In re:

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE
) Chapter 11
)
MERVYN'S HOLDINGS, LLC, et al.,
1
) Case No. 08- (_)
)
Debtors. ) Jointly Administered
DEBTORS' MOTION FOR AUTHORITY TO (I) PAY PREPETITION
OBLIGATIONS UNDER WORKERS COMPENSATION AND SELF INSURED
GENERAL LIABILITY INSURANCE PROGRAMS, (II) CONTINUE SUCH
INSURANCE PROGRAMS AND HONOR POSTPETITION OBLIGATIONS IN
RESPECT THEREOF, AND (Ill) CONTINUE CERTAIN PREMIUM
FINANCING ARRANGEMENTS AND HONOR POSTPETITION
OBLIGATIONS IN RESPECT THEREOF
The above-captioned debtors and debtors in possession (collectively, the
"Debtors"), by and through their undersigned counsel, hereby file this motion (the "Motion") for
entry of an order, substantially in the form attached hereto as Exhibit A, authorizing them to (i)
pay prepetition obligations under workers compensation and self insured general liability
insurance programs, (ii) continue such insurance programs and honor postpetition obligations in
respect thereof, and (iii) continue certain premium financing arrangements and honor
postpetition obligations in respect thereof. In support of this Motion, the Debtors rely on the
Affidavit of Charles R. Kurth, Executive Vice President and Chief Financial and Administrative
Officer of the Debtors, in Support of the First Day Motions and respectfully state as follows:
JURISDICTION
I. This Court has jurisdiction to consider this Motion under 28 U.S.C. 157 and
1334. This is a core proceeding under 28 U.S.C. 157(b). Venue is proper pursuant to 28
U.S.C. 1408 and 1409.
1
The Debtors in these cases, along with the last four digits of their federal tax identification numbers, are
Mervyn's Holdings, LLC (7931), Mervyn's LLC (4456), and Mervyn's Brands, LLC (8850).
RLF!-3306789-1
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0811586080729000000000012
2. The statutory basis for the relief requested herein is Section 1 05(a) of title 11 of
the United States Code, 11 U.S.C. 101 et seg. (the "Bankruptcy Code") and Rule 6003 of the
Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules").
BACKGROUND
A. Introduction
3. On July 29, 2008 (the "Petition Date"), each of the Debtors filed a voluntary
petition for relief under Chapter 11 of the Bankruptcy Code.
4. The Debtors continue to operate their business and manage their properties as
debtors in possession pursuant to Banlauptcy Code 1107(a) and 1108. No trustee, examiner
or official committee of unsecured creditors has been appointed in the Debtors' cases.
B: Overview of the Debtors' Corporate Structure and Business
5. Mervyn's LLC ("Mervyn's") traces its roots to a mid-range department store
opened by Mervin Morris in San Lorenzo, California in 1949 and has grown over the last 60
years into a 177-store chain of family friendly, promotional department stores. Mervyn's was
incorporated in 1954 and, in 1978, became a wholly-owned subsidiary of Dayton Hudson
Corporation (now The Target Corporation). In late August 2004, Mervyn's converted into a
California limited liability company in conjunction with its acquisition by Mervyn's Holdings,
LLC ("Mervyn's Holdings"), a Delaware limited liability company formed by affiliates of Sun
Capital Partners, Inc. ("Sun"), Cerberus Capital Management, L.P. ("Cerberus"), Lubert-Adler
and I(Jaff Partners, L.P. ("KLA").
2
Mervyn's Brands, LLC ("Mervyn's Brands") is a wholly-
2
The 2004 transaction divided the fonner Mervyn's Inc.'s retail business from substantially all of its real
estate assets, consisting of 262 properties previously owned or leased by Mervyn's. The remaining real estate
assets, consisting of certain leases that were not assignable (the "Restricted Leases") remained with Mervyn's. The
real estate entities, including MDS Realty Holdings I, LLC, MDS Realty Holdings II, LLC, MDS Realty I, LLC,
MDS Realty II, LLC, MDS Realty Ill, LLC, MDS Realty IV, LLC, MDS I Texas Realty, LP and MDS II Texas
Realty, LP (collectively, the "MDS Entities"), each of which is directly or indirectly owned by KLA, Sun and
2
RLFI-3306789-1
owned subsidiary of Mervyn's and a Minnesota limited liability company which owns all or
substantially all of Mervyn's intellectual property.
6. As of the Petition Date, Mervyn's employed more than 18,000 people and
operated 177 retail stores in California and six states in the southwestern United States.
Mervyn's retail stores average 80,000 retail square feet and are located primarily in community
shopping centers, regional malls and freestanding locations. Through these retail stores,
Mervyn's sells its extensive selection of national brands and private-label apparel and
housewares.
7. All of the retail stores are subject to leases with aggregate annual rent expense in
excess of $172 million. In addition to the retail stores, Mervyn's also leases two distribution
centers and its headquarters facility located in Hayward, California.
8. For the fiscal year ended February 2, 2008, Mervyn's recorded net sales of
approximately $2.5 billion and incurred a net loss of approximately $64 million.
C. The Debtors' Debt Structure
9. Mervyn's and Mervyn's Brands are party to that certain Loan and Security
Agreement, dated September 2, 2004, by and among Mervyn's, as borrower, Mervyn's Brands as
guarantor, Wachovia Capital Finance Corporation (Western) (as successor to Congress Financial
Corporation (Western)), as administrative agent and collateral agent, the lenders party thereto
from time to time (the "Prepetition First Lien Lenders") and other parties thereto, under which
the Prepetition First Lien Lenders provided a loan facility of up to $600 million to Mervyn's (the
"Prepetition Senior Loan Facility") consisting of a $550 million revolving loan A facility and a
$50 million revolving loan B facility, each of which is subject to a borrowing base.
Cerberus, did not file Chapter 11 petitions on the filing date. Such entities have lending arrangements separate from
the prepetition lending arrangements of the Debtors.
3
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I 0. Amounts outstanding under the Prepetition Senior Loan Facility are secured by a
first priority security interest in all or substantially all of Mervyn's and Mervyn's Brands'
accounts, general intangibles (including, without limitation, intellectual property), goods
(including, without limitation, inventory and equipment), commercial tort claims, receivables,
real propertl and fixtures, chattel paper, instruments, documents and credit card sales drafts,
credit card sales slips, charge slips or receipts and other forms of store receipts, deposit accounts,
letters of credit, bankers acceptances and similar instruments (including letter of credit rights,
supporting obligations and present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of receivables and other collateral), investment property, monies,
credit balances and other similar property, records, all products and proceeds of the foregoing,
and Mervyn's membership interests in Mervyn's Brands (the "Prepetition Collateral"). As of the
Petition Date, an aggregate amount of approximately $329,381,571.02, plus interest, costs and
expenses, was outstanding under the Prepetition Senior Loan Facility.
II. In addition to the Prepetition Senior Loan Facility, Mervyn's is party to that
certain Subordinated Promissory Note in the aggregate principal amount of $30 million, dated as
of November 27, 2007 (the "SCSF Note"), by and among Mervyn's, as borrower, and SCSF
Mervyn's (Offshore), Inc. and SCSF Mervyn's (US), LLC,
4
as lenders. The SCSF Note is
guaranteed by Mervyn's Brands, and the obligations of Mervyn's and Mervyn's Brands
thereunder are secured by a second lien in the Prepetition Collateral.
3
No mortgages were filed in respect of the Debtors' real estate interests, including leaseholds, by the
Prepetition Agent, the Prepetition First Lien Lenders, or the Prepetition Second Lien Lenders.
4
SCSF Mervyn's (Offshore), Inc. and SCSF Mervyn's (US), LLC are affiliates of Sun, and also hold
39.59598% and 15.94846%, respectively, of the Retail Investor Percentage Interest membership interests in the
Retail Series of Mervyn's Holdings (series relating to the operation of the retail business), 20.17961% and
8.64765%, respectively, of the common membership interests in the Restricted Leases Series of Mervyn's Holdings
(series relating to the Restricted Leases), and 20.40651% and 8.74349%, respectively, of the preferred membership
interests in the Restricted Leases Series of Mervyn's Holdings.
4
RLFI-3306789-1
D. Events Leading to the Bankruptcy Filing
12. During the first quarter of 2008, Mervyn's instituted a long-term turnaround plan
designed to differentiate itself from its competitors, grow sales, and improve store productivity,
and thereby improve profitability and cash flow. However, rollout of the plan coincided with a
variety of external economic factors which have led to a precipitous decline in the Debtors'
profitability and liquidity.
13. Chief among those external factors are the decline in the housing market and the
tightening of the credit markets which have led, respectively, to a decline in consumer
discretionary spending, including in the apparel and home decor sectors, and to a tightening of
credit terms by Mervyn's suppliers and their factors. These negative external factors have
worsened in recent months. As a result of the foregoing, the ability of Mervyn's to pay its
suppliers, maintain an uninterrupted flow of merchandise into the stores and service its debt has
been severely negatively impacted. As economic conditions continued to deteriorate and
liquidity continued to tighten, the commencement of these cases became necessary to rationalize
Mervyn's finances and operations, with the objective of reorganizing the Debtors as profitable
entities.
RELIEF REQUESTED
14. In connection with the operation of the Debtors' business, the Debtors maintain
various insurance programs, including with respect to general liability, casualty, professional,
and workers' compensation. Other than with respect to workers compensation insurance and the
5
RLFI-3306789-1
financing arrangement in connection with their property insurance, the Debtors have no
outstanding prepetition obligations in respect of their insurance programs.'
15. By this Motion, the Debtors request the authority, pursuant to Section 105(a) of
the Bankruptcy Code, to (i) pay prepetition obligations in respect of the Debtors' workers
compensation insurance programs (the "Workers Compensation Program"), (ii) continue such
insurance programs and honor all postpetition obligations in respect thereof, and (iii) continue
certain premium financing arrangements and honor postpetition obligations in respect thereof
(the "Insurance Obligations").
INSURANCE OBLIGATIONS
A. Workers' Compensation Program
16. Under the laws of the various states m which they operate, the Debtors are
reqnired to maintain for workers compensation coverage for claims arising from or related to
employment with the Debtors. The Debtors' Workers Compensation Program consists of two
components: (i) the self-insured program for coverage of the Debtors' liabilities prior to August
28, 2004 (the "Self-Insured WC Program"), and (ii) the high deductible program for coverage of
the Debtors' liabilities after August 28, 2004 (the "High Deductible WC Program").
(i) The Self-Insured WC Program
17. As a result of the sale of Mervyn's by The Target Corporation in 2004, the
Debtors assumed all outstanding Self-Insured WC Program liabilities which existed on the date
of the sale. The current value of the Debtors' self-insured liabilities is approximately $25
million, including approximately $21 million in the State of California and the remainder in
5
The Debtors maintain numerous insurance programs with respect to employee health, dental, disability,
and life insurance benefits. These policies are addressed in a separate motion filed contemporaneously herewith
pertaining to the Debtors' employee obligations.
6
RLFI-3306789-1
Texas, Nevada, New Mexico, Oklahoma, Utah, Colorado, Arizona, Michigan, Georgia,
Louisiana, Oregon and Washington. The Debtors have provided letters of credit or surety bonds
to secure their obligations in the States of Colorado, Nevada and Oregon. The Debtors
reimburse The Target Corporation for collateral and state administration fees in Arizona,
Michigan, Oklahoma, Texas, Utah and Washington.
18. Pursuant to the Self-Insured WC Program, the Debtors pay pending workers'
compensation claims by depositing funds into a bank account specifically established in
connection with the Debtors' Workers Compensation Program. The Debtors deposit funds on a
daily basis into an account used by the Debtors' claims administrator, Constitution State
Services, to pay claims, claims handling fees and expenses (the "CSS Account").
(ii) The High-Deductible WC Program
19. The Debtors maintain the High Deductible WC Program for all of their current
employees with respect to which ACE American Insurance Company ("ACE") is the carrier.
Claims under the High Deductible WC Program provide for a per incident and per employee
deductible of $2 million and are subject to statutory limits per incident and per employee. The
Debtors are subject to a maximum of $2 million per incident per employee. The Debtors
reimburse the CSS Account for claims paid within these limits via the CSS Account and secure
their obligations via letters of credit in the aggregate face amount of approximately $31 million
with ACE. Pursuant to the High Deductible WC Program, the Debtors pay to ACE an a1111ual
premium that is calculated based upon the Debtors' projected payroll and historic loss rates. For
the period from August 28, 2007 through August 29, 2008, the a1111ual premium totaled
approximately $803,084.
7
RLFI-3306789-1
20. The daily deposits by the Debtors into the CSS Account in connection with the
Debtors' Workers Compensation Program range from $15,000 to $200,000, depending on the
type, number and amount of claims, and, on a monthly basis, average $1.1 million.
21. The Debtors are seeking authority to continue funding the CSS Account in respect
of both the Self Insured WC Program and the High Deductible WC Program in the ordinary
course of business postpetition. The Debtors are not seeking authority to pay any prepetition
premiums on account of the High Deductible WC Program, but are requesting authority to pay
all postpetition obligations in connection with such program in the ordinary course of business.
22. Failure to continue funding the CSS Account could have materially negative
consequences on the Debtors in the State of California, where the bulk of the Debtors' workers
compensation liabilities reside. For example, until recently, the Debtors were members of the
SISF Alternative Security Program
6
Were the Debtors to cease funding the CSS Account, the
State of California would likely request that the Debtors post substantial additional collateral or
otherwise secure ongoing payment and could draw upon the letter of credit posted in the State of
California in connection with the Self-Insured WC Program.
B. Self Insured General Liability Insurance Program
23. The Debtors maintain a self insured general liability insurance program (the "Self
Insured GL Program") under which ACE is the carrier for all of their current third party claims.
Claims under the Self Insured GL Program have a self insured retention in the amount of
$250,000. The Debtors deposit funds on a weekly basis into an account used by the Debtors'
claims administrator, Sedgwick, to pay claims within these limits, claims handling fees and
6
The Self-Insurers' Security Fund (the "SISF") is a non-profit, mutual benefit corporation, created by the
State of California, whose members are all self-insured private employers. SISF was chartered to provide for the
continuation of workers compensation benefits after a self-insured employer goes into bankruptcy or is unable to
continue paying workers compensation benefits.
8
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expenses (the "Sedgwick Account") and secure their obligations via the letters of credit held by
ACE. Pursuant to the Self Insured GL Program, the Debtors pay to ACE an annual premium that
is calculated based upon the Debtors' projected payroll and historic loss rates.
24. The amounts deposited into the Sedgwick Account in connection with the Self
Insured GL Program range from $15,000 to $200,000 depending upon the type, number and
amount of claims, and on an annual basis average approximately $3 million.
25. The Debtors are seeking authority to continue funding the Sedgwick Account in
respect of the Self Insured GL Program in the ordinary course of business postpetition. The
Debtors are not seeking authority to pay any prepetition premiums on account of the Self Insured
GL Program, but are requesting authority to pay all postpetition obligations in connection with
such program in the ordinary course of business.
C. Insurance Premium Financing Agreements
26. Prior to the Petition Date, the Debtors determined, in the ordinary course of
business in their business judgment, to finance the annual premiums under certain of their
insurance programs. Specifically, the Debtors entered into premium financing agreements with
AFCO Premium Acceptance, Inc. ("AFCO") covering $3,571,348 of annual premiums under
their property insurance (the "Prope1ty Insurance Financing Agreement").
27. The Debtors utilize multiple Insurance Carriers in incremental levels of liability
for their prope1ty insurance (the "Property Insurance"), which includes coverage for real and
personal property, machinery and equipment, improvement and betterments, inventory,
electronic data equipment, business interruptions, and motor vehicles. A list of the Property
Insurance policies, including the type of coverage, the insurance carrier, account number and
participation breakdown is attached hereto as Exhibit B. Annual premiums under the Property
9
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Insurance policies, which are financed by the Debtors with AFCO, are due in advance on August
28th for each policy year
7
28. Under the terms of the Property Insurance Financing Agreement, the Debtors
made a $537,661 down payment to AFCO, and are obligated to make monthly payments of
principal and interest in the aggregate amount of $342,203. The Debtors are current on their
obligations under the Property Insurance Financing Agreement and, as such, are not requesting
authority to pay any prepetition obligations in respect thereof. Rather, the Debtors are requesting
authority to pay all financing obligations under the Prope1ty Insurance Financing Agreement in
the ordinary course of business postpetition.
29. Pursuant to the Property Insurance Financing Agreement, the Debtors granted to
AFCO a security interest in all unearned premiums, dividends and loss payments which reduce
the unearned premiums under the financed polices, and any state guarantee fund relating to any
Property Insurance policy. These financing agreements also provide AFCO with the right to
cancel the financed property insurance policies in the event that a payment default occurs under
the Property Insurance Financing Agreement.
30. If AFCO were to cancel the Debtors' Property Insurance, there are no assurances
that the Debtors could secure replacement policies, or that the replacement policies would
provide the same level and scope of coverage. Even if comparable coverage could be obtained
on an expedited basis and without significant gaps in the time period covered, the Debtors
believe that the costs associated with obtaining such coverage would be well in excess of the
amounts that remain owing under these financing agreements.
7
As no prepetition amounts are currently owed and no postpetition obligations are expected to become due
immediately, the Debtors intend to seek approval of any non-ordinary course expenditures in connection with their
Property Insurance and other insurance plans after the Petition Date on notice to parties in interest.
10
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31. Accordingly, the Debtors are requesting authority to pay all obligations under the
Property Insurance Financing Agreement in the ordinary course of business postpetition.
BASIS FOR RELIEF
32. Pursuant to Section 105(a) of the Banlauptcy Code, the "court may issue any
order, process, or judgment that is necessary or appropriate to carry out the provisions of this
title." 11 U.S.C. I OS( a). The Debtors submit that the relief requested herein is necessary and
appropriate to carry out the provisions of the Bankruptcy Code.
33. The Debtors believe that authorization for payment of prepetition amounts to
Insurance Carriers is necessary to continue in the ordinary course of business. "The ability ofthe
Bankruptcy Court to authorize the payment of prepetition debt when such payment is needed ...
is not a novel concept." In re Ionosphere Clubs. Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989).
This equitable common law principle "was first articulated by the United States Supreme Court
in Miltenberger v. Logansport, C & S.W.R. Co., 106 U.S. 286, 1 S.Ct. 140, 27 L.Ed 117 (1882)
and is commonly referred to as either the 'doctrine of necessity' or the 'necessity of payment'
rule." In re Ionosphere Clubs, Inc., 98 B.R. at 176. "The Supreme Court, the Third Circuit and
the District of Delaware all recognize the court's power to authorize payment of pre-petition
claims when such payment is necessary for the debtor's survival during chapter 11." In re Just
for Feet, Inc., 242 B.R. 821, 825 (D. Del. 1999).
34. Under the doctrine of necessity, a banlauptcy court may exercise its equitable
power to authorize a debtor to pay certain critical prepetition claims, where, as here such
payment is essential to the debtor's business. See In re Columbia Gas System, 136 B.R. 930,
939 (Bankr. D. Del. 1992) (citing In re Lehigh & New England Rwy Co., 657 F.2d 570, 581 (3rd
Cir. 1981) (recognizing that "if payment of a prepetition claim 'is essential to the continued
operation of [the debtor], payment may be authorized"')).
11
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35. Courts in this district routinely grant the relief requested herein. See, ~ . In re
Linens Holding, Co., No. 08-10832 (CSS) (Bankr. D. Del. May 2, 2008); In re Hoop Holdings,
LLC, No. 08-10544 (BLS) (Bankr. D. Del. July 18, 2008); In re Pope & Talbot, Inc., No. 07-
11738 (CSS) (Bankr. D. Del. Nov. 21, 2007); In re Tweeter Home Entm't Group, Inc., No. 07-
10787 (PJW) (Bankr. D. Del. June 13, 2007); In re Hancock Fabrics, Inc., No. 07-10353 (BLS)
(Bankr. D. Del. Mar. 22, 2007); In re Dura Auto. Sys., Inc., Case No. 06-11202 (Bankr. D. Del.
Nov. 21, 2006).
36. The Debtors further submit that pursuant to the recently revised Bankruptcy Rule
6003, the Court may grant relief regarding a motion to pay all or part of a prepetition claim
within 20 days after the Petition Date if the relief is necessary to avoid immediate and irreparable
harm. As noted above, the Debtors must maintain the Workers Compensation Program
uninterrupted during these Chapter 11 cases in order to successfully continue with their business
and reorganization efforts.
37. Continued maintenance of the Workers Compensation Program and the remaining
cunent under the Property Insurance Financing Agreement serves to preserve the value of the
Debtors' estates. The nonpayment of any premiums, deductibles, or related fees in connection
with the Debtors' Property Insurance could result in one or more of the insurance carriers
declining to renew their insurance policies or refusing to enter into new insurance agreements
with the Debtors in the future. If the Debtors' Property Insurance is allowed to lapse without
renewal, the Debtors could be exposed to substantial liability for damages resulting to persons
and property of the Debtors and others, which exposure could have an extremely negative impact
on the Debtors' ability to successfully reorganize. Furthermore, the Debtors would then be
required to obtain replacement policies on an expedited basis at a potentially significant cost to
12
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the estate. Accordingly, the Debtors respectfully request that they be authorized to make all
payments in respect of the Property Insurance Financing Agreement going forward.
38. Moreover, maintenance of Workers Compensation Program is required by state
law and maintenance of Property Insurance is required by the Office of the United States
Trustee. Maintenance of both programs, as well as the Self Insured GL Program, is required
under the Debtors' postpetition financing arrangements. Failure by the Debtors to pay the
premiums associated with their Workers' Compensation Program, for example, would jeopardize
their coverage, exposing the Debtors to substantial liability in fines by various state workers'
compensation boards and actions by the State of California, including drawing under any letters
of credit or other security provided to the state, taking over, through SISF, the Debtors' workers
compensation claims and pursuing the Debtors for reimbursement. Such actions could have a
material negative impact on the Debtors as well as causing a default under their postpetition
financing arrangements.
39. In addition, the risk that eligible workers' compensation claimants will not receive
timely payments for prepetition employment-related injuries could have a devastating effect on
the financial well-being and morale of the Debtors' current employees. Employee departnres at
this critical time could result in a severe disruption of the Debtors' business with a substantially
adverse impact on the Debtors, the value of their assets and businesses, and their ability to
reorganize.
40. Finally, as set forth above, the Debtors must continue their insurance coverage
throughout these Chapter 11 cases and failure to make payments under their Self Insured GL
Program or their premium financing arrangement would give the AFCO the right to cancel the
Debtors' Property Insurance which would result in default under the Debtors' postpetition
13
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financing arrangements and would cause the Debtors to be out of compliance with the guidelines
of the Office of the United States Trustee.
41. To the extent any insurance program or financing agreement is deemed an
executory contract within the meaning of Section 365 of the Bankruptcy Code, the Debtors do
not, at this time, seek to assume any such contract. Accordingly, if the Court authorizes the
payments described above, such payments shall not be deemed to constitute a postpetition
assumption of the programs, policies, or agreements as executory contracts pursuant to Section
365 of the Bankruptcy Code. The Debtors are in the process of reviewing these matters and
reserve all their rights under the Bankruptcy Code with respect thereto. Moreover, authorization
to pay all Insurance Obligations on account of the insurance programs described herein shall not
affect the Debtors' right to contest the amount or validity of any Insurance Obligation.
REQUEST FOR WAIVER OF STAY
42. The Debtors further seek a waiver of any stay of the effectiveness of the order
approving this Motion. Pursuant to Rule 6004(h) of the Bankruptcy Rules, "[a]n order
authorizing the use, sale, or lease of property other than cash collateral is stayed until the
expiration of ten (1 0) days after entry of the order, unless the court orders otherwise." As set
forth above, the payments proposed herein are essential to prevent potentially irreparable damage
to the Debtors' operations, value and ability to reorganize. Accordingly, the Debtors submit that
ample cause exists to justify a waiver of the ten (1 0) day stay imposed by Bankruptcy
Rule 6004(h), to the extent it applies.
14
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NOTICE
44. The Debtors shall provide notice of this Motion by facsimile and/or overnight
mail to: (i) the Office of the United States Trustee for the District of Delaware; (ii) the Debtors'
thirty (30) largest unsecured creditors on a consolidated basis; (iii) counsel to the agent for the
Debtors' proposed postpetition secured lenders; (iv) counsel to the agent for the Debtors' pre-
petition senior secured lenders; (v) counsel to the agent for the Debtors' prepetition junior
secured lenders; (vi) the Internal Revenue Service; (vii) the Securities and Exchange
Commission; (viii) the Office of the United States Attorney General for the District of Delaware;
(ix) counsel to the Debtors' equity sponsors; (x) counsel to the MDS Entities; (xi) counsel to
Cerberus; (xii) applicable state regulatory authorities; and (xiii) AFCO. As this Motion is
seeking first-day relief, notice of this Motion and any order entered hereon will be served on all
parties required by Del. Bankr. L.R. 9013-l(m). Due to the urgency of the circumstances
surrounding this Motion and the nature of the relief requested herein, the Debtors respectfully
submit that no further notice of this Motion is required.
NO PRIOR REQUEST
45. No previous application for the relief requested herein has been made by the
Debtors to this or any other court.
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WHEREFORE, the Debtors respectfully request that the Court enter an order in
substantially the form attached hereto as Exhibit A, granting the relief requested herein and such
other and further relief as this Court may deem just and proper.
Dated: July 29, 2008
Wilmington, Delaware
RLFI-3306789-1
Respectfully submitted,
Mark D. Collins (No. 2981)
Daniel J. DeFranceschi (No. 2732)
Christopher M. Samis (No. 4909)
L. Katherine Good (No. 5101)
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square
920 North King Street
Wilmington, Delaware 1980 I
Telephone: (302) 651-7700
Facsimile: (302) 651-7701
Email: collins@rlf.com
and
defranceschi@rlf.com
samis@rlf.com
good@rlf.com
Howard S. Beltzer
Wendy S. Walker
MORGAN LEWIS & BOCKIUS LLP
101 Park Avenue
New York, New York 10178-0060
Telephone: (212) 309-6000
Facsimile: (212) 309-6001
Email: hebeltzer@morganlewis.com
wwalker@morganlewis.com
Proposed Attorneys for the Debtors and
Debtors in Possession
16
EXHIBIT A
Proposed Order
RLFI-3306789-1
In re:
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
) Chapter 11
)
MERVYN'S HOLDINGS, LLC, et al.,l ) Case No. 08-
(_)
)
Debtors. ) Jointly Administered
ORDER AUTHORIZING THE DEBTORS TO (I) PAY PREPETITION
OBLIGATIONS UNDER WORKERS COMPENSATION AND SELF INSURED
GENERAL LIABILITY INSURANCE PROGRAMS, (II) CONTINUE SUCH
INSURANCE PROGRAMS AND HONOR POSTPETITION OBLIGATIONS IN
RESPECT THEREOF, AND (III) CONTINUE CERTAIN PREMIUM
FINANCING ARRANGEMENTS AND HONOR POSTPETITION
OBLIGATIONS IN RESPECT THEREOF
Upon the Debtors' Motion for Authority to (i) Pay ?repetition Obligations Under
Workers Compensation and Self Insured General Liability Insurance Programs, (ii) Continue
Such Insurance Programs and Honor Postpetition Obligations In Respect Thereof, and (iii)
Continue Certain Premium Financing Arrangements and Honor Postpetition Obligations in
Respect Thereof (the "Motion"), filed by the above-captioned debtors and debtors in possession
(the "Debtors"), in the above-captioned Chapter 11 cases and upon the Affidavit of Charles R.
Kurth, Executive Vice President and Chief Financial and Administrative Officer of the Debtors,
in Support of the First Day Motions; the Court finding that (i) the Court has jurisdiction over this
matter pursuant to 28 U.S.C. 157 and 1334, (ii) this is a core proceeding pursuant to 28
U.S.C. 157(b)(2)(A), and (iii) notice of the Motion was sufficient under the circumstances and
that no other or further notice need be provided; and the Court having determined that the legal
and factual bases set forth in the Motion establish just cause for the relief granted herein; and the
Court having determined that the relief sought in the Motion is in the best interests of the
1
The Debtors in these cases, along with the last four digits of their federal tax identification numbers, are
Mervyn's Holdings, LLC (7931), Mervyn's LLC (4456), and Mervyn's Brands, LLC (8850).
RLF 13306789-1
Debtors and their estates; and after due deliberation and sufficient cause appearing therefor, it is
hereby
ORDERED, that the Motion is GRANTED; and it is further
ORDERED, that pursuant to Section I 05(a) of the Bankruptcy Code, the Debtors are
authorized, but not directed, to maintain and continue to make all postpetition payments
(including postpetition fees and premiums) with respect to the Workers Compensation Program,
2
the Self Insured GL Program and with respect to the Property Insurance Financing Agreement on
an uninterrupted basis, in accordance with their prepetition practices; and it is further
ORDERED, that the Debtors are authorized, but not directed, to pay any prepetition
Insurance Obligations, including premiums, deductibles, claims, brokerage fees, and
administrative fees and taxes under the Workers Compensation Program, the Self Insured GL
Program and the Property Insurance Premium Financing Agreement; and it is further
ORDERED, that Rule 6003 of the Federal Rules of Bankruptcy Procedure has been
satisfied; and it is further
ORDERED, that notwithstanding the possible applicability of Rule 6004(h) of the
Bankruptcy Rules, or otherwise, the terms and conditions of this Order shall be immediately
effective and enforceable upon its entry; and it is further
ORDERED, that the relief granted hereby shall not be deemed an assumption of any
contract or lease pursuant to Section 365 of the Bankruptcy Code, and all of the Debtors' rights
pursuant to Section 365 of the Banlauptcy Code with respect to the Debtors' insurance programs
and related agreements are expressly reserved; and it is further
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Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Motion.
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RLFI-3306789-1
ORDERED, that nothing in this Order shall be construed as prejudicing any rights the
Debtors may have to contest the amount or basis of any prepetition or postpetition obligations
relating to the Insurance Programs; and it is further
ORDERED, that the Debtors, their officers, employees and agents are authorized to take
or refrain from taking such acts as are necessary and appropriate to implement and effectuate the
relief granted herein; and it is further
ORDERED, that this Court shall retain jurisdiction over any and all matters arising from
the interpretation or implementation of this Order.
Dated: , 2008
Wilmington, Delaware
UNITED STATES BANKRUPTCY JUDGE
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RLF!-3306789-1
EXHIBITB
Property Insurance Carriers
RLFI-3306789-1
Property Insurance Carriers
1
Type of Insurance Carrier Policy Number(s) Participation
Primary All Risk Lexington Insurance 7478173 100%
$15MM Company
$10MM xs $15 MM Continental Casuatly RMP271102113 25%
Company
$10MM xs $15 MM Integon Specialty XEI33016 25%
Insurance Company
$10MM xs $15 MM Nutmeg Insurance I SX0000653 25%
Company
$10MM xs $15 MM Liberty Mutual MQ2L9L442977016 10%
Insurance Company
$10MM xs $15 MM Lexington Insurance 7478174 7.5%
Company
$10MM XS $15 MM SR International MH65627 7.5%
Business Insurance
Co. Ltd.
$25MM XS $25MM Lexington Insurance 7478175 33%
Company
$25MM xs $25MM Zurich American XPP9139182-00 17.5%
Insurance Company
$25MM xs $25MM Continental Casualty RMP271102130 10%
Company
$25MM xs $25MM Commonwealth US6512 12%
Insurance Company
$25MM xs $25MM Ace American CRXD36992852 10%
Insurace Company
$25MM XS $25MM Arch Specialty PRP 0017640-00 10%
Insurance Company
$25MM xs $25MM SR International MH65627 7.5%
Business Insurance
Co. Ltd.
$50MM xs $50MM Ace American CRXD36992852 17.5%
Insurance Company
$50MM XS $50MM Integon Specialty XIN33018 25%
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Coverage includes real and personal property, machinery and equipment, improvements and betterments,
inventory, electronic data equipment, and business interruption.
Perils insured include all risk of direct physical loss or damage but physical damage does not include any
destruction, disruption, distortion, or corruption of any computer data coding, program or software.
Depending on the type of coverage, coverage limits, not exceeding $100 million, apply to various Property
lnsurance policies.
RLFI-3306789-1.
Insurance Company
$50MM XS $50MM Arch Specialty PRP 0017658-00 50%
Insurance Company
$50MM xs $50MM SR International MH65627 7.5%
Business Insurance
Co. Ltd.
2
RLF!-3306789-1