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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

IN RE: PERKINS & MARIE CALLENDER’S, INC., et al.,

CASE NO. 11-11795 (KG) Chapter 11 Jointly Administered

Debtors.

Hearing: October 31, 2011 at 10:00a.m. ET

Local Texas Tax Authorities’ Objection to Confirmation of Debtors’ Second Amended Joint Plan of Reorganization

TO THE HONORABLE COURT: NOW COME Bexar County and McLennan County (jointly the “Local Texas Tax Authorities” or “Tax Authorities”), and file their Objection to confirmation of the Debtors’ Second Amended Joint Plan of Reorganization. In support of their Objection, the Local Tax Authorities would show the Court as follows: I. The Local Texas Tax Authorities are political subdivisions of the State of Texas, authorized to assess and collect taxes. The Tax Authorities have filed claims for unpaid 2011 ad valorem taxes. These property taxes were duly assessed in accordance with the laws of the State and constitute valid, liquidated secured claims against the Debtors’ property entitled to priority over other secured claims under 11 U.S.C.A. § 506. approximately $61,0001. The Tax Authorities’ claims are for ad valorem taxes assessed against the Debtors on January 1 of each year pursuant to Texas Property Tax Code §§. 32.01 and 32.07. These taxes are secured by first priority liens on the real and personal property of the Debtors pursuant to Tex. Prop. Tax The pre-petition claims of the Tax Authorities total

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Code §§ 32.01 and 32.05. The Tax Authorities’ liens take priority over the claim of any holder of a lien on property encumbered by the tax lien, whether or not the debt or lien existed before the attachment of the tax lien. See Texas Property Tax Code §32.05 (b); See also Central Appraisal District of Taylor County v. Dixie-Rose Jewels, Inc., 894 S.W. 2d 841 (Tex. App. 1995) (bank’s foreclosure of its purchase money lien on personal property did not defeat or destroy the taxing unit’s statutory tax lien). The tax lien arises on January 1 of each tax year and “floats” to after acquired property. See City of Dallas v. Cornerstone Bank, 879 S.W. 2d 264 (Tex. App. - Dallas 1994). The tax lien is a lien in solido and is a lien on all personal property of the Debtor. See In re Universal Seismic, 288 F.3d 205 (5th Cir. 2002). The tax lien is also unavoidable. See In re: Winns, 177 B.R. 253 (Bankr. W.D. Tex. 1995). These tax claims are entitled to priority as secured claims, senior to other secured claims, according to the Bankruptcy Code, 11 U.S.C. §506. Stanford v. Butler, 826 F.2d 353 (5th Cir. 1987). II. It appears from the proposed Plan that the Debtors intend to treat the Tax Authorities’ claims as Class 2 Other Secured Claims. This class is allegedly unimpaired. However, in fact, the Tax Authorities’ are impaired by the Plan, and therefore they object to their treatment. The Plan proposes to pay the claims of the Tax Authorities as if they were Priority Tax Claims. The terms for payment of Priority Tax Claims fails to properly provide for the payment of interest on the Tax Authorities’ claims as required by 11 U.S.C. §§506(b), and 1129(b)(2)(A)(i)(II). While the Plan provides for payment of interest under § 506(b) on Other Secured Claims, it also provides that claims for property taxes “will be treated as a Priority Tax Claim”. The treatment of Priority Tax Claims does not provide for the payment of any interest on tax claims, so it is unclear whether the Debtors intend to pay interest from the petition date through the effective date on secured tax

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The pre-petition amount is as of the petition date and does not include interest to which the Tax Authorities are entitled pursuant to 11 U.S.C. § 506(b) as oversecured creditors. 2

claims. Further, the Plan fails to specifically provide for interest from the Effective Date through the date of payment. Article VII, Section K, Paragraph (j) provides that except as specifically set forth in the Plan, no claim is entitled to post-petition interest. Where Other Secured Claims are specifically provided interest, but Priority Tax Claims are not, as written the Plan does not “expressly” provide for interest to which the Tax Authorities are entitled. The Plan also fails to set forth the rate of interest to be paid during the 506(b) period. The Tax Authorities are entitled to interest from the Petition Date through the Effective Date at their statutory rate of 12% per annum. 11 U.S.C. §511; In re Marfin Ready Mix Corp., 220 B.R. 148 (Bankr. E.D. N.Y. 1998); Tex. Prop. Tax Code § 33.01. The Plan wholly fails to provide for the payment of post-Effective Date interest as required under § 1129. The payment of interest from and after the Effective Date on pre-petition secured claims is mandated by § 1129 to protect the present value of secured claims. This Plan does not preserve the “present value as of the effective date” contemplated by Congress and required by the Bankruptcy Code. Absent the requirement that the Debtors pay interest on these claims, there is no incentive for them to file and resolve claim objections in a timely manner. While Other Secured Claims are to be paid on the Effective Date and have no need of post-Effective Date interest, Priority Tax Claims may be paid over five years from the Petition Date. The Plan should not be confirmed unless and until it is amended to clearly provide for payment of interest on the allowed amount of the Tax Authorities’ pre-petition secured claims from the Effective Date through the date of payment. As the Tax Authorities’ claims are “unimpaired” this interest should also be paid at their statutory rate of 12% per annum. 11 U.S.C. § 511; see also U.S.v. Graham, 59 Fed. Appx. 660 (6th Cir. 2003). To the extent the terms of the Exit Facility purport to prime or subordinate any of the Tax Authorities’ liens, the Tax Authorities object. Their liens may not be primed or subordinated absent a showing they will be otherwise adequately protected. The Tax Authorities object to the payment of their tax claims in annual installments as Priority Tax Claims. The property is subject to depreciation and removal from the jurisdictions. The Tax Authorities should be paid monthly, and upon the closure or movement of any location the taxes for

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that property should be paid in full. Further, the Plan fails to provide for remedies in the event of default.

IV. WHEREFORE, the Local Tax Authorities request the Court to enter an order denying confirmation of the Debtors’ proposed Plan and for such other and further relief to which the Court may find they are entitled. Dated: October 14, 2011 Respectfully submitted, Linebarger Goggan Blair & Sampson, LLP By: /s/ Elizabeth Weller Elizabeth Weller Tex. Bar No. 00785514 2323 Bryan St. #1600 Dallas, TX 75201 (469)221-5075 Phone (469)221-5002 Fax BethW@publicans.com Email

CERTIFICATE OF SERVICE I hereby certify that this 14th day of October , 2011, I caused a true and exact copy of the foregoing to be served upon all parties to the Court’s electronic servicing system and upon the parties set forth on the Service List below via facsimile as indicated. /s/ Elizabeth Weller ──────────────────────────── Elizabeth Weller

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SERVICE LIST

U.S. Trustee 844 King Street, Suite 2207 Wilmington, Delaware 19801 attention: Richard Schepacarter, Esq., Facsimile: (302) 573-6497 Perkins & Marie Callender’s Inc. 6075 Poplar Avenue, Suite 800 Memphis, TN 38119 attention: Joseph F. Trungale Facsimile: (901) 537-7122; Troutman Sanders LLP The Chrysler Building, 405 Lexington Avenue New York, NY 10174 attention: Mitchel H. Perkiel, Esq. and Brett D. Goodman, Esq., Facsimile: (212) 704-6288 Young Conaway Stargatt & Taylor, LLP The Brandywine Building, 1000 West Street, 17th Floor Wilmington, DE 19801 attention: Robert S. Brady, Esq. and Robert F. Poppiti, Jr., Esq. Facsimile: (302) 571-1253 Ropes & Gray LLP 1211 Avenue of the Americas New York, New York 10036-8704 attention: Mark R. Somerstein, Esq. and Benjamin L. Schneider, Esq. Facsimile: (212) 596-9090 Landis Rath & Cobb LLP 919 Market Street, Suite 1800 Wilmington, DE 19801 attention: William E. Chipman, Jr., Esq. and Mark D. Olivere, Esq. Facsimile: (302) 467-4450 Paul, Hastings, Janofsky & Walker LLP 600 Peachtree Street, N.E., Twenty-Fourth Floor Atlanta, GA 30308 attention: Jesse H. Austin, III, Esq. Facsimile: (404) 685-5208
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Emmet, Marvin & Martin, LLP 120 Broadway, 32nd Floor New York, NY 10271 attention: Edward P. Zujkowski, Esq., Facsimile: (212) 238-3100 Foley & Lardner LLP 90 Park Avenue New York, NY 10016-1314 attention: Douglas Spelfogel, Esq., Facsimile: (212) 687-2329 Akin Gump Strauss Hauer & Feld LLP One Bryant Park New York, NY 10036 attention: Ira Dizengoff, Esq. Facsimile: (212) 872-1002 Scott L. Alberino, Esq. 1333 New Hampshire Avenue, N.W. Washington, D.C. 20036 Facsimile: (202) 887-4288.

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