UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re Chapter 11 BACK YARD BURGERS, INC., et al. 1 Case No. 12-12882 (PJW) Debtors. (Joint Administration Pending)
MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER PURSUANT TO BANKRUPTCY CODE SECTIONS 1107(a) AND 1108 AND BANKRUPTCY RULES 6003 AND 6004 AUTHORIZING, BUT NOT DIRECTING, BACKYARD BURGERS, INC. TO HONOR ITS POSTPETITION ACTIVITIES RELATED TO ITS FRANCHISE AGREEMENTS, IN THE ORDINARY COURSE OF BUSINESS

Back Yard Burgers, Inc. ("BYBI"), one of the above-captioned debtors and debtors-inpossession (the "Debtors") hereby moves the Court (this "Motion") for the entry of an order (the "Order") pursuant to sections 11 07(a) and 1108 of Title 11 of the United States Code (the
"Bankruptcy Code") and Rule 6003 and 6004(h) of the Federal Rules of Bankruptcy Procedure

(the "Bankruptcy Rules"), authorizing, but not directing, BYBI to continue its franchising activities in the ordinary course of its business postpetition, including (i) continue to honor its existing franchise agreements and to enforce its rights under the franchise agreements, prior to assumption or rejection, (ii) continue to administer and utilize its national advertising fund (the
"Ad Fund"), and (iii) enter into new franchising or other similar arrangements (collectively, the "Franchising Activities"). In support of this Motion, BYBI respectfully states as follows:

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, are: 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, Nashviile, TN 37219.

Status of the Case

1.

On the date hereof (the "Petition Date"), the Debtors filed a voluntary petition for

relief under chapter 11 of the Bankruptcy Code. 2. The Debtors have continued in possession of their properties and are operating

and managing their business 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 an

official committee has not yet been appointed in this case.

Jurisdiction, Venue, and Statutory Predicates

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 requested herein are sections 105(a), 363(b), The requested relief is warranted pursuant to

1107(a) and 1108 of the Bankruptcy Code. Bankruptcy Rule 6003.

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 of2012. 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 detailed factual background of the Debtors' businesses and operations, as well

as the events precipitating the commencement of these 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.

BYBI's Franchise Agreements

11. As discussed in the First Day Declaration, as part of their core businesses, BYBI

is party to numerous franchise agreements (collectively, the "Franchise Agreements"). Under the Franchise Agreements, BYBI loans its model for its quick-service restaurants known as the "Back Yard Burgers" restaurants, including its standardized menu and operations system, and loans its trademarks and/or trade names and logos to franchisees (the "Franchisees"). In

exchange for using the Back Yard Burgers restaurant model, trademarks and logos, each Franchisee satisfies certain obligations, including, but not limited to, (i) paying BYBI an annual franchise fee of approximately $1,000, (ii) paying BYBI, on a weekly basis, a royalty fee equal to four percent (4%) of the gross receipts (less sales tax and coupon discounts) derived from all sales of goods and services at the respective restaurant, including but not limited to, catering and off-premises sales ("Net Sales"), (iii) contributing, on a weekly basis, one percent (1 %) of Net Sales to the Ad Fund, (iv) spending a sum equal to not less than two percent (2%) ofNet Sales on local promotion and advertising, (v) operating the respective restaurant in accordance with the Back Yard Burgers model, and (vi) maintaining certain insurance policies. BYBI also obligates its company owned restaurants to 1.5% of their Net Sales to the Ad Fund on a weekly basis. 12. BYBI applies at least fifty percent (50%) of the contributions to the Ad Fund to

the creation of marketing tools, such as advertising copy, ad slicks, four-color art, design and other collateral pieces. BYBI uses the remainder of the contributions to the Ad Fund for new product testing and development, market research, improvements in operating methods and techniques and other activities that may improve the restaurants' earnings. 13. BYBI intends to continue its Franchising Activities in the ordinary course of its

business during the pendency of these chapter 11 cases. However, out of an abundance of caution and to provide comfort to the Franchisees, BYBI seeks this Court's authority to continue the Franchising Activities in the ordinary course of business. 14. Since the Franchise Agreements are at the core of the BYBI's business and its

long term growth, any disruption to BYBI's ability to fulfill the Franchise Activities and any disruption in the services provided by the Franchisees would have detrimental impact on its survival. Specifically, in order for the BYBI to continue any expansion of its business model, it must be able to assure all potential franchisees that it will honor their obligations und((r the Franchise Agreements. To ensure that the Debtors' reorganization proceeds without

interruption, BYBI requests immediate authority from the Court to continue the Franchise Activities in the ordinary course of its business.
Relief Requested

15.

By this Motion, BYBI requests the entry of an order, substantially in the form

attached hereto, authorizing but not directing, BYBI to (i) continue to honor the Franchise Agreements and to enforce its rights under Agreements, prior to their assumption or rejection, (ii) continue to administer and utilize its Ad Fund, and (iii) enter into new franchising or other similar arrangements.
Basis for Relief Requested

16.

BYBI seeks to continue its Franchising Activities in the ordinary course ofbusiness

to ensure uninterrupted operations and to allow for a seamless transition through these chapter 11 cases. BYBI believes that continuing the Franchising Activities postpetition is authorized as an ordinary course transaction without court order, however, BYBI files this Motion out of an abundance of caution to provide comfort to the Franchisees that BYBI can and will continue to

honor the Franchise Agreements and continue its Franchising Activities in the ordinary course of its postpetition business. The relief requested is reasonable and necessary under the unique circumstances ofthese chapter 11 cases. 17. Pursuant to Bankruptcy Code Sections 11 07(a) and 1108, a debtor-in-possession

are authorized to operate its business while maintaining a "fiduciary duty to act in the best interest of the estate as a whole, including its creditors, equity interest holders and other parties in interest." LaSalle Nat'! Bank v. Perelman, 82 F.Supp.2d 279, 292 (D. Del. 2000). Implicit in the fiduciary duties of any debtor-in-possession is the obligation to "protect and preserve the estate, including an operating business's going-concern value." In re CoServ, L.L.C., 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). In the instant case, BYBI is operating as a debtor-in-

possession consistent with Bankruptcy Code Sections 1107(a) and 1108 and carrying out its Franchising Activities is necessary to protect and preserve the its business operation and should be authorized by the Court. 18. The cooperation of the Franchisees is critical to the continued operation of the Should the Franchisees terminate their relationships with BYBI due to

BYBI's business.

BYBI's inability to perform under the Franchise Agreements, not only would BYBI immediately lose a substantial portion of its revenue, BYBI's business reputation would be significantly harmed, thereby reducing, if not eliminating, its ability to expand its franchise operations. The harm and economic disadvantage that would stem from BYBI's failure to

continue its Franchising Activities is highly disproportionate to the amount of the postpetition claims that would have to be paid, if any.

Satisfaction of Bankruptcy Rule 6003 and Request for Waiver of Stay

19.

BYBI further submits that because the relief requested in this Motion 1s

necessary to avoid immediate and irreparable harm to BYBI for the reasons set forth in this Motion and in the First Day Declaration, Rule 6003 of the Bankruptcy Rules has been satisfied and the relief requested herein should be granted. 20. 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: ... (a) an application under Rule 20 14; (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; and (c) a motion to assume or assign an executory contract or unexpired lease in accordance with 365. 21. 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). As discussed
herein, a key aspect of the Debtors' efforts to minimize disruption during their chapter 11 cases is BYBI's ability to maintain and develop the many relationships with its existing franchisees it has cultivated over the years and to continue to be able to grow new relationships in order to expand the business. As such, any delay in entry of an Order approving this Motion could

potentially jeopardize these important relationships and undermine BYBI's ability to preserve the value of its business, its ability to expand its franchises and its long-term growth. 22. Furthermore, the BYBI seeks a waiver of any stay of the effectiveness of the

order approving this Motion. Pursuant to Bankruptcy Rule 6004(h) "[an] order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of ten (1 0) days after entry of the order, unless the court orders otherwise." As set forth above, continuing its Franchising Activities is essential to prevent irreparable damage to the BYBI's operations and the value of its estate. Accordingly, BYBI submits that ample cause exists to justify a waiver of the ten (1 0) day stay imposed by Bankruptcy Rule 6004(h), to the extent it applies.

Reservation of Rights
23. Nothing contained herein is intended or shall be construed as (i) an admission as

to the validity of any claim against BYBI or any of the other Debtors, (ii) a waiver of BYBI's, any of the other Debtors' or any party in interest's rights to dispute any claim under applicable nonbankruptcy law, or (iii) an assumption, adoption, or rejection of any agreement, contract, program, policy or lease between BYBI, or any of the other Debtors, and any third party under section 365 of the Bankruptcy Code. Likewise, if this Court grants the relief sought herein, (i) BYBI is authorized, but not directed, to continue its Franchising Activities and (ii) any payment made pursuant to the Court's order is not intended and should not be construed as an admission to the validity of any claim or a waiver of the Debtors' rights to subsequently dispute such claim. Finally, the relief requested herein shall not oblige BYBI to accept any services, accept the shipment of goods, or prevent BYBI from returning or rejecting goods.

Notice
24. 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; (g) the Internal Revenue Service; and (h) the Franchisees. 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. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given.

No Prior Reguest
25. other court. The Debtors has not previously sought the relief requested herein from this or any

Conclusion
WHEREFORE, the Debtors respectfully requests that this Court enter an order granting the relief requested herein and that it grant BYBI such other and further relief as is just and proper.

[Signature Page Follows]

Dated: October 17, 2012

GREENBERG TRAURIG, LLP

Is/ Dennis A. Meloro Dennis A. Meloro (DE Bar No. 4435) 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-inPossession

10

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re Chapter 11 BACK YARD BURGERS, INC., et al. Debtors. (Joint Administration Pending)
Ref. Docket No. ORDER PURSUANT TO SECTIONS lOS(a), 363(b), 1107(a) AND 1108 OF THE BANKRUPTCY CODE AND BANKRUPTCY RULE 6004 AUTHORIZING, BUT NOT DIRECTING, BACK YARD BURGERS, INC. TO HONOR ITS POSTPETITION ACTIVITIES RELATING TO ITS FRANCHISE AGREEMENTS, IN THE ORDINARY COURSE OF BUSINESS
1

Case No. 12-12882 (PJW)

Upon the motion (the "Motion")2 filed by Back Yard Burgers, Inc. ("BYBI"), one ofthe above-captioned debtors and debtors-in-possession (the "Debtors"), seeking the entry of an order authorizing, but not directing, BYBI to continue its franchising activities in the ordinary course of its business postpetition, including (i) continuing to honor its existing franchise agreements and to enforce its rights under the franchise agreements, prior to assumption or rejection, (ii) continuing to administer and utilize its national advertising fund (the "Ad Fund"), and (iii) entering into new franchising or other similar arrangements (collectively, the
"Franchising Activities"), all as more fully described in the Motion; and upon the Declaration

of James E. Boyd, Jr. in Support of the Debtor's Chapter 11 Petition and Request for First Day Relief (the "First Day Declaration"); and consideration of the Motion and the relief
requested therein being a core proceeding pursuant to 28 U.S.C. 157(b); and venue being

The Debtors in these chapter 11 cases, along with the last four digits of each Debtor's federal tax identification number, are: 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.
2

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

proper in this district pursuant to 28 U.S.C. 1408 and 1409; and the Court having jurisdiction to consider the Motion and the relief requested therein in accordance with 28 U.S.C. 157 and 1334; and this Court having previously granted the Motion on an interim basis; and due and proper notice of the Motion having been given under the circumstances; and the legal and factual bases set forth in the Motion establishing just and sufficient cause to grant the relief requested therein; and the relief granted herein being in the best interests of BYBI, its estate, creditors, and all parties in interest; and the Court having held the Hearing with the appearances of interested parties noted in the record of the Hearing; and upon all of the proceedings before the Court THEREFORE, IT IS HEREBY ORDERED THAT: 1. 2. For the reasons set forth on the record, the Motion is GRANTED. Pursuant to Sections 105(a), 363(b), 1107 and 1108 of the Bankruptcy Code,

BYBI is authorized, but not directed, to continue its Franchising Activities in the ordinary course of business. 3. Nothing herein constitutes (i) an admission as to the validity of any claim against

BYBI or any of the other Debtors, (ii) a waiver ofBYBI's, any ofthe other Debtors' or any party in interest's rights to dispute any claim under applicable nonbankruptcy law, or (iii) an assumption, adoption, or rejection of any agreement, contract, program, policy or lease between BYBI, or any of the other Debtors, and any third party under section 365 of the Bankruptcy Code. 4. Notwithstanding Bankruptcy Rule 6004(h), the terms and conditions of this Order

shall be immediately effective upon its entry. 5. BYBI is authorized and empowered to take all actions necessary to implement the

relief granted in this Order. 6. The Court shall retain jurisdiction with respect to all matters arising from or

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

PETERJ. WALSH UNITED STATES BANKRUPTCY JUDGE