IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

In re: COLLINS & AIKMAN CORPORATION, et al. Debtors.

Chapter: 11 Case No. 05-55927 (SWR) Jointly Administered (Tax Identification # 13-3489233) Hon. Steven W. Rhodes
Hearing Date: May 24, 2007 at 10:00 a.m. Objection Deadline: May 7, 2007 at 5:00 p.m. (PT)

MAINSTAY HIGH YIELD CORPORATE BOND FUND'S OBJECTION TO CONFIRMATION OF FIRST AMENDED JOINT PLAN OF COLLINS & AIKMAN AND ITS DEBTOR SUBSIDIARIES MainStay High Yield Corporate Bond Fund (MainStay), a party in interest and creditor, hereby submits this objection (the "Objection") to confirmation of the First Amended Joint Plan Of Collins & Aikman And Its Debtor Subsidiaries, and as may be further amended (the "Plan") and states the following: BACKGROUND 1. On February 5, 2007, MainStay, on behalf of itself and all other persons or

entities (the Putative Class) who purchased or otherwise acquired, through their investment advisor, MacKay Shields LLC ("MacKay Shields"), 12.875% Notes (the "Senior Subordinated Notes") and 10.75% Notes (the "Senior Notes") (the Senior Subordinated Notes and the Senior Notes are the "C&A Notes") of Collins & Aikman (C&A or the Debtor) during the period August 11, 2004 through May 17, 2005, inclusive (the "Class Period"), filed a Class Action Complaint and Jury Demand (the "Complaint") entitled MainStay High Yield Corporate Bond Fund v. Heartland Industrial Partners, L.P., et al, Case No. 07-CV-10542 (DAS) (the

19095/2 05/07/2007 2145021.03

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0555927070507000000000019

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"Noteholder Litigation"), in the United States District Court for the Eastern District of Michigan (the "District Court").1 2. 3. MacKay Shields is MainStay's duly authorized investment advisor. The Complaint alleges violations of Sections 20(a) and 10(b) of the

Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder against Heartland Industrial Partners, L.P., and Heartland Industrial Associates, L.L.C. (collectively, the "Heartland Defendants")2 and David A. Stockman, J. Michael Stepp, Timothy D. Leuliette, Daniel P. Tredwell, W. Gerald McConnell, Samuel Valenti, III, John A. Galante, Bryce M. Koth, Robert A. Krause, Gerald E. Jones, David R. Cosgrove, Elkin B. McCallum, Paul C. Barnaba, Thomas V. Gougherty and Christopher M. Williams (collectively, the "Individual Non-Debtor Defendants");3 the Heartland Defendants and the Individual Non-Debtor Defendants are, collectively, the "Defendants." The Complaint describes both (i) the relationship between the Debtor and the Heartland Defendants and (ii) the Individual Non-Debtor Defendants' positions with and duties and responsibilities to the Debtor and the Heartland Defendants. 4. The Debtor is not named as a defendant in the Noteholder Litigation

pursuant to the dictates of the automatic stay. The Noteholder Litigation is proceeding against the Defendants. 5. On May 17, 2005, C&A, together with various affiliated entities

(collectively, the "Debtors"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). 6. On or about December 22, 2006, the Debtors filed the Disclosure

Statement For The First Amended Joint Plan Of Collins & Aikman And Its Debtor Subsidiaries (the "Disclosure Statement").

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MainStay filed an Amended Complaint on May 4, 2007. References to the Complaint include the Amended Complaint. The Heartland Defendants owned approximately 41% of the Debtor's common stock as of January 1, 2005. The Individual Non-Debtor Defendants include former officers and directors of the Debtor and the Heartland Defendants.

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7.

On January 18, 2007, MacKay Shields, on behalf of its investment

advisory clients (including MainStay), filed an objection to the adequacy of the Disclosure Statement (the "Disclosure Statement Objection"), asserting that (i) the Plan discriminated against members of Classes 5, 6 and 74 because it provided that only those members of the respective class who vote in favor of the Plan are eligible to receive a distribution under the Plan, while those members who do not vote or who vote against the Plan receive no distribution; and (ii) the Plan appeared to provide broad releases to non-Debtors, including some of the NonDebtor Defendants.5 All confirmation objections were reserved under the Disclosure Statement Objection. 8. In response to MacKay Shields' Disclosure Statement Objection, the

Debtors agreed to insert language in the Disclosure Statement (an amended Disclosure Statement was filed on or about January 24, 2007 (the "1/24/07 Disclosure Statement")) summarizing the Disclosure Statement Objection, providing that the Debtors dispute the Disclosure Statement Objection and reserving the parties' rights with respect thereto. Statement, Art. V. A, at 46, and Art. V. J. 3, at 68. 9. A hearing on the adequacy of the Disclosure Statement was conducted on See 1/24/07 Disclosure

January 25, 2007, and on January 26, 2007, the Court entered an Order approving the Disclosure Statement. 10. Thereafter, on February 9, 2007, the Debtors further amended the

Disclosure Statement (the "2/9/07 Disclosure Statement") and the accompanying Plan. Although the 2/9/07 Disclosure Statement continues to describe MacKay Shields' Disclosure Statement Objection, the current Plan, and the corresponding provisions of the 2/9/07 Disclosure Statement
4

Holders of Senior Notes and Senior Subordinated Notes are in Classes 6 and 7, respectively (Class 5 consists of Holders of general unsecured claims). Members of MainStays Putative Class, who are current holders of C&A Notes, are in Classes 6 and 7, as well as in Class 9 by virtue of their litigation claims. To the extent a member of the Putative Class no longer holds a C&A Note, his/her claim is proposed to be classified as a Class 9 claim (Subordinated Securities Claims). Members of Class 9 receive no distribution under the Plan. MainStay adopts MacKay Shields' Disclosure Statement Objection to the extent the issues raised therein go to confirmation and have not otherwise been resolved. As previously set forth, MacKay Shields is MainStay's investment advisor and filed the Disclosure Statement Objection as agent for and on behalf of MainStay and others similarly situated.

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no longer provide for the disparate treatment of class members who either vote in favor of the Plan or those who do not vote or vote against the Plan. See Plan, Art III. C. 3-5, at 18-19. Instead, the holders of Allowed Claims in Classes 5, 6 and 7, regardless of how or if they vote, receive pro rata shares of Tranche B Litigation Recovery Interests. Id. 11. To the extent the Plan now provides the same treatment to members within

the same class, that objection is resolved. However, if the Debtor fails to confirm the foregoing interpretation of the current treatment of the claims held by the members of the respective Plan classes who do not vote in favor of the Plan or who do not vote at all, and the Plan does not treat similarly all members of a Plan class, MainStay adopts and intends to prosecute the respective objection raised in the MacKay Shields Disclosure Statement Objection, as if fully set forth herein. See n. 5, supra. 12. It does not appear that any other modifications were made to address the

remaining objections raised in the MacKay Shields Disclosure Statement Objection. The Plan continues to provide broad releases and injunctive relief to non-debtors without providing the requisite consideration and establishing the exceptional circumstances for such extraordinary relief. See Plan, Art. XII. C. and E. In addition, because the Plan appears to compel litigation claimants such as MainStay to be bound by the Plan injunctions in order to qualify for a distribution as a Class 6 and/or 7 member, it continues to discriminate against such creditors. See 13 to 33, infra. Furthermore, the treatment and classification of all claims subject to subordination under 11 U.S.C. 510(b) in the same class is improper. See 34 to 44, infra. Finally, because this appears to be a liquidating plan, the Debtors are not entitled to a discharge. See 45 to 47, infra.

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OBJECTION A. The Plan Releases And Injunctions Are Improper. 13. The Plan provides that: each Releasing Party will be deemed to forever release, waive and discharge all claims . . . causes of action and any other debts . . . suits, damages, actions . . . and liabilities . . . whether known or unknown foreseen or unforeseen, suspected or unsuspected, liquidated or unliquidated, contingent or fixed, currently existing or hereafter arising that are based in whole or in part on any act, omission, transaction or other occurrence taking place on or prior to the Effective Date in any way relating to a Debtor . . . that such Person has, had or may have against any Third Party Releasee. Plan, Art XII. C, at 41-42. 14. The Plan further states that entry of the Confirmation Order: will constitute the Bankruptcy Court's finding that such release [the release described in 13 supra] is (1) in exchange for good and valuable consideration provided by the Debtor Releasees and the Releasing Parties, representing good faith settlement and compromise of the claims released herein; (2) in the best interests of the Debtors and all Holders of Claims; (3) fair, equitable and reasonable; (4) approved after due notice and opportunity for hearing; and (5) a bar to any of the Releasing Parties asserting any claim released by this Article XII. C against any of the Third Party Releasees or their respective property. Plan, Art. XII. C, at 42. 15. In order to fully understand the breadth and the impact of the Third Party

Releases that the Plan attempts to provide, a party in interest must navigate through several intricate definitions in Article I of the Plan, including the following: (a) "Releasing Parties" includes: each Holder of a Claim that votes in favor of the Plan and . . . each Person that has held, holds or may hold a Claim or at any time was a Holder of a

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Claim of any of the Debtors and that does not vote on the Plan or votes against the Plan. Plan, Art. I. A. 119, at 11. (b) Third Party Releasees are "the Debtors and the Debtor Releasees."

Plan, Art. I. A. 147, at 13. (c) Debtor Releasees includes: (a) all officers and directors and employees and their respective subsidiaries employed by the Debtors at any time on or after November 1, 2006, (b) all attorneys, financial advisors, accountants, investment bankers, investment advisors, actuaries, professionals, agents, affiliates and representatives of the Debtors and their subsidiaries and (c) the Releasing Parties, their respective predecessors and successors in interest, and all of their respective current and former members, officers, directors, employees, partners, attorneys, financial advisors, accountants, investment bankers, investment advisors, actuaries, professionals, agents, affiliates and representatives. Plan, Art. I. A. 35, at 3-4. 16. Non-Released Parties, as set forth in Exhibit A to the Plan,6 are not

released under the Plan and do not benefit from the Plan injunction. Exhibit A purportedly identifies those non-debtors against whom the Debtors have actual or potential causes of action and who are not being released under the Plan. Exhibit A does not include all of the Defendants in the Noteholder Litigation. Hence, some of those Defendants will be released by virtue of the Plan. Moreover, if Exhibit A is modified prior to confirmation or the Plan Effective Date or MainStay further amends the Complaint to add other defendants, there is no assurance that the

Debtors filed Exhibit A and an amended Exhibit A on January 16, 2007, consisting of more than 2000 pages of parties to the Retained Actions. This apparently is a list of parties against whom the Debtors have certain causes of action as identified in the Exhibit. The list is limited to the Debtors causes of action against the named entities and does not include claims asserted by and belonging to third parties (like MainStay). Hence, such third-party claims are not definitively preserved and may be subject to the release provisions of the Plan. At the very least, the impact of Exhibit A is confusing and ambiguous, and despite being raised in response to the Disclosure Statement, has not been adequately addressed.

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broad Plan release and injunctions will not further impact MainStay's claims against additional non-Debtors. 17. Clearly, by virtue of the Plans broad release and injunction provisions,

third-party claims against certain non-Debtors may be released, waived, enjoined and/or discharged under the Plan. Plan, Art. XII. C, at 41-42. 18. In addition to the broad and ambiguous releases under the Plan, the Plan

permanently enjoins any Holder of a Claim or Interest whose claim is discharged or released under the Plan from continuing or commencing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan. Plan, Art. XII. E. 1-2, at 42-43. Thus, in the event a Claim is released under the broad language described above, the Holder of that Claim is enjoined from taking any action with respect to that Claim, even if the Claim is asserted against a non-Debtor. 19. The Plan further provides that if a creditor accepts a distribution under the

Plan, he or she is deemed to have consented to these Plan injunctions. Plan, Art. XII. E. 3, at 43. This provision is discriminatory with respect to holders of claims in more than one Class under the Plan or holders of claims against non-Debtors, such as the members of MainStays Putative Class. Holders of claims in more than one Plan Class and claims against non-Debtors may be forced to release claims for which they receive no consideration under the Plan, while members of that same Plan Class without such claims give up nothing in order to participate in a distribution. 20. Members of the Putative Class include current and former holders of the

Senior Notes and the Senior Subordinated Notes. As some Putative Class members hold or held different debt instruments, they may fall into a class under the Plan that receives a distribution and therefore would be forced to release claims in the Noteholder Litigation in order to benefit from the Plan distribution.

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21.

Holders of Senior Notes are in Plan Class 6 and holders of Senior

Subordinated Notes are in Plan Class 7.7 Those members of the Putative Class who no longer hold all or some of their Senior Notes or Senior Subordinated Notes have litigation claims subject to subordination under 11 U.S.C. 510(b) for damages arising from the purchase or sale of a security of the Debtors and are in Plan Class 9.8 22. Pursuant to Art. XII. E. 3 of the Plan, the holder of Claims in different

Plan Classes who receives a distribution as a member of one Plan Class, but not another Plan Class, is deemed to have consented to the wide-ranging injunctions in Article XII. E of the Plan and is effectively enjoined from taking any action with respect to not only the Claim for which he or she received the distribution, but also for the Claim for which he or she did not receive anything and to pursue those Claims against non-Debtors. The injunctive provisions affect creditors whether they vote in favor of or against the Plan or do not even vote all. To impose such extraordinary injunctive relief, especially as against a creditor who receives nothing under the Plan for his or her claim against non-Debtors is patently discriminatory and should not be allowed. 23. The Plan injunction effectively releases non-Debtors from any and all

liabilities for claims that may be asserted by MainStay or other creditors, despite the fact that they are receiving nothing for such release,9 and discriminates against those holders of claims in multiple Plan Classes, who also stand to benefit from the Noteholder Litigation but for the potential impact of the Plan injunction. 24. The Plan release and injunction are nonconsensual and are not supported

by any consideration. While much of the relevant case law addresses non-consensual releases of

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Based upon the current distribution allocation, members of Plan Class 6 will receive a distribution from the Recovery Trust, but members of Plan Class 7 may not. See 34 to 44, infra, for the objection to the treatment of such subordinated claims. Although a creditor may receive a distribution on account of its Allowed Class 6 and/or 7 Claims, that is not sufficient consideration as contemplated by the line of cases set forth herein, infra. There is no evidence that any consideration is being provided to claimants by the parties being released.

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claims against a non-debtor, the same law is applicable to injunctions, because they essentially provide a release of such claims by prohibiting an action from going forward. 25. The underlying facts here do not even remotely resemble the factual

underpinnings for the releases allowed in SEC v. The Drexel Burnham Lambert Group, Inc. (In re The Drexel Burnham Lambert Group, Inc.), 960 F.2d 285 (2d Cir. 1992); cert. dismissed, 506 U.S. 1088, 122 L. Ed.2d 497, 1133 S.Ct. 1070 (1993); Abel v. Shugrue (In re Ionosphere Clubs, Inc.), 184 B.R. 648 (S.D.N.Y. 1995); and Menard-Sanford v. Mabey (In re A.H. Robins Co., Inc.), 880 F.2d 694 (4th Cir. 1989), cert. denied, 493 U.S. 959, 110 S.Ct. 376, 107 L.Ed.2d 362 (1989). The Debtors herein fail to provide in either the Plan or Disclosure Statement any factual basis to establish the required unusual circumstances which justify confirmation of a plan containing such extraordinary relief. 26. In The LTV Corp. v. The Aetna Casualty and Surety Co. (In re

Chateauguay Corp.), 167 B.R. 776 (S.D.N.Y. 1994), the court noted that the broad power provided to the Bankruptcy Court by 11 U.S.C. 105(a) does not give unfettered discretion to discharge a non-debtor from liability. Id. at 780. In addition to Drexel, the Court considered MacArthur v. Johns-Manville Corp., 837 F.2d 89, 93 (2d Cir. 1988), cert. denied, 488 U.S. 868, 109 S.Ct. 176, 102 L.Ed.2d 145 (1988) and A.H. Robins, supra, where the debtors provided clear factual support and unusual circumstances existed so as to allow the respective courts to conclude that the releases were essential to the reorganization because the released parties were making substantial contributions to the reorganizations. 27. In In re St. Johnsbury Trucking Co., Inc., 185 B.R. 687 (S.D.N.Y. 1995),

the federal government sought a stay of the order confirming the debtors plan because the plan provided for the release of certain non-debtors from claims under the federal environmental and tax statutes. The district court noted that the debtor failed to conclusively establish the

propriety of . . . the releases. 185 B.R. at 689. Clear and discrete circumstances must be established to justify non-debtor releases. Id.

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28.

The Third Circuit in Gillman v. Continental Airlines (In re Continental

Airlines), 203 F.3d 203 (3d. Cir. 2000), provides a thorough analysis of third party releases, supporting the rationale of those cases which have permitted third parties releases and injunctions only where the parties that were enjoined were provided with some meaningful consideration for the loss of their rights against non-debtors. Continental, at 212. Drexel, supra, at 293; Kane v. Johns-Manville Corp. (In re Johns-Manville Corp.), 843 F.2d 636, 640, 649 (2d Cir. 1988); A.H. Robins, supra, 880 F.2d at 702. The consideration was provided through substantial contributions paid by the non-debtor parties in exchange for their releases. Continental at 213. Here, no evidence of any consideration being given by the parties released under the Plan is provided. 29. Although the Sixth Circuit has also held that 11 U.S.C. 524(e)10 may not

prohibit the release of a non-debtor, it appears to follow the majority rule that non-debtor releases may only be permitted under certain unusual circumstances. See Class 5 Nevada Claimants v. Dow Corning Corporation (In re Dow Corning Corp.), 280 F.3d 648 (6th Cir. 2002), cert. denied 537 U.S. 816, 123 S. Ct. 85, 154 L. Ed.2d 21(2002). The Sixth Circuit noted, however, that enjoining third-parties from suing non-debtors is a dramatic measure which must be used cautiously and is only appropriate in unusual circumstances. Id. at 658. In order to determine whether unusual circumstances exist, the court held that when seven factors are present, the bankruptcy court may issue such an injunction.11 See also In re National Staffing Services, LLC, 338 B.R. 35, 37 (Bankr. N. D. Ohio 2005) (referring to Dow Corning, at 658, "the
10

11 U.S.C. 524(e), provides that: the discharge of a debt of a debtor does not affect the liability of any other entity on, or the property of any other entity for such debt. The Dow Corning Corp. seven factors include: (1) There is an identity of interests between the debtor and the third party, usually an indemnity relationship, such that a suit against a non-debtor is, in essence, a suit against the debtor or will deplete the assets of the estate; (2) The non-debtor has contributed substantial assets to the reorganization; (3) The injunction is essential to reorganization, namely, the reorganization hinges on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor; (4) The impacted class, or classes, has overwhelmingly voted to accept the plan; (5) The plan provides a mechanism to pay for all, or substantially all, of the class or classes affected by the injunction; (6) The plan provides an opportunity for those claimants who choose not to settle to recover in full and; (7) The bankruptcy court made a record of specific factual findings that support its conclusions. Id. at 658.

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Sixth Circuit has therefore held that before such an injunction may be imposed, 'unusual circumstances' must exist"). 30. Neither the Plan nor the Disclosure Statement demonstrates that the

potential releases satisfy any of the Dow Corning factors. No unusual circumstances exist here. Moreover, mere conclusory statements that consideration has been given is not sufficient. Indeed, while not even providing what consideration is purported to being given by the Defendants as Released Parties, the Plan states without any support that the Confirmation Order will constitute the Bankruptcy Courts finding that [inter alia] such Release is (1) in exchange for good and valuable consideration. See Plan, Art. XII. C, at 42. There is no basis for such a factual finding or legal conclusion. 31. In the absence of the requisite unusual circumstances, the releases and

injunctions violate 11 U.S.C. 524(e), and render the Plan unconfirmable. Confirmation of a plan requires that the plan satisfy all of the elements of 11 U.S.C. 1129(a), including compliance with the applicable provisions of [the Bankruptcy Code]. 11 U.S.C. 1129(a)(1). The Plan here provides for the release of and injunction against claims against non-Debtors and therefore does not comply with 11 U.S.C. 524(e). As a result, the Plan does not satisfy 11 U.S.C. 1129(a) and cannot be confirmed. 32. Because there is no basis to release MainStays claims against any (non-

Debtor) Defendants and the Debtors have not, and, indeed, cannot, establish any extraordinary or unusual circumstances sufficient to justify such third party releases or the Plan injunctions, the claims asserted by MainStay (on behalf of itself and the Putative Class) in the Noteholder Litigation cannot be released or enjoined under the Plan. 33. Accordingly, the Plan should not be confirmed unless the following

language is included in the Plan and/or any Order confirming the Plan (whichever shall control in the event of inconsistencies between them): Nothing in the Plan or the Order confirming the Plan shall release, discharge, enjoin or impact in any way the claims

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or the prosecution of the claims of MainStay or the members of the putative Class asserted, or to be asserted, against non-Debtors in the Noteholder Litigation and/or against any other non-Debtor. B. The Classification And Treatment Of All Subordinated Securities Claims In One Class Are Improper. 34. Under the Plan, Class 9 consists of all Subordinated Securities Claims,

Plan, Art. III. C. 7, which are defined as Claims described in 11 U.S.C. 510(b). Plan, Art. I. A. 143. 35. 11 U.S.C. 510(b) provides that:

a claim . . . for damages arising from the purchase or sale of [a security of the debtor or an affiliate of the debtor] . . . shall be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security, except that if such security is common stock, such claim has the same priority as common stock. (Emphasis added.) 36. Classification of claims is governed by 11 U.S.C. 1122(a), which

provides that only substantially similar claims may be placed in the same class under a plan. 37. proponent, that discretion is not unlimited. There must be some limitation on the debtors power to classify creditorsThe potential for abuse would be significant otherwise.If the Plan unfairly creates too many or too few classes, if the classifications are designed to manipulate class voting, or if the classification scheme violates basic priority rights, the plan cannot be confirmed. In re 500 Fifth Avenue Associates, 148 B.R. 1010, 1018 (Bankr. S.D.N.Y. 1993), quoting In re Bryson Properties, XVIII, 961 F.2d 496, 502 (4th Cir. 1992), quoting In re Holywell Corp., 913 F.12d 873, 880 (11th Cir. 1990). Although classification of claims may be in the discretion of the plan

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38.

MainStay submits that including all Subordinated Securities Claims in the

same class (Class 9) is improper and violates the priorities established under the Bankruptcy Code and relevant case law. 39. The language of 11 U.S.C. 510(b) could not be any clearer: claims

subject to 510(b) shall be subordinated to all claims or interests that are senior to or equal the claim or interest represented [by the subject security]. 11 U.S.C. 510(b). Classification of a claim subject to subordination under section 510(b) is dictated by the treatment of the underlying security upon which the claim is based. 40. With respect to equity holders, the legislative intent of the Bankruptcy

Code is to treat the claims of defrauded stock purchasers the same as the claims of the current stockholders. If the security is an equity security, the damages or rescission claim is subordinated to all creditors and treated the same as the equity security itself. In re Computer Devices, Inc., 51 B.R. 471, 479 (Bankr. D.Mass. 1985), citing Notes of the Committee on the Judiciary, Senate Report No. 95-989, Bankruptcy Code, Rules and Forms, at 118 (West 1983); see 11 U.S.C. 510(b) (if the security on which the claim is based is common stock, then the claim has the same priority as common stock). 41. However, with respect to a 510(b) subordinated claim whose underlying

security is a note or other debt instrument, the damage or rescission claim will be granted the status of a general unsecured claim, Committee on the Judiciary, id.; Computer Devices, 51 B.R. at 479. However, where the claim subordinated under 510(b) arises from a security whose current holders have claims with priority over general unsecured claims, the 510(b) claim has a similar priority as it is subordinated only to claims that are senior to or equal the claim of the underlying security. See 11 U.S.C. 510(b). In other words, a claim that is subordinated under 11 U.S.C. 510(b) is subordinated only to the claims of holders of the security on which the subordinated claim is based or to claims greater than or equal in priority to that claim. Hence, the 510(b) claims of the holders the Senior Notes and the Senior Subordinated Notes are -13-

subordinated only to the claims of current holders of the Senior Notes (Class 6) and the Senior Subordinated Notes (Class 7), respectively. Because it appears from the Plan that holders of Class 6 Claims have a priority over general unsecured claims, then the respective 510(b) claims should have the priority to which they are entitled under 11 U.S.C. 510(b). Indeed, based upon the proposed allocation of the Litigation Recovery Interests, it appears that holders of the Senior Notes have claims that are senior to general unsecured claims. 42. Although a note holder may no longer hold the C&A Notes, he or she may

nonetheless have been damaged and therefore holds a claim against the Debtors and should be compensated. There is no basis to disenfranchise a significant group of former C&A Note holders, who were defrauded by the Debtors and others, from participation in any distribution under the Plan. 43. In order to comply with 11 U.S.C. 510(b) and relevant case law, those

C&A Note claims subject to subordination under 11 U.S.C. 510(b) must be treated and classified separately from other Subordinated Securities Claims under the Plan. 44. At the very least, whether and to what extent these particular securities

litigation claimants are entitled to a distribution under the Plan should not be determined until all of the relevant issues are placed before the Court in a separate proceeding. C. The Debtors Are Not Entitled To A Discharge. 45. Implementation of the Plan (Plan Art. IV. A) will be accomplished by the

sale of all or substantially all of the Debtors assets through the Remaining Sales Transactions, which are defined as the sale[s] of all or substantially all of the Debtors assets prior to and subsequent to confirmation of the Plan. See Plan, Art. I. A. 121. These transactions result in and constitute a liquidation of all of the Debtors assets through a series of orchestrated sales. 46. Pursuant to 11 U.S.C. 1141(d)(3)(A), a debtor shall not be discharged

from its debts if the plan provides for the liquidation of all or substantially all of the property of the estate.

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47.

Clearly, although not expressly couched as such, the Plan is a liquidating

plan and the Debtors may not be discharged. Assuming the Debtors clear the hurdles, through modification of the Plan, of all of the other objections set forth herein, any Order confirming the Plan must provide that the Debtors are not entitled to a discharge under 11 U.S.C. 1141. CONCLUSION 48. Based on the foregoing, MainStay respectfully requests that an order be

entered (i) denying confirmation of the Plan unless the objections raised herein are properly addressed, including, but not limited to, the incorporation of the language, or substantially similar language set forth in paragraph 33, supra, in the Plan and the order confirming the Plan, and (ii) granting such other and further relief as the Court deems just and proper. Dated: May 7, 2007 Respectfully submitted, LOWENSTEIN SANDLER PC By: /s/Michael S. Etkin Michael S. Etkin, Esq. (ME-0570) Ira M. Levee, Esq. (IL-9958) 65 Livingston Avenue Roseland, New Jersey 07068 (973) 597-2500 (Telephone) (973) 597-2481 (Facsimile) Bankruptcy Counsel for MainStay High Yield Corporate Bond Fund BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Steven B. Singer, Esq. John C. Browne, Esq. Jeremy Robinson, Esq. 1285 Avenue of the Americas, 38th Floor New York, New York 10019-6031 (212) 554-1400 (Telephone) (212) 554-1444 (Facsimile) Counsel for MainStay High Yield Corporate Bond Fund

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