UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re:

Perkins & Marie Callenders Inc.., et al.,1 Debtors. ____________________________________

Chapter 11 Case No. 11-11795 (KG) Jointly Administered

Confirmation Objection Deadline: October 14, 2011 at 4:00 p.m. Eastern Standard Time Confirmation Hearing Date: October 31, 2011 at 10:00 a.m. Eastern Standard Time

Re: D.I. 922 and 935

OBJECTION OF TRI-STATE HOUSE OF PANCAKES, INC. TO DEBTORS SECOND AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE Tri-State House of Pancakes, Inc. (Tri-State), by and through its undersigned counsel, objects (Objection) to the Debtors Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the Plan). In support of its objection, Tri-State states: BACKGROUND 1. On June 13, 2011 (the Petition Date), the Debtors filed a voluntary petition

under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code). 2. The Debtors are operating their businesses and managing their property as

Debtors in Possession pursuant to Bankruptcy Code 1107(a) and 1108.

The Debtors together with the last four digits of each Debtors federal tax identification number are: Perkins & Marie Callenders Inc. (4388); Perkins & Marie Callenders Holding Inc. (3999); Perkins & Marie Callenders Realty LLC (N/A); Perkins Finance Corp. (0081); Wilshire Restaurant Group LLC (0938); PMCI Promotions LLC (7308); Marie Callender Pie Shops, Inc. (7414); Marie Callender Wholesalers, Inc. (1978); MACAL Investors, Inc. (4225); MCID, Inc. (2015); Wilshire Beverage, Inc. (5887); and FIV Corp. (3448). The mailing address for the Debtors is 6075 Poplar Avenue, Suite 800, Memphis, TN 38119.

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3.

On September 9, 2011, the Court entered an Order approving Debtors Second

Amended Disclosure Statement for the Debtors Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code [D.I. 923] (the Disclosure Statement). 4. Debtors and Tri-State are parties to an executory contract. The assignment of

subfranchise licensing agreement dated May 4, 1976 (the Agreement) permitted Debtors to operate Perkins restaurants in the states of North Dakota, South Dakota, and Nebraska (hereinafter referred to as Territory) in exchange for specified payments to Tri-State, which holds exclusive rights to the Territory, from the Debtors. 5. The Disclosure Statement references the agreement between Debtors and Tri-

State as follows: 6. Territorial Exclusivity. As of the Petition Date, the Debtors had agreements with three different parties to whom the Debtors had previously granted territorial exclusivity for Perkins restaurants. Under these three agreements, the Debtors have been permitted to operate Perkins restaurants in the exclusive territories in exchange for specified payments from the Debtors to the holders of these territorial rights. Those payments, for fiscal year 2010, aggregate $2,512,000. Of these three agreements, granting such territorial exclusivity rights, one expires in 2075, and one expires upon the death of the beneficiary. The third remains in effect so long as the Debtors operate Perkins restaurants in the applicable territory.

6.

Debtors have taken no position on the treatment of the Agreement as it relates to

territorial exclusivity. The Agreement is an executory contract. It has yet to be assumed or rejected. Nevertheless, the Debtors have stopped making payments pursuant to the Agreement and are currently in default of the Agreement. Based on the Debtors schedules and conduct to date, it is unlikely that they will recognize the Agreement as executory. 7. The Unsecured Creditors Committee, however, filed the Motion of the Official

Committee of Unsecured Creditors for authority to commence certain actions on behalf of and

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for the benefit of the Debtors estates [D.I. 996]. On September 28, 2011, the Court entered an Order granting the Motion of the Official Committee of Unsecured Creditors for authority to commence certain actions on behalf of and for the benefit of Debtors estates [D.I. 1057]. Pursuant to the aforesaid Motion as well as the Disclosure Statement, the Creditors Committee has indicated that it will object to the claims, including those of Tri-State, in which the Agreement granted territorial exclusivity by seeking to recharacterize those claims as equity. OBJECTION 8. A plan is only confirmable if it complies with all provisions of the Bankruptcy

Code. 11 U.S.C. 1129(a)(1). Here, for the reasons noted below, the Plan suffers from several flaws that render it patently unconfirmable, and it should not be approved by this Court. I. The Plan is Not Feasible 9. Pursuant to the Bankruptcy Code, a plan may be confirmed only if it is feasible.

Specifically, Section 1129(a)(11) provides that a plan may be confirmed only if, among other things, [c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the Debtor.... 11 U.S.C. 1129(a)(11). 10. In the Plan, the Debtors propose to reorganize based upon its existing businesses.

Should the Debtors fail to assume the Agreement between Tri-State and the Debtors, however, the Reorganized Debtor would lose its ability to operate Perkins Restaurants or any other branded restaurant concept in the states of North Dakota, South Dakota and Nebraska, the exclusive Territory owned and controlled by Tri-State which is licensed to the Debtors pursuant to the Agreement. Likewise, upon information and belief, if Debtors fail to assume an agreement between Omega Trust and the Debtors, the Reorganized Debtor would lose its ability to operate

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Perkins Restaurant in the states of Iowa and Wisconsin, an exclusive territory owned and controlled by Omega Trust. 11. Because the Agreement gives Tri-State the exclusive right to franchise Perkins in

South Dakota, North Dakota, and Nebraska, the Debtors cannot assume the existing franchise agreements in Tri-States exclusive territory. As such, the Debtors cannot satisfy 11 USC 365 with respect to franchise agreements in South Dakota, North Dakota, and Nebraska because they cannot give adequate assurance of their ability to perform under the franchise agreements because they will have no rights under the franchise agreements unless the Agreement is assumed. Without the right to operate franchises in the Territory, the Debtors cannot collect revenue within the territory.

12.

The Debtors Disclosure Statement at page 89 states that their financial

projections assume that the Reorganized Debtors will emerge from bankruptcy with a total of 130 company owned Perkins and 312 franchised Perkins. If the Reorganized Debtors do not assume the Agreement, they will lose the ability to operate 28 of their 442 Perkins stores. If the Reorganized Debtors do not assume the Omega Trust agreement, they may lose the ability to operate an additional 62 Perkins stores.

13.

Without revenue from South Dakota, North Dakota, and Nebraska and potentially

without revenue from Iowa and Wisconsin, the Plan is not feasible. Tri-State believes that confirmation of the Plan likely is to be followed by the need for liquidation or further reorganization of the Debtors.

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II.

The Plan Fails to Properly Classify Tri-States Claim 14. A plan may be confirmed only if it complies with all applicable privisions of

Chapter 11. 11 USC 1129. In violation of 11 USC 1122(a), the Plan fails to properly classify Tri-States claim. 15. The Debtors classify Tri-State as a general unsecured claim. The Creditors

Committee intends to recharacterize Tri-States claim as equity. The Disclosure Statement separately identifies Tri-State, Omega Trust and another party as those with territorial exclusivity. By classifying Tri-State as a general unsecured claim while acknowledging that TriStates claim is not substantially similar to other general unsecured claims, the Debtors have violated 11 USC 1122(a), and the Plan cannot be confirmed. 16. Until the time that the issues surrounding Tri-States executory contract and

claims are resolved, the Plan should not be confirmed. Resolution of the issues surrounding TirStates Agreement are so material to feasibility of the Plan that it would be improper to allow confirmation prior to their resolution. III. The Plan Disregards the Prohibition on Unfair Discrimination. 17. Plan also disregards the prohibition on unfair discrimination in Bankruptcy Code

section 1129(b). 18. By way of background, the Bankruptcy Code provides that a plan normally may

be confirmed if it meets certain requirements, including that each and every class either accepts the Plan or does not suffer any impairment under the Plan. See 11 U.S.C. 1129(a)(8) (The court shall confirm a plan only if all the following requirements are met: . . . (8) With respect to each class of claims or interests (A) such class has accepted the plan; or (B) such class is not impaired under the plan.) The Bankruptcy Code, however, provides an alternative regime for

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confirmation, commonly referred to as cram down. Specifically, a debtor may confirm a plan even if one of the impaired classes does not accept the plan, so long as the plan (among other things) does not discriminate unfairly. See, 11 U.S.C. 1129(b)(1) (stating that if all the applicable requirements of subsection (a) of this section other than paragraph (8) are met,[the court] shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly . . . with respect to each class of claims or interest that is impaired under, and has not accepted, the plan). 19. The Plan disregards the prohibition on unfair discrimination. Specifically, the

Plan fails to provide a specific classification for owners of territorial exclusivity rights, such as Tri-State. 20. The Debtors have thus disregarded Bankruptcy Code 1129(b) because the Plan

is patently unconfirmable as a result of the violation of the prohibition on unfair discrimination, failing to separately classify parties, such as Tri-State, to territorial exclusivity agreements. Accordingly, the Plan should not be proved. III. RESERVATION OF RIGHTS 21. Tri-State reserves its rights to assert other objections to the Plan either at or prior

to any hearing thereon.

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IV.

CONCLUSION WHEREFORE, Tri-State House of Pancakes, Inc. requests that this Court enter an Order

denying confirmation of the Plan, and granting such other and further relief as the Court deems just and proper. Dated: October 14, 2011 Wilmington, Delaware

__/s/ Kevin J. Mangan_____________________ Kevin J. Mangan (#3810) Womble Carlyle Sandridge & Rice, PLLC 222 Delaware Avenue, Suite 1501 Wilmington, Delaware 19801 Telephone: (302) 252-4320 Facsimile: (302) 252-4330 E-mail: kmangan@wcsr.com Roger W. Damgaard Woods, Fuller, Shultz & Smith P.C. P.O. Box 5027 Sioux Falls, SD 57117-5027 Telephone: (605) 336-3890 E-mail: Roger.Damgaard@woodsfuller.com Counsel to Tri-State House of Pancakes, Inc.

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CERTIFICATE OF SERVICE I, Heidi E. Sasso, certify that I am not less than 18 years of age, and that service of the foregoing document was made in the manner indicated on October 14, 2011 on:

Via Hand Delivery or US Mail Robert S. Brady Robert F. Poppiti, Jr. Young Conaway Stargatt & Taylor LLP The Brandywine Building 1000 West Street, 17th Floor Wilmington, DE 19801 Brett D. Goodman Troutman Sanders LLP The Chrysler Building 405 Lexington Ave New York, NY 10174 Mark R. Somerstein Ropes and Gray LLP 1211 Avenue of the Americas New York, NY 10036 William Chipman Landis Rath & Cobb LLP 919 Market Street, Suite 1800 Wilmington, DE 19801 Richard Schepacarter Office of the United States Trustee 844 King Street, 2nd Floor Wilmington, DE 19801 Jesse H. Austin, III Paul Hastings Janofsky & Walker 600 Peachtree Street, NE 24th Floor Atlanta, GA 30308

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Edward P. Zujkowski Emmet Marvin & Martin LLP 120 Broadway, 32nd Floor New York, NY 10271 Douglas Spelfogel Foley & Lardner LLP 90 Park Avenue New York, NY 10016 Ira Dizengoff Akin Gump Strauss Hauer & Feld LLP One Bryant Park New York, NY 10036 Scott L. Alberino Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Avenue, NW Washington, DC 20036 Under penalty of perjury, I declare that the forgoing is true and correct. October 14, 2011 _/s/ Heidi E. Sasso_________________

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