Free Appendix - District Court of Delaware - Delaware

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

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Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 10 of 20

THE UNITED STATES BANKRUPTCY COURT FOR TIlE DISTRICT OF DELAWARE

In

re

Chapter

11

COJAM HEALTHCARE CORP CORAM INC
Debtors

and

Case

No

00-3299

MFW
Febiuary

Jointly

Administered

ObjecUon HLarhig

Deadline

21 2003

Date

February

282003

MOTION OF THE CHAPTER 11 TRUSTEE FOR AUThORIZATION TO ENTER INTO TERMINATION AND EMPLOYMENT EXTENSION AGREEMENT WITH DANIEL ft CR0 WLEY

Arlin

Adams

the Chapter

11 Trustee

the

Trustee

of the bankruptcy

estates

of

Coram Healthcare

Corp

CHC

and Corum Inc

Coram

and

together

with

CHC
this

ruferred

to as the

Debtor

by and through

his

undersigned

counsel hereby moves

Court

for authorization

pursuant

to Sections

105

and 363

of Title

11

of the United

States

Code

101 etseq the Bankruptcy
Extension

Code
with Daniel

to

eiiter

into

the Termination

and

Employment

Agreement

Crowley

Crowley effective
as

January

2003.

In support

thereof

the Trustee

respectfully represents

follows

BACKGROUND
On August
under

2000

the Petition

Date

the

Debtors

filed

voluntaty

petitions

for

relief

Chapter

11

of the Bankruptcy

Code

Until

March

2002

th

Debtors

operated

their

businesses

and managed

their

properties

and

assets

as

debtors-in-

possession

pursuant

to

Suctions

1107

and

1108

of the

Bankruptcy

Code

The

Debtors

EXHIaIT

A970

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 11 of 20

Chapter

11

cases

have

been

consolidated

for procedural

purposes

only

The Debtors

cases

have

not

been

consolidated

with

that

of any other debtor

On August
Committee of Unsecured

22 2000

the

United States Trustee

designated

an

Official

Creditors

the Creditors

Committee

in

the

Debtors

bankruptcy cases

On October

18 2000

the

United States Trustee

designated

Committee

of Equity

Interest Holders

the Equity

Committee

to

represent

the

interests

of

CHCs

common

shareholders

On December

212000

the

Court denied

confirmation

of the Debtors

first

proposed

plan

of reorganization

On December 21 2001
proposed

the Court

entered

an

order

denying confirmation

of the Debtors

second plan of reorganization

At

hearing

held

on February 12 2002 the Court granted

two motions

seeking

the

appointment of

trustee

to

assume

control

over

the

Pebtors

property

and

affairs

pursuant

to Section

1104

of the

Bankruptcy

Code

The

Trustees appointment

was

approved

by the Court on

March

2002

the Appointment

Date

On December As

19 2002

the Equity

Committee

filed

proposed plan of

reorganization

the

Trustees counsel

informed the Court during

the

December

27

2002

omnibus

hearing

the Trustee

intends

to

file

his

own

plan

by the end of February

2003

Crowleys Current On

Employment

Arrangement

or about

November

30 1999

CHC

and

Crowley

eiitered

into

an

Employment Agreement

the Employment

Agreement

pursuant

to

which

cl-IC agreed

to

employ

him as President

and

Chief Executive

Officer

of

CHC

and

all

of

its

whol1y

A971

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 12 of 20

owned.subsldiaries

and

Chairman

of

CHCs

Board

of Directors

true

ad

correct

copy

of the Employment

Agreement

together

with

any and

all

amendmentsthereto

is

attached

hereto

as

Exhibit

and incorporated

herein

by reference

in

its

entirety

Under

the

Employment

Agreement

CHC

agreed

to

compensate

Crowley

for

his

services

with

inter

alia

base

salary

of $650000 per annum

the

Salary
benefits

ii

various

perfoimahce based bonuses

Hi

stock

options

iv
car

health

insurance

paid

vacation

time

vi

life

insurance

benefits

vii

allowance

viii corporate

housing and

ix tax
While

liability

preparation

and reimbursement benefits

the Trustee

has

continued

to

pay Crowley

his

anmial

saiary

and

certain

benefits

in

the ordinary

course

of business

neither

the Trustee

nor the Debtors

while debtors-iupossession

have made any payments

to

Crowley on account

of

his

claimed Management

Incentive

Plan

MIP

bonuses and Key Employee

Retention

Plan

KERP bonuses
$1800000
payable

Crowley also maintains

he

is

entitled

to

success

bonus

of

upon

consummation

of debt

refinancing

and

plan

of reorganization

On
Order

or about

iNovember

26 2002
authorize

the Trustee

moved

the

Court

to

enter an

that

would among Docket
without

other things

the Trustee

to

rejct

the

Employment

Agreement

No

1972
to

Since

then Crowley has terminated

the

Employment

Agreement

prejudice

his

claims

for

substantial

bonus compensation

including

for

MIP

and

KERP
in

bonuses

The Trustee

and

rowley

are currently

engaged

in

negotiations

an

attempt

to

resolve

these

and

all

other claims

between

them

10

After

examining the Debtors

businesses

as discussed

in

further

detail

below

the Trustee

has

determined

thatCrowley

has

performed his duties

under

the

Employment

Agreement

competently

and

that

it

would

serve

the

Debtors

best

interests

A972

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 13 of 20

to

continue

Crowleys

employment

in

the

capadty

of

Chief Transitidn

and

Restructuring

Officer

on an interim basis during

the plan confirnation

process

JURISDICTION AND VENUE
11
The Court has jurisdiction
over
this

matter

pursuant

to

28 U.S.C

157

and

1334

Venue

is

proper

in

this

district

pursuant

to

28 U.S.C

1408 and

1409

This

is

core

proceeding

pursuant

to

28 U.S.C

157b2A
105 and

and

The statutory

predicates

for the

relief

sought

herein

are Sections

363 of the Bankruptcy

Code

and Fed

Batkr

4001 6004 and 9014
JJASIS

REOUESTED RELIEF AND
12 By
this

THEREFORE
the Court enter an order

motion the Trustee

requests

that

authorizing

the Trustee

to

enter into

Termination

and

Employment

Extension

Agreement

which

he has negotiated

with

Crowley the Transition

Agreement
incorporated herein

true

and correct

copy of which

is

attached

hereto

as Exhibit

and

by

reference

in

its

entirety

TheTransitionAreement

13

The Transition

Agreement

provides

inter

cilia

the following

Commencing
Transition
earlier

as

of January

2003 Crowley
Officer for

will

serve
to

as

the

Chief

and

Restructuring

term

not

exceed the
the date order of

ofl
Plan or

six

months

from January
Is

2003 ii
by of
final

on

which Court

of Reorganization

confirmed

of the

iii the substantial

consummation

plan

reorganization

The
days

term
if

may be
final

extended not

one time for up been
entered

to

an

additional

sixty

60

order has party

on or before June 30 2003 on
thirty

unless

either

terminates

the arrangement

30

days

prior written notice

A973

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 14 of 20

Cbinmencing

January

2003

the Debtors

will tO

pay Crowley
direct

base costs

monthly salary of $80000.00 and
expenses incurred

and ontinue
as

reimburse

by Crowley

heretofore

The Debtors
provided without insurance

will

continue

to

provide

Crowley with
as

the benefits including
life

under

the

Employment
dental

Agreement and
disability

heretofore insurance

limitation health transportation

allowance

and

corporate

housing

The Debtors
Crowley
directors
to

will

continue

maintain

DO
to all

coverage

covering
officers

the

same extent available

of the Debtors

and

In consideration during nine
his

of Crowleys and
in partial

agreement
recognition will

to

forego

other opportunitis over the past

term

of his

efforts

months

the Debtors plus

pay Crowley
in partial

stay and

performance
his

payment
counsel

of $800000
fees

$200000

reimbursement of

Crowleys Continued Employment 14
363 of the Bankruptcy Code must obtain

Section

provides

that

trustee

the

bankruptcy courts

approval

to

use properLy

of the

estate

other than

in

the ordinary

course

of business

11

U.S.C

363b

The

proposed

transaction

maybe viewed
comparable

as

being

in

the ordinary

course

of business

because

companies

to

the

Debtors regularly extend

continued

employment

terms

to

existing

employees

and

officers

and

creditors

oftheDebtors

would

reasonably

expect

continued

relationship

between

CHC- and

its

chief

executive

officer

See In re Roth American

Inc

975 F.2d

949

3d

Cir

1992

Nevertheless

having terminated

Crowley

as

Chief

Executive

Officer

and President

and given

the controversy

surrounding

his past

employment

by the Debtors

in this

case

the Trustee

seeks

the

Courts

authorization

to

enter

into

the Transition

Agreement

15

In order

to

obtain

authorization

for

the use

of property

of the

estate

outside

of the ordinary

course

of business

trustee

must

articulate

some

business

justification

for

A974

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 15 of 20

such

action

In

re GontinentalAirlines

Inc 780

F.2d

12231226

5th

Cir1986

In

re

Lionel

corp
242

722

F.2d

1063 1070 2d Cir 1983 Del

in

re

Montgomery

Ward Holding

Goip B.R

B.R 147

153

1999

Delaware

Hudson

Railway

Go

124

169

Del 1991

This

is similar to many states

business judgment

rule where

great deference

is

given

to

business

in

determining

its

own

best interests

In

re

W.A

Mallory Company

214

B.R 834 836 Bankr E.D
of

Vu 1997

See

also

Montgomery

Ward

242

B.R
its

at

155

affirming approval

363b

motion where the bankruptcy

court

based

findings

on the debtors

business

judgment

16

This

Court

denied

confirmation

of both

of the proposed plans of

reorganization

offered

by the Debtors

because

it

found that an actual

conflict

bf

interest

arose

as

result

of Crowleys

employment

contract

with

Cerberus

Partners

L.P

Cerberus
regarding

who

is

noteholder

and preferred

shareholdei

The

Courts findhgs

Crowleys

relationshipwith

Cerberus as well

as

his

failure

to

timely

make

complete

disclosure

of the relationship

to

the

CHC

Board

of Directors

raised

substantial

question

for

the Trustee

as

to

whether

Crowley should

be

retained

17

Because

Crowley and Cerberus

have

informed the Trustee

that

all

contractual

relations

between them have

been

severed

and

thai

Crowley has not received

any compensation

from Cerberus

in

2002.the Trustee

is

satisfied

that

there

is

no

continuing

conflict

of interest

18

Moreover

the

Trustees own thorough

evaluation

of Crowley

performance

has

led

him

to

conclude

that the

company

is

better

off with

Crowley than

without

him

at

least

on an interim basis to provide

stability

until

plan

is

confirmed

A975

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 16 of 20

Crowleys Performance

19

Since

the

Appointment

Date

the Trustee

has independentty

examined

the

actions

undertaken

by Crowley

as

the

Debtors

chief

executive

officer

The Trustee

has

visithd the corporate

offices

in

Denver

and has had

several

meetings and discussiops

with

Crowley

CHCs

senior

executives

and

other

employees

of

CHC

In

addition

the Trustee

has considered

numerous

reports

regarding

the financial

performance

of the Debtors

and

has reviewed

the

Debtors

performance

under Crowley with the investment

bankers

retained

by the Trustee

20
profitably

The Trustees evaluation

is

that

Crowley has operated

the

company

and efficiently Under

Crowley

iotwithstanding

being

in

these

bankruptcy

proceedings the Debtors have

experienced

positive

operating

margins

andEBITDA
management
stable

reduced

cost

of services

reduced

operating

costs

improved

inventory

improved

information

systems improved

management

tools

and maintained

cash

position

with

no

net

borrowing

to

fund

post-petition

operations

21

EBITDA

has substantially increased

during

the period

of Crowleys

stewardship

of the company

From 1995

through

1999
$37

time prioT to

Crowleys

employment

the

Dbtors

EBTTDA

was

negative

million

From

January

0O0

EBITDA
amortization businesses

as discussed net

herein

is

defined

as

earnings losses

before

interest

expense

income
assets gains

taxes gains

depreciation

reorganization for for the herein

expenses

on impairment
settlements

of long-lived

on

sates debt

of

-_

provision

income froni
periods
after

litigation

extraordinary operations

on

troubled

restructurings

and

1999

discontinued should
in

The

financial with

infomiation

of the

Debtors
financial

contained statements

was
the

derived

from and

be
its

read

in

conjunction

HCs

consolidated

and

notes

thereto

included

Annual
unaudited Report

Reports

on

Form 10-K
consolidated for the

for the years financial

ended

December
statements

31 1997
and the

1998

1999
thereto

2000

and

2001
in
its

and

its

condensed on Form

notes

included

Quarterly

l0-Q

quarterly

period

ended

September

30 200g

--

A976

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 17 of 20

through

September

2002

the Debtors

experienced

$83 million

in

positive

EBITDA
months of

$120

million

improvement

under

Crowleys

management

For the

first

nine

2002

including the

six

months

after

the Trustee

was appointed

EI3ITDA

was

positive

$21

million

by contrast

EBITDA

was negative

$54

million

for

the year

ended

December

3i11999

22
ended

Revenue

and gross

profit

are also increasing

For the nine-month period

September

302002

the

Debtors

revenue

rose $31

million

or ii percent-

from the same

period

the year

before resulting

in

an

increased

gross

profit

of $9 million

Indeed

revenue

was higher

during

each

month

of 2002

than

duriiig

the

same month

in

2001
Under

23.

Crowley

CUC

has

improved

its

financial

peformance

by
When

identifying

and

focusing

the business

on

its

most profitable core

therapies

CrOwley

was

named

CEO

non-core

therapies

accounted

for approximately

38 percent

of

infusion

therapy

revenues

for

the

quarter

ended

December

31 1999 by
27 percent

the

third

quarter

of 2002 non-core

therapies

represented

only

npproximately

of infusion

therapy

revenues

In addition

daily average

revenue

per patient

for core

therapies

rose

3%
with

to

$151

per

day during the nine months

ended

September

30 2002

when compared

the

same

period

from the prior year

24
with chronic

The most profitable type of business

for

CHC

is

the treatment

of patients

disorders

With

Crowley

at

the

helm under the Trustees stewardship

CHC

refined

its

matketing strategy

to

target

chronic

patients

As

result

of these

efforts

revenues

from the treatment

of hemophilia patients

grew by 55 percent

$15 million
same period

during

the nine

months ended

September 30 2002

when compared

with

the

A977

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 18 of 20

from the prior year

The

treatment

of hemophilia patients now represents

13

percent

of

total

revenue

up from

percent

during

the nine

months ended

September

30 2001

Similarly

revenues

from nutrition patients were increased

percent

during

the

same time

frame

25
alia leveraging

Furthermore

during

Crowleys

tenure

CHC

has also cut costs

by
of

inter

volume

to

purchase

drugs

and

supplies

more effectively

Cost

services

for infusion

exclusive

of depreciation

and

amortization

expense

as

percentage

of net

revenue

has

been

reduced

from 76 percent

for the year

ended

December

31 1999

to 71

percent

for-the

nine

months ended

September30

2002

26

Under

Crowley

the

Debtors have neither

required

post-petition

borrowings to fund operations

nor

utilized

their

debtor-inpossession

facility

27
improved

Finally

the evaluation

conducted

by the

Trustees advisors

has revealed

employee

productivity

increased

employee

morale and reduced

employee

turnover

since

Crowley became

CEO

of the Debtors

Companystatistics

show

that

the

branch

employee

turnover

rate

was.reduced

by approximately

six

percent

in

2002

when

compared

to

2001

It

is

apparent

to the Trustee

that

many of

CHCs

employees

are

loyal

toCrowley

and that they remain confident

of his

ability

to

transition

the

Debtors

through

an effective

reorganization

28

The

Trustee

believes

that

it

is

important

to

maintain

the

Debtors

operational

status

quo

during

the plan

confirmation

process

The

Equity

Committee

recently

filed

plan

and the Trustee

intends

to

file

his

own

plan

of reorganization

shortly

Replacing

Crowley now

would

endanger the Debtors

ability

to

reorganize

Specifically

the Trusteebelieves

that

Crowleys

departure

would

likely

encourage

cherry-picking

of

A978

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 19 of 20

key employees

by competitors

could

cause

substantial

departures

of executives

and

other

key employees

and

shift

the

cornpanysfocus

from

its

business

plan

to

mere survival

29

Accordingly

the

Trustee

submits

that

sound business

purposes

support

the

Trustees request for the entry

of an

order

authorizing

him to enter

into

the Transition

Agreement

NTICE
30
The Trustee

shailserve

copy of

this

Motion

uponi
iii the

the

United States

Trustee

ii

the

Official

Committee

of Unsecured

Creditors

Official

Committee

of Equity

Holders

iv

the Post-Petition

Lenders

and the Noteholders

Crowiby and

his identified counsel and

vi
of

all

parties requesting

notice

pursuant

to

Rule 2002

of the

Bankruptcy

Rules

Notice

this

Motion has also been

given

by

filing

Form

8K

with

the Securities

and Exchange

Commission

as

of the date hereof

The Trustee

respectfully

submits

that

no

other or further notice

need

be

given

NO PRIOR REQuEST
31

No

previous

application

for

the

relief

requested

herein

has

been made to

this

or

any other court

by the Trustee

SPACE INTENTIONALLY

BLANKJ

l

A979

Case 1:04-cv-01565-SLR

Document 125-15

Filed 04/17/2007

Page 20 of 20

WHEREFORE
authorizing

the Trustee

respectfully

requests

that

this

Court

enter an

Order

the Trustee

to

Enter

into

the Transition

Agreement

and

ii

granting

such

other

and further

relief

that

this

Court

deems just and

proper

under

the circumstances

Dated

January

24 2003

WEIR

PARTNERS

LLP

By__s/

Kenneth Aaron

Aaron

Kenneth

I4043
Mall Suite 1001

SaleneRMazur
824 Market
Street

P.O Box 708
Wilmington Delaware 198g9

302 302
-and-

652-8181 652-8909

telephone facsimile

SCHNADBR HARRISON

SEGAL

LEWISLLP
Barry Bressler Barrie Street Suite

Michael

1600 Market
Philadelphia

3600
19

Pennsylvania

103-7286

215 215

751-2000 751-2205

telephone facsimi1e

Co-Counsel

to Arlin

Adams

Chapter 11 Trustee

11

A980