CORAM HEALTHCARE CORP, 10-Q, 1995-11-14

CORAM HEALTHCARE CORP
10-Q, 1995-11-14
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------------

FORM 10-Q

---------------------

/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-11343

CORAM HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 33-0615337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1125 SEVENTEENTH STREET
SUITE 1500
DENVER, CO 80202
(Address of principal executive office) (Zip Code)
</TABLE>

Registrant's telephone number, including area code: (303) 292-4973

---------------------

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/ NO / /

The number of shares outstanding of the Registrant's Common Stock, $.001 par
value, as of November 09, 1995 was 40,369,015.

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<PAGE> 2

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, INCLUDING SHARES)

ASSETS

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................ $ 40,481 $ 13,588
Restricted cash.................................................. 13,469 6,458
Investment in available-for-sale securities...................... -- 16,546
Accounts receivable, net of allowance of $81,208 and $17,990..... 173,063 109,087
Inventories...................................................... 18,086 11,864
Prepaid taxes.................................................... 32,228 11,510
Deferred income taxes, net....................................... 15,124 31,893
Other current assets............................................. 11,119 7,251
--------- --------
Total current assets..................................... 303,570 208,197
Property and equipment, net........................................ 40,010 25,902
Joint ventures and other assets.................................... 48,152 6,262
Deferred income taxes non-current.................................. 556 556
Other deferred costs and intangible assets......................... 14,033 2,284
Goodwill, net...................................................... 346,292 333,238
--------- --------
Total assets....................................................... $ 752,613 $576,439
========= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................. $ 92,732 $ 27,098
Current maturities of long-term debt............................. 48,645 5,911
Deferred income taxes............................................ 5,818 5,788
Liabilities for securities sold under agreement to repurchase.... -- 7,430
Reserve for litigation........................................... 3,698 22,720
Accrued merger and restructuring................................. 51,233 43,594
Other accrued liabilities........................................ 64,858 11,845
--------- --------
Total current liabilities................................ 266,984 124,386
Long-term debt, including revolving lines of credit................ 450,391 119,726
Minority interest in consolidated joint ventures................... 4,296 6,599
Other liabilities.................................................. 3,333 1,945
Deferred income taxes non-current.................................. 1,521 1,522
Stockholders' equity:
Common stock par value $.001, authorized 75,000 shares, issued
40,346 in 1995 and 38,964 in 1994............................. 40 39
Additional paid-in capital....................................... 361,293 341,328
Unrealized loss on available-for-sale securities................. -- (279)
Retained deficit................................................. (335,245) (18,827)
--------- --------
Total stockholders' equity............................... 26,088 322,261
--------- --------
Total liabilities and stockholders' equity......................... $ 752,613 $576,439
========= ========
</TABLE>

See accompanying notes to the condensed consolidated financial statements.

1
<PAGE> 3

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Net revenue.......................................................... $ 164,741 $ 110,206
Cost of service...................................................... 129,674 78,773
--------- ---------
Gross profit......................................................... 35,067 31,433
Operating expenses:
Selling, general and administrative expenses....................... 38,848 20,927
Provision for estimated uncollectible accounts..................... 36,518 21,461
Amortization of goodwill........................................... 2,947 2,158
Write-off of goodwill.............................................. 203,373 --
Provision for T2 litigation settlements............................ -- 6,020
Merger expenses.................................................... -- 28,500
Restructuring costs................................................ -- 95,500
--------- ---------
Total operating expenses................................... 281,686 174,566
--------- ---------
Operating loss....................................................... (246,619) (143,133)
Other income (expense):
Interest expense................................................... (14,236) (2,068)
Minority interest in net income of consolidated joint ventures..... (2,566) (3,477)
Other income (expense), net........................................ (1,445) 655
--------- ---------
Loss before income taxes............................................. (264,866) (148,023)
Income tax benefit................................................... (10,204) (26,847)
--------- ---------
Net loss............................................................. $(254,662) $(121,176)
========= =========
Net loss per share................................................... $ (6.38) $ (3.14)
========= =========
Weighted average common shares outstanding........................... 39,915 38,636
========= =========
</TABLE>

See accompanying notes to the condensed consolidated financial statements.

2
<PAGE> 4

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Net revenue.......................................................... $ 448,870 $ 336,918
Cost of service...................................................... 343,122 233,079
--------- ---------
Gross profit......................................................... 105,748 103,839
Operating expenses:
Selling, general and administrative expenses....................... 98,045 59,504
Provision for estimated uncollectible accounts..................... 56,579 32,170
Amortization of goodwill........................................... 10,504 6,435
Write-off of goodwill.............................................. 203,373 --
Merger expenses.................................................... -- 28,500
Provision for T2 litigation settlements............................ -- 23,220
Restructuring costs................................................ 21,370 95,500
--------- ---------
Total operating expenses................................... 389,871 245,329
--------- ---------
Operating loss....................................................... (284,123) (141,490)
Other income (expense):
Interest expense................................................... (31,625) (4,710)
Minority interest in net income of consolidated joint ventures..... (8,769) (9,005)
Other income, net.................................................. 186 2,804
--------- ---------
Loss before income taxes and extraordinary items..................... (324,331) (152,401)
Income tax benefit................................................... (11,309) (25,436)
--------- ---------
Loss before extraordinary item....................................... (313,022) (126,965)
Extraordinary loss -- early extinquishment of debt (no income tax
benefit)........................................................... (3,396) --
--------- ---------
Net loss............................................................. $(316,418) $(126,965)
========= =========
Net loss per share:
Loss before extraordinary item..................................... $ (7.86) $ (3.30)
Extraordinary item................................................. (0.08) --
--------- ---------
Net loss........................................................... $ (7.94) $ (3.30)
========= =========
Weighted average common shares outstanding........................... 40,180 38,462
========= =========
</TABLE>

See accompanying notes to the condensed consolidated financial statements.

3
<PAGE> 5

CORAM HEALTHCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1994
--------- --------
<S> <C> <C>
Net cash used by operating activities................................. $ (19,859) $(10,176)
Cash flows from investing activities:
Proceeds from sale and maturities of available-for-sale
securities....................................................... 10,817 10,429
Purchases of property and equipment................................. (3,489) (7,187)
Payments for acquisition of businesses, net of cash acquired........ (240,633) (58,090)
Other............................................................... 117 (9,879)
--------- ---------
Net cash used by investing activities....................... (233,188) (64,727)
--------- ---------
Cash flows from financing activities:
Sales of common stock, net of repurchases and issuance costs........ 8,693 6,174
Borrowings (repayments) of lines of credit, net..................... (103,120) 73,169
Debt borrowings..................................................... 557,000 --
Repayment of debt................................................... (180,785) (7,324)
Other............................................................... (1,848) (2,059)
--------- ---------
Net cash provided by financing activities................... 279,940 69,960
--------- ---------
Net increase (decrease) in cash....................................... 26,893 (4,943)
Cash at beginning of period........................................... 13,588 22,971
--------- ---------
Cash at end of period................................................. $ 40,481 $ 18,028
========= =========
</TABLE>

See accompanying notes to the condensed consolidated financial statements.

SUPPLEMENTAL INFORMATION:

Depreciation and amortization was $25,915 in 1995 and $13,808 in 1994.

4
<PAGE> 6

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995

1. BASIS OF PRESENTATION

Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements have been prepared by Coram Healthcare Corporation (the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such regulations. The
condensed consolidated financial statements reflect all adjustments and
disclosures which are, in the opinion of management, necessary for a fair
presentation. All such adjustments, other than those relating to the acquisition
of the Caremark Business (as defined below), write-off of goodwill,
consolidation, restructuring, termination of the proposed merger with Lincare
Holdings Inc. ("Lincare") and litigation settlements are of a normal recurring
nature. The results of operations for the interim periods are not necessarily
indicative of the results of the full fiscal year. Certain 1994 Financial
Statement amounts have been reclassified to conform with the September 30, 1995
presentation.

Goodwill. Effective April 1, 1995 the Company implemented Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Accordingly, the
carrying value of goodwill is reviewed at least quarterly. If such review
indicates that goodwill will not be recoverable, based on undiscounted estimated
cash flows over the remaining amortization period, the carrying value of
goodwill would be reduced to the estimated fair market value.

During the third quarter of 1995, the Company reviewed its goodwill with
particular focus on the extent to which the carrying value of the goodwill was
in excess of its fair market value. As a result of this review, the Company
determined that the incremental net goodwill of $203.4 million added as a result
of the acquisition of the Caremark Business, as defined below, had no value and
it was therefore written off.

The Company continues to closely monitor its remaining goodwill. If
sufficient cash flow from operations is not achieved, the Company may be
required to write down such goodwill in the future. Any such write down could
have a material adverse effect on the Company's financial position and results
of operations. Reference is made to the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Background" set forth herein.

Provision for Estimated Uncollectible Accounts. Management regularly
reviews the collectibility of accounts receivable and makes adjustments to the
provision for estimated uncollectible accounts as needed to reflect current
collection and other trends and changes in assessment of realizable value. The
Company has continued to become more sophisticated in its approach to the
estimation process as it gains experience with estimates for the consolidated
entities.

As part of the Caremark Business Consolidation Plan (as defined below) the
Company undertook the conversion of its billing and accounts receivable system
to the acquired Caremark Business system while at the same time it reorganized
the acquired Caremark Business reimbursement function from a centralized to a
decentralized organization. Personnel and system changes were far more
disruptive than anticipated, resulting in significant delays in billing and
difficulties in receiving timely reimbursements. Because of this, the Company
experienced larger write-offs than originally estimated and, therefore, has
increased its allowance for estimated uncollectible accounts by a special charge
of $20.0 million resulting in total charges of $36.5 million in the quarter
ended September 30, 1995.

In connection with the Coram Consolidation Plan (as defined below) and as a
result of the Company's decision to implement standardized policies for
recognition of allowances, de-emphasize certain businesses and provide for the
potential disruptions expected during the merger and post-merger transition
process, the Company recorded a special charge of $17.3 million in September
1994, for anticipated uncollectible accounts and other receivables. In
establishing this reserve, the Company evaluated the aging of trade receivables
since the merger process began and evaluated the impact of ending relationships
with certain centers. This

5
<PAGE> 7

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

consolidation process included a broad restructuring of the Company's
reimbursement organization and systems, including the decentralization of
centralized collection activities located in four locations and the relocation
of such activities to 100 branch locations.

2. ACQUISITIONS AND RESTRUCTURINGS

Caremark Business Acquisition. Effective April 1, 1995, the Company
acquired substantially all of the assets used in the alternate site infusion and
certain related businesses (collectively the "Caremark Business") of Caremark
Inc. ("Caremark"), a California corporation and wholly-owned subsidiary of
Caremark International, Inc. ("Caremark International"), for $209 million in
cash and $100 million aggregate principal amount of Junior Subordinated
Pay-In-Kind Notes (the "Junior Subordinated PIK Notes"), plus assumption of
specified liabilities of the Caremark Business. The Company also incurred
approximately $7.5 million of acquisition costs. In connection with the
acquisition of the Caremark Business, the Company repaid all of its indebtedness
under its then existing credit facility. The cash paid by the Company in
connection with the acquisition of the Caremark Business and the repayment of
indebtedness, together with related fees and expenses, were financed through:
(i) borrowings of approximately $205 million under a Senior Credit Facility with
Chemical Bank as Agent (the "Senior Credit Facility") and (ii) $150 million from
the issuance of a subordinated bridge note (the "Bridge Note") to an affiliate
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"). The acquisition
was accounted for by the purchase method of accounting and the results of the
Caremark Business have been included in the accompanying condensed consolidated
financial statements since the date of acquisition. In connection with the
purchase, the Company has determined that the fair values of acquired
identifiable intangible and tangible assets approximate $172.7 million,
consisting principally of accounts receivable of $101.0 million (net of a $37.0
million reduction in carrying value of certain acquired accounts receivable),
intangibles of $28.1 million and property and equipment of $31.4 million. In
addition, liabilities of approximately $61.1 million were assumed, including
$11.4 million of costs of exiting certain Caremark Business activities. The cost
in excess of identifiable net assets acquired of $204.9 million was allocated to
goodwill. In the third quarter of 1995, it was determined that the incremental
goodwill added in the acquisition of the Caremark Business had no value and its
balance of $203.4 million, net of amortization, was therefore written off.

On September 11, 1995, as amended October 6, 1995, the Company filed suit
against Caremark and Caremark International, alleging fraudulent
misrepresentations of the value of accounts receivable and amounts of revenues,
concealment of important information concerning a criminal investigation of
Caremark's business practices, and other material misrepresentations and
breaches of contract terms. The suit seeks relief in the form of damages,
including damages to the Company's business resulting from the
misrepresentations and breaches, aggregating $5.2 billion. On October 12, 1995,
Caremark and Caremark International filed suit against the Company alleging
fraudulent misrepresentation in its purchase of the Caremark Business and
seeking damages of at least $100 million. The Company believes it has
meritorious defenses in this action, but due to the uncertainties inherent in
the early stages of litigation, no assurance can be given as to the ultimate
outcome of either of these suits at this time. Accordingly, no provision for any
loss or recovery that may result upon resolution of the suits has been made in
the consolidated financial statements.

6
<PAGE> 8

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

The following table presents unaudited, pro forma information as if the
Company's acquisition of the Caremark Business, including Caremark's purchase of
assets and assumption of certain liabilities of Critical Care of America, Inc.
("CCA"), effective March 1, 1994, had occurred on January 1, 1994. The
unaudited, pro forma information is provided for comparative purposes only and
is not necessarily indicative of the results that would have been obtained had
the acquisitions of the Caremark Business and CCA occurred on the date indicated
or that may be achieved in the future.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Net revenue.................................................. $ 545,128 $ 695,300
========= =========
Loss before extraordinary item............................... $(324,145) $(158,239)
========= =========
Net loss..................................................... $(327,541) $(158,239)
========= =========
Net loss per share before extraordinary item................. $ (8.06) $ (4.11)
========= =========
Net loss per share........................................... $ (8.14) $ (4.11)
========= =========
Common shares used in computation............................ 39,685 38,462
========= =========
</TABLE>

The above amounts reflect adjustments for interest charges on the debt
incurred as part of the acquisition, amortization of goodwill and depreciation
expense related to fixed assets. These amounts have not been reduced by any
potential cost savings.

Other Acquisitions. The Company has continued to make acquisitions,
primarily of certain physician owned entities. During the nine months ended
September 30, 1995, the Company completed nine such acquisitions totaling $24.5
million, which were accounted for as purchases. Individually and in the
aggregate, the results of operations of these businesses for periods prior to
their acquisition were not material to the Company's consolidated results of
operations.

Certain of the Company's historical purchase agreements provided for
additional contingent consideration. The amount of additional consideration, if
any, is based on the financial performance levels of the acquired companies. The
Company may be required to pay under such contingent obligations approximately
$5.5 million subject to increase based, in certain cases, on the Company or its
subsidiaries exceeding certain revenue or income targets and changes in the
market value of the Company's stock. Subject to certain elections by the Company
or the sellers, a maximum of approximately $3.1 million of contingent
obligations may be paid in cash. If these contingent payments are made, they
will be recorded as additional goodwill in the period in which the payment
becomes probable.

Lincare Agreement. On April 17, 1995, the Company entered into an agreement
to merge with Lincare, a provider of oxygen and other respiratory therapy
services to patients in the home. On July 21, 1995, the Company and Lincare
announced that they had terminated the plans to merge and had signed a letter of
intent to cooperatively offer their integrated services in targeted metropolitan
areas. The Company and Lincare executed a letter of agreement dated July 21,
1995, under which the parties agreed to allocate fees and expenses incurred in
connection with the transaction and to forever release and discharge the other
from actions, liabilities and obligations arising out of or related to the
transaction. Costs incurred of approximately $3.4 million, representing the
Company's expenses related to the transaction, were expensed in the second
quarter of 1995.

7
<PAGE> 9

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

Merger and Restructuring. The operations of the Company commenced July 8,
1994 as a result of the merger of four predecessor entities (the "Four-Way
Merger"). During September 1994, the Company initiated a merger and
restructuring plan (the "Coram Consolidation Plan") to reduce operating costs,
improve productivity and gain efficiencies through consolidation of redundant
infusion centers and corporate offices, reduction of personnel, and elimination
or discontinuance of investments in certain joint ventures and other
non-infusion facilities. The Coram Consolidation Plan provided for the
elimination of approximately 100 of the Company's home infusion branch
facilities and the consolidation of corporate administrative operations into one
location. It also provided for a corresponding reduction of approximately 470
full-time equivalent field employees and 160 full-time equivalent corporate
employees. In connection with the Coram Consolidation Plan, the Company recorded
charges of $28.5 million in estimated merger costs and $92.3 million in
estimated restructuring costs. The Company extended the Coram Consolidation Plan
to include the consolidation of the operations of H.M.S.S., Inc. upon its
acquisition in September 1994, and accordingly recorded additional estimated
restructuring costs of $3.2 million. The estimated cost associated with each
component of the Coram Consolidation Plan, recorded in the third quarter of
1994, including the write-down of existing assets to their estimated net
realizable value, were as follows (in thousands):

<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ -------- -------
<S> <C> <C> <C>
Merger Costs...................................... $ 27,900 $ 600 $28,500
========= ======= =======
Personnel Reduction Costs......................... $ 26,200 $ 600 $26,800
Facility Reduction Costs.......................... 15,600 16,300 31,900
Discontinuance Costs.............................. 4,200 32,600 36,800
------------ -------- -------
Total Restructuring Costs......................... $ 46,000 $49,500 $95,500
========= ======= =======
</TABLE>

The Company believes these costs to be non-recurring; however, actual costs
may vary from the recorded charges as the Coram Consolidation Plan continues.
Net revenue of the Company includes revenues from non-core businesses provided
for in the Coram Consolidation Plan that will be discontinued or disposed of
approximating $5 million and $11 million in the quarters ended September 30,
1995 and 1994, respectively, and approximating $24 million and $32 million in
the nine months ended September 30, 1995 and 1994, respectively. Operating
results were not material.

The Company has continued to evaluate the remaining accruals and the
estimated costs to complete the Coram Consolidation Plan. As a result of this
evaluation, the Company recorded a benefit to restructuring as a change in
estimate in the first quarter of 1995. The change in estimate was the result of
the sale of its 51% ownership interest in Pediatric Partners, Inc., doing
business as Kids Medical Club ("Kids Medical"). The Company had estimated that
the sale of Kids Medical would result in a $2.7 million loss because Kids
Medical had historically sustained losses and made an insignificant contribution
to the Company's revenue. The unanticipated gain resulted from (i) positive
margins experienced by Kids Medical in the period from the date of the estimate
through the date of the sale and (ii) the purchase of Kids Medical by a
synergistic buyer, Pediatric Services of America, Inc. The sale of Kids Medical
resulted in a $1.4 million gain; therefore, $4.1 million was recorded as a
restructuring benefit in the first quarter of 1995. In the second quarter of
1995, the Company recorded a $.3 million benefit to restructuring for the sale
of a non-strategic asset.

Through September 30, 1995, the Company had substantially completed the
consolidation process contemplated by the Coram Consolidation Plan, including
the closure of 136 branch facilities, the downsizing of 20 branch facilities,
the consolidation of the corporate functions previously conducted in five
corporate facilities, and a reduction of approximately 700 full-time equivalent
employees. However, the disposition of certain non-core businesses has not yet
been completed. A substantial portion of the remaining cash

8
<PAGE> 10

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

expenditures relate to severance and lease costs that will be paid in future
periods. The Company has made total payments and total asset disposals through
September 30, 1995, as follows (in thousands):

<TABLE>
<CAPTION>
CASH NON-CASH CHANGE IN
EXPENDITURES CHARGES ESTIMATE TOTAL
------------ -------- --------- -------
<S> <C> <C> <C> <C>
Merger Costs............................ $ 26,300 $ 600 $ -- $26,900
======= ======= ======== =======
Personnel Reduction Costs............... $ 18,500 $ 600 $ -- $19,100
Facility Reduction Costs................ 7,900 16,300 -- 24,200
Discontinuance Costs.................... -- 32,600 (3,000) 29,600
------- ------- -------- -------
Total Restructuring Costs............... $ 26,400 $49,500 $(3,000) $72,900
======= ======= ======== =======
</TABLE>

During May 1995, the Company initiated a second restructuring plan (the
"Caremark Business Consolidation Plan"). The estimated costs associated with
each component of the Caremark Business Consolidation Plan, recorded in the
second quarter of 1995, including the write down of existing assets to their net
realizable value, were as follows (in thousands):

<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ -------- -------
<S> <C> <C> <C>
Personnel Reduction Costs.......................... $ 12,400 $ -- $12,400
Facility Reduction Costs........................... 6,800 6,600 13,400
------- ------ -------
Total Restructuring Costs.......................... $ 19,200 $6,600 $25,800
======= ====== =======
</TABLE>

The restructuring costs exclude the personnel reduction costs of former
Caremark employees in the amount of $4.8 million, the facility lease buyout and
closure expenses of former Caremark facilities in the amount of $2.7 million and
vendor contract cancellation charges of former Caremark vendors in the amount of
$3.9 million. These costs, totaling approximately $11.4 million, including the
$3.7 million recorded in September 1995 (see below), were accounted for as an
adjustment to the purchase price of the Caremark Business.

The Caremark Business Consolidation Plan provided for the elimination of
approximately 55 and the downsizing of approximately ten of the Company's home
infusion facilities and the consolidation of corporate functions. It also
provided for a corresponding reduction of approximately 330 full-time equivalent
field employees and 100 full-time equivalent corporate employees. An additional
purchase price adjustment was made in September 1995 of $3.7 million, consisting
of $2.1 million for personnel reduction costs and $1.6 million for Caremark
facility lease buyouts and closure expenses. This adjustment was based on a re-
evaluation of the Caremark Business Consolidation Plan and development of a
formal business plan that provided for an additional reduction of approximately
400 full-time equivalent field employee positions and 140 full-time equivalent
corporate employees. It also provided for further consolidation of corporate
functions and treatment centers with geographic overlap.

While the Company had completed a significant portion of the branch
downsizing and consolidation process contemplated by the Caremark Business
Consolidation Plan as of September 30, 1995, the corporate consolidation is
still in process. Through September 30, 1995, 73 branches have been closed, and
24 have been downsized, and there has been a reduction of approximately
two-thirds of the total planned reduction in full-time equivalent employees. A
substantial portion of the remaining cash expenditures relate to severance and
lease costs that will be paid in future periods.

9
<PAGE> 11

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

The Company has made total payments and total asset disposals through
September 30, 1995, as follows (in thousands):

<TABLE>
<CAPTION>
CASH NON-CASH
EXPENDITURES CHARGES TOTAL
------------ -------- ------
<S> <C> <C> <C>
Personnel Reduction Costs........................... $2,700 $ -- $2,700
Facility Reduction Costs............................ 100 6,600 6,700
------ ------ ------
Total Restructuring Costs........................... $2,800 $6,600 $9,400
====== ====== ======
</TABLE>

Although subject to future adjustment, the Company believes it had adequate
reserves and liquidity as of September 30, 1995 to complete the Coram
Consolidation Plan and Caremark Business Consolidation Plan.

3. LINES OF CREDIT AND LONG-TERM DEBT

Lines of credit and long-term debt were as follows (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Senior Credit Facility..................................... $ 235,000 $108,099
Bridge Note................................................ 150,000 --
Junior convertible subordinated PIK note, due October 1,
2005, plus interest payable semi-annually at 7%,
convertible into common stock at the conversion rate of
$27...................................................... 75,000 --
Junior non-convertible subordinated PIK note, due September
30, 2005, plus interest payable semi-annually at 12%..... 25,000 --
Subordinated convertible debentures, due June 30, 1996,
plus interest payable semi-annually at 9%, convertible
into common stock at the conversion rate of $16.36....... 6,818 7,000
Other obligations, including capital leases, at interest
rates
ranging from 6% to 16%, collateralized by certain
property and equipment................................... 7,218 10,538
-------- --------
$ 499,036 $125,637
Less current scheduled maturities.......................... 48,645 5,911
-------- --------
$ 450,391 $119,726
======== ========
</TABLE>

The Company's principal credit and debt agreements were entered into on
April 6, 1995 at the time of the acquisition of the Caremark Business. As of
June 30 and September 30, 1995, the Company had violated certain minimum
financial ratios of the Senior Credit Facility and received short-term waivers
of such violations and payment extensions, and at June 30, 1995, the Company had
classified all its long-term debt as a current liability. On October 13, 1995,
the Company and its lenders under its Senior Credit Facility and its Bridge Note
agreed to a restructuring of the major terms of both agreements, which postponed
the first principal payment due under the Senior Credit Facility from September
30, 1995 until March 31, 1996, provided a new $25 million credit line (the
"Overline") and re-defined certain financial covenants. The maturity dates were
shortened from April 6, 2000 to March 31, 1997, and the unused portion of the
existing revolving debt commitments of approximately $64.2 million were
terminated. In return, the lenders received warrants to purchase 2,569,342
shares of common stock of the Company or, at the option of the lenders, 6% of
the shares of Coram Inc., a wholly owned subsidiary of the Company and the
immediate parent of the Company's operating subsidiaries, exercisable at a
nominal price over five years. The lender under the Bridge Note agreed to defer
the due date of all interest payments to March 31, 1997. The lender had
previously been granted the right to receive certain warrants on an accelerated
basis (see below), and the right to appoint one

10
<PAGE> 12

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

director to the Company's Board of Directors. As a result of the restructuring
of terms, the Company is no longer classifying its long-term debt as a current
liability.

Under the terms of the Senior Credit Facility as amended through October
13, 1995, the Company has (i) $200 million outstanding under a term loan
facility (the "Term Loan Facility") with payments commencing March 31, 1996 and
a final maturity date of March 31, 1997, and (ii) $35.8 million outstanding
under a revolving credit facility with a maturity date of March 31, 1997,
including undrawn letters of credit of $836,000, under which no additional
borrowings can be made, and (iii) $25 million available under the Overline
revolving credit line maturing December 31, 1996. Interest is based on margins
over certain domestic or foreign indices. The weighted average interest rate on
borrowings at September 30, 1995, was 8.67%. The Senior Credit Facility is
secured by the stock of all of the Company's subsidiaries and a collateral
interest in the Company's principal bank accounts. All net proceeds from sales
of assets, other than those sold in the ordinary course of business, must be
applied to prepayment of the Senior Credit Facility. The Senior Credit Facility
contains financial covenants and conditions limiting the Company's ability to
engage in certain activities. The proceeds of the loans in April 1995 under the
Senior Credit Facility were used to repay amounts outstanding under a prior
credit facility, to fund a portion of the cash purchase price for the Caremark
Business and to pay certain expenses in connection therewith.

The Bridge Note was issued on April 6, 1995 to DLJ, as an unsecured
obligation of the Company in a principal amount of $150 million. The Bridge Note
initially bears interest at an annual rate equal to the sum of (i) the rate of
interest publicly announced by The Bank of New York from time to time as its
prime rate plus (ii) 3.00% plus (iii) an additional 0.50% from and including
each quarterly anniversary of such date for as long as the Bridge Note remains
outstanding. The principal amount of the Bridge Note will initially be due and
payable in full on April 5, 1996. The Bridge Note also bears a duration fee of
0.25% of the average principal amount outstanding. The agreement pursuant to
which the Bridge Note was issued contains customary covenants and events of
default. If the Bridge Note is not repaid in full as of April 6, 1996, rollover
notes (the "Rollover Notes") which mature on October 6, 2000 will be issued in
an amount equal to the then-outstanding principal amount of the Bridge Note,
with interest at a rate based on various indices but no lower than the rate on
the Bridge Note at the rollover date, and increasing by an additional 0.25%
quarterly, but not in excess of 21%, and a cash payment of 3% of the Rollover
Notes issued. Payment of interest on Bridge and Rollover Notes and the duration
fee which had been due quarterly has been deferred to March 31, 1997.

11
<PAGE> 13

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

In August 1995, DLJ's right to appoint one member of the Company's Board of
Directors was accelerated and such director is expected to be appointed in
November 1995. DLJ will receive warrants to purchase up to 20% of the
outstanding shares of Common stock of the Company at a nominal exercise price in
accordance with the following table as long as the Rollover Notes are
outstanding. The schedule has been accelerated to commence December 30, 1995 and
will continue on that basis until such time as all deferred interest and
duration fees (together with all interest due thereon) have been paid in full,
at which time it will revert back to the original schedule with no return of
issued warrants.

<TABLE>
<S> <C>
0-89 days................................................... 0.50%
90-179 days................................................. 1.00%
180-269 days................................................ 1.00%
270-359 days................................................ 1.50%
360-449 days................................................ 2.00%
450-539 days................................................ 2.50%
540-629 days................................................ 2.50%
630-719 days................................................ 3.00%
720-809 days................................................ 3.00%
810 days and thereafter..................................... 3.00%
------
20.00%
======
</TABLE>

Prior to April 6, 1997, interest on the Junior Subordinated PIK Notes is
payable in Junior Subordinated PIK Notes of the same type. Thereafter, interest
will be payable in cash. No principal or interest payments may be made if there
is a default, or an event of default, on indebtedness senior to the Junior
Subordinated PIK Notes. In the event that there is a change in control of the
Company, the holder of the Junior Subordinated PIK Notes may require the Company
to repurchase such notes at a purchase price equal to the principal amount
thereof, plus accrued interest thereon.

The Junior Convertible Subordinated PIK Note may not be prepaid or redeemed
prior to April 6, 1998 without the written consent of the holder thereof.
Thereafter, the Junior Convertible Subordinated PIK Note is, at the option of
the Company, redeemable, in whole or in part, subject to normal redemption terms
and conditions. The Junior Convertible Subordinated PIK Note will be
convertible, at the holder's option, at any time subsequent to April 6, 1996, in
whole or in part. The conversion price of the Junior Convertible Subordinated
PIK Note is $27 per share, subject to adjustment. The Company is required to
file, and use its best efforts to cause it to become effective on or before
April 6, 1996, a registration statement covering the shares of the Company's
Common Stock issuable upon conversion. The Company is required to maintain the
effectiveness of that registration statement for a three year period following
its original effective date.

The Junior Non-Convertible Subordinated PIK Note may be prepaid or
redeemed, in whole or in part, at any time at the Company's option, without
penalty or premium, and subject to restrictions on optional redemption contained
in the Senior Credit Facility.

4. INCOME TAXES

During the nine months ended September 30, 1995, the Company recorded an
income tax benefit of $11.3 million compared with a $25.4 million benefit
recorded in the comparable period of the prior year. The income tax benefit
recognized in both periods has been limited to the estimated amounts recoverable
through carryback of losses to the separate returns of the Company's predecessor
entities that were participants in the Four-Way Merger. Accordingly, the
effective income tax (benefit) rates for the nine month periods ending

12
<PAGE> 14

CORAM HEALTHCARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEPTEMBER 30, 1995

September 30, 1995 and 1994 differ substantially from the expected combined
federal and state income tax (benefit) rates calculated using applicable
statutory rates.

The Company has recognized net deferred tax assets of approximately $8.3
million, net of refunds receivable included in prepaid taxes, at September 30,
1995 related primarily to accrued restructuring costs, goodwill written off,
allowances for doubtful accounts that are not deductible for income tax purposes
until paid or realized and to net operating loss carryforwards that are
deductible against future taxable income. This amount is net of a valuation
allowance of $156.1 million that has been provided to reduce the gross amount of
deferred tax assets to amounts expected to be recovered through (a) carryback of
taxable losses and resulting recovery of income taxes previously paid by
predecessor entities and (b) offset against deferred tax liabilities that would
otherwise become payable in the carry forward period. Realization of $156.1
million of deferred tax assets, for which a valuation allowance has been
established at September 30, 1995, is dependent upon the ability of the Company
to generate taxable income in the future.

During October 1995, the Company received a $30.3 million refund related to
the carryback of tax losses for its tax year ended September 30, 1995. Of this
amount, $17 million related to items in net deferred tax assets, $11 million
related to current year tax losses and $2 million related to other items not
affecting the results of operations.

5. LITIGATION

In mid-August 1995, a number of law suits purporting to be class actions
were filed against the Company and certain of its officers and directors. The
suits allege various violations of the Securities Exchange Act of 1934 and other
matters and seek damages related to the decrease in the trading price of the
Company's stock. On November 2, 1995, a shareholder derivative action asserting
substantially similar allegations was filed against the directors and a former
director of the Company. While management believes it has meritorious defenses
in these actions, their ultimate disposition cannot be determined at this time.
Accordingly, no provision for any loss that may result upon resolution of the
suits has been made in the unuadited condensed consolidated financial
statements.

The Company is involved in various legal proceedings incidental to the
normal course of business. While it is not possible to predict the outcome of
such proceedings with certainty, management is of the opinion that their
ultimate disposition will not have a material effect on the Company's financial
position, results of operations or liquidity.

See Note 2, Caremark Business Acquisition, for litigation related to that
transaction.

13
<PAGE> 15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

BACKGROUND

General. The operations of Coram Healthcare Corporation, a Delaware
corporation ("Coram" or the "Company") commenced on July 8, 1994 as a result of
a merger (the "Four-Way Merger") of T2 Medical, Inc. ("T2") , Curaflex Health
Services, Inc. ("Curaflex"), HealthInfusion, Inc., ("HealthInfusion") and
Medisys, Inc. ("Medisys") (collectively, the "Merged Entities"), each of which
was a publicly-held national or regional provider of alternate site infusion
therapy and related services. Pursuant to the Four-Way Merger, which was
accounted for as a pooling of interests, each of the Merged Entities became and
is now an indirect wholly-owned subsidiary of the Company. On September, 12,
1994, the Company acquired all of the capital stock of H.M.S.S., Inc. ("HMSS"),
a regional provider of alternate site infusion therapy, in a transaction
accounted for as a purchase. Effective April 1, 1995, the Company acquired
substantially all of the assets used in the alternate site infusion therapy and
related businesses (collectively the "Caremark Business") of Caremark Inc.
("Caremark"), a California corporation and wholly-owned subsidiary of Caremark
International, Inc. (the "Caremark Transaction"). The Caremark Transaction was
accounted for as a purchase. The Company assumed only certain specified
liabilities of the Caremark Business, which expressly exclude any liabilities
associated with the recent government investigation of Caremark.

Financing. On June 30, 1995, the Company had classified its long-term debt
as a current liability because it had violated certain minimum financial ratios
of the Senior Credit Facility. Short-term waivers of such violations were
received at that time. As of September 30, 1995, the Company continued to be in
violation of those financial ratios and received short-term waivers of such
violations and payment extensions. On October 13, 1995 the Company concluded a
major restructuring of the terms of its debt. As a result of this restructured
financing, the Company is no longer classifying its long-term debt as a current
liability. The debt restructuring was the culmination of extensive discussions
with its lenders and the completion of a formal business plan by senior
management (described below). The business plan was the result of a
comprehensive examination of the Company's business and operations, reflecting
both the factors that have adversely affected the Company's recent operations as
well as the impacts of the acquisition of the Caremark Business.

Business Plan. The business plan is focused on returning management's
attention to the basic factors that could lead to profitability for the Company:
revenue generation, cost reduction and cash collections. To generate increased
revenue, the Company intends to redirect its marketing efforts towards improving
its physician relationships in addition to developing new programs such as
one-stop shopping for managed care payors or disease-state carve-outs (i.e.,
vertical integration along disease specific categories) and improving billing
and collections. Cost reduction efforts will be focused on field consolidation
and a reduction of corporate expenses, assessment of poor performing branches
and a review of branch efficiencies. Management also intends to concentrate on
improved reimbursement through an emphasis on cash collections throughout the
organization and the reassessment of systems support for reimbursement. While
management believes the implementation of this business plan will improve the
Company's operations and financial performance, no assurances can be given as to
its ultimate success.

Special Charges. During the quarter ended September 30, 1995, the Company
recorded special charges of $228.4 million, which are further described below. A
charge of $203.4 million was made to write-off goodwill associated with the
acquisition of the Caremark Business, an additional special reserve of $20
million was provided for uncollectible receivables, a $2.0 million loss was
incurred on the sale of a non-core business and $3.0 million was provided as a
non-recurring SG&A charge for asset write-offs and litigation costs.

Goodwill. At June 30, 1995, the Company had goodwill of $543.5 million, or
56.4% of its assets. It is the Company's policy to review the recoverability of
goodwill at least quarterly. If such review indicates that goodwill would not be
recoverable, based on undiscounted estimated cash flows over the remaining
amortization period, the carrying value of goodwill would be reduced to the
estimated fair market value.

Immediately after the preparation of its business plan, the Company
reviewed its goodwill with particular focus on the extent to which the carrying
value of the goodwill was in excess of its fair market value. As a

14
<PAGE> 16

result of this review, the Company determined that the incremental net goodwill
of $203.4 million added in the acquisition of the Caremark Business had no value
and it was therefore written off.

Coram Consolidation Plan and Caremark Business Consolidation Plan. In the
quarters ended September 30, 1994 and June 30, 1995, the Company recorded
significant non-recurring restructuring costs related to the Coram and the
Caremark Business Consolidation Plans. The Plans and their status are described
in Note 2 to the Unaudited Condensed Consolidated Financial Statements. No
assurances can be given as to the aggregate cost savings which will be achieved
by the Company as a result of these Consolidation Plans, or the timing thereof.

The Coram Consolidation Plan includes consolidation of infusion centers and
corporate offices, personnel reductions and elimination or discontinuance of
certain business activities. The consolidation process contemplated by the Coram
Consolidation Plan is substantially complete. The Caremark Business
Consolidation Plan includes consolidation of infusion centers and corporate
offices, and reorganization of the Caremark Business reimbursement function from
a centralized to a decentralized function. It also includes the conversion of
the Company's billing and accounts receivable system to the Caremark Business
system. While an increase in accounts receivable write-offs has occurred in the
conversion, management has taken steps aimed at minimizing losses from these
system conversions.

Management. Effective October 16, 1995, Donald J. Amaral, an experienced
healthcare company executive, was named President and Chief Executive Officer of
the Company, succeeding James M. Sweeney who remains the Company's Chairman.
Effective August 30, 1995, Richard M. Smith, previously Vice President Treasury
and Tax, was named Chief Financial Officer succeeding G. Rodney Wolford who had
been Acting Chief Financial Officer since July 1995. On August 2, 1995 the
Company announced the appointment of Kelly J. McCrann and John T. Gallatin,
previously Presidents of operating divisions of the Company, as Executive Vice
Presidents of the Company. Mr. McCrann is responsible for corporate and
administrative functions and Mr. Gallatin is responsible for the Company's field
operations.

Factors Adversely Affecting Recent Operating Results. The most significant
factor which affected the Company's performance and financial condition during
the second and third quarter of 1995 was the underperformance of the Caremark
Business from what the Company expected at the time such business was acquired.
The revenues of the acquired Caremark Business declined significantly from the
first quarter of 1995 to the third quarter of 1995. That fact combined with the
substantial indebtedness which the Company incurred to acquire the Caremark
Business, which the Company expected to service in substantial part through the
operating income and cash flow of the Caremark Business, materially and
adversely affected the Company's financial condition and results of operations.
Further, the Company believes the result of Caremark pleading guilty to criminal
felony charges in June 1995 has negatively impacted revenue referral sources and
employee morale throughout the Company generally, further contributing to a loss
of revenues.

Other factors which adversely affect the Company's results of operations
were the Company's implementation of a policy of terminating physician
arrangements and certain businesses which it inherited from the Merged Entities
which were potentially in conflict with new federal and state law. Many of the
physician arrangements were terminated in the fourth quarter of 1994 and the
first quarter of 1995. As a result, the Company lost a number of historical
referral sources which, when combined with the loss of the terminated
businesses, resulted in a decline in revenues on a year-to-year basis and for
the first three quarters of 1995 in its operations other than the Caremark
Business. In addition, the Company has experienced pricing pressure in its core
infusion business as a result of a continuing shift in payor mix from
traditional indemnity insurers to managed care and government payors and intense
competition among infusion providers. The Company has also experienced a
disruption in certain relationships as a result of its headcount reductions and
consolidation. Further, the Company has experienced increased competition from
hospitals and physicians who have sought to increase the scope of services
through their offices, including services similar to those offered by the

15
<PAGE> 17

Company. There can be no assurance that these factors will not continue to have
an adverse effect on the Company's financial condition and results of operations
in the future.

In addition, the Company has experienced modest downward pricing pressures
in its lithotripsy operations. These operations may continue to experience
pricing pressures in the future. The Health Care Financing Administration has
issued a proposed rule that would, if implemented, significantly reduce the
amount Medicare would reimburse its beneficiaries for the cost of lithotripsy
procedures performed in an ambulatory surgery center or on an out-patient basis
at a hospital. Such a proposal might result in similar efforts by other
third-party payors to limit reimbursement for lithotripsy procedures.

To counter the above factors, senior management of the Company has recently
completed a major restructuring of the terms of its debt and has adopted a
business plan, as discussed above, focused on returning management's attention
to the basic factors that could lead to profitability for the Company: revenue
generation, cost reduction and cash collections. While management believes the
implementation of this business plan will improve the Company's operations and
financial performance, no assurances can be given as to its ultimate success.

RESULTS OF OPERATIONS

Prior to July 8, 1994, the activities of the Company were conducted
separately by each of the predecessor entities. Accordingly, the following
discussion provides certain comparative information for the third quarter of
1995 compared with the second quarter of 1995 in addition to prior year
comparisons.

THIRD QUARTER ENDED SEPTEMBER 30, 1995 COMPARED WITH SECOND QUARTER ENDED JUNE
30, 1995

Net Revenue. Net revenue for the third quarter of 1995 decreased by $14.6
million or 8.1% compared with the second quarter 1995. The decrease is due
primarily to increased competition, a decrease in case management referrals and
continued pricing pressure in the Company's core infusion business resulting
from a continuing shift in payor mix, discussed further under the caption
"Factors Adversely Affecting Recent Operating Results."

Gross Profit. Gross profit for the third quarter of 1995 decreased $6.4
million or 15.5% compared with the second quarter of 1995 due to decreased net
revenues and a decline in the gross profit margin from 23.1% to 21.3%.

Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses decreased $2.5 million or 6.0% for the third
quarter of 1995 compared with the second quarter of 1995. The decrease is
attributable to a decrease in salary expense due to the implementation of the
Caremark Business Consolidation Plan and a second quarter SG&A expense of
approximately $3.4 million related to the Lincare Agreement. These decreases
were partially offset by a $3.0 million non-recurring SG&A charge in the third
quarter of 1995 for asset write-offs ($2.5 million) and litigation costs ($.5
million).

Operating Loss. The Company recorded an operating loss of $246.6 million
for the third quarter of 1995 compared to an operating loss of $46.1 million in
the second quarter of 1995. The increased operating loss was principally due to
the higher level of special charges in the third quarter of 1995 as compared
with the second quarter of 1995. Third quarter 1995 charges affecting the
operating loss totaled $226.4 million, consisting of the $203.4 million
write-off of goodwill, the $20.0 million special charge for estimated
uncollectible accounts receivable and $3.0 million of other non-recurring SG&A
charges. This compares with a $25.8 million pre-tax charge recorded in the
second quarter of 1995 for estimated costs related to the Caremark Consolidation
Plan. The balance of the increased operating loss is due to a lower gross profit
offset by lower SG&A expenses in the third quarter as compared to the second
quarter of 1995.

16
<PAGE> 18

Other Income (Expense). Other income (expense), net, increased $1.4 million
for the third quarter of 1995 compared with the second quarter of 1995
principally because of a $2.0 million non-recurring loss on the sale of a
non-core business.

Net Loss. Net loss for the third quarter of 1995 increased $188.3 million
compared with the second quarter of 1995 primarily as a result of the $202.6
million increase in special charges. The decrease in gross profit from the
second quarter of 1995 further contributed to the comparative increase in the
net loss. Partially offsetting these increases were the decrease in SG&A
expenses in the third quarter of 1995 as compared to the second quarter of 1995,
the recognition of a $10.2 million tax benefit in the third quarter of 1995 and
the recording of a $3.4 million extraordinary loss in the second quarter of 1995
for the early extinquishment debt.

THIRD QUARTER ENDED SEPTEMBER 30, 1995 COMPARED WITH THIRD QUARTER ENDED
SEPTEMBER 30, 1994.

Net Revenue. Net revenue for the third quarter of 1995 increased by $54.5
million or 49.5% compared with the same period in 1994. The acquisition of the
Caremark Business accounted for the increase. However, on a pro-forma combined
basis, third quarter 1995 net revenue declined 24.8% from pro-forma third
quarter 1994 net revenue due primarily to the factors discussed above.

Gross Profit. Gross profit for the third quarter of 1995 increased $3.6
million or 11.6% compared with the same period in 1994. The increase is due to
the acquisition of the Caremark Business offset by a decrease in the gross
profit margin from 28.5% to 21.3% for the reasons discussed under the caption
"Factors Adversely Affecting Recent Operating Results." Also contributing to the
decrease was the sale of the Company's home pediatrics business ("Kids
Medical"), which decreased gross profit by $2.7 million.

Selling, General and Administrative Expenses. SG&A expenses increased $17.9
million or 85.6% for the third quarter of 1995 compared with the same period in
1994. The principal reasons for the increase were the acquisition of the
Caremark Business and a higher level of corporate expense related to the
consolidation of duplicate corporate facilities, and non-recurring charges of
$2.5 million for asset write-offs and $0.5 million for litigation costs.

Provision For Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $36.5 million, or 22.2% of net revenue, for the
quarter ended September 30, 1995, compared to $21.5 million, or 19.5% of net
revenue, for the quarter ended September 30, 1994. The third quarter of 1995
includes a special charge of $20.0 million, and the third quarter of 1994
includes a special charge of $17.3 million, both as described above. The balance
of the increase in the provision in 1995 was due primarily to the higher level
of revenues and to refinements in the Company's evaluation process.

Operating Loss. The Company recorded an operating loss of $246.6 million
for the third quarter of 1995 compared with a $143.1 million in the third
quarter of 1994. The increased operating loss was principally due to the higher
level of special charges in 1995 as compared with 1994. Third quarter 1995
special charges affecting operating loss totaled $226.4 million, consisting of
the $203.4 goodwill write-off, $20.0 million special charge for estimated
uncollectible accounts receivable, and $3.0 million of other non-recurring SG&A
charges. This compares with the $147.3 million recorded in the third quarter of
1994 for T2 litigation, merger and restructuring expenses, and the $17.3 million
special provision for uncollectible accounts receivable.

Other Income (Expenses). Interest expense increased by $12.2 million for
the third quarter of 1995, compared with the same period in 1994 due to
increased borrowings by the Company to finance acquisitions, merger costs and
working capital needs. Other expense, net, increased $2.1 million primarily due
to a non-recurring $2.0 million loss on the sale of a non-core business.

Provision (Benefit) for Income Taxes. During the third quarter of 1995, the
Company recorded a tax benefit of $10.2 million, as compared with a $26.8
million benefit in the same period of the prior year.

Net Loss. Net loss for the third quarter of 1995 increased $133.5 million
compared with the same period in 1994 primarily as a result of the $81.1 million
increase in special charges, the increases in SG&A expenses, in the provision
for estimated uncollectible accounts and in interest expense, and the lower tax
benefit recorded in 1995.

17
<PAGE> 19

NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1994

Net Revenue. Net revenue for the nine months ended September 30, 1995,
increased by $112.0 million or 33.2% compared with the same period in 1994. The
acquisition of the Caremark Business accounted for the increase. However, on a
pro-forma combined basis including the Caremark Business in 1994, 1995 net
revenue declined 21.6% from pro-forma 1994 net revenue as a result of the
factors discussed above under "Factors Adversely Affecting Recent Operating
Results".

Gross Profit. Gross profit for the nine months ended September 30, 1995,
increased $1.9 million or 1.8% compared with the same period in 1994. The
increase is due to the acquisition of the Caremark Business offset by a decrease
in the gross profit margin from 30.8% to 23.6% for the reasons discussed under
the caption "Factors Adversely Affecting Recent Operating Results." Also
contributing to the decrease was the sale of Kids Medical, which reduced gross
profit in comparison with the prior year period by $6.3 million.

Selling, General and Administrative Expenses. SG&A expenses increased $38.5
million or 64.8% for the nine months ended September 30, 1995 compared with the
same period in 1994. The principal reason for the increase was the acquisition
of the Caremark Business and a higher level of corporate expenses related to the
duplicate corporate facilities. Also contributing to the increase were
non-recurring charges of $2.5 million for asset write-offs and $0.5 million
charge for litigation costs recorded in the third quarter of 1995 and $3.4
million transaction expenses related to the terminated Lincare merger recorded
in the second quarter of 1995. The Company expects that SG&A spending will
decrease both in absolute amounts and as a percentage of net revenue as the
Coram and Caremark Business Consolidation Plans are completed and its new
business plan is implemented.

Provision For Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $56.6 million, or 12.6% of net revenue, for the nine
months ended September 30, 1995 compared with $32.2 million, or 9.5% of net
revenue for the nine months ended September 30, 1994. As described above,
special charges were recorded in the third quarters of 1995 and 1994 of $20.0
million and $17.3 million, respectively. The balance of the increase in the
provision was due principally to the higher level of revenues and refinements in
the Company's evaluation process.

Amortization of Goodwill. Amortization of goodwill increased $4.1 million
from 1994 primarily as a result of amortization of goodwill related to
acquisitions made by the Company in late 1994 and 1995.

Restructuring Costs. The Company recorded a pre-tax charge of $25.8 million
during the nine months ended September 30, 1995 for estimated costs related to
the Caremark Business Consolidation Plan. The charge was offset by a $4.1
million benefit related to the sale of Kids Medical as part of the Coram
Consolidation Plan.

Operating Loss. The Company recorded an operating loss of $284.1 million
for the nine months ended September 30, 1995, compared with a $141.5 million
operating loss for the nine months ended September 30, 1994. The principal
reason for the increase was the $83.2 million increase in special charges in
1995. The balance of the increase is attributable to higher SG&A expenses,
higher provisions for uncollectible accounts and greater amortization of
goodwill in the first months of 1995 as compared with the same period of 1994.

Other Income (Expense). Interest expense increased by $26.9 million for the
nine months ended September 30, 1995, compared with the same period in the
previous year primarily due to increased borrowings by the Company to finance
acquisitions, merger costs and other working capital needs. Other income
decreased $2.6 million principally due to a $2.0 million non-recurring loss on
the sale of a non-core business in 1995.

Provision (Benefit) for Income Taxes. During the nine months ended
September 30, 1995 the Company recorded an income tax benefit of $11.3 million,
as compared with a $25.4 million benefit in the comparable period of the prior
year. (See Note 4 to the Unaudited Condensed Consolidated Financial Statements.)

Benefits available are currently limited to refunds for the carryback of
tax losses. In October 1995, the Company received a $30.3 million refund related
to the carryback of tax losses for its tax year ended September 30, 1995. The
majority of this refund represented the realization of items included in net
deferred

18
<PAGE> 20

tax assets and the carryback of current year losses. The Company expects to
realize most of the balance of its net deferred tax assets on filing its 1996
income tax return. It also has approximately $20 million of potential benefit
available for carryback of certain future operating losses, if any.

Net Loss. Net loss for the nine months ended September 30, 1995, increased
$189.5 million as compared with the same period in 1994. The primary reason for
the increased loss is the $85.2 million increase in special charges, in SG&A
expenses and in the provision for estimated uncollectible accounts and interest
expense, and the lower tax benefit recorded in 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's cash, cash equivalents and marketable securities at September
30, 1995, were $54.0 million (including restricted cash of approximately $13.5
million).

During the nine months ended September 30, 1995, the Company had negative
cash flow from operations of $19.9 million compared with negative cash flow of
$10.2 million for the nine months ended September 30, 1994. Cash used by
investing activities was $233.2 million for the nine months ended September 30,
1995 compared with $64.7 million for the nine months ended September 30, 1994
due to business acquisitions. Cash provided by financing activities was $279.9
million for the nine months ended September 30, 1995, compared with $70.0
million for the nine months ended September 30, 1994, due to increased
borrowings related to acquisitions.

As of September 30, 1995, the Company does not have any material
commitments for capital expenditures.

As of June 30, 1995, and September 30, 1995, the Company had violated
certain minimum financial ratios of the Senior Credit Facility and received
short-term waivers of such violations and payment extensions. On October 13,
1995, the Company and its lenders under its Senior Credit Facility and its
Bridge Note agreed to a restructuring of the major terms of both agreements,
which postponed the first principal payment due on the Senior Credit Facility
from September 30, 1995 to March 31, 1996, redefined covenants to be consistent
with the Company's new business plan and provided a new $25 million credit line.
The new line expires and matures on December 31, 1996, and the entire Senior
Credit Facility has a new maturity date of March 31, 1997. The lender under the
Bridge Notes agreed to defer all interest payments until March 31, 1997. As a
result of the restructuring of terms, the Company is no longer classifying its
long-term debt as a current liability.

The Company believes that it has adequate working capital to meet its cash
requirements through December 31, 1996, provided that the objectives in the
business plan are achieved. The failure of the Company to achieve the objectives
set forth in the business plan could have a material adverse affect on the
Company's financial position, results of operations and liquidity. Moreover, it
may still be necessary for the Company to arrange additional equity or debt
financing or make additional sales of non-core assets, including its lithotripsy
businesses, in order to meet scheduled maturities of principal and interest
commencing December 31, 1996. There can be no assurance that such financing will
be available to the Company.

If the Company decides to sell non-core assets, including its lithotripsy
businesses, it would expect to realize substantial proceeds on such sales,
although such proceeds may be less then the related book values. No assurance
can be given as to whether any such a sale will occur or the amount of estimated
proceeds therefrom. Net proceeds from asset sales other than in the ordinary
course of business must go to pay down the term debt portion of the Senior
Credit Facility. While the Company is currently evaluating sale of the
lithotripsy business, no decision has been made concerning its disposition. The
lithotripsy businesses had revenue and pre-tax net income of approximately $40
million and $12.4 million, respectively, for the nine months ended September 30,
1995.

Joint venture agreements within the Company's lithotripsy operations
contemplate that, in certain situations, the Company would be required to
repurchase the minority interests in such joint ventures. During 1995, the
Company purchased one of these minority interests and discussions are currently
underway to acquire an additional minority interest in one of the joint
ventures. Such an acquisition would require the

19
<PAGE> 21

Company to pay cash or issue common stock with a value of over $4.0 million
subject to the consent of the Company's lenders.

FUTURE HEALTH CARE PROPOSALS AND LEGISLATION

Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Current pending
legislation could significantly decrease the restrictions currently imposed upon
physician ownership in compensation arrangements for infusion services provided
by physicians at their offices. The impact on the Company is currently under
evaluation. The Company anticipates that Congress and state legislatures will
continue to review and assess alternative health care delivery systems and
payment methodologies and public debate of these issues will likely continue in
the future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, of such reform proposals will be adopted, when they may be
adopted or what impact they may have.

20
<PAGE> 22

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In August 1995, the Company and certain of its officers and directors were
named as defendants in 20 civil suits filed on behalf of individuals claiming to
have purchased and sold Coram Common Stock during the time period from
approximately February 16, 1995 through August 11, 1995. The suits were filed in
the United States District Court for the District of Colorado and have been
consolidated into one suit captioned: In Re: Coram Healthcare Corporation
Securities Litigation, Master File No. 95-N-2074. The complaint seeks
certification of a plaintiff's class. In general, the complaints allege that the
defendants made false and misleading statements to the public regarding, among
other things, projected earnings, anticipated cost savings, and proposed
mergers. The complaints assert claims under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 of the Securities
and Exchange Commission, and seek unspecified compensatory damages, attorneys'
fees and costs. The Company will seek coverage under existing directors and
officers insurance policies for any settlements, judgments, and costs of defense
in connection with these cases, within outstanding policy limits. There can be
no assurance, however, that such insurance coverage will be adequate to cover
all potential liabilities and costs that may be incurred.

On November 2, 1995, a shareholder derivative suit captioned Martin J.
Siegal v. James Sweeney, et. al., and Coram Healthcare Corporation, Civil Action
No. 14646 was filed in the court of Chancery of the State of Delaware asserting
substantially similar factual allegations as the suits described in the
preceding paragraph, and seeking a judgment against the individual defendants to
account to Coram for all damages sustained by Coram as a result of their alleged
actions.

On September 11, 1995 as amended on October 6, 1995, the Company filed suit
against Caremark Inc., and Caremark International, Inc., alleging fraudulent
misrepresentations of the value of accounts receivable and amounts of revenues,
concealment of important information concerning a criminal investigation of
Caremark's business practices, and other material misrepresentations and
breaches of contract terms. The suit seeks relief in the form of damages,
including damages to the Company's business resulting from the
misrepresentations and breaches aggregating $5.2 billion. On October 12, 1995,
Caremark Inc., and Caremark International, Inc., filed suit against the Company
in the United States District Court for Northern District of Illinois (File No.
95C 5878) alleging fraudulent misrepresentation in its purchase of the Caremark
Businesses and seeking damages of at least $100 million, and punitive damages.

The Company believes that it has meritorious defenses in these actions.
Nevertheless, due to the uncertainties inherent in the early stages of
litigation, the ultimate disposition of the litigation described in the
preceding paragraphs cannot presently be determined. Accordingly, no provision
for any loss or recovery that may result upon resolution of the suits has been
made in the consolidated financial statements.

The Company is also a party to various other legal actions arising out of
the normal course of its business. Management believes that the ultimate
resolution of such other actions will not have a material adverse effect on the
Company's financial position and results of operations or liquidity of the
Company.

ITEM 2. CHANGES IN SECURITIES

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

Not applicable.

21
<PAGE> 23

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A)

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- -------------------- ----------------------------------------------------------------------
<C> <S>
10.19 -- First Amendment and Waiver to the Credit Agreement, dated as of
August 9, 1995, together with exhibits thereto, among the
Registrant, Coram Inc., each Subsidiary Guarantor (as defined
therein), the Financial Institutions party thereto (as defined
therein), and Chemical Bank as Agent.*
10.20 -- Second Amendment to the Credit Agreement dated as of September 7,
1995, by and among the Registrant, Coram Inc., each Subsidiary
Guarantor (as defined therein), the Financial Institutions party
thereto (as defined therein), and Chemical Bank as Agent.*
10.21 -- Third Amendment and Limited Waiver to the Credit Agreement, dated
as of September 29, 1995, by and among the Registrant, Coram Inc.,
each Subsidiary Guarantor (as defined therein), the Financial
Institutions party thereto (as defined therein), and Chemical Bank
as Agent.*
10.22 -- Fourth Amendment and Limited Waiver to the Credit Agreement and
First Amendment to Security Documents dated as of October 13, 1995,
together with selected exhibits thereto, by and among the
Registrant, Coram Inc., each Subsidiary Guarantor (as defined
therein), the Financial Institutions Party thereto (as defined
therein) and Chemical Bank as Agent (Incorporated by reference from
the Company's Current Report on Form 8-K as filed October 24,
1995).
10.23 -- Warrant Agreement dated as of October 13, 1995, among the
Registrant, Coram Inc., and the other parties specified therein.
(Incorporated by reference from the Company's Current Report on
Form 8-K as filed October 24, 1995).
10.24 -- Amendment and Limited Waiver to Bridge Securities Purchase
Agreement, dated as of October 13, 1995, by and among the
Registrant, Coram Inc., and Donaldson, Lufkin & Jenrette.*
10.25 -- Form of Employment Agreement between the Registrant and Donald J.
Amaral.*
27 -- Financial Data Schedules*
</TABLE>

- ---------------

* Filed herewith

(B) REPORTS ON FORM 8-K

On July 26, 1995, the Company filed a current report on Form 8-K announcing
the termination of the merger agreement with Lincare.

On October 24, 1995, the Company filed a current report on Form 8-K
announcing that it had concluded a major debt restructuring and named Donald J.
Amaral as its President and Chief Executive Officer.

22
<PAGE> 24

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

CORAM HEALTHCARE CORPORATION

By: /s/ DONALD J. AMARAL
Donald J. Amaral
President and Chief Executive
Officer

By: /s/ RICHARD M. SMITH
Richard M. Smith
Chief Financial Officer

November , 1995

23
<PAGE> 25

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ---------- --------------------------------------------------------------------------- ----
<C> <S> <C>
10.19 -- First Amendment and Waiver to the Credit Agreement, dated as of August
9, 1995, together with exhibits thereto, among the Registrant, Coram
Inc., each Subsidiary Guarantor (as defined therein), the Financial
Institutions party thereto (as defined therein), and Chemical Bank as
Agent.*
10.20 -- Second Amendment to the Credit Agreement dated as of September 7, 1995,
by and among the Registrant, Coram Inc., each Subsidiary Guarantor (as
defined therein), the Financial Institutions party thereto (as defined
therein), and Chemical Bank as Agent.*
10.21 -- Third Amendment and Limited Waiver to the Credit Agreement, dated as of
September 29, 1995, by and among the Registrant, Coram Inc., each
Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as defined therein), and Chemical Bank as Agent.*
10.22 -- Fourth Amendment and Limited Waiver to the Credit Agreement and First
Amendment to Security Documents dated as of October 13, 1995, together
with selected exhibits thereto, by and among the Registrant, Coram Inc.,
each Subsidiary Guarantor (as defined therein), the Financial
Institutions Party thereto (as defined therein) and Chemical Bank as
Agent (Incorporated by reference from the Company's Current Report on
Form 8-K as filed October 24, 1995).
10.23 -- Warrant Agreement dated as of October 13, 1995, among the Registrant,
Coram Inc., and the other parties specified therein. (Incorporated by
reference from the Company's Current Report on Form 8-K as filed October
24, 1995).
10.24 -- Amendment and Limited Waiver to Bridge Securities Purchase Agreement,
dated as of October 13, 1995, by and among the Registrant, Coram Inc.,
and Donaldson, Lufkin & Jenrette.*
10.25 -- Form of Employment Agreement between the Registrant and Donald J.
Amaral.*
27 -- Financial Data Schedules*
</TABLE>

- ---------------

* Filed herewith

<PAGE> 1

EXECUTION COPY

FIRST AMENDMENT AND WAIVER dated as of August 9, 1995 (this
"Amendment"), to the Credit Agreement dated as of April 6, 1995 (the
"Credit Agreement"), among Coram Healthcare Corporation, a Delaware
corporation ("Coram"), Coram, Inc., a Delaware corporation (the
"Borrower") and a wholly owned subsidiary of Coram, each Subsidiary
Guarantor (as defined in the Credit Agreement) listed on Exhibit A
hereto, the financial institutions party thereto (the "Lenders") and
Chemical Bank, an agent for the Lenders (in such capacity the
"Administrative Agent"), as collateral agent for the Lenders (in such
capacity, the "Collateral Agent") and as fronting bank (in such
capacity, the "Fronting Bank").

WHEREAS, the Borrower and Coram have requested that the Lenders waive
certain Events of Default (such term and each other capitalized term used but
not defined herein having the meanings assigned to such terms in the Credit
Agreement) and, in connection therewith, the Borrower and Coram have agreed to
make certain additional agreements and to amend the terms of the Credit
Agreement as set forth herein; and

WHEREAS, (a) the Lenders are willing, on the terms, subject to the
conditions and to the extent set forth below, to grant such a waiver and effect
such amendments and (b) the Borrower and Coram are willing to make such
additional agreements.

NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Borrower, Coram and the Lenders
hereby agree, on the terms and subject to the conditions set forth herein, as
follows:

SECTION 1. Waiver. Subject to Section 7 of this Amendment, the Lenders
hereby waive (a) all Events of Default under the Credit Agreement that have
occurred on or prior to the date of this Amendment and that may arise after the
date hereof to the extent that such Events of Default arise out of the
Borrower's failure as of June 30, 1995, to comply with the covenants set forth
in Sections 6.12 and 6.13 of the Credit Agreement and (b) all rights of the
Lenders to assert that any Event of Default (including any Event of Default
arising out of a breach of Sections 3.06, 5.01 or 5.05 of the Credit Agreement)
has occurred as of the date of this Amendment or at any time hereafter because
of (i) any material adverse change in the business, assets, operations,
properties, financial condition or prospects of Coram, the Borrower and the
Subsidiaries, taken as a whole, or the Acquired Business or (ii) any Material
Adverse Effect, so long as the Borrower shall not willfully fail to promptly
disclose
<PAGE> 2

the occurrence of any such material adverse change or Material Adverse Effect to
the Lenders. The Borrower, Coram and the Lenders hereby acknowledge and agree
that nothing in this Section 1 shall affect any of the obligations of the
Borrower under Article II of the Credit Agreement (including, without
limitation, Section 2.12(c) of the Credit Agreement).

SECTION 2. Amendments. (a) The Borrower, Coram and the Lenders hereby amend
the definition of the term "Net Proceeds" that is contained in Section 1.01 of
the Credit Agreement by deleting subsection (b) thereof and substituting the
following text therefor:

"(b) the cash proceeds (including cash proceeds subsequently received
in respect of noncash consideration initially received after the Closing
Date and amounts initially placed in escrow that subsequently become
available) from any sale, transfer or other disposition of any asset or
assets of Coram, the Borrower or any Subsidiary after the Closing Date
(other than (i) the sale of inventory and other assets in the ordinary
course of business, (ii) sales of Permitted Investments and other readily
marketable investment securities in the ordinary course of business, (iii)
leases and subleases in the ordinary course of business, (iv) sales and
other transfers between or among Coram, the Borrower and the Subsidiaries,
(v) sales and other dispositions of assets included in paragraph (a) of
this definition, (vi) the sale of all of the capital stock of Pharmcare,
Inc, (vii) the sale of all of the partnership interests in Tenn./Ga. Stone
Group Two, L.P. and (viii) sales of assets by any Joint Venture (other than
a sale of all or substantially all its assets or a complete liquidation of
such Joint Venture)) to any person in any transaction or series of related
transactions, for an aggregate purchase price of $2,500,000 or more for the
period following the Closing Date, net of (A) selling expenses of the
Borrower or any Subsidiary (including reasonable broker's or consultant's
fees or commissions, reasonable legal costs, transfer and similar taxes and
the Borrower's good faith estimate of income taxes incurred in connection
with the receipt of such cash proceeds), (B) the payment of any
Indebtedness secured by a Lien on such asset that is required by its terms
to be repaid in connection with the sale of such asset, (C) cash payments
required to be made in respect of accrued employee benefits, (D) the amount
of any reasonable reserve established in accordance with GAAP against any
liabilities (other than any taxes deducted pursuant to clause (A) above)
associated with the assets sold or disposed of or retained by Coram, the
Borrower or any of the Subsidiaries, provided that the amount of any
subsequent reduction of such reserve (other than in connection with a
payment in respect of any such liability) shall be deemed to be Net
Proceeds received as of the date of such reduction, and
<PAGE> 3

(E) to the extent required to be made pursuant to the terms of the
agreement establishing such Joint Venture in the case of the sale of a
Joint Venture, distributions or other payments to minority interests or any
partner in a Joint Venture;"

(b) The Borrower, Coram and the Lenders hereby amend Section 5.04 of the
Credit Agreement by (i) deleting the word "and" at the end of clause (i)
thereof, (ii) deleting the period at the end of clause (j) thereof and
substituting the text "; and" therefor and (iii) inserting the following new
clause (k);

"(k) within 5 days after the end of each week, a cash flow forecast
for the Borrower on a consolidated basis for the 13 weeks following such
week, which forecast shall include a comparison of the prior week's
forecast to actual results."

(c) The Borrower, Coram and the Lenders hereby amend Section 5.13 of the
Credit Agreement by deleting such Section in its entirety and substituting the
following text therefor:

"SECTION 5.13. [Intentionally omitted]."

(d) The Borrower, Coram and the Lenders hereby amend Section 6.05(f) of the
Credit Agreement by deleting such Section in its entirety and substituting the
following text therefor:

"(f) the Borrower and any Subsidiary may sell, assign, pledge or
otherwise transfer any of its assets to the Borrower or any Subsidiary
Guarantor; and"

(e) The Borrower, Coram and the Lenders hereby amend Section 6.06 of the
Credit Agreement by deleting the first sentence of such Section in its entirety
and substituting the following text therefor:

"SECTION 6.06. Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution (by reduction of capital
or otherwise), whether in cash, property, securities or a combination thereof,
with respect to any shares of its capital stock or directly or indirectly
redeem, purchase, retire or otherwise acquire for value (or permit
<PAGE> 4

any Subsidiary to purchase or acquire) any shares of any class of its capital
stock or set aside any amount for any such purpose; provided, however, that:

(a) Coram may declare or distribute dividends payable solely in its
common stock;

(b) any Subsidiary may declare and pay dividends or make other
distributions to (i) the Borrower and (ii) any Subsidiary Guarantor;

(c) so long as no Event of Default or Default shall have occurred and
be continuing, the Borrower may (i) declare and pay dividends or make other
distributions to Coram in order to enable Coram to pay any taxes or
expenses required to be paid by Coram in the ordinary course of business,
so long as the aggregate amount of such dividends or other distributions
(other than any such dividends or other distributions made for the purposes
of paying taxes), together with the aggregate principal amount of any loans
made pursuant to Section 6.01(h)(iii)(A), does not exceed $2,000,000 in any
fiscal year; and

(d) any Joint Venture may make distributions to its owners."

(f) The Borrower, Coram and the Lenders hereby amend Section 6.10(c) of the
Credit Agreement by deleting the text "in an outstanding principal amount
exceeding $1,000,000" included in the eleventh line of such Section.

SECTION 3. Representations and Warranties. Each of Coram, the Borrower and
each of the Subsidiary Guarantors represents and warrants to each of the Lenders
that:

(a) The execution, delivery and performance of this Amendment by each
of Coram, the Borrower and each Subsidiary Guarantor (a) have been duly
authorized by all requisite corporate and, if required, stockholder action
and (b) will not (i) violate (A) any provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of Coram, the Borrower or any Loan Party,
(B) any order of any Governmental Authority or (C) any provisions of any
indenture, agreement or other instrument to which Coram, the Borrower or
any Subsidiary is a party or by which any of them or any of their property
is or may be bound, (ii) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse
<PAGE> 5

of time or both) a default under any such indenture, agreement or other
instrument or (iii) result in the creation or imposition of any Lien upon
or with respect to any property or assets of Coram, the Borrower or any
Subsidiary.

(b) This Amendment has been duly executed and delivered by Coram, the
Borrower and each Subsidiary Guarantor and constitutes a legal, valid and
binding obligation of Coram and the Borrower enforceable against Coram, the
Borrower and each Subsidiary Guarantor in accordance with its terms.

SECTION 4. Other Agreements. (a) The Borrower hereby agrees (i) to provide
to the Lenders as soon as practicable, and in any event on or prior to September
28, 1995, a revised, detailed business plan for Coram and each of its
Subsidiaries covering at least the twelve-month period ending September, 1996,
and (ii) to provide the Lenders an oral presentation of the report specified in
clause (i) above on or prior to October 2, 1995.

(b) The Borrower hereby agrees (i) to provide to the Lenders as soon as
practicable, and in any event on or prior to September 15, 1995, a detailed
report from Ernst & Young and Deloitte & Touche, which report shall contain a
complete analysis of the assets acquired from Caremark, Inc. pursuant to the
Acquisition, (ii) to provide to the Lenders an oral presentation of Ernst &
Young and Deloitte & Touche with respect to the report specified in clause (i)
above on or prior to October 2, 1995, and (iii) to permit the Administrative
Agent to conduct an audit of the accounts receivable of the Borrower and the
Subsidiaries.

(c) The Borrower hereby agrees to provide to the lenders (i) as soon as
practicable, and in any event on or prior to September 15, 1995, a consolidated
statement of profits and losses for the month of July 1995 and (ii) as soon as
practicable, and in any event on or prior to October 15, 1995, a consolidated
statement of profits and losses for the month of August 1995, which statements
delivered pursuant to clauses (i) and (ii) above shall include a calculation of
EBITDA and be certified by one of the Borrower's Financial Officers as fairly
presenting such profits and losses.

(d) Each of Coram and the Borrower agrees that, notwithstanding any of the
terms and provisions of the Credit Agreement, including Sections 6.01, 6.10(c)
and 6.11 thereof, Coram and the Borrower will not, and will not cause or permit
any of the Subsidiaries to:

(i) incur, create, assume or permit to exist any Indebtedness other
than (A) Indebtedness listed on Schedule I hereto or
<PAGE> 6

(B) Indebtedness permitted pursuant to Section 6.01(a), (b), (c), (d), (e),
(f), (g), (h) or (j) of the Credit Agreement;

(ii) purchase, hold or acquire any Investment other than Investments
permitted by Sections 6.04(a)(i), (a)(ii), (b), (c), (j), (l), (m) or (n)
of the Credit Agreement; or

(iii) permit the aggregate amount of Capital Expenditures made by
Coram, the Borrower and the Subsidiaries between the date of this Amendment
and October 20, 1995, to exceed $2,500,000.

(e) Notwithstanding the terms and provisions of the Credit Agreement or the
Security Agreement (including Article VI thereof), the Borrower agrees (i) to
take the actions specified in Section 5.14(b) of the Credit Agreement and
Section 6.05 of the Security Agreement as soon as practicable, and in any event
on or prior to September 30, 1995 (in the case of the execution of any lock-box
agreements, such lock-box agreements to be substantially in the form of Annex 6
to the Security Agreement or otherwise in a form reasonably acceptable to the
Collateral Agent and the Borrower and in conformity with industry practice) and
(ii) in connection therewith, to cause all accounts so created or maintained to
be held in the name of Chemical Bank, as Collateral Agent for the Lenders.

(f) Notwithstanding any of the terms and provisions of the Credit
Agreement, (i) an amount (such amount, the "Special Collateral Proceeds") equal
to 100% of the cash proceeds of the sales, transfers or other dispositions
described in clauses (vi) and (vii) of paragraph (b) of the definition of the
term "Net Proceeds" (in each case less reasonable broker's or consultant's fees
or commissions, reasonable legal costs, transfer and similar taxes and the
Borrower's good faith estimate of income taxes incurred in connection with the
receipt of such cash proceeds) shall be deposited in the Special Collateral
Account established by the Administrative Agent and (ii) any amounts on deposit
from time to time in the Special Collateral Account shall be released to the
Borrower only upon the written consent of the Required Lenders. For purposes of
this Amendment, the term "Special Collateral Account" shall mean an account
established by the Borrower with the Administrative Agent and over which the
Administrative Agent shall have exclusive dominion and control, including the
exclusive right of withdrawal, except that (unless an Event of Default has
occurred and is continuing) the Borrower shall have the exclusive right to
direct the Administrative Agent as to the investment of such deposits in the
Special Collateral Account in Permitted Investments provided, however, that the
Administrative Agent shall not be required to make any investment that, in its
sole judgment, would require or cause the Administrative Agent to be, or would
result, in
<PAGE> 7

any violation of any law, statute, rule or regulation. The Borrower shall
indemnify the Administrative Agent for any losses relating to the investments so
that the amount available in the Special Collateral Account is not at any time
less than the amount that would have been available had no investments been made
pursuant thereto. Other than any interest earned on such investments, the
Special Collateral Account shall not bear interest. Interest or profits, if any,
on such investments shall be deposited in the Special Collateral Account and
reinvested as specified above. If the maturity of the Loans has been accelerated
pursuant to the terms of the Credit Agreement, the Administrative Agent may, in
its sole discretion, apply all amounts on deposit in the Special Collateral
Account to satisfy any of the Borrower's obligations under the Credit Agreement.
The parties hereto acknowledge and agree that the Special Collateral Proceeds
constitute Proceeds (as defined in the Security Agreement) and that the
Collateral Agent, for the benefit of the Lenders, has a perfected security
interest therein.

(g) The Borrower agrees to execute and deliver to the Collateral Agent,
pursuant to Section 5.12 of the Credit Agreement, a Mortgage with respect to the
Borrower's real property located in Alpharetta, Georgia, and to take all further
actions to record and file such Mortgage and that may otherwise be determined by
the Administrative Agent to be necessary or desirable to create a valid,
perfected, first-priority Lien in favor of the Collateral Agent for the benefit
of the Lenders against such property within 15 days of the date of this
Amendment.

(h) The Borrower hereby agrees that, notwithstanding any of the terms or
provisions of the Credit Agreement, the Borrower shall not (and shall not permit
any of the Subsidiaries to) maintain any cash balance in any account other than
the accounts to be created or maintained by the Borrower in accordance with
Section 4(e) of this Amendment, Section 5.14 of the Credit Agreement and Section
6.05 of the Security Agreement.

(i) The Borrower hereby agrees that, unless the Required Lenders shall
otherwise consent, no Borrowings shall be converted pursuant to Section 2.10 of
the Credit Agreement other than conversions of Borrowings to ABR Borrowings or
to Eurodollar Borrowings having an Interest Period of one month.

SECTION 5. Limitation on Revolving Credit Borrowings. Notwithstanding any
of the terms or provisions of the Credit Agreement, the Lenders shall not be
obligated to make or issue, any Revolving Loans or Letters of Credit that would,
at any time, have the effect of causing the sum of the aggregate principal
amount of Revolving Loans outstanding and the total L/C Exposure to exceed
$35,835,600.
<PAGE> 8

SECTION 6. Effectiveness. This Amendment shall become effective as of the
date hereof upon satisfaction of each of the following conditions precedent;

(a) the Administrative Agent shall have received copies hereof that,
when taken together, bear the signatures of each of the Borrower, Coram and
the Required Lenders; and

(b) the Borrower shall have obtained and delivered to the
Administrative Agent a duly executed waiver with respect to the
Subordinated Bridge Notes in the form of Exhibit B hereto.

SECTION 7. Expiration of Waiver. Notwithstanding anything in this Amendment
or any other document to the contrary, the waiver set forth in Section 1 of this
Amendment shall automatically expire at the earlier to occur of (a) 5:00 p.m.,
New York City time, on October 31, 1995, (b) the failure by the Borrower or
Coram to comply with any of the provisions of this Amendment and (c) the date of
any amendment, modification or termination of waiver referred to in Section 6(b)
without the prior written consent of the Required Lenders.

SECTION 8. Notices. All notices hereunder shall be given in accordance with
the provisions of Section 9.01 of the Credit Agreement.

SECTION 9. Applicable Law. THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 10. No Novation. Except as expressly set forth herein, this
Amendment shall not by implication or otherwise limit, impair, constitute a
waiver of or otherwise affect the rights and remedies of any party under the
Credit Agreement, nor alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement, all of which are ratified and affirmed in all respects and shall
continue in full force and effect. This Amendment shall apply and be effective
only with respect to the provisions of the Credit Agreement specifically
referred to herein.

SECTION 11. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract. Delivery of an executed
counterpart of a signature page of this Amendment by facsimile transmission
shall be as effective as delivery of a manually executed counterpart of this
Amendment.
<PAGE> 9

SECTION 12. Headings. Section headings used herein are for convenience of
reference only, are not part of this Amendment and are not to affect the
construction of, or to be taken into consideration in interpreting, this
Amendment.

IN WITNESS WHEREOF, the Borrower, Coram and the Required Lenders have
caused this Amendment to be duly executed by their duly authorized officers, all
as of the date and year first above written.

CORAM HEALTHCARE CORPORATION,

by /s/ JAMES R. SWEENEY
------------------------------
Name: JAMES R. SWEENEY
Title: Chairman, Chief Executive
Officer and President

CORAM, INC.,

by /s/ JAMES R. SWEENEY
------------------------------
Name: JAMES R. SWEENEY
Title: Chairman, Chief Executive
Officer and President

EACH SUBSIDIARY GUARANTOR LISTED
ON EXHIBIT A,

by /s/ JAMES R. SWEENEY
------------------------------
Name: JAMES R. SWEENEY
Title: Chairman, Chief Executive
Officer and President
<PAGE> 10

CHEMICAL BANK, individually and as
Administrative Agent, Collateral
Agent and Fronting Bank,

by /s/ LENARD WIENER
-----------------------------
Name: Leonard Wiener
Title: Vice President

BANK OF AMERICA NT & SA,

by /s/ LESLIE REUTER
-----------------------------
Name: Leslie Reuter
Title: Vice President

BANK OF IRELAND GRAND CAYMAN,

by
-----------------------------
Name:
Title:

THE BANK OF NOVA SCOTIA,

by
-----------------------------
Name:
Title:

BANK POLSKA,

by
-----------------------------
Name:
Title:
<PAGE> 11

BERLINER HANDELS- UND
FRANKFURTER BANK GRAND CAYMAN
BRANCH,

by
---------------------------
Name:
Title:

CHL HIGH YIELD LOAN PORTFOLIO
(a Unit of Chemical Bank),

by /s/ ANDREW D. GORDON
---------------------------
Name: ANDREW D. GORDON
Title: Managing Director

CREDIT LYONNAIS CAYMAN ISLAND
BRANCH

by
---------------------------
Name:
Title:

FIRST CHICAGO CAPITAL MARKETS, INC.

by
---------------------------
Name:
Title:
<PAGE> 12

THE FIRST NATIONAL BANK OF BOSTON,

by
-----------------------------
Name:
Title:

THE FIRST NATIONAL BANK OF CHICAGO,

by
-----------------------------
Name:
Title:

FIRST UNION NATIONAL
BANK OF NORTH CAROLINA,

by /s/ ANN M. DODD
-----------------------------
Name: ANN M. DODD
Title: Senior Vice President

THE MITSUBISHI BANK, LIMITED
CHICAGO BRANCH,

by
-----------------------------
Name:
Title:

NBD BANK,

by /s/ JOSEPH J. TULLY
-----------------------------
Name: JOSEPH J. TULLY
Title: First Vice President
<PAGE> 13

NATIONSBANK OF TEXAS N.A.,

by /s/ FRANK T. HANDLEY
-----------------------------
Name: FRANK T. HANDLEY
Title: Senior Vice President

THE SUMITOMO TRUST & BANKING
COMPANY LTD., NEW YORK BRANCH,

by /s/ SURAJ P. BHATIA
-----------------------------
Name: SURAJ P. BHATIA
Title: Senior Vice President
Manager, Corporate Finance
Dept.
<PAGE> 14

September 29, 1995

Chemical Bank, as Administrative Agent
270 Park Avenue, 30th Floor
New York, New York 10017
Attention: Lenard Wiener

Re: Coram Third Amendment

Ladies and Gentlemen:

Reference is hereby made to that certain Third Amendment and Limited Waiver
dated as of September 29, 1995 (the "Third Amendment") by and among Coram
Healthcare Corporation, Coram, Inc., the Subsidiary Guarantors named on Exhibit
A thereto, the financial institutions party thereto ("Lenders") and Chemical
Bank, as agent for the Lenders (in such capacity, "Administrative Agent"), as
collateral agent for the Lenders, and as fronting bank, which amends that
certain Credit Agreement dated as of April 6, 1995 (as amended, supplemented or
otherwise modified to the date hereof and from time to time hereafter, the
"Credit Agreement"). Capitalized terms used herein without definition shall have
the respective meanings set forth in the Credit Agreement. This letter is
delivered pursuant to Section 4.A of the Third Amendment.

Coram and the Borrower hereby agree that Zolfo Cooper L.L.C., or any other
representative designated by Required Lenders, shall have full and unimpeded
access to all personnel, books and records of Coram, the Borrower and the
Subsidiary Guarantors; provided that such access shall be in accordance with the
provisions of the protocol set forth on Schedule A hereto. Coram and the
Borrower further agree that this letter agreement shall be a "Loan Document" for
all purposes of the Credit Agreement.

CORAM HEALTHCARE CORPORATION

By: /s/ JAMES SWEENEY
-----------------------------
Name: James Sweeney
Title: Chief Executive Officer

CORAM, INC.

By: /s/ JAMES SWEENEY
-----------------------------
Name: James Sweeney
Title: Chief Executive Officer
<PAGE> 15

SCHEDULE A

AGREED UPON PROTOCOL FOR ZOLFO COOPER ACCESS
AND INTERFACE WITH CORAM
September 20, 1995

Zolfo Cooper representatives shall have full and exclusive use of Conference
Room A at 1125 Seventeenth Street on the 15th floor. This conference room is
inside of Coram's office space and on the same floor as Coram's corporate
offices. The telephone number of that conference room is 303-672-8735. The
closest fax machine is 303-292-1288.

Zolfo Cooper has agreed to contact Coram personnel telephonically to schedule
meetings so as to avoid unnecessary interruptions. All meetings will be
scheduled as promptly as possible without unduly disrupting ongoing activities.
Meetings will be conducted on Coram premises unless Coram personnel are at other
locations and request meetings at those sites.

Zolfo Cooper has agreed that all requested information and copies of documents
will be authorized by either Rick Smith or Rod Wolford prior to distribution to
Zolfo Cooper. This authorization will be provided as promptly as possible so as
not to delay Zolfo Cooper.

Zolfo Cooper has agreed that participation in interviews by a representative of
Deloitte & Touche and/or management is acceptable and does not constitute any
restriction in access.

Deloitte & Touche will supply Zolfo Cooper with reports, analyses or other
documents prepared in the ordinary course of the Company's business or at the
request of the Lenders, provided however that nothing herein shall be deemed to
waive applicable privileges, including attorney client and attorney workproduct
privileges, which would apply to documents, reports or analyses prepared in
anticipation of litigation or for trial or incorporating attorney client
communications and provided further that nothing herein shall affect or alter
that certain Joint Interest Agreement dated September 27, 1995 executed by the
Company and the Lenders in connection with the "Caremark Litigation" as defined
therein.
<PAGE> 16

OFFICER'S CERTIFICATE
RE PENSACOLA PROPERTY

Reference is hereby made to that certain Credit Agreement dated as of April
6, 1995, as amended by that certain First Amendment and Waiver dated as of
August 9, 1995, that certain Second Amendment dated as of September 7, 1995 and
that certain Third Amendment and Limited Waiver dated as of September 29, 1995
(the "THIRD AMENDMENT") (as so amended, the "CREDIT AGREEMENT"). Capitalized
terms used herein without reference shall have the respective meanings assigned
in the Credit Agreement. This Officer's Certificate is delivered pursuant to
Section 4.B of the Third Amendment.

The undersigned chief financial officer of Coram Healthcare Corporation, a
Delaware corporation ("CORAM"), hereby certifies that (i) the fair market value
of its property located at 4551 North David Highway, Pensacola, Florida (the
"PENSACOLA PROPERTY") is less than the principal amount of the Indebtedness
secured by the Pensacola Property and (ii) Coram intends to transfer the
Pensacola Property to the holder of such Indebtedness pursuant to a deed in lieu
or otherwise abandon the Pensacola Property as soon as practicable.

DATE: October 2, 1995

CORAM HEALTHCARE CORPORATION

By: /s/ RICHARD SMITH
-----------------------------
Name: Richard Smith
Title: Chief Financial Officer
<PAGE> 17

OFFICER'S CERTIFICATE

The undersigned chief financial officer of Coram Healthcare Corporation, a
Delaware corporation ("CORAM"), and chief executive officer or chief financial
officer of Coram, Inc., a Delaware corporation (the "BORROWER"), hereby certify
that all of the respective property of Coram, the Borrower and the Subsidiary
Guarantors, (except for (i) the real property of Coram located at 4551 North
David Highway, Pensacola, Florida and (ii) rights under any agreement (other
than the Asset Purchase Agreement and Interest Rate Protection Agreements) in
existence on April 6, 1995 as to which the granting of a Lien pursuant to the
Security Agreement would consititute a breach of such agreement, but including
all rights to receive amounts paid or payable in respect of any joint venture or
partnership interest) is encumbered with a Lien in favor of the Collateral Agent
to secure the Obligations.

DATE: October 2, 1995

CORAM HEALTHCARE CORPORATION

By: /s/ RICHARD SMITH
-----------------------------
Name: Richard Smith
Title: Chief Financial Officer

CORAM, INC.

By: /s/ RICHARD SMITH
-----------------------------
Name: Richard Smith
Title: Chief Financial Officer

<PAGE> 1

SECOND AMENDMENT
DATED AS OF SEPTEMBER 7, 1995

This SECOND AMENDMENT dated as of September 7, 1995 (this
"AMENDMENT") to the Credit Agreement dated as of April 6, 1995, as amended by
that certain First Amendment and Waiver dated as of August 9, 1995 (the "FIRST
AMENDMENT") (as so amended, the "CREDIT AGREEMENT"), is by and among CORAM
HEALTHCARE CORPORATION, a Delaware corporation ("CORAM"), CORAM, INC., a
Delaware corporation (the "BORROWER") and a wholly owned subsidiary of Coram,
EACH SUBSIDIARY GUARANTOR (as defined in the Credit Agreement) listed on
Exhibit A hereto, THE FINANCIAL INSTITUTIONS PARTY THERETO (the "LENDERS") and
CHEMICAL BANK, an agent for the Lenders (in such capacity the "ADMINISTRATIVE
AGENT"), as collateral agent for the Lenders (in such capacity, the "COLLATERAL
AGENT") and as fronting bank (in such capacity, the "FRONTING BANK").
Capitalized terms used herein without definitions shall have the respective
meanings assigned in the Credit Agreement.

RECITALS

WHEREAS, in order to permit Pharmcare, Inc., a subsidiary of
the Borrower, to effect a sale of certain assets and to deposit certain
proceeds of such sale in a collateral account as security for the obligations,
the Borrower, Coram, the Subsidiary Guarantors and the Lenders named on the
signature pages hereof desire to amend the Credit Agreement to (i) amend the
definition of "Net Proceeds" contained therein and (ii) modify which Net
Proceeds are required to be deposited in the Special Collateral Account (as
defined in the First Amendment).

NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the Borrower, Coram, the
Subsidiary Guarantors and the Lenders hereby agree, on the terms and subject to
the conditions set forth herein, as follows:
<PAGE> 2
AGREEMENT

SECTION 1. AMENDMENTS TO ARTICLE 1: DEFINITIONS AND
ACCOUNTING MATTERS.

The definition of "Net Proceeds" contained in Section 1.01 of
the Credit Agreement is hereby amended by deleting clause (vi) from subsection
(b) thereof and substituting the phrase "(vi) the sale of all or any part of
the capital stock or assets of Pharmcare, Inc." therefor.

SECTION 2. OTHER AGREEMENTS. (a) Each of the
Borrower, Coram and each Subsidiary Guarantor hereby agrees to deposit in the
Special Collateral Account all amounts required to be deposited by it in the
Special Collateral Account pursuant to Section 4(f) of the First Amendment;
provided that, to the extent not otherwise required by Section 4(f) of the
First Amendment, the Borrower, Coram and Subsidiary Guarantors shall also
deposit 100% of the cash proceeds (including cash proceeds subsequently
received after the Closing Date and amounts initially placed in escrow that
subsequently become available) from any sale, transfer or other disposition of
all or any part of the capital stock or assets of Pharmcare, Inc., less
reasonable broker's or consultant's fees or commissions, reasonable legal
costs, transfer and similar taxes and the Borrower's good faith estimate of
income taxes incurred in connection with the receipt of such cash proceeds.

(b) The undersigned Lenders hereby consent to the sale by
Pharmcare, Inc. of the assets to be sold pursuant to that certain Asset
Purchase Agreement dated on or about September 8, 1995 among Compass Pharmacy
Services of Texas, Inc., Pharmcare, Inc. and Coram; provided that all amounts
required to be deposited in the Special Collateral Account in respect of such
sale are deposited in the Special Collateral Account.

SECTION 3. EFFECTIVENESS. This Amendment shall
become effective as of the date hereof upon the Administrative Agent's receipt
of copies hereof that, when taken together, bear the signatures of each of the
Borrower, Coram, the Subsidiary Guarantors and the Required Lenders.

SECTION 4. NOTICES. All notices hereunder shall be
given in accordance with the provisions of Section 9.01 of the Credit
Agreement.

SECTION 5. APPLICABLE LAW. THIS WAIVER SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.

2
<PAGE> 3
SECTION 6. NO NOVATION. Except as expressly set
forth herein, this Amendment shall not by implication or otherwise limit,
impair, constitute a waiver of or otherwise affect the rights and remedies of
any party under the Credit Agreement, nor alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement, all of which are ratified and affirmed in
all respects and shall continue in full force and effect. This Amendment shall
apply and be effective only with respect to the provisions of the Credit
Agreement specifically referred to herein.

SECTION 7. COUNTERPARTS. This Amendment may be
executed in two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute but one
contract. Delivery of an executed counterpart of a signature page of this
Amendment by facsimile transmission shall be as effective as delivery of a
manually executed counterpart of this Amendment.

[Remainder of page intentionally left blank.]

3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

CORAM HEALTHCARE CORPORATION

By:/s/ JAMES M. SWEENEY
--------------------------------------------
Name: James M. Sweeney
Title: Chairman, CEO & President

CORAM, INC.

By:/s/ JAMES M. SWEENEY
--------------------------------------------
Name: James M. Sweeney
Title: Chairman, CEO & President

EACH SUBSIDIARY GUARANTOR
LISTED ON EXHIBIT A

By:/s/ JAMES M. SWEENEY
--------------------------------------------
Name: James M. Sweeney
Title: Chairman, CEO & President

CHEMICAL BANK, individually and as
Administrative Agent, Collateral Agent and
Fronting Bank

BY:/S/ LEONARD WEINER
--------------------------------------------
Name: Leonard Weiner
Title: Vice President

S-1
<PAGE> 5
BANK OF AMERICA NT & SA

By: /s/ LESLIE RENTER
------------------------------------
Name: Leslie Renter
-------------------------------
Title: Vice President
------------------------------

BANK OF IRELAND GRAND CAYMAN

By: [illegible]
------------------------------------
Name: [illegible]
-------------------------------
Title: Assistant Treasurer
------------------------------

THE BANK OF NOVA SCOTIA

By: /s/ D. N. GILLESPIE
------------------------------------
Name: D. N. Gillespie
-------------------------------
Title: Assistant General Manager
------------------------------

BANK POLSKA

By: /s/ WILLIAM A. SHEA
------------------------------------
Name: William A. Shea
-------------------------------
Title: Vice President Senior
Lending Officer
------------------------------

BHF-BANK Aktienqesellschaft (f/k/a)
BERLINER HANDELS-UND
FRANKFURTER BANK GRAND
CAYMAN BRANCH

By: /s/ DAVID FRAENKEL
------------------------------------
Name: DAVID FRAENKEL
-------------------------------
Title: VP
------------------------------

BHF-BANK Aktienqesellschaft (f/k/a)
BERLINER HANDELS-UND
FRANKFURTER BANK GRAND
CAYMAN BRANCH

By: /s/ EVON CONTOS
------------------------------------
Name: EVON CONTOS
-------------------------------
Title: VP
------------------------------

S-2
<PAGE> 6
CHL HIGH YIELD LOAN PORTFOLIO
(a Unit of Chemical Bank),

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

CREDIT LYONNAIS CAYMAN ISLAND BRANCH

By: /s/ ALAN SIDRANE
------------------------------------
Name: Alan Sidrane
-------------------------------
Title: Authorized Signature
------------------------------

FIRST CHICAGO CAPITAL MARKETS, INC.

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

THE FIRST NATIONAL BANK OF BOSTON

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

S-3
<PAGE> 7
THE FIRST NATIONAL BANK OF
CHICAGO

By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------

FIRST UNION NATIONAL BANK OF
NORTH CAROLINA

By:
------------------------------------
Name: Ann M. Dodd
-------------------------------
Title: Senior Vice President
------------------------------

THE MITSUBISHI BANK, LIMITED
CHICAGO BRANCH

By: /s/ NOBORU KOBAYASHI
------------------------------------
Name: NOBORU KOBAYASHI
-------------------------------
Title: JOINT GENERAL MANAGER
------------------------------

NBD BANK

By: /s/ FRANCELLE E. FULTON
------------------------------------
Name: Francelle E. Fulton
-------------------------------
Title: Vice President
------------------------------

NATIONSBANK OF TEXAS, N.A.

By: /s/ CHARLES KERR
------------------------------------
Name: Charles Kerr
-------------------------------
Title: Senior Vice President
------------------------------

S-4
<PAGE> 8
THE SUMITOMO TRUST & BANKING
COMPANY, LTD., NEW YORK BRANCH

By: /s/ SURAJ P. BHATIA
--------------------------------------
Name: SURAJ P. BHATIA
---------------------------------
Title: Senior Vice President
Manager, Corporate Finance Dept.
--------------------------------

S-5
<PAGE> 9
EXHIBIT A

SUBSIDIARIES OF
CORAM HEALTHCARE CORPORATION(1)

A. CORAM HEALTHCARE CORPORATION SUBSIDIARIES:

T2 Medical, Inc.

Curaflex Health Services, Inc.

HealthInfusion, Inc.

H.M.S.S., Inc.

Medisys, Inc.

B. T2 MEDICAL, INC. SUBSIDIARIES:

Alabama Home Therapeutics VI, Inc.

Athens Home Therapeutics, Inc.

Atlantic Coast Home Therapeutics, Inc. [to be
changed to Coram Healthcare Corporation of Virginia]

Augusta Home Therapeutics, Inc.

Baltimore Home Therapeutics, Inc.

Capital Home Therapy, Inc.

Central Texas Home Therapeutics, Inc.

Charleston Home Therapeutics, Inc.

Charleston Home Therapeutics II, Inc.

City Home Therapeutics, Inc.

____________________

(1) Effective upon consummation of the Caremark Acquisition

A-1
<PAGE> 10
Colonial Home Therapeutics, Inc.

Columbia Home Therapeutics, Inc.

Columbus Home Therapeutics, Inc.

Commonwealth Home Therapeutics, Inc.

Commonwealth Home Therapeutics II, Inc.

Commonwealth Home Therapeutics III, Inc.

Coram Healthcare Corporation of Alabama, formerly
known as Alabama Home Therapeutics, Inc.

Coram Healthcare Corporation of Asheville, formerly
known as Asheville Home Therapeutics, Inc.

Coram Healthcare Corporation of Central Florida, formerly
known as Home Therapeutics of Florida, Inc.

Coram Healthcare Corporation of Central Virginia, formerly
known as Central Virginia Home Therapeutics, Inc.

Coram Healthcare Corporation of Charlotte, formerly
known as North Carolina Home Therapeutics, Inc.
[to be changed to Coram Healthcare Corporation of
North Carolina]

Coram Healthcare Corporation of Connecticut, formerly
known as Connecticut Home Therapeutics, Inc.

Coram Healthcare Corporation of Georgia, formerly
known as Georgia Home Therapeutics, Inc.

Coram Healthcare Corporation of Greater Washington, D.C., formerly
known as Potomac Home Therapeutics, Inc.

Coram Healthcare Corporation of Iowa, formerly
known as Iowa Home Therapeutics, Inc.

Coram Healthcare Corporation of Mississippi, formerly
known as Mississippi Home Therapeutics, Inc.

A-2
<PAGE> 11
Coram Healthcare Corporation of New Jersey, formerly
known as Northern New Jersey Home Therapeutics, Inc.

Coram Healthcare Corporation of Northern California, formerly
known as Lifesource, Inc.

Coram Healthcare Corporation of Northern Nevada, formerly
known as TPN, Inc.

Coram Healthcare Corporation of Northern Ohio, formerly
known as Cleveland Home Therapeutics, Inc.

Coram Healthcare Corporation of Oklahoma, formerly
known as Tulsa Home Therapeutics, Inc.

Coram Healthcare Corporation of Rhode Island, formerly
known as Rhode Island Home Therapeutics, Inc.

Coram Healthcare Corporation of Southern Florida, formerly
known as Southwest Florida Home Therapeutics, Inc.

Coram Healthcare Corporation of Southern Ohio, formerly
known as Tri-State Home Therapeutics, Inc.

Coram Healthcare Corporation of Tennessee, formerly
known as Knoxville Home Therapeutics, Inc.

Coram Healthcare Corporation of Shenandoah Valley, formerly
known as Shenandoah Home Therapeutics, Inc.

Coram Healthcare Corporation of Washington, formerly
known as Puget Sound Home Therapeutics, Inc.

Coram Healthcare Corporation of Western Florida, formerly
known as Sarasota Home Therapeutics, Inc.

Coram Healthcare Corporation of Western Kentucky, formerly
known as Western Kentucky Home Therapeutics, Inc.

Coram Healthcare Corporation of West Virginia, formerly
known as Southern West Virginia Home Therapeutics, Inc.

A-3
<PAGE> 12
Cullam Home Therapeutics, Inc.

Dallas Home Therapeutics, Inc.

Dallas Home Therapeutics II, Inc.

Delaware Valley Home Therapeutics, Inc.

Diablo Home Therapeutics, Inc.

Drs. MBWS Home Therapeutics, Inc.

East Tennessee Home Therapeutics, Inc.

Georgia Home Nursing, Inc.

Georgia Home Therapeutics V, Inc.

Golden Gate Home Therapeutics, Inc.

Gramercy Park Home Therapeutics, Inc.

Greater Connecticut Home Therapeutics, Inc.

Greater New York Home Therapeutics, Inc.

Heritage Medical Services of Georgia, Inc.(2)

Home Therapeutics Supply, Inc.

Hunter Home Therapeutics, Inc.

Indiana Home Therapeutics, Inc. [to be
changed to Coram Corporation of Indiana]

Intracare Corporation(3)

Intracare Holdings Corporation

____________________

(2) Wholly owned subsidiary of T2 Lithotripter Investment, Inc.

(3) Wholly owned subsidiary of Intracare Holdings Corporation.

A-4
<PAGE> 13
Kentucky Home Therapeutics, Inc.

Keystone Home Therapeutics, Inc.

Litho Center Southwest, Inc.(4)

Long Island Home Therapeutics, Inc.

Meridian Home Therapeutics, Inc.

Merritt Home Therapeutics, Inc.

Metropolitan Home Therapeutics II, Inc.

Middle Tennessee Home Therapeutics, Inc.

Mid-Florida Home Therapeutics, Inc.

Midlands Home Therapeutics, Inc.

Milwaukee Home Therapeutics, Inc.

Milwaukee Home Therapeutics II, Inc.

Minnesota Home Therapeutics, Inc.

Mississippi Home Therapeutics II, Inc.

Montgomery Home Therapeutics, Inc.

Montgomery Home Therapeutics II, Inc.

New Orleans Home Therapeutics, Inc.

New York Home Therapeutics, Inc.

Northern New York Home Therapeutics, Inc.

Northshore Home Therapeutics, Inc.

____________________

(4) Wholly owned subsidiary of T2 Lithotripter Investment of Texas, Inc.

A-5
<PAGE> 14
North Texas Home Therapeutics, Inc.

Oceanside Home Therapeutics, Inc.

Penn Valley Home Therapeutics, Inc.

Phoenix Home Therapeutics, Inc.

Piedmont Home Therapeutics, Inc.

Piedmont Home Therapeutics III, Inc.

Piedmont Home Therapeutics IV, Inc.

Professional Home Nursing, Inc.

Rhode Island Home Therapeutics II, Inc.

Rhode Island Home Therapeutics III, Inc.

River City Nursing, Inc.

Sacramento Home Therapeutics, Inc.

Salem Home Therapeutics, Inc.

Santa Barbara Home Therapeutics, Inc.

Sarasota Home Therapeutics II, Inc.

Servicetrends, Inc.

Southeast Home Therapeutics, Inc.

Southeast Home Therapeutics III, Inc.

Southeast Home Therapeutics IV, Inc.

Southern Arizona Home Therapeutics, Inc.

Southern California Home Therapeutics, Inc.
[to be changed to Coram Healthcare Corporation
of San Diego]

A-6
<PAGE> 15
Southern Connecticut Home Therapeutics, Inc.

Space Coast Home Therapeutics, Inc.

St. Louis Home Therapeutics, Inc.

Syracuse Home Therapeutics, Inc.

Tampa Bay Area Home Therapeutics, Inc.

Texas Home Therapeutics, Inc.

T-Med, Inc.

Triad Home Therapeutics, Inc.

Tri-State Home Therapeutics III, Inc.

T2 Lithotripter Investment, Inc.

T2 Lithotripter Investment of Alabama, Inc.(5)

T2 Lithotripter Investment of Indiana, Inc.(6)

T2 Lithotripter Investment of Texas, Inc.(7)

T2 Medical Investments, Inc.

Tuscon Home Therapeutics, Inc.

Utah Home Therapeutics, Inc.

Westchester Home Therapeutics, Inc.

West 82nd Street Home Therapeutics, Inc.

____________________

(5) Wholly owned subsidiary of T2 Lithotripter Investments, Inc.

(6) Wholly owned subsidiary of T2 Lithotripter Investments, Inc.

(7) Wholly owned subsidiary of T2 Lithotripter Investments, Inc.

A-7
<PAGE> 16
White Plains Home Therapeutics, Inc.

C. CURAFLEX HEALTH SERVICES, INC. SUBSIDIARIES:

Caremark Pharmacy Services, Inc., formerly
known as Pharmcor, Inc.

CASC, Inc.

CHC of New York, Inc.(8)

Clinical Homecare Corporation(9)

Comprehensive Pharmacy Home IV Services, Inc.

Coram Alternate Site Services, Inc.,
formerly Curaflex Infusion Services, Inc.

Coram Healthcare Corporation of Arizona

Coram Healthcare Corporation of Colorado

Coram Healthcare Corporation of Louisiana,
formerly known as Curaflex Nursing Services, Inc.

Coram Healthcare Corporation of Michigan

Coram Healthcare Corporation of Nebraska

Coram Healthcare Corporation of North
Texas, formerly known as Continuecare/Curaflex
Health Services, Inc.

Coram Healthcare Corporation of Oregon

Coram Healthcare Corporation of Southern California

____________________

(8) Wholly owned subsidiary of Clinical Homecare Corporation.

(9) Wholly owned subsidiary of Curaflex Clinical Services, Inc.

A-8
<PAGE> 17
Coram Healthcare Corporation of Southern Nevada

Coram Healthcare Corporation of Utah,
formerly known as Curaflex Home Solution, Inc.

Coram Healthcare Corporation of Massachusetts

Curaflex Management Services, Inc.

Curaflex Massachusetts, Inc.

Curaflex of New York, Inc.

HomeLine, Inc.

New Jersey Living Center, Inc.

Orion Medical Services, Inc.

Stratogen of Florida, Inc.

Stratogen of Rhode Island, Inc.

D. MEDYSIS, INC. SUBSIDIARIES:

American Home Therapies, Inc. [to be
changed to Coram Healthcare of Missouri]

CareVan HomeCare of Illinois, Inc.

CareVan Medical Systems of Indiana, Inc.

CareVan Medical Systems of Ohio, Inc.(10)

CareVan Medical Systems of Texas, Inc.(11)

Coram Healthcare Corporation of Illinois,
formerly known as CareVan Medical

____________________

(10) 88.2% owned by Medysis, Inc.

(11) 88.3% owned by Medysis, Inc.

A-9
<PAGE> 18
Systems of Illinois, Inc.

Coram Healthcare Corporation of Minnesota,
formerly known as CareVan Medical
Systems, Inc.

Coram Healthcare Corporation of Wisconsin,
formerly known as CareVan Medical
Systems of Wisconsin, Inc.

PharmCare, Inc.

E. HEALTHINFUSION, INC. SUBSIDIARIES:

First Circle, Inc.(12)

HealthInfusion Dialysis, Inc.

HealthInfusion Franchise, Inc.

HealthInfusion of Delaware, Inc.

HealthInfusion of Indiana, Inc.

HealthInfusion of Mid-Atlantic, Inc.

HealthInfusion of Naples, Inc.

HealthInfusion of New York, Inc.

HealthInfusion of Oklahoma, Inc.

HealthInfusion of Oregon, Inc.

HealthInfusion of Pennsylvania, Inc.

HealthInfusion of Southern Oregon, Inc.

Hospicenter of Texas, Inc.

____________________

(12) Ceased operations 12/94.

A-10
<PAGE> 19
In Vivo Acquisition Corporation

NEFRA, Inc.

F H.M.S.S. SUBSIDIARIES:

Coram Healthcare Corporation of Texas,
formerly known as H.M.S.S. of Texas, Inc.

H.M.S.S. Infusion Affiliates, Inc.

H.M.S.S. Infusion Affiliates of Jacksonville, Inc.

H.M.S.S. Management, Inc.

H.M.S.S. of New York, Inc.

Therapeutic Affiliates, Inc.

A-11

<PAGE> 1
THIRD AMENDMENT AND LIMITED WAIVER
DATED AS OF SEPTEMBER 29, 1995

This THIRD AMENDMENT AND LIMITED WAIVER dated as of September
29, 1995 (this "AMENDMENT") to the Credit Agreement dated as of April 6, 1995,
as amended by that certain First Amendment and Waiver dated as of August 9,
1995 (the "FIRST AMENDMENT") and that certain Second Amendment dated as of
September 7, 1995 (the "SECOND AMENDMENT") (as so amended, the "CREDIT
AGREEMENT"), is by and among CORAM HEALTHCARE CORPORATION, a Delaware
corporation ("CORAM"), CORAM, INC., a Delaware corporation (the "BORROWER") and
a wholly owned subsidiary of Coram, EACH SUBSIDIARY GUARANTOR (as defined in
the Credit Agreement) listed on Exhibit A hereto, THE FINANCIAL INSTITUTIONS
PARTY THERETO (the "LENDERS") and CHEMICAL BANK, as agent for the Lenders (in
such capacity the "ADMINISTRATIVE AGENT"), as collateral agent for the Lenders
(in such capacity, the "COLLATERAL AGENT") and as fronting bank (in such
capacity, the "FRONTING BANK"). Capitalized terms used herein without
definitions shall have the respective meanings assigned in the Credit
Agreement.

RECITALS

WHEREAS, Coram and Borrower have requested Lenders to (i)
defer until October 31, 1995 the principal payment required under the Credit
Agreement to be made on September 30, 1995, (ii) to waive until October 31,
1995 certain other Events of Default and (iii) amend certain covenants and
other provisions as provided herein; and

WHEREAS, subject to the terms and conditions contained herein,
Lenders have agreed to grant until October 31, 1995 the limited waiver
contained herein and the parties have agreed to amend the Credit Agreement as
provided herein.

NOW, THEREFORE, in consideration of the premises and the
mutual agreements, provisions and covenants herein contained, the Borrower,
Coram, the Subsidiary Guarantors and the Lenders hereby agree, on the terms and
subject to the conditions set forth herein, as follows:

1
<PAGE> 2
AGREEMENT

SECTION 1. LIMITED WAIVER.

(a) Subject to the provisions of paragraph (c) of this
Section 1, the Lenders hereby waive, until October 31, 1995, any Event of
Default resulting solely from (i) the Borrower's failure to make the
$10,000,000 principal payment required to be made on September 30, 1995
pursuant to Section 2.11, (ii) Coram's and the Borrower's failure to comply
with the provisions of Section 5.05(a) and 5.05(b) prior to the Amendment
Effective Date (as hereinafter defined), (iii) Coram's and the Borrower's
failure to comply with the provisions of Section 5.05(c), (iv) Coram's and the
Borrower's failure to comply with the provisions of Sections 6.12 and 6.13 of
the Credit Agreement for the fiscal periods ended June 30, 1995 and September
30, 1995, (v) Coram's and the Borrower's failure to comply with the provisions
of Section 6.14 for the fiscal period ended September 30, 1995 and (vi) Coram's
and the Borrower's failure to comply with the provisions of paragraph (a) of
Article VII prior to the Amendment Effective Date, but only to the extent such
failure relates to the representation contained in Section 3.06.

(b) Without limiting the generality of the provisions of
Section 9.08 of the Credit Agreement, the waiver set forth herein shall be
limited precisely as written and relates solely to the noncompliance by the
Borrower with the provisions of Sections 2.11, 5.05, 6.12, 6.13, 6.14 and
paragraph (a) of Article VII (collectively, the "APPLICABLE SECTIONS") of the
Credit Agreement to the extent and for the period described above and nothing
in this Limited Waiver shall be deemed to (a) constitute a waiver of compliance
by Coram or the Borrower with respect to (i) any Applicable Section in any
other instance or (ii) any other term, provisions or condition of the Credit
Agreement or any other instrument or agreement referred to therein, (b)
prejudice any right or remedy that Administrative Agent, Collateral Agent or
any Lender may now have (except to the extent such right or remedy was based
upon existing Events of Default that will not exist after giving effect to this
limited waiver) or may have in the future under or in connection with the
Credit Agreement or any other instrument or agreement referred to therein or
(c) create any obligation on the part of Administrative Agent, Collateral Agent
or any Lender to renew or extend the waiver contained herein. Except as
expressly set forth herein, the terms, provisions and conditions of the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and in all other respects are hereby ratified and confirmed; provided that the
limited waiver in this Section 1 shall supersede the limited waiver contained
in Section 1 of the First Amendment in its entirety.

(c) Notwithstanding anything to the contrary contained in
this Amendment, the limited waiver granted herein shall immediately terminate
and be of no further force or effect if (i) any Event of Default other than
those specifically waived herein shall occur, (ii) the Borrower, Coram or any
Subsidiary Guarantor shall fail to comply with any agreement or provision
contained in this Amendment or (iii) there shall be any amendment, other
modification or termination of the payment deferral granted by

2
<PAGE> 3
DLJ pursuant to that certain letter agreement dated as of August 11, 1995 (the
"DLJ DEFERRAL LETTER") with respect to the Subordinated Bridge Notes and the
duration fee payable pursuant to Section 2.2(d) of the Securities Purchase
Agreement dated as of April 6, 1995 (as amended to the date hereof, the
"SECURITIES PURCHASE AGREEMENT") among Coram, the Borrower and DLJ, in each
case without the prior written consent of Required Lenders.

SECTION 2. AMENDMENTS TO THE CREDIT AGREEMENT.

2.1 AMENDMENTS TO ARTICLE I: DEFINITIONS.

The definition of "Net Proceeds" contained in Section 1.01 is
hereby amended by (i) deleting the phrase "in excess of $500,000" from
subsection (a) thereof, (ii) deleting the phrase "in excess of $2,000,000 in
any fiscal year" from subsection (a) thereof, and (iii) deleting the phrase "in
any transaction or series of related transactions, for an aggregate purchase
price of $2,500,000 or more for the period following the Closing Date" from
subsection (b) thereof.

2.2 AMENDMENTS TO ARTICLE V: AFFIRMATIVE COVENANTS.

Section 5.12 of the Credit Agreement is hereby amended by (i)
deleting the phrase "on a quarterly basis, except in connection with a
Permitted Business Acquisition, in which case" from clause (b) thereof, (ii)
deleting the word "thereafter" from clause (b) thereof and substituting the
phrase "promptly upon the request of Agent, or otherwise by the last day of the
then current fiscal quarter" therefor, and (iii) deleting the phrase "shall
have owned for a period of at least six months real property that is located in
the United States that has an aggregate fair market value (net of deduction
from such value of the principal amount of any Indebtedness secured by any
Liens or such real property) equal to at least $5,000,000, promptly, but in any
event within 30 days after the end of such six-month period" from clause (c)
thereof and substituting therefor the phrase "shall acquire any real property
or, with respect to any other real property, upon the request of Collateral
Agent, promptly".

2.3 AMENDMENTS TO ARTICLE VI: NEGATIVE COVENANTS.

Section 6.02 of the Credit Agreement is hereby amended by
adding the phrase "(provided that no foreclosure action has been commenced with
respect to such Liens that has not been stayed or discharged within thirty (30)
days)" at the end of subsection (k) thereof.

SECTION 3. OTHER AGREEMENTS.

3.1 LIENS. Each of Coram and the Borrower agrees that,
notwithstanding the terms and provisions of the Credit Agreement, Coram and the

3
<PAGE> 4
Borrower will not, and will not cause or permit any of its Subsidiaries to,
incur any Liens pursuant to Section 6.02(m).

3.2 ACCESS AND INSPECTION RIGHTS.

A. Without limiting the provisions of Section 5.07 of the
Credit Agreement, Coram, the Borrower and each Subsidiary Guarantor hereby
agrees that Zolfo Cooper L.L.C., or any other representative designated by the
Agent or the Required Lenders, shall have full and unimpeded access to all
personnel, books and records of Coram, the Borrower and the Subsidiary
Guarantors, all in accordance with the provisions of the letter delivered
pursuant to Section 4.A of this Amendment.

B. Coram and the Borrower hereby agree that Lenders shall
have full and unimpeded access to the investment banking firm retained by Coram
and Borrower pursuant to Section 4.B of this Agreement for the purposes set
forth in such Section 4.B.

3.3 CASH FLOW FORECAST. Coram and Borrower hereby affirm
their obligation pursuant to Subsection 5.04(k) of the Credit Agreement;
provided that (i) from and after the Amendment Effective Date (as hereinafter
defined), such forecast shall be accompanied by a report including weekly
information (to the extent available) regarding accounts receivable and
accounts payable (including summary agings of each) and payor and therapy mix
and (ii) the information regarding aggregate cash disbursements (measured on a
weekly and cumulative basis consistent with past practices) shall be delivered
no later than the Wednesday immediately following the applicable week. If any
such information is not available, such report shall generally describe the
information that is not available and shall state when it will become
available.

3.4 TAX RETURNS. The Borrower and Coram hereby agree to
make available to Agent and its representatives and, upon the request of Agent,
to deliver to Agent, as soon as available, tax returns for each of them and for
each Subsidiary of Coram that is a separate legal entity.

3.5 CASH DISBURSEMENTS COVENANTS. The Borrower and Coram
hereby agree that the aggregate cash disbursements on a consolidated basis for
Coram and its Subsidiaries, in each case measured on a cumulative basis (and
set forth in the information delivered pursuant to Section 3.3 of this
Amendment) for the periods set forth below on the first Wednesday occurring
after each such period, shall not exceed the corresponding amount set forth
below:

4
<PAGE> 5
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
September 30 through October 6 $17,335,000

September 30 through October 13 35,525,000

September 30 through October 20 48,200,000

September 30 through October 27 60,400,000
</TABLE>

3.6 WEEKLY STATUS REPORT. The Borrower and Coram hereby
agree that Richard Smith (or if Richard Smith is unavailable, James Sweeney,
John Gallatin or such other member of management as is informed as to the
matters to be discussed and reasonably acceptable to Required Lenders) will
lead a weekly conference call with the Lenders, which call will include a
status report on revenue stabilization, cost cutting, accounts receivable,
accounts payable, management information systems integration, sale and equity
financing initiatives and other topics requested by the Lenders to be included
in such conference call.

3.7 LIMITATION ON REVOLVING CREDIT BORROWINGS.
Notwithstanding any of the terms or provisions of the Credit Agreement, the
Lenders shall not be obligated to make or issue, any Revolving Loans or Letters
of Credit that would, at any time, have the effect of causing the sum of the
aggregate principal amount of Revolving Loans outstanding and the total L/C
Exposure to exceed $35,835,600 minus the aggregate amount of principal payments
and reductions in L/C Exposure subsequent to the Amendment Effective Date (as
hereinafter defined). In addition, the Borrower hereby affirms its obligations
to make all prepayments required pursuant to Section 2.12(c) of the Credit
Agreement.

3.8 EXPENSES. Coram and the Borrower hereby agree to pay
all fees and expenses payable under the Credit Agreement and the reasonable
fees and expenses of the Lenders' financial advisors within five days of
receipt of the applicable invoice.

3.9 CASH MANAGEMENT SYSTEM.

(a) Notwithstanding the terms and provisions of the Credit
Agreement or the Security Agreement (including Article VI thereof), the
Borrower agrees, to the extent the following actions have not already been
completed, (i) to take the actions specified in Section 5.14(b) of the Credit
Agreement and Section 6.05 of the Security Agreement as soon as practicable,
and in any event on or prior to October 16, 1995 (provided that all lock-box
agreements shall be in form and substance acceptable to Collateral Agent) and
(ii) in connection therewith, to cause all accounts so created or maintained to
be held in the name of Chemical Bank, as Collateral Agent.

(b) Coram, Borrower and each Subsidiary Guarantor hereby
acknowledge and agree that (i) none of them shall have any access to any funds
or other amounts on deposit in any bank or other financial institution
(including without

5
<PAGE> 6
limitation any amounts on deposit at Chemical Bank or in any Collection Deposit
Account, as such term is defined in the Security Agreement), except that,
unless an Event of Default has occurred and is continuing, Borrower may
withdraw amounts on deposit in the Funding Account (as such term is defined in
the Security Agreement) and (ii) to the extent they have not already done so,
immediately instruct in writing all institutions at which Coram, Borrower or
any Subsidiary Guarantor maintains a deposit account (other than any
institution which is required, pursuant to the terms of a lockbox agreement
permitted under the Credit Agreement, to transfer all amounts on deposit to an
account at The First National Bank of Chicago) to transfer on a daily basis to
the Chemical Cash Concentration Account, by wire transfer or ACH, all amounts
on deposit in such accounts.

(c) Nothing in this Amendment (including without
limitation this Section 3.9) or otherwise shall constitute a waiver of the
Lenders', Administrative Agent's or Collateral Agent's rights or remedies upon
the occurrence of an Event of Default.

3.10 RESTRICTIONS ON CERTAIN SALES.

Without limiting the provisions of the Credit Agreement
(including without limitation Section 6.05 thereof) or any Security Document,
Coram the Borrower and each Subsidiary Guarantor hereby agree not to sell or
otherwise dispose of any Accounts without the consent of Required Lenders.

3.11 RETENTION OF INVESTMENT BANKING FIRM.

No later than October 5, 1995, Coram and the Borrower shall
retain Merrill Lynch & Co. (as suggested by Coram and the Borrower) or another
investment banking firm satisfactory to Required Lenders for the purpose of
immediately exploring the sale of Coram and its Subsidiaries, in whole or in
part(s), raising equity or refinancing indebtedness.

SECTION 4. CONDITIONS TO EFFECTIVENESS.

Sections 1 and 2 of this Amendment shall become effective only
upon the satisfaction of all of the following conditions (the date of
satisfaction of such conditions being referred to herein as the "AMENDMENT
EFFECTIVE DATE"):

A. ACCESS LETTER. Delivery to the Administrative Agent
of a letter executed by James Sweeney, as chief executive officer of Coram and
the Borrower regarding unimpeded access by Zolfo Cooper L.L.C., or other
representative designated by the Required Lenders, to the personnel, books and
records of Coram, the Borrower and the Subsidiary Guarantors in substantially
the form attached as Annex I hereto.

6
<PAGE> 7
B. SECURITY INTERESTS. Coram, the Borrower and the
Subsidiary Guarantors shall have taken all action necessary to grant Collateral
Agent a security interest in all assets of Coram, the Borrower and the
Subsidiary Guarantors, including all real and personal property in which the
Collateral Agent does not already have a Lien to secure the Obligations, and
Coram and the Borrower shall have delivered to the Collateral Agent a
certificate executed by the chief executive officer or chief financial officer
of Coram and the Borrower certifying that all of their respective property and
the property of the Subsidiary Guarantors (except for rights under any
agreement (other than the Asset Purchase Agreement and Interest Rate Protection
Agreements) in existence on April 6, 1995 as to which the granting of a Lien
pursuant to the Security Agreement would constitute a breach of such agreement,
but including all rights to receive amounts paid or payable in respect of any
joint venture or partnership interest) is encumbered with a Lien in favor of
the Collateral Agent to secure the Obligations; provided that if Coram delivers
a certificate executed by its chief executive officer or chief financial
officer certifying that the fair market value of its property located at 4551
North David Highway, Pensacola, Florida (the "PENSACOLA PROPERTY") is less than
the principal amount of Indebtedness secured by such property and that Coram
intends to transfer the Pensacola Property to the holder of such Indebtedness
pursuant to a deed in lieu or otherwise abandon the Pensacola Property as soon
as practicable, Coram shall not be required to grant a Lien in favor of
Collateral Agent in the Pensacola Property. The security interests granted in
favor of Collateral Agent shall be for the ratable benefit of the Secured
Parties (as defined in the applicable Security Document) as provided in the
Security Documents.

C. DLJ DEFERRAL. Delivery to the Administrative Agent
of evidence satisfactory in form and substance to the Administrative Agent that
DLJ has deferred until October 31, 1995 all payments in respect of the
Subordinated Bridge Notes and the duration fee payable pursuant to Section
2.2(d) of the Securities Purchase Agreement.

D. PAYMENT OF FEES AND EXPENSES. The Borrower shall
have paid (i) the fees and expenses of the Lenders, Administrative Agent,
Collateral Agent and their professionals accrued and estimated as of September
30, 1995, (ii) a deposit with the Administrative Agent of $50,000 to be held as
security for payment of the fees and expenses of the Lenders, Administrative
Agent and Collateral Agent accruing after September 30, 1995 and (iii) a
deposit with Zolfo Cooper L.L.C. of a retainer of $75,000 to be held as
security for the payment of fees of Zolfo Cooper L.L.C. accrued after September
30, 1995.

E. REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in the Credit Agreement (other than those contained
clause (vi) of Section 1(a) of this Amendment) shall be true, correct and
complete in all material respects on and as of the Amendment Effective Date to
the same extent as though made on and as of such date, except to the extent
such representations and warranties specifically relate to an earlier date, in
which case such representations and warranties

7
<PAGE> 8
shall have been true, correct and complete in all material respects on and as
of such earlier date.

F. AMENDMENT COUNTERPARTS. Administrative Agent shall
have received counterparts of this Amendment executed by the Borrower, Coram,
each Subsidiary Guarantor, each Lender and authorization of delivery of such
counterparts.

SECTION 5. REPRESENTATIONS AND WARRANTIES.

Each of Coram, the Borrower and each of the Subsidiary
Guarantors represents and warrants to each of the Lenders that:

A. The execution, delivery and performance of this
Amendment by each of Coram, the Borrower and each Subsidiary Guarantor (a) have
been duly authorized by all requisite corporate and, if required, stockholder
action and (b) will not (i) violate (A) any provision of law, statute, rule or
regulation, or of the certificate or articles of incorporation or other
constitutive documents or by-laws of Coram, the Borrower or any Loan Party, (B)
any order of any Governmental Authority or (C) any provisions of any indenture,
agreement or other instrument to which Coram, the Borrower or any Subsidiary is
a party or by which any of them or any of their property is or may be bound,
(ii) be in conflict with, result in a breach of or constitute (alone or with
notice or lapse of time or both) a default under any such indenture, agreement
or other instrument or (iii) result in the creation or imposition of any Lien
upon or with respect to any property or assets of Coram, the Borrower or any
Subsidiary Guarantor.

B. This Amendment has been duly executed and delivered
by Coram, the Borrower and each Subsidiary Guarantor and constitutes a legal,
valid and binding obligation of Coram and the Borrower enforceable against
Coram, the Borrower and each Subsidiary Guarantor in accordance with its terms.

SECTION 6. CERTAIN RIGHTS REGARDING DEPOSITS.

Coram, the Borrower and the Subsidiary Guarantors agree that
in the event of a filing of a voluntary or involuntary petition for relief
under Title 11 of the United States Code (the "CODE") with respect to Coram,
the Borrower or any Subsidiary Guarantor, Collateral Agent shall, without
notice, motion or other application, automatically have and be entitled to
immediate, ex parte relief from the automatic stay imposed by Section 362 of
the Code to enable Collateral Agent to place a hold, freeze or otherwise
restrict Coram's, the Borrower's or any Subsidiary Guarantor's access to all
funds, accounts or deposits in the possession of Collateral Agent or any
sub-agent, pending an order of the applicable bankruptcy court after notice and
hearing; provided that if Collateral Agent places a hold or freeze, or
otherwise so restricts access to such funds, accounts or deposits, it shall
promptly thereafter notify the Borrower thereof (it

8
<PAGE> 9
being understood that any failure to so notify the Borrower shall not affect
Collateral Agent's right to hold, freeze or otherwise restrict access to such
funds, accounts or deposits). The prior sentence shall not be deemed to affect
the rights of any party hereto with respect to setoff of such funds, accounts
or deposits as authorized by Section 9.06 of the Credit Agreement.

SECTION 7. NOTICES.

All notices hereunder shall be given in accordance with the
provisions of Section 9.01 of the Credit Agreement to the applicable address
set forth on the signature pages hereto.

SECTION 8. APPLICABLE LAW.

THIS WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 9. NO NOVATION.

Except as expressly set forth herein, this Amendment shall not
by implication or otherwise limit, impair, constitute a waiver of or otherwise
affect the rights and remedies of any party under the Credit Agreement, the
First Amendment or the Second Amendment, nor alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Credit Agreement, the First Amendment or the Second Amendment,
all of which are ratified and affirmed in all respects and shall continue in
full force and effect. This Amendment shall apply and be effective only with
respect to the provisions of the Credit Agreement specifically referred to
herein.

SECTION 10. RELEASE.

Although Coram, the Borrower and the Subsidiary Guarantors do
not believe that they have any claims against Administrative Agent, Collateral
Agent, the Fronting Bank, or any of the Lenders, each is willing to provide
such parties with a general and total release of all such claims in
consideration of the extensions and other benefits which the Loan Parties will
receive pursuant to this Amendment. Accordingly, each Loan Party, for itself,
each of its Subsidiaries and any successor of such Loan Party or such
Subsidiary, hereby knowingly, voluntarily, intentionally and irrevocably
releases and discharges Administrative Agent, Collateral Agent, the Fronting
Bank, each Lender and each of their respective officers, directors, agents and
counsel (each a ``RELEASEE'') from any and all actions, causes of action,
suits, sums of money, controversies, variances,

9
<PAGE> 10
trespasses, damages, judgments, extents, executions, losses, liabilities,
costs, expenses, debts, dues, demands, obligations or other claims of any kind
whatsoever, in law, admiralty or equity, which such Loan Party or any of its
Subsidiaries ever had, now have or hereafter can, shall or may have against any
Releasee for, upon or by reason of any matter, cause or thing whatsoever from
the beginning of the world to the Amendment Effective Date; provided, however,
that nothing contained in this release shall be construed to waive or alter any
right of the Loan Parties to claims that may arise hereafter under sections
542, 543, 544, 545, 547, 548 and 551 of the Federal Bankruptcy Code.

SECTION 11. COUNTERPARTS; EFFECTIVENESS.

This Amendment may be executed in two or more counterparts,
each of which shall constitute an original but all of which when taken together
shall constitute but one contract. Delivery of an executed counterpart of a
signature page of this Amendment by facsimile transmission shall be as
effective as delivery of a manually executed counterpart of this Amendment.
This Amendment (other than the provisions of Sections 1 and 2 which shall
become effective as provided in Section 4 hereof) shall become effective upon
execution of a counterpart hereof by the Borrower, Coram, each Subsidiary
Guarantor, each Lender and authorization of delivery of such counterparts.

[Remainder of page intentionally left blank.]

10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

CORAM HEALTHCARE CORPORATION

By: /s/ JAMES M. SWEENEY
-----------------------------------
Name: James M. Sweeney
Title: Chairman, CEO & President
Notice Address:

CORAM, INC.

By: /s/ JAMES M. SWEENEY
-----------------------------------
Name: James M. Sweeney
Title: Chairman, CEO & President
Notice Address:

EACH SUBSIDIARY GUARANTOR LISTED
ON EXHIBIT A

By: /s/ JAMES M. SWEENEY
-----------------------------------
Name: James M. Sweeney
Title: Chairman, CEO & President
Notice Address:

S-1
<PAGE> 12
CHEMICAL BANK, individually and as
Administrative Agent, Collateral Agent and
Fronting Bank

By:/s/ LENARD WEINER
--------------------------
Name: Lenard Weiner
Title: Vice President
Notice Address:

BANK OF AMERICA NT & SA

By:/s/ LESLIE REUTER
--------------------------
Name: Leslie Reuter
Title: Vice President

Notice Address:
Bank of America NT & SA
333 S. Beaudry
9th Floor, #24346
Los Angeles, CA 90017

BANK OF IRELAND GRAND CAYMAN

By:/s/ JOHN G. CUSACK
--------------------------
Name: JOHN G. CUSACK
Title: Assistant Treasurer

Notice Address:
Bank of Ireland
640 Fifth Ave.
New York, NY 10019

THE BANK OF NOVA SCOTIA

By: /s/ D.N. GILLESPIE
--------------------------
Name: D.N. GILLESPIE
Title: AGM
Notice Address:

S-2
<PAGE> 13
BANK POLSKA KASA OPIEKI, S.A.

By:/s/ William A. SHEA
-------------------------------
Name: W. A. SHEA
Title: VP
Notice Address:

BHF-BANK Aktiengesellschaft f/k/a/
BERLINER HANDELS-UND
FRANKFURTER BANK GRAND CAYMAN BRANCH

By: /s/ BRIAN LOVE
-------------------------------
Name: BRIAN LOVE
Title: SVP
Notice Address:
590 Madison Ave.
New York, NY 10022

BHF-BANK Aktiengesellschaft f/k/a/
BERLINER HANDELS-UND
FRANKFURTER BANK GRAND CAYMAN BRANCH

By: /s/ EVON CONTOS
-------------------------------
Name: EVON CONTOS
Title: VP
Notice Address:

CHL HIGH YIELD LOAN PORTFOLIO
(a Unit of Chemical Bank),

By: /s/ RICHARD STEWART
-------------------------------
Name: Richard Stewart
Title: Vice President
Notice Address:

CREDIT LYONNAIS CAYMAN ISLAND
BRANCH

By: /s/ [illegible]
-------------------------------
Name:
Title:
Notice Address:

S-3
<PAGE> 14
THE FIRST NATIONAL BANK OF BOSTON

By:/s/ GARRETT QUINN
------------------------------
Name: Garrett Quinn
Title: Vice President
Notice Address:

THE FIRST NATIONAL BANK OF CHICAGO

By:/s/ [illegible]
------------------------------
Name: [illegible]
Title: Vice President
Notice Address:

FIRST UNION NATIONAL BANK OF NORTH
CAROLINA

By:/s/ [illegible]
------------------------------
Name: [illegible]
Title: Senior Vice President
Notice Address:

THE MITSUBISHI BANK, LIMITED
CHICAGO BRANCH

By: /s/ NOBORU KOBAYASHI
------------------------------
Name: NOBORU KOBAYASHI
Title: JOINT GENERAL MANAGER
Notice Address:
THE MITSUBISHI BANK LTD.
CHICAGO BRANCH
115 S. LA SALLE STREET SUITE 2100
CHICAGO, IL 60603

S-4
<PAGE> 15
NBD BANK

By: /s/ [illegible]
--------------------------------
Name: [illegible]
Title: Vice President
Notice Address:

NATIONSBANK OF TEXAS, N.A.

By:/s/ [illegible]
--------------------------------
Name: [illegible]
Title: Senior Vice President
Notice Address:

THE SUMITOMO TRUST & BANKING
COMPANY, LTD., NEW YORK BRANCH

By: /s/ SURAJ P. BHATIA
--------------------------------
Name: SURAJ P. BHATIA
Title: SENIOR VICE PRESIDENT
Notice Address: MANAGER, CORPORATE
FINANCE DEPT.

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EXHIBIT A

SUBSIDIARIES OF
CORAM HEALTHCARE CORPORATION(1)

A. CORAM HEALTHCARE CORPORATION SUBSIDIARIES:

T2 Medical, Inc.

Curaflex Health Services, Inc.

HealthInfusion, Inc.

H.M.S.S., Inc.

Medisys, Inc.

B. T2 MEDICAL, INC. SUBSIDIARIES:

Alabama Home Therapeutics VI, Inc.

Athens Home Therapeutics, Inc.

Atlantic Coast Home Therapeutics, Inc. [to be
changed to Coram Healthcare Corporation of Virginia]

Augusta Home Therapeutics, Inc.

Baltimore Home Therapeutics, Inc.

Capital Home Therapy, Inc.

Central Texas Home Therapeutics, Inc.

Charleston Home Therapeutics, Inc.

Charleston Home Therapeutics II, Inc.

City Home Therapeutics, Inc.

Colonial Home Therapeutics, Inc.

____________________

(1) Effective upon consummation of the Caremark Acquisition

A-1
<PAGE> 17
Columbia Home Therapeutics, Inc.