1. Class 23 Bankruptcy, Spring, 2009 Chrysler Sale Order Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu Copyright © 2005-09 Randal C. Picker. All Rights Reserved.

2. September 13, 2015Copyright © 2005-09 Randal C. Picker2 363 n Use, sale, or lease of property u (b)(1) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate ….

3. September 13, 2015Copyright © 2005-09 Randal C. Picker3 363 (cont.) n Use, sale, or lease of property u (f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if - w (1) applicable nonbankruptcy law permits sale of such property free and clear of such interest; w (2) such entity consents;

4. September 13, 2015Copyright © 2005-09 Randal C. Picker4 363 (cont.) w (3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; w (4) such interest is in bona fide dispute; or w (5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

5. September 13, 2015Copyright © 2005-09 Randal C. Picker5 Assumption n Meaning u Estate has choice about whether to perform debtor’s prepetition contract u Assumption means estate accepts obligation to perform under contract

6. September 13, 2015Copyright © 2005-09 Randal C. Picker6 Mechanics n To assume a contract (365(b)) u Trustee must cure—fix—most prepetition defaults; u Compensate for actual pecuniary losses from the default; and u Provide adequate assurance of future performance

7. September 13, 2015Copyright © 2005-09 Randal C. Picker7 365: Rejection n Executory contracts and unexpired leases (cont.) u (g) Except as provided in subsections (h)(2) and (i)(2) of this section, the rejection of an executory contract or unexpired lease of the debtor constitutes a breach of such contract or lease - w (1) if such contract or lease has not been assumed under this section or under a plan confirmed under chapter 9, 11, 12, or 13 of this title, immediately before the date of the filing of the petition; or

8. September 13, 2015Copyright © 2005 Randal C. Picker8 Chrysler Sale Order

9. September 13, 2015Copyright © 2005 Randal C. Picker9 19(e): UAW Contract Assumption “(e) UAW and GMAC Agreements. Contingent upon the approval of the sale of the Purchased Assets to the Purchaser and concurrently with the consummation of the sale of the Purchased Assets (without prejudice to the conditions thereto set forth in the Purchase Agreement), (i) each of the UAW CBA Assignment and the GMAC MAFA Documents (as such term is defined in the Bidding Procedures attached hereto as Exhibit A) shall be deemed to be Confirmed Agreements as to which no Assignment Notice or Confirmation Notice shall be sent,”

10. September 13, 2015Copyright © 2005 Randal C. Picker10 19(e): UAW Contract Assumption “(ii) the Debtors shall assign to Purchaser, and Purchaser shall be deemed to have assumed, each such agreement as of the Closing Date, and each non-Debtor party to each such agreement shall be deemed to have consented to such assumption and assignment and (iii) the Court order approving such sale shall reflect such assumption and assignment.”

11. September 13, 2015Copyright © 2005 Randal C. Picker11 19(f): Dealers “(f) Direct Dealer Agreements. Certain executory dealer agreements will be identified as Designated Agreements to be assumed and assigned. Although most U.S. dealers have entered into standard uniform dealership agreements in the form of the Chrysler Corporation Sales and Service Agreement (the “Sales and Service Agreement"), some dealers are party to older agreements in the form of the Chrysler Direct Dealer Agreement (each, a “Direct Dealer Agreement”),”

12. September 13, 2015Copyright © 2005 Randal C. Picker12 19(f): Dealers “If a Direct Dealer Agreement is identified as a Designated Agreement pursuant to the procedures above, then such Direct Dealer Agreement will only be assumed and assigned to the Purchaser if the counterparty to the Direct Dealer Agreement first agrees to modify such Direct Dealer Agreement and restate it in the form of the Sales and Service Agreement (each such modified Direct Dealer Agreement and Sales and Service Agreement, a “Dealer Agreement”).”

13. September 13, 2015Copyright © 2005 Randal C. Picker13 19(f): Dealers “If the counterparty and the Debtors do not so modify and restate such Direct Dealer Agreement in the form of the Sales and Service Agreement, then notwithstanding any other provisions of these Contract Procedures, such Direct Dealer Agreement will not be assumed and assigned pursuant to these Contract Procedures.”

14. September 13, 2015Copyright © 2005 Randal C. Picker14 Screen Capture Slide

15. September 13, 2015Copyright © 2005-09 Randal C. Picker15 Understanding the Sale Order: Starting Points n Hypo 1 Cash $120 U1: $100 U2: $100 U3: $100 Debtor How should we divide the assets?

16. September 13, 2015Copyright © 2005-09 Randal C. Picker16 USO: Sale Instead n Hypo 2 Asset $120 U1: $100 U2: $100 U3: $100 Debtor Does anything change if we have an asset instead of cash and the asset is sold to a third party first?

17. September 13, 2015Copyright © 2005-09 Randal C. Picker17 USO: Sale w/Assumption n Hypo 3 Asset $120 U1: $100 U2: $100 U3: $100 Debtor Suppose that we require the buyer to assume U3’s debt: what happens?

18. September 13, 2015Copyright © 2005-09 Randal C. Picker18 USO: Executory Contract n Hypo 4 Cash $120 U1: $100 U2: $100 U3: $100 Debtor D has Exec K: Will need to spend $40 to create $70: what happens? Exec K

19. September 13, 2015Copyright © 2005-09 Randal C. Picker19 USO: Executory Contract n Hypo 5 Cash $120 U1: $100 U2: $100 U3: $100 Debtor D has Exec K: Will need to spend $70 to create $40: what happens? Exec K

20. September 13, 2015Copyright © 2005-09 Randal C. Picker20 USO: Absolute Priority? n Hypo 6 Asset $120 Senior: $200 U1: $100 U2: $100 U3: $100 Debtor Senior wants to claim asset and assume debt of U3: what happens?

21. September 13, 2015Copyright © 2005-09 Randal C. Picker21 USO: Voluntary Assumption By Buyer n Hypo 5 Asset $120 U1: $100 U2: $100 U3: $100 Debtor Buyer pays $120 and voluntarily assumes U3 debt: what happens?

22. Chrysler Itself n Which of these match the Chrysler Sale Order? September 13, 2015Copyright © 2005-09 Randal C. Picker22

23. Want to Read More? n Bankruptcy Litigation Blog u http://www.bankruptcylitigationblog.com/arc hives/bankruptcy-in-the-news-chrysler-files- bankruptcy-part-i-assessing-the-financial- carnage.html http://www.bankruptcylitigationblog.com/arc hives/bankruptcy-in-the-news-chrysler-files- bankruptcy-part-i-assessing-the-financial- carnage.html n Credit Slips u http://www.creditslips.org/creditslips/2009/0 5/chrysler-363-sales-again.html http://www.creditslips.org/creditslips/2009/0 5/chrysler-363-sales-again.html September 13, 2015Copyright © 2005-09 Randal C. Picker23

24. More? n Wall Street Journal u http://online.wsj.com/article/SB1242173568 36613091.html http://online.wsj.com/article/SB1242173568 36613091.html September 13, 2015Copyright © 2005-09 Randal C. Picker24