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

, Debtors.
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Chapter 11 Case Nos. 12-11564 (CSS) (Jointly Administered)

Hearing Date: August 28, 2012 at 11:00 a.m. Re: Docket Nos. 173, 258 and 307

DEBTORS' RESPONSE TO LIMITED OBJECTIONS OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS AND OF THE PETITIONING CREDITORS TO DEBTORS' APPLICATION PURSUANT TO 11 U.S.C. 327 AND 328, FED. R. BANKR. P. 2014 AND 2016 AND DEL. BANKR. L.R. 2014-1 AND 2016-1 FOR AN ORDER AUTHORIZING THE RETENTION AND EMPLOYMENT OF ROTHSCHILD INC. AS FINANCIAL ADVISOR AND INVESTMENT BANKER FOR THE DEBTORS NUNC PRO TUNC TO THE PETITION DATE In their separately filed Objections, the Official Committee of Unsecured Creditors (the "Committee") [Docket No. 258] and Petitioning Creditors BDCM Opportunity Fund II, LP, Black Diamond CLO 2005-1, Ltd. and Spectrum Investment Partners, L.P. (collectively, "Petitioning Creditors") [Docket No. 307] acknowledge that the Debtors' retention of a financial advisor and investment banker in these cases was appropriate, and that the particular financial advisor and investment advisor the Debtors retained, Rothschild Inc. ("Rothschild"), is well qualified to arrange transactions that benefit its clients and is well suited for this engagement.
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 Driveway LLC (38-0365100); GACS Incorporated (58-1944786); Logistic Systems, LLC (45-4241751); Logistic Technology, LLC (45-4242057); QAT, Inc. (592876863); RMX LLC (31-0961359); Transport Support LLC (38-2349563); and Terminal Services LLC (910847582). 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. 20062894v3 RLFI 6747411v.1

Likewise, none of the objecting parties dispute that the Debtors are permitted to retain a professional such as Rothschild on a fixed or percentage fee basis, as expressly permitted under II U.S.C. 328(a). Additionally, the objecting parties acknowledge that the $150,000 Monthly Fee in the Rothschild Engagement Letter is entirely appropriate. The Committee and Petitioning Creditors nevertheless both challenge the fee structure of Rothschild's Engagement Letter and request modification of the Engagement Letter and approval of the Debtors' request to retain Rothschild under Section 330 of the Bankruptcy Code, rather than Section 328. The proposed Completion Fee will be $2.5 million unless one of two agreed reductions applies. The first is a reduction to $1.75 million upon consummation of an asset sale, either under section 363 or a plan, to a specified party that had expressed interest in the Debtors' business prepetition. The second is a reduction to $2 million either upon consummation of an uncontested plan or upon closing of a sale by credit bid to the first-lien lenders. Regardless, half of monthly fees over $450,000 will be credited against any Completion Fee. (Monthly fees will exceed $450,000 in September, 2012.) Neither the Committee nor the Petitioning Creditors offer concrete, factual analysis of how the financial terms of the Rothschild Engagement Letter compare to prevailing market terms of similarly qualified financial advisors for comparable engagements. They instead speculate incorrectly - that Rothschild could be paid its Completion Fee under the reduction scenarios above without contributing much value. Rothschild's response, filed contemporaneously herewith, demonstrates that the terms negotiated and agreed by the Debtors and Rothschild are well within or below the mid-range of recent comparable cases, both with respect to the maximum Completion Fee and with respect to the negotiated reductions. Under the reduction scenarios, the Debtors will require - and are

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already receiving -- substantial services from Rothschild. Whether pursuant to Section 363 or a plan, no sale can occur - whether by credit bid or to a previously interested buyer - without a sale process and eventual approval of the sale by this Court as being in the best interest of the estates. Such a process cannot occur without the services of an investment banker and financial advisor such as Rothschild. Among other things, a sale process will require extensive Indeed,

negotiations among the Debtors, the potential buyers and their respective advisors.

Rothschild has already prepared marketing materials regarding the Debtors and is canvassing the market to identify potential buyers, is working to facilitate due diligence of the Debtors by potential buyers and parties in interest, including the Petitioning Creditors and the Committee, and is determining parties' interest in and ability to engage in a transaction with the Debtors. Thus it is not the case that "a secured party sale ... could just as easily occur without any involvement from Rothschild." See Petitioning Creditors' Obj.
~

5.

Further, the notion of the Petitioning Creditors that Rothschild might "provide[] no services" and be paid "for nothing" or that the Debtors could (or would) "simply agree to 'turn over the keys' to Yucaipa in the context of a 363 sale" is simply incorrect. See Petitioning Creditors' Obj.
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3-4.

Such speculation ignores that a credit bid would require unusually

complex negotiations and the conduct of a sale process, both of which would demand significant services of Rothschild. The Petitioning Creditors also overlook the role of this Court in applying the standards of the Bankruptcy Code to approval of any such sale (and, for that matter, ignores the ability of the Petitioning Creditors and other parties to object and be heard in that context). Similarly, the Committee declares itself "befuddled" as to why the Debtors might have agreed to pay Rothschild fees in the event of a sale by credit bid or to a previously interested buyer. Committee Obj.

,I 9-10.

There is no basis for the Committee's confusion: no sale will

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occur unless the Debtors (and this Court) determine that maximizes value for the estate, to the benefit of the creditors and all other parties in interest. As just described, substantial work will be required of Rothschild to achieve such a "best available" result. These services cannot be had for free. The proposed order approvmg the employment of Rothschild (both as originally proposed and as revised and attached to Rothschild's response) contains the usual section 330 carveout for the U.S. Trustee, but approves retention of Rothschild under section 328. This is typical and no different than what is found in the retention order for the Committee's own financial advisor. And it is certainly sufficient to cover the objectors' unrealistic speculation that the Rothschild team might just sit on their hands (or that the Debtors might permit that to occur). The Debtors are prepared to demonstrate that both their selection of Rothschild as financial advisor and investment banker and their negotiation of the Rothschild Engagement Letter were exercises of their reasonable business judgment and the result of a robust, competitive bidding process.
The Debtors' Selection of Rothschild as Financial Advisor and Investment Banker
I.

On May 17, 2012, the Petitioning Creditors filed involuntary petitions against

Allied Holdings and its subsidiary Allied Systems, Ltd. (L.P.) under the Bankruptcy Code in this Bankruptcy Court. Recognizing the need for a qualified financial advisor and investment

banker, on May 19, 2012 the Debtors solicited proposals from various groups of professionals. The primary participants on behalf of the Debtors throughout this process were: (I) Brian Cullen (a Director of Allied Systems Holdings, Inc. not employed by or affiliated with Yucaipa2 and a Managing Director and head of U.S. restructuring at the financial advisory and investment

Yucaipa American Alliance Fund I, LP aud Yucaipa American Alliance (Parallel) Fund I, LP (collectively,
"Yucaipa").

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banking firm Duff and Phelps), (2) Derex Walker (a Director of Allied Systems Holdings, Inc. appointed by Yucaipa), (3) Scott Macaulay (the CFO of Allied Systems Holdings, Inc.) and (4) Jolm Blount (the Chief Administrative Officer, Senior Vice President, Secretary and General Counsel of Allied Systems Holdings, Inc.). 2. On or about May 18, 2012, the Debtors either contacted or were contacted by

approximately ten prospective financial advisors and investment bankers about the possibility of their acting as the Debtors' financial advisors and investment bankers in connection with these bankruptcy cases. Of those, the Debtors arranged telephonic meetings with the five firms that appeared best suited to perform this work, based on, among other things, qualifications, experience, reputation, industry expertise and familiarity with the Court and key constituencies in the bankruptcy. This group of five firms included Rothschild and four other nationally

recognized and highly qualified firms, designated here (for purposes of protecting the confidentiality of the submissions made by the other firms) as Firms A-D. Messrs. Cullen, Walker, Macaulay and Blount participated in these meetings. Some of the firms also provided written materials in support of their proposals. 3. Negotiations with the competing bidders continued throughout the weekend of

May 19-20 and into the following week. At each step of the selection process, the Debtors asked the participating firms to improve the terms of their offers. Most of the competing firms' offers used fee structures generally similar to the one ultimately contained in the Rothschild Engagement Letter, with flat monthly fees, completion fees (sometimes varying according to the outcome of the bankruptcy) and financing fees. 4. After the meetings with the five finalists among the competing firms, the Debtors'

representatives asked all five of these firms to improve the terms of their offers again. Then the

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representatives of the Debtors involved in the selection process conferred internally about the selection, choosing three finalists and asking each to improve its bid and provide its best and final offer. The participants ultimately favored Rothschild, taking into account a wide array of factors, including cost and Rothschild's extensive experience and excellent reputation in providing high quality investment banking services to financially troubled companies, particularly in the transportation sector. The Debtors then asked Rothschild to improve its bid yet again, which it did. 5. The rigorous bid process and negotiations with the competing firms yielded

substantially more favorable offers to the Debtors, both from the bidders that ultimately were not selected and from Rothschild. Firms including Firm B, Firm C and Firm D offered completion fees in the $3-4 million range. Some of those bidders offered a partial credit of monthly fees towards the completion fees after 3-6 months of the monthly fees were paid in full. Of those three bidders, only one, Firm C, ultimately lowered its offer to include a reduced completion fee depending on whether the bankruptcy concluded with a stand-alone restructuring or third-party sale. But even the fees proposed by Firm C were less favorable than the fee structure ultimately offered by Rothschild. Firm C's best offer included a $2.25 million completion fee in the event of a sale of the Debtors' assets to a specified purchaser, and a $2.6 million completion fee for either a stand-alone restructuring or a sale to another bidder. Some of the firms, including Firm A and Firm D, did not make any offers that included lower completion fees for dispositions other than a sale to a specified purchaser. Even after they improved their bids, those firms' completion fees were as high or higher than Rothschild's Completion Fee, regardless of outcome, by as much as 35%.

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6.

Rothschild's bid improved significantly through negotiations, specifically through

a reduction of the maximum Completion Fee; improved crediting of monthly fees towards the Completion Fee; and reductions to the Completion Fee under certain circumstances: first, a disposition of the Debtors' assets through a credit bid under Section 363 or uncontested plan; and second, consummation of a sale to a previously interested buyer.

It was recognized that

significant services would be required of Rothschild under any circumstance (not least because of the significant disputes and litigation among the senior creditors and potential challenges by the Petitioning Creditors and Committee). Rothschild was nevertheless willing to accept these reductions in order to win the engagement.

The Debtors Are Entitled To Exercise Their Reasonable Business Judgment in Selecting Professionals
7. The Bankruptcy Code permits a debtor to retain disinterested professionals, so

long as the terms and conditions of such retention are "reasonable." The Debtors' decision to retain a professional on such reasonable terms is a business decision to be afforded deference under a "business judgment" standard of review. Under a business judgment standard, a debtor's decision will not be disturbed absent a showing of bad faith or an abuse of discretion. 11 U.S.C. 327, 328(a). See, e.g., United Artists Theatre Co. v. Walton, 315 F.3d 217, 233 (3d Cir. 2003) (considering Delaware's business judgment rule "well suited" to considering a debtor in possession's agreement to terms of professional retention); Busy Beaver Bldg. Ctrs., 19 F .3d 833, 853 (3d Cir. 1994); Lubrizol Enterprises, Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043, 1047 (4th Cir. 1985) (holding that the business judgment standard requires that a debtor's decision, taken "because of perceived business advantage," "requires that the decision be accepted by courts unless it is shown that the bankrupt's decision was one taken in bad faith or in gross abuse of the bankrupt's retained business discretion."); Richmond Leasing v. Capital Bank, 7
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N.A., 762 F.2d 1303, 1311 (5th Cir. 1985); In re G Survivor Corp., 171 B.R. 755, 757 (Bankr. S.D.N.Y. 1994) ("Generally, absent a showing of bad faith, or an abuse of business discretion, the debtor's business judgment will not be altered."). 8. Further, Section 327(a) of the Bankruptcy Code makes clear that a debtor in See In re Diva

possession is entitled to choose its professionals, subject to court approval.

Jewelry Design, Inc., 367 B.R. 463, 477 (Bankr. S.D.N.Y. 2007) ("The Bankruptcy Code expressly provides that a trustee may employ professionals to assist the trustee in carrying out his duties under the Code, and the trustee must have wide latitude in selecting his or her professionals."); In re Caldor, Inc., 193 B.R. 165, 170 (Bankr. S.D.N.Y. 1996) ("Public policy favors permitting parties to retain professionals of their choice."). Accordingly, the Debtors' choice of Rothschild as its investment banker and financial advisor should not be disturbed.
Approval of the Rothschild Engagement Letter Is Appropriate Under 11 U.S.C. 328

9.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

amended 328(a) of the Bankruptcy Code, which now provides as follows: The trustee, or a committee appointed under section II 02 of this title, with the court's approval, may employ or authorize the employment of a professional person under section 327 or II 03 of this title, as the case may be, on any reasonable terms and conditions of employment, including on a retainer, on an hourly basis, on a fixed or percentage fee basis, or on a contingent fee basis. II U.S.C. 328(a). 10. The Committee and Petitioning Creditors both rely on In re Energy Partners, Ltd.,

409 B.R. 211 (Bankr. S.D. Tex. 2009) in support of their challenge to the Completion Fee contained in the Rothschild Engagement Letter, but the facts of that case are instructive by their contrast to the instant case. The proposed fee terms at issue in Energy Partners included, among other things a $500,000 non-refundable up front "advisory fee" and $25,000 expert witness fees
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for each day worked (regardless of how much or little work was performed on a given day). 409 B.R. at 218. Rothschild's Completion Fee, by contrast, will be paid only if specified transactions and conditions actually come to pass. II. Also in contrast with the facts of Energy Partners, the Debtors have given more

than a conclusory account of a competitive bidding process, identifying the persons involved, the sequence of bids and re-bids and the concrete factual basis for selecting Rothschild as the financial advisor and investment banker in order to maximize the value of the estate. The

Debtors also have the tangible result of their negotiations, which lowered the costs of Rothschild's services.

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Dated: August 23, 2012 Wilmington, Delaware

Christopher M. Samis (No. 4909) RICHARDS, LAYTON & FINGER, P.A. One Rodney Square 920 North King Street Wilmington, Delaware 19801 Telephone No.: (302) 651-7700 Facsimile No.: (302) 651-7701 Email: collins@rlf.com samis@rlf.com -andJeffrey W. Kelley (GA Bar No. 412296) Ezra H. Cohen (GA Bar No. 173800) Carolyn P. Richter (GA Bar No. 574097) Matthew R. Brooks (GA Bar No. 3780 18) Benjamin R. Carlsen (GA Bar No. 940614)
TROUTMAN SANDERS LLP

Bank of America Plaza 600 Peachtree Street, Suite 5200 Atlanta, Georgia 30308-2216 Telephone No.: (404) 885-3000 Facsimile No.: (404) 885-3900 Email: jeffrey.kelley@troutmansanders.com ezra.cohen@troutmansanders.com carolyn.richter@troutmansanders. com matthew. brooks@troutmansanders.com benjamin.carlsen@troutmansanders.com Counsel for the Debtors

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