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The battle over the assets of bankrupt Coram Healthcare Corp. heated up Wednesday, Feb. 7 when the shareholders’ committee sued Coram’s largest bondholder and company Chairman Daniel Crowley for allegedly conspiring to wipe out those shareholders. The equity committee, seeking to block Coram’s plan to give bondholders 100 percent equity in a restructured company, is challenging Coram’s contention that its $252 million in debt exceeds its valuation and existing shareholders should thus be wiped out in the restructuring. The committee, which includes Samstock LLC, an investment affiliate of Sam Zell, fund manager Richard Haydon, and the Ann & Robert Lurie Foundation, charged an “impermissible conflict of interest” between Coram and its major noteholder, Cerberus Partners LLP, in the suit filed in U.S. Bankruptcy Court in Wilmington, Del. The committee sought permission Feb. 7 from Bankruptcy Judge Mary Walrath to sue Stephen Feinberg, principal of Cerberus, and Crowley, as Coram’s chairman, CEO and president, for alleged breach of fiduciary duties. The group of disgruntled shareholders charged that secret compensation agreements were illegally crafted between Feinberg and Crowley that have affected Coram’s efforts to reorganize under Chapter 11, said Richard Levy of Altheimer & Grey in Chicago, the committee’s counsel. Denver-based Coram filed for Chapter 11 on Aug. 8 in Wilmington. Coram denied the allegations and cited a motion it filed with the court last week seeking to have former New York State Controller Harrison Goldin as an independent auditor to scrutinize the process that led to Coram’s court-rejected reorganization plan. Judge Walrath is scheduled to decide on that motion Feb. 26. The complaint charges that Coram’s decision to file for bankruptcy protection was part of an illegal ploy between Crowley and Feinberg to convert Coram into a privately held company so it could more easily comply with revised Medicare reimbursement programs. The suit alleges that Feinberg initiated a plan to illegally divert all of Coram’s cash flow toward repayment of $250 million in notes held by Cerberus in return for giving Crowley full-time employment at Cerberus. It also charges that Feinberg, who became a Coram director in May 1998, conspired to hire Crowley’s consulting company, Dynamic Health Care Solutions, as a Coram consultant and then illegally pushed for Crowley’s promotion to chairman. Coram strongly denies the allegations. “Everyone involved at Coram Healthcare, from the board to management, believes that the allegations of the equity committee have absolutely no basis in fact,” Coram spokesman Kurt Davis said. The company’s plan to convert bondholder debt into full equity ownership of the restructured company was rejected by Judge Walrath at a Dec. 26 court hearing. The equity committee, formed by the U.S. Trustee to represent shareholder interests, challenged Coram’s initial reorganization plan to pass full ownership in the new company onto its noteholders. The committee contends Coram has undervalued the company, and thus undervalued its existing shares, and that a more accurate valuation would pass on some of its assets to equity shareholders. Related Chart Copyright (c)2001 TDD, LLC. All rights reserved.

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