IN THE UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION ) In re ) ) COLLINS & AIKMAN CORPORATION, et ) al.

, ) ) Debtors. ) Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) Honorable Steven W. Rhodes

OBJECTIONS OF FIREMANS FUND INSURANCE COMPANY TO THE DISCLOSURE STATEMENT FOR THE FIRST AMENDED JOINT PLAN OF COLLINS & AIKMAN CORPORATION AND ITS DEBTOR SUBSIDIARIES Firemans Fund Insurance Company, National Surety Company, and possibly other related insurance companies (collectively, FFIC), by their attorneys, object to approval of the Disclosure Statement For The First Amended Joint Plan Of Collins & Aikman Corporation And Its Debtor Subsidiaries (the Disclosure Statement) because it lacks adequate information as required by section 1125 of the Bankruptcy Code, and describes an unconfirmable Plan. Introduction1 1. Considering that payment of certain Claims under the Plan may depend on the availability of insurance proceeds, the Disclosure Statement fails to provide basic and meaningful information about the mechanics -- and the risks -- for doing so. In this regard, the Disclosure Statement is objectionable and should not be approved because it fails to provide

All capitalized terms not otherwise defined in these Objections refer to those terms as defined in the Disclosure Statement and/or Plan.

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adequate information as required by section 1125 of the Bankruptcy Code for the following reasons: First, the Disclosure Statement fails to provide meaningful information regarding the procedures to be utilized by Debtors, Litigation Trust Administrator and/or Plan Administrator in liquidating and paying Claims, thus depriving FFIC of material disclosures concerning the proposed means for resolving Insured Claims; Second, the Disclosure Statement fails to disclose which executory insurance policies will be assumed or rejected and what effect any rejection will have on coverage purportedly available to pay Insured Claims; and Third, the Disclosure Statement fails to provide adequate information regarding material risks that any available insurance coverage may be vitiated by Plans violations of FFICs contractual rights (Contractual Rights) and releases of Debtors ongoing reciprocal contractual obligations (Contractual Obligations) pursuant to FFICs insurance policies (and any related agreements).

In addition to the above, the Disclosure Statement describes a plan that is unconfirmable as to FFIC. For these reasons, as described more fully below, this Court should not approve the Disclosure Statement. The FFIC Agreements 2. FFIC issued certain insurance policies for various policy periods (collectively, the FFIC Policies) that may provide certain insurance coverage for Debtors. FFIC may also be a party to certain other agreements relating to such FFIC Policies (together with the FFIC Policies, collectively, the FFIC Agreements). The FFIC Agreements are executory contracts within the meaning of section 365 of the Bankruptcy Code.

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3. FFIC holds unliquidated Claims against Debtors which are subject to further and future adjustment. FFICs Claims may include, without limitation, additional premium payments, deductibles, self-insured retentions and other expenses that may become due under the FFIC Agreements. FFIC may also hold contingent and unliquidated Claims based upon its rights to receive performance of any and all of Debtors (and any other possible named insureds) duties and obligations under the terms of the FFIC Agreements. 4. A portion of FFICs Claims may be entitled to administrative expense priority under sections 503(b) and 507(a)(1) of the Bankruptcy Code for insurance coverage provided on or after the Petition Date and/or in the event the executory FFIC Agreements are assumed under section 365 of the Bankruptcy Code. 5. A portion of FFICs Claims, including Claims arising from the possible rejection of the FFIC Agreements, may be General Unsecured Claims. Objections To Approval Of Disclosure Statement 6. Section 1125 of the Bankruptcy Code requires that the Disclosure Statement provide adequate information, defined as: information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtors books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan, but adequate information need not include such information about any other possible or proposed plan. 11 U.S.C. 1125(a)(1). As set forth more fully below, the Disclosure Statement fails to provide the most basic information necessary for creditors and parties-in-interest to determine if

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confirmation of the Plan is in their respective best interests. Accordingly, the Disclosure Statement should not be approved. A. The Disclosure Statement Fails To Provide Meaningful Information Regarding The Procedures To Be Utilized By Debtors To Liquidate And Pay Claims 7. The Plan provides that a Post-Consummation Trust and Litigation Trust will be established on the Effective Date pursuant to certain Trust Agreements. See Plan, Article IV.B; C. All of Debtors rights to commence and pursue any Causes of Action, including, without limitation, objections to claims under the Plan, will be transferred to the Post-Consummation Trust and Litigation Trust. See Plan, Article IV.E. Neither the Disclosure Statement nor the Plan provide specific information relating to the claims resolution procedures that will be utilized by the Trusts to resolve Disputed Claims. Importantly, what little information that is provided in this regard indicates that the Trusts will be granted the exclusive right to initiate, prosecute and resolve claims objections. See Plan, Article V.E.1.2 Moreover, Debtors did not attach copies of the proposed Post-Consummation Trust Agreement or Litigation Trust Agreement to the Disclosure Statement or Plan and have indicated that those documents will not be available for review until no later than ten (10) days before the Confirmation Hearing. See Plan, Table of Exhibits. Thus, assuming that these Trust Agreements provide additional information regarding the proposed claims resolution procedures or the functions that each Trust will perform, creditors

Under the Plan, the Post-Consummation Trust and Litigation Trust will have nearly unfettered discretion to settle claims objections without seeking Court approval. See Plan, Article VII, A. Only in instances where the Claims exceed a certain dollar threshold must the Trust file a notice with the Court advising of a settlement or compromise. Additionally, in the event that such notice is filed, the Plan provides that only the United States Trustee or the Agent under the Prepetition Credit Agreement may object to such notice. Thus, insurers, creditors and other parties-in-interest are completely foreclosed from objecting to the settlement of Claims, including Insured Claims.

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and other parties-in-interest will not have access to such critical information in making a decision on whether to accept the Plan. 8. In light of this material defect, the Disclosure Statement fails to provide sufficient information about the means under the Plan for liquidating and paying Claims, especially any Insured Claims that may be entitled to coverage under the FFIC Agreements.3 Although the Plan provides the Liquidation Trust Administrator and Plan Administrator, as applicable, with the exclusive right to object to any and all Disputed Claims, see Plan, Article IV.E, unless the procedures for doing so are consistent with FFICs Contractual Rights, effectuation of the Plan may vitiate any coverage otherwise available under the FFIC Agreements to pay Insured Claims. The Disclosure Statement must, at a minimum, include: (a) a description of any procedures for liquidation and payment of Insured Claims; (b) a disclosure that such procedures may be inconsistent with, or violate, FFICs Contractual Rights; and (c) a disclosure that any violation of FFICs Contractual Rights may vitiate any coverage otherwise available under the FFIC Agreements. Without such disclosures, the Disclosure Statement is materially incomplete. 9. Without an adequate description of how Insured Claims will be liquidated and the effects, if any, on the availability of insurance coverage, the Disclosure Statement also fails to provide any information concerning how Insured Claims will be valued. Without a description of claims liquidation procedures, neither FFIC nor any other interested party can possibly make an informed judgment about the merits of the Plan. Moreover, the failure to disclose the

Nothing in these Objections shall be construed as an acknowledgement that the FFIC Agreements provide coverage or otherwise apply to any Claims or that any Claims are eligible for coverage under the FFIC Agreements.

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procedures by which Insured Claims will be liquidated prevents FFIC from evaluating whether the Plan will require Debtors, the Liquidation Trust Administrator or Plan Administrator to enforce appropriately rigorous standards in order to avoid payment of unmeritorious Claims. 10. This critical deficiency goes to the heart of the good faith solicitation requirement and undermines any notion of informed voting because no holder of a Claim will be able to answer the most basic question of how his or her Claim will be treated or paid under the Plan. B. The Disclosure Statement Fails To Identify Whether The Executory FFIC Agreements Will Be Assumed Or Rejected, And The Effect Of The Decision On Otherwise Available Insurance Coverage 11. The Disclosure Statement provides that all of the Executory Contracts identified on Exhibit E to the Plan shall be assumed and assigned, on the Effective Date, to the Post-Consummation Trust or the applicable purchaser of the Debtors assets under the Soft-Trim Sales Transaction or Remaining Sales Transaction. See Disclosure Statement, Article V.D. Additionally, the Disclosure Statement provides that the Executory Contracts identified on Exhibit F to the Plan will be deemed rejected. Id. 12. Significantly, however, Exhibits E and F to the Plan have not been filed,

and according to footnote 3 to the Table of Exhibits of the Plan, they will not be made available for review until no later than ten (10) days before the Confirmation Hearing. Thus, because this information has not yet been provided, FFIC is unable to determine whether the FFIC Agreements will be assumed, assumed and assigned, or rejected pursuant to the Plan. Additionally, even when the Debtors finally identify which Executory Contracts will be assumed, assumed and assigned or rejected, the purported treatment of such contract is rendered

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meaningless by the retention of the rights by the Debtors and Post-Consummation Trust to alter, amend, modify or supplement Exhibit E and/or Exhibit F to the Plan, at any time after ninety (90) days after the Effective Date. Disclosure Statement, Article V.D.7. Thus, regardless of whether an Executory Contract is ultimately identified on Exhibits E or F, the retention of the right to amend or revise any prior decision to assume or reject after the Effective Date renders the initial determination meaningless. This discloses nothing. 13. Clearly, even assuming, arguendo, that Debtors intend to assume the FFIC Agreements and assign them to the Post-Consummation Trust or an asset purchaser, the purported retention of the right to undo such assumption after the Effective Date leaves Debtors or Post-Consummation Trust wide future latitude to either assume or reject the FFIC Agreements. Because any rejection of the FFIC Agreements materially affects the treatment of Insured Claims (as well as FFICs Claim itself), the Disclosure Statement must disclose (without equivocation) Debtors intention with respect to the FFIC Agreements and what affect it will have on any otherwise available insurance coverage. 14. Moreover, Debtors ability to defer the decision to assume or reject the executory FFIC Agreements until after the Effective Date is unfairly prejudicial to FFIC. FFIC will have no way of knowing whether they hold an Administrative Expense Claim (if the FFIC Agreements are assumed) or a General Unsecured Claim (if the FFIC Agreements are rejected) until after the Effective Date, when it will be simply too late to either make an informed decision to accept or reject the Plan or appeal from the Confirmation Order. If there were some reasonable explanation provided for Debtors need for this delay, such non-disclosure might be understandable; however, Debtors fail to provide any business justification for why they are 7

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incapable of determining whether to assume or reject the FFIC Agreements prior to the Confirmation Hearing. The prejudicial effect of this timing is that it will prevent FFIC from knowing how its Claims will be treated under the Plan. As such, the Disclosure Statement fails to provide to FFIC adequate information with which to make an informed judgment about the Plan. 15. If, however, Debtors intend to assume the executory FFIC Agreements, the Plan fails to satisfy the requirements of section 365(b) of the Bankruptcy Code because it does not specifically state how Debtors (or, subsequently, their assignees, Post-Consummation Trust and/or the Liquidating Trust) intend to cure any monetary defaults and/or provide adequate assurance of future performance as a condition precedent to the assumption of these executory contracts. See Plan, Article VI.A; B. Because the Disclosure Statement is silent about how these requirements of the Bankruptcy Code and/or the continuing obligations of the insured under the executory FFIC Agreements will be satisfied, it is inadequate and must not be approved. C. The Disclosure Statement Should Not Be Approved Because It Fails To Disclose The Material Risks That Insurance Coverage May Not Be Available For Insured Claims Due To The Plans Violations Of FFICs Contractual Rights And/Or Releases Of Debtors Reciprocal Contractual Obligations 16. The Disclosure Statement fails to adequately disclose the material risks that any insurance coverage otherwise available to pay Allowed Insured Claims may not be available because the Plan violates FFICs Contractual Rights and/or purports to release Debtors reciprocal Contractual Obligations. For any coverage under the FFIC Agreements to be even potentially available, Debtors must honor FFICs Contractual Rights, as well as their own reciprocal Contractual Obligations. Because the Plan contemplates violating FFICs Contractual

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Rights and releasing Debtors reciprocal Contractual Obligations, the Disclosure Statement must clearly disclose the material risks that no coverage will otherwise be available to otherwise satisfy Insured Claims. The Disclosure Statement, however, fails to provide adequate information about the material risks that the Plan may vitiate any insurance coverage that may be available to satisfy Allowed Insured Claims. 1. The Disclosure Statement Fails To Disclose That The Plan May Vitiate Coverage By Violating FFICs Right To Control And/Or Associate In The Defense, Investigation And Settlement Of Insured Claims

17. FFIC has rights to control and/or associate in the defense, investigation, and settlement of Insured Claims that may be covered by the FFIC Agreements. The Disclosure Statement, however, fails to adequately disclose that the Plan contemplates violating these Contractual Rights by excluding FFIC from any aspect of the Claims resolution process. See Plan, Article VII.A.2 (providing Debtors, Post-Consummation Trust and Litigation Trust with the exclusive right to file objections to Claims). Additionally, the Plan provides the Post-Consummation Trust and Litigation Trust with the authority to settle or compromise certain Disputed Claims under a certain dollar threshold without approval from the Bankruptcy Court and deprives creditors, other than the Agent, with the right to object to settlements of Disputed Claims that exceed that threshold. See Plan, Article VII.A.2. Thus, FFIC is precluded from objecting to settlements of Disputed Insured Claims. The Disclosure Statement, however, fails to disclose the material risk that the Plans violation of these fundamental Contractual Rights will vitiate any otherwise available coverage for Allowed Insured Claims under the FFIC Agreements.

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18. Moreover, and similarly crucial to any availability of insurance coverage, the Disclosure Statement fails to disclose that FFIC may have no opportunity to exercise its statutory rights under section 502(a) of the Bankruptcy Code to prosecute objections to the allowance of unmeritorious Insured Claims, which are independent of its Contractual Rights. See 11 U.S.C. 502(a); In re Keck, Mahin & Cate, 241 B.R. 583, 596 (Bankr. N.D. Ill. 1999); In re Standard Insulations, Inc., 138 B.R. 947 (Bankr. W.D. Mo. 1992). To the extent that the Plan purports to limit FFICs ability to prosecute such objections to unmeritorious Insured Claims (especially if FFIC is willing to assume the responsibility for prosecuting such objections itself), Debtors will be vitiating coverage by violating FFICs Contractual Rights. The Disclosure Statement must disclose that the Plan fails to respect FFICs contractual and statutory rights by proscribing FFICs ability to prosecute objections to unmeritorious Insured Claims. 19. In In re The Wallace & Gale Co., No. 85-4-0092 (Chapter 11) (Bankr. D. Md. July 22, 1998), Transcript Of Oral Ruling, the bankruptcy court was asked to confirm a proposed plan of reorganization that -- like the Plan -- purported to eliminate the insurers rights to control the defense, investigation, and settlement of asbestos-related bodily injury claims for which coverage was sought. In a ruling from the bench, the Wallace & Gale court denied confirmation of the plan and acknowledged the importance of the insurers contractual rights, holding that a plan that violates such rights cannot be confirmed: If it is to be liable for any judgment rendered against the insured, [an insurer] has a right to make certain that a proper defense is made to the claim and that unwarranted or overstated and conclusive claims are exposed and defeated. . . . [W]e are dealing with a contract. The Court does not have the power to alter the terms giving the insurer the right to control the defense

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with the duty that is imposed upon that the insurers to defend and indemnify. . . . I find that the cornerstone of the Plan is the wrenching away of these controls bargained for by the [insurance] carriers. And in placing these same controls in the hands of the persons suing the Debtor. Trans. at 119-21 (citing Sherwood Brands, Inc. v. Hartford Acc. & Indem., 347 Md. 32, 698 A.2d 1078 (1997)); see also ACandS Inc. v. Aetna Cas. & Sur. Co., 764 F.2d 968 (3d Cir. 1985) (recognizing the enforceability of an insurers right to control the defense and settlement of claims in asbestos bodily injury context). Debtors cannot unilaterally abrogate FFICs Contractual Rights and/or the statutory rights to control and/or participate in the defense of unmeritorious Insured Claims without jeopardizing otherwise available insurance coverage. As such, the Disclosure Statement must disclose the material risks associated with the Plans attempts to violate these rights. 2. The Disclosure Statement Fails To Disclose That The Plan May Vitiate Coverage By Violating Debtors Continuing Duty To Cooperate With FFIC In The Defense And Investigation Of Insured Claims

20. Debtors have an affirmative, continuing duty to cooperate with FFIC in the defense and investigation of all Insured Claims covered by the FFIC Agreements. The Disclosure Statement, however, fails to adequately disclose that the Plan contemplates violating this Contractual Obligation and that such a violation could vitiate any otherwise available insurance coverage for Insurance Claims. See 14 Couch on Ins. 199:13 (2003) (As a general rule, an insureds breach of a cooperation clause precludes coverage and releases the insurer from its responsibilities).

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21. Providing the Debtors, the Plan Administrator and/or Litigation Trust Administrator with the exclusive ability to object to and resolve Disputed Insured Claims, without requiring the approval of FFIC, violates Debtors ongoing duty of cooperation under the FFIC Agreements. Further, FFIC may demand that Debtors, the Plan Administrator and/or Litigation Trust Administrator comply with their Contractual Obligations by objecting to, and seeking the disallowance of, unmeritorious Insured Claims. To the extent that Debtors, the Plan Administrator and/or Litigation Trust Administrator either fail to do so, or are released from the obligation to do so by the terms of the Plan, it would constitute a further violation of the duty of cooperation. The Disclosure Statement must disclose the material risks associated with these potential violations. 22. In addition, the Disclosure Statement fails to explain how Debtors, Plan Administrator or Litigation Trust Administrator will satisfy this continuing Contractual Obligation following the Effective Date. Debtors reserved the right to reject their Contractual Obligations via a blanket rejection. See, Plan, Article V.D.7. (Debtors or Post-Consummation Trust may reject any executory contracts for 90 days following the Effective Date). Any repudiation of Debtors continuing Contractual Obligations may result in the loss of otherwise available insurance coverage under the FFIC Agreements. The Disclosure Statement, however, fails to disclose whether Debtors ultimately intend to reject the FFIC Agreements and, if so, what effect this rejection will have on the availability of otherwise available insurance coverage under the rejected FFIC Agreements. Moreover, even if Debtors assume the FFIC Agreements, the Plan may still vitiate any insurance coverage otherwise available under the FFIC Agreements by

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attempting to relieve Debtors of their statutory obligation to cure any existing defaults and/or provide adequate assurance of future performance under such agreements as a condition precedent to assumption. 23. Finally, the Disclosure Statement fails to provide any information as to how Debtors, Plan Administrator, or Litigation Trust Administrator, or any other entity claiming a post-Effective Date interest in the FFIC Agreements, will satisfy the continuing Contractual Obligations. 24. Because the Plan contemplates the possible rejection of the FFIC Agreements and disregards the insureds post-Effective Date duties of cooperation and other continuing Contractual Obligations, there is a substantial, yet undisclosed, risk that any otherwise available insurance coverage may be vitiated. The failure of the Disclosure Statement to adequately disclose the material risks that insurance coverage may be vitiated as a result makes it materially misleading. 3. The Disclosure Statement Fails To Disclose That The Failure To Assume The FFIC Agreements May Vitiate Any Coverage Available To Pay Insurance Claims

25. As a condition of receiving the benefit of the executory FFIC Agreements, Debtors must assume the FFIC Agreements and comply with the requirements of section 365(b) of the Bankruptcy Code by, among other things, curing all existing defaults and providing FFIC with adequate assurance of future performance. 11 U.S.C. 365(b). This will require, without limitation:

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(a)

relief from the confirmation discharge injunction, see Plan,

Article III.E, to permit any setoff and/or recoupment of any Claims of FFIC under the FFIC Agreements arising either pre- or post-Effective Date; (b) performance by Debtors, Plan Administrator and/or Litigation

Trust Administrator of all of the insureds continuing post-Effective Date duties and obligations under the FFIC Agreements; and (c) a feasible means for satisfaction of any of FFICs continuing rights

to payment and/or performance under the FFIC Agreements as Administrative Claims. 26. The Plan appears to assume the benefits of coverage under the FFIC Agreements, but does not expressly provide for satisfaction of the reciprocal Contractual Obligations that accompany those benefits. A debtor, however, cannot assume the benefits of an executory contract without also assuming its obligations under that same contract. J. Leland Byrd v. Gardinier, Inc. (In re Gardinier, Inc.), 831 F.2d 974, 975 (11th Cir. 1987). Similarly, a debtor cannot assume part of a contract and reject another part. Id. Unless and until Debtors can satisfy the conditions to assumption required under section 365(b) of the Bankruptcy Code, the executory FFIC Agreements cannot be assumed and, accordingly, the Plan is neither feasible nor confirmable. 27. Moreover, as a matter of applicable non-bankruptcy law, the Plans inadequate treatment of the FFIC Agreements will excuse FFIC from any further obligations to provide coverage or render other performance to Debtors, Post-Consummation Trust, Litigation Trust, or any other entity, under the FFIC Agreements. To the extent that coverage under the FFIC Agreements purports to be the means for payment of Allowed Insured Claims, the failure to

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respect the Contractual Rights and satisfy the continuing Contractual Obligations renders the Plan unfeasible and, accordingly, unconfirmable. Because the Disclosure Statement does not disclose this material risk, it should not be approved. 4. The Disclosure Statement Fails To Disclose That The Plan May Vitiate Coverage By Violating Any Anti-Assignment Restrictions In The FFIC Agreements

28. The insurance coverage provided by the FFIC Agreements is subject to certain restrictions prohibiting the assignment of the FFIC Policies providing such coverage. The Plan, however, contemplates that Debtors may assign the FFIC Agreements to the Post-Consummation Trust or a purchaser of Debtors assets. See Plan, Article V.A. 29. Initially, the FFIC Agreements are executory contracts which are not subject to assignment without FFICs consent. 11 U.S.C. 365(c)(1)(A) (debtor can not assume or assign an executory contract if applicable law excuses non-debtor from accepting performance from entity other than debtor); Allied Corp. v. Frola, 1992 WL 281114 (D. N.J. 1992) (Wolin, J.) (finding that policies were not assignable either as executory contracts or as non-executory contracts and discussing authority); Touchet v. Guidry, 550 So. 2d 308, 313 (La. App. 3d Cir. 1989) ([S]ince insurance is a personal contract between the insurer and the named insured and on behalf of others specifically provided for, coverage terminates when contract is assigned or transferred without the consent, permission, and approval of both contracting parties.) (citations omitted). 30. In the event the executory FFIC Agreements are deemed to be assignable under section 365 of the Bankruptcy Code without FFICs consent, Debtors must first assume the

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FFIC Agreements under section 365(b) and comply with all other requirements of sections 365(b) and (f) in order to assign their FFIC Agreements. Two such conditions of assumption and assignment are that Debtors, or their assignee, cure all existing defaults and that Debtors assignee provide adequate assurance of future performance of the insureds continuing Contractual Obligations under the FFIC Agreements. 11 U.S.C. 365(f)(2). 31. Moreover, the FFIC Agreements must be assumed cum onere. A debtor cannot assume and assign the benefits of a contract without assuming the corresponding burdens imposed upon the debtor. AGV Productions, Inc. v. Metro-Goldwyn Mayer, Inc., 115 F. Supp. 2d 378 (S.D.N.Y. 2000) (holding that the Bankruptcy Code does not permit a debtor to assume and assign only a portion of a contract). Because the Plan may provide for the assignment of the FFIC Agreements without requiring the Post-Consummation Trust to assume Debtors reciprocal Contractual Obligations, the Plan does not comply with section 365 of the Bankruptcy Code with respect to FFIC. As such, the Plans allowance of the possible assignment of the FFIC Agreements would vitiate any coverage otherwise available under the FFIC Agreements. 32. Even if the FFIC Agreements are deemed to be non-executory, their terms ride through and remain binding on a reorganized debtor after confirmation of a plan. See, e.g., In re Stewart Foods, Inc., 64 F.3d 141, 145 (4th Cir. 1995) (terms of non-executory contract binding); Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153 (3d Cir. 1989) (debtors bound by arbitration clause in non-executory contract); Texas Pacific Indemn. Co. v. Atlantic Richfield Co., 846 S.W.2d 580, 585 (Tex. App. 1993) (enforcing anti-assignment provision in bond despite bankruptcy trustees attempt to assign). Because the anti-assignment

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provisions of the FFIC Agreements ride through any reorganization, Debtors cannot assign their rights under the FFIC Agreements without the prior express consent of FFIC. 33. The Disclosure Statement must disclose the material risk that any attempted assignment of Debtors rights under the FFIC Agreements may be unenforceable under applicable bankruptcy and non-bankruptcy law, and may vitiate any otherwise available insurance coverage. Because the Disclosure Statement makes no such disclosure, it should not be approved. 5. The Disclosure Statement Fails To Disclose That The Plan May Vitiate Coverage By Violating FFICs Rights To Performance Of Debtors Other Contractual Obligations

34. Finally, the release and injunction contained in the Plan may materially impair FFICs Contractual Rights including, without limitation, any (i) rights of subrogation, contribution, recoupment and setoff; (ii) rights to require the insured to pay any retrospective premiums, deductibles and self-insured retentions; and (iii) rights to enforce performance of Debtors other continuing Contractual Obligations. In this respect, the Plan purports to make FFIC potentially liable to provide the full amount of insurance coverage while extinguishing its ability to enforce its reciprocal Contractual Rights. See Disclosure Statement, Article V.S. A bankruptcy court cannot alter or enlarge an insurers contractual obligations. See Coupon Clearing Serv., 113 F.3d at 1099 ([T]he estate ha[s] no greater rights in property than those held by the debtor prior to bankruptcy.); Moody v. Amoco, 734 F.2d at 1213 (the Bankruptcy Code is not intended to expand debtors rights against others more than they exist at the commencement of the case). Moreover, as a matter of applicable non-bankruptcy law, the abrogation of FFICs Contractual Rights may excuse FFIC from any obligations to provide otherwise applicable

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coverage for Insured Claims. See 14 Couch on Ins. 199:13 (2003). The Disclosure Statement, however, fails to acknowledge this risk. In this respect also, the Disclosure Statement is materially misleading. D. The Disclosure Statement Should Not Be Approved Because It Describes An Unconfirmable Plan As To FFIC 35. Approval of a disclosure statement should be denied if it describes a plan of reorganization that is so flawed that confirmation is impossible. See In re Cardinal Congregate I, 121 B.R 760, 764 (Bankr. S.D. Ohio 1990); In re Market Square Inn, Inc., 163 B.R. 64, 68 (Bankr. W.D. Pa. 1994); In re Eastern Maine Electric Coop, Inc., 125 B.R. 329, 333 (Bankr. D. Me. 1991); In re Allied Gaming Mgmt., Inc., 209 B.R. 201, 202 (Bankr. W.D. La. 1997) ([A] disclosure statement should not be approved if the proposed plan, as a matter of law, cannot be confirmed.); In re Main Street AC, Inc., 234 B.R. 771, 775 (Bankr. N.D. Cal. 1999) (It is now well accepted that a court may disapprove of a disclosure statement, even if it provides adequate information about a debtors plan, if the plan could not possibly be confirmed.); In re Curtis Center Ltd. Partnership, 195 B.R. 631, 638 (Bankr. E.D. Pa. 1996); In re 266 Washington Assocs., 141 B.R. 275, 288 (Bankr. E.D.N.Y. 1992); In re Bjolmes Realty Trust, 134 B.R. 1000, 1002 (Bankr. D. Mass. 1991); In re Pecht, 57 B.R. 137, 139 (Bankr. E.D. Va. 1986). By rejecting a disclosure statement describing a plan that is unconfirmable, the court preserves the resources of the estate and the resources of the judicial system.

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1.

The Plan Cannot Be Confirmed Because It Is Not Fair And Equitable As To FFIC

36. FFIC is entitled to fair and equitable treatment of its rights under, interests in, and Claims arising out of, the FFIC Agreements. Because of its failure to provide such fair and equitable treatment, the Plan does not satisfy section 1129(b) of the Bankruptcy Code with respect to FFIC. To the extent that confirmation of the Plan is intended to impair, extinguish or otherwise affect FFICs rights and/or interests, see Plan, Article XII, FFIC is entitled to: (a) a clarification of the extent to which the Plan is intended to

adversely affect FFIC and/or its Contractual Rights to receive performance under, and enforce the terms of, the FFIC Agreements; (b) a reservation of rights to seek a declaration that Debtors, Plan

Administrator and/or Litigation Trust Administrator must perform all of the obligations of the insured under all of the FFIC Agreements before FFIC is obligated to perform any of its reciprocal obligations under the FFIC Agreements; (c) a reservation of rights to seek a declaration that any insurance

coverage that may otherwise be available under the FFIC Agreements may be voided by, among other things, Debtors; Plan Administrators or Litigation Trust Administrators failure to perform the Contractual Obligations and/or breach of the duties of the insured under the FFIC Agreements; (d) a reservation of rights to seek a declaration that no assignment of

the FFIC Agreements is permitted without FFICs express prior consent;

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(e)

an acknowledgment that all terms, conditions, defenses, limitations

and/or exclusions contained in the FFIC Agreements remain in full force and effect, all of which are expressly reserved; (f) an acknowledgment that nothing in the Plan shall be deemed to

create any insurance coverage that does not otherwise exist, if at all, under the terms of the FFIC Agreements and/or applicable non-bankruptcy law; and (g) an acknowledgment that nothing in the Plan shall be deemed to

prejudice any of FFICs rights and/or defenses in pending or subsequent litigation in which it may seek a declaration regarding the nature and/or extent of any coverage under the FFIC Agreements. 37. Moreover, the discharge and injunction contained in the Plan impermissibly impair FFICs post-Effective Date rights to enforce satisfaction of Debtors or Plan Administrators continuing duties and obligations under the FFIC Agreements, as well as any possible rights of set-off, recoupment and subrogation. Plan, Article XIII.E. In this respect, the Plan is not fair and equitable to, and unfairly discriminates against, FFIC because it makes FFIC potentially liable to provide insurance coverage and other performance under the FFIC Agreements while depriving it of its corresponding ability to exercise its rights, and enforce its remedies, thereunder. Id. 38. As a matter of applicable non-bankruptcy law, the Plans treatment of the FFIC Agreements would excuse FFIC from any further obligations to provide coverage or other performance to Debtors, Plan Administrator, or any other entity, under the FFIC Agreements. As such, the Plan does not satisfy section 1129(b) of the Bankruptcy Code with respect to FFIC and

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cannot be confirmed. Because it describes an unconfirmable Plan, the Disclosure Statement should not be approved. 2. The Plan Is Otherwise Unconfirmable

39. The Plan improperly proposes to re-write the terms of the FFIC Agreements. A debtor cannot unilaterally impose coverage terms on [the insurers] Certain Underwriters at Lloyds, London v. McDermott Intl Inc., 2002 U.S. Dist. Lexis 874* 32 (E.D. La. 2002); In re Ames Dept. Stores, Inc., 1995 WL 311764 (S.D.N.Y. May 18, 1995) (bankruptcy court does not have the authority to rewrite the terms of an insurance policy and impose requirements upon the insurer which were not part of the parties bargains). To the extent that the Plan purports to assign any of the FFIC Agreements without the prior express consent of FFIC and without expressly requiring Debtor; and/or Plan Administrator, as the case may be, to assume all of the duties and obligations of the insured thereunder, it impermissibly attempts to unilaterally modify the terms of the FFIC Agreements. 40. The Plan also violates the jurisdictional limitations of 28 U.S.C. 157 because it improperly attempts to confer jurisdiction upon the Bankruptcy Court for non-core matters that may involve adjudication of FFICs rights and obligations under the FFIC Agreements. See Plan, Article XIII. This includes, without limitation, any possible adjudication of FFICs rights against any affiliate, released party, or any other non-debtor third party. Moreover, the Plan impermissibly purports to deprive FFIC of the right to have any disputes under the FFIC Agreements resolved by arbitration, if appropriate. To the extent that the Plan contemplates that the proceeds of the FFIC Agreements will be a source for payment of Allowed

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Insured Claims, neither the Plan nor the Confirmation Order may adjudicate the existence or extent of coverage under the FFIC Agreements or coverage for any particular Insured Claim. 41. Based upon the foregoing, the Plan cannot be confirmed. Because it describes an unconfirmable Plan, the Disclosure Statement should not be approved. Reservation Of Rights 42. FFIC expressly reserves, and does not waive, all of its rights, defenses, limitations and/or exclusions in connection with the Contractual Rights, Contractual Obligations, applicable law or otherwise. FFIC further reserves all rights to assert any and all such rights, defenses, limitations and/or exclusions in any appropriate manner or forum whatsoever (including, without limitation, any of its rights to have any non-core matter relating to the interpretation of its Contractual Rights and Debtors Contractual Obligations adjudicated by the United States District Court). Nothing contained in these Objections shall be deemed to expand any coverage that may otherwise be available under any insurance policies or any rights to payment under any settlements. 43. FFIC further reserves all of its rights to raise the issues contained in these Objections and any other related issues in any procedurally-appropriate contested matter and/or adversary proceeding including, without limitation, objections to confirmation of the Plan and a separate adversary proceeding requesting any appropriate declaratory and/or injunctive relief with respect to any Contractual Rights that may be adversely affected by Confirmation of the Plan. 44. FFIC further reserves all of its rights to object to any claim for coverage under any of the FFIC Agreements and/or any claim for payment under any settlement agreements, and/or to seek declaratory and/or injunctive relief to the extent that treatment of the Contractual

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Rights, Contractual Obligations and/or confirmation of the Plan violates any terms or conditions of any of the FFIC Agreements and/or settlements or gives rise to any defenses on behalf of FFIC. 45. Nothing in these Objections shall be construed as an acknowledgment that any of the FFIC Agreements, or pre-petition settlement agreements, if any, cover or otherwise apply to any Claims, losses or damages on account of any Claims or otherwise, or that any such Claims or causes of action are eligible for payment. FFIC reserves the right to seek an adjudication that Debtors have waived or forfeited any available coverage under the FFIC Agreements. 46. Finally, FFIC reserves its right to amend, modify or supplement these Objections in response to, or as a result of any discovery being conducted in connection with confirmation of the Plan and/or any submission in connection with the Plan or this case filed by any party-in-interest. FFIC also reserves the right to adopt any other objections to approval of the Disclosure Statement filed by any other party.

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Conclusion 47. For the reasons set forth above, the Disclosure Statement fails to provide adequate information regarding material aspects of the Plan that affect FFIC and fails to disclose material risks associated with the Plan. Without such fundamental information, the Disclosure Statement cannot satisfy the minimum standards required by section 1125 of the Bankruptcy Code and is materially misleading. In addition, the Disclosure Statement describes a Plan that is unconfirmable. Accordingly, the Disclosure Statement should not be approved.

Dated: January 18, 2007

/s/ Kelly A. Myers Kelly A. Myers (P49143) Myers & Allmand, PLLC 8163 Grand River Avenue, Suite 400 Brighton, Michigan 48114 Telephone: (810) 229-6620 Telecopier: (810) 229-6650 and Leonard P. Goldberger John C. Kilgannon (Members of PA Bar) Stevens & Lee, P.C. 1818 Market Street, 29th Floor Philadelphia, PA 19103 Telephone: (215) 751-2864 Telecopier: (610) 371-7376 Attorneys for Firemans Fund Insurance Company and National Surety Company

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

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

) ) ) ) ) ) )

Chapter 11 Case No. 05-55927 (SWR) (Jointly Administered) Honorable Steven W. Rhodes

CERTIFICATE OF SERVICE The undersigned certifies that on January 18, 2007, a copy of the Objections of Firemans Fund Insurance Company to the Disclosure Statement for the First Amended Joint Plan of Collins & Aikman Corporation and its Debtor Subsidiaries was served upon the following parties either electronically or via facsimile at the phone numbers listed:
Kirland & Ellis, LLP Richard M. Cieri, Esq. Citigroup Center 153 East 53rd St. New York, NY 10022 (212) 446-4900 (facsimile) rcieri@kirland.com (email) Kirkland & Ellis, LLP Attn: David L. Eaton, Esq. Ray C. Schrock, Esq. Marc J. Carmel, Esq. 200 East Randolph Drive Chicago, IL 60601 (312) 861-2200 (facsimile) deaton@kirkland.com (email) rschrock@kirkland.com (email) mcarmel@kirkland.com (email) Carson Fischer, P.L.C. Joseph Fischer, Esq. Lawrence A. Lichtman, Esq. 4111 West Andover Road Second Floor Bloomfield Hills, MI 48302 (248) 644-1832 (facsimile) jfischer@carsonfischer.com (email)

Akin, Gump, Strauss, Hauer & Feld L.L.P. Michael S. Stamer, Esq. 590 Madison Avenue New York, NY 10022 (212) 872-1002 (facsimile)

Butzel Long, P.C. Thomas B. Radom, Esq. 100 Bloomfield Hills Parkway Bloomfield Hills, MI 48304 (248) 258-1439 (facsimile)

Simpson Thacher & Bartlett, LLP Peter V. Pantaleo, Esq. Alice B. Eaton, Esq. 425 Lexington Ave. New York, NY 10017 (212) 455-2502 (facsimile)

Wachtell, Lipton, Rosen & Katz Harold S. Novikoff, Esq. Gregory E. Pessin, Esq. 51 West 52nd St. New York, NY 10019 (212) 403-2000 (facsimile)

U.S. Department of Justice Office of the U.S. Trustee 211 West Fort Street, Suite 700 Detroit, MI 48226 (313) 226-7952 (facsimile)

Respectfully submitted, MYERS & ALLMAND, PLLC

Dated: January 18, 2007

/s/ Kelly A. Myers Kelly A. Myers (P49143) 8163 Grand River Avenue Suite 400 Brighton, Michigan 48114 Telephone: (810) 229-6620

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