UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re BACKYARD BURGERS, INC., et al. 1 Debtors. (Joint Administration Pending) Chapter 11 Case No. 12-12882 (PJW)

MOTION OF THE DEBTORS FOR ENTRY OF INTERIM AND FINAL ORDERS (A) AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO PAY ALL OR A PORTION OF THE PREPETITION CLAIMS OF CERTAIN CRITICAL VENDORS, AND (B) AUTHORIZING FINANCIAL INSTITUTIONS TO HONOR AND PROCESS RELATED CHECKS AND TRANSFERS
The above-captioned debtors and debtors-in-possession (collectively, the "Debtors") hereby move the Court (the "Motion") pursuant to sections 105(a), 363, 1107, and 1108 of title 11 of the United States Code, 11 U.S.C. 101, et seq. (the "Bankruptcy Code") and Rules 6003 and 6004(h) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") for entry of a interim and final orders: (a) authorizing, but not directing, the Debtors to pay all or a portion of the prepetition claims of certain Critical Vendors (as defined below), (b) authorizing financial institutions to honor and process related checks and transfers, and (c) providing any additional relief required in order to effectuate the foregoing. follows: In support of this Motion, the Debtors respectfully state as

Status of the Case

1. On the date hereof (the "Petition Date"), each of the Debtors commenced these cases

by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code.

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.

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 a

creditors' committee has not yet been appointed in these cases.

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 sought herein are sections 105(a), 363, 1107,

and 1108 ofthe Bankruptcy Code and Bankruptcy Rules 6003 and 6004(h).
Background

6.

The Debtors are an established quick-service restaurant chain with approximately 90 The Debtors operate company owned

stores concentrated in the Southeast United States.

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 Franchisees are

operate more than sixty-four (64) restaurants under franchise agreements.

offered the right to operate a Back Yard Burgers restaurant for an up front 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' business and operations, as well

as the events precipitating the commencement of these cases, is fully set forth in the Declaration
ofJames 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.

By this Motion, the Debtors seek entry of an order entry of a interim and final orders:

(a) authorizing, but not directing, the Debtors to pay all or a portion of the prepetition claims of certain Critical Vendors ("Critical Vendor Claims"), (b) authorizing financial institutions to honor
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and process related checks and transfers, and (c) providing any additional relief required in order to effectuate the foregoing.
Critical Vendors

12.

The Debtors operate in a highly competitive environment, where customer Indeed,

satisfaction and the ability to maintain repeat business are of critical importance.

customer satisfaction is a key component of the value of the Debtors' business. Retaining current customers, and attracting new customers, will ultimately increase the Debtors' revenue and therefore promote their efforts to successfully reorganize. Accordingly, the Debtors do not want to risk an unnecessary interruption of services at their facilities. The Debtors have

relationships with certain suppliers and/or providers of services whose goods and/or services are of such critical importance to the Debtors that it would be difficult, and in some cases impossible, to replace them on an expedited time frame. As a result, at this time, certain

suppliers and service providers represent the only viable option for the Debtors. 13. The Debtors believe that the relief sought herein is not only critical to the Debtors'

reorganization efforts, but immediately necessary in light of the nature of the Debtors' operations. If the requested relief is not granted and certain critical trade vendors refuse to continue to supply goods and services to the Debtors postpetition, the Debtors will be unable to continue their operations and keep their customers satisfied, which will certainly endanger the Debtors' successful reorganization and substantially harm all creditors.
A. The Debtors' Vendors and Service Providers

14.

In the ordinary course of business, the Debtors purchase supplies from a variety of

vendors and obtain services from service providers that specialize in the manufacture of proprietary ingredients, production of menu items, maintenance of point-of-sale systems and

equipment and other essential services and products. Any delay or disruption in the flow of these critical goods and services to the Debtors would materially impact the Debtors' ability to maintain their reputation in the marketplace with their vendors and customers, and therefore, would cause irreparable harm to the Debtors and damage the Debtors' ability to reorganize. 15. In several instances, the Debtors' vendors are "sole-source" suppliers that maintain an Given the

effective monopoly on the goods necessary to run the Debtors' operations.

competitive nature of the fast-food industry, and the need for consistent standards at each location, many of the Debtors' "sole-source" vendors supply proprietary products which ensure a level of consistency and quality at each location. In other instances, it is simply too difficult and costly, both in terms of time and pricing, for the Debtors to find another vendor who would supply comparable goods. Further, many of the Debtors' vendors have institutional knowledge about the Debtors' needs, and experience with the Debtors' products, which would be extremely difficult to replace, and any such replacement would result in a significant disruption to the Debtors' abilities to provide consistent service at each location. 16. Thus, any delay or disruption caused by the vendors' stopping performance would

result in an immediate harm to the Debtors' operations and viability. Any erosion in customer confidence attendant to such a disruption would be difficult, if not impossible, to restore because the customers would likely turn to one of the Debtors' competitors. Accordingly, and for the reasons stated in the First Day Declaration, the Debtors believe that the relief requested herein is necessary to avoid immediate and irreparable harm. 17. The Debtors and their advisors have carefully examined whether the agreement to pay

some or all of certain vendors' unsecured claims, on an expedited basis, would reduce the immediate and irreparable harm to the Debtors' business operations that would result from the

nonpayment of any such claim. Specifically, the Debtors have undertaken a thorough review of their accounts payable and their list of prepetition vendors to identify those vendors who are uniquely critical to the Debtors' operations. 18. In this regard, the Debtors have and continue to consult with the appropriate members

of their management team to identify those vendors that are in fact critical to the Debtors' operations, using the following criteria: (a) whether the vendor in question is a "sole-source" or "limited source" provider; (b) whether the Debtors receive advantageous pricing or other terms from a vendor such that replacing the vendor postpetition would result in significantly higher costs to the Debtors; (c) the overall impact on the Debtors' operations if the vendor ceased or delayed shipments; and/or (d) whether the vendor might be able to obtain (or has obtained) mechanics liens, possessory liens, shippers liens or similar state law trade liens on property necessary to the Debtors' ongoing operations. Applying these criteria, the Debtors have

designated, in their discretion, certain vendors who appropriately satisfy the above criteria as vendors critical to their operations (the "Critical Vendors"). 19. As illustrated in detail above, the Critical Vendors are absolutely essential to the

Debtors' ability to operate their business. Indeed, the Debtors believe, in the exercise of their sound business judgment, that the failure to satisfy the Critical Vendors' unsecured claims, in whole or in part, would result in the Critical Vendors refusing to provide critical goods, services and supplies to the Debtors during the postpetition period. This outcome would have an

immediate and devastating effect on the Debtors' ability to operate their business. Moreover, any delay attendant to a change from a Critical Vendor to another vendor of similar products or services (assuming one could be located) would very likely cause a significant delay to the Debtors' operations at a time of great financial difficulty.

B. 20.

Request to Pay Critical Vendors The Debtors therefore seek the authority to pay, in their sole discretion and business

judgment, the Critical Vendors in the ordinary course of their business and on terms consistent with their prepetition operations. Thus, the Critical Vendors Claims will be paid gradually

through the operation of the Debtors' chapter 11 cases in the ordinary course of the Debtors' operations. 21. To minimize the amount of payments required, the Debtors request authority to

identify which Critical Vendors will receive payments under this Motion in the ordinary course of their business. Identifying the potential Critical Vendors now would likely cause all such vendors to demand payment in fulF The Debtors seek authorization to pay, at the Debtors' discretion, the Critical Vendor Claims of Critical Vendors that demand payment of their prepetition claim and otherwise meets the conditions for being a Critical Vendor, but also agrees to continue to supply goods or services to the Debtors on (a) the normal and customary trade terms, practices and programs (including, but not limited to, credit limits, pricing, cash discounts, timing of payments, allowances, rebates, coupon reconciliation, normal product mix and availability and other applicable terms and programs), that were most favorable to the Debtors and in effect between such Critical Vendor and the Debtors prior to the Petition Date (the "Customary Trade Terms"), or (b) such other trade terms that are agreed to by the Debtors and such Critical Vendor (the "Agreed Trade Terms," and together with the Customary Trade Terms, the "Governing Trade Terms").

A list of potential Critical Vendors will be provided to the Court, the U.S. Trustee (as defined herein), and the professionals retained by the Committee (as defined herein) appointed in these cases, once formed, provided, however, that these entities shall keep the identity of potential Critical Vendors confidential and shall not disclose the identity of such potential Critical Vendors to anyone, including, but not limited to, any member of the Committee, without prior written consent from the Debtors.

22.

Furthermore, the Debtors request authority to reverse any payments made on Critical

Vendor Claims to the extent that, after receipt of payment pursuant to this Motion, a Critical Vendor refuses to continue to continue to supply goods or services to the Debtors on the Governing Trade Terms. In such instance, the Debtors request authority to, in their discretion, and without further order of the Court: (i) declare that payments made on Critical Vendor Claims is a voidable postpetition transfer pursuant to section 549(a) of the Bankruptcy Code that the Debtors may recover from such Critical Vendor in cash or in goods and (ii) demand that the creditor immediately return such payments in respect of the Critical Vendor Claim to the extent that the aggregate amount of such payments exceeds the postpetition obligations then outstanding without giving effect to alleged setoff rights, recoupment rights, adjustments, or setoffs of any type whatsoever, and the creditor's Critical Vendor Claim shall be reinstated in such an amount as to restore the Debtors and the Critical Vendor to their original positions, as if the agreement had never been entered into and the payment of the Critical Vendor Claim had not been made. In sum, in such an event, the Debtors propose to return the parties to their positions immediately prior to the entry of the order approving the relief sought herein. 23. To ensure that Critical Vendors transact business with the Debtors in accordance with

the Governing Trade Terms, the Debtors propose the following procedures as a condition to paying any Critical Vendor: (a) that a letter or contract including provisions substantially similar to the form of the letter attached hereto as Exhibit "A" ("Vendor Agreement") be delivered to, and executed by, each Critical Vendor along with a copy of the order granting the relief sought herein and (b) that payment of Critical Vendor Claims include a communication of the following statement: By accepting this payment, the payee agrees to the terms of the Order of the U.S. Bankruptcy Court for the District of Delaware,

dated October _ , 2012, in the chapter 11 cases of Back Yard Burgers, Inc., et al. (cases Nos. 12-12882 (KG) through 12-12885 (KG)), entitled Order (A) Authorizing, But Not Directing, Debtors to Pay All or a Portion of the Prepetition Claims Of Certain Critical Vendors, and (B) Authorizing Financial Institutions to Honor and Process Related Checks and Transfers and submits to the jurisdiction ofthat Court for enforcement thereof. 24. As a further condition of receiving payment on a Critical Vendor Claim, the Debtors

propose that a Critical Vendor must agree to take whatever action is necessary to remove any existing trade liens at such Critical Vendor's sole cost and expense and waive any right to assert a trade lien on account of the paid Critical Vendor Claim. In addition, the Debtors may, in their discretion, condition receipt of payment on a Critical Vendor Claim on the Critical Vendor's agreement to waive any right to assert a claim such Critical Vendor has under section 503(b )(9) of the Bankruptcy Code. 25. In addition, the Debtors shall maintain a matrix summarizing (a) the name of each

Critical Vendor paid on account of Critical Vend or Claims, (b) the amount paid to each Critical Vendor on account of its Critical Vendor Claim, and (c) a brief description of the goods or services provided by such Critical Vendor. This matrix will periodically be provided to the following parties (together, the "Notice Parties"): the United States Trustee for the District of Delaware (the "U.S. Trustee"), professionals retained by the official committee of unsecured creditors appointed in these cases (the "Committee"), if any, and counsel to the Restructuring Support Parties, provided, however, that the Notice Parties shall keep the matrix confidential and shall not disclose any of the information in the matrix to anyone, including, but not limited to, any member of the Committee, without prior written consent from the Debtors. 26. The Debtors believe that payment of some or all Critical Vendor Claims owed to

Critical Vendors will be necessary to preserve operations so as to afford the Debtors the ability to reorganize their business. The need for the flexibility to pay such claims is particularly acute in

the period immediately following the Petition Date.

During this period, the Debtors, their

attorneys and financial advisors, and their other professionals will be focusing on preserving the value of the Debtors' assets so that the Debtors can maximize distributions to creditors of the estates. At the same time, while the Debtors are distracted with stabilization of the business, negotiating case strategies and other long-term planning, Critical Vendors may attempt to assert their considerable leverage by denying the provision of goods and services going forward, suddenly and without notice, in an effort to cripple the Debtors' operations and compel payment. 27. Furthermore, if the relief sought herein is not granted, Critical Vendors will have no

incentive to continue to finance the Debtors on existing trade terms and may insist that the Debtors pay for their goods on accelerated payment terms, cash in advance, or a cash on delivery basis. Any further expansion of these activities by other Critical Vendors would be detrimental to the Debtors, their estates and their creditors.

C.
28.

Request for Authority for Financial Institutions

The Debtors also request that all applicable banks and other financial institutions be

authorized to process and honor all checks presented for payment of Critical Vendor Claims, and to honor all fund transfer requests made by the Debtors related to Critical Vendor Claims, regardless of whether the checks were presented or fund transfer requests were submitted before or after the Petition Date, provided that funds are available in the Debtors' accounts to cover such checks and fund transfers. In addition, in an abundance of caution, the Debtors' request that the Court enter an order confirming that all banks and other financial institutions are authorized to rely on the Debtors' designation of any particular check as approved by the attached proposed order.

10

Basis for Relief Requested A. 29. The Court May Authorize Payment of the Critical Vendor Claims Pursuant to Section 363 of the Bankruptcy Code Courts have authorized payment of prepetition obligations under section 363 of the

Bankruptcy Code where a sound business purpose exists for doing so. See, e.g., In re Ionosphere
Clubs, Inc., 98 B.R. 174, 175 (Bankr. S.D.N. Y. 1989) (finding that a sound business justification

existed to justify payment of certain claims); Armstrong World Indus., Inc. v. James A. Phillips,
Inc., (In re James A. Phillips, Inc.), 29 B.R. 391, 397 (S.D.N.Y. 1983) (authorizing, pursuant to

section 363, contractor to pay prepetition claims of some suppliers who were potential lien claimants, because payments were necessary for general contractors to release funds owed to debtors); In re Hancock Fabrics, Inc., Case No. 07-10353 (BLS) (Bankr. D. Del. April13, 2007) (pursuant to section 363, authorizing payment of prepetition claims to certain vendors deemed critical by debtors). 30. As detailed above, maintaining the products and services provided by the Critical

Vendors is vital to the Debtors' continuing business operations and the success of these cases. In fact, it is unlikely the Debtors will be able to successfully reorganize without the services and products provided by the Critical Vendors. As such, the Debtors submit that the amount of the Vendor Claims Cap pales in comparison to the likely damage to the Debtors' business should the relief requested herein not be granted and the resulting impediment to a successful reorganization. Accordingly, not only will the Debtors' other creditors not be impaired by

payment of the Critical Vendor Claims, but such creditors will benefit by this Court's empowering the Debtors to negotiate payment to the Critical Vendors to achieve a smooth transition into bankruptcy and evaluate and implement case alternatives. In light of the

11

foregoing, the Debtors submit that they have a sound business purpose for payment of the Critical Vendor Claims.
B.

The Court May Also Grant the Motion Pursuant to its Bankruptcy Code and the Necessity of Payment Doctrine

31.

Section 1OS(a) of the Bankruptcy Code authorizes the Court to issue "any order,

process, or judgment that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. 105(a). The purpose of section 105(a) is to "assure the

bankruptcy courts [sic] power to take whatever action is appropriate or necessary in aid of the exercise of [its] jurisdiction." 2 COLLIER ON BANKRUPTCY
~

105.01 (15th ed. rev. 2010). Under

section 1OS(a) of the Bankruptcy Code, courts may permit pre-plan payments of prepetition obligations when essential to the continued operation of a debtor's businesses. See In re Just for
Feet, Inc., 242 B.R. 821, 825 (D. Del. 1999). The Debtors submit that the relief requested in this

Motion is critical to the Debtors and is justified under section 105(a) ofthe Bankruptcy Code. 32. Moreover, the relief requested in this Motion is supported by the well-established

"necessity of payment" rule (also referred to as the "doctrine of necessity"). The United States Court of Appeals for the Third Circuit recognized the "necessity of payment" doctrine in In re
Lehigh & New England Ry. Co., 657 F.2d 570, 581 (3d Cir. 1981). The Third Circuit held that a

court could authorize the payment of prepetition claims if such payment was essential to the continued operation of the debtor. !d. (stating courts may authorize payment of prepetition claims when there "is the possibility that the creditor will employ an immediate economic sanction, failing such payment"); see also In re Penn Central Transp. Co., 467 F.2d 100, 102 n.1 (3d Cir. 1972) (holding necessity of payment doctrine permits "immediate payment of claims of creditors where those creditors will not supply services or material essential to the conduct of the business until their pre-reorganization claims have been paid"); In re Motor Coach Internat 'l,

12

Inc., 2009 U.S. Dist. LEXIS 10024 (D. Del. Feb. 10, 2009) (reaffirming viability of doctrine of

necessity in Third Circuit with respect to payment of prepetition critical vendor claims); Just for
Feet, 242 B.R. at 824-45 (noting that, in the Third Circuit, debtors may pay prepetition claims

that are essential to continued operation of business); Pension Benefit Guarantee Corp. v. Sharon
Steel Corp. (In re Sharon Steel Corp.), 159 B.R. 730, 736 (Bankr. W.D. Pa. 1993) (embracing

"necessity of payment" doctrine and citing Leigh & New England Ry. Co. with approval); In re
Columbia Gas Sys., Inc., 171 B.R. 189, 191-92 (Bankr. D. Del. 1994) (same). The rationale in

these cases applies to the Debtors' efforts to continue their business and to preserve the goingconcern value of their business for the benefit of their creditors. Without the authority to pay the Critical Vendor Claims, the Debtors' ability to continue operations and to effectively reorganize would be significantly reduced. 33. Allowing the Debtors to pay Critical Vendor Claims, pursuant to all or some of the

above-referenced provisions, is especially appropriate where, as here, doing so is consistent with the "two recognized policies" of chapter 11 of the Bankruptcy Code-preserving going concern value and maximizing the value of property available to satisfy creditors. See Bank of Am. Nat 'l
Trust & Says. Assoc. v. 203 N LaSalle St. P 'Ship., 526 U.S. 434, 453 (1999). Indeed, courts in

this district regularly grant relief consistent to that which the Debtors are seeking in this Motion.
See, e.g., In re Appleseed's Intermediate Holdings LLC, Case No. 11-10160 (KG) (Bankr. D.

Del. Feb. 23, 2011); In re OTC Holdings Corp., Case No. 10-12636 (Bankr. D. Del. Sept. 17, 2010); In reAm. Safety Razor Co., LLC, Case No. 10-12351 (Bankr. D. Del. Aug. 23, 2010); In
re NEC Holdings Corp., Case No. 10-11890 (Bankr. D. Del. July 13, 2010).

The Debtors

respectfully submit that similar relief is warranted in these cases because without the goods and

13

services provided by the Critical Vendors, the Debtors could not continue in an uninterrupted manner to operate their business or progress towards a successful reorganization. C. 34. The Court May Also Authorize the Payment of 503(b)(9) Claims The Debtors believe that a significant portion of the Critical Vendor Claims arise

from goods received by the Debtors in the ordinary course of business within the twenty (20) days immediately preceding the Petition Date. In that regard, those Critical Vendor Claims would be afforded administrative expense priority under sections 503(b )(9) and 507(a)(2) of the Bankruptcy Code, see 11 U.S.C. 503(b)(9) and 507(a)(2), and the Debtors would be required to pay such claims in full as a prerequisite to confirmation of a chapter 11 plan. See 1129(a)(9) (requiring payment in full of claims entitled to priority under section 507(a)(2)). Accordingly, to the extent any Critical Vendor Claims would be entitled to priority under section 503(b )(9), the relief requested herein will affect only the timing of the payment. D. 35. The Court May Also Authorize the Relief Requested as a Valid Exercise of the Debtors' Fiduciary Duties The Debtors, operating their businesses as debtors-in-possession pursuant to sections

1107(a) and 1108 ofthe Bankruptcy Code, are fiduciaries "holding the bankruptcy estate[s] and operating the business for the benefit of ... [their] creditors and (if the value justifies) equity owners." In re CoServ, 273 B.R. 487, 497 (Bankr. N.D. Tex. 2002). Implicit in the duties of a debtor-in-possession is the duty "to protect and preserve the estate, including operating business's going-concern value." !d. 36.
It has been noted that there are instances in which a debtor-in-possession can fulfill its

fiduciary duty "only ... by the preplan satisfaction of a pre-petition claim." Id. The CoServ court specifically noted that preplan satisfaction of prepetition claims would be a valid exercise of a debtor's fiduciary duty when the payment "is the only means to effect a substantial

14

enhancement of the estate" and also when the payment was to "sole suppliers of a given product." ld. at 497-98. The court provided a three-pronged test for determining whether a preplan payment on account of a prepetition claim was a valid exercise of a debtor's fiduciary duty: First, it must be critical that the debtor deal with the claimant. Second, unless it deals with the claimant, the debtor risks the probability of harm, or, alternatively, loss of economic advantage to the estate or the debtor's going concern value, which is disproportionate to the amount of the claimant's pre-petition claim. Third, there is no practical or legal alternative by which the debtor can deal with the claimant other than by payment of the claim.
Id. at 498.

37.

Payment of the Critical Vendor Claims meets the test set forth in CoServ.

As

described above, the Debtors have narrowly tailored the amount to be paid under the Vendor Claims Cap to encompass only those suppliers that are essential to the Debtors' ongoing business operations. The shutdown of the Debtors' operations could cost the Debtors' estates substantial amounts in lost revenues, and furthermore, could adversely impact the Debtors' ongoing operations. Accordingly, the harm and economic disadvantage that would stem from the failure to pay the Critical Vendors is grossly disproportionate to the amount of the prepetition claims that would have to be paid in order to ensure the Critical Vendors' ongoing business with the Debtors, ensure the continued supply of critical goods and services to the Debtors, and facilitate the Debtors' continued business operations and reorganization efforts. Finally, with respect to the Critical Vendors, the Debtors have examined other options short of payment of the Critical Vendor Claims and have determined that to avoid significant disruption of the Debtors' business operations, there exists no practical available alternative to payment of the Critical Vendor Claims. Accordingly, the Debtors request that the Court grant the relief requested herein.

15

Bankruptcy Rule 6003 Satisfied and Request for Waiver of Stay

38. 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, FED. R. BANKR. P. 6003 has been satisfied and the relief requested herein should be granted. 39. Specifically, FED. R. BANKR. P. 6003 provides: Except to the extent that relief is necessary to avoid immediate and irreparable harm, the court shall not, within 20 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. 40. No court within the Third Circuit has interpreted the "immediate and irreparable

harm" language in the context of FED. R. BANKR. P. 6003 in any reported decision. The Third Circuit Court of Appeals, however, has interpreted the same language in the context of preliminary injunctions. In that context, the Third Circuit interpreted irreparable harm to mean 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). 41. The Debtors further seek a waiver of any stay of the effectiveness of the order

approving this Motion. Pursuant to FED. R. BANKR. P. 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, the relief

16

requested herein is essential to prevent irreparable damage to the Debtors' operations, goingconcern value, and their efforts to pursue a sale or restructuring of their assets and liabilities. 42. Accordingly, the relief requested herein is appropriate under the circumstances and

under FED. R. BANKR. P. 6003 and 6004(h).

Notice

43.

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. The Debtors submit that, in light of the nature of the relief requested, no other or further notice need be given.
No Prior Request

44. or any other court.

No prior request for the relief sought in this Motion has been made to this

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Conclusion

WHEREFORE, the Debtors respectfully request that this Court 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 TRAURlG, 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 Avenue 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 Debtorsin-Possession

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Exhibit "A" Vendor Agreement

To: [Critical Vendor] [Name] [Address] _ _ _ _ _ ,2012 Re: In re Back Yard Burgers, Inc., et al Dear Valued Supplier: As you are aware, Back Yard Burgers, Inc. and several of its affiliates (collectively, the "Company") filed voluntary petitions for relief under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy cases" and the "Bankruptcy Court", respectively) on October , 2012 (the "Petition Date"). On the Petition Date, the Company requested the Bankruptcy Court's authority to pay the pre-bankruptcy claims of certain suppliers, in the ordinary course of business, in recognition of the importance of the Company's relationship with such suppliers and its desire that the Bankruptcy cases have as little effect on the Company's ongoing business operations as possible. On October _, 2012 the Bankruptcy Court entered an order (the "Order") authorizing the Company, under certain conditions, to pay all or portions of the prepetition claims of certain trade creditors that agree to the terms set forth below and to be bound by the terms of the Order (the "Critical Vendor Payment Program"). A copy of the Order is enclosed. In order to receive payment on account of prepetition claims, you must agree to continue to supply goods and services to the Company based on Governing Trade Terms (as defined in the Order). In the Order, Governing Trade Terms are defined as the normal and customary trade terms, practices and programs (including, but not limited to, credit limits, pricing, cash discounts, timing of payments, allowances, rebates, coupon reconciliation, normal product mix and availability and other applicable terms and programs), that were most favorable to the Company and in effect between you and the Company prior to the Petition Date, or such other trade terms as you and the Company agree. For purposes of administration of this trade program as authorized by the Bankruptcy Court, you and the Company both agree to the conditions stated herein. 1. The amount of your prepetition claim (net of any setoffs, credits or discounts) (the "Critical Vendor Claim") that you will be paid from the Company in the ordinary course of business is$ _ _ , subject to final reconciliation with the Company's books and records. 2. You agree to waive any general unsecured claim against the Company to the extent of the amount of any payment received under the Order. In addition, you agree to waive any claim under section 503(b)(9) of the Bankruptcy Code against the Company to the extent of the amount of any payment received under the Order. 3. You will continue to ship goods or provide services (as applicable) to the Company postpetition on the following terms:

4. During the pendency of the Bankruptcy cases, you will continue to extend to the Company the foregoing Governing Trade Terms. 5. You will not demand a lump sum payment upon consummation of a plan of reorganization in these Bankruptcy cases on account of any administrative expense priority claim that you assert, but instead agree that such claims will be paid in the ordinary course of business after consummation of a plan under applicable Governing Trade Terms, if the plan provides for the ongoing operations of the Company. 6. The undersigned, a duly authorized representative of [Critical Vendor], has reviewed the terms and provisions of the Order and agrees that [Critical Vendor] is bound by such terms. 7. You will not separately seek payment for reclamation, section 503(b )(9) and similar claims outside of the terms of the Order unless your participation in the Critical Vendor payment program authorized by the Order (the "Critical Vendor Payment Program") is terminated. 8. You agree not to file or otherwise assert against the Company, the estates, or any other person or entity, or any of their respective assets or property (real or personal) any lien (regardless of the statute or other legal authority upon which such lien is asserted) related in any way to any remaining prepetition amounts allegedly owed to you by the Company arising from agreements entered into prior to the Petition Date. Furthermore, you agree to take (at your own expense) all necessary steps to remove any such lien(s) previously asserted or asserted in the future as soon as possible. 9. If either the Critical Vendor Payment Program or your participation therein terminates as provided in the Order, or you later refuse to continue to supply goods to the Company on Governing Trade Terms during the pendency of the Bankruptcy cases, any payments you receive on account of your Vendor Claim will be deemed voidable postpetition transfers pursuant to section 549(a) of title 11 of the United States Code (the "Bankruptcy Code"). You will immediately repay to the Company any payments made to you on account of your Critical Vendor Claim to the extent that the aggregate amount of such payments exceeds the postpetition obligations then outstanding without giving effect to alleged setoff rights, recoupment rights, adjustments, or offsets of any type whatsoever. Your Critical Vendor Claim shall be reinstated in such an amount so as to restore the Company and you to the same positions as would have existed if payment of the Critical Vendor Claim had not been made. 11. Any dispute with respect to this letter agreement, the Order and/or your participation in the Critical Vendor Payment Program shall be determined by the Bankruptcy Court.

If you have any questions about this Agreement or our financial restructuring, please do not hesitate to call. Sincerely, Back Yard Burgers, Inc. By:_ _ _ _ _ _ _ __

Accepted and Agreed [Critical Vendor] By its_ _ _ _ _ _ _ __ Dated

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UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re Chapter 11 BACKYARD BURGERS, INC., et al. Debtors. (Joint Administration Pending)
1

Case No. 12-12882 (PJW)

Ref. Docket No. INTERM ORDER (A) AUTHORIZING, BUT NOT DIRECTING, THE DEBTORS TO PAY ALL OR A PORTION OF THE PREPETITION CLAIMS OF CERTAIN CRITICAL VENDORS, AND (B) AUTHORIZING FINANCIAL INSTITUTIONS TO HONOR AND PROCESS RELATED CHECKS AND TRANSFERS
Upon the motion (the "Motion") 2 filed by the above-captioned debtors and debtors-inpossession (collectively, the "Debtors") pursuant to sections 105(a), 363, 1107, and 1108 oftitle 11 of the United States Code, 11 U.S.C. 101, et seq. (the "Bankruptcy Code") and Rules 6003 and 6004(h) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") for entry of an order: (a) authorizing, but not directing, the Debtors to pay all or a portion of the prepetition claims of certain Critical Vendors (as defined below), (b) authorizing financial institutions to honor and process related checks and transfers, and (c) providing any additional relief required in order to effectuate the foregoing; having reviewed the Motion; and upon 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"); and it appearing that this Court has jurisdiction to consider the
Motion pursuant to 28 U.S.C. 157 and 1334; 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

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

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

1.

For the reasons set forth on the record, the Motion is GRANTED. Pursuant to sections 1OS(a), 363(b ), 1107 and 1108 of the Bankruptcy Code, the

2.

Debtors are authorized, but not directed, in the reasonable exercise of their business judgment, to pay each Critical Vendor in the ordinary course of business. 3. The Debtors shall only make payment on account of Critical Vendor Claims to

Critical Vendors who agree to continue to supply goods or services to the Debtors on such Critical Vendor's Governing Trade Terms. As used herein, "Governing Trade Terms" means, with respect to a Critical Vendor: (a) the normal and customary trade terms, practices and programs (including, but not limited to, credit limits, pricing, cash discounts, timing of payments, allowances, rebates, coupon reconciliation, normal product mix and availability, and other applicable terms and programs), that were most favorable to the Debtors and in effect between such Critical Vendor and the Debtors prior to the Petition Date; or (b) such other trade terms that are agreed to by the Debtors and such Critical Vendor. 4. The Debtors shall maintain a matrix summarizing (a) the name of each Critical

Vendor paid on account of Critical Vendor Claims, (b) the amount paid to each Critical Vendor on account of its Critical Vendor Claim and (c) the goods or services provided by such Critical Vendor. This matrix will periodically be provided to the following parties (together, the "Notice
Parties"): the United States Trustee for the District of Delaware (the "U.S. Trustee"),

professionals retained by the official committee of unsecured creditors appointed in these cases (the "Committee"), if any, and counsel to the Debtors' postpetition lenders, provided, however, that the Notice Parties shall keep the matrix confidential and shall not disclose any of the information in the matrix to anyone, including, but not limited to, any member of the Committee, without prior written consent from the Debtors. 5. The Debtors shall undertake all appropriate efforts to cause Critical Vendors to

enter into an agreement (the "Vendor Agreement") including provisions substantially similar to the form attached to the Motion as Exhibit "A". 6. The Debtors are authorized, but not directed, to enter into Vendor Agreements

when the Debtors determine, in the exercise of their reasonable business judgment, that it is appropriate to do so. However, the Debtors' inability to enter into a Vendor Agreement shall not preclude them from paying a Critical Vendor Claim when, in the exercise of their reasonable business judgment, such payment is necessary to the Debtors' operations. 7. If a Critical Vendor that has received payment of a prepetition claim later refuses

to continue to supply goods or services for the applicable period in compliance with the Vendor Agreement or this Order, then (a) the Debtors may, in their discretion, declare that the payment of the creditor's Critical Vendor Claim is a voidable postpetition transfer pursuant to section 549(a) of the Bankruptcy Code that the Debtors may recover in cash or in goods from such Critical Vendor, (b) the creditor shall immediately return such payments in respect of a Vendor Claim to the extent that the aggregate amount of such payments exceeds the postpetition obligations then outstanding without giving effect to alleged setoff rights, recoupment rights, adjustments, or offsets of any type whatsoever, and (c) the Critical Vendor Claim shall be reinstated in such an amount so as to restore the Debtors and the Critical Vendor to their original

positions as if the Vendor Agreement had never been entered into and no payment of the Critical Vendor Claim had been made. 8. Each of the banks and financial institutions at which the Debtors maintain their

accounts relating to the payment of the claims that the Debtors request authority to pay in the Motion are authorized to receive, process, honor and pay all checks presented for payment and to honor all fund transfer requests made by the Debtors related thereto, to the extent that sufficient funds are on deposit in those accounts, and are authorized to rely on the Debtors designation of any particular check as approved by this Order. 9. 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. 10. 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. 11. Notwithstanding any applicability of Bankruptcy Rule 6004(h), the terms and

conditions ofthis Order shall be immediately effective and enforceable upon its entry. 12. This Court shall retain jurisdiction with respect to all matters arising from or

relating to the interpretation or implementation of this Order. 13. Any objections to entry of a final order granting the relief requested in the Motion

shall be filed and served upon counsel for the Debtors by 5:00p.m. (Prevailing Eastern Time) on
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, 2012]. In the event no objections are filed, a final order shall be entered without

further notice or a hearing. In the event that any objection is timely filed, a hearing will be held on._[_ _] 2012 at._[_ _](Prevailing Eastern Time). Dated: _ _ _ _ _ _ _ , 2012

PETER J. WALSH UNITED STATES BANKRUPTCY JUDGE