IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE. x : : : : : : : : x

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1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: HAYES LEMMERZ INTERNATIONAL, INC, et al., Debtors x : : : : : : : : x Chapter 11 Case No (MFW) Jointly Administered Hrg. Date: 1/4/02 at 10:30 a.m. Obj. Due: 12/27/01 at 4:00 p.m. MOTION OF THE DEBTORS PURSUANT TO SECTIONS 105(A) AND 327 OF THE BANKRUPTCY CODE FOR AUTHORIZATION TO EMPLOY PROFESSIONALS UTILIZED IN THE ORDINARY COURSE OF BUSINESS Hayes Lemmerz International, Inc. ("Hayes") and certain of its subsidiaries and affiliates, debtors and debtors-in-possession (collectively, the "Debtors"), submit this motion (the "Motion") for an order under 11 U.S.C. 105(a) and 327 authorizing the retention of professionals used by the Debtors in the ordinary course of business. In support of this Motion, the Debtors represent as follows: A. The Chapter 11 Filings BACKGROUND 1. On December 5, 2001 (the "Petition Date"), the Debtors each filed a voluntary petition in this Court

2 for reorganization relief under chapter 11 of title 11 of the United States Code, 11 U.S.C , as amended (the "Bankruptcy Code"). The Debtors continue to manage and operate their businesses as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code. 2. No trustee or examiner has been appointed in the Debtors' chapter 11 cases, and no committees have been appointed or designated. 3. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and Venue is proper pursuant to 28 U.S.C and This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). 4. The statutory predicates for the relief requested herein are sections 105(a) and 327 of the Bankruptcy Code. B. Current Business Operations of the Debtors 5. Hayes Lemmerz International, Inc. ("Hayes" or the "Company"), founded in 1908, is a leading supplier of wheels and other suspension components to the global automotive and commercial highway markets with a presence in 17 countries. The Company's operations are conducted 2

3 through its world headquarters located in Northville, Michigan, and approximately 25 facilities in North America, 20 manufacturing facilities in Europe and five manufacturing facilities in South America, Asia and South Africa. As of November 12, 2001, the Company employed approximately 14,000 full-time employees worldwide The Company's operations are conducted through six business units: (i) North American Wheels, (ii) European Fabricated Wheels, (iii) European Cast Wheels, (iv) Suspension Components, (v) Automotive Brakes and Powertrain Components and (vi) Commercial Highway and Aftermarket. The North American and European wheels divisions design, manufacture and distribute cast aluminum and fabricated wheels. Hayes is the world's largest manufacturer of automotive wheels with an estimated global market share of 20%. The Suspension division designs, manufactures and distributes wheel-end attachments and aluminum structural components and primarily operates in North America. Hayes is the largest inde- 1 With the exception of Industrias Fronterizas HLI, S.A. de C.V., none of the foreign affiliates or subsidiaries of Hayes are Debtors in these chapter 11 cases, and for the most part, such entities operate on a stand alone basis. 3

4 pendent manufacturer of wheel-end attachments and aluminum structural components in North America. The Brakes and Powertrain division designs, manufactures and distributes automotive brake, powertrain and engine components. The Commercial Highway and Aftermarket division designs and manufactures wheels and brake components for commercial highway vehicle manufacturers and also sells wheels and other automotive products in the aftermarket. 7. The Company's principal customers are leading global original equipment manufacturers ("OEMs") of vehicles including General Motors, Ford, Daimler- Chrysler, BMW, Volkswagon, Nissan and Honda, among others. The Company also has over 300 commercial highway vehicle customers in North America, Europe and Asia, including Trailmobile, Dana/Mack, DaimlerChrysler, Great Dane, Freightliner, PACCAR, Volvo, General Motors and others. 8. As announced by the Company in early September 2001, the Company anticipates that it will restate certain of its previously reported financial results for the fiscal year ended January 31, Before taking the restatement into account, the Company previously 4

5 reported for fiscal 2001 consolidated net revenues of approximately $2.2 billion and earnings from operations of approximately $96 million and reported having total assets with a book value of approximately $2.8 billion and total liabilities with a book value of approximately $2.7 billion. The Company's restated results for this period have not yet been reported. 9. The Company's operations are financed, in part, by a senior secured credit facility (the "Prepetition Credit Facility"), which includes a revolving credit facility ($572 million), a term loan - tranche A ($28 million) and a term loan - tranche B ($149 million). The Company has also accessed the capital markets to finance its operations and has obligations outstanding under (a) senior notes due 2006 in the approximate principal amount of $300 million; (b) senior subordinated notes due 2006 in the approximate principal amount of $239 million; (c) senior subordinated notes due 2007 in the approximate principal amount of $389 million; and (d) senior subordinated notes due 2008 in the approximate principal amount of $224 million. In addition, the Company has outstanding under various synthetic leases 5

6 the approximate principal amount of $70 million. The outstanding amount of the Company's other financing obligations, primarily consisting of foreign subsidiary borrowings, is in the approximate amount of $144 million. C. Events Leading to Chapter 11 Filing 10. In February 1999, Hayes acquired CMI International ("CMI"), a leading full service supplier of wheel-end attachments, aluminum structural components and powertrain components to the automotive industry, for a cash purchase price of approximately $605 million. The acquisition of CMI was financed through borrowings under the Prepetition Credit Facility and through the issuance of the senior subordinated notes due During the second half 2000 and throughout 2001, domestic auto parts manufacturers suffered from reduced North American light vehicle production and even sharper reductions in North American heavy-duty truck builds. Due in part to these factors, as well as operational difficulties at certain of its North American plants, Hayes began experiencing a downward trend in its financial performance. 6

7 12. In May 2001, the Company's accounts receivables securitization program was terminated, resulting in increased borrowings under the Company's Prepetition Credit Facility. The inability to fund receivables off-balance sheet put additional pressure on the Company's liquidity situation. 13. In September 2001, the Company announced that it would restate earnings for fiscal year 2000 and first quarter 2001 due to the discovery of accounting errors and that the restatement would result in sharply wider losses. As a result, the Company was unable to access additional availability under the Prepetition Credit Facility, and the Company's debt rating was downgraded by the major rating agencies, which effectively precluded Hayes from accessing the commercial paper market or other alternative financing sources. 14. Accordingly, without access to additional sources of financing, the Debtors could not generate sufficient cash to satisfy their debt service obligations and fund their operations. As a result of these challenges, the Debtors concluded that the commencement of these chapter 11 cases was the best available means by 7

8 which to address the Company's leverage and liquidity problems and implement an operational restructuring. D. Objectives of the Filing and Recent Restructuring Initiatives 15. Notwithstanding the circumstances that contributed to the Company's current liquidity and operational challenges, the Company is an industry leader in the manufacturing and sale of automotive wheels and other suspension component and has identified numerous opportunities available to the Company to improve its operational performance and to realize significant cost savings. 16. Specifically, the operational improvement plan includes enhancing the leadership team, restructuring the role of the corporate headquarters, increasing oversight over the financial function, rationalizing SG&A and implementing operational improvements at the plant level with a focus on lean manufacturing. The Company is also exploring the divestiture of several under performing or non-core businesses and product lines and the discontinuance of operations at several manufacturing facilities, all with the goal of focusing the Company on its core competencies. The anticipated resulting opera- 8

9 tional efficiencies will enhance the Company's position as an industry leader. 17. As of the commencement of these chapter 11 cases, the Company had made significant strides in implementing these objectives. Indeed, with respect to retention of new management, on August 1, 2001, Hayes hired Curtis J. Clawson as its new Chairman and Chief Executive Officer, bringing a wealth of operating and managerial expertise in the industry to the Company's restructuring. In addition, shortly thereafter, the Company hired a number of senior executives with the talent and experience to complement Mr. Clawson and hired Kenneth A. Hiltz as Chief Financial Officer and Chief Restructuring Officer and Herbert S. Cohen as the Chief Accounting Officer. Both of these individuals are members of the well-known restructuring consulting firm of Jay Alix & Associates. 18. The Company's new management team has already begun to implement its operational restructuring plan. In November 2001, the Company announced that it was discontinuing operations at its Bowling Green, KY manufacturing plant, in addition to the previously announced shut down of its Petersburg, MI manufacturing 9

10 plant. On November 2, 2001, Hayes also initiated its SG&A rationalization process by terminating 135 salaried employees and offering an additional 45 employees early retirement, or approximately 11% of its North American salaried workforce. 19. At the same time it implements the operational improvements outlined above, the Company intends to utilize the restructuring process to bring its debt leverage in line with its cash flow generating capability and industry norms. This should create financial flexibility for future operating requirements and capital expenditures and improve liquidity. The Company expects to emerge from chapter 11 having improved its operations and rationalized its capital structure. These restructuring efforts are designed to result in even greater profitability for the Company and to solidify its position as the market leader in many of its product categories. Consequently, the Debtors believe that the efforts they have taken and will undertake will return the most value to the Company's stakeholders. 10

11 RELIEF REQUESTED 20. The Debtors customarily retain the services of various attorneys, accountants, tax professionals, and other professionals to represent them in matters arising in the ordinary course of their business (the "Ordinary Course Professionals"). A list of current Ordinary Course Professionals is annexed as Exhibit A to the proposed order accompanying this Motion By this Motion, the Debtors seek authorization (a) to retain the Ordinary Course Professionals under 11 U.S.C. 105(a) and 327 without the necessity of a separate, formal retention application approved by this Court for each Ordinary Course Professional, and (b) to compensate the Ordinary Course Professionals for postpetition services rendered, subject to certain limits set forth below, without the necessity of additional Court approval. In contrast, the Debtors have filed individual retention applications for any professionals that the Debtors seek to employ in connection with the conduct of their chapter 11 cases or in connection with specific 2 As discussed more fully below, the Debtors reserve the right to amend such list in the future. 11

12 matters. Although the Debtors believe that many of the Ordinary Course Professionals may not be "professional persons" as contemplated by section 327 of the Bankruptcy Code and, accordingly, that no retention is necessary, out of an abundance of caution the Debtors are seeking the Court's authorization to retain all Ordinary Course Professionals. BASIS FOR RELIEF 22. The Debtors desire to continue to employ and retain the Ordinary Course Professionals to render services to their estates that are similar to those rendered before the commencement of these chapter 11 cases. Although the automatic stay and other issues in these cases may decrease the Debtors' need for certain Ordinary Course Professionals' services, the Debtors cannot now quantify or qualify that need. Moreover, the sheer number of Ordinary Course Professionals renders it impractical and inefficient for the Debtors and this Court to address the proposed retention of Ordinary Course Professionals on an individual basis. 23. Accordingly, consistent with the dimensions of these cases and the geographic diversity of the Debt- 12

13 ors' business, the Debtors request that they be permitted to employ and retain the Ordinary Course Professionals on terms substantially similar to those in effect prior to the Petition Date, but subject to the terms described below. A. Payment of Fees and Expenses 24. The Debtors propose that they be permitted to pay, without formal application to the Court by any Ordinary Course Professional, one-hundred percent (100%) of the interim fees and disbursements to each of the Ordinary Course Professionals upon the submission to the Debtors of an appropriate invoice setting forth in reasonable detail the nature of the services rendered after the Petition Date so long as such interim fees and disbursements do not exceed a total of $35,000 per month per Ordinary Course Professional, and no more than $300,000 per Ordinary Course Professional for the duration of these chapter 11 cases; provided, however, that with respect to Barris, Sott, Denn & Driker, P.L.L.C., a law firm that provides legal services to the Debtors, such interim fees and disbursements shall not exceed a total 13

14 of $50,000 per month, and no more than $500,000 for the duration of these chapter 11 cases. 25. Prior to the commencement of these Chapter 11 cases, the Debtors also retained Arthur Andersen LLP to assist the Debtor with respect to developing an employee benefits and retention program. The Debtors expect the retention to be of a limited duration and that the interim fees and disbursements will not exceed $300,000 for the duration of these chapter 11 cases. All prepetition amounts owed by the Debtors to Arthur Andersen LLP have been paid before the Petition Date. 26. The Debtors propose that payments to a particular Ordinary Course Professional would become subject to Court approval pursuant to an application for an allowance of compensation and reimbursement of expenses under sections 330 and 331 of the Bankruptcy Code if such payments exceed $35,000 per month or $300,000 for the entire chapter 11 cases for that Ordinary Course Professional. B. Submission of Rule 2014 Affidavits 27. By this Motion, the Debtors request that all Ordinary Course Professionals be excused from submit- 14

15 ting separate applications for proposed retention. The Debtors recognize, however, the importance of providing the Court and the United States Trustee information about each Ordinary Course Professional. 28. The Debtors thus propose that although they be permitted to continue to employ, retain, and compensate all Ordinary Course Professionals identified in Exhibit A to the proposed order, each Ordinary Course Professional be required to file with the Court and serve an Affidavit of Proposed Professional and Disclosure Statement 3 within thirty (30) days of the date of entry of an order granting this Motion upon the following parties (collectively, the "Notice Parties"): (i) counsel for the Debtors, Skadden, Arps, Slate, Meagher & Flom (Illinois), 333 West Wacker Drive, Chicago, IL (Attn: J. Eric Ivester, Esq.) and Skadden, Arps, Slate, Meagher & Flom LLP, One Rodney Square, P.O. Box 636, Wilmington, DE (Attn: Mark S. Chehi, Esq.); (ii) the United States Trustee, 844 King Street, Wilmington, DE (Attn: Frank J. Perch, III, Esq.), (iii) coun- 3 A form of "Affidavit and Disclosure Statement of Proposed Ordinary Course Professional" is annexed to the proposed order as Exhibit B. 15

16 sel to the Agent for the Debtors' prepetition Lenders and to the Agent for the Debtors' proposed postpetition debtor in possession Lenders, Clifford Chance Rogers & Wells LLP, 200 Park Avenue, New York, New York (Attn: Margot B. Schonholtz) and Potter Anderson & Corroon LLP, Hercules Plaza, 1313 N. Market Street, P.O. Box 951, Wilmington, Delaware (Attn: Laurie Selber Silverstein, Esq.); and (iv) counsel to any official committee(s) appointed in these cases (collectively, the "Committee(s)"). 29. The Debtors further request that upon receipt of each affidavit, the Notice Parties be given twenty (20) days to object to the retention of such Ordinary Course Professional (the "Objection Deadline"). Objections, if any, would be served upon the Ordinary Course Professional and the Notice Parties on or before the Objection Deadline. If any such objection cannot be resolved within twenty (20) days of service, the matter will be scheduled for hearing before the Court at the next regularly-scheduled omnibus hearing or other date otherwise agreeable to the Ordinary Course Professional, the Debtors and whichever party objected to the retention 16

17 of the Ordinary Course Professional. If no objection is submitted on or before the Objection Deadline, or if any objection submitted is timely resolved as set forth above, the Debtors request that, without further order of the Court, the employment, retention and compensation of the Ordinary Course Professional be deemed approved. C. Additional Ordinary Course Professionals 30. The Debtors also request that they be authorized to employ and retain additional Ordinary Course Professionals as necessary, in the ordinary course of their business ("Additional Ordinary Course Professionals"), (a) without the need to file individual retention applications and (b) without the need for any further hearing or notice to any other party, by filing with the Court a supplement (the "Supplement") to Exhibit A to the proposed order The Debtors request that, as with the Ordinary Course Professionals, the Notice Parties be 4 For purposes of complying with the Rule 2014 Affidavit procedures set forth above, the timing requirements for Additional Ordinary Course Professionals to file and serve an Affidavit of Proposed Professional and Disclosure Statement will run from the Debtors' filing of the Supplement. 17

18 given twenty (20) days after service of an affidavit to object to the retention of such Additional Ordinary Course Professional. If no objection is submitted pursuant to the objection procedures described above, the Debtors shall be authorized to retain such Additional Ordinary Course Professional. 32. The Debtors submit that the retention of the Ordinary Course Professionals and the payment of interim compensation on the basis set forth herein is in the best interests of the Debtors' estates. While generally the Ordinary Course Professionals with whom the Debtors have previously dealt wish to provide services to the Debtors on an ongoing basis, many might be unwilling to do so if they are able to be paid on a regular basis only through a cumbersome, formal application process. If the Debtors lose the expertise, experience, and institutional knowledge of these Ordinary Course Professionals, the estates undoubtedly will incur significant and unnecessary expenses, as the Debtors will be forced to retain other professionals without similar background and expertise. Accordingly, it is in the best interests of the Debtors' estates to avoid any disruption in the 18

19 professional services required in the day-to-day operation of the Debtors' business. APPLICABLE AUTHORITY 33. Because the Ordinary Course Professionals will not be involved in administering these chapter 11 cases, nor play a central role in these bankruptcy cases, the Debtors do not believe that the Ordinary Course Professionals are "professionals" within the meaning of section 327 of the Bankruptcy Code, whose retention must be approved by the Court. See In re First Merchants Acceptance Corp., Case No , 1997 Bankr. LEXIS 2245, at *8-9 (Bankr. D. Del. Dec. 15, 1997). The First Merchants criteria are consistent with those utilized by other courts when examining the types of duties to be undertaken by a "professional." See, e.g., Elstead v. Nolden (In re That's Entertainment Mktg. Group), 168 B.R. 226, 230 (N.D. Cal. 1994) (only retention of professionals whose duties are central to administration of the estate requires prior court approval under section 327); In re Madison Management Group, Inc., 137 B.R. 275, 283 (Bankr. N.D. Ill. 1992) (same); In re D'Lites of Am., Inc., 108 B.R. 352, 355 (Bankr. N.D. Ga. 1989) (section 19

20 327 approval not necessary for "one who provides services to debtor that are necessary regardless of whether petition was filed"). 34. Nevertheless, out of an abundance of caution, the Debtors seek the relief requested in this Motion to avoid any later controversy about the Debtors' employing and paying the Ordinary Course Professionals during the pendency of these chapter 11 cases. The Debtors will seek specific Court authority under section 327 of the Bankruptcy Code to employ any other professionals involved in the actual administration of these chapter 11 cases. 35. The Debtors submit that their proposed employment of the Ordinary Course Professionals and the payment of compensation on the basis set forth above is in the best interests of the Debtors' estates and creditors. 36. Although certain of the Ordinary Course Professionals may hold unsecured claims against the Debtors, the Debtors do not believe that any of the Ordinary Course Professionals have an interest materially 20

21 adverse to the Debtors, their estates, creditors, or shareholders. 37. Relief similar to that sought herein has been granted in comparable chapter 11 cases, in this district and elsewhere. See, e.g., In re Diamond Brands Operating Corp., Case No (RJN) (D. Del. May 22, 2001); In re ICG Communications, Inc., Case No (PJW) (D. Del. Nov. 14, 2000); In re Eagle Food Centers, Inc., Case No (RRM) (D. Del. March 2, 2000); In re Philip Servs. (Delaware), Inc., Case No (MFW) (Bankr. D. Del. June 30, 1999); In re Favorite Brands Int'l Holding Corp., Case No (PJW) (Bankr. D. Del. March 31, 1999). 38. No previous request for the relief sought in this Motion has been made to this Court or any other court. 21

22 WHEREFORE, the Debtors respectfully request that the Court enter an order (i) authorizing the Debtors to retain the Ordinary Course Professionals without the necessity of a separate, formal retention application approved by this Court for each Ordinary Course Professional; (ii) authorizing the Debtors to compensate the Ordinary Course Professionals for postpetition services rendered, subject to the limitations set forth above, without the necessity of additional Court approval; and (iii) granting the Debtors such other and further relief as is just and proper. Dated: Wilmington, Delaware December 12, 2001 HAYES LEMMERZ INTERNATIONAL, INC., et al., Debtors and Debtors-in-Possession By:/s/ Kenneth A. Hiltz Kenneth A. Hiltz Chief Financial Officer and Chief Restructuring Officer Wilmington S1A