Free Appendix - District Court of Delaware - Delaware

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 1 of 30

Calculation

of Multiples

4ppenclix.6

sets

fprth the multiplqs

calculated

for

each

transaction

as

well as the

compositeipultiples

In order

to eliminate

outlyers

Goldin utilized the median

of the individual

multiples

in calculating

the

composite multiples

GJdins1iklated

Transaction Multiples..

Basis

7/3.1/00

12/14/00

6115/01

8/31/01

BY/RevenUe BWI3BTrDA-

1.02
6.10

1.02

1.21

1.21

6.10

555

555

These

transaction

multiples

are generally

consistent

with the EBfl

kmltiples

reported

for

recent

acquisitions

ranging

from

to-4x7

for smaller

companies

Application

Of Multiples

Coram
for

Valuation

Utilizing

the

same performance

data

Comm

and

the composite multiples the

Financial

Advisors and

Goldin calculated

enterprise

values

as set forth

in

Appendbt

That is

Goldin multiplied

Coran-is

revenue

and

EBJTDA

for applicable

periods

by the transaction

multiples

calculated

in

above

Comparable Goldins

Company
Enterprise

Transaction

Analysis

Values for Coram

$000s

is
EV/Revenue

7131/00

12/14/00

6/15/01

8/31/01

455690 278703

409141 239687

485210 159542

485210 157817

EVIEBITDA

UBS

Warburg

LLC Home

llealthcare

Industry

Update

52/011

see also

Leerink

Swann

Company

Option Care

Well-Positioned

Emerging

Option 4/18/01

-63-

A81

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 2 of 30

Discounted

Cash

Flow AnaLysis

..
enterprisevaluation

..

The

discounted

cashflow

DF

method of

involves

estimation.of

the

xash flows an owner

or acquirer.ould.resonabIy.xpe

frowan

nveineifl
concern

Thisrequires

projection

of the duration

of the investment

hich
is

in the case

of a.going

like

Corain

is

assumed

to

be in perpetuity

Standard

practice

to

break theprojection

into

two

parts

detailed

projection

of the

immediate and

foreseeable

future- to .thepoipt

the

business

is

assumed

to reach

normalized operating

performance

and

ii

perpetual

period

thereafter

in

which

growth

rates

and margins are assumed

to

remain unchanged.8

What

constitutes

an appropriate

initial

projection

period

varies

dejending

inter

alia

on industry

economic

conditions

aailability

of information

and predictability

of

performance

but

five

year period

is

often

utilized in connection

with

this

part

of the projection

short-cut

known

as.the

exit

method
will

is

often

used for the perpetual

period

calculation

based

on the assumption

that

the business

be sold

at

the

end of the

initial

projection

period

it

involves

calculation

of

terminal

-value

by application

of

terminal

maltiple

to

EBITDA

in the

final

year

projected9

3oldins

review of the projections

prepared

by management and

theFinancial

Advisors and

Goldins

preparation

of projections

for

its

DCF anyses
industry

were informed by

Goldins

understanding

of the fundamentals of Corams

and

its

present

circumstances

IS

AJanCorporate

Gasiorek Merger Development

Acquisition

Valuation Pratt

and 185

Structuring

.Norcross13A

Institute

1997 151

Gasiorek

164 172

-64KL22tOrn37

A8 12

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 3 of 30

Industry Fundamentals

andCorams
hLaithcare

Circi

lances

i..

Home
over hospital

Healthcare

Industry

Home

kotitinues

to offer

sihificant

cost

savings

inpatient

care as well as benefits.relatingto

patients.well-being

The

population

of residents.over

age 65 in the UnitedStates

is

uxpected.to

grow

sighificantlyQvet-thØ

next two decades

both in absolute

numbers

mid

ªsn
is

ovethll

percentage

of the population

These

together

bod

well

for the

industry which

project1to.owby9.%-per-year

Home $5.4B2
home

Infusion

Services

Home

infusion

services

are estimated

to represent

13%
of the

of the home care

industry

$41.3B
is

Although

not the fastest

growing egIrient

healthcare

industry home infusion

nonetheless

projected

to

grow

at

ratebf

5% per
is

yearn While

few large providers

account for some

30%of this

segment-the balance

highly

fragmented among

regional

and

small

local

providers.

Home
Provider

Infusion

Care

Market

Shares24

2000

Infusion

Percent Total

of

Infusion

Volume

$mil

Revenue

Market

Share

Gentiva

755

50.1% 100%
19.2%

14.0% 7.4% 3.6%
1.9%

Comm

Healthcare

40
195 102

ApriaHealthcare Option Care

72.3%

20

UBS

Warburg

LLC

references Office

Administration

HCFA
Infusion

9% growth

rate

projected

by Health Care Financing

of the Actuary

March
$5.4B

2001
estimate

2$

1JBS WarburgLLC
National

but see

Leerink

Swann

for

of market size by

Home

Association

IJBS Warburg

LLC

references

HCFA
rate projected

Leerink Swann Association IJBS Warburg

references

5% growth

by

the

National

Home

Infusion

LLC 14

-65KL1210W3.7

A8 13

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 4 of 30

Provider

.2000lnfusion

Percentofi
Total

Infiisioii

Volume
-American HomePatient
..

$mil -69
17
.12
-....

Revenue
19.0%

Market

Share

1.39

RoTech

2.9%
..6.9%

0.3%

Ho

ieHelth-Corp.ofAxn.local

Regional

and other

3849

71.3%

Competition

is

primarily

at

the local level

and

barriers to entry

have

historically

been

low However

consolidation

among commercial payors and
and national
levels

HMOs

has given rise to

incireasing

price

pressure

at

both regiontd

Other factors

as

well

including

gre-wing

regulatory

and information

collection

complexity

and increasing

capital

requirements

especially

for infonnation

technology

tend

to

favor

the larger providers

of home infusion

care

including

Corani

The Wall

Street analyst

community

foresees

further

consolidation

through

acquisition

of smaller

providers

Regulation

The medical

industry

in

general

and

thehome

infusion

segment

specilically

are highly

regulated

at

Federal

state

and local levels

affecting

profoundly

all

aspects

of the business The growing complexity

of regulations

drives

further

complexity

in

requisite information

gathering

and

management

and indeed

in the

overall-management

of

service

delivery

In the

1990s

regulations

principally

at

the Federal

level reduced

reimbursement

levels

dramatically

culminating

in

the

Balanced

Budget

Act of 1997 Apparent

recognition

by Congress of the need

tO

counterbalance

this

legislation

which

jeopardized

the

solvency

of the industry

as

whole

has led

to

subsequent

regulatory

relief

further

sensitivity

in

this

regard

is

anticipated

and hoped

for

Corams

Opportunities

Coram

appears

to

have

the potential

to benefit

from

this

business

environment

It

is

the

second

largest provider

of home infusion

services

in the

country

-66 KIO837

A8 14

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 5 of 30

operates

on

national

scale

through over 70 branclrsites

and

is

positioned

to

compete

on

local

regional

and national

levels

AiongCorams

laigecompetitors

only Option Care- appears

to

be

focused

on grosrtliin the home infusion

markets

puruing

strategy

of cross selling therapies

through

its

existing relationships-and

aggressively

seeking small strategic acquisitions

However

the

other

large

providers

of infusion

servics

yi Apria and
such
as

3entiva

and indeed

others

with

little

or

no presence

in

this

segment currently

Lincare Holdings

are well-positioned

both in the industry

and in terms of capital resources

to present

Coram with formidable

competition

.Corams Challenge

Coram

is

not

now

sound

financially

andis

not anticipated

to

be healthy

in

financial

and competitive

sense

for

two or inore

years Whatever

commendation

Coram might

deserve

for effort

execution

and

results

its

cost

structure

remains inefficienL

Coram has been

stabilized

it has positive

cash flow

and

reported

positive

EB1F

in

2000 To

the

extent

Option Care can be seen

asa

model

for

Corain

the potential

is

clear

for

Coram

to

leverage

the

$400

million current

demand

for

its

services

into

an increasingly

profitable

business

Coram

has

undertaken

substantial

investment approximating

$15

million

over

two

years

to

upgrade

its

information

technology and

capabilities

Although

needed

this

investment will absorb

substantial

portion

of avail able cash flow over the period

In

Goldins

experience

such major projects

often

come

in

substantially

over budget

take

much

longer

to

complete

than

originally expected

and

require

additional

time to work

out

bugs before

the

full

potential

return

on the investment

can begin to be realized

As

this

project

is

significant

to

Corams

return

to

strong

competitive

position

and

to

reduction

of

its

cost

stmcturehe

risks

in the interim

remain substantial

-67Pcj2aIuarn_

A8 15

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 6 of 30

-Purtbemioie

Corams
Coram

proposed

Plan contemplates

that

will

emerge from

bankruptcy highly leveraged

has.suffered

from excessive..leverage The

sijice

its

1995

acquisition

of Caremarks home inthsion

business

toll

tins

has taken

-tin

lost

portJnues
today
..t-

inhibijionson

internal

groyth

and

abilityto

cornpetewithcompanies-that

are1

at least

soundly financed-and

formidably positioned

for-growth

-is siibstantial.Until

Corams

c.apftal

structure

-is

rationalized-its

iwspects.forgaining-a competitive

stronghold

in

its

.industiy remain-a

problematic

In

sum Comm

is still

today

in the earlystages

of

challenging

tuhiamound

PrQjections

Initial

Period

The

valuation

Chanin

prepared

in

July

2000

utilized projections

prepared by

management

covering

one

and

balI years

and

thereafter

steady

revenue

growth

rate

and

improving

rnargrn

assumptions to the end

ofa four

and

half year

period through

2004

Subsequent

projections

prepared

by

the Financial

Advisors updated

these

for actual

performance

and

made

various

adjustments

they

deemed

appropriate

As noted

Goldin prepared an updated

estimate

of

Corams 2001

performance

see Appendix
of

Goldin usedthis

estimate

as the basis

farprojections

fl

utilized in

its

DCF.analysis

Comms
to

enterprise

value as of the date

of this

report Given the passage of time

Goldin determined

extend the projection

period

through

2005
2001

versus

the

2004

cut-off

used by the FinanLial

Advisors

Goldins

estimate

of

Comms
from

performance

summarized

in

Appendix

in

the

Report issued on July

11

resulted

consideration

of three budgets

the

company prepared
actual

for the

year 2001

designated

threshold

target and stretch budgets

and

results for the

first

five

months

of 2001

through

May 31 2001

Although

annua1.izing

five

months

of

revenue

would produce

$386

million Goldin considered

it

reasonable

to

assume

that

Comm

could improve

its

performance

in

-6822IO17

A8 16

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 7 of 30

fl

balaiicº

Of thyear and achieve

revenue

level similar to ihat

of 2000

nailiely

$401

million

C3oldin

noted that actual

EB1TDA

for the

first

.fiv

months

was

significantly

ahead

of the target

budget and
second

that the

companys target budget assumed

even

greater

EB1TDA
that the

margins in-the .-

half

of the .year -On the other hand Coralns

nanagemeiit.noted

target

bndet

didnot

take-into

account

signifient

downward

pressure

on reimbursement

levels

for certain

drns

that the

company was beginning
assume

to

experience

Accordingly

Goldiir

determined that

it

was

reasonable

to

that

Corams

EBTDA

for

2001

would approximate

the animalized

level

of the

first

flve

months

and

the

target budget level for the

year

For

its

DCF valuations
itself

as of-the

earlier

Valuation

Dates

July

2000 and December 2000 Joldin
of those

satisfied

as to the

reasonableness

of

Chanins

valuations

as

dates adjusting

for certain

assuthptions

Goldin

concluded

were reasonable as discussed

below

In connection

with

this

Updated

Report Goldin

has reviewed

Comms
in
this

actual

performance

for the

seven months

ending July 2001

Annualizing

the

revenue

period

produces

result

that

is

somewhat

lower than

is

produced

by

annualizing

the

first

five

months

revenue

nevertheless

Goldin continues

to believe

that

its

estimate

of $401

niilhion

for the year

remains reasonable

EBITDA

continues

to

be in linewith

the

target

budget

total

for the

year

reflecting

on the one hand the benefit

of the many

cost-cutting

measures

instituted

by

-management

and on

the other

hand

substantial

offsetting

loss

of profitability

in certain

drugs

particularly

vancomycin

The company
will

estimates

that

the loss in

vancomycin

alone compared

to assumptions

in

its

budgets

be approximately

$3.9

million

in

2001

and

$7.8

million

in

2002

This

is

enough

to

wipe

away

the

margin of

EBITDA
in

over the target

budgetaccumulated

through

the

first

five

months

of the year

Accordingly

Goldins

professional

judgment

its

earlier

estimate

for

2001

EB1TDA

remains reasonable

-69KIaIu8z717

A8 17

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 8 of 30

RevenUe

significantdiffcreiice

amongihe

Financial

Advisors including

Gotdin
and

pertains

toassumptiojs

arising

from reinue growth projections

following

the

first

one

half

year ToreCast

prepared

by nianagemnt Management

revenue

the

second

year assuming

Comm
to

would

bave

emerged from

bankruptcjby

thh
rate

Cbanin.assumed

that

revenue

pertaining

Comms
would

five

core therapies

would

grow

at

of

3%

through2004

and

that

non-core revenue

be flat

DT

used

5%

growth rate for

all

revenue

Goldin coflcluded

that

management
exit

assumption of an

initial

spurt

in revenue

growth immediately

following

Corams

froinbarikmptcy was reasonable based on

air

assumption that regional

and national

payors have

deferred

considering

long-term

contracts

with

Comm
in

until

the resolution

of the baiikruptcy

Goldin concluded

that

given

the additional

delay

the resolution

of the bankruptcy

reasonable

assumption

is

an

immediate growth of 7.4% in

core

therapy

revenue

in

2002 Thereafter
in

Goldin has assumed

that core

therapy

revenue

will

grow

3.7%

in

20034.2%

2004

and

5% in

2005
that

rates

Goldin believes

are iealistic

for the

initial

projection

period

3oldin has concluded

such drivers as population

growth

coupled

with

stable

morbidity canreasonably be expected

to

be offset by changes

in

technology

thu

development

of oral and

other

less

invasive

treatments

in

addition the effect

of.inflationon

revenue

can

be expected

to

be offset by continued

pricing

pressure

from competitors

and

reguiations

EB1TDA
has

Corams

target

is to

achieve

EBITDA
must incur

of l2% of revenue

Option Care

an approximately

11% EB1TDA margin

Coramn

minimum

level

of expenses

to

maintain

the

infmstnicre

necessa
Given

to deliver

its

seices

in

compliance

with

quality-

maintaining

regulations

an emphasis

cm reducing

its

expenses

while

struggling

to

keep

-70L22IIUfl1

A8 18

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 9 of 30

revenue

from declining COrains normalized EBJ.TDA

isestimatedto iinproveover

the

projection

period

The

Financial

Advisors

assumed

modest

iniprovements.to..this

marginover

the

initial

projection

period

as did

Goldin

However

absent.acquisitions

loldin con

iUcjA1tht

Coram cannot be expected

to achieve

its

12% EBrIDA.target

in

this

period

Unlevered

Free Cash

Flow For purposes
to

of

DCF valuation

analysis imlevered

free

cash flow represents

the

flows.coming

an owner or acquirer

over the projection

peloc1

the

initial

projection

period

particularly

these

flows are often

affected

significantly

by

capital

expenditure

assumptions The Financial

Advisors acceptºdmanagements

capex asumptions

3oldin did as well updated

asreflected

in

Appendix

.Suiary
rUtilized.forJune

of Projections

15 2001

and

August31

2001

.DCF Ana1ysis

$000s
2001
.2002

203
301812
130.017

2004

2005

Net revenue
Core therapies Non-core
therapies

270983
and other

291044
130.017

314489
130.017 4.44506

330213 130017 460230 3.5%

130017 401000

421061 5.0%

431830 2.6%

Growth

rate

2.9%

Gross

margin

113082 28.2%

124399 29.5%

129348 30.0%

136088 30.6%

145757 31.7%

Percent of net revenue

Branch

margin

54090 13.5%

63844 15.2%

67590 15.7%

73008

81239 17.7%

Percent of net revenue

164
43789 9.9%

EBITDA
Percent of net revenue

27814 6.9%

36448

39316 9.1%

50908 11.1%

7%
13753

linlevered

Free Cash Flow

25072

28567

33422

-71KIiIogn.7

A8 19

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 10 of 30

Perpetual

Period Proiection

.-

All the Financial

Advlsois

utilized the

exit rnethod.short cut to cJculate

the

value

of unlevered free cash flows in perpetuity

Bach

the.BBflDA-thultiple

derived

frorn.its

comparablepubliccinpany

market anaIysistthe.m-

BB1TDA

in the

last

year ofits

initial

projection

period

Goblin used the average

of its.two

comparable

analyses

to capture

the

information provided by the multiple

calculations

ofboth.
Goldin as

valuation

methods

Appendix

10 presents

these

calculations

for

each

Advisor and

for

of each

of the Valuation

Dates

In the

Report Goldin issued on July

11

it

did

not

update from its

previous

draft report

the

EBITDA

multiple

it

used for

its

calculation

as

of June

152001

it

does

so

here

IJBS.als.o.did

perpetual

value

analysi

It

adjusted

the

last

years

unlevered free

cash

flow for early tax benefits

to reflect

that

Comm
rate

could

be assumed

to

be

taxpayer

during

the perpetual

period

It

assumed

2.5% growth

foi the .peretual

period

and

it

appears

used

the

same

discount

rate utilized for calculating

the present

value

of all

earlier flows

see

discussion

below The

result

of

this

calculation

is

approximately

half

that

which

UBS
has

derived

using

the exit

method which

suggests

that

the terminal

value

calculation

of

UBS

strong

upward

bias.25

ii

Discount Rate

Weighted

Average

Cost of Capital of Coram by calculating

DCF
value

analysis

establishes

the enterprise

value

the

present

of

its

projected

unlevered free cash

flows

and the terminal

value

or

perpetual

value

using

discount

rate

equal

to

an

estimated

weighted

average

cost

of capital

WACC

25

Gasiorek 184

-72W

A820

Case 1:04-cv-01565-SLR

Document 125-10

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Page 11 of 30

Theestimation

of

WACC requires
debt to equity

iiumbr of

mpionsregardiIginVopthna1

capital

structure26

the

riitio

the likely cost

of debt

at

such

level that

the

market at

the

Vluafion

Dates

ivould

reqiiireCOrain

to

pay andth

expected

returnon

equity

that

an

investor

uld require

at

the

time Appendix

sthsfortlrthe

assumptions made by the Fmaniia1

Advisors

and

by

Goldiii for the

puipose of deriving

the apprcpiiate

discount

rate

Summary of Goldins
7131100

WACC Calculation
12/14/OQ 6/15/Of
8131/01

Factor

Cost of Debt

after tax

6.3% 25.8% 22.5%

43%
21.4%

Cost of Equity

44% 2L0%
20% 80%

Debt

Equity

20%

80%

20% /80%
19.1%

20%

8O

WACC
The most
of
significant

.21.9%

18.1%

17.7%

difference

among

the Financial

Advisors

and Goldin in the

calculation

WACC

is

the

assumptions made respecting

the cost

of

equity The components

of

the analysis

derived

from the capital asset pricing

model
for the

reflect

the

expected

incremental

return

investors

in the equity

of

business

require

assumption of defined

incremental

risks

Investors

in distressed

companies

companies

in

bankruptcy and/or

experiencing

significant

operating

or financial

problems

require

an incremental

expected

return

to

compensate

for the risk that

turnaround and

recovery

will not

occur

as

planned

The

projections

presented

in

Appendix

reflect

that

Corams

recovery

while

still

problematic

can

in

Goldins

view

reasonably

be expected

to

continue Furthermore

notwithstanding

Goldins

conclusions

on

other matters

set forth

elsewhere in

this

Updated

26

Gasiorek

28 44-50

KU2IOU7IJ

A821

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 12 of 30

Repott

and
for

while

it

may be

that

no

individual

is

indispensableGoldin

believes

that the

best

chaiice

Coram

to recover

may rest

on continuity

and

stability

of management

Accordingly

in the

absence of appropriate

management

contracts

the risk

of

change

of management musLbe

factorI

into

the risk

equation

To

reflect

these

risks

3oldin has included

substantial

turnarotind risk

fact

in

its

calculation

of

WACC
DCI
Valuation

Based

on the assumptions discussed

above

the Financial

Advisors

and Goldins

DCF analyses
below

determined

Corams

enterprise

value

as set forth in

Appendix

10 The

tables

summarize

Goldins

computation of Corams

enterprise

value as of June 15 2001

and

August

31 2001

utilizing

the.discounted

cash

flow methodology

Summary of Goldas

DCF

Analysis

as

of June 15 2001

revised

$000s

QQ
Unlevered
llemiinai

Free Cash Flow Value

13753

25072

28567

33422 367554

7.2x EB1TDA of 50908 @18.1%

Present Present

Value Value

11647

17982

17352

17193
173997

of

Terminal Value

Enterprise Value

238171

..74
K1221DB873.7

A822

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 13 of 30

..

SuminaiyofGoldins as of August

DCI

Analysis

...

31 2001 .$000s

Unlevered Terminal

Free Cash Value

Flow

13753
of 50908

25072

..2856.7

33422
363465

7.13x

EBTDA

Present Present

Vahi Value

@17.7%
of Terminal Value

12005

18592

17996

17885 179269 2457l7

Enterprise Value

Ad.iustments

to Enterprise Value

iddetf
variety

Depending

on

the

circumstances

of adjustments to eriterrise value

may

be

appropriate

to

determine the

fair

market value

of

business Goldin

considered thOse

that

could have

significant

impact on the result discussed

below

but concluded

that

no adjutment

to enterprise

value

is

indicated

Excess

Cash

Enterprise

vaJue

calculations

assume

normalized balance

sheets

and

particularly

normal working capital

If as of any of.the

Valuation

Dates

there

are material

abnormalities

adjustments maybe

appropriate

DT

adjusted

upward

from

its

enterprise

value as of December

2000 b.y approximately

$1

6rnillion on account

of

cash

it

considered excess of normal

requirements

Goldin did not.make

this

adjustment

as

of that Valuation

Date

because Coram had

an offsetting

obligation

to

pay substantial

incentive

bonuses

DT

assumed

away

this

abnormal

liability but

Goldin concluded

that

this

was

not appropriate

for the analysis

As of June 15 2001

Comm
this

had

over $30

million

in

cash

as

of August

31

the

cash

balance

was

lower

Offsetting

amount

are the obligation

to

pay some $13.4

million

in

-75KI.22I73.7

A823

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 14 of 30

management
and

incentive

anti

other

bonuses to

Mr

rwIeybstanfia1anticipatedbankmptcy
Cor of

costs

significant

rental obligations

due July

eat

esathithmuinrequirement

approximately$6

million to

run the.biisinessThdiffei

cphic

nÆbcexcess ashtis1es

than

$5i

1ion

Internal Revenue

Servce Claim
Medical

The IRS has made

claim

against

T2

non-banknipt

subsidiary

of Corani

for

back

taxes in the

amount

of

$12.7 million plus interest

.with.Coram

is

disputing

the

claim

UBS

adjusted

down

its

estimated

free

cash flow by-approximately

$2.1

million per year

to account

for

this

potential 1iablity

assuming

six

yearpay-ont

of

compromised

claim

Comms

view

isthat

anymelated

tax

liability

is

only an

obligation

of

its

subsidiary

Nonetheless

just as the value

Of T2

is

part

of Coramsenterptise

value

any offset of

the subsidiarys

value

is

an

offsetto

Corams

Accordingly

Goldinconsidered

this

claim

in

its

determination

of

Coiams

value

raTek

Pump Replacement
problems with

Comm
replacing

is

experiencing

pumps

it

purchased

from SabraTek

and

is

them as required

When

SabraTek

went into bankruptcy Baxter Laboratories

purchased-

its

pump

business

and has since stood

behind these products

However
have

Coram

anticipates

that

it

may need

to

accelerate

its

replacement expenditures

This would

short-term

negative

impact on cash

flows aggregating

$12

to

$14

million

above

projections

but

would

reduce

projected

capital expenditures

modestly for

number of

years

thereafter

-76KL22IDq17

A824

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 15 of 30

d.
Coram

Net Operating

Tax Loss Carryforward

reports

having an

NOL

carryforward

of approximately

$159

3imlhon

Its

ability tousthispotentiÆlshelte.r

to offset

es-however

is.prob.lematic

for

number 61

reasons The Plan contemplates

that

Coram

will

have

$180

rnfflion

of post-reorganizªtion.debt

Were

thallevel

of debt imposed

on

Coram

after interest

expense

it

would

have

hUe

if

any

taxable

income

to shelter

Also

the change-of-control

rules in the Fedral

tax

code

would

redtce

the

annual

utilization

of Corams

NOL
value

significantly

were control

tO

change

This

limitation

relates in

part to Corams

equity

at

the

time

emerges

from bankruptcy

Should

the

caplial structure

be as highly

leveraged

as the

Plan contemplates

the equity

would

be relatively

small

Under

these

cfrcumstances the

NOL

would

have

little

value

Clinical

TraJs

Inc
services for

For several years Corarn has provided

drug-testing

pharmaceutical

manufacturers through

subsidiary

Clinical

Trials

Inc

CTF
to

With

access

to

industry

contacts

and over 350000 patients

treated

Coram

is

able to

plan and

implement

tests

utilizing

human

subjects

under

controlled

circumstances

pursuant

FDA

guidelines

Although

expected

to continue

to

grow

at

relatively

high

rate

the business

constitutes

less than

1.5% of revenue

and

is

not estimated

to

exceed-2%

of revenue

within

the

initial

projection

period

Its

impact

is

small

and

its

expected

growth uncertain

so

its

operations

are not reflected

in

Corams

projections

used for the various

valuations

PricewaterhouseCoopers

Litigation

fall-out

of Corains

disastrous

acquisition

of Caremarks home infusion

business

is

litigation

claim

Comm
merit

assumed

against

PricewaterhouseCoopers

for

$165

miilion

While

this

claim

may have

and

might ultimately

result in

substantial

recovery

it

has

-77KL2210EV3.7

A825

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 16 of 30

dragged

on for many

years without

resolution1

GoJdiniiascqnplu.ded.thatan

investor/acquirorof

Coram would

not

attribute

much

values

if

any

to

this

litigation

Based

on the foregoin

in the

aggregate 3oldin concluded

thtit

these

six possible

adjustmects to enterprise

value

wouldnot

materially

increase

or decrease

enterprise

value

pis
Accordingly
it

made no

adjustments

based on them

Conclusions

..

-.. determined

The

Financial

Advisors and

Goldin respectively

Comms

value as of

the various

Valuation

Dates

utthzmg the

results

of the calculations

of enterprise

value from the

methodologies

discussed

above

and

making

the adjustments

each

deemed appropriate
weighting

each

applied

its

professional

judgment

to

the

ensuing computation

including

of the

results.27

The II

various

calculations

and

the respective

determination

of values

is

se

forth in

Appendix

Goldins

weighting

reflects

its

view

that the

DCF analysis

is

the

most

informative

of the valuation

methodologies

utilized.28

As

to the

comparable

market and

comparable

transaction

analyses Goldin considered

the multiple

of revenue

approach

the least informativer

revenue

is

good

indicator

of demand

for products

and

services

but

is

not reflective

of the

profitability

of

this

revenue
of

and

profitability

drives

value

Accordingly

Goldin

placed

greater

weight on

the multiple

EB1TDA

calculations

27

Pratt3ll

28

Pratt

151

also

Tom

Copeland

et

Valuation

Measuring

and Managing

the

Value of

Companies
29

New
338

York

John Wiley

Sons Inc

1995 70-1

Darnodaran

-78L2IO8837

A826

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 17 of 30

Summarvof

Goldins

Vahiation

of

Comm

$000s
Ju1y312000 Dece berl4 2000 August3l.2001

Method

3YbI
EViRevenue 227116 251444

3YOZ111

Comparable Market

5%
10%

255604 257940

5%
I0%

396312

5%
.10%

375242 248225

5%
10%

EWEB1TDA
EV/Revenue

Comparable
Transaclions

455690 278703

5%
20% 60%

409141 239687

5%
20% 60%

485210

5%
20% 60%

485210 157817

5% 20%

EV/EBITDA

159542
238.171

DCF
Enterprise Value

182502

182899

245747

224527

216708

244443

246857

The

Integritv

and Accuracy

of Corarns

Financial Records

The

valuations

performed by the Finanial

Advisors

and Goldin utilized the

financial

information

reported

by

Comm

and/or

provided

by

Comms
of
this

management

hence

Goldin needed

to

satisfy

itself

as to the integrity

and

accuracy

information Given

the

issues

raised

in

Corams bankmptcy

Goldins

examination

focused

on whether

the valuation

analysis

by Chnin

as

of July 2000

utilized

sound

and reliable financial

information

Corams way

accounting to

and produce

financial false

management systems had been manipulated

in

calculated

or misleading information

and to lead the Financial conclusion below
that the

Advisors and
the enteiprise

Goldin to
value

particular

and

potentially

erroneous Dates

of Corarn claims and

was

on the Valuation

significantly

amount

of the debt

Mr Crowley
mismanage
respective

and/or

Cerberus

Mr

Feinberg

used their positions
itself in

deliberately

to

the

company and benefit
to

themselves or

dereliction

of

their

duties

Coram
of the
Vsubstanhial

Especially

in

light

shortfalls

in

enterprise

value

Goldin found

from the amount

of the debt

claims

on the Valuation

Dates Goldin focused

closely

on issues and

areas

in

which

finding

of impropriety

and/or

inaccuracy could have

potentially

material

financial

impact

couldresult

in

different

outcome

Goldin

undertook an inquiry

in

that

-79KU2IeU13.1

A827

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 18 of 30

gadofanaiure

and tanºxtent

it

deemed aprorIbte and
mattsrs

JQII fideconclusiois

respectitig

these

...

With

the assistance

of counsel Joldin perfonned
..

number of

tasks

in

this

regard

--

including

the following

.of Corams 10-K and

review and analyses -Exchange

10Q

tings with thSecuiities

and

Commission
of the Ernst

Interviews

Young
of

13r

audit

partner

and

associate respoi.sible

for the audits
letters

of Coram from review of certain

1997

through 2000

review of

EYs management
its

and

EYs work

papers

pertainingto

2000

audit-

An

interview

of the partner llVissues

at

Reed

Smith responsible

for counseling

Corain

regarding

Stark

Interviews responsible

of

numerous

members of management
sales efforts core therapies

includingsenior certain

officers operations

for

Corams
certain

operations
as well

branch

and
financial

management of
officers

as present

and former chief

and

review and
prepared

analysis

of documents
at

requested

of management

as well

as

documents

by management

Goldins

request were forthcoming
in

In

all

cases

the individuals

interviewed

cooperated

fully

responding to detailed

and multiple inquires

produced

all

information

requested

and/or

asked to

bedeveloped

and provided complete

and

credible

responses

The only

exception

to

the

foregoing

is

certain

information

requested

of.EY
be shared

that

Goldin was advised

was

proprietary

and

that

as

matter

of

strict

policy could

not

with anyone including

clients

Reliability

of Financial

Statements

In General

...

As

general

rule

business

convention

justifies

reliance

on the financial

statements

of public

companies

especially

where

they are

independently audited

by reputable

-80KL2II73.V

A828

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 19 of 30

accounting

firma and

are rcported

to the public-in

dopuments

signed by officers and/or directors

and

filed

with the

SEC

Historically

Coram has

received

unqualified

audit

opinions

from

its

independent

auditor

Unqualified

audits

mean

that

nothing of.a material

nature

has caused

the

reported

data

to

be unreliable

Goldlin

has

found

no reason

to question

the professional

of

Corams

financial

disclosure

and/or

statements

Accounting

firms including
auditing

EY

have

had

increasing public

reason in recent
scrutiny
in

years to

apply rigorous

standards given

enhanced or serious

of their work.and
their application

the financial risks implicit in negligence professional

dereliction

of

standards

The SEC ha
enforcement

intensified actions

its

scrutiny

and

willThgiiess to

institute

and

prosecute

and

Manipulation

and/or

conspiracy

to

meet Stark

II

financial

compliance

requirements

carries potential criminal

penalties

Goldin conducted

broad inquiry

into

Corams

financial

information

systems

recordkeeping

other

systems

and control

environment

Interviews

Interviews

with

Coram

financial

personnel

focused

on such as matters

as revenue
allowable

recognition

and bilJing systems

particularly

the difference

between

gross

revenue

and

deductions

to get

to

net

revenue

contract

coding

pricing

and

standard

deduction protocols the-

relationship

between

average

wholesale prices

of

drugs and

billed

amounts

collections

and

cash

application

and

the determination

of uncollectible

receivables

and

allowances for doubtful

accounts

Goldins

inquiry

also

addressed

profitability

by

therapy

and

the application

of

admission grids inventory

and fixed asset oversight centralization

of accounts

payable and

the

companys.approval

mechanism computer

systems divisional

and

branch

accounting

and

roll

-81K12210U73.7

A829

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 20 of 30

up

write-downs

for

impairmnt

.oflongterm asscts

and

ngexpeies

taken

in the

first

three

quarters

of 2000 but reversed

in the fourth.quarter

IL1I The
independeht auditors

were specifically

asked taaddres

L~jg
ledger

their aUdit

program

and risk analysis

internal controls

evaluatioæ

reviewf

the general

examination

of the billing

systm

and testing

at

the

branch

level review of contractual

allowances as

deductions

from gross receivables

review of the accounts

receivable

ledger including

allowance

for doubtful

accounts

and

write-offs

review and testing of Corams

inventory

system

at

the

branch

level

review and analysis

of plant property

and equipment

records

and analysis

of

all

impairment

reserves

takn

or reversed

Analytical

Procedures

In addition

to

the interviews

and reviews noted

above

Goldin performed certain

analytical

procedures

to

testfor

material

variances

in the financial

records

The following

analytical

measures were perfornied

For the peiiod income

December 1998
were

through

statements

calculated

March 2001 changes in utilizing Corams 10-Ks and

balance

sheet

and

10-Qs

Adjustments

were made for discontinued

operations

An

analysis

of the changes in

EB1TDA

for

each
..

of the years ended

2000 1999
..

and

1998
Analyses of changes
the provision

in

accounts

receivable

the

allowance for doubtful

accounts

and

for doubtful

accounts

The

foregoing

analytical

procedures

highlighted

areas

for further

discussion

and

review

helped

identify

the

nature

of

year-to-year

changes

in

income

and

assets

and

assisted

in

examining

the

estimation

process

-82KL2.OU73.7

A830

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 21 of 30

2.

Isues RaiSed Regarding The

Potentially

Managed

Results

CJianin Valuation

-.

In

addition

to

reviewing the financial infoimation

and

assumptions utilized by

Chanin

in

performing

its

valuation

analysis

in July

2000 GoldIn

also

examined

Chanins

role in

helping management develop

projections

In

that

regard Goldin focused

on such

matters

as

the

forecast

model

provided to Chanin the financial templates

provided

to

branch

management

the

assumptions for such factors as pricing levels

volumes

and

drug and

supplycosth
professionalswere

inflation

and the review work done

at

corporate

headqurters

Chanin

queried

about

their roles in helping

Corani develop

budgets

for

use in the Chanin

valuation

and

in undertaking

independent

verification

of therapy

market shares patient

censuses

payor

reimbursement rates

industry

conditions

-and

outlook

revenue

growth rates

operating

costs

and

profitniargins

Godin concluded

that

Chanin

conducted

appropriate

independent

due

diligence

involving

professionals

with

extensive

healthcare

experience

from

financial

point of view

and

guided management

in the

development

of projections

by

giving

direction

respecting

the

form

mid level of

detail

such projections

should

involve

in

addition Chanin

examined

managements

assumptions

in

fashion

neessary

and appropriate

to

valuation

expert

in

such circumstances

Chanin

made

appropriate

adjustments

in

its

valuation for example Chanin

used

standard

estimate

for losses

on iincoflectible

accounts

approximately

3%

rather

than

the varied

estimates

actually

made

for

1999

and

2000 Goldin found no eVidence of improper
of

influence

on

Chanin

or reason

to question

the professional

integrity

its

work

83kUZIDSm.7

A831

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 22 of 30

b..

Gross-ReveiiueContraetuaiAllowances

kind Net Revenue

Goldinprobed

carefully

the points

at.whicb

Comms

flnanpialinformation.mnight

be distorted or mnipulated

n.anann

pparen value The prime revenue

albeit

not exclusive

candidate

is

net

..

.-

Specified

contractual

allowances iiust be deductec

from

grciss

reveiue

the

price

for

seMces

indicated

in

Corams

contracts

with third-party

payors

to calcilate

bfflabe amounts

for those

service

The amount

billed

is

booked

as net

revenue

Calculations

of contractual

allowances can

be complex At Coram these ca1culation

are

perforinIby

computer

and

checked

manually

The ways
revenue below
the actual

to

manipulate results boil down

essentially to

two

booking

net

proper

invoice

amount

and

charging

full

costs

against

net

revenue

resulting

in

artificially

low margins and profit and

ii booking

net

revenue

below

invoice

amounts

and charging

estimated

osts

on the basis of assumed

margins similar to standard

cost

systems
value

resulting

in maintained

margins but again

artificially

low profit

As

profits dtive

these

manipulations

if

on

grand

scale would

materially

impact calculations

of

enterprise

value

Since

contractual

allowances

account

for

more

than

60%

of gross revenue

there

is

ample

room

for

distortion

to

have

an

impact

However

for several

reasons

which

Goldin

finds1compelling

such an exercise

would

be highly

unlikely

and

in

any event

highly

unlikely

to

succeed

Cash

Implications

form of manipulation

outlined

above

would

result

in

unreconiled

cash

amounts

payments

of invoices

would

produce

cash receipts

in

excess

of

-84KL22D8B13

A832

Case 1:04-cv-01565-SLR

Document 125-10

Filed 04/17/2007

Page 23 of 30

revenues

booked

as receivables

unless

theshcoulbe

diverted

from the attention

of members

of management and/or

auditors

not part ofthe fraud Alternatively

were the basis for esthnathig

costs

booked

tiet

revenue

amountsactual

coats

would

exceed

estimated

costs -This wonldhave

the effeCt

of offsetting

unexpected

cash

but again

those

tesponsible

for

paying

Corams

bills-

wÆiild be unable to reconcile

the

bills

received

against

the estimated

costs

booked

Assuming

material

differences

over time this too

would be

unlikely

to

go undiscovered

Acconnt

Distortion

An

understatexneiIt

of net rtenne wonldiequire

either that

fictional

expense be interposedor

alegitlinate

dedciion

from gross evenuebetherstated.For

the

impact on valuatiofl

to

be-material

the distortion

would

have

to

be substantial

The

principles

Of double-entry

accounting

require

that

balancing entries be made throughout

Consequently

fictional

expense

inputs

or gross overstatements

of deductions

would

require

at

least

one

other

distortion

which would

accumulate such

as

balancing

liability

on the balance

sheet

reflecting

an

obligation

to

pay the

fictional

or overstated

and unpaid expense

Without

the

counterbalancing

entrIes

Corams

general

ledgers

would

not

balaæce them

the

growing

distortion

would

quickly

reach

detectable

proportions Goldin questioned

EY

respecting

its

review of

Corams
financial

accounts

and

in

particular

balancing

entries

in

connection

with

its

audits

of Corams

statements

Goldin also examined

numerous

financial

reports

and.questioned

management

closely

in

connection

with

this

review

Goldin found

no distortions

Dispersed

Operations

Corarn has over 70 branches

across

the

United States

Currenify as for the past several years much

of the -recordkeeping

inputs

and

management of
scheme

collections

and payments

of

bills

occur

at

the

branch

level

For

financial

manipulation

to

affect

value materially

the requisite scale

would

requIre

the

involvement

in the fraud

of

-85-

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Case 1:04-cv-01565-SLR

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Page 24 of 30

sigmficant

number of branches

That such acheme.couid be put in place managed

and kept

uiet

across

such

ifivetse

ope

oæi

unhikØIy

Consolidation

ofBilinand

Collections

Coram

is

in the

process of

consolidating

its

reimbursement management to twelve

sites

and centralizing

the processing

of

Medicare

and

Med

billing

and collections

In

the process

of making

these

changes

fraud

of the kind hypothesized

would

overwhelmingly

likely

cOme to

light

and could-not

be

maintained

Consequently

rational

person involved

in

sucha

fraud

would

not

institute

tbese

consolidations

Deferral of Revenue

With

the

demand

for infusion

home

care

services

said

to

be rising

but

with

Corarns revenue

decilining

query whether

Corarn has been

pursuing ievenue

opportunities

aggressively

loldin interviewed

the senior

management
for increasing

officials

responsible

for sales

and

operations

as well

as the officer

responsible

sales

of the most significant of

Corarns core

therapies

Goldin interviewed

branch

manager

and sales management personnel

at

the

branch level

Goldin fund

the

branch

personnel

to

be

alert

and focused

every indication

is

that

they are Irying hard

to

hit

revenue

targets

indeed

Mr

Crowley

has

set

very high revenue

goals for the core

therapies

branch

management

outlined

the efforts

being made to realize those

goals the various

impediments involved

and their strategies

for

overcoming

them

changed

commission

structure

for sales

managers

is

designed

to incentivize

increases

in

the core

therapy

census and on

the other

hand

not to

encourage

non-core

unprofitable

business

Nonetheless

regional

and

national

payers will likely defer meaningful

-86KL22103R73.7

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expansioirof long-term airangements with
VV

Comm pending.tlje

outcome

of is bankruptcy

and

the resolution

of

Corams
those

ownership and leadership Consequently.the

projections

of

management and
in

developed

by Goldin with managements Coram

assistance

contemplate

boost

revenue

in the

year 2002

after

exits the

barikmptcy

proceeding

d.

Deferral of Cost-Cutting Initiatives

Management
payor and branch

has instituted

procedures for anaiyziiig profltabjlity by therapy

The

strategy

that

focuses

onVprofitable

core therapies and

attempts

to relue

the unprofitable

therapy

census

reflects

that analysis

Some
have

unprofitable

branches Vhave

been

closed

already

signiflcaVnt

reductions

in

headcount

been

effected

Through

these

and other

initiatives

management
2001

effected

significant

improvement

in

EI3JTDA

in

2.000

EBHDA

for

is

estimated to improve modestly over

2000s

EB1TDA

after

the normalization

adjustments

discussed

in the

next section

despite

flat

revenue

Management acknowledges
to

that

more must be done
sufficient

albeit

consistent

with balancing

the

need

maintain

level of infrastructure

to

develop

and

service

anticipated

opportunities

to

increase

revenue

once

the

bankruptcy

is

over

Question

of

Managed

2000

EBITDA
for uncollectiblL accounts
in

Coram

took

significantly

higher

reserves

1999

than

past practice

would

indicate

was

required $28

million

in reserves

as against

an

indicated

$14

million

based on

historic levels

In

2000 however approximately
amount

$10

million

of Ehese

uncollectible

receivables

were collected

since

the

of reserves

for uncollectible

accounts

in

2000 was

partially offset

by

this

experience

only $9 million not an indicated

$12.8

-8720gg73.7

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million was taken

in reserve

in

2000.-The

difference

of $.8xthIlion.wasan

element in

the.-

higher

EBTFI

in

2000

..-t

--. ---in the

Numetous

other

acbustments

aggregate

also boosted

reported

EBTDA
level

For example

th company made
$9

23 separate

adjustments

to

EBTIDA

at

the operating

these

aggregated

million of net additions

At

the corporate

level

Corani made 15 separate

adjustments

to

EBflDA

these

aggregated

$4

niiThon

of net additions

Taken

together

with the

$3.8

million of lower-than-usual

reservs

for losses

the

total

upward

bias to

EBLDA
ai

was

$l74

million As reflected-in Appendix

12 Goldin deduted

certain

of these

amounts

part

of the

calculation

for

normalized EJ31TDA
Query whether

after

considering-MIP

at

5.5%

of-branch

operating

profit

of $29.1

million

Mr

CrOwley who

renegotiated

his

EBITDA-bnsed
bonus

compensation

arrangement

early in

2000 and whose new arrangement
these

produced

owed

of $10.8

million

on these results managed

EB-1TDA

levels

for his

own

benefit.

On
of enterprise
value

the other

hand

the higher

EB1TDA

achieved

in

2000

has

caused calcu1ntions

to

be higher

than

they

would

otherwise

have

been Such

result

is

inconsistent

with

the assertion

that

Mr Crowley

was motivated

to

manage

financial

results in

fashion

that

was calculated

to

produce

lower valuatiOn

Moreover Goldin probed
of wrongdoing

the underlying

facts

in

this

matter

and sought to adduce

any evidence

Goldin has concluded

that there

is

no such evidence

other

than

the

finding

of an

actual conflict

of interest

by

the

Court

Toward

the

end of 1999

Corams

DSOs days

sales outstanding

measure

of

the level of accounts

receivable

climbed dramatically

Collections

had

slowed

the

amount of

receivables

over

90 days

past

due had

grown

substantially

and consequently

the business

was

-88CL22I873.7

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cash constrained

It

would

appear that-senibr

age

nent kiasconsumed.by

problems associat4

with

Comms

Aetna

contract

and the resultingdispute

and

litigation

as

well as the bankruptcy.of

the

R-Netsubsidiaries

At

the

ametimemanagement
seems
inescapable

wiis

also

focused

on

the sale

of Coram

Prescription

Services The conclusion

that

the collection

process which

requires

constant

attention

in

any business

and

especially

in

Corams

had been

neglected

Given

this

circumstance

management determined

that

an unusually

large

reserve.

against

uncoBectible

accounts

-was

necessary Generally

accepted

accounting practices.requkecl

recognition

of the situation

it

could

not

.be

avoided

simply by assinning

that corrective

action

would

be timely

and wouldresult

in

recovery of

substantial

-portion

of the longbverdue

accounts

The

spectre

of Coram not complying

with the minimum

net

worth reqUirements of

Stark

hung

over the company

at

the

time Given

that

the failure to

comply with

this

requirement

would

unquestionably

be

fatal

to

Cora

it is

hard to imagine

deliberate

effort-by

management
-worth.

to jeopardize

the

companys

existence

by contriving

to

minimize

Corams

net

In

this

situation

Corams

year-end

1999

accounting entrieswere

bound

to

receive

maximum

attention

and the greatest possible

scrutiny

by management

by

EY

and

by Reed

Smith which

had

to

advise

whether

requirements

of Stark

II

had

been

met

The

results

in

2000

except

insofar as they

were

affected

by these

reserve

decisions

in

1999 were

otherwise

ordinary raising no question

of impropriety

-89KWR8873.7

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Accordingly

for

thr

asoiseiumeratedGoldin

concluded

that these

accounting

entries

were appropriate

under

the

ci

mstances..andfoundno

cither

improprieties..

Conclusions

Given

the

foregoing

.Godin

6etrmined

that there

are.no facts

substantiated

suspicions

or material

variances

that

lend

credeneto

the inference

that

Corams books and

records

and/or reporting

systems financial

and

otherwise

should be cnidered

suspect

or

lacked

independence

and reliability giving

rise to

need

for

more

intensive

investigation

To

be sure

material

part

of the results of

Comms

operatiops

are

based on manÆgenients

estimates

of such matters

as collections

write-offs

and

the

value of long-term

assets

Manj

of

these

types

of estimates

could

cause large

fluctuations

from

year to year were the estimated

incorrect

or

were

economic

circumstances

to

change

However

Coranis

historical

estimates

were substantiated

by management with no evidence
by the independent
auditors

of any effort to

distort

them

not

concealed

and

agreed

to

Throughout
were forthcoming

the course

of Goldins

examination

Coranfs

senior

finance

personnel

knowledgeable

and professional

providing

whatever

help

they

could

given

the

many demands

on

their

time

To be sure

they

are subordinates

of

the

Chief

Executive Officer Nonetheless

theydid

not

evidence

proclivity

to

whitewash

or

tilt

facts

to

vindicate

Mr Crowley

-90-

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.LEGALANALYS
The
Equity

Committees Proposed Complaint
in

The Equity Committees Complaint
and

posits

that

exchange

for alinost$linilhin

year in undisclosd

cash

compensation

other

potential benefits

from Cerb

rus Crowley

agreed

to

operate

Comm

for the benefit

of Cerberus

and

contrary

to

the interests

of Coram

and

its

shareholders

Compi
1999

The Conmiittee contends

that

scheme

and

conspiracy

began

sometime

in

and perhaps
and

earlier with

the decision

to bring

Crowley

in

consultant

that

it

was

refined

implemented

during

the

year

2000

after

Crowley

became

CEO
after

that

Feinberg

acting

through Crowley

still

had

dc facto

control

over

Coram

even

Feinberg resigned

from the board

in July

2000 and

that

the alleged

conspiracy cdntinues

to

this

day hI

1547
objective

The

of the alleged

scheme was

to

steal the equity

from the

shareholders

and transfer it through the reorganization

process

to

the-Noteholders

Id

at

12

The Complaint

alleges

that

after

Crowley became

CEO
or

of

Comm he
value

deliberately

managed owed under

Corams
the

affairs

so that

it

would

appear

to

have

little

no

above

the

amount

Notes

Id

43

If

Coram was

orat

least

appeare4

to

be

--

insolvent

then

it

wouldiack

sufficient

shareholder

equitylo

satisfy the public

company
solution

exception

to Stark

11

which

would

put

it

out

of business

by year end 2000

The only

would

be to

file

for

bankruptcy

protection

and

reorganize

as

private

company

with

the

Noteholders emerging

as the

new

owners

According to the Complaint

Crowley

and

Feinberg

initiated

this

alleged

scheme

by conspiring

to

oust

Rick

Smith so they could discard

his

growth plans and

set

Coram on

course

toward insolvency

Id

23

and

32

Once

installed

as

CEO

Crowley allegedly

ignored

-91-

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all

sale merger tircapital-raing

p5ortmaities

sÆnie thne

lie

alegedly.niade

concessionsto

the Noteliolders

For.xaniplehernadea $63 made

million

cash interest payment

in

...2OoO
allegedly agreed to
sell

could

and

should have

the

payment

iiikind.7

He

also

CPS fran

unjisilfiably

low

price

and-æn.varrantedly

used thLsale

proceeds

at

time of

serious cash

shortage

to

pay down

debt

Finally the Committee

cdætends that Feinberg and Crowley intentionally

delayed

the

filing

of the bankruptcypetition

as

long as possible

sotbe Court

and the shareholders

would

have

no

alternative

but to approve

it

in

light

of the impendiig

Stark

IT

deadline

Id

ff 39-40

The

Allegations

Broadly speaking

the

Equity Committees allegations

fall

into

two categories

the existence

of

an alleged

conspiracy

between

Crowley

and Feinberg and

ii the

separate

and independent

claim

that

Crowley mismanaged

Coram and caused
of action

it

to

become insolvent

We

address

these

in

turn

below

before

analyzing

the causes

asserted

in the

Complaint

The Conspiracy As
the

Allegations

Bankruptcy

Court has already

found

that

Crowley

was being

paid

by

and

had

an

employment

agreement with

one

of Corams

principal

creditors

constituted

an actual and

serious

conflict

of interest

The

facts

that

gave

rise

to

this

conflict

are not in

dispute

Crowley entered
earned base

into

three

year employment
$1 million

contract

with Cerberus under which

he

salary

of nearly

year

Under

Section

2.3

of his Cerbenis contract
Portfolio

CrowlLy
to

was

required duties

to

work

full-time or

for Cerbenis

and by

its

Companies
and to

perform such

as are assigned the success

delegated.

Feinberg

use

his best efforts to

promote

of

business

or the business

of each

Company

-92KI2-2IflE133

A840