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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 1-11343
CORAM HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 33-0615357
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1125 SEVENTEENTH STREET, SUITE 2100 80202
DENVER, COLORADO (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (303) 292-4973
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Common Stock ($.001 par value per share) New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO
THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K.
AS OF MARCH 24, 1997, THERE WERE OUTSTANDING 44,133,964 SHARES OF THE
REGISTRANTS COMMON STOCK, WHICH IS THE ONLY CLASS OF VOTING STOCK OF THE
REGISTRANT. AS OF THE DATE, THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON
STOCK HELD BY NONAFFILIATES OF THE REGISTRANT BASED ON THE CLOSING PRICE FOR
THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE ON MARCH 24, 1997 WAS
APPROXIMATELY $157.0 MILLION.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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PART I
ITEM 1. BUSINESS.
GENERAL OVERVIEW
Coram Healthcare Corporation, a Delaware corporation ("Coram" or the
"Company"), is a leading provider of alternate site (outside the hospital)
infusion therapy and related services in the United States, operating
approximately 110 branches located in 43 states. Infusion therapy involves
the intravenous administration of anti-infective, chemotherapy, pain
management, nutrition and other therapies. Other services offered by the
Company include lithotripsy, mail-order pharmacy, pharmacy benefit management,
network management, disease state management, and other non-intravenous
products and services.
The Company was formed on July 8, 1994 as a result of a merger (the
"Four-Way Merger") by and among T2 Medical, Inc. ("T2 Medical"), Curaflex
Health Services, Inc. ("Curaflex"), Medisys, Inc. ("Medisys") and
HealthInfusion, Inc. ("HealthInfusion"), each of which was a publicly-held
national or regional provider of home infusion therapy and related services.
Each of these other companies became and is now a wholly owned subsidiary of
the Company. This transaction was accounted for as a pooling of interests.
The Company has made a number of acquisitions since operations commenced,
the most significant of which was the acquisition of certain home infusion
operations of Caremark, Inc. a wholly owned subsidiary of Caremark
International, Inc. (the "Caremark Business") effective April 1, 1995. In
addition, the Company acquired H.M.S.S., Inc. ("HMSS"), a leading regional
provider of home infusion therapies based in Houston, Texas, effective
September 12, 1994. As a result of these acquisitions, the Company became the
largest independent provider of alternate site infusion therapy services in
the United States based on breadth of service and total revenue.
On October 19, 1996, the Company, Integrated Health Services, Inc. ("IHS")
and IHS Acquisition XIX, Inc., ("Merger Sub"), entered into a definitive
Agreement Merger and Plan of Merger (the "Merger Agreement") providing for the
merger (the "IHS Merger") of Merger Sub with and into the Company. If the
Merger is consummated, the Company will become a wholly-owned subsidiary of
IHS. Preliminary proxy materials relating to the solicitation of the approval
of the Merger by Coram's and IHS' stockholders have been filed with the
Securities and Exchange Commission and are under review and subject to comment
thereby. There can be no assurance that the Merger will be consummated. See
Note 3 to the Company's Consolidated Financial Statements. On March 30, 1997,
Coram and IHS executed an amendment to their October 19, 1996 Plan of Merger,
which will become effective at the close of business on Friday, April 4, 1997
unless either party gives the other prior notice of cancellation of the
amendment. The amendment revises the previously announced exchange ratio from
.2111 shares of IHS common stock for each share of Coram common stock to .15
shares of IHS common stock for each share of Coram common stock. IHS has agreed
to pay Coram a fee of $25 million if the merger is not consummated other than
pursuant to certain limited conditions. The parties have agreed to change the
Plan of Merger to provide that if the merger is not completed on May 31, 1997,
it will terminate on that date unless the termination date is extended by
either party for an additional 60 days.
DELIVERY OF ALTERNATE SITE HEALTHCARE SERVICES
General. Infusion patients are primarily referred to the Company following
diagnosis of a specific disease or upon discharge from a hospital. The
treating physician will generally determine whether the patient is a candidate
for home infusion treatment. Either the patient's physician or a managed care
payor will determine the infusion company to which a patient is referred.
Because drugs administered intravenously tend to be more potent and complex
than oral drugs, the delivery of intravenous drugs generally requires patient
training, specialized equipment and periodic monitoring by skilled nurses and
pharmacists. Most therapies require either a gravity-based flow control device
or an electro-mechanical pump to meter the drugs. Some therapies are
administered continuously; most however, are given for a prescribed number of
hours per day. Coram's nurses and pharmacists work with the patient's doctor
to track the patient's condition and update the therapy as necessary.
Treatments can last from a few days to several years.
Branch Facilities. The delivery of infusion services is coordinated
through local or regional infusion centers or "branches," which provide the
following functions: (i) patient intake and monitoring, (ii) drug mixing and
preparation by pharmacists and pharmacy technicians, (iii) clinical pharmacy
services, (iv) nursing services, (v) materials management, including drug and
supply inventory and delivery, (vi) billing, collections and benefit
verification, (vii) sales to local referral sources, including doctors,
hospitals and payors and (viii) general management. The Company's branch
facilities typically are leased and generally consist of 2,000 to 20,000 square
feet of office space in suburban office parks, often in close proximity to
major medical facilities. A typical branch has a fully equipped pharmacy,
offices for administrative personnel and a small storage warehouse. Branches
are staffed with three to one hundred full-time employees, and a typical branch
includes a branch manager, licensed pharmacists, pharmacy technicians,
registered nurses and sales and administrative personnel. Each branch serves
the metropolitan area in which it is
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located, generally within a two-hour driving radius of all patients served, as
well as outlying locations where it can arrange appropriate nursing services.
Satellite branches are also used. These smaller branches contain limited
supplies and pharmacy operations and are used as dispatch centers serving a
specified geographical area.
In-Home Patient Care. Before accepting a patient for home infusion
treatment, the staff at the local branch works closely with the patient's
physician or clinicians and hospital personnel in order to assess the patient's
suitability for home care. This assessment process includes but is not
limited to an analysis of the patient's physical and emotional condition and of
social factors such as the safety and cleanliness of the home environment and
the availability of family members or others who can assist in the
administration of the patient's therapy, if necessary. It also includes a
review of compliance with the requirements of the patient's insurance carrier,
managed care provider and governmental payor.
When a patient's suitability for home care has been confirmed, the patient
and the patient's designated care-giver receive training and education
concerning the therapy to be administered, including proper infusion technique
and care and use of intravenous devices and other equipment used in connection
with the therapy. Assessment and training are generally performed by the
Company's nurses and pharmacists.
Prior to the patient receiving treatment services from the Company, the
treating physician devises the patient's plan of care and transmits it to the
local branch's clinical support team, including its nurses and pharmacists.
This team will work with the treating physician and the managed care
coordinator, if there is one, to administer the plan of care and monitor the
patient's progress. Throughout the patient's therapy, the local branch's
clinical support team will regularly provide the treating physician and the
managed care coordinator with reports on the patient's condition, maintaining
an information flow that allows the treating physician to actively manage the
patient's treatment. The treating physician always remains responsible for the
patient's care, including changing the patient's plan of care to meet the
patient's needs and handling patient emergencies.
Upon the patient's arrival home, a nurse from the local branch typically
oversees the administration of the patient's first home infusion treatment.
Thereafter, the frequency of nursing visits depends upon the particular therapy
of the patient involved. During these subsequent visits, the nurse may check
and adjust the patient's infusion site, intravenous lines and related
equipment, obtain blood samples, change the pump settings and/or drug
administration after consulting with the physician and the pharmacist and
assess the patient's condition and compliance with the plan of care. The
patient's nutrition supplies and prescription drugs are typically delivered on
a weekly basis depending on the therapy and the particular drugs being used.
The treating physician and the managed care coordinator remain actively
involved in the patient's treatment by monitoring the administration of the
plan of treatment and revising the plan as necessary. In addition, each branch
has a medical advisory board comprised of local physicians who review quality
assurance and patient service issues and consult with the Company on
maintaining and improving its quality of care and patient service at the local
level.
Outpatient Facilities. Outpatient facilities, either in separate
facilities or in a branch, are used to treat patients that do not require
hospitalization but are not treated at home because of convenience, severity of
illness, complexity of therapy or environmental concerns. Patients report to
the outpatient facility for administration of the required therapy and return
home that day.
PRODUCTS AND SERVICES OF THE COMPANY
Infusion Therapy. Coram provides a variety of infusion therapies,
principally anti-infective therapy, parenteral nutrition, chemotherapy and pain
management therapy. The initiation and duration of these therapies is determined
by a physician based upon a patient's diagnosis, treatment plan and response to
therapy. Certain therapies, such as anti-infective therapy, are generally used
in the treatment of temporary conditions such as infections, while others, such
as parenteral nutrition, may be required on a long-term or permanent basis. The
infusion therapies are administered at the patient's home by the patient, the
designated care-giver or an employee or agent of the Company. In patient groups
such as immune suppressed patients (e.g., AIDS/HIV, cancer and transplant
patients) anti-infective therapy must be provided episodically over the duration
of the primary disease or for the remainder of the patient's life.
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The following table sets forth the estimated aggregate percentages of
patient revenue derived by the Company from the designated types of infusion
therapies for the periods indicated:
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YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
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<S> <C> <C>
Anti-Infective . . . . . . . . . . . . . . . 27% 30%
Parenteral and Enteral Nutrition . . . . . . 30% 31%
Biotherapy . . . . . . . . . . . . . . . . . 8% 7%
Chemotherapy . . . . . . . . . . . . . . . . 4% 4%
Pain Management . . . . . . . . . . . . . . . . 4% 3%
Other Therapies . . . . . . . . . . . . . . . 27% 25%
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Total . . . . . . . . . . . . . . . . . . . . 100% 100%
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Anti-Infective Therapy. Anti-infective therapy is the infusion of
antibacterial, anti-viral or anti-fungal medications into the patient's
bloodstream for the treatment of a variety of infectious diseases, such as
osteomyelitis (bone infections), bacterial endocarditis (infection of the heart
valves), wound infections, infections associated with AIDS and infections of
the kidneys and urinary tract. Generally, intravenous anti-infective drugs are
delivered through a peripheral catheter inserted in a vein in the patient's
arm. Anti-infective drugs are generally more effective when infused directly
into the bloodstream than when taken orally.
Parenteral and Enteral Nutrition. Total parenteral nutrition therapy or
"TPN" involves the intravenous feeding of life-sustaining nutrients to patients
with impaired or altered digestive tracts due to a gastrointestinal illness or
conditions such as an intestinal obstruction or inflammatory bowel disease.
The therapy is administered through a central catheter surgically implanted
into a major blood vessel to introduce the nutrient solution into the
bloodstream. The nutrient solution may contain amino acids, dextrose, fatty
acids, electrolytes, trace minerals or vitamins. In many cases, the underlying
illness or condition from which parenteral nutrition patients suffer is
recurrent in nature requiring periodic re-hospitalization for treatment
followed by resumption of parenteral nutrition at home. Some patients must
remain on parenteral nutritional therapy for life. Enteral nutrition therapy
is administered to patients who cannot eat as a result of an obstruction to the
upper gastrointestinal tract or other medical conditions. Enteral nutrition
therapy is often administered over a long period, generally for more than six
months.
Biotherapy. The Company also provides patients with biological response
modifiers, colony stimulating factors such as G-CSF and GM-CSF, erythropoietin
and interferons. In addition, the Company provides therapies for diseases such
as alpha-1-antititrypsin (AAT) deficiency, hemophilia, primary immune
deficiencies and growth deficiencies.
Chemotherapy. Chemotherapy is the administration of cytotoxic drugs to
patients suffering from various types of cancer either alone or as adjuvant (an
immunological agent that increases the antigenic response) to other therapies
such as radiation or surgery. Breast, lung, colon, prostate and ovarian
cancer, among others, generally are considered to be most conducive to
outpatient chemotherapy treatment. Chemotherapy generally is administered
periodically for several weeks or months. The nature of drugs that are used to
treat cancer is such that side effects such as nausea occur in some patients.
This requires the administration of additional agents to treat those side
effects.
Pain Management Therapy. Pain management therapy is the administration of
analgesic drugs to patients suffering from acute or chronic pain. It is often
administered in conjunction with intravenous chemotherapy or other intravenous
therapies given to patients with cancer or AIDS. This type of therapy is often
administered in a way that permits the patient to regulate the infusion of
analgesic drugs in proportion to the severity of the pain the patient
experiences, improving the medical outcome while reducing drug use.
Other Therapies. The Company provides other technologically advanced
therapies such as intravenous intropic therapy for patients with congestive
heart failure or for those who are awaiting cardiac transplants, intravenous
anti-coagulant therapy for prevention of blood clots and anti-nausea therapy
for chemotherapy induced emesis. Hydration therapy involves the intravenous
administration of fluids; it is often administered in conjunction with
intravenous chemotherapy. Currently, each such therapy amounted to less than
5% of the Company's infusion therapy net revenue for each of the fiscal years
ended December 31, 1996
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and 1995. The Company continually evaluates new infusion therapies and intends
to add therapies which enable it to continue to provide full service to its
patients and payors. For example, the Company has developed and is marketing
a program for the treatment of pre- and post-transplant patients which
includes proprietary patient assessment and monitoring protocols and the
delivery of a wide range of intravenous and oral medications.
Lithotripsy. Lithotripsy is a non-invasive technique that uses shock waves
to disintegrate kidney stones. Depending on the particular lithotripter used,
the patient is sedated using either general anesthesia or a mild sedative while
seated in a bath or lying on a treatment table. The operator of the
lithotripter machine locates the stone using fluoroscopy and directs the shock
waves toward the stone. The shock waves then fragment the stone thereby
enabling the patient to pass the fragments through the urinary tract. Because
lithotripsy is non-invasive and is provided on an outpatient basis, lithotripsy
is an attractive alternative to other more invasive techniques otherwise used
in treating urinary tract stones.
As of December 31, 1996, Coram owned a controlling interest in 11
lithotripsy partnerships as well as two wholly owned lithotripsy partnerships,
a wholly owned lithotripter maintenance company and a lithotripsy management
company. The Company's lithotripsy businesses currently consists of an
aggregate of 33 lithotripsy machines that provide services in approximately 175
locations in 15 states. The other owners of the partnerships are primarily
physicians, many of whom utilize the partnership's equipment to treat their
patients. Thirteen of the 33 lithotripsy machines are stationary and located
at hospitals or ambulatory surgery centers, while the other 20 machines are
mobile, allowing them to be moved in order to meet patient needs and market
demands. The Company's lithotripsy businesses typically lease the machine on a
per procedure basis to a hospital, ambulatory surgery center or other facility
providing care to the patient. In some cases, the lithotripsy businesses bill
the patient directly for the use of the partnership's machine.
Coram's agreements with its lithotripsy partners contemplate that the
Company will acquire the remaining interest in each partnership at a defined
price in the event that legislation is passed or regulations are adopted that
would prevent the partner from owning an interest in the partnership and using
the partnership's lithotripsy equipment for the treatment of his or her
patients. While current interpretations of existing law are subject to
considerable uncertainty, the Company believes that its partnership arrangements
with physicians in its lithotripsy business are in compliance with current law.
If, however, Coram were required to acquire the minority interest of its
physician partners in each of its lithotripsy partnerships under current or
future governing law, the cost, in the aggregate, would be material to the
Company.
In 1993, the Health Care Financing Administration ("HCFA") released a
proposed rule defining the rate at which ambulatory surgery centers and certain
hospitals would be reimbursed under Medicare or Medicaid for the technical
component of a lithotripsy procedure. This proposed rule has not been
finalized. The Company cannot predict what the final rate for such
reimbursement will be or what effect, if any, the adoption of this proposed
rule would have on lithotripsy revenue and whether this decreased reimbursement
rate would be applied to lithotripsy procedures performed at hospitals, where a
majority of the Company's lithotripsy machines are currently utilized.
Coram's lithotripsy operations have historically contributed a substantial
amount of operating income. However, there can be no assurance that
lithotripsy reimbursement rates will remain at their current levels. The
Company also believes that the amounts the businesses currently receive for use
of their machines will be increasingly subject to
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pricing pressures similar to the pricing pressures that have been exerted on
the Company's infusion therapy business.
R-Net. The Resource Network or "R-Net" is an alternate site services
provider network and supporting management system developed by the Company in
1993. Through R-Net the Company can offer "one-stop shopping" to large managed
care organizations such as HMOs and PPOs seeking to arrange for a variety of
alternate site services for their enrollees under both capitated and
fee-for-service arrangements. In addition, the Company's management
information system enables Coram to (i)coordinate the provision of alternate
site services among its network of providers; (ii) manage cases and
utilization; and (iii) monitor and report outcomes to managed care payors who
are concerned with combining cost efficiency with good clinical outcomes. As of
December 31, 1996, R-Net had approximately 15 such arrangements covering
approximately six million lives.
Prescription Services. Coram Prescription Services or "CPS" includes a
centralized mail order pharmacy and a prescription benefit management service.
CPS offers claims administration with formulary and drug utilization and
evaluation services aimed at assisting physicians in improving outcomes for
patients with diabetes, asthma, organ transplants, HIV, AIDS and other chronic
illnesses. CPS' services are marketed through a dedicated sales force in
addition to Coram's field sales force to physicians, managed care organizations
and other third-party payors.
Women's Health. The Women's Health business provides alternate site
obstetrical and gynecological support services. The Women's Health services
include: remote monitoring of uterine contractions; monitoring of blood
pressure, heart rate, weight, urine, protein and glucose levels; intravenous
and oral drug therapy; dietitian services; integrated nursing support; diabetes
management; pregnancy-induced hypertension management; fertility management;
and post partum follow-up.
Asthma Care. The Company has introduced an asthma management program.
The program, which is marketed to managed care organizations, is designed to
prevent acute episodes of asthma by helping patients and families better manage
the disease.
ORGANIZATION AND OPERATIONS
General. The Company's alternate site infusion therapy business
operations are conducted through approximately 110 branches managed through two
area offices. The area offices provide each of its branches with key
management direction and support services. The Company's organizational
structure is designed to create operating efficiencies associated with certain
centralized services and purchasing while also promoting local decision making.
The Company believes that its decentralized approach to management facilitates
high quality local decision making, which allows it to attract and retain
experienced local managers and be responsive to local market needs.
Operating Systems and Controls. An important factor in Coram's ability to
monitor its operating locations is its management information systems. Besides
routine revenue and cost reporting, the Company has developed a performance
model for monitoring its field operations. Actual operating results derived
from its management information systems are compared to the performance model,
enabling management to identify areas requiring improvement. The Company
believes that the use of standardized, specific performance matrices and the
identification of best demonstrated practices will facilitate operating
improvement.
The Company endeavors to ensure that its local managers have the autonomy
and ability to perform effectively by providing them with training,
comprehensive policies and procedures and standardized systems. The Company
has designed management incentive plans that reward performance based on
revenue and earnings before interest, taxes, depreciation and amortization
("EBITDA") contribution, accounts receivable collection and inventory control.
REIMBURSEMENT OF SERVICES
Virtually all of Coram's revenue is derived from third-party payors,
including private insurers, managed care organizations such as HMOs and PPOs,
and governmental payors such as Medicare and Medicaid. Similar to other
medical service providers, the Company experiences lengthy reimbursement
periods in certain circumstances as a result of third-party payment procedures.
Consequently, management of accounts receivable through effective patient
registration, billing, collection and reimbursement procedures is critical to
financial success and continues to be a high priority for management. The
Company has developed substantial expertise in processing claims and carefully
screens new cases to determine whether adequate reimbursement will be
available. Individual branches are generally responsible for their own billing
and collections, within strict guidelines. The Company believes that accounts
receivable management is best accomplished at the local level because of direct
relationships with payors and the ability of branch personnel to identify and
react promptly to billing discrepancies.
Private indemnity payors typically reimburse at a higher amount for a given
service and provide a broader range of benefits than governmental and managed
care payors, although net revenue and gross profits from private payors have
been affected by the continuing efforts to contain or reduce the costs of
healthcare. An increasing percentage of Coram's revenue has
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been derived in recent years from agreements with Health Maintenance
Organizations ("HMOs"), Preferred Provider Organization ("PPOs") and other
managed care providers. Although these agreements often provide for negotiated
reimbursement at reduced rates, they generally result in lower bad debts,
provide for faster payment terms and provide opportunities to generate greater
volume than traditional indemnity referrals. Reimbursement coverage is
provided through private sources, such as insurance companies, self-insured
employers and patients, and through the federal Medicare and Medicaid programs.
Medicare, under its Part B reimbursement program which applies to a substantial
majority of the Company's business, has developed a national fee schedule for
respiratory therapy, home medical equipment and infusion therapy which provides
reimbursement at 80% of the amount of any fee on the schedule. The remaining
20% co-insurance portion is not paid by Medicare. In most cases, Medicaid
reimburses the remaining 20% for "medically indigent" patients. In other
cases, the Company bills and actively monitors other third-party payors or
patients responsible for co-insurance reimbursement.
QUALITY ASSURANCE
Coram has established quality improvement programs to ensure that service
standards are implemented and the objectives of those standards are met. All
of the Company's branch facilities are currently accredited under the former
entities' names. As of March 24, 1997, the corporate office and 58 branch
offices had been re-surveyed by the Joint Commission on Accreditation of
Healthcare Organizations ("JACHO"). Thirty-nine of these branches received
accreditation nineteen of which were accredited with commendation, the
highest award possible. The remaining branch offices are either awaiting the
results of their survey, are in the process of being re-surveyed or are
applying for re-survey under Coram's name. Coram's quality improvement program
also includes quality audits of branches by Coram's Clinical Services
Department. An additional component of the Company's quality improvement
function is its local medical/professional advisory boards. Each branch has
its own local board of medical advisors that meets regularly to perform, among
others, the following functions:
1. Evaluate branch programs, policies and procedures.
2. Provide ongoing direction of quality improvement and patient
satisfaction activities.
3. Assist in development of new programs or procedures to meet recognized
needs within the branch or community it serves.
4. Advise the branch staff on professional and clinical issues.
5. Review quality assurance and patient service issues.
Each medical advisor is also required to be available for periodic
consulting on day-to-day clinical issues that require the immediate input or
advice of a physician.
COMPETITION
The alternate site healthcare market is highly competitive and is
experiencing both horizontal and vertical consolidation. Some of Coram's
current and potential competitors include (i) integrated providers of alternate
site healthcare services; (ii) large, national hospital chains; (iii) local
providers of multiple products and services for the alternate site healthcare
market; and (iv) physicians, including physicians with whom it previously had
business arrangements. The Company has experienced increased competition from
hospitals and physicians who have sought to increase the scope of services
offered through their offices, including services similar to those offered by
the Company. Integrated alternate site healthcare companies and certain of the
Company's other national competitors may have superior financial, marketing and
managerial resources, size, purchasing power and strategic relationships with
providers, referral sources such as physicians and traditional indemnity and
managed care payors.
The Company competes on a number of factors, including quality of care and
service, reputation within the medical community, geographical scope and price.
Competition within the alternate site healthcare delivery system has been
affected by the decision of third party payors and their case managers to
become more active in monitoring and directing the care delivered to their
beneficiaries. Accordingly, relationships with such payors and their case
managers and inclusion within preferred provider and other networks of
approved or accredited providers may become a prerequisite to Coram's ability
to continue to serve many of its patients. Similarly, the ability of the
Company and its competitors to align
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themselves with other healthcare service providers may increase in importance
as managed care providers and provider networks seek out providers who offer a
broad range of services that may exceed the range of services currently offered
directly by the Company.
Moreover, there are relatively few barriers to entry in the local markets
which Coram serves. Local or regional companies are currently competing in
many of the home healthcare markets served by the Company and others may do so
in the future. Coram also expects competitors to develop new strategic
relationships with providers, referral sources and payors, which could result
in a rapid and dramatic increase in competition. The introduction and
enhancement of new services and the development of strategic relationships by
Coram's competitors could cause a significant decline in sales, loss of market
acceptance of the Company's services and intense price competition. The
Company expects to continue to encounter increased competition in the future
that could limit its ability to maintain or increase its market share. Such
increased competition could have a material effect on the business, financial
condition and results of operations of the Company. See "Risk Factors --
Intensely Competitive Industry."
SALES AND MARKETING
The Company's products and services are marketed through its field sales
force, branch sales personnel and various media formats. Substantially all of
Coram's new patients are referred by physicians, medical groups, hospital
discharge planners, case managers employed by HMOs, PPOs or other managed care
organizations, insurance companies and home care agencies. The Company's sales
force is responsible for establishing and maintaining referral sources. All
sales employees receive a base salary plus incentive compensation based on
profitable revenue growth.
The Company's network of field representatives enables it to market its
services to numerous sources of patient referrals, including physicians,
hospital discharge planners, hospital personnel, HMOs, PPOs and insurance
companies. Marketing is focused on presenting the Company's clinical expertise
tailored to the different customer targets. Products and services that are
outside of base infusion therapy are supported by specialty marketing and sales
support personnel.
As a result of escalating pressures to contain healthcare costs,
third-party payors are participating to a greater extent in decisions regarding
healthcare alternatives using their significant bargaining power to secure
discounts and to direct referrals of their enrollees to providers. In
response, Coram has modified its sales and development focus and is
aggressively pursuing agreements with third party payors, managed service
organizations and provider networks that provide high quality, cost effective
care. The Company has recruited a dedicated sales force to enhance its efforts
to market and sell its services to managed care payors. Managed care sales
representatives are deployed in each branch and at the corporate level with
additional resources focused on large national payors. The Company has
approximately 850 formal agreements in total, approximately 820 of which are
with managed care organizations. The Company is currently focusing its efforts
on increasing referrals through selected managed care agreements with the
goal of being the exclusive infusion provider as well as selling special
programs such as Women's Health and transplant services to these key customers.
Through its R-Net product, the Company has established relationships with
managed care companies serving as an ancillary service manager for all home
health services. Under these arrangements, the Company provides the services
it can directly and subcontracts the services it cannot provide on its own
through its network of providers.
CUSTOMERS AND SUPPLIERS
The Company provides alternate site home healthcare services and products to
a large number of patients and with the exception of Medicare and Medicaid,
(which collectively represent 27% of net revenue for the year ended December 31,
1996) no single payor accounted for more than 5% of Coram's net revenue for the
year ended December 31, 1996. The Company purchases products from a large
number of suppliers and considers its relationships with its vendors to be good.
The Company believes that substantially all of its products are available from
alternative sources with terms consistent in all material respects to its
present agreements.
GOVERNMENT REGULATION
General. Coram's alternate site infusion facilities are subject to
extensive federal and state laws regulating, among other things, the provision
of pharmacy, home care, nursing
8
<PAGE> 9
services, health planning, health and safety, environmental compliance and
toxic waste disposal. The Company is also subject to fraud and abuse and self
referral laws which affect its business relationships with physicians and other
healthcare providers and referral sources and its reimbursement from government
payors. Generally, all states require infusion companies to be licensed as
pharmacies and to have appropriate state and federal registrations for
dispensing controlled substances. Some states require infusion companies to be
licensed as nursing or home health agencies and to obtain medical waste
permits. In addition, certain employees of the Company are subject to state
laws and regulations governing the ethics and professional practice of pharmacy
and nursing. The Company may also be required to obtain certification to
participate in governmental payment programs, such as Medicare and Medicaid.
Some states have established certificate of need ("CON") programs regulating
the establishment or expansion of healthcare facilities, including certain of
Coram's facilities. The failure to obtain, renew or maintain any of the
required regulatory approvals or licenses could adversely affect the Company's
business and could prevent the location involved from offering products and
services to patients. Coram's operating results could be adversely affected as
a result of any such sanctions. The Company believes it complies in all
material respects with these and all other applicable laws and regulations.
The healthcare services industry will continue to be subject to intense
regulation at the federal and state levels, the scope and effect of which
cannot be predicted. No assurance can be given that the activities of the
Company will not be reviewed and challenged or that government sponsored
healthcare reform, if enacted, will not result in a material adverse change to
the Company.
Fraud and Abuse. The Company's operations are subject to the illegal
remuneration provisions of the Social Security Act (sometimes referred to as
the "anti-kickback" statute) and similar state laws that impose criminal and
civil sanctions on persons who knowingly and willfully solicit, offer, receive
or pay any remuneration, whether directly or indirectly, in return for, or to
induce, the referral of a patient for treatment, or, among other things, the
ordering, purchasing or leasing, of items or services that are paid for in
whole or in part by Medicare, Medicaid or similar state programs. Violations
of the federal anti-kickback statute are punishable by criminal penalties,
including imprisonment, fines and exclusion of the provider from future
participation in the Medicare and Medicaid programs. Civil suspension for
anti-kickback violations can also be imposed through an administrative process,
without the imposition of civil monetary penalties. In addition, violations of
the anti-kickback statute may be prosecuted as false claims under Medicare law,
the penalties for which include return of payments received, fines and
exclusion from participation. Federal enforcement officials may also attempt
to use other general federal statutes to punish behavior considered fraudulent
or abusive, including the Federal False Claims Act, which provides for
penalties of up to $10,000 per claim plus treble damages, and permits private
persons to sue on behalf of the government in qui tam actions. While the
federal anti-kickback statute expressly prohibits transactions that have
traditionally had criminal implications, such as kickbacks, rebates or bribes
for patient referrals, its language has been construed broadly and has not been
limited to such obviously wrongful transactions. Some court decisions state
that, under certain circumstances, the statute is also violated when one
purpose (as opposed to the "primary" or a "material" purpose) of a payment is
to induce referrals. Congress has frequently considered federal legislation
that would expand the federal anti-kickback statute to include the same broad
prohibitions regardless of payor source.
In addition to the payment or receipt of illegal remuneration for the
referral or generation of Medicare or Medicaid business, the fraud and abuse
law covers other billing practices that are considered fraudulent (such as
presentation of duplicate claims, or claims for services not actually rendered
or for procedures that are more costly than those actually rendered) or abusive
(such as claims presented for services not medically necessary based upon a
misrepresentation of fact), subject to the same remedies described above.
Similarly, a large number of states in which Coram operates have varying
laws prohibiting certain direct or indirect remuneration between healthcare
providers for the referral of patients to a particular provider, including
pharmacies and home health agencies. Possible sanctions for violation of these
laws include loss of licensure and civil and criminal penalties.
Prohibition on Physician Referrals. Under the Omnibus Budget
Reconciliation Act of 1993 ("Stark II"), it is unlawful for a physician to
refer patients for certain designated health services reimbursable under the
Medicare or Medicaid program to an entity with which the physician has a
financial relationship. While infusion therapy is not itself listed as a
"designated health service," component parts of it specifically are: outpatient
prescription drugs, parenteral and enteral nutrition, equipment and supplies,
durable medical equipment
9
<PAGE> 10
and home health services. A "financial relationship" under Stark II is defined
broadly as an ownership or investment interest in, or any type of compensation
arrangement in which remuneration flows between the physician and the provider.
The entity is prohibited from claiming payment under the Medicare or Medicaid
programs for services rendered pursuant to a prohibited referral and is liable
for the refund of amounts received pursuant to prohibited claims. The entity
can also receive civil penalties of up to $15,000 per improper claim and can be
excluded from participation in the Medicare and Medicaid programs. Comparable
provisions applicable to clinical laboratory services became effective in 1992.
Stark II provisions which may be relevant to the Company became effective on
January 1, 1995. Because of its broad language, Stark II may be interpreted by
the Office of Inspector General ("OIG") of the Department of Health and Human
Services ("HHS") to apply to Coram's operations. During 1994 and the first
quarter of 1995, the Company restructured or terminated a large number of
relationships with physicians in order to meet the requirements of Stark II,
Coram's own compliance standards and a Settlement Agreement reached in September
1994 between the United States and T2 Medical (the "T2 Medical OIG Settlement
Agreement"). See "Other Regulations." Stark II is broadly written and no
regulations have been promulgated to clarify its meaning or application.
Regulations for a predecessor law, Stark I, were published in August 1995.
Although the government has indicated that many substantive provisions in the
Stark I regulations will be applied to Stark II, there are still many areas that
lack clarity, and the Stark I regulations offer little specific guidance on the
application of Stark II to the infusion therapy business or the lithotripsy
business. A failure to achieve compliance with the provisions of Stark II could
have a material adverse effect on the Company.
In 1995, amendments to the Stark II law were included in the budget bill
adopted by Congress. The relevant amendments would have increased the ability
of physicians to operate infusion therapy programs out of their medical offices
and would have removed "in-patient and out-patient hospital services" from the
list of designated health services, thereby eliminating any question about
whether Coram's lithotripsy operations are implicated by the Stark II law.
However, the budget bill, after being approved by Congress, was vetoed by the
President. It is not currently known whether the Stark II law will be amended
or what form, if any, such amendment may take.
A large number of the states in which Coram operates have enacted some form
of physician self-referral law that regulates ownership interests in or
compensation arrangements between physicians and the healthcare service
providers to which they refer patients. These laws vary from measures that
require physicians to disclose their financial interests to outright
prohibitions similar to Stark II. In most cases, state physician self-referral
laws apply to all payors, government and private. The Company believes that
most state laws are inapplicable to the businesses it operates or contain
exemptions that appear to be applicable to its operations. Where state law does
apply, the Company has restructured its business arrangements or implemented
other methods for complying and maintaining compliance with such laws.
Medicare and Healthcare Reform. Congress takes action in almost every
legislative session to modify the Medicare program for the purpose of reducing
the amounts otherwise payable by the program to healthcare providers in order to
achieve deficit reduction targets, among other reasons. Legislation or
regulations may be enacted in the future that may substantially reduce the
amount paid for the Company's services. Congress is considering a proposal that
would change the method by which the Medicare program pays suppliers like the
Company for parenteral and enteral nutrition. Under the proposed method,
suppliers would be required to submit competitive bids to provide such services.
In contrast, the current system simply provides for reimbursement at an amount
equal to the lower of the supplier's usual and customary charges or an amount
determined in accordance with a schedule of allowable rates determined by HCFA.
There can be no assurance that adoption of the competitive bidding proposal
would not result in a material decrease in the amount the Company receives as
reimbursement from the Medicare program for patients receiving parenteral and
enteral nutrition. Any such decrease could have a material adverse affect on
the financial condition and results of operations of the Company.
Further, statutes or regulations may be adopted which would impose
additional requirements in order for Coram to be eligible to participate in the
federal and state payment programs. Such new legislation or regulations may
adversely affect its business operations. There is significant national
concern today about the availability and rising cost of healthcare in the
United States. It is anticipated that new federal and/or state legislation
will be passed and regulations adopted to attempt to provide broader and better
healthcare and to manage and contain its cost. The Company is unable to
predict the content of any legislation or what, if any, changes may occur in
the method and rates of its Medicare and Medicaid
10
<PAGE> 11
reimbursement or in other government regulations that may affect its
businesses, or whether such changes, if made, will have a material adverse
effect on its business, financial position and results of operations.
State Laws Regarding Fee Splitting, Provision of Medicine and Insurance.
The laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. Although Coram believes its
operations as currently conducted are in material compliance with existing
applicable laws, certain aspects of the Company's business operations have not
been subject to state or federal regulatory interpretation. There can be no
assurance that review of the Company's business by courts or regulatory
authorities will not result in determinations that could adversely affect the
operations of the Company or that the healthcare regulatory environment will
not change so as to restrict its existing operations or its expansion. In
addition, expansion of the operations of the Company to certain jurisdictions
may require structural and organizational modifications of its form of
relationships with physician groups, which could have an adverse effect on the
Company.
Most states have laws regulating insurance companies and HMOs. The Company
is not qualified in any state to engage in the insurance or HMO business. As
managed care penetration increases, state regulators are beginning to
scrutinize the practices of and relationships among third party payors, medical
service providers and entities providing management and administrative services
to medical service providers, especially with respect to risk sharing
arrangements by and among such providers, and whether risk bearing entities are
subject to insurance or HMO regulation. The Company believes that its
practices are consistent with those of other healthcare companies and do not
constitute licensable HMO or insurance activities. However, given the limited
regulatory history with respect to such practices, there can be no assurance
that states will not attempt to assert jurisdiction. The Company may be
subject to prosecution by state regulatory agencies, and accordingly may be
required to change or discontinue certain practices which could have a material
adverse effect on The Company.
Pharmacies and Home Health Agencies. All of Coram's pharmacies are
licensed in the states in which they are located. All of these pharmacies also
have Controlled Substances Registration Certificates issued by the Drug
Enforcement Administration of the United States Department of Justice. Many
states in which the Company operates also require home infusion companies to be
licensed as home health agencies. The failure of a branch facility to obtain,
renew or maintain any required regulatory approvals or licenses could adversely
affect the existing operations of that branch facility.
Other Regulations. Coram's operations are subject to various state
hazardous waste disposal laws. The laws currently in effect do not classify
most of the waste produced during the provision of the Company's services to be
hazardous, although disposal of non-hazardous medical waste is also subject to
regulation. OSHA regulations require employers of workers who are
occupationally subject to blood or other potentially infectious materials to
provide those workers with certain prescribed protections against bloodborne
pathogens. The regulatory requirements apply to all healthcare facilities,
including the Company's branches, and require employers to make a determination
as to which employees may be exposed to blood or other potentially infectious
materials and to have in effect a written exposure control plan. In addition,
employers are required to provide hepatitis-B vaccinations, personal protective
equipment, infection control training, post-exposure evaluation and follow-up,
waste disposal techniques and procedures, and engineering and work practice
controls. Employers are also required to comply with certain record-keeping
requirements. The Company believes it is in material compliance with the
foregoing laws and regulations.
In September 1994, T2 Medical entered into the T2 Medical OIG Settlement
Agreement settling charges arising out of an investigation by the OIG into
certain operations of T2 Medical, which occurred prior to the Four-Way Merger.
T2 Medical, in expressly denying liability, agreed to a civil order which
enjoins it from violating federal anti-kickback and false claims laws related to
Medicare/Medicaid reimbursement. The T2 Medical OIG Settlement Agreement
imposes certain restrictions upon the types of relationships that T2 Medical may
have with referring physicians and imposes a five year reporting obligation upon
T2 Medical. The Company has implemented measures to ensure compliance with the
T2 Medical OIG Settlement Agreement and has engaged Richard P. Kusserow, the
former Inspector General of the Department of Health and Human Services, as a
consultant to assist the Company in its continued development and administration
of its compliance program. The internal regulatory compliance review program is
intended to deal with compliance issues under the T2 Medical OIG Settlement
Agreement and with other legal, regulatory and ethical compliance issues.
However, no assurance can be made that in the future Coram's business
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<PAGE> 12
arrangements, past or present, will not be the subject of an investigation or
prosecution by a federal or state governmental authority. Such investigation
could result in any, or any combination, of the penalties discussed above
depending upon the agency involved in such investigation and prosecution.
The Company regularly monitors legislative developments and would seek to
restructure a business arrangement if it was determined that any of its
business relationships placed it in material noncompliance with any statute.
The healthcare service industry will continue to be subject to substantial
regulation at the federal and state levels, the scope and effect of which
cannot be predicted by the Company. Any loss by the Company of its various
federal certifications, its authorization to participate in the Medicare and
Medicaid programs or its licenses under the laws of any state or other
governmental authority from which a substantial portion of its revenues are
derived would have a material adverse effect on its business. See "Risk
Factors -- Governmental Regulation."
EMPLOYEES
As of December 31, 1996, Coram had approximately 3,100 full-time equivalent
employees. None of the Company's employees is currently represented by a labor
union or other labor organization. Approximately 40% of the employees are
nurses and pharmacists, with the remainder consisting primarily of sales and
marketing, reimbursement, financial and systems professionals. The Company
believes that its employee relations are good.
ITEM 2. PROPERTIES.
The Company's headquarters are located in Denver, Colorado and consist of
approximately 19,000 square feet of office space leased through August, 1999.
As of March 19, 1997, the Company had approximately 110 branch facilities
throughout the United States, totaling approximately 1.0 million square feet of
facility space currently in use with monthly rental of this space aggregating
approximately $0.8 million, net of approximately 0.1 million square feet and
$0.1 million for subleased space, respectively.
ITEM 3. 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 (the "Colorado
District Court") 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
complaint alleged that the defendants made false and misleading statements to
the public regarding, among other things, projected earnings, anticipated cost
savings and proposed mergers. The complaint asserts 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 seeks unspecified compensatory
damages, attorney's fees and costs. The Company has sought 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, on behalf of Coram Healthcare Corporation v. James Sweeney, et al.,
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 March 29, 1996, a shareholder derivative suit captioned Nirmala Shevde,
on behalf of Coram Healthcare Corporation v. James Sweeney, et al., File No.
96-N-722, was filed in the United States District Court for the District of
Colorado. The complaint sets forth substantially the same allegations as those
made in the derivative lawsuit previously filed in Delaware, and seeks
substantially similar relief.
On August 8, 1996, the Company announced an agreement in principle to
settle certain shareholder class actions and certain derivative litigation.
The agreement in principle was
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approved by the Colorado District Court on January 24, 1997. As consideration
for the settlement, the Company paid approximately $1.3 million, of which $1.0
million was reimbursed by the Company's Director's and Officer's insurance
policies, and the Director's and Officer's insurance policies paid $22.3
million, including the $1.0 million payment to the Company referenced above.
Additionally, the Company is required to adopt certain disclosure policies with
regard to certain public statements. Under the agreement, the Company is
required to issue 5.0 million freely tradable shares of Common Stock of which
1.5 million shares were issued March 11, 1997. The remaining 3.5 million shares
are expected to be issued in the second quarter of 1997. The agreement
contained several contingencies, all of which were satisfied at the time of
court approval. The Company recorded non-cash charges of $25.6 million and a
cash charge of $0.3 million during the year ended December 31, 1996. The $25.6
million charge, which was recorded in operations as a provision for shareholder
litigation settlement and in shareholders equity as common stock to be issued,
represents the 5.0 million shares at the stock price of $5.125 per share on the
date the settlement was approved.
On September 11, 1995, as amended on October 6, 1995, the Company filed suit
against Caremark (the "Caremark Litigation") alleging fraudulent
misrepresentations of the value of accounts receivable and amount of revenue,
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 by Caremark. In the complaint, filed in the Superior Court of the
State of California in and for the City and County of San Francisco, the Company
alleges, among other things, that Caremark used improper accounting practices
that resulted in overstating Caremark's revenues. The complaint further alleges
that Caremark falsely represented that the Office of the Inspector General
investigation involving Caremark was not going to harm the value of the Caremark
Business sold to the Company.
The Company's complaint notes that Caremark represented that the Caremark
Business had net assets on December 31, 1994 of $329.3 million, including
$140.2 million in accounts receivable and $200.1 million in goodwill, and that
its financial statements presented fairly in all material respects the
financial position and results of operations. The Company alleges in its
complaint that these representations, among others, were false, giving rise to
claims for breach of contract and fraud. The Company seeks compensatory and
punitive damages. There is a trial date of April 1, 1997; however, because
another case is simultaneously set for trial, the commencement of the trial
will likely be delayed until June, 1997. See Note 10 to the Consolidated
Financial Statements.
One of Coram's insurance carriers, which contributed approximately $8.8
million to the settlement of shareholder litigation approved in January 1997
(the "Shareholder Litigation") has asserted its contractual subrogation rights
against any recovery Coram realizes in the Caremark Litigation (as defined
below), including any amounts received in settlement thereof, based on the
alleged relationship between the Caremark Litigation and the Shareholder
Litigation. The carrier alleges that this claim should be submitted to binding
arbitration. As of the date hereof, no date has been set to hear such claim.
If the carrier prevails, upon the resolution of the Caremark Litigation such
carrier may be entitled to receive a portion of the proceeds, if any, to Coram
up to the $8.8 million such carrier contributed to the settlement of the
Shareholder Litigation. There can be no assurance that the other insurance
carrier, which paid $15 million in settlement of the Shareholder Litigation,
will not pursue similar claims against Coram.
On October 12, 1995, Caremark filed suit against the Company in the United
States District Court for Northern District of Illinois (File No. 95-C-5878)
alleging fraudulent misrepresentation in its purchase of the Caremark Business
and seeking damages of at least $100 million and punitive damages. That suit
was dismissed on December 22, 1995. The matter is now on appeal. On January
17, 1996, Caremark filed a cross-complaint against the Company in the Superior
Court of the State of California in and for the City and County of San Francisco
(File No. 972431) stating allegations similar to those in the Illinois suit and
seeking damages of at least $150 million and punitive damages.
On May 19, 1995, a judgment was entered dismissing with prejudice a class
action suit, which had been initiated against T2 in 1992, based on the terms of
a settlement, pursuant to which the Company paid $25.7 million into escrow for
the shareholder class in cash (of which approximately $7.8 million was
contributed by the Company's insurance carriers),
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and issued warrants to acquire an aggregate of approximately 2.5 million shares
of Common Stock at an exercise price of $22.25 per share. On August 29, 1995,
the plaintiffs filed a Motion to Enforce Stipulation of Settlement in which they
alleged that the value of the warrants for Coram Common Stock which they
received pursuant to the settlement had been artificially inflated during the
period of settlement negotiations due to the alleged fraud of the Company and
certain of its officers and directors. On October 12, 1995, the court denied
the Motion. The plaintiffs filed a Notice of Appeal from the Court's Order with
the Eleventh Circuit Court of Appeals on November 3, 1995 which the Company is
seeking to have dismissed. The Company has moved for dismissal of the appeal on
procedural grounds, as well as opposing the appeal on substantive grounds. The
plaintiffs have filed a motion seeking consolidation of this appeal with their
appeal of the Hall case described below. During the pendancy of this appeal,
the district court ordered that both the cash and warrants previously placed in
escrow be distributed to the shareholders pursuant to the terms of the
settlement.
On November 21, 1995, a separate action seeking substantially similar
relief against the Company and certain of its current or former officers and
directors was filed in the United States District Court for the Northern
District of Georgia on November 21, 1995: William Hall and Barbara Lisser v.
Coram Healthcare Corporation, et al. (File No. 1:950- CV-2994). This action
was brought on behalf of a purported class of plaintiffs who were entitled to
receive warrants pursuant to the settlement of the T2 shareholder litigation
described above. Plaintiffs filed an amended complaint on February 28, 1996,
in which they allege that the defendants made false and misleading statements
which caused a fraud on the market and artificially inflated the price of the
Company's Common Stock during the period from August 1994 through August 1995.
The complaint alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, fraud and breach of the covenant of good faith and fair
dealing. Plaintiffs seek compensatory damages reflecting the difference in
value between the warrants as issued with the trading price of the Company's
Common Stock at its actual price and the same number of warrants at the same
exercise price with the Company's Common Stock trading at its alleged true
value. The defendants filed a motion to dismiss the complaint on March 13,
1996, and the motion was granted. However, Plaintiffs have appealed the
dismissal to the Eleventh Circuit Court of Appeals.
Since late 1993, the Securities and Exchange Commission has been conducting
a formal investigation into the events that led to the restatement of T2's
financial statements for the periods ended December 31, 1992 and March 31, 1993
and certain other matters. The SEC has subpoenaed certain information and T2
has responded.
The Company intends vigorously to defend itself in these matters.
Nevertheless, due to the uncertainties inherent in litigation, the ultimate
disposition of the litigation described in the preceding paragraphs cannot
presently be determined. Accordingly, except as noted above concerning the
settlement of the shareholder litigation, and charges recorded for various
litigation settlements that are not individually material to the Company, no
provision for any loss or recovery that may result upon resolution of the suits
has been made in the consolidated financial statements. An adverse outcome
could be material to the financial position, results of operations and liquidity
of the Company.
In September 1994, T2 Medical entered into the T2 Medical OIG Settlement
Agreement. See Item 1, "Government Regulation - Other Regulations."
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, results of operations and liquidity of the
Company. Nevertheless, due to the uncertainties inherent in litigation, the
ultimate disposition of these actions cannot presently be determined.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "CRH." The following table sets forth the high and low sale prices
of the Common Stock as reported on the New York Stock Exchange Composite Tape
for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
CALENDAR YEAR 1995
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 1/2 15 3/8
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 13
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5/8 3 1/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7/8 3
CALENDAR YEAR 1996
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 1/8 4 1/4
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3/8 4 1/8
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3/8 2 3/4
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1/8 3 7/8
CALENDAR YEAR 1997
First Quarter through March 24, 1997 . . . . . . . . . . . . . . . . . . 5 3/4 3 7/8
</TABLE>
As of March 24, 1997, there were 2,683 record holders of the Company's
Common Stock. On March 24, 1997, the last reported sale price of the Common
Stock on the New York Stock Exchange was $3.875 per share.
The Company has not paid or declared any cash dividends on its capital stock
since its inception and is currently precluded from doing so under its borrowing
agreements. The Company currently intends to retain all future earnings for use
in the operation of its business. Accordingly, the Company does not anticipate
paying cash dividends on its common stock in the foreseeable future. The
payment of any future dividends will depend upon, among other things, the terms
of its borrowing agreements, future earnings, operations, capital requirements,
the general financial condition of the Company, contractual restrictions and
general business conditions.
The Company did not sell any of its equity securities in the three months
ended December 31, 1996 that were not registered under the Securities Act of
1933, as amended.
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ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." Historical financial data for the Company prior to the
July 1994 Four-Way Merger is based on the combined financial data of the
predecessor entities, and may not be comparable on a year-to-year basis.
Amounts are in thousands except per share data.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
--------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenue . . . . . . . . . . . . . . . . . . . . . . $ 521,969 $ 602,585 $ 450,496 $ 462,304 $ 413,100
Cost of service . . . . . . . . . . . . . . . . . . . . 361,688 459,710 313,182 285,023 224,356
--------- ---------- ---------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . 160,281 142,875 137,314 177,281 188,744
Operating expenses:
Selling, general and administrative expenses . . . 104,261 133,037 81,907 75,706 48,927
Provision for estimated uncollectible accounts . . 29,045 68,912 36,817 29,751 24,036
Amortization of goodwill . . . . . . . . . . . . . 15,259 15,307 8,971 7,824 4,832
Charge for long-lived assets and acquired
receivables:
Goodwill and long-lived assets (1) . . . . . . . -- 166,373 -- -- --
Valuation of acquired receivables (2) . . . . . -- 37,000 -- -- --
Merger expenses(3) . . . . . . . . . . . . . . . . -- -- 28,500 2,868 --
Provision for litigation settlements (4) . . . . . 27,875 -- 23,220 -- --
Restructuring costs, net (5) . . . . . . . . . . -- 6,158 95,500 1,600 2,385
--------- ---------- ---------- --------- ---------
Total operating expenses . . . . . . . . . . . . . . 176,440 426,787 274,915 117,749 80,180
--------- ---------- ---------- --------- ---------
Operating income (loss) . . . . . . . . . . . . . . . . (16,159) (283,912) (137,601) 59,532 108,564
Interest income . . . . . . . . . . . . . . . . . . 1,497 1,531 2,469 3,746 4,940
Interest expense (6) . . . . . . . . . . . . . . . . (78,767) (49,741) (7,414) (3,916) (2,860)
Other income (expense), net . . . . . . . . . . . . 2,115 (2,117) 865 7,862 3,969
--------- ---------- ---------- --------- ---------
Income (loss) before income taxes and minority interests (91,314) (334,239) (141,681) 67,224 114,613
Provision (benefit) for income taxes . . . . . . . . (13,998) (11,154) (26,231) 28,848 38,117
Minority interest in net income of consolidated
joint ventures . . . . . . . . . . . . . . . . . . 7,698 10,964 12,622 9,715 4,638
--------- ---------- ---------- --------- ---------
Net income (loss) . . . . . . . . . . . . . . . . . . . $(85,014) $(334,049) $(128,072) $ 28,661 $ 71,858
========= ========== ========== ========= =========
Net income (loss) per common share . . . . . . . . . . $ (2.05) $ (8.39) $ (3.32) $ 0.76 $ 1.95
Weighted average common shares outstanding . . . . . . 41,546 39,802 38,633 37,778 36,812
Cash dividends per common share (8) . . . . . . . . . . -- -- -- -- --
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 15,375 $ 26,735 $ 30,134 $ 50,980 $ 20,874
Working capital . . . . . . . . . . . . . . . . . . . . (132,529) 37,422 83,811 124,992 165,150
Total assets . . . . . . . . . . . . . . . . . . . . . 545,309 687,849 576,439 555,877 476,422
Long-term debt, net of current portion (7) . . . . . . 266,641 439,309 119,726 40,156 20,653
Stockholder's equity (deficit) . . . . . . . . . . . . (21,482) 18,040 322,261 438,872 394,514
</TABLE>
(1) In 1995, Coram recorded an impairment loss of $166.4 million related to its
home infusion business, of which $158.1 million related to goodwill and
$8.3 million related to other long-lived assets.
(2) In 1995, Coram reduced the valuation of the acquired receivables related to
the Caremark Business by an aggregate of $37.0 million, as certain
receivables for services rendered prior to the acquisition date of April 1,
1995 were determined to be uncollectible.
(3) Coram recorded merger costs of $28.5 million in 1994 related to the
Four-Way Merger. This included executive severance payments directly
related to the merger based on the respective employment agreements,
investment banking fees, consulting, legal and accounting fees and other
costs incurred as a direct result of the Four-Way Merger.
(4) The $23.2 million provision for litigation settlements recorded in 1994
relates to the cash and non-cash costs of settling certain litigation
matters related to T2 Medical. The $27.9 million provision for litigation
settlements in 1996 includes a non-cash provision of $25.6 million and a
cash provision of $0.3 million related to an agreement to settle certain
stockholder class actions and certain derivative litigation. The non cash
provision of $25.6 million, which was recorded in operations during the
year ended December 31, 1996 as a provision for stockholder litigation
settlement, and in stockholders' equity as common stock to be issued,
represents the 5.0 million shares of Coram Common Stock to be issued in the
settlement at the $5.125 per share price on the date the settlement
agreement was approved. The settlement agreement was approved on January
24, 1997 and 1.5 million shares were issued on March 11, 1997. The
remaining 3.5 million shares are expected to be issued in the second
quarter of 1997. Additionally, a $2.0 million charge was recorded in 1996
related to various litigation settlements.
(5) As a result of the Four-Way Merger, Coram initiated a merger and
restructuring plan (the "Coram Consolidation Plan") during 1994 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 estimated
cost to complete the Coram Consolidation Plan of $95.5 million was recorded
in the third quarter of 1994.
16
<PAGE> 17
(6) Interest expense increased significantly in 1995 due to increased
borrowings to finance the acquisition of the Caremark Business and other
acquisitions, merger costs and other working capital requirements, as well
as the related amortization of deferred financing costs and warrants.
(7) On October 13, 1995, Coram and its lenders under its Credit Agreement with
Chase Manhattan Bank (formerly Chemical Bank) as Agent (the "Senior Credit
Facility") and Subordinated Bridge Note (the "Bridge Note") to an affiliate
of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), both issued
in connection with the acquisition of the Caremark Business, agreed to a
restructuring of the major terms of both agreements. As a result of the
restructuring, the maturity date of the Senior Credit Facility was shortened
from April 6, 2000 to May 31, 1997. During March 1996, Coram reclassified to
current the remaining balance of the Senior Credit Facility and certain
interest related to the Bridge Note. The current portion of long-term debt
was $18.9 million, $28.8 million, $5.9 million, $67.1 million and $198.0
million at December 31, 1992, 1993, 1994, 1995 and 1996, respectively.
(8) Excludes dividends paid by predecessor entities prior to the July 1994
Four-Way Merger.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Annual Report on Form 10-K contains certain forward looking statements
(as such term is defined in the private Securities Litigation Reform Act of
1995) and information relating to Coram that are based on the beliefs of the
management of Coram as well as assumptions made by and information currently
available to the management of Coram. When used in this Report, the words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such
statements reflect the current views of Coram with respect to future events and
are subject to risks and uncertainties that could cause actual results to
differ materially from those contemplated in such forward-looking statements.
For a discussion of such risks, see "Risk Factors." Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as of the date hereof. Coram does not undertake any obligation to release
publicly any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
BACKGROUND
Business Strategy. The Company has experienced positive trends as a result
of the business strategy which it has been in the process of implementing since
September 1995. The business strategy is focused on the basic factors that
could lead to profitability: revenue generation, cost reduction, quality
improvement and cash collections. The Company continues to focus on business
relationships where it can assure high quality of care and operate profitably.
The Company is continuing to emphasize marketing efforts aimed at improving its
physician relationships and has also continued the development of its specialty
programs such as one-stop shopping for managed care payors, disease-state
carve-outs (i.e., vertical integration along disease specific categories),
transplant programs, mail order oral prescription drug and pharmacy benefit
management services, women's health programs and lithotripsy services. Cost
reduction efforts have focused on field consolidation, reduction of corporate
expenses, assessment of poorly performing branches and a review of branch
efficiencies. Delivery of quality service has been and will continue to be
closely monitored through an internal task force and more rigorous reporting and
patient satisfaction surveys gathered throughout the year. Further, management
continues to concentrate on reimbursement through an emphasis on cash
collections and continued assessment of systems support for reimbursement.
While management believes the implementation of this strategy has improved
operating performance, no assurances can be given as to its ultimate success.
On October 19, 1996, Coram, IHS and Merger Sub entered into the Agreement
providing for the Merger of Merger Sub with and into Coram. If the Merger is
consummated, Coram will become a wholly owned subsidiary of IHS. The Agreement
was approved by the respective Board of Directors of IHS and Coram on October
19, 1996. On March 30, 1997, Coram and IHS executed an amendment to their
October 19, 1996 Plan of Merger, which will become effective at the close of
business on Friday, April 4, 1997 unless either party gives the other prior
notice of cancellation of the amendment. The amendment revises the previously
announced exchange ratio from .2111 shares of IHS common stock for each share
of Coram common stock to .15 shares of IHS common stock for each share of Coram
common stock. IHS has agreed to pay Coram a fee of $25 million if the merger is
not consummated other than pursuant to certain limited conditions. The parties
have agreed to change the Plan of Merger to provide that if the merger is not
completed on May 31, 1997, it will terminate on that date unless the
termination date is extended by either party for an additional 60 days. See
Note 3 to the Consolidated Financial Statements. As of December 31, 1996, the
Company had capitalized $3.4 million of costs related to the IHS Merger. See
Item 1 - "General Overview" and Note 3 to the Consolidated Financial
Statements.
Factors Adversely Affecting Recent Operating Results. The most significant
factor affecting the Company's performance and financial condition is the
underperformance of the Caremark Business from what the Company expected at the
time of acquisition. The Company incurred substantial indebtedness to acquire
the Caremark Business, which it had expected to service primarily through the
operating income and cash flow of the Caremark Business. However, the revenue
of the acquired Caremark Business declined significantly after the acquisition
in the second quarter of 1995. Caremark Business revenue declined from $96.1
million (as reported by Caremark) in the first quarter of 1995 to approximately
$83.0 million in the second quarter, or a 13.6% decline. Management believes
that this trend continued into 1996. However, because of the consolidation of
the Caremark Business branches with other Coram branches, the declines in the
Caremark Business revenues since the second quarter of 1995 cannot be precisely
quantified at this time. Further, the Company believes
17
<PAGE> 18
the guilty plea by Caremark related to criminal felony charges in June 1995 has
negatively impacted revenue referral sources and employee morale throughout the
Company, further contributing to a loss of revenue. In addition, during the
first quarter of 1996, Caremark announced a settlement with private indemnity
payors with whom Caremark did business before selling the Caremark Business to
the Company. The Company believes the causes underlying the Caremark
settlements have also had an adverse effect on its business. See Note 4 to the
Consolidated Financial Statements -- "Acquisition and Restructuring."
Another factor which has adversely affected the Company's results of
operations is the ongoing pricing pressure in its core infusion business as a
result of a continuing shift in payor mix from private indemnity insurance to
managed care and governmental payors and intense competition among infusion
providers. To date, the Company's arrangements with managed care organizations
have mostly been on a discounted fee-for-service basis; the Company does not
currently have any material capitated arrangements.
The following table sets forth the approximate percentages of the Company's
net revenue attributable to private indemnity insurance and other payors,
managed care organizations and Medicare and Medicaid programs ("governmental
payors"), respectively, for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
---- ----
<S> <C> <C>
Private Indemnity Insurance and Other Payors ....... 33% 40%
Managed Care Organizations ......................... 40% 36%
Medicare and Medicaid Programs ..................... 27% 24%
---- ----
Total .............................................. 100% 100%
==== ====
</TABLE>
RESULTS OF OPERATIONS
The following table shows certain items as a percentage of the Company's
net revenue for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Net revenue .................................................................. 100.0% 100.0% 100.0%
Cost of service .............................................................. 69.3 76.3 69.5
--------- --------- --------
Gross profit margin .......................................................... 30.7 23.7 30.5
Operating expenses:
Selling, general and administrative expenses ............................. 20.0 22.1 18.2
Provision for estimated uncollectible accounts ........................... 5.6 11.4 8.2
Amortization of goodwill ................................................. 2.9 2.5 2.0
Charge for long-lived assets and acquired receivables:
Goodwill and other assets ............................................ -- 27.6 --
Valuation of acquired receivables .................................... -- 6.2 --
Provision for litigation settlements ..................................... 5.3 -- 5.2
Merger expenses .......................................................... -- -- 6.3
Restructuring costs ...................................................... -- 1.0 21.2
--------- --------- --------
Total operating expenses...................................................... 33.8 70.8 61.1
Operating loss ............................................................... (3.1) (47.1) (30.6)
Other income (expenses):
Interest expense ......................................................... (15.1) (8.3) (1.6)
Other income (expense), net .............................................. 0.7 (0.3) 0.7
--------- --------- --------
Loss before income tax benefit and minority interests ........................ (17.5) (55.5) (31.5)
Income tax benefit ...................................................... (2.7) (1.9) (5.8)
Minority interests in net income of consolidated
joint ventures ...................................................... 1.5 1.8 2.8
--------- --------- --------
Net loss .................................................................. (16.3)% (55.4)% (28.5)%
========= ========= ========
</TABLE>
1996 COMPARED TO 1995
Net Revenue. Net revenue for the year ended December 31, 1996, decreased
by $80.6 million or 13.4%, from $602.6 million in 1995 to $522.0 million in
1996. The home infusion business accounted for approximately $53.0 million of
the decrease due primarily to the impact of the underperformance of the
Caremark Business. In addition, the Company continues to experience ongoing
pricing pressure as a result of a continuing shift in payor mix from private
18
<PAGE> 19
indemnity insurance to managed care organizations. Net revenue from private
indemnity insurance decreased from approximately 40.0% for the year ended
December 31, 1995 to approximately 33.0% for the year ended December 31, 1996,
while net revenue from managed care organizations increased from approximately
36.0% to 40.0% during the same period. See "Factors Adversely Affecting Recent
Operating Results." Also contributing to the decrease in net revenue was the
sale or discontinuance of non-strategic or unprofitable businesses which
contributed $42.5 million in net revenue in 1995 compared with $2.7 million in
1996. In addition, management fees have also decreased from approximately $7.6
million in 1995 to approximately $1.6 million in 1996 as a result of the
Company's termination of physician arrangements and certain businesses since
1994 while maintaining only those relationships that meet both the Company's
own compliance criteria and applicable legal requirements.
Gross Profit. Gross profit for the year ended December 31, 1996 increased
by $17.4 million, from $142.9 million in 1995 to $160.3 million in 1996. In
addition, gross margin increased from 23.7% in 1995 to 30.7% in 1996.
Approximately $13.0 million of the improvement is due to the decrease in total
drugs and supplies expense from 36.1% of net revenue in 1995 to 33.9% of net
revenue in 1996. The remaining improvement is due to a reduction in clinical
service expense.
Selling, General and Administrative Expenses. SG&A expenses decreased $28.7
million from $133.0 million for the year ended December 31, 1995 to $104.3
million for the year ended December 31, 1996. The decrease is due primarily to
the Company's continuing strategy to reduce unnecessary corporate and field
administrative costs, offset by excess legal expenses and collection agency fees
recorded during 1996 of $6.9 million and $4.7 million, respectively. See
"Business Strategy." In addition, the Company recorded $10.2 million of
non-recurring charges in 1995, consisting of a $1.4 million loss on disposal of
branch, $2.0 million loss on the sale of a non-core business, $3.4 million
transaction expenses related to the terminated Lincare merger and $3.4 million
loss on payment of a prior credit facility.
Provision For Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $29.0 million, or 5.6% of net revenue for the year
ended December 31, 1996 compared with $68.9 million, or 11.4% of net revenue for
the year ended December 31, 1995. The decrease is due primarily to a special
charge recorded in the third quarter of 1995 of $20.0 million. The 1995
provisions were also assessed at a higher percentage of net revenue on a higher
net revenue amount. The remaining decrease in the provision is due to the
Company's concentrated collection efforts during 1996. During the third and
fourth quarters of 1996, management implemented a program whereby collection
teams comprised of external collection agencies were engaged to concentrate on
collecting accounts greater than 90 days old. The increased cash collection
effort resulted in increased cash collection calls, commitments for payment and
charges to the Company's established reserves. The Company's allowance for
uncollectible accounts was $40.3 million, or 27.4% of gross accounts receivable
at December 31, 1996 compared to $63.8 million or 29.3% of gross accounts
receivable at December 31, 1995. See Note 2 to the Consolidated Financial
Statements--"Provision for Estimated Uncollectible Accounts."
Charge for Long-Lived Assets and Acquired Receivables. During 1995, the
Company recorded an impairment loss of $166.4 million related to its home
infusion business ($158.1 million related to goodwill and $8.3 million related
to long-lived assets). In addition during 1995, the Company reduced the
valuation of the acquired receivables related to the Caremark acquisition by an
aggregate of $37.0 million. See Note 2 to the Consolidated Financial
Statements-- "Goodwill and Other Long-Lived Assets." and Note 4 to the
Consolidated Financial Statements--"Acquisition of Caremark Business."
Provision for Shareholder Litigation Settlements. During 1996, the Company
recorded a non-cash provision of $25.6 million and a cash provision of $0.3
million in connection with the shareholder litigation settlement. Additionally,
a $2.0 million charge was recorded in 1996 related to various litigation
settlements. See Part I--Item 3. "Legal Proceedings" and Note 10 to the
Consolidated Financial Statements--"Litigation."
Restructuring Costs. During 1995, the Company recorded a pre-tax charge of
$25.8 million for estimated costs related to the Caremark Business
Consolidation Plan. The charge was offset by the $18.2 million benefit
recorded to restructuring costs related to the Coram and Caremark Consolidation
Plans in the fourth quarter of 1995 and a $1.4 million benefit recorded in the
first quarter related to the sale of the Company's interest in Pediatric
19
<PAGE> 20
Partners, Inc., doing business as Kids Medical Club ("Kids Medical") as part of
the Coram Consolidation Plan. The Company did not record any restructuring
costs or benefits in 1996.
Operating Loss. The Company recorded an operating loss of $16.2 million
for the year ended December 31, 1996, compared with a $283.9 million operating
loss for the year ended December 31, 1995. Eliminating the effects of the
$27.9 million provision for litigation settlements recorded in 1996 and the
$20.0 million charge to provision for estimated uncollectible accounts, the
$203.4 million charge for long-lived assets and acquired receivables and the
restructuring costs of $6.2 million recorded in 1995, the Company had operating
income of $11.1 million in 1996 compared to an operating loss of $54.3 million
in 1995. This improvement is due primarily to the increase in gross profit of
$17.4 million, the decrease in SG&A of $28.7 million and the decrease in the
provision for estimated uncollectible accounts (net of the $20.0 million
mentioned above) of $19.9 million.
Interest Expense. Interest expense increased $29.1 million, from $49.7
million in 1995 to $78.8 million in 1996. The increase is due primarily to a
full year of interest incurred on the Caremark acquisition debt, the interest
compounding effects of the Junior Subordinated Pay-In-Kind Notes (the "Junior
Subordinated PIK Notes") and a Rollover Note issued to DLJ in place of the
Bridge Note when the Bridge Note was not repaid on its due date (the "Rollover
Note"), amortization of warrants, as well as the reduction in the amortization
period of deferred debt costs, offset by the reduction of the principal amount
of the Senior Credit Facility. Of the $78.8 million interest expense recorded
during 1996, $61.1 million was non-cash in nature.
Income Tax Benefit. During the year ended December 31, 1996, the Company
recorded an income tax benefit of $14.0 million, as compared with an $11.2
million benefit in 1995. The 1996 and 1995 benefits were based on carryback
benefits available in relation to estimated pre-tax results for the year,
exclusive of any significant unusual items.
Minority Interest in Net Income of Consolidated Joint Ventures. Minority
interest expense decreased $3.3 million, from $11.0 million in 1995 to $7.7
million in 1996. The decrease is due to the sale of one lithotripsy joint
venture and the purchase of the minority interest in another lithotripsy joint
venture in 1995 and the sale of the Company's interest in Kids Medical in 1995.
Additionally, the Company completed the purchase of certain minority interests
in two lithotripsy joint ventures during 1996.
Net Loss. Net loss for the year ended December 31, 1996 was $85.0 million
as compared with a $334.0 million loss for the year ended December 31, 1995. The
decrease is due primarily to the $39.9 million decrease in the provision for
uncollectible accounts, the $203.4 million charge for long-lived assets and
acquired receivables and the net $6.2 million restructuring cost recorded in
1995. This decrease was offset by the $27.9 million provision for litigation
settlements recorded in 1996. The remaining improvement in the net loss was due
primarily to an increase in gross profit of $17.4 million, a decrease in SG&A of
$28.7 million, a $2.8 million increase in the income tax benefit and a $3.3
million decrease in minority interest expense offset by an increase in interest
expense of $29.1 million.
1995 COMPARED TO 1994
Net Revenue. Net revenue for the year ended December 31, 1995, increased
by $152.1 million or 33.8% 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 and the first
quarter of 1995 (as reported by Caremark), net revenue declined $224.8 million
or 24.3% from pro forma 1994 net revenue as a result of the factors discussed
above under "Factors Adversely Affecting Recent Operating Results". The
Company is currently unable to quantify the impact of each factor cited
therein. While it believes the underperformance of the Caremark Business was
the most significant factor, each of the other factors has had a significant
adverse affect on net revenues. In addition, management fees decreased from
$28.8 million in 1994 to $7.6 million in 1995 as a result of the Company's
termination of physician arrangements and certain businesses during fiscal 1995
and 1994 while maintaining only those relationships that met both the
Company's own compliance criteria and applicable legal requirements.
Gross Profit. Gross profit for the year ended December 31, 1995, increased
$5.6 million or 4.1% compared with the same period in 1994. While gross profit
increased because of the increase in net revenue, this increase was offset by
the decrease in gross margin percentage from 30.5% in 1994 to 23.7% in 1995 for
the reasons discussed under "Factors Adversely Affecting Recent Operating
Results." Also offsetting the increase was the sale of the Company's 51%
ownership interest in Kids Medical, which reduced gross profit in comparison
with the prior year by $9.8 million.
20
<PAGE> 21
Selling, General and Administrative Expenses. SG&A expenses increased $51.1
million or 62.4% for the twelve months ended December 31, 1995 compared with
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. In addition, during 1995 the Company recorded $10.2
million of non-recurring charges consisting of a $1.4 million loss on disposal
of a branch, $2.0 million loss on the sale of a non-core business, $3.4 million
transaction expenses related to the terminated Lincare merger and a $3.4 million
loss on payment of a prior credit facility.
Provision For Estimated Uncollectible Accounts. The provision for
estimated uncollectible accounts was $68.9 million, or 11.4% of net revenue,
for the year ended December 31, 1995 compared with $36.8 million, or 8.2% of
net revenue for 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 $6.3 million
from 1994 primarily as a result of amortization of goodwill related to
acquisitions made by the Company in late 1994 and 1995 and a reduction in
amortization lives to 25 years. The reduction in amortization lives increased
amortization expense by approximately $1.3 million in 1995.
Restructuring Costs. The Company recorded a pre-tax charge of $25.8
million during 1995 for estimated costs related to the Caremark Business
Consolidation Plan. The charge was offset by the $18.2 million benefit
recorded to restructuring costs related to the Coram and Caremark Consolidation
Plans in the fourth quarter of 1995 and a $1.4 million benefit recorded in the
first quarter related to the sale of Kids Medical as part of the Coram
Consolidation Plan. Restructuring costs in 1994 approximated $95.5 million
related to the Coram Consolidation Plan.
Operating Loss. The Company recorded an operating loss of $283.9 million
for the year ended December 31, 1995, compared with a $137.6 million operating
loss for the year ended December 31, 1994. The most significant reason
underlying the increase in the loss was the acquisition and the underperformance
of the Caremark Business. This is reflected in the $73.9 million increase in
special charges in 1995, as well as higher SG&A expenses, higher provisions for
uncollectible accounts and increased amortization of goodwill in 1995 as
compared with 1994.
Other Income and Expenses. Interest expense increased by $42.3 million in
1995 as compared with 1994 primarily due to increased borrowings by the Company
to finance acquisitions, merger costs and other working capital needs as well
as higher interest rates on the Bridge Note and the amortization of deferred
financing costs.
Provision (Benefit) for Income Taxes. During the year ended December 31,
1995, the Company recorded an income tax benefit of $11.2 million, as compared
with a $26.2 million benefit in 1994. (See Note 7 to the Consolidated
Financial Statements.) Benefits available are currently limited to refunds for
the carryback of tax losses. In October 1995, the Company received a $30.2
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 tax assets and the carryback of current year
losses.
Net Loss. Net loss for the year ended December 31, 1995, increased $206.0
million as compared with 1994. The primary reason for the increased loss is
the $73.9 million increase in special charges and increases in SG&A expenses,
the provision for estimated uncollectible accounts and interest expense, and
the lower tax benefit recorded in 1995.
21
<PAGE> 22
QUARTERLY RESULTS (UNAUDITED)
The following summarizes selected quarterly financial information with
respect to the Company's operations for the last eight fiscal quarters.
Amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
1996 Quarter Ended 1995 Quarter Ended
------------------------------------------- ---------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
-------- --------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue . . . . . . . . . . . . . . $126,029 $131,206 $133,109 $131,625 $153,715 $164,741 $ 179,351 $104,778
Cost of service . . . . . . . . . . . . 85,788 86,591 91,150 98,159 116,587 129,674 137,840 75,609
------ ------ ------ ------ ------- ------- ------- ------
Gross profit . . . . . . . . . . . . . 40,241 44,615 41,959 33,466 37,128 35,067 41,511 29,169
Operating expenses:
Selling, general and administrative
expenses . . . . . . . . . . . . . 25,878 26,530 26,576 25,277 29,600 40,844 44,708 17,885
Provision for estimated
uncollectible accounts . . . . . . 6,696 6,766 6,831 8,752 12,332 36,518 16,049 4,013
Amortization of goodwill . . . . . . 3,580 3,619 3,759 4,301 4,803 2,947 4,767 2,790
Provision for litigation settlements 15,125 250 12,500 -- -- - - -
Charge for long-lived assets and
acquired receivables:
Goodwill and other assets. . . . . -- -- -- -- -- 166,373 - -
Valuation of acquired receivables. -- -- -- -- -- 37,000 - -
Restructuring costs (benefit), net . -- -- -- -- (15,212) -- 25,501 (4,131)
------ ------ ------ ------ ------- ------- ------- -------
Total operating expenses . . . . . . . 51,279 37,165 49,666 38,330 31,523 283,682 91,025 20,557
------ ------ ------ ------ ------- ------- ------- ------
Operating income (loss) . . . . . . . . (11,038) 7,450 (7,707) (4,864) 5,605 (248,615) (49,514) 8,612
Other income (expense):
Interest expense . . . . . . . . . . (20,010) (19,175) (20,553) (19,029) (18,116) (14,236) (13,953) (3,436)
Other income (expense), net. . . . . 1,403 645 914 650 (2,768) 551 891 740
------- ------- ------- ------- -------- ------ ------- ------
Loss before income taxes and minority
interests . . . . . . . . . . . . . (29,645) (11,080) (27,346) (23,243) (15,279) (262,300) (62,576) 5,916
Provision (benefit) for income taxes 2 (1,347) (5,237) (7,416) 155 (10,204) - (1,105)
Minority interest in net income of
consolidated joint ventures. . . . 1,928 2,279 1,417 2,074 2,195 2,566 3,771 2,432
------- ------- ------- ------- ------- ------- ------- ------
Net (loss) income . . . . . . . . . . .$(31,575) $(12,012) $(23,526) $(17,901) $(17,629) $(254,662) $(66,347) $ 4,589
======= ======= ======= ======== ======== ========= ======== ======
Net loss per share . . . . . . . . . .$ (.75) $ (.28) $ (.58) $ (.44) $ (0.45) $ (6.38) $ (1.67) $ 0.11
======= ======= ======= ======== ======== ========== ========= ======
Weighted average common shares
outstanding . . . . . . . . . . . . 42,404 42,233 40,858 40,652 40,369 39,915 39,685 40,939
======== ======== ======== ======== ======== ========= ======== ======
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased from $26.7 million at
December 31, 1995 to $15.4 million at December 31, 1996. The decrease in cash
and cash equivalents was due primarily to $74.6 million in debt repayments made
in 1996, $69.5 million of which related to the Senior Credit Facility. The
Company generated cash flow from operations of $60.2 in 1996 compared with
cash used in operations of $16.8 million in 1995. The year over year
improvement of $77.0 million in cash flow from operations is primarily
attributable to improved collections of accounts receivable and decreased
disbursement levels from cost containment measures. The Company's improved
collections have included a large number of older accounts. As the Company
collects or writes off its older accounts, its rate of cash collections in
relation to net revenue billed may decrease in future periods. The decrease in
cash was also offset by cash flow generated from investing activities of $2.7
million for 1996 compared with cash used for investing activities of $215.4
million in 1995. This increase was due to lower business acquisitions (which
was limited to the completion of the purchase of certain minority interests in
two lithotripsy joint ventures for approximately $4.7 million in cash) and fewer
earn-out agreements satisfied with cash payments, as well as the disposal of
certain of the Company's non-core businesses in 1996.
22
<PAGE> 23
As of December 31, 1996, the Company did not have any material commitments
for capital expenditures. On February 26, 1997, the Company agreed to purchase
up to $13.0 million of multi-therapy infusion pumps and related proprietary
telemedicine technology, over the next six to nine months, from Sabratek
Corporation. The Company expects to pay for the pumps out of cash flow from
operations until the proposed IHS Merger is consummated. If the IHS transaction
is not completed, the Company may seek to finance the purchase of these pumps,
if necessary, to improve the Company's liquidity.
As of March 20, 1997 and since October 13, 1995, the Company has met all
scheduled payments on its Senior Credit Facility, resulting in a $77.3 million
reduction of the principal balance. On March 14, 1997 the Company entered into
the Ninth Amendment to Credit Agreement which extended the maturity date of the
Senior Credit Facility from March 31, 1997 to May 31, 1997. On March 28, 1997,
the Company and the holder of the Rollover Notes entered into a letter agreement
to defer all interest and fees due on March 31, 1997 until the earlier of the
completed merger with IHS or March 31, 1998. As discussed above and in Note 3 to
the Consolidated Financial Statements, the Company has signed a definitive
merger agreement with IHS. The Company believes that it will generate adequate
working capital to sustain operations through the closing of the Merger and that
the Merger will allow for its debt commitments to be met. However, there is no
assurance that the Merger will be consummated. Failure of the Company to
consummate the Merger will require the Company to pursue other strategic
alternatives, which may include additional equity or debt financing or sales of
other non-core assets, including its lithotripsy businesses, to meet scheduled
maturities of principal and interest commencing May 31, 1997. The sale by the
Company of its interests in the lithotripsy partnerships may require the consent
of the partners of each partnership. There can be no assurance that the Company
would be able to obtain such consent or that any financing sources will be
available to the Company or, if available, will be available on commercially
acceptable terms to the Company.
Joint venture agreements within the Company's lithotripsy operations
contemplate that, in certain situations, the Company would be required to
purchase the minority interests in such joint ventures. During 1996, the
Company acquired certain minority interests in two additional partnerships for
approximately $4.7 million in cash. If, however, Coram were required to acquire
the minority interest of its partners in each of its lithotripsy partnerships,
the cost, in the aggregate, would be material to the Company. There is no
assurance that the Company will have the resources to make the required payments
or that the lenders under the Senior Credit Facility will approve the required
payments.
RISK FACTORS
RECENT OPERATING LOSSES; FUTURE OPERATING RESULTS UNCERTAIN
During the years ended December 31, 1996 and 1995 the Company recorded
operating losses of $16.2 million and $283.9 million, respectively, and net
losses of $85.0 million and $334.0 million, respectively. Numerous factors have
affected the Company's performance and financial condition to date, including,
among others, (i) the underperformance of the Caremark Business from the
performance that the Company expected at the time such business was acquired,
combined with the substantial indebtedness that 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; (ii) the
implementation of a policy of terminating physician arrangements and certain
businesses during fiscal 1995 and 1994 which it inherited from its predecessors
which were potentially in conflict with new federal and state law, resulting in
the loss of a number of historic referral sources; (iii) pricing pressure in the
Company's 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; (iv) a disruption in certain
relationships as a result of Coram's headcount reductions and consolidation; and
(v) increased competition from hospitals and physicians offering services
similar to those offered by the Company. Additionally, the Company has
experienced and expects to continue to experience difficulties with its strategy
of improving revenue as a result of several factors. These factors include a
negative perception of the Caremark Business among certain physicians as a
result of the guilty plea of Caremark to federal charges and Caremark's 1996
settlement with private payors with whom Caremark did business before selling
the Caremark Business to the Company. The Company believes Caremark's guilty
plea and the causes underlying the settlement have negatively impacted revenue
referral sources and employee morale throughout the Company. See "Problems
Associated with Coram's Acquisition of the Caremark Business." Although the
Company has taken actions to address these factors and a substantial portion of
the Company's indebtedness would be repaid or refinanced in connection with the
IHS Merger, 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 or that the IHS Merger will be consummated.
Additionally,
23
<PAGE> 24
the Company's lithotripsy operations historically have contributed a
substantial amount of operating income to the Company. However, there can be
no assurance that lithotripsy reimbursement rates will remain at their current
levels. The Company also believes that the amounts the lithotripsy businesses
currently receive for use of their machines may be increasingly subject to
pricing pressures similar to the pricing pressures that have been exerted on
Coram's core infusion business. A decrease in the operating performance of
Coram's lithotripsy business could have a material adverse effect on the
Company's financial condition and results of operations.
PROBLEMS ASSOCIATED WITH CORAM'S ACQUISITION OF THE CAREMARK BUSINESS
The business and financial results of the Company have been adversely
impacted by its acquisition of the Caremark Business. The performance of the
Caremark Business since its acquisition by the Company has not met Coram's
original expectations. In addition, the Company incurred substantial
indebtedness to acquire the Caremark Business, which it expected to service in
substantial part through the operating income and cash flow of the Caremark
Business. The Company has experienced, and expects to continue to experience,
difficulties in generating new revenues due in part to a negative perception of
the Caremark Business among certain physicians as a result of the guilty plea of
Caremark to federal charges. The Company believes the guilty plea by Caremark
to criminal felony charges in June 1995 has negatively impacted Coram's revenue
referral sources and employee morale. In addition, Caremark announced in 1996 a
substantial settlement with private payors with whom Caremark did business
before selling the Caremark Business to Coram. The Company believes the guilty
plea and the causes underlying the settlement with private payors have had an
adverse effect on Coram's revenue because of a reluctance of referral sources to
continue to refer patients to the business formerly owned by Caremark. However,
the Company is currently unable to precisely quantify such effect. There can be
no assurance that these factors will not continue to have an adverse effect on
Coram's financial condition and results of operations in the future. While
Coram has brought an action against Caremark arising out of the acquisition of
the Caremark Business, there can be no assurance that such litigation will be
resolved in favor of Coram or that it will be able to realize a favorable
judgment. If the Merger with IHS is consummated, the litigation between Coram
and Caremark is expected to be settled in connection with the Merger. See
"Recent Operating Losses; Future Operating Results Uncertain" and "Background--
Factors Adversely Affecting Recent Operating Results."
SUBSTANTIAL LEVERAGE
The Company incurred a significant amount of long-term debt in connection
with the acquisition of the Caremark Business. As of December 31, 1996, the
Company's consolidated indebtedness was $464.7 million and its consolidated
stockholders' deficit was $21.5 million. The degree to which the Company is
leveraged could impair the Company's ability to finance, through its own cash
flow or from additional financing, its future operations or pursue its business
strategy and make the Company more vulnerable to economic downturns, competitive
and payor pricing pressures and adverse changes in government regulation. See
"Liquidity and Capital Resources." At December 31, 1996, $346.7 million of the
Company's borrowings were under arrangements with variable interest rates. As of
December 31, 1996, there was $157.7 million outstanding under the Senior Credit
Facility, all of which is payable at the time of the IHS Merger or May 31, 1997,
whichever is earlier. Payment of interest and fees of $39.0 million on a $150.0
million rollover note (the "Rollover Note") is deferred until the earlier of the
completion of the IHS Merger or March 31, 1998. Any significant increase in the
interest rates on those borrowings would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Liquidity; Need for Additional Financing."
LIQUIDITY; NEED FOR ADDITIONAL FINANCING
On October 13, 1995, the Company and its lenders under the Senior Credit
Facility and the holder of the 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 strategy
and provided a new $25 million credit line (the "Overline"). The principal
covenants related to maintenance of minimum revenues, minimum cash receipts,
maximum cash disbursements and minimum EBITDA. In addition, the covenants,
among other things, restrict the ability of the Company and its subsidiaries to
dispose of assets, incur debt, pay dividends, create liens, make capital
expenditures and make certain investments or acquisitions and otherwise
restrict corporate activities and require that any excess cash balances, as
defined, be applied to prepayment of the debt. Proceeds from the sale of any
of the Company's non-core businesses must be applied directly to reducing
principal indebtedness under the Senior Credit Facility. On March 14, 1997,
the Company entered into a Ninth Amendment to the Credit Agreement (the "Ninth
Amendment") which extended the maturity date on the Senior Credit
24
<PAGE> 25
Facility to May 31, 1997. This date comports to the extended closing date under
the Merger Agreement with IHS. Further, the Company and the holder of the
Rollover Notes agreed to extend the payment of all interest and fees that were
payable on March 31, 1997 until the earlier of the IHS Merger date or March 31,
1998.
The breach of any of the covenants established under the Senior Credit
Facility could result in a default under the terms of such indebtedness. If the
Company were to default under any of its indebtedness agreements, the lenders to
the Company could, at their option, declare all borrowings immediately due and
payable if any default were not cured prior to any such action by the lenders.
Moreover, there can be no assurance that the Company's cash flow from operations
will be sufficient to meet its short or long-term needs. Therefore, additional
sources of funds may be required in future periods. The Overline expired and
matured on December 31, 1996. The Company's Senior Credit Facility is payable
on the earlier of the IHS Merger or May 31, 1997. The interest and fees under
the Rollover Note will also become due on May 31, 1997. In order to satisfy
such obligations, if the IHS Merger is not consummated the Company may engage in
a public or private offering of debt or equity securities or a sale or merger of
the Company. Any such transaction could result in a substantial dilution in the
ownership interest of the existing stockholders and may have an adverse impact
on the market price of the Company's Common Stock. There can be no assurance
that the Company will undertake any such transaction, what the timing thereof
would be or that the Company will be able to obtain any additional funds or
complete such a transaction on terms acceptable to the Company. See "Liquidity
and Capital Resources."
DEPENDENCE ON KEY PERSONNEL; CHANGES IN MANAGEMENT
The Company is substantially dependent upon the services of its executive
officers, which include Donald J. Amaral, Chief Executive Officer and President,
Richard M. Smith, Chief Financial Officer, Christopher J. York and Joseph D.
Smith, Chief Operating Officers of the West and East areas, respectively and
Daniel L. Frank, Lithotripsy Division President. The loss of services of any of
these executives could have a material adverse affect on the Company. The
Company's future growth and success depends, in large part, upon its ability to
obtain, retain and expand its staff of professional personnel. There can be no
assurance that the Company will be successful in its efforts to attract and
retain such personnel.
CERTAIN LITIGATION
The Company is a party to several lawsuits that could, if their outcomes
were unfavorable, have a material adverse effect on its business, financial
condition and results of operations. The Company intends to vigorously defend
itself in these matters. Nevertheless, due to the uncertainties inherent in
litigation, the ultimate disposition of the litigation cannot be presently
determined. In addition, even if the ultimate outcome of the claims pending
against the Company and the Company's claims against Caremark are resolved in
favor of the Company, such litigation could entail considerable cost and the
diversion of efforts of management, either of which could have a material
adverse effect upon the Company's business, financial condition and results of
operations. See Item 3 "Legal Proceedings."
DEPENDENCE ON RELATIONSHIPS WITH THIRD PARTIES
The profitability of the Company's business depends in part on its ability
to establish and maintain close working relationships with managed care
organizations, private and governmental third-party payors, hospitals,
physicians, physician groups, home health agencies, long-term care facilities
and other institutional health providers and insurance companies and large
self-insured employers. A central feature of the Company's business strategy
is to improve its relationships with such third parties in general, and with
physicians and physician groups in particular. There can be no assurance that
the Company will be successful in improving and maintaining such relationships
or that the Company's existing relationships will be successfully maintained or
that additional relationships will be successfully developed and maintained in
existing or future markets. The loss of such existing relationships or the
failure to continue to develop such relationships in the future could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Background--Business Strategy."
GOVERNMENTAL REGULATION
The Company is subject to extensive federal and state laws regulating,
among other things, the provision of pharmacy, home care nursing services,
health planning, health and safety, environmental compliance and toxic waste
disposal. The Company is also subject to fraud and abuse and self referral
laws and "anti-kickback" statutes which affect the Company's business
relationships with physicians and other health care providers and referral
sources and its reimbursement from government payors. The Company may be
required to obtain certification to participate in governmental payment
programs, such as Medicare and Medicaid. Some states have
25
<PAGE> 26
established certificate of need programs regulating the establishment or
expansion of health care facilities, including certain of the Company's
facilities.
Violations of the federal anti-kickback statute are punishable by criminal
or civil penalties, including imprisonment, fines and exclusion of the provider
from future participation in the Medicare and Medicaid programs. Civil
suspension for anti-kickback violations can also be imposed through an
administrative process, without the imposition of civil monetary penalties.
The failure to obtain, renew or maintain any of the required regulatory
approvals or licenses could adversely affect the Company's business and could
prevent the location involved from offering products and services to patients.
The Company's business, financial condition and results of operations could be
materially adversely affected as a result of any such change or sanctions. The
health care services industry will continue to be subject to intense regulation
at the federal and state levels, the scope and effect of which cannot be
predicted. No assurance can be given that the activities of the Company will
not be reviewed and challenged or that government sponsored health care reform,
if enacted, will not have a material adverse effect on the Company. See
Item 1 "Business--Government Regulation".
DEPENDENCE ON PAYORS AND REIMBURSEMENT-RELATED RISKS
The profitability of the Company depends in large part on reimbursement
provided by third party payors. Because alternate site care is generally less
costly to third party payors than hospital-based care, alternate site providers
have historically benefited from cost containment initiatives aimed at reducing
the costs of hospitalization. However, competition for patients, efforts by
traditional third party payors to contain or reduce health care costs and the
increasing influence of managed care payors such as health maintenance
organizations in recent years have resulted in reduced rates of reimbursement
for services provided by alternate site providers such as the Company. Since
1993, the alternate site infusion industry, including the Company, experienced
severe reductions in the pricing of its products and services as a result of
these trends. See "Background--Factors Adversely Affecting Recent Operation
Results."
The ability of the Company to collect from third party payors depends on
the timely and accurate filing of claims. In 1995, following the acquisition of
the Caremark Business, the Company experienced significant delays in billing as
well as difficulty receiving timely reimbursements. The delays were caused in
part by the inability to efficiently complete, obtain or process certain claim
documentation and in part by lack of familiarity with the billing systems of
its predecessor entities and the Caremark Business. The passage of time makes
missing documentation required for billing and payment difficult or impossible
to obtain or replace, and can delay claim submission past deadlines imposed by
certain payors. Any further disruptions in those procedures could adversely
affect the ability of the Company to collect its accounts receivable, and that
would have an adverse effect on the Company's business, financial condition and
results of operations.
Additionally, managed care payors and even traditional indemnity insurers
increasingly are demanding fee structures and other arrangements providing for
the assumption by health care providers of all or a portion of the financial
risk of providing care (e.g., capitation). Capitation arrangements currently
do not comprise a material component of the Company's revenues. While the
Company believes that short-term pricing pressures are stabilizing, no
assurance can be given that pricing pressures will not continue or that the
Company's business, financial condition and results of operations will not be
adversely affected by such trends. A rapid increase in the percentage of
revenue derived from managed care payors without a corresponding decrease in
the Company's operating costs could have an adverse impact on the Company's
profit margins.
In addition to infusion therapy and related services, the Company also
provides lithotripsy services. Lithotripsy is a non-invasive technique that
uses shock waves to disintegrate kidney stones. The Company's lithotripsy
operations have historically contributed a substantial amount of operating
income to the Company. These operations may continue to experience pricing
pressures in the future. A material change in the operating performance of the
lithotripsy business could have a material adverse effect on the consolidated
operating results of the Company. In 1993, HCFA released a proposed rule
establishing the rate at which ambulatory surgery centers and certain hospitals
would be reimbursed for the technical component of a lithotripsy procedure. The
proposed rate was significantly below current reimbursement rates. Although the
rule has not been put into effect, the adoption of this proposed rule could have
a material adverse effect on the Company's lithotripsy revenue. See "Recent
Operating Losses; Future Operating Results Uncertain."
CONCENTRATION OF LARGE PAYORS
26
<PAGE> 27
Managed care organizations have grown substantially in terms of the
percentage of the population that is covered by such organizations and in terms
of their control over an increasing portion of the healthcare economy. Managed
care plans have continued to consolidate to enhance their ability to influence
the delivery of healthcare services. The Company has a number of contractual
arrangements with managed care organizations and other parties. Other than
Medicare and Medicaid, none of these arrangements individually accounted for
more than 5% of the Company's net revenues in the year ended December 31, 1996;
however, 10 managed care customers accounted for approximately 11% of the
Company's infusion therapy revenue and the loss of such customers could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Background--Factors Adversely Affecting Recent
Operation Results."
INTENSELY COMPETITIVE INDUSTRY
The Company competes in the alternate site health care market which is
highly competitive and is experiencing both horizontal and vertical
consolidation. Some of the Company's current and potential competitors include
(i) integrated providers of alternate site health care services, (ii) large
national hospital chains; (iii) local providers of multiple products and
services offered for the alternate site health care market; and (iv) physicians,
including physicians with whom the Company previously had business arrangements.
The Company has experienced increased competition from hospitals and physicians
who have sought to increase the scope of services offered through their offices,
including services similar to those offered by the Company. Integrated alternate
site health care companies and certain of the Company's other national
competitors may have superior financial, marketing and managerial resources,
size, purchasing power and numerous strategic relationships with providers,
referral sources such as physicians and traditional indemnity and managed care
payors. Moreover, there are relatively few barriers to entry in the local
markets which the Company serves. Local or regional companies are currently
competing in many of the home health care markets served by the Company and
others may do so in the future. The Company expects its competitors to continue
to improve their service offerings and price competitiveness. The Company also
expects its competitors to develop new strategic relationships with providers,
referral sources and payors, which could result in a rapid and dramatic increase
in competition. The introduction of new and enhanced services, acquisitions and
continued industry consolidation and the development of strategic relationships
by the Company's competitors could cause a significant decline in sales or loss
of market acceptance of the Company's services or intense price competition, or
make the Company's services noncompetitive. The Company expects to continue to
encounter increased competition in the future that could limit its ability to
maintain or increase its market share. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, financial condition and results of operations.
See Item 1 "Business--Competition." See "Background--Business Strategy" and
"Factors Adversely Affecting Recent Operation Results."
HEALTH CARE REFORM LEGISLATION
In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that would effect
major changes in the health care system, either nationally or at the state
level. Among the proposals under consideration are various insurance market
reforms, forms of price control, expanded fraud and abuse and anti-referral
legislation and further reductions in Medicare and Medicaid reimbursement. The
Company cannot predict whether any of the above proposals or any other
proposals will be adopted, and if adopted, no assurance can be given that the
implementation of such reforms will not have a material adverse effect on the
business of the Company.
POTENTIAL PROFESSIONAL LIABILITY AND INSURANCE
The services of the Company involve an inherent risk of professional
liability. While the Company has not had any material claims for professional
liability asserted against it, no assurance can be given that such claims will
not be asserted in the future. While the Company maintains insurance
consistent with industry practice, there can be no assurance that the amount of
insurance currently maintained will satisfy all claims made against the Company
or that the Company will be able to obtain insurance in the future at
satisfactory rates or in adequate amounts. The Company cannot predict the
effect that any such claims, regardless of their ultimate outcome, might have
on its business or reputation or on its ability to attract and retain patients.
CHANGES IN TECHNOLOGY
27
<PAGE> 28
The alternate site infusion business of the Company is dependent on
physicians continuing to prescribe the administration of drugs and nutrients
through intravenous and other infusion methods. Intravenous administration is
often the most appropriate method for treating critically ill patients and is
often the only way to administer proteins and biotechnology drugs.
Nonetheless, technological advances in drug delivery systems, the development
of therapies that can be administered orally, such as protease inhibitors for
the treatment of persons with HIV or AIDS, and the development of new medical
treatments that cure certain complex diseases or reduce the need for infusion
therapy could adversely impact the business of the Company.
POTENTIAL VOLATILITY OF STOCK PRICE
There may be significant volatility in the market price for Coram Common
Stock. Factors such as actual or anticipated fluctuations in the Company's
operating results, new products or new contracts by the Company or its
competitors, conditions and trends in the healthcare industry, adoption of new
accounting standards affecting the healthcare industry, changes in financial
estimates by securities analysts, proposed or anticipated business combinations
including the Company, general market conditions and other factors could cause
the market price of Coram Common Stock to fluctuate substantially. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of healthcare companies. These broad market fluctuations may adversely
affect the market price of the Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities, securities
class action litigation has often been brought against the company. There can
be no assurance that such litigation will not occur in the future with respect
to the Company; such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
ITEM 8. FINANCIAL STATEMENTS.
The consolidated financial statements and financial statement schedules of
the Company at December 31, 1996, and 1995 and for the years ended December 31,
1996, 1995 and 1994 and the independent auditors' reports thereon are included
in this report on pages F-1 through F-26.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Coram's directors, executive officers and persons who
beneficially own greater than 10% of a registered class of Coram's equity
securities to file reports of ownership and changes in ownership with the
Securities and Exchange Commission (the "Commission") and the New York Stock
Exchange. Based solely upon its review of copies of the Section 16 reports
Coram has received from certain reporting persons, Coram believes that during
the fiscal year ended December 31, 1996 all of its directors, executive
officers and greater than 10% beneficial owners were in compliance with their
filing requirements, with the exception that (i) each of the following
individuals failed to file in a timely manner their Initial Statements of
Beneficial Ownership of Securities on Form 3 John Anderson, Daniel Frank, James
Glynn, David McCormick, Joseph Smith, Pamela Spaniac, Mark Werber, William W.
Willis (former officer) and Christopher York and (ii) Tommy Carter (former
director) failed to file a Statement of Changes in Beneficial Ownership of
Securities on Form 4 for a disposition of shares of Company Common Stock that
occurred prior to the cessation of his term on the Company's Board of
Directors.
BOARD OF DIRECTORS
The following table sets forth certain information concerning each member of
the Board of Directors of Coram as of February 28, 1997. Except as set forth
below, none of the directors entered into any arrangement or understanding
pursuant to which such person was to serve as a director.
<TABLE>
<CAPTION>
Name Age Position with Coram Director Since
- ----------------------------- ----- --------------------------------------- -------------------
<S> <C> <C> <C>
James M. Sweeney 54 Chairman 1994
Donald J. Amaral 44 Director, Chief Executive Officer 1995
and President
Richard A. Fink 42 Director 1994
Andrew J. Nathanson 39 Director 1995
Stephen G. Pagliuca 41 Director 1994
L. Peter Smith 48 Director 1994
Dr. Gail R. Wilensky 53 Director 1994
</TABLE>
Mr. Sweeney has served as the Chairman of the Board of Directors of Coram
since July 1994. Mr. Sweeney also served as Chief Executive Officer of Coram
from July 1994 until October 13,
28
<PAGE> 29
1995, and as President from August 3, 1995 through October 13, 1995. Prior to
joining Coram, Mr. Sweeney was the Chairman and Chief Executive Officer of
McGaw, Inc., and served as a member on the Board of Directors of McGaw, Inc.
from October 1990 until he resigned effective February 7, 1994. From February
1988 to October 1990, Mr. Sweeney was the Chairman and Chief Executive Officer
of CarePartners, Inc., a provider of patient monitoring services and home
therapies. Mr. Sweeney was the founder of Caremark, Inc., formerly the largest
home infusion therapy company in the United States, and served as its Chairman
and Chief Executive Officer from June 1979 to February 1988.
Mr. Amaral has served as director, President and Chief Executive Officer of
the Company since October 13, 1995. Previously, he was President and Chief
Operating Officer of OrNda Healthcorp ("OrNda") from April 1994 to August 1995,
and served in various executive positions with Summit Health Ltd. ("Summit")
from October 1989 to April 1994, including President and Chief Executive
Officer between October 1994 and April 1994. Summit was merged into OrNda in
April 1994. Prior to joining Summit, Mr. Amaral was President and Chief
Operating Officer of The Mediplex Group, Inc., a health care subsidiary of Avon
Products, Inc., from 1986 until October 1989. Mr. Amaral is also a member of
the Board of Directors of Summit Care Corporation.
Mr. Fink has served as a director of Coram since July 1994. Mr. Fink has
been a partner of the law firm of Brobeck, Phleger & Harrison LLP since October
1987 and is currently Chairman of that Firm's Business & Technology Group.
Mr. Nathanson has served as a director of Coram since November 1995. Mr.
Nathanson was appointed to the Board of Directors pursuant to the terms of the
Securities Purchase Agreement dated as of April 6, 1995, as amended (the
"Purchase Agreement"), by and among Coram, Coram, Inc., a wholly-owned
subsidiary of Coram, and Coram Funding, Inc., an affiliate of Donaldson, Lufkin
& Jenrette Securities Corporation ("DLJ") pursuant to which an affiliate of DLJ
provided a $150 million bridge loan to Coram. See "Certain Relationships and
Related Transactions." Mr. Nathanson has been a Managing Director of DLJ since
January 1991 and served as Senior Vice President of DLJ between January 1990
and January 1991. Mr. Nathanson has also served as a director of Specialty
Foods Corporation, a diversified food producer and distributor, since August
1993.
Mr. Pagliuca has served as a director of Coram since July 1994. Mr.
Pagliuca founded Information Partners, a venture capital and management buyout
company based in Boston, Massachusetts, in 1989 and has been Managing Director
since that time, focusing on health care and information industry
private-equity investment opportunities. Prior to 1989, Mr. Pagliuca was a
partner at Bain & Company, a management consulting firm based in Boston,
Massachusetts, where he concentrated on the health care and information
industries.
Mr. Smith has served as a director of Coram since July 1994. Between
November 1993 and July 1994, Mr. Smith was a director of Medisys, Inc.
("Medisys"). Mr. Smith served as the Managing Partner of AllCare Health
Services, Inc., which was acquired by Medisys in December of 1992. Mr. Smith
is also President and serves on the Board of Directors of Ralin Medical, Inc.
("Ralin"), a company specializing in cardiac disease management. Prior to
joining Ralin in 1990, Mr. Smith served in various capacities with Baxter
Healthcare. From 1984 through 1989 he was president of the home infusion
therapy division of Baxter Healthcare. Mr. Smith also serves on the Board of
Directors of Sabratek, Corporation and AMSYS, Inc.
Dr. Wilensky has served as a director of Coram since November 1994. Since
January 1993, Dr. Wilensky has served as the John M. Olin Senior Fellow at
Project HOPE and since May 1995 has served as chair of the Physician Payment
Review Commission. From March 1992 to January 1993, Dr. Wilensky served in the
Bush Administration as Deputy Assistant to the President for Policy
Development, responsible for advising the President on health and welfare
issues. From January 1990 to March 1992, Dr. Wilensky served in the Department
of Health and Human Services, where she directed the Medicare and Medicaid
programs. From April 1983 to January 1990, Dr. Wilensky was Vice President,
Division of Health Affairs at Project HOPE. Dr. Wilensky is an elected member
of the Institute of Medicine of the National Academy of Sciences. She has also
served as a member of the Physician Payment Review Commission and the Health
Advisory Committee of the General Accounting Office. Dr. Wilensky also serves
as a director of United HealthCare Corporation, Syncor International
Corporation, Advanced Tissue Sciences, Inc., Capstone Pharmacy Services, Inc.
and Saint Jude Medical, Inc.
29
<PAGE> 30
EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
executive officers of Coram. The executive officers serve at the direction of
the Board of Directors of Coram. Biographical information with respect to
Donald J. Amaral is set forth under the caption "Board of Directors" above.
<TABLE>
<CAPTION>
Name Age Position (s) with Coram
- --------------------------------- ------ -----------------------------------------------------------
<S> <C> <C>
Donald J. Amaral . . . . . . . . 44 Director, Chief Executive Officer and President
Richard M. Smith . . . . . . . . 37 Chief Financial Officer and Secretary
Christopher J. York . . . . . . . 36 Chief Operating Officer, West Area
Joseph D. Smith . . . . . . . . . 38 Chief Operating Officer, East Area
Paul J. Quiner . . . . . . . . . 37 Senior Vice President and General Counsel
Daniel L. Frank . . . . . . . . . 40 Lithotripsy Division President
</TABLE>
Richard M. Smith has been the Chief Financial Officer of Coram since August
1995 and has been serving as Secretary since July 1995. Mr. Smith also served
as Vice President, Tax and Treasury, from October 1994 to August 1995. Between
November 1993 and October 1994, Mr. Smith served as Vice President, Finance and
Treasurer, and Assistant Secretary, for CoreSource, Inc., a healthcare company
specializing in third party claims administration, workers compensation and
integrated health delivery systems. Mr. Smith served as Assistant Treasurer
from July 1990 to November 1993 and Director of Taxes from July 1985 to July
1990 of Lane Industries, Inc., a holding company engaged in the manufacture of
office products, hotel ownership and management, radio stations, farming and
ranching. Prior to July 1985, Mr. Smith served in various capacities with KPMG
Peat Marwick as tax accountant and tax manager.
Christopher J. York has been Chief Operating Officer of the West Area since
December 1996. Prior to that and since the Company's inception, Mr. York had
served as Area Vice President of the Midwest Area. From 1993 until Coram's
inception, Mr. York was the Vice President of Sales and Operations of Medisys,
Inc. Previously, he was General Manager and Regional Vice President for Critical
Care America. Formerly, he held various sales and management positions at
Kendall Healthcare.
Joseph D. Smith has been Chief Operating Officer of the East Area since
December 1996. Prior to that and since the Company's inception, Mr. Smith had
served as Area Vice President of the Northeast Area. From 1993 until Coram's
inception, Mr. Smith was the Eastern Area Vice President of H.M.S.S., Inc.
Previously, he served as Vice President, Sales, Alternate Sites division of
McGaw, Inc. During his twelve years at McGaw, Inc., he served in a number of
sales, sales management and marketing positions.
Paul J. Quiner has been Senior Vice President and General Counsel of Coram
since March 1996. Mr. Quiner also served as Assistant General Counsel from July
1994 to February 1996. Between September 1992 and July 1994, Mr. Quiner served
as Assistant General counsel for T2 Medical. Previously, Mr. Quiner was a
partner at the law firm of Alston & Bird.
Daniel L. Frank has been President of the Lithotripsy Division since
December 1996 and since March 1996 had served as the Senior Vice President of
Business Development. Previously, Mr. Frank served as an outside consultant to
Coram from October 1995 to March 1996. Between October 1993 and October 1995,
Mr. Frank served as the Chief Executive Officer for Western Medical Center,
Orange County, California. Prior to October 1993, Mr. Frank served as President
of Summit Ambulatory Network ("Summit"), and Vice President of Business
Development for Summit.
30
<PAGE> 31
ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS.
COMPENSATION OF DIRECTORS
Fees for Board Service. Directors who are employees of Coram receive no
additional compensation for service on the Board of Directors. Non-employee
directors of Coram earned the following compensation for Board meetings
attended during fiscal 1996:
<TABLE>
<S> <C>
James M. Sweeney . . . . . . . . . . . . . . . . . . . $ 250,000
Richard A. Fink . . . . . . . . . . . . . . . . . . . . $ 75,000
Andrew J. Nathanson . . . . . . . . . . . . . . . . . . $ 75,000
Stephen Pagliuca . . . . . . . . . . . . . . . . . . . $ 75,000
L. Peter Smith . . . . . . . . . . . . . . . . . . . . $ 75,000
Dr. Gail R. Wilensky . . . . . . . . . . . . . . . . . $ 75,000
</TABLE>
In addition, all out-of-pocket expenses of directors related to meetings
attended are reimbursed by Coram. Future compensation is at the discretion of
the Board of Directors.
Outside Directors' Automatic Option Grant Program. Non-employee members of
the Board of Directors participate in the Automatic Option Grant Program in
effect under the 1994 Coram Stock Option/Stock Issuance Plan (the "Coram Option
Plan"). On the date of each Annual Meeting of Coram's Stockholders, each
individual who will continue to serve as a non-employee Board member will
receive a non-statutory stock option to purchase 2,500 shares of Common Stock
at an exercise price equal to the fair market value of the Common Stock on the
automatic option grant date. Each individual who served as a non-employee
Board member on June 24, 1996 received an automatic option grant under the
program for 2,500 shares of Coram Common Stock at an exercise price of $4.375
per share, the fair market value on such date. Each option will be immediately
exercisable for all of the option shares. However, any shares purchased under
the option will be subject to repurchase by Coram at the original exercise
price paid per share upon the optionee's cessation of Board service prior to
vesting in such shares. The optionee will vest in the option shares in a
series of equal monthly installments over twelve (12) months of Board service
measured from the automatic option grant date. However, the shares subject to
each automatic option grant under the Coram Option Plan will vest in full upon
(i) the optionee's cessation of Board service due to death or disability, (ii)
an acquisition of Coram by merger or asset sale or (iii) a change in control of
Coram.
Each automatic option granted to the non-employee Board members includes a
limited stock appreciation right which will allow the optionee, upon the
successful completion of a hostile tender offer for more than 50% of Coram's
outstanding securities, to surrender that option to Coram, in return for a cash
distribution in an amount per surrendered option share equal to the highest
price per share of Coram Common Stock paid in the tender offer less the exercise
price payable per share.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual and long-term compensation earned
by (i) the Company's Chief Executive Officer, (ii) the four other most highly
compensated executive officers of the Company who were serving as such at
December 31, 1996 and (iii) two additional individuals who served as executive
officers during fiscal 1996 who would have been among the Company's most highly
compensated executive officers but were not serving in such capacities at the
end of fiscal 1996 (the "Named Executive Officers") for services rendered in
all capacities to the Company and its subsidiaries for each of the years ended
December 31, 1996, 1995 and 1994. Coram was not a reporting company pursuant
to Section 13(a) or 15(d) of the Exchange Act at any time prior to July 8,
1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
-------------
Annual Compensation Awards
--------------------------------------- -------------
Name and Other Annual Stock Options All Other
Principal Position Year Salary Bonus Compensation(5) (#) Compensation
- --------------------------------- ---- -------- ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Amaral
Director, Chief Executive 1996 $600,000 $ (1) -- --
Officer and President 1995 120,834(2) -- 2,200,000 --
Richard M. Smith 1996 201,458 87,500(3)(4) -- --
Chief Financial Officer 1995 145,178 156,250 300,000 --
Christopher York
Chief Operating Officer, 1996 161,501 34,375(3)(4) -- --
West
Paul Quiner 1996 180,270 18,750(3)(4) -- --
Senior Vice President
and General Counsel
Joseph Smith 1996 148,425 33,750(3)(4) 25,000 --
Chief Operating
Officer, East
John T. Gallatin 1996 130,321 -- 112,500(7) -- --
Former Executive 1995 208,333 200,000 -- 300,000 --
Vice President
Kelly J. McCrann
Former Executive Vice(8) 1996 165,625 112,500(3)(4) -- --
President 1995 225,088 92,250 139,780(6) 150,000 --
</TABLE>
31
<PAGE> 32
- ----------------
(1) Does not include Mr. Amaral's bonus relating to his service for fiscal 1996
which had not been finalized as of March 28, 1997. Coram estimates that such
minimum bonus will be approximately $360,000.
(2) Reflects salary, bonus and other compensation earned by Mr. Amaral since
the beginning of his employment with the Company.
(3) Consists of retention bonuses paid in January 1997 for service to the
Company during 1996.
(4) Does not include performance bonuses relating to service for fiscal 1996
which had not been finalized as of March 28, 1997.
(5) Does not include perquisites aggregating in dollar value less than the
lesser of $50,000 or 10% of the individual's annual salary and bonus reported
for such individual for the year presented.
(6) Consists of reimbursed expenses in connection with Mr. McCrann's
relocation to Denver, Colorado.
(7) Mr. Gallatin resigned during 1996. Mr. Gallatin was paid $112,500 in the
fiscal year ended December 31, 1996 in connection with a severance agreement.
(8) Mr. McCrann resigned on December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to
each of the Named Executive Officers during the year ended December 31, 1996.
In addition, in accordance with the rules of the Commission, there are shown
hypothetical gains or "option spreads" that would exist for the respective
options. These gains are based on assumed rates of annual compound stock price
appreciation of 0%, 5% and 10% from the date the options were granted over the
full option term. No stock appreciation rights were granted to the Named
Executive Officers during the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------ Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Exercise Price Appreciation for
Underlying Granted to Price Option Term
Options Employees in Per ----------------------------
Name Granted Fiscal Year Share Expiration Date 0% 5% 10%
- ------------------ ---------- ------------ --------- ----------------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Christopher York 25,000 1.87% $5.1250 May 9, 2006 $0.00 $80,577 $204,198
25,000 1.87 3.8750 September 13, 2006 0.00 60,924 154,394
Paul Quiner 25,000 1.87 5.1250 March 19, 2006 0.00 80,577 204,198
Joe Smith 25,000 1.87 3.8750 September 13, 2006 0.00 60,924 154,394
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information concerning the aggregate number
of options exercised during the year ended December 31, 1996 by each of the
Named Executive Officers and outstanding options held by each such officer at
December 31, 1996. None of the Named Executive Officers exercised any stock
appreciation rights during the 1996 fiscal year. No stock appreciation rights
were held by the Named Executive Officers at the end of the 1996 fiscal year.
<TABLE>
<CAPTION> Value of Unexercised
Number of Unexercised In-the-Money
Shares Options at Options at
Acquired December 31, 1996 December 31, 1996 (2)
on Value ----------------------------- -------------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- -------- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Amaral (1) . . -- -- 733,306 1,466,694 $1,044,961 $2,090,039
Richard M. Smith . . . . -- -- 163,028 161,972 220,750 93,750
John T. Gallatin . . . . -- -- 286,974 197,917 220,750 93,750
Kelly J. McCrann . . . . -- -- 172,916 77,084 197,313 23,438
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Christopher York.............. -- -- 44,785 130,215 $11,718.75 $60,156.25
Paul Quiner................... -- -- 30,308 57,292 3,906.25 11,718.75
Joe Smith..................... -- -- 44,785 105,215 11,718.75 60,156.25
</TABLE>
(1) The option shares subject to Mr. Amaral's grant will vest and become
exercisable in three successive equal annual installments upon his completion
of each year of service with the Company over the three-year period measured
from the October 13, 1995 grant date.
(2) Value is determined by subtracting the exercise price from the fair market
value (the closing price for the Common Stock as reported by the New York Stock
Exchange) as of December 31, 1996 ($5.00) and multiplying the resulting number
by the number of underlying shares of Common Stock. For the purpose of such
calculation, the exercise price per share is the applicable exercise price as
of December 31, 1996 and does not reflect market price changes subsequent to
December 31, 1996.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Except for its agreement with Donald J. Amaral, Coram does not presently
have any employment contracts in effect with any of the Named Executive
Officers.
Coram presently has an employment agreement with its President and Chief
Executive Officer, Donald J. Amaral, for a three-year term commencing October
13, 1995, unless otherwise terminated. Mr. Amaral was extended the agreement
by the Company to attract and retain his services in light of the downturn in
the Company's business and its uncertain prospects as he is considered
critical to Coram's future success in the Company's turn-around period. Under
the agreement, Mr. Amaral will receive a base salary of $600,000 per annum, and
the right to receive a performance bonus. If Mr. Amaral's employment is
terminated by the Company other than for cause or by Mr. Amaral in the event
that the Company fails to comply with any material provision of the agreement,
Mr. Amaral will be entitled to receive his base salary through the longer of
(i) the remaining term of the agreement or (ii) twelve months, plus a bonus
payable after the end of each of the Company's fiscal years thereafter through
1998 in an amount equal to the average bonus earned by Mr. Amaral during the
employment period. Under the agreement, Mr. Amaral was also granted options to
purchase 2,200,000 shares of Common Stock at $3.45 per share. The options will
vest and become exercisable in three equal annual installments upon Mr.
Amaral's completion of each year of service over the three-year period measured
from the October 13, 1995 grant date. The options will immediately vest and
become exercisable in full upon (i) a change in control of the Company; (ii)
any termination by the Company of the employment agreement other than for
cause; (iii) any termination by Mr. Amaral as a result of a material breach of
the employment agreement by the Company; or (iv) termination of the employment
agreement as a result of Mr. Amaral's death or permanent disability. Mr.
Amaral is also eligible to receive all other benefits generally made available
by the Company to its senior executives. Mr. Amaral has agreed to enter into
an employment agreement with IHS if the IHS Merger is consummated.
Prior to entering into discussions with IHS regarding the Merger, the Coram
Board had approved in concept the eligibility of Mr. Amaral to receive a bonus
for his success in the financial turnaround of Coram. The Board contemplated
that such bonus would be payable upon the successful restructuring of Coram's
debt obligations to DLJ at less than the total amount due at the time of such
restructuring, which the Coram Board believed would constitute recognition of
such turnaround. At a meeting held on October 18, 1996, in light of the
refinancing of Coram's debt to DLJ to be consummated contemporaneously with the
closing of the Merger, the Coram Board resolved that a $3.0 million bonus would
thereby become payable to Mr. Amaral upon consummation of the Merger as a
result of IHS' having agreed with DLJ to restructure such debt. If the Merger
is not consummated, such bonus will nevertheless be paid to Mr. Amaral upon any
other restructuring of Coram's debt obligations to DLJ.
Shares subject to options granted under the Coram Option Plan to the
Company's executive officers will immediately vest in full upon (i) an
acquisition of the Company by merger or asset sale in which such options are
not to be assumed by the acquiring entity or, (ii) if such options are so
assumed, the subsequent termination of the optionee's employment (whether
involuntarily or through a forced resignation) within eighteen (18) months
following such acquisition. In addition, the Compensation Committee, as the
Coram Option Plan administrator, has the authority to provide for the
accelerated vesting of the shares of the Company's Common Stock subject to
outstanding options held by the Company's executive officers, or any unvested
shares actually held by those individuals under the Coram Option Plan, in
connection with a hostile take-over of the Company effected through a
successful tender offer for more than 50% of the Company's outstanding
securities or through a change in the majority of the Board as a result of one
or more contested elections for Board membership or in the event such
individual's employment were to be terminated (whether involuntarily or through
a forced resignation) following such hostile take-over.
ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT.
The following table sets forth as of December 31, 1996 the number of shares of
outstanding Coram Common Stock beneficially owned by (i) each person known to
Coram to be the owner of more than 5% of the outstanding Common Stock, (ii) each
Director of the Company, (iii) each of the Named Executive Officers
33
<PAGE> 34
and (iv) all directors and executive officers of Coram as a group. All
information is taken from or based upon ownership filings made by such persons
with the Commission or upon information provided by such persons to Coram.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
NAME AND ADDRESS OF NUMBER OF SHARES OF OF COMMON STOCK
BENEFICIAL OWNER (1) COMMON STOCK (2) (3) OUTSTANDING (2)
-------------------- -------------------- ---------------
<S> <C> <C>
James M. Sweeney (4) . . . . . . . . . . . . . . . . . . . 3,750 *
Donald J. Amaral (5) . . . . . . . . . . . . . . . . . . . 736,333 1.7%
Richard A. Fink (6) . . . . . . . . . . . . . . . . . . . . 3,750 *
Andrew J. Nathanson (7) . . . . . . . . . . . . . . . . . . 1,250 *
Stephen G. Pagliuca (8) . . . . . . . . . . . . . . . . . . 3,750 *
L. Peter Smith (9) . . . . . . . . . . . . . . . . . . . . 33,831 *
Dr. Gail R. Wilensky (10) . . . . . . . . . . . . . . . . . 3,750 *
Richard M. Smith (11) . . . . . . . . . . . . . . . . . . . 163,028 *
Paul J. Quiner (12) . . . . . . . . . . . . . . . . . . . . 32,346 *
Joseph Smith (13) . . . . . . . . . . . . . . . . . . . . . 44,785 *
Christopher York (14) . . . . . . . . . . . . . . . . . . . 45,407 *
All executive officers, directors and nominees
for director, as a group (17 persons) . . . . . . . . . . 1,290,746 2.9%
American Express Company
American Express Financial
Corporation IDS Life Capital
Resource Fund (15) . . . . . . . . . . . . . . . . . . . 3,500,000 7.9%
</TABLE>
* Less than 1%
(1) The address of each person named above is 1125 Seventeenth Street, Suite
2100, Denver, Colorado 80202.
(2) Shares of Common Stock subject to options or warrants that are currently
exercisable or exercisable within 60 days are deemed outstanding for
computing the percentage of the person holding such options or warrants
but are not deemed outstanding for computing the percentage of any other
person. Except as indicated by footnote, Coram has been advised that the
persons named in the table above have sole voting and investment power
with respect to all shares of Common Stock as beneficially owned by them.
No percent of class is shown for holdings of less than 1%. Percentage
computations are based on 44,133,964 shares of Common stock outstanding
as of March 24, 1997.
(3) On December 28, 1995, the members of the Board of Directors returned
stock options held by them for an aggregate of 3.9 million shares. Mr.
Sweeney returned 3.5 million stock options and Mr. Carter returned
100,000 stock options. Mr. Fink, Mr. Pagliuca, L. Peter Smith and Dr.
Wilensky each returned 75,000 stock options.
(4) Consists of (i) 2,500 shares subject to a currently exercisable option
granted to Mr. Sweeney on December 11, 1995 and (ii) 2,500 shares subject
to an option granted to Mr. Sweeney on June 24, 1996 all pursuant to the
Automatic Option Grant Program of the Coram Option Plan. The option is
immediately exercisable, but any shares purchased thereunder will be
subject to repurchase by Coram at the original exercise price paid per
share upon Mr. Sweeney's cessation of services prior to the vesting of
such shares. The optionee will vest in the latter 2,500 option shares in
a series of equal monthly installments over twelve (12) months of Board
service measured from the automatic option grant date. As of December 31,
1996, Mr. Sweeney had vested in 3,750 of such options.
(5) Mr. Amaral, who is also a director of the Company, assumed the duties of
Chief Executive Officer and President from Mr. Sweeney on October 13,
1995. Includes 733,306 shares subject to currently exercisable options.
Does not include 1,466,694 shares subject to an option granted to Mr.
Amaral on October 13, 1995. The option shares will vest and become
exercisable in three successive equal installments, upon his completion of
each year of service over the three-year period measured from the grant
date. An option for the purchase of 1,400,000 shares was granted under
the Coram Option Plan, and an option for the purchase of the remaining
800,000 shares was granted outside of the Coram Option Plan.
(6) Consists of (i) 2,500 shares subject to a currently exercisable option
granted to Mr. Fink on December 11, 1995 and (ii) 2,500 shares subject to
an option granted to Mr. Fink on June 24, 1996, all pursuant to the
Automatic Option grant Program of the Coram Option Plan. Each option is
34
<PAGE> 35
immediately exercisable, but any shares purchased thereunder will be
subject to repurchase by Coram at the original exercise price paid per
share upon Mr. Fink's cessation of services prior to the vesting of such
shares. The optionee will vest in the latter 2,500 option shares in a
series of equal monthly installments over twelve (12) months of Board
service measured from the automatic option grant date. As of December 31,
1996, Mr. Fink had vested in 3,750 of such options.
(7) Consists of 2,500 shares subject to an option granted to Mr. Nathanson on
June 24, 1996 pursuant to the Automatic Option Grant Program of the Coram
Option Plan. The option is immediately exercisable, but any shares
purchased thereunder will be subject to repurchase by Coram at the
original exercise price paid per share upon Mr. Nathanson's cessation of
services prior to the vesting of such shares. The optionee will vest in
the option shares in a series of equal monthly installments over twelve
(12) months of Board service measured from the automatic option grant
date. As of December 31, 1996, Mr. Nathanson had vested in 1,250 of such
options.
(8) Consists of (i) 2,500 shares subject to an option granted to Mr. Pagliuca
on December 11, 1995 and (ii) 2,500 shares subject to an option granted to
Mr. Pagliuca on June 24, 1996, all pursuant to the Automatic Option Grant
Program of the Coram Option Plan. Each option is immediately
exercisable, but any shares purchased thereunder will be subject to
repurchase by Coram at the original exercise price paid per share upon Mr.
Pagliuca's cessation of services prior to the vesting of such shares. The
optionee will vest in the latter 2,500 option shares in a series of equal
monthly installments over twelve (12) months of Board service measured
from the automatic option grant date. As of December 31, 1996, Mr.
Pagliuca had vested in 3,750 of such options.
(9) Includes (i) 2,500 shares subject to an option granted to L. Peter Smith
on December 11, 1995 and (ii) 2,500 shares subject to an option granted on
June 24, 1996, all pursuant to the Automatic Option Grant Program of the
Coram Option Plan. Each option is immediately exercisable, but any shares
purchased thereunder will be subject to repurchase by Coram at the
original exercise price paid per share upon Mr. Smith's cessation of
services prior to the vesting of such shares. The optionee will vest in
the option latter 2,500 shares in a series of equal monthly installments
over twelve (12) months of Board service measured from the automatic
option grant date. As of December 31, 1996, Mr. Smith had vested in
3,750 of such options.
(10) Consists of (i) 2,500 shares subject to an option granted to Dr. Wilensky
on December 11, 1995 and (ii) 2,500 shares subject to an option granted to
Dr. Wilensky on June 24, 1996, all pursuant to the Automatic Option Grant
Program of the Coram Option Plan. The option is immediately exercisable,
but any shares purchased thereunder will be subject to repurchase by Coram
at the original exercise price paid per share upon Dr. Wilensky's
cessation of services prior to the vesting of such shares. The optionee
will vest in the latter 2,500 option shares in a series of equal monthly
installments over twelve (12) months of Board service measured from the
automatic option grant date. As of December 31, 1996, Dr. Wilensky had
vested in 3,750 of such options.
(11) Richard M. Smith assumed the duties of Chief Financial Officer on August
30, 1995. Includes 100,000 shares subject to an option granted to Mr.
Smith on September 7, 1995, which option is immediately exercisable for
fully-vested shares. Also includes 13,028 shares vested and exercisable
before June 16, 1996, pursuant to an option to repurchase 25,000 shares
granted to Mr. Smith on November 1, 1994, but does not include the balance
of 11,972 option shares, which will become exercisable and vested in
successive equal monthly installments upon his completion of each
additional month of service with Coram after June 30, 1996. Also includes
50,000 shares vested and exercisable pursuant to an option to repurchase
200,000 shares granted on December 28, 1995, but does not include 150,000
shares which will become exercisable and vested in successive equal
monthly installments upon his completion of each additional month of
service with Coram over the thirty-six (36) months after December 28,
1996.
35
<PAGE> 36
(12) Mr. Quiner became an executive officer of the Company on March 1, 1996.
Includes options to purchase 12,600 shares of Coram Common Stock that
were previously granted to him by T2 and were assumed by Coram, as well
as 1,256 shares credited to Mr. Quiner's account under the Coram
Healthcare Corp. 401(k) Plan. Also includes 6,250 shares vested and
exercisable before June 16, 1996, pursuant to an option to purchase
25,000 shares granted to Mr. Quiner on September 7, 1995, but does not
include the balance of 18,750 option shares which will become exercisable
and vested in successive equal monthly installments upon his completion
of each additional month of service with Coram after June 30, 1996. Does
not include 25,000 shares subject to options granted to Mr. Quiner on
December 28, 1995 and 25,000 shares subject to options granted to Mr.
Quiner on March 19, 1996. Twenty-five percent of the option shares in
each of such grants will vest and become exercisable on December 28, 1996
and March 19, 1997, respectively. The remaining 75% of the option shares
in each of such grants will vest and become exercisable in successive
equal monthly installments upon his completion of each additional month
of service with Coram over the thirty-six (36) months after December 28,
1996 and March 19, 1997, respectively.
(13) Mr. Joseph Smith became an executive officer of the Company on March 1,
1996. Includes 13,642 shares vested and exercisable, pursuant to an option
to purchase 25,222 shares granted to Mr. Smith on November 1, 1994, but
does not include the balance of 11,580 option shares which will become
exercisable and vested in successive equal monthly installments upon his
completion of each additional month of service with Coram until October
31, 1998, at which point the option grants will be fully vested and
exercisable. Includes 12,393 shares vested and exercisable, pursuant to an
option to purchase 24,778 shares granted to Mr. Smith on November 1, 1994,
but does not include the balance of 12,385 option shares which will also
become exercisable and vested in successive equal monthly installments
upon his completion of each additional month of service with Coram until
October 31, 1998, at which point the option grants will be fully vested
and exercisable. Includes 18,750 shares vested and exercisable, pursuant
to an option to purchase 75,000 option shares granted to Mr. Smith on
December 28, 1995, but does not include the balance of 56,250 option
shares which will become exercisable and vested in successive equal
monthly installments upon his completion of each additional month of
service with Coram until December 29, 1999, at which point the option
grants will be fully vested and exercisable. Does not include 25,000
shares subject to options granted to Mr. Smith on September 13, 1996.
Twenty-five percent of the option shares in this grant will vest and
become exercisable on September 13, 1997. The remaining 75% of the option
shares in this grant will vest and become exercisable in successive equal
monthly installments upon his completion of each additional month of
service with Coram over the thirty-six (36) months after September 13,
1997.
(14) Mr. Christopher York became an executive officer of the Company on
March 1, 1996. Includes 622 shares of common stock. Also include 13,642
shares vested and exercisable, pursuant to an option to purchase 25,222
shares granted to Mr. York on November 1, 1994, but does not include the
balance of 11,580 option shares which will become exercisable and vested
in successive equal monthly installments upon his completion of each
additional month of service with Coram until October 31, 1998, at which
point the option grants will be fully vested and exercisable. Includes
12,393 shares vested and exercisable, pursuant to an option to purchase
24,778 shares granted to Mr. York on November 1, 1994, but does not
include the balance of 12,385 option shares which will also become
exercisable and vested in successive equal monthly installments upon his
completion of each additional month of service with Coram until October
31, 1998, at which point the option grants will be fully vested and
exercisable. Includes 18,750 shares vested and exercisable, pursuant to an
option to purchase 75,000 option shares granted to Mr. York on December
28, 1995, but does not include the balance of 56,250 option shares which
will become exercisable and vested in successive equal monthly
installments upon his completion of each additional month of service with
Coram until December 29, 1999, at which point the option grants will be
fully vested and exercisable. Does not include 25,000 shares subject to
options granted to Mr. York on May 9, 1996, nor does it include 25,000
shares subject to options granted to Mr. York on September 13, 1996.
Twenty-five percent of the option shares in each of such grants will vest
and become exercisable on May 9, 1997 and September 13, 1997 respectively.
The remaining 75% of the option shares in each of such grants will vest
and become exercisable in successive equal monthly installments upon his
completion of each additional month of service with Coram over the
thirty-six (36) months after May 9, 1997 and September 13, 1997,
respectively.
(15) American Express Company ("Amex") American Express Financial Corporation
("AmexFC") and IDS Life Capital Resource Fund ("IDS") report shared
dispositive power with respect to the 3,975,000 shares of common stock
reported above. IDS reports sole voting power with respect to such shares.
The information with respect to Amex AmexFC and IDS as of December 31,
1996. The address of Amex is American Express Tower, World Financial
Center, New York, NY 10285. The address of AmexFC and IDS is IDS Tower
10, Minneapolis, MN 55440.
There is no arrangement known to the Company, including any pledge by any
person of securities of the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Fink, a director of Coram since July 1994, is a partner in a law firm
that rendered various legal services to Coram in 1996 and is continuing to
render such services in 1997. The legal fees paid by Coram to such firm
approximated $1.7 million in the fiscal year ended December 31, 1996.
Mr. Nathanson, a director of Coram since December 1995, is a Managing
Director of DLJ, an investment banking firm that rendered various financial
services to Coram in 1996. DLJ provided a $150 million bridge loan to Coram in
April 1995 in connection with the acquisition of the Caremark Business pursuant
to the terms of the Purchase Agreement and remains the holder of the Rollover
Note. The Purchase Agreement provides that DLJ has the right to appoint a
director to Coram's Board of Directors if an event of default has occurred and
so long as it is continuing provided however, that the right terminates at such
time that DLJ is no longer the holder of at least fifty percent of the
aggregate principal amount of the outstanding bridge notes. DLJ was granted
the right to appoint a director in September 1995 in exchange for certain
waivers under the Purchase Agreement. Fees for financial advisory and
investment banking services to DLJ approximated $6.5 million in 1995.
36
<PAGE> 37
On October 4, 1996, DLJ was retained by Coram to act as a financial advisor to
Coram in connection with the possible sale, merger, consolidation or other
business combination involving Coram. As compensation for DLJ's services,
Coram has agreed to pay to DLJ a fee equal to 0.60% of the aggregate
consideration received by Coram and/or its stockholders, plus the amount of any
debt (excluding the junior subordinated pay-in-kind notes owned by Caremark)
assumed, acquired or retired in connection with the transaction, less any cash
(up to $15 million) on the books of Coram. Such amount is payable in cash
promptly upon consummation of the Merger, less up to $500,000 paid to UBS
Securities LLC in connection with the rendering of an opinon regarding the
fairness, from a financial point of view, of the consideration to be received
by the stockholders of Coram in connection with the IHS Merger. Coram has also
agreed to reimburse DLJ for its out-of-pocket expenses (including reasonable
fees and expenses of counsel), and to indemnify DLJ and its affiliates against
certain liabilities, including liabilities arising under the Federal securities
laws, relating to, arising out of or in connection with its engagement.
L. Peter Smith serves on the Board of Directors of Sabratek
Corporation. On February 26, 1997, the Company agreed to purchase up to $13.0
million of multi-therapy infusion pumps and related proprietary telemedicine
technology over the next six to nine months from Sabratek Corporation. The
pricing schedule applicable to the infusion pumps and related technology to be
purchased was negotiated by Coram's Chief Executive Officer, Chief Financial
Officer and Vice President of Materials Management, Robert Roose after
proposals from other manufacturers for comparable equipment had been solicited.
Prior to entering into the agreement with Sabratek, the Company's area clinical
and operations staffs conducted field level trials and tests on infusion pumps
made by several different manufacturers, including Sabratek.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. The following consolidated financial
statements of the Registrant and Independent Auditors
Report thereon are presented on pages F-1 through
F-26:
Report of Independent Auditors
Consolidated Balance Sheets--December 31, 1996 and 1995
Consolidated Statements of Operations--Years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity--Years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows--Years ended December
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following consolidated
financial statement schedule of the Registrant for
the years ended December 31, 1996, 1995 and 1994 is
presented following the Notes to the Consolidated
Financial Statements.
Schedule II--Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are
not applicable or are not required or the information
required to be set forth therein is included in the
Consolidated Financial Statements or notes thereto.
38
<PAGE> 38
(b) Reports on Form 8-K
On November 1, 1996, the Company filed a Current Report on
Form 8-K dated October 19, 1996 relating to the IHS
Merger.
(c) Exhibits
Included as exhibits are the items listed on the Exhibit
Index. The Registrant will furnish a copy of any of
the exhibits listed below upon payment of $5.00 per
exhibit to cover the costs to the Registrant of
furnishing such exhibit.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger dated as of February 6, 1994, by and among the Registrant, T2, Curaflex,
HealthInfusion, Medisys, T2 Acquisition Company, CHS Acquisition Company, HII Acquisition Company
and MI Acquisition Company (Incorporated by reference to Exhibit 2.1 of Registration No. 33-53957
on Form S-4).
2.2 -- First Amendment to Agreement and Plan of Merger dated as of May 25, 1994, by and among the Registrant, T2
Curaflex, HealthInfusion, Medisys, T2 Acquisition Company, CHS Acquisition Company, HII Acquisition
Company and MI Acquisition Company (Incorporated by reference to Exhibit 2.2 of Registration
No. 33-53957 on Form S-4).
2.3 -- Second Amendment to Agreement and Plan of Merger dated as of July 8, 1994 by and among the Registrant, T2,
Curaflex, HealthInfusion, Medisys, T2 Acquisition Company, CHS Acquisition Company, HII Acquisition
Company and MI Acquisition Company (Incorporated by reference to Exhibit 2.3 of the Registrant's
Current Report on Form 8-K dated as of July 15, 1994).
2.4 -- Asset Sale and Note Purchase Agreement, (the "Asset Purchase Agreement") among the Registrant, Caremark
International Inc. and Caremark Inc. dated as of January 29, 1995 (Incorporated by reference to
Exhibit C of the Registrant's Current Report on Form 8-K dated April 6, 1995). The exhibits and
schedules to the Asset Purchase Agreement are omitted from this Exhibit. The Company agrees to
furnish supplementally any omitted exhibits or schedule with the Securities and Exchange
Commission.
2.5 -- Agreement and Plan of Merger among the Registrant, CHC Acquisition Corp. and Lincare Holdings Inc., (the
"Lincare Merger Agreement") dated as of April 17, 1995 (Incorporated by reference to Exhibit B of
the Registrant's Current Report on Form 8-K dated May 2, 1995). The exhibits and schedules to the
Lincare Merger Agreement are omitted from this Exhibit. The Company agrees to furnish
supplementally any omitted exhibit or schedule with the Securities and Exchange Commission.
2.6 -- Agreement and Plan of Merger entered into as of October 19, 1996, among Coram Healthcare Corporation,
Integrated Health Services, Inc. and IHS Acquisition XIX, Inc. (Incorporated by reference to
Exhibit 2.1 of the Registrant's Current Report on Form 8-K dated October 19, 1996 and filed on
November 1, 1996).
3.1 -- Certificate of Incorporation of Registrant, as amended through May 11, 1994 (Incorporated by reference to
Exhibit 3.1 of Registration No. 33-53957 on Form S-4).
3.2 -- Bylaws of Registrant (Incorporated by reference to Exhibit 3.2 of Registration No. 33-53957 on Form S-4).
4.1 -- Form of Common Stock Certificate for the Registrant's common stock, $.001 par value per share.
(Incorporated by reference to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.1 -- Amended and Restated Credit Agreement dated as of February 10, 1995, by and among Curaflex, T2,
HealthInfusion, Medisys, and HMSS as Co-Borrowers, Toronto Dominion (Texas), Inc., as Agent (the
"Amended Credit Agreement") (Incorporated by reference to Exhibit 10.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994). The exhibits and schedules to the
Amended Credit Agreement are omitted from this Exhibit. The Company agrees to furnish
supplementally any omitted exhibit or schedule to the Securities and Exchange Commission upon
request.
</TABLE>
39
<PAGE> 39
<TABLE>
<S> <C> <C>
10.2 -- Form of Employment Agreement between the Registrant and Charles A. Laverty (Incorporated by reference
to Exhibit 10.1 of Registration No. 33-53957 on Form S-4).
10.3 -- Form of Severance/Non-Compete Agreement between the Registrant and Miles E. Gilman (Incorporated by
reference to Exhibit 10.2 of Registration No. 33-53957 on Form S-4).
10.4 -- Form of Severance/Non-Compete Agreement between the Registrant and William J. Brummond (Incorporated by
reference to Exhibit 10.3 of Registration No. 33-53957 on Form S-4).
10.5 -- Form of Severance/Non-Compete Agreement between the Registrant and Tommy H. Carter (Incorporated by
reference to Exhibit 10.4 of Registration No. 33-53957 on Form S-4).
10.6 -- Form of Indemnification Agreement between the Registrant and each of the Registrant's directors and
certain executive officers. (Incorporated by reference to Exhibit 10.6 of the Registrant's
Form 10-K for the year ended December 31, 1994).
10.7 -- Registrant's 1994 Stock Option/Stock Issuance Plan and related forms of agreements (Incorporated by
reference to Exhibit 10.15 of Registration No. 33-53957 on Form S-4).
10.8 -- Registrant's Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.16 of Registration
No. 33-53957 on Form S-4).
10.9 -- 401(k) Plan of T2 dated December 8, 1989 (Incorporated herein by reference to Exhibit 10(s) of T2
Annual Report on Form 10-K for the fiscal year ended September 30, 1989, filed with the Commission
on or about December 29, 1988).
10.10 -- 1988 Stock Option Plan of T2, as amended and restated as of July 31, 1990 and as further amended as of
(i) August 20, 1991; (ii) November 12, 1991; and (iii) July 6, 1992 (Incorporated by reference to
Exhibit 10.18 of Registration No. 33-53957 on Form S-4).
10.11 -- Curaflex 1989 Stock Option Plan (Incorporated by reference to Exhibit 10.53 of Registration
No. 33-53957 on Form S-4).
10.12 -- Curaflex Amended 1990 Stock Option Plan (Incorporated by reference to Exhibit 10.54 of Registration
No. 33-53957 on Form S-4).
10.13 -- Curaflex Directors' Nonqualified Stock Option Plan (Incorporated by reference to Exhibit 10.59 of
Registration No. 33-53957 on Form S-4).
10.14 -- Clinical Homecare Ltd. 1990 Incentive Stock Option Plan, as amended (Incorporated by reference to
Exhibit 10.61 of Registration No. 33-53957 on Form S-4).
10.15 -- Clinical Homecare Ltd. 1990 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.62
of Registration No. 33-53957 on Form S-4).
10.16 -- 1989 Stock Option Plan of Medisys (Incorporated by reference to Exhibit 10.85 of Registration
No. 33-53957 on Form S-4).
10.17 -- Form of Non-Plan Option Agreement of Medisys (Incorporated by reference to Exhibit 10.86 of
Registration No. 33-53957 on Form S-4).
10.18 -- Credit Agreement among Coram Healthcare Corporation, Coram, Inc., the Lenders named therein and
Chemical Bank, as Administrative Agent, Collateral Agent and Fronting Bank (the "Senior Credit
Facility") dated as of April 6, 1995. (Incorporated by reference to Exhibit D of the Registrant's
Current Report on Form 8-K dated April 6, 1995). The exhibits and schedules to the Senior Credit
Facility are omitted from this Exhibit. The Company agrees to furnish supplementally any omitted
exhibit or schedule to the Securities and Exchange Commission.
</TABLE>
40
<PAGE> 40
<TABLE>
<S> <C>
10.19 -- First Amendment and Waiver to the Credit Agreement, dated as of August 9, 1995, together with exhibits
hereto, 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 to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995). Certain exhibits and schedules of this Exhibit have been
omitted. The Registrant agrees to furnish supplementally any omitted schedule or exhibit to the
Securities and Exchange Commission.
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. (Incorporated by reference to
Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). Certain exhibits and schedules of this Exhibit have been omitted. The Registrant agrees to
furnish supplementally any omitted schedule or exhibit to the Securities and Exchange Commission.
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 (Incorporated by
reference to Exhibit 10.21 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995). Certain exhibits and schedules of this Exhibit have been omitted. The
Registrant agrees to furnish supplementally any omitted schedule or exhibit to the Securities and
Exchange Commission.
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 to 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 to 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. (Incorporated by reference
to Exhibit 10.24 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995). Certain exhibits and schedules of this Exhibit have been omitted. The
Registrant agrees to furnish supplementally any omitted schedule or exhibit to the Securities and
Exchange Commission.
10.25 -- Form of Employment Agreement between the Registrant and Donald J. Amaral. (Incorporated by reference
to Exhibit 10.25 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
10.26 -- Securities Purchase Agreement ("Securities Purchase Agreement") and Form of Subordinated Bridge Note,
dated as of April 6, 1995, among Coram Inc., Coram Funding, Inc. and the Registrant (Incorporated
by reference to Exhibit E of the Registrant's Current report on Form 8-K dated April 6, 1995). The
exhibits and schedules to the Securities Purchase Agreement are omitted from this Exhibit. The
Registrant agrees to furnish supplementally any omitted exhibit or schedule to the Securities and
Exchange Commission.
10.27 -- Exclusive Distribution Agreement -- Healthcare Products and Biomedical Equipment and Services Agreement
between Medical Specialties Distributors, Inc. ("MSD") and Coram, dated as of June 1, 1996.
(Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).
</TABLE>
41
<PAGE> 41
<TABLE>
<S> <C>
10.28 -- Medical Specialties Master Service Agreement between MSD and Coram, dated as of June 1, 1996.
(Incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).
10.29 -- Medical Specialties Master Rental Agreement between MSD and Coram, dated as of June 1, 1996.
(Incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).
10.30 -- Coram Healthcare Litigation Memorandum of Understanding between all parties to In re Coram Healthcare
Corp. Securities Litigation, Master File No. 95-N-2074 and Shevde v. Sweeney et al., Civil Action
No. 96-N-722, dated as of August 5, 1996. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q/A Amendment No. 1 for the quarter ended June 30, 1996).
10.31 -- Fifth Amendment to the Credit Agreement Dated as of February 6, 1996, by and among the Registrant, Coram
Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by reference to Exhibit 99.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). Certain exhibits
and schedules of this Exhibit have been omitted. The Registrant agrees to furnish supplementally
any omitted schedule or exhibit to the Securities and Exchange Commission.
10.32 -- Sixth Amendment to Credit Agreement Dated as of April 19, 1996, by and among the Registrant, Coram Inc.,
each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by reference to Exhibit 99.2 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). Certain exhibits
and schedules of this Exhibit have been omitted. The Registrant agrees to furnish supplementally
any omitted schedule or exhibit to the Securities and Exchange Commission.
10.33 -- Seventh Amendment to Credit Agreement Dated as of July 3, 1996, by and among the Registrant, Coram Inc.,
each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by reference to Exhibit 99.1 of
the Registrant's Quarterly Report on Form 10-Q/A Amendment No. 1 for the quarter ended June 30,
1996). Certain exhibits and schedules of this Exhibit have been omitted. The Registrant agrees to
furnish supplementally any omitted schedule or exhibit to the Securities and Exchange Commission.
10.34 -- Eighth Amendment to Credit Agreement dated as of December 3, 1996, by and among the Registrant, Coram
Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chase Manhattan Bank as Agent. Certain exhibits and schedules of this
Exhibit have been omitted. The Registrant agrees to furnish supplementally any omitted schedule or
exhibit to the Securities and Exchange Commission.*
10.35 -- Ninth Amendment and Limited Waiver to the Credit Agreement dated as of March 14, 1997, by and among the
Registrant, Coram Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as described therein), and Chase Manhattan Bank as Agent. Certain exhibits and
schedules of this Exhibit have been omitted. The Registrant agrees to furnish supplementally any
omitted schedule or exhibit to the Securities and Exchange Commission.*
10.36 -- Amended Agreement, dated as of March 28, 1997 by and among the Registrant, Coram Inc., and Donaldson,
Lufkin & Jenrette. Certain exhibits and schedules of this Exhibit have been omitted. The Registrant
agrees to furnish supplementally any omitted schedule or exhibit to the Securities and Exchange
Commission.*
10.37 -- Sabratek Corporation and Coram Healthcare Exclusive Supply Agreement for IV Infusion Pumps, IV Disposable Sets and
Related Items, dated as of February 26, 1997.*
10.38 -- Amendment to 9% Subordinated Convertible Debenture and Notice of Conversion dated as of June 30, 1996, by and among
the Registrant, Coram Inc., and the other parties specified therein (Incorporated by reference to the
Company's report on Form 8-K as filed on July 12, 1996.)
21.1 -- Subsidiaries of the Registrant.*
23.1 -- Consent of Ernst & Young LLP.*
27 -- Financial Data Schedule.*
</TABLE>
* Filed herewith.
42
<PAGE> 42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
28, 1997.
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
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on be half of the
registrant and in the capacities on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ JAMES M. SWEENEY Chairman March 28, 1997
James M. Sweeney
/s/ DONALD J. AMARAL President and Chief Executive March 28, 1997
Donald J. Amaral Officer and Director (Principal
Executive Officer)
/s/ RICHARD M SMITH Chief Financial Officer and March 28, 1997
Richard M. Smith Secretary (Principal Financial
Officer)
/s/ PAMELA M. SPANIAC Vice President and Controller March 28, 1997
Pamela M. Spaniac (Principal Accounting Officer)
/s/ RICHARD A. FINK Director March 28, 1997
Richard A. Fink
/s/ ANDREW NATHANSON Director March 28, 1997
Andrew Nathanson
/s/ STEPHEN G. PAGLIUCA Director March 28, 1997
Stephen G. Pagliuca
/s/ L. PETER SMITH Director March 28, 1997
L. Peter Smith
/s/ DR. GAIL WILENSKY Director March 28, 1997
Dr. Gail Wilensky
</TABLE>
43
<PAGE> 44
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
Report of Independent Auditors ........................................ F-2
Consolidated Balance Sheets--As of December 31, 1996 and 1995 ......... F-3
Consolidated Statements of Operations--Years Ended December 31, 1996,
1995 and 1994 ..................................................... F-4
Consolidated Statements of Stockholders' Equity--Years Ended
December 31, 1996, 1995 and 1994 .................................. F-5
Consolidated Statements of Cash Flows--Years Ended December 31, 1996,
1995 and 1994 ..................................................... F-6
Notes to Consolidated Financial Statements ............................ F-8
Schedule II--Valuation and Qualifying Accounts ........................ F-26
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Coram Healthcare Corporation
We have audited the accompanying consolidated balance sheets of Coram
Healthcare Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coram
Healthcare Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Denver, Colorado
March 30, 1997
F-2
<PAGE> 46
CORAM HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,375 $ 26,735
Cash limited as to use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,917 25,349
Accounts receivable, net of allowance of $40,256 and $63,839 . . . . . . . . . . . . . 106,763 153,825
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,268 17,798
Prepaid taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 9,975
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,063 10,428
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,822 11,935
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,270 256,045
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,998 29,276
Joint ventures and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,654 31,390
Deferred income taxes, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 183
Other deferred costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,114 23,266
Goodwill, net of accumulated amortization of $50,500 and $36,915 . . . . . . . . . . . . . 334,359 347,689
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 545,309 $ 687,849
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,350 $ 63,839
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 198,033 67,099
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,325 10,428
Reserve for litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,273 4,588
Accrued merger and restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,533 27,392
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,285 45,277
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,799 218,623
Long-term debt, including revolving lines of credit . . . . . . . . . . . . . . . . . . . . 266,641 439,309
Minority interest in consolidated joint ventures . . . . . . . . . . . . . . . . . . . . . 4,544 7,018
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,155 4,676
Deferred income taxes, non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,652 183
Stockholders' equity (deficit):
Preferred stock, par value $.001, authorized 10,000 shares, none issued . . . . . . . -- --
Common stock, par value $.001, authorized 75,000 shares, issued and
outstanding 42,404 at December 31, 1996 and 40,369 at December 31, 1995 . . . . . . 42 40
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,741 370,876
Common stock to be issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,625 --
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (437,890) (352,876)
---------- ----------
Total stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . (21,482) 18,040
---------- ----------
Total liabilities and stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . $ 545,309 $ 687,849
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 47
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 521,969 $ 602,585 $ 450,496
Cost of service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 361,688 459,710 313,182
--------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,281 142,875 137,314
Operating expenses: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . 104,261 133,037 81,907
Provision for estimated uncollectible accounts . . . . . . . . . . . . . . 29,045 68,912 36,817
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 15,259 15,307 8,971
Charge for long-lived assets and acquired receivables:
Goodwill and other long-lived assets . . . . . . . . . . . . . . . . . . -- 166,373 --
Valuation of acquired receivables . . . . . . . . . . . . . . . . . . . -- 37,000 --
Provision for litigation settlements . . . . . . . . . . . . . . . . . . . 27,875 -- 23,220
Merger expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 28,500
Restructuring costs, net . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,158 95,500
--------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 176,440 426,787 274,915
--------- ---------- ----------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16,159) (283,912) (137,601)
Other income (expenses):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,497 1,531 2,469
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (78,767) (49,741) (7,414)
Equity in net income of unconsolidated joint ventures . . . . . . . . . . 991 1,592 800
Gain (loss) on sales of property and equipment . . . . . . . . . . . . . . 668 (50) (255)
Other income (expense), net . . . . . . . . . . . . . . . . . . . . . . . 456 (3,659) 320
--------- ---------- ----------
Loss before income tax benefit and minority interests . . . . . . . . . . . . . (91,314) (334,239) (141,681)
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,998) (11,154) (26,231)
Minority interests in net income of consolidated joint ventures . . . . . . 7,698 10,964 12,622
--------- ---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (85,014) $(334,049) $ (128,072)
========= ========= ==========
Net loss per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (2.05) $ (8.39) $ (3.32)
========= ========= ==========
Weighted average common shares outstanding . . . . . . . . . . . . . . . . . . 41,546 39,802 38,633
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 48
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common
Common Stock Additional Stock
------------------ Paid-in to be
Shares Amount Capital Issued
-------- ------- --------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 37,793 $ 38 $ 328,390 $
Issuance of common stock and warrants, net 1,171 1 12,938 --
Unrealized loss . . . . . . . . . . -- -- -- --
Proceeds from stock purchase note . -- -- -- --
Dividends . . . . . . . . . . . . . -- -- -- --
Net loss . . . . . . . . . . . . . . -- -- -- --
-------- ------ --------- ----------
Balance, December 31, 1994 . . . . . . . 38,964 39 341,328 --
Issuance of common stock and warrants, net 1,405 1 29,548 --
Elimination of unrealized loss . . . -- -- -- --
Net loss . . . . . . . . . . . . . . -- -- -- --
-------- ------ --------- ----------
Balance, December 31, 1995 . . . . . . . 40,369 40 370,876 --
Issuance of common stock and warrants, net 2,035 2 19,865 --
Shares reserved for litigation . . . -- -- -- 25,625
Net loss . . . . . . . . . . . . . . -- -- -- --
-------- ------ --------- ----------
Balance, December 31, 1996 . . . . . . . 42,404 $ 42 $ 390,741 $ 25,625
======== ====== ========= ==========
<CAPTION>
Unrealized
Loss on
Stock Available- Retained
Purchase for-Sale Earnings
Note Securities (Deficit) Total
-------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994 $ (860) $ -- $ 111,304 $ 438,872
Issuance of common stock and warrants, net -- -- -- 12,939
Unrealized loss . . . . . . . . . . -- (279) -- (279)
Proceeds from stock purchase note . 860 -- -- 860
Dividends . . . . . . . . . . . . . -- -- (2,059) (2,059)
Net loss . . . . . . . . . . . . . . -- -- (128,072) (128,072)
-------- -------- --------- ---------
Balance, December 31, 1994 . . . . . . . -- (279) (18,827) 322,261
Issuance of common stock and warrants, net -- -- -- 29,549
Elimination of unrealized loss . . . -- 279 -- 279
Net loss . . . . . . . . . . . . . . -- -- (334,049) (334,049)
-------- -------- --------- ---------
Balance, December 31, 1995 . . . . . . . -- -- (352,876) 18,040
Issuance of common stock and warrants, net -- -- -- 19,867
Shares reserved for litigation . . . -- -- -- 25,625
Net loss . . . . . . . . . . . . . . -- -- (85,014) (85,014)
-------- -------- --------- ---------
Balance, December 31, 1996 . . . . . . . $ -- $ -- $(437,890) $ (21,482)
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 49
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1996 1995 1994
--------------- ---------------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (85,014) $ (334,049) $ (128,072)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Provision for estimated uncollectible accounts . . . . . . . . . 29,045 68,912 36,817
Depreciation and amortization . . . . . . . . . . . . . . . . . 64,487 47,322 22,871
Gain on conversion of debt . . . . . . . . . . . . . . . . . . . (1,350) -- --
Charge for long-lived assets and acquired receivables:
Goodwill and long-lived assets . . . . . . . . . . . . . . . . -- 166,373 --
Valuation of acquired receivables . . . . . . . . . . . . . . -- 37,000 --
Merger/restructuring benefit . . . . . . . . . . . . . . . . . -- (19,632) --
Merger/restructuring costs not requiring cash . . . . . . . . . -- 6,600 50,100
Litigation settlements not requiring cash . . . . . . . . . . . 25,625 1,372 5,520
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . -- 25,140 (26,943)
Minority interest in net income of consolidated joint ventures,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,946) 2,455 (978)
(Gain) loss on sales of assets . . . . . . . . . . . . . . . . . (2,400) 50 255
(Gain) loss on sales of investments, net . . . . . . . . . . . . -- 3,483 (177)
Equity in net income of unconsolidated joint ventures, net . . . (611) (1,186) 562
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 919 675
Changes in assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable . . . . . . . . . . 14,029 (41,930) (20,597)
Decrease (increase) in prepaid expenses, inventories and other 20,702 (13,282) (13,462)
assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in current and other liabilities . . . . . 636 62,798 (3,112)
(Decrease) increase in accrued merger and restructuring . . . (2,817) (10,996) 37,787
(Decrease) increase in reserve for litigation . . . . . . . . 833 (18,132) 17,200
-------------- ---------------- -----------
Net cash provided (used) by operating activities . . . . . . . . 60,219 (16,783) (21,554)
--------------- ---------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of securities, net . . . . . . . . . . . . . . . . . . . . -- 16,592 16,207
Proceeds from sales of long-term assets . . . . . . . . . . . . 3,875 16,839 2,150
Purchases of property and equipment . . . . . . . . . . . . . . (6,850) (7,329) (8,950)
Cash receipts on sale (payments for acquisitions) of businesses,
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,821 (241,420) (61,450)
Proceeds from long-term receivables . . . . . . . . . . . . . . 902 1,229 --
Capital contributions to unconsolidated joint ventures . . . . . -- (1,333) (3,945)
--------------- ---------------- -----------
Net cash provided (used) by investing activities . . . . . . . . 2,748 (215,422) (55,988)
--------------- ---------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net of repurchases and issuance costs . . 553 10,387 9,612
Borrowings on lines of credit . . . . . . . . . . . . . . . . . -- 15,300 120,433
Repayments of lines of credit . . . . . . . . . . . . . . . . . -- (123,420) (49,500)
Securities sold under agreements to repurchase . . . . . . . . . -- (7,430) 7,430
Debt borrowings . . . . . . . . . . . . . . . . . . . . . . . . -- 588,980 2,180
Repayments of debt . . . . . . . . . . . . . . . . . . . . . . . (74,630) (218,851) (11,655)
Cash paid for debt financing . . . . . . . . . . . . . . . . . . (250) (19,614) (3,259)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . -- -- (2,059)
--------------- ---------------- -----------
Net cash provided (used) by financing activities . . . . . . . . (74,327) 245,352 73,182
--------------- ---------------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . (11,360) 13,147 (4,360)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . 26,735 13,588 17,948
--------------- ---------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . $ 15,375 $ 26,735 $ 13,588
=============== ================ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,719 $ 17,357 $ 9,596
=============== ================ ===========
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . $ (24,682) $ (30,221) $ 16,692
=============== ================ ===========
</TABLE>
(Continued)
F-6
<PAGE> 50
CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1996 1995 1994
--------------- ---------------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuance of stock in connection with acquisitions . . . . . . . $ 819 $ 6,897 $ 4,022
=============== ================ ===========
Deferred interest . . . . . . . . . . . . . . . . . . . . . . . $ 4,968 $ 13,892 $ --
=============== ================ ===========
Issuance of notes in connection with acquisition of Caremark
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 100,000 $ --
=============== ================ ===========
Conversion of long-term debt to common stock . . . . . . . . . . $ 5,267 $ 382 $ --
=============== ================ ===========
Note payable incurred for commitment fee on Senior Credit
Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 2,350 $ --
=============== ================ ===========
Warrants issued in connection with debt financing . . . . . . . $ 10,786 $ 9,793 $ --
=============== ================ ===========
Common stock issued for consulting services . . . . . . . . . . $ -- $ 1,479 $ --
=============== ================ ===========
Warrants issued to settle litigation . . . . . . . . . . . . . . $ 365 $ 2,520 $ 500
=============== ================ ===========
Common stock issued in settlement of litigation . . . . . . . . $ 1,783 $ -- $ --
=============== ================ ===========
Common stock issued in connection with employment agreements . . $ 294 $ -- $ --
=============== ================ ===========
Capital lease obligation incurred on equipment lease . . . . . . $ 670 $ -- $ --
=============== ================ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 51
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. BASIS OF PRESENTATION
Business Activity. Coram Healthcare Corporation and its subsidiaries
("Coram" or the "Company") are primarily engaged in providing alternate site
(outside the hospital) infusion therapy and related services throughout the
United States. Other services offered by the Company include the provision of
lithotripsy, mail-order pharmacy, pharmacy benefit management and other
non-intravenous infusion products and services.
The operations of the Company commenced on July 8, 1994, as a result of a
merger of T2 Medical, Inc. ("T2"), Curaflex Health Services, Inc. ("Curaflex"),
HealthInfusion, Inc. ("HealthInfusion") and Medisys, Inc. ("Medisys")
(collectively, the "Merged Entities") (the "Four-Way Merger"). Each of these
companies is a wholly owned subsidiary of the Company. The transaction was
accounted for as a pooling of interests.
The Company has made a number of acquisitions since commencing operations,
the most significant of which was the acquisition of substantially all of the
assets and the assumption of certain specified liabilities of the alternate
site infusion business and certain related businesses (the "Caremark Business")
from Caremark Inc., a subsidiary of Caremark International, Inc. (collectively
"Caremark") effective April 1, 1995. In addition, Coram acquired H.M.S.S.,
Inc. ("HMSS"), a leading regional provider of home infusion therapies based in
Houston, Texas, effective September 12, 1994. See Note 4 for further
information.
Recent Operations and Financial Condition. Most of the Company's revenue
is derived from alternate site infusion therapy and is reimbursed by
third-party payors such as private insurers, managed care organizations and
governmental payors. The increasingly and highly competitive market combined
with the efforts by third party payors to contain or reduce healthcare costs
contributed to reduced reimbursement rates for services. These factors are
likely to continue, at least in the near term, and may have an adverse effect
on the Company's operations.
During 1995, the Company incurred substantial indebtedness to acquire the
Caremark Business. The Company experienced a substantial decline in revenue
following the acquisition of the Caremark Business, and since 1994 the Company
has experienced substantial losses. In October 1995, the Company concluded a
major restructuring of the terms of its debt after completion of a formal
business strategy. The business strategy is focused on stabilizing and
increasing revenue, cost reductions leading to improved operating margins,
quality control, and improved cash collections. On October 19, 1996, Coram,
Integrated Health Services, Inc. ("IHS") and IHS Acquisition XIX, Inc., a
wholly-owned subsidiary of IHS ("Merger Sub"), entered into a definitive
Agreement and plan of merger (the "Agreement") (the "IHS Merger") of Merger
Sub with and into the Company. If the Merger is consummated, Coram will become
a wholly-owned subsidiary of IHS. The Agreement was approved by the respective
Boards of Directors of IHS and Coram on October 19, 1996. The IHS Merger was
anticipated to close on or before March 31, 1997. However, a provision of the
Agreement allows, under certain circumstances, for the Agreement to be extended
until May 31, 1997. The Company believes that it will have adequate working
capital to meet its cash requirements through May 31, 1997, when its Senior
Credit Facility matures, and believes that adequate working capital and long-
term financing will be available after that date should the IHS Merger not
take place. However, the failure to consummate the Merger or achieve the
objectives set forth in the business strategy could have a material adverse
effect on the Company's financial position, results of operations and liquidity
(see "Liquidity and Capital Resources" and Note 3). It is management's
intention to seek modifications of existing debt agreements and restructure
its financings if the IHS Merger is not consummated.
Concentration of Credit Risks. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
equivalents and accounts receivable. As of December 31, 1996, approximately
49% of cash is deposited with the lead bank under the Company's Senior Credit
Facility (see Note 6) and an additional 19% is deposited with another financial
institution. No other single institution represented greater than 10% of total
cash equivalents. Amounts are generally in excess of the FDIC insurance limits
but credit risk is mitigated as deposits are kept only with high credit
F-8
<PAGE> 52
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
quality institutions. Accounts receivable are primarily from third party
payors, including private insurers, managed care organizations and state and
federal governmental payors such as Medicare and Medicaid, and are unsecured.
Credit risk is mitigated by the large number of entities that comprise the
third party payor base and credit evaluations of patients and third party
payors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation. The consolidated
financial statements include the accounts of Coram, its subsidiaries and joint
ventures and partnerships in which ownership is 50% or greater and considered
to be under the control of the Company. All material intercompany accounts and
transaction balances have been eliminated in consolidation. The Company uses
the equity method of accounting to account for investments in entities in which
it exhibits significant influence, but not control, and has an ownership
interest less than 50%.
Revenue Recognition. Revenue is recognized as services are rendered or
products are delivered. Substantially all of the Company's revenue is billed
to third-party payors, including insurance companies, managed care plans,
governmental payors and contracted institutions. Revenue is recorded net of
contractual adjustments and related discounts. Contractual adjustments
represent estimated differences between service revenue at established rates
and amounts expected to be realized from third-party payors under contractual
agreements. Management fees, which are collected from entities managed by the
Company, are based principally on a percentage of the entities' revenue.
Management fees were approximately $1.6 million, $7.6 million and $28.8 million
in 1996, 1995 and 1994, respectively.
Cash and Cash Equivalents. Cash equivalents include all highly liquid
investments with an original maturity of three months or less. A portion of the
Company's cash balance was limited as to its use including cash of partnerships
that may only be used for partnership operations and cash collected on behalf
of Caremark. The restricted balances approximated $3.9 million at December 31,
1996, and $25.3 million at December 31, 1995.
Inventories. Inventories, consisting primarily of pharmaceuticals and
medical supplies, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of one to 10 years for machinery and equipment,
furniture, fixtures and vehicles, and 30 to 31.5 years for buildings. Leasehold
improvements are amortized over the shorter of the lease term or estimated
useful lives of the related assets.
Goodwill and other Long-Lived Assets. Goodwill represents the excess of
the purchase price over the fair value of net assets acquired through business
combinations accounted for as purchases and is amortized on a straight-line
basis over the expected periods to be benefited. In 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 and other long-lived
assets is reviewed quarterly to determine if any impairment indicators are
present. If it is determined that such indicators are present and the review
indicates that the assets will not be recoverable, based on undiscounted
estimated cash flows over their remaining depreciation and amortization period,
their carrying value is reduced to estimated fair market value. Impairment
indicators include, among other conditions, cash flow deficits; an historic or
anticipated decline in revenue or operating profit; adverse legal, regulatory
or reimbursement developments; accumulation of costs significantly in excess of
amounts originally expected to acquire the asset; or a material decrease in the
fair value of some or all of the assets.
Within the home infusion business, the review is done separately for each
of the markets in which the Company operates. Markets are currently the lowest
level for which there are cash flows that are largely independent of the cash
flows of other parts of the business. The Company performed the allocation of
goodwill and other identifiable intangible assets at September 30, 1995. The
Company was not able to allocate goodwill and other identifiable intangible
assets to its branches or markets at the time such assets were acquired due
to the numerous acquisitions and branch consolidations. Because the Company
believes its goodwill is closely tied to the revenue generating capacity of
each market, it allocated the goodwill to each market area at September 30,
1995 in proportion to the revenues of the market. The Company believed this
was the most reasonable and objective basis available at that date. The
allocation of goodwill was made using forecasted 1996 revenues. Other
identifiable intangible assets were allocated in the same manner.
Undiscounted cash flows was estimated for each market based on forecasted
1997 cash flows projected forward over the remaining life of the goodwill. The
Company has not prepared budgets or forecasts for any periods beyond 1997, and
has concluded that, in its current environment, the 1997 forecast is the best
estimate based on reasonable and supportable assumptions and projections of
expected cash flow over the goodwill amortization period. If potential
impairment was indicated, the goodwill and other long-lived assets in that
market area would be written down to estimated market value. Market value at
December 31, 1996 was estimated based on a multiple of cash flows, which is
a similar methodology to discounted cash flows.
The evaluation of the recoverability of goodwill is significantly affected
by estimates of future cash flows from each of the Company's market areas. If
estimates of future cash flows from operations decrease, the Company may be
required to write down its goodwill and other long-lived assets in the future.
Any such write-down could have a material adverse effect on the Company's
financial position and results of operations.
During 1995, the Company recorded an impairment loss of $166.4 million
related to its home infusion business ($158.1 million related to goodwill and
$8.3 million related to other long-lived assets). This was based on a review of
each of the market areas in which the Company operates its home infusion
business and separately for the lithotripsy business and each of the Company's
other businesses. The Company has continued to review goodwill and other
long-lived assets on this basis through December 31, 1996.
The Company believes that its goodwill is defined by its relationships -
substantially all of which are non-contractual - with physicians, medical
groups, hospitals, case managers and managed care organizations and other
referral sources to the Company in the marketplace.
As of October 1, 1995, the Company reduced the remaining useful lives for
goodwill to 25 years because of uncertainties in the Company's business
environment and recent adverse operating results. Prior to that date, goodwill
was amortized over useful lives ranging from
F-9
<PAGE> 53
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
30 to 40 years. The change in estimated useful lives increased amortization
expense by approximately $5.8 million and $1.3 million respectively during the
years ended December 31, 1996 and 1995. The Company believes that the home
health care market in which it operates provides significant long-term business
opportunities over an indeterminate period. However, it also recognizes that
competitive, legislative and technological changes could affect the value of the
relationships that its recorded goodwill represents. The timing and extent of
the effect, if any, of these uncertainties beyond that experienced by the
Company to date cannot be determined at this time.
Provision for Estimated Uncollectible Accounts. Management regularly
reviews the collectibility of accounts receivable utilizing system-generated
reports which track collection and write-off activity. Estimated write-off
percentages are then applied to each aging category by payor classification to
determine the allowance for estimated uncollectible accounts. The allowance
for estimated uncollectible accounts is adjusted as needed to reflect current
collection, write-off and other trends, including changes in assessment of
realizable value. While management believes the resulting net carrying amounts
for accounts receivable are fairly stated at each quarter-end and that the
Company has made adequate provision for uncollectible accounts based on all
information available, no assurance can be given as to the level of future
provisions for uncollectible accounts, or how they will compare to the levels
experienced in the past.
The Company's ability to successfully collect its accounts receivable
depends, in part, on its ability to adequately supervise and train personnel in
billing and collections, and minimize losses related to branch consolidations
and system changes. In 1995, the Company recorded as part of its quarterly
provision for estimated uncollectible accounts a charge of $20.0 million which
management believes resulted principally from events that transpired as part of
the consolidation of the various constituent companies' billing systems
ultimately into one billing system for use at substantially all locations and
to move its billing and collections functions from a centralized to a
decentralized structure. Any disruptions in its procedures could adversely
affect the ability of the Company to collect its accounts receivable. Any
further disruptions in those procedures could adversely affect the ability of
the Company to collect its accounts receivable.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenue and expenses during
the reported period. Actual results could differ from those estimates.
Per Share Data. Per share data has been computed by dividing net loss by
the weighted average number of common shares outstanding during the years. The
computation does not give effect to common stock equivalents (including options
and warrants) or common shares to be issued as their effect would be
anti-dilutive. Fully diluted per share calculations are not presented in the
financial statements because the assumed conversions of convertible debt and
any additional incremental shares would be either anti-dilutive or cause de
minimis dilution.
3. MERGER WITH IHS
On October 19, 1996, the Company, Integrated Health Services, Inc. ("IHS")
and IHS Acquisition XIX, Inc., ("Merger Sub"), entered into a definitive
Agreement and Plan of Merger (the "Merger Agreement") providing for the merger
(the "Merger") of Merger Sub with and into the Company. If the Merger is
consummated, the Company will become a wholly-owned subsidiary of IHS.
Preliminary proxy materials relating to the solicitation of the approval of the
Merger by Coram's and IHS' stockholders have been filed with the Securities and
Exchange Commission and are under review and subject to comment thereto. As of
December 31, 1996 the Company had capitalized $3.4 million of costs related to
the IHS Merger.
F-10
<PAGE> 54
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Under the terms of the Merger Agreement, the issued and outstanding shares
(the "Coram Shares") of common stock, par value $.001 per share, of Coram will
be canceled upon consummation of the Merger, and each Coram Share will be
converted into the right to receive and become exchangeable for .2111 shares of
common stock, par value $.001 per share, of IHS ("IHS Common Stock"). The
market value of shares of IHS Common Stock to be issued upon consummation of
the Merger in respect of each Coram Share was approximately $5.44 based on the
closing price of IHS Common Stock as reported by the New York Stock Exchange on
October 18, 1996, the last business day prior to the signing of the Agreement.
Unexercised options to purchase Coram Common Stock will be converted at the
closing of the Merger into options to purchase IHS Common Stock.
The Merger is intended to qualify as a tax-free reorganization, as
permitted by the Internal Revenue Code, and is conditioned upon receipt of
opinions from the constituent Company's attorneys that the Merger will so
qualify. It is a condition to the consummation of the Merger that IHS and
Coram each receive a letter at closing from each of KPMG Peat Marwick LLP and
Ernst & Young LLP, IHS' and Coram's independent auditors, respectively, to the
effect they concur with the conclusion of management of IHS and Coram that the
Merger will qualify for pooling-of-interests accounting treatment under
Accounting Principles Board No. 16 if closed in accordance with the Merger
Agreement. Consummation of the Merger, which is expected to occur in the
second quarter of 1997, is also conditioned upon, among other things, approval
by each constituent company's stockholders, receipt of required regulatory
approvals, consents of their senior bank lenders, other consents and other
customary conditions. There can be no assurance that the Merger will be
consummated within such time frame or at all.
IHS has agreed to pay upon consummation of the Merger approximately $172.3
million (plus interest accruing thereon from January 1, 1997 at the rate of 11%
per annum) in cash, and issue 11% Senior Subordinated Notes having a ten-year
term (or an equivalent amount in a combination of cash and such notes) to an
affiliate of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), in
exchange for the Rollover Note and warrants to purchase shares of Coram Common
Stock. At December 31, 1996, the outstanding balance on the Rollover Note was
approximately $189.0 million including fees and accrued interest (see Note 6).
Coram was previously informed by IHS that in connection with the Merger,
IHS intends to finalize an agreement, conditioned upon consummation of the
Merger, with parties adverse to Coram for the settlement of the litigation
between Coram and certain of its subsidiaries, on the one hand, and Caremark
and certain parties related thereto, on the other hand. Coram was previously
advised that pursuant to such settlement, upon consummation of the Merger, IHS
will cause the Company to issue to MedPartners, Inc. (parent company of
Caremark), in exchange for Junior Subordinated Pay-In-Kind Notes (the "Junior
Subordinated PIK Notes") previously issued by Coram to Caremark, a 2-year
promissory note in the principal amount of $52.7 million plus interest accrued
on the Junior Subordinated PIK Notes from September 30, 1996 through closing of
the Merger. The Junior Subordinated PIK Notes were issued in the principal
amount of approximately $100 million in connection with Coram's acquisition of
the Caremark Business. As of December 31, 1996, the aggregate outstanding
balance on the Junior Subordinated PIK Notes was approximately $115.3 million
(see Note 6).
On March 30, 1997, Coram, IHS and Merger Sub executed an amendment (the
"Amendment") to the Plan of Merger (the "Merger Agreement") dated October 19,
1996. The Amendment will become effective at 5:00 p.m. E.S.T. on Friday, April
4, 1997 (the "Amendment Date") unless terminated by prior notice from either
party. The Amendment when effective revises the Exchange Ratio set forth in
Section 2.1(c) of the Merger Agreement to .15 share of IHS common stock for each
share of Coram common stock and deletes Section 3.10(a) (the representation and
warranty relating to material adverse change).
The date set forth in Section 8.1(b)(iii) on which the merger becomes
terminable will become May 31, 1997 unless extended by either party for 60
days. The termination fee set forth in Section 8.6(c) payable by IHS to Coram
will be revised to $25,000,000 (including the expenses of Coram) and shall be
paid to Coram if the Merger is not consummated except (i) as a result of the
willful breach by Coram of its obligations under the Plan of Merger with the
concurrence of its senior executive officers that has a material adverse effect
on Coram if such breach is not cured within fourteen days after IHS provides
written notice of such breach to Coram, (ii) if the Merger is not approved by
the stockholders of IHS, (iii) if there shall have occurred an act of God or
governmental investigation that causes a dramatic change that is readily and
objectively recognizable as being greater than a material adverse change, or
litigation brought against Coram, excluding any stockholder, class action or
derivative litigation arising out of or relating to this transaction, where the
reasonably probable uninsured loss by Coram would exceed $22.5 million; or (iv)
certain other limited circumstances.
Preliminary proxy materials relating to the solicitation of the approval of
the merger by Coram's and IHS' stockholders have been filed with the Securities
and Exchange Commission, are under review and are subject to additional comments
by the Commission. Of course, no assurance can be given that the Merger will be
consummated.
4. ACQUISITIONS AND RESTRUCTURING
Acquisition of Caremark Business. Effective April 1, 1995, the Company
acquired the Caremark Business for $209 million in cash and $100 million
aggregate principal amount of Junior Subordinated PIK Notes. The Company
assumed only certain specified liabilities of the Caremark Business, which
expressly excluded any liabilities associated with the government investigation
of Caremark, which was settled by Caremark in June 1995. The transaction was
accounted for as a purchase.
The Company commenced a comprehensive examination of its Caremark Business
and operations following the second quarter of 1995, which revealed that the
Caremark Business was significantly weaker than indicated by its 1994 financial
statements. The revenue of the acquired Caremark Business had declined
significantly in the second quarter of 1995 from $96.1 million (as reported by
Caremark) in the first quarter of 1995 to approximately $83.0 million in the
second quarter, or a 13.6% decline. The severity and persistence of the
underperformance of the Caremark Business and the negative impact of the June
1995 guilty plea by Caremark to criminal felony charges on the Company's
referral sources and employee morale, neither of which were expected at the
time of the acquisition, became evident in the third quarter of 1995. The
Company expected the combined business to grow and expected to realize
substantial cost savings, principally through elimination of geographically
F-11
<PAGE> 55
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
duplicative branches and consolidation of corporate functions. However, for
the year ended December 31, 1995, revenue was almost one-third lower than the
pro forma combined 1994 revenue of $924 million. The anticipated cost savings
have been offset by that revenue decline, and the Company has incurred
substantial losses since the acquisition of the Caremark Business. During
1995, the Company reduced the valuation of the acquired receivables by an
aggregate of $37.0 million and charged that amount to operations when it
concluded that certain receivables for services rendered prior to April 1, 1995
were uncollectible and its sole source of recovery was its lawsuit against
Caremark. The Company filed its initial complaint against Caremark on
September 11, 1995. See Note 10. The following unaudited pro forma information
is provided for comparative purposes only. It presents a combination of the
Company's reported results and information furnished by Caremark for the
Caremark Business prior to its acquisition by the Company as if the acquisition
of the Caremark Business, including Caremark's purchase of the assets and
assumption of certain liabilities of Critical Care of America ("CCA")
effective March 1, 1994, had occurred January 1, 1994. The data used for the
Caremark Business in such pro forma financial information for periods prior to
its acquisition by the Company was furnished by Caremark.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
Net Revenue $ 698,685 $ 923,500
========== ==========
Net Loss . . . . . . . . . . . . . . $(344,207) $(179,809)
========== ==========
Net Loss Per Share . . . . . . . . . $ (8.65) $ (4.65)
========== ==========
</TABLE>
Other Acquisitions. The acquisition activity during the year ended
December 31, 1996 was limited to the completion of the purchase of certain
minority interests in two lithotripsy joint ventures for approximately $4.7
million in cash. During 1995 and 1994, the Company made several acquisitions,
consisting primarily of certain physician owned entities totaling $25.0 million
and $22.8 million, respectively. These acquisitions 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 agreements related to previously acquired businesses or interests
therein provide for additional contingent consideration to be paid by the
Company. 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 $3.9 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 $2.1 million of these contingent
obligations, subject to increase, 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. Payments made during the years ended
December 31, 1996 and 1995 were $3.7 million and $0.7 million, respectively.
Merger and Restructuring. 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. As a result of the Coram
Consolidation Plan, the Company recorded charges of $28.5 million in estimated
merger costs and $95.5 million in estimated restructure costs. During May
1995, the Company initiated a second restructuring plan (the "Caremark Business
Consolidation Plan") and charged $25.8 million to operations as a restructuring
cost. Certain additional restructuring costs totaling approximately $11.4
million were accounted for as adjustments to the purchase price of the Caremark
Business.
For both the Coram and the Caremark Business Consolidation Plans, personnel
reduction costs include severance payments, fringe benefits and taxes related
to employees to be terminated, costs of terminating executives and buying out
employment and consulting contracts, and incremental professional fees to
develop and implement the plans. Facility reduction costs consist of the cost
of fulfilling or buying out existing lease commitments on
F-12
<PAGE> 56
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
branch facilities and corporate offices that will be closed as part of the
restructuring, reduced by any sublease income. They also include related costs
for equipment leases and facility closure expenses. Facility reduction costs
resulting in non-cash charges consist principally of the write-down, net of any
proceeds on disposition, of operating assets that have become redundant because
of the consolidation. They also include inventory that has no future value
because of the restructuring. For the Coram Consolidation Plan, merger costs
consist of executive severance payments directly related to the Four-Way Merger
based on the relevant employment agreements, investment banking fees,
consulting, legal and accounting fees and other costs incurred as a direct
result of the merger. Discontinuance costs are principally non-cash and
consist of the estimated loss on the disposal of non-core businesses.
Net revenue of the Company includes revenue from non-core businesses that
were discontinued or disposed of as part of the Coram Consolidation Plan
approximating $4.9 million, $52.1 million, and $47.7 million during the years
ended December 31, 1996, 1995 and 1994, respectively. Operating results from
businesses discontinued or disposed of were not material.
During 1995, the Company had substantially completed the consolidation
process contemplated by both the Coram and Caremark Business Consolidation
Plans, including the closure of approximately 220 branch facilities, the
downsizing of 40 branch facilities, the consolidation of corporate functions
previously conducted in five corporate offices, and the reduction of 1,670
full-time equivalent field service and corporate personnel.
As a result of evaluating the estimated cost to complete in relation to
the accruals, the Company recognized the following benefits in 1995 (in
thousands):
<TABLE>
<CAPTION>
CAREMARK BUSINESS
CORAM CONSOLIDATION CONSOLIDATION
PLAN PLAN TOTAL
------------------- ------------------- -------------------
<S> <C> <C> <C>
Personnel Reduction Costs . . . . . . . $ (5,600) $ (6,700) $ (12,300)
Facility reduction Costs . . . . . . . 1,100 (2,500) (1,400)
Discontinuance Costs . . . . . . . . . (4,500) -- (4,500)
------------------- ------------------- -------------------
Total Restructuring Costs . . . . . . . $ (9,000) $ (9,200) $ (18,200)
=================== =================== ===================
</TABLE>
The Company recognized net charges of $6.2 million (including the above
benefit and a $1.4 million gain on the disposition of a non-core business) and
$124.0 million for merger and restructuring costs in the years ended December
31, 1995 and 1994, respectively. No amounts were recorded during the year ended
December 31, 1996, however, the Company may continue to adjust amounts
recorded as contingencies related to lease buyouts, contractual obligations
and other facility reduction costs as they are resolved.
Under the two plans, the Company has made total asset payments and total
asset disposals through December 31, 1996 as follows (in thousands):
<TABLE>
<CAPTION>
Charges through December 31, 1996 Balance at December 31, 1996
------------------------------------ ---------------------------
Cash Non-Cash Future Cash Total
Expenditures Charges Total Expenditures Charges
------------ ------- ----- ------------ -------
<S> <C> <C> <C> <C> <C>
Coram Consolidation Plan:
Merger Costs . . . . . . . . . . . . . . $ 26,500 $ 600 $ 27,100 $ 1,400 $ 28,500
======= ======= ======= ======= =======
Personnel Reduction Costs . . . . . . . $ 19,900 $ 600 $ 20,500 $ 700 $ 21,200
Facility Reduction Costs . . . . . . . . 10,700 21,500 32,200 1,400 33,600
Discontinuance Costs . . . . . . . . . . 1,500 29,400 30,900 800 31,700
-------- -------- -------- -------- --------
Total Restructuring Costs . . . . . . . $ 32,100 $ 51,500 $ 83,600 $ 2,900 $ 86,500
======= ======= ======= ======= =======
Caremark Business Consolidation Plan:
Personnel Reduction Costs . . . . . . . $ 11,300 $ 0 $ 11,300 $ 0 $ 11,300
Facility Reduction Costs . . . . . . . . 6,800 3,900 10,700 6,000 16,700
-------- -------- -------- -------- --------
Total Restructuring Costs . . . . . . . $ 18,100 $ 3,900 $ 22,000 $ 6,000 $ 28,000
======= ======= ======= ======= =======
</TABLE>
F-13
<PAGE> 57
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The balance in the "Accrued Merger and Restructuring" liability at December
31, 1996 consists of future cash expenditures of $10.3 million referenced above
and $3.2 million of other accruals. The Company estimates that a substantial
portion of the remaining cash expenditures under the Coram and Caremark
Business Consolidation Plans relate to severance and lease costs and are
expected to be paid in the following periods: 54%, 20% and 1% in the years
ended 1997, 1998 and 1999 and 25% thereafter. Although subject to future
adjustment and the Company's ability to successfully implement its business
strategy, the Company believes it has adequate reserves and liquidity as of
December 31, 1996 to meet future expenditures related to the Coram
Consolidation Plan and the Caremark Business Consolidation Plan. However,
there is no assurance that the reserves will be adequate or that the Company
will generate sufficient working capital to meet future expenditures.
5. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- ---------
<S> <C> <C>
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 791 $ 4,113
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,782 3,791
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,541 51,528
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,758 8,189
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,722 3,742
-------- --------
71,594 71,363
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . (54,596) (42,087)
-------- --------
$16,998 $29,276
======== ========
</TABLE>
The above includes immaterial amounts of equipment under capital leases.
6. LONG-TERM DEBT
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Senior Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 157,700 $ 227,200
Bridge Note and Rollover Note including accrued interest . . . . . . . . . . . 189,013 159,767
Junior Subordinated Pay-In-Kind (PIK) notes:
Junior convertible subordinated PIK note, due October 1, 2005, plus
interest payable semiannually at 7%, convertible into common stock at
the conversion rate of $27 . . . . . . . . . . . . . . . . . . . . . . . . 84,609 77,625
Junior non-convertible subordinated PIK note, due October 1, 2005,
plus interest payable semiannually at 12% . . . . . . . . . . . . . . . . 30,669 26,500
Subordinated convertible debentures, due June 30, 1996, plus interest
payable semiannually at 9%, converted into common stock at the
conversion rate of $5.18 . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,618
Other obligations, including capital leases, at interest rates ranging
from 6% to 16%, collateralized by certain property and equipment . . . . . . 2,683 8,698
--------- ---------
$ 464,674 $506,408
Less current scheduled maturities . . . . . . . . . . . . . . . . . . . . . . . (198,033) (67,099)
--------- ---------
$ 266,641 $439,309
========= ========
</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. The
cash paid by the Company in connection with the acquisition of the Caremark
Business and the repayment of amounts outstanding under a prior credit
facility, together with related fees and expenses, were financed through: (i)
borrowings of approximately $205 million under a Credit Agreement with Chase
Manhattan Bank (formerly 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"). On October 13, 1995, the Company and its lenders
F-14
<PAGE> 58
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
under its Senior Credit Facility and its Bridge Note agreed to a restructuring
of the major terms of both agreements, as outlined below, provided a new $25.0
million credit line (the "Overline"), terminated the unused portion of the
existing revolving debt commitments of approximately $64.2 million and
redefined certain financial covenants. In return, the lenders received
warrants to purchase 2.6 million 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 Company is
currently precluded from declaring or paying dividends on its capital stock.
The lender had previously been granted the right to receive certain warrants on
an accelerated basis (see below), and the right to appoint one director to the
Company's Board of Directors, which occurred in November 1995.
On March 14, 1997, the Company entered into a Ninth Amendment to the Credit
Agreement which extended the maturity date of the Senior Credit Facility from
March 31, 1997 to May 31, 1997. At December 31, 1996, under the amended terms
of the Senior Credit Facility, the Company had $157.7 million outstanding with a
final maturity date of May 31, 1997. The $25 million Overline expired with no
borrowing outstanding thereunder on December 31, 1996. Interest is based on
margins over certain domestic and foreign indices and was 8.19% on December 31,
1996. 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, and any excess cash balances, as defined, 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 principal covenants relate to
maintenance of minimum revenue, minimum cash receipts, maximum cash
disbursements and minimum earnings before interest, taxes, depreciation and
amortization ("EBITDA"). At December 31, 1996, the Company was in compliance
with all of these covenants. Failure of the Company to consummate the Merger
may require the Company to pursue other strategic alternatives, which may
include additional equity or debt financing or sales of other non-core assets,
including its lithotripsy businesses, to meet scheduled maturities of principal
and interest commencing May 31, 1997, or extend the maturities of such
obligations (See Note 1).
The warrants issued to the Company's lenders under the Senior Credit
Facility were valued at $8.0 million, their fair value at date of issuance, and
are being accounted for as interest expense over the remaining term of the
Senior Credit Facility. The Company charged $5.2 million and $1.2 million to
expense during the years ended December 31, 1996 and 1995, respectively,
related to these warrants.
The Bridge Note was issued on April 6, 1995 to DLJ, as an unsecured
obligation of the Company in the principal amount of $150.0 million. The Bridge
Note was not repaid in full on its April 6, 1996 due date, and a Rollover Note
(the "Rollover Note") which matures on October 6, 2000 was issued for the
outstanding principal on the Bridge Note. The interest rate on the Rollover
Note is based on various indices plus a margin which increases by 0.25%
quarterly, but not to exceed 21.0% per annum. The rate as of December 31, 1996
was approximately 13.75%. Payment of interest on the Bridge and Rollover Notes
and the duration fee which had been due quarterly have been deferred to the
earlier of the completion of the IHS Merger or March 31, 1998. During the
year ended December 31, 1996, an additional $29.2 million was accrued on the
Bridge Note to DLJ for a total unsecured obligation in the amount of $189.0
million (including a funding fee of approximately $5.0 million due upon
issuance of the Rollover Note which has also been deferred). The agreement
pursuant to which the Bridge Note and Rollover Note were issued contains
customary covenants and events of default. At December 31, 1996, the Company
was in compliance with all of these covenants.
As long as the Rollover Note is outstanding, DLJ has the right to receive
warrants to purchase up to 20% of the outstanding shares of Common stock of the
Company on a fully diluted basis, at a nominal exercise price in accordance
with the following table. The schedule, as follows, was 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.
F-15
<PAGE> 59
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
<TABLE>
<S> <C>
0-89 days (Issued December 30, 1995) . . . . . . . . . . . . . . . . . . 0.50%
90-179 days (Issued March 29, 1996) . . . . . . . . . . . . . . . . . . . 1.00%
180-269 days (Issued June 27, 1996) . . . . . . . . . . . . . . . . . . . 1.00%
270-359 days (Issued September 25, 1996) . . . . . . . . . . . . . . . . 1.50%
360-449 days (Issued December 24, 1996) . . . . . . . . . . . . . . . . . 2.00%
450-539 days (Issued March 24, 1997) . . . . . . . . . . . . . . . . . . 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>
Warrants issued to DLJ are accounted for as interest expense and additional
paid-in capital. Through March 24, 1997, warrants on approximately 3.6 million
shares of the Company's Common Stock have been reserved in escrow with a value
of $15.9 million. The value was determined as of the date the shares were
issued. The Company recorded interest expense of $7.3 million related to these
warrants during the year ended December 31, 1996.
The Junior Subordinated PIK Notes were issued to Caremark in connection
with the acquisition of the Caremark Business. See Note 4. Through 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 unless such payment is precluded by subordination provisions of
indebtedness senior to the Junior Subordinated PIK notes, in which case
interest is payable in Junior Subordinated PIK Notes of the same type. 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 (the
Senior Credit Facility and Rollover Note). 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 is convertible, at
the holder's option, in whole or in part. The conversion price of the Junior
Convertible Subordinated PIK Note is $27 per share, subject to adjustment.
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.
At December 31, 1996, the Company was obligated to make principal payments
on long-term debt outstanding as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 . . . . . . . . . . . . . $198,033
1998 . . . . . . . . . . . . . 995
1999 . . . . . . . . . . . . . 278
2000 . . . . . . . . . . . . . 150,060
2001 . . . . . . . . . . . . . 30
Thereafter . . . . . . . . . . 115,278
---------
$464,674
=========
</TABLE>
On June 30, 1996, the Company entered into an Amendment to 9% Subordinated
Convertible Debenture and Notice of Conversion (the "Amendments") with each of
the holders of its outstanding 9% Subordinated Convertible Debentures due June
30, 1996 (the "Subordinated Convertible Debentures"). On the date of the
Amendments, Subordinated Convertible Debentures in an aggregate principal amount
of $6.6 million remained outstanding. Pursuant to the Amendments, the holders
of the Subordinated Convertible Debentures agreed to waive their right to
receive cash upon maturity of the debentures and to exercise their right to
convert the Subordinated Convertible Debentures into shares of the Company's
Common Stock in exchange for the Company's
F-16
<PAGE> 60
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
agreement to amend the conversion rate under the debentures so that the number
of shares of Common Stock issuable upon conversion is equal to the number
determined by dividing the principal amount to be converted by $5.18.
Previously, the number of shares issuable upon conversion was determined by
dividing the principal amount to be converted by $16.36. Accordingly, the
outstanding Subordinated Convertible Debentures were converted into an
aggregate of 1.3 million shares of the Company's Common Stock on June 30, 1996.
The Company recorded a gain of $1.4 million related to the debt restructuring.
7. INCOME TAXES
The components of the consolidated income tax benefit were as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994
-------------- --------------- ---------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . $ (14,000) $(36,293) $ 237
State . . . . . . . . . . . . . . . . . . . . . . . 2 -- 68
------------- ------------- -----------
Total Current . . . . . . . . . . . . . . . . . . . (13,998) (36,293) 305
------------- ------------- -----------
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . -- 16,745 (17,676)
State . . . . . . . . . . . . . . . . . . . . . . . -- 8,394 (8,860)
------------- ------------- -----------
Total Deferred . . . . . . . . . . . . . . . . . . . -- 25,139 (26,536)
------------- ------------- -----------
Income tax benefit . . . . . . . . . . . . . . . . . $ (13,998) $(11,154) $(26,231)
============= ============= ===========
</TABLE>
The following table reconciles the federal statutory rate to the effective
income tax benefit rate:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . . . . . . (35.0)% (35.0)% (35.0)%
Valuation allowance . . . . . . . . . . . . . . . . . . . . 17.9 31.9 15.9
State income taxes, net of federal income tax benefit . . . -- -- (5.4)
Non-deductible merger costs . . . . . . . . . . . . . . . . -- -- 3.2
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 .5 1.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 (.6) 3.1
------ ----- ------
Effective income tax benefit rate . . . . . . . . . . . . . (14.1)% (3.2)% (17.1)%
====== ===== ======
</TABLE>
The temporary differences, tax effected, which give rise to the Company's
net deferred tax asset (liability) were as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Goodwill, net of amortization . . . . . . . . . . . . . . . . . . . . . . $52,175 $56,565
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,344 20,815
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . 74,933 48,459
Accrued litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,343 1,767
Litigation settlement costs . . . . . . . . . . . . . . . . . . . . . . . 10,518 -
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . 10,822 37,062
Accrued vacation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 967 487
Other accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,358 2,602
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,032 835
--------- ---------
Total gross deferred tax asset . . . . . . . . . . . . . . . . . . . . . . 163,492 168,592
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . (157,515) (158,164)
--------- ---------
Total deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . 5,977 10,428
Deferred tax liabilities:
Fixed asset depreciation . . . . . . . . . . . . . . . . . . . . . . . . . (3,988) --
Sales taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (8,997)
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . (664) (183)
Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (213) (230)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,112) (1,018)
--------- ---------
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . (5,977) (10,428)
--------- ---------
Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . $ -- $ --
========= =========
</TABLE>
F-17
<PAGE> 61
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The income tax benefits recognized in 1996 and 1995 have 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 from
those years differ substantially from the expected combined federal and state
income tax benefit rates calculated using applicable statutory rates.
Deferred tax assets have been limited 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 carryforward period.
The Company believes that realization of the balance of deferred tax assets is
sufficiently uncertain at this time that they should be offset by a valuation
allowance.
As of December 31, 1996, the Company had net operating loss carryforwards
("NOLs") for federal income taxes of approximately $158.0 million which are
available to offset future federal taxable income, expiring in varying amounts
in the years 2002 through 2010. This includes approximately $43.4 million
generated prior to the Four-Way Merger and subject to separate return
limitations of a predecessor company as well as an annual usage limitation of
approximately $4.5 million.
During the year ended December 31, 1996, the Company received a $24.7
million refund related to the carryback of tax losses for its tax years ended
September 30, 1995 and 1996.
8. RELATED PARTY TRANSACTIONS
Prior to the Four-Way Merger, the Merged Entities entered into agreements
with individuals and/or companies considered to be related parties. The
majority of these individuals and/or companies are no longer related parties as
these individuals are no longer Company employees, officers and/or directors.
The following summarizes the significant related party transactions:
At December 31, 1996 and 1995, the Company had an outstanding loan to a
certain member of management approximating $0.7 million. The loan is
collateralized by the individual's primary residence and has an interest rate
of 8%. The principal amount of the loan and all interest accumulated was due
December 16, 1996. The Company expects a substantial payment from the employee
in the second quarter of 1997. The balance is expected to be repaid in 1997
and will be evidenced by a new note.
During 1996, the Coram Board approved a $3.0 million bonus to Donald J.
Amaral, President and Chief Executive Officer, for his success in the financial
turnaround of Coram, payable upon the refinancing or restructuring of Coram's
debt obligations to DLJ (which the Coram Board believed would constitute
recognition of such turnaround). Accordingly, such bonus will become payable to
Mr. Amaral upon consummation of the Merger as a result of IHS' having agreed
with DLJ to refinance such debt. If the Merger is not consummated, such bonus
will nevertheless be paid to Mr. Amaral upon any other refinancing or
restructuring of the Rollover Note.
Certain executive officers and consultants to the Merged Entities had
employment, severance or consulting agreements that entitled such executive
officers or consultants to certain termination, severance and consulting
payments upon consummation of the Four-Way Merger or upon termination of
employment following the Four-Way Merger. In conjunction with the Coram
Consolidation Plan (see Note 4), the Company accrued $18.8 million for the
termination of the existing employment, consulting and/or severance agreements
with these individuals. This accrual is included as a component of the Coram
Consolidation Plan.
A director of the Company is associated with a law firm that rendered
various legal services to the Company. The legal fees to the firm approximated
$1.7 million, $2.4 million, and $1.4 million during the years ended December
31, 1996, 1995 and 1994, respectively.
A director of the Company also serves on the Board of Directors of Sabratek
Corporation. On February 26, 1997 the Company agreed to purchase up to $13.0
million of multi-therapy infusion pumps and related proprietary telemedicine
technology over the next six to nine months from Sabratek Corporation.
9. STOCKHOLDERS' EQUITY
At December 31, 1996, the Company was authorized to issue 10 million shares
of preferred stock, $.001 par value, which may be issued at the discretion of
the Company's Board of Directors without further stockholder approval. The
Board can also determine the preferences, rights, privileges and restrictions
of any series of preferred stock. At December 31, 1996, there were no shares
of preferred stock issued and outstanding.
F-18
<PAGE> 62
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Stock Option Plans. The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options as
permitted under FASB Statement No. 123 ("Statement 123"), "Accounting for
Stock-Based Compensation."
In connection with the Four-Way Merger, the Company assumed the outstanding
obligations under the various stock option and stock purchase plans of the
Merged Entities. No further options will be granted under these plans, unless
so determined by the Company's Board of Directors. In addition, the Company
implemented the 1994 Stock Option Plan (the "1994 Plan") and the Coram Employee
Stock Purchase Plan (the "Purchase Plan"). During the fourth quarter of 1996,
the Company's Board of Directors approved the suspension of the Purchase Plan at
least through the remainder of 1996.
The 1994 Plan contains three separate incentive programs which provide for
the granting of stock options to certain officers, key employees, consultants
and non-employee members of the Company's Board of Directors. Coram's 1994 Plan
has authorized the grant of options for up to 7.6 million shares of the
Company's common stock. Options granted under the 1994 Plan may constitute
either incentive stock options, non-statutory options or stock appreciation
rights based on the type of incentive program utilized. For each of the
incentive programs, options may be granted at exercise prices ranging from 85%
to 100% of the fair market value of the Company's stock at the date of grant.
All options granted expire ten years from the date of grant and become
exercisable at varying dates depending upon the incentive program utilized. The
1994 Plan is administered by a committee of the Board of Directors which has the
authority to determine the employees to whom awards will be made and the
incentive program to be utilized.
The Company had an option agreement outside the 1994 Plan, with a firm
performing consulting services to the Company for the purchase of 0.6 million
shares of the Company's common stock granted as of November 2, 1994 at an
exercise price of $15.63 and expiring in November 1999. This option was to
vest over a 3 year period, commencing in November 1994. These options were
accounted for under APB 25 using the fair value method of measurement at the
date of grant. In September 1995, those options were canceled and 0.2 million
shares of the Company's common stock were issued to that firm. The
cancellation of the options and the issuance of the Company's stock were
accounted for as consulting expenses in the amount of approximately $1.5
million in the year ended December 31, 1995.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options granted subsequent to December 31, 1994
under the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes multiple option pricing
model with the following assumptions for 1996 and 1995, respectively: risk-free
interest rates ranging from 5.26% to 6.54% and 5.50% to 7.39%; a dividend yield
of 0% for both years; volatility factors of the expected market price of the
Company's common stock of 62% for both years; and an expected life of the option
of one year past vesting.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Because
compensation expense associated with an award is recognized over the vesting
period, the initial impact on pro forma net income may not be representative of
compensation expense in the pro forma years. The Company's pro forma information
follows (in thousands except for earnings per share information):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Pro forma loss . . . . . . . . . . . . . . . . . . . . $(90,180) $(337,035)
Pro forma loss per share. . . . . . . . . . . . . . . . (2.17) (8.47)
</TABLE>
F-19
<PAGE> 63
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the Company's stock option activity, and related information for
the years ended December 31 follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------- ------------------------------ ------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS(000) PRICE OPTIONS(000) PRICE OPTIONS(000) PRICE
------------- --------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
OUTSTANDING-BEGINNING
OF YEAR . . . . . . 7,145 $8.48 7,119 $16.62 3,820 $26.72
GRANTED:
PRICE EQUAL TO FAIR
VALUE . . . . . . . 1,348 4.93 3,962 9.02 4,830 12.48
PRICE GREATER THAN
FAIR VALUE . . . . . -- -- 3,681 4.27 150 16.12
PRICE LESS THAN FAIR
VALUE . . . . . . . -- -- 300 2.98 100 14.25
EXERCISED . . . . . . (12) 4.53 (791) 11.58 (867) 10.19
FORFEITED . . . . . . (1,870) 16.81 (7,126) 14.39 (914) 23.88
------- ------- -----
OUTSTANDING-END OF YEAR . 6,611 5.41 7,145 8.48 7,119 16.62
======= ======= =====
EXERCISABLE AT END OF YEAR 2,264 1,570 1,732
WEIGHTED-AVERAGE FAIR
VALUE OF OPTIONS GRANTED
DURING THE YEAR:
PRICE EQUAL TO FAIR
VALUE . . . . . . . $2.39 $4.43 $ --
PRICE GREATER THAN
FAIR VALUE . . . . . -- 1.17 --
PRICE LESS THAN FAIR
VALUE . . . . . . . -- 1.16 --
</TABLE>
Exercise prices for options outstanding and the weighted-average remaining
contractual life of those options at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES (000) LIFE PRICE (000) PRICE
- ----------------------------- -------------- ---------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$1.44 - $3.09 301 8.67 $2.98 301 $2.98
$3.45 - $3.45 2,200 8.78 3.45 733 3.45
$3.50 - $4.00 226 9.47 3.80 27 3.50
$4.25 - $4.25 1,392 8.99 4.25 363 4.25
$4.38 - $5.00 309 9.15 4.71 76 4.64
$5.13 - $5.13 966 9.24 5.13 0 0.00
$5.50 - $5.50 951 7.89 5.50 498 5.50
$7.21 - $51.19 258 2.41 32.11 258 32.11
$61.11 - $61.11 5 0.92 61.11 5 61.11
$92.26 - $92.26 3 1.12 92.26 3 92.26
-------------- --------------
$1.44 - $92.26 6,611 8.54 5.41 2,264 7.52
============== ==============
</TABLE>
On December 28, 1995, the Company's Chairman and the outside members
of the Board of Directors returned stock options held by them for 3.9 million
shares.
Common shares reserved for future issuance also include approximately 0.8
million shares related to options outside of the 1994 Plan and 8.0 million
shares related to stock purchase warrants.
F-20
<PAGE> 64
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Warrants to Purchase Common Stock. The following warrants are outstanding
or issuable at December 31, 1996:
<TABLE>
<CAPTION>
Exercise
Price Expiration
Shares Per Share Date
--------- ------------ ----------------
<S> <C> <C>
Issued to lenders under Senior Credit Facility (Note 6) . . . . . 2,569,342 nominal October 13, 2000
Issued to DLJ (Note 6) . . . . . . . . . . . . . . . . . . . . . 2,501,150 nominal June 15, 2005
Issued in settlement of T2 litigation (Note 10) . . . . . . . . . 2,520,000 $22.125 July 10, 1999
Issued in settlement of dispute with former principals of Company
acquired by T2 (Note 10) . . . . . . . . . . . . . . . . . . 281,250 $4.625 September 30, 1999
Issued by Merged Entities prior to Four-Way Merger . . . . . . . 156,945 $12.58-$22.70 March 5, 1997 to
none
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Leases. The Company leases office, other operating space and equipment
under various operating and capital leases. The leases provide for monthly
rental payments including real estate taxes and other operating costs. Total
rental expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $13.0 million, $17.5 million and $14.8 million, respectively,
exclusive of amounts charged to restructuring reserves. At December 31, 1996
the aggregate future minimum lease commitments were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -----------
<S> <C> <C>
Years Ending December 31,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,214 $ 12,300
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924 8,072
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 3,926
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1,579
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 911
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 218
----------- -----------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . 2,359 27,006
Less amounts representing interest . . . . . . . . . . . . . . . . . . . . . . . (249) -
----------- -----------
Net minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,110 $ 27,006
=========== ===========
</TABLE>
Capital lease obligations are included in other obligations (see Note 6).
Operating lease obligations exclude $6.0 million, less $3.5 million of
subleases, accrued for as part of the restructuring costs under the Coram and
Caremark Business Consolidation Plans (see Note 4).
Employee Benefit Plans. The Merged Entities provided various defined
contribution plans that were available to their employees. Management of the
Company merged these benefit plans during 1995. Eligible employees include all
individuals over the age of 21 who have worked at least 1,000 hours for the
Company in a one year period. The Company offers a matching program of $.50
for every $1 contributed up to the first 6% of the employees' pay. Employee
contributions vest immediately upon contribution, and the Company's
contributions vest as follows: 1 year 0%, 2 years 25%, 3 years 50%, 4 years 75%
and 5 years 100%. During the years ended December 31, 1996, 1995 and 1994,
total contributions to these plans were approximately $2.1 million, $1.9
million and $1.4 million, respectively.
F-21
<PAGE> 65
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Litigation. 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 (the "Colorado District Court") 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 complaint alleged that the defendants made false and
misleading statements to the public regarding, among other things, projected
earnings, anticipated cost savings and proposed mergers. The complaint asserts
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 seeks
unspecified compensatory damages, attorney's fees and costs. The Company has
sought 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, on behalf of Coram Healthcare Corporation v. James Sweeney, et al.,
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 March 29, 1996, a shareholder derivative suit captioned Nirmala Shevde,
on behalf of Coram Healthcare Corporation v. James Sweeney, et al., File No.
96-N-722, was filed in the United States District Court for the District of
Colorado. The complaint sets forth substantially the same allegations as those
made in the derivative lawsuit previously filed in Delaware, and seeks
substantially similar relief.
On August 8, 1996, the Company announced an agreement in principle to settle
certain shareholder class actions and certain derivative litigation. The
agreement in principle was approved by the Colorado District Court on January
24, 1997. As consideration for the settlement, the Company paid approximately
$1.3 million, of which $1.0 million was reimbursed by the Company's director's
and officer's insurance policies, and the director's and officer's insurance
policies paid $22.3 million, including the $1.0 million payment to the Company
referenced above. Additionally, the Company is required to adopt certain
disclosure policies with regard to certain public statements. Under the
agreement the Company is required to issue 5.0 million freely tradable shares of
Common Stock of which 1.5 million shares were issued March 11, 1997. The
remaining 3.5 million shares are expected to be issued in the second quarter of
1997. The agreement contained several contingencies, all of which were
satisfied at the time of court approval. The Company recorded non-cash charges
of $25.6 million and a cash charge of $0.3 million during the year ended
December 31, 1996. The $25.6 million, which was recorded in operations as a
provision for shareholder litigation settlement and in stockholders equity as
common stock to be issued, represents the 5.0 million shares at the stock price
of $5.125 per share on the date the settlement was approved.
One of Coram's insurance carriers, which contributed approximately $8.8
million to the settlement of shareholder litigation approved in January 1997
(the "Shareholder Litigation"), has asserted its contractual subrogation rights
against any recovery Coram realizes in the Caremark Litigation (as defined
below), including any amounts received in settlement thereof, based on the
alleged relationship between the Caremark Litigation and the Shareholder
Litigation. The carrier alleges that this claim should be submitted to binding
arbitration. As of the date hereof, no date has been set to hear such claim.
If the carrier prevails, upon the resolution of the Caremark Litigation such
carrier may be entitled to receive a portion of the proceeds, if any, to Coram
up to the $8.8 million such carrier contributed to the settlement of the
Shareholder Litigation. There can be no assurance that the other insurance
carrier, which paid $15 million in settlement of the Shareholder Litigation,
will not pursue similar claims against Coram.
F-22
<PAGE> 66
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On September 11, 1995, as amended on October 6, 1995, the Company filed suit
against Caremark (the "Caremark Litigation") alleging fraudulent
misrepresentations of the value of accounts receivable and amount of revenue,
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 by Caremark. In the complaint, filed in the Superior Court of the
State of California in and for the City and County of San Francisco, the Company
alleges, among other things, that Caremark used improper accounting practices
that resulted in overstating Caremark's revenues. The complaint further alleges
that Caremark falsely represented that the Office of the Inspector General
investigation involving Caremark was not going to harm the value of the Caremark
Business sold to the Company.
The Company's complaint notes that Caremark represented that the Caremark
Business had net assets on December 31, 1994 of $329.3 million, including
$140.2 million in accounts receivable and $200.1 million in goodwill, and that
its financial statements presented fairly in all material respects the
financial position and results of operations. The Company alleges in its
complaint that these representations, among others, were false, giving rise to
claims for breach of contract and fraud. The Company seeks compensatory and
punitive damages. There is a trial date of April 1, 1997; however, because
another case is simultaneously set for trial, the commencement of the trial
will likely be delayed until June, 1997. See Note 4 to the Consolidated
Financial Statements.
On October 12, 1995, Caremark filed suit against the Company in the United
States District Court for the Northern District of Illinois (File No. 95-C-5878)
alleging fraudulent misrepresentation in its purchase of the Caremark Business
and seeking damages of at least $100 million and punitive damages. That suit
was dismissed on December 22, 1995. The matter is now on appeal. On January
17, 1996, Caremark Inc. filed a cross-complaint against the Company in the
Superior Court of the State of California in and for the City and County of San
Francisco (File No. 972431) stating allegations similar to those in the
Illinois suit and seeking damages of at least $150 million and punitive
damages.
On May 19, 1995, a judgment was entered dismissing with prejudice a class
action suit, which had been initiated against T2 in 1992, based on the terms of
a settlement pursuant to which, the Company paid $25.0 million into escrow for
the shareholder class in cash (of which approximately $7.8 million was
contributed by the Company's insurance carriers), and issued warrants to acquire
an aggregate of approximately 2.5 million shares of Common Stock at an exercise
price of $22.25 per share. On August 29, 1995, the plaintiffs filed a Motion to
Enforce Stipulation of Settlement in which they alleged that the value of the
warrants for Coram Common Stock which they received pursuant to the settlement
had been artificially inflated during the period of settlement negotiations due
to the alleged fraud of the Company and certain of its officers and directors.
On October 12, 1995, the court denied the Motion. The plaintiffs filed a Notice
of Appeal from the Court's Order with the Eleventh Circuit Court of Appeals on
November 3, 1995 which the Company is seeking to have dismissed. The Company
has moved for dismissal of the appeal on procedural grounds, as well as opposing
the appeal on substantive grounds. Plaintiffs have filed a motion seeking
consolidation of this appeal with their appeal of the Hall Case described below.
During the pendancy of this appeal, the district court ordered that both the
cash and warrants previously placed in escrow be distributed to the shareholders
pursuant to the terms of the settlement.
F-23
<PAGE> 67
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
On November 21, 1995, a separate action seeking substantially similar
relief against the Company and certain of its current or former officers and
directors was filed in the United States District Court for the Northern
District of Georgia on November 21, 1995: William Hall and Barbara Lisser v.
Coram Healthcare Corporation, et al. (File No. 1:950-CV-2994). This action
was brought on behalf of a purported class of plaintiffs who were entitled to
receive warrants pursuant to the settlement of the T2 shareholder litigation
described above. Plaintiffs filed an amended complaint on February 28, 1996,
in which they allege that the defendants made false and misleading statements
which caused a fraud on the market and artificially inflated the price of the
Company's Common Stock during the period from August 1994 through August 1995.
The complaint alleges violations of Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, fraud and breach of the covenant good faith and fair
dealing. Plaintiffs seek compensatory damages reflecting the difference in
value between the warrants as issued with the trading price of the Company's
Common Stock at its actual price and the same number of warrants at the same
exercise price with the Company's Common Stock trading at its alleged true
value. The defendants filed a motion to dismiss the complaint on March 13,
1996, and the motion was granted. However, Plaintiffs have appealed the
dismissal to the Eleventh Circuit Court of Appeals.
Since late 1993, the Securities and Exchange Commission has been conducting
a formal investigation into the events that led to the restatement of T2's
financial statements for the periods ended December 31, 1992 and March 31, 1993
and certain other matters. The SEC has subpoenaed certain information and T2
has responded.
The Company intends vigorously to defend itself in these matters.
Nevertheless, due to the uncertainties inherent in litigation, the ultimate
disposition of the litigation described in the preceding paragraphs cannot
presently be determined. Accordingly, except as noted above concerning the
settlement of the shareholder litigation, no provision for any loss or recovery
that may result upon resolution of the suits has been made in the consolidated
financial statements. An adverse outcome could be material to the financial
position, results of operations and liquidity of the Company.
In September 1994, T2 entered into the T2 OIG Settlement Agreement. See
Item 1, "Government Regulation - Other Regulations."
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, results of operations and liquidity of the
Company. Nevertheless, due to the uncertainties inherent in litigation, the
ultimate disposition of these actions cannot presently be determined.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments included in the Company's assets and current
liabilities (excluding long-term debt) are reflected in the financial
statements at amounts approximating their fair value because of the short-term
maturity of those instruments.
At December 31, 1996 and 1995, the Company's ability to borrow was limited.
At December 31, 1996 and 1995, the Company had total debt carried at $464.7
million and $506.4 million, respectively. At December 31, 1996 and 1995, the
Senior Credit Facility was carried at $157.7 million and $227.2 million,
respectively, and the Company estimates that its fair value approximates its
face value based on the interest rate, security, covenants and remaining term to
maturity.
It is not practicable to determine the fair value as of December 31, 1996
of the Bridge Note, carried at $189.0 million, or the Junior Subordinated PIK
Notes, carried at $115.3 million. The obligations are all unsecured and
subordinate to the Company's Senior Credit Facility, and cash payments of
principal or interest cannot be made under terms of the Senior Credit Facility,
except for certain payments on the Subordinated Convertible Debentures. The
timing and amounts of payments that may be made in the future are not
determinable at this time. Further, the Company is not able to determine at
what interest rate subordinated loans may be available to the Company, or
whether loans on a subordinated unsecured basis would even be available. The
Company believes the fair value of the Rollover Note and the Subordinated
Convertible Debentures at December 31, 1996 may be substantially less than
their carrying amount because of their subordination provisions and remaining
term to maturity and the
F-24
<PAGE> 68
CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company's adverse operating results and liquidity. In January 1996, Caremark
announced that it was taking a charge to earnings to adjust downward to 25 cents
on the dollar the value of the Junior Subordinated PIK Notes for an "other than
temporary" impairment in value; the Company has no view as to whether such
adjustment by Caremark is an indication of the fair value of the Junior
Subordinated PIK Notes at that date. As further described in Note 6, these
notes consist of an $84.6 million Junior Convertible Subordinated PIK Note and a
$30.7 million Junior Non-convertible Subordinated PIK Note. The former note
became convertible on April 6, 1996 into 2.9 million shares of the Company's
Common Stock, which had a quoted market price of approximately $14.1 million as
of December 31, 1996. The other obligations carried at $2.7 million have an
estimated fair value approximating their carrying amount.
Considerable judgment is required in developing estimates of fair
value, and the information furnished above is not meant to be indicative of what
such debt could be settled for. See Note 6 for additional disclosures relating
to the Company's long-term debt.
The Company has investments in unconsolidated subsidiaries totaling
approximately $1.9 million and $6.8 million at December 31, 1996 and 1995,
respectively. Since these subsidiaries are all closely held companies and
there are no quoted market prices, it is not practicable to estimate the fair
value of such investments.
12. SUBSEQUENT EVENTS
Settlement of litigation. On January 24, 1997 (the settlement date), the
U.S. District Court for the District of Colorado approved the settlement as
proposed by certain plaintiffs and the Company to settle certain class actions
and derivative litigation against the Company, (See Note 10). Accordingly, on
March 11, 1997, 1.5 million shares of freely tradeable common stock were
issued. The Company expects to issue the remaining 3.5 million shares in the
second quarter of 1997. The Company had previously accrued $12.5 million as an
estimated cost of the settlement. Accordingly, in the fourth quarter of 1996,
the Company recorded an additional charge to earnings of $13.1 million in the
accompanying financial statements to reflect the actual settlement amount.
13. QUARTERLY RESULTS (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
Fourth Third Second First
Quarter Quarter Quarter Quarter
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Net revenue . . . . . . . . . . . $126,029 $ 131,206 $133,109 $131,625
============ =========== ============ ==========
Gross profit . . . . . . . . . . . $ 40,241 $ 44,615 $ 41,959 $ 33,466
============ =========== ============ ==========
Net loss . . . . . . . . . . . . . $(31,575) $ (12,012) $(23,526) $(17,901)
============ =========== ============ ==========
Net loss per common share . . . . $ (.75) $ (0.28) $ (0.58) $ (0.44)
============ =========== ============ ==========
Year Ended December 31, 1995
Net revenue . . . . . . . . . . . $153,715 $ 164,741 $179,351 $104,778
============ =========== ============ ==========
Gross profit . . . . . . . . . . . $ 37,128 $ 35,067 $ 41,511 $ 29,169
============ =========== ============ ==========
Net loss . . . . . . . . . . . . . $(17,629) $(254,662) $(66,347)* $ 4,589
============ =========== ============ ==========
Net loss per common share . . . . $ (0.45) $ (6.38) $ (1.67)* $ 0.11
============ =========== ============ ==========
</TABLE>
* The amount previously classified in the second quarter as an extraordinary
loss of $3,396 ($0.08 per share) on early extinguishment of debt is no
longer reported as extraordinary because it is immaterial.
In 1996, unusual or infrequently occurring charges included provisions for
litigation of $12.5 million, $0.3 million and $15.1 million in the second,
third and fourth quarters, respectively.
In 1995, unusual or infrequently occurring charges included the benefit
related to restructuring reserves of $18.2 million recorded in the fourth
quarter, the Company's accrual of $25.8 million estimated restructuring costs
for the Caremark Business Consolidation Plan in the second quarter and the
charge of $203.4 million for long-lived assets and acquired receivables and a
special provision for uncollectible accounts of $20.0 million in the third
quarter.
F-25
<PAGE> 69
CORAM HEALTHCARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO
BEGINNING COSTS AND CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD
----------- ---------- ---------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts.............................. $63,839 $29,045 -- $(52,628)(1) $40,256
Year Ended December 31, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts.............................. $17,990 $68,912 $41,124(3) $(64,187)(1) $63,839
Year Ended December 31, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts.............................. $25,076 $36,817 $ 3,901(2) $(46,383)(1) $17,990
2,886 (4)
(4,307)(5)
</TABLE>
- ---------------------
(1) Accounts written off, net of recoveries.
(2) Balance acquired in purchase acquisition(s).
(3) Balance related to the Acquisition of Caremark Business, including $37,000
charged to operations in the quarter ended September 30, 1995.
(4) Other charges.
(5) Reclassification.
F-26
<PAGE> 70
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------ -------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger dated as of February 6, 1994, by and among the Registrant, T2, Curaflex,
HealthInfusion, Medisys, T2 Acquisition Company, CHS Acquisition Company, HII Acquisition Company
and MI Acquisition Company (Incorporated by reference to Exhibit 2.1 of Registration No. 33-53957
on Form S-4).
2.2 -- First Amendment to Agreement and Plan of Merger dated as of May 25, 1994, by and among the Registrant,
T2 Curaflex, HealthInfusion, Medisys, T2 Acquisition Company, CHS Acquisition Company, HII
Acquisition Company and MI Acquisition Company (Incorporated by reference to Exhibit 2.2 of
Registration No. 33-53957 on Form S-4).
2.3 -- Second Amendment to Agreement and Plan of Merger dated as of July 8, 1994 by and among the Registrant,
T2, Curaflex, HealthInfusion, Medisys, T2 Acquisition Company, CHS Acquisition Company, HII
Acquisition Company and MI Acquisition Company (Incorporated by reference to Exhibit 2.3 of the
Registrant's Current Report on Form 8-K dated as of July 15, 1994).
2.4 -- Asset Sale and Note Purchase Agreement, (the "Asset Purchase Agreement") among the Registrant, Caremark
International Inc. and Caremark Inc. dated as of January 29, 1995 (Incorporated by reference to
Exhibit C of the Registrant's Current Report on Form 8-K dated April 6, 1995). The exhibits and
schedules to the Asset Purchase Agreement are omitted from this Exhibit. The Company agrees to
furnish supplementally any omitted exhibits or schedule with the Securities and Exchange
Commission.
2.5 -- Agreement and Plan of Merger among the Registrant, CHC Acquisition Corp. and Lincare Holdings Inc.,
(the "Lincare Merger Agreement") dated as of April 17, 1995 (Incorporated by reference to Exhibit B
of the Registrant's Current Report on Form 8-K dated May 2, 1995). The exhibits and schedules to
the Lincare Merger Agreement are omitted from this Exhibit. The Company agrees to furnish
supplementally any omitted exhibit or schedule with the Securities and Exchange Commission.
2.6 -- Agreement and Plan of Merger entered into as of October 19, 1996, among Coram Healthcare Corporation,
Integrated Health Services, Inc. and IHS Acquisition XIX, Inc. (Incorporated by reference to
Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1996).
3.1 -- Certificate of Incorporation of Registrant, as amended through May 11, 1994 (Incorporated by reference
to Exhibit 3.1 of Registration No. 33-53957 on Form S-4).
3.2 -- Bylaws of Registrant (Incorporated by reference to Exhibit 3.2 of Registration No. 33-53957 on
Form S-4).
4.1 -- Form of Common Stock Certificate for the Registrant's common stock, $.001 par value per share.
(Incorporated by reference to Exhibit 4.1 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.1 -- Amended and Restated Credit Agreement dated as of February 10, 1995, by and among Curaflex, T2,
HealthInfusion, Medisys, and HMSS as Co-Borrowers, Toronto Dominion (Texas), Inc., as Agent (the
"Amended Credit Agreement") (Incorporated by reference to Exhibit 10.1 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994). The exhibits and schedules to the
Amended Credit Agreement are omitted from this Exhibit. The Company agrees to furnish
supplementally any omitted exhibit or schedule to the Securities and Exchange Commission upon
request.
10.2 -- Form of Employment Agreement between the Registrant and Charles A. Laverty (Incorporated by reference
to Exhibit 10.1 of Registration No. 33-53957 on Form S-4).
</TABLE>
<PAGE> 71
<TABLE>
<S> <C> <C>
10.3 -- Form of Severance/Non-Compete Agreement between the Registrant and Miles E. Gilman (Incorporated by
reference to Exhibit 10.2 of Registration No. 33-53957 on Form S-4).
10.4 -- Form of Severance/Non-Compete Agreement between the Registrant and William J. Brummond (Incorporated by
reference to Exhibit 10.3 of Registration No. 33-53957 on Form S-4).
10.5 -- Form of Severance/Non-Compete Agreement between the Registrant and Tommy H. Carter (Incorporated by
reference to Exhibit 10.4 of Registration No. 33-53957 on Form S-4).
10.6 -- Form of Indemnification Agreement between the Registrant and each of the Registrant's directors and
certain executive officers. (Incorporated by reference to Exhibit 10.6 of the Registrant's
Form 10-K for the year ended December 31, 1994).
10.7 -- Registrant's 1994 Stock Option/Stock Issuance Plan and related forms of agreements (Incorporated by
reference to Exhibit 10.15 of Registration No. 33-53957 on Form S-4).
10.8 -- Registrant's Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.16 of Registration
No. 33-53957 on Form S-4).
10.9 -- 401(k) Plan of T2 dated December 8, 1989 (Incorporated herein by reference to Exhibit 10(s) of T2
Annual Report on Form 10-K for the fiscal year ended September 30, 1989, filed with the Commission
on or about December 29, 1988.
10.10 -- 1988 Stock Option Plan of T2, as amended and restated as of July 31, 1990 and as further amended as of
(i) August 20, 1991; (ii) November 12, 1991; and (iii) July 6, 1992 (Incorporated by reference to
Exhibit 10.18 of Registration No. 33-53957 on Form S-4).
10.11 -- Curaflex 1989 Stock Option Plan (Incorporated by reference to Exhibit 10.53 of Registration
No. 33-53957 on Form S-4).
10.12 -- Curaflex Amended 1990 Stock Option Plan (Incorporated by reference to Exhibit 10.54 of Registration
No. 33-53957 on Form S-4).
10.13 -- Curaflex Directors' Nonqualified Stock Option Plan (Incorporated by reference to Exhibit 10.59 of
Registration No. 33-53957 on Form S-4).
10.14 -- Clinical Homecare Ltd. 1990 Incentive Stock Option Plan, as amended (Incorporated by reference to
Exhibit 10.61 of Registration No. 33-53957 on Form S-4).
10.15 -- Clinical Homecare Ltd. 1990 Stock Option Plan, as amended (Incorporated by reference to Exhibit 10.62
of Registration No. 33-53957 on Form S-4).
10.16 -- 1989 Stock Option Plan of Medisys (Incorporated by reference to Exhibit 10.85 of Registration
No. 33-53957 on Form S-4).
10.17 -- Form of Non-Plan Option Agreement of Medisys (Incorporated by reference to Exhibit 10.86 of
Registration No. 33-53957 on Form S-4).
10.18 -- Credit Agreement among Coram Healthcare Corporation, Coram, Inc., the Lenders named therein and
Chemical Bank, as Administrative Agent, Collateral Agent and Fronting Bank (the "Senior Credit
Facility") dated as of April 6, 1995. (Incorporated by reference to Exhibit D of the Registrant's
Current Report on Form 8-K dated April 6, 1995). The exhibits and schedules to the Senior Credit
Facility are omitted from this Exhibit. The Company agrees to furnish supplementally any omitted
exhibit or schedule to the Securities and Exchange Commission.
10.19 -- First Amendment and Waiver to the Credit Agreement, dated as of August 9, 1995, together with exhibits
hereto, 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 to Exhibit 10.19 of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995). Certain exhibits and schedules of this Exhibit have been
omitted. The Registrant agrees to furnish supplementally any omitted schedule or exhibit to the
Securities and Exchange Commission.
</TABLE>
<PAGE> 72
<TABLE>
<S> <C> <C>
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. (Incorporated by reference to
Exhibit 10.20 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). Certain exhibits and schedules of this Exhibit have been omitted. The Registrant agrees to
furnish supplementally any omitted schedule or exhibit to the Securities and Exchange Commission.
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 (Incorporated by
reference to Exhibit 10.21 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995). Certain exhibits and schedules of this Exhibit have been omitted. The
Registrant agrees to furnish supplementally any omitted schedule or exhibit to the Securities and
Exchange Commission.
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 to 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 to 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. (Incorporated by reference
to Exhibit 10.24 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995). Certain exhibits and schedules of this Exhibit have been omitted. The
Registrant agrees to furnish supplementally any omitted schedule or exhibit to the Securities and
Exchange Commission.
10.25 -- Form of Employment Agreement between the Registrant and Donald J. Amaral. (Incorporated by reference
to Exhibit 10.25 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
10.26 -- Securities Purchase Agreement ("Securities Purchase Agreement") and Form of Subordinated Bridge Note,
dated as of April 6, 1995, among Coram Inc., Coram Funding, Inc. and the Registrant (Incorporated
by reference to Exhibit E of the Registrant's Current report on Form 8-K dated April 6, 1995). The
exhibits and schedules to the Securities Purchase Agreement are omitted from this Exhibit. The
Registrant agrees to furnish supplementally any omitted exhibit or schedule to the Securities and
Exchange Commission.
10.27 -- Exclusive Distribution Agreement -- Healthcare Products and Biomedical Equipment and Services Agreement
between Medical Specialties Distributors, Inc. ("MSD") and Coram, dated as of June 1, 1996.
(Incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).
10.28 -- Medical Specialties Master Service Agreement between MSD and Coram, dated as of June 1, 1996.
(Incorporated by reference to Exhibit 10.2 of the Registrant's Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).
10.29 -- Medical Specialties Master Rental Agreement between MSD and Coram, dated as of June 1, 1996.
(Incorporated by reference to Exhibit 10.3 of the Registrant's Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).
</TABLE>
<PAGE> 73
<TABLE>
<S> <C> <C>
10.30 -- Coram Healthcare Litigation Memorandum of Understanding between all parties to In re Coram Healthcare
Corp. Securities Litigation, Master File No. 95-N-2074 and Shevde v. Sweeney et al., Civil Action
No. 96-N-722, dated as of August 5, 1996. (Incorporated by reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-Q/A Amendment No. 1 for the quarter ended June 30, 1996).
10.31 -- Fifth Amendment to the Credit Agreement Dated as of February 6, 1996, by and among the Registrant,
Coram Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions party
thereto (as described therein), and Chemical Bank as Agent. (Incorporated by reference to Exhibit
99.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
Certain exhibits and schedules of this Exhibit have been omitted. The Registrant agrees to furnish
supplementally any omitted schedule or exhibit to the Securities and Exchange Commission.
10.32 -- Sixth Amendment to Credit Agreement Dated as of April 19, 1996, by and among the Registrant, Coram
Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by reference to Exhibit 99.2 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996). Certain exhibits
and schedules of this Exhibit have been omitted. The Registrant agrees to furnish supplementally
any omitted schedule or exhibit to the Securities and Exchange Commission.
10.33 -- Seventh Amendment to Credit Agreement Dated as of July 3, 1996, by and among the Registrant, Coram
Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by reference to Exhibit 99.1 of
the Registrant's Quarterly Report on Form 10-Q/A Amendment No. 1 for the quarter ended June 30,
1996). Certain exhibits and schedules of this Exhibit have been omitted. The Registrant agrees to
furnish supplementally any omitted schedule or exhibit to the Securities and Exchange Commission.
10.34 -- Eighth Amendment to Credit Agreement dated as of December 3, 1996, by and among the Registrant, Coram
Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions party thereto (as
described therein), and Chase Manhattan Bank as Agent. Certain exhibits and schedules of this
Exhibit have been omitted. The Registrant agrees to furnish supplementally any omitted schedule or
exhibit to the Securities and Exchange Commission.*
10.35 -- Ninth Amendment and Limited Waiver to the Credit Agreement dated as of March 14, 1997, by and among the
Registrant, Coram Inc., each Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as described therein), and Chase Manhattan Bank as Agent. Certain exhibits and
schedules of this Exhibit have been omitted. The Registrant agrees to furnish supplementally any
omitted schedule or exhibit to the Securities and Exchange Commission.*
10.36 -- Amended Agreement, dated as of March 28, 1997 by and among the Registrant, Coram Inc., and Donaldson,
Lufkin & Jenrette. Certain exhibits and schedules of this Exhibit have been omitted. The Registrant
agrees to furnish supplementally any omitted schedule or exhibit to the Securities and Exchange Commission.*
10.37 -- Sabratek Corporation and Coram Healthcare Exclusive Supply Agreement for IV Infusion Pumps, IV Disposable
Sets and Related Items, dated as of February 26, 1997.*
10.38 -- Amendment to 9% Subordinated Convertible Debenture and Notice of Conversion dated as of June 30, 1996,
by and among the Registrant, Coram Inc., and the other parties specified therein (Incorporated by
reference to the Company's report on Form 8-K as filed on July 12, 1996.
21.1 -- Subsidiaries of the Registrant.*
23.1 -- Consent of Ernst & Young LLP.*
27 -- Financial Data Schedule.*
</TABLE>
* Filed herewith.
<PAGE> 1
EXHIBIT 10.34
EIGHTH AMENDMENT TO CREDIT AGREEMENT
DATED AS OF DECEMBER 3, 1996
This EIGHTH AMENDMENT TO CREDIT AGREEMENT dated as of December 3, 1996
(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,
that certain Second Amendment dated as of September 7, 1995, that certain Third
Amendment and Limited Waiver dated as of September 29, 1995, that certain
Fourth Amendment and Limited Waiver to Credit Agreement and First Amendment to
Security Documents dated as of October 13, 1995, that certain Fifth Amendment
dated as of April 6, 1995, that certain Sixth Amendment to Credit Agreement
dated as of February 6, 1996, and that certain Seventh Amendment to Credit
Agreement dated as of July 3, 1996 (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 HERETO
(the "LENDERS") and THE CHASE MANHATTAN 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 amend the Credit
Agreement to amend certain financial covenants as provided herein; and
WHEREAS, subject to the terms and conditions contained herein,
Required Lenders 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 undersigned Lenders hereby agree, on the terms
and subject to the conditions set forth herein, as follows:
1
<PAGE> 2
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendments to Article I: Definitions.
The definition of "Specified Cash Amount" contained in Section
1.01 of the credit Agreement is hereby amended by (i) deleting the number
"$20,000,000" therefrom and substituting the number "$12,000,000" therefor and
(ii) deleting the date "December 31, 1996" therefrom and substituting the date
"March 31, 1997" therefor.
1.2 Amendments to Article V: Affirmative Covenants.
Section 5.04 of the Credit Agreement is hereby amended by
deleting paragraph (g) therefrom and substituting the following therefor:
"(g) not later than 30 days after the end of each fiscal
quarter, a certificate of a Financial Officer of Coram setting forth
(i) a list of all Designated Subsidiaries added or terminated during
such fiscal quarter, (ii) a list of all Joint Ventures created,
acquired, terminated or otherwise disposed of during such fiscal
quarter and (iii) a description of any Permitted Business Acquisitions
consummated during such fiscal quarter and the amount and type of
consideration paid with respect thereto;"
1.3 Amendments to Article VI: Negative Covenants.
A. Section 6.14 of the Credit Agreement is hereby amended by
deleting the minimum operating cash flow receipt amounts for the applicable
periods set forth below from such Section and substituting therefor the
corresponding amounts set forth below:
<TABLE>
<CAPTION>
<S> <C>
==============================================================================================
PERIOD AMOUNT
----------------------------------------------------------------------------------------------
October 1, 1996 - November 30, 1996 $86,500,000
----------------------------------------------------------------------------------------------
November 1, 1996 - December 31, 1996 $80,000,000
----------------------------------------------------------------------------------------------
December 1, 1996 - January 31, 1997 $80,000,000
----------------------------------------------------------------------------------------------
January 1, 1997 - February 28, 1997 $80,000,000
==============================================================================================
</TABLE>
B. Section 6.15 of the Credit Agreement is hereby
amended by (i) deleting the maximum disbursement amounts for the applicable
periods set forth below from such Section and substituting therefor the
corresponding amounts set forth below:
2
<PAGE> 3
<TABLE>
<CAPTION>
==============================================================================================
PERIOD AMOUNT
----------------------------------------------------------------------------------------------
<S> <C>
October 1, 1996 - November 30, 1996 $81,000,000
----------------------------------------------------------------------------------------------
November 1, 1996 - December 31, 1996 $84,000,000
----------------------------------------------------------------------------------------------
December 1, 1996 - January 31, 1997 $83,000,000
----------------------------------------------------------------------------------------------
January 1, 1997 - February 28, 1997 $82,000,000
==============================================================================================
</TABLE>
and (ii) adding the phrase "; provided further, that at no time shall the
aggregate amount of disbursements for Coram and its Subsidiaries on a
consolidated basis during any period set forth above exceed the aggregate
operating cash flow receipts for Coram and its Subsidiaries on a consolidated
basis during the corresponding period" at the end of such Section.
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 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. AMENDMENT DOCUMENTS. The Administrative Agent shall
have received a counterpart of this Amendment, duly executed and delivered by
an authorized officer of Coram, the Borrower, each Subsidiary Guarantor, and
Requisite Lenders.
B. REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained in the Credit Agreement, as amended by this Amendment (as
so amended, the "AMENDED AGREEMENT") 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 shall have been true, correct and
complete in all material respects on and as of such earlier date.
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 the Loan Parties (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 other Loan Party, (B) any order of
3
<PAGE> 4
any Governmental Authority or (C) any provisions of any indenture, agreement or
other instrument to which any Loan Party 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 any Loan Party
B. Each Loan Party has all requisite corporate power and
authority to enter into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, this Amendment and, with
respect to Coram and the Borrower, the Amended Agreement. This Amendment
Document has been duly executed and delivered by each Loan Party and this
Amendment and the Amended Agreement constitutes a legal, valid and binding
obligation of each Loan Party thereto enforceable against each such Loan Party
in accordance with its terms.
SECTION 4. CONSENT TO ASSET SALE
The undersigned Lenders hereby consent to the sale of the
stock held by Coram and its Subsidiaries in the Mexicare Subsidiary for a gross
sales price of not less than $80,000; provided that Coram shall comply with the
provisions of subsection 2.12(d) of the Credit Agreement.
SECTION 5. APPLICABLE LAW
THE AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
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, or any
amendment thereto, nor alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement, or any amendment thereto, 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.
Each Loan Party acknowledges and agrees that (i) each of the
Guarantee Agreements and Security Documents to which it is a party or otherwise
bound shall continue in full force and effect and that all of its obligations
thereunder shall be valid and enforceable and shall not be impaired or limited
by the execution and effectiveness of this Amendment and (ii) all Obligations
outstanding under the Amended Agreement on the date hereof are owing without
defense, offset or counterclaim of any kind.
4
<PAGE> 5
SECTION 7. 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 (including each Overline Lender) and each of their respective
officers, directors, agents, affiliates and counsel (each a "RELEASEE") from
any and all actions, causes of action, suits, sums of money, controversies,
variances, 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 8. 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 contact. 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 Section 1 which shall become
effective as provided in Section 2 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.
SECTION 9. MISCELLANEOUS
C. The Borrower acknowledges that all costs, fees and expenses
as described in subsection 9.05 of the Credit Agreement, or otherwise provided
for under the Loan Documents, incurred with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Borrower.
D. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive
effect.
5
<PAGE> 6
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/ RICHARD M. SMITH
---------------------------
Name: Richard M. Smith
Title: CFO
CORAM, INC.
By: /s/ RICHARD M. SMITH
---------------------------
Name: Richard M. Smith
Title: CFO
EACH SUBSIDIARY GUARANTOR LISTED
ON EXHIBIT A
By: /s/ RICHARD M. SMITH
---------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent, Collateral Agent and Fronting
Bank
By: /s/ LENARD WEINER
-----------------------------
Name: Lenard Weiner
Title: Vice President
S-1
<PAGE> 7
BANK OF IRELAND GRAND CAYMAN
By: /s/ JOHN G. CUSACK
----------------------------
Name: John G. Cusack
Title: A.V.P
THE BANK OF NOVA SCOTIA
By: /s/ ELLEN ROURKE
---------------------------
Name: Ellen Rourke
Title: Senior Manager
BANK POLSKA KASA OPIEKI, S.A.
By: /s/ WILLIAM A. SHEA
---------------------------
Name: William A. Shea
Title: Vice President
Senior Lending Officer
BHF - BANK AKTIENGESELLSCRAFT
(F/K/A Berliner Handels-Und
Frankfurter Bank Grand Cayman Branch)
By: /s/ EVON CONTOS
---------------------------
Name: Evon Contos
Title: V.P.
CERBERUS PARTNERS, L.P.
By: /s/ DAN DOBRJANSKY
---------------------------
Name: Dan Dobrjansky
Title: V.P.
S-2
<PAGE> 8
CHL HIGH YIELD LOAN PORTFOLIO
(a Unit of The Chase Manhattan Bank),
By: /s/ JAMES P. FERGUSON
----------------------------
Name: JAMES P. FERGUSON
Title: MANAGING DIRECTOR
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ ALAN SIDRANE
---------------------------
Name: ALAN SIDRANE
Title: AUTHORIZED SIGNATURE
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ THOMAS J. McGRATH
---------------------------
Name: THOMAS J. McGRATH
Title: VICE PRESIDENT
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------
Name
Title:
S-3
<PAGE> 9
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:
NATIONSBANK OF TEXAS, N.A.
By: /s/ CHARLES A. KERR
----------------------------
Name: Charles A. Kerr
Title: Senior Vice President
S-4
<PAGE> 10
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ JOHN URBAN
-----------------------------
Name: John Urban
Title: Authorized Signer
THE SUMITOMO TRUST & BANKING
COMPANY, LTD., NEW YORK BRANCH
By: /s/ H. ASAI
-----------------------------
Name: H. Asai
Title: Deputy General Manager
WHIPPOORWILL ASSOCIATES
INCORPORATED, as Agent
By: /s/ SHELBY S. WERNER
-----------------------------
Name: Shelby S. Werner
Title: Managing Director
FOOTHILL CAPITAL CORPORATION
By: /s/ M. EDWARD STEAMS
-----------------------------
Name: M. Edward Steams
Title: Vice President
S-5
<PAGE> 11
EXHIBIT A
SUBSIDIARIES OF
CORAM HEALTHCARE CORPORATION
<TABLE>
<S> <C>
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:
Coram Homecare of Minnesota, Inc., formerly known as Coram Healthcare Corporation of Maryland, formerly
Coram Health care Corporation of Virginia, formerly Baltimore Home Therapeutics, Inc.
known as Atlantic Coast Home Therapeutics, Inc.
Columbia Home Therapeutics, Inc. Coram Healthcare Corporation of New Hampshire, formerly
known as Columbus Home Therapeutics, Inc.
Coram Healthcare Corporation of Alabama, formerly Coram Homecare of Arizona, Inc., formerly known as
known as Alabama Home Therapeutics, Inc. Coram Healthcare Corporation of Asheville, formerly
known as Asheville Home Therapeutics, Inc.
Coram Homecare of Michigan, Inc., formerly known as Coram Homecare of Virginia, Inc., formerly known as
Coram Healthcare Corporation of Central Florida, Coram Healthcare Corporation of Central Virginia,
formerly known as Home Therapeutics of Florida, Inc. formerly known as Central Virginia Home Therapeutics, Inc.
Coram Healthcare Corporation of North Carolina, Coram Healthcare Corporation of Connecticut, formerly
formerly known as Coram Healthcare Corporation of known as Connecticut Home Therapeutics, Inc.
Charlotte, formerly known as North Carolina Home
Therapeutics, Inc.
Curaflex Health Services, Inc, formerly known as Coram Coram Healthcare Corporation of Virginia, formerly
Healthcare Corporation of Georgia, formerly known as known as Coram Healthcare Corporation of Greater
Georgia Home Therapeutics, Inc. Washington, D.C., formerly known as Potomac Home
Therapeutics, Inc.
Coram Healthcare Corporation of Iowa, formerly known Coram Healthcare Corporation of Mississippi, formerly
as Iowa Home Therapeutics, Inc. known as Mississippi Home Therapeutics, Inc.
Coram Healthcare Corporation of New Jersey, formerly Coram Healthcare Corporation of Northern California, known as
Northern New Jersey Home Therapeutics, Inc. formerly known as Lifesource, Inc.
Coram Healthcare Corporation of Northern Nevada, Coram Healthcare Corporation of Ohio, formerly known as
formerly known as TPN, Inc. Coram Healthcare Corporation of Northern Ohio, formerly
known as Cleveland Home Therapeutics, Inc.
Coram Healthcare Corporation of Oklahoma, formerly Coram Healthcare Corporation of Rhode Island, formerly
known as Tulsa Home Therapeutics, Inc. known as Rhode island Home Therapeutics, Inc.
</TABLE>
A-1
<PAGE> 12
<TABLE>
<S> <C>
Coram Healthcare Corporation of Southern Florida, Coram Healthcare Corporation of Southern Ohio, formerly
formerly known as Southwest Florida Home Therapeutics, known as Tri-State Home Therapeutics, Inc.
Inc.
Coram Healthcare Corporation of Tennessee, formerly Coram Homecare of Wisconsin, Inc., formerly known as
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 Coram Healthcare Corporation of Western Florida,
known as Puget Sound Home Therapeutics, Inc. formerly known as Sarasota Home Therapeutics, Inc.
Coram Homecare of Nebraska, Inc., formerly known as Coram Healthcare Corporation of West Virginia, formerly
Coram Healthcare Corporation of Western Kentucky, known as Southern West Virginia Home Therapeutics, Inc.
formerly known as Western Kentucky Home Therapeutics,
Inc.
Coram Healthcare Corporation of Pennsylvania, formerly Greater New York Home Therapeutics, Inc.
known as Delaware Valley Home Therapeutics, Inc.
Heritage Medical Services of Georgia, Inc. Coram Healthcare Corporation of Illinois, formerly known
as Hunter Home Therapeutics, Inc.
Coram Healthcare Corporation of Indiana, formerly Intracare Holdings Corporation
known as Indiana Home Therapeutics, Inc.
Coram Healthcare Corporation of Louisville, formerly Litho Center Southwest, Inc.
known as Kentucky Home Therapeutics, Inc.
Coram Healthcare Corporation of Colorado, formerly Coram Healthcare Corporation of Maine, formerly known
known as Meridian Home Therapeutics, Inc. as Merritt Home Therapeutics, Inc.
Coram Healthcare Corporation of Idaho, formerly known Coram Healthcare Corporation of Wisconsin, formerly
as Metropolitan Home Therapeutics II, Inc. known as Milwaukee Home Therapeutics, Inc.
Minnesota Home Therapeutics, Inc. Coram Healthcare Corporation of Louisiana, formerly
known as New Orleans Home Therapeutics, Inc.
Coram Healthcare Corporation of Greater New York, Coram Healthcare Corporation of South Carolina, formerly
formerly known as New York Home Therapeutics, Inc. known as Piedmont Home Therapeutics, Inc.
Coram Healthcare Corporation of Oregon, formerly Coram Homecare of South Carolina, Inc., formerly
known as Piedmont Home Therapeutics IV, Inc. known as Professional Home Nursing, Inc.
Coram Homecare of Northern California, formerly known Servicetrends, Inc.
as River City Nursing, Inc.
Coram Healthcare Corporation of Texas, formerly known Coram Healthcare Corporation of Kansas, formerly known
as Southeast Home Therapeutics, Inc. as Southeast Home Therapeutics IV, Inc.
Coram Healthcare Corporation of Arizona, formerly Coram Healthcare Corporation of San Diego, formerly
known as Southern Arizona Home Therapeutics, Inc. known as Southern California Home Therapeutics, Inc.
Coram Healthcare Corporation of Nebraska, formerly Coram Healthcare Corporation of Missouri, formerly
known as Space Coast Home Therapeutics, Inc. known as St. Louis Home Therapeutics, Inc.
Coram Healthcare Corporation of Michigan, formerly Coram Healthcare Corporation of New Mexico, formerly
known as Triad Home Therapeutics, Inc. known as Tri-State Home Therapeutics III, Inc.
T2 Lithotripter Investment, Inc. T2 Lithotripter Investment of Indiana, Inc.
</TABLE>
A-2
<PAGE> 13
<TABLE>
<S> <C>
Coram Healthcare Corporation of Delaware, formerly Coram Homecare of Kansas, Inc., formerly known as Utah
known as T2 Medical Investments, Inc. Home Therapeutics, Inc.
C. CURAFLEX HEALTH SERVICES, INC. SUBSIDIARIES:
Caremark Pharmacy Services, Inc., formerly known as CHC of New York, Inc.
Pharmcor, Inc.
Clinical Homecare Corporation Comprehensive Pharmacy Home IV Services, Inc.
Coram Alternate Site Services, Inc., formerly Curaflex Coram Healthcare Corporation of North Texas, formerly
Infusion Services, Inc. known as Continuecare/Curaflex Health Services, Inc.
Coram Healthcare Corporation of Southern California Coram Healthcare Corporation of Southern Nevada
Coram Healthcare Corporation of Utah, formerly known as Coram Healthcare Corporation of Massachusetts
Curaflex Home Solution, Inc.
Coram Healthcare Corporation of New York, formerly HomeLine, Inc.
known as Curaflex of New York, Inc.
New Jersey Living Center, Inc. Orion Medical Services, Inc.
Stratogen of Florida, Inc. Stratogen of Palm Beach, Inc.
Stratogen of Rhode Island, Inc.
D. MEDYSIS, INC. SUBSIDIARIES:
American Home Therapies, Inc. [to be changed to Coram Coram Homecare of Illinois, Inc., formerly known as
Healthcare of Missouri] CareVan HomeCare of Illinois, Inc.
CareVan Medical Systems of Ohio, Inc. Coram Healthcare Corporation of Minnesota,
formerly known as CareVan Medical Systems, Inc.
PharmCare, Inc.
E. HEALTHINFUSION, INC. SUBSIDIARIES:
Dickson Research Group, Inc, formerly known as Dickson First Circle, Inc.
Gabbay Corporation
HealthInfusion of Mid-Atlantic, Inc. Hospicenter of Texas, Inc.
F. H.M.S.S. SUBSIDIARIES:
Coram Homecare of Texas, Inc., formerly known as Coram H.M.S.S. Infusion Affiliates, Inc.
Healthcare Corporation of Texas, formerly known as
H.M.S.S. of Texas, Inc.
H.M.S.S. Infusion Affiliates of Jacksonville, Inc.
A-3
</TABLE>
<PAGE> 1
EXHIBIT 10.35
NINTH AMENDMENT TO CREDIT AGREEMENT
DATED AS OF MARCH 14, 1997
This NINTH AMENDMENT TO CREDIT AGREEMENT dated as of March 14, 1997
(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,
that certain Second Amendment dated as of September 7, 1995, that certain Third
Amendment and Limited Waiver dated as of September 29, 1995, that certain
Fourth Amendment and Limited Waiver to Credit Agreement and First Amendment to
Security Documents dated as of October 13, 1995, that certain Fifth Amendment
dated as of February 6, 1996, that certain Sixth Amendment to Credit Agreement
dated as of April 19, 1996, that certain Seventh Amendment to Credit Agreement
dated as of July 3, 1996 and that certain Eighth Amendment to Credit Agreement
dated as of December 3, 1996 (the "EIGHTH 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 HERETO (the "LENDERS") and THE CHASE MANHATTAN 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 amend the Credit
Agreement to extend the maturity thereof and the application of certain
financial covenants as provided herein; and
WHEREAS, subject to the terms and conditions contained herein, Lenders
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 undersigned Lenders hereby agree, on the terms
and subject to the conditions set forth herein, as follows:
1
<PAGE> 2
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO ARTICLE I: DEFINITIONS.
The definitions of "REVOLVING CREDIT MATURITY DATE," "SPECIFIED CASH
AMOUNT" and "TERM LOAN MATURITY DATE" are each hereby amended by deleting the
date "March 31, 1997" from each such definition and substituting "May 31, 1997"
in each instance therefor.
1.2 AMENDMENTS TO ARTICLE II: THE CREDITS.
A. Section 2.11(a) of the Credit Agreement is hereby amended by
deleting the date "March 31, 1997" and substituting "May 31, 1997" therefor.
B. Section 2.05 of the Credit agreement is hereby amended by
adding the following at the end of such Section:
"(f) If any Obligations are outstanding on May 1, 1997 or
if the Commitments are in effect on such date, the Borrower shall pay
to the Administrative Agent, for distribution to the Lenders pro rata
in accordance with their respective Commitments, an extension fee equal
to the quotient of (i).5% multiplied by the aggregate amount of the
Commitments (other than L/C Commitments) in effect on March 31, 1997
divided by (ii) 12.
(g) On the earlier of (i) May 31, 1997 and (ii) the date
on which the Commitments are terminated and the Obligations are paid
in full, the Borrower shall pay to the Administrative Agent, for
distribution to the Lenders pro rata in accordance with their
respective Commitments, an extension fee equal to the product of (a)
the quotient of (1).75% multiplied by the aggregate amount of
Commitments (other than L/C Commitments) in effect on May 1, 1997
divided by (2) 360 multiplied by (b) the number of days during May
1997 on which the Commitments were in effect."
1.3 AMENDMENTS TO ARTICLE VI: NEGATIVE COVENANTS.
A. Section 6.12 of the Credit Agreement is hereby
amended by (i) deleting "82,144,000" as the amount corresponding to the period
January 1, 1997-February 28, 1997 from the table contained in such Section and
substituting "80,000,000" therefor and (ii) adding the following at the end of
such table:
2
<PAGE> 3
<TABLE>
<CAPTION>
==============================================================================================
"PERIOD AMOUNT
<S> <C>
- ----------------------------------------------------------------------------------------------
February 1, 1997 - March 31, 1997 80,000,000
- ----------------------------------------------------------------------------------------------
March 1, 1997 - April 31, 1997 80,000,000"
==============================================================================================
</TABLE>
B. Section 6.13 of the Credit Agreement is hereby
amended by (i) deleting "10,493,000" as the amount corresponding to the period
January 1, 1997-February 28, 1997 from the table contained in such section and
substituting "9,250,000" therefor and (ii) adding the following at the end of
such table:
<TABLE>
<CAPTION>
==============================================================================================
"PERIOD AMOUNT
<S> <C>
- ----------------------------------------------------------------------------------------------
February 1, 1997 - March 31, 1997 9,250,000
- ----------------------------------------------------------------------------------------------
March 1, 1997 - April 31, 1997 9,250,000"
==============================================================================================
</TABLE>
C. Section 6.14 of the Credit Agreement is hereby
amended by adding the following at the end of the table contained in such
Section:
<TABLE>
<CAPTION>
==============================================================================================
"PERIOD AMOUNT
<S> <C>
- ----------------------------------------------------------------------------------------------
February 1, 1997 - March 31, 1997 80,000,000
- ----------------------------------------------------------------------------------------------
March 1, 1997 - April 31, 1997 80,000,000"
==============================================================================================
</TABLE>
D. Section 6.15 of the Credit Agreement is hereby
amended by adding the following at the end of the table contained in such
Section:
<TABLE>
<CAPTION>
==============================================================================================
"PERIOD AMOUNT
<S> <C>
- ----------------------------------------------------------------------------------------------
February 1, 1997 - March 31, 1997 82,000,000
- ----------------------------------------------------------------------------------------------
March 1, 1997 - April 31, 1997 82,000,000"
==============================================================================================
</TABLE>
SECTION 2. CONDITIONS TO EFFECTIVENESS
Section 1 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"):
3
<PAGE> 4
A. AMENDMENT DOCUMENTS. The Administrative Agent shall
have received a counterpart of this Amendment, duly executed and delivered by
an authorized officer of Coram, the Borrower, each Subsidiary Guarantor, and
each Lender.
B. SUBORDINATED DEBT AMENDMENT. The Lenders shall have
received a copy of an executed amendment to the Securities Purchase Agreement
which amendment shall, among other things, defer all cash payments (whether for
interest, principal or otherwise) in respect of the Subordinated Bridge Notes
until May 31, 1997 and such amendment shall be satisfactory in form and
substance to the Administrative Agent.
C. REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in the Credit Agreement, as amended by this Amendment
(as so amended, the "AMENDED AGREEMENT") 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 shall have been true, correct and
complete in all material respects on and as of such earlier date.
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 the Loan Parties (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 other Loan Party, (B) any order of any
Governmental Authority or (C) any provisions of any indenture, agreement or
other instrument to which any Loan Party 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 any Loan Party.
B. Each Loan Party has all requisite corporate power and
authority to enter into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, this Amendment and, with
respect to Coram and the Borrower, the Amended Agreement. This Amendment
Document has been duly executed and delivered by each Loan Party and this
Amendment and the Amended Agreement constitutes a legal, valid and binding
obligation of each Loan Party thereto enforceable against each such Loan Party
in accordance with its terms.
4
<PAGE> 5
SECTION 4. APPLICABLE LAW
THE AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. 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, or any
amendment thereto, nor alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement, or any amendment thereto, 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.
Each Loan Party acknowledges and agrees that (i) each of the
Guarantee Agreements and Security Documents to which it is a party or otherwise
bound shall continue in full force and effect and that all of its obligations
thereunder shall be valid and enforceable and shall not be impaired or limited
by the execution and effectiveness of this Amendment and (ii) all Obligations
outstanding under the Amended Agreement on the date hereof are owing without
defense, offset or counterclaim of any kind.
SECTION 6. 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 expansions 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 (including each Overline Lender) and each of their respective
officers, directors, agents, affiliates and counsel (each a "RELEASEE") from
any and all actions, causes of action, suits, sums of money, controversies,
variances, 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.
5
<PAGE> 6
SECTION 7. COUNTERPARTS; EFFECTIVENESS
This Amendment may be executed in two or mote 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 Section 1 which shall become
effective as provided in Section 2 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.
SECTION 8. MISCELLANEOUS
A. The Borrower acknowledges that all costs, fees and expenses
as described in subsection 9.05 of the Credit Agreement, or otherwise provided
for under the Loan Documents, incurred with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of the
Borrower.
B. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive
effect.
6
<PAGE> 7
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/ RICHARD M. SMITH
---------------------------
Name: Richard M. Smith
Title: CFO
CORAM, INC.
By: /s/ RICHARD M. SMITH
---------------------------
Name: Richard M. Smith
Title: CFO
EACH SUBSIDIARY GUARANTOR LISTED ON
EXHIBIT A
By: /s/ RICHARD M. SMITH
---------------------------
Name: Richard M. Smith
Title: CFO
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent, Collateral Agent and Fronting
Bank
By: /s/ LENARD WEINER
---------------------------
Name: Lenard Weiner
Title: Vice President
S-1
<PAGE> 8
BANK OF IRELAND GRAND CAYMAN
By: /s/ JOHN G. CUSACK
---------------------------
Name: John G. Cusack
Title: AVP
THE BANK OF NOVA SCOTIA
By: /s/ D. N. GILLESPIE
---------------------------
Name: D. N. Gillespie
Title: Assistant General Manager
BANK POLSKA KASA OPIEKI, S.A.
By: /s/ WILLIAM A. SHEA
---------------------------
Name: William A. Shea
Title: Senior Lending Officer
BHF - BANK AKTIENGESELLSCHAFT
(F/K/A Berliner Handels-Und
Frankfurter Bank Grand Cayman Branch)
By: /s/ EVON CONTOS
---------------------------
Name: Evon Contos
Title: V.P.
CERBERUS PARTNERS, L.P.
By: /s/ JOYCE C. JOHNSON
---------------------------
Name: Joyce C. Johnson
Title: Managing Director
Cerberus Partners, L.P.
S-2
<PAGE> 9
OCTAGON CREDIT INVESTORS
(a Unit of The Chase Manhattan Bank),
By: /s/ JAMES P. FERGUSON
---------------------------
Name: James P. Ferguson
Title: Managing Director
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ ALAN SIDRANE
---------------------------
Name: Alan Sidrane
Title: Authorized Signature
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ THOMAS F. FARLEY JR
---------------------------
Name: Thomas F. Farley Jr
Title: Director
THE FIRST NATIONAL BANK OF CHICAGO
By:
---------------------------
Name:
Title:
S-3
<PAGE> 10
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: /s/ GUS C. BROWNE II
---------------------------
Name: Gus C. Browne II
Title: Senior Vice President
NATIONSBANK OF TEXAS, N.A.
By: /s/ CHARLES A. KERR
---------------------------
Name: Charles A. Kerr
Title: Senior Vice President
S-4
<PAGE> 11
GOLDMAN SACHS CREDIT PARTNERS L.P.
By: /s/ JOHN URBAN
---------------------------
Name: John Urban
Title: Authorized Signer
THE SUMITOMO TRUST & BANKING
COMPANY, LTD., NEW YORK BRANCH
By: /s/ SURAJ P. BHATIA
---------------------------
Name: Suraj P. Bhatia
Title: Senior Vice President
WHIPPOORWILL ASSOCIATES,
INCORPORATED, as Agent
By: /s/ SHELBY S. WERNER
---------------------------
Name: Shelby S. Werner
Title: Managing Director
FOOTHILL CAPITAL CORPORATION
By: /s/ M.E. STEAMS
---------------------------
Name: M.E. Steams
Title: Vice President
S-5
<PAGE> 12
EXHIBIT A
SUBSIDIARIES OF
CORAM HEALTHCARE CORPORATION
<TABLE>
<S> <C>
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:
Coram Homecare of Minnesota, Inc., formerly known as Coram Healthcare Corporation of Maryland, formerly
Coram Health care Corporation of Virginia, formerly Baltimore Home Therapeutics, Inc.
known as Atlantic Coast Home Therapeutics, Inc.
Columbia Home Therapeutics, Inc. Coram Healthcare Corp oration of New Hampshire, formerly
known as Columbus Home Therapeutics, Inc.
Coram Healthcare Corporation of Alabama, formerly Coram Homecare of Arizona, Inc., formerly known as
known as Alabama Home Therapeutics, Inc. Coram Healthcare Corporation of Asheville, formerly
known as Asheville Home Therapeutics, Inc.
Coram Homecare of Michigan, Inc., formerly known as Coram Homecare of Virginia, Inc., formerly known as
Coram Healthcare Corporation of Central Florida, Coram Healthcare Corporation of Central Virginia,
formerly known as Home Therapeutics of Florida, Inc. formerly known as Central Virginia Home Therapeutics, Inc.
Coram Healthcare Corporation of North Carolina, Coram Healthcare Corporation of Connecticut, formerly
formerly known as Coram Healthcare Corporation of known as Connecticut Home Therapeutics, Inc.
Charlotte, formerly known as North Carolina Home
Therapeutics, Inc.
Curaflex Health Services, Inc, formerly known as Coram Coram Healthcare Corporation of Virginia, formerly
Healthcare Corporation of Georgia, formerly known as known as Coram Healthcare Corporation of Greater
Georgia Home Therapeutics, Inc. Washington, D.C., formerly known as Potomac Home
Therapeutics, Inc.
Coram Healthcare Corporation of Iowa, formerly known Coram Healthcare Corp oration of Mississippi, formerly
as Iowa Home Therapeutics, Inc. known as Mississippi Home Therapeutics, Inc.
Coram Healthcare Corporation of New Jersey, formerly Coram Healthcare Corporation of Northern California, known as
Northern New Jersey Home Therapeutics, Inc. formerly known as Lifesource, Inc.
Coram Healthcare Corporation of Northern Nevada, Coram Healthcare Corporation of Ohio, formerly known as
formerly known as TPN, Inc. Coram Healthcare Corporation of Northern Ohio, formerly
known as Cleveland Home Therapeutics, Inc.
Coram Healthcare Corporation of Oklahoma, formerly Coram Healthcare Corporation of Rhode Island, formerly
known as Tulsa Home Therapeutics, Inc. known as Rhode island Home Therapeutics, Inc.
</TABLE>
A-1
<PAGE> 13
<TABLE>
<S> <C>
Coram Healthcare Corporation of Southern Florida, Coram Healthcare Corporation of Southern Ohio, formerly
formerly known as Southwest Florida Home Therapeutics, known as Tri-State Home Therapeutics, Inc.
Inc.
Coram Healthcare Corporation of Tennessee, formerly Coram Homecare of Wisconsin, Inc., formerly known as
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 Coram Healthcare Corporation of Western Florida,
known as Puget Sound Home Therapeutics, Inc. formerly known as Sarasota Home Therapeutics, Inc.
Coram Homecare of Nebraska, Inc., formerly known as Coram Healthcare Corporation of West Virginia, formerly
Coram Healthcare Corporation of Western Kentucky, known as Southern West Virginia Home Therapeutics, Inc.
formerly known as Western Kentucky Home Therapeutics,
Inc.
Coram Healthcare Corporation of Pennsylvania, formerly Greater New York Home Therapeutics, Inc.
known as Delaware Valley Home Therapeutics, Inc.
Heritage Medical Services of Georgia, Inc. Coram Healthcare Corporation of Illinois, formerly known
as Hunter Home Therapeutics, Inc.
Coram Healthcare Corporation of Indiana, formerly Intracare Holdings Corporation
known as Indiana Home Therapeutics, Inc.
Coram Healthcare Corporation of Louisville, formerly Litho Center Southwest, Inc.
known as Kentucky Home Therapeutics, Inc.
Coram Healthcare Corporation of Colorado, formerly Coram Healthcare Corporation of Maine, formerly known
known as Meridian Home Therapeutics, Inc. as Merritt Home Therapeutics, Inc.
Coram Healthcare Corporation of Idaho, formerly known Coram Healthcare Corporation of Wisconsin, formerly
as Metropolitan Home Therapeutics II, Inc. known as Milwaukee Home Therapeutics, Inc.
Minnesota Home Therapeutics, Inc. Coram Healthcare Corporation of Louisiana, formerly
known as New Orleans Home Therapeutics, Inc.
Coram Healthcare Corporation of Greater New York, Coram Healthcare Corporation of South Carolina, formerly
formerly known as New York Home Therapeutics, Inc. known as Piedmont Home Therapeutics, Inc.
Coram Healthcare Corporation of Oregon, formerly Coram Homecare of South Carolina, Inc., formerly
known as Piedmont Home Therapeutics IV, Inc. known as Professional Home Nursing, Inc.
Coram Homecare of Northern California, formerly known Servicetrends, Inc.
as River City Nursing, Inc.
Coram Healthcare Corporation of Texas, formerly known Coram Healthcare Corporation of Kansas, formerly known
as Southeast Home Therapeutics, Inc. as Southeast Home Therapeutics IV, Inc.
Coram Healthcare Corporation of Arizona, formerly Coram Healthcare Corporation of San Diego, formerly
known as Southern Arizona Home Therapeutics, Inc. known as Southern California Home Therapeutics, Inc.
Coram Healthcare Corporation of Nebraska, formerly Coram Healthcare Corporation of Missouri, formerly
known as Space Coast Home Therapeutics, Inc. known as St. Louis Home Therapeutics, Inc.
Coram Healthcare Corporation of Michigan, formerly Coram Healthcare Corporation of New Mexico, formerly
known as Triad Home Therapeutics, Inc. known as Tri-State Home Therapeutics III, Inc.
T2 Lithotripter Investment, Inc. T2 Lithotripter Investment of Indiana, Inc.
</TABLE>
A-2
<PAGE> 14
<TABLE>
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Coram Healthcare Corporation of Delaware, formerly Coram Homecare of Kansas, Inc., formerly known as Utah
known as T2 Medical Investments, Inc. Home Therapeutics, Inc.
C. CURAFLEX HEALTH SERVICES, INC. SUBSIDIARIES:
Caremark Pharmacy Services, Inc., formerly known as CHC of New York, Inc.
Pharmcor, Inc.
Clinical Homecare Corporation Comprehensive Pharmacy Home IV Services, Inc.
Coram Alternate Site Services, Inc., formerly Curaflex Coram Healthcare Corporation of North Texas, formerly
Infusion Services, Inc. known as Continuecare/Curaflex Health Services, Inc.
Coram Healthcare Corporation of Southern California Coram Healthcare Corporation of Southern Nevada
Coram Healthcare Corporation of Utah, formerly known as Coram Healthcare Corporation of Massachusetts
Curaflex Home Solution, Inc.
Coram Healthcare Corporation of New York, formerly HomeLine, Inc.
known as Curaflex of New York, Inc.
New Jersey Living Center, Inc. Orion Medical Services, Inc.
Stratogen of Florida, Inc. Stratogen of Palm Beach, Inc.
Stratogen of Rhode Island, Inc.
D. MEDYSIS, INC. SUBSIDIARIES:
American Home Therapies, Inc. [to be changed to Coram Coram Homecare of Illinois, Inc., formerly known as
Healthcare of Missouri] CareVan HomeCare of Illinois, Inc.
CareVan Medical Systems of Ohio, Inc. Coram Healthcare Corporation of Minnesota,
formerly known as CareVan Medical Systems, Inc.
PharmCare, Inc.
E. HEALTHINFUSION, INC. SUBSIDIARIES:
Dickson Research Group, Inc, formerly known as Dickson First Circle, Inc.
Gabbay Corporation
HealthInfusion of Mid-Atlantic, Inc. Hospicenter of Texas, Inc.
F. H.M.S.S. SUBSIDIARIES:
Coram Homecare of Texas, Inc., formerly known as Coram H.M.S.S. Infusion Affiliates, Inc.
Healthcare Corporation of Texas, formerly known as
H.M.S.S. of Texas, Inc.
H.M.S.S. Infusion Affiliates of Jacksonville, Inc.
</TABLE>
A-3
<PAGE> 1
EXHIBIT 10.36
[DONALDSON, LUFKIN & JENRETTE LETTERHEAD]
March 28, 1997
Coram, Inc.
Coram Healthcare Corporation
1125 Seventeenth Street
Suite 1500
Denver Colorado 80202
Attention: Mr. Donald J. Amaral
President and Chief Executive Officer
Gentlemen:
We refer to the Securities Purchase Agreement dates as of April 6, 1995
among Coram, Inc., as Issuer, ourselves, as initial Purchaser and Coram
Healthcare Corporation (as amended, the "Agreement"). Terms defined in the
Agreement are used herein with the same meanings.
We agree to defer payment of each installment of interest due on the
Securities prior to March 31, 1998, each installment of the duration fee
payable pursuant to Section 2.2(d) of the Agreement due prior to March 31, 1998
and the fee payable pursuant to Section 7.1(c) of the Agreement, together with
interest accrued thereon to March 31, 1997. Such deferred amounts shall bear
interest from the respective dates on which (but for the provisions of this
letter) they would otherwise be due, until paid in full, at the rate of
interest specified in the Securities, which interest shall be due and payable
together with such deferred amounts on the earlier of (i) March 31, 1998 and
(ii) the date of maturity or payment of all outstanding Securities, by
acceleration or otherwise (such earlier date, the "Payment Date"), provided
that if all principal of and interest on the Securities, and all such deferred
amounts, shall not have been paid in full by June 30, 1997, then the Issuer
shall (unless, prior to June 30, 1997, Coram Healthcare Corporation shall have
merged with a wholly-owned subsidiary of Integrated Health Services, Inc.
pursuant to a transaction to which the undersigned has consented), in addition
to the interest provided for in this sentence, pay to the Purchaser a fee at a
rate of 1% per annum on the daily amount of all unpaid principal of and
interest on the Securities, and all such deferred amounts, such fee to accrue
(retroactively in the case of days prior to June 30, 1997) from and including
March 31, 1997 through but excluding the date upon which all principal of and
interest on the Securities, and all such deferred amounts, are paid in full and
shall be payable on the Payment Date and on each date thereafter on which
interest on the Securities is payable.
<PAGE> 2
We consent to the Ninth Amendment to the Credit Agreement dated as of
March 14, 1997.
Except as specified herein, the terms of the Bridge Documents shall
remain in full force and effect and are hereby confirmed.
The terms of this letter shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
choice of law principles thereof.
If the foregoing is acceptable to you, please so signify by signing
below not later than March 31, 1997, whereupon, subject to the effectiveness of
the Ninth Amendment to Credit Agreement dated as of March 14, 1997 among Coram,
Inc., Coram Healthcare Corporation, each Subsidiary Guarantor referred to
therein, each Lender referred to therein and The Chase Manhattan Bank, as agent
for the Lenders and as fronting bank, this agreement shall become binding and
effective.
Sincerely,
CORAM FUNDING, INC.
By: /s/ ROBERT GRIEN
---------------------------------
Title: Sr. Vice President
Accepted and agreed this
28th day of March, 1997.
CORAM, INC.
By: /s/ RICHARD M. SMITH
-----------------------------
Title: CFO
CORAM HEALTHCARE CORPORATION
By: /s/ RICHARD M. SMITH
-----------------------------
Title: CFO
2
<PAGE> 1
EXHIBIT 10.37
SABRATEK CORPORATION AND CORAM HEALTHCARE
EXCLUSIVE SUPPLY AGREEMENT FOR IV INFUSION PUMPS,
IV DISPOSABLE SETS AND RELATED ITEMS
This Agreement is entered into as of February 26, 1997, by and between
Sabratek Corporation, Inc. of 5601 West Howard Street, Niles, Illinois 60714
(Telephone: 847-647-2760/Fax: 847-647-2382) ("Sabratek") and Coram Healthcare
Corporation located at 1125 17th Street, Denver, Colorado 80202 (Telephone:
303-672-8741/Fax: 303-672-8889) ("Coram").
RECITALS
Coram provides healthcare and offsite intravenous ("IV") equipment and
services for patients through approximately 120 branches in the United States.
Sabratek is in the business of manufacturing and selling pump actuated IV
equipment and disposable IV infusion sets, including central monitoring systems
for IV activity using its pump sets. Coram desires to purchase from Sabratek
and Sabratek desires to sell these products to Coram pursuant to the terms of
this Agreement. Accordingly, the parties agree as follows:
AGREEMENT
1. Products. Sabratek shall sell to Coram and Coram shall
purchase from Sabratek its requirements for the following products (the
"Products") during the stated term of this Agreement: IV Pumps, IV disposable
pump sets, IV pump monitoring systems, related software, and IV pump diagnostic
equipment. Coram will use best efforts to order products from Sabratek as
listed on Exhibit A. Sabratek also offers modems and cables as listed on
Exhibit A for its MediVIEW remote monitoring systems, but Coram is not required
to make purchases of these items from Sabratek.
2. * Confidential Treatment Requested.
3. * Confidential Treatment Requested.
4. Additional Purchases. Coram may purchase disposable IV pump
sets and additional Products from Sabratek at any time during the
Implementation Period and, for the contract term, at the pricing set forth on
Exhibit A to this Agreement. All orders shall be filled as per Section 17.
Coram also agrees to purchase and implement Sabratek's MediVIEW data management
software systems in all its branches by November 1, 1997.
5. Stocking Requirement. Sabratek will maintain a 90 days supply
of disposable IV pumps sets for Coram.
6. Pump Changes. Sabratek agrees not to make any significant
functional modifications to the software of its 3030 or 6060 IV pumps sold and
shipped to Coram, without
<PAGE> 2
the consent of Coram.
7. Demo Pool. Sabratek will make available during the
Implementation Period a demo pool of 100 Sabratek 3030 and 6060 IV pumps for
training purposes.
8. Loaner Pool. Sabratek will maintain at its premises a pool of
100 pumps for coram as loaners for Sabratek 3030 and 6060 IV pumps purchased
from Sabratek which are out of service due to repair. These loaner pumps are
available for next day delivery.
9. Terms of Sale. All purchase orders for Products shall be
governed by the terms and conditions of this Agreement and Sabratek's general
terms and conditions of sale, attached as Exhibit B, both of which shall
override any inconsistent terms on any purchase order or other communication of
Coram unless expressly agreed to in writing by Sabratek. The terms and
conditions of Exhibit B are part of this Agreement as though set forth in it,
but in the event of a conflict between the terms and conditions of Exhibit B
and the terms of this Agreement, the terms of this Agreement shall control.
The term "Master Contract" whenever used in Exhibit B shall mean this
Agreement, and the term "Buyer" whenever used in Exhibit B shall mean Coram.
10. Contract Term. Coram shall be required to make purchases of
Products from Sabratek and Sabratek shall be required to maintain the pricing
for the Products under the terms of this Agreement for the Implementation
Period and for the shorter of a period of five (5) years (the combined period
referred to as the "Contract Term") or as such time as Coram achieving
$25 million dollars in gross dollar purchases of IV set disposables.
11. * Confidential Treatment Requested.
12. Pricing. The prices for the Products are set forth on Exhibit
A to this Agreement. So long as Coram is not in breach of its payments
obligations and other obligations under this Agreement, the pricing for the
Products will remain firm throughout the Contract Term. Contract pricing will
immediately be reinstated following the cure of any breach.
13. Payment. All purchased by Coram shall be paid within 60 days
after receipt of invoice accompanying a shipment or otherwise delivered to
Coram. Any costs or expenses including Sabratek's attorneys' fees, incurred in
collecting unpaid amounts for Products or enforcing the terms of this Agreement
in the event of its breach by Coram, shall be paid by Coram.
14. Credits. The identification and terms and conditions of
credits available to Coram are set forth on Exhibit A to this Agreement.
Credits offered by Sabratek shall not be used except as and to the extent
expressly authorized by Sabratek. Credits are earned only on the purchase of
IV disposable sets and not on the purchase of IV pumps, MediVIEW Data
Management Software, cables and modems or Pump Masters. Data Management
Software, cables and modems or Pump Masters. Credits are taken only against
the gross sales price of the Products, i.e., the prices listed on Exhibit A.
Each "year" described in the credit notes of Exhibit A means a year beginning
with the first day of the month following the end of the Implementation Period.
In the
<PAGE> 3
event of a breach of this Agreement by Coram, all credits shall cease to be
available to Coram. Coram acknowledges that an integral condition of any
credit being earned is Coram's due performance of this Agreement for the full
Contract Term.
15. Deleted.
16. * Confidential Treatment Requested.
17. Shortages/Unexpected Increases in Purchases. In the event of
a shortage of Product due to a force majeure or excusable delay event, Sabratek
reserves the right to apportion delivery of Product to its customers in any
manner Sabratek determines reasonable. In all other circumstances, Sabratek
will use its best efforts to accommodate all purchase orders of Coram. If
Coram experiences by acquisition or growth a substantial increase in its
business, Coram shall give Sabratek a reasonable time to increase its
production to meet such additional business, such reasonable time not to exceed
six months, provided however, Sabratek must let Coram know within 30 days after
Sabratek receives notice of Coram's requirements for increased quantities,
whether Sabratek will need more than 60 days to meet Coram's requirements for
additional quantities of the Products. If for any reason Sabratek cannot meet
the purchase order needs of Coram, Sabratek shall give Coram notice thereof as
soon as practical, in writing, specifying the portion of the orders that it
cannot meet and the expected date on which it will be able to meet such orders.
Until such date, Coram shall be entitled to make purchases elsewhere for the
Products not able to be fulfilled timely by Sabratek.
18. MediVIEW Software Data. Coram agrees that all data obtained
from use of Sabratek's MediVIEW Products and in particular the Sabratek Data
Management Software is the property of Sabratek, except that Sabratek grants
Coram a nonexclusive license of such data to use in servicing its patients.
Coram shall maintain the confidence of such data and shall not disclose or
license its use to any third party without Sabratek's prior written consent.
Coram acknowledges that Sabratek intends to use such data on an aggregate basis
to develop and market its products and such data is material consideration to
Sabratek's granting to Coram the pricing and credit terms of this Agreement.
Coram agrees to render reasonable assistance requested by Sabratek to obtain
such data. Sabratek agrees to maintain the confidentiality of individual
patient records.
19. Confidentiality. All negotiations, quotations and terms
relating to the Products or this Agreement and the proposals of Sabratek to
Coram shall be treated as highly confidential, shall not be disclosed to any
other parties by Coram and shall only be retained by senior management of
Coram. This Agreement and the documents leading up to its negotiation shall be
marked "Confidential" and kept in a separate location which is not accessible
by personnel other than senior management of Coram. Coram agrees that it will
not disclose the pricing of the Products under or in connection with this
Agreement to third parties and that the release of such information will cause
serious and irreparable harm to Sabratek. Sabratek acknowledges that IHS has
had and will have access to this Agreement before and after the proposed merger
agreement between Coram and IHS.
<PAGE> 4
20. New Branches. If Coram opens new IV branches, it will
purchase the Products to service the customers and patients of those branches
in accordance with the exclusivity paragraphs of this Agreement. Coram agrees
to notify Sabratek of each new branch it intends to open.
21. * Confidential Treatment Requested.
22. Support. Sabratek will assign one individual for the duration
of the Implementation Period to be exclusively available to Coram for
implementation and coordination of Coram's purchases of Sabratek's Products
under this Agreement. Coram agrees likewise to assign one individual for the
duration of the Implementation Period to be exclusively available to Sabratek
for implementation and coordination of Product purchases under this Agreement.
Each party shall bear the travel and lodging expenses for its own personnel
assigned to this Agreement. Sabratek must obtain the consent of Coram to the
formal implementation plan provided by Sabratek, but Coram shall not
unreasonably withhold such consent.
23. Warranty. Sabratek warrants that its pumps, pump disposable
sets, pump master and MediVIEW systems to be free from defects in material and
workmanship for a period of five years from the date of delivery, if properly
installed and used in accordance with Sabratek's requirements, guidelines and
instructions, and not subject to abuse, misuse, improper environment or lack of
proper maintenance and service. The sole remedy for breach of this warranty is
return of the part or Product claimed defective to Sabratek transportation
charges prepaid for repair or replacement. All parts and labor incurred by
Sabratek to repair warranted defects or replace warranted pumps shall be free
of charge to Coram. Sabratek is not liable for costs of removal,
transportation costs, Coram's labor costs, reinstallation costs, reinstallation
costs, or for the rental or purchase of substitute equipment or Products.
Coram shall not return Products to Sabratek without Sabratek's prior written or
facsimile authorization. If the loaner pool is exhausted because of defective
Sabratek pumps, Sabratek will increase the loaner pool so that Coram does not
incur rental charges.
24. No Resale. Coram warrants and agrees that the Products will
be purchased exclusively for use and consumption by Coram in its healthcare
activities for patients it services. Coram shall not purchase the Products for
resale or resell them without the prior written consent of Sabratek for the
term of this Agreement, including any extension or renewal terms.
25. Compliance with Laws. Coram and Sabratek will comply with all
federal, state and local laws and regulations governing use of the Products and
their respective operations in connection with the Products. Coram also agrees
to use the Products strictly in accordance with the manuals, instructions,
guidelines, medical precautions and other warnings regarding their use, care,
storage, maintenance, and disposal.
26. Entire Agreement. This Agreement is the complete Agreement
between the parties covering the Products and the other subject matter of this
Agreement. There are no prior written or oral agreements, promises, warranties
or representations which survive this Agreement, all of which are superseded by
the terms of this Agreement. Any such terms which are inconsistent with the
terms of this Agreement in any writing, purchase order or other document of
either party
<PAGE> 5
not expressly agreed to in writing by both parties shall be disregarded and not
part of this Agreement.
27. Amendments. This Agreement may not be amended or modified
unless it is in writing signed by facsimile or written authorized
representative of each party to be bound.
28. Governing Law. All aspects of this Agreement and each sale of
the Products shall be governed by the internal laws of the State of Colorado
without regard to choice of law rules.
29. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, the Products, or the breach, termination or
validity of this Agreement, shall be settled by arbitration in accordance with
the CPR Non-Administered Arbitration Rules, by a sole arbitrator. The
arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Section 1-16, and judgment upon the award rendered by the arbitrator may be
entered by any court having jurisdiction thereof. The place of the arbitration
shall be Denver, Colorado. The arbitrator will reduce his or her findings of
fact and conclusions of law to writing.
30. Assignment. This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and assigns. This
Agreement may not be assigned or transferred by Coram without the prior written
consent of Sabratek, which consent shall not unreasonably be withheld.
31. Severability. Each provision of this Agreement shall be valid
and enforced to the fullest extent permitted by law without regard to the
invalidity or unenforceability of any other provision of this Agreement.
32. Independent Status. Sabratek and Coram are not agents for or
partners with one another. Their relationship is solely seller and buyer.
Neither party is authorized or empowered to enter into any obligation or assume
any liability on behalf of the other party without the express written consent
of the other party.
33. Representations/Indemnity. Each party represents to the other
that they are duly incorporated in the state of their respective jurisdictions
of incorporation, validly existing and have the requisite corporate power and
authority to enter into and perform this Agreement. Each party represents to
the other that the entry into and performance of this Agreement and the
transactions contemplated by it will not breach, interfere with or give rise to
a claim under any other agreement, obligation or duty to which the representing
party is subject, other than to the extent that Coram must obtain consent and
approval from IHS under the terms of the Merger Agreement dated October 19,
1996. In the event of a breach of any of the representations or warranties by
one party to the other, or any other obligation under this Agreement, the
breaching party shall defend, indemnify and hold harmless the nonbreaching
party from and against all asserted or resulting suits, proceedings,
liabilities, damages and expenses, including costs of defense and attorneys'
fees. Each party agrees to notify the other promptly by confirmed facsimile or
in writing of any claim by a third party concerning this Agreement or the
Products.
<PAGE> 6
34. Counterparts. This Agreement may be executed in one or more
counterparts by facsimile signature, each of which shall be deemed an original
and binding for all purposes. Notwithstanding the binding nature of the
execution of this Agreement in facsimile counterparts, each party agrees to
mail an originally signed counterpart of this Agreement to the other promptly
after facsimile execution.
SABRATEK CORPORATION, INC. CORAM HEALTHCARE CORPORATION
By s\ Shane K. Padda By s\ Richard M. Smith
-------------------------- ---------------------------
Its Chief Executive Officer Its Chief Financial Officer
------------------------- --------------------------
Dated as of 2/26/97 .
------------
<PAGE> 7
EXHIBIT A
* CONFIDENTIAL TREATMENT REQUESTED.
<PAGE> 8
EXHIBIT B
TERMS AND CONDITIONS OF SALE
The following terms and conditions shall be deemed a part of every order
quoted, accepted or acknowledged by Sabratek Corporation, Inc. ("Seller"):
1. DEFINITIONS: As used herein, the term "Buyer" shall mean the
purchaser of any of the Products from Seller, and all others liable for the
purchase price; the term "Products" shall mean all IV pumps, IV disposable pump
sets, IV pump masters, MediVIEW systems and any related items, sold to Buyer by
Seller, whether by direct purchase, shipment to third parties, on consignment
or otherwise.
2. ACCEPTANCE: SELLER'S ACCEPTANCE OF BUYER'S PURCHASE ORDER
RELATING TO THE PRODUCTS IS EXPRESSLY MADE CONDITIONAL ON BUYER'S ACCEPTANCE OF
THESE TERMS AND CONDITIONS, WHICH ARE IN LIEU OF AND SUPERSEDE ANY ADDITIONAL
OR DIFFERENT TERMS CONTAINED IN BUYER'S PURCHASE ORDER OR OTHER DOCUMENT OR
COMMUNICATION PERTAINING TO BUYER'S ORDER OR THE PRODUCTS, WHICH ADDITIONAL OR
DIFFERENT TERMS SHALL BE DEEMED INEFFECTIVE AND REJECTED.
3. CANCELLATION; RETURNS: Orders are not subject to cancellation
by Buyer without the written consent of an authorized officer of Seller. No
products may be returned to Seller for credit or replacement without Seller's
written permission.
4. LATE PAYMENT: [Section eliminated.]
5. TAXES: Prices quoted do not include taxes or other
assessments with respect to the Products. Buyer shall pay any and all use,
sales, privilege, or other taxes or license fees or assessments imposed by
foreign, federal, state or local governments.
6. SHIPMENT: All shipments are F.O.B. Seller's shipping point
with freight charges prepaid and added to Seller's invoice, i.e., Seller
prepays costs of freight and then invoices and obtains reimbursement for same
from Buyer. Unless otherwise indicated in an Order and agreed to by Seller,
selection of the means of transportation for shipment of the Products shall be
at Seller's sole discretion. All packing, crating, storage, shipping,
insurance and other incidental costs with respect to the Products shall be for
the account of or paid directly by Buyer. Buyer's claims for damage to the
Products in transit must be settled with or filed against the carrier and not
Seller. All claims for damages or shortages or other nonconformities of
shipments must be reported to Seller in writing within ten days after receipt
of each shipment of the Products. The description and quantity or weight
contained on the bill of lading or other transport document of the Products
shall control in the absence of manifest error.
7. DELAYS: Any delivery date for the Products acknowledged by
Seller is a desired and not a promised date. Seller will undertake reasonable
efforts to meet the delivery schedule
<PAGE> 9
set forth in an Order but shall not be liable for failure to do so. Seller
shall not be liable for any damage to or loss of the Products or any delay in
or failure to deliver, service, repair or replace the Products arising from
shortage of raw materials, failure of suppliers to make timely delivery, labor
difficulties of any kind, fire, windstorm, flood, theft, war embargoes,
governmental acts or rulings, loss or damage or delays in carriage, acts of
God, or any other circumstances reasonably beyond Seller's control. Products
stored at the request of Buyer or because Buyer refuses or delays shipment
shall be at the risk and expense of Buyer, except for the Products in any demo
pool.
8. PROCESSING: Unless otherwise stated in a Order, the Products
are sold for installation and processing by Buyer. Buyer will perform all
necessary processing and supply all necessary labor, material, and permits to
properly install the Products in accordance with Seller's specific instructions
and the requirements of Buyer's customers.
9. WARRANTY: EXCEPT FOR THE WARRANTY IN ANY MASTER CONTRACT
BETWEEN SELLER AND BUYER AND THAT THE PRODUCTS COMPLY WITH THEIR DESCRIPTION
SET FORTH IN SELLER'S ORDER ACKNOWLEDGMENT, ALL OTHER WARRANTIES PERTAINING TO
THE PRODUCTS OR THEIR SALE, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
ARE DISCLAIMED.
10. LIMITATION OF LIABILITY: SELLER SHALL NOT BE LIABLE WHETHER
IN CONTRACT, IN TORT, UNDER ANY WARRANTY, IN NEGLIGENCE, OR OTHERWISE, FOR
CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES OF A PECUNIARY OR ECONOMIC NATURE,
INCLUDING COSTS OF REMOVAL, REINSTALLATION OR SHIPMENT, DOWNTIME, LOST PROFITS,
OR LOST SALES. UNDER NO CIRCUMSTANCE SHALL SELLER'S LIABILITY OR BUYER'S
REMEDY FOR PECUNIARY DAMAGES AGAINST SELLER EXCEED THE AMOUNT OF THE PURCHASE
PRICE OF SELLER'S PRODUCTS DESCRIBED ON A PARTICULAR ORDER INVOLVING A BREACH
OR CLAIM. IN THE EVENT OF ANY ACCIDENT, OCCURRENCE OR WARRANTY CLAIM
CONCERNING THE PRODUCTS, BUYER MUST NOTIFY SELLER PROMPTLY IN WRITING AND
PERMIT SELLER TO PRESERVE EVIDENCE , TEST THE PRODUCTS, AND INVESTIGATE THE
CAUSE THEREOF. BUYER SHALL GIVE SELLER PROMPT AND CONTINUING ACCESS TO THE
PRODUCTS FOR INSPECTION AND TESTING, TO THE ENVIRONMENT AND LOCATION OF THE
PRODUCTS, AND SHALL COOPERATE WITH SELLER BY PROMPTLY FURNISHING OR GRANTING
SELLER ACCESS TO ITS EMPLOYEES, ALL RELEVANT INFORMATION, DATA, TEST RESULTS,
REPORTS, WITNESSES, AND OTHER INFORMATION RELATIVE TO ANY OCCURRENCE, ACCIDENT
OR CLAIMED DEFECT IN THE PRODUCTS. FAILURE OF BUYER TO GIVE PROMPT NOTICE AS
REQUIRED HEREIN OR TO COOPERATE IN THE INVESTIGATION OF AN OCCURRENCE, CLAIM OR
ACCIDENT CONCERNING THE PRODUCTS, SHALL BAR BUYER FROM ANY REMEDY AGAINST
SELLER. EVEN THOUGH PERSONAL INJURY AND/OR PHYSICAL PROPERTY DAMAGES ARE NOT
DISCLAIMED OR LIMITED
<PAGE> 10
HEREIN, BUYER AGREES THAT THE DISCLAIMER OF PECUNIARY OR ECONOMIC CONSEQUENTIAL
AND INCIDENTAL DAMAGES SHALL NEVERTHELESS BE FULLY ENFORCEABLE. SELLER
DISCLAIMS ALL RESPONSIBILITIES FOR AND BUYER AGREES TO INDEMNIFY SELLER FROM
ANY CLAIMS, DAMAGES, OR EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES)
RELATING TO ENVIRONMENTAL DAMAGE, POLLUTION, WASTE OR CLEAN-UPS ARISING OUT OF
OR RELATING TO THE PRODUCTS OR THE MAINTENANCE THEREOF OR BUYER'S FAILURE TO
COMPLY WITH ALL APPLICABLE ENVIRONMENTAL OR OTHER LAWS.
11. APPLICABLE LAWS; ARBITRATION: All matters pertaining to the
Products shall be governed by the internal laws of the State of Illinois. Any
controversy or claim arising out of any Order or its breach or pertaining to
the Products shall be settled by arbitration in Chicago, Illinois, in
accordance with the CPR Non-Administered Rules, by a sole arbitrator. The
arbitration shall be governed by the United States U.S.C. Section 1-16, and
judgment upon the award rendered by the arbitrator may be entered by any court
having award rendered by the arbitrator may be entered by any court having
jurisdiction thereof. The place of the arbitration shall be Chicago, Illinois.
The arbitrator shall reduce findings of fact and conclusions of law to writing
in his award.
12. INVALID TERM: The invalidity of any term contained in any
Order or these terms shall not affect any other of its terms.
13. NONWAIVER: Seller's or Buyer's failure to enforce or declare
a default or breach with respect to any particular term or condition of the
Order or these terms shall not be considered a waiver of Seller's or Buyer's
right to enforce or be protected by any other term or condition or, on a
subsequent occasion, with respect to that particular term or condition.
14. ALTERATION OF TERMS AND PAROL EVIDENCE: None of the terms and
conditions contained in any Order may modify these terms and conditions except
by a written instrument signed by an authorized officer of Seller delivered to
Buyer.
<PAGE> 1
EXHIBIT 21.1
CORAM HEALTHCARE CORPORATION
CORPORATE STRUCTURE
<TABLE>
<S> <C>
Coram Healthcare Corporation
Subsidiaries:
Coram, Inc.
Subsidiaries:
Coram Physician Services, Inc.
Subsidiaries:
Fairfax Hematology Oncology Associates, P.C.
HealthInfusion, Inc.
Subsidiaries:
Dickson Research Group, Inc
Hospicenter of Texas, Inc.
H.M.S.S., Inc.
Subsidiaries:
Coram Homecare of Texas, Inc.
H.M.S.S. Infusion Affiliates, Inc.
H.M.S.S. Infusion Affiliates of Jacksonville, Inc.
Medisys, Inc.
Subsidiaries:
American Home Therapies, Inc.
CareVan Medical Systems of Ohio, Inc.
Coram Homecare of Illinois, Inc.
PharmCare, Inc.
T(2) Medical, Inc.
Subsidiaries:
Alabama Home Nursing, Inc.
Chicago Home Health Management, Inc.
Columbia Home Therapeutics, Inc.
Coram Healthcare Corporation of Alabama
Coram Healthcare Corporation of Arizona
Coram Healthcare Corporation of Colorado
Coram Healthcare Corporation of Connecticut
Coram Healthcare Corporation of Delaware
Coram Healthcare Corporation of Florida
Coram Healthcare Corporation of Greater D.C.
Coram Healthcare Corporation of Greater New York
Coram Healthcare Corporation of Idaho
Coram Healthcare Corporation of Illinois
Coram Healthcare Corporation of Indiana
Coram Healthcare Corporation of Iowa
Coram Healthcare Corporation of Kansas
Coram Healthcare Corporation of Kentucky
Coram Healthcare Corporation of Louisiana
Coram Healthcare Corporation of Maine
Coram Healthcare Corporation of Michigan
Coram Healthcare Corporation of Minnesota,
Coram Healthcare Corporation of Mississippi
</TABLE>
1
<PAGE> 2
<TABLE>
<S> <C>
T2 Medical, Inc. subsidiaries (continued):
Coram Healthcare Corporation of Missouri
Coram Healthcare Corporation of Nebraska
Coram Healthcare Corporation of Nevada
Coram Healthcare Corporation of New Hampshire
Coram Healthcare Corporation of New Jersey
Coram Healthcare Corporation of New Mexico
Coram Healthcare Corporation of North Carolina
Coram Healthcare Corporation of Northern California
Coram Healthcare Corporation of Ohio
Coram Healthcare Corporation of Oklahoma
Coram Healthcare Corporation of Oregon
Coram Healthcare Corporation of Pennsylvania
Coram Healthcare Corporation of Rhode Island
Coram Healthcare Corporation of South Carolina
Coram Healthcare Corporation of Southern California
Coram Healthcare Corporation of Southern Florida
Coram Healthcare Corporation of Tennessee
Coram Healthcare Corporation of Texas
Coram Healthcare Corporation of Virginia
Coram Healthcare Corporation of Washington
Coram Healthcare Corporation of West Virginia
Coram Healthcare Corporation of Wisconsin
Coram Homecare of Arizona, Inc.
Coram Homecare of Kansas, Inc.
Coram Homecare of Michigan, Inc.
Coram Homecare of Minnesota, Inc.
Coram Homecare of Nebraska, Inc.
Coram Homecare of Northern California, Inc.
Coram Homecare of Ohio, Inc.
Coram Homecare of South Carolina, Inc.
Coram Homecare of Virginia, Inc.
Coram Homecare of Wisconsin, Inc.
Curaflex Health Services, Inc.
Subsidiaries:
Caremark Pharmacy Services, Inc.
Comprehensive Pharmacy Home IV Services, Inc.
Coram Alternate Site Services, Inc.
Coram Healthcare Corporation of Massachusetts
Subsidiaries:
Clinical Homecare Corporation
Coram Healthcare Corporation of New York
Coram Healthcare Corporation of North Texas
Coram Healthcare Corporation of Utah
Homeline, Inc.
Orion Medical Services, Inc.
Stratogen of Florida, Inc.,
Stratogen of Palm Beach, Inc.
Stratogen of Rhode Island, Inc.
Dallas Home Therapeutics, Inc.
Extendacare Health Systems, Inc.
</TABLE>
2
<PAGE> 3
<TABLE>
<S> <C>
T2 Medical, Inc. subsidiaries (continued):
Georgia Home Therapeutics IV, Inc.
Greater New York Home Therapeutics, Inc.
Intracare Holdings Corporation
Northside Weight Management, Inc.
Servicetrends, Inc.
Tampa Bay Area Home Therapeutics, Inc.
T2 Lithotripter Investment, Inc.
Subsidiaries:
Heritage Medical Services, Inc.
Litho Center Southwest, Inc.
North Georgia Lithotripsy Associates, Inc.
South Georgia Lithotripsy Associates, Inc.
T2 Lithotripter Investment of Indiana, Inc.
T2 Management, Inc.
</TABLE>
3
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-55547 and 33-55657) of Coram Healthcare Corporation of our
report dated March 30, 1997 with respect to the consolidated financial
statements and schedule of Coram Healthcare Corporation included in this
Annual Report (Form 10-K) for the year ended December 31, 1996.
We also consent to the incorporation by reference in Amendment No. 3 to
the Registration Statements (Form S-3 No. 33-59661 and 33-60959) and Amendment
No. 1 to the Registration Statement (Form S-3 No. 333-12955) and related
Prospectuses of Coram Healthcare Corporation for the registration of 3,526,325,
2,686,656 and 184,444 shares, respectively, of its common stock, of our report
dated March 30, 1997, with respect to the consolidated financial statements and
schedule of Coram Healthcare Corporation included in the above-referenced Form
10-K.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
March 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 19,292
<SECURITIES> 0
<RECEIVABLES> 147,019
<ALLOWANCES> 40,256
<INVENTORY> 14,268
<CURRENT-ASSETS> 156,270
<PP&E> 71,584
<DEPRECIATION> 54,596
<TOTAL-ASSETS> 545,309
<CURRENT-LIABILITIES> 288,799
<BONDS> 266,641
0
0
<COMMON> 42
<OTHER-SE> (21,524)
<TOTAL-LIABILITY-AND-EQUITY> 545,309
<SALES> 521,969
<TOTAL-REVENUES> 521,969
<CGS> 361,688
<TOTAL-COSTS> 361,688
<OTHER-EXPENSES> 155,093
<LOSS-PROVISION> 29,045
<INTEREST-EXPENSE> 78,767
<INCOME-PRETAX> (91,314)
<INCOME-TAX> (13,998)
<INCOME-CONTINUING> (85,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (85,014)
<EPS-PRIMARY> (2.05)
<EPS-DILUTED> 0
</TABLE>
