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

Hearing Date: February 25, 2009 at 10:00 AM Objection Deadline: February 18, 2009 at 4:00 PM Related Docket No.: 2465

LIMITED OBJECTION TO MOTION OF DEBTORS AND DEBTORS IN POSSESSION TO REJECTION OF NON-RESIDENTIAL LEASE AT MERVYN'S HEADQUARTERS IN HAYWARD, CA The Fifth Third Leasing Company ("Fifth Third"), Key Equipment Finance Inc. ("Key") and IDB Leasing, Inc. ("IDB", and collectively with Fifth Third and Key, the "Objectors") hereby file their Limited Objection to that certain Motion Of Debtors And Debtors In Possession To Rejection of Nonresidential Lease At Mervyn's Headquarters In Hayward, CA (the "Rejection Motion"), and respectfully submit as follows: 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

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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, Mervyn's 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")1 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 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, Mervyn's 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.

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

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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")2, 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. The Objectors' Collateral was/is located at many of the Debtors' store locations

and/or Headquarters or offices. 12. On or about July 29, 2008 (the "Petition Date"), Mervyn's Holdings, LLC,

Mervyn's 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 United States Bankruptcy Court for the District of Delaware (the "Court") and Orders for Relief were entered on that date. 13. Through various representations by the Debtors at the various hearing in this case

and by previous court orders, including, but not limited to the Order dated October 30, 2008, which approved GOB sales at all of the remaining Debtors' locations (the "Remaining GOB Order"), the rights of the Objectors were preserved with respect to the Objectors Collateral. 14. Specifically, the Remaining GOB Order provides, in relevant part, that: [n]otwithstanding anything to the contrary in this Order or in the Agency Agreement (3) neither the Debtors nor the Agent shall remove from a Store any of the Objectors' Collateral from their
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The Key Collateral can generally be described as electric lighting equipment and fixtures. 3

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 and (10) the parties' 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 February 2, 2009, the Debtors filed the Rejection Motion, pursuant to

which the Debtors seek to reject, nunc pro tunc to January 30, 2009, the non-residential real property lease (the "Lease") by and between Mervyn's, as tenant, and North 3 Holdings, LLC, as successor-in-interest to NLA Hayward, LLC (the "Landlord") for the premises located at 22301 Foothill Blvd., Hayward, CA 94541 (the "Headquarters"). 16. Although the Proposed Order with respect to Rejection Motion is silent as to the

Debtors specific intent with respect to any personal property that may be located at the premises, it is clear from the review of the Rejection Motion that the Debtors intend to abandon any personal property located at the Headquarters and to permit the Landlord to sell said remaining personal property. 17. Specifically, the Rejection Motion states, in relevant part, as follows: 18. In particular, on or about January 7, 2009, the Debtors and the Landlord discussed the sale of certain furniture, fixtures and equipment at the [Headquarters] in connection with the turnover of the [Headquarters] to the Landlord Indeed, on or about January 7, 2009, the Landlord was actively negotiating the sale of certain furniture, fixtures and equipment at the [Headquarters] as part of the turnover of the [Headquarters] .

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As set forth above, the Objectors' Collateral includes electrical lighting equipment

and fixtures and point-of-sale equipment, which clearly falls under the rubric of "furniture, fixtures and equipment" referred to in the Rejection Motion Thus, it appears that as part of the rejection of the Lease, the Debtors intend to abandon any personal property and permit the Landlord to sell same. 19. To the extent that any of the "furniture, fixtures and equipment" sought to be sold

or attempted to be sold by the Landlord includes any of the Objectors' Collateral, the respective Objector objects to the sale or disposal of any of the Objectors' Collateral by any party. Rather, any of the Objectors' Collateral should be turned over to the respective Objector. To the extent that there are any buyers of the Objectors' Collateral, they should be negotiating with the respective Objectors and/or their counsel, not the Landlord, with respect to the Objectors' Collateral. 20. As set forth in various objections filed by the Objectors, they have not consented

to the sale or any disposition of the Objectors' Collateral, except for the locations that were assumed and assigned to Kohl's, Inc. and Forever 21, Inc. by certain orders of this Court3 and certain other specific court orders and agreements.4 In fact, except for the aforementioned orders, there have been various orders entered in this case and various representations made by the Debtors' counsel that none of the Objectors' Collateral will be sold without the prior written consent of the respective Objector.

On December 23, 2009, Key had consented to the sell some of the Key Collateral, which consisted of the electrical lighting equipment and fixtures existing at the locations that were being assumed and assigned to Kohl's Inc. and Forever 21, Inc., with Key's lien attaching to the sales proceeds to the same extent, validity and priority as it existed on said equipment as of that date. See Docket Entry Nos. 1290 and 1291, in conjunction with the representations made at the hearing held on December 23, 2008. In January 2009 and February 2009, Key has entered into agreements with certain other landlords with respect to some of the Key Collateral.

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As set forth above and in the previous objections filed by Objectors, the

respective Objector either owns the Objectors' Collateral or has a properly perfected first priority security interest in the Objectors' Collateral. As such, the respective Objector is authorized to repossess the Objectors' Collateral upon default by the Debtors. 22. Although the Objectors have recovered most of the Leased Equipment (i.e., the

point-of-sale equipment), they believe that there may be some Leased Equipment at the Headquarters. Moreover, Key believes that there is Key Collateral with an original equipment cost (in mid 2007) in excess of $1.3 million at the Headquarters. As set forth above, Key has a has a properly perfected first priority security interest in the Key Collateral. 23. As such, the Objectors object to the sale of any of the Objectors' Collateral at the

Headquarters and requests that the Landlord turn over the same to the respective Objector. 24. Finally, the Objectors reserve all of their respective rights with respect to the

Objectors Collateral to the extent that some or all of it is damaged, destroyed or missing. The Objectors also reserve the right to assert any administrative claims for the use of any of the Objectors' Collateral and any Objectors' Collateral which is damaged, destroyed or missing.

CONCLUSION WHEREFORE, the Objectors respectfully request that any Order relating to the Rejection Motion provide the relief requested hereinabove and for such other and further relief as the Court deems proper. Dated: February 17, 2009 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 -andDAY PITNEY LLP Ronald S. Beacher (NY - RB8837) Amish R. Doshi (NY - AD5996) (Admitted pro hac vice) 7 Times Square New York, New York 10036 Telephone: (212) 297-5800 Facsimile: (212) 916-2940 Counsel to Fifth Third Leasing Company, Key Equipment Finance Inc. and IDB Leasing, Inc.