In re:

IN THE UNITED STATES BANKRUPTCY COURT

DISTRICT OF DELAWARE
Chapter 11
ALLIED SYSTEMS HOLDINGS, INC., et
al. 'I
Case No. 12-11564 (CSS)
Debtor.
(Jointly Administered)
Hearing Date: August 28, 2012 at II :00 a.m.
Objection Deadline: July 20,2012
(Extended for the Committee)
Re: Docket No. 173
RE.DACTEn
LIMITED OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED
CREDITORS TO DEBTORS' APPLICATION PURSUANT TO 11 U.S.C. 327 AND
328, FED. R. BANKR. P. 2014 AND 2016 AND DEL. BANKR. L.R. 2014-1 AND 2016-1
FOR AN ORDER AUTHORIZING THE RETENTION AND EMPLOYMENT OF
ROTHSCHILD INC. AS FINANCIAL ADVISOR AND INVESTMENT
BANKER FOR THE DEBTORS NUNC PRO TUNC TO THE PETITION DATE
The Official Committee of Unsecured Creditors (the "Committee") appointed in
the above-captioned chapter 11 cases of Allied Systems Holdings, Inc. ("Allied"), Allied
Systems, Ltd. (L.P.) ("Systems") and their U.S. and Canadian subsidiaries (collectively, the
"Debtors"), by and through its proposed undersigned counsel, hereby submits this limited
objection (the "Limited Objection") to the Debtors' Application Pursuant to II US. C. 327
and 328, Fed. R. Bankr. P. 20I4 and 20I6 and Del. Bankr. L.R. 20I4-I and 20I6-I for an Order
Authorizing the Retention and Employment of Rothschild Inc. as Financial Advisor and
Investment Banker for the Debtors Nunc Pro Tunc to the Petition Date [Docket No. 173] (the
The Debtors in these cases, along with the federal tax identification number (or Canadian business number
where applicable) for each of the Debtors, are: Allied Systems Holdings, Inc. (58-0360550); Allied Automotive
Group, Inc. (58-2201081); Allied Freight Broker LLC (59-2876864); Allied Systems (Canada) Company (90-
0 169283); Allied Systems, Ltd. (L.P.) (58-17 I 0028); Axis Areta, LLC (45-5215545); Axis Canada Company
(87568828); Axis Group, Inc. (58-2204628); Commercial Carriers, Inc. (38-0436930); CT Services, Inc. (38-
2918187); C01din Transport LLC (38-1985795); F.J. Boutell Driveaway LLC (38-03651 00); GACS
Incorporated (58-1944786); Logistic Systems, LLC (45-4241751); Logistic Technology, LLC (45-4242057);
QAT, Inc. (59-2876863); RMX LLC (31-096 I 359); Transport Support LLC (38-2349563); and Terminal
Services LLC (91-0847582). The location ofthe Debtors' corporate headquarters and the Debtors' address for
service of process is 2302 Parklake Drive, Bldg. 15, Ste. 600, Atlanta, Georgia 30345.
"Rothschild Application").
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In support thereof, the Committee respectfully represents as
follows:
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BACKGROUND
1. On May 17, 2012 (the "Petition Date"), involuntary petitions were filed by
Black Diamond CLO 2 0 0 5 ~ 1 Ltd., BDCM Opportunity Fund II, LP and Spectrum Investment
Partners, L.P. (collectively, the "Petitioning Creditors"), prepetition lenders (the "First Lien
Lenders") to the Debtors pursuant to the credit facility (the "First Lien Facility") under the
Amended and Restated First Lien Secured Super-Priority Debtor in Possession and Exit Credit
and Guaranty Agreement, dated as of March 30, 2007, amended and restated as of May 15, 2007
(the "First Lien Credit Agreement"), against Allied and its subsidiary Systems under chapter 11
of title 11 of the United States Code (the "Bankruptcy Code") in this Bankruptcy Court (the
"Court"). See Statement of Petitioning Creditors in Support of the Involuntary Chapter 1 I
Petitions Filed Against Allied Systems Holdings, Inc. and Allied Systems, Ltd. (L.P.) [Docket No.
9] ("Petitioning Creditors Statement").
2. On June 10, 2012 (the "Consent Date"), the remaining Debtors filed
voluntary petitions in this Court, and, in connection therewith, Allied and Systems consented to
the involuntary petitions filed against them. The chapter 11 cases commenced thereby are,
collectively, the "Chapter 11 Cases."
3. The Debtors have continued in possession of their property and have
continued to operate and manage their businesses as debtors in possession pursuant to sections
1107(a) and 1108 of the Bankruptcy Code. On June 11, the Court entered an order jointly
administering the Chapter 11 Cases pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy
Procedure (the "Bankruptcy Rules") for procedural purposes only. On July 13, the Court entered
Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Rothschild
Application.
Counsel to the Committee, counsel to the Debtors and counsel to Rothschild have been in communication
regarding the Rothschild Application in order to attempt to resolve the concerns raised by the Committee.
While no agreement had been reached prior to the objection deadline, the Committee will continue to work
towards a consensual resolution of these issues, if possible.
2
the final order (as amended) [Docket No. 230] (the "Final DIP Order") sought in the Motion
Pursuant To 11 US.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(l),
364(e), 503(b) And 507(a), Fed. R. Bankr. P. 2002, 4001 And 9014 And Del. Bankr. L.R. 4001-2:
(!) Authorizing Debtors To (A) Obtain Postpetition Secured DIP Financing And (B) Use Cash
Collateral; (II) Granting Superpriority Liens And Providing For Superpriority Administrative
Expense Status; (Ill) Granting Adequate Protection To ?repetition Secured Lenders; (IV)
Modifying Automatic Stay; And (V) Scheduling A Final Hearing Pursuant To Bankruptcy Rules
4001 (b) And (c) [Docket No. 79] (the "DIP Motion"), overruling the Committee's objection to
the DIP Motion [Docket No. 193] (the "DIP Objection"), and approving the postpetition debtor
in possession financing provided largely by Yucaipa American Alliance Fund II, LLC and its
affiliates (collectively, "Yucaipa"). As described in the DIP Objection, Yucaipa also owns
approximately 70% of the Debtors equity interests and it is also the purported Requisite Lender
under the Debtors' First Lien Credit Agreement and Second Lien Credit Agreement (as defined
in the DIP Motion).
4. On June 28, 2012, the Debtors filed the Rothschild Application, where the
Debtors propose to pay Rothschild pursuant to the following Fee and Expense Structure set forth
in section 4 of the Engagement Letter (see also Rothschild 11):
Monthly Fee
Completion Fee
$150,000 per month
One of the following:
(i) $1,750,000 payable in cash immediately upon the
earlier of the closing or consummation of the sale,
transfer or other disposition to [REDACTED] of at
least a majority of the Company's equity interests or
assets pursuant to 363 of the Bankruptcy Code or
otherwise pursuant to a Plan (the "Pre-Negotiated
Sale Fee");
(ii) $2,000,000 payable in cash immediately upon the
earlier of (a) consummation of a Plan that is
confirmed at an uncontested confirmation hearing and
(b) the closing of a sale, transfer or other disposition
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New Capital Fee
Credit
Expenses
of at least a maJonty of the Company's equity
interests or assets to any of the Company's first lien
lenders pursuant 363 of the Bankruptcy Code so
long as any such transaction under 363 of the
Bankruptcy Code is affirmatively supported by more
than 50% in ptincipal amount of claims held by the
Company's first lien lenders (the "Credit Bid Fee");
or
(iii) if the Completion Fee is not earned pursuant to either
clause (i) or (ii) above, $2,500,000, payable in cash
immediately upon the earlier of the closing or
consummation, as applicable, of a Plan or other
Transaction not described in either clause (i) or (ii)
above.
A fee equal to (i) 1.0% of the face amount of any senior secured debt
raised (excluding DIP financing); (ii) 2.0% of the face amount of any
junior secured debt raised (excluding DIP financing); (iii) 3.0% of the
face amount of any senior or subordinated unsecured debt raised; and
(iv) 4.0% of any equity capital, or capital convertible into equity
50% of Monthly Fees paid in excess of $450,000 will be credited
against the Completion Fee
Rothschild's reasonable expenses incurred in connection with the
performance of its engagement hereunder and the enforcement of the
Engagement Letter
Limited Objection
5. The Committee does not question that Rothschild is well qualified to
provide financial advisory and investment banking services to the Debtors, and accordingly, the
Committee has no objection to the Debtors' retention of Rothschild as its financial advisor and
investment banker. Indeed, Rothschild is a leading financial advisory and investment banking
services with unquestionable expertise. The Debtors, however, have not demonstrated, at this
time, that Rothschild's Fee and Expense Structure is entirely reasonable such that it should be
approved, as proposed, under Section 328 of the Bankruptcy Code. Accordingly, to the extent
the Court approves Rothschild's retention, the Committee believes that the Fee and Expense
Structure should be subject to review by the Committee and the United States Trustee for the
District of Delaware (the "Trustee") under section 330 of the Bankruptcy Code. To be clear,
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however, the Committee has no objection to the approval of the Monthly Fee of $150,000 and
believes such fee is entirely appropriate in light of the work Rothschild has and will continue to
be performing for the Debtors. Similarly, except as outlined below, the Committee does not
have any objection to the New Capital Fee and believes such fee (except as it pertains to capital
raised by Yucaipa) is appropriate and properly incentivizes Rothschild.
I. Rothschild's Fee and Expense Structure, As Proposed, Should Not Be Approved
under Section 328(a)
6. The Debtors seek approval of Rothschild's retention pursuant to section
328(a) of the Bankruptcy Code. Section 328(a) provides that
The trustee or committee appointed under section 11 02 of this title, with the
court's approval, may employ or authorize the employment of a professional
person under section 327 or 1103 of this title, as the case may be, on any
reasonable terms and conditions of employment, including retainer, on an hourly
basis, on a fixed percentage fee basis, or on a contingency fee basis.
11 U.S.C. 328(a).
7. A determination of reasonableness under section 328 of the Bankruptcy
Code is made at the time of retention based upon the information available at that time. Pursuant
to section 328, a court is asked to approve the reasonableness of a transaction fee arrangement
based upon the professional accomplishing a certain goal. If this Court finds that the Rothschild
Application satisfies the reasonableness test under section 328(a) of the Bankruptcy Code,
Rothschild's fees "may only be reduced if the fee agreement's 'terms and conditions prove to
have been improvident in light of developments not capable of being anticipated at the time of
the fixing of such terms and conditions.'" Rizer, Danzig, Scherer, Hyland & Perretti LLP v.
Official Committee of Unsecured Creditors (In re Smart World Techs., LLC), 383 B.R. 869, 876
(S.D.N.Y. 2008) (citing 11 U.S.C. 328(a)); ~ a l s o In re XO Commc'ns, Inc., 323 B.R. 330,
339 (Bankr. S.D.N.Y. 2005); Circle K. Corp. v. Houlihan, Lokey, Howard & Zukin, Inc. (In re
Circle K Corp.), 279 F.3d 669, 671 (9th Cir. 2002). This is a high bar, and courts have noted that
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"unanticipated events are not grounds for revisiting a pre-approved fee award. The events must
be 'not capable of being anticipated."' In re Smart World Techs., LLC, 383 B.R. at 877.
8. Accordingly, given the difficulty of proving the improvidence
requirement, and the rarity with which courts modify fee awards approved under section 328, it
is important for the Court to exercise heightened scrutiny in approving the terms of a
professional's retention under section 328 so that the statutory protections do not tie the hands of
the Committee, the Trustee and the Court at a later date. Indeed, a recent decision summarized,
from "the growing body of case law construing 328(a)," the two key principles in analyzing
section 328(a):
The first is that a bankruptcy court has an obligation to determine the
reasonableness of terms and conditions before authorizing the employment of
professionals ... and may eliminate, modify, or impose additional terms and
conditions to satisfy the requirement of reasonableness. The second is that ... the
[party] seeking the employment ... must establish that the terms and conditions
of employment are reasonable, and evidence, not conclusory statements, is
required to satisfy that burden.
In re Transnat'l Commc'ns Int'l Inc., 2011 WL 6779303, at *4 (Bankr. D. Mass. Dec. 27, 2011).
Thus, the Debtors bear the burden of clarifying the terms of engagement in sufficient detail to
justify exempting its financial advisor's actual performance thereafter from any further
reasonableness review. In re Energy Partners, Ltd., 409 B.R. 211, 224 (Bankr. S.D. Tex. 2009).
Meeting this standard requires the Debtors to create a "strong record" showing that its proposed
arrangements are, in fact, reasonable. Id. at 225.
9. At the most basic level, the Committee notes that nothing in the
Engagement Letter ties Rothschild's entitlement to the Completion Fee to any benchmark of
performance or any quantum of effort in connection with the consideration received by the
Debtors from the sale, transfer or other disposition of a majority of the Debtors' equity interests
or assets. The Committee also believes that there are several potential results that are not
improvident at this time which, if they were to occur, could make the Completion Fee
6
10. In addition, Rothschild is entitled to a Credit Bid Fee for a sale to the
Debtors' First Lien Lenders - effectively a credit bid scenario which requires the consent of
Yucaipa, as the majority holder of first lien debt under the First Lien Facility- that exceeds the
Pre-Negotiated Sale Fee. The Committee is befuddled as to how the Debtors, in a prudent
exercise of their business judgment, could agree to a fee that effectively incentivizes Rothschild
to drive an "in the family" restructuring as opposed to a third-party sale. This is especially
troubling given that Yucaipa - which holds approximately 70% of the equity, is the DIP Lender
and significant holder of the Debtors' first and second lien debt- must approve the transaction.
Further, the Committee takes issue with Rothschild receiving a New Capital Fee for raising new
debt or equity where such capital is provided by Yucaipa. If this case results in the First Lien
Lenders credit bidding for the Debtors, Yucaipa will effectively again own in excess of 50% of
the company - the estate should not be obligated to pay a fee to Rothschild in furtherance of
Yucaipa's defensive investment strategy.
REDACTED
it is not clear that Rothschild would have provided
sufficient value worthy of the robust Completion Fee fees sought in the retention application. If,
however, Rothschild does run a successful sale orocess that brin_gs value to the estates
REDACTED
, the Committee is fully supportive of Rothschild receiving compensation for such
7
efforts, and, in fact, the Committee believes that in such a scenario Rothschild should be
sufficiently compensated for their efforts.
12. In sum, the Committee does not believe that the proposed fee structure is
in the proper business judgment of the Debtors because it does not tie Rothschild's compensation
to the value of the services provided by Rothschild. Thus, the compensation that Rothschild
receives under the Completion Fee and certain aspects of the New Capital Fee should be limited
and commensurate with the services performed. See In re Federal Mogul Global Inc., 348 F.3d
390, 399-400 (3d Cir. 2003) (holding that a court may limit the terms and conditions of
employment in a manner that is "reasonable" for the services provided by a professional). For
all the foregoing reasons, the Committee cannot conclude that the Completion Fee is in the best
interests of the Debtors, their estates and their creditors, and cannot support approval of the
Completion Fee and certain aspects of the New Capital Fee under section 328(a) of the
Bankruptcy Code.
II. Rothschild's Completion Fee Should Be Subject to Review under Section 330
13. For all the reasons provided herein, it is clear that the proposed
Completion Fee is not entitled to the heightened standard of review provided by section 328(a)
of the Bankruptcy Code. It is unknown what benefit Rothschild will provide to the estates in
connection with any sale, transfer or other disposition, and thus approval of the Completion Fee
now could be highly prejudicial to the creditors of the estates who face the real prospect of no
meaningful recovery. Instead, the Committee requests that the Completion Fee be subject to
review under section 330 of the Bankruptcy Code and thus subject to the rights of the Committee
or the Trustee to object to such Completion Fee as unreasonable. Indeed, courts in this District
approving the retention of financial advisors and investment bankers have provided for such
review. See,&, In re Lang Holdings. Inc., Case No. 09-12543 (KJC) (Bankr. D. Del. Aug. 21,
2009) [Docket No. 144]; In re Advanced Mktg. Servs., Inc., Case No. 06-11480 (CSS) (Bankr.
D. Del. Feb. 21, 2007) [Docket No. 386]; In rePliant Corp., Case No. 06-10001 (MFW) (Bankr.
D. Del. Mar. 13, 2006) [Docket No. 343].
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RESERVATION OF RIGHTS
14. The Committee reserves its right to amend, modify or supplement this
Limited Objection and to seek discovery in connection with the Rothschild Application.
CONCLUSION
WHEREFORE, the Committee respectfully requests that the Court grant the relief sought
herein, including by subjecting the reasonableness ofthe Completion Fee to review under section
330 of the Bankruptcy Code, and grant such other further relief as is just and proper.
Dated: Wilmington, Delaware
July 20, 2012 SULLIVAN HAZEL TINE ALLINSON LLC
J ! L ~
William D. Sullivan (No. 282
William A. Hazeltine (No.3
901 N. Market St., Suite 130
Wilmington, DE 19801
Telephone: (302) 428-8191
Facsimile: (302) 428-8195
-and-
SIDLEY AUSTIN LLP
Michael G. Burke
Brian J. Lohan
Dennis Kao
787 Seventh A venue
New York, NY 10019
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
Matthew A. Clemente
One South Dearborn Street
Chicago, IL 60603
Telephone: (312) 853-7000
Facsimile: (312) 853-7036
Proposed Counsel for the Official Committee of
Unsecured Creditors
9


CERTIFICATE OF SERVICE

I, William D. Sullivan, do hereby certify I am not less than 18 years of age and that on
this 20
th
day of July 2011, I caused copies of the within Limited Objection to Debtors
Application Pursuant to 11 U.S.C. 327 and 328, Fed. R. Bankr. P. 2014 and 2016 and Del.
Bankr. L.R. 2014-1 and 2016-1 for an Order Authorizing the Retention and Employment of
Rothschild Inc. as Financial Advisor and Investment Banker for the Debtors Nunc Pro Tunc to
the Petition Date to be served upon the parties listed below in the manner indicated.
HAND DELIVERY
Mark D. Collins, Esq.
Christopher M. Samis, Esq.
Andrew C. Irgens, Esq.
Marisa A. Terranova, Esq.
Richards, Layton & Finger, P.A.
One Rodney Square
920 North King Street
Wilmington, DE 19801
FIRST CLASS MAIL & FACSMILE
Jeffrey W. Kelley, Esq.
Ezra H. Cohen, Esq.
Carolyn P. Richter, Esq.
Matthew R. Brooks, Esq.
Benjamin R. Carlsen, Esq.
Troutman Sanders LLP
Bank of America Plaza
600 Peachtree Street, Suite 5200
Atlanta, GA 30308-2216
(404) 885-3900



July 20, 2012 /s/ William D. Sullivan
Date William D. Sullivan