Free Appendix - District Court of Delaware - Delaware

Case 1:04-cv-01565-SLR

Document 138-5

Filed 05/04/2007

Page 1 of 42

1

"::". .#

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In the matter

of

)

)
CORAM HEALTH

CARE CORP. and CORAM, I NC .

)Case No. 00-3299 )Through 00-3300 (MFW)
) )

Debtors.

Marine Midland Plaza

Bankruptcy Courtroom Room No. 2 - Sixth Floor

824 Market Street Mall Wilmington, Delaware

F~iday, DeCember 15, 2000
9:07 a.m~

BEFORE: THE HONORABLE MARY F. WALRATH,

Uni ted States Bankruptcy Judge

TRANSCRIPT OF PROCEEDINGS

WILCOX & FETZER 1330 King Street - Wilmington, Delaware 19801
( 3 0-2 ) 6 5 5 - 0 4 7 7

r -

wiicox & FETER LTD.

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Case 1:04-cv-01565-SLR

Document 138-5

Filed Crowley - Cross . 05/04/2007

Page 2 of 42

60

(

1

Q.

The person you negotiated wi th ~as Mr. Feinbei_.

2
3 4

right? Mr. Feinberg was chairman of the Compensation
Committee, wasn't he?

A.
Q.

He may

have been at

that time.
..

5
6 7
8

You kno\i . he was,
He may

A.
Q.

don't you? have been at that time.

Your

negotiations principally were with

Mr. Feinberg.
A. Principally they were with him.

9

.1.,
11 12

Q. And the basic nature of the negotiatiòns was pay
me more or I i II leave, correct~

A. No. That wasn't the basic negotiation proces;
at all. I wrote a lette.r to the board outlining those

(

13

14

areas which I thought were important to me. The board
considered it. Steve Feinberg was a member of the board.
It was a process in which they discussed it without me in
the room and went back and forth.

15
16 17
18

Steve went back and

forth. He didn't agree to everything I asked for. It
was a process. Principally provided me wi th no more than an upside if I could improve the performance, versus a

19

20
21
- ...

guarantee or a search' in an amount of money. I got the
opportuni ty to earn more if I could make the company

--¿2

23

better. That was the process.
Q.

(

24

And your understanding of the resul t of that

B140

WILCOX & FETZER L TO.

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Case 1:04-cv-01565-SLR

Crowley - Cross ' 74
Document 138-5 Filed 05/04/2007 Page 3 of 42

t

1
2

no company to which Coram could sell. Coram

Pre~criptions Service. The fact of the matter is the
company had an auction and nobody showed up. It failed.
So I did not know ihat.

3

4
5 6
7
8

And the facts would show that

that's not true. Q. Mr. Crowley, is it your testimony that the
EBITDA gain on the sale of CPS was

less than $18 million?

'A. My testimony is that in the auction .that was
conducted by Alex Brown, no o.ne ahow;ed up; that the only

9

10 11
12

bid the company received from CVS Pro Care was' inferior.

It had next to no gain in it whatsoever.

I twa s

rej ected. It was no consequence to me, because the~e was

(

13

no gain to be had. So I did not know that there would be
a gain.

14 15

I could not know that there would be a gain. It

was an auction in process.

16
17 18

Q. Let me cut to it. What ls your understanding of
what the gain was on the sale of CPS?

A. On the gain that I arranged - - for sale that i
arranged, which was not a part of the auct~on process,

19

20 21 22
23 24

because the auction had failed, it was an $18 million

gain.

Q. And you became entitled to 25 percent of that
under your formulation, or about 4-and-a-half million

dollars. Right?

\.
B141

wiicox & FETZER L TO.

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R~gist~re Profesal R~pom

Case 1:04-cv-01565-SLR

Crowley -. Cross Document 138-5

Filed 05/04/2007

Page 4 of 42

75

1

A.

The bonus program says that for EBITDA between

2 $14 million and $35 million, I'm- entitled to 25 percent

3 such that the company has the cash to pay me.
4

Q.

Actually ,you' re entitled to 25 percent of

5 EBITDA, however high it goes. There's no $35 million

6 limit, is there?
7

A.

That would be yóur interpretation. But that

S would not be the' understanding between mysel f and the 9 'board of directors.
10

Q.

I i m going to ask you again to look at - the

11 contract you signed. In paragraph 1 -A I will simply put
12 it to you that I see no limit, and, if you do, lId like

13 you to paint it aut.
1'4

,;

A.

I 1 d be happy to have you represent me in a

15 dispute on that matter, and it would be great taget 16 extra, but my understanding with the board is it i s 17 25 percent up to $35 million.
18
Q.

I i m i ooking at the document you signed. Is

19 here anything in there that gives you an understanding
20 hat the 25 percent stops at $35 million?
21

A.

Other than the fact that it's my understanding

22 hat it stops at $35 million, there's nathing in the
23
24
I

document.
Q.

Thank you.

You would agree, would you not, that
,

L
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WILCOX & FETZER L TO.

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Case 1:04-cv-01565-SLR

Crowley - Cross

Document 138-5

Filed 05/04/2007

Page 5 of 42
, 84

\

1

company's 401 (k), and on and on and on. The meeting

2 started at 9:35 and went to 11:15. It didn't go two
3 hours. We covered a lot of subj ects in broad sweep. And

4 one of them was STARK II.
5

Q.

Is it your testimony that by this date you

6 weren't aware that there was no way the company was going

7 to meet STARK II a year and 10 days later?
8

A.

It i S my testimony that I was aware that we had

9 Coram Prescription Services up for sale- and it had the

10 potential for -- I was aware that there were p~ople On

11 the board, certainly Don Amaral and at that time

12 Wendy Simpson; the chief financial officer, who felt that

l

13

there was a large gain to getting Coram Prescription

l4 Services. I was pretty unfamiliar with it at that time.

15 The auction was undergoing. No indications of interest 16 were made aware to me, so I didn't know what the year 17 would unfold.
18
Q.

At that same meeting you did one other thing you

19 haven't mentioned. Didn't you? If you look at the last
20 page. That is, the board retained Dynamic Heal thcare

21 Solutions as a consultant firm. Correct? That's on the
22 last page, fourth paragraph, on the bottom.
23
l

A.
Q.

I see that.

24

They agreed to pay them fees as shown on

L

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Crowley - Cross Case 1:04-cv-01565-SLR Document 138-5

Filed 05/04/2007

85 Page 6 of 42

1

Exhibit 4, $500 a day, plus expenses, for Kurt Davis,

~'.

2 thousand dollars a day for Mills, $750 a day far Smith.
3

A.
Q.

Yes.
You owned Dynamic Services?

4

5
6

A.
Q.

Yes.
You are the only owner?
I am.

7
8 9

A.
Q.

You earned between 15 and 25 percent markup on
Isn't that right?

all 'Of thèse fees.

10

A.
0Q.

Between 15 and

2 0 percent is what I sãid.

11

Let's go on from December 21st to February 28.

12 That, Your Honor, is EC 25.1 guess you have seen that.
13
14

You have it in front of yau.
letter

It's the February 28, 2000,

~)

'that you wrote to the board of directors in which

15 you asked to increase your compensation. Right?
16 17
18

A.
Q.

I'm trying to locate what you're talking about.

EC 25.

A.

I i m sorry. You're giving me a raft of paper
By this dat~, surely you knew that STARK II was

19 here. EC 25. I have located it.
20
Q.

21 a problem that would require restructuring Coram's

22 balance sheet, didn't you?
23 24

A.
Q.

I don't know that.

I'm sorry?
WILCOX

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B144

Case 1:04-cv-01565-SLR

Crowley - Cross Document 138-5

Filed 05/04/2007

Page 7 of 42

95

1

MR. LEVY: Would you read the question

~

i again?

3 (The reporter read back as instructed.)
4

THE WITNESS: No.

5 BY MR. LEVY:
6'
7

Q.

During

this p~riodinterest fell due on your

debt to the notehblders, correct? n This period II being

8 say from the beginning of the year up through the filing

9 of the bankruptc~.
10

A.

I'm sure there was an interest payment that was

i 1 duè.
12 13
Q.

And that interest payment under the terms of the

securi ties exchange agreement gave you the option to pay

~
"

14 it either in cash or a payment in kind, or PIK. Isn't

15 that right?
16
A.
Q.

17
18

I t may have. I never read it. I t could have. I sn' t that right?
It could have.

A.
Q.

19

In fact, you paid, was it, six-and-a-half

20 million dollars this year in cash in interest to the 21 noteholders ,correct?
22
A.

We made an interest payment in cash, that i s
Did you check with anyane to see whether you had
)

23 certain.
24
Q.

WILCOX & FETER LTO.

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R.eg~re Profesi Re~

Case 1:04-cv-01565-SLR

Crowley - Cross

Document 138-5

Filed 05/04/2007

Page 8 of 42
. 105

1 2

A.
Q.

I'm listening to you, sir.
- - that the debt could be restructured wi th a

. ;.

3 perpetual preferred which would then qualify for
4 accounting purposes as equi ty and thereby solve the

5 STARK II problem, didn i t you?
6

A.

I had talked to Goldman Sachs and Foothill

7 Capital and Stephen Feinberg and told all of them that

8 the company could not pay back debt and we needed a
9 restructuring. We discussed many al ternati ves, one of

10 which was a perpetual preferred.
11 12 13
14
Q.

And they refused to do it?

A.

They were unanimously against a perpetual

pre f erred.
Q.

..-l

EC 37 is a document cal led "Incent ive Agreement"

15 which your attorney, Mr. Warden, handed me at the very

16 brief deposition this morning. And my question simply,
17 sir, is is this -- I guess I've got two questions.

18 Madelyn LLC, who is one of the parties to this agreement,
19 is an affiliate of Cerberus; is that right?
20 21
22
23 24
A.
Q.

Yes.
And you're a party to this?

A.
Q.

Yes.
You sign~d it on or about the date it ~ears?

A.

Yes.

WF
B146
WILCOX & FETR LTD. R~gi~re Profesl Repo~

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Case 1:04-cv-01565-SLR Document 138-5 Crowley - Recross

Filed 05/04/2007

Page 9 of 42 119

1 accomplished at Coram? There isnlt anything, is there?
2

..... ..

A.

The document and the meeting of the minds and

3 the understanding between the parties and the expression

4 in writing and otherwise is that I will receive nothing

5 from Cerberus for anything I do at Coram.
6

Q.

Show me where in the document it says you will

7 receive nothing for what you, do for Coram.
8
9

A.
Q.

I told you what I can, sir.

You don't know any more than that?

10

A.

Beyond reading all 23 pages. The point is that

11 I'm not to receive any economic remuneration from
l2 Cerberus related to anything I do at Coram.
13
Q.

Why didn't you write a letter to Mr. Feinberg
pay you

'-

14 some months back and suggest that Cerberus

15 through Winterland for what you accomplished at Coram?
16

A.

Now, I answered that one a couple times. I'll

17 try to answer it again. It was a cold, unsolici ted
18
letter. I was

not an employee of Coram IS.

I had told

19 Don Amaral, the chairman of Coram, that I was going to
20
seek some compensation from the debtholders.
I attempted

21 to do so. It was rej ected and I got nothing.

22 Q. You also testified that you always informed the
23 board of Coram of your relationship wi th Cerberus and

24 indeed that you disclosed that in public filings. Right?
wiicox & FETER LTO.

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R~is~ Prfess Rtpo~

Case 1:04-cv-01565-SLR

Document 138-5

Filed 05/04/2007

Page 10 of 42

Crowley - Recross

120

..

1
\

A.
Q.

That was my intention.

2

But you never informed them of that part of the

3 relationship with Cerberus that provided you with payment
4
J

of a million dollars a year, plus a 20 or became'

5
6

30 percent upside, did you?

,

A.
Q.

Had I been asked, I would have told them.

7
8 9

Sir, that wasn't my question. My question
I did not inform them.

A.
Q.

And no public filing that you're aware of

10 discloses that you were getting that kind of còmpensation

11 and potential future compensation from Cerberus. Right?
12
. .,

A.
Q.

I don't know.

13

And, finally, it is a fact that you were the CEO

14 of only one other Cerberus portfolio company other than

15 Coram, and that wagWinterland. Right?
16 17
1S

A.
Q.

Wrong.
Wrong?

A.
Q.

Wrong.
What other portfolio?

19

20

A.

I am not the CEO of Winterland. i have already

21 testified to the fact. that I'm the chairman of the

22 company and I do not serve in the capacity of CEO.
23 24

MR. LEVY: Mr. Crowl ey, thank you so much.
THE COURT: Thank you. You may step down.

B148
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Page 11 of 42

PLEASE PRIT OR YOUR APPEARANCE CANNOT BE CORRCTLY NOTED!
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Case 1:04-cv-01565-SLR

Document 138-5

Filed 05/04/2007

Page 12 of 42 £1 --t 7

In The Matter Of:

Corani H ealthcare Corp.

Hearing
Deceniber 21,2000

C.A. # 99-2889 (MFl

....

Wilcox & Fetzer, Ltd. Registéred Professional Reporters

1330 King Street Wilniington, DE US.A. 19801

(302)655-0477
Original File CR12-21.J.'n~ 91 Pages
Min-U-ScriptCF File in: 2267155769

Word Index included with this Min-U-Scrip~

B150

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Hearing Case 1:04-cv-01565-SLR
December 21, 2000

Document 138-5

Filed 05/04/2007

Page 13 of 42
Coram Healthcare Corp.
Page 87

c.A. # 99-2889 (MF)
Page 85

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

..!) party who has a problem with it to have complete
13J disclosure.

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

(2) that I think there is no basis to conclude wil result in
(3) anything other than creditors getting less and the

(41 I said at the first hearing that you
15) wouldn't hear any discovery fights in this case, and you (6) didn't. I've been in plenty of cases where Your Honor

(4) equityholders stil getting nothing.

(51 So, Your Honor, if the issue is that
(6) somebody did something wrong, and I'm not suggesting

(7 has been called upon to deal with counsel fighting over IS) documents and depositions and discovery. You didn't hear
(9) any of that in this case.

(7 that, and I'm certinly not endorsing that view, but if
(Bl that's the point, there is redress in the court, but I (91 don't think that the answer is to put this company out of
(101 business.

(10) We made all proper disclosures since the
(111 day we filed. We made all documents available. There is
(12) no lack of understanding as to who gets what and whose (13) relationships are what. Our view was at the end of the

rll1 Thank you.

(121 THE COURT: Well, I'm in a difficult
(13) situation. I would like to sidestep my duties, but I (14) think I have to deternune in deciding whether to confrm (15) this plan under 1129(a)(3), I must conclude that it is (16) proposed in good faith and that the plan proponents have faith. I just do not want to be in a (171 acted in good (lBl position to conclude on this record that that is so. I (19) cannot conclude on this record that that is so.

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

(16) whether or not the valuation was appropriate, whether or (17) not the plan meets the salutary purpose of (lB) rehabiltation. You confrmed the plan.

r191 I honestly can tell you that from the
(20) standpoint of those who worked on this plan, which
(211 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

r?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 BarIruptcy 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
(4) ever arising.

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

(51 So having said all that, I believe that the
(6) failure by this Court to confrm this plan leaves us with (7 no solutions.

(3) it had been disclosed to all parties, but I don't know (4) that and I don't think anybody wil know that. (51 We are at a terrible place. The Equity (6) Commttee, even on its numbers, which I agree with the
(7 Creditors' Commttee's counsel and their valuation expert
(Bl and the cross-examination of the Equity

(B) I think it's also very important to note,
(9) Your Honor heard from Mr.Haydon, Your Honor heard

from

Commttee expert

(lo¡Mr. Crowley. I thin the evidence is consistent. There
(111 is no other plan. I don't mean in a sense there is no (12) other plan on fie. 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.

(9) does point out the questionable nature of that valuation. think under any of the numbers the (101 I
(111 company is insolvent today. But I don't think I can

(121 confrm a plan based on that fact because I thin that
(131 because of the process being tainted by this relationship
(14) which began inNovemberof1999,and perhaps in August

(151 Just like there was a sophisticated debtor,
(16) there was a sophisticated Equity Commttee. If there was (171 any other person who had any interest in this company by

of

(1S) 1999, has so tainted the debtors' restructuring of its

(16) debt, the debtors' negotiations tov.'ards a plan, even the
(171 debtors' restcturig of its operations.

(lB) way of acquisition, by way of investment, by way of (19) financing, it would have surfaced. There is nobody
I?Oj there.

rlBl I think on that point I thin it is a shame

¡;;2)

So the ultimate effect of not confrnung the plan is we'll go into next year, we'll have

(231 incredibly serious problems, and if we manage to solve (24) those problems, we'll come back to the Court at some

(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) that the debtor might not have done even better

had there

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

Page 85 - Page 88 (24)

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

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

Document 138-5
Page 89

c.A. # 99-2889 (MF)

Filed 05/04/2007

Page 14 of 42

Hearin:
Page 91

December 21, 200(

(1) problem. I don't know what would have happened without

12) ths actual confct of interest. I do thk it's an (3) actual confct of interest.
(4) I tlk that the actions of Mr. Crowley to

(1) Slate of Delaware (2) County of New Castle)
(3) (4)

CERTIFICATE
(5)
(6)

(5) hide the relationship, and I tlk that EC.20 did show an
(6) intent to hide the relationship and to hide his request

(7 for additional compensation in Winterland in exchange for (8) his efforts here did at least evidence that he, hiself,
(9) believed that ths relationship should not be disclosed

" Kathleen E. Whne, Registered Professional (7 Reporter and Notary Public, do hereby certif thaI the
foregoing record, pages 1 10 91, Inclusive, Is a true and

(8) accurate transcript 01 my stenographic notes taken on Thursday, December 21,2000, In-the above-captioned

(9) matter before the Federal Bankruptcy Court.

(10) and, therefore, did, in fact, taint his abilty to serve
(11) as CEO of the debtor.

(10) IN WITNESS WHEREOF,I have hereunto set my hand
and seal this 24th day of December, 2000, In

(121 Whether it opens up a Pandora's box or (13) encourages other noteholders or other parties in future (14) bankruptcies to try the same tlùg, I'm not as concerned (15), about that, but I just do not want my name confirmlg a
(16) plan where ths type of activity occurred for a year
(17) before the plan was proposed for confirmation. I just

(11) NewCastle County.
(12) (13)

KATHLEEN E. WHITE,

(14) Notary Public-Reporter
(15)

(16) (17)
(18)

(18) cannot conclude that it's proposed in good faith for
(19) those reasons.
(20) I do not have the abilty to suggest a

(19) (20) (21) (22) (23) (24)

not have the abilty to give an (22) exemption from Stak II. leave it to the debtor to see where it (23) So I
(21) different plan. I do

(24) goes from here for now. I'll look for a form of order if
Page 90

(1) someone wants to present me with one.
(2) MR. MfNUTf: We wil, Your Honor.

(3) THE COURT: We'll stand adjourned.
(4) MR. LEVY: Thank you, Your Honor.

(5) (Te hearing was then concluded at

(6) 3:35 p.m.)
(7
(8)

(9)

(10)
(11) (12)

(13) (14) (15)
(16)

(17) (18)
(19) (20)

(21)
(22)

B152

(23) (24)

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

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~=~ . 1 á 2eØ: 11: 14 F~ CCRAM ~EAL i~C~~E

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Case 1:04-cv-01565-SLR

Document 138-5

Filed 05/04/2007

Page 15 of 42

April 2, 2001
Emst & Young LLP
370 17ilt Street, Suite 3300
Denver, Colorado 80202

In connection wiui your audits

of the consolidated fiancial statements of Coram Healthcare

Corporation and its subsidiaries (collectively the "Company") as of December 31, 2000 and 1999 and for the thee years in -the period ended December 31, 2000, we recognize tht
obtairuIig representations from us concerning the information contained in ths letter isa

signcant procedur in enabling you to form an opinon whether the consolidated ficial
statements presen~ faly, in all material respect, the finacia. position. results of operations,

and cash flows of the Company in conformity with accountig principles generally accepted in the Uruted States.

representations in ths letter are descrbed as being limted, to maers tht are niatenal. Items are considered materìal, regardless of size, if they involve an omission or misstatement circumtances, makes it probable
Certain of accountig inonnation tha in the light of surounding

that the judgment of a reasonable person relying on the information would be changed or.
infuenced by the omission or,misstatement.

All representations include' herein for Gerald A. Reynolds solely relate to the year ended
December 31,2000.
Accordingly, we make the representations set fort below, whièhare tre tó the best of our

present knowledge and belief:

General
We, recognze tht, as member of Inanagement of the Company, we are responsible for the

fair presentation of its consolidated fitanciaI statements. We believe the consolidated
. statements of financial position, results of operations. and cash flows are faily. presented in generally accepted in the Uiuted States applied on a
conformty with accountin principles

bass consistent with tht of the preceding periods. l'

We believe that the effects of any unadjusted audit diferences, sumard in the
accompanying schedule, accumulate by you durg the curent audit and pertaig to the
latest period

presented are imaterial, both individualy and iÌ the aggregate, to the

consolidated fiancial statements taen as a whole.
We have made available to your representatives all financial records and related data.

. -

. We have ilo plans or intentions that may materialy affect the carying value orclassif.ction, fiancial
of assets~d liabilties, except as disclosed in the notes to th~ consolidated

statements.

t-

COR~EQTY 0018404

Minutes and Contracts
We have made avaiable to you all signicant contrcts and agreements and all miutes of the
meetings of

ß

shareholders, diectors, and commttees of directors or suares of actons of

.~.

B153

::?R 14 2001 11: lS FR CORAM HEAL iHCARE Case 1:04-cv-01565-SLR Document

138-5

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Page 16 of 42

have complied with all
recent m~etigs for which miutes have not yet been prepared. We

aspects of contracnial agrements that would have a material effect on the fiancia statements

in the event of noncompliance.
Internal Control
There are

no materal LractionS that have not bee properly recorded in the accoUIting records underlying the financial statements.

There are DO material weakesses in internal controL includig any for whch we believe Uie in
cost of corrective actions exceeds the benefits. There have beeIno signcant changes

internal control since December 31,2000.
Risks and Uncertainties

Ther are no risks and uncertainties related to significat esimates and curent Vunerabilues due to material concentrations U1ãt have not been disclosed in accordance with Ale? A
'Statement of Position 94-6, Disclosure of

Certain Signifcant Risks and Uncertainties.

OwnersMp and Pledging of Assets
leases, the Company has satisfactory title to all
. Except for propertes -capitalized under capita

assets appearing. in the balance sheets. Except as disclosed in the notes to the consolidated . financial statementS, no securty agreements have been executed unde the provisions of the Uniorm Commercial Code and there are no liens or encumbraces on assets, nor has any the
asset been pledged. AU assets to which the Company ha satisfactory title appear in

balance sheets.

.: ~

Receivables
Adequate provision has been mådë for losses, cost and expenss tht may be incued subsequent to. the balance sheet dates in respect of sales and services rendered prior to those and for uncollectble accounts, discounts, retuS ard allowaces tht may be incured in . dates
, the collection of

receivables at those dates.

Receivables represent vad clai against the. debtors indicated and do not include amounts

for goods slupped or servces provided subsequent to the balance sheet dates, goods shipped on consignent or approval or other types of argements not constutig sales.
Adequate considertion has been given to, an,d appropnate provision has

been made for)

estimated adjustments to revenue, such as for denied claims.

Adequate provision has been made for estimated adjustments to revenue. Recorded reserves
are necessar,appro,priate and properly supported.
All peer. review. '.organtions, fiscal imeiiediai and thd-par payor report

and

information have been made availabIErto your representaves.
COR-EQTY 0018405

Cost Reports Filed with Tliird Parties

All required Medicare, Medicad, and sinlar report have been properly filed.
B154

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_... " ... _.... -- . . --

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We reco~ tht as members of manag.ement of the Company, we are responsible for the

accuracy and propriety of all cost report filed with Medicae, Medicaid, or other third pares. We believe that all cost reflected in such repoIt are appropriate and allowable under the applicable reimbursement rules and regulations. All such costs are patient-related. and properly allocated to applicable payors. The reimbursement methodologies and principles consideration has
. employed are in accordance with applicablè rules and reguations. Adequate

been given to; and appropriate provisions have been made in the cost reports to reflect
applicable prior audit adjustments by interediaries, third-par. payors or regulatory

agencies. We have fuly disclosed in the Company's cost report items required to be
disclosed, if any, including disputed costs that are being clamed to establish a basis for a
subsequent appeal.

Thrd.pa.-r settlements recorded in the Company's financial statements include differences
between fùed (and to be fied) cost reports and calculated settements, wmch are necessar

based on historical experience or new or ambiguous regulations tht may be subject to
different interretations. While we believe ile Company is entitled to allthe amounts claimed
on its cost report, we believe the amöùnLs 'of these differences are. approprite. .

Inventories
Inventories, including goods that are defective, slow.moving, obsolete, or unusable, are stated . at amounts not in excess of their estimated net realizble vaues.
Physical counts and measurements.pf,inventories were made by our

employees under the

supervsion of rnanagemenand book records were appropriately adjusted afer giving
. recogItioIl to cut-offfcr materials received and product shipped.

Except as discussed in Form lO-K Item 7. "Risk Factors," there have been no reductions in the list selling prices of the products and services offered by the Company subsequent to
December 31, 2000 and none are contemplated.
and Affliates
Investments in Subsidiaries

The equity meÙlod is used to account for cert of the Company's investments because the

Company has the abilty to exercis~ sigiuficant influence over the investees' operating and flOancial policies.' . ..'
Defer.red Cltarges
We believe that allmalerial expenditures

recoverable. . , .
December 31, 2000 and 1999. . Assets to be disposed of other than those that are

that have been deferred to future perods wilt be
COR-EQlY 0018406

. Long-Lived Assets, rncluding Intancible Assets

No events or chges in circumstaces have occured that indicate the carg amount of
long-lived assets to be held and used, includig related goodwill. maynat be recoverable.
eAcept for the amoWlts that were written-off in the income statements for the years ended par of a

. Udiscontinued operation," as defined by Accountig Principles Board Opinion No. 30, ar
measured at the lower of caring amount or far value less cost to sell.

Long-lived assets to be held and used, including related goodWill,. have been reviewed for chaes in circumstaces have indicated that their caring impaiiment whenever events or
B155

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amounts may not be recoverable. Where appropriate under Statement of Fincial No. 121, Slch assets have been wrtten down to fair value. Our
Accountig Standards

estimates of futue cash flows are based on reasonable ard supportable assumptions and
the cash flows ex-pected to result from the use of represent our best estiri1ates of their eventual disposition. Assets to be disposed of, other than those that are par

the assets and
of a

"discontinued operation,"

as defined by Accountig Principles Board Opinion No. 30 are selL.

measured at the lower of caring amount or fair value less cost to

Discontinued Operations

the R-Net diviion.
The Company has made adequate provision for any loss on the disposal of

Related Party Transactions
Transactions with related pares, as defined in Statement of Financial Accountig Standads
No. 57, and related amounts receivable or payable, includingsales, purchaes.Joan, trsfers,

leasng arangements and guarantees, have been properly recorded or disclosed in the

fiancial sttements. .

Arrangements witi Financial Instit,I.tions,

There are no argements with financia institutions involvig compensating balances or
other arangements involving restrctions on ca balances and line-of.credit or simila
argements, except as disclosed in the notes to the financial statements.

Contingent Liabilties
There are no unasserted claims or assessments, .inchidlng those our lawyers have advised us

of, that are probable of assertion and must be disclosed in accordance with Statement of

FinanCial AccouIting Standads No.5, Accounting for Contingencies. other than those
disclosed in the fiancial statements.

Other than those disclosed or accruect in the finacial statements, there ar no violations or possible violations of laws or regulations, such as those related to Medicare and Medicaid statutes, including, but not limited to, the Anti.Kickback Act Limitation antifraud and abuse
on Cerai Physician Referrals (commonly refered to as the "Stak Law''), and the False claims Act in any jursdicton whose effects should be disclosed in thé fiancial statements or as a basis for recording a loss contingency.

Bilings to thrd-pary payors comply in all material respects with applicable codig
guideliries (e.g., ICD-9-CM, CPT.4l and laws and

regulations (including those deag widi
r-

Medicare and Medicaid antifrud and abuse), and bilings reflect only charges for goods and
services that were medicaly necessar, properly approved by reguatory bodies (e.g., the Food

and Drug Admstrtion), if requied, and properly rendered~ the Company's compliance with the laws, We recognze that we are responsible for your
regulations, and contract that are applicable to it. We have identified and disclosed to representatives

o -. to .. o o
?:
i

o W
i: o (,

all. laws and regulations that have a diect and matena1 effect on the

detennination of financia sttement amounts.

There have been no communcati~ns (ora or wrtten) from regulatory agencies. or
governent representatives, employees or others concering investgations or allegations of noncompliance widi laws or regulations in any jursdiction (including those related to the

Medicare and Medicaid antiud and abuse statutes), deficiencies in fiancial reportng
B156

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pradit..es, or other matters that coull have a materal effect on the financial statements, other
than these matters discussed with your representatives. ~

There are no other matenal liabilties or gain or loss contigencies that are re.quied to be
accrued or disclosed by Statement of Financial Accounting Stadards No.5 other than those
accrued or disclosed in the finacial statements, nor are there any accruals for loss

contingencies included in the balance .sheets that are not in conformity with the provisions of Financial Accountig Stadards No.5. Statement of
The Company has reported to its legal department all material known asserted and unserted

claims and incidents. Adequate and reasonable provision has been made' for'losses related to. asserted and Unasserted malpractice, health insurance, worker's compensation and any other
self-insured claims.

. Oral or WritJén Guarantees o/the Debt o/O/hers

There are no oral or written guarantees òf the debt of others.

. Capitàl Stock !,.
Capital stock repurchase options or agreements, or. capita stock

reserved for options;

warants, conversion, or other requirements have been properly recorded or disclosed in the
financial statements.

Purchase and Sales Comm;tmeJits and Sales Terms

At December 31,2000 and 1999, the Company had no purchase coIntments forinventones
. in excess of norm requirements or

at pnces that were in excess of market at those dates.

Provisions have been made for losses to be sustaied in fulling or our inabilty to ful any

sales commtments.
There were no agreements or commitrents to repurchase assets previously sold. There were no material cOD1tments outstanding at December 31. 2000 and 1999 as a result of being a

par to futues or forwds contracts, short sales or hedge tranctons.
We ha.ve disclosed to you all sales terms; including all rights of retu or price adjustments, and all waranty provisions. .

Fraud and Conflict of Interests
Other th the matter discussed with your representatives, there has

bee no fraud involvig

management or employees who have significant Toles in intema control. There has been no
fraud involvig

other employees that could have a material effect on the financial statements.

. There are no I?tances where any offcer or employee of Ùle Company has an

interest in a

company with which the Company does business that would be considered a "confict of interest." Such an interest Viould be contr to Company policy.

COR-EOTY 0018408

B157

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. Segment Informa(ion
The information about operating segments included in the notes to the consolidated finacial
statements has been prepared and presented in conformity with Statement of. Financial Accounting Stadards No. 131. Ths information is consistent with the inormation used by

our chief operating decision maker to evaluate operating perfonnance of and make resource
allocation decisions among business unts. The deternation of operating segments, the
methods used for allocating. items

of profitloss or assets that ate included in segment

information for management puroses, the accounting principles used, and the presentation of segment infomiationare consistent with the preceding year, except as disclosed in the notes to

the measements

the consolidated financial statements. In addition, differenCeS between use.d in reportng operating segment information and those

used in the consolidaed finacial

statements are adequately disclosed in the notes to the financia statements.

l1i/er;m Financial Iiiformation

The. unaudited quarerly financial information included in the notes to the consolidated
financial statements was derived from quaerly fiancial statements prepared in confonnity
with accounting priciples generaly accepted in the United States and With Item. 302(a) of
that Reguation S-K, consistently applied durng the years and on a basis consistent with

used

to prepare the audited financial statements. . .
Deferred Tax

Assets

The vauation

allowance has been determned pursuant to the provisions of Statemen of

Fina1cialAccotmting Standards No. 109, Accounting for Income Taxes, includig the

company's estimation of future taable income, if necessar, and is adequate to reduce the
total deferred tax asset to an amount that will more likely than not be realized.
The tax

plang strtegies that we assumed in determining a valuation'allowancefor defered

ta assets are prudent and feasible' strtegies that we would implement, if necessar, to

prevent a tax operati loss or credit carforwd from e).-pirg.
We are responsible for the significant assumptions used in developin the analysis of futue

taxable income for puroses of deterg a valuation allowace for deferred ta assets. .
Restructuring Cost. .
Allcbarges. either incured or anticipatedi classified as restnctng cost have been recognized and disclosed in accordance with Emerging Issues Tas Force No. 94-3 and No.
95-3 and with the Securities and Exchange Commsion Staf Accounting Bulletin No. 100.

Estimation MetJiods and Assumptions..tock-Based Employee Compensation
Weare responsble for vaJue of

the estiation methods and assumptions used in detennining the fai

the Company's stock options in accordance with Statement of estimates of

Finacial Accountig
futue conditions.

Standads No. 123. The assumptions represent our best

COR-EQTY 0018409
B158

0" i t. ¿''-C"_ .: ~ . .L ( or:- ,-Ur(HI""1 !",=, - _ i :-L;-~t.

51644SÕZS9 ïO CORP.~ EXECU7;VE P.10/11

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Use of

the

Work ola Specialist

We agree with the fidigs of the specialist in evaluaUlgthe fair vaue of the Coram, Inc.
Series A Cumulative Prfered Stock and have adequately considered the qualifcations of

the

specialist in deterinig the amounts and disclosures included in the consolidated financial
statements and the underlying accounting records. We did not give or cause any instrctions
to be' given to the specialist with respect to the values or amounts denved in ar

attempt to bias

the work. and we are independence or objectivity

not otherwise awae of any matters tht have had an effect on the
of

the specialist. . .

Going Concern

Note 2 to the consolidated fiancial statements discloses all of the matters of which we are aWae that arè relevant to the Company's abilty to continue as a going concern including
significant conditions and events, and management's plan.

Bankruptcy Reorganization

In connectonwitb the Company's filing for reorganzation under Chapter 11 of the United States Banptcy Code, the Company has complied with all accounting and reportng requirements of Ame.can Institute of Certfied Public Accountats SOP 90-7, Financial
Reporting by Entites in Reorganliationunder the Bánkruptcy Code.
Subsequent Events
Other than the

matter discussed in the notes to the consolidated financial statements, no

have

events or tranactions have occurd since December 31, 2000 or are pending tht would

a material effect on the fiancial sttements at tht date or for the yeai then ended, or tht are

of such signficace in relation to the Company's affairs to require mention in a note to the

financial statements in order to make them not misleading regarding the financial position. or cash flo\'i of the Company. results of operations,

We understand tht your audits were conducted in accord~cewith auditing standards
generally accepted in the UnitedSutes as defied and descnbed by the Amercan Institute of
Certfied PubIic Accountants

and were, therefore, designed primarly for the purose of

expressing an opinon.on the consolidated financial statements or the Company taken as a
whole, and tht your tests of the accountig records and other auditing procedures were.

.. liffited to' those that you considered necessar for that purose.

~.IJ~ ~.~
Chaian President and Chief

Danel D. Crowley .
Scbtt R. Dantz .
B159

Executive Offcer

COR-EQTY 0018410

Senior Vice President,.

____ __ _' .., ,---,,("11 t . ii-:'l-i; "'l"..C

:;J.O,"~-:C'-~': ~L" LUI".O....:~1 ::.X.i=i-Ul l\.t: j-.ll/~l

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Chief

.J~~iAttachment

Financial Offcer and Treaser

Gerald A. Reynolds Vice President-Con

COR-EQTY 0018411
B160
8

Case 1:04-cv-01565-SLR Document 138-5 Filed 05/04/2007 Coram Healthcare Corporation
Decèmber 31, 2000 Summary of Audit Differences

..

Page 23 of 42

Incr~e / (Decrease) in Income

12/31/00 12131/99
Differences Differences
$300,000 (300,000)
0

Errors:
.. Impaient of assets overtatement
. litigation accrul undertatement
Effect of

$0 .0
0

Errors
471,000 280,000 751,000
0

Judgmental Differen~s:
. Restrctu reserve

°
0

. Restrtu reserve

Effect of Judgmenta Differeces
751,000
Pretax effect
°

°

° $0

Tax effect (0%)

751,000
Cuulative dierence,.

before turn-around
of prior-year

differences, net of taes

Tum-aromid effect

0

. All errs . Judgmenta diereces

°
°

$751,000

Cuulatie difference, aft~r turn-around

COR-EQTY 0018412

El ERNST & YOUNG LLP

B161

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. .,-

1())-t-t ~~l.

lW. Dynamic
. . 'H'ealthcare

Solutions
Invoice
.June 1,2001

d Mr. Stephen Feinberg . General Parer . Cerbeni Parers

450 Park Avenue, 28 Floor

. th

New York, NY 10022

Pi;ofessional Consultig Servces for June, 2001
$ 80_000.00

Additional Consultats ~ Project Hanger Oropedics

May 21-23, 2001, Bethesda Marland:
. Gan Gaison ~ 3 Kur Davis - 3 days

days (?$2, OOO/day

Jjarlena Blay - 3 days (?$I,250/day
Expenses:
· Danel Crowley

(?$I,OOO/day

$6,000 $3,000 $3,750
$ 12,750.00

. $4,367_~7

· Gan Garson
· Kur Davis
· Darlena Blay Tota Expenses

$1,854.32

$2,92454
$2,796.40
. $ 1l~943.23 .

TOTAL AMOUN DUE

$104.693.23.

Please wie fuds to Dyamc Heathcare Solutions Ban of Ameñca, Sacramento, ABA/outig #1210-00-358
Account No. 01485-07867

Dyc Heicæ Soluton
Fed La 19412196

CROWLEYKVN 002209

400Capitol Mall. SUiI~ lZSO. Sacramenlo_ CA 95814 916.~9.60j6. 916:149.60)9 £ax

CXR 01015

B162

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IN THE UNITED STATES BANUPTCY COURT
FOR THE DISTRICT OF DELAWAR
In re
)

)

CORAM HEAL THCARE CORP. and

CORA, INC.,
Debtors.

)
) )
) )

Chapter 11

Case Nos. 00-3299 (M
though 00-3300 (MFW)

)

Jointly Administered

PURSUANT TO

SECONnJOINT DISCLOSURE,ST ATEMENT SECTION 1125 OF THE BANKRUPTCY CODE

KASOwrrz, BENSON, TORRS & FRIEDMA LLP
David M. Friedman Adam L. Shiff Robert M. Novick Athena Foley . 1633 Broàdway New York, New York 10019 (212) 506-1700
- and -

PACHUSKI, ST ANG~ZIEHL,

YOUNG & JONES,P.C.
Laur Davis Jones

Rachel Lowy Market Street, Suite 1600 919 Nort Wilmîngton, Delaware .19801
(302)652-4 1 00

DEBTORS AND CO~COUNSEL TO DEBTORS-IN-POSSESSlON

.. . :?
B163

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.

A lawsuit against Crowley and Feinberg would provide no benefit to CHC's existing equity holders.

2. Recommendations

the Debtors strve to achieve a consensual the Noteholders and Mr. Crowley a portion of their legal entitlements in order to make two voluntary contrbutions: (i) an forego the increase in the distrbution to CHC General Unsecured Creditors from $2 millon (as in the Plan), and (ii) up toa$1O Original Plan)to $3 milion(ifthey vote as a class in favor of Allowed CHC Equity Interests (if they vote as a class in favor millon distrbution to holders of faciltate of the Planr As a component ofa glopal settlement to the Debtors' emergencefrom bonus compensation Mr. Crowley has bankptcy, Goldinrecomiendedin its report that the November 30, 1999, eared pursuantto his employment agreement dated as of (as subsequently that Mr. such Agreement") be reduced by $7.5 millon "Executive Employment amended, the calendar year total of $5.9 milion inEBITDA bonus compensation for Crowley wil receive a his base salary of 2000 in addition to $650,000.
Goldin recommends in its report that resolution of their cases by proposing a Plan puruant to which

". . .
the Special

J. Statement of Special Committee

Regarding Executive

Compensation Waiver
the recommendations.

. The statement of

COmmittee as to its viewS of

in

the Goldin Report is as follows.
the recommendations of the Goldin Report in their entirety, believing it is in employees, shareholders the Company; its customers, the best interest of swift confrmation of achieve a consensual and creditors to attempt to .. and
The independent members of the CRC Board of Directors adopted

However, the independent Joint Plan of Reorganization. its Second . members of the Board ofUir.ectors do not belie. ve.the recommendation to
reduce

Mr. Crowley's co~pensatiönis warted. .

Mr.

of his acknowledged tuaround Crowley waS retained because expertise and his extensive experience in managing l¡ige,complex Crowley when the Company's healthcarecompanes.TheBoard hired Mr. Mr. Crowley In Novembrr 1999, when financial sitution was dire. millon in long.,term debt, accounts arved, CHC had more than $300 payable were seriously ovêrdue and CHC was on credt hold with importnt vendors,one ófits unts had

just been forced into involuntary
engaged

bankptcy, CHe was customer,. cash flow

in an adversariallawsuit with its largest from operations was negative and it had net

borrowing of $44nillonin that year to fud operations.

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As par of

his compensation

for 2000, Mr. Crowley

had an Íncentive

program linked to financial peronnance. Durng 2000, based onthe SEC Form lO-K, net income grew to $98.7 milion from a loss of$114.8 and cash flow from operations grew to $42.6 milion millon in 1999, compared to negative cash flow of $9.5 milion. in 1999 ~a positive swing process, Mr. Crowley made net longin cash flow of $52.1 millon. In the
tenn debt repayments of $54.1 inillon,brought accounts payable to

current status, amcably settled the lawsuit with its largest customer,
reorganized and stabilized price in the sale of the CPS asset and improved margins profitable therapies

the management team, achieved an enhanced by focusing on and . dramatically improving operating costs.

While we wish the business relationship between Mr. Crowley and
Cerberus had been more adequately disclosed, webelieve it

had no

material effect on the perfonnance of his duties or the

the stockholders." . .
We believe Mr. Crowley's actions saved the significantly interests

operations and financial condition of eHe. As the Goldin Report stated, Mr. Crowley and effectively to stabilze Cora's operations and "worked dilgently improve its financial perfonnance, a goal shared by the Nòteholders and

Company, preserving and

enhancing the vaJueofthe Debtors' estates mthebest

. enteiprise is clearly

of al1the claimants. W ebeHeve the viabilty of the ongoing to the leadership ofMr.Crnwley. For attbutable
the recommendation tht his
should

these reasonS, we do notconcur with compensation

be reduced.

In light of acknowledge

this, theiIidependent members ~fthe BoaidofDirectors contrbution and express appreciation for his Mr. Crowley's
to waive his right to a signÏicant portion of to

voluntary agreement compensation to enable Còram

his

complete its reorganiztion..

K. Other Administrative Events
On the Petition Date; orders designed to niinmiieany disruption of faciltate their reorganization. C~rtin of the

Banptcy Cour entered certin additional.
the Debtors' business operati~ns and to these orders are described below.

1. Cash Managementand Payment or

Critical

Tl1de Creditors

One

primar objeètive of

these çases is to restrctue the Debtors'
Cora to remain incompliance wÎth Stak II.. To that their operations, it is essential

outstading indebtedness and to cause preserve the.value of the Debtois' business

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E. ~anagenient
1. Reorganized Corani Board of Directors and Executive Offcers

Reorganized Coram wil be managed by a Board of Directors initially composed of the below-listed individuals, plus such other individuals as may be agreed to by the Debtors and the Noteholder Group who wil be identified in the Plan
Supplement. Reorganized Coram will

have the overall corporate strctue depicted in the

chart attched hereto as Exhibit G.

The followig biogrphical inormation is fushed with respect to the
above-named current members of the Board of

Directors ofCHC and the senior

executives of the Debtors:

NAME

AGE POSITION WITH CORA

DIRECTOR SINCE

Daniel D. Crowlçy

53 Chairman ofthe Board

Poiiald J. Amaral Wiliam J. Casey L. Peter Smith Sandra L. Smoley
Mr.

48 Director 56 Director 51 Director 64 Director
Crowley joined CHCas itsChainnan, Chief

1999 1995 1997 1994

2000

Executive Offcer and held of Wintedand, a privately President ai;ofNoveniber 30, 1999. He is also Chairman affnity merchandise company in the music and.entertinment industr, and Chainnan,
.ChiefExecutIve Officer and President of privately held management consulting

Dyamic Healthcare Solutions, LLC,a .

and investment firm that he established in 1997. prior to founding Dynamic Healthcáre Solutions, Mr. Crowley served as the Chainnan, Foundation Health Corporation, a post that he and President of Chief. Executivè Offcer
served in since 1989.
As discussed above and at lengt provides services to Cerberu,

had

in the Goldin Report attched hereto,
one of

Mr. Crowley also its investments in various receives a fee of ~dditional incentive

companies other than the Debtors.

the Noteholders, with respect to Mr. Crowley generally

$80,000 pennonth from Cerberus for such services, with a potential for bonuses. Mr~ Crowley neither receives a fee nor eams incentive

bonuses .from Cerberus for any services

be provides respectÙlgthe Debtors.
the BOard, President, and

. .. Mr. . Executive provides,

Crowley serves as Chainnan of Offcer ofCHC pursuant to his Executive

Chief

Employient Agreement, which

Mr. Crowley shall receive, among other compensation, ("Base Salary) ilitbe amouit ofS650,000 peranui, and apedonnance fiscal year 2000, as reflected in the bonus based upon CHC'sEBITDA results for
among other things, that a base salary

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Debtors'

financial statements, in the amount of 25% of the Debtors' EBITDA millon, and an additional $5 milion to Mr. Crowley and other members $14 greater than ofmanagemèntas designated by Mr. Crowley ifEBITDA exceeds $35 milion. The Executive Employment Agreement also provides that Mr. Crowley shall receive a
audited

restrctuung bonus in the amount of $1.8 million, payable on the Effective Date .of a.plan
of reorgaiiization. The Executive Employment Agreement wil be assigned to Coram under the provisions of

assumed by CHC and the Plan, subject to the Executive
Directors from
director of

Compensation Waiver.
Mr. Amaral served as Chairman ofCHC's Board of September 1997 until November 30, 1999. Mr. Amaral has served as a

the

. company since October 1995;ChiefExecùtive Offcer of CHC from October 1995 through November 30,1999, and as through Apul 23, 1999, and October 22, 1999 President from October 1995 though December 1997. Previously, he was President and Chief Operating Officer of OrNda Healthcorp ("OrNda") from Apul 1994 to August
'1995, and served in varous executive positions With Summit Health from October i 989 toApul 1994, including President and Chief between October 1991 andApul 1994.Sunit was merged Mr. Amaral is also a member of

Ltd. ("Sumt")

Executive Offcer into OrNda in Apu11994;

the Board oÎDirectorsofCareMatnx Corporation.
a director

of CHC since September i 997. Since 1983, Mr. Casey has serveq as a consultant in the hea1thcare industr, specializing in contracting and hospital management evaluation,hospitalplaning, managed care as Contract has also served Casey to 1997, Mr. services. From 1986 turnaround.
Mr. Casey has served as

. Administrator for Emergency Departent Physicians' MedicalOroup, Inc. and its
affliated rnedicalgroups, which .provide physician facilties. In

services to non~.governental addition, from 1988 to 1997, Mr. Casey has served as ContraCt
physician

Adrniiiistrator for NP Medical Group, Inc., which provides goveinentfacilties. Mr. Casey also serves as a director of

services to

TuCotities Bank.

Mr. L. PeterSmithhas served Between November 1993 and July 1994, Snith served as the Managing Parer of . acquired by MedisysinDecember 1992. Mr. Smith is also Chief serves on the Board of Directors ofRalin Medical, Mr. All

as a director of CHC since July. i 994.
Smith was a director of Medisys, Inc.

Mr.

Care Health Services, Inc., which was Executive Offcer and
inc., a company specializing Directors

in
of
Directors

cardiac disease management. Mr. Smith also serves on the Board of previously served on the Board of Gateway, Inc. and AMSYS, Inc. Mr. Smith

. Cudeon December 17, 1999, and that States

ofSabratek Corporation from October1992 though August 23, 1999.Sabratek the United States banptcy petition under chapter 1 i of Corporation fieda volunta the United proceeding is presently pending before

Banlptcy Cour in Delaware;
Ms. Smoley was elected toCHC's Board of Executive Offcer

Directors on February 10,
of

The Sandr Smoley

2000. Ms. Smoley is the Chairman and Chief

Company, a healthcare and local governent consulting firm based in Sacramento,

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Çalifornia. From October 1993 to January 1999, she served California Health and Welfare Agency. Prior to that time,

as the Secretary of

the

she was Secreta of the

California State and Consumer Services Agency from Januar 1993 to October 1993.
2. Arrangements with Reorganizd Coram's Executives

Reorganized Cora's successful implementation of its business strtegies of its key executives to wil be highly dependent upon the continuing commitment agreements to enter into Cora intends achieving corporate objectives. Reorganed
with its key executives in order to recrt such executives and (a) assure

(where necessar) and retaiii the services of
the availabilty of their skills for

the beneIitof

ReorganIzedCora freedom from competition by such Reorganized Cora, (b) secure to base reasonable and lawfl limits, and (c) provide appropriate persons within bonus, severace and other compensation, benefits and financial incentives though
employment;.related programs.
The senior executive offcers of Coram and CRC are curently salary from the Debtors at the following

receiving a

anualized rates:
AGE

NAME

SALARY (BASE)

POSITION(S)

WITH CORA
53

Daniel D. Crowley $650,000

Chainnan, Chief
Executive Offcer,

President and Director

Allen J. Marabito $350,000

54

Executive Vice President

Scott R. Dartz

$250,000.

44

Senior Vice

President

- Finance, Chief

Financial Offcer and Treasurer
. David A. Schwab

$165;000

41

Vice President,
General Counsel and Secretary

Vito Ponzio, Jr.

$180,000

47

Senior Vice

President,

Human Resources

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Certin senior executive offcers also receive medical, dental, disabilty and life insurance coverage, car allowances, housing allowances, paid vacations, and
certin. other perquisites.

In addition of Reorganized Cora, wil continue tenninated without cause,

to basesS:lary, Cora's senior executives, as s.enior executives
to ear bonuses or, if be provided with severance

voluntarily terminated or
benefits in

accordance with certin

of the Debtors' plans that are curently the subje.ct of an

application for approval with the

Banptcy Court.
Specifcally ,the Debtors have obtained Key Employee Retention.Progrm, which Administrtive Events." Certin of is described above the executives are

Banptcy Court approval of a
at section IV.F.3. "Other participants in the Key Employee

Retention Program;

Compensation Program") which applies to

Executive Compensation Program consists

thee components: base salares, short tern incentives, and long term incentives. The Debtors or Reorganized Coram intend to that the Executive Compensation assume the Executive Compensation Program, except
of Program wil be modified to the Plan. A copy of the extent necessary to be consistent with the provisions the Executive Compensation Program, as modified, wil

. - - "approximately thirt-six (36) Allen J.Marabitojoined CRC effective November 30,1999, as

The Debtors also have a management incentive progr ("Executive

people. The

of
be included

in the Plan Supplement.

Executive private law practice and Senior to 19Q9, Mr. Marabito was in ViCe President. From 1997 with Dynamic Healthcare Solutions, LLC.Ftorr 1991 to 1997, he served President Vice Foundation Health President, Secreta:and General Counsel of the Senior Vice as Corporation.
ScottR. Daniti has . January 1998ihrough December 1999, and served

as CRC's Vice President and Controller from as Senior Vice President.. Finance and Chief

. Accounting Officer fröm Januar 2000 thou.gh December 2000, and Senior Vice
President -Finance, Chief Financial Offcer and Treasurer since January 2001.

Previously, Mr. Daniti waS employèd by Firt Data Corporation from 1989 though
1997, and held varous positions, the most recent of which had been Vice Controller, Payment

President and

Intrents division.
Legacy as General Counsel to

. David A. Schwab bas servedas CRC's Vice President, General COunsel
and Secretarysince)anuar 2001. Previously, Mr. Schwab was employed by Securtiês Corporation from 1999 though 2000, and servd

. Meridian Corporation from 1991 to 1999.
VitoPonzio, Jr. has served asCHe's Senior Vice President, served Resources since Septeinber 1998. Previously, Mr. Ponzio

Human
as the company's Vice

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President of

Februar 1996to September 1998; and as Director of Human Resources from Human Resources from Februar 1994 to Februry 1996.
Dy-Laws oftbe Reorganized Coram

F. Certifcate

or

Incorporation and

Pursant to the fie the Amended and Restated Certificate of wil adopt the Amended and Restated By-Laws of "Implementation of

Plan, on the Effective Date, Incorporation of

the Reorganized Cora wil
Reorganized

Coram and

Reorganed Cora. See

the Plan.; Corporate Action." Thedescnption set fort below is
the Plan Supplement.

qualified in its entirety by reference to the Amended Amended and and Restated Certificate of Incorporation of Reorganzed. Coraand the
intended .as a summar only and is . . Restated By";Laws.ofReorganiied Cora, which are included in

Pursuant to the Plan, all currently outstading capital stock of the Debtors wil be canceled andaUnghts thereunder or relating thereto wil be extinguished. In Banptcy Code, the Amended and Restated the compliance with section 1123(a)(6) of Certîfcate ofIncorporation of Reorganzed Cora wil expressly prohibit the issuance of
any non-voting equity secunties.
1. Board of Directors
The the number of than nine. The Amended and Restated By-Laws of Board of Directors shall

directors on the

Reorganized Cora provide that be no less than thee nor more

Directors of the Reorganed Cora shall initially consist of the individuals set fort in subsectionE above and the other addition, the Amended and Restated Plan Supplement. In in the individuals identified Directors otherwise Board of Coram's unless Reorganzed By-Laws provide that, the be filled by the affnnativevote ofamajonty of detennines,any vacancies will
Plan provides that the Board of

remaining directors, though less thana quoru. Urider the Delaware General aboard may be removed by the Corporation Law ("DGCL"), directors serving on
stockholders with or without calie.

.2. Limitation or Liabilty of Directors

. The Amended and Restated Certificate of Incorporation of Reorganized
.Cora wil provide iliata director wil not be personally

liable for moneta damages to the Reorganed Cora or its stockholdersJorbreachoffiduciar duty as a director,

. except for liabilty for: (i) any breach of the director's

duty of loyalty to the Reorganed ..Coramor its stockholders; (ii) actS or onissions not in good faith or which involve
intentional inisconductor a knowing violatiöri oflaw; (ii)paying a dividend or

approving a stock repurchase in VÎolation of law; or (iv) any t:ctionfrQm which the benefit. . director denved an improper personal

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..

IN THE UNITED STATES BANUPTCY COURT FOR THE DISTRICT OF DELAWAR

x

. In re

Chapter 11

.. ii

o. ."l'

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

Case Nos. 00-3299 (MW) through 00,.3300 (NfW)
Joia.tly Admirstered

UPDATED REPORT OF INDEPENDENT RESTRUCTURNG ADVISOR GOLDIN ASSOCIATES, L.L.C.

GOLDIN ASSOCIATES, L.L.C. 400 Madison Avenue York, New York 10017 New (212) 593-2255
OF COUNSEL:

KRER LEVIN NAFTALIS & FRAL LLP
919 Third Avenue New York, NY 10022 . (212) 715-9100

KU!lOBl73.1

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,.wish, Goldin wil be available to continue its mediation efforts following dissemination of

this.

Report in final form.

II. CONCLUSIONS AND RECOMMENDATIONS
As the Bankptcy Cour found, Crowley's einployment agreement with Cerberus'

s

created an "actual conflct of interest" on his pai:;~!:e non-disclosure of that agree~ent "tainted

the debtors' restrcturing of its debt, the debtors' negotiations towards the plan, (~J!l.~veathe
debtors'. re~trcturiIlg of its opetatiop.s." (Tr. of

Dec. 21,2000 heanng, at 88-89) Crowley's and

Feinberg's failure to disclose the full extent of

the Crowley/Cerberus relationship (and the
their respective

pótential for abuse it posed) to other directors and offcèrs was a breach of

fiduciary duties. Whle the evidence as to Crowley's and Feinberg's intentions in this regard is
not conclusive, Feinberg's nondisclosure appears to have peen inadvertent. Crowley. bv
his Cerb.erus contract contras, had an incentive to conceal the existence of

(so as not to risk a

reduction of

his Coram compensation) and his failure to make appropriate disclosure may not

. have been inadvertent.
~

It does not appear, however, that either Crowley or Feinberg acted with culpable

. intent ofthe sort alleged in the Equity Committee's Complaint. The evidence does not establish
. that either man intended or expected t~at Crowley would seek to advance Cerberus' interests to
~i
the detriment of

Coram and its shareholders. There is no indication that Cerberu (or the other

Noteholders) ever instrcted Crowley to act c~ntrar to the company's best interests or -- with
~!

one possible exception -- that Crowley ever did so orhis own accord. The one possible
exception is Crowley's decision to make a $6.3 milion cash interèst payment to the Noteholders

on July 14,2000, at a time when the company's cash was low and a banptcy filing was under

~.
-10KL: ~10!7J b

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..

Smith believes that Crowley, considering himself a "CEO of CEOs'," envisioned

Smith working for him, rather than the other way around. For example, he says Crowley sent
Simpson, Coram's CFO, to New York "behind his back" to talk to baners and took other

actions ~n behalf of the company without consulting with Smith. He also say~ that in October
!"

.. '=

1999 Crowley wrote a highly critical memo about Coram's management information system -- in'

defiance of Smith's explicit instnctions not to wrte any memos --which could have potentially
hurt Coram in the Aetna litigation.

By mid-October it had become clear that Smith and Crowley could not work

together. After the October 22 board meeting Richard FiIi spoke to Smith on the board's
~
behalf. .Fink told Smith that he lacked.

turnaround experience and needea help; Fink explained
that the board wanted Crowley to function, in the short tenn, as a "