Free Appendix - District Court of Delaware - Delaware

Case 1:04-cv-01565-SLR

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IN TH UN STATES BANUPCY COURT
FOR TH DISTRCT OF DELAWAR
IN RE:
) ) ) ) )
Chapter 11

CORA HEALTHCAR CORP., and CORA, INC.,
Debtors.

Cas No. 003299 (M
and Case No. 003300 (M
Jointly Administered
Related to Doket Nos. 962
Beag Date: November 5, 2001 (j 9:30 a.m.
Objecion Deadle: October 19, 2001

)
) )

EQUITY COMMITTEE OBJECTIONS TO DEBTORS' SECOND JOINT PLAN OF REORGANIZATION

The Official Committee of Equity Security Holders of Coram Healthcare Corp. (the
"Equity Committee"), by its attorneys, objects to the confiration of the Second Joint Plan of
Reorganization proposed by debtors Coram Healthcare Corp. and Coram, Inc. (collectively

"Coram" or "Debtors") on August 1,2001 (the "Second Plan").

OBJECTION - LACK OF GOOD FAITH

Debtors' Secnd Pla Ha Not Ben Propoed In God Faith And The Pia Proponents Have Not Acted In God Faith.
Accordigly, The Send Pia Fai To Comply With The
Requiements Of Seon 1129(A)

Confed.

(3) And Canot Be

1. Debtors failed to confir their First Plan! because Dan Crowley's loyalties as a

director and CEO of Coram were divided and conflcted by his miion dollar per year

"First Plan" refers to the Restated Joint Plan of Reorganization fied in August, 2000. "Second Plan" refers to the Second Joint Plan of Reorganization fied in August, 2001.

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employment contract with Cerberus, a Noteholder, and its principal, Stephen Feinberg. As a
result, ths Court could not find the requisite good faith. Finding that such relationship was

"an actual conflct" that "tainted" Crowley and perhaps Cerberus, ths Court concluded "I just
do not want my name confrming a plan where this type of activity occurred for a year before
the plan was proposed for confiration." (12/21/00 Tr. 89)

2. Now, almost a year later, Debtors seek to confir their Second Plan even
though the same activity that caused rejection of the First Plan goes on: Cerberus and

Feinberg continue to pay Crowley $80,000 every month under the same employment contract

that caused this court to find "an actual confict" that "tainted Crowley and perhaps Cerberus
and the debtor itself." (12/21/00 Tr. 88)

3. The forced disclosure of the confict, which came only after the Equity
Committee objected successfully to the First Plan, has not cured anything because Coram's
Directors did nothg about the conflct. The central and most critical fact in these proceedings
is that the management and operations of Coram, the generation of cash flows and the entire
process that led to the proposal of the Second Plan have been essentially controlled by the
Noteholders though Crowley, and not by an independent board discharging its fiduciary duty
to shareholders. And so whatever was wrong on August 8, 2000, and December 21,2000, has

continued to be wrong for the past year and is wrong now.

The Attempt to Stea the Equity Contiues

4. What is wrong now is that Crowley continues to serve two masters whose
interests are not aligned. The economic interests of the Noteholders2 wil best be served if

The Noteholders, in addition to Cerberus, are Goldman Sachs and Foothil.

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Coram generates sufficient cash flows to pay the Noteholders - and no more. Then, if the

Second Plan is confrmed, the Noteholders wil own the Company, and Crowley can run it up
to its full potentiaL. The stockholders' interests, of course, are quite different: They want the

Company to ru to its full potential now, so that their interests can be fairly valued and not
delivered to the Noteholders, whose nomiee, Cerberus, continues to pay Coram's CEO,

Crowley, a millon dollars a year, to be Cerberus' "full time" employee.
5. Last December, this Cour said that it could not confir Debtors' First Plan:
". . . because of the process being tainted by this relationship

which began in November of 1999, and perhaps in August of 1999, has so tainted the debtors' restructurig of its debt, the
debtors' negotiations towards a plan, even the debtors'

restructuing of its operations." (12/21/00 Tr. 88)
We now know that the relationship described by the Court has continued to ths day. Debtors

argue that the taint and damage caused by the conficted relationship to Coram's restructuring

and operations and the negotiation of a plan, has been removed during the last year. The
evidence wil show that it has not been removed, but, on the contrar, the actions of the

Directors, and of Crowley and Feinberg, represent at best, conscious indifference to the
dictates of this Court, and at worst, a deliberate bad faith attempt to allow Crowley to continue

to operate Coram, unchecked, for his own benefit and for the benefit of his employer,
Cerberus, and the other Noteholders.
6. In short, the Directors, Crowley and the Noteholders are askig this Cour to
put its name on a plan where ths tye of activity has continued unabated for two years.

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7. To do ths, Debtors invoke the conclusions of a "special commttee" of

"independent directors,,,3 which claims to have proposed the Second Plan only after
investigating the effect of the admitted conflct on Coram. That is what they say, but the

evidence wil show that these Outside Directors completely abdicated (i) their responsibility to
oversee the operations and strategy of the Company to Crowley, and (ii) their responsibility to
investigate, understand and deal with a profound conflct to Goldin.

The Members of the Speia Commtt of Diecors
Abdicated Their Responsbilties and Did Not

Dihage Their Fiducia Duties of Care.
8. Shortly after December 21, 2000, the Coram Directors learned that ths Court

had (i) refused to confirm the First Plan because of the actual confict of interest, and
(ii) expressed a view that Crowley's "intent to hide the relationship" with Cerberus "did, in

fact, taint his abilty to serve as CEO of the debtor." (12/21/00 Tr. 89). Yet, for six months
or more after learng ths, the Outside Directors ignored the confict, did not increase their

oversight on Crowley, took no action to enforce their own Corporate Compliance Stadard 011
Conflcts of Interest that Crowley had clearly violated, did not know, until the Equity

Commttee told them during their depositions less than one month ago, that the confict was

continuing, didn't care -- and certiny never even approached the level of due care that is
required of directors of a Delaware corporation in confict situations such as ths. The only
action taen by the Directors in response to this Cour's findings, was to hie Goldin, whose

The "independent directors", who we refer to as "Outside Directors," are L. Peter Smith, Wiliam
Casey, Sandra Smoley and Don AmaraL. Coram's fifth director is Dan Crowley.

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advice on what action they should take in the face of ths confict was not available until six
months later.
9. Recent sworn deposition testimony4 shows that the Outside Directors asked no

questions concerng the effect of the confict on Crowley's abilty to continue to serve as CEO

of Coram, did not have or consider getting an outside advisor to provide oversight to protect

the Company during ths period against possible adverse effects of the confict, never asked
Feinberg or Cerberus why the payments were being made, never asked Crowley whether he

intended to hide the relationship, never asked Crowley to termate his relationship with

Cerberus, waited about five months before even raising the issue with Crowley and never
considered whether Coram would have done better if the conflict had not existed.
10. This six months of allowing Crowley to operate the Company and make

strategic decisions with minal or no oversight, was a critical par of the process that resulted
in the Second Plan. Cash flows and other drivers of value were being created during this

period under the control of a tainted CEO, whose Outside Directors exercised no meangful
oversight or due care on his conflicted activities.
1 1. At the end of July, 2001, the Outside Directors received the intial Goldin

Report. They purported to act in accordance with its recommendations, but it is plain enough
that they did not have the smallest grasp of the most rudimenta facts relatig to the conflct

of interest that they had been inormed of seven months before. In September 2001, more

4

At this point, three of the four Outside Directors have been deposed. Factual allegations in these
objections reflect our information as of October 19i. Additional discovery, including depositions of Amaral and Crowley, is scheduled before the confirmation hearing.

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than a month after they acted in alleged reliance on the Goldin Report, some or all of the thee
Outside Directors who were deposed gave sworn deposition testimony that they:
. Were not aware that ths Court had found an actual confict;

. Had "no idea" whether the Company could have done better if
the conflcted relationship had not existed;

. Did not know that Crowley was continuing to receive $80,000

per month from Cerberus under the same contract that had caused the problem last December and never asked;
. Had never read the Cerberus contract;
. Were not aware that the Cerberus contract provides that Crowley

would lose his $1 milion per year if he failed to follow
Feinberg's reasonable instructions;
. Never asked Crowley (to ths day) why he didn't disclose the

magnitude of his financial relationship with Cerberus;
. Made no attempt to discover why or how Goldin made an error
of suffcient magnitude to cause hi to issue an "updated"

(revised) report;
. Never received a copy of the Deloitte & Touche Report which

estimated a potential value for shareholders of $23 to $77 milion, or, having received it, never read it because he or she assumed it was biased.

12. And, despite the findings of ths Court and Goldin that an actual confict existed

and was a serious breach of fiduciar duty and that the relationship plaiy violated Coram's

Corporate Compliance Policy on Conflcts of Interest, some of the Directors stil refuse to
admit the basic, incontrovertible fact that a conflct existed and continues to this day. Sandra

Smoley, the Outside Director who was recommended for that role by Crowley, remarkably
takes the position that the miion dollar per year relationship between Cerberus and Crowley
was not a confict. At the same tie, she concedes that if the same relationship had existed in

the Californa State agency she once headed, that would be a conflct. Her only distinction is
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that, in her mid, "it's apples and oranges" because one is "a governental entity and the

other is publicly traded" and there is a lot less confict in the private sector than there is in the
public arena.

13. From all of ths it is clear that what the Special Commttee did was rely, hook,
line and siner on conclusions in the Goldin Report, without knowing and understanding the

relevant facts and without personal investigation of any sort. That does not satisfy their duty
of care, and without the exercise of such care, their action in proposing the Second Plan canot
be said to be in good faith.

14. The law is clear that merely appointing a "special commttee" or "independent
5 That commttee must be not only a body, but a dilgent, active
directors" is not enough.

body. Strasbur2er v. Ealy, 752 A.2d 557, 567-68, 571 (Del. 2000) (refusing to accept the

approval of corporate action by a special commttee when that committee limted its

investigation, avoided inormation highly relevant to the assignment and was not provided
accurate information, "( c lonsequently , and with all due respect for (his 1 acumen as a

businessman and his good intentions, his independent commttee role could not and did not

provide meangful protection for the ... miority."). Furter, in Brehm v. Eiser, 746 A. 2d
244 (DeL. 2000), Delaware's Supreme Court clarified the requirements of directors' duties to

inorm themselves in decision-makg in cases even absent conficts of interest: "in makg
business decisions, directors must consider all material inormation reasonably available." Id.

at 259. The court was careful to make clear that "material" means "relevant and of a

The reported cases emphasizing the requirement that special committees must themselves investigate and understand the relevant facts and remain active participants is voluminous. The Equity Committee is prepared to furnish the Court with a Memorandum of Law covering these issues if that would be helpful
to the Court.

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magnitude to be important to the directors in carring out their fiduciar duty of care in

decision makg." Id. at 259, n. 49. Furter, while utilization of an expert can provide some

protection to a dilgent board, the directors wil stil be found to have violated their fiduciar

duties of care under Delaware law if, among other thgs, the subject matter that was material

and reasonably available was so obvious that the board's failure to consider it was grossly
negligent regardless of the expert's advice or lack of advice or if the decision of the Board was
so unconscionable as to constitute waste or fraud...". Id. at 262. The "obvious" material that

was "reasonably available" is outlined in par above. Accordingly, any attempt to prop up the
Second Plan with eloquent assertions of Goldin's independence must fail because the Outside
Directors stil abdicated their responsibilties.

The Goldi Report
15. Obviously, the Outside Directors hoped and believed that their dereliction and

disregard of duty would be absolved by the Goldin Report. But Goldin's role was to advise,
not absolve, and, as set fort above, the Outside Directors are not permtted to blindly adopt

his advice without dilgently and actively investigating and understanding the relevant facts.
As has been repeatedly affired by all paries, Goldin is not an examer, he is not an expert

on good faith whose special knowledge wil assist the Court in making its determation of

whether the requisite good faith exists, and his fact findings and conclusions are not entitled to
any weight with ths Court.

16. In a nutshell, all that the Goldin Report does (valuation issues aside) is (i) accept

the Court's conclusion that the Crowley-Cerberus relationship was a confict of interest and "a

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serious breach of fiduciary duty" and (ii) conclude that he could find "no evidence" that this
"serious breach" caused any damage to Coram, beyond $13 milion. (Goldin Report, 10-12)
17. It is not surprising that Goldin found no evidence of damage, since his
of wrongdoing or

methodology consisted mostly of interviewing people who were accused

worked for someone accused of wrongdoing, and then determg that each and everyone of

these people said that either there was no wrongdoing, or, if there was wrongdoing, no damage
was caused.
18. Goldin's basic postuate appears to be that conficts of interest in corporate

governance are acceptable and should go undeterred and unpunshed uness the part claiming
injury (here the shareholders) sustains the burden of proving that the confict caused damage.
That sort of "it's ok as long as you don't get caught" reasonig simply is not the law.
19. Furter, Goldin's entire report is flawed because it does not exame the

possibilty that Coram's performance might have been even better in the absence of the
confict. Unlike a discrete transaction that can be dissected to determe if a conflct affected

the outcome, the "transaction" here involves the operations of a large company over an
extended period of time. Goldin did not exame the fundamenta inidious nature of conficts
of interest in ths broad context, rather his investigation was confined to determg that
"there was no evidence" that the confict caused damage.
20. Goldin's failure to analyze Coram's performance against the performance of

competitor firs - especially given that Goldin concedes that Coram was being ru by
someone with a serious confict of interest - makes Goldin's conclusions entirely uneliable.

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Furter, the Goldin Report ignores the possibilty that there were other actions that Coram

chose not to take because they would have benefited stockholders, but not Noteholders.

21. Goldin's assumption that noteholders' interests are consistent with shareholders'
interests is incorrect. Noteholders interests are never perfectly aligned with stockholders'

interests, because noteholders wil oppose corporate decisions that increase the risk of

nonpayment, even when those decisions are expected to benefit the company and its
stockholders. As a result of Goldin's incorrect assumption regarding the relationship between

noteholders' and stockholders' interests, several of Goldin's conclusions, including the
conclusion that Stephen Feinberg did not have an incentive to conceal Danel Crowley's
employment agreement, are flawed. Feinberg's parochial interests were certiny bettr served

if the world and the Coram stockholders did not know that he was paying Crowley one miion

dollars a year while restructuring the debt to dilute and eventually eliminate the interests of
those stockholders.

22. That aside, the Goldin Report is replete with material errors, fundamental
mistaes in methodology, unsupported conclusions and gaping omissions. For example, the

Goldin Report, never deals with the fact that the offensive conflict continues. It simply is not

discussed. The very different interests of Noteholders and shareholders are denied. A large
body of evidence showing actions by Crowley in favor of the Noteholders and contrar to the

interests of the shareholders is omitted. While acknowledging that Crowley's voluntar cash

payment of $6.9 milion to the Noteholders was "troublesome," the Goldin Report ignores a
letter from Crowley to the Noteholders (which Goldin had)J boasting that Crowley had "caused

the Company to voluntarily repay $15.5 million early on the revolver. The Goldin Report

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ignores also the fact that the letter, addressed by Crowley only to the Noteholders, refers to
Coram as "your company. "

Additiona Signcat Indici of Lack of God Faith The Contiued Faiure to Dilose Materi Fact About
The Crowley Relationship
23. Crowley, the Debtors and the Noteholders have continued to hide various

aspects of Crowley's remuneration from the shareholders, the public and even each other.
Crowley's current compensation agreement with the Company is shadowy at best. According

to recent sworn deposition testimony of an Outside Director, the Compensation Commttee of
Coram's Board of Directors, on March 20, 2001,6 granted Dan Crowley's oral request for yet

another amendment to his employment contract to make it "more incentivizing" and

"motivational" for Crowley in the banptcy context - this one involving an additional benefit
of "several milion dollars."
24. While draft miutes of the Compensation Commttee meeting on March 20,
2001 reflect Crowley's request for some change in compensation, the action is ambiguously

described in those minutes as "various multiples applied to base compensation with a theshold
target of a 60% EBITDA goal based upon the present financial and operation conditions of the

Company." Debtors' attorneys have been unable to respond to the Equities Commttee's
request to provide any written documentation of the change beyond the vague commttee
minutes, notwithstading the Director's sworn testimony that Crowley's employment

agreement was amended to reflect the increase.

6

It is clear beyond doubt that this occurred in 2001, not 2000, as the witness resisted two attempts by
Debtors' attorneys to coach him into changing the date of the occurrence to 2000.

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25. This increase in Crowley's compensation of "several milion dollars" is not

disclosed in any meangful terms, in either the Second Disclosure Statement or in Coram's

subsequent 10-Q filings with the Securities and Exchange Commssion.
26. There is yet another instace where Crowley has hidden sensitive and

unfavorable information about his compensation: Each of the Outside Directors and Goldin

testified unambiguously that, to their knowledge, no compensation consultant was ever retained

to advise on the appropriateness of Crowley's compensation. However, documents discovered

by the Equity Commttee late last week disclose that in May, 2001, Coram did in fact hie
Pearl Meyer & Parters as a compensation consultant to do "CEO Compensation Research Business Turnaround Study." The results of ths study, which identified compensation for

CEOs hired "to turn the company around," vividly demonstrate the outrageous and excessive

nature of the compensation awarded to Crowley by the Outside Directors. According to the
testimony of Goldin and the Outside Directors, they were not aware of any compensation

consultat. Therefore, the adverse inormation was not shared with them, nor was it included

in the Second Disclosure Statement. It is not diffcult to understand why.
27. These additional instaces of the concealment of Crowley's compensation, come

on the heels of discovery of previously unown facts concerng the failure to disclose
Crowley's Cerberus compensation in the first Disclosure Statement and in earlier fiings by
Coram with the Securities and Exchange Commission: Interview and meeting notes, taen by

Goldin and his attorneys in connection with the preparation of the Goldin Report, show that

some of the Outside Directors, and Dan Crowley in paricular, seek to blame the failure to
disclose the Cerberus relationship on "the lawyers" and specificaly David Friedman, who they

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say had the Cerberus contract prior to the original fùing. According to these notes, Crowley

told Goldin that "Friedman knew the specifics of both contracts. . . that Friedman had the
Cerberus contract and that he (Crowley) relied on Friedman" with respect to the contents of
the fùing. The notes of a meeting between Goldin, his attorneys and the Outside Directors

disclose "Dfriedman had Crowley Cerberus contract; could have incl. in Disclosure
Statement. "

28. The Equity Committee does not seek, at ths juncture, to find Mr. Friedman

culpable, though it is troubled by the fact that in his interview with the Goldin people, he
acknowledged that prior to the filing he thought that the Crowley/Cerberus/Feinberg

"relationship would be the most importt issue in the case." Friedman says (as reported in
the interview notes) that though he relied primarily on public filings to harvest the inormation
required by the banptcy filings, he stil discussed the Crowley-Feinberg relationship with

Crowley's former employee, Alan Marabito, Coram's EVP, who, he says, assured him that
the filings were correct. We have no reason to doubt Friedman's version at ths point.
29. However, these newly discovered facts relating to the pre-filing knowledge of

the Crowley/Cerberus relationship, viewed in conjunction with the newly discovered failure to
disclose Crowley's latest compensation increase and the failure of the Company to disclose the

unavorable analysis of the Coram-retained compensation consultat, strongly suggest that
Crowley, with the blind support of the Outside Directors, has continued his malevolent pattern

of hiding both the source and amount of his compensation in order to disguise his loyalties to

the Noteholders and his extraordinar greed. That is not just a failure of good faith.

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SECOND OBJECTION

Coram's Enterpri Value Is Greater Th The Amount Of

The Debt Due To Al Creditors, Even Assu The
Noteholders Have A Vald Cla For 100% Of The Amount

Of The Note (But Se Thd Objecon, Below). Accrdiy,
The Pla Canot Be Confed Under The Cram Down

Provions Of Seon 1129(B) Of The Banptcy Code.
30. The Deloitte & Touche Report, fied under seal with ths Court on July 30 as an
exhbit attached to the Equity Committee's Objection to the Debtors' motion to extend

exclusivity, estiates a potential value of the interests of the shareholders at between $23 and
$77 miion.
31. Different conclusions were reached by Chan Associates and Goldin concerng

value. In reconciling these differences, the Equity Committee wil ask the Court to consider

the basic uneliabilty of these two reports. Both the Goldin Report and the Chan Report are
largely driven by inormation provided by the Debtors and Scott Danitz, the Debtors' CFO, in

particular. The evidence wil show that the information provided by Dantz, paricularly

inormation relating to projections, is not reliable and is not consistent with other records of
the Company prepared at a time when no motivation to falsify existed.

32. The Goldin Report was intially dated and delivered on July 11, 2001. On
August 29, 2001, a Goldin principal, Seymour Preston, was deposed by the Equity Commttee.
Preston testified that he was responsible for the financial analyses contained in the Goldin

Report. However, he was unable to testify about such basics as the Company's cost
reductions, the fact that by June 1, 2001, the Company was outperformg its taget EBITDA
by 60%, and the details behind the adjustments made in normalizing EBITDA.

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33. Preston did testify that the Company provided the list of adjustments (as it did

for Chan) and that Goldin made no changes to that list, that "we have no reason to believe
that their inormation was mistaen or had mistakes." However, following the deposition,

Goldin had to concede that its calculation of EBITDA contained errors aggregating more than

$5 milion, or 20% of the total EBITDA calculation, based on that list of adjustments. This
material difference (which Coram directors charactèrized as "an error", or in the case of

Smoley, a "boo-boo") caused Goldin to issue an "updated" report to correct the error.
34. It is unclear what steps Goldin has taen to determe what additional errors

exist, but it is apparent that they do. What is clear is that the Directors have taen no steps to

determine why an error of this magnitude occurred or what precautions have been taken to
insure that the "updated" report is not also materially erroneous.

THIR OBJECTION

The Conduct Of The Noteholders Was Inequitable And Requies Tht Their Cla Be Recacterid As Equity, Or
Tht Clas Be Pusued On Beha Of Coram Agai The

Noteholders, In Addition To Those Cla Agai The
Outside Diecors Of Coram And Dan Crowley.

35. The Equity Commttee's derivative claim against Cerberus, Feinberg and
Crowley is set fort in the Proposed Derivative Complaint fied on Februar 6, 2001. That

pleading is incorporated in these Objections by reference. Leave to fie that complaint was
denied, without prejudiceJ on February 21, 2001.
36. Discovery has revealed evidence, in the form of a reported statement by the

Debtors' counsel, that in addition to Cerberus, Goldman Sachs and Foothl may also share
responsibility for the breaches of fiduciary duty found by the Court in the intial confiration

hearing and as discussed above.

As a result of that statement and other evidence, and

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appropriate inferences, the Equity Commttee believes that substatial claims, of the nature set

fort in the Proposed Derivative Complaint, now exist against Goldman Sachs and Foothil.

FOURTH OBJECTION

The Propoed Inunctions And Releaes Render The Send

Pla Non-Confble.
Pia Seon 13.4
37. Section 13.4 of the Second Plan states as follows:

Releases by the Estate and its Representatives. In consideration of
the promises and obligations of the Debtors, Reorganed Coram
hereunder, and Mr. Crowley as embodied in the Executive

Compensation Waiver, as of and on the Effective Date, the
Debtors, the Estates, the Creditors' Commttee, the Equity

Commttee, the Noteholder Group, and any and all Persons
claimg though any of the foregoing entities whether directly or

indirectly, and any of their successors, assigns or representatives

shall, to the fullest and broadest extent permtted by law, be deemed to have waived, released and discharged all rights or
claims, whether based upon tort, fraud, contract or otherwise,

whether known or unkown, which they possessed or may
possess prior to the Effective Date against the Debtors, their

present and former directors, offcers, employees, agents,

representatives and attorneys and any successors or assigns of the
foregoing, whether directly or indirectly, except as otherwise

provided in the Plan, the Banptcy Code, or the Confiration
Order.

38. The Equity Commttee objects to ths section because it attempts, in clear
contravention to Code Section 524(e), to force releases of non-debtor paries by both the

Debtors and other non-debtor parties.
The Puported Releae by Debtors of Non-Debtor Pares is Both Inpproprite and Far

Too Broad
39. Section 13.4 of the Second Plan would release all pre-Effective Date clais by

Debtors and their estates against not only the Debtors (which is redundant), but also againt the

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':

Debtors' present or former directors, offcers, employees, agents, representatives and

attorneys, all of whom are non-debtors. In In re Zenith Eleconics Corp., 241 B.R. 92,
110-11 (Ban. D. DeL. 1999), ths Court held that, under certain circumstances, debtors could

release non-debtor thrd parties. However those circumstaces are not met here. There is no

indication that any the unamed releasees have made a contribution of assets to the
reorganation. See In re Genes Heath Ventues, Inc., 266 B.R. 591, 606 (Ban. D. DeL.

2001). Furtermore, Crowley's "waiver" of his executive compensation is nothing more than

a blatant attempt to avoid paying for his continuing confict of interest, not a contribution of
assets.7 Additionally, the Equity Commttee believes that one or more classes of claiants and
equity holders effected by the Second Plan wil be found not to have accepted it, and Debtors
wil not have the "overwhelmig support" necessary to find such releases appropriate, let alone
have paid all of the claims and interests represented by the non-consenting classes. See In re
Global Oc Carers, Ltd., 251 B.R. 31, 43 (Ban. D. DeL. 2000) (releases rejected

because the effected class of noteholders did not support the plan).
40. Additionally, the releases contemplated by Section 13.4 of the Second Plan are

entirely too broad. In Debtors' First Plan, such releases were contemplated only for claims

arising out of "the Debtors' restructuring, DIP Facility, the Exit Financing Facilty or

otherwise in connection with the Debtors' Cases." (First Plan, Section 13.4(a).) In its present

form, Section 13.4 purports to release non-debtor parties from any kid of claim, even if
completely unrelated to Debtors' cases. It should also be noted that in the First Plan, the

release of non-debtor parties for acts or omissions related to Debtors' cases specifically

And given the circumstances of the secret raise in Crowley's 2001 compensation agreement, it can be assumed that the Crowley wil not end up with any less money in his pocket as a result of the waiver.

442281. 10122/0 I

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excluded from the release acts that amounted to wilful misconduct. (First Plan, Section
13.4(b).) The Second Plan does not even purport to exclude wilfu misconduct, much less

gross negligence, a stadard which the Third Circuit has found to be appropriate. In re PWS
Hold. Corp., 228 F.3d 224 (3M Cir. 2000); Genes Heath, 266 B.R. at 607.

Seon 13.4 Improperly Attempts To Force Non-Consns Relea By Non-Debtors In Favor Of Oter Non-Debtor Thd Pares.
41. In Section 13.4 of the Second Plan, Debtors have expanded the scope of releases

far beyond what is alowed by the Code, by adding, as partes releasing claims, the Creditors'

Commttee, the Equity Commttee, and the Noteholder Group. Whe the Creditors'
Commttee and the Noteholder Group are free to release whomever they chose to, with respect
to the Equity Commttee, which has not consented to such releases, ths section contravenes the

Thid Circuit's holding in In re Contienta Ailies, 203 F.3d 203 (3rd Cir. 2000). In
Contienta, the Third Circuit rejected similar "thrd party releases" which would have

exculpated debtors' directors and officers from claims by shareholders of the debtors. The

court found that the shareholders had not received any consideration for the releases, and the
directors and officers had made no critical financial contribution to the plan that was necessary

to make the plan feasible. Id. at 215. Furermore, the court rejected the notion that releases
were necessary because the debtors' might be obligated to indemnfy the offcers and directors,

or because the debtors' relevant insurance policies might be implicated. Id. at 215-217.
Accord Zenith Eleconics, 241 B. R. at 111 (release of non-debtor could not be permtted
"without the affirative agreement of the creditor affected").

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Pla Seon 13.5
42. Section 13.5 of the Second Plan states as follows:

Exculpation. The Debtors, their Estates, Reorganed Coram, the

Creditors' Commttee, the Noteholder Group, and their
respective members, offcers, directors, employees,
representatives, attorneys and agents, shall, to the fulest and

broadest extent permtted by law, be deemed released by each of them against the other and by the holders of Claims or Interests and all persons claimg though any of the foregoing entities, directly or indirectly or derivatively, of or from any and al
clais, obligations, rights, causes of action and liabilties for any

act or omission in connection with, or arising out of, the Debtors' chapter 11 Cases, including without limiting the generality of the foregoing, the commencement of the Cases, the Disclosure
Statement, the pursuit of approval of the Disclosure Statement,

the DIP Facilty, the Exit Financing Facility, the pursuit of Confrmation of the Plan, the consumation of the Plan or the
adminstration of the Plan or the propert to be distributed under
the Plan, or otherwise in connection with the Cases, and all such

persons, in all respects, shall be entitled to rely upon the advice

of counsel with respect to their duties and responsibilties under the Plan and under the Banptcy Code.

43. In In re PWS Holdiic Corpration, 228 F.3d 224, 246 (3id Cir. 200), the
Third Circuit noted that Section 11 03

(c) of the Code implies both a fiduciary duty to the

constituents of an offcial committee and a grant of limted imunity to commttee members
and their professionals. The court permtted an exculpation provision of a plan which provided

for exculpation to the extent of the limted imunty. However, the court specifically noted
that releases of commttees and their professionals canot release claims for wilful misconduct
or ultra vires acts. Id. In so doing, the court upheld a limted exculpation of debtors, the

committee and their professionals which specifically excluded conduct amounting to "wilful
misconduct or gross negligence." Id.

442281. 10/2 1

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44. Section 13.5 of the Second Plan does not comply with the limtations mandated

by the PWS case. First, Section 13.5 does not exclude from exculpation acts which amount to.

wilful misconduct or gross negligence, an exclusion that is required by PWS. Second,

Section 13.5 includes, as an entity to be exculpated, the Noteholder Group, which is not an

official commttee and does not have the limted imunty afforded by Section 1103 of the
Code. By including the Noteholder Group, the Debtors are attempting to force the same kind
of non-consensual release of non-debtor parties which the cour refused to approve in Genes
Heath, 266 B. R. at 607-609.

45. In Genes Heath, the court recently rejected non-consensual releases by thd
parties of lenders who made a financial contribution to the Debtors' reorganation. The court

found that, even if the theshold requirements of Continenta regarding fairess and necessity
of non-consensual releases had been met, the reorganation was not one of the tye of

exceptional cases (involving wide spread litigation against co-liable parties) in which nonconsensual releases might be approved. Id. Simlarly, here, the Noteholder Group is not

entitled to a non-consensual release.
46. Finally, noticeably missing from the exculpation is the Equity Committee and its

professionals, even though the Equity Committee is an offcial commttee pursuant to Code
Section 1103. The Equity Committee and its professionals should be included in this section.
Pla Secon 13.6
47. Section 13.6 states as follows:

Thid-Par Releases. In consideration of the promises,

obligations, and waivers of rights to receive funds by
Mr. Crowley and the members of the Noteholder Group, as
embodied in the Plan and the Executive Compensation Waiver, as

of and on the Effective Date, any par that votes in favor of the

44228Ll 10122/01

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Plan and any and all Persons claimg though any such par,
whether directly or indirectly, and any such party's successors,

assigns or representatives (collectively, "Releasors") shall, to the fullest and broadest extent permitted by law, be deemed to have

waived, released and discharged all rights or claims, whether based upon tort, fraud, contract or otherwise, whether known or unkown, which they possessed or may possess prior to the
Effective Date against the Debtors and al of their present and

former directors, officers, employees, agents, representatives and
attorneys and any successors or assigns, and against the members

of the Noteholder Group and all of their present and former
directors, offcers, employees, agents, representatives and

attorneys and any successors or assigns, whether directly or
indirectly, except as otherwise explicitly provided in the Plan, the
Banptcy Code, or the Confrmation Order. The release

described in the preceding sentence shall be enforceable as a matter of contract against any Releasor pursuant to the Plan and/ or the Confiration Order.
48. Section 13.6 is far too broad, even if it is limted only to those persons or

entities who vote in favor of the Second Plan. Section 13.6 is in the nature of a general
release, extinguishing all claims, of any nature, against the entities purported to be released.

As drafted the release includes claims having nothg to do with Debtors cases, and would
release anyone of a number of unamed and unidentified entities and persons related to

Debtors and the Noteholder Group. So broad a release is clearly a trap for the unwary. To be
acceptable, the releases embodied by ths section should release only those claims and causes
of action arising by virte of the Releasors' claim against, or ownership interest in, the

Debtors' estates, and only release Debtors, the Noteholder Group and their employees and
professionals only from claims related to the Debtors and their chapter 11 cases.

442281. 10/201

21

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IN TH UND STATES BANUPCY COURT
FOR TH DISTRCT OF DELAWAR
IN RE:
Chapter 11

)
) ) ) )

CORA HEALTHCAR CORP., and CORA, INC.,
Debtors.

Cas No. 003299 (M and Cas No. 003300 (M
Jointl Administered

)

CERTICATE OF SEVICE
I, Mark Minuti, Esquire, hereby certify that on October 22, 2001, I caused a

copy of the attached Equity Committee Objections To Debtors' Second Joint Plan Of
Reorganization to be served on the attched service list in the maner indicated.

/ s/ Mark Minuti Mark Minuti (No. 2659)

SAUL EWIG LLP
222 Delaware Avenue, Suite 1200
P.O. Box 1266

Wilmington, DE 19899
(302) 421-6840

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CORAHEALTHCAR CORP., etol
20 Servce Lis

Via Had Delivery:
Laura Davis Jones, Esquire Rachel S. Lowy, Esquire Pachulski, Stag, Ziehl, Young & Jones P.C.
919 Market Street, 16th Floor
P.O. Box 8705

Don Beskrone, Esquire Office of the United States Trustee
844 N. Kig Street, Room 2311

Lockbox 35

Wilgton, DE 19801

Wilmigton, DE 19899-8705

Via Telecpy: David M. Friedman, Esquire
Athena Foley, Esquire Adam L. Shiff, Esquire Kasowitz, Benson, Torres & Friedman 1633 Broadway New York, NY 10019-6022

Deborah E. Spivack, Esquire Mark D. Collin, Esquire
Richards, Layton & Finger, P .A.

One Rodney Square
P.O. Box 551

Wilmgton, DE 19899

Karen C. Bifferato, Esquire Connolly, Bove, Lodge & Hutz LLP 1220 Market Street
P.O. Box 2207

Chaim Fortgang, Esquire Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, NY 10019
Alan B. Miler, Esquire

Wilmington, DE 19899
Pauline K. Morgan, Esquire
Richard Morse, Esquire

Weil, Gotshal & Manges, LLP
767 Fift Avenue

New York, NY 10153
Carol Morrison, Esquire

Young Conaway Stargatt & Taylor, LLP 11 th Floor, Rodney Square Nort
P.O. Box 391

Wilmigton, DE 19899-0391

Schulte Roth & Zabel, LLP 900 Third Avenue New York, NY 10022

Wiliam D. Sullvan, Esquire Elzufon, Austin, Reardon, Tarlov & Mondell, P.A.
300 Delaware Avenue, Suite 1700
P.O. Box 1630

Wilmigton, DE 19899-1630

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Mr. Harrison J. Goldin

Goldin Associates, L.L.C.
400 Madison Avenue

Craig W. ReIman, Esquire Craig W. ReIman, Co., L.P.A. 23875 Commerce Park Road
Suite 105

New York, NY 10017
Kenneth H. Eckstein, Esquire
Kramer Levin Naftis & Franel LLP

Beachwood,OH 44122
Eugene Tilan, Esquire

919 Third Avenue New York, NY 10022

Reed Smith Shaw & McClay, LLP 1301 K Street, N.W. Suite 1100 - East Tower
Washigton, D.C. 20005-3317

Via U.S. Ma:
Allen Marabito Coram Healthcare 1675 Broadway, Suite 900

Frederick A. Nicoll, Esquire
Thomas Nash, et al.
250 Park Avenue, Suite 1500

New York, NY 10177
Christopher Beard, Esq.

Denver, CO 80202
Thomas M. Antone iV, Esquire Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. 1704 Hunting Ridge Road Raleigh, NC 27615
John T. Morrer, Esq.

Beard & Beard
4601 Nort Park Avenue

Chevy Chase, MD 20815

Banptcy Adminstration
10S Capital, Inc.
1738 Bass Road
P.O. Box 13708

Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C. One Financial Center Boston, MA 02111
John P. Dillman, Esquire

Macon, GA 31208-3708
Peter A. Chapman 24 Perdicaris Place Trenton, NJ 08618
Mr. Ed Mule
Goldman Sachs Credit Parers, L.P.

Linebarger Heard Goggan Blair

Graham Pena & Sampson, LLP
P.O. Box 3064

Houston, TX 77253-3064
Francis J. Lawall, Esquire Pepper Hamilton, LLP 3000 Two Logan Square Eighteenth & Arch Streets Phiadelphia, PA 19103-2799

85 Broad Street, 6th Floor New York, NY 10004

442281. 10122/01

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Mr. John Grim
Cardinal Health 7000 Cardinal Place

Mr. Joseph Canon A ventis Behring LLC 1020 First Avenue
P.O. Box 61501

Dublin, OH 43017
Mr. Gregory C. Neier Baxter Healthcare Corporation Route 120 & Wilson Road
Technology Building RL T -06
Round Lake, lL 60073-0490

King of Prussia, P A 19406-0901
Bowne of Dallas 1931 Market Center Boulevard,
Suite 111

Dallas, TX 75207
Prudential Insurance Company
P.O. Box 4347

Gregory C. Neier Baxter/Sabratek Route 120 & Wilson Road
Technology Building RL T -06

Houston, TX 77210-4347
Carolyn Ruth Safeco Life Insurance Company
Group Adminstration

Round Lake, lL 60073-0490

Mr. John Sils Medical Specialties Co. Inc. 58 Norfolk Avenue South Easton, MA 02375-0600
Mr. William C. Warner B. Braun Medical/McGaw, Inc. 6021 South Syracuse Way, Suite 190A Englewood, CO 80111
Joseph Smith

P.O. Box 84388

Seattle, WA 98124
Ms. Linda Sutton US Offce Products 60 Tejon Street Denver, CO 80223-1222
AT&T P.O. Box 78214

1726 Victoria Circle Allentown, P A 18103

Phoenix, AZ 85062-8214
US Healthcare

Robert F. Carter
EDl Payment

P.O. Box 1125

Blue Bell, PA 19422-0770
Mr. Gregory C. Neier

Federal Express
2650 Thousand Oaks Boulevard

Suite 3100

Memphis, TN 38118
Ms. Joanne L. Sadowsky Novo Nordisk Pharmaceuticals, Inc. 100 College Road West Princeton, NJ 08540

Sabratek Corporation Route 120 & Wilson Road
Technology Building RL T -06

Round Lake, lL 60073-0490

44228 LI 10/22/01

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Twelve Oaks Corporation Housing

Mr. Stephen Feinberg

545 East Algonquin Road, Suite M Arlington Heights, lL 60005
Brenda Dow

Cerberus Parers, L. P .

450 Park Avenue, 28th Floor New York, NY 10022
Mr. Ed Stearn

United Health Care Clearwater Service Center
P.O. Box 740800

Footh Capita Corporation
2450 Colorado Avenue, #3000W

Atlanta, GA 30374
Thomas Butter

Santa Monica, CA 90404
Mr. J. Edward Neugebauer
Aetna U.S. Healthcare

United Parcel Service
P.O. Box 505820

The Lakes, NV 88905-5820
Mr. Steve Hutton

980 Lolly Road Blue Bell, PA 19422
Mr. Bob Dudziuski

Employment Leaders, Inc.

Tbob Enterprises, Inc.
12738 Davenport Plaza

1527 Greenvile Highway #2 Hendersonvile, NC 28792
Mr. Steve Brand Stephen Brand Productions 15702 Trapp Ridge, Suite 100 Chesterfield, MO 63017-8742
Infsion Solutions

Omaha, NE 68154
Farers Insurance Group of Companes Truck Insurance Exchange 4601 Wilshire Boulevard, Suite 2508

Los Angeles, CA 90010
Richard M. Smith 571 Silver Oak Grove Colorado Springs, CO 80906

1080 North Swan Road Tucson, AZ 85711

CDW Computer Centers, Inc.
P.O. Box 75723
Chicago, lL 60675-5723

Ms. Liz Hanonds Genetics Institute, Inc.
170 Nort Radnor Chester Road

St. Davids, PA 19087
Daily Insights
225 West 34th Street, Suite 403

Tom Cougiglio

New York, NY 10122
Great West
P.O. Box 11111

Resource Realty of Nortern New Jersey
299 Cherr Hil Road, Suite 202

Parsippany, NJ 07054-1107

Ft. Scott, KS 66701

442281. 10122/01

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Dave Wagner

The Metrix Company 4400 Chavenelle Road
Dubuque, lA 52002

Ms. Pam Gokey

Life Insurance Company of Nort America 3900 East Mexico Avenue, Suite 1400 Denver, CO 80210
Mr. Mark Lueck

Mediq/PRN One Mediq Plaza, Unit 10
Pennsauken, NJ 0811 0
Steven K. Kortanek, Esquire

David L. Zive, Esquire Klehr, Harrison, Harvey, Branzburg & Ellers LLP 260 South Broad Street Philadelphia, PA 19102

Katheen M. Miler, Esquire
Smith, Katzenstein & Furlow LLP
800 Delaware Avenue
P.O. Box 410

Wilmington, DE 19899
Vito 1. DiMiao
Parcels, Inc.

917 Kig Street
Wilmington, DE 19801

442281. 10/2/01

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Linda Sandlin
From: Laura Davis Jones
Sent: Monday, October 22,2001 11 :52

To: Linda Bendlin

Subject: FW: 00-03299-MFW "Reply (A)"

rachel -- paperfow

Laura Davis Jones Pachulski, Stang, Ziehl, Young & Jones P.C. 919 North Market Street, 16th Floor

Wilmington, DE 19801 Direct Dial: (302) 778-6401 General Offce: (302) 652-4100 Fascimile: (302) 652-4400 E-Mail: Ijones~pszyj.com
-----Original Message----From: BKECFUVEDBCQdeb. uscourt.gov (mailto: BKECFUVEDB(gdeb. uscourt.gov J

Sent: Monday, October 22,20019:35 AM Subject: 00-03299-MFW "Reply (A)"

***NOTE TO PUBLIC ACCESS USERS***You may view the fied documents once without charge. To avoid later charges, download a copy of each document during this first viewing.
Notice of

Electronic Filing

The following transaction was received from Minuti, Mark on 10/22/2001 at 9:34 AM EDT

Case Name: CORA HEALTHCAR CORPORATION and Richards, Layton & Finger P.A. Case Number: 00-03299-MFW
Document Number: 1147

Docket Text: Reply Equity Committee Objections to Debtors' Second Joint Plan of Reorganization Filed by Offcial Equity Securty Holders (related document(s)(962)). (Attachments: # (1) Certificate of Committee of Service) (Minuti, Mark)
The following document(s) are associated with this transaction:

Document description:Main Document Original fiename:M:/00-3299/442281.1/0bjections to Debtors' Second Joint Plan of Reorganization.pdf Electronic document Stamp:
(STAM bkecfStamp _ID=983460418 (Date= 10/22/2001) (FileNumber= 167297 -0)
(OfOb71 b2e9686dc7 4fbbfa35699cb2e281579dbf988e7 e3641770e4002e0449f5a8e

68bdfb65ba23d222a945903c5c2bba56c 18fe120a2b485eal b2dfbb20751)) Document description:Certificate of Service Original fiename:M:/00-3299/442281.1/COS - Objections to Debtors' Second Joint Plan of
10/22/2001

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Page 2 of2 Page 29 of 48

Reorganzation. pdf Electronic document Stamp:
(STAM bkecfStamp _ ID=983460418 (Date= 10/22/2001 J (FileNumbei= 167297 -1 J
(799a520bfl c63 £0£251 agea22e8ffb 7 e31 f56d3 7 c45 fd4286231712e08egea96c996

f8992873165b820e26d4633e52f348b4ffbßO 15d63b98e91 a53b2b92e35JJ

00-03299-MFW Notice wil be electronically mailed to:
Steven T. Davis delbkr(êobermayer.com,
Donald J. Detweiler saulbankptcy(êsau1.com, ddetweiler(êsau1.com

Laura Davis Jones ljones(êpszyj.com,
efie(êpszyj .com;hmartin(êpszyj .com;viobley(êpszyj .com;agrasty(êpszyj .com

Carl N. Kun III
Tara L. Lattomus tlattomus(êsau1.com,

Chrstopher James Lhulier clhulier(êpszyj.com,
hmartin(êpszyj .com;viobley(êpszyj .com;agrasty(êpszyj .com;efie(êpszyj .com

Rachel Sarah Lowy rlowy(êpszyj.com,
hmarin(êpszyj .com;viobley(êpszyj .com;agrastyêPszyj .com;efie(êpszyj .com;rlowy(êpszyj .com

Thomas G. Macauley! ban(êzuckerman.com,

Kevin J Mangan kmangan(êwalmon.com,
Katharne L. Mayer kmayer(êelzufon.com

Michelle Kathleen McMahon mm(êcblhlaw.com,
Mark Minuti saulbanptcy(êsau1.com

Francis J. Murhy
Deborah E. Spivack rbgroup(êr1f.com

00-03299-MFW Notice wil not be electronically mailed to:

Kenneth Eckstein Kramer Levin Naftalis & Franel 919 Third Avenue New York, NY 10022
NOT YET APPOINTED

10/22/2001

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Page 30 of 48

668

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE

In re:
CORAM HEALTHCARE CORP. and. CORAM, IN C . ,
Case No.

00-3299
(MFW)

through' 00-3300

Debtors.

Marine Midland Plaza
824 Market Street Wilmington; Delaware
if
Monday, ..-:'"

No.1, Sixth Floor

Bankruptcy Courtroom

December 17, 2001 4:20 p.m.

BEFORE: THE HONORABLE MARY F. WALRATH, United States Bankruptcy Judge

-- Transcript of Proceedings --

WILCOX & FETZER
1330 King Stieet - Wilmington

Delaware

19801

\~)¡ . . \lr
. ":\
c¡ '(lt;;:J

~ ..

r

(302) .655-0477

WILCOX & FETZER L TO.
Registered Professional Reporters

.1l

\)'~

,(. \~ (.
.~ ;;G ;-)

C24l

CC(Q~1f

Case 1:04-cv-01565-SLR

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1

MR. FRI EDMAN:

I'm indifferent.

2

THE COURT:

You can mark them as an exhibit

3 now.
4

. .MR. LEVY:

Thank

you .

Did you. say now 15

5 minutes?
6 7
8

THE COURT:

Yes.

Mr. FRIEDMAN:

Thank you, Your Horior.

Your Honor, clearly our CEO has a conflict

and life would be much, much simpler if he didn 't. My 10 1 i fe, and I i m sure your life and everyone e 1 s e i s 1 i f e
9

11

would have been sim~ler.

Life is just not that simpl~.
.~ --".

12 With the help of Professor Fischel, we
13 learned a little bit on Friday about conflicts that exist

14 between creditors and shareholders of an insolvent firm.
15 In this case

our CEO has a relationship with a creditor.

16 That creditor also happens to have an equity interest, 17 but I don i t think that really matters.
18

I think, as Professor Fischel acknowledged,

19 and Ilm sure the Court has undoubtedly observed,

20 corporate management is often dominated by people who

21 have alliances to shareholders. Many times management,

22 they are shareholder¿ themselves. Professor Fischel
23
commented in

that context:

"Directors who are responsive

24 only to equityholders in the case of an insolvent company
WILCOX & FETZER L TO.
Regisered Profesional Reporters

~

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Page 32 of 48 703

1 .can have perverse incentives of their own."
2

So, Your Honor, it is the case that

3 conflicts of interest exist, and in some cases they
4 abound

including among corporations that are

5

debtor s-in-posses s i on.

They are not, per se, illegal.

6 They are not, per se, immoral, but they are certainly

7 . important. 8 I think since December 0 f last year we have
9 treated

Mr. Crowley's conflict of interest as extremely

important. They must be dealt with. Both Delaware 11 corporate law, statutory law, applicable case law in 12 relevant bankruptcy decisions all inform us as to the 13 proper manner in which to deal with conflicts of
10
14

interest.

Essentially it's a three-prong approach.

The

15

conflicts have to be disclosed.

The conflicts have to be

16

investigated.
to be isolated.

To the extent that the conflicts touch

17 upon any corporate action, the conflicts of interest have
18

Yo u rHo nor, t hat i s the pro c e s s t hat

19 we've adopted here.

20 Mr. Crowley's relationship with Cerberus
21 was fully disclosed on numerous occasions since this
22
23

Court's decision.

It was disclosed in the 10-K.

It was

disclosed in every quarterly 10-Q.

It was disclosed in

24 the disclosure statement with the input of the Equity
WILCOX & FETER L Te.
Registered Professional Reporters

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i Committee who insisted upon the same things that we might
2 not have s aid ourselves but we said them, anyway, because

3 of the importance to us that there be no is~ue about.

4 disclosure.

5 Mr. Crowle~ £ully disclosed his
6 relationship with Cerberus to his own board of directors
7 after this

Court IS ruling as he te~tified last Thursday.

8 Mr. Amaral testified in court that
9 Mr. Crowley's relationship was fully disclosed. He said

i 0 at page 412 0 f the record beginning at line i 3 :
11
12

"QUESTION: No~, after the decision by the
"'Î:"~._.

Court in December of last year, did you have a

13
14

d i s c u s s ion wit h Mr. C row ley ab 0 u t the Co u r tIs

findings?
" AN S W E R : Me, 0 n a 0 n e - 0 n - 0 neb a s is, no, but

15

16
i 7

we met with Mr. Crowley. All the independent
outside directors met with -him and he discussed

18

the situation.
"QUESTION: What do you recall him saying?

19

20
2 i

"ANSWER: That he reminded us of the
relationship. He told us of th~ dollar amount

22 and that it was still in force today."
23 Your Honor, I i m going to take up probably
24 more time than I should, but I think this is a very
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1 imp 0 r t ant poi n tan d I i m VB r y s ens it i vet 0 t his.

2 He disclosed this relationship, as well, to
3 each of the other directors and that is as clear as day
4 from the deposition record which was not made clear when
5 Mr. Crowley was confronted with certain sound bytes, but 6 I do want to read this into the record ev~n if it takes

7 up some of my other time.

8 . Mr. Smith was asked this at page 21
9' beginning on line 11 of his deposition:
10

"QUESTION:

Do you know today the amount of

11

the finan~ial arrangements between Çrowley, the

.12
13
14

CEO, and ~:Ur-whichgave rise to the
conflict that you learned about on December

27 ?

"AN SWER:

I know order of magnitude.

I

15

don't know all of the details of it, but enough
to know that it was in order of magnitude.
"QUESTION: What 1 s the order of magnitude?

16
17 18

"ANSWER: My understanding, it was a payment

1 9 of $ 8 0, a a a a month or something in that range."

20 He went on to say at page 22 of his
21 deposition beginning at line 11:
22 "80, 000 a month was a material enough
2 3 numb e r tot ell met hat was a mat e ria 1

24 relationship between the two.
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IN THE UNTED STATES BANUPTCY COURT FOR THE DISTRICT OF DELAWAR
IN RE:
Chapter 11

CORA HEALTHCAR CORP. and CORA, INC.,

Debtors. i
and Case No. 00-3300 (MF
Jointly Administered
EXPENSE
FACTUAL BACKGROUND

Case No. 00-3299 (MFW)

I

REQUEST OF DANEL CROWLEY FOR PAYMENT OF AD~STRATIvk
Danel Crowley, by his attorneys, hereby submits ths, his Request for Payment of
Administrative Expense (the "Request"). In support of

the Request, Crowley states as foll ws:

A.
1.

The Bankruptcv Filne: and Chapter 11 Trustee I
On or about August 8, 2000 (the "Petition Date"), Cora and Coram, Inc. I
i

(collectively, the "Debtors") each fied volunta petitions for relief

of

the United States Code (the "Banptcy Code"). The Debtors' chapter II cases have bgen i
I

, I

under Chapter 11 ofTltle 11

consolidated for procedural puroses only. !

2. On Februy 12,2002, ths Cour granted the motion to appoint a chapter 11
trustee (the "Trustee") to assume control over the

Debtors' propert and afairs pursuat to I

section 1 104 of the Banptcy Code. On March 7, 2002 the Cour approved the apPoinJent of
I

the Hon. Arlin M. Adams as Trustee. i
B. Crowlev's Emplovrent under the Emplovment Ae:reement and KERPl
i

3. Prior to the Petition Date, on or about November 30, 1999, Crowley entered into

an Employment Agreement (as amended from time to time, the "Employment Agreement"J 1 with
I

Coram Healthcare Corporation ("Coram"), whereby Coram agreed, among other things, to
employ Crowley as its Chairman of the Board, President and Chief

Executive Offcer.

i A copy of

the Employment Agreement and its amendments is attached hereto as Group Exhibit A

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4. Coram, and subsequently the Trustee, continued to employ Crowley after the

Petition Date pursuant to the terms of the Employment Agreement though its expiration on
November 30, 2002. Even afer the Employment Agreement expired, the Trustee continued
Crowley's employment through March, 2003.
5. Over the course of

Crowley's employment, the Employment Agreement was

amended from tie to time to provide, among other things, for the payment of certain bonuses
(the "Bonuses") to Crowley including without limitation the following: (1) for Fiscal Year 2000,
a bonus payment of 25 percent of Coram's EBITDA above $14,000,000 with a one-time payment
of

$5,000,000 ifEBITDA exceeded $35,000,000; (2) for Fiscal Year(s) 2001, and 2002, a bonus
up to three (3) times his then base salar of

of

$650,000 depending upon Coram's EBITDA; and
Coram obtaied a successfu refinancing. Based upon Coram's

a bonus payment of$I,800,000 if

EBITDA Crowley is due $10,842,000 for Fiscal Year 2000, $996,840 for Fiscal Year 200 l, and

$1,950,000 for Fiscal Year 2002. Because Coram successfully obtained refinancing, Crowley is
fuer entitled to the $1,800,000 bonus.

6. Coram also provided for additional compensation to be payable to Crowley,

among others, under certain Key Employee Retention Programs ("KERPs"). Pursuat to those
KERPs, Crowley was to receive $400,000 for each year ended December 31, 2000, 2001, and
2002. Because Crowley remained employed by Coram at each of those years' end, Crowley is

fuer entitled to an additional $1,200,000 under the KERPs (the "KERP Amounts").
7. In addition to performance bonuses and KERP payments, Crowley was entitled
to receive additiona compensation for any unused vacation, and certai other

Board-approved payments (the "Additional Compensation").
8. To date, neither the Debtors nor the Trutee have paid Crowley the Bonuses, the

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KERP Amounts, or the Additional Compensation in an aggregate amount of

nearly $16,800,0002

(the "Admstrative Request Amount") to which Crowley is entitled. Therefore, Crowley
hereby requests that this Cour allow the Administrative Request Amount as an admnistrative
expense of the Debtors and direct the Debtors and the Trustee to pay him that amount.
C. Crowley's Contributions to the Debtors' Estates
9. By all accounts, Crowley did more than stabilze and maitai the Debtors'

businesses: he significantly contributed to the Debtors' estates by signficantly improving them,
even during the most tring of

banptcy conditions. As noted by Harison 1. Goldin:

Crowley moved quickly to stabilze Coram's finances and tu the company

around. Among other changes, he centralized the purchasing process; brought inventory levels down; increased working capita; paid off some of Coram's debt; reduced accounts receivable from $130 millon to about $77 milion; and emphasized Coram's core therapy focus. According to Wendy Simpson, who was CFO at the time, Crowley "focused immediately on cash out." She said he literally "went though stacks of invoices and questioned each one."
Update Report of Independent Restrctuing Advisor Goldin Associates, L.L.C. dated September

4,2001, at 43
10. After the Cour denied Coram's Second Plan of Reorganzation, Judge Adams was

appointed chapter 1 i Trustee. At the Trustee's request, Crowley stayed on as Coram's CEO.

Judge Adams respected the value that Crowley brought to the Debtors, notwthstading the
circumstaces and Crowley's confcuhat prompted the Trustee's appointment. As the Trustee
hiself stated:

19. Since the Appointment Date, the Trustee has independently

examined the actions undertaken by Crowley as the Debtors' chief executive offcer. The Trustee has visited the corporate offces in Denver and has had several meetings

and discussions with Crowley, CHC's senior executives and other employees of CHC. In addition, the Trustee has considered numerous reports regarding the
2 This amount represents an estimate of reserved per direction of

the bonuses Crowley is entitled to be paid and includes $1,950 000 that was the Trustee Counsel for 2002 Management Incentive Plan. The Actul amo~t of Crowley's Additional Compensation which he claim is subject to payment as an administrative expense is subject to fuher investigation and a more complete review of the Debtors' books and records.
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financial performance of the Debtors and has reviewed the Debtors' performance under Crowley with the investent baners retaied by the Trustee.

20. The Trustee's evaluation is that Crowley has operated the
company profitably and effciently. Under Crowley, notwithstanding being

in

these bankruptcy proceedings, the Debtors have experienced positive operating

margins and EBITDA Uootnote deleted), reduced cost of services, reduced
operating costs, improved inventory management, improved information systems, improved management tools, and maintained a stable cash position with no net
borrowing to fund post-petition operations.

21. EBITDA has substatially increased during the period of Crowley's stewardship of the company. From 1995 though 1999, a time prior to Crowley's

employment, the Debtors' EBITDA was a negative $37 millon. From January 2000 through September 2002, the Debtors exerienced $83 million in positive
EBITDA, a $120 million improvement under Crowley's management. For the first
nine months of 2002 (including the six month afer the Trustee was appointed),

EBITDA was a positive $21 milion; by contrast, EBITDA was negative $54 milion
for the year ended December 31, 1999.

22. Revenue and gross profit are also increasing. For the nine-month
period ended September 30, 2002, the Debtors' revenue rose $3l milion, or 11

percent, from the same period the year before, resulting in an increased gross profit
of $9 milion. Indeed, revenue was higher during each month of 2002 than during

the same month in 2001.

23. Under Crowley, CHC has improved its financial performance by
identifying and focusing the business on its most profitable core therapies. When Crowley was named CEO, non-core therapies accounted for approximately 38

percent of infusion therapy revenues for the quarer ended December 31, 1999; by
the thid quaer of 2002, non-core therapies represented only approximately 27

percent of infusion therapy revenues. In addition, daily average revenue per patient for core therapies rose 3% to $151 per pay during the nine months ended September