Case CSS Doc 212 Filed 01/04/18 Page 1 of 7

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1 Case CSS Doc 212 Filed 01/04/18 Page 1 of 7 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: : Chapter 11 : Charming Charlie Holdings Inc., et al., 1 : Case No (CSS) : Debtors. : (Jointly Administered) : : Objection Deadline: January 4, 2018 at 4:00 p m. ET : Hearing Date: January 11, 2018 at 1:00 p m. ET : : Related to Docket No LIMITED OBJECTION OF KRG/ATLANTIC DELRAY BEACH, LLC, KRG NEW HILL PLACE, LLC AND INTERNATIONAL SPEEDWAY SQUARE, LTD. TO THE DEBTORS MOTION SEEKING ENTRY OF INTERIM AND FINAL ORDERS (I) AUTHORIZING THE DEBTORS TO OBTAIN POSTPETITION FINANCING, (II) AUTHORIZING THE DEBTORS TO USE CASH COLLATERAL, (III) GRANTING LIENS AND PROVIDING SUPERPRIORITY ADMINISTRATIVE EXPENSE STATUS, (IV) GRANTING ADEQUATE PROTECTION TO THE PREPETITION LENDERS, (V) MODIFYING AUTOMATIC STAY, (VI) SCHEDULING A FINAL HEARING, AND (VII) GRANTING RELATED RELIEF KRG/Atlantic Delray Beach, LLC, KRG New Hill Place, LLC, and International Speedway Square, LTD. (each, a Landlord ; collectively, the Landlords ), by and through their attorneys, respectfully submit this Limited Objection (the Objection ) to the Debtors Motion Seeking Entry of Interim and Final Orders (I) Authorizing the Debtors to Obtain Postpetition Financing, (II) Authorizing the Debtors to Use Cash Collateral, (III) Granting Liens and Providing Superpriority Administrative Expense Status, (IV) Granting Adequate Protection to the Prepetition Lenders, (V) Modifying Automatic Stay, (VI) Scheduling a Final Hearing, and (VII) Granting Related Relief. In support of this Objection, the Landlords respectfully represent as follows: 1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor s federal tax identification number, include: Charming Charlie Canada LLC (0693); Charming Charlie Holdings Inc. (6139); Charming Charlie International LLC (5887); Charming Charlie LLC (0263); Charming Charlie Manhattan LLC (7408); Charming Charlie USA, Inc. (3973); and Poseidon Partners CMS, Inc. (3302) The location of the Debtors service address is: 5999 Savoy Drive, Houston, Texas {31812/32427/TMB/ DOCX}

2 Case CSS Doc 212 Filed 01/04/18 Page 2 of 7 JURISDICTION 1. The United States Bankruptcy Court for the District of Delaware (the Court ) has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b)(2)(D). BACKGROUND 2. On December 11, 2017 (the Petition Date ), each of the Debtors filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code (the Bankruptcy Code ) in the Court. 3. Upon information and belief, the Debtors are operating their business and managing their properties as debtors in possession pursuant to section 1107(a) and 1108 of the Bankruptcy Code. 4. The Landlords and one of the Debtors (the Tenant ), are parties to unexpired leases of nonresidential real property (each, a Lease ; collectively, the Leases ) of premises (the Premises ) as follows: Landlord Shopping Center Location KRG/Atlantic Delray Beach, LLC Delray Marketplace Delray Beach, FL International Speedway Square, LTD International Speedway Square Daytona Beach, FL KRG New Hill Place, LLC Holly Springs Towne Center Holly Springs, NC 5. The Premises are located within shopping centers as that term is used in 365(b)(3) of the Bankruptcy Code. See In re Joshua Slocum, Ltd., 922 F.2d 1081, (3d Cir. 1990). 6. On December 11, 2017, the Debtors filed their Motion Seeking Entry of Interim and Final Orders (I) Authorizing the Debtors to Obtain Postpetition Financing, (II) Authorizing the Debtors to Use Cash Collateral, (III) Granting Liens and Providing Superpriority Administrative Expense Status, (IV) Granting Adequate Protection to the Prepetition Lenders, {31812/32427/TMB/ DOCX} 2

3 Case CSS Doc 212 Filed 01/04/18 Page 3 of 7 (V) Modifying Automatic Stay, (VI) Scheduling a Final Hearing, and (VII) Granting Related Relief (the Motion ) [D.I. 21]. 7. On December 13, 2017, the Court entered an Interim Order (I) Authorizing the Debtors to Obtain Postpetition Financing, (II) Authorizing the Debtors to Use Cash Collateral, (III) Granting Liens and Providing Superpriority Administrative Expense Status, (IV) Granting Adequate Protection to the Prepetition Lenders, (V) Modifying the Automatic Stay, (VI) Scheduling a Final Hearing, and (VII) Granting Related Relief (the Interim Order ) [D.I. 93]. The Interim Order contains acceptable language limiting liens with respect to the Leases (Interim Order, 5) and limiting rights of occupancy of the Premises (Interim Order, 48). A proposed Final Order granting the motion has not been filed. OBJECTION A. The Court Should Direct Debtors to Pay All Post-Petition Rent Due, Including Stub Rent. 8. There is currently post-petition rent due to the Landlords in the following amounts, representing stub rent for the period of December 11, 2017 through December 31, Landlord Outstanding Stub Rent KRG/Atlantic Delray Beach, LLC $9, International Speedway Square, LTD $5, KRG New Hill Place, LLC $8, The stub rent owed the Landlords is entitled to administrative expense status under Section 503(b) of the Bankruptcy Code. The amount allowable for the stub rent period is presumptively measured by the rental value fixed in the lease, absent evidence to the contrary. In re M.L. Logan Machining Co., 2007 Bankr. LEXIS 1772, at *9 (Bankr. E.D. Pa. May 14, 2007) (citing In re DVI, Inc., 308 B.R. 703, (D. Del. 2004) ( There is a {31812/32427/TMB/ DOCX} 3

4 Case CSS Doc 212 Filed 01/04/18 Page 4 of 7 presumption that the lease rate is the fair market value unless there is evidence to the contrary. )). 10. The budget attached as Exhibit 1 to the Motion and Schedule A to the Interim Order provides that stub rent for December 2017 is not to be paid until April Allowing the Debtors use and occupancy of the Premises, and thereby providing an actual, necessary and continuing benefit to the Debtors and their DIP lenders, without the concomitant requirement of payment of post-petition rent, including stub rent, renders the Landlords involuntary and interestfree lenders to the Debtors. 11. Section 363(e) of the Bankruptcy Code provides that, at any time, on request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold or leased, by the trustee, the court, with or without a hearing, shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest.... Section 363(e) supports the provision of adequate protection to the Landlords. See In re Continental Airlines, 154 B.R. 176, 180 (D. Del. 1993). 2 Adequate protection may take the form of a requirement that the Debtors make a cash payment of the stub rent. 11 U.S.C. 361(1). 12. The Debtors are further requesting a waiver of their rights to surcharge the DIP lenders under Section 506(c) of the Bankruptcy Code for the costs and expenses of administration of the estate, including the costs of preserving the collateral securing the postpetition financing. The collateral securing the post-petition financing includes the inventory and furniture, fixtures and equipment at the Premises, which has been and will be sold for the direct 2 Cases from the Western District of Pennsylvania holding that Section 363(e) does not apply in the context or leases (see In re Wheeling-Pittsburgh Steel Corp., 54 B.R. 385 (W.D. Pa. 1985)), have been rejected. See, e.g., In re Borbridge, 66 B.R. 998, (E.D. Pa. 1986) (finding that prior rulings severely restrict[] the meaning of section 363(e) which, on its face, seems to accord a lessor the right to adequate protection when a debtor decides to use or lease property ); In re Reice, 88 B.R. 676, 682 (E.D. Pa. 1988) (applying 363(e) in the context of a personal property lease). {31812/32427/TMB/ DOCX} 4

5 Case CSS Doc 212 Filed 01/04/18 Page 5 of 7 financial benefit of the DIP lenders. Thus, the risk of future insolvency of the estate should not be shifted to the Landlords as involuntary unsecured creditors in the amount of the stub rent. 13. This Court has refused to grant 506(c) waivers without payment of stub rent consistent with the pay to play concept (see In re Sports Authority, Inc., Case No (Bankr. D. Del. May 3, 2016) (denying waiver of 506(c) rights unless the Final Order provided for immediate payment of stub rent)), particularly in cases where there is lacking any reasonable basis to support the conclusion that the estate will be administratively solvent. See, e.g., In re Fluid Routing Solutions Intermediate Holding Corp., Case No (D. Del. Mar. 13, 2009) (granting 506(c) waiver only upon finding of reasonable probability that estate was administratively solvent); In re NEC Holdings Corp., Case No (D. Del. July 13, 2010). 14. The Court can order the payment of stub rent as a surcharge under Section 506(c) or condition waiver of the right to surcharge on the Landlords receipt of stub rent. See In re Visual Indus., Inc., 57 F.3d 321, 325 (3d Cir. 1995) (the preservation of collateral inures to the direct benefit of the secured creditor, and therefore the secured creditor will be unjustly enriched if a claimant is not entitled to recover the costs of preserving that collateral). This Court has the discretion to determine when an administrative expense will be paid and, in doing so, should consider prejudice to the debtor, hardship to the claimant, and potential detriment to other creditors. In re Garden Ridge Corp., 323 B.R. 136, 143 (D. Del. 2005). As set forth above, denying immediate payment of stub rent to the unsecured Landlords improperly shifts the risk of administrative insolvency to the Landlords, and grants a windfall to the Debtors and the DIP lenders, who are granted rent free use of the Premises. {31812/32427/TMB/ DOCX} 5

6 Case CSS Doc 212 Filed 01/04/18 Page 6 of The Final Order granting the Motion should compel the Debtors to forthwith pay all outstanding post-petition rent, including stub rent. B. The Leases Do Not Permit the Debtors to Grant Liens Against the Leases, or to Grant Rights of Entry or Occupancy. 16. Should the Court approve the post-petition financing, the Landlords do not oppose the grant of a lien against the proceeds of leased real property as collateral for such post-petition financing, or the grant of lender occupancy rights only upon written consent of the Landlords or further Court order obtained upon motion of the DIP lenders on notice to the Landlords. Acceptable language is contained in paragraphs 5 and 48 of the Interim Order. 17. The Leases do not permit the Tenant to assign, transfer, mortgage, pledge or otherwise encumber its interests in the Leases. To the extent the Leases are assumed, the Tenant must assume the terms of the Leases cum onere (see In re Fleming Cos., 499 F.3d 300, 308 (3d Cir. 2007) (quoting In re Italian Cook Oil Corp., 190 F.2d 994, 997 (3d Cir. 1951))), including those provisions of the Leases which do not permit the Tenant to grant liens on the Leases, rights of entry to the Premises or lender occupancy rights. 18. Notwithstanding that the deadline to object to the Motion is January 4, 2018, the Debtors have not filed or provided the Landlords with a proposed further or Final Order. 3 The Landlords object to the Tenant granting the DIP lenders a security interest in or lien on the Leases and rights of entry on and/or occupancy of the Premises without prior written consent of the Landlords. 3 The Landlords have been advised by the Debtors counsel that the proposed Final Order will be identical to the Interim Order. {31812/32427/TMB/ DOCX} 6

7 Case CSS Doc 212 Filed 01/04/18 Page 7 of 7 RESERVATION OF RIGHTS AND JOINDER 19. The Landlords reserve their rights to supplement this Objection and to make such other and further objections as they may deem necessary or appropriate, including, but not limited to, objecting to any proposed further or Final Order. 20. The Landlords hereby join in the objections of other landlords of the Debtors to the extent such objections are not inconsistent with this Objection. WHEREFORE, the Landlords respectfully request that the Court enter an Order consistent with this Objection, and grant the Landlords any additional and further relief the Court deems just and proper. Dated: January 4, 2018 Wilmington, Delaware Respectfully submitted, BALLARD SPAHR LLP By: /s/ Laurel D. Roglen Leslie C. Heilman, Esq. (No. 4716) Laurel D. Roglen, Esq. (No. 5759) 919 North Market Street, 11th Floor Wilmington, Delaware Telephone: (302) Facsimile: (302) heilmanl@ballardspahr.com roglenl@ballardspahr.com - and - Kevin M. Newman MENTER, RUDIN & TRIVELPIECE, P.C. 308 Maltbie Street, Suite 200 Syracuse, New York Telephone: (315) Facsimile: (315) knewman@menterlaw.com Attorneys for KRG/Atlantic Delray Beach, LLC, KRG New Hill Place, LLC and International Speedway Square, LTD. {31812/32427/TMB/ DOCX} 7

8 Case CSS Doc Filed 01/04/18 Page 1 of 3 CERTIFICATE OF SERVICE I, Laurel D. Roglen, hereby certify that on January 4, 2018, I caused a copy of the Limited Objection of KRG/Atlantic Delray Beach, LLC, KRG New Hill Place, LLC and International Speedway Square, Ltd. to the Debtors Motion Seeking Entry of Interim and Final Orders (I) Authorizing the Debtors to Obtain Postpetition Financing, (II) Authorizing the Debtors to Use Cash Collateral, (III) Granting Liens and Providing Superpriority Administrative Expense Status, (IV) Granting Adequate Protection to the Prepetition Lenders, (V) Modifying Automatic Stay, (VI) Scheduling a Final Hearing, and (VII) Granting Related Relief to be served on the parties on the attached service list in the manner indicated thereon. Dated: January 4, 2018 /s/ Laurel D. Roglen Wilmington, Delaware Laurel D. Roglen (No. 5759) BALLARD SPAHR LLP DMEAST # v1

9 Case CSS Doc Filed 01/04/18 Page 2 of 3 SERVICE LIST Via Hand Delivery Domenic Pacitti Morton Branzburg Klehr, Harrison, Harvey, Branzburg LLP 919 North Market Street, Suite 1000 Wilmington, Delaware Co- counsel to the Debtors Mark D. Collins David T. Queroli Richards Layton & Finger One Rodney Square, 920 North King Street Wilmington, Delaware Counsel to the DIP ABL Agent and the Prepetition ABL Agent Pauline K. Morgan M. Blake Cleary Young Conaway Stargatt & Taylor, LLP 1000 North King Street Wilmington, Delaware Counsel to the Consenting Term Loan Committee David M. Fournier Pepper Hamilton LLP Hercules Plaza, Suite N. Market Street Wilmington, Delaware Counsel to the DIP Term Loan Agent and Prepetition Term Loan Agent Jennifer R. Hoover Kevin M. Capuzzi Benesch, Friedlander, Coplan & Aronoff LLP 222 Delaware Avenue, Suite 801 Wilmington, Delaware Counsel to the Committee Richard L. Schepacarter Office of the United States Trustee 844 N. King Street, Room 2207 Lockbox 35 Wilmington DE, Via First Class U.S. Mail Joshua A. Sussberg Aparna Yenamandra Kirkland & Ellis LLP 601 Lexington Avenue New York, New York Counsel to the Debtors Kirkland & Ellis LLP 300 North LaSalle Street Chicago, Illinois Counsel to the Debtors Julia Frost-Davies Amelia C. Joiner Morgan Lewis & Bockius LLP One Federal Street Boston, Massachusetts Counsel to the DIP ABL Agent and the Prepetition ABL Agent Brad J. Finkelstein Jeffrey Saferstein Paul, Weiss, Rifkind, Wharton & Garrison LLP 1285 Avenue of the Americas New York, New York Counsel to the Consenting Term Loan Committee Ronald A. Hewitt Martin E. Beeler Covington & Burling LLP 620 Eighth Avenue New York, New York Counsel to the DIP Term Loan Agent and Prepetition Term Loan Agent DMEAST # v1

10 Case CSS Doc Filed 01/04/18 Page 3 of 3 Cathy Hershcopf Seth Van Aalten Michael Klein Cooley LLP 1114 Avenue of the Americas New York, New York Counsel to the Committee DMEAST # v1