UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

In re: MERVYN'S HOLDINGS, LLC, et al., Debtors.

Chapter 11 Case No. 08-11586 (KG) Jointly Administered

Sale Procedures Hearing Date: November 25, 2008 at 10:00 am Sale Procedures Objection Deadline: November 24, 2008 at 12:00 pm Uncontested Sale Hearing Date: December 17, 2008 Contested Sale Hearing Date: December 23, 2008 at 2:00 pm Sale Objection Deadline: December 19, 2008 at 12:00 pm Related Docket No.: 973, 974 and 979

OBJECTION TO MOTION OF DEBTORS AND DEBTORS IN POSSESSION FOR ORDERS (I) ESTABLISHING AUCTION AND BID PROCEDURES FOR SALE OF DEBTORS' INTERESTS IN THEIR REMAINING REAL PROPERTY LEASES; (II) APPROVING AND AUTHORIZING SALE OF LEASES TO WINNING BIDDERS FREE AND CLEAR OR ALL LIENS, INTERESTS, CLAIMS AND ENCUMBRANCES; AND (III) GRANTING RELATED RELIEF The Fifth Third Leasing Company ("Fifth Third"), Key Equipment Finance Inc. ("Key") and IDB Leasing, Inc. ("IDB", and together with Fifth Third and Key, collectively, the "Objectors") hereby file their Objection to the Motion of Debtors And Debtors-In-Possession for Orders (I) Establishing Auction and Bid Procedures For Sale Of Debtors' Interests In Their Remaining Real Property Leases; (II) Approving And Authorizing Sale Of Leases To Winning Bidders Free And Clear Of All Liens, Interests, Claims And Encumbrances; And (III) Granting Related Relief (the "Sale Motion")1, and respectfully submit as follows:

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

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SUMMARY OF RELEVANT FACTUAL BACKGROUND 1. On August 22, 2008, the Objectors filed that certain Objection To Motion Of

Debtors And Debtors-In-Possession For An Order Approving Auction Procedures, Agency Agreement, Store Closing Sales And Related Relief. See Docket Entry No. 293. The Court (defined herein) is respectfully referred to the Factual Background section in that pleading for a compete recitation of the facts and said section is incorporated herein by reference. A brief summary of the relevant facts is set forth below. 2. On May 8, 2007, Mervyn's LLC ("Mervyn's") entered into a Master Lease

Agreement (as at any time amended, the "Master Agreement") with General Electric Capital Corporation ("GECC"). Pursuant to the terms of the Master Agreement, Mervyn's leased from GECC certain equipment more particularly described in and on certain Equipment Schedules subject to the Master Agreement. In addition, Mervyn's granted a security interest to GECC in and to the equipment referenced in those certain Equipment Schedules subject to the Master Agreement, to secure the due and punctual payment of any and all of the present and future obligations of Mervyn's to GECC. 3. On or after the entry into the Master Agreement, Mervyns entered into a separate

equipment schedule with each of Fifth Third, Key and IDB. 4. Concurrent with the entry into the Master Agreement, GECC assigned all of its

rights, title and interest in and to each of these three equipment schedules, the equipment subject thereto (collectively, the "Leased Equipment")2 and the Master Agreement as it relates to these equipment schedules (collectively, the "Lease") to each of the respective parties. 5. On or about May 4, 2007, Wachovia Capital Finance Corporation (Western)

("Wachovia") entered into Subordination Agreements with each of the Objectors, whereby

The Leased Equipment can generally be described as point-of-sale equipment. 2

Wachovia and each of the Objectors set forth their respective priorities with respect to certain collateral. Specifically, Wachovia agreed that each of the Objectors shall have priority over Wachovia with respect to each of their equipment schedules and the equipment subject thereto. 6. On or about May 10, 2007, GECC and Mervyn's entered into a Master Security

Agreement (as at any time amended, the "MSA"), pursuant to which Mervyn's granted to GECC a security interest in and to certain equipment more particularly described in and on certain Collateral Schedules subject to the MSA. 7. On various dates in 2007, Mervyns executed three (3) separate Promissory Notes

(collectively, the "Notes") in favor of Key, whereby Mervyn's promised to repay the principal sum of each of the Notes, with interest, to Key upon terms and amounts as set forth therein. 8. Concurrent with the entry into each of the Notes, Mervyn's and Key executed

three Collateral Schedules (collectively, the "Key Schedules"), pursuant to which Mervyn's granted a security interest in certain equipment, more particularly described therein (collectively, the "Key Collateral")3, to Key. 9. Concurrent with the entry into the MSA, GECC assigned all of its rights, title and

interest in and to the Key Schedules, the Key Collateral and the MSA as it relates to the Key Schedules, to Key. 10. The Leased Equipment and the Key Collateral are collectively referred to as

the "Objectors' Collateral". 11. On or about July 29, 2008 (the "Petition Date"), Mervyn's Holdings, LLC,

Mervyn's LLC and Mervyn's Brands, LLC (collectively, the "Debtors") filed Voluntary Petitions for relief under Chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code") in the

The Key Collateral can generally be described as electric lighting equipment and fixtures. 3

United States Bankruptcy Court for the District of Delaware (the "Court") and Orders for Relief were entered on that date. 12. On or about August 26, 2008, the Court entered into an order approving GOB

sales at 26 of the Debtors' locations (the "26 Sale Order"). The GOB sales at these 26 locations have already been conducted. The 26 Sale Order was subject to certain representations made on the record at the hearing held on August 26, 2008 with respect to the GOB sales at 26 of the Debtors' locations. Specifically, the Debtors, through their counsel, represented that, among other things, none of the Objectors' Collateral will be sold, subject to any further agreement between the Objectors and the Agent (as that term is defined in the 26 Sale Order). 13. Thereafter, on or about October 30, 2008, the Bankruptcy Court entered an Order

approving GOB sales at all of the remaining Debtors' locations (the "Remaining GOB Order"). These GOB sales are expected to run through the end of the year, and possibly up to January 31, 2009. 14. The Remaining GOB Order provides, in relevant part, that: [n]otwithstanding anything to the contrary in this Order or in the Agency Agreement, (1) none of the Leased Equipment, the Key Collateral (as those terms are defined in Docket Entry No. 641) shall be sold (either to a third party or to the Agent (for a lump sum or otherwise)) without the prior written consent to all of the sales terms thereof by the respective party that either owns or has a properly perfected first priority security interest in said item(s) of Objectors' Collateral (3) neither the Debtors nor the Agent shall remove from a Store any of the Objectors' Collateral from their existing locations without the prior written consent of the respective party that either owns or has a properly perfected first priority security interest in the Objectors' Collateral that is proposed to be removed (5) in the event that the Debtors intend to abandon any of the Objectors' Collateral, such abandonment shall be upon notice to the respective Objectors and their counsel of at least ten (10) days; (6) the Objectors shall have a reasonable opportunity to make arrangements for and remove or otherwise sell any Objectors' Collateral proposed to be abandoned by the Debtors (9) the Objectors shall not be liable to the Debtors for any amounts incurred by the Debtors for removal of any of the Objectors' Collateral from their existing locations; and (10) the parties'
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rights with regard to any claims relating to any of the Objectors' Collateral which is damaged, destroyed or missing shall be preserved. 15. On or about November 14, 2008, the Debtors filed the Sale Motion, which seeks

the entry of two (2) orders (collectively, the "Proposed Orders") as follows: (x) a Procedures Order (a) approving proposed Auction Procedures and Bid

Procedures relating thereto to sell the Leases, (b) approving a break-up fee to the Stalking Horse Bidder; (c) approving the form of the notice of the Auction and Store Closing Sales; and (d) scheduling (i) a sale hearing to consider those uncontested lease assignments or lease termination agreements agreed to as a result of the Auction or private sale(s); and (ii) a sale hearing to consider those lease assignments to which there are unresolved objections. (y) at the Sale Hearings, entry of an order (a) approving and authorizing the

sale of the Leases (or lease termination agreements); and (b) waiving the ten (10) day stay required under Bankruptcy Rules 6004(g) and 6006(d). 16. Paragraph 23 of the Sale Motion states, as follows: "Unless otherwise indicated by the Debtors at the Auction, sales of the leases shall not include personal property, inventory, fixtures, trade fixtures, or other furnishings or equipment located at the leased premises whether or not owned by the Debtors. The Debtors reserve the right either to sell such personal property to the Winning Bidder or to any other party, to abandon any or all of the personal property located at each of the leased premises, or to make such other arrangements as appropriate." (emphasis added) 17. It is clear from the Sale Motion that the Debtors either (a) reserve the right to sell,

abandon or otherwise dispose of; or, (b) are actually seeking authorization to sell, abandon or otherwise dispose of some or all of the Objectors' Collateral at the Auction. See Sale Motion at 23. 18. The Objectors' Collateral is located at various of the locations subject to the

Leases (the "Remaining Locations").

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19.

For the reasons set forth below, the Objectors object to the Sale Motion and seek

to preserve their rights with respect to the Objectors' Collateral at the Remaining Locations. OBJECTION 20. Primarily, the Objectors object to the sale or other disposition of any of their

respective Objectors' Collateral without their consent or without satisfying any element of 363(f) of the Bankruptcy Code. Specifically, although the Debtors state that the sale of the Leases shall not include personal property at the leased premises, they are specifically reserving their rights to sell, abandon or make other arrangements as appropriate with respect to same at the Auction. 21. Here, the Objectors do not consent to the sale or other disposition of their

respective Objectors' Collateral and the Debtors have not satisfied 363(f) of the Bankruptcy Code. As such, the Objectors object to the sale or other disposition of their equipment and/or collateral. 22. Furthermore, the Objectors object to the Sale Motion to the extent it is

inconsistent with the 26 Sale Order or the Remaining GOB Order (collectively, the "Prior Sale Orders"). (a) 23. The Relief Sought By The Sale Motion Is Inconsistent With The Prior Sale Orders As To The Objectors As set forth above, the Prior Sale Orders provide, among other things, that the

Debtors shall not sell any of the Objectors' Collateral without their consent. Here, the Objectors do not consent to the sale or other disposition of the respective Objectors' Collateral. As such, none of the Objectors' Collateral can be sold or otherwise disposed. 24. Accordingly, the Objectors object to the Sale Motion and/or the Proposed Orders

to the extent that any provision therein is inconsistent with the Prior Sale Orders.

(b) 25.

The Debtors Have Not Satisfied 363(f) Of The Bankruptcy Code Furthermore, and in addition to the above, to the extent that the Sale Motion seeks

to sell or otherwise dispose any of the Objectors' Collateral, the Objectors object on the basis that the Debtors have not satisfied any of the requirements of 363(f) of the Bankruptcy Code. 26. 11 U.S.C. 363(f) states, in relevant part, as follows: The trustee may sell property only if (a) (b) (c) (d) (e) 27. applicable non-bankruptcy law permits sale of such property ; such entity consents; such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property; such interest is in bona fide dispute; or such entity could be compelled in a legal or equitable proceeding to accept a money satisfaction of such interest.

Here, the Debtors have failed to establish any of the factors set forth in 363(f) of

the Bankruptcy Code with respect to the rights, liens and claims of the Objectors. Accordingly, the Debtors cannot be permitted to sell or otherwise dispose of any of the Objectors' Collateral as part of the Sale Motion or at the Auction, absent the Objectors' express consent. 28. First, non-bankruptcy law does not permit the sale or other disposition of the

Objectors' Collateral without payment in full to the Objectors. 29. Second, the Objectors have not consented to the sale or other disposition of the

Objectors' Collateral. 30. Third, the Debtors have not established that the amount received from the sale or

other disposition of the Objectors' Collateral will be greater than the aggregate value of all liens on the Objectors' Collateral.

31.

Fourth, the Objectors' respective interests in the Objectors' Collateral are not in

bona fide dispute. 32. Finally, there is no legal or equitable justification for accepting a money

satisfaction of less than the amount owed to the Objectors. 33. Thus, the Sale Motion should be denied to the extent that the Debtors intend to

include any of the Objectors' Collateral for sale or other disposition at the Remaining Locations, until the Debtors can establish one of the requirements of 363(f) of the Bankruptcy Code or the Objectors consent to such sale or other disposition. CONCLUSION WHEREFORE, the Objectors respectfully request that any Orders relating to the Sale Motion provide the relief requested hereinabove and for such other and further relief as the Court deems proper. Dated: November 21, 2008 Wilmington, Delaware Respectfully submitted, MARGOLIS EDELSTEIN

/s/James E. Huggett James E. Huggett, Esq. (#3956) 750 Shipyard Drive, Suite 102 Wilmington, DE 19801 Telephone: (302) 888-1112 Facsimile: (302) 888-1119 E-mail: jhuggett@margolisedelstein.com -andAmish R. Doshi (AD5996) 7 Times Square New York, New York 10036 Telephone: (212) 297-5800 Facsimile: (212) 916-2940 E-mail: adoshi@daypitney.com Counsel to Fifth Third Leasing Company, Key Equipment Finance Inc. and IDB Leasing, Inc.
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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE

In re: MERVYN'S HOLDINGS, LLC, et al., Debtors.

Chapter 11 Case No. 08-11586 (KG) Jointly Administered

CERTIFICATE OF SERVICE I, James E. Huggett, Esquire, hereby certify that on November 21, 2008, I served a copy of the OBJECTION TO MOTION OF DEBTORS AND DEBTORS IN POSSESSION FOR ORDERS (I) ESTABLISHING AUCTION AND BID PROCEDURES FOR SALE OF DEBTORS' INTERESTS IN THEIR REMAINING REAL PROPERTY LEASES;

(II) APPROVING AND AUTHORIZING SALE OF LEASES TO WINNING BIDDERS FREE AND CLEAR OR ALL LIENS, INTERESTS, CLAIMS AND ENCUMBRANCES; AND (III) GRANTING RELATED RELIEF on the parties listed on the attached service list via first class pre-paid U.S. mail.

___ /s/James E. Huggett James E. Huggett (#3956)

Mark D. Collins Richards Layton & Finger One Rodney Square PO Box 551 Wilmington, DE 19899 Howard S. Beltzer Wendy S. Walker Morgan Lewis & Bockius LLP 101 Park Avenue New York, NY 10178-0060 United States Trustee 844 King Street, Room 2207 Lockbox #35 Wilmington, DE 19899-0035 Jay R. Indyke Cooley Goodward Kronish LLP The Grace Building 1114 Avenue of the Americas New York, NY 10036-7798 Karen B. Skomorucha Ashby & Geddes, P.A. 500 Delaware Avenue, 8th Floor P.O. Box 1150 Wilmington, DE 19899 Neil B. Glassman Bayard, P.A. 222 Delaware Avenue, Ste 900 Wilmington, DE 19801