SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK

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THE PEOPLE OF THE STATE OF NEW YORK :
by ANDREW M. CUOMO, Attorney General of the :
State of New York, :
:
Plaintiff, :
:
:
- against - :
: Index No. 450879/2009
J. EZRA MERKIN and GABRIEL CAPITAL :
CORPORATION, :
:
Defendants, :
:
- and - :
:
ARIEL FUND LIMITED, ASCOT FUND LIMITED, :
ASCOT PARTNERS, L.P., GABRIEL :
ALTERNATIVE ASSETS LLC, GABRIEL ASSETS:
LLC, and GABRIEL CAPITAL L.P., :
:
Relief Defendants. :
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STIPULATION AND INTERLOCUTORY ORDER OF SALE

WHEREAS, on April 6, 2009, Andrew M. Cuomo, Attorney General of the State of

New York, commenced a lawsuit against J. Ezra Merkin (“Merkin”) and Gabriel Capital

Corporation (“GCC” and collectively, “Defendants”), alleging claims for, inter alia, securities

fraud offenses in violation of the Martin Act (G.B.L. § 352, et seq.), persistent fraud or illegality in

violation of Executive Law § 63(12), and breach of fiduciary duty in violation of Non-Profit

Corporation Law §§ 112 , 717 and 720;

 WHEREAS, the Complaint alleges that: Merkin was the sole shareholder and sole

director of GCC, completely controlled and dominated GCC, commingled his personal funds with

GCC brokerage and bank accounts, and used the GCC accounts for his personal benefit, including

substantial purchases of valuable works of art for his residence;

WHEREAS, in the Complaint, the Attorney General seeks restitution to compensate

investors who were allegedly defrauded by Merkin (“Merkin Investors”) and disgorgement by

Merkin of all property allegedly constituting or derived from proceeds traceable to the commission

of the alleged offenses, including but not limited to valuable works of art owned by Merkin and

Lauren K. Merkin (the “Subject Property”);

WHEREAS, Defendants deny any wrongdoing;

WHEREAS, there is a lien on certain of the Subject Property held by

PaceWildenstein LLC, as agent for Kate Rothko Prizel and Christopher Rothko, in the amount of

$42,000,000;

WHEREAS, there is a lien held by HSBC Bank USA, N.A., in the amount of

$19,301,741.58 on certain of the Subject Property and fourteen lesser works of art, which fourteen

works of art remain subject to the Order of this Court dated April 7, 2009;

WHEREAS, on April 7, 2009, the Honorable Richard B. Lowe III So Ordered a

Stipulation by which the Defendants were enjoined, without the prior permission of the Attorney

General, from removing, transferring or conveying any assets, including any works of art acquired

by or controlled by Merkin;

WHEREAS, Merkin and Lauren K. Merkin have entered into a sales contract to sell

the Subject Property for $310,000,000, subject to the approval of the Attorney General;

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 WHEREAS, a recent appraisal conducted by Christie’s Appraisal, Inc., on behalf of

the Attorney General, indicates the purchase price of the Subject Property to be fair; and

WHEREAS, the Attorney General believes that an interlocutory sale of the Subject

Property is in the best interests of the Merkin Investors insofar as it liquidates and preserves assets

that might be available to satisfy the claims of the Merkin Investors pending conclusion of this

lawsuit; and

WHERERAS, the Attorney General and Merkin have agreed that the net proceeds

of the sale as described below will be held in escrow pending further order of this Court;

NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED that:

1. The Attorney General consents to the interlocutory sale of the Subject Property.

2. Merkin shall not take, or cause to be taken, any action intended to have the effect of

depreciating, damaging, or in any way diminishing the value of the Subject Property.

3. In furtherance of the interlocutory sale, Merkin agrees to promptly execute, or cause

to be executed, any documents which may be required, consistent with this Stipulation and the

Contract (defined below), to complete the interlocutory sale of the Subject Property, including but

not limited to extinguishing any liens upon the Subject Property.

4. The Subject Property shall be sold in an arms-length transaction under terms and

conditions of a written contract (the “Contract”) approved by the Attorney General for the total

sum of $310,000,000.

5. Merkin and Lauren K. Merkin declare that the buyer of the Subject Property is not

associated with, related to, or acting on behalf of Merkin.

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 6. Merkin and Lauren K. Merkin shall seek to cause the closing of the sale of the

Subject Property to be completed on or before July 15, 2009.

7. The buyer shall pay, in accordance with the Contract, the sum of $310,000,000.00

to the order of Withers Bergman LLP (the “Escrow Agent”).

8. The Escrow Agent shall pay, in accordance with the Contract, from said amount the

following sums:

a. $42,000,000 to PaceWildenstein LLC, as agent for Kate Rothko Prizel and

Christopher Rothko, to satisfy a lien on certain of the Subject Property;

b. $19,301,741.58 to HSBC Bank USA, N.A., to satisfy a lien on the Subject

Property and fourteen lesser works of art specifically identified as collateral for

loans made by HSBC, in loan agreements and related UCC filings;

c. $11,000,000 to PaceWildenstein LLC, as its fee for advising the buyer in

connection with the Subject Property;

d. $26,500,000 to TLIA, LLC, as its fee for advising the seller in connection with

the Subject Property;

e. $211,198,258.42 to the order of BNY Mellon, National Association (“BNY or

the “Merkin Escrow Agent”) pursuant to an agreement entered into between

BNY, Merkin and Lauren K. Merkin, to be approved by the Attorney General.

Said sum shall be deposited in an account located in New York State (the

“Merkin Escrow Account”) by the Merkin Escrow Agent and shall thereafter be

restrained and shall be disbursed only in accordance with paragraph 9 hereof or

upon further order of this Court; and

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 f. in the event the payment to HSBC Bank USA, N.A., to satisfy the lien on the

Subject Property, cannot be made until July 1, 2009 or thereafter, a per diem fee

of $1,457.80 may be paid to HSBC for each day after June 30, 2009, in addition

to the payment provided for in paragraph 8b above, for a total of up to $21,867

in per diem fees if the payment to HSBC is made on July 15, 2009. The

payment specified in paragraph 8e above shall be reduced by the total amount of

per diem fees paid to HSBC.

9. The Attorney General and Merkin consent to the Merkin Escrow Agent paying the

sum of $19,263,132.00 to the order of Dechert, LLP, attorneys for Merkin (“Dechert”). Said sum

shall be deposited in an account located in New York State (“Merkin Art Sale Escrow Account”)

to be used solely for the purpose of paying federal, state and local taxes that Merkin believes are

due upon the sale of the Subject Property, as well as other expenses, including legal fees, directly

related to the sale of the Subject Property.

10. Upon a determination made by the applicable tax authorities that Merkin owes

additional taxes as a result of the sale of the Subject Property, and with notice to the Attorney

General, Dechert shall have the right to seek from the Merkin Escrow Agent the funds necessary to

make appropriate payment of Merkin’s tax obligations to the respective tax authorities as required

by law.

11. No later than five business days prior to any payment from funds held in the

Merkin Art Sale Escrow Account, Dechert shall provide to the Attorney General notice of such

proposed payment, identifying the amount, payee, and service provided; and, (a) a sworn statement

(if the payment is not related to legal fees and expenses) or (b) an attorney affirmation (if the

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payment is related to legal fees and expenses), that the payment is made to satisfy an expense

related to the sale of the Subject Property.

12. Any balance remaining in the Merkin Art Sale Escrow Account after payment by

Dechert of Merkin's tax obligations, expenses and legal fees directly related to the sale of the

Subject Property shall be returned by Dechert to the Merkin Escrow Account.

13. Without limiting other rights he may have, Merkin shall have the right to make

application to the Court, on notice to the Attorney General, for funds from the Merkin Escrow

Account necessary to pay his legal fees unrelated to the sale of the Subject Property.

14. Neither the Attorney General, Merkin nor Lauren K. Merkin waives any arguments

or defenses that each may have with respect to the net proceeds realized from the sale of the

Subject Property or any other matter at issue in this action. Nothing herein shall constitute an

admission or prejudice any party in any subsequent litigation, claim, dispute, proceeding or action

with respect to the net proceeds realized from the sale of the Subject Property or any other matter

at issue in this action.

15. The signature pages of this Stipulation and Order may be executed in one or more

counterparts, each of which will be deemed an original but all of which together will constitute one

and the same instrument. Fax copies shall be treated as originals.

16. The Court shall have exclusive jurisdiction over the interpretation and enforcement

of this Stipulation and Order.

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 17. This Stipulation and Order may not be amended except by further Order of the

Court.

ANDREW M. CUOMO
Attorney General of
the State of New York

BY/~~/
navid A. MarkOWitZ

Date: ~ - 3~ -~/

Chief, Investor Protection Bureau

OFFICE OF THE ATTORNEY

GENERAL, STATE OF NEW YORK
Attorneys for Plaintiff
120 Broadway - 23rd Floor
New York, NY 10271
(212) 416-8198

J. EZRA MERKIN and LAUREN K. MERKIN

By: _ Date:
---------
Andrew J. Levander

DECHERTLLP
Attorneys for Defendants and Lauren K. Merkin
1095 Avenue of the Americas
New York, NY 10036
(212) 698-3683

SO ORDERED:

RICHARD B. LOWE III

l.S.C.