Free Appendix - District Court of Delaware - Delaware

Case 1:04-cv-01565-SLR

Document 125-9

Filed 04/17/2007

Page 1 of 30

Smith believes that

rbw1ey
the other

considring himself

CEO

of

CEOs envisiond
sent

Smith working

for

him rather

than

way aronnd

For example he saysCrowley
bankers and took other

Simpson Corams
.actionson

Qt

NpwYork.behind

hibaok
with

to .talkfo

behalf of.the compaæywithout

consulting

Smith

He

also

says that inOctber

1999

Crowley

wrote

highly

critical

memo

about

Comms

management information
could have

SYSh

in

defiance

of Smiths explicit instructions not to write any

memos wiuch

potentially

hurt

Corani

the

Aetna

litigation

By
together

mid-OctbLritiiad

becOme

clear

that

nith

and

Crowley

could not work

Afterthe October22

board

meeting Richard Fink spoke

tc

Smith on

the

boards

behalf

Fink told Smith

that

he lacked turnaround experience

and

needed

help Fink explained

that the

board

wanted

Crowley to function in the short term as

CEO
at

coach
which

He
point

proposed

that

Crowley

and Smith serve

as

co-CEOs
own

for the next

few months
board

Smith could

resume

running the company on his

Fink says

the

tried to make

it

work

for

everyone

While

conceding

that

the

board

didask -him to stay

on

in

some capacity Smith

claims

Fink conveyed

somewhat

different

message
debt

According

to

Smith he was

told the

Noteholders would

agree

to forgive

$1

million

in

if

the

board

brought Crowley

in to run

the

company

with

him as

co-CEO
at

Smith says

this

was

put to

him

as

direct

quid pro

quo

Simpson who was CFO
recalls that

the

time does not

recall

the

two

having been

connected

But.Fink

the interest/accrual

holiday

was

in fact

conditioned

on Crowley

taking

over.9

As noted below Crowleys
the forbearance

contract

with.Cerberus

Crowleys
Noteholders

contract

with

Comm

and

agreement

between

Coiam and

the

were executed

within

CL22IOa73.J

A781

Case 1:04-cv-01565-SLR

Document 125-9

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Page 2 of 30

.inOLtober.1999Srniths

attorney

sentaletteii6

theboardof

lirectrs

fCoram

claiming Smith had beenconstructively.terminated

According

to the

minutes ofthe October

27

1999

board meet nthetoardidetermined

thatit

wasithe

best interest.ofthe

Compnytc
he

treatMr

Smiths

departureas

one

inwhicli

Mt

Smith hadresigned

buL one in which

would

receive

the benefitsof

his

cmploymentagreement

as

if

hisemployinent

were

involuntarily

terminated

Amaral with the boards

concurrence

ultimately

agreedto pay Smitheverance1n

an

amount

that

was roughly commensurate

with the terms of his employment

agreement

Snith

is

currenily

pursuing an arbitration against

Corarn and it subsidiaries

to recover

unpaid

severance

amounts

Upon Smiths
while

resignation

Amaral agreed to serve

as

CEO

on

temporary basis

Corani looked for

long-term replacement

Amaral had

three goals

as interim

CEO
Coranfs

to come
financial

to terms

with

Smiths severance ii to

find

new

CEO

and iii to assess

condition

Amaral met with

an executive

search

firm to

identil possible

CEO

candidates

But as several

directors

explained.by

November

1999

Coram was

in

dire financial

straits

It

coulcFnot

afford

long

and drawn

out search

and even

if

it

could

there

were few

if any

qualified

candidates

willing to take

on

troubled

healthcare

company

Feinberg recotrimLnded

Crowley

But Crowley

initially

turned

the

job

down

After

speaking

with Feinberg

however he

changed

his

mind

days of each

other

On November
agreement

15 1999

Amaral

and

the

Noteholders Crowley

agreed-oll

the

terms of the forbearance with

On November
he executed

1999
his contract

signed

the contract

Coram

On November 19

1999

with Cerberus

-.34.
X1.2210U73.7

A782

Case 1:04-cv-01565-SLR

Document 125-9

Filed 04/17/2007

Page 3 of 30

in

mid-November1l999Aniaralnegotiated

restructuring

and

forbearance

agreement.withthNoteholdcrs

Hisgal

as

taachievaone

year

all

principal

and

interest

siiorfthinterest-abcrual

holiday

wliØh as

noted above

irny have

benboiiditionedoiYCOraiii bringing

imCrowiey.as

CEO

The

Noteholders

agreed

to forbear

and

waive

th

ccæia1 df intie tpænienfs

throigh the earlier of

ithe
saving

final resolution

of theActna

litiatioji

orOi

1200O

1iich

traiilated

into

cash

to

Coram

of

approximately $li-12 million The Notehollers

also

greed..to

waive

Corams

non-compliance

with certain

covenants

inThe

senior

secured

revolver

As

part

of the

November 1999

restructuring

Corani agreed

that

The net Lash proceeds

from any sale or

disposition

of assets which

were not applied

to

reduce

senior

debt would

be used to repurchase

the Series

and/or

Series

Notes

at

par in such proportions

as the

Noteholders would elect

On November 17

1999

the

board

voted

unanimously

to elect

CrowleyThe

next

CEO

of Coram.for

three

year

term beginning November

30 1999

Corams

Outside Directors

Since Crowleys Corain

involvement

began

in

the

Summer of 1999

Corains

board

of directors has consisted

of

the

CEO

Richard

Smith

then

Crowley Amaral
Each of

Feinberg

until

his July

2000

resignation

and

three other

outside

directors

Corams

directors

has

extensive

experience

in the healthcare

field

With

the exception

of Feinberg

none

of the

directors

had

or has

any

affiliation

with

any of the Noteholders

Peter

Smith became

director of

Coram when

the

company was founded

in

1994

He

is

the

only remaining member of Corams

original

board Smith hasheld management and

board positions

at

number of companies

in

the heaithcare

indus

including

Medisys Inc

XI221DU737

A783

Case 1:04-cv-01565-SLR

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Page 4 of 30

AIIC.are

Health Service

Inc

RalinMedical

Inc Gateway Inc andAMSYS Thc He
specializes in disease

currently

runs

company

called

Core Solutions which

irianagement

William

Casey joined the bard

in

September

1997 He has worked

as
I-

consultant

inthe healihcare

industry

for

almost twenty years

specializing

in

hospital

mmagement Among
Me4ical
other

evaluation

hospital

planning

managed

care contracting

and turnaround services

jobs he was

Contract

Administrator for the Emergency Department

Physicians

Group Inc which
that

provides

physician

services

to

non-governmental

facilities

He now
consulting

runs

company

be founded

in

about .1985

doing healthcare

turnaround

and

other

work

Richard Fink was

partner

at the

law finn of Brobeck

Phieger

Hariison

Li
in

from

October

1987

until

recently

He was
including

counsel

to

James

Sweeney

and represented

him

numerous

corporate

transactions

the

four-way

merger that resulted

in the

formation of

Comm
board
in

At Sweeneys request hjoined
February 2000

the

Corarn board

at

its

inception

He

resigned

from the

Sandra Smoley

who

replaced

Finic

on

Corams

board

in early

2000spent

approximately

twenty years

in..public

service

in

the State

of California

For much

of-that

tim

she

dealt

with

healthcare-related

issues

first

as Secretary

of the California

State

Consumer

Services

Agency and

then

as Secretary

of the California

Health

and Welfare Agency

She

knew

Crowley

through

Foundation Health and joined

the

board

at

his

request

She

is

now

President

and

CEO

of The Sandra Smoley

Company

consulting

firm

Each

of Corams

independent

directors

agrees

that

Crowley

was

and

still

is

tremendous

asset to the

company

The board regarded Crowley

as

top-tier turnaround

person

-36k1.2IUS813.7

A784

Case 1:04-cv-01565-SLR

Document 125-9

Filed 04/17/2007

Page 5 of 30

and

one

of the true

Starsof

the healtbcare

field

Ainaral says that gettingDaii

Ciowleytornn
Smith says that

Comm
losing

was

like getting

Wilt Chamberlain to play for St Francis

High
Ir the

Peter

Crowley

would

have

been

devastating

for the

company

boards

estimation

to

get

someone with Crowleys

stature

and experience in November

of 1999

to

run

company

as

small

and troubled

as

Comm

was

unique and valuable

opportunity

for the

company.

Ainaral

..

believedCrowley

had the

ability

to turn

the

company around
and

and

do

deal

In

fact

in the

first

half

of 2000

Crowley improved

Corams performance

began

to reverse

the

companys

fortunes

The

Crowley Era
Although Crowley waswilling
the outset to

at

come

in

and

coach
initial

the next

CEO
was

he says he did not Want

to

run the company on be intense
but

long-term basis

His

expectation

that the

Coram assignment would
Denver

short-lived

He

planned

to relocate

temporarily

to

and work lull-time

at

Coram

for three

to four

months

to get the

company
and

back

on track

At

that

point he would

transfer control

to

successor return

to

Sacramento

remain involved

as

needed

as

CEO

coach

Crowleys Compensation

On November 18 Coram
the

2000

Crowley

signed

three

year

employment contract
dated as

with

board had

approved

it

the

preceding day

The agreement

is

of November

30 2000

to

last

until

November29
Amaral says

2002

The

contract

negotiations

were

primarily

between

Amaral and Crowley

it

was

the

most difficult

negotiation

of his career because

Crowley

kept

negotiating

for

more

-37L22IDK73

A785

Case 1:04-cv-01565-SLR

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Page 6 of 30

.OnNoemberl2
Personal

1999

while

the negotiations

th Amaral
reqesting

were

still

.ongoing

Crowley

sent.a

Confidential

letter

to

Feinberg

additional

compensation

from Cerberus

in the

form of an incresed

share

of the profits

at

Winterland for.his work

at

Comm

The

letter

states

in relevant

paft

You
agree

have
to

asked
increase
is

me
the

to

take

over the Corarn operations...

You
for

economics
that

on

Winterland

to

provide

an

upside
to

that

equal

to

which

would

otherwise

have -been and

able

receive

if

any

for
in

creating

operational
at

financial deal

improvements provides

resulting share

EB1TDA
the net

Corain on

Our

current

20%
agree

on

gain

WinterlancL..
share

.Cerberus
piece

to increase to

my
forty

gain

on

the.Cerberus.
In the

of Winterland
the return

40

percent

for is

me...
thanl

event

that

on

Coram exceeds
reduce
the

lss

49j
on

Cerberus will increase Winterland... For you
these the

payment
calculating

accordingly the

purpose
to

of

Comm
to

improvement

agree

mark

your
will

Coram

position

$46M...
contract

With
with

understandings

undertake to both sign

Comm
the

and

contract

with Cerberus today with Ainarat and threw

Crowley says

he was hitting

wall

in

his negotiations

this

up

to

see

what

if

anything

would stick
be
potential

Amaral and Feinberg discussed

Crowleys request
be compensated

They

agreed

that

it

would

conflict

of

interest

for

Crowley

to

by any

entity

other than

Corain for his work

at

Comm

As noted
was

Winterland

was

Cerberus Portfolio

Company

for

whichCrowley
Cerbemus Crowley

serving

at

the time

as

chairman

of the board

Under

his airangernent

with

stood

to

earn

up

to

20%

of Winterlands

profits

In

his

letter

dated

November

12

he sought

to

double his potential share

In

actuality

Winterlarnd

had

never generated

sufficient

profits to

entitle

Crowley to earn his original

20%

share which

meant

that the requested

increase

was

to

that

point

largely

academic

indeed with

Winterlands

performance

having continued to-decline

A786

Case 1:04-cv-01565-SLR

Document 125-9

Filed 04/17/2007

Page 7 of 30

The company
non-existent

is

now.in bankruptcy.

Ciowleyhas

never earned

any share

of that companys

profits

Crowley.concedes

tjiat

the

rquesUn

his

letter

dated November 12 1999

was

improper

He

says

that

in retrospect

ust.1ooking

at the

letter

makes me ill -He regrets

writing

it

is

embarrassed about

it

and-admits

that

it was.not

my brightest moment
acknowledges
that

-Peinberg apparently

did not countersign

the

letter

and-

Crowley

Feinberg

never agreed

to his

demands

Crowley did receive

an additional

10% upside

in

Wniterland

increasing

his stake

from 20 to

30%

But according tq theCerbems ontractCrbeys

stake

in

Winterhmd

wasbased

solely

on the performance

of Winterland

not Coram.-

Crowleys November 1999

contract

with Coram comprised the following

components

base salary

of $650000

bonus that was baed on Corarns.operating results the bonus 60% of Crowleys base salary i.e $390000 if Coram achieved 100% ranged of itS EB11DA target to 300% of his base salary i.e $1950000 if Coram achieved
cash performance from

150% of

its

EB1TDA

target

an acquisition consummation
the

bonus of

2.99

times

his

base salary which

i.e $1943500
resulted in

upon

the
of

ofa merger or consolidation

change

of control

company
period and

minimum 24-month

severance

options

to purchase

one million shares

of Corarn stock

at

then-current

market rates

Depending

on Corams

performance

therefore

Crowley stood

to earn

up

to

$2.6

million

year

plus.n

almost $2 million acquisition

bonus

plus

stock

options

-3922PD73.7

A787

Case 1:04-cv-01565-SLR

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Filed 04/17/2007

Page 8 of 30

orams Financial
Crowley says
that

Condition

at

Year End 1999

when be

accepted

the

job .and negotiatd

his .conipensation.he

did

not know

The

full

extent

of.Corams

financial

problems

Smith had not givnhiin complete

infoxmation

Crowley explained

that

he spent

the

rest

of November and December studying

Coranis

finances

learning

abcnfl

its

operations

and

assessing

the situation

It

was

not until

January after the Christmas

holidays that he began

running the company in.eamest

As Crowley soon learnedCorain
of $i 15 rnllhin

was

in

difficult

financial

straits

In

1999

Corai

suffered

net.loss

$93 million more than

in the prior

year

and.had

neligibleEB1TDA
performance
in

of only

$307000

number of

factors

contributed

to

Coranfs

declining

1999 The most

significant

were

the termiimtion

of the Aetna

contract

and

everything

which

flowed from that

including

the

ongoing

litigation

against

Aetna

and

the

involuntary

bankruptcy of the R-Net

subsidiaries

Corani also had fundamental

operational

problems

For example

it

had

inadequate

working

capital

and poor control

over spending

It

continued to operate

under

decentralized

system whereby

buying decisions

were made

at

the

branch

level

In

order

to

take

advantage

of volume

discounts

Coram had

to consolidate

billing

and purchasing through

hub

and spoke system

Corams

information

systems were antiquated

and constantly

losing

data

In

addition the time lag between

the delivery

of services

and

the receipt

of payment

had

increased

considerably

and

little

if

anything

was being done

to

try

and

improve collections

Meanwhile
Corani faced

the infusion

business

itself

was

becoming

more

costly

and less

.-

pzQfl.table

increased

competition

from hospitals

and

physicians

offering

infusion

and other home bealthcare

services

pricing

pressure

caused by an unfavorable

shift

in

payor mix

-40pa.2a10fl73.7

A788

Case 1:04-cv-01565-SLR

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from

privateinsurance

to

naged

aplans anbicreaseinthe

costsassociated

with

providing infusion

Therapy service

In

additiou..to

the multitude.of

problems

at

Coram

the industry

at

large

ws also

experiencing

bard times According

to.Amaral.in 1999

and early 2000 the entire non-acute

ector of the healthcare

indu

stry

Was iuatumb1e The

The

report

prepered by

UBS Warburg

for

the

Creditors Committee

cnfinns

this

report

contains

chart

titled

Stock Price

Performance

of Selected

HOneHLalth

Cdmpanies which inturn
to the

is

b.ged

on an index of 13

home

healthcare

companies

Accofding

chart stock

prices

declined

dramaticallyfrom

1997

to

1998 dipped

further

Through

1998

and

1999

and remained

at

that

level

thouhthe

end

of 2000

Finally

because of

its

financial

problems Coram was on the verge

of falling out

of compliance

with certain Federal

regulations

that

govern

the provision

of home healthcare

services

Under

set

of Federal rgulations

commonly

referred

to as

Stark

II

it

is

unlawful

for

physician

to referpatients

for certain

designated

health

services

which

are defined

to include

home healthcare

to

an

entity with

which

the physician

or the

physicians

family members has

financial

relationship

which

includes

an

ownership or investment

interest unless

the

investment

falls

within

an enumerated

exception

viz the exception

for

investments

in

publicly

traded

companies

But thatexception

applies

only

if

the

companys

stockholder

equity

exceeds

$75

million either

at

the

end

of the mostrecen

fiscal

year or

on average

during the previous

three

fiscal

years

This

is

commonly known

as the

public

company exception

Reed Smith company had no

the

companys

regulatory

counsel advised the board

that

the

alternative

but to

comply

with

Stark

II

It

also

explained

that

as

long

as

Coraun

-41K.a2Irn1I13.7

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was

publicly

traded

company

there

was norway

to

remain in compliaiice

other than

by

atisfiing

this

public

companyexceptiqn

Physician

referrals are

vital

to

Corams

business

If

Coram

could

not

meet the

public

company

exception

it

would have

to

check

with each

and

every hysician with

whom

it

does business

to ensure

that neither

the

physician

nor his or her family members owned

Coram

stock

and

it

could not acceptbusiness from those

who

did

Thus

it

would

be impossible

for

Coran

to oj5erate

meaningftilly

outside

the confines

of tbe public company exception

As

Amaral explained

falling

below

the $75

million threshold

would mean

the death

of

Coram

At year-end

December 1999 measured
death

against

this

critical

and inflexible

benchmark was

the

company was

literally

facing

When
million

Crowley

became

CEO
end

stockholder

equity

negative

$21699000

--

more

than

$114

less than

at

the

of the prior

year

For

brief period

in late

December 1999

it

appeared

that

Comm

might not

satisfy

the public

company

exception

as

of December

31 1999

In

the

last

week of December Coram engaged
law firm of Paul Weiss
Rifkind

Alan Kornberg

the

head

of the restructuring

group

at

the

Wharton

Garrison

it

also appointed

special

committee of independent

directors

Casey

Fink

and Peter Smith

tQ

explore

the possibility

of converting

debt

to equity

before

year-end

Casey

and Fink spoke to the Noteholders by phone

around

Christmas

but the Noteholders

refused

to

convert

Both

the board
this

of directors and advice
In

Corarns
to

bankruptcy
the

counsel

David

Friedman Reed
to

questioned seek

an

effort

test

accuracy

of it they asked
In response

Smith to request
its

waiver from the Health Care Finance Smith tried unsuccessfully
to obtain

Administration waiver
that

their

Reed

from no

HCFA

Consistent

with

original that

advice Reed Smith informed the board was no way around
the statutory

such waiver was

available

and

there

requirements

1Ui21n873.7

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Page 11 of 30

tJltimatelyEnist.Young

thecompanysoutsid

auditor was able to solve

the

problem

for

1999

by

calculating

stockholder

equity

byquarter

rather

than by year

EY added

pthe

nubers.for

each

of the preceding

twelve quarters.to

comeup

with

a12

quarter

cumulative

equity

total

of $911323000

It

then

dividedthat

number by twelve

to

come up

with

12

quarteraverage equity

figure

of

$75944000

thereby

barely clearing

the Stark

II

hurdle

But the board knew

that

the

12-quarter-average

solution

would

no

be available

the following

year

The

success

of

that

solution

in 1999

depended

heavily

on the stockholder

equity

figures for

1997 which

were substantially higher

than

those

for the

next tWo years

and
Stark

which

would

no

longer

fall

within

th
have

available

time period

at

the

end

of

2000 To
million

satisfy

II in

2000 Coram would
million increase over

need

to

stockholder

equity

in excess

of $75

more

than

$95

the

companys

negative

$21.7

million in shareholder

equity

at

year-end

1999

Given

the financial

problems

at

Comm

and

in

the industry

as

whole

it

would be

virtually impossible

to generate

thØt

much

equity

from existing

operations

Reed

SJJdLh

Comms
some

regulatory

counsel advised

the

board

in

mid-December

1999

that

an

equity

infusion

of

type

would

probably be required

before.the

end

of the year 2O00 in order

for the

Company

to

be able to continue

to

useihe public

company

exception

beyond

December 31

2000

Crowleys Performance
Crowley

as

CEO
Corams
finances

moved quicky

to stabilize

and

turn

the

company
levels

around

Among
increased

other

changes

he centralized

the

purchasing process brought inventory

down
from

working capital

paid off some of Corams-debt reduced

accounts

receivable

$130

million to about

$77

miflion

and

emphasized

Corams

core

therapy

focus.

According

KWIOU7

A791

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Page 12 of 30

to

Wendy Simpsonwhowas Oat.thi
he

CmwleyYfosed
and questioned each

out

She

said

literally

went

through

stacks

of invoices

one
coul

.Despite the operational improvements
that

Cowloyimp1emeptdrCoram
to consider

not surmount

its

financial

problems

In early

200C Corain began

the possibility

of

bankruptcy filing

Bankruptcy

was

deferred

because of the possibility of

significant

addition

to

equity

from the sale of PS

and/or

large

returti

from the Aetna

litigation

lii

Jan

aidebiiary 2Q00 Coranu

nagement

intrviwed

ntimbLr rif

potential

restructuring

aMsors

iiiiluding

Paul V/eisa iaowitzBeiisoii

ndseveralfihancial

advisory

firms

At the end of February Crowley

forwarded these

firms propoanis

ta the

board hi

advance

of the March boaidrneefing

In his

iIccompanyingitter

to the

boaid

whichis

dated

Febrwiry

28 2000

Crowley extilained that

Comm

had

no choice

but to pursue some type

of

financial

restrnctuæng

The purpose
aimed
at

of the meeting will be

to

consider
..

initiating

process nothing structure

restructuring the the

Coram

Ilealthcare

Virtually capital

will obviate Stark
that II

need
last

for restructuring three
it

Corarns
financial

and

years clear

performance
deal with

made

certainty

So

is

we

have

to

Corams

Balance

Sheet

On March

2000

Cmowley

reviewed

these

proposals

with

the

board

At the same time

that

he

was

soliciting

and vetting

restructuring

proposals

indeeds

part

of

the

same

letter

in

which

he forwarded those

proposals

to

the

board

--

Crowley

demanded

an increase

in

his

compensation

The February 28 2000

letter

goes on

to

state

By way
need
fairly

of

this

memo
to the task

am asng my
at

the

Boa
this

understand that
relationship to

to

immediately
it

reopen

compensation

more

..

match

hand

To do

properly

think

we

KI2Ibsm.J

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Case 1:04-cv-01565-SLR

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Page 13 of 30

ned
issues

assisncfroth
restructuring

afi thatyundetandal
has

of thevaxied

on

Fxecuthes
the

like

myselL

..

Jn

the
is-

absence of thisbing bigi1y probable with
that

done Ined
will

Board

tounderstand.tbatit in

not be
the

comfortable
related

going forward

.a

rescturing
tCthini
the

and

asalment
...-

tO

briflg

coutihuity

ftr

In

erlyMarcb

Crowleyrenegotiaied

the IØrnis

of his Øotupensation

package

wIth

Feinberg

hfi

the laiters

capacity

as Ciiairinan

of the CthpnsatiOn

Committee

of-Corams

board

These

negotiations

resulted

in

an aiieicimeiit dated AjrII

62oo
but

toCrowleys him
the potential to

employment

agreement

Jt

leI Crowleys base slary pnchangcd

gave

earn

significantly

more

in the

1orm of

performance-blsed

bonus

Specifically

were

Comms

EI3flDA

to-exceed

$14

million Crowley would receive

25%.of

EBITDA
receive

above

$14 million
an

Further.ifEB1TDA

equaled

or

exceeded

$35

million he would

this

25%

share

plus

additional

$5 million in addition Crowley was entitled to

Success Bonus payable upon
conversion
to

the

consummation

of

Refmancing
all

which

was defined

in

part as

acceptable

Corams board Coram
debt

of some or

of the debt

held

by the Noteholders

into

combination

of

new

or issues

of its

common

or preferred

stock

The amendment

to

Crowleys
converted

employment

agreement

based his success

bonus

on

certain

percentages

of debt

The
and

success

bonus

amount

was subsequently

amended

on August

2000.to

flat

$1800000

was

further predicated

on the consummation

of

Plan of Reorganization

On March 22 2000 amendment

the

compensation

committee

discussed

Crowleys

request

and

the

proposed

It

is

unclear

whether

the

full

board

ever

formally

approved

the revised

contracL

The minutes of

the April

2000

board

meeting simply state

In

closed

session

without

the presence

of management

the

Compensation

mmittee reviewed

with theBoard

the

-45KL22ID3m.7

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Page 14 of 30

propsLd

amendment

to

Mr

Crwley3s

Employment AgrØementThe
of the Compensation

ainehdmentwas

signed

by Feinberg

in his capacity

as

Chairman

COmmittee

Duringthe

same

April

board

meeting Joam.formaUy retainedihe

law fimi

ICasowitz-Benson

Torres

Friedman

LLP

as.Special

Restructuring.Counsel

although

the

retention

application

is

dated

as

of March

19 2000.
options.

David

Friedman

of the.Kasowitz

urn

addressed

the

bOard

to

discuss

restructuring

their

inteiews

with Goldin the dfrecto

expresed

mixed

views

to

whethr

Crowleys demand
unanimous
in

for additional

compensation

was appropriate
the

The board was and

still

is
that

its

belief

that

Crowley was

essential

to

companys

ability

to survive

and

Coram

could

not afford

to

lose

him Some
companys

of the directors corroborated

Crowleys claim

that

Smith did not

fully

disclose

the

financial

problems and that the job was far more

demanding

than

Crowley had anticipated

On

the other

hand some

directors

suggested

that

Crowleys
afford

insistence

on increased

compensation

at

time when

he knew

the

company could not

to lose

him was

form of economic

duress

By
so

April

2000

the

CPS

auction

process

waswinding down
con tacted
and/or

During

the

seven or

months

that

CPS had been on

the

market

DBAB

had

received

inquiries

from

about

45 parties in total

Jight

of those

45 parties submitted bids and/or

preliminary

indications

of interest

DBAB

invited several

of the eight

interested

parties

to

do

further

due

diligence

and

to

putInsecond
out

bid

Only

CVS

ProCare

made

second

bid

of $34.5

million the other sevent

parties pulled

Crowley instructed

Morrison

not to accept

anything less than

$40

million

aiid

to hold

ciUtfor an

all-cash

offer

Toward

the

end

of the auction

process

GTCR
After

Fund V11n

tandem

with

CPS management

group

entered

the

bidding

process

numerous

-46lcL22IOU13.7

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discussions

GTCR
to

ultimately

ºainenp

with

cash offerof $413

million

On

April

2000

the

board

decided

proced withthe

GTCR

bid

DBAB
financial.perspecthre

issued

fairness

opinion

which concluded

that

thesale

was

fair

from

In rendering

its

fairness

opinipn

DBAB

used the three standard

methods

of valuation

comparable

public

company market
cash

analysis

ii comparable
The
flrst.inethod

company

transaction

analysis

and

iii discounted

flow analysis

.yieldedv1uations.

that

ranged

from$9.7

million

to

$145

million the second

yielded

valuations

that

ranged

from

$13.4

million

to

$61.7 million and

the third yielded

valuations

that

ranged

from $246 million to

$53.6

million In reliance

on

tBABs

fairness

opinion

among

other

factors

the

board

approved

the sale

unanimously

The

asset

purchase

agreement

was signed on June
cash proceeds

2000

The

sale

closed

in

July

It

generated

approximately

$38

million in net

On

July

14 2000 before th CIS
to the

sale

closed Crowley

made

regularly

scheduled

$6.3

million

interest

payment

Noteholders

Although

Crowley

had

the option

making

the

payment

iii

kind
do so

i.e adding

it

to

the outstanding

principal

balance

he made the

business

judgment

not to

Both

Amaral and

Crowley

felt

strongly

that

Corains

general

practice

of PIKing

interest

payments

made

it

very

difficult

for the

company

to

surmount

its

debt

load

According

to

Friedman

Crowley considered

paying down

debt

sign

of success

Crowley

did

not

tell

the

board of directors

or the

companys

bankruptcy cOunsel

about the payment

until

after

it

had

been made.1

Cloldin considers

it

imprudent for Coram to have
filing

made an

interest

time

it

was seriously contemplating
in

for
still

bankruptcy

payment in cash at The CPS sale had not yet
the reasons for the

the

closed
auction

fact

intense

negotiations

were

underway
its

One of Had

CPS
on

was

that

CPS needed

cash to support

growth

the sale not

occurred

KL2IOB17

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When
down
the

the

CPSsaleciosed

later

that

month Crowley used

tie

full

cash proceeds

tq

pay

balance

of the secured

revolver

$28.5

million and .tqptepay

$9.5 millin

of the

cutstanding

principal

on the Series

Notes Both payments
which

were

mandated

ly

the

agreement

between

Corain and

the

Noteholders

required.that

cash-frxnªssetsales

be used.to

pay

downdebt

Events

Leading

up

to

the

Bankruptcy

Filing

In

April

2000 on

the advice

of

avid

Friedman Cora

had

retained

Chanin

Capital

Partners

as

its

financial

advisor

Friedman

had

co

muniated

to

Chanin

the

scpe

ofits

engagement

which

was to prepare

valuation

and to provide-testimony

concerning that

valuation

On May 17
to take place

2000

Chanin

had

addressed

the

board

to describe

the valuation

process

which

was

in

two phases and would

culminate

in

final

valuation which

Chanin

would

present

to the

board in July

2000

According

to

the

minutes of the

May

17

meeting

Chaitins task was

to

develop

and

analyze

alternatives

for effecting

debt

conversion and

restructuring

of the Companys

balance

sheet

In

mid-July Chanin

completed

its

preliminary

evaluation

which

indicated

strongly

that

Coram was

insolvent

In

letter

dated

July

19 2000 Crwiey
within

advised

the

board

that

Chanin

was

likely

to

complete

the majority

of

its

work

few days

and proposed

that

we promptly

share

that

information

with

the

debtholders..

as

soon as we know

the

valuation

July

31 Corams
the $7.5

ability

to

fund

CPS

would drew
the

have
the

been

even

more
cash
less

problematic on hand down-to
less its

Furthermore
than

cash interest payment
left

compays
to

million Which

Coram
Indeed

with
in

ability

pay

than

weeks worth of
interest

normal.operatmg expenses on hand
time
fell

the

week following
is

the

cash

payment
this

cash
at

below

$5.5

million would

No

less

troublesome

that

Comm
in

took

action

when

most companies
in

have

been

marshalling

cash

contemplation

of

surviving

bankruptcy

-48KUfl73.7

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Feinberg claims

thathe never saw the valuation

before th.bakniptcfillng

No

independent

evidence

reThtes

or

oboitahis

iai

..
In

any event

following

Chanins

preliminary

valuation

Feiiiberg resigned

from

the

board

on

July

24
all

Feinberg says he resigned because

bankruptcy

had become

inevitable

ancl

it

was

clearthat

board discussions

going forward

would

revolve

around

the restructuring

of Corams

debt

Peter

Smith says that although

Feinberg did not formally

resign

until

July he

bad

recused

himself from meetings so frequently

intbepreceding.several

months

that

he

had

in

ft

played no meaningful role on the board sinceApri1

On July31 Chanin was insolvent2 At
additional

presented

its

valuation

to the

board confirming
the

that

Coram

that

same meeting Christina Morrison

addressed

board

to discuss

the

financial alternatives

that

had beenconsidered

by

DBAB

DBAB

also

prepared an

outline

of

its

presentationto

the

board

titled

Corain Healthcaxe
hmnediate

Corporation

Strategic

Alternatives

The

outline

set

forthCorams

objective which

was to

bring

the

aempany
would

into

compliance

with

Stark

II

by-the

end of the

year To
or

achieve

that objective

it

have

to

either

raise $1104125

million

equity

become
--

private

company
offering

The

outlinthen

goes

through

four

different

capital

raising alternatives

follow-on

rights offering

strategic

investment

by

third

party

and

leveraged

buyout

and

concludes

that

they

are

not viable

options

for

Coram

at

this

time

Friedman

says

that

draft
It
is

was

given

to

Crowley

about

week

before

the

final

valuation draft

came

out

on July

31

unclear

whether

the report

was

circulated before

to the board-in

form Some
said

directors said

draft valuation

was

circulated

the

end

of July others

no

drafts

were circulated

49 I2DU73

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OBABs
reasons

opn

followæoffering

not

viable for

number-of

Coram had very few

institutional

shareholders

and no existhlgesearch

coverage
leveraged

would need

to raise

almost ten times

its

current

eqmty value

it

would

remain highly

and

it

was

difficult

time for bealthcare

companicsin-geneial

and healthcare

service

providers

in particular

to raise capital

rights offering

Le

seiling

shares

to existing shareholders

rather

than

in the public

market

raised

thg

tame issues

Finally

given Corams

debt

load and

the general

lack

of investor

intØreLt

hi

th

healthcare

services

field

oiams

prOspects

for

strategic third-party

investment

or

ieeraged

buyout were

remote

Before Chanin

issued

its

report

Crowley

met with

the

Noteholders in an

effort

to

convert

or restructure

the

debt

The Noteholders
Of

agreed

to-reduce

their

debt

to

$180 million 2000

Crowley reported

on the

results

this

negotiation

ata board

niting on August

Mr

Crowley

reported

on
debt

his

meeting

with

the
-stated

holders

of the
debt debt

Companys
holders wIll

principal agree to

instruments

He

that the
million in

conVert

approximately

$71

and
the

enter into

new

debt

arrangements with the Company replacement
debt debt instrument

whereby
in the

Company
note

would

issue

principal four-year

amount

of $180
requiring After the

million The only interest
discussion

instrument at

would
nine

be

payments
the

percent

9% per
Committee

annum.
was
that

consensus

of the Special and conversion should include

parameters of the new debt
the

were reasonable

and

that

new

loan

instrument

no pre-payment penalties

After

Chanin

issued

its

report

the

board

recognized that bankruptcy was
to the

inevitable

At
of

that

point

the

board

made

several

attempts

persuade

Noteholders

to

make

payment

some

sort to the

shareholders

On

July

31

2000

the

board

had

appointed

Special-

Committee comprising Amaral Smith Casey and Smoley
Smith was

to negotiate

with

the

Noteholders

too busy

with

interests

outside

of Corarn

participate

Smoley

was

in the hospital

-50KL22Dim.7

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the en ire month

Amaral led the negotiations

He

says

took

two

to three nins

at

the

debt ..

but made no pogrºss

Ai

Ast 2eeting
payment
to

the

board

discssed

the

stabs of the negotiations

the

loteholders respecting

shareholders

Next
secure the

the

discussion for the

turned

to

the

steps

that

had
in

been

taken

to

value

Companys

stockholders

connection
.reported the

with

proposed

plan

of reorganization
transpired

Mr
holders reported

Casey

on

discussions

that

had

betwCen of the
It

members of
of The
that

Special

Committee
principal

and debt

representative

Companys
the Special ten cents

instruments
that the

was

Committee

requested

stockho1der

each

receive in

$.lO
the

per share

in consideration

for their-stock including

connection
privileged

with and

conversion

..

After

discussion
advice the

confidential

discussion

of legal
that

.Id

by David
Committee

Friedman
should go

Esquire back
to to

it

was determined
holders the to

Special

the debt

continue to ask for some
stockholders
at

consideratiOn

be provided

common

an advisable

time in

thefuture

The board

also discussed

whether

out

of the money warraflts could

be issued in

-lieu

of

cash

payment

in order

to provide

value to the

common

stockholders

and concluded

that

management

should

review

possibility

On
for the

August

2000

Amaral

gave

the

board

an update

on his efforts to secure

value

companys shareholders

The
that

first

item

of business
at

was
the July

report

from the Special

Committee
the

was

established

31 2000 meeting of

Board on

of
the the

Directors discussion

the
he

Committee
had with
Steve

Mr
Feinberg
call

Amaral

reported

of Ceiberus occurred

Partners

among Messrs Casey Amaral and Marabito on behalf of the Company and Ed Mule Ed Stearns and Steve Feinberg on behalf of the debt holders
that

prior day and- the

conference

Mr
the

Amaral

reported

that that

they

had
value

reiterated

on

behalf

of the

Company

demand

some

be

realized

for the

holders

of

Companys common stock

They

also

discussed

whether

there

-51KIatU73.7

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were any

ncentiv

that

coildbe piovided
that the

to

Company

employees
that

for retenflo the

purposes had
shares the

given

matching
its

contributions

Company
with

previously

made under

401k

Plan

made

of

Company

common
to

stock

Mr
were

Amaral
not in

reported.that

representaiives anythat value

of the debt holders The

favor generally
entitlement

providing believing to

common
did

stockholders

the

stockholders

not

have

an

any distribution

In connection

with

the

boards

discussion

Of opportunities for other means to

obtain

value

for

comincn

stockholders

as part

of

reorganization

plan-

including

out-of-the

money warrants Friedman
thus would
not cure

explained

that

out-of-the-money

warrants are

form of equity

and

the Stark

It

problem

The

Board

.then

discussed the possibility
through

.of

providing value warrant

to

common
Board
special

stockholders advice

an out-of-the-money

The
with

received
regulato.ry

from-David

Friedman who confirmed

counsel Eugene
that the issuance

Tihnan ofRLed Smith Shaw
of such warrants would
it

McClay
the Stark

L.LP
It

not

solve

problem
the

Ultimately
for

was advised
value

that to

cash would

have

to

be

vehicle

providing

the

common

stockholders

At

this

point

the board

authorized

Friedman

to prepare

draft plan

of reorganization

On
and

August

2000

the board

reviewed

and

approved

the

proposed

Plan of Reorganization

Chapter 11

petition

and authorized

the

bankruptcy filing

On August
Statement

2000

Coram

flied

the petition

together

with the proposed

Plan

arid

Disclosure

As

discussed

below

the Disclosure

Statement did

not disclose

either the

existence

or the

terms of Crowleys agreement

with

Cerberus

XInS3.1

A800

Case 1:04-cv-01565-SLR

Document 125-9

Filed 04/17/2007

Page 21 of 30

NANALANALYSIS
Corams
Enterprise

Value
has

.-

3oldm

Associates

conducted

an extensive

financial

analysis

tc determine the

value of Corainflealthcare

as

of four

time

mes

the

bankruptcy

petitiqtt

date iithethne

of the hearings

respecting

confirmation

of the proposed

Plan iii June 15 2001 and

iv

August

31

2001

Valuation Dates.

Shortly

before

the

bankruptcy

filing

in

August

2000 Corams board

of directors

received

valuation

analysis

prepared

by CiJanin

Capital

Partners

Chanin

it

concluded

that

the entcrprise

value

of CoEam was substantially

less

than

Corams

debt This conclusion

influenced

the

boards

decision

.toflle

the petition

and the formulation

of

Comms
judgment

proposed

Plan AcÆordingly Gdin
reasonableness

has reviewed

Chanins

valuation

and formed

as to

its

At

the

time Corams

proposed

Plan was presented

to

the

Court for confirmation

in

December 2000 an updated

valuation

analysis

bychanin

as well

as valuations

by JBS

Warburg

UBS

and

Deloitte

Touche

DT
value
iii

were submitted

for the

Courts

consideration

related

testimony

was

proffered

Goldin has considered

these

valuations

in

developing

its

conclusions

respecting

Corams

at

that

time Goldin has also considered

the

valuation

of

Comm

prepared

by Chanin

February 2001

in

connection

with the

partial

conversion of debt

to

preferred

stock

at

year-end

2000 While

many

differing

assumptions and

calculations

were utilized

in

these

various

analyses only

few account

significantly

for the

sUbstantial

differences

in

their

valuation

conclusions

These

are identified

and discussed

below

-53xL2-1e113.7

A801

Case 1:04-cv-01565-SLR

Document 125-9

Filed 04/17/2007

Page 22 of 30

Goldins

assimplions

analysis

and.c

nclusin

respeting the yalueof

Coram

as

of June

15

2001

nrc presented

arid

discussed

belo.Th
number of

ass

rnpticnsaml

nclusions

in

this

UpdÆLdRepoft have been
wLre appropriate

adjusted

1c

reflºt

revisions.that

Goldin has detennh.d

subscquentto the is.uance

of the RepOrt

On u1y 11

Finally

Goldins

assumptions

analysis

and

conclusion

respecting

the

value of

Coram

as of

August

31

2001

are presented

and

discussed

below

Comms
viable

long-terindebt

obligations

aside at

all

relevant

times

Corain was

business

going concern

Market

demand

existed

for

.Corams

services

and

Coram was
which can

able

to

deliver these

services

at

competitive

prices

This provided

an

operating

profit

be expected

to

continue

Accordingly

the

value of

Comm

at

any time

is its

enteirise

value

the value

that investors

owners

and

potential acquirers

would

attribute

to the

business

There

are three

generally

accepted methods

for

determining enterprise

value

comparable

public

company market
discounted

analysis

ii

an

analysis

of recentacquisitions

of comparable

companies
and what

and

iii

cash

flow analysis

The

appropriate

method

in

particular

case

conclusions

can be drawn

from alternative

analyses depend

on the circumstances.13

The

valuations

prepared

by Chanin

UBS

and

DT

collectively

the

Financial Advisors

utilized

each

of these

methods

Goldiii

has performed similar analyses

in reaching

the conclusions

contained

in

the

Report issued July

II

and

in

this

Updated

Report

13

Shannon Companies

Pratt

et

al

Valuing

Business The Analysis and Publishing 1996 371

Appraisal

ofC

sely Held

Chicago

Irwin

Professional

-54K1221OB373.7

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Page 23 of 30

Comparable Public Under
this

ComUany Market nalsis
valu
is

method

enterprise

deteniined

yfirstseleing jiibllq

compi1ies

cpmparable

toCoram

calculating

beirmarlret

ylues

from

tock

trading

informatjpn

narket

capitalization

and

adding long-term debt adjusted.to.its

market value if thez

is

significant

difference

from book

value

and preferred

stock

if

any

to the

market capitalization

This.pmduces

trading-market

enterprise

value

which

is

then

divided

by

various

earnings

amounts

to generate

applicable

multiples Multiples

commonly used

for

this

purpose

by
of revenue

investment bankers

investorslenders

and

valpationprofessionals

include

multiples

and

EB1TDA

earnings

before

interest

thxes depreciation

and

amortization

Chanin

also

used

multiples

of EBITDA

niinuscapital

expenditures

To

derive

comparable

enterprise

value for

Coram

these

multiples

must be applied

to

Comms

revenue

and

BBITDA

This

method

of calculating

enterprise

value reflects the valuation

principle

that

values

are relative

and

informs an investor

considering

investment options

of

similar

nature4

Thus
stock

the resUlts

of

this

method

are often

used

to

estimate

trading

prices

Vat

which

companys
overvalued

will trade

following

an

initial

public

offering

and

to identify

stocks

that

may be

or

undervalued

relative

to

comparable

investment opportunities

at

particular

time Hence

this

method

best informs

the price

at

which

Comms

equity

could be expected

to trade

in

an

active

and

liquid public

trading

market

assuming

Coram were

not

in

bankruptcy

its

business

had

normalized and

it

had

competitive

capital structure.15

Because

stocks

trading

in

public

markets

represent

minority

ownership positions

they

typically

trade

at

prices

reflecting

discount

from

14

Aswath
Pratt

Damodaran Investment

Valuation

.New York

John Wiley

Sons

1996 13

208

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Page 24 of 30

full

value for lack

of control

according1y enterpris value derived

by this-method

reflects

such discount

That

dlistingiishes

this

method

from the comparable

transactioiranalysis

the latter

attempts

to capture

full

value

to

controlling

owner.For Coram

this

method

was

given

some
and
as

weight by Goldin and

the Financial

Advisors in determining

their respective

valuations

checlCon

the reasonableness

of the results of the other methods

comparable

public

company

iiiarket

analysis

involves

series

of steps

Each

is

considered below in turn

SeIetion

of Comparable Companies
the

..

Appidix
selected as

sets

forth the public

companies

FinanciaFAdvisors

and 3oldin

comparable

to

Coram

Goldin reviewed

the Financial

Advisors

selecticns

and

number of others Appendix
the selections

2.enumerates the possibilities Goldin considered

and the basis for

Goldin believes

constitute

reasonable

set

of comparables

for

an analysis

of

Coram
Cloldin

taking

into

account

that

every company has singular

features

which

can affect

value

included

public

companies

with

significant

hme

infusion

services

business including

those

with other lines of business Goldin excluded

companies

that

do not have

significant

home

iiifusion

business

as well

as those

too small

to

have

substantial

stock

market following

The companies

Goldin selected

as

comparable

for

this

analysis

are

Apria Healthcare American

Group

3entiva

Health Services

HomePatient

Option Care Inc

As Appendix example U3S excluded view
driven

niakesevident

the Financial

Advisors

selections

varied

For

Apria and

Lincare

because these

companies more

market valuations

are

in

their

principally

by

the strength

and

relatively

favorable

expectations

of their

2I

-56--

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Case 1:04-cv-01565-SLR

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Page 25 of 30

bt

respiratory

homecae

business Goldhiconcurs

with the exclusion

of Lincare

but not Apria

which

has aalgnifixanthomeirifusionbusiness.

Calculation of Multiples

Appendix

acts forth the calculation

of multiples

for

ac

the

valuaons

conducted

by

the Financial

Advisors and by 3oldin

Typically in calculating

enterprise

aluc

of compa

able publiL

companies par
those values

values

of long-term debt

are not adjusted

to

market because

the differences

between

and

trading

or market
at

vªluØs

are

not mate ial

1oLver
all

the

debt of American

Home

Patient

was

trading

substantial

discounts

from par

at

relevant

times

UBS made

the relevant

adjustment in calculating

its

enterprise

value but

DT

did

not Goldin made adjustments
values

in

its

calculations

to reflectaccurately

the

markets

view

of theenterprise

of that cothpany

as

of

the

Valuation

Dates

For

fiscal

year

2000

Gentiva Health Services reported

negative

EBITDA

of

approximately

$90.4

million which

resulted

from

restructuring

charge of approximately

$150

million As

this

was

non-recurring

GoJdin

adjusted

Gentivas

EBITDA
from

to

omit the charge

as

did

UBS

DT

did

not

make

this

adjustment

instead

it

excluded

its

analysis

any

EB1TDA

multiple

calculations

respecting

Gentiva

number of

accepted

techniques

are

commonly
for

utilized

to

derive

composite

multiples

from the calculations

of individual

multiples

each

comparable

company

These

include

computing

an average

calculating

median

and weighting

for

pmparability on some
GOldin determined

basis Chanin

and

UBS

calculated

medians

DT

weghted

for

comparability

to

weight for comparability based on

the relative

level

of infusion

care

revenue

because

the

-57-

A805

Case 1:04-cv-01565-SLR

Document 125-9

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Page 26 of 30

growth prOspects regulatory

cimite

and

profitability

ofinfusibn.homecare

differsigniflcntly

from

other

segments

of.thehome.bcalthcare5ndustr..The

table

belo.w

foith.the

weigting

applied

by Goldin

...

GoldinsCalculatlMarketMuhip1es

Comparable

Companv.

.Weight

Is
EV/Revthti EV/EB1TDA

7/31/O0

12/14/00

6/15/01

8/31/01

Apriallealthcare

12.5%

L67
4.75 6.96

1.73 7.13

17
1.06

inerican

HomPatient

12.5%

EViRene EV/EETDA
EV/Rev.nue

0.36

O41
5.22

O.67 8.63

O.72
9.20

4.62

Gentivalealth

Services

32.9%

0.19

.0.25

0.28 4.11

0.33 5.51

EV/EBJTDA
Option

5.96

7.21

ar6

42.1%

EV/Rcvenue

063
.5.63

0.70

1.41 12.76

1.26

EV/EBITDA
Composfte 100.0%

11.60

EY/Revenue

0.5
5.50

0.64

0.99
8.89

0.94 8.73

EV/EBrFDA

656

DT
public

went

one stepfurther

adding

10%

control

premium to
one

its

comparable

company market
of

multiples

This

concept

is

reasonable

in

theory

if

seeks

to

render

the

results

market-trading

valuation

methodology

comparable

to the

results

of

transaction-

based methodology

becauseas

discussed

above

enterprise

value

derived

by

market-trading

valuation

method

reflects

any discount

from

full

value

for lack

of control

However

in

this

case

the adjustment

is

unfounded

the multiples

DT

derived

from

its

trading

market analysis

revenuex
and

0.75

and

EBITDA
This may

7.0

are not

lower than

its

transaction

multiples

revenue

0.74

EBITDA
or more

6.10

reflect

that the

markets did not ascribe

difference

in

value

for

control

likely

that

DT

did

not

have

enough

comparable

companies

and

comparable

-58X122I13.7

A806

Case 1:04-cv-01565-SLR

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Page 27 of 30

transactions

toref

the.analysis

Thisisa

problem also faced

by

the other.Financia

Advisors

and

3oldin

accordingly

3Oldin did not consider

such

an adjustment appiojriate

Application

of Multiples

Comm Valuation
applied to

The composite

multiples

determined as aforesaid

Corams

financial

performanc

as

of the Valuation

Dates

establish

Comms

enterprise

value.on

the basis

of

comparable

public

conipany

market analysis

see Appendix

The

Financial

Advisors differ substantially.as

to the appropriate

level

of

EBITDA 2000

to

utilize

for

valuation

aiialysis

in

this

ease

For

its

valuations

as of

July

and December

Chanin

used managements

estimatesof

2000

EB1TDA

withOut adjustment for an abnormally

large

management

incentive

plan

MI
in

expense

UBS

and

DT

made

adjustments

that

in

their professional

judgments resulted

normalized

levels

Goldin did as well

In

formulating

its

ºomparablevalue

calculations

ofCorainGoldin

utilizedEBJTDA

afierMIP

estimated

tobe

5.5%

of

branch

operating

profit

Tn

doing so Goldin assumed

that the

comparable

public

companies

wOuld

also

have

cash incentive

plans

For

its

valuation

as

of June 152001

Goldin derived

an

estimated

Last Twelve

Month

EB1TDA

for

Coram by
and

applying

three quarters

of the 2000

result

75%

of the 2000

normalized

EBITDA

one quarter

25% ofestirnated
EBITDA
that

2001

EBITDA 12

The former

derives

from an updated

calculation

ofPost-MIP

see Appendix

Since

the issuance

of

Lh Report on

July

11 Goldin

has

determined

certain

changes

are appropriate

to

its

prior

calculation

of normalized EBJ.TDA

for

2000

In

summary

these

involve

inclusion

of

inftsionLrelated

income

from joint ventures

and minority

interests

ii inclusion

of

reversal

by

Coram

at

the

end of 2000

in

adjusting

to

normalized

3.2%

reserve

for uncollectible

accounts

-591cL2210U73.l

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of

portion

of the piior-periodreserve

on

the

year-end 1999

baIancesheet

for uncollectibic

accounts

iii an add-back

of additional

one-time infusion-related

operating

expenses which

had

been

offsetby other one-time

non-infusion

adjustments

in the

Report issued onJuly

11
thai

and

iv
-the

exchision

from the ealculation

of an adjustment for iiicome

from the Aetna

contract

in

Report .issud

on July

11 had been

included

in the calculation

The

estimated

2001

figure

used in the June 15 2001

valuation

derives

from an updated

estimate-of

Corains

2001

performance

prepared

by Goldin

utilizing

data

provided by Corain and

reviewed

by Goldin see

Appendix

and Part IVA.3.b

below

.3

For

its

valuation

as

of August

31

2001

3oldin detived

an estimated

Last Twelve

Month

3BITDA

forCoram

by applying

two quarters

of the 2000resuli

50%

of the

2000

nonnalizØd

3BJTDA

and two quarters

50% of estimated
on calculations

2001

EB1TDA

Chanin placed

greater

emphasis

that

reflect

EB1TDA

less capital

expenditures

because of

its

view

that

this

performance

measure

is

more

prevalent

and

appropriate

for valuation

analyses

of heal thcare companies

no other Advisor adopted

this

formulation Indeed

with

capital

expenditures

often

lumpy
is

concentrated

in specific

time

periods

valuation

analysis

that

utilizes

such

an

approach

overly

sensitive

to the timing

of

capital

expenditures

Over the long ran capital expenditure

levels

should approximate

depreciation

so the use

of

this

alternative

formulation

should not produce

materially

different

results

For

the reasons

stated

Goldin determined not

utilize

this

formulation rather

it

relied

principally

on the standard

EB1TDA

multiple

approach..

-60ICL22IOW3.7

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Comparable Goldins

Public

Company

Market

Analysis-

-Enterprise

Values for Corarn

$000s
Basis
7/31/00

12/14100

6/15/01

8/31/OE

EV/Revenue

.227116 251444

255604 257940

396312 255555

375242
248225

EV/EBrFDA

Comparable Company Transaction
lJiider this

Analysis

method

Corazns

enterprise

value can be determined by icientifythg

acquisitions

of comparable

companies-that

occurred

in

market dohditibns

similartb

those

prevailing

at

the Valuation

Dates

calculating

purchaseprice

multiples

of various

arnings

categories

for

each

acquisition

and applying

those

rnultiple.s

-to

Comms
value

earnings

immediately

prior to the Valuation

Dates

This

method

of calculating

enterprise

also

reflects the

relativity

of values but in contradistunction

to the trading

value

analysis

outhned

above

attempts

to

account for

full

value to

controlling

owner.16

Accordingly

whereas

the

comparable

public

company market
what
is

analysis

reflects

any discount

for lack

of control

this

approach

includes

generally

referred

to

as

control

premium Consequently
opinions respecting the fairness

this

approach

is

particularly

relevant

to

investment

bankers

of

MA

transactions Goldin and

the Financial

Advisors

also

gave

this

method

some weight

in

determining

their

respective

valuations

of Comm

and as

check

on the reasonableness

of the

results

of the other methods

Selection

of Comparable Transactions

Appendix

sets forth the transactions

the Financial

Ad-visors

considered

comparable

for the

purpose

of computing

an enterprise

value

of

Comm Goldin

has reviewed

16

Pratt

24 1-2

-61KL22lfl813.7

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these

selections

and

with

four

exceptions

believes

they constitute

reasonable

set

of

comparables

for

an analysis

of Corain

Goldin also included

March 2001

transactioii for

its

6/15/01

valuation

Goldins

Comparable.Transactions

Target

Comparable

Acguiror

American

Disease Management Care

MM
Sunbelt

Corpratin
Hospital

814/00
12/20/99 8/4/98 2/1/98 6/28/00 3/15/01

Conununity

Landauer

Housecall Medical
Infusion Solutions

Home

Ainedisys
Lingare

United Medical
Interwest

Holdings

Home

Medical

Praxaix

Goldin was

not able

to

identify

any other transaction

for

which

sufficient

information

is

available

Notably

the foregoing

transactions

involved

companies

in the

broader healthcare

field

not limited

to

home

inftsionservices

given

the limited

number of

transactions

available

for the

analysis

Goldin considers

this

reasonable

approach

Goldin

excluded

the acquisition

of

EMSA

its

busineas

predominantly

involves

providing

infusion

services

in

prisons therefore

it

does not

operate

in the

same

competitive

environment

as

Comm The
it

transation

whereby

Manor Care

acquired

In

Home

Health

is

also

excluded

since

involved

the acquisition

of the

remaining

minority

interest

not already

owned by Manor Care

the

economics

of the transaction

are

inapposite

Finally

Goldin did not include-the

acquisitions

of Homedco

and

Ro Tech

Medical

these

transactions

occurred

before

passage of theBalanced

Budget

Act of 1997 which

dramatically

changed

the

economics

of the home care

industry

-62KIi2It173.7

A8 10