UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION ) ) ) ) ) ) ) ) ) ) Chapter 11 Case No.

05-55927 (SWR) (Jointly Administered) Tax Identification No. 13-3489233 Honorable Steven W. Rhodes
Hearing Date: September 7, 2006 @ 2:00 p.m.

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

AMENDED AND RESTATED OBJECTION AND MEMORANDUM OF LAW OF FABRIC (DE) GP IN OPPOSITION TO DEBTORS MOTION FOR ENTRY OF AN ORDER AUTHORIZING DEBTORS TO REJECT PORTIONS OF UNEXPIRED LEASE

MILLER, CANFIELD, PADDOCK & STONE, P.L.C. Timothy A. Fusco, Esq. 150 West Jefferson, Suite 2500 Detroit, Michigan 48226 Telephone: (313) 496-8435 Facsimile: (313) 496-7500 Electronic mail: fusco@millercanfield.com and WILLKIE FARR & GALLAGHER LLP Alan J. Lipkin, Esq. Brian P. Guiney, Esq. 787 Seventh Avenue New York, New York 10019 Telephone: (212) 728-8000 Facsimile: (212) 728-8111 Co-Attorneys for Fabric (DE) GP

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TABLE OF CONTENTS Page PRELIMINARY STATEMENT .....................................................................................................1 RELEVANT FACTS .......................................................................................................................2 The Original Lease Transaction.......................................................................................................2 The Acquisition Transaction............................................................................................................4 The Lease Amendment ....................................................................................................................5 The Debtors Chapter 11 Cases .......................................................................................................6 OBJECTION....................................................................................................................................7 I. THE DEBTORS HAVE A SUBSTANTIAL BURDEN TO OVERCOME UNDISPUTED LAW PROHIBITING PARTIAL ASSUMPTION OR REJECTION OF A LEASE................................................................7 A. B. II. The Lease Cannot Be Rejected In Part ........................................................................7 Under Applicable State Law The Debtors Have The Burden Of Proof Regarding Any Finding That The Lease Is Severable .......................................8

THE DEBTORS FAIL TO SATISFY THEIR BURDEN OF PROVING THAT THE LEASE IS SEVERABLE ...........................................................10 A. B. C. The Parties Intended To Have A Single Indivisible Lease ........................................10 The Subject Matter Of The Lease Supports A Finding Of A Single Lease ..........................................................................................................................18 The Parties Consistently Have Treated The Lease As A Single, Unitary Agreement.....................................................................................................22

III. THE EQUITIES HERE REINFORCE THE CONCLUSION THAT THE LEASE SHOULD NOT BE SEVERED .......................................................26 IV. ANY LEASE REJECTION DATE MUST AWAIT THE DEBTORS SURRENDER OF THE PREMISES ............................................................27 CONCLUSION..............................................................................................................................28

AMENDED AND RESTATED OBJECTION AND MEMORANDUM OF LAW OF FABRIC (DE) GP IN OPPOSITION TO DEBTORS MOTION FOR ENTRY OF AN ORDER AUTHORIZING DEBTORS TO REJECT PORTIONS OF UNEXPIRED LEASE Fabric (DE) GP (Fabric, or Landlord), by its undersigned counsel, respectfully submits this objection to the motion (the Motion) of the debtors and the debtors in possession in the above-captioned cases (collectively, the Debtors) for an order authorizing certain of the Debtors to reject portions of an unexpired real property Lease (as defined below) with Fabric,1 and in support thereof, represents as follows: PRELIMINARY STATEMENT The Debtors present their Motion to sever the Lease as being simple and straightforward. Motion p. 2. To do so, the Debtors ignore the parties express statement in the Lease that: this Lease is not intended and shall not be construed to be separate leases. Yet that statement reflected, inter alia, the parties negotiation of a single lease and the parties intent is critical to a severability analysis. Further, the Debtors also largely ignore the facts surrounding the creation of the Lease, the parties conduct concerning the Lease, as well as numerous Lease provisions inconsistent with a finding of severability. Instead, the Debtors focus on a few Lease provisions that could be of relevance only in rare situations and that were inserted into the Lease due to its non-severability. Indeed, those safety valve provisions provide alternative relief to the Debtors and should minimize any reason to sever the Lease. Consequently, when applicable law is applied to all of the relevant facts, the Debtors cannot meet their burden of proving that the

Capitalized terms not otherwise defined herein have the meanings ascribed to them in the Motion. A copy of the Lease is annexed to the Motion as Exhibit B. This objection was amended and restated solely to correct the number of years left in the initial term of the Lease as stated in Argument III.

single Lease at issue here may be or should be severed.

RELEVANT FACTS The Original Lease Transaction Pursuant to a single document entitled Lease Agreement and dated September 28, 2001 (the Original Lease), Fabric leased six real properties (the Original Premises) to four of the Debtors (collectively, the Original Tenant).2 The Original Lease was negotiated by the Debtors and Fabric, each of whom was a sophisticated party represented in such negotiations by experienced counsel. See Affidavit of Benjamin Harris 5, which is annexed hereto as Exhibit B (Harris Aff.). One of the deal terms in the Original Lease specifically negotiated by the parties was whether they would enter into a single lease or separate leases for the leased premises. See Harris Aff. 6. Although the Debtors initially requested separate leases, Fabric required, and the parties ultimately agreed to, a single lease. See Harris Aff. 6. The parties agreement (and intent) to have a single lease was evidenced, inter alia, by the single Lease document containing, inter alia, the following provisions: The Original Lease document is entitled Lease Agreement. Each Debtor that is a Tenant is a tenant for all of the Leased Premises. Original Lease, Preamble p. 1. Each Debtor that comprises the Tenant is listed as having the same address in Troy, Michigan. Id., Preamble p. 1. The Lease contains the following express statement of the parties intent: this Lease is not intended and shall not be construed to be separate leases and that all the terms and conditions hereof shall govern the rights and obligations of Landlord and Tenant with respect thereto. Id. 3(d).

A copy of the Original Lease is annexed hereto as Exhibit A.

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An Event of Default as to any of the premises covered by the Lease shall be deemed to be an Event of Default with respect to the entire Leased Premises (wherever located). Id. 3(d). All of the leased premises only may be utilized for the same purpose, i.e., for manufacturing and other incidental and related uses in connection with Tenants business as now conducted at the Leased Premises and for no other purpose . . . . Id. 4(a). The initial term of the Lease begins and ends on the same date for all of the leased premises. Id. 5(a). The Tenants options to extend the term of the Lease must be exercised at the same time for all of the covered premises, must be exercised as to not less than four of the six leased premises, and any such extensions would start and end on the same dates for all covered premises. Id. 5(b). Basic Rent due under the Lease is paid monthly in a single lump sum for all premises. Id. 6. Default interest and late charges due under the Lease are calculated based on the entire amount of Basic Rent not paid when due. Id. 7(a)(ii), (iv). The periodic adjustments in Basic Rent based on changes in the Consumer Price Index are based on the entire amount of Basic Rent. Id., Exhibit D 4. If there is an Environmental Violation at any individual leased location that precludes use of that location after the date the Lease otherwise would have expired, then the Lease term for all of the leased premises would be extended until remedial action cures that Environmental Violation. Id. 10(e). Tenants exercise of rights as to a Casualty or Condemnation at any individual leased property is conditioned upon there being no Event of Default under the entire Lease for all of the premises. Lease 17(a). While Tenant has a limited right to remove an individual property from the Lease based on certain types of Casualty or Condemnation, the landlord may defer the exercise of that right until the Tenant brings current all of its obligations under the Lease, whether or not related to the premises to be removed. Id. 18(c). Tenant only may assign the Lease as a whole. Id. 21(a).

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An Event of Default related to any individual location is an Event of Default under the entire Lease and would enable the landlord to exercise remedies, including termination, as to the entire Lease. Id. 22, 23(a). There is a single security deposit in the form of a letter of credit to secure all of Tenants obligations under the Lease. Id. 34. While Tenant has a limited right to substitute one location covered by the Lease, that right is conditioned upon there being no Event of Default as to any of the leased premises. Id. 35. The Lease contains an integration clause stating that the Lease reflects the entire agreement of the parties. Id. 36(e). All provisions of the Lease govern all of the leased premises. There is one guaranty of all of Tenants obligations under the Lease pursuant to a Guaranty and Suretyship Agreement, dated as of January 15, 2002,3 by the Debtor Collins & Aikman Corporation (C&A Corp.).

The Acquisition Transaction Prior to the Original Lease, all of the Original Premises were owned by the Debtors. In September 2001, Fabric simultaneously acquired all of the Original Premises from the Debtors and leased all of them to the Original Tenant pursuant to the Original Lease. See Harris Aff. 8. At the time of Fabrics acquisition, the Original Premises were manufacturing and distribution facilities that made up a significant majority of the Debtors integrated core automotive interior business and were critical to the Debtors operations. See Harris Aff. 7; Lease 4(a). In connection with the acquisition transaction, Fabric obtained: One mortgage loan to fund the acquisition of all the Original Premises. One insurance policy for all of the Original Premises to fund each type of risk (e.g. liability, business interruption, fire, etc.) related to the Original Premises.

The guaranty was of the Original Lease, which was amended and restated into the current Lease.

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One primary legal opinion from Tenant/Sellers counsel regarding the conveyance and lease of the Premises, with supporting legal opinions issued by state, not by property. One Tenant Estoppel Certificate from Tenant (and signed by all the applicable Debtors) in favor of Fabrics Lender, who extended a loan to Fabric secured by all of the Premises. One Subordination Non-Disturbance and Attornment Agreement from Tenant (and signed by all the applicable Debtors) in favor of the Lender. One side letter from Tenant restricting Tenants rights if it purchased the Lenders loan.

See Harris Aff. 8. The single legal opinion, estoppel certificate, and attornment agreement each were reissued when the Original Lease was amended. The Lease Amendment The Original Lease was amended and restated pursuant to the First Amended and Restated Lease Agreement, dated as of June 27, 2002 (the Lease), between Fabric and four Debtors herein, Collins & Aikman Products Co., Collins & Aikman Automotive Mats, LLC, Collins & Aikman Carpet & Acoustics (TN), Inc. and Collins & Aikman Plastics, Inc. (collectively, Tenant). Under the Lease, Tenant leased from Fabric non-residential real property located in: (i) Manchester, Michigan; (ii) Albemarle, North Carolina; (iii) Farmville, North Carolina; (iv) Old Fort, North Carolina; (v) Holmesville, Ohio; and (vi) Springfield, Tennessee (collectively, the Premises). The impact of the June 2002 amendment was to remove pursuant to section 35 of the Original Lease one Debtor, Collins & Aikman Carpet & Acoustics (MI), Inc., and one property, located in Marshall, Michigan, from the Lease and to add one Debtor, Collins & Aikman Plastics, Inc., and one property, located in Manchester, Michigan, to the Lease. Except for minor modifications reflecting those limited changes, all of the Original Lease provisions, including all of those listed above that demonstrate the Lease was non-severable, were

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reaffirmed and restated in the amended Lease. Of particular note, the percentage rent schedule in Exhibit G to the Original Lease was not changed so that the newly added Manchester, Michigan property simply inherited the percentage listed for the replaced Marshall, Michigan property. See Harris Aff. 10; Exhibit G to the Original Lease and Lease. The Debtors Chapter 11 Cases As detailed below, throughout these cases the Debtors have treated the Lease as a single lease: The Debtors Schedules of Assets describe the Lease as a single lease. To resolve Fabrics objection to the Debtors July 2005 motion to extend the Debtors time to assume unexpired leases, the Debtors proposed and agreed to insert language in the extension order describing the Lease as a single lease (i.e., the Fabric Lease) and providing that if the Debtors did not timely pay all rent due under the Lease, then Fabric would have the right to require the Debtors to assume or reject the entire Lease. In connection with Fabrics February 2006 motion to compel the Debtors to pay postpetition Lease obligations related to real estate taxes, the Debtors both in their objection to the motion and in their related appellate briefs repeatedly describe the Lease as a single Lease (i.e., the Lease). To resolve Fabrics informal objection to the Debtors May 2006 motion to wind-down their Fabrics Business, the Debtors agreed to insert language in the wind-down order that, inter alia, describes the Lease as a single lease (i.e., the Lease). Even though the Debtors closed the Manchester Premises in February, 2006 and continued paying rent under the Lease covering, inter alia, those Premises, the Debtors did not seek to sever the Lease as to the Manchester Premises until four months after the closure.

Only on June 14, 2006, did the Debtors first raise the severability issue by filing the Motion seeking to sever the Lease as to the Manchester and Farmville portions of the Premises. Notably, neither the Motion nor the annexed proposed order specifies the terms of the individual severed leases that the Debtors seek to fabricate.

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OBJECTION I. THE DEBTORS HAVE A SUBSTANTIAL BURDEN TO OVERCOME UNDISPUTED LAW PROHIBITING PARTIAL ASSUMPTION OR REJECTION OF A LEASE A. The Lease Cannot Be Rejected In Part The Debtors seek entry of an order approving rejection of the Manchester and Farmville Premises. Motion 11. Section 365 of the Bankruptcy Code, however, does not authorize the rejection of real property; rather, the trustee or debtor in possession only is authorized to assume or reject any executory contract or unexpired lease of the debtor. 11 U.S.C. 365(a) (emphasis added). Thus, the Debtors must (but fail to) specify the terms of the severed leases the Debtors seek to reject. Further, it is well-settled in this Circuit (as in others) that [w]hen a contract is assumed in bankruptcy, it is accompanied by all of its provisions, and it cannot be assumed in part and rejected in part. In re Beare Co., 177 B.R. 879, 881 (Bankr. D. Tenn. 1994). See City of Covington v. Covington Landing Ltd. Partnership, 71 F.3d 1221, 1226 (6th Cir. 1995) (When the debtor assumes the lease or contract under 365, it must assume the benefits and burdens of the contract.); In re Executive Tech. Data Systems, 79 B.R. 276, 282 (Bankr. E.D. Mich. 1987) (Unquestionably, an executory contract may not be assumed in part and rejected in part, and if the debtor elects to reject an executory contract, he rejects the benefits as well as the burdens) (citation omitted). Hence, the Bankruptcy Code does not permit the Debtors to cherry-pick those portions of the Lease that the Debtors find beneficial. In re Atlantic Computer Sys., Inc., 173 B.R. 844, 849 (S.D.N.Y. 1994).

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B.

Under Applicable State Law The Debtors Have The Burden Of Proof Regarding Any Finding That The Lease Is Severable To circumvent the requirement that the Lease must be assumed or rejected in toto,

the Debtors argue the Lease is severable as to the Manchester and Farmville Premises. Motion 11. Yet a finding of severability is rare and the Debtors bear the burden of proving that the Lease should be severed. See generally In re Rachels Industries, Inc., 109 B.R. 797, 802 (Bankr. W.D. Tenn. 1990). As the Debtors concede, the state law governing the Lease also governs whether or not the Lease is severable. Motion 13 (citing In re Cafeteria Operators, L.P., 299 B.R. 384, 389 (Bankr. N.D. Tex. 2003)). As set forth in the Lease, the law of the state in which the relevant Premises is located governs that property. Lease 36(j). Accordingly, Michigan law and North Carolina law, respectively, govern the question of whether either the Manchester Premises or Farmville Premises is severable from the Lease. In determining whether a lease is severable, North Carolina courts examine the intent of the parties. See Turner v. Atlantic Mortgage and Investment Co., 32 N.C. App. 565, 233 S.E.2d 80, 83 (N.C. Ct. App. 1977). The intent of the parties is ascertained by taking into consideration all the paper writings relating to the controversy, the condition of the parties, and the purpose for which they were entered into. See Peeler v. Peeler, 202 N.C. 123, 162 S.E. 472, 473 (1932). The Supreme Court of North Carolina has made clear, even in the context of multiple instruments executed in connection with a single transaction, that if such intent shows a contract is entire, the whole contract stands or falls together. Pure Oil of the Carolinas v. Baars, 224 N.C. 612, 31 S.E.2d, 854, 856 (N.C. 1944). Thus, that Court enforced a separate option to repurchase property granted in exchange for the original transfer of that property

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because the Court viewed the option and transfer as part of a single transaction and despite a strong argument that a separate option agreement was legally void. Id. Similarly, under Michigan law, when determining whether a contractual provision is severable, it is clear that the primary consideration is the intention of the parties. Samuel D. Begola Services, Inc. v. Wild Brothers, 210 Mich. App. 636, 534 N.W. 2d 217, 200 (Mich. Ct. App. 1995) (citation omitted). Correspondingly, another court summarizing Michigan law found that the determination of divisibility depends primarily upon the intent of the parties, the subject matter of the agreement, and the conduct of the parties. In re Cafeteria Operators, L.P., 299 B.R. at 389-90 (quoting In re Convenience USA, Inc., 2002 Bankr. LEXIS 348, 8-9 (Bankr. M.D.N.C. 2002)). Courts applying other states laws have utilized the same three-part test in analyzing whether a contract is severable for purposes of section 365 of the Bankruptcy Code. See, e.g., In re FFP Operating Partners, LP, 2004 Bankr. LEXIS 1192, 5-6 (Bankr. N.D. Tex. 2004) (a contracts severability depends on several factors: (1) the intent of the parties; (2) the subject matter of the agreement; and (3) the conduct of the parties). Notably, when conducting this three-factor analysis, the Court must first consider the intent of the parties, which is the factor given the greatest weight. See FFP, 2004 Bankr. LEXIS 1192 at *6. While relying extensively on Cafeteria Operators, FFP, and Convenience USA, the Debtors espouse a somewhat different formulation of the test for severability (although the Debtors acknowledge the centrality of the intent of the parties). See Motion 16. Specifically, citing In re Hollys, Inc., 140 B.R. 643, 681 (Bankr. W.D. Mich. 1992), the Debtors suggest that when evaluating the severability of a contract, courts consider: (1) the differing nature and purpose of the agreements; (2) the separate and distinct consideration for the agreements; and (3) the non-interrelatedness of the obligations of the parties to the document.

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Id. at 681 (citing In re Gardinier, Inc., 831 F.2d 974, 975-76 (11th Cir. 1987), cert. denied, 488 U.S. 853 (1988)). As none of the cases cited by the Debtors for utilizing this formulation considered the specific question at issue here (i.e., whether a lease covering multiple nonresidential real properties may be severed), the intent of the parties test is the proper formulation here. 4 II. THE DEBTORS FAIL TO SATISFY THEIR BURDEN OF PROVING THAT THE LEASE IS SEVERABLE A. The Parties Intended To Have A Single Indivisible Lease 1. The Terms of the Lease Itself Demonstrate the Parties Intent to Have a Single, Indivisible Lease Express Statement of Parties Intent.

As noted above, the intent of the parties is the most important factor in determining whether a lease is severable. FFP, 2004 Bankr. LEXIS 1192 at *6. Here, the parties intent precludes severance. The parties drafted a single lease document entitled Lease Agreement that governs all of the leased premises. See In re United Air Lines, Inc., ___ F.3d __, 2006 WL 1841461, *4 (7th Cir.) (fact that deal is reflected in a single document is a critical distinction supporting non-severability). Significantly, the parties explicitly stated their intent in section 3(d) of the Lease that this Lease is not intended and shall not be construed to be separate leases. Lease 3(d) (emphasis added).5 That provision reflects the fact that inclusion of all six Premises in a

Also, while In re Hollys Inc. is a Michigan bankruptcy court case, the decision never says it is interpreting Michigan law. Regardless, as conceded by the Debtors, Motion 16, n.3, the Hollys factors are covered by the intent of the parties test (i.e., nature and purpose are subsumed within the subject matter factor and consideration and relatedness are incorporated within the intent of the parties factor). Moreover, the Debtors discuss the conduct of the parties under the relatedness factor. See Motion 19. Similarly, the Lease provides that it reflects the entire agreement between the parties and supersedes all prior understandings and agreements between the parties. Lease 36(e). Notably, all of these provisions are repeated word for word in both the Original Lease and the amended Lease.

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single lease was actively negotiated by the parties and agreed upon after Fabric said a single lease was the only basis upon which Fabric would proceed. Harris Aff. 6. Further, the Lease was negotiated at arms length and in good faith between two sophisticated parties who were represented by able counsel. Harris Aff. 5. Consequently, Fabric bargained for a single lease and the Debtors should not be able to reneg on their agreement now solely to obtain a potential economic benefit. See Dumas v. Auto Club Ins. Assoc., 437 Mich. 521, 616-17, n. 87; 473 N.W.2d 652 (even though the consideration for each agreement is distinct, if the agreements are interdependent and the parties would not have entered into one in the absence of the other, the contract will be regarded . . . as entire and not divisible.) (emphasis added) (quoting 3 Williston, Contracts (3d ed) 532, p. 765). Parties.

Each Debtor that is a Tenant is a tenant for all of the leased premises and is listed as having the same address in Troy, Michigan. Lease, Preamble p. 1. Meanwhile, Fabric is the sole landlord under the Lease for all of the premises. Id. In contrast, the leases in the cases cited by the Debtors were owned by multiple landlords. See Cafeteria Operators, 299 B.R. at 387 (lease at issue covered 43 different properties, which were owned by several landlords); Convenience USA, 2002 Bankr. LEXIS at *1 (the debtors lease covered 27 properties owned by six different landlords). In each such case, the applicable Court found that the lease at issue was severable with respect to properties leased by different landlords, but did not find the leases were severable with respect to properties owned by the same landlord. See Cafeteria Operators, 299 B.R. at 392; Convenience USA, 2002 Bankr. LEXIS 348 at *20. Accordingly, the fact Fabric owns all of the Premises favors denial of the Motion.

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Rent Provisions.

The Lease provisions relating to rent further evidence the parties intent to enter into a single, integrated Lease. For example, monthly Basic Rent for all properties is payable in one lump sum paid to one party. Lease 6, Exhibit D. Further, default interest and late charges are calculated based on the entire amount of Basic Rent rather than being calculated on a property by property basis. Lease 7. Similarly, the periodic CPI rent adjustment in the Lease is based on the entire amount of Basic Rent. Lease, Exhibit D. Moreover, the Debtors posted a single letter of credit as the security deposit for all of the Debtors monetary obligations under the Lease. Lease 34(a). Accordingly, the Leases rent related provisions constitute strong evidence that the Lease is not severable. See City of Lansing v. Township of Lansing, 356 Mich. 641, 97 N.W.2d 804, 813 (1959) (Supreme Court of Michigan held that when the consideration to be paid is single and entire, the contract must be held to be entire, although the subject thereof may consist of several distinct and wholly independent items); Turner v. Atlantic Mortgage and Investment Co., 233 S.E.2d 80, 83 (North Carolina Court of Appeals found a contract to be divisible by distinguishing cases having facts similar to the facts here i.e. cases finding that the contracts at issue were entire because a single consideration supported all the promises and the promises are closely related). The Debtors focus on Exhibit G to the Lease, which lists a percentage of Basic Rent for each of the six Premises. See Motion 18. Yet, that alleged allocation is not a feature of the Lease generally, but rather could become relevant upon the highly unlikely occurrence of a Termination Event related to certain types of Casualty or Condemnation (as each such term is defined in the Lease). Notably, in the event of a Partial Casualty or Partial Condemnation (each as defined in the Lease), there would be no need to refer to Exhibit G. See Lease 17(c). Consequently, Exhibit G is merely a tool to implement a fail safe
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mechanism available only in very limited circumstances. Meanwhile, in 99.9% of the circumstances governed by the Lease, Exhibit G is of no consequence. Hence, Exhibit G was inserted in recognition of (not to annul) the unitary, integrated feature of the Lease.6 See, e.g., In re Mirant Corp., 318 B.R. 100, 107 (N.D. Tex. 2004) (in an analogous context, court found that use of severability provision in contract does not support severance; rather, the only potential relevance of the severability provision was to show that the parties did not intend for individual provisions to be severable unless severability was expressly authorized by the provision.). Moreover, as demonstrated by the fact Exhibit G was not amended in 2002 when there was a substitution of one property covered by the Lease, the rent percentages in Exhibit G are only intended to roughly approximate the portions of Basic Rent allocable to each leased location rather than being a precise allocation for general purposes governing separate leases. See Harris Aff. 10. Indeed, Exhibit G does not even provide for allocation of Additional Rent under the Lease. Hence, the Debtors attempt to use this safety valve provision as if it were central to the Lease and supportive of severability is unwarranted and cannot overcome the unitary, integrated character of the rent and numerous other provisions of the Lease.7 See also In re United Air Lines, 1841461, *6 (apportionability a factor, not the only factor regarding severability) (citations omitted).

A similar analysis applies to Exhibit F to the Lease, which lists acquisition costs by individual Premises for a limited purpose under the Lease and also was not amended when the Original Lease was amended and restated. While conceding the monthly rent was paid in a lump sum, the Debtors also state that each of the demised premises was separately responsible for payment of their [sic] allocated percentage of the rent. Motion 18. Yet, only the Tenant, not a property, may be responsible for payment of rent. Further, while the point of the Debtors statement is far from clear, at most, it suggests that the Debtors -- without participation of Fabric -- may have made internal rent allocations by property, for unspecified internal purposes. Even if true, however, that fact does not alter the parties stated intent to have an indivisible Lease.

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Provisions Concerning an Event of Default.

Pursuant to the Lease, [a]ny Event of Default hereunder in connection with any Related Premises shall be deemed to be an event of default with respect to the entire Lease Premises (wherever located). Lease 3(d) (emphasis added). In such circumstances, Fabric, as landlord, may exercise remedies as to the entire Lease even if the Event of Default concerns only one location. Id. 22, 23(a). In response, the Debtors argue that cross-default provisions are disfavored in bankruptcy and, therefore, are of limited probative value in a severability analysis. Motion 24. That argument, however, is misleading because the Court is not being asked to enforce the cross-default provision now. Instead, the Court is evaluating the extent to which such a provision demonstrates the parties intent and, therefore, supports a finding the Lease is nonseverable. Indeed, even courts disfavoring such provisions acknowledge that a cross-default provision must be considered and weighs against a finding of severability. See, e.g., FFP, 2004 Bankr. LEXIS 1192 at *13; Liljeberg Enterprises, Inc., 304 F.3d 410, 445 (5th Cir. 2002) (enforcement of a cross-default provision should not be refused where to do so would thwart the nondebtor partys bargain.) (citation omitted); In re T&H Diner, Inc., 108 B.R. 448, 454 (D.N.J. 1989) (cross-default provisions in contracts negotiated by sophisticated parties supported conclusion that contracts were indivisible.). That conclusion is buttressed by the fact the Lease also provides that [i]f an Event of Default shall have occurred . . . Fabric may, upon notice to Tenant, require Tenant to make an irrevocable offer to terminate this Lease upon payment of an amount determined in accordance with the Lease. Lease 23(a)(iii). In effect, this provision gives Fabric the right to require the Tenant to buy out the entire Lease, rather than to make a buyout offer corresponding only to the specific location to which the event of default may relate. Also, Tenants ability to
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exercise rights concerning a Casualty or Condemnation at an individual property is conditioned upon there being no Event of Default under the release regarding any of the Premises. Lease 17(a). Hence, the Leases default provisions strongly support a finding that the Lease is indivisible. Lease Term

Other evidence of the parties intent to have a single lease is the uniform term of the Lease applicable to all of the Premises. Lease 5(a). Thus, for each of the six Premises, the initial Lease term commences and ends on the same dates. The same is true for any option period extensions. Id. 5(b). In contrast, the Cafeteria Operators Court found that a staggered lease term, which varied for different properties, mitigated in favor of a finding of severability. 299 B.R. at 390. Accordingly, the single term for all Premises covered by the Lease further evidences the parties intent to create a single, unitary agreement. Additionally, the Lease term would be extended automatically if an Environmental Violation exists and the [Lease] Term would otherwise terminate or expire. See Lease 10(e). In effect, if an Environmental Violation precludes use of any one of the Premises at the time the Lease otherwise would expire, then the Lease term for all of the Premises automatically would be extended beyond the stated Lease expiration date until the violation has been cured. Had the parties intended to create separate leases, then the Lease term for all of the Premises would not be extended based on an Environmental Violation at only one of the Premises. Hence, the Leases term provisions also strongly favor finding the Lease to be nonseverable. Anti-Assignment Provision

Another factor demonstrating the parties intent to create a single Lease is that the Debtors only may assign the Lease as a whole. Lease 21(a). Had the parties intended
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to create a severable Lease, then assignment would have been permitted on a Premises by Premises basis. Consequently, this feature also favors finding the Lease to be nonseverable. Integration Clause

Still another factor supporting an indivisible Lease is the Leases integration clause. Lease 36(e). See In re Mirant Corp., 318 B.R. at 106 (existence of integration clause is key factor in finding agreements to be indivisible); Philip Servs. Corp. v. Luntz (In re Philip Servs., Inc.), 284 B.R. 541, 546 (Bankr. D. Del. 2002) (same). In response, the Debtors acknowledge that an integration clause is strong evidence of indivisibility of the Lease and merely cite cases finding that an integration clause alone is not controlling on the severability issue.8 See Motion 25. Renewal, Sublease, and Substitution Provisions

The Debtors rely heavily on the Tenants limited rights to: (a) exclude up to two of the six Premises from the Lease during the optional renewal terms under the Lease; (b) terminate the Lease as to an individual location upon certain types of casualty or condemnation; (c) sublet up to two locations; and (d) substitute up to one location. Motion 19-20. (citing Lease 5(b), 18(c), 21(b), and 35(a)). Yet these provisions are not evidence of the parties intent to have multiple leases, but rather are to provide limited flexibility to the Tenant in the context of the single, integrated Lease. Harris Aff. 9. See In re Mirant Corp., 318 B.R. at 107.

The Debtors also argue that the Leases integration clause should not be enforced because the alleged sole purpose of that provision is to hinder the Debtors ability to reject the individual demised premises covered by the Lease. Motion 26. Nonetheless, as discussed above concerning the cross-default provision, the key here is not enforcement, but rather assessment of the parties intent, which the integration clause shows was to have a single lease. Regardless, the sole reason for a single Lease here, as exemplified by the integration and cross-default clauses, is not to prevent rejection of the Lease as to individual Premises (even assuming that was otherwise possible). Instead, the reasons for a single lease included obtaining multiple tenant/obligors on the Lease, administrative convenience, cost savings in negotiating and drafting the Lease, and provision to the landlord of greater visibility and leverage in all contexts when dealing with the Tenant. See Harris Aff. 5.

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In Mirant, the Court rejected a similar attempt by a debtor to prove severability by bootstrapping upon conditional, situation-specific provisions in an agreement: Debtors reliance on the [sale agreements] severability provision is misplaced. By that section the parties narrowly and specifically limited severability to a situation where a provision of the [sale agreement] was declared invalid, illegal, or contrary to law or public policy. If the severability provision has any relevance to the issue under discussion, it is that the provision tends to show that the parties did not intend for individual provisions to be severable unless severability was expressly authorized by the provision. Mirant, 318 B.R. at 106-07 (emphasis added). Here, the renewal option and substitution provisions similarly mitigate against a finding of severability because such provisions would be unnecessary if the Lease was to be severable. Further, it is significant that the Tenants exercise of each of these rights cited by the Debtors is available only in narrow circumstances and only if there is no Event of Default under the entire Lease, which encompasses all of the Premises. Additionally, a sublease right is a feature in numerous leases, including leases covering only one property, so the sublease right in particular is not evidence supporting severability. Thus, while the provisions relied upon by the Debtors provide them with a few talking points, such provisions do not rebut the overwhelming evidence within the four corners of the Lease that the parties intended to have and drafted a single indivisible lease9. 2. The Circumstances Surrounding the Creation of the Original Lease Further Demonstrate the Parties Intent to Create a Single, Indivisible Lease There were numerous facts surrounding the Original Leases creation that

The Debtors also rely on the fact the Lease specifically provides for different state law to apply to each of the demised premises, depending on their location. Motion 21. Of course, that is not true for each of the Premises because three of the Premises, including Farmville, are located in the same state. Regardless, governance by applicable state law is a standard real estate provision and is not an indication of intent to have multiple leases, particularly when some of the Premises are located in the same state.

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reflect both the parties intent that the Lease be a single document and Fabrics reliance on that integration. First, all the Premises were acquired by Fabric at the same time. Second, the Lease was entered into at the same time for all of the Premises. Third, there is a single guaranty of the Lease. Fourth, there is a single letter of credit to secure all of the Tenants Lease obligations. Lease 34. See Harris Aff. 4. These facts simply are not consistent with a severable Lease. B. The Subject Matter Of The Lease Supports A Finding Of A Single Lease The Debtors argue that the Lease is severable because it covers six properties in different locations and the two properties at issue here allegedly operated on a stand-alone basis.10 Motion 17. The Debtors, however, do not specify the terms of the requested severed leases. By way of example, severance would raise the following questions among others, regarding any severed lease: What happens to the single security deposit under the current Lease? Do all of the Tenants remain obligated as tenants for the existing Lease and the severed leases? Are the numerous provisions conditioned upon there being no event of default regarding any of the Premises to be enforced for all of the leases? Does the Lease provision permitting substitution for the Premises have any continued vitality after severance? Does the option for the Tenant to extend the Lease while excluding up to two of the six Premises have any continued vitality?

These and many other open questions further demonstrate the futility of the Debtors severance Motion.

10

The Debtors do not explain what stand-alone means in this context.

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Regardless, the Debtors perspective is far too narrow and does not reflect the parties views (or the reality) when the Original Lease was entered. Indeed, the Lease itself demonstrates the parties belief that all the leased Premises were linked because the Lease contains a uniform use restriction under which the leased Premises only may be utilized for manufacturing and other incidental and related uses in connection with Tenants business as now conducted and for no other purpose . . . . Lease 4(a). Further, that unitary business operation was manufacturing and distribution for the Debtors core automotive interior business. Harris Aff. 7. Indeed, when the Original Lease was entered in 2001, the Debtors consistently viewed their operations as being integrated rather than as having stand-alone facilities. For example, the Debtors 2001 Annual Report11 includes the following discussion of the key elements of the [Debtors corporate] strategy: Provide integrated product solutions that combine interior styling, component systems and acoustical technologies: The ability to bundle multiple components into integrated, custom packages distinguishes the Company from its competitors and provides an opportunity to increase content per vehicle . . . . By employing a cross-disciplinary approach to acoustics, surface styling and product engineering that takes advantage of product development and technological capabilities, the Company can offer integrated product solutions to its customers. Capitalize on position as prime contractor to OEMs and Tier I total interior integrators: The Company believes that OEMs will accelerate modular and system sourcing in order to lower costs, reduce time to market and accommodate global platforms and that Tier I total interior integrators will increase the redeployment of assets and capital into the integrated design, assembly and just in time sequenced delivery of complete interior systems. The Company is well positioned to capitalize on these opportunities. Increase content per vehicle: The Company intends to take advantage of its current position to increase content per vehicle and has substantial new business awards from

11

References to the Company refer to Collins & Aikman Corporation. A copy of the 2001 Annual Report on Form 10-K is annexed hereto as Exhibit C.

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customers across al product categories, with the strongest growth in fully assembled cockpit modules. 2001 Annual Report on Form 10-K pp. 3-4 (emphasis added). Similarly, in 2001 the Debtors description of their operations, including their products, marketing, manufacturing, SG&A, financing, and accounting policies all focused on a single integrated operation and included no references to (and were mutually inconsistent with having) stand-alone facilities: The Company conducts all of its operating activities through its wholly owned Collins & Aikman Products Co, (Products) subsidiary. The Company markets the majority of its products to customers through a single global commercial operations group, which supplies products from three primary categories including plastic components and cockpits, carpet and acoustics and automotive fabrics. As a global leader in automotive interior components, the Company differentiates itself in the marketplace by consistently providing high quality products, outstanding customer service and program management and cost effective automotive solutions to global customers. Historically, the Company marketed individual components, modules and complete systems to customers. With the implementation of Mega Tier II strategy, the Company realigned marketing efforts to sell integrated product "bundles'' to customers in an effort to increase growth in sales and operating income while enhancing the value-add provided to customers. Central to this marketing strategy has been the development of products that enhance both the vehicles' interior aesthetics as well as its acoustic performance. Equally important, and unlike many other Tier I or Tier II automotive suppliers, is the development of marketing and program management teams specifically focused on supporting not only OEMs, but major Tier I customers as well. These dedicated teams, consisting of automotive interior personnel who are able to meet a customer's entire interior needs, provide a single interface for our customers and help avoid duplication of our sales and engineering efforts. The Company possesses cross-disciplinary manufacturing expertise, including an ability to form and assemble multi-material combinations of hard-molded plastics, slush-molded soft skins and surfaces, carpet, fabric, foam, insulation, and other trim materials. Selling, general and administrative expenses for 2001 were $164.4 million, compared to $158.5 million in 2000. The Company's principal source of funds is cash generated from continuing operating activities, borrowings under credit agreement facilities, and the sale of accounts receivable under accounts receivable facilities and the issuance of common stock.

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As noted in the liquidity section, the Company entered into a new senior secured credit facility that allows funding in the aggregate of up to $575 million. Borrowings under the credit facility are secured by all the assets of the Company and C&A Products and certain subsidiaries of each, and are unconditionally and irrevocably guaranteed jointly and severally by the Company and each existing and subsequently acquired or organized domestic subsidiaries (other than by the Company's receivables subsidiary). The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. Investments in entities in which the Company has control are consolidated. Investments in 50% or less owned entities in which the Company has significant influence have been accounted for under the equity method. All significant intercompany items have been eliminated in the preparation of the consolidated financial statements. On February 10, 1999, the Company announced the Reorganization, a comprehensive plan to reorganize its global automotive carpet, acoustics, plastics and accessory floormats businesses into two divisions: North American Automotive Interior Systems, headquartered in the Detroit metropolitan area, and European Automotive Interior Systems, headquartered in Germany.

Id. at 4-5, 7, 8, 18, 21, 23, F-7, F34-F35 (emphasis added). Thus, the Debtors characterization of the Manchester and Farmville Premises as stand-alone facilities is newfound and inconsistent with the Debtors public pronouncements when the Lease was entered and thereafter. Similarly, the Debtors position is inconsistent with the facts, such as that at least the Farmville Premises supplied materials to the other leased Premises when the Original Lease and Lease were entered.12 See Harris Aff. 7. Consequently, the situation here is readily distinguishable from the numerous unrelated retail outlets and convenience stores covered by the leases in the cases relied on by the Debtors. See Motion 17 (citations omitted). In effect, when the Lease was entered into, all the

12

Hence, the Debtors stand-alone characterization is disingenuous. In effect, the Affidavit of James Moore, annexed to the Motion as Exhibit C, states (in the past tense) that [u]p until its closure, the Manchester Premises operated independently of the other five demised premises under the [Lease]. Moore Affidavit 5. In contrast, Mr. Moores discussion of the Farmville Premises has the subtle distinction of being written only in the present tense: [t]he Farmville Premises also operate independently of the other five demised premises in the [Lease]. Id. at 7. Thus, even the Moore Affidavit implicitly acknowledges that in the past, the Farmville Premises did not operate independently of the other leased Premises.

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leased facilities were part of the Debtors core manufacturing business and none were viewed as being readily disposable or replaceable. Harris Aff. 7. Thus, the leased Premises were unlike the much more numerous and smaller individual retail outlets in the cases relied upon by the Debtors. At a minimum, however, the Manchester and Farmville Premises, were not totally different from the other leased Premises or from the rest of the Lease as required in Hollys. 140 B.R. at 681. C. The Parties Consistently Have Treated The Lease As A Single, Unitary Agreement 1. The Conduct of All the Parties in Connection with the Initial Lease Transaction Supports Denial of the Debtors Severance Motion

As discussed above, the Lease was executed in connection with Fabric simultaneously purchasing from the Debtors all of the premises leased to the Debtors. Notably, that sale treated the leased premises collectively for all purposes including, among other things, the following: Fabric obtained a single loan to acquire all of the leased premises and secured that loan by giving the Lender mortgages on all of the leased premises. There was one Tenant Estoppel Certificate provided by Tenant to the Lender, which was signed by all of the applicable Debtors. There was one Subordination, Non-Disturbance and Attornment Agreement provided by the Tenant to the Lender, which was signed by all of the applicable Debtors. There was one primary legal opinion from Tenant/Sellers counsel regarding the conveyance and lease of the Premises, which was supported by legal opinions issued by state, not by property. There was one side letter from Tenant restricting Tenants rights if it purchased the Lenders loan. Fabric obtained only one policy for each type of insurance coverage for the six premises.

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C&A Corp. issued a single guaranty of all of Tenants obligations under the Lease.

See Harris Aff. 4, 8. Hence, the conduct of third parties (such as the Lender and Lease guarantor) who interacted with the Debtors and Fabric demonstrate the understanding of all concerned that the Lease was a single, integrated lease. 2. The Lease Amendment Reaffirmed the Status of the Lease as a Single Integrated Agreement

The Debtors argue that the substitution of one property that led to the amended Lease in 2002 somehow implies the parties viewed the Lease as being severable. Motion 23. In fact, just the opposite is true. Most important, the Original Lease was not severed to implement the property substitution. Instead, the substitution was done as an amendment to and in accordance with the Original Lease. See Original Lease 35. Further, to implement the substitution, an amended lease document, entitled First Amended and Restated Lease Agreement, was executed that restates (and reaffirms) all of the integrated provisions of the Original Lease, including the statement that the Lease is not intended to be severable. See Lease 3(d). Additionally, the percentage rent schedule in Exhibit G to the Lease was not revised in connection with the substitution, so that it was apparent that the percentage rent only was an approximation rather than a fixed sum to be utilized as the rent for a separate lease.13 Moreover, in connection with the Lease amendment, related documents such as the Debtors legal opinion, estoppel certificate, and attornment agreement each were reissued in their unitary form. Consequently, the property substitution and related lease amendment confirmed the parties intent to have a single, integrated lease. See Harris Aff. 9.

13

Exhibit F, which lists the acquisition cost for each of the Premises, also was not changed.

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3.

During these Cases, the Debtors Consistently Have Treated the Lease as a Single, Integrated Agreement

At the outset of these cases, the Debtors confirmed their understanding that the Lease was a single lease by filing with the Bankruptcy Court schedules of assets that disclose the existence of only one lease, not six different leases, for the Premises. [Case No. 05-55969, Docket No. 3; Case No. 05-55932, Docket No. 5; Case No. 05-55984, Docket No. 3; Case No. 05-55960, Docket No. 3]. On July 1, 2005, Fabric filed a limited objection to the Debtors motion for an order extending the period within which the Debtors may assume or reject unexpired leases of nonresidential real property under section 365(d)(4) of the Bankruptcy Code because the Debtors had failed to pay postpetition rent. [Docket No. 563]. The Debtors resolved Fabrics objection by agreeing to insert the following language in the relevant extension order, which was entered by this Court: The Debtors are required to timely pay Rent (as defined in the Fabric Lease) that becomes due after the date of entry of this Order to Fabric (DE) GP (Fabric) pursuant to the First Amended and Restated Lease Agreement among certain of the Debtors and Fabric, dated as of June 27, 2002 (the Fabric Lease). The Debtors are required to immediately pay $286,956.25 for Rent that became due on June 25, 2005, and any Additional Rent (as defined in the Fabric Lease), which rent must be received by Fabric no later than two (2) days after the date of entry of this Order. If the Debtors fail to pay Rent to Fabric in a timely manner in accordance with the terms of the Fabric Lease and do not cure such default within two (2) business days of receipt of written notice by Fabric to the Debtors and their counsel, Fabric shall have the right to require the Debtors to assume or reject the Fabric Lease within twenty-five (25) days of receipt of such notice of Fabrics intention to exercise such right. [Docket No. 653, p. 3] (emphasis added). Thus, the Debtors effectively reaffirmed both the existence of a single Lease as well as a cross-default provision for that Lease under which the

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failure to pay any portion of the monthly rent payment due under the Lease would be a default under the entire Lease. By motion, dated February 9, 2006, Fabric sought (and subsequently obtained) an order of this Court compelling payments due postpetition under the Lease relating to real estate taxes. [Docket No. 2162]. In their objection to that motion, the Debtors stated, inter alia: On June 27, 2002, the Debtors entered into a lease with Fabric for certain nonresidential real property (the Lease) under which the Debtors are obligated to pay certain impositions. [Docket No. 2293, 2] (emphasis added).14 Hence, the Debtors again confirmed the existence of a single Lease. Similarly, to resolve Fabrics informal objection to the Debtors May 2006 motion [Docket No. 2746] for an order authorizing the wind-down of their so-called Fabrics Business, in which motion the Debtors requested, inter alia, authority to give limited notice of the Debtors decisions regarding assumption or rejection of leases, the Debtors agreed to insert the following language in the applicable order, which was entered by this Court: Notwithstanding the 10-day objection period provided for in the Rejection Procedures and the Assume/Assign Procedures, should the Debtors seek to reject or assume and assign the lease entered into between the Debtors and Fabric (DE) GP on June 27, 2002 (the Lease), Fabric (DE) GP shall have 15 days after the Debtors serve the relevant notice of rejection or assumption of the Lease to file an objection to such rejection or assumption and assignment. Fabrics Business, Wind-Down Order, dated June 1, 2006, 11 (emphasis added) [Docket No. 2785]. Once again, therefore, the Debtors characterized the Lease as being unitary.

14

The Debtors used the same phrasing characterizing the Lease as a single lease in all of the Debtors briefs filed in the Debtors appeal of this Courts April 27, 2006 order granting Fabrics motion.

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Even in connection with their recent decisions regarding the Premises, the Debtors initially treated the Lease as being indivisible. For example, the Debtors state that the Manchester Premises were closed in February 2006 (and presumably the decision to close was made long before then), but that the Debtors continue to pay rent for the all of the Premises, including Manchester. Motion 8, 10. Yet despite the closing of the Manchester Premises and the Debtors continuing obligation to pay rent, the Debtors waited at least four months (and apparently much longer) to seek to reject the purportedly severable lease for the Manchester Premises. Consequently, only very recently did the Debtors begin characterizing the Lease as severable. Accordingly, the Debtors newfound position reflects not the parties intent, but rather the Debtors current economic preference. III. THE EQUITIES HERE REINFORCE THE CONCLUSION THAT THE LEASE SHOULD NOT BE SEVERED While the equities do not control here, there is no severe economic hardship or other equitable basis for the Debtors Motion, which seeks to thwart the parties agreement to have a single Lease. In particular, the Lease provision enabling the Debtors to substitute a different property should apply to the Manchester, Michigan facility and the Lease also provides that fifteen years from now, when the initial term of the Lease expires, the Debtors will have the option to extend the Lease while excluding from the extended Lease up to two of the six leased properties. Lease 5(b); 35. Hence, the existing single, integrated Lease provides safety valves to address the Debtors current economic situation. Thus, the only issues for the Debtors are their practical ability in accordance with the Lease: (a) to use or sublease during the next fifteen years the two Lease locations that the Debtors no longer desire; or (b) to substitute a property now for the Manchester Premises. Those challenges, however, cannot justify overriding the parties intent and agreement to create a
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single, indivisible lease. Otherwise, under the Debtors approach, every multi-property lease would be severable if the lease included any provision to address the possibility, however remote, that the tenant would have an issue regarding an individual property covered by the lease. IV. ANY LEASE REJECTION DATE MUST AWAIT THE DEBTORS SURRENDER OF THE PREMISES Should the Debtors change course and seek to reject the Lease in full (or in the unlikely event that this Court permits the Debtors to sever and reject the Lease as to the Manchester and Farmville Premises only) such rejection must comport with the Bankruptcy Code. The Debtors, however, seek to establish an effective date for the rejection of the Farmville and Manchester premises upon the earlier of: (a) June 29, 2006 with respect to Manchester and December 31, 2006, with respect to Farmville; and (b) the date the Debtors surrender such Premises (the Proposed Effective Date). Yet, any rejection should be effective only when the rejected Premises have been fully vacated and surrendered to Fabric and all postpetition rent has been paid in full in accordance with section 365(d)(3). Accordingly, Fabric respectfully requests that any order approving rejection of the Lease set the effective date of the rejection as the later of: (i) the Proposed Effective Date; or (ii) the date by which the Debtors have fully vacated and surrendered possession of the Premises to the Landlord in accordance with the Lease and paid all post-petition amounts due to the Landlord pursuant to section 365(d)(3).

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CONCLUSION WHEREFORE, Fabric (DE) GP respectfully requests that: (a) the Motion be denied; and (b) it be granted such other and further relief as is just and proper. Dated: Detroit, Michigan August 22, 2006 Respectfully submitted, MILLER, CANFIELD, PADDOCK & STONE, P.L.C. By: /s/ Timothy A. Fusco Timothy A. Fusco (P13768) 150 West Jefferson, Suite 2500 Detroit, Michigan 48226 Telephone: (313) 496-8435 Facsimile: (313) 496-8452 Electronic mail: fusco@millercanfield.com and WILLKIE FARR & GALLAGHER LLP Alan J. Lipkin, Esq. Brian P. Guiney, Esq. 787 Seventh Avenue New York, New York 10019 Telephone: (212) 728-8000 Facsimile: (212) 728-8111 Co-Attorneys for Fabric (DE) GP

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