On December 19, 2008, the United States Department of the Treasury (the “UST”) released non-binding term sheets for proposed secured term loan facilities to be provided to General Motors and Chrysler, respectively, using funds from the UST’s $700 billion financial stabilization fund. This memorandum summarizes the principal terms of the facilities, as described in the term sheets. Please note that the term sheets do not constitute a firm commitment on the part of the UST to fund either of the facilities, and all of the terms remain subject to due diligence, receipt of approvals and final documentation satisfactory to the UST.  

Borrowers  

The “Borrowers” under the respective facilities will be (i) General Motors Corporation (“GM”) and (ii) Chrysler Holding LLC and any successor entities thereto (“Chrysler”).  

Guarantors

All material domestic subsidiaries of GM will be “Guarantors” of the GM facility. CarCo Intermediate HoldCo I and all of its direct and indirect domestic subsidiaries will be “Guarantors” of the Chrysler facility, and, to the extent permissible under existing agreements, FinCo Intermediate HoldCo LC and DaimlerChrysler Financial Services Americas LLC (the “Finance Companies”) must guarantee the Chrysler facility in an amount of up to $2.0 billion. Any portion of the $2.0 billion amount that cannot be guaranteed by the Finance Companies must be repaid from distributions received by Chrysler from the Finance Companies.  

The Guarantors of each facility will be liable on a joint and several basis with the Borrower of each facility.  

Terms of the Loans

The Borrower and its Guarantors under each facility are referred to as the “Loan Parties.” Each facility will be a term loan secured by a first or junior lien on all of the Loan Parties’ assets.  

Subject to the execution of definitive documentation and the satisfaction of the conditions noted below, GM may borrow up to $13.4 billion, as follows:

  • $4.0 billion on December 29, 2008;
  • $5.4 billion on January 16, 2009; and
  • $4.0 billion on February 17, 2009, contingent on Congressional action.  

Subject to the execution of definitive documentation and the satisfaction of the conditions noted below, Chrysler may borrow up to $4.0 billion on December 29, 2008.  

The loans will mature on the earliest of (i) December 29, 2011, (ii) the occurrence of a Termination Event (as defined below) or (iii) the occurrence of an Event of Default (as defined below), at the option of the UST.  

The loans may be prepaid at any time without penalty. Any amounts advanced and repaid may not be reborrowed.  

The annual interest rate is equal to the sum of (i) the greater of (x) three-month LIBOR and (y) 2.00%, plus (ii) 300 basis points (or 800 basis points during an Event of Default). Interest is payable quarterly commencing with the first calendar quarter in 2009.  

Collateral  

To the extent legally and contractually permissible, the applicable Loan Parties must grant to the UST first-priority liens on all unencumbered assets, and junior liens on all encumbered assets. The Loan Parties must use best efforts to obtain all consents necessary to grant such liens.  

Conditions Precedent

The closing of the loan facilities is subject to the satisfaction of customary conditions precedent, 17 of which are enumerated, including, but not limited to:  

  • Execution of mutually satisfactory facility documentation and completion of all conditions to funding contained therein;
  • Where the UST has a first priority lien on collateral, evidence that all then-existing liens on such collateral have been released or will be released simultaneously with funding;
  • Where the UST has a junior priority lien on collateral, an intercreditor agreement duly executed by other lienholders, in form and substance acceptable to the UST;
  • For GM, written consent of the Common Holders of the Class A Membership Interests of GMAC LLC and holders of the Class C Membership Interests of GMAC LLC to the pledge to the UST of the Class B Membership Interests and the Preferred Membership Interests;
  • For Chrysler, written consent of the requisite majority of the holders of Chrysler LLC first lien indebtedness and second lien indebtedness (under the Chrysler LLC First Lien Credit Agreement and Second Lien Credit Agreement) to the pledge to the UST of the MOPAR Parts Inventory and the real estate collateral not mortgaged to such holders;
  • Waivers executed by the Loan Parties and each senior executive officer (defined as the 5 most highly paid executives) releasing the UST from any claims that the Loan Parties and/or the senior executive officer may otherwise have due to the modification of the terms of any benefit arrangements as a result of compliance with the executive compensation and corporate governance requirements under the applicable facility; and
  • Waivers executed by the Loan Parties and each senior employee (defined as the 25 most highly compensated employees) releasing the UST from any claims that the Loan Parties and such senior employee may otherwise have as a result of the Loan Parties’ failure to pay or accrue any bonus as a result of compliance with the executive compensation and corporate governance requirements under the applicable facility.  

Events of Default

“Events of Default” include (i) customary payment and bankruptcy defaults, (ii) going concern qualification with respect to any Borrower or Guarantor in any correspondence from its accountants, (iii) change in control of any Borrower or Guarantor, (iv) any Borrower or Guarantor’s default under any other debt or prepayment obligations the outstanding principal balance of which equals or exceeds $10 million and (v) the UST ceases to have a perfected first or junior (as applicable) security or ownership interest in any material portion of the collateral.  

Mandatory Prepayment

Subject to any mandatory prepayment obligations under existing secured credit agreements, each Borrower must apply 100% of the net cash proceeds of any of the following transactions to prepay, on a pro rata basis, all outstanding loans under its facility: (i) sales, liquidations or other transfers of any collateral other than sales in ordinary course of business, (ii) incurrence by such Borrower of any public or private debt, equity or capital raises (other than permitted indebtedness or contributions of indemnity payments received by such Borrower and required to be applied to satisfy obligations of its subsidiaries) and (iii) to the extent unencumbered, non-ordinary course asset sales (including aircraft divestments).  

Restructuring Plan

Each Borrower must submit a viable restructuring plan to an officer from the Executive Branch designated by the President (the “President’s Designee”) by February 17, 2009, demonstrating specific actions intended to achieve a positive net present value and a rationalization of costs. The restructuring plan must have detailed projections through 2014.

Restructuring Target

In addition to the restructuring plan, each Borrower and its subsidiaries are to use their best efforts to achieve the following targets:  

  • “Bond Exchange”: Reduction of at least two-thirds (2/3) of outstanding unsecured public indebtedness (other than pension and employee benefits obligations) through conversion of existing public debt into equity or debt;
  • “Compensation Reductions”: Reduction of compensation paid to U.S. employees so that, by no later than December 31, 2009, the average per hour and per person compensation is equal to the average compensation paid to U.S. employees of Nissan Motor Company, Toyota Motor Corporation, or American Honda Motor Company;
  • “Severance Rationalization”: Elimination of compensation or benefits to U.S. employees who have been fired, laid-off, furloughed or idled, other than customary severance;
  • “Work Rule Modifications”: Application of work rules to U.S. employees, beginning no later than December 31, 2009, in a manner that is competitive with U.S. employees of Nissan Motor Company, Toyota Motor Corporation, or American Honda Motor Company; and
  • “VEBA Modifications”: Provision that at least one-half (1/2) of the value of each future payment or contribution that will be made to the account of the voluntary employees beneficiary association (“VEBA”) of a labor organization representing the employees of the Borrower and its subsidiaries will be made in the form of the stock of the Borrower or one of its subsidiaries. The total value of such future payment or contribution cannot exceed the amount that is required to be paid or contributed for such time period under the collective bargaining agreement that applied as of December 28, 2008.  

Each Borrower must submit to the President’s Designee by February 17, 2009 (i) a term sheet signed on behalf of such Borrower and the leadership of each major U.S. labor organization that represents the employees of such Borrower providing for Compensation Reductions, Severance Rationalization and Work Rule Modifications, (ii) a term sheet signed on behalf of such Borrower and representatives of the public bondholders of such Borrower providing for the Bond Exchange and (iii) a term sheet signed on behalf of such Borrower and the representatives of the VEBA providing for the VEBA Modifications.  

Each Borrower must submit to the President’s Designee, on or before March 31, 2009, a written report detailing its progress in implementing its restructuring plan. If the President’s Designee has not issued a certification by March 31, 2009 (or an extension through no later than 30 days after March 31, 2009) verifying that such Borrower has taken all steps necessary to achieve long-term viability in accordance with its restructuring plan, the loan will be automatically accelerated and any portion of the loan not invested in or loaned to such Borrower’s principal financial subsidiaries will automatically become due and payable in 30 days (the “Termination Event”).

Executive Compensation

Until the facility is repaid in full and the UST ceases to own any equity securities of the applicable Borrower acquired pursuant to the facility, restrictions will apply to GM, Chrysler Holding LLC and Chrysler LLC (the “Relevant Companies”) executive officers, including:  

  • Limits on compensation that exclude incentives for senior executive officers to take “unnecessary and excessive risks that threaten the value” of the Relevant Companies;
  • Prohibition of golden parachute payments to senior executive officers; and
  • No payment or accrual of any bonus or incentive compensation to the 25 most highly paid employees, except as approved by the President’s Designee.  

All Loan Parties must take all reasonable steps to divest their ownership interests in private aircrafts.  

Material Transactions

The President’s Designee will have the right to review and prohibit any asset sale, investment, contract, commitment, or other transaction not in the ordinary course of business with a value in excess of $100 million, if the President’s Designee determines that it would be inconsistent with or detrimental to the long-term viability of the Loan Party involved.  

Covenants  

Unless waived by the UST, the Loan Parties will be subject to customary covenants, including, but not limited to:  

  • Prohibition on redemption or buyback of any capital stock of the Borrower, other than pursuant to contracts existing as of December 2, 2008;
  • Prohibition on any dividends and distributions (or the economic equivalent thereof) other than what is owed to unaffiliated entities pursuant to contract or law existing as of December 2, 2008; and
  • Prohibition on creation of any new U.S. pension obligations until all U.S. pension plans maintained by the Borrower or any of its subsidiaries have been fully funded.  

Additional financial covenants for GM and Chrysler are to be determined.  

Warrants  

If the Borrower is publicly traded, it is required to provide the UST with warrants to purchase common shares of the Borrower. If the Borrower is not publicly traded, then, in lieu of warrants, the UST will receive additional notes that will have the same priority and general terms as the facility, in an amount equal to 6.67% of the maximum amount available under the facility (the “Maximum Loan Amount”).

The exercise price per share of the warrants is the fifteen-day trailing average price determined as of December 2, 2008, subject to anti-dilution adjustments. The total number of warrants to be issued will be equal to 20% of the Maximum Loan Amount divided by the exercise price per share of the warrants, provided that the number of warrants does not exceed 20% of the issued and outstanding common equity interests of the Borrower before the exercise of such warrants (the “Warrant Limit”). If the Warrant Limit reduces the number of warrants issuable to the UST, the UST will be compensated with additional notes from the Borrower in an amount equal to 6.67% of the Maximum Loan Amount minus a sum equal to one-third (1/3) of the number of warrants actually granted to the UST times the exercise price per share of the warrants.  

The warrants will be immediately exercisable at 100% of their issue price plus all accrued and unpaid dividends.  

The UST will agree not to exercise voting power with respect to any shares of common stock issued upon the exercise of the warrants before the occurrence of a Termination Event or an Event of Default.  

Debtor-In-Possession Loan Conversion

Upon the filing of a voluntary or involuntary bankruptcy petition by or in respect of any Loan Party, the term sheets provide that the UST will have the exclusive right, exercisable at its option, to convert the facility into a debtor-in-possession facility in form and substance acceptable to the UST.