Case LSS Doc 766 Filed 08/05/16 Page 1 of 3 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case LSS Doc 766 Filed 08/05/16 Page 1 of 3 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 VRG Liquidating, LLC, et al., 1 ) Case No (LSS) Debtors. ) (Jointly Administered) ) Re: Docket No. 721 OBJECTION OF CVS PHARMACY, INC. TO THE DEBTORS' NOTICE OF ASSUMPTION AND ASSIGNMENT OF LEASE FOR PROPERTY LOCATED IN TOTOWA SQUARE CENTER, TOTOWA, NEW JERSEY CVS Pharmacy, Inc. ("CVS"), by and through its undersigned counsel, hereby objects (the "Objection") to the Debtors' First Notice of Assumption and Assignment of Unexpired Leases and Executory Contracts [Docket No. 721] (the "Notice"), and states as follows: BACKGROUND 1. By the Notice, the Debtors seek to assume and assign a non-residential real property lease (the "Lease") between Fidelity Totowa Associates, LLC (the "Landlord") as landlord and BS Liquidating, LLC (the "Debtor") as tenant for property located at 465 Route 46, Totowa, New Jersey On June 15, 2016, CVS filed the Objection of CVS Pharmacy, Inc. to Proposed Assumption and Assignment of Expired Lease with Fidelity Totowa Associates, LLC [Docket No. 532] (the "Initial Objection"), which Initial Objection (without exhibits) is attached hereto as Exhibit A and incorporated herein by reference. The Debtors and the last four digits of their respective federal taxpayer identification numbers are as follows: VRG Liquidating, LLC (f/k/a Vestis Retail Group, LLC) (1295); VRF Liquidating, LLC (f/k/a Vestis Retail Financing, LLC) (9362); EMSOC Liquidating, LLC (f/k/a EMS Operating Company, LLC) (2061); VIH Liquidating, LLC (f/k/a Vestis IP Holdings, LLC) (2459); BS Liquidating, LLC (f/k/a Bob's Stores, LLC) (4675); EMSA Liquidating, LLC (f/k/a EMS Acquisition LLC) (0322); SC Liquidating 2, LLC (f/k/a Sport Chalet, LLC) (0071); SCVS Liquidating, LLC (f/k/a Sport Chalet Value Services, LLC) (7320); and SCTS Liquidating, LLC (f/k/a Sport Chalet Team Sales, LLC) (8015). The Debtors' executive headquarters are located at 160 Corporate Court, Meriden, CT /05/2016

2 Case LSS Doc 766 Filed 08/05/16 Page 2 of 3 3. Similarly, on June 15, 2016, the Landlord filed a Limited Objection [Docket No (the "Landlord's Objection") to the Debtors' initial notice of its intent to assume the Lease. OBJECTION A. The Lease Has Expired. 4. As detailed in the Initial Objection, 2 the Debtors cannot assume and assign the Lease because the Lease expired by its own terms on January 31, 2016 and the Debtor failed to satisfy the express condition necessary to extend the term of the Lease beyond January 31, B. The Landlord Is Not Entitled To A "Comfort Order". 5. In the Landlord Objection, the Landlord improperly asks the Court to find and/or conclude that the Guaranty "is in effect and applies to the Debtor's Lease and the obligations of the assignee post-assignment." Landlord Objection at II 28. The Court need not address this issue if it determines that the Lease was not properly extended. Moreover, the impact of any possible assignment of the Lease on the Guaranty is not before the Court and the Landlord's attempt to obtain a "comfort order" on this issue is procedurally improper. CVS disputes the Landlord's arguments and position, objects to the inclusion of any findings or conclusions in any proposed assumption and assignment order on this issue and reserves any and all of its rights related to the enforceability of the Guaranty following assignment. 2 The Landlord's arguments in the Landlord's Objection regarding the Debtors' failure to satisfy the condition necessary to extend the Lease are likewise incorporated by reference herein /

3 Case LSS Doc 766 Filed 08/05/16 Page 3 of 3 CONCLUSION 6. For the reasons set forth herein, CVS respectfully requests that the Court enter an order (a) denying the assumption and assignment of the Lease to Assignee; and (b) granting CVS such further relief as is just and proper. Dated: August 5, 2016 SAUL EWING LLP By: Mark Minuti (DE Bar No. 2659) 1201 North Market Street, Suite 2300 P.O. Box 1266 Wilmington, DE Telephone: (302) Facsimile: (302) mminuti@saul.com Counsel for CVS Pharmacy, Inc /2016 3

4 Case LSS Doc Filed 08/05/16 Page 1 of 11 Exhibit A

5 Case LSS Doc Filed 08/05/16 Page 2 of 11 Case LSS Doc Docket #0532 Date Filed: 06/15/2016 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 VESTIS RETAIL GROUP, LLC, et al.,' ) Case No (LSS) Debtors. ) (Jointly Administered) ) Re: Docket Nos. 363 and 388 OBJECTION OF CVS PHARMACY, INC. TO PROPOSED ASSUMPTION AND ASSIGNMENT OF EXPIRED LEASE WITH FIDELITY TOTOWA ASSOCIATES, LLC CVS Pharmacy, Inc. ("CVS"), by and through its undersigned counsel, hereby objects (the "Objection") to the above-captioned debtors' (the "Debtors") possible assumption and assignment of an expired lease with Fidelity Totowa Associates, LLC ("Fidelity-Totowa"), as set forth in the Notice of (I) Possible Treatment of Contracts and Leases, (II) Fixing of Cure Amounts, and (III) Deadline to Object Thereto (the "Assumption Notice") [DI 388] issued pursuant to the Order (I) Authorizing and Approving the Debtors' Entry Into Asset Purchase Agreement, (II) Approving Notice Procedures, (III) Scheduling a Sale Hearing and (IV) Approving Procedures of Assumption and Assignment and Determining Cure Amounts (the "Procedures Order") [DI In support of its Objection, CVS respectfully states as follows: PRELIMINARY STATEMENT The Debtors seek approval of a sale (the "Sale") of their assets to Vestis BSI Funding II, LLC (together with its permitted designees, successors and permitted assigns, the "Buyer"). CVS takes no position with respect to the Sale generally. In contemplation of the Sale, however, The Debtors in these cases, along with the last four digits of each Debtor's federal tax identification number, are Vestis Retail Group, LLC (1295); Vestis Retail Financing, LLC (9362); EMS Operating Company, LLC (2061); Vestis IP Holdings, LLC (2459); Bob's Stores, LLC (4675); EMS Acquisition LLC (0322); Sport Chalet, LLC (0071); Sport Chalet Value Services, LLC (7320); and Sport Chalet Team Sales, LLC (8015). The address of the Debtors' executive headquarters are located at 160 Corporate Court, Meriden, CT ,1 06/15/2016 II ,111[0110!!1 101ta!li

6 Case LSS Doc Filed 08/05/16 Page 3 of 11 Case LSS Doc 532 Filed 06/15/16 Page 2 of 10 the Debtors obtained approval of the Procedures Order, and on the same date issued the Assumption Notice, whereby the Debtors provided notice of certain contracts and leases that the Debtors may seek to assume and assign to the Buyer as part of the Sale. Included in the exhibit to the Assumption Notice is a lease between Debtor Bob's Stores, LLC ("Bob's Stores") and Fidelity-Totowa, referenced as Store Number 78, Store Name "Totowa," located at 465 Route 46, Totowa, NJ (the "Totowa Lease"). As explained below, CVS is alleged to have guaranteed Bob's Stores' obligations to Fidelity-Totowa under the Totowa Lease, and thus has standing with regard to this matter. The Debtors' proposed potential assumption and assignment of the Totowa Lease cannot be approved because the Totowa Lease is not an "unexpired lease." Instead, as discussed more fully herein, the Totowa Lease expired pursuant to its terms on January 31, 2016, and was not extended. Accordingly, Bob's Stores is at most a holdover tenant, and there is no unexpired lease to be assumed and assigned to the Buyer. For the reasons set forth herein, this Court need not address the underlying factual dispute between Fidelity-Totowa, CVS and Bob's Stores. On the contrary, the Debtors are seeking authority to assume and assign contracts and leases without prejudice to their rights to assert that a contract or lease is, in fact, not executory or unexpired. Accordingly, the rights of other parties-in-interest should be similarly preserved so that they too can later assert that a contract is not executory or that, as in this case, a lease has expired. Alternatively, this Court should exclude the Totowa Lease from the Sale pending either a) a ruling by an appropriate nonbankruptcy court on the merits of the dispute, or b) a ruling by this Court in a properly commenced adversary proceeding /15/2016 2

7 Case LSS Doc Filed 08/05/16 Page 4 of 11 Case LSS Doc 532 Filed 06/15/16 Page 3 of 10 FACTUAL AND PROCEDURAL BACKGROUND A. The Debtors' Bankruptcy Cases 1. The Debtors commenced the above-captioned cases on April 18, 2016 (the "Petition Date") by filing voluntary petitions under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Court"). 2. On the Petition Date, the Debtors filed the Debtors' Motion for Orders (A)(1) Authorizing Bidding Procedures and Expense Reimbursement; (II) Authorizing and Approving the Debtors' Entry into the Stalking Horse APA; (III) Approving Notice Procedures; (IV) Scheduling a Sale Hearing; and (V) Approving Procedures for Assumption and Assignment and Determining Cure Amounts and (5v) Authorizing the Sale of Substantially All of the Debtors' Assets Free and Clear of All Claims, Liens, Rights, Interests, and Encumbrances,. (II) Approving the Stalking Horse APA: and (III) Authorizing the Debtors to Assume and Assign Certain Executory Contracts and Unexpired Leases (the "Sale Motion"). [DI On June 1, 2016, the Court entered the Procedures Order in connection with the Sale Motion. [Dl On June 1, 2016, the Debtors filed the Assumption Notice, as authorized and approved through the Procedures Order. [DI , The Assumption Notice provides, inter alia, that in connection with the Sale, the Debtors "may assume and assign to the Buyer or reject the Contract and/or Lease listed on the Contract and Lease Schedule..." Assumption Notice, page The Totowa Lease is included on the schedule of leases filed with the Assumption Notice /

8 Case LSS Doc Filed 08/05/16 Page 5 of 11 Case LSS Doc 532 Filed 06/15/16 Page 4 of CVS is alleged to be a guarantor of Bob's Stores' obligations to Fidelity-Totowa under the Totowa Lease pursuant to an Amended and Restated Guaranty (Totowa) effective as of November 23, 2009 (the "Guaranty"). 8. Attached hereto as Exhibit A is a true and correct copy of the Verified Complaint filed against Bob's Stores and CVS by Fidelity-Totowa (the "Verified Complaint") in the Superior Court of New Jersey, Chancery Division, Passaic County, on or about October 12, 2015 (the "State Court Action"). A true and correct copy of the Totowa Lease is attached as Exhibit A to the Verified Complaint. A true and correct copy of the Guaranty is attached as Exhibit B to the Verified Complaint. B. The Totowa Lease and the Guaranty 9. Section 1.01(B) of the Totowa Lease provides for an Initial Lease term commencing February 1, 2009 and ending on January 31, 2016 (the "Initial Lease Term"). 10. Section 1.01(B) of the Totowa Lease further provides that an "Extension Period" is for five years and that the "1st Extension Period" of Bob's Lease commences on February 1, 2016 and ends on January 31, 2021 (the "First Extension Period"). 11. Pursuant to Section 2.02 of the Totowa Lease, in order for Bob's Stores to exercise its option (the "Extension Option") to extend the term of the Totowa Lease for the First Extension Period, Bob's Stores was required to satisfy two conditions. First, Bob's must not be in default of any material terms or provisions of the Totowa Lease. Second, Bob's must establish "Consolidated EBITDA as reported in Tenant's monthly financial statements for the most recently ended sixty (60) consecutive fiscal months nearest the date the option is exercised greater than One Million Dollars ($1,000,000)" (hereinafter, the "EBITDA Condition") /15/2016 4

9 Case LSS Doc Filed 08/05/16 Page 6 of 11 Case LSS Doc 532 Filed 06/15/16 Page 5 of Section 2.02 of the Totowa Lease provides that Bob's Stores exercise of the Extension Option "shall not be effective unless the conditions set forth in clauses (a) and (b) of this Section 2.02 are satisfied." 13. Section 3,1.2 of the Guaranty expressly incorporates the identical EBITDA Condition appearing in the Totowa Lease, providing that CVS's obligation to guaranty Bob's Stores performance of the Totowa Lease obligations only if Bob's Stores satisfies the same EBITDA requirements as set forth in the Totowa Lease. C. Bob's Attempted Exercise of the Extension Option 14. Section 2.02 of the Totowa Lease required Bob's Stores to provide Fidelity- Totowa with written notice of its exercise of the Extension Option no less than twelve (12) months prior to the January 31, 2016 expiration of the Initial Lease Term, or by January 31, Bob's Stores did not provide such notice by January 31, Section 2.02 of the Totowa Lease alternatively permitted Bob's Stores to provide notice of its exercise of the Extension Option no less than twenty (20) days after Bob's Stores received notice from Fidelity-Totowa that Bob's Stores had failed to timely exercise the Extension Option. 16. Fidelity-Totowa notified Bob's Stores of its failure to timely exercise the Extension Option, and on February 10, 2015, Bob's Stores purported to give timely written notice to Plaintiff that it was exercising the Extension Option. 17. The clear and unambiguous language of the EBITDA Condition provides that Consolidated EBITDA is to be measured during the period of "sixty (60) consecutive fiscal months nearest the date the option is exercised." /

10 Case LSS Doc Filed 08/05/16 Page 7 of 11 Case LSS Doc 532 Filed 06/15/16 Page 6 of As Bob's Stores purported to exercise the Extension Option on February 10, 2015, the period of "sixty (60) consecutive fiscal months nearest the date the option is exercised" ended as of January 31, 2015 for purposes of determining whether Bob's Stores' exercise of the Extension Option was permissible considering application of the EBITDA Condition, 19. However, Bob's Stores apparently took the position that the relevant 60 consecutive month period ended on December 31, 2014, D. State Court Action 20. As set forth above, the State Court Action was commenced by filing the Verified Complaint on or about October 12, In connection with that filing, Fidelity-Totowa filed an Order to Show Cause (a copy of which is included with the Verified Complaint), requesting that the court consider the matter in a summary manner under the New Jersey procedural rules. 21, On November 19, 2015, Bob's Stores filed its Brief in Opposition to Plaintiff's Order to Show Cause, a copy of which is attached hereto as Exhibit B. 22, On November 25, 2015, Fidelity-Totowa filed its Reply Brief in Further Support of Order to Show Cause, a copy of which is attached hereto as Exhibit C. 23. On January 11, 2016, after considering the briefs submitted and two rounds of oral argument, the state court ruled on Fidelity-Totowa's Order to Show Cause, and denied same, ruling that the matter would not proceed in a summary fashion. A copy of the state court's order is attached hereto as Exhibit D. 24. Following the state court's ruling, the parties engaged in substantial discovery, including significant written discovery, document productions and multiple depositions. The State Court Action was stayed by the commencement of the Debtors' bankruptcy cases /15/2016 6

11 Case LSS Doc Filed 08/05/16 Page 8 of 11 Case LSS Doc 532 Filed 06/15/16 Page 7 of Thereafter, as a result of the Debtors' bankruptcy and the retirement of the judge presiding over the State Court Action, the parties were asked to dismiss the State Court Action without prejudice, The State Court Action was dismissed on May 24, 2016, OBJECTIONS TO THE PROPOSED ASSUMPTION AND ASSIGNMENT I. The Court's Order Approving the Sale Should Reserve the Rights of Parties-in- Interest to Subsequently Litigate the Merits of the State Court Action in a Non- Bankruptcy Forum. 26. It is axiomatic and in keeping with the plain language of section 365 of the Bankruptcy Code that a lease must be "unexpired" in order to be capable of assumption. See, 11 U.S.C. 365(a) (using the term "unexpired lease"); see also, In re Kong, 162 B.R. 86, 91 (Bankr, E.D.N.Y. 1993) (noting that "before section 365 applies enabling a debtor to exercise this power, it must be established that an executory contract or unexpired lease exists at the time of the filing"). 27. The Debtors, through the Assumption Notice and the Procedures Order, have clearly reserved their positions regarding whether contracts or leases listed on the exhibit to the Assumption Notice are, indeed, executory or unexpired. See, e.g., Assumption Notice, n.5 ("This Cure Notice is not an admission by the Debtors that such contracts or leases are executory or unexpired.") and at page 4 ("nothing herein (a) alters in any way the prepetition nature of the Contracts and Leases..."); and Procedures Order, 11 J ("the mere listing of any Non-Real Property Contract or Lease on the Cure Notice does not require or guarantee that such Non-Real Property Contract or Lease will be assumed and assigned, and all rights of the Debtors with respect to such Non-Real Property Contracts and Leases are reserved.") and 11 10(a) ("provided, however, that service of a Cure Notice does not constitute an admission that such Non-Real Property Contract or Lease is an executory contract or unexpired lease") /2016 7

12 Case LSS Doc Filed 08/05/16 Page 9 of 11 Case LSS Doc 532 Filed 06/15/16 Page 8 of Accordingly, in at least four separate instances in the Assumption Notice and the Procedures Order, the Debtors seek approval to assume and assign executory contracts and unexpired leases, while reserving their positions that the contracts and leases listed on the Assumption Notice may actually not be executory or unexpired, respectfully. 29. Based on the foregoing, it appears that the Debtors seek approval of the right to assume and object leases, to the extent unexpired, with a reservation of the Debtors' rights to later address whether such leases are, in fact, unexpired. CVS asserts that the same reservation of rights should be afforded to all parties in interest in connection with the at-issue leases, including, specifically, the Totowa Lease. 30. From a practical perspective, reserving the rights of all parties-in-interest regarding whether leases are unexpired will have the effect of allowing such parties, presumably, in this case, CVS, Fidelity-Totowa and the Buyer, to address these matters on their own and, if unable to reach a consensual resolution, re-file and litigate the issue in an appropriate nonbankruptcy forum. As these issues will not directly involve the Debtors, this is a sensible approach as it serves little purpose to address this issue in connection with these Bankruptcy Proceedings. 31. Accordingly, CVS respectfully requests that any order approving the Sale provide a reservation, in form reasonably satisfactory to CVS, reserving CVS' and all other non-debtor parties rights to argue in an appropriate non-bankruptcy forum that the Totowa Lease has, in fact, expired. B. 32. challenge, Alternatively, the Court Should Not Authorize Assumption or Assignment of the Totowa Lease Pending an Adjudication of Whether the Totowa Lease is Unexpired, Either in the State Court or Through an Adversary Proceeding In the event that a reservation of rights of all parties-in-interest to subsequently in a non-bankruptcy forum, whether the Totowa Lease is unexpired is not feasible, /15/2016 8

13 Case LSS Doc Filed 08/05/16 Page 10 of 11 Case LSS Doc 532 Filed 06/15/16 Page 9 of 10 then CVS respectfully objects to this Court's approval of such proposed assumption and assignment pending a ruling, either in the State Court or by this Court through an appropriately commenced adversary proceeding, addressing whether such lease is, in fact, unexpired. 33. For the reasons set forth more fully in the Verified Complaint and the other pleadings filed by Fidelity-Totowa in the State Court Action, the Debtors did not properly exercise the Extension Option, because they failed to establish the necessary EBTIDA for the correct 60-month period, namely the period ending January 31, Accordingly, the Totowa Lease expired on January 31, 2016 and was not properly extended. As such, the Totowa Lease is expired, and is therefore not an "unexpired lease" as required for assumption under section 365(a) of the Bankruptcy Code. 35. The parties have already engaged in substantial pre-petition litigation, including pre-discovery briefing, and substantial discovery. Accordingly, CVS submits that the most sensible means to address this issue is to permit Fidelity-Totowa to re-file the State Court Action and to permit the state law issues implicated by the action to be litigated to conclusion in the State Court. 36. Alternatively, if the Court determine that this matter is best addressed in this forum, CVS respectfully asserts that such issues may only be resolved through an adversary proceeding, as the nature of the relief is, by definition, a request for a declaratory judgment. See, e.g., Fed. R. Bankr. P (listing the types of procedures which are adversary proceedings, including declaratory judgment actions); see also In re Mansaray-Ruffin, 530 F.3d 230, (3d Cir. 2008) ("where the Rules require an adversary proceeding-which entails a fundamentally different, and heightened, level of procedural protections-to resolve a particular issue, a creditor has the due process right not to have that issue resolved without one") /15/2016 9

14 Case LSS Doc Filed 08/05/16 Page 11 of 11 Case LSS Doc 532 Filed 06/15/16 Page 10 of Accordingly, as a determination of whether the Totowa Lease is unexpired squarely falls within the ambit of Fed. R. Bankr. P. 7001, an adversary proceeding is required if such determination is to be made in this Court. CONCLUSION For the reasons set forth herein, CVS respectfully requests that, if the Court otherwise approves the Sale, then either (a) an appropriate reservation of rights be included to preserve the rights of all parties, and not just the Debtors, to later address, in an appropriate non-bankruptcy forum, whether the Totowa Lease is unexpired, or (b) the Court reserve approving assumption and assignment of the Totowa Lease until after a judicial determination is made regarding whether the Totowa Lease is unexpired, either through an action in state court or through an adversary proceeding in this Court. Dated: June 15, 2016 SAUL EWING LLP By: Mark ti (DE Bar No. 2659) Lucian B. Murley (DE Bar No. 4892) 1201 N. Market Street, Suite 2300 P.O. Box 1266 Wilmington, DE Telephone: (302) Facsimile: (302) mminuti saul.com Counsel for CVS Pharmacy, Inc /15/

15 Case LSS Doc Filed 08/05/16 Page 1 of 2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 VRG Liquidating, LLC, et al., Debtors. ) Case No (LSS) ) (Jointly Administered) CERTIFICATE OF SERVICE I, Mark Minuti, hereby certify that on August 5, 2016, I caused a copy of the foregoing Objection of CVS Pharmacy, Inc. to the Debtors' Notice of Assumption and Assignment of Lease for Property Located in Totowa Square Center, Totowa, New Jersey to be served on the parties on the attached service list in the manner indicated therein. SAUL EWING LLP By: Mark Minuti (No. 2659) 1201 North Market Street, Suite 2300 P. 0. Box 1266 Wilmington, DE (302) Dated: August 5, /05/2016

16 Case LSS Doc Filed 08/05/16 Page 2 of 2 VESTIS RETAIL GROUP, LLC, et al. Service List Via Electronic Mail and Hand Delivery: Robert S. Brady, Esquire Robert F. Poppiti, Jr., Esquire Young Conaway Stargatt & Taylor, LLP Rodney Square 1000 North King Street Wilmington, DE Jane M. Leamy, Esquire Timothy Fox, Esquire Office of the United States Trustee J. Caleb Boggs Federal Building 844 King Street, Suite 2207, Lockbox 35 Wilmington, DE Christopher A. Ward, Esquire Shanti M. Katona, Esquire Polsinelli PC 222 Delaware Avenue, Suite 1101 Wilmington, DE Michael H. Torkin, Esquire Noam R. Weiss, Esquire Sullivan & Cromwell LLP 125 Broad Street New York, NY Morton R. Branzburg, Esquire Klehr Harrison Harvey Branzburg LLP 1835 Market Street, Suite 1400 Philadelphia, PA Via First Class Mail: VRG Liquidation, LLC c/o Berkeley Research Group, LLC Attn: Robert J. Duffy and Anna O'Reilly 75 State Street, Suite 1805 Boston, MA Domenic E. Pacitti, Esquire Klehr Harrison Harvey Branzburg LLP 919 Market Street, Suite 1000 Wilmington, DE Via Electronic Mail and First Class Mail: Michael L. Tuchin, Esquire Lee R. Bogdanoff, Esquire Klee, Tuchin, Bogdanoff & Stern LLP 1999 Avenue of the Stars, Thirty-Ninth Floor Los Angeles, CA Jay Indyke, Esquire Jeffrey L. Cohen, Esquire Cooley LLP 1114 Avenue of the Americas New York, NY /05/2016