Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 1 of 6

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1 Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 1 of 6 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA In re: KidsPeace Corporation, et. al., 1 Debtors. Chapter 11 Case No (REF) Jointly Administered MOTION OF THE DEBTORS FOR ENTRY OF AN ORDER AUTHORIZING THE DEBTORS TO ASSUME A LEASE AND A SERVICES AGREEMENT WITH THE ISD 712 MOUNTAIN IRON-BUHL SCHOOLS PURSUANT TO 11 U.S.C. 365(a) The above-captioned debtors and debtors-in-possession (collectively, the Debtors ), by and through their undersigned attorneys, hereby file this motion (the Motion ) for the entry of an order authorizing KidsPeace Mesabi Academy, Inc. ( KP Mesabi ) to assume a real property lease and a services agreement with ISD 712 Mountain Iron-Buhl Schools ( ISD 712 ) pursuant to 11 U.S.C. 365(a). In support of this Motion, the Debtors respectfully state as follows: JURISDICTION 1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and This matter is a core proceeding within the meaning of 28 U.S.C. 157(b)(2). 2. Venue is proper pursuant to 28 U.S.C and The statutory basis for the relief requested herein is 11 U.S.C. 365(d)(4). 1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: KidsPeace Corporation (3394); KidsPeace Children s Hospital, Inc. (4910); KidsPeace Mesabi Academy, Inc. (4179); KidsPeace National Centers, Inc. (4908); KidsPeace National Centers of Georgia, Inc. (7440); KidsPeace National Centers of New England, Inc. (1326); KidsPeace National Centers of North America, Inc. (4765); Iron Range School, Inc. (0561); and KidsPeace National Centers of New York, Inc. (1888). The Debtors address is 5300 KidsPeace Drive, Orefield, Pennsylvania

2 Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 2 of 6 BACKGROUND 4. On May 21, 2013 (the "Petition Date"), each of the Debtors filed a voluntary petition for relief under chapter 11 the Bankruptcy Code. The Debtors are operating their businesses and managing their property as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request for the appointment of a trustee or examiner has been made in these chapter 11 cases (the Chapter 11 Cases ). 5. On May 30, 2013, the United States Trustee for the Eastern District of Pennsylvania appointed an Official Committee of Unsecured Creditors (the Committee ) pursuant to Section 1102(a)(1) of the Bankruptcy Code. Thereafter, the Committee selected Lowenstein Sandler LLP as its proposed counsel. 6. KidsPeace Corporation ( KP Corp. ), which is located in Orefield, Pennsylvania, is a nonprofit corporation organized under the laws of the Commonwealth of Pennsylvania. KP Corp., through its subsidiary corporations, (i) operates a unique 96-bed psychiatric hospital, the KidsPeace Children s Hospital, which provides acute behavioral healthcare to children ages 4 to 18 and young adults ages 18 to 21 from Pennsylvania and other states; (ii) provides a comprehensive range of residential treatment programs, regular and special education services, and a variety of foster care and community-based treatment programs to help children, adolescents and young adults overcome challenges and transform their lives; and (iii) provides mental, emotional and physical healthcare and education services in an atmosphere of teamwork, compassion and creativity. 7. The purpose of the Chapter 11 Cases was to enable the Debtors to restructure their top level debt with the bondholders 2, who held claims of approximately $56,206,821 (the Bond 2 The bondholder s interests have been represented by UMB Bank, N.A. (the Bond Trustee )

3 Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 3 of 6 Debt ), discussed further infra, and to effectuate a restructuring of debt in the approximate amount of $100,000,000 asserted by the Pension Benefit Guaranty Corporation ( PBGC ) as a result of, inter alia, the pre-petition termination of the Debtors defined benefit pension plan. 8. On December 18, 2013, the Debtors, except for KPGA, filed their Joint Chapter 11 Plan of Reorganization (the Plan ). On February 4, 2014, the Debtors, except for KPGA, filed their Joint First Modified Chapter 11 Plan of Reorganization (as may be amended, supplemented, and/or modified from time to time, the First Modified Plan ). 9. On April 3, 2014, after notice and a hearing, the Court entered an Order confirming the First Modified Plan. The Real Property Lease 10. On July 1, 2012, KP Mesabi and ISD 712 entered into an agreement for the provision of education services to children court ordered to KP Mesabi (the Agreement ). A copy of the Agreement is annexed hereto as Exhibit A. The education services under the Agreement are provided by ISD ISD 712 leases space at KP Mesabi s facility at 200 Wanless Street, Buhl, Minnesota (the Lease ) for the purposes of providing the aforementioned educational services. A copy of the Lease is annexed hereto as Exhibit B. 12. The Debtors have analyzed the Agreement and Lease and have determined that the assumption of both the Agreement and the Lease is beneficial to the Debtors estates. RELIEF REQUESTED 13. The Debtors submit that cause exists pursuant to 11 U.S.C. 365 for the entry of an Order authorizing the Debtors to assume the Agreement and the Lease. 14. Pursuant to Section 365, a debtor-in-possession, subject to the court s approval, may assume or reject any executory contract or unexpired lease. 11 U.S.C. 365(a)

4 Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 4 of The purpose of granting a debtor-in-possession this authority is to allow the debtor-in-possession to pick and choose among the debtor s executory contracts and unexpired leases, and to assume those which benefit the estate and reject those which do not. In re Plitt Amusement Co. of Washington, Inc., 233 B.R. 837, 840 (Bankr.C.D.Cal. 1999); see also, Data- Link Systems, Inc. v. Whitcomb & Keller Mortg. Co., Inc. (In re Whitcomb & Keller Mortg. Co, Inc.), 715 F.2d 375, 379 (7th Cir. 1983) ( [S]uccessful reorganization under Chapter 11 depends on relieving the debtor of burdensome contracts and pre-petition debts so that additional cash flow thus freed is used to meet current operating expenses. )(citation omitted). 16. Courts accord the debtor-in-possession s business judgment a great amount of deference as the decision to assume or reject an executory contract or unexpired lease is an administrative not a judicial matter. Wheeling, 72 B.R. at 849. As explained by the Court in In re Summit Land Co., 13 B.R. 310 (Bankr.D.Utah 1981): [C]ourt approval under 365(a), if required, except in extraordinary situations should be granted as a matter of course. To begin, this rule places responsibility for administering the estate with the trustee [or debtor in possession], not the court, and therefore furthers the policy of judicial independence considered vital by the authors of the Code. Second, this rule expedites the administration of estates, another goal of the Bankruptcy Reform Act. Third, the rule encourages rehabilitation by permitting the replacement of marginal with profitable business arrangements. Summit, 13 B.R. at 315. Unless it can be established that a trustee s decision was one taken in bad faith or in gross abuse of its retained business judgment, the court should approve a debtorin-possession s assumption or rejection determination. See, e.g. In re Trans World Airlines, Inc., 261 B.R. 103 (Bankr.D.Del. 2001); Wheeling, 72 B.R. at As set forth supra, the Debtors have determined that proceeding with the Agreement and the Lease is in the best interest of the Debtors and their estates

5 Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 5 of Pursuant to the Agreement, KP Mesabi is reimbursed for its costs and expenses related to its participation in the educational services provided by ISD 712. In addition, KP Mesabi has and continues to receive compensation from ISD 712 under the Lease. 19. The Debtors assert that there is no cure associated with the Agreement and/or Lease. 20. The Debtors respectfully submit that the determination to assume the Agreement and the Lease is the result of the Debtors exercise of sound business judgment. 21. For the reasons as set forth above, the Debtors respectfully requests that the Court approve and authorize the assumption of both the Agreement and the Lease. NOTICE 22. The Debtors have provided notice of this Motion to: (a) the Office of the United States Trustee for the Eastern District of Pennsylvania; (b) the Office of the United States Attorney for the Eastern District of Pennsylvania; (c) the Office of the Attorney General for the Commonwealth of Pennsylvania; (d) the Commonwealth of Pennsylvania Department of Labor and Industry; (e) the Commonwealth of Pennsylvania Department of Revenue; (f) Lowenstein Sandler, LLP, Attn: Normal N. Kinel, Esq., counsel for the Official Committee of Unsecured Creditors; (g) counsel to UMB Bank Indenture Trustee for the Lehigh County General Purpose Authority Revenue Bonds, Series of 1998 and Series 1999 (KidsPeace Corporation); (h) the Internal Revenue Service; (i) Manufacturers and Traders Trust Co., Trustee for the 2003 Series A and Series B Georgia Bonds; (j) U.S. Department of Agriculture; (k) National Penn Bank; (l) M&T Bank; (m) the Pension Benefit Guaranty Corporation; (n) Healthcare Finance Group, LLC; (o) ISD 712 Mountain Iron-Buhl Schools; and (p) all other persons and entities that have requested notice pursuant to Fed. R. Bankr. P In light of the nature of the relief requested, the Debtors respectfully submit that no further notice is necessary

6 Case ref Doc 1313 Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Main Document Page 6 of 6 court. NO PRIOR REQUEST 23. No prior motion for the relief request herein has been made to this or any other WHEREFORE, the Debtors respectfully request that the Court enter an order, substantially in the form attached hereto, and grant such other and further relief as is just and proper. NORRIS, McLAUGHLIN & MARCUS, PA The Paragon Centre 1611 Pond Road, Suite 300 Allentown, PA jrzapata@nmmlaw.com Counsel to the Debtors and Debtors-In- Possession Dated: July 2, 2014 By:/s/ Joseph R. Zapata, Jr. Joseph R. Zapata, Jr., Esq

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28 Case ref Doc Filed 07/02/14 Entered 07/02/14 14:48:50 Desc Proposed Order Page 1 of 1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA In re: KidsPeace Corporation, et. al., Debtors. Chapter 11 Case No (REF) Jointly Administered ORDER AUTHORIZING THE DEBTORS TO ASSUME A LEASE AND A SERVICES AGREEMENT WITH ISD 712 MOUNTAIN IRON-BUHL SCHOOLS PURSUANT TO 11 U.S.C. 365(a) Upon the motion of the above-captioned debtors and debtors in possession (collectively, the "Debtors"), for an order authorizing the Debtors to assume a lease and a services agreement with ISD 712 Mountain Iron-Buhl Schools pursuant to 11 U.S.C. 365(a) (the Motion ) 1 ; and it appearing that the relief requested is in the best interest of the Debtors estates, their creditors and other parties in interest; and it appearing that proper and adequate notice has been given and that no further notice is necessary; and upon the record herein; and good and sufficient cause appearing therefor, it is hereby ORDERED that: 1. The Debtors Motion is granted as set forth herein. 2. The Debtors be, and are hereby, authorized to assume the Lease and the Agreement with ISD 712 Mountain Iron-Buhl Schools. 3. This Court retains jurisdiction with respect to all matters arising from or related to the implementation of this Interim Order. Dated:, 2014 Reading, Pennsylvania BY THE COURT RICHARD E. FEHLING UNITED STATES BANKRUPTCY JUDGE 1 Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Motion