Free Appendix - District Court of Delaware - Delaware

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 1 of 30

Schader TrO1Y3ATLAVJ
Richard October Schepacarter

Esq

28

2003

Page3

Sarnstock

is

owned

by

Mr

Zell

and

is

one of

his

investment

vehicles

Robert the Lurie Lurie

Lurie
still

was have

Mr
was

Zells business
business Zell

partner
interests.

until

family

common

Mr Luries death and he and Mr Slezak who now runs the

family businesses

former

employee

Mr
Will

Zell

was introduced

to is

Coram by
described

his as

longtime an advisor

friend to

and investment
Foundation and

advisor

Weinstein
matter

Mr

Weinstein

the Lurie

on the

Coram
calls

and he has participated
Zell and the Lurie

in Equity

Committee

meetings

conference investors
in

Both

Mr

Foundation

were muti-million

dollar to

Mr

Weinsteins hedge
several times per

fund Jackson day

Square Partners

Mr

Zelispeaks

Mr

Weinstein

Mr Mr
Zell has

Haydon

is

one of

Mr

Weinsteins clients

Levy

is

personal friend of
his

Mr

Zell

According

to

Mr

Levys

website

Mr

been

one of

clients

The individual who

is

tie Equity

Committees

designated

spokesman

and

MrLibnttht
At have
close

is

thplOedby
five

Mr

witness

Znll

least

three of the

diretors

proposed
directors

ties to

Mr
Dr

Zell Peter

One

of the

by the Equity Committee for Coram would be Mr Liebentritt Another Managing
Director of Equity

proposeddirector international

Linneman

was

the

Senior
real

Properties
third

private

international

estate

investment

fund-controlli in ventures in

Mr

by

Zell

proposed
affiliates

director

Mark

Gainor

has been

an investor

which

Mr
In

Zells

have been

investors

letter is

dated

September 17 2002
behind duty
is

Mr
my

Zell

advised

the Trustee
in

that

economics
contrary
to

not the sole motivator

participation

these

events
all

This

is

the Equity

Committees

to

maximize the recovery

of

shareholders for

As

committee member economics

the only permissible

motivation

Mr

Zell

The Equity
shareholders
to

Cmmittee

has

shown

that

it

is

willing

to

take

actions

that

will in

harm
effort

so long as they

advance
the for

some undefined
Equity voting

agenda
has
to

For example
filed

an

secure

than
its

votes for its failed plan $6 million in creditor claims

Committee purposes
for

motion

to

allow

more
In

which the Trustee
of the claims

objected even

motion papers the Equity

Committee
reduce

argues the

the

validity to

though

the allowance

of the claims would

distribution

shareholders

by more than

$6 million

We
this

do not know
Perhaps

for

certain
is

why
seeking

Mr
to

Zell settle

and

the Equity

Committee

have

strategy

Mr

adopted
that

Zell

an old score

He

told the Trustee

Schnader

Harrison

Segal

Lewis

LIP

TRUSTEEO682O

Al 021

Case 1:04-cv-01565-SLR

Document 126-2

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Page 2 of 30

Schn.ader
Richard October

ATTOP.NEfSATLAt

Schepacarter

Esq

28 2003

Page

he had

significant

dispute with deal

one of the Noteholders Goldman
said

Sachs
peace

over with

the

Rockefeller

Center

although he has recently
Zell
is

he has made

Goldman
also invests

Sachs
in

Or

maybe debt

Mr

seeking

to

haun

competitor

Cerberus which

distressed

Hwever
the other
iVff his

what we do.know
is far to

for sure

is that that that

the tolerance

for

risk

of

Mr

Zell

and
Zelt

committee members
can and affbrd

greater than plan

of the other shareholders gambles the

Mr

colleagues expensive

support

company

on the outcome
of

of risky

tineccmsuming
profhssionals
if

litigation

the

only

sure beneficiary receive

which
of

will

be the Equity
dt1Iaxs

Committees
fees

who would

undoubtedly

millions

of additional

the Equity

Committee

Plan

were confiritied

Further
their
it

it

appears

that

Messrs

Haydon

and

Weinstein

wrongfully

profited

from
that

association be

with

the Equity for

Committee

h

Mr

Zell

and

Mr
to

Slezak trade
in

testified

would

inappropriate 0fthg that

member of

the Equity

Committee
both

Coram and

stock

after

the formation did
just

Equity

Committee

Nevertheless

Mr

Hydon

Mr

Wethstin

The Equity
extend the

Committee employment
in the

takes for

issue with short
financial

the

motion

that

Judge Adamsflled
of plan.

to

Crowleys

period

pending

confirmation while

Given

improvement

companys
that
it

performance to maintain

Crowley was
in

CEO
until

JuIgAdaxns
the

believed

would

be

better

stability

management
with
tight

interest

company of the

emerged from bankruptcy
creditors strings

and shareholders

Judge Adams took this position in mind He had already taken
over

the best control of

Comms purse
purchases during
in

and no Coram expenditure
course of

$50000

beyond

medication

the ordinary

business was made
Judge

by Crowley or has been made

the nine

months since his departure without by
substantial

Adams

approval

His

motion

was supported

evidence

that

Crowleys
Judge

removal could

have

negative did

impact on the company Although she denied
not find
that
it

Adams

motion Judge Walrath

was frivolous or taken

in bad

faith

The Equity
access
to

Committee During
information

cannot
his

in

good

conscience

contend

that

it

has

been denied
think that

information sufficient

deposition
to

Mr
with

Liebentritt

testified

that

we

have

proceed

what

were

doing
and duplicative
financial

Indeed
thatwill accountants Equity for 14

the Equity

Conittee
more than

has

engaged

in needless .The Trustee of

discovery advisors
to

Vt

VhV.haIe1i01deiS

ilons. 65000
Even
to
sit

his
in

and

have produced

pages

documents
it

response

the

Committees
hours

discovery

requests

though
for

has already

deposed the Trustee

and the Trustee
is

has offered and
is

an additional

hour the Equity
of

Committee

not

satisfied
frill

demanding

more time
feasibility

Scott Victor issues

SSG

has

been

deposed for three Committee
has

days

as to valuation
at least

and

but the Equity

demanded

two

more hours

The Equity

Committee

has deposed

Schnader

Harrison

SgaI

Lewis

LLP

TRUSTEEO6821

Al 022

Case 1:04-cv-01565-SLR

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Page 3 of 30

Sehnader
ATTORflZYSATLW
Richard Schepacarter

Esq.

October282003 Page5

Sam Bemiss Youngs
Officer

Michael Weber and Scott Mumfor4 of
auditpartner for
full

EB

asto

valuation

issues

and Ernst

day each The Equity

It

has deposed

Corarif
financial

Chief Financial
advisor Deloitte

Scott and

Daniz

four

times

Committees Havdala
several

Touche
senior

one of

Mr

Zells employees Committee

Ellen

have other

interviewed

Mr

Danitz

informally

The Equity

has deposed

members
Vito

of

Corams
Senior Vice

President

management Allen Marabito Executive Deborah Meyer of Human Resources
President twice has

Vice

President

Ponzio

Senior Vice

President

of Sales deposed

and byihe
the

Michael Saracco
Equity Equity

of Specialty

Services
for

Dan Crowley has been
third

Committee Committee

and will be deposed

time

on November
of

And

deposed Stephen
arid

Feinberg

and

CEO

Donald

Amaral

the other outside derivative
in

directors

Mark Neporent who are targeted
Yet the Equity
be

Cerberus former
in

as defendants
is

the

Equity

Committees

proposed says

complaint
letter

Committee
will

not

satisfied

As

Mr

Levy

his

October23

sure there

be

other

depositions

Judge

Adams

joins

in

your

concern scorched

over

the Equity
litigation

Committees
tactics

administrative
in

expenses
astonishing

The Equity

Committees

earth

have resulted
the

an

amount of administrative
professionals
his

claims
for
fees

Through August
and expenses

31 2003

Equity

Committees When.askedat
beiricurred Organization

had

applied

totaling

1104259.19
that

August

21

2003

deposition through could

to estimate the confirmation
lot

amount of fees

would
the
Zell

by the Equity
testified

Committee
1it

Pcrnald

Liebentrittof

flippantly

be

or

more than

lot
to conduct

The Equity
thorough
his

Committees
of the

assertion

that
its

the Trustee
is

has

failed

and assets company have spent amount of time meeting and discussing the company significant with members of senior management investment Judge Adams retained experienced investigation counsel bankers also brought provide

and

without

merit Judge Adams

him with advice

and

guidance
to

with regard to financial matters with

He

on an experienced

accountant

serve

him on the companys audit

committee

The Equity
investigate

Committees
conflIct

contention of
interest

that

Judge

Adams

did

not

do ahything
claims
is

to

Crowleys
proposing

and the proposed

derivative

absurd
parties as

Befure
to

plan Judge AdanisrOEviewed
the

exterisivewrittert for

briefs

by

all

the

merit of
of

derivative the Equity

claims

Cotnsel

the Equity expert
as

Committee

and Daniel

Fischel

Lexecon

eonnllttees danaes

made an

in-person
for

presentation iposed

to the Trustee

aringtlieproposed lawsuit Judge
of the

did counsel the

each

of the
of the and
legal

defendants

In addition

Adams
related

counsel

reviewed

transcripts

two confirmation
in settling

hearings the

and

all

depositions
relied the

In evaluating
his

the claims 50 years of

with

Noteholders Judge
his

Adams

upon
United

more than
Court

experience the Third

including Circuit

18 years

as

Judge of

States

of

Appeals for

Sehn.ader

Harrison

SegI

Lewis

ti

TRUSTEEO682

Al 023

Case 1:04-cv-01565-SLR

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Page 4 of 30

Shnder
ATTORNZxS
AT Richard

LW
Esq

Schepacarter

Octobei28 Page6

2003

Finally lawyer

Judge

Adams
American

consulted

with

Jerome Shestack
president

an experienced
has opined
that

trial

and
is

former

Bar Association
can be

who

that the

settlement prudently

reasonable

There

no reasonable

question

Judge

Adams

acted

During
dicL

his

deposition the

Liebenfritt litigation

was unable

to

identify

anything

that

the Trustee

not do

to

investigate

claims

Are there things have done claims They
should
to

that

you believe the Trustee
additional information

should concerning the
litigation

develop

have

filed

lawsuit

If

his

mission
his

had been
to

to

run
all

up

fees

for

his

professionals concerning
at

Judge

Adams

could

have

directed

counsel
that

repeat

of the discovery prior to goals
his

the proposed cost

derivative dollars

claims

was conducted

appointment
to

of several million
the

However
and to
get

since his primary the

were

maximize the assets minimize

liabilities

company

outof bankruptcy Judge
and
in

Adams

relied

in

part on the claims

thousands
that

of pages

of testimony developed
to

documents

relating

to

the proposed

derivative hearings

had already been was the
right

connection

with two

prkir

confirmation

This

thing

do
Judge Adams has breached his duties as Committee cares not what it says or
fees are so

The Equity
Trustee does
is truly

Committees
It

suggestion
that
its

that

offensive
the

shows on and

the Equity

so long as

case be
to

goes

professionals

paid
it

far is

more reasoned
Teflective

suggestion

would

reconstitute

the Equity

Committee

that

more

of

the shareholder

group

If

you have

any questions or proceeds

if

confirmation

process

please

you need any additional do not hesitate to call

information

as the

Yours very truly

Richard For

Barkasy

SCHNADER

HARRISON

SEGAL

LEWIS

LLP

RAB/sh

Schnader

Harrison

Sega

Lewis

up

TRUSTEEO6823

Al 024

Case 1:04-cv-01565-SLR

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Page 5 of 30

Schnder kTTOUEYSATLAW
-p

Richard October

Schepacarter

Esq

28 2003

Page7

Cc

Barry

Bressler

Esquire

Wilbur
Richard.F

Kipnes Esquire

Levy
Miller

Esquire

Alan Michael Howard John David

Esquire Esquire Esquire Esquire Esquire Esquire

Cook
Neuwirth 3radford

3odnick

Steven

Tomashefsky
Heiskell

Matthew

Esquire

Schnader

Harrison

Segat

Lewis

ur

TRUSTEEO682L

Al 025

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Page 6 of 30

REDACTED

TRUSTEE06825

Al 026

Case 1:04-cv-01565-SLR

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Page 7 of 30

THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE
Inre
Chapter
11

CORAM HEALTHCARE CORP CORAM INC

and

Case

No

00-3299

MFW

Jointly Administered

Debtors

CHAPTER

11

TRUSTEES POST-CONFIRMATION

HEARING BRIEF

Barry E.Bressler

Wilbur
Richard Michael

Kipnes Barkasy Barrie

Matthew

Holmwood LEWIS

SCHNADER HARRISON SEOAL
LLP
1600

Market Street

Suite

3600
19103-7286

Philadelphia

Pennsylvania

215751-2000
-and-

Kenneth

Aaron

4043
LLP
Suite

WEIR

PARTNERS
Street

824 Market

Mall

1001

P.O Box 708
Wilmington Delaware
19899

302

652-8181

Co-Counsel
Trustee

to

Arin

Adams

Chapter

11

Al 027

Case 1:04-cv-01565-SLR

Document 126-2

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Page 8 of 30

TABLE OF CONTENTS PAGE

BACKGROUND
II

THE COURT SHOULD CONFIRM THE CHAPTER

11

TRUSTEES

PLAN

OVERVIEW OF THE TRUSTEES
THE VOTiNG

PLAN

SUMMARY SHOWS BROAD ACCEPTANCE OF THE PLAN
PLAN
IS

THE TRUSTEES SHAREHOLDERS

FAIR

AND EQUITABLE TO CHCS COMMON
In

The Plan Will Pay The Than
Distribution the to

CHCs CHCs

Shareholders Shareholders

Excess
the

of $40 Million Trustees Plan
Is

Under

Greater

Value of Their

Interests

The Trustees
Deloittes

Confirmation

Valuation
is

Confirmation
the

Valuation

Unreliable
15

The
III

EC

Is

Out of

Money By Any Measure

THE CHAPTER 11 TRUSTEES PARTIAL SETTLEMENT OF THE ECS PROPOSED DERiVATIVE LITIGATION SHOULD BE APPROVED THE CHAPTER
BUSiNESS
11

17

TRUSTEE

JUDGMENT AFTER

PROPOSES THIS SETTLEMENT FULL iNVESTIGATION
IS

iN HIS
19

THE PROPOSED SETTLEMENT REASONABLENESS
The
Claims Against

WELL ABOVE THE LOWEST RANGE OF
20 and

Goldman

Sachs

Foothill

Would

Probably

Not Survive
21

Summary Judgment
There
Is

Serious Chance that

the

RICO

Claims

Would Not

Survive

Summary
22

Judgment
Defendants
Illogical Woiiild

Attack

the

Proposed

Scheme

As

Unnecessary

and 23

Coram Might Not Establish the Required
There

RICO

Pattern

25

Are

Difficult

Issues

Of

Causation
Is

And Damages

27
27

The

ECs

Damages
Fischels

Calculation

Subject to Challenge be Challenged
as

Professor Causation

Theory Would

Improperly Assuming

29
Causation

The Even

ECs
if

Theory

Is

Susceptible

to

Factual

Challenge
It Is

31

the

Assume

ECs Damages Theory Went An Award of $137 Million

To The Jury

Unrealistic

To
31

Al 028

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 9 of 30

The

Possibility

Of

Pursuing

An

Events

Based Lawsuit The
Is

Against

The
32 33 36 37
is

Noteholders There

Does

Not

Justify

Rejecting

Settlement Unreasonable

Is

No

Evidence

That

The

Settlement

THE COURT SHOULD APPROVE

THE R-NET

SETFLEMENT

THE THIRD PARTY RELEASES UNDER THE PLAN ARE APPROPRIATE
The Debtors
Proper Release of Their Litigation Claims Against
the

Noteholders

37
of Claims Against
the

The Third Party Releases

Noteholders

Are Proper

39 41 41 41 41

1V

THE EQUITY COMMITTEES PLAN

MAY NOT BE CONFIRMED
VOTES
Plan

THE EC PLAN DID NOT RECEIVE THE REQUISITE No
The
Impaired

CI Class Voted

to

Accept

The Equity

EC

Plan Misdesignated

Classes as Impaired

Which Are Unimpaired
the

The Equity

Plan Impermissibly Classified

The R-Net Claim and

Noteholders

Unsecured
IS

Claims

42
.43

THE EQUITY PLAN

NOT

FEASIBLE

THERE ARE SEVERAL OTHER LEGAL IMPEDIMENTS CONFIRMATION OF THE EQUITY PLAN

TO THE
46

EVEN

THE EQUITY PLAN WAS LEGALLY CONFIRMABLE THE PLAN SHOULD BE CONFIRMED TRUSTEES
IF

46 47 47
48 50

THE TRUSTEES THE TRUSTEES

PLAN PLAN

IS

BETTER FOR

CHCS SHAREHOLDERS

IS

MORE FEASIBLE THAN THE EQUITY PLAN
PREFER THE PLAN

THE CREDITORS CLEARLY VI CONCLUSION

11

Al 029

Case 1:04-cv-01565-SLR

Document 126-2

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Page 10 of 30

TABLE OF AUTHORITIES FEDERAL CASES

In

reA.H Robbins

Co

Inc

880

F.2d 694 4th Cir

1989 2000 40

39

In re American Family Enterprises

256 B.R

377 D.N.J

41

Augustine

Medical
April

Inc

Mallinckrodt

Inc 2003 U.S Dist LEXIS 6079 28
30

Del

2003
Unitedv
Clinic 152 F.3d 588

Blue

Cross

Blue Shield

Marshfield

7th Cir 1998

30

In re Cavalier Industrial

Inc 2003 Bankr LEXIS

150

Bankr

E.D Pa
42

Feb

2003
203 F.3d 203

In re ContinentalAirlines

3d

Cir 2000

40

In re

Coram

Health

Corp Corp

271

B.R 228 Bankr

Del 2001

33

In re

Dow

Corning

280 F.3d 648 6th Cir 2002 960 F.2d 285 Cir 1992

39

In re Drexel

Burnham

Lambert Group Inc

2d

39

FGHRea11y D.N.J
First

Credit

Corp

News

Airport/Hotel

Ltd Partnership

155

B.R

93

1993
Bank
Gelt Funding

42

National

Corp

27 F.3d 763

2d

Cir 1994

30-3

Furst

Feinberg

54

Fed Appx
Ventures

94

3d

Cir 2002

48

In re Genesis

Health

Inc 266 B.R

591

Bankr Del 2001
213

20

In re Greate

Bay

Hotel

Casino Inc 251

B.R

D.N.J 2000 1998

46

In re Healthco

International

Inc

136

F.3d 45

1st Cir

19-20

In re Holley

Garden Apartments

Ltd
Inc

238 B.R

488 Bankr

M.D
100

Fla 1999 Bankr

47

In re Intergrated Health

Services

2001

Bankr LEXIS

Del

Jan.32001
John Hancock Mutual
Insurance

20

Life

Co

Route

37 Business 42

ParkAssociates

987 F.2d 154

3d
B.R

Cir 1993

In re Lee

Way Holding Con2p

120

881

Bankr

S.D Ohio 1990

19

111

Al 030

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 11 of 30

TABLE OF AUTHORITIES
In re

Continued

Made

in

Detroit

Inc 299 B.R

170

Bankr

E.D Mich 2003

43

In re Martin

91

F.3d 389

3d

Cir 1998

20

InreMarvel234B.R.21 D.Del 1999
Master Mortgage
Investment

20

Fund Inc
187

168

B.R 930

W.D Mo

1994

40

In re

Midway

Investment

Ltd

B.R 382 Bankr
65 F.3d 973

S.D Fla 1995

42

In re Monarch

Ljfe

Insurance

Co

1st Cir 1995

39

In re Munford

Inc

97

F.3d 449 11th

Cir 1996

39

In re National

Award Manufacturing

Inc

35

B.R

691

Bankr

S.D Ohio 1983

43

In re

WSHolding

Corporation

228 F.3d 224

3d

Cir 2000

40

In re Revco

D.S Inc

1990

Bankr LEXIS 2966 Bankr

N.D

Ohio 44

Dec.171990
In re River 181

Village

Associates

B.R

795

E.D

Pa 1995

48

In re Stoffel

41

B.R 390 Bankr
161

Minn.1984

45

In re ThornwoodAssociates

B.R 367 Bankr
811

M.D

Pa 1993

42
40-4

In re Transit

Group Inc 286 B.R
156

M.D

Fla 2002 Ohio 1993

In re Tyler

P.E P.S Inc
Theatre

B.R

995

45

In re UnitedArtists

Company
79

315

F.3d 217

3d

Cir 2003

39-40

In re

Vencour

Inc 284 B.R

Bankr

Del 2002 B.R
92

39 40 Del 1999
37-38

In re Zenith

Electronics

Corporation 241

Bankr

FEDERAL STATUTES
11U.S.C.1123
11

3841

U.S.C

1129

3414246
2223

18 U.S.C

1962

iv

Al 031

Case 1:04-cv-01565-SLR

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Page 12 of 30

MISCELLANEOUS
Franklin Balotti
Jesse

Finkelstein

Del

Corp

Bus Org

4-124 30

2004
Jerold

Solovy

Douglas Rees CiVIL Block 2003

RICO

Guide

to

Federal/RICO

Litigation

Jenner

22-23 23 30-3

Al 032

Case 1:04-cv-01565-SLR

Document 126-2

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Page 13 of 30

BACKGROUND
Arlin

Adams

the

Chapter

11

Trustee

of

Coram

Healthcare

Corporation

CHC
of the

and

Coram Inc
11

CI

collectively

Coram or Debtors
Joint

submits this brief in support

Chapter

Trustees

Second Amended

Plan of Reorganization

Plan

or Trustees

Plan

and

in

opposition to the Official

Committee of Equity

Security Holders

EC
Plan and

Second Amended

Plan of Reorganization

Equity

Plan

Confirmation

hearings

on

the

Equity

Plan were

conducted

by

the

Court

commencing

on September

30 2003

and

concluding

on April 20 2004

This Brief

is

submitted

pursuant

to the

Courts request

that

the

parties

emphasize

for the

Court the credible

and

convincing

evidence

both in the form

of testimony

and

exhibits

which

will

assist

the Court

in

considering

confirmation

of the competing

plans

The

Trustee

is

mindful of the

Courts observation

regarding

its

familiarity

with the applicable case law discussing

the

requirements

and

considerations

regarding

confirmation

under

the

Bankruptcy

Code known

The

factual

and

procedural

history

of

Coram

bankruptcy

proceedings

is

well

to

the

Court

and

will

not be repeated here

See

In

re

Coram Health

Corp

271

BR
the

228 Bankr

Del 2001 TA330-54
used
in the

Likewise

capitalized

terms not defined

herein have

same meaning

as

Plan and

Disclosure

Statement

Tr Ex

Tr

Ex

refer

to

Trustees

Exhibits

from

the

Confirmation

Hearing

and

TA

refer

to

the

Trustees

Appendix

Al 033

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 14 of 30

II

THE COURT SHOULD CONFIRM THE CHAPTER
OVERVIEW
The main
features

11

TRUSTEES PLAN

OF THE TRUSTEES
of the Plan include

PLAN

Assured

cash

funding

by

$56 million to be contributed
date

by

the

Noteholders

and

the

Debtors

cash on hand on the effective

The Noteholders
approximately remaining

$56 million contribution
the to the

consists

of and

cash
direct

payment

in the

amount of

$40 million and
tax
liability

assumption

cash payment
in the

of the Debtors

deferred $16

Internal

Revenue

Service

amount of

approximately

million

In return the

for the

$56 million in funding
and
their officers

and

waiver and

of other

claims

the

Trustee

will release the

Noteholders
against

directors

employees claims

from any claims

that

Debtors

have

them

including the proposed

derivative

All general unsecured
certain distribution will

creditors

other

than the Noteholders
pre-petition

will

receive an

immediate be

and

of

100%

of their allowed

claims any
future

CHC

will
II

dissolved

and

Coram

become

private

company
the

eliminating

Stark

issues

The Noteholders Reorganized
their

will

receive

all

common

and

preferred stock in reorganized stock liquidation

Coram Inc
in

Coram

in satisfaction

of their preferred

interest

CI and

general unsecured

claims

on

their

Notes which together exceed

$370 million

Reorganized

Coram

will retain

$10

million in cash

working

capital

and

will

be debt free

CHCs
after
all

common
creditors

shareholders
are

will

receive

the

balance
the

of the Plan Funding Cash remaining and

paid

in full

which both

Trustee

ECs

feasibility

experts

estimate will exceed

$40 million

Unsecured from
the

creditors net

will

receive post-petition claims

interest

calculated

at

the

federal

judgment Crowley

rate

proceeds

of the litigation
directors

including claims

against

Daniel

Crowley the
CHCs
proceeds

outside

and

PriceWaterhouseCoopers

PWC

common

shareholders

will

receive

apro rata

distribution

from the remaining

net

of the litigation

claims

The

claim of R-Net

brought

by

its

Unsecured

Creditors allowed

Committee

of more than $41 claim of confirmed plan of

million will be

settled will

with R-Net receiving an be paid in full enabling

general unsecured
to

$7950000

which

R-Net

consummate

its

reorganization

Al 034

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 15 of 30

THE VOTING
The Plan was accepted

SUMMARY SHOWS BROAD ACCEPTANCE OF THE PLAN
by each
impaired
class

of creditors

clear

majority

68.2%
holding

of the

shareholders

who

cast

ballots

voted

to

accept

the

Plan

minority

of shareholders

majority

of the

CHC

equity interests voted

to

reject

the

Plan

THE TRUSTEES

PLAN

IS

FAIR

AND EQUITABLE TO CHCS COMMON

SHAREHOLDERS
plan

may
and

be confirmed

over the dissent

of an

impaired

class

of interest

holders

if

it

is fair

and

equitable

not unfairly

discriminatory

11

U.S.C

129b1

class

of equity security

holders

is

treated

fairly

and

equitably

if

it

retains

property equal in value to each

equity security

holders

interest

11

U.S.C

1129b2Ci
Will Pay

The Plan
The Trustee estimates

CHCs Shareholders
Plan

In Excess

of $40 Million

that

under

his

CHCs
The

common

shareholders

will

receive

cash

distribution

of more than $40

million

TA122
claims

shareholders

will

also

receive the net

proceeds

of

all

of

Corams

litigation

after costs

and

payment of

post-petition

interest

to

unsecured

creditors

The evidence

presented during

the

confirmation

hearing

by both

the

Trustee

and

the

EC
date

shows

the

Trustees

estimate of cash available

for distribution

to

shareholders

on

the

effective

is

reasonable

The

Trustees

feasibility

expert

Scott

Victor

Victor

of

SSG

Capital

Advisors

LP

SSG

an

experienced

investment

banker

specializing

in distressed

companies

and

former

bankruptcy

attorney performed

an analysis

estimating that

$37236000

would be

available

for

distribution

to

CHCs
of Funds

common

shareholders

under

the

Plan

TA2-8

as

follows

Sources Projected

Cash Balance

Available

to

Fund Plan

$41161900 56000000

Gross

Noteholder

Funding IRS Claims

Less Deferred Net Noteholder

18363000
$37637000

Funding

Al 035

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 16 of 30

Total Sources

of Funds

$78798900

Less Uses of Funds
Projected Administrative Claims

Non-IRS
Priority

Tax Claims Tax Claims
Claims including Left in

$13500000 100000

12900
R-Net settlement

Unsecured

Cash Working

Capital

Company

17950000 10000000 $41562900
$37236000

Total Uses of Funds

Balance

Tr Ex
availability

In

fact two events since

Victors

testimony

on September 30 2003

will

result

inthe

of additional

cash

for

CHCs

shareholders

First

Victors

analysis

assumed Coram would use $8 million of cash

to

purchase

new

infusion

pumps

but he explained

that

if

any portion of the

pump

purchase

was financed

the

financed

amount would be

available

for distribution

to

shareholders

TA8

By

Order dated

December

22 2003

the

Court

approved

the

Trustees

request that

Coram finance

50%

of the

purchase

price

TA44
to

As

result

Coram has almost $4 million in

additional

cash

increasing

the

estimated

distribution

shareholders

to

over $41

million

Second

Coram has made payments

to and

received

credit

from

the

IRS under

the

court-

approved

settlement that

have

reduced

the

deferred

IRS claims by over $1.5 million to

approximately

$16 million

The

ECs

feasibility

expert

Carl Lane

Lane

of Deloitte

Touche

LLP Deloitte
have

reached

conclusion

similar

to

Victor

He

estimated that

as

of March

31 2004 Coram would
Coram

between

$44.5

and

$48.5

million in cash

He

agreed

with Victor that

is

generating

additional

cash

at

the

rate

of $1.5 to $2.5 million per

month

TA143

Moreover

Lanes

estimate

of unsecured

claims was

$1.2 million lower than the Trustees

TA163

Using Lanes estimates

Al 036

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 17 of 30

of cash

and unsecured claims the amount available for distribution

to

CHCs shareholders

should

be

between

$41774100
cash

and $45774000

The

non-contingent

distribution

to

be

paid to shareholders

on

the

effective

date

is

greater

than the market

cap

of

Corams

stock

At

the

close

of trading

on April 20 2004 the

last

day

of the confirmation

hearing

CHC

stock traded at 69

cents

per share and

the

market

cap

was

approximately

$34.25

million based

on the slightly

less

than 50

million shares

outstanding

testified

to

by Donald

Liebentritt

Liebentritt
Plan

TA262 CHCs

shareholders

will

receive

in

excess

of 80

cents

per share under

the

TA262
to

The

Distribution

CHCs Shareholders

Under

the Trustees

Plan

Is

Greater Than the Value of Their Interests The Plan

is fair

and

equitable

because

the

distribution

to

CHCs

shareholders

is

greater

than

the value of their interests

As

established

by

the

expert testimony

of Samuel

Bemiss

Bemiss of
Corams
fair

Ewing

Bemiss

Co
between

EB
$195

and

supported

by the expert testimony

of Victor

market value

is

million and

$225 million

Tr Ex 11
CHCs

The

claims

and

interests

with priority over

CHCs

shareholders

exceed

$420 million

shareholders

are

thus

out

of the

money

Consequently

the

amount

to

be received

by

CHCs

shareholders

under

the

Plan

is

far greater

than the value of their interests

The Trustees
The
Trustee
relied

Confirmation Valuation

upon

the

EB/SSG

enterprise

valuation

Bemiss

the

Trustees

primary

valuation witness

has an

MBA

and

J.D from

the

University

ofVirginia

TA49-50

He

is

an

experienced

investment

banker

frequently

representing

buyers and

sellers

of healthcare

companies

in

mergers and

acquisitions

TA5O-51

When

he

testified

on

November

2003

he

had

approximately

ten

active

healthcare

representations including

sale

assignments

for several

respiratory

care

and

durable

medical

equipment

companies

specialty

pharmacy

company

and

.5

Al 037

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 18 of 30

home

nursing

company
five

TA52-54
years

He

has performed

dozens

of valuations in the healthcare

sector

over the past

TA54
on
the traditional definition

EB/SSGs

enterprise

value was based

of

fair

market

value

the

price

willing

seller

would pay

willing

buyer assuming

that

neither

is

under

any

compulsion

and

both possess

all

material

information

TA56-57

EB/SSG

used

three

accepted

valuation

methodologies

comparable

public company

analysis

comparable

transaction

analysis and

discounted

cash flow

DCF
of indicated

analysis

TA6O-64 Tr Ex 11
$209976000 $195528000
to

EB/SSGs

range

values was

$239708000 $225194000
medical

for their

comparable

publicly

traded company

analysis

and

between

and

for

comparable

mergers and

acquisition

transactions

in the

home

nursing

home

equipment

and

home

infusion

sectors

of the

home

healthcare

industry

during

the

past

seven

years

Tr Ex 11

Finally

EB/SSGs

DCF

analysis which utilized

Corams managements

projections

of annual net revenue

growth

of approximately

5%

to

7% and EBITDA

margins

of approximately

7%

to

8% yielded

value

for

Coram

of

$229646000

Tr Ex 11
indicated

Weighing

the

enterprise

value

by each

of the three

methodologies

based

on their

extensive

experience

in the

purchase

and

sale

of healthcare

companies

EB/SSG

determined

that

Corams

enterprise

value was

in the

range

of $195 to $225 million

Tr Ex 11

For purposes

of

comparison

with their December

11 2002 FASB

142

valuation

they calculated

Corams

weighted

average

enterprise

value for confirmation

at

$219854000
which was

Tr Ex 11
times actual reported
trailing

Bemiss believed

that

the

valuation

eight

12

months

EBITDA
You

was

quite

aggressive for

home

infusion

company

comfortable

with your valuation opinion valuation but

Yeah

Its an aggressive
that

we

think its

correct

valuation based

on

the

information

we

had

as of the date

of the valuation

Al 038

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 19 of 30

And what

is

your

valuation number

as

multiple

of actual

reported

last

12 months

EBITDA
Well
is

its more than eight

times actual

reported

trailing

12 months

EBITDA

which

big

number
mentioned not seem
several to

And youve
infusion

times that exciting
difficult

in the

course of your testimony

that

home

does

be

What

do you mean and
if-

by that you know obviously
equity talk to

Well

its been

historically

business

were
big

always on the phone with big home
private

care

providers and
in

private

groups

equity groups expressing

interest

home

care

and

we

them about
are

what multiples they would pay
and

for

company

you

know

what
care

their interests

then well say well what would you pay for
for diversified

respiratory

platform What
for scatter

would you pay
nursing

DME

company
for

What

would you pay
and
if

home
plot three

company

What would you pay
the six

infusion
tell

you

did

of

what they would say
and
tell

multiples they would times

you would range

between
that

half and

probably

me

they would pay seven

EBITDA Im times EBITDA for
extent

not aware

of anybody

would

home
is

infusion
full

company

Nobody

has ever told

me

that

So

to

that

our valuation

valuation

TA7O-

71
Victor
also

expressed confidence

in the

EB/SSG

valuation based

on

his

considerable

real

world

experience

TA24 27
valuation
is

EB/SSGs
Because Coram

supported

by

the

marketplace

response

to

Corams

bankruptcy

is

public company

and

the bankruptcy

record

is

public

potential

purchasers

have

access

to

substantial

financial

information

TA58-59
his financial

The

EB/SSG

valuation

is

consistent

with

expressions

of interest that

the

Trustee

and

advisors

received

the

highest of which

came from

Joseph

Littlejohn

tevy
is

at

between

$210 million and

$230 million

TA59

The

EB/SSG

valuation

also

in the

same ball park

as the

valuations previously

performed

by

the

financial

advisors

for the

Debtors

Chanin

the

Unsecured

Creditors

Committee

UBS

Warburg
Advisor

and

Harrison

Goldin

the

court-appointed

Independent

Restructuring

Advisor

Date

Midpoint

Valuation

Millions

Chanin Chanin

7/30/00 12/04/00 12/11/00 2/20/01 9/04/01

$206984 189391 192500 159435

UBS

Warburg

Chanin
Goldin

245747

Al 039

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 20 of 30

Chanin

10/01/01 11/05/01 01/31/02 06/30/03

222341 170000 169493 219000

UBS

Warburg

Chanin

EB/SSG

Tr Ex

14 Cerb Exhs 1-6

13
Deloittes

Confirmation Valuation

is

Unreliable

Deloitte

has been

the

ECs

financial

advisor

since

2000

Deloittes

confirmation

valuation

like

its

several

earlier

valuations of Coram

for the

EC

is

substantially

higher than the other experts

TA252
Advisor Date Midpoint Valuation

Millions

Deloitte Deloitte Deloitte Deloitte

11/15/00 12/14/00 07/27/01 03/31/03

$292000 282724 333487 329000

Cerb Exhs
In
its

7-1

oral

opinion

denying

the

Debtors

first

proposed

plan of reorganization

the

Court

concluded

that

Coram was insolvent

explaining that

cross-examination

pointed

out the questionable

nature

of Deloittes

valuation

TA326
that

In

its

opinion

denying

the

Debtors

second

proposed

plan of

reorganization

the

Court noted

it

had expressed some doubt

about

Deloittes

valuation

testimony

during

the

first

confirmation

hearing

In re

Coram Healthcare

Corp

271

B.R

at

232

TA336
Deloittes
current

$376 million valuation

is

about

$100 million higher than

the

preliminary

valuation Lexecon

prepared for the

EC

in

February

2003

Lexecons

preliminary

valuation was

$279.9

million but that

included

$48.5

million for cash

and

NOLs

Tr Ex 72
Bemiss and

If

those items are

eliminated

Lexecons

estimate was close

to

the

EB/SSG
Coram

valuation

Victor

were

emphatic

that

there

is

no conceivable

buyer

for

at

more than $250 million but Deloittes

valuation

is

50%

higher than that

conclusion

that

is

simply unreliable

Al 040

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 21 of 30

Deloitte

Improperly

Characterized

Coram As

Specialty

Pharmacy Company
Daniel

Lynn

Lynn

the

principal

valuation witness

for the

EC

acknowledged

that

EBITDA
industry

multiples of specialty

pharmacy

companies

are

among

the

highest

in the

healthcare

TA244

Even

though

Deloitte

had not previously used

specialty

pharmacy

companies

in

its

guideline public method

and

guideline

transaction

method analyses

it

did so for

its

current

valuation

artificially inflating

the

value

of

Coram

Although Coram has

specialty

pharmacy
Deloitte

component

the

evidence

is

uncontradicted

that

Coram

is

very different

from

the

companies

used

for

comparison

Michael

Saracco

Saracco
1982

is

the

President

of Specialty Services

for

Coram

and

has

worked

in

home

infusion since

TA73-77
therapy

Saracco

testified that

Corams business

is

focused

on

pretty

high tech intravenous

with

host of clinical services

wrapped around

that

nursing

pharmacy

clinical

monitoring

delivery

waste

management

etcetera

TA76
stickem

In

contrast Saracco

described

specialty

pharmacy

companies

as

lickem

and

operations

that

fill

orders received

by telephone

or electronically

which they then drop

ship

by mail

directly

to

the patients

TA77-78
of
its

According

to

Saracco

Corams high tech/high
other end
of the spectrum

touch

clinical

management

patients

needs

puts

it

at the

from

specialty

pharmacy

companies

TA78-79

During

the

confirmation

hearing

Corams

Executive

Vice

President

Alan Marabito

Marabito

also

described

the

sharp differences

between Coram and

specialty

pharmacy

companies

TA82-84

For instance

he

explained

that

unlike specialty

pharmacy

companies

which have

pharmacists

taking

orders

over the phone

Corams

pharmacists

are interactive

in their

patients care

TA84

Al 041

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 22 of 30

EB/SSG

did not use pure specialty

pharmacies

as

comparable

companies

because

as

Saracco

and

Marabito

explained

they operate under

vastly

different

business model than

Coram

TA63
Deloittes use of pure specialty

pharmacy

companies

as

comparables

substantially

inflated

its

valuation because

specialty

pharmacy

companies

have

growth

rates

three

to

four

times greater

than

home

infusion

companies

TA62
that

The

EC

offered

no testimony

from anyone

with

knowledge

of the industry

to

show

Corams

business

is

similar

to that

of specialty

pharmacy

companies.2

This

is

not

case

of experts

disagreeing

Lynn chose

to

ignore

uncontroverted

facts

He

chose

to

rely

on

the fact

that

Coram

derives

revenue

from the

sale

of pharmaceuticals

but did

not consider

the

enormous

differences

between an automated

mail order company

and

Coram.3

As

result

Deloittes

valuation

is

unrealistically

high

Deloitte

Improperly

Substituted

Its

Own

Aggressive

Projections

For Carefully

Prepared Manaaement Projections

In

performing

its

DCF Deloitte
growth

disregarded

Coram managements own
stretched

carefully

prepared

projections

of the

companys
to

rate

and

substituted

its

projections

inflating

its

valuation of Corarn

the highest possible

number

Management

forecasted

revenue

growth

rate

of 5.6% in

2004 6.4%
the

in

2005 4.8%
and

in

2006 and

5.2%

in

2007 and

thereafter

TA42
period

Deloitte

disregarded

companys model

used

flat

7%

growth

rate

for the

entire

Corams

Chief Financial Officer

Scott

Danitz

Danitz

oversaw

preparation

of

managements

forecast

It

was meticulously prepared on

bottom-up
financial

basis

with

input

from

many

Coram employees

TA36-40

Victor

described the

current

management

team

that

Even

Liebentritt

primarily

home

Samstock LLCs representative infusion business TA255

on

and

the

most

active

member

of

the

EC

testified

that

Corath

is

Lynn

did

not even

bother

to

read Saraccos

or

Marabitos

testimony

TA243-44

10

Al 042

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 23 of 30

assembled

the

forecast

as

one

of

if

not the best

that

he

has dealt

with

in his

20

years of working

with distressed

companies

TA28
appropriate growth rate Corarn management
anticipated

In

determining

the

decreases

in

Corams

reimbursements

from

insurers

and

government payors and
of

increased costs

for labor

and

medications

Victor

explained

that

Deloittes

projection

flat

7%

growth

rate

failed

to

take into

account

the

pricing

pressures facing

Coram
pressures which are expected
In the third-party

They

fail

to

recognize

significant

pricing see
it

to contracts the
it

adversely theres United from

affect

revenue and we
costs
to

today

payer

pressure to reduce
States for

Theres
reduce

tremendous

pressure around and

companies payers

their health

costs
risk that

were
can
at

seeing be

the third-party

now

Theres

huge

there

adverse
It

pricing
is

with Medicare

by

virtue

of legislation

That

can

happen

anytime
top-line

not realistic or reasonable
rate for the

to just

assume

percent

flat

revenue

growth

next five years

TA34-35
and the United Health Care business
it

Corams new
Victors

HealthNet

contract

at

lower

prices

lost

confirm

views

Patrick Hurst

of Houlihan

Lokey Howard

Zukin Capital

the

Noteholders

financial

advisor

found

the

Coram

managements

projections

detailed supportive
that
is

and

that

they

addressed

the relevant

issues

TA269

He

stated

it

inappropriate

for

financial

advisor

performing

valuation to totally substitute

its

judgment

for that

of experienced

management

and

to

disregard competently

prepared projections

inappropriate to basically think based better and

come

up

with your

own

projections project

saying your business your

on spending

couple

of hours with you therefore
in

can

think youre too conservative do
this

Im

going
deal

to

increase

own

projections

every day

live

healthcare
that

with companies
that

everyday were most

wouldnt
likely and

adjust

managements

projections

thought

they

prepared on

competent

basis

TA269
growth
rates

Deloittes

previous

valuations also contained

more aggressive projected

than

managements

and

Deloittes

past

predictions

have

proven

wrong

For example

in

November

and

December

2000

Deloitte

projected

Corams

revenue

to

grow by

to

8% in 2001 TA174-175

11

Al 043

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 24 of 30

Instead

revenue

dropped

by 2.4%

in

2001

TA41
of between

Similarly in

its

projections

prepared

in

2000

Coram management

selected

growth

rate

2.1

and 2.2%

TA175

In

its

December

2000 valuation

Deloitte

rejected

managements

projections

and

utilized

growth

rate

of

5%
2002

TA 175

Based upon

the

increased growth

rate Deloitte

projected

that

Corams EBIT

in

would be $32190000

TA175

However

Corams

actual

EBIT

for

2002 was only $17681000

TA176
Again
in
its

July 2001

valuation

Deloitte

rejected

managements

projected

growth

rate

of

2.1% and

predicted

growth

rate

between

and

8% TA205

Using

growth

rate

of between

and.8%
Deloittes

Deloitte

predicted

Corams EBITDA

for

2002 between $49912000

and

$51535000

projections

far

exceeded

actual

reported

EBITDA

for

2002 of $28

million and

even

Corams EBITDA

as

normalized by

Deloitte

of $36.2

million

TA204-06
meticulous projections but

Deloitte

had no reasonable

basis

to

reject

Coram managements
opportunity for Deloitte

did so because

the

projections

provided

another

to

increase

its

valuation

Deloittes

Valuation

Includes

An

Excessive

Number

of

EBITDA
In

Adjustments

performing

its

valuation analysis Deloitte

made numerous

adjustments

to

Corams 40%

EBITDA
increase

increasing

reported

EBITDA

from

approximately

$26 million to $36.6

million

under

the

guise of normalizing

EBITDA

TA249
value

These adjustments

greatly

increased Deloittes

valuation

For example the

indicated

under

the

comparable

transaction

analysis

increased

by approximately

$78

million

Both Bemiss and

Hurst based upon

their

years

of experience

in

dealing

with buyers of

healthcare

companies

testified

unequivocally

that

buyer would not accept

such

high level

of

adjustments

TA268
would pay

buyer would either reject the

add-backs

or significantly

discount

the

multiple

it

TA268

12

A1044

Case 1:04-cv-01565-SLR

Document 126-2

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Page 25 of 30

Lane who

sponsored

the

EBITDA
that

adjustments

has no experience

in

negotiating

EBITDA
and

adjustments

with buyers an activity

Lane acknowledges

is

regular

part

of both Bemiss

Hursts investment

banking

practices

TA292-93

and therefore has no

basis

on

which

to justify

his position

that

EBITDA

adjustments

of this magnitude

accurately

reflect

enterprise

value

It

is

apparent that

Deloitte

was not normalizing

EBITDA
is

rather

it

sought to maximize

earnings to inflate value

Consequently Deloittes

valuation

grossly

unreliably

inflated

and

does

not pass what Bemiss described

as

buyers smell

test

--

Deloittes

valuation

is

12 times trailing

12

months

reported

EBITDA

an unheard

of multiple

for

home

infusion

company
Its

Deloitte

Should Not Have Added Cash To

Valuation

Deloitte

added Corams cash working

capital

of

$37910000
needed

to

its

valuation

EB/SSG

did

not do

so for

single

common
dont

sense reason

--

that

cash

is

to

pay

the

costs

of reorganizing

As Bemiss

testified

see

the

company

getting

reorganized

or sold

or

changing

form

without

more than $40 million of

liabilities

being paid

off

TA67 TA16O
He
also

Lane agreed

that

in

an

asset

sale

buyer would not receive the cash

admitted

that

in

stock sale the buyer would take the cash

subject

to

the

companys
the

existing

liabilities

TA16O-61

Here

the

amount of Corams

liabilities

even

excluding

Noteholders

claims exceeds

$37910000

Consequently

it

was improper

for Deloitte

to

add

Corams

cash to

its

enterprise

valuation

Deloitte

Should Not Have Added Any Value For

Corams

NOLs
Deloitte also

added

more than $32

million

to

its

valuation for the alleged

present value

of

Corams Net

Operating

Losses

NOL5
three

Yet

quite

significantly

Deloitte

did not attribute

any

value to the

NOLs

in

any

of

its

previous

valuations that

it

performed

prior to

2003

TA 155-

56

13

A1045

Case 1:04-cv-01565-SLR

Document 126-2

Filed 04/17/2007

Page 26 of 30

Scott

Moeller

Moeller
tax position

Corams

Director of Taxation

testified

in detail

about

the

uncertainty of

Corams

regarding

its

NOLs
separate

stemming from the

application

of Section

382 on

consolidated

basis

and

Section

108

on

company

basis

TA91
NOLs

As

Moeller

explained

if

the

IRS

successfully

challenged

Corams

filing

position

the

would have

no

value whatsoever

TA92

He

said

that

chances

were high

that

the

company

could

lose

an IRS

challenge

TA92-93
his

Despite

admission

that

he

is

not an expert

on

taxation

or

NOLs

Lane nevertheless

determined

that

the

chances

of the IRS successfully

challenging

Corams

tax position

are

no

greater

than

25%

TA136-37 who were

TA15O

Lane based

his

conclusion

solely

on conversations

with

others

at

Deloitte

not witnesses

subject

to

cross-examination

TA15O-52

TA154

Perhaps

they were the same

type of Deloitte

tax

experts that

provided

Coram with advice on

NOLs

in

1995

and

1996

that

resulted

in the

recent $18.5

million settlement with the

IRS

Lane did

not review

all

of Moeller

unrebutted

expert testimony

as to

the

risks

associated with the

NOLs

and

ignored the testimohy

of Bemiss and

Hurst that

buyers will not normally

pay

for

NOLs TA1
his

52-

53
that

Predicting tax

rulings

is

often

risky

endeavor

Since

Lane

is

not

tax expert

testimony

the

chances

of the IRS successfully

challenging

Corams

are

no

greater

than

25%

should be

given no

weight

ma
Moeller

sale

to

third

party the

NOLs
that in

would not have

the

value ascribed to them by Deloitte

testified

and

Lane agreed

an asset sale the

NOLs

would not have

any

value to the

buyer

TA 192
NOLs

Lane

also

acknowledged

that

in

stock sale there

would be

limitations

on

the

use

of the

which would

substantially

reduce

their

value to any

buyer

TA192

Finally

Lane

acknowledged

that

even

if

the

Equity

Plan

is

confirmed

and

Coram

is

not sold in the event

of

subsequent

change

of control

within

two years

all

of the

NOLs

would be

lost

TA193-94

He

admitted

that

the

Equity

Plan does

not contain

provision which would limit this subsequent

14

Al 046

Case 1:04-cv-01565-SLR

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Filed 04/17/2007

Page 27 of 30

transfer

of stock by shareholders

so as to preclude

change

in control

within

the

meaning

of the

Internal

Revenue

Code

TA194
that

Bemiss explained

EB/SSG

did

not include

the

NOLs

in

its

valuation because

buyer

would not pay

for

them due

to

the

substantial

risks

in realizing

them TA68-69

Hurst

agreed

that

real

buyer would not pay for the

NOLs

TA270
are

Bemiss

and

Hursts opinions

which

based

upon years of experience

in assisting

clients

in

buying

and

selling

healthcare

companies

cannot

be

and

were not

credibly

refuted

by Lane who

has almost no experience

in the

purchase

and

sale

of businesses

The

Trustees

own

experience

comported

with Bemiss

Victor

and

Hurst

in sale

transactions

buyers do not generally pay for

NOLs

Consequently

it

was inappropriate

for Deloitte

to

add

the

alleged

present value of the

NOLs

of over $32 million to

its

valuation of

Coram Than Every Other Investment

Deloittes

Valuation

Is

Higher

Banker
Each valuation performed by
Deloitte the

during

course of this Chapter

11

proceeding

has

been

substantially

higher than the valuations performed

by any

other

experts

in

these Chapter

11

cases

Deloittes

approach

appears

to

be an

attempt to maximize

Corams

value

beyond

the

limits

of credibility

in

order to

support the

ECs

opposition to the Trustees

Plan

Since

the

valuation

evidence

presented

by Deloitte

was unreliable

it

should be

rejected

The
As Victor

EC Is

Out

of the

Money By Any Measure
Deloittes bloated valuation
the

testified

even

under

EC

would

still

be

out

of the

money by

$44.9

million TA31-32

15

Al 047

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Document 126-2

Filed 04/17/2007

Page 28 of 30

In Millions

Enterprise

Valuation

As Per

Deloitte

$376.0

Noteholder Noteholder

Claims

as

of 11/30/03
Interest/PIK

252.6 117.6 32.4 18.2

Contractual
as

Dividends

of 9/30/03
at closing

Cash Disbursements
as

per

BC

IRS Claim

Total

Claims Ahead of the

CHC Shareholders

420.9 $44.9

Value of Equity Interests

Tr Ex 16

Even

accepting

the Deloitte

valuation

to

realize

the

same value

for

shareholders

as

would be achieved

from

the

cash

distribution

under

the

Plan Coram would need

net

recovery

of

more than $85

million from

its

litigation

claims

against

the

Noteholders.4

If

Lexecons

$279.9

million preliminary

valuation was

accurate

equity

would be out of

the

money by
litigation

$141

million and

the company

would have

to

recover

more than $181

million in the

for the

shareholders

to

come

out ahead

of the

lowest

amount they

will

receive under

the

Plan

Finally using

BB/SSGs

weighted

average

valuation of $219.8

million

CHC

shareholders

are

out of the

money

by $201.1

million and

Coram would

have

to

recover more than $241.1

million

from

the

Noteholders

in the

derivative

suit for

the shareholders

to

realize

the

same amount

that

they

will receive

as

cash

distribution

pursuant

from the Plan

if

it

is

confirmed

before

any recoveries

from

the

retained

litigation

claims

4This

calculation

holds

true

even

if

the

EC

succeeds conduct
the

on

its

argument case
in the

that the

the

Noteholders

are

not

entitled to

to

post-petition credit in the

interest

because of any

they engaged
interest

in inequitable against

In

such

Noteholders

would be
case

entitled

amount

disallowed

damages

claims

proposed

derivative

16

Al 048

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Document 126-2

Filed 04/17/2007

Page 29 of 30

.111

THE CHAPTER 11 TRUSTEES PARTIAL SETTLEMENT OF THE ECS PROPOSED DERIVATIVE LITIGATION SHOULD BE APPROVED
The
Trustees proposed settlement provides
certain

and

significant

recovery

for

Coram

while preserving

Corams

claims

against

Daniel

Crowley and

the

outside

directors

for the

benefit

of

Corams

shareholders

Under

the

proposed

settlement the Noteholders

will

make

cash

infusion

of

$56 million and

release

claims

of $9

million on their remaining

notes

The

settlement

is

integral

to

the Plan

Under

it

Coram

will

emerge from bankruptcy

as

financially

stable debt-free

private

company

without

any

Stark

II

problem

and

the shareholders

will

receive more than $40 million and

perhaps

considerably

more
for

In

exchange

$56 million

the

Trustee proposes

to

release

the

RICO

claims

of

questionable

merit asserted

against

Cerberus

and

Stephen

Feinberg

patently

weak

state

law claims

against

Goldman

Sachs

and

Wells

Fargo

Foothill

sometimes Foothill and

breach

of fiduciary

duty claims

against

Feinberg

and

Cerberus The

Trustee

has not settled

with or in any

way
Under
the

released

Crowley

or the

outside directors

who

have

$100 million in

DO

coverage

Plan

the

shareholders

will

receive

any

net

proceeds

of those breach

of duty claims

after

payment

of

the

creditors

post-petition

interest

of less than $2

million

The Trustee has enormous

experience

in the

evaluation

and

settlement of complex litigation

He He

has been

preeminent

lawyer mediator

and

federal

appeals court

judge

for

more than 50 years from

retained

experienced

counsel

who

reviewed

the

entire

record

including discovery

the

first

two confirmation hearings and

who

conducted

an

independent

legal analysis

of Corarns

claims

TA 124-27
Noteholders

The

Trustee

requested and

received

lengthy

memoranda

from

counsel for the

EC

the

Crowley

and

the outside directors

setting

forth

their respective

analyses of the facts

and

the

law

TA124-27
closing

In

May 2002

the

Trustee

invited

the

EC

to

make

combined

opening

statement

and

argument

TA265

The

EC

prepared

exhibit

books

and

made

detailed

17

Al 049

Case 1:04-cv-01565-SLR

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Filed 04/17/2007

Page 30 of 30

presentation

of the facts

and

the

legal

issues

Its

expert

Daniel

Fischel

described

his

methodology

for calculating

damages and

presented demonstrative

exhibits

Later in

May 2002

the Noteholders

made

similar

presentation

to

the

Trustee

Following

those presentations

the

Trustee

was

optimistic

that

he could

achieve

settlement

of

Corams

claims

that

would enable him

to

present

consensual

plan of reorganization

His view

was

further

bolstered

by

his

meeting

with

Sam

Zell the Chairman of the leading

EC member

Samstock

Ltd

in

mid-September 2002 during which

Zell

suggested

possible settlement in the

$60 million range

proposal

that

the

Trustee

believed

could

at

least

provide

platform for serious

negotiations

TA129-30
an
initial

TA311

Unfortunately

at the

mediation

held on September

25 2002

the

BC made

demand

of $118 million and

final

demand

of $99 milhidn

which was

so

unrealistic

that

it

precluded

any

meaningful

discussion

between

the

EC

and

the

Noteholders

TA127 As
Trustee

we now know
its

the

BCs

mediation

demand

was
The

as Zell

had

accurately

signaled

to the

more than double

true

settlement position

ECs

objective

was

to

have

the

Trustee

file

the

lawsuit

However

the

Trustees

fiduciary

obligations

required him to determine

whether

he

could

achieve

fair

settlement with the Noteholders

The Trustees

counsel negotiated

with the Noteholders

and

reached

what

the

Trustee

believed

was

good settlement

Nevertheless

before

approving

the

Plan Funding Agreement

the

Trustee

sought the

opinion

of Jerome

Shestack

highly-experienced

and

well-respected

commercial

trial

lawyer After

his

review

Shestack

advised the Trustee to accept

the

settlement

TA124-28
Both
the

Trustee

and

Shestack

believed

that

Coram would

establish

liability

on

its

Delaware

state

law claims

against

Crowley Feinberg

and

Cerberus

TA98
prevail

However
the

both the Trustee

and

Shestack

had

serious

reservations

about

Corams

ability

to

on

proposed

RICO

claims

and

any

claims

against

Goldman

Sachs

and

Foothill

Although

the

Trustee

has confidence

in

Corams

18

Al 050