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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, RANKIN & BRILL L.L.P. 10250 Constellation Boulevard, Suite 1700 Los Angeles, California 90067 Telephone: (310) 229-1234; Facsimile: (310) 229-1244
Email: rb@lnbrb.com; jlr@lnbrb.com; tma@lnbrb.com; jpf@lnbrb.com

Proposed 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

Lead Case No. 8:10-bk-16743-TA Jointly Administered with Case No. 8:10-bk-16746-TA
Chapter 11 Cases SUBMISSION OF PROPOSED FORM OF NOTICE OF DEBTORS MOTION FOR AN ORDER: (1) APPROVING SALE OF SUBSTANTIALLY ALL OF THE DEBTORS ASSETS (EXCLUDING CASH AND ACCOUNTS RECEIVABLE) FREE AND CLEAR OF ALL LIENS, CLAIMS AND INTERESTS; (2) APPROVING OF DEBTORS ASSUMPTION AND ASSIGNMENT OF UNEXPIRED LEASES AND EXECUTORY CONTRACTS AND DETERMINING CURE AMOUNTS; (3) WAIVING THE 14-DAY STAY PERIODS SET FORTH IN BANKRUPTCY RULES 6004(h) AND 6006(d) AND HEARING THEREON Court Scheduled Hearing: Date: May 27, 2010 Time: 11:00 a.m. Place: Courtroom 5B 411 West Fourth Street Santa Ana, CA 92701-4593

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Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only

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1 Attached 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 notice that the above-captioned Chapter 11 debtors and debtors in possession herein intend to serve in connection with their hereto as Exhibit "1" is the proposed form of

pending motion for authority to sell assets free and clear of all liens, claims and interests. Dated: May 27, 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, RANKIN & BRILL L.L.P. (Proposed) Attorneys for Chapter 11 Debtors and Debtors in Possession

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EXHIBIT "1"

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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, RANKIN & BRILL L.L.P. 10250 Constellation Boulevard, Suite 1700 Los Angeles, California 90067 Telephone: (310) 229-1234; Facsimile: (310) 229-1244
Email: rb@lnbrb.com; jlr@lnbrb.com; tma@lnbrb.com; jpf@lnbrb.com

Proposed 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

Lead Case No. 8:10-bk-16743-TA Jointly Administered with Case No. 8:10-bk-16746-TA
Chapter 11 Cases NOTICE OF DEBTORS MOTION FOR AN ORDER: (1) APPROVING SALE OF SUBSTANTIALLY ALL OF THE DEBTORS ASSETS (EXCLUDING CASH AND ACCOUNTS RECEIVABLE) FREE AND CLEAR OF ALL LIENS, CLAIMS AND INTERESTS; (2) APPROVING OF DEBTORS ASSUMPTION AND ASSIGNMENT OF UNEXPIRED LEASES AND EXECUTORY CONTRACTS AND DETERMINING CURE AMOUNTS; (3) WAIVING THE 14-DAY STAY PERIODS SET FORTH IN BANKRUPTCY RULES 6004(h) AND 6006(d) AND HEARING THEREON Court Scheduled Hearing: Date: _________ Time: _________ Place: Courtroom 5B 411 West Fourth Street Santa Ana, CA 92701-4593

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Affects WESTCLIFF MEDICAL LABORATORIES, INC. only Affects BIOLABS, INC. only

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1 PLEASE TAKE NOTICE that a hearing will be held at the above2 3 4 5 6 7 8 9 and clear of all liens, claims and interests to Wave Newco, Inc. 10 11 12 13 14 15 16 17 causes 18 (collectively, the Purchased Assets); (B) pursuant to 11 U.S.C. 19 20 21 22 23 24 25 26 sale to close as quickly as possible; and (D) granting certain 27 28 365, (i) authorizing the Debtors to assume executory contracts and unexpired leases (Assumed Contracts and Assumed Leases) and assign them to Purchaser (or to a successful overbidder) and (ii) establishing the cure amounts, if any, payable under such Assumed Contracts and Assumed Leases; (C) waiving the 14-day stay periods set forth in Bankruptcy Rules 6004(h) and 6006(d) to enable the of action and certain other excluded assets) (Purchaser), a wholly-owned subsidiary of Laboratory referenced date, time and location, for the Court to consider approval of a motion (the Motion) filed by Westcliff Medical Laboratories, Inc. (Westcliff) and BioLabs, Inc. (BioLabs), the Chapter 11 debtors and debtors in possession herein

(collectively, the Debtors), for the entry of an order of the Court (A) pursuant to 11 U.S.C. 363(f) approving the sale free

Corporation of America (LabCorp) or to a successful overbidder at an auction sale to be conducted by the Debtors, of

substantially all of the Debtors tangible and intangible assets designated for acquisition by Purchaser or the winning bidder (excluding the Debtors cash, accounts receivable, avoidance

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other related relief, including authorizing the Debtors to enter into a Transition Agreement in connection with the sale closing. A copy of the Asset Purchase Agreement (APA) between the Debtors, LabCorp and Purchaser is attached as Exhibit 1 to the

5 Declaration of Matthew Pakkala which is annexed to the Motion 6 7 8 9 10 11 12 13 as Exhibit 3 to the Pakkala Declaration is a form of Transition 14 15 16 17 18 19 20 21 operate any business and its only material asset is its 100% 22 equity interest in Westcliff, which is a wholly-owned subsidiary 23 24 25 26 27 28 of BioLabs. The Debtors owe approximately $56 million (the Senior Agreement to be entered into in connection with the sale closing. Westcliff is the owner and operator of approximately 170 branded and stand-alone patient service center laboratories and STAT labs located 1,000 throughout employees California. and are The Debtors have (the Pakkala Declaration). Attached as Exhibit 2 to the

Pakkala Declaration is a list of all of the Contracts that may become Assumed Contracts and Assumed Leases and the amount of money that the Debtors believe needs to be paid to other parties to the Assumed Contracts and Assumed Leases to satisfy the cure requirements of Section 365(b) of the Bankruptcy Code. Attached

approximately

currently

generating

approximately $100 million of annual revenue.

BioLabs does not

Debt) to a group of lenders (the Senior Lenders) for whom GE Business Financial Services, Inc. acts as agent (in such

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capacity, the Senior Loan Agent).

The Senior Debt is secured

by a first priority security interest and lien against all or substantially all of the Debtors assets. Any other secured debt

of the Debtors is relatively small in nature and relates to liens 5 against only certain of the Debtors equipment. 6 7 8 9 10 11 12 13 on net revenue of approximately $97 million. 14 15 16 17 18 19 20 21 Debtors 22 growth strategy. 23 24 25 26 27 28 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. Indeed, the Debtors were only able to survive previously purchased as part of the Debtors overall While the Debtors instituted as many expense reductions as were reasonably possible, the Debtors losses continued. Since have a substantial amount of unsecured debt. 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 The Debtors also

Debtors suffered a net loss of approximately $13 million in 2009 (including expenses and write offs of approximately $110 million)

the beginning of 2009, the Debtors have been unable to make any debt service payments to the Senior Lenders, and the Debtors have been unable to remain current with their other debt obligations, including payments owing to former owners of companies the

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The only way the Debtors can survive as a stand alone going concern business would be for the Debtors to raise many millions of dollars of additional equity which is not possible given the Debtors debt structure. It therefore became clear to the

5 Debtors in early 2009 that the only viable option available to 6 7 8 9 10 11 12 13 engaged MTS Health Partners, LP (MTS) in October, 2009 as a 14 15 16 17 18 19 20 21 negotiations with a number of different prospective buyers over 22 the past many months, MTS and the Debtors collectively concluded 23 24 25 26
1

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 have therefore been engaged in an active

sale process since early 2009. To assist the Debtors with this sale process, the Debtors

financial advisor to assist the Debtors with their sale process.1 MTS, working closely with the Debtors, conducted an exhaustive sale process, having prepared detailed sale materials and having had extensive discussions and interactions with numerous

prospective buyers, both strategic buyers and financial buyers.2 After having engaged in substantial due diligence and

that LabCorp was the optimal buyer of the Debtors assets for three primary reasons. First, LabCorp, which is in the same

27 28

The Debtors had used other professionals for this same purpose in the past. A complete listing of the parties contacted by MTS is attached as Exhibit 5

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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

5 prospective 6 7 8 9 10 11 12 13 additional 14 15 16 17 18 19 20 21 the Purchased Assets), the Debtors and MTS believe that it is 22 highly 23 24 25 26 27 28
to the Declaration of Curtis Lane annexed to the Motion. 3 LabCorp has established Purchaser as a wholly-owned subsidiary of LabCorp

buyer.

Third,

LabCorp

clearly

has

the

financial

means to consummate its purchase of the Debtors assets.3 As indicated in Section 3.1 of the APA, subject to certain adjustments, Purchaser has agreed to pay to the Debtors the sum of $57.5 million for the Purchased Assets, while leaving with the Debtor, among other the things, Debtors of all of the Debtors result accounts in for an the

receivable

(which net

estimate

will

recovery

approximately

$8,000,000

Debtors estates) and all of the Debtors cash. MTS believe that the purchase price offered

The Debtors and by Purchaser is

substantially higher than the purchase price that any other buyer would be willing to pay for the Purchased Assets. While the purchase price being paid by Purchaser is subject to overbid (to insure that the highest price possible is paid for

unlikely

that

there

is

any

other

buyer

that

will

be

willing to pay more for the Purchased Assets than Purchaser has offered. Moreover, the Debtors and MTS do not believe that the

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prospect for a successful overbid would increase with the passage of time. To the contrary, the Debtors believe that it is

critical that the Debtors consummate an immediate sale of the Purchased Assets because of the severe risk of a deterioration of

5 Westcliffs 6 7 8 9 10 11 12 13 harm to the Debtors business, creditors and bankruptcy estates. 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

solely for the purpose of acquiring the Purchased Assets. 4 Purchase Price Decrease Adjustment is defined in the definitional Section of the APA as the product of (a) ((Baseline Volume times 0.95) minus Measurement Period Volume) times (b) $1,202.00. Material Adverse Change is defined in the definitional Section of the APA as an amount equal to 0.17 or more determined using the following formula: the quotient of (a) (the Baseline Volume minus the Measurement Period Volume); divided by (b) the Baseline Volume. For purposes of clarification, the Material Adverse Change may be expressed as a percentage equal to or greater than Seventeen Percent (17%). By way of example, if the Baseline Volume is 9,500 and the Measurement Period Volume is 7,885, then the calculation shall be equal to 0.17 and a Material Adverse Change shall have occurred.
5

business

resulting

from

the

Debtors

bankruptcy

filings. industry, Westcliff extended

This is a highly sensitive and extremely competitive and will period the be Debtors able of to and Purchaser its do not believe base a for that any in

retain while

customer as

time

operating

debtor

bankruptcy.

The Debtors believe that an expedited sale of the

Debtors business is necessary to avoid immediate and irreparable

As set forth in Section 3.1 of the APA, the purchase price being paid by Purchaser will be adjusted downward if there is a meaningful reduction in Westcliffs post-petition business volume pending reduction the closing the of the sale4. of a Moreover, Material should that

reach

level

Adverse

Change5,

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Purchaser has the ability to walk away from this transaction completely. close the The risks to the Debtors estates of failing to sale of the Purchased Assets to Purchaser on an

expedited basis are therefore severe. 5 that 6 7 8 9 10 11 12 13 minimal value. 14 15 16 17 18 19 20 21 Debtors will either be forced to if they fail to consummate the

The Debtors have no doubt sale to their Purchaser, business the for

sell

substantially less money than Purchaser has offered, or, worse, the Debtors will have to shut down their business and liquidate, which would result in the loss of approximately 1,000 jobs and the decimation of any going concern value of the Debtors

business.

A liquidation of the Debtors business would have

The Debtors believe that proceeding with a sale in such an expedited manner serves only to the substantial benefit of the Debtors estates. Given the lengthy and exhaustive pre-petition

sale process that the Debtors embarked upon, with the valuable assistance of MTS, the Debtors and MTS are highly confident that any potential overbidder has been identified and is extremely knowledgeable about the Debtors business and the opportunity to

22 purchase the Purchased Assets. 23 24 25 26 27 28 believe that if there is any party willing and able to pay more for the Debtors business than Purchaser has offered, they can do so within the time frame requested by the Debtors and nothing would change for the better if that time frame was expanded. To The Debtors and MTS therefore

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the

contrary,

the

risk

to

the

Debtors

business

of

customer

attrition and a corresponding reduction in the purchase price to be paid by Purchaser (or worse a complete walk away by Purchaser) from a protracted sale process is severe and significantly

5 greater than any possible benefit that could be obtained from 6 7 8 9 10 11 12 13 the result obtained from the sale of the Purchased Assets to 14 15 16 17 18 19 20 21 interest in or connection with the Purchaser, and no insider of 22 the Debtors will be receiving any special benefit as a result of 23 24 25 26 27 28 the Debtors sale of the Purchased Assets to Purchaser. The Purchaser is the overwhelmingly optimal result for the Debtors estates. The APA was extensively negotiated between the Debtors and Purchaser in good faith, arms-length negotiations, including speculating that a higher price might be paid for the Purchased Assets. The APA was extensively negotiated between the Debtors and Purchaser in good faith, arms-length negotiations, including

exchanges of multiple drafts of asset purchase agreements over an extended period of time. The Debtors and MTS have no doubt that

exchanges of multiple drafts of asset purchase agreements over an extended period of time. No insider of the Debtors has any

Debtors and MTS believe that the result obtained from the sale of the Purchased Assets to Purchaser is the overwhelmingly optimal result for the Debtors estates.

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The Debtor will conduct an auction sale of the Purchased Assets (in open court at the hearing on this Motion or prior to the hearing on this Motion outside of the Court, whichever the Court would prefer). After the auction, the Debtor will request the sale of the Purchased Assets to

5 the 6 7 8 9 10 11 12 13 and 14 15 16 17 18 19 20 21 8.4(b) and 8.8 of the APA). 22 claims against the Debtors of more than $56 million. 23 24 25 26 27 28 negotiated settlement, resolution of these litigation claims Absent a The qui tam litigants assert interests of the Debtors estates. As described in detail in a concurrently filed settlement motion, Purchaser is not willing to consummate its purchase of the Debtors business unless the Debtors are able to obtain an order of the Court approving a pre-bankruptcy settlement the interests (Encumbrances) is in the overwhelming best the Purchaser or to a successful overbidder. For all of these reasons and those set forth in the Motion, Debtors in believe that selling the the terms Purchased of the APA Assets or to to a Court to approve

Purchaser

accordance

with

successful overbidder (in the event of a successful overbid made at the auction) free and clear of all liens, claims, encumbrances

Debtors reached with various qui tam litigants.

(See Sections

would have taken years, which would have made it impossible for the Debtors to consummate a going concern sale of their business to Purchaser. All other buyers would have required the same

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closing

condition

because

any

buyer

of

the

Debtors

business

would insist on knowing that it has no monetary liability to the qui tam claimants and no ongoing reporting requirements to the State of California. It would therefore not have been possible have obtained Purchasers pre-bankruptcy

5 for 6 7 8 9 10 11 12 13 receiving 10% of the net sale proceeds (after a deduction for all 14 15 16 17 18 19 20 21 discussion in order to achieve this result. 22 While the Senior Lenders are owed approximately $56 million 23 24 25 26 27 28 on account of the Senior Debt which is secured by a first transaction expenses). Particularly given the expedited nature of this sale, both the Debtors and the Senior Lenders recognize that it is very important that the sale of the Purchased Assets to Purchaser inure to the benefit of all creditors. Senior Lenders therefore engaged in a The Debtors and the substantial amount of agreement to the APA had the Debtors not been able to obtain a pre-bankruptcy settlement with the qui tam claimants. Court the Debtors to

approval of that settlement agreement is therefore critically important and a condition precedent to the Closing of the

Debtors sale of the Purchased Assets to Purchaser. that settlement agreement, the qui tam

Pursuant to will be

claimants

priority security interest and lien against all or substantially all of the Debtors assets, in order to help facilitate an

expedited sale of the Debtors business for the benefit of all

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constituents in these cases, it is the Debtors expectation based upon numerous Lenders which conversations and is the with the Senior Lenders any that the

Senior

Debtors

(along use

with their

Creditors best

Committee 5 6 7 8 9 10 11 12 13 14 15 16 17

appointed)

will

reasonable

efforts to attempt to negotiate a mutually acceptable allocation of the sale proceeds prior to the hearing on this Motion. The following is a detailed description of the Debtors

currently projected distributions in these cases based upon the best information available to the Debtors at this time6: $57,500,000 gross sale proceeds ($2,850,000) estimated reduction for lease and contract cure costs and set aside of funds for Equipment Lenders $54,650,000 remaining net sale proceeds ($5,200,000) payment of qui tam settlement ($1,150,000) payment of MTS remaining unpaid transaction fee $48,300,000 - net remaining sale proceeds

18 $1,086,000 estimated remaining cash at Closing7 19 20 21 22 23 24 25 26 27 28

6
7

$8,000,000 estimated net collections from outstanding accounts receivable remaining at the Closing8
This assumes no purchase price reduction by Purchaser.

This figure is the Debtors current best estimate based upon the Debtors projections but this figure could be higher or lower depending upon a number of factors, including the Debtors operating performance pending the Closing, the timing of the Closing and any settlements with vendors (including preclosing assumption of vendor contracts). This figure also does not take into account the $2 million that the Debtors are required to place into a segregated Payroll Account for approximately 120 days pursuant to the Transition Agreement with Purchaser as the Debtors expect that they will ultimately receive all of these funds back. 8 This figure assumes a net collection equal to 63% of the book amount of the Debtors accounts receivable which are projected to be approximately $12.6

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1 2 3 4 5 6 7 8 9 unpaid balance of approximately $522,853.67. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

million at the time of the Closing. 9 This figure assumes that the bankruptcy cases will be concluded in November, 2010.
10

$57,386,000 total projected funds available for wind-down costs of the Debtors and their bankruptcy estates and distribution to pre-petition creditors ($2,900,000) total projected wind-down costs of the Debtors9 $54,486,000 total estimated funds available to be distributed to pre-petition creditors, including the Senior Lenders10

The Debtors books and records show that there are eight (8) leases which were intended as security, which have an aggregate Six (6) of these

secured equipment lenders recorded UCC financing statements with the California Secretary of State purporting to perfect their security interests and liens upon their respective equipment. These eight (8) purported secured equipment lenders

(collectively, the Equipment Lenders) and the unpaid balances owed to these Equipment Lenders are summarized as follows: Equipment agreement
1. Liens asserted by Leasing Associates of Barrington with regard to property covered by UCC financing statement file number 20087153046125 recorded with the California Secretary of State on April 7, 2008. 2. Liens asserted by Leasing Associates of Barrington with regard to property covered by UCC financing statement file number

Unpaid balance
$72,787.27

$62,004.97

As indicated above, it is the Debtors expectation that the Senior Lenders and the Debtors (along with any Creditors Committee which is appointed) will use their reasonable best efforts to attempt to negotiate a mutually acceptable allocation of these remaining sale proceeds prior to the hearing on this Motion.

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20087163605844 recorded with the California Secretary of State on July 1, 2008 3. Liens asserted by Jules & Associates, Inc. with regard to property covered by UCC financing statement file number 20087142579518 recorded with the California Secretary of State on January 7, 2008. 4. Liens asserted by M&I Marshall & Ilsley Bank with regard to property covered by UCC financing statement file number 20067087720380 recorded with the California Secretary of State on October 10, 2006. 5. Liens asserted by Norlease, Inc. with regard to property covered by UCC financing statement file number 20067081998664 recorded with the California Secretary of State on August 18, 2006. 6. Liens asserted by Norlease, Inc. with regard to property covered by UCC financing statement file number 20067081998785 recorded with the California Secretary of State on August 18, 2006. 7. Liens asserted by Baytree Leasing (with regard to Lease No. 2953 pertaining to a Dade Behring Dimension Xpand HM Plus Analyzer) NO UCC financing statement recorded by Baytree Leasing with respect to this property. 8. Liens asserted by Americorp/ACL Elite (with regard to an ACL Elite Coagulation System) NO UCC financing statement recorded by Americorp/ACL Elite with respect to this property. $116,936.92

$41,440.30

$128,455.89

$99,747.30

$116,170

$31,900

TOTAL

$522,953.67

The Debtors are required to deliver the Purchased Assets to Purchaser free and clear of all Encumbrances, including the liens asserted by the Equipment Lenders described above. In connection

with the Motion, the Debtors are requesting that all liens of all secured creditors, including all liens of the Equipment Lenders, attach to the net proceeds to be received by the Debtors from the

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sale of the Purchased Assets in the same validity and priority and subject to the same defenses and avoidability, if any, as before the Closing. Additionally, upon the Closing, the Debtors

will segregate and impound the total sum of $522,853.67 into a 5 separate 6 7 8 9 10 11 12 13 Equipment Lenders, all of which are being satisfied in the manner 14 15 16 17 18 19 20 21 22 23 24 25 26 Purchaser may elect to have the Debtors assume and assign to 27 28 Schedule unexpired 2.4(a) and to the APA lists all of the Debtors that UNEXPIRED LEASES AND EXECUTORY CONRACTS TO BE ASSUMED BY THE DEBTORS AND ASSIGNED TO THE PURCHASER described above, the Debtors are not aware of the existence of any other Encumbrances against the Purchased Assets. If any asserted by the Equipment Lenders to attach to such funds in the same validity and priority and subject to the same defenses and avoidability, if any, as before the Closing. The Debtors reserve bank account, with the liens, claims and interests

all of their rights and claims with respect to any liens and claims asserted by the Equipment Lenders. Other than the liens of the Senior Lenders and those of the

other Encumbrances do exist, the sale order provides for all such liens to attach to the proceeds of the sale in the same validity and priority and subject to the same defenses and avoidability, if any, as before the Closing.

leases

executory

contracts

(Contracts)

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Purchaser at or following the Closing.

Purchaser will have until

the Closing to designate which of such Contracts it chooses to purchase and have the Debtors assume and assign to Purchaser at the Closing (Initial Designated Contracts). In addition, on or

5 before the first Business Day following the 30th calendar day 6 7 8 9 10 11 12 13 and such date being referred to as the Contract Designation 14 15 16 17 18 19 20 21 Excluded 22 Contracts) or Schedule B-2 (Excluded Leases), as the case may be. 23 24 25 26 27 28 Second, there in shall writing be at certain Closing Contracts that shall that be Purchaser Assets on Schedule 2.2, Schedule B-1 (Excluded Date). In order to clarify the above among the parties, at the Closing the remaining Contracts listed on Schedule 2.4(a) of the APA will be segregated into three (3) categories scheduled as follows. First, there shall be Contracts specifically rejected after the Closing Date with respect to Leases and the 180th

calendar day after the Closing Date with respect to all other Contracts, Purchaser may designate additional Contracts it

chooses to purchase and have the Debtors assume and assign to Purchaser (Subsequent Designated Contracts and, collectively

with the Initial Designated Contracts, the Designated Contracts

in writing by Purchaser on Closing, which shall be listed as

identifies

specifically

assumed by the Debtors and assigned to Purchaser at Closing, which shall be set forth on Schedule 2.4(a)-1 and upon assignment

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to Purchaser shall become an Assumed Contract or Assumed Lease, as the case may be; provided, that, in the event that any such Contract is listed on either Schedule 2.4(a)-2 or Schedule B-1 or Schedule B-2 as of the date of the APA, such Contract shall be

5 treated 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 notice purposes, all included on Schedule 2.4(a)-1. 22 Exhibit 23 24 25 26 27 28 contains all of the foregoing information as well as a 2 to the Pakkala Declaration is a schedule which Attached as Date or the 180th calendar day after the Closing Date, as Section 7.12 of the APA. that Purchaser shall Third, there shall be certain Contracts purchase or reject at the Closing as a Subsequent Designated Contract for purposes of

not

(Potential Subsequent Designated Contracts), which shall be set forth on Schedule 2.4(a)-2. Contracts Purchaser shall become the The Potential Subsequent Designated Designated writing Contracts the if

Subsequent Debtors in

notifies

before

first

Business Day following the 30th calendar day after the Closing

applicable, of its intent to have any such Contract(s) assigned to it. The Designated Contracts shall be identified by (i) the name and date of the Designated Contract, (ii) the other party to the Designated Contract and (iii) the address of such party for

description of the amounts the Debtors believe are necessary to cure any defaults under each of the Contracts that Purchaser may elect to have the Debtors assume and assign to Purchaser at or

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following the Closing based on the Debtors books and records, and a procedure for transferring to Purchaser the rights to any security Contract. deposits with the other party to any Designated

5 In connection with the Motion, the Debtors are requesting an 6 7 8 9 10 11 12 13 Bankruptcy Code. 14 15 16 17 18 19 20 21 Designated Contracts shall become Assumed Contracts and Assumed 22 Leases, as the case may be, for purposes of the APA, which means 23 24 25 26 27 28 that they will be assumed by the Debtors and assigned to that fails to file a timely objection to the Motion should be deemed to have consented to the Debtors proposed cure amount and be forever barred from challenging the Debtors proposed cure amount. In connection with the Motion, the Debtors are requesting an order of the Court providing that as of the Closing, all Initial The Debtors therefore submit that any party order of the Court providing that the cure amounts set forth in Exhibit 2 to the Pakkala Declaration be the cure amounts which the Debtors must pay to the other parties to the Contracts that Purchaser may elect to have the Debtors assume and assign to Purchaser at or following the Closing to enable the Debtors to satisfy the cure requirements of Section 365(b)(1)(A) of the

Purchaser effective as of the Closing.

In connection with the

Motion, the Debtors are also requesting an order of the Court providing that as of the applicable Contract Designation Date,

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all

Subsequent

Designated

Contracts

shall

become

Assumed

Contracts and Assumed Leases, as the case may be, for purposes of the APA, which means that they will be assumed by the Debtors and assigned to Purchaser effective as of the applicable Contract

5 Designation Date. 6 7 8 9 10 11 12 13 Purchaser shall provide any other parties to any Designated 14 15 16 17 18 19 20 21 assumption 22 Contracts. 23 24 25 26 27 28 Prospective overbidders at the Auction Sale will also be required to provide as part of their bid package, evidence and assignment to Purchaser of the Designated Contracts who request in writing such financial information as is reasonably required to enable Purchaser to satisfy the adequate assurance of future performance requirements of 11 U.S.C. In connection with the Debtors assumption and assignment to Purchaser of the Designated Contracts, Purchaser shall be deemed to have assumed any on-going liabilities and obligations in

connection with all Designated Contracts, and the Debtors will be responsible for the payment of all cure costs identified on

Exhibit 2 to the Pakkala Declaration.

365(b)(1)(C) with respect to all Designated Contracts.

Purchaser

will also otherwise cooperate with the Debtors to assist the Debtors to obtain an order of the Court approving of the Debtors

demonstrating that they can provide adequate assurance of future performance as required by Section 365 of the Bankruptcy Code

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with respect to any unexpired leases and executory contracts that they wish to have assigned to them if they are the winning bidder at the Auction. In connection with the Motion, the Debtors are requesting an

5 order of the Court providing that all of the Excluded Contracts 6 7 8 9 10 11 12 13 sale of the Purchased Assets and the Debtors assumption and 14 15 16 17 18 19 20 21 relief requested by the Debtors in the Motion must, on before May 22 __, 2010, be filed with the Court and served by same day service 23 24 25 26 27 28 upon counsel to the Debtors, whose contact information is set forth in the upper, left-hand corner of the first page of this Notice, and counsel to Purchaser, Michael B. Lubic, Esq., K&L assignment of the Assumed Contracts and Assumed Leases be and all of the Excluded Leases will be deemed rejected as of the Closing, with the Debtors reserving the right to supplement this list as the Debtors obtain additional information from Purchaser. In order to facilitate the most expeditious sale closing possible and to avoid immediate and irreparable harm, in the Motion, the Debtors are requesting that any order approving the

effective immediately upon entry by providing that the fourteenday waiting periods of Bankruptcy Rule 6004(h) and 6006(d) are waived, and that any delay period provided in Bankruptcy Rule 6003 be waived. PLEASE TAKE FURTHER NOTICE that any objection to any of the

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Gates

LLP,

10100

Santa

Monica

Blvd.,

7th

Floor,

Los

Angeles,

California 90067. PLEASE TAKE FURTHER NOTICE that the Court may deem the

failure of any party in interest to file a timely objection to 5 the Motion to constitute consent to all of the relief requested 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 by the Debtors in the Motion. Dated: May 27, 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, RANKIN & BRILL L.L.P. (Proposed) Attorneys for Chapter 11 Debtors and Debtors in Possession

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