IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: BACKYARD BURGERS, INC., eta!., 1 Debtors.

Chapter 11 Case No. 12-12882 (PJW) (Joint Administration Requested)

MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING THE DEBTORS TO PAY CERTAIN PREPETITION SHIPPING AND WAREHOUSING CHARGES IN THE ORDINARY COURSE OF BUSINESS

The above-captioned debtors and debtors-in-possession (collectively, the "Debtors") hereby move the Court (the "Motion") for entry of an order authorizing the Debtors, in their sole discretion, to pay certain prepetition shipping and warehousing charges in the ordinary course of business. In support of this Motion, the Debtors respectfully state as follows:
Status of the Case and Jurisdiction 1.

On the date hereof (the "Petition Date"), each of the Debtors filed a voluntary

petition for relief under chapter 11 oftitle 11 of the United States Code, 11 U.S.C. 101, et seq. (the "Bankruptcy Code"). 2. The Debtors have continued in possession of their properties and are operating

and managing their businesses as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 3. No request has been made for the appointment of a trustee or examiner, and a

creditor's committee has not yet been appointed in these cases.

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's tax identification number, are: BBAC, LLC (1951), Back Yard Burgers, Inc. (7163), BYB Properties, Inc. (9046), Nashville BYB, LLC (6507) and Little Rock Back Yard Burgers, Inc. (9133). The mailing address of the Debtors is: St. Clouds Building, 500 Church Street, Suite 200, Nashville, TN 37219.

4.

The Court has jurisdiction over this Motion pursuant to 28 U.S.C. 157 and

1334. Venue is proper in this district pursuant to 28 U.S.C. 1408. This matter is core within the meaning of28 U.S.C. 157(b)(2). 5. The statutory predicates for the relief sought herein are section 105(a) and 363 of

the Bankruptcy Code.

Background

6.

The Debtors are an established quick-service restaurant chain with approximately

90 locations concentrated in the Southeast United States. The Debtors operate company owned locations and maintain a franchise network of individually owned restaurants which collectively employ approximately five hundred and twelve (512) employees. Back Yard Burgers began as a single restaurant in Cleveland, Mississippi in 1987, and today, the Debtors pride themselves on having a strong reputation for offering big and bold backyard tastes served straight from the grill at value prices. The Debtors compete for business by offering black-angus hamburgers and chicken grilled on-site on charcoal grills, providing savory flavors most usually found only in neighborhood back yards. Meal offerings include chicken sandwiches, turkey burgers, hot dogs, salads, sides, and desserts; however, the main focus of the menu is centered on the Debtors' premium Black Angus burgers. 7. The Debtors own and operate approximately 25 restaurants (excluding franchised

locations), positioned as quick-service dining destinations where families and children can enjoy a wide variety of freshly prepared meals and desserts for lunch and dinner. Restaurant

operations generated $18.4 million in revenue in the first eight (8) months of 2012 with a $2.4 million EBITDA loss. 8. The Debtors also have contracted with approximately forty-two (42) franchisees

to operate more than sixty-four (64) restaurants under franchise agreements. Franchisees are offered the right to operate a Back Yard Burgers restaurant for an upfront fee, and franchised locations are operated under strict guidelines to present and preserve a unified brand image. Franchising offers stable cash flows from the collection of royalties and product purchases, accounting for approximately $1.3 million in revenue in the first eight (8) months of 2012. 9. In the first nine months of 2012, the Debtors reported a 0.8 percent decline and

1.8 percent incline in same store sales of franchise and company -operated stores, respectively. In the same segments, the Debtors reported declines of 4.0 percent and 5.7 percent, respectively, in 2011. These decreases were driven by a decline in guest traffic. 10. A more detailed factual background of the Debtors' businesses and operations, as

well as the commencement of these chapter 11 cases, is more fully set forth in the Declaration of
James E. Boyd, Jr. in Support of the Debtors' Chapter II Petitions and Requests for First Day Relief(the "First Day Declaration"), filed contemporaneously herewith and incorporated herein

by reference.
Relief Requested

11.

As part of their business operations, the Debtors rely on shippers and warehouse

facilities (collectively, the "Shippers and Warehousemen") to ship and store their goods, equipment, and inventory. 12. By this Motion, the Debtors seek to prevent any disruption of their business

operations. They request authority to pay certain prepetition shipping and warehouse charges. 13. In addition, the Debtors expect that, as of the Petition Date, certain of the

Shippers and Warehousemen will have outstanding invoices for goods, equipment, and inventory that were delivered to the Debtors or goods, equipment, and inventory that were stored prior to

the Petition Date (collectively with any possessory liens, the "Shipping and Warehousing
Charges"). Under the laws of some states, a shipper or a warehouseman may have a lien on the

goods, equipment, and inventory in its possession, which secures the charges or expenses incurred in connection with the transportation or storage of the goods, equipment, and inventory. In addition, pursuant to section 363(e) ofthe Bankruptcy Code, a shipper or a warehouseman, as a bailee, may be entitled to adequate protection of a valid possessory lien. The Shippers and Warehousemen will likely argue that they are entitled to possessory liens, as applicable, for transportation of and storage of the goods, equipment, and inventory in their possession as of the Petition Date and may refuse to deliver or release such goods, equipment, and inventory before their claims have been satisfied and their liens redeemed. 14. The Debtors, thus, believe that it is necessary and essential to the value of their

estates that they be permitted to make payments on account of certain Shipping and Warehousing Charges, and seek to pay certain Shipping Charges and Warehouse Charges. The Debtors

estimate that as of the Petition Date approximately $5,000 is owed to the Shippers and Warehousemen. 15. Accordingly, by this Motion, the Debtors seek an order authorizing them, inter

alia, to make payments to the Shippers and Warehousemen as the Debtors, in their business
judgment, determine are necessary or appropriate in order to obtain the release of the goods, equipment, and inventory held by such Shippers and Warehousemen. The Debtors seek

authority to make such payments in the amounts and to the extent necessary to satisfy nondisputed prepetition Shipping and Warehousing Charges and to satisfy any potential, asserted, or actual possessory liens, if any, on the goods, equipment, and inventory that may be held by a Shipper or Warehousemen pending the payment of such charges.

16.

The Debtors submit that the total amount to be paid to the Shippers and

Warehousemen if the requested relief is granted is minimal compared to the value of the goods, equipment, and inventory held by the Shippers and Warehousemen. Moreover, the Debtors do not believe there are viable timely alternatives to the Shippers and Warehousemen that they have used prior to the Petition Date.
Basis for Relief Requested

17.

The Court may authorize the Debtors to pay prepetition Shipping and

Warehousing Charges under Bankruptcy Code section 363(b). That section provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. 363(b)(1). Under this section, a court may

authorize a debtor to pay certain prepetition claims. See Ionosphere Clubs, 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989) (authorizing payment of prepetition claims where the debtors articulate "some business justification, other than the mere appeasement of major creditors"); see also In re
James A. Phillips., Inc., 29 B.R. 391, 397 (S.D.N.Y. 1983) (authorizing, pursuant to section 363,

a contractor to pay prepetition claims of some suppliers, who were potential lien claimants, because the payments were necessary for the general contractors to release funds owed to the debtors). 18. In addition, the Court's general equitable powers are codified in section 105( a) of Section 105(a) empowers the Court to "issue any order, process, or

the Bankruptcy Code.

judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. 105(a). A bankruptcy court's use of its equitable powers to "authorize the payment of prepetition debt when such payment is needed to facilitate the rehabilitation of the debtor is not a novel concept." In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N.Y. 1989). Under section 105(a), a court "can permit pre-plan payment of a prepetition obligation when

essential to the continued operation of the debtor." In re NVR L.P., 147 B.R. 126, 127 (Bankr. E.D. Va. 1992) (citing Ionosphere Clubs, 98 B.R. at 177). 19. The Debtors strongly believe that continuation of their positive relationship with

the Shippers and Warehousemen is imperative to their continued operation and chances to maximize value and that the payment of the prepetition Shipping and Warehousing Charges is essential to assure the maintenance of the value of their estates and that the Court should exercise its equitable power to grant the relief requested in this Motion. 20. Additionally, the "necessity of payment" doctrine further supports the relief

requested in this Motion. The "necessity of payment" doctrine "recognizes the existence of the judicial power to authorize a debtor in a reorganization case to pay prepetition claims where such payment is essential to the continued operation of the debtor." Ionosphere Clubs, 98 B.R. at 176;
see also In re Lehigh & New England Railway Co., 657 F.2d 570, 581 (3d Cir. 1981) (the

"necessity of payment" doctrine "teaches no more than, if payment of a claim which arose prior to reorganization is essential to the continued operation of the [business] during reorganization, payment may be authorized even if it is made out of corpus"); In re Chateaugay Corp., 80 B.R. 279 (S.D.N.Y. 1987). This doctrine is consistent with the paramount goal of Chapter 11, namely "facilitating the continued operation and rehabilitation of the debtor." Ionosphere Clubs, 98 B.R. at 176; see also Dudley v. Mealey, 147 F.2d 268,271 (2d Cir. 1945) ("let [the debtor] once shut down, and it will lose much of its value .... Some priority to [the debtor's prepetition suppliers] may be essential to preservation of the business"). 21. It is not uncommon for courts in this District to authorize payments of prepetition

claims of shippers and other lien claimants. See, e.g. In re Hussey Cooper Corp., Case No. 1113010 (BLS) (Bankr. D. Del. Sept. 28, 2011); In re DSI Holdings, Inc., Case No. 11-11941

(KJC) (Bankr. D. Del. June 28, 2011); In re Nebraska Book Co., Inc., Case No. 11-12005 (PJW) (Bankr.D. Del. June 28, 2011). 22. The Debtors submit that paying the Shipping and Warehousing Charges that

accrued before the Petition Date is critical to their businesses. The Debtors rely on the Shippers and Warehousemen to ship and store their goods, equipment, and inventory.
Bankruptcy Rule 6003 Satisfied and Request for Waiver of Stay

23.

The Debtors further submit that because the relief requested in this Motion is

necessary to avoid immediate and irreparable harm to the Debtors for the reasons set forth herein and in the First Day Declaration, Rule 6003 of the Federal Rules of Bankruptcy Procedure (the
"Bankruptcy Rules") has been satisfied and the relief requested herein should be granted.

24.

Specifically, Bankruptcy Rule 6003 provides: Except to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 21 days after the filing of the petition, grant relief regarding the following: . . . (b) a motion to use, sell, lease, or otherwise incur an obligation regarding property of the estate, including a motion to pay all or part of a claim that arose before the filing of the petition, but not a motion under Rule 4001.

25.

No court within the Third Circuit has interpreted the "immediate and irreparable

harm" language in the context of Bankruptcy Rule 6003 in any reported decision. However, the Third Circuit Court of Appeals has interpreted the same language in the context of preliminary injunctions. In that context, irreparable harm has been interpreted as a continuing harm that cannot be adequately redressed by final relief on the merits and for which money damages cannot provide adequate compensation. See, e.g, Norfolk S. Ry. Co. v. City of Pittsburgh, 235 Fed. Appx. 907, 910 (3d Cir. 2007) (citing Glasco v. Hills, 558 F.2d 179, 181 (3d Cir. 1977)).

Further, the harm must be shown to be actual and imminent, not speculative or unsubstantiated.
See, e.g., Acierno v. New Castle County, 40 F.2d 645, 653-55 (3d Cir. 1994).

26.

The Debtors further seek a waiver of any stay of the effectiveness of the order

approving this Motion. Pursuant to Rule 6004(h) of the Bankruptcy Rules, "[an] order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of fourteen (14) days after entry of the order, unless the court orders otherwise." As set forth above, the relief requested herein is essential to prevent irreparable damage to the Debtors' operations, going-concern value, and their efforts to pursue a sale or restructuring of their assets and liabilities. 27. Accordingly, the relief requested herein is appropriate under the circumstances

and under Bankruptcy Rules 6003 and 6004(h).

Notice

28.

Notice of this Motion has been given to the following parties or, in lieu thereof, to

their counsel, if known: (a) the Office of the United States Trustee for the District of Delaware; (b) counsel to Harbert Mezzanine Partners, L.P., as the Debtors' prepetition lender; (c) counsel to Pharos Capital Partners II, L.P. and Pharos Capital Partners II-A, L.P., as the Debtors' postpetition lenders; (d) creditors holding the thirty (30) largest unsecured claims as set forth in the consolidated list filed with the Debtors' petitions; (e) those parties requesting notice pursuant to Rule 2002; (f) the Office of the United States Attorney General for the District of Delaware; and (g) the Internal Revenue Service. As the Motion is seeking "first day" relief, within two (2) business days of the hearing on the Motion, the Debtors will serve copies of the Motion and any order entered respecting the Motion in accordance with the Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the District of Delaware (the "Local

Rules"). The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given. No Prior Request 29. court. Conclusion WHEREFORE, the Debtors respectfully request that this Court enter an order granting the relief requested herein and that it grant the Debtors such other and further relief as is just and proper. Dated: October 17, 2012 GREENBERG TRAURIG, LLP No prior motion for the relief requested herein has been made to this or any other

Is/ Dennis A. Meloro Dennis A. Meloro (DE Bar No. 4435) The Nemours Building 1007 North Orange Street, Suite 1200 Wilmington, Delaware 19801 Telephone: (302) 661-7000 Facsimile: (302) 661-7360 Email: melorod@gtlaw.com
-andNancy A. Mitchell (pro hac vice pending) Maria J. DiConza (pro hac vice pending) Matthew L. Hinker (DE Bar No. 5348) GREENBERG TRAURIG, LLP 200 Park A venue New York, New York Telephone: (212) 801-9200 Facsimile: (212) 801-6400 Email: mitchelln@gtlaw.com diconzam@gtlaw.com hinkerm@gtlaw.com

Proposed Counsel for the Debtors and Debtors-in-Possession

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: BACK YARD BURGERS, INC., eta!., 1 Debtors.

Chapter 11 Case No.12-12882 (PJW) (Joint Administration Requested) Ref. Docket No. - - - ORDER AUTHORIZING THE DEBTORS TO PAY CERTAIN PREPETITION SHIPPING AND WAREHOUSING CHARGES IN THE ORDINARY COURSE OF BUSINESS

Upon the motion (the "Motion") 2 filed by Back Yard Burgers, Inc. ("BYB"), one of the above-captioned debtors and debtors-in-possession (the "Debtors"), seeking entry of an order for authority to pay, in the Debtors' sole discretion, certain prepetition shipping and warehouse charges in the ordinary course of business; and upon the Declaration of James E. Boyd, Jr. in Support of the Debtors' Chapter 11 Petitions and Requests for First Day Relief (the "First Day
Declaration"); and it appearing that this Court has jurisdiction to consider the Motion pursuant

to 28 U.S. C. 157 and 1334 of title 11 of the United States Code (the "Bankruptcy Code"); and it appearing that venue of these cases and the Motion in this district is proper pursuant to 28 U.S.C. 1408 and 1409; and it appearing that this matter is a core proceeding pursuant to 28 U.S. C. 157(b); and this Court having determined that the relief requested in the Motion is in the best interests of the Debtors, their estates, their creditors, and other parties in interest; and it appearing that proper and adequate notice of the Motion has been given and that no other or

The Debtors in these chapter II cases, along with the last four digits of each Debtor's tax identification number, are: BBAC, LLC (195I ), Back Yard Burgers, Inc. (7I63), BYB Properties, Inc. (9046), Nashville BYB, LLC (6507) and Little Rock Back Yard Burgers, Inc. (9133). The mailing address of the Debtors is: St. Clouds Building, 500 Church Street, Suite 200, Nashville, TN 372I9.
2

Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Motion.

further notice is necessary; and after due deliberation thereon; and good and sufficient cause appearing therefor,
IT IS HEREBY ORDERED THAT:

1. 2.

For the reasons set forth on the record, the Motion is GRANTED. The Debtors are authorized, but not directed, in their sole discretion, and without

further application to or order of the Court, to pay in the ordinary course of business certain prepetition Shipping and Warehousing Charges as set forth in the Motion in an amount not to exceed $5,000. 3. As a condition to resolving any payment pursuant to this Order, the Shippers and

Warehousemen shall waive and release any previously asserted statutory lien, possessory lien, or any other lien on the assets of the Debtors. 4. Nothing herein shall impair the Debtors' ability to contest, in their discretion, the

validity and amounts ofthe Shipping and Warehousing Charges. 5. Notwithstanding the relief granted herein and any actions taken hereunder,

nothing contained herein shall constitute, nor is intended to constitute, the assumption or adoption of any contract or agreement under Bankruptcy Code section 365. 6. All applicable banks and other financial institutions are hereby authorized to

receive, process, honor, and pay any and all checks and transfer requests evidencing amounts paid by the Debtors under this Order whether presented prior to or after the Petition Date. Such banks and financial institutions are authorized to rely on the representations of the Debtors as to which checks are issued or authorized to be paid pursuant to this Order. 7. The Debtors are authorized and empowered to take all actions necessary to

implement the relief granted in this Order.

8.

Rule 6003(b) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy

Rules") has been satisfied because the relief requested in the Motion is necessary to avoid

immediate and irreparable harm to the Debtors. 9. Notwithstanding any applicability of Bankruptcy Rule 6004(h), the terms and

conditions of this Order shall be immediately effective and enforceable upon its entry. 10. Notwithstanding anything to the contrary contained herein any payment to be

made, or authorization contained, hereunder shall be subject to the requirements imposed on the Debtors under any approved debtor-in-possession financing facility, or any order regarding the Debtors' postpetition financing or use of cash collateral. 11. The Court retains jurisdiction with respect to all matters arising from or related to

the implementation of this Order. Dated: _ _ _ _ _ _ _ , 2012

PETER J. WALSH UNITED STATES BANKRUPTCY JUDGE