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UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK Case No. 11-22820-rdd - - - - - - - - - - - - - - - - - - - - -x In the Matter of:

THE CHRISTIAN BROTHERS' INSTITUTE,

Debtors.

- - - - - - - - - - - - - - - - - - - - -x

United States Bankruptcy Court 300 Quarropas Street White Plains, New York

February 15, 2012 12:23 PM

B E F O R E: HON. ROBERT D. DRAIN U.S. BANKRUPTCY JUDGE

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Response and Joinder of Iona Grammar School in Support of the Debtors Motion to Approve (I) Sale of Real Property Located at 173 Stratton Road, New Rochelle, New York and Vacant Land Across Therefrom to Iona Preparatory School, or Such Entity Which Makes a Higher and Better Bid; (II) Sale Procedures with Respect to Such Sale; and (III) Granting Related Relief (related document(s)233, 239) Motion to Sell Free and Clear of Liens Debtors Motion for Orders Pursuant to Sections 105(a) and 363 of the Bankruptcy Code and Bankruptcy Rule 6004 Approving (I) Sale Procedures and Notice of the Auction Relating Thereto, (II) Sale of Real Estate to Iona Preparatory School or a Party Making a Higher and Better Offer Free and Clear of Liens, Claims, Interests and Encumbrances, (III) Approving the Stalking Horse Purchase Agreement, and (IV) Granting Related Relief (related document(s)233)

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Statement in Support of Debtors Motion to Approve Procedures and Auction Relating to the Sale of the Iona Grammar School to Iona Preparatory School (related Document(s)233) Motion to Sell Free and Clear of Liens Debtors Motion, Pursuant to Sections 363(b) and 105(a) of the Bankruptcy Code and Bankruptcy Rule 6004, for an Order Authorizing the Private Sale of Certain Real Property Free and Clear of Liens, Claims, Interests and Encumbrances (related document(s)211) Declaration of Michael J. Bowe in Support of the Response and Joinder of Iona Grammar School in Support of the Debtors Motion to Approve (I) Sale of Real Property Located at 173 Stratton Road, New Rochelle, New York and Vacant Land Across Therefrom to Iona Preparatory School, or Such Entity Which Makes a Higher and Better Bid; (II) Sale Procedures with Respect to Such Sale; and (III) Granting Related Relief (related document(s)233, 239, 240)

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Transcribed by: Shalom Boroda Objection Committees Objection to Debtors Application for Retention of Rakow Commercial Realty Group, Inc. as Debtors Real Estate Broker (related document(s)241) Response Committees Reply and Joinder of Iona Grammar School in Support of the Debtors Motion to Approve (I) Sale of Real Property Located at 173 Stratton Road, New Rochelle, New York and Vacant Land Across Therefrom to Iona Preparatory School, or Such Entity Which Makes a Higher and Better Bid; (II) Sale Procedures with Respect to Such Sale; and (III) Granting Related Relief (related document(s)239, 233)

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY: JAMES STANG, ESQ. ILAN D. SCHARF, ESQ. PACHULSKI STANG ZIEHL & JONES Attorneys for Official Committee of Unsecured Creditors 780 Third Avenue 36th Floor New York, NY 10017 BY: SCOTT S. MARKOWITZ, ESQ. ERIC H. HORN, ESQ. A P P E A R A N C E S : TARTER KRINSKY & DROGIN LLP Attorneys for the Debtors 1350 Broadway New York, NY 10018

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UNITED STATES DEPARTMENT OF JUSTICE Office of the United States Trustee 33 Whitehall Street 21st Floor New York, NY 10004

BY:

SUSAN GOLDEN, ESQ. (TELEPHONICALLY)

KASOWITZ, BENSON, TORRES & FIREDMAN LLP Attorneys for Iona Grammar School 1633 Broadway New York, NY 10019

BY:

MICHAEL J. BOWE, ESQ.

KENT, HAZZARD, WILSON, CONROY, VERNI AND FREEMAN, LLP Attorneys for Iona Preparatory School 111 Church Street White Plains, NY 10601

BY:

JOHN A. VERNI, ESQ.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 one -THE COURT: (Pause) THE COURT:

P R O C E E D I N G S Okay. Christian Brothers'.

Okay.

This is the debtors' motion to It's a step one

approve sale procedures and buyer protections. to its sale motion. MR. MARKOWITZ: THE COURT: Yeah, Judge. Scott --

And, actually, there's more than one --

more than one sale motion. MR. MARKOWITZ: I was going to -- there's an unopposed

motion that we could handle very quickly, if that -- I -THE COURT: Yeah, why don't we deal with the Chicago

MR. MARKOWITZ: THE COURT:

Yeah.

It is Chicago, right? Yes.

MR. MARKOWITZ: THE COURT:

Yeah. Scott Markowitz, Tarter Krinsky &

MR. MARKOWITZ:

Drogin for the debtors and debtors-in-possession, Christian Brothers' and Christian Brothers of Ireland. Afternoon.

Your Honor, one -- as Your Honor mentioned, there's two matters on. The motion that is not controversial in any

way -- there were no papers filed in opposition -- Christian Brothers of Ireland owns a single-family house at 9757 South Seeley Avenue in Chicago. It was formerly utilized by the

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Brothers as a residence.

It's been empty for some time.

They

retained a broker in the case, who listed it locally in Chicago; well-known residential broker. various parties. There was an initial offer that fell through. We It's been viewed by

recently received an offer for 257,500, but there's a buyer's credit of 7,500, so it nets out for 250-. After the

inspection, came back with various electrical things that need to be done and other kinds of upgrades. We agreed to reduce

the purchase price by 1,500 so they would take it as is, where is. So that would be 1,500 less, so we'd end up with 248,500 There's no mortgage on the property.

instead of 250,000 net.

We've served the motion and the notice of the hearing on all creditors, Your Honor. it makes sense. an auction. IT's a private sale. We think

It's not the type of property where you have

You have buyers who are basically middle class,

who put down five percent and no need to have certainty here; they went out and get their mortgage commitment. it's a fair price -THE COURT: How long has it been on the market? It's been on the market for around six And we think

MR. MARKOWITZ:

to eight months, Your Honor -THE COURT: Okay. -- I would say.

MR. MARKOWITZ: THE COURT:

All right.

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MR. MARKOWITZ: THE COURT:

And we think -I didn't see any opposition.

All right.

Is there any opposition to this one? MR. STANG: Good afternoon, Your Honor. James Stang,

Ilan Scharf for the official creditors' committee. Your Honor, the committee does not object; it thinks the property was adequately marketed -THE COURT: MR. STANG: support -THE COURT: MR. STANG: THE COURT: All right. -- entry of an order approving it. So I approve the sale. So -Okay. -- by a reputable broker. And we'd

And -- so you can

e-mail that order into chambers. MR. MARKOWITZ: THE COURT: Okay. Thank you, Your Honor.

And then the other one is the one I

started to talk about, which is the property in New Rochelle. MR. MARKOWITZ: Yes, Your Honor. Again, Scott

Markowitz, Tarter Krinsky & Drogin. As Your Honor knows, we're today on a two-part motion. The first part is the bid procedures with respect to approving the procedures of sale with respect to the stalking-horse contract, where the debtor has entered into a contract to sell two pieces of property. One piece of property consists of approximately six

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acres, which is where the Iona Grammar School currently operates. That property has the Iona Grammar School on it, has

a house and also has a nursery school, has some parking facilities. It's approximately six acres.

Across the street from that property is a vacant field, which is currently used as a recreational field by the grammar school. It's approximately five acres. We signed a And we're here

contract with Iona Prep to buy that property. today on that.

I would say, obviously, Your Honor has seen some of the objections. I would just start out by saying I think Your

Honor accurately foreshadowed some of the issues that'd be coming down; we were here in August and Your Honor mentioned that the -- if choices could be made, you'd like to hopefully see schools that are viable schools continue in operation. We think, as a debtor-in-possession, Your Honor, that we've exercised our fiduciary duties in a proper manner by entering into the contract. We think we've considered various

factors, and those factors should be given substantial deference by the Court. Obviously, Judge, "higher and better

bids" doesn't always mean the highest price, but we're willing to see if we can a higher price by putting it out to the market. The debtors' trustees considered a variety of factors when considering its business judgment. And we think that it

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is sound business judgment for the following reasons. it allows the mission of the debtor to continue on. cited some case law.

One is, We've

United Healthcare, a district court,

Judge; it came out of a bankruptcy case of a hospital in Newark that the trustees of a not-for-profit have fiduciary obligation to continue the mission of the not-for-profit. This sale will continue the mission because Iona Prep will continue the school. It will continue as a vital part of

the community of Westchester County, which it's been for approximately a hundred years. It will continue the

employee -- not displace students; 200 students go to the school. It will keep teachers unemployed. It will keep -- it

will keep Brothers employed, who provide ministry and -THE COURT: Well, can I interrupt you for a second? Yeah.

MR. MARKOWITZ: THE COURT:

I don't want to confuse the hearing on

approval of the sale to the hearing on approval of the sale procedures. MR. MARKOWITZ: THE COURT: Okay.

And, frankly, when I reviewed the papers

on this, it seemed to me that this is not an issue, at least in front of me today, of closing down a school. And, in fact, I

think the committee made that clear in its last filing. Rather, it's making sure that a sale process leaves the parties in the court with the best-informed decision to

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make, taking into account all the facts.

And I think one of

those facts is the committee's statement that they wouldn't be -- what they're contemplating is not having the school be closed starting in the -- in September. MR. MARKOWITZ: in. Right. Well, I was just weaving that And what I

I agree, Your Honor, it is the bid procedures.

was going to say if we get into that is that I believe that we think the bidding procedures were negotiated in good faith. And when you go through them, there's accommodations, I think, that could be made to address some of the concerns they have. If that's Your Honor's issues, I agree. We said in our papers that we thought some of the objections were premature and that it should be, really, reserved for the sale, because until we see if somebody else comes and makes a higher and better bid -THE COURT: Okay. Well, the biggest issue -- although

there are others, which maybe the debtors are going to be accommodating to -- is the forty-five days. take to sell the Rice property? MR. MARKOWITZ: It took longer, Your Honor; it did. I mean, it did. It's a How long did it

It took six months, I would say.

little different because it was an empty school building, as opposed to -THE COURT: Right. -- an ongoing school. So it's a

MR. MARKOWITZ:

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little bit different. market here.

And we think that there's a more limited

But I think we're willing to accommodate, Your Honor. THE COURT: Okay. I mean, we've said that to the

MR. MARKOWITZ: committee. committee.

I've been trying to work this out with the We've said -Well, all right. But let -- so let's turn

THE COURT: to the timing.

At one level, the committee has wanted the But this is a significant

debtors to move rapidly on sales. property. MR. MARKOWITZ: THE COURT: Correct.

And I don't think that I would approve a

sale in the middle of a school year and say you could close -if you have to close the school, it just wouldn't -MR. MARKOWITZ: THE COURT: No.

-- I can't imagine that happening, even if

someone bid twenty-five million dollars for it. So I think we're talking about either a period that -well, I don't know what we're talking about, frankly. I think

it's -- the committee wants more than forty-five days, but what are you -- what does the committee want as far as the sale -- a sale process? process. MR. STANG: Your Honor, the difficulty with the A bidding -- a brokerage -- showing

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debtors' proposal -- well, there are several difficulties. The first is, the debtor has made clear, in writing, available to market, if you will, that it, as the seller -because the committee's not the seller, you're not the seller; they are the seller. They have stated in their reply,

unequivocally, that if you come forward to operate a Christian school -- and by the way, I only point out -- a school, a Christian school, you are the preferred buyer. So if a

residential real estate broker is interested in building out on the empty space, that person is told from the get-go, you are not someone we want to have. THE COURT: MR. STANG: about just time -MR. MARKOWITZ: THE COURT: MR. STANG: THE COURT: MR. STANG: procedures. That's not true. All right. But let's --

So -- but that -- if you're asking me

No, I'm -- just time. Okay. You said --

I'm just focusing on time, for now. You said time, but then you said

And so -I'm just focusing on time for now. Okay. At a minimum, the property has to

THE COURT: MR. STANG:

be exposed to the market in a credible way for ninety days. THE COURT: MR. STANG: Okay. That means a due diligence agreement's

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been established, marketing materials are ready, a qualified broker is in place and ready to start the marketing process. minimum of ninety days. I have a lot to say, as you can tell, A

about whether this is the party who should be showing the property to the market -THE COURT: MR. STANG: THE COURT: MR. STANG: Right. -- because of their predisposition. Right. But I think -- I mean, the Brother Rice

High School property, by their own statements, had over 1,500 contacts go out from the broker for that property. The fact

that this school is open, versus closed -- I mean, is open, versus Brother Rice is closed, it should be longer if it's an open school. THE COURT: MR. STANG: property. THE COURT: No, that's why I was asking whether this I -- it's not clear Well, that's why -- that's -There's less opportunity to view the

is ninety days or whether it's six months. to me. MR. STANG:

We have spoken to a broker -- we've spoken

to a couple of brokers who have expressed an interest in representing the property. No surprise that the brokerage We have been told that, at

community would love this listing.

a minimum -- and I'm not sure that's an adequate minimum --

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they need ninety days. But if the school's not -- if the school's operations are not being impaired by virtue of an imminent closing of a real estate sale, then we should hear from qualified people to tell us -THE COURT: MR. STANG: be. THE COURT: So that's why you say a minimum of ninety First. -- first, what the marketing period should

days, and then we see. MR. STANG: Well, that's what we've been told is,

"we'd like at least ninety", but what's happening is brokers who are contacting us are trying to figure out how to get our attention, how to get your attention; and so they're trying to work within a framework that they think already exists, which is -THE COURT: MR. STANG: Right. -- forty-five days to get this thing done. But I --

So they'll go, "God, if we could really have ninety". brokers want as much time as they can have.

It's a little bit

like a developer; they'll take as much time as you give them. At some point, the property's getting old and tired, vis-a-vis the market. Maybe it should be 120 days; maybe it should be six months. I honestly don't know. But given how they did Brother

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Rice, they've demonstrated that a complex property -- and I think that this is probably complex property -- requires some time. THE COURT: Okay. Is there any -- is there any

special zoning with regard to this property? MR. MARKOWITZ: our papers, Your Honor. It's on residential -- we said that in I think it's R-120. I think it allows So you

residential housing developments.

20,000-foot lots.

can get ten lots, arguably, on the property where the school is located. street. The only thing it could be is either residential houses, schools or house of worship without some sort of variance, is what I've been told. THE COURT: So it can be -- it can be a school or a And then it's a little smaller property across the

house of worship, too. MR. MARKOWITZ: THE COURT: Yes, I believe so.

It is not -- in other words -Those are the three options.

MR. MARKOWITZ: THE COURT:

-- Iona's not grandfathered in, somehow. To my knowledge, the answer is no.

MR. MARKOWITZ: THE COURT:

Okay. Okay. So we think it is somewhat more

MR. MARKOWITZ:

limiting because in the current environment, residential real estate developers, they generally don't buy these kinds of

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properties without contingencies.

So they're not going to come

in and offer X dollars, all cash, no contingency; they're going to say, we'll give you X dollars if we can get this many lots, if the town will give this approval, if this can happen -THE COURT: Right. -- if this can happen. So --

MR. MARKOWITZ: THE COURT:

Right. -- this is a non-contingent contract,

MR. MARKOWITZ:

Your Honor, and we think that it does give substantial value. We're prepared to go the ninety days. buyer's counsel's here. I'm not the buyer -- and

I mean, you don't have to -- we

don't -- but we're prepared to go the ninety days; we're prepared to cooperate with their broker. we had -- who was recommended to us. he's had to leave. We hired a broker who

He actually was here --

He's coming back; he told me had to run --

because his calendar was going; weren't sure exactly when we'd be called. THE COURT: Had to put money in the meter, probably. He actually will be here. He will be

MR. MARKOWITZ: here. We hired a broker.

We had to negotiate; since we had

the stalking=horse contract, not that many brokers -- I'll see what their experience is -- want to take this on and do all the work and then not get anything if Iona is -- Prep is the winning bidder. I mean, there has to be some accommodation so

that they do spend their time, they send out to their database.

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Our broker was going to testify he had a database of 10,000 people, that he's going to send it out to multiple listings, he's going to send it out to CoStar. I mean, we are They We're

going to tee it up; we're not trying not to tee it up. make it sound like we're trying to rig the sale process. not trying to rig the sale process. THE COURT:

Obviously, we prefer --

Well, are you prepared to share all the

inquiries with the committee? MR. MARKOWITZ: THE COURT: Yes. Yes.

Okay. So to answer your question, we are We were prepared to

MR. MARKOWITZ:

prepared to address some of those things.

consider some of the other issues on the bidding procedure, subject to the buyer's counsel saying yes. Again, I'm not the buyer, Your Honor; we're the It's not a secret that we believe that it makes sense,

for a variety of reasons -- which I -- and, Your Honor, this is not, for today, necessarily -- a good use of our business judgment to continue on the mission and to continue to merge the Prep with the Grammar. We do think that makes sense. And

that could be something Your Honor considers when we see what other bids come in. THE COURT: All right. But the key thing is, I have

to believe that there needs to be a reasonable process for other bids to come in.

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MR. MARKOWITZ: address that. THE COURT:

And we're prepared to address to

I mean, I'm typing -- I'm talking

hypotheticals here, but you know, if someone comes in with a nine million dollar offer -MR. MARKOWITZ: THE COURT: All cash offer -The nine million dollar

-- but it -- no.

offer that is, it is reasonable -MR. MARKOWITZ: THE COURT: Okay.

-- but is contingent upon a six-month

zoning process, then, you know, that's one thing. MR. MARKOWITZ: THE COURT: Right.

If it's a twenty million dollar offer and

is contingent upon a six-month zoning process, that's another. MR. MARKOWITZ: THE COURT: Correct.

I mean, but I can't approve something that

doesn't let that process play itself out. MR. MARKOWITZ: THE COURT: And we are prepared to --

Subject to, I think, the legitimate

concern of making sure that the buyer you have in hand knows that it wouldn't interrupt the s -- you know, it wouldn't -MR. MARKOWITZ: THE COURT: school year. MR. MARKOWITZ: And next year. The school will continue on.

-- yeah, the school will function for the

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THE COURT:

Yeah, that's what I'm talking about, Yeah. Well you're in the middle of this

MR. MARKOWITZ: THE COURT:

Yeah.

MR. MARKOWITZ: Your Honor. THE COURT:

Yeah, I know -- I know what you meant

I'm talking about the next year; yeah. I know what you meant.

MR. MARKOWITZ:

So the answer is we're prepared to address those

THE COURT:

Okay. And again, we're fine; I've been

MR. MARKOWITZ: trying to -THE COURT:

All right. -- I've been asking that question to

MR. MARKOWITZ:

them; they say we don't want to participate in your process. We've been asking them. We gave them the offer -- how did they

have the offer, we gave them the offer in October; we gave them the appraisals; how do they have the appraisals? given them everything, Your Honor. THE COURT: MR. STANG: THE COURT: talking to them? MR. MARKOWITZ: No. Well, okay. Your Honor -But you did cut a deal with Iona without Because we've

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THE COURT:

No? We didn't; we talked to them, we gave

MR. MARKOWITZ:

it to them -- we told them in August and we gave them the letter that's attached to my papers, Judge. offer letter in October. We gave them the

They said they'd just oppose it on

principle grounds; I mean, they're the committee -THE COURT: All right. -- they're not the debtor-in-

MR. MARKOWITZ: possession.

I mean, we've tried to convince them. All right. Okay? So we --

THE COURT:

MR. MARKOWITZ: THE COURT:

Well, the thing that you cannot do is

discourage other offers. MR. MARKOWITZ: THE COURT: We're not.

You really can't do that. We're not trying to discourage other

MR. MARKOWITZ:

THE COURT: MR. STANG:

Well -Your Honor, they have. You know, if you

look at the standard definition of fair market value, it presumes a ready, willing, and able buyer and seller. THE COURT: MR. STANG: Right. Anyone -- we were talking about someone

spending a lot of money for this property; they will go to the court file to see how Iona Prep became the stalking horse.

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This debtor has told the market we do not want to sell to anyone except an educational facility, and in fact, a Christian educational facility. MR. MARKOWITZ: not true. MR. STANG: THE COURT: MR. STANG: Your Honor, read their reply -Well --- read the reply, they have told this That's not true, Your Honor; it's just

market if you're coming in for anything other than operating something consistent with our mission, that is our primary -not preference, Your Honor -- they said duty -THE COURT: MR. STANG: All right; well -So actually -Judge, we were --

MR. MARKOWITZ: MR. STANG: problem with -MR. MARKOWITZ: MR. STANG: send me -MR. MARKOWITZ: MR. STANG:

-- I don't know how they get rid of that

Judge -And they can

-- them being the buyer.

Judge, we were --

-- excuse me. Sorry.

MR. MARKOWITZ: MR. STANG: buyers they want.

They can send me or Mr. Scharf all the But at the end of the day, when a buyer has

to deal with Brother Griffith or someone at the grammar school,

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who is the last person who wants a real estate developer asking them about that facility -- is Iona Grammar really going to be a party that a potential buyer wants to talk to in light of what they have said and in light of their joinder to this motion? This -- you said that the committee wants the sales to What the committee wants is this debtor to come

move rapidly.

up with a real estate plan rapidly, so that we could figure out what to do when over 100,000 notices go out and claims start to come in. THE COURT: MR. STANG: All right. They have for this property, tainted

themselves in a way -- and I think tainted Your Honor not because of the self-dealing that we've accused them of in the process -- but they've tainted the marketing process by telling everyone what their duty is in connection with the sale of this property. THE COURT: I don't -- look, I guess the proof will be

in the pudding but I don't believe that a buyer will legitimately believe that because I'm telling the debtors they can't do that. I mean, I view this as loosely analogous to

Major League Baseball. MR. STANG: THE COURT: How would that be? There are issues if you're a buyer and a

seller, if part of your proposal is to close down a school. They're inescapable issues; that's part of the transaction.

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The buyer takes that into account too.

I mean we live in a

society where politics has its say in zoning decisions. MR. STANG: THE COURT: Absolutely. And in approvals and all of that. So,

that's -- you know, you can't escape the fact that it is a place where there is currently a school. MR. STANG: THE COURT: So --

But Your Honor, what --- I think that -- so similarly, you can't

escape the fact that a Major League Baseball team that's in Chapter 11 is in a league where you have to take that into account; you're not going to go play your games with someone else; you're going to play them with everyone else in the league. So I think that that is an inescapable issue. On the other hand the debtors cannot -- and certainly Iona couldn't either -- act in a way that chills anyone's interest. And I am very clear on the record on that, and -MR. MARKOWITZ: THE COURT: We understand that, Your Honor.

And if it appears to me that that's

happening -- and it needs to be a completely transparent process with the committee -- then I will put the committee in charge of the sale process. this record. MR. STANG: Your Honor, part of our concern -- look, But I'm not prepared to do it on

Mr. Markowitz said we're doing this out of some kind of principle -- I'm sure he thinks misguided principle -- that's

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not true. school.

It is not the committee's goal to shut down the I want everyone in this courtroom to understand this;

every committee in a like context that I've ever represented, has never supported closing a house of worship or school to pay sexual abuse claims. But when Mr. Scharf spoke with Brother

Griffith in January and asked him if we could bring buyers onto the property to look at it, Mr. Scharf was told by Brother Griffith no. Now, maybe that's going to change because you've But what's going to happen -- and I have

told them to change.

no doubt about this -- is that every buyer who is a little unhappy with whatever reaction they're getting from the debtor, is going to come running to us, complain, and then we're going to be chasing around, trying to figure out if the fact they were told to come at 4 o'clock to the campus versus 2 o'clock, constitutes some kind of chilling. relish the prospect of that. THE COURT: Well, there's an easy way to deal with And frankly, I do not

that; which is to tell the buyers to be a little more realistic. I mean, I don't want to -- I want to deal with the

timing and I want to deal with a couple of other points on the sale procedures, but I don't think it's appropriate to have the committee be selling the business -- selling the school -MR. STANG: selling the school. THE COURT: -- the property. Your Honor, we're not interested in

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MR. STANG:

What we're interested in is someone who

doesn't have an announced predilection as to the identity of the buyer. THE COURT: All right; and I'm telling the debtors

that they don't have an announced predilection. MR. MARKOWITZ: THE COURT: And we understand that, Your Honor.

It can't be the case. Just because we were saying that as

MR. MARKOWITZ:

aspect of our business judgment we thought it made sense to continue, doesn't mean that's how we're -THE COURT: Right. Look, I took --

MR. MARKOWITZ: THE COURT:

-- the answer --

-- I took their pleading as basically a And one of the --

defense of their entry into this contract.

notwithstanding the appraisal -- and one of the aspects of the bidding procedures that I want to make clear here is, it is not clear to me -- and unlike most situations -- that I should preapprove this contract as the winning bidder if there are no other bids -- I need to look at that at the sale hearing, fresh. I also believe that the purchase price should not be I don't think you're getting an

limited to an all-cash deal. all-cash here necessarily. MR. MARKOWITZ: THE COURT: Okay.

Obviously you need to evaluate the

consideration, but that goes into the better category as

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opposed to -MR. MARKOWITZ: wouldn't have to be -THE COURT: Right. -- we'd have to pick something but it Okay; so in other words, the next bid

MR. MARKOWITZ:

wouldn't be all cash, in other words. THE COURT: Right. Okay.

MR. MARKOWITZ: THE COURT:

Right. Timing?

MR. MARKOWITZ: THE COURT:

The timing should be at least ninety days,

but again -- and this is one of the reasons that I made my first point about not pre-approving the sale -- it's not clear to me after ninety days that we'll be ready. As long as it's

clear that there's not going to be a situation where for the 2012-2013 school year that we're going to close the school; I just wouldn't have it. MR. STANG: the timing? MR. MARKOWITZ: MR. STANG: Sure. Your Honor, may I make a suggestion about

We are scheduled to return here on March As I

1st in connection with the committee's examiner motion.

told you, we've had a number of brokers contact us and frankly we've gone out and solicited some brokerage input on the property. I think that with deference to Mr. -- I think his

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name is -- Rakow's firm -- which we did not have any involvement in selecting, interviewing, or any input on whatsoever, that this matter as to the identity of the broker -- and maybe that's the separate motion -- should be kicked to the March 1 hearing; let us -THE COURT: broker issue? MR. STANG: issue. Well the broker issue, but also the timing When you say 'this matter', you mean the

Because the broker's going to tell -THE COURT: MR. STANG: Right. -- the committee and we would consult with

the debtor regarding what think an adequate marketing time is. Because in fairness to Iona Prep, Grammar, parents, and everyone else, they would like to at least like know how this thing is progressing. THE COURT: MR. STANG: Right. And so if the brokers are telling us six

months, five months, we'll have a discussion, but we should -having had some guidance from you now -THE COURT: MR. STANG: Okay. -- kick this for essentially two weeks and

see if we can come up with an agreement on who the broker should be -THE COURT: MR. STANG: Well I'm prepared to kick it --- and the time.

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THE COURT: MR. STANG: THE COURT: MR. STANG: THE COURT:

-- as to the timing point. At least as to the timing point. Yeah. We'll hear about the other things. On the broker issue, I did have a -- I I frankly

mean on the broker, I think we should kick that too. had an issue about compensation -MR. MARKOWITZ: Honor; just so you know. THE COURT:

Broker is here, by the way, Your He is -Well I had an And I am not So I think I mean, I

-- oh, okay; all right.

issue on compensation based on if Iona buys it. at all convinced that any broker would want that. that's something we should hear about on the 1st. have approved many -MR. MARKOWITZ: THE COURT: You mean --

--broker aggrievance where the brokerage

fee carved out something that had already been negotiated. So -MR. MARKOWITZ: THE COURT: arrangement -MR. MARKOWITZ: unclear, is that -THE COURT: committee -Yeah, I mean, particularly if the In other words, that your issue is So you --

So I have an issue with the current

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MR. MARKOWITZ: commission -THE COURT:

-- you're saying it shouldn't get a

-- is going to be talk --- or it should be reduced further

MR. MARKOWITZ: than it is, or -THE COURT:

No, I think they shouldn't get anything

for the Iona deal; they didn't work on it. MR. MARKOWITZ: THE COURT: Right.

But, you know, maybe every other broker

that the committee talks to that's a good broker is going to say the same thing, although I'd be surprised because that's not been my experience. MR. MARKOWITZ: THE COURT: So -But that's one

So I'm just adjourning it.

of the reasons I'm adjourning it MR. MARKOWITZ: THE COURT: The brokerage application?

Yeah. It will be on for March 1st with the

MR. MARKOWITZ:

examiner motion, is that it? THE COURT: Yeah. Is that what you're saying?

MR. MARKOWITZ: THE COURT:

Yes, it will be on that same day. Okay; but as far as the bid

MR. MARKOWITZ:

procedures, are we going to -THE COURT: Well, I -- there's an issue --

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MR. MARKOWITZ: THE COURT:

-- approve some sort of --

-- on the timing that I think would be I mean the

worthwhile getting a little more due diligence on.

alternative would be to say we'll be at least ninety days but that doesn't really help -- it doesn't kick off the process very well because that there's a -MR. MARKOWITZ: THE COURT: Should be a set time.

-- there should be a set time, exactly.

And I think that what should happen frankly, is that you and the lawyers from Pachulski Stang should sit down and talk to some brokers about, you know -- and, you're right, I'm -- or Mr. Stang was actually right -- brokers sometimes ask for too much time, so you need to test them on that, but -MR. MARKOWITZ: Right. Because -- I mean we are in

Chapter 11, so it's a different timetable than if you just gave it to a broker -THE COURT: Right. -- and said here, two years, go try to

MR. MARKOWITZ:

THE COURT:

Exactly. I mean, so -But I -- so with that caveat. But

MR. MARKOWITZ: THE COURT:

Right.

I think that I'm not satisfied that ninety days is the right time so I'm not willing -- I don't really want to put that in an order that you'd be submitting tomorrow.

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MR. MARKOWITZ:

Okay.

So as far as an order

submitting tomorrow, would we be submitting an order or would we -THE COURT: No. -- say -I'm telling you that I'm approving a

MR. MARKOWITZ: THE COURT: sale process -MR. MARKOWITZ: THE COURT: No.

Um-hum.

-- with Iona Prep as the stalking horse on

the condition that there be a longer period of marketing; there would be at least ninety days. But I want to have it fixed

before I actually enter the order. MR. MARKOWITZ: testimony? THE COURT: Well I'm hoping -Or proffering on that? So you want to hear more evi -- more

MR. MARKOWITZ: THE COURT:

-- I'm hoping you all will agree on it.

After talking to brokers. MR. MARKOWITZ: going to try. THE COURT: If not, you should, you know, you could Yeah, so we're going to try; we're

And then secondly, that the qualified bidder not be limited to all cash. MR. MARKOWITZ: Right; reach on that.

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THE COURT: up fee yet.

And I haven't really addressed the break-

MR. MARKOWITZ: THE COURT:

Oh; I was going to get to that.

It seemed to me that if we're not paying a

broker, and -- I mean, I was kind of, of two minds on the break-up fee, frankly. also. MR. MARKOWITZ: THE COURT: So the two minds are -- or is that -But so maybe we'll leave that open

The two minds are no break-up fee or this

MR. MARKOWITZ: THE COURT:

Right.

And part of it depends upon the overall

cost including what we're going to be paying a broker. MR. MARKOWITZ: THE COURT: fee here is twofold. Right.

I mean the reason I would have a break-up One is, that the normal reasons you have

a break-up fee, but that's less to me significant here, because I think it's not necessary to have Iona Prep be a buyer. Part

of it is because there will be some disruption to Iona Prep in showing the place to everyone else; or letting the premises be shown and you know, frankly, I want that to happen in a very cooperative way. MR. STANG: Your Honor, I might point out that the

disruption is not to Iona Prep but to Iona Grammar; Iona Grammar's not --

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THE COURT:

I'm sorry -Well that's what he means.

MR. MARKOWITZ: THE COURT: MR. STANG:

Iona -- I'm talking about -Well, no, no, wait a minute. The break-up

fee goes to Iona Prep. THE COURT: MR. STANG: that has the problem. THE COURT: -- how closely related are they? How Well, but aren't they -- I mean -Not to Iona Grammar; Grammar's the one

closely related are they? MR. MARKOWITZ: Your Honor. THE COURT: All right. So maybe that doesn't matter. I Well they're not that closely related,

So I would want to hear a little more about that I guess. basically thought they were hand-in-glove in this. MR. MARKOWITZ: entities Judge. Well, I mean they're different

I mean, we don't think they're insiders, but

that's not what's -THE COURT: No, I'm not talking about insiders; I

wouldn't be doing it at all if they were insiders. MR. MARKOWITZ: THE COURT: Yeah.

I'm talking about the fact that I want the I don't want -So do we.

process to go smoothly. MR. MARKOWITZ: THE COURT:

-- you know, teachers to slam doors on a

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broker, frankly.

You know, that's what I don't want. I don't think that's going to happen

MR. MARKOWITZ: Your Honor. THE COURT: me to police that. MR. MARKOWITZ: THE COURT:

It's easier if there's a break-up fee for

Right.

So --

So with those -- well, with the two issues

partially left open, that I've just identified -- the timing and the break-up fee -- and with the deletion on the cash price and the confirmation that -MR. MARKOWITZ: THE COURT: They're not an approved automatic --

They're not an approved buyer in the sense

that no one shows up, it's definitely going to them -- I would -- I'm telling you all I'm approving the motion. But

those two points, the timing point and the break-up fee point I want to think about a little more. MR. MARKOWITZ: THE COURT: more. MR. MARKOWITZ: THE COURT: If we can't come to an agreement -Would --

And have you all think about a little

Then I'll hear --- on that issue --

MR. MARKOWITZ: THE COURT:

-- then I'll hear you on it. -- obviously you have to -- you're the

MR. MARKOWITZ:

balls and strikes to the baseball analogy --

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THE COURT:

Yeah, I'll hear you on it.

I'll hear you

on it although I don't know if I'm going to need testimony on it. MR. MARKOWITZ: That -- I was going to ask you -- I

was going to say, would you -THE COURT: Look, you're both lawyers, you're officers

of the Court, I could -- you're going to be interviewing these brokers; part of it's your own business judgment and I can hear you without testimony on that. Did you have something to say? MR. VERNI: Your Honor, may I -- John Verni, I'm the

attorney for Iona Prep and also the chairman of their board. Just on the timing issue, there's concern to Iona Prep because the structure of our deal is that there would be mortgage against Iona Prep, there would mortgage against the Iona Grammar School property. If the timing continues on,

there are many parents here that we're concerned will be pulling their boys from the school and that will hurt our ability to -THE COURT: Well, I've said -- I've been very clear

about this, I think the committee's been clear; nothing I'm doing here affects this school year or next school year. 2011-2012 or 2012-2013. Not

And frankly it seems to me that the

only alternative buyer here is someone that's going to take some time to do -- and is not going to get the approvals they

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need -- if a condition to that is closing down a school in midyear; it's just not going to happen. problem in saying that to everyone. MR. VERNI: Our concern is Iona Prep -- and they are So I don't have any

separate corporations -- is that if the enrollment numbers go down at Iona Grammar School because of the -THE COURT: MR. VERNI: THE COURT: Well --- the uncertainty, Judge -I mean, I can't stop that. I mean,

that's -- but I can't be any clearer -MR. VERNI: THE COURT: But that --- to people than I am. They're -- the

school is going to be open for the next -- this year and next year at least. MR. BOWE: Your Honor, Michael Bowe from Kasowitz

Benson, on behalf of Iona Grammar School. Just to that point, Your Honor, it's an enormous reassurance what the creditors said in their papers and what you've basically codified on the record here. But just to be

clear, when counsel said there's no impairment at all, that's not true. The school relies on continued enrollment from both

students coming up the ranks and coming into the ranks laterally -THE COURT: MR. BOWE: Right. -- as well as substantial fundraising from

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the parents.

Now three months obviously is not a problem; I Eight months would be.

don't know if six months is. THE COURT: MR. BOWE: Okay.

But it is an impairment right now.

I know

Your Honor isn't making a final decision on pay --on the period of time, but there is an enormous amount of anxiety at the school. I think Your Honor has belayed much of it, but this is

a business that people don't send their kids to a school for one year -THE COURT: MR. BOWE: Right. -- and they have to make decisions very

early on in the fall about if they're going to send their kid to consider sending their kid somewhere else -THE COURT: months. Well, I mean -- March, April, May is three

And, yeah, no, I envision this process leading up to a

hearing either in the early summer or at the latest in August, is my sense. MR. BOWE: THE COURT: All right. Thank you, Your Honor. Yeah; okay. So we should adjourn the Rakow motion. Okay; we'll adjourn that. And then so

MR. MARKOWITZ: we're on for March 1st? THE COURT:

Yeah. And that's --

MR. MARKOWITZ: THE COURT:

And I hope, you know, this is something

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you should be able to agree on. MR. MARKOWITZ: That's a non-evidentiary hearing too;

it's first time on, their motion to appoint an examiner with limited powers to sell our real estate, is basically what the motion is. THE COURT: All right; I haven't read it. I know. But I assume the first time

MR. MARKOWITZ: on rule under the Rules? THE COURT:

I don't -- I don't know when it was made. Okay.

MR. MARKOWITZ: THE COURT: prepared on it.

I think people should focus on it and be

I don't know what my calendar looks like for

that day, I don't know if I'll have time to have a three-hour evidentiary hearing, I just don't know. MR. MARKOWITZ: MR. STANG: Okay.

Your Honor, we were not anticipating an

evidentiary hearing on the 1st. THE COURT: MR. STANG: Okay; all right. Good. Okay, thank you.

Thank you very much, Your Honor. Thank you.

MR. MARKOWITZ:

(Whereupon these proceedings were concluded at 1:03 PM)

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Date: February 28, 2012 Veritext 200 Old Country Road Suite 580 Mineola, NY 11501 ALSO TRANSCRIBED BY: Devora Kessin, CET**D 636 I, Shalom Boroda, certify that the foregoing transcript is a true and accurate record of the proceedings. C E R T I F I C A T I O N

Shalom Boroda
SHALOM BORODA

Digitally signed by Shalom Boroda DN: cn=Shalom Boroda, o, ou, email=digital1@veritext.com, c=US Date: 2012.02.28 16:27:05 -05'00'

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