at this stage a good faith dispute as to the insolvency of the debtors. Kalvar at 601. Apparently, uncertainty as to the value of an asset cannot be sufficient to meet the movants burden on a motion to appoint an equity holders committee. The Ad Hoc Committee of Equity Holders has failed to provide sufficient proof of solvency to meet its burden of proof.
F.
THE EQUITY HOLDERS WILL NOT BE PREJUDICED IF THE MOTION IS DENIED.
The fifth Kalvar factor is the timing of the motion for the appointment of an equity committee. Despite the Ad Hoc Committee of Equity Holders speculations to the contrary, the record does not indicate that there is any actual conflict between the Official Creditors Committee and the interests of the equity holders. Should the circumstances of this case change, however, the equity holders are not precluded from making a future request to the United States Trustee for an Equity Committee based upon those changed circumstances. This case is 10
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therefore similar to the Leap Wireless decision wherein the motion to appoint an Equity Holders Committee was denied even though it was brought within a month after the filing of the case. In the case of In re Edison Brothers Stores, Inc., 1996 WL 534853 (D. Del. September 17, 1996), the court affirmed the denial of the motion for the appointment of an equity holders committee, but noted that the Bankruptcy Judge in the underlying case made repeated pronouncements that he was denying the motion without prejudice and that the motion could be renewed if there were changed circumstances. Likewise, in the Holdings case, the United States Trustee has decided not to appoint the equity holders committee, at this time. If and when it becomes clear that equity holders are in the money or a substantial dispute arises as to the evaluation of the value of the Intellectual Property or the settlement of the Kemlite litigation, then the United States Trustee may reconsider his decision. At this time, however, the Ad Hoc Committee of Equity Holders has failed to meet its burden of proof of showing that the Equity Holders Motion is necessary at this time.
G.
THE EQUITY HOLDERS ARE ADEQUATELY REPRESENTED.
Four different sources of representation provide adequate representation for the interests 17 of the equity holders in Holdings. It should be noted as a preliminary matter that only 18 adequate representation need be provided, not exclusive representation. Edison Brothers, 19 supra. There are four sources of such adequate representation in Holdings. 20 First, the board of directors owes a fiduciary duty to the shareholders and this duty is not 21 diminished by the fact of the debtors insolvency. Commodities Futures Trading Company v. 22 Weintraub, 471 U.S. 343,355 (1985). The board of directors are required to put the interests of 23 equity holders ahead of their own in their management of Holdings. 24 Second, the interests of the officers and the directors who hold shares of Holdings stock 25 are perfectly aligned with the interests of the other equity holders. In their capacity of managing 26 the Debtors, their own self-interest provides protection for the interests of the other similarly 27 situated equity holders. 28 11
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Third, as noted in the Johns-Manville decision at pages 162-4, unofficial committees often provide adequate representation for the interests of equity holders, such as the Ad Hoc Committee of Equity Holders in the Holdings case. Fourth and finally, very often, the Official Creditors Committee has been found to sufficiently represent the interests of equity holders. Williams, supra at 222; Leap Wireless, supra at 139-40. There is even further cause for the Official Creditors Committee to adequately represent the interests of the equity holders in Holdings as was noted in the Equity Holders Motion at page 3, lines 12-15, namely, that the largest unsecured creditor of the R.V. estate is apparently the Holdings estate for $45.1 million. In short, Holdings is an unsecured creditor of R.V. according to the Schedules and therefore part of the constituency that the Official Creditors Committee represents. Unless and until that claim is successfully objected to, the Official Creditors Committee would be well advised to take the interests of the Holdings creditors and equity holders into account in their decisions. For all of the foregoing reasons, the Ad Hoc Committee of Equity Holders has failed to meet its burden of proof of showing that there is an immediate need for an official committee to adequately represent their interests.
VI.
THE AD HOC COMMITTEE OF EQUITY HOLDERS HAS FAILED TO IDENTIFY ANY AUTHORITY IN SUPPORT OF THEIR CONTENTION THAT AN EQUITY COMMITTEE IS APPROPRIATE IN A LIQUIDATION CASE.
Indeed, the first three cases cited by the Ad Hoc Committee of Equity Holders in their Memorandum of Points And Authorities denied the appointment of an equity holders committee. The three remaining cases cited by the Ad Hoc Committee of Equity Holders are easily distinguishable from the Holdings case. First and foremost, they are all reorganization cases, not liquidations. The case of Wang Laboratories involved 165 million shares of Class B common stock and 5.6 million shares of Class C common stock as compared to Holdings 10.3 million shares. Wang Laboratories was approximately 14 times larger in terms of number of equity holders. Likewise, Wang Laboratories had between 49,000 and 70,000 shareholders 12
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versus Holdings well over 100" equity holders. Clearly, Holdings is not widely held compared with Wang Laboratories. The Wang Laboratories case was significantly more complex than Holdings liquidation as set forth in Section V, Subsection C. Finally, the Bankruptcy Judge in Wang Laboratories rejected the balance sheet test to find solvency which is the method proposed by the Ad Hoc Committee in Holdings. Likewise, the Beker case is not persuasive. The debtors in both Wang Laboratories and Beker are solvent or, at least claim to be.... Id at 950. As set forth in Section V, Subsection E, the testimony of Holdings Chief Financial Officer and Treasurer at the First Meeting of Creditors was that R. V. and Holdings are insolvent, unless and until the Intellectual Property or the Kemlite lawsuit bring in over seven million more dollars. At the present time, those two assets are scheduled with an unknown value. Additionally, the Beker case involved 2,148 equity holders compared to Holdings well over 100" equity holders. Finally, the assets of the Beker estates were approximately six times larger than the consolidated assets of R.V. and Holdings. In re Emons Industries, Inc., 50 B. R. 692 (Bankr. S.D.N.Y. 1985) cited by the Ad Hoc Committee of Equity Holders involved a case in which the objectors to the appointment of an equity committee withdrew their objections and the decision only addressed how the professionals employed by the equity holders committee might get paid. It is not on point for the subject for which it was cited as authority. Perhaps the case which most closely matches the facts of the Holdings case is the Leap Wireless decision. It is also the only 9th Circuit case cited by the Ad Hoc Committee of Equity Holders. Bankruptcy Judge Louise Decarl Adler denied the motion to appoint an equity holders committee even though she found that the debtor had a large number (58.5 million) shares outstanding and the motion was brought within one month of the filing of the case. In that case, there was also an asset of unknown value, namely, the wireless licenses. Although it was a reorganization case, it is closer in size and number of equity holders to the Holdings case and the Bankruptcy Court still did not find it necessary to appoint an Official Committee of Equity Holders. 13
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DECLARATION OF UNITED STATES TRUSTEE PETER C. ANDERSON I, PETER C. ANDERSON, hereby declare: 1. I am an attorney at law and am licensed to practice before the State and Federal
Courts in the State of California. 2. I have been the United States Trustee for the Region 16 since August 6, 2006.
Among my duties as U.S. Trustee is the oversight of Chapter 11 cases filed in the Central District of California, including In re National R.V., Inc., Bankruptcy Case Number 6:07-17937PC and In re National R.V. Holdings, Inc., Bankruptcy Case Number 6:07-17941-PC. 3. I have personal knowledge of the facts set forth herein and could, if called to
testify thereto, do so competently. 4. In re National R.V., Inc., Bankruptcy Case Number 6:07-17937-PC, filed a
voluntary petition under Chapter 11 of Title 11 United States Code on November 30, 2007. 5. In re National R.V. Holdings, Inc., Bankruptcy Case Number 6:07-17941-PC,
filed a voluntary petition under Chapter 11 of Title 11 United States Code on November 30, 2007. 6. On or about January 15, 2008, I received a letter from attorney, Ali M. M.
Mojdehi, of Baker & McKenzie LLP, requesting, on behalf of his clients Lloyd Miller and Millenium Partners, L.P., the appointment of an official Committee of Equity Holders. (A true and correct copy of said letter is attached hereto and incorporated herein by reference as Exhibit A.) This letter had been forwarded to me by Trial Attorney Timothy J. Farris of the Riverside Office of the United States Trustee. 7. On January 23, 2008, I received a reply e-mail from the counsel for R.V. and
Holdings indicating that the Debtors took no position on the appointment of an official Committee of Equity Holders. This reply e-mail had been forwarded to me by Trial Attorney Timothy J. Farris of the Riverside Office of the United States Trustee. 8. On January 23, 2008, I received a letter from counsel for the Official Creditors
Committee objecting to the appointment of an official Committee of Equity Holders. (A true and correct copy of said letter is attached hereto and incorporated herein by reference as Exhibit 15
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B.) This letter had been forwarded to me by Trial Attorney Timothy J. Farris of the Riverside Office of the United States Trustee. 9. On January 23, 2008, I received a reply letter from Mr. Mojdehi regarding the
objections of the Official Creditors Committee. (A true and correct copy of said reply is attached hereto and incorporated herein by reference as Exhibit C.) This letter had been forwarded to me by Trial Attorney Timothy J. Farris of the Riverside Office of the United States Trustee. 10. I consulted with my staff in the Riverside Office including Assistant U.S. Trustee
Terri Hawkins-Andersen as well as Trial Attorney Timothy J. Farris. 11. I received a telephone call from Mr. Mojdehi and he explained in detail the
concerns of his clients and their desire to have an Equity Security Holders Committee appointed. 12. Based upon a thorough review of all of the data available to me as well as the
input from my staff, I determined that it would be inappropriate to appoint an Equity Security Holders Committee in the Holdings case at this time. 13. In making my decision, I took into account the six factors set forth in Mr.
Mojdehis initial letter. I took into account that, at the present time, there is evidence that Holdings appears to be insolvent. I took into account that the interests of shareholders appear to be adequately represented at this time by four separate entities: the board of directors, who owe them a fiduciary duty; the insiders, especially those who are shareholders themselves, who owe equity a fiduciary duty as well; the Official Creditors Committee, who has every reason to seek a maximum return on the assets of R.V. as well as Holdings; and by the efforts of the Ad Hoc Committee itself. I determined that the case is not large or complex when compared to the reported cases in which equity security holders committees have previously been appointed. Further, the cases involve a liquidation and prosecution of a lawsuit, not a reorganization. I considered that Holdings stock is not widely held as there are only well over 100" shareholders, not the thousands and tens of thousands of holders in those reported cases in which an equity security holders committee has been appointed, and almost half of the shares are 16
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reported to be owned by approximately six holders. I received no information as to how actively the shares are traded. I concluded that it was at least premature to consider the appointment of an equity security holders committee in Holdings at this time, as given the present status of the case, equity is still out of the money. I concluded that the cost and delay associated with the appointment of an equity security holders committee outweighed the cost of exclusive representation for the equity security holders. For all of the foregoing reasons, I decided not to appoint an equity security holders committee at this time. I declare, under penalty of perjury, that the foregoing facts are true and correct to the best of my knowledge, information and belief and that, if called upon to testify, I could do so competently. Executed this ___ day of February, 2008 at Los Angeles, California.
_____________________________ PETER C. ANDERSON U.S. Trustee
17
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DECLARATION OF TRIAL ATTORNEY TIMOTHY J. FARRIS
I, TIMOTHY J. FARRIS, hereby declare: 1. I am an attorney at law and am licensed to practice before the State and Federal
Courts in the State of California. 2. I am employed by the Office of the United States Trustee as a Trial Attorney and
have been employed in said capacity since 1987. I work in the Riverside Office of the United States Trustee located at 3685 Main Street, Riverside, California 92501. Among my duties as a Trial Attorney is the oversight of Chapter 11 cases assigned to me, including In re National R.V., Inc., Bankruptcy Case Number 6:07-17937-PC and In re National R.V. Holdings, Inc., Bankruptcy Case Number 6:07-17941-PC, including the conducting of the First Meeting of Creditors. 3. I have personal knowledge of the facts set forth herein and could, if called to
testify thereto, do so competently. 4. In re National R.V., Inc., Bankruptcy Case Number 6:07-17937-PC, filed a
voluntary petition under Chapter 11 of Title 11 United States Code on November 30, 2007. 5. In re National R.V. Holdings, Inc., Bankruptcy Case Number 6:07-17941-PC,
filed a voluntary petition under Chapter 11 of Title 11 United States Code on November 30, 2007. 6. On December 10, 2007, National R.V., Inc., (hereinafter R.V.) and National
R.V. Holdings, Inc., (hereinafter Holdings), filed the Declaration Of Thomas J. Martini In Support Of First-Day Motions, (hereinafter Martini Declaration). The Martini Declaration asserts, at paragraph 9, that all of the equity of R.V. is held by Holdings and that R.V. is the operating entity. The Martini Declaration asserts, at paragraph 12, that the Debtors unaudited, consolidating balance sheet, as of September 30, 2007, lists the Debtors assets as totaling $53.4 million, including inventories of $23.9 million and accounts receivables of $8.5 million. The Martini Declaration asserts, at paragraph 13, that the Debtors unaudited, consolidating balance sheet, as of September 30, 2007, lists the Debtors liabilities as $35.5 million. (Underlining 18
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added.) The Martini Declaration does not address the intercompany receivable of $45.1 million referred to in the Motion Of Ad Hoc Committee Of Equity Holders For Appointment Of Official Committee Of Equity Holders, (hereinafter Equity Holders Motion), at page 3, lines 12-15, inclusive. The Martini Declaration asserts, at paragraph 19, that Holdings has 10,339,484 shares of common stock outstanding and that [approximately half of the NRVH common stock is held by roughly a half-dozen individuals and institutions. The Martini Declaration asserts, at paragraph 19, that [t]he Debtors executive officers and directors collectively hold approximately 3% of the NRVH common stock. The Martini Declaration asserts, at paragraph 23, that R.V. commenced a multi-million dollar lawsuit against Crane and its parent company and that such litigation is known as the Kemlite litigation. The Martini Declaration asserts, at paragraph 31, that, [a]lthough the Debtors believe their underlying brand and assets are valuable, they could no longer sustain operations as a going concern. As a result, just prior to their bankruptcy filing, the Debtors laid off all but 41 employees (the layoffs approximated 653 people), and ceased producing vehicles. ... While the events described above are highly negative, the Debtors believe that the silver lining is that, if properly managed, the disposition of their remaining assets should generate significant value for all constituencies. 7. On or about January 15, 2008, I received a letter from attorney, Ali M. M.
Mojdehi, of Baker & McKenzie LLP, requesting, on behalf of his clients Lloyd Miller and Millenium Partners, L.P., the appointment of an official Committee of Equity Holders. (A true and correct copy of said letter is attached hereto and incorporated herein by reference as Exhibit A.) Thereafter, I contacted counsel for R.V. and Holdings, as well as counsel for the Official Creditors Committee, Hamid R. Rafatjoo, of Pachulski, Stang, Ziehl & Jones, for their input on the appropriateness of appointing a committee. 8. On January 23, 2008, I received a reply e-mail from the counsel for R.V. and
Holdings indicating that the Debtors took no position on the appointment of an official Committee of Equity Holders. 9. On January 23, 2008, I received a letter from counsel for the Official Creditors
Committee objecting to the appointment of an official Committee of Equity Holders. (A true and 19
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correct copy of said letter is attached hereto and incorporated herein by reference as Exhibit B.) I immediately forwarded this letter to Mr. Mojdehi for reply. 10. On January 23, 2008, I received a reply letter from Mr. Mojdehi regarding the
objections of the Official Creditors Committee. (A true and correct copy of said reply is attached hereto and incorporated herein by reference as Exhibit C.) 11. I forwarded all of the above-referenced letters and e-mails to Assistant U.S.
Trustee Terri Hawkins-Andersen as well as to U.S. Trustee Peter C. Anderson. 12. On January 30, 2008, I learned of the decision of the U.S. Trustee to not appoint
an official Committee of Equity Holders, at this time. I immediately informed the aforementioned parties by e-mail of the decision of the U.S. Trustee. 13. On January 28, 2008, I conducted the First Meeting of Creditors for R.V. and
Holdings. Among those present were Jonathan Shenson, representing the Debtors, Thomas Martini, the Debtors Chief Financial Officer and Treasurer, Bruce Curnick, an agent of Kibel Green, the Debtors consultant, and Hamid R. Rafatjoo, counsel for the Official Creditors Committee. Mr. Martini and Mr. Curnick were sworn in and testified under oath. They testified that R.V. is in the process of liquidating its remaining inventory of both finished recreational vehicles as well as work-in-progress. They testified that they believed that Wells Fargos operating loan, the only encumbrance on the Debtors cash collateral, would be paid off before February 8, 2008. They testified that R.V. had collected all of its accounts receivables, except $300,000.00 for the sale of three vehicles. They testified that their best estimate as to the ultimate liquidation value of all of the Debtors assets, excluding the Intellectual Property and the Kemlite lawsuit, is $21-22 million. They testified that their best estimate as to the likely creditors claims against the estates would be approximately $21-22 million, exclusive of administrative expenses. They testified that their best estimate as to the ultimate amount of administrative expenses would be $7 million. They testified that the Debtors Schedules of Assets and Liabilities were prepared based upon the numbers found in the September 30, 2007 consolidating balance sheet and utilized book values, not market values. 14. On February 4, 2008, the Ad Hoc Committee of Equity Holders filed its Equity 20
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Holders Motion. The U.S. Trustee respectfully requests that the Bankruptcy Court take judicial notice of the Equity Holders Motion in the Courts files. The Equity Holders Motion admits that Holdings owns 100% of R.V.s stock. (Please see page 3, lines 3-6, inclusive.) The Equity
Holders Motion admits that Holdings has an intercompany receivable due from R.V. in the amount of 45.1 million. (Please see page 3, lines 12-15, inclusive.) The Equity Holders
Motion admits that there are well over 100 holders of Holdings common stock. (Please see page 3, lines 18-23, inclusive.) The Equity Holders Motion admits that the Debtors
executive officers and directors hold approximately 3% of the common stock of Holdings. (Please see page 3, lines 23-24, inclusive.) The Equity Holders Motion admits that R.V. is the
plaintiff suing Crane Composites, Inc. in the Kemlite lawsuit. (Please see page 4, lines 9-14, inclusive.) The Equity Holders Motion admits that the purpose of the Debtors chapter 11
cases is to engage in an orderly liquidation of the Debtors assets. (Please see page 4, lines 2021, inclusive.) I declare, under penalty of perjury, that the foregoing facts are true and correct to the best of my knowledge, information and belief and that, if called upon to testify, I could do so competently. Executed this 14th day of February, 2008 at Riverside, California.
/s/ Timothy J. Farris TIMOTHY J. FARRIS Trial Attorney
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LEE R. BOGDANOFF (State Bar No. 119542) JONATHAN S. SHENSON (State Bar No. 184250) DAVID M. GUESS (State Bar No. 238241) KLEE, TUCHIN, BOGDANOFF & STERN LLP 1999 Avenue of the Stars, 39th Floor Los Angeles, CA 90067 Telephone: (310) 407-4000 Facsimile: (310) 407-9090 Bankruptcy Counsel for Debtors and Debtors In Possession Debtors' Mailing Address 3411 N. Perris Blvd. Perris, CA 92571 National R.V. Holdings, Inc.'s Tax I.D. #XX-XXX-1079 National R.V., Inc.'s Tax I.D. #XX-XXX-5022 UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA RIVERSIDE DIVISION In re NATIONAL R.V. HOLDINGS, INC., a Delaware corporation; NATIONAL R.V., INC., a California corporation, Debtors. Case No.: Chapter 11 Jointly Administered with Case No.: 6:07-17937-PC NOTICE OF MOTION AND MOTION FOR ORDER PURSUANT TO BANKRUPTCY CODE SECTION 1121(d) EXTENDING THE EXCLUSIVE PERIODS IN WHICH ONLY THE DEBTORS MAY FILE A CHAPTER 11 PLAN AND SOLICIT ACCEPTANCES THERETO; MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT THEREOF; DECLARATION OF BRUCE COX CONKLIN, JR. IN SUPPORT THEREOF Date: Time: Place: Hearing March 26, 2008 10:30 a.m. Courtroom 303 U.S. Bankruptcy Court 3420 Twelfth Street Riverside, CA 92501 6:07-17941-PC
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TO THE HONORABLE PETER H. CARROLL, UNITED STATES BANKRUPTCY JUDGE; THE OFFICE OF THE UNITED STATES TRUSTEE; COUNSEL FOR THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS; THE DEBTORS'
SECURED LENDERS; AND OTHER PARTIES INTEREST: PLEASE TAKE NOTICE that on March 26, 2008 at 10:30 a.m. a hearing will be held before the Honorable Peter H. Carroll, United States Bankruptcy Judge, on this Motion for Order Pursuant to Bankruptcy Code Section 1121(d) Extending the Exclusive Time Periods in Which Only the Debtors May File a Chapter 11 Plan and Solicit Acceptances With Respect Thereto (the Motion) filed by National R.V. Holdings, Inc. and National R.V., Inc., the debtors and debtors in possession in the above-captioned cases (the "Debtors"). 1 PLEASE TAKE FURTHER NOTICE that the Debtors hereby move the Court, pursuant to Bankruptcy Code section 1121(d), for an order extending by ninety (90) days: (i) the exclusive period within which the Debtors may file a plan under Bankruptcy Code sections 1121(b) and 1121(c)(2) (the "Plan Filing Exclusivity Period") extending the last day of such period from March 29, 2008 to June 27, 2008, and (ii) the exclusive period within which the Debtor may solicit acceptances to a plan pursuant to Bankruptcy Code section 1121(c)(3) (the "Solicitation Exclusivity Period") extending the last day of such period from to May 28, 2008, 2008 to August 26, 2008. Reference to the Plan Filing Exclusivity Period and Solicitation Exclusivity Period shall hereinafter be referred to collectively as the "Exclusivity Periods". While these cases have been pending for less than 4 months, the Debtors have generated more than $22 million of cash for the estates through a quick and orderly disposition of their assets. At same time, the Debtors have also focused on reducing overhead and administrative costs and proceeding with a wind-down of their operations and affairs. The Debtors have actively engaged the Creditors Committee in this process, and expect (in the coming days) to have a consensual blue-print and budget in place for the resolution of these cases.
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With the support of the Creditors Committee, the Debtors (through counsel) obtained Court authority to have this matter heard on shortened time with the subject pleadings to be filed no later than Thursday March 13, 2008.
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By the beginning of April, the Debtors will be in a position, with nimble staffing and de minimus operational costs (going forward), to focus on implementing the final phase of their liquidation and wind-down -- ideally through a chapter 11 plan. In order to assess their options in any meaningful way, however, the Debtors simply need more visibility on the amount of administrative claims that will either have to be paid or reserved for on the effective date of any plan; and, specifically, the amount of 503(b)(9) claims and WARN Act administrative priority claims, if any, against the estates. The Debtors are not seeking the requested extensions to delay administration of the cases or to pressure creditors to accept an unsatisfactory plan. To the contrary, it is simply prudent to put off expending time and money in proposing and confirming a chapter 11 plan until there is more certainty that a feasible plan can be confirmed. While the Debtors are optimistic that a plan can and will be confirmed during the requested extension periods, the relief sought herein will allow the estates to preserve and maintain the opportunity for an orderly, efficient and costeffective resolution of these cases. As discussed below, the Debtors' accomplishments in these cases demonstrate that they can effectively carry out the objectives of these cases; and their estates will benefit from their doing so without the needless distraction and expense of competing plans being proposed, let alone competing plans being proposed prematurely. Thus, the Debtors submit that cause exists to grant the requested extension of the Exclusivity Periods. PLEASE TAKE FURTHER NOTICE that the pertinent facts and circumstances supporting the relief requested herein are set forth in the accompanying Memorandum of Points and Authorities. This Motion is based upon the accompanying Memorandum of Points and Authorities, the accompanying Declaration of Bruce Cox Conklin, Jr., the record in these cases, the arguments and representations of counsel, and any oral or documentary evidence presented at or prior to the time of the hearing on the Motion. PLEASE TAKE FURTHER NOTICE that any response and request for hearing, in the form required by Local Bankruptcy Rule ("LBR") 9013-1(a)(7), must be filed and served on (i) the Debtors' bankruptcy counsel, Klee, Tuchin, Bogdanoff & Stern LLP (at the address
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indicated above in the top left-hand corner of this Notice), (ii) counsel for the Official Committee of Unsecured Creditors (the "Creditors' Committee"), Pachulski Stang Ziehl & Jones LLP, Attn: Hamid R. Rafatjoo, Esq., 10100 Santa Monica Boulevard, 11th Floor, Los Angeles, CA 90067, Fax: (310) 201-0760; and (iii) the Office of the United States Trustee, Attn: Timothy J. Farris, Esq., 3685 Main St., Suite 300, Riverside, CA 92501, Fax: (951) 276-6973, not later than the close of business on Monday, March 24, 2008. Letters, e-mails, telephone inquiries and the like do not satisfy the requirement for a timely written objection or response. Also, LBR 9013-1(a)(11) provides that, if you do not timely file and serve an objection or response, the Court may find that you have consented to the relief requested herein. WHEREFORE, the Debtor respectfully requests that this Court enter an order (1) granting the relief requested herein in its entirety; (2) extending the Plan Filing Exclusivity Period through and including June 27, 2008, (3) extending the Solicitation Exclusivity Period through and including August 26, 2008; and (4) granting any other relief that the Court deems necessary and appropriate.
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DATED: March 13, 2008
/s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Bankruptcy Counsel for Debtors and Debtors in Possession
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MEMORANDUM OF POINTS AND AUTHORITIES I. STATEMENT OF FACTS A. General Background.
The Debtors' principal business is the manufacture and distribution of recreational vehicles throughout the United States and Canada. Since 1964, from their Perris, California facility, the Debtors have designed, manufactured, and marketed some of the industry's highest quality "Class A" gas and diesel RVs across several branded product lines, including Dolphin, Pacifica, Sea Breeze, Surf Side, Tradewinds, and Tropi-Cal. As of the petition date, the Debtors were the ninth largest manufacturer of "Class A" motor homes in the country. Prior to commencing these cases, the Debtors explored a variety of approaches to their continuing liquidity crisis, including a sale, a sale of certain underperforming assets, and the infusion of new equity capital. Despite many efforts, it became increasingly clear that the Debtors simply could not continue to operate for any extended period of time. As a result, the Debtors determined they had no choice other than to pursue an orderly liquidation of their assets. To that end, after having conducted substantial "reductions in force," resulting in more than a 90% reduction of their work force, they commenced these cases. B. The Commencement of the Chapter 11 Cases.
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On November 30, 2007, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code (the "Petition Date"). Shortly after the Petition Date, the Debtors moved on an expedited basis to maintain their existing cash management system, establish notice procedures in these cases, secure uninterrupted utility services, obtain authority to provide severance to their remaining work force (other than insiders), obtain use of cash collateral, and extend the time within which the Debtors had to file their schedules (which were subsequently timely filed) -- which relief was granted, at least on an interim basis, within days of the commencement of these cases. Just a few days later, the Debtors requested and obtained Court authority to proceed with the immediate but orderly liquidation of their remaining RVs and other inventory, and an order
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authorizing them to compromise accounts receivable. The Debtors also requested and obtained court approval of several other motions and applications designed to enable it to function in chapter 11, including applications for the employment of professionals, compensation procedures, and the establishment of claims bar dates. The Debtors' management and professionals have also expended significant time since the commencement of these cases addressing the formal and information requests for information from various constituencies (including potential acquirers, and furnishing legal and financial information to the Creditors Committee and the Office of the United States Trustee), and tackling a wide array of operational and chapter 11 compliance issues. On January 14, 2008, the Debtors timely filed schedules, listing assets and liabilities with a book value of approximately $39 million and $42 million, respectively, after backing out intercompany claims. These liabilities do not include unknown or amounts listed on the
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schedules at zero, of which there are many. Moreover, because these estates have literally thousands of creditors, the Debtors expect there to be a substantial number of claims asserted against the estates, which are not currently listed on their schedules. C. Disposition of the Debtors' Assets During these Cases.
While these cases have been pending for less than 4 months, the Debtors will have generated more than $22 million of cash for the estates through a quick and orderly disposition of substantially all of their personal property assets. Within days after the petition date, the Debtors began aggressively marketed their inventory and, ultimately, sold their then-completed inventory of 77 finished RVs to Dennis Dillon RV, LLC ("Dillon") for nearly $7.5 million. Thereafter, Dillon contracted to purchase an additional 68 finished RVs for approximately $6.75 million. To complete this massive order, the Debtors are building out much of their remaining raw materials and WIP (work-in progress) into finished RVs. By the third week in March, the build-out should be complete. The Debtors have also been successful in selling other assets, including their South Coast Reactive Organic Gas Emission Reduction Credits, which the Debtors were able to sell for
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nearly $1.6 million. The Debtors also have collected millions of dollars in accounts receivable since the Petition Date. The Debtors also negotiated and entered into a liquidation agreement with BIDITUP Auctions Worldwide, Inc. to assist them in liquidating (through a public auction and otherwise) the vast majority of their remaining tangible personal property, including raw materials, service parts, chassis, and FF&E (furniture, fixtures and equipment), and the like, and certain intellectual property (including product lines and tangible personal property relating thereto). On March 3, 2008, the Court entered an order authorizing the Debtors to enter into the Auction Agreement, and the auction is expected to take place on March 26th and 27th. The Debtors are entitled to a guarantee which will exceed $1.1 million (after taking into account possible adjustments). Finally, the Debtors obtained a verdict in the Kemlite Litigation of approximately $3.1 million. While happy to have prevailed in the litigation, the amount of the verdict was less than the Debtors had hoped. 2 In addition, the Debtors continue exploring (and now with the active participation of the Creditors' Committee) how best to maximize value from the disposition of their other bare chassis, not included in the BIDITUP auction. The chassis vendors assert various claims to the chassis, including security or ownership interests, reclamation and 503(b)(9) claims. Indeed, the Debtors encountered similar issues when they sold their finished RVs and had to impound more than $8.2 million of the $14.5 million dollars of sale proceeds to secure purported claims or interests of the chassis vendors pending further order of the court. The Debtors believe a significant portion of these proceeds will ultimately inure to the estates' benefit. The Debtors are hopeful that they, working with the Creditors Committee, will be able to reach global resolutions with the chassis vendors in the next couple of weeks. The Debtors have also signed listing agreements with brokers (subject to Court approval) to sell their real property in Florida and market their Perris leaseholds.
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The Debtors are still in the process of assessing the verdict and its implications.
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D.
The Debtors' Wind-down.
To capitalize on their successful liquidation efforts (to date), the Debtors have also been focused on reducing overhead and administrative costs throughout these cases and proceeding with a wind-down of their operations and affairs. The Debtors have actively engaged the Creditors Committee in this process, and expect to have a consensual blue-print and budget in place for the resolution of these cases. The Debtors expect to have only seven employees by the beginning of April, who will complete the wind-down. In addition, by the end of April, the Debtors will either reject or seek to assume and assign their leases and vacate their leaseholds. The Debtors intend to relocate, and are actively looking for new office space. E. Grounds for the Relief Requested.
While these cases have been pending for less than 4 months, the Debtors are now in a position, with nimble staffing and de minimus operational costs (going forward), to focus on implementing the final phase of their liquidation and wind-down -- ideally through a chapter 11 plan. In order to assess their options in any meaningful way, however, the Debtors simply need more visibility on the amount of administrative claims that will either have to be paid or reserved for on the effective date of any plan; and, specifically, the amount of 503(b)(9) claims and WARN Act administrative priority claims, if any, against the estates. Because the Debtors were operating up until the day of their bankruptcy filings, there may be substantial 503(b)(9) claims against the estates. Also, while they believe they have a defense which will absolve them of any liability, a class action complaint was filed against the Debtors alleging certain WARN Act liability which could result in significant administrative claims against the estates. During the requested extensions of the Plan Filing Exclusivity Period, however, the Debtors believe they will be able to get a much better handle on these claims, which will be critical to the formulation of a confirmable plan. With regard to the 503(b)(9) claims, the Court has fixed April 17, 2008 as the last day for asserting claims against the estates. With regard to WARN Act litigation, the Debtors intend to take meaningful steps in the weeks ahead to see if the litigation can be resolved consensually. Regardless of whether it can be resolved during this time, however, the Debtors should have
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much better visibility on their likely exposure on such claims, if any. The Debtors are not seeking the requested extensions to delay administration of the cases or to pressure creditors to accept an unsatisfactory plan. To the contrary, it is simply prudent to put off expending time and money in proposing and confirming a chapter 11 plan until there is more certainty that a feasible plan can be confirmed. While the Debtors are optimistic that a plan can and will be confirmed during the requested extension periods, the relief sought herein will allow the estates to preserve and maintain the opportunity for an orderly, efficient and costeffective resolution of these cases. Simply put, the Debtors' accomplishments in these cases demonstrate that they can effectively carry out the objectives of these cases; and their estates will benefit from their doing so without the needless distraction and expense of competing plans being proposed, let alone competing plans being proposed prematurely. Thus, the Debtors submit that cause exists to grant the requested extension of the Exclusivity Periods. II. LEGAL ARGUMENT This Court has the authority to extend, after notice and a hearing, the exclusive periods in which to file a plan and solicit acceptances "for cause." 11 U.S.C. 1121(d). In accordance with congressional intent, a debtor should be given a reasonable and exclusive opportunity to negotiate an acceptable plan with creditors and to prepare adequate financial and non-financial information concerning the ramifications of any proposed plan for disclosure to creditors. See, e.g., In re McLean Indus., Inc., 87 B.R. at 833-35; In re Texaco, Inc., 76 B.R. 322, 327 (Bankr. S.D.N.Y. 1987). The decision to extend a debtors exclusivity periods is committed to the sound discretion of the bankruptcy court, based upon the facts and circumstances of each particular case. See, e.g., In re Gibson & Cushman Dredging Corp., 101 B.R. 405, 409 (E.D.N.Y. 1989) ("The 'cause' standardhas been referred to as a general standard that allows the Bankruptcy Court 'maximum flexibility to suit various types of reorganization proceedings.'") (internal citations omitted); First American Bank v. Southwest Gloves & Safety Equip., Inc., 64 B.R. 963, 965 (D.
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Del. 1986) ("Section 1121(d) provides the Bankruptcy Court with flexibility to either reduce or increase that period of exclusivity in its discretion."). In determining whether cause exists for an extension of a debtors exclusivity periods, a key question is whether an extension of exclusivity will function "to facilitate movement towards a fair and equitable resolution of the case, taking into account all the divergent interests involved." Official Committee of Unsecured Creditors v. Henry Mayo Newhall Mem. Hosp. (In re Henry Mayo Newhall Mem. Hosp.), 282 B.R. 444, 453 (B.A.P. 9th Cir. 2002). While not all courts agree on the precise formulation, most rely on the same factors in determining whether an extension of exclusivity should be granted. While not all courts agree on the precise
formulation, most rely on the same factors in determining whether an extension of exclusivity should be granted. These factors were summarized in In re Dow Corning Corp.: 1. 2. The size and complexity of the case; The necessity of sufficient time to permit the debtor to negotiate a plan of reorganization; 3. 4. 5. 6. 7. 8. The existence of good faith progress toward reorganization; The fact that the debtor is paying its bills as they come due; Whether the debtor has demonstrated reasonable prospects for filing a viable plan; Whether the debtor has made progress in negotiations with its creditors; The amount of time that has elapsed in the case; Whether the debtor is seeking an extension of exclusivity to pressure creditors to submit to the debtors reorganization demands; and 9. Whether an unresolved contingency exists.
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208 B.R. 661, 664-65 (Bankr. E.D. Mich. 1997); see also Henry Mayo, 282 B.R. at 452 (upholding bankruptcy court's decision to grant extension based on the nine factors listed in the Dow Corning case). As discussed below, consideration of several of the preceding factors supports the requested extension of time in this case. A. The Size and Complexity of the Debtors' Cases Warrants an Extension of the Exclusivity Periods.
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Courts likewise have recognized that a case may be sufficiently complex to warrant extensions of the exclusivity periods without being a "mega case." See, e.g., In re Express One Intl, 194 B.R. at 100 ("The Court does not believe it is necessary to be a Texaco, JohnsManville Forest Products, or Ames Department Stores to be considered large and complex within the meaning of section 1121."). Thus, for instance, in Bunch v. Hoffinger Indus. (In re Hoffinger Indus.), 292 B.R. 639, 644 (B.A.P. 8th Cir. 2003), the Eighth Circuit Bankruptcy Appellate Panel affirmed an order granting an extension that brought the exclusivity period to approximately 595 days after the petition date for a debtor with $36 million in gross sales, where the bankruptcy court found that the case was complex and that the debtor was moving expeditiously to resolve it. See also, In re United Press Intl, Inc., 60 B.R. 265, 270 (Bankr. D.D.C. 1986) ("In many much smaller cases, involving far less complications, two or three years go by before the debtor is in a position to file a plan."). Further, the case of In re Perkins, which involved an estate valued at $13 million with approximately 100 creditors who held 225 claims totaling $10 million, was sufficiently large and complex to warrant an exclusivity period of over two and half years. 71 B.R. at 296. The Debtors' cases qualify as large and complex. As of the Petition Date, the Debtors were the ninth largest manufacturer of "Class A" motor homes in the country. As set forth in their schedules, the Debtors' liabilities total approximately $42 million (which doesnt take into account any claims filed in the cases) and assets (at book value) of approximately $39 million. Not only are there thousands of creditors, but also the constituencies in these cases are diverse, including secured creditors, chassis and other trade vendors, dealers, a landlord, former employees, and ad hoc equity committee. A controlled plan process affords the best opportunity for addressing the interests of all constituencies with the least amount of rancor and expense. B. The Debtors Are Meeting Their Postpetition Obligations.
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Another factor that bankruptcy courts may consider when deciding whether to extend a debtor's exclusivity periods is whether the debtor in possession is meeting its obligations under the Bankruptcy Code, such as its obligations to pay post-petition expenses as they come due. See, e.g., In re Hoffinger Indus., Inc., 292 B.R. 639, 644 (B.A.P. 8th Cir. 2003) ("In this case,
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evidence in the record reveals that the debtor met its burden of establishing good cause, and that the bankruptcy court did not abuse its discretion in granting extensions. [The Debtor's
president] also testified that Hoffinger is paying its post petition expenses as they become due and adequate cash and lines of credit are in place to pay administrative claims in the future."); In re Trainer's, Inc., 17 B.R. 246, 247 n.3 (Bankr. E.D. Pa. 1982). Since commencing these chapter 11 cases, the Debtors have addressed many challenges ranging from mundane matters (such as retaining professionals and complying with reporting requirements) to complex challenges (such as liquidating their assets, bringing back recently terminated employees to finish the build-out of their inventory, chassis issues and prosecuting the Kemlite Litigation to verdict). These challenges have consumed a great deal of time and energy on the part of the Debtors' management and their professionals. During this process, however, the Debtors have been satisfying their post-petition obligations as they have come due or have promptly remedied any oversights upon discovery. 3 C. The Debtors Have Made Progress In Negotiations With Its Creditors.
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Negotiations with the Creditors Committee concerning a resolution of these cases have begun in earnest. Already, the Debtors have actively engaged the Creditors Committee in negotiations which should result in an agreed upon blue-print and budget for the resolution of these cases. Further, the Debtor has made progress generally in its negotiations with creditors; most notably, the chassis vendors.
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While the Debtors originally did not pay post-petition rent for the months of December and January as and when such amounts were due under the terms of their real property leases (the Leases), the Debtors do not believe they were required to do so. First Industrial subsequently filed a motion to compel the Debtors to pay rent for those months (the "Landlord Motion"). Fortunately, First Industrial and the Debtors were able to consensually resolve this dispute by stipulation prior to the hearing on the Landlord Motion. Following that hearing, the Court entered that certain Stipulation and Agreed Order Resolving Landlord's Motion for Entry of an Order Directing the Debtor to Comply with its Obligations to First Industrial, L.P. or in the Alternative, Directing the Surrender of the Premises and Rejection Leases [Docket #144] (the "Landlord Stipulation"). Subsequent to the entry of the Landlord Stipulation, the Debtors have satisfied all of their post-petition obligations under the Leases.
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D.
The Existence of Substantial Unresolved Issues Warrants An Extension Of The Exclusivity Periods.
The existence of issues that must be addressed and resolved in order for a plan to be presented and confirmed may present an additional basis to extend the exclusivity periods. See, e.g., In re Texaco, 76 B.R. at 326-27; In re United Press Intl, Inc., 60 B.R. at 270. This is especially true in large and complex cases where a plan of reorganization cannot be formulated until the pending issues are resolved. See id. As discussed at length above, as the Debtors continue to generate cash for the estates and endeavor to resolve matters with chassis vendors, the Debtors simply need more visibility on the amount of administrative claims that will need to be paid or reserved for on the effective date of any plan. While the Debtors are optimistic that a plan can and will be confirmed during the requested extension periods, the relief sought herein will allow the estates to preserve and maintain the opportunity for an orderly, efficient and cost-effective resolution of these cases. III. CONCLUSION WHEREFORE, based on all of the foregoing, the Debtors request entry of an order extending the Exclusivity Periods by 90 days, as requested above, and granting such other relief that the Court deems necessary and appropriate. DATED: March 13, 2008 /s/ David M. Guess DAVID M. GUESS, an Attorney with KLEE, TUCHIN, BOGDANOFF & STERN LLP Bankruptcy Counsel for Debtors and Debtors in Possession
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12
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DECLARATION OF BRUCE COX CONKLIN, JR. I, Bruce Cox Conklin, Jr., declare as follows: 1. I am the Senior Managing Director of Kibel Green, Inc., the Debtors' financial and
management consultant in the chapter 11 bankruptcy cases of National R.V. Holdings, Inc. and National R.V., Inc. (collectively, the "Debtors") 2. I have more than 30 years of experience in the business management, operations
and turnaround industries. I specialize in full-service financial and operational consulting and interim management. I have served as Interim Chief Executive Officer and Chief Restructuring Officer for numerous companies in multiple industries, including wireless communications and construction machinery. I have also served as a consultant to executive management,
performing strategic, operational and financial reviews, developing business plans and investment analyses, and implementing business transitions. 3. In my capacity as a financial and management consultant, and in conjunction with
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1
the efforts of other members of the Debtors' senior management, for the past year I have been involved with all aspects of the Debtors' affairs, including business operations, strategic planning, financial reporting, human resources, legal affairs and other management activities, including the Debtors' efforts to address their current financial difficulties. I am often on-site and am in daily contact with management. 4. Based upon all of the foregoing, I have developed an intimate familiarity with:
(a) the Debtors' business and financial history, and their current business and financial situation and (b) the financial and operational details of the Debtors' business operations. 5. I submit this declaration in support of the accompanying Motion for Order
Pursuant to Bankruptcy Code Section 1121(d) Extending the Exclusive Time Periods in Which Only the Debtors May File a Chapter 11 Plan and Solicit Acceptances With Respect Thereto (the Motion). 1 Except as otherwise stated herein, if called as a witness, I could and would competently testify to the matters set forth herein from my own personal knowledge.
Capitalized terms not otherwise defined in this Declaration shall have the meaning ascribed to them in the Motion.
28
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6.
Prior to commencing these cases, the Debtors explored a variety of approaches to
their continuing liquidity crisis, including a sale, a sale of certain underperforming assets, and the infusion of new equity capital. Despite many efforts, it became increasingly clear that the Debtors simply could not continue to operate for any extended period of time. As a result, the Debtors determined they had no choice other than to pursue an orderly liquidation of their assets. To that end, after having conducted substantial "reductions in force," resulting in more than a 90% reduction of their work force, they commenced these cases. 7. Shortly after the Petition Date, the Debtors moved on an expedited basis to
maintain their existing cash management system, establish notice procedures in these cases, secure uninterrupted utility services, obtain authority to provide severance to their remaining work force (other than insiders), obtain use of cash collateral, and extend the time within which the Debtors had to file their schedules (which were subsequently timely filed) -- which relief was granted, at least on an interim basis, within days of the commencement of these cases. 8. After the Petition Date, the Debtors requested and obtained Court authority to
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proceed with the immediate but orderly liquidation of their remaining RVs and other inventory, and an order authorizing them to compromise accounts receivable, and sell other assets. The Debtors also requested and obtained court approval of several other motions and applications designed to enable it to function in chapter 11, including applications for the employment of professionals, compensation procedures, and the establishment of claims bar dates. 9. The Debtors' management and professionals expended significant time since the
commencement of these cases addressing the formal and information requests for information from various constituencies (including potential acquirers, and furnishing legal and financial information to the Creditors Committee and the Office of the United States Trustee), and tackling a wide array of operational and chapter 11 compliance issues. 10. On January 14, 2008, the Debtors timely filed schedules, listing assets and
liabilities with a book value of approximately $39 million and $42 million, respectively, after backing out intercompany claims. These liabilities do not include unknown or amounts listed on the schedules at zero, of which there are many. Moreover, because these estates have literally
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thousands of creditors, the Debtors expect there to be a substantial number of claims asserted against the estates, which are not currently listed on their schedules. 11. While these cases have been pending for less than 4 months, the Debtors have
generated more than $22 million of cash for the estates through a quick and orderly disposition of substantially all of their personal property assets. 12. Within days after the petition date, the Debtors aggressively marketed their
inventory and, ultimately, sold their then-completed inventory of 77 finished RVs to Dillon for nearly $7.5 million. Thereafter, Dillon contracted to purchase an additional 68 finished RVs for approximately $6.75 million. To complete this massive order, the Debtors are building out much of their remaining raw materials and WIP (work-in progress) into finished RVs. By the third week in March, the build-out should be complete. 13. The Debtors have also been successful in selling other assets, including their
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South Coast Reactive Organic Gas Emission Reduction Credits, which the Debtors were able to sell for nearly $1.6 million. The Debtors also have collected millions of dollars in accounts receivable since the Petition Date. 14. The Debtors also negotiated and entered into a liquidation agreement with
BIDITUP Auctions Worldwide, Inc. to assist them in liquidating (through a public auction and otherwise) the vast majority of their remaining tangible personal property. The auction is expected to take place on March 26th and 27th. The Debtors are entitled to a guarantee which will exceed $1 million (after taking into account possible adjustments). 15. The Debtors continue exploring (and now with the active participation of the
Creditors' Committee) how best to maximize value from the disposition of their other bare chassis, not included in the BIDITUP auction. The chassis vendors assert various claims to the chassis, including security or ownership interests, reclamation and 503(b)(9) claims. The
Debtors encountered similar issues when they sold their finished RVs and had to impound more than $8.2 million of the $14.5 million dollars of sale proceeds to secure purported claims or interests of the chassis vendors pending further order of the court. The Debtors believe a significant portion of these proceeds will ultimately inure to the estates. The Debtors are hopeful
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that they, working with the Creditors Committee, will be able to reach global resolutions with the chassis vendors in the coming weeks. 16. The Debtors have also signed listing agreements with brokers (subject to Court
approval) to sell their real property in Florida and market their Perris leaseholds. 17. The Debtors have also been focused on reducing overhead and administrative
costs throughout these cases and proceeding with a wind-down of their operations and affairs. The Debtors have actively engaged the Creditors Committee in this process, and expect (in the coming days) to have a consensual blue-print and budget in place for the resolution of these cases. The Debtors expect to have only seven employees by the beginning of April, who will complete the wind-down. In addition, by the end of April, the Debtors will either reject or seek to assume and assign their leases and vacate their leaseholds. The Debtors intend to relocate, and are actively looking for new office space. 18. The Debtors are now in a position to focus on implementing the final phase of
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their liquidation and wind-down -- ideally through a chapter 11 plan. In order to assess their options in any meaningful way, however, the Debtors simply need more visibility on the amount of administrative claims that will either have to be paid or reserved for on the effective date of any plan; and, in particular, the amount of 503(b)(9) claims and WARN Act administrative priority claims, if any, against the estates. 19. Because the Court fixed the Court fixed April 17, 2008 as the last date for
creditors to assert 503(b)(9) claims against the estates, the Debtors should have a much better handle on the 503(b)(9) claims in the next coming weeks. Also, it is my understanding that the Debtors intend to take meaningful steps in the weeks ahead to see if the Warn Act litigation can be resolved consensually. Regardless of whether this litigation can be resolved consensually, the Debtors should have much more visibility on the likely exposure they may have on any such Warn Act claims.

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Motion For Joint Administration

Motion For Joint Administration

MEMORANDUM OF POINTS AND AUTHORITIES I. STATEMENT OF FACTS A. General Background.

Motion For Joint Administration

Motion For Joint Administration

Motion For Joint Administration

Motion For Joint Administration

There will be no material prejudice to creditors if these estates are jointly

Motion For Joint Administration

As discussed above, joint administration would benefit all creditors by

Motion For Joint Administration

NRVH has issued and outstanding 10,339,484 shares of common stock.

Prior to commencing these cases, the Debtors explored a variety of approaches

What follows (in paragraphs 54 through 60) is a detailed description of the

The Depository Account is the Debtors' primary means of concentrating

Pursuant to the terms of the Prepetition Loan Documents, proceeds in the

proposed procedures to ameliorate these burdens.

Until the Court approves these notice

Executed this 10th day of December, 2007 at Perris, California.

/s/ Thomas J. Martini

DATED: February 14, 2008

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. B. IV. III. II.

EACH CHAPTER 11 PROCEEDING MUST BE DETERMINED ON A CASE BY CASE BASIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

HOLDINGS SHARES ARE PUBLICLY TRADED, BUT NOT WIDELY HELD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

THE MOST RECENT ESTIMATION BY HOLDINGS STRONGLY SUGGESTS THAT IT IS INSOLVENT. . . . . . . . . . . . . . . . . . . . . . . . . 10

THE EQUITY HOLDERS WILL NOT BE PREJUDICED IF THE MOTION IS DENIED. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

THE EQUITY HOLDERS ARE ADEQUATELY REPRESENTED. . . 11

DECLARATION OF UNITED STATES TRUSTEE PETER C. ANDERSON . . . . . . . . . . . . 15

DECLARATION OF TRIAL ATTORNEY TIMOTHY J. FARRIS . . . . . . . . . . . . . . . . . . . . . 18

MEMORANDUM OF POINTS AND AUTHORITIES

HOLDINGS IS NOT A LARGE OR COMPLEX CASE.

THE MOST RECENT ESTIMATION BY HOLDINGS STRONGLY SUGGESTS THAT IT IS INSOLVENT.

THE EQUITY HOLDERS WILL NOT BE PREJUDICED IF THE MOTION IS DENIED.

THE EQUITY HOLDERS ARE ADEQUATELY REPRESENTED.

_____________________________ PETER C. ANDERSON U.S. Trustee

DECLARATION OF TRIAL ATTORNEY TIMOTHY J. FARRIS

/s/ Timothy J. Farris TIMOTHY J. FARRIS Trial Attorney

DATED: March 13, 2008

MEMORANDUM OF POINTS AND AUTHORITIES I. STATEMENT OF FACTS A. General Background.

The Debtors' Wind-down.

Prior to commencing these cases, the Debtors explored a variety of approaches to

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