IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re:

Chapter 11 Case No. 11-11795 (KG)

PERKINS & MARIE CALLENDERS, INC., et al., Jointly Administered Debtors.

Related to Docket No. 1067 Hearing Date: October 25, 2011, at 1:00 p.m. Objection Deadline: October 18, 2011, at 4:00 p.m.

OBJECTION OF OMEGA TRUST TO THE MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AUTHORITY TO DISALLOW PROOFS OF CLAIM SOLELY FOR PURPOSES OF VOTING ON THE DEBTORS SECOND AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE Omega Trust #1, Omega Trust #2 and Omega Trust #3 (collectively, Omega Trust), by undersigned counsel, object to the motion [Docket No. 1067] (the 3018 Motion) of the Official Committee of Unsecured Creditors (the Committee) to disallow certain proofs of claim solely for voting purposes in connection with the Second Amended Joint Plan Of Reorganization Under Chapter 11 Of The Bankruptcy Code [Docket No. 896] (the Plan) filed by Debtors, Perkins & Marie Callenders, Inc., et al. (the Debtors). In support, Omega Trust respectfully states as follows: PRELIMINARY STATEMENT 1. The Committee, which obtained authority from the Court by its order of

September 28, 2011 [Docket No. 1057] to bring the 3018 Motion after Debtors declined to do so, makes three arguments in support of its request for disallowance of Omega Trusts claim for voting purposes, none of which have merit. 2. First, the Committee asserts, based on a recent Fifth Circuit decision that has no

applicability here because the facts and circumstances of that case are simply not those involved

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here (and the facts here are determinative), that Omega Trusts claim should be re-characterized as an equity interest in the Debtors. Moreover, and even before one starts to consider the merits of the Committees equity re-characterization argument, it must be noted that the Committee has not actually sought to re-characterize Omega Trusts claim as equity by adversary proceeding, which it must do if it actually desires such relief from the Court. Thus, the Committees equity re-characterization argument is premature and should not, in a summary disallowance for voting purposes proceeding, have the draconian effect of disenfranchising Omega Trust from being able to fully participate in the Plan confirmation process. 3. Second, the Committee argues that because it has alleged avoidable transfers were

made to Omega Trust, 1 section 502(d) of the Bankruptcy Code requires disallowance of Omega Trusts claim for voting purposes. This argument, again, is precipitous and provides no basis for disallowance. The case law is clear that section 502(d) does not require disallowance of a claim even for distribution purposes unless and until an a judgment actually has been rendered on an avoidance claim which the defendant then fails to return to the estate. Thus, in a disallowance for voting purposes situation, like here, section 502(d) simply is not applicable. 4. Third, the Committee, without suggesting what it believes the correct discount

should be, nevertheless baldly asserts that Omega Trust used the wrong discount rate in calculating its claim. Omega Trust disagrees with the Committee on this point, but while use of a different discount rate may produce a different claim amount, the parties disagreement on what rate to use is not in itself authority to disallow Omega Trusts claim for voting purposes altogether.

Notably, the Committee has neither obtained a judgment nor has it brought an action to avoid any transfers to Omega Trust. -210/18/2011 SL1 1104030v3 106745.00001

BACKGROUND A. Omega Trusts Pre-Petition Agreements With Debtors 5. On or about September 26, 1969, Perkins Pancake House, Inc., acting as agent on

behalf of Perkins Foods, Inc., entered into a franchise development agreement with Wyman D. Nelson (the Franchise Development Agreement), pursuant to which Mr. Nelson obtained the exclusive right to develop Perkins restaurants in Iowa and Wisconsin. In December 1976, Mr. Nelson assigned his rights in the Franchise Development Agreement to the predecessors of Omega Trust. A true and correct copy of the Franchise Development Agreement is attached as Exhibit A. 6. On or about February 1, 1977, the predecessors of Omega Trust entered into an

agreement with Perkins Cake and Steak, Inc. (which, together with subsequent amendments is referred to herein as the Royalty Agreement) pursuant to which Omega Trust licensed its rights in the Franchise Development Agreement to Perkins in return for payment of royalties on the gross sales of certain Perkins restaurants. 2 Agreement is attached as Exhibit B 7. The Royalty Agreement represents a license granted by predecessors of Omega A true and correct copy of the Royalty

Trust to predecessors of Debtors to use an asset that did not then belong to the Debtors predecessors. Pursuant to the Franchise Development Agreement, Omega Trusts predecessors held the exclusive right to develop Perkins restaurants in Iowa and Wisconsin. That right was an asset of Omega Trusts predecessors. In return for allowing predecessors of Debtors to use that asset, Omega Trust obtained the right to royalties from grass sales of the Perkins restaurants in Iowa and Wisconsin. In form and substance, what Omega Trust gave to Perkins was a license.
2

Among other things, the Royalty Agreement requires Debtors to make royalty payments to Omega Trust so long as they operate, own or franchise restaurants in Iowa and Wisconsin. -310/18/2011 SL1 1104030v3 106745.00001

8.

Omega Trusts licensing of its asset was not an equity investment in Debtors

predecessors and neither Omega Trust nor Debtors, nor their respective predecessors ever treated the license as an equity investment. 9. In an obvious and ham-handed attempt to support its equity re-characterization

claim, the Committee labels the Royalty Agreement a Profit Sharing Agreement, something it most assuredly is not. See 3018 Motion at 18, 19 and 30. Unsupported by any factual support whatsoever, the Committee asserts at paragraph 30 of the 3018 Motion that the Royalty Agreement is simply that, an agreement by which Omega Trust is entitled to share in the profits of PCMI. See 3018 Motion at 30. Contrary to the language used by the Committee in its 3018 Motion, the Royalty Agreement is not a profit sharing agreement. Rather, as the Royalty Agreement expressly states, and as the Committee itself recognizes at paragraph 18 of the 3018 Motion, the Royalty Agreement entitles Omega Trust to a percentage of Debtors gross sales from certain restaurants in Iowa and Wisconsin. Profits and Gross Sales are distinct

concepts, however, and not interchangeable as the Committee seems to suggest. 3 10. One or more of the Debtors are the successors to the Perkins entities that entered

into the Franchise Development Agreement and the Royalty Agreement. B. Royalty Payments and Omega Trusts Claim Under the Royalty Agreement 11. Regular royalty payments have been made by Debtors to Omega Trust from

1977until approximately one month prior to Debtors commencement of the captioned

The Royalty Agreement states, at paragraph 1.A. that Gross Sales shall mean the total amount of all sales of all food, merchandise or services sold or rendered by any Franchised Restaurants (excluding only sales of cigars, cigarettes, newspapers and merchandise sold from vending machines) less the amount of refunds, allowances or discounts to customers and sales tax levied thereon. -410/18/2011 SL1 1104030v3 106745.00001

bankruptcy cases on June 13, 2011 (the Petition Date). No payments to Omega Trust have been made since the Petition Date. 12. From 1996, based on the Second Amendment to Agreement entered into as of

June 11, 1996, and included as an attachment to the Omega Trust proof of claim, Debtors have paid 1.5% of gross sales to Omega Trust on some of the restaurants in Wisconsin and Iowa, and 2% on others, as more fully set forth therein. 13. Assuming either a breach and/or rejection of the Royalty Agreement to the extent

it is an executory contract under section 365 of the Bankruptcy Code, 4 Omega Trust timely filed a proof of claim in the amount of $55,053,953.27. In so doing, Omega Trust (i) valued the stream of payments it had received under the Royalty Agreement each year and expected to receive in the future, and (ii) discounted that amount to present value using a 3.7% discount rate in its calculation. 14. The Committee argues that Omega Trust used an improper discount rate in

calculating its claim, resulting in a claim overstated by nearly $50 million. See 3018 Motion at 20. Again, the Committee has not suggested in the 3018 Motion what it believes the proper rate should be and, although Omega Trust has requested such information from Debtors, they have not yet produced information as to the discount rate(s) they used in connection with the financial projections in the disclosure statement approved by the Court in connection with the Plan. In any event, Omega Trust submits it is difficult under any scenario to imagine that a consistent stream of $2 million per year payments with many years remaining could be valued at only $5 million, especially in that as contemplated by the Plan, Debtors seek to significantly For the purposes of this pleading Omega Trust takes no position in connection with these issues because Omega Trust submits that whether the Royalty Agreement is executory and rejected or breached by non-performance is not relevant to the calculation of Omega Trusts claim. -510/18/2011 SL1 1104030v3 106745.00001
4

readjust their capital structure by removing a significant amount of debt from their balance sheet. 5 15. On or about October 14, 2011, in accordance with the Courts order of September

9, 2011 [Docket No. 935], Omega Trust submitted its ballot, in the amount of $55,053,953.27, rejecting the Plan OBJECTIONS A. The Committees Attempt at Equity Re-characterization Lacks Merit 1. The Committees Argument is Premature 16. In Bittner v. Borne Chemical Co., Inc., 691 F. 2d 134 (3d Cir. 1982), the Third

Circuit viewed the principal considerations when a court undertakes to estimate a claim under section 502(c) to be accommodation[s] to the underlying purposes of the Code. Id. At 135. 6 17. To that end, among the fundamental purposes and policies of the Bankruptcy

Code are the right of a creditor to vote on confirmation of a plan of reorganization in a chapter 11 case, In re The Heritage Organization, L.L.C., 376 B.R. 783, 794 (Bankr.N.D.Tex.2007), In re Adelphia Communications Corp., 359 B.R. 54, 56-57 (Bankr.S.D.N.Y.2006), and the assumption of prima facie validity of a properly executed, supported and filed proof of claim. Fed. R. Bankr. P. 3001(f). See In re Macfarlane, 83 F.3d 1041, 1044 (9th Cir. 1996); In re Brown, 82 F.3d 801, 805 (8th Cir. 1996). 7

Omega trust submits that it would take a discount rate of many multiples of 3.7% to reduce such an income stream to $5 million. In In re Stone Hedge Properties, 191 B. R. 59 (Bankr. M. D. Pa. 1995), Judge Thomas suggested that claim estimation under section 502(c) of the bankruptcy Code is related to claim estimation for voting purposes. Id. at 65. A properly supported claim provides evidence as to its validity and amount and is strong enough to carry over a mere formal objection without more. Lundell v. Anchor Construction Specialists (In re Lundell), 223 F.23 1035, 1039 (9th Cir. 2000) (citations omitted). -610/18/2011 SL1 1104030v3 106745.00001
7 6

18.

The Committee, in its attempt to disenfranchise Omega Trust, ignores the actual

language of the Royalty Agreement in its rush to label it as a profit sharing agreement. The Committees approach is mis-guided. Rather, as reflected in Omega Trusts prima facie valid proof of claim, the Royalty Agreement reflects a debt obligation of the Debtors that has been treated as such for over 30 years. 19. Moreover, the Committee relies on summary allegations in its efforts to prevent

Omega Trust from voting on the Plan. As noted above, the proper forum for the Committee to assert these allegations is in a separate adversary proceeding, the outcome of which would govern the ultimate characterization of Omega Trusts claim. Moreover, Omega Trust is entitled to the more robust discovery and other procedural and due process rights and protections that it would be afforded in an adversary proceeding that culminated in a ruling on the merits that might have collateral estoppel or res judicata effect on Omega Trusts claim. Again, to date, the Committee has not brought that action. 20. Accordingly, Omega Trust submits that, given its prima facie valid claim and the

true purpose of the Committees 3018 Motion to dis-enfranchise Omega Trust and prevent its full participation in the confirmation process the Court should exercise its discretion by denying the 3018 Motion and allowing Omega Trusts vote to stand for voting purposes as filed. 2. The Committees Argument is Without Merit 21. In Stone Hedge Properties, the court viewed the following factors as important in

considering the issue of temporarily allowing a claim for voting purposes:

See also, First Natl Bank of Fayetteville, Ark. v. Circle J. Dairy (In re Circle J. Dairy), 112 B.R. 297, 299-300 (Bankr. W.D. Ark. 1989). -710/18/2011 SL1 1104030v3 106745.00001

(1) the manner in which the claim was initially scheduled by the Debtor; (2) the proof of claim filed by the creditor; and (3) the objection (adversary counterclaim) of the debtor. 191 B. R. at 65. 8 22. Taking these factors in turn, here, Debtors included Omega Trust and its claim in

their Schedule F (Creditors Holding Unsecured Non-priority Claims). Further, nowhere in their schedules or statements of financial affairs did Debtors list Omega Trust as a holder of equity. Second, the proof of claim filed by Omega Trust as a general unsecured creditor of Debtors reflects both parties long-standing treatment of Omega Trusts rights under the Royalty Agreement as they have existed and been performed for decades. Third, here has been no formal objection to Omega Trusts claim, merely conclusory allegations and mis-labeling of the Royalty Agreement. The Committee argues that its allegations, taken in conjunction with a recent, distinguishable, Fifth Circuit opinion, militate in favor of recharacterization of Omega Trusts claim as equity. The Committee is wrong in its view about the application of that case to the facts here. 23. By way of example in respect of the way in which the Royalty Agreement has

been treated by the parties through the years leading up to this bankruptcy, Omega Trust has attached hereto as Exhibit C excerpts from Debtors Franchise Disclosure Document dated April 15, 2010 (the FDD). Page 65 of the FDD states: The Company has three arrangements with different parties to whom territorial rights were granted. The Company makes specified payments to those parties based on a percentage of gross sales from certain Perkins restaurants and for new Perkins restaurants opened within those geographic regions. During 2009, 2008 and 2007, we paid an aggregate of $2,592,000, $2,718,000 and $2,762,000, respectively, under such arrangements. Of these
8

In Stone Hedge, the debtor already had formally challenged the validity of the creditors claim when it sought disallowance for voting purposes. -810/18/2011 SL1 1104030v3 106745.00001

arrangements, one expires in the year 2075, one expires upon the death of the beneficiary and the remaining agreement remains in effect as long as we operate Perkins restaurants in certain states. In short, Perkins, in its own offering material to prospective franchisees, states that it granted territorial exclusivities to three parties (including Omega Trust) and in return for royalty payments as disclosed therein licensed back from such parties the right to develop Perkins restaurants and to solicit prospective franchisees by the FDD. Further, at page 2 of the FDD Perkins states: The royalty rate for a license under the Relicensing Program is negotiable and will vary in amount depending on, among other things, the profitability of the restaurant as a company store and the likelihood of profitability as a licensed store. The royalty rate, however, will not exceed 4% of the gross sales, except in the states of Iowa and Wisconsin where the royalty rate will not exceed 5% for new restaurants (6% for extensions and renewals) (see Item 6 for further explanation of royalties). The marketing contribution for franchisees participating in the Relicensing Program will be the same as for other franchisees (see Item 6). 24. Thus, Perkins own materials demonstrate that Debtors simply increased the

royalties payable by franchisees in Iowa and Wisconsin to pay for the obligation represented by the Royalty Agreement. Upon information and belief, the Wisconsin and Iowa restaurants paying six percent are those for which Perkins pays Omega Trust two percent pursuant to the Second Amendment to Agreement, and the restaurants paying five percent are those for which the Debtors are obligated to pay Omega Trust one and one half percent. Such shows Debtors intent the Royalty Agreement obligations to Omega Trust were debt obligations that they had to pay from revenues (which they consciously decided to increase vis a vis franchisee royalty payments) and not from profits (i.e., equity, per the Committees formulation).

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25.

It is well-established that courts in the Third Circuit look to eleven factors in

making a determination of whether a claim should be characterized as debt or equity. The eleven factors are: Names given to the instruments, if any, evidencing the indebtedness; Presence or absence of a fixed maturity date and schedule of payments; Presence or absence of a fixed rate of interest and interest payments; Source of repayments; Adequacy or inadequacy of capitalization; Identity of interest between the creditor and the stockholder; Security, if any, for the advances; Corporations ability to obtain financing from outside lending institutions; Extent to which the advances were subordinated to the claims of outside creditors; Extent to which the advances were used to acquire capital assets; and Presence or absence of a sinking fund to provide repayments.

In re Exide Technologies, Inc., 299 B.R. 732, 740 (Bankr. D. Del. 2003) (internal citations omitted). 26. Although the balance of the factors weighs in favor of characterizing Omega

Trusts claim as debt, the Third Circuit has also made clear that no mechanistic scorecard suffices, and that Kabuki outcomes are to be avoided. In re Submicron Systems, Inc., 432 F.3d 448, 456 (3d Cir. 2006). While these [multi-factor] tests undoubtedly include pertinent factors, they devolve to an overarching inquiry: the characterization as debt or equity is a court's attempt to discern whether the parties called an instrument one thing when in fact they intended it as something else. That intent may be inferred from what the parties say in their contracts, from what they do through their actions, and from the economic reality of the -1010/18/2011 SL1 1104030v3 106745.00001

surrounding circumstances. Answers lie in facts that confer context case-by-case. Id. (emphasis added). Applied to the facts before this Court, some of the Exide factors the names given to the instruments and the source of repayment, for example clearly weigh in favor of characterizing the claim as debt rather than equity. 9 However, the basic premise

underlying many of the remaining factors is that an actual transfer or advance of monies was made by the creditor to the debtor. Because Omega Trust never made any such advance or transfer of funds to the Debtors or their predecessors, the Committee faces a square peg/round hole problem in its attempt to characterize Omega Trusts claim as equity rather than debt. As is clear from both the FDD and the parties own treatment of the Royalty Agreement over the thirty four years the Agreement has been in effect, the substance of the Royalty Agreement was the grant to Debtors predecessors of a license of Omega Trusts asset, not an infusion of capital. Application of the Exide factors merely bolsters Omega Trusts argument that the arrangement between the parties has none of the earmarks of an equity infusion and is properly characterized as debt.

As for the names of the instruments used to effect the parties arrangement, the February 1, 1977 document is labeled an Agreement, and subsequent amendments refer to it, as amended, as the Royalty Agreement. In the approved disclosure statement in this case, the debtors describe the agreement as one under which the Debtors have been permitted to operate Perkins restaurants in certain exclusive territories. In its Schedule F Creditors Holding Unsecured Claims, debtor Perkins & Marie Callenders, Inc. lists Omega Trust twice, and describes the consideration for the claim as Contract/Agreement Development Agreement in the first listing and Trade Payable in the second listing. None of these labels carry any implication that this is an equity arrangement. As for the source of repayment,[i]f the expectation of repayment depends solely on the success of borrowers business, the transaction has the appearance of a capital contribution. Exide, 299 B.R. at 741 (internal citation omitted). The source of payment to Omega Trust (not, notably, repayment as no monies were ever advanced to the Debtor or its predecessors by Omega Trust) was based on the Debtors gross sales, not profits. As such, the payments to Omega Trust were not directly tied to the Debtors success and, as such, this factor too weighs in favor of characterizing Omega Trusts claim as a debt. -1110/18/2011 SL1 1104030v3 106745.00001

27.

The Committee hangs its hat on Lothian Oil Incorporated, 650 F. 3d 539 (5th Cir.

2011). However, Lothian Oil is distinguishable on its facts. In Lothian Oil, the Fifth Circuit, after deciding that a bankruptcy court has the equitable power to re-characterize an asserted claim as equity, stated: Texas law controls the agreements underlying Grossman's claims in this case. To distinguish between debt and equity, Texas courts have imported a multi-factor test from federal tax law. Arch Petroleum, Inc. v. Sharp, 958 S.W.2d 475, 477 n. 3 (Tex.Ct.App.1997) (For an oft-cited discussion of the distinction between debt and equity, including a list of sixteen distinguishing factors, see Fin Hay Realty Co. v. United States, 398 F.2d 694, 696 (3d Cir.1968).) . In applying these tests, we consider all the factors and weigh the evidence favoring characterization of the [interest] as debt or equity, while realizing that the various factors are not of equal significance and that no one factor is controlling. Mixon, 464 F.2d at 402. Although the district court did not review the bankruptcy court's findings, it did not suggest that the facts here oppose a recharacterization. We conclude that under the multi-factor tests, the bankruptcy court committed no error in finding that five of Grossman's claims assert common equity interests at best. The bankruptcy court's written order incorporated by reference the findings of fact and conclusions of law announced at a hearing two days earlier. Among the topics discussed at that hearing were the factors listed in Jones, in particular the fact that Grossman would be paid from royalties and equity placements as well as the lack of a specified interest rate, term of repayment, and maturity date. The court ruled that despite language referring to a loan, the investments underlying claims 164, 171, and 178 were equity. The main factor behind this ruling was the inclusion of a royalty payment, which depended on the success of Lothian's business, instead of a prescribed interest rate. Id. at 544. 28. The factors that distinguish this situation from Lothian Oil are many and

determinative. First, in Lothian Oil the claimant was putting cash into the company as a loan. Here, Omega Trusts predecessors licensed its asset to Debtors predecessors. Cash was not

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invested in the company. Second, payments to the claimant in Lothian Oil were to be from equity placements. Here, payments were from Debtors operations, from where debt typically is paid (rather than equity, which is paid by dividends from net income). Third, the lack of an interest rate as noted in Lothian Oil is not a factor here as the Royalty Agreement was not a vehicle by which cash was invested into the Debtors predecessors rather, it was the vehicle by which use of an asset was licensed. Fourth, the lack of a term of repayment and maturity date noted in Lothian Oil is not relevant here as the parties to the Royalty Agreement settled on a term (so long as Debtors operated restaurants in Iowa and Wisconsin). Finally, one of the factors the court found to be significant in Lothian Oil royalty payments dependent on the success of the debtor is not present here, as the payments due under the Royalty Agreement are not based on Debtors success or profit, they are based on gross sales. Clearly, a company with debts in excess of revenues cannot be said either to be successful or profitable and payments to Omega Trust from gross sales had no relation to Debtors relative success. 29. The Committees position in respect of Lothian Oil seems very quickly to boil

down to the labeling of the payments due to Omega Trust as royalty payments, but the logical conclusion that inevitably flows from such position in effect would treat every intellectual property license as equity in bankruptcy. Certainly that is not the case, nor should it be. B. The Committees Request for Disallowance Based on Section 502(d) of the Bankruptcy Code Has No Basis 30. The Committee asserts that Omega Trusts claim, for voting purposes, must be

disallowed pursuant to section 502(d) of the Bankruptcy Code, which states, in part: [T]he court shall disallow any claim of any entity from which property is recoverable under section 550 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549 or 724(a) of this title, unless such entity or -1310/18/2011 SL1 1104030v3 106745.00001

transferee has paid the amount, or turned over any property, for which such entity or transferee is liable . 31. Omega Trust submits that properly read 502(d) applies only in the context of

allowance or disallowance of a claim for distribution purposes. The Committee has cited no authority suggesting that 502(d) has any applicability to allowance or disallowance of a claim for voting purposes. 32. Moreover, the Committee has not yet either (i) obtained a judgment requiring

Omega Trust to return alleged avoidable transfers made by Debtors, or (ii) even brought an adversary proceeding to avoid any transfers made by Debtors to Omega Trust. Even in the context of allowance or disallowance of a claim for distribution purposes, a mere allegation that a claimant received an avoidable transfer does not in and of itself defeat a claim against a debtor pursuant to section 502(d). See In re Southern Air Transport, Inc., 294 B.R. 293, 296 (Bankr. S.D. Ohio 2003) (holding that a preference case must first be adjudicated before the court can determine whether a claim should be allowed or disallowed pursuant to Section 502(d)). When raising an objection to a claim based upon the ground that a claimant has failed to surrender an alleged voidable transfer, the claim can neither be allowed nor disallowed until the preference matter is adjudicated. Id. (quoting In re Coral Petroleum, Inc., 60 B.R. 377 (Bankr. S.D. Tex. 1986) citing Katchen v. Landy, 382 U.S. 323, 330, 86 S.Ct. 467, 473 (1966)). Of course, the decision in Southern Air Transport was in the context of allowance or disallowance of a claim for distribution, and not for voting, purposes, and further was in the context of an avoidance action that actually had been filed, neither of which circumstance is present here. All that the Committee proffers in its Motion is a bare accusation of avoidable transfers, accusations that the Committee has yet to convert to an actual proceeding against Omega Trust.

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33.

The case law is clear that a claim is subject to disallowance (again, for

distribution purposes) only when a fixed amount of an actually adjudicated avoidance claim liability remains unpaid, not when an avoidance action has yet to be litigated. See Holloway v. IRS (In re Odom Antennas, Inc.), 340 F.3d 705, 708 (8th Cir. 2003) (holding that Section 502(d) can only be used to disallow a claim after the entity is first adjudged liable.) (relying upon In re Davis, 889 F.2d 658, 661-62 (5th Cir. 1989) wherein the Fifth Circuit held that the legislative history and policy behind Section 502(d) indicates that the statute is intended to have the coercive effect of insuring compliance with judicial orders . . . [and] is designed to be triggered after a creditor has been afforded a reasonable time in which to turn over amounts adjudicated to belong to the bankruptcy estate.); In re Rhythms NetConnections, Inc., 300 B.R. 404, 408-09 (Bankr. S.D.N.Y. 2003) ([Section 502(d) is] designed to be triggered after a creditor has been afforded a reasonable time in which to turn over amounts adjudicated to belong to the bankruptcy estate.) (emphasis added); In re Lids Corp., 260 B.R. 680, 684 (Bankr. D. Del. 2001) (There is an additional reason to overrule the Debtor's objection. The Debtor does not have a final judgment on its preference complaint. To disallow a claim under section 502(d) requires a judicial determination that a claimant is liable.); Mountaineer Coal Co., Inc. v. Liberty Mut. Ins. Co. (In re Mountaineer Coal Co., Inc.), 247 B.R. 633, 641 (Bankr. W.D.Va. 2000) (holding that Section 502(d) of the Bankruptcy Code would not appear applicable unless and until a finding under one of the cited sections had been made and then the claimant had failed to comply with such ruling); Seta Corp. of Boca v. Atlantic Computer Sys. (In re Atlantic Computer Sys.), 173 B.R. 858, 862 (S.D.N.Y. 1994) (Once the liability of the transferee has been determined, the claim interposed by the transferee will be disallowed unless such transferee gives effect to the judgment flowing from the exercise of the avoiding powers.) (quoting 3

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Collier on Bankruptcy 502.02 (15th Ed. 1993)).; DHP Holdings II Corp. v. The Home Depot, Inc. (In re DHP Holdings II Corp.), Adv. No. 09-51529, 2010 WL 3581879 at *6 (Bankr. D. Del. Sept. 9, 2010) (MFW) (holding that Section 502(d) is triggered only after a judgment has been entered requiring the turnover of property to the estate); Official Unsecured Creditors Comm. Of Broadstripe, LLC v. Highland Capital Management, L.P. (In re Broadstripe, LLC), Adv. No. 09-50966, 2010 WL 3768003 at *46 (Bankr. D. Del. Sept. 2, 2010) (CSS) (To disallow a claim under section 502(d) requires a judicial determination that a claimant is liable.). 34. In addition, the plain language of 502(d) of the Bankruptcy Code specifically

requires that an adjudication of preference liability be made before the statute applies. Section 502(d) of the Bankruptcy Code provides, in pertinent part, as follows: Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title. 11 U.S.C. 502(d) (emphasis added). Accordingly, claims may be disallowed under Section 502(d) of the Bankruptcy Code provided only that property is either recoverable from the claimant or that the claimant is the recipient of an avoidable transfer, and then only to the extent that the claimant does not pay the amount for which it is liable to the estate under Section 550 of the Bankruptcy Code. 10 No judgment has been entered against Omega Trust; and, thus, Omega Trust is not liable and section 502(d) of the Bankruptcy Code simply does not apply.

10

Section 550 of the Bankruptcy Code, however, expressly requires that a transfer must first be avoided for it to apply. See 11 U.S.C. 550(a). -1610/18/2011 SL1 1104030v3 106745.00001

C. Omega Trust Used An Appropriate Discount Rate 35. The Committees argument that Omega Trusts 3.7% discount rate is improper,

without any suggestion of what a proper rate would be in the Committees opinion, must be rejected. 36. The discount rate used by Omega Trust is grounded in history the regular and

full payment by Debtors to Omega Trust for over 30 years without misstep and the Debtors own projections, in connection with the Plan, that its operations in Iowa and Wisconsin will continue largely as they had prior to commencement of the bankruptcy cases. 37. If the discount rate that should be used in valuing an income stream into the future

must account for risk, then Omega Trust submits that the rate it has used takes such into account, inasmuch as it is based on the 34 year history of regular payments from Debtors to Omega Trust and on Debtors representations in its Plan. Moreover, because much of the Debtors debt will be converted to equity or cashed out through the bankruptcy in the event the Plan is confirmed and becomes effective, the risk to Omega Trust of receiving payments under the Royalty Agreement would have been decreased by the bankruptcy.

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RESERVATION OF RIGHTS 41. Omega Trust reserves its rights to (i) object further or to supplement this

objection, and (ii) adopt any objection to the 3018 Motion raised by any other party in interest. CONCLUSION For the reasons stated above, Omega Trust submits that none of the Committees arguments provide any basis for disallowance of Omega Trusts Claim for voting purposes. Therefore, Omega Trust requests that the Court deny the relief sought by the Committee in the Motion. Dated: October 18, 2011 Respectfully submitted, STEVENS & LEE, P.C. /s/ John D. Demmy John D. Demmy (DE Bar No. 2802) 1105 North Market Street, 7th Floor Wilmington, DE 19801 Telephone: (302) 425-3308 Facsimile: (610) 371-8515 E-mail: jdd@stevenslee.com -andJames A. Rubenstein Moss & Barnett 4800 WELLS FARGO CENTER 90 South Seventh Street Minneapolis, MN 55402 Telephone: 612-877-5363 Facsimile: 612-877-5999 E-mail: rubenstein@moss-barnett.com Attorneys for Omega Trust #1, Omega Trust #2, and Omega Trust #3,

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CERTIFICATE OF SERVICE I hereby certify that, in addition to the notice and service provided through the Courts CM/ECF system, on this 18th day of October, 2011, true and correct copies of the foregoing OBJECTION OF OMEGA TRUST TO THE MOTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR AUTHORITY TO DISALLOW PROOFS OF CLAIM SOLELY FOR PURPOSES OF VOTING ON THE DEBTORS SECOND AMENDED JOINT PLAN OF REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE were served by electronic mail on the parties listed below:

Mitchel H. Perkiel, Esq Hollace T. Cohen, Esq. Troutman Sanders LLP The Chrysler Building 405 Lexington Avenue New York, NY 10174 brett.goodman@troutmansanders.com mitchel.perkiel@troutmansanders.com

Robert S. Brady, Esq. Robert F. Poppiti, Jr., Esq., Young Conaway Stargatt & Taylor, LLP The Brandywine Building 1000 West Street, 17th Floor Wilmington, DE 19801 rbrady@ycst.com rpoppiti@ycst.com

Mark R. Somerstein, Esq. Andrew Devore, Esq. Ropes & Gray LLP 1211 Avenue of the Americas New York, New York 10036-8704 Mark.somerstein@ropesgray.com Andrew.devore@ropesgray.com

William E.Chipman, Jr., Esq. Mark D. Olivere, Esq. Landis Rath & Cobb LLP 919 Market Street, Suite 1800 Wilmington, DE 19801 chipman@lrclaw.com olivere@lrclaw.com

Scott L. Alberino, Esq. Akin Gump Strauss Hauer & Feld LLP 1333 New Hampshire Avenue, N.W. Washington, D.C. 20036 salberino@akingump.com

By: /s/ John D. Demmy John D. Demmy(Bar ID. 2802)

10/18/2011 SL1 1092527v1 106745.00001