Lead Case No. 8:10-bk-16743-TA

Case 8:10-bk-16743-TA
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RON BENDER (SBN 143364) JACQUELINE L. RODRIGUEZ (SBN 198838) TODD M. ARNOLD (SBN 221868) JOHN-PATRICK M. FRITZ (SBN 245240) LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. 10250 Constellation Boulevard, Suite 1700 Los Angeles, California 90067 Telephone: (310) 229-1234; Facsimile: (310) 229-1244
Email: rb@lnbyb.com; jlr@lnbyb.com; tma@lnbyb.com; jpf@lnbyb.com
Attorneys for Chapter 11 Debtors and Debtors in Possession 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Debtor. ____________________________ BIOLABS, INC., Debtor. ____________________________ Affects Both Debtors Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only NOTICE OF MOTION AND MOTION FOR AUTHORITY TO CONTINUE PAYING SENIOR MANAGEMENT COMPENSATION; DECLARATION OF MATTHEW PAKKALA IN SUPPORT THEREOF In re: WESTCLIFF MEDICAL LABORATORIES, INC., UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA (SANTA ANA DIVISION) Lead Case No. 8:10-bk-16743-TA Jointly Administered with Case No. 8:10-bk-16746-TA Chapter 11 Cases
Court Scheduled Hearing: Date: July 28, 2010 Time: 2:00 p.m. Place: Courtroom 5B 411 West Fourth Street Santa Ana, CA 92701-4593
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1 PLEASE TAKE NOTICE that a hearing will be held on the above2 3 4 5 6 7 8 9 Restructuring 10 11 12 13 14 15 16 17 and filed and served at least 14 days before the hearing on the 18 Motion. 19 20 21 22 23 24 25 26 payment 27 28 of Pakkala, Peterson, and Contreras in the manner timely file an opposition to the Motion may be deemed to Pursuant to Local Bankruptcy Rule 9013-1(h), failure to independent contractor who serves as the Debtors Director of Billing, and (3) Laura Contreras (Contreras), the Debtors Officer, (2) Evelyn Peterson (Peterson), an referenced date, time, and location for the Court to consider approval of this motion (the Motion) of Westcliff Medical
Laboratories, Inc. and BioLabs, Inc., the Chapter 11 debtors and debtors in possession herein (collectively, the Debtors), for authority to continue their retention and payment of compensation to (1) Matthew Pakkala (Pakkala), the Debtors Chief
Chief Financial Officer in the manner described in the annexed Memorandum of Points and Authorities. PLEASE TAKE FURTHER NOTICE that Local Bankruptcy Rule 9013-1 (f) requires that any opposition to the Motion must be in writing
constitute consent to the granting of the Motion. WHEREFORE, the Debtors respectfully request that the Court enter an order: (1) (2) granting the Motion in its entirety; authorizing the Debtors to continue their retention and
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described in the annexed Memorandum of Points and Authorities; and (3) affording such further and other relief as may be
appropriate. 5 Dated: July 7, 2010 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 WESTCLIFF MEDICAL LABORATORIES, INC. -andBIOLABS, INC. /s/ Ron Bender RON BENDER JACQUELINE L. RODRIGUEZ TODD M. ARNOLD JOHN-PATRICK M. FRITZ LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. Attorneys for Chapter 11 Debtors and Debtors in Possession
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1 2 3 4 Westcliff 5 6 7 8 9 10 11 12 13
MEMORANDUM OF POINTS AND AUTHORITIES I. COMPANY BACKGROUND AND CHAPTER 11 BANKRUPTCY FILINGS Medical Laboratories, Inc. (Westcliff) and
BioLabs, Inc. (BioLabs), the Chapter 11 debtors and debtors in possession herein (collectively, the Debtors), commenced their bankruptcy cases by filing voluntary petitions under Chapter 11 of 11 U.S.C. 101 et seq. (the Bankruptcy Code) on May 19, 2010 (the Petition Date). The Debtors continue to operate
their business, manage their financial affairs, and operate their bankruptcy estates as debtors in possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.
14 15 16 17 18 19 20 21 laboratory 22 Westcliff was the operator of approximately 170 branded, stand23 24 25 26 27 28 alone, patient service center laboratories and STAT labs that provide various services, including clinical testing, pathology, reporting and support services for the benefit of thousands of and is headquartered in Santa Ana, California. BioLabs is the parent company to Westcliff, which is the operating company. The only material asset owned by BioLabs is Biolabs was organized for the
its stock interest in the Debtor.
purposes of acquiring 100% of the capital stock and other equity interests of Westcliff. Westcliff was founded in 1964 as a community-based
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out-patients throughout California. employees.
The Debtors had nearly 1000
Working directly with patients and with contracted payors, including United Health, Aetna, Cigna, Blue Cross, Medi-Cal and
5 Medicare, Westcliff had grown and became a leading out-patient 6 7 8 9 10 11 12 13 third largest clinical laboratory in California. 14 15 16 17 18 19 20 21 in 2008 (including expenses and write offs of approximately $171 22 million) 23 24 25 26 27 28 Debtors suffered a net loss of approximately $13 million in 2009 (including expenses and write offs of approximately $110 million) on net revenue of approximately $97 million. on net revenue of approximately $84 million. The While the Debtors revenue was significant, due to the small profit margins in this business, despite substantial and day laboratory service company. Westcliff averaged approximately 8,500 clinical requests per and approximately 1,200 pathology requests per day, and
performs approximately 250,000 cytology and 70,000 biopsy tests on an annual basis. Based on this performance, the Debtors had
approximately $97 million in net revenue in 2009 and were the
continuing cost cutting measures undertaken by the Debtors, the Debtors were simply not able to operate sufficiently profitably to enable the Debtors to repay their debts. The Debtors suffered a net loss of approximately $87 million
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While the Debtors instituted as many expense reductions as were reasonably possible, the Debtors losses continued. Since
the beginning of 2009, the Debtors were unable to make any debt service payments to a group of lenders (the Senior Lenders) for
5 whom GE Business Financial Services, Inc. acts as agent (in such 6 7 8 9 10 11 12 13 the Senior Loan Agent provided the Debtors with emergency funding 14 15 16 17 18 19 20 21 loss of employment by all of the Debtors employees would be for 22 the Debtors to sell their business as a going concern to the 23 24 25 26 27 28 highest bidder. The Debtors were therefore engaged in an active to cover payroll and other vital expenses. II. THE ASSET SALE PROCESS Given the Debtors financial predicament, it became clear to the Debtors in early 2009 that the only viable option available to the Debtors to avoid a shut down of their business and the capacity, the Senior Loan Agent), and the Debtors were unable to remain current with their other debt obligations, including payments previously strategy. owing to former as the owners of of the were companies Debtors only the Debtors growth survive
purchased Indeed,
part
overall to
Debtors
able
financially over the past approximately seventeen months because
sale process since early, 2009. After having engaged in substantial due diligence and
negotiations with a number of different prospective buyers over
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the past many months, the Debtors concluded that Wave Newco, Inc., a wholly-owned subsidiary of Laboratory Corporation of
America (LabCorp) was the optimal buyer of the Debtors assets for three primary reasons. First, LabCorp, which is in the same
5 business as Westcliff but is a much larger company, expressed the 6 7 8 9 10 11 12 13 Debtors 14 15 16 17 18 19 20 21 (which the Debtors estimate will result in an additional net 22 recovery of approximately $8,000,000 for the Debtors estates) 23 24 25 26 27 28 and all of the Debtors cash. The purchase price offered by LabCorp, which, among other things, provided for the Debtors to sell the Debtors business assets (excluding cash and accounts receivable) to LabCorp. Subject to certain adjustments, LabCorp agreed to pay to the Debtors the sum of $57.5 million, while leaving with the Debtors, among other things, all of the Debtors accounts receivable into an Asset Purchase Agreement (the APA) with greatest interest in purchasing the Debtors assets. Second, it
was clear that LabCorp as a strategic buyer was willing to pay a substantially higher price for the Debtors assets than any other prospective buyer. Third, LabCorp clearly has the financial
means to consummate its purchase of the Debtors assets. On May 17, 2010 (two days prior to the Petition Date), the
LabCorp was substantially higher than the purchase price that any other buyer was willing to pay for the Debtors assets.
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In order to make sure that the purchase price being paid by LabCorp is the highest price possible, the Debtors conducted an auction sale of their assets following the Courts approval of overbid procedures. assets than No party offered which was to pay more for with the the
5 Debtors 6 7 8 9 10 11 12 13 industry, and the Debtors were very concerned that Westcliff may 14 15 16 17 18 19 20 21 walk 22 agreement 23 24 25 26 27 28 post-petition business volume pending the closing of the sale. At the urging of the Debtors (with the full support of the Official Committee of Unsecured Creditors (the Committee) and the Senior Lenders), the Court approved the Debtors proposed if there was a meaningful reduction in Westcliffs away) which were provided for in the asset purchase not be able to retain its customer base for any extended period of time while operating as a debtor in bankruptcy. The Debtors Debtors expectations. The Debtors therefore requested and urged the Court to LabCorp, consistent
approve the Debtors sale of their assets to LabCorp on a very expedited basis because of the severe risk of a deterioration of Westcliffs filings. business resulting from the Debtors bankruptcy
This is a highly sensitive and extremely competitive
therefore concluded that an expedited sale of their assets was necessary to avoid immediate and irreparable harm to the Debtors business, creditors and bankruptcy estates and to avoid a
downward adjustment in LabCorps purchase price (or a complete
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sale of their assets to LabCorp at a hearing held on June 3, 2010, and the Court entered an order approving the Debtors sale of their assets to LabCorp on June 9, 2010. Prior to the sale
hearing, the Debtors, the Creditors Committee and the Senior 5 Lenders reached an agreement on an allocation of the LabCorp 6 7 8 9 10 11 12 13 agreement. 14 15 16 17 18 19 20 21 employ and retain FTI Consulting, Inc. (FTI) to provide a Chief 22 Restructuring 23 24 25 26 27 28 designate Matthew Pakkala (Pakkala) as the Debtors Chief Officer and temporary employees and (B) to III. PRIOR EMPLOYMENT OF FTI, PAKKALA AND LAURA CONTRERAS On May 20, 2010, the Debtors filed their application (the Application) seeking authorization, pursuant to sections 11 purchase price and the balance of the Debtors assets, which agreement has since been approved by the Court. On June 16, 2010, LabCorp consummated its purchase of the Debtors assets. with the The Debtors of a are working with LabCorp in
accordance
terms
transition
services
agreement
agreed to by the Debtors and LabCorp as part of their asset sale
U.S.C. 105 and 363 of chapter 11 of title 11 of the United States Code sections 101 et seq. (the Bankruptcy Code) (A) to
Restructuring Officer, nunc pro tunc to the Petition Date of May 19, 2010.
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On June 16, 2010, upon consideration of the Application, the declarations in support of the Application, the FTI Engagement Contract (attached as Exhibit A to the Application), and the Court being satisfied, based on the representations made in the
5 Application and the declarations in support thereof that FTI does 6 7 8 9 10 11 12 13 interests of the Debtors, the Debtors estates, their creditors, 14 15 16 17 18 19 20 21 for an interim period through June 3, 2010, on the terms and 22 conditions set forth in the Application, the Engagement Contract, 23 24 25 26 27 28 and the Pakkala Declaration, subject to the following amendments to such terms (a) in the event the Debtors sought to have FTI personnel assume additional executive officer positions that are different than the positions disclosed in the Application, or to and all parties in interest and such continued employment being supported by the Committee, the Court entered an order (the not represent or hold any interest adverse to the Debtors or the Debtors estates with respect to the matters upon which it was to be engaged and was sufficiently disinterested as that term is defined under 101(14) of the Bankruptcy Code, as modified by 1107(b) of the Bankruptcy Code, and that the Debtors continued employment of FTI and Pakkala was necessary and in the best
First Interim Order). Pursuant the First Interim Order, the Court, among other things, (1) approved the Application, (2) authorized the Debtors to continue to retain and employ FTI and Pakkala on a final basis
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materially change the terms of the engagement by modifying the functions of the executive officer personnel, a motion to modify the retention shall be filed, (b) no principal, employee, or independent contractor of FTI and its affiliates shall serve as a
5 director of the Debtors during the pendency of the Chapter 11 6 7 8 9 10 11 12 13 approved the terms and conditions of FTIs retainer set forth in 14 15 16 17 18 19 20 21 apply the retainer to fees and expenses incurred by FTI as FTIs 22 engagement 23 24 25 26 27 28 authorized the Debtors to pay FTI in such amounts and at such times as are provided in the Engagement Contract on a final basis for an interim period as accrued through June 3, 2010 without in these cases proceeds; and it is further, (6) the Engagement Contract on a final basis for an interim period to and through June 3, 2010; (5) authorized, but did not require, FTI, without further order of the Court, in its sole discretion, to (a) hold its retainer and apply it to FTIs final bill for postpetition fees and expenses incurred during these cases, with any excess then to be refunded to the Debtors estates, or (b) to Cases, hourly (c) for temporary shall employees with providing the U.S. services Trustee at an the
rate,
FTI
file
and
Committee, reports of compensation earned and expenses incurred on a quarterly basis, (3) authorized the Debtors to continue to designate Pakkala as the Chief Restructuring Officer on a final basis for an interim period to and through June 3, 2010, (4)
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further order of this Court, and (7) continued the hearing on the Application to June 3, 2010. On June 18, 2010, the Court entered its second interim order on the Application (the Second Interim Order). Pursuant to the
5 Second Interim Order, the Court, among other things, (1) extended 6 7 8 9 10 11 12 13 Pursuant 14 15 16 17 18 19 20 21 Debtors or a further order of the Court if no such stipulated 22 order can be agreed upon. 23 24 25 26 27 28 On May 25, 2010, the Debtors filed their (the Notice of things, (1) extended the extended June 23, 2010 interim period in the Second Interim Order to July 31, 2010, and (2) ordered that the terms of any continued employment of Pakkala or compensation to be paid to FTI for any period from and after August 1, 2010 shall be the subject by and of a further Pakkala, written the stipulated order the to the Third Interim Order, the Court, among other the original June 3, 2010 interim period in the First Interim Order to June 23, 2010, and (2) continued the hearing on the Application to June 23, 2010. On June 25, 2010, the Court entered a third interim order on the Application (the Third Interim Order), the terms and form of which were stipulated to by the Debtors and the Committee.
entered
into
between
Committee,
and
Setting/Increasing Compensation Debtors Form)
Insider for Laura
Compensation Contreras
Insider the
(Contreras), to the
Chief
Financial
Officer.
Pursuant
Insider
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Compensation
Form,
the
Debtors
sought
to
pay
Contreras
on
weekly basis at the rate of $125.00 per hour for the first 8 hours and $175.00 per hour thereafter. to Contreras Insider Compensation Form. There were no objections
5 IV. 6 7 8 9 10 11 12 13 the Debtors continue to work with the Committee in this regard, 14 15 16 17 18 19 20 21 abundance of caution and so that it would not be necessary to 22 seek a hearing on an expedited basis. 23 24 25 26 27 28 The Contreras, Debtors and have agreed which to terms terms the with Debtors FTI/Pakkala, believe are as of the date of this Motion, the parties had not yet been able to agree to terms for such continued employment. The Debtors REQUESTED CONTINUED EMPLOYMENT OF FTI, PAKKALA, AND OTHER SENIOR MANAGEMENT The Debtors have been working with the Committee regarding stipulated terms for the continued employment of FTI, Pakkala, Contreras, and Evelyn Peterson (Peterson), an independent While
contractor who serves as the Debtors Director of Billing.
will continue to work with the Committee to reach acceptable terms. under However, due to the impending deadline of July 31, 2010 the Third the Interim Debtors Order filed regarding the instant FTI and Pakkalas out of an
employment,
Motion
Peterson,
clearly in the best interests of the estates.
Pursuant to the
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Motion, follows:
the
Debtors
are
seeking
approval
of
those
terms
as
FTI/Pakkala As discussed above, Pakkala is the Debtors Chief
5 Restructuring Officer. 6 7 8 9 10 11 12 cash accounts and related reporting; 13 14 15 16 17 18 19 estates; 20 21 22 23 24 25 26 27 28 Responsibility agreement and for, and oversight between of, transition and Responsibility for, and development of, ongoing cash flow forecasts; Responsibility for, and oversight of, billing, error processing, underway to and health plan and IPA reconciliations of proceeds to seeking to extend their retention of FTI/Pakkala through Pursuant to the Motion, the Debtors are
September 30, 2010. important components
The following is a summary of the more to Pakkalas job functions that will be
performed during the extended retention period: Responsibility for, and management of, the estates
ensure
maximum
recovery
relationship
Westcliff
Biolabs regarding employees, vendors and ongoing cost allocation issues; Evaluation and resolution of Westcliff claims against third-parties;
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Creditor and Secured Lender relationship management and reporting;
Responsibility aspects
for
all for
required the
reporting
and of
other the
necessary
administration
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The 26 substantial 27 28 time to performing the foregoing tasks through Debtors anticipate that Pakkala will need to devote purview of my duties as the Debtors Chief Debtors, under including the reconciliation agreement of claims with arising Debtors bankruptcy estates; Responsibility required related for all and Federal interaction Trade with Commission the estate
reporting to the
Federal
Trade
Commissions
investigation of the sale to LabCorp; Evaluation and resolution of claims against the
settlement
Specialty
Laboratories; Responsibility for other unforeseen issues related to the day-to-day administration of the estates; Responsibility for other tasks falling under the
Restructuring Officer; and Responsibility for and implementation of remaining data disclosure requirements pursuant to Qui Tam settlement with state of California.
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September 30, 2010.
In particular, due to positive pace of
collections and additional potential recovery from billing and error processing exercises, the Federal Trade Commissions active investigation of the sale transaction with LabCorps which may
5 impact 6 7 8 9 10 11 12 13 fixed fee to $50,000 per month; commencing on September 1, 2010, 14 15 16 17 18 19 20 21 minimal. 22 substantially reduced by September 30, 2010. 23 24 25 26 27 28 date, the Debtors will work with the Committee to determine what FTI/Pakkalas role will be after September 30, 2010, if any. Since there is continued economic value to the estates from actively managing the transition, collection, and resolution In advance of that The Debtors believe that Pakkalas role will be FTI/Pakkala will reduce their fixed fee to $40,000 per month. FTI/Pakkala are still holding a $50,000 retainer so this will result in only an additional $40,000 being paid from the estates through September 30, 2010, or just $25,000 net in August 2010 and $15,000 net in September 2010. continue to reimburse Pakkala In addition, the Debtors will for his expenses, which are continuing need for regular interfacing and problem resolution between during Westcliff August and LabCorp, September the 2010, Debtors anticipate will that, performance under the transition agreement, and the
and
Pakkala
average
approximately 3 full days per week performing the aforementioned tasks. Commencing on August 1, 2010 FTI/Pakkala will reduce their
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progress, and because the Debtors believe that they would incur substantially results higher expenses and the achieve Debtors substantially believe that worse the
without
FTI/Pakkala,
continued retention of FTI/Pakkala as set forth above is in the 5 best interests of the Debtors and their estates. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 staff 20 duties; 21 22 23 24 25 26 27 28 Managing the companys daily cash; Facilitating the weekly cash reporting; Managing reporting; and performing all required bankruptcy to LabCorp as they complete their Westcliff ultimately reconciling them to the claims; Managing the post-sale accounting staff that is As Officer. Laura Contreras mentioned, Contreras is the Debtors Chief Financial
The Debtors believe that the continued retention of
Contreras is critically important and in the best interests of the estates. The following is a summary of the more important
components to Contreras job functions: Finalizing the entry of all pre-petition invoices, and
inputting and paying post-petition vendor payables; Assisting Peterson in transitioning the accounting
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Managing the actual collections and making the ultimate collection decisions once Petersons department has
reconciled the open accounts receivable by client; Closing out the corporate books; Closing out the companys 401k plan; Managing the actual day-to-day wind down of the estates along with Pakkala; and Managing returns. the preparation and filing of final tax
11 12 13 14 15 16 17 18 to the collection of accounts receivable. 19 insurance claims necessary to recover on accounts receivable is 20 21 22 23 24 25 26 their duties are complete; 27 28 complex, and Peterson has a thorough knowledge of the billing system and the claims process. The following is a summary of the The processing of As serves In exchange for the foregoing services, Contreras will be compensated at the rate of $125 per hour. Evelyn Peterson mentioned, as the Peterson is an independent of Billing. contractor Peterson who is
Debtors
Director
currently handling all of the Debtors the billing issues related
more important components to Petersons job functions: Managing the Westcliff billing staff of 50 or more
people and transitioning them to LabCorp as soon as
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Ensuring that claims are issued to Westcliffs payors, including from governmental entities and large
insurance companies, so that Westcliff can collect as much as possible on its accounts receivable; and
5 6 7 8 9 10 11 current pay rate. 12 perform 13 14 15 16 17 18 19 20 (1) 21 (2) 22 23 24 25 26 27 28 payment of Pakkala, Peterson, and Contreras in the manner authorizing the Debtors to continue their retention and granting the Motion in its entirety; estates would incur substantially higher expenses and achieve substantially worse results without Peterson. V. CONCLUSION WHEREFORE, the Debtors respectfully request that the Court enter an order: these services is critically important and that the The Debtors believe that retaining Peterson to In Communicating with clients regarding missing
information to allow Westcliff to process any claims that are initially rejected or otherwise remain unpaid; exchange for the foregoing services, Peterson will be
compensated at the rate of $175 per hour, which is Petersons
described in the Memorandum of Points and Authorities; and /// ///
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(3)
affording
such
further
and
other
relief
as
may
be
appropriate. Dated: July 7, 2010 WESTCLIFF MEDICAL LABORATORIES, INC. -andBIOLABS, INC. /s/ Ron Bender RON BENDER JACQUELINE L. RODRIGUEZ TODD M. ARNOLD JOHN-PATRICK M. FRITZ LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. Attorneys for Chapter 11 Debtors and Debtors in Possession
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DECLARATION OF_MATTHEW PAKKALA I, MATTHEW PAKKALA, HEREBY DECLARE AS FOLLOWS: 1. I have personal knowledge of the facts stated herein
and would and could competently testify thereto. 5 2. 6 7 8 9 10 11 12 13 of restructuring and related advisory and management experience. 14 15 16 17 18 19 20 21 worked in the restructuring groups of PricewaterhouseCoopers and 22 Price Waterhouse in Los Angeles. 23 24 25 26 27 28 4. FTI is a global business advisory firm with over 3,000 My work focuses on on advising distressed and and underperforming strategies for (FTI), which maintains its main offices at 500 E. Pratt Street, Suite 1400, Baltimore, Maryland. My business office is located I am a Managing Director of FTI Consulting, Inc.
at 633 West 5th Street, 16th Floor, Los Angeles, California. 3. I hold a B.A. from the University of California, San
Diego, a J.D. from Loyola Law School, and an M.B.A. from the Anderson School of Business at UCLA. I have more than 13 years
companies maximizing
restructuring and
alternatives value, and my
performance
expertise
includes
providing financial and operational restructuring, asset sales and expert witness services in the healthcare, retail,
manufacturing and airline industries.
Prior to joining FTI, I
professionals located in major business centers around the world. FTI provides services in areas ranging from corporate finance and interim management to economic consulting, forensic and
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litigation consulting, strategic communications and technology. FTIs clients include many corporations in the Global 1000 as well as a majority of the largest 25 banks and top 100 law firms in the world.
5 5. 6 7 8 9 10 11 12 13 Health 14 15 16 17 18 19 20 21 (collectively, the Debtors). 22 7. 23 24 25 26 27 28 voluntary petitions under Chapter 11 of the Bankruptcy Code on May 19, 2010. manage their The Debtors continue to operate their business, financial affairs, and operate their bankruptcy The Debtors commenced their bankruptcy cases by filing Center; Nanticoke Memorial; Northern Berkshire; Regional Medical Center Memphis; and Boca Raton Community Hospital. 6. Effective on or about April 1, 2010, I became the Chief System; Methodist Hospital, Gary, IN; Quincy Medical unsecured creditors in many of the most significant FTI and its management FTI has advised management, senior lenders and
restructurings and turnarounds in recent years. professionals services in a have also of recently provided and
interim other
number
healthcare
restructurings
including, but not limited to, Downey Regional Medical Center, Fremont Investment & Loan, SyntaxBrillian, Daughters of Charity
Restructuring Officer (CRO) for Westcliff Medical Laboratories, Inc. (Westcliff) and its parent corporation, and Debtors BioLabs, in Inc.
(BioLabs),
Chapter
11
Debtors
Possession
estates as debtors in possession.
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8.
My primary functions serving as the CRO is to manage
the Debtors business operations in the optimal manner given the financial constraints facing the Debtors and to assist the
Debtors to consummate a going concern sale of their business for 5 the most money possible in the most expeditious manner possible. 6 7 8 9 10 11 12 13 Bankruptcy Code. 14 15 16 17 18 19 20 21 laboratory 22 Westcliff was the operator of approximately 170 branded, stand23 24 25 26 27 28 alone, patient service center laboratories and STAT labs that provide various services, including clinical testing, pathology, reporting and support services for the benefit of thousands of out-patients throughout California. The Debtors had nearly 1000 and is headquartered in Santa Ana, California. 10. BioLabs is the parent company to Westcliff, which is The only material asset owned by BioLabs Biolabs was organized for 9. The Debtors commenced their bankruptcy cases by filing
voluntary petitions under Chapter 11 of 11 U.S.C. 101 et seq. (the Bankruptcy Code) on May 19, 2010 (the Petition Date). The Debtors continue to operate operate their their business, bankruptcy manage their as
financial
affairs,
and
estates
debtors in possession pursuant to sections 1107 and 1108 of the
the operating company.
is its stock interest in the Debtor.
the purposes of acquiring 100% of the capital stock and other equity interests of Westcliff. 11. Westcliff was founded in 1964 as a community-based
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employees. 12. Working directly with patients and with contracted
payors, including United Health, Aetna, Cigna, Blue Cross, MediCal and Medicare, Westcliff had grown and became a leading out-
5 patient laboratory service company. 6 7 8 9 10 11 12 13 14. 14 15 16 17 18 19 20 21 approximately $171 million) on net revenue of approximately $84 22 million. 23 24 25 26 27 28 million in 2009 (including expenses and write offs of The Debtors suffered a net loss of approximately $13 small profit margins in this business, despite substantial and continuing cost cutting measures undertaken by the Debtors, the Debtors were simply not able to operate sufficiently profitably to enable the Debtors to repay their debts. 15. million The Debtors suffered a net loss of approximately $87 in 2008 (including expenses and write offs of While the Debtors revenue was significant, due to the 13. Westcliff averaged approximately 8,500 clinical
requests per day and approximately 1,200 pathology requests per day, and performs approximately 250,000 cytology and 70,000
biopsy tests on an annual basis.
Based on this performance, the
Debtors had approximately $97 million in net revenue in 2009 and were the third largest clinical laboratory in California.
approximately $110 million) on net revenue of approximately $97 million. 16. While the Debtors instituted as many expense reductions
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as
were
reasonably
possible,
the
Debtors
losses
continued.
Since the beginning of 2009, the Debtors were unable to make any debt service payments to a group of lenders (the Senior
Lenders) for whom GE Business Financial Services, Inc. acts as 5 agent 6 7 8 9 10 11 12 13 emergency funding to cover payroll and other vital expenses. 14 15 16 17 18 19 20 21 active sale process since early, 2009. 22 18. 23 24 25 26 27 28 negotiations with a number of different prospective buyers over the past many months, the Debtors concluded that Wave Newco, Inc., a wholly-owned subsidiary of Laboratory Corporation of After having engaged in substantial due diligence and 17. Given the Debtors financial predicament, it became Debtors were unable to remain payments previously current owing with to their former as other owners of debt of the (in such capacity, the Senior Loan Agent), and the
obligations, companies the
including Debtors
purchased
part
Debtors overall growth strategy.
Indeed, the Debtors were only
able to survive financially over the past approximately seventeen months because the Senior Loan Agent provided the Debtors with
clear to the Debtors in early 2009 that the only viable option available to the Debtors to avoid a shut down of their business and the loss of employment by all of the Debtors employees would be for the Debtors to sell their business as a going concern to the highest bidder. The Debtors were therefore engaged in an
America (LabCorp) was the optimal buyer of the Debtors assets
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for three primary reasons.
First, LabCorp, which is in the same
business as Westcliff but is a much larger company, expressed the greatest interest in purchasing the Debtors assets. Second, it
was clear that LabCorp as a strategic buyer was willing to pay a 5 substantially higher price for the Debtors assets than any other 6 7 8 9 10 11 12 13 receivable) to LabCorp. 14 15 16 17 18 19 20 21 LabCorp was substantially higher than the purchase price that any 22 other buyer was willing to pay for the Debtors assets. 23 24 25 26 27 28 paid 21. by In order to make sure that the purchase price being LabCorp is the highest price possible, the Debtors 20. Subject to certain adjustments, LabCorp agreed to pay prospective buyer. Third, LabCorp clearly has the financial
means to consummate its purchase of the Debtors assets. 19. On May 17, 2010 (two days prior to the Petition Date),
the Debtors into an Asset Purchase Agreement (the APA) with LabCorp, which, among other things, provided for the Debtors to sell the Debtors business assets (excluding cash and accounts
to the Debtors the sum of $57.5 million, while leaving with the Debtors, among other things, all of the Debtors accounts
receivable (which I estimate will result in an additional net recovery of approximately $8,000,000 for the Debtors estates) and all of the Debtors cash. The purchase price offered by
conducted an auction sale of their assets following the Courts approval of overbid procedures. No party offered to pay more for
26
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the Debtors assets than LabCorp, which was consistent with the Debtors expectations. 22. The Debtors therefore requested and urged the Court to
approve the Debtors sale of their assets to LabCorp on a very 5 expedited basis because of the severe risk of a deterioration of 6 7 8 9 10 11 12 13 necessary to avoid immediate and irreparable harm to the Debtors 14 15 16 17 18 19 20 21 the Official Committee of Unsecured Creditors (the Committee) 22 and the Senior Lenders), the Court approved the Debtors proposed 23 24 25 26 27 28 sale of their assets to LabCorp at a hearing held on June 3, 2010, and the Court entered an order approving the Debtors sale of their assets to LabCorp on June 9, 2010. Prior to the sale business, creditors and bankruptcy estates and to avoid a Westcliffs filings. business resulting from the Debtors bankruptcy
This is a highly sensitive and extremely competitive
industry, and the Debtors were very concerned that Westcliff may not be able to retain its customer base for any extended period of time while operating as a debtor in bankruptcy. The Debtors
therefore concluded that an expedited sale of their assets was
downward adjustment in LabCorps purchase price (or a complete walk away) if which there were was provided a for in the asset in purchase
agreement
meaningful
reduction
Westcliffs
post-petition business volume pending the closing of the sale. 23. At the urging of the Debtors (with the full support of
hearing, the Debtors, the Creditors Committee and the Senior
27
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Lenders reached an agreement on an allocation of the LabCorp purchase price and the balance of the Debtors assets, which agreement has since been approved by the Court. 24. On June 16, 2010, LabCorp consummated its purchase of The Debtors are working with LabCorp in terms of a transition services agreement
5 the Debtors assets. 6 7 8 9 10 11 12 13 States Code sections 101 et seq. (the Bankruptcy Code) (A) to 14 15 16 17 18 19 20 21 FTI 22 Application), 23 24 25 26 27 28 representations made in the Application and the declarations in support thereof that FTI does not represent or hold any interest adverse to the Debtors or the Debtors estates with respect to the matters upon which it was to be engaged and was sufficiently and the Court being satisfied, based on the Engagement Contract (attached as Exhibit A to the employ and retain FTI Consulting, Inc. (FTI) to provide a Chief Restructuring Officer and temporary employees and (B) to accordance with the
agreed to by the Debtors and LabCorp as part of their asset sale agreement. 25. On May 20, 2010, the Debtors filed their application
(the Application) seeking authorization, pursuant to sections 11 U.S.C. 105 and 363 of chapter 11 of title 11 of the United
designate me as the Debtors Chief Restructuring Officer, nunc pro tunc to the Petition Date of May 19, 2010. 26. On June 16, 2010, upon consideration of the
Application, the declarations in support of the Application, the
28
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disinterested as that term is defined under 101(14) of the Bankruptcy Code, as modified by 1107(b) of the Bankruptcy Code, and that the Debtors continued employment of me and FTI was necessary and in the best interests of the Debtors, the Debtors
5 estates, their creditors, and all parties in interest and such 6 7 8 9 10 11 12 13 and 14 15 16 17 18 19 20 21 motion to modify the retention shall be filed, (b) no principal, 22 employee, or independent contractor of FTI and its affiliates 23 24 25 26 27 28 shall serve as a director of the Debtors during the pendency of the Chapter 11 Cases, (c) for temporary employees providing Contract, and the my declaration, subject to the following conditions set forth in the Application, the Engagement continued employment being supported by the Committee, the Court entered an order (the First Interim Order). 27. Pursuant the First Interim Order, the Court, among
other things, (1) approved the Application, (2) authorized the Debtors to continue to retain and employ me and FTI on a final basis for an interim period through June 3, 2010, on the terms
amendments to such terms (a) in the event the Debtors sought to have FTI personnel assume additional executive officer positions that are different than the positions disclosed in the
Application, or to materially change the terms of the engagement by modifying the functions of the executive officer personnel, a
services at an hourly rate, FTI shall file with the U.S. Trustee and the Committee, reports of compensation earned and expenses
29
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incurred on a quarterly basis, (3) authorized the Debtors to continue to designate me as the Chief Restructuring Officer on a final basis for an interim period to and through June 3, 2010, (4) approved the terms and conditions of FTIs retainer set forth
5 in the Engagement Contract on a final basis for an interim period 6 7 8 9 10 11 12 13 engagement 14 15 16 17 18 19 20 21 order on the Application (the Second Interim Order). 22 to the Second Interim Order, the Court, among other things, (1) 23 24 25 26 27 28 extended the original June 3, 2010 interim period in the First Interim Order to June 23, 2010, and (2) continued the hearing on the Application to June 23, 2010. Pursuant authorized the Debtors to pay FTI in such amounts and at such times as are provided in the Engagement Contract on a final basis for an interim period as accrued through June 3, 2010 without further order of this Court, and (7) continued the hearing on the Application to June 3, 2010. 28. On June 18, 2010, the Court entered its second interim in these cases proceeds; and it is further, (6) to and through June 3, 2010; (5) authorized, but did not require, FTI, without further order of the Court, in its sole discretion, to (a) hold its retainer and apply it to FTIs final bill for postpetition fees and expenses incurred during these cases, with any excess then to be refunded to the Debtors estates, or (b) to apply the retainer to fees and expenses incurred by FTI as FTIs
30
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29.
On June 25, 2010, the Court entered a third interim
order on the Application (the Third Interim Order), the terms and form of which were stipulated to by the Debtors and the Committee. Pursuant to the Third Interim Order, the Court, among
5 other things, (1) extended the extended June 23, 2010 interim 6 7 8 9 10 11 12 13 stipulated order can be agreed upon. 14 15 16 17 18 19 20 21 hours and $175.00 per hour thereafter. 22 to Contreras Insider Compensation Form. 23 24 25 26 27 28 31. The Debtors have been working with the Committee There were no objections 30. On May 25, 2010, the Debtors filed their Notice of Insider for Laura Compensation Contreras (the Insider the period in the Second Interim Order to July 31, 2010, and (2) ordered that the terms of any continued employment of me or compensation to be paid to FTI for any period from and after August 1, 2010 shall be the subject of a further written
stipulated order entered into by and between me, the Committee, and the Debtors or a further order of the Court if no such
Setting/Increasing Compensation Debtors Form)
(Contreras), to the
Chief
Financial the
Officer.
Pursuant to pay
Insider on a
Compensation
Form,
Debtors
sought
Contreras
weekly basis at the rate of $125.00 per hour for the first 8
regarding stipulated terms for the continued employment of me, FTI, Contreras, and Evelyn Peterson (Peterson), an independent contractor who serves as the Debtors Director of Billing. While
31
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the Debtors continue to work with the Committee in this regard, as of the date of this Motion, the parties had not yet been able to agree to terms for such continued employment. The Debtors
will continue to work with the Committee to reach acceptable 5 terms. 6 7 8 9 10 11 12 13 interests of the estates. 14 15 16 17 18 19 20 21 extended retention period: 22 23 24 25 26 27 28 Responsibility for, and management of, the estates are seeking approval of those terms as follows. 33. As discussed above, I am the Debtors Chief Pursuant to the Motion, the Debtors under the Third Interim Order regarding the employment of me and FTI, the Debtors filed the instant Motion out of an abundance of caution and so that it would not be necessary to seek a hearing on an expedited basis. 32. The Debtors have agreed to terms with me, FTI, However, due to the impending deadline of July 31, 2010
Contreras, and Peterson, which terms I believe are in the best
Restructuring Officer.
Pursuant to the Motion, the Debtors are
seeking to extend their retention of me and FTI through September 30, 2010. The following is a summary of the more important
components to my job functions that will be performed during the
cash accounts and related reporting; Responsibility for, and development of, ongoing cash flow forecasts;
32
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Responsibility for, and oversight of, billing, error processing, underway estates; to and health plan and IPA reconciliations of proceeds to
ensure
maximum
recovery
5 6 7 8 9 10 11 third-parties; 12 13 14 15 16 17 18 19 20 21 22 23 24 25 under 26 Laboratories; 27 28 the settlement agreement with Specialty required related reporting to the and interaction with the estate Creditor and Secured Lender relationship management and reporting; Responsibility aspects for all for required the reporting and of other the Responsibility agreement and for, and oversight between of, transition and
relationship
Westcliff
Biolabs regarding employees, vendors and ongoing cost allocation issues; Evaluation and resolution of Westcliff claims against
necessary
administration
Debtors bankruptcy estates; Responsibility for all Federal Trade Commission
Federal
Trade
Commissions
investigation of the sale to LabCorp; Evaluation Debtors, and resolution of claims of against the
including
reconciliation
claims
arising
33
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Responsibility for other unforeseen issues related to the day-to-day administration of the estates;
Responsibility purview of
for my
other duties
tasks as
falling
under
the Chief
the
Debtors
5 6 7 8 9 10 11 time 12 13 14 15 16 17 18 19 LabCorp, I anticipate that, during August and September 2010, I 20 will average approximately 3 full days per week performing the 21 22 23 24 25 26 27 28 aforementioned tasks. 35. Commencing on August 1, 2010 FTI and I will reduce our 2010. In particular, due to positive pace of collections and to performing the foregoing tasks through September 30, 34. Restructuring Officer; and Responsibility for and implementation of remaining data disclosure requirements pursuant to Qui Tam settlement with state of California. I anticipate that I will need to devote substantial
additional potential recovery from billing and error processing exercises, the Federal Trade Commissions active investigation of the sale transaction with LabCorps which may impact performance under the transition agreement, and the continuing need for
regular interfacing and problem resolution between Westcliff and
fixed fee to $50,000 per month; commencing on September 1, 2010, FTI and I will reduce our fixed fee to $40,000 per month. FTI
and I are still holding a $50,000 retainer so this will result in only an additional $40,000 being paid from the estates through
34
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September
30,
2010,
or
just
$25,000
net
in
August
2010
and
$15,000 net in September 2010.
In addition, the Debtors will I
continue to reimburse me for my expenses, which are minimal.
believe that my role will be substantially reduced by September 5 30, 2010. 6 7 8 9 10 11 12 13 results 14 15 16 17 18 19 20 21 Contreras job functions: 22 23 24 25 26 27 28 Finalizing the entry of all pre-petition invoices, and ultimately reconciling them to the claims; Managing the post-sale accounting staff that is retention of me and FTI as set forth above is in the best without me and FTI, I believe that the continued the Committee to determine what role FTI and I will play after September 30, 2010, if any. 36. Since there is continued economic value to the estates In advance of that date, the Debtors will work with
from actively managing the transition, collection, and resolution progress, and because I believe that the Debtors would incur substantially higher expenses and achieve substantially worse
interests of the Debtors and their estates. 37. Officer. As mentioned, Contreras is the Debtors Chief Financial I believe that the continued retention of Contreras is
critically important and in the best interests of the estates. The following is a summary of the more important components to
inputting and paying post-petition vendor payables;
35
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1 2 3 4 5 6 7 8 9 10
Assisting staff to
Peterson LabCorp
in as
transitioning they complete
the their
accounting Westcliff
duties; Managing the companys daily cash; Facilitating the weekly cash reporting; Managing reporting; Managing the actual collections and making the ultimate collection decisions once Petersons department has and performing all required bankruptcy
11 12 13 14 15 16 along with Pakkala; and 17 18 19 20 21 22 23 24 currently handling all of the Debtors the billing issues related 25 to the collection of accounts receivable. 26 27 28 insurance claims necessary to recover on accounts receivable is The processing of 38. Managing returns. In exchange for the foregoing services, Contreras will the preparation and filing of final tax reconciled the open accounts receivable by client; Closing out the corporate books; Closing out the companys 401k plan; Managing the actual day-to-day wind down of the estates
be compensated at the rate of $125 per hour. 39. serves As mentioned, Peterson is an independent contractor who as the Debtors Director of Billing. Peterson is
36
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complex, and Peterson has a thorough knowledge of the billing system and the claims process. The following is a summary of the
more important components to Petersons job functions: Managing the Westcliff billing staff of 50 or more
people and transitioning them to LabCorp as soon as their duties are complete; Ensuring that claims are issued to Westcliffs payors, including from governmental entities and large
insurance companies, so that Westcliff can collect as much as possible on its accounts receivable; and
12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 /// /// /// Communicating with clients regarding missing
information to allow Westcliff to process any claims that are initially rejected or otherwise remain unpaid.
37
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40.
In exchange for the foregoing services, Peterson will
be compensated at the rate of $175 per hour, which is Petersons current pay rate. I believe that retaining Peterson to perform
these services is critically important and that the estates would 5 incur 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 worse results without Peterson. I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge, information and belief. Executed California. on this 7th day of July 2010, at Santa Ana, substantially higher expenses and achieve substantially
38
Case 8:10-bk-16743-TA
In re:
CHAPTER 11 Debtor(s).
Desc
WESTCLIFF MEDICAL LABORATORIES, INC.

CASE NUMBER Lead Case No. 8:10-bk-16743-TA Jointly Administered with Case No. 8:10-bk-16746-TA
PROOF OF SERVICE OF DOCUMENT

I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business address is: 10250 Constellation Boulevard, Suite 1700, Los Angeles, California 90067. A true and correct copy of the foregoing document described as NOTICE OF MOTION AND MOTION FOR AUTHORITY TO CONTINUE PAYING SENIOR MANAGEMENT COMPENSATION; DECLARATION OF MATTHEW PAKKALA IN SUPPORT THEREOF will be served or was served (a) on the judge in chambers in the form and manner required by LBR 5005-2(d); and (b) in the manner indicated below: I. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) Pursuant to controlling General Order(s) and Local Bankruptcy Rule(s) (LBR), the foregoing document will be served by the court via NEF and hyperlink to the document. On July 7, 2010, I checked the CM/ECF docket for this bankruptcy case or adversary proceeding and determined that the following person(s) are on the Electronic Mail Notice List to receive NEF transmission at the email address(es) indicated below: Todd M Arnold tma@lnbrb.com Richard L Barnett rick@barnettrubin.com, rlbsec@barnettrubin.com Ron Bender rb@lnbrb.com Jennifer Witherell Crastz jcrastz@hemar-rousso.com Carol J Fogleman mfrost@bwslaw.com John-patrick M Fritz jpf@lnbrb.com Jeffrey K Garfinkle bkgroup@buchalter.com, jgarfinkle@buchalter.com Nancy S Goldenberg nancy.goldenberg@usdoj.gov Michael J Heyman michael.heyman@klgates.com Mark D Houle mark.houle@pillsburylaw.com Andy Kong Kong.Andy@ArentFox.com Rodger M Landau rlandau@lgbfirm.com, kmoss@lgbfirm.com Michael B Lubic michael.lubic@klgates.com Aram Ordubegian ordubegian.aram@arentfox.com Justin E Rawlins jrawlins@winston.com, docketla@winston.com Jacqueline L Rodriguez jlr@lnbrb.com Benjamin Seigel bseigel@buchalter.com, IFS_filing@buchalter.com David B Shemano dshemano@pwkllp.com United States Trustee (SA) ustpregion16.sa.ecf@usdoj.gov Howard J Weg hweg@pwkllp.com Sharon Z Weiss sharon.weiss@hro.com Service information continued on attached page II. SERVED BY U.S. MAIL OR OVERNIGHT MAIL(indicate method for each person or entity served): On July 7, 2010, I served the following person(s) and/or entity(ies) at the last known address(es) in this bankruptcy case or adversary proceeding by placing a true and correct copy thereof in a sealed envelope in the United States Mail, first class, postage prepaid, and/or with an overnight mail service addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be completed no later than 24 hours after the document is filed.
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. January 2009
F 9013-3.1
Case 8:10-bk-16743-TA
In re:
CHAPTER 11 Debtor(s).
Desc
WESTCLIFF MEDICAL LABORATORIES, INC.

CASE NUMBER Lead Case No. 8:10-bk-16743-TA Jointly Administered with Case No. 8:10-bk-16746-TA
Via Overnight Mail The Hon. Theodor C. Albert United States Bankruptcy Court 411 West Fourth Street Santa Ana, CA 92701 In re Westcliff Medical Laboratories In re BioLabs, Inc. File No. 4367 RSN
Service by U.S. MAIL Service by NEF marked with *
Debtors Westcliff Medical Laboratories, Inc. BioLabs, Inc. 1821 E. Dyer Road, #100 Santa Ana, CA 92705 Counsel for Health Net, Inc.-RSN Pillsbury Winthrop Shaw Pittman LLP Attn: Mark D. Houle, Esq. NEF * 650 Town Center Drive, Suite 700 Costa Mesa, CA 92626-7122 RSN Rita A. Woodard Treasurer-Tax Collector 221 S. Mooney Blvd., Room 104-E Visalia, CA 93291-4593
Proposed Committee-RSN Benjamin Seigel/Jeffrey Garfinkle NEF * Buchalter Nemer 1000 Wilshire Boulevard, Suite 1500 Los Angeles, California 90017-2457
Frank Cadigan Nancy Goldenberg Terry Biers Office of the U.S. Trustee 411 West Fourth St. Suite 9041 Santa Ana, CA 92701 Steven A. Oldham, Sr. Staff Atty
State of CA, Dept. of Health Care Services
RSN Los Angeles County Treasurer and Tax Collector P.O. Box 54110 Los Angeles, CA 90054-0110 RSN Robert Brill, Of Counsel Grant Callison, VP Cambridge Healthcare Properties, Inc. 1717 Main Street, 59th Floor Dallas, TX 75201
Office of Legal Services MS 0010 P.O. Box 997413 Sacramento, CA 95899-7413
Service information continued on attached page III. SERVED BY PERSONAL DELIVERY, FACSIMILE TRANSMISSION OR EMAIL (indicate method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR, on _________________, I served the following person(s) and/or entity(ies) by personal delivery, or (for those who consented in writing to such service method), by facsimile transmission and/or email as follows. Listing the judge here constitutes a declaration that personal delivery on the judge will be completed no later than 24 hours after the document is filed. Service information continued on attached page I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct. July 7, 2010 Date Lourdes Cruz Type Name /s/ Lourdes Cruz Signature
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California. January 2009
F 9013-3.1

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its stock interest in the Debtor.

out-patients throughout California. employees.

The Debtors had nearly 1000

approximately $97 million in net revenue in 2009 and were the

financially over the past approximately seventeen months because

negotiations with a number of different prospective buyers over

This is a highly sensitive and extremely competitive

downward adjustment in LabCorps purchase price (or a complete

agreed to by the Debtors and LabCorp as part of their asset sale

Setting/Increasing Compensation Debtors Form)

Insider for Laura

contractor who serves as the Debtors Director of Billing.

clearly in the best interests of the estates.

FTI/Pakkala As discussed above, Pakkala is the Debtors Chief

September 30, 2010. important components

Creditor and Secured Lender relationship management and reporting;

September 30, 2010.

In particular, due to positive pace of

The Debtors believe that the continued retention of

currently handling all of the Debtors the billing issues related

people and transitioning them to LabCorp as soon as

compensated at the rate of $175 per hour, which is Petersons

described in the Memorandum of Points and Authorities; and /// ///

alternatives value, and my

manufacturing and airline industries.

Prior to joining FTI, I

estates as debtors in possession.

My primary functions serving as the CRO is to manage

debtors in possession pursuant to sections 1107 and 1108 of the

the operating company.

is its stock interest in the Debtor.

employees. 12. Working directly with patients and with contracted

biopsy tests on an annual basis.

Based on this performance, the

obligations, companies the

Debtors overall growth strategy.

Indeed, the Debtors were only

America (LabCorp) was the optimal buyer of the Debtors assets

for three primary reasons.

First, LabCorp, which is in the same

This is a highly sensitive and extremely competitive

therefore concluded that an expedited sale of their assets was

hearing, the Debtors, the Creditors Committee and the Senior

Application, the declarations in support of the Application, the

On June 25, 2010, the Court entered a third interim

Setting/Increasing Compensation Debtors Form)

Contreras, and Peterson, which terms I believe are in the best

Pursuant to the Motion, the Debtors are

components to my job functions that will be performed during the

Debtors bankruptcy estates; Responsibility for all Federal Trade Commission

regular interfacing and problem resolution between Westcliff and

$15,000 net in September 2010.

In addition, the Debtors will I

continue to reimburse me for my expenses, which are minimal.

inputting and paying post-petition vendor payables;

transitioning they complete

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 /// /// /// Communicating with clients regarding missing

In exchange for the foregoing services, Peterson will

WESTCLIFF MEDICAL LABORATORIES, INC.

PROOF OF SERVICE OF DOCUMENT

WESTCLIFF MEDICAL LABORATORIES, INC.