IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION In re: COLLINS & AIKMAN CORPORATION,

et al. Debtors. ) ) ) ) ) ) ) ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) (Tax Identification # 13-3489233) Honorable Steven W. Rhodes

RESPONSE OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO JPMORGAN CHASE BANK, N.A.S OBJECTIONS1 TO APPLICATIONS OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR ORDERS AUTHORIZING THE EMPLOYMENT AND RETENTION OF (I) ALVAREZ & MARSAL, LLC AS OPERATIONAL AND STRATEGIC ADVISOR AND (II) CHANIN CAPITAL PARTNERS, LLC, AS INVESTMENT BANKER The Official Committee of Unsecured Creditors (the Committee) of Collins & Aikman Corporation, et al. (collectively, the Debtors), by its undersigned counsel, hereby responds (the Response) to the objections of JPMorgan Chase Bank, N.A., as administrative agent (the Agent) for the prepetition senior secured lenders (the Prepetition Secured Lenders) to Applications of the Official Committee of Unsecured Creditors for Orders Authorizing the Employment and Retention of (I) Alvarez & Marsal, LLC (A&M) as Operational and Strategic Advisor and (II) Chanin Capital Partners, LLC (Chanin), as Investment Banker (the Objections). In support of this Response, the Committee respectfully represents as follows: PRELIMINARY STATEMENT 1. The Agent, through its Objections, seeks to prevent the Committee the statutory

fiduciary representative for the unsecured creditor constituency which will bear the burden of

This Response additionally responds to the Notice of General Motors Corporations Joinder in the Objections filed on August 17, 2005.

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every penny spent in connection with these cases from obtaining the professional assistance it deems necessary to acquit its fiduciary duty to the Debtors unsecured creditors. The Agent for secured creditors cannot substitute its judgment for that of the members of the Committee. Such a result would be inequitable and contrary to Congress intent when it promulgated section 1103 of the Bankruptcy Code authorizing official creditor committees to select and authorize the employment of one or more attorneys, accountants, or other agents, to represent or perform services for such committee. 11 U.S.C. 1103(a) (emphasis added). 2. Here, the Committee, in careful exercise of its judgment after interviewing several

firms, concluded that it needed the immediate services of both a sophisticated operations firm with a substantial domestic and international operational turnaround background and an investment banking firm with significant capital market experience. The entire expense to the Debtors estates as a result of the Committees determinations to retain A&M and Chanin will be borne by unsecured creditors and that very constituencys fiduciary representative is entitled to the best professional representation needed to acquit its responsibilities. Thus, the Committee concluded to retain A&M and Chanin. 3. The advisory services to be provided by A&M and Chanin are discreet and

independent from each other and ultimately will be complementary in assisting the Committee in analyzing the Debtors business operations, financial results and reorganization efforts. Specifically, A&M brings significant operational turnaround experience and industry knowledge to the analysis of the Debtors numerous contracts and plants. Chanin will provide the Committee with valuation analyses and related financial advisory services to assist the Committee in formulating a solution to the Debtors insolvency and balance sheet. In addition, these professionals have significant experience in the automotive industry. Together, A&M and

Chanin will be of paramount importance to the Committee in executing its statutorily mandated and fiduciary duties. 4. In connection with this engagement, A&M and Chanin agreed to (i) reduce their

customary monthly fees, and (ii) defer consideration of any success fee until a success story can be written for these Debtors. Despite these concessions, the Agent, with no evidence or support, suggests that A&M and Chanin should not be retained. The Agents objections are meritless and should be overruled. BACKGROUND 5. On May 17, 2005 (the Petition Date), each of the Debtors commenced with this

Court a voluntary case under chapter 11 of title 11 of the United States Code (the Bankruptcy Code). 6. Since the Petition Date, the Debtors have continued in possession of their

properties, and have continued to operate and manage their businesses as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 7. On May 24, 2005, pursuant to section 1102 of the Bankruptcy Code, the United

States Trustee for the Eastern District of Michigan appointed the Committee. 8. In early June 2005, after interviewing several potential operational and strategic

advisors and investment bankers, the Committee elected to retain both A&M and Chanin2 to advise it with respect to the financial and business challenges facing the Debtors. At the time of their selection by the Committee, the fee structures for both A&M and Chanin were extensively negotiated by the Committee with each of A&M and Chanin. In response to the Committees concerns about expenses, both advisors agreed to reduce their customary monthly fees and to
2

A&M was retained by the Committee on June 1, 2005 while Chanin was retained on June 7, 2005.

defer consideration of any success fee until the conclusion of these cases, which success fees, if any, will be (a) negotiated by and among the respective professional and the Committee, in consultation with the Debtors and (b) subject to further approval of this Court. 9. On July 21, 2005, the Committee filed the Application of the Official Committee

of Unsecured Creditors for an Order Authorizing the Retention of Alvarez & Marsal, LLC as its Operational and Strategic Advisor Nunc Pro Tunc to June 1, 2005 (the A&M Application). On August 11, 2005, the Committee filed the Application of the Official Committee of Unsecured Creditors for an Order Authorizing the Retention of Chanin Capital Partners, LLC, as Investment Banker, Nunc Pro Tunc to June 7, 2005 (the Chanin Application and, together with the A&M Application, the Applications). The Applications set forth the proposed terms of A&Ms and Chanins engagements by the Committee, and detail the scope of the services to be provided by each firm. 10. Pursuant to the A&M Application, the Committee seeks to retain A&M to

perform the following services (each as more detailed herein): Review and evaluate the financial and operational condition of the Debtors domestic and foreign operations and advise the Committee concerning such matters; Assist the Committee and its counsel in evaluating and responding to various developments or motions during the course of the Debtors chapter 11 proceedings including such core matters as claims analysis, preference analysis, leased and owned property analysis, vendor relations, reclamation issues, vendor liens/arrangements, substantive consolidation and executory contracts; Advise the Committee concerning various measures for operational improvement at the Debtors domestic and foreign operations; Assist the Committee and its counsel in analyzing and evaluating various forensic accounting analyses prepared by the Debtors and their professionals.

 11.

Provide other services that may be required by the Committee, and that do not overlap with services provided by the Committees other advisors.

Pursuant to the fee structure negotiated with the Committee, A&M will be entitled

to receive the following compensation: (a) (b) (c) 12. $200,000 monthly fee for the first three months and $150,000 monthly fee thereafter; the reimbursement of all reasonable and actual out of pocket expenses; and potentially, a success fee, based on the results achieved in these cases.

Pursuant to the Chanin Application, the Committee seeks to retain Chanin to

perform the following services (each as more detailed herein): Review and analyze the financial and operating statements of the Debtors; Evaluate the assets and liabilities of the Debtors; Review and analyze the Debtors business and financial projections; Evaluate the Debtors debt capacity and liquidity position in light of their projected cash flows, including various financing opportunities available to the Debtors; Assist in the determination of an appropriate capital structure for the Debtors; Determine a theoretical range of values for the Debtors on a going concern basis; Assist the Committee in identifying and evaluating candidates for the potential acquisition of certain assets of the Debtors as and if applicable; Advise and assist the Committee in negotiations with any potential acquirer of certain assets of the Debtors as a going concern as and if applicable; Evaluate the sales process for certain assets of the Debtors as a going concern as and if applicable

Advise the Committee on tactics and strategies for negotiating with the Debtors and other purported stakeholders; Render financial advice to the Committee and participate in meetings or negotiations with the Debtors and other purported stakeholders in connection with the Restructuring Transaction.2 Assist the Committee in preparing documentation required in connection with the Restructuring Transaction. Prepare, analyze and explain a plan of reorganization to the various constituencies; Review and analyze potential avoidance actions; Provide the Committee with other appropriate general restructuring advice; and Provide expert testimony in the Bankruptcy Court with respect to the Restructuring Transaction and related transactions.

13.

Pursuant to the fee structure negotiated with the Committee, Chanin will be

entitled to receive the following compensation: (a) (b) (c) 14. $150,000 monthly fee; the reimbursement of all reasonable and actual out of pocket expenses; and potentially, a success fee, based on the results achieved in these cases.

Both A&M and Chanin have been providing services to creditors of these estates

since June 2005. During this time, A&M has worked to understand the Debtors operations and

The term Restructuring Transaction is defined to mean any restructuring, reorganization and/or recapitalization of all or a significant portion of the Companys existing and potential debt obligations that is achieved, without limitation, through a chapter 11 plan of reorganization, exchange offer, consent solicitation, rescheduling of debt maturities, changes in interest rates, settlement or forgiveness of debt, conversion of debt and/or other liabilities into equity, issuance of new securities, raising of new debt or equity capital, or sale or other transfer, directly or indirectly, of equity, assets or other interests of the Company whatsoever, whether in one or a series of transactions, acquisitions, mergers or other business combinations; or other similar transaction or series of transactions.

their operational challenges, and Chanin has spent time identifying the financial obstacles facing the Debtors restructuring efforts. 15. Prior to retaining A&M and Chanin, the Committee interviewed a number of

financial advisory and other restructuring consulting firms. During the interview process, the Committee received detailed information with respect to the scope of services to be provided by such professionals and their proposed fee structures. Ultimately, the Committee decided to retain both A&M and Chanin, based primarily on (i) the complex nature of the issues surrounding these cases, (ii) their familiarity with the Debtors business and financial operations, respectively and (iii) their agreements to provide professional services to the Committee at reduced rates. THE OBJECTIONS 16. The Objections assert, among other things, that (i) A&Ms and Chanins services

are duplicative; (ii) the Committee is out of the money and, therefore, should not be entitled to its own financial advisor; (iii) there was an unreasonable delay in the filing of the Applications; (iv) Lazard Frres & Co. LLC (Lazard) has been retained by the Debtors as investment banker and could provide the services for which Chanin was retained on behalf of the Committee as well as on behalf of the Debtors; and (v) any compensation paid to either A&M or Chanin should be reviewed on a reasonableness standard. Each of these objections is without merit and addressed below. RESPONSE I. An Official Committee Has the Right to Retain the Professionals of Its Choosing. 17. A creditors committee, as the fiduciary representative of unsecured creditors, has

the primary duty of advising unsecured creditors of their rights and the proper course of action in the debtors bankruptcy case. See In re Caldor, Inc., 193 B.R. 165, 169-170 (Bankr. S.D.N.Y.

1996) (citations omitted); In re Baldwin-United Corp., 45 B.R. 375, 376 (Bankr. Ohio 1983) (those who serve on a creditors committee owe a fiduciary duty to all creditors which they fulfill by advising creditors of their rights and of the proper course of action in bankruptcy procedure.) (internal citations omitted). In furtherance of that duty, an official creditors committee may, among other things, (a) consult with the debtor in possession concerning case administration; (b) investigate the acts, conduct, assets, liabilities, and financial condition of the debtor, the operation of the debtors business and the desirability of the continuance of such business, and any other matter relevant to the case or to the formulation of a plan; and (c) participate in the formulation of a plan, advise those represented by such committee of such committees determinations as to any plan formulated, and collect and file with the court acceptances or rejections of a plan. Id.; see also 11 U.S.C. 1103. 18. To that end, an official committee may select and authorize the employment ...

of one or more attorneys, accountants, or other agents, to represent or perform services for such committee. Public policy favors permitting parties to retain professionals of their choice. Caldor, 193 B.R. at 170; In re Advisory Committee of Major Funding Corp., 109 F.3d 219, 224 (5th Cir. 1997) (holding that a creditors committee not only has, with the courts approval, the power to employ attorneys, accountants, and other agents to represent or perform services for the committee, it has the duty to determine what assistance it requires in order to perform its duties, when such assistance is required, and to select those best qualified to render such assistance.); In re Brennan, 187 B.R. 135, 150 (Bankr. D.N.J. 1995), revd on other grounds, 180 F.3d 504 (holding that there is a presumption in favor of partys right to choose the accountant of its choice); see also In re Codesco, Inc., 18 B.R. 997, 999 (Bankr. S.D.N.Y. 1982) (holding that

[o]nly in the rarest cases should the trustee be deprived of the privilege of selecting its own professional) (internal citations omitted). 19. The retention of more than one non-legal consultant by official creditors

committees is not a unique concept. In fact, A&M has been engaged to act as industry and technology advisor for official creditors committees where such committees have also retained a financial advisor. See, e.g., Winn-Dixie Stores, Inc. Chanin has also been engaged as a coadvisor in numerous cases with operational advisors as well as accountants. See, e.g., In re RCN Corp.; In re Global Crossing Ltd.; In re Dictaphone; In re Wherehouse Entertainment, Inc.; See also Exhibit A attached hereto providing a list of other cases where the creditors committee retained both an operational advisor and a financial advisor. 20. Here, the Agent seeks to limit the Committees ability to select the professionals

the Committee deems necessary to acquit its fiduciary duty on behalf of the Debtors unsecured creditors. The Agents primary objection to the retention of A&M and Chanin is that the services to be provided by these professionals will be duplicative. Specifically, the Agent focuses on the number of professional advisors who attended depositions relating to the Debtors second post-petition financing agreement with certain OEMs approved by this Court on August 11, 2005 (the Customer Agreement). However, in submitting that the attendance of both A&M and Chanin at the depositions was duplicative, the Agent fails to recognize that A&M and Chanin served different purposes in their attendance at the depositions A&M for operational and strategic advice and Chanin for financial advice the specific purposes for which they were each retained. Moreover, the Committee was taking these depositions in order to fulfill its fiduciary duties to its creditors and ascertain whether the proposed Customer Agreement was in the best interests of the estate. In order to make this determination, it was imperative that

counsel for the Committee be advised properly as to the specific information needed to be elicited from the deponents during each deposition. Moreover, despite the Agents concern that more than one representative from both A&M and Chanin attended the depositions, the Agent disregards the fee structure providing both A&M and Chanin with a set monthly fee regardless of how many people attend a particular meeting and/or how many hours are expended. Accordingly, whether A&M and/or Chanin had one or one hundred representatives at the depositions, the cost to the estate remains the same the monthly fee. 21. Contrary to the position taken by the Agent in the Objections, the services being

performed, and to be performed, by A&M and Chanin, respectively, have not and will not unnecessarily or materially overlap. The following table provides further detail with respect to the distinct tasks that the Committee has engaged A&M and Chanin to perform.3 As set forth below in broad general terms, Chanins primary focus is on financial restructuring, while A&Ms primary focus is on operational restructuring, thereby complementing one another.
Chanin Capital Partners, LLC I. Valuation/Financing Services a. Determine a theoretical range of values for the Debtors on a going concern basis Advise on valuation issues including (but not limited to) valuation of European businesses. Develop valuation indications of the Debtors through a variety of approaches, including (i) the market multiple approach, (ii) the discounted cash flow approach, (iii) the transaction multiple approach (if appropriate), and (iv) the liquidation valuation approach. Alvarez & Marsal, LLC I. Valuation/Financing Services

Although the following subject headings are consistent with the scope of engagement set forth in the A&M Application and Chanin Application, respectively, the subject headings have been re-ordered for comparative purposes.

b. Assist the Committee in identifying and evaluating candidates for the potential acquisition of certain assets of the Debtors as a going concern as and if applicable Analyze potential bidders in the event of any contemplated M&A transactions

c. Advise and assist the Committee in negotiations with any potential acquirer of certain assets of the Debtors as a going concern as and if applicable d. Evaluate the sales process for certain assets of the Debtors as a going concern as and if applicable Evaluate the Debtors long-term financing needs through an analysis of the Debtors longterm cash flow forecasts and implied debt capacity. Assess alternative plans of reorganization, and the feasibility of such alternative plans of reorganization. Develop lists of potential acquirers of the Debtors assets. Assess the feasibility and the completeness of any sales process run by the Debtors and/or Lazard. Evaluate the sale of any of the Debtors noncore assets. Establish efficient protocol with the Debtors advisors to maximize success and minimize delays in the process. Develop lists of potential acquirers of the Debtors non-core assets. Assess the feasibility and the completeness of any non-core asset sales process run by the Debtors and/or Lazard.

e. Advise the Committee on tactics and strategies for negotiating with the Debtors and other purported stakeholders Evaluate various options to raise exit financing for the Debtors. Establish efficient protocol with the Debtors advisors to maximize success and minimize delays in the process. Develop lists of potential acquirers of an equity stake in the Debtors. Assess the feasibility and the completeness of any financing process run by the Debtors and/or Lazard.

 f.

Assess the appropriateness of the 13-week cash flow budget and associated covenants. Render financial advice to the Committee and participate in meetings or negotiations with the Debtors and other purported stakeholders in connection with the Restructuring Transaction Evaluate the Debtors incentive compensation plan (if one is ultimately proposed), including negotiating on behalf of the Committee with the Debtors. Analyze the terms of the incentive compensation plan vis--vis other chapter 11 bankruptcies.

g. Evaluate the Debtors debt capacity and liquidity position in light of their projected cash flows, including various financing alternatives available to the Debtors Develop term sheets for financing of the US and European businesses on behalf of the Committee. With the operational assistance of A&M, develop alternative business plan scenarios for the purposes of assessing (i) debt capacity, (ii) liquidity needs, and (iii) restructuring alternatives. Understand the impact of business forecasts on valuation and creditor recoveries. Evaluate the impact of key restructuring initiatives on the Debtors estates and recoveries to creditors, including damage claims generated through executory contract rejections. With the operational assistance of A&M, review and analyze the economics of the Debtors business lines.

h. Assist in the determination of an appropriate capital structure for the Debtors; i. Assist the Committee in preparing documentation required in connection with the Restructuring Transaction Prepare, analyze and explain a plan of reorganization to the various constituencies Chanin Capital Partners, LLC II. Business Plan Review Alvarez & Marsal, LLC II. Business Plan Review

j.

a. Review and analyze the financial and operating statements of the Debtors; evaluate the assets and liabilities of the Debtors; and review and analyze the Debtors business and financial projections Review and analyze business plans and financial projections prepared by the Company and its advisors. Review and analyze the corporate structure of the Debtors, including (i) assets and liabilities, (ii) operations and potential value of the subsidiaries, and (iii) the flow of funds between Debtors and the corresponding impact on creditor recoveries. Track and analyze the Debtors statements of financial affairs and schedules of assets and liabilities. Providing summaries and analyses of same to the Committee. Analyze the Debtors financial statements, including, but not limited to, (i) external income statements, cash flow statements and balance sheets, (ii) internal financial reporting packages, and (iii) the Debtors business plan. Evaluate the Debtors 13-week cash flow forecasts, including analyzing trends in cash receipts and cash disbursements. Provide summaries and analyses of same to the Committee. Understand the impact of financial and operating statements on valuation and creditor recoveries. Evaluate, understand and explain to the Committee the trends and facts associated with the Debtors monthly operating reports. Chanin Capital Partners, LLC III. Litigation Support

a. Review and evaluate financial and

operational condition of C&A domestic and foreign operations and advise the Committee concerning such matters Analyze and monitor the Debtors foreign and domestic post-petition cash flow forecasts and assessing the operational reasonableness, viability and risks contained therein. Review the Debtors foreign and domestic operational performance and business plans prepared by the Company and its advisors and analyzing various operational risks and opportunities therein. Analyze the companys capital expenditure forecasts and noting various operational risks and opportunities therein.

b. Advise the Committee concerning various measures for operational improvement at C&As domestic and foreign operations

Perform an extensive analysis and review of the profitability of the Debtors existing contracts and participating in the contract renegotiation process. Analyze potential cost savings proposed by the Debtors as well as potential cost savings incremental to those proposed by the Debtors.

Alvarez & Marsal, LLC III. Litigation Support

a. Review and analyze potential avoidance actions

a. Assist the Committee and its counsel in responding to various developments or motions during the course of the Debtors chapter 11 proceedings including such core matters as claims analysis, preference analysis, leased and owned property analysis, vendor relations, reclamation issues, vendor liens / arrangements, substantive consolidation and executory contracts Provide analytical support to Committee counsel with respect to various operational issues subject to litigation, including (but not limited to) the cash burn rate, contract profitability/unprofitability and resourcing aspects of the customer financing motion. Advise the Committee and Committee counsel on contract and commercial issues (including but not limited to) with customers

Provide analytical support to Committee counsel on certain litigation issues, including (but not limited to) the customer financing motion and investigating solvency issues.

b. Provide expert testimony in bankruptcy court with respect to the Restructuring Transaction and related transactions.

b. Assist the Committee and its counsel in analyzing and evaluating various forensic accounting analyses prepared by the Debtors and their professionals Analyze the US/European inter-company claims and fund flows in conjunction with Committee counsel. Analyze the various issues surrounding the GECC pre-petition accounts receivable facility. Analyze various accounting issues related to historical and projected operations. Alvarez & Marsal, LLC IV. Other a. Provide other services that may be required by the Committee, and that do not overlap with services provided by the Committees other advisors Liaise with the European insolvency administrator on behalf of the Committee with respect to, among other things, the assessment of the magnitude and integrity of the liabilities at the Debtors various European entities.

Chanin Capital Partners, LLC IV. Other a. Provide the Committee with other appropriate general restructuring advice

Advise the Committee on the terms of retention of the Debtors financial advisor at the request of Committee counsel.

Provide the Committee with industry insights and expertise through automotive advisors. Develop a recovery model that implies recoveries to the estates creditors.

Develop an appropriate negotiating framework to expedite the filing of a plan of reorganization by the Debtors. Analyze the financial merits of various legal arguments (e.g., fraudulent conveyance and/or preferential transfers) and the impact on creditors.

22.

As evidenced by the foregoing, the Committee and its professionals have clearly

delineated the professional services to be provided by A&M and Chanin to avoid any unnecessary duplication of effort. To further ensure that no unnecessary duplication of effort occurs, Akin Gump Strauss Hauer & Feld LLP, counsel to the Committee, has been involved in coordinating which advisor will evaluate the applicable issues. 23. Clearly, the scope of A&Ms and Chanins services, as described in the table

above, are distinct and not duplicative, and the Committee will continue to monitor the services provided to avoid any unnecessary duplication of effort. Thus, the Objections should be overruled. II. Nunc Pro Tunc Approval is Reasonable and Warranted 24. The Agent additionally objected to the retention of A&M and Chanin nunc pro

tunc claiming that the Committee provided no explanation for the delay in seeking authorization for A&Ms and Chanins retention. This objection likewise lacks merit. 25. As this Court is aware, at the outset of these cases, the Debtors had filed

applications to retain KZC Services, LLC and Lazard, as their operational and financial advisors, respectively. An immediate issue arose with respect to the form of indemnification sought by these professionals, which was eventually resolved through negotiation by and among the professionals and the U.S. Trustee.

26.

Rather than file the Applications during the pendency of the indemnification

dispute -- which most certainly would have given rise to yet another round of objections the Committee determined that it was more prudent to delay the filing of the Applications until the parties agreed upon, and the Court approved, a form of indemnity a form that was later adopted by both Chanin and A&M and approved by the U.S. Trustee. Moreover, as all constituencies surely recognize and the Agent cannot dispute, A&M and Chanin have been performing services for the Committee during this period, and the granting of the application nunc pro tunc to June, 1, 2005 and June 7, 2005, respectively, proves eminently fair and reasonable. III. The Committee is Not Out of the Money. 27. The Agent asserts that the Committee should not have an operational and strategic

advisor and an investment banker because the Committee may very well be out-of-the-money. Objection, 2. The Agent, however, has no basis to support this conclusion, which the Committee strongly disputes. Rather, given the Committees fiduciary duties to its creditors, and its unwavering, continuing efforts to maximize the value of these estates and enhance recoveries for unsecured creditors, there is sufficient justification to warrant the retention of both an operational and strategic advisor and an investment banker. IV. The Committee is Not Required to Share the Debtors Financial Advisor. 28. The Agent has suggested that the Debtors retention of Lazard obviates the

Committees need for a financial advisor. This position is at odds with both the facts and circumstances of these cases as well as the applicable law. As noted above, a creditors committee is the fiduciary representative of a debtors unsecured creditors and has the right to retain professionals of its choosing to assist the committee in acquitting its fiduciary obligations.

One of a committees primary responsibilities is to act as a check and balance on a debtor to ensure that the debtors actions are in the best interests of the estates and their creditors. 29. In these cases, the Committee has been charged with a formidable task. Among

other things, it must fully understand and address appropriately (a) the intricacies of the Debtors business operations, (b) the causes of the Debtors financial collapse, (c) the best course of action for staving off substantial monthly operating losses, (d) the worth of the Debtors assets, both in terms of liquidation and enterprise valuation, (e) the potential for merger and acquisition solutions, and (f) structures for a plan or plans of reorganization. The Debtors cases and financial problems are large and complex. The Committee must, at this time, have the assistance of experienced and sophisticated operational and financial consultants to guide it through the chapter 11 process so that it can be an effective counter-balance to the Debtors in these chapter 11 cases. 30. A&M and Chanin are uniquely qualified to provide the Committee with the

operational and financial advisory services that it requires, and the tasks they have already commenced and, during the pendency of these cases, the tasks that they will endeavor to undertake, are distinct and tailored towards their respective experience and expertise, and are required by the Committee. Indeed, as evidenced by the information detailed above and the positions taken by the Committee in these cases contrary to the Debtors, the Committees need for the services of both A&M and Chanin is apparent. V. Bankruptcy Code Section 328(a) Retention is Appropriate for Both A&M and Chanin 31. The Agent suggests that A&Ms and Chanins fees should be reviewed on the

reasonableness standard of Bankruptcy Code section 330, rather than the standard set forth in Bankruptcy Code section 328(a). The Agent has failed to provide any justification for this

standard of review or why the fees of the professionals retained by the Committee should be subject to stricter review than the fees for the Debtors advisors, whose fee structures already have been approved under Bankruptcy Code section 328(a). 32. It is appropriate and customary for operational and financial consultants to be

retained under Bankruptcy Code section 328(a) with respect to their monthly fees. Investment banking firms and operational consultants do not typically charge their in-court or out-of-court clients on an hourly-rate basis, but instead typically charge on a monthly and transaction-fee basis. Thus, in order to attract a significant investment banking firm to provide services to an official committee in a chapter 11 case, the investment banking firm must be provided with some assurance that it will receive compensation that is similar to what its out-of-court clients will pay. Therefore, proper application of section 328(a) in respect of the retention of an operational consultant or investment banking firm for an official creditors committee promotes the Bankruptcy Codes policy of professionals retained in bankruptcy cases being compensated on similar terms as they are customarily retained in out-of-court matters. See, e.g., In re UNR Indus., Inc.,, 986 F.2d 207, 209 (7th Cir. 1993).4 33. Consistent with its past practices, A&M and Chanin will comply with this Courts

applicable administrative orders entered in these cases, the Local Rules of this Court and the Federal Rules of Bankruptcy Procedure, by filing monthly fee statements and interim and final fee applications. While the recordation of actual hours worked in such fee statements is not directly relevant to the flat monthly fee to be paid under A&Ms or Chanins terms of retention, the statement of hours serves as a check on the services actually being rendered by A&M and
The Agent may raise the issue that the Committee objected to the Debtors retention of Lazard under the stricter 328(a) standard. The Committee notes, however, that the Committees objection with respect to Lazards 328(a) retention related solely to Lazards proposed success fee and not Lazards monthly fees which were approved under section 328(a) without objection from the Committee.
4

Chanin. As the party with primary interest in both A&Ms and Chanins services and the expense of such services, the Committee will be monitoring these statements on a monthly basis. In addition, A&M and Chanin have agreed to maintain time records and file fee applications which will be reflected in the proposed order. Thus, this issue does not warrant further consideration by the Court. VI. The Prepetition Secured Lenders and the DIP Lenders Share One Financial Advisor. 34. The Agent contends that Committees request to retain a financial advisor and an

operational advisor is particularly ironic given its previous insistence that the agents for the PrePetition Secured Lenders and the DIP lenders should not be permitted to retain more than a single financial advisor, shared between them. Objection, 5 (emphasis added). Significantly, the Committee previously objected to the Prepetition Secured Lenders and the DIP lenders retaining more than one financial advisor. The Committee does not seek to retain two financial advisors. Rather, the Committee seeks to retain one operational and strategic advisor and one financial advisor. These are two different types of advisors that will provide distinct services to the Committee. Accordingly, there is no irony or hypocrisy in the Committees request to retain A&M and Chanin as their operational and strategic advisors and financial advisors, respectively. CONCLUSION For all the foregoing reasons, the Committee respectfully requests that this Court (i) overrule the Objections in their entirety, (ii) approve the retention and employment of A&M and Chanin as advisors to the Committee pursuant to sections 328(a) and 1103(a) of the Bankruptcy Code, nunc pro tunc to June 1, 2005 and June 7, 2005, respectively, and (iii) grant the Committee such other and further relief as the Court deems just, proper and equitable.

Respectfully Submitted,

By:

/s/ PAULA A. OSBORNE (P61101) BUTZEL LONG Thomas B. Radom (P24631) Paula A. Osborne (P61101) 100 Bloomfield Hills Parkway, Suite 200 Bloomfield Hills, MI 48304 Telephone: (248) 258-1413 Facsimile: (248) 258-1439 Email: radom@butzel.com AKIN GUMP STRAUSS HAUER & FELD LLP Michael S. Stamer, Esquire Philip C. Dublin, Esquire Alexis Freeman, Esquire 590 Madison Avenue New York, NY 10022-2524 Telephone: (212) 872-1000 Facsimile: (212) 872-1002 Counsel for the Official Committee of Unsecured Creditors

Dated: August 26, 2005

#779560

EXHIBIT A

Debtor Allegiance Telecom

Creditors Committee's Advisors Operational Advisor CTA Financial Advisor Houlihan Lokey Financial Advisor Chanin Restructuring & Accounting Advisor Crossroads Financial Advisor Houlihan Lokey Operational Advisor Ernst & Young Corporate Finance Restructuring Advisor Arthur Anderson LLP Financial Advisor Chanin Financial Advisor Chanin Accountants & Restructuring Advisor Deloitte & Touche Financial Advisor Miller Buckfire Energy Consulting Advisor PA Consulting Group Financial Advisor Saybrook Capital Utility Accounting & Tax Advisor PricewaterhouseCoopers Financial Advisor Chanin Operational Advisor CTA Restructuring Advisor Deloitte & Touche Financial Advisor Miller Buckfire Restructuring Advisor Capstone Advisory Group, LLC Financial Advisor PJ Solomon Financial Advisor Jefferies

Dictaphone

Enron Corp.

Fruit of the Loom, Inc.

Global Crossing Ltd.

Mirant Corp.

Pacific Gas & Electric Company

RCN Corp.

SLI, Inc.

Spiegel, Inc.

Sunterra Financial Services, Inc.

UAL Corporation

Warnaco Group, Inc.

Winn-Dixie Stores, Inc.

Real Estate Consultant A&P Corporate Advisors Financial Advisor Saybrook Capital Accountants & Restructuring Advisor KPMG / Mesirow Restructuring Advisor KPMG Financial Advisor PJ Solomon Financial Advisor Houlihan Lokey Operational Advisor Alvarez & Marsal

#779561