IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE ------------------------------------------------------x In re: : : MERVYNS HOLDINGS, LLC et al.

, : : Debtors. : : :
:
:

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

Hearing Date: December 23, 2008 at 10:30 a.m.

Objection Deadline: December 21, 2008 at 4:00 p.m. Extended to December 22, 2008 @ 4:00 p/m/
Related to Docket No. 973 and 1156

------------------------------------------------------x LIMITED OBJECTION OF CENTRO PROPERTIES GROUP 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 TO THE HONORABLE KEVIN GROSS, UNITED STATES BANKRUPTCY JUDGE: Centro Properties Group (Centro), by and through its undersigned attorneys, hereby makes this Limited 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 Motion), and in support thereof avers: 1. Centro is the owner or agent for the owner of the Mira Mesa (Mira

Mesa) Shopping Center, San Diego, CA in which Debtors operate a retail store pursuant to a written lease (the Lease) which is affected by the relief sought by the Motion. The Mira Mesa premises are premises located in a shopping center, as that term is used in 11 U.S.C. 365(b)(3). See In Re: Joshua Slocum, Ltd., 922 F.2d 1081 (3d Cir. 1990).

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On or about December 11, 2008, Debtors filed their Notice of Assumption

and Assignment of Unexpired Nonresidential Real Property Leases [D.I. 1156], whereby Debtors indicated their intent to assume and assign the Mira Mesa Lease (Debtor Store # 167) to Kohls Department Stores, Inc. (Kohls).1 3. On or about December 5, 2008, Centro Property Owner I, L.L.C. (Centro

Landlord) and Kohls entered into a certain confidential Term Sheet setting forth the terms and conditions under which Kohls would become the tenant at Mira Mesa if Kohls were the successful bidder for the Mira Mesa Premises at the Mervyns Auction. Thereafter, Kohls and Centro Landlord entered into a certain Fourth Amendment to Lease (the Lease Amendment) memorializing the provisions of the Term Sheet. Objection to Proposed Sale Order 4. Pursuant to the Terms of the Term Sheet, in the event of any inconsistency

between the terms of the Sale Order and the terms of the Term Sheet or the Lease Amendment, the terms of the Term Sheet or Lease Amendment shall govern and control. The Sale Order should specifically provide for this rule of interpretation. 5. Paragraph 9 of the Proposed Order states that the Winning Bidders will be

taking assignment of the Leases free and clear of any claims and that the Debtors alone should be responsible for curing any and all monetary and non-monetary defaults. This provision does not address the issue of which party will be responsible for satisfying year-end adjustments when

According to the Notice and attached proposed Sale Order the Court will be asked to approve the terms of an Assumption and Assignment Agreement between Debtors and Kohls. Centro has requested a copy of same for review but as of Sunday afternoon, December 21, 2009, no such agreement has been produced. While Centro expects that that agreement will be consistent with the terms of the Term Sheet and Lease Amendment, out of an abundance of caution Centro reserves the right to object to any terms of same that it believes are inconsistent with the terms of its agreements with Kohls.

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those adjustment billings are produced by Centro, as more fully set forth below. Upon information and belief the responsibility for said adjustments lies with the Debtors and the order should so provide, and provide an escrow as described below. 6. Paragraph 10 of the Proposed Order permits Kohls, inter alia, to remodel

the premises, including exterior alterations and replacement of building signs as necessary to convert the property to a Kohls Department Store, without being in default under any of the leases or otherwise subject to the provisions of any REA documents. Centro believes that there may be an issue involving the REA for Mira Mesa and notice to other REA parties. While Centro expects that this issue will be resolved prior to the Sale Hearing Centro reserves the right to further contest this provision of the Sale Order. Cure 7. Set forth below is Centros monetary claim for rentals due, exclusive of

any sums which have become due or been paid after December 15, 2008, unless otherwise noted. The claim set forth is the base cure claim amount subject to additional qualifications and modifications (such as reimbursement of attorneys fees) as more fully set forth below.
SHOPPING CENTER DEBTORS CURE $ LANDLORDS CURE $

STORE #

EXHIBIT

Mira Mesa 8.

167

$0.00

$89,330.10

Centro further avers that additional amounts, not as yet known, may also

be due with regard to the pre-petition and post-petition periods, such as year-end adjustments to various items including, but not limited to, real estate taxes and common area maintenance, as well as annual percentage rental. Section 365(b) requires that a debtor cure all defaults in conjunction with a lease assumption. Since certain accrued, unbilled items may not have been invoiced to date, there can be no default for the failure to pay same. Nevertheless, Debtors must 3
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acknowledge, and any Order approving cure amounts and assumption or assumption and assignment of the Mira Mesa Lease should provide, that there will be an escrow of sufficient funds to cover the payment of year end adjustments by Debtors estate when those adjustment billings come due pursuant to the terms of the Mira Mesa Lease. The escrow of funds should be set aside in a separate segregated account solely for the benefit of Centro. 9. Centro further requests that it be reimbursed as part of the cure payments

for all of its actual pecuniary losses including, but not limited to, attorneys fees and costs expended with regard to Debtors bankruptcy proceedings. 10. In addition to the monetary obligations that Debtors must satisfy under

Section 365 of the Bankruptcy Code, the Mira Mesa Lease also provides that Debtors must indemnify and hold the landlord harmless with regard to existing claims as well as with regard to events which may have occurred pre-assumption but which are not made known to Centro or Debtors until some period post-assumption. Accordingly, Debtors must be required to evidence, or obtain adequate insurance in order to guaranty, (by way of purchase of a tail or otherwise) that their indemnity responsibilities will be met. Claims for indemnity may include, but are not limited to, claims for personal injuries which occur at the leaseholds, where the Centro Landlord is joined as a party defendant, damage and destruction to the property by Debtors or their agents, claims for environmental damage or environmental clean up, etc. Reservation of Rights 11. Centro reserves the right to make such other and further objections as may

be appropriate if and when an Assumption and Assignment Agreement is produced or a revised version of the Proposed Sale Order is submitted.

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WHEREFORE, Centro prays for relief consistent with the foregoing; and WHEREFORE, Centro prays that its cure claim be established in the amounts set forth above plus reasonable attorneys fees, that same shall be paid at the time of closing on the assumption and assignment of the Mira Mesa Lease and that an appropriate escrow account be established as requested above; and, WHEREFORE, Centro prays for such other and further relief as may be just and required under all of the circumstances. Dated: December 21, 2008 Wilmington, Delaware Respectfully submitted, /s/ Leslie C. Heilman Tobey M. Daluz, Esquire (No. 3939) Leslie Heilman, Esquire (No. 4716) BALLARD SPAHR ANDREWS & INGERSOLL, LLP 919 N. Market Street, 12th Floor Wilmington, DE 19801 Telephone: (302) 252-4465 Facsimile: (302) 252-4466 E-mail: daluzt@ballardspahr.com heilmanl@ballardspahr.com and David L. Pollack, Esquire Jeffrey Meyers, Esquire BALLARD SPAHR ANDREWS & INGERSOLL, LLP 51ST Fl - Mellon Bank Center 1735 Market Street Philadelphia, Pennsylvania 19103 Telephone: (215) 864-8325 Facsimile: (215) 864-9473 Email: pollack@ballardspahr.com meyers@ballardspahr.com Counsel for Centro Properties Group

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UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE ------------------------------------------------------x In re: : : MERVYNS HOLDINGS, LLC et al. : : : Debtors. :
:

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

------------------------------------------------------x CERTIFICATE OF SERVICE I certify that a copy of the enclosed Limited Objection of Centro Properties Group 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 has been served upon the following persons via email or telecopier unless otherwise noted. Howard Beltzer, Esquire Neil E. Herman, Esquire Wendy Walker, Esquire Morgan, Lewis & Bockius LLP 101 Park Avenue New York, NY 10178 FAX: 212-309-6001 Daniel DeFranceschi, Esq. Richards Layton & Finger, P.A. One Rodney Square 920 North King Street Wilmington, DE 19801 FAX: 302-651-7701

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Jay R. Indyke, Esquire Cathy Hershcopf, Esquire Cooley Godward Kronish LLP 1114 Avenue of the Americas New York, NY 10036 FAX: 212-479-6275 William P. Bowden, Esquire Ashby & Geddes, P.A. 500 Delaware Avenue, 8th Floor P.O. Box 1150 Wilmington, DE, 19899 FAX: 302-654-2067 Jonathan Helfat, Esquire Daniel Fiorillo, Esquire Otterbourg, Steindler, Houston & Rosen, P.C. 230 Park Avenue New York, NY 10169 FAX: 212-661-9100 Paul M. Basta, Esquire Kirkland & Ellis LLP 153 East 53rd Street New York, NY 10022 FAX: 212-446-6460 Gregg Dorman, Esquire Seyfarth Shaw LLP 131 South Dearborn Street Suite 2400 Chicago, IL 60603 FAX: 312-460-7000

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Office of the U.S. Trustee 844 King Street, Suite 2207 Wilmington, DE 19801 FAX: 302-573-6497

Dated: December 22, 2008

/s/ David L. Pollack David L. Pollack, Esquire Jeffrey Meyers, Esquire BALLARD SPAHR ANDREWS & INGERSOLL, LLP 51ST Fl - Mellon Bank Center 1735 Market Street Philadelphia, Pennsylvania 19103 Telephone: (215) 864-8325 Facsimile: (215) 864-9473 Email: pollack@ballardspahr.com meyers@ballardspahr.com Counsel for Centro Properties Group

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