Case LSS Doc 959 Filed 10/10/16 Page 1 of 29 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

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1 Case LSS Doc 959 Filed 10/10/16 Page 1 of 29 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 VRG Liquidating, LLC, et al., I Debtors. ) Case No (LSS) ) (Jointly Administered) ) Re: Docket No. 721, 753, 766 TRIAL BRIEF OF CVS PHARMACY, INC. IN SUPPORT OF ITS OBJECTION TO THE DEBTORS' NOTICE OF ASSUMPTION AND ASSIGNMENT OF TOTOWA LEASE AND TO FIDELITY TOTOWA ASSOCIATES, LLC'S REQUEST FOR A COMFORT ORDER REGARDING GUARANTY SAUL EVVING LLP Mark Minuti (DE Bar No. 2659) Teresa K.D. Currier (DE Bar No. 3080) Elizabeth S. Fenton (DE Bar No. 5563) 1201 N. Market Street, Suite 2300 P.O. Box 1266 Wilmington, DE Telephone: (302) Facsimile: (302) mminuti tcurrier@saul.com efenton@saul.com Counsel for CVS Pharmacy, Inc. Dated: October 10, 2016 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 (Vida 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 (Vida Sport Chalet Team Sales, LLC) (8015). The Debtors' executive headquarters are located at 160 Corporate Court, Meriden, CT

2 Case LSS Doc 959 Filed 10/10/16 Page 2 of 29 TABLE OF CONTENTS Page FACTS AND PROCEDURAL BACKGROUND 1 A. The Debtors' Bankruptcy Cases and Sale Process 1 B. Initial Objections to Totowa Lease Assignment 2 C. Sale Order and Designation of Totowa Lease For Assignment 3 D Landlord's Motion for Relief From Stay to Continue State Court Action 4 E. Renewed Objections by CVS and Landlord to Totowa Lease Assignment. 5 F. The Totowa Lease and the CVS Guaranty 6 G. Bob's Stores Attempt to Exercise the Extension Option 7 H. State Court Action 8 I. Discovery in Connection with Assumption and Assignment of Totowa Lease. 9 SUMMARY OF ARGUMENT 11 ARGUMENT 12 A. The Totowa Lease Has Expired and Cannot be Assumed and Assigned. 12 B. The CVS Guaranty Does Not Extend To An Assignee. 19 CONCLUSION 25

3 Case LSS Doc 959 Filed 10/10/16 Page 3 of 29 TABLE OF AUTHORITIES Page(s) Cases Am. Furniture Mfg. Inc. v. Value Furniture & Mattress Warehouse, No. A T3, 2009 WL (N.J. Super. Nov. 18, 2008) 23 Carter v. Exxon Co. USA, a Div. of Exxon Corp., 177 F.3d 197 (3d Cir. 1999) 17 Chicago Exhibitors Corp. v. Jeppers! of Illinois, Inc. 876 N.E. 2nd 129 (App. Ct. IL. 2007) 23, 24 Cohen v. Formula Plus, Inc., 750 F. Supp. 2d 495 (D. Del. 2010) 16 Conway v. 287 Corporate Ctr. Assocs. 187 N.J. 259, (N.J. 2006) 16 Curtis v. State Farm Lloyds, No. Civ, A. H , 2004 WL (S.D. Tex. April 29, 2004) 13 Eagle Indus., Inc. v. DeVilbiss Health Care Inc. 702 A.2d 1228, 1232 (Del. 1997). 16 Elizabeth Dev. Co. of New Jersey v. B.F.L.F. Land Corp., Inc., 2015 WL (N.J. Super. March 10, 2015) 16 Garfield Trust Co. v. Teichmann, 95 A.2d 18 (N.J. Super. 1953) 23 Harley-Davidson, Inc. v. Morris 19 F.3d 142, 148 (3d Cir. 1994) 17 Hibbert v. Hollywood Park, Inc. 457 A.2d 339, 343 (Del. Super. 1983) 16 Housatonic Bank & Trust Co. v. Fleming, 560 A.2d 97 (N.J. Super. 1989) 22, 23 Interim Healthcare, Inc. v. Spherion Corp. 884 A.2d 513, 556 (Del. Super. 2005) 16 Keybank Nat '1 Ass 'n v. Rico, LLC, 2010 WL (D.N.J. June 1,2010) 17 11

4 Case LSS Doc 959 Filed 10/10/16 Page 4 of 29 National Super Markets, Inc. v. KMSK, Inc., 940 S.W. 2nd 47 (Mo. Ct. App. 1997) 24, 25 New York Sash & Door Co. v. Nat'l House & Farms Ass 'n, 131 N.J.L. 466, 36 A.2d 891 (1944) 17 Schenck v. HJI Assocs., 295 N.J. Super A.2d 481 (App. Div. 1996) 17 Silver v. Friedman, 87 A.2d 336 (N.J. Super. 1952) 23 SmithKline Beecham Corp. v. Rohm and Haas Co., 89 F.3d 154 (3d Cir. 1996) 17 Vigneri v. Point Pleasant Beach Bd. of Educ., 2012 WL (N.J. Super. Dec. 7,2012) 16 Statutes 11 U.S.C. 362(d)(1) 4 United States Code Title 11 Chapter 11 1 Bankruptcy Code Section Other Authorities Fed. R. Bankr. Pro ,13 Fed. R. Civ. Pro ,13 111

5 Case LSS Doc 959 Filed 10/10/16 Page 5 of 29 CVS Pharmacy, Inc. ("CVS"), by and through its undersigned counsel, hereby submits this Trial Brief In Support of its Objection to the Debtors' Notice of Assumption and Assignment of Totowa Lease and to Fidelity Totowa Associates, LLC's Request For a Comfort Order Regarding Guaranty (the "Brief') and states in support hereof as follows: FACTS AND PROCEDURAL BACKGROUND 2 A. The Debtors' Bankruptcy Cases and Sale Process 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 (B)(I) 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") [D.I. 18]. 3. On June 1, 2016, the Court entered the Order (I) Authorizing and Approving the Debtors' Entry Into Asset Purchase Agreement, (II) Approving Notice 2 All evidence supporting allegations in this Trial Brief and all unreported opinions can be found in the Appendix, filed herewith /1 0/2016

6 Case LSS Doc 959 Filed 10/10/16 Page 6 of 29 Procedures, (III) Scheduling a Sale Hearing and (1V) Approving Procedures of Assumption and Assignment and Determining Cure Amounts (the "Procedures Order") [D.I. 363] in connection with the Sale Motion. 4. On June 1, 2016, the Debtors filed their Notice of (I) Possible Treatment of Contracts and Leases, (II) Fixing of Cure Amounts, and (III) Deadline to Object Thereto (the "Assumption Notice") [D.I. 388], as authorized and approved through the Procedures Order. 5. The Assumption Notice provided, inter alio, 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 2. The lease agreement by and between Fidelity Totowa Associates, LLC (the "Landlord") and Debtor Bob's Stores, Inc. ("Bob's Stores") as tenant for property located at 465 Route 46, Totowa, New Jersey (the "Totowa Lease") was included on the schedule of leases filed with the Assumption Notice. B. Initial Objections to Totowa Lease Assignment 6. 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 [D.I. 532] (the "Initial CVS Objection") and the Landlord filed the Objection of Fidelity Totowa Associates, LLC to the Debtors' Proposed Assumption and Assignment of Lease For Property Located in Totowa Square Center, Totowa, New Jersey [D.I. 542] (the "Initial Landlord Objection"). 7. In the Initial CVS Objection, CVS explained that CVS is alleged to be a guarantor of Bob's Stores' obligations to the Landlord under the Totowa Lease pursuant to an Amended and Restated Guaranty (Totowa) effective as of November 23, 2009 (the

7 Case LSS Doc 959 Filed 10/10/16 Page 7 of 29 "CVS Guaranty"). 3 CVS asserted that the Totowa Lease cannot be assumed and assigned because it expired of its own terms on January 31, 2016 and Bob's Stores failed to satisfy the express condition necessary to extend the term of the Totowa Lease beyond January 31, 2016, an issue that has been the subject of litigation between the Landlord, Bob's Stores and CVS in the Superior Court of New Jersey, Chancery Division, Passaic County since October 12, 2015 (the "State Court Action"). 8. In the Landlord's Initial Objection, the Landlord similarly argued that the Totowa Lease cannot be assumed and assigned because it expired of its own terms, and also referred to the State Court Action. Further, the Landlord argued in the alternative that any assumption or assignment of the Totowa Lease must be accompanied by a finding that the CVS Guaranty remains in effect, or that another guaranty or credit enhancement must be provided. C. Sale Order and Designation of Totowa Lease For Assignment. 9. Thereafter, on June 20, 2016, this Court entered the Order (I) Authorizing the Sale of Substantially All of the Debtors' Assets Free and Clear of All Claims, Liens, Rights, Interest and Encumbrances, (II) Approving the Asset Purchase Agreement and (III) Authorizing the Debtors to Assume and Assign Certain Executory Contracts and Unexpired Leases [D.I. 590] (the "Sale Order"). 10. By the Sale Order, the Court approved the sale of substantially all of the Debtors' assets to Vestis BSI Funding II, LLC and its designees (collectively, the "Buyer") and approved a process whereby the Buyer could designate leases to be assumed and assigned to it. 3 The CVS Guaranty, see Appendix, Tab A, is discussed in more detail within. 3

8 Case LSS Doc 959 Filed 10/10/16 Page 8 of As authorized by the Sale Order, on July 22, 2016, the Debtors filed the First Notice of Assumption and Assignment of Unexpired Leases and Executory Contracts [D.I. 721] (the "Totowa Notice"), designating the Totowa Lease for assumption and assignment to the Buyer. D. Landlord's Motion For Relief From Stay to Continue State Court Action. 12. Meanwhile, on July 7, 2016, the Landlord filed Fidelity Totowa Associates LLC's Motion For Relief From The Automatic Stay Pursuant To 11 US.C. 362(d)(1) [D.I. 664] (the "Totowa Stay Motion") seeking, inter alia, relief from the automatic stay to pursue a determination in the State Court Action of whether the Totowa Lease expired of its own terms or whether it was properly extended. 13. On July 22, 2016, the Debtors filed the Debtors' Opposition to Fidelity Totowa Associates LLC's Motion For Relief From the Automatic Stay Pursuant to 11 US.C. 362(d)(1) [D.I. 718] and the Buyer filed its Joinder in such Opposition [DI. 719]. 14. On July 28, 2016, this Court held a hearing on the Totowa Stay Motion and related pleadings, and denied the Totowa Stay Motion in that certain Order Denying Fidelity Totowa Associates LLC's Motion For Relief From the Automatic Stay Pursuant to 11 U.S.C. 362(d)(1). The Court set a hearing for October 6, to determine whether the Totowa Lease may be assumed and assigned to the Buyer. 4 Following certain discovery disputes, this hearing was rescheduled for October 18, /

9 Case LSS Doc 959 Filed 10/10/16 Page 9 of 29 E. Renewed Objections by CVS and Landlord to Totowa Lease Assignment. 15. On August 2, 2016, the Landlord filed the Objection of Fidelity Totowa Associates, LLC To The Debtors' Notice of Assumption and Assignment of Lease For Property Located in Totowa Square Center, Totowa, New Jersey [D.I (the "Renewed Landlord Objection"). 16. In the Renewed Landlord Objection, the Landlord reiterated its position that the Debtor has not met its burden of proof that the Totowa Lease is an unexpired lease capable of assumption and assignment, and further argued that if this Court should find that the Totowa Lease remains in effect, "The [Totowa] Lease cannot be assumed unless [the CVS Guaranty] remains in full force and effect... and... survives assignment of the [Totowa Lease]." Renewed Landlord Objection at 2. Accordingly, in the Renewed Landlord Objection, the Landlord seeks a comfort order from the Court regarding the CVS Guaranty. 17. On August 5,2016, CVS filed the 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 [D.I (the "Renewed CVS Objection"). 18. In the Renewed CVS Objection, CVS referred to the Initial CVS Objection, arguing again that the Totowa Lease expired of its own terms on January 31, 2016 and that Bob's Stores failed to satisfy the express condition necessary to extend the term. CVS also argued that the Landlord is not entitled to a comfort order from this Court on the status of the CVS Guaranty now or in the context of an assignment of the Totowa Lease. 5

10 Case LSS Doc 959 Filed 10/10/16 Page 10 of 29 F. The Totowa Lease and the CVS Guaranty 19. 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"). 20. 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"). 21. 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 Stores must not be in default of any material terms or provisions of the Totowa Lease. Second, Bob's Stores 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") (emphasis supplied). 22. 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." 23. Section of the CVS Guaranty expressly incorporates the identical EBITDA Condition appearing in the Totowa Lease, providing that CVS guarantees 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. 6

11 Case LSS Doc 959 Filed 10/10/16 Page 11 of 29 G. Bob's Stores Attempts to Exercise the Extension Option 24, Section 2.02 of the Totowa Lease required Bob's Stores to provide the Landlord 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 the Landlord that Bob's Stores had failed to timely exercise the Extension Option. 26. The Landlord 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 Landlord that it was exercising the Extension Option. 27. The clear and unambiguous language of the EBITDA Condition provides that Consolidated EBITDA is to be measured during the period "for the most recently ended sixty (60) consecutive fiscal months nearest the date the option is exercised." 28. As Bob's Stores purported to exercise the Extension Option on February 10, 2015, the period for "the most recently ended 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. 29. However, Bob's Stores took the position that the relevant 60 consecutive month period ended on December 31, Bob's Stores provided financial information for the sixty month period ending on December 31, 2014, but has never provided financial information for the sixty month period ending on January 31,

12 Case LSS Doc 959 Filed 10/10/16 Page 12 of The primary inference that can be drawn from the failure of Bob's Stores to provide that financial information for the sixty month period ending on January 31, 2015 is that Bob's Stores could not satisfy the EBITDA condition for that time period. Buyer has admitted as much in responding to CVS's Requests for Admission, as discussed below. 31. However, beyond this obvious inference, the EBITDA Condition required affirmative delivery of financials showing that the EBITDA Condition had been met for the specified 60-month period. Bob's Stores did not deliver financials for the period in question, hence it failed the condition for extension no matter what those financial statements would or would not have shown. H. State Court Action 32. As set forth above, the State Court Action was commenced by the Landlord who filed a Verified Complaint on or about October 12, 2015 (the "Verified Complaint"). In connection with that filing, the Landlord also 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. 33. On November 19, 2015, Bob's Stores filed its Brief in Opposition to Plaintiff's Order to Show Cause (the "Bob's Stores Brief'). 34. On November 25, 2015, the Landlord filed its Reply Brief in Further Support of Order to Show Cause (the "Landlord Reply Brief'). 35. The record from the State Court Action was filed with this Court on Friday, September 20, 2016 (D.I. 938). 36. On January 11, 2016, after considering the briefs submitted and two rounds of oral argument, the state court ruled on the Landlord's Order to Show Cause, 8

13 Case LSS Doc 959 Filed 10/10/16 Page 13 of 29 and denied same, ruling that the matter would not proceed in a summary fashion (the "State Court Order"). 37. Following the State Court Order, the parties engaged in substantial discovery, including significant written discovery, document productions and multiple depositions. The State Court Action was later stayed by the commencement of the Debtors' bankruptcy cases. 38. Thereafter, as a result of the Debtors' bankruptcy proceeding 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 I. Discovery in Connection with Assumption and Assignment of Totowa Lease. 39. In connection with the Renewed CVS Objection and the Renewed Landlord Objection to the Debtors Assumption Notice and, more specifically, the Totowa Notice, the parties hereto commenced discovery. 40. On August 18, 2016, CVS delivered its First Set of Discovery Requests of CVS Phar liacy, Inc. to BS Liquidating, LLC (f/k/a Bob's Stores, LLC) (the "CVS Requests") 5 comprised of requests for admissions, interrogatories and document requests, and filed its Notice of Service The CVS Requests specifically included the following nine requests for admissions (collectively, the "Admissions"): Admit that Bob's Stores did not exercise the Extension Option on or before January 31, CVS Requests, see Appendix at Tab B. Notice of Service, see Appendix at Tab C

14 Case LSS Doc 959 Filed 10/10/16 Page 14 of 29 Admit that the period of "the most recently ended sixty (60) consecutive fiscal months nearest" January 31, 2015 begins January 1, 2010 and ends December 31, Admit that Bob's Stores notified [the Landlord] of its intention to exercise the Extension Option on February 10, Admit that the period of "the most recently ended sixty (60) consecutive fiscal months nearest" February 10, 2015 begins February 1, 2010 and ends January 31, Admit that, on March 10, 2015, Bob's Stores submitted financial information to [the Landlord] to satisfy the EBITDA Condition for the sixty-month period beginning January 1, 2010 and ending December 31, Admit that Bob's Stores did not submit financial information to [the Landlord] to satisfy the EBITDA Condition for the sixty-month period beginning February 1, 2010 and ending January 31, Admit that Bob's Stores did not have Consolidated EBITDA as reported in its monthly financial statements of greater than One Million Dollars ($1,000,000) for the period beginning February 1, 2010 and ending January 31, Admit that satisfaction of the EBITDA Condition is a prerequisite to the effective exercise of the Extension Option. Admit that, by its express terms, the [CVS] Guaranty covers the obligations of Bob's Stores only under the Totowa Lease and does not extend to any assignee of Bob's Stores. 42. Bob's Stores' responses to the CVS Requests were due September 19, On September 19, 2016, counsel for Bob's Stores asked counsel for CVS for an extension of time to respond to the written discovery requests. Counsel for CVS granted an extension to September 26, 2016 to respond to CVS's Requests for Production of Documents and Interrogatories, and followed up with an specifying the extension as applying to the Requests for Production of Documents and Interrogatories. 10

15 Case LSS Doc 959 Filed 10/10/16 Page 15 of Counsel for Bob's Stores apparently understood this extension to apply to all written discovery. In any event, Bob's Stores did not respond until Thursday, September 29, 2016 to any of CVS's written discovery Under Fed. R. Civ. Pro. 36 and Fed. R. Bankr. Pro. 7036, the effect of not timely responding to a request for admission is that the matter is deemed admitted. 46. In their late response, Bob's Stores actually ultimately admitted all of the Requests for Admissions, including the ones which relate to the time period for which the EBITDA Condition is measured, apart from the last request for admission concerning the application of the Guaranty to assignees of Bob's Stores (to which it objected). SUMMARY OF ARGUMENT 47. The Totowa Lease has expired by its terms without extension and therefore cannot be assumed and assigned to Buyer or any other assignee. 48. The EBITDA Condition contained in both the Totowa Lease and the CVS Guaranty is clear and unambiguous on its face and its plain meaning must be given effect. 49. The time period of "the most recently ended sixty (60) consecutive fiscal months nearest" February 10, 2015 (the date of the notice to exercise the option) begins February 1, 2010 and ends January 31, See CVS Request for Admission 4 and Vestis' Response. 50. Bob's Stores did not submit financial information to the Landlord for the sixty month period beginning February 1, 2010 and ending January 31, See CVS Request for Admission 6 and Vestis' Response. 7 Bob's Stores Response, see Appendix at Tab D /

16 Case LSS Doc 959 Filed 10/10/16 Page 16 of Bob's Stores did not have Consolidated EBITDA as reported in its monthly financial statements of greater than $1,000,000 for the time period beginning February 1, 2010 and ending January 31, See CVS Request for Admission 7 and Vestis' Response. 52. Because the option to extend the Lease could not be exercised without satisfaction of the EBITDA Condition, the Totowa Lease expired on January 31, 2016 without extension. See CVS Request for Admission 8 and Vestis' Response. 53. Assuming, arguendo, that the Totowa Lease was properly extended and could be assigned, the CVS Guaranty, by its express terms, does not apply to the obligations of any assignee of the Totowa Lease, including the Buyer. ARGUMENT A. The Totowa Lease Has Expired and Cannot be Assumed and Assigned. 54. The Totowa Lease has expired by its express terms, and has not been properly extended, so it cannot be assumed and assigned to Buyer. The Admissions are binding on Bob's Stores, and they provide the Court with all the essential, elemental facts needed to rule that both the Totowa Lease and the CVS Guaranty expired. 55. The EBITDA Condition contained in both the Totowa Lease and the CVS Guaranty is clear and unambiguous on its face and its plain meaning must be given effect. The plain meaning of the EBITDA Condition irrefutably requires this Court to find that the Totowa Lease expired on January 31, 2016 without extension. 56. Bob's Stores' central contention, that the submission of financials for "the most recently ended sixty (60) consecutive fiscal months nearest" February 10, 2015, the date Bob's Stores purported to notify Landlord of the intent to extend, begins January 1, 12

17 Case LSS Doc 959 Filed 10/10/16 Page 17 of and ends December 31, 2014, ignores the plain meaning of the phrase "most recently ended." 57. A look at the calendar makes abundantly clear that the sixty month period "most recently ended...nearest" February 10, 2015 is the period between February 1, 2010 and ends January 31, 2015, as Vestis admitted. The Admissions Are Binding and Control This Dispute 58. Buyer has essentially admitted all but one of CVS's Requests for Admission. Under Fed. R. Civ. Pro. 36 and Fed. R. Bankr. Pro. 7036, the effect of not timely responding to a request for admission is that the matter is deemed admitted. See Curtis v. State Farm Lloyds, No. Civ. A. H , 2004 WL , at *6 (S.D. Tex. April 29, 2004) Accordingly, this Court must find that Bob's Stores did not exercise the Extension Option on or before January 31, 2015 (Admission one), which Vestis admitted. 60. This Court must find that the period of "the most recently ended sixty (60) consecutive fiscal months nearest" January 31, 2015 begins January 1, 2010 and ends December 31, 2014 (Admission two). While Vestis objects that this request is "irrelevant" and "omits a material part of the quoted portion of the lease," Vestis admits the statement is correct. Thus, if the option had been exercised on or before January 31, 2015, as opposed to February 10, 2015 (when it was), the time period for which Bob's Stores has submitted would have been correct. Since the notice of the exercise of the 8 All unpublished court opinions cited in this brief are included in the Appendix at Tab E. 13

18 Case LSS Doc 959 Filed 10/10/16 Page 18 of 29 option was not until February 10, 2015, the relevant time period is February 1, 2010 to January 31, 2015 (as admitted below in Request for Admission 4). 61. This Court must find that Bob's Stores notified the Landlord of its intention to exercise the Extension Option on February 10, 2015 (Admission three), which Vestis admitted. 62. This Court must find that the period of "the most recently ended sixty (60) consecutive fiscal months nearest" February 10, 2015 begins February 1, 2010 and ends January 31, 2015 (Admission four). While Vestis objects that this request is "irrelevant" and "omits a material part of the quoted portion of the lease," Vestis admits the statement is correct. 63. This Court must find that on March 10, 2015, Bob's Stores submitted financial information to the Landlord to satisfy the EBITDA Condition for the sixty-month period beginning January 1, 2010 and ending December 31, 2014 (Admission five), which Vestis admits. 64. This Court must find that Bob's Stores did not submit financial information to the Landlord to satisfy the EBITDA Condition for the sixty-month period beginning February 1, 2010 and ending January 31, 2015 (Admission six), which Vestis admits. 65. This Court must find that Bob's Stores did not have Consolidated EBITDA as reported in its monthly financial statements of greater than One Million Dollars ($1,000,000) for the period beginning February 1, 2010 and ending January 31, 2015 (Admission seven). Again, Vestis admits this statement is correct, but claims it is "irrelevant." 14

19 Case LSS Doc 959 Filed 10/10/16 Page 19 of This Court must find that satisfaction of the EBITDA Condition is a prerequisite to the effective exercise of the Extension Option (Admission eight), which Vestis admits. 67. And, finally, this Court must find that by its express terms, the CVS Guaranty covers the obligations of Bob's Stores only under the Totowa Lease and does not extend to any assignee of Bob's Stores (Admission nine). Vestis objects that the request is compound and vague, but gives no answer. Significantly, Vestis does not deny the request. 68. When the Court makes such findings, it must hold that the Totowa Lease expired of its own terms without valid extension 69. Because the Totowa Lease expired, it can neither be assumed by Bob's Stores nor assigned to the Buyer. 70. Similarly, this Court must hold that when the Totowa Lease expired, the CVS Guaranty expired as well. Even Without the Admissions, the EBITDA Condition Is Clear and Unambiguous 71. Although the Admissions control and require this Court to find that the Totowa Lease expired of its own terms, the same result would happen, without the Admissions, if this Court followed basic contract principles in construing the EBITDA Condition in the Totowa Lease and the CVS Guaranty. 72. All operative terms of the Totowa Lease, the CVS Guaranty and the EBITDA Condition are clear and unambiguous, and their plain meaning is evident and apparent. 15

20 Case LSS Doc 959 Filed 10/10/16 Page 20 of When a contract is clear and unambiguous on its face, the Court must give effect to the plain meaning, and may not admit parol evidence or other evidence of the parties' intent. 74. "In Delaware, 'riff a contract is unambiguous, extrinsic evidence may not be used to interpret the intent of the parties, to vary the terms of the contract or to create an ambiguity." Cohen v. Formula Plus, Inc., 750 F. Supp. 2d 495, 502 (D. Del. 2010) citing Eagle Indus., Inc. v. DeVilbiss Health Care Inc., 702 A.2d 1228, 1232 (Del. 1997). 75. "If the instrument is clear and unambiguous on its face, parol evidence may not be considered 'to interpret it or search for the parties intent..." Cohen, 750 F. Supp. 2d at 502 (citing Hibbert v. Hollywood Park, Inc., 457 A.2d 339, 343 (Del. Super. 1983). 76. "The parol evidence rule provides that '[w]hen two parties have made a contract and have expressed it in a writing to which they have both assented as to the complete and accurate integration of that contract, evidence... of antecedent understandings and negotiations will not be admitted for the purpose of varying or contradicting the writing." Cohen, 750 F. Supp. 2d at 502 (citing Interim Healthcare, Inc. v. Spherion Corp., 884 A.2d 513, 556 (Del. Super. 2005) (quoting 26 Corbin on Contracts 573 (1960)). 77. Resort to parol evidence is improper (and unnecessary) when a contract is clear and unambiguous. See Vigneri v. Point Pleasant Beach Bd. of Educ., 2012 WL , at *2 (N.J. Super. Dec. 7, 2012) (citing Conway v. 287 Corporate Ctr. Assocs., 187 N.J. 259, (N.J. 2006)). See also Elizabeth Dev. Co. of New Jersey v. B.F.L.F. Land Corp., Inc., 2015 WL , at *3 (N.J. Super. March 10, 2015). As one New 16

21 Case LSS Doc 959 Filed 10/10/16 Page 21 of 29 Jersey court held, "[w]here the contract or agreement is unambiguous, parol evidence of prior inconsistent terms or negotiations is inadmissible to demonstrate intent of the parties." Keybank Nat'l Ass'n v. Rico, LLC, 2010 WL , at *3 (D.N.J. June 1, 2010) (quoting Harley-Davidson, Inc. v. Morris, 19 F.3d 142, 148 (3d Cir. 1994)). 78. Even if the Court were considering admitting parol evidence as to intent, there is no extrinsic evidence of the parties' intent in the record, none at all. Therefore, general rules of contract interpretation would guide the Court to consider surrounding facts and circumstances. "Under New Jersey law, courts should interpret a contract considering the objective intent manifested in the language of the contract in light of the circumstances surrounding the transaction." SmithKline Beecham Corp. v. Rohm and Haas Co., 89 F.3d 154, 159 (3d Cir. 1996) (emphasis added) (internal citations omitted); see also Carter v. Exxon Co. USA, a Div. of Exxon Corp., 177 F.3d 197, 206 (3d Cir. 1999) ("New Jersey's fundamental rule of contractual interpretation is that the court is to ascertain the parties' intent from what was written and the surrounding circumstances."). 79. New Jersey courts consistently emphasize the importance of the surrounding circumstances in determining the meaning of a contract. "When terms of a contract are clear, it is the function of the court to enforce it as written... Nevertheless, it is clear that a contract must be interpreted considering the surrounding circumstances and relationships of the parties, at the time it was entered into, to understand their intent and to give effect to the nature of the agreement as expressed on the written page." Schenck v. HJI Assocs., 295 N.J. Super. 445, A.2d 481, 484 (App. Div. 1996); see also New York Sash & Door Co. v. Nat'l House & Farms Ass'n, 131 N.J.L. 466, 470, 36 A.2d 891, 893 (1944) ("Where the meaning of an integrated contract is uncertain or 17

22 Case LSS Doc 959 Filed 10/10/16 Page 22 of 29 ambiguous, the surrounding circumstances, standards and usages may be introduced for the purpose of elucidation; and the meaning of the writing then becomes a question for the jury only if in the circumstances it is reasonably the subject of divergent inferences."); 11 Williston on Contracts 32:7 (4th ed.) ("Ordinarily, the circumstances surrounding the execution of a contract may always be shown and are relevant to a determination of what the parties intended by the words they chose."); Restatement (Second) of Contracts 212 (1981) ("The interpretation of an integrated agreement is directed to the meaning of the terms of the writing or writings in the light of the circumstances, in accordance with the rules stated in this Chapter.") 80. The facts and circumstances surrounding the EBITDA Condition are illuminating: CVS requested the EBITDA Condition be included in the CVS Guaranty in order to require and receive relevant financial information about Bob's Stores as close as possible to an attempted Totowa Lease extension, so CVS could evaluate whether Bob's Stores could perform under an extended lease term, and to determine whether it consented to such lease extension. Therefore, the EBITDA Condition was designed to provide financial data closest in time to the attempted lease extension, not further into the past. 81. Accordingly, the clear and unambiguous language of the EBITDA Condition provides that Consolidated EBITDA is to be measured during the period "for the most recently ended sixty (60) consecutive fiscal months nearest the date the option is exercised." The phrase "most recently ended" is dispositive of the question. Bob's Stores' proposed interpretation of the Lease ignores this key provision which lends precision to the parties' agreement and cannot be ignored. The word "nearest" later on in 18

23 Case LSS Doc 959 Filed 10/10/16 Page 23 of 29 the sentences likewise makes clear that the period should be carefully measured as of the date of the exercise of the option. 82. As Bob's Stores purported to exercise the Extension Option on February 10, 2015, the period "for the most recently ended sixty (60) consecutive fiscal months nearest the date the option is exercised" clearly 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. 83. Therefore, Bob's Stores did not meet both conditions for extension of the Totowa Lease, and it expired at the end of the Initial Lease Term on January 31, No other meaning is possible or plausible. B. The CVS Guaranty Does Not Extend To An Assignee. 85. Assuming, arguendo, that the Totowa Lease was properly extended and could be assigned, the CVS Guaranty, by its express terms, does not apply to the obligations of any assignee of the Totowa Lease, including Bob's Stores, LLC ("New Bob's" or an "Assignee"), and under New Jersey law, a guarantor is not bound beyond the strict terms of its promise. The CVS Guaranty Expressly Covers Bob's Stores' Obligations Only, Not Assignees 86. The CVS Guaranty is clear that the obligations guaranteed by CVS are personal to Bob's Stores and the CVS Guaranty does not cover the obligations of any Assignee. Specifically, Section 3.1 of the CVS Guaranty provides: Guarantor hereby unconditionally guarantees to Landlord, its successors and assigns, the full performance and observance of all of the covenants, obligations, duties, undertakings or agreements on the part of [Bob's Stores]...to be made, carried out, performed, paid and/or observed by [Bob's Stores], as provided in the [Totowa Lease], /

24 Case LSS Doc 959 Filed 10/10/16 Page 24 of 29 See CVS Guaranty at Section "Bob's" is defined in the CVS Guaranty as "Bob's Stores Corp. (then known as Alphabravo Corporation)" and is not defined to include its successors and assigns. See CVS Guaranty at Recital C. 88. The financial condition necessary to exercise options under the CVS Guaranty at Section is likewise limited to Bob's Stores, further making clear that the CVS Guaranty covered Bob's Stores alone and not any Assignees. 89. Nowhere in the CVS Guaranty does it provide that the CVS Guaranty obligations extend to Assignees of Bob's Stores. 90. While the Guaranty includes a "Successor and Assigns" provision at Section 4.2, that section is limited to successors and assigns of CVS and the Landlord and does not provide for assignees of Bob's Stores to obtain the benefit of the Guaranty. 91. Moreover, Section 3.3 of the Guaranty provides: Landlord shall not agree to any amendment to the terms or conditions of either Lease... which extends the Term.. increases the Rent or other financial obligations of the Tenant under either Lease, or otherwise imposes additional material burdens, obligations and risks upon either Tenant and/or Guarantor, unless in each instance made with the express prior written consent of Guarantor. 92. Assignment of the Lease would "impose[] additional material burdens, obligations and risks upon... Guarantor" and would require CVS's prior written consent. 93. Nor does Section of the Lease lend support to Landlord's contention that the parties intended the Guaranty to cover assignees /

25 Case LSS Doc 959 Filed 10/10/16 Page 25 of Section of the Totowa Lease provides, "Tenant may assign this Lease... provided, however, the Tenant and any guarantor shall remain liable under the terms of this Lease." 95. Here, Bob's Stores is not seeking to assign the Totowa Lease pursuant to Section 17 of the Lease. Instead, it is seeking to assign the Totowa Lease pursuant to Bankruptcy Code Section 365. As such, Section 17 of the Totowa Lease does not apply to the proposed assignment. 96. But, even if Section 17 of the Totowa Lease applied to this situation, Section does not bind CVS in any way, and how could it, as CVS is not a party to the Totowa Lease. 97. Section merely provides that, outside of bankruptcy, Bob's Stores could only assign the Totowa Lease if both Bob's Stores "and any guarantor" remained liable under the terms of the Totowa Lease. This is merely a condition to assignment, is not binding on CVS, and does not contradict the clear and unambiguous language of the CVS Guaranty that limits CVS' obligations to cover Bob's Stores under the Totowa Lease alone. 98. When read alongside Section 3.3. of the Guaranty, which requires CVS's written consent in the event of a material change to the risks CVS has agreed to Guaranty, Section shows nothing more than that an assignment could take place, but if it did, CVS would have to agree. 99. In this instance, CVS does not agree The Landlord's reliance on Section 3.2 of the CVS Guaranty is likewise misplaced. An agreement that the CVS Guaranty "shall survive the bankruptcy of" Bob's 21

26 Case LSS Doc 959 Filed 10/10/16 Page 26 of 29 Stores is a far cry from an agreement to extend the CVS Guaranty to an Assignee without any input or control into the identity or financial position of the Assignee. Had Bob's Stores reorganized, and assumed the Totowa Lease, perhaps the CVS Guaranty would have survived. Instead, Bob's Stores chose to sell its assets and assign the Totowa Lease, and nothing in the CVS Guaranty extends CVS' obligations to the Assignee Moreover, as discussed above, the CVS Guaranty prohibits the landlord from entering into an agreement that imposes additional material burdens, obligations and risks upon CVS without CVS' consent, and provides that CVS is not bound by any such agreement entered into without its written consent. CVS Guaranty Section Reading Sections 3.1 and 3.3 together reveals that the CVS Guaranty was meant to be limited to Bob's Stores' obligations alone, and to require the consent of CVS for liability beyond that of Bob's Stores' obligations under the Totowa Lease The CVS Guaranty applies to "the full performance and observance of all of the covenants, obligations, duties, undertakings or agreements on the part of [Bob's Stores][] to be made, carried out, performed, paid and/or observed by [Bob's Stores] as provided in the [Totowa Lease]." CVS Guaranty 3.1 (emphasis added). This obligation must be strictly construed to guaranty Bob's Stores' obligations alone and cannot be implied to extend to Assignees of the lease to which CVS has not consented. New Jersey Law Does Not Bind a Guarantor Beyond its Strict and Express Promise 104. In New Jersey, a guarantor is not bound beyond the strict terms of its promise and its obligation cannot be extended by implication. Housatonic Bank & Trust Co. v. Fleming, 560 A.2d 97, 99 (N.J. Super. 1989). An agreement guaranteeing the particular debt of another does not extend to any other indebtedness not within the 22

27 Case LSS Doc 959 Filed 10/10/16 Page 27 of 29 intention of the parties. Garfield Trust Co. v. Teichmann, 95 A.2d 18, 22 (N.J. Super. 1953). It is well settled that guarantee agreements should be strictly construed and ambiguities construed in favor of the guarantor. Housatonic Bank, 560 A.2d at 99; Am. Furniture Mfg. Inc. v. Value Furniture & Mattress Warehouse, No. A T3, 2009 WL 88922, at *2 (N.J. Super. Nov. 18, 2008) 105. Where a lease explicitly permits assignment, an assignment of a lease will not discharge a guarantor of the lease; if, however, the lease prohibits assignment, then the guarantor will be discharged if the lease is assigned without his consent. Silver v. Friedman, 87 A.2d 336, 337 (N.J. Super. 1952) 106. Here, the Totowa Lease permits assignment, but only if the tenant and guarantor agree to remain liable under the lease terms. Totowa Lease, Art. XVII. Thus, the Totowa Lease is assignable only when Bob's Stores and CVS both agree to remain liable for the assigned lease. While the Landlord and Bob's Stores may agree to assignment of the Totowa Lease, such assignment is not binding on CVS and does not extend the CVS Guaranty to the assignment without the consent of CVS. See, Silver, 87 A.2d at 337 (concluding that original lessee was released from his obligation as surety by reason of the assignment of the lease by first assignees to subsequent assignees without the knowledge or consent of the original lessee-surety) The Landlord cites two cases for the proposition that a lease guaranty extends to assignees, but neither cited case actually supports the Landlord's position. In Chicago Exhibitors Corp. v. Jeppers! of Illinois, Inc. 876 N.E. 2nd 129 (App. Ct. IL. 2007), a case applying and interpreting Illinois law, lease guarantors sought to escape liability by arguing that certain changes to the lease and the poorer financial position of a /

28 Case LSS Doc 959 Filed 10/10/16 Page 28 of 29 successor tenant under the lease operated to discharge the guarantors from their obligations under the guaranty. Id. at 136. Both the trial court and the appellate Court rejected the guarantors' arguments, however, given that the guarantors had consented both to the lease changes and the assignment of the lease and given that the guaranty provided: Id. at 138. This guaranty is irrevocable, absolute, present, continuing and unconditional, and the obligation of [the guarantors] shall not be released or affected by (a) any extension of time, indulgences or modification which Landlord may extend with Tenant in the performance of said Lease; (b) any failure of Landlord to enforce any of the conditions of said Lease; (c) any assignment of the Lease by Tenant; or (d) any consent which Landlord may give to such assignment Unlike the facts in Chicago Exhibitors, CVS does not consent to the assignment of the Totowa Lease to Buyer or any Assignee and the CVS Guaranty does not provide that guaranty obligations survive assignment. CVS Guaranty, Section Next, the Landlord cites National Super Markets, Inc. KMSK, Inc., 940 S.W. 2nd 47 (Mo. Ct. App. 1997), again, for the proposition that a guaranty extends to obligations of a lease assignee. In National Super Markets, a guarantor was found liable under a guaranty for breach of a lease by an assignee. Id. at 50. In that case, however, the guarantor did not argue that the express language of the guaranty was limited to the original tenant. Instead the guarantor argued that he only agreed to guaranty the obligations of tenants in which he had an economic interest as general manager. Once the lease was assigned to a third party that the guarantor could no longer control, the guarantor argued that his obligation under the guaranty was discharged. Id. 24

29 Case LSS Doc 959 Filed 10/10/16 Page 29 of Of course, both the trial court and the appellate court rejected the guarantor's argument because there was nothing in the guaranty limiting the guarantor's liability to obligations of tenants that he controlled. Id Unlike the guarantor in National Super Markets, CVS is not arguing that it only guaranteed obligations of tenants it controlled. Instead, and as set forth above, CVS relies upon the express agreement among the parties which makes clear that the CVS Guaranty only covers Bob's Stores and no other entity. CONCLUSION 112. For the reasons set forth herein, CVS respectfully requests that the Court enter an order (a) finding that the Totowa Lease expired of its own terms on January 31, 2016, without extension; (b) denying the assumption and assignment of the Totowa Lease to the Buyer; (c) in the alternative, finding that the CVS Guaranty does not extend to the obligations of an Assignee under the Totowa Lease; and (d) granting CVS such further relief as is just and proper. Dated: October 10, 2016 SAUL EWING LLP By: Mark-minuti (DE Bar No. 2659) Teresa K. D. Currier (DE Bar No. 3080) Elizabeth Fenton (DE Bar No. 5563) 1201 North Market Street, Suite 2300 P.O. Box 1266 Wilmington, DE Telephone: (302) Facsimile: (302) Counsel for CVS Pharmacy, Inc. 25

30 Case LSS Doc Filed 10/10/16 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, Elizabeth S. Fenton, hereby certify that on October 10, 2016, I caused a copy of the foregoing Trial Brief of CVS Pharmacy, Inc. in Support of its Objection to the Debtors' Notice of Assumption and Assignment of Totowa Lease and to Fidelity Totowa Associates, LLC's Request for a Comfort Order Regarding Guaranty to be served on the parties on the attached service list in the manner indicated therein. By: SAUL EWING LLP 11Zb--- Eliza h S. Fenton (No. 5563) 1201 North Market Street, Suite 2300 P. 0. Box 1266 Wilmington, DE (302) Dated: October 10, 2016

31 Case LSS Doc Filed 10/10/16 Page 2 of 2 VESTIS RETAIL GROUP, LLC, et al. Service List Via Hand Delivery: Robert S. Brady, Esquire Robert F. Poppiti, Jr., Esquire Young Conaway Stargatt & Taylor, LLP Rodney Square 1000 North King Street Wilmington, DE Bruce J. Wisotsky, Esquire Melissa Pena, Esquire Norris McLaughlin & Marcus, P.A. 721 Route , Suite 200 Bridgewater, NJ Domenic E. Pacitti, Esquire Klehr Harrison Harvey Branzburg LLP 919 Market Street, Suite 1000 Wilmington, DE GianClaudio Finizio, Esquire Evan T. Miller, Esquire Bayard, P.A. 222 Delaware Avenue, Suite 900 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 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 19103