Free Appendix - District Court of Delaware - Delaware

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Case 1:04-cv-01565-SLR

Document 149-3

Filed 05/15/2007

Page 1 of 39

fif -t7

In The Matter Of:

Corani Healthcare Corp.

Hearing
Deceniber 21, 2000

C.A. # 99-2889 (MFi

'.

Wilcox & Fetzer, Ltd.

Registered Professional Reporters 1330 King Street Wilniington, DE US.A. 19801 (302) 655-0477
Original File CR12-21.A'll~ 91 Pages Min-U-ScriptC$ File in: 2267155769

Word Index included with this Min-U-Scrip~

C66

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Hearing

Case 1:04-cv-01565-SLR

Document 149-3

Filed 05/15/2007

December 21, 2000

C.A. # 99.2889 (MF)
Page 21

Page 2 of 39 Coram Healthcare Corp.
Page 23

(1) management that they hoped to achieve, and Mr. Dania I words were, "if everything goes right." (3) Now, in May, at the request of Chanin, a
(4) long-term business plan and forecast was presented to

(1) So I don't think that anyone would suggest

(2) that Coram is not facing life-threatening problems. The (3) record is clear that the plan effectively resolves those

(4) problems. So I think the record on good faith is
(5) overwhelming.

(5) Chanin so they could undertake a valuation. La and
(6) behold, the EBITDA target underthe new business plan

for

(6) There is not a scintilla of evidence which
(7 rebuts the final comment of Mr. Crowley in his direct (8) testimony which he said "which was an ernest effort by (91 independent citizens who thought this was the best we
(10) could do to save this company. It was a very (11) well-considered and thought out, much discussed,

(7 the year 2000 was projected to be $35 millon, the exact (8) same number as was presented in the stretch budget.
(9) Now, Your Honor, if management had any

(10) desire to artifcially depress the value of Coram in
(111 order to deliver it to its creditors instead of its

(12) shareholders, why in the world would they present a
¡i3) business plan to Chanin that reflects a stretch budget, a (14) budget that exists only if everyhing goes right and a (15) budget that we have seen since then the company has (16) missed by some 20 percent. If this management has erred (17) at all in connection with the valuation process, it did (18) so only by giving the equity every benefit of the doubt.
(19) Your Honor, you have authored, perhaps, the

(12) unanimously voted for, well advised. We did the best we (13) know how. I don't think there is any evidence in the

(14) record to the contrry."
(15) Now, Mr. Levy has gone to enormous lengts.

(20) seminal opinion on good faith in the Zenith Electronics (21) case.As Your Honor knows, good faith is generally (2~J described, and I'm paraphrasing this to some e),'tent, but
(23) it's a legitimate, honest purpose to resuscitate a

(16) to prove that to which there is no dispute: that Dan (17) Crowley has a separate business relationship with (18) Cerberus Capital whose principal, Steve Feinberg, is a (19) former director of Coram. It has been fully disclosed in (20) public documents and it is fully disclosed in the (21) disclosure statement. It is stipulated.
(22) Mr. Levy has established that Mr. Crowley

(23) is an enormously successful executive with high
124) compensation requirements. That's stipulated.
Page 22
Page 24

, financially troubled company.

(1) I don't think there can be any serious

12) question about this plan's good faith. The evidence is (3) unrebutted that Coram does not have enough cash fIowto

111 He has established that Mr. Crowley went to (2) the board of directors and asked to change his
(3) compensation in February, even though he already had a (4) contract, because he felt that the task was larger than (5) he originally anticipated.Agreed. It is stipulated.
(6) I'm not sure how these points relate to the

(4J pay interest on its debt together with capital
(5) expenditures and other ordinary and necessary business

(6) expenses. That's simply unrebutted. There isn't enough
r7 money there to coyer all the obligations.

18) The evidence is unrebutted: Coram's debt (9) comes due in four months. One quarter of a bilion
(10) dollars matures in four months, and it cannot be repaid (11) and it cannot be refinanced. Chanin's debt capacity

the plan. I don't think they do. (8) What Mr. Levy has argued but has utterly
(7 good faith of

(12) analysis was completely unchallenged in this record.
113) Their analysis was that Coram cannot support any more
(14) debt than is currently provided for in this plan of
115) reorganization.

(9) failed to prove is that Cerberus, through Mr. Crowley or (10) Mr. Feinberg or some combination of the two of them, (11) dominated the board, controlled the company, and most (12) importntly, caused Coram to act in derogation of its (13) duties to stockholders.
(14) In his opening statement Mr. Levy said that

(15) was what he was going to prove. He was going to prove
(16) that the noteholders dominated the board and ca used Coram
(17) to act in derogation of

(16) Mr. Lynn, although he had not done a debt

(17) capacity analysis, conceded that Coram would not be
(18) appealing to a new lender if it tried to refinance the

its duties.There is no evidence

(18) in this record to support any of them.

(19) debt.
(20) Finally, the evidence is unrebutted that

(19) Your Honor, I don't think I could say it
(20) better than Your Honor did in the Zenith case.

. Coram wil be noncomplying with Stark II if confrmation
, and consummtion do not occur within ten days. I think,

(21) Your Honor stated: "Otherthanconclusorystatementsof
(22) the multiplicity of relationships between LGE and Zenith (23) and how LGE domiated the company, there is little (24) support offered for the Equity Conittee's premise."

(23) as ;\1r. Crowley testifed, if there is not compliance, his
(2~i quote was: "I think it's the end of Coram. Period."

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wilcox & Fetzer, Ltd. (302)655-0477

¡: .

Case 1:04-cv-01565-SLR
Coram Healthcare Corp.

Document 149-3

Filed 05/15/2007

Page 3 of 39

Hearin~

c.A. # 99.2889 (MF)
Page 25

December 21, 2000
Page 27

(1) Your Honor, those words apply with equal

(1) a case that if

you want to show that there was an

(2) force here. Your Honor, in Zenith, as Your Honor knows,
(3) LGE Electronics was a 57 percent stockholder of the

(2) improper conduct taken, improper relationship, you have
(3) to prove it.

(4) debtor. It could but didn't control the board.
(5) Here Cerberus or the noteholders couldn't

(41 There is no evidence in the record,
(5) Your Honor, that any action was taken in derogation of
(61 any duties to stockholders, creditors, or anyonc clsc.

(6) control Coram even if they wanted to. Thc evidence is

(7 clear that they didn't. Mr. Crowley's loyalties wcre

r7 i thk the evidence is clear -

(B) challenged on the witness stand. I don't thk anjthg
(9) was introduced that rebuts his basic statement which he (10) stated: "I am my own man. I'm no sycophant for Cerberus
(11) or anybody. I don't have any special allegiance to

(8) THE COURT: Well, what about the payment of
(91 the cash interest rather than piC?

(10) MR. FRIEDMAN: Your Honor, it's a very good

(11) question, and I thk the answer is quite clear on the

(12) Cerberus, Steve Feinberg, or anybody. My position at
(13) Coram is to do the best that I know for al of the

(12) record. I thk it is helpful to look at the Amaral
(13) deposition, as well.

(14) stakeholders of Coram. Your Honor, that is what I have
(15) tried to do."

(14) Ths company had been trying since 1998 to
(15) restructure the debt.There were special commttees
(16) appointed in 1999.There were discussions back in 1998
(17) when Mr. Amaral was trying.

(16) I don't thik there is any evidence in this

P7) record to the contrary. It is tellg that Mr. Levy
PB) devoted alost his entie cross-xamiation to the period

There has never been any

(lB) success by tls company in being able to restrcture its
(19) debt.

(19) between September and November of 1999, more than a year

Mr. Crowley made a judgment cal.

(20) ago, a tie frame that preceded Mr. Crowley's employment
(21) by Coram.

(20) Number 1, I th he testied that it
(21) didn't make any sense to contiue to have the debt of

122) It is duly stipulated agai that
(23) Mr. Crowley became the chaiman and CEO of Coram. His
(24) position was unclear. His role was unclear. He went
Page 26

(22) this company expand which would have been resulted - the
(23) paying of the cash was simply - if he didn't pay the

(24) cash, the debt would have expanded by the amount of the
Page 28
(1) nonpayment.

III lookig for money in al different places. He asked for (2) more money than he was able to get from Coram. He asked
(3) for money from Cerberus. He certay explored every

(2) THE COURT: So what? It was being
(3) restructured, anyway. Do you know of any debtors' (4) counsel who has reconuended to the debtor to pay (5) creditors in cash when they don't have to shortly before (6) bankruptcy is fied? r7 MR. FRIEDMAN: Yes. I'll tell you why.

(4) opportunity to profit from tls relationship.
IS) But at the end of the day, the debtors,

(6) Coram, were not wilg to alow hi to be paid from
(7 Cerbcrus. Cerberus was not wilg to allow hi to be
(B) paid from Cerberus.

At the end of the day, as his

(B) Because you're asking these creditors to buy into
(9) ownership of the company at a valuation which is a lot
(10) less than theyare owed.When they become the owners

(9) employment with Coram was reduced to a contract, and look

(10) at his contract to Coram, you look at his contract with
(111 Cerberus, you see the roles are clearly defied.

of

(11) this company, when they become the owners of this
(12) company, every

(12) Cerberus does not pay Mr. Crowley for any work which
(131 Mr. Crowley does to Coram tht is in the documents.
(14) There is no evidence to the contrary.
(15) Virtualy nothg was asked of Mr. Crowley
(16) about how the pla came to be, which I th is the Oiùy

other -

(13) THE COURT: The alternative, they have two (14) choices. One, I'll give them the keys today, or the (15) other is they buy into a restrcturg, where, by the
(16) way, no matter what amount of debt you call them, since
117) you are giving them 100 percent ofthe equity, they get

(17) rele\'ant issue in connection with the confirmation
r'Bl hearing. Mr. Levy would like you to iner that because
(19) Mr. Crowley was an employee of Cerberus, that the pla

(18) it all, anyway. They are gettg the keys no matter
(19) what.
(20) MR. FRIEDMAN: Well,Your Honor, nobody

(20) must be inirm. There must be somethig wrong with the
(21) plan when an offcer of the company has a business (22) relationship with Cerberus.

(21) wants to give the keys to the Creditors' Commttee.

(22) THE COURT: The creditors don't want the
(23) keys.
(24) MR. FRIEDMAN: Your Honor, i don't thin

(23) TIs is not a case for res ipsa loquitur.
(24) Ths is not an aiplane falg out of the sky. TIs is

wilcox & Fet7.e.r. J.tcl. (~02

C68

!(rM1"-l

(C)) P~oe 2C; . Pap'e. 2R

Hearing

Case 1:04-cv-01565-SLR

Document 149-3

Filed 05/15/2007

Page 4 of 39
Coram Healthcare Corp.
Page 47

December 21, 2000

c.A. # 99-2889 (MF)
Page 45

.1 But, Your Honor, the whole point of all of

(1) company, it doesn't matter to us what he is doing

.~i this, I think if you look at the letters that were (3) prepared by counsel that somehow that got into the (4) record, that's basically what everybody said. Let's not

(2J elsewhere. He is not a full-time employee of Coram. We
(3) are not asking him to be a full-time employee of Coram. (4) We are not demanding that he do anything other than get (5) us the results. If he can save this company and get us (S) the results, God bless him. It's not our business. We

15) make this about people. Let's not make this about (S) agendas or conficts. Let's find out what the company is (7 worth. Once we find out what the company is worth, the (8) allocations wiI flow from it. Then if people feel that (9) the valuation is wrong, they'll have every opportunity to
(10) convince the Court that they are wrong.
(11) That was my advice. My advice was when you

(7 are not going to intenere.
(8) That is not irrtional thining. This

(9) company was on the verge of liquidation. It lost (10) $120 nilion last year. It's not irtional for a board
(11) to say, look, come help us, save us, and whatever you are

(12) find out what it's worth, you know who has standing to
(13) appear and who doesn't.

(12) doing elsewhere, it's your business. That's the way it
(13) was treated.
(14) It wasn't nondisclosure. It wasn't someone

(14) Then take it one step better. When you go
(15) through a bankruptcy proceeding, (lS) with the valuation have every people that don't opportunity

agree

(15) said I'm not going to tell you. No one asked. It just
(lS) didn't come up. Maybe it should have come up.This is a (17) company that was going down the drain. (18) THE COURT: Well, you are asking for

to come inand

117) argue that the valuation is wrong. Then if the Court (lS) disagrees with the valuation, then the plan never gets
(19) confrmed.
(20) So, I think,

Your Honor we are relying

(19) releases from the offcers and directors.You are asking (20) me to say they acted completely reasonably in their
(21) actions.
(22) MR. FRIEDMAN: No, we are not.

(21) frankly upon the fail-safe notion that through a
122) bankruptcy, one of two things would happen: either a

Well, we

'~1i Court would agree that the equityholders were out of the

money and conclude that they can't complain about how
Page 46
(1) (2) (3)

Your Honor two things. (23) are only asking r24) Number 1, we are asking for exculpation,
Page 48

Your Honor would conclude or this process unfolded, or money, someone else would conclude that they are in the fied and in which case the plan wouldn't be confirmed as

(1) not really releases in connection with the plan process. that's r2J Your Honor, I mean, we'll drop it certinly if
¡31 what it takes to get the plan confirmed.That's Your Honor knows is typical in (4) something which I think
(5) most bankruptcy cases.
IS) But this is not about protecting anybody,

(4) there would be no argument that they would get their (5) economic entitlement. I think that that's the way this
(S) was structured.
r7 You can't fault a company. I mean, what

(7 protectig any offcers or directors, and it's not about
(S) doing anything other than allowing

(8) happened here was the company was in particularly
(9) difficult circumstances. There is no question about (10) that. Mr. Feinberg basically told the company, here is a (11) guy you may want to hire. He's a great guy. Hire him. (12) And they hired him. I mean, I don't think that that

the value of this

(9) company to be distributed in accordance with the (10) priorities under the Code.

(13) ought to be discourged or - you know, I don't
(14) understand the crime in that.

Your Honor doesn't agree that the (12) company is insolvent, please don't confrm the plan.We (13) wiI tr something else. I don't know what we wil do.
(11) If

(14) We wil tr something else.
(15) If the company is insolvent, Your Honor,

(15) THE COURT: Well, should I encourage the
(1S) failure of disclosure to the debtor? Should I encourage (17) that tye of activity? Again, where on the scale can
PS) they not disclose?

(lS) please let this company surive. Let the plan get
(17) confirmed. If

there are issues about individuals, about

(lS) their compensation, about whether they ought to be
(19) exonerated or not, we wil

(19) MR. FRIEDMAN: Your Honor, the board

leave that for another day.

r?~i consisted of sophisticated real people. They were told
that Mr. Crowley had an arrangement with Cerberus.
r22) Here is their thinking.

(20) But it seems to me that when the board

(21) invited Mr. Crowley to come save the company and
(22) Mr. Crowley came in and the company was saved, things r23) were happening very quickly and things were happening,

Their thining is

r23) whatever he is making from Cerberus, God bless him, we 124) don't care. If he can come in and turn around this

(24) you kno~, I thin in a crisis environment and none of the

Page 45 - Page 48 (14)

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Wilcox & Fetzer, Ltd. (302)655-0477

Case 1:04-cv-01565-SLR
Coram Healthcare Corp.

Document 149-3

Filed 05/15/2007

Page 5 of 39

Hearin!

c.A. # 99-2889 (MF)
Page 49

December 21, 2000
Page 51

(1) board members at this point feel misled.

They are happy

(1) range.

They weren't lookig for a particular number or

12J that he came in.

(2j anything.
(3) I must say that we didn't know, and i don't

(3) I think everybody is better for it. I
(4) think the shareholders are better for it. They have an

(4) thk the noteholders knew where they were comig out.
(5) They valued it with a range of $170 mion to
IS) $215 mion, or if (7 at $221 and a hal

(5) argument today that the company is solvent:They had no
(S) argument eight months ago that the company

was solvent.

r7 I don't think it's the appropriate thing to

you thow in the value for the NOt, The midpoint of that range mion.

(S) do to penalize this company for what may be in

(S) is a litte bit below $200 mion.
(9) Thus, on at least UBS Warburg's valuation

(9) Your Honor's view indiscretion on the part of the live with whatever modifcations on PO) chairman. We wil

(11) those points Your Honor would insist upon. But certinly
(12) I don't think it behooves the Court to deny confirmation
(13) on that basis.

(10) and the exhbit wruch shows the liabilties, the company (11) is insolvent by at least $90 mion, wruch is a
(12) substatial number.
(13) i th Mr. Friedman mentioned that the

(14) MR. GEWERTZ: I think Mr. Friedman was (15) forced to take longer than he had intended.
(1S) THE COURT: Yes.

(14) Equity Commttee's own valuation shows a $283 mion (15) valuation. So there sti would be a marginally
(IS) insolvent situation here.

(17) MR. GEWERTZ: So I'll try to be shorter
(18) than I had intended.

(17) Now, under the plan, the noteholders, who
(18) are owed 251 or $252 mion, I thk tht exhbit showed

(19) We represent the Creditors' Commttee here.
(20) While the general unsecured creditors are a small part of (21) the creditor constituency, putting aside the noteholders

(191 a little bit more than $ 251 mion, plus before there
(20) could be any distribution to shareholders, they would be

(21) entitled to postpetition interest of alost another

(22) who have guarantees, and two of the three noteholders,
(23) not Cerberus, is on the commttee, the other being Aetna, (24) nevertheless, the creditor's body, as a whole, has
Page 50

(22) $12 mion, therefore, they give up over 570 mion in
(23) value in exchange for the stock of the reorganed
(24) debtor.

They accept new notes at a market rate of
Page 52

(1) unanimously, 100 percent of the general unsecured
(2) creditors, whose claims

were not disputed and were tiely

(3) fied and who are impaired, because the other company,
(~) they are getting 100 percent, but in health

(1) interest of 9 percent, far below what the prevailing (2) market would be for a company of this sort, and not to (3) get any interest payment for four years.
(4j So I think that gives this company a fairly

care, they are

(51 sharing a pool of money, they have 100 percent voted in (S) favor of the plan.
(7 For that reason, as well as the absence of

(5) good chance to succeed if the plan is confirmed and the (S) debt is restructured along those lies.
r7 Given those numbers and given those

(8) any legal - what appears to be absence of any legal (9l impediment under the Bankruptcy Code orotherwise,the (10) Creditors' Committee supports the plan and urges its (11) confirmation.
(12) I don't want to repeat some of the

(8) circumstances, the Creditors' Commttee believes that the
(9) cramdown here of the equity under 1129(b) of

the Code is

(10) proper and that the absolute priority rue is satisfied
(11) and that the noteholders wil not - and this is one of

(12) the first objections in the Equity Commttee's objection

(13) arguments that Mr. Friedman made in the interest of (14) saving time, but as I said, there does not appear to be ('5) any legal impediment.
(lS) Essentially our view of this matter is that

(13) that was fùed with this cour - they wi not receive (14) more than 100 percent on their claim. (15) That would dispose of the first objection.
(lS) The other three objections sort of playoff (17) each other. Running through them all is really this
(lS) valuation thread because the theme is that somehow

(17) it's a valuation issue. The evidence shows liabilties (IS) of close to 5290 million. The expert report of (19) UBS Warburg, which was hired by the Creditors'Commttee,
(20) and UBS Warburg, you heard the testimony, has the largest

there

(19) was this conspircy between the noteholders and the (20) creditors to deprive the equity of the value of their
(21) interests.

(21) and most acúve practice on Wall Street in the healthcare (22) industry, and the particular witness was the only witness valued a company in the home healthcare (23) here who has ever

(22) Well, if there was no value for their

(23) interest, then there is nothing to conspire to deprive
(24) them of.

(24) infusion business, they valued this company within a

.Wilcox & Fetzer, Ltd. (3

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Case 1:04-cv-01565-SLR
Coram Healthcare Corp.

Document 149-3

Filed 05/15/2007

Page 6 of 39

C.A. # 99-2889 (MF)
Page 73

HearinL
December 21, 2000
Page 75

.

(1) What I mean here is that they put
(2) themselves in tils position. If they had proceeded in (3J January, then tils hearing wouldn't have been on
(4) December 22nd. But we are here.

(1) 116 millon. (2) THE COURT: I know there was a discussion
(31 with Mr. Feinberg, and he didn't have a calculator,
(4) either.

(5) THE COURT: But lie Solomon, you are (Sl askig me to ki your chid, too.
(7 MR. LEVY: No, I'm not, and I have a

(5) So as punishment for their bad acts, if you (S) wil, equitably subordinate the Cerberus portion of the (7 not~holder debt.
(8) MR. LEVY: That solves Stark II.

(8) solution to keep the chid alve.
(9) THE COURT: Deny confumation, the company

(9) There is a third response I want to give
(10) Your Honor, and that is this:There is no question that There is no question that (11) Stark II says what it says.
(12) they don't have an exemption.
(13) But there is another step you have to take.

(10) is dead.
(11) MR. LEVY: Okay. Thee points.
(12) One, the debt can, and I have no doubt

(13) wil, because they are not going to let tils company go

(14) down, convert to a perpetual preferred wilch the
(15) accountants wil say is equity because there is no tie

(14) That is: Wil it really wipe out the company? Now,
(15) what's the evidence? Well, we have Mr. Crowley who says (16) that in his experience, he believes that the company wil (17) go up in smoke if they have to comply. But what's his
(lS) experience?

(ls) when it's due, they convert 100 mion(17) THE COURT: But the problem with that
(18) proposal, I don't have the power to modify the

plan, do

(19) I? I can only confum tils plan or deny confumation of
(20) tls plan. I'm somewhat restricted:There is no other

(19) He testifed he never heard of Stark II in (20) any other company. He did not brig an expert in here.
(21) He had an expert sittg in the courtoom here, a

,
\

(21) plan on the table.
(22) MR. LEVY: Right. But, Your Honor, you

(22) healthcare expert, on the first day. He didn't brig
(23) someone in. There's no basis for that.
(24) I would suggest, Your Honor, that these
Page 74

. (23) have to say, what are these people going to do if you
(24) deny confumation of the plan? They are now going to

Page 76

11) have eight days. If it is correct, if Mr. Crowley was

(2J correct that the company wil go up in smoke, they are to havea decision to make.You can't make themdo (3) going
(4) it. You can't modif the plan. But what do we thin are going to do? Are they going to be stubborn and (5) they IS) say we are going to wipe out all of our interest here, we

(1) noteholders are prett smart people. They are taing a (2) big chance here that you won't confirm the plan.They
(3) deliberately took that chance. Maybe they took that (4) chance and that one of the things they considered, one of (5) the parts of their calculus was, well, maybe it's not so

(7 don't care, or they can convert. (8) Number 2, I have another plan, and that is (9) if you use the equitable subordination principle based on
110) the unfairness here and treat whatever the number is,

(S) bad. Maybe if Judge Walrath doesn't confirm our plan, (7 we'll get by for a while because, you know, we only have (S) 2,500 stockholders. It's not like every doctor in the
(9) world is a stockholder. I don't know if

that is the

(10) case.

(11) S100 millon of debt as eqlfity, you've done it.You have
(12) met with Stark II.
(13) Number 3, Your Honor -

(11) But I would lie to, if I may, turn (12) THE COURT: But since it'sa public
(13) company, it's not simply a matter of identiying today

(14) THE COURT: Well, but let me push you on
(15) this.

(14) who are the shareholders. Because it's publicly trded,
(15) isn't the problem that tomOrrow a referrng doctor could
(1S) buy

(lS) MR. LEVY: Please.

a share and, therefore, every tie we get a referrl
a do cto r, we must make thatdocrorand

.
\

(17) THE COURT: As I see the evidence, the only (1S) suggested conspirtor on the noteholder side is Cerberus. (19) MR. LEVY: 116 mion.
(201 THE COURT: Well, don't they have - is
(21) that 116 millon?

(17) from (18) of

everymeniber

that doctor's family within the Stark confines sign a

(19) disclosure sayig they are not a shareholder. do is (20) MR. LEVY: I thin what you have to

(22) MR. MILLER: Whatever 35 or 36 percent of (23) 250 milJon is, and I'm not good enough with numbers.

(21) add one more piece of paper to the pile of papers that I
(22) know I fil out every tie I go to see a doctor. I'm not
(23) suggestig it's -

(24) MR. LOW: The disclosure statement does say

(24) THE COURT: It's not the patient fillng

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Coram Healthcare Corp.
Page 79

December 21, 2000

c.A. # 99.2889 (MF)
Page 77

.1) out - I know doctors have a little problem with filling

out forms.

(1) burden shouldn't be on the equityholders.The burden is (2) on the n"Tongdoers, and they haven't been able to show
(3) that.
(4) I think that giving the possibilty of a

13) MR. LEVY: Doctors do that, too.
(4) Your Honor, can I turn your question around

(5) a little bit and say, What if you do confrm this plan?
(S) You write, forgive me, eloquent opinions. What if you do

(5) long, drawri-out class-action litigation to shareholders (S) is simply not the equivalent of the right of the equity

(7 confrm this plan and the opinion says because of the
(8) problem of Stark II, I don't care that they delayed. I (9) don't care about a millon dollar undisclosed statement.

(7 to not have a plan confrmed that doesn't meet the
(S) entirely fair standard or the fairness standard of the (9) Bankruptcy Act.
(10) That's why, with respect, I thin the

(10) What it really wil say, Your Honor, to
111) people like Cerberus, and I don't mean this pejoratively,

(11) solution No.5 just doesn't go.You can't bless what
(12) these people did.

(12) but they are in the business, they are high-risk lenders,

(13J what it wil really say to them is, go buy management and
(14) you can take over a company.

(13) Your Honor, on this matter of disclosure,
(14) it's not sufficient for these lawyers to sit in here and

(15) It will say that the courts have blessed
(lS) this kind of behavior. I know you don't want to do it 117) and I know that that is the solemnic problem that
(16) Your Honor is facing now.
(19) I have a whole eleven pages here,

(15) say I don't know why.These people filed public (lS) statements with the Securities & Exchange Commssion.
(17) Every IQ-K and !think every 1O- has a section called 118) "Other Relationships" where you have to describe things

(19) like that. The notion that a securities lawyer would

(20) Your Honor, of description of the things and I'm not (21) going to go through them. You know the record better
122) than I do.

(20) say, well, I'm not going to ask you if you are getting (21) this millon-dollar-a-year conficting payment is sily. (22) Of course they had to disclose it.

(23) THE COURT: Isn't there an option five?
. MR. LEVY: I would like to hear it.
Page 78

123) The argument which I heard here that
(24) Mr. Crowley is such a rich man or a man of such integrity
Page 80

(1) THE COURT: Strike anything in the plan (2) such as the releases and the exculpation and - not the (3) indemncation, but anything that would insulate
(4) Mr. Crowley or Cerberus or any of the offcers and 15) directors from any action by the shareholders regarding IS) the actions that they have taken, need I really decide (7 that they, by their delay, caused harm to the

(1) that a millon dollars is unimportnt to him, it simply
(2) doesn't fly. It doesn't solve the confct. The (3) confict exists no matter what the purity of
(4) Mr. Crowley's soul.

(5) Your Honor also mentioned the smell test.
IS) That's EC-20, the private records, Your Honor.

(7 Mr. Crowley testies that it is a throw-away letter, a
(S) cold proposal after testifying that he asked for the (9) relief that's in it immediately before he sent it. Then (10) look at it. Can you honestly believe that that's the way (11) Mr. Crowley would write a proposal? I just don't think
(12) you can.
(13) I guess I really ought to get back to what
(14) I thin is the centrl matter of

(8) shareholders, is that really a confrmation issue so long (9) as any cause of action on that is not released by the (10) plan, and so long as by my confrming the plan I make no
(11) decision as to whether or not that type of activity rises

(12) to the level of a suit by the individual shareholders
1131 under Delaware law?

114) MR. LEVY: Well, I answer that, Your Honor, (15) by saying that the injury here was to the company, the (1S) injury was to the company, not the shareholders for the

what's troubling

(15) Your Honor.
(1S) Mr. Friedman talked mostly about valuation.

we had someone (18) watching out for the equity here, somebody trly
(17) reason I heard you say, and that is if (19) independent, if instead of (20) Mr. Unconficted back in

.different result.

Mr. Crowley it would have been January, we might have had a

(17) I'm not going to argue who was the more independent (18) appraiser or evaluator here.

r19) THE COURT: Even under your valuation you
(20) are not going to meet Stark in ten days.
(21) MR. LEVY: Pardon me?

Now, I can't prove and nobody can prove (23) hypothetically that Mr. Unconfcted as CEO would have
(24) done better, but there is certinly possible, but the

(22) THE COURT: Even under your valuation, the
(23) company can't meet Stark in ten days.

(24) MR. LEVY: I agree, absolutely right. I'm

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.
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(1) going to come back to Stark in a minute. I just want to (2) make this point.

(1) very brief.

\.

The (4) reason that process is importnt is because it increases
(3) You can't isolate price from process.

(2) There is a pending class action, as I
(3) mentioned in my opening statement, against the offcers (4) and djrectors against Cerberus, against Foothil, against (5) Goldman, against everybody I know in this case othenhan

(5) price. Bad process, bad price. Good process, good

¡S) price. I think that's what we learned from Weinberger (7 and from Zenith. You can't bifurcate them as Weinberger
(8) said.
(9) Look. It is ten days, Your Honor. It's

(S) me, and I'm probably going to wake up one morning and (7 find myself named, as well.
(8) Your Honor, it's the same issues that have

(10) their fault that it's ten days. They've gotto find the I can't.They can because if (11) solution.You can't.
(12) Your Honor refuses to confrm this plan because of their
113) behavior, they are going to have a busy ten days. But

(10) release those claims to start with, so it's not as if

(9) been raised in this case. The plan never purported to you

(11) need to make any modifcations on that.

(12) If there are claims, if there are
(13) derivative claims that exist, they belong to the debtors. (14) If you wanted to give standing to the Equtty Committee to

(14) they've thought about it. They already asked you, by the (15) way, to extend the exclusive period into January. But (1S) it's their problem. They did wrong. I believe they wil (17j come up with a solution, Your Honor.
(18) I believe they are tring to make you the

(15) bring them going forward, that's an option you have.
(lS) I'm not aware of a theory by which you can

(19) victim. They are trying to say you, this Court, are (20) going to make sick people even sicker. They are not

.
(

(17) subordinate debt to equity. If that's a theory that the (18) Equity Commttee wishes to brig going forward, I don't (19) know. I don't think it has merit, but I suppose they (20) would have the right to do that.
(21) But I want to go back. I've been sort of

(21) going to let that happen because it's going to cost them (22) too much money.

(22) searching my soul since I sat down to try to figure out
(23) how we got to this place.

(231 Your Honor, I think I'm through.
(24) I would like to debate the very difficult
Page 82
(1) problem that I truly understand

(24) Number I, I don't have a solution despite
Page 84

you face, but as you

(2) debated, I guess I would just - I guess -

(3) Mr. Low just handed me a note that says,

(1) what Mr. Levy said. I don't have a solution to this you don't confirm the case. (2) problem if That's not your (3) problem, but I do want you to understand that.
(4) The second thing is: How did we get here?
15) We got here under the theory that we would fie a plan

14j and he is right, Mr. Crowley testifed that preferred (5) would work.

(S) But as you debate this, they did it. They (7 have the keys to their own jail cell. That's the reason,
(8) and not my failng voice, that I think I'm going to sit
(9) down and ask for those reasons that the plan not be

(S) based upon an independent valuation and then we would (7 invite whoever had a problem with it to raise their (8) voices with this Cour.
(9) \VhateverYour Honor has observed about what

(10) confirmed and then - I'm not quite ready to sit down.
you dqn't confirm it? I (12) thin they solve their problem. I thin we then have
(11) What happens if

(10) was disclosed in public filgs or whether there was
(11) less-than-full disclosure in the disclosure statement

(13) some time - remember, the debt doesn't come due until
(14) May, so we have tie. We have time to have a process
(15) here that is much more fair.We have time to see if

(12) cannot be said that in this litigation, in this cour,
(13) there hasn't been complete disclosure of all these
(14) issues.

the

¡IS) company can be marketed. We have time to look at the

(15) Our view, frankly, was, and I can't even
(lS) wink of why, the question you asked Mr. Miler, I don't

(17) American investor story and you can pick at it and say (18j you used the wrong companies or you can say, hey, things

'.

(19) are getting better and everybody may come out fine if
(20) Your Honor does that.

(21j Thank you. Thank you for all the
(22) attention.
(23) THE COURT: Thank you.

(17) have any answer to it, either, why the disclosure (18) statement says that there is an agreement but it doesn't (19) say how much. I just don't know. I'm trying to (20) remember. I don't even remember why it says what it
(21) says.

(22) What I do know is the general theory of
(23) this debtor going into cour was we are going to fie (24) this plan, we are going to defend this valuation, and

(24) MR. FRIEDMAN: Your Honor, I'll just be

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Coram Healthcare Corp.
Page 87

December 21, 2000

c.A. # 99.2889 (MF)
Page 85

.') what we are going to do is we are going to allow any

(1) point with another plan or sale or some other yehicle

A party who has a problem with it to have complete
(3) disclosure.
(4) I said at the first hearing that you

(2) that I think there is no basis to conclude wil result in
(3) anything other than creditors getting less and the (4) equityholders stil getting nothing.
(5) So, Your Honor, if the issue is that

(5) wouldn't hear any discovery fights in this case, and you (S) didn't. I've been in plenty of cases where Your Honor

(S) somebody did something wrong, and I'm not suggesting

(7 has been called upon to deal with counsel fighting over
(8) documents and depositions

and discovery.Youdidn'thear

(7 that, and I'm certinly not endorsing that view, but if (8) that's the point, there is redress in the court, but I
(9) don't think that the answer is to put this company out of
(10) business.

(9) any of that in this case.

(10) We made all proper disclosures since the
(11) day we fied. We made all documents

available. There is

(11) Thank you.

(12) no lack of understanding as to who gets what and whose (13) relationships are what. Our view was at the end of the
(14) day

the bankruptcy process would have a cleansing effect (15) on all these issues. Your Honor would ultimately decide

(lS) whether or not the valuation was appropriate, whether or (17) not the plan meets the salutary purpose of You confrmed the plan. (18) rehabilitation.
(19) I honestly can tell you that from the

(12) THE COURT: Well, I'm in a difficult (13) situation. I would like to sidestep my duties, but I (14) think I have to determine in deciding whether to confrm (15) this plan under i i 29(a)(3), I must conclude that it is (lS) proposed in good faith and that the plan proponents have (17) acted in good faith. I just do not want to be in a (18) position to conclude on this record that that is so. I (19) cannot conclude on this record that that is so.

(20) standpoint of those who worked on this plan, which (21) includes the Chanin people, our people, the debtors'
(22) management, never in a single time - this is not in the

(20) I think that the contrctual relationship
(21) between Cerberus and the CEO, Mr. Crowley, did taint the

1?3) record, but I feel the need to tell you - there was
never a single moment when there was a piece of
Page 86

(22) process, and I think that, if anything, the ultimate
(23) fairness of the process in bankruptcy is a paramount (24) principle to be protected by the Bankruptcy Court.
Page 88

(1) information that we thought was relevant that we elected (2) not to include in a disclosure document. Never. This (3) particular point is one that I honestly cannot recall
r4) ever arising.

(1) Maybe we would be at the same place today
(2) if that contractual relationship had not been there, if

(3) it had been disclosed to all parties, but I don't know (4) that and I don't think anybody wil know that.

(5) So having said all that, I believe that the
(S) failure by this Court to confrm this plan leaves us with r7 no solutions.
(8) I think it's also very importnt to note,
i9) Your Honor heard from Mr. Haydon, Your Honor heard

(5) We are at a terrible place.The Equity
IS) Commttee, even on its numbers, which I agree with the (7 Creditors' Commttee's counsel and their valuation expert the Equity Commttee expert (8) and the cross-examination of

from

(10) Mr. Crowley. I thin the evidence is consistent.

There

(9) does point out the questionable nature of that valuation.
(10) I think under any of the numbers the

(11) is no other plan. I don't mean in a sense there is no (12) other plan on file. I mean there is no other plan. (13) There is no other source of equity for this company. No (14) one has pointed to any.
(15) Just like there was a sophisticated debtor,
(1S) there was a sophisticated Equity Commttee. If (17) any other person who had any interest

But I don't think I can (11) company is insolvent today. (12) confrm a plan based on that fact because I thin that (13) because of the process being tainted by this relationship
(14) which began inNovember of1999,and perhaps inAugust of

(15) i 999, has so tainted the debtors' restructuring of its

there was
in this company

(1S) debt, the debtors' negotiations towards a plan, even the
(17) debtors' restrcturig of its operations.

by

(18) way of acquisition, by way of investment, by way of (19) financing, it would have surfaced. There is nobody
r?01 there.

(1S) I think on that point I think it is a shame
(19¡ that Mr. Crowley and perhaps Cerberus and the debtor (20) itself is tainted in this manner because I think there is (21) evidence that Mr. Crowley did do a good job operationally (22) in helping the debtor turn around. But I can't conclude
(23) thatthe debtor might not have done even better

So the ultimate effect of not confrming
1.:2) the plan is we'll go into next year, we'll have
(23) incredibly serious problems, and if we manage to solve (24) those problems, we'll come back to the Court at some

had there

(24) not been this relationship. I don't know. That's the

Page

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IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWAR .

IN RE:
. CORA HEALTH

)

Chapter 11

CAR CORP.
Debtors.

and CORA, INC.,

) ) ) )
)

Case Nos. 00-3299 (MFW) and Case No. 00-3300 (MFW)

Jointly Administered
Objection Deadline: February 20, 2001 at 4:00 p.m. Hearing Date: February 26, 2001 at 4:00 p.m.

NOTICE OF HEARNG

PLEASE TAKE NOTICE that The Offcial Commttee of

Equity Security Holders

of Coram Healthcae Corp. in the above-captioned cases, by and throuEh their attorneys, filed the

attached Motion For Leave To File Adversary Proceedig (the "Motión"), with the Cour on
Februar 6, 2001.

PLEASE TAK FURTHER NOTICE that any objection to the relief sought in the

Motion mus be submitted in wrting, filed with the United States Banptcy Cour for the Distrct of
Delaware, Mane Midland PLaZ 824 Market Street, Wilmgton, Delaware, 19801, and served on the

. undersigned counsel on or before February 20, 2001 at 4:00 p.m.

PLEASE TAK FUTHER NOTICE that a hearg on the Motion is scheduled
before the Honorable Mar F. Walrth on February 26, 2001 at 4:00 p.m. in the United States
Banptcy Cour for the Distrct of

Delaware, -Mane Midland PLaZ 824 Maret Street, Wilmgton,

68L.1
~ .~ ~ CD 'U' .'~. 2001

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Delaware, 19801. Only those objections that are tiely filed and served in accrdace with tls Notice

will be considered by the Banptcy Court at the hearg.

. ark .U:U!J r¥?V.l1Ývi'U urçJp Miuti (No. 2659) .
Tara L. Lattomus (No. 3515)

SAUL EWIG LLP
222 Delaware Avenue, Suite 1200 P. O. Box 1266
Wilmgton, DE 19899

(302) 421-6840\6847

-aidRichard F. Levy (IL ARC NO. 01645064) Theodore J. Low (IL ARDC NO. 01696491)
Benjamin D. Schwar (I ARDC NO. 0252276)

Brandy A. Sargent (lL ARDC NO. 06270551) ALTHEIMER & GRAY 10 South Wacker Drive, Suite 4000 Chicago, IL 60606 (312) 715-4000 (phone) (312) 715-4800 (FAX)

Attorneys for The Offcial Committee of Equity Security Holders of Coram Healthcare Corp.
Dated: Februar 6,2001

C76
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2

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWAR

IN RE:
CORA HEALTH

CAR CORP. and CORA, INe.,
Debtors.

) ) )
)

Chapter 11

Case Nos. 00-3299 (MFW and Case No. 00-3300 (MFW

)
)

Jointly Administered

MOTION FOR LEAVE TO FILE ADVERSARY PROCEEDING

The Official Committee of Equity Securty Holders of Coram Healthcare Corporation

("Equity Committee") hereby moves for the entr of an order permtting it to file an adversar
complait ("Proposed Adversar Complait") on hehalf of Coram Healthcare Corporation ("Coram")

in substatially the form attached to this motion as Exhbit" A." The statutory bases for this motion

are Code Sections l103(c)(5) and l109(b).
The Proposed Adversar Complaint seeks recovery of sigificant damages from Stephen A.
1 and Daniel D. Crowley ("Crowley"), (collectively,
Feinberg ("Feinberg"), several Cerberus entities

the "Proposed Defendants"). The Proposed Adversar Complait alleges that Feinberg (the pnncipal
of Cerberu) and Crowley created and concealed an actul, impermssible confict of

interest, thereby

breachig their fiduciar duties to Coram. It also alleges that the confict was created by Feinberg

to induce Crowley to secretly manage Coram for the benefit of Cerberus, one of Coram's largest

creditors, and seeks recovery for grave and substtial damage to Coram arsing from the missed
opportties, strategic mismanagement, corporate waste and deterioration of Coram's business

1 The proposed Cerberus defendants (referred to collecuvely as ~Cerberus~) are Cerberus Parers L.P.,

Cerberus Capita Management L.P., Cerberus Associates L.L.c., and Craig Court, Inc., its general parer.

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caused by the Proposed Defendants. The Proposed Adversar Complaint also seeks puntive
damages and equitable relief to prevent and deter future improper conduct by the Proposed
Defendants. The grounds for this motion are:

1. On December 21, 2000, this Court found that the plan proposed by Coram could.

not be confired because there was an actual conflct of interest arising from the fact that
Crowley, the Chairman and CEO of Coram, was in the pay of Cerberus pursuant to a concealed
full-time employment agreement which paid hi more than $1 milion per yea, plus the

opportunity for substatial bonuses.2 Furter, Cerberus' principal, Feinberg, acting as a director
of Coram, negotiated and executed a huge -- $13 millon - incentive increase in Crowley's

compensation from Coram (again without disclosing the $1 milion payment that Crowley was secretly geting from Cerberus). It is also significat that Crowley, weeks before the Chapter 11

fiing, caused Coram to make substatial cash interest payments to Cerberus and other
Noteholders (as defined in the Proposed Adversary Complaint) which Coram was not required to
make.
2. Under the circumstances, this Court determined

that it could not fid, as required

by § 1129(a)(3) of

the Banptcy Code, that Coram's Plan was proposea in good faith.

3. The Proposed Adversary Complaint builds upon those basic facts. It alleges that

the actual confict of interest not only tainted the reorgantion process so as to make the plan
not confiable, but also caused significat monetay damage to Coram; and that the persons

causing such daage include Feinberg, Cerberus and Crowley. Moreover, tht damge to Coram

2 The Court: "1 dò thin it's an actual conflct of interest." December 21, 200 Trial Trancript at pg. 89.

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was a direct result of breach of the fiduciar duty of loyalty that both Crowley and Feinberg owed

to Coram as directors, and in the case of Crowley, as Chairman and Chief Executive Offcer.
4. The stadard for assessing damages arising from breach of the duty of loyalty, and

the need to award punitive damages to deter such conduct, is described in Bomarko v.

Internatonal Telecharge, DeL. Ch., CA. Nos. 13052 and 14727, 1999 WL 1022083, at *21
(Nov. 16, 1999) (citing Thorpe v. CERBCO. Inc., 676 A.2d 436 (DeL. 1996)) (emphasis added)
(attched hereto as Exhibit "B"):

where, as is tre here, issues of loyalty are involved, potentially harsher rules come

into play. "Delaware law dictates that the scope of recovery for a breach of duty of loyalty is not to be determed narowly. . . . The strict imposition of penalties under
Delaware law are designed to discourage disloyalty."

See also Cede & Co. v. Technicolor, DeL. Supr., 542 A.2d 1182, 1187 (1988) (emphasis added):
. . . in contrast, a fraud action asserting fair dealing and fair price claims affords an expansive remedy and is brought against the alleged wrongdoers to provide whatever the facts of a paricular case may require. relief

5. The only way Coram can collect those damages from Feinberg, Cerberus, and
Crowley is by a judgment in favor of Coram at the conclusion of an adversary proceeding. The

Proposed Defendants have sufficient assets to satisfy a substantial judgment.
6. Consensual resolution of the disputes between the paries has been foreclosed by

Coram, the Noteholders, and the Creditors' Commttee, each of whom have refued to consider

even the prelimnary steps that would be needed to get together and settle this case. After this
Court's ruling on Decmber 21,200, the Equity Commttee attempted to intiate a dialog for the

purpose of rinding a mechanism by which the Equity Commttee could review the history,
condition, and operations of Coram. The purpose of the proposed due dilgence review was to

permt the Equity Commttee to make a realistic assessment of Coram's current and potential
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value.' However, Coram, the Noteholders, and the Creditors Committee flatly refused to even
discuss any process by which the Equity Committee or its advisors and representatives would be

able to make a meagful evaluation of Coram. In fact, they have refused to discuss any aspect
of

th cae with the Equity Commttee since the heain before th Cour on December 28,200.
7. This Court has the authority to authorize fiing of the Proposed Adversary

complaint by the Equity Commttee. See In Re Monsour Medical Center, 5 B.R. 715 (Bank.

W.D. Pa. 1980). Coram wil not pursue the causes of action alleged in the Proposed Adversary

Complaint because of the plain, actual conflicts of interest between Coram and the Proposed
Dèfendants.3
8. If the suit is successful, as the Equity Committee believes it wil be; substantial

value wil be added to Coram's estate and the issues related to the conflct of interest wil no
longer be theoretical or speculative, but wil be reduced to a binding and collectable judgment.

3 Crowley is Chai and CEO of Coram, Cerberu is Crowley's fu-tie employer and Feinberg is the pnncipal of Cerberus. Present management of Coram would never seek to recover damages againt any of these

defendats.

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CONCLUSION
For the reasons stated, we respectfully request the entry oran order authorizing the Equity

Committee to fie the Proposed Adversar Complaint.

~ dóflHmìug~ Mark Minuti (No. 2659) .
Tara L. Lattomus (No. 3515)

SAUL EWIG LLP
222 Delaware Avenue, Suite 1200 P.O. Box 1266 Wilmington, DE 19899
(302) 421-6840/6847

-and-

Richard F. Levy (IL ARDC NO. 01645064) Theodore J. Low (IL ARDC NO. 01696491) Benjamn D. Schwartz (IL ARDC NO. 0252276) Brandy A. Sargent (IL ARDC NO. 06270551) ALTHEIMER & GRAY 10 South Wacker Drive, Suite 4000Chicago, IL 60606 (312) 715-4000 (phone) (312) 715-4800 (FAX)

Attorneys for The Offcial Commttee of Equity
Security Holders of Coram Healthcae Corp.
Dated: February 6, 2001

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EXHIBIT "A"

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IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWAR

IN RE:

)
)

Chapter 11

CORA HEAL THCARECORP. and CORA, INC.,
Debtors.

) ) )
)

Case Nos. 00-3299 (MFW) and Case No. 00-3300 (MFW

Jointly Administered

THE OFFICIAL COMMITTEE OF EQUITY SECURTY HOLDERS
OF CORA HEALTH

CAR

CORPORATION, on behalf of

) ) ) )
)

CORA HEALTHCAR
CORPORATION, a Delaware Corporation
Plaintiffs,
v.

) ) ) )
)

) )

Adv. No. A-Ol-

ST~PHEN A. FEINBERG, )
CERBERUS PARTNERS L.L.P., ) CERBERUS CAPITAL MAAGEMENT) L.P., CRAG COURT, INC. and )

PLAINTIFF DEMADS TRIAL BY JURY ON ALL ISSUES SO TRILE

DANIEL D. CROWLEY )
Defendants.
) ) )

COMPLAINT
Coram Healthcare Corporation (the

The Official Committee of

Equity Secunty Holders of

"Equity Commttee" or the "Plaintiff'), by and though its attorneys, brigs these claims on behalf
of Coram Healthcare Corporation ("Coram") to, seek redress for signficant damage to Coram
resulting from deliberate breaches of fiduciar duty, impermissible and secret conflicts of

, -

interest,

gross mismanagement and corporate waste caused by the Defendants. The complaint also seeks
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equitable relief and punitive damages to prevent and deter futue improper conduct by these
Defendants. In support of these claims, Plaintiff alleges as follows:

PARTIES
1. Plaintiff, the Equity Committee, was appointed by the United States Trustee in the

pending banuptcy action of In re Coram Healthcare Corp. and Coram, Inc., Nos. 00-3299
(MFW) and 00-3300 (MFW) in the United States BanuptGY Court, District of Del?ware, on

October 19, 2000, to act on behalf of all of the common shareholders of Coram in said
proceedings. The.Equity Commttee has been authorized to bring ths action by an order entered
by the Bankptcy. Court on February _, 2001.
2. The following individual Defendants are referred to in this complaint collectively

as "Cerberus" unless otherwise specified:
a. Defendant Cerberus Parers, L.P. ("Cerberu Parers") is a limited

parnership whose business includes large investments in high-risk, high-

yield debt instrments of troubled companes. Cerberus Parers (and,
possibly, other Cerberus entities) is the holder of

"Series A" and "Series B"

notes ("Notes") issued by Coram. The Notes are far and away Coram's largest obligations.

b. Defendat Cerberu Associates L.L.c. ("Cerberu Associates") is the General
Parer of Cerberus Parers.

c. . Defendant Cerberus Capital Management L.P. ("Cerberus Capital") is an
affliate of Cerberu Parers. Cerberu Capital acts as the agent of Cerberu

Parers and is under its management and control.
d. Defendant Craig Cour, Inc. ("Cerberus Craig") is the general parer of

Cerberu CapitaL.
3. Stephen A. Feinberg ("Feinberg") is the maging member of Cerberu Associates,

which is the general parter of Defendant Cerberu Parers. Feinberg was a member of the
Coram Board of Directors from the sumer of 1998 until July 24, 2000, and was Chairan of
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its compensation commttee. Feinberg domiated and controlled each of the Cerberu Defenda,
all of whom have acted as his agent

and on all of whose behalf he acted as agent.

4. Defendant Daniel D. Crowley ("Crowley") is Chairman and Chief Executive

Offcer of Cpram; he lias held that position since November, 1999. Crowley ís also an employee
of Cerberus CapitaL

NATURE OF THE CASE
5. The essence of

the Equity Commttee's claims is that beging in 1999, Feinberg

and Crowley secretly agreed to act together to operate Coram for the benefit of Cerberus, one of

Coram's significant creditors, and contrary to the interests of Coram itself. The resulting breach
of fiduciary dùties owed by Feinberg and Crowley to Coram

benefitted Feinberg and Cerberus

(and two other holders of Notes, which are not presently paries to ths action) and caused

substatial damage to Coram.
6. This scheme and conspiracy began sometime in 1999 (and perhaps ealier), and was

refined and implemented during the year 2000 and continues to ths day. Feinberg implemented

this scheme by arranging for Crowley to "tae over the operations" of Coram (in the words of a

furtive letter from Crowley) and become its Chairman and Chief Executive Offcer, while
concealing the significat and critically disabling actual conflct of

interest that arose -from the

term of a secret, undisclosed employment agreement between Crowley and Cerberus.
7. That secret employment agreement provided for Cerberus to pay Crowley cash

compensation of $960,000 per year and gave Crowley additional significat bonus opportnities.

In return, Crowley agree to remai a full-tie

employee of Cerberus.

and to cooperate fully with

Feinberg in the advancement of the best interests of Cerberus. Crowley agreed that he would be
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~

subject to dismissal and loss of all of these benefits if he failed to follow Feinberg's directions.
Crowley and Feinberg concealed the term of the employment arrangement; those term were not

disclosed to the directors of Coram, nor were they disclosed in any public filings of Coram
and
notwithtanding the fact that such disclosure was mandated by provisions of the Securities

Exchange Act and the United States Banptcy Code.
8. In early 2000, Feinberg increased

Crowley's incentive to manage the affairs of

Coram for the benefit of Cerberus. Acting

as Chairman of the Compensation Commttee of

Coram, Feinberg aranged for Coram to bind its~lfto pay Crowley huge (potentially $13 millon
or more) incentive bonuses for one year's work.
9. Consistent with these arangements, Crowley used his position as Chairman and

Chief Executive Offcer at Coram to run Coram in a maner that benefitted Cerberus and injured

Coram. The Board of Directors of Coram relied on Crowley for information, judgment and
strategic and tactica direction, without knowledge that Crowley was secretly in the pay of, agent

for and acting under the direction of CerbeIls, and.had thereby abandoned the fiduciary duties

of cae, loyalty and good faith which he owed to Coram.
10. The actions that Crowley took in breach of his fiduciar duties in order to benefit

Cerberus included, but were not limted to: (i) adoption ofa business strategy that focused on
liquidation of assets and reducìiori of debt even when such actions were adverse to the interests
of Coram and taen solely

for the benefit of Cerberus and the other Noteholders (as defined
advisors; (iii) failure to explore

below); (ii) failure to retain and consult independent fiancial

opportunities for business combinations, capita insions and strategies to grow Coram;
(iv) payment of interest to Cerberus and other holders of Notes that was not required by the term

of the Notes; (v) failure to use reaonable business judgment in negotiations with Cerberus
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concerning use of proceeds of asset sales; (vi) failure to use processes that were entirely fair (or

in some cases, fair at all) in dealings with Coram's shareholders; (vii) unconscionable delay in
implementing steps necssar to comply with govefnent regulations in order to posture Coram's

baiptcy filing as an emergency; and (vii) other steps designed to reduce the real and/or
apparent value of Coram, and thereby. to faciltate Cerberus' scheme and conspiracy.
11. As a result, Coram missed attractive business opportunities that would have

enhanced its value by increasing its revenues, margin and profits, allo~ed refinancing of its
indebtedness and avoided potentially destructive baluptcy proceedings.
JURISDICTION AND VENUE
12. This Court has subject matter jurisdiction pursuat to 28 U.S.c. § 1334(b) bècuse

this litigation is related to a Chapter 11. proceing pending in the United States Banptcy Court

for the District of Delaware: Coram HeaIthcare Corporaton, et. aI., Case Number 00-3299
(MFW).
13. This is a non-cre proceeding. Plaintiffs do not consent to entr of final orders or

judgment by the Banuptcy Court.
14. Venue is proper in this district pursuantto 28 U.S.C. § 1408.-

BACKGROUND

History of Coram
15. Coram is a publicly traded company. that provides home infuion services to
heathcae patients t:oughout the United States. Coram was formed in July, 1994, as a result of

the merger of several national and regional providers of home insion therapy and related
services. Since that time, Coram has made a number of acquisitions that resulted in Coram

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becoming the leading provider of alternative site infusion therapy services in the United States
based on geographic service area and total revenue.
16. Insion therapy involves the intravenous admstration of

nutrition, anti-infective

therapy, HIV therapy, blood factor therapies, pain management, chemotherapy and other
therapies. The intiation and duration of .these insion therapies is determined by a physician

based upon a patient's diagnosis, treatment plan and response to therapy.

Cerbènis Becomes Interested in,Coram
.17. Cerberus invests in high-risk, high-yield debt intruments of troubled companies

for itself and others. Its business objectives are based on its belief that such debt (often

purchased at a severe discount from its face value) may increae in value if the fortnes of the

troubled company reverse, or that if banptcy ensues, Cerberus can become an owner of the
troubled company through debt restructuring at an attractive price.
18. Cerberus began to acquire Coram's debt in 1995. In April, 1997, Cerberus

purchased a significant amount of additional Coram debt. At or about the same time, Cerberus
sold or exchanged a portion of Coram's debt instrents to Goldman Sachs Credit Parers LP
("Goldman Sachs") and Foothil Capita Corporation ("Foothl").

19. In May, 1998, Cerberus, Goldman Sachs and Foothil (collectively, the
"Noteholders") executed a Securities Exchange Agreement with Coram whereby the Noteholders
agreed to exchange their existing Rollover Notes

and Warants for Series A ("Series A Notes")

and Series B Notes

("Series B Notes"). The Series A Notes mature in May. 2001. The Series

B Notes matnre in 2008 but ca be redeemed by the Noteholders at par when the Series A Notes
mature.

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20. Feinberg becae a director of Coram when the Securities Exchange Agreement

was executed, in accordance with a provision that permtted.Cerberus and the other Noteholders .
to designate a director.

21. The Securities Exchange Agreement also provided that atiefault would result if

Coram's then CEO, Donald J. Amaral (who, with Feinberg, arraiged the agreement) ceased to
be CEO. Feinberg incentivized Amaral to execute the agreement and to act in the best interests
of Cèrbeiu, not Coram,

by (as a member of Coram's Board of Directors) approving payment of

a $1 millon bonus to Amaral. The Securities Exchange Agreement futher benefitted Amaral by
providing that a default under the Coram debt instrents held by the Noteholders would occur

if Amaral ceased to be CEO of Coram.

The Actual Conflct of Interest - Feinberg Arranges For Crowley to Take Over Coram's Operations While Secretly in the Pay of Cerberus
_ 22. In April, 1999, despite the job security provided for him under the Securities

Exchange Agreement, Amaral resigned as CEO of Coram. He was replaced at that time by
Richard M. Smith. Smith's business plan was to prudently build Coram's business and increase
the value of the Company.
23. These actions led Smith Into conflct with Feinberg, who had no interest in

increasing the value of Coram except to divert all available cah flow to repayment of the Notes
held by Cerberus, regardless of whether such repayment was required or was in the best interests
of Coram. Feinberg then develope a plan to replace Smith with a CEO who would act under his

direction, and in the interests of Cerberus rather than Coram.
24. To .implement this

plan, Cerberus, acting though Feinberg, hired Crowley in

August, 1989, to be a full-time employee of Cerberus with cah compensation of $1 millon per

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yea and opportnities for substatial additional bonuses. As soon as Crowley was hied to work

full time for Cerberus, Feinberg recommended that Coram hire Crowley as a "consultat."

Feinberg, a member of the Coram Board of Directors, did not disclose to the board the
compensation terms of Crowley's employment agreement with Cerberus nor did he disclose that

Crowley had agreed to work full time for Cerberus under the direction of Feinberg and that all
of Crowley's benefits could be tèrmated by Feinberg if Crowley did not follow his. intructions.
25. As a result of Feinberg's reC9mmendation, Crowley was

in fact hired asa

consultat to Coram in approximately September 1999. Crowley's duties as a consultat to

Coram were essentially to supervise the CEO, Smith. Not surprisingly ~ and as intended by
Feinberg - Smith was unappy with having Crowley look over his shöulder whie Smith remained
responsible for management .of the business. Smith protested ths relationship and requested that

if Crowley were to be retained as a consultat, it be under Smith's direction and that Crowley

report to Smith. After Feinberg persuaded the other members of the Coram Board of Directors
that Smith must report to Crow