<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
-------------------------
COMMISSION FILE NUMBER 1-11343
-------------------------
CORAM HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 33-0615337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1125 SEVENTEENTH STREET 80202
SUITE 2100 (Zip Code)
DENVER, CO
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (303) 292-4973
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock, $.001
par value, as of August 11, 1998, was 48,887,107.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CORAM HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,116 $ 108,950
Cash limited as to use.................................... 1,789 1,029
Accounts receivable, net of allowance of $17,743 and
$24,047................................................ 93,429 86,142
Inventories............................................... 19,130 14,277
Other current assets...................................... 11,583 12,587
--------- ---------
Total current assets.............................. 128,047 222,985
Property and equipment, net................................. 20,203 20,050
Other assets................................................ 24,989 22,253
Other deferred costs........................................ 796 7,668
Goodwill, net of accumulated amortization of $63,480 and
$57,937................................................... 239,227 243,864
--------- ---------
Total assets...................................... $ 413,262 $ 516,820
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 25,633 $ 39,084
Current maturities of long-term debt...................... 598 150,225
Other current liabilities................................. 48,998 45,296
--------- ---------
Total current liabilities......................... 75,229 234,605
Long-term debt, including revolving lines of credit......... 238,511 150,428
Minority interest in consolidated joint ventures............ 2,021 1,016
Other liabilities........................................... 2,343 1,588
Deferred income taxes, non-current.......................... 4,157 4,157
Stockholders' equity:
Preferred stock, par value $.001, authorized 10,000
shares, none issued.................................... -- --
Common stock, par value $.001, authorized 100,000 shares
at June 30, 1998 and December 31, 1997, issued and
outstanding 48,887 at June 30, 1998 and 48,069 at
December 31, 1997...................................... 49 48
Additional paid-in capital................................ 423,234 437,608
Accumulated deficit....................................... (332,282) (312,630)
--------- ---------
Total stockholders' equity........................ 91,001 125,026
--------- ---------
Total liabilities and stockholders' equity........ $ 413,262 $ 516,820
========= =========
</TABLE>
See accompanying notes.
2
<PAGE> 3
CORAM HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenue...................................... $117,173 $ 120,379 $224,862 $ 244,294
Cost of service.................................. 87,882 85,304 168,382 169,229
-------- --------- -------- ---------
Gross profit..................................... 29,291 35,075 56,480 75,065
Operating expenses:
Selling, general and administrative expenses... 21,625 22,826 42,698 46,478
Provision for estimated uncollectible
accounts.................................... 3,577 4,104 7,243 8,392
Amortization of goodwill....................... 2,778 3,597 5,543 7,209
Income from litigation settlement.............. -- (156,792) -- (156,792)
-------- --------- -------- ---------
Total operating expense................ 27,980 (126,265) 55,484 (94,713)
-------- --------- -------- ---------
Operating income................................. 1,311 161,340 996 169,778
Other income (expense):
Interest income................................ 218 425 662 610
Interest expense............................... (6,083) (18,230) (20,258) (39,726)
Termination fee................................ -- 15,182 -- 15,182
Other income, net.............................. 728 632 1,061 1,094
-------- --------- -------- ---------
Income (loss) before income taxes and minority
interests...................................... (3,826) 159,349 (17,539) 146,938
Income tax expense............................. 400 201 1,400 250
Minority interests in net income of
consolidated joint ventures................. 302 2,377 713 4,505
-------- --------- -------- ---------
Net income (loss)................................ $ (4,528) $ 156,771 $(19,652) $ 142,183
======== ========= ======== =========
Earnings (loss) per common share................. $ (0.09) $ 3.29 $ (0.40) $ 3.03
======== ========= ======== =========
Earnings (loss) per common share -- assuming
dilution....................................... $ (0.09) $ 2.99 $ (0.40) $ 2.73
======== ========= ======== =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
CORAM HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1998 1997
--------- --------
<S> <C> <C>
Net cash (used in) provided by operating activities......... $ (22,087) $ 22,976
Cash flows from investing activities:
Purchases of property and equipment....................... (3,911) (7,822)
Other..................................................... (620) (540)
--------- --------
Net cash used in investing activities............. (4,531) (8,362)
--------- --------
Cash flows from financing activities:
Sales of stock, including exercise of stock options....... 10 384
Repayment of debt......................................... (80,226) (23,697)
--------- --------
Net cash used in financing activities............. (80,216) (23,313)
--------- --------
Net decrease in cash and cash equivalents................. $(106,834) $ (8,699)
========= ========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Depreciation and amortization for the three and six months ended June 30,
1998 and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1998 1997 1998 1997
------- -------- ------- -------
<S> <C> <C> <C> <C>
Depreciation........................................... $2,936 $ 3,075 $ 5,936 $ 6,522
Amortization of goodwill............................... 2,778 3,597 5,543 7,209
Financing costs (included in interest expense)......... 40 5,249 4,998 14,588
------ ------- ------- -------
Total........................................ $5,754 $11,921 $16,477 $28,319
====== ======= ======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
During the six months ended June 30, 1997, non-cash activity included
cancellation of the Company's Junior Subordinated PIK Notes totaling $120.0
million as a result of the litigation settlement with Caremark. See Note 2.
See accompanying notes.
4
<PAGE> 5
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BASIS OF PRESENTATION
Business Activity. Coram Healthcare Corporation and its subsidiaries
("Coram" or the "Company") are primarily engaged in providing alternate site
(outside the hospital) infusion therapy and related services throughout the
United States. In addition, the Company provides services through one branch in
the province of Ontario, Canada. Other services offered by the Company include
mail-order pharmacy, pharmacy benefit management, ancillary network management
services and other non-intravenous infusion products and services.
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such regulations. The unaudited condensed consolidated
financial statements reflect all adjustments and disclosures that are, in the
opinion of management, necessary for a fair presentation. All such adjustments
are of a normal recurring nature. Certain amounts in the 1997 financial
statements have been reclassified to conform to the 1998 presentation.
Management does not believe the effect of such reclassifications are material.
The results of operations for the interim period ended June 30, 1998, are not
necessarily indicative of the results of the full fiscal year. For further
information, refer to the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K, as amended, for
the year ended December 31, 1997.
Provision for Estimated Uncollectible Accounts. Management believes the net
carrying amount of accounts receivable is fairly stated and that the Company has
made adequate provision for uncollectible accounts based on all information
available. However, no assurance can be given as to the level of future
provisions for uncollectible accounts, or how they will compare to the levels
experienced in the past.
Earnings per Share. In 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share ("Statement 128"). Statement 128
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to fully
diluted earnings per share under the previous earnings per share methodology.
Earnings per share amounts for all periods have been presented and, where
appropriate, restated to conform to
5
<PAGE> 6
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Statement 128 requirements. The following table sets forth the computation
of basic and diluted earnings per share for the three and six months ended June
30, 1998 and 1997 (in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Numerator for basic earnings per share.... $(4,528) $156,771 $(19,652) $142,183
======= ======== ======== ========
Denominator:
Weighted average shares................. 48,818 44,181 48,651 43,539
Contingently issuable shares.............. -- 3,500 -- 3,436
------- -------- -------- --------
Denominator for basic earnings per
share................................ 48,818 47,681 48,651 46,975
Effect of other dilutive securities:
Stock options........................... -- -- -- 319
Warrants................................ -- 4,790 -- 4,729
------- -------- -------- --------
Denominator for diluted earnings per
share -- adjusted weighted average
shares and assumed conversion........ 48,818 52,471 48,651 52,023
======= ======== ======== ========
Earnings (loss) per common share.......... $ (0.09) $ 3.29 $ (0.40) $ 3.03
======= ======== ======== ========
Earnings (loss) per common
share -- assuming dilution.............. $ (0.09) $ 2.99 $ (0.40) $ 2.73
======= ======== ======== ========
</TABLE>
In the three months and six months ended June 30, 1998 and 1997, basic
earnings per share data was computed by dividing net income or loss by the
weighted average number of common shares and contingently issuable shares
outstanding during the period. In 1998, diluted earnings per share computations
do not give effect to stock options, warrants to purchase common stock or
convertible securities, as their effect would have been anti-dilutive. In 1997,
diluted earnings per share is adjusted for the dilutive effect of stock options
and warrants to purchase common stock.
Segment Reporting. Effective January 1, 1998, the Company adopted the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information ("Statement 131"). Statement 131 superseded FASB Statement No. 14,
Financial Reporting for Segments of a Business Enterprise. Statement 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. Statement 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Statement 131 does not require the disclosure of segment information in the
interim statements in the initial year of adoption. However, if applicable,
comparative information for 1998 interim periods shall be reported in financial
statements for interim periods in 1999.
2. CAREMARK LITIGATION SETTLEMENT
In June 1997, the Company entered into a $165.0 million litigation
settlement for litigation arising out of the purchase of certain assets of the
home infusion business (the "Caremark Business") of Caremark, Inc., a wholly
owned subsidiary of Caremark International, Inc. ("Caremark") in 1995. Under the
terms of the settlement, the Junior Subordinated PIK Notes totaling
approximately $100.0 million principal and $20.0 million accrued interest
(payable semiannually in PIK Notes of the same type) were cancelled with all
payments thereunder forgiven. Additionally, Caremark agreed to pay $45.0 million
in cash to the Company, which was received September 2, 1997. Of the $45.0
million cash received, $3.6 million was placed in escrow pending
6
<PAGE> 7
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reconciliation of certain lockbox issues, which were settled at a nominal gain
in June 1998. Additionally, as part of the settlement, Caremark assigned and
transferred to Coram all of Caremark's claims and causes of action against
Caremark's auditors, Price Waterhouse LLP, related to the lawsuit. In June 1997,
the Company recorded settlement income of $156.8 million, which represents the
$165.0 million settlement less related costs of $8.2 million.
3. SALE OF LITHOTRIPSY BUSINESS
On August 20, 1997, the Company signed an agreement with Integrated Health
Services, Inc. ("IHS") for the sale of the Company's interest in its thirteen
lithotripsy partnerships, the stock of its equipment service company and certain
related assets (the "Lithotripsy Business"). Effective September 30, 1997, the
Company completed the transaction as to all of its Lithotripsy Business other
than its interests in three lithotripsy partnerships. Pursuant to a side
agreement amending the August 20, 1997 purchase agreement, the Company's
interests in the three remaining partnerships were placed in escrow pending the
satisfaction of certain conditions. Following satisfaction of these conditions,
two of the partnerships were conveyed to IHS effective October 3, 1997. Due to
the Company's and IHS's inability to obtain the consent of the other partner to
the transfer of Coram's interest therein, the Company's interest in the
remaining partnership was returned to the Company.
Effective June 1, 1998, the Company signed an agreement with IHS for the
sale of the Company's remaining lithotripsy partnership for an aggregate
purchase price of $1.0 million payable in common stock of IHS. Accordingly, the
Company recorded a gain on the sale of business of $0.7 million in the quarter
ended June 30, 1998.
4. TERMINATED MERGER WITH IHS
On October 19, 1996, the Company, IHS and IHS Acquisition XIX, Inc., a
wholly owned subsidiary of IHS ("Merger Sub") entered into a merger agreement
providing for the merger of Merger Sub with and into the Company. If the merger
had been consummated, the Company would have become a wholly-owned subsidiary of
IHS.
On March 30, 1997, Coram, IHS and Merger Sub executed an amendment to the
merger agreement, which was to become effective April 4, 1997. On April 4, 1997,
the Company received from IHS a written notice of termination of the amendment
and the merger agreement. Pursuant to the terms of the merger agreement and as a
result of such termination, IHS paid the Company $21.0 million on May 6, 1997.
Accordingly, in the second quarter of 1997, the Company recorded other income of
$15.2 million, representing the $21.0 million termination fee less legal,
professional and other costs related to the terminated merger of $5.8 million.
5. ACQUISITIONS AND RESTRUCTURING
Certain agreements related to previously acquired businesses or interests
therein provide for additional contingent consideration to be paid by the
Company. The amount of additional consideration, if any, is generally based on
the financial performance of the acquired companies. The Company may be required
to pay approximately $2.3 million, subject to increase, based on the Company or
its subsidiaries exceeding certain revenue or income targets and changes in the
market value of the Company's stock. Subject to certain elections by the Company
or the sellers of such acquired entities, a maximum of approximately $1.4
million of these contingent obligations, subject to increase, may be paid in
cash with the remaining to be paid in shares of common stock of the Company. If
these contingent payments are made, they will be recorded as additional goodwill
in the period in which the payment becomes probable.
7
<PAGE> 8
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Merger and Restructuring. As a result of the formation of Coram in 1994 and
the acquisition of the Caremark Business in 1995, the Company initiated the
Coram Consolidation Plan and the Caremark Business Consolidation Plan. These
plans were initiated in order to reduce operating costs, improve productivity
and gain efficiencies through consolidation of redundant infusion centers and
corporate offices, reduction of personnel, and elimination or discontinuance of
investments in certain joint ventures and other non-infusion facilities.
The Company continually evaluates the accruals and estimated costs to
complete such consolidation plans and may continue to adjust amounts recorded as
contingencies related to lease buyouts, contractual obligations and other
facility reductions. Under the two plans, the Company has made total payments
and asset disposals through June 30, 1998 as follows (in thousands):
<TABLE>
<CAPTION>
BALANCE AT
CHARGES THROUGH JUNE 30, 1998 JUNE 30, 1998
--------------------------------- ----------------------
CASH NON-CASH FUTURE CASH TOTAL
EXPENDITURES CHARGES TOTAL EXPENDITURES CHARGES
------------ -------- ------- ------------ -------
<S> <C> <C> <C> <C> <C>
Coram Consolidation Plan:
Merger Costs.......................... $27,700 $ 600 $28,300 $ 200 $28,500
======= ======= ======= ====== =======
Personnel Reduction Costs............. $20,300 $ 600 $20,900 $ 300 $21,200
Facility Reduction Costs.............. 12,000 21,500 33,500 100 33,600
Discontinuance Costs.................. 1,900 29,400 31,300 400 31,700
------- ------- ------- ------ -------
Total Restructuring Costs..... $34,200 $51,500 $85,700 $ 800 $86,500
======= ======= ======= ====== =======
Caremark Business Consolidation Plan:
Personnel Reduction Costs............. $11,300 $ -- $11,300 $ -- $11,300
Facility Reduction Costs.............. 9,050 3,900 12,950 3,750 16,700
------- ------- ------- ------ -------
Total Restructuring Costs..... $20,350 $ 3,900 $24,250 $3,750 $28,000
======= ======= ======= ====== =======
</TABLE>
The balance in the "Accrued Merger and Restructuring" liability at June 30,
1998 consists of future cash expenditures of $4.8 million reflected in the above
table and $2.9 million of other accruals. The Company currently estimates that
the future cash expenditures related to both the Coram and Caremark Business
Consolidation Plans will be made in the following periods: 25% through June 30,
1999, 5% through June 30, 2000, 15% through June 30, 2001, and 55% through June
30, 2002, and thereafter. The Company believes it has adequate reserves as of
June 30, 1998, to meet future expenditures related to the Coram Consolidation
Plan and the Caremark Business Consolidation Plan. However, there is no
assurance that the reserves will be adequate or that the Company will generate
sufficient working capital to meet future expenditures.
8
<PAGE> 9
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
Long-term debt is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Former Senior Credit Facility............................... $ -- $ 80,000
Rollover Note, including accrued interest................... -- 219,241
Series A Senior Subordinated Unsecured Notes................ 150,000 --
Series B Senior Subordinated Convertible Notes.............. 87,922 --
Other obligations, including capital leases, at interest
rates ranging from 6% to 16%, collateralized by certain
property and equipment.................................... 1,187 1,412
-------- ---------
239,109 300,653
Less current scheduled maturities........................... (598) (150,225)
-------- ---------
$238,511 $ 150,428
======== =========
</TABLE>
As of December 31, 1997, the Company's principal credit and debt agreements
consisted of arrangements that were entered into on April 6, 1995 at the time of
the acquisition of the Caremark Business. At December 31, 1997, these agreements
included (i) borrowings under a Credit Agreement with Chase Manhattan Bank
(formerly Chemical Bank) as Agent (the "Former Senior Credit Facility") and (ii)
a subordinated rollover note (the "Rollover Note").
In January 1998, the Company repaid in full all principal, interest and
related fees totaling approximately $80.1 million due under the Former Senior
Credit Facility and terminated such facility. Interest on the Former Senior
Credit Facility was based on margins over certain domestic and foreign indices
and was 8.94% upon repayment. Additionally, in 1995 warrants were issued to the
Company's lenders under the Former Senior Credit Facility valued at
approximately $8.0 million, their value at the date of issuance, and were
accounted for as interest expense through June 1997. Accordingly, the Company
charged approximately $1.7 million to interest expense during the six months
ended June 30, 1997 in relation to these warrants.
Through April 13, 1998, the Rollover Note carried an interest rate that was
based on various indices plus a margin that increased by 0.25% quarterly and was
16.75% upon cancellation effective as of such date. During the three and six
months ended June 30, 1998, an additional $1.4 million and $10.3 million,
respectively, was accrued on the Rollover Note. In addition, as long as the
Rollover Note was outstanding, the holders had the right to receive warrants to
purchase up to 20% of the outstanding shares of the common stock of the Company
(the "Warrants") on a fully diluted basis. The Warrants were accounted for as
interest expense and additional paid-in capital. Accordingly, the Company
recorded interest expense related to the Warrants of $3.2 million in the three
and six months ended June 30, 1998.
On May 6, 1998, the Company entered into a Securities Exchange Agreement
(the "Securities Exchange Agreement") with the holders of its Rollover Note,
Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation (collectively the "Holders"). The Securities Exchange Agreement
provides for the cancellation of the Rollover Note (including deferred interest
and fees) and the Warrants in an exchange (the "Exchange"), effective April 13,
1998, for the payment of $4.3 million in cash and the issuance by the Company to
the Holders of (i) $150.0 million in principal amount Series A Senior
Subordinated Unsecured Notes (the "Series A Notes") and (ii) $87.9 million in
original principal amount of 8% Series B Senior Subordinated Convertible Notes
(the "Series B Notes"). In addition, under the Securities Exchange Agreement,
the Holders of the Series A and Series B Notes were given the right to approve
certain new debt and the right to name one director to the Company's Board of
Directors, who was elected to the board in June 1998. The Securities Exchange
Agreement in which the Series A Notes and the Series B Notes
9
<PAGE> 10
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
were issued contains certain other customary covenants and events of default. At
June 30, 1998, the Company was in compliance with all of these covenants.
The consummation of the Exchange was contingent upon the satisfaction of
certain conditions prior to closing of the Securities and Exchange Agreement on
June 30, 1998. All conditions were satisfied with the exception of the condition
requiring the Company to execute an agreement for a new senior credit facility.
Accordingly, on June 30, 1998 the Company entered into the First Amendment and
Waiver (the "Amendment") to the Securities Exchange Agreement, and the Exchange
was consummated. The Amendment waived the condition under the Securities
Exchange Agreement requiring the Company to execute an agreement for a new
senior credit facility on or prior to June 30, 1998. In addition, under the
Amendment, the Holders of the Series A and Series B Notes have agreed to extend
the Company up to $60.0 million of senior secured debt (the "New Senior Credit
Facility") subject to the completion of definitive agreements on or prior to
September 30, 1998. Under the proposed New Senior Credit Facility, currently
under negotiation, the Company would pay an upfront fee of 1.0% payable upon
execution, the outstanding indebtedness will bear interest at prime plus 1.5%
and have a final maturity of 2 1/2 years from closing. In addition, under the
proposed New Senior Credit Facility, subject to customary anti-dilution
adjustments, the Company would issue warrants to purchase up to 1.9 million
shares of common stock of the Company that would bear a $0.01 exercise price.
The Series A Notes mature on the later of October 2000 or 90 days after the
maturity date of the New Senior Credit Facility to be obtained by the Company.
The Series A Notes bear interest at the rate of 9.875% (subject to adjustment to
a maximum of 11.125% on September 30, 1998 or March 31, 1999 if certain
performance standards are not achieved) per annum, payable quarterly in arrears
in cash or through the issuance of additional Series A Notes at the election of
the Company. The Holders can require the Company to pay interest in cash if the
Company exceeds a certain interest coverage ratio. During the three months and
six months ended June 30, 1998, interest expense on the Series A Notes was $3.2
million. On July 15, 1998, Series A Notes totaling $3.8 million were issued in
lieu of cash payment of interest due through such date.
The Series B Notes mature April 2008 and bear interest at the rate of 8%
per annum, payable quarterly in arrears in cash or through the issuance of
additional Series B Notes at the election of the Company. During the three
months and six months ended June 30, 1998, interest expense on the Series B
Notes was $1.5 million. Pursuant to a letter agreement dated July 15, 1998
between the Company and the Holders of the Series B Notes, interest due through
July 15, 1998 of $1.8 million was deferred to the earlier of (i) the completion
and funding of the New Senior Credit Facility or (ii) August 15, 1998 and will
accrue interest at a rate of 8% from such date through the date of payment. 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 will also be subject
to customary anti-dilution adjustments, including adjustments for sale 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 paid in lieu of fractional shares upon conversion of the Series B Notes.
The Series A and 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 A and Series B Notes are 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
10
<PAGE> 11
CORAM HEALTHCARE CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
at the outstanding principal amount thereof plus accrued interest. In addition,
the Series A Notes are callable at 103% of the then outstanding principal amount
plus accrued interest at the option of the Company.
In July 1998, the Company issued secured promissory notes (the "Promissory
Notes") in the aggregate principal amount of $6.0 million to the Holders of the
Series A and B Notes. The Promissory Notes will mature August 20, 1998 and bear
interest at a rate of 12% per annum, payable in cash on the maturity date of the
Promissory Notes. The Promissory Notes are collateralized by certain accounts
receivable of the Company and certain of its subsidiaries.
7. LITIGATION
The Company is a party to certain litigation that could, if their outcomes
were unfavorable, have a material adverse effect on the Company's financial
position, results of operations or liquidity. The Company intends to vigorously
defend itself in these matters. Nevertheless, due to the uncertainties inherent
in litigation, the ultimate disposition of these matters cannot be presently
determined. For a discussion of certain legal proceedings to which the Company
is a party, see Part I -- Item 3. "Legal Proceedings" contained in the Company's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1997.
The Company is also a party to various other legal actions arising out of
the normal course of its business. Management believes that the ultimate
resolution of such other actions will not have a material adverse effect on the
Company's financial position, results of operations or liquidity of the Company.
Nevertheless, due to the uncertainties inherent in litigation, the ultimate
disposition of these actions cannot presently be determined.
8. INCOME TAXES
The effective income tax rates for the three months and six months ended
June 30, 1998 and 1997 differ substantially from the expected combined federal
and state income tax rates calculated using applicable statutory rates as a
result of fully valuing the deferred tax assets.
As of June 30, 1998, deferred tax assets are net of a $118.7 million
valuation allowance. Realization of deferred tax assets is dependent upon the
ability of the Company to generate taxable income in the future. Deferred taxes
relate primarily to temporary differences consisting, in part, of accrued
restructuring costs, the charge for goodwill and other long-lived assets,
allowances for doubtful accounts that are not deductible for income tax purposes
until paid or realized and to net operating loss carry-forwards that are
deductible against future taxable income.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements (as such term is defined in the private Securities Litigation Reform
Act of 1995) and information relating to Coram that are based on the beliefs of
the management of Coram as well as assumptions made by and information currently
available to the management of Coram. When used in this Report, the words
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions are intended to identify forward-looking statements. Such statements
reflect the current views of Coram with respect to future events and are subject
to risks and uncertainties that could cause actual results to differ materially
from those contemplated in such forward-looking statements. The risk factors set
forth in the Company's Annual Report on Form 10-K, as amended, constitute
important cautionary statements identifying important factors that could cause
actual results to differ from those in such forward-looking statements. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Coram does not undertake any obligation
to release publicly any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
BACKGROUND
Business Strategy. The Company's business strategy is focused on the basic
factors that could lead to profitability: revenue generation programs, cost
reduction, quality improvement and cash collections. The Company continues to
focus on business relationships where it can provide high quality of care and
operate profitably. The Company is continuing to emphasize marketing efforts
aimed at improving its therapy mix and physician relationships and also has
continued the development of its specialty programs such as provider network
development and management for managed care payors, disease-state carve-outs
(i.e., vertical integration along disease-specific categories), transplant
programs, mail order prescription and pharmacy benefit management services and
women's health programs. Cost reduction efforts have focused on reduction of
corporate expenses, assessment of poorly performing branches and a review of
branch efficiencies. Delivery of quality service is being monitored through an
internal task force, more rigorous reporting and independent patient
satisfaction surveys gathered throughout the year. Further, management continues
to concentrate on reimbursement through an emphasis on improving billing and
cash collections and continued assessment of systems support for reimbursement.
While management believes the implementation of its business strategy has
improved operating performance, no assurances can be given as to its ultimate
success.
The settlement of the litigation with Caremark (the "Caremark Litigation"),
completion of the sale of the Company's Lithotripsy Business and the termination
of the Company's proposed merger with IHS, permit management of the Company to
focus on operations and strategic alternatives to enable the Company to realize
its potential in the changing market for alternate site infusion therapy
services.
Five Year Capitated Agreement with Aetna U.S. Healthcare, Inc. In April
1998, the Company entered into a five year capitated agreement with Aetna U.S.
Healthcare, Inc. ("Aetna USHC") for the management and provision of certain home
health services, including home infusion, home nursing, respiratory therapy,
durable medical equipment, hospice care and home nursing support for several of
Aetna USHC's disease management programs. Effective July 1, 1998, the Company
began earning capitated payments on a monthly basis for covered members, assumed
certain financial risk for certain home health services and began providing
certain management services for a network of home health providers through its
Resource Network Division. The Company's network of participating providers
includes certain subsidiaries of the Company and it serves certain persons
enrolled in Aetna USHC's HMO-based plans in the eight state area covered under
the agreement who are presently not committed to other networks. As of July 1,
1998 the number of members covered under the agreement in such plans totaled
approximately 2.2 million lives. The Company expects the operation of this
agreement to have an impact on the Company beginning in the third quarter of
1998. Based on information available, the Company estimates future annual
revenues of approximately $80.0 million. Ultimately, profitability under this
agreement will depend on the level of utilization of services and the cost of
service to the Company. While the Company anticipated profitability under this
agreement based on the information available to it at the time of entering into
this agreement, initial levels of calls for services are higher than
anticipated. No assurance can be given that actual experience will result in the
realization of profitability under this agreement. See also "Liquidity and
Capital Resources."
12
<PAGE> 13
Debt Restructuring and Refinancing. At December 31, 1997, the Company had
two principal long-term debt instruments, the Former Senior Credit Facility and
the Rollover Note and related Warrants, the combined outstanding balance of
which was approximately $300.7 million. In January 1998, the Company repaid in
full all amounts due under the Former Senior Credit Facility, and the Former
Senior Credit Facility was terminated. In addition, pursuant to the Securities
Exchange Agreement, effective April 1998, the remainder of the Company's
long-term debt was restructured. As a result, the Company experienced a
reduction in interest expense of approximately $9.0 million and $12.7 million,
respectively, during the three months and six months ended June 30, 1998
compared to 1997.
On May 6, 1998, the Company entered into the Securities Exchange Agreement
with the Holders of the Rollover Note. Under the terms of the Securities
Exchange Agreement, the Rollover Note and the Warrants were cancelled in
exchange for the payment of $4.3 million in cash and the issuance by the Company
to the Holders of (i) $150.0 million in Series A Notes and (ii) $87.9 million in
Series B Notes. The consummation of the Exchange was contingent upon the
satisfaction of certain conditions prior to closing of the Securities and
Exchange Agreement on June 30, 1998. All conditions were satisfied with the
exception of the condition requiring the Company to execute an agreement for a
new senior credit facility. Accordingly, on June 30, 1998 the Exchange was
consummated and the Company entered into the First Amendment and Waiver to the
Securities Exchange Agreement. Based on Rollover Note interest rates ranging
from approximately 16.50% to 17.25%, the Exchange placed the Company in the
position to reduce its annual interest expense related to this debt by
approximately $17.0 million (not including interest on amounts deferred or on
additional Series A and B Notes issued in lieu of cash interest payments).
The Amendment waived the condition under the Securities Exchange Agreement
requiring the Company to execute an agreement for a new senior credit facility
on or prior to June 30, 1998. In addition, under the Amendment, the Holders of
the Series A and Series B Notes have agreed to extend the Company up to $60.0
million of senior secured debt subject to the completion of definitive
agreements on or prior to September 30, 1998. Under the proposed New Senior
Credit Facility, currently under negotiation, the Company would pay an upfront
fee of 1.0% payable upon execution, the outstanding indebtedness will bear
interest at prime plus 1.5% and have a final maturity of 2 1/2 years from
closing. In addition, under the proposed New Senior Credit Facility, subject to
customary anti-dilution adjustments, the Company would issue warrants to
purchase up to 1.9 million shares of common stock of the Company that would bear
a $0.01 exercise price. There can be no assurance that the Company will be able
to secure the New Senior Credit Facility or that it will be able to do so on
commercially acceptable terms. See Note 6 of the Notes to Unaudited Condensed
Consolidated Financial Statements.
In July 1998, the Company issued Promissory Notes in the aggregate
principal amount of $6.0 million to the Holders of the Series A and B Notes. The
Promissory Notes will mature August 20, 1998 and bear interest at a rate of 12%
per annum, payable in cash on the maturity date of the Promissory Notes. In
addition the Promissory Notes are collateralized by certain accounts receivable
of the Company and certain of its subsidiaries.
Strategic Alternatives. Future strategic alternatives currently being
considered by the Company include, among others, the pursuit of opportunities in
its core alternate site infusion therapy business, including consolidation with
or acquisition of other companies in its core business or in businesses
complimentary to the Company's core business. The Company is evaluating
potential acquisitions in markets that permit the Company to grow its local or
regional business either through its core infusion therapy business or through
complementary alternate site services such as mail order pharmacy, pharmacy
benefit management, respiratory therapy and durable medical equipment.
Completion of the debt restructuring, combined with the addition of the New
Senior Credit Facility, will allow the Company to make a series of strategic
acquisitions. The first of these acquisitions was completed effective June 30,
1998 with the acquisition of HealthQuest Infusions, LLC ("HealthQuest") for a
total purchase price of $2.5 million. HealthQuest is a home infusion therapy
company with operations in Idaho, Montana and Wyoming, whose annualized revenues
average approximately $2.0 million. There can be no assurance that any further
acquisitions or other strategic alternatives will be consummated or will be
available to the Company on commercially acceptable terms.
13
<PAGE> 14
Factors Affecting Recent Operating Results. The most significant factors
affecting the Company's recent operating performance and financial condition are
as follows:
(i) settlement of the Caremark Litigation for $165.0 million in 1997.
Through 1995 and 1996, the Company suffered a loss of revenues from
under-performance of the Caremark Business compared to original
expectations, a negative impact on revenue referral sources and employee
morale throughout the Company. In addition, the Company incurred
substantial indebtedness to acquire the Caremark Business, which it
expected to service primarily through the operating income and cash flow of
the Caremark Business. With the settlement of the litigation, the Company
is now focused on its operations to realize its potential in the changing
market for alternate site infusion therapy services;
(ii) sale of substantially all of the company's interest in its
Lithotripsy Business in the third quarter of 1997 with the remaining
interest sold in the second quarter of 1998, allowing the Company to
significantly reduce its debt obligations and its contingent liabilities
associated with the Company's former commitments to its partners in the
Lithotripsy Business thereby further improving its financial position;
(iii) distractions in its revenue generation programs in the first
half of 1997 during the pendency of the proposed merger with IHS which was
terminated April 4, 1997;
(iv) ongoing pricing pressure in the Company's core infusion business
as a result of a continuing shift in payor mix from private indemnity
insurance to managed care and governmental payors and intense competition
among infusion providers;
The following table sets forth the approximate percentages of the Company's
net revenue attributable to private indemnity insurance and other payors,
managed care organizations and Medicare and Medicaid programs
("governmental payors") for the three months ended June 30, 1998, March 31,
1998, and June 30, 1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
JUNE 30, MARCH 31, JUNE 30,
1998 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Private Indemnity Insurance and Other Payors............. 27% 27% 28%
Managed Care Organizations............................... 47% 47% 44%
Medicare and Medicaid Programs........................... 26% 26% 28%
--- --- ---
Total.......................................... 100% 100% 100%
=== === ===
</TABLE>
(v) technological advances in the development of new medical
treatments for complex diseases that reduce the need for certain infusion
therapy services provided by the Company. For example, oral drugs such as
protease inhibitors have assisted persons living with HIV and AIDS to
remain healthier longer. Since the second quarter of 1996, the Company's
revenue has been negatively impacted by the transition of HIV multiple
therapy patients from intravenous therapy to oral medications; and
(vi) increased competition from hospitals and physicians who have
sought to increase the scope of services they offer through their
facilities and offices, including services similar to those offered by the
Company, or who have entered into risk bearing relationships with
third-party payors pursuant to which they have been delegated control over
the provision of a wide variety of healthcare services, including the
services offered by the Company.
Management believes that the Company's financial position and its standing
within the home healthcare industry improved in the year ended December 31,
1997, and continued to improve through the six months ended June 30, 1998
primarily through the stabilization of relationships with payors and referral
sources. Additionally, management believes that its focus on its operations and
strategic alternatives will further improve the financial position of the
Company in future periods. However, there can be no assurance that the
improvement will continue or that certain factors noted above would not have an
adverse effect on the financial position, results of operations and liquidity of
the Company.
14
<PAGE> 15
RESULTS OF OPERATIONS
CERTAIN QUARTERLY COMPARISONS (UNAUDITED; IN THOUSANDS EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
--------------------------------
JUNE 30, MARCH 31, JUNE 30,
1998 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Net revenue................................................. $117,173 $107,689 $ 120,379
Cost of service............................................. 87,882 80,500 85,304
-------- -------- ---------
Gross profit................................................ 29,291 27,189 35,075
Operating expenses:
Selling, general and administrative expenses.............. 21,625 21,073 22,826
Provision for estimated uncollectible accounts............ 3,577 3,666 4,104
Amortization of goodwill.................................. 2,778 2,765 3,597
Income from litigation settlement......................... -- -- (156,792)
-------- -------- ---------
Total operating expense........................... 27,980 27,504 (126,265)
-------- -------- ---------
Operating income (loss)..................................... 1,311 (315) 161,340
Other income (expense):
Interest expense.......................................... (6,083) (14,175) (18,230)
Termination fee........................................... -- -- 15,182
Other income, net......................................... 946 777 1,057
-------- -------- ---------
Income (loss) before income taxes and minority interests.... (3,826) (13,713) 159,349
Income tax expense........................................ 400 1,000 201
Minority interests in net income of consolidated joint
ventures............................................... 302 411 2,377
-------- -------- ---------
Net income (loss)........................................... $ (4,528) $(15,124) $ 156,771
======== ======== =========
Earnings (loss) per common share............................ $ (0.09) $ (0.31) $ 3.29
======== ======== =========
Earnings (loss) per common share-- assuming dilution........ $ (0.09) $ (0.31) $ 2.99
======== ======== =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Net Revenue. Net revenue increased $9.5 million from $107.7 million in the
quarter ended March 31, 1998 compared to $117.2 million in the quarter ended
June 30, 1998. The improvement is due primarily to a favorable shift in
reimbursement resulting from an increase in the provision of certain therapies
as a result of the Company's focus on its revenue generation programs and
quality of service. See "Business Strategy" and "Factors Affecting Recent
Operating Results." In addition the Company's mail order pharmacy, pharmacy
benefit management services and ancillary network management services generated
an increase in net revenue of $3.5 million from $15.0 million in the quarter
ended March 31, 1998 to $18.5 million in the quarter ended June 30, 1998, as a
result of the expansion of services and improved sales efforts.
Gross Profit. Gross profit increased $2.1 million from $27.2 million in the
quarter ended March 31, 1998 to $29.3 million in the quarter ended June 30, 1998
while gross margin remained constant at 25.0% in the quarter ended June 30,
1998. Therefore, the improvement is due primarily to the increase of $9.5
million in net revenue described above.
Operating Income (Loss). The Company recorded operating income of $1.3
million during the three months ended June 30, 1998 compared to an operating
loss of $0.3 million during the three months ended March 31, 1998. The
improvement is due primarily to the increase in net revenue described above.
Interest Expense. Interest expense decreased by $8.1 million or 57.1%, from
$14.2 million in the quarter ended March 31, 1998 to $6.1 million in the quarter
ended June 30, 1998. The decline is due primarily to a decrease in interest
expense of $6.1 million resulting from the completion of the Exchange
contemplated by the Securities Exchange Agreement. Additionally, interest
expense decreased $2.0 million as a result of the payment and termination of the
Former Senior Credit Facility in January 1998. See also "Debt Restructuring and
Refinancing" and Note 6 to the Unaudited Condensed Consolidated Financial
Statements.
15
<PAGE> 16
Net Loss. Net loss for the quarter ended June 30, 1998 is $4.5 million
compared to a net loss of $15.1 million for the quarter ended March 31, 1998. As
discussed above, the improvement of $10.6 million can be attributed primarily to
the $2.1 million improvement in gross profit and the $8.1 million decrease in
interest expense.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30,
1997
As previously discussed in "Factors Affecting Recent Operating Results,"
the Company sold substantially all its Lithotripsy Business in 1997, while
retaining its interest in one lithotripsy partnership until it was sold
effective June 1, 1998. During the quarters ended June 30, 1998 and 1997, the
Lithotripsy Business provided the following to the Company's operations (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE 30,
--------------
1998 1997
----- ------
<S> <C> <C>
Net revenue............................................ $0.2 $12.0
Gross profit........................................... 0.1 7.6
Operating income....................................... 0.1 6.1
</TABLE>
Net Revenue. Net revenue decreased $3.2 million or 2.7%, from $120.4
million in the quarter ended June 30, 1997 to $117.2 million in the quarter
ended June 30, 1998. The decrease can be attributed primarily to the $11.8
million decrease in net revenue provided by the Company's Lithotripsy Business,
offset by a growth of approximately $4.0 million in the Company's mail order
pharmacy and pharmacy benefit management services and an improvement in the home
infusion business of $3.8 million resulting from the Company's focus on its
revenue generation programs and quality of service. See "Factors Affecting
Recent Operating Results."
Gross Profit. Gross profit decreased $5.8 million from $35.1 million or a
gross margin of 29.1% in the quarter ended June 30, 1997 to $29.3 million or a
gross margin of 25.0% in the quarter ended June 30, 1998. The decline in gross
margin resulted primarily from the loss of gross margins provided by the
Lithotripsy Business. The Company's ongoing base business has consistently
maintained its gross margins at approximately 25.0%. See "Factors Affecting
Recent Operating Results."
Selling, General and Administrative Expenses. SG&A decreased $1.2 million
or 5.3%, from $22.8 million in the quarter ended June 30, 1997 to $21.6 million
in the quarter ended June 30, 1998. The improvement is due primarily to a
decrease in collection agency fees reflecting the Company's success in reducing
corporate and field administrative costs. See "Business Strategy".
Income From Litigation Settlement. During the quarter ended June 30, 1997,
the Company recorded income from litigation settlement, net of related costs, of
$156.8 million in connection with the settlement of the Caremark Litigation.
Operating Income. The Company recorded operating income of $1.3 million
during the three months ended June 30, 1998 compared to operating income of
$161.3 million during the three months ended June 30, 1997. The decline in
operating income is due primarily to the non-recurring $156.8 million income
from settlement of the Caremark Litigation recognized in the quarter ended June
30, 1997 and a loss of 4.1% in gross margins provided by the Lithotripsy
Business.
Interest Expense. Interest expense decreased by $12.1 million or 66.6%,
from $18.2 million in the quarter ended June 30, 1997 to $6.1 million in the
quarter ended June 30, 1998. The decline is due primarily to a decrease in
interest expense of $5.2 million resulting from the completion of the Exchange
contemplated by the Securities Exchange Agreement and a decrease of $3.8 million
in interest expense as a result of the payment and termination of the Former
Senior Credit Facility in January 1998. Additionally, interest expense decreased
$2.5 million as a result of the cancellation of the Junior Subordinated
Pay-In-Kind notes in conjunction with the settlement of the Caremark Litigation.
See also "Debt Restructuring and Refinancing" and Notes 2 and 6 to the Unaudited
Condensed Consolidated Financial Statements.
16
<PAGE> 17
Termination Fee. During the quarter ended June 30, 1997, the Company
recorded termination fee income, net of related costs, of $15.2 million in
connection with the termination of the proposed merger with IHS.
Minority Interest in Net Income of Consolidated Joint Ventures. Minority
interest expense decreased $2.1 million, from $2.4 million in the three months
ended June 30, 1997 to $0.3 million in the three months ended June 30, 1998. The
decrease is due primarily to the sale of substantially all of the Lithotripsy
Business in September 1997.
Net Income (Loss). During the quarter ended June 30, 1998, the Company
recognized a net loss of $4.5 million compared to a net income of $156.8 million
during the quarter ended June 30, 1997. Excluding the effects of the
non-recurring $156.8 million income from litigation settlement and the $15.2
million termination fee income recognized in the quarter ended June 30, 1997 the
net loss declined by $10.7 million. The reduction in net loss can be attributed
primarily to the decrease in interest expense of $12.1 million and the decrease
in minority interest expense of $2.1 million offset by the $5.8 million decrease
in gross profits.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997
As previously discussed in "Factors Affecting Recent Operating Results,"
the Company sold substantially all its Lithotripsy Business in 1997, while
retaining its interest in one lithotripsy partnership until it was sold
effective June 1, 1998. During the six months ended June 30, 1998 and 1997, the
Lithotripsy Business provided the following to the Company's operations (in
millions):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------
1998 1997
----- ------
<S> <C> <C>
Net revenue............................................ $0.6 $23.9
Gross profit........................................... 0.3 15.0
Operating income....................................... 0.3 11.5
</TABLE>
Net Revenue. Net revenue decreased $19.4 million or 8.0%, from $244.3
million in the six months ended June 30, 1997 to $224.9 million in the six
months ended June 30, 1998. The decrease can be attributed primarily to the
$23.3 million decrease in net revenue provided by the Company's Lithotripsy
Business and a $3.7 million decrease in its home infusion business, offset by a
growth of approximately $6.5 million in the Company's mail order pharmacy and
pharmacy benefit management services. See "Factors Affecting Recent Operating
Results."
Gross Profit. Gross profit decreased $18.6 million from $75.1 million or a
gross margin of 30.7% in the six months ended June 30, 1997 to $56.5 million or
a gross margin of 25.1% in the six months ended June 30, 1998. The decline in
gross margin resulted primarily from the loss of gross margins provided by the
Lithotripsy Business. The Company's ongoing base business gross margins have
decreased from 27.2% in the six months ended June 30, 1997 to 25.0% in the six
months ended June 30, 1998 due primarily to the shift in payor mix from private
indemnity insurance to managed care organizations. See "Factors Affecting Recent
Operating Results."
Selling, General and Administrative Expenses. SG&A decreased $3.8 million
or 8.1%, from $46.5 million in the six months ended June 30, 1997 to $42.7
million in the six months ended June 30, 1998. The improvement is the result of
the Company's strategy to reduce unnecessary corporate and field administrative
costs evidenced by a decrease in collection agency fees, insurance costs and
other operating expenses. See "Business Strategy."
Provision For Estimated Uncollectible Accounts. Provision for estimated
uncollectible accounts decreased $1.2 million, from $8.4 million or 3.4% of net
revenue in the six months ended June 30, 1997 to $7.2 million or 3.2% of net
revenue in the six months ended June 30, 1998. The decrease is directly
attributed to the Company's concentrated collection efforts over the past year
as evidenced by the decrease in net days sales outstanding ("DSO") from 76 days
as of June 30, 1997 to 73 days as of June 30, 1998. See Note 1 to the
17
<PAGE> 18
Unaudited Condensed Consolidated Financial Statements -- "Provision for
Estimated Uncollectible Accounts."
Amortization of Goodwill. Amortization of goodwill decreased $1.7 million
or 23.1%, from $7.2 million during the six months ended June 30, 1997 to $5.5
million during the six months ended June 30, 1998. The decrease is due to the
reduction of goodwill associated with the Company's Lithotripsy Business, a
substantial portion of which was sold in September 1997.
Income From Litigation Settlement. During the six months ended June 30,
1997, the Company recorded income from litigation settlement, net of related
costs, of $156.8 million in connection with the settlement of the Caremark
Litigation.
Operating Income. The Company recorded operating income of $1.0 million
during the six months ended June 30, 1998 compared to operating income of $169.8
million during the six months ended June 30, 1997. The decline in operating
income is due primarily to the non-recurring $156.8 million income from the
Caremark litigation settlement recognized in the quarter ended June 30, 1997.
Additionally, gross profit decreased $18.6 million offset by a combined decrease
of $6.6 million in SG&A, provision for uncollectible accounts and amortization
of goodwill.
Interest Expense. Interest expense decreased by $19.5 million or 49.1%,
from $39.7 million in the six months ended June 30, 1997 to $20.2 million in the
six months ended June 30, 1998. The decline is due primarily to a decrease in
interest expense of $3.9 million resulting from the completion of the Exchange
contemplated by the Securities Exchange Agreement and a decrease of $8.8 million
in interest expense as a result of the payment and termination of the Former
Senior Credit Facility in January 1998. Additionally, interest expense decreased
$4.8 million as a result of the cancellation of the Junior Subordinated
Pay-In-Kind notes in conjunction with the settlement of the Caremark Litigation.
See also "Debt Restructuring and Refinancing" and Notes 2 and 6 to the Unaudited
Condensed Consolidated Financial Statements.
Termination Fee. During the six months ended June 30, 1997, the Company
recorded termination fee income, net of related costs, of $15.2 million in
connection with the termination of the proposed merger with IHS.
Income Tax Expense. Income tax expense increased $1.1 million, from $0.3
million in the six months ended June 30, 1997 to $1.4 million in the six months
ended June 30, 1998. The increase in 1998 results from state and local tax
obligations as well as a provision for certain pending examinations. See Note 8
to the Consolidated Financial Statements in the Company's Annual Report on Form
10-K, as amended, for the year ended December 31, 1997.
Minority Interest in Net Income of Consolidated Joint Ventures. Minority
interest expense decreased $3.8 million, from $4.5 million in the six months
ended June 30, 1997 to $0.7 million in six months ended June 30, 1998. The
decrease is due primarily to the sale of substantially all of the Lithotripsy
Business in September 1997.
Net Income (Loss). During the six months ended June 30, 1998, the Company
recognized a net loss of $19.7 million compared to a net income of $142.2
million during the six months ended June 30, 1997. Excluding the effects of the
non-recurring $156.8 million income from litigation settlement and the $15.2
million termination fee income recognized in the six months ended June 30, 1997
the net loss declined by $10.0 million. The reduction in net loss can be
attributed primarily to the decrease in interest expense of $19.5 million and
the decrease in minority interest expense of $3.8 million offset by the $12.0
million decrease (net of non-recurring items) in operating income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $106.8 million from
$109.0 million at December 31, 1997 to $2.2 million at June 30, 1998. The
decrease was primarily due to the repayment of the Former Senior Credit Facility
for $80.0 million and due to cash used in operations of $22.1 million resulting
primarily from the increase in accounts receivable as a result of internal
growth, the increase in inventory to secure supplies of
18
<PAGE> 19
drugs that may experience short-term shortages and the collateralization of the
first letter of credit for Aetna USHC, described below.
The Company and the Holders reached an agreement in principle on April 13,
1998 on the Rollover Note restructuring and entered into the Securities Exchange
Agreement on May 6, 1998. The Securities Exchange Agreement provides for a
restructuring of the debt represented by the Rollover Note and the related
Warrants pursuant to which the Rollover Note and the Warrants would be cancelled
and exchanged for the Series A Notes and Series B Notes. The consummation of the
Exchange was contingent upon the satisfaction of certain conditions prior to
closing of the Securities and Exchange Agreement on June 30, 1998. All
conditions were satisfied with the exception of the condition requiring the
Company to execute an agreement for a new senior credit facility. Accordingly,
on June 30, 1998 the Exchange was consummated and the Company entered into the
First Amendment and Waiver to the Securities Exchange Agreement. Based on
Rollover Note interest rates ranging from approximately 16.50% to 17.25%, the
Exchange placed the Company in the position to reduce its annual interest
expense related to this debt by approximately $17.0 million (not including
interest on amounts deferred or on additional Series A and B Notes issued in
lieu of cash interest payments).
The Amendment waived the condition under the Securities Exchange Agreement
requiring the Company to execute an agreement for a new senior credit facility
on or prior to June 30, 1998. In addition, under the Amendment the Holders of
the Series A and Series B Notes have agreed to extend the Company up to $60.0
million of senior secured debt subject to the completion of definitive
agreements on or prior to September 30, 1998. Under the proposed New Senior
Credit Facility, currently under negotiation, the Company would pay an upfront
fee of 1.0% payable upon execution, the outstanding indebtedness will bear
interest at prime plus 1.5% and have a final maturity of 2 1/2 years from
closing. In addition under the proposed New Senior Credit Facility, subject to
customary anti-dilution adjustments, the Company would issue warrants to
purchase up to 1.9 million shares of common stock of the Company that would bear
a $0.01 exercise price. There can be no assurance that the Company will be able
to secure the New Senior Credit Facility or that it will be able to do so on
commercially acceptable terms. See Note 6 of the Notes to Unaudited Condensed
Consolidated Financial Statements.
In July 1998, the Company issued Promissory Notes in the aggregate
principal amount of $6.0 million to the Holders of the Series A and B Notes. The
Promissory Notes will mature August 20, 1998, bear interest at a rate of 12% per
annum, payable in cash on the maturity date of the notes and are collateralized
by certain accounts receivable of the Company. The Company intends to repay
amounts due August 20, 1998 on the Promissory Notes through funding received
under the proposed New Senior Credit Facility.
There can be no assurance that the New Senior Credit Facility will be
consummated, or that future cash flow from operations will be sufficient to
cover the Company's current or future debt obligations. The Promissory Notes
mature on August 20, 1998, and the Company does not anticipate having the cash
necessary to pay the amounts due thereunder unless it consummates the New Senior
Credit Facility with the Holders or a substitute credit source. The failure to
pay the Promissory Notes when due would entitle the Holders to declare a default
under the Securities Exchange Agreement and declare the Series A and Series B
Notes immediately due and payable. Similarly, the failure to enter into the New
Senior Credit Facility with the Holders by September 30, 1998, would entitle the
Holders to declare a default under the Series A and Series B Notes and declare
such notes immediately due and payable. In either case, the Company would not
have the ability to pay off such notes. Moreover, the inability to obtain the
New Senior Credit Facility or other equity or debt financing would have a
material adverse impact on the Company's working capital, the scope of strategic
alternatives available to the Company, including its ability to consummate
acquisitions, and, as discussed below, cash available for collateralizing the
letters of credit required to be obtained in connection with the Company's
Agreement with Aetna USHC.
The terms of the Company's agreement with Aetna USHC require the Company to
obtain and maintain a series of letters of credit that increase incrementally to
an aggregate of $14.5 million. The Company obtained the initial $3.0 million
letter of credit by pledging a like amount of cash with the issuing bank. The
Company would anticipate obtaining the subsequent letters of credit required
under the agreement with Aetna USHC through its New Senior Credit Facility. If
no New Senior Credit Facility is obtained, the Company would need to continue
posting cash collateral for its letters of credit. Consequently, the Company's
access to up to
19
<PAGE> 20
$14.5 million of its cash would be limited, potentially reducing the amount of
cash available for the payment of the Company's debts and liabilities and the
pursuit of the Company's strategic alternatives such as acquisitions. In
addition, no assurance can be made that the Company will have sufficient cash
available to meet the cash requirements provided for in the agreement with Aetna
USHC.
FUTURE HEALTH CARE PROPOSALS AND LEGISLATION
In recent years, an increasing number of legislative initiatives have been
introduced or proposed in Congress and in state legislatures that would effect
major changes in the health care system, either nationally or at the state
level. Among the proposals under consideration are various insurance market
reforms, forms of price control, expanded fraud and abuse and antireferral
legislation and further reductions in Medicare and Medicaid reimbursement. Most
recently, on August 5, 1997, President Clinton signed into law the Budget
Reconciliation Act of 1997, which provides for reductions in Medicare and
Medicaid of over $115 billion and $13 billion, respectively, over five years.
The impact of these reductions on the health care industry in general and the
Company specifically cannot be determined at this time. Further, the Company
cannot predict whether any of the above proposals or any other proposals will be
adopted. No assurance can be given that the implementation of the Budget
Reconciliation Act or any other reforms will not have a material adverse effect
on the business of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE> 21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various legal actions arising out of the normal
course of its business. Management believes that the ultimate resolution of such
actions will not have a material adverse effect on the Company's financial
position, results of operations or liquidity of the Company. For a discussion of
certain legal proceedings to which the Company is party, see Part I -- Item 3.
"Legal Proceedings" in the Company's Annual Report on Form 10-K, as amended for
the year ended December 31, 1997.
ITEM 2. CHANGE IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 24, 1998 to
consider and vote upon:
(1) Election of directors to service until the 1998 Annual Meeting of
Stockholders and until their successors are duly elected and qualified;
(2) Approval for the issuance of Series B Notes, 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;
(3) Approval of an amendment to the Company's 1994 Stock Option Plan
to increase the number of shares of authorized common stock; and
(4) Ratification of the appointment of Ernst and Young LLP as
independent auditors of the Company for the Company's 1998 fiscal year.
All proposals were approved. The results of the voting are as follows:
<TABLE>
<CAPTION>
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR FROM EACH DIRECTOR
-------------- -------------------
<S> <C> <C> <C>
(1) For election as director:
Donald J. Amaral.................................. 40,921,692 1,036,618
William J. Casey.................................. 40,919,363 1,038,947
Stephen A. Feinberg............................... 40,898,555 1,059,755
Richard A. Fink................................... 40,908,286 1,050,024
Stephen G. Pagliuca............................... 40,910,326 1,047,984
L. Peter Smith.................................... 40,927,173 1,031,137
</TABLE>
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
(2) Approval of the issuance of Series B
Notes.................................. 20,785,008 1,620,089 280,801 19,272,412
(3) Approval of the amendment of the
Company's Stock Option Plan............ 33,362,667 8,380,068 215,575 --
(4) Ratification of the appointment of
Ernst & Young LLP...................... 41,532,000 288,438 137,872 --
</TABLE>
ITEM 5. OTHER INFORMATION
Not applicable.
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.01 -- Amendment No. 1 and Waiver to the Securities Exchange
Agreement among the Registrant, Cerberus Partners, L.P.,
Goldman Sachs Credit Partners L.P., and Foothill Capital
Corporation.*
10.02 -- Promissory Notes and Security Agreement dated July 21,
1998 among the Registrant and Foothill Capital
Corporation, as collateral agent for Cerberus Partners,
L.P., Goldman Sachs Credit Partners L.P. and Foothill
Partners III, L.P. and their respective successors and
assigns.*
10.03 -- Request for Deferral of Interest Payment Under the Series
B Convertible Subordinated Notes due 2008 and the related
Securities Exchange Agreement, dated May 6, 1998, by and
between Coram, Inc., Coram Healthcare Corporation,
Cerberus Partners, L.P., Goldman Sachs Credit Partners,
L.P. and Foothill Capital Corporation, as amended.*
10.04 -- Amendment No. 1 of Employment Agreement between the
Registrant and Donald J. Amaral.*
27 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CORAM HEALTHCARE CORPORATION
By: /s/ WENDY L. SIMPSON
----------------------------------
Wendy L. Simpson
Executive Vice President and Chief
Financial Officer
23
<PAGE> 24
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.01 -- Amendment No. 1 and Waiver to the Securities
Exchange Agreement among the Company, Cerberus
Partners,L.P., Goldman Sachs Credit Partners
L.P., and Foothill Capital Corporation. Certain
attachments and schedules to the Amendment No. 1
and Waiver are omitted from this Exhibit. The
Registrant agrees to furnish supplementally any
omitted exhibit or schedule to the Amendment No.
1 and Waiver.*
10.02 -- Promissory Notes and Security Agreement dated
July 21, 1998 among the Company and Foothill
Capital Corporation, as collateral agent for
Cerberus Partners, L.P., Goldman Sachs Credit
Partners L.P. and Foothill Partners III, L.P. and
their respective successors and assigns.*
10.03 -- Request for Deferral of Interest Payment Under
the Series B Convertible Subordinated Notes due
2008 and the related Securities Exchange
Agreement, dated May 6, 1998, by and between
Coram, Inc., Coram Healthcare Corporation,
Cerberus Partners, L.P., Goldman Sachs Credit
Partners, L.P. and Foothill Capital Corporation,
as amended.*
10.04 -- Amendment No. 1 of Employment Agreement between
the Registrant and Donald J. Amaral.*
27 -- Financial Data Schedule
----------
* Filed herewith.
<PAGE> 1
EXHIBIT 10.01
AMENDMENT NO. 1 AND WAIVER
TO
SECURITIES EXCHANGE AGREEMENT
AMONG
CORAM, INC.
CORAM HEALTHCARE CORPORATION
AND
CERBERUS PARTNERS, L.P.
GOLDMAN SACHS CREDIT PARTNERS L.P.
FOOTHILL CAPITAL CORPORATION
AS NOTEHOLDERS
DATED: JUNE 30, 1998
<PAGE> 2
EXHIBIT 10.01
Amendment No. 1 and Waiver (this "Amendment"), dated as of June 30,
1998, to the Securities Exchange Agreement dated as of May 6, 1998, among CORAM,
INC., a Delaware corporation (the "Company"), CORAM HEALTHCARE CORPORATION, a
Delaware corporation ("Holdings"), CERBERUS PARTNERS, L.P. ("Cerberus"), GOLDMAN
SACHS CREDIT PARTNERS L.P. ("GSCP") and FOOTHILL CAPITAL CORPORATION
("Foothill") (each a "Noteholder" and, together with any other holders from time
to time of interests in the Series A Notes or Series B Notes, collectively, the
"Noteholders"). Capitalized terms used herein shall have the respective meanings
assigned to them in the Securities Exchange Agreement.
W I T N E S S E T H:
WHEREAS, the condition precedent set forth in 7.1(1) of the Securities
Exchange Agreement (the "Financing Condition") has not as of the date hereof
been satisfied, and the Company and Holdings have not entered into the Senior
Loan Agreement;
WHEREAS, on June 30, 1998 the Original Noteholders offered to the
Company and Holdings to provide the senior loans contemplated by the Financing
Condition;
WHEREAS, the Original Noteholders have proposed and the Company and
Holdings have agreed to the Agreed Rate and the Agreed Terms (each as defined
below) with respect to such senior loans;
WHEREAS, on the date hereof the Board of Directors of Holdings approved
the Agreed Terms and the Agreed Rate and authorized the Company and Holdings to
agree to use their best efforts to negotiate in good faith towards definitive
documentation with respect to the Senior Loan Agreement as set forth below;
WHEREAS, on the basis of such agreement, the Noteholders have agreed
to waive the Financing Condition; and
WHEREAS, the Company, Holdings and the Noteholders have agreed to amend
the Securities Exchange Agreement and to enter into this Amendment upon the
terms and subject to the conditions contained herein;
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Amendments to the Securities Exchange Agreement. Upon the
satisfaction of the conditions in Section 3 of this Amendment relating to the
<PAGE> 3
effectiveness of Sections 1 and 2, the Securities Exchange Agreement is hereby
amended as follows:
(a) Section 1 is hereby amended by deleting the existing definitions of
"Home Healthcare Non Compete Agreement", "Initial Healthcare Non-Compete
Agreement", "New Healthcare Non-Compete Agreement", "Non-Compete Agreements",
"Note Documents", "Senior Loan Agreement", and "Stockholder Approval" and
replacing them with the following:
"Note Documents" Shall mean this Agreement, the Notes, the
Registration Rights, the Holdings Guarantee and the Subsidiary
Guarantees.
"Senior Loan Agreement" shall mean the agreement to be entered
into among the Company as borrower, Holdings and the Subsidiaries named
therein as guarantors and the Original Noteholders as lenders
(together with any other financial institutions acceptable to the
Original Noteholders to which the credit provided for thereby may be
syndicated by them), providing for (i) senior secured loans to the
Company bearing interest at the Agreed Rate and having the other
Agreed Terms and (ii) the issuance to the Senior Lenders of the New
Bank Warrants, such senior secured loans to be used by the Company for
acquisitions, working capital, letters of credit and general corporate
requirements.
"Stockholder Approval" and "Stockholder Approval Condition"
shall have the respective meanings set forth in Section 7.1(h).
(b) Section 1 is hereby amended by adding the following new
definitions:
"Agreed Rate" shall mean, with respect to the Senior Loan
Agreement, an interest rate of the Chase Prime Rate plus 1.50% per
annum.
"Agreed Terms" shall mean, with respect to the Senior Loan
Agreement, (i) a final maturity date of 2 1/2 years from closing, (ii)
an upfront fee of 1.0% payable upon execution of the Senior Loan
Agreement (such upfront fee to replace the Advisory Fee and the
Arranger Fee referred to in the Chase Commitment Letter) and (iii)
2
<PAGE> 4
otherwise (other than with respect to the Agreed Rate) containing
substantially similar terms to the terms set forth in the Chase
Commitment Letter.
"Chase Commitment Letter" shall mean the commitment letter to
Holdings dated June 4, 1998 signed by The Chase Manhattan Bank and
includes the Outline of Terms and Fee Letter referred to therein.
"Chase Prime Rate" shall mean the rate defined as Chase's
Alternate Base Rate ("ABR") in the Chase Commitment Letter.
"New Bank Warrants" shall mean the warrants to purchase up to
2.0 million shares of Common Stock of Holdings, exercisable at an
exercise price of $0.01, issued to the Senior Lenders pursuant to the
Senior Loan Agreement.
c) Section 5 is hereby amended by deleting Section 5.12 and replacing
it with the following:
"5.12 Senior Loan Agreement. Use its best efforts to enter
into the Senior Loan Agreement as soon as practicable following the
Closing Date, and in any event on or prior to September 30, 1998."
(d) Section 6 is hereby amended by adding new Sections 6.11 as
follows;
"6.11 New Amaral Employment Agreement. Amend the terms of the
New Amaral Employment Agreement without the consent of the Required
Noteholders and each Original Noteholder so long as it continues to be
a Noteholder."
(e) Section 7.1(e) is hereby deleted and replaced with the following:
"(e) A copy of the articles or certificates of incorporation
and all amendments thereto of each of Holdings, the Company and the
Significant Subsidiaries, certified as of a recent date by the
Secretary of State of such party's jurisdiction of organization, and
copies of each such party's by-laws, certified by the Secretary or
Assistant Secretary of such party as true and correct as of the Closing
Date."
3
<PAGE> 5
(f) Section 7.1(f) is hereby deleted and replaced with the
following:
"(f) The New Amaral Employment Agreement, duly executed by
Holdings, the Company and Donald Amaral (the condition precedent in
this paragraph being the "Employment Agreement Condition")."
(g) Section 7.1(k) is hereby deleted and replaced with the
following:
"(k) Copies of all documentation evidencing all Indebtedness
of the Company existing on the Closing Date, the terms of which shall
be satisfactory to the Noteholders."
(h) Section 7.1(g) is hereby deleted.
(i) Section 8.1(n) is hereby deleted and replaced with the
following:
"(n) the New Amaral Employment Agreement delivered pursuant
to Section 7.1(f) of this Agreement shall be terminated or shall
otherwise cease to be enforceable or in full force and effect or Donald
Amaral shall cease to be the chief executive officer of the Company for
any reason (other than by reason of his incapacitation of death; or
upon expiration of the original term of such agreement; or upon his
removal by majority vote of the Board of Directors of the Company in
which the Board member appointed by the Noteholders pursuant to Section
10 hereof voted in favor of such removal (or if no board member has
been appointed pursuant to Section 10, the Required Holders have
approved such removal)); or"
(j) A new Section 8.1(o) is added as follows:
"(o) the Senior Loan Agreement shall not have been entered
into, or all conditions to funding under thereunder shall not have been
satisfied, on or prior to September 30, 1998;"
(k) Schedule 4.9 to the Securities Exchange Agreement is hereby
replaced with the amended Schedule 4.9 attached hereto as Exhibit A.
SECTION 2. Waiver. The Noteholders hereby waive compliance by the
Company and Holdings with the condition precedent set forth in Section 7.1(l)
of the Securities Exchange Agreement.
4
<PAGE> 6
SECTION 3. Representations and Warranties. Each of the Company and
Holdings hereby represents and warrants as to itself and the Coram Parties that
(a) the execution, delivery and performance of this Amendment have been duly
authorized by all necessary corporate action on the part of such Coram Party and
this Amendment and the Securities Exchange Agreement amended hereby each
constitutes a legal, valid and binding obligation of such Coram Party,
enforceable against it in accordance with its terms, (b) no event has occurred
and is continuing on the date hereof that constitutes a Default or Event of
Default or would constitute a Default or Event of Default after giving effect to
this Amendment, and (c) the representations and warranties of Holdings and the
Company contained in Section 4 of the Securities Exchange Agreement are true and
correct both before and after giving effect to this Amendment, except to the
extent such representations and warranties are stated to be true only as of a
particular date, in which case such representations and warranties were correct
on and as of such date.
SECTION 4. Conditions to Effectiveness. The amendments and waiver in
Sections 1 and 2 of this Amendment shall become effective on the date (the
"Effective Date") no later than June 30, 1998 when counterparts hereof shall
have been executed by each of the Noteholders, Holdings and the Company.
SECTION 5. Effect on the Securities Exchange Agreement. Except as
amended hereby, the Securities Exchange Agreement and the other Note Documents
shall remain in full force and effect. Nothing in this Amendment shall be deemed
to (i) except as set forth herein, constitute a waiver of compliance by any of
the Coram Parties of any term, provision or condition of the Securities Exchange
Agreement or any other instrument or agreement referred to therein or under the
Note Documents or (ii) prejudice any right or remedy that any Noteholder may
now have or may have in the future under or in connection with the Securities
Exchange Agreement or any other Note Document.
SECTION 6. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed to be an original and
all of which taken together constitute one and the same agreement.
SECTION 7. Governing Law. The validity, interpretation and enforcement
of this Amendment shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to the conflict of laws principles
thereof.
5
<PAGE> 7
SECTION 8. Headings. Section headings in this Amendment are included
herein for the convenience of reference only and shall not constitute part of
this Amendment for any other purpose.
SECTION 9. References. References herein and in the other Note
Documents to the "Securities Exchange Agreement", "this Agreement", "hereunder",
"hereof", or words of like import referring to the Securities Exchange
Agreement, shall mean and be a reference to the Securities Exchange Agreement as
amended hereby.
SECTION 10. Senior Loan Agreement. The parties hereto agree to
negotiate in good faith with a view to proceeding to definitive documentation
with respect to the Senior Loan Agreement as soon as is reasonably practicable
following the date hereof.
6
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their proper and duly authorized officers as of
the date set forth above.
CORAM, INC.
By: /s/
-------------------------
Name:
Title:
CORAM HEALTHCARE CORPORATION
By: /s/
-------------------------
Name:
Title:
CERBERUS PARTNERS, L.P.
By: /s/
-------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS, L.P.
By: /s/
-------------------------
Name:
Title:
FOOTHILL CAPITAL CORPORATION
By: /s/
-------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.02
Security Agreement
SECURITY AGREEMENT dated as of July 21, 1998, among CORAM, INC., a
Delaware corporation, as borrower (the "Borrower"), each Guarantor (as defined
in the Notes, as defined herein) listed on the signature pages hereto (the
Borrower and the Guarantors being referred to herein collectively as the
"Grantors"), and FOOTHILL CAPITAL CORPORATION, as collateral agent (in such
capacity, the "Agent") for the Lenders (as defined herein). Capitalized terms
used herein and not defined shall have the meanings given to such terms in the
Notes.
As security for the payment or performance, as the case may be, of the
Obligations, each of the Grantors hereby grants to the Agent, its successors and
its assigns, for the ratable benefit of the Lenders, a continuing first priority
security interest in all such Grantor's right, title and interest in, to and
under its now and hereafter existing Accounts and Accounts Receivable together
with all Proceeds and products thereof (the "Collateral"). Without limiting the
foregoing, the Agent is hereby authorized to file one or more financing
statements, continuation statements, or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the security
interest granted by each Grantor, without the signature of any Grantor, naming
any Grantor or the Grantors as debtors and the Agent as secured party.
If there shall occur and be continuing an Event of Default under any of
the Notes or otherwise on demand, the Agent shall have all the rights available
to a "secured party" under the Uniform Commercial Code (as the same may be in
effect in the State of New York).
In this Security Agreement, the following defined terms shall have the
following meanings:
"Accounts" shall mean, with respect to the Grantors, any and all right,
title and interest of any Grantor to payment for goods and services sold or
leased (exclusive of any liabilities of the Grantors with respect thereto),
including any such right evidenced by chattel paper, whether due or to become
due, whether or not it has been earned by performance, and whether now or
hereafter acquired or arising in the future.
"Accounts Receivable" shall mean, with respect to the Grantors, all
right, title and interest of any Grantor to Accounts and all of any Grantor's
right, title and interest in any returned goods, together with all rights,
titles, securities and
1
<PAGE> 2
EXHIBIT 10.02
guaranties with respect thereto, including any rights to stoppage in transit,
replevin, reclamation and resales, and all related security interests, liens and
pledges, whether voluntary or involuntary, in each case whether due or to become
due, whether now or hereafter arising.
"Lenders" shall mean each of Cerberus Partners, L.P., Goldman Sachs
Credit Partners L.P. and Foothill Partners III, L.P. and their respective
successors and assigns.
"Notes" shall mean the secured promissory notes dated July 21, 1998
and made by the Borrower in favor of (i) Cerberus Partners, L.P., in the
principal amount of $2,147,760, (ii) Goldman Sachs Credit Partners L.P., in the
principal amount of $2,727,120 and (iii) Foothill Partners III, L.P., in the
principal amount of $1,125,120, and includes any replacement or additional
promissory notes made by the Borrower in substitution therefor.
"Obligations" shall mean the due and punctual payment of (i) the
principal of and premium, if any, and interest (including interest accruing
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding) on
the Notes, when and as due, whether at maturity, by acceleration or otherwise,
(ii) all other monetary obligations, including fees, costs, expenses and
indemnities, whether primary, secondary, direct, contingent, fixed or otherwise
(including monetary obligations incurred during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, regardless of whether
allowed or allowable in such proceeding), of the Guarantors to the Lenders under
the Notes, and (b) the due and punctual performance of all covenants,
agreements, obligations and liabilities of Borrower and each Guarantor pursuant
to or arising out of the Notes and Guarantees and this Security Agreement.
"Proceeds" shall have the meaning given to such term in the Uniform
Commercial Code as in effect in the State of New York.
This Security Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
2
<PAGE> 3
IN WITNESS WHEREOF, each Grantor has caused this Security Agreement
to be duly executed as of the date first above written.
CORAM, INC.
By: /s/ WENDY L. SIMPSON
-------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION
By: /s/ WENDY L. SIMPSON
-------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM ALTERNATE SITE SERVICES,
INC.
By: /s/ WENDY L. SIMPSON
-------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HOMECARE OF MINNESOTA,
INC.
By: /s/ WENDY L. SIMPSON
-------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
3
<PAGE> 4
CORAM HEALTHCARE
CORPORATION OF FLORIDA
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF GREATER NEW
YORK
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF
MASSACHUSETTS
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
4
<PAGE> 5
SECURED PROMISSORY NOTE
$2,727,120 July 21, 1998
Subject to the terms and conditions of this Note (this "Note"), CORAM,
INC., a Delaware corporation ("Borrower"), for value received, the receipt and
sufficiency of which is hereby acknowledged, hereby promises to pay to the order
Of GOLDMAN SACHS CREDIT PARTNERS L.P., or its assigns ("Lender"), in lawful
money of the United States of America in immediately available funds, the
principal sum of Two Million Seven Hundred Twenty-Seven Thousand One Hundred
Twenty Dollars ($2,727,120) on August 20, 1998 (the "Maturity Date") together
with interest thereon at the rate provided for herein. This Note is one of the
promissory notes dated the date hereof and made by Borrower in favor of the
Lenders (as defined below).
1. Interest. From the date hereof through the Maturity Date and until
paid in full, interest on the unpaid principal amount of this Note shall accrue
at an annual rate equal to twelve percent (12%) per annum; provided, however,
that during the continuance of any Event of Default, the unpaid principal amount
of this Note and any unpaid interest shall accrue interest at such rate plus two
cent (2%) per annum. All interest shall be calculated on the basis of a three
hundred sixty (360) day year and the actual number of days elapsed (including
the first day but excluding the last day) in the period for which interest is
payable and shall be payable in cash on the Maturity Date.
2. Events of Default. This Note and all accrued and unpaid interest
hereon shall become immediately due and payable if any one or more of the events
(each an "Event of Default") set forth in Section 8.1 of the Securities Exchange
Agreement dated as of May 6, 1998, as amended (the "Securities Exchange
Agreement"), among the Borrower, Coram Healthcare Corporation ("Parent"), and
Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation, shall occur and be continuing with respect to this Note.
If there shall occur and be continuing an Event of Default, Lender may,
by notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph 8.1(g) or (h) of the Securities Exchange Agreement,
the principal under this Note and all such interest shall automatically become
and be due and payable, without presentment, demand, protest or any notice of
any kind, all of which are
<PAGE> 6
hereby expressly waived by Borrower. In addition to the remedies set forth
above, Lender may exercise any remedies provided by applicable law.
3. Prepayment. Borrower may prepay without premium or penalty all or
any portion of the outstanding principal amount of this Note together with
accrued and unpaid interest to such date Of prepayment on such amount so
prepaid.
4. Waiver. No failure or delay on the part of Lender or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, Lender or any holder shall operate as a waiver thereof nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Guarantee; Security Agreement. This Note is guaranteed by the
Guarantors which have executed the guarantee (the "Guarantee") attached hereto
as Annex A and is secured by the Collateral (as defined in the Security
Agreement dated the date hereof entered into by the Borrower and the Guarantors
in favor of the Agent, for the ratable benefit of the Lenders) (as such terms
are defined therein).
6. Presentment and Demand. Borrower hereby waives presentment and
demand for payment, notice of dishonor, protest and notice of protest of this
Note and further waives the right to interpose any setoff, counterclaim or
cross-claim.
7. Amendment; Assignment. This Note may not be amended except by an
agreement in writing signed by Borrower and Lender or other holder hereof.
8. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another any communication with respect to this Note, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and either shall be delivered in person with receipt acknowledged,
telecopied or sent by registered or certified mail, return receipt requested,
postage prepaid, to the address of Borrower or Lender set forth in Section 11.10
of the Securities Exchange Agreement, or at such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given or served
on
2
<PAGE> 7
the date on which personally delivered, with receipt acknowledged or
telecopied, or three (3) Business Days after the same shall have been deposited
in the United States mail.
9. Submission to Jurisdiction. (a) Borrower hereby irrevocably
submits to the jurisdiction of any New York State or Federal court sitting in
New York City, and the undersigned hereby irrevocably agree that any action may
be heard and determined in such New York State court or in such Federal court.
Borrower hereby irrevocably waives, to the fullest extent he may effectively do
so, the defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 8. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
(b) Each of Borrower and Lender hereby irrevocably waive all right
to trial by jury in any action, proceeding or counterclaim arising out of or
relating to any obligations under this Note.
10. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
11. Fees and Expenses. Borrower shall pay on demand all reasonable
out-of-pocket expenses of Lender in connection with the preparation of the Note
and related documents (including the reasonable fees and expenses of its
counsel retained in connection with the Note and the transactions contemplated
thereby and advice in connection therewith) and in connection with any attempt
to enforce any rights of Lender against Borrower (including the reasonable fees
and expenses of all of its counsel and advisors retained in connection
therewith).
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be
duly executed as of the date first above written.
CORAM, INC.
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
3
<PAGE> 8
ANNEX A
Guarantee
Each Guarantor unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor, (a) the due
and punctual payment of (i) the principal of and premium, if any, and interest
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on this Note, when and as due, whether at
maturity, by acceleration or otherwise, (ii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Guarantors to the Lender under this Note, and (b) the due and punctual
performance of all covenants, agreements, obligations and liabilities of
Borrower and each Guarantor pursuant to or arising out of this Note and
Guarantee and the Security Agreement referred to in the Note (the
"Obligations"). Each Guarantor further agrees that the obligations may be
extended and renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Obligations.
Each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. The
obligations of a Guarantor hereunder shall not be affected by (a) the failure of
the Lender or any holder to assert any claim or demand or to enforce any right
or remedy against the Borrower or any other Guarantor under provisions of this
Note or otherwise; (b) any rescission, waiver, amendment or modification of any
of the terms or provisions of the Note, any guarantee or any other agreement;
(c) the release of any security held by the Agent (as defined in the Security
Agreement) for the Obligations or any of them; or (d) the failure of the Lender
or any holder to exercise any right or remedy against any other Guarantor of the
Obligations.
Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by Lender to any security (including, without
limitation, any Collateral, as defined in the Security Agreement) held for
payment of the Obligations or to any balance of any deposit account or credit on
the books of the Lender or any holder in favor of the Borrower or any other
person.
4
<PAGE> 9
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the Agent,
the Lender or any holder to assert any claim or demand or to enforce any remedy
under this Note, any guarantee or any other agreement, by any waiver or
modification of any provision thereof, by any default, failure or delay, willful
or otherwise, in the performance of the Obligations, or by any other act or
omission which may or might in any manner or to any extent vary the risk of such
Guarantor or otherwise operate as a discharge of such Guarantor as a matter of
law or equity.
Each Guarantor further agrees that its guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be returned by the Agent or Lender upon the bankruptcy or
reorganization of the Borrower or otherwise.
Each Guarantor hereby subordinates until all Obligations have been
indefeasibly paid in cash all rights of subrogation against the Borrower and
its property and all rights of indemnification, contribution and reimbursement
from the Borrower and its property, in each case in connection with this
Guarantee and any payments made hereunder, and regardless of whether such rights
arise by operation of law, pursuant to contract or otherwise.
To the extent that any Guarantor shall make a payment of all or any of
the Obligations (a "Guarantor Payment") which, taking into account all other
Guarantor Payments then previously or concurrently made by the other Guarantors,
exceeds the amount which such Guarantor would otherwise have paid if each
Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion as such Guarantor's "Allocable Amount" (as defined below)
(in effect immediately prior to such Guarantor Payment), then, following
indefeasible payment in full in cash of the Obligations, such Guarantor shall be
entitled to receive contribution and indemnification payments from, and be
reimbursed by, each of the other Guarantors for the amount of such excess pro
rata based upon their respective Allocable Amounts in effect immediately prior
to such Guarantor Payment.
5
<PAGE> 10
As of any date of determination, the "Allocable Amount" of any Guarantor
shall be equal to the maximum amount of the claim which could then be recovered
from such Guarantor hereunder without rendering such claim voidable or
avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under any
applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance
Act or similar statute or common law.
The preceding two paragraphs are intended only to define the relative
rights of the Guarantors and nothing therein is intended to or shall impair the
obligations of the Guarantors, jointly and severally, to pay any amounts as and
when the same shall become due and payable in accordance with the terms of the
Note and this Guarantee.
Notwithstanding any provision herein to the contrary, each Guarantor's
liability hereunder shall be limited to an amount not to exceed as of any date
of determination the amount which could be claimed by the Lender from such
Guarantor hereunder without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state
Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law after taking into account, among other things, such
Guarantor's right of contribution and indemnification from each other Guarantor.
Dated: July 21, 1998
CORAM HEALTHCARE
CORPORATION
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM ALTERNATE SITE SERVICES,
INC.
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
6
<PAGE> 11
CORAM HOMECARE OF MINNESOTA,
INC.
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF FLORIDA
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF GREATER NEW
YORK
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF
MASSACHUSETTS
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
7
<PAGE> 12
SECURED PROMISSORY NOTE
$2,147,760 July 21, 1998
Subject to the terms and conditions of this Note (this "Note"), CORAM,
INC., a Delaware corporation ("Borrower"), for value received, the receipt and
sufficiency of which is hereby acknowledged, hereby promises to pay to the order
of CERBERUS PARTNERS, L.P., or its assigns ("Lender"), in lawful money of the
United States of America in immediately available funds, the principal sum of
Two Million One Hundred Forty-Seven Thousand Seven Hundred Sixty Dollars
($2,147,760) on August 20, 1998 (the "Maturity Date") together with interest
thereon at the rate provided for herein. This Note is one of the promissory
notes dated the date hereof and made by Borrower in favor of the Lenders (as
defined below).
1. Interest. From the date hereof through the Maturity Date and until
paid in full, interest on the unpaid principal amount of this Note shall accrue
at an annual rate equal to twelve percent (12%) per annum; provided, however,
that during the continuance of any Event of Default, the unpaid principal amount
of this Note and any unpaid interest shall accrue interest at such rate plus two
percent (2%) per annum. All interest shall be calculated on the basis of a
three hundred sixty (360) day year and the actual number of days elapsed
(including the first day but excluding the last day) in the period for which
interest is payable and shall be payable in cash on the Maturity Date.
2. Events of Default. This Note and all accrued and unpaid interest
hereon shall become immediately due and payable if any one or more of the events
(each an "Event of Default") set forth in Section 8.1 of the Securities Exchange
Agreement dated as of May 6, 1998, as amended (the "Securities Exchange
Agreement"), among the Borrower, Coram Healthcare Corporation ("Parent"), and
Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation, shall occur and be continuing with respect to this Note.
If there shall occur and be continuing an Event of Default, Lender may,
by notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph 8.1(g) or (h) of the Securities Exchange Agreement,
the principal under this Note and all such interest shall automatically become
and be due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by Borrower. In addition to
the remedies set forth above, Lender may exercise any remedies provided by
applicable law.
<PAGE> 13
3. Prepayment. Borrower may prepay without premium or penalty all or
any portion of the outstanding principal amount of this Note together with
accrued and unpaid interest to such date of prepayment on such amount so
prepaid.
4. Waiver. No failure or delay on the part of Lender or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, Lender or any holder shall operate as a waiver thereof nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise have.
5. Guarantee; Security Agreement. This Note is guaranteed by the
Guarantors which have executed the guarantee (the "Guarantee") attached hereto
as Annex A and is secured by the Collateral (as defined in the Security
Agreement dated the date hereof entered into by the Borrower and the Guarantors
in favor of the Agent, for the ratable benefit of the Lenders) (as such terms
are defined therein).
6. Presentment and Demand. Borrower hereby waives presentment and
demand for payment, notice of dishonor, protest and notice of protest of this
Note and further waives the right to interpose any setoff, counterclaim or
cross-claim.
7. Amendment; Assignment. This Note may not be amended except by an
agreement in writing signed by Borrower and Lender or other holder hereof.
8. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another any communication with respect to this Note, each such notice, demand,
request, consent, approval, declaration or other communication shall be
in writing and either shall be delivered in person with receipt acknowledged,
telecopied or sent by registered or certified mail, return receipt requested,
postage prepaid, to the address of Borrower or Lender set forth in Section 11.10
of the Securities Exchange Agreement, or at such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged or
telecopied, or three (3) Business Days after the same shall have been deposited
in the United States mail.
2
<PAGE> 14
9. Submission to Jurisdiction. (a) Borrower hereby irrevocably
submits to the jurisdiction of any New York State or Federal court sitting in
New York City, and the undersigned hereby irrevocably agrees that any action
may be heard and determined in such New York State court or in such Federal
court, Borrower hereby irrevocably waives, to the fullest extent he may
effectively do so, the defense of an inconvenient forum to the maintenance of
any action in any jurisdiction. Borrower hereby irrevocably agrees that the
summons and complaint or any other process in any action in any jurisdiction
may be served by mailing in accordance with the provisions set forth in Section
8. Borrower may also be served in any other manner permitted by law, in which
event Borrower's time to respond shall be the time provided by law.
(b) Each of Borrower and Lender hereby irrevocably waive all
right to trial by jury in any action, proceeding or counterclaim arising out of
or relating to any obligations under this Note.
10. Governing Law. This Note shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
11. Fees and Expenses. Borrower shall pay on demand all
reasonable out-of-pocket expenses of Lender in connection with the preparation
of the Note and related documents (including the reasonable fees and expenses
of its counsel retained in connection with the Note and the transactions
contemplated thereby and advice in connection therewith) and in connection with
any attempts to enforce any rights of Lender against Borrower (including the
reasonable fees and expenses of all of its counsel and advisors retained in
connection therewith).
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to
be duly executed as of the date first above written.
CORAM, INC.
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
3
<PAGE> 15
ANNEX A
Guarantee
Each Guarantor unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor, (a) the due
and punctual payment of (i) the principal of and premium, if any, and interest
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on this Note, when and as due, whether at
maturity, by acceleration or otherwise, (ii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other
similar proceeding, regardless of whether allowed or allowable in such
proceeding), of the Guarantors to the Lender under this Note, and (b) the due
and punctual performance of all covenants, agreements, obligations and
liabilities of Borrower and each Guarantor pursuant to or arising out of this
Note and Guarantee and the Security Agreement referred to in the Note (the
"Obligations"). Each Guarantor further agrees that the obligations may be
extended and renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Obligations.
Each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. The
obligations of a Guarantor hereunder shall not be affected by (a) the failure of
the Lender or any holder to assert any claim or demand or to enforce any right
or remedy against the Borrower or any other Guarantor under provisions of this
Note or otherwise; (b) any rescission, waiver, amendment or modification of any
of the terms or provisions of the Note, any guarantee or any other agreement;
(c) the release of any security held by the Agent (as defined in the Security
Agreement) for the Obligations or any of them; or (d) the failure of the Lender
or any holder to exercise any right or remedy against any other Guarantor of
the Obligations.
Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by Lender to any security (including, without
limitation, any Collateral, as defined in the Security Agreement) held for
payment of the Obligations or to any balance of any deposit account or credit on
the books of the Lender or any holder in favor of the Borrower or any other
person.
4
<PAGE> 16
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the Agent,
the Lender or any holder to assert any claim or demand or to enforce any remedy
under this Note, any guarantee or any other agreement, by any waiver or
modification of any provision thereof, by any default, failure or delay, willful
or otherwise, in the performance of the Obligations, or by any other act or
omission which may or might in any manner or to any extent vary the risk of such
Guarantor or otherwise operate as a discharge of such Guarantor as a matter of
law or equity.
Each Guarantor further agrees that its guarantee shall continue to be
effective or be reinstated, as the case may be if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be returned by the Agent or Lender upon the bankruptcy or
reorganization of the Borrower or otherwise.
Each Guarantor hereby subordinates until all Obligations have been
indefeasibly paid in cash all rights of subrogation against the Borrower and its
property and all rights of indemnification, contribution and reimbursement from
the Borrower and its property, in each case in connection with this Guarantee
and any payments made hereunder, and regardless of whether such rights arise by
operation of law, pursuant to contract or otherwise.
To the extent that any Guarantor shall make a payment of all or any of
the Obligations (a "Guarantor Payment") which, taking into account all other
Guarantor Payments then previously or concurrently made by the other Guarantors,
exceeds the amount which such Guarantor would otherwise have paid if each
Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion as such Guarantor's "Allocable Amount" (as defined below)
(in effect immediately prior to such Guarantor Payment), then, following
indefeasible payment in full in cash of the Obligations, such Guarantor shall be
entitled to receive contribution and indemnification payments from, and be
reimbursed by, each of the other Guarantors for the amount of such excess pro
rata based upon their respective Allocable Amounts in effect immediately prior
to such Guarantor Payment.
5
<PAGE> 17
As of any date of determination, the "Allocable Amount" of any Guarantor
shall be equal to the maximum amount of the claim which could then be
recovered from such Guarantor hereunder without rendering such claim voidable
or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under
any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
The preceding two paragraphs are intended only to define the relative
rights of the Guarantors and nothing therein is intended to or shall impair the
obligations of the Guarantors, jointly and severally, to pay any amounts as and
when the same shall become due and payable in accordance with the terms of the
Note and this Guarantee.
Notwithstanding any provision herein to the contrary, each Guarantor's
liability hereunder shall be limited to an amount not to exceed as of any date
of determination the amount which could be claimed by the Lender from such
Guarantor hereunder without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state
Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act or similar
statute or common law after taking into account, among other things, such
Guarantor's right of contribution and indemnification from each other Guarantor.
Dated: July 21, 1998
CORAM HEALTHCARE
CORPORATION
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM ALTERNATIVE SITE SERVICES,
INC.
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
6
<PAGE> 18
CORAM HOMECARE OF MINNESOTA,
INC.
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF FLORIDA
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF GREATER NEW
YORK
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF
MASSACHUSETTS
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
7
<PAGE> 19
SECURED PROMISSORY NOTE
$1,125,120 July 21, 1998
Subject to the terms and conditions of this Note (this "Note"), CORAM,
INC., a Delaware corporation ("Borrower"), for value received, the receipt and
sufficiency of which is hereby acknowledged, hereby promises to pay to the
order of FOOTHILL PARTNERS III, L.P., or its assigns ("Lender"), in lawful
money of the United States of America in immediately available funds, the
principal sum of One Million One Hundred Twenty-Five Thousand One Hundred
Twenty Dollars ($1,125,120) on August 20, 1998 (the "Maturity Date") together
with interest thereon at the rate provided for herein. This Note is one of the
promissory notes dated the date hereof and made by Borrower in favor of the
Lenders (as defined below).
1. Interest. From the date hereof through the Maturity Date and until
paid in full, interest on the unpaid principal amount of this Note shall accrue
at an annual rate equal to twelve percent (12%) per annum; provided, however,
that during the continuance of any Event of Default, the unpaid principal
amount of this Note and any unpaid interest shall accrue interest at such rate
plus two percent (2%) per annum. All interest shall be calculated on the basis
of a three hundred sixty (360) day year and the actual number of days elapsed
(including the first day but excluding the last day) in the period for which
interest is payable and shall be payable in cash on the Maturity Date.
2. Events of Default. This Note and all accrued and unpaid interest
hereon shall become immediately due and payable if any one or more of the events
(each an "Event of Default") set forth in Section 8.1 of the Securities
Exchange Agreement dated as of May 6, 1998, as amended (the "Securities Exchange
Agreement"), among the Borrower, Coram Healthcare Corporation ("Parent"), and
Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation, shall occur and be continuing with respect to this Note.
If there shall occur and be continuing an Event of Default, Lender may,
by notice to Borrower, declare the principal under this Note and all interest
thereon payable, whereupon all principal under this Note and all such interest
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Borrower; provided, however, that upon the occurrence of the Event of Default
specified in subparagraph 8.1(g) or (h) of the Securities Exchange Agreement,
the principal under this Note and all such interest shall automatically become
and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by Borrower. In
addition to the remedies set forth above, Lender may exercise any remedies
provided by applicable law.
<PAGE> 20
3. Prepayment. Borrower may prepay without premium or penalty all or
any portion of the outstanding principal amount of this Note together with
accrued and unpaid interest to such date of prepayment on such amount so
prepaid.
4. Waiver. No failure or delay on the part of Lender or any holder in
exercising any right, power or privilege hereunder and no course of dealing
between Borrower, Lender or any holder shall operate as a waiver thereof nor
shall any single or partial exercise of any right, power or privilege hereunder
preclude any other exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which a holder would otherwise
have.
5. Guarantee; Security Agreement. This Note is guaranteed by the
Guarantors which have executed the guarantee (the "Guarantee") attached hereto
as Annex A and is secured by the Collateral (as defined in the Security
Agreement dated the date hereof entered into by the Borrower and the Guarantors
in favor of the Agent, for the ratable benefit of the Lenders) (as such terms
are defined therein).
6. Presentment and Demand. Borrower hereby waives presentment and
demand for payment, notice of dishonor, protest and notice of protest of this
Note and further waives the right to interpose any setoff, counterclaim or
cross-claim.
7. Amendment; Assignment. This Note may not be amended except by an
agreement in writing signed by Borrower and Lender or other holder hereof.
8. Notices. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon any of the
parties by another, or whenever any of the parties desires to give or serve upon
another any communication with respect to this Note, each such notice, demand,
request, consent, approval, declaration or other communication shall be in
writing and either shall be delivered in person with receipt acknowledged,
telecopied or sent by registered or certified mail, return receipt requested,
postage prepaid, to the address of Borrower or Lender set forth in Section 11.10
of the Securities Exchange Agreement, or at such other address as may be
substituted by notice given as herein provided. The giving of any notice
required hereunder may be waived in writing by the party entitled to receive
such notice. Every notice, demand, request, consent, approval, declaration or
other communication hereunder shall be deemed to have been duly given or served
on the date on which personally delivered, with receipt acknowledged or
telecopied, or three (3) Business Days after the same shall have been deposited
in the United States mail.
2
<PAGE> 21
9. Submission to Jurisdiction. (a) Borrower hereby irrevocably
submits to the jurisdiction of any New York State or Federal court sitting in
New York City, and the undersigned herby irrevocably agrees that any action may
be heard and determined in such New York State court or in such Federal court.
Borrower hereby irrevocably waives, to the fullest extent he may effectively do
so, the defense of an inconvenient forum to the maintenance of any action in any
jurisdiction. Borrower hereby irrevocably agrees that the summons and complaint
or any other process in any action in any jurisdiction may be served by mailing
in accordance with the provision set forth in Section 8. Borrower may also be
served in any other manner permitted by law, in which event Borrower's time to
respond shall be the time provided by law.
(b) Each of Borrower and Lender hereby irrevocably waive all
right to trial by jury in any action, proceeding or counterclaim arising out of
or relating to any obligations under this Note.
10. Governing Law. This Note shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements made and to be wholly performed in such State and without giving
effect to the conflict of laws principles thereof.
11. Fees and Expenses. Borrower shall pay on demand all
reasonable out-of-pocket expenses of Lender in connection with the preparation
of the Note and related documents (including the reasonable fees and expenses of
its counsel retained in connection with the Note and the transactions
contemplated thereby and advice in connection therewith) and in connection with
any attempt to enforce any rights of Lender against Borrower (including the
reasonable fees and expenses of all of its counsel and advisors retained in
connection therewith).
IN WITNESS WHEREOF, Borrower has caused this Promissory Note to
be duly executed as of the date first above written.
CORAM, INC.
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
3
<PAGE> 22
ANNEX A
Guarantee
Each Guarantor unconditionally guarantees, as a primary obligor and not
merely as a surety, jointly and severally with each other Guarantor, (a) the due
and punctual payment of (i) the principal of and premium, if any, and interest
(including interest accruing during the pendency of any bankruptcy, insolvency,
receivership or other similar proceeding, regardless of whether allowed or
allowable in such proceeding) on this Note, when and as due, whether at
maturity, by acceleration or otherwise, (ii) all other monetary obligations,
including fees, costs, expenses and indemnities, whether primary, secondary,
direct, contingent, fixed or otherwise (including monetary obligations incurred
during the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding), of
the Guarantors to the Lender under this Note, and (b) the due and punctual
performance of all covenants, agreements, obligations and liabilities of
Borrower and each Guarantor pursuant to or arising out of this Note and
Guarantee and the Security Agreement referred to in the Note (the
"Obligations"). Each Guarantor further agrees that the obligations may be
extended and renewed, in whole or in part, without notice to or further assent
from it, and that it will remain bound upon its guarantee notwithstanding any
extension or renewal of any Obligations.
Each Guarantor waives presentment to, demand of payment from and
protest to the Borrower of any of the Obligations, and also waives notice of
acceptance of its guarantee and notice of protest for nonpayment. The
obligations of a Guarantor hereunder shall not be affected by (a) the failure of
the Lender or any holder to assert any claim or demand or to enforce any right
or remedy against the Borrower or any other Guarantor under provisions of this
Note or otherwise; (b) any rescission, waiver, amendment or modification of any
of the terms or provisions of the Note, any guarantee or any other agreement;
(c) the release of any security held by the Agent (as defined in the Security
Agreement) for the Obligations or any of them; or (d) the failure of the Lender
or any holder to exercise any right or remedy against any other Guarantor of the
Obligations.
Each Guarantor further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by Lender to any security (including, without
limitation, any Collateral, as defined in the Security Agreement) held for
payment of the Obligations or to any balance of any deposit account or credit on
the books of the Lender or any holder in favor of the Borrower or any other
person.
4
<PAGE> 23
The obligations of each Guarantor hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender, alteration or
compromise, and shall not be subject to any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality or
unenforceability of the Obligations or otherwise. Without limiting the
generality of the foregoing, the obligations of each Guarantor hereunder shall
not be discharged or impaired or otherwise affected by the failure of the Agent,
the Lender or any holder to assert any claim or demand or to enforce any remedy
under this Note, any guarantee or any other agreement, by any waiver or
modification of any provision thereof, by any default, failure or delay, willful
or otherwise, in the performance of the Obligations, or by any other act or
omission which may or might in any manner or to any extent vary the risk of such
Guarantor or otherwise operate as a discharge of such Guarantor as a matter of
law or equity.
Each Guarantor further agrees that its guarantee shall continue to be
effective or be reinstated, as the case may be, if at any time payment, or any
part thereof, of principal of or interest on any Obligation is rescinded or must
otherwise be returned by the Agent or Lender upon the bankruptcy or
reorganization of the Borrower or otherwise.
Each Guarantor hereby subordinates until all Obligations have been
indefeasibly paid in cash all rights of subrogation against the Borrower and its
property and all rights of indemnification, contribution and reimbursement from
the Borrower and its property, in each case in connection with this Guarantee
and any payments made hereunder, and regardless of whether such rights arise by
operation of law, pursuant to contract or otherwise.
To the extent that any Guarantor shall make a payment of all or any of
the Obligations (a "Guarantor Payment") which, taking into account all other
Guarantor Payments then previously or concurrently made by the other Guarantors,
exceeds the amount which such Guarantor would otherwise have paid if each
Guarantor had paid the aggregate Obligations satisfied by such Guarantor Payment
in the same proportion as such Guarantor's "Allocable Amount" (as defined below)
(in effect immediately prior to such Guarantor Payment), then, following
indefeasible payment in full in cash of the Obligations, such Guarantor shall be
entitled to receive contribution and indemnification payments from, and be
reimbursed by, each of the other Guarantors for the amount of such excess pro
rata based upon their respective Allocable Amounts in effect immediately prior
to such Guarantor Payment.
5
<PAGE> 24
As of any date of determination, the "Allocable Amount" of any Guarantor
shall be equal to the maximum amount of the claim which could then be
recovered from such Guarantor hereunder without rendering such claim voidable
or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or under
any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
The preceding two paragraphs are intended only to define the relative
rights of the Guarantors and nothing therein is intended to or shall impair the
obligations of the Guarantors, jointly and severally, to pay any amounts as and
when the same shall become due and payable in accordance with the terms of the
Note and this Guarantee.
Notwithstanding any provision herein to the contrary, each Guarantor's
liability hereunder shall be limited to an amount not to exceed as of any date
of determination the amount which could be claimed by the Lender from such
Guarantor hereunder without rendering such claim voidable or avoidable under
Section 548 of Chapter 11 of the Bankruptcy Code or under any applicable state
Uniform Fraudulent Transfer Act, Uniform Conveyance Act or similar statute or
common law after taking into account, among other things, such Guarantor's right
of contribution and indemnification from each other Guarantor.
Dated: July 21, 1998
CORAM HEALTHCARE
CORPORATION
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM ALTERNATIVE SITE SERVICES,
INC.
By: /s/ WENDY L. SIMPSON
------------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
6
<PAGE> 25
CORAM HOMECARE OF MINNESOTA,
INC.
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF FLORIDA
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF
GREATER NEW YORK
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
CORAM HEALTHCARE
CORPORATION OF
MASSACHUSETTS
By: /s/ WENDY L. SIMPSON
-----------------------
Name: Wendy L. Simpson
Title: CFO & Secretary
7
<PAGE> 1
EXHIBIT 10.03
CORAM HEALTHCARE CORPORATION
1125 Seventeenth Street, Suite 2100
Denver, Colorado 80202
Telephone (303) 292-4973
Facsimile (303) 298-0043
VIA Fax
Cerberus Partners, L.P. Foothill Capital Corporation
450 Park Avenue 11111 Santa Monica Blvd., Suite 1500
Twenty Eighth Floor Los Angeles, California 90025
New York, New York 10022 Attention: Ed Stearns
Attention: Steven Feinberg Fax: (310) 479-0461
Fax (212) 421-2947
Goldman Sachs Credit Partners L.P.
c/o Goldman Sachs and Company
85 Broad Street, Sixth Floor
New York, New York 10004
Attention: Jim Halka
Fax: (212) 357-4597
Re: Request for Deferral of Interest Payment Under the Series B Convertible
Subordinated Notes due 2008 (the "Series B Notes") and the related
Securities Exchange Agreement, dated May 6, 1998, by and between Coram,
Inc., Coram Healthcare Corporation, Cerberus Partners, L.P., Goldman Sachs
Credit Partners, L.P. and Foothill Capital Corporation, as amended (the
"Security Exchange Agreement")
Ladies and Gentlemen:
We write on behalf of our subsidiary Coram, Inc. ("Company") to request
(i) a deferral of the interest payment due under the Company's Series B Notes
due on July 15, 1998 until the earlier of (x) the completion and funding of the
Senior Loan Agreement, or (y) August 15, 1998, whichever is sooner. Interest
will accrue on this deferred amount from July 15, 1998 through the date of
payment at the 8% interest rate of the Series B Notes and (ii) a waiver of any
default or event of default under the Securities Exchange Agreement or the
Series B Notes in respect thereof.
<PAGE> 2
Request for Deferral of Interest Payment
July 9, 1998
Page 2
Please confirm your agreement to the foregoing by executing this letter in
the space provided below and returning it to us by fax and by mail.
All terms appearing in this letter with initial capitalization and not
otherwise defined herein shall have the meanings set forth in the Securities
Exchange Agreement.
Respectfully,
CORAM HEALTHCARE CORPORATION
By:
-------------------------
Wendy L. Simpson
Chief Financial Officer
Accepted and agreed as of the 15th day of July, 1998.
CERBERUS PARTNERS, L.P.
By:
-------------------------
Name:
Title:
GOLDMAN SACHS CREDIT PARTNERS L.P.
By:
-------------------------
Name:
Title:
FOOTHILL CAPITAL CORPORATION
By:
-------------------------
Name:
Title:
<PAGE> 3
Request for Deferral of Interest Payment
July 9, 1998
Page 3
cc: Ted Waksman, Esquire
Weil, Gotshal and Manges, L.P.
767 Fifth Avenue
New York, New York 10153
Fax: (212) 310-8007
Craig S. Seligman
<PAGE> 1
EXHIBIT 10.04
AMENDMENT NO. 1
TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 dated as of the 30th day of June, 1998 (this
"Amendment"), amends that certain Employment Agreement dated as of October 13,
1995 (the "Employment Agreement"), between Coram Healthcare Corporation, a
Delaware corporation (the "Company"), and Donald J. Amaral ("Executive"), and is
made and entered into with reference to the following facts (all capitalized
terms not otherwise defined herein have the respective meanings set forth in the
Employment Agreement):
WHEREAS, the Company and Executive desire to extend the Employment
Period and to increase the Base Salary payable to Executive; and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement to provide for the payment of a success bonus upon the successful
consummation of a refinancing of the Company's outstanding subordinated debt or
an acquisition of the Company, all on the terms and conditions hereinafter set
forth; and
WHEREAS, the Company and Executive desire to amend the Employment
Agreement to provide for the payment of an acquisition bonus upon the
consummation of certain transactions; and
WHEREAS, the Company and Executive desire to amend the Covenant not to
Compete; and
WHEREAS, the Company has determined to grant Executive options to
purchase an additional 300,000 shares of the Company's Common Stock.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. Amendments to Employment Agreement.
1.1. The first sentence of paragraph 3(a) is hereby amended in its
entirety to read as follows:
(a) Executive's base salary (the "Base Salary") shall
initially be $600,000 per annum, shall be increased to
$650,000 per annum on and as of May 16, 1997, and shall be
payable in cash and in accordance with the Company's general
payroll practices.
1.2. Paragraph 3(a) is hereby further amended by changing the date
"June 30" to "April 30" in both places where it appears.
<PAGE> 2
1.3. The first grammatical paragraph of paragraph 3(c) is hereby
amended in its entirety to read as follows:
(c) Executive shall be granted options as of October
13, 1995 to purchase 2,200,000 shares of Common Stock of the
Company (the "Option Shares") at a price equal to the average
closing price of the Common Stock on the New York Stock
Exchange in the five days immediately preceding October 12,
1995. An aggregate of 1,400,000 of the Option Shares shall be
granted to Executive under the Company's 1994 Stock
Option/Stock Issuance Plan (the "Plan") and the remaining
800,000 Option Shares shall be granted to Executive outside of
the Plan. In addition, Executive shall be granted additional
options (the "Additional Options") as of June 2, 1997 to
purchase an additional 300,000 shares of the Company's Common
Stock (the "Additional Option Shares") at a price of $2.625
per share. The Additional Options shall be granted to
Executive under the Plan. The Options and the Additional
Options (collectively, the `Options") will vest if Executive
is then employed by the Company and become exercisable by
Executive as to 33-1/3% of each of the Option Shares and the
Additional Option Shares (collectively, the "Shares") covered
thereby respectively on each of the first, second and third
anniversaries of the respective grant dates thereof, and will
vest as to 100% of the Shares upon: (i) a Change in Control
(as defined below); (ii) any termination by the Company of
this Agreement other than a termination by the Company for
Cause (as defined below); (iii) any termination by Executive
pursuant to paragraph 5(a)(ii) hereof; or (iv) if the
Employment Period is terminated as a result of Executive's
death or permanent Disability (as defined below).
1.4. Paragraph 3(c) is hereby further amended by deleting the entire
paragraph following the words "For purposes of this Agreement, a Change in
Control of the Company shall be deemed to have occurred if" and substituting the
following:
(i) any person or group (within the meaning of Rule
13d-5 of the SEC as in effect on the date hereof) other than
the Senior Subordinated Noteholders pursuant to the SEA (as
hereinafter defined) or a group composed principally thereof
shall own directly or indirectly, beneficially or of record,
shares representing 30% or more of the aggregate ordinary
voting power represented by the issued and outstanding capital
stock of the Company;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constituted
the Company's Board of Directors (together with any new
directors whose election to the Company's Board of Directors
or whose nomination for election to the Company's Board of
Directors by the Company's shareholders was approved by a vote
of at least two-thirds of the Company's directors then still
in office who either were directors at the beginning of such
period or whose election or nomination for election was
previously so approved) together with any individual serving
during such period as a member of the Company's Board of
Directors designated pursuant to the Security Exchange
Agreement dated May 6, 1998 (the "SEA") cease for any reason
to constitute a majority of the Company's directors then in
office;
-2-
<PAGE> 3
(iii) any change in control with respect to the
Company, Coram, Inc. or any subsidiary (or similar event,
however denominated) shall occur under and as defined in any
agreement in respect of indebtedness other than capital lease
obligations (as defined in the SEA) to which the Company,
Coram, Inc. or any subsidiary is party;
(iv) the Company shall cease to own and control
directly, of record and beneficially, 100% of each class of
outstanding capital stock of Coram, Inc. free and clear of all
liens, other than as a result of the exercise of the warrants
issued to the lenders under the Credit Agreement dated April
6, 1995; or
(v) Coram, Inc. shall cease to own and control
directly, of record and beneficially, 100% of each class of
outstanding capital stock of each of T2 Medical, Inc.,
Curaflex Health Services, Inc. and Coram Resource Network,
other than as a result of the exercise of the warrants issued
to the lenders under the Credit Agreement dated April 6, 1995.
1.5. New paragraph 3(d) which reads as follows is hereby added:
(d) In addition to the Base Salary and any bonuses
payable to Executive, Executive shall be entitled to receive a
success bonus ("Success Bonus") of $1,000,000 upon the
consummation of a Refinancing (as hereinafter defined) of the
Company's outstanding subordinated debt originally payable to
an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") pursuant to that certain Securities
Purchase Agreement dated as of April 6, 1995 among Coram,
Inc., as Issuer, Coram Funding, Inc., as Purchaser, and the
Company, as amended (the "DLJ Debt"). The Company shall pay
the Success Bonus to Executive in two equal $500,000
installments, the first of which shall be payable concurrently
with the consummation of the Refinancing and the second of
which shall be payable on the six month anniversary of
consummation; provided, however, that if prior to such six
month anniversary, this Agreement is terminated by the Company
for Cause (as defined below) or as a result of Executive's
resignation other than pursuant to Paragraph 5(a)(ii) hereof,
Executive shall not be entitled to receive the second
installment of the Success Bonus. The parties acknowledge that
the payment of a Success Bonus upon consummation of a
Refinancing is required by actions of the Board taken on
August 8, 1996 and October 18, 1996. For purposes of this
Agreement, the term "Refinancing" shall mean the replacement
of the DLJ Debt with new debt which has terms acceptable to
the Board. The SEA with the present holders of the DLJ Debt,
if consummated, shall constitute a Refinancing.
-3-
<PAGE> 4
1.6. New paragraph 3(e) which reads as follows is hereby added:
(e) In addition to the Base Salary and any bonuses
payable to Executive hereunder, Executive shall be entitled to
receive an acquisition bonus ("Acquisition Bonus") of
$4,000,000 to be paid as provided below upon the consummation
of any transaction where the shareholders of the Company
approve a merger or consolidation which would result in the
holders of voting securities of the Company outstanding
immediately prior thereto failing to continue to represent
(either by remaining outstanding, or being converted into
voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company
or such surviving entity outstanding immediately after such
merger or consolidation, or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets, or any transaction having similar effect,
other than a liquidation of the Company (an "Acquisition").
The Company shall pay the Acquisition Bonus to Executive in
two equal $2,000,000 installments, the first of which shall be
payable concurrently with the consummation of the Acquisition
and the second of which shall be payable on the one year
anniversary of consummation; provided, however, that if prior
to such one year anniversary, this Agreement is terminated by
the Company for Cause (as defined below), or as a result of
Executive's resignation other than pursuant to Paragraph
5(a)(ii) hereof, Executive shall not be entitled to receive
the second installment of the Acquisition Bonus.
1.7. Existing paragraphs 3(d) and 3(e) are hereby redesignated as
Sections 3(f) and 3(g), respectively.
1.8. Paragraph 5(a) is hereby amended by deleting the words "the third
anniversary hereof" in the first line thereof and substituting the words "May
15, 2000" therefor.
1.9. Paragraphs 7(c) and 7(d) are hereby amended by changing the
references to paragraph "8" therein to references to paragraph "7".
1.10. The addresses for notices set forth in paragraph 10 hereof are
hereby amended in their entirety to read as follows:
Notices to Executive:
---------------------
Donald J. Amaral
844 Treemont Court
Nashville, TN 37220
Telephone: (615) 383-4460
Fax: (615) 269-3532
-4-
<PAGE> 5
with a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard
Suite 900
Beverly Hills, CA 90212
Attention: John A. Meyers, Esq.
Telephone: (310) 281-6373
Fax: (310) 859-2325
Notices to the Company:
-----------------------
Coram Healthcare Corporation
1125 Seventeenth Street
Suite 1500
Denver, CO 80202
Attention: Paul J. Quiner, Esq.
Telephone: (303) 292-4973
Fax: (303) 298-0047
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
555 South Flower Street
Twenty-Third Floor
Los Angeles, CA 90071
Attention: David L. Gersh, Esq.
Telephone: (213) 683-6240
Fax: (213) 627-0705
2. Notices. All notices, requests, demands and other communications under this
Amendment shall be in writing and shall be deemed to have been delivered and
received five business days after having been deposited in the United States
mail and enclosed in a certified or registered post-paid envelope; one business
day after having been sent by overnight courier; and when personally delivered
or sent by facsimile communications equipment of the sending party on a business
day, or otherwise on the next succeeding business day thereafter; and in each
case addressed to the respective party at its address set forth in the
Employment Agreement (as amended by Section 1.6 above) or to such other changed
addresses as the parties may have fixed by notice as provided therein.
3. Jurisdiction and Integration. This Amendment shall be governed by the
internal law, and not the laws of conflicts, of the State of Colorado. The
preceding choice of law provision shall apply to all claims, under any theory
whatsoever, arising out of the parties' relationship (as such relationship is
contemplated by, or related to, this Amendment or the Employment Agreement).
This Amendment, the Agreement, those documents expressly referred to herein or
in the Agreement and other documents of even date herewith or therewith embody
the complete agreement and understanding among the parties and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
some way.
-5-
<PAGE> 6
4. Binding Agreement; Counterparts. This Amendment shall be binding upon the
parties hereto, their successors, assigns and legal representatives. This
Amendment may be executed in several counterparts, each of which is deemed to be
an original and all of which taken together constitute one and the same
agreement.
5. Full Force and Effect. Except as expressly amended by this Amendment, the
Employment Agreement shall continue in full force and effect in accordance with
the provisions thereof. As used in the Employment Agreement, "hereinafter,"
"hereto," "hereof," and other words of similar import shall, unless the context
otherwise requires, mean the Employment Agreement as amended by this Amendment.
In the event of any conflict or inconsistency between the terms and conditions
of the Employment Agreement and the terms and conditions of this Amendment, the
terms and conditions of this Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
THE COMPANY:
CORAM HEALTHCARE CORPORATION
By: \s\
-------------------------------------
EXECUTIVE
\s\
-----------------------------------------
Donald J. Amaral
-6-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Financial Statements of Coram Healthcare Corporation for
the six months ended June 30, 1998 and is qualified in its entirety by reference
to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,905
<SECURITIES> 0
<RECEIVABLES> 111,172
<ALLOWANCES> 17,743
<INVENTORY> 19,130
<CURRENT-ASSETS> 128,047
<PP&E> 47,696
<DEPRECIATION> 27,493
<TOTAL-ASSETS> 413,262
<CURRENT-LIABILITIES> 75,229
<BONDS> 238,511
0
0
<COMMON> 49
<OTHER-SE> 90,952
<TOTAL-LIABILITY-AND-EQUITY> 413,262
<SALES> 224,862
<TOTAL-REVENUES> 224,862
<CGS> 168,382
<TOTAL-COSTS> 168,382
<OTHER-EXPENSES> 48,954
<LOSS-PROVISION> 7,243
<INTEREST-EXPENSE> 20,258
<INCOME-PRETAX> (17,539)
<INCOME-TAX> 1,400
<INCOME-CONTINUING> (19,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,652)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
