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UNITED STATES BANKRUPTCY COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION In re: Morris Brown College, Debtor. : : : : : : Chapter 11 Case No. 12-71188

DECLARATION OF DR. STANLEY PRITCHETT IN SUPPORT OF FIRST DAY MOTIONS I, Dr. Stanley Pritchett, hereby declare under penalty of perjury: 1. I am the President of Morris Brown College, a Georgia non-profit education

corporation, the above-captioned debtor and debtor-in-possession (Debtor). In this capacity, I am generally familiar with Debtors day-to-day operations, organization and financial affairs, and books and records. 2. On the date hereof (the Petition Date), Debtor filed a voluntary petition with the

Court under chapter 11 of title 11 of the United States Code, 11 U.S.C. 101-1532 (the Bankruptcy Code). Debtor is operating its organization and managing its property as a debtor-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No request for an appointment of a trustee or examiner has been made in this chapter 11 case, and no official committee has been appointed or designated. 3. To enable Debtor to minimize the adverse effects of the commencement of this

chapter 11 case on its organization, Debtor has requested various types of relief in its first day motions and applications (each, a First Day Motion and collectively, the First Day Motions). The First Day Motions seek relief intended to allow Debtor to effectively transition into chapter 11 and minimize disruption of its operations, thereby preserving and maximizing the value of

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Debtors estate. I am familiar with the contents of each First Day Motion (including the exhibits and schedules thereto), and I believe that the relief sought in each First Day Motion: (a) is necessary to enable Debtor to operate in chapter 11 with minimal disruption or loss of productivity and value; (b) constitutes a critical element to achieving a successful reorganization of Debtor; and (c) best serves Debtors estate and creditors interests. 4. Except as otherwise indicated, all facts set forth herein are based upon my

personal knowledge of Debtors operations and finances, information learned from my review of relevant documents, and information supplied to me by other members of Debtors management and Debtors advisors. I am authorized to submit this Declaration on behalf of Debtor, and, if called upon to testify, I could and would testify competently to the facts set forth herein. 5. Part I of this Declaration describes Debtors operations, its capital and corporate

structure and the circumstances surrounding the commencement of this chapter 11 case. Part II sets forth the relevant facts in support of each of the First Day Motions.1 BACKGROUND (a) Debtors Organization 1. 2. Morris Brown College has a remarkable tenacity and a rich history. On October 15, 1881, just twenty years after Abraham Lincoln signed the

Emancipation Proclamation, 107 students and nine teachers walked into a crude wooden structure at the corner of Boulevard and Houston Streets in Atlanta, Georgia, marking the opening of the first educational institution in Georgia under sole African-American patronage. That institution was Morris Brown College.

Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the relevant First Day Motion.

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3.

In May of 1881, the State of Georgia granted a charter to Morris Brown College,

an institution for the moral, spiritual and intellectual growth of Negro boys and girls. In its early days, Morris Brown College, with the support of the African Methodist Episcopal Church (the AME Church), developed programs to serve the needs of students from low socioeconomic backgrounds. 4. The uniqueness of Morris Brown College is, perhaps, its institutional flexibility,

based on the assumption that a college can serve the needs of all students with the desire and potential to earn a college degree. Its campus is conducive to well-balanced teaching methods geared toward the preparation, motivation and achievement of all students inspiring average and better-than-average students to achieve their potential and also transforming traditionally high risk students into successful, capable individuals. 5. Morris Brown College has survived two World Wars, the Great Depression,

segregation and the conflicts in Korea and Vietnam. 6. Despite its best efforts to provide an affordable and balanced education to a well-

deserved student body for much more than 100 years, after over seven decades of continued accreditation from the Commission on Colleges of the Southern Association of Colleges and Schools (SACS), Morris Brown College was denied accreditation membership in December of 2002 largely due to its former management teams efforts to meet the Colleges financial obligations, which ultimately resulted in financial mismanagement. 7. Without its accreditation, Morris Brown College does not qualify for federal

funding and, thus, its student body is ineligible for federal financial aid, resulting in a drastic reduction in the Colleges enrollment, cash flow and programmatic offerings.

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8.

In 2004, with funding from various foundations and businesses, Morris Brown

College engaged the services of a consultant to provide a programmatic review toward the creation of a strategic plan that would return Morris Brown to financial stability. This strategic plan was conceptualized in 2005 and, through dialog with the Colleges faculty and staff, was drafted in 2006. The strategic plan has been revised over time and, on November 11, 2008, the Board of Trustees of Morris Brown College authorized the extension of the strategic plan through 2012, with the intention that a comprehensive strategic plan will be developed by the Boards Strategic Planning Committee that will extend from 2012 through 2020. The strategic plan focuses on bringing the College into financial health and organizational growth for the benefit of its students and the community. 9. Over the past year, Morris Brown College has engaged in significant and

extensive discussions with Transnational Association of Christian Colleges and Schools (TRACS) in an effort to obtain accreditation and has met the vast majority of the requirements for that accreditation. Most importantly, prior to obtaining accreditation, Morris Brown College must demonstrate its financial stability. Accordingly, through its discussions with TRACS and negotiations with various large creditors, Morris Brown College has been able to successfully resolve a significant amount of its outstanding debts. 10. Unfortunately, Morris Brown College has not yet achieved financial stability and

has determined that reorganizing its affairs in Chapter 11 is the most efficient and expeditious manner in which to resolve its remaining financial issues. 11. Morris Brown College anticipates that upon reorganization of its financial

condition, it could achieve candidacy leading to full accreditation through TRACS within six to twelve months of its emergence from Chapter 11 (reaching candidacy entitles students to receive

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federal financial aid). 12. The most daunting challenges faced by Morris Brown College at this time are: its

excessive long-term bond debt that needs to be restructured or otherwise resolved; its lack of federal financial aid for student support and, in turn, increased revenues to the College; and its need to establish a sound investment program to encourage philanthropic giving and charitable donations from its supporters to sustain the College into the future. 13. Simultaneously with initiating the process to reorganize its operations in Chapter

11, the Board of Trustees of Morris Brown College has established two committees. The Resources Development Committee will engage in significant fundraising to obtain the funds necessary to support the College through its reorganization and to establish a long-term investment fund from which Morris Brown College may draw its financial support for future operations. The Institutional Advancement Committee will review and revise Morris Brown Colleges academic program and staffing to ensure that the College meets the ever-evolving educational needs of its students and the community so that the student body of Morris Brown College is best prepared to succeed in the global economy. (b) Debtors Management and Capital Structure 15. I, Dr. Stanley Pritchett, am the current President of Morris Brown College. I also

serve as a Trustee on the Board of Morris Brown College. Mr. Lucius Williams serves as the Chief Financial Officer of Morris Brown College and Mr. Robert Johnson serves as its Chief of Staff. 16. Morris Brown College is governed by a Board of Trustees. Currently, Preston

Warren Williams II serves as Chairman of the Board. The balance of the Board is comprised of 13 individuals who include business and community leaders, College faculty and alumni.

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17.

Like all other non-profit educational organizations, Morris Brown College relies

on a combination of earned and contributed income. In a typical year, about 85% of its total gross income is derived from earned income (largely, alumni gifts and donations that have been supplemented by federal financial aid prior to the Colleges loss of accreditation) and 13% comes from student tuition. 18. In an average year, about 25% of the Colleges total expenses directly relate to The remainder of the Colleges

staff and faculty expense, including salary and benefits.

operating budget covers all other operating expenses, including utilities, technology and maintenance. 19. The Colleges campus is divided into separate lots, which are encumbered by a

variety of interests. 20. Most importantly, a large portion of Morris Brown Colleges main campus and

several of its facilities are located on real estate that was granted to Morris Brown College by Clark-Atlanta University. Morris Brown College is entitled to retain this real estate so long as Morris Brown College remains in operation. Should Morris Brown College cease operating, it is likely that a large portion of its campus would revert to Clark-Atlanta University pursuant to the terms of the grant documents. 21. In addition to the portion of the campus that is encumbered by the reversionary

interest held by Clark-Atlanta University, several of the campus lots (including some of those that are subject to the reversionary interest) are encumbered by long-term bond debt totaling approximately $13 million. Presently, the bond holder is proceeding with litigation against Morris Brown College and is attempting to foreclose its interest in these lots.

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22.

The AME Church also holds a secured position with respect to certain portions of

Morris Brown Colleges campus. 23. In addition to the secured indebtedness owed by Morris Brown College, the

Colleges largest liabilities relate to employee salary and accrued benefits obligations. Prior to initiating this Chapter 11 Case, Morris Brown College was unable to meet its ongoing payroll obligations with its staff and faculty. As a result of their dedication to the student body and to the mission of the College and their selfless generosity, the staff and faculty of Morris Brown College have generously agreed to continue providing service to the College upon the promise by the College that they will eventually receive full compensation once sufficient funding is received. It is my intention as well as the intention of the entire Board of Trustees that we will successfully campaign and raise sufficient funding to pay the staff and faculty for their prior service and Morris Brown College will make all salary and benefit payments from the Petition Date forward, as they accrue. 24. Over the past several years, as Morris Brown Colleges financial problems

became increasingly evident, it responded in the short term by liquidating unnecessary assets and reducing operating expenses through the reduction in personnel, and initiating discussions with creditors, which has resulted in the elimination of approximately $14 million in outstanding debt over the past year. 25. Upon the initiation of this Chapter 11 Case, Morris Brown College, its Board of

Trustees and its newly established committees will open discussions with major potential donors in an attempt to raise the funds necessary to continue operations and implement the strategic plan toward financial stability and accreditation. The Board of Trustees recent conversations with key potential donors and community members indicate that, while they hold the College in high

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esteem, any gift for current operations or to support a turnaround would most likely be contingent on presenting a credible, cost-appropriate recovery plan that fosters long-term financial stability. (c) Desired outcome for Chapter 11 process 26. Due to Debtors lack of liquidity, bond obligations and the other issues set forth

above, Debtor has made the difficult decision to reorganize under Chapter 11. Debtor believes that this is the path that will best allow it to secure the future of Morris Brown College and ensure that it continues to serve the community for many more years to come. 27. To that end, Debtor seeks in the Chapter 11 process to achieve the following

outcomes: (1) relief from and resolution of outstanding bond and other significant creditor obligations, (2) financial stability sufficient to meet the requirements of TRACS and obtain accreditation, and (3) a court-approved plan with these elements that will attract donor support. First Day Motions Applications of Debtor Pursuant to Section 327(a) of the Bankruptcy Code for Authority to Employ Dilworth Paxson LLP as Counsel for Debtor (the Dilworth Retention Application) and The Moore Law Group, LLC as Local Counsel for Debtor (the Moore Retention Application) and BDO USA, LLP as Auditors for Debtor (the BDO Retention Application) 1. By the Dilworth Retention Application, Debtor seeks to retain Dilworth Paxson

LLP (Dilworth) as counsel pursuant to section 327(a) of the Bankruptcy Code as its lead attorneys because Dilworth has extensive experience and knowledge in the field of debtors and creditors rights and business reorganizations under chapter 11 of the Bankruptcy Code, including non-profit business reorganizations under chapter 11.

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2.

In preparing for its representation of Debtor in this case, Dilworth has become

familiar with Debtors organization and affairs and many of the potential legal issues which may arise in the context of this Chapter 11 Case. Dilworth has been providing services and legal advice to address Debtors legal issues, including participation in negotiations with various creditors, for several months prior to the Petition Date. 3. Debtor believes that the employment of Dilworth is appropriate and necessary to

enable Debtor to faithfully execute its duties as debtor and debtor-in-possession, and to implement the restructuring and reorganization of Debtor. Accordingly, it believes that Dilworth is both well-qualified and uniquely able to represent Debtor in the Chapter 11 Case in an efficient and timely manner. 4. By the Moore Retention Application, Debtor seeks to retain The Moore Law

Group, LLC (Moore) as local counsel pursuant to section 327(a) of the Bankruptcy Code. Moore has extensive experience and knowledge in the field of debtors and creditors rights and business reorganizations under chapter 11 of the Bankruptcy Code, particularly in the Atlanta region. 5. In preparing for its representation of Debtor in this case, Moore has become

generally familiar with Debtors organization and affairs and many of the potential legal issues which may arise in the context of this Chapter 11 Case. 6. Debtor believes that the employment of Moore is appropriate and necessary to

enable Debtor to faithfully execute its duties as debtor and debtor-in-possession, and to implement the restructuring and reorganization of Debtor. Accordingly, it believes that Moore is well-qualified and able to represent Debtor in the Chapter 11 Case in an efficient and timely manner.

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7.

By the BDO Retention Application, Debtor seeks to retain BDO USA, LLP

(BDO) as auditors pursuant to section 327(a) of the Bankruptcy Code. BDO has extensive experience and knowledge of Debtors finances, debts and receivables. By virtue of its prior experience, BDO has developed relevant knowledge about Debtors finances and its historical operations. 8. Debtor believes that the employment of BDO is appropriate and necessary to

enable Debtor to faithfully execute its duties as debtor and debtor-in-possession, and to implement the restructuring and reorganization of Debtor. Accordingly, it believes that BDO is both well-qualified and uniquely able to provide audit and related services to Debtor in the Chapter 11 Case in an efficient and timely manner. Motion of Debtor for Entry of an Order Authorizing Debtor to Continue Insurance Coverage Entered into Pre-Petition and Honor Obligations Related Thereto (the Insurance Motion) 1. In connection with the operation of Debtors organization and the management of

its operations, Debtor maintains numerous insurance policies, providing coverage for, among other things, general liability, property damage, workers compensation, and director and officer liability (collectively, the Insurance Policies). 2. By the Insurance Motion, Debtor requests authority to continue the Insurance

Policies uninterrupted and pay any pre- or post-petition amounts related to the Insurance Policies to the extent that Debtor determines, in its discretion, that payment is necessary or appropriate. Motion of Debtor for Entry of Interim and Final Orders Determining Adequate Assurance of Payment for Future Utility Services (the Utility Motion) 1. In connection with the operation of its organization, Debtor obtains telephone, IT

data protection, internet and other similar utility services provided by a number of utility companies (the Utility Providers). The Utility Providers service Debtors facilities in Atlanta,

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Georgia. Preserving utility services on an uninterrupted basis is essential to Debtors ongoing operations and, therefore, to the success of its reorganization. Indeed, any interruption of utility services, even for a brief period of time, would disrupt Debtors ability to provide classroom instruction and dormitory services to its student body, thereby negatively impacting Debtors ability to operate and retain its facilities. Such a result could seriously jeopardize Debtors reorganization efforts and, ultimately, its operations and creditor recoveries. It is, therefore, critical that utility services continue uninterrupted during this Chapter 11 Case. 2. By the Utility Motion, Debtor seeks the entry of interim and final orders:

(a) determining that its Utility Providers have been provided with adequate assurance of payment within the meaning of section 366 of the Bankruptcy Code; (b) approving Debtors proposed offer of adequate assurance and procedures whereby the Utility Providers may request additional or different adequate assurance; (c) prohibiting the Utility Providers from altering, refusing, or discontinuing services on account of prepetition amounts outstanding and on account of any perceived inadequacy of Debtors proposed adequate assurance; (d) establishing procedures for the Utility Providers to object to Debtors proposed adequate assurance procedures; and (e) determining that Debtor is not required to provide any additional adequate assurance, beyond what is proposed by this Motion. Motion of Debtor for Entry of an Order Authorizing Debtor to Maintain and Administer Student Programs and Honor Certain Pre-Petition Obligations Related Thereto (the Student Programs Motion) 1. To assist its student body with payment for tuition and other services provided by

Debtor, Debtor regularly accepts partial payments and deposits and offers students various financial aid and financial accommodations (the Student Programs). By the Student Programs Motion, Debtor seeks to maintain and honor all of its existing Student Programs to ensure that its continuing and incoming student body is able to attend Debtors educational programs. Debtor
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believes its Student Programs have been successful organizational strategies that play a critical role in attracting potential students and providing students with a more affordable means to obtain higher education, without which many of Debtors students would be unable to obtain higher education. 2. By the Student Programs Motion, Debtor seeks entry of an order authorizing it, in

its sole discretion, to (a) honor certain outstanding obligations (including, without limitation, discounts and special payment arrangements) awarded to their continuing and incoming students, and (b) honor certain deposits and payments made by their current an incoming students toward the payment for educational programs provided by Debtor Additionally, Debtor seeks authority to maintain and administer its Student Programs in the ordinary course of business and in a manner consistent with past practice. Motion of Debtor for an Order (A) Authorizing The Debtor To Pay Certain Pre-Petition Employee Wages And Benefits, (B) Confirming that Debtor May Continue Pre-petition Employee Benefits Programs in the Ordinary Course of Business; and (C) Directing Banks and Other Financial Institutions to Honor all Related Checks and Electronic Payment Requests (the Wage Motion) 1. To minimize the personal hardship that the Employees would suffer if pre-petition

Employee-related payroll and benefits are not maintained as expected, and to maintain morale and stability in Debtors workforce during this critical time, by the Wage Motion, Debtor seeks authority to honor, in its sole discretion, certain pre-petition claims for, among other items: wages, federal and state withholding taxes and other amounts withheld (including garnishments and advances), insurance benefits, workers compensation benefits, vacation time, sick leave, disability coverage, holidays and other benefits that Debtor had historically provided in the ordinary course of business and to pay all costs incident to the foregoing.2

Unfortunately, due to severe financial constraints, Debtor has not satisfied its pre-petition obligation to pay certain wages, salaries, commissions, bonuses and other compensation or expense reimbursement to its employees.

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2.

Additionally, Debtor requests confirmation that Debtor may, in its sole discretion,

continue its pre-petition employee benefits programs in the ordinary course of business. In an abundance of caution, Debtor requests the right to modify, change, and discontinue any of its employee compensation programs, policies and benefits, and to implement new programs, policies and benefits in the ordinary course of business during this Chapter 11 Case in its sole discretion without the need for further Court approval. Motion of Debtor for Entry of an Order Authorizing Debtor to (I) Continue Cash Management System and (II) Maintain Existing Bank Accounts and Business Forms (the Cash Management Motion) 1. Debtor seeks entry of an order: (a) authorizing Debtor to (i) continue its Cash

Management System and (ii) maintain its existing Bank Accounts and Business Forms. Debtor also requests that the Court authorize Debtors banks to continue to maintain, service and administer the Bank Accounts. Debtor requests the Court authorize the banks to debit the Bank Accounts in the ordinary course of business on account of: (a) all checks drawn on the Bank Accounts and which are cashed at the banks counters or exchanged for cashiers checks by the payees thereof prior to the Petition Date; (b) all checks or other items deposited in one of Debtors accounts with the banks prior to the Petition Date which have been dishonored or returned unpaid for any reason, together with any fees and costs in connection therewith, to the same extent that Debtor was responsible for such items prior to the Petition Date; and (c) all undisputed pre-petition amounts outstanding as of the date hereof, if any, owed to the banks as service charges for the maintenance of the Cash Management System.

Debtors employees have been extremely generous in their general agreement to continue performing services upon Debtors promise to make them whole through future fundraising and operational revenues. Debtor intends to pay all wages, salaries, commissions, bonuses and other compensation and expense reimbursement obligations to its employees as they accrue post-petition and is presently seeking donations and other gifts from its Board of Trustees and from others to satisfy all of its outstanding obligations owed to its employees as of the Petition Date.

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2.

The use of the Cash Management System is essential to enable Debtor to centrally

control and monitor organizational funds, ensure cash availability and liquidity, reduce administrative expenses by facilitating the movement of funds and enhance the development of accurate account balance and presentment information. These controls are crucial given the significant volume of cash transactions managed through the Cash Management System. Dated: August 25, 2012 By: /s/ Dr. Stanley Pritchett Dr. Stanley Pritchett President of Morris Brown College

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