<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
CORAM HEALTHCARE CORPORATION
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[LETTERHEAD]
Donald J. Amaral
Chairman of the Board and Chief Executive Officer
May , 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders
of Coram Healthcare Corporation (the "Company"), which will be held on
Wednesday, June 24, 1998 at 12:00 noon local time, at The Westin Hotel, 1672
Lawrence Street, Denver, Colorado. In addition to the matters to be acted upon
at the meeting, which are described in detail in the attached Notice of Annual
Meeting of Stockholders and Proxy Statement, there will be a report to the
stockholders on the operations of the Company. I hope that you will be able to
attend.
Whether or not you plan to be at the meeting, please be sure to complete,
date, sign and return the proxy card enclosed with this letter and the
accompanying Proxy Statement as promptly as possible so that your shares may be
voted in accordance with your wishes. Your vote, whether given by proxy or in
person at the meeting, will be held in confidence by the Inspector of Election
for the meeting.
Sincerely,
DONALD J. AMARAL
Chairman of the Board and
Chief Executive Officer
<PAGE> 3
CORAM HEALTHCARE CORPORATION
1125 SEVENTEENTH STREET, SUITE 2100
DENVER, COLORADO 80202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 24, 1998
To the Stockholders of Coram Healthcare Corporation:
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
Coram Healthcare Corporation, a Delaware corporation ("Coram" or the "Company"),
will be held on Wednesday, June 24, 1998, at 12:00 noon local time, at The
Westin Hotel, 1672 Lawrence Street, Denver, Colorado (the "Meeting"), for the
following purposes:
(1) To elect six directors to serve until the 1999 Annual Meeting of
Stockholders and until their successors are duly elected and qualified;
(2) To approve the proposed issuance of the Company's Series B Senior
Subordinated Convertible Notes, convertible into common stock, par value
$.001 ("Common Stock") of the Company, pursuant to the terms of the
Securities Exchange Agreement among the Company, Cerberus Partners, L.P.,
Goldman Sachs Credit Partners, L.P. and Foothill Capital Corporation;
(3) To approve an amendment to the Company's 1994 Stock Option/Stock
Issuance Plan to increase the number of shares of Common Stock authorized
for issuance thereunder from 7,600,000 to 10,000,000;
(4) To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the Company's 1998 fiscal year; and
(5) To transact such other business as may properly come before the
meeting or any adjournments thereof.
These matters are more fully described in the accompanying Proxy Statement.
The Board of Directors of the Company has fixed the close of business on April
29, 1998 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Meeting. Only holders of
Common Stock at the close of business on the Record Date are entitled to notice
of, and to vote at, the Meeting. A complete list of stockholders entitled to
vote at the Meeting will be available for examination during normal business
hours by any stockholder, for purposes related to the Meeting, for a period of
ten days prior to the Meeting, at the Company's corporate offices located at
1125 Seventeenth Street, Suite 2100, Denver, Colorado 80202.
You are cordially invited to attend the Meeting. Whether or not you plan to
attend the Meeting in person, please complete, date and sign the accompanying
proxy card and return it promptly in the enclosed envelope to ensure that your
shares are represented and voted in accordance with your wishes. If you choose,
you may still vote in person at the Meeting even though you previously submitted
your proxy. You may revoke your proxy by following the procedures set forth in
the accompanying Proxy Statement.
By order of the Board of Directors,
Richard M. Smith, President and
Secretary
Denver, Colorado
May , 1998
<PAGE> 4
CORAM HEALTHCARE CORPORATION
1125 SEVENTEENTH STREET, SUITE 2100
DENVER, COLORADO 80202
---------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 24, 1998
---------------------
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of Coram Healthcare Corporation, a Delaware corporation ("Coram" or
the "Company"), to be used at the 1998 Annual Meeting of Stockholders of the
Company to be held on Wednesday, June 24, 1998 at 12:00 noon, local time, at the
Westin Hotel, 1672 Lawrence Street, Denver, Colorado and at any adjournment or
postponement thereof (the "Meeting"). This Proxy Statement and the accompanying
proxy card are first being mailed to the holders of the Company's common stock,
$.001 par value per share (the "Common Stock"), on or about May 22, 1998. The
Company's Annual Report to Stockholders, which includes financial statements for
the fiscal year ended December 31, 1997, is being mailed or delivered
concurrently with this Proxy Statement to stockholders entitled to vote at the
Meeting.
Stockholders of the Company represented at the Meeting will consider and
vote upon (i) the election of six directors to serve on the Board of Directors
of the Company (the "Board of Directors") until the 1999 Annual Meeting of
Stockholders of the Company and until their successors are duly elected and
qualified; (ii) the approval of the proposed issuance of the Company's Series B
Senior Subordinated Convertible Notes, convertible into Common Stock of the
Company, pursuant to the terms of the Securities Exchange Agreement among the
Company, Cerberus Partners, L.P., Goldman Sachs Credit Partners, L.P. and
Foothill Capital Corporation dated May 6, 1998 (the "Securities Exchange
Agreement"); (iii) the approval of an amendment to the Company's 1994 Stock
Option/Stock Issuance Plan (the "1994 Stock Option Plan") to increase the number
of shares of Common Stock authorized for issuance thereunder from 7,600,000 to
10,000,000; (iv) the ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 1998; and
(v) such other business as may properly come before the Meeting. The Company is
not aware of any other business to be presented for consideration at the
Meeting.
VOTING AND SOLICITATION OF PROXIES
The enclosed proxy provides that each stockholder may specify that his or
her shares be voted "FOR" the election of the named nominees to the Board of
Directors or that authority to vote such shares be "WITHHELD" as to all nominees
or any individual nominee or nominees; and voted "FOR," "AGAINST" or "ABSTAIN"
from voting with respect the approval of the proposed issuance of the Series B
Notes pursuant to the terms of the Securities Exchange Agreement, the amendment
to the 1994 Stock Option Plan and the ratification of the appointment of Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
December 31, 1998. If no specification is made, proxies will be voted FOR each
of the proposals described herein and FOR each of the nominees for director
named herein. A majority of the shares entitled to vote, present in person or
represented by proxy, will constitute a quorum at the Meeting. The affirmative
vote of the majority of the shares present in person or represented by proxy at
the Meeting and entitled to vote on the subject matter will be the act of the
Company's stockholders as to all matters that will come before the Meeting,
except with respect to the election of directors as to which the six nominees
receiving the highest number of votes will be elected. In accordance with the
rules of the New York Stock
<PAGE> 5
Exchange (the "Exchange"), broker non-votes will not be counted and will be
treated as not present for purposes of calculating the vote on a proposal for
which no specification is made in the proxy. Abstentions will be counted in
tabulations of the votes cast on proposals presented to stockholders. Therefore,
an abstention is the equivalent of a vote against a proposal. Execution of a
proxy given in response to this solicitation will not affect a stockholder's
right to attend the Meeting and to vote in person. Presence at the Meeting of a
stockholder who has signed a proxy does not alone revoke a proxy. Any proxy may
be revoked by any stockholder who attends the Meeting and gives oral notice of
his or her intention to vote in person without compliance with any other
formalities. Any stockholder who executes and returns a proxy may revoke it by
executing a subsequent proxy or by giving written notice of revocation to the
Secretary of the Company at any time before it is voted at the Meeting. The
persons named in the proxies will have discretionary authority to vote all
proxies with respect to additional matters that are properly presented for
action at the Meeting. As of the date hereof, the Company is not aware of any
such matters.
The Company has fixed the close of business on April 29, 1998 as the record
date for determining the holders of its Common Stock who will be entitled to
notice of and to vote at the Meeting (the "Record Date"). On that date, the
Company had issued and outstanding 48,809,749 shares of its Common Stock which
are the only outstanding shares of capital stock of the Company having general
voting rights. Holders of the Company's Common Stock are entitled to one vote
for each share owned of record on each matter to come before the meeting.
Solicitation of proxies for use at the Meeting may be made in person or by
mail, telephone or telegram, by directors, officers and employees of the Company
and by MacKenzie Partners, Inc. Other than MacKenzie Partners, Inc., which shall
receive a proxy solicitation fee of approximately $5,000, such persons will
receive no additional compensation for any solicitation activities. The Company
will request banks and brokers to solicit their customers who beneficially own
shares listed of record in names of nominees, and will reimburse those banks and
brokers for their reasonable out-of-pocket expenses in connection with such
solicitation. The Company will bear the entire cost of preparing, assembling,
printing and mailing this Proxy Statement and the enclosed proxy card, and of
soliciting proxies.
Boston EquiServe, the transfer agent and registrar for the Common Stock,
has been appointed by the Board of Directors to serve as Inspector of Election
at the Meeting (the "Inspector"). All proxies and ballots delivered to the
Inspector shall be kept confidential by the Inspector.
PROPOSAL 1
ELECTION OF DIRECTORS
Six directors are to be elected and qualified at the Meeting. In the
absence of written instructions to the contrary, proxies representing shares of
Common Stock will be voted FOR the election of each of the persons listed below
as directors of Coram for a term commencing on the date of the Meeting and
continuing until the 1999 Annual Meeting of Stockholders and until their
successors have been duly elected and qualified. In the event that any nominee
for director should become unavailable or declines to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, FOR an additional nominee
designated by the Nominating Committee of the Board of Directors. As of the date
of this Proxy Statement, the Board of Directors has no knowledge that any of the
persons named will be unavailable or will decline to serve. None of the nominees
has any family relationship among themselves or with any executive officer of
Coram.
THE CORAM BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF ALL
NOMINEES FOR DIRECTOR IDENTIFIED BELOW TO SERVE UNTIL THE 1999 ANNUAL
MEETING OF STOCKHOLDERS AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY
ELECTED AND QUALIFIED.
INFORMATION CONCERNING NOMINEES TO THE BOARD OF DIRECTORS
Information is set forth below concerning the nominees for election as
directors of Coram. With the exception of Stephen A. Feinberg, all of the
nominees for election as directors at the Meeting are incumbent
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directors of Coram. Each nominee has furnished information as to his beneficial
ownership of Common Stock as of March 31, 1998, and, if not employed by Coram,
the nominee's principal occupation and business experience. Each nominee has
consented to being named in this Proxy Statement as a nominee for director of
Coram and has agreed to serve as a director of Coram if elected. Except as
provided below, none of the nominees for director entered into any arrangement
or understanding pursuant to which such person was to be selected as a director
or nominee for director.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH CORAM DIRECTOR SINCE
---- --- ------------------- --------------
<S> <C> <C> <C>
Donald J. Amaral............. 45 Chairman of the Board and
Chief Executive Officer 1995
William J. Casey............. 53 Director 1997
Stephen A. Feinberg.......... 38 Director --
Richard A. Fink.............. 43 Director 1994
Stephen G. Pagliuca.......... 43 Director 1994
L. Peter Smith............... 49 Director 1994
</TABLE>
Mr. Amaral was appointed Chairman of the Company's Board of Directors on
September 16, 1997. Mr. Amaral has served as a director and Chief Executive
Officer of the Company since October 13, 1995 and served as President from
October 1995 through December 1997. 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 1991 and April 1994. Summit was merged into OrNda in April 1994.
Mr. Amaral is also a member of the Board of Directors of Meditrust Corporation
and CareMatrix Corporation.
Mr. Casey has served as a director of Coram since September 1997. Since
1983, Mr. Casey has served as a consultant in the healthcare industry,
specializing in hospital management evaluation, hospital planning, managed care
contracting and turnaround services. From 1986 to the present, Mr. Casey has
also served as Contract Administrator for Emergency Department Physicians'
Medical Group, Inc. and its affiliated medical groups, which provide physician
services to non-governmental facilities. In addition, from 1988 to the present,
Mr. Casey has served as Contract Administrator for NP Medical Group, Inc., which
provides physician services to government facilities. Mr. Casey also serves as a
director of TriCounties Bank.
Stephen A. Feinberg was nominated for election as a director of Coram in
connection with the Meeting. Mr. Feinberg has actively managed separate pools of
capital since 1985. In December 1992, he founded Cerberus Partners, L.P., a
securities fund making investments in publicly traded and private debt, trade
claims, large and middle market bank loans, distressed real estate and public
and private equity, including post bankruptcy equity. Mr. Feinberg is Managing
Member of Cerberus Associates, L.L.C., the General Partner of Cerberus Partners,
L.P. Cerberus Associates, L.L.C. is affiliated with Feinberg Management, L.P.,
which is its research and administrative entity. In January 1996, Mr. Feinberg
also founded Styx Partners, L.P., a distressed securities fund investing only in
senior secured bank debt and originations of secured loans to distressed
companies, and co-founded The Long Horizons Fund, L.P. Mr. Feinberg is being
nominated pursuant to the right of the subordinated lenders under the Securities
Exchange Agreement to designate one member of the Board of Directors. Mr.
Feinberg has agreed to resign from the Board of Directors if the transactions
contemplated thereby are not consummated or the Securities Exchange Agreement is
otherwise terminated. Upon such resignation, pursuant to the Company's Bylaws,
the remaining directors will have the power to fill the vacancy created thereby.
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.
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
3
<PAGE> 7
investment opportunities. Mr. Pagliuca is also the Chairman of the Board for
Wesley Jensen Corporation and serves on the boards of Dade International,
Physicians Quality Care, Inc., Vivra, Inc. and Physio Control, Inc.
Mr. L. Peter 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.
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 Chief Executive
Officer and serves on the Board of Directors of Ralin Medical, Inc., a company
specializing in cardiac disease management. Mr. Smith also serves on the Board
of Directors of Sabratek Corporation and AMSYS, Inc.
MEETINGS AND COMMITTEES OF THE BOARD DURING 1997
During 1997, the Company's Board of Directors initially consisted of the
following seven persons: James M. Sweeney, who served as the Chairman of the
Board, Donald J. Amaral, Richard A. Fink, Andrew J. Nathanson, L. Peter Smith,
Stephen Pagliuca and Dr. Gail Wilensky. Mr. Nathanson, a designee of the former
holders of the Company's Subordinated Rollover Notes, resigned from the Board in
May 1997 concurrent with the transfer of such notes, which terminated the rights
of the holders thereof to nominate one member of the Board of Directors. Dr.
Wilensky resigned from the Board effective July 31, 1997, and Arne T. Alsin was
appointed on August 4, 1997 to fill the vacancy created by her departure. Mr.
Sweeney did not seek reelection to the Board at the 1997 Annual Meeting of
Stockholders. Mr. Amaral was elected to the position of Chairman of the Board at
that time. Mr. William Casey was elected as a new board member at the Company's
1997 Annual Meeting of Shareholders and all the remaining board members were
re-elected at that time. Mr. Alsin resigned from the Board effective December
18, 1997.
The Coram Board of Directors met 16 times during the fiscal year ended
December 31, 1997. Each director attended at least 75% of the aggregate of (i)
the total number of meetings of the Coram Board of Directors held subsequent to
the date of their election or appointment to the Board and (ii) the total number
of meetings held by all committees of the Board of Directors on which such
director served.
The Board of Directors has established an Audit Committee, a Compensation
Committee, a Nominating Committee, a Compliance and Quality Assurance Committee
and an Executive Committee.
Audit Committee. From January 1997 through August 1997, the Audit Committee
consisted of Messrs. L. Peter Smith and Pagliuca, each a non-employee director
of Coram. In September 1997, the Board appointed Messrs. Alsin, Casey and L.
Peter Smith to the Audit Committee. The Audit Committee's principal functions
are: (i) to recommend to the Board of Directors the independent public
accountants to be engaged by Coram and to arrange or approve the details of
their engagement, including the remuneration to be paid; (ii) to review with the
independent public accountants Coram's general policies and procedures with
respect to audits and accounting and financial controls, the general accounting
and reporting principles and practices applied in preparing the financial
statements and conducting financial audits of Coram, and to recommend to
management changes or improvements therein; and (iii) to perform such other
functions as the Board of Directors may from time to time designate. The Audit
Committee met three times during the fiscal year ended December 31, 1997.
Compensation Committee. From January 1997 through August 1997, the
Compensation Committee consisted of Messrs. Fink and Pagliuca, each a
non-employee director of Coram. In September 1997, the Board appointed Messrs.
L. Peter Smith and Pagliuca to the Compensation Committee. The Compensation
Committee's principal functions are: (i) to recommend to the Coram Board of
Directors the salaries and other terms of employment for the senior executive
officers of Coram and make recommendations to the Coram Board of Directors with
respect to proposals for new benefits, incentive plans or programs and (ii) to
administer the Company's Stock Option Plan and grant stock options and stock
issuances thereunder to all eligible individuals, including members of the
executive and managerial group. The Compensation Committee met twice during the
fiscal year ended December 31, 1997. In addition, the Compensation Committee
took action by written consent four times during the fiscal year ended December
31, 1997.
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<PAGE> 8
Nominating Committee. From January 1997 through August 1997, the Nominating
Committee consisted of Mr. Amaral and Mr. Sweeney. In September 1997, the Board
appointed Messrs. Amaral and L. Peter Smith to serve on the Nominating
Committee. The Nominating Committee's principal function is to nominate persons
for election to the Board of Directors at Coram's annual stockholder meetings or
for vacancies if and as they arise. The Nominating Committee will consider
nominations made by a stockholder provided that such stockholder complies with
certain procedures set forth in the Bylaws of the Company. Such stockholder
nominations must be made in writing to the Secretary of the Company in a timely
fashion. To be timely, notice must be delivered to or mailed and received at the
principal executive offices of the Company no less than 30 days nor more than 60
days prior to the meeting to which such nomination relates; provided, however,
that if less than 40 days' notice or prior public disclosure of the meeting is
given or made to stockholders, to be timely, notice by the stockholder must be
so received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's written notice must set forth: (a) as to
each person whom the stockholder proposes to nominate, (i) the name, age,
business address and residence address of the proposed nominee, (ii) the
principal occupation or employment of the proposed nominee, (iii) the class and
number of shares of the Company which are beneficially owned by the proposed
nominee, and (iv) any other information relating to the proposed nominee that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended; and (b) as to the stockholder giving the notice, (i) the name and
record address of the stockholder and (ii) the class and number of shares of the
Company which are beneficially owned by the stockholder. The Company may require
any proposed nominee to furnish such other reasonable information in order to
determine the eligibility of such proposed nominee to serve as a director of the
Company. The Nominating Committee took action twice during 1997.
Compliance and Quality Assurance Committee. The Compliance and Quality
Assurance Committee was established by the Board of Directors in February 1995.
Initially in 1997, the Compliance and Quality Assurance Board consisted of Dr.
Gail R. Wilensky (who resigned from the Board effective July 31, 1997) and
Richard A. Fink. In September 1997, the Board of Directors appointed Messrs.
Casey and Fink to the Compliance and Quality Assurance Committee. This committee
is responsible for overseeing and ensuring Coram's compliance with applicable
laws, regulations, and Coram's corporate code of conduct, as well as providing
oversight of Coram's corporate compliance program as it relates to the conduct
of its business to ensure that the standards of business, professional, legal
and personal ethics are being met by Coram in the delivery of its services and
products. The Compliance and Quality Assurance Committee met once during the
fiscal year ended December 31, 1997.
Executive Committee. The Executive Committee was established by the Board
of Directors in September 1997, to have and be able to exercise when the Board
of Directors of the Corporation are not in session all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Corporation other than those as to which the Board of Directors is required to
act as a whole under the Delaware General Corporation Law. The Executive
Committee includes Donald J. Amaral, Richard A. Fink, Stephen G. Pagliuca and L.
Peter Smith. The Executive Committee also has the power to review merger and
acquisition proposals and make recommendations to the Board with respect to such
proposals, and have such other powers as may lawfully be delegated to it by the
Board of Directors, not in conflict with specific powers conferred by the Board
of Directors upon any other committee thereof appointed by it, from time to
time. The Executive Committee did not meet in 1997.
COMPLIANCE WITH SECTION 16
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 and written representations from certain reporting persons, Coram
believes that during its fiscal year ended December 31, 1997, all of its
directors, executive officers and
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<PAGE> 9
greater than 10% beneficial owners were in compliance with these filing
requirements, with the exception of the following: (i) Richard M. Smith
inadvertently omitted disclosure of the repricing of options held by him in June
1997 on a Statement of Change in Beneficial Ownership on Form 4 and an Annual
Statement of Changes in Beneficial Ownership on Form 5 and (ii) Joseph D. Smith
inadvertently omitted disclosure of the ownership of 200 shares of the Company's
common stock on the Initial Statement of Beneficial Ownership of Securities on
Form 3 and inadvertently omitted disclosure of the acquisition of 12 shares of
the Company's common stock in his 1997 Annual Statement of Changes in Beneficial
Ownership.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
executive officers of Coram. The executive officers serve at the pleasure of the
Board of Directors of Coram. Biographical information with respect to Donald J.
Amaral is set forth under the caption "Information Concerning Nominees to the
Board of Directors" above.
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH CORAM
---- --- ----------------------
<S> <C> <C>
Donald J. Amaral....................... 45 Chairman of the Board and Chief Executive
Officer
Robert J. Mentzer...................... 45 Senior Vice President, East
Paul J. Quiner......................... 38 Senior Vice President and General Counsel
Wendy L. Simpson....................... 49 Executive Vice President and Chief
Financial Officer
Joseph D. Smith........................ 39 President, Resource Network Division
Richard M. Smith....................... 38 President and Secretary
Christopher J. York.................... 37 Chief Operating Officer, West
</TABLE>
Robert J. Mentzer has been Senior Vice President, East since March 1998.
Previously, Mr. Mentzer served as Vice President, Sales -- East and Vice
President, Sales -- Southeast since joining the Company in February 1997. From
January 1996 to January 1997, Mr. Mentzer had served as Division Vice
President -- East for Nursefinders. He served as Vice President of Sales -- East
from May 1994 to July 1995 and Region Vice President from April 1994 to May
1994. Mr. Mentzer served as General Manager for Abbey Healthcare Group, Inc.
from November 1993 to April 1994.
Paul J. Quiner has been Senior Vice President and General Counsel of Coram
since March 1996. Mr. Quiner served as Assistant General Counsel from July 1994
through February 1996. From September 1992 to July 1994, Mr. Quiner served as
Assistant General Counsel for T2 Medical, Inc. Previously, Mr. Quiner was a
partner in the Atlanta and Washington D.C. law firm of Alston & Bird.
Wendy L. Simpson has been Executive Vice President and Chief Financial
Officer since March 1998. Previously, Ms. Simpson held the positions of
Executive Vice President, Chief Operating Officer and Chief Financial Officer
for Transitional Hospitals Corporation from July 1994 to July 1997. From March
1991 to June 1994, she was Chief Financial Officer and Principal of Weisman
Taylor Simpson & Sabatino. Ms. Simpson also serves on the Board of Directors of
LTC Properties, Inc., a real estate investment trust.
Joseph D. Smith has been President, Resource Network Division, since March
1998. Prior to that time, Mr. Smith served as Chief Operating Officer -- East
since December 1996. Preceding that and since the Company's inception, Mr. Smith
served as Area Vice President -- Northeast. From 1993 until September 1994, Mr.
Smith was the Eastern Area Vice President of H.M.S.S., Inc. a regional home
infusion company acquired by Coram in September 1994.
Richard M. Smith has been the President of Coram since December 1997 and
has served as Secretary since July 1995. Mr. Smith also served as Chief
Financial Officer from August 1995, prior to which time he served as Vice
President, Tax and Treasury, from October 1994 to August 1995. From November
1993 to October 1994, Mr. Smith served as Vice President, Finance and Treasurer,
and Assistant Secretary, for CoreSource, Inc., a health care company
specializing in third party claims administration, workers compensation and
integrated health delivery systems.
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<PAGE> 10
Christopher J. York has been Chief Operating Officer, West since December
1996. Since the Company's inception, Mr. York had served as Area Vice
President -- Midwest. From 1993 until Coram's inception, Mr. York was the Vice
President of Sales and Operations of Medisys, Inc.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Fees for Board Service. Mr. Amaral, the only director who is also an
employee, receives no additional compensation for service on the Board of
Directors. Compensation for participation in the Board of Directors is at the
discretion of the Board. In addition to the reimbursement of out-of-pocket
expenses relating to meeting attendance, non-employee directors of Coram were
paid the following compensation for Board meetings attended during fiscal 1997.
<TABLE>
<S> <C>
Arne Alsin.................................................. $ 6,250
William Casey............................................... 5,500
James M. Sweeney............................................ 9,750
Richard A. Fink............................................. 15,000
Andrew J. Nathanson......................................... - 0 -
Stephen Pagliuca............................................ 10,750
L. Peter Smith.............................................. 13,000
Dr. Gail R. Wilensky........................................ 10,000
</TABLE>
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 Stock 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
continued to serve as a non-employee Board member on September 16, 1997,
received an automatic option grant under the program for 2,500 shares of Coram
Common Stock at an exercise price of $4.9375 per share, the fair market value on
such date. Additionally, each non-employee individual, upon being newly
appointed or elected to Coram's Board of Directors, is automatically granted, at
the time of such initial election or appointment, a non-statutory option to
purchase 75,000 shares of Common Stock. In 1997, automatic options to purchase
75,000 shares relating to newly appointed/elected individuals were granted to
(i) Mr. Alsin upon his appointment to the Board on August 4, 1997, at an
exercise price of $4.3125 per share and (ii) Mr. Casey upon his election to the
Board on September 16, 1997, at an exercise price of $4.9375 per share. With
regard to the automatic non-statutory stock options for both the newly
appointed/elected Board members and the continuing Board members, 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 of such shares. These shares will vest 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 1994 Stock 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. Mr. Alsin's non-statutory option to purchase 75,000 shares of Common
Stock was cancelled upon his resignation from the Board of Directors on December
18, 1997.
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.
On May 16, 1997, the Company's Board of Directors recognized that the
exercise prices of certain stock options issued under the 1994 Stock Option Plan
were significantly out of the money as a result of a
7
<PAGE> 11
substantial decline in Coram's stock price. To better incentivize and retain
employees of the Company, options held by, among others, all non-director
employees to purchase in the aggregate 2.8 million shares of the Company's
common stock were reissued to reflect an exercise price of $2.625 per share,
representing the fair market value of the Company's common stock on the date of
such reissuance. See "Report on Repricing of Options/SARs."
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the annual and long-term compensation earned
by the Chief Executive Officer, the four most highly compensated executive
officers of the Company (other than the Chief Executive Officer) who were
serving as executive officers of the Company at the end of 1997 and one
additional individual who would have been included among such four individuals
had he been serving as an executive officer of the Company at the end of 1997
(collectively the "Named Executive Officers") for services rendered in all
capacities to the Company and its subsidiaries for the year ended December 31,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- -------------
OTHER ANNUAL STOCK OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION(6) YEAR SALARY BONUS(2) COMPENSATION(4) (#) COMPENSATION
- ------------------------------ ---- -------- -------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Amaral 1997 $623,076 $ 90,000 $ -- 300,000 $ --
Director, Chairman and 1996 600,000 600,000(8) -- -- --
Chief Executive Officer 1995 120,834(1) -- -- 2,200,000 --
Daniel L. Frank(3) 1997 $203,733 $570,000(3) $ -- 200,000(5) $33,654(7)
Former Lithotripsy 1996 158,333 -- -- -- --
Division President
Paul J. Quiner 1997 $185,000 $ 35,000 $ -- 137,500(5) $ --
Senior Vice President 1996 180,270 83,750 -- 25,000 --
and General Counsel 1995 133,833 61,750 -- 50,000 --
Joseph D. Smith 1997 $235,809 $ 50,000 $ -- 300,000(5) $ --
President, Resource 1996 148,425 116,750 -- 25,000 --
Network Division 1995 134,187 54,416 -- 75,000 --
Richard M. Smith 1997 $252,732 $250,000 $ -- 650,000(5) $ --
President and Secretary 1996 201,458 205,500 -- -- --
1995 145,178 156,250 -- 300,000 --
Christopher J. York 1997 $235,809 $ 50,000 $ -- 325,000(5) $ --
Chief Operating Officer, 1996 161,501 117,375 -- 50,000 --
West 1995 136,354 69,375 30,120 75,000 --
</TABLE>
- ---------------
(1) Mr. Amaral joined the Company in October 1995.
(2) Unless otherwise indicated, reflects performance, retention and
discretionary bonuses paid in 1998, 1997, and 1996 for services rendered to
the Company in 1997, 1996 and 1995, respectively.
(3) Mr. Frank joined the Company in March of 1996. The above reflects a bonus
paid for services rendered to the Company in connection the Company's sale
of substantially all its assets in the Lithotripsy division (the Lithotripsy
Division") in 1997. Following the sale of the Lithotripsy Division in
October 1997, Mr. Frank's employment as President of the Lithotripsy
Division was terminated. See also "Employment Contracts, Termination of
Employment and Change of Control Arrangements."
(4) 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.
(5) Includes reissuance of certain stock options under the 1994 Stock Option
Plan. See "Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values" below.
8
<PAGE> 12
(6) Unless otherwise indicated, see information above under captions "Board of
Directors" and "Executive Officers" for employment history.
(7) The above reflects severance paid in 1997 in connection with Mr. Frank's
termination of employment following the sale of substantially of all its
assets in the Lithotripsy Division.
(8) In April 1997, fifty percent of Mr. Amaral's 1996 bonus was paid in cash and
fifty percent was paid in shares of common stock of the Company based on the
average closing price of the Company's common stock on the New York Stock
Exchange in the 30-day period immediately preceding the issuance of such
shares of common stock.
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, 1997. 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 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, 1997.
<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(1)
OPTIONS EMPLOYEES IN PER ------------------------------
NAME GRANTED FISCAL YEAR SHARE EXPIRATION DATE 0% 5% 10%
- ---- ---------- ------------ -------- --------------- ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Donald J. Amaral........... 300,000 12.89% $2.625 May 16, 2007 $ -- $495,255 $1,255,072
Daniel L. Frank............ -- -- -- -- -- -- --
Paul J. Quiner............. 62,500 2.68% 2.500 June 2, 2007 -- 98,265 249,022
Joseph D. Smith............ 150,000 6.44% 2.500 June 2, 2007 -- 235,835 597,653
Richard M. Smith........... 125,000 5.37% 2.500 June 2, 2007 -- 196,529 498,045
200,000 8.59% 3.125 December 17, 2007 -- 393,059 996,089
Christopher J. York........ 150,000 6.44% 2.500 June 2, 2007 -- 235,835 597,653
</TABLE>
- ---------------
(1) Potential realizable value is determined by taking the exercise price per
share and applying the stated annual appreciation rate compounded annually
for the term of the option, subtracting the exercise price per share at the
end of the period and multiplying the remaining number by the number of
options granted. Actual gains, if any, on stock option exercises and Coram
common stock holdings are dependent on the future performance of the Coram
Common Stock and overall stock market conditions. Does not reflect changes
in the market price of Coram Common Stock subsequent to December 31, 1997.
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, 1997 by each of the
Named Executive Officers and outstanding options held by each such officer at
December 31, 1997. None of the Named Executive Officers exercised any stock
appreciation rights during the 1997 fiscal year. No stock appreciation rights
were held by the Named Executive Officers at the end of the 1997 fiscal year.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED DECEMBER 31, 1997 DECEMBER 31, 1997(1)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Amaral............................ -- -- 1,466,653 1,033,347 $ -- $225,000
Daniel L. Frank ............................ -- -- 87,500 112,500 65,625 84,375
Paul J. Quiner ............................. -- -- 53,745 96,355 30,859 80,079
Joseph D. Smith............................. -- -- 83,839 216,161 62,879 180,871
Richard M. Smith............................ -- -- 219,280 430,720 164,460 238,665
Christopher J. York......................... -- -- 93,734 231,266 70,300 192,200
</TABLE>
9
<PAGE> 13
- ---------------
(1) Value is determined by subtracting the exercise price from the closing price
for the common stock as reported by the New York Stock Exchange on December
31, 1997 ($3.375) 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,
1997 and does not reflect market price changes subsequent to December 31,
1997.
REPORT ON PRICING OF OPTIONS/SARS
In May 1997, the Company's Board of Directors recognized that the exercise
price of certain stock options issued under the 1994 Stock Option Plan were
significantly out of the money as a result of a substantial decline in Coram's
stock price. To better align such options with the current fair market value of
Coram common stock, and thus better achieve the goal of aligning the interests
of such executive officers with those of the Company's stockholders, options
held by all employees (other than Donald J. Amaral) to purchase in the aggregate
2.8 million shares of the Company's common stock were reissued to reflect an
exercise price of $2.625 per share, representing the fair market value of the
Company's common stock on the date of such reissuance. See also "Compensation
Committee's Report on Executive Compensation -- Repricing of Stock Options." The
following table sets forth certain information concerning the repricing of stock
options held by the Named Executive Officers since the inception of the Company
in July 1994.
<TABLE>
<CAPTION>
NUMBER OPTION TERM
OF SECURITIES EXERCISE REMAINING
DATE UNDERLYING PRICE MARKET PRICE AT DATE OF
OF OPTIONS AT TIME OF AT TIME OF NEW EXERCISE REPRICING
NAME REPRICING REPRICED REPRICING REPRICING PRICE (IN YEARS)
- ---- --------- ------------- ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel L. Frank................ May 16, 1997 200,000 $ 5.125 $2.625 $2.625 8.85
Paul J. Quiner................. September 7, 1995 25,000 21.500 3.500 5.500 9.25
May 16, 1997 25,000 5.500 2.625 2.625 7.75
May 16, 1997 25,000 4.250 2.625 2.625 8.50
May 16, 1997 25,000 5.125 2.625 2.625 8.85
Joseph D. Smith................ September 7, 1995 25,222 16.125 3.500 5.500 9.85
September 7, 1995 24,778 16.125 3.500 5.500 9.85
May 16, 1997 25,222 5.500 2.625 2.625 7.75
May 16, 1997 24,778 5.500 2.625 2.625 7.50
May 16, 1997 75,000 4.250 2.625 2.625 8.50
May 16, 1997 25,000 3.875 2.625 2.625 9.25
Richard M. Smith............... September 7, 1995 24,305 16.125 3.500 5.500 9.85
September 7, 1995 695 16.125 3.500 5.500 9.85
May 16, 1997 24,305 16.125 2.625 2.625 7.50
May 16, 1997 695 16.125 2.625 2.625 7.50
May 16, 1997 100,000 2.980 2.625 2.625 9.25
May 16, 1997 200,000 4.250 2.625 2.625 8.50
Christopher J. York............ September 7, 1995 25,222 16.125 3.500 5.500 9.85
September 7, 1995 24,778 16.125 3.500 5.500 9.85
May 16, 1997 25,222 5.500 2.625 2.625 7.50
May 16, 1997 24,778 5.500 2.625 2.625 7.50
May 16, 1997 75,000 4.250 2.625 2.625 8.50
May 16, 1997 25,000 5.125 2.625 2.625 9.00
May 16, 1997 25,000 3.875 2.625 2.625 9.25
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Except for those agreements outlined below, the Company does not presently
have any employment contracts in effect with any of the Named Executive
Officers.
On October 13, 1995, Coram entered into an employment agreement with Donald
J. Amaral, for a three-year term commencing on such date, unless otherwise
terminated in accordance with the terms thereof. The Company extended the
agreement to Mr. Amaral 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 received a base salary of $600,000 per
annum, and the right to receive a performance bonus based on the Company's
reaching certain
10
<PAGE> 14
performance targets determined annually by the Compensation Committee. 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 $3.40 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 to the
Company's senior executives.
In May 1997, the Board of Directors approved an increase of Mr. Amaral's
base salary from $600,000 per annum to $650,000 per annum, the extension of the
term of Mr. Amaral's employment agreement until May 15, 2000 and the granting to
Mr. Amaral, as of June 2, 1997, of options to purchase an additional 300,000
shares of Coram Common Stock at a price of $2.625 per share. Subject to Mr.
Amaral's continued employment with the Company, such options will vest and
become exercisable in three equal annual installments on each of the first,
second and third anniversaries of their grant date and will immediately vest and
become exercisable in full upon the occurrence of any event resulting in the
full vesting of the original options granted under the employment agreement. As
of May 5, 1998, Mr. Amaral had not agreed to the foregoing extension of the term
of his employment agreement.
In September 1997, the Board of Directors approved certain contingent
"success fees" payable to Mr. Amaral as part of his employment agreement as
follows: (i) $1,000,000 upon the refinancing of the Company on terms acceptable
to the Board of Directors. The refinancing fee is to be paid in two segments (a)
$500,000 upon closing, and (b) $500,000 six months later provided that Mr.
Amaral is still employed by the Company at that date; and (ii) $4,000,000 upon
the sale of the Company on terms acceptable to the Board of Directors and
approved by the Company's stockholders, which would be payable on the earlier of
(a) the first anniversary of the sale if Mr. Amaral remains employed by the
Company or (b) involuntary termination, other than for cause, of Mr. Amaral
following the sale of the Company. [Consummation of the transactions
contemplated by the Securities Exchange Agreement will constitute a refinancing
for the purpose of the foregoing.]
In December 1997, at Mr. Amaral's request, the Board of Directors adopted a
resolution authorizing the payment of Mr. Amaral's salary, effective January 1,
1998, in shares of common stock of the Company with the number of shares issued
representing a cash value of the monthly base salary subject to normal or
required payroll deductions. The number of shares to be issued in payment of
such salary is calculated based on a per share price equal to the lesser of (i)
the closing price of the Company's common stock on the last business day of the
month, or (ii) the average closing price of the Company's common stock during
the thirty business days ending on the last business day of the month.
Shares subject to options granted under the 1994 Stock Option Plan to the
Company's Named 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 involuntary termination of the optionee's employment within
eighteen months following such acquisition. In addition, the Compensation
Committee, as the 1994 Stock 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 1994 Stock 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 involuntarily terminated following such
hostile take-over.
11
<PAGE> 15
In April 1997, the Board approved certain retention bonuses, change in
control payments and minimum severance to the Named Executive Officers as
follows:
<TABLE>
<CAPTION>
RETENTION CHANGE IN MINIMUM
BONUS(1) CONTROL PAYMENT(2) SEVERANCE(3)
--------- ------------------ ------------
<S> <C> <C> <C>
Daniel L. Frank(4)......................... $157,500 $210,000 12 months
Paul J. Quiner............................. 138,750 185,000 12 months
Joseph D. Smith............................ 187,500 375,000 12 months
Richard M. Smith........................... 187,500 375,000 12 months
Christopher J. York........................ 187,500 375,000 12 months
</TABLE>
- ---------------
(1) Reflects retention bonuses due for active employment through December 31,
1998. Prior to December 31, 1998, retention bonus will be paid upon the
earlier of (i) termination by the Company (other than for cause) on a
prorated monthly basis or (ii) involuntary termination following a Change in
Control.
(2) Reflects amount due following a Change in Control defined as (i) a merger or
consolidation in which the Company is not the surviving entity; (ii) the
sale, transfer or other disposition of all or substantially all the assets
of the Company; (iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
of the total combined voting power of Coram's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such merger.
(3) Represents minimum severance, including health and welfare benefits, due
upon termination by the Company (other than for cause) or involuntary
termination following a Change in Control.
(4) In connection with the termination of Daniel Frank as the Company's
Lithotripsy Division President in October 1997, the Company agreed to a
salary continuation of twelve months. In addition, Mr. Frank's rights to a
retention bonus and change of control payment were terminated.
In connection with her terms of employment, Wendy L. Simpson is entitled to
a minimum severance of twelve months.
In December 1997, concurrent with his appointment as President of the
Company, Mr. Richard M. Smith's retention bonus (effective July 1, 1999), change
in control payments and minimum severance were revised as follows:
<TABLE>
<CAPTION>
RETENTION CHANGE IN MINIMUM
BONUS(1) CONTROL PAYMENT(2) SEVERANCE(3)
--------- ------------------ ------------
<S> <C> <C> <C>
Richard M. Smith........................... $240,000 $480,000 24 months
</TABLE>
- ---------------
(1) Reflects retention bonus due for active employment through June 30, 1999.
Prior to June 30, 1999, retention bonus will be paid upon the earlier of (i)
termination by the Company (other than for cause) on a prorated monthly
basis or (ii) involuntary termination following a Change in Control.
(2) Reflects amount due following a Change in Control.
(3) Represents minimum severance, including health and welfare benefits, due
upon termination by the Company (other than for cause) or involuntary
termination following a Change in Control.
12
<PAGE> 16
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth as of March 31, 1998 (unless otherwise
disclosed) 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 and each person nominated to become
a Director of the Company, (iii) each of the Named Executive Officers 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) OUTSTANDING(2)
------------------- ------------------- ---------------
<S> <C> <C>
Donald J. Amaral................................... 1,666,837 3.31%
William J. Casey................................... 1,900 *
Stephen A. Feinberg(4)............................. -- --
Richard A. Fink.................................... 6,666 *
Stephen G. Pagliuca................................ 6,666 *
L. Peter Smith..................................... 36,747 *
Daniel L. Frank.................................... 108,333 *
Paul J. Quiner..................................... 66,262 *
Joseph D. Smith.................................... 99,682 *
Richard M. Smith................................... 242,713 *
Christopher J. York................................ 115,831 *
All executive officers, directors and nominees for
director, as a group (13 persons)................ 2,351,637 4.61%
Fidelity Management(3)............................. 4,027,427 9.05%
</TABLE>
- ---------------
* Less than 1%
(1) Unless otherwise indicated, 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
purposes of computing the percentage of the person holding such options or
warrants but not for purposes of computing the percentage of any other
person. The aggregate ownership numbers presented include the following
shares of common stock subject to options for the following persons: Mr.
Amaral 1,566,653; Mr. Fink 6,666; Mr. Pagliuca 6,666; Mr. L. Peter Smith
6,666; Mr. Frank 108,333; Mr. Quiner 61,557; Mr. J. Smith 99,470; Mr. R.
Smith 242,713; and Mr. York 111,970. Except as indicated by footnote, Coram
has been advised that the persons and entity named in the table above have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Percentage computations are based on
48,803,214 shares of common stock outstanding as of March 31, 1998.
(3) Fidelity Management and Research Company ("Fidelity") reports sole voting
power with respect to shares of common stock reported above. The information
with respect to Fidelity is as of December 31, 1997 as reported to the
Securities and Exchange Commission on Form 13G. The address of Fidelity is
82 Devonshire Street, Boston, MA 02109.
(4) Information reported above does not include approximately 13,487,267 shares
issuable upon conversion of the Series B Notes to be issued to Cerberus
Partners, L.P. pursuant to the Securities Exchange Agreement.
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.
13
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From January 1997 through August 1997, the Compensation Committee was
comprised of Richard A. Fink and Stephen G. Pagliuca. In September 1997, the
Board appointed L. Peter Smith to the Compensation Committee to replace Mr.
Fink. Messrs. Fink, L. Peter Smith and Pagliuca are non-employee directors of
Coram who have not previously been in Coram's employ. Mr. Fink is a partner in a
law firm that rendered various legal services to Coram in 1997. No executive
officer of Coram serves as a member of the board of directors or compensation
committee of any entity which has one or more executive officers serving as a
member of Coram's Board of Directors or Compensation Committee.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee sets the base salary of executive
officers each fiscal year and approves the individual bonus programs to be in
effect for those individuals. The Board of Directors has delegated to the
Compensation Committee the authority to award stock options under the Coram
Option Plan to Coram's executive officers and other key employees and may
delegate authority with respect to other compensation issues from time to time.
The following is a summary of the policies which governed our decisions
concerning the compensation paid to Coram's executive officers for the fiscal
year ended December 31, 1997, including the compensation reflected in the tables
which appear elsewhere in this Proxy Statement, and have continued to govern
such decisions during the current fiscal year except where noted.
General Compensation Policy
Introduction. Our major objectives for the 1997 fiscal year were to
continue a compensation structure which would retain the services of those
executive officers of Coram whom we identified as essential to the Company's
long-term financial success and to attract additional executive officers to the
Company. Accordingly, we developed a compensation policy with three principal
objectives: (i) to maintain key executive compensation consistent with the
healthcare industry, (ii) to offer base salary levels and annual incentive
compensation sufficient to attract new executives and induce certain existing
management to remain with the Company to continue to lead and participate in the
Company's efforts and (iii) to provide an equity component in the form of stock
option grants sufficient to strengthen the mutuality of interests between
management and Coram's stockholders.
Factors. The primary factors which we considered in establishing the
components of each executive officer's compensation package for the 1997 fiscal
year are summarized below. We may, however, apply entirely different factors,
particularly different measures of performance, in setting executive
compensation for future fiscal years.
- Base Salary. As indicated, the base salary of each executive officer for
the 1997 fiscal year was based on salary levels we believed were
necessary to retain and attract certain executive officers. On the basis
of our knowledge of the alternate site health care industry and
turn-around situations, we believe that these base salary levels are
competitive with the companies with which Coram competes for executive
talent. During 1997, we engaged Human Capital Services Practice Group of
Arthur Andersen, Chicago to review our compensation program and through
one or more external compensation surveys for the industry, have
independently confirmed the specific percentiles at which the base
salary levels in effect for Coram's executive officers stood in relation
to other companies in the industry. We felt that the most appropriate
vehicle to retain and attract executive officers and to contribute to
Coram's financial success was to have a substantial portion of their
total compensation package be in the form of the long-term equity
component described below.
Because it was not our intent for the 1997 fiscal year to target the
base salary levels in effect for the executive officers at a designated
percentile of the salary levels in effect for other companies in the
alternate site health care industry, there is no meaningful correlation
between Coram's salary levels and the rates of base salary in effect for
those companies which are taken into account in the Industry Index
utilized for purposes of the stock price performance graph which follows
this report.
14
<PAGE> 18
- Annual Incentive Compensation. Incentive compensation is awarded based
upon the Company's financial performance and improvement, as well as the
Committee's recommendations regarding current position, specific
accomplishments and personal performances of executive officers. All
executive officers have the opportunity to earn cash awards. The Board
of Directors believes that significant accomplishments have been made in
the current year to stabilize the Company and form a foundation for the
future. As a result, the Committee recommended discretionary awards for
certain executive officers performance in the current fiscal year.
- Long-Term Incentive Compensation. The option grants which we make under
the 1994 Stock Option Plan to the executive officers are intended to
advance our overall objective in subjecting a substantial portion of
each officer's compensation package to Company performance measured in
terms of stock price appreciation. Accordingly, the option grants were
designed to align the interests of Coram's executive officers with those
of the shareholders and provide each executive officer with a
significant incentive to manage Coram from the perspective of an owner
with an equity stake in the business. Each grant allows the executive
officer to acquire shares of Coram Common Stock at a fixed price per
share (the market price on the grant date) over a specified period of
time (up to ten years). The option shares vest in periodic installments
over a specified period (generally four years), contingent upon the
executive officer's continued employment with Coram. Accordingly, the
options will provide a return to the executive officer only if he or she
remains with Coram, and then only if the price of Coram's Common Stock
appreciates.
The size of the option grant to each executive officer was set at a level
which we felt was appropriate to create a meaningful opportunity for stock
ownership based upon the executive officer's current position with Coram,
internal comparability with option grants made to other Company executives, the
executive officer's current level of performance and his or her potential for
future responsibility and promotion over the option term.
We have established certain general guidelines by which we seek to target a
fixed number of unvested option shares for each executive officer based upon his
or her current position with Coram and his or her potential for growth within
Coram, i.e., future responsibilities and possible promotions over the option
term. However, we do not strictly adhere to these guidelines in making stock
option grants, and the relative weight which we give to the various factors
varies from individual to individual, as the circumstances warrant.
In light of the policies described above governing the Committee's actions,
particularly our desire to induce existing management to remain with the
Company, we have taken several actions during the current fiscal year to provide
additional compensation to those officers playing a significant role in the
Company's turn-around efforts and to better align certain officers equity
compensation to the Company's current market position. Certain of the actions
described below were based in part on recommendations made in the Compensation
Review. This review was commissioned in connection with considerations raised
following the termination of the proposed merger of the Company with Integrated
Health Services, Inc. The use of the Compensation Review should not be
considered indicative of a general change in the Board's policy regarding
external compensation surveys.
In April 1997, based on recommendations set forth in the Compensation
Review and other relevant considerations, we awarded bonuses, in an aggregate
amount of $709,000, to certain Coram officers in recognition of performance
during the 1996 fiscal year. In June 1997, we approved certain retention bonuses
in an aggregate amount of $1,749,750 payable to 13 key executives contingent on
active employment with Coram though December 31, 1998, and minimum severance
agreements of 6 months to 12 months. In addition, we approved change in control
payments in the amount of $1,885,000 to 8 key executives payable the earlier of
one year or upon involuntary termination following a change of control. Further,
in June 1997, we awarded additional options to purchase an aggregate of 786,250
shares of Coram Common Stock to 12 key executives. Such options contain terms
substantially similar to prior grants received by such officers, including
vesting over a four-year period contingent upon continued employment with the
Company.
15
<PAGE> 19
CEO Compensation
Mr. Amaral's compensation was set pursuant to the terms of the employment
agreement between Mr. Amaral and Coram entered into in October 1995. As
disclosed in the Summary Compensation Table, Mr. Amaral received a bonus of
$600,000 for services performed during fiscal 1996, 50% of which was paid in
cash in April 1997 and 50% which was paid in shares of the Company's common
stock. The amount of such bonus was determined pursuant to the terms of Mr.
Amaral's employment agreement, based on the Company's exceeding certain EBITDA
goals set by the Board of Directors for fiscal 1996. In March 1998, Mr. Amaral
received a bonus of $90,000 for services performed during fiscal 1997.
In May 1997, the Board of Directors approved an amendment to Mr. Amaral's
agreement providing for, among other things, an increase in his base salary to
$650,000 and an extension of the term of such agreement until May 2000. In
approving the terms of such amendment we relied in part on an executive
compensation review and recommendations prepared for Coram by the Human Capital
Services Practice Group of Arthur Andersen (the "Compensation Review"). Other
factors relevant to the Committee's approval of the amendment, in addition to
the factors described above applicable to all executive officers, include the
critical role Mr. Amaral has played in the Company's turnaround efforts and the
Company's need to insure continuity in the chief executive officer position.
In September 1997, the Board of Directors approved certain contingent
"success fees" payable to Mr. Amaral as part of his employment agreement as
follows: (i) $1,000,000 upon the refinancing of the Company on terms acceptable
to the Board of Directors. [Consummation of the transactions contemplated by the
Securities Exchange Agreement will constitute a refinancing for the purpose of
the foregoing.] The refinancing fee is to be paid in two segments (a) $500,000
upon closing, and (b) $500,000 six months later provided that Mr. Amaral is
still employed by the Company at that date; and (ii) $4,000,000 upon the sale of
the Company on terms acceptable to the Board of Directors and approved by the
Company's stockholders, which would be payable on the earlier of (a) the first
anniversary of the sale if Mr. Amaral remains employed by the Company or (b)
involuntary termination, other than for cause, of Mr. Amaral following the sale
of the Company.
In December, 1997, at Mr. Amaral's request, the Board of Directors adopted
a resolution authorizing the payment of Mr. Amaral's salary, effective January
1, 1998, in shares of common stock of the Company with the number of shares
issued representing a cash value of the monthly base salary subject to normal or
required payroll deductions. The number of shares to be issued in payment of
such salary is calculated based on a per share price equal to the lesser of (i)
the closing price of the Company's common stock on the last business day of the
month, or (ii) the average closing price of the Company's common stock during
the thirty business days ending on the last business day of the month.
See "Employment Contracts, Termination of Employment and Change of Control
Arrangements" for a description of compensation relating to Mr. Amaral,
including a description of an amendment to Mr. Amaral's employment agreement
effective May 16, 1997 and the revision to Mr. Amaral's success fee in
September, 1997.
Repricing of Stock Options
In May 1997, the Company's Board of Directors recognized that the exercise
price of certain stock options issued under the 1994 Stock Option Plan were
significantly out of the money as a result of a substantial decline in Coram's
stock price. To better align such options with the current fair market value of
Coram common stock, and thus better achieve the goal of aligning the interests
of such executive officers with those of the Company's stockholders, options
held by all employees (other than Donald J. Amaral) to purchase in the aggregate
2.8 million shares of the Company's common stock were reissued to reflect an
exercise price of $2.625 per share, representing the fair market value of the
Company's common stock on the date of such reissuance. See also "Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values."
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<PAGE> 20
Compliance with Internal Revenue Code Section 162(m)
As a result of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), Coram is allowed a federal income tax deduction for
compensation paid to certain executive officers, to the extent that compensation
does not exceed $1 million per officer in any one year. This limitation applies
to all compensation paid to the covered executive officers which is not
considered to be performance based. However, any payments that qualify as
performance-based compensation are not taken into account for purposes of this
limitation. On the basis of this distinction, the 1994 Stock Option Plan has
been specifically designed to assure that any compensation deemed paid in
connection with the exercise of stock options granted under that plan with an
exercise price equal to the fair market value of the option shares on the grant
date will qualify for performance-based treatment.
We did not expect that the compensation to be paid to Coram's executive
officers for the 1998 fiscal year would exceed the $1.0 million limit per
officer as defined in Section 162(m). However, upon payment to Mr. Amaral of his
success fee in respect of the refinancing of the Rollover Notes under the
Securities Exchange Agreement, we expect that Mr. Amaral's compensation for
fiscal 1998 would exceed such limit. While the Company has considered and
intends to consider the provisions of Section 162(m) in connection with any
performance based compensation, the Compensation Committee and the Board did
not, and in the future does not necessarily, intend to structure compensation to
avoid disallowance of any tax deductions in light of available tax deductions to
the Company and the requirements imposed under Section 162(m) for compensation
to be fully deductible by the Company for income tax purposes. In general, we
will defer any decision on whether to restructure one or more components of the
compensation paid to the executive officers so as to qualify those components as
performance-based compensation that will not be subject to the $1.0 million
limitation.
The foregoing report has been submitted by the undersigned in our capacity
as members of Coram's Compensation Committee.
Stephen G. Pagliuca
L. Peter Smith
Richard A. Fink (member until
September 1997)
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<PAGE> 21
STOCK PERFORMANCE GRAPH
The following graph shows a comparison of the cumulative total stockholder
returns assuming reinvestment of dividends for (i) Coram; (ii) the companies
included in the Standard & Poor 500 Stock Index; and (iii) Apria Healthcare
Group, Inc., Olsten Corporation, American Homepatient, Inc., and Option Care,
Inc., which comprise the Company's Peer Group, for the period commencing July
11, 1994, the date the Common Stock was first publicly traded, through December
31, 1997. The stockholder returns are based upon an assumed $100 investment made
on July 11, 1994 in each of four charted alternatives. The chart does not
reflect changes in Coram's stock price subsequent to December 31, 1997.
COMPARISON OF 29 MONTH CUMULATIVE TOTAL RETURN*
AMONG CORAM HEALTHCARE CORPORATION, THE S&P 500 INDEX,
THE DOW JONES HEALTH CARE PROVIDERS INDEX AND PEER GROUP
CRH
<TABLE>
<CAPTION>
CORAM
MEASUREMENT PERIOD HEALTHCARE
(FISCAL YEAR COVERED) CORP PEER GROUP S & P 500
<S> <C> <C> <C>
7/11/94 100 100 100
12/31/94 115 103 104
12/31/95 30 130 143
12/31/96 34 90 176
12/31/97 23 77 234
</TABLE>
- ---------------
* Based on $100 invested on July 11, 1994 in stock or on June 30, 1994 in
index -- including reinvestment of dividends. Fiscal year ending December 31,
1996.
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<PAGE> 22
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 1997 and is continuing to
render services in 1998.
Mr. Nathanson, a director of Coram from December 1995 to May 1997, is a
Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ"), an investment banking firm that rendered various financial services to
Coram in 1997. DLJ provided a $150.0 million bridge loan to Coram in April 1995
in connection with Coram's acquisition of certain assets of the home infusion
business of Caremark, Inc and Caremark International, Inc. under a Securities
Purchase Agreement and held the Rollover Note issued in connection therewith
until May 1997, at which time DLJ sold the Rollover Note to Cerberus Partners,
L.P. which subsequently sold partial interests therein to Goldman Sachs Credit
Partners, L.P. and Foothill Capital Corporation. The Securities Purchase
Agreement provided that DLJ had the right to appoint a director to Coram's Board
of Directors if an event of default occurred and so long as it was continuing
provided however, that the right terminated 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
which right expired upon the sale of the Rollover Note referenced above. Fees
for financial advisory and investment banking services to DLJ approximated $6.5
million in 1995. On October 4, 1996, DLJ was engaged by Coram to act as a
financial advisor to Coram in connection with the possible sale, merger,
consolidation or other business combination involving Coram. By letter dated
July 17, 1997, DLJ agreed to the termination of such engagement, together with
all other prior engagement agreements between Coram and DLJ, effective upon
payment by Coram of approximately $0.5 million to DLJ in reimbursement of
out-of-pocket expense incurred by DLJ pursuant thereto. No other amounts have
been paid, or are owed, to DLJ pursuant to such engagement.
L. Peter Smith, a director of Coram since 1994, also serves on the Board of
Directors of Sabratek Corporation, a manufacturer of medical devices. On
February 26, 1997, the Company agreed to purchase up to $13.0 million of
multi-therapy infusion pumps and related proprietary telemedicine technology
from Sabratek Corporation. The pricing schedule applicable to the infusion pumps
and related technology to be purchased was negotiated by certain of Coram's
management after proposals from other manufacturers for comparable equipment had
been solicited. Prior to entering into the agreement with Sabratek, the
Company's clinical and operations staffs conducted field level trials and tests
on infusion pumps made by several different manufacturers, including Sabratek.
Under the purchase agreement, the Company purchased from Sabratek Corporation
approximately $11.5 million in multi-therapy infusion pumps and $4.3 million in
related equipment and supplies during 1997.
Mr. Feinberg, a nominee for election to the Board of Directors, serves as
General Partner for Cerberus Partners, L.P. which, together with Goldman Sachs
Credit Partners, L.P. and Foothill Capital Corporation, are the holders of the
Company's Subordinated Rollover Notes (the "Rollover Notes"). On June 2, 1997,
the Company refinanced $150.0 million owed its lenders under its former senior
credit facility (the "Senior Credit Facility") through a refinancing transaction
with Goldman Sachs Credit Partners L.P. ("GSCP"). GSCP acquired the debt through
an assignment from Chase Manhattan Bank and subsequently sold partial interests
therein to Cerberus Partners, L.P. and Foothill Capital Corporation. As a
result, the Company and GSCP entered into a Tenth Amendment to the Senior Credit
Facility. The Tenth Amendment further extended the maturity date of the Senior
Credit Facility, reinstated the Company's ability to borrow and repay loans
under the revolving portion of the Senior Credit Facility, allowed the Company
to make certain business acquisitions not previously permitted, modified
interest rates and revised certain financial and other covenants. Interest was
based on margins over certain domestic and foreign indices and was 9.25% as of
December 31, 1997. In January 1998, the Company cancelled and repaid in full all
principal, interest and related fees totaling approximately $80.1 million due
under the Senior Credit Facility. In May 1998, the Company entered into the
Securities Exchange Agreement with the holders of the Rollover Notes as more
fully described under Proposal 2, Approval of Issuance of the Series B
Convertible Notes, presented below. Pursuant to such Agreement, the holders of
the securities issued thereunder have the right to nominate one member of the
Board of Directors and have so nominated Mr. Feinberg.
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<PAGE> 23
PROPOSAL 2
APPROVAL OF ISSUANCE OF THE SERIES B CONVERTIBLE NOTES
GENERAL
The Board of Directors has approved and the Company has entered into a
Securities Exchange Agreement, dated May 6, 1998 (the "Securities Exchange
Agreement") with the holders of the Company's Subordinated Rollover Notes (the
"Rollover Notes"), Cerberus Partners, L.P., Goldman Sachs Credit Partners, L.P.
and Foothill Capital Corporation (the "Noteholders"), providing for the
cancellation of the Rollover Notes, and the warrants to purchase up to 20% of
the outstanding common stock issued or issuable in connection therewith, in
exchange (the "Exchange") for the payment of $4.3 million in cash and the
issuance by the Company to the Noteholders of (i) $150 million in principal
amount of Series A Senior Subordinated Unsecured Notes (the "Series A Notes")
which will bear interest at the rate of 9 7/8% per annum (subject to adjustment
in certain circumstances to as high as 11 1/8%) and (ii) $87.9 million in
original principal amount of 8% Series B Senior Subordinated Convertible Notes
(the "Series B Notes"). The Series B Notes are convertible by the holders
thereof at any time and from time to time into shares of Common Stock. Under
Rule 312.03 of the New York Stock Exchange ("NYSE") Listed Company Manual, the
approval of the Company's stockholders is a prerequisite to, among other things,
the issuance of securities convertible into shares in excess of 20% of the
common stock outstanding (subject to certain inapplicable exceptions). If the
full amount of the Series B Notes were converted into shares of Common Stock at
the initial conversion price thereof, the total issuance of common stock would
be approximately 37.5% of the number of shares of Common Stock outstanding upon
conversion and approximately 60% of Common Stock currently outstanding.
Therefore, under the NYSE rules, the issuance of the Series B Notes is subject
to approval of the Company's stockholders.
THE SERIES B NOTES
The term of the Series B Notes is ten years from the date of issuance. The
Series B Notes bear interest at the rate of 8% of the outstanding principal
amount per annum, payable quarterly in arrears in cash or through the issuance
of additional Series B Notes at the election of the Company; principal is
payable at maturity.
The Series B Notes are convertible into shares of the Company's Common
Stock at a conversion price (the "Conversion Price") initially equal to $3.00
per share, subject to downward reset to the prevailing market prices (calculated
based on the average of the closing prices for each of the preceding 20 days) on
each of April 13, 1999 and October 13, 1999. The Conversion Price also is
subject to customary anti-dilution adjustments, including adjustments for sales
of common stock (other than pursuant to existing obligations or employee benefit
plans) at a price below the Conversion Price prevailing at the time of such
sale. Cash will be issued in lieu of fractional shares upon conversion of the
Series B Notes.
The Series B Notes are redeemable, in whole or in part, at the option of
the holders thereof in connection with any change of control of the Company (as
defined in the Securities Exchange Agreement), if the Company ceases to hold and
control certain interests in its significant subsidiaries, or upon the
acquisition of the Company or certain of its subsidiaries by a third party. In
such instances, the Series B Notes are so redeemable at 103% of the then
outstanding principal amount plus accrued interest. The Series B Notes are also
redeemable at the option of the holders thereof upon maturity of the Series A
Notes at the outstanding principal amount thereof plus accrued interest.
The exchange of the Rollover Notes for the Series A Notes and the Series B
Notes was determined by the Company Board of Directors to be necessary to avoid
a default in respect of the payment of amounts aggregating approximately $78.2
million which otherwise would have become due and payable on March 31, 1998 on
the Rollover Notes, which amounts consist of previously deferred interest and
fees, as well as accrued interest on the Rollover Notes. In addition, the
consummation of the Exchange will result in annual savings to the Company on
interest expense of approximately $17.5 million due to lower interest rates on
the Series A Notes and the Series B Notes compared to interest rates ranging
from approximately 16.5% to 17.25% on the Rollover Notes.
20
<PAGE> 24
If approved by the stockholders, the Series B Notes would be issued upon
the closing of the Securities Exchange Agreement, which the Company anticipates
will occur as soon as practicable following the Meeting and, in any event, on or
prior to June 30, 1998.
The approval of the issuance of the Conversion Shares upon conversion of
the Series B Notes is a condition to the consummation of the Exchange Agreement.
Even if such approval is obtained, there is no assurance that the other
conditions to the consummation of the Exchange will be satisfied or waived by
the Noteholders, or that the Exchange will be consummated. If the Exchange is
not consummated on or prior to June 30, 1998, interest and deferred fees payable
as of June 30, 1998 on the Rollover Notes of approximately $87.7 million in the
aggregate will become immediately due. As of the date hereof, the Company does
not have the financial resources needed to satisfy its obligations under the
Rollover Notes which would arise on such date in such event.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS, HAVING DETERMINED THAT THE EXCHANGE IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, UNANIMOUSLY
RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED ISSUANCE OF THE
SERIES B NOTES.
PROPOSAL 3
AUTHORIZATION TO APPROVE AN AMENDMENT
TO THE 1994 STOCK OPTION PLAN
The Board of Directors recommends that the stockholders approve an
amendment to the 1994 Stock Option Plan to increase the number of options to
purchase shares of authorized Common Stock available for issuance thereunder
from 7,600,000 to 10,000,000. As of March 31, 1998, 7,088,790 of the 7,600,000
options to purchase shares of Common Stock authorized for issuance were issued
and outstanding. As a result, the Company is left with an insufficient number of
options of its Common Stock available to award to certain to the Company's
officers and key employees to work towards the future growth of the Company and
to retain such key personnel.
The Board of Directors of the Company believes that it is in the best
interest of the Company and its stockholders that there be a greater number of
options to purchase Common Stock of the Company available to grant to certain
employees in order to give the Company the flexibility it needs to conduct its
business and accommodate future growth by providing flexibility to incentivize
officer and employee performance and to align more fully the interests of the
Company's officers and employees with those of its stockholders. The Board of
Directors believes that the current number of remaining available options will
not provide sufficient flexibility for corporate action in the future.
In addition, the approval of the Amendment will enable the Company to issue
options (the "Replacement Options") to purchase 500,000 and 800,000 shares of
Common Stock to Ms. Simpson and Mr. Amaral, respectively, in exchange for the
cancellation of options to purchase such amounts previously granted to them
outside of the Plan (the "Out-of-plan Options"). The exercise price, vesting
schedule and other terms of the Replacement Options will be identical to those
of the out-of-plan options they will replace. By issuing the Replacement Options
in substitution of the Out-of-plan Options following approval of the Option Plan
Amendment, the compensation reflected by such options will not be subject to the
limitation under Section 162(m) of the Code.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE PROPOSED
AMENDMENT TO THE 1994 STOCK OPTION/STOCK ISSUANCE PLAN.
21
<PAGE> 25
PROPOSAL 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The accounting firm of Ernst & Young LLP served as independent auditors of
the Company for the years ended December 31, 1997, 1996, 1995 and 1994. Subject
to stockholder ratification at the Annual Meeting, the Board of Directors has
selected Ernst & Young LLP as the Company's independent auditors for the fiscal
year ending December 31, 1998. The affirmative vote of a majority of the shares
of the Company's voting stock represented and voted at the Annual Meeting is
required for ratification of the appointment of Ernst & Young LLP as the
Company's independent auditors.
A representative of Ernst & Young LLP is expected to attend the Meeting.
Ernst & Young LLP will have an opportunity to make statements and will be
available to respond to appropriate questions from stockholders.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Annual Meeting. If any other matter is properly presented for consideration at
the Annual Meeting, it is intended that the proxies will be voted by the persons
named therein in accordance with their discretion on such matters.
ADDITIONAL INFORMATION; INCORPORATED BY REFERENCE
The Company has enclosed with this Proxy Statement its 1998 Annual Report
to Stockholders which includes therein the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 as filed with the Securities and
Exchange Commission (the "Commission") on March 31, 1998 (the "1997 10-K"). The
Consolidated Financial Statements of the Company included in the 1997 10-K and
the Consolidated Financial Statements of the Company included in the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1998 as filed with
the Commission on May , 1998, including in each case the Notes and Schedules
thereto, are hereby incorporated by reference herein.
The information contained in this Proxy Statement should be read together
with the information incorporated by reference herein. This Proxy Statement
incorporates by reference information which is not presented herein or delivered
herewith. The document (other than exhibits to such document) is available
without charge to any person, including any beneficial owner to whom this Proxy
Statement is delivered, upon written or oral request. Requests for such document
should be directed to Coram Healthcare Corporation, 1125 Seventeenth Street,
Suite 2100, Denver, Colorado 80202, Attention: Richard M. Smith, telephone:
(303) 292-4973. In order to ensure timely delivery of the documents prior to the
Meeting, any such request should be made by June 10, 1998.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at the Company's annual stockholder meetings, consistent with rules
adopted by the Commission. Proposals for the 1999 Annual Meeting of Stockholders
must be received by the Company not less than 30 days nor more than 60 days
prior to the scheduled date of the meeting (or, if less than 40 days' notice or
prior public disclosure of the date of the meeting is given, the 10th day
following the earlier of (i) the day such notice was mailed or (ii) the day such
public disclosure was made) to be considered for inclusion in the proxy
statement and form of proxy relating to the 1999 Annual Meeting of Stockholders.
Any such proposals should be addressed to: Corporate Secretary, Coram Healthcare
Corporation, 1125 Seventeenth Street, Suite 2100, Denver, Colorado 80202.
22
<PAGE> 26
Under Rule 14a-8 adopted by the Commission under the Exchange Act,
proposals of stockholders, to be presented at the 1999 meeting of Stockholders,
must be received in reasonable time before the solicitation of proxies relating
thereto is made, must conform to certain requirements as to form and may be
omitted from the proxy statement and proxy under certain circumstances. In order
to avoid unnecessary expenditures of time and money by stockholders,
stockholders are urged to review this rule and, if questions arise, to consult
legal counsel prior to submitting a proposal.
ANNUAL REPORT TO STOCKHOLDERS
The 1997 Annual Report of the Company, as filed with the Commission, is
being mailed to the stockholders with this Proxy Statement. The 1997 Annual
Report is not to be considered part of the proxy soliciting material.
CORAM HEALTHCARE CORPORATION
Denver, Colorado
May 7, 1998
23
<PAGE> 27
PROXY
CORAM HEALTHCARE CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Stephen G. Pagliuca and Donald J. Amaral, or
any of them, the proxies and attorneys-in-fact for the undersigned, with full
power of substitution and revocation, to represent and vote on behalf of the
undersigned, at the 1998 annual meeting of stockholders of Coram Healthcare
Corporation (the "Company") to be held at The Westin Hotel, 1672 Lawrence
Street, Denver, Colorado on June 24, 1998, at 12:00 noon local time, and any
adjournments or postponements thereof, all shares of the common stock, $.001 par
value per share, of the Company standing in the name of the undersigned or which
the undersigned may be entitled to vote as follows on the reverse side.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF ITEMS 1, 2, 3 AND 4.
TO BE COMPLETED AND SIGNED ON THE REVERSE SIDE SEE REVERSE SIDE
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned. If no direction is made, this proxy will be voted FOR Items 1,
2, 3 and 4.
1. ELECTION OF DIRECTORS
NOMINEES: Donald J. Amaral, William J. Casey, Stephen A. Feinberg, Richard A.
Fink, Stephen G. Pagliuca and L. Peter Smith.
[ ] FOR [ ] WITHHELD
2. TO APPROVE THE PROPOSED ISSUANCE OF THE SERIES B NOTES, CONVERTIBLE INTO
COMMON STOCK OF THE COMPANY, PURSUANT TO THE TERMS OF THE SECURITIES EXCHANGE
AGREEMENT DATED MAY 6, 1998 AMONG THE COMPANY, CERBERUS PARTNERS, L.P.,
GOLDMAN SACHS CREDIT PARTNERS, L.P. AND FOOTHILL CAPITAL CORPORATION.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. TO APPROVE AN AMENDMENT TO THE COMPANY'S 1994 STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(CONTINUED AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
4. ELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE COMPANY FOR THE
YEAR ENDED DECEMBER 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote for the election of
such substitute nominee(s) as such proxies may select in the event that one
or more of the nominees named in Item 1 above becomes unable to serve, and
upon such other business as may properly come before the meeting or any
adjournment or postponement thereof.
The submission of this proxy if properly executed revokes all prior proxies
given by the undersigned.
Receipt of the Notice of Annual Meeting of Stockholders and accompanying Proxy
Statement is hereby acknowledged.
PLEASE SIGN EXACTLY AS NAME
APPEARS ON THIS CARD. WHEN
SHARES ARE HELD BY JOINT
TENANTS, BOTH SHOULD SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN
IN FULL CORPORATE NAME BY
PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME
BY AUTHORIZED PERSON.
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SIGNATURE: DATE:
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SIGNATURE: DATE:
