IN THE UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: ALLIED SYSTEMS HOLDINGS, INC., et al., 1 Debtor.

Hearing Date: July 12th at 2:00 p.m. Objection Deadline: July 9th (Extend for the Committee) Re: Docket Nos. 79, 114, 162

Chapter 11 Case No. 12-11564 (CSS) (Jointly Administered)

OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO THE MOTION PURSUANT TO 11 U.S.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503(b) AND 507(a), FED. R. BANKR. P. 2002, 4001 AND 9014 AND DEL. BANKR. L.R. 4001-2: (I) 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; (III) GRANTING ADEQUATE PROTECTION TO PREPETITION SECURED LENDERS; (IV) MODIFYING AUTOMATIC STAY; AND (V) SCHEDULING A FINAL HEARING PURSUANT TO BANKRUPTCY RULES 4001(b) AND (c) 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 objection (the Objection) to the Motion Pursuant To 11 U.S.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503(b) And 507(a), Fed. R. Bankr. P. 2002, 4001 And 9014 And Del. Bankr. L.R. 4001-2: (I) Authorizing Debtors To (A) Obtain Postpetition Secured
1

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 (900169283); Allied Systems, Ltd. (L.P.) (58-1710028); Axis Areta, LLC (45-5215545); Axis Canada Company (87568828); Axis Group, Inc. (58-2204628); Commercial Carriers, Inc. (38-0436930); CT Services, Inc. (382918187); Cordin Transport LLC (38-1985795); F.J. Boutell Driveaway LLC (38-0365100); GACS Incorporated (58-1944786); Logistic Systems, LLC (45-4241751); Logistic Technology, LLC (45-4242057); QAT, Inc. (59-2876863); RMX LLC (31-0961359); Transport Support LLC (38-2349563); and Terminal Services LLC (91-0847582). The location of the Debtors corporate headquarters and the Debtors address for service of process is 2302 Parklake Drive, Bldg. 15, Ste. 600, Atlanta, Georgia 30345.

DIP Financing And (B) Use Cash Collateral; (II) Granting Superpriority Liens And Providing For Superpriority Administrative Expense Status; (III) Granting Adequate Protection To Prepetition 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). 2 In support thereof, the Committee respectfully represents as follows: 3 PRELIMINARY STATEMENT 1. As this Court observed, Yucaipa American Alliance Fund II, LLC and its

affiliates (collectively, Yucaipa) wear many hats in connection with these cases, including postpetition lender. Hrg Tr., June 12, 2012 at 87:22 (attached hereto as Exhibit A). Yucaipa is an insider of the Debtors it owns nearly 70% of the Debtors prepetition equity, has the right to appoint four out of the five members of Allieds board of directors (the Allied Board), and has exercised its right to appoint and direct the actions of senior management. Moreover, Yucaipa is the majority holder of the Debtors First Lien Facility and Second Lien Facility (as defined below), and has effectively assumed the role of the First Lien Agent (as defined below). And now, Yucaipa is providing at least 75% of the Debtors DIP Facility 4 (as defined below) and is also serving as the DIP Agent (as defined below). Accordingly, the Court properly expressed concern that the insider postpetition loan provided substantially by Yucaipa would have to be better than average for a debtor, because it raises a specter of self-dealing (id. at 87:22-25) and indeed emphasized that the DIP . . . cant tie the hands of the debtor or the Court. Id. at 26:1718.

Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the DIP Motion, DIP Agreement (as defined below), and the Amended Interim Order (as defined below). Counsel to the Committee and counsel to the DIP Lenders have been in communication regarding the proposed DIP Facility 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. An entity named CB Investments, LLC is apparently providing the other 25% of the DIP Loan (as defined below). See DIP Agreement, Appendix A. The Committee is not aware of whether CB Investments, LLC is affiliated with Yucaipa.

2.

The proposed DIP Facility, however, is not better than average (indeed, far

from it) and its terms shackle the hands of the Debtors and other parties in interest in these cases. The DIP Facility appears primarily designed to protect Yucaipa and its prepetition investment in the Debtors, rather than providing a true arms-length postpetition loan. Specifically, among many other things, as a condition to making the postpetition loan to a company that it has a 70% ownership interest in, Yucaipa seeks waivers and blanket releases notwithstanding the allegations previously made against it by other parties in interest upon the expiration of an unreasonably short challenge period, and is threatening to foreclose on the DIP Collateral and terminate the use of Cash Collateral without the need to come to the Court for relief from the automatic stay in the event anyone brings any action against Yucaipa within that challenge period. Indeed, even the very process of securing the DIP Facility has been opaque upon information and belief, Yucaipa has blocked any efforts by the Debtors to secure alternative DIP financing because of its blanket refusal to permit its prepetition liens, claims and interests to be primed, and the scant details behind the DIP Budget (as defined below) leave many questions as to whether the full DIP Facility is market or even necessary not to mention the high fees Yucaipa seeks to extract from the Debtors under the DIP Facility. 3. Accordingly, Yucaipas extraordinary control over the Debtors must be

curbed in order to prevent the insider Yucaipa from seizing substantially all of the value inherent in the Debtors estates for itself at the expense of other stakeholders and the integrity and fairness that the chapter 11 process is designed to protect. As the United States Trustee for the District of Delaware (the Trustee) aptly pointed out, [Yucaipa] shouldnt be allowed to use [protections in the DIP Motion] as a means of stealing a march on all [] other creditors to jump over them in their capacity as the equity holder in the case. Id. at 82:10-13. Thus, this is not a typical chapter 11 case and the proposed DIP Facility must be viewed as part and parcel of Yucaipas entire strategy underlying the Debtors cases, which appears to be to maximize value for, and control by, Yucaipa, at the expense of all other creditors, especially general unsecured creditors. Through the DIP Facility, the Debtors have acquiesced to a prejudicial financing facility that 3

aims to clear obstacles in Yucaipas path in the Debtors bankruptcy cases and facilitate a smooth ride for Yucaipa, and Yucaipa alone. 4. Perhaps most importantly, the Debtors and Yucaipa seek entry on a final

basis of several measures that aim to curtail the ability of the Committee to perform its statutory fiduciary role to achieve maximum recovery for the general unsecured creditors. These are bald efforts to erode the significant bulwark that the Committee would serve against any efforts by Yucaipa, to leap over the claims of unsecured creditors. The DIP Facility proposes an

unreasonable amount of time essentially 75 days from the Consent Date (as defined below) for the Committee to bring challenges against Yucaipa and the other Prepetition Secured Parties and on matters relating to the Prepetition Credit Facilities, and an absurdly low cap on fees for the Committees investigations/ challenges ($25,000, which includes costs for taking discovery) and general ability to fulfill its fiduciary duty ($100,000 pre-termination of the DIP Facility and $75,000 post-termination). In a case like this one, where there are complex, long-standing relationships between the Prepetition Secured Parties, the Debtors and other significant stakeholders including the unsecured creditors, and where the majority Prepetition Secured Party the insider Yucaipa has been accused by numerous parties of wielding an inordinate amount of control over the Debtors to the Debtors detriment, the Committee requires substantially more time and funds to conduct a thorough and diligent investigation necessary to satisfy its fiduciary duty to general unsecured creditors. 5. To further cement Yucaipas desire to control the Chapter 11 Cases, the

DIP Credit Agreement (as defined below) incorporates draconian measures that would deter any party from bringing any action against Yucaipa. In particular, if any party (including the

Committee) tries to challenge their prepetition liens, claims or conduct of Yucaipa, Yucaipa can effectively tear down the Debtors cases and businesses by calling an Event of Default under the DIP Facility. Accordingly, the DIP Facility seeks to impose restrictive Events of Default which primarily strive to protect Yucaipa and render nugatory the Committees challenge rights. These oppressive restrictions effectively shield Yucaipa by enabling it to realize on the DIP Collateral 4

while its own interests in the Debtors First Lien Facility are in dispute. In the event the Committee does initiate a challenge subject to the 75-day challenge period, the DIP Facility will be in default. In this light, the fees and expenses that the DIP Motion proposes to pay the DIP Lender and DIP Agent are grossly excessive under any reasonable standard particularly where the DIP Facility could effectively be a 75-day facility. 6. Finally, the Committee finds numerous other onerous provisions are

objectionable as they impair the rights and interests of unsecured creditors in light of Yucaipas substantial insider relationship with the Debtors: (1) the granting of adequate protection to Yucaipa and the Second Lien Lenders, (2) the granting of Superpriority Claims and Adequate Protection Priority Claims over proceeds of the Debtors Avoidance Actions (as such terms are defined below), (3) the waiver of section 506(c) rights, which improperly shifts the burden of the costs of the bankruptcy from secured creditors like Yucaipa on to the unsecured creditors, and the waiver of section 552(b) rights and the prohibition of the marshalling doctrine, which inappropriately ties the hands of the Court, (4) the impermissible prohibitions on the use of Cash Collateral, and (5) a good faith finding under section 364(e) of the Bankruptcy Code, in light of Yucaipas insider relationship with the Debtors and as the majority prepetition first lien holder who refused to be primed, should be subject to reversal or modification as part of the Committees challenge rights. BACKGROUND 7. On May 17, 2012 (the Petition Date), involuntary petitions were filed by

Black Diamond CLO 2005-1 Ltd., BDCM Opportunity Fund II, LP and Spectrum Investment Partners, L.P. (collectively, the Petitioning Creditors), prepetition 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 5

Petitioning Creditors in Support of the Involuntary Chapter 11 Petitions Filed Against Allied Systems Holdings, Inc. and Allied Systems, Ltd. (L.P.) [Docket No. 9] (Petitioning Creditors Statement). The Petitioning Creditors filed the involuntary petitions in order to break the apparent impasse caused by Yucaipa and the directors and officers of the Alleged Debtors who have disregarded their fiduciary duties (id. at p. 17), and because the Allied Board [had] instead chosen to engage . . . in conduct designed solely to benefit the controlling shareholder Yucaipa at the expense of the Alleged Debtors creditors. Id. at p. 5. 8. 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. 9. 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. 10. On June 19, 2012 (the Committee Formation Date), pursuant to section On the Committee

1102 of the Bankruptcy Code, the Trustee appointed the Committee. 5

Formation Date, pursuant to section 1103(a) of the Bankruptcy Code, the Committee selected Sidley Austin LLP (Sidley) and Sullivan, Hazeltine, Allinson LLC to serve as co-counsel to the Committee (together with Sidley, Committee Counsel). I. Yucaipas Numerous Conflicts and Inappropriate Efforts to Control the Debtors 11. Although the full extent of Yucaipas role and resulting conflicts remain to

be determined, the Debtors openly acknowledge Yucaipas thorough infiltration of the Debtors

The Committee is currently comprised of the following entities: Central States, Southeast and Southwest Areas Pension Fund, General Motors LLC, Pension Benefit Guaranty Corporation, and Teamsters National Automobile Transporters Industry Negotiating Committee.

entire capital and corporate structure, which first appears to have arisen in connection with the Debtors prior chapter 11 bankruptcy case that began on July 31, 2005 in the United States Bankruptcy Court for the Northern District of Georgia (the 2005 Bankruptcy). See

Declaration of Scott D. Macaulay in Support of Chapter 11 Petitions and First Day Motions 5 [Docket No. 80] (First Day Affidavit). 6 Upon emerging from that bankruptcy in May 2007 under a plan of reorganization (the 2007 Plan), Yucaipa became the largest shareholder of Allied, the direct or indirect parent of all of the other Debtors, owning about 63% of its outstanding shares now, the Petitioning Creditors assert that Yucaipa owns more than 70% of the common equity of Allied. See id. 5; Petitioning Creditors Statement at p. 5. As a result of Yucaipas influence and the 2007 Plan, it appears that Yucaipa gained and continues to wield the right to appoint four out of the five members of the Allied Board and is accordingly empowered with the right to appoint and direct the actions of senior management of Allied. See Petitioning Creditors Statement at pp. 5-6. Indeed, it appointed Allieds current chief executive officer, Mark Gendregske. See Expedited Motion of Petitioning Creditors for the Appointment of a Trustee Pursuant To 11 U.S.C. 105(a), 1104(a)(1) and 1104(a)(2) at pp. 7-8 [Docket No. 13] (Motion to Appoint Trustee). Upon information and belief, Yucaipa had also replaced Allieds chief financial officer shortly after Allied emerged from bankruptcy in 2007 with Yucaipas own professional. 12. Moreover, the 2007 Plan provided for two exit financing facilities (the

Prepetition Credit Facilities): a first lien facility (the First Lien Facility) and a second lien facility (the Second Lien Facility) pursuant to the First Lien Credit Agreement, 7 and the Second Lien Senior Secured Super-Priority Debtor in Possession and Exit Credit and Guaranty

In the context of the 2005 Bankruptcy, Debtors refers to those certain Debtors, Debtor affiliates and predecessor entities subject to the 2005 Bankruptcy. See First Day Affidavit at p. 2 n.3. The First Lien Credit Agreement was entered into by and among Holdings and Systems, as borrowers, certain of their subsidiaries, as guarantors, Goldman Sachs Credit Partners, as lead arranger and syndication agent, The CIT Group/Business Credit, Inc. (CIT), in its capacity as administrative agent and collateral agent (the First Lien Agent), and the lenders party thereto (collectively, the First Lien Lenders).

Agreement dated as of May 15, 2007 (as amended, the Second Lien Credit Agreement). 8 Under those facilities, the obligations to the First Lien Lenders and Second Lien Lenders were secured by first priority liens and security interests (collectively, the Prepetition Lender Liens) secured by certain property and assets of the Debtors (the Prepetition Collateral). 13. Yucaipa has become the majority holder of the First Lien Facility (53.23%

of the outstanding indebtedness) and the Second Lien Facility (66.67% of the outstanding indebtedness). See DIP Motion 10-11. Accordingly, Yucaipa purports to be the Requisite Lender under the Prepetition Credit Facilities. 14. Because of the means by which Yucaipa obtained a majority of the First

Lien Facility, CIT, the original First Lien Agent, refused to recognize Yucaipas purported status as the Requisite Lender under the First Lien Facility. See id. at p. 13. As a result, Yucaipa commenced an action against CIT on November 13, 2009 in the Superior Court of Fulton County, Georgia, in effect to force CIT to recognize Yucaipa as the Requisite Lender. See id. In December 2011, CIT, in its capacity as a First Lien Lender, settled with Yucaipa. Accordingly, the Petitioning Creditors, as minority First Lien Lenders, were rightly concerned about Yucaipas dual controlling interests: its majority and controlling ownership interest in the Alleged

Debtors and control of the Allied Board, and its alleged control over all decisions affecting all Lenders (as the purported Requisite Lender), including the ability to prevent the Lenders from exercising their rights and remedies against the Alleged Debtors. Petitioning Creditors

Statement at p. 14. In order to protect their interests, the Petitioning Creditors first commenced an action against Yucaipa on January 17, 2012 in the Supreme Court of New York County, New York, in essence seeking a declaration that the Yucaipa is not the Requisite Lender under the First Lien Facility. See id. at p. 14, 17.

The Second Lien Credit Agreement was entered into by and among Holdings and Systems, as borrowers, certain of their subsidiaries, as guarantors, Goldman Sachs Credit Partners, as lead arranger, syndication agent, administrative agent and collateral agent, and the lenders party thereto (collectively, the Second Lien Lenders).

15.

In April 2012, CIT resigned as First Lien Agent. See DIP Motion 9. As

no successor First Lien Agent was appointed, Yucaipa, as the purported Requisite Lender, has assumed control and contends that it is the First Lien Agent, further solidifying its control over the First Lien Facility. See id. 16. As such, Yucaipas exertion of control over the Debtors appears to be

nearly complete it is the majority owner of Allied, the majority lender under the First Lien Facility and the Second Lien Facility, and now is the majority DIP Lender, DIP Agent, and the recipient of substantial and excessive benefits under the DIP Motion. Indeed, the Petitioning Creditors were especially alarmed at Yucaipas actions, because, in connection with the involuntary petitions they filed against Allied and Systems, they went even further and filed a motion for the appointment of a trustee alleging that the management and board of the Debtors are unable to fulfill their fiduciary duties because of Yucaipas overwhelming control over the Debtors, and that Yucaipa improperly exercised its control of the Debtors for the sole benefit of Yucaipa and to the Debtors detriment. See Motion to Appoint Trustee. II. The DIP Motion 17. By the DIP Motion filed on June 11, 2012, the Debtors seek the entry of

an interim order and final order (the Final Order) authorizing the Debtors Allied and Systems (the Borrowers) to obtain secured postpetition financing in the form of a senior secured superpriority delayed draw term loan credit facility (the DIP Facility), pursuant to that certain Senior Secured Super-Priority Debtor in Possession Credit and Guaranty Agreement (the DIP Agreement), with commitments in an aggregate principal amount up to $20 million (together with all other Obligations as defined in the DIP Agreement, the DIP Loan), by and among the Borrowers, certain subsidiaries of the Borrowers as guarantors (the DIP Guarantors), the lenders party thereto (Yucaipa Leveraged Finance, LLC and CB Investments, LLC, collectively, the DIP Lenders), and Yucaipa American Alliance Fund II, LLC as agent thereunder (the DIP Agent). See Amended Interim Order 2.

18.

To secure the DIP Loan, the DIP Agent is to be granted, on behalf of itself

and the DIP Lenders, first priority priming liens on and security interests in (collectively, the Postpetition Liens) all Prepetition Collateral, Cash Collateral and numerous other property of the Debtors estates (the DIP Collateral). See id. 8. Moreover, the DIP Agent, on behalf of itself and the DIP Lenders is also to be granted allowed superpriority administrative expense claims (the Superpriority Claims). See id. 7. Similarly, the Prepetition Secured Parties are granted postpetition security interests and liens (the Adequate Protection Liens) on all of the DIP Collateral and priority superpriority administrative expense claims (the Adequate Protection Priority Claims). 19. On June 12, 2012, the Court entered the Interim Order Pursuant To 11

U.S.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503(b) And 507(a), Fed. R. Bankr. P. 2002, 4001 And 9014 And Del. Bankr. L.R. 4001-2: (I) 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; (III) Granting Adequate Protection To Prepetition Secured Lenders; (IV) Modifying Automatic Stay; And (V) Scheduling A Final Hearing Pursuant To Bankruptcy Rules 4001(b) And (c) [Docket No. 114] (the Interim Order). On June 26, 2012, the Court entered the Amended Interim Order Pursuant To 11 U.S.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503(b) And 507(a), Fed. R. Bankr. P. 2002, 4001 And 9014 And Del. Bankr. L.R. 4001-2: (I) 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; (III) Granting Adequate Protection To Prepetition Secured Lenders; (IV) Modifying Automatic Stay; And (V) Scheduling A Final Hearing Pursuant To Bankruptcy Rules 4001(b) And (c) [Docket No. 164] (the Amended Interim Order). OBJECTION 20. In determining whether to grant the Final Order and approve the DIP

Facility in its current form, the Court must balance the interests of the DIP Lenders with those of 10

general unsecured creditors and other creditor constituencies. Striking this balance requires that a debtor seeking postpetition financing on a superpriority basis demonstrate that the proposed financing comports with basic notions of fairness and equity and that it would ultimately inure to the benefit of the Debtors estates. See Aqua Assocs., 123 B.R. 192, 196 (Bankr. E.D. Pa. 1991); In re Ames Dept Stores, Inc., 115 B.R. 34, 37-40 (Bankr. S.D.N.Y. 1990). The Debtors, for the sake of obtaining postpetition financing promptly, cannot abrogate their fiduciary duties to their estates and creditors. Ames, 115 B.R. at 38. 21. Bankruptcy courts have not approved postpetition financing arrangements

that pervert the reorganizational process from one designed to accommodate all classes of creditors . . . to one specifically crafted for the benefit of one creditor. In re Tenney Village Co., 104 B.R. 562, 568 (Bankr. D.N.H. 1989). Indeed, as the court in Ames stated,

Acknowledging that Congress, in Chapter 11, delicately balanced the hope of debtors to reorganize and the expectations of creditors for payment, the courts have focused their attention on proposed terms that would tilt the conduct of the bankruptcy case; prejudice, at an early stage, the powers and rights that the Bankruptcy Code confers for the benefit of all creditors; or leverage the Chapter 11 process by preventing motions by parties-ininterest from being decided on their merits. Ames, 115 B.R. at 37. 22. Moreover, a heightened level of scrutiny applies when a debtor seeks

approval of a DIP facility to be provided by an insider like Yucaipa in this case. See Hrg Tr., June 12, 2012 at 87:22-25 (stating that an insider postpetition loan must be better than average for a debtor, because it raises a specter of self-dealing); see generally In re Winstar Commcns, inc., 554 F.3d 382, 412 (3d Cir. 2009) (A claim arising from the dealings between a debtor and an insider is to be rigorously scrutinized by the courts.) (citation omitted); In re N&D Props., Inc., 799 F.2d 726, 731 (11th Cir. 1986) (finding that an insiders claims may be equitably subordinated upon a showing of mere unfair conduct, whereas a non-insiders claim can only be equitably subordinated upon a showing of more egregious conduct)

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23.

Accordingly, the Committee submits that certain provisions of the DIP

Facility fail to satisfy this heightened scrutiny and are unduly prejudicial to the rights of unsecured creditors and other creditor constituencies, and, if continued in any Final Order granting the DIP Motion, will unfairly affect the rights and interests of the Debtors estates and the Debtors creditors. These provisions are entirely contrary to the Courts mandate that the DIP Motion must not tie the hands of the Debtors or the Court, and would further impose a stranglehold on ability of the Committee to perform its fiduciary obligations to general unsecured creditors. See Hrg Tr., June 12, 2012, at 26:17-19. I. The Committee Has Not Been Provided With Sufficient Information to Determine Whether the DIP Facility Is Necessary Or Market 24. As a preliminary matter, the Debtors provide only conclusory statements

that the DIP Facility is necessary or market, and that the Debtors could not continue operating by using Cash Collateral. Indeed, while the DIP budget attached to the Amended Interim Order (the DIP Budget) shows a net cash burn, there is no detail to validate that position, and the Committees proposed professionals have not been provided with sufficient information to make that determination. Indeed, the apparent fact that Yucaipa, as the majority First Lien Lender, has refused to be primed casts doubt as to whether this DIP Facility is market or necessary. Accordingly, the Committee requests that any Final Order not be entered until the Committee can make a proper determination as to the necessity of the DIP Facility. II. Yucaipa and the Second Lien Lenders Are Not Entitled to Adequate Protection 25. Yucaipa is not entitled to adequate protection because its interests in

property are not impaired by the automatic stay. The Bankruptcy Code requires debtors to provide a secured creditor with adequate protection to the extent the automatic stay, the debtors use of property, or a priming lien results in a decrease in the value of such entitys interest in such property. 11 U.S.C. 361(1).

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26.

The Bankruptcy Code introduces the concept of adequate protection with

the goal of safeguard[ing] the secured creditor from diminution in the value of its interest during the Chapter 11 reorganization. In re 495 Central Park Ave. Corp., 136 B.R. 626, 631 (Bankr. S.D.N.Y. 1992). Here, there has been absolutely no showing as to the value of the interest that Yucaipa claims to be in need of protection. Here, far from being harmed by the imposition of the automatic stay, Yucaipa is reaping significant benefits from the chapter 11 process. By facilitating the Debtors operations in chapter 11, Yucaipa is assured of the Debtors continuing normal business operations and maintaining the enterprise value of its collateral. If anything, Yucaipa is a direct beneficiary of the automatic stay, as the Debtors (the company primarily owned by Yucaipa) are shielded from any interference or interruptions with the chapter 11 process and Yucaipa is shielded from any interference or interruptions from other parties in interest. 27. Additionally, the DIP Facilitys priming of the Second Lien Lenders liens

does not entitle the Second Lien Lenders to adequate protection. See 11 U.S.C. 364(d)(1). These lenders are in the same position as they were prepetition subordinate to the First Lien Lenders. All that has changed is the imposition of the DIP Facility, a DIP Facility that gives the Second Lien Lenders all the benefits described above. As the interests of the Second Lien Lenders in its collateral remains the same, it neither needs nor deserves adequate protection. III. The Granting of Superpriority Claims and Adequate Protection Priority Claims on the Proceeds of Avoidance Actions Is Improper and Should Not Be Permitted 28. The Committee objects to the DIP Facility and any proposed order to the

extent it permits the payment of the Superpriority Claims and Adequate Protection Priority Claims from all proceeds of Avoidance Actions of the Debtors. These proposed protections are inappropriate, and are plainly contrary to the interests of the Debtors and the unsecured creditors. 29. Avoidance actions are a creation of bankruptcy law designed to facilitate

the equality of distribution among a debtors general unsecured creditors. See In re Cybergenics

13

Corp., 330 F.3d 548, 567 (3d Cir. 2000) (noting that the underlying intent of the avoidance powers is the recovery of valuable assets for the benefit of a debtors estate). Because of the unique nature of avoidance power actions, courts have recognized that, at least with respect to proceeds recovered pursuant to section 544(b) of the Bankruptcy Code, empowering the trustee or debtor in possession to avoid a transaction by pursuing an individual creditors cause of action is a method of forcing that creditor to share its valuable right with other unsecured creditors. Cybergenics, 226 F.3d at 244; see also Buncher Co. v. Official Comm. of Unsecured Creditors of GenFarm Ltd. Pship IV, 229 F.3d 245, 250 (3d Cir. 2000) (When recovery is sought under 544(b) of the Bankruptcy Code, any recovery is for the benefit of all unsecured creditors, including those who individually had no right to avoid the transfer.); Bear Steams Sec. Corp. v. Gredd, 275 B.R. 190, 194 (S.D.N.Y. 2002) ([T]he purpose of 547 is to ensure fair distribution between creditors, while the purpose of 548 is to protect the estate itself for the benefit of all creditors.); In re Sweetwater, 884 F.2d 1323, 1328 (10th Cir. 1989) ([P]ost-petition avoidance actions should be pursued in a manner that will satisfy the basic bankruptcy purpose of treating all similarly situated creditors alike.). 30. Because chapter 5 causes of action are not property of the Debtors

estates, there is no legal basis for the Court to grant the DIP Lenders and the Prepetition Secured Parties any interest in the proceeds of avoidance actions. Accordingly, the proceeds of the Avoidance Actions should not be subject to the superpriority claims granted to the DIP Lenders and Adequate Protection Priority Claims granted to the Yucaipa and the other Prepetition Secured Parties in any Final Order. Further, in any Final Order, the Postpetition Liens and Adequate Protection Liens should not be senior to any prepetition lien that is determined to be avoidable (Amended Interim Order 10(b)) and the DIP Collateral should expressly exclude the proceeds of the Avoidance Actions from its definition. See Amended Interim Order 8.

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IV.

Numerous Provisions in the DIP Facility Would Preclude the Committee from Performing its Statutory Fiduciary Role A. The DIP Facility Imposes an Unreasonable Time Limit on the Committees Ability to Bring Certain Challenges 31. The DIP Facility restrains the Committee, and other non-Debtor parties in

interest, from challenging obligations, liens and claims relating to the Prepetition Credit Facilities and actions taken by any Prepetition Secured Party in its capacity as such (a Committee Challenge Action) by harshly limiting the time within which the Committee must complete its review of the obligations, liens and claims relating to the Prepetition Credit Facilities. Indeed, under the Debtors proposed time limit (the Challenge Period), the

Committee would have to bring a Committee Challenge Action within 75 days of the Consent Date. 9 Upon expiration of the Challenge Period, it appears that the Committee, and all other parties in interest would be effectively barred from asserting any causes of action, claims, offsets, setoffs and defenses against any Prepetition Secured Party including against the insider Yucaipa relating to the Prepetition Credit Facilities not expressly brought during the Challenge Period. See Amended Interim Order 12(b). 32. The complexity of the Debtors equity and capital structure, the

complicated history and relationships between the Debtors and the Debtors various stakeholders, and the fact that numerous parties have expressed concern over the control that Yucaipa has exerted over the Debtors as an insider require that the Committee not be hindered in any way in making a careful and diligent assessment of whether there are any such valid claims or causes of action that could yield significant benefits for the Debtors creditors as a whole. Indeed, the contest between Yucaipa, the Petitioning Creditors, CIT and potentially other parties in interest has been going on for quite a while Yucaipas original action against CIT was filed in 2009, and only recently, in May 2012, did the Petitioning Creditors reach a point where they
9

The Amended Interim Order requires Committee Challenge Actions to be brought within the later of 75 days after the Consent Date (i.e. August 24) and 60 days from the Committee Formation Date (i.e. August 18). See Amended Interim Order 12(b).

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believed they could, in good faith, file the involuntary petitions against Allied and Systems. Consequently, there is no question that there is a considerable amount of material that requires a fair amount of time to properly investigate. Indeed, the serious allegations in the Petitioning Creditors Motion to Appoint Trustee heighten the need for the Committee to conduct a thorough investigation. See Motion to Appoint Trustee. 10 33. The Challenge Period imposes a burdensome obstacle on the Committees

ability to properly perform its fiduciary duty in seeking the best possible results for the Debtors unsecured creditors. See In re Iridium Operation LLC, 478 F.3d 452, 466 (2d Cir. 2007). In its current form, the Challenge Period benefits only the Prepetition Secured Parties not the Debtors estates, not the general creditor body, and not the integrity of the bankruptcy process. Indeed, given Yucaipas apparently overwhelming influence over the Debtors, it is not surprising that Yucaipa, as one of the Prepetition Secured Parties, profits considerably from the limited time the Committee would have to investigate the numerous accusations that Yucaipa improperly engineered its acquisition of obligations under the First Lien Facility. 34. Additionally, the Committee respectfully requests that any Final Order

expressly grant the Committee standing to bring any Committee Challenge Actions without the need to file a motion for standing at a later date. The Prepetition Secured Parties, and in particular, Yucaipa, should not be permitted to hinder the Committees ability to fully investigate potential claims by imposing upon the Committee the double burden of seeking standing and investigating and initiating such actions all during the same Challenge Period. In the alternative, in the event the Final Order requires the Committee to file a motion to seek standing to bring any Committee Challenge Actions, the filing of such a motion should automatically extend the Challenge Period to accommodate the motion practice involved in seeking such standing. 11

10

Although the Committee has not formed a view on the merits of the Motion to Appoint Trustee, what Yucaipa has sought to accomplish through the DIP Motion suggests that a trustee or other independent fiduciary may be necessary to preserve the integrity of the bankruptcy process. Courts have routinely approved DIP financing agreements that grant standing to the creditors committee without the need for a standing motion. See, e.g., In re Am. Safety Razor, LLC, Case No. 10-12351 (Bankr. D.

11

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35.

As such, the Challenge Period could effectively result in the involuntary

third party release of claims against the Prepetition Secured Parties, including insider parties like Yucaipa, because the Committee would not have sufficient time to make a proper investigation of all the Prepetition Secured Parties and potential claims in connection with those parties and the Prepetition Credit Facilities. Accordingly, the Committees right to assert or prosecute any such claims and causes of action against the Prepetition Secured Parties including, without limitation, equitable subordination, recharacterization or money damage claims should not be restricted at all. Indeed, in a recent case in this bankruptcy court, Judge Walrath refused to grant similar releases to Yucaipa where they were also the controlling equity holder and prepetition lender, stating that [b]ut because there are other releases being sought that relate to the relationships between the parties, relate to loans that were extended at various times prepetition to various parties, Im not going to tie the Committee to a period at this time. In re AFA Investment, Inc., Case No. 12-11127 (MFW) (Bankr. D. Del. Apr. 24, 2012), Hrg Tr. at 29:1721 (attached hereto as Exhibit B). 36. Further, the Committee requests that any Final Order require the Debtors

and the Prepetition Secured Parties to cooperate in all reasonable requests for information in order to assist the Committee in its investigations. B. The DIP Facility Imposes an Unreasonably Low Cap on the Committees Challenge Fees and Provides Inadequate Resources for the Committee 37. The DIP Facility, as evidenced by the Amended Interim Order, further

seeks to constrain the Committees ability to conduct a proper investigation of the Prepetition Secured Parties and even to properly function by imposing an unreasonably low cap on Committee fees. The Carve-Out and the cap on the Committee Challenge Fees (the Committee Challenge Cap) collectively prevent the Committee from having any meaningful ability to investigate the Prepetition Credit Facilities and the Prepetition Secured Parties, and assert any
Del. Aug. 27, 2010); In re PCCA Parent LLC, Case No. 10-10250 (Bankr. D. Del. Mar. 2, 2010); In re Pliant Corp., case No. 09-10443 (Bankr. D. Del. Mar. 20, 2009).

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claim or cause of action in connection therewith. Thus, the Committees ability to fulfill its role as the fiduciary representative of the Debtors entire body of unsecured creditors is frustrated and neutered. Any Final Order must remedy each of these conditions. 38. The Amended Interim Order attempts to restrain the Committees ability

to investigate the Committee Challenge Actions by imposing a $25,000 expense cap. See Amended Interim Order 12(c). Specifically, the Amended Interim Order prohibits the use of the DIP Loan, DIP Collateral, Prepetition Collateral and Cash Collateral, or any portion of the Carve-Out in connection with a Committee Challenge Action. See id. 11(c), 12(a). The only exception to this prohibition is the miniscule Committee Challenge Cap allocated to fund the efforts of the Committee to investigate, take discovery with respect to, filing and prosecuting any and all Committee Challenge Actions. See id. 12(c). 39. The Committee Challenge Cap serves as a deterrent that prevents the

Committee from being able to effectively pursue any potential claims against the Prepetition Secured Parties or otherwise in connection with the Prepetition Credit Facilities. Cf. Tenney Vil., 104 B.R. at 568-69 (refusing to approve postpetition financing because a fee cap unacceptably limited the right of debtors counsel to payment for bringing actions against the prepetition lenders, creating an economic incentive for the debtor to avoid bringing such actions in disregard of its fiduciary duties to the estate). The Committee Challenge Cap is woefully inadequate and would preclude the Committee from doing much more than obtaining UCC filing searches on the Debtors, much less investigating, taking discovery, and prosecuting any Committee Challenge Actions. Any Final Order should raise the Committee Challenge Cap to no less than $150,000 to ensure the Committees ability to satisfy its fiduciary obligations to creditors by conducting a full and fair investigation. 40. In addition, the Amended Interim Order severely restricts the Committees

ability to fulfill its crucial oversight role in the Chapter 11 Cases particularly in a case where the Debtors appear to be dominated and controlled by Yucaipa, and that concern has already been widely expressed by the Court, the Trustee and the Petitioning Creditors which have gone 18

so far as to file a motion for the appointment of a trustee alleging that the management and board of the Debtors are unable to fulfill their fiduciary duties because of Yucaipas overwhelming control over the Debtors. See Motion to Appoint Trustee. In particular, while the Amended Interim Order allots an unlimited amount of fees and expenses owed to the Debtors professionals prior to the termination of the DIP Facility, it limits the pre-termination fees and expenses payable from the Carve-Out to the Committees professionals to $100,000. Furthermore, post-termination fees and expenses allocated in the Carve-Out are similarly unbalanced: $200,000 for the Debtors professionals and $75,000 for the Committees

professionals. See Amended Interim Order 11. Accordingly, the disproportionate allocation must be modified in order to provide the Committee with the ability to fulfill its oversight role. See In re Channel Master Holdings, Inc., 2004 Bankr. LEXIS 576, at *8-9 (Bankr. D. Del. Apr. 26, 2004) (holding that a cap on an official committees professional fees was unreasonable relative to the larger budgets for other professionals in the case, and determining that the cap on the committees fees provided for inadequate compensation). Particularly in this case, the

amount allotted for Committee professionals must be proportionate to the amount allotted for the Debtors professionals in order to ensure the Committee is adequately equipped to fulfill its fiduciary role. As such, the Committee proposes that the Carve-Out in any Final Order cover the fees and expenses of the Committees professionals up to the same amount the fees and expenses of the Debtors professionals are covered, that is, no limit for fees and expenses pre-termination, and a cap of $200,000 for the Committees professionals post-termination. C. The DIP Agreement Improperly Includes Certain Events of Default That Cripples the Ability of Any Party to Challenge the Conduct of the Prepetition Secured Parties 41. The Court should not permit Yucaipa to use its role as DIP Lender to

control the chapter 11 cases to benefit its already powerful position at the expense of all other creditors. The DIP Facility would give Yucaipa further control over the Debtors bankruptcy

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cases through Events of Default that go well beyond the rights typically provided to a DIP lender. In particular, the following sections would create defaults if: any party brings an action against the First Lien Agent or First Lien Lender or their respective affiliates (a) asserting or seeking a claim over $100,000, (b) effectively seeking to subordinate obligations or liens of any First Lien Agent or First Lien Lender under the First Lien Facility, or (c) that could have a material adverse effect on the rights and remedies of any First Lien Agent or First Lien Lender under the First Lien Facility (DIP Agreement 8.1(s)); a court, by order or judgment in any of the Debtors bankruptcy cases, modifies, limits, subordinates, recharacterizes, or avoids the priority or validity of any Indebtedness owed to the DIP Lenders or to the First Lien Lenders under the First Lien Facility, or the perfection, priority or validity of the prepetition or postpetition liens of the DIP Agent, the DIP Lenders, or the First Lien Agent or First Lien Lenders under the First Lien Facility on any DIP Collateral; or imposing, surcharging or assessing against the DIP Lenders or the First Lien Lenders under the First Lien Facility or their claims or any DIP Collateral any costs or expenses, whether pursuant to section 506(c) or otherwise, and such Indebtedness, liens or costs and expenses having a book value in excess of $1,000,000 in the aggregate (DIP Agreement 8.1(t)); and any party brings a suit or an action to disallow any claim of any DIP Lender, DIP Agent, First Lien Lender or First Lien Agent in respect of the appropriate obligations under the DIP Facility or First Lien Facility; or to challenge the validity or enforceability of any liens in favor of the DIP Agent, any DIP Lender, or any First Lien Lender or First Lien Agent, and the opposed claims or liens have a book value in excess of $1,000,000 in the aggregate (DIP Agreement 8.1(z)). 12 42. These Events of Default are wholly unnecessary to protect Yucaipas

interests as DIP Lender. Indeed, instead, they overreach and provide Yucaipa with protection beyond its role as the primary DIP Lender and DIP Agent. Indeed, these Events of Default insulate Yucaipa from any actions or judgments/orders against them and other First Lien Lenders in connection with the First Lien Facility. See DIP Agreement 8.1(s), (t), (z). Unbelievably, Yucaipa, as DIP Agent, would be able to exercise remedies against the DIP Collateral in the event anyone brings a subordination action against a First Lien Lender, a court modifies any
12

In the hearing on June 12, 2012 for these cases, the Trustee expressed further concern regarding certain other Events of Default. In particular, the Trustee proposed limiting section 8.1(q) of the DIP Agreement to Credit Parties (rather than causing a default if any party brings a motion for additional financing), similarly limiting section 8.1(v) to an approval of financing sought by the Committee, and deleting in section 8.1(w) or increasing the amount to trigger an Event of Default. See Hrg Tr., June 12, 2012 at pp. 83-84. The Committee supports the Trustees efforts to revise these Events of Default.

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obligations under the First Lien Facility, or an action is brought to disallow or challenge the claim of a DIP Lender, DIP Agent or First Lien Lender, even where such actions or judgments may very well relate to Yucaipas exploitation of the Debtors. See, e.g., Petitioning Creditors Statement at pp. 13-16 (discussing the CIT litigation and Black Diamond/Yucaipa litigation). As the Trustee rightly noted, these provisions could render the Committees investigatory and challenge rights nugatory because if the Committee does anything against the First Lien Facility or the DIP Facility, the DIP Loan is immediately in default. See Hrg Tr., June 12, 2012 at 84:14-18. In light of the extensive insider relationship between Yucaipa and its many-faceted roles in the Debtors businesses, the Committee finds such Events of Default in sections 8.1(s), (t) and (z) objectionable in their entirety and they should be stricken from the DIP Agreement and any Final Order. D. The DIP Motion Proposes to Pay an Excessive Amount of Fees and Expenses to the DIP Lenders and DIP Agent 43. The DIP Motion requires the Debtors to pay (i) a commitment fee of

0.75% per annum on the average undrawn portion of the DIP Facility, payable monthly to the DIP Lenders; (ii) an upfront fee of $500,000 (2.5% of the total DIP commitment) effectively to the DIP Lenders; (iii) a DIP Agent fee of $75,000 payable upon entry of the Interim Order; and (iv) reasonable fees and expenses of the DIP Agent in connection with the DIP Facility, and, following an Event of Default, the expenses of the DIP Lenders in connection with the sale or realization of the DIP Collateral or any workout. See DIP Motion 5. Yucaipa should not be entitled to pay itself sizable fees at the expense of unsecured creditors for lending money to the Debtors solely to protect its own interests. Given the Debtors own claims in the DIP Motion that the DIP Facility is necessary to continue operating its businesses, it is frankly inappropriate that Yucaipa seeks to reward itself a substantial upfront fee and DIP Agent fee, as well as an unreasonably high commitment fee in light of the projected amount to be drawn thereunder. Indeed, the Trustee and this Court also expressed concern as to the fees payable to the DIP

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Lenders and the DIP Agent. Hrg Tr., June 12, 2012 at 86:9-18, 87:21-25. Indeed, given that the DIP Agent could terminate the entire DIP Facility in the event a party brings a challenge within the 75-day Challenge Period only magnifies the excessive nature of these fees. V. The Releases Are Overly Broad and Must Be Eliminated 44. Paragraph 13(b) of the Amended Interim Order provides that subject to the

investigation and challenge rights set forth in paragraph 12 of the Amended Interim Order (which themselves obscenely restrictive, as described below), inter alia, the Debtors forever and irrevocably release, discharge, acquit and waive each of the Prepetition Secured Parties, in its capacity as such, and each of its respective former, current or future Related Parties, from any and all claims, demands, liabilities, responsibilities, disputes, remedies, causes of action, indebtedness, and obligations of every type with respect to the obligations, liens and other matters relating to the Prepetition Credit Facilities, any claims or causes of action arising under the Bankruptcy Code, and any and all claims or defenses regarding the validity, priority, perfection or avoidability of the liens or obligations relating to the Prepetition Credit Facilities. 45. The Debtors have provided no legitimate justification for the release of the

Debtors claims against the Prepetition Secured Parties which, not coincidentally, include Yucaipa. The Prepetition Secured Parties are already receiving adequate protection in the form of replacement liens on not just the Prepetition Collateral but also the DIP Collateral. See DIP Motion at p. 4; Amended Interim Order 9. There is simply no basis in any Final Order for barring the Debtors from determining whether any relief is available against potentially the largest source of recovery, thereby prohibiting the Debtors from exercising their fiduciary duty to maximize value for their estates and all their creditors and benefiting only the Prepetition Secured Parties.

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VI.

Numerous Other Provisions Require Modification in Order to Protect the Interests of the Debtors Estates and the Entire Creditor Body A. Waiver of Parties Statutory Rights Under Sections 506(c) and 552(b) of the Bankruptcy Code is Inappropriate 46. Paragraph 14 of the Amended Interim Order provides that upon entry of

the Final Order, to the extent such order provides, the Debtors shall irrevocably waive and shall be prohibited from asserting any surcharge claim under section 506(c) of the Bankruptcy Code, the enhancement collateral provisions of section 552 of the Bankruptcy Code, or any other legal or equitable doctrine, for any costs and expenses incurred in connection with the preservation, protection or enhancement of, or realization by the Prepetition Secured Parties upon the DIP Collateral or the Prepetition Collateral. The Committee objects to the inclusion of such a waiver in the Final Order. Paragraph 14 of the Amended Interim Order further provides, improperly, that the Prepetition Secured Parties shall not be subject to (i) the equities of the case exception contained in section 552(b) of the Bankruptcy Code or (ii) the equitable doctrine of marshaling or any other similar doctrine with respect to the DIP Collateral or the Prepetition Collateral (as applicable). 47. Section 506(c) of the Bankruptcy Code ensures that a debtor in possession

is entitled to recover expenses from its secured lenders to the extent that those expenses are necessarily and reasonably associated with preserving or disposing of a secured lenders collateral. The section 506(c) waiver included in the Amended Interim Order advances only the interests of the Prepetition Secured Parties to the detriment of the Debtors estates, and permits the Prepetition Secured Parties to enjoy a significant windfall to the extent that unencumbered estate funds are used to preserve, maintain, or dispose of the collateral. Accordingly, it ensures that the costs of the Debtors restructuring will be borne by the unsecured creditors alone, even if the unsecured creditors receive no value, thus contravening the intent behind section 506(c) of the Bankruptcy Code. See In re Codesco, Inc., 18 B.R. 225, 230 (Bankr. S.D.N.Y. 1982) (The underlying rationale for charging a lienholder with the costs and expenses of preserving or

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disposing of the secured collateral is that the general estate and unsecured creditors should not be required to bear the cost of protecting what is not theirs.). 48. Given the fact that the Debtors have not demonstrated any extraordinary

circumstances justifying a section 506(c) waiver, this Court should not permit such waiver in any Final Order under the circumstances. 49. Furthermore, any provision in any Final Order that would infringe upon

the Courts power to marshal the Debtors assets, or to apply any other similar equitable principles to the disposition of the Debtors assets, is inappropriate. Insulating the DIP Lenders from the equitable doctrine of marshaling would improperly restrain the Courts ability to fulfill the purpose of the Bankruptcy Code in the event of a default under the DIP Facility. 50. Following an Event of Default under the DIP Facility, it may be

appropriate for the Court to apply the equitable doctrine of marshaling (or any similar equitable doctrine) to prevent a piecemeal dismantling of the Debtors. The appropriateness of marshaling is a determination for the Court, and not the DIP Lenders, to make. The Debtors cannot revoke the Courts equitable power to invoke such doctrines simply because the DIP Lenders wish to avoid these consequences. Accordingly, any provisions in the Interim Order and any Final DIP Order that would infringe upon the Courts power to marshal the Debtors assets, or to apply any other similar equitable principles to the disposition of the Debtors assets, must be stricken. B. Impermissible Prohibition on Use of Cash Collateral 51. The proposed DIP Facility provides that authorization for the Debtors to

use Cash Collateral shall terminate automatically upon the occurrence and during the continuance of an Event of Default. The Committee objects to the inclusion of such restrictions in any Final Order, unless any Final Order specifically provides that the hearing on any motion filed by either the Debtors or the Committee following and arising from notice of an Event of Default shall be expedited, and shall take place on the earliest of the following to occur: (i) the

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next regularly scheduled pre-set hearing date in the Chapter 11 Cases; or (ii) such other date as the Court may set. C. A Good Faith Finding Should Be Subject to Reversal or Modification 52. Although the Amended Interim Order contains a good faith finding under

section 364(e) of the Bankruptcy Code, the pervasive presence of Yucaipa in the Debtors prepetition equity and capital structure, and as DIP Lender and DIP Agent, the Committee respectfully submits that, in any Final Order, such a finding should be subject to reversal or modification as part of the Committees challenge rights under paragraph 12 of the Amended Interim Order and as incorporated under any Final Order. Indeed, this Court expressed some doubt as to the ability of the Debtors and Yucaipa to make the independent good faith finding when Debtors counsel indicated that Yucaipa, as majority First Lien Lender, refused to be primed. Hrg Tr., June 12, 2012 at 51:10-19. RESERVATION OF RIGHTS 53. The Committee and its members reserve all of their respective rights,

claims, defenses, and remedies, including, without limitation, the right to amend, modify, or supplement this Objection, to seek discovery, to raise additional objections to the DIP Motion, DIP Agreement and related documents prior to, or during, the Final Hearing, and to negotiate and document alternative debtor-in-possession financing terms.

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CONCLUSION WHEREFORE, the Committee respectfully requests that the Court (i) sustain this Objection, (ii) deny the DIP Motion, absent the modifications to the DIP Facility, Interim Order and Final Order as discussed herein, and (iii) grant such other and further relief as the Court may deem just, proper and equitable. Dated: Wilmington, Delaware July 9, 2012

SULLIVAN HAZELTINE ALLINSON LLC /s/ William D. Sullivan_______________________ William D. Sullivan (No. 2820) William A. Hazeltine (No. 3294) Elihu E. Allinson, III (No. 3476) Seth S. Brostoff (No. 5312) 901 N. Market St., Suite 1300 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 Avenue 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

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Page 1 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 ECR OPERATOR: LESLIE MURIN VERITEXT REPORTING COMPANY www.veritext.com B E F O R E : HON CHRISTOPHER S. SONTCHI U.S. BANKRUPTCY JUDGE June 12, 2012 12:12 PM United States Bankruptcy Court 824 North Market Street Wilmington, Delaware - - - - - - - - - - - - - - - - - - - - - - - - - - - - x Debtors. ALLIED SYSTEMS HOLDINGS, INC., ET AL., UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE Case No. 12-11564(CSS) - - - - - - - - - - - - - - - - - - - - - - - - - - - - x In the Matter of:

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Page 2 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 HEARING re Allied Freight Brokers LLC [12-11769]

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HEARING re Allied Systems Holdings, Inc. [12-11564]

HEARING re Allied Systems, LTD (L.P.) [12-11565]

HEARING re Allied Automotive Group, Inc. [12-11768]

HEARING re Axis Group, Inc. [12-11770]

HEARING re F.J. Boutell Driveaway LLC [12-11767]

HEARING re Allied systems (Canada) Company [12-11773]

HEARING re Commercial Carriers, Inc. [12]11775]

HEARING re GACS Incorporated [12-11777]

HEARING re Cordin Transport LLC [12-11781]

HEARING re CT Services, Inc. [12-11782]

HEARING re Axis Canada Company [12-11783]

HEARING re Terminal Services LLC [12-11780]

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Page 3 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 HEARING re Motion for Order (A) Deeming Utilities Adequately Assured of Payment, (B) Prohibiting Utilities from Altering, Refusing, or Discontinuing Services, and (C) Establishing HEARING re Motion to Authorize Allied Systems, Holdings, Inc. to Act as Foreign Representative of the Debtors [Docket No. 71 - filed June 10, 2012] HEARING re Application for Order Appointing Rust Consulting/Omni Bankruptcy as Claims and Noticing Agent Pursuant to 28 U.S.C. 156(c) and Section 105(a) of the Bankruptcy Code Nunc Pro Tunc to the Petition Date [Docket No. 70 - filed June 10, 2011] HEARING re QAT, Inc. [12-11779] HEARING re RMX LLC [12-11778] HEARING re Transport Support LLC [12-11776] HEARING re Axis Areta, LLC [12-11774] HEARING re Logistic systems, LLC [12-11772] HEARING re Logistic Technology, LLC [12-11771]

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Page 4 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 HEARING re Motion for Authority to (A) Maintain Existing HEARING re Motion of the Debtors for Orders Authorizing the Debtors to Pay Prepetition Sales, Use, and Other Taxes and Related Obligations [Docket No. 76 - filed June 11, 2012] HEARING re Motion of the Debtors for Order Pursuant to U.S.C. 105(a) and 363(b) Authorizing Payment of Prepetition Customs Duties and Claims of Common Carriers and Warehousemen and Authorizing the Debtors to Honor Certain Prepetition Cargo Claims and Authorizing Financial Institutions to Honor and Process Checks and Transfers Related to Such Claims [Docket No. 75 - filed June 11, 2011] HEARING re Debtors' Motion for entry of Interim and Final Orders Authorizing, But Not Directing, the Debtors to Pay Certain Prepetition Claims of Critical Vendors and Granting Certain Related Relief [Docket No. 74 - filed June 11, 2012] HEARING re Motion for Order authorizing Debtors to Continue Their Insurance Programs [Docket No. 73 - filed June 11, 2011] Procedures for Resolving Requests for Additional Assurance [Docket No. 72 - filed June 11, 2011]

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Page 5 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 HEARING re Declaration of Scott D. Macaulay in Support of HEARING re Motion Pursuant to 11 U.S.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503(b) and 507(a), Fed. R. Bankr. P. 2002, 4001 and 9014 and Del. Bankr. L.R. 4001-2: (I) 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; (III) Granting Adequate Protection to Prepetition Secured Lenders; (IV) Modifying Automatic Stay; and (V) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(b) and (c)[Docket No. 79 - filed June 11, 2012] HEARING re Motion of Debtors for Interim and Final Orders Authorizing Payment of Pre-Petition Wages, Payroll, Taxes, Certain Employee Benefits and Related Expenses, and Other Compensation to Employees and Independent Contractors [Docket No. 78 - filed June 11, 2012] Cash Management System and Bank Accounts, (B) Continue Use of Existing Checks and Business Forms, (C) Obtain Limited Waiver of 345(b) and (D) Continue to Make Intercompany Advances with 364(c)1) Administrative Priority [Docket No. 77 - filed June 11, 2012]

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Page 6 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 Transcribed by: Dawn South Chapter 11 Petitions and First Day Motions [Docket No. 80 filed June 11, 2011]

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Page 7 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 BY: DAVID L. BUCHBINDER, ESQ. VERITEXT REPORTING COMPANY www.veritext.com OFFICE OF THE UNITED STATES TRUSTEE Attorney for the United States Trustee 844 King Street, Suite 2207 Lockbox 35 Wilmington, DE 19801 BY: CHRISTOPHER M. SAMIS, ESQ. MARK COLLINS, ESQ. RICHARDS, LAYTON & FINGER, P.A. Attorneys for Allied Systems Holdings, Inc., Debtors One Rodney Square 920 North King Street Wilmington, DE 19081 BY: JEFFREY W. KELLEY, ESQ. CAROLYN RICHTER, ESQ. A P P E A R A N C E S : TROUTMAN SANDERS, LLP Attorneys for Allied Systems Holdings, Inc., Debtor 600 Peachtree Street, NE, Suite 5200 Atlanta, GA 30308

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Page 8 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 VERITEXT REPORTING COMPANY www.veritext.com BY: ROBERT A. KLYMAN, ESQ. MELINDA C. FRANEK, ESQ. LATHAM & WATKINS, LLP Attorneys for Yucaipa, Interested Party 355 South Grand Avenue Los Angeles, CA 90071 BY: MICHAEL R. NESTOR, ESQ. YOUNG CONAWAY STARGATT & TAYLOR, LLP Attorney for Yucaipa, Interested Party Rodney Square 1000 North King Street Wilmington, DE 19801 BY: ADAM C. HARRIS, ESQ. VICTORIA A. LEPORE, ESQ. ERIK SCHNEIDER, ESQ. SCHULTE, ROTH & ZABEL, LLP Attorneys for BDCM Opportunity Fund II, LP, Creditor 919 Third Avenue New York, NY 10022

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LANDIS RATH & COBB Attorney for BDCM Opportunity Fund 919 N. Market Street, #1800 Wilmington, DE 19801

BY:

ADAM G. LANDIS, ESQ.

DUANE MORRIS LLP Attorney for CIT Group/Business Credit Inc. 30 South 17th Street Philadelphia, PA 19103

BY:

SOMMER L. ROSS, ESQ.

FRIED FRANK HARRIS SHRIVER & JACOBSON LLP Attorney for CIT Group/Business Credit Inc. 375 Park Avenue, #3708 New York, NY 10152

BY:

GARY L. KAPLAN, ESQ.

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Page 10 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 proceed. MR. KELLEY: Good afternoon, Your Honor. Jeff P R O C E E D I N G S THE CLERK: THE COURT: All rise. Please be seated. All right, you may

Kelley from Troutman Sanders representing the debtors. Proposed counsel I should say for the debtors. Your Honor, the U.S. Trustee did want me to announce that the Georgia cases that have been referred to have been closed, they were closed on June 5th. THE COURT: MR. KELLEY: Thank you. Your Honor, the -- what I propose to

do is go through the first day's in the order that they appear on the agenda, with one exception, and that is we'd like to move the cash management motion one position down, put everybody ahead of the DIP motion with the Court's indulgence. THE COURT: MR. KELLEY: That's fine. My partner, Carolyn Richter, who's

with me in the courtroom will be handling those last two motions, and I'll be attempting to handle the ones that come before that. THE COURT: MR. KELLEY: All right. I would like to inform the Court that

we have had extensive discussions with the U.S. Trustee,

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Page 11 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 Yucaipa, and the petitioning creditors. We think we have

resolved many of the issues, if not most or all of the issues, I think there are a few remaining items that are open. Mr. Samis does have a folder of the first day orders that were proposed with redlines of a hue where changes have been proposed. to you if that's acceptable. THE COURT: MR. KELLEY: All right. I would mention that the DIP order He would like to hand those up

that's in there, the DIP loan order is still subject to some further discussion. (Pause) THE COURT: MR. KELLEY: Go ahead. So again, with the Court's indulgence

when we get to the DIP loan motion, which is the last item on the agenda, we propose to go ahead and make the proffer and make the case, and then if still needed request that the Court give us a 10- or a 15-minute break to go and resolve a few remaining open issues with the petitioning creditors and maybe the U.S. Trustee. THE COURT: MR. KELLEY: Okay. Your Honor, the first order of

business I would like to tender into evidence the first day declaration of Scott Macaulay, which is Docket No. 80.

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Page 12 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 THE COURT: MR. KELLEY: Any objection? Oh, I'm sorry.

Well, I'll just -- I think Mr. Landis The declaration does contain a It does set

is going to say something.

history of what happened in the first case.

forth some litigation that's going on concerning the -between Black Diamond and Spectrum on the one hand and Yucaipa on the other. There's no intention in

Mr. Macaulay's declaration to say anything other than that litigation is pending. We realize that Black Diamond and

Spectrum don't necessarily agree that Yucaipa is a requisite lender. With that I will yield to Mr. Harris. THE COURT: MR. HARRIS: Mr. Harris? Good morning. This

Good afternoon, Your Honor.

issue sort of came up at yesterday's emergency hearing on Mr. Macaulay's affidavit. I mean there's a lot in there,

Your Honor, which is typical in affidavits in support of first day applications where the declaration seeks to give the Court some background as to how they got here and what's happened historically and what's going on in the business, and with all -- which is informative for the Court and in some respects helpful in cases where the judge has no familiarity, here you've got a little bit more history than most judges would have in connection with first day hearings.

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Page 13 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 right? MR. KELLEY: THE COURT: Yes, Your Honor. Okay. I'm very cognizant of the We don't want to waste a lot of the Court's time. We do have issues with some of the recitations and their views on issues like how they got here in the litigation and who is requisite lender, et cetera. None of frankly is

particularly relevant for the relief that's sought by most of the first day pleadings today. It may be in some respect

relevant to cash collateral in use -- in DIP financing, but we've come a long way on that and I'm not sure there's going to be a lot of controversy there either. So I would simply rise and say that with respect to the admissibility of the declaration I have no objection to that today; however, I don't want my non-objection on this basis to be taken as an agreement that the statements in there are somehow truthful or can't be challenged at some point in the future and that they are forever written in stone. At an appropriate time in the future we may need to challenge certain of the statements that are in there, but we really don't want to waste the Court's time with that today because it would be unnecessary. THE COURT: All right. I'm sure that's okay,

requisite lender issue, and just to be clear, at this point

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Page 14 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 I'm not trying -- any order I enter today is not going to have collateral estoppel, judicial estoppel, issue preclusions, fact conclusion on this limited record, and I'm not in any way trying to -- and I'm going to -- I want to make it clear to everybody I'm not in any way going to make a ruling on who a requisite lender is today. It's -- I

don't think fairly in front of me on what will happen at this time. MR. KELLEY: Yes, Your Honor. With that I would

like to proceed just directly to the -THE COURT: I'm sorry, just for the record the

declaration is admitted. MR. KELLEY: Thank you, Your Honor.

Turning to agenda item 20, which is Docket No. 70, this is the application for an order appointing Rust/Consulting Omni. By this application the debtors request the entry of an order appointing Rust Omni as claims agent for the Court pursuant to the terms of the engagement letter which is attached to the motion. Prior to selecting Rust Omni the debtor did obtain proposals from two other court-appointed claims and noticing agents to insure that we had a competitive process. Rust

Omni's proposal was the good proposal based on comparative situations that were presented, and we believe that our

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Page 15 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 proceed. MR. KELLEY: I was having the same problem in the one? Okay, I hear none, and I had no issues or questions in connection with that order. as presented. I'm sorry, I'm having trouble getting organized, so give me a minute. (Pause) THE COURT: That's better. Okay. You may So I will sign it selection of Rust Omni satisfies the Court's protocol for employment under 28 U.S.C. 156(c). The scope of the engagement is laid out in the application. Also set forth in the application is the fact

-- their qualifications and the fact that they are disinterested. So we respectfully request that that particular application be granted. THE COURT: Okay. Anyone wish to be heard on that

hotel last night, Your Honor, believe me. The next one is agenda item 21 which is Docket No. 71, the motion to authorize debtor, Allied Systems Holdings, Inc. to act as foreign representative of the debtors. Your Honor, as set forth in the Macaulay

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Page 16 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 declaration the -- Allied does have operations in Canada, it's about 35 percent of their business on a gross basis I believe, via the two Canadian subsidiaries, which are also debtors, they're identified in footnote one as Access Systems Canada Company, and access Canada Company. By this motion Allied Holdings seeks authorization pursuant to Section 1505 of the Bankruptcy Code to take the following actions. To act as the foreign representative of

the debtors, to seek recognition by the Ontario Superior Court of Justice commercial list of these Chapter 11 cases and of certain orders made by this Court from time to time, including most prominently the DIP order that we hope to obtain and others that we're hoping to obtain today, the wages motion and so on and so forth. I would note for the Court that there is a hearing scheduled -- not trying to be presumptive at all -- but there is a hearing scheduled in Toronto at 2:30 this afternoon, Allied's Canadian counsel, Gowlings, is in fact listening into this hearing on the phone. Timing -- and

we're not trying to rush the Court at all -- timing is of the essence in terms of getting some orders entered if we can -- or if we're successful in getting them entered and then having them recognized in Canada so that the funds can flow freely and the operations can continue uninterrupted. This was also done, Your Honor, in Allied's first

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Page 17 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 action? MR. KELLEY: THE COURT: MR. KELLEY: mangling his title. THE COURT: MR. KELLEY: Okay. I'm sorry. Your Honor, the purpose I think it's Judge Morowitz. Justice Morowitz. Justice Morowitz. I apologize for Chapter 11 case, I think the laws were slightly different then, we didn't have Chapter 15 at the time, but basically the same procedure was carried forth in Allied's first Chapter 11 case and when if I may say fairly smoothly. Your Honor, the -THE COURT: Who's the judge in the Canadian

Thank you.

of 1505 is to allow a debtor to petition a foreign court for recognition of its cases and to request that the foreign court cooperate and lend assistance to the debtor and to the United States Bankruptcy Court in meeting the objectives of chapter 15 of the Code and the model law on cross border insolvency. Absent a Court order appointing it as a foreign representative a Chapter 11 debtor may find itself in a position where it's difficult to satisfy the requirements for a petition of recognition, specifically Section 46 of the CCWA provides that an application for recognition of a foreign proceeding made by a foreign representative shall be

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Page 18 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 accompanied by a certified copy of the instrument authorizing the foreign representative to act in that capacity or a certificate from the foreign court affirming the foreign representative's authority to act. The relief sought here is therefore the first in a two-step process to -- as stated. If this order is -- if

this motion is granted by the Court we do intend to go before the Justice Morowitz this afternoon to seek recognition. With that, Your Honor, I would respectfully request that the -- this particular motion be granted. THE COURT: Anyone wish to be heard?

All right, I had no issues with this. (Court confers with clerk) THE COURT: immediately. MR. KELLEY: Thank you, Your Honor. I'll have the order docketed

Your Honor, the next motion is agenda item 22, which is Docket No. 72, this is the utilities motion. I

will point out that there's a redline of this order in the Court's folder reflecting comments made by the -Mr. Buchbinder, the U.S. Trustee. By this motion the debtors seek entry of an order determining adequate assurance of payment for future utility services prohibiting utility providers from altering or

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Page 19 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 discontinuing service on account of outstanding prepetition invoices, establishing procedures for determining adequate protection, a payment for future utility services, and scheduling a final hearing. In connection with the operation of their businesses the debtors obtain electricity, natural gas, water, sewer, and utilities from the various utilities listed on Exhibit A to the motion. In the ordinary course of business the debtors incur these types of expenses from utility service companies numbering some 170. On average prior to the petition date

the debtor spent approximately $300,000 each month on utility services. The debtors had a satisfactory payment of prepetition utility services. To the best of debtors'

knowledge there are no defaults or arrearages with respect to undisputed amounts claimed to be due for utility services. Your Honor, any interruption of the utility services to the debtors' business would be severely disruptive and would diminish the going concern value, but because both the Automotive Group debtor's businesses and the Access Group debtors are coordinated and operated out of many terminals across the United States and Canada it's essential that their utility services be -- continue

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Page 20 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 interrupted and not -- and not be disrupted. In addition it's essential that the utility services be continued and provided to the debtors' corporate headquarters in Atlanta, which is where of course the whole thing is organized and operated out of. Your Honor, to provide adequate assurance of payment for future services the debtors submit they will be able to continue to pay for all post-petition utility services from the proceeds of operations. As additional adequate assurance, however, the debtors will deposit $150,000, which is 50 percent of the average monthly bill, they'll deposit this $150,000 into a newly created segregated interest bearing account within 20 days after the entry of this interim order should it be -should this motion be granted. The debtors submit that adequate assurance deposit that will constitute sufficient adequate assurance of future payment; however, if any utility should find that the adequate assurance deposit is unsatisfactory and they request additional adequate assurance pursuant to 366(c) of the Bankruptcy Code and the debtors propose that such requests be addressed in procedures that are outlined in the motion. Your Honor, as you I'm sure are well aware in a Chapter 11 case following the 30-day period after

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Page 21 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 commencement of the case utilities may discontinue service if the debtor does not provide adequate assurance of future performance in a form satisfactory to the utility subject to the Court's ability to modify the amount of adequate assurance. The debtors thus believe it's prudent to require utility companies to raise any objections to the additional adequate assurance procedures so that the objections may be heard by the Court within the 30-day period after the petition date. The debtors' proposed objection procedures for this are also set forth in the motion. And the debtors

submit that the proposed adequate assurance and adequate assurance deposit account and the adequate assurance procedures provide more than adequate assurance of future payment under 366(c). The debtors expect that they will --

as I said -- will have no problem paying these bills. Moreover, the debtors have an incentive obviously to pay these bills because of their reliance on utility services for the operation of their businesses, and we submit that this if all taken together justifies the finding that the proposed adequate assurance, the deposit account, and the procedures that are set forth in the motion are more than sufficient to certify this particular requirement. We think that the requirements of the Bankruptcy

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Page 22 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 Honor? THE COURT: (Pause) MR. KELLEY: I'm informed, Your Honor, that Yes. agreement. Rule 6003 are satisfied because of the necessity of maintaining our operations without interruption within the 21 days after the petition date, and we further submit that waiver of the 14-day stay period provided under the Bankruptcy Rule 6004(h) is appropriate. And the with that, Your Honor, we would ask for the reasons I have stated and set forth in the motion and under the authorities cited in the motion that this particular motion be granted. THE COURT: Can you -- I have a question, and But the

simply one of not understanding the mechanism. agreement with CC Pace -MR. KELLEY: THE COURT: Yes.

-- from the energy trustee program And (b), is the

What -- (a), what is that?

mechanism such that Pace is collecting property of the estate, is in possession of property of the estate? simply didn't understand the mechanism. MR. KELLEY: May I confer with Mr. Macaulay, Your I just

they're an aggregator, they try to get the bills reduced and negotiate to get the bills reduced. Allied pays them and

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Page 23 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 them. then they pay the utilities, the ones that they're handling. THE COURT: Okay. And they get paid out of a

percentage I take it of -- how do they get paid? MR. KELLEY: their services. you would like. THE COURT: some large amount. So you've got what, 150 locations, They take responsibility For 100 They get paid a fee, Your Honor, for

I can find out exactly what that fee is if

locations, leaving the debtor busy -- leaving the debtor with time to do what the debtor does well, they do their business well, they negotiate with the utility companies, and we -- when a bill comes in for Duke Power how does it get paid? Does it get paid through them? Does it funnel

through them?

I just don't understand how the cash flows. Yes, Your Honor, it funnels through

THE COURT:

The debtor pays CC Pace and CC Pace then pays the

utility bill for the ones they're handling. THE COURT: So what's the mechanism for the

resolution of issues, for example, if CC Pace doesn't pay the utility bill? How does that work? I should have been -And maybe we can circle back on this

MR. KELLEY: THE COURT:

after a break or something, but I'd like to know -- you know, if CC Pace is the inner acting party with the utility company, that could affect what is appropriate adequate

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Page 24 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 assurance under the statute and what isn't adequate assurance under this statute. deposit. escrow? Whose going to hold the

Is it CC Pace that's holding the deposit or Is it the debtor? Whose in privity. I mean I just

-- this third-party system is new to me, and I'm not quite sure how it interacts with the statute. MR. KELLEY: I understand your questions, Your

Honor, and I will -- what I propose to do is circle back after -- I think we will be -- as I mentioned, I think asked to be taking a short break on the DIP any way, and when we do that I can circle back with Your Honor on that particular issue. THE COURT: MR. KELLEY: Okay. I neglected to introduce to the

Court, Your Honor, Mr. Scott Macaulay who is the CFO of the debtors. THE COURT: MR. KELLEY: Welcome. And John Blount who was here at the

last hearing is the genera counsel and chief administrative officer. THE COURT: Welcome. All right, well, subject --

and I looked at the blackline, subject to getting a resolution of this issue or questions with CC Pace I don't have any problem with the order, obviously at some point we'll need to set up a final hearing date, but I think we

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Page 25 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 can -- I think we're best off doing that at the end in connection with the DIP and then we can just fill in the dates. MR. KELLEY: THE COURT: MR. KELLEY: Thank you, Your Honor. So I'll hold that one aside for now. Okay, thank you.

Your Honor, the next one on the agenda is agenda item 23, which is Docket No. 73. This is a motion for an

order authorizing the debtors to continue their insurance programs. Now, this is a particularly detailed motion describing, you know, Allied's somewhat complicated insurance program. With all candor not written by me, but studies by me, what I would propose to do is simplify and summarize this motion and see where that -- where that particular procedure may get me. THE COURT: Frankly that's not necessary unless

you feel particularly moved to do it. MR. KELLEY: THE COURT: No, I don't. It's a pretty routine matter, and I

just -- I had, and I see that there's no blackline, so I only had one comment to the order, and this is going to be a global comment for the six orders in total. If you go to paragraph 4.

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Page 26 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 MR. KELLEY: THE COURT: Paragraph 4 of the interim order? Yes. The second sentence.

"And further, all payments made pursuant to this order are subject at all times that certain budget as may be amended from time to time with the consent of the agent under the debtors, debtor in possession delay draw term loan facility." The problem I have with that is that it links the debtors' authority to act under this motion to the debtors' ability to have funds available to act under the motion, and as a result it puts the debtor in a position of -- and the Court in a position of not being able to act if -- if required to do so under the motion unless the DIP agreement says it's okay, or the DIP agent says it's okay. not articulating this very well. This is a comment that I have for the DIP loan as well and I often make, which is, the DIP doesn't -- can't tie the hands of the debtor or the Court, the debtor to act in its fiduciary obligation, the Court to act as the Court. So, for example, if the debtor were to file a motion seeking to prime the DIP lender but not pay the DIP lender in full, as proposed under the DIP order, that is impermissible, it simply cannot be done. As opposed to the And I'm

debtor being authorized to do it, but obviously it would -breach of contract, breach of covenant, and would have

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Page 27 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 issue. THE COURT: MR. KELLEY: THE COURT: All right. So that is the -consequences. And my concern here is that theirs may wish to do X under this order that's perhaps a violation of the budget, and as a result they simply can't do that. I need to keep separate or want to keep separate the question of source of cash and use of cash. All these

motions until we get to the DIP are use motions, the DIP is a source motion. other. Long winded way of saying that I have a problem with that sentence. MR. KELLEY: What I would suggest, Your Honor, is They're related, but one can't control the

that during this break that we talked about a couple of times and I will address that with counsel or the proposed DIP lender and I'm sure we'll come up with a solution. THE COURT: MR. KELLEY: Okay. Now that we understand the Court's

It's insurance. -- insurance. So subject to that one

comment I had no issues with the order, and I'll hold that aside as well. Yeah, I can tell you I can give you the paragraphs when we go through it, but that's going to be an issue with

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Page 28 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 is -THE COURT: So I'll hold that -- I'll hold that the critical vendor order, the customs order, the sales tax order, the cash management order, and the wage order. MR. KELLEY: Okay.

Well, Your Honor, since we sailed

through the insurance motion I'll offer the opportunity to do similar with -- similar procedures with the next one and several others until we get to a stopping point that Your Honor dictates, which would be -- the next one up would be agenda item 24 and Docket No. 74, that's the motion to pay prepetition claims of certain critical vendors. I will mention that a spreadsheet of the proposed critical vendors containing payment information has been provided to Mr. Buchbinder at his request, and I'm not aware of any -THE COURT: I have no issues with the order as

presented except for the last clause of paragraph 3, which deals with the previous comment. MR. KELLEY: Okay. The next one up, Your Honor,

aside on both the find hearing date and also resolving that issue. MR. KELLEY: Yes, Your Honor.

The next one is agenda item 25, Docket No. 75, which is the customs duties, common carriers, warehousemen, and cargo claims motion.

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Page 29 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 We've not received any comments from any petitioning creditors or Mr. Buchbinder on this one either. Subject to any questions or comments the Judge might have I would tender that one subject to your comment about the sources -- separating sources and uses. I would mention the cargo claims things, Your Honor, in particular is very -- a very crucial part of this car haul business is what they're -- of course doing is delivering brand new automobiles -THE COURT: MR. KELLEY: Sure. -- to the dealers, and a big issue,

and Allied is historically very good at this, and this is why they've been in business as long as they have, the big issue is scratching them up and dinging them up. If you do

that it has to be a very smooth running procedure to make sure that these cargo claims, for example, paying forward for any damage that Allied might -- might inflict on a brand new Ford vehicle gets paid and gets paid smoothly. that's the cargo claims part of it. THE COURT: Okay. I had no questions or comments So

other than the sentence -- or actually in this case it's a clause in the middle of paragraph three that starts -- third line starts, "and subject at all times" and goes onto the fifth line. MR. KELLEY: Yes, Your Honor.

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Page 30 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 THE COURT: Other than that I'll hold it in

abeyance, but I'll approve the motion. MR. KELLEY: The next one, Your Honor, is agenda

item 26, Docket No. 76, this is the -- authorizing the debtors to pay prepetition sales and use taxes and other taxes that they incur in their operations such as highway taxes. Again, we've had no questions or comments from any of the interested parties to date. Subject to your Court's comment about separating sources versus uses we would tender this -THE COURT: MR. KELLEY: THE COURT: Okay. -- motion to the Court. Yeah, I had two questions with this.

The first is, the clause we discussed, which in this case is in the end of paragraph 2. The other thing is, this is not styled as an interim order, and I didn't know if that was on purpose or -MR. SAMIS: Your Honor, Chris Samis from Richards,

Layton & Finger here on behalf of the debtors. Your Honor, based on recent experience given the amount is so low in the aggregate, it's only about $180,000, we thought that it would be appropriate here to seek final relief at the first day hearing. It can certainly be

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Page 31 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 converted into an interim order if Your Honor has a problem with that, that was the rationale, and we didn't receive any comments from the U.S. Trustee Office or otherwise that would -- that would have suggested that we should pursue a different course of action. THE COURT: Mr. Buchbinder, any issue? I have no comment, Your Honor. Okay, I'll approve it as a

MR. BUCHBINDER: THE COURT:

All right.

regular order subject to the -- the clause issue. MR. KELLEY: THE COURT: MR. KELLEY: Your Honor, the final -Skip over cash management, right. Yes, Ms. -- I will skip over cash

management and leave that to Ms. Richter in just a moment. The final one that I'll handle will be the prepetition wages motion, which is agenda item 29 -- I'm sorry -- yeah, 28, and it's Docket No. 78. Your Honor, there has been a subject -- there's been quite a bit of information provided to Mr. Buchbinder at his request answering certain questions. I would also like to report to the Court that the amount of the -- that is sought on an interim basis has been increased from $9,070,000 to $10,500,000 to account for a $1,300,000 union pension fund payment that is coming due and some how didn't find its way onto the original analysis. have provided a breakdown of that amount to Mr. -- of all We

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Page 32 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 those amounts going to that number to Mr. Buchbinder. That

would also have the effect of increasing, though it's not before the Court today, the amount that will be sought on a final basis, it will increase it to $15,500,000. There's a pretty detailed breakdown of these -- of the various elements, Your Honor; however, subject to Your Honor's comments on the separating sources from uses and any other questions that Your Honor might have I would tender this motion to the Court. THE COURT: (Pause) THE COURT: On the sources and use issue the Just give me a second.

clause is at the end of paragraph 3, but it actually follows through a couple other times in the -- in the order using the defined terms. For example, it's the last clause in

paragraph 5, I'm not sure I caught them all, but -MR. KELLEY: Yes, I recall those things, Your

Honor, being inserted, and I realize they do in some of the orders appear more than once. THE COURT: MR. KELLEY: THE COURT: Yeah. We'll be on the lookout for that. Okay. The other issue slash question

I had, and this really -- this sort of plays out in -- in this -- the wage, the cash management, and the DIP, is I'm concerned that this order would somehow be construed as

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Page 33 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 trumping or violating Canadian law. So, for example, dealing with the payment of wages, employee benefits, et cetera, I'm not trying to, and I won't, enter an order that says, you know, the debtor need not apply with the Canadian workers' compensation order or something -- statute or something like that, and I don't -I don't know quite how to deal with it. I prefer some sort

-- a paragraph along the lines of, and I'm not going to try to draft it, I won't be as careful as you would be. I'm trying to find my note. (Pause) MR. KELLEY: While you're looking, Your Honor, I Sorry,

will report that we had extensive input from our Canadian counsel in Gowlings on this, so we're all very -- made very cognizant of them I can assure you of requirements of Canadian law. THE COURT: Okay. Well, that's helpful.

Again, I just -- and one of -- the thing I'm going to read is actually the note I made in connection with cash management order, but I just scribbled something along the lines of the provision of this order relating to funds held in Canadian banks are expressly subject to applicable Canadian law whether federal, prevential, territorial, et cetera, was basically the kind of language I'm looking for, and I think it would be appropriate in the cash management

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Page 34 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 and in the wage order and in the DIP order. MR. KELLEY: THE COURT: Thank you. Thank you, Your Honor.

But other than that -- other than that

and the previous comment I'm fine with the order as presented and I will take the blackline. MR. KELLEY: Thank you, Your Honor.

Your Honor, I'd like to yield the podium to Ms. Carolyn Richter, my colleague. MR. SAMIS: Your Honor, Chris Samis from Richards,

Layton & Finger, I'm going to switch it for Ms. Richter on the cash management motion. Your Honor, what we have is a fairly routine cash management motion seeking to maintain the existing cash management system, seeking to use the existing checks and forms, requesting a limited waiver of 345(b), and is requesting administrative priority for intercompany claims. Your Honor, we got a couple of comments from the United States Trustee, but we're not fully resolved. There

is a blackline associated with the -- the -- with the form of order on this motion. Your Honor, if you -- if you'd like we can skip right to the order and go over the UST changes and then address any questions that Your Honor might have. THE COURT: MR. SAMIS: That's fine. Your Honor, skipping to the form of

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Page 35 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 Honor. THE COURT: MR. SAMIS: Okay. That was one change that was requested order then at paragraph 8, we've confirmed that the debtors will reach out to banks that are subject to UDAs with the United States Trustee's Office, to provide EINs and identify associated accounts of the debtor as debtor in possession bank accounts. THE COURT: MR. SAMIS: To provide what? Employee identification numbers, Your

by Mr. Buchbinder, and frankly it was just an oversight on our part, that language is pretty standard. THE COURT: MR. SAMIS: paragraph 13. All right. Your Honor, and then moving on to

In paragraph 13 we've actually edited the

language regarding the waiver of the requirement to permit the debtor in possession designation on our checks. As Your Honor probably saw in the motion we have a -- and as we discussed a little bit yesterday at the bridge hearing -- the debtors do print their own -- their own checks, including their own payroll checks, and using a software system called People Soft, and it is the debtors' position that it might be unduly cumbersome to try to basically change the programming of the People Soft software to account for the debtor in possession designation.

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Page 36 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 So the accommodation that we've agreed to with the United States Trustee for now is to simply allow for a 45-day period to discuss the issue with the United States Trustee, we'll be able to continue using existing checks and forms during that time, and at the conclusion of the 45-day period if we reach consensual resolution with the United States Trustee we'll submit a form of order to the Court under certification of counsel for approval, and if we -- if we don't have a resolution at the end of that period we would -- we would file a motion seeking a -- seeking a waiver that would be heard at the next available omnibus hearing. THE COURT: MR. SAMIS: Okay. Dave, did you -- sorry --

Mr. Buchbinder, did you want to add anything? MR. BUCHBINDER: Good afternoon, Your Honor, Dave

Buchbinder on behalf of U.S. Trustee. Mr. Samis has correctly stated our agreement. We're going to take a look at their allegation and see if we can't resolve the matter. THE COURT: I had the same comment. It's like if

you print your own checks how hard can it be to add debtor in possession, but I'll let you look into it. MR. SAMIS: a concern right now. Very well, Your Honor. I think it is

We very well may find at the end of

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Page 37 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 to put it. MR. SAMIS: We'll make sure whatever language we the day that we're able to accommodate the rules, but we'll learn that I guess over the next 45-day period. THE COURT: MR. SAMIS: THE COURT: Right. Your Honor -The -- the issue with the source use

issue as we sort of described it is in paragraph 6 -MR. SAMIS: THE COURT: MR. SAMIS: THE COURT: Uh-huh. -- first clause of the first sentence. Your Honor -I've also made -- and I also would

make the comment about the Canadian law limitation. MR. SAMIS: THE COURT: Understood, Your Honor. Or request I suppose is a better way

work out in the interim on that point, Your Honor, makes its way into the order. THE COURT: MR. SAMIS: Okay. Your Honor, obviously, you know, the

debtors would submit that we've satisfied 6003 here, we think a disruption to the cash management system would do immediate and irreparable harm within the first 21 days of the case. So with that representation, Your Honor, the two changes that I discussed with you that were from the United

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Page 38 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 States Trustee's Office and the points that Your Honor has made in connection with the motion, with those addressed we'd ask that the order be approved. THE COURT: All right. Subject to resolution of

my two open issues I'll approve the order. MR. SAMIS: MS. RICHTER: THE COURT: MS. RICHTER: Thank you, Your Honor. Good afternoon, Your Honor. Good afternoon. I am Carolyn Richter, I practice

with Jeff Kelley in Atlanta in the Troutman Sanders law firm and I'm going to present the final item on the agenda today, it's a significant motion, the motion to approve the financing for this case on an interim basis. I'm going to make a short argument and establish by proffer what I think the Court would find for the debtor to have satisfied its burden. Your Honor, Allied is requesting approval to enter into a $20 million delay draw credit facility with priming liens and claims that would take priority over the prepetition lender groups evidenced by the first lien credit agreement and the second lien credit agreement. Draws would

be available to be advanced where the debtors' cash collections were not sufficient to pay the expenses on hand and to give Allied $5 million of cash on hand or minimum liquidity.

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Page 39 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 Now, I think the terms of the loan are clearly set forth in the motion, so I won't go through those at all, but what I would like to do is address the issue of consent, and Your Honor has indicated you're not making any findings today on the issue of consent, and I respect clearly what you're saying. The issue of requisite lender consent is the subject of litigation. A lawsuit was filed by the

petitioning creditors as you know in the Southern District of New York seeking a declaration, a declaratory judgment that Yucaipa are not the requisite lenders. THE COURT: I -- just to interrupt. It's not that

I won't make a finding, because I think I would need to make a finding on the priming issue, because otherwise you'd have to prove -- put on a case of adequate protection. MS. RICHTER: THE COURT: Adequate protection. Okay.

It's just that I want to make sure

that (a), that factual finding is not interpreted as having preclusive effect for the lawsuit, and (b), and I'll have some comments and Mr. Harris is more than capable of taking care of himself, but I think we're going to need, and my comment would be some sort of claw-back provision to the extent -- it really cuts to the priming -- to the extent that it ultimately is determined that the requisite lenders aren't --

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Page 40 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 MS. RICHTER: THE COURT: Aren't --- aren't -- have the ability to bind,

that there be some way to revisit the priming issue to the extent that could involve Mr. Harris. MR. HARRIS: I just want to let the Court know,

because I may be able to short circuit this a little bit. Whether Yucaipa is the requisite lender really need not be addressed here today. Frankly if they are they

are, and if they're not then my clients are given the holdings that they have in the first lien credit facility. The fact of the matter is there's no objection being interposed by any first lien lender here today to the priming that's being proposed by this financing. THE COURT: MR. HARRIS: Including your client. Including my clients. We have some

issues with some of the terms, we've -THE COURT: MR. HARRIS: Right. -- raised a lot of them, we've

resolved a lot of them -THE COURT: MR. HARRIS: Okay. -- I'd like to see what the changes

are in the proposed form of order and the credit agreement just so I can confirm what's still open. But I just want to

make the Court aware that there is nobody here today who is contesting or otherwise objecting to the proposed plan for

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Page 41 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 purposes of the interim order. THE COURT: All right. That's helpful. Like I

said, you're more than capable of taking care of yourself and your client, so I'm happy to yield to the parties that have the economic interest in the matter. MS. RICHTER: So, Your Honor, what we are prepared

to do is to offer into evidence or proffer, if you would, what the Court would require to make the minimum findings. That would involve two facts -- establishing two facts. One is what does the credit agreement say? have the senior and first lien and second lien credit agreements, binders of those, and the intercreditor agreement between those creditor groups. Section 10.5 of the agreements -- and by the way, they really mirror each other. The first lien and the The We

second lien are practically mirrors of the other.

section that deals with what requires the consent of simply the requisite lenders and what requires the consent of all the lenders is in these credit agreements set forth in the amendment section, which is Section 10.5. And under that section clause (A) it makes it clear like any syndicated credit facility, voting rights are given to a requisite minimum group of power, those who hold the minimum exposure needed to make voting decisions. So we would direct Your Honor to Section 10.5 of

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Page 42 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 the credit agreement to set forth who has the power. And we

have a notebook, Mr. Samis will provide you with one here. Scott Macaulay, who's here, who's the chief financial officer, can testify that these are true and correct copies of the credit agreement. THE COURT: MS. RICHTER: the -- in the courtroom. MR. HARRIS: Your Honor, I apologize to Okay. Let me get organized.

And we have copies for everyone in

interrupting Ms. Richter again, but I guess the question I have is we don't really -- if Ms. Richter wants to get into a debate about what provisions of the credit agreements apply as a predicate for the consent that she says she needs we can do that, but I think Yucaipa is here, they own 53 percent of this purportedly, I'm here, we own a big piece of this as well, nobody else is here objecting. I'm not sure why the Court can't take the representations of the lenders who are present to say we can -- we are consenting to the priming for purposes of today's hearing and dispose with any potential argument or need to argue over what provisions of the credit agreements may or may not apply here. Because you won't be shocked to hear that we disagree with their legal analysis, and I think that putting in the testimony is kind of irrelevant and an unnecessary

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Page 43 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 this. MS. RICHTER: THE COURT: No, I understand. Okay. So I think actually Mr. Harris' side show here when we have the principal parties in interest with the economics who are standing before you saying the priming is fine subject to working out some issues on the terms. THE COURT: notebook, Ms. Richter. MS. RICHTER: Your Honor, I was not attempting to All right. Well, let me see the

do anything more than just introduce or provide to the Court the -- the document. We are in agreement that this DIP loan is either consented to by Yucaipa -(Pause) THE COURT: All right. Now I haven't read any of

comments are in line with practice, which is for the factual findings unless you want to take about a 20-hour recess -MS. RICHTER: THE COURT: No. -- I'll accept the representations of

counsel, and the DIP order acknowledges that in the way the findings are set forth, so. MS. RICHTER: THE COURT: MS. RICHTER: Your Honor, that's correct. But you can -This motion is either consented to

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Page 44 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 by the requisite lenders or unopposed by all the principal lenders in the first lien facility. THE COURT: MS. RICHTER: Uh-huh. They are here today. Even if you

were not to include Yucaipa, because they don't count for purposes of the requisite lender, Black Diamond and Spectrum, along with CIT would hold 35 percent of the first lien debt, which is greater than the remaining first lien lenders who hold very small percentages that aggregate 8.5 percent, much less than the 35 percent held by Black Diamond, Spectrum, and CIT. So regardless how you present it, as consented to or unopposed, this is no objection to the DIP -- the priming DIP liens and superpriority claims on an interim basis. THE COURT: MS. RICHTER: Okay. Your Honor, we would propose to take

a break to discuss perhaps the terms of the proposed consensual order, unless you would like to hear any further proffer from the investment banker. THE COURT: No. No, I don't need it. Well --

yeah, I would like to hear about how the loan was shopped. MS. RICHTER: Okay. Your Honor, we have with us

today Todd Snyder who is an investment banker with Rothschild. Rothschild is the debtors proposed financial If

advisor, and he's sitting right here in the courtroom.

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Page 45 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 he were to testify, I have his proffer. THE COURT: MR. HARRIS: THE COURT: MS. RICHTER: Any objection to the use of a proffer? No, Your Honor. Okay. He would recommend to the board of

this company that they approve this DIP loan. Mr. Snyder, just by way of background is, co-chairman of Rothschild restructuring and reorganization group and vice president of the firm, and we have an application for employ the firm, that's going to be filed in the next few days. He's been with Rothschild for 12 years. BA from Wesleyan and a JB from the University of Pennsylvania, and he's been involved in reorganizations about 24 years and handles the representation as a financial advisor for the debtors in a number of large cases. airlines, and I could go on. United He has a

He's very familiar with the

terms of DIP financings in large debtor cases. Your Honor, if called to testify Mr. Snyder would say that he's reviewed both the term sheet and the credit agreement, that overall the proposed loan is not inconsistent with the market. He's reviewed the economic or financial terms in particular, which is the interest rate, the fees to the agent and the lenders, the financial covenants, and the

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Page 46 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 budget covenants, and taken together with the other terms of the DIP of the loan he would determine that these are well within market parameters. He would testify that on behalf of Allied, Rothschild did try to find alternative sources of financing for this case, but given the challenges of the company's capital structure they weren't able to find any other institutional hedge fund or other lender what they approached who was willing to provide an offer. They

approached approximately ten lenders, none of them would agree to provide a DIP loan for this company unless it was done on a consensual priming basis. But the significant

holders of this first lien debt will not agree to being primed by a third-party lender. These lenders also indicated that they would not make a DIP loan on a pari passu basis with the first lien lender group or secured by a junior lien or certainly on an unsecured basis. So his testimony in sum would be that in his view that this financing presents the best terms available, it's not inconsistent with the market, and it would be an appropriate exercise of the debtor's business judgment to approve it. And in that regard he testified or he's consulted and advised an independent board, committee of the board of

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Page 47 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 Allied, because Yucaipa I and Fund I is an affiliate of the proposed DIP learned, Fund II. Allied formed a committee of

independent board members to consider the DIP loan, and Mr. Snyder was on the phone with them at that meeting and gave them his advice. And after hearing his advice and his

opinion this special committee passed resolutions approving the DIP loan. THE COURT: MS. RICHTER: two directors. Okay. Who's on the special committee?

The special committee is composed of

Brian Cullen (ph) and Mark Jendursky (ph)

both of whom who have been on the board of Allied for many years. THE COURT: MS. RICHTER: No affiliation with Yucaipa? No affiliate with Yucaipa.

Your Honor, the only final point that we would make here is -- would be a proffer that the DIP loan is necessary and that the $10 million cap is appropriate if you would be interested in hearing that proffer. THE COURT: No, that's -- that's not necessary.

If you can help me though, show me where on the budget the drawdown is reflected. (Pause) THE COURT: I'll show you where I think it is and

maybe you can tell me if I'm right. (Pause)

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Page 48 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 correct. THE COURT: MS. RICHTER: THE COURT: Okay. So -THE COURT: Looking at the budget about -- well,

the -- a little bit up from the bottom there's something called revolver availability commitment less borrowings total availability. MS. RICHTER: THE COURT: Right. Is that the drawdown DIP loan?

Because it says the commitment is 20 million, so I assume that was -MS. RICHTER: The commit is 20 million; that is

I can --- it doesn't -- basically it's

approximately five to six million for the first four or five weeks. I guess four weeks and then it starts to go up. MS. RICHTER: THE COURT: MS. RICHTER: Right. Okay. I can tell you that in terms of the

immediate need for cash this week there are payments due to health, welfare, and pension obligations, those are due Friday and they aggregate 2.3 million. Payroll is paid

weekly for this company, and it aggregates one million, that will be due on Friday. And in terms of timing there is a

cyclical nature to this business, this car haul business, because as we move into July and we get close to a model

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Page 49 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 reduction? (Pause) MS. RICHTER: Your Honor, in terms of the budget, year change over -THE COURT: MS. RICHTER: Uh-huh. -- Ford and the other auto

manufacturers shut down their plants -THE COURT: MS. RICHTER: Yeah. -- to get ready for those changes,

so there is a -- there's a drop in demand for car haul services, and precipitous drop in cash. So the company's cash flow is excepted to be negative by 14 million over the next 30 days, and it's the company's position -- Scott Macaulay's position as chief financial officer that it's imperative that the customers of Allied have confidence to stick with this company for -THE COURT: Where's the cash flow number

if you look under the revolver section that we were discussing. THE COURT: MS. RICHTER: Yes. Above revolver availability, just

under the revolver, and look at the ending balance, the third line under revolver, if you move over into the weeks of this case the company is going to be needing up to 10- to $11 million under the revolver.

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Page 50 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 I'm lost. THE COURT: Well, you said -- wait a minute. You

said something about cash negative $14 million. MS. RICHTER: THE COURT: MS. RICHTER: Right. What -- what did you say? Mr. Macaulay advised me that the

cash -- the company's cash flow is expected to be negative over the next 30 days by about 14 million, but I believe his view is that the number is actually the 10 to 11 million reflects here. THE COURT: I'm lost. MR. HARRIS: Your Honor, I think the differential Well, you never get to 12 million.

is the starting cash balance and you add that to the 10 million borrowings over the course of that period of time and you end up with effectively a zero balance so you show 14 million of negative cash. (Pause) MS. RICHTER: I would also like to say that

Mr. Macaulay's proffer would state that it's important for Allied to have interim availability in excess of the minimum amount needed just to show the customers that Allied has sufficient liquidity on day one to pay all vendor claims, to pay employees, and to continue to basically reassure the marketplace that there's enough financing to fully pay all post-petition trade claims.

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Page 51 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 MR. KELLEY: Your Honor, if you would care to hear

from Mr. Macaulay we could bring Mr. Macaulay to the podium to walk Your Honor through it. THE COURT: Yeah, I don't understand your budget

and can't make -- I don't -- I don't understand it. MR. HARRIS: Your Honor, before we move on to

Mr. Macaulay can I just get two clarification from the proffer so we'll be done with Mr. Snyder? THE COURT: MR. HARRIS: Yes. The first is Ms. Richter made a

comment that Mr. Snyder would testify that significant holders of the first lien debt would not agree to be primed, and I'd just like to understand who those significant holders were who refused to give that consent. THE COURT: MS. RICHTER: I assume it was Yucaipa. Your Honor, Yucaipa indicated that

they would not agree to be primed. THE COURT: Well, I don't see how that helps you

on an independent good faith finding, but any way, go ahead. MR. HARRIS: And the other question I had, Your

Honor, was -- and I understand Your Honor's question about Mr. Cullen and Mr. Jendursky -- whose name I will continue to butcher throughout this case, and I apologize in advance -- not being affiliated with Yucaipa, but I would like some clarification from the company as to how they came to either

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Page 52 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 be on the board or be the CEO of the company. Were they

appointed by Yucaipa or a board that was effectively composed of Yucaipa representatives? THE COURT: Are you challenging -- are you

challenging the loan on that basis? MR. HARRIS: No, Your Honor, just the

representation to the Court that there's an independent committee, I wanted to make sure that the Court understood that the independence of the committee depends on how they got there in the first place, both Mr. -- my understanding is both Mr. Cullen and Mr. Jendursky came to be affiliated with this company as a result of somebody -- some person or a group of people associated with Yucaipa asking them to fulfill those roles. MR. KELLEY: This is Jeff Kelley, I can provide a

proffer of Mr. Blount or Mr. Macaulay on this. Brian Cullen is with Duff & Phelps, back during the first case he was with Channon (ph), Channon was the financial advisor to the creditors' committee in the first case, and he came to be on the board not through an affiliation with Yucaipa but because of his familiarity with the company as an advisor to the creditors' committee, which was somewhat adverse at times to Yucaipa frankly in the first case. So that's who Mr. Cullen is.

Mark Jendursky is the CEO of Allied, and he is on

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Page 53 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 the board and he was -- he was hired by the new board. guess you could say he was hired by a Yucaipa controlled board, but he had no affiliation with Yucaipa before. think he came from Chrysler. Mr. Jendursky. And those two people are the independent board members that were referred to as the ones that approved the DIP loan. MR. HARRIS: That's fine, Your Honor, that's the So that's is story on I I

only clarification I was looking for. THE COURT: I don't know if we need Mr. Macaulay.

Where you threw me off and continue to throw me off is this comment that -- and I just don't understand -- cash flow negative, $14 million. If you're talking about the less borrowings line which indicates the weekly deficit I understand, but that doesn't get to 14 million, that never gets over -- well, it never gets over 12-, and it doesn't do that until much later in the case. But I'm just trying to figure out with the source of the representation to the Court that there's a necessary $14 million cash flow. MS. RICHTER: Your Honor, we withdraw that It's 10 to 11 million. All right, I

representation negative 14 million. THE COURT:

Okay, I understand.

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Page 54 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 don't need anything else on the budget. At this point I think it would make sense -- I mean to move on to going through the order, et cetera, but I guess you don't have a final order you want to go through yet. You want to meet first or -MS. RICHTER: Your Honor. We would request a short recess,

There were changes to the order and I think the

parties want to review those changes. THE COURT: MR. KLYMAN: Okay. Your Honor, if I may, Robert Klyman

of Latham & Watkins on behalf of Yucaipa. We received e-mail comments from Mr. Buchbinder and from Mr. Harris last night and this morning, we were on calls particularly with Mr. Harris until the time we came to court. We now have a blackline version of the order, we're

waiting for a final blackline of the credit agreement. What I propose, subject to Your Honor's timing, is that we take a short recess to work through the order, hopefully we'll have the credit agreement delivered in time, and we've got a couple of issues that we still have to talk to Mr. Harris about, and then we come back and tell you where we are and maybe that we just toss some issues up for you to decide. THE COURT: MR. KLYMAN: All right. As opposed to working them out

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Page 55 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 consensually. But we've made I think surprisingly good

progress this morning, we just ran out of time. THE COURT: Okay. Well, of course I'll have some

comments too, but we'll deal with those at the appropriate time. Mr. Buchbinder? MR. BUCHBINDER: behalf of the U.S. Trustee. I just have one comment to make in connection with the proffer, and I will ask counsel if they'll confirm what I'm about to say and it will simplify things. A representation that's contained in the first day declaration of Mr. Macaulay, but that I could not locate in the DIP motion, is the important disclosure that Yucaipa owns 70 percent of the debtors common stock, and I think we need to act that fact to the proffer. And if counsel will Your Honor, Dave Buchbinder on

agree to that I'm fine with the proffer. THE COURT: MR. KELLEY: Okay. Yes, Your Honor, that's correct,

we'll add that for the proffer. THE COURT: MR. KELLEY: THE COURT: Okay. Jeff Kelley speaking. Okay. As to timing, I have a very

short -- well, I have to leave the office at 2:10, should be back my 3:00, 3:10 at the latest I would think, so I'm happy to work around that as appropriate.

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Page 56 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 speed -MR. SAMIS: THE COURT: (Laughter) THE COURT: MR. SAMIS: THE COURT: MR. SAMIS: -- this could get ugly. Times two, Your Honor. I have 45-year old ears, so go ahead. Understood. Yes. -- so this -MR. KELLEY: Thank you, Your Honor. We will try

and move more quickly than 2:10 only because we've got to get our DIP order recognized in Canada to the extent you're prepared to enter it. THE COURT: Yep. Okay. Let's take a break then.

Just let me know when you're ready. MR. KELLEY: Thank you, Your Honor.

(A chorus of thank you) (Recess at 1:19 a.m.) THE CLERK: THE COURT: MR. SAMIS: All rise. Please be seated. Yeah, how are you? Mr. Samis. I'm going to do

this at lightning speed because I'm aware that you're -your schedule is tight. THE COURT: On a slow day you're at lightning

Speaking broadly in terms of the resolutions of the issues that Your Honor raised. First with respect to

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Page 57 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 the Canadian language that we're going to be adding to the three orders, the DIP, the cash management order, and the employee wage order, it's going to read as follows. "Nothing herein shall be deemed to alter, modify, or waive the debtor's obligations under applicable Canadian law." We think that's broad enough to encompass anything that Your Honor would be concerned with, and I think -THE COURT: MR. SAMIS: That's fine. Okay. That that's, Your Honor.

With respect to the DIP lender qualification language that you -- that you had an issue with that was throughout the orders authorizing the prepetition payments of various claims -- payment of prepetition claims, we're just going strike that language completely, and we've drawn lines through it in all of the orders. THE COURT: MR. SAMIS: Very good. Your Honor, that leaves the only other

open issue with respect to the -- to the non-DIP first day motions was the CC payment issue that Your Honor raised in connection with the utility motion. We think that there's no real cause for concern there, because as a third-party provider we're still going to be reserving on account of the -- of the amounts that would get paid by CC payment in the utility escrow account.

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Page 58 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 Moreover -THE COURT: MR. SAMIS: It'll be your account. It'll be our account. We'll still be

holding the monies in there in reserve, so there'll be adequate assurance funds as provided for by the motion available for those utility providers that are paid by CC, and at the same time, you know, the liability is still our liability under the agreement that we had with CC. So I don't think that there's any outstanding issue in connection with -- with that arrangement. Vis--vis the provision of adequate assurance. THE COURT: Okay. We may have to revisit that in

the final order if somebody raises the issue, but for today's purposes I'm satisfied. MR. SAMIS: Fair enough.

Your Honor, the only other thing that I would request is a final hearing date. THE COURT: MR. SAMIS: Yeah. If we can do that. I'll interlineate

that while people are discussing the DIP with you. THE COURT: What are you looking for? Let's see,

how about the week of July 9th? MR. SAMIS: I don't see any objections, Your

Honor, so that'll work. THE COURT: No objections. You're amazing. You

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Page 59 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 the 12th? correct? MR. SAMIS: THE COURT: MR. SAMIS: THE COURT: Yes. That's fine. Okay. Objection deadline on the 5th? What time on 12th -THE COURT: Remain the 12th, which is Thursday, want to borrow my robe? (Laughter) THE COURT: (Laughter) THE COURT: week, whatever works. MR. SAMIS: Okay. Your Honor, I believe the Really, I'll fit you in any day that It's kind of fun to wear.

Hang on, wait a minute.

Coming from New York? MR. HARRIS: Your Honor, if we could do 11 o'clock

that would be great. THE COURT: MR. SAMIS: THE COURT: All right, let's do 11 a.m. then. Okay. All right, so July 12th, 11 a.m., and

the 5th is -- let's make the objection deadline the 6th because of the -MR. SAMIS: THE COURT: MR. SAMIS: Holiday? -- holiday, yeah, at 4 o'clock. Understood.

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Page 60 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 podium. THE COURT: MR. KLYMAN: Mr. Klyman? Good afternoon, Your Honor, for the file. MR. BUCHBINDER: Your Honor, David Buchbinder for THE COURT: the first day orders. MR. SAMIS: THE COURT: Very good. As well as any second day orders you Okay. And that can apply to all of

the U.S. Trustee, this might be a good time for me to announce on the record that the United States Trustee will hold a creditor committee formation meeting on June 19th at 1 p.m. in our Room 5209 in the Federal Courthouse at 824 -at 824 King Street. THE COURT: (Pause) MR. SAMIS: Your Honor, I am just going to Very good. Thank you.

handwrite in these dates very quickly, I will walk them up if Your Honor is okay with it while you -- while the DIP discussion is going on, and then if we -- you know, because of the Canadian hearing which has been pushed to 3 o'clock luckily I think we'll have enough time to probably get them entered. THE COURT: MR. SAMIS: All right. Your Honor, with that I cede the

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Page 61 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 record Robert Klyman on behalf of Yucaipa. Your Honor, over the past couple of days we received about 30 points from -- to consider in connection with the DIP from Mr. Harris and his clients, some big, some small, plus some additional comments on the creditor agreement. We also received a handful of comments from

Mr. Buchbinder. We've resolved almost all of them, and we've given to your chambers I believe before the break or at the break a redline version of the DIP order. version of the credit agreement. We've got some additional changes based on our huddling after the -- during the break that we can describe to you or we can just move to the open issues and we can hand up whatever the redline is. I'm just trying to be sensitive to moving it at a quick speed. (Pause) THE COURT: blackline changes. MR. KLYMAN: THE COURT: current blackline. (Pause) THE COURT: I think page 5 is the first change. Okay. And for that purposes I'll look at the Why don't you run through your We also have a redline

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Page 62 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 amount. Unless there have been others. MR. KLYMAN: There have been, Your Honor.

At paragraph 3 on -- as finding (d) on page 3 we've agreed with Black Diamond to put in that these -- "the debtors' stipulations are subject to the rights of nondebtor parties as set forth in the provisions of paragraph 12." THE COURT: MR. KLYMAN: Okay. Page 5 was just to clarify the

These are approximate amounts. THE COURT: MR. KLYMAN: Okay. Going to page 6, Your Honor. This

was just a clean up.

In sub 4, for example, we had "subject

to the provisions of paragraph 12", that was moved up to the beginning of the Section D. THE COURT: Uh-huh. There's something in the -"Subject to

at the end of Romanette iii there.

subordination under contract, the code, or otherwise applicable law" -MR. KLYMAN: I think we were defining that these

would be permitted liens. Your Honor, as a result of negotiations with the U.S. Trustee we agreed that the DIP loan would be senior to the first -- the liens associated with the first lien creditor in the second credit agreement and any other liens

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Page 63 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 that by contract or operation of law were subordinate. just clarifies that point. There were a number of other This

lien holders who may not have gotten notice, but we're not trying to prime them. THE COURT: second lien. MR. KLYMAN: contract or -THE COURT: MR. KLYMAN: there's just a typo. Honor. At the bottom of page 8 we just filled in the date and we also took out -- identified that the debtors were authorized to enter into the agreement, but not directed to. THE COURT: MR. KLYMAN: Okay. All right. Have agreed to be subordinate. Correct. And on page7 in (f) Yes, and any other parties who by So you are only priming the first and

I'll just skip over the typos, Your

You're -- page 9 we just referenced

that the notwithstanding provision would apply to the interim order and not just the approved budget, because the budget is an exhibit to the order. And this is just

clarifying that it won't be paid by any of the debtors, to clarify that this applies to both Canada and the U.S. This

is a Canadian law provision that we got from our brethren due to certain severance and termination obligations that may be due and owing in Canada.

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Page 64 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 THE COURT: MR. KLYMAN: Uh-huh. In the footnote on page 9 we deleted

the reference to cash collateral and just referenced this order. On page 10 Mr. Harris requested, and we agreed, that when we were submitting -- when professionals for the DIP agent or the DIP lenders were submitting fees and expenses that that would be accompanied with a certification that the fees and expenses relate to the DIP loan, enforcement of remedies, or this interim order. On page 11 in the middle of the top paragraph we added "that unless this Court otherwise orders the DIP expenses won't be subject to Court approval or be required to be maintained in compliance with the U.S. Trustee guidelines." In subparagraph (b), which is (4)(4), we had inadvertently included that amounts payable under Section 10.2 of the creditor agreement would be included in this section. In fact what we meant to limit this to was 10.3

which deals with fees and expenses associated with indemnification rights. On page 12, paragraph 8 we added that these postpetition lean liens would be subject to the provisions of paragraph 10, which in paragraph 10 deals with the priority of liens.

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Page 65 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 (Pause) MR. KLYMAN: On paragraph 14 -- I mean on page 14,

Your Honor, we have deleted Section B that beginnings, "Subject to paragraph 10 and 12," as duplicative and understand necessary. In paragraph C that follows we've changed the tense of the first line and that's in a hand mark up that we'll hand up to Your Honor. It'll say the prepetition

secured lenders have consented or are deemed to have consented to the adequate protections that are -- we also provided that the final order needs to be entered by July 12th. THE COURT: MR. KLYMAN: Uh-huh. Provided that the day could be

extended to the extent it didn't comply with Your Honor's calendar. On paragraph 10 this is a pick up of the earlier point that I had mentioned about who the DIP loan would be senior to and the adequate protection liens, and we've identified an X, Y, and Z of parties to whom we would not be seeing. Paragraph 17 we just used the wrong term in paragraph C and cleaned it up. THE COURT: MR. KLYMAN: All right. Page 17.

Yes, I'm sorry, Your Honor, page 17.

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Page 66 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 On page 19, which is 10(h) this will now read, "The DIP agent for and on behalf of the DIP lenders" and then there would be a strike out of "and subject to paragraph 12 below." This just clarifies that the DIP agent on behalf of the lenders has the right to credit bid just so there's no ambiguity that if there's a situation where they could credit bid they could, they thought of a power to do so. And original it was to spell out as well that the prepetition first lien agent could credit bid as well, at Mr. Harris' request we just struck that and left that for whatever the rights are of the parties. On paragraph 11(a), which is at page 19 to 20 we made clear Mr. Buchbinder's request that the amounts payable to the U.S. Trustee would not be subject to any of the caps set forth in this paragraph. We also built in, subject to Your Honor's approval of Rothschild engagement as investment banker to the debtors, that their monthly fee and their completion fee would not be subject to a limitation of the carveout. In the middle of that paragraph on page 20 we cross-referenced 12(c) for the allowed or unpaid fees to committee professionals. And on 21 at paragraph B again we cross-reference, you know, other than expressly set forth in paragraph 10(a).

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Page 67 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 there. On page 25 at paragraph 14 we built in that a waiver of Section 552(b) and the equities of the case provisions will be subject to entry of a final order. On page 26 this was a provision that deals with rights versus third-party landlords and licensors, and at Mr. Buchbinder's request we added that this would be subject to entry of a final order. On page 27 in paragraph B, at Mr. Harris' request, we added that the debtor would deliver to the petition creditor whatever financial reporting information the DIP lenders got, and that the counsel for CIT is here as well, they'd asked to be add to do that, which we've done in a mark up, subject to execution of a reasonable non-disclosure agreement. On page 32 we eliminated paragraph 24 to subject entry of a final order. At paragraph 32 we're going to have to build in the dates for the final order that Your Honor just gave us. THE COURT: Uh-huh. On page 23, which is in paragraph B of that page, this references the bringing of a committee challenge action. We just changed "properly" to "timely" so that -THE COURT: MR. KLYMAN: Uh-huh. -- we specified what was at issue

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Page 68 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 changes. MR. KLYMAN: date there. And I think the only other addition, Your Honor, is to add a sentence at the end which says, "Nothing herein shall be deemed to alter or modify or waive the debtor's obligations under applicable Canadian law." THE COURT: MR. KLYMAN: Okay. We also would be adding expressly to We had At page 33 we'll have to fill in the

this order that the credit agreement is an exhibit. some language changes that we worked through with

Mr. Harris, they are a couple of open issues which we can address. I will take Your Honor's questions. THE COURT: eight minute late. MR. KLYMAN: THE COURT: changes you just said. MR. KLYMAN: THE COURT: Okay. We still need to turn it to have my Okay. I have no problem with any of the No, I don't have time, I'm already

Some of them have been addressed, not all of them

have been addressed, and obviously go through the credit agreement, and I'm sorry I cannot get out of this appointment, we'll have to reconvene at 3:15. MR. KLYMAN: THE COURT: Okay. Thank you, Your Honor.

That's the only thing I can do about

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Page 69 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 it. All right? (Recess at 2:22 p.m.) THE CLERK: THE COURT: All rise. Please be seated. My apologies and

thank you for your patience. MR. KLYMAN: Your Honor, for the record Robert

Klyman on behalf of Yucaipa. I think where we left off was where you said I have some questions, but we'll have to take them up after the break. THE COURT: Okay. And I'm going to try to page

turn together because I'm working off the -- the interim order from yesterday as to the changes you made today, and hopefully -- I know that some of my comments have already been taken care of. (Pause) MR. SAMIS: Your Honor, I didn't want to interrupt

you, this is Chris Samis from Richards, Layton & Finger, I didn't want to interrupt Mr. Klyman either, but I just wanted to ask as to the status of the other orders, especially the cash management. THE COURT: Yeah, I apologize, meant to have those They are being docketed as

signed before I left, I didn't. we speak. I apologize. MR. SAMIS: Terrific.

Thank you, Your Honor.

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Page 70 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 (Pause) THE COURT: We may have dealt with this earlier,

but on page 9, the middle of the severance or termination benefits. Could you explain what that was again for me? I

know you made some changes. MR. KLYMAN: THE COURT: Yes, Your Honor. They shall first use -- provided

further that notwithstanding anything to the contrary, et cetera, et cetera, no -- under no circumstances any claim, et cetera, shall be paid. MR. KLYMAN: Your Honor, this was a provision that

was put in to be coincidental with what's going on in Canada. There are certain severance obligations, some of which have matured, some of which are in a gray area, some of which haven't matured, and we didn't want and the debtor didn't want a run on the DIP financing because of certain priorities and charges that are associated with severance and termination payments in Canada. So we and the debtor have agreed that we will work out a reasonable accommodation on that, but it's subject to our additional approval. (Pause) THE COURT: So I'm sorry, page 10, paragraph 4(a) Other fees and costs, et cetera,

sort of midway through it.

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Page 71 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 Honor. THE COURT: Okay. So just -- yeah. But you're et cetera, regardless of whether or not the DIP loan or any other financing is consummated. if there's no DIP loan? MR. KLYMAN: I think we can modify that, Your So how do I pay your fees

going to have a loan by the end of the day, so. MR. KLYMAN: Bear with me for one second, Your

Honor, I'm just trying to track the version that -THE COURT: MR. KLYMAN: THE COURT: (Pause) MR. KLYMAN: THE COURT: MR. KLYMAN: Okay. Six slash seven lines down. Your Honor, I guess that would be in Yeah, it's --- that's been marked up. It's right before the markups.

the unlikely situation where this order was entered and had they found another DIP lender right away, but I think we can take risk. THE COURT: et cetera, et cetera. MR. KLYMAN: THE COURT: Yeah. Okay. Okay, I've got that. Very good. Paragraph -- page 11, The debtors are So just strike regardless of,

paragraph 5, the very first sentence.

authorized and directed to, et cetera, et cetera, I'd like

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Page 72 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 to strike "and directed." MR. KLYMAN: (Pause) THE COURT: Page 12, paragraph 6, I just -- oh, On -- on modifications I'd Okay.

I'm sorry, yeah, paragraph 6.

like those to be done on notice to whatever statutory committee may be in place. well. I don't know, Mr. Buchbinder as

I'm not saying I need to approve non-material

amendments, but I want to keep the committee in the loop. And obviously on the material amendments that are subject to Court order that would be on notice. (Pause) MR. KLYMAN: THE COURT: Okay, thank you. I hesitate to say this because the

problem kind of arises because it's a short, declarative, uncomplicated sentence, but paragraph 7, I'm not exactly sure what -- what the import of this is. This -- I take it

this means that you're getting a superpriority admin claim for the actual loan that you make. MR. KLYMAN: THE COURT: permitted liens. (Pause) THE COURT: All right. Are all secured -- are all Correct, Your Honor. And we've solved the issue with

prepetition secured lenders receiving adequate protection or

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Page 73 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 dicey. The comments here go to the concept that -- I don't want to -- I want to prove sort of tying the debtor's hands or tying the Court's hands in the event that there are issues -- or a set of facts that arise that would require them to take certain action that at least as its put here would be prohibited. So, for example, paragraph A has -- says that the post-petition liens and except as otherwise set forth in this interim order, the adequate protection liens shall not at any time be made subject to or subordinate to or pari passu with any other lien, et cetera. And my issue with only the first and second lien? MR. KLYMAN: Well, as this is set up, Your Honor,

the first and second lien holders are being primed pursuant to this DIP arrangement, plus whatever lenders, and I don't know if there are any, but to the extent they're contractually or otherwise subordinated. that are covered by this order. Those are the ones

Any other secured creditor

who is not being primed has whatever rights it has. THE COURT: (Pause) THE COURT: All right. Paragraph 10 is a little Okay.

that is shall not at any time be made subject to et cetera, et cetera.

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Page 74 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 MR. KLYMAN: Your Honor, one fix as opposed to

working through all these at various points, I think there's a provision in the order which says that if the order is amended or modified it's an event of default. fall back on that. If you'd like we can go through the order between now and the final hearing date or now over the course of the next week and try and fix those. I just think that standing at the podium it may be awkward in terms of drafting, but as long as we have that provision in the order that an amendment or a modification would be an event of default if you modified this provision and granted the debtor a lien that was senior to ours or somehow violated by this provision then we would fall back on there was an amendment and therefore it's an event of a default. THE COURT: Yeah, I mean I have no problem with it So we can

being an event -- I've given this speech 100 times and I know everybody is aware of it -- I don't have any problem with it being an event of default, but if the debtor feels that in context with its fiduciary duties it needs to ask me to do something I'm not going to be constrained by the fact that I'd be violating this order, but you'd have an event of default, which I -- which I don't have a problem with and we'd come in and we'd go through the whole event of default

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Page 75 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 dance. MR. KLYMAN: THE COURT: Can I have just a minute, Your Honor? I mean we -- I understand how anxious

you are to get this done, but -MR. KLYMAN: THE COURT: I'm sorry, Your Honor. It's okay. I understand how anxious

you are to get this done and it's getting later and later, but -MR. KLYMAN: Can we for the moment, and I don't

know if my solution gets us over the hump at least for a moment, but to put on the record that these source of provisions if this Court -- this Court retains jurisdiction to modify them, and if the Court does then it'll be an event of default under the DIP loan? The alternative is we go back to Mr. Mester's (ph) office or Richard Slayden (ph) and try and, you know, rework all the language and circulate it around and them submit an order tomorrow. That doesn't work as well only because my

understanding is, is that we've missed at least a window today to get the DIP financing recognized in Canada, but that the Court may have a short window tomorrow morning, around 9 o'clock in the morning, to actually approve the DIP financing. My understanding further is that the debtor can survive without getting the cash -- without getting the DIP

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Page 76 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 financing approved today, but starting tomorrow it may be much more of a problem. So just in terms of the logistics we're willing to be flexible and submit a follow on -- an amended order that tracks those sorts of issues that you've just identified, but for the moment if we could fall back on what I'm -- what we're putting on the record and following up with an order that may be better for the debtor, if that works for Your Honor. (Pause) THE COURT: How about we do this, how about we

start paragraph 10 with the subject to entry of a final order, comma. THE COURT: THE COURT: all the way through. (Pause) THE COURT: And those are my -- and that's helpful Okay. And then you can go A, B, C, D, F, G

in that most of my major comments were in paragraph 10. MR. KLYMAN: Your Honor, may I ask a question Is that I understand

about the comment that you just made?

that the comment that these liens shall not be -- shall not be made subject to or subordinate to any other lien security; however, in B it provides that -- I just want to make sure that the --

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Page 77 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 THE COURT: You're killing me here, Mr. Klyman. I

mean we can either crawl through the order on not, I mean -MR. KLYMAN: I just want to make sure, Your Honor,

that we have superpriority claims between now and entry of a final order. THE COURT: Well, you've got -- there's a --

there's a -- this has nothing to do with the granting. MR. KLYMAN: THE COURT: Okay. That's elsewhere, I'm 99 percent sure. Well, 9 and -- 9 and 8 and 7

Isn't that all in paragraph 9? are the actual grantings.

This deals -- this deals more

with priority and I'd say more with priority protection. MR. KLYMAN: Well, I mean for example, I'm not

trying to fall into the category of you're killing me, Mr. Klyman, but in paragraph 10(d), for example, there is first state -- the first sentence says -THE COURT: MR. KLYMAN: THE COURT: with 10(d). MR. KLYMAN: THE COURT: Okay. So is it just 10(a) -10 what? 10(d). Yeah, I didn't actually have a problem

The issues I had were with A, B, C --

or actually my comment here was D-F, okay, but subject to final order, so. fine. Oh, I see. No -- yeah, D, E, and F, are

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Page 78 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 B, and C. THE COURT: I apologize. So let's -- if we could -- for A, B, C -- for A, B, and C just say subject to entry of a final order, the rest is all right. Reluctant to approve H because I generally prefer to limit it to the actual language of the statute instead of restating it, but that's fine. My only point with H is you Yeah, and G and H. No, G is fine too, MR. KLYMAN: Okay. So we can put that in for A,

have the ability to credit bit under K, but the Court also has the ability under K not to allow you to credit bid upon further order of the Court for cause. bad. (Laughter) THE COURT: MR. KLYMAN: second, Your Honor. THE COURT: (Pause) MR. KLYMAN: A, B, and C. THE COURT: (Pause) MR. KLYMAN: And Your Honor, along that line we Okay, great. Okay, so I've made those changes to Sure. All right? Let me just catch up to you for one So don't do anything

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Page 79 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 order. will add a provision at the end which expressly says that any amendment, modification of the order is a -- constitutes an event of a default. THE COURT: MR. KLYMAN: THE COURT: Any further. Any further, yeah. I'll leave paragraph 12 for the final

There -- that's really the challenged period issues.

(Pause) THE COURT: Paragraph 15(a), page 26, third line,

just strike "and directed to" -- or "and directed." MR. KLYMAN: (Pause) THE COURT: "exclusive." jurisdiction. MR. KLYMAN: THE COURT: I'm sorry, Your Honor, what -Oh, I'm sorry, paragraph 18(d), which On page 29, 18(d), just strike All right, have that.

Instead of shall retain exclusive

is on my page 29 begins, the Court shall retain exclusive jurisdiction. I'd like to strike out "exclusive," please. All right, I have that. Thank you.

MR. KLYMAN: (Pause) THE COURT:

Let me get how you dealt with the

landlord rights, the lender's right to enter landlord premise, et cetera. MR. KLYMAN: Let's see. I think we provided

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Page 80 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 subject to entry of a final order, but I just need to confirm that. (Pause) MR. KLYMAN: Your Honor, it's in paragraph 16 and

we made that subject to entry of a final order. THE COURT: Okay. Here's -- jumping up to

paragraph 20, page 30, right in the middle there's a sentence that says: "The provisions of this interim order shall also be binding on all of the debtors' creditors, equity holders, and other parties in interest." Well, it's an order of the Court, so it's binding, but to the extent you're trying to put some injunction on people that never got notice that's obviously problematic. It's a Court order, I don't think you need anything more, and I'm troubled by -- that's kind of expansive. strike that sentence? MR. KLYMAN: THE COURT: MR. KLYMAN: Yes. Thank you. (Indiscernible - 3:54:17) we don't Can you

expect there to be a negative implication from that for any creditor, but it's not binding because it was struck, but -THE COURT: Okay. No, it's -- I don't think it's

-- I'm not trying to say that, I just want to avoid the -- I don't know, it's superfluous and it troubles me, so let's

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Page 81 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 just get rid of it. (Pause) THE COURT: All right. Those are my issues.

Obviously the whole thing gets revisited at the final order, but we'll deal with that in July. MR. KLYMAN: Your Honor, there are a couple of

issues in the credit agreement that we've worked out as resolutions with Mr. Harris on behalf of his clients. I can

just describe them to you generally, and there were -- in Section 5.1 of the credit agreement there were covenants to the debtors to provide the DIP lenders and the agents certain reports on a weekly, monthly, quarterly, and annual basis. We've built in time periods between three and ten

business days so that if they're not delivered there's not an automatic foot fall, we'll give them notice and they'll have some time to cure. (Pause) MR. KLYMAN: And I think -- I think that just

leaves a couple of issues that are left with Mr. Buchbinder and Mr. Harris. THE COURT: MR. KLYMAN: Mr. Buchbinder. THE COURT: Okay. Okay. Good afternoon, Your Honor, Dave Okay. And I'm happy to cede the podium to

MR. BUCHBINDER:

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Page 82 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 Buchbinder again on behalf of the U.S. Trustee. We have some concerns about the default provisions in the credit agreement, and I'm well aware of the Court's thinking on this from time to time. The concerns that we have in this case are because of the facts and circumstances of the case where we have the DIP lender who is also the largest prepetition creditor and the holder of 70 percent of equity. And with that short

preface in mind they're certainly entitled to their protections in their capacity as a DIP lender, but they shouldn't be allowed to use those protections as a means of stealing a march on all their other creditors to jump over them in their capacity as the equity holder in the case. With that in mind there are several provisions in the default provisions that concerned us and that we suggested some minor changes to tidy them up in that regard. They are provision Q on page 87. THE COURT: Which -- okay, I'm sorry. It's Section 8.1. I'm looking at Do you know

MR. BUCHBINDER:

a redline, it begins on page 84 of the redline. in the Court has a clean copy? Honor, is where it begins. THE COURT: Looking at Q? Yes.

It's Section 8.1, Your

MR. BUCHBINDER: THE COURT: Okay.

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Page 83 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 MR. BUCHBINDER: The first of those is Q. This

provision would create a default by any party bringing a motion for additional financing, could be a committee, it could be any -- any party at all, and it seems to me under the circumstances of this case the provisions should be limited to a default if any credit party brings a motion, because the credit parties are the debtors who are entered into this agreement, but the committee hasn't entered -- the committee doesn't exist yet and hasn't entered into this agreement and nobody else has either. It seems that this

again goes along with the Court's earlier arguments about tying the hands of the debtor in and Court. I don't have any problem with limiting this to a credit party, but it seems overly expansive limiting it to all parties. Similarly with respect to provision S, action against the first lien facility, again, that should be limited to an action by a credit party. Subsection V, subtitle committee seeks subsequent debtor in possession financing. I'm cognizant of the

Court's comments in earlier cases that if the financing is approved it could be an event of default then, but to prevent someone other than the credit party from bringing an application seems to be jumping over the rights of the other creditors and parties in interest in this case.

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Page 84 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 Some relate with W, relief from stay. That

essentially chills any other party in this case whose a creditor who has collateral from bringing a relief from stay motion. Perhaps that should be eliminated completely or the

amount should be higher or some other remedy should be granted so that other creditors who haven't had notice about being here today aren't hamstrung by the terms of the credit agreement, et cetera. And finally subsection Z challenge to liens. The

commencement of a suit or action to disallow any claim of any lender, et cetera, et cetera. I don't have any problem limiting this to the entry of a judgment against the lenders, but if this is approved as an event of default the rights that are given to the committee to investigate and bring an action against the lender are nugatory, because all that this order does is give them a right to investigate, but if they do anything the DIP loan is immediately in default. This provision

should be limited to a party other than a credit party from obtaining a judgment because we've taken care of the credit party initiating the action. With those minor changes to those provisions we could live with this, but under these facts and circumstances where the lender is wearing the hat of the largest equity holder as well tempering these provisions

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Page 85 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 seems only fair and reasonable to all the other creditors and parties in interest in this case. THE COURT: MR. KELLEY: Okay, thank you. Your Honor, it's not at all unusual

for a lender to say we'll make a loan, but if we get sued we don't have to continue to lend to the company. And the

provisions that are in here that Mr. Buchbinder identified, you know, for example, if somebody wants to bring a motion to have new financing we don't have a problem with them bringing that motion so long as the additional financing takes out the DIP. That's not at all surprising or unusual.

If someone wants to come in with a different DIP or to modify our DIP in some way that's an event of default, and there's -- from the lender's perspective everyone is on notice about this. If they want to take action with respect to the DIP loan it's not binding them from doing it as Your Honor had requested that we not put in our DIP order -THE COURT: I'm okay with it. I may revisit it if

the committee raises these issues, but for present purposes I'm okay with those provisions, I'll overrule the objection. MR. KELLEY: THE COURT: MR. HARRIS: Thank you, Your Honor. Mr. Harris, you have something? Your Honor, we just have two other

minor issues -- somewhat minor issues.

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Page 86 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 One is we had asked Mr. Klyman to have his client confirm that there's a definition of eligible assignee in the credit agreement, and we asked Mr. Klyman to have Yucaipa confirm that they would not seek to transfer all or any portion of this DIP loan to any party that was a competitor to Allied, because obviously we don't want competitors owning any -- or any portion of the DIP loan. So we had asked for that clarification. And the other -- the other issue that we had raised with him, Your Honor, is given that there's a -would be a $10 million limit on the interim borrowing capability that the two and a half percent fee that is being requested as part of the DIP loan be earned and payable only as a -- on the interim closing dates only as to the amounts that are available under the interim DIP with the balance being payable upon closing on a final DIP if a final DIP is ultimately approved so the estate isn't burdened with a $500,000 fee on a $10 million draw application. Those -- we've resolved all the other issues, Your Honor, those are the two that were really still remaining. MR. KELLEY: Thank you, Your Honor.

With respect to the non-transferring of the DIP loan to a competitor, I think what we've worked out with Mr. Harris, and we didn't confirm this absolutely before the hearing started, but that -- that the issue of who can be an

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Page 87 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 eligible assignee with respect to that particular issue will be subject to entry of a final order and we can see what we can work out in the interim. THE COURT: MR. KELLEY: All right. With respect to the fee, Your Honor, The debtors have asked for a

this is a new money loan.

commitment of $20 million, not a commitment of $10 million. Yucaipa as a new money lender here is making $20 million available, and the fee is well within market. You heard uncontradicted and undisputed testimony earlier that the terms of the loan were not inconsistent with the marketplace. And if Mr. Harris' clients were

concerned about the size of the fee, which we think is within market, Yucaipa offered to Mr. Harris' clients to participate in the DIP on a pro rata basis and Mr. Harris' clients declined. So we think for those reasons that fee is earned, when the commitment is made the money is going to be available subject to entry of a final order, and we think that that fee is appropriate and should be approved. THE COURT: Well, I was troubled by the fees You can have

frankly, given the many hats Yucaipa wears.

insider loans, DIP loans, but frankly, they need to be better than average for a debtor, because it raises a specter of self-dealing.

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Page 88 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 then? MR. KELLEY: THE COURT: MR. KELLEY: Yes, Your Honor. Okay. So how late will you be here today? That said, I really -- I really view my job on fees in this kind of context, is to leave it to the committee to see what they have to say and we can -- and I will revisit those issues. If there's a fee in the interim

order that I decide is inappropriate in the final order then that fee doesn't exist, I mean that's the way it operates. So for today's purposes I'll allow the fee, but you know, I'll look at it de novo if necessary at the final order stage. And on the commitment -- oh, that's subject to The commitment not to sell to a

the final order, correct? competitor. MR. KELLEY: THE COURT:

That's correct, Your Honor. Okay. All right. Anything else? So I'll allow the

fee for present purposes. MR. KELLEY: THE COURT:

Nothing from Yucaipa's perspective. All right. I will sign an order as And we have the

soon as somebody puts it in front of me. credit agreement as an exhibit? MR. KELLEY:

Yes, Your Honor, we'll interlineate

that it will be an exhibit, and you'll get a total package. THE COURT: Okay. You're going to send that over

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Page 89 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 P.M.) THE COURT: MR. KELLEY: THE COURT: MR. KELLEY: 5:00, 5:30, I mean -Okay. Thank you.

Can we hit that? Yeah, I expect that we'll just sit

here and finish it and then -THE COURT: That's probably better frankly. Why

don't you use the courtroom -MR. KELLEY: THE COURT: chambers -MR. KELLEY: THE COURT: Okay. -- instead of going back to -- by the Okay. -- finish it, and then just knock on

time you go back to the firm and everybody gets a drink of water and sits down and calls in and you can't get everybody in the conference room it's 6 o'clock. We're adjourned. MR. KELLEY: Thank you. So let's do it here.

(Whereupon these proceedings were concluded at 4:07

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Page 90 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 HEARING re Debtors' Motion for entry of Interim and Final Orders Authorizing, HEARING re Motion for Order authorizing Debtors to Continue Their Insurance Programs 27 22 HEARING re Motion for Order (A) Deeming Utilities Adequately Assured of Payment, (B) Prohibiting Utilities from Altering, Refusing, or Discontinuing Services, and (C) Establishing Procedures for Resolving Requests for Additional Assurance 25 5 HEARING re Motion to Authorize Allied Systems, Holdings, Inc. to Act as Foreign Representative of the Debtors 18 15 DESCRIPTION Application for Order Appointing Rust Consulting/Omni Bankruptcy as Claims and Noticing 15 12 RULINGS PAGE LINE I N D E X

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Page 91 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 HEARING re Motion for Authority to (A) Maintain Existing Cash Management System and Bank Accounts, (B) Continue Use of Existing Checks and Business Forms, (C) Obtain Limited Waiver of 345(b) VERITEXT REPORTING COMPANY www.veritext.com HEARING re Motion of the Debtors for Orders Authorizing the Debtors to Pay Prepetition Sales, Use, and Other Taxes and Related Obligations 31 6 HEARING re Motion of the Debtors for Order Pursuant to U.S.C. 105(a) and 363(b) Authorizing Payment of Prepetition Customs Duties and Claims of Common Carriers and Warehousemen and Authorizing the Debtors to Honor Certain Prepetition Cargo Claims and Authorizing Financial Institutions to Honor and Process Checks and Transfers Related to Such Claims 30 2 But Not Directing, the Debtors to Pay Certain Prepetition Claims of Critical Vendors and Granting Certain Related Relief 27 15

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Page 92 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 HEARING re Motion Pursuant to 11 U.S.C. 105, 361, 362, 363(c), 364(c)(1), 364(c)(2), 364(c)(3), 364(d)(1), 364(e), 503(b) and 507(a), Fed. R. Bankr. P. 2002, 4001 and 9014 and Del. Bankr. L.R. 4001-2: (I) 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; (III) Granting Adequate Protection to Prepetition Secured Lenders; (IV) Modifying Automatic Stay; and (V) Scheduling a Final Hearing Pursuant to VERITEXT REPORTING COMPANY www.veritext.com HEARING re Motion of Debtors for Interim and Final Orders Authorizing Payment of Pre-Petition Wages, Payroll, Taxes, Certain Employee Benefits and Related Expenses, and Other Compensation to Employees and Independent 34 4 and (D) Continue to Make Intercompany Advances with 364(c)1) Administrative Priority 38 5

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Page 93 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 VERITEXT REPORTING COMPANY www.veritext.com HEARING re Declaration of Scott D. Macaulay in Support of Chapter 11 Petitions and First Day Motions 14 12 Bankruptcy Rules 4001(b) and (c) 88 14

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Page 94 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 VERITEXT REPORTING COMPANY www.veritext.com Date: June 14, 2012 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 I, Dawn South, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N

Dawn South

Digitally signed by Dawn South DN: cn=Dawn South, o, ou, email=digital1@veritext.com, c=US Date: 2012.06.14 14:53:20 -04'00'

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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 ECRO: APPEARANCES: IN RE:

UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE ) ) ) ) ) ) ) ) ) ) Case No. 12-11127 (MFW) Chapter 11 Courtroom No. 4 824 Market Street Wilmington, DE 19801 April 24, 2012 2:00 P.M.

AFA INVESTMENT, INC., et al., Debtors.

TRANSCRIPT OF HEARING BEFORE HONORABLE MARY F. WALRATH UNITED STATES BANKRUPTCY JUDGE

For the Debtors:

Pachulski Stang Ziehl & Jones LLP By: LAURA DAVIS JONES, ESQUIRE 919 North Market Street, 17th Floor Wilmington, Delaware 19899 Jones Day By: TOBIAS KELLER, ESQUIRE 555 California Street San Francisco, California 94104 Jones Day By: JEFFREY ELLMAN, ESQUIRE 1480 Peachtree Street, N.E. Atlanta, Georgia 30309 BRANDON McCARTHY Reliable 1007 N. Orange Street Wilmington, Delaware 19801 Telephone: (302) 654-8080 E-Mail: gmatthews@reliable-co.com

Transcription Service:

Proceedings recorded by electronic sound recording: transcript produced by transcription service.

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

For the Committee:

Potter Anderson By: JEREMY RYAN, ESQUIRE 1313 North Market Street Wilmington, Delaware 19801 McDonald Hopkins By: SEAN MALLOY, ESQUIRE 600 Superior Avenue, East Cleveland, OH 44114

For Second Lien Agent:

Morris Nichols Arsht Tunnell By: ROBERT DEHNEY, ESQUIRE 1201 North Market Street Wilmington, Delaware 19899 Sidley Austin By: JENNIFER HAGLE, ESQUIRE 555 West Fifth Street Los Angeles, California 90013 Richards Layton Finger By: MARK COLLINS, ESQUIRE 920 North King Street Wilmington, Delaware 19801 Lowenstein Sandler By: JEFFREY PROL, ESQUIRE 65 Livingston Avenue Roseland, New Jersey 07068

For GECC:

3 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 INDEX NOTICE OF AGENDA MATTERS: For the Debtors, by Ms. Davis-Jones For the Debtors, by Mr. Ellman For the Debtors, by Mr. Keller For the Committee, by Mr. Malloy For Second Lien Lenders, by Mr. Dehney For the Committee, by Mr. Malloy For Second Lien Lenders, by Mr. Dehney For the Committee, by Mr. Malloy For the Debtors, by Mr. Keller For GECC, by Ms. Hagle For the Committee, by Mr. Malloy For GECC, by Ms. Hagle For Second Lien Lenders, Mr. Dehney For the Committee, by Mr. Malloy For International Paper, by Mr. Prolin For GECC, by Ms. Hagle Page 4 4 6 12 19 25 27 32 33 34 35 38 40 40 41 42

4 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 THE CLERK: THE COURT: MS. JONES: All rise. Be seated.

Good afternoon. Good afternoon, Your Honor, Laura Davis-

Jones, Pachulski Stang Zeihl and Jones on behalf of AFA Investment Inc. and related Debtors. Your Honor, may I refer

the Court to the amended agenda that has been filed? THE COURT: MS. JONES: Yes. And, Your Honor, matters 1 through 5 the

Court has already entered orders on; thank you for that. Matter 6, Your Honor, we recently filed a certificate of counsel on was the motion to retain FTI. Your Honor has seen that? THE COURT: I did, I saw that right before the I don t know if

hearing and I ve entered that as well. MS. JONES: Thank you so much, Your Honor. With

that, Your Honor, I m going to yield to Mr. Ellman with respect to matters 7, 8 and 10. MR. ELLMAN: Good afternoon, Your Honor, Jeffrey Your Honor,

Ellman from Jones Day on behalf of the Debtors.

I m just going to deal very briefly with a couple of these matters and I think the DIP financing will be our primary activity today. Item 7 was a contested matter relating to extension of time to file schedules and statements. The Committee, It s been

Your Honor, filed an objection to our request.

5 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 resolved and instead of a June 1 deadline, it will be May 24th. And we did and I will state on the record that we did

agree with the Committee that we would make every effort to work with them to get them information that they may request in advance of actually filing the schedule to assist in whatever activities they may have in the case, investigations, etc. So with that, we do have a revised form

of order with a blackline, if I might approach? THE COURT: You may. Okay does any other party wish All right, I ll enter the

to be heard on that motion then? order by agreement. MR. ELLMAN:

We also were able to resolve, Your We did have one

Honor item 8 which was our utilities motion. objection to that motion.

We have worked out a separate

adequate assurance agreement with that party which was PECO Energy and Niagara Mohawk Power. Pursuant to the proposed

procedures, we are given authority, assuming that the form is entered, to enter into those types of side agreements, so we have done that. modification. I also have a blackline that shows the changes from the originally proposed order I m prepared to hand up now. THE COURT: MR. ELLMAN: All right, you may. Thank you. And the revised order reflects that

And finally, Your Honor, again,

skipping over the DIP financing which Mr. Keller will address

6 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 momentarily, item 10 was a motion that the Debtors filed to establish a procedure to address 503(b)(9) claims through a claims process as opposed to a motion, individual motions process. That matter and the process to be used is under

ongoing discussion among the parties, and we have agreed to adjourn that matter; agreed with the Committee, at least, to adjourn that matter over to May 8 th. I know there were other

parties who have responded and we haven t had an opportunity in the last few minutes having agreed to this to talk to them, but we would ask the Court with your blessing, if we could push this off to May 8 th at our scheduled hearing for that date. THE COURT: MR. REILLY: Does anybody oppose that request? Your Honor, this is attorney Thomas I

Reilly for Bojalad & Company LLC, one of the objectors. have no objection to moving that to the 8 th. THE COURT: All right, anybody else? All right

we ll continue it then. MR. ELLMAN: Thank you, Your Honor, and that will

take us back to agenda item 9 and Mr. Keller will address the Court on that. MR. KELLER: Good afternoon, Your Honor, Tobias

Keller of Jones Day appearing on behalf of the Debtors. Well, it s mostly good news, Your Honor. We have had

substantial progress in terms of negotiating the issues the

7 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 Debtor-in-possession financing motion. And if I may, I d I

like to take Your Honor through the areas of agreement. think we re down to really one area of disagreement.

First, there is agreement as between the First Lien Lenders, the DIP lenders, the Committee, and the Debtors as to a number of issues. As to the 503(b)(9) payments as Your We ve

Honor heard, we re pushing the process over to the 8 th.

also agreed to with the Committee to put over the substantive objections to proceeding with the pendency of the 503(b)(9) claims. And my understanding, but given the way that things have been negotiated I d cede confirmation now, that the individual objectors to the 503(b)(9) to proceeding in light of the 503(b)(9) claims have also agreed to reserve their claims on that pursuant to the terms of an order that will be presented to the Court later. THE COURT: continued? MR. KELLER: The Committee and I believe the Tell me that again? What is being

individual objectors but because there are a number of them, I need to confirm that are agreeing that they re going to reserve their rights on 503(b)(9), but they are not going to press them at the hearing today. And that reservation will

be included in the form of order that we ll be presenting to the Court later. So I take a moment just to see if I

8 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 misstated with respect to the individual objectors, because I believe the Committee has confirmed that they are comfortable with the reservation that we re providing to them today. THE COURT: MR. KELLER: All right, I hear no objections then. Secondly, the Committee raised some

questions about the sale process and whether that was too accelerated. Committee. We are in constant communications with the We ve begun to provide them with information. In

light of the cooperation, that is an item that the Committee has also agreed to put over and reserve until the hearing on May 8th to determine whether they will maintain their views as to the sale process. THE COURT: But the entry of the DIP order will not

affect that, the deadlines, if you will? MR. KELLER: The entry of the DIP order in this

hearing will not affect that, but they do reserve their claims on that. It simply is not being addressed today.

The next item is the Debtor-in-possession financing generally. There is one issue that s outstanding. That

relates to the treatment of adequate protection for the Second Lien Lenders. And we ll return to that in a moment;

otherwise, I believe the terms now are on terms that are acceptable to the First Lien Lenders/DIP lenders, the Committee, and the Debtors. We do have a form of blackline order. It is still

9 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 tentative. There are some nits that are being worked out.

And should the Court be interested in the interim order, I d be pleased to approach and hand it up. THE COURT: MR. KELLER: THE COURT: MR. KELLER: All right you may hand it up. If I may approach? Thank you. One issue that will not be identified

in the order, but has been agreed to on terms that need to be incorporated into the arrangement is the terms of the carveout for the Committee. They are essentially as follows to be

memorialized in the final form of order that we ll have to present to Your Honor, hopefully, later in the day. Through the bank s carve-out there will be $650,000.00 for the budget period that will be included with the order. That will be maintained for the Creditors In addition to that $650,000.00 professional not be

Committee s professionals.

should the carve-outs for the Debtors

fully subscribed, the Committee s professionals will be entitled to up to $350,000.00 of that carve-out so that their total carve-out, if they were able to avail themselves of their own and in excess and the Debtors out, would be a million dollars. And of that $350,000.00 incremental, the Debtors professionals have agreed that in the event that all the carve-outs are over-subscribed, the Debtors professionals professionals carve-

10 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 will essentially backstop a $150,000 of that. So, in that

case, all the professionals will share in the carve-out such that the Committee s professionals will be guaranteed $800,000.00 if there is not excess carve-out that can be shared with them otherwise. Again, I don t have that

documented, but those are the essential economics of the proposition. I also wanted before we get to the Second Lien Lender issues, I did want to just bring the Court up with a brief status update given the difficulty of this case as we reported on the first day. developments. There have been some positive

We have reached some accommodations with some

of our critical vendors who hold the most substantial number of our 503(b)(9) claims. And amongst the agreements that have been struck with them is an understanding that to the extent that we are able to get to a liquidating plan once a sale is consummated, they will agree to take their pro rata share of the lesser amount than the full amount of their 503(b)(9) claims. And

if they will treat the payments that are being made to them as critical vendors as advances on the 503(b)(9) claims such that other 503(b)(9) claims will be able to catch up to them before they start getting excess payments. We said this is very promising step in the direction of actually being able to resolve this case through a plan

11 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 process. It is far from assured, but we did wish to notify

the Court that we are making progress in that direction and we hope to have a solution that goes beyond a 363 sale within the number of, in the next several weeks. THE COURT: MR. KELLER: Okay. With respect to then I believe the only

open issue with respect to the Debtor-in-possession financing our motion includes a number of protections for both the First and Second Lien Lenders. Although there is an

agreement with the Committee and the DIP lenders and First Lien Lenders as to the treatment of the First Lien Lenders and the DIP lenders, the Committee has a number of reservations about the treatment of the Second Lien Lenders. The Debtor is prepared to go forward with the deal that it cut at the outset. If the Committee s positions find

merit with Your Honor, the Debtor still believes that we can establish adequate protection even with the uncontroverted portions of the Debtor-in-possession order, and we will prepared to put on an adequate protection case. But at this

point, we have our motion before Your Honor and I would submit that the Committee should be permitted to present its concerns regarding the treatment of the Second Liens, and then we will -THE COURT: MR. KELLER: All right. Thank you, Your Honor.

12 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 MR. RYAN: Good afternoon, Your Honor, Jeremy Ryan If I could

of Potter Anderson on behalf of the Committee.

introduce the Court to Sean Malloy of McDonald Hopkins who will be handling this part of the hearing for the Committee. THE COURT: MR. RYAN: MR. MALLOY: All right thank you. Thank you, Your Honor. Good afternoon, Your Honor, Sean Malloy My partner Scott Opincar is here

on behalf of the Committee.

with me as well and Mr. Tucker from J.H. Combs the Committee s financial advisor is in the Courtroom, the proposed financial advisor, and we are here, of course, as proposed counsel. THE COURT: MR. MALLOY: Okay. Your Honor, before we get into the

second lien issues, if I could have a minute or two to talk about the changes. I wanted to point out one change I didn t

hear Mr. Keller emphasize which is that the First Lien Lenders are willing to take off the liens on avoidance actions and their proceeds with regard to the final DIP order. They ll have super priority claim rights on, you

know, with respect to the -- there s a piece of the first lien that isn t in the DIP. It s just $11.5 million dollar

term and they ll have super priority rights, obviously, so I didn t set up diminution and value with respect to that piece.

13 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 I just wanted to point out the 503(b)(9) issue because it s a really big issue in this case. We don t have

a typical case where there s a little bit of 503(b)(9) and a big loan and a large amount of unsecured creditors. quite a large amount, so it s an important issue. It s And,

obviously, Your Honor may have heard there s other cases in the District where there s litigation going on over whether you can have an administrative liens on an estate on a 503(b)(9) basis and whether the Court should condone that. We've agreed with the lenders to defer that issue, but we re going to have language that makes it very clear that Your Honor would have the right to say that sale proceeds should go to pay those, and they re going to have the right to argue whatever they want as well at that time. With respect to the second lien, Your Honor, the Second Lien Lenders are primarily insiders. And even some of

the non-insiders are in there through what I understand to be an insider entity. They re also subject to a inter-creditor

agreement with the First Lien Lender that puts them essentially into standstill mode where they can t seek stay relief. Basically, all they re entitled to do is ask for

adequate protection, and they may have a different opinion about the credit agreement that was expressed to us, but they had a different opinion last night, but in reading it we don t think they have the ability to do much more than simply

14 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 ask Your Honor for adequate protection. And they could

object under the inter-creditor agreement to a carve-out that s at a certain dollar amount, but the carve-out that the First Lien Lenders have agreed to is below that dollar amount threshold so there s no right to object with regard to that. A few objections with the relief being proposed to be granted to the Second Lien Lenders. First of all, the

Debtors are proposing to grant a waiver under Section 506(c) or, you know, the interim order proposes to grant 506(c) and that is subject to entry of the final order. there's any justification for it. We don t think

I mean 506(c) waivers have

become fairly typical, but it s always in trade off for something. We ve agreed to the 506(c) waiver of the First

Lien Lenders because they re providing over advances that allow this company to operate. They re providing the carve-out that allows the Committee to do its job. They re providing the DIP loan

which is a roll up and it s not new money, as we stated in our objection, but with regard to the -- with the other tradeoff s that we ve achieved and the reservation of rights on the 503(b)(9) issue, we think that the entire package makes sense and the 506(c) waiver makes sense in that context as I m sure Your Honor sees in many cases. tradeoff. nothing. There s a

People aren t going to give a 506(c) waiver for

15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 506(c) is simply part of the Code. And, Your Honor,

I don t think that just because it s typical, we should give it to someone who isn t providing anything new of value for the estate. We re not saying that the Second Lien Lenders We re just saying it s

should be surcharged under 506(c).

part of the code, and later in the case if there s a reason for the Debtors to try to surcharge them under 506(c), that should be able to happen. And they should be able to defend

themselves and say it s not an appropriate surcharge under 506(c). This is especially true, Your Honor, because the

Second Lien Lenders are, at least the majority of them, are insiders. The same point goes with regard to the stipulations. If you read the Debtors extensive. 60 days. stipulations here they re very

And they propose that our investigation period be And that investigation period isn t just to look at

the second lien loans, per say, but it s with regard to any claim. And we haven t been able yet to figure out all of the

interrelationships between the Second Lien Lenders, who s a lender where, what exact relationship they have to the equity, whether those equity holders are actually also directors of the Debtors and/or officers of the Debtors, or former officers of the Debtors. But the way the stipulation work is that if our investigation period runs and a challenge isn t made, there s

16 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 going to be a release of -- like there s typically a release of traditional bank lenders in the stipulations. Well, the

way this is set up it s going to affect, essentially, the kind of third party releases that Courts don t allow in plan with regard to insiders. And, so, we think that these If they do exist,

stipulations probably shouldn t exist.

they should be limited to the loans and not claims against the directors and officers and insiders. And the

investigation period with respect to anything other than just sort of the pure validity priority extent of liens should be a period longer than 60 days, and we would suggest at least a 120 days. With regard to avoidance actions, Your Honor, I don t think the Second Lien Lenders are pressing their requests for actual liens on avoidance actions or their proceeds especially in view of the First Lien Lenders concession on that point. They do argue that they should be

entitled to the proceeds of avoidance actions with regard to the super priority claims that they re at least granted in the interim order -- I m sorry, Your Honor. They re granted

-- the avoidance actions obviously weren t part of the interim order. But they re proposed to be granted super

priority claims under 503 and 507. With regard to 503, that s a grant that s being given and we don t understand, again, what it s for. And

17 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 with regard to insiders, I m not sure that it makes any sense to grant the reach of super priority claims to insiders for avoidance actions when typically the most valuable avoidance actions that may exist in a case are actually the claims against the insiders. It creates doing something now in a

DIP order is going to create sort of a flipping of the case on its head in a way that changes priorities and incentives. With regard to 507(b), Your Honor, we re not saying that you can change the code. We re not saying that I guess

they don t have whatever rights they have under the code. But there shouldn t be anything -- this order should say that the 503 super priority grant should exclude avoidance actions from there each of the super priority claims. And there

should be a reservation of rights on 507(b) that we can argue that they re not entitled to get them for a number of reasons, whatever reasons exist under the law including that avoidance actions aren t property of the Debtor. They re

either property of the estate or, in some cases, like the Cybergenics case found with regard to fraudulent conveyance, property of creditors that are prosecuted by the estate, the Debtor of the Trustee on behalf of the Creditors. Finally, Your Honor, I wanted to point out that we have been in negotiations with all sorts of parties: the Debtor, the First Lien Lendres, the Second Lien Lenders. we just got from the DIP lenders the proposed final order And

18 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 about 45 minutes ago. So whatever has been handed up to you

hasn t been vetted by the Committee to make sure number one that it s in accordance with our agreements that we ve talked about with the First Lien Lenders and I m hopeful that it is, but we haven t been able to read the language yet. And,

second, in just flipping through it we notice that there was a change from the interim order on how the credit bid rights of the Second Lien Lenders are treated. In the interim order it said the credit lien, I m sorry, credit bid. The credit bid language was crossed out

and there was some language that said in addition to whatever rights you have under the code, you have whatever rights you have under the inter-creditor agreement. And I think that

the proposed final order that we ve been given says that they have, that they re granted credit bid rights. Well those credit bid rights need to be subject to our investigation. And we don t think that the Second Lien

Lenders should be granted right now through unimpeded credit bid rights especially when we didn t really see this issue coming until I read the proposed final order about 12 seconds ago. So we think that any language with regard to the credit

bid should basically say the same thing the interim order said. That they got whatever rights they have under the

code, parties have whatever rights they have to object. And with regard to the inter-creditor language, well

19 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 that s fine as it exists between the First Lien Lenders and the Second Lien Lenders, but it doesn t implicate or put any binding on the Debtors, the Committee or this Court. you, Your Honor. May I have a moment? Thank

I think, Your Honor, the DIP lien lenders have commented that the super priority grant applies to the term and the DIP which I agree with. THE COURT: MR. MALLOY: THE COURT: MR. MALLOY: MR. DEHNEY: Okay. For the First Lien Lenders. Okay. Thank you. Good afternoon, Your Honor, Robert Your Honor, I m

Dehney from Morris Nichols Arsht & Tunnell.

here appearing on behalf of the agent for the second lien debt. I think it s important to understand the capacity in

which we re here and why we re rising because as counsel for the Committee noted, the second lien debt is held not just by affiliates of the ultimate owner, but there are unaffiliated non-insider creditors. So it is an important distinction

that we think is worth repeating, because we are the agent. It may be that at some point down the road the Creditors Committee wants to do an investigation of insiders, but we are here today on the Debtors request for approval of And as the

a DIP, as well as use of cash collateral. Debtors

papers stated, and this was in their DIP motion,

20 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 package. other? MR. DEHNEY: Actually, I believe there s additional roll up? MR. DEHNEY: THE COURT: It is. Well, Your Honor -there is a second lien facility that was entered into by the Debtors. All of the Debtors assets are pledged as between

the first and the second.

There is nothing unencumbered.

There is the DIP on top of it, again, encumbering all of the assets. So when the Debtors arrived here on the first day, they had no unencumbered assets. THE COURT: Well is the DIP on top of it or is a

Is it just substituting one for the

debt that s so there s a roll, but I believe there s additional debt on top of the preexisting amount, so I believe it s additive. UNKNOWN: There s a term loan on top of the rollout. So there is additional debt being

MR. DEHNEY:

layered on top of what existed when you complete the roll. When we came in there was an adequate protection So recognizing Sweetland and what the law is in

this Circuit, adequate protection is more than what we already have. Then, there isn t much they can give, frankly,

since everything is pledged, so there were a few things that we asked for that the First Lien Lenders were getting.

21 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 First, we exchanged for a budget and use of cash collateral. And use of cash collateral is our use of cash

collateral, as well as the first and the second given the way the liens are structured. With adequate funding to a budget

and we re providing for professional fees and the like, there should be a 506(c) waiver. given to a DIP lender. That s not something that s only

It is a recognition of the fact that And we re

we are funding the case on a consensual basis. allowing these obligations to be paid.

It ought not to be

that someone can come back and then say and I m charging twice for the same item, so that was one component of the package of adequate protection that was offered to us. The second was a super priority claim and avoidance action proceeds. I don t think anyone disputes that if the

Debtors put on a case today for adequate protection there is nothing they can provide. There is nothing unencumbered, but

if proceeds came in they would be unencumbered assets that we would then have a super priority claim for. they had to offer. That was what

Given where we are in the structure, we

are willing to accept that to continue to go along with the process. Counsel for the Committee said well there are stipulations about the validity, extent validity perfection of the debt. It s first lien and second lien they re going

to be doing an investigation of the first liens, the

22 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 documents. It s going to be the same investigation they do And to the extent they found an imperfection

as to our debt.

in the first, the first is going to want an investigation of the liens of the second. What I mean by that, Your Honor, is they re going to do the UCC search and they re going to inform themselves whether it is -THE COURT: Well is the, were they only of claims

relating to perfection of the liens? MR. DEHNEY: Your Honor, in discussing it with the

Committee, we did try to clarify with them and we would clarify for the record the stipulations are dealing with the validity extent priority perfection of the debt. It is not

looking to go into issues or grant releases for equity or directors, officers, or any of that. This is really dealing

with the debt and that s why I came back to the hat we re wearing here at the podium. This is not something where

we re trying to affect third party releases as a stockholder. It s in your capacity as the lender just as it is for the First Lien Lenders. THE COURT: I understand, but to the extent there s

an assertion -- there may be an assertion that the loan was a fraudulent conveyance that is being waived if an action is not brought. MR. DEHNEY: Well, Your Honor --

23 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 insiders. MR. DEHNEY: I believe that s true, Your Honor, but THE COURT: This isn t just looking at the

profession of the liens. MR. DEHNEY: as well, Your Honor. THE COURT: MR. DEHNEY: To both. Yes. And just as it would be for the It is defenses to the liens and claims

first lien, it is the same. THE COURT: But none of the First Lien Lenders are

that still doesn t change the fact that money has been advanced, debt has been created, the books and records reflect it is debt. And what we are talking about, Your I mean counsel just He s not

Honor, is the Committee s investigation.

said they haven t undertaken the investigation.

informed one way or the other whether there are any issues or not. But he s asking today for a determination that there And working with Your Honor If there

should be no period at all.

saying is they re going to be looking at the debt.

is a fraudulent transfer, they re going to be looking at the debt for the first and the second. out of money -THE COURT: But there are different facts relating They re getting a carve-

to the first and the second. MR. DEHNEY: There may be, Your Honor.

24 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 THE COURT: Well the Second Lenders did not lend at

the same time on the same terms and are not the same parties. MR. DEHNEY: Your Honor. THE COURT: MR. DEHNEY: All right. Your Honor, so the Committee has They are not the same parties, I agree,

raised, I think, three issues and, perhaps, a fourth counsel said. rights. There s been an inclusion concerning credit bid If you go back to the first day hearing, the And

language was in the original proposed interim order.

counsel for the first announced on the record that they were changing that. on that point. We said we needed to consult with co-counsel So the language that is in the order is the

same language that was in the form of motion and order that was filed with the Court and is providing us with the same right to credit bid as the first staff. And I would not in both instances it is still subject to the Committee s right of investigation. So the

Committee has stood up and said, you know, on all of these issues we re okay with credit bidding right on the first, but not the second. Both are subject to the Committee s They have said it s okay with respect

investigation period.

to the first 506(c) waiver because they re effectively paying the freight by virtue of a carve-out. position, Your Honor. We re in the same

25 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 So we do believe that the record reflects that in the context of this case that the agent for the seconds is not asking for anything more than what we bargained for coming into the case as the only forms of adequate protection to allow the DIP to go forward. I do not believe the estate

or the creditors are worse off by virtue of it because it is still subject to the investigation period, Your Honor. THE COURT: MR. MALLOY: All right, response? Thank you, Judge, again for the record

Sean Malloy from McDonald Hopkins on behalf of the Committee. I won t reiterate the arguments. I just want to point out a

few things that I m not sure were accurately stated by Mr. Dehney. First, there s no additional debt. roll up of a revolver. the revolver sits there. It s not new money. The DIP is a

The term piece that s in addition to It exists. It existed prepetition.

So as Your Honor pointed out originally

in a question to Mr. Dehney what happens is that the revolver gets rolled up and actually the amount is reduced over the proposed budget period. THE COURT: MR. MALLOY: So the term is not a new term? The term is not a new term. There s no And,

new debt being put on top of the Second Lien Lenders. in fact, the total amount of the DIP from the interim

stipulation of about $60 million plus letters of credit, so

26 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 out. maybe $62, $63 million dollars is proposed in the DIP budget to go down substantially to the $45, $43 million dollar range. So if we re talking about adequate protection, part

of it might be that there s $20 million dollars less that sitting on top of Mr. Dehney s clients second lien position. Second, they aren t funding by providing a carveWe don t know the value of these properties. It may be

that we don t get past the first lien, in which case, it s certainly not being funded by the Second Lien Lenders from a carve-out perspective. And, as I said before, the

intercreditor agreement if they agreed to fund, they re not agreeing today. They agreed on February 9 th of 2010 when they

signed the intercreditor agreement and agreed not to object to any carve out up to $5 million dollars. Third, if they say they re not seeking a release of officers, directors, equity, I d point to page 33 of the interim order where it states that upon the time period running on the investigation lien, the Second Liens secured parties there will be a -- the Debtor shall be deemed to have release waive and discharge each of the First Lien secured parties and the Second Lien secured parties together with the respective officers, directors, employees, agents, attorneys, professionals, affiliates, subsidiaries, assigns and/or successors from any claims and causes of action arising out of based upon related to in whole or in part the prepetition

27 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 you. MR. DEHNEY: Two points, Your Honor. First, the lien obligations or their prepetition relationship with any such Debtor or any affiliate thereof relating to any of or the transactions contemplated thereby and then it continues on and on as these things do. So just to clarify those points, Your Honor, thank

intercreditor agreement provides for certain types of carveouts. That has nothing to do with the question of use of

cash collateral and adequate protection and that s our issue. There is no adequate protection. was offered to us. It was very limited that We

That was what we were looking for.

were willing to carve back. We were willing to talk about some of the concerns, but the fact is, Your Honor, this is a case where money is being used. It is our cash collateral. And in the absence

of something else, we think that a couple of items that we had coming in and we bargained for we think should be approved in a final order with respect to the release language. the first. I believe it is the same language that is in for Everything was supposed to be matched up between There is a difference in that. There is

first and second. equity.

There is no one in the first who is an equity

holder, but again this is the agent on behalf of lenders who are not just insiders.

28 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 question. So when we talk about the language and when the Committee raised this, we said we re happy to clarify it. This was not something designed to deal with the equity. was designed to mirror what the First Liens were getting because we were all coming along for the ride. THE COURT: Well, Mr. Dehney, a question, I have a It

Am I correct that under the terms of the

intercreditor agreement, you re not entitled to any payments until the first are paid in full? MR. DEHNEY: I believe that is certainly your And if you look at

understanding of the first, Your Honor.

the language on the credit bid that was -- that was part of the issue with the original credit bid language, and we discussed it. And certainly their understanding and that s

why we re happy with the language in the order. THE COURT: Well and, secondly, am I correct that

they can agree to allow the Debtor to use its cash and if they agree you cannot object? MR. DEHNEY: I believe I can still object and say

I m entitled to adequate protection. THE COURT: You can ask for adequate protection, but

you can t object to their agreement to allow the Debtor to use cash collateral rather than to pay them in full. MR. DEHNEY: look at the agreement. I m not sure, Your Honor, I d have to I don t know standing here.

29 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 ruling. THE COURT: All right. Well then let me make my

I think I do not have any problem with a 506(c)

waiver in favor of the Second Lienors because, in fact, the Debtor is representing that the budget is sufficient to cover accruing administrative expenses during the budget period. And the use of cash of that purpose is something in which the Second Lienors have an interest. appropriate. With respect to the stipulations, though, and the investigation period, I am not at this time willing to say that if a certain period of time expires that there shall be releases of not only the Second Lien Lenders, but all of their agents, affiliates, etc., the broad extent of that. Because I think there is a difference between simply an investigation into perfection of liens which certainly can be accomplished in 60 days at the same time as that is being done with respect to the First Lienors. But because there So a 506(c) waiver is

are other releases being sought that relate to the relationships between the parties, relate to loans that were extended at various times prepetition to various parties, I m not going to tie the Committee to a period at this time, particularly since the Debtors are seeking what is a relatively fast track to sell assets and the Committee must be involved in that as well. With respect to liens on avoidance actions, I m not

30 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 going to grant a super priority claim on them in favor of the Second Lienors, although they argue that as the only thing that can be given to them as adequate protection. from the budget that that is not quite the case. It appears I think the

actual pay down of the First Lien Lenders from the budget appears to provide adequate protection by increasing the equity cushion in all of the other assets that would, otherwise, be available to the Second Lienors as of today. With respect to the credit bid rights, I think it s problematic given the investigation period, but I think we can deal with that in the sense that if there s no contest as to their lien position, perhaps, they could credit bit. to the extent that there might be other claims that the Committee or the Committee on behalf of the estate may have the sale proceeds may still need to be held. So I m just not But

comfortable without a full investigation of granting any credit bid rights to the Second Lienors. MR. DEHNEY: Your Honor, I heard your ruling, but

there are some clarifications I m going to need to go back to my clients to understand how we proceed. I understand Your

Honor s concern and the difference between perfection, validity, etc. versus recharacterization. So the extent that

they are doing it with respect to the first, are they going to be doing it with respect to the second where they re not even -- they don t even need to do that.

31 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 THE COURT: Well I would require that they -- to the

extent there s any objection to the perfection of liens that that be done within the 60 days, same as the first, but not with respect to any other claim. MR. DEHNEY: The second point, Your Honor, and I

think from the Committee s presentation and ours and the Debtors, whether or not seek in avoidance actions. super priority claim -THE COURT: MR. DEHNEY: The super priority claim, yes. And a discussion and I just want to It is the

understand what Your Honor said because the code provides to the extent adequate protection is inadequate, we have a super priority claim. What they re objecting to is a specific

grant of it, but the fact is the code allows it and gives it to us. I want to make sure you re not eliminating what the

code gives me. THE COURT: No, you may have a super priority claim,

but not in any avoidance actions or proceeds of avoidance actions. MR. DEHNEY: The code does say any unencumbered

assets of which those proceeds might be so I m just trying to -- we re content with -- we have our super priority claim in unencumbered assets. your -THE COURT: Well I would carve out and not and take But I think if we re going beyond that

32 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 away any lien on actions against any of the Second Lien Lenders or affiliates of them. MR. DEHNEY: MR. MALLOY: THE COURT: MR. MALLOY: The insiders, I understand that. Your Honor, if I may? Yeah. Your Honor, I think Mr. Dehney is Okay.

drawing a distinction between the 503 grant and the 507 grant and I think that what I would suggest is that the order say the 503 super priority claim has no rights to any avoidance actions. It s our position, frankly, that the 507(b) doesn t estate of

either because they re not property of the Debtors

the Debtor and the same way that other and that s what 507(b) says is property of the Debtor. So I think you have the

absolute authority to make that ruling and say that they don t. But perhaps we could just have the order say the

grant carves out super priority claims and nothing in this order is intended to rewrite 507(b). Dehney is saying there. THE COURT: MR. MALLOY: MR. DEHNEY: Can you work on language to that affect? Yeah. I m fine to work on language to deal I think that s all Mr.

with that issue, Your Honor. THE COURT: MR. KELLER: Okay. Anybody else?

Your Honor, just a couple of points to One is that the

clarify for the record so that we are clear.

33 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 assertion that was made there are no insiders in the first lien debt. debt. Theres a very small amount to the first lien

I think its on the order of $2 million dollars that

was funded by the same group affiliated with Yucaipa. They do not have a managing role. They do not play a role of

decision-making, but just so that record is clear theres a small segment of the first lien debt that is affiliated with an insider. I also wanted to clarify that although the -THE COURT: Well any release of the First Lien

Lenders is not going to include any releases of any actions against insiders. MR. KELLER: Thank you, Your Honor, we will see that The other point is that the

that is clear in our recorder.

argument was made that the first lien loan is coming down and that is undoubtedly true. The amount of collateral thats So

available to secure the loan is also being paid down.

today as I stand here, I just want to make sure that theres not a mischaracterization that the collateral is coming down along with the outstanding amount of the principle amount of the loan. THE COURT: MR. KELLER: Your Honor. Not dollar for dollar, though? I agree its not dollar for dollar,

With those two clarifications, I believe Your

Honors rulings have allowed us to go back, fix the order and

34 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 actions? MS. HAGLE: Well claims on the proceeds. What was I propose to, hopefully, resubmit it this evening; otherwise, tomorrow. And with that, I don t think we have any further

business before Your Honor. MS. HAGLE: Apologies, Your Honor, it s Jennifer I do want to

Hagle for the GECC as administrative agent.

just clarify because different things have been said on the record. Our understanding with respect to the first liens,

we do have super priority claims and replacement liens on the proceeds of avoidance actions. I just want to make it -- we

kind of went back and forth and I m not sure the clarification from Mr. Malloy was entirely accurate. So for

purposes of the record, I just want to make that clearer; super priority claims and liens. THE COURT: Replacement liens on the avoidance

the distinction you were making? MR. COLLINS: MR. MALLOY: One moment, Your Honor. Your Honor, we appear to have a

misunderstanding on one agreement with the First Lien Lenders. Could we perhaps have a few minutes? THE COURT: Let s do that. We ll recess and you ll

let me know when you need me. MR. MALLOY: Thank you, Judge.

(Recess 2:47:25 to 3:12:54)

35 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 THE CLERK: THE COURT: MR. MALLOY: All rise. Be seated.

Where are we? Thank you, Your Honor, again, Sean It appears that we not

Malloy on behalf of the Committee.

only have had a misunderstanding with the First Lien Lenders about our deal, but no one is in a position from authority for their client to go back. the whole deal. Now this isn t going to blow up

We re just going to have to ask Your Honor

to rule on this one particular issue that is one of the Committee s objections that we put in our -- objection that we filed before the Court. I mean that s with respect to and here s our misunderstanding and we d like you to pick one or the other and then we can move forward. We thought the deal was that

the First Lien Lenders were getting the super priority claim and unlike the Second Lien Lenders the proceeds of avoidance action were one of the things that they could seek from the reach of their super priority claim. Now what they say is

their understanding is that they get a lien on the proceeds, not on the actions themselves. The estate would be in

control, but they thought our deal was that they have a lien on the proceeds. miscommunicated. Your Honor, it s the Committee s position that you can t without consent of the parties, because we know it And nobody s at fault. We just

36 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 happens all the time with consent grant a lien on avoidance action or their proceeds because they re not property of the Debtor. They re not there s to give. I already talked and

I m not going to repeat what I said in the context of the insider argument. I already talked about Cybergenics and But I

that, although that was a case of the actual action. think the argument flows from it.

There s also a case in the Sixth Circuit called Thompson Boat and, Your Honor, the cite is 252 F.3d 852. that s a Sixth Circuit case where they found that the proceeds of a preference case was not property of a Debtor and, therefore, not subject to estate statutory lien and all the Debtors assets for unemployment. Not quite the same And

situation where we re talking about the granting, but saying that proceeds weren t property of the Debtor. And that makes sense, Your Honor, in the context of the avoidance actions generally. We just don t think

generally based on the law and in this particular case based on the circumstances that it s necessary. The DIP is being rolled up. You have a DIP.

You know, we re walking away

from that argument and it s hard to do and it s in the context of a deal, but the DIP is being rolled up. no new money. There s

The DIP is coming down over time and we just

don t think it s necessary as we put it on our objection to grant a lien on the proceeds of avoidance actions.

37 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 Now we agree to super priority claim, but that s different. Because remember that on the first lien, there s And on the term piece if there s a super And so what

a term piece okay.

priority claim it s only adequate protection.

they re going to get the super priority right on with regard to avoidance action proceeds is only based on diminution and value of their interest in that collateral; whereas, if we give them a lien on the proceeds of avoidance action they re getting the whole nut. So, Your Honor, we think that that s a material difference between what we agreed to. We don t think it s

appropriate under law generally for a Debtor to be able to do this. And we think in the context of this particular case

there are plenty of protections for the First Lien Lenders especially based on the other agreements we ve reached and agreeing to the roll up. MS. HAGLE: Thank you.

Thank you, Your Honor, it s Jennifer

Hagle again and I would agree that this was an honest misunderstanding so we re both arguing our sides. I would

clarify one thing if it will help move this forward and that is that we would agree that the replacement lien on account of the prepetition term loan would be to secure the term loan to the extent of diminution and value which is what a replacement lien is and which is what adequate protection is. So if that s going to help the, you know, that clarification

38 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 we would certainly concede that we re only looking for that replacement lien to the extent of the diminution in value. Second of all, the agreements that were reached were in the context of a larger overall agreement pursuant to which, among other things, lenders have agreed to provide funding over advances to provide for a fulsome and orderly marketing period and also to provide the Debtors professionals $4.9 million dollars of professional fees to fund a 12 week period in exchange for which we believe we have bargained for super priority claims and replacement liens on what little unencumbered assets there are to it the proceeds of avoidance actions. While at the same time

conceding that the estate can continue to control those actions. We re not looking to, in essence, control any litigation or direction. All we are saying is that to the

extent that our collateral is not sufficient at any particular time to cover the liens and that we have continued to fund this case in the millions of dollars that we are looking to secure obviously both the DIP liens and that prepetition term loan which is somewhere in the neighborhood of $15 million dollars plus interest in fees as adequate protection against the avoidance actions. I would also note that that it is meaningful to lenders to get liens and claims and, in particular, in a case

39 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 where ultimately depending on how the 503(b)(9) s pan out, there is a risk at any different point in conversion. The

Committee could actually be incentivized to convert the case and run after the avoidance actions under the theory that our super priority claim goes poof once the Chapter 11 is converted and we don t have liens on those claims. So

there s actually, I think, a meaningful distinction for us not to get liens versus claims where there is very little meaningful distinction on the economics with respect to the Committee in a Chapter 11. THE COURT: MS. HAGLE: MR. DEHNEY: All right. Thank you, Your Honor. Your Honor, I only rise. Counsel made

a point that we don t end up with any interest in proceeds and I just want to go the code very quickly. 541 defines

property of the estate; 541 includes whatever is brought into the estate through 550 which would include proceeds and that s specifically what 507(b) deals with. So we ll draft

the order to reflect that, but as counsel keeps going back and forth saying we don t have a right. The code says if

adequate protection is inadequate, you get access to property of the estate and that is what those proceeds are. We don t

need a declaratory judgment on it, but I have to rise because he keeps raising it and that s what plain language says. MR. MALLOY: Your Honor, let me address two points.

40 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 I guess I ll address Mr. Dehney s points first. When I was saying I was happy to work on language, the language I was working is that we re not trying to rewrite 507(b) and I thought the language would be as simple as that. I m now

concerned that Mr. Dehney doesn t think it s as simple as that. And I understand that Your Honor s ruled that he

doesn t get, his clients don t get proceeds of avoidance actions as they re super priority claim, but you re not trying to overturn 507(b) and that s the kind of order that we intend to present to Your Honor. If I misunderstand your

ruling, I m happy, of course, to listen to Your Honor. THE COURT: MR. MALLOY: No you don t. Okay thank you. With respect to the

first lien, I just want to point out that there is a difference potentially for our constituency between liens and super priority claims because we asked when we were trying to see if this could be worked out whether we could have any kind of marshaling relief where the avoidance actions, liens on the proceeds would be the last things that were touched. And the answer is no. So if we get a sale that say doesn t -- you do a sale, but there s a piece left behind or there s some equipment left behind or something like that. Because the

super priority claim the Debtor gets to do what the Debtor wants to do. And if we collect avoidance action proceeds, I

41 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 think we re in a better position with respect to holding onto, otherwise, unencumbered collateral than things like equipment which might be sold a little later. It might mean

they have to wait a little bit with respect to this, but it s only because they re getting new unencumbered collateral here; the proceeds of avoidance actions. And so we think

that they should just be a super priority claim unless they re willing to put some kind of -- well and, you know, that s it period. But I think that the lack of marshaling Thank you.

with regard to those makes it more significant. MR. PROLIN:

Okay, Your Honor, Jeffrey Prolin on We re a large general Your

behalf of International Paper.

unsecured creditor and a holder of a 503(b)(9) claim.

Honor, I think it s pretty clear from what we ve heard today that this is a case that s being run for the benefit of the secured lenders with the amount of the first lien debt, the amount of the second lien debt, the amount of the 503(b)(9) claims. The likelihood of a dividend of the unsecured And the

creditors certainly appears to be pretty remote.

only kind of liens that the secured lenders are seeking here would be relevant is in the event that the assets here are liquidated from less than what they re owed. To ask the unsecured creditors here to backstop a lender s decision to put this case into Chapter 11 to try to liquidate their collateral to maximize value to them I think

42 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 issue. MS. HAGLE: Yeah I mean I understand that. The is just inherently offensive to the unsecured creditors. They should not be required to backstop that decision. And

we believe that there s case law in this District that stands for the proposal that liens shouldn t be granted on avoidance power claims without consent, and we would adjoin in the Committee s objection to the granting of a lien in this circumstance. Thank you, Your Honor. Just to be clear, Your Honor, we re only The super priority claim

MS. HAGLE:

talking about the replacement lien.

has already been negotiated as part of the deal with the First Liens and up to the proceeds and avoidance actions with respect to the super priority claims. So, again, when you re

talking about unsecured creditors not backstopping that I m not understanding how there is such a tremendous distinction between a lien in a claim. And I can tell you every time

somebody gets up and says that it s going to make my client more and more nervous in terms of what is going on here that is being taken away. Because my understanding is I think in

a Chapter 11 it should end up being somewhat of a distinction without meaning for the unsecured creditors. THE COURT: Well maybe it is simply the marshaling

answer was no because the answer with respect to limiting the enforcement of remedies that a lender has is always going to

43 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 be no. I think practically speaking given the expedited

sales process we re going to see and I hope we see sale proceeds being distributed well before any proceeds of avoidance actions, so I think practically speaking that s how the timing is going to develop anyway. But I think asking,

again, the lenders who are marketing these assets for the benefit of all of the constituents in this case certainly not just the secured lenders to sort of in a vacuum make some sort of commitment with respect to their ultimate ability to enforce remedies is not something that s fair. And, again, the deal already was that we got super priority claim. We re merely arguing about whether or not

replacement liens can as we have thought the, you know, tagged onto that proposal. THE COURT: avoidance. Well I m not going to agree on a lien on

Whether I agree with the Courts that say that the

Debtor cannot grant a lien on avoidance actions or not, it has always been my policy that they should not be granted without the Creditors Committee s consent. Because, quite

frankly, if that s what we re fighting over I m inclined to let the case be converted now and at least the unsecureds will have the avoidance actions and the secured will be permitted to go ahead and foreclose outside of bankruptcy. But if you re going to foreclose in bankruptcy I think we have to carve out any liens on avoidance actions unless the

44 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 Committee consents and they don t in this case. MS. HAGLE: But understanding that we do get the

super priority claims against the avoidance action proceeds THE COURT: MS. HAGLE: MR. KELLER: They re agreed to that, so. Thank you, Your Honor. Your Honor, I think we have nothing

further and we ll be settling the words out and submit to Your Honor. THE COURT: All right I ll look forward under CFC.

We ll stand adjourned. (Court Adjourned) CERTIFICATE I certify that the foregoing is a correct transcript from the electronic sound recording of the proceedings in the aboveentitled matter. /s/Mary Zajaczkowski Mary Zajaczkowski, CET**D-531 April 24, 2012 Date