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RON BENDER (SBN 143364) TODD M. ARNOLD (SBN 221868) 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; tma@lnbyb.com Attorneys for Chapter 11 Debtors and Debtors in Possession UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA (SANTA ANA DIVISION) In re: WESTCLIFF MEDICAL LABORATORIES, INC., Debtor. ____________________________ BIOLABS, INC., Debtor. ____________________________ Affects Both Debtors DEBTORS THIRD CHAPTER 11 CASE MANAGEMENT REPORT Lead Case No. 8:10-bk-16743-TA Jointly Administered with Case No. 8:10-bk-16746-TA Chapter 11 Cases

17 18 19 20 21 22 23 24 25 26 27 28 Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only

Court Scheduled Hearing: Date: May 26, 2011 Time: 10:00 a.m. Place: Courtroom 5B 411 West Fourth Street Santa Ana, CA 92701-4593

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In

accordance

with

the

Courts

Order

Scheduling

Case

Management Conference, which set a Case Management Conference on September 2, 2010, and Westcliff Inc. Medical Laboratories, the Inc. 11 the Case

(Westcliff) 5 debtors 6 7 8 9 10 11 12 13 Debtors), and

BioLabs, in

(BioLabs), herein First

chapter

debtors

possession filed their

(collectively, Chapter 11

previously

Management Report (the First Report) followed by their Second Chapter 11 Case Management Report (the Second Report). The January Court 27, continued The the Court Case Management Conference the to Case

2011.

thereafter

continued

Management Conference to May 26, 2011.

The Debtors hereby submit

their Third Chapter 11 Case Management Report in connection with 14 15 16 17 18 19 20 21 22 A. 23 24 25 26 27 28 The Background and Necessity for Filing Chapter 11. Debtors commenced their bankruptcy cases by filing Description and History of the Debtor Business, Case the upcoming continued Case Management Conference scheduled to take place on May 26, 2011. The information herein is largely

the same as the information provided in the First Report and Second Report, with appropriate supplements for events which have occurred subsequent to the filing of the Second Report. 1. THE DEBTORS BUSINESS AND OPERATIONS, EVENTS PRECIPITATING THE BANKRUPTCY FILINGS, AND THE PRINCIPAL ASSETS AND LIABILITIES OF THE ESTATES.

voluntary petitions under Chapter 11 of the Bankruptcy Code on May 19, 2010 (the Petition Date). The Debtors continue to

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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 was the

5 operating company. 6 7 8 9 10 11 12 13 alone, patient service center laboratories and STAT labs that 14 15 16 17 18 19 20 21 other 22 amount of debt. 23 24 25 26 27 28 Senior Debt) 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). The Senior Debt was secured The Debtors owed approximately $56 million (the labs, which caused the Debtors to incur a substantial provide various services, including clinical testing, pathology, reporting and support services for the benefit of thousands of out-patients throughout California. Prior to the consummation of its stock interest in Westcliff. Biolabs was organized for the The only material asset owned by BioLabs is

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, stand-

a sale of substantially all of Westcliff's assets, the Debtors had nearly 1,000 employees. Much of the Debtors growth came from the acquisition of

by a first priority security interest and lien against all or

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substantially all of the Debtors assets.

Any other secured debt

of the Debtors was relatively small in nature and related to liens against only certain of the Debtors equipment. The

Debtors also have a substantial amount of unsecured debt. 5 While the Debtors revenue was significant, due to the small 6 7 8 9 10 11 12 13 the beginning of 2009, the Debtors were unable to make any pre14 15 16 17 18 19 20 21 through the Petition Date because the Senior Loan Agent provided 22 the Debtors with emergency funding to cover payroll and other 23 24 25 26 27 28 vital expenses. The only way the Debtors could have survived as a stand alone going concern business would have been for the Debtors to petition debt service payments to the Senior Lenders, and the Debtors were unable to remain current with their other preprofit 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. While the Debtors instituted as many expense reductions as were reasonably possible, the Debtors losses continued. Since

petition debt obligations, including payments owing to former owners of companies the Debtors previously purchased as part of the Debtors overall growth strategy. only able to survive financially from Indeed, the Debtors were the beginning of 2009

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raise many millions of dollars of additional equity which was not possible given the Debtors extensive debt structure. It therefore became clear to the Debtors in early 2009 that the only viable option available to the Debtors to avoid a shut

5 down of their business and the loss of employment by all of the 6 7 8 9 10 11 12 13 related 14 15 16 17 18 19 20 21 B. 22 LabWests 23 24 25 26 27 28 certain adjustments, while leaving with the Debtors, among other things, all of the Debtors accounts receivable (which the purchase price was $57.5 million subject to The Present Status of the Debtors Chapter 11 Cases. Debtors and LabWest, Inc. f/k/a Wave Newco, Inc. (LabWest), a subsidiary of LabCorp, executed the APA and related documents. The Debtors bankruptcy cases were commenced to enable the documents. Shortly prior to the Petition Date, the Debtors employees would be for the Debtors to sell their

business as a going concern to the highest bidder.

The Debtors

therefore engaged in an active sale process since early, 2009. The Debtors engaged in extensive negotiations with LabCorp prior to the Petition Date over the details of an asset sale and the terms of a written asset purchase agreement (the APA) and

Debtors to consummate their asset sale to LabWest, as obtaining a bankruptcy free and clear sale order was a fundamental deal point for LabWest.

Debtors estimated would result in an additional net recovery of approximately $8,000,000 for the Debtors estates) and all of the

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Debtors cash.

LabWests purchase price offer was substantially

higher than any other offer the Debtors had received for their assets, and the Debtors had engaged in an extensive pre-petition marketing effort with the assistance of a highly qualified

5 investment banker with a particular specialty in this area. 6 7 8 9 10 11 12 13 The Debtors agreed with LabWest that, in connection with the 14 15 16 17 18 19 20 21 Around 22 Commission 23 24 25 26 27 28 competitive activity concerning LabWests acquisition of the (the "FTC") began an inquiry into alleged antithe time of the Closing Date, the Federal Trade sale closing, the Debtors would be required to enter into a Transition Agreement with LabWest. Agreement Debtors was to facilitate and their as The purpose of the Transition smooth to a transition LabWest as of the At the urging of the Debtors (with the full support of the Creditors Committee and the Senior Lenders), the Court approved the Debtors asset sale to LabWest at a hearing held on June 3, 2010, and the Court entered an order approving the sale on

Wednesday, June 9, 2010. Closing Date).

The sale closed on June 16, 2010 (the

business

employees

possible

under the circumstances at no additional cost to the Debtors estates.

Debtors assets.

Over the ensuing months, the FTC and LabCorp At a

initiated a multitude of litigation against the other.

hearing regarding such litigation, the FTC made clear that it was

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not seeking to rescind the sale or to recover on claims against the Debtors estates. the FTC has dropped The Debtors understand and believe that challenges to LabWests purchase of

substantially all of the Debtors assets. 5 While the Senior Lenders were owed approximately $56 million 6 7 8 9 10 11 12 13 Since the closing of the Debtors asset sale to LabWest, the 14 15 16 17 18 19 20 21 Debtors and assigned to LabWest. 22 The 23 24 25 26 27 28 recover on accounts receivable and insurance premium refunds. The Debtors results in these efforts were far more successful than originally projected. to be liquidated are The only material assets that remain deposits and avoidance action Debtors have now substantially completed efforts to Debtors have distributed the sale proceeds in accordance with the terms of the sale order and the Asset Allocation Agreement and operated in accordance with the terms of the APA and the sale order. LabWest contracts As discussed below, just recently, on May 13, 2011, made to its be final designations by the regarding or leases by and the secured by a first priority lien against the Debtors assets, the Senior Lenders agreed to leave behind for the benefit of these estates a substantial amount of money to be used to pay to other creditors. This was accomplished through an Asset Allocation

Agreement reached between the Debtors, the Creditors Committee and the Senior Lenders, which was approved by the Court.

rejected

Debtors,

assumed

certain

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claims.

As discussed below, LabWest only recently made its final

designations of contracts and leases to be rejected or assumed and assigned. Therefore, the Debtors were only recently able to

ascertain the extent to which they can seek to recover security 5 deposits. 6 7 8 9 10 11 12 13 jointly 14 15 16 17 18 19 20 21 days ago, LabWest made its final designations regarding leases 22 and contracts to be rejected by the Debtors, or assumed by the 23 24 25 26 27 28 Debtors and assigned to LabWest. As a result, once the deadline intended to get a better handle on the large rejection claims that were in flux prior to LabWest making its final designations regarding leases and contracts to be rejected by the Debtors, or assumed by the Debtors and assigned to LabWest, before preparing a disclosure statement and plan so that creditors would have the best possible information when considering the plan. Several with the Creditors Committee. The Debtors always rejection and other claims against any security deposits. As of March 31, 2011, the Debtors were in possession of approximately $8.8 million of unencumbered cash. 2. The Debtors Goals in Chapter 11. The Debtors are in the process of formulating a liquidating plan and disclosure statement, which the Debtors expect to file It is likely that landlords will seek to set off

for parties to rejected contracts and leases to file rejection damage claims has passed (which will be in approximately 45

days), the Debtors and the Creditors Committee should be in a

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position to file a disclosure statement and liquidating plan with the Court. 3. The Principal Disputes and Problems Likely to be Encountered During the Course of the Debtors Reorganization Efforts. The Debtors are not aware of any problems likely to be encountered that would hinder the efforts of the Debtors (working together with the Creditors Committee) to propose, confirm and consummate a liquidating plan. 4. The Debtors Compliance with Their Duties Under 11 U.S.C. 521, 1106, 1107 and the Guidelines of the OUST. The Debtors timely filed their 7-Day Packages, Schedules of Assets within and any Liabilities, extensions the and of Statements provided requirement of by Financial Court the Affairs or

10 11 12 13

time The

order

14 15 16 17 18 19 20 21 compliance with their reporting and other requirements under the 22 Bankruptcy Code and the Guidelines of the OUST. 23 24 25 26 had an interest in the Debtors cash collateral. 27 28 After the 5. Parties with an Alleged Interest in the Debtors Collateral and the Debtors Use of Cash Collateral. Cash agreement with OUST. that Debtors

attend their Initial Debtor Interviews was waived by the UST. The Debtors 341(a) Meetings of Creditors were held and

concluded.

The Debtors are continuing to file their Monthly

Operating Reports and to pay quarterly OUST fees in due course. Based on the forgoing, the Debtors believe that they are in

As discussed above, on the Petition Date, the Senior Lenders

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Petition Date, the Debtors used cash collateral pursuant to cash collateral stipulations and orders of the Court. As a result of

the sale and the Asset Allocation Agreement, the Debtors are now using unencumbered funds to operate their estates.

5 6. 6 7 8 9 10 11 12 13 of litigation commenced by the Debtors prior to the Petition 14 15 16 17 18 19 20 21 approved by the Court. 22 7. 23 24 25 26 toward proposing and confirming a liquidating plan. 27 28 Evidence Regarding Projected Income and Expenses for the First Six Months of these Cases. The Debtors believe this item is now moot, as the Debtors ceased operations after their sale closed and are now working Date, and FTI Consulting, Inc. to provide a Chief Restructuring Officer and temporary employees and to have Matthew Pakkala of FTI serve as the Debtors Chief Restructuring Officer. the foregoing employment has been approved by the Court. The Official Committee of Unsecured Creditors has employed Buchalter Nemer as bankruptcy counsel, and that employment was All of The Debtors have employed Levene, Neale, Bender, Yoo & Brill L.L.P. as bankruptcy counsel; Kirkland & Ellis as special Professionals Retained and to be Retained by the Estates.

corporate counsel; Garvey Schubert Barer as special healthcare counsel; MTS Health Partners, LP as investment banker and

financial advisor; Callahan & Blaine, APLC as special litigation counsel to continue representing the Debtors in a discrete piece

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8.

Proposed Deadlines for the Filing of Claims and Objections to Claims. The Court set September 17, 2010 as the general claims bar

date. to

The Debtors provided notice of the general claims bar date alleged creditors, equity holders, and parties in

all

interest. The Debtors have conducted a significant analysis of the scheduled and filed claims in the Debtors cases. The Debtors

have already filed five omnibus objections to claims and some 10 11 12 13 14 15 16 17 stipulations 18 amendments to the Debtors Schedules of Assets and Liabilities. 19 20 21 22 23 24 25 26 27 28 As a result of the foregoing of efforts, that nearly are still all of the to have been approved by the Court, and made two specific objections to claims, whereby the Debtors objected to approximately 70 claims. The first three sets of omnibus

objections to claims were sustained by the Court.

The second two

sets of omnibus objections to claims are set for hearing in June 2011. into a In addition to the foregoing, the Debtors have entered number of stipulations resolving claims, which

relatively

small

number

claims

subject

potential claims objections relate to the contracts and leases that, until recently, were still subject to potential assumption or rejection by LabWest, and, therefore, could not be resolved on a final basis. The Debtors will also have to analyze any

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subsequent rejection damage claims that may be filed as a result of the final designation made by LabWest. 9. Proposed Deadline for the Filing of a Plan and Disclosure Statement. The Debtors request that the Court not set any deadline at this point for the filing of a plan or disclosure statement. The

Debtors are confident that they and the Creditors Committee will file a joint liquidating plan and disclosure statement at the appropriate time without the need for any Court imposed deadline.

10 11 12 13 14 15 16 17 10. 18 19 20 21 contracts as of the Petition Date (the Leases and Contracts). 22 Pursuant to the terms of the APA, (1) LabWest designated certain 23 24 25 26 27 28 Leases and Contracts for rejection by the Debtors, or assumption by the Debtors and assignment to LabWest on the Closing Date, and (2) LabWest had deadlines to make designations regarding other Leases and Contracts. Due to complications arising from the FTC Discussion of Significant Unexpired Leases and Executory Contracts and the Debtors Intent with Regard to Each. The Debtors were tenants under approximately 163 real For all of the reasons identified above, the Debtors expect to be in a position to file a joint liquidating plan and disclosure statement by around August 31, 2011 and to confirm that plan and at least make an interim distribution to unsecured creditors by the end of 2011. The Debtors continue to believe that imposing

deadlines is unnecessary.

property leases and had hundreds of non-real property leases and

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litigation extended

and

other time to

factors, time by

the

forgoing and/or

deadlines stipulation

were and

from

motion

orders of the Court. 13, 2011, and LabWest

As discussed above, just recently, on May its The final designations will regarding the

made

5 Leases 6 7 8 9 10 -and11 BIOLABS, INC. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 /s/ Ron Bender RON BENDER TODD M. ARNOLD LEVENE, NEALE, BENDER, YOO & BRILL L.L.P. Attorneys for Chapter 11 Debtors and Debtors in Possession notice and expect that all rejection claims will be filed in the next 30 to 45 days. Dated: May 19, 2011 WESTCLIFF MEDICAL LABORATORIES, INC. Contracts. Debtors provide appropriate

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NOTE: When using this form to indicate service of a proposed order, DO NOT list any person or entity in Category I. Proposed orders do not generate an NEF because only orders that have been entered are placed on the CM/ECF docket.

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, CA 90067 A true and correct copy of the foregoing document described as DEBTORS THIRD CHAPTER 11 CASE MANAGEMENT REPORT 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 May 20, 2011, 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: Raymond G Alvarado ralvarado@adorno.com Todd M Arnold tma@lnbrb.com Phillip Ashman mgolod@mcqueenashman.com, pashman@mcqueenashman.com;bkumamoto@mcqueenashman.com Richard L Barnett rick@barnettrubin.com, rlbsec@barnettrubin.com Ron Bender rb@lnbrb.com Ronald K Brown rkbgwhw@aol.com Jennifer Witherell Crastz jcrastz@hemar-rousso.com Carol J Fogleman mfrost@bwslaw.com Anthony A Friedman aaf@lnbrb.com John-patrick M Fritz jpf@lnbrb.com Jeffrey K Garfinkle bkgroup@buchalter.com, jgarfinkle@buchalter.com;lgoodwin@buchalter.com Fredric Glass fglass@fairharborcapital.com Nancy S Goldenberg nancy.goldenberg@usdoj.gov D Edward Hays ehays@marshackhays.com Michael J Heyman michael.heyman@klgates.com Mark D Houle mark.houle@pillsburylaw.com Jacqueline L James jlj@lnbyb.com Jeff D Kahane jkahane@duanemorris.com Andy Kong Kong.Andy@ArentFox.com Rodger M Landau rlandau@lgbfirm.com, kmoss@lgbfirm.com Matthew A Lesnick matt@lesnicklaw.com Michael B Lubic michael.lubic@klgates.com Frank F McGinn ffm@bostonbusinesslaw.com Elissa Miller emiller@sulmeyerlaw.com, asokolowski@sulmeyerlaw.com Aram Ordubegian ordubegian.aram@arentfox.com Ernie Zachary Park ernie.park@bewleylaw.com Richard Park Richard.Park@usdoj.gov Justin E Rawlins jrawlins@winston.com, docketla@winston.com Benjamin Seigel bseigel@buchalter.com, IFS_filing@buchalter.com David B Shemano dshemano@pwkllp.com Philip E Strok pstrok@wgllp.com United States Trustee (SA) ustpregion16.sa.ecf@usdoj.gov Howard J Weg hweg@pwkllp.com Sharon Z Weiss sharon.weiss@hro.com Joseph M Welch jwelch@buchalter.com

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Johnny White

, seb@blakeleyllp.com;bblakeley@blakeleyllp.com;rclifford@blakeleyllp.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 May 20, 2011, 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.
VIA OVERNIGHT MAIL Hon. Theodor 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 Committee-RSN Benjamin Seigel Jeffrey Garfinkle NEF * Buchalter Nemer 1000 Wilshire Boulevard, Suite 1500 Los Angeles, California 90017-2457 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 RSN City and County of San Francisco Treasurer/Tax Collector-Legal Section; Attn Robert L. Fletcher, Jr. P.O. Box 7426 San Francisco, CA 94120-7426 Service by U.S. MAIL or NEF if marked with * Debtors Westcliff Medical Laboratories, Inc. BioLabs, Inc. c/o FTI Consulting 633 West Fifth Street, 16th Floor Los Angeles, CA 90071 Counsel for LGSM Laguna Hills, LLC Ronald K. Brown, Jr. NEF* Law Offices of Ronald K. Brown, Jr. 901 Dove Street, Suite 120 Newport Beach, CA 92660 Steven A. Oldham, Sr. Staff Atty
State of CA, Dept. of Health Care Services

Frank Cadigan Nancy Goldenberg NEF * Terry Biers Office of the U.S. Trustee 411 West Fourth St. Suite 9041 Santa Ana, CA 92701 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 Counsel for Hologic, Inc. and Third Wave Technologies Jonathan Braverman Baker, Braverman & Barbadoro P.C. 50 Braintree Hill Office Park, Suite 108 Braintree, MA 02184-8734

Office of Legal Services-MS 0010 P.O. Box 997413 Sacramento, CA 95899-7413 RSN Counsel to Creditor Google Scott E. Blakeley/Johnny White Blakeley & Blakeley 2 Park Plaza, Suite 400 Irvine, CA 92614 Counsel for ACE Ron Oliner Duane Morris LLP Suite 2200 One Market Plaza, Spear Tower San Francisco, CA 94105-1127

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Counsel for ACE Jeff Kahane NEF * Duane Morris LLP 865 S. Figueroa Street, Suite 3100 Los Angeles, CA 90017-5450

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 Fill in Date Document is Filed, 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. May 20, 2011 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.

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August 2010

F 9013-3.1.PROOF.SERVICE

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