Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 1 of 32

Desc

1 2 3 4 5 6

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@[Link]; jlr@[Link]; tma@[Link]; jpf@[Link]

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 and PLEASE TAKE NOTICE that Westcliff Medical Laboratories, Inc. BioLabs, Inc., the Chapter 11 debtors and debtors in Debtor. ____________________________ BIOLABS, INC., Debtor. ____________________________ Affects Both Debtors Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only NOTICE OF MOTION AND SECOND 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

[No Hearing Required Unless Requested Pursuant to Local Bankruptcy Rule 9013-1(o)]

possession herein (collectively, the Debtors), hereby move, by way of this Second Motion for Authority to Continue Paying Senior Management Compensation (the Second Motion), for an order

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 2 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

authorizing the Debtors to continue their retention and payment of compensation to Matthew Officer, Pakkala in the (Pakkala), manner the Debtors in the

Chief

Restructuring

described

annexed Memorandum of Points and Authorities. In summary, pursuant to the last motion related to Pakkalas retention and compensation, the Court authorized the following compensation for Pakkala: (1) a fixed fee of $50,000 for services rendered during the month of August 2010, (2) a fixed fee of $40,000 for services rendered during the month of September 2010, and (3) continued reimbursement of Pakkala for his expenses. By way of this Second Motion, the Debtors are seeking the following terms for the continued retention and compensation of Pakkala: (1) a fixed fee of $25,000 for services rendered during the month of October 2010, (2) from November 1, 2010 through March 31, 2011, an hourly rate of $595 for services provided by Pakkala on an as needed basis, and (3) continued reimbursement of Pakkala for his expenses. As discussed in the annexed Memorandum of Points and

Authorities, the Debtors believe that these terms are fair and reasonable based on the number of tasks that the Debtors still need Pakkala to perform and Pakkalas proven record of delivering exceptional results for the Debtors. PLEASE TAKE FURTHER NOTICE that this Second Motion is based upon this Notice and Second Motion, the memorandum of Points and Authorities and declaration annexed hereto, the record in these cases and all arguments made at the hearing on the Second Motion, if any.

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 3 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

PLEASE TAKE FURTHER NOTICE that Local Bankruptcy Rule 90131(o)(1)requires that any response and request for hearing on this Second Motion must be filed with the Court and served on the Office of the United States Trustee and Debtors counsel, whose name and address is set forth in the upper, left-hand corner of this Notice, within fourteen (14) days after the date of the service of this Notice. The failure to timely respond to this

Second Motion may be deemed to be consent to the relief requested in this Second Motion. WHEREFORE, the Debtors respectfully request that the Court enter an order: (1) (2) payment granting the Second Motion in its entirety; authorizing the Debtors to continue their retention and of Pakkala in the manner described in the annexed

Memorandum of Points and Authorities; and (3) affording such further and other relief as may be

appropriate. Dated: September 8, 2010 WESTCLIFF MEDICAL LABORATORIES, INC. -andBIOLABS, INC. /s/ Todd M. Arnold 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

19 20 21 22 23 24 25 26 27 28

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 4 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

MEMORANDUM OF POINTS AND AUTHORITIES I. COMPANY BACKGROUND AND CHAPTER 11 BANKRUPTCY FILINGS Westcliff 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. 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 laboratory and was is founded in 1964 in as Santa a community-based Ana, California.

headquartered

Westcliff was the operator of approximately 170 branded, standalone, 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. employees. Working directly with patients and with contracted payors, including United Health, Aetna, Cigna, Blue Cross, Medi-Cal and The Debtors had nearly 1000

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 5 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Medicare, Westcliff had grown and became a leading out-patient laboratory service company. 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. While the Debtors revenue was significant, due to the 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. The Debtors suffered a net loss of approximately $87 million in 2008 (including expenses and write offs of approximately $171 million) on net revenue of approximately $84 million. The

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. 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 whom GE Business Financial Services, Inc. acts as agent (in such capacity, the Senior Loan Agent), and the Debtors were unable to remain current with their other debt obligations, including payments owing to former owners of companies the Debtors

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 6 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

previously strategy.

purchased Indeed,

as the

part

of

the were

Debtors only

overall to

growth survive

Debtors

able

financially over the past approximately seventeen months because the Senior Loan Agent provided the Debtors with emergency funding 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 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 active

sale process since early, 2009. After having engaged in substantial due diligence and

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

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

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 7 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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 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 and all of the Debtors cash. The purchase price offered by LabCorp

was substantially higher than the purchase price that any other buyer was willing to pay for the Debtors assets. In order to make sure that the purchase price being paid by LabCorp was the highest price possible, the Debtors conducted an auction sale of their assets following the Courts approval of overbid Debtors procedures. assets than No party offered which was to pay more for with the the

LabCorp,

consistent

Debtors expectations. The Debtors therefore requested and urged the Court to

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

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 necessary to avoid immediate and irreparable harm to the Debtors

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 8 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

business,

creditors

and

bankruptcy

estates

and

to

avoid

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. 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 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 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. 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 agreement. III PRIOR EMPLOYMENT OF FTI AND PAKKALA 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 States Code sections 101 et seq. (the Bankruptcy Code) (A) to employ and retain FTI Consulting, Inc. (FTI) to provide a Chief

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 9 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Restructuring designate

Officer

and

temporary (Pakkala)

employees as the

and

(B)

to

Matthew

Pakkala

Debtors

Chief

Restructuring Officer, nunc pro tunc to the Petition Date of May 19, 2010. 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 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 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 interests of the Debtors, the Debtors estates, their creditors, and all parties in interest and such continued employment being supported by the Committee, the Court entered an order (the

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 for an interim period through June 3, 2010, on the terms and conditions set forth in the Application, the Engagement Contract, 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

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 10 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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 motion to modify the retention shall be filed, (b) no principal, employee, or independent contractor of FTI and its affiliates shall serve as a director of the Debtors during the pendency of the Chapter 11 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) approved the terms and conditions of FTIs retainer set forth in 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 apply the retainer to fees and expenses incurred by FTI as FTIs engagement in these cases proceeds; and it is further, (6)

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.

10

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 11 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

On June 18, 2010, the Court entered its second interim order on the Application (the Second Interim Order). Pursuant to the

Second Interim Order, the Court, among other things, (1) 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. 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 other

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

entered

into

between

Committee,

and

Debtors or a further order of the Court if no such stipulated order can be agreed upon. On July 7, 2010, the Debtors filed their Motion for

Authority to Continue Paying Senior Management Compensation (the First Motion). Pursuant to the First Motion, the Debtors

sought, among other things, an order authorizing the Debtors to continue their retention and payment of compensation to FTI and Pakkala as follows: (1) a fixed fee of $50,000 for services rendered during the month of August 2010, (2) a fixed fee of $40,000 for services rendered during the month of September 2010, and (3) continued reimbursement of Pakkala for his expenses. On

11

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 12 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

July 28, 2010, the Court held a hearing on the First Motion. Upon consideration of the First Motion and that no oppositions had been filed to the First Motion, granted the First Motion. order on the First Motion is pending with the Court. IV. REQUESTED CONTINUED EMPLOYMENT OF FTI AND PAKKALA Based on the facts described below, the Debtors believe that the Committee and other parties in interest will support the Second Motion. However, due to the fact that the Debtors An

ability to continue to retain and pay compensation to FTI and Pakkala under the First Motion expires on September 30, 2010, the Debtors decided to file the Second Motion as soon as possible out of an abundance of caution. issues with the relief In the event the Committee has any by the Second Motion, the

requested

Debtors will work with the Committee to resolve such issues so that an agreed order can be submitted to the Court. The Debtors have agreed to terms for the continued retention and payment of FTI and Pakkala, which terms the Debtors believe are clearly in the best interests of the estates. above, Pakkala is the Debtors Chief As discussed Officer.

Restructuring

Pursuant to the Second Motion, the Debtors are seeking to extend their retention is job a of FTI/Pakkala of the through more will March 31, 2011. The to the

following Pakkalas

summary functions

important be

components during

that

performed

extended retention period: Responsibility for, and management of, the estates

cash accounts and related reporting;

12

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 13 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Responsibility for, and development of, ongoing cash flow forecasts;

Responsibility for, and oversight of, billing, error processing, underway estates; to and health plan and IPA reconciliations of proceeds to

ensure

maximum

recovery

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 third-parties; Creditor and Secured Lender relationship management and reporting; Responsibility aspects for all for required the reporting and of other the

necessary

administration

Debtors bankruptcy estates; Responsibility for all Federal Trade Commission (the FTC) estate required related reporting to the and interaction Trade with the

Federal

Commissions

investigation of the sale to LabCorp; Evaluation Debtors, under and resolution of claims of against the

including the

reconciliation agreement

claims with

arising

settlement

Specialty

Laboratories; Responsibility for other unforeseen issues related to the day-to-day administration of the estates;

13

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 14 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 of

Responsibility purview of

for my

other duties

tasks as

falling

under

the Chief

the

Debtors

Restructuring Officer; and Responsibility for and implementation of remaining data disclosure requirements pursuant to Qui Tam settlement with state of California. The Debtors time 2010. anticipate to that Pakkala the will need to devote through pace of

substantial October 31,

performing In

foregoing due to

tasks

particular,

positive

collections and additional potential recovery from billing and error processing exercises, the FTCs active investigation of the sale transaction with LabCorp which may impact performance under the transition agreement and which has led to Pakkala being

scheduled for deposition by the FTC, and the continuing need for regular interfacing and problem resolution between the Debtors and LabCorp, the Debtors anticipate that, during October 2010, Pakkala will average approximately 2 full days per week

performing the aforementioned tasks. Pakkala has been particularly successful in his collection accounts receivable. estimated in an the that Upon the closing on of the sale,

FTI/Pakkala would

collections net

accounts of

receivable

result

additional Debtors

recovery To

approximately Pakkala has

$8,000,000

for

estates.

date,

obtained a net recovery of nearly $10,000,000 from the Debtors accounts receivable for the estates, and Pakkala estimates that the Debtors estates may recover over $1,000,000 more on the

Debtors accounts receivable.

14

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 15 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

In consideration of the foregoing, the Debtors are seeking the following terms for the continued retention and compensation of FTI/Pakkala: (1) a fixed fee of $25,000 for services rendered during the month of October 2010, (2) from November 1, 2010 through March 31, 2011, an hourly rate of $595 for services provided by Pakkala on an as needed basis, and (3) continued reimbursement of Pakkala for his expenses, which are minimal. The Debtors believe after that October Pakkalas 31, 2010. role will be the

substantially

reduced

However,

Debtors require the continued retention of Pakkala to carry out the tasks described above through March 31, 2011. In advance of

that date, the Debtors will work with the Committee to determine what FTI/Pakkalas role will be after March 31, 2011, if any. Since there is continued economic value to the estates from actively managing the transition, collection, and resolution

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 best interests of the Debtors and their estates. V. CONCLUSION 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

payment of Pakkala in the manner described in the Memorandum of

15

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 16 of 32

Desc

1 2 3 4

Points and Authorities; and (3) affording such further and other relief as may be

appropriate. Dated: September 8, 2010 WESTCLIFF MEDICAL LABORATORIES, INC. -andBIOLABS, INC. /s/ Todd M. Arnold 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

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

16

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 17 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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. 2. I am a Managing Director of FTI Consulting, Inc.

(FTI), which maintains its main offices at 500 E. Pratt Street, Suite 1400, Baltimore, Maryland. My business office is located

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

of restructuring and related advisory and management experience. My work focuses on on advising distressed and and underperforming strategies for

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

worked in the restructuring groups of PricewaterhouseCoopers and Price Waterhouse in Los Angeles. 4. FTI is a global business advisory firm with over 3,000

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

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

17

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 18 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

in the world. 5. unsecured FTI has advised in management, many of senior most lenders and

creditors

the

significant FTI and its management

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 Health System; Methodist Hospital, Gary, IN; Quincy Medical

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

Restructuring Officer (CRO) for Westcliff Medical Laboratories, Inc. (Westcliff) and its parent corporation, and Debtors BioLabs, in Inc.

(BioLabs),

Chapter

11

Debtors

Possession

(collectively, the Debtors). 7. The Debtors commenced their bankruptcy cases by filing

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

estates as debtors in possession. 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 the most money possible in the most expeditious manner possible. 9. The Debtors commenced their bankruptcy cases by filing

18

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 19 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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 Bankruptcy Code. 10. BioLabs is the parent company to Westcliff, which is The only material asset owned by BioLabs Biolabs was organized for

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. laboratory Westcliff and is was founded in 1964 in as a community-based California.

headquartered

Santa

Ana,

Westcliff was the operator of approximately 170 branded, standalone, 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. employees. 12. Working directly with patients and with contracted The Debtors had nearly 1000

payors, including United Health, Aetna, Cigna, Blue Cross, MediCal and Medicare, Westcliff had grown and became a leading outpatient laboratory service company. 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

19

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 20 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Debtors had approximately $97 million in net revenue in 2009 and were the third largest clinical laboratory in California. 14. While the Debtors revenue was significant, due to the

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

approximately $171 million) on net revenue of approximately $84 million. million The Debtors suffered a net loss of approximately $13 in 2009 (including expenses and write offs of

approximately $110 million) on net revenue of approximately $97 million.

16. as were

While the Debtors instituted as many expense reductions 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 agent (in such capacity, to the Senior current owing Loan with to Agent), their former as and the debt of the

Debtors

were

unable

remain payments

other owners of

obligations, companies the

including Debtors

previously

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

20

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 21 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

emergency funding to cover payroll and other vital expenses. 17. 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 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

active sale process since early, 2009. 18. After having engaged in substantial due diligence and

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

America (LabCorp) was the optimal buyer of the Debtors assets 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 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. 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 receivable) to LabCorp. 20. Subject to certain adjustments, LabCorp agreed to pay

to the Debtors the sum of $57.5 million, while leaving with the

21

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 22 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Debtors, receivable additional

among

other I

things, originally of

all

of

the

Debtors

accounts in an the

(which net

estimated

would

result

recovery

approximately

$8,000,000

for

Debtors estates) and all of the Debtors cash. price offered by LabCorp was substantially

The purchase than the

higher

purchase price that any other buyer was willing to pay for the Debtors assets. 21. paid by In order to make sure that the purchase price being LabCorp is the highest price possible, the Debtors

conducted an auction sale of their assets following the Courts approval of overbid procedures. No party offered to pay more for

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 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

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 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 walk away) if which there were was provided a for in the asset in purchase

agreement

meaningful

reduction

Westcliffs

22

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 23 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

post-petition business volume pending the closing of the sale. 23. 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 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 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

the Debtors assets. 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 States Code sections 101 et seq. (the Bankruptcy Code) (A) to employ and retain FTI Consulting, Inc. (FTI) to provide a Chief Restructuring Officer and temporary employees and (B) to

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 FTI Engagement Contract (attached as Exhibit A to the

23

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 24 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Application),

and

the

Court

being

satisfied,

based

on

the

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 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 estates, their creditors, and all parties in interest and such 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 and conditions and set the forth my in the Application, subject to the the Engagement following

Contract,

declaration,

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 motion to modify the retention shall be filed, (b) no principal, employee, or independent contractor of FTI and its affiliates shall serve as a director of the Debtors during the pendency of the Chapter 11 Cases, (c) for temporary employees providing

24

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 25 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

services at an hourly rate, FTI shall file with the U.S. Trustee and the Committee, reports of compensation earned and expenses 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 in 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 apply the retainer to fees and expenses incurred by FTI as FTIs engagement in these cases proceeds; and it is further, (6)

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 Pursuant

order on the Application (the Second Interim Order).

to the Second Interim Order, the Court, among other things, (1) 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. 29. On June 25, 2010, the Court entered a third interim

order on the Application (the Third Interim Order), the terms

25

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 26 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

and form of which were stipulated to by the Debtors and the Committee. Pursuant to the Third Interim Order, the Court, among

other 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 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 stipulated order can be agreed upon. 30. On July 7, 2010, the Debtors filed their Motion for

Authority to Continue Paying Senior Management Compensation (the First Motion). Pursuant to the First Motion, the Debtors

sought, among other things, an order authorizing the Debtors to continue their retention and payment of compensation to me and FTI as follows: (1) a fixed fee of $50,000 for services rendered during the month of August 2010, (2) a fixed fee of $40,000 for services rendered during the month of September 2010, and (3) continued reimbursement to me for my expenses. the Court held a hearing on the First Motion. On July 28, 2010, Upon consideration

of the First Motion and that no oppositions had been filed to the First Motion, granted the First Motion. Motion is pending with the Court. 31. The Debtors have agreed to terms for the continued An order on the First

retention and payment of FTI and Pakkala, which terms I believe are clearly in the best interests of the estates. As discussed Pursuant

above, I am the Debtors Chief Restructuring Officer.

26

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 27 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

to the Second Motion, the Debtors are seeking to extend their retention of me and FTI through March 31, 2011. The following is

a summary of the more important components to my job functions that will be performed during the extended retention period: Responsibility for, and management of, the estates

cash accounts and related reporting; Responsibility for, and development of, ongoing cash flow forecasts; Responsibility for, and oversight of, billing, error processing, underway estates; Responsibility agreement and for, and oversight between of, transition and to and health plan and IPA reconciliations of proceeds to

ensure

maximum

recovery

relationship

Westcliff

Biolabs regarding employees, vendors and ongoing cost allocation issues; Evaluation and resolution of Westcliff claims against third-parties; Creditor and Secured Lender relationship management and reporting; Responsibility aspects for all for required the reporting and of other the

necessary

administration

Debtors bankruptcy estates; Responsibility for all Federal Trade Commission (the FTC) estate required related reporting to the and interaction Trade with the

Federal

Commissions

investigation of the sale to LabCorp;

27

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 28 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Evaluation Debtors, under

and

resolution

of

claims of

against

the

including the

reconciliation agreement

claims with

arising

settlement

Specialty

Laboratories; 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

Restructuring Officer; and Responsibility for and implementation of remaining data disclosure requirements pursuant to Qui Tam settlement with state of California. 32. I anticipate that I will need to devote substantial

time to performing the foregoing tasks through October 31, 2010. In particular, due to positive pace of collections and additional potential recovery from billing and error processing exercises, the FTCs active may investigation impact of the sale under transaction the with

LabCorp

which

performance

transition

agreement and which has led to me being scheduled for deposition by the FTC, and the continuing need for regular interfacing and problem resolution between the Debtors and LabCorp, I anticipate that, during October 2010, I will average approximately 2 full days per week performing the aforementioned tasks. 33. I believe that I, with the assistance of the Debtors

other few remaining employees, have been particularly successful in the collection of accounts receivable. Upon the closing of

the sale, I estimated that collections on accounts receivable

28

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 29 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

would

result

in

an

additional

net

recovery

of

approximately

$8,000,000 for the Debtors estates.

To date, I have obtained a

net recovery of nearly $10,000,000 from the Debtors accounts receivable for the estates, and I estimate that the Debtors

estates may recover over $1,000,000 more on the Debtors accounts receivable. 34. seeking In the consideration following of me and of the for (1) foregoing, the a the Debtors are and for

terms FTI:

continued fee

retention of $25,000

compensation

fixed

services rendered during the month of October 2010, (2) from November 1, 2010 through March 31, 2011, an hourly rate of $595 for services provided by me on an as needed basis, and (3)

continued reimbursement of me for my expenses, which are minimal. 35. I believe that my role will be substantially reduced However, I believe the Debtors require

after October 31, 2010.

my continued retention to carry out the tasks described above through March 31, 2011. In advance of that date, the Debtors

will work with the Committee to determine what roles me and FTI will be after March 31, 2011, if any.

/// /// ///

29

Case 8:10-bk-16743-TA

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 30 of 32

Desc

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 D.C.

36.

Since I believe there is continued economic value to

the estates 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 results without me and FTI, I believe that the continued retention of me and FTI as set forth above is in the best interests of the Debtors and their estates. I declare under penalty of perjury that the foregoing is true and correct to the best of my knowledge, information and belief. Executed on this 8th day of September 2010, at Washington,

30

Case 8:10-bk-16743-TA
In re:

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 31 of 32
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 SECOND 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 September 8, 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@[Link] Richard L Barnett rick@[Link], rlbsec@[Link] Ron Bender rb@[Link] Jennifer Witherell Crastz jcrastz@[Link] Carol J Fogleman mfrost@[Link] John-patrick M Fritz jpf@[Link] Jeffrey K Garfinkle bkgroup@[Link], jgarfinkle@[Link] Nancy S Goldenberg [Link]@[Link] D Edward Hays ehays@[Link] Michael J Heyman [Link]@[Link] Mark D Houle [Link]@[Link] Andy Kong [Link]@[Link] Rodger M Landau rlandau@[Link], kmoss@[Link] Matthew A Lesnick matt@[Link] Michael B Lubic [Link]@[Link] Aram Ordubegian [Link]@[Link] Justin E Rawlins jrawlins@[Link], docketla@[Link] Jacqueline L Rodriguez jlr@[Link] Benjamin Seigel bseigel@[Link], IFS_filing@[Link] David B Shemano dshemano@[Link] United States Trustee (SA) [Link]@[Link] Howard J Weg hweg@[Link] Sharon Z Weiss [Link]@[Link] Joseph M Welch jwelch@[Link] Service information continued on attached page II. SERVED BY U.S. MAIL OR OVERNIGHT MAIL(indicate method for each person or entity served): On September 8, 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:

Doc 223 Filed 09/08/10 Entered 09/08/10 [Link] Main Document Page 32 of 32
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 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

Service by U.S. Mail

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 RSN Steven A. Oldham, Sr. Staff Atty Los Angeles County Treasurer and Tax State of CA, Dept. of Health Care Collector Services P.O. Box 54110 Office of Legal Services-MS 0010 P.O. Box 997413 Los Angeles, CA 90054-0110 Sacramento, CA 95899-7413 RSN RSN Counsel to Creditor Google Robert Brill, Of Counsel Scott E. Blakeley/Johnny White Grant Callison, VP Blakeley & Blakeley Cambridge Healthcare Properties, Inc. 1717 Main Street, 59th Floor 2 Park Plaza, Suite 400 Irvine, CA 92614 Dallas, TX 75201 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 [Link].P. 5 and/or controlling LBR, on _______, 2010, 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. September 8, 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