IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: PERKINS & MARIE CALLENDERS INC.

,1 et al., Debtors. DEBTORS MOTION FOR ORDER PURSUANT TO 11 U.S.C. 105(a), 363(b), 507(a)(8), AND 541 AUTHORIZING (I) PAYMENT OF CERTAIN PRE-PETITION TAXES, AND (II) FINANCIAL INSTITUTIONS TO PROCESS AND CASH CHECKS AND TRANSFERS RELATED THERETO Perkins & Marie Callenders Inc. (f/k/a The Restaurant Company) (PMCI) and its above-captioned affiliated debtor entities (collectively, with PMCI, the Debtors), by and through their undersigned proposed counsel, respectfully submit this motion (the Motion) for entry of an order pursuant to sections 105(a), 363(b), 507(a)(8), and 541 of title 11 of the United States Code, 11 U.S.C. 101 et seq. (the Bankruptcy Code), (i) authorizing, but not requiring, payment of certain pre-petition taxes, and (ii) authorizing financial institutions to process and cash checks and transfers related thereto. In support of this Motion, the Debtors submit and incorporate by reference herein the Declaration of Joseph F. Trungale in Support of Debtors Chapter 11 Petitions and First Day Motions, filed contemporaneously with this Motion. In further support of this Motion, the Debtors respectfully state as follows: Chapter 11 Case No. 11-11795 (___) Joint Administration Pending

The Debtors, together with the last four digits of each Debtors federal tax identification number, are: Perkins & Marie Callenders Inc. (4388); Perkins & Marie Callenders Holding Inc. (3999); Perkins & Marie Callenders Realty LLC (N/A); Perkins Finance Corp. (0081); Wilshire Restaurant Group LLC (0938); PMCI Promotions LLC (7308); Marie Callender Pie Shops, Inc. (7414); Marie Callender Wholesalers, Inc. (1978); MACAL Investors, Inc. (4225); MCID, Inc. (2015); Wilshire Beverage, Inc. (5887); and FIV Corp. (3448). The mailing address for the Debtors is 6075 Poplar Avenue, Suite 800, Memphis, TN 38119.

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Jurisdiction and Venue 1. This Court has jurisdiction to hear the Motion under 28 U.S.C. 157 and 1334.

This is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 2. Venue of the above-captioned cases and this Motion are proper in this District

pursuant to 28 U.S.C. 1408 and 1409. 3. The statutory predicates for the relief requested herein are sections 105(a), 363(b),

507(a)(8), and 541 of the Bankruptcy Code. Factual Background 4. On June 13, 2011 (the Petition Date), each of the Debtors filed a voluntary

petition (collectively, the Petitions) for relief under chapter 11 of the Bankruptcy Code, and each thereby commenced chapter 11 cases (collectively, the Chapter 11 Cases) in this Bankruptcy Court (the Court). No request has been made for the appointment of a trustee or examiner, and the Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. As of the date hereof, no Official Committee of Unsecured Creditors has been appointed in any of the Chapter 11 Cases. A. The Debtors Businesses 5. The Debtors are one of the leading operators of family-dining and casual-dining

restaurants, under their two (2) highly-recognized brands: (i) their full-service family dining restaurants located primarily in the Midwest, Florida and Pennsylvania under the name Perkins Restaurant and Bakery (Perkins), and (ii) their mid-priced, full-service casual-dining restaurants, specializing in the sale of pies and other bakery items, located primarily in the

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western United States under the name Marie Callenders Restaurant and Bakery (Marie Callenders). 6. Through the Debtors Foxtail Foods bakery goods manufacturing operations

(Foxtail), the Debtors offer pies, muffin batters, cookie doughs, pancake mixes, and other food products for sale to both company-owned and franchised Perkins and Marie Callenders restaurants, and to unaffiliated customers, such as food service distributors and supermarkets, as well as on-line to the public. 7. As of April 17, 2011, the Debtors owned and operated one hundred sixty (160)

Perkins restaurants located in thirteen (13) states, and franchised three hundred fourteen (314) Perkins restaurants located in thirty-one (31) states and five (5) Canadian provinces. Similarly, the Debtors owned and operated eighty-five (85) Marie Callenders restaurants located in nine (9) states, and franchised thirty seven (37) Marie Callenders restaurants located in four (4) states and Mexico.2 Thus, the Debtors operate or franchise approximately six hundred (600) restaurants throughout the United States, Canada and Mexico.* 8. As of April 17, 2011, the Debtors employed approximately twelve thousand three

hundred fifty (12,350) employees, consisting of approximately five thousand three hundred fifty (5,350) part-time employees and approximately seven thousand (7,000) full-time employees.* 9. $507 million. The Debtors revenues for the year ended December 26, 2010 were approximately

Included therein, MCPSI operates two (2) Callenders Grill restaurants in Los Angeles, California and a single East Side Marios restaurant in Lakewood, California. * Immediately prior to the Petition Date, the Debtors initiated a store reduction program to discontinue approximately sixty-five (65) corporate-operated restaurant locations, which will have the attendant effect of a reduction in workforce of approximately 2,500 people.

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B.

Corporate Structure and Pre-Petition Capitalization 10. Perkins & Marie Callenders Holding Inc. (f/k/a The Restaurant Holding

Corporation) is a holding company that wholly owns PMCI. PMCI is the Debtors principal operating entity and the primary obligor on the Debtors pre-Petition Date senior secured working capital facility and their secured and unsecured bond debt. PMCI directly or indirectly owns and operates the Debtors restaurant operations, oversees the Debtors franchised restaurant operations, and owns and operates its Foxtail business. 11. On September 24, 2008, PMCI issued $132 million in aggregate principal amount

of 14% Senior Secured Notes (the Senior Secured Notes), with a maturity date of May 31, 2013 and interest payable semi-annually on May 31 and November 30 of each year. Prior thereto, on September 21, 2005, PMCI issued $190 million of 10% Senior Notes (the Senior Notes), with a maturity date of October 1, 2013 and interest payable semi-annually on April 1 and October 1 of each year. Concurrently with the issuance of the Senior Secured Notes, PMCI and PMC Holding entered into a Credit Agreement dated as of September 24, 2008 (as amended, the Credit Agreement) with Wells Fargo Capital Finance, LLC (f/k/a Wells Fargo Foothill, LLC) as the lender and administrative agent (the Credit Facility Agent), consisting of a revolving credit facility in favor of PMCI, as borrower, of up to $26,000,000, with a sub-limit of $15,000,000 for the issuance of letters of credit (collectively, the Credit Facility). As of the Petition Date, approximately $103,000,000 in aggregate principal amount of the Senior Secured Notes are outstanding, $190,000,000 in aggregate principal amount of the Senior Notes are outstanding, and approximately $10,060,000 in principal amount is outstanding under the Credit Facility (comprised solely of outstanding letters of credit).

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12.

Effective April 30, 2011, PMCI and various of the other Debtors entered into two

(2) forbearance agreements (collectively, the Forbearance Agreements), one (1) with the holders of in excess of eighty (80%) percent in aggregate principal amount of the Senior Notes (the Senior Note Forbearance Agreement), and one (1) with the lender and Credit Facility Agent under the Credit Agreement. 13. In the weeks preceding the Petition Date, the Debtors entered into a

Restructuring Support Agreement dated as of June 6, 2011 with the holders of the Senior Notes signatory to the Senior Note Forbearance Agreement and the holders of one hundred (100%) percent of the Senior Notes (collectively, the Restructuring Support Parties) designed to mutually and consensually develop and agree upon the parameters of a reorganization program for the Debtors that will, among other things, delever the Debtors capital structure, and thereby establish a pre-filing blueprint for an efficient and effective chapter 11 reorganization process. In connection with entering into the Restructuring Support Agreement, the Debtors and the Restructuring Support Parties also negotiated the principal terms of the Debtors plan of reorganization, and such plan of reorganization and the accompany disclosure statement will be filed with the Court on or before July 14, 2011 in accordance with the milestones contained in the Restructuring Support Agreement. Relief Requested 14. In the ordinary course of their businesses, the Debtors are required to collect

certain taxes, including sales and use taxes, from third-parties and hold them for a period of time before remitting them to the appropriate taxing authorities (the Trust Fund Taxes). In addition, certain taxing authorities are authorized under state law to collect certain unpaid business and occupation taxes directly from individual officers and directors of the Debtors (the Business

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Taxes, and together with the Trust Fund Taxes and the penalties, interest or other such charges that may be assessed thereon, the Taxes). The Taxes are generally paid quarterly or semiannually to the respective taxing authorities, depending on the given Tax and the relevant taxing authority to which it is paid. 15. The Debtors seek authority, but not direction, to pay any Taxes that were accrued

pre-petition but were not in fact paid or processed pre-petition, or were paid pre-petition in an amount less than is actually owed, or to the extent any such payments made pre-petition were rejected, lost or otherwise not received in full by any taxing authority. Further, there may be Taxes incurred or collected from sales and services provided pre-petition that will come due shortly after the filing, which the Debtors seek authority to pay pursuant to this Motion. 16. Finally, to the extent that any checks, drafts, deposits or transfers issued or

initiated by the Debtors on account of pre-petition Taxes have not cleared as of the Petition Date, the Debtors also seek an order from this Court authorizing banks and other financial institutions to honor and process such payments. Basis For Relief Requested 17. The Debtors estimate that outstanding pre-petition liabilities owing to the various

taxing authorities for Taxes are approximately $3,500,000, exclusive of any Taxes that may have been paid prior to the Petition Date but had not cleared as of such date. 18. The Debtors failure to pay the Taxes could have an irreparable and immediate

adverse impact on their ability to operate in the ordinary course of business and thus harm these reorganizations to the detriment of all constituents. Therefore, the Debtors seek authority, but not direction, to pay, in their sole discretion, the Taxes, including any penalties and interest

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thereon, if any, and any liability resulting from any audits of the Taxes, to the relevant taxing authorities in the ordinary course of business. A. The Debtors Should Be Permitted to Pay Taxes, In Their Discretion. 1. Payment of Pre-petition Taxes May Avoid Immediate and Irreparable Harm to the Debtors Estates.

19.

Without the relief requested herein, some, if not all, of the taxing authorities may

initiate an audit of the Debtors if the Taxes are not paid on time. Such audits will unnecessarily divert the Debtors attention away from the reorganization process and result in unnecessary expenses. Moreover, if the Debtors do not pay such amounts in a timely manner, the taxing authorities may attempt to suspend the Debtors operations, file liens, seek to lift the automatic stay, seek payment from the Debtors directors and officers and pursue other remedies that will irreparably and immediately harm the estates. 20. Additionally, some states hold corporate officers personally liable for unpaid

trust fund taxes, including sales and use taxes, in certain circumstances. See e.g., JOHN F. OLSEN, ET AL., Director & Officer Liability: Indemnification and Insurance 3:21 (2003) (some states hold corporate officers personally liable for any sales tax and penalty owed and not paid by the corporation regardless of cause). Accordingly, to the extent that any such trust fund taxes remain unpaid by the Debtors, their officers could be subject to lawsuits or criminal prosecution during the pendency of these Chapter 11 Cases. Even the possibility of any such lawsuit or criminal prosecution would most certainly distract the Debtors and their officers from their efforts in these Chapter 11 Cases. 2. 21. Paying Pre-petition Taxes Is Not Precluded By The Bankruptcy Code.

A portion or all of the Taxes may be entitled to priority status under section

507(a)(8) of the Bankruptcy Code and therefore, must be paid in full under any chapter 11 plan 7
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before any of the Debtors general unsecured obligations may be satisfied. The Debtors submit therefore that the payment of the Taxes will likely affect only the timing of the payments and not the amounts that would ultimately be received by the applicable taxing authorities. 22. Moreover, those Taxes that the Debtors are required to collect from third parties

and hold in trust for the benefit of the taxing authorities, including, for example, sales, use and other such taxes, are trust fund taxes that arguably do not constitute property of the Debtors estates. See Begier v. Internal Revenue Service, 496 U.S. 53, 57-60 (1990); City of Ferrell v. Sharon Steel Corp., 41 F.3d 92, 97 (3d Cir. 1994); DeChiaro v. N.Y. State Tax Commn, 760 F.2d 432, 433 (2d Cir. 1985) (sales taxes are trust fund taxes); Tex. Comptroller of Pub. Accounts v. Liuzza (In re Tex. Pig Stands, Inc.), 610 F.3d 937, 945 (5th Cir. 2010) (debtor holds state sales taxes in trust and has only legal title of the funds); City of Springfield v. Ostrander (In re LAN Tamers, Inc.), 329 F.3d 204, 210 (1st Cir. 2003). 23. To the extent the Taxes are trust fund taxes and the funds representing such

Taxes can be adequately identified and traced, the Debtors would have no equitable interest in such funds and they would not be property of the Debtors estates. See 11 U.S.C. 541(d); In re Am. Intl Airways, Inc., 70 B.R. 102, 103 (Bankr E.D. Pa. 1987); City of Farrell v. Sharon Steel Corp., 41 F. 3d at 97 ([It is a] is well-settled principle that debtors do not own an equitable interest in property they hold in trust for another and that therefore funds held in trust are not property of the estate. (citing Begier, 496 U.S. at 59 (internal quotations omitted))); In re LAN Tamers, Inc., 329 F.3d at 210 (The plain text of 541(d) excludes property from the estate where the bankrupt entity is only a delivery vehicle and lacks any equitable interest in the property it delivers. (internal quotations and citation omitted). Accordingly, the Debtors should

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be able to pay any Taxes that constitute trust fund taxes as they come due because payment of such taxes would not prejudice the rights of any of the Debtors other creditors. 24. Finally, in numerous chapter 11 cases this Court has exercised its equitable

powers under section 105(a) of the Bankruptcy Code to authorize debtors to pay pre-petition tax obligations in light of the foregoing considerations. See, e.g., In re Harry & David Holdings Inc., Case No. 11-10884 (MFW) (Bankr. D. Del. March 29, 2011 ); In re Appleseeds Intermediate Holdings LLC, Case No. 11-10160 (KG) (Bankr. D. Del. Feb. 18, 2011); In re Smurfit-Stone Container Corp., Case No. 09-10235 (BLS) (Bankr. D. Del. Jan. 27, 2009); In re Tribune Co., Case No. 13141 (KJC) (Bankr. D. Del. Dec. 10, 2008). 25. For these reasons, the Debtors submit that the relief requested herein is in the best

interests of the Debtors, their estates and creditors, and should therefore be granted. B. The Court Should Authorize The Debtors Banks And Financial Institutions To Honor The Debtors Tax Payments The Debtors also request that the Court authorize the Debtors banks and financial

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institutions (collectively, the Banks), when requested by the Debtors in their sole discretion, to process, honor, and pay any and all checks or electronic fund transfers drawn on the Debtors bank accounts to pay all pre-petition obligations described herein, whether such checks or other requests were submitted prior to or after the Petition Date. The Debtors further request that all such banks and financial institutions be authorized to rely on the Debtors designation of any particular check or electronic payment request as approved pursuant to this Motion. Request For Immediate Relief and Waiver of Stay to Avoid Immediate and Irreparable Harm 27. The Debtors seek immediate authorization for the relief contemplated by this

Motion. Pursuant to Rule 6003(b) of the Federal Rules of Bankruptcy Procedure (the

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Bankruptcy Rules), the Court cannot grant relief regarding 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 within twenty-one (21) days of the filing of the petition unless the relief is necessary to avoid immediate and irreparable harm. Fed.R.Bankr.P. 6003(b). For the reasons set forth above, the Debtors submit that the requirements of Bankruptcy Rule 6003(b) are met and that the relief requested in the Motion is necessary to avoid immediate and irreparable harm to the Debtors and their estates. 28. In addition, by this Motion, the Debtors seek a waiver of any stay of the

effectiveness of the order approving this Motion. Pursuant to Bankruptcy Rule 6004(h), [a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. Fed.R.Bankr.P. 6004(h). As set forth throughout this Motion, any delay in paying the obligations relating to the Taxes would be detrimental to the Debtors, their creditors and estates. Indeed, the Debtors ability to manage and run their business operations with as little disruption as possible requires, in part, that they remain current with their taxing and obligations. Accordingly, the Debtors submit that ample cause exists to justify a waiver of the fourteen (14) day stay imposed by Bankruptcy Rule 6004(h), to the extent such provision may be applicable to the order approving this Motion. Reservation of Rights 29. Nothing in this Motion should be construed as impairing the Debtors right to

contest the amount of any Taxes that the Debtors may owe to any authority, and the Debtors expressly reserve all of their rights with respect thereto.

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Notice 35. The Debtors will serve notice of this Motion upon: (i) the Office of the United

States Trustee; (ii) the Debtors consolidated list of creditors holding the forty (40) largest unsecured claims; (iii) counsel to the agent for the Debtors pre-petition Credit Facility and postpetition debtor-in-possession financing facility; (iv) counsel to the indenture trustee for the Senior Secured Notes; (v) counsel to the indenture trustee for the Senior Notes; and (vi) counsel to the Restructuring Support Parties. Notice of this Motion and any order entered hereon will be served in accordance with Local Rule 9013-1(m). In light of the nature of the relief requested, the Debtors submit that no other or further notice is necessary No Prior Request 36. other court. Remainder of page intentionally left blank No prior application for the relief requested herein has been made to this or any

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WHEREFORE, the Debtors respectfully request that the Court enter an order, in the form attached hereto as Exhibit A, granting the relief requested herein and such other and further relief the Court may deem necessary and proper. Dated: June 13, 2011 Wilmington, Delaware Respectfully submitted, YOUNG CONAWAY STARGATT & TAYLOR, LLP By: /s/ Robert S. Brady Robert S. Brady (No. 2847) Robert F. Poppiti, Jr. (No. 5052) The Brandywine Building 1000 West Street, 17th Floor P.O. Box 391 Wilmington, DE 19801 Telephone: (302) 571-6600 Facsimile: (302) 571-1253 And TROUTMAN SANDERS LLP Mitchel H. Perkiel Brett D. Goodman The Chrysler Building 405 Lexington Avenue New York, NY 10174 Telephone: (212) 704-6000 Facsimile: (212) 704-6288 Proposed Counsel for Perkins & Marie Callenders Inc., et al. Debtors and Debtors-in-Possession

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EXHIBIT A

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: PERKINS & MARIE CALLENDERS INC.,1 et al., Debtors. Ref. Docket No. _____ ORDER PURSUANT TO 11 U.S.C. 105(a), 363(b), 507(a)(8) AND 541 AUTHORIZING (I) PAYMENT OF CERTAIN PRE-PETITION TAXES AND (II) FINANCIAL INSTITUTIONS TO PROCESS AND CASH CHECKS AND TRANSFERS RELATED THERETO Upon the Debtors Motion for Order Pursuant to 11 U.S.C. 105(a), 363(b), 507(a)(8), and 541 Authorizing (I) Payment of Certain Pre-petition Taxes, and (II) Financial Institutions to Process and Cash Checks and Transfers Related Thereto (the Motion),2 the Court finds that (i) it has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334; (ii) this is a core proceeding pursuant to 28 U.S.C. 157(b)(2); (iii) venue of these cases and the Motion are proper in this District pursuant to 28 U.S.C. 1408 and 1409; and (iv) notice of the Motion and the hearing thereon was sufficient under the circumstances; and upon consideration of the Declaration of Joseph F. Trungale in Support of Debtors Chapter 11 Petitions and First Day Motions and the record herein, and after due deliberation, the Court hereby finds that good and sufficient cause exists for the relief requested and that the requirements of Bankruptcy Rule 6003 have been satisfied because the relief requested in the Motion is necessary to avoid immediate and irreparable harm. Accordingly, it is hereby,
The Debtors, together with the last four digits of each Debtors federal tax identification number, are: Perkins & Marie Callenders Inc. (4388); Perkins & Marie Callenders Holding Inc. (3999); Perkins & Marie Callenders Realty LLC (N/A); Perkins Finance Corp. (0081); Wilshire Restaurant Group LLC (0938); PMCI Promotions LLC (7308); Marie Callender Pie Shops, Inc. (7414); Marie Callender Wholesalers, Inc. (1978); MACAL Investors, Inc. (4225); MCID, Inc. (2015); Wilshire Beverage, Inc. (5887); and FIV Corp. (3448). The mailing address for the Debtors is 6075 Poplar Avenue, Suite 800, Memphis, TN 38119.
2 1

Chapter 11 Case No. 11-11795 (___) Jointly Administered

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

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ORDERED, ADJUDGED AND DECREED that: 1. 2. The Motion is granted. The Debtors are authorized, but not directed, in their sole discretion, to pay, in the

ordinary course of their businesses, all Taxes relating to the period prior to the Petition Date, including, without limitation, all Taxes subsequently determined upon audit, or otherwise, to be owed for periods prior to the Petition Date, to the taxing authorities in an amount not to exceed $3,500,000 in the aggregate. 3. The Debtors Banks shall be, and hereby are, authorized, when requested by the

Debtors in their sole discretion, to process, honor, and pay any and all checks or electronic fund transfers drawn on the Debtors bank accounts to pay all Taxes owed to the taxing authorities, whether those checks were presented prior to or after the Petition Date, provided that sufficient funds are available in the applicable accounts to make the payments. 4. The Debtors Banks may rely on the representations of the Debtors with respect to

whether any check or other transfer drawn or issued by the Debtors prior to the Petition Date should be honored pursuant to this Order, and any such Bank shall not have any liability to any party for relying on such representations by the Debtors as provided for in this Order. 5. Nothing in the Motion or this Order shall be construed as impairing the Debtors

right to contest the validity, priority or amount of any Taxes or any audit amounts allegedly due or owing to any taxing authority, and all of the Debtors rights with respect thereto are hereby reserved. 6. This Court shall retain jurisdiction over the Debtors and any and all taxing

authorities receiving payment from the Debtors pursuant to this Order with respect to any

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matters, claims, rights or disputes arising from or related to the Motion, the implementation of this Order or the validity of any of the Taxes. 7. Notwithstanding anything to the contrary in this Order, any payment made or to

be made under this Order, and any authorization contained in this Order, shall be subject to the requirements imposed on the Debtors under any Order(s) of this Court approving the Debtors debtor-in-possession financing facility and use of cash collateral and any budget in connection therewith. 8. 9. The requirements set forth in Bankruptcy Rule 6003(b) are satisfied. Notwithstanding any applicability of Bankruptcy Rule 6004(h), the terms and

conditions of this Order shall be immediately effective and enforceable upon its entry. Date: June _____, 2011 UNITED STATES BANKRUPTCY JUDGE

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