##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION  Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
COMMISSION FILE NUMBER 1-11343 Coram Healthcare Corporation  DELAWARE
    
    33-0615337(State or other jurisdiction ofincorporation or organization)
    
    (IRS EmployerIdentification No.)1675 BROADWAY, SUITE 900DENVER, COLORADO
    
    80202(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (303) 292-4973
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act: CLASS TITLE OF EACH
    
    NAME OF EACH EXCHANGE ON
WHICH REGISTEREDCommon Stock ($0.001 par value per share)
    
    Over The Counter Bulletin Board
 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 and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ] Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ] (On August
8, 2000, the registrant and one of its wholly-owned subsidiaries filed
voluntary petitions under Chapter 11 of Title 11 of the United States Code
in the Bankruptcy Court for the District of Delaware. Through April 9,
2004, no plan or plans of reorganization have been confirmed by such
court.) Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 under the Act). Yes [ ] No [X] As of April 9, 2004, there were outstanding 49,638,452 shares of the
registrants common stock, which is the only class of voting stock of the
registrant outstanding. As of June 30, 2003, the aggregate market value of
the shares of common stock held by nonaffiliates of the registrant based on
the closing price for the common stock on the Over The Counter Bulletin
Board on such date was approximately $34.7 million. DOCUMENTS INCORPORATED BY REFERENCE
None




---



TABLE OF CONTENTS  PART IITEM 1. BUSINESSITEM 2. PROPERTIESITEM 3. LEGAL PROCEEDINGSITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSPART IIITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED SECURITY HOLDER MATTERSITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTSITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESPART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERSITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENTITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESPART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-KSIGNATURESCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOMECONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTSSCHEDULE II  VALUATION AND QUALIFYING ACCOUNTSEXHIBIT INDEXAmendment to Purchase AgreementTherapeutics and Devices Purchase AgreementTherapeutics and Devices Purchase AgreementMedical Delivery Division Infusion Device GroupSecond Amendment to Prime Vendor AgreementDecision and Stipulation AgreementSecond Addendum to the Engagement AgreementAgreement for Advisory ServicesLicense and Support AgreementMedication Delivery Division Purchase AgreementMutual Waiver of DamagesCorporate Compliance HandbookSubsidiaries of the RegistrantConsent of Ernst & Young LLPChief Executive Officer CertificationChief Financial Officer CertificationChief Executive Officer CertificationChief Financial Officer Certification    Table of Contents  Statement of Forward Looking Statements This Annual Report on Form 10-K contains certain forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to Coram Healthcare Corporation (CHC)
and its subsidiaries (collectively Coram or the company) that are based on
the beliefs of management, as well as assumptions made by and information
currently available to management. When used in this report, the words
estimate, project, believe, anticipate, intend, expect and similar
expressions are intended to identify forward-looking statements. Corams actual
results may vary materially from the forward-looking statements made in this
report due to important factors, including, but not limited to: the
uncertainties related to the outcome of the ongoing bankruptcy proceedings of
CHC and its first tier wholly-owned subsidiary, Coram, Inc. (CI), including
actions taken by the appointed Chapter 11 trustee (Arlin M. Adams, Esquire) and
parties who may be adverse to the bankruptcy estates; Corams ability to
maintain continued compliance with the provisions of the Omnibus Budget
Reconciliation Act of 1993 (commonly referred to as Stark II); Corams
absence of sustained profitability; uncertainties associated with the outcomes
of certain pending legal proceedings; the companys leveraged financial
structure, including significant liquidation preferences relating to certain CI
preferred stock securities; the companys need to obtain additional financing
or equity; the companys ability to fund a settlement with the Internal Revenue
Service; uncertainties associated with the dilution that would occur if the
companys existing debt holders exercise their equity conversion rights; the
companys limited liquidity; the companys ability to fund and successfully
implement significant additions to or modifications of its company-wide
information systems; the companys ability to fund and successfully deploy
certain critical replacement infusion pumps; the companys dependence upon the
prices paid by third party payers for the companys services; increased third
party reviews of billings submitted to Medicare and Medicaid, as well as the
final results from certain ongoing audits and reviews by regulators such as
Medicare and Medicaid fiscal intermediaries and the Centers for Medicare &
Medicaid Services; adverse changes in the reimbursement methodologies for
drugs that Coram provides to its patients as a result of changes in average
wholesale prices and, in the long-term, the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003; uncertainties associated with
changes in state and federal regulations, including the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), and the impact on
healthcare service businesses, as well as enhanced regulatory oversight of the
healthcare industry; and certain other factors, all of which are described in
greater detail in this report in Item 7. Managements Discussion and Analysis
of Financial Condition and Results of Operations: Risk Factors. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Management does not undertake any
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. 
 PART I 
 ITEM 1. BUSINESS General Overview Lines of Business.During the three years ended December 31, 2003, Coram
was engaged primarily in the business of furnishing alternate site (outside the
hospital) infusion therapy and related services, including non-intravenous home
health products such as respiratory therapy services and related equipment and
durable medical equipment. Other services offered by Coram include outsourced
hospital compounding services and centralized management, administration and
clinical support for clinical research trials. Corams primary business strategy is to focus its efforts on the delivery
of its core infusion therapies, which include nutrition, anti-infective
therapies, pain management, intravenous immunoglobulin (IVIG) and coagulant
and blood clotting therapies for persons with hemophilia. Most of the companys
alternate site infusion therapy net revenue is derived from third party payers
such as insurance companies, managed care plans and governmental payers.
Managements objective is to continue to provide services that consistently
achieve desired clinical outcomes and maintain Corams consistently high level
of patient satisfaction while focusing on disciplined enhancements to the
service model. By establishing best demonstrated practice benchmarks for
nursing, pharmacy and clinical operations personnel, certain cost reductions
have been achieved while simultaneously improving the quality and consistency
of care. Furthermore, management continues to concentrate on the companys
reimbursement function by enhancing billing procedures, documentation and
cash collections methods, assessing systems support for reimbursement
personnel and concentrating Corams expertise and managerial resources into
fewer reimbursement locations. While management believes the implementation of its overall business
strategy has improved the companys overall operating performance, no
assurances can be given as to its ultimate long-term success. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations. 2




---



##### Table of Contents



Company History Coram
was formed on July 8, 1994 as a result of a merger by and among
T2
Medical, Inc., Curaflex Health Services, Inc., Medisys, Inc. and
HealthInfusion, Inc., each of which was a publicly-held national or regional
provider of home infusion therapy and related services. Coram made a number of
acquisitions after commencing operations, the most significant of which was the
April 1, 1995 acquisition of certain assets of the home infusion business of
Caremark, Inc., a wholly-owned subsidiary of Caremark International, Inc. As a
result of this and other acquisitions, Coram has become a leading provider of
alternate site infusion therapy services in the United States. CHC and CI (collectively the Debtors) filed voluntary petitions under
Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) on
August 8, 2000 in the United States Bankruptcy Court for the District of
Delaware (the Bankruptcy Court) In re Coram Healthcare Corporation, Case No.
00-3299, and In re Coram, Inc., Case No. 00-3300 (collectively the Bankruptcy
Cases). The Bankruptcy Cases have been consolidated for administrative
purposes only by the Bankruptcy Court and are being jointly administered under
the docket of In re Coram Healthcare Corporation. Commencing on August 8, 2000,
the Debtors operated as debtors-in-possession subject to the jurisdiction of
the Bankruptcy Court; however, a Chapter 11 trustee was appointed by the
Bankruptcy Court on March 7, 2002. With the appointment of a Chapter 11
trustee, while still under the jurisdiction of the Bankruptcy Court, the
Debtors are no longer debtors-in-possession. None of CHCs other subsidiaries
is a debtor in the Bankruptcy Cases and, other than Coram Resource Network,
Inc. and Coram Independent Practice Association, Inc. (collectively the
Resource Network Subsidiaries or R-Net), none of CHCs other subsidiaries
is a debtor in any bankruptcy case. As of April 9, 2004, two competing plans of reorganization have been filed
in the Bankruptcy Court and remain subject to confirmation. On May 2, 2003,
the Chapter 11 trustee filed with the Bankruptcy Court a proposed joint plan of
reorganization with respect to the Debtors and, on June 17, 2003, the Chapter
11 trustee filed an amended proposed joint plan of reorganization (the
Trustees Plan). A modification to the Trustees Plan was filed with the
Bankruptcy Court on September 8, 2003. Additionally, on December 19, 2002 the
Official Committee of the Equity Security Holders of Coram Healthcare
Corporation (the Equity Committee) filed with the Bankruptcy Court a proposed
plan of reorganization with respect to the Debtors and, on June 17, 2003, the
Equity Committee filed a second amended proposed plan of reorganization (the
Equity Committees Plan). Hearings to consider confirmation of each plan of
reorganization and any objections thereto commenced on September 30, 2003 and
are ongoing. The deadline to object to confirmation of each of the proposed
plans of reorganization was August 7, 2003 and, in connection therewith,
certain objections have been filed against both plans of reorganization. See
Note 3 to the companys Consolidated Financial Statements and Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations for further details. Delivery of Alternate Site Infusion Services General.Coram delivers its alternate site infusion therapy services
through 77 branch offices located in 40 states and Ontario, Canada, including
recently opened infusion branches in San Antonio, Texas and Amherstburg,
Ontario, Canada. Additionally, Coram delivers alternate site infusion therapy
services through joint ventures and partnerships at several other geographic
locations. Infusion therapy services include, but are not limited to, the
administration of parenteral and enteral nutrition, anti-infective therapies,
IVIG, coagulant and blood clotting therapies, pain management and chemotherapy. Infusion patients are primarily referred to Coram following the diagnosis
of a specific disease or upon discharge from a hospital. The treating physician
generally will determine whether the patient is a candidate for home infusion
treatment. Typically, a hospital discharge planner, the patients physician or
a managed care payer will recommend or determine the infusion company to which
a patient is referred even though the patient ultimately has the right to
choose his or her own service provider. Because drugs administered
intravenously tend to be more potent and complex than oral drugs, the delivery
of intravenous drugs requires patient training, specialized equipment and
clinical monitoring by skilled nurses and pharmacists. Many therapies require
either a gravity-based flow control device or an electro-mechanical pump to
administer the drugs. Some therapies are administered continuously; however,
most are given for prescribed intermittent periods of time. Coram nurses and
pharmacists work with the patients physician to monitor and assess the
patients condition and update the therapy as necessary. The duration of the
patients treatment may last from just a few days to as long as the patients
life. Branch Facilities.The delivery of infusion services is coordinated
through local or regional infusion branches. A typical full service branch
provides the following functions:  (i)
    
    patient intake and admission;(ii)
    
    sterile product preparation by pharmacists and pharmacy technicians; 3




---



##### Table of Contents



(iii)
    
    clinical pharmacy services;(iv)
    
    clinical nursing services;(v)
    
    clinical nutrition services;(vi)
    
    collaborative clinical monitoring and disease management;(vii)
    
    materials management, including drug and supply inventory and delivery;(viii)
    
    assistance to specialized reimbursement personnel regarding billing, cash collection and benefit verification;(ix)
    
    marketing to local referral sources, including physicians, hospitals and payers; and(x)
    
    general management. A typical full service branch has a fully equipped pharmacy, offices for
clinical and administrative personnel and a warehouse. It also employs a branch
manager, licensed pharmacists, pharmacy technicians, registered nurses,
dietitians, and sales and administrative personnel. Such a branch serves the
market area in which it is located, generally within a two hour driving radius
of the patients served, as well as outlying locations where it can arrange
appropriate nursing services. Smaller satellite branches maintain limited
pharmacy operations and are used as support centers to respond to patient needs
in specific geographic areas. Corams full service and satellite branches are
all leased with square footage ranging from 530 to 32,000, primarily in
suburban office parks and often in close proximity to major medical facilities. In-Home Patient Care. Before accepting a patient for home infusion
treatment, the staff at the local branch works closely with the patients
physician or clinician and hospital personnel in order to assess the patients
suitability for home care. This process includes, among other things,
assessment of the patients physical and
emotional status, as well as an evaluation of certain social factors such
as the safety and cleanliness of the home environment and, if necessary, the
availability of family members or others to assist in the administration of the
patients therapy. Patient review also includes a verification of the patients
eligibility based upon established admissions criteria and the patients
benefits package available from his or her insurance carrier, managed care plan
or governmental payer. After a patients suitability for home care has been confirmed, the
patient and/or their designated carepartner receive training and education
concerning the therapy to be administered, including the proper infusion
technique and the care and use of intravenous devices and other equipment used
in connection with the therapy. The patient and the patients carepartner are
also trained to monitor the patients response to the therapy in order to
identify changes of which the healthcare team should be notified. Nurses
employed by or overseen by Coram generally perform the initial patient
assessment and training. Prior to the patient receiving treatment services, the treating physician
develops the patients plan of treatment and communicates it to the local
branchs clinical support team, including its nurses and pharmacists. The team
develops a plan of care and works with the treating physician and the payer
case manager, if applicable, to provide care and to monitor the patients
progress and response to treatment. The Coram pharmacist generally speaks with
the patient or carepartner prior to dispensing the prescribed drugs and
performs a prospective review of the patients condition, medical history and
use of other physician-prescribed medications. Throughout the patients
therapy, the local branchs clinical support team will regularly provide the
treating physician and the payer case manager with reports on the patients
condition, creating an information flow that allows the treating physician to
actively manage the patients care. The treating physician always directs the
patients care, including changing the plan of treatment in accordance with the
patients needs and responses. Upon the patients arrival home, a nurse performs an initial patient
assessment, which includes a comprehensive physical examination and
environmental assessment. Typically, the administration of the patients first
home infusion treatment is overseen during that visit. Thereafter, the
frequency of nursing visits depends upon the particular therapy the patient is
receiving, as well as the level of independence the patient and/or carepartner
have achieved with regard to the administration and monitoring of the
prescribed therapy. During these subsequent visits, the nurse performs an
assessment of the patients intravenous lines and related equipment, obtains
blood samples, changes the pump settings and/or drug administration, assesses
the patients condition and compliance with the plan of care and provides
ongoing teaching and support as directed by the patients physician. The
patients supplies and drugs are typically delivered on a weekly basis
depending on the therapy and the type of drugs being administered. The treating
physician and the payer case manager remain actively involved in the patients
treatment by monitoring the success of the plan of treatment and revising it as
necessary. 4




---



##### Table of Contents



Alternate Site Infusion Therapy: Products and Services General.Coram provides a variety of infusion therapies, principally
nutrition, anti-infective, pain management and IVIG, as well as coagulant and
blood clotting therapies for patients with hemophilia. A physician, based-upon
a patients diagnosis, treatment plan and response to therapy, determines the
initiation and duration of these therapies. Certain therapies, such as
anti-infective, are generally used in the treatment of temporary infectious
conditions, while others, such as nutrition, IVIG and blood coagulants, may be
required on a long-term or permanent basis. The patient, the carepartner or an
employee of Coram administers infusion therapies at the patients home. In some
circumstances, such as immuno-suppressed patients (e.g., AIDS/HIV, cancer,
transplant patients, etc.), blood coagulant therapies or anti-infective
therapies, treatment may be provided periodically over the duration of the
primary disease or for the remainder of the patients life, generally as
episodic care. Nutrition Therapy.Total parenteral nutrition therapy (TPN) involves the
intravenous feeding of life-sustaining nutrients to patients with impaired or
altered digestive tracts due to inflammatory bowel disease, short bowel
syndrome, pancreatitis or other gastrointestinal illnesses. The therapy is
generally administered through a central catheter surgically implanted into a
major blood vessel in order to introduce the nutrient solution directly into
the bloodstream. The nutrient solution may contain amino acids, dextrose, fatty
acids, electrolytes, trace elements, minerals and/or vitamins. In many cases,
the underlying illness or condition from which a parenteral nutrition patient
suffers is recurrent in nature and requires periodic re-hospitalization for
treatment followed by resumption of parenteral nutrition at home. Some patients
must remain on TPN for life and other patients may require short-term TPN
therapy to augment their nutritional status, such as patients with a diagnosis
of cancer, hyperemesis, AIDS/HIV and eating disorders. Enteral nutrition therapy is administered through a feeding tube into the
gastrointestinal tract of patients who cannot eat as a result of an obstruction
to the upper gastrointestinal tract or other medical conditions. Enteral
nutrition therapy is frequently administered over a long period, often for six
months or more. Anti-Infective Therapy. Anti-infective therapy is the infusion of
antibacterial, anti-viral or anti-fungal medications into the patients
bloodstream for the treatment of a variety of infectious episodes, such as
osteomyelitis (bone infections), bacterial endocarditis (infection of the heart
valves), wound infections, infections associated with AIDS/HIV, cancer,
post-kidney transplant treatment protocols and infections of the kidneys and
urinary tract. Intravenous anti-infective drugs are delivered through a
peripheral catheter inserted in a vein in the patients arm or via a centrally
placed catheter. Anti-infective drugs are often more effective when infused
directly into the bloodstream rather than taken orally. Pain Management.Pain management services encompass the treatment of pain
and the management of related symptoms, resulting from either malignant or
non-malignant diseases. Unrelieved pain and the related symptoms are major
contributors to emergency room visitations, as well as readmissions and
extended stays in hospitals. Pain management drugs are typically delivered by
intravenous, subcutaneous or intraspinal (i.e., epidural) methods, often in
connection with the delivery of other core infusion therapies. Intravenous Immunoglobulin.IVIG therapy involves the administration of
blood derivative products (gammaglobulins), which are administered to patients
with an immune deficiency or an altered immune status. IVIG therapy is most
commonly administered to patients with primary immune deficiencies or
autoimmune disorders. Patients receiving IVIG therapy for primary immune
deficiencies usually receive the therapy for life. Depending on the severity
of their condition, patients receiving IVIG therapy for autoimmune disorders
are treated intermittently over a period of months. IVIG products are
delivered through a peripheral catheter inserted in a vein in the patients arm
or via a centrally placed catheter over one to five days, depending on the type
of disorder being treated. Coagulant and Blood Clotting Therapies.Coagulation or factor replacement
therapy is the intermittent administration of a blood clotting factor. Blood
clotting factors are generally administered to persons with hemophilia or
related genetic disorders that affect the bloods ability to clot. If an
individual has one of these disorders, normal blood clotting factors are not
produced in sufficient amounts by the body. The absence of these clotting
factors makes it difficult or impossible for a patient to stop bleeding. Severe
hemophiliacs can suffer from spontaneous bleeding episodes without trauma.
Repeated bleeding episodes can cause permanent loss of mobility in the joints,
thereby placing the patient at further risk medically and impacting their
ability to live a normal life. Factor replacement products are administered via
a centrally inserted or peripherally inserted intravenous catheter over a short
period of time (approximately 10 minutes). Factor is infused when bleeding
episodes occur or on a routine preventative basis (prophylaxis). Most patients
(even children) and/or their carepartners learn to start their own intravenous
catheter and administer their blood clotting factor products. People with
hemophilia and others who have inherited blood clotting disorders will require
these products throughout their lives. 5




---



##### Table of Contents



Availability of factor product from manufacturers can be inconsistent and
is dependent on many variables, including manufacturing capacity, manufacturer
regulatory compliance, donor pools, production lots, contamination, etc. If a
shortage occurs, Coram may be required to purchase through the secondary or
distributor markets, wherein pricing may not be favorable and product
availability can change significantly from day to day. During such times of
shortages, prices increase dramatically with limited availability to pass these
additional costs on to patients and payers. Moreover, product shortages may
make it difficult for Coram to meet the needs of its patients (e.g., a single
patients requirements may, at any given time, expend what would otherwise be
adequate inventory for multiple patients, etc.) and may have an adverse impact
on Corams future results of operations. The current domestic supply of factor
products is meeting or exceeding demand and Coram is able to acquire adequate
amounts of these products in order to meet its current and anticipated
short-term patient demand. However, product shortages will continue to occur
due to the nature of the manufacturing and regulatory environment for these
products and any disruption to the companys factor product supply chain could
have a materially adverse impact on future operating results. Transplant Services.Coram developed a distinct transplant program and
provides therapies and services to pre and post bone marrow, blood cell and
organ transplant patients. This clinically focused care management program
includes, among other things, proprietary patient and environmental assessment
and monitoring protocols, patient education tools and clinical training
programs. The most common therapy for transplant patients is anti-infective
therapy, including antibiotics, anti-viral and anti-fungal agents, most often
prescribed intravenously to prevent or treat an infection due to the patients
immuno-compromised status. Other prescribed therapies include TPN, IVIG,
biologic response modifiers, immunosuppressive therapies and blood products. Respiratory Therapy Services and Related Equipment and Durable Medical
Equipment.Certain Coram and affiliated joint venture branches provide
respiratory therapy services and related equipment to patients for use in their
homes. In addition, such branches also provide durable medical equipment in a
patients home setting, which complements the companys core home infusion and
respiratory therapy services businesses. Whether administered separately to
chronically ill pulmonary patients or in conjunction with Corams other
services, dedicated respiratory and other professionals are committed to
positive patient outcomes, referral source
communication, physician satisfaction and high standards of clinical
excellence. Corams integrated service approach allows patients to access
infusion, respiratory and other therapy services, as well as durable medical
equipment, through a single healthcare provider. Other Non-Core Therapies.Coram provides other technologically advanced
therapies such as antineoplastic chemotherapy, intravenous inotropic therapy
for patients with congestive heart failure or for those who are awaiting
cardiac transplants, intravenous anti-coagulant therapy for the prevention of
blood clots, anti-nausea therapy for chemotherapy induced emesis or hyperemesis
gravidarum and therapies corresponding to the Food and Drug Administration
approved drugs Aralast, Synagis® and Remicade®. Hydration therapy, another
non-core therapy, is often administered in conjunction with intravenous
chemotherapy. Other non-core therapies, as described herein, are generally not
material to the companys results of operations. Alternate Site Infusion Therapy: Organization and Operations General.Corams alternate site infusion therapy business operations are
currently conducted through 77 branches. The company has divided its operations
into three geographical areas, each having a Senior Vice President of
Operations or a Vice President of Operations (collectively the Senior Vice
Presidents of Operations) reporting directly to the Executive Vice President
and an Area Vice President of Sales reporting directly to the Senior Vice
President, Field Sales. Management believes that this organizational structure
fosters a high level of interactive collaboration between the Area Vice
Presidents of Sales and the companys sales force and allows the Senior Vice
Presidents of Operations to focus on their areas in a comprehensive manner.
Moreover, this organizational structure was designed to create operating and
decision-making efficiencies and promote high quality local decision-making,
thereby allowing Coram to attract and retain experienced local managers and
remain responsive to local market needs. Management continuously reviews
operations, focusing on the cost effective delivery of quality patient care.
For example, Coram established a Hemophilia Services Division and specialty
hemophilia distribution centers in Malvern, Pennsylvania, Albuquerque, New
Mexico and Sacramento, California. Each center utilizes existing Coram branch
resources and concentrates experienced clinicians and management on the unique
needs of hemophilia patients and their carepartners. Operating Systems and Controls.An important factor in Corams ability to
monitor its operating locations is its management information systems. Besides
routine financial reporting, the company has developed a performance model for
monitoring the field operations of its infusion business. Actual operating
results derived from the management information systems can be compared to the
performance model, enabling management to identify opportunities for increased
efficiency and productivity. Management believes that the use of standardized,
specific performance matrices and the identification and monitoring of best
demonstrated practices facilitate operational improvements. 6




---



##### Table of Contents



Within the past two years, the company has implemented new financial,
materials management, procurement, human resource and payroll systems.
Additionally, the company is in the initial phases of implementing its new
billing, accounts receivable, clinical and pharmacy systems (collectively the
Front Office). Management anticipates that the Front Office modules will be
fully operational in late 2005. See Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations: Liquidity and
Capital Resources and Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations: Risk Factors for further
details. Alternate Site Infusion Therapy: Quality Assurance/Performance Improvement Coram maintains accreditation for its infusion therapy business that is
consistent with its service standards and enables the company to monitor
whether the objectives of those standards are met. Coram maintains national
accreditation from the Accreditation Commission on Health Care, Inc. (ACHC)
and, in connection therewith, the company underwent its corporate survey with
ACHC in December 2001 and received Accreditation with Commendation, which
applied to all services provided at all locations effective January 1, 2002.
ACHC continues to conduct ongoing surveys at Coram branches to monitor
compliance with clinical and quality standards throughout the three year
accreditation period. As of December 31, 2003, fifty-eight branches have
completed the ACHC survey process and have confirmed accreditation. All
remaining branches are expected to complete the ACHC survey process on or
before June 30, 2004. Additionally, the company has requested accreditation by the Community
Health Accreditation Program (CHAP) for its three branches located in
Michigan. The CHAP survey process is expected to be completed during the
quarter ending June 30, 2004. An integral part of Corams commitment to clinical excellence is the
national and branch specific Performance Improvement programs, which are fully
integrated into the daily business model. The Performance Improvement programs
serve to:  (i)
    
    evaluate branch programs, policies and procedures and amend protocols as needed;(ii)
    
    provide ongoing direction to performance improvement efforts;(iii)
    
    measure patient and customer satisfaction and analyze trends, making
modifications as necessary to achieve better overall service;(iv)
    
    monitor clinical outcome measures, including venous access device related outcomes and rehospitalizations, analyze trends and make
modifications as necessary to improve patient outcomes;(v)
    
    assist in the development of new programs or procedures to meet recognized needs within the branch or the community that it serves;(vi)
    
    evaluate branch staff efforts related to professional and clinical issues such as clinical monitoring of patients; and(vii)
    
    identify, monitor and modify key performance areas of operations. Further, Corams Clinical Operations Department assists branch management
in assessing the levels of service being provided to patients. Corams
integrated approach to performance improvement is designed to identify
national, area, regional and branch specific trends related to high volume,
high risk, problematic and new activities. It encompasses continuous assessment
and measurement of patient and customer satisfaction at both the local and
national levels, as well as comprehensive tracking, measuring and monitoring of
important clinical outcomes. The process also includes the measurement of
managements ability to achieve the desired operational and fiscal benchmarks
that are critical to the companys success. Respiratory Therapy Services and Related Equipment and Durable Medical Equipment Coram provides a full line of respiratory therapy services and equipment,
including, but not limited to, respiratory medications, oxygen systems, home
ventilators, sleep apnea equipment, nebulizers, Continuous Positive Airway
Pressure (CPAP) systems and Bilevel Positive Airway Pressure (BiPAP)
systems. In addition, Coram provides other durable medical equipment, such as
hospital beds, wheelchairs and walkers, to serve the needs of its patients.
Both respiratory and durable medical equipment are available to patients for
purchase or rent. There are many synergies between these product lines and the
companys base infusion business that benefit both the company and its
customers. Coram primarily benefits from the opportunity to provide respiratory
therapy services and equipment and durable medical equipment to patients who
are already receiving infusion or other services. Additionally, patients and payers
benefit from the opportunity to obtain comprehensive healthcare services and
equipment through a single source. The aforementioned services are provided through branches located in San
Diego, California; Indianapolis, Indiana; Lenexa, Kansas; and Plymouth,
Michigan. Coram also provides these services through one of its joint ventures
with three locations in 7




---



##### Table of Contents



Wisconsin. Additionally, Coram operates a
rehabilitation equipment line of business in San Diego, California that
provides area patients with custom and power wheelchairs. Clinical Research Coram has been providing support services for clinical research studies
since 1995. In 1998, the company created a Clinical Research division and
devoted additional resources to, and actively marketed, its capabilities in
this area. This division is currently operated through the companys
wholly-owned subsidiary, CTI Network, Inc. (CTI), out of the companys Mount
Prospect, Illinois facility. Utilizing Corams integrated information systems
and its national network of alternate site infusion nurses and pharmacists, as
well as contracted nurses from non-Coram agencies, CTI offers its customers the
opportunity to effectively and efficiently complete some of the most
challenging aspects of a clinical trial by:  (i)
    
    providing alternate site healthcare services such as therapy administration, specimen collection, patient education and training,
patient assessments and data collection;(ii)
    
    providing alternate site pharmacy services;(iii)
    
    providing patient screening and surveying services;(iv)
    
    providing product acquisition of comparative medications;(v)
    
    providing single source contracting through a central office for national services;(vi)
    
    providing nurse study coordinators at the physicians office; and(vii)
    
    assisting in the identification of potential investigators. SoluNet LLC (SoluNet): Outsourced Hospital Compounding Services In November 2002, the company organized SoluNet as a wholly-owned
subsidiary for the purpose of providing sterile product compounding services to
hospitals. SoluNets product offerings include patient-specific TPN, Continuous
Renal Replacement Therapy solutions and Cardioplegia solutions, which are
compounded and dispensed by select Coram branch pharmacies under highly
controlled conditions that are consistent with United States Pharmacopeia
Chapter 797, Pharmaceutical Compounding  Sterile Products (USP Chapter 797).
Each bag of compounded solution is individually labeled and delivered to the
hospital in accordance with customer specifications. Outsourcing to SoluNet
promotes hospital pharmaceutical care models and facilitates the reallocation
of critical hospital resources to internal initiatives, thereby promoting
improved quality of patient care, achievement of cost savings and other
strategic and tactical goals. SoluNet works closely with hospital stakeholders
during all phases of program implementation and execution in order to design
programs that meet each hospitals unique clinical, operational and fiscal
requirements while allowing the hospitals to maintain important relationships
with their drug and supply vendors. As of April 9, 2004, SoluNet services its customers through Corams
existing branch locations in Dunbar, West Virginia; Hopkinton, Massachusetts
and Wallingford, Connecticut. Additionally, SoluNet recently entered into a
real property lease agreement for a location in Totowa, New Jersey wherein the
SoluNet corporate office and certain pharmaceutical manufacturing facilities
will be located. Reimbursement of Services Virtually all of Corams net revenue is billed to third party payers,
including insurance companies, managed care plans, such as HMOs and PPOs, and
governmental payers such as Medicare and Medicaid. Similar to other healthcare
service providers, Coram experiences prolonged reimbursement payment cycles in
certain circumstances as a result of third party payment procedures and the
implementation of new regulations such as the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). Consequently, management of accounts
receivable through effective patient registration, qualification, billing,
documentation and collection procedures is critical to financial success and
continues to be a high priority for the company. Coram continues to focus on
the appropriate processing of claims and the careful screening of new patients
to determine that adequate reimbursement will be available and received in a
timely manner. Accordingly, the company implemented new admissions policies
and procedures during the year ended December 31, 2003. As a result of such
new policies and procedures, on a recurring basis all admissions employees are
required to complete a web-based training course and pass a related competency
exam. Moreover, all newly hired Coram admissions employees are required to
complete an extensive Admissions Training course and pass a related competency
exam with a score of 95% or higher. All training and scoring of exams is the
responsibility of Coram personnel who have previously demonstrated the required
admissions competencies. 8




---



##### Table of Contents



The Centers for Medicare & Medicaid Services (CMS) developed, for use in
the Medicare Part B program, a national fee schedule for covered respiratory
therapies, home medical equipment and infusion therapies, which provides
reimbursement at 80% of the amount of any fee on the designated fee schedule.
The remaining 20% co-insurance portion is the obligation of secondary insurance
and/or the patient. The majority of the revenue that Coram earns under the
Medicare program relates to Medicare Part B. State Medicaid programs generally
utilize fee schedules similar to the Medicare Part B program. For most of the drugs that Coram provides to its patients, it is
reimbursed by governmental and third party payers according to rate schedules
that are based on the Average Wholesale Price (AWP) of the drugs as published
by commercial pricing services. For example, the Medicare programs allowable
payment amount in recent years generally has been set at 95% of the published
AWP of a drug. AWP is an industry term that is typically understood to
represent a suggested price for wholesale sales to pharmacies. AWP does not
necessarily reflect the price paid by either pharmacies or other end user
purchasers. In December 2003, President George W. Bush signed into law the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the
MMA), which makes significant changes in Medicare reimbursement policies,
including the discontinuance of AWP-based reimbursement methodologies for
certain Medicare Part B drugs. See Government Regulation for further
details. Due to its recent enactment and the necessity for the promulgation of
additional regulatory guidance, management cannot presently assess the full
impact of the MMA on the companys business and Medicare reimbursement.
Moreover, there can be no assurances that state government or private health
insurance companies will continue to reimburse for drugs and biologicals based
on the current AWP-based methodologies or that future AWPs, revised AWPs or
other payment methods will reflect acquisition prices available to purchasers
such as the company. If state government or private insurance companies
discontinue or modify the use of AWP, or otherwise implement payment methods
that reduce the reimbursement for drugs and biologicals, the companys profit
margins may be reduced and, in many cases, be inadequate when combined with the
costs of clinical services and overhead expenses associated with the delivery
and administration of the drugs and biologicals. These circumstances could
produce a material adverse impact on the companys overall profit margins. See
Government Regulation for further details. The laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation and revision. Compliance with such laws
and regulations can be subject to future government review and interpretation,
as well as significant regulatory action, including punitive fines, penalties
and exclusion from the Medicare and Medicaid programs. Management acknowledges
and is complying with certain ongoing audits and reviews with respect to prior
reimbursements from Medicare and Medicaid. To address the companys potential
exposure and to more readily comply with the applicable federal and state
regulations, Coram established a national compliance committee to regularly
review external audit activity, identify and correct compliance issues and
resolve any related regulatory matters. See Government Regulation and Item
7. Managements Discussion and Analysis of Financial Condition and Results of
Operations: Risk Factors for further details. In certain instances, fixed fee or capitated fee arrangements are entered
into by the company. Under a capitated fee arrangement, Coram would agree to
deliver or arrange for the delivery of certain home health services required
under the payer customers health plan in exchange for a fixed per member per
month service fee. The total per member per month fee is calculated using all
members enrolled in the particular health plan as of certain specified dates.
Before establishing the appropriate per member per month fee, Coram typically
reviews utilization data provided by the payer customer and/or other available
utilization data. In some instances, the calculated fee will be adjusted or
reconciled periodically to reflect the health plans most current membership
census to prevent excess losses by the company or excess expenditures by the
payer customer. As of December 31, 2003, Coram was a party to only two
capitated arrangements. Capitated contracts represented approximately 1.7%,
2.3% and 2.9% of the companys consolidated net revenue for the years ended
December 31, 2003, 2002 and 2001, respectively. See Note 2 to the companys
Consolidated Financial Statements for further details. Management throughout the company is continuing to concentrate on
enhancing timely reimbursement by emphasizing improved billing and cash
collection methods, continued assessment of reimbursement systems support and
concentration of the companys expertise and managerial resources into certain
reimbursement locations. By consolidating to fewer sites, management is working
to implement improved training, more easily standardize best demonstrated
practices, enhance specialization related to payers such as Medicare and
achieve more consistent and timely cash collections. Management believes that,
in the long-term, payers and patients will receive better, more consistent
service. However, no assurances can be given that the consolidation of the
companys Patient Financial Service Centers (reimbursement sites) and other
related activities initiated by management will be successful in enhancing
timely reimbursement or that the company will not experience a significant
shortfall in cash collections, deterioration in days sales outstanding (DSO)
and/or unfavorable aging trends in its accounts receivable. 9




---



##### Table of Contents



Competition The alternate site infusion therapy market is highly competitive. Some of
Corams current and potential competitors in these lines of business include:  (i)
    
    integrated providers of alternate site healthcare services;(ii)
    
    hospitals;(iii)
    
    local providers of multiple products and services for the alternate site healthcare market;(iv)
    
    physicians and physician-owned organizations, such as independent practice associations and multi-specialty group practices; and(v)
    
    mail order and specialty injectable pharmacy providers. Coram has experienced increased competition in its alternate site infusion
therapy business from the abovementioned parties as they have sought to
increase the scope of their services, including services similar to those
offered by Coram. During 2002, one of the companys major national competitors was sold to a
company that provides specialized contract pharmacy and related services to
patients with chronic diseases. Subsequent to such sale, the acquiring company
discontinued services to patients receiving certain therapies, some of which
are considered to be Corams core therapies. Management believes that this
change in business strategy by one of the companys national competitors,
consolidations and business failures of certain other regional and national
competitors has had a favorable impact on the companys sales and results of
operations during the years ended December 31, 2003 and 2002. Coram competes with other providers on a number of critical
differentiating factors, including quality of care and service, reputation
within the medical and payer communities, geographic scope and price.
Competition within the alternate site infusion business has been affected by
the decision of third party payers and their case managers to be more active in
monitoring and directing the care delivered to their beneficiaries.
Accordingly, relationships with such payers and their case managers and
inclusion within preferred provider and other networks of approved or
accredited providers is often a prerequisite to Corams ability to continue to
serve many of its patients. Similarly, Corams ability to align itself with
other healthcare service providers may increase in importance as managed care
providers and provider networks seek out providers who offer a broad range of
services that may exceed the range of services currently offered directly by
Coram. There are relatively few barriers to entry in the local markets which
Coram serves. Local or regional providers are currently competing in many of
the markets served by the company and others may do so in the future. Entrance
into the local markets by competitors could cause a decline in net revenue,
loss of market acceptance of Corams services and price competition. Coram
expects to continue to encounter competition in the future that could limit its
ability to maintain or increase its market share. Such competition could have
an adverse effect on the business, financial condition and results of
operations of Coram. See Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations: Risk Factors for further
details. Sales and Marketing Corams alternate site infusion therapy products and services, including
respiratory services and equipment and durable medical equipment, are marketed
through branch sales personnel, including managed care consultants, account
managers and clinical service liaisons with sales specialists focused on select
Nutrition and Blood Product Programs. The company established product managers
for five of its core therapies: nutrition, anti-infectives, IVIG,
hemophilia-related services and pain management services through Strategic
Business Units: Nutrition Services, Anti-Infectives, Blood Products Services
(including hemophilia and IVIG) and Pain Management. The vice president or
director for each unit has responsibility for ongoing program development and
provides clinical and marketing resources to focus on growing sales in these
areas. Additionally, the company recently enhanced its sales and marketing
resources to pursue business with various military and Veterans Administration
organizations. Substantially all of Corams new patients are referred by physicians,
medical groups, hospital discharge planners, case managers employed by HMOs,
PPOs or other managed care organizations, insurance companies
and home care agencies. Corams sales force is responsible for
establishing, maintaining and growing referral sources. Sales employees
generally receive a base salary plus incentive compensation based on core
therapy patient growth, revenue growth, gross margin growth and/or earnings
from continuing operations before interest expense, income taxes, depreciation
and amortization and other non-recurring items (EBITDA) enhancements. 10




---



##### Table of Contents



Corams network of field representatives enables it to market its services
to a variety of patient referral sources, including physicians, hospital
discharge planners, hospital personnel, HMOs, PPOs and insurance companies.
Marketing is focused on presenting Corams clinical expertise, tailored to
specific customer/patient interests, with an emphasis on certain key therapies.
Specialty marketing and sales support personnel promote products and services
that are outside of the base infusion therapies. As a result of escalating pressures to contain healthcare costs, third
party payers are participating in certain decisions regarding healthcare
alternatives, using their significant bargaining power to secure discounts and
to direct referrals of their enrollees to specified providers. In response
thereto, Coram has directed its sales and business development strategies
toward aggressively pursuing agreements with third party payers, managed care
plans and provider networks that offer high quality, cost-effective care. Coram
maintains a sales force that supports each of its Strategic Business Units to
enhance its efforts to market and sell its services to managed care payers. The
companys managed care sales representatives are deployed with the field sales
force to focus on regional and national payers to effect pull-through from
referral sources within each payers network. Coram is currently focusing its
efforts on increasing referrals through select managed care agreements with the
goal of being the preferred infusion provider, as well as selling specialty
services for nutrition, anti-infectives, IVIG and pain management therapies,
services for people with hemophilia and individuals receiving certain types of
organ and bone marrow/blood cell transplants. Sales and marketing activities for CTI are directed at the top one hundred
pharmaceutical and biotech companies conducting clinical research studies
related to biologics, intravenous injectables, devices and oral and enteral
medications in the United States. CTIs Vice President, Director of Business
Development and Director of Clinical Research are responsible for coordinating
sales and marketing activities such as industry presentations, exhibits at
clinical research/pharmaceutical conventions and distribution of direct mail
information. Marketing efforts focus on the presentation of CTIs clinical
research experience in multiple therapeutic areas and its dedicated staff. In
addition, testimonials from existing clients have proven to be an important
tool for CTI and have contributed to several new study awards from
pharmaceutical/biotech companies. CTI also advertises in clinical research
publications. Referrals to CTI are received from directors of clinical research, project
managers and clinical research associates from clinical research divisions of
major pharmaceutical and biotech companies, as well as clinical research
organizations that are responsible for study oversight, enrollment, retention
and, at times, project management. The CTI Director of Business Development is
responsible for establishing, maintaining and enhancing referral sources.
Requests for in-home clinical research visits at the local Coram branch level
are investigated by CTI professionals to assess the possibility of expanding
the studies to a national level. CTI is currently focusing on increasing its
business through the creation of master service agreements with study sponsors.
CTIs overall objective is to be a preferred in-house clinical research
provider for pharmaceutical and biotech companies. SoluNets services are marketed through its Business Development Managers
who work closely with SoluNet operational personnel to identify potential
customers. SoluNet primarily markets its services through participation in
trade shows. SoluNet personnel also maintain strategic relationships with a
variety of organizations that ultimately assist in identifying potential
customers. Customers and Suppliers Coram provides alternate site home healthcare services and products to a
large number of patients and related payers. Medicare and Medicaid collectively
represented approximately 24% of consolidated net revenue for each of the years
ended December 31, 2003, 2002 and 2001. No other individual payer accounted for
more than 5% of Corams net revenue during 2003, except for Health Net Inc.
(Health Net). Approximately 7.0%, 7.5% and 6.1% of the companys consolidated net
revenue for the years ended December 31, 2003, 2002 and 2001, respectively,
related to the agreement with Health Net to provide services to its members in
California pursuant to fee-for-service and capitated reimbursement
arrangements. Additionally, Coram owns 50% of a partnership located in
California that derived approximately 40.3%, 45.7% and 25.9% of its net revenue
during the years ended December 31, 2003, 2002 and 2001, respectively, from
services provided under such agreement. The Health Net agreement expired on
December 31, 2002 but was subsequently amended to extend the contract, with
certain modifications, to December 31, 2005. As a result of final contract
negotiations, Health Net reserved the right to reevaluate the contract based
upon the status of the Bankruptcy Cases, as well as material changes, if any,
to Corams senior management during the remaining contractual term. The loss
of the Health Net agreement or significant modifications to the terms and
conditions of the related amendment could have a materially adverse effect on
the results of operations, cash flows and financial condition of the company
and its partnership. See Note 2 to the companys Consolidated Financial
Statements and Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations: Risk Factors for further details. 11




---



##### Table of Contents



The company is a party to several individual provider contracts that
ultimately fall within the purview of a single national health insurance
carrier that recently commenced implementation of a national ancillary care
management program. In connection therewith, during 2002 such national health
insurance carrier terminated two provider contracts relating to the state of
Illinois (one with the company and one with a non-consolidated joint venture).
During 2003 and through April 9, 2004, eleven additional provider contracts
were terminated with effective dates ranging from October 1, 2003 to July 1,
2004. The terminated contracts represented approximately 2.6%, 3.0% and 2.6%
of the companys consolidated net revenue for the years ended December 31,
2003, 2002 and 2001, respectively, and approximately 3.9% and 5.1% of the
companys consolidated accounts receivable at December 31, 2003 and 2002,
respectively. In the aggregate, approximately 3.5%, 4.2% and 4.4% of the
companys consolidated net revenue for the years ended December 31, 2003, 2002
and 2001, respectively, and approximately 5.4% and 6.8% of the companys
consolidated accounts receivable at December 31, 2003 and 2002, respectively,
were derived from the individual provider contracts that are within the purview
of this national health insurance carrier. Management can provide no assurances
that the remaining active provider contracts associated with this national
health insurance carrier will continue under terms that are favorable to the
company. Additionally, no assurances can be given that meaningful
collection/settlement activities relative to outstanding accounts receivable
will transpire in the future. The termination of additional provider contracts
and/or the inability to collect outstanding accounts receivable from the
individual healthcare plans under this national health insurance carrier could
have a materially adverse impact on the companys results of operations, cash
flows and financial condition. Coram purchases products from a large number of suppliers and considers
its relationships with its vendors to be good, subject to credit uncertainty
and the Bankruptcy Cases. Except for certain blood products discussed in Item
1. Business, Alternate Site Infusion Therapy: Products and Services-Coagulant
and Blood Clotting Therapies, management believes that substantially all of
its products are available from alternative sources; however, see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations: Risk Factors for further discussion. When management considers
alternate vendor sources, such consideration primarily focuses on products
currently being purchased through Cardinal Health, Inc., FFF Enterprises, Inc.
and Baxter Healthcare Corporation (Baxter), Corams three principal suppliers
of drugs and supplies. During the year ended December 31, 2003, Coram purchased
drugs and supplies aggregating approximately $67.4 million from Cardinal
Health, Inc., $43.0 million from FFF Enterprises, Inc. and $30.6 million from
Baxter, or approximately 35%, 22% and 16%, respectively, of its total drugs and
supplies. Moreover, as of April 9, 2004, the company maintained contractual
Baxter drug and supply purchase commitments aggregating approximately $70.4
million. In addition to the significant purchases of drugs and supplies from
Baxter, the company also entered into a five year capital lease commitment
agreement with Baxter, effective December 30, 2003, to lease a minimum of 5,200
6060 Multi-Therapy Ambulatory Infusion Pumps (the estimated commitment under
this arrangement is approximately $8.3 million). Through April 9, 2004, the
company received 1,700 of such pumps and management anticipates receiving the
remaining pumps on or before September 30, 2004. Moreover, management believes
that the company will comply with the terms and conditions of the underlying
Baxter lease agreements; however, there can be no assurances thereof or what
remedies, if any, would be invoked by Baxter in the event of default. In addition to the three major suppliers discussed above, Coram purchased
drugs and supplies aggregating approximately $11.0 million, or approximately 6%
of the companys total drugs and supplies, from B. Braun Medical, Inc. (B.
Braun) during the year ended December 31, 2003. The company also entered into
two agreements with B. Braun in 2003 whereby the company purchased 1,000 Vista
Basic pole-mounted pumps at an aggregate cost of approximately $1.3 million.
Moreover, the company entered a three year capital lease agreement with B.
Braun (the B. Braun Lease Agreement), effective May 2003, to lease an
additional 1,000 Vista Basic pole-mounted pumps (the aggregate obligation under
this arrangement is approximately $1.3 million). Management believes that the
company will comply with the terms and conditions of the B. Braun Lease
Agreement; however there can be no assurances thereof or what remedies, if any,
would be invoked by B. Braun in the event of default. See Notes 9 and 14 to the companys Consolidated Financial Statements for
further details regarding the capital lease and purchase commitment agreements
with Baxter and B. Braun. Government Regulation General.The federal government and all states in which Coram is currently
operating regulate various aspects of Corams business. In particular, Corams
operations are subject to extensive federal and state laws regulating, among
other things, pharmacy operations, home care, nursing services, ancillary
network management services, health planning, health and safety, environmental
compliance and toxic and medical waste disposal. Coram is also subject to fraud
and abuse and self-referral laws, which affect its business relationships with
physicians, other healthcare providers and referral sources and its
reimbursement from government payers. Generally, all states require infusion
companies to be licensed as pharmacies and to have appropriate state and
federal registrations for 12




---



##### Table of Contents



dispensing controlled substances. Some states require
infusion companies to be licensed as nursing or home health agencies and to
obtain medical waste permits. In addition, certain company employees are
subject to state laws and regulations governing the ethics and professional
practices of pharmacy and/or nursing personnel. Coram may also be required to obtain certifications or register in order
to participate in governmental payment programs such as Medicare and Medicaid.
Some states have established certificate-of-need programs regulating the
establishment or expansion of healthcare operations, including certain of
Corams operations. The failure to obtain, renew or maintain any of the
required regulatory approvals, certifications, registrations or licenses could
adversely affect Corams business and could prevent the location or locations
involved from offering products and services to patients and/or from billing
third party payers. Corams operating results could be adversely affected,
directly or indirectly, as a result of any such actions. Management believes
that Coram complies, in all material respects, with these laws and regulations.
The healthcare services industry will continue to be subject to pervasive
regulation at the federal and state levels, the scope and effect of which
cannot be predicted. No assurances can be given that Corams activities will
not be reviewed and challenged or that future healthcare reform initiatives
will not result in material adverse changes to the company. Fraud and Abuse.Corams operations are subject to the illegal
remuneration provisions of the Social Security Act (sometimes referred to as
the anti-kickback statute) that imposes criminal and civil sanctions on
persons who knowingly and willfully solicit, offer, receive or pay any
remuneration, whether directly or indirectly, in return for, or to induce, the
referral of a patient for treatment, or, among other things, the ordering,
purchasing or leasing, of items or services that are paid for in whole or in
part by federal healthcare programs. Violations of the federal anti-kickback
statute are punishable by criminal penalties, including imprisonment, fines and
exclusion of the provider from future participation in federal healthcare
programs. Federal healthcare programs have been defined to include any plan or
program that provides health benefits funded by the United States Government
and commonly include, among others, Medicare, Medicaid and the Civilian Health
and Medical Program of the Uniformed Services. Administrative exclusion and
civil monetary penalties for anti-kickback violations can also be imposed through an administrative process.
Federal enforcement officials may also attempt to use other federal statutes to
punish behavior considered fraudulent or abusive, including the Federal False
Claims Act, which provides for penalties of up to $11,000 per claim plus treble
damages, and permits private persons to sue on behalf of the government. While
the federal anti-kickback statute expressly prohibits transactions that have
traditionally had criminal implications, such as kickbacks, rebates or bribes
for patient referrals, its language has been broadly construed and has not been
exclusively limited to such obviously wrongful transactions. Some court
decisions state that, under certain circumstances, the statute is also violated
when one purpose (as opposed to the primary or a material purpose) of a
payment is to induce referrals. Congress has frequently considered, but has not
yet adopted, federal legislation that would expand the federal anti-kickback
statute to include the same broad prohibitions regardless of payer source. In addition to the payment or receipt of illegal remuneration for the
referral or generation of federal healthcare program business, the fraud and
abuse laws cover other billing practices that are considered fraudulent (such
as presentation of duplicate claims, claims for services not actually rendered
or for procedures that are more costly than those actually rendered) or abusive
(such as claims presented for services not medically necessary based upon a
misrepresentation of fact) and are subject to the same remedies as described
above. Similarly, a large number of states have varying laws prohibiting certain
direct or indirect remuneration amongst healthcare providers for the referral
of patients to a particular provider, including pharmacies and home health
agencies. Possible sanctions for violations of these laws include loss of
licensure, exclusion from state funded programs and civil and criminal
penalties. Although management believes that the company is in compliance with the
various federal and state fraud and abuse statutes, failure to comply with such
laws and regulations could have a material adverse effect on the company. Prohibition on Physician Referrals.Under the Omnibus Budget
Reconciliation Act of 1993 (commonly referred to as Stark II), it is unlawful
for a physician to refer patients for certain designated health services
reimbursable under the Medicare or Medicaid programs to an entity with which
the physician and/or the physicians family, as defined under Stark II, has a
financial relationship, unless the financial relationship fits within an
exception enumerated in Stark II or regulations promulgated thereunder. Aspects
of Corams business which are designated health services for purposes of
Stark II include outpatient prescription drugs, parenteral and enteral
nutrition, equipment and supplies, durable medical equipment and home health
services. A financial relationship under Stark II is defined broadly as an
ownership or investment interest in, or any type of compensation arrangement in
which remuneration flows between the physician and the provider. Coram has
financial relationships with physicians and physician-owned entities in the
form of medical director agreements and product or service agreements pursuant
to which the company provides pharmaceutical products and services. In each
case, the relationship has been structured, based on advice of legal counsel,
using an arrangement management 13




---



##### Table of Contents



believes to be consistent with applicable
exceptions set forth in Stark II, such as the personal services arrangements
exception or the exception for payments by a physician for items and services. In addition, the company is aware of certain referring physicians (or
their immediate family members) that have had financial interests in the
company through ownership of shares of the companys common stock. The Stark II
law includes an exception for the ownership of publicly traded stock in certain
companies with equity above certain levels. This exception under Stark II requires the issuing
company to have stockholders equity of at least $75 million either as of the
end of its most recent fiscal year or on average over the last three fiscal
years. Due principally to the extraordinary gains on troubled debt
restructurings (see Note 8 to the companys Consolidated Financial Statements
for further details), at December 31, 2003 the companys stockholders equity
was above the required level. As a result, the company is compliant with the
Stark II public company exemption through the year ending December 31, 2004.
However, managements ability to maintain an appropriate level of stockholders
equity cannot be reasonably assured. The penalties for failure to comply with
Stark II include, among other things, non-payment of claims and civil penalties
that could be imposed upon the company and, in some instances, upon the
referring physician. Some of these penalties can be imposed regardless of
whether the company intended to violate the law. Management has been advised by legal counsel that a company whose stock is
publicly traded has, as a practical matter, no reliable way to implement and
maintain an effective compliance plan for addressing the requirements of Stark
II other than complying with the public company exception. Accordingly, if
CHCs common stock remains publicly traded and its stockholders equity falls
below the required levels, the company would be forced to cease accepting
referrals of patients covered by the Medicare and Medicaid programs or run a
significant risk of Stark II noncompliance. Because approximately 24% of the
companys consolidated net revenue for each of the years ended December 31,
2003, 2002 and 2001 relates to patients with such government-sponsored benefit
programs, discontinuing the acceptance of such patients would have a material
adverse effect on the companys financial condition, results of operations and
cash flows. Additionally, ceasing to accept such patients could have a
materially adverse effect on the companys business reputation in the
marketplace as it may cause the company to be a less attractive provider to
which a physician could refer his or her patients. Under Stark II, an entity is prohibited from claiming payment under the
Medicare or Medicaid programs for services rendered pursuant to a prohibited
referral and is liable for the refund of amounts received pursuant to
prohibited claims. The entity, in some instances, can also be assessed civil
penalties of up to $15,000 per improper claim and can be excluded from
participation in the Medicare and/or Medicaid programs. In addition, a number
of the states in which the company operates have similar prohibitions on
physician self-referrals with corresponding penalties. Although management
believes it has structured its financial relationships with physicians to
comply with Stark II and applicable state law equivalents, the failure to
comply with the provisions of such laws could have a material adverse effect on
the company. On March 26, 2004, CMS published regulations, which become
effective July 26, 2004, to implement certain provisions of Stark II that were
not addressed in earlier regulations. These regulations essentially mirror the
standards that have previously applied, including the statutory exception
(i.e., publicly-traded healthcare providers that have the requisite level of
stockholders equity), with one modification. The regulations will be
interpreted to mean that the referring physicians (or immediate family
members) ownership interest must be in securities that are generally available
to the public at the time the referral for designated health services was made
(rather than when the physician or family member obtained the ownership
interest). This regulatory interpretation should not have an effect on the
companys ability to comply with the public company exception under Stark II. Other Fraud and Abuse Laws.The Federal False Claims Act imposes civil
liability on individuals or entities that submit false or fraudulent claims for
payment to the government. Violations of the Federal False Claims Act may
result in civil penalties and forfeitures and exclusion from the Medicare and
Medicaid programs. The Health Insurance Portability and Accountability Act of
1996 created two new federal crimes: Healthcare Fraud and False Statements
Relating to Healthcare Matters. The Healthcare Fraud statute prohibits
knowingly and willfully executing a scheme or artifice to defraud any
healthcare benefit program. A violation of this statute is a felony and may
result in fines and/or imprisonment. The False Statements Relating to
Healthcare Matters statute prohibits knowingly and willfully falsifying,
concealing or covering up a material fact by any trick, scheme or device or
making any materially false, fictitious or fraudulent statement in connection
with the delivery of or payment for healthcare benefits, items or services. A
violation of this statute is a felony and may result in fines and/or
imprisonment. In recent years, the federal government has significantly increased the
financial resources allocated to enforcing the healthcare fraud and abuse laws.
In addition, private insurers and various state enforcement agencies have
increased their level of scrutiny of healthcare claims in an effort to identify
and prosecute fraudulent and abusive practices. Although management believes
the company is in compliance with fraud and abuse laws, the failure to comply
with any such laws could have a material adverse effect on the company. 14




---



##### Table of Contents



Medicare and Medicaid Healthcare Reform.As part of the Balanced Budget
Act of 1997 (the BBA), Congress made numerous changes that affect Medicare
Part A certified home health agencies and Medicare Part B suppliers like Coram
that participate in the Medicare program. These policies were subsequently
modified by the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of
1999 (the BBRA), the Medicare, Medicaid and SCHIP Benefits Improvement and
Protection Act of 2000 (the BIPA) and the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (the MMA). The BBA, as modified by the BBRA, required certified home health agencies
participating in Part A of the Medicare program to post surety bonds in an
amount equal to the lesser of 10% of the amount that Medicare paid to the
provider in the prior year or $50,000. The deadline for securing such bonds has
been extended indefinitely while CMS reviews the bonding requirements. As of
April 9, 2004, the company had only one Medicare Part A certified home health
provider location, which has not obtained a surety bond. In addition, as
required by the BBA, CMS will issue separate surety bond regulations applicable
to Medicare Part B suppliers; however, the finalization of such regulations is
also on hold indefinitely. Additionally, similar bonding requirements are being
reviewed by state Medicaid programs and at least one state requires Medicaid
suppliers to maintain a surety bond. Because virtually all of Corams branches
participate as suppliers in the Medicare Part B program, if surety bond
requirements become effective for the Medicare program or for additional state
Medicaid programs and if Coram is not able to obtain all of the necessary
surety bonds, it may be required to cease participation in the Medicare and/or
Medicaid programs for some or all of its branches. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations:
Liquidity and Capital Resources for further details. The BBA also authorized demonstration projects for competitive bidding of
certain items of durable medical equipment and enteral nutrition therapy. CMS
conducted two rounds of competitive bidding projects in Polk County, Florida,
the first of which began in 1999 and the second of which began in 2001. These
competitive bidding demonstrations covered certain product categories,
including, but not limited to, oxygen and enteral nutrition equipment and
supplies. Another competitive bidding project was conducted in the San
Antonio, Texas area from February 2001 through December 2002, covering oxygen
equipment and supplies and nebulizer drugs, but not enteral nutrition.
According to CMS, Medicare reimbursement amounts for most items in the three
demonstration projects were reduced by 10% to 30%. The MMA reduces the amount of Medicare reimbursement for durable medical
equipment and enteral nutrition therapy through a variety of mechanisms,
including competitive bidding. First, the MMA generally
freezes Medicare reimbursement rates for durable medical equipment (other
than Class III medical devices, as defined in the MMA) for the years 2004
through 2008; thereafter, the rates are increased by the percentage increase in
the consumer price index for urban consumers. Second, the MMA requires the
Secretary of the Department of Health and Human Services (the Secretary) to
establish competitive acquisition programs for durable medical equipment
whereby suppliers will participate in a bidding process and must meet certain
program standards in order to supply covered items within the competitive
acquisition area (i.e., the geographic region designated by the Secretary
wherein competitive acquisition will be used for a particular product or group
of products). As a result, competitive acquisition programs may vary from one
geographic region to another. Competitive acquisition may include enteral
nutrition, equipment and supplies, as well as certain other items of durable
medical equipment and certain drugs used in conjunction with such durable
medical equipment (other than inhalation drugs). However, specifically excluded
from competitive acquisition are, among other things, parenteral nutrition,
equipment, and supplies. The Secretary may also exempt rural and low
population density areas (unless the beneficiaries in these areas can readily
access the covered items through a mail order service) and items and services
unlikely to result in significant savings. The competitive acquisition program
will be phased in as follows: ten of the largest metropolitan statistical
areas in 2007; eighty areas in 2009; and additional areas thereafter. Only
successful bidders may supply the covered items in the acquisition area and
they will be reimbursed at the corresponding bid amount. Third, the MMA
requires the Secretary to reduce reimbursement amounts in 2005 for certain
specific items of durable medical equipment and supplies (oxygen and oxygen
equipment, inhalation drugs, standard wheelchairs, nebulizers, lancets and
testing strips used for the management of diabetes, hospital beds and air
mattresses) because such items are deemed to have excessive Medicare
reimbursement when compared to pricing in other government programs. In addition to the aforementioned reimbursement changes and modifications,
the MMA requires the Secretary to establish and implement quality standards for
Medicare durable medical equipment suppliers that will require such healthcare
providers to be recognized by independent accreditation organizations.
Moreover, the Secretary must establish clinical standards as a condition of
Medicare payment for certain items of durable medical equipment, concentrating
first on items that have been subject to abuse in the past. There can be no
assurances that Congress will not consider additional measures in the future
that would further reduce Medicare reimbursement for durable medical equipment
and enteral nutrition or otherwise increase the costs of doing business under
the Medicare program. 15




---



##### Table of Contents



The MMA also addresses the use of average wholesale price (AWP) for
purposes of Medicare reimbursement for certain drugs. In recent years, state
and federal government enforcement agencies have conducted investigations of
manufacturers practices with respect to AWP whereby, in some instances, they
suggested that inflated AWPs have led to excessive government payments for
prescription drugs and biologicals. Several private lawsuits seeking recoveries
on behalf of patients and private healthcare plans have also been filed against
manufacturers based on similar allegations. In response to, among other
things, the aforementioned AWP investigations and legal activity, in December
2002 CMS announced that it was establishing a new single drug pricer to
correct differences among fiscal intermediaries in payment amounts for certain
Medicare-covered drugs and biologicals (but not including drugs billed to
durable medical equipment regional carriers, such as home infusion drugs, and
certain other drugs). Prior to adoption of this policy, individual fiscal
intermediaries determined reimbursement rates for the applicable drugs based on
95% of the AWP that manufacturers submitted to reporting publications such as
RedBook and First Data Bank. However, actual Medicare reimbursement for a
particular drug varied from fiscal intermediary to fiscal intermediary because
of different data sources used to determine AWP. The new unified rates became
effective January 1, 2003. In addition, as part of the aforementioned
governmental AWP investigations, the Department
of Justice and states attorneys general developed revised AWPs for a
number of drugs and biologicals that are generally lower than those published
by commercial services. Many state Medicaid programs adopted the lower revised
AWPs to establish reimbursement amounts for some of the listed drugs and
biologicals in certain patient care settings. Pursuant to the MMA, with certain exceptions, effective January 1, 2004
most Medicare Part B drugs are reimbursed at 85% of the April 1, 2003 AWP and
some products are facing even lower reimbursement levels. However, infusion
drugs furnished through an item of durable medical equipment continue to be
reimbursed at 95% of the October 1, 2003 AWP in both 2004 and 2005.
Thereafter, the reimbursement methodology for such infusion drugs is unclear.
Beginning in 2005, the majority of Medicare Part B drugs, excluding infusion
drugs furnished through an item of durable medical equipment and certain other
drugs, will be reimbursed under either: (i) an average sales price (ASP)
methodology intended to more closely reflect actual drug acquisition costs; or
(ii) a competitive acquisition program whereby a physician would obtain drugs
and biologicals from a specialty pharmacy or distributor organization selected
pursuant to competitive procedures, the physician would only bill for his or
her professional services and the specialty pharmacy or distributor would bill
Medicare directly for the drugs and biologicals at negotiated rates. Because
the aforementioned AWP changes specifically exclude infusion drugs furnished
through an item of durable medical equipment (i.e., an infusion pump),
management believes that through December 31, 2005 the MMA reimbursement impact
to the company should be minimal. The MMA also includes a major expansion of the Medicare prescription drug
benefit under a newly created Medicare Part D program, which will provide
coverage for many drugs not currently covered by Medicare Part A or Medicare
Part B. However, the specific drugs to be included under Medicare Part D and
the related reimbursement rates for such drugs are currently unknown. Until
the Medicare Part D benefit goes into effect on January 1, 2006, Medicare
beneficiaries can receive assistance with their outpatient prescription drug
costs beginning in June 2004 through a new prescription drug discount card
program, which will provide enrollees access to negotiated discounted prices
for prescription drugs. The overall long-term impact of the MMA, including the changes to an
ASP-based reimbursement methodology and/or a competitive acquisition program,
is unclear. Accordingly, there can be no assurances that the enactment of the
MMA will not result in a material decrease in the amount of Medicare
reimbursement that Coram receives for the products and services it currently
provides and any other home health or related oxygen, durable medical equipment
or home infusion products and services Coram may provide in the future.
Likewise, if state governments or private insurance companies discontinue or
modify the use of AWP or otherwise adopt reimbursement reductions for drugs or
biologicals or for durable medical equipment, Corams business, financial
condition, liquidity and results of operations could be materially adversely
affected. In addition, state Medicaid programs have been under significant financial
pressure in recent years due to state budget shortfalls. According to a Kaiser
Commission on Medicaid and the Uninsured (the KCMU) report released in
January 2004, every state Medicaid program reduced or froze provider rates in
fiscal year 2003 and 49 states implemented or plan to implement provider
payment reductions in fiscal year 2004. Of these states, the KCMU reports that
43 states took action in fiscal year 2004 to reduce spending growth on
prescription drugs, including: implementing or expanding a preferred drug
list, thereby subjecting more drugs to prior authorization; initiating
supplemental rebates from manufacturers; implementing long-term care
pharmaceutical initiatives; adopting other new policies to control per unit
drug costs (such as incentives to use generics) or policies to control
utilization (such as provider and patient profiling and education); imposing
new limits on the number of prescriptions per month; contracting with a
pharmacy benefit management vendor; and reducing payments for drugs and
biologicals. States may be further challenged in June 2004 when temporary aid
to states enacted in the May 2003 Jobs and Growth Reconciliation Tax Act
expires. Additionally, current Congressional activity to reduce Medicaid
funding could potentially cause state Medicaid agencies to take other cost
containment actions, including adopting reimbursement changes and/or increasing
the frequency and scope of their auditing activities. There can 16




---



##### Table of Contents



be no assurances that current and future state Medicaid cost control initiatives will
not further reduce Medicaid reimbursement or otherwise increase the costs of
doing business under the state Medicaid programs. See Note 14 to the companys
Consolidated Financial Statements and Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations: Results of
Operations for further discussion of Medicaid matters. Health Information Practices.The administrative simplification provisions
of the Health Insurance Portability and Accountability Act of 1996 (HIPAA)
mandate, among other things, the adoption of standards for the exchange of
electronic health information in an effort to encourage overall administrative
simplification and enhance the effectiveness and efficiency of the healthcare
industry. Among the standards that the Department of Health and Human Services
(the DHHS) must adopt pursuant to HIPAA are standards for the following:
electronic transactions and code sets; unique identifiers for providers,
employers, health plans and individuals; security and electronic signatures;
privacy; and enforcement. Failure to comply with HIPAA could result in criminal
penalties and civil sanctions. Although HIPAA was intended to ultimately reduce administrative expenses
and other complexities within the healthcare industry, the law has and will
continue to bring about significant and, in some cases, costly changes. The
DHHS has released three primary sets of final rules to date mandating the use
of new standards with respect to certain healthcare transactions and the
privacy and security of personal medical information. The first rule requires
the use of uniform standards for common healthcare transactions, including
healthcare claims information, plan eligibility, referral certification and
authorization, claims status, plan enrollment and disenrollment, payment and
remittance advices, plan premium payments and coordination of benefits.
Compliance with this rule was required by October 16, 2002; however, covered
entities could obtain a one year extension until October 16, 2003 by filing an
action plan with the DHHS. In September 2002, Coram filed a Model Compliance
Plan describing how the company would comply with the HIPAA standards and, in
connection therewith, Coram was granted a one year extension. On February 20,
2003, the DHHS published certain modifications to the final transaction
standards but these changes did not affect the compliance deadline. On
September 23, 2003, CMS, which is charged with enforcing the transactions and
code sets standards, acknowledged that not all healthcare providers were
capable of submitting HIPAA-compliant claims transactions and, therefore, CMS
adopted a Medicare contingency plan that would permit the continued use of
non-compliant electronic transactions in order to avoid disruption to
providers cash flow resulting from the rejection of HIPAA non-compliant
claims. The Medicare contingency plan will continue in effect until terminated
by CMS. On February 27, 2004, CMS instructed Medicare carriers and fiscal
intermediaries that, as of July 6, 2004, HIPAA non-compliant claims may be paid
no earlier than 27 days after receipt, while HIPAA-compliant claims are
eligible for payment 14 days from receipt. CMS has encouraged providers to
work with other third party payers to determine the state of HIPAA readiness
and the willingness of such other plans to accept HIPAA non-compliant
transactions after October 16, 2003. As of April 9, 2004, management believes
that the company is substantially compliant with the HIPAA rules or has taken
such actions as deemed necessary to establish a contingency plan in accordance
with published guidelines. However, management can provide no assurances that
CMS will concur with managements assessment of compliance with the HIPAA rules
and related regulations. The DHHS also released new standards relating to the privacy of
individually identifiable healthcare information. These standards not only
require compliance with rules governing the use and disclosure of protected
healthcare information, but they also impose those rules, by contract, on any
business associate to whom such information is disclosed. Mandatory compliance
with the privacy standards was required as of April 14, 2003. Coram has
completed company-wide employee training, established new policies and
procedures related to the privacy of protected healthcare information and
created business associates agreements in accordance with the HIPAA
regulations. On February 20, 2003, the DHHS issued final rules governing the security
of healthcare information. These rules specify a series of administrative,
technical and physical security procedures for covered entities to use in order
to assure the confidentiality of protected electronic healthcare information.
The security standards became effective April 21, 2003 with a mandatory
compliance date of April 21, 2005 for most covered entities. Management is
currently taking steps to make the company compliant on or before April 21,
2005. The company is continuing to evaluate the effect of HIPAA and taking steps
to achieve compliance. At this time, management believes that the company is
compliant with the HIPAA requirements that have become effective. However,
management cannot estimate the overall cost of compliance with standards that
have not yet been finalized by the DHHS. Although the healthcare information
standards are likely to have a significant effect on the manner in which the
company handles healthcare data and communicates with payers, at this time,
management does not believe that the cost of compliance will have a material
adverse effect on the companys business, financial condition, results of
operations or cash flows. 17




---



##### Table of Contents



Further statutes or regulations may be adopted that would impose
additional requirements for Coram to be eligible to participate in federal and
state reimbursement programs. Such new legislation or regulations may adversely
affect Corams business operations. Management is unable to predict the content
of new legislation or what, if any, additional changes may occur in the method
and rates of Medicare and Medicaid reimbursement or other governmental
regulations that may affect the companys business, or whether such changes, if
made, will have a material adverse effect on Corams business, financial
position and results of operations. State Laws Regarding Fee Splitting, Provision of Medicine and Insurance.
The laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by courts and by
regulatory authorities with broad discretion. Although management believes that
the companys operations, as currently conducted, are in material compliance
with existing laws, certain aspects of Corams business operations have not
been subject to state or federal regulatory interpretation. There can be no
assurances that a review of Corams business by courts or regulatory
authorities will not result in determinations that could adversely affect the
companys operations or that the healthcare regulatory environment will not
change so as to restrict existing operations or expansion. Most states have laws regulating insurance companies and HMOs. Coram is
not qualified in any state to engage in either the insurance or HMO business.
As managed care penetration increases, state regulators are beginning to
scrutinize the practices of and relationships among third party payers, medical
service providers and entities providing management and administrative services
to medical service providers, especially with respect to risk-sharing
arrangements by and among such providers. State regulators are also reviewing
whether risk-bearing entities are subject to insurance or HMO regulation.
Management believes that its practices are
consistent with those of other direct healthcare service providers and do
not constitute licensable HMO or insurance activities. To the extent such
licenses may be required, Coram will make the necessary filings and
registrations to achieve compliance with applicable laws. However, given the
limited regulatory history with respect to such practices, there can be no
assurances that states requiring licensure will not attempt to assert
jurisdiction. If states pursue actions against Coram and/or its customers,
Coram may be compelled to restructure or refrain from engaging in certain
business practices. Pharmacies and Home Health Agencies.Each of Corams pharmacies is
licensed in the states in which it is located and in the states where its
products are delivered. Each of these pharmacies also has a Controlled
Substances Registration Certificate issued by the Drug Enforcement
Administration of the United States Department of Justice. Many states in which
the company operates also require home infusion companies to be licensed as
home health agencies. The failure of a branch to obtain, renew or maintain any
required regulatory approvals or licenses could adversely affect the operations
of that branch. SoluNet Operations.The outsourced hospital compounding business is a
relatively new healthcare delivery alternative and many State Boards of
Pharmacy do not have specific regulations that govern the provision of pharmacy
services provided through SoluNets delivery model. However, based on
consultations with legal counsel and review of state pharmacy laws, management
is not aware of any prohibitions that currently preclude the provision of these
services through SoluNets existing model. Prior to entering a new market,
SoluNet works proactively with the local State Board of Pharmacy to obtain
approval from the appropriate agencies prior to the provision of services
which, in some cases, may delay entry into such markets. The failure of SoluNet
or the companys SoluNet branch locations to obtain, renew or maintain required
pharmacy regulatory approvals or licenses could have a material adverse effect
on SoluNets existing hospital contracts, operations and future business
prospects. Additionally, there can be no assurances that new state pharmacy
laws or further review and interpretations of existing pharmacy laws will not
result in determinations that could adversely affect SoluNets ability to
continue to offer its services to existing hospital customers or expand its
operations into new marketplaces. Other Regulations.Corams operations are subject to various state
hazardous and medical waste disposal laws. The laws currently in effect do not
classify most of the waste produced during the provision of the companys
services to be hazardous, although disposal of non-hazardous medical waste is
also subject to regulation. Occupational Safety and Health Administration
(OSHA) regulations require employers of workers who are occupationally
exposed to blood or other potentially infectious materials to provide those
workers with certain prescribed protections against bloodborne pathogens. The
regulatory requirements apply to all healthcare facilities, including the
companys branches, and require employers to make a determination as to which
employees may be exposed to blood or other potentially infectious materials and
to have in effect a written exposure control plan. Furthermore, employers are
required to provide hepatitis-B vaccinations, personal protective equipment,
infection control training, post-exposure evaluation and follow-up, waste
disposal policies and procedures, and engineering and work practice controls.
Employers are also required to comply with certain recordkeeping requirements.
Management believes that the company is in material compliance with the
foregoing laws and regulations. 18




---



##### Table of Contents



Internal Compliance and Monitoring.Coram has implemented measures to
promote compliance with applicable laws and regulations, including the
promulgation of Corams compliance program. Corams compliance program
reflects the companys commitment to providing high quality service in
compliance with applicable laws and regulations and ethical business practices.
Corams Executive Compliance Steering Committee (the Compliance Committee) oversees Corams activities with
respect to issues of compliance and ethics and is responsible for implementing
necessary actions to achieve the objectives of Corams compliance program. The
Compliance Committee includes the companys Executive Vice President, Chief
Financial Officer, Senior Vice President of Human Resources and Senior Vice
President of Operations, along with other member representatives from Corams
legal, patient financial services and clinical operations departments. While
Corams internal compliance program is intended to address legal, human
resource, regulatory and ethical compliance issues, no assurances can be given
that Corams business arrangements, present or past (or those of its
predecessors or divested subsidiaries, affiliates, joint ventures or
partnerships), will not be the subject of an investigation or prosecution by a
federal or state governmental authority in the future. Such investigations
could result in penalties similar to those discussed above, depending upon the
agency involved in such investigation and prosecution. See Note 14 to the
companys Consolidated Financial Statements for further details. Coram regularly monitors legislative developments and would seek to
restructure a business arrangement if it was determined that such business
relationship placed the company in material noncompliance with any applicable
statute or regulation. The healthcare services industry will continue to be
subject to substantial regulation at the federal and state levels, the scope
and effect of which cannot be predicted by management. Any loss by Coram of its
various federal certifications, its authorization to participate in the
Medicare or Medicaid programs or its licenses under the laws of any state or
other governmental authority from which a substantial portion of its revenue is
derived would have a material adverse effect on its business. See Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations: Risk Factors for further discussion. Employees At December 31, 2003, Coram had approximately 2,600 full-time equivalent
employees (3,000 full and part-time employees). None of Corams employees are
currently represented by a labor union or other labor organization and no
employees are covered by a collective bargaining agreement. Approximately 35%
of the full-time employees are nurses and pharmacists, with the remainder
consisting primarily of sales and marketing, billing and reimbursement, branch,
clinical, financial and information systems personnel. Management believes that
the companys employee relations are good. 
 ITEM 2. PROPERTIES The companys corporate headquarters are located in Denver, Colorado and
consist of approximately 28,000 square feet of office space leased through
February 28, 2007. As of April 9, 2004, Coram maintained 77 branch locations
throughout the United States and Canada, totaling approximately 0.8 million
square feet. In addition, SoluNet recently entered into a real property lease
agreement for approximately 5,200 square feet in Totowa, New Jersey wherein the
SoluNet corporate office and certain manufacturing facilities will be located.
Management believes that a lease termination at any one facility would not
materially affect the companys operations. Rent expense for the corporate and
branch facilities during the year ended December 31, 2003 was approximately
$9.0 million. On January 16, 2004, the Bankruptcy Court granted a motion of the Chapter
11 trustee to further extend the period of time to assume or reject real
property leases through and including June 30, 2004. See Note 3 to the
companys Consolidated Financial Statements for further details. 
 ITEM 3. LEGAL PROCEEDINGS Bankruptcy Cases.On August 8, 2000, the Debtors commenced the Bankruptcy
Cases. None of CHCs other subsidiaries is a debtor in the Bankruptcy Cases
and, other than the Resource Network Subsidiaries, none of CHCs other
subsidiaries is a debtor in any bankruptcy case. See Notes 3 and 4 to the
companys Consolidated Financial Statements, which are
incorporated herein by reference, for further details. Except as may otherwise be determined by the Bankruptcy Court, the
protection afforded by Chapter 11 of the Bankruptcy Code generally provides for
an automatic stay relative to any litigation proceedings pending against either
or both of the Debtors. All such claims will be addressed by the Bankruptcy
Court in the Bankruptcy Cases. The automatic stay would not, however, apply to
actions brought against the companys non-debtor subsidiaries. The Official Committee of the Equity Security Holders of Coram Healthcare
Corporation.In February 2001, the Official Committee of the Equity Security
Holders of Coram Healthcare Corporation (the Equity Committee) filed a motion
with the 19




---



##### Table of Contents



Bankruptcy Court seeking permission to bring a derivative lawsuit
directly against the companys former Chief Executive Officer, a former member
of the CHC Board of Directors, Cerberus Partners, L.P., Cerberus Capital
Management, L.P., Cerberus Associates, L.L.C. and Craig Court, Inc. (all the
aforementioned corporate entities being parties to certain of the companys
debt agreements or affiliates of such entities). The Equity Committees
proposed lawsuit alleged a collusive plan whereby the named parties conspired
to devalue the company for the benefit of the companys creditors under the
Securities Exchange Agreement. On February 26, 2001, the Bankruptcy Court
denied the Equity Committees motion without prejudice. In January 2002, the
Equity Committee filed a substantially similar motion with the Bankruptcy
Court, which additionally named certain current CHC directors, the companys
other noteholders and Harrison J. Goldin Associates, L.L.C. (sic)as possible
defendants. On February 12, 2002, the Bankruptcy Court again denied the renewed
motion without prejudice. After the Debtors exclusivity period to file their own plan or plans of
reorganization terminated, on December 19, 2002 the Equity Committee filed with
the Bankruptcy Court a proposed plan of reorganization with respect to the
Debtors, which was subsequently amended. The Equity Committees Plan
incorporates a variation of the aforementioned proposed derivative lawsuit.
Additionally, on May 2, 2003 the Chapter 11 trustee filed with the Bankruptcy
Court a proposed plan of reorganization with respect to the Debtors, which was
subsequently amended and modified. The Trustees Plan, as modified, includes,
among other things, the settlement of certain claims against the companys
noteholders. Each of the Trustees Plan, as modified, and the Equity
Committees Plan is subject to, and contingent upon, confirmation by the
Bankruptcy Court. Management cannot predict whether or not the Trustees Plan,
as modified, or the Equity Committees Plan will be confirmed, the ultimate
outcome of each proposed plan or plans of reorganization or the resolution of
certain filed objections to each of the proposed plans of reorganization. See
Note 3 to the companys Consolidated Financial Statements for further
discussion of the proposed plans of reorganization. Resource Network Subsidiaries Bankruptcy.On August 19, 1999, a small
group of parties with claims against the Resource Network Subsidiaries filed an
involuntary petition pursuant to Section 303 of Chapter 11 of the Bankruptcy
Code against Coram Resource Network, Inc. in the Bankruptcy Court. On November
12, 1999, the Resource Network Subsidiaries filed voluntary petitions under
Chapter 11 of the Bankruptcy Code, Case No. 99-2888 (MFW) and Case No. 99-2889
(MFW). The two cases were consolidated for administrative purposes and are now
pending under the docket of In re Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc.,Case No. 99-2889 (MFW). On October 21,
2002, the Official Committee of Unsecured Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. (the R-Net Creditors Committee) filed a proposed
Liquidating Chapter 11 Plan. On August 28, 2003, the R-Net Creditors Committee
filed with the Bankruptcy Court its Disclosure Statement With Second
Modifications, including, as an attachment, the Liquidating Chapter 11 Plan
With Second Modifications (collectively the Second Modified R-Net Plan). The
Second Modified R-Net Plan, which was confirmed by the Bankruptcy Court on
December 23, 2003, is available in the Resource Network Subsidiaries
bankruptcy cases at docket number 1151. The Resource Network Subsidiaries maintain claims against each of the
Debtors estates and the company maintains claims against the Resource Network
Subsidiaries estate. Additionally, the R-Net Creditors Committee filed a
motion to lift the automatic stay in the Debtors bankruptcy proceedings. On
June 6, 2002, the Bankruptcy Court granted such motion, thereby allowing the
R-Net Creditors Committee to pursue its claims against the Debtors. In November 2001, the R-Net Creditors Committee filed a complaint in the
Bankruptcy Court, subsequently amended twice, both on its own behalf and as
assignee for causes of action that may belong to the Resource Network
Subsidiaries, which named as defendants the Debtors, several non-debtor
subsidiaries, several current and former directors, current executive officers
of CHC and several other current and former employees of the company. This
complaint, as amended, also named as defendants Cerberus Partners, L.P.,
Goldman Sachs Credit Partners L.P., Foothill Capital Corporation and Foothill
Income Trust, L.P. (parties to certain of the companys debt agreements or
affiliates of such entities). The complaint alleges that the defendants
violated various state and federal laws in connection with alleged wrongdoings
related to the operation and corporate structure of the Resource Network
Subsidiaries, including, among other allegations, breach of fiduciary duty,
conversion of assets and preferential payments to the detriment of the Resource
Network Subsidiaries estates, misrepresentation and fraud, conspiracy,
fraudulent concealment and a pattern of racketeering activity. The complaint
seeks damages in the amount of approximately $56 million and additional
monetary and non-monetary damages, including disallowance of the Debtors
claims against the Resource Network Subsidiaries, punitive damages and
attorneys fees. The Debtors initially objected to the complaint in the
Bankruptcy Court because management believed that the complaint constituted an
attempt to circumvent the automatic stay protecting the Debtors estates;
however, the Debtors non-debtor subsidiaries have no such protection. On June 17, 2002, the Chapter 11 trustee agreed to withdraw the Debtors
objections to the motion of the R-Net Creditors Committee for leave of court
to file their second amended complaint. On July 25, 2002, by stipulation
between the Chapter 11 trustee and the R-Net Creditors Committee, the
Bankruptcy Court authorized the R-Net Creditors Committee to file its second
amended 20




---



##### Table of Contents



complaint. On January 10, 2003, the United States District Court for
the District of Delaware (the District Court) granted motions by some, but
not all, of the defendants for that court to withdraw the adversary proceedings
from the jurisdiction of the Bankruptcy Court. On May 21, 2003, the District
Court entered an order staying the aforementioned proceedings, pending approval
by the Bankruptcy Court in the Bankruptcy Cases of a certain proposed
settlement agreement that is discussed in further detail below. Moreover, on
September 26, 2003, the District Court dismissed without prejudice to renew
(subject to the successful resolution of the proposed settlement agreement)
certain motions filed by various defendants to dismiss some or all counts of
the complaint. The company notified its insurance carrier of the second amended
complaint and intends to avail itself of any insurance coverage for its
directors and officers. The Trustees Plan, as modified, proposes resolution of substantially all
of the aforementioned Resource Network Subsidiaries matters through the
Settlement Agreement and Mutual Release arrangement (the R-Net Settlement
Agreement), which was executed by the Chapter 11 trustee, the Debtors, the
R-Net Creditors Committee, the Resource Network Subsidiaries and the Resource
Network Subsidiaries Chief Restructuring Officer (the R-Net Restructuring
Officer). Among other things, the R-Net Settlement Agreement provides for (i)
the fixing and allowance of a Resource Network Subsidiaries general unsecured
claim against the Debtors for $7.95 million, plus interest, under certain
circumstances, at the applicable federal judgment rate, (ii) the fixing and
allowance of the Debtors general unsecured claim against the Resource Network
Subsidiaries for $1,000 per proof of claim filed, (iii) dismissal of the
aforementioned adversary proceeding with prejudice and (iv) mutual releases
from the parties to the R-Net Settlement Agreement. The R-Net Settlement
Agreement is subject to, and contingent upon, (i) Bankruptcy Court approval in
the Bankruptcy Cases through confirmation of the Trustees Plan, as modified,
(ii) Bankruptcy Court approval in the Resource Network Subsidiaries bankruptcy
proceedings and (iii) withdrawal, expungement or resolution of a certain
Internal Revenue Service proof of claim filed in the Resource Network
Subsidiaries bankruptcy proceedings without any payments being required by the
Resource Network Subsidiaries or the R-Net Restructuring Officer. In connection
with such conditions precedent, (i) on August 29, 2003 the Bankruptcy Court
approved a motion filed jointly by the R-Net Restructuring Officer and the
R-Net Creditors Committee in the Resource Network Subsidiaries bankruptcy
proceedings requesting approval of the R-Net Settlement Agreement, (ii) on
December 23, 2003 the Bankruptcy Court confirmed R-Nets plan of liquidation
and (iii) on September 10, 2003 the Internal Revenue Service withdrew its proof
of claim from the Resource Network Subsidiaries bankruptcy proceedings.
However, management cannot predict the outcome of the confirmation hearings on
the Trustees Plan, as modified, nor can management readily determine the
amount of recoveries, if any, that the company may ultimately receive from its
insurance carrier. The Equity Committees Plan provides that the Resource Network
Subsidiaries will receive a cash distribution on the effective date of the
Equity Committees Plan of $7.95 million, plus a distribution of 2% of the net
recovery from certain litigation claims to be prosecuted, if any, but not
exceeding $6 million. The Chapter 11 trustee and other parties-in-interest have
objected to the Equity Committees Plan because, among other things, they
believe such plan improperly classifies the Resource Network Subsidiaries
claim and the contemplated distribution to the Resource Network Subsidiaries is
not fair and equitable. TBOB Enterprises, Inc.On July 17, 2000, TBOB Enterprises, Inc. (TBOB)
filed an arbitration demand against CHC (TBOB Enterprises, Inc. f/k/a Medical
Management Services of Omaha, Inc. against Coram Healthcare Corporation,in the
American Arbitration Association office in Dallas, Texas); however, on July 5,
2001, the company received a letter from TBOBs legal counsel requesting that
the arbitration remain in abeyance pending resolution of the Bankruptcy Cases.
In its demand, TBOB claims that the company breached its obligations under an
agreement entered into by the parties in 1996 relating to an earn-out
obligation of the company that originated from the acquisition of the
claimants prescription services business in 1993 by a wholly-owned subsidiary
of the company. The company operated the business under the name Coram
Prescription Services (CPS) and the assets of the CPS business were sold on
July 31, 2000. TBOB alleges, among other things, that the company impaired the
earn-out payments due TBOB by improperly charging certain expenses to the CPS
business and failing to fulfill the companys commitments to enhance the value
of CPS by marketing its services. The TBOB demand alleges damages of more than
$0.9 million, in addition to the final scheduled earn-out payment of
approximately $1.3 million that was due in March 2001. TBOB reiterated its
monetary demand through a proof of claim filed against CHCs estate for the
aggregate amount of approximately $2.2 million (i.e., the scheduled earn-out
payment plus the alleged damages). On August 25, 2003, the Chapter 11 trustee and TBOB entered into the
Settlement Agreement and Mutual Release (the TBOB Settlement Agreement). The
TBOB Settlement Agreement proposes resolution of the aforementioned matters by
fixing and allowing TBOBs claim against CHC at $1.5 million, plus interest,
under certain circumstances, at the applicable federal judgment rate. In
connection therewith, during the year ended December 31, 2003 the company
increased its liabilities subject to compromise by approximately $0.2 million
to reflect the full TBOB Settlement Agreement amount. The TBOB Settlement
Agreement is subject to, and contingent upon, (i) Bankruptcy Court approval and
(ii) confirmation of either the Trustees Plan, as modified, or the Equity
Committees Plan on or before December 31, 2003. As no plan of reorganization
was confirmed before the prescribed date, TBOB 21




---



##### Table of Contents



may, at its sole discretion, (i) elect to extend the deadline for a period up to and including December 31, 2004
or (ii) seek allowance of its original claim amount against CHC; however, if
TBOB does seek allowance of its original claim amount, the Chapter 11 trustee
is permitted to seek a reduction of such claim to an amount lower than the $1.5
million settlement amount included in the TBOB Settlement Agreement. On October
22, 2003, the Bankruptcy Court granted a motion submitted by the Chapter 11
trustee wherein, solely for voting on the plans of reorganization, TBOB will be
considered to hold an allowed general unsecured claim in the amount of $1.5
million. In the event that the TBOB Settlement Agreement is not consummated,
additional liabilities may result from post-petition interest on the final
scheduled earn-out payment and/or the aforementioned TBOB allegations. In
accordance with SOP 90-7, such interest, estimated to aggregate approximately
$0.6 million and $0.7 million at December 31, 2003 and April 9, 2004,
respectively, using the contractual interest rate of 18%, has not been recorded
in the companys consolidated financial statements because TBOBs original
claim for interest may ultimately not be sustainable (moreover, both the
Trustees Plan, as modified, and the Equity Committees Plan propose to pay no
more than the federal judgment interest rate, if certain conditions are
satisfied). Management does not believe that final resolution of this matter
will have a material adverse impact on the companys financial position or
results of operations. General.Management intends to vigorously defend the company and its
subsidiaries in the matters described above. Nevertheless, due to the
uncertainties inherent in litigation, including possible indemnification of
other parties, the ultimate disposition of such matters cannot be presently
determined. Adverse outcomes in some or all of the proceedings could have a
material adverse effect on the companys financial position, results of
operations and liquidity. The company and its subsidiaries are also parties to various other actions
arising out of the normal course of their businesses, including, among other
things, employee claims, employee incentive compensation disputes and reviews
of cost reports and billings submitted to Medicare. Management believes that
the ultimate resolution of such matters will not have a material adverse effect
on the companys financial position, results of operations or liquidity. Regulatory Audits and Reviews.Management acknowledges and is complying
with certain ongoing audits and reviews with respect to prior reimbursements
from Medicare and Medicaid. Specifically, the Centers for Medicare & Medicaid
Services (CMS), Medicare and state Medicaid agencies, as well as their fiscal
intermediaries, periodically conduct payment reviews or audits of claims for
services provided to their beneficiaries. In connection therewith, one such
audit by Kansas Medicaid identified that certain of the companys claims were
subject to recoupment; however, as part of the resolution of this matter,
Kansas Medicaid permitted the company to correct and resubmit some of the claims identified
during the audit. As a result of the
Kansas Medicaid audit findings, other state Medicaid audits and related
matters, in 2003 and 2004 management conducted an internal review of the companys Medicaid billing and reimbursement practices.
Such internal review yielded additional errors. Accordingly, during
the year ended December 31, 2003 the company recognized estimated net unfavorable revenue
adjustments of approximately $3.2 million that related
to periods prior to 2003. Included in other current and accrued liabilities in the
companys Consolidated Balance Sheets at December 31, 2003 and 2002 were
approximately $7.7 million and $3.4 million, respectively, of reserves for
regulatory matters. Such estimates will be reviewed and may be revised in subsequent
periods as more information becomes available to management. To the extent that
specific Medicaid refund and rebilling opportunities have been identified, the
company has expeditiously processed such transactions. Moreover, management is
taking corrective actions to remedy certain internal control deficiencies
identified as part of its review of the companys Medicaid billing and
reimbursement practices. In April 2003, the company was served with a subpoena from a Statewide
Grand Jury pertaining to claims paid to the company for two Rhode Island
Medicaid beneficiaries. After reviewing the underlying circumstances, the
company and the State of Rhode Island have agreed in principle to a settlement
arrangement in order to resolve all outstanding matters related thereto.
Management does not believe that such pending settlement arrangement will
include the imposition of sanctions or other regulatory compliance
requirements. The monetary amount resulting from the pending settlement
arrangement has been recognized in the companys Consolidated Financial
Statements for the year ended December 31, 2003. The financial impact of regulatory matters beyond what has already been
recognized by the company, if any, is currently unknown. In the event that
Medicare and Medicaid investigative matters or similar reviews/audits by other
agencies result in adverse findings, the company could face civil, criminal
and/or regulatory actions, sanctions and/or penalties that, in the aggregate,
could be material to its business, financial position, results of operations
and liquidity. 22




---



##### Table of Contents



PricewaterhouseCoopers LLP.On July 7, 1997, the company filed a lawsuit
against Price Waterhouse LLP (now known as PricewaterhouseCoopers LLP) in the
Superior Court of San Francisco, California seeking damages in excess of $165.0
million. As part of the settlement that resolved a case filed by the company
against Caremark International, Inc. and Caremark, Inc. (collectively
Caremark), Caremark assigned and transferred to the company all of Caremarks
claims and causes of action against Caremarks independent auditors,
PricewaterhouseCoopers LLP, related to the lawsuit filed by the company against
Caremark. This assignment of claims includes claims for damages sustained by
Caremark in defending and settling its lawsuit with the company. The case was
dismissed from the California court because of inconvenience to witnesses with
a right to re-file in Illinois. The company re-filed the lawsuit in state court
in Illinois; however, the case is still in the discovery stage and no trial
date has been scheduled. Management cannot predict the outcome of this
litigation or whether there will be any recovery from PricewaterhouseCoopers
LLP or its insurance carriers. The Trustees Plan, as modified, provides that
any net recovery in this matter, as defined in such plan of reorganization,
will be distributed (i) to the holders of allowed general unsecured claims on a
pro rata basis in an amount equal to interest accrued at the federal judgment
interest rate and (ii) then to certain holders of CHC equity interests on a pro
rata basis. The Equity Committees Plan retains any net recovery from this
matter in the reorganized company. Insurance.The services performed and products sold by the company involve
an inherent risk of professional and product liability. While the company
maintains insurance coverage consistent with industry practices and at amounts
deemed appropriate by management, there can be no assurances that the amount of
such insurance will satisfy claims made against Coram or that the company will
be able to obtain insurance in the future in amounts adequate to meet its
needs. Claims in excess of the companys insurance coverage or the inability to
obtain/maintain adequate levels of insurance coverage could have a materially
adverse effect on the companys business, results of operations and liquidity. Government Regulation.Under the physician ownership and referral
provisions of the Omnibus Budget Reconciliation Act of 1993 (commonly referred
to as Stark II), it is unlawful for a physician to refer patients for certain
designated health services reimbursable under the Medicare or Medicaid programs
to an entity with which the physician and/or the physicians family, as defined
under Stark II, has a financial relationship, unless the financial relationship
fits within an exception enumerated in Stark II or regulations promulgated
thereunder. A financial relationship under Stark II is broadly defined as an
ownership or investment interest in, or any type of compensation arrangement in
which remuneration flows between the physician and the provider. The company
has financial relationships with physicians and physician-owned entities in the
form of medical director agreements. In each case, the relationship has been
structured, based upon advice of legal counsel, using an arrangement management
believes to be consistent with the applicable exceptions set forth in Stark II.
In addition, the company is aware of certain referring physicians (or their
immediate family members) that have had financial interests in the company
through ownership of shares of CHCs common stock. Stark II includes an
exception for the ownership of publicly traded stock in companies with equity
above certain levels. This Stark II exception requires the issuing company to
have stockholders equity of at least $75 million either as of the end of its
most recent fiscal year or on average over the last three fiscal years. Due
principally to the extraordinary gains on troubled debt restructurings (see
Note 8 to the companys Consolidated Financial Statements for further details),
at December 31, 2003 the companys stockholders equity was above the required
level. As a result, the company is compliant with the Stark II public company
exemption through the year ending December 31, 2004. Management has been advised by legal counsel that a company whose stock is
publicly traded has, as a practical matter, no reliable way to implement and
maintain an effective compliance plan for addressing the requirements of Stark
II other than complying with the public company exception. Accordingly, if
CHCs common stock remains publicly traded and its stockholders equity falls
below the required levels, the company would be forced to cease accepting
referrals of patients covered by the Medicare and Medicaid programs or run a
significant risk of Stark II noncompliance. Because approximately 24% of the
companys consolidated net revenue for each of the years ended December 31,
2003, 2002 and 2001 relates to patients with such government-sponsored benefit
programs, discontinuing the acceptance of such patients would have a material
adverse effect on the companys financial condition, results of operations and
cash flows. Additionally, ceasing to accept such patients could have a
materially adverse effect on the companys business reputation in the
marketplace as it may cause the company to be a less attractive provider to
which a physician could refer his or her patients. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 23




---



##### Table of Contents



PART II 
 ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED SECURITY HOLDER MATTERS The common stock of Coram Healthcare Corporation (CHC) is currently
traded through the Over the Counter Bulletin Board (OCBB) maintained by the
National Association of Securities Dealers, Inc. under the symbol CRHEQ. The
following table sets forth the high and low bid prices of CHCs common stock,
as reported on the OCBB, for the two years ended December 31, 2003: High
    
    LowYear Ended December 31, 2003First Quarter
    
    $
    0.65
    
    
    $
    0.52Second Quarter
    
    
    0.73
    
    
    
    0.59Third Quarter
    
    
    0.95
    
    
    
    0.60Fourth Quarter
    
    
    0.88
    
    
    
    0.67Year Ended December 31, 2002First Quarter
    
    $
    0.75
    
    
    $
    0.46Second Quarter
    
    
    0.77
    
    
    
    0.35Third Quarter
    
    
    0.61
    
    
    
    0.41Fourth Quarter
    
    
    0.63
    
    
    
    0.41
 As
of April 9, 2004, there were 4,278 record holders of the CHCs common
stock. On April 8, 2004 (April 9, 2004 being a stock market holiday), the last
bid for CHCs common stock on the OCBB was $0.70 per share and the last
reported ask price was $0.73 per share. These quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions. CHC has not paid or declared any cash dividends on its capital stock since
its inception and is currently precluded from doing so under its borrowing
agreements. Management currently intends to retain all of the companys future
earnings for use in the operations of its businesses. Accordingly, Coram does
not anticipate paying cash dividends on its common stock in the foreseeable
future. The payment of future dividends will depend upon, among other things,
actions taken by the Chapter 11 trustee, the terms and conditions set forth in
a plan or plans of reorganization related to the Bankruptcy Cases (as defined
in Note 1 to the companys Consolidated Financial Statements), the terms of
borrowing agreements, future earnings, operations, capital requirements, the
general financial condition of the company, contractual restrictions and
general business conditions. CHC did not sell any equity securities during the year ended December 31,
2003 that were not registered under the Securities Exchange Act of 1933, as
amended. At April 9, 2004, outstanding Series B Senior Subordinated Unsecured
Convertible Notes (the Series B Notes) in the aggregate principal amount of
$9.0 million were held by Cerberus Partners, L.P., Goldman Sachs Credit
Partners L.P. and Foothill Capital Corporation (collectively the
Noteholders). Exclusive of the effect of any unpaid contractual interest, the
outstanding Series B Notes were convertible into 4.5 million shares of CHC
common stock, which would reflect approximately 8.3% of the CHC voting interest
at December 31, 2003. In addition, on such date the Noteholders and/or their
affiliates collectively owned approximately 1,685.3 and 1,414.4 shares of
Coram, Inc. Series A Cumulative Preferred Stock and Coram, Inc. Series B
Cumulative Preferred Stock, respectively, with aggregate contingent voting
rights not to exceed 49% of the total Coram, Inc. voting securities, including
Coram, Inc.s common stock. At December 31, 2003, the Noteholders
preferred stock holdings had aggregate liquidation preferences of
approximately $374.4 million. Subject to the authority of the Chapter 11
trustee and any plan or plans of reorganization, the Noteholders could
collectively exert significant influence, but not control, over the company if
they elect to convert their debt holdings. See Note 8 to the companys
Consolidated Financial Statements for further details. As of April 9, 2004, two competing plans of reorganization have been filed
in the United States Bankruptcy Court for the District of Delaware (the
Bankruptcy Court) and remain subject to confirmation. On May 2, 2003, the
Chapter 11 trustee filed with the Bankruptcy Court a proposed joint plan of
reorganization with respect to the CHC and Coram, Inc. (collectively the
Debtors) and, on June 17, 2003, the Chapter 11 trustee filed an amended
proposed joint plan of reorganization (the Trustees Plan). A modification
to the Trustees Plan was filed with the Bankruptcy Court on September 8, 2003.
Additionally, on December 19, 2002 the Official Committee of the Equity
Security Holders of Coram Healthcare Corporation (the Equity Committee) filed
with the Bankruptcy Court a proposed plan of reorganization with respect to the
Debtors and, on June 17, 2003, the Equity Committee filed a second amended
proposed plan of reorganization (the Equity Committees Plan). Hearings to
consider confirmation of each plan of reorganization and any objections thereto
commenced on September 30, 2003 and are ongoing. The deadline to object to
confirmation 24




---



##### Table of Contents



of each of the proposed plans of reorganization was August 7, 2003
and, in connection therewith, certain objections have been filed against both
plans of reorganization. True and correct copies of the Trustees Plan and the
Equity Committees Plan are attached as Exhibits 99.1 and 99.3, respectively,
to the companys Form 8-K filed with the Securities and Exchange Commission
(SEC) on July 11, 2003. The modification to the Trustees Plan was attached
to the companys Form 8-K filed with the SEC on September 23, 2003.
Stockholders are advised to consult the aforementioned SEC filings in order to
determine the potential impact of each of the proposed plans of reorganization
on the outstanding CHC common stock. See Note 3 to the companys Consolidated
Financial Statements for further details regarding the two competing proposed
plans of reorganization and related matters. 25




---



##### Table of Contents



ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data should be read in
conjunction with the companys Consolidated Financial Statements and related
notes and Item 7. Managements Discussion and Analysis of Financial Condition
and Results of Operations. Amounts are in thousands, except per share data. Years Ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999INCOME STATEMENT DATANet revenue
    
    $
    476,496
    
    
    $
    433,470
    
    
    $
    393,629
    
    
    $
    464,820
    
    
    $
    521,196Cost of service
    
    
    344,356
    
    
    
    309,338
    
    
    
    279,275
    
    
    
    341,656
    
    
    
    408,878Gross profit
    
    
    132,140
    
    
    
    124,132
    
    
    
    114,354
    
    
    
    123,164
    
    
    
    112,318Operating expenses:Selling, general and administrative expenses
    
    
    93,355
    
    
    
    91,304
    
    
    
    83,836
    
    
    
    90,329
    
    
    
    96,809Provision for estimated uncollectible accounts
    
    
    19,813
    
    
    
    15,887
    
    
    
    17,533
    
    
    
    9,773
    
    
    
    28,310Amortization of goodwill (1)
    
    
    
    
    
    
    
    
    
    
    9,822
    
    
    
    10,227
    
    
    
    10,784Restructuring cost (recoveries) expense (2)
    
    
    (39
    )
    
    
    (113
    )
    
    
    (679
    )
    
    
    (322
    )
    
    
    5,831Charges for impairments of goodwill and other
long-lived assets (3)
    
    
    
    
    
    
    51,783
    
    
    
    3,255
    
    
    
    8,323
    
    
    
    9,100Total operating expenses
    
    
    113,129
    
    
    
    158,861
    
    
    
    113,767
    
    
    
    118,330
    
    
    
    150,834Operating income (loss) from continuing operations
    
    
    19,011
    
    
    
    (34,729
    )
    
    
    587
    
    
    
    4,834
    
    
    
    (38,516
    )Other income (expenses):Interest income
    
    
    329
    
    
    
    436
    
    
    
    1,216
    
    
    
    991
    
    
    
    655Interest expense (4)
    
    
    (1,692
    )
    
    
    (1,566
    )
    
    
    (6,652
    )
    
    
    (26,788
    )
    
    
    (29,763
    )Gains on sales of businesses (5)
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    18,649
    
    
    
    Other income, net
    
    
    743
    
    
    
    2,510
    
    
    
    786
    
    
    
    3,008
    
    
    
    740Income (loss) from continuing operations before
reorganization expenses, income taxes, minority
interests, extraordinary gains on troubled
debt restructurings and the cumulative effect of a
change in accounting principle
    
    
    18,391
    
    
    
    (33,303
    )
    
    
    (4,063
    )
    
    
    694
    
    
    
    (66,884
    )Reorganization expenses, net (6)
    
    
    15,655
    
    
    
    4,275
    
    
    
    14,397
    
    
    
    8,264
    
    
    
    Income (loss) from continuing operations before
income taxes, minority interests, extraordinary
gains on troubled debt restructurings and the cumulative
effect of a change in accounting principle
    
    
    2,736
    
    
    
    (37,578
    )
    
    
    (18,460
    )
    
    
    (7,570
    )
    
    
    (66,884
    )Income tax expense
    
    
    245
    
    
    
    71
    
    
    
    150
    
    
    
    250
    
    
    
    440Minority interests in net income of consolidated
joint ventures
    
    
    731
    
    
    
    764
    
    
    
    631
    
    
    
    571
    
    
    
    1,470Income (loss) from continuing operations before
extraordinary gains on troubled debt restructurings and
the cumulative effect of a change in accounting principle
    
    
    1,760
    
    
    
    (38,413
    )
    
    
    (19,241
    )
    
    
    (8,391
    )
    
    
    (68,794
    )Discontinued operations:Loss from operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,411
    )Loss from disposal
    
    
    (88
    )
    
    
    (685
    )
    
    
    (250
    )
    
    
    (662
    )
    
    
    (17,618
    )Total discontinued operations
    
    
    (88
    )
    
    
    (685
    )
    
    
    (250
    )
    
    
    (662
    )
    
    
    (46,029
    )Income (loss) before extraordinary gains on troubled debt
restructurings and the cumulative effect of a change
in accounting principle
    
    
    1,672
    
    
    
    (39,098
    )
    
    
    (19,491
    )
    
    
    (9,053
    )
    
    
    (114,823
    )Extraordinary gains on troubled debt restructurings,
net of income tax expense of $400 for the year ended
December 31, 2000 (4)
    
    
    
    
    
    
    123,517
    
    
    
    20,706
    
    
    
    107,772
    
    
    
    Cumulative effect of a change in accounting principle (1)
    
    
    
    
    
    
    (71,902
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1,672
    
    
    $
    12,517
    
    
    $
    1,215
    
    
    $
    98,719
    
    
    $
    (114,823
    )Income (Loss) Per Common ShareBasic and Diluted (7):Income (loss) from continuing operations
    
    $
    0.03
    
    
    $
    (0.78
    )
    
    $
    (0.39
    )
    
    $
    (0.17
    )
    
    $
    (1.39
    )Loss from discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.93
    )Extraordinary gains on troubled debt restructurings
    
    
    
    
    
    
    2.49
    
    
    
    0.42
    
    
    
    2.17
    
    
    
    Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (1.45
    )
    
    
    
    
    
    
    
    
    
    
    Net income (loss) per common share
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.02
    
    
    $
    1.99
    
    
    $
    (2.32
    )BALANCE SHEET DATACash and cash equivalents
    
    $
    38,449
    
    
    $
    30,591
    
    
    $
    21,339
    
    
    $
    27,259
    
    
    $
    6,633Working capital (deficit) (8)
    
    
    67,251
    
    
    
    65,557
    
    
    
    (76,201
    )
    
    
    (97,144
    )
    
    
    71,045Total assets
    
    
    245,843
    
    
    
    231,639
    
    
    
    336,466
    
    
    
    345,376
    
    
    
    402,751Long-term debt and capital lease obligations, including
current maturities (9)
    
    
    3,918
    
    
    
    134
    
    
    
    210
    
    
    
    203
    
    
    
    259,052Stockholders equity (deficit)
    
    
    92,551
    
    
    
    90,707
    
    
    
    78,189
    
    
    
    76,978
    
    
    
    (21,699
    )
  (1)
    
    On January 1, 2002, the company recognized a transitional impairment
charge of approximately $71.9 million in accordance with the adoption of
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets(Statement 142). In accordance with the provisions of
Statement 142, the transitional goodwill impairment charge was recorded as the
cumulative effect of a change in accounting principle. Additionally,
effective January 1, 2002 the company discontinued 26




---



##### Table of Contents



amortizing goodwill in accordance with Statement 142. See Note 7 to the companys Consolidated
Financial Statements for further details.(2)
    
    During 2003, the company recognized nominal restructuring cost recoveries
related to changes in estimates for facility reduction costs. During 2002,
the company recognized restructuring cost recoveries of approximately $0.1
million related to certain new functionality of space that was previously
deemed to be idle and/or excess and the early termination of a lease.
During 2001, the company recognized approximately $0.7 million of
restructuring cost recoveries resulting from the assumption of one of the
companys real estate property leases by a third party and certain changes
in estimates attributable to severance liabilities. During 2000,
management reevaluated the reserves necessary to complete its
restructuring initiatives and, as a result, the company recognized a net
restructuring reserve reversal of approximately $0.3 million. During 1999,
Coram initiated two company-wide restructuring plans (i.e., the Coram
Restructure Plan and the Field Reorganization Plan) and charged
approximately $5.8 million to operations as restructuring charges. These
plans resulted in the closure of certain facilities and a reduction of
personnel. See Note 5 to the companys Consolidated Financial Statements
for further details.(3)
    
    During 2002, the company recognized an impairment of goodwill and other
long-lived assets (exclusively goodwill) in accordance with the provisions
of Statement 142 of approximately $51.8 million. Such impairment was
principally due to unfavorable conditions and trends prevalent in the
public equity markets throughout 2002 and the corresponding adverse impact
on the companys underlying enterprise fair value. During 2001, 2000 and
1999, the company recognized impairment charges related to goodwill and
other long-lived assets of approximately $3.3 million, $8.3 million and
$9.1 million, respectively, which principally reflected recurring
operating losses or substandard financial performance at the branches to
which the associated goodwill and other long-lived assets related. See
Note 7 to the companys Consolidated Financial Statements for further
details.(4)
    
    The exchanges of debt and related interest for (i) Coram, Inc. Series A
Cumulative Preferred Stock on December 31, 2001 and December 29, 2000 and
(ii) Coram, Inc. Series B Cumulative Preferred Stock on December 31, 2002
resulted in extraordinary gains on troubled debt restructurings pursuant
to Statement of Financial Accounting Standards No. 15, Accounting by
Debtors and Creditors for Troubled Debt Restructurings(Statement No.
15) (see Note 8 to the companys Consolidated Financial Statements for
further details). In accordance with the rules promulgated under Statement
No. 15 and other accounting rules under Statement of Position 90-7,
Financial Reporting by Entities in Reorganization under the Bankruptcy
Code, no interest expense has been recognized in the companys
consolidated financial statements relative to the Series A Senior
Subordinated Unsecured Notes (the Series A Notes) and the Series B
Senior Subordinated Unsecured Convertible Notes (the Series B Notes)
since the December 29, 2000 exchange transaction. The 2000 interest on the
Series A Notes and the Series B Notes was charged to expense up to and
including the date of the December 29, 2000 exchange.Interest expense for the years ended December 31, 2003, 2002 and 2001
primarily reflects the recognition of interest expense on the settlement of
a dispute with the Internal Revenue Service (the IRS). Moreover, during
2001 the company recognized changes in estimates related to the aggregate
cumulative interest on the settlement with the IRS, resulting in $4.5
million of incremental interest expense.The 2000 and 1999 interest expense reflects the forbearance of interest
from November 15, 1999 through April 20, 2000 (i.e., the date of resolution
of certain litigation with Aetna U.S. Healthcare, Inc.), offset by an
increase in the principal amount of the debt and an increase in the
interest rate charged on the Series A Notes beginning in April 1999.(5)
    
    During January 2002, the company finalized the sale of its respiratory
and durable medical equipment business located in New Orleans, Louisiana
to a third party, which resulted in a nominal gain. Effective July 31,
2000, the company completed the sale of its Coram Prescription Services
business and recorded a gain on sale of approximately $18.3 million. In
addition, pursuant to a contingent consideration arrangement related to
one of the companys operating subsidiaries, approximately $0.4 million
was recognized as incremental proceeds during the year ended December 31,
2000.(6)
    
    During the years ended December 31, 2003, 2002, 2001 and 2000, the
company incurred approximately $15.7 million, $4.3 million, $14.4 million
and $8.3 million, respectively, in net reorganization expenses related to
the Bankruptcy Cases, which commenced in August 2000. These expenses
include, but are not limited to, professional fees, plan of reorganization
mailing/distribution costs, success and key employee retention plans,
Office of the United States Trustee fees and other expenditures during the
Bankruptcy Cases, offset by interest earned on accumulated cash due to the
Debtors not paying their liabilities subject to compromise. See Note 3 to
the companys Consolidated Financial Statements for further details. 27




---



##### Table of Contents



(7)
    
    Basic and diluted income (loss) per common share were identical for each
year in the five year period ended December 31, 2003. During the year
ended December 31, 2003, the incremental common stock equivalents utilized
to calculate diluted income per common share were nominal. During the
other years presented, the company experienced losses from continuing
operations and, in accordance with the provisions of Statement of
Financial Accounting Standards No. 128, Earnings Per Share,the
denominator utilized to calculate income (loss) per common share does not
increase for common stock equivalents when losses from continuing
operations are in evidence because to do so would be anti-dilutive.(8)
    
    Under Chapter 11 of the Bankruptcy Code, certain claims against the
Debtors in existence prior to the filing date are stayed while the Debtors
continue their operations during their bankruptcy proceedings. These
claims, which total approximately $16.8 million, $15.6 million, $139.3
million and $159.4 million at December 31, 2003, 2002, 2001 and 2000,
respectively, are reflected in the companys Consolidated Balance Sheets
as liabilities subject to compromise and are deemed to be current
liabilities. See Note 3 to the companys Consolidated Financial Statements
for further details.(9)
    
    The Series A Notes (until their liquidation) and the Series B Notes
aggregating approximately $9.0 million, $9.0 million, $132.3 million and
$153.3 million at December 31, 2003, 2002, 2001 and 2000, respectively,
were classified as current liabilities subject to compromise and, as a
result, such amounts are excluded from long-term debt in the above table.
Additionally, amounts related to a settlement with the IRS are also
excluded from long-term debt in the above table. See Notes 8 and 10 to
the companys Consolidated Financial Statements for further details. 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Annual Report on Form 10-K contains certain forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) and information relating to Coram that is based on the beliefs of
management, as well as assumptions made by, and information currently available
to, management. The companys actual results may vary materially from the
forward-looking statements made in this report due to important factors such as
the outcome of the Bankruptcy Cases (as defined in Note 1 to the companys
Consolidated Financial Statements) and certain other factors, which are
described in greater detail later in this Item 7. under the caption Risk
Factors. 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 management with respect to future events based on currently available
information and are subject to risks and uncertainties that could cause actual
results to differ materially from those contemplated in such forward-looking
statements. For a discussion of such risks, see Risk Factors. Readers are
cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Management does not undertake any
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events. The Consolidated Financial Statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, as a result of the Bankruptcy Cases and circumstances relating
thereto, including the companys leveraged financial structure and cumulative
losses from operations, such realization of assets and liquidation of
liabilities are subject to significant uncertainty. During the pendency of the
Bankruptcy Cases, the company may sell or otherwise dispose of assets and
liquidate or settle liabilities for amounts other than those reflected in the
Consolidated Financial Statements. Furthermore, a plan or plans of
reorganization could materially change the amounts reported in the Consolidated
Financial Statements, which do not give effect to any adjustments of the
carrying value of assets or liabilities that might be necessary as a
consequence of a plan or plans of reorganization (see Note 3 to the companys
Consolidated Financial Statements for further details). The companys ability
to continue as a going concern is dependent upon, among other things,
confirmation of a plan or plans of reorganization, future profitable
operations, the ability to comply with the terms and conditions of the
companys financing agreements, the ability to fund a settlement with the
Internal Revenue Service, the ability to remain in compliance with the
physician ownership and referral provisions of the Omnibus Budget
Reconciliation Act of 1993 (commonly known as Stark II) and the ability to
generate sufficient cash from operations and/or financing arrangements to meet
its obligations and capital asset expenditure requirements. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates. 28




---



##### Table of Contents



Background
and Certain Activities Relating to Reorganization Under Chapter 11 of
the Bankruptcy Code.During 2003, Coram was engaged primarily in the business of
furnishing alternate site (outside the hospital) infusion therapy and related
services, including non-intravenous home health products such as respiratory
therapy services and related equipment and durable medical equipment. Other
services offered by Coram in 2003 include outsourced hospital compounding
services and centralized management, administration and clinical support for
clinical research trials. Corams primary business strategy is to focus its
efforts on the delivery of its core infusion therapies, which include
nutrition, anti-infective therapies, pain management, intravenous
immunoglobulin and coagulant and blood clotting therapies for persons with
hemophilia. On August 8, 2000, CHC and CI commenced the Bankruptcy Cases by filing
voluntary petitions under Chapter 11 of the Bankruptcy Code. Following the
commencement of the Bankruptcy Cases, the Debtors operated as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court;
however, as discussed below, a Chapter 11 trustee was appointed by the
Bankruptcy Court on March 7, 2002. With the appointment of a Chapter 11
trustee, while still under the jurisdiction of the Bankruptcy Court, the
Debtors are no longer debtors-in-possession. None of CHCs other subsidiaries
is a debtor in the Bankruptcy Cases and, other than the Resource Network
Subsidiaries (as defined in Note 1 to the companys Consolidated Financial
Statements), none of CHCs other subsidiaries is a debtor in any bankruptcy
case. The Debtors need to seek the relief afforded by the Bankruptcy Code was
due, in part, to its requirement to remain compliant with certain provisions of
Stark II after December 31, 2000 (see discussion of Stark II in Note 14 to the
companys Consolidated Financial Statements) and the scheduled May 27, 2001
maturity of the Series A Senior Subordinated Unsecured Notes (the Series A
Notes). The Debtors sought advice and counsel from a variety of sources and,
in connection therewith, CHCs Independent Committee of the Board of Directors
unanimously concluded that the bankruptcy and restructuring were the only
viable alternatives. The Bankruptcy Code and applicable rules require a Chapter 11 trustee to
perform specific duties relating to the administration of a bankruptcy case.
Generally, a Chapter 11 trustee shall investigate the acts, conduct, assets,
liabilities, financial condition and operations of a debtor, and any other
matter relevant to the case or to the formulation of a plan of reorganization.
The Bankruptcy Code also requires a Chapter 11 trustee to, as soon as
practicable, file with the presiding bankruptcy court (i) a statement of any
investigation so conducted, including any facts ascertained pertaining to
fraud, dishonesty, incompetence, misconduct, mismanagement or irregularities in
the management of the affairs of the debtor, or to a cause of action available
to the estate, and (ii) a plan of reorganization, or file a report as to why a
plan of reorganization would not be filed. Furthermore, the Bankruptcy Code
permits a Chapter 11 trustee to operate the debtors business. As with a
debtor-in-possession, a Chapter 11 trustee may enter into transactions in the
ordinary course of business without notice or a hearing before the presiding
bankruptcy court; however, non-ordinary course actions still require prior
authorization from the bankruptcy court. A Chapter 11 trustee also assumes
responsibility for management functions, including decisions relative to the
hiring and firing of personnel. As is the case with the Debtors, when existing
management is necessary to run the day-to-day operations, a Chapter 11 trustee
may retain and oversee such management group. After a Chapter 11 trustee is
appointed, a debtors board of directors does not retain its ordinary
management powers. While Mr. Adams has assumed the board of directors
management rights and responsibilities, he is doing so without any pervasive
changes to the companys existing management
or organizational structure, other than the acceptance of the resignation
of Daniel D. Crowley, the companys former Chief Executive Officer and
President, effective March 31, 2003. On May 2, 2003, the Chapter 11 trustee filed with the Bankruptcy Court a
proposed joint plan of reorganization with respect to the Debtors and, on June
17, 2003, the Chapter 11 trustee filed an amended proposed joint plan of
reorganization (the Trustees Plan). Additionally, on June 24, 2003 the
Chapter 11 trustee filed the Second Amended Disclosure Statement with Respect
to the Trustees Plan (the Trustees Disclosure Statement) and, on June 26,
2003, the Bankruptcy Court entered an order (i) approving the Trustees
Disclosure Statement, (ii) approving the form of the ballot to be distributed
in connection with the voting on the Trustees Plan, (iii) establishing
procedures for solicitation of votes on the Trustees Plan, (iv) establishing a
voting deadline and procedures for tabulation of votes on the Trustees Plan
and (v) establishing the dates and times for the filing of objections to, and
scheduling a hearing on, confirmation of the Trustees Plan. The Trustees Plan
and the Trustees Disclosure Statement are attached as Exhibits 99.1 and 99.2,
respectively, to the companys Form 8-K filed with the Securities and Exchange
Commission (SEC) on July 11, 2003. A modification to the Trustees Plan was
filed with the Bankruptcy Court on September 8, 2003 and is attached as Exhibit
99.1 to the companys Form 8-K filed with the SEC on September 23, 2003. On December 19, 2002, the Official Committee of the Equity Security
Holders of Coram Healthcare Corporation (the Equity Committee) filed with the
Bankruptcy Court a proposed plan of reorganization with respect to the Debtors
and, on June 17, 2003, the Equity Committee filed a second amended proposed
plan of reorganization (the Equity Committees Plan). Additionally, on June 29




---



##### Table of Contents



26, 2003 the Equity Committee filed the Third Amended Disclosure Statement with
Respect to the Equity Committees Plan (the Equity Committees Disclosure
Statement) and the Bankruptcy Court entered an order (i) approving the Equity
Committees Disclosure Statement, (ii) appointing a balloting agent, (iii)
approving the form of the ballot to be distributed in connection with the
voting on the Equity Committees Plan, (iv) establishing procedures for
solicitation of votes on the Equity Committees Plan, (v) establishing a voting
deadline and procedures for tabulation of votes on the Equity Committees Plan
and (vi) establishing the dates and times for the filing of objections to, and
scheduling a hearing on, confirmation of the Equity Committees Plan, and the
objections thereto filed by the Chapter 11 trustee. The Equity Committees Plan
and the Equity Committees Disclosure Statement are attached as Exhibits 99.3
and 99.4, respectively, to the companys Form 8-K filed with the SEC on July
11, 2003. On September 29, 2003, the Chapter 11 trustee filed a Plan Supplement (the
Trustees Plan Supplement) to the Trustees Plan, as modified, with the
Bankruptcy Court. Additionally, the Equity Committee filed the Initial and
Second Plan Supplements (collectively the Equity Committees Plan
Supplements) to the Equity Committees Plan with the Bankruptcy Court on
September 29, 2003 and October 3, 2003, respectively. Moreover, on February 13,
2004 an amendment to the Equity Committees Plan Supplements was filed with the
Bankruptcy Court. Each of the Trustees Plan Supplement and the Equity
Committees Plan Supplements, as amended, may be subject to future changes
and/or amendments. The Trustees Plan Supplement and the Equity Committees
Plan Supplements are attached as Exhibits 99.1 through 99.3 to the companys
Form 8-K filed with the SEC on October 14, 2003. Additionally, the amendment to
the Equity Committees Plan Supplements is attached as Exhibit 99.1 to the
companys Form 8-K filed with the SEC on February 26, 2004. Pursuant to the Bankruptcy Courts order, a record date of July 1, 2003
was established for the purpose of determining which holders of equity
interests are entitled to vote on each of the Trustees Plan, as modified, and
the Equity Committees Plan. Additionally, in accordance with the Bankruptcy
Courts order, on or about July 14, 2003 the balloting agent transmitted the
Chapter 11 trustees and the Equity Committees solicitation
packages to certain creditors and interest holders who may be entitled to
vote on each of the respective plans of reorganization. However, as of April 9,
2004, the balloting agent has not certified the final voting results.
Additionally, certain matters pertaining to the tabulation of the votes are
scheduled to be heard by the Bankruptcy Court on May 17, 2004. Each of the Trustees Plan, as modified, and the Equity Committees Plan remain
subject to confirmation by the Bankruptcy Court. Hearings to consider
confirmation of each such plan of reorganization and any objections thereto
commenced on September 30, 2003 and are ongoing. The deadline to object to
confirmation of each of the plans of reorganization was August 7, 2003 and, in
connection therewith, certain objections have been filed against both plans of
reorganization. Management cannot predict whether or not the Trustees Plan, as
modified, or the Equity Committees Plan will be confirmed, the ultimate
outcome of each proposed plan of reorganization or the resolution of certain
filed objections to each of the proposed plans of reorganization. Under Chapter 11 of the Bankruptcy Code, certain claims against the
Debtors in existence prior to the filing date are stayed while the Debtors
operations continue under the purview of a Chapter 11 trustee or while the
Debtors are conducting business as debtors-in-possession. These claims are
reflected in the consolidated balance sheets as liabilities subject to
compromise. Additional claims have arisen since the filing date and may
continue to arise due to the rejection of executory contracts and unexpired
non-residential real property leases and from determinations by the Bankruptcy
Court of allowed claims for contingent, unliquidated and other disputed
amounts. Parties affected by the rejection of an executory contract or
unexpired non-residential real property lease may file claims with the
Bankruptcy Court in accordance with the provisions of Chapter 11 of the
Bankruptcy Code and applicable rules. Claims secured by the Debtors assets are
also stayed, although the holders of such claims have the right to petition the
Bankruptcy Court for relief from the automatic stay to permit such creditors to
foreclose on the property securing their claims. Additionally, certain
claimants have sought relief from the Bankruptcy Court to lift the automatic
stay and continue the pursuit of their claims against the Debtors or the
Debtors insurance carriers. See Note 14 to the companys Consolidated
Financial Statements for further details regarding activities of the Official
Committee of Unsecured Creditors of Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc. in the Resource Network Subsidiaries
bankruptcy proceedings. The holders of the Coram, Inc. Series A Cumulative Preferred Stock (the
CI Series A Preferred Stock) and the Coram, Inc. Series B Cumulative
Preferred Stock (the CI Series B Preferred Stock) (the holders of such Coram,
Inc. preferred stock are hereinafter referred to as the CI Preferred Stock
Holders) continue to assert claims within the Bankruptcy Cases in the
aggregate amount of their cumulative liquidation preferences. Furthermore, in
connection with a certain note exchange effective on December 31, 2002, the
Bankruptcy Court entered an order granting the exchange, subject to its
comments of record, and further ordered that (i) if equitable or other relief
is sought by any party in interest against the CI Preferred Stock Holders, all
defenses, affirmative defenses, 30




---



##### Table of Contents



setoffs, recoupments and other such rights of
the Chapter 11 trustee, the CI Preferred Stock Holders and the Debtors shall be
preserved, and all such issues shall be determined, regardless of the first,
second and third note exchanges and (ii) the rights and equity interests of the
CI Preferred Stock Holders are, and in connection with any plan or plans of
reorganization or any other distribution of the Debtors assets pursuant to
Chapter 11 of the Bankruptcy Code shall remain, senior and superior to the
rights and equity interests of all holders of CIs common stock and all claims
against and equity interests in CHC. On or about March 28, 2003, the Equity Committee commenced an adversary
proceeding seeking to subordinate the preferred stock interests of Cerberus
Partners, L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation in Coram, Inc. to the interests of Coram Healthcare Corporation as
the sole common shareholder of Coram, Inc. Upon motion of the defendants and
after a hearing held on June 5, 2003, the Bankruptcy Court dismissed the
aforementioned adversary proceeding by an order dated June 19, 2003 and
preserved issues concerning post-petition interest for determination in
connection with confirmation hearings on the Trustees Plan, as modified, and
the Equity Committees Plan, provided that, to the extent that an equitable
objection to confirmation is raised, the Bankruptcy Court will treat the CI
Series A Preferred Stock and the CI Series B Preferred Stock as debt and deal
with the issue of whether post-petition interest will be allowed in accordance
with the provisions of the Bankruptcy Code concerning post-petition interest on
debt. Schedules were filed with the Bankruptcy Court setting forth the assets
and liabilities of the Debtors as of the filing date as shown by the Debtors
accounting records. Amended schedules, which identified the Debtors remaining
outstanding pre-petition liabilities, were filed with the Bankruptcy Court on
August 28, 2003. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. If, upon such
investigation and/or resolution, it is determined that the amounts shown by the
Debtors need to be modified, the companys consolidated financial statements
are adjusted accordingly. In connection therewith, during the year ended
December 31, 2003, the company recorded approximately $1.2 million of
additional liabilities subject to compromise. The ultimate amount and the
settlement terms for all the liabilities subject to compromise will be subject
to a plan or plans of reorganization and review by the Chapter 11 trustee.
Therefore, it is not possible to fully or completely estimate the fair value of
the liabilities subject to compromise at December 31, 2003 and 2002 due to the
Bankruptcy Cases and the uncertainty surrounding the ultimate amount and
settlement terms for such liabilities. See Note 3 to the companys Consolidated Financial Statements for further
discussion of the Bankruptcy Cases. Business Strategy.The major strategic initiatives currently being
implemented by Coram include: (i) continued focus on growth in net revenue from
core therapies and, in some cases, non-core therapies (e.g., Aralast,
Synagis®, Remicade®, enteral nutrition, etc.); (ii) continued investment and
development of the clinical research trial support services provided by CTI
Network, Inc. (CTI); (iii) continued strategic development and investment in
the companys outsourced hospital compounding services business, SoluNet LLC
(SoluNet); (iv) cost reduction initiatives (including certain reimbursement
and information technology activities); (v) continued cash collection
improvements; (vi) additions to and upgrades of company-wide information
technology systems; (vii) obtainment and field implementation of new ambulatory
infusion pumps; (viii) emergence from the Bankruptcy Cases; and (ix)
liquidation of the Resource Network Subsidiaries and resolution of certain
related litigation matters. Management believes that success in the foregoing
will improve Corams financial prospects and improve and stabilize
relationships with payers, vendors and referral sources. There can be no
assurances that any of the strategic initiatives will be consummated or will be
available to Coram on commercially acceptable terms. Corams business strategy is dependent upon its core alternate site
infusion therapy business, the clinical research business operated by CTI and
outsourced hospital compounding services provided by SoluNet. Accordingly,
managements primary business objective is to focus Corams efforts on the
delivery of its core infusion therapies, which include nutrition,
anti-infective therapies, intravenous immunoglobulin, pain management and
coagulant and blood clotting therapies for persons with hemophilia. To that
end, Coram maintains product managers with dedicated sales, marketing and clinical
resources aimed at expanding Corams growth in these areas. In an effort to
reduce drug and supply costs, Coram aggressively negotiates vendor contracts
and strictly enforces internal compliance with predetermined product
formularies. Coram also implemented programs focused on the reduction and
control of costs of services and operating expenses, assessment of
under-performing branches and review of branch efficiencies. Pursuant to this
review, several branches have been closed or scaled back to serve as satellites
for other branches and personnel have been eliminated; however, during the year
ended December 31, 2003, the company opened two new infusion branches in San
Antonio, Texas and Amherstburg, Ontario, Canada. Management is also reviewing
the manner in which the company provides nursing care and the cost of its
clinical delivery model. In response thereto, the company is implementing
changes to its practices to reduce the number of nursing visits and effectuate
certain cost savings while maintaining Corams high level of patient
satisfaction and effective clinical results. 31




---



##### Table of Contents



Management throughout the company is continuing to concentrate on
enhancing timely reimbursement by emphasizing improved billing and cash
collection methods, continued assessment of reimbursement systems support and
concentration of the companys expertise and managerial resources into certain
reimbursement locations. By consolidating to fewer sites, management is working
to implement improved training, more easily standardize best demonstrated
practices, enhance specialization related to payers such as Medicare and
achieve more consistent and timely cash collections. Management believes that,
in the long-term, payers and patients will receive better, more consistent
service. However, no assurances can be given that the consolidation of the
companys Patient Financial Service Centers (reimbursement sites) and other
related activities initiated by management will be successful in enhancing
timely reimbursement or that the company will not experience a significant
shortfall in cash collections, deterioration in days sales outstanding (DSO)
and/or unfavorable aging trends in its accounts receivable. Critical Accounting Policies.The companys Consolidated Financial
Statements include the accounts of CHC, its subsidiaries, including CI (CHCs
wholly-owned direct subsidiary), and joint ventures that are considered to be
under the control of CHC. CI is a party to the Bankruptcy Cases that are being
jointly administered with those of CHC in the Bankruptcy Court. All material
intercompany account balances and transactions have been eliminated in
consolidation. The company uses the equity method of accounting for investments
in entities in which it exhibits significant influence, but not control, and
has an ownership interest of 50% or less. During the year ended
December 31, 2003, the
company adopted Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities; however, such accounting
pronouncement had no impact because the company is not affiliated with any such
entities. Effective August 8, 2000, the company began presenting its consolidated
financial statements in accordance with the provisions of Statement of Position
90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy
Code. Management considers the accounting policies that govern revenue
recognition and the determination of the net realizable value of accounts
receivable to be the most critical accounting policies in relation to the
companys consolidated financial statements, as well as those that require
important and substantive management judgment. Other accounting policies
requiring significant judgment are those related to the measurement and
recognition of impairments of goodwill and other long-lived assets. Accounting
policies that govern the capitalization of software development costs are also
considered critical while the company is in the process of improving and
enhancing its enterprise-wide information systems. Revenue Recognition.Revenue is recognized as services are rendered or
products are delivered. Substantially all of the companys revenue is billed to
third party payers, including insurance companies, managed care plans,
governmental payers and contracted institutions. Revenue is recorded net of
contractual allowances and related discounts. Contractual allowances represent
adjustments to established rates (e.g., Average Wholesale Prices for
pharmaceutical drugs, etc.) to reflect the amounts expected to be realized from
third party payers under contractual agreements. For non-contracted payers
(excluding Medicare and Medicaid), pricing is either negotiated prior to
rendering services or the payer is billed at list price. In the former
circumstance, contractual allowances are recorded at the time of revenue
recognition based upon the pre-negotiated rates. If the payer is billed at list
price, a contractual allowance is recorded based upon managements estimates
until a payment history is established with the payer, at which time the
contractual allowances are modified. In the case of Medicare and Medicaid,
contractual allowances are recorded at the time of revenue recognition based
upon the allowable recoverable amounts pursuant to the underlying federal and
state regulations for such governmental programs. In certain cases, the company accepts fixed fee or capitated fee
arrangements. Under a capitated arrangement, the company will agree to deliver
or arrange for the delivery of certain home health services required under the
payer customers health plan in exchange for a fixed per member per month
service fee. The total per member per month fee is calculated using all members
enrolled in the particular health plan as of certain specified dates. The per
member per month service fees are recognized as revenue in the month the fees
are designated to cover home health services. Revenue for the companys clinical research and outsourced hospital
compounding businesses is recognized in the period that the services are
rendered. Such revenue is determined by reference to contracts between the
company and the customer. Additionally, management fees, which are collected
from entities managed by the company, are either (1) a fixed fee, (2) based on
a percentage of the entities operating results or (3) based on the number of
active patient reimbursement files. Revenue from the Medicare and Medicaid programs accounted for
approximately 24% of the companys consolidated net revenue for the years ended
December 31, 2003, 2002 and 2001. Laws and regulations governing the Medicare
and Medicaid programs are complex and subject to interpretation and revision.
Compliance with such laws and regulations can be subject to future government
review and interpretation, as well as significant regulatory action, including
punitive fines, penalties and exclusion from the Medicare 32




---



##### Table of Contents



and Medicaid programs. Management acknowledges and is complying with certain ongoing audits
and reviews with respect to prior reimbursements from Medicare and Medicaid.
The company records regulatory reserves after management has reviewed the
underlying circumstances and applied the principles of Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies.See Note 14 to the
companys Consolidated Financial Statements and Risk Factors for further
details. Provision for Estimated Uncollectible Accounts.Management regularly
reviews the collectibility of accounts receivable utilizing reports that track
collection and write-off activity. Estimated write-off percentages are then
applied to each aging category by payer classification to determine the
provision for estimated uncollectible accounts. Additionally, management
establishes supplemental specific reserves for accounts that are deemed
uncollectible due to occurrences such as payer financial distress and payer
bankruptcy filings. The provision for estimated uncollectible accounts is
periodically adjusted to reflect current collection, write-off and other
trends. While management believes the resulting net carrying amounts for
accounts receivable are fairly stated and that the company has adequate
allowances for uncollectible accounts based on all information
available, no assurances can be given as to the level of future provisions
for uncollectible accounts or how they will compare to the levels experienced
in the past. The companys ability to successfully collect its accounts
receivable depends, in part, on managements ability to (i) adequately
supervise and train personnel in billing and collections and (ii) maximize
integration efficiencies related to reimbursement site consolidations and
information system changes. Goodwill and Other Long-Lived Assets.In June 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets(Statement 142), which
eliminated the amortization of goodwill and intangible assets with indefinite
useful lives and required that such assets be reviewed for impairment at least
annually. The company adopted Statement 142 on January 1, 2002 and management
selected December 1st as the date to conduct the annual impairment test
prescribed by such accounting pronouncement. Pursuant to the provisions of
Statement 142, intangible assets with finite lives continue to be amortized
over their estimated useful lives. Goodwill represents the excess of purchase price over the fair value of
net assets acquired through business combinations accounted for as purchases.
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. In the period these
payments become probable, they are recorded as additional goodwill. Statement 142 requires the company to test goodwill for impairment using a
two-step process. The first step is a screen for potential impairment and the
second step measures the amount of impairment, if any. In performing the first
step during the initial adoption of Statement 142 and subsequent impairment
analyses on December 1, 2003 and 2002, management utilized estimates of the
companys enterprise values and compared such enterprise value estimates to the
carrying values of the companys corresponding net assets as of such dates.
Based on the results of such tests, if management concluded that a potential
impairment of the companys goodwill existed, the second step of the process
described in Statement 142 was performed. Determining the amount of the
impairment required management to identify the implied fair value of the
companys goodwill. The companys enterprise value estimates were determined
based upon valuations performed by either an independent outside valuation firm
or certain investment bankers retained by the Chapter 11 trustee. Such
valuations considered, among other things, a combination of discounted cash
flows, quoted market prices of comparable public companies and comparable
business transactions. Statement 142 requires that the implied fair value of
goodwill, determined in a hypothetical purchase price allocation, be compared
to the carrying value of such goodwill. Using the enterprise valuation reports,
management established a protocol that was designed to compare the fair value
of the companys implied goodwill to the corresponding amount recognized in the
companys balance sheets. As a result of these analyses, the company recognized
a transitional goodwill impairment charge of approximately $71.9 million on
January 1, 2002, which, in accordance with Statement 142, was reflected in the
companys Consolidated Financial Statements as the cumulative effect of a
change in accounting principle and an annual goodwill impairment charge of
approximately $51.8 million on December 1, 2002. No corresponding goodwill
impairment charge was recognized for the year ended December 31, 2003. See Note
7 to the companys Consolidated Financial Statements for further details. Because the Debtors are operating under Chapter 11 of the Bankruptcy Code,
the fair value of the companys liabilities will be impacted by their
settlement value pursuant to a plan or plans of reorganization in the
Bankruptcy Cases and, ultimately, on decisions of the Bankruptcy Court. As a
result, the implied value of the companys goodwill is premised on several
highly judgmental assumptions, including, among other things,
the companys enterprise value and the final disposition of the companys
pre-petition liabilities. Accordingly, the companys goodwill impairment
analyses are subject to the volatility inherent in the underlying enterprise
value determinations. 33




---



##### Table of Contents



Capitalized Software Development Costs.Capitalized costs related to
software developed and/or obtained for internal use are stated at cost in
accordance with Statement of Position 98-1, Accounting for Computer Software
Developed for or Obtained for Internal-Use(SOP 98-1). Amortization is
computed using the straight-line method over estimated useful lives ranging
from one to five years. For the years ended December 31, 2003, 2002 and 2001,
software development costs aggregating approximately $1.8 million, $1.2 million
and $1.5 million, respectively, were capitalized in accordance with SOP 98-1. Factors Affecting Recent Operating Results.The following list summarizes
the major events or factors impacting Corams operating results and financial
condition in 2003 and which may impact Coram in the future:  (i)
    
    resolution of matters relating to competing plans of reorganization
currently before the Bankruptcy Court;(ii)
    
    reorganization expenses related to the Bankruptcy Cases, including,
but not limited to, professional fees and related reimbursable expenses;(iii)
    
    adverse trends in reimbursement methodologies as a result of, among
other things, changes in average wholesale prices and, in the long-term,
the enactment of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003;(iv)
    
    increased third party reviews of billings submitted to Medicare and
Medicaid, as well as compliance with certain ongoing audits and reviews
by regulators such as Medicare and Medicaid fiscal intermediaries and
the Centers for Medicare & Medicaid Services. See Note 14 to the
companys Consolidated Financials Statements and Risk Factors for
further details;(v)
    
    focus on attaining and maintaining compliance with the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) within
the prescribed regulatory guidelines, including, but not limited to,
employee training and systems upgrades, as well as negotiations of new
and existing contracts aimed at providing the company with timely and
adequate levels of reimbursement and profitability;(vi)
    
    managements focus on maintaining the profitability of the companys
contract with Health Net Inc. See Note 2 to the companys Consolidated
Financial Statements for further details;(vii)
    
    the recent selection of the company as a national distributor of
Aralast, which is a new drug used in the treatment of a rare genetic
lung disorder known as Alpha-1 Antitrypsyn Deficiency, and managements
efforts to market and develop business for such drug;(viii)
    
    focus on meeting the financial obligations of a settlement agreement
with the Internal Revenue Service;(ix)
    
    costs and field implementation efforts associated with new
pole-mounted and ambulatory infusion pumps;(x)
    
    managements continued focus on and the costs and efforts associated
with the companys additions and upgrades to its information systems;(xi)
    
    increased costs associated with providing infusion therapy services,
including costs for clinical staffing (e.g., nursing, pharmacists,
etc.), product delivery, on-call personnel, recruiting fees and other
variable costs associated with such therapies;(xii)
    
    the recent relocation of the companys data center and CTI
operations from Bannockburn, Illinois to Mount Prospect, Illinois, as
well as other additions, modifications, realignments or changes to the
companys real estate portfolio;(xiii)
    
    increased costs associated with continued efforts to improve
efficiency and overall performance of the billing and reimbursement
function;(xiv)
    
    potential costly upgrades to certain of the companys clean rooms in
connection with new pharmaceutical regulations (see Risk Factors for
further details);(xv)
    
    implementation of SoluNets developmental business plan, including
substantial start-up costs and other monetary capital requirements; 34




---



##### Table of Contents



(xvi)
    
    maintaining compliance with the provisions of Stark II by, among
other things, ensuring that the companys stockholders equity does not
fall below the required levels;(xvii)
    
    continued focus on the companys respiratory therapy services and
durable medical equipment businesses, including non-consolidated joint
venture locations;(xviii)
    
    continued pricing pressure in the companys industry from managed
care organizations and other contracted payers and intense competition
among infusion providers;(xix)
    
    increased competition from hospitals and physicians that have (i)
sought to increase the scope of services they offer through their
facilities and offices, including services similar to those offered by
the company, or (ii) entered into risk-sharing relationships with third
party payers 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;(xx)
    
    increased competition from mail order and specialty injectible
pharmacy providers;(xxi)
    
    consolidations and business failures of certain regional and
national competitors (see Item 1. Business: Competition for further
details);(xxii)
    
    continued focus on the companys military business; and(xxiii)
    
    potentially volatile factor and IVIG acquisition costs and product
supply chain disruptions. 35




---



##### Table of Contents



Results of Operations As discussed in Note 4 to the companys Consolidated Financial Statements,
R-Nets operating results are included in discontinued operations; however, for
the three years in the period ended December 31, 2003 the Resource Network
Subsidiaries had no operations. Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 Net Revenue.Net revenue increased $43.0 million or 9.9% to $476.5 million
during the year ended December 31, 2003 from $433.5 million during the year
ended December 31, 2002. The 2003 increase is primarily attributable to
favorable results from the companys enhanced sales and marketing work force,
an increase in military business (i.e., approximately $4.7 million increase in
2003 over 2002) and the introduction of Aralast to the companys product
offerings. The net revenue increase during 2003 included a combined $28.3 million or
9.3% increase in net revenue from the companys Core Infusion Therapies:
coagulant and blood clotting (Factor), intravenous immunoglobulin (IVIG),
anti-infective, pain management and total parenteral nutrition therapies. Also
included in the 2003 consolidated net revenue increase is a $16.3 million
improvement (approximately 14.5%) in the companys non-core infusion therapies
(such therapies include, but are not limited to, enteral nutrition and
therapies corresponding to the Food and Drug Administration approved drugs
Aralast, Synagis® and Remicade®). Enteral nutrition provided approximately
5.1% of the of the companys consolidated net revenue during the year ended
December 31, 2002; however, no other individual non-core therapy represented
more than 5% of the companys net revenue during the years ended December 31,
2003 or 2002. The companys Core Infusion Therapies and non-core infusion
therapies aggregated approximately 97% and 96% of net revenue during the years
ended December 31, 2003 and 2002, respectively. Additionally, the company
experienced 2003 net revenue growth of approximately $0.9 million and $0.3
million from its CTI Network, Inc. (CTI) operations and SoluNet LLC business,
respectively. The aforementioned net revenue increases were partially offset by
approximately $3.2 million of net unfavorable adjustments
attributable to changes in estimates for pre-2003 revenue which resulted from certain ongoing
regulatory audits and reviews. Such estimates will be reviewed and
may be revised in
subsequent periods as more information becomes available to management. See Risk Factors
and Note 14 to the companys Consolidated Financial Statements for further
details. During the years ended December 31, 2003 and 2002, approximately $33.3
million and $32.6 million, respectively, of the companys consolidated net
revenue related to an agreement with Health Net Inc. (Health Net) to provide
services to its members in California (the Health Net Contract). The Health
Net agreement expired by its terms on December 31, 2002; however, effective
October 1, 2003, a second amendment to the agreement (the Amendment) was
executed wherein the contract, with certain modifications, was extended to
December 31, 2005. The company continued to render services to the Health Net
members from January 1, 2003 through September 30, 2003 pursuant to the terms
and conditions of the expired contract. As a result of the final negotiations,
Health Net reserved the right to reevaluate the Amendment based upon the status
of the Bankruptcy Cases, as well as material changes, if any, to Corams senior
management during the term of the Amendment. The loss of the Health Net
agreement or significant modifications to the terms and conditions of the
Amendment could have a materially adverse effect on the companys results of
operations, cash flows and financial condition. See Note 2 to the companys
Consolidated Financial Statements for further details. The company is a party to several individual provider contracts that
ultimately fall within the purview of a single national health insurance
carrier that recently commenced implementation of a national ancillary care
management program. In connection therewith, during 2002 such national health
insurance carrier terminated two provider contracts relating to the state of
Illinois (one with the company and one with a non-consolidated joint venture).
During 2003 and through April 9, 2004, eleven additional provider contracts
were terminated with effective dates ranging from October 1, 2003 to July 1,
2004. During the years ended December 31, 2003 and 2002, the terminated
contracts represented approximately $12.2 million and $13.0 million,
respectively, of the companys consolidated net revenue and during the years
ended December 31, 2003 and 2002 all provider contracts under this national
insurance carrier represented approximately $16.9 million and $18.3 million,
respectively, of the companys consolidated net revenue. The termination of
additional provider contracts under this national health insurance carrier
could have a materially adverse impact on the companys results of operations.
See Note 2 to the companys Consolidated Financial Statements for further
details. 36




---



##### Table of Contents



Gross Profit.Gross profit increased $8.0 million to $132.1 million or a
gross margin of 27.7% during the year ended December 31, 2003 from $124.1
million or a gross margin of 28.6% during the year ended December 31, 2002.
During 2003, the companys gross margin percentage was favorably impacted by
lower acquisition costs for Factor and IVIG products (principally due to an
overall increase in related product availability in the marketplace during such
period). However, no assurances can be given that the company will continue to
benefit from favorable acquisition costs for Factor and IVIG products. Price
increases or the absence of product availability could have a materially
adverse effect on the companys financial condition, results of operations and
liquidity. Additionally, the 2003 gross margin was favorably impacted by a
larger proportion of IVIG and anti-infective therapies in the companys revenue
mix (such therapies generally have lower product cost as a percentage of net
revenue than the companys non-core therapies). Notwithstanding the aforementioned favorable gross margin trends during
2003, the companys overall gross margin percentage decreased from the prior
year. This decrease is primarily attributable to (i) a $3.4 million charge for
the purchase of a malpractice insurance tail policy in 2003, (ii) incremental
increases in nursing and pharmacy salaries and related contract labor that were
precipitated by an overall labor shortage, (iii) $3.2 million of
net unfavorable revenue adjustments that related to periods prior to 2003 (see above Net Revenue
discussion) with no corresponding reduction in cost of goods sold and (iv)
increases in both health and welfare and workers compensation insurance costs
for the companys clinical work force. Management expects continued increases
in nursing and pharmacy salaries and related contract labor, as well as health
and welfare costs. Selling, General and Administrative (SG&A) Expenses.SG&A expenses
increased $2.1 million or 2.3% to $93.4 million during the year ended December
31, 2003 from $91.3 million during the year ended December 31, 2002. During
2003, the company incurred incremental costs of (i) $3.6 million to enhance and
reward its sales and marketing force, (ii) $1.8 million in reimbursement costs,
(iii) $1.0 million in health and welfare costs for non-clinical personnel and
(iv) $1.0 million in legal fees. Partially offsetting the above SG&A expense increases were (i) a $3.6
million decrease in management incentive compensation (including a $1.05
million reversal of the companys Executive Vice President 2002 incentive
compensation during 2003 (see Note 3 to the companys Consolidated Financial
Statements for further details)), (ii) a $1.0 million decrease in depreciation
expense primarily related to the implementation of new information systems
during the year ended December 31, 2002 wherein certain temporary transitional
components of such new information systems became fully depreciated during that
period, (iii) a $0.9 million decrease in data circuit telecommunication
expenses in connection with a new agreement with AT&T Corporation (see Note 14
to the companys Consolidated Financial Statements for further details) and
(iv) a $0.5 million decrease in amortization expense related to the companys
commercial payer contracts intangible asset, which became fully amortized
during the year ended December 31, 2002. In addition to the aforementioned SG&A expense changes, the company
experienced an overall increase in such expenses attributable to revenue
growth, inflation and development of the companys SoluNet business. Provision for Estimated Uncollectible Accounts.The provision for
estimated uncollectible accounts was $19.8 million or 4.2% of net revenue
during the year ended December 31, 2003, compared to $15.9 million or 3.7% of
net revenue during the year ended December 31, 2002. During 2003, the company
experienced deteriorations in its Medicaid and commercial aged accounts
receivable balances, which resulted in a requirement for an increased provision
for estimated uncollectible accounts. Partially offsetting the unfavorable
2003 trends was a reduction in the companys provision for estimated
uncollectible accounts for Medicare accounts receivable due to improved cash collections and approximately
$1.1 million relating to recoveries from commercial payer settlements (see Note
2 to the companys Consolidated Financial Statements for further details). The
2003 provision for estimated uncollectible accounts reflects managements best
estimate of the net realizable value of the companys accounts receivable at
December 31, 2003. However, there can be no assurances that such provision for
estimated uncollectible accounts will be adequate or that factors adversely
affecting the companys bad debt expense will not continue or worsen in the
future. See Risk Factors for further discussion. Restructuring Cost Recoveries.During the year ended December 31, 2003,
the company recognized nominal restructuring cost recoveries reflecting changes
in estimates for facility reduction costs. During the year ended December 31,
2002, the company recognized restructuring cost recoveries of $0.1 million
related to certain new functionality of space that was previously deemed to be
idle and/or excess and the early termination of a lease. The aforementioned
items were previously included as part of the companys accrued merger and
restructuring costs. See Note 5 to the companys Consolidated Financial
Statements for further details. Charges for Impairments of Goodwill and Other Long-Lived Assets.During
the year ended December 31, 2002, the company recognized an impairment of
goodwill and other long-lived assets (exclusively goodwill) of approximately
$51.8 million in accordance with the provisions of Statement 142. Such
impairment charge was principally due to unfavorable conditions and trends
prevalent in the public equity markets throughout 2002 and the corresponding
adverse impact on the companys underlying enterprise 37




---



##### Table of Contents



value. The Statement 142 annual impairment test for the year ended December 31, 2003 yielded no required
adjustment to the carrying value of the companys goodwill. See Note 7 to the
companys Consolidated Financial Statements for further details. Interest Expense.Interest expense was $1.7 million and $1.6 million
during the years ended December 31, 2003 and 2002, respectively. Both periods
primarily reflect the recognition of interest expense on a settlement with the
Internal Revenue Service that is more fully described in Note 10 to the
companys Consolidated Financial Statements. Furthermore, both periods also
reflect the non-recognition of interest expense related to certain notes issued
in connection with the Securities Exchange Agreement subsequent to the
execution of debt-for-equity exchange agreements on December 29, 2000, December
31, 2001 and December 31, 2002, which qualified as troubled debt
restructurings. See Notes 8 and 12 to the companys Consolidated Financial
Statements for further details. Additionally, 2003 includes approximately $0.2
million of incremental interest expense to reflect the proposed settlement
amount with a general unsecured creditor in the Bankruptcy Cases. See Note 14
to the companys Consolidated Financial Statements for further details. Equity in Net Income of Unconsolidated Joint Ventures.Equity in net
income of unconsolidated joint ventures decreased $0.3 million to $1.2 million
during the year ended December 31, 2003 from $1.5 million during the year ended
December 31, 2002. During 2003, the equity in net income of unconsolidated
joint ventures was adversely impacted by the ongoing liquidation of one of the
companys unconsolidated joint ventures in the Chicago, Illinois marketplace.
As of June 30, 2003, substantially all operations of such unconsolidated joint
venture have ceased. Additionally, one of Corams unconsolidated California partnerships
derived approximately 40.3% and 45.7% of its net revenue during the years ended
December 31, 2003 and 2002, respectively, from services provided under the
Health Net Contract. See Note 2 to the companys Consolidated Financial
Statements for further details. Gain on Sale of Business.During January 2002, the company finalized the
sale of a respiratory and durable medical equipment business located in New
Orleans, Louisiana to a third party, which resulted in a nominal gain. See
Note 3 to the companys Consolidated Financial Statements for further details. Other Income (Expense), Net.During the year ended December 31, 2003, the
company recognized approximately $0.4 million in other expense, compared to
$1.0 million in other income during the year ended December 31, 2002. Included
in the 2003 amount is the recognition of approximately $0.5 million of expense
as a result of reconciling certain pre-petition proofs of claim filed in the
Bankruptcy Cases. During 2002, the company recorded approximately $1.0 million
of other income from the recognition of the net realizable value of an escrow
deposit that related to certain 1997 dispositions of lithotripsy partnerships.
The company, with approvals from the Chapter 11 trustee and the Bankruptcy
Court, entered into a settlement agreement whereby the aforementioned escrow
deposit was realized by the company in October 2002. Reorganization Expenses, Net.During the years ended December 31, 2003
and 2002, the company recognized approximately $15.7 million and $4.3 million,
respectively, in net reorganization expenses related to the Bankruptcy Cases.
These expenses include, but are not limited to, professional fees, plan of
reorganization mailing/distribution costs, key employee retention plan
expenses, Office of the United States Trustee fees and other expenditures
during the Bankruptcy Cases, offset by interest earned on accumulated cash due
to the Debtors not paying their liabilities subject to compromise. The increase
during 2003 was partially attributable to $3.3 million and $0.7 million of
expenses related to (i) the 2003 Key Employee Retention Plan and (ii) the
distribution and notification of competing plans of reorganization,
respectively, whereas no comparable amounts were incurred during 2002.
Moreover, during the years ended December 31, 2003 and 2002, the company
recorded $12.0 million and $4.7 million, respectively, of bankruptcy-related
professional fees and reimbursable expenses. Such professional fees were
higher during 2003 primarily due to the increased level of legal and financial
advisory activities related to the competing plans of reorganization proposed
by the Chapter 11 trustee and the Equity Committee and the ongoing Bankruptcy
Court confirmation hearings. Management believes that the company will continue
to experience significant expenses related to the Bankruptcy Cases during the
year ending December 31, 2004. See Note 3 to the companys Consolidated
Financial Statements for further details regarding the competing plans of
reorganization. Income Tax Expense.See Note 10 to the companys Consolidated Financial
Statements for discussion of variances between income taxes
calculated at the federal statutory rate and income tax expense recognized by the company. Loss from Disposal of Discontinued Operations.During the years ended
December 31, 2003 and 2002, the company recorded $0.1 million and $0.7 million,
respectively, of losses from disposal of discontinued operations. Such amounts
represent legal costs for certain litigation between the Official Committee of
Unsecured Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. (the R-Net Creditors Committee) and the Debtors
and several of their non-debtor subsidiaries, as well as 38




---



##### Table of Contents



legal costs associated
with corresponding indemnifications provided to the companys officers and
directors in the Resource Network Subsidiaries bankruptcy
proceedings/litigation. See Notes 4 and 14 to the companys Consolidated
Financial Statements for further details. Extraordinary Gains on Troubled Debt Restructurings.During the year
ended December 31, 2002, with approval from the Bankruptcy Court, the Debtors
exchanged debt and related interest for equity in the form of Coram, Inc.
Series B Cumulative Preferred Stock and, as a result, recognized an
extraordinary gain on troubled debt restructuring of approximately $123.5 million. See Notes 8 and 12 to
the companys Consolidated Financial Statements for further details. Cumulative Effect of a Change in Accounting Principle.Effective January
1, 2002, the company recognized a transitional goodwill impairment charge of
approximately $71.9 million related to the adoption of Statement 142. In
accordance with the provisions of such accounting pronouncement, the charge was
recorded in the companys Consolidated Financial Statements as a cumulative
effect of a change in accounting principle. See Note 7 to the companys
Consolidated Financial Statements for further details. Year Ended December 31, 2002 Compared to Year Ended December 31, 2001 Net Revenue.Net revenue increased $39.9 million or 10.1% to $433.5
million during the year ended December 31, 2002 from $393.6 million during the
year ended December 31, 2001. The 2002 increase is primarily attributable to
favorable results from the companys enhanced sales force and increases in the
companys CTI operations and military business. The net revenue increase during 2002 included a combined $37.6 million or
14.0% increase in net revenue from the companys Core Infusion Therapies. Also
included in the 2002 consolidated net revenue increase is a $4.2 million
improvement (approximately 3.8%) in the companys non-core infusion therapies.
Enteral nutrition provided approximately 5.1% of the companys consolidated net
revenue during the year ended December 31, 2002; however, no other individual
non-core therapy represented more than 5% of the companys net revenue during
the years ended December 31, 2002 or 2001. The companys Core Infusion
Therapies and non-core infusion therapies aggregated approximately 96% of net
revenue during both such periods. Additionally, the company experienced 2002
net revenue growth of approximately $1.1 million from its CTI operations. Such
net revenue increases were partially offset by adverse changes in the average
wholesale price (AWP) reimbursement rates for certain antibiotic and
anti-infective drugs, as further discussed below. Effective July 1, 2001, the AWP reimbursement rates for a certain brand of
the antibiotic drug Vancomycin and four other anti-infective drugs were
permanently reduced. Net revenue related to these drugs decreased $3.9 million
or 33.3% to $7.8 million during the year ended December 31, 2002 from $11.7
million during the year ended December 31, 2001. The net revenue reduction
included an unfavorable pricing variance of $6.5 million related to the adverse
AWP reimbursement rate changes, which was offset by an increase in volume
relating to such drugs. See Risk Factors for further AWP reimbursement rate
discussion. During the years ended December 31, 2002 and 2001, approximately $32.6
million and $24.0 million, respectively, of the companys consolidated net
revenue related to the Health Net Contract. See Note 2 to the companys
Consolidated Financial Statements for further details. As discussed above under Net Revenue for the years ended December 31, 2003
and 2002, certain provider contracts were recently terminated by a national
health insurance carrier. During the years ended December 31, 2002 and 2001,
the terminated contracts represented approximately $13.0 million and $10.0
million, respectively, of the companys consolidated net revenue. Moreover,
during the years ended December 31, 2002 and 2001, all provider contracts under
this national health insurance carrier represented approximately $18.3 million
and $17.1 million, respectively, of the companys consolidated net revenue.
See Note 2 to the companys Consolidated Financial Statements for further
details. Gross Profit.Gross profit increased $9.7 million to $124.1 million or a
gross margin of 28.6% during the year ended December 31, 2002 from $114.4
million or a gross margin of 29.1% during the year ended December 31, 2001. The
company experienced favorable trended results during the year ended December
31, 2002 from a larger proportion of anti-infective therapies in the companys
therapy mix (such therapies generally have a lower product cost as a percentage
of net revenue than the other Core Infusion Therapies), favorable pricing
changes in the products related to the companys IVIG therapies and favorable
changes in the companys overall payer mix. 39




---



##### Table of Contents



The favorable gross margin trends were offset by a larger proportion of
Factor therapies in the companys therapy mix, which generally have a higher
product cost as a percentage of net revenue than the other Core Infusion
Therapies. Also adversely impacting the gross margin percentage were AWP
reimbursement rate reductions for Vancomycin and certain other drugs used in
the companys operations. Further adversely impacting the 2002 gross margin
trend were incremental increases in nursing and pharmacy salaries and related
contract labor that were precipitated by an overall labor shortage. Selling, General and Administrative (SG&A) Expenses.SG&A expenses
increased $7.5 million or 8.9% to $91.3 million during the year ended December
31, 2002 from $83.8 million during the year ended December 31, 2001. During
the years ended December 31, 2002 and 2001, compensation and consulting
expenses of approximately $2.9 million and $1.9 million, respectively, were
incurred to improve and enhance the companys information systems.
Furthermore, in connection with the implementation of the new information
systems, the company recognized increased depreciation and amortization costs
of approximately $1.5 million during the year ended December 31, 2002. The
company also incurred incremental costs of $2.8 million to enhance its sales
and marketing force and $0.7 million in reimbursement costs during the year
ended December 31, 2002. The increase in SG&A expenses also includes a $1.0
million increase in legal fees relating to certain ongoing litigation and an
increase of $0.5 million related to insurance premium increases for directors
and officers insurance. Additionally, to enhance its information technology
infrastructure and to further support its sales and marketing strategies, the
companys corporate expenses increased approximately $1.1 million during the
year ended December 31, 2002. See Note 14 to the companys Consolidated
Financial Statements for further details of the companys litigation matters. Offsetting the above expense increases were a $0.4 million decrease in
expenses related to management incentive compensation and a $1.5 million
decrease in amortization expense related to the companys commercial payer
contracts intangible asset, which became fully amortized during the year ended
December 31, 2002. SG&A expenses for the year ended December 31, 2001 were
adversely impacted by certain costs necessary to move the companys corporate
headquarters. In addition to the aforementioned changes, the company experienced an
overall increase in SG&A expenses attributable to revenue growth and inflation. Provision for Estimated Uncollectible Accounts.The provision for
estimated uncollectible accounts was $15.9 million or 3.7% of net revenue
during the year ended December 31, 2002, compared to $17.5 million or 4.4% of
net revenue during the year ended December 31, 2001. The percentage decrease
is primarily due to increased collection efforts and the corresponding
realization of certain amounts previously deemed to be uncollectible. Certain
critical management action plans initiated during 2001 and continued in 2002
were designed to (i) enhance timely reimbursement by emphasizing improved
billing and cash collection methods, (ii) continue the assessment of systems
support for reimbursement personnel and (iii) concentrate the companys
expertise and managerial resources into the most affected reimbursement
locations. In 2001, the companys provision for estimated uncollectible
accounts as a percentage of net revenue was higher due to deterioration in cash
collections and accounts receivable related to the consolidation of several of
the companys infusion business Patient Financial Service Centers
(reimbursement sites). Such consolidation took place during the first and
second quarters of 2001. Moreover, during 2001 the company experienced poor
cash collections in its respiratory therapy services and related equipment and
durable medical equipment operations and correspondingly higher write-offs,
including a contract dispute with an HMO plan resulting in approximately $0.6
million in bad debt expense. Amortization of Goodwill.Effective January 1, 2002, the company adopted
Statement 142, which discontinued the amortization of goodwill and intangible
assets with indefinite useful lives. See Note 7 to the companys
Consolidated Financial Statements for further details. Restructuring Cost Recoveries.During the year ended December 31, 2002,
the company recognized restructuring cost recoveries of $0.1 million related to
certain new functionality of space that was previously deemed to be idle and/or
excess and the early termination of a lease. The year ended December 31, 2001
included the recognition of $0.7 million in restructuring cost recoveries
related to the assumption of one the companys real property leases by a third
party and certain changes in estimates attributable to severance liabilities.
The aforementioned items were previously included as part of the companys
accrued merger and restructuring costs. See Note 5 to the companys
Consolidated Financial Statements for further details. Charges for Impairments of Goodwill and Other Long-Lived Assets.During
the year ended December 31, 2002, the company recognized an impairment of
goodwill and other long-lived assets (exclusively goodwill) of approximately
$51.8 million in accordance with the provisions of Statement 142. Such
impairment charge was principally due to unfavorable conditions and trends
prevalent in the public equity markets throughout 2002 and the corresponding
adverse impact on the companys underlying enterprise value. During the year
ended December 31, 2001, the company recognized an impairment of goodwill and
other long-lived assets 40




---



##### Table of Contents



(primarily goodwill) of $3.3 million. The 2001
impairment charges primarily resulted from recurring operating losses or
substandard performance at the branches to which the associated goodwill and
other long-lived assets related. See Note 7 to the companys Consolidated
Financial Statements for further details. Interest Income.Interest income decreased $0.8 million to $0.4 million
during the year ended December 31, 2002 from $1.2 million during the year ended
December 31, 2001, principally reflecting lower available returns on overnight
cash investments and a greater interest income allocation to reorganization
costs. Interest Expense.Interest expense decreased $5.1 million to $1.6 million
during the year ended December 31, 2002 from $6.7 million during the year ended
December 31, 2001. Both periods primarily reflect the recognition of interest
expense on the then proposed settlement of a dispute with the Internal Revenue
Service, which is more fully described in Note 10 to the companys Consolidated
Financial Statements. Moreover, during the year ended December 31, 2001
changes in estimates related to the aggregate cumulative interest on the then
proposed settlement with the Internal Revenue Service were recognized,
resulting in $4.5 million of incremental interest expense. In addition, during
2001 the company recognized approximately $0.5 million of interest expense
related to its debtor-in-possession financing agreement. Both periods also
reflect the non-recognition of interest expense related to the Series A Notes
and the Series B Notes subsequent to the execution of debt-for-equity exchange
agreements on December 29, 2000 and December 31, 2001, which qualified as
troubled debt restructurings. See Notes 8 and 12 to the companys Consolidated
Financial Statements for further details. Equity in Net Income of Unconsolidated Joint Ventures.Equity in net
income of unconsolidated joint ventures increased $0.8 million to $1.5 million
in 2002 from $0.7 million in 2001. The increase was primarily
due to improved profitability of certain unconsolidated joint ventures in
the Illinois, Missouri and Wisconsin marketplaces. Additionally, one of Corams unconsolidated California partnerships
derived approximately 45.7% and 25.9% of its net revenue during the years ended
December 31, 2002 and 2001, respectively, from services provided under the
Health Net Contract. See Note 2 to the companys Consolidated Financial
Statements for further details. Gain on Sale of Business.During January 2002, the company finalized the
sale of a respiratory and durable medical equipment business located in New
Orleans, Louisiana to a third party, which resulted in a nominal gain. See
Note 3 to the companys Consolidated Financial Statements for further details. Other Income, Net.During the year ended December 31, 2002, the company
recognized $1.0 million in other income, compared to $0.1 million during the
year ended December 31, 2001. During 2002, the company recorded approximately
$1.0 million of other income from the recognition of the net realizable value
of an escrow deposit that related to certain 1997 dispositions of lithotripsy
partnerships. The company, with approvals from the Chapter 11 trustee and the
Bankruptcy Court, entered into a settlement agreement whereby the
aforementioned escrow deposit was realized by the company in October 2002. Reorganization Expenses, Net.During the years ended December 31, 2002
and 2001, the company recognized $4.3 million and $14.4 million, respectively,
in net reorganization expenses related to the Bankruptcy Cases. These expenses
include, but are not limited to, professional fees, plan of reorganization
mailing/distribution costs, expenses related to key employee retention plans,
Office of the United States Trustee fees and other expenditures during the
Bankruptcy Cases, offset by interest earned on accumulated cash due to the
Debtors not paying their liabilities subject to compromise. The significantly
larger expense during 2001 included $1.8 million accrued by the Debtors under
key employee retention plans, whereas a nominal expense reversal (attributable
to an employee termination prior to the completion of the requisite retention
service period) was recognized during 2002. Moreover, the company recorded
$4.7 million and $12.8 million of bankruptcy-related professional fees and
reimbursable expenses during the years ended December 31, 2002 and 2001,
respectively. Additionally, during the year ended December 31, 2001,
approximately $0.2 million in mailing/distribution costs were recognized in
connection with the distribution of a proposed plan of reorganization whereas
no such amount was in evidence during 2002. See Note 3 to the companys
Consolidated Financial Statements for further details. Income Tax Expense.See Note 10 to the companys Consolidated Financial
Statements for discussion of variances between income taxes
calculated at the federal statutory rate and income tax expense
recognized by the company. Loss from Disposal of Discontinued Operations.During the years ended
December 31, 2002 and 2001, the company recorded $0.7 million and $0.3 million,
respectively, of losses from disposal of discontinued operations. Such amounts
represent legal costs for certain litigation between the R-Net Creditors
Committee and the Debtors and several of their non-debtor subsidiaries, as well
as legal costs associated with corresponding indemnifications provided to the
companys officers and directors in the Resource Network 41




---



##### Table of Contents



Subsidiaries bankruptcy proceedings/litigation. See Notes 4 and 14 to the companys
Consolidated Financial Statements for further details. Extraordinary Gains on Troubled Debt Restructurings.With approval from
the Bankruptcy Court, the Debtors exchanged debt and related interest for
equity in the form of Coram, Inc. Series B Cumulative Preferred Stock and, as a
result, recognized an extraordinary gain on troubled debt restructuring of
approximately $123.5 million during the year ended December 31, 2002. During
the year ended December 31, 2001, the Debtors obtained approval from the
Bankruptcy Court and exchanged debt and related interest for equity in the form
of Coram, Inc. Series A Cumulative Preferred Stock. Such exchange resulted in
the recognition of an extraordinary gain on troubled debt restructuring of
approximately $20.7 million in 2001. See Notes 8 and 12 to the companys
Consolidated Financial Statements for further details. Cumulative Effect of a Change in Accounting Principle.Effective January
1, 2002, the company recognized a transitional goodwill impairment charge of
approximately $71.9 million related to the adoption of Statement 142. In
accordance with the underlying provisions of such accounting pronouncement, the
charge was recorded in the companys Consolidated Financial Statements as a
cumulative effect of a change in accounting principle. See Note 7 to the
companys Consolidated Financial Statements for further details. 42




---



##### Table of Contents



Quarterly Results (unaudited) The following summarizes selected quarterly financial information with
respect to the companys operations for the last eight fiscal quarters. Amounts
are in thousands, except per share data. 2003 Quarter Ended
    
    2002 Quarter EndedDec. 31
    
    Sept. 30
    
    June 30
    
    March 31
    
    Dec. 31
    
    Sept. 30
    
    June 30
    
    March 31Net revenue
    
    $
    119,737
    
    
    $
    123,318
    
    
    $
    120,345
    
    
    $
    113,096
    
    
    $
    115,135
    
    
    $
    107,922
    
    
    $
    108,431
    
    
    $
    101,982Cost of service
    
    
    87,521
    
    
    
    86,313
    
    
    
    84,488
    
    
    
    86,034
    
    
    
    80,160
    
    
    
    77,749
    
    
    
    77,128
    
    
    
    74,301Gross profit
    
    
    32,216
    
    
    
    37,005
    
    
    
    35,857
    
    
    
    27,062
    
    
    
    34,975
    
    
    
    30,173
    
    
    
    31,303
    
    
    
    27,681Operating expenses:Selling, general and administrative expenses
    
    
    23,167
    
    
    
    24,170
    
    
    
    23,011
    
    
    
    23,007
    
    
    
    27,292
    
    
    
    21,689
    
    
    
    21,303
    
    
    
    21,020Provision for estimated uncollectible accounts
    
    
    7,425
    
    
    
    4,642
    
    
    
    4,229
    
    
    
    3,517
    
    
    
    2,536
    
    
    
    5,131
    
    
    
    5,102
    
    
    
    3,118Restructuring cost recoveries
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100
    )
    
    
    
    
    
    
    (13
    )Charge for impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,783
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    30,592
    
    
    
    28,773
    
    
    
    27,240
    
    
    
    26,524
    
    
    
    81,611
    
    
    
    26,720
    
    
    
    26,405
    
    
    
    24,125Operating income (loss) from continuing operations
    
    
    1,624
    
    
    
    8,232
    
    
    
    8,617
    
    
    
    538
    
    
    
    (46,636
    )
    
    
    3,453
    
    
    
    4,898
    
    
    
    3,556Other income (expenses):Interest income
    
    
    64
    
    
    
    71
    
    
    
    115
    
    
    
    79
    
    
    
    130
    
    
    
    97
    
    
    
    124
    
    
    
    85Interest expense
    
    
    (350
    )
    
    
    (632
    )
    
    
    (368
    )
    
    
    (342
    )
    
    
    (401
    )
    
    
    (404
    )
    
    
    (396
    )
    
    
    (365
    )Equity in net income of unconsolidated joint ventures
    
    
    139
    
    
    
    458
    
    
    
    365
    
    
    
    234
    
    
    
    472
    
    
    
    394
    
    
    
    251
    
    
    
    387Gain on sale of business
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46Gains (losses) on dispositions of property and
equipment, net
    
    
    (11
    )
    
    
    2
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    1
    
    
    
    3
    
    
    
    Other income (expense), net
    
    
    11
    
    
    
    (451
    )
    
    
    (3
    )
    
    
    
    
    
    
    1
    
    
    
    6
    
    
    
    984
    
    
    
    12Income (loss) from continuing operations before
reorganization expenses, income taxes, minority
interests, extraordinary gain on troubled debt
restructuring and the cumulative effect of a change
in accounting principle
    
    
    1,477
    
    
    
    7,680
    
    
    
    8,726
    
    
    
    508
    
    
    
    (46,435
    )
    
    
    3,547
    
    
    
    5,864
    
    
    
    3,721Reorganization expenses, net
    
    
    4,423
    
    
    
    5,355
    
    
    
    4,115
    
    
    
    1,762
    
    
    
    895
    
    
    
    847
    
    
    
    523
    
    
    
    2,010Income (loss) from continuing operations before
income taxes, minority interests, extraordinary
gain on troubled debt restructuring and the cumulative
effect of a change in accounting principle
    
    
    (2,946
    )
    
    
    2,325
    
    
    
    4,611
    
    
    
    (1,254
    )
    
    
    (47,330
    )
    
    
    2,700
    
    
    
    5,341
    
    
    
    1,711Income tax expense
    
    
    173
    
    
    
    1
    
    
    
    36
    
    
    
    35
    
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    38Minority interests in net income of consolidated
joint ventures
    
    
    271
    
    
    
    158
    
    
    
    169
    
    
    
    133
    
    
    
    212
    
    
    
    177
    
    
    
    152
    
    
    
    223Income (loss) from continuing operations before
extraordinary gain on troubled debt restructuring and
the cumulative effect of a change in accounting principle
    
    
    (3,390
    )
    
    
    2,166
    
    
    
    4,406
    
    
    
    (1,422
    )
    
    
    (47,542
    )
    
    
    2,490
    
    
    
    5,189
    
    
    
    1,450Income (loss) from disposal of discontinued operations
    
    
    13
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (97
    )
    
    
    (155
    )
    
    
    (530
    )
    
    
    
    
    
    
    Income (loss) before extraordinary gain on troubled debt
restructuring and the cumulative effect of a change in
accounting principle
    
    
    (3,377
    )
    
    
    2,164
    
    
    
    4,404
    
    
    
    (1,519
    )
    
    
    (47,697
    )
    
    
    1,960
    
    
    
    5,189
    
    
    
    1,450Extraordinary gain on troubled debt restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    123,517
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,902
    )Net income (loss)
    
    $
    (3,377
    )
    
    $
    2,164
    
    
    $
    4,404
    
    
    $
    (1,519
    )
    
    $
    75,820
    
    
    $
    1,960
    
    
    $
    5,189
    
    
    $
    (70,452
    )Income (Loss) Per Common Share (1)Basic and diluted:Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    (0.03
    )
    
    $
    (0.96
    )
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    0.03Loss from disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    Extraordinary gain on troubled debt restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.49
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.45
    )Net income (loss) per common share
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    (0.03
    )
    
    $
    1.53
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    (1.42
    )
 (1) For each of the periods presented in the above table, the incremental
common stock equivalents utilized to calculate diluted income (loss) per common
share were nominal or the effect of utilizing common stock equivalents was
anti-dilutive. Accordingly, basic and diluted income (loss) per common share
were the same for each of the periods presented. The quarterly results have historically varied based upon unusual and
infrequently occurring charges. See Note 16 to the companys Consolidated
Financial Statements for further details. 43




---



##### Table of Contents



Liquidity and Capital Resources Bankruptcy Proceedings.The Debtors commenced the Bankruptcy Cases by
filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code
on August 8, 2000. Following the commencement of the Bankruptcy Cases, the
Debtors operated as debtors-in-possession subject to the jurisdiction of the
Bankruptcy Court; however, a Chapter 11 trustee was appointed by the Bankruptcy
Court on March 7, 2002. With the appointment of a Chapter 11 trustee, while
still under the jurisdiction of the Bankruptcy Court, the Debtors are no longer
debtors-in-possession. None of CHCs other subsidiaries is a debtor in the
Bankruptcy Cases and, other than Resource Network Subsidiaries, none of CHCs
other subsidiaries is a debtor in any bankruptcy case. Although the filing of
the Bankruptcy Cases constitutes an event of default under the companys
principal debt instruments, Section 362 of Chapter 11 of the Bankruptcy Code
imposes an automatic stay that will generally preclude creditors and other
interested parties under such arrangements from taking remedial action in
response to any such default without prior Bankruptcy Court approval. In
addition, the Debtors may reject executory contracts and unexpired leases of
non-residential real property. Parties affected by such rejections may file
claims with the Bankruptcy Court in accordance with the provisions of Chapter
11 of the Bankruptcy Code and applicable rules. See Note 3 to the companys
Consolidated Financial Statements for further details. Schedules were filed with the Bankruptcy Court setting forth the assets
and liabilities of the Debtors as of the filing date as shown by the Debtors
accounting records. Amended schedules, which identified the Debtors remaining
outstanding pre-petition liabilities, were filed with the Bankruptcy Court on
August 28, 2003. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. If, upon such
investigation and/or resolution, it is determined that the amounts shown by the
Debtors need to be modified, the companys consolidated financial statements
are adjusted accordingly. The ultimate amount and the settlement terms for all
the liabilities subject to compromise will be subject to a plan or plans of
reorganization and review by the Chapter 11 trustee. Therefore, it is not
possible to fully or completely estimate the fair value of the liabilities
subject to compromise at December 31, 2003 and 2002 due to the Bankruptcy Cases
and the uncertainty surrounding the ultimate amount and settlement terms for
such liabilities. Credit Facilities, Letters of Credit and Other Debt Obligations.During
the year ended December 31, 2003 and through April 9, 2004, the company was not
a party to any revolving credit, line of credit or similar borrowing facility.
Due to the pendency of the Bankruptcy Cases, the companys ability to borrow or
otherwise enter into new post-petition credit facilities is limited. Moreover,
any new credit facility would require approvals of the Chapter 11 trustee and
the Bankruptcy Court. The table below summarizes the companys debt, income tax settlement,
lease and purchase obligations for the years ending December 31 (in thousands).
See Notes 8, 9, 10 and 14 to the companys Consolidated Financial Statements
and Item 1. Business: Customers and Suppliers for further details regarding
such matters. The company intends to finance such obligations with available
cash balances and cash provided by operations. Totals
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    ThereafterSeries B Notes in default (1)
    
    $
    9,000
    
    
    $
    9,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Income tax settlement (1)
    
    
    19,970
    
    
    
    4,355
    
    
    
    1,767
    
    
    
    1,905
    
    
    
    2,053
    
    
    
    2,211
    
    
    
    7,679Capital leases, excluding interest (1)
    
    
    2,666
    
    
    
    1,052
    
    
    
    826
    
    
    
    436
    
    
    
    160
    
    
    
    192
    
    
    
    Other long-term debt (1)
    
    
    1,382
    
    
    
    790
    
    
    
    592
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating leases (2)
    
    
    31,688
    
    
    
    9,565
    
    
    
    7,762
    
    
    
    5,340
    
    
    
    4,102
    
    
    
    3,001
    
    
    
    1,918Purchase obligations, including $2,768
of open purchase orders (2)
    
    
    102,623
    
    
    
    49,423
    
    
    
    41,713
    
    
    
    3,606
    
    
    
    3,682
    
    
    
    3,615
    
    
    
    584Totals
    
    $
    167,329
    
    
    $
    74,185
    
    
    $
    52,660
    
    
    $
    11,287
    
    
    $
    9,997
    
    
    $
    9,019
    
    
    $
    10,181
  (1)
    
    Reflected in the companys Consolidated Balance Sheets.(2)
    
    Not reflected in the companys Consolidated Balance Sheets. The companys Series B Notes were not paid on their June 30, 2003
scheduled maturity date; however, the noteholders are stayed from pursuing any
remedies without prior authorization by the Bankruptcy Court. See Note 8 to
the companys Consolidated 44




---



##### Table of Contents



Financial Statements for further details. Payment of the Series B Notes and $130,000 of other long-term debt obligations will
require approvals of both the Chapter 11 trustee and the Bankruptcy Court
because such amounts represent pre-petition liabilities. See Note 14 to the companys Consolidated Financial Statements for details
regarding projected purchase commitment shortfalls in connection with certain
of the companys long-term purchase obligations. In February 2001, pursuant to an order of the Bankruptcy Court, the
company established irrevocable letters of credit through Wells Fargo Bank
Minnesota, NA (Wells Fargo), an affiliate of Foothill Capital Corporation (a
party to the former Senior Credit Facility, the Securities Exchange Agreement
and a holder of certain preferred stock issued by Coram, Inc.). At April 9,
2004, the company had one letter of credit for approximately $0.3 million that
matures on December 31, 2004 and is fully secured by interest-bearing cash
deposits held by Wells Fargo. Due to the pendency of the Bankruptcy Cases and
the possibility of drug and supply shortages in the future, the company may be
required to establish new letters of credit in order to ensure the availability
of products for its patients medical needs. Cash and Cash Equivalents.Cash and cash equivalents increased $7.8
million to $38.4 million at December 31, 2003 compared to $30.6 million at
December 31, 2002. Net cash provided by operating activities was approximately $14.3 million
and $14.4 million for the years ended December 31, 2003 and 2002, respectively.
The significant components of the operating cash flows are as follows (in
thousands): Years Ended December 31,2003
    
    2002Continuing operations after non-cash charges and
before gain on sale of business
    
    $
    44,181
    
    
    $
    42,605Changes in operating assets and liabilities, net:Accounts receivable
    
    
    (23,935
    )
    
    
    (30,818
    )Prepaid expenses, inventories and other assets
    
    
    543
    
    
    
    1,768Current and other liabilities
    
    
    7,931
    
    
    
    6,118Cash basis restructuring costs
    
    
    (96
    )
    
    
    (280
    )Cash used by reorganization items, net
    
    
    (14,669
    )
    
    
    (5,195
    )Miscellaneous
    
    
    336
    
    
    
    168Net cash provided by continuing operations,
net of reorganization items
    
    $
    14,291
    
    
    $
    14,366
  (i)
    
    Continuing Operations After Non-Cash Charges and Before Gain on Sale
of Business.During the years ended December 31, 2003 and 2002,
continuing operations provided cash of approximately $44.2 million and
$42.6 million, respectively. The increase of approximately $1.6 million
is primarily due to greater profitability from continuing operations,
which primarily relates to managements continued focus on the companys
core infusion therapy mix (wherein the company achieves a higher gross
margin percentage) and more efficient utilization of the companys
resources toward profit generation. Partially offsetting the aforementioned favorable trend
were (i) a 2003 expense of approximately $3.4 million for the purchase
of a malpractice insurance tail policy, (ii) increased cash requirements
for nursing and pharmacy salaries and related contract labor that were
precipitated by an overall labor shortage, (iii) increased health and
welfare and risk insurance costs and (iv) expenditures related to the
implementation of SoluNets developmental business plan, including
significant start-up costs.(ii)
    
    Accounts Receivable.During the years ended December 31, 2003 and
2002, accounts receivable utilized cash of approximately $23.9 million
and $30.8 million, respectively. The use of cash during 2003 primarily
related to a 9.9% growth in consolidated net revenue during such year.
Additionally, during the year ended December 31, 2003 the company
continued to experience delayed cash collections from Medicaid and
certain large commercial payers, which caused deteriorations in aged
accounts receivable for those payers. However, these unfavorable payer
results were mitigated by improvements in the companys Medicare cash
collections. Additionally, during the year ended December 31, 2003, the
company realized $1.2 million in recoveries from commercial payer
settlements (see Note 2 to the companys Consolidated Financial
Statements for further details). The use of cash during 2002 primarily
related to a 10.1% growth in net revenue compared to 2001, as well as
deteriorations in account receivable from Medicare, Medicaid and certain
large commercial payers during that year. 45




---



##### Table of Contents



(iii)
    
    Prepaid Expenses, Inventories and Other Assets.During the years
ended December 31, 2003 and 2002, prepaid expenses, inventories and
other assets provided cash of approximately $0.5 million and $1.8
million, respectively. The 2003 amount principally relates to a decrease
in vendor rebates receivable as a result of certain 2003 contract
modifications whereby the company collected such rebates on an expedited
basis. This favorable result was partially offset by an increase in
amounts receivable from non-consolidated joint ventures and partnerships
as a result of their collective unfavorable 2003 operating results
compared to 2002 and the corresponding deterioration in related joint
venture/partnership cash collections by the company. The 2002 amount
was primarily attributable to decreases in inventories and amounts
receivable from non-consolidated joint ventures and partnerships.(iv)
    
    Current and Other Liabilities.Included in current and other
liabilities are amounts attributable to interest on a settlement with
the Internal Revenue Service and management incentive compensation
accruals (reversals) aggregating approximately $0.2 million and $4.0
million for 2003 and 2002, respectively. After removing the effects of
these items, current and other liabilities for the years ended December
31, 2003 and December 31, 2002 provided cash of approximately $7.7
million and $2.1 million, respectively. The adjusted 2003 amount
principally relates to (i) an increase in other current and accrued
liabilities, including incremental adjustments recorded in connection
with certain ongoing regulatory audits and reviews (see Note 14 to the
companys Consolidated Financial Statements for further details), (ii)
an increase in accounts payable attributable to the companys increased
business, (iii) an increase in health and welfare liabilities in
connection with rising costs and (iv) increased accrued legal fees in
connection with certain ongoing litigation (see Note 14 to the companys
Consolidated Financial Statements for further details of the companys
litigation matters). The adjusted 2002 amount principally related to an
increase in accounts payable during that year.(v)
    
    Cash Basis Restructuring Costs.Net cash used for restructuring costs
was approximately $0.1 million and $0.3 million for the years ended
December 31, 2003 and 2002, respectively. The decrease in cash
expenditures is primarily due to the expiration of certain of the
companys real property leases during 2003.(vi)
    
    Operating Cash Flows Used By Reorganization Items.Net cash used for
reorganization items was approximately $14.7 million and $5.2 million
during the years ended December 31, 2003 and 2002, respectively. These
expenditures include, but are not limited to, professional fees, plan of
reorganization mailing/distribution costs, a key employee retention
plan, Office of the United States Trustee fees and other expenditures
during the Bankruptcy Cases, offset by interest earned on accumulated
cash due to the Debtors not paying their liabilities subject to
compromise during the pendency of the Bankruptcy Cases. The principal
reasons for the increased cash expenditures during 2003 were (i)
approvals by the Chapter 11 trustee and the Bankruptcy Court to pay
certain previously deferred interim professional fee applications, (ii)
an increased level of legal and financial advisory activities related to
the proposed competing plans of reorganization submitted by the Chapter
11 trustee and the Equity Committee, (iii) the 2003 Key Employee
Retention Plan and (iv) mailing/distribution costs for the competing
plans of reorganization. See Note 3 to the companys Consolidated
Financial Statements for further details. Net cash used in investing activities was approximately $5.8 million and
$4.4 million for the years ended December 31, 2003 and 2002, respectively.
During both years, cash used in investing activities was primarily due to
purchases of property and equipment. The principal components of the companys
cash-basis property and equipment acquisitions during the years ended December
31, 2003 and 2002 are as follows (in thousands): 2003
    
    2002B. Braun Medical, Inc. Vista Basic Pumps
    
    $
    1,348
    
    
    $
    Data center build-out in Mount Prospect, Illinois
    
    
    1,183
    
    
    
    Branch openings/relocations
    
    
    575
    
    
    
    227Company-wide information system upgrades
    
    
    287
    
    
    
    1,489Other purchases in the normal course of business.
    
    
    2,384
    
    
    
    2,802Totals
    
    $
    5,777
    
    
    $
    4,518
 Partially offsetting the 2002 cash used in investing activities was the
receipt of approximately $0.1 million related to the sale of a respiratory and
durable medical equipment business located in New Orleans, Louisiana. Net cash used in financing activities was approximately $0.5 million
during both of the years ended December 31, 2003 and 2002. For 2003, cash used
in financing activities included principal debt repayments of $0.4 million,
capital lease payments of $0.1 million 46




---



##### Table of Contents



and cash distributions paid to minority
interests of $0.5 million. Such uses of cash were offset by proceeds of $0.5
million related to refunds of deposits to collateralize the companys letters
of credit. For 2002, cash used in financing activities included principal debt
repayments of $0.1 million and cash distributions paid to minority interests of
$0.8 million. Such uses of cash were offset by proceeds of $0.4 million related
to refunds of deposits to collateralize the companys letters of credit. Working capital increased approximately $1.7 million to $67.3 million at
December 31, 2003 from $65.6 million at December 31, 2002. The change
in working capital is due to (i) a $7.9 million increase in cash and
cash equivalents, (ii) a $4.1 million increase in net accounts receivable,
(iii) a $0.2 million increase in other current assets, (iv) a $0.4 million
decrease in inventories, (v) a $0.6 million increase in current
maturities of long-term debt, (vi) a $1.0 million increase in accrued
reorganization costs, (vii) a $1.0 million increase in current portion of
capital lease obligations, (viii) a $1.2 million increase in accounts payable,
(ix) a $1.2 million increase in the current portion of an income tax settlement
(see Note 10 to the companys Consolidated Financial Services for further
details of the income tax settlement), (x) a $1.2 million increase in current
liabilities subject to compromise and (xi) a $3.9 million increase in other
current and accrued liabilities. General.The companys Consolidated Financial Statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Bankruptcy Cases and circumstances
relating thereto, including the companys leveraged financial structure and
cumulative losses from operations, such realization of assets and liquidation
of liabilities are subject to significant uncertainty. During the pendency of
the Bankruptcy Cases, the company may sell or otherwise dispose of assets and
liquidate or settle liabilities for amounts other than those reflected in the
Consolidated Financial Statements. Furthermore, a plan or plans of
reorganization could materially change the amounts reported in the Consolidated
Financial Statements, which do not give effect to any adjustments of the
carrying value of assets or liabilities that might be necessary as a
consequence of a plan or plans of reorganization (see Note 3 to the companys
Consolidated Financial Statements for further details). The companys ability
to continue as a going concern is dependent upon, among other things,
confirmation of a plan or plans of reorganization, future profitable
operations, the ability to comply with the terms and conditions of the
companys financing agreements, the ability to fund a settlement with the
Internal Revenue Service, the ability to remain in compliance with the
physician ownership and referral provisions of the Omnibus Budget
Reconciliation Act of 1993 (commonly known as Stark II) and the ability to
generate sufficient cash from operations and/or financing arrangements to meet
its obligations and capital asset expenditure requirements. Management believes that the overall costs for the Bankruptcy Cases will
result in a significant use of cash for the year ending December 31, 2004 and
thereafter. These costs principally consist of professional fees and expenses.
Management believes that such costs, when authorized for payment by the Chapter
11 trustee and the Bankruptcy Court, will be funded through available cash
balances and cash provided by operations. Management cannot predict whether any future actions and/or objections of
the Equity Committee or any other interested parties in the Bankruptcy Cases
will be forthcoming. Outcomes unfavorable to the company or additional
unforeseen activity could require the company to access significant additional
funds. See Notes 3 and 14 to the companys Consolidated Financial Statements
for further details. The company sponsored a Management Incentive Plan (MIP), which provided
for annual bonuses payable to certain key employees. The bonuses were
predicated on overall corporate performance (principally sales of the companys
core infusion therapies, cash collections and earnings before interest expense,
income taxes, reorganization expenses, restructuring costs, depreciation and
amortization and certain other non-recurring items), as well as individual
performance targets and objectives. Pursuant to the terms of their employment
contracts, Daniel D. Crowley, the companys former Chairman of the Board of
Directors, Chief Executive Officer and President, and Allen J. Marabito, the
companys Executive Vice President, maintain contractual claims to receive
unpaid MIP amounts aggregating approximately $13.8 million and $0.4 million,
respectively, for certain periods through December 31, 2002. Payments of (i)
the aforementioned MIP amounts for Messrs. Crowley and Marabito, (ii) $0.8
million claimed by Mr. Crowley from the first key employee retention plan and
(iii) a $1.8 million refinancing success bonus claimed by Mr. Crowley remain
subject to approvals by the Bankruptcy Court and the Chapter 11 trustee.
However, the Trustees Plan, as modified, proposes to reject Mr.
Crowleys employment agreement, which expired by its own terms on March
31, 2003. If these claims are ultimately granted, the company intends to fund
such amounts with available cash balances and cash provided by operations. On January 14, 2003, the Equity Committee filed a motion with the
Bankruptcy Court seeking an order to (i) immediately terminate Mr. Crowleys
employment with the Debtors and remove him from all involvement in the Debtors
affairs, (ii) terminate all consulting arrangements between the Debtors and
Dynamic Healthcare Solutions, LLC (DHS), a privately held management
consulting and investment firm owned by Mr. Crowley (see Note 11 to the
companys Consolidated Financial Statements for further 47




---



##### Table of Contents



details), (iii)
substantially terminate all future payments to Mr. Crowley and DHS and (iv)
require Mr. Crowley and DHS to return all payments received to date, except as
otherwise authorized by the Bankruptcy Court as administrative claims. On
March 26, 2003, the Bankruptcy Court entered an order denying the Equity
Committees motion to terminate Mr. Crowleys employment as moot and reserved
its decision on the other relief requested, including disgorgement, until
future litigation, if any, arises. In recent years, the company experienced significant increases in
insurance premiums for its Directors and Officers (D&O), General and
Professional Liability (GLPL) and certain other risk management insurance
policies. During 2003, pursuant to an order previously entered by the
Bankruptcy Court, the Debtors entered into an insurance premium financing
agreement with Imperial Premium Finance, Inc. to finance the premiums under
certain insurance policies. The final payment under this financing arrangement
was made in November 2003. The company generally funds its insurance premiums
and/or related financing agreements with available cash balances and cash
provided by operations. Although no assurances can be given that management
will successfully negotiate another financing agreement or that the Chapter 11
trustee will approve such an arrangement for 2004, management projects that the
company will enter into another insurance premium financing agreement in April
or May of 2004. Additionally, no assurances can be given that the company will
be able to obtain and/or maintain adequate D&O, GLPL and certain other
insurance policies in future periods. In the event that the company is unable
to obtain and/or maintain such insurance at a price that is economically
viable, there could be a material adverse effect on the companys operations
and liquidity. The liquidation of the Resource Network Subsidiaries through their
bankruptcy proceedings may result in certain additional cash expenditures by
the company. Although no assurances can be given, after considering the R-Net
Creditors Committees confirmed plan of liquidation under Chapter 11 of the
Bankruptcy Code, management does not expect that such additional cash
expenditures, if any, will be material to the financial condition or cash flows
of the company. See Notes 4 and 14 to the companys Consolidated Financial
Statements for further details. In November 2001, the R-Net Creditors Committee brought an adversary
proceeding in the Bankruptcy Court, both on its own behalf and as assignee for
causes of action that may belong to the Resource Network Subsidiaries, against
the Debtors, several non-debtor subsidiaries, a former director, several
current and former executive officers and employees of the company and the
companys principal lenders. The complaint alleges that the defendants violated
various state and federal laws in connection with alleged wrongdoings related
to the operation and corporate structure of the Resource Network Subsidiaries.
Coram notified its insurance carrier of the complaint and intends to avail
itself of any insurance coverage for its directors and officers. See Note 14
to the companys Consolidated Financial Statements for further details. The Trustees Plan, as modified, proposes resolutions of substantially all
of the Resource Network Subsidiaries matters through the Settlement Agreement
and Mutual Release arrangement (the R-Net Settlement Agreement), which was
executed by the Chapter 11 trustee, the Debtors, the R-Net Creditors
Committee, the Resource Network Subsidiaries and the Resource Network
Subsidiaries Chief Restructuring Officer. Among other things, the R-Net
Settlement Agreement provides for the fixing and allowance of a Resource
Network Subsidiaries general unsecured claim against the Debtors for $7.95
million, plus interest, under certain circumstances, at the applicable federal
judgment rate. The R-Net Settlement Agreement remains subject to, and
contingent upon, Bankruptcy Court approval in the Bankruptcy Cases through
confirmation of the Trustees Plan, as modified. The Equity Committees Plan
provides that the Resource Network Subsidiaries will receive a cash
distribution on the effective date of the Equity Committees Plan of $7.95
million, plus a distribution of 2% of the net recovery from certain litigation
claims to be prosecuted, if any, but not exceeding $6 million. The Chapter 11
trustee and other parties-in-interest have objected to the Equity Committees
Plan because, among other things, they believe such plan improperly classifies
the Resource Network Subsidiaries claim and the contemplated distribution to
the Resource Network Subsidiaries is not fair and equitable. See Note 3 to the
companys Consolidated Financial Statements for further details regarding the
status of the Trustees Plan, as modified, and the Equity Committees Plan
within the Bankruptcy Court confirmation proceedings. Principally due to the Debtors ongoing confirmation hearings, the
ultimate outcome of the Resource Network Subsidiaries matters, including
effectuation of the R-Net Settlement Agreement, cannot be predicted with any
degree of certainty, nor can management predict the scope and nature of any
coverage that the directors and officers may have with the companys insurance
carrier. Through April 9, 2004, the company incurred approximately $1.0
million in legal fees related to the R-Net Creditors Committee litigation,
including legal fees associated with indemnifications of the companys
directors and officers. Management cannot reasonably estimate the ultimate cash
requirements related to the aforementioned matters. Unfavorable outcomes could
have a material adverse effect on the companys business and liquidity. Upon obtaining approvals from the Chapter 11 trustee and the Bankruptcy
Court, the company entered into an agreement with a third party vendor for the
acquisition of a software product to replace its billing, accounts receivable,
clinical and pharmacy systems 48




---



##### Table of Contents



(collectively the Front Office). Management
expects to begin substantive implementation of the Front Office modules during
2004 and project completion is forecasted for late 2005. In addition to the
cost of the Front Office software package, substantial internal and external
costs will be incurred to implement the Front Office software solutions.
Moreover, the company also purchased certain hardware necessary to run the new
information systems; however, supplemental hardware and peripheral equipment
will be required in order to support the new Front Office software. Based upon
current forecasts, management believes that the aggregate cost to implement the
Front Office solutions will range between $13 million and $16 million
(including, but not limited to, software enhancements, hardware, Coram
personnel time and expenses and external vendor consultation costs and
expenses). Management plans to coordinate the timing of such efforts in order
to fund the companys current and future information system requirements,
including potentially substantial third party consulting services, with
available cash balances and cash provided by operations. Specifically, the Front Office project involves the replacement of Corams
intake, admissions, nurse scheduling, clinical pathways, pharmacy, order entry,
contract, billing and accounts receivable systems, all of which support the
delivery of patient care. In order to satisfy the companys business
requirements, Coram intends to highly customize the purchased software in order
to replace the existing systems. To mitigate risk,
management intends to diligently define and test the new systems prior to
implementation. A component of this testing will be to productionalize the new
systems within a single branch location to ensure appropriate functionality
prior to company-wide implementation. However, no assurances can be given that
the new Front Office systems will ultimately serve all of the companys
business requirements or that implementation of these systems will not cause
material business and operational disruptions due to, among other things,
significant changes to the companys existing business rules and internal
processes. In the event that there are delays and/or complications upon
implementing the Front Office systems, the companys ability to generate bills
and invoices and collect its accounts receivable may be impaired. These
circumstances could have a materially adverse effect on the companys financial
position and liquidity during the transition to the new environment. On January 1, 2004, United States Pharmacopeia Chapter 797 (USP Chapter
797) standards of practice for compounding sterile products transitioned from
recommendations to requirements. These standards are applicable to all of the
companys branch pharmacies and, among other things, establish stringent
sterile pharmacy compounding environmental requirements. Failure to comply
with the new USP Chapter 797 standards could result in disciplinary action
against the company, including, but not limited to, an order to cease sterile
product compounding at any substandard facility and potentially significant
fines and penalties. Additionally, noncompliance could result in the loss of
the companys national and regional accreditation, which would jeopardize
certain managed care contracts that mandate such accreditation. During 2003, in
anticipation of the formalization of such new standards, management began
testing the companys facilities for compliance therewith. Although completion
of the testing process is not anticipated until June 30, 2004, management will
continually monitor procedural compliance with the new standards through
routine audits and inspections. While management believes that the company is
substantially compliant with the new USP Chapter 797 standards, no assurances
can be given that the ongoing testing will not result in the identification of
instances of noncompliance and/or substandard conditions. In the event that
such unfavorable conditions are identified, significant pharmacy upgrades may
be required to attain regulatory compliance. The aggregate costs to upgrade the
companys pharmacies, which could be substantial, disciplinary actions taken
against the company or the loss of accreditation all would have a materially
adverse effect on the companys business and liquidity. SoluNet, the companys outsourced hospital compounding services business,
currently has three operational locations but, effectively, it remains a
development stage company. During this nascent phase of its business
maturation, SoluNet has and will continue to consume substantial corporate
resources in the form of seed capital and senior management time, expertise and
intellectual capacity. Although management anticipates that, in the long-term,
SoluNet will be profitable and self-sustaining, there can be no assurances
thereof. Through December 31, 2004, SoluNet is expected to require substantial
capital in order to continue to fund its start-up activities, including
operational losses, and certain other activities in furtherance of its overall
business strategy. Management plans to fund such SoluNet requirements with the
companys available cash balances and cash provided by other operational
activities. See Item 1. Business: General Overview, for further discussion of
the SoluNet business, operations and marketing strategies. On April 29, 2003, the Bankruptcy Court approved a motion that, among
other things, allowed the company to assume an agreement with B. Braun Medical,
Inc. (B. Braun) to purchase drugs and supplies (the Supply Agreement). The
Supply Agreement expires in February 2005 and, pursuant to its terms, the
company is required to purchase at least 95% of its annual volume requirements
related to twelve product categories from B. Braun. However, the company has
the right to remove any product category from the purview of the Supply
Agreement if such product category is offered by another vendor at pricing that
is 10% lower, in the aggregate, for that entire product category, provided that B. Braun waives its right
to match such pricing. The company also has the right to terminate the Supply
Agreement after sixty days written notice if B. Braun provides products or
services of a quality or technical level that fail to meet customary standards
of the medical industry. However, if the company terminates the Supply
Agreement for any other reason, it must reimburse B. Braun (i) certain
incentives previously paid to the company, which are 49




---



##### Table of Contents



calculated at $150,550 per
unexpired quarter under the Supply Agreement and (ii) the greater of $4.0
million or 50% of the companys purchases for the twelve months immediately
preceding the early termination date. Additionally, if it is determined that
the company does not satisfy the 95% purchasing requirement for any of the
twelve product categories and such failure is not related to a lack of product
availability, then the company is required to pay B. Braun an amount equal to
10% of the previous quarters purchases. Since the inception of the Supply
Agreement, no such quarterly shortfall has been in evidence and, while no
assurances can be given, management does not expect that such circumstances
will arise during the remaining term of the Supply Agreement. Moreover, due to
the companys business relationship with B. Braun and the advantageous drug and
supply pricing enjoyed by the company, management currently has no intentions
of terminating the Supply Agreement and, accordingly, management believes it is
unlikely that the early termination penalties will be invoked. However, if an
early contract termination did occur, the penalties, which would have
aggregated approximately $4.5 million at April 9, 2004, would have a material
adverse effect on the companys financial position and liquidity. As more fully discussed in Note 14 to the companys Consolidated Financial
Statements, the company is a party to purchase volume commitment arrangements
with Baxter Healthcare Corporation and Becton Dickinson and Company. The
companys actual and, in some instances, projected acquisitions for certain
drugs from the aforementioned vendors have not, or will not, meet the minimum
contractual requirements. In those circumstances, the vendors have the right
to, among other things, assess penalties or assert damages against the company.
However, management is currently negotiating with such vendors in an effort to
restructure the contracts whereby the penalties and damages, if any, will be
waived or otherwise withdrawn and future purchasing commitments will be
realigned. Although there can be no assurances of success in these matters,
management believes that the ultimate outcome of the negotiations and the
corresponding realignment of contractual purchasing commitments will not have a
materially adverse impact on the companys financial position or liquidity. The laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation and revision. Compliance with such laws
and regulations can be subject to future government review and interpretation,
as well as significant regulatory action, including punitive fines, penalties
and exclusion from the Medicare and Medicaid programs. Management acknowledges
and is complying with certain ongoing audits and reviews with respect to prior
reimbursements from Medicare and Medicaid (see Note 14 to the companys
Consolidated Financial Statements for further details). The financial impact
of regulatory matters beyond what has already been recognized by the company,
if any, is currently unknown. In the event that Medicare and Medicaid
investigative matters or similar reviews/audits by other agencies result in
adverse findings, the company could face civil, criminal and/or administrative
regulatory actions, claims for refunds, sanctions and/or penalties in amounts
that, in the aggregate, could be material to its financial condition and
liquidity. In addition, state Medicaid programs have been under significant financial
pressure in recent years due to state budget shortfalls. According to a Kaiser
Commission on Medicaid and the Uninsured (the KCMU) report released in
January 2004, every state Medicaid program reduced or froze provider rates in
fiscal year 2003 and 49 states implemented or plan to implement provider
payment reductions in fiscal year 2004. Of these states, the KCMU reports that 43 states took action in fiscal year
2004 to reduce spending growth on prescription drugs, including: implementing
or expanding a preferred drug list, thereby subjecting more drugs to prior
authorization; initiating supplemental rebates from manufacturers; implementing
long-term care pharmaceutical initiatives; adopting other new policies to
control per unit drug costs (such as incentives to use generics) or policies to
control utilization (such as provider and patient profiling and education);
imposing new limits on the number of prescriptions per month; contracting with
a pharmacy benefit management vendor; and reducing payments for drugs and
biologicals. States may be further challenged in June 2004 when temporary aid
to states enacted in the May 2003 Jobs and Growth Reconciliation Tax Act
expires. Additionally, current Congressional activity to reduce Medicaid
funding could potentially cause state Medicaid agencies to increase the
frequency and scope of their auditing activities. There can be no assurances
that current and future state Medicaid cost control initiatives will not
further reduce Medicaid reimbursement or otherwise increase the costs of doing
business under the state Medicaid programs. As discussed in Item 1. under Government Regulation, the Balanced Budget
Act of 1997 (the BBA), as amended by the Medicare, Medicaid and SCHIP
Balanced Budget Refinement Act of 1999 (the BBRA), required certified home
health agencies participating in Part A of the Medicare program to post surety
bonds in an amount equal to the lesser of 10% of the amount that Medicare paid
to the provider in the prior year or $50,000. The deadline for securing such
bonds has been extended indefinitely while CMS reviews the bonding
requirements. As of April 9, 2004, the company had only one Medicare Part A
certified home health provider location, which has not obtained a surety bond.
In addition, as required by the BBA, CMS will also issue separate surety bond
regulations applicable to Medicare Part B suppliers; however, the finalization
of such regulations is also on hold indefinitely. Additionally, similar bonding
requirements are being reviewed by state Medicaid programs and at least one
state requires Medicaid suppliers to maintain a surety bond. Because virtually
all of Corams branches participate as suppliers in the Medicare Part B
program, if surety bond requirements become effective for the Medicare program
or for additional state Medicaid programs and if Coram is not 50




---



##### Table of Contents



able to obtain all of the necessary surety bonds, it may be required to cease participation in
the Medicare and/or Medicaid programs for some or all of its branches. In
addition, depending upon the final regulations, the company may be able to
establish letters of credit for the bonding requirement in whole or in part,
however, such letters of credit may require the use of cash in order to be
fully collateralized. Management also believes that another potential source
for meeting bonding requirements may be to obtain bonds through a qualified
insurance carrier. However, no assurances can be given that cash generated by
operations, letter of credit availability or bond availability from an
insurance carrier at a reasonable cost will satisfy these surety bond
requirements when they are finalized. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization
Act of 2003 (the MMA), with certain exceptions, effective January 1, 2004
most Medicare Part B drugs are reimbursed at 85% of the April 1, 2003 AWP and
some products are facing even lower reimbursement levels. However, infusion
drugs furnished through an item of durable medical equipment continue to be
reimbursed at 95% of the October 1, 2003 AWP in both 2004 and 2005.
Thereafter, the reimbursement methodology for such infusion drugs is unclear.
Beginning in 2005, the majority of Medicare Part B drugs, excluding infusion
drugs furnished through an item of durable medical equipment and certain other
drugs, will be reimbursed under either: (i) an average sales price (ASP)
methodology intended to more closely reflect actual drug acquisition costs; or
(ii) a competitive acquisition program whereby a physician would obtain drugs
and biologicals from a specialty pharmacy or distributor organization selected
pursuant to competitive procedures, the physician would only bill for his or
her professional services and the specialty pharmacy or distributor would bill
Medicare directly for the drugs and biologicals at negotiated rates. Because
the aforementioned AWP changes specifically exclude
infusion drugs furnished through an item of durable medical equipment
(i.e., an infusion pump), management believes that through December 31, 2005
the MMA reimbursement impact to the company should be minimal. The MMA also includes a major expansion of the Medicare prescription drug
benefit under a newly created Medicare Part D program, which will provide
coverage for many drugs not currently covered by Medicare Part A or Medicare
Part B. However, the specific drugs to be included under Medicare Part D and
the related reimbursement rates for such drugs are currently unknown. Until
the Medicare Part D benefit goes into effect on January 1, 2006, Medicare
beneficiaries can receive assistance with their outpatient prescription drug
costs beginning in June 2004 through a new prescription drug discount card
program, which will provide enrollees access to negotiated discounted prices
for prescription drugs. The overall long-term impact of the MMA, including the changes to an
ASP-based reimbursement methodology and/or a competitive acquisition program,
is unclear. Accordingly, there can be no assurances that the enactment of the
MMA will not result in a material decrease in the amount of Medicare
reimbursement that Coram receives for the products and services it currently
provides and any other home health or related oxygen, durable medical equipment
or home infusion products and services Coram may provide in the future.
Likewise, if state governments or private insurance companies discontinue or
modify the use of AWP or otherwise adopt reimbursement reductions for drugs or
biologicals or for durable medical equipment, Corams business and liquidity
could be materially adversely affected. The company is a party to several individual provider contracts that
ultimately fall within the purview of a single national health insurance
carrier that recently commenced implementation of a national ancillary care
management program. In connection therewith, during 2002 such national health
insurance carrier terminated two provider contracts relating to the state of
Illinois (one with the company and one with a non-consolidated joint venture).
During 2003 and through April 9, 2004, eleven additional provider contracts
were terminated with effective dates ranging from October 1, 2003 to July 1,
2004. The terminated contracts represented approximately 2.6%, 3.0% and 2.6%
of the companys consolidated net revenue for the years ended December 31,
2003, 2002 and 2001, respectively, and approximately 3.9% and 5.1% of the
companys consolidated accounts receivable at December 31, 2003 and 2002,
respectively. In the aggregate, approximately 3.5%, 4.2% and 4.4% of the
companys consolidated net revenue for the years ended December 31, 2003, 2002
and 2001, respectively, and approximately 5.4% and 6.8% of the companys
consolidated accounts receivable at December 31, 2003 and 2002, respectively,
were derived from the individual provider contracts that are within the purview
of this national health insurance carrier. Management can provide no assurances
that the remaining active provider contracts associated with this national
health insurance carrier will continue under terms that are favorable to the
company. Additionally, no assurances can be given that meaningful
collection/settlement activities relative to outstanding accounts receivable
will transpire in the future. The termination of additional provider contracts
and/or the inability to collect outstanding accounts receivable from the
individual healthcare plans under this national health insurance carrier could
have a materially adverse impact on the companys financial condition,
liquidity and cash flows. Coram maintains systems and processes to collect its accounts receivable
as quickly as possible after the underlying service is rendered. Nevertheless,
there is generally a time lag between when the company pays for the salaries,
supplies and overhead expenses related to the generation of revenue and when
the company collects payments for the services rendered and products delivered. 51




---



##### Table of Contents



Consequently, as the company grows its revenue, the need for working capital
increases due to the timing difference between cash received from growth in
sales and the cash disbursements required to pay the expenses associated with
such sales. As a result, the amount of cash generated from collections of accounts receivable may not be
sufficient to cover the expenses associated with the companys business growth. Management throughout the company is continuing to concentrate on
enhancing timely reimbursement by emphasizing improved billing and cash
collection methods, continued assessment of reimbursement systems support and
concentration of the companys expertise and managerial resources into certain
reimbursement locations. As part of managements continuing efforts to improve
efficiency and overall performance, several Patient Financial Service Centers
(reimbursement sites) have been consolidated and the related reimbursement
positions were eliminated. By consolidating to fewer sites, management is
working to implement improved training, more easily standardized best
demonstrated practices, enhance specialization related to payers such as
Medicare and achieve more consistent and timely cash collections. Management
believes that, in the long-term, payers and patients will receive better, more
consistent service. However, no assurances can be given that the consolidation
of the companys Patient Financial Service Centers and other related activities
initiated by management will be successful in enhancing timely reimbursement or
that the company will not experience a significant shortfall in cash
collections, deterioration in days sales outstanding and/or unfavorable aging
trends in its accounts receivable. 52




---



##### Table of Contents



Risk Factors Coram may not be able to continue as a going concern. The companys ability to continue operations is dependent upon, among
other things, confirmation of a plan or plans of reorganization, future
profitable operations and the ability to generate sufficient cash from
operations and/or financing arrangements to meet the companys obligations and
capital asset requirements. There can be no assurances that any plan or plans
of reorganization will be approved by the Bankruptcy Court or that such plan or
plans of reorganization will allow the company to operate profitably. Any
confirmed plan or plans of reorganization or other activity within the
Bankruptcy Cases could materially change the financial condition and/or outlook
of the company. Furthermore, the future availability or terms of financing
arrangements cannot be reasonably determined in light of the Bankruptcy Cases
and there can be no assurances that the companys available cash balances and
cash flows generated from operations will be sufficient to fund the companys
operations and capital asset expenditure requirements, or that other financing
arrangements will not be necessary during the pendency of the Bankruptcy Cases.  Coram may not be able to maintain the minimum required equity levels under
Stark II in order to continue to accept referrals of certain patients from
physicians who may own shares of CHCs common stock. Coram is aware of certain referring physicians (or their immediate family
members) that have had financial interests in the company through ownership of
shares of CHCs common stock. Stark II prohibits a physician from making
Medicare or Medicaid referrals for certain designated health services,
including durable medical equipment, parenteral and enteral nutrition therapy,
outpatient prescription drugs, equipment and supplies and home health services,
to entities with which the physician or an immediate family member has a
financial relationship, unless an exception to the law is available. Stark II
includes an exception for the ownership of publicly traded stock in companies
with equity above certain levels. This exception requires the issuing company
to have stockholders equity of at least $75 million either as of the end of
its most recent fiscal year or on average over the last three fiscal years. The
company currently meets the public company exception for the year ending
December 31, 2004 based on its stockholders equity of approximately $92.6
million at December 31, 2003. However, the companys ability to maintain an
appropriate level of stockholders equity cannot be reasonably assured. The
penalties for failure to comply with Stark II include, among other things,
non-payment of claims and civil penalties that could be imposed upon the
company and, in some instances, upon the referring physician. Some of these
penalties can be imposed regardless of whether the company intended to violate
the law. Accordingly, if the companys common stock remains publicly traded and
its stockholders equity falls below the required minimum levels, the company
would be forced to cease accepting referrals of patients covered by the
Medicare or Medicaid programs or run a significant risk of noncompliance with
Stark II. Net revenue from the Medicare and Medicaid programs accounted for
approximately 24% of the companys consolidated net revenue for the year ended
December 31, 2003. Therefore, ceasing to accept such referrals could have a
materially adverse effect on the companys financial condition and business
reputation in the marketplace as it may cause the company to be a less
attractive provider to which a physician could refer his or her patients. Corams future profitability is not certain. Numerous factors have impacted Corams performance and financial condition
to date, including, among others: (i) ongoing pricing pressure in the infusion
therapy business and intense competition among infusion providers; (ii)
increased competition from hospitals and physicians that have sought to
increase the scope of services they offer through their facilities and offices,
including services similar to those offered by the company; (iii) increased
competition from mail order and specialty injectible pharmacy providers; and
(iv) increased competition from hospitals and physicians that have entered into
risk-sharing relationships with third party payers 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. There can be no
assurances that the aforementioned factors will not continue to have an adverse
effect on the companys financial condition and results of operations.  Corams business, results of operations and liquidity may be adversely
affected by cash requirements and senior management distractions related to
developing the companys SoluNet business. SoluNet, the companys outsourced hospital compounding services business,
currently has three operational locations but, effectively, it remains a
development stage company. During this nascent phase of its business
maturation, SoluNet has and will continue to consume substantial corporate
resources in the form of seed capital and senior management time, expertise and
intellectual capacity. Although management anticipates that, in the long-term,
SoluNet will be profitable and self-sustaining, there can be no assurances
thereof. Through December 31, 2004, SoluNet is expected to require substantial
capital in order to continue to fund its start-up activities, including
operational losses, and certain other activities in furtherance of its overall
business strategy. Management 53




---



##### Table of Contents



plans to fund such SoluNet requirements with the
companys available cash balances and cash provided by other operational
activities. In the event that the long-term SoluNet business plan is not
successfully deployed within the projected timeframe, SoluNet could require
significant incremental capital; however, there can be no assurances that
SoluNets long-term goals and objectives will ever be attained. Moreover, even
if ultimately successful, senior managements active and continual SoluNet
involvement could impair its ability to focus on the companys other business
operations. See Item 1. Business: General Overview for further discussion of
the SoluNet business, operations and marketing strategies.  The outcome of the ongoing bankruptcy proceedings and other legal matters
could adversely affect Corams business. As described in Item 3. Legal Proceedings, Coram is involved in certain
legal disputes and the Debtors are currently in the Bankruptcy Cases. Although
Coram intends to pursue its claims and defend itself vigorously in these
matters, management cannot predict the outcome of current and future matters
due to the uncertainties inherent in litigation and the bankruptcy proceedings.
The companys financial condition, results of operations and liquidity may be
materially adversely impacted by the outcome of its legal disputes and an
approved plan or plans of reorganization.  The outcome of the Resource Network Subsidiaries bankruptcy proceedings and
certain related litigation matters could adversely affect Corams business,
results of operations and liquidity. The liquidation of the Resource Network Subsidiaries through their
bankruptcy proceedings may result in certain additional cash expenditures by
the company. Although no assurances can be given, after considering the R-Net
Creditors Committees confirmed plan of liquidation under Chapter 11 of the
Bankruptcy Code, management does not expect that such additional cash
expenditures, if any, will be material to the financial condition or cash flows
of the company. See Notes 4 and 14 to the companys Consolidated Financial
Statements for further details. In November 2001, the R-Net Creditors Committee brought an adversary
proceeding in the Bankruptcy Court, both on its own behalf and as assignee for
causes of action that may belong to the Resource Network Subsidiaries, against
the Debtors, several non-debtor subsidiaries, a former director, several
current and former executive officers and employees of the company and the
companys principal lenders. The complaint alleges that the defendants violated
various state and federal laws in connection with alleged wrongdoings related
to the operation and corporate structure of the Resource Network Subsidiaries.
Coram notified its insurance carrier of the complaint and intends to avail
itself of any insurance coverage for its directors and officers, who are
vigorously contesting the allegations. See Note 14 to the companys
Consolidated Financial Statements for further details. The Trustees Plan, as modified, proposes resolutions of substantially all
of the Resource Network Subsidiaries matters through the R-Net Settlement
Agreement, which was executed by the Chapter 11 trustee, the Debtors, the R-Net
Creditors Committee, the Resource Network Subsidiaries and the Resource
Network Subsidiaries Chief Restructuring Officer. Among other things, the
R-Net Settlement Agreement provides for the fixing and allowance of a Resource
Network Subsidiaries general unsecured claim against the Debtors for $7.95
million, plus interest, under certain circumstances, at the applicable federal
judgment rate. The R-Net Settlement Agreement remains subject to, and
contingent upon, Bankruptcy Court approval in the Bankruptcy Cases through
confirmation of the Trustees Plan, as modified. The Equity Committees Plan
provides that the Resource Network Subsidiaries will receive a cash
distribution on the effective date of the Equity Committees Plan of $7.95
million, plus a distribution of 2% of the net recovery from certain litigation
claims to be prosecuted, if any, but not exceeding $6 million. The Chapter 11
trustee and other parties-in-interest have objected to the Equity Committees
Plan because, among other things, they believe such plan improperly classifies
the Resource Network Subsidiaries claim and the contemplated distribution to
the Resource Network Subsidiaries is not fair and equitable. See Note 3 to the
companys Consolidated Financial Statements for further details regarding the
status of the Trustees Plan, as modified, and the Equity Committees Plan
within the Bankruptcy Court confirmation proceedings. Principally due to the Debtors ongoing confirmation hearings, the
ultimate outcome of the Resource Network Subsidiaries matters, including
effectuation of the R-Net Settlement Agreement, cannot be predicted with any
degree of certainty, nor can management predict the scope and nature of any
coverage that the directors and officers may have with the companys insurance
carrier. Through April 9, 2004, the company incurred approximately $1.0
million in legal fees related to the R-Net Creditors Committee litigation,
including legal fees associated with indemnifications of the companys
directors and officers. Management cannot reasonably estimate the ultimate cash
requirements related to the aforementioned matters. Unfavorable outcomes could
have a material adverse effect on the companys business, results of operations
and liquidity. Moreover, even if ultimately successful in these matters,
significant and constant distractions could impair managements ability to
focus on the companys continuing business operations. 54




---



##### Table of Contents



Corams financial position and liquidity may be adversely affected by
significant costs incurred as a result of the Bankruptcy Cases. Management believes that the overall costs for the Bankruptcy Cases will
result in a significant use of cash for the year ending December 31, 2004 and
thereafter. These costs principally consist of professional fees and expenses.
Management believes that such costs, when authorized for payment by the Chapter
11 trustee and the Bankruptcy Court, will be funded through available cash
balances and cash provided by operations; however, this significant use of cash
could have a materially adverse effect on the companys financial position and
liquidity.  The companys leveraged financial structure, including significant
liquidation preferences relating to certain CI preferred stock securities,
could have a materially adverse effect on the company. The companys leveraged financial structure, including liquidation
preferences relating to the CI Series A Cumulative Preferred Stock and the CI
Series B Cumulative Preferred Stock, which aggregated approximately $388.6
million at March 31, 2004, could (i) impede Corams ability to borrow
additional funds to meet its obligations and capital asset requirements, (ii)
cause a significant dilution of CIs common stock if management were to elect
to pay preferred stock dividends with CIs common stock rather than cash, (iii)
adversely affect the companys ability to enter into and maintain relationships
with vendors and payers and (iv) have an adverse impact on the companys
ability to attract and retain key personnel. Coram may not be able to meet its increased cash requirements. Management throughout the company is continuing to concentrate on
enhancing timely reimbursement by emphasizing improved billing and cash
collection methods, continued assessment of reimbursement systems support and
concentration of the companys expertise and managerial resources into certain
reimbursement locations. As part of managements continuing efforts to improve
efficiency and overall performance, several Patient Financial Service Centers
(reimbursement sites) have been consolidated and the related reimbursement
positions were eliminated. By consolidating to fewer sites, management expects
to implement improved training, more easily standardized best demonstrated
practices, enhance specialization related to payers such as Medicare and
achieve more consistent and timely cash collections. Management believes that,
in the long-term, payers and patients will receive better, more consistent
service. However, no assurances can be given that the consolidation of the
companys Patient Financial Service Centers and other related activities
initiated by management will be successful in enhancing timely reimbursement or
that the company will not experience a significant shortfall in cash
collections, deterioration in days sales outstanding and/or unfavorable aging
trends in the companys accounts receivable. Coram continues to experience pressure from vendors to shorten payment
terms for drugs and supplies. Noncompliance with vendor terms and conditions
could result in the company losing access to drugs and supplies that are
necessary to maintain or grow its present business. Additionally, Coram relies
on the collection of third party payments from insurance companies, managed
care plans and governmental entities to pay these vendors. Accordingly, it is
imperative that the company maintain tightly controlled cash collection and
billing practices. There can be no assurances that third party payers will not
extend the time in which they pay Coram for its services. Any adverse changes
in cash collections, either due to modifications in third party payment
practices or disruptions from the closure and consolidation of Corams
reimbursement sites, would cause significant liquidity pressures on the
company. Coram may not be able to meet its capital requirements and debt
obligations. Coram is currently not party to a debtor-in-possession or similar
financing arrangement and therefore is reliant upon available cash resources
and cash generated from operations as its sole sources of working capital and
funding for other activities, such as (i) the upgrade of its company-wide
information technology systems, including a long-term debt obligation for the
purchase of software, (ii) infusion pump replacement programs, including
capital lease obligations with Baxter Healthcare Corporation and B. Braun
Medical, Inc. (iii) a settlement with the Internal Revenue Service and (iv)
branch relocations and other cash requirements related to the companys real
estate portfolio. Management believes that cash sufficient to meet the
companys operating and capital requirements and debt obligations will be
generated from operations and, if necessary, additional financing facilities.
However, no assurances can be given that such new financing facilities can be
obtained by Coram on economically viable terms and conditions or that
sufficient cash flow from operations will be generated. In the event that the
company is not able to obtain a financing arrangement or generate sufficient
cash flows from operations to fund its current and future commitments, the
companys liquidity and financial position could be materially adversely
impacted. 55




---



##### Table of Contents



Corams implementation of, and significant modifications to, its company-wide
information systems could have a disruptive effect on related transaction
processing, financial reporting, revenue generation, billing and cash
collections and the quality of patient care. Upon obtaining approvals from the Chapter 11 trustee and the Bankruptcy
Court, the company entered into an agreement with a third party vendor for the
acquisition of a software product to replace its billing, accounts receivable,
clinical and pharmacy systems (collectively the Front Office). Management
expects to begin substantive implementation of the Front Office modules during
2004 and project completion is forecasted for late 2005. In addition to the
cost of the Front Office software package, substantial internal and external
costs will be incurred to implement the Front Office software solutions.
Moreover, the company also purchased certain hardware necessary to run the new
information systems; however, supplemental hardware and peripheral equipment
will be required in order to support the new Front Office software. Based upon
current forecasts, management believes that the aggregate cost to implement the
Front Office solutions will range between $13 million and $16 million
(including, but not limited to, software enhancements, hardware, Coram
personnel time and expenses and external vendor consultation costs and
expenses). Management plans to coordinate the timing of such efforts in order
to fund the companys current and future information system requirements,
including potentially substantial third party consulting services, with
available cash balances and cash provided by operations. Specifically, the Front Office project involves the replacement of Corams
intake, admissions, nurse scheduling, clinical pathways, pharmacy, order entry,
contract, billing and accounts receivable systems, all of which support the
delivery of patient care. In order to satisfy the companys business
requirements, Coram intends to highly customize the purchased software in order
to replace the existing systems. To mitigate risk, management intends to
diligently define and test the new systems prior to implementation. A component
of this testing will be to productionalize the new systems within a single
branch location to ensure appropriate functionality prior to company-wide
implementation. However, no assurances can be given that the new Front Office
systems will ultimately serve all of the companys business requirements or
that implementation of these systems will not cause material business and
operational disruptions due to, among other things, significant changes to the
companys existing business rules and internal processes. In the event that
there are delays and/or
complications upon implementing the Front Office systems, the companys
ability to maintain and improve the quality of its patient care, generate bills
and invoices and collect its accounts receivable may be impaired. These
circumstances could have a materially adverse effect on the companys financial
position and liquidity, as well as overall patient care, during the transition
to the new environment. Additionally, any disruptions to transaction processing
may adversely affect managements ability to report, analyze and utilize data
for the purpose of making proactive business decisions and complying with
various financial reporting requirements. Corams business, results of operations and liquidity may be adversely
affected by new pharmaceutical standards. On January 1, 2004, United States Pharmacopeia Chapter 797 (USP Chapter
797) standards of practice for compounding sterile products transitioned from
recommendations to requirements. These standards are applicable to all of the
companys branch pharmacies and, among other things, establish stringent
sterile pharmacy compounding environmental requirements. Failure to comply
with the new USP Chapter 797 standards could result in disciplinary action
against the company, including, but not limited to, an order to cease sterile
product compounding at any substandard facility and potentially significant
fines and penalties. Additionally, noncompliance could result in the loss of
the companys national and regional accreditation, which would jeopardize
certain managed care contracts that mandate such accreditation. During 2003, in
anticipation of the formalization of such new standards, management began
testing the companys facilities for compliance therewith. Although completion
of the testing process is not anticipated until June 30, 2004, management will
continually monitor procedural compliance with the new standards through
routine audits and inspections. While management believes that the company is
substantially compliant with the new USP Chapter 797 standards, no assurances
can be given that the ongoing testing will not result in the identification of
instances of noncompliance and/or substandard conditions. In the event that
such unfavorable conditions are identified, significant pharmacy upgrades may
be required to attain regulatory compliance. The aggregate costs to upgrade the
companys pharmacies, which could be substantial, disciplinary actions taken
against the company or the loss of accreditation all would have a materially
adverse effect on the companys business, results of operations and liquidity. Coram may be unable to respond to technological changes effectively. Corams business is dependent on physicians continuing to prescribe the
administration of drugs and nutrients through intravenous and other infusion
methods. Intravenous administration is often the most appropriate method for
treating chronically ill patients and is often the only way to administer
proteins and biotechnology drugs. Nonetheless, technological advances in
drug-delivery systems, the development of drugs that can be administered orally
and the development of new medical treatments that cure certain complex
diseases or reduce the need for infusion therapy could adversely impact Corams
business. 56




---



##### Table of Contents



Average Wholesale Price (AWP) changes may trend in a direction that is
adverse to net revenue and profitability. For most of the drugs that Coram provides to its patients, it is
reimbursed by governmental and third party payers according to rate schedules
that are based on the AWP of the drugs as published by commercial pricing
services. For example, the Medicare programs allowable payment amount in
recent years generally has been set at 95% of the published AWP of a drug. AWP
is an industry term that is typically understood to represent a suggested price
for wholesale sales to pharmacies. AWP does not necessarily reflect the price
paid by either pharmacies or other end user purchasers. In December 2003, President
George W. Bush signed into law the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (the MMA), which makes significant changes in
Medicare reimbursement policies, including the discontinuance of AWP-based
reimbursement methodologies for certain Medicare Part B drugs. See Item 1.
Business: Government Regulation for further details. Pursuant to the MMA, with certain exceptions, effective January 1, 2004
most Medicare Part B drugs are reimbursed at 85% of the April 1, 2003 AWP and
some products are facing even lower reimbursement levels. However, infusion
drugs furnished through an item of durable medical equipment continue to be
reimbursed at 95% of the October 1, 2003 AWP in both 2004 and 2005.
Thereafter, the reimbursement methodology for such infusion drugs is unclear.
Beginning in 2005, the majority of Medicare Part B drugs, excluding infusion
drugs furnished through an item of durable medical equipment and certain other
drugs, will be reimbursed under either: (i) an average sales price (ASP)
methodology intended to more closely reflect actual drug acquisition costs; or
(ii) a competitive acquisition program whereby a physician would obtain drugs
and biologicals from a specialty pharmacy or distributor organization selected
pursuant to competitive procedures, the physician would only bill for his or
her professional services and the specialty pharmacy or distributor would bill
Medicare directly for the drugs and biologicals at negotiated rates. Because
the aforementioned AWP changes specifically exclude infusion drugs furnished
through an item of durable medical equipment (i.e., an infusion pump),
management believes that through December 31, 2005 the MMA reimbursement impact
to the company should be minimal. The MMA also includes a major expansion of the Medicare prescription drug
benefit under a newly created Medicare Part D program, which will provide
coverage for many drugs not currently covered by Medicare Part A or Medicare
Part B. However, the specific drugs to be included under Medicare Part D and
the related reimbursement rates for such drugs are currently unknown. Until
the Medicare Part D benefit goes into effect on January 1, 2006, Medicare
beneficiaries can receive assistance with their outpatient prescription drug
costs beginning in June 2004 through a new prescription drug discount card
program, which will provide enrollees access to negotiated discounted prices
for prescription drugs. The overall long-term impact of the MMA, including the changes to an
ASP-based reimbursement methodology and/or a competitive acquisition program,
is unclear. Accordingly, there can be no assurances that the enactment of the
MMA will not result in a material decrease in the amount of Medicare
reimbursement that Coram receives for the products and services it currently
provides and any other home health or related oxygen, durable medical equipment
or home infusion products and services Coram may provide in the future.
Likewise, if state governments or private insurance companies discontinue or
modify the use of AWP or otherwise adopt reimbursement reductions for drugs or
biologicals or for durable medical equipment, Corams business, financial
condition, liquidity and results of operations could be materially adversely
affected. The companys revenue and profitability are subject to prices paid by
third party payers. The company receives payment from government programs, managed care plans
and insurance companies for the services it provides. The rates paid by these
third parties cannot be controlled by the company and may not be sufficient to
allow Coram to generate profits. Additionally, managed care payers and
traditional indemnity insurers are increasingly requesting fee structures and
other arrangements requiring healthcare providers to assume all or a portion of
the financial risk of providing care. The failure of third party payers to pay
prices adequate to cover the companys operating expenses and the incremental
costs related to risk-sharing arrangements could have a materially adverse effect on the companys
business, results of operations and financial condition. The success of Corams business is dependent on relationships with third
parties. The profitability of Corams business depends, in part, on its ability to
establish and maintain close working relationships with managed care
organizations, private and governmental third party payers, hospitals,
physicians, physician groups, home health agencies, long-term care facilities,
other institutional healthcare providers, insurance companies and large
self-insured employers. A central feature of the companys business strategy is
to enhance its relationships with such third parties. There can be no
assurances that the company will successfully maintain and improve such
relationships or that additional relationships will be developed and 57




---



##### Table of Contents



maintained in existing and/or future markets. The loss of existing relationships or the
failure to develop new relationships could have a materially adverse effect on
the companys business, financial condition and results of operations. See
Business Strategy for further details. A material contract is subject to reevaluation. Approximately 7.0% of the companys consolidated net revenue for the year
ended December 31, 2003 related to an agreement with Health Net Inc. (Health
Net) to provide services to its members in California pursuant to
fee-for-service and capitated reimbursement arrangements. Additionally, Coram
owns 50% of a partnership located in California that derived approximately
40.3% of its net revenue during the year ended December 31, 2003 from services
provided under such agreement. The Health Net agreement expired by its terms on
December 31, 2002; however, effective October 1, 2003, a second amendment to
the agreement (the Amendment) was executed wherein the contract, with certain
modifications, was extended to December 31, 2005. The company and its
partnership continued to render services to the Health Net members from January
1, 2003 through September 30, 2003 pursuant to the terms and conditions of the
expired contract. As a result of the final negotiations, Health Net reserved
the right to reevaluate the Amendment based upon the status of the Bankruptcy
Cases, as well as material changes, if any, to Corams senior management during
the term of the Amendment. The loss of the Health Net agreement or significant
modifications to the terms and conditions of the Amendment could have a
materially adverse effect on the results of operations, cash flows and
financial condition of the company and its partnership. Corams vendor relationships are highly concentrated. The company maintains certain critical vendor relationships with Cardinal
Health, Inc. FFF Enterprises, Inc. and Baxter Healthcare Corporation
(Baxter). The aggregate drug and
supply purchases from the three aforementioned vendors accounted for
approximately 73% of the total activity for the year ended December 31, 2003.
Moreover, as of April 9, 2004 the company maintained contractual
Baxter drug and supply purchase
commitments aggregating approximately $70.4 million. As more fully discussed in
Note 14 to the companys Consolidated Financial Statements, management is
projecting purchase commitment shortfalls under one of the companys purchasing
arrangements with Baxter. Moreover, on December 30, 2003 the company entered into a
leasing commitment arrangement with Baxter wherein the company will lease
certain ambulatory pumps for approximately $8.3 million. Although management considers the companys
longstanding relationships with these vendors to be good and stable, there can
be no assurances that such relationships will continue. Should any of these
vendors elect not to provide drugs and supplies to the company, there would
likely be a significant disruption to the companys business and the results of
operations could be adversely impacted until such time
as a replacement vendor could be identified. Moreover, there can be no
assurances that the pricing structure that the company currently enjoys would
be matched by a replacement vendor. Additionally, if the companys patient
census declines, the company may be unable to meet certain volume purchasing
commitments, thereby causing price increases on some contracts and/or breaches
of other contracts that could have a significant adverse financial impact to
the company. These circumstances could also erode the positive image that
management has developed within the vendor community and adversely impact the
companys ability to leverage its purchasing activities with new vendors. Coram may find itself unable to procure the products necessary to serve
its patients. Availability of factor product from manufacturers can be inconsistent and
is dependent on many variables, including manufacturing capacity, manufacturer
regulatory compliance, donor pools, production lots, contamination, etc. If a
shortage occurs, Coram may be required to purchase through the secondary or
distributor markets, wherein pricing may not be favorable and product
availability can change significantly from day to day. During such times of
shortages, prices increase dramatically with limited availability to pass these
additional costs on to patients and payers. Moreover, product shortages may
make it difficult for Coram to meet the needs of its patients (e.g., a single
patients requirements may, at any given time, expend what would otherwise be
adequate inventory for multiple patients, etc.) and may have an adverse impact
on Corams future results of operations. The current domestic supply of factor
products is meeting or exceeding demand and Coram is able to acquire adequate
amounts of these products in order to meet its current and anticipated
short-term patient demand. However, product shortages will continue to occur
due to the nature of the manufacturing and regulatory environment for these
products and any disruption to the companys factor product supply chain could
have a materially adverse impact on future operating results. In addition to factor products, certain other drugs and supplies are
periodically not available in sufficient quantities to allow the company to
adequately serve all of its patients needs. 58




---



##### Table of Contents



Corams business, results of operations, liquidity and patient care may be
materially adversely affected by significant acquisition costs associated
with the obtainment of new ambulatory pumps, as well as the corresponding
field implementation of such pumps. Effective December 30, 2003, the company entered into a capital lease
commitment arrangement with Baxter to lease a minimum of 5,200 6060
Multi-Therapy Ambulatory Infusion Pumps (the estimated commitment thereunder is
approximately $8.3 million). Through April 9, 2004, the company received 1,700
of such pumps and management anticipates receiving the remaining pumps on or
before September 30, 2004. Management intends to fund the capital lease
commitment with available cash balances and cash provided by operations.
Moreover, management believes that the company will comply with the terms and
conditions of the underlying Baxter lease agreements; however, there can be no
assurances thereof or what remedies, if any, would be invoked by Baxter in the
event of default. See Notes 9 and 14 to the companys Consolidated Financial
Statements for further details. Management is taking actions, including, but not limited to, comprehensive
employee training, to ensure a smooth transition from the companys existing
fleet of ambulatory infusion pumps to the new 6060 Multi-Therapy Ambulatory
Infusion Pumps. However, no assurances can be given that a successful
transition will occur or that patient care will not be disrupted. Any
disruptions to patient care and/or any remedies invoked by Baxter in the event
of a default under the capital lease agreements would have a materially adverse
effect on the companys business, results of operations and liquidity, as well
as overall patient care.  Consolidation in the healthcare industry could give increased leverage to
purchasers of the companys services and reduce the companys revenue and
profits. Managed care organizations have grown substantially in terms of the
percentage of the population that is covered by such organizations and in terms
of their control over an increasing percentage of the healthcare economy.
Managed care plans have continued to consolidate in order to enhance their
ability to influence the delivery of healthcare services and to exert pressure
to control healthcare costs. This increased pressure may require the company to
reduce its prices or forfeit existing/new business, which could have a
materially adverse effect on the companys business, financial condition and
results of operations. Coram faces significant competition and may not be able to compete successfully. Coram competes in the alternate site infusion therapy market, which is
highly competitive. Some of Corams current and potential competitors in these
lines of business include:  (i)
    
    integrated providers of alternate site healthcare services;(ii)
    
    hospitals;(iii)
    
    local providers of multiple products and services offered for
the alternate site healthcare market;(iv)
    
    physicians and physician-owned organizations, such as
independent practice associations and multi-specialty group
practices; and(v)
    
    mail order and specialty injectable pharmacy providers. Coram has experienced increased competition in its alternate site infusion
therapy business from the abovementioned parties as they have sought to
increase the scope of their services, including services similar to those
offered by the company, and from hospitals and physicians that have entered
into risk-sharing relationships with managed care organizations pursuant to
which they have taken control of certain medical services, including the
services offered by the company. Certain competitors in the companys
marketplaces may have (i) superior financial resources, (ii) more marketing or
managerial resources, (iii) greater size, (iv) greater purchasing power or (v)
stronger strategic relationships with providers, referral sources (such as
physicians and hospital discharge planners) and traditional indemnity and
managed care payers. There are relatively few barriers to entry into the infusion therapy
services market. Local or regional companies are currently competing in many
of the markets served by the company and others may do so in the future.
Management expects its competitors to continue to improve their service
offerings and price competitiveness. Management also expects its competitors
to develop new strategic relationships with providers, referral sources and
payers, which could further result in increased competition. The introduction
of new and enhanced services, acquisitions, industry consolidation and the
development of strategic relationships by Corams competitors could cause a
decline in revenue, loss of market acceptance of Corams services and/or price
competition. There can be no assurances that Coram will be able to compete
successfully against current or future competitors or that competitive
pressures will not have materially adverse effects on Corams business,
financial condition and results of operations. See Item 1. Business:
Competition and Item 7. Business Strategy and Factors Affecting Recent
Operating Results for further details. 59




---



##### Table of Contents



Coram may be unable to maintain sufficient Directors & Officers (D&O)
insurance, which could adversely affect its ability to retain qualified
directors and officers. In recent years, Coram experienced significant increases in premiums
related to D&O insurance, principally due to the ongoing bankruptcy proceedings
and litigation matters involving directors and officers of the company. The
company currently has adequate D&O coverage for the 2004 policy year and
management believes that the company will be able to obtain adequate D&O
insurance coverage in future periods. Management further believes that the
related future insurance premiums will be paid with available cash balances and
cash provided by operations. However, in the event that the company is unable
to maintain adequate D&O insurance coverage in future policy years, Coram may
be unable to attract and retain qualified directors and officers, which could
have a materially adverse effect on the companys operations. Insurance may not be sufficient to cover losses for professional and product liabilities. The services performed and products sold by Coram involve an inherent risk
of professional and product liability. While the company maintains insurance
consistent with industry practices, there can be no assurances that the amount
of such insurance will satisfy claims made against Coram or that the company
will be able to obtain insurance in the future at commercially reasonable rates
or in amounts adequate to meet its needs. Management cannot predict the effect
that claims, regardless of their ultimate outcome, might have on the companys
business or reputation or on its ability to attract and retain patients and
employees. Corams business may suffer if it is unable to attract and retain key personnel, including a Chief Executive Officer and President. Coram is substantially dependent upon the services of its key executive
officers, including Allen J. Marabito, Executive Vice President, Secretary and
Principal Executive Officer Fulfilling the Duties and Responsibilities of
President and Chief Executive Officer of the Corporation. Mr. Marabitos
employment with the company has been continued by the Chapter 11 trustee
following the expiration of his employment contract by its terms on November
29, 2002. Additionally, Mr. Marabito assumed the duties and responsibilities
previously performed by Daniel D. Crowley (the companys former Chief Executive
Officer and President), who resigned effective March 31, 2003. Mr. Marabito is
currently an at will employee and the loss of his services could have a
materially adverse effect on the company. Moreover, the companys future growth
and success depends, in large part, upon its ability to attract, hire and
retain executive personnel. However, there can be no assurances that the
company will be successful in such efforts. Coram may be unable to recruit appropriate personnel, which would have a
materially adverse effect on its business. The continued successful operation of Corams business, as well as its
future growth, depends upon its ability to recruit and retain a staff of
professional personnel, including licensed pharmacists and nurses. Certain
parts of the United States, including states where the company has operations,
are currently experiencing a shortage of these licensed professionals. Coram
has been directly affected by this shortage and management believes that the
companys current financial position and the ongoing bankruptcy proceedings
have made it more difficult to recruit and retain experienced professional
personnel. A continued prolonged shortage of either or both of these types of
professionals being available to, or interested in working with, Coram could
have a materially adverse effect on the companys business, results of
operations and financial condition. Corams common stock is subject to a high degree of risk and market volatility. As a result of the Bankruptcy Cases, the equity interests of the common
stockholders are subject to a high degree of risk. A confirmed plan or plans of
reorganization could result in the complete elimination of the CHC equity
interests. See Note 3 to the companys Consolidated Financial Statements for
further details regarding the ongoing bankruptcy confirmation hearings. There has historically been and may continue to be significant volatility
in the market price for CHCs common stock. Factors include, but are not
limited to, the Bankruptcy Cases, actual or anticipated fluctuations in Corams
operating results, new products or services, new contracts entered into by the
company or its competitors, conditions and trends in the healthcare industry,
including changes in government reimbursement policies, changes in financial
estimates by securities analysts, general market conditions and other factors.
These factors could cause the market price of CHCs common stock to fluctuate
substantially. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market price for the common stock of healthcare companies. These broad market
fluctuations may adversely affect the market price of CHCs common stock. In
the past, following periods of volatility in the market price of a particular
companys securities, securities class action litigation has been brought
against that company. There can be no assurances that such litigation will not
occur in the future with 60




---



##### Table of Contents



respect to Coram. Such litigation could result in
substantial costs and a diversion of managements attention and resources,
which could have a materially adverse effect on Corams business, financial
condition and results of operations. The company may be unable to expand or continue to offer SoluNet services. The outsourced hospital compounding business is a relatively new
healthcare delivery alternative and many State Boards of Pharmacy do not have
specific regulations that govern the provision of pharmacy services provided
through SoluNets delivery model. However, based on consultations with legal
counsel and review of state pharmacy laws, management is not aware of any
prohibitions that currently preclude the provision of these services through
SoluNets existing model. Prior to entering a new market, SoluNet works
proactively with the local State Board of Pharmacy to obtain approval from the
appropriate agencies prior to the provision of services which, in some cases,
may delay entry into such markets. The failure of SoluNet or the companys
SoluNet branch locations to obtain, renew or maintain required pharmacy
regulatory approvals or licensure could have a materially adverse effect on
SoluNets existing hospital contracts, operations and future business
prospects. Additionally, there can be no assurances that new state pharmacy
laws or further review and interpretations of existing pharmacy laws will not
result in determinations that could adversely affect SoluNets ability to
continue to offer its services to existing hospital customers or expand its
operations into new marketplaces. As a result of claims submission standards required by the Health Insurance
Portability and Accountability Act of 1996 (HIPAA), the company may not
receive timely and adequate levels of reimbursement in order to maintain
overall profitability. Additionally, the company may not be successful in
fully complying with applicable HIPAA provisions. The HIPAA Transaction and Code Set rules (collectively the HIPAA Rules)
that went into effect on October 16, 2003 establish, among other things,
standard electronic claim formats and code usage guidelines for healthcare
claims exchanged electronically between covered entities. Specifically, the
HIPAA Rules require specified healthcare entities, including the company, to only use standard
medical billing code sets and make standard electronic transactions available
for all billing transactions. These changes are having a significant impact on
the company and its market segment because no standard billing mechanisms were
available to the home infusion industry until January 2002. In order to comply
with these new provisions, the company renegotiated or amended a significant
number of its commercial payer contracts to incorporate HIPAA-compliant
standard billing code sets. In some instances, the standard billing code sets
available under the HIPAA Rules have required the company to separate certain
elements of its services, thereby resulting in reimbursement reductions under
certain payer contracts. Additionally, several commercial payers have sought
to attain HIPAA compliance by renewing their contracts on terms and conditions
that are not favorable to healthcare providers. Other commercial payers have
sought to (i) terminate their existing provider contracts and require providers
to contract with a third party administrator at less favorable rates or (ii)
unilaterally impose new unfavorable billing codes and fee structures on their
existing providers. Moreover, upon implementation of the HIPAA Rules, some of
the companys payers have and will continue to experience difficulties and/or
distractions, thereby disrupting the companys cash collection and
reimbursement activities. As a result of the aforementioned HIPAA compliance
activities and payer contracting initiatives, the company may not be able to
successfully maintain timely and adequate levels of reimbursement and
profitability. The CMS Office of HIPAA Standards, which is responsible for enforcing the
HIPAA Rules, has provided guidance to covered entities regarding CMS rule
enforcement and contingency planning requirements subsequent to October 16,
2003. As of April 9, 2004, the company is substantially compliant with the
HIPAA Rules or has taken such actions as deemed necessary to establish a
contingency plan in accordance with the aforementioned published guidance.
Notwithstanding the companys actions, management can provide no assurances
that the CMS Office of HIPAA Standards will concur with managements assessment
of compliance with the HIPAA Rules and related regulations. CMS indicated that
enforcement of the HIPAA Rules will be primarily based on complaints filed with
CMS by those entities affected by the HIPAA Rules or others with oversight
responsibilities. In connection therewith, CMS will notify covered entities of
complaints filed against them, investigate allegations, consider any documented
good faith efforts made by allegedly non-compliant covered entities and allow
time to cure non-compliance, if any, prior to imposing civil or monetary
penalties. Through April 9, 2004, the company has not received any
communications from the CMS Office of HIPAA Standards regarding complaints;
however, there can be no assurances that complaints will not be filed against
the company in the future. Because management believes that the company is
substantially compliant with the HIPAA Rules and other related HIPAA
regulations, management expects that prospective complaints against the
company, if any, will be remedied in the normal course of business without any
significant financial impact to the company. 61




---



##### Table of Contents



State Medicaid budget circumstances could adversely affect the companys
reimbursement for its services. State Medicaid programs have been under significant financial pressure in
recent years due to state budget shortfalls. According to a Kaiser Commission
on Medicaid and the Uninsured (the KCMU) report released in January 2004,
every state Medicaid program reduced or froze provider rates in fiscal year
2003 and 49 states implemented or plan to implement provider payment reductions
in fiscal year 2004. Of these states, the KCMU reports that 43 states took
action in fiscal year 2004 to reduce spending growth on prescription drugs,
including: implementing or expanding a preferred drug list, thereby subjecting
more drugs to prior authorization; initiating supplemental rebates from
manufacturers; implementing long-term care pharmaceutical initiatives; adopting
other new policies to control per unit drug costs (such as incentives to use
generics) or policies to control utilization (such as provider and patient
profiling and education); imposing new limits on the number of prescriptions
per month; contracting with a pharmacy benefit management vendor; and reducing
payments for drugs and biologicals. States may be further challenged in June
2004 when temporary aid to states enacted in the May 2003 Jobs and Growth
Reconciliation Tax Act expires. Additionally, current Congressional activity
to reduce Medicaid funding could potentially cause state Medicaid agencies to
take other cost containment actions, including adopting reimbursement changes
and/or increasing the frequency and scope of their auditing activities. There
can be no assurances that current and future state Medicaid cost control
initiatives will not further reduce Medicaid reimbursement or otherwise
increase the costs of doing business under the state Medicaid programs. See
Note 14 to the companys Consolidated Financial Statements for further
discussion of Medicaid matters. The operation of Corams business is subject to extensive government
regulation. General.Corams healthcare service business is subject to extensive and
frequently changing state and federal regulations. Specifically, Coram is
subject to state laws (such as certificates of need and licensure) governing
and regulating several aspects of its business, including home infusion therapy
services, dispensing, distributing and compounding of prescription products and
home health services. Federal laws governing Corams activities include
regulation of pharmacy operations and regulations under the Medicare and
Medicaid programs relating to, among other things, the submission of claims for
payment and certification of home health agencies. Coram is also subject to
certain state and federal laws prohibiting the payment of remuneration for
patient or business referrals and the provision of services where a prohibited
financial relationship exists between a referring physician and the entity
providing the service. Laws and regulations are enacted from time to time to regulate new and
existing services and products in the home infusion and home health industries.
Changes in laws or new interpretations of existing laws could also have an
adverse effect on the companys business practices and costs of doing business.
Furthermore, Corams failure to comply with such laws could adversely affect
its ability to open new branches or otherwise expand its existing branches to
provide, or receive reimbursement for, its equipment, products and services.
Noncompliance could also subject Coram and its officers and employees to civil
and criminal penalties. There can be no assurances that the company will not
encounter such regulatory impediments or that Corams business and results of
operations would not be adversely affected in the event of noncompliance with
such laws and regulations. Set forth below is a more detailed discussion of certain factors related
to federal and state regulation of Coram and its business. Medicare and Medicaid Regulations.As a provider of services under the
Medicare and Medicaid programs, Coram is subject to federal and state laws and
regulations governing its operations, arrangements with other providers and
reimbursement procedures and practices. These laws include the federal
anti-kickback statute, which prohibits the payment or receipt of any form of
remuneration in return for referring business or patients to providers that are
reimbursed under a federal healthcare program. Violations of these laws may
result in civil and criminal penalties, including substantial fines, loss of
the right to participate in the Medicare and Medicaid programs and
imprisonment. In addition, HIPAA expanded the governments fraud and abuse
powers. HIPAA, among other provisions, expands the governments authority for
prosecuting fraud and abuse to all payers (i.e., beyond Medicare and Medicaid);
makes exclusion from the Medicare and Medicaid programs mandatory for a minimum
of five years for any felony conviction relating to fraud; requires that
organizations contracting with another organization or individual take steps to
be informed as to whether the organization or individual is excluded from
Medicare or Medicaid participation; and enhances civil penalties by increasing
the amount of allowable fines. In addition, certain provisions of Stark II
prohibit referrals by physicians for designated healthcare services, including
outpatient prescription drugs, parenteral and enteral nutrition, equipment and
supplies, durable medical equipment and home health services, if such physician
has a disqualifying investment or compensation relationship with the supplier
of such services. While Coram believes it has structured its financial
relationships with physicians to comply with Stark II, failure to comply with
such provisions could have a materially adverse effect on the company. Various
federal laws also impose civil and criminal penalties against participants in
the Medicare or Medicaid programs who make false claims for payment of services
or otherwise engage in false billing practices. See Note 14 to
the companys Consolidated Financial Statements for further
discussion of Medicare, Medicaid and other regulatory matters. 62




---



##### Table of Contents



Enforcement of federal fraud and abuse laws and regulatory scrutiny
generally has increasingly focused on the home healthcare industry. There can
be no assurances that Coram will not become the subject of a regulatory or
other investigative proceeding or that managements interpretations of
applicable healthcare laws and regulations will not be challenged. The defense
of any such challenge could result in substantial cost to the company and
diversion of managements time and attention. Any such challenge, whether
ultimately sustained or not, could have a materially adverse effect on Coram. Many states also have statutes prohibiting the payment or receipt of (or
the offer or solicitation of) anything of value in return for, or to induce, a
referral for healthcare goods or services. There are several other state
statutes that, although they do not explicitly address payments for referrals,
could be interpreted as prohibiting the practice. While similar in many
respects to the federal laws, these laws vary from state to state, are often
vague and have seldom been interpreted consistently by courts and regulatory
agencies. In addition, various state laws impose civil and criminal penalties
against participants in Medicaid programs who make false claims for payment of
services or otherwise engage in false billing practices. Private insurers and
various state enforcement agencies have recently increased their scrutiny of
healthcare providers practices and claims, particularly in the home health and
home medical equipment areas. No assurances can be provided that the enhanced
state and private insurer activity will not ultimately result in an adverse
effect on the companys business. Medicare Certification.Federal regulations governing the Medicare program
are also applicable to Corams home health services. These regulations include
an annual review of healthcare facilities and personnel and provide criteria
for coverage and reimbursement. At December 31, 2003, the company had only one
location certified by Medicare to provide home health services. Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation and revision. Compliance with such laws
and regulations can be subject to future government review and interpretation,
as well as significant regulatory action, including punitive fines, penalties
and exclusion from the Medicare and Medicaid programs. Management acknowledges
and is complying with certain ongoing audits and reviews with respect to prior
reimbursements from Medicare and Medicaid. Furthermore, management cannot
readily determine the ultimate outcome of the ongoing or future external audits
and reviews; however, unfavorable outcomes in some or all of these matters
could have a materially adverse impact on the companys business, financial
position, results of operations and cash flows. Even if ultimately successful,
adjudication of these matters could prove to be a significant distraction that
impairs managements ability to focus on the companys continuing business
operations. See Note 14 to the companys Consolidated Financial Statements for
further details. Permits and Licensure.Many states require licensure of companies
providing home infusion therapy products and services, home healthcare services
and other products and services of the type offered by Coram. Through its
subsidiaries, Coram currently is licensed under state law to provide nursing
services in 40 states and pharmacy services in 27 states and one Canadian
province. Certificates of Need.Many states require companies providing home
healthcare services, home infusion therapy and other services of the type
offered by Coram to have a certificate of need issued by a state health
planning agency. Certificates of need are often difficult to obtain and in many
instances a certificate of need is not obtainable at all (because an area is
determined to be adequately serviced by existing providers or for other
reasons). If Coram commences operations in a state, or expands its operations
in a state where it is currently operating, the company may be required to
obtain a certificate of need with respect to those operations. There can be no
assurances that Coram would be able to obtain the required certificates of need
and the failure to do so could adversely affect Corams ability to grow its
business. Healthcare Reform. The healthcare industry continues to undergo significant changes that are
driven by various efforts to reduce costs, including efforts at national
healthcare reform, trends toward managed care, limits in Medicare coverage and
reimbursement levels, consolidation of healthcare distribution companies and
collective purchasing arrangements by office-based healthcare practitioners.
The impact of third party pricing pressures and low barriers to entry has
dramatically reduced profit margins for healthcare providers. Continued growth
in managed care and capitated plans has pressured healthcare providers to find
ways of becoming more cost competitive. These circumstances have also led to
consolidation of healthcare providers in the companys industry. Corams
inability to react effectively to these and other changes in the healthcare
industry could adversely affect its operating results. Political, economic and regulatory influences subject the healthcare
industry in the United States to extensive and dynamic change and, accordingly,
many competing proposals have been introduced in Congress and various state
legislatures to reform the present healthcare system. It is possible that
healthcare reform at the federal or state level, whether implemented through
legislation or 63




---



##### Table of Contents



through action by federal or state administrative agencies,
would require Coram to make significant changes in the way it conducts its
business. Certain aspects of healthcare reform, such as further reductions in
Medicare and Medicaid payments, if successfully developed and adopted, could
have a materially adverse effect upon the companys business. Coram anticipates
that Congress and state legislatures will continue to review and assess
alternative healthcare
delivery systems and payment methodologies. It is not possible at this
time to predict what, if any, further reforms will be adopted, or when such
reforms will be adopted and implemented. No assurances can be given that any
such reforms will not have a materially adverse effect on Corams business,
results of operations and financial condition. 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The following discusses the companys exposure to market risk related to
changes in interest rates. This discussion contains forward-looking statements
that are subject to risks and uncertainties. Actual results could vary
materially as a result of a number of factors, including, but not limited to,
changes in interest rates and the items set forth under Item 7. Factors
Affecting Recent Operating Results. As of December 31, 2003, the company had outstanding long-term debt of
approximately $10.4 million, including $9.0 million that matured on June 30,
2003 and bore interest at 9.0% per annum; however, the $9.0 million was not
paid on such date and the creditors remedies were stayed pursuant to the
Bankruptcy Cases. Approximately $9.1 million of the aforementioned $10.4
million is characterized as liabilities subject to compromise in the companys
Consolidated Financial Statements. Because substantially all of the interest on
the companys debt as of December 31, 2003 was fixed, a hypothetical 10.0%
change in interest rates would not have a material impact on the company.
Increases in interest rates could, however, increase interest expense
associated with future borrowings by the company, if any. The company does not
hedge against interest rate changes. See Note 8 to the companys Consolidated
Financial Statements for further details. The debt to equity exchange transactions described in Note 8 to the
companys Consolidated Financial Statements qualified as troubled debt
restructurings pursuant to Statement of Financial Accounting Standards No. 15,
Accounting by Debtors and Creditors for Troubled Debt Restructurings.In
accordance therewith and certain provisions of SOP 90-7, Financial Reporting by
Entities in Reorganization under the Bankruptcy Code,the Debtors will not
recognize any interest expense on the remaining Series B Notes until after
confirmation of a plan or plans of reorganization by the Bankruptcy Court. 
 ITEM 8. FINANCIAL STATEMENTS The companys Consolidated Financial Statements, Notes to Consolidated
Financial Statements and financial statement schedule at December 31, 2003 and
2002 and for the years ended December 31, 2003, 2002 and 2001 and the Report of
Independent Auditors are included in this report as indicated on the Index to
Financial Statements and Schedule on page F-l. 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 
 ITEM 9A. CONTROLS AND PROCEDURES The company performed an evaluation under the supervision and with the
participation of its management, including the companys Executive Vice
President, who is fulfilling the duties and responsibilities of the Chief
Executive Office and President of the company, and the Chief Financial Officer,
of the effectiveness of the companys disclosure controls and procedures, as such term is defined
under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange
Act of 1934, as amended, as of the end of the period covered by this report.
Based upon their evaluation, the companys Executive Vice President and Chief
Financial Officer concluded that the companys disclosure controls and
procedures effectively ensure that the company records, processes, summarizes
and reports in its public disclosures, including Securities and Exchange
Commission reports, all information: (a) required to be disclosed, (b) within
the time periods specified and (c) pursuant to processes that enable the
companys management, including its principal executive and financial officers,
as appropriate, to make timely decisions regarding disclosure. 64




---



##### Table of Contents



Management identified a reportable condition relative to certain elements of
the companys Medicaid billing and reimbursement practices. A reportable
condition, as defined by the American Institute of Certified Public
Accountants, involves matters relating to significant deficiencies in the
design or operation of internal controls that could adversely affect a
companys ability to record, process, summarize and report financial data
consistent with managements assertions on the financial
statements. The reportable condition was discussed at the
companys audit committee meetings on April 2, 2004 and
April 8, 2004 and management is implementing additional
internal procedures and controls to address the identified deficiencies and
enhance the reliability of the companys internal control procedures. See Note
14 to the companys Consolidated Financial Statements for further discussion of
the financial impact resulting from the reportable condition that was
recognized by the company during the year ended December 31, 2003. There were no changes in the companys internal control over financial
reporting that occurred during the quarter ended December 31, 2003 that could
have materially affected, or are reasonably likely to materially affect, the
companys internal control over financial reporting. However, effective January
2, 2004, a payroll software suite was implemented and all of the companys
payroll processing and reporting functions were transitioned from a third party
administrator to the company. While no assurances can be given, management
believes that this transition will result in improved internal control over
financial reporting. 65




---



##### Table of Contents



PART III 
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Chapter 11 Trustee and the Board of Directors On March 7, 2002, the United States Bankruptcy Court for the District of
Delaware (the Bankruptcy Court) approved the appointment of Arlin M. Adams,
Esquire as the Chapter 11 trustee for the bankruptcy estates of Coram
Healthcare Corporation (CHC) and its first tier wholly owned subsidiary,
Coram, Inc. (CI) (collectively the Debtors). CHC and its subsidiaries are
hereinafter referred to as Coram or the company. Chapter 11 of Title 11 of the
United States Code (the Bankruptcy Code) and applicable rules require a
Chapter 11 trustee to perform specific duties relating to the administration of
a bankruptcy case. Generally, a Chapter 11 trustee shall investigate the
debtors operations, financial condition and any other matters relevant to the
formulation of a plan of reorganization. The Bankruptcy Code also requires that
a Chapter 11 trustee must either file a plan of reorganization as soon as
practicable or an explanation as to why he/she is unable to file a plan of
reorganization. With the appointment of a Chapter 11 trustee, while still under
the jurisdiction of the Bankruptcy Court, the Debtors are no longer
debtors-in-possession under Chapter 11 of the Bankruptcy Code. Furthermore, the Bankruptcy Code makes a Chapter 11 trustee responsible
for the debtors business. As with a debtor-in-possession, a Chapter 11 trustee
may enter into transactions in the ordinary course of business without notice
or a hearing before the presiding bankruptcy court; however, non-ordinary
course actions still require prior authorization of the bankruptcy court. A
Chapter 11 trustee also assumes responsibility for management functions,
including decisions relative to the hiring and firing of personnel. As is the
case with the Debtors, when existing management is necessary to run the
day-to-day operations, the Chapter 11 trustee may retain and oversee such
management group. After a Chapter 11 trustee is appointed, a debtors board of directors
does not retain its ordinary management powers. Accordingly, Mr. Adams has
assumed the Debtors Board of Directors management rights and responsibilities
and the rights and responsibilities of all committees of the Board of
Directors, including the audit committee and the compensation committee.
Accordingly, neither the Board of Directors nor any of its committees have met
since May 16, 2002. The table below sets forth certain information concerning the Chapter 11
trustee and each member of CHCs Board of Directors as of April 9, 2004. Except
as provided below, none of the directors entered into any arrangement or
understanding pursuant to which such person was to serve as a director. Name
    
    Age
    
    Position with CHC
    
    Position Held SinceArlin M. Adams, Esquire
    
    
    82
    
    
    Chapter 11 Trustee
    
    
    2002Donald J. Amaral
    
    
    51
    
    
    Director
    
    
    1995William J. Casey
    
    
    59
    
    
    Director
    
    
    1997L. Peter Smith
    
    
    54
    
    
    Director
    
    
    1994Sandra R. Smoley
    
    
    67
    
    
    Director
    
    
    2000
 Arlin M. Adams, Esquire, Chapter 11 Trustee. Mr. Adams is of counselat
the law firm of Schnader Harrison Segal & Lewis LLP (Schnader Harrison).
After beginning his career at Schnader Harrison, Mr. Adams took a temporary
leave of absence to serve as Secretary of Public Welfare of the Commonwealth of
Pennsylvania from 1963 to 1967. After returning to Schnader Harrison from 1967 to 1969, he
left the firm to serve on the United States Court of Appeals for the Third
Circuit from 1969 until 1987, when he retired and rejoined Schnader Harrison.
He has a diversified litigation and appellate practice and has handled numerous
complex litigation matters and is an expert in class action litigation and
punitive damage matters. He is former chairman of the Trade Association
Committee of the American Bar Association and a past Chancellor of the
Philadelphia Bar Association. Mr. Adams is also a former President of the American Judicature Society, a
former member of the House of Delegates of the American Bar Association and a
former Chairman of the Advisory Committee of the University of Pennsylvania
School of Law. He has served on the boards of numerous charitable and
educational foundations and institutions and has been the recipient of numerous
honorary degrees and academic and service honors. Several positions of honor he
has held include his service as President of the American Philosophical
Society, Trustee of Bryn Mawr College and Trustee of the University of
Pennsylvania. Mr. Adams was the 66




---



##### Table of Contents



recipient of the Philadelphia Award, the
highest community award in the Delaware Valley area. He has repeatedly been
named one of the Best Lawyers in Philadelphia by Philadelphia Magazine. In addition to maintaining an active law practice, Mr. Adams has also been
active in pro bonowork, including his appointments as an independent counsel
for the investigation of the Department of Housing and Urban Development and as
Chapter 11 trustee in the bankruptcy of the New Era Foundation. As Mr. Adams has assumed the Board of Directors management rights and
responsibilities and the rights and responsibilities of all committees of the
Board of Directors, none of the following members of CHCs Board of Directors
have had any active involvement in the companys affairs since May 16, 2002. Donald J. Amaral, Director.Mr. Amaral served as Chairman of CHCs Board
of Directors from September 1997 until November 30, 1999. Mr. Amaral has served
as a director of the company since October 1995, Chief Executive Officer of the
company from October 1995 through April 23, 1999 and October 22, 1999 through
November 30, 1999, and as President from October 1995 through December 1997.
Previously, he was President and Chief Operating Officer of OrNda Healthcorp
(OrNda) from April 1994 to August 1995, and served in various executive
positions with Summit Health Ltd. (Summit) from October 1989 to April 1994,
including President and Chief Executive Officer between October 1991 and April
1994. Summit was merged into OrNda in April 1994. William J. Casey, Director.Mr. Casey has served as a director of CHC
since September 1997. Since 1983, Mr. Casey has served as a consultant in the
healthcare industry, specializing in hospital management evaluation, hospital
planning, managed care contracting and turnaround services. From 1986 to 1997,
Mr. Casey also served as Contract Administrator for Emergency Department
Physicians Medical Group, Inc. and its affiliated medical groups, which
provide physician services to non-governmental facilities. In addition, from
1988 to 1997 Mr. Casey served as Contract Administrator for NP Medical Group,
Inc., which provides physician services to government facilities. Mr. Casey
also serves as a director of TriCounties Bank. L. Peter Smith, Director.Mr. Smith has served as a director of CHC since
July 1994. Mr. Smith is presently Chief Executive Officer of Medmark, Inc., a
specialty pharmaceutical distribution company located in Pittsburgh,
Pennsylvania. Mr. Smith also serves on the Boards of Directors of Matrix, Inc.,
AMSYS, Inc. and American Physicians, Inc. a/k/a API, a physician staffing
company located in Phoenix, Arizona. Between November 1993 and July 1994, Mr.
Smith was a director of Medisys, Inc., one of the companies that joined
together in 1994 to form Coram. Mr. Smith served as the Managing Partner
of AllCare Health Services, Inc., which was acquired by Medisys, Inc. in
December 1992. Mr. Smith was formerly the Chief Executive Officer and Chairman
of the Board of Directors of CorSolutions Medical, Inc. (formerly Ralin
Medical, Inc.), a company specializing in cardiac disease management. Mr. Smith
previously served on the Board of Directors of Gateway, Inc. Additionally, Mr.
Smith previously served on the Board of Directors of Sabratek Corporation from
October 1992 through August 1999. Sabratek Corporation filed a voluntary
bankruptcy petition under Chapter 11 of the Bankruptcy Code on December 17,
1999. In January 2000, the assets and certain liabilities of Sabratek
Corporations Device Business were acquired by Baxter Healthcare Corporation.
On April 19, 2001, the Bankruptcy Court confirmed Sabratek Corporations Second
Amended Joint Plan of Liquidation and, in connection therewith, liquidation
proceedings are ongoing. Sandra R. Smoley, Director.Ms. Smoley was elected to CHCs Board of
Directors on February 10, 2000. Ms. Smoley is the President and Chief Executive
Officer of The Sandy Smoley Group, a healthcare and state and local government
consulting firm based in Sacramento, California. From October 1993 to December
1999, she served as Secretary of the California Health and Welfare Agency. From
January 1993 to October 1993, Ms. Smoley was Secretary of Californias State
and Consumer Services Agency. Resource Network Subsidiaries Litigation.In November 2001, the Official
Committee of Unsecured Creditors of Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc. (the R-Net Creditors Committee) filed
a complaint in the Bankruptcy Court, subsequently amended twice, both on its
own behalf and as assignee for causes of action that may belong to Coram
Resource Network, Inc. and Coram Independent Practice Association, Inc.
(collectively the Resource Network Subsidiaries), which named, among other
defendants, Messrs. Amaral and Smith, as well as the Debtors, several
non-debtor subsidiaries, a former director, several current and former
executive officers and employees of the company and the companys principal
lenders. The complaint alleges that the defendants violated various state and
federal laws in connection with alleged wrongdoings related to the operation
and corporate structure of the Resource Network Subsidiaries. Messrs. Amaral
and Smith have indicated through legal counsel that they intend to vigorously
defend themselves in this complaint. Coram notified its insurance carrier of
the complaint and intends to avail itself of any insurance coverage for its
directors. Management cannot reasonably predict the outcome of this case,
including the impact thereon as a result of two pending proposed plans of
reorganization, nor can it predict the amount of recoveries, if any, that the 67




---



##### Table of Contents



company may ultimately receive from its insurance carrier. See Item 13.
Certain Relationships and Related Transactions and Notes 3 and 14 to the
companys Consolidated Financial Statements for further details. Committees of the Board of Directors.Prior to the appointment of the
Chapter 11 trustee, the active members of the compensation committee of CHCs
Board of Directors were Messrs. Amaral and Smith. Moreover, the active members
of the audit committee were Mr. Casey and Ms. Smoley. Daniel D. Crowley was
also a member of the audit committee until his resignation, which was effective
March 31, 2003. As part of his overall duties and responsibilities, the Chapter
11 trustee has assumed all committee rights and responsibilities, including
those of the audit and the compensation committees. In his capacity as CHCs audit committee, Mr. Adams is providing oversight
of financial management and the independent auditors. He also oversees matters
relating to accounting, financial reporting, internal control, auditing,
regulatory compliance activities and other matters as deemed appropriate to
ensure that (i) management is maintaining an adequate system of internal
controls such that there is reasonable assurance that assets are safeguarded
and that financial reports are properly prepared, (ii) there is consistent
application of accounting principles generally accepted in the United States and (iii)
there is compliance with managements policies and procedures. In performing
these audit committee functions, Mr. Adams meets periodically with management
and the companys independent auditors (including private sessions) to review
their work and confirm that they are properly discharging their respective
duties. Such meetings were held on April 11, 2003, May 16, 2003, August 13,
2003, November 14, 2003, April 2, 2004 and April 8, 2004. As CHCs audit
committee, Mr. Adams has the sole authority to appoint or replace the companys
independent auditors. He also has the authority and responsibility to
pre-approve all auditing services and permitted non-audit services. As a result of the Chapter 11 trustees assumption of all the duties and
responsibilities of CHCs audit committee, such committee does not have an
audit committee financial expert, as defined under Item 401 of Regulation S-K
enacted by the Securities Exchange Commission (SEC), serving on such
committee. In order to address a need for independent financial expertise in
connection with his audit committee functions, on April 4, 2003 the Chapter 11
trustee engaged Concord Group, Inc. d/b/a Executive Round Table (Executive
Round Table), a financial, management and organizational development services
consulting firm, and its President and sole shareholder, Barry J. Hartzell.
Although Mr. Hartzell does not serve as an audit committee member, he provides
financial consulting services to the Chapter 11 trustee in support of the
Chapter 11 trustees audit committee duties and responsibilities and has
represented to the Chapter 11 trustee that he and Executive Round Table are
independent of the company and that he possesses the attributes of an audit
committee financial expert as outlined in Item 401 of Regulation S-K. Mr.
Hartzell has been the President of Executive Round Table since 1992, providing
consulting services to clients of varying sizes. Mr. Hartzell previously served
as Chief Operating Officer at Micro Marketing International, Inc. and he also served in various executive positions with Safeguard Business Systems, Inc. Prior to
that, Mr. Hartzell was a certified public accountant and senior auditor with
Price Waterhouse & Co. Executive Officers The following table sets forth certain information as of April 9, 2004
regarding each of the executive officers of Coram, who serve at the pleasure of
the Chapter 11 trustee. Name
    
    Age
    
    Position(s) with CoramAllen J. Marabito
    
    
    57
    
    
    Executive Vice President, Secretary and Principal
Executive Officer Fulfilling the Duties and
Responsibilities of President and Chief Executive
Officer of the CorporationScott R. Danitz
    
    
    46
    
    
    Senior Vice President, Chief Financial Officer,
Treasurer & Principal Accounting OfficerDeborah M. Meyer
    
    
    46
    
    
    Senior Vice President, Field SalesRonald L. Mills
    
    
    62
    
    
    Senior Vice President, Management Information
SystemsVito Ponzio, Jr.
    
    
    49
    
    
    Senior Vice President, Human ResourcesMichael A. Saracco
    
    
    56
    
    
    President, Specialty Services Division and President
and Chief Operating Officer of SoluNet LLC
 Allen J. Marabito joined Coram in 1999 as Executive Vice President and in
2002 assumed the responsibilities of acting General Counsel and acting
Corporate Secretary. Effective with the March 31, 2003 departure of the
companys former Chief Executive Officer and President, Daniel D. Crowley, Mr.
Marabito also assumed the role of Principal Executive Officer Fulfilling the
Duties and Responsibilities of President and Chief Executive Officer of the
company. On March 2, 2004, the Chapter 11 trustee formally granted Mr. Marabito
the title of Executive Vice President, Secretary and Principal Executive
Officer Fulfilling the Duties and Responsibilities of President and Chief
Executive Officer of the Corporation. From 1997 to 1999, Mr. Marabito was in
private law 68




---



##### Table of Contents



practice, as well as a consultant to Foundation Health Corporation
and Senior Vice President with Dynamic Healthcare Solutions, LLC (DHS), a privately
held management consulting and investment firm owned by Mr. Crowley. From 1991
to 1997, he served as Senior Vice President, Secretary and General Counsel of
Foundation Health Corporation. Scott R. Danitz served as the companys Vice President and Controller from
January 1998 through December 1999, Senior Vice President, Finance and Chief
Accounting Officer from January 2000 through December 2000 and Senior Vice
President, Chief Financial Officer and Treasurer since January 2001. On March
2, 2004, the Chapter 11 trustee granted Mr. Danitz the title of Principal
Accounting Officer, a corporate function he has performed without interruption
since January 2000. Previously, Mr. Danitz was employed by First Data
Corporation from 1989 through 1997 and held various positions, the most recent
being Vice President and Controller, Payment Instruments division. Deborah M. Meyer has served the company in several positions and is
currently serving as Senior Vice President, Field Sales, wherein she leads the
companys national field sales efforts. From 1988 to 1995, Ms. Meyer held
various positions, including General Manager, with Medisys, Inc., one of the
companies that merged to create Coram in 1994. Prior to working for Medisys,
Inc., Ms. Meyer held supervisory and clinical nursing positions in several
hospitals and healthcare organizations. Ronald L. Mills joined the company in November 2000 as Vice President,
Management Information Systems and has held the title of Senior Vice President,
Management Information Systems since November 2002. Prior to joining Coram, Mr.
Mills successively served as Vice President, Corporate Systems for Foundation
Health Corporation and Foundation Health Systems, Inc., Chief Operating Officer
of DASD, Inc. and, most recently, DHS Chief Information Officer. Vito Ponzio, Jr. has served as the companys Senior Vice President, Human
Resources since September 1998. Previously, Mr. Ponzio served as the companys
Vice President of Human Resources from February 1996 to September 1998 and as a
Director of Human Resources from September 1994 to February 1996. Previously,
Mr. Ponzio held the position of Director of Human Resources for H.M.S.S., Inc.,
a company acquired by Coram in September 1994. Michael A. Saracco has served the company in several positions and, since
July 2002, has been serving as President, Specialty Services Division. In this
capacity, Mr. Saracco leads the strategic planning, program development and
marketing programs that support national sales efforts promoting the companys
core infusion therapies and clinical research activities. From November 2000
through July 2002, Mr. Saracco served the company in the capacity of Senior
Vice President, Specialty Products Division. Mr. Saracco has also served as
President and Chief Operating Officer of the companys wholly-owned subsidiary,
SoluNet LLC, since it was organized in November 2002. Prior to joining the
company, Mr. Saracco served as Director of Sales and General Manager of
Caremark, Inc., the net assets of which were acquired by the company in April
1995. As noted above under the caption Chapter 11 Trustee and the Board of
Directors, in November 2001 the R-Net Creditors Committee brought an
adversary proceeding in the Bankruptcy Court both on its own behalf and as
assignee for causes of action that may belong to the Resource Network
Subsidiaries against, among other defendants, Messrs. Danitz and Ponzio. The
complaint alleges that the defendants violated various state and federal laws
in connection with alleged wrongdoings in connection with the operation and
corporate structure of the Resource Network Subsidiaries. Messrs. Danitz and
Ponzio have indicated through legal counsel that they intend to vigorously
defend themselves in this complaint. Coram notified its insurance carrier of
the complaint and intends to avail itself of any insurance coverage for its executive
officers. Management cannot reasonably predict the outcome of this case,
including the impact thereon as a result of two pending proposed plans of
reorganization, nor can it predict the amount of recoveries, if any, that the
company may ultimately receive from its insurance carrier. See Item 13.
Certain Relationships and Related Transactions and Notes 3 and 14 to the
companys Consolidated Financial Statements for further details. Code of Ethics The company has adopted a Code of Ethics (the Code of Ethics) that is
collectively comprised of two documents: (i) the Corporate Compliance Handbook,
which applies to all company employees, including the executive officers, and
(ii) the Coram Healthcare Corporation Code of Ethics for Principal Executive
Officer(s) and Senior Financial Officers, which solely applies to certain
executive officers, including the Principal Executive Officer and the Principal
Accounting Officer. The Code of Ethics has been filed as Exhibit 14.1 to this
Annual Report on Form 10-K for the year ended December 31, 2003. 69




---



##### Table of Contents



Section 16(a) Beneficial Ownership Reporting Compliance Section 16 of the Securities Exchange Act of 1934, as amended, requires
CHCs directors, executive officers and persons who beneficially own greater
than 10% of a registered class of CHCs equity securities to file reports of
ownership and changes in ownership with the SEC. Based solely upon its review
of copies of the Section 16 reports that Coram received and written
representations from certain reporting persons, management believes that during
the year ended December 31, 2003 all of its directors, executive officers and
greater than 10% beneficial owners were in compliance with these filing
requirements. 
 ITEM 11. COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS Compensation of Chapter 11 Trustee and Others Administrative Fees.All fees and expense reimbursements payable to Mr.
Adams in his capacity as the Debtors Chapter 11 trustee constitute
administrative fees subject to authorization and approval by the Bankruptcy
Court prior to interim and final payments by the Debtors. Such fees are based
upon a rate per hour approved by the Bankruptcy Court. Through April 9, 2004,
the Debtors have cumulatively paid $193,566 to Mr. Adams for compensation and
reimbursable expenses incurred from March 7, 2002 to November 30, 2003 (i.e.,
the last period for which an application has been submitted to the Bankruptcy
Court), including $139,549 that was paid during 2003. Payments to Parties Related to Mr. Adams.Mr. Adams is of counselat the
law firm Schnader Harrison. Such law firm was approved by the Bankruptcy Court
as counsel to the Chapter 11 trustee and, in connection therewith,
reimbursement of professional fees and related expenses are subject to
authorization and approval by the Bankruptcy Court prior to interim and final
payments by the Debtors. Through April 9, 2004, the Debtors have cumulatively
paid $4,930,310 to Schnader Harrison for professional services rendered and
reimbursable expenses incurred from March 7, 2002 to November 30, 2003 (i.e.,
the last period for which an application has been submitted to the Bankruptcy
Court), including $4,099,593 that was paid during 2003. The amounts paid to Mr. Adams and Schnader Harrison are net of certain
holdbacks available to the company pursuant to Chapter 11 or the Bankruptcy
Code. Compensation of Directors Fees for Board Service.Compensation for participation on CHCs Board of
Directors was at the discretion of the Board of Directors until March 7, 2002.
Effective on such date, the Chapter 11 trustee was appointed by the Bankruptcy
Court and compensation for participation on the Board of Directors, if
applicable, is at the discretion of the Chapter 11 trustee; however, due to the
absence of Board of Directors meetings, no amounts were either earned or paid
to any member of the Board of Directors during 2003. Pursuant to CHCs formal approved policy, non-employee directors earn
$2,000 for each Board of Directors meeting attended in person and $750 for
each Board of Directors meeting attended by telephone conference call. No
compensation is earned for participating at meetings of committees of the Board
of Directors. Employee directors earn no additional compensation for service as
a director. Effective April 1, 2000, the Board of Directors adopted resolutions
approving an annual retainer of $12,000 (payable quarterly) for each
non-employee director. Directors are entitled to reimbursement for
expenses incurred in connection with attending meetings of the Board of
Directors or committees thereof. Due to the Debtors bankruptcy proceedings, certain amounts payable to
members of CHCs Board of Directors have been stayed and, in connection
therewith, such members have filed proofs of claims against the Debtors
bankruptcy estates. Outside Directors Automatic Option Grant Program.Non-employee members of
CHCs Board of Directors participated in the Automatic Option Grant Program in
effect under the 1994 Coram Healthcare Corporation Stock Option/Stock Issuance
Plan (the 1994 Stock Option Plan) until it terminated by its own terms on
December 31, 2003. On the date of the annual meeting of CHCs stockholders,
each individual who would continue to serve as a non-employee member of the
Board of Directors would receive a non-statutory stock option to purchase 2,500
shares of CHC common stock at an exercise price equal to the fair market value
of CHCs common stock on the automatic option grant date. Additionally, each
non-employee member of CHCs Board of Directors, upon being newly appointed or
elected to the Board of Directors, would automatically be granted, at the time
of such initial election or appointment, a non-statutory option to purchase
75,000 shares of CHCs common stock. Due the absence of Board of Directors 70




---



##### Table of Contents



meetings and newly elected members, no stock options were granted pursuant to
these programs during the year ended December 31, 2003. All options outstanding
under the expired 1994 Stock Option Plan shall continue to have force and
effect in accordance with the provisions of the instruments evidencing such
grants. As of April 9, 2004, all stock options granted to members of CHCs Board
of Directors under the Automatic Option Grant Program are fully vested. Each automatic option granted to a non-employee member of CHCs Board of
Directors includes a limited stock appreciation right that allows the optionee,
upon the successful completion of a hostile tender offer for more than 50% of
CHCs outstanding securities, to surrender that option to CHC in return for a
cash distribution in an amount per surrendered option share equal to the
highest price per share of CHC common stock paid in the tender offer, less the
exercise price payable per share. Mr. Richard A. Fink was a director of CHC from July 1994 until he resigned
from the Board of Directors on February 10, 2000. Following Mr. Finks
resignation, the Board of Directors granted his request to amend his stock
option agreement, dated September 9, 1998, pursuant to which Mr. Fink was
granted options to purchase 75,000 shares of CHCs common stock at $1.6875 per
share. As a result of the amendment, all such options became immediately
exercisable and can be exercised at any time through the stated maximum option
expiration date of September 9, 2008. Pursuant to the terms of the Equity Committees Plan (as defined in Note
3 to the companys Consolidated Financial Statements), the abovementioned stock
options will be allowed equity interests if such plan of reorganization is
ultimately confirmed by the Bankruptcy Court. Under the Trustees Plan (as
defined in Note 3 to the companys Consolidated Financial Statements), as
modified, the companys stock options, as well as the underlying common stock
of such equity instruments, will not be allowed equity interests if such plan
of reorganization is ultimately confirmed by the Bankruptcy Court. Management
cannot predict the effect on the companys outstanding stock options of another
plan or plans of reorganization, if any, put forth by an interested party. CHC entered into individual indemnification agreements with each of its
directors and executive officers that would require CHC, in certain
circumstances, to provide indemnifications for claims made against them in
connection with their service on behalf of CHC. 71




---



##### Table of Contents



Summary of Cash and Certain Other Compensation of Executive Officers The following table sets forth the annual compensation earned by the
Executive Vice President (who is fulfilling the duties and responsibilities of
Chief Executive Officer), a former Chief Executive Officer and the other four
most highly compensated executive officers of the company during the year ended
December 31, 2003 (collectively the Named Executive Officers), for services
rendered in all capacities to the company and its subsidiaries for each year in
the three year period ended December 31, 2003. Summary Compensation Table Annual CompensationOther Annual
    
    All OtherName and Principal Position (1)
    
    Year
    
    Salary
    
    Bonus
    
    Compensation (2)
    
    CompensationAllen J. Marabito (3)Executive Vice President, Secretary and Principal Executive
Officer Fulfilling the Duties and Responsibilities of
President
and Chief Executive Officer of the Corporation
    
    
    2003
2002
2001
    
    
    $
    368,269
351,713
348,462
    
    
    $           
200,000
930,000
    
    $
    104,089
108,776
92,244
    
    
    $
    403,077
19,141
173,654Daniel D. Crowley (4)
    
    
    2003
    
    
    $
    253,808
    
    
    $           
    
    $
    84,071
    
    
    $
    Former Director and Chairman of the Board, Chief Executive
Officer and President
    
    
    2002
2001
    
    
    
    650,000
650,000
    
    
    

    
    
    243,798
170,643
    
    
    
    27,500
50,000Scott R. Danitz (5)
    
    
    2003
    
    
    $
    260,962
    
    
    $           
    
    $
    22,100
    
    
    $
    150,000Senior Vice President, Chief Financial Officer, Treasurer
& Principal Accounting Officer
    
    
    2002
2001
    
    
    
    250,000
248,077
    
    
    90,025
245,000
    
    
    22,100
22,100
    
    
    
    25,960
65,385Deborah M. Meyer (6)
    
    
    2003
    
    
    $
    250,000
    
    
    $           
    
    $
    10,357
    
    
    $
    205,525Senior Vice President, Field Sales
    
    
    2002
2001
    
    
    
    248,462
239,615
    
    
    89,424
172,975
    
    
    4,800
4,800
    
    
    
    5,910
52,288Ronald L. Mills (7)
    
    
    2003
    
    
    $
    220,000
    
    
    $           
    
    $
    52,690
    
    
    $
    150,000Senior Vice President, Management Information
Systems
    
    
    2002
2001
    
    
    
    179,231
150,000
    
    
    26,880
25,000
    
    
    69,727
37,619
    
    
    
    1,731
30,000Michael A. Saracco (8)
    
    
    2003
    
    
    $
    290,000
    
    
    $           
    
    $
    4,800
    
    
    $
    220,355President, Specialty Services Division and President
and Chief Operating Officer of SoluNet LLC
    
    
    2002
2001
    
    
    
    266,923
239,423
    
    
    91,224
91,250
    
    
    4,800
4,800
    
    
    
    20,740
50,903
 In September 2000 and October 2000, the Bankruptcy Court approved payments
of up to approximately $2.6 million for retention bonuses payable to certain
key employees under the Debtors Key Employee Retention Plan (KERP). The
bonuses were scheduled to be paid in two equal installments on the later of the
date of emergence from bankruptcy or: (i) December 31, 2000 (the First KERP
Installment) and (ii) December 31, 2001 (the Second KERP Installment). Due
to events that delayed emergence from bankruptcy, the Bankruptcy Court approved
early payment of the First KERP Installment to all participating individuals,
except for Messrs. Crowley and Marabito, and such payments were made on March
15, 2001. The First KERP Installment amounts are excluded from the above table
as they were included as compensation in the year ended December 31, 2000. In
January 2002, the Debtors requested permission from the Bankruptcy Court to pay
the remaining portion of the First KERP Installment of $400,000 for Mr. Crowley
and $75,000 for Mr. Marabito and the full amount of the Second KERP
Installment. On March 15, 2002, after appointment of the Chapter 11 trustee,
the Bankruptcy Court partially approved the Debtors motion insofar as all the
remaining retention bonuses were authorized to be paid, exclusive of amounts
pertaining to Mr. Crowley because such payments were disputed by the Official
Committee of the Equity Security Holders of Coram Healthcare Corporation (the
Equity Committee). The Second KERP Installment amounts were paid on
March 25, 2002 and are included in the above table as All Other Compensation
for the year ended December 31, 2001. On April 7, 2003, the Bankruptcy Court approved a motion filed by the
Chapter 11 trustee to establish the 2003 Key Employee Retention Plan (the 2003
KERP), which provided for (i) retention bonus payments of approximately $3.0
million to key employees of the company (the 2003 KERP Compensation) and (ii)
other payments of approximately $0.3 million to certain branch management
personnel (the Branch Incentive Compensation). Pursuant to the provisions of
the 2003 KERP, the 2003 KERP Compensation was payable in two equal
installments, as follows: (i) upon approval of the 2003 KERP by the Bankruptcy
Court and 72




---



##### Table of Contents



(ii) the earlier of 60 days after confirmation of a plan or plans of
reorganization or December 31, 2003. Approximately $1.8 million, which
represented the first installment under the 2003 KERP Compensation and the
entire Branch Incentive Compensation amount, was paid to eligible participants
in April 2003 and approximately $1.5 million, representing the second
installment of the 2003 KERP Compensation, was paid in December 2003 to
eligible participants. The 2003 KERP amounts are included in the above table
under All Other Compensation for the year ended December 31, 2003. The company previously sponsored a Management Incentive Plan (MIP),
which provided for annual bonuses payable to certain key employees. The bonuses
were predicated on overall corporate performance (principally cash collections
and earnings from continuing operations before interest expense, income taxes,
depreciation and amortization and other non-recurring items (EBITDA)), as
well as individual performance targets and objectives. On March 20, 2001, the compensation committee of CHCs Board of Directors
approved an overall award of approximately $13.6 million for those individuals
participating in the MIP during the year ended December 31, 2000 (the 2000
MIP). On September 10, 2001, the Bankruptcy Court approved the payment of the
2000 MIP amounts to all participating individuals, except Mr. Crowley. Amounts
paid during 2001 to the Named Executive Officers relating to the 2000 MIP are
reflected in the table above as bonuses for the year ended December 31, 2001. On March 21, 2001, the compensation committee of CHCs Board of Directors
also approved a management incentive program for the year ended December 31,
2001 (the 2001 MIP). Under the terms of the 2001 MIP, eligible participants
were authorized to receive an aggregate payment of up to $2.5 million. On
August 16, 2002, the Chapter 11 trustee filed a motion with the Bankruptcy
Court to make 2001 MIP payments of approximately $1.1 million, which excluded
certain 2001 MIP amounts as indicated below. The Bankruptcy Court approved such
motion on September 6, 2002 and the approved amounts were paid to the eligible
2001 MIP participants in September 2002. The Chapter 11 trustee agreed
separately with Messrs. Crowley and Marabito: (i) not to request any 2001 MIP
payment to Mr. Crowley and (ii) to request the payment of $200,000 of the 2001
MIP amount to which Mr. Marabito was otherwise entitled. The Bankruptcy Courts
order approving the motion also (i) withdrew a previous motion made by the
Debtors to implement a 2002 key employee retention plan, (ii) withdrew the
Debtors previous motion requesting permission to pay the remaining amounts
under the First KERP Installment and (iii) preserved Messrs. Crowleys and
Marabitos rights to later seek Bankruptcy Court orders authorizing payment of
amounts due to them under the 2001 MIP. Moreover, the Chapter 11 trustee
retains the right, at his discretion, to request payout of all or any portion
of the remaining unpaid 2001 MIP amount to Mr. Marabito. Amounts paid during
September 2002 to the Named Executive Officers relating to the 2001 MIP are
reflected in the above table as bonuses for the year ended December 31, 2002.  (1)
    
    See above information under the caption Executive Officers for
employment history.(2)
    
    Does not include perquisites aggregating in dollar value less than the
lesser of $50,000 or 10% of the individuals annual salary and bonus
reported for such individual for the year presented. The perquisites
exceeding 25% of the total perquisites for the Named Executive Officers
and Mr. Crowley include (i) $3,500 per month for corporate housing and an
auto allowance of $1,000 per month for Mr. Marabito, (ii) $3,600 per month
until March 31, 2003 for corporate housing, auto allowance of $1,800 per
month until March 31, 2003 and the annual premium for a company sponsored
$1.0 million life insurance policy with his designee as the beneficiary
for Mr. Crowley, (iii) an auto allowance of $900 per month for Mr. Danitz,
(iv) auto allowances of $400 per month for each of Ms. Meyer and Mr.
Saracco, (v) a relocation expense reimbursement of $5,557 in 2003 for Ms.
Meyer and (vi) corporate housing of approximately $2,400 per month for Mr.
Mills. The aforementioned corporate housing and auto allowances for
Messrs. Crowley, Marabito and Danitz, corporate housing for Mr. Mills and
certain commuting expenses for Messrs. Marabito and Mills are subject to
customary tax gross-up adjustments. All such tax gross-up adjustments are
included in the Other Annual Compensation amounts.(3)
    
    Mr. Marabito participated in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amount under the
First and Second KERP Installments, aggregating $150,000, was paid on
March 25, 2002. Mr. Marabitos allocated 2000 MIP amount of $930,000 was
paid in September 2001. Mr. Marabito and the Chapter 11 trustee agreed to
the interim payment of $200,000 of Mr. Marabitos allocated 2001 MIP
amount, which totaled $540,000. This partial 2001 MIP payment was made in
September 2002. The remaining 2001 MIP balance has not been authorized or
approved by the Chapter 11 trustee or the Bankruptcy Court and is not
included in the above table.Pursuant to the terms and conditions of Mr. Marabitos employment
contract, which expired by its own terms on November 29, 2002, Mr.
Marabito was entitled to incentive compensation of $1.05 million for the
year ended December 31, 2002 (the 2002 Incentive Compensation) based on
the companys overall financial performance. On May 19, 2003, 73




---



##### Table of Contents



Mr. Marabito released the company from all contractual obligations pertaining to the
2002 Incentive Compensation, which was subject to Chapter 11 trustee and
Bankruptcy Court approvals. In consideration of his release, Mr. Marabito
was granted an allocated 2003 KERP amount of $380,000 and the Chapter 11
trustee retained the right, in his sole discretion, to request approval
from the Bankruptcy Court of such additional compensation for Mr. Marabito
as he deems appropriate.(4)
    
    Until he resigned from the company on March 31, 2003, Mr. Crowley
participated in both the KERP and MIP retention/incentive arrangements. In
connection therewith, Mr. Crowleys allocated amount of $800,000 under the First and Second KERP
Installments, to which he asserts entitlement, remained unpaid as of
April 9, 2004. Mr. Crowleys allocated MIP amount of
approximately $10.8 million for the year ended December
31, 2000, to which he asserts entitlement, is also unpaid as of April 9, 2004 and is subject to Chapter 11 trustee and Bankruptcy Court review and
disallowance or approval.Mr. Crowleys employment contract,
which expired by its own terms on November 29, 2002, provided that Mr. Crowley was
entitled to incentive compensation of $1.95 million and $1.0 million for
the years ended December 31, 2002 and 2001, respectively, based on the
companys overall financial performance. Such amounts have not been authorized or
approved by the Chapter 11 trustee or the Bankruptcy Court.Effective August 2, 2000, CHCs Board of Directors approved a contingent
bonus to Mr. Crowley. Under the agreement, subject to certain material
terms and conditions, Mr. Crowley would have a claim for $1.8 million
following the successful refinancing of the companys debt. In connection
therewith and the December 2000 debt to preferred stock exchange
transaction discussed in Notes 3 and 8 to the companys Consolidated
Financial Statements, the company recorded a $1.8 million success bonus
expense during the year ended December 31, 2000. The success bonus will
not be payable unless and until such time as a plan or plans of
reorganization, which provide for payment of such bonus, are fully
approved by the Bankruptcy Court. Payment of this bonus may require
further approvals by the Chapter 11 trustee and the Bankruptcy Court.None of the aforementioned unpaid incentive compensation, success or other
bonuses is included in the
above table.Mr. Crowley owns DHS, a management consulting and investment company from
which Coram purchased services. The terms and conditions of the underlying
consulting agreement were approved by CHCs Board of Directors when Mr.
Crowley was hired by Coram. Effective with the Debtors Chapter 11 filings
in the Bankruptcy Court, DHS employees who were serving as consultants to
Coram terminated their employment with DHS and became full time Coram
employees. Through March 31, 2003, DHS continued to bill the company the
actual costs it attributed to DHS Sacramento, California location where
Mr. Crowley and other persons were located and performed services for or
on behalf of the company. Effective April 1, 2003, DHS and the Chapter 11
trustee entered into a month-to-month lease agreement for office space at
the aforementioned Sacramento, California location where certain company
employees and consultants remain. The rent, including parking and certain
utilities, is approximately $8,000 per month. During the year ended
December 31, 2003, approximately $118,000 was paid to DHS in connection
with the aforementioned arrangements. Subsequent to December 31, 2003 and
through April 9, 2004, approximately $32,000 was paid to DHS for such
costs. Additionally, the company paid approximately $301,000 and $259,000
to DHS during each of the years ended December 31, 2002 and 2001,
respectively, for reimbursable costs. The aforementioned payments to DHS
are not included in the above table. Refer to Daniel D. Crowley, under
Employment Contracts, Termination of Employment and Change of Control
Arrangements in this Item 11. for further discussion of the companys
arrangements with Mr. Crowley and DHS, as well as an Equity Committee
Bankruptcy Court motion seeking to disgorge amounts previously paid by the
company to Mr. Crowley and DHS.During the period from January 1, 2003 through March 31, 2003, the company
compensated Mr. Crowley on the basis of an annual salary of $960,000, as
provided under a transition agreement that is further described below
under Employment Contracts, Termination of Employment and Change in
Control Arrangements. Such agreement was subject to, and ultimately not
approved by, the Bankruptcy Court. Accordingly, the Chapter 11 trustee has
requested repayment of $41,792 from Mr. Crowley, representing the amounts
paid in 2003 for the salary differential, net of withheld taxes, between
the expired employment agreement and the transition agreement.
Additionally, the Trustees Plan, as modified, proposes to reject Mr.
Crowleys employment agreement. The above table includes the 2003 salary
paid to Mr. Crowley without benefit for recoveries, if any. 74




---



##### Table of Contents



(5)
    
    Mr. Danitz participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amounts, which are
all included in the above table, were as follows: $50,000 for the Second
KERP Installment, $245,000 for the 2000 MIP, $90,025 for the 2001 MIP and
$150,000 for the 2003 KERP.(6)
    
    Ms. Meyer participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, her allocated amounts, which are
all included in the above table, were as follows: $40,000 for the Second
KERP Installment, $172,975 for the 2000 MIP, $89,424 for the 2001 MIP and
$200,000 for the 2003 KERP.(7)
    
    Mr. Mills participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amounts, which are
all included in the above table, were as follows: $30,000 for the Second
KERP Installment, $25,000 for the 2000 MIP, $26,880 for the 2001 MIP and
$150,000 for the 2003 KERP.(8)
    
    Mr. Saracco participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amounts, which are
all included in the above table, were as follows: $40,000 for the Second
KERP Installment, $91,250 for the 2000 MIP, $91,224 for the 2001 MIP and
$200,000 for the 2003 KERP. Option Grants in Last Fiscal Year There were no stock options or stock appreciation rights granted to any
Named Executive Officers during the three year period ended December 31, 2003. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values The table below sets forth information concerning the outstanding stock
options held by each of the Named Executive Officers at December 31, 2003. No
stock appreciation rights were held by the Named Executive Officers as of such
date. No stock options or stock appreciation rights were exercised by the Named
Executive Officers during the year ended December 31, 2003. Number of Unexercised
    
    In-the-Money
    
    Value of UnexercisedOptions at
    
    Options at
    
    In-the-Money Options atDecember 31, 2003
    
    December 31, 2003 (1)
    
    December 31, 2003 (1)Name
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableAllen J. Marabito
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    Daniel D. Crowley
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Scott R. Danitz
    
    
    95,000
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    6,250
    
    
    
    Deborah M. Meyer
    
    
    150,000
    
    
    
    
    
    
    
    50,000
    
    
    
    
    
    
    
    6,250
    
    
    
    Ronald L. Mills
    
    
    40,000
    
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    8,124
    
    
    
    Michael A. Saracco
    
    
    140,000
    
    
    
    
    
    
    
    40,000
    
    
    
    
    
    
    
    5,000
    
    
    
    
   (1)
    
    Whether an option is in-the-money, as well as the value of unexercised
in-the-money options, if applicable, is determined by subtracting the
exercise price of the option from the closing price for CHCs common stock
on December 31, 2003 ($0.75 per share), as reported on the Over the
Counter Bulletin Board maintained by the National Association of
Securities Dealers, Inc. If the closing price for CHCs common stock on
December 31, 2003 is greater than the exercise price of the option, the
option is in-the-money. The value of unexercised in-the-money options is
calculated by determining the difference between the closing price of
CHCs common stock on December 31, 2003 and the exercise price of the
option, multiplied by the number of outstanding options. For the purpose
of such calculations, the market price per share is the applicable market
price as of December 31, 2003 and does not reflect market price changes
subsequent thereto. Shares subject to options granted to the companys Named Executive
Officers under the 1994 Stock Option Plan will immediately vest in full upon
(i) an acquisition of the company by merger or asset sale in which such options
are not assumed by the acquiring entity or (ii) if such options are so assumed,
the subsequent involuntary termination of the optionees employment within
eighteen months following such acquisition. The 1994 Stock Option Plan expired
by its own terms on December 31, 2003. However, all options outstanding under
the expired 1994 Stock Option Plan shall continue to have force and effect in
accordance with the provisions of the instruments evidencing such grants. 75




---



##### Table of Contents



Pursuant to the terms of the Equity Committees Plan, the abovementioned
stock options will be allowed equity interests if such plan of reorganization
is ultimately confirmed by the Bankruptcy Court. Under the Trustees Plan, as
modified, the companys stock options, as well as the underlying common stock
of such equity instruments, will not be allowed equity interests if such plan
of reorganization is ultimately confirmed by the Bankruptcy Court. Management
cannot predict the effect on the companys outstanding stock options of another
plan or plans of reorganization, if any, put forth by an interested party. Employment Contracts, Termination of Employment and Change of Control Arrangements The company has entered into employment agreements with its Named
Executive Officers as described below. Allen J. Marabito.Effective November 30, 1999, Coram entered into an
employment agreement with Mr. Marabito for a three year term commencing on such
date. Since the agreements expiration by its own terms on November 29, 2002,
Mr. Marabito has served at will and has continued to function on a basis
consistent with his previous role. Additionally, effective April 1, 2003, he
also assumed the duties and responsibilities previously performed by Mr.
Crowley as the Chief Executive Officer and President of the company. Mr.
Marabitos current base salary is $395,000 per annum. Moreover, he receives the
same employee benefits as prior to the expiration of his employment contract:
four weeks of vacation, an automobile allowance in the amount of $1,000 per
month, a tax preparation fee allowance, corporate housing in Denver and certain
customary income tax gross-up adjustments. Mr. Marabito is also eligible to
participate in the companys health, dental, medical, group life insurance and
similar welfare benefit plans. Under the expired employment agreement and related amendment, Mr. Marabito
served as CHCs Executive Vice President. He received a base salary, subject to
annual merit adjustments, and had the right to receive a performance bonus
between 60% and 300% of his base salary, if the companys annual EBITDA
exceeded the EBITDA target. He was also eligible to receive an acquisition
bonus of approximately three times the sum of (i) his base salary and (ii) his
EBITDA performance bonus in the event the company merged with or was acquired
by another company. If Mr. Marabitos employment was terminated by the company
other than for cause, or if he voluntarily terminated his employment in the
event that the company failed to comply with any material provision of his
employment agreement, then Mr. Marabito would have been entitled to receive his
base salary through the longer of (i) the remaining term of the agreement or
(ii) twenty four months, plus the EBITDA target bonuses during such period.
Additionally, during such period, Mr. Marabito would have retained his
eligibility to participate in the companys health, dental, medical, group life
and similar welfare benefit plans. Under the expired employment agreement, Mr.
Marabito was also granted options to purchase 500,000 shares of CHCs common
stock at an exercise price of $0.8125 per share (the stock price on December
17, 1999). The options vested and became exercisable in three equal annual
installments upon Mr. Marabitos completion of each year of service. The vested
options are scheduled to expire on December 17, 2009, subject to Mr. Marabitos
continued employment with the company. If Mr. Marabito were to terminate his
employment with the company, such options would expire 90 days from his
separation date. As part of his employment agreement, Mr. Marabito agreed that
during the term of his employment with the company, and for one year
thereafter, he would not directly or indirectly own, manage, control,
participate in, consult with, render services to, or in any manner engage in
any business which competes with the companys business in the companys
geographical area. In addition, Mr. Marabito may not solicit the companys
employees, customers or suppliers during the term of his employment with the
company and for one year thereafter. Daniel D. Crowley.Mr. Crowley joined CHC as its Chairman, Chief Executive
Officer and President on November 30, 1999 and resigned therefrom effective
March 31, 2003. Mr. Crowley also serves as Chairman, Chief Executive Officer
and President of DHS, which he established in 1997. Effective November 30, 1999, Coram entered into an employment agreement
with Mr. Crowley for a three year term commencing on such date. This employment
agreement provided for two automatic one year renewals after the completion of
the initial three year term. Mr. Crowley elected not to renew the agreement,
which then expired by its own terms on November 29, 2002. Subsequent to that
date, Mr. Crowley continued to perform his duties at the request of the Chapter
11 trustee on a basis that was consistent with his previous role within the
company. During such period, Mr. Crowley received compensation under terms and
conditions identical to those of his expired employment agreement, which is
summarized below, with the exception that there were no arrangements for a
bonus or other form of incentive compensation. On January 24, 2003, the Chapter
11 trustee filed a motion with the Bankruptcy Court seeking authorization to
enter into a Termination and Employment Extension Agreement (the Transition
Agreement), effective January 1, 2003, with Mr. Crowley to have him serve as
CHCs Chief Transition and Restructuring Officer for a term not to exceed the
earlier of (i) six months from January 1, 2003, (ii) the date on which a plan
or plans of reorganization were confirmed by final order of the Bankruptcy
Court or (iii) the substantial consummation of a plan or plans of
reorganization. Pursuant to the Transition Agreement, Mr. Crowley would have
continued to render essentially the same services as previously provided to the 76




---



##### Table of Contents



company. On March 3, 2003, the Bankruptcy Court denied the Chapter 11 trustees
motion for authorization to enter into the Transition Agreement due to the
Bankruptcy Courts belief that Mr. Crowley, contrary to his representations,
had continued to seek remuneration from Cerberus Partners, L.P. (Cerberus) (a
party to the companys former debtor-in-possession financing agreement, former
Senior Credit Facility and Securities Exchange Agreement, as well as a holder
of certain CI preferred stock equity interests) in connection with efforts
undertaken by Mr. Crowley in the Debtors bankruptcy proceedings. In response
to the Bankruptcy Courts ruling, Mr. Crowley resigned from the company. During
the period from January 1, 2003 through March 31, 2003, the company compensated
Mr. Crowley on the basis of an annual salary of $960,000 (i.e., as provided in
the Transition Agreement, which by its terms was subject to Bankruptcy Court approval). The Chapter 11 trustee has requested repayment of
$41,792 from Mr. Crowley, representing the amounts paid in 2003 for the salary
differential, net of withheld taxes, between the expired employment agreement
and the Transition Agreement. Additionally, the Trustees Plan, as modified,
proposes to reject Mr. Crowleys employment agreement. See Note 3 to the
companys Consolidated Financial Statements for further discussion of the
Trustees Plan, as modified. Under the expired employment agreement and related amendments, Mr. Crowley
served as Chairman of the Board of Directors, President and Chief Executive
Officer of the company. He received a base salary of $650,000 per year and a
contractual claim to receive performance bonuses, which were characterized as
(i) an EBITDA bonus (a component of the companys Management Incentive Plan)
and (ii) a refinancing success bonus. The EBITDA bonus generally provided
incentive compensation by measuring operating results (EBITDA) against target
EBITDA. Pursuant to the second amendment to Mr. Crowleys employment agreement,
dated April 6, 2000, such EBITDA bonus for the year ended December 31, 2000
utilized a two-tier methodology whereby Mr. Crowley received the sum of (i) 25%
of the companys EBITDA in excess of $14 million and (ii) a one-time $5 million
enhanced bonus, if the companys EBITDA exceeded $35 million. The refinancing
success bonus provided for a $1.8 million award upon confirmation of the
Debtors plan or plans of reorganization, if such plan or plans of
reorganization included a refinancing component. A refinancing, as contemplated
by the third amendment to the employment agreement, dated August 2, 2000, was
defined as a transaction or series of related transactions approved by the Board of
Directors that converted some or all of the companys principal debt
instruments into new debt instruments and/or equity securities (common or
preferred). The companys principal debt instruments were further defined to be
those under the Securities Exchange Agreement and the Senior Credit Facility
(see Note 8 in the companys Consolidated Financial Statements for further
details). In March 2001, the compensation committee of the Board of Directors
authorized a fourth amendment to Mr. Crowleys employment agreement for the
years ending December 31, 2001, 2002 and thereafter. The fourth amendment
returned Mr. Crowleys ongoing performance bonus arrangement to that set forth
in his November 30, 1999 employment agreement wherein he was to receive a
performance bonus between 60% and 300% of his base salary, if the companys
annual EBITDA exceeded the EBITDA target. However, the fourth amendment was not
approved by the Chapter 11 trustee, nor was it submitted to the Bankruptcy
Court for approval. Additionally, the terms and conditions of his expired
employment agreement provided that Mr. Crowley was also eligible to receive an
acquisition bonus of approximately three times the sum of (i) his base salary
and (ii) his EBITDA performance bonus in the event the company merged with or
was acquired by another company. Under the expired employment agreement, Mr. Crowley was also granted
options to purchase one million shares of CHCs common stock at an exercise
price of $0.75 per share (the stock price on November 29, 1999). The options
vested and became exercisable in three equal annual installments upon Mr.
Crowleys completion of each year of service. While these options had an
original life of ten years, they expired 90 days after Mr. Crowleys separation
date of March 31, 2003. Mr. Crowley also received four weeks of vacation, an
automobile allowance in the amount of $1,800 per month, a tax preparation fee
allowance, corporate housing in Denver, a company sponsored $1.0 million life
insurance policy with Mr. Crowleys designee as the beneficiary thereunder and
certain customary income tax gross-up adjustments. Mr. Crowley was also
eligible to participate in the companys health, dental, medical, group life
insurance and similar welfare benefit plans. As part of his expired employment
agreement, Mr. Crowley agreed that during the term of his employment with the
company, and for one year thereafter, in the event of his resignation or
termination for cause, he would not directly or indirectly own, manage,
control, participate in, consult with, render services to, or in any manner
engage in any business that competes with the companys business in the
companys geographical area. In addition, Mr. Crowley could not solicit the
companys employees, customers or suppliers during the term of his employment
with the company and for one year thereafter. The expired employment agreement also provided that if Mr. Crowleys
duties were substantially altered, if his employment was terminated by the
company other than for cause, or if he voluntarily terminated his employment in
the event that the company failed to comply with any material provision of his
employment agreement, then Mr. Crowley would have been entitled to receive his
base salary, automobile allowance and all available bonuses otherwise payable
pursuant to the employment agreement for a period of three years from the date
of separation. Additionally, during such three year period, Mr. Crowley would
have retained his eligibility to participate in the companys health, dental,
medical, group life insurance and similar welfare benefit plans, as well as the
aforementioned company sponsored $1.0 million life insurance policy. 77




---



##### Table of Contents



Effective August 1, 1999, Mr. Crowley and an affiliate of Cerberus
executed a three year employment agreement whereby Mr. Crowley was paid
$960,000 per annum, plus the potential for performance-related bonus
opportunities, equity options and fringe benefits. Such agreement was subject
to automatic one year extensions unless either party provided written notice
within 60 days of the original expiration date or subsequent renewal dates. The
agreement further provided that the Cerberus affiliate could unilaterally
terminate the arrangement at any time by written notice; however, certain
severance payments would be triggered by such termination. The services rendered by Mr. Crowley
included, but were not limited to, providing business and strategic healthcare
investment advice to executive management at Cerberus and its affiliates. Mr.
Crowley and Cerberus have represented that they agreed to suspend their
contract and all related obligations immediately after the Bankruptcy Courts
denial of the Debtors plan of reorganization on December 21, 2001. Mr. Crowley
represented that he formally terminated the Cerberus employment contract in
September 2002. In February 2001, the Equity Committee filed a motion with the Bankruptcy
Court seeking permission to bring a derivative lawsuit directly against Mr.
Crowley, Cerberus, Cerberus Capital Management, L.P., Cerberus Associates,
L.L.C., Craig Court, Inc. and Stephen A. Feinberg, a principal at Cerberus and
a former member of CHCs Board of Directors (all of the aforementioned
corporate entities being parties to certain of the companys debt agreements or
affiliates of such entities). The Equity Committees proposed lawsuit alleged a
collusive plan whereby the named parties conspired to devalue the company for
the benefit of the companys creditors under the Securities Exchange Agreement.
On February 26, 2001, the Bankruptcy Court ruled that the Equity Committees
motion would not be productive at that time and, accordingly, the motion to
proceed with the lawsuit was denied without prejudice. In January 2002, the
Equity Committee filed a substantially similar motion with the Bankruptcy Court
and named several additional potential defendants. On February 12, 2002, in
connection with the authorization for a Chapter 11 trustee, the Bankruptcy
Court denied the renewed motion without prejudice. After the Debtors exclusivity period to file their own plan or plans of
reorganization terminated, on December 19, 2002 the Equity Committee filed with
the Bankruptcy Court a proposed plan of reorganization with respect to the
Debtors, which was subsequently amended. The Equity Committees Plan
incorporates a variation of the aforementioned proposed derivative lawsuit. The
Trustees Plan, as modified, includes, among other things, the settlement of
certain claims against the companys noteholders. Each of the Trustees Plan,
as modified, and the Equity Committees Plan is subject to, and contingent
upon, confirmation by the Bankruptcy Court. Management cannot predict whether
or not the Trustees Plan, as modified, or the Equity Committees Plan will be
confirmed, the ultimate outcome of each proposed plan of reorganization or the
resolution of certain filed objections to each of the proposed plans of
reorganization. See Note 3 to the companys Consolidated Financial Statements
for further discussion of the proposed plans of reorganization. On January 14, 2003, the Equity Committee filed a motion with the
Bankruptcy Court seeking an order to (i) immediately terminate Mr. Crowleys
employment with the Debtors and remove him from all involvement in the Debtors
affairs, (ii) terminate all consulting arrangements between DHS and the
Debtors, (iii) substantially terminate all future payments to Mr. Crowley and
DHS and (iv) require Mr. Crowley and DHS to return all payments received to
date, except as otherwise authorized by the Bankruptcy Court as administrative
claims. On March 26, 2003, the Bankruptcy Court entered an order denying the
Equity Committees motion to terminate Mr. Crowleys employment as moot and
reserved its decision on the other relief requested, including disgorgement,
until future litigation, if any, arises. Scott R. Danitz.Effective August 1, 2000, Coram entered into an
employment agreement with Mr. Danitz for a one year term. Since the expiration
of Mr. Danitzs employment agreement on August 1, 2001, his employment has
continued at will on substantially the same terms and conditions as the
original agreement. Mr. Danitz currently serves as Senior Vice President, Chief
Financial Officer, Treasurer & Principal Accounting Officer of the company. Mr.
Danitz currently receives a base salary of $280,000 per annum, subject to
annual merit adjustments, and the right to receive certain bonus/incentive plan
compensation. Mr. Danitz also
receives an automobile allowance in the amount of $900 per month and is
eligible to participate in the companys health, medical, dental, group life
insurance and similar welfare benefit plans. Under the expired employment agreement, if Mr. Danitzs employment were
terminated by the company other than for cause or upon the occurrence of a
change in control, then, in accordance with the agreement, he was entitled to
severance equal to a minimum of one year of salary and health and welfare
benefits. In addition, Mr. Danitz was eligible to receive an acquisition bonus
of approximately $200,000 in the event the company merged with or was acquired
by another company. As part of his expired employment agreement, Mr. Danitz
agreed that during the term of his employment with the company and for one year
thereafter, he would not directly or indirectly own, manage, control,
participate in, consult with, render services to, or in any manner engage in
any business which competes with the companys business in the companys
geographical area. In addition, Mr. Danitz may not solicit the companys
employees, customers or suppliers during the term of his employment with the
company and for one year thereafter. 78




---



##### Table of Contents



Deborah M. Meyer.Effective August 1, 2000, Coram entered into an
employment agreement with Ms. Meyer wherein she currently serves as Senior Vice
President, Field Sales. Ms. Meyer currently receives a base salary of $265,000
per year, subject to annual merit adjustments, and the right to receive certain
bonus/incentive plan compensation. Ms. Meyer is also eligible to participate in
the companys health, medical, dental, group life insurance and similar welfare
benefit plans. Ms. Meyers employment contract has no expiration date nor any
change of control provisions. Under the terms of the agreement, if Ms. Meyers
employment is terminated by the company, other than for cause, she is entitled
to severance equal to one month of salary per year of service with the company,
up to twelve months. As part of her employment agreement, Ms. Meyer has agreed
that during the term of her employment with the company, and for one year
thereafter, she will not engage in any business competing with the company in
any state where the company is engaged in business or in the Canadian province
of Ontario. In addition, Ms. Meyer may not solicit the companys employees or
customers during the term of her employment with the company and for one year
thereafter. Michael A. Saracco.Effective August 1, 2000, Coram entered into an
employment agreement with Mr. Saracco wherein he currently serves as President,
Specialty Services Division. Mr. Saracco currently receives a base salary of
$300,000 per year, subject to annual merit adjustments, and the right to
receive certain bonus/incentive plan compensation. Mr. Saracco is also eligible
to participate in the companys health, medical, dental, group life insurance
and similar welfare benefit plans. Mr. Saraccos employment contract has no
expiration date nor any change of control provisions. Under the terms of the
agreement, if Mr. Saraccos employment is terminated by the company, other than
for cause, he is entitled to severance equal to one month of salary per year of
service with the company, up to twelve months. As part of his employment
agreement, Mr. Saracco has agreed that during the term of his employment with
the company, and for one year thereafter, he will not engage in any business
competing with the company in any state where the company is engaged in
business or in the Canadian province of Ontario. In addition, Mr. Saracco may
not solicit the companys employees or customers during the term of his
employment with the company and for one year thereafter. The Debtors bankruptcy proceedings and the corresponding impact of
certain sections under Chapter 11 of the Bankruptcy Code could impose
limitations on the amount of severance that the company would be permitted to
pay under the aforementioned employment agreements and contracts. For employment agreement purposes, a change in control is generally
defined as (i) a merger or consolidation in which the company is not the
surviving entity; (ii) the sale, transfer or other disposition of all or
substantially all the assets of the company; (iii) in certain
circumstances, a significant change in the composition of the Board of
Directors; or (iv) any reverse merger in which the company is the surviving
entity but in which securities possessing more than fifty percent of the total
combined voting power of CHCs outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such merger. The term change of control has been defined
in a way that would disqualify any change of control resulting from the
conversion by Corams debtholders of their convertible debt instruments into
CHC stock. Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions Prior to the appointment of the Chapter 11 trustee, the active members of
the compensation committee of the Board of Directors were Donald J. Amaral,
former Chief Executive Officer of the company, and L. Peter Smith, a former
director of Medisys, Inc. (one of the companies that joined together in 1994 to
form Coram) and former Managing Partner of AllCare Health Services, Inc. (a
company that was acquired by Medisys, Inc.). As a result of the Chapter 11
trustees assumption of responsibility for substantially all executive
compensation decisions, subject to Bankruptcy Court approval in certain cases,
the compensation committee did not meet during the year ended December 31,
2003. 79




---



##### Table of Contents



ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT The following table summarizes the companys stock-based compensation
plans as of December 31, 2003 (see Notes 2 and 13 in the companys Consolidated
Financial Statements for further details): Number of CHCCommon Shares To Be
    
    
    
    
    
    Number of CHCIssued Upon
    
    Weighted Average
    
    Common SharesExercise Of
    
    Exercise Price Of
    
    Remaining AvailableOutstanding
    
    Outstanding
    
    For Future IssuanceOptions, Warrants
    
    Options, Warrants
    
    Under EquityPlan Category
    
    And Rights
    
    And Rights
    
    Compensation PlansEquity compensation plans approved
by stockholders (1)
    
    
    4,182,480
    
    
    $
    2.26
    
    
    
    Equity compensation plans not
approved by stockholders (2)
    
    
    800,000
    
    
    
    3.40
    
    
    
    Totals
    
    
    4,982,480
    
    
    
    2.44
    
    
    
    
  (1)
    
    This category consists of stock options issued under the 1994 Stock
Option Plan, as well as certain stock options granted outside of the
1994 Stock Option Plan and separately approved by CHCs stockholders.
The 1994 Stock Option Plan expired by its own terms on December 31,
2003. However, all options outstanding under the expired 1994 Stock
Option Plan shall continue to have force and effect in accordance with
the provisions of the instruments evidencing such grants. Additionally,
no further options or awards will be granted under any of CHCs
stock-based compensation plans unless so determined by the Chapter 11
trustee and, if necessary, the Bankruptcy Court.(2)
    
    This category consists of an individual stock option award granted on
October 13, 1995 to Donald J. Amaral outside of the 1994 Stock Option
Plan in order to purchase 800,000 shares of CHCs common stock at an
exercise price of $3.40 per share. This stock option award was granted
to Mr. Amaral in consideration of his service as CHCs former Chief
Executive Officer and President. The aforementioned award became fully
exercisable on October 13, 1998 and remains outstanding as of April 9,
2004. Pursuant to the terms of the Equity Committees Plan, the abovementioned
stock options will be allowed equity interests if such plan of reorganization
is ultimately confirmed by the Bankruptcy Court. Under the Trustees Plan, as
modified, the companys stock options, as well as the underlying common stock
of such equity instruments, will not be allowed equity interests if such plan
of reorganization is ultimately confirmed by the Bankruptcy Court. Management
cannot predict the effect on the companys outstanding stock options of another
plan or plans of reorganization, if any, put forth by an interested party. 80




---



##### Table of Contents



The table below sets forth the number of shares of outstanding CHC common
stock beneficially owned as of April 9, 2004 by (i) each person known to
management to be the owner of more than 5% of CHCs outstanding common stock,
(ii) each of the Named Executive Officers employed by the company as of April
9, 2004, (iii) the Chapter 11 trustee and each of the members of the CHC Board
of Directors and (iv) the Chapter 11 trustee, all members of the Board of
Directors and executive officers as a group. All information is taken from or
based upon ownership filings made by such persons with the SEC or upon
information provided by such persons to CHC. Percentage ofNumber of
    
    Shares ofShares of
    
    Common StockName and Address of Beneficial Owner (1)
    
    Common Stock (2)
    
    Outstanding (3)Arlin M. Adams, Esq
    
    
    
    
    
    
    Donald J. Amaral
    
    
    2,624,296
    
    
    
    5.0
    %William J. Casey
    
    
    81,900
    
    
    
    *Scott R. Danitz
    
    
    97,777
    
    
    
    *Allen J. Marabito
    
    
    500,000
    
    
    
    1.0
    %Deborah M. Meyer
    
    
    155,159
    
    
    
    *Ronald L. Mills
    
    
    40,000
    
    
    
    *Michael A. Saracco
    
    
    152,420
    
    
    
    *L. Peter Smith
    
    
    117,581
    
    
    
    *Sandra R. Smoley
    
    
    75,000
    
    
    
    *The Chapter 11 trustee and all directors and executive officers,
as a group (11 persons)
    
    
    4,091,157
    
    
    
    7.6
    %Reporting Persons (as defined herein), as a group (4)
    
    
    8,097,809
    
    
    
    16.3
    %
   *
    
    Less than l%(1)
    
    Unless otherwise indicated, the address of each person named above is 1675 Broadway, Suite 900, Denver, Colorado 80202.(2)
    
    The aggregate ownership share amounts presented in the above table
include certain shares of common stock acquirable upon exercise of stock
options, all of which are exercisable as of April 9, 2004, for the
following persons: Mr. Amaral 2,500,000; Mr. Casey 80,000; Mr. Danitz
95,000; Mr. Marabito 500,000; Ms. Meyer 150,000; Mr. Mills 40,000; Mr.
Saracco 140,000; Mr. Smith 87,500; Ms. Smoley 75,000; and the Chapter 11
trustee and all directors and executive officers, as a group, 3,907,500.
Except as indicated by footnote, Coram has been advised that the persons
and entities named in the above table have sole voting and investment
power with respect to all shares of common stock shown as beneficially
owned by them.(3)
    
    These percentages are calculated based upon the number of shares of
common stock outstanding on April 9, 2004, plus shares of common stock
acquirable upon exercise of stock options.(4)
    
    On July 14, 2000, an investor group seeking representation on CHCs Board
of Directors filed a Schedule 13D pursuant to Rule 13d-1(k)(1) of
Regulation 13D-G under the Securities Exchange Act of 1934, as amended. As
stated in its Schedule 13D filing, this investor group was concerned that
management of the company may consider a restructuring that, absent
representation of their interests, would be materially detrimental to
their equity holdings. To protect their interests in the company, the
investor group stated it may engage in actions directly or through agents
such that they may be deemed to constitute a group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934 and, as such, each of the members of the
group are deemed to beneficially own all shares of stock owned by the
entire group; however, each member of the group has disclaimed beneficial
ownership of the shares held by the group.An amended Schedule 13D/A was filed on December 19, 2000 on behalf of
Jerome Blank; Andrew Blank; AEOW 96, LLC, a California limited liability
company; Harry Heller Falk; F. Philip Handy; Heller Family Limited
Partnership, a Florida limited partnership; the Bernard Osher Trust UTA
dated 3-8-88, a California trust; JB Capital Management, Inc., a Florida
Corporation; Bernard Osher; the RHH Company, a Florida Corporation and
Richard L. Haydon. This group of individuals and entities constitutes a
part, but not the entirety, of the original investor group that filed the
Schedule 13D on July 14, 2000. The individuals and entities reporting in
the December 19, 2000 Schedule 13D/A stated that they believed that upon
the October 20, 2000 appointment of the Official Committee of Equity
Security Holders of Coram Healthcare Corporation by the 81




---



##### Table of Contents



Bankruptcy Court, their interests would be adequately represented by this committee and, as
a result, the Schedule 13D filed on July 14, 2000 was terminated as far as
these persons are concerned.On January 22, 2002, a Schedule 13D/A was filed on behalf of the Ann &
Robert H. Lurie Foundation (the Lurie Foundation), an Illinois
not-for-profit corporation, Mr. Mark Slezak, Samstock, L.L.C.
(Samstock), an Illinois not-for-profit corporation, and Mr. Richard L.
Haydon. This group of individuals and entities were members of the
original investor group that filed the Schedule 13D on July 14, 2000.
Additionally, Mr. Haydon was part of the investor group that reported in
the Schedule 13D/A on December 19, 2000. The individuals and entities
reporting in the Schedule 13D/A filed on January 22, 2002 (collectively
the Reporting Persons) indicated that the Lurie Foundation, Samstock and
Mr. Haydon constitute the Official Committee of Equity Security Holders of
Coram Healthcare Corporation and that on January 22, 2002 this committee
filed a motion with the Bankruptcy Court requesting, among other things,
that the Bankruptcy Court order CHC to hold promptly an annual meeting of
its stockholders for the election of directors. This motion was
subsequently considered and denied by the Bankruptcy Court on February 12,
2002. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The companys Series B Senior Subordinated Unsecured Convertible Notes
(the Series B Notes) were not paid on their June 30, 2003 scheduled maturity
date. However, the holders of the Series B Notes, Cerberus Partners, L.P.,
Goldman Sachs Credit Partners L.P. and Foothill Capital Corporation
(collectively the Series B Noteholders), are stayed from pursuing any
remedies without prior authorization by the Bankruptcy Court because Section
362 of Chapter 11 of the Bankruptcy Code imposes an automatic stay that will
generally preclude creditors and other interested parties under such
arrangements from taking remedial action in response to any such default
without prior Bankruptcy Court approval. Series B Note repayments, if any, will
require approvals of both the Chapter 11 trustee and the Bankruptcy Court
because such amount represents a pre-petition liability. See Note 8 to the
companys Consolidated Financial Statements for further details. The Series B Noteholders, or their affiliates, also hold certain shares of
the CI Series A Cumulative Preferred Stock (the Series A Preferred Stock) and
CI Series B Cumulative Preferred Stock (the Series B Preferred Stock).
Additionally, Stephen A. Feinberg, a principal of Cerberus Partners, L.P., was
a member of CHCs Board of Directors from June 1998 to July 2000. The Series B
Noteholders, or their respective affiliates, received in-kind dividends in the
following amounts from CI during the year ended December 31, 2003: Series A Preferred
    
    Series B PreferredPaid-in-Kind
    
    Paid-in-Kind
    
    LiquidationDividends
    
    Dividends
    
    Preference Value(Shares)
    
    (Shares)
    
    (in thousands)Cerberus Partners, L.P.
    
    
    83.7
    
    
    
    70.2
    
    
    $
    18,585Goldman Sachs Credit Partners L.P.
    
    
    106.2
    
    
    
    89.1
    
    
    
    23,598Foothill Capital Corporation
    
    
    43.8
    
    
    
    36.8
    
    
    
    9,736233.7
    
    
    
    196.1
    
    
    $
    51,919
 In November 2001, the R-Net Creditors Committee filed a complaint in the
Bankruptcy Court, subsequently amended twice, both on its own behalf and as
assignee for causes of action that may belong to the Resource Network
Subsidiaries, which named as defendants, Stephen A. Feinberg, Cerberus
Partners, L.P., Goldman Sachs Credit Partners L.P., Foothill Capital
Corporation and Foothill Income Trust, L.P., as well as the Debtors, several
non-debtor subsidiaries, several current and former directors, current
executive officers of CHC and several other current and former employees of the
company, including Messrs. Amaral, Smith, Danitz and Ponzio. The complaint
alleges that the defendants violated various state and federal laws in
connection with alleged wrongdoings related to the operation and corporate
structure of the Resource Network Subsidiaries. On June 17, 2002, the Chapter 11 trustee agreed to withdraw the Debtors
objections to the motion of the R-Net Creditors Committee for leave of court
to file their second amended complaint. On July 25, 2002, by stipulation
between the Chapter 11 trustee and the R-Net Creditors Committee, the
Bankruptcy Court authorized the R-Net Creditors Committee to file its second
amended complaint. On January 10, 2003, the United States District Court for
the District of Delaware (the District Court) granted motions by some, but
not all, of the defendants for that court to withdraw the adversary proceedings
from the jurisdiction of the Bankruptcy Court. On May 21, 2003, the District
Court entered an order staying the aforementioned proceedings, pending approval
by the Bankruptcy Court in the Debtors bankruptcy proceedings of a certain
proposed settlement agreement that is discussed in further detail below. 82




---



##### Table of Contents



Moreover, on September 26, 2003, the District Court dismissed without prejudice
to review (subject to the successful resolution of the proposed settlement
agreement) certain motions filed by various defendants to dismiss some or all
counts of the complaint. The Trustees Plan, as modified, proposes resolution of substantially all
of the aforementioned Resource Network Subsidiaries matters through the
Settlement Agreement and Mutual Release arrangement (the R-Net Settlement
Agreement), which was executed by the Chapter 11 trustee, the Debtors, the
R-Net Creditors Committee, the Resource Network Subsidiaries and the Resource
Network Subsidiaries Chief Restructuring Officer (the R-Net Restructuring
Officer). Among other things, the R-Net Settlement Agreement provides for (i)
the fixing and allowance of a Resource Network Subsidiaries general unsecured
claim against the Debtors for $7.95 million, plus interest, under certain
circumstances, at the applicable federal judgment rate, (ii) the fixing and
allowance of the Debtors general unsecured claim against the Resource Network
Subsidiaries for $1,000 per proof of claim filed, (iii) dismissal of the
aforementioned adversary proceeding with prejudice and (iv) mutual releases
from the parties to the R-Net Settlement Agreement. The R-Net Settlement
Agreement is subject to, and contingent upon, (i) Bankruptcy Court approval in
the Debtors bankruptcy proceedings through confirmation of the Trustees Plan,
as modified, (ii) Bankruptcy Court approval in the Resource Network
Subsidiaries bankruptcy proceedings and (iii) withdrawal, expungement or
resolution of a certain Internal Revenue Service proof of claim filed in the
Resource Network Subsidiaries bankruptcy proceedings without any payments
being required by the Resource Network Subsidiaries or the R-Net Restructuring
Officer. In connection with such conditions precedent, (i) on August 29, 2003
the Bankruptcy Court approved a motion filed jointly by the R-Net Restructuring Officer and the R-Net Creditors
Committee in the Resource Network Subsidiaries bankruptcy proceedings
requesting approval of the R-Net Settlement Agreement, (ii) on December 23,
2003 the Bankruptcy Court confirmed R-Nets plan of liquidation and (iii) on
September 10, 2003 the Internal Revenue Service withdrew its proof of claim
from the Resource Network Subsidiaries bankruptcy proceedings. See Notes 3 and
14 to the companys Consolidated Financial Statements for further details. The Equity Committees Plan provides that the Resource Network
Subsidiaries will receive a cash distribution on the effective date of the
Equity Committees Plan of $7.95 million, plus a distribution of 2% of the net
recovery from certain litigation claims to be prosecuted, if any, but not
exceeding $6 million. The Chapter 11 trustee and other parties-in-interest have
objected to the Equity Committees Plan because, among other things, they
believe such plan improperly classifies the Resource Network Subsidiaries
claim and the contemplated distribution to the Resource Network Subsidiaries is
not fair and equitable. Effective March 6, 2003, several individuals and entities that are related
parties of the company individually entered into stipulation agreements with
the Chapter 11 trustee whereby the Chapter 11 trustee undertook to temporarily
withhold commencement of proceedings for the recovery of certain potentially
preferential payments made to these parties in exchange for waivers of the
expiration of any statutory time limitation as a defense against the
commencement of such proceedings. The parties that entered into individual
agreements with the Chapter 11 trustee were Messrs. Amaral, Casey, Crowley and
Smith, Ms. Smoley, DHS, Foothill Capital Corporation, Goldman Sachs Credit
Partners L.P. and Cerberus Capital Management, L.P. Such stipulation agreements
expired by their own term on August 31, 2003. Refer to the following sections of Item 11. Compensation of Directors and
Executive Officers, which are incorporated herein by reference, for certain other relationships and related
transactions: (i) Daniel D. Crowley, under Employment Contracts, Termination of Employment
and Change of Control Arrangements and (ii) Administrative Feesand Payments
to Parties Related to Mr. Adams, under Compensation of Chapter 11 Trustee and
Others. 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Appointment of Independent Auditors The Chapter 11 trustee assumed all CHCs Board of Directors committee
rights and responsibilities, including those of the audit committee, as part of
his overall duties and responsibilities. The Chapter 11 trustee, in his
capacity as the audit committee, adopted pre-approval policies and procedures
for audit and non-audit services and continues to monitor legislative and
regulatory developments concerning auditor independence and services that may
be provided by independent auditors to an audit client, including recent
developments under the Sarbanes-Oxley Act of 2002 and related rules promulgated
by the SEC. The Chapter 11 trustee concluded that the non-audit services
rendered by Ernst & Young LLP (E&Y) were compatible with maintaining their
independence. 83




---



##### Table of Contents



E&Y was engaged directly by the Chapter 11 trustee as an administrative
professional to the Debtors bankruptcy estates. Accordingly, all E&Y
professional fees and expense reimbursements in their capacity as the Chapter
11 trustees accounting and tax advisor constitute administrative fees. Such
fees and expense reimbursements are subject to authorization and approval by
the Bankruptcy Court prior to interim and final payments by the Debtors and are
based upon rates per hour approved by the Chapter 11 trustee. Any approved
interim amounts payable to E&Y are ultimately subject to final Bankruptcy Court
approval at the termination of the Debtors bankruptcy proceedings, generally
based upon a review of the fair value of the services rendered. The aggregate professional fees and out-of-pocket expenses for services
provided by E&Y, the companys principal accountant, were as follows (in
thousands): Years Ended December 31,2003
    
    2002Audit fees (1)
    
    $
    195
    
    
    $
    573Audit-related fees (2)
    
    
    24
    
    
    
    69Tax fees (3)
    
    
    97
    
    
    
    139All other fees (4)
    
    
    114
    
    
    
    47Totals
    
    $
    430
    
    
    $
    828
  (1)
    
    Audit fees and out-of-pocket expenses relate to services rendered in
connection with audits of the companys consolidated financial
statements as of and for the years ended December 31, 2003 and 2002 and
timely Statement of Auditing Standards No. 100 reviews of the companys
consolidated financial statements included in Quarterly Reports on Form
10-Q in such years. The audit fees for the year ended December 31, 2003
in the above table only include fee applications submitted to the
Bankruptcy Court through the period ended January 31, 2004 (i.e., the
last period for which an application has been submitted). Management
anticipates that E&Y will bill additional professional fees and
out-of-pocket expenses ranging from $350,000 to $400,000 for the
companys 2003 corporate audit. The audit fees for the year ended
December 31, 2002 have been updated from the amount previously reported
in Corams Annual Report on Form 10-K/A Amendment No. 2 and reflect the
amount of professional fees and out-of-pocket expenses actually billed
by E&Y for such audit engagement and related quarterly reviews.(2)
    
    Audit-related fees pertain to professional fees and out-of-pocket
expenses billed in each calendar year for assurance and related services
that are reasonably related to the performance of the audit of the
companys consolidated financial statements (principally audits relating
to the companys defined contribution benefit plan and consultations
regarding accounting and financial reporting matters).(3)
    
    Tax fees consist of professional fees and out-of-pocket expenses
billed in each calendar year for consultations regarding tax compliance,
tax advice and tax planning (the aforementioned tax services principally
relate to matters involving the Debtors bankruptcy proceedings).(4)
    
    All other fees consist of professional fees and out-of-pocket
expenses billed in each calendar year for services in connection with
billing coordination, legal matters and technical accounting research. The Chapter 11 trustee approves all of the companys administrative
professional fee applications, including, but not limited to, E&Ys audit, tax
and other fees. Guidelines For Pre-Approval of Independent Auditor Services The Chapter 11 trustee, in his capacity as CHCs audit committee, has
adopted the following guidelines regarding engagement of Corams independent
auditors to perform services on behalf of the company:  (1)
    
    For audit services, each fiscal year the independent auditor will
provide CHCs audit committee or its functional equivalent (hereinafter
collectively referred to as the Audit Committee) with an engagement
letter or addendum to a prior existing engagement letter, including a
fee proposal and an outline of the scope of the audit services proposed
to be performed for such fiscal year. If agreed to by the Audit
Committee, the engagement letter or addendum will be formally accepted
by the Audit Committee prior to the commencement of auditing services
for that fiscal year. 84




---



##### Table of Contents



(2)
    
    For non-audit services, the companys management will submit to the
Audit Committee a detailed list of non-audit services that it recommends
the Audit Committee engage the independent auditor to provide. The
companys management and the independent auditor will confirm to the
Audit Committee that each non-audit service on the list is permissible
under the governing SEC rules and regulations. In addition to the list
of planned non-audit services, a budget estimating the costs of such
non-audit services will be provided to the Audit Committee. The
independent auditor will provide the Audit Committee with an engagement
letter or an addendum to a prior existing engagement letter, including a
fee proposal, outlining the scope of non-audit services proposed to be
performed. Prior to the commencement of the non-audit services, the
Audit Committee will approve or decline (i) the list of permissible
non-audit services, (ii) the budgets for such services and (iii) the
engagement letter or addendum.(3)
    
    To ensure the prompt handling of unexpected matters, from time to
time and on an as-needed basis, the companys management will submit
amendments or modifications to the list of approved permissible
non-audit services to the Audit Committee and such amendments or
modifications will be promptly reviewed by the Audit Committee. In this
regard, the Audit Committee does not delegate its responsibilities to
pre-approve services performed by the independent auditor to the
companys management.(4)
    
    The independent auditor must ensure that all audit and non-audit
services provided to the company have been approved by the Audit
Committee prior to the commencement thereof and that non-audit services
will not impair the auditors independence. The companys Chief
Financial Officer is responsible for tracking all independent auditor
services and fees against the list of permissible non-audit services and
the corresponding budgets for such services. The Chief Financial Officer
also reports, at least quarterly, to the Audit Committee regarding the
status of the non-audit services. 85




---



##### Table of Contents



PART IV 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements. The following Consolidated Financial Statements
of the registrant and Report of Independent Auditors are presented on pages F-l
and thereafter: Report of Independent Auditors Consolidated Balance Sheets  December 31, 2003 and 2002 Consolidated Statements of Income  Years ended December 31, 2003, 2002
and 2001 Consolidated Statements of Stockholders Equity  Years ended December 31,
2003, 2002 and 2001 Consolidated Statements of Cash Flows  Years ended December 31, 2003,
2002 and 2001 Notes to Consolidated Financial Statements 2. Financial Statement Schedule.The following consolidated financial
statement schedule of the registrant for the years ended December 31, 2003,
2002 and 2001 is presented following the Notes to Consolidated Financial
Statements. Schedule II  Valuation and Qualifying Accounts Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the Consolidated Financial Statements or notes thereto. (b) Reports on Form 8-K. On May 9, 2003, Coram Healthcare Corporation filed a report on Form 8-K
regarding a proposed disclosure statement and a proposed plan of
reorganization filed by Arlin M. Adams, Esquire, the Chapter 11 trustee for
the bankruptcy estates of Coram Healthcare Corporation and Coram, Inc.
(collectively the Debtors), in respect of the Debtors. On June 5, 2003, Coram Healthcare Corporation filed a report on Form 8-K
announcing a restatement of its financial results as of and for the year
ended December 31, 2002. Such restatement was attributable to an error in an
enterprise valuation report, dated December 11, 2002, prepared by certain
financial advisors to the Chapter 11 trustee overseeing the jointly
administered bankruptcy cases of Coram Healthcare Corporation and Coram, Inc. On July 11, 2003, Coram Healthcare Corporation filed a report on Form
8-K announcing that two competing proposed plans of reorganization had been
filed in the United States Bankruptcy Court for the District of Delaware in the jointly administered bankruptcy cases of
Coram Healthcare Corporation and Coram, Inc. On September 23, 2003, Coram Healthcare Corporation (CHC) filed a
report on Form 8-K announcing that the Chapter 11 trustee for the bankruptcy
estates of CHC and its wholly-owned subsidiary, Coram, Inc. (CI) (CHC and
CI are hereinafter collectively referred to as the Debtors), filed a
Modification to the Chapter 11 Trustees Amended Joint Plan of Reorganization
in the United States Bankruptcy Court for the District of Delaware in the
Debtors jointly administered bankruptcy cases. On October 14, 2003, Coram Healthcare Corporation filed a report on Form
8-K announcing that the Chapter 11 trustee for the bankruptcy estates of
Coram Healthcare Corporation and Coram, Inc. (collectively the Debtors)
filed a Plan Supplement to the Chapter 11 Trustees Amended Joint Plan of
Reorganization, as modified, with the United States Bankruptcy Court for the
District of Delaware in the Debtors jointly administered bankruptcy cases.
Additionally, the Official Committee of the Equity Security Holders of Coram
Healthcare Corporation filed the Initial and Second Plan Supplements to its
Second Amended Plan of Reorganization with the United States Bankruptcy Court
for the District of Delaware. 86




---



##### Table of Contents



On February 26, 2004, Coram Healthcare Corporation filed a report on
Form 8-K announcing that the Official Committee of the Equity Security
Holders of Coram Healthcare Corporation filed its Amendment to Second
Supplement to the Second Amended Plan of Reorganization of the Official
Committee of Equity Security Holders of Coram Healthcare Corporation and
Coram, Inc. in the United States Bankruptcy Court for the District of
Delaware in the jointly administered bankruptcy cases of Coram Healthcare
Corporation and Coram, Inc. (c) Exhibits. Included as exhibits are the items listed on the Exhibit Index. The
registrant will furnish a copy of any of the exhibits listed below upon payment
of $5.00 per exhibit to cover the costs to the registrant of furnishing such
exhibit. ExhibitNumber
    
    Exhibit2.1
    
    
    
    Agreement and Plan of Merger dated as of February 6, 1994, by and
Among the registrant, T2 Medical, Inc., Curaflex, HealthInfusion,
Medisys, T2 Acquisition company, CHS Acquisition company, HII
Acquisition company and MI Acquisition company. (Incorporated by
reference to Exhibit 2.1 of Registration No. 33-53957 on
Form S-4).2.2
    
    
    
    First Amendment to Agreement and Plan of Merger dated as of May 25,
1994, by and among the registrant, T2 Medical, Inc., Curaflex,
HealthInfusion, Medisys, T2 Acquisition company, CHS Acquisition
company, HII Acquisition company and MI Acquisition company.
(Incorporated by reference to Exhibit 2.2 of Registration No. 33-53957
on Form S-4).2.3
    
    
    
    Second Amendment to Agreement and Plan of Merger dated as of July 8,
1994 by and among the registrant, T2 Medical, Inc., Curaflex,
HealthInfusion, Medisys, T2 Acquisition company, CHS Acquisition
company, HII Acquisition company and MI Acquisition company.
(Incorporated by Reference to Exhibit 2.3 of the registrants Current
Report on Form 8-K dated as of July 15, 1994).2.4
    
    
    
    Asset Sale and Note Purchase Agreement among the registrant, Caremark
International, Inc. and Caremark, Inc. dated as of January 29, 1995.
(Incorporated by reference to Exhibit C of the registrants Current
Report on Form 8-K dated April 6, 1995). (a)2.5
    
    
    
    Agreement and Plan of Merger among the registrant, CHC Acquisition
Corp. and Lincare Holdings Inc. dated as of April 17, 1995.
(Incorporated by reference to Exhibit B of the registrants Current
Report on Form 8-K dated May 2, 1995). (a)2.6
    
    
    
    Agreement and Plan of Merger entered into as of October 19, 1996,
Among Coram Healthcare Corporation, Integrated Health Services, Inc.
and IHS Acquisition XIX, Inc. (Incorporated by reference to Exhibit
2.1 of the registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).2.7
    
    
    
    Purchase Agreement by and between Integrated Health Services, Inc., T2
Medical, Inc., Coram Healthcare Corporation of Greater New York and
Coram Healthcare Corporation. (Incorporated by reference to Exhibit 2
of the registrants Current Report on Form 8-K dated as of August 20,
1997).2.8
    
    
    
    Side Agreement dated as of September 30, 1997 among Coram Healthcare
Corporation, T2 Medical, Inc., Coram Healthcare Corporation of Greater
New York and Integrated Health Services, Inc. (Incorporated by
reference to Exhibit 2.1 of the registrants Current Report on Form
8-K dated as of September 30, 1997).2.9
    
    
    
    Purchase Agreement by and between Curaflex Health Services, Inc.,
Coram Healthcare Corporation, Curascript Pharmacy, Inc., Curascript
PBM Services, Inc. and GTCR Fund VI, L.P., dated July 31, 2000.
(Incorporated by reference to Exhibit 2.1 of the registrants Current
Report on Form 8-K dated as of July 31, 2000).2.10
    
    
    
    Debtor-In-Possession Financing Agreement dated August 30, 2000, by and
among Coram Healthcare Corporation, Coram, Inc. and Madeleine L.L.C.
(Incorporated by reference to Exhibit 2.1 of the registrants Current
Report on Form 8-K dated as of September 13, 2000).
 87




---



##### Table of Contents



3.1
    
    
    
    Certificate of Incorporation of registrant, as amended, through May 1,
1994. (Incorporated by reference to Exhibit 3.1 of Registration No.
33-53957 on Form S-4).3.2
    
    
    
    Bylaws of registrant. (Incorporated by reference to Exhibit 3.2 of
Registration No. 33-53957 on Form S-4).3.3
    
    
    
    Certificate of Amendment of the registrants Certificate of
Incorporation. (Incorporated by reference to Exhibit 3.3 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1997).3.4
    
    
    
    Bylaws of Coram, Inc., as amended and restated on December 31, 2001.
(Incorporated by reference to Exhibits 99.8 of the registrants
Current Reports on Form 8-K and Form 8-K/A dated as of December 21,
2001).3.5
    
    
    
    Bylaws of Coram, Inc., as amended and restated on December 31, 2002.
(Incorporated by reference to Exhibit 99.6 of the registrants Current
Report on Form 8-K dated as of December 31, 2002).4.1
    
    
    
    Form of Common Stock Certificate for the registrants common stock,
$0.001 par value per share. (Incorporated by reference to Exhibit 4.1
of the registrants Annual Report on Form 10-K for the year ended
December 31, 1994).4.2
    
    
    
    Form of Common Stock Certificate for the registrants common stock,
par value $0.001, including legend thereon in respect of the
Stockholder Rights Agreement. (Incorporated by reference to Exhibit
4.2 of the registrants Annual Report on Form 10-K for the year ended
December 31, 1997).4.3
    
    
    
    Form of Certificate of Designation, Preferences and Rights of the
registrants Series X Participating Preferred Stock. (Filed as Exhibit
A to the Stockholder Rights Agreement, which was filed as Exhibit 1 to
the registrants Current Report on Form 8-K dated as of June 25, 1997,
and which exhibit is hereby incorporated by reference thereto).4.4
    
    
    
    Form of Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof, dated
December 29, 2000. (Incorporated by reference to Exhibit 4.1 of the
registrants Current Report on Form 8-K dated as of December 28,
2000).4.5
    
    
    
    Irrevocable Waiver, dated as of April 12, 2002, by Cerberus Partners,
L.P., Foothill Capital Corporation and Goldman, Sachs & Co. in favor
of Coram, Inc. (Incorporated by reference to Exhibit 4.5 of the
registrants Quarterly Report on Form 10-Q for the quarter ended March
31, 2002).4.6
    
    
    
    Amendment No. 1 to Stockholder Agreement dated as of December 31,
2001, among Coram, Inc., Goldman, Sachs & Co., Cerberus Partners, L.P.
and Foothill Capital Corporation. (Incorporated by reference to
Exhibits 99.5 of the registrants Current Reports on Form 8-K and Form
8-K/A dated as of December 21, 2001).4.7
    
    
    
    Certificate of Amendment of the Certificate of Designation of Coram,
Inc., as filed with the Secretary of State of the State of Delaware on
December 31, 2001, related to changes in the Coram, Inc., Series A
Cumulative Preferred Stock voting rights. (Incorporated by reference
to Exhibits 99.7 of the registrants Current Reports on Form 8-K and
Form 8-K/A dated as of December 21, 2001).4.8
    
    
    
    Amendment No. 2 to Stockholder Agreement dated as of December 31,
2002, by and among Coram, Inc., Goldman, Sachs & Co., Cerberus
Partners, L.P. and Foothill Capital Corporation. (Incorporated by
reference to Exhibit 99.2 of the registrants Current Report on Form
8-K dated as of December 31, 2002).4.9
    
    
    
    Second Certificate of Amendment of the Certificate of Designation of
Coram, Inc., as filed with the Secretary of State of the State of
Delaware on December 31, 2002, related to changes in the Coram, Inc.,
Series A Cumulative Preferred Stock voting rights. (Incorporated by
reference to Exhibit 99.4 of the registrants Current Report on Form
8-K dated as of December 31, 2002).4.10
    
    
    
    Certificate of Designation of Coram, Inc., as filed with the Secretary
of State of the State of Delaware on December 31, 2002, related to the
creation of the Coram, Inc. Series B Cumulative Preferred Stock, as
well as, certain limitations on aggregate stock voting rights after
the occurrence of a triggering event. (Incorporated by reference to
Exhibit 99.5 of the registrants Current Report on Form 8-K dated as
of December 31, 2002).
 88




---



##### Table of Contents



10.1
    
    
    
    Amended and Restated Credit Agreement dated as of February 10, 1995,
by and among Curaflex, T2, HealthInfusion, Medisys, and HMSS as
Co-Borrowers, Toronto Dominion (Texas), Inc., as Agent (the Amended
Credit Agreement). (Incorporated by reference to Exhibit 10.1 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1994). (a)10.2
    
    
    
    Form of Employment Agreement between the registrant and Charles A.
Laverty. (Incorporated by reference to Exhibit 10.1 of Registration
No. 33-53957 on Form S-4).10.3
    
    
    
    Form of Severance/Non-Compete Agreement between the registrant and
Miles E. Gilman. (Incorporated by reference to Exhibit 10.2 of
Registration No. 33-53957 on Form S-4).10.4
    
    
    
    Form of Severance/Non-Compete Agreement between the registrant and
William J. Brummond. (Incorporated by reference to Exhibit 10.3 of
Registration No. 33-53957 on Form S-4).10.5
    
    
    
    Form of Severance/Non-Compete Agreement between the registrant and
Tommy H. Carter. (Incorporated by reference to Exhibit 10.4 of
Registration No. 33-53957 on Form S-4).10.6
    
    
    
    Form of Indemnification Agreement between the registrant and each of
the registrants directors and certain executive officers.
(Incorporated by reference to Exhibit 10.6 of the registrants Form
10-K for the year ended December 31, 1994).10.7
    
    
    
    Registrants 1994 Stock Option/Stock Issuance Plan and related Forms
of agreements. (Incorporated by reference to Exhibit 10.15 of
Registration No. 33-53957 on Form S-4).10.8
    
    
    
    Registrants Employee Stock Purchase Plan. (Incorporated by reference
to Exhibit 10.16 of Registration No. 33-53957 on Form S-4).10.9
    
    
    
    401(k) Plan of T2 Medical, Inc. dated December 8, 1989. (Incorporated
herein by reference to Exhibit 10(s) of T2 Annual Report on Form 10-K
for the fiscal year ended September 30, 1989, filed with the
Securities and Exchange Commission on or about December 29, 1988).10.10
    
    
    
    1988 Stock Option Plan of T2 Medical, Inc., as amended and restated as
of July 31, 1990 and as further amended as of (i) August 20, 1991;
(ii) November 12, 1991; and (iii) July 6, 1992. (Incorporated by
reference to Exhibit 10.18 of Registration No. 33-53957 on Form S-4).10.11
    
    
    
    Curaflex 1989 Stock Option Plan. (Incorporated by reference to Exhibit
10.53 of Registration No. 33-53957 on Form S-4).10.12
    
    
    
    Curaflex Amended 1990 Stock Option Plan. (Incorporated by reference to
Exhibit 10.54 of Registration No. 33-53957 on Form S-4).10.13
    
    
    
    Curaflex Directors Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10.59 of Registration No. 33-53957 on Form S-4).10.14
    
    
    
    Clinical Homecare Ltd. 1990 Incentive Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.61 of Registration No.
33-53957 on Form S-4).10.15
    
    
    
    Clinical Homecare Ltd. 1990 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.62 of Registration No.
33-53957 on Form S-4).10.16
    
    
    
    1989 Stock Option Plan of Medisys. (Incorporated by reference to
Exhibit 10.85 of Registration No. 33-53957 on Form S-4).10.17
    
    
    
    Form of Non-Plan Option Agreement of Medisys. (Incorporated by
Reference to Exhibit 10.86 of Registration No. 33-53957 on Form S-4).
 89




---



##### Table of Contents



10.18
    
    
    
    Credit Agreement among Coram Healthcare Corporation, Coram, Inc., the
Lenders named therein and Chemical Bank, as Administrative Agent,
Collateral Agent and Fronting Bank dated as of April 6, 1995.
(Incorporated by reference to Exhibit D of the registrants Current
Report on Form 8-K dated April 6, 1995). (a)10.19
    
    
    
    First Amendment and Waiver to the Credit Agreement, dated as of August
9, 1995, together with exhibits hereto, among the registrant, Coram,
Inc., each Subsidiary Guarantor (as defined therein), the Financial
Institutions party thereto (as defined therein), and Chemical Bank as
Agent. (Incorporated by reference to Exhibit 10.19 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). (a)10.20
    
    
    
    Second Amendment to the Credit Agreement dated as of September 7,
1995, by and among the registrant, Coram, Inc., each Subsidiary
Guarantor (as defined therein), the Financial Institutions party
thereto (as defined therein), and Chemical Bank as Agent.
(Incorporated by reference to Exhibit 10.20 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). (a)10.21
    
    
    
    Third Amendment and Limited Waiver to the Credit Agreement, dated as
of September 29, 1995, by and among the registrant, Coram, Inc., each
Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as defined therein), and Chemical Bank as Agent.
(Incorporated by reference to Exhibit 10.21 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). (a)10.22
    
    
    
    Fourth Amendment and Limited Waiver to the Credit Agreement and First
Amendment to Security Documents dated as of October 13, 1995, together
with selected exhibits thereto, by and among the registrant, Coram,
Inc., each Subsidiary Guarantor (as defined therein), the Financial
Institutions party thereto (as defined therein) and Chemical Bank as
Agent. (Incorporated by reference to the registrants Current Report
on Form 8-K as filed October 24, 1995).10.23
    
    
    
    Warrant Agreement dated as of October 13, 1995, among the registrant,
Coram, Inc., and the other parties specified therein. (Incorporated by
reference to the registrants Current Report on Form 8-K as filed
October 24, 1995).10.24
    
    
    
    Amendment and Limited Waiver to Bridge Securities Purchase Agreement,
dated as of October 13, 1995, by and among the registrant, Coram, Inc.
and Donaldson, Lufkin & Jenrette. (Incorporated by reference to
Exhibit 10.24 of the registrants Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995). (a)10.25
    
    
    
    Form of Employment Agreement, Amendment No. 1 and Amendment No. 2
dated as of April 23, 1999, of Employment Agreement between the
registrant and Donald J. Amaral. (Incorporated by reference to Exhibit
10.25 and 10.04 of the registrants Quarterly Report on Form 10-Q for
the quarters ended September 30, 1995, June 30, 1998 and September 30,
1999, respectively).10.26
    
    
    
    Securities Purchase Agreement and Form of Subordinated Bridge Note,
dated as of April 6, 1995, among Coram, Inc., Coram Funding, Inc. and
the registrant. (Incorporated by reference to Exhibit E of the
registrants Current Report on Form 8-K dated April 6, 1995). (a)10.27
    
    
    
    Exclusive Distribution Agreement  Healthcare Products and Biomedical
Equipment and Services Agreement between Medical Specialties
Distributors, Inc. (MSD) and Coram Healthcare Corporation, dated as
of June 1, 1996. (Incorporated by reference to Exhibit 10.1 of the
registrants Quarterly Report on Form 10-Q/A Amendment No. 1 for the
quarter ended June 30, 1996).10.28
    
    
    
    Medical Specialties Master Service Agreement between MSD and Coram
Healthcare Corporation, dated as of June 1, 1996. (Incorporated by
reference to Exhibit 10.2 of the registrants Quarterly Report on Form
10-Q/A Amendment No. 1 for the quarter ended June 30, 1996).10.29
    
    
    
    Medical Specialties Master Rental Agreement between MSD and Coram
Healthcare Corporation, dated as of June 1, 1996. (Incorporated by
reference to Exhibit 10.3 of the registrants Quarterly Report on Form
10-Q/A Amendment No. 1 for the quarter ended June 30, 1996).
 90




---



##### Table of Contents



10.30
    
    
    
    Coram Healthcare Litigation Memorandum of Understanding between all
Parties to In re Coram Healthcare Corporation. Securities Litigation,
Master File No. 95-N-2074 and Shevde v. Sweeney et al., Civil Action
No. 96-N-722, dated as of August 5, 1996. (Incorporated by reference
to Exhibit 10.4 of the registrants Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).10.31
    
    
    
    Fifth Amendment to the Credit Agreement dated as of February 6, 1996,
by and among the registrant, Coram, Inc., each Subsidiary Guarantor
(as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by
reference to Exhibit 99.1 of the registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 1996). (a)10.32
    
    
    
    Sixth Amendment to Credit Agreement dated as of April 19, 1996, by and
among the registrant, Coram, Inc., each Subsidiary Guarantor (as
defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by
reference to Exhibit 99.2 of the registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 1996). (a)10.33
    
    
    
    Seventh Amendment to Credit Agreement dated as of July 3, 1996, by and
among the registrant, Coram, Inc., each Subsidiary Guarantor (as
defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by
reference to Exhibit 99.1 of the registrants Quarterly Report on Form
10-Q/A Amendment No. 1 for the quarter ended June 30, 1996). (a)10.34
    
    
    
    Eighth Amendment to Credit Agreement dated as of December 3, 1996, by
and among the registrant, Coram, Inc., each Subsidiary Guarantor as
defined therein), the Financial Institutions (as described therein),
and Chase Manhattan Bank as Agent. (Incorporated by reference to
Exhibit 10.34 of the registrants Annual Report on Form 10-K for the
year ended December 31, 1996). (a)10.35
    
    
    
    Ninth Amendment and Limited Waiver to the Credit Agreement dated as of
March 14, 1997, by and among the registrant, Coram, Inc., each
Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as described therein), and Chase Manhattan Bank as
Agent. (Incorporated by reference to Exhibit 10.35 of the registrants
Annual Report on Form 10-K for the year ended December 31, 1996). (a)10.36
    
    
    
    Amended Agreement, dated as of March 28, 1997, by and among the
registrant, Coram, Inc. and Donaldson, Lufkin & Jenrette.
(Incorporated by reference to Exhibit 10.36 of the registrants Annual
Report on Form 10-K for the year ended December 31, 1996). (a)10.37
    
    
    
    Sabratek Corporation and Coram Healthcare Exclusive Supply Agreement
for IV Infusion Pumps, IV Disposable Sets and Related Items, dated as
of February 26, 1997. (Incorporated by reference to Exhibit 10.37 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 1996).10.38
    
    
    
    Amendment to 9% Subordinated Convertible Debenture and Notice of
Conversion dated as of June 30, 1996, by and among the registrant,
Coram, Inc., and the other parties specified therein. (Incorporated by
reference to the registrants report on Form 8-K as filed on July 12,
1996).10.39
    
    
    
    Tenth Amendment to Credit Agreement dated June 2, 1997, by and Among
the registrant, Goldman Sachs Credit Partners L.P., Coram, Inc., each
Subsidiary Guarantor (as defined therein) and The Chase Manhattan
Bank, as administrative agent and collateral agent for the Lenders
named therein, to that certain Credit Agreement dated as of April 6,
1995, by and among the registrant, Coram, Inc., each Subsidiary
Guarantor (as defined therein), the Financial Institutions named
therein and the Chase Manhattan Bank, as collateral agent for the
Lenders named therein. (Incorporated by reference to Exhibit 99 of the
registrants Current Report on Form 8-K dated as of June 2, 1997). (a)10.40
    
    
    
    Letter Agreement of March 29, 1998 by and among Cerberus Partners,
L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation on the one hand, and Coram Healthcare Corporation, on the
other, deferring the payment of interest and fees pursuant to (i) the
Securities Purchase Agreement dated as of April 6, 1995 and (ii) the
Letter Agreement dated March 28, 1997 between Coram Funding, Inc. and
Coram Healthcare Corporation. (Incorporated by reference to Exhibit
10.40 of the registrants Annual Report on Form 10-K for the year
ended December 31, 1997).
 91




---



##### Table of Contents



10.41
    
    
    
    Prime Vendor Agreement and Letter Amendment, dated October 14, 1999,
between Coram Healthcare Corporation and Cardinal Health, Inc. Certain
portions of the Prime Vendor Agreement have been omitted pursuant to a
request for confidential treatment. The entire Prime Vendor Agreement
has been filed confidentially with the Securities and Exchange
Commission. (Incorporated by reference to Exhibit 10.1 of the
registrants Quarterly Report on Form
10-Q for the quarters ended September 30, 1998 and 1999, respectively).10.42
    
    
    
    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. (Incorporated by reference to
Exhibit 10.01 of the registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998).10.43
    
    
    
    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. (Incorporated by reference to Exhibit 10.02 of the
registrants Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).10.44
    
    
    
    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.
(Incorporated by reference to Exhibit 10.03 of the registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).10.45
    
    
    
    Securities Exchange Agreement among the registrant, Cerberus Partners,
L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation. (Incorporated by reference to Exhibit 10.01 of the
registrants Quarterly Report on Form 10-Q for the quarter ended March
31, 1998). (a)10.46
    
    
    
    Form of Letter of Credit required by the Master Agreement by and
between the registrant and its applicable affiliates and Aetna U.S.
Healthcare, Inc. and its applicable affiliates. (Incorporated by
reference to Exhibit 10.02 of the registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).10.47
    
    
    
    Addendum amendment to Sabratek Corporation and Coram Healthcare
Exclusive Supply Agreement for IV Infusion pumps, IV Disposable Sets
and Related Items, dated as of February 26, 1997, as of December 7,
1998. (Incorporated by reference to Exhibit 10.47 of the registrants
Annual Report on Form 10-K for the year ended December 3l, l998).10.48
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Richard
M. Smith, dated as of April 26, 1999. (Incorporated by reference to
Exhibit 10.4 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).10.49
    
    
    
    Agreement between Coram Healthcare Corporation and Richard M. Smith,
dated as of November 11, 1999. (Incorporated by reference to Exhibit
10.2 of the registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).10.50
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Wendy L.
Simpson, dated as of April 26, 1999. (Incorporated by reference to
Exhibit 10.5 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).10.51
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Joseph
D. Smith, dated as of April 26, 1999. (Incorporated by reference to
Exhibit 10.6 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).10.52
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Daniel
D. Crowley, dated as of November 30, 1999, together with Amendment No.
1 thereto. (Incorporated by reference to Exhibit 10.51 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1999).
 92




---



##### Table of Contents



10.53
    
    
    
    Employment Agreement, between Coram Healthcare Corporation and Allen
J. Marabito, dated as of November 30, 1999, together with amendment
No. 1 thereto. (Incorporated by reference to Exhibit 10.52 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1999).10.54
    
    
    
    First Amendment to Prime Vendor Agreement, dated as of January 1, 2000
by and between the registrant and Cardinal Health, Inc. (Incorporated
by reference to Exhibit 10.53 of the registrants Annual Report on
Form 10-K for the year ended December 31, 1999).10.55
    
    
    
    Second Amendment to Employment Agreement between Coram Healthcare
Corporation and Daniel D. Crowley, dated as of April 6, 2000.
(Incorporated by reference to Exhibit 10.1 of the registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).10.56
    
    
    
    Settlement agreement entered into by and among Coram Resource Network,
Inc., Coram Independent Practice Association, Inc., Coram Healthcare
Corporation and Coram, Inc. (Incorporated by reference to Exhibit 10.1
of the registrants Current Report on Form 8-K dated as of November
17, 2000).10.57
    
    
    
    Amendment No. 4, dated December 29, 2000, in respect of the Securities
Exchange Agreement dated as of May 6, 1998, among Coram Healthcare
Corporation, Coram, Inc., Cerberus Partners, L.P., Goldman Sachs
Credit Partners L.P. and Foothill Capital Corporation. (Incorporated
by reference to Exhibit 10.1 of the registrants Current Report on
Form 8-K dated as of December 28, 2000).10.58
    
    
    
    Exchange Agreement, dated December 29, 2000, among Coram, Inc.,
Goldman Sachs Credit Partners L.P., Cerberus Partners, L.P. and
Foothill Capital Corporation. (Incorporated by reference to Exhibit
10.2 of the registrants Current Report on Form 8-K dated as of
December 28, 2000).10.59
    
    
    
    Third Amendment to Employment Agreement between Coram Healthcare
Corporation and Daniel D. Crowley, dated August 2, 2000. (Incorporated
by reference to Exhibit 10.58 of the registrants Annual Report on
Form 10-K for the year ended December 31, 2000).10.60
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Scott R.
Danitz, dated August 1, 2000. (Incorporated by reference to Exhibit
10.59 of the registrants Annual Report on Form 10-K for the year
ended December 31, 2000).10.61
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Vito
Ponzio, Jr., dated April 26, 1999. (Incorporated by reference to
Exhibit 10.60 of the registrants Annual Report on Form 10-K for the
year ended December 31, 2000).10.62
    
    
    
    Consulting Services Agreement between Coram Healthcare Corporation and
Joseph D. Smith, dated June 30, 2000. (Incorporated by reference to
Exhibit 10.61 of the registrants Annual Report on Form 10-K for the
year ended December 31, 2000).10.63
    
    
    
    Consulting Services Agreement between the company and Donald J.
Amaral, dated May 16, 2000. (Incorporated by reference to Exhibit
10.62 of the registrants Annual Report on Form 10-K for the year
ended December 31, 2000).10.64
    
    
    
    Exchange Agreement and related schedules dated as of December 31,
2001, among Coram, Inc., Goldman Sachs Credit Partners L.P., Cerberus
Partners, L.P. and Foothill Capital Corporation. (Incorporated by
reference to Exhibits 99.4 and 99.4a through 99.4f of the registrants
Current Reports on Form 8-K and Form 8-K/A dated as of December 21,
2001).10.65
    
    
    
    Amendment No. 5 to Securities Exchange Agreement, dated as of December
31, 2001, among Coram, Inc., Coram Healthcare Corporation, Goldman
Sachs Credit Partners L.P., Cerberus Partners, L.P., and Foothill
Capital Corporation. (Incorporated by reference to Exhibits 99.6 and
99.6a through 99.6b of the registrants Current Reports on Form 8-K
and Form 8-K/A dated as of December 21, 2001).
 93




---



##### Table of Contents



10.66
    
    
    
    Product Purchase Agreement, dated September 1, 2001, between Coram,
Inc. and FFF Enterprises, Inc. Certain portions of the Product
Purchase Agreement have been omitted pursuant to a request for
confidential treatment. The entire Product Purchase Agreement has been
filed confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.68 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.67
    
    
    
    Prime Vendor Agreement, dated April 19, 2001, between Coram Healthcare
Corporation and Cardinal Distribution, Inc. (Incorporated by reference
to Exhibit 10.69 of the registrants Annual Report on Form 10-K for
the year ended December 31, 2001).10.68
    
    
    
    I.V. Systems Division Purchase Agreement, dated October 23, 2000,
between Coram, Inc., and Baxter Healthcare Corporation. Certain
portions of the I.V. Systems Division Purchase Agreement have been
omitted pursuant to a request for confidential treatment. The entire
I.V. Systems Division Purchase Agreement has been filed confidentially
with the Securities and Exchange Commission. (Incorporated by
reference to Exhibit 10.70 of the registrants Annual Report on Form
10-K for the year ended December 31, 2001).10.69
    
    
    
    Letter Amendment, dated October 25, 2000, between Coram, Inc., and
Baxter Healthcare Corporation. Certain portions of the Letter
Amendment have been omitted pursuant to a request for confidential
treatment. The entire Letter Amendment has been filed confidentially
with the Securities and Exchange Commission. (Incorporated by
reference to Exhibit 10.71 of the registrants Annual Report on Form
10-K for the year ended December 31, 2001).10.70
    
    
    
    Amendment to I.V. Systems Division Purchase Agreement, dated January
28, 2002, between Coram, Inc., and Baxter Healthcare Corporation.
(Incorporated by reference to Exhibit 10.72 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.71
    
    
    
    Therapeutics Purchase Agreement, dated January 7, 2002, between Coram,
Inc., and Baxter Healthcare Corporation. Certain portions of the
Agreement have been omitted pursuant to a request for confidential
treatment. The entire Therapeutics Purchase Agreement has been filed
confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.73 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.72
    
    
    
    Hemophilia Product Volume Commitment Agreement, dated December 19,
2001, between Coram, Inc., and Baxter Healthcare Corporation. Certain
portions of the Hemophilia Product Volume Commitment Agreement have
been omitted pursuant to a request for confidential treatment. The
entire Hemophilia Product Volume Commitment Agreement has been filed
confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.74 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.73
    
    
    
    Settlement, General Release and Waiver of Claims, dated July 15, 2002,
between Coram Alternate Site Services, Inc. and Arlin M. Adams,
Chapter 11 trustee to the Bankruptcy Estates of Coram Healthcare
Corporation and Coram, Inc. and Humana Health Plan, Inc. (Incorporated
by reference to Exhibit 99.3 of the registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).10.74
    
    
    
    Settlement and Mutual Release Agreement, (I) by and between Arlin M.
Adams, Chapter 11 trustee to the Bankruptcy Estates of Coram
Healthcare Corporation and Coram, Inc. and Richard M. Smith on July
12, 2002 and (II) by and among certain non-debtor subsidiaries of
Coram Healthcare Corporation and Coram, Inc. and Richard M. Smith on
July 16, 2002. (Incorporated by reference to Exhibit 99.4 of the
registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002).10.75
    
    
    
    Settlement Agreement, dated August 26, 2002, by and between T2
Medical, Inc. and Northside Hospital & Heart Institute. (Incorporated
by reference to Exhibit 99.5 of the registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).10.76
    
    
    
    Engagement Letter, dated October 8, 2002, between Arlin M. Adams,
Esquire, the Chapter 11 trustee for the bankruptcy estates of Coram
Healthcare Corporation and Coram, Inc. and SSG Capital Advisors, L.P.
and Ewing Monroe Bemiss & Co. relating to investment banking and
restructuring advisory services. (Incorporated by reference to Exhibit
99.1 of the registrants Current Report on Form 8-K dated as of
December 2, 2002).
 94




---



##### Table of Contents



10.77
    
    
    
    Exchange Agreement and related schedules dated as of December 31,
2002, by and among Coram, Inc., Goldman Sachs Credit Partners L.P.,
Cerberus Partners, L.P. and Foothill Capital Corporation.
(Incorporated by reference to Exhibit 99.1 of the registrants Current
Report on Form 8-K dated as of December 31, 2002).10.78
    
    
    
    Amendment No. 6 to Securities Exchange Agreement, dated as of December
31, 2002, by and among Coram, Inc., Coram Healthcare Corporation,
Goldman Sachs Credit Partners L.P., Cerberus Partners, L.P., and
Foothill Capital Corporation. (Incorporated by reference to Exhibit
99.3 of the registrants Current Report on Form 8-K dated as of
December 31, 2002).10.79
    
    
    
    Motion of Arlin M. Adams, Esquire, the Chapter 11 trustee for the
bankruptcy estates of Coram Healthcare Corporation and Coram, Inc.,
dated January 24, 2003, for Authorization To Enter Into Termination
And Employment Extension Agreement With Daniel D. Crowley, filed with
the United States Bankruptcy Court for the District of Delaware.
(Incorporated by reference to Exhibit 99.1 of the registrants Current
Report on Form 8-K dated as of January 14, 2003).10.80
    
    
    
    First Amendment, dated December 13, 2002, to Hemophilia Product Volume
Commitment Agreement by and among Baxter Healthcare Corporation and
Coram, Inc., Through Its Therapeutic Services Division Under Date of
December 19, 2001. Certain portions of the First Amendment to the
Hemophilia Product Volume Commitment Agreement have been omitted
pursuant to a request for confidential treatment. The entire First
Amendment to the Hemophilia Product Volume Commitment has been filed
confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.80 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.81
    
    
    
    Pricing changes letter, dated February 20, 2003, by and among Baxter
Healthcare Corporation and FFF Enterprises, Inc., related to pricing
changes for Coram Healthcare Corporation and Coram, Inc. Certain
portions of the Pricing changes letter have been omitted pursuant to a
request for confidential treatment. The entire Pricing changes letter
has been filed confidentially with the Securities and Exchange
Commission. (Incorporated by reference to Exhibit 10.81 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.82
    
    
    
    Collateralization Agreement, dated January 30, 2003 by and among
Harris Trust and Savings Bank and Arlin M. Adams, Esquire, Trustee for
the bankruptcy cases of Coram Healthcare Corporation and Coram, Inc.
(Incorporated by reference to Exhibit 10.82 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.83
    
    
    
    Agreement, dated March 28, 2003, between Coram Healthcare Corporation
and B. Braun Medical, Inc. for the purchase of Vista Basic IV pumps.
(Incorporated by reference to Exhibit 10.83 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.84
    
    
    
    Settlement Agreement, dated as of October 17, 2002 by and among Coram
Healthcare Corporation, Curaflex Health Services, Inc., and Curascript
Pharmacy, Inc., and Curascript PBM Services, Inc. Certain portions of
the Settlement Agreement have been omitted pursuant to a request for
confidential treatment. The entire Settlement Agreement has been
filed confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.84 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.85
    
    
    
    Coram Employment Agreement, dated August 1, 2000, between Coram, Inc.
and Deborah Meyer. (Incorporated by reference to Exhibit 10.85 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.86
    
    
    
    Coram Employment Agreement, dated August 1, 2000, between Coram, Inc.
and Michael Saracco. (Incorporated by reference to Exhibit 10.86 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.87
    
    
    
    Agreement, dated April 11, 2003, between Coram Healthcare Corporation
and B. Braun Medical, Inc. for the purchase of Vista Basic IV pumps.
(Incorporated by reference to Exhibit 10.87 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).
 95




---



##### Table of Contents



10.88
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Scott Danitz. (Incorporated by reference to Exhibit 10.88 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.89
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Debbie Meyer. (Incorporated by reference to Exhibit 10.89 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.90
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Michael Saracco. (Incorporated by reference to Exhibit 10.90 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.91
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Allen J. Marabito. (Incorporated by reference to Exhibit 10.91 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.92
    
    
    
    Master Agreement, dated December 3, 2002, by and between AT&T
Corporation and Coram, Inc. (Incorporated by reference to Exhibit
10.92 of the registrants Annual Report on Form 10-K/A Amendment No. 1
for the year ended December 31, 2002).10.93
    
    
    
    United States Bankruptcy Court For The District Of Delaware Order
Dated, December 27, 2002, Granting Motion Of The Chapter 11 Trustee
For Authorization To Issue Preferred Stock In Exchange For Debt.
(Incorporated by reference to Exhibit 10.93 of the registrants Annual
Report on Form 10-K/A Amendment No. 1 for the year ended December 31,
2002).10.94
    
    
    
    Abstract from the United States Bankruptcy Court For The District Of
Delaware hearing held on December 27, 2002. (Incorporated by reference
to Exhibit 10.94 of the registrants Annual Report on Form 10-K/A
Amendment No. 1 for the year ended December 31, 2002).10.95
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement and Rider to
2003 Coram Key Employee Retention Incentive Program Agreement by and
between Coram, Inc. and Allen Marabito. (Incorporated by reference to
Exhibit 10.1 of the registrants Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended March 31, 2003).10.96
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement by and between
Coram, Inc. and Scott Danitz. (Incorporated by reference to Exhibit
10.2 of the registrants Quarterly Report on Form 10-Q/A Amendment No.
1 for the quarter ended March 31, 2003).10.97
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement by and between
Coram, Inc. and Deborah Meyer. (Incorporated by reference to Exhibit
10.3 of the registrants Quarterly Report on Form 10-Q/A Amendment No.
1 for the quarter ended March 31, 2003).10.98
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement by and between
Coram, Inc. and Michael Saracco. (Incorporated by reference to Exhibit
10.4 of the registrants Quarterly Report on Form 10-Q/A Amendment No.
1 for the quarter ended March 31, 2003).10.99
    
    
    
    Agreement dated May 12, 2003 between Curaflex Health Services, Inc.
and B. Braun Medical, Inc. for the lease of 1,000 Vista Basic pumps.
(Incorporated by reference to Exhibit 10.5 of the registrants
Quarterly Report on Form 10-Q/A Amendment No. 1 for the quarter ended
March 31, 2003).10.100
    
    
    
    Agreement dated November 17, 1995 by and between McGaw, Inc. and Coram
Healthcare Corporation for the purchase and sale of products,
including various amendments thereto. Certain portions of the
agreement and related amendments have been omitted pursuant to a
request for confidential treatment. The entire agreement and related
amendments have been filed confidentially with the Securities and
Exchange Commission. (Incorporated by reference to Exhibit 10.6 of the
registrants Quarterly Report on Form 10-Q/A Amendment No. 1 for the
quarter ended March 31, 2003).
 96




---



##### Table of Contents



10.101
    
    
    
    Amendment to agreement for purchase and sale of certain disposables
and IV products, dated May 12, 2003, by and between B. Braun Medical,
Inc. and Coram Healthcare Corporation. Certain portions of the
amendment have been omitted pursuant to a request for confidential
treatment. The entire amendment has been filed confidentially with
the Securities and Exchange Commission. (Incorporated by reference to
Exhibit 10.7 of the registrants Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended March 31, 2003).10.102
    
    
    
    Purchase Agreement, dated May 29, 2003, by and between Baxter
Healthcare Corporation and Coram, Inc. for the purchase and sale of
certain therapeutics. Certain portions of the Purchase Agreement have
been omitted pursuant to a request for confidential treatment. The
entire Purchase Agreement has been filed with the Securities and
Exchange Commission. (Incorporated by reference to Exhibit 10.1 of
the registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003).10.103
    
    
    
    Settlement Agreement and Mutual Release, dated May 2, 2003, by and
among Hobart G. Truesdell, in his capacity as Chief Restructuring
Officer of Coram Resource Network, Inc. and Coram Independent Practice
Association, Inc., Coram Resource Network, Inc., Coram Independent
Practice Association, Inc., the Official Committee of Unsecured
Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc., Arlin M. Adams, in his capacity as Chapter
11 Trustee for the Bankruptcy Estates of Coram Healthcare Corporation
and Coram, Inc., Coram Healthcare Corporation and Coram, Inc. This
settlement agreement resolves certain claims and counterclaims amongst
the aforementioned parties. (Incorporated by reference to Exhibit
10.2 of the registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003).10.104
    
    
    
    (i) Ancillary Provider Services Agreement, dated January 1, 2001, by
and between Health Net Inc. and Coram, Inc. for the provision of
professional healthcare services, supplies, products and related
services, (ii) First Amendment to the Ancillary Provider Services
Agreement, dated January 1, 2003, by and between Health Net Inc. and
Coram, Inc. and (iii) Second Amendment to the Ancillary Provider
Services Agreement, dated October 1, 2003, by and between Health Net
Inc. and Coram, Inc. Certain portions of the Ancillary Provider
Services Agreement and the first and second amendments thereto have
been omitted pursuant to a request for confidential treatment. The
entire Ancillary Provider Services Agreement and the first and second
amendments thereto have been filed with the Securities and Exchange
Commission. (Incorporated by reference to Exhibit 10.1 of the
registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003).10.105
    
    
    
    Second Amendment to Hemophilia Product Volume Commitment Agreement,
dated September 24, 2003, by and between Baxter Healthcare Corporation
and Coram, Inc. for the purchase and sale of certain blood products.
Certain portions of the amendment have been omitted pursuant to a
request for confidential treatment. The entire amendment has been
filed with the Securities and Exchange Commission. (Incorporated by
reference to Exhibit 10.2 of the registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 2003).10.106
    
    
    
    Supply Agreement, dated June 10, 1998, by and between Becton Dickinson
and Company and Coram Healthcare Corporation for the purchase and sale
of certain medical devices and healthcare products. Certain portions
of the agreement have been omitted pursuant to a request for
confidential treatment. The entire agreement has been filed with the
Securities and Exchange Commission. (Incorporated by reference to
Exhibit 10.3 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003).10.107
    
    
    
    First Addendum to the Engagement Agreement dated October 8, 2002, by
and between the Chapter 11 Trustee (the Trustee) for the Bankruptcy
Estates of Coram Healthcare Corporation and Coram, Inc., and SSG
Capital Advisors, L.P. and Ewing Bemiss & Co. (collectively the
Advisors) in connection with the Advisors engagement as exclusive
investment bankers and financial advisors to the Trustee.
(Incorporated by reference to Exhibit 10.4 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).10.108
    
    
    
    Settlement Agreement and Mutual Release, dated August 25, 2003, by and
between TBOB Enterprises, Inc. and Arlin M. Adams, as Chapter 11
Trustee for the Bankruptcy Estates of Coram Healthcare Corporation and
Coram, Inc., to settle a contingent consideration dispute.
(Incorporated by reference to Exhibit 10.5 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).
 97




---



##### Table of Contents



10.109
    
    
    
    Amendment to Purchase Agreement, dated January 15, 2004, between
Baxter Healthcare Corporation and Coram, Inc. for the purchase and
sale of certain therapeutics. Certain portions of the agreement have
been omitted pursuant to a request for confidential treatment. The
entire agreement has been filed with the Securities and Exchange
Commission.*10.110
    
    
    
    Therapeutics and Devices Purchase Agreement, dated March 12, 2004,
between Baxter Healthcare Corporation and Coram, Inc. for the purchase
and sale of certain therapeutics. Certain portions of the agreement
have been omitted pursuant to a request for confidential treatment.
The entire agreement has been filed with the Securities and Exchange
Commission.*10.111
    
    
    
    Therapeutics and Devices Purchase Agreement, dated March 23, 2004,
between Baxter Healthcare Corporation and Coram, Inc. for the purchase
and sale of certain intravenous immunoglobulin products. Certain
portions of the agreement have been omitted pursuant to a request for
confidential treatment. The entire agreement has been filed with the
Securities and Exchange Commission.*10.112
    
    
    
    Medication Delivery Division Infusion Device Group Agreement, dated
December 30, 2003, between Baxter Healthcare Corporation, Coram, Inc.
and Curaflex Health Services, Inc. for the lease of 5,200 6060
Multi-Therapy Ambulatory Infusion Pumps and for the purchase of
related pump accessories. Certain portions of the agreement have been
omitted pursuant to a request for confidential treatment. The entire
agreement has been filed confidentially with the Securities and
Exchange Commission.*10.113
    
    
    
    Second Amendment to Prime Vendor Agreement, dated October 12, 2003,
between Cardinal Health and Coram Healthcare Corporation. Certain
portions of the agreement have been omitted pursuant to a request for
confidential treatment. The entire amendment has been filed
confidentially with the Securities and Exchange Commission.*10.114
    
    
    
    Decision and Stipulation Agreement, dated January 26, 2004, and
Installment Agreement, dated March 3, 2004, between the Department of
Treasury  Internal Revenue Service and T2 Medical, Inc.*10.115
    
    
    
    Second Addendum to the Engagement
Agreement dated October 8, 2002 and
the First Addendum dated July 31, 2003, by and between the Chapter 11
Trustee (the Trustee) for the Bankruptcy Estates of Coram Healthcare
Corporation and Coram, Inc., and SSG Capital Advisors, L.P. and Ewing
Bemiss & Co. (collectively the Advisors) in connection with the
Advisors engagement as exclusive investment bankers and financial
advisors to the Trustee.*10.116
    
    
    
    Agreement dated March 2, 2004, by and between the Chapter 11 Trustee
and Concord Group, Inc. d/b/a Executive Round Table (the Chapter 11
Trustees Financial Advisor) for advisory services that the Chapter
11 Trustees Financial Advisor will perform in connection with the
Chapter 11 Trustees role on the companys audit committee.*10.117
    
    
    
    License and Support Agreement and Software Development Agreement,
dated December 19, 2003, between Specialized Clinical Services, Inc.
and Coram, Inc. for the purchase of and enhancements to certain
software.*10.118
    
    
    
    Medication Delivery Division Purchase Agreement, dated January 5,
2004, between Baxter Healthcare Corporation, Coram, Inc. and Curaflex Health Services, Inc. for the
purchase and sale of certain frozen drug products. Certain portions of
the agreement have been omitted pursuant to a request for confidential
treatment. The entire agreement has been filed confidentially with the
Securities and Exchange Commission.*10.119
    
    
    
    Mutual Waiver of Damages, dated
April 5, 2004, by and between Baxter
Healthcare Corporation and Coram, Inc.*14.1
    
    
    
    Corporate Compliance Handbook and the Coram Healthcare Corporation
Code of Ethics for Principal Executive Officer(s) and Senior Financial
Officers.*
 98




---



##### Table of Contents



20.1
    
    
    
    Stockholder Rights Agreement (the Stockholder Rights Agreement),
dated as of June 25, 1997, between Coram Healthcare Corporation and
BankBoston, N.A., which includes the form of Certificate of
Designation, Preferences and Rights setting forth the terms of the
Series X Participating Preferred Stock, par value $0.001 per share, as
Exhibit A, the Summary of Stockholder Rights Agreement as Exhibit B
and the form of Rights Certificate as Exhibit C. Pursuant to the
Stockholder Rights Agreement, printed Rights Certificates will not be
mailed until as soon as practicable after the earlier of the tenth
business day after public announcement that a person or group has
become an Acquiring Person or the tenth business day after a person
commences, or announces its intention to commence, a tender offer or
exchange offer the consummation of which would result in such person
becoming an Acquiring Person. (Incorporated by reference to Exhibit 1
of the registrants Current Report on Form 8-K dated as of June 25,
1997).21.1
    
    
    
    Subsidiaries of the registrant.*23.1
    
    
    
    Consent of Ernst & Young LLP.*31.1
    
    
    
    Chief Executive Officer Certification pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of Regulation 13a of the Securities Exchange Act of
1934, as amended. *31.2
    
    
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of Regulation 13a of the Securities Exchange Act of
1934, as amended. *32.1
    
    
    
    Chief Executive Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002. *32.2
    
    
    
    Chief Financial Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002. *99.1
    
    
    
    Chapter 11 Trustees Amended Joint Plan Of Reorganization.
(Incorporated by reference to Exhibit 99.1 of the registrants Current
Report on Form 8-K filed on July 11, 2003).99.2
    
    
    
    Second Amended Disclosure Statement With Respect To The Chapter 11
Trustees Amended Joint Plan Of Reorganization. (Incorporated by
reference to Exhibit 99.2 of the registrants Current Report on Form
8-K filed on July 11, 2003).99.3
    
    
    
    Second Amended Plan of Reorganization Of The Official Committee Of
Equity Security Holders Of Coram Healthcare Corporation and Coram,
Inc. (Incorporated by reference to Exhibit 99.3 of the registrants
Current Report on Form 8-K filed on July 11, 2003).99.4
    
    
    
    Third Amended Disclosure Statement Of The Equity Committee Of Coram
Healthcare Corporation In Connection With The Second Amended Plan Of
Reorganization Of Coram Healthcare Corporation And Coram, Inc.
(Incorporated by reference to Exhibit 99.4 of the registrants Current
Report on Form 8-K filed on July 11, 2003).99.5
    
    
    
    Modification to the Chapter 11 Trustees Amended Joint Plan of
Reorganization. (Incorporated by reference to Exhibit 99.1 of the
registrants Current Report on Form 8-K filed on September 23, 2003).99.6
    
    
    
    Plan Supplement To The Chapter 11 Trustees Amended Joint Plan of
Reorganization. (Incorporated by reference to Exhibit 99.1 of the
registrants Current Report on Form 8-K filed on October 14, 2003).99.7
    
    
    
    Initial Plan Supplement To The Second Amended Plan Of Reorganization
Of The Official Committee Of Equity Security Holders Of Coram
Healthcare Corporation. (Incorporated by reference to Exhibit 99.2 of
the registrants Current Report on Form 8-K filed on October 14,
2003).99.8
    
    
    
    Second Supplement To The Second Amended Plan Of Reorganization Of The
Official Committee Of Equity Security Holders Of Coram Healthcare
Corporation. (Incorporated by reference to Exhibit 99.3 of the
registrants Current Report on Form 8-K filed on October 14, 2003).
 99




---



##### Table of Contents



99.9
    
    
    
    Amendment To Second Supplement To The Second Amended Plan Of
Reorganization Of The Official Committee Of Equity Security Holders Of
Coram Healthcare Corporation And Coram, Inc. (Incorporated by
reference to Exhibit 99.1 of the registrants Current Report on Form
8-K filed on February 26, 2004).
  (a)
    
    Certain exhibits and schedules of this Exhibit have been omitted. The
registrant agrees to supplementally furnish any omitted schedule or
exhibit to the Securities and Exchange Commission.*
    
    Filed herewith. 100




---



##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on April
14, 2004. CORAM HEALTHCARE CORPORATIONBy:
    /s/ ALLEN J. MARABITOAllen J. MarabitoExecutive Vice President, Secretary and Principal
Executive Officer Fulfilling the Duties and Responsibilities
of President and Chief Executive Officer of the Corporation Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated. /s/  ALLEN J. MARABITO
Allen J. Marabito
    
    Executive Vice President, Secretary
and Principal Executive Officer
Fulfilling the Duties and Responsibilities
of President and Chief Executive Officer
of the Corporation
    
    April 14, 2004/s/  SCOTT R. DANITZ
Scott R. Danitz
    
    Senior Vice President, Chief
Financial Officer, Treasurer &
Principal Accounting Officer
    
    April 14, 2004/s/ ARLIN M. ADAMS, ESQUIRE
Arlin M. Adams, Esquire
    
    Chapter 11 Trustee for the
Bankruptcy Estates of
Coram Healthcare Corporation and
Coram, Inc., effective March 7, 2002 1
    
    April 14, 2004
  1 Upon the Bankruptcy Courts approval of the Chapter 11 trustees appointment
on March 7, 2002, the Chapter 11 trustee assumed the duties and powers of the
companys Board of Directors. 101




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND SCHEDULE PageReport of Independent Auditors
    
    
    F-2Consolidated Balance Sheets  As of December 31, 2003 and 2002
    
    
    F-3Consolidated Statements of Income  Years Ended December 31, 2003,
2002 and 2001
    
    
    F-4Consolidated Statements of Stockholders Equity  Years Ended December 31,
2003, 2002 and 2001
    
    
    F-5Consolidated Statements of Cash Flows  Years Ended December 31, 2003, 2002
and 2001
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7Schedule II
 Valuation and Qualifying Accounts
    
    
    S-1
 F-1




---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS Stockholders, Chapter 11
Trustee and the Board of DirectorsCoram Healthcare Corporation We have audited the accompanying consolidated balance sheets of Coram
Healthcare Corporation (the Company) as of December 31, 2003 and 2002, and
the related consolidated statements of income, stockholders equity and cash
flows for each of the three years in the period ended December 31, 2003. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coram
Healthcare Corporation at December 31, 2003 and 2002, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein. The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. Although, the
Company generated net income from continuing operations for the year ended
December 31, 2003, the Company has incurred net losses from continuing
operations in each of the two years in the period ended December 31, 2002 and,
as more fully described in Note 8 to the consolidated financial statements, the
Company is in default under one of its loan agreements. In addition, as more
fully described in Note 3 to the consolidated financial statements, Coram
Healthcare Corporation and its first tier wholly owned subsidiary, Coram, Inc.
(collectively the Debtors), filed voluntary petitions for relief under
Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in
2000. The Debtors are currently operating their businesses under the
jurisdiction of the Chapter 11 trustee appointed by the United States
Bankruptcy Court for the District of Delaware (the Bankruptcy Court) and
continuation of the Company as a going concern is contingent upon, among other
things, confirmation of a plan or plans of reorganization in the Bankruptcy
Court, resolution of various litigation against the Company and the Companys
ability to generate sufficient cash from operations and obtain financing
sources to meet its future obligations. These matters raise substantial doubt
about the Companys ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments reflecting the
possible future effects on the recoverability and classification of assets or
the amount and classification of liabilities that may result from the outcome
of these uncertainties. As discussed in Note 7 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. /s/ ERNST & YOUNG LLP Denver, Colorado
April 9, 2004 F-2




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts) December 31,2003
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,449
    
    
    $
    30,591Cash limited as to use
    
    
    84
    
    
    
    217Accounts receivable, net of allowances of $20,672 and $22,229
    
    
    107,620
    
    
    
    103,498Inventories
    
    
    12,715
    
    
    
    13,160Deferred income taxes, net
    
    
    110
    
    
    
    107Other current assets
    
    
    5,831
    
    
    
    5,658Total current assets
    
    
    164,809
    
    
    
    153,231Property and equipment, net
    
    
    13,197
    
    
    
    10,439Deferred income taxes, net
    
    
    463
    
    
    
    449Intangible assets, net
    
    
    4,760
    
    
    
    5,270Goodwill
    
    
    57,186
    
    
    
    57,186Other assets
    
    
    5,428
    
    
    
    5,064Total assets
    
    $
    245,843
    
    
    $
    231,639LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities not subject to compromise:Accounts payable
    
    $
    29,171
    
    
    $
    27,986Accrued compensation and related liabilities
    
    
    23,723
    
    
    
    23,882Current maturities of long-term debt
    
    
    660
    
    
    
    51Current portion of capital lease obligations
    
    
    1,052
    
    
    
    10Current portion of income tax settlement
    
    
    4,355
    
    
    
    3,120Income taxes payable
    
    
    164
    
    
    
    160Deferred income taxes
    
    
    573
    
    
    
    556Accrued merger and restructuring costs
    
    
    55
    
    
    
    190Accrued reorganization costs
    
    
    8,596
    
    
    
    7,610Other current and accrued liabilities (See Note 14)
    
    
    12,363
    
    
    
    8,479Total current liabilities not subject to compromise
    
    
    80,712
    
    
    
    72,044Total current liabilities subject to compromise (See Note 3)
    
    
    16,846
    
    
    
    15,630Total current liabilities
    
    
    97,558
    
    
    
    87,674Long-term liabilities not subject to compromise:Long-term debt, less current maturities
    
    
    592
    
    
    
    67Capital lease obligations, less current portion
    
    
    1,614
    
    
    
    6Minority interests in consolidated joint ventures and preferred stock issued by a subsidiary
    
    
    6,510
    
    
    
    6,215Income tax settlement, less current portion
    
    
    15,615
    
    
    
    15,600Other liabilities
    
    
    4,242
    
    
    
    4,095Net liabilities for liquidation of discontinued operations
    
    
    27,161
    
    
    
    27,275Total liabilities
    
    
    153,292
    
    
    
    140,932Commitments
and contingenciesStockholders equity:Preferred stock, par value $0.001, authorized 10,000 shares, none issued
    
    
    
    
    
    
    Common stock, par value $0.001, 150,000 shares authorized, 49,638 shares issued and outstanding
    
    
    50
    
    
    
    50Additional paid-in capital
    
    
    427,526
    
    
    
    427,354Accumulated deficit
    
    
    (335,025
    )
    
    
    (336,697
    )Total stockholders equity
    
    
    92,551
    
    
    
    90,707Total liabilities and stockholders equity
    
    $
    245,843
    
    
    $
    231,639
 See accompanying notes to consolidated financial statements. F-3




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts) Years Ended December 31,2003
    
    2002
    
    2001Net revenue
    
    $
    476,496
    
    
    $
    433,470
    
    
    $
    393,629Cost of service
    
    
    344,356
    
    
    
    309,338
    
    
    
    279,275Gross profit
    
    
    132,140
    
    
    
    124,132
    
    
    
    114,354Operating expenses:Selling, general and administrative expenses
    
    
    93,355
    
    
    
    91,304
    
    
    
    83,836Provision for estimated uncollectible accounts
    
    
    19,813
    
    
    
    15,887
    
    
    
    17,533Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    9,822Restructuring cost recoveries
    
    
    (39
    )
    
    
    (113
    )
    
    
    (679
    )Charges for impairments of goodwill and other long-lived assets
    
    
    
    
    
    
    51,783
    
    
    
    3,255Total operating expenses
    
    
    113,129
    
    
    
    158,861
    
    
    
    113,767Operating income (loss) from continuing operations
    
    
    19,011
    
    
    
    (34,729
    )
    
    
    587Other income (expenses):Interest income
    
    
    329
    
    
    
    436
    
    
    
    1,216Interest expense (excluding post-petition contractual interest of approximately
$1,000, $12,100 and $14,000 for the years ended December 31, 2003, 2002
and 2001, respectively)
    
    
    (1,692
    )
    
    
    (1,566
    )
    
    
    (6,652
    )Equity in net income of unconsolidated joint ventures
    
    
    1,196
    
    
    
    1,504
    
    
    
    730Gain on sale of business
    
    
    
    
    
    
    46
    
    
    
    Gains (losses) on dispositions of property and equipment, net
    
    
    (10
    )
    
    
    3
    
    
    
    1Other income (expense), net
    
    
    (443
    )
    
    
    1,003
    
    
    
    55Income (loss) from continuing operations before reorganization expenses,
income taxes, minority interests, extraordinary gains on troubled debt
restructurings and the cumulative effect of a change in accounting principle
    
    
    18,391
    
    
    
    (33,303
    )
    
    
    (4,063
    )Reorganization expenses, net
    
    
    15,655
    
    
    
    4,275
    
    
    
    14,397Income (loss) from continuing operations before income taxes, minority interests,
extraordinary gains on troubled debt restructurings and the cumulative
effect of a change in accounting principle
    
    
    2,736
    
    
    
    (37,578
    )
    
    
    (18,460
    )Income tax expense
    
    
    245
    
    
    
    71
    
    
    
    150Minority interests in net income of consolidated joint ventures
    
    
    731
    
    
    
    764
    
    
    
    631Income (loss) from continuing operations before extraordinary gains on troubled
debt restructurings and the cumulative effect of a change in accounting principle
    
    
    1,760
    
    
    
    (38,413
    )
    
    
    (19,241
    )Loss from disposal of discontinued operations
    
    
    (88
    )
    
    
    (685
    )
    
    
    (250
    )Income (loss) before extraordinary gains on troubled debt restructurings and the
cumulative effect of a change in accounting principle
    
    
    1,672
    
    
    
    (39,098
    )
    
    
    (19,491
    )Extraordinary gains on troubled debt restructurings
    
    
    
    
    
    
    123,517
    
    
    
    20,706Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (71,902
    )
    
    
    Net income
    
    $
    1,672
    
    
    $
    12,517
    
    
    $
    1,215Net Income Per Common Share:Basic and Diluted:Income (loss) from continuing operations
    
    $
    0.03
    
    
    $
    (0.78
    )
    
    $
    (0.39
    )Loss from disposal of discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )Extraordinary gains on troubled debt restructurings
    
    
    
    
    
    
    2.49
    
    
    
    0.42Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (1.45
    )
    
    
    Net income per common share
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.02Weighted average common shares used in the computation of basic net
income per common share
    
    
    49,638
    
    
    
    49,638
    
    
    
    49,638Weighted average common shares used in the computation of diluted net
income per common share
    
    
    49,714
    
    
    
    49,638
    
    
    
    49,638
 See accompanying notes to consolidated financial statements. F-4




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands) Common Stock
    
    AdditionalPaid-In
    
    AccumulatedShares
    
    Amount
    
    Capital
    
    Deficit
    
    TotalsBalances at January 1, 2001
    
    
    49,638
    
    
    $
    50
    
    
    $
    427,357
    
    
    $
    (350,429
    )
    
    $
    76,978Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,215
    
    
    
    1,215Other
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Balances at December 31, 2001
    
    
    49,638
    
    
    
    50
    
    
    
    427,353
    
    
    
    (349,214
    )
    
    
    78,189Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,517
    
    
    
    12,517Other
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Balances at December 31, 2002
    
    
    49,638
    
    
    
    50
    
    
    
    427,354
    
    
    
    (336,697
    )
    
    
    90,707Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,672
    
    
    
    1,672Other
    
    
    
    
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    172Balances at December 31, 2003
    
    
    49,638
    
    
    $
    50
    
    
    $
    427,526
    
    
    $
    (335,025
    )
    
    $
    92,551
 See accompanying notes to consolidated financial statements. F-5




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Years Ended December 31,2003
    
    2002
    
    2001CASH FLOWS FROM OPERATING ACTIVITIESIncome (loss) from continuing operations
    
    $
    1,760
    
    
    $
    (38,413
    )
    
    $
    (19,241
    )Adjustments to reconcile income (loss) from continuing operations to
net cash provided by continuing operations:Provision for estimated uncollectible accounts
    
    
    19,813
    
    
    
    15,887
    
    
    
    17,533Depreciation and amortization
    
    
    6,953
    
    
    
    9,119
    
    
    
    20,708Charges for impairments of goodwill and other long-lived assets
    
    
    
    
    
    
    51,783
    
    
    
    3,255Reorganization expenses, net
    
    
    15,655
    
    
    
    4,275
    
    
    
    14,397Minority interests in net income of consolidated joint ventures, net
    
    
    731
    
    
    
    764
    
    
    
    631(Gains) losses on dispositions of property and equipment
    
    
    10
    
    
    
    (3
    )
    
    
    (1
    )Gain on sale of business
    
    
    
    
    
    
    (46
    )
    
    
    Cash distributions from equity investees
    
    
    830
    
    
    
    1,023
    
    
    
    398Equity in net income of unconsolidated joint ventures, net
    
    
    (1,196
    )
    
    
    (1,504
    )
    
    
    (730
    )Changes in operating assets and liabilities, net:Accounts receivable
    
    
    (23,935
    )
    
    
    (30,818
    )
    
    
    (28,713
    )Prepaid expenses, inventories and other assets
    
    
    543
    
    
    
    1,768
    
    
    
    (1,112
    )Current and other liabilities
    
    
    7,931
    
    
    
    6,118
    
    
    
    8,786Accrued merger and restructuring costs
    
    
    (135
    )
    
    
    (392
    )
    
    
    (1,718
    )Net cash provided by continuing operations before reorganization items
    
    
    28,960
    
    
    
    19,561
    
    
    
    14,193Cash flows used by reorganization items, net
    
    
    (14,669
    )
    
    
    (5,195
    )
    
    
    (10,776
    )Net cash provided by continuing operations (net of reorganization items)
    
    
    14,291
    
    
    
    14,366
    
    
    
    3,417CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property and equipment
    
    
    (5,777
    )
    
    
    (4,518
    )
    
    
    (7,587
    )Proceeds from sale of business
    
    
    
    
    
    
    85
    
    
    
    Proceeds from dispositions of property and equipment
    
    
    13
    
    
    
    6
    
    
    
    74Net cash used in investing activities
    
    
    (5,764
    )
    
    
    (4,427
    )
    
    
    (7,513
    )CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on long-term debt
    
    
    (393
    )
    
    
    (67
    )
    
    
    (147
    )Principal payments on capital lease obligations
    
    
    (112
    )
    
    
    (9
    )
    
    
    (149
    )Refunds of deposits (payments to) collateralize letters of credit, net
    
    
    488
    
    
    
    350
    
    
    
    (1,116
    )Cash distributions to minority interests
    
    
    (450
    )
    
    
    (768
    )
    
    
    (412
    )Net cash used in financing activities
    
    
    (467
    )
    
    
    (494
    )
    
    
    (1,824
    )Net increase (decrease) in cash from continuing operations
    
    
    8,060
    
    
    
    9,445
    
    
    
    (5,920
    )Net cash used in discontinued operations
    
    
    (202
    )
    
    
    (193
    )
    
    
    Cash and cash equivalents at beginning of year
    
    
    30,591
    
    
    
    21,339
    
    
    
    27,259Cash and cash equivalents at end of year
    
    $
    38,449
    
    
    $
    30,591
    
    
    $
    21,339SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid during the period for:Interest
    
    $
    83
    
    
    $
    66
    
    
    $
    226Income taxes
    
    
    476
    
    
    
    331
    
    
    
    724SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIESExtraordinary gains on troubled debt restructurings (debt conversion to
subsidiary preferred stock)
    
    $
    
    
    
    $
    123,517
    
    
    $
    20,706Capital lease transactions to acquire equipment
    
    
    2,762
    
    
    
    
    
    
    
    Long-term debt transaction to acquire software
    
    
    1,527
    
    
    
    
    
    
    
    
 See accompanying notes to consolidated financial statements. F-6




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003 1. DESCRIPTION OF BUSINESS As of December 31, 2003, Coram Healthcare Corporation (CHC) and its
subsidiaries (collectively Coram or the company) were engaged primarily in
the business of furnishing alternate site (outside the hospital) infusion
therapies, which also include non-intravenous home health products such as
respiratory therapy services and durable medical equipment. Other services
offered by Coram include centralized management, administration and clinical
support for clinical research trials, as well as outsourced hospital
compounding services. Coram delivers its alternate site infusion therapy
services through 77 branch offices located in 40 states and Ontario, Canada,
including recently opened infusion branches in San Antonio, Texas and
Amherstburg, Ontario, Canada. CHC and its first tier wholly-owned subsidiary,
Coram, Inc. (CI) (collectively the Debtors), filed voluntary petitions
under Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code)
on August 8, 2000 in the United States Bankruptcy Court for the District of
Delaware (the Bankruptcy Court) In re Coram Healthcare Corporation,Case No.
00-3299 and In re Coram, Inc.,Case No. 00-3300 (collectively the Bankruptcy
Cases). The Bankruptcy Cases have been consolidated for administrative
purposes only by the Bankruptcy Court and are being jointly administered under
the docket of In re Coram Healthcare Corporation,Case No. 00-3299 (MFW).
Commencing on August 8, 2000, the Debtors operated as debtors-in-possession
subject to the jurisdiction of the Bankruptcy Court; however, a Chapter 11
trustee was appointed by the Bankruptcy Court on March 7, 2002. With the
appointment of a Chapter 11 trustee, while still under the jurisdiction of the
Bankruptcy Court, the Debtors are no longer debtors-in-possession. None of
CHCs other subsidiaries is a debtor in the Bankruptcy Cases and, other than
Coram Resource Network, Inc. and Coram Independent Practice Association, Inc.
(collectively the Resource Network Subsidiaries or R-Net), none of CHCs
other subsidiaries is a debtor in any bankruptcy case. See Notes 3 and 4 for
further details. Corams business strategy is dependent upon its core alternate site
infusion therapy business, the clinical research business operated by its CTI
Network, Inc. subsidiary and outsourced hospital compounding services provided
by its SoluNet LLC subsidiary. Accordingly, managements primary business
objective is to focus Corams efforts on the delivery of its core infusion
therapies, which include nutrition, anti-infective therapies, intravenous
immunoglobulin (IVIG), pain management and coagulant and blood clotting
therapies for persons with hemophilia. For each of the periods presented, the
companys primary operations and assets were in the United States. The company
maintains infusion operations in Canada; however, assets, revenue and
profitability related to the Canadian businesses are not material to the
companys consolidated financial position or operations. Based on the materiality concepts of Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information, management concluded that the company has only one reportable
business segment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION Basis of Presentation.The consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course of
business. However, as a result of the Bankruptcy Cases and circumstances
relating thereto, including the companys leveraged financial structure and
cumulative losses from operations, such realization of assets and liquidation
of liabilities are subject to significant uncertainty. During the pendency of
the Bankruptcy Cases, the company may sell or otherwise dispose of assets and
liquidate or settle liabilities for amounts other than those reflected in the
consolidated financial statements. Furthermore, a plan or plans of
reorganization could materially change the amounts reported in the consolidated
financial statements, which do not give effect to any adjustments of the
carrying value of assets or liabilities that might be necessary as a
consequence of a plan or plans of reorganization (see Note 3 for further
details). The companys ability to continue as a going concern is dependent
upon, among other things, confirmation of a plan or plans of reorganization,
future profitable operations, the ability to comply with the terms and
conditions of the companys financing agreements, the ability to fund a
settlement with the Internal Revenue Service, the ability to remain in
compliance with the physician ownership and referral provisions of the Omnibus
Budget Reconciliation Act of 1993 (commonly known as Stark II) and the
ability to generate sufficient cash from operations and/or financing
arrangements to meet its obligations and capital asset expenditure
requirements. Reclassifications.Certain amounts in the consolidated balance sheet as
of December 31, 2002 and the consolidated statements of cash flows for the
years ended December 31, 2002 and 2001 have been reclassified to conform to the
2003 presentation. F-7




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Use of Estimates.The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. Principles of Consolidation.The consolidated financial statements include
the accounts of CHC, its subsidiaries, including CI (CHCs wholly-owned direct
subsidiary), and joint ventures that are considered to be under the control of
CHC. As discussed in Note 1, CI is a party to the Bankruptcy Cases that are
being jointly administered with those of CHC in the Bankruptcy Court. All
material intercompany account balances and transactions have been eliminated in
consolidation. The company uses the equity method of accounting for investments
in entities in which it exhibits significant influence, but not control, and
has an ownership interest of 50% or less. During the year ended
December 31, 2003, the
company adopted Financial Accounting Standards Board Interpretation No. 46,
Consolidation of Variable Interest Entities; however, such accounting
pronouncement had no impact because the company is not affiliated with any such
entities. Bankruptcy Reporting.Effective August 8, 2000, the company began
presenting its consolidated financial statements in accordance with the
provisions of Statement of Position 90-7, Financial Reporting by Entities in
Reorganization under the Bankruptcy Code(SOP 90-7). Revenue Recognition.Revenue is recognized as services are rendered or
products are delivered. Substantially all of the companys revenue is billed to
third party payers, including insurance companies, managed care plans,
governmental payers and contracted institutions. Revenue is recorded net of
contractual allowances and related discounts. Contractual allowances represent
adjustments to established rates (e.g., Average Wholesale Prices for
pharmaceutical drugs, etc.) to reflect the amounts expected to be realized from
third party payers under contractual agreements. For non-contracted payers
(excluding Medicare and Medicaid), pricing is either negotiated prior to
rendering services or the payer is billed at list price. In the former
circumstance, contractual allowances are recorded at the time of revenue
recognition based upon the pre-negotiated rates. If the payer is billed at list
price, a contractual allowance is recorded based upon managements estimates
until a payment history is established with the payer, at which time the
contractual allowances are modified. In the case of Medicare and Medicaid,
contractual allowances are recorded at the time of revenue recognition based
upon the allowable recoverable amounts pursuant to the underlying federal and
state regulations for such governmental programs. Revenue for the companys clinical research and outsourced hospital
compounding businesses is recognized in the period that the services are
rendered. Such revenue is determined by reference to contracts between the
company and the customer. Additionally, management fees, which are collected
from entities managed by the company, are either (1) a fixed fee, (2) based on
a percentage of the entities operating results or (3) based on the number of
active patient reimbursement files. Management fees were immaterial for all
periods presented in the consolidated statements of income. From time to time, the company negotiates settlements with its third party
payers in order to resolve outstanding disputes, terminate business
relationships or facilitate the establishment of new or enhanced payer
contracts. In connection therewith, the company entered into settlement
agreements with two of its payers and recorded bad debt recoveries aggregating
approximately $1.1 million during the year ended December 31, 2003. For the
year ended December 31, 2002, the company did not record any material bad debt
expense or bad debt recoveries related to such settlement activity. However,
the company recorded a net bad debt settlement expense of approximately $0.6
million for the year ended December 31, 2001. Furthermore, management is aware
of certain claims, disputes or unresolved matters with third party payers
arising in the normal course of business and, although there can be no
assurances, management believes that the resolution of such matters should not
have a material adverse effect on the companys financial position, results of
operations or cash flows. Concentration of Revenue and Credit Risk.Financial instruments that
potentially subject the company to concentrations of credit risk consist
primarily of cash equivalents and accounts receivable. At December 31, 2003,
substantially all of the companys cash and cash equivalents were maintained
with Harris Trust and Savings Bank (Harris Bank). Daily cash balances may be
in excess of available insurance limits in the United States and Canada but
credit risk is mitigated as the companys cash and cash equivalents are only
maintained with highly rated institutions. Additionally, effective January 30,
2003, Harris Bank entered into a collateralization agreement with the Chapter
11 trustee whereby Harris Bank will maintain pledged debt securities with the
Federal Reserve Bank in an amount sufficient to insure the Debtors Harris Bank
deposits in excess of the Federal Deposit Insurance Corporation insurance
limits. Such debt securities must be either instruments issued directly by the
United States Government or other debt instruments that are fully guaranteed by
the United States Government. F-8




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Accounts receivable are primarily from third party payers, including
insurance companies, managed care plans and federal and state governmental
payers such as Medicare and Medicaid, and are unsecured. Accounts receivable
under the Medicare program represented approximately 27% and 33% of the
companys consolidated accounts receivable at December 31, 2003 and 2002,
respectively. No other individual payer exceeded 5% of consolidated accounts
receivable at those dates. However, upon aggregating the individual Medicaid
program accounts receivable for all states where the company does business,
such totals represented approximately 8.5% and 6.7% of consolidated accounts
receivable at December 31, 2003 and 2002, respectively. Credit risk is
mitigated by the large number of entities that comprise the third party payer
base and credit evaluations performed by company personnel on patients and
third party payers. Revenue from the Medicare and Medicaid programs accounted for
approximately 24% of the companys consolidated net revenue for the years ended
December 31, 2003, 2002 and 2001. Laws and regulations governing the Medicare
and Medicaid programs are complex and subject to interpretation and revision.
Compliance with such laws and regulations can be subject to future government
review and interpretation, as well as significant regulatory action, including
punitive fines, penalties and exclusion from the Medicare and Medicaid
programs. Management acknowledges and is complying with certain ongoing audits
and reviews with respect to prior reimbursements from Medicare and Medicaid.
The company records regulatory reserves after management has reviewed the
underlying circumstances and applied the principles of Statement of Financial
Accounting Standards No. 5, Accounting for Contingencies. In certain cases, the company accepts fixed fee or capitated fee
arrangements. Under a capitated arrangement, the company will agree to deliver
or arrange for the delivery of certain home health services required under the
payer customers health plan in exchange for a fixed per member per month
service fee. The total per member per month fee is calculated using all members
enrolled in the particular health plan as of certain specified dates. The per
member per month service fees are recognized as revenue in the month the fees
are designated to cover home health services. As of December 31, 2003, Coram
was a party to only two capitated arrangements. Certain information regarding
the companys capitated agreements is as follows: Years Ended December 31,2003
    
    2002
    
    2001Capitated fee revenue as a percentage
of consolidated net revenue
    
    
    1.7
    %
    
    
    2.3
    %
    
    
    2.9
    %
 Approximately 7.0%, 7.5% and 6.1% of the companys consolidated net
revenue for the years ended December 31, 2003, 2002 and 2001, respectively,
related to an agreement with Health Net Inc. (Health Net) to provide services
to its members in California pursuant to fee-for-service and capitated
reimbursement arrangements. Additionally, Coram owns 50% of a partnership
located in California that derived approximately 40.3%, 45.7% and 25.9% of its
net revenue during the years ended December 31, 2003, 2002 and 2001,
respectively, from services provided under such agreement. Risk for the Health
Net capitated arrangement is somewhat mitigated by the inclusion of contractual
stop-loss provisions that protect the company and its partnership when member
utilization for identified therapies exceeds contractual thresholds. Once
stop-loss provisions are met in any given month, the services are reimbursed at
agreed-upon fee-for-service rates. The Health Net agreement expired by its
terms on December 31, 2002; however, effective October 1, 2003, a second
amendment to the agreement (the Amendment) was executed wherein the contract,
with certain modifications, was extended to December 31, 2005. The company and
its partnership continued to render services to the Health Net members from
January 1, 2003 through September 30, 2003 pursuant to the terms and conditions
of the expired contract. As a result of the final negotiations, Health Net
reserved the right to reevaluate the Amendment based upon the status of the
Bankruptcy Cases, as well as material changes, if any, to Corams senior
management during the term of the Amendment. The loss of the Health Net
agreement or significant modifications to the terms and conditions of the
Amendment could have a materially adverse effect on the results of operations,
cash flows and financial condition of the company and its partnership. The company is a party to several individual provider contracts that
ultimately fall within the purview of a single national health insurance
carrier that recently commenced implementation of a national ancillary care
management program. In connection therewith, during 2002 such national health
insurance carrier terminated two provider contracts relating to the state of
Illinois (one with the company and one with a non-consolidated joint venture).
During 2003 and through April 9, 2004, eleven additional provider contracts
were terminated with effective dates ranging from October 1, 2003 to July 1,
2004. The terminated contracts represented approximately 2.6%, 3.0% and 2.6%
of the companys consolidated net revenue for the years ended December 31,
2003, 2002 and 2001, respectively, and approximately 3.9% and 5.1% of the
companys consolidated accounts receivable at December 31, 2003 and 2002,
respectively. In the aggregate, approximately 3.5%, 4.2% and 4.4% of the
companys consolidated net revenue for the years F-9




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) ended December 31, 2003, 2002
and 2001, respectively, and approximately 5.4% and 6.8% of the companys
consolidated accounts receivable at December 31, 2003 and 2002, respectively,
were derived from the individual provider contracts that are within the
purview of this national health insurance carrier. Management can provide
no assurances that the remaining active provider contracts associated with this
national health insurance carrier will continue under terms that are favorable
to the company. Additionally, no assurances can be given that meaningful
collection/settlement activities relative to outstanding accounts receivable
will transpire in the future. The termination of additional provider contracts
and/or the inability to collect outstanding accounts receivable from the
individual healthcare plans under this national health insurance carrier could
have a materially adverse impact on the companys results of operations, cash
flows and financial condition. Provision for Estimated Uncollectible Accounts.Management regularly
reviews the collectibility of accounts receivable utilizing reports that track
collection and write-off activity. Estimated write-off percentages are then
applied to each aging category by payer classification to determine the
provision for estimated uncollectible accounts. Additionally, management
establishes supplemental specific reserves for accounts that are deemed
uncollectible due to occurrences such as payer financial distress and payer
bankruptcy filings. The provision for estimated uncollectible accounts is
periodically adjusted to reflect current collection, write-off and other
trends. While management believes the resulting net carrying amounts for
accounts receivable are fairly stated and that the company has adequate
allowances for uncollectible accounts based on all information available, no
assurances can be given as to the level of future provisions for uncollectible
accounts or how they will compare to the levels experienced in the past. The
companys ability to successfully collect its accounts receivable depends, in
part, on managements ability to (i) adequately supervise and train personnel
in billing and collections and (ii) maximize integration efficiencies related
to reimbursement site consolidations and information system changes. Cash and Cash Equivalents.Cash equivalents include all highly liquid
investments with an original maturity of three months or less. Cash limited as
to use includes cash with restrictions imposed by third parties. Inventories.Inventories, consisting primarily of pharmaceutical drugs and
medical supplies, are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Property and Equipment.Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over
estimated useful lives of one to seven years for software, equipment, infusion
pumps, furniture, fixtures and vehicles. Capital lease assets with bargain
purchase prices and leasehold improvements are amortized over the shorter of
the lease term or the estimated useful lives of the underlying assets. Repairs
and maintenance costs are expensed as incurred. Capitalized Software Development Costs.Capitalized costs related to
software developed and/or obtained for internal use are stated at cost in
accordance with Statement of Position 98-1, Accounting for Computer Software
Developed for or Obtained for Internal-Use(SOP 98-1). Amortization is
computed using the straight-line method over estimated useful lives ranging
from one to five years. For the years ended December 31, 2003, 2002 and 2001,
software development costs aggregating approximately $1.8 million, $1.2 million
and $1.5 million, respectively, were capitalized in accordance with SOP 98-1. Self-Insured Health and Welfare Costs.The company offers health and
welfare benefits to its employees, their spouses and certain beneficiaries.
While such benefits are primarily self-insured, stop-loss insurance policies
are maintained at amounts deemed appropriate by management. However, there can
be no assurances that the amount of stop-loss insurance coverage will be
adequate for Corams health and welfare programs or that the company will be
able to obtain stop-loss insurance in the future in amounts adequate to meet
its needs. At the end of each reporting period, management estimates and
records the costs attributable to incurred but not reported health and welfare
claims based upon historical experience and other information provided by the
companys third party administrator. F-10




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Stock-Based Compensation.The company elected to measure compensation
expense related to its employee stock-based compensation plans in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(APB 25), and disclose the pro forma impact of accounting for
employee stock-based compensation plans pursuant to the fair value-based
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation(Statement 123). Because the exercise price of
the companys employee stock options equals the market price of the underlying
stock on the date of grant, no APB 25 stock-based compensation expense has been
recognized for the companys stock-based compensation plans in the consolidated
financial statements. Had compensation expense for such plans been recognized
in accordance with the provisions of Statement 123, the companys pro forma
financial results would have been as follows (in thousands, except per share
amounts): Years Ended December 31,2003
    
    2002
    
    2001Net income, as reported
    
    $
    1,672
    
    
    $
    12,517
    
    
    $
    1,215Less: Pro forma stock-based compensation expense
(determined using the fair value method for all awards)
    
    
    (16
    )
    
    
    (169
    )
    
    
    (396
    )Pro forma net income
    
    $
    1,656
    
    
    $
    12,348
    
    
    $
    819Net income per common share:Basic and diluted, as reported
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.02Basic and diluted, pro forma
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.02
 For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. Because
compensation expense associated with an award is recognized over the vesting
period, the impact on pro forma net income disclosed above may not be
representative of pro forma compensation expense in future years. See Note 13
for further discussion of the companys stock-based compensation plans. In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure(Statement 148). This accounting
pronouncement amends Statement 123 and provides alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation. Management evaluated the various
methods of transitioning to Statement 123 as outlined in Statement 148 but
concluded that the company will continue to use the intrinsic method provided
in APB 25 as the companys accounting policy for stock-based compensation
plans. The company will also continue to provide the pro forma disclosures
required pursuant to Statement 123, as amended. F-11




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Income (Loss) Per Common Share.Basic net income (loss) per common share
excludes any dilutive effects of stock options, warrants and convertible
securities. The following table sets forth the computations of basic and
diluted net income (loss) per common share for the years ended December 31,
2003, 2002, and 2001 (in thousands, except per share amounts): Years Ended December 31,2003
    
    2002
    
    2001Numerator for basic and diluted net income per
common share:Income (loss) from continuing operations
    
    $
    1,760
    
    
    $
    (38,413
    )
    
    $
    (19,241
    )Loss from disposal of discontinued operations
    
    
    (88
    )
    
    
    (685
    )
    
    
    (250
    )Extraordinary gains on troubled debt restructurings
    
    
    
    
    
    
    123,517
    
    
    
    20,706Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (71,902
    )
    
    
    Net income
    
    $
    1,672
    
    
    $
    12,517
    
    
    $
    1,215Weighted average shares  denominator for basic net
income per common share
    
    
    49,638
    
    
    
    49,638
    
    
    
    49,638Effect of dilutive securities:Stock options
    
    
    76
    
    
    
    
    
    
    
    Denominator for diluted net income per common share 
adjusted weighted average shares
    
    
    49,714
    
    
    
    49,638
    
    
    
    49,638Basic and diluted net income per common share:Income (loss) from continuing operations
    
    $
    0.03
    
    
    $
    (0.78
    )
    
    $
    (0.39
    )Loss from disposal of discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )Extraordinary gains on troubled debt restructurings
    
    
    
    
    
    
    2.49
    
    
    
    0.42Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (1.45
    )
    
    
    Net income
    
    $
    0.03
    
    
    $
    0.25
    
    
    $
    0.02
 During each of the years ended December 31, 2002 and 2001, the company
experienced losses from continuing operations and, in accordance with the
provisions of Statement of Financial Accounting Standards No. 128, Earnings Per
Share, the denominator utilized to calculate income (loss) per share does not
increase for common stock equivalents when losses from continuing operations
are in evidence because to do so would be anti-dilutive. Other Income (Expense).As a result of reconciling certain pre-petition
proofs of claim filed in the Bankruptcy Cases, the company recorded
approximately $0.5 million of expense during the year ended December 31, 2003.
During the year ended December 31, 2002, the company recorded approximately
$1.0 million of other income from the recognition of the net realizable value
of an escrow deposit that related to certain 1997 dispositions of lithotripsy
partnerships. The Bankruptcy Court approved the settlement agreement on August
21, 2002 and, on October 17, 2002, the company received the settlement
proceeds. Accounting for Asset Retirement Obligations.In June 2001, the FASB
issued Statement of Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations(Statement 143). Statement 143 requires
entities to record the fair value of legal obligations associated with the
retirement of long-lived tangible assets. The company adopted Statement 143 on
January 1, 2003; however, the adoption of this accounting pronouncement had no
impact on the companys financial position and results of operations. Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others.In November 2002, the
FASB issued Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others(FIN No. 45). FIN No. 45 elaborates on the disclosure requirements
for annual and interim financial statements of a guarantor and requires that,
in certain cases, a guarantor recognize a liability at the inception of the
guarantee for the fair value of the obligation undertaken. The company adopted
FIN No. 45 on January 1, 2003. The companys financial position and results of
operations were not impacted by the initial adoption of this accounting
pronouncement. However, a guarantee provided to a third party in May 2003 is
reflected in the companys consolidated financial statements in accordance with
FIN No. 45. See Note 14 for further details. F-12




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 3. REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE Background and Certain Important Bankruptcy Court Activity On August 8, 2000, CHC and CI commenced the Bankruptcy Cases by filing
voluntary petitions under Chapter 11 of the Bankruptcy Code. Following the
commencement of the Bankruptcy Cases, the Debtors operated as
debtors-in-possession subject to the jurisdiction of the Bankruptcy Court;
however, as discussed below, a Chapter 11 trustee was appointed by the
Bankruptcy Court on March 7, 2002. With the appointment of a Chapter 11
trustee, while still under the jurisdiction of the Bankruptcy Court, the
Debtors are no longer debtors-in-possession. None of the companys other
subsidiaries is a debtor in the Bankruptcy Cases and, other than the Resource
Network Subsidiaries, none of the companys other subsidiaries is a debtor in
any bankruptcy case. The Debtors need to seek the relief afforded by the
Bankruptcy Code was due, in part, to its requirement to remain compliant with
certain provisions of Stark II after December 31, 2000 (see discussion of Stark
II in Note 14) and the scheduled May 27, 2001 maturity of the Series A Senior
Subordinated Unsecured Notes (the Series A Notes). The Debtors sought advice
and counsel from a variety of sources and, in connection therewith, CHCs
Independent Committee of the Board of Directors unanimously concluded that the
bankruptcy and restructuring were the only viable alternatives. On August 9, 2000, the Bankruptcy Court approved the Debtors motions for
(i) payment of all employee wages and salaries and certain benefits and other
employee obligations, (ii) payment of critical trade vendors, utilities and
insurance in the ordinary course of business for both pre and post-petition
expenses, (iii) access to a debtor-in-possession financing arrangement (see
Note 8 for details of the executed agreement) and (iv) use of all company bank
accounts for normal business operations. Moreover, the Bankruptcy Court has
granted the Debtors several extensions of the period of time that they must
assume or reject unexpired leases of non-residential real property (such
extensions expired on January 4, 2001, May 4, 2001, September 3, 2001, January
1, 2002 and May 2, 2002). On May 1, 2002, the Chapter 11 trustee motioned the
Bankruptcy Court to grant a sixth extension through and including August 27,
2002. The Chapter 11 trustee filed a certificate of no objection on May 21,
2002 but an enabling order was never issued by the Bankruptcy Court. However,
on September 6, 2002, December 26, 2002, July 18, 2003 and January 16, 2004,
the Bankruptcy Court granted separate motions of the Chapter 11 trustee to
further extend the period of time to assume or reject the aforementioned real
property leases through and including December 31, 2002, June 30, 2003,
December 31, 2003 and June 30, 2004, respectively. In September 2000 and October 2000, the Bankruptcy Court approved
retention bonus payments of up to $2.6 million to certain key employees. The
bonuses were scheduled to be paid in two equal installments predicated on the
date of the Debtors emergence from bankruptcy. Due to events that delayed
emergence from bankruptcy, the Bankruptcy Court approved early payment of the
first installment to most individuals within the retention program and such
payments, aggregating approximately $0.7 million, were made on March 15, 2001.
In January 2002, when events again delayed the Debtors anticipated emergence
from bankruptcy, the Debtors requested permission from the Bankruptcy Court to
pay: (i) the remaining portion of the first installment of approximately $0.5
million to the companys Executive Vice President and its former Chief
Executive Officer and (ii) the full amount of the second installment. The
Debtors also requested authorization to initiate another retention plan to
provide financial incentives not to exceed $1.25 million to certain key
employees during the year ended December 31, 2002. Principally due to the then
pending appointment of a Chapter 11 trustee, on February 12, 2002 the
Bankruptcy Court declined to rule on the Debtors motions. However, on March
15, 2002, after the appointment of a Chapter 11 trustee, the Bankruptcy Court
partially approved the Debtors motions insofar as all the remaining retention
bonuses were authorized to be paid, exclusive of amounts pertaining to the
companys former Chief Executive Officer. The incremental retention bonuses,
aggregating approximately $0.8 million, were paid on March 25, 2002. As
discussed below, the Chapter 11 trustee subsequently filed, and the Bankruptcy
Court approved, a motion to withdraw the Debtors motions regarding the 2002
retention plan and the request to pay the remaining 2000 retention plan amounts
to the companys former Chief Executive Officer. On September 7, 2001, the Bankruptcy Court authorized the Debtors to pay
up to $2.7 million for management incentive plan compensation bonuses pursuant
to the management incentive plan for the year ended December 31, 2000 (the
2000 MIP). In September 2001, the Debtors paid all participants of the 2000
MIP, except for approximately $10.8 million attributable to the companys
former Chief Executive Officer. On March 21, 2001, CHCs Compensation Committee of the Board of Directors
approved a management incentive program for the year ended December 31, 2001
(the 2001 MIP). Under the terms of the 2001 MIP, the participants thereunder
were authorized to receive an aggregate payment up to $2.5 million. On August
16, 2002, the Chapter 11 trustee filed a motion with the Bankruptcy Court to
make 2001 MIP payments of approximately $1.1 million to the 2001 MIP
participants, which excluded certain 2001 MIP amounts as indicated below. The
Bankruptcy Court approved such motion on September 6, 2002 and, in connection
therewith, on or about September 16, 2002 the approved amounts were paid to the
eligible 2001 MIP participants. The Chapter 11 trustee agreed F-13




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) separately with
each of the companys Executive Vice President and its former Chief Executive
Officer: (i) not to request any 2001
MIP payment to the former Chief Executive Officer and (ii) to request the
payment of a portion of the 2001 MIP amount to which the companys Executive
Vice President is otherwise entitled. The Bankruptcy Courts order approving
the motion also (i) withdrew a previous motion made by the Debtors to implement
a 2002 key employee retention plan, (ii) withdrew the Debtors previous motion
requesting permission to pay the remaining amounts under the first key employee
retention plan and (iii) preserved the rights of the companys Executive Vice
President and former Chief Executive Officer to later seek Bankruptcy Court
orders authorizing payment of amounts due to them under the 2001 MIP. Moreover,
the Chapter 11 trustee retains the right, at his discretion, to request payout
of all or any portion of the remaining unpaid 2001 MIP amount to the companys
Executive Vice President. At December 31, 2003, the company has accrued approximately $13.0 million
for unpaid amounts attributable to the companys Executive Vice President and
its former Chief Executive Officer under the aforementioned retention bonus
plans and the 2001 and 2000 MIP programs. At such date, the company also
maintains other incentive compensation accruals for its former Chief Executive
Officer aggregating approximately $3.8 million. On or about May 9, 2001, the Bankruptcy Court approved the Debtors motion
requesting authorization to enter into an insurance premium financing agreement
with AICCO, Inc. (the 2001 Financing Agreement) to finance the payment of
premiums under certain of the Debtors insurance policies. The amount financed
was approximately $2.1 million and was paid in eight monthly installments of
approximately $0.3 million through December 2001, including interest at a per
annum rate of 7.85%. On May 9, 2002, pursuant to the order authorizing the
Debtors to enter into the 2001 Financing Agreement, the Debtors entered into a
second insurance premium financing agreement with Imperial Premium Finance,
Inc., an affiliate of AICCO, Inc., (the 2002 Financing Agreement) to finance
the premiums under certain insurance policies. Pursuant to the terms of the
2002 Financing Agreement, the Debtors made down payments of approximately $1.5
million and financed approximately $2.7 million. Commencing on May 15, 2002,
the amount financed was paid in seven monthly installments of approximately
$0.4 million, including interest at a per annum rate of 4.9%. Furthermore, as
provided by the Bankruptcy Court order authorizing the 2001 Financing
Agreement, in April 2003 the Debtors entered into a third premium financing
agreement with Imperial Premium Finance, Inc. (the 2003 Financing Agreement).
The terms of the 2003 Financing Agreement required the Debtors to remit a down
payment of approximately $1.5 million in May 2003. The amount financed was
approximately $2.8 million and, commencing May 15, 2003, was paid in seven
monthly installments of approximately $0.4 million, including interest at a
rate of 3.75% per annum. Imperial Premium Finance, Inc. had the right to
terminate the insurance policies and collect the unearned premiums (as
administrative expenses) if the Debtors did not make the monthly payments
called for by the 2003 Financing Agreement; however, the final payment
thereunder was made on November 14, 2003. Additionally, the 2003 Financing
Agreement was secured by the unearned premiums and any loss payments under the
covered insurance policies. On October 29, 2001, the Debtors filed a motion with the Bankruptcy Court
requesting approval of an agreement providing a non-debtor subsidiary of the
company with the authority to sell a respiratory and durable medical equipment
business located in New Orleans, Louisiana to a third party. On November 13,
2001, the Bankruptcy Court authorized the Debtors to enter into this agreement.
The sale of such business was finalized in January 2002 at a sales price of
approximately $0.1 million. The Debtors are currently paying the post-petition claims of their vendors
in the ordinary course of business and are, pursuant to an order of the
Bankruptcy Court, causing their subsidiaries to pay their own debts in the
ordinary course of business. Even though the commencement of the Bankruptcy
Cases constituted defaults under the companys principal debt instruments,
Chapter 11 of the Bankruptcy Code imposes an automatic stay that will generally
preclude creditors and other interested parties under such arrangements from
taking remedial action in response to any such resulting default without prior
Bankruptcy Court authorization. The Debtors First and Second Joint Plans of Reorganization and Related
Activities On the same day the Debtors commenced the Bankruptcy Cases, the Debtors
also filed their joint plan of reorganization (the Joint Plan) and their
joint disclosure statement with the Bankruptcy Court. The Joint Plan was
subsequently amended and restated (the Restated Joint Plan) and, on or about
October 10, 2000, the Restated Joint Plan and the First Amended Disclosure
Statement with respect to the Restated Joint Plan were authorized for
distribution by the Bankruptcy Court. On or about October 20, 2000, the
Restated Joint Plan and First Amended Disclosure Statement were distributed for
a vote among persons holding impaired claims that were entitled to a
distribution under the Restated Joint Plan. At a confirmation hearing on
December 21, 2000, the Bankruptcy Court denied confirmation of the Restated
Joint Plan finding, inter alia,that the incomplete disclosure of the
relationship between the Debtors former Chief Executive Officer and Cerberus
Capital Management, L.P., an affiliate of one of the Debtors largest
creditors, precluded the Bankruptcy Court from finding that the Restated Joint
Plan was proposed in good faith, a statutory requirement for plan confirmation. F-14




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) In order for the company to remain compliant with the requirements of
Stark II, on December 29, 2000, pursuant to an order of the Bankruptcy Court,
CI exchanged approximately $97.7 million of the Series A Notes and
approximately $11.6 million of contractual unpaid interest on the Series A
Notes and the Series B Senior Subordinated Unsecured Convertible Notes for 905
shares of Coram, Inc. Series A Cumulative Preferred Stock, $0.001 par value per
share (see Notes 8 and 12 for further details). Hereinafter, the Coram, Inc.
Series A Cumulative Preferred Stock and the Series B Senior Subordinated
Unsecured Convertible Notes are referred to as the CI Series A Preferred
Stock and the Series B Notes, respectively. The exchange transaction
generated an extraordinary gain on troubled debt restructuring of approximately
$107.8 million, net of tax, in 2000. At December 31, 2000, the companys
stockholders equity exceeded the minimum requirement necessary to comply with
the Stark II public company exemption for the year ended December 31, 2001. See
Note 14 for further discussion regarding Stark II. On or about February 6, 2001, the Official Committee of the Equity
Security Holders of Coram Healthcare Corporation (the Equity Committee) filed
a motion with the Bankruptcy Court seeking permission to bring a derivative
lawsuit directly against the companys former Chief Executive Officer, a former
member of the CHC Board of Directors, Cerberus Partners, L.P., Cerberus Capital
Management, L.P., Cerberus Associates, L.L.C. and Craig Court, Inc. (all the
aforementioned corporate entities being parties to certain of the companys
debt agreements or affiliates of such entities). On February 26, 2001, the
Bankruptcy Court denied such motion without prejudice. On the same day, the
Bankruptcy Court approved the Debtors motion to appoint Goldin Associates,
L.L.C. (Goldin) as independent restructuring advisor to the CHC Independent
Committee of the Board of Directors (the Independent Committee). Among other
things, the scope of Goldins services included (i) assessing the
appropriateness of the Restated Joint Plan and reporting its findings to the
Independent Committee and advising the Independent Committee regarding an
appropriate course of action calculated to bring the Bankruptcy Cases to a fair
and satisfactory conclusion, (ii) preparing a written report as may be required
by the Independent Committee and/or the Bankruptcy Court and (iii) appearing
before the Bankruptcy Court to provide testimony as needed. Goldin was also
appointed as a mediator among the Debtors, the Equity Committee and other
parties in interest. Based upon Goldins findings and recommendations, as set forth in the
Report of Independent Restructuring Advisor, Goldin Associates, L.L.C. (the
Goldin Report), on July 31, 2001 the Debtors filed with the Bankruptcy Court
a Second Joint Disclosure Statement (as amended, the Second Disclosure
Statement), with respect to their Second Joint Plan of Reorganization (as
amended, the Second Joint Plan). The Second Joint Plan, which was also filed
on July 31, 2001, provided for terms of reorganization similar to the Restated
Joint Plan; however, utilizing Goldins recommendations, as set forth in the
Goldin Report, certain substantive modifications were included in the Second
Joint Plan. Notwithstanding such changes, on December 21, 2001, after several
weeks of confirmation hearings, the Bankruptcy Court issued an order denying
confirmation of the Second Joint Plan for the reasons set forth in an
accompanying opinion. The Debtors appealed the Bankruptcy Courts order denying
confirmation of the Second Joint Plan, but such appeal was subsequently
dismissed. In order for the company to remain compliant with the requirements of
Stark II, on December 31, 2001, pursuant to an order of the Bankruptcy Court,
CI exchanged $21.0 million of the Series A Notes and approximately $1.9 million
of contractual unpaid interest on the Series A Notes for approximately 189.6
shares of CI Series A Preferred Stock (see Note 8 for further details). This
transaction generated an extraordinary gain on troubled debt restructuring of
approximately $20.7 million in 2001. At December 31, 2001, the companys
stockholders equity exceeded the minimum requirement necessary to comply with
the Stark II public company exemption for the year ended December 31, 2002. Appointment of Chapter 11 Trustee and Bankruptcy Related Activities During the
Year Ended December 31, 2002 On February 12, 2002, among other things, the Bankruptcy Court granted
motions made by the Office of the United States Trustee and two of the Debtors
noteholders requesting the appointment of a Chapter 11 trustee to oversee the
Debtors during their reorganization process. Additionally, on such date the
Bankruptcy Court denied, without prejudice, a renewed motion made by the Equity
Committee for leave to bring a derivative lawsuit against certain of the
companys current and former directors and officers, Cerberus Partners, L.P.,
Cerberus Capital Management, L.P., Cerberus Associates, L.L.C., Craig Court,
Inc., Goldman Sachs Credit Partners L.P., Foothill Capital Corporation and
Harrison J. Goldin Associates, L.L.C. (sic)(all the aforementioned corporate
entities, except for Harrison J. Goldin Associates, L.L.C., being parties to
certain of the companys debt agreements or affiliates of such entities).
Moreover, on February 12, 2002 the Bankruptcy Court denied motions filed by the
Equity Committee (i) to require the company to call a stockholders meeting and
(ii) to modify certain aspects of CIs corporate governance structure. On March 7, 2002, the Bankruptcy Court approved the appointment of Arlin
M. Adams, Esquire, as the Debtors Chapter 11 trustee. The Bankruptcy Code and
applicable rules require a Chapter 11 trustee to perform specific duties
relating to the administration of a bankruptcy case. Generally, a Chapter 11
trustee shall investigate the acts, conduct, assets, liabilities, financial
condition and F-15




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) operations of a debtor, and any other matter relevant to the case
or to the formulation of a plan of reorganization. The Bankruptcy Code also
requires a Chapter 11 trustee to, as soon as practicable, file with the
presiding bankruptcy court (i) a statement of any
investigation so conducted, including any facts ascertained pertaining to
fraud, dishonesty, incompetence, misconduct, mismanagement or irregularities in
the management of the affairs of the debtor, or to a cause of action available
to the estate, and (ii) a plan of reorganization, or file a report as to why a
plan of reorganization would not be filed. With the appointment of a Chapter 11
trustee, while still under the jurisdiction of the Bankruptcy Court, the
Debtors are no longer debtors-in-possession. Furthermore, the Bankruptcy Code permits a Chapter 11 trustee to operate
the debtors business. As with a debtor-in-possession, a Chapter 11 trustee may
enter into transactions in the ordinary course of business without notice or a
hearing before the presiding bankruptcy court; however, non-ordinary course
actions still require prior authorization from the bankruptcy court. A Chapter
11 trustee also assumes responsibility for management functions, including
decisions relative to the hiring and firing of personnel. As is the case with
the Debtors, when existing management is necessary to run the day-to-day
operations, a Chapter 11 trustee may retain and oversee such management group.
After a Chapter 11 trustee is appointed, a debtors board of directors does not
retain its ordinary management powers. While Mr. Adams has assumed the board of
directors management rights and responsibilities, he is doing so without any
pervasive changes to the companys existing management or organizational
structure, other than, as further discussed below, the acceptance of Daniel D.
Crowleys resignation effective March 31, 2003. On October 14, 2002, the Chapter 11 trustee filed a motion with the
Bankruptcy Court requesting approval for the retention of investment bankers
and financial advisors through July 2003 to provide services focusing on the
Debtors restructuring and reorganization. The services may include, subject to
the Chapter 11 trustees discretion, (i) providing a formal valuation of the
Debtors, (ii) assisting the Chapter 11 trustee in exploring the possible sale
of the Debtors or their assets, (iii) assisting the Chapter 11 trustee in
negotiating with stakeholders and the restructuring of stakeholders claims
and/or (iv) one or more opinions on the fairness, from a financial perspective,
of any proposed sale of the Debtors or restructuring of the Debtors. Such
motion was approved by the Bankruptcy Court on December 2, 2002. Additionally,
on September 23, 2003 and January 16, 2004, the Bankruptcy Court approved
motions to extend the retention period of such investment bankers and financial
advisors through December 9, 2003 and March 31, 2004, respectively. In order for the company to remain compliant with the requirements of
Stark II, on December 31, 2002, pursuant to an order of the Bankruptcy Court,
CI exchanged approximately $40.2 million of the Series A Notes, $7.3 million of
accrued but unpaid interest on the Series A Notes, $83.1 million of the Series
B Notes and $16.6 million of accrued but unpaid interest on the Series B Notes
for approximately 1,218.3 shares of Coram, Inc. Series B Cumulative Preferred
Stock, $0.001 par value per share (see Notes 8 and 12 for further details).
Hereinafter the Coram, Inc. Series B Cumulative Preferred Stock is referred to
as the CI Series B Preferred Stock. This transaction generated an
extraordinary gain on troubled debt restructuring of approximately $123.5
million in 2002. At December 31, 2002, the companys stockholders equity
exceeded the minimum requirement necessary to comply with the Stark II public
company exemption for the year ended December 31, 2003. Bankruptcy Related Activities During the Year Ended December 31, 2003 and
Thereafter Daniel D. Crowley, the former Chief Executive Officer and President of the
company, had an employment contract which expired by its own terms on November
29, 2002. On January 24, 2003, the Chapter 11 trustee filed a motion with the
Bankruptcy Court seeking authorization to enter into a Termination and
Employment Extension Agreement (the Transition Agreement), effective January
1, 2003, with Mr. Crowley to have him serve as CHCs Chief Transition and
Restructuring Officer for a term not to exceed the earlier of (i) six months
from January 1, 2003, (ii) the date on which a plan or plans of reorganization
are confirmed by final order of the Bankruptcy Court or (iii) the substantial
consummation of a plan or plans of reorganization. Pursuant to the Transition
Agreement, Mr. Crowley would have continued to render essentially the same
services as previously provided to the company. On March 3, 2003, the
Bankruptcy Court denied the Chapter 11 trustees motion for authorization to
enter into the Transition Agreement due to the Bankruptcy Courts belief that
Mr. Crowley, contrary to his representations, continued to seek remuneration
from one of CIs noteholders in connection with efforts undertaken by Mr.
Crowley in the Bankruptcy Cases. Subsequently, Mr. Crowley resigned from the
company effective March 31, 2003. During the period January 1, 2003 through
March 31, 2003, the company paid Mr. Crowley based on the Transition Agreement.
The Chapter 11 trustee has requested repayment from Mr. Crowley of all amounts
paid in 2003 for the salary differential between the expired employment
agreement and the Transition Agreement. Additionally, the Chapter 11 trustees
amended proposed joint plan of reorganization, as further discussed below,
proposes to reject Mr. Crowleys employment agreement. F-16




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) On January 14, 2003, the Equity Committee filed a motion with the
Bankruptcy Court seeking an order to (i) immediately terminate Mr. Crowleys
employment with the Debtors and remove him from all involvement in the Debtors
affairs, (ii) terminate all consulting arrangements between the Debtors and
Dynamic Healthcare Solutions, LLC (DHS), a privately held management
consulting and investment firm owned by Mr. Crowley (see Note 11 for further
details), (iii) substantially terminate all future payments to Mr. Crowley and
DHS and (iv) require Mr. Crowley and DHS to return all payments received to
date, except as otherwise authorized by the Bankruptcy Court as administrative
claims. On March 26, 2003, the Bankruptcy Court entered an order denying the
Equity Committees motion to terminate Mr. Crowleys employment as moot and
reserved its decision on the other relief requested, including disgorgement,
until future litigation, if any, arises. The employment contract with Allen J. Marabito, Executive Vice President,
General Counsel and Secretary, expired by its terms on November 29, 2002. The
Chapter 11 trustee has agreed to continue Mr. Marabitos employment in his
prior capacity and Mr. Marabito has also assumed the duties and
responsibilities previously performed by Mr. Crowley. Mr. Marabitos employment
is at will with a base salary of $395,000 per annum, plus the same employee
benefits as prior to the expiration of his employment contract. On May 19,
2003, Mr. Marabito released the company from all contractual obligations
pertaining to his incentive compensation for the year ended December 31, 2002
(i.e., the 2002 MIP of approximately $1.05 million that was recognized by the
company during the year ended December 31, 2002 as a general and administrative
expense but remained subject to Chapter 11 trustee and Bankruptcy Court
approvals). The reversal of Mr. Marabitos 2002 MIP is reflected as a reduction
in general and administrative expenses during the year ended December 31, 2003.
In consideration of his release, Mr. Marabito was granted a retention bonus of
$380,000 under the companys 2003 Key Employee Retention Plan discussed below. On April 7, 2003, the Bankruptcy Court approved a motion filed by the
Chapter 11 trustee to establish the 2003 Key Employee Retention Plan (the 2003
KERP), which provided for (i) retention bonus payments of approximately $3.0
million to key employees of the company (the 2003 KERP Compensation) and (ii)
other payments of approximately $0.3 million to certain branch management
personnel (the Branch Incentive Compensation). Pursuant to the provisions of
the 2003 KERP, the 2003 KERP Compensation was payable in two equal installments
as follows: (i) upon approval of the 2003 KERP by the Bankruptcy Court and
(ii) the earlier of 60 days after confirmation of a plan or plans of
reorganization or December 31, 2003. Approximately $1.8 million, which
represented the first installment under the 2003 KERP Compensation and the
entire Branch Incentive Compensation amount, was paid to the eligible
participants in April 2003. The second installment of the 2003 KERP
Compensation, which aggregated approximately $1.5 million, was paid in December
2003. On May 2, 2003, the Chapter 11 trustee filed with the Bankruptcy Court a
proposed joint plan of reorganization with respect to the Debtors and, on June
17, 2003, the Chapter 11 trustee filed an amended proposed joint plan of
reorganization (the Trustees Plan). Additionally, on June 24, 2003 the
Chapter 11 trustee filed the Second Amended Disclosure Statement with Respect
to the Trustees Plan (the Trustees Disclosure Statement) and, on June 26,
2003, the Bankruptcy Court entered an order (i) approving the Trustees
Disclosure Statement, (ii) approving the form of the ballot to be distributed
in connection with the voting on the Trustees Plan, (iii) establishing
procedures for solicitation of votes on the Trustees Plan, (iv) establishing a
voting deadline and procedures for tabulation of votes on the Trustees Plan
and (v) establishing the dates and times for the filing of objections to, and
scheduling a hearing on, confirmation of the Trustees Plan. The Trustees Plan
and the Trustees Disclosure Statement are attached as Exhibits 99.1 and 99.2,
respectively, to the companys Form 8-K filed with the United States Securities
and Exchange Commission (SEC) on July 11, 2003. A modification to the
Trustees Plan was filed with the Bankruptcy Court on September 8, 2003 and is
attached as Exhibit 99.1 to the companys Form 8-K filed with the SEC on
September 23, 2003. On December 19, 2002, the Equity Committee filed with the Bankruptcy Court
a proposed plan of reorganization with respect to the Debtors and, on June 17,
2003, the Equity Committee filed a second amended proposed plan of
reorganization (the Equity Committees Plan). Additionally, on June 26, 2003
the Equity Committee filed the Third Amended Disclosure Statement with Respect
to the Equity Committees Plan (the Equity Committees Disclosure Statement)
and the Bankruptcy Court entered an order (i) approving the Equity Committees
Disclosure Statement, (ii) appointing a balloting agent, (iii) approving the
form of the ballot to be distributed in connection with the voting on the
Equity Committees Plan, (iv) establishing procedures for solicitation of votes
on the Equity Committees Plan, (v) establishing a voting deadline and
procedures for tabulation of votes on the Equity Committees Plan and (vi)
establishing the dates and times for the filing of objections to, and
scheduling a hearing on, confirmation of the Equity Committees Plan, and the
objections thereto filed by the Chapter 11 trustee. The Equity Committees Plan
and the Equity Committees Disclosure Statement are attached as Exhibits 99.3
and 99.4, respectively, to the companys Form 8-K filed with the SEC on July
11, 2003. F-17




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) On September 29, 2003, the Chapter 11 trustee filed a Plan Supplement (the
Trustees Plan Supplement) to the Trustees Plan, as modified, with the
Bankruptcy Court. Additionally, the Equity Committee filed the Initial and
Second Plan Supplements (collectively the Equity Committees Plan
Supplements) to the Equity Committees Plan with the Bankruptcy Court on
September 29, 2003 and October 3, 2003, respectively. Moreover, on February 13,
2004 an amendment to the Equity Committees Plan Supplements was filed with the
Bankruptcy Court. Each of the Trustees Plan Supplement and the Equity
Committees Plan Supplements, as amended, may be subject to future changes
and/or amendments. The Trustees Plan Supplement and the Equity Committees
Plan Supplements are attached as Exhibits 99.1 through 99.3 to the companys
Form 8-K filed with the SEC on October 14, 2003. Additionally, the amendment to
the Equity Committees Plan Supplements is attached as Exhibit 99.1 to the
companys Form 8-K filed with the SEC on February 26, 2004. Pursuant to the Bankruptcy Courts order, a record date of July 1, 2003
was established for the purpose of determining which holders of equity
interests are entitled to vote on each of the Trustees Plan, as modified, and
the Equity Committees Plan. Additionally, in accordance with the Bankruptcy
Courts order, on or about July 14, 2003 the balloting agent transmitted the
Chapter 11 trustees and the Equity Committees solicitation packages to
certain creditors and interest holders who may be entitled to vote on each of
the respective plans of reorganization. However, as of April 9, 2004, the
balloting agent has not certified the final voting results. Additionally,
certain matters pertaining to the tabulation of the votes are scheduled to be
heard by the Bankruptcy Court on May 17, 2004. Each of the Trustees Plan, as modified, and the Equity Committees Plan
remain subject to confirmation by the Bankruptcy Court. Hearings to consider
confirmation of each such plan of reorganization and any objections thereto
commenced on September 30, 2003 and are ongoing. The deadline to object to
confirmation of each of the plans of reorganization was August 7, 2003 and, in
connection therewith, certain objections have been filed against both plans of
reorganization. Other Bankruptcy-Related Disclosures Under Chapter 11 of the Bankruptcy Code, certain claims against the
Debtors in existence prior to the filing date are stayed while the Debtors
operations continue under the purview of a Chapter 11 trustee or while the
Debtors are conducting business as debtors-in-possession. These claims are
reflected in the consolidated balance sheets as liabilities subject to
compromise. Additional claims have arisen since the filing date and may
continue to arise due to the rejection of executory contracts and unexpired
non-residential real property leases and from determinations by the Bankruptcy
Court of allowed claims for contingent, unliquidated and other disputed
amounts. Parties affected by the rejection of an executory contract or
unexpired non-residential real property lease may file claims with the
Bankruptcy Court in accordance with the provisions of Chapter 11 of the
Bankruptcy Code and applicable rules. Claims secured by the Debtors assets are
also stayed, although the holders of such claims have the right to petition the
Bankruptcy Court for relief from the automatic stay to permit such creditors to
foreclose on the property securing their claims. Additionally, certain
claimants have sought relief from the Bankruptcy Court to lift the automatic
stay and continue the pursuit of their claims against the Debtors or the
Debtors insurance carriers. See Note 14 for further details regarding
activities of the Official Committee of Unsecured Creditors of Coram Resource
Network, Inc. and Coram Independent Practice Association, Inc. in the Resource
Network Subsidiaries bankruptcy proceedings. The principal categories and balances of Chapter 11 bankruptcy items
accrued in the consolidated balance sheets at December 31, 2003 and 2002 and
included in liabilities subject to compromise are summarized as follows (in
thousands): 2003
    
    2002Series B Notes in default at December 31, 2003
    
    $
    9,000
    
    
    $
    9,000Liabilities of discontinued operations subject to compromise
    
    
    2,936
    
    
    
    2,936Earn-out obligation
    
    
    1,500
    
    
    
    1,268Accounts payable
    
    
    1,390
    
    
    
    1,390Other accrued liabilities
    
    
    1,324
    
    
    
    340Accrued merger and restructuring costs (primarily severance liabilities)
    
    
    468
    
    
    
    468Other debt obligations
    
    
    130
    
    
    
    130Legal and professional liabilities
    
    
    98
    
    
    
    98Total liabilities subject to compromise
    
    $
    16,846
    
    
    $
    15,630
 In addition to the amounts disclosed in the table above, the holders of
the CI Series A Preferred Stock and the CI Series B Preferred Stock
(collectively the CI Preferred Stock Holders) continue to assert claims
within the Bankruptcy Cases in the aggregate F-18




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) amount of their cumulative
liquidation preferences. Furthermore, in connection with the note exchange
effective on December 31,
2002, the Bankruptcy Court entered an order granting the exchange, subject
to its comments of record, and further ordered that (i) if equitable or other
relief is sought by any party in interest against the CI Preferred Stock
Holders, all defenses, affirmative defenses, setoffs, recoupments and other
such rights of the Chapter 11 trustee, the CI Preferred Stock Holders and the
Debtors shall be preserved, and all such issues shall be determined, regardless
of the first, second and third note exchanges and (ii) the rights and equity
interests of the CI Preferred Stock Holders are, and in connection with any
plan or plans of reorganization or any other distribution of the Debtors
assets pursuant to Chapter 11 of the Bankruptcy Code shall remain, senior and
superior to the rights and equity interests of all holders of CIs common stock
and all claims against and equity interests in CHC. On or about March 28, 2003, the Equity Committee commenced an adversary
proceeding seeking to subordinate the preferred stock interests of Cerberus
Partners, L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation in Coram, Inc. to the interests of Coram Healthcare Corporation as
the sole common shareholder of Coram, Inc. Upon motion of the defendants and
after a hearing held on June 5, 2003, the Bankruptcy Court dismissed the
aforementioned adversary proceeding by an order dated June 19, 2003 and
preserved issues concerning post-petition interest for determination in
connection with confirmation hearings on the Trustees Plan, as modified, and
the Equity Committees Plan, provided that, to the extent that an equitable
objection to confirmation is raised, the Bankruptcy Court will treat the CI
Series A Preferred Stock and the CI Series B Preferred Stock as debt and deal
with the issue of whether post-petition interest will be allowed in accordance
with the provisions of the Bankruptcy Code concerning post-petition interest on
debt. Schedules were filed with the Bankruptcy Court setting forth the assets
and liabilities of the Debtors as of the filing date as shown by the Debtors
accounting records. Amended schedules, which identified the Debtors remaining
outstanding pre-petition liabilities, were filed with the Bankruptcy Court on
August 28, 2003. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. If, upon such
investigation and/or resolution, it is determined that the amounts shown by the
Debtors need to be modified, the companys consolidated financial statements
are adjusted accordingly. In connection therewith, during the year ended
December 31, 2003, the company recorded approximately $1.2 million of
additional liabilities subject to compromise. The ultimate amount and the
settlement terms for all the liabilities subject to compromise will be subject
to a plan or plans of reorganization and review by the Chapter 11 trustee.
Therefore, it is not possible to fully or completely estimate the fair value of
the liabilities subject to compromise at December 31, 2003 and 2002 due to the
Bankruptcy Cases and the uncertainty surrounding the ultimate amount and
settlement terms for such liabilities. Reorganization expenses are items of expense or income that are incurred
or realized by the Debtors as a proximate result of the reorganization. These
items include, but are not limited to, professional fees, plan of
reorganization mailing/distribution costs, key employee retention plans, Office
of the United States Trustee fees and other expenditures during the Bankruptcy
Cases, offset by interest earned on accumulated cash due to the Debtors not
paying their liabilities subject to compromise during the pendency of the
Bankruptcy Cases. The principal components of reorganization expenses for the
years ended December 31, 2003, 2002 and 2001 are as follows (in thousands): 2003
    
    2002
    
    2001Legal, accounting and consulting fees
    
    $
    11,975
    
    
    $
    4,731
    
    
    $
    12,756Key employee retention plan expenses
    
    
    3,329
    
    
    
    (40
    )
    
    
    1,769Publishing, mailing and noticing of plans of reorganization
    
    
    694
    
    
    
    
    
    
    
    246Office of the United States Trustee fees
    
    
    41
    
    
    
    41
    
    
    
    41Interest income
    
    
    (384
    )
    
    
    (457
    )
    
    
    (415
    )Total reorganization expenses, net
    
    $
    15,655
    
    
    $
    4,275
    
    
    $
    14,397
 4. DISCONTINUED OPERATIONS Prior to January 1, 2000, the company provided ancillary network
management services through the Resource Network Subsidiaries, which managed
networks of home healthcare providers on behalf of HMOs, PPOs, at-risk
physician groups and other managed care organizations. On August 19, 1999, an involuntary bankruptcy petition was filed against
Coram Resource Network, Inc. and, on November 12, 1999, the Resource Network
Subsidiaries filed voluntary bankruptcy petitions under Chapter 11 of the
Bankruptcy Code in the Bankruptcy Court. On or about May 31, 2000, the Resource
Network Subsidiaries filed a liquidating Chapter 11 plan and disclosure
statement. Subsequently, on October 21, 2002 the Official Committee of
Unsecured Creditors of Coram Resource Network, Inc. and F-19




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Coram Independent Practice Association, Inc. (the R-Net Creditors Committee)
filed a competing proposed Liquidating Chapter 11 Plan. On August 28, 2003, the
R-Net Creditors Committee filed with the Bankruptcy Court its Disclosure
Statement With Second Modifications, including, as an attachment, the
Liquidating Chapter 11 Plan With Second Modifications (collectively the Second
Modified R-Net Plan). The Second Modified R-Net Plan, which was confirmed by
the Bankruptcy Court on December 23, 2003, is available in the Resource Network
Subsidiaries bankruptcy cases at docket number 1151. Following the November 1999 filing of voluntary bankruptcy petitions by
the Resource Network Subsidiaries, Coram accounted for such division as a
discontinued operation. In connection therewith, Coram separately reflected
R-Nets operating results in its consolidated statements of income as
discontinued operations; however, R-Net had no operating activity for the three
years ended December 31, 2003. During the years ended December 31, 2003, 2002
and 2001, the company recorded approximately $0.1 million, $0.7 million and
$0.3 million, respectively, in losses from disposal of discontinued operations
related to certain litigation between the R-Net Creditors Committee and the
Debtors and several of their non-debtor subsidiaries, as well as legal costs
associated with corresponding indemnifications provided to the companys
officers and directors in the Resource Network Subsidiaries bankruptcy
proceedings/litigation. As of December 31, 2003, the company has provided approximately $27.2
million to fully and completely liquidate the Resource Network Subsidiaries,
including the R-Net Creditors Committee litigation, legal costs related
thereto (beyond any insurance recoveries that the company may avail itself of),
proofs of claims asserted against the Debtors and other related matters. See
Note 14 for further details regarding the R-Net Creditors Committee
litigation, the potential impact of the Trustees Plan, as modified, and/or the
Equity Committees Plan (if confirmed by the Bankruptcy Court) and related
matters. F-20




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 5. MERGER AND RESTRUCTURING RESERVES In May 1995, as a result of the formation of Coram and the acquisition of
substantially all of the assets of the alternate site infusion business of
Caremark, Inc., a subsidiary of Caremark International, Inc., the company
initiated a restructuring plan (the Caremark Business Consolidation Plan) and
charged approximately $25.8 million to operations as a restructuring cost. During December 1999, the company initiated an organizational restructure
and strategic repositioning plan (the Coram Restructure Plan) and charged
approximately $4.8 million to operations as a restructuring cost. The Coram
Restructure Plan resulted in the closing of facilities and the reduction of
personnel. In connection therewith, the company reserved for (i) personnel
reduction costs relating to severance payments, fringe benefits and taxes for
employees terminated under the plan and (ii) facility closing costs consisting
of rent, common area maintenance and utility costs for fulfilling lease
commitments at approximately fifteen branch and corporate facilities that were
to be closed or downsized. Reserves for facility closing costs are offset by
amounts arising from sublease arrangements, but not until such arrangements are
in the form of executed contracts. As part of the Coram Restructure Plan, the
company informed certain personnel of the estimated closure dates of the
affected reimbursement sites and such operations were ultimately closed during
the first half of 2001, including the release of approximately 80 employees. Under the Caremark Business Consolidation Plan and the Coram Restructure
Plan, the total charges through December 31, 2003, the estimate of total future
cash expenditures and the estimated total charges are as follows (in
thousands): Charges Through December 31, 2003
    
    Balances at December 31, 2003EstimatedFuture Cash
    
    TotalCash Expenditures
    
    Non-Cash Charges
    
    Totals
    
    Expenditures
    
    ChargesCaremark Business Consolidation Plan:Personnel reduction costs
    
    $
    11,300
    
    
    $
    
    
    
    $
    11,300
    
    
    $
    
    
    
    $
    11,300Facility reduction costs
    
    
    10,437
    
    
    
    3,900
    
    
    
    14,337
    
    
    
    250
    
    
    
    14,587Subtotals
    
    
    21,737
    
    
    
    3,900
    
    
    
    25,637
    
    
    
    250
    
    
    
    25,887Coram Restructure Plan:Personnel reduction costs
    
    
    2,361
    
    
    
    
    
    
    
    2,361
    
    
    
    104
    
    
    
    2,465Facility reduction costs
    
    
    1,319
    
    
    
    
    
    
    
    1,319
    
    
    
    169
    
    
    
    1,488Subtotals
    
    
    3,680
    
    
    
    
    
    
    
    3,680
    
    
    
    273
    
    
    
    3,953Totals
    
    $
    25,417
    
    
    $
    3,900
    
    
    $
    29,317
    
    
    
    523
    
    
    $
    29,840Restructuring costs subject to
compromise
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (468
    )Accrued merger and restructuring
costs per the consolidated
balance sheet
    
    
    
    
    
    
    $
    55
 During the year ended December 31, 2003, significant items impacting the
restructuring reserves that were not subject to compromise are summarized as
follows (in thousands): Balance at December 31, 2002
    
    $
    190Activity during the year ended December 31, 2003:Payments under the plans
    
    
    (96
    )Changes in estimates relative to facility reduction costs
    
    
    (39
    )Balance at December 31, 2003
    
    $
    55
 Management estimates that the future cash expenditures related to the
aforementioned restructuring plans will be made in the following periods: 96%
through December 31, 2004, 3% during the year ending December 31, 2005 and 1%
during the year ending December 31, 2006. F-21




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 6. PROPERTY AND EQUIPMENT Property and equipment are summarized as follows (in thousands): December 31,2003
    
    2002Equipment and other
    
    $
    23,264
    
    
    $
    26,724Software
    
    
    14,566
    
    
    
    14,223Furniture and fixtures
    
    
    7,071
    
    
    
    7,178Leasehold improvements
    
    
    6,577
    
    
    
    5,364Computer equipment
    
    
    5,068
    
    
    
    7,156Equipment under capital leases
    
    
    2,393
    
    
    
    41Work in process (WIP)
    
    
    1,923
    
    
    
    560,862
    
    
    
    60,691Less accumulated depreciation and amortization on owned
property and equipment
    
    
    (47,444
    )
    
    
    (50,222
    )Less accumulated amortization on equipment under capital leases
    
    
    (221
    )
    
    
    (30
    )$
    13,197
    
    
    $
    10,439
 The WIP balance at December 31, 2003 principally includes costs
capitalized in accordance with SOP 98-1 (primarily upgrades of Corams
company-wide information systems) and leasehold improvements at facilities
where Coram had not taken occupancy at December 31, 2003. For the years ended
December 31, 2003, 2002 and 2001, depreciation and amortization expense on
property and equipment aggregated approximately $6.4 million, $7.9 million and
$7.6 million, respectively. 7. GOODWILL AND OTHER LONG-LIVED ASSETS In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets(Statement 142), which
eliminated the amortization of goodwill and intangible assets with indefinite
useful lives and required that such assets be reviewed for impairment at least
annually. The company adopted Statement 142 on January 1, 2002. Pursuant to the
provisions of Statement 142, intangible assets with finite lives continue to be
amortized over their estimated useful lives. Goodwill. Goodwill represents the excess of purchase price over the fair
value of net assets acquired through business combinations accounted for as
purchases. 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. In the period these
payments become probable, they are recorded as additional goodwill. See Note 14
for further details concerning contingencies relative to earn-out payments. Statement 142 requires the company to test goodwill for impairment using a
two-step process. The first step is a screen for potential impairment and the
second step measures the amount of impairment, if any. In performing the first
step during the initial adoption of Statement 142, management utilized
estimates of the enterprise value of the company as of January 1, 2002 and
compared such enterprise value estimates to the carrying value of the companys
corresponding net assets as of that date. Based on the results of such test,
management concluded that a significant impairment of the companys goodwill
existed. Management then performed the second step of the process described in
Statement 142. Determining the amount of the impairment required management to
identify the implied fair value of the companys goodwill. Because the Debtors
are operating under Chapter 11 of the Bankruptcy Code, the fair value of the
companys liabilities will be impacted by their settlement value pursuant to a
plan or plans of reorganization in the Bankruptcy Cases and, ultimately, on
decisions of the Bankruptcy Court. As a result, the implied value of the
companys goodwill is premised on several highly judgmental assumptions,
including, among other things, the companys enterprise value and the final
disposition of the companys pre-petition liabilities. The companys enterprise
value at January 1, 2002 was determined based upon a valuation performed by an
independent outside valuation firm that considered a combination of discounted
cash flows, quoted market prices of comparable public companies and comparable
business transactions. Statement 142 requires that the implied fair value of
goodwill, determined in a hypothetical purchase price allocation, be compared
to the carrying value of such goodwill. Using the valuation report, management
established a protocol that was designed to compare the fair value of the
companys implied goodwill to the corresponding amount recognized in the
companys balance sheet at January 1, 2002. As a result of this analysis, the
company recognized a transitional goodwill impairment charge of approximately
$71.9 million, which, in accordance with Statement 142, was reflected in the
consolidated financial statements as the cumulative effect of a change in
accounting principle. F-22




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Furthermore, due to unfavorable conditions and trends prevalent in the
public equity markets throughout 2002, the companys enterprise value was
adversely impacted during that year. As a result, management concluded that an
additional goodwill impairment existed at December 1, 2002 (i.e., the date
selected to conduct the annual goodwill impairment test prescribed by Statement
142). To determine the companys enterprise value at such date, management
utilized a valuation report prepared by certain independent financial advisors
(i.e., investment bankers) engaged by the Chapter 11 trustee. The valuation
report prepared by the investment bankers, consistent with the January 1, 2002
report, considered a combination of discounted cash flows, quoted market prices
of comparable public companies and comparable business transactions. As a
result of the 2002 annual goodwill impairment analysis, which was completed on
a basis consistent with the transitional impairment analysis, the company
recognized an additional charge of approximately $51.8 million. In performing the first step of the Statement 142 goodwill impairment
analysis as of December 1, 2003, management utilized estimates of the
enterprise value of the company that were predicated upon an updated
independent valuation report prepared by the aforementioned investment bankers.
Using a methodology consistent with the transitional and December 1, 2002
impairment analyses, the fair value of the companys implied goodwill was
compared to the corresponding carrying value in the companys balance sheet.
Based on the results of such December 1, 2003 analysis, management concluded
that no incremental impairment of the companys goodwill existed. The following table presents the change in the carrying amount of goodwill
for the year ended December 31, 2002 (in thousands): Balances at January 1, 2002
    
    $
    180,871Transitional impairment charge resulting from the initial implementation
of Statement 142
    
    
    (71,902
    )Charge for the impairment of goodwill
    
    
    (51,783
    )Balance at December 31, 2002
    
    $
    57,186
 Prior to the adoption of Statement 142, the company amortized goodwill on
a straight-line basis over 25 years. Through December 31, 2001, the company
recorded accumulated goodwill amortization of approximately $97.6 million. Loss
before extraordinary items, net income and related earnings per share, adjusted
to exclude the amortization of goodwill for the year ended December 31, 2001,
is as follows (in thousands, except per share amounts): Adjusted loss from continuing operations before an extraordinary
gain on troubled debt restructuring
    
    $
    (9,419
    )Loss from disposal of discontinued operations
    
    
    (250
    )Extraordinary gain on troubled debt restructuring
    
    
    20,706Adjusted net income
    
    $
    11,037Adjusted Loss Per Common Share  Basic and Diluted:Adjusted loss from continuing operations before an
extraordinary gain on troubled debt restructuring
    
    $
    (0.19
    )Loss from disposal of discontinued operations
    
    
    (0.01
    )Extraordinary gain on troubled debt restructuring
    
    
    0.42Adjusted net income
    
    $
    0.22
 On an adjusted basis, the company experienced a loss from continuing
operations before an extraordinary gain on troubled debt restructuring during
the year ended December 31, 2001. Accordingly, the denominator to calculate
income (loss) per common share was not increased for common stock equivalents
because to do so would be anti-dilutive. A reconciliation of reported net income to adjusted net income for the
year ended December 31, 2001 is as follows (in thousands): Reported net income
    
    $
    1,215Add back: amortization of goodwill
    
    
    9,822Adjusted net income
    
    $
    11,037
 Prior to the adoption of Statement 142, the carrying value of goodwill and
other long-lived assets was reviewed quarterly to determine if any impairment
indicators were present. When it was determined that such indicators were
present and the review F-23




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) indicated that the assets would not be recoverable,
based on comparing undiscounted estimated cash flows to the carrying value of
the
underlying assets, such carrying value was reduced to estimated fair value
based on discounted cash flow estimates. Similar to Statement 142, impairment
indicators included, among other conditions, cash flow deficits; historical or
anticipated declines in revenue or operating profit; adverse legal, regulatory
or reimbursement developments; or a material decrease in the fair value of some
or all of the assets. However, unlike Statement 142, such reviews were
performed separately for each of the identifiable markets in which the company
operates, and all indefinite and definite long-lived assets associated with an
identifiable market were considered together with goodwill for the purpose of
such reviews (under Statement 142, goodwill is reviewed separately from other
long-lived assets). During the year ended December 31, 2001, Coram recognized a charge for the
impairment of goodwill and other long-lived assets of approximately $3.3
million. This impairment charge resulted primarily from recurring operating
losses or substandard financial performance at the infusion branches to which
the associated goodwill and other long-lived assets related. The amount of the
impairment charge was determined using forecasted discounted cash flows of
those branches with indicators of potential impairment of allocated long-lived
assets. The forecasted cash flows were based on earnings before interest
expense, income taxes, depreciation and amortization with an effective 8%
growth rate, offset by corporate administrative cost allocations with an
estimated growth rate of 2%. A discount rate of 10% was used to calculate the
net present value of the 25 year forecasted future cash flows and an estimated
terminal value. Intangible Assets.The principal components of intangible assets other
than goodwill are as follows (in thousands): December 31, 2003
    
    December 31, 2002Gross Carrying
    
    Accumulated
    
    Gross Carrying
    
    AccumulatedAmount (at cost)
    
    Amortization
    
    Amount (at cost)
    
    AmortizationCommercial payer contracts
    
    $
    13,683
    
    
    $
    (13,683
    )
    
    $
    13,683
    
    
    $
    (13,683
    )Patient outcomes database
    
    
    8,386
    
    
    
    (3,711
    )
    
    
    8,386
    
    
    
    (3,296
    )Other intangible assets
    
    
    302
    
    
    
    (217
    )
    
    
    302
    
    
    
    (123
    )Employee noncompete agreements expiring
through July 2003
    
    
    
    
    
    
    
    
    
    
    3,343
    
    
    
    (3,342
    )Total intangible assets
    
    $
    22,371
    
    
    $
    (17,611
    )
    
    $
    25,714
    
    
    $
    (20,444
    )
 Amortization expense related to intangible assets, which is included in
selling, general and administrative expenses, was approximately $0.5 million,
$1.0 million and $2.5 million during the years ended December 31, 2003, 2002
and 2001, respectively. The estimated future amortization expense related to intangible assets for
each of the years in the five year period ending December 31, 2008 is as
follows (in thousands): Years Ending December 31
    
    Estimated FutureAmortization Expense2004
    
    
    $5012005
    
    
    4162006
    
    
    4162007
    
    
    4162008
    
    
    416
 F-24




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 8. DEBT OBLIGATIONS Debt obligations are as follows (in thousands): December 31,2003
    
    
    
    
    
    2002Series B Senior Subordinated Unsecured Convertible Notes
(in default at December 31, 2003)
    
    $
    9,000
    
    
    
    
    
    
    $
    9,000Specialized Clinical Solutions, Inc. (SCS) note payable
    
    
    1,201
    
    
    
    
    
    
    
    Accreditation note payable
    
    
    51
    
    
    
    
    
    
    
    118Other
    
    
    130
    
    
    
    
    
    
    
    13010,382
    
    
    
    
    
    
    
    9,248Less: Debt obligations subject to compromise
    
    
    (9,130
    )
    
    
    
    
    
    
    (9,130
    )Less: Current maturities
    
    
    (660
    )
    
    
    
    
    
    
    (51
    )Long-term debt, less current maturities
    
    $
    592
    (1)
    
    
    
    
    
    $
    67
  (1)
    
    This amount is due and payable during the year ending December 31,
2005. As a result of the Bankruptcy Cases, all remaining debt obligations from
the August 8, 2000 filing date have been classified as liabilities subject to
compromise in the consolidated balance sheets in accordance with SOP 90-7.
Under Chapter 11 of the Bankruptcy Code, actions against the Debtors to collect
pre-petition indebtedness are subject to an automatic stay provision. As of
August 8, 2000, the companys principal credit and debt agreements included (i)
a Securities Exchange Agreement, dated May 6, 1998 (the Securities Exchange
Agreement), with Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P.
and Foothill Capital Corporation (collectively the Holders) and the related
Series A Senior Subordinated Unsecured Notes (the Series A Notes) and the
Series B Senior Subordinated Unsecured Convertible Notes (the Series B Notes)
and (ii) a Senior Credit Facility with Foothill Income Trust L.P., Cerberus
Partners, L.P. and Goldman Sachs Credit Partners L.P. (collectively the
Lenders) and Foothill Capital Corporation as agent thereunder. Subsequent to
the petition date, the Debtors entered into a secured debtor-in-possession
financing agreement with Madeleine L.L.C., an affiliate of Cerberus Partners,
L.P. (the DIP Agreement); however, such credit facility expired by its terms
on August 31, 2001. Pursuant to the terms and conditions of the aforementioned
credit and debt agreements, the company is precluded from paying cash dividends
or making other capital distributions. Moreover, the Debtors voluntary Chapter
11 filings caused events of default to occur under the Securities Exchange
Agreement and the Senior Credit Facility, thereby terminating the Debtors
ability to make additional borrowings under the Senior Credit Facility through
its expiration on February 6, 2001. SCS Note Payable. As a result of managements decision to replace the
companys billing, accounts receivable, clinical and pharmacy information
systems, on October 13, 2003 the Bankruptcy Court approved a motion filed by
the Chapter 11 trustee authorizing CI to enter into the License and Support
Agreement with SCS wherein CI purchased certain SCS software modules and
related software licenses (collectively the SCS Software) for an aggregate
purchase price of approximately $1.6 million. In connection therewith, on
December 19, 2003 (i.e., the effective date of the License and Support
Agreement) the company paid to SCS approximately $0.3 million and assumed a
non-interest bearing note that requires payment of an additional $1.3 million
in 23 equal monthly installments commencing on January 18, 2004. The License
and Support Agreement contains customary covenants and events of default.
Remedies available to SCS if the company is non-compliant with such covenants
or triggers an event of default include, but are not limited to, (i)
termination of the License and Support Agreement and (ii) the return of the SCS
Software and any related documentation to SCS. Additionally, in the event that
SCS terminates the License and Support Agreement due to an event of default
caused by the company, no amounts previously paid to SCS will be refunded.
Management believes that the company will comply with the terms and conditions
of the License and Support Agreement; however, there can be no assurances
thereof or what remedies, if any, would be pursued by SCS in the event of a
default. Accreditation Note Payable. In August 2001, CI entered into an agreement
(the ACHC Agreement) with the Accreditation Commission for Health Care, Inc.
(ACHC) whereby ACHC is to, among other things, provide national accreditation
for Coram as deemed appropriate by ACHC. Under the terms of the ACHC Agreement,
which commenced on the date that it was executed and expires in November 2004,
Coram made an upfront payment and is obligated to make twelve equal
non-interest bearing quarterly payments of approximately $17,000. The total
payments to be made under the ACHC Agreement will aggregate approximately $0.3
million. In the event of breach or default by either of the parties, CI and/or
ACHC may immediately terminate the ACHC Agreement if the breach or default is
not cured within fifteen days of receipt of written notice from the
non-breaching party. F-25




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Debtor-In-Possession Financing Agreement.Effective August 30, 2000, the
Debtors entered into the DIP Agreement, which provided that the Debtors could
access, as necessary, a line of credit of up to $40 million for use in
connection with the operation of
their businesses and the businesses of their subsidiaries. Maximum
borrowings were generally equal to the product of: (i) 65% of Net Eligible
Accounts Receivable, as defined, and (ii) 95%. The DIP Agreement was secured by
the capital stock of the Debtors subsidiaries, as well as the accounts
receivable and certain other assets held by the Debtors and their subsidiaries.
No borrowings were made under DIP Agreement, which expired by its terms on
August 31, 2001. To secure the DIP Agreement, the Debtors paid an origination
fee of 1% of the total committed line of credit in 2000, plus commitment fees
on the unused facility at the rate of 0.5% per annum, payable monthly in
arrears, totaling $0.2 million in 2001. Securities Exchange Agreement.In April 1998, the Securities Exchange
Agreement cancelled a previously outstanding subordinated rollover note,
related deferred interest and fees and warrants to purchase up to 20% of the
outstanding CHC common stock on a fully diluted basis in exchange for a company
payment of $4.3 million and issuance by the company to the Holders of (i)
$150.0 million in principal amount of Series A Notes and (ii) $87.9 million in
principal amount of 8.0% Series B Notes. Additionally, the Holders of the
Series A Notes and the Series B Notes were given the right to approve certain
new debt and the right to name one member of the CHC Board of Directors. Such
director was elected in June 1998 and reelected in August 1999; however, the
designated board member resigned in July 2000 and has not been replaced. On
April 9, 1999, the company and the Holders entered into Amendment No. 2 (the
Note Amendment) to the Securities Exchange Agreement. Pursuant to the Note
Amendment, the outstanding principal amount of the Series B Notes became
convertible into shares of the companys common stock at a conversion price of
$2.00 per share (subject to customary anti-dilution adjustments) and the
interest rate applicable to the Series A Notes increased from 9.875% to 11.5%
per annum. On December 28, 2000, the Bankruptcy Court approved the Debtors request
to exchange a sufficient amount of debt and related accrued interest for Coram,
Inc. Series A Cumulative Preferred Stock in order to maintain compliance with
the physician ownership and referral provisions of Stark II. Hereafter, the
Coram, Inc. Series A Cumulative Preferred Stock is referred to as the CI
Series A Preferred Stock. On December 29, 2000, the Securities Exchange
Agreement was amended (Amendment No. 4) and an Exchange Agreement was
simultaneously executed among the Debtors and the Holders. Pursuant to such
arrangements, the Holders agreed to exchange approximately $97.7 million
aggregate principal amount of the Series A Notes and $11.6 million of aggregate
contractual unpaid interest on the Series A Notes and the Series B Notes as of
December 29, 2000 for 905 shares of CI Series A Preferred Stock (see Note 12
for further details regarding the preferred stock). Following the exchange, the
Holders retained approximately $61.2 million aggregate principal amount of the
Series A Notes and $92.1 million aggregate principal amount of the Series B
Notes. Pursuant to Amendment No. 4, the per annum interest rate on both the
Series A Notes and the Series B Notes was adjusted to 9.0%. Moreover, the
Series A Notes and Series B Notes original scheduled maturity dates of May
2001 and April 2008, respectively, were both modified to June 30, 2001. Due to
the Holders receipt of consideration with a fair value less than the face
value of the exchanged principal and accrued interest, the exchange transaction
qualified as a troubled debt restructuring pursuant to Statement of Financial
Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled
Debt Restructurings(Statement No. 15). In connection therewith, the company
recognized an extraordinary gain during the year ended December 31, 2000 of
approximately $107.8 million, net of tax. On December 27, 2001, the Bankruptcy Court approved the Debtors request
to exchange an additional amount of debt and related contractual unpaid
interest for CI Series A Preferred Stock in an amount sufficient to maintain
compliance with Stark II. In connection therewith, on December 31, 2001 the
Securities Exchange Agreement was amended (Amendment No. 5) and a second
Exchange Agreement was simultaneously executed among the Debtors and the
Holders. Pursuant to such arrangements, the Holders agreed to exchange $21.0
million aggregate principal amount of the Series A Notes and approximately $1.9
million of aggregate contractual unpaid interest on the Series A Notes as of
December 31, 2001 for approximately 189.6 shares of CI Series A Preferred
Stock. Following this second exchange, the Holders retained approximately $40.2
million aggregate principal amount of the Series A Notes. Pursuant to Amendment
No. 5,the scheduled June 30, 2001 maturity date of both the Series A Notes and
Series B Notes was modified to June 30, 2002. Due to the Holders receipt of
consideration with a fair value less than the face value of the exchanged
principal and accrued interest, the exchange transaction qualified as a
troubled debt restructuring pursuant to Statement No. 15. In connection
therewith, the company recognized an extraordinary gain during the year ended
December 31, 2001 of approximately $20.7 million. On December 31, 2002, with approval from the Bankruptcy Court, the Holders
exchanged an additional amount of debt and related contractual unpaid interest
for Coram, Inc. Series B Cumulative Preferred Stock in an amount sufficient to
maintain compliance with Stark II. Hereafter, the Coram, Inc. Series B
Cumulative Preferred Stock is referred to as the CI Series B Preferred Stock
(see Note 12 for further details regarding the preferred stock). The Securities
Exchange Agreement was amended (Amendment No. 6) on December 31, 2002 and a
third Exchange Agreement was simultaneously executed among the Debtors and F-26




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) the
Holders. Pursuant to such arrangements, the Holders agreed to exchange
approximately $40.2 million aggregate principal amount of the Series A Notes,
$7.3 million of aggregate contractual unpaid interest on the Series A Notes,
$83.1 million aggregate principal amount of the Series B Notes and $16.6
million of aggregate contractual unpaid interest on the Series B Notes for
approximately
1,218.3 shares of the CI Series B Preferred Stock. Following this third
exchange, the Holders retain $9.0 million aggregate principal amount of the
Series B Notes and no Series A Notes. Pursuant to Amendment No. 6,the Series B
Notes scheduled maturity date of June 30, 2002 was modified to June 30, 2003.
Due to the Holders receipt of consideration with a fair value less than the
face value of the exchanged principal and accrued interest, the exchange
transaction qualified as a troubled debt restructuring pursuant to Statement
No. 15. In connection therewith, the company recognized an extraordinary gain
during the year ended December 31, 2002 of approximately $123.5 million. The Securities Exchange Agreement, pursuant to which the Series A Notes
and the Series B Notes were issued, contains customary covenants and events of
default. Upon the Debtors Chapter 11 bankruptcy filings, the company was in
violation of certain covenants and conditions thereunder; however, such
bankruptcy proceedings have stayed any remedial actions by either the Debtors
or the Holders. Although the principal amounts under the Series B Notes were not paid on
their scheduled maturity date of June 30, 2003 and, as a result, the company is
in default of the Securities Exchange Agreement, the Holders are stayed from
pursuing any remedies without prior authorization from the Bankruptcy Court.
Other than the default for non-payment of principal on the Series B Notes,
management believes that at December 31, 2003 the company was substantively in
compliance with all other covenants of the Securities Exchange Agreement.
However, there can be no assurances as to whether further covenant violations
or events of default will occur in future periods and whether any necessary
waivers would be granted. The Series B Notes are (and the Series A Notes were) scheduled to pay
interest quarterly in arrears in cash or, at the election of the company,
through the issuance of pari passu debt securities, except that the Holders can
require the company to pay interest in cash if the company exceeds a
predetermined interest coverage ratio. Notwithstanding the contractual terms of
the Securities Exchange Agreement, no cash-basis interest has been paid
subsequent to August 8, 2000 due to the ongoing Bankruptcy Cases. Pursuant to
the troubled debt restructuring rules promulgated under Statement No. 15 and
other accounting rules under SOP 90-7, no interest expense has been recognized
in the companys consolidated financial statements relative to the Series A
Notes and the Series B Notes since December 29, 2000. The Series B Notes are redeemable, in whole or in part, at the option of
the Holders in connection with any change of control of the company (as defined
in the Securities Exchange Agreement), if the company ceases to hold and
control certain interests in its significant subsidiaries or upon the
acquisition of the company or certain of its subsidiaries by a third party. In
such instances, the Series B Notes are redeemable, subject to prior
authorization from the Bankruptcy Court, at 103% of the then outstanding
principal amount, plus accrued interest. F-27




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 9. CAPITAL LEASE OBLIGATIONS Capital lease obligations are as follows (in thousands): December 31,2003
    
    2002B. Braun Medical, Inc. (B. Braun) pole-mounted infusion pumps
    
    $
    1,278
    
    
    $
    Baxter Healthcare Corporation (Baxter) ambulatory infusion pumps
    
    
    1,280
    
    
    
    Other
    
    
    108
    
    
    
    162,666
    
    
    
    16Less: Current portion
    
    
    (1,052
    )
    
    
    (10
    )Capital lease obligations, less current portion
    
    $
    1,614
    
    
    $
    6
 B. Braun Capital Lease Obligation.As a result of managements decision to
replace the companys entire fleet of pole-mounted infusion pumps, on April 29,
2003 the Bankruptcy Court approved a motion submitted by the Chapter 11 trustee
that authorized the company to enter into a three year agreement with B. Braun
to lease 1,000 Vista Basic pumps (the B. Braun Lease Agreement) and, in
connection therewith, such agreement became effective in May 2003. Upon
expiration of the B. Braun Lease Agreement, the company has the option to
acquire the leased Vista Basic pumps at a bargain purchase price of $1 per
pump. The B. Braun Lease Agreement contains customary covenants and events of
default, as well as remedies available to B. Braun if the company is in
violation thereof, including, but not limited to, (i) termination of the B.
Braun Lease Agreement, (ii) return of the leased Vista Basic pumps to B. Braun
and/or (iii) payments by the company of any unpaid amounts as of the date of
default and all amounts remaining under the unexpired term of the agreement.
Management believes that the company will comply with the terms and conditions
of the B. Braun Lease Agreement; however, there can be no assurances thereof or
what remedies, if any, would be pursued by B. Braun in the event of default. Baxter Capital Lease Obligation.On December 22, 2003, the Bankruptcy
Court approved a motion submitted by the Chapter 11 trustee that, among other
things, authorized the company to enter into a series of lease agreements with
Baxter for a minimum of 5,200 6060 Multi-Therapy Ambulatory Infusion Pumps. In
connection therewith, on December 30, 2003 Baxter and the company entered into
the first five year agreement wherein 800 pumps were delivered to the company
on or about December 31, 2003. Based upon the projected delivery schedule,
management anticipates receiving the remaining pumps on or before September 30,
2004, thereby enabling the company to replace its entire existing fleet of
Sabratek 6060 Homerun Pumps (see Note 14 for further discussion regarding the
companys aggregate Baxter leasing commitment). Upon expiration of the Baxter
lease agreements, title of the pumps will pass to the company. The Baxter
lease agreements contain customary covenants and events of default, as well as
remedies available to Baxter if the company is in violation thereof, including,
but not limited to, requiring the company to immediately pay the remaining
outstanding amounts under the lease agreements. Management believes that the
company will continue to comply with the terms and conditions of such lease
agreements; however, there can be no assurances thereof or what remedies, if
any, would be pursued by Baxter in the event of default. Future non-cancelable capital lease payments for each of the years in the
five year period ending December 31, 2008 and thereafter are as follows (in
thousands): Years Ending December 312004
    
    $
    1,1442005
    
    
    8852006
    
    
    4572007
    
    
    1712008
    
    
    195Thereafter
    
    
    Total minimum lease payments
    
    
    2,852Less amounts representing interest
    
    
    (186
    )Present value of capital lease obligations
    
    $
    2,666
 F-28




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 10. INCOME TAXES For each of the years in the three year period ended December 31, 2003,
all of the companys income tax expense relates solely to continuing
operations. Moreover, the components of such income tax expense are as follows
(in thousands): Years Ended December 31,2003
    
    2002
    
    2001Current:Federal
    
    $
    85
    
    
    $
    
    
    
    $
    State
    
    
    160
    
    
    
    71
    
    
    
    150Total current
    
    
    245
    
    
    
    71
    
    
    
    150Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    State
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    
    
    
    
    
    
    
    
    
    Income tax expense
    
    $
    245
    
    
    $
    71
    
    
    $
    150
 The following table reconciles income taxes calculated at the federal
statutory rate to the companys income tax expense attributable to
continuing operations (in thousands): Years Ended December 31,2003
    
    2002
    
    2001Federal statutory rate
    
    $
    701
    
    
    $
    (13,420
    )
    
    $
    (6,682
    )Valuation allowances for deferred income tax assets
    
    
    (4,495
    )
    
    
    6,598
    
    
    
    (217
    )State income taxes, net of federal income tax benefit
    
    
    104
    
    
    
    46
    
    
    
    97Goodwill impairment
    
    
    
    
    
    
    14,112
    
    
    
    Goodwill amortization
    
    
    
    
    
    
    
    
    
    
    2,541Reorganization expenses
    
    
    4,109
    
    
    
    1,567
    
    
    
    4,255Interest on the Series A Notes, the
Series B Notes and a settlement with the Internal Revenue Service
    
    
    (483
    )
    
    
    (9,023
    )
    
    
    Meals and entertainment
    
    
    220
    
    
    
    190
    
    
    
    153Alternative minimum taxes
    
    
    85
    
    
    
    
    
    
    
    Other
    
    
    4
    
    
    
    1
    
    
    
    3Effective income tax expense rate
    
    $
    245
    
    
    $
    71
    
    
    $
    150
 The effective income tax rate of 12.2% for the year ended December 31, 2003 was
lower than the federal statutory rate of 35.0% due to the companys ability to utilize net
operating loss carryforwards (NOLs) that are fully reserved by a valuation
allowance. The effective income tax rates of 0.2% and 0.8% for the years ended December 31, 2002
and 2001, respectively, were higher than the federal statutory rate because the company is not
recognizing the deferred income tax benefits of annual losses. F-29




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The temporary differences, tax effected, which give rise to the companys
net deferred tax assets (liabilities) were as follows (in thousands): December 31,2003
    
    2002Deferred tax assets:Net operating loss carryforwards
    
    $
    76,711
    
    
    $
    76,615Goodwill
    
    
    37,320
    
    
    
    44,457Allowances for doubtful accounts
    
    
    11,207
    
    
    
    11,846Accrued bonuses
    
    
    7,407
    
    
    
    7,426Other accruals
    
    
    4,751
    
    
    
    2,656Resource Network Subsidiaries reserves
    
    
    4,447
    
    
    
    5,698Alternative minimum tax credit carryforwards
    
    
    2,899
    
    
    
    2,814Intangible assets
    
    
    2,852
    
    
    
    3,448Property and equipment
    
    
    1,889
    
    
    
    1,102Restructuring costs
    
    
    1,465
    
    
    
    1,709Accrued vacation
    
    
    756
    
    
    
    637Accrued interest
    
    
    125
    
    
    
    3,478Other
    
    
    1,283
    
    
    
    1,367Total gross deferred tax assets
    
    
    153,112
    
    
    
    163,253Less valuation allowance
    
    
    (152,539
    )
    
    
    (162,697
    )Total deferred tax assets
    
    
    573
    
    
    
    556Deferred tax liabilities:Other
    
    
    (573
    )
    
    
    (556
    )Total deferred tax liabilities
    
    
    (573
    )
    
    
    (556
    )Net deferred tax asset (liability)
    
    $
    
    
    
    $
    
 Realization of deferred tax assets is generally dependent upon the
companys ability to generate taxable income in the future. Accordingly,
deferred tax assets have been limited to amounts expected to be recovered
against deferred tax liabilities that would otherwise become payable in the
carryforward period. Furthermore, as management believes that the realization
of the balance of deferred tax assets is sufficiently uncertain, they have been
wholly offset by valuation allowances at both December 31, 2003 and 2002. At December 31, 2003, the company had NOLs for federal income tax purposes
of approximately $194.2 million, which may be available to offset future
federal taxable income and expire in varying amounts in the years 2005 through
2023. These NOLs include approximately $22.4 million generated by certain
predecessor companies prior to the formation of the company and such amount is
subject to an annual usage limitation of approximately $4.5 million. In
addition, the ability to utilize the full amount of the $194.2 million of
federal NOLs and certain of the companys state NOLs is uncertain due to rules
and regulations covering the exchanges of debt and related interest for Coram,
Inc. Series A Cumulative Preferred Stock (the CI Series A Preferred Stock) in
December 2001 and December 2000 and Coram, Inc. Series B Cumulative Preferred
Stock (the CI Series B Preferred Stock) in December 2002 (see Notes 8 and 12
for further details). As of December 31, 2003, the company had alternative
minimum tax (AMT) credit carryforwards of approximately $2.9 million, which
have an indefinite carryforward period and may be available to offset future
federal income taxes. CI currently operates under the jurisdiction of the Bankruptcy Court and
meets certain other bankruptcy related conditions of the Internal Revenue Code
(IRC). Pursuant to IRC Section 382, the issuance of the CI Series A Preferred
Stock in December 2000 caused an ownership change at CI for federal income tax
purposes. The bankruptcy provisions of IRC Section 382 impose certain
limitations on the utilization of NOLs and other tax attributes. Additionally,
the extraordinary gains on troubled debt restructurings that resulted from the
abovementioned exchanges of CI Series A Preferred Stock and CI Series B
Preferred Stock for debt are generally not subject to income tax pursuant to
the cancellation of debt provisions in IRC Section 108; however, such
extraordinary gains could affect the companys utilization of NOLs and certain
other tax attributes. During the year ended December 31, 2002, the company filed refund claims
with the Internal Revenue Service (IRS) requesting approximately $1.8 million
of previously paid AMT (the AMT Refund). The AMT Refund has been reflected in
the consolidated financial statements and approximately $0.1 million thereof
was received by the company in February 2003. In January 1999, the IRS completed an examination of the companys federal
income tax return for the year ended September 30, 1995 and proposed
substantial adjustments. In May 1999, the company received a statutory notice
of deficiency asserting approximately $12.7 million in tax deficiencies, plus
interest and penalties to be determined, arising from the proposed IRS F-30




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) adjustments. In August 1999, the company filed a petition with the United
States Tax Court (the Tax Court) contesting the notice of deficiency. The IRS
responded to the petition and requested that the petition be denied. The company ultimately reached agreement with the IRS and the parties
subsequently entered into proposed Decision and Stipulation agreements.
Hereinafter, the Decision and Stipulation agreements, as subsequently amended,
and the deferred payment plan (as further discussed below) are collectively
referred to as the IRS Settlement. The IRS Settlement will result in (i) a
federal tax liability of approximately $9.9 million, (ii) interest of
approximately $10.1 million at December 31, 2003 (approximately $10.4 million
at April 9, 2004) and (iii) penalties to be determined by the IRS in accordance
with certain statutory guidelines. The federal income tax adjustments will also
give rise to certain incremental state tax liabilities. The Joint Committee on
Taxation approved the Decision and Stipulation Agreements in September 2002 and
the Chapter 11 trustee subsequently approved the IRS Settlement. On October 31,
2003, the Bankruptcy Court granted the Chapter 11 trustees motion seeking
authorization for the company to enter into the underlying agreements necessary
to effectuate the IRS Settlement. Amended Decision and Stipulation Agreements
were executed by the company and the IRS in January 2004 and were filed with
the Tax Court. As a result, the proceedings in that court were dismissed. In October 2002, the company submitted a deferred payment plan to the IRS,
which was tentatively accepted by the IRS in April 2003 and was subsequently
approved by the Chapter 11 trustee and the Bankruptcy Court. The deferred
payment plan contemplates an initial application of the remaining outstanding
AMT Refund of approximately $1.7 million against the IRS Settlement amount.
Thereafter, the company will make quarterly payments aggregating approximately
$0.7 million until such time as the remaining IRS Settlement amount,
post-settlement interest and penalties are fully liquidated. Under the terms of
the deferred payment plan, interest will accrue at a variable rate, compounded
daily, as determined by reference to rates published by the IRS (at April 9,
2004, the corresponding effective interest rate was 7.0%). The consolidated
statements of income include approximately $1.3 million, $1.5 million and $1.4
million of interest expense recorded during the years ended December 31, 2003,
2002 and 2001, respectively. Additionally, during the year ended December 31,
2001, changes in estimates related to the aggregate accumulated interest on the
projected settlement with the IRS were recognized, resulting in $4.5 million of
incremental interest expense. In anticipation of the effectuation of the IRS Settlement, including the
deferred payment plan, in December 2003 management formally directed the IRS to
apply the remaining outstanding AMT Refund to the IRS Settlement amount. In
March 2004, the company and the IRS executed the installment agreement
underlying the IRS Settlement. Moreover, subsequent to December 31, 2003 the
company paid approximately $2.2 million to the IRS in order to provide for
three quarterly installments under the installment agreement. Managements estimate of the future principal payments under the IRS
Settlement for each of the years in the five year period ending December 31,
2008 and thereafter are as follows (in thousands): Years Ending December 31,2004
    
    $
    4,355
    (1)2005
    
    
    1,7672006
    
    
    1,9052007
    
    
    2,0532008
    
    
    2,211Thereafter
    
    
    7,679Total payments and related outlays
    
    $
    19,970
 (1)
    
    This amount includes the remaining outstanding AMT Refund of
approximately $1.7 million, which is expected to be applied against the IRS
Settlement amount during the year ending December 31, 2004. 11. RELATED PARTY TRANSACTIONS A director of the company also served on the Board of Directors of
Sabratek Corporation (Sabratek) from October 1992 through August 23, 1999.
Sabratek filed for Chapter 11 bankruptcy protection on December 17, 1999 and,
in connection therewith, Coram filed a $1.3 million proof of claim in
Sabrateks bankruptcy proceedings for vendor rebates earned but not paid. In
January 2000, the assets and certain liabilities of Sabrateks Device Business
were acquired by Baxter Healthcare Corporation (Baxter). Baxter subsequently
filed a proof of claim of approximately $0.3 million in the Bankruptcy Cases
for products purchased from Sabratek. On April 19, 2001, the Bankruptcy Court
confirmed Sabrateks Second Amended Joint Plan of Liquidation and, in
connection therewith, liquidation proceedings are ongoing. No assurances can
be given regarding the recoverability of the companys F-31




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) claim against Sabratek. Notwithstanding the separate proofs of claim
filings, Baxter and the company have an ongoing business relationship. The companys former Chairman, Chief Executive Officer and President,
Daniel D. Crowley, owns Dynamic Healthcare Solutions, LLC (DHS), a privately
held management consulting and investment firm from which the company purchased
services. Mr. Crowleys employment with the company terminated effective March
31, 2003. Effective with the commencement of the Bankruptcy Cases, DHS
employees who were then serving as consultants to Coram terminated their
employment with DHS and became full time Coram employees. Through March 31,
2003, DHS continued to bill the company the actual costs it attributed to DHS
Sacramento, California location where Mr. Crowley and other persons were
located and performed services for or on behalf of the company. Effective April
1, 2003, DHS and the Chapter 11 trustee entered into a month-to-month lease
agreement for office space at the aforementioned Sacramento, California
location where certain company employees and consultants remain. The rent,
including parking and certain utilities, is approximately $8,000 per month.
During the year ended December 31, 2003, approximately $118,000 was paid to DHS
in connection with the aforementioned arrangements. Subsequent to December 31,
2003 and through April 9, 2004, approximately $32,000 was paid to DHS for such
costs. Additionally, the company paid approximately $0.3 million to DHS for
each of the years ended December 31, 2002 and 2001 for reimbursable costs. Effective August 2, 2000, the CHC Board of Directors approved a contingent
bonus to Mr. Crowley wherein, subject to certain material terms and conditions,
Mr. Crowley would have a claim for $1.8 million following the successful
refinancing of the companys debt. In connection therewith and the December
2000 debt to preferred stock exchange transaction discussed in Notes 3 and 8,
the company recorded a $1.8 million reorganization expense for the success
bonus during the year ended December 31, 2000. The success bonus will not be
payable unless and until such time as a plan or plans of reorganization, which
provide for payment of such bonus, are fully approved by the Bankruptcy Court.
Mr. Crowley also has claims for performance bonuses for the years ended
December 31, 2002, 2001 and 2000 aggregating approximately $13.8 million based
on overall company performance under the related Management Incentive Plans.
Mr. Crowley also participated in the companys key employee retention plans.
Mr. Crowley indicated that he reserves the right to claim the full outstanding
amounts of his incentive, retention, success bonus and other compensation. The
Chapter 11 trustee reserves the right to seek disallowance by the Bankruptcy
Court of all such amounts and/or seek disgorgement in future litigation.
Moreover, the Trustees Plan, as modified, proposes to reject Mr. Crowleys
employment agreement with the company. Management cannot predict what, if any,
reduction in Mr. Crowleys incentive, retention or success bonuses, which are
accrued in the consolidated financial statements, will result from a confirmed
plan or plans of reorganization. Effective August 1, 1999, Mr. Crowley and Cerberus Capital Management,
L.P. (an affiliate of Cerberus Partners, L.P. (Cerberus), a party to the
companys former debtor-in-possession financing agreement, Senior Credit
Facility and Securities Exchange Agreement), executed an employment agreement
whereby Mr. Crowley was paid approximately $1 million per annum plus potential
performance-related bonuses, equity options and fringe benefits. The services
rendered by Mr. Crowley to Cerberus included, but were not limited to,
providing business and strategic healthcare investment advice to executive
management at Cerberus and its affiliates. Mr. Crowley and Cerberus agreed to
suspend their contract and all related obligations immediately after the
Bankruptcy Courts denial of the Second Joint Plan on December 21, 2001. In
September 2002, Mr. Crowley formally terminated the Cerberus employment
contract. See Note 3 for discussion of certain Equity Committee actions taken
against Mr. Crowley in the Bankruptcy Court. As further discussed in Note 14, in November 2001 the Official Committee
of Unsecured Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. brought an adversary proceeding in the Bankruptcy
Court against, among other defendants, the Debtors and certain of their
operating subsidiaries, as well as several related parties, including Foothill
Capital Corporation, Foothill Income Trust, L.P., Goldman Sachs Credit Partners
L.P., Cerberus, one of Cerberus principals, current management, former
management and current and former members of CHCs Board of Directors. On March 7, 2002, the Bankruptcy Court approved the appointment of Arlin
M. Adams, Esquire, as the Debtors Chapter 11 trustee. As more fully discussed
in Note 3, Mr. Adams has assumed the companys Board of Directors management
rights and responsibilities. Subsequent to Bankruptcy Court appointment, the
Chapter 11 trustee engaged the law firm of Schnader, Harrison, Segal & Lewis
LLP (Schnader Harrison) to provide professional services in connection with
the Bankruptcy Cases. Mr. Adams is of counselat such law firm. Schnader
Harrison was approved by the Bankruptcy Court as counsel to the Chapter 11
trustee and, in connection therewith, reimbursement of professional fees and
related expenses are subject to Bankruptcy Court review and approval prior to
interim and final payments by the company. Additionally, Mr. Adams is entitled
to compensation and reimbursement of related expenses attributable to his
services on behalf of the Debtors. Mr. Adams is compensated on an hourly basis
at a rate that has been approved by the Bankruptcy Court. For the years ended
December 31, 2003 and 2002, the company recorded aggregate F-32




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) compensation and
reimbursable expenses for Mr. Adams of approximately $165,000 and $74,000,
respectively. In addition, the
company recorded aggregate professional fees and reimbursable expenses
during the years ended December 31, 2003 and 2002 for Schnader Harrison of
approximately $3,910,000 and $1,415,000, respectively. Through April 9, 2004,
the company paid $193,566 to Mr. Adams for compensation and reimbursable
expenses incurred from March 7, 2002 to November 30, 2003. Moreover, through
April 9, 2004, the company paid $4,930,310 to Schnader Harrison for
professional services rendered and reimbursable expenses incurred from March 7,
2002 to November 30, 2003. The amounts paid to Mr. Adams and Schnader Harrison
are net of certain holdbacks available to the company pursuant to Chapter 11 of
the Bankruptcy Code. 12. MINORITY INTERESTS The following summarizes the minority interests in consolidated joint
ventures and preferred stock issued by a subsidiary (in thousands): December 31,2003
    
    2002Preferred stock of Coram, Inc.
    
    $
    5,538
    
    
    $
    5,538Majority-owned companies
    
    
    972
    
    
    
    677Total minority interests
    
    $
    6,510
    
    
    $
    6,215
 On December 29, 2000, CI, a wholly-owned subsidiary of Coram Healthcare
Corporation, executed an Exchange Agreement with the parties to CIs Securities
Exchange Agreement (collectively the Holders) (see Note 8 for further
details) to exchange approximately $97.7 million of the Series A Notes and
approximately $11.6 million of contractual but unpaid interest on the Series A
Notes and the Series B Notes in exchange for 905 shares of CI Series A
Cumulative Preferred Stock, $0.001 par value per share (this preferred stock
class is hereinafter referred to as the CI Series A Preferred Stock). Such
shares of CI Series A Preferred Stock were issued to the Holders on a pro rata
basis. Through an independent valuation, it was determined that the 905 shares
of CI Series A Preferred Stock had a fair value of approximately $6.1 million. On December 31, 2001, CI executed a second Exchange Agreement with the
Holders (see Note 8 for further details) to exchange $21.0 million of the
Series A Notes and approximately $1.9 million of contractual but unpaid
interest on the Series A Notes for approximately 189.6 shares of CI Series A
Preferred Stock. Such shares of CI Series A Preferred Stock were issued to the
Holders on a pro rata basis. Utilizing an updated independent valuation, it was
determined that the aggregate issued and outstanding CI Series A Preferred
Stock at December 31, 2001 had a fair value of approximately $1.9 million and
approximately $0.3 million of such amount was allocated to the shares issued in
conjunction with the second Exchange Agreement. On December 31, 2002, CI executed a third Exchange Agreement with the
Holders (see Note 8 for further details) to exchange approximately $40.2
million of the Series A Notes, $7.3 million of contractual but unpaid interest
on the Series A Notes, $83.1 million of the Series B Notes and $16.6 million of
contractual but unpaid interest on the Series B Notes for approximately 1,218.3
shares of a new class of CI preferred stock that is subordinate to the CI
Series A Preferred Stock. Such new class of preferred stock (i.e., the CI
Series B Cumulative Preferred Stock (the CI Series B Preferred Stock), $0.001
par value per share ) was issued on a pro rata basis to the Holders. Through
an independent valuation, it was determined that the 1,218.3 shares of CI
Series B Preferred Stock had no value on the date of issuance (principally due
to the subordination to the CI Series A Preferred Stock). F-33




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Hereinafter the CI Series A Preferred Stock and the CI Series B Preferred
Stock are collectively referred to as the CI Preferred Stock. A summary of the
CI Preferred Stock activity and related liquidation preference values through
December 31, 2003 is as follows (in thousands, except share amounts): CI Series A Preferred Stock
    
    CI Series B Preferred StockLiquidation
    
    
    
    
    
    LiquidationShares
    
    Preferences
    
    Shares
    
    PreferencesBalances at January 1, 2001
    
    
    905.0
    
    
    $
    109,326
    
    
    
    
    
    
    $
    Dividends In-Kind
    
    
    146.5
    
    
    
    17,700
    
    
    
    
    
    
    
    Shares issued pursuant to
the Exchange Agreement
dated December 31, 2001
    
    
    189.6
    
    
    
    22,901
    
    
    
    
    
    
    
    Balances at December 31, 2001
    
    
    1,241.1
    
    
    
    149,927
    
    
    
    
    
    
    
    Dividends In-Kind
    
    
    210.5
    
    
    
    25,428
    
    
    
    
    
    
    
    Shares issued pursuant to
the Exchange Agreement
dated December 31, 2002
    
    
    
    
    
    
    
    
    
    
    1,218.3
    
    
    
    147,171Balances at December 31, 2002
    
    
    1,451.6
    
    
    
    175,355
    
    
    
    1,218.3
    
    
    
    147,171Dividends In-Kind
    
    
    233.7
    
    
    
    28,228
    
    
    
    196.1
    
    
    
    23,691Balances at December 31, 2003
    
    
    1,685.3
    
    
    $
    203,583
    
    
    
    1,414.4
    
    
    $
    170,862
 The authorized CI Preferred Stock consists of 10,000 shares, of which
2,500 shares are designated as CI Series A Preferred Stock and 2,500 shares are
designated as CI Series B Preferred Stock. The only shares issued and
outstanding at December 31, 2003 are those issued to the Holders pursuant to
the three aforementioned Exchange Agreements and any corresponding in-kind
dividends. So long as any shares of the CI Preferred Stock are outstanding, the
Holders are entitled to receive preferential dividends at a rate of 15% per
annum on the liquidation preference amounts. Dividends are payable on a
quarterly basis on the last business day of each calendar quarter. Prior to the
effective date of a plan or plans of reorganization, dividends are to be paid
in the form of additional shares of CI Preferred Stock having a liquidation
preference amount equal to such dividend amount. Subsequent to the effective
date of a plan or plans of reorganization, dividends will be payable, at CIs
election, in cash or shares of CI common stock having a fair value equal to
such cash dividend payment, as determined by a consensus of investment banking
firms acceptable to the Holders. In the event of default, the dividend rate on
the CI Preferred Stock shall increase to 16% per annum until such time that the
event of default is cured. During the year ended December 31, 2002, an event of
default occurred whereby CI was required to pay in-kind dividends at the
aforementioned default rate for the nine months ended September 30, 2002. All
CI Preferred Stock dividends are to include tax indemnities and gross-up
provisions (computed subsequent to the companys tax fiscal year end in
connection with the preparation of the companys income tax returns) as are
customary for transactions and securities of this nature. The organizational documents and other agreements underlying the CI
Preferred Stock include usual and customary affirmative and negative covenants
for securities of this nature, including, but not limited to (i) providing
timely access to certain financial and business information; (ii) authorization
to communicate with the companys independent certified public accountants with
respect to the financial condition and other affairs of the company; (iii)
maintaining tax compliance; (iv) maintaining adequate insurance coverage; (v)
adherence to limitations on transactions with affiliates; (vi) adherence to
limitations on acquisitions or investments; (vii) adherence to limitations on
the liquidation of assets or businesses; and (viii) adherence to limitations on
entering into additional indebtedness. The organizational documents and other agreements underlying the CI
Preferred Stock also include special provisions regarding voting rights. These
provisions include terms and conditions pertaining to certain triggering events
whereby the CI Preferred Stock voting rights would become effective. Generally,
such triggering events include notice of a meeting, distribution of a written
consent in lieu of a meeting, or entry of an order of court compelling a
meeting, of the stockholders or the Board of Directors of CI or CHC: (i) to
approve appointment, removal or termination of any member of the Board of
Directors of CI or CHC; or (ii) to approve any change in the rights of any
person to do so. Triggering events related to a notice of a meeting or the
distribution of a written consent of the stockholders or CI Board of Directors
cannot occur without a majority of the CHC independent directors previously
approving such meeting or written consent. Substantial consummation of a plan
or plans of reorganization will also constitute a triggering event. On April 12, 2002, the Holders executed a waiver, whereby they agreed to
permanently and irrevocably waive their rights to collectively exercise, upon
the occurrence of a triggering event, in excess of 49% of the voting rights of
the aggregate of all classes of common and preferred shares and any other
voting securities of CI (the Waiver), regardless of the number of CI
Preferred Stock shares issued and outstanding. Additionally, pursuant to this
permanent and irrevocable waiver of rights, the Holders waived their rights to
collectively elect or appoint a number of directors that constitutes half or
more of the total number of CI directors. Alternatively, if the holders of the
CI Preferred Stock elect no Board of Directors representation, then, solely
through the CI Series A F-34




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Preferred Stock, each of the three Holders shall have the right to appoint an observer to CIs Board of Directors. The Waiver can
only be modified or amended with the written consent of the Debtors. In
connection with the third Exchange Agreement, the provisions of the Waiver were
formally incorporated into the Second Certificate of Amendment of Certificate
of Designation, Preferences and Relative, Participating, Optional and Other
Special Rights of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof of Coram, Inc. Accordingly, subsequent to the occurrence
of a triggering event, each share of CI Preferred Stock will be entitled to one
vote and shall entitle the holder thereof to vote on all matters voted on by
the holders of CI common stock, voting together as a single class with other
shares entitled to vote, at all meetings of the CI stockholders. At December
31, 2003, the Holders maintained contingent voting rights aggregating 49% of
CIs total voting power. As of such date, upon the occurrence of a triggering
event, the Holders would also have had the right to appoint three of the seven
directors to CIs Board of Directors (a quorum in meetings of the Board of
Directors would have been constituted by the presence of a majority of the
directors, at least two of whom must have been directors appointed by the
Holders). Prior to the occurrence of a triggering event, solely through the CI
Series A Preferred Stock, the Holders have the right to appoint two directors
to CIs Board of Directors. The CI Preferred Stock is redeemable at the option of CI, in whole or in
part, at any time, on not less than thirty days prior written notice, at the
liquidation preference amount plus any contractual but unpaid dividends.
Redemption may only be made in the form of cash payments. As of March 31, 2004, the aggregate CI Preferred Stock liquidation
preference was approximately $388.6 million. 13. STOCK-BASED COMPENSATION In connection with the companys formation, it assumed certain outstanding
obligations under stock option and stock purchase plans of its predecessor
companies. In addition, the company implemented the 1994 Coram Healthcare
Corporation Stock Option/Stock Issuance Plan (the 1994 Plan) and the Coram
Employee Stock Purchase Plan (the Purchase Plan). However, effective December
31, 2003, both the 1994 Plan and the Purchase Plan expired by their own terms. The 1994 Plan contained three separate incentive programs that provided
for the granting of stock options to certain officers, key employees,
consultants and non-employee members of the companys Board of Directors. The
1994 Plan authorized the granting of options for up to 10.0 million shares of
the companys common stock. However, upon its December 31, 2003 expiration, the
number of common shares reserved for future issuance was reduced to the
equivalent number of options granted and outstanding (i.e., approximately 4.0
million shares at December 31, 2003). Options granted under the 1994 Plan
constituted either incentive stock options, non-statutory options or stock
appreciation rights based on the type of incentive program utilized. For each
of the incentive programs, options were granted at exercise prices ranging from
85% to 100% of the fair market value of the companys stock at the date of
grant. All options granted expire ten years from the date of grant and become
exercisable at varying dates depending upon the incentive program utilized.
Until the appointment of the Chapter 11 trustee, the 1994 Plan was administered
by the Compensation Committee of the Board of Directors, which had the
authority to determine the employees to whom awards would be made and the
incentive program to be utilized. Common stock reserved for future issuance includes approximately 1.0
million shares related to stock options that have been awarded outside of the
1994 Plan. As discussed in Note 2, the company elected to account for its employee
stock-based compensation plans in accordance with the provisions of APB 25 and
disclose the pro forma impact of accounting for employee stock-based
compensation plans pursuant to the fair value-based provisions of Statement
123. Accordingly, no Statement 123 compensation expense has been recognized for
the companys stock-based compensation plans in the consolidated financial
statements. Pro forma information regarding net income and net income per
common share is required by Statement 123 and has been determined as if the
company had accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that accounting pronouncement.
No stock options were granted during the three year period ended December 31,
2003; however, in years prior thereto, the company utilized the Black-Scholes
multiple option pricing model to estimate the fair value of its employee stock
options. The Black-Scholes multiple option pricing model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the companys stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate, in
managements opinion, the existing stock option valuation models do not
necessarily provide a reliable single measure of the fair value of the
companys employee stock options. F-35




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) A summary of the companys stock option activity and related information
for the years ended December 31 is as follows (in thousands, except per share
amounts): 2003
    
    2002
    
    2001Weighted Average
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    Weighted AverageOptions
    
    Exercise Price
    
    Options
    
    Exercise Price
    
    Options
    
    Exercise PriceOutstanding
 beginning of year
    
    
    6,038
    
    
    $
    2.15
    
    
    
    6,233
    
    
    $
    2.15
    
    
    
    7,341
    
    
    $
    2.18Forfeited
    
    
    (1,056
    )
    
    
    0.79
    
    
    
    (195
    )
    
    
    2.04
    
    
    
    (1,108
    )
    
    
    2.36Outstanding
 end of year
    
    
    4,982
    
    
    
    2.44
    
    
    
    6,038
    
    
    
    2.15
    
    
    
    6,233
    
    
    
    2.15Exercisable at the end of the year
    
    
    4,970
    
    
    
    
    
    
    
    5,818
    
    
    
    
    
    
    
    5,099
 Exercise prices for options outstanding and the weighted average remaining
contractual life of those options at December 31, 2003 are as follows: Options Outstanding
    
    Options ExercisableWeighted AverageRange of
    
    Number
    
    Remaining
    
    Weighted Average
    
    
    
    
    
    Weighted AverageExercise Prices
    
    Outstanding
    
    Contractual Life
    
    Exercise Price
    
    Number Exercisable
    
    Exercise Price$0.33  $0.69
    
    
    575,000
    
    
    
    6.16
    
    
    $
    0.58
    
    
    
    562,915
    
    
    $
    0.580.81    1.69
    
    
    783,500
    
    
    
    5.52
    
    
    
    1.12
    
    
    
    783,500
    
    
    
    1.122.00    2.25
    
    
    695,750
    
    
    
    4.85
    
    
    
    2.14
    
    
    
    695,750
    
    
    
    2.142.38    2.63
    
    
    685,730
    
    
    
    2.98
    
    
    
    2.59
    
    
    
    685,730
    
    
    
    2.593.40    3.40
    
    
    2,200,000
    
    
    
    1.78
    
    
    
    3.40
    
    
    
    2,200,000
    
    
    
    3.404.38    4.94
    
    
    42,500
    
    
    
    3.53
    
    
    
    4.90
    
    
    
    42,500
    
    
    
    4.900.33    4.94
    
    
    4,982,480
    
    
    
    3.48
    
    
    
    2.44
    
    
    
    4,970,395
    
    
    
    2.44
 Prior to the formation of the company, certain of the companys
predecessor companies issued warrants to purchase 1,193 shares of the companys
common stock at $12.58 per share. Such warrants remain outstanding and have no
expiration date. Pursuant to the terms of the Equity Committees Plan, the abovementioned
stock options and warrants will be allowed equity interests if such plan of
reorganization is ultimately confirmed by the Bankruptcy Court. Under the
Trustees Plan, as modified, the companys stock options and warrants, as well
as the underlying common stock of such equity instruments, will not be allowed
equity interests if such plan of reorganization is ultimately confirmed by the
Bankruptcy Court. Management cannot predict the effect on the companys
outstanding stock options and warrants of another plan or plans of
reorganization, if any, put forth by an interested party. F-36




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 14. COMMITMENTS AND CONTINGENCIES The table below summarizes the companys operating lease, purchase and
other commitments for the years ending December 31 (in thousands): PurchaseOperating
    
    Commitments andYears Ending December 31,
    
    Leases
    
    Other Obligations
    
    Totals2004
    
    $
    9,565
    
    
    $
    46,655
    
    
    $
    56,2202005
    
    
    7,762
    
    
    
    41,713
    
    
    
    49,4752006
    
    
    5,340
    
    
    
    3,606
    
    
    
    8,9462007
    
    
    4,102
    
    
    
    3,682
    
    
    
    7,7842008
    
    
    3,001
    
    
    
    3,615
    
    
    
    6,616Thereafter
    
    
    1,918
    
    
    
    584
    
    
    
    2,502Totals
    
    $
    31,688
    
    
    $
    99,855
    
    
    $
    131,543
 The companys long-term debt and capital lease obligations are not
included in the above table but are discussed in Notes 8 and 9, respectively.
Additionally, excluded from the above table are open purchase orders in the
normal course of business. Leases.The company leases office and other real property and equipment
under various operating leases. Such operating leases provide for monthly
rental payments, including real estate taxes and other operating costs. Total
rental expense for the years ended December 31, 2003, 2002 and 2001 was
approximately $9.8 million, $9.8 million and $9.7 million, respectively,
exclusive of amounts charged to restructuring reserves. Operating lease
obligations in the above table include approximately $0.2 million accrued as
part of the restructuring costs under the Caremark Business Consolidation Plan
and the Coram Restructure Plan (see Note 5 for further details). Certain
operating leases of the company provide for standard escalations of lease
payments as the lessors maintenance costs and taxes increase. As a result of
the Bankruptcy Cases, certain lease agreements are subject to automatic stay
provisions, which preclude the parties to such agreements from taking remedial
action in response to any defaults. Moreover, no amounts are included in the
above table for lease rejections that have been approved by the Bankruptcy
Court. Purchase and Other Commitments.On April 29, 2003, the Bankruptcy Court
approved a motion that allowed the company to assume an agreement with B. Braun
Medical, Inc (B. Braun) to purchase drugs and supplies (the Supply
Agreement). The Supply Agreement expires in February 2005 and, pursuant to
its terms, the company is required to purchase at least 95% of its annual
volume requirements related to twelve product categories from B. Braun.
However, the company has the right to remove any product category from the
purview of the Supply Agreement if such product category is offered by another
vendor at pricing that is 10% lower, in the aggregate, for that entire product
category, provided that B. Braun waives its right to match such pricing. The
company also has the right to terminate the Supply Agreement after sixty days
written notice if B. Braun provides products or services of a quality or
technical level that fail to meet customary standards of the medical industry.
However, if the company terminates the Supply Agreement for any other reason,
it must reimburse B. Braun (i) certain incentives previously paid to the
company, which are calculated at $150,550 per unexpired quarter under the
Supply Agreement and (ii) the greater of $4.0 million or 50% of the companys
purchases for the twelve months immediately preceding the early termination
date. Additionally, if it is determined that the company does not satisfy the
95% purchasing requirement for any of the twelve product categories and such
failure is not related to a lack of product availability, then the company is
required to pay B. Braun an amount equal to 10% of the previous quarters purchases. Since
the inception of the Supply Agreement, no such quarterly shortfall has been in
evidence and, while no assurances can be given, management does not expect that
such circumstances will arise during the remaining term of the Supply
Agreement. Moreover, due to the companys business relationship with B. Braun
and the advantageous drug and supply pricing enjoyed by the company, management
currently has no intentions of terminating the Supply Agreement and,
accordingly, management believes it is unlikely that the early termination
penalties will be invoked. However, if an early contract termination did occur,
the penalties, which would have aggregated approximately $4.5 million at April
9, 2004, would have a material adverse effect on the companys financial
position, liquidity and results of operations. Effective September 24, 2003, the company entered into the Second
Amendment to Hemophilia Product Volume Commitment Agreement with Baxter
Healthcare Corporation (Baxter) wherein certain minimum blood product
purchase commitments have been established. In connection therewith, the
company is required to purchase blood products aggregating approximately $17.8
million and $20.7 million during the years ending December 31, 2004 and 2005,
respectively (collectively the Minimum Annual Blood F-37




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Products Commitment).
For the year ended December 31, 2003, the company did not meet certain
individual product components of its annual blood products commitment for such
measurement period; however, effective March 31, 2004, Baxter waived all
penalties and rights of action for the 2003 purchasing shortfall. Based upon
current forecasts, management does not anticipate that the company will attain
the Minimum Annual Blood Products Commitment for certain individual products
during the years ending December 31, 2004 and 2005. If such purchasing
shortfalls occur, Baxter will have the right to, among other things, assert
monetary damages for lost profits. Management is currently negotiating with
Baxter in an effort to restructure the agreement whereby future purchasing
commitments will be realigned. Although there can be no assurances of success
in these negotiations, management believes that the ultimate outcome thereof
and the corresponding realignment of the Minimum Annual Blood Products
Commitment will not have a materially adverse impact on the companys financial
position or liquidity. The Food and Drug Administration recently approved clinical use of
Aralast, which is a new drug used in the treatment of a rare genetic lung
disorder known as Alpha-1 Antitrypsyn Deficiency. Baxter, the exclusive Aralast
manufacturer, selected the company as one of only three initial national
distributors of such drug. As a result, Baxter and the company entered into a
purchase agreement (the Purchase Agreement) wherein Baxter agreed to sell
Aralast to the company on favorable terms and conditions and the company
committed to minimum purchases of approximately $2.6 million (the Minimum
Aralast Commitment) during the period June 2, 2003 through December 31, 2003.
The Purchase Agreement provided that, in the event that the company failed to
meet the Minimum Aralast Commitment for any reason, other than a force majeure
or Baxters termination of the Purchase Agreement without cause, Baxter would
invoice the company a percentage of the difference between actual purchases and
the Minimum Aralast Commitment. For the year ended December 31, 2003, the
company did not meet the Minimum Aralast Commitment; however, in February 2004,
Baxter and the company entered into a new purchase agreement (the New Aralast
Purchase Agreement) wherein each party waived all penalties and claims for
damages arising under the Purchase Agreement, including those related to the
2003 purchasing shortfall. Under the terms of the New Aralast Purchasing
Agreement, the company committed to minimum purchases of approximately $2.5
million and $2.6 million during the years ending December 31, 2004 and 2005,
respectively (the New Aralast Commitment). If the New Aralast Commitment is
not satisfied and Baxter seeks damages, it could result in a materially adverse
effect on the companys liquidity and results of operations. Management can
provide no assurances that Baxter will
grant any future purchasing shortfall waivers in the event that the
company does not meet the New Aralast Commitment. Effective March 23, 2004, Baxter and the company entered into an agreement
wherein certain minimum intravenous immunoglobulin (IVIG) product purchase
commitments have been established. In connection therewith, the company is
required to purchase certain IVIG products aggregating approximately $12.2
million and $12.8 million during the years ending December 31, 2004 and 2005,
respectively (collectively the Minimum IVIG Products Commitment). In the
event that the company fails to meet the Minimum IVIG Products Commitment for
any reason, other than a force majeure or Baxters termination of the agreement
without cause, Baxter will have the right to invoice the company a percentage
of the difference between actual purchases and the annual Minimum IVIG Products
Commitment. Management believes that the purchases required to meet the Minimum
IVIG Products Commitment will reasonably match the expected needs of the
companys patients. However, if a purchasing shortfall occurs, the companys
financial position, liquidity and results of operations could be adversely
affected. CHC entered into a six year agreement with Becton Dickinson and Company
(Becton Dickinson) for the purchase of medical supplies (the Becton
Dickinson Supply Agreement). Such agreement terminates on July 31, 2004 and
establishes minimum annual purchase commitments during the term of the
agreement (the Minimum Annual Supply Commitment(s)), which aggregate
approximately $19.5 million. In the event that the company does not meet the
Minimum Annual Supply Commitments for any reason, other than a force majeure,
Becton Dickinson may assess penalties in an amount equal to 20% of the
difference between the Minimum Annual Supply Commitment and actual purchases.
Additionally, upon early termination of the Becton Dickinson Supply Agreement,
Becton Dickinson is entitled to a pro rata termination penalty based on the
unexpired term of the agreement. At December 31, 2003 and April 9, 2004, the
companys aggregate remaining purchase commitments under the Becton Dickinson
Supply Agreement were approximately $3.6 million and $2.4 million,
respectively. Based on purchases through April 9, 2004 and expected product
demand, management anticipates an aggregate $1.2 million Minimum Annual Supply
Commitment shortfall at the termination of the Becton Dickinson Supply
Agreement. Historically, when the company did not meet a Minimum Annual Supply
Commitment in a given year, Becton Dickinson did not impose penalties; however,
there are no assurances that this practice will continue or that Becton
Dickinson will not retrospectively review the companys financial performance
under the contract. Currently, management is working with Becton Dickinson to
remedy the historical and projected Minimum Annual Supply Commitment
shortfalls. If Becton Dickinson successfully asserts penalties, the companys
financial position, liquidity and results of operations could be materially
adversely affected. F-38




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Effective December 3, 2002, the Chapter 11 trustee and the company entered
into a three year telecommunication services agreement with AT&T Corporation
(AT&T) (the Master Agreement) whereby the company will receive advantageous
pricing and other favorable terms. Under the terms of the Master Agreement,
the company committed to minimum annual telecommunication service purchases of
approximately $2.2 million (the Minimum Annual AT&T Commitment) commencing on
the effective date of the Master Agreement. In the event that the company
fails to meet the Minimum Annual AT&T Commitment, AT&T will invoice the company
for the difference between the Minimum Annual AT&T Commitment and the actual
services purchased during such measurement period. Under certain
circumstances, AT&T, at its sole discretion, may reduce the Minimum Annual AT&T
Commitment amount during any given period. Moreover, if certain material
conditions are satisfied, in the third year of the agreement, the company may
unilaterally terminate the contract without penalty. In the event that the
Master Agreement is terminated by the company without cause or by AT&T for
cause, the company will be required to pay an amount equal to 35% of the
remaining Minimum Annual AT&T Commitment for the period in which the
termination occurs and for all unexpired periods under the term of the Master
Agreement. The company satisfied its purchase obligation for the first annual
measurement period. Although no assurances can be given, management believes
that the companys telecommunication service requirements will be sufficient to
meet the Minimum Annual AT&T Commitment amounts through the remaining term of
the Master Agreement. In the event that the Master Agreement is terminated and
the 35% surcharge is invoked or the Minimum Annual AT&T Commitment is not met
in a given period, the aforementioned AT&T supplemental charges could have a
material adverse effect on the companys liquidity and results of operations. As discussed in Note 9, in December 2003 the company entered into the
first five year agreement in a series of Baxter lease agreements to lease a
minimum of 5,200 6060 Multi-Therapy Ambulatory Infusion Pumps. In February
2004, the company received 900 pumps and, contingent upon availability,
management anticipates receiving the remaining pumps on or before September 30,
2004 for an aggregate capital lease commitment of approximately $7.0 million.
Pursuant to the terms of the Baxter lease agreements, the company is required
to pay (i) 50% of the cost upon delivery of the pumps and (ii) the balance,
plus financing costs, in monthly installments over the five year term of the
agreement. As discussed in Note 8, in December 2003 CI entered into the License and
Support Agreement with SCS to acquire the SCS Software. Under the terms of such
agreement, the company is also obligated for approximately $0.3 million in
software maintenance support fees, payable in 24 equal monthly installments
commencing on September 19, 2004. The Bankruptcy Court order allowing CI to
enter into the License and Support Agreement also authorized CI to enter into
the Software Development Agreement with SCS wherein SCS and the company will
jointly develop enhancements to the SCS Software to accommodate the companys
current and future requirements. Due to the preliminary stages of the project,
the aggregate costs of any future developmental enhancements, if any, are
currently unknown. Letters of Credit.In February 2001, pursuant to an order of the
Bankruptcy Court, the company established irrevocable letters of credit through
Wells Fargo Bank Minnesota, NA (Wells Fargo), an affiliate of Foothill
Capital Corporation (a party to the former Senior Credit Facility, the
Securities Exchange Agreement and a holder of both the CI Series A Preferred
Stock and the CI Series B Preferred Stock). At December 31, 2003, the company
had one letter of credit for approximately $0.3 million that matures in
December 2004 and is fully secured by interest-bearing cash deposits held by
Wells Fargo. Guarantees and Indemnifications.In May 2003, one of the companys
unconsolidated joint ventures and a related affiliate (collectively the Joint
Venture) entered into a five year real property lease in connection with the
consolidation of two existing Joint Venture locations into one new facility. CI
and its Joint Venture partner have jointly and severally guaranteed the Joint
Ventures financial performance under such real property lease. As of April 9,
2004, the maximum amount of future payments CI could be required to make
through the termination of the real property lease (exclusive of any amounts
potentially recoverable from CIs Joint Venture partner) was (i) approximately
$0.2 million for recurring monthly lease payments and (ii) certain other
presently undeterminable contingent amounts such as utility costs, common area
maintenance charges and landlord legal fees necessary to assert his rights;
however, management estimates such miscellaneous contingent amounts to be
nominal. The fair value of CIs guarantee has been estimated by management to
be less than $0.1 million and has been accrued as a long-term liability in the
companys consolidated financial statements in accordance with the provisions
of FASB Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others.In subsequent periods, management will evaluate and adjust the
aforementioned liability in relation to the changes in the estimated fair value
of the guarantee at such future date. In connection with divestitures of certain operating assets and businesses
in prior years, two separate CI subsidiaries provided the acquirers of such
operating assets and businesses with indemnifications for certain contingent
regulatory liabilities that might arise in connection with the pre-divestiture
activities. As of April 9, 2004, the maximum amount of potential future
payments the CI F-39




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) subsidiaries could be required to make under these
indemnification agreements aggregated approximately $0.2 million, which would
be partially offset by a nominal amount of escrowed funds. No amounts have been
accrued in the companys consolidated financial statements in connection with
such indemnification agreements because management considers the probability of
payment to be remote and, accordingly, the fair value of the indemnifications
are nominal. The primary obligor of the Series B Notes is CI; however, such liabilities
are guaranteed by CHC and substantially all of its subsidiaries (see Note 8 for
further details of the Series B Notes). The B. Braun and Baxter capital lease
agreements discussed in Note 9 were executed by a non-debtor subsidiary but the
obligations are guaranteed by the Debtors and CI, respectively. Additionally,
CHC, CI and certain of their subsidiaries are parties to various real property
and personal property operating lease agreements. In certain circumstances,
individual members of the Coram consolidated group have provided guarantees to
third party lessors on behalf of, or for the benefit of, the primary Coram
obligor. Employee Benefit Plans.Upon the companys formation, certain predecessor
company employee benefit plans were merged into one defined contribution
benefit plan sponsored by the company. Under the provisions of the companys
plan, eligible employees include individuals over the age of 21 who have
completed six months of benefit-eligible service with the company. Effective
October 1, 1999, the defined contribution benefit plan was amended to make the
employer match discretionary and, in connection therewith, no matching
contributions have been made since the plan amendment date. Employee
contributions vest immediately and the companys matching contributions vest
over a five year period. All matching contributions prior to October 1, 1999
were in the form of CHC common stock. Litigation Bankruptcy Cases.On August 8, 2000, the Debtors commenced the Bankruptcy
Cases. None of the companys other subsidiaries is a debtor in the Bankruptcy
Cases and, other than the Resource Network Subsidiaries, none of the companys
other subsidiaries is a debtor in any bankruptcy case. See Notes 3 and 4 for
further details. Except as may otherwise be determined by the Bankruptcy Court, the
protection afforded by Chapter 11 of the Bankruptcy Code generally provides for
an automatic stay relative to any litigation proceedings pending against either
or both of the Debtors. All such claims will be addressed by the Bankruptcy
Court in the Bankruptcy Cases. The automatic stay would not, however, apply to
actions brought against the companys non-debtor subsidiaries. The Official Committee of the Equity Security Holders of Coram Healthcare
Corporation.In February 2001, the Official Committee of the Equity Security
Holders of Coram Healthcare Corporation (the Equity Committee) filed a motion
with the Bankruptcy Court seeking permission to bring a derivative lawsuit
directly against the companys former Chief Executive Officer, a former member
of the CHC Board of Directors, Cerberus Partners, L.P., Cerberus Capital
Management, L.P., Cerberus Associates, L.L.C. and Craig Court, Inc. (all the
aforementioned corporate entities being parties to certain of the companys
debt agreements or affiliates of such entities). The Equity Committees
proposed lawsuit alleged a collusive plan whereby the named parties conspired
to devalue the company for the benefit of the companys creditors under the
Securities Exchange Agreement. On February 26, 2001, the Bankruptcy Court
denied the Equity Committees motion without prejudice. In January 2002, the
Equity Committee filed a substantially similar motion with the Bankruptcy
Court, which additionally named certain current CHC directors, the companys
other noteholders and Harrison J. Goldin Associates, L.L.C. (sic)as possible
defendants. On February 12, 2002, the Bankruptcy Court again denied the renewed
motion without prejudice. After the Debtors exclusivity period to file their own plan or plans of
reorganization terminated, on December 19, 2002 the Equity Committee filed with
the Bankruptcy Court a proposed plan of reorganization with respect to the
Debtors, which was subsequently amended. The Equity Committees Plan
incorporates a variation of the aforementioned proposed derivative lawsuit.
Additionally, on May 2, 2003 the Chapter 11 trustee filed with the Bankruptcy
Court a proposed plan of reorganization with respect to the Debtors, which was
subsequently amended and modified. The Trustees Plan, as modified, includes,
among other things, the settlement of certain claims against the companys
noteholders. Each of the Trustees Plan, as modified, and the Equity
Committees Plan is subject to, and contingent upon, confirmation by the
Bankruptcy Court. Management cannot predict whether or not the Trustees Plan,
as modified, or the Equity Committees Plan will be confirmed, the ultimate
outcome of each proposed plan of reorganization or the resolution of certain
filed objections to each of the proposed plans of reorganization. See Note 3
for further discussion of the proposed plans of reorganization. F-40




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Resource Network Subsidiaries Bankruptcy.On August 19, 1999, a small
group of parties with claims against the Resource Network Subsidiaries filed an
involuntary petition pursuant to Section 303 of Chapter 11 of the Bankruptcy
Code against Coram Resource Network, Inc. in the Bankruptcy Court. On November
12, 1999, the Resource Network Subsidiaries filed voluntary petitions under
Chapter 11 of the Bankruptcy Code, Case No. 99-2888 (MFW) and Case No. 99-2889
(MFW). The two cases were consolidated for administrative purposes and are now
pending under the docket of In re Coram Resource Network, Inc. and Coram
Independent Practice Association, Inc.,Case No. 99-2889 (MFW). On October 21,
2002, the Official Committee of Unsecured Creditors of Coram Resource Network,
Inc. and Coram Independent Practice Association, Inc. (the R-Net Creditors
Committee) filed a proposed Liquidating Chapter 11 Plan. On August 28, 2003,
the R-Net Creditors Committee filed with the Bankruptcy Court its Disclosure
Statement With Second Modifications, including, as an attachment, the
Liquidating Chapter 11 Plan With Second Modifications (collectively the Second
Modified R-Net Plan). The Second Modified R-Net Plan, which was confirmed by
the Bankruptcy Court on December 23, 2003, is available in the Resource Network
Subsidiaries bankruptcy cases at docket number 1151. The Resource Network Subsidiaries maintain claims against each of the
Debtors estates and the company maintains claims against the Resource Network
Subsidiaries estate. Additionally, the R-Net Creditors Committee filed a
motion to lift the automatic stay in the Debtors bankruptcy proceedings. On
June 6, 2002, the Bankruptcy Court granted such motion, thereby allowing the
R-Net Creditors Committee to pursue its claims against the Debtors. In November 2001, the R-Net Creditors Committee filed a complaint in the
Bankruptcy Court, subsequently amended twice, both on its own behalf and as
assignee for causes of action that may belong to the Resource Network
Subsidiaries, which named as defendants the Debtors, several non-debtor
subsidiaries, several current and former directors, current executive officers
of CHC and several other current and former employees of the company. This
complaint, as amended, also named as defendants Cerberus Partners, L.P.,
Goldman Sachs Credit Partners L.P., Foothill Capital Corporation and Foothill
Income Trust, L.P. (parties to certain of the companys debt agreements or
affiliates of such entities). The complaint alleges that the defendants
violated various state and federal laws in connection with alleged wrongdoings
related to the operation and corporate structure of the Resource Network
Subsidiaries, including, among other allegations, breach of fiduciary duty,
conversion of assets and preferential payments to the detriment of the Resource
Network Subsidiaries estates, misrepresentation and fraud, conspiracy,
fraudulent concealment and a pattern of racketeering activity. The complaint
seeks damages in the amount of approximately $56 million and additional
monetary and non-monetary damages, including disallowance of the Debtors
claims against the Resource Network Subsidiaries, punitive damages and
attorneys fees. The Debtors initially objected to the complaint in the
Bankruptcy Court because management believed that the complaint constituted an
attempt to circumvent the automatic stay protecting the Debtors estates;
however, the Debtors non-debtor subsidiaries have no such protection. On June 17, 2002, the Chapter 11 trustee agreed to withdraw the Debtors
objections to the motion of the R-Net Creditors Committee for leave of court
to file their second amended complaint. On July 25, 2002, by stipulation
between the Chapter 11 trustee and the R-Net Creditors Committee, the
Bankruptcy Court authorized the R-Net Creditors Committee to file its second
amended complaint. On January 10, 2003, the United States District Court for
the District of Delaware (the District Court) granted motions by some, but
not all, of the defendants for that court to withdraw the adversary proceedings
from the jurisdiction of the Bankruptcy Court. On May 21, 2003, the District
Court entered an order staying the aforementioned
proceedings, pending approval by the Bankruptcy Court in the Bankruptcy
Cases of a certain proposed settlement agreement that is discussed in further
detail below. Moreover, on September 26, 2003, the District Court dismissed
without prejudice to renew (subject to the successful resolution of the
proposed settlement agreement) certain motions filed by various defendants to
dismiss some or all counts of the complaint. The company notified its insurance
carrier of the second amended complaint and intends to avail itself of any
insurance coverage for its directors and officers. The Trustees Plan, as modified, proposes resolution of substantially all
of the aforementioned Resource Network Subsidiaries matters through the
Settlement Agreement and Mutual Release arrangement (the R-Net Settlement
Agreement), which was executed by the Chapter 11 trustee, the Debtors, the
R-Net Creditors Committee, the Resource Network Subsidiaries and the Resource
Network Subsidiaries Chief Restructuring Officer (the R-Net Restructuring
Officer). Among other things, the R-Net Settlement Agreement provides for (i)
the fixing and allowance of a Resource Network Subsidiaries general unsecured
claim against the Debtors for $7.95 million, plus interest, under certain
circumstances, at the applicable federal judgment rate, (ii) the fixing and
allowance of the Debtors general unsecured claim against the Resource Network
Subsidiaries for $1,000 per proof of claim filed, (iii) dismissal of the
aforementioned adversary proceeding with prejudice and (iv) mutual releases
from the parties to the R-Net Settlement Agreement. The R-Net Settlement
Agreement is subject to, and contingent upon, (i) Bankruptcy Court approval in
the Bankruptcy Cases through confirmation of the Trustees Plan, as modified,
(ii) Bankruptcy Court approval in the Resource Network Subsidiaries bankruptcy
proceedings and (iii) withdrawal, expungement or resolution of a certain
Internal Revenue Service proof of claim filed in the Resource Network
Subsidiaries bankruptcy proceedings without any payments being required by the
Resource Network Subsidiaries or the R- F-41




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Net Restructuring Officer. In connection
with such conditions precedent, (i) on August 29, 2003 the Bankruptcy Court
approved a motion filed jointly by the R-Net Restructuring Officer and the
R-Net Creditors Committee in the Resource Network Subsidiaries bankruptcy
proceedings requesting approval of the R-Net Settlement Agreement, (ii) on
December 23, 2003 the Bankruptcy Court confirmed R-Nets plan of liquidation
and (iii) on September 10, 2003 the Internal Revenue Service withdrew its proof
of claim from the Resource Network Subsidiaries bankruptcy proceedings.
However, management cannot predict the outcome of the confirmation hearings on
the Trustees Plan, as modified, nor can management readily determine the
amount of recoveries, if any, that the company may ultimately receive from its
insurance carrier. The Equity Committees Plan provides that the Resource Network
Subsidiaries will receive a cash distribution on the effective date of the
Equity Committees Plan of $7.95 million, plus a distribution of 2% of the net
recovery from certain litigation claims to be prosecuted, if any, but not
exceeding $6 million. The Chapter 11 trustee and other parties-in-interest have
objected to the Equity Committees Plan because, among other things, they
believe such plan improperly classifies the Resource Network Subsidiaries
claim and the contemplated distribution to the Resource Network Subsidiaries is
not fair and equitable. TBOB Enterprises, Inc.On July 17, 2000, TBOB Enterprises, Inc. (TBOB)
filed an arbitration demand against CHC (TBOB Enterprises, Inc. f/k/a Medical
Management Services of Omaha, Inc. against Coram Healthcare Corporation,in the
American Arbitration Association office in Dallas, Texas); however, on July 5,
2001, the company received a letter from TBOBs legal counsel requesting that
the arbitration remain in abeyance pending resolution of the Bankruptcy Cases.
In its demand, TBOB claims that the company breached its obligations under an
agreement entered into by the parties in 1996 relating to an earn-out
obligation of the company that originated from the acquisition of the
claimants prescription services business in 1993 by a wholly-owned subsidiary
of the company. The company operated the business under the name Coram
Prescription Services (CPS) and the assets of the CPS business were sold
on July 31, 2000. TBOB alleges, among other things, that the company impaired
the earn-out payments due TBOB by improperly charging certain expenses to the
CPS business and failing to fulfill the companys commitments to enhance the
value of CPS by marketing its services. The TBOB demand alleges damages of more
than $0.9 million, in addition to the final scheduled earn-out payment of
approximately $1.3 million that was due in March 2001. TBOB reiterated its
monetary demand through a proof of claim filed against CHCs estate for the
aggregate amount of approximately $2.2 million (i.e., the scheduled earn-out
payment plus the alleged damages). On August 25, 2003, the Chapter 11 trustee and TBOB entered into the
Settlement Agreement and Mutual Release (the TBOB Settlement Agreement). The
TBOB Settlement Agreement proposes resolution of the aforementioned matters by
fixing and allowing TBOBs claim against CHC at $1.5 million, plus interest,
under certain circumstances, at the applicable federal judgment rate. In
connection therewith, during the year ended December 31, 2003 the company
increased its liabilities subject to compromise by approximately $0.2 million
to reflect the full TBOB Settlement Agreement amount. The TBOB Settlement
Agreement is subject to, and contingent upon, (i) Bankruptcy Court approval and
(ii) confirmation of either the Trustees Plan, as modified, or the Equity
Committees Plan on or before December 31, 2003. As no plan of reorganization
was confirmed before the prescribed date, TBOB may, at its sole discretion, (i)
elect to extend the deadline for a period up to and including December 31, 2004
or (ii) seek allowance of its original claim amount against CHC; however, if
TBOB does seek allowance of its original claim amount, the Chapter 11 trustee
is permitted to seek a reduction of such claim to an amount lower than the $1.5
million settlement amount included in the TBOB Settlement Agreement. On October
22, 2003, the Bankruptcy Court granted a motion submitted by the Chapter 11
trustee wherein, solely for voting on the plans of reorganization, TBOB will be
considered to hold an allowed general unsecured claim in the amount of $1.5
million. In the event that the TBOB Settlement Agreement is not consummated,
additional liabilities may result from post-petition interest on the final
scheduled earn-out payment and/or the aforementioned TBOB allegations. In
accordance with SOP 90-7, such interest, estimated to aggregate approximately
$0.6 million and $0.7 million at December 31, 2003 and April 9, 2004,
respectively, using the contractual interest rate of 18%, has not been recorded
in the companys consolidated financial statements because TBOBs original
claim for interest may ultimately not be sustainable (moreover, both the
Trustees Plan, as modified, and the Equity Committees Plan propose to pay no
more than the federal judgment interest rate, if certain conditions are
satisfied). Management does not believe that final resolution of this matter
will have a material adverse impact on the companys financial position or
results of operations. General.Management intends to vigorously defend the company and its
subsidiaries in the matters described above. Nevertheless, due to the
uncertainties inherent in litigation, including possible indemnification of
other parties, the ultimate disposition of such matters cannot be presently
determined. Adverse outcomes in some or all of the proceedings could have a
material adverse effect on the companys financial position, results of
operations and liquidity. F-42




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The company and its subsidiaries are also parties to various other actions
arising out of the normal course of their businesses, including, among other
things, employee claims, employee incentive compensation disputes and reviews
of cost reports and billings submitted to Medicare. Management believes that
the ultimate resolution of such matters will not have a material adverse effect
on the companys financial position, results of operations or liquidity. Regulatory Audits and Reviews.Management acknowledges and is complying
with certain ongoing audits and reviews with respect to prior reimbursements
from Medicare and Medicaid. Specifically, the Centers for Medicare & Medicaid
Services (CMS), Medicare and state Medicaid agencies, as well as their fiscal
intermediaries, periodically conduct payment reviews or audits of claims for
services provided to their beneficiaries. In connection therewith, one such
audit by Kansas Medicaid identified that certain of the companys claims were
subject to recoupment; however, as part of the resolution of this matter,
Kansas Medicaid permitted the company to correct and resubmit some of the claims identified
during the audit. As a result of the Kansas Medicaid audit findings, other
state Medicaid audits and related matters, in 2003 and 2004 management
conducted an internal review of the companys Medicaid
billing and reimbursement practices. Such internal review yielded
additional errors. Accordingly, during the year ended
December 31, 2003 the company recognized estimated net
unfavorable revenue adjustments of approximately $3.2
million that related to periods prior to 2003. Included in other current and
accrued liabilities in the companys consolidated balance sheets at December
31, 2003 and 2002 were approximately $7.7 million and $3.4 million,
respectively, of reserves for regulatory matters. Such estimates will be
reviewed and may be revised in subsequent periods as more information becomes
available to management. To the extent that specific Medicaid refund and rebilling
opportunities have been identified, the company has expeditiously processed
such transactions. Moreover, management is taking corrective actions to remedy
certain internal control deficiencies identified as part of its review of the
companys Medicaid billing and reimbursement practices. In April 2003, the company was served with a subpoena from a Statewide
Grand Jury pertaining to claims paid to the company for two Rhode Island
Medicaid beneficiaries. After reviewing the underlying circumstances, the
company and the State of Rhode Island have agreed in principle to a settlement
arrangement in order to resolve all outstanding matters related thereto.
Management does not believe that such pending settlement arrangement will
include the imposition of sanctions or other regulatory compliance
requirements. The monetary amount resulting from the pending settlement
arrangement has been recognized in the companys consolidated financial
statements for the year ended December 31, 2003. The financial impact of regulatory matters beyond what has already been
recognized by the company, if any, is currently unknown. In the event that
Medicare and Medicaid investigative matters or similar reviews/audits by other
agencies result in adverse findings, the company could face civil, criminal
and/or regulatory actions, sanctions and/or penalties that, in the aggregate,
could be material to its business, financial position, results of operations
and liquidity. PricewaterhouseCoopers LLP.On July 7, 1997, the company filed a lawsuit
against Price Waterhouse LLP (now known as PricewaterhouseCoopers LLP) in the
Superior Court of San Francisco, California seeking damages in excess of $165.0
million. As part of the settlement that resolved a case filed by the company
against Caremark International, Inc. and Caremark, Inc. (collectively
Caremark), Caremark assigned and transferred to the company all of Caremarks
claims and causes of action against Caremarks independent auditors,
PricewaterhouseCoopers LLP, related to the lawsuit filed by the company against
Caremark. This assignment of claims includes claims for damages sustained by
Caremark in defending and settling its lawsuit with the company. The case was
dismissed from the California court because of inconvenience to witnesses with
a right to re-file in Illinois. The company re-filed the lawsuit in state court
in Illinois; however, the case is still in the discovery stage and no trial
date has been scheduled. Management cannot predict the outcome of this
litigation or whether there will be any recovery from PricewaterhouseCoopers
LLP or its insurance carriers. The Trustees Plan, as modified, provides that
any net recovery in this matter, as defined in such plan of
reorganization, will be distributed (i) to the holders of allowed general
unsecured claims on a pro rata basis in an amount equal to interest accrued at
the federal judgment interest rate and (ii) then to certain holders of CHC
equity interests on a pro rata basis. The Equity Committees Plan retains any
net recovery from this matter in the reorganized company. Insurance.The services performed and products sold by the company involve
an inherent risk of professional and product liability. While the company
maintains insurance coverage consistent with industry practices and at amounts
deemed appropriate by management, there can be no assurances that the amount of
such insurance will satisfy claims made against Coram or that the company will
be able to obtain insurance in the future in amounts adequate to meet its
needs. Claims in excess of the companys insurance coverage or the inability to
obtain/maintain adequate levels of insurance coverage could have a materially
adverse effect on the companys business, results of operations and liquidity. F-43




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Government Regulation.Under the physician ownership and referral
provisions of the Omnibus Budget Reconciliation Act of 1993 (commonly referred
to as Stark II), it is unlawful for a physician to refer patients for certain
designated health services reimbursable under the Medicare or Medicaid programs
to an entity with which the physician and/or the physicians family, as defined
under Stark II, has a financial relationship, unless the financial relationship
fits within an exception enumerated in Stark II or regulations promulgated
thereunder. A financial relationship under Stark II is broadly defined as an
ownership or investment interest in, or any type of compensation arrangement in
which remuneration flows between the physician and the provider. The company
has financial relationships with physicians and physician owned entities in the
form of medical director agreements. In each case, the relationship has been
structured, based upon advice of legal counsel, using an arrangement management
believes to be consistent with the applicable exceptions set forth in Stark II.
In addition, the company is aware of certain referring physicians (or their
immediate family members) that have had financial interests in the company
through ownership of shares of CHCs common stock. Stark II includes an
exception for the ownership of publicly traded stock in companies with equity
above certain levels. This Stark II exception requires the issuing company to
have stockholders equity of at least $75 million either as of the end of its
most recent fiscal year or on average over the last three fiscal years. Due
principally to the extraordinary gains on troubled debt restructurings (see
Note 8 for further details), at December 31, 2003 the companys stockholders
equity was above the required level. As a result, the company is compliant with
the Stark II public company exemption through the year ending December 31,
2004. Management has been advised by legal counsel that a company whose stock is
publicly traded has, as a practical matter, no reliable way to implement and
maintain an effective compliance plan for addressing the requirements of Stark
II other than complying with the public company exception. Accordingly, if
CHCs common stock remains publicly traded and its stockholders equity falls
below the required levels, the company would be forced to cease accepting
referrals of patients covered by the Medicare and Medicaid programs or run a
significant risk of Stark II noncompliance. Because approximately 24% of the
companys consolidated net revenue for each of the years ended December 31,
2003, 2002 and 2001 relates to patients with such government-sponsored benefit
programs, discontinuing the acceptance of such patients would have a material
adverse effect on the companys financial condition, results of operations and
cash flows. Additionally, ceasing to accept such patients could have a
materially adverse effect on the companys business reputation in the
marketplace as it may cause the company to be a less attractive provider to
which a physician could refer his or her patients. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS Primarily due to their short-term nature and, in some circumstances,
variable interest rates, the companys financial instruments (excluding
long-term debt and liabilities subject to compromise) are reflected in the
consolidated financial statements at amounts approximating their fair value. The companys ability to borrow is limited; however, as discussed in Note
8, during the year ended December 31, 2003 the company purchased the SCS
Software and financed the acquisition with a two year non-interest bearing note
(the SCS Note). Management believes that, at December 31, 2003, the SCS Note
carrying value of approximately $1.2 million approximates its fair value. The
fair value estimate was determined by applying a range of discount rates to the
future scheduled minimum payments. At December 31, 2003 and 2002, the companys liabilities subject to
compromise had carrying values of approximately $16.8 million and $15.6
million, respectively. The ultimate amount and the settlement terms for such
liabilities will be subject to a plan or plans of reorganization and review by
the Chapter 11 trustee and the Bankruptcy Court. Therefore, it is not possible
to fully or completely estimate their fair value due to the Bankruptcy Cases
and the uncertainty surrounding the ultimate amount and settlement terms for
such liabilities. See Note 3 for further details. F-44




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 16. QUARTERLY RESULTS (in thousands, except per share data) (unaudited) Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    QuarterYear ended December 31, 2003Net revenue
    
    $
    119,737
    
    
    $
    123,318
    
    
    $
    120,345
    
    
    $
    113,096Gross profit
    
    $
    32,216
    
    
    $
    37,005
    
    
    $
    35,857
    
    
    $
    27,062Income (loss) from continuing operations
    
    $
    (3,390
    )
    
    $
    2,166
    
    
    $
    4,406
    
    
    $
    (1,422
    )Income (loss) from disposal of discontinued operations
    
    
    13
    
    
    
    (2
    )
    
    
    (2
    )
    
    
    (97
    )Net income (loss)
    
    $
    (3,377
    )
    
    $
    2,164
    
    
    $
    4,404
    
    
    $
    (1,519
    )Income (Loss) Per Common Share:Basic and Diluted (1):Income (loss) from continuing operations
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    (0.03
    )Loss from disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    0.09
    
    
    $
    (0.03
    )
 Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    QuarterYear ended December 31, 2002Net revenue
    
    $
    115,135
    
    
    $
    107,922
    
    
    $
    108,431
    
    
    $
    101,982Gross profit
    
    $
    34,975
    
    
    $
    30,173
    
    
    $
    31,303
    
    
    $
    27,681Income (loss) from continuing operations before extraordinary gain on troubled
debt restructuring and the cumulative effect of a change in accounting principle
    
    $
    (47,542
    )
    
    $
    2,490
    
    
    $
    5,189
    
    
    $
    1,450Loss from disposal of discontinued operations
    
    
    (155
    )
    
    
    (530
    )
    
    
    
    
    
    
    Extraordinary gain on troubled debt restructuring
    
    
    123,517
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,902
    )Net income (loss)
    
    $
    75,820
    
    
    $
    1,960
    
    
    $
    5,189
    
    
    $
    (70,452
    )Income (Loss) Per Common Share:Basic and Diluted (1):Income (loss) from continuing operations before extraordinary gain on troubled
debt restructuring and the cumulative effect of a change in accounting principle
    
    $
    (0.96
    )
    
    $
    0.05
    
    
    $
    0.10
    
    
    $
    0.03Loss from disposal of discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    Extraordinary gain on troubled debt restructuring
    
    
    2.49
    
    
    
    
    
    
    
    
    
    
    
    Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.45
    )Net income (loss)
    
    $
    1.53
    
    
    $
    0.04
    
    
    $
    0.10
    
    
    $
    (1.42
    )
 Fourth
    
    Third
    
    Second
    
    FirstQuarter
    
    Quarter
    
    Quarter
    
    QuarterYear ended December 31, 2001Net revenue
    
    $
    106,183
    
    
    $
    93,762
    
    
    $
    98,938
    
    
    $
    94,746Gross profit
    
    $
    34,217
    
    
    $
    25,111
    
    
    $
    29,778
    
    
    $
    25,248Loss from continuing operations before extraordinary gain on troubled
debt restructuring
    
    $
    (7,777
    )
    
    $
    (7,110
    )
    
    $
    (1,139
    )
    
    $
    (3,215
    )Loss from disposal of discontinued operations
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    Extraordinary gain on troubled debt restructuring
    
    
    20,706
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    12,679
    
    
    $
    (7,110
    )
    
    $
    (1,139
    )
    
    $
    (3,215
    )Income (Loss) Per Common Share:Basic and Diluted (1):Loss from continuing operations
    
    $
    (0.17
    )
    
    $
    (0.14
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )Loss from disposal of discontinued operations
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    Extraordinary gain on troubled debt restructuring
    
    
    0.42
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    0.24
    
    
    $
    (0.14
    )
    
    $
    (0.02
    )
    
    $
    (0.06
    )
  (1)
    
    For each of the periods presented in the above table, the incremental
common stock equivalents utilized to calculate diluted income (loss) per
common share were nominal or the effect of utilizing common stock
equivalents was anti-dilutive. Accordingly, basic and diluted income
(loss) per common share were the same for each of the periods presented. In the fourth quarter of 2003, Coram recognized incremental bad debt
expense of approximately $3.5 million (principally specific reserves related to
certain payers and an overall deterioration in accounts receivable and Days
Sales Outstanding (DSO)), a net unfavorable Medicaid
program revenue adjustment of approximately $4.7 million related to
periods prior to October 1, 2003 (see Note 14 for further details) F-45




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) and approximately $0.7 million of favorable miscellaneous and sundry net revenue
adjustments. The two latter items had no corresponding cost of goods sold
effect. In the fourth quarter of 2002, Coram recognized an impairment of goodwill
and other long-lived assets of approximately $51.8 million, expense of $3.0
million related to management incentive compensation, approximately $0.9
million of miscellaneous and sundry unfavorable net revenue adjustments with no
corresponding cost of goods sold effect, expense of approximately $0.3 million
related to a temporary change in the companys policy regarding earned vacation
and sick time and an extraordinary gain on troubled debt restructuring of
approximately $123.5 million. See Notes 7 and 8 for further details. In the fourth quarter of 2001, Coram recognized an impairment of goodwill
and other long-lived assets of approximately $3.3 million, incremental bad debt
expense of approximately $5.6 million (principally specific reserves related to
certain payers and an overall deterioration in cash collections and DSO),
expense of approximately $0.7 million related to a temporary change in the
companys policy regarding the carryover of earned vacation and sick time and
an extraordinary gain on troubled debt restructuring of approximately $20.7
million. See Notes 7 and 8 for further details. F-46




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 17. DEBTOR/NON-DEBTOR FINANCIAL STATEMENTS The following Condensed Consolidating Balance Sheets as of December 31,
2003 and 2002 and the related Condensed Consolidating Statements of Income and
Cash Flows for the years ended December 31, 2003, 2002 and 2001 are presented
in accordance with SOP 90-7. Certain amounts in the Condensed Consolidating
Balance Sheet as of December 31, 2002 and the Condensed Statements of Cash
Flows for the years ended December 31, 2002 and 2001 have been reclassified to
conform to the 2003 presentation. Condensed Consolidating Balance Sheet
As of December 31, 2003
(in thousands) Debtors
    
    Non-Debtors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    37,183
    
    
    $
    1,266
    
    
    $
    
    
    
    $
    38,449Cash limited as to use
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    84Accounts receivable, net
    
    
    
    
    
    
    107,620
    
    
    
    
    
    
    
    107,620Inventories
    
    
    
    
    
    
    12,715
    
    
    
    
    
    
    
    12,715Deferred income taxes, net
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    110Other current assets
    
    
    4,725
    
    
    
    1,106
    
    
    
    
    
    
    
    5,831Total current assets
    
    
    41,908
    
    
    
    122,901
    
    
    
    
    
    
    
    164,809Property and equipment, net
    
    
    3,435
    
    
    
    9,762
    
    
    
    
    
    
    
    13,197Deferred income taxes, net
    
    
    
    
    
    
    463
    
    
    
    
    
    
    
    463Intangible assets, net
    
    
    85
    
    
    
    4,675
    
    
    
    
    
    
    
    4,760Goodwill
    
    
    
    
    
    
    57,186
    
    
    
    
    
    
    
    57,186Investments in and advances to wholly-owned subsidiaries, net
    
    
    114,068
    
    
    
    
    
    
    
    (114,068
    )
    
    
    Other assets
    
    
    3,315
    
    
    
    2,113
    
    
    
    
    
    
    
    5,428Total assets
    
    $
    162,811
    
    
    $
    197,100
    
    
    $
    (114,068
    )
    
    $
    245,843LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities not subject to compromise:Accounts payable
    
    $
    12,572
    
    
    $
    16,599
    
    
    $
    
    
    
    $
    29,171Accrued compensation and related liabilities
    
    
    19,610
    
    
    
    4,113
    
    
    
    
    
    
    
    23,723Current maturities of long-term debt
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    660Current portion of capital lease obligations
    
    
    
    
    
    
    1,052
    
    
    
    
    
    
    
    1,052Current portion of income tax settlement
    
    
    
    
    
    
    4,355
    
    
    
    
    
    
    
    4,355Income taxes payable
    
    
    2
    
    
    
    162
    
    
    
    
    
    
    
    164Deferred income taxes
    
    
    
    
    
    
    573
    
    
    
    
    
    
    
    573Accrued merger and restructuring costs
    
    
    55
    
    
    
    
    
    
    
    
    
    
    
    55Accrued reorganization costs
    
    
    8,596
    
    
    
    
    
    
    
    
    
    
    
    8,596Other current and accrued liabilities
    
    
    4,093
    
    
    
    8,899
    
    
    
    (629
    )
    
    
    12,363Total current liabilities not subject to compromise
    
    
    45,588
    
    
    
    35,753
    
    
    
    (629
    )
    
    
    80,712Total current liabilities subject to compromise
    
    
    16,846
    
    
    
    
    
    
    
    
    
    
    
    16,846Total current liabilities
    
    
    62,434
    
    
    
    35,753
    
    
    
    (629
    )
    
    
    97,558Long-term liabilities not subject to compromise:Long-term debt, less current maturities
    
    
    592
    
    
    
    
    
    
    
    
    
    
    
    592Capital lease obligations, less current portion
    
    
    
    
    
    
    1,614
    
    
    
    
    
    
    
    1,614Minority interests in consolidated joint ventures and
preferred stock issued by a subsidiary
    
    
    5,538
    
    
    
    972
    
    
    
    
    
    
    
    6,510Income tax settlement, less current portion
    
    
    
    
    
    
    15,615
    
    
    
    
    
    
    
    15,615Other liabilities
    
    
    1,696
    
    
    
    2,546
    
    
    
    
    
    
    
    4,242Net liabilities for liquidation of discontinued operations
    
    
    
    
    
    
    26,532
    
    
    
    629
    
    
    
    27,161Total liabilities
    
    
    70,260
    
    
    
    83,032
    
    
    
    
    
    
    
    153,292Net assets, including amounts due to Debtors
    
    
    
    
    
    
    114,068
    
    
    
    (114,068
    )
    
    
    Total stockholders equity
    
    
    92,551
    
    
    
    
    
    
    
    
    
    
    
    92,551Total liabilities and stockholders equity
    
    $
    162,811
    
    
    $
    197,100
    
    
    $
    (114,068
    )
    
    $
    245,843
 F-47




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Condensed Consolidating Balance Sheet
As of December 31, 2002
(in thousands) Debtors
    
    Non-Debtors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    29,675
    
    
    $
    916
    
    
    $
    
    
    
    $
    30,591Cash limited as to use
    
    
    133
    
    
    
    84
    
    
    
    
    
    
    
    217Accounts receivable, net
    
    
    
    
    
    
    103,498
    
    
    
    
    
    
    
    103,498Inventories
    
    
    
    
    
    
    13,160
    
    
    
    
    
    
    
    13,160Deferred income taxes, net
    
    
    
    
    
    
    107
    
    
    
    
    
    
    
    107Other current assets
    
    
    5,004
    
    
    
    654
    
    
    
    
    
    
    
    5,658Total current assets
    
    
    34,812
    
    
    
    118,419
    
    
    
    
    
    
    
    153,231Property and equipment, net
    
    
    3,402
    
    
    
    7,037
    
    
    
    
    
    
    
    10,439Deferred income taxes, net
    
    
    
    
    
    
    449
    
    
    
    
    
    
    
    449Intangible assets, net
    
    
    178
    
    
    
    5,092
    
    
    
    
    
    
    
    5,270Goodwill
    
    
    
    
    
    
    57,186
    
    
    
    
    
    
    
    57,186Investments in and advances to wholly-owned subsidiaries, net
    
    
    118,924
    
    
    
    
    
    
    
    (118,924
    )
    
    
    Other assets
    
    
    3,274
    
    
    
    1,790
    
    
    
    
    
    
    
    5,064Total assets
    
    $
    160,590
    
    
    $
    189,973
    
    
    $
    (118,924
    )
    
    $
    231,639LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities not subject to compromise:Accounts payable
    
    $
    15,031
    
    
    $
    12,955
    
    
    $
    
    
    
    $
    27,986Accrued compensation and related liabilities
    
    
    19,861
    
    
    
    4,021
    
    
    
    
    
    
    
    23,882Current maturities of long-term debt
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    51Current portion of capital lease obligations
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Current portion of income tax settlement
    
    
    
    
    
    
    3,120
    
    
    
    
    
    
    
    3,120Income taxes payable
    
    
    30
    
    
    
    130
    
    
    
    
    
    
    
    160Deferred income taxes
    
    
    
    
    
    
    556
    
    
    
    
    
    
    
    556Accrued merger and restructuring costs
    
    
    171
    
    
    
    19
    
    
    
    
    
    
    
    190Accrued reorganization costs
    
    
    7,610
    
    
    
    
    
    
    
    
    
    
    
    7,610Other current and accrued liabilities
    
    
    4,230
    
    
    
    4,991
    
    
    
    (742
    )
    
    
    8,479Total current liabilities not subject to compromise
    
    
    46,984
    
    
    
    25,802
    
    
    
    (742
    )
    
    
    72,044Total current liabilities subject to compromise
    
    
    15,630
    
    
    
    
    
    
    
    
    
    
    
    15,630Total current liabilities
    
    
    62,614
    
    
    
    25,802
    
    
    
    (742
    )
    
    
    87,674Long-term liabilities not subject to compromise:Long-term debt, less current maturities
    
    
    67
    
    
    
    
    
    
    
    
    
    
    
    67Capital lease obligations, less current portion
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Minority interests in consolidated joint ventures and
preferred stock issued by a subsidiary
    
    
    5,538
    
    
    
    677
    
    
    
    
    
    
    
    6,215Income tax settlement, less current portion
    
    
    
    
    
    
    15,600
    
    
    
    
    
    
    
    15,600Other liabilities
    
    
    1,664
    
    
    
    2,431
    
    
    
    
    
    
    
    4,095Net liabilities for liquidation of discontinued operations
    
    
    
    
    
    
    26,533
    
    
    
    742
    
    
    
    27,275Total liabilities
    
    
    69,883
    
    
    
    71,049
    
    
    
    
    
    
    
    140,932Net assets, including amounts due to Debtors
    
    
    
    
    
    
    118,924
    
    
    
    (118,924
    )
    
    
    Total stockholders equity
    
    
    90,707
    
    
    
    
    
    
    
    
    
    
    
    90,707Total liabilities and stockholders equity
    
    $
    160,590
    
    
    $
    189,973
    
    
    $
    (118,924
    )
    
    $
    231,639
 F-48




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Condensed Consolidating Statement of Income
Year Ended December 31, 2003
(in thousands) Debtors
    
    Non-Debtors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    476,496
    
    
    $
    
    
    
    $
    476,496Cost of service
    
    
    
    
    
    
    344,356
    
    
    
    
    
    
    
    344,356Gross profit
    
    
    
    
    
    
    132,140
    
    
    
    
    
    
    
    132,140Operating expenses:Selling, general and administrative expenses
    
    
    18,761
    
    
    
    74,706
    
    
    
    (112
    )
    
    
    93,355Provision for estimated uncollectible accounts
    
    
    
    
    
    
    19,813
    
    
    
    
    
    
    
    19,813Restructuring cost recoveries
    
    
    
    
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )Total operating expenses
    
    
    18,761
    
    
    
    94,480
    
    
    
    (112
    )
    
    
    113,129Operating income (loss) from continuing operations
    
    
    (18,761
    )
    
    
    37,660
    
    
    
    112
    
    
    
    19,011Other income (expenses):Interest income
    
    
    161
    
    
    
    168
    
    
    
    
    
    
    
    329Interest expense
    
    
    (279
    )
    
    
    (1,413
    )
    
    
    
    
    
    
    (1,692
    )Equity in net income of wholly-owned subsidiaries
    
    
    36,715
    
    
    
    
    
    
    
    (36,715
    )
    
    
    Equity in net income of unconsolidated joint ventures
    
    
    
    
    
    
    1,196
    
    
    
    
    
    
    
    1,196Gains (losses) on dispositions of property and equipment, net
    
    
    110
    
    
    
    (8
    )
    
    
    (112
    )
    
    
    (10
    )Other expense, net
    
    
    (459
    )
    
    
    16
    
    
    
    
    
    
    
    (443
    )Income from continuing operations before reorganization
expenses, income taxes and minority interests
    
    
    17,487
    
    
    
    37,619
    
    
    
    (36,715
    )
    
    
    18,391Reorganization expenses, net
    
    
    15,655
    
    
    
    
    
    
    
    
    
    
    
    15,655Income from continuing operations before income taxes and
minority interests
    
    
    1,832
    
    
    
    37,619
    
    
    
    (36,715
    )
    
    
    2,736Income tax expense
    
    
    85
    
    
    
    160
    
    
    
    
    
    
    
    245Minority interests in net income of consolidated joint ventures
    
    
    
    
    
    
    731
    
    
    
    
    
    
    
    731Income from continuing operations
    
    
    1,747
    
    
    
    36,728
    
    
    
    (36,715
    )
    
    
    1,760Loss from disposal of discontinued operations
    
    
    (75
    )
    
    
    (13
    )
    
    
    
    
    
    
    (88
    )Net income
    
    $
    1,672
    
    
    $
    36,715
    
    
    $
    (36,715
    )
    
    $
    1,672
 F-49




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Condensed Consolidating Statement of Income
Year Ended December 31, 2002
(in thousands) Debtors
    
    Non-Debtors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    433,470
    
    
    $
    
    
    
    $
    433,470Cost of service
    
    
    
    
    
    
    309,338
    
    
    
    
    
    
    
    309,338Gross profit
    
    
    
    
    
    
    124,132
    
    
    
    
    
    
    
    124,132Operating expenses:Selling, general and administrative expenses
    
    
    22,352
    
    
    
    68,952
    
    
    
    
    
    
    
    91,304Provision for estimated uncollectible accounts
    
    
    
    
    
    
    15,887
    
    
    
    
    
    
    
    15,887Restructuring cost recoveries
    
    
    
    
    
    
    (113
    )
    
    
    
    
    
    
    (113
    )Charge for impairment of goodwill
    
    
    
    
    
    
    51,783
    
    
    
    
    
    
    
    51,783Total operating expenses
    
    
    22,352
    
    
    
    136,509
    
    
    
    
    
    
    
    158,861Operating loss from continuing operations
    
    
    (22,352
    )
    
    
    (12,377
    )
    
    
    
    
    
    
    (34,729
    )Other income (expenses):Interest income
    
    
    223
    
    
    
    213
    
    
    
    
    
    
    
    436Interest expense
    
    
    (54
    )
    
    
    (1,512
    )
    
    
    
    
    
    
    (1,566
    )Equity in net income (loss) of wholly-owned subsidiaries
    
    
    (83,903
    )
    
    
    
    
    
    
    83,903
    
    
    
    Equity in net income of unconsolidated joint ventures
    
    
    
    
    
    
    1,504
    
    
    
    
    
    
    
    1,504Gain on sale of business
    
    
    
    
    
    
    46
    
    
    
    
    
    
    
    46Gains on dispositions of property and equipment, net
    
    
    1
    
    
    
    2
    
    
    
    
    
    
    
    3Other income, net
    
    
    
    
    
    
    1,003
    
    
    
    
    
    
    
    1,003Loss from continuing operations before reorganization
expenses, income taxes, minority interests, extraordinary
gain on troubled debt restructuring and the cumulative effect
of a change in accounting principle
    
    
    (106,085
    )
    
    
    (11,121
    )
    
    
    83,903
    
    
    
    (33,303
    )Reorganization expenses, net
    
    
    4,275
    
    
    
    
    
    
    
    
    
    
    
    4,275Loss from continuing operations before income taxes,
minority interests, extraordinary gain on troubled
debt restructuring and the cumulative effect of a change
in accounting principle
    
    
    (110,360
    )
    
    
    (11,121
    )
    
    
    83,903
    
    
    
    (37,578
    )Income tax expense
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    71Minority interests in net income of consolidated joint ventures
    
    
    
    
    
    
    764
    
    
    
    
    
    
    
    764Loss from continuing operations before extraordinary
gain on troubled debt restructuring and the cumulative effect
of a change in accounting principle
    
    
    (110,360
    )
    
    
    (11,956
    )
    
    
    83,903
    
    
    
    (38,413
    )Loss from disposal of discontinued operations
    
    
    (640
    )
    
    
    (45
    )
    
    
    
    
    
    
    (685
    )Loss before extraordinary gain on troubled debt restructuring
and the cumulative effect of a change in a accounting principle
    
    
    (111,000
    )
    
    
    (12,001
    )
    
    
    83,903
    
    
    
    (39,098
    )Extraordinary gain on troubled debt restructuring
    
    
    123,517
    
    
    
    
    
    
    
    
    
    
    
    123,517Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (71,902
    )
    
    
    
    
    
    
    (71,902
    )Net income (loss)
    
    $
    12,517
    
    
    $
    (83,903
    )
    
    $
    83,903
    
    
    $
    12,517
 F-50




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Condensed Consolidating Statement of Income
Year Ended December 31, 2001
(in thousands) Debtors
    
    Non-Debtors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    393,629
    
    
    $
    
    
    
    $
    393,629Cost of service
    
    
    
    
    
    
    279,275
    
    
    
    
    
    
    
    279,275Gross profit
    
    
    
    
    
    
    114,354
    
    
    
    
    
    
    
    114,354Operating expenses:Selling, general and administrative expenses
    
    
    18,076
    
    
    
    65,760
    
    
    
    
    
    
    
    83,836Provision for estimated uncollectible accounts
    
    
    
    
    
    
    17,533
    
    
    
    
    
    
    
    17,533Amortization of goodwill
    
    
    
    
    
    
    9,822
    
    
    
    
    
    
    
    9,822Restructuring cost recoveries
    
    
    
    
    
    
    (679
    )
    
    
    
    
    
    
    (679
    )Charge for impairment of goodwill and other long-lived assets
    
    
    
    
    
    
    3,255
    
    
    
    
    
    
    
    3,255Total operating expenses
    
    
    18,076
    
    
    
    95,691
    
    
    
    
    
    
    
    113,767Operating income (loss) from continuing operations
    
    
    (18,076
    )
    
    
    18,663
    
    
    
    
    
    
    
    587Other income (expenses):Interest income
    
    
    1,075
    
    
    
    141
    
    
    
    
    
    
    
    1,216Interest expense
    
    
    (734
    )
    
    
    (5,918
    )
    
    
    
    
    
    
    (6,652
    )Equity in net income of wholly-owned subsidiaries
    
    
    12,891
    
    
    
    
    
    
    
    (12,891
    )
    
    
    Equity in net income of unconsolidated joint ventures
    
    
    
    
    
    
    730
    
    
    
    
    
    
    
    730Gain on dispositions of property and equipment, net
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Other income, net
    
    
    
    
    
    
    55
    
    
    
    
    
    
    
    55Income (loss) from continuing operations before reorganization
expenses, income taxes, minority interests and extraordinary
gain on troubled debt restructuring
    
    
    (4,844
    )
    
    
    13,672
    
    
    
    (12,891
    )
    
    
    (4,063
    )Reorganization expenses, net
    
    
    14,397
    
    
    
    
    
    
    
    
    
    
    
    14,397Income (loss) from continuing operations before income taxes,
minority interests and extraordinary gain on troubled
debt restructuring
    
    
    (19,241
    )
    
    
    13,672
    
    
    
    (12,891
    )
    
    
    (18,460
    )Income tax expense
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    150Minority interests in net income of consolidated joint ventures
    
    
    
    
    
    
    631
    
    
    
    
    
    
    
    631Income (loss) from continuing operations before extraordinary
gain on troubled debt restructuring
    
    
    (19,241
    )
    
    
    12,891
    
    
    
    (12,891
    )
    
    
    (19,241
    )Loss from disposal of discontinued operations
    
    
    (250
    )
    
    
    
    
    
    
    
    
    
    
    (250
    )Income (loss) before extraordinary gain on troubled debt
restructuring
    
    
    (19,491
    )
    
    
    12,891
    
    
    
    (12,891
    )
    
    
    (19,491
    )Extraordinary gain on troubled debt restructuring
    
    
    20,706
    
    
    
    
    
    
    
    
    
    
    
    20,706Net income
    
    $
    1,215
    
    
    $
    12,891
    
    
    $
    (12,891
    )
    
    $
    1,215
 F-51




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2003
(in thousands) Debtors
    
    Non-Debtors
    
    ConsolidatedNet cash provided by (used in) continuing operations
before reorganization items
    
    $
    (17,850
    )
    
    $
    46,810
    
    
    $
    28,960Cash flows used by reorganization items, net
    
    
    (14,669
    )
    
    
    
    
    
    
    (14,669
    )Net cash provided by (used in) continuing operations
(net of reorganization items)
    
    
    (32,519
    )
    
    
    46,810
    
    
    
    14,291Cash flows from investing activities:Purchases of property and equipment
    
    
    (1,576
    )
    
    
    (4,201
    )
    
    
    (5,777
    )Proceeds from the transfer of property and equipment from
the Debtors to a non-debtor
    
    
    1,348
    
    
    
    (1,348
    )
    
    
    Cash advances from wholly-owned subsidiaries
    
    
    40,320
    
    
    
    (40,320
    )
    
    
    Proceeds from dispositions of property and equipment
    
    
    
    
    
    
    13
    
    
    
    13Net cash provided by (used in) investing activities
    
    
    40,092
    
    
    
    (45,856
    )
    
    
    (5,764
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (393
    )
    
    
    
    
    
    
    (393
    )Principal payments on capital lease obligations
    
    
    
    
    
    
    (112
    )
    
    
    (112
    )Refunds of deposits to collateralize letters of credit
    
    
    488
    
    
    
    
    
    
    
    488Cash distributions to minority interests
    
    
    
    
    
    
    (450
    )
    
    
    (450
    )Net cash provided by (used in) financing activities
    
    
    95
    
    
    
    (562
    )
    
    
    (467
    )Net increase in cash from continuing operations
    
    $
    7,668
    
    
    $
    392
    
    
    $
    8,060Net cash used in discontinued operations
    
    $
    (160
    )
    
    $
    (42
    )
    
    $
    (202
    )
 Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2002
(in thousands) Debtors
    
    Non-Debtors
    
    ConsolidatedNet cash provided by (used in) continuing operations
before reorganization items
    
    $
    (15,491
    )
    
    $
    35,052
    
    
    $
    19,561Cash flows used by reorganization items, net
    
    
    (5,195
    )
    
    
    
    
    
    
    (5,195
    )Net cash provided by (used in) continuing operations
(net of reorganization items)
    
    
    (20,686
    )
    
    
    35,052
    
    
    
    14,366Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,204
    )
    
    
    (2,314
    )
    
    
    (4,518
    )Cash advances from wholly-owned subsidiaries
    
    
    31,662
    
    
    
    (31,662
    )
    
    
    Proceeds from sale of business
    
    
    
    
    
    
    85
    
    
    
    85Proceeds from dispositions of property and equipment
    
    
    1
    
    
    
    5
    
    
    
    6Net cash provided by (used in) investing activities
    
    
    29,459
    
    
    
    (33,886
    )
    
    
    (4,427
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (67
    )
    
    
    
    
    
    
    (67
    )Principal payments on capital lease obligations
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Refunds of deposits to collateralize letters of credit
    
    
    350
    
    
    
    
    
    
    
    350Cash distributions to minority interests
    
    
    
    
    
    
    (768
    )
    
    
    (768
    )Net cash provided by (used in) financing activities
    
    
    283
    
    
    
    (777
    )
    
    
    (494
    )Net increase in cash from continuing operations
    
    $
    9,056
    
    
    $
    389
    
    
    $
    9,445Net cash used in discontinued operations
    
    $
    (177
    )
    
    $
    (16
    )
    
    $
    (193
    )
 F-52




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Condensed Consolidating Statement of Cash Flows
Year Ended December 31, 2001
(in thousands) Debtors
    
    Non-Debtors
    
    ConsolidatedNet cash provided by (used in) continuing operations
before reorganization items
    
    $
    (13,230
    )
    
    $
    27,423
    
    
    $
    14,193Cash flows used by reorganization items, net
    
    
    (10,776
    )
    
    
    
    
    
    
    (10,776
    )Net cash provided by (used in) continuing operations
(net of reorganization items)
    
    
    (24,006
    )
    
    
    27,423
    
    
    
    3,417Cash flows from investing activities:Purchases of property and equipment
    
    
    (2,949
    )
    
    
    (4,638
    )
    
    
    (7,587
    )Cash advances from wholly-owned subsidiaries
    
    
    22,147
    
    
    
    (22,147
    )
    
    
    Proceeds from dispositions of property and equipment
    
    
    6
    
    
    
    68
    
    
    
    74Net cash provided by (used in) investing activities
    
    
    19,204
    
    
    
    (26,717
    )
    
    
    (7,513
    )Cash flows from financing activities:Principal payments on long-term debt
    
    
    (117
    )
    
    
    (30
    )
    
    
    (147
    )Principal payments on capital lease obligations
    
    
    
    
    
    
    (149
    )
    
    
    (149
    )Deposits to collateralize letters of credit, net
    
    
    (1,116
    )
    
    
    
    
    
    
    (1,116
    )Cash distributions to minority interests
    
    
    
    
    
    
    (412
    )
    
    
    (412
    )Net cash used in financing activities
    
    
    (1,233
    )
    
    
    (591
    )
    
    
    (1,824
    )Net increase (decrease) in cash from continuing operations
    
    $
    (6,035
    )
    
    $
    115
    
    
    $
    (5,920
    )Net cash used in discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
 F-53




---



##### Table of Contents



CORAM HEALTHCARE CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(in thousands) Balances At
    
    Charged To
    
    Charged To
    
    
    
    
    
    Balances AtBeginning
    
    Costs And
    
    Other
    
    
    
    
    
    End OfDescription
    
    Of Period
    
    Expenses
    
    Accounts
    
    Deductions
    
    PeriodYear ended December 31, 2003:Reserves and allowances deducted
from asset accounts:Allowance for uncollectible accounts
    
    $
    22,229
    
    
    $
    19,813
    
    
    $
    
    
    
    $
    (21,370
    )(1)
    
    $
    20,672Reserves for regulatory matters (3)
    
    
    3,400
    
    
    
    
    
    
    
    4,300
    (2)
    
    
    
    
    
    
    7,700Valuation allowance for inventories
    
    
    269
    
    
    
    (92
    )(4)
    
    
    
    
    
    
    
    
    
    
    177Allowance for other current receivable
    
    
    223
    
    
    
    12
    (6)
    
    
    
    
    
    
    
    
    
    
    235Year ended December 31, 2002:Reserves and allowances deducted
from asset accounts:Allowance for uncollectible accounts
    
    $
    19,457
    
    
    $
    15,887
    
    
    $
    (602
    )(2)
    
    $
    (12,513
    )(1)
    
    $
    22,229Reserves for regulatory matters (3)
    
    
    2,400
    
    
    
    
    
    
    
    1,000
    (2)
    
    
    
    
    
    
    3,400Allowance for long-term receivable
    
    
    739
    
    
    
    
    
    
    
    (739
    )(5)
    
    
    
    
    
    
    Valuation allowance for inventories
    
    
    250
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    269Allowance for other current receivable
    
    
    
    
    
    
    72
    (6)
    
    
    151
    (6)
    
    
    
    
    
    
    223Year ended December 31, 2001:Reserves and allowances deducted
from asset accounts:Allowance for uncollectible accounts
    
    $
    17,912
    
    
    $
    17,533
    
    
    $
    316
    (2)
    
    $
    (16,304
    )(1)
    
    $
    19,457Reserves for regulatory matters (3)
    
    
    2,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,400Allowance for long-term receivable
    
    
    739
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    739Valuation allowance for inventories
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    250
   (1)
    
    Accounts receivable written off, net of recoveries.(2)
    
    Revenue adjustments.(3)
    
    Reserves related to certain ongoing regulatory audits and
reviews.(4)
    
    The reduction in the valuation allowance for inventories was
credited to cost of service in the consolidated financial
statements.(5)
    
    The fully reserved escrow deposit receivable was collected in
October 2002 in connection with a settlement agreement approved by
the United States Bankruptcy Court for the District of Delaware.(6)
    
    Full reserve for insurance deductible amounts receivable
related to a certain risk insurance policy. S-1




---



##### Table of Contents



EXHIBIT INDEX Exhibit Number
    
    
    
    Exhibit2.1
    
    
    
    Agreement and Plan of Merger dated as of February 6, 1994, by and
Among the registrant, T2 Medical, Inc., Curaflex, HealthInfusion,
Medisys, T2 Acquisition company, CHS Acquisition company, HII
Acquisition company and MI Acquisition company. (Incorporated by
reference to Exhibit 2.1 of Registration No. 33-53957 on
Form S-4).2.2
    
    
    
    First Amendment to Agreement and Plan of Merger dated as of May 25,
1994, by and among the registrant, T2 Medical, Inc., Curaflex,
HealthInfusion, Medisys, T2 Acquisition company, CHS Acquisition
company, HII Acquisition company and MI Acquisition company.
(Incorporated by reference to Exhibit 2.2 of Registration No. 33-53957
on Form S-4).2.3
    
    
    
    Second Amendment to Agreement and Plan of Merger dated as of July 8,
1994 by and among the registrant, T2 Medical, Inc., Curaflex,
HealthInfusion, Medisys, T2 Acquisition company, CHS Acquisition
company, HII Acquisition company and MI Acquisition company.
(Incorporated by Reference to Exhibit 2.3 of the registrants Current
Report on Form 8-K dated as of July 15, 1994).2.4
    
    
    
    Asset Sale and Note Purchase Agreement among the registrant, Caremark
International, Inc. and Caremark, Inc. dated as of January 29, 1995.
(Incorporated by reference to Exhibit C of the registrants Current
Report on Form 8-K dated April 6, 1995). (a)2.5
    
    
    
    Agreement and Plan of Merger among the registrant, CHC Acquisition
Corp. and Lincare Holdings Inc. dated as of April 17, 1995.
(Incorporated by reference to Exhibit B of the registrants Current
Report on Form 8-K dated May 2, 1995). (a)2.6
    
    
    
    Agreement and Plan of Merger entered into as of October 19, 1996,
Among Coram Healthcare Corporation, Integrated Health Services, Inc.
and IHS Acquisition XIX, Inc. (Incorporated by reference to Exhibit
2.1 of the registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996).2.7
    
    
    
    Purchase Agreement by and between Integrated Health Services, Inc., T2
Medical, Inc., Coram Healthcare Corporation of Greater New York and
Coram Healthcare Corporation. (Incorporated by reference to Exhibit 2
of the registrants Current Report on Form 8-K dated as of August 20,
1997).2.8
    
    
    
    Side Agreement dated as of September 30, 1997 among Coram Healthcare
Corporation, T2 Medical, Inc., Coram Healthcare Corporation of Greater
New York and Integrated Health Services, Inc. (Incorporated by
reference to Exhibit 2.1 of the registrants Current Report on Form
8-K dated as of September 30, 1997).2.9
    
    
    
    Purchase Agreement by and between Curaflex Health Services, Inc.,
Coram Healthcare Corporation, Curascript Pharmacy, Inc., Curascript
PBM Services, Inc. and GTCR Fund VI, L.P., dated July 31, 2000.
(Incorporated by reference to Exhibit 2.1 of the registrants Current
Report on Form 8-K dated as of July 31, 2000).2.10
    
    
    
    Debtor-In-Possession Financing Agreement dated August 30, 2000, by and
among Coram Healthcare Corporation, Coram, Inc. and Madeleine L.L.C.
(Incorporated by reference to Exhibit 2.1 of the registrants Current
Report on Form 8-K dated as of September 13, 2000).




---



##### Table of Contents



3.1
    
    
    
    Certificate of Incorporation of registrant, as amended, through May 1,
1994. (Incorporated by reference to Exhibit 3.1 of Registration No.
33-53957 on Form S-4).3.2
    
    
    
    Bylaws of registrant. (Incorporated by reference to Exhibit 3.2 of
Registration No. 33-53957 on Form S-4).3.3
    
    
    
    Certificate of Amendment of the registrants Certificate of
Incorporation. (Incorporated by reference to Exhibit 3.3 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1997).3.4
    
    
    
    Bylaws of Coram, Inc., as amended and restated on December 31, 2001.
(Incorporated by reference to Exhibits 99.8 of the registrants
Current Reports on Form 8-K and Form 8-K/A dated as of December 21,
2001).3.5
    
    
    
    Bylaws of Coram, Inc., as amended and restated on December 31, 2002.
(Incorporated by reference to Exhibit 99.6 of the registrants Current
Report on Form 8-K dated as of December 31, 2002).4.1
    
    
    
    Form of Common Stock Certificate for the registrants common stock,
$0.001 par value per share. (Incorporated by reference to Exhibit 4.1
of the registrants Annual Report on Form 10-K for the year ended
December 31, 1994).4.2
    
    
    
    Form of Common Stock Certificate for the registrants common stock,
par value $0.001, including legend thereon in respect of the
Stockholder Rights Agreement. (Incorporated by reference to Exhibit
4.2 of the registrants Annual Report on Form 10-K for the year ended
December 31, 1997).4.3
    
    
    
    Form of Certificate of Designation, Preferences and Rights of the
registrants Series X Participating Preferred Stock. (Filed as Exhibit
A to the Stockholder Rights Agreement, which was filed as Exhibit 1 to
the registrants Current Report on Form 8-K dated as of June 25, 1997,
and which exhibit is hereby incorporated by reference thereto).4.4
    
    
    
    Form of Certificate of Designation, Preferences and Relative,
Participating, Optional and Other Special rights of Preferred Stock
and Qualifications, Limitations and Restrictions Thereof, dated
December 29, 2000. (Incorporated by reference to Exhibit 4.1 of the
registrants Current Report on Form 8-K dated as of December 28,
2000).4.5
    
    
    
    Irrevocable Waiver, dated as of April 12, 2002, by Cerberus Partners,
L.P., Foothill Capital Corporation and Goldman, Sachs & Co. in favor
of Coram, Inc. (Incorporated by reference to Exhibit 4.5 of the
registrants Quarterly Report on Form 10-Q for the quarter ended March
31, 2002).4.6
    
    
    
    Amendment No. 1 to Stockholder Agreement dated as of December 31,
2001, among Coram, Inc., Goldman, Sachs & Co., Cerberus Partners, L.P.
and Foothill Capital Corporation. (Incorporated by reference to
Exhibits 99.5 of the registrants Current Reports on Form 8-K and Form
8-K/A dated as of December 21, 2001).4.7
    
    
    
    Certificate of Amendment of the Certificate of Designation of Coram,
Inc., as filed with the Secretary of State of the State of Delaware on
December 31, 2001, related to changes in the Coram, Inc., Series A
Cumulative Preferred Stock voting rights. (Incorporated by reference
to Exhibits 99.7 of the registrants Current Reports on Form 8-K and
Form 8-K/A dated as of December 21, 2001).4.8
    
    
    
    Amendment No. 2 to Stockholder Agreement dated as of December 31,
2002, by and among Coram, Inc., Goldman, Sachs & Co., Cerberus
Partners, L.P. and Foothill Capital Corporation. (Incorporated by
reference to Exhibit 99.2 of the registrants Current Report on Form
8-K dated as of December 31, 2002).4.9
    
    
    
    Second Certificate of Amendment of the Certificate of Designation of
Coram, Inc., as filed with the Secretary of State of the State of
Delaware on December 31, 2002, related to changes in the Coram, Inc.,
Series A Cumulative Preferred Stock voting rights. (Incorporated by
reference to Exhibit 99.4 of the registrants Current Report on Form
8-K dated as of December 31, 2002).4.10
    
    
    
    Certificate of Designation of Coram, Inc., as filed with the Secretary
of State of the State of Delaware on December 31, 2002, related to the
creation of the Coram, Inc. Series B Cumulative Preferred Stock, as
well as, certain limitations on aggregate stock voting rights after
the occurrence of a triggering event. (Incorporated by reference to
Exhibit 99.5 of the registrants Current Report on Form 8-K dated as
of December 31, 2002).




---



##### Table of Contents



10.1
    
    
    
    Amended and Restated Credit Agreement dated as of February 10, 1995,
by and among Curaflex, T2, HealthInfusion, Medisys, and HMSS as
Co-Borrowers, Toronto Dominion (Texas), Inc., as Agent (the Amended
Credit Agreement). (Incorporated by reference to Exhibit 10.1 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1994). (a)10.2
    
    
    
    Form of Employment Agreement between the registrant and Charles A.
Laverty. (Incorporated by reference to Exhibit 10.1 of Registration
No. 33-53957 on Form S-4).10.3
    
    
    
    Form of Severance/Non-Compete Agreement between the registrant and
Miles E. Gilman. (Incorporated by reference to Exhibit 10.2 of
Registration No. 33-53957 on Form S-4).10.4
    
    
    
    Form of Severance/Non-Compete Agreement between the registrant and
William J. Brummond. (Incorporated by reference to Exhibit 10.3 of
Registration No. 33-53957 on Form S-4).10.5
    
    
    
    Form of Severance/Non-Compete Agreement between the registrant and
Tommy H. Carter. (Incorporated by reference to Exhibit 10.4 of
Registration No. 33-53957 on Form S-4).10.6
    
    
    
    Form of Indemnification Agreement between the registrant and each of
the registrants directors and certain executive officers.
(Incorporated by reference to Exhibit 10.6 of the registrants Form
10-K for the year ended December 31, 1994).10.7
    
    
    
    Registrants 1994 Stock Option/Stock Issuance Plan and related Forms
of agreements. (Incorporated by reference to Exhibit 10.15 of
Registration No. 33-53957 on Form S-4).10.8
    
    
    
    Registrants Employee Stock Purchase Plan. (Incorporated by reference
to Exhibit 10.16 of Registration No. 33-53957 on Form S-4).10.9
    
    
    
    401(k) Plan of T2 Medical, Inc. dated December 8, 1989. (Incorporated
herein by reference to Exhibit 10(s) of T2 Annual Report on Form 10-K
for the fiscal year ended September 30, 1989, filed with the
Securities and Exchange Commission on or about December 29, 1988).10.10
    
    
    
    1988 Stock Option Plan of T2 Medical, Inc., as amended and restated as
of July 31, 1990 and as further amended as of (i) August 20, 1991;
(ii) November 12, 1991; and (iii) July 6, 1992. (Incorporated by
reference to Exhibit 10.18 of Registration No. 33-53957 on Form S-4).10.11
    
    
    
    Curaflex 1989 Stock Option Plan. (Incorporated by reference to Exhibit
10.53 of Registration No. 33-53957 on Form S-4).10.12
    
    
    
    Curaflex Amended 1990 Stock Option Plan. (Incorporated by reference to
Exhibit 10.54 of Registration No. 33-53957 on Form S-4).10.13
    
    
    
    Curaflex Directors Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10.59 of Registration No. 33-53957 on Form S-4).10.14
    
    
    
    Clinical Homecare Ltd. 1990 Incentive Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.61 of Registration No.
33-53957 on Form S-4).10.15
    
    
    
    Clinical Homecare Ltd. 1990 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.62 of Registration No.
33-53957 on Form S-4).10.16
    
    
    
    1989 Stock Option Plan of Medisys. (Incorporated by reference to
Exhibit 10.85 of Registration No. 33-53957 on Form S-4).10.17
    
    
    
    Form of Non-Plan Option Agreement of Medisys. (Incorporated by
Reference to Exhibit 10.86 of Registration No. 33-53957 on Form S-4).




---



##### Table of Contents



10.18
    
    
    
    Credit Agreement among Coram Healthcare Corporation, Coram, Inc., the
Lenders named therein and Chemical Bank, as Administrative Agent,
Collateral Agent and Fronting Bank dated as of April 6, 1995.
(Incorporated by reference to Exhibit D of the registrants Current
Report on Form 8-K dated April 6, 1995). (a)10.19
    
    
    
    First Amendment and Waiver to the Credit Agreement, dated as of August
9, 1995, together with exhibits hereto, among the registrant, Coram,
Inc., each Subsidiary Guarantor (as defined therein), the Financial
Institutions party thereto (as defined therein), and Chemical Bank as
Agent. (Incorporated by reference to Exhibit 10.19 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). (a)10.20
    
    
    
    Second Amendment to the Credit Agreement dated as of September 7,
1995, by and among the registrant, Coram, Inc., each Subsidiary
Guarantor (as defined therein), the Financial Institutions party
thereto (as defined therein), and Chemical Bank as Agent.
(Incorporated by reference to Exhibit 10.20 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). (a)10.21
    
    
    
    Third Amendment and Limited Waiver to the Credit Agreement, dated as
of September 29, 1995, by and among the registrant, Coram, Inc., each
Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as defined therein), and Chemical Bank as Agent.
(Incorporated by reference to Exhibit 10.21 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
1995). (a)10.22
    
    
    
    Fourth Amendment and Limited Waiver to the Credit Agreement and First
Amendment to Security Documents dated as of October 13, 1995, together
with selected exhibits thereto, by and among the registrant, Coram,
Inc., each Subsidiary Guarantor (as defined therein), the Financial
Institutions party thereto (as defined therein) and Chemical Bank as
Agent. (Incorporated by reference to the registrants Current Report
on Form 8-K as filed October 24, 1995).10.23
    
    
    
    Warrant Agreement dated as of October 13, 1995, among the registrant,
Coram, Inc., and the other parties specified therein. (Incorporated by
reference to the registrants Current Report on Form 8-K as filed
October 24, 1995).10.24
    
    
    
    Amendment and Limited Waiver to Bridge Securities Purchase Agreement,
dated as of October 13, 1995, by and among the registrant, Coram, Inc.
and Donaldson, Lufkin & Jenrette. (Incorporated by reference to
Exhibit 10.24 of the registrants Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995). (a)10.25
    
    
    
    Form of Employment Agreement, Amendment No. 1 and Amendment No. 2
dated as of April 23, 1999, of Employment Agreement between the
registrant and Donald J. Amaral. (Incorporated by reference to Exhibit
10.25 and 10.04 of the registrants Quarterly Report on Form 10-Q for
the quarters ended September 30, 1995, June 30, 1998 and September 30,
1999, respectively).10.26
    
    
    
    Securities Purchase Agreement and Form of Subordinated Bridge Note,
dated as of April 6, 1995, among Coram, Inc., Coram Funding, Inc. and
the registrant. (Incorporated by reference to Exhibit E of the
registrants Current Report on Form 8-K dated April 6, 1995). (a)10.27
    
    
    
    Exclusive Distribution Agreement  Healthcare Products and Biomedical
Equipment and Services Agreement between Medical Specialties
Distributors, Inc. (MSD) and Coram Healthcare Corporation, dated as
of June 1, 1996. (Incorporated by reference to Exhibit 10.1 of the
registrants Quarterly Report on Form 10-Q/A Amendment No. 1 for the
quarter ended June 30, 1996).10.28
    
    
    
    Medical Specialties Master Service Agreement between MSD and Coram
Healthcare Corporation, dated as of June 1, 1996. (Incorporated by
reference to Exhibit 10.2 of the registrants Quarterly Report on Form
10-Q/A Amendment No. 1 for the quarter ended June 30, 1996).10.29
    
    
    
    Medical Specialties Master Rental Agreement between MSD and Coram
Healthcare Corporation, dated as of June 1, 1996. (Incorporated by
reference to Exhibit 10.3 of the registrants Quarterly Report on Form
10-Q/A Amendment No. 1 for the quarter ended June 30, 1996).




---



##### Table of Contents



10.30
    
    
    
    Coram Healthcare Litigation Memorandum of Understanding between all
Parties to In re Coram Healthcare Corporation. Securities Litigation,
Master File No. 95-N-2074 and Shevde v. Sweeney et al., Civil Action
No. 96-N-722, dated as of August 5, 1996. (Incorporated by reference
to Exhibit 10.4 of the registrants Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended June 30, 1996).10.31
    
    
    
    Fifth Amendment to the Credit Agreement dated as of February 6, 1996,
by and among the registrant, Coram, Inc., each Subsidiary Guarantor
(as defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by
reference to Exhibit 99.1 of the registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 1996). (a)10.32
    
    
    
    Sixth Amendment to Credit Agreement dated as of April 19, 1996, by and
among the registrant, Coram, Inc., each Subsidiary Guarantor (as
defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by
reference to Exhibit 99.2 of the registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 1996). (a)10.33
    
    
    
    Seventh Amendment to Credit Agreement dated as of July 3, 1996, by and
among the registrant, Coram, Inc., each Subsidiary Guarantor (as
defined therein), the Financial Institutions party thereto (as
described therein), and Chemical Bank as Agent. (Incorporated by
reference to Exhibit 99.1 of the registrants Quarterly Report on Form
10-Q/A Amendment No. 1 for the quarter ended June 30, 1996). (a)10.34
    
    
    
    Eighth Amendment to Credit Agreement dated as of December 3, 1996, by
and among the registrant, Coram, Inc., each Subsidiary Guarantor as
defined therein), the Financial Institutions (as described therein),
and Chase Manhattan Bank as Agent. (Incorporated by reference to
Exhibit 10.34 of the registrants Annual Report on Form 10-K for the
year ended December 31, 1996). (a)10.35
    
    
    
    Ninth Amendment and Limited Waiver to the Credit Agreement dated as of
March 14, 1997, by and among the registrant, Coram, Inc., each
Subsidiary Guarantor (as defined therein), the Financial Institutions
party thereto (as described therein), and Chase Manhattan Bank as
Agent. (Incorporated by reference to Exhibit 10.35 of the registrants
Annual Report on Form 10-K for the year ended December 31, 1996). (a)10.36
    
    
    
    Amended Agreement, dated as of March 28, 1997, by and among the
registrant, Coram, Inc. and Donaldson, Lufkin & Jenrette.
(Incorporated by reference to Exhibit 10.36 of the registrants Annual
Report on Form 10-K for the year ended December 31, 1996). (a)10.37
    
    
    
    Sabratek Corporation and Coram Healthcare Exclusive Supply Agreement
for IV Infusion Pumps, IV Disposable Sets and Related Items, dated as
of February 26, 1997. (Incorporated by reference to Exhibit 10.37 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 1996).10.38
    
    
    
    Amendment to 9% Subordinated Convertible Debenture and Notice of
Conversion dated as of June 30, 1996, by and among the registrant,
Coram, Inc., and the other parties specified therein. (Incorporated by
reference to the registrants report on Form 8-K as filed on July 12,
1996).10.39
    
    
    
    Tenth Amendment to Credit Agreement dated June 2, 1997, by and Among
the registrant, Goldman Sachs Credit Partners L.P., Coram, Inc., each
Subsidiary Guarantor (as defined therein) and The Chase Manhattan
Bank, as administrative agent and collateral agent for the Lenders
named therein, to that certain Credit Agreement dated as of April 6,
1995, by and among the registrant, Coram, Inc., each Subsidiary
Guarantor (as defined therein), the Financial Institutions named
therein and the Chase Manhattan Bank, as collateral agent for the
Lenders named therein. (Incorporated by reference to Exhibit 99 of the
registrants Current Report on Form 8-K dated as of June 2, 1997). (a)10.40
    
    
    
    Letter Agreement of March 29, 1998 by and among Cerberus Partners,
L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation on the one hand, and Coram Healthcare Corporation, on the
other, deferring the payment of interest and fees pursuant to (i) the
Securities Purchase Agreement dated as of April 6, 1995 and (ii) the
Letter Agreement dated March 28, 1997 between Coram Funding, Inc. and
Coram Healthcare Corporation. (Incorporated by reference to Exhibit
10.40 of the registrants Annual Report on Form 10-K for the year
ended December 31, 1997).




---



##### Table of Contents



10.41
    
    
    
    Prime Vendor Agreement and Letter Amendment, dated October 14, 1999,
between Coram Healthcare Corporation and Cardinal Health, Inc. Certain
portions of the Prime Vendor Agreement have been omitted pursuant to a
request for confidential treatment. The entire Prime Vendor Agreement
has been filed confidentially with the Securities and Exchange
Commission. (Incorporated by reference to Exhibit 10.1 of the
registrants Quarterly Report on Form
10-Q for the quarters ended September 30, 1998 and 1999, respectively).10.42
    
    
    
    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. (Incorporated by reference to
Exhibit 10.01 of the registrants Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998).10.43
    
    
    
    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. (Incorporated by reference to Exhibit 10.02 of the
registrants Quarterly Report on Form 10-Q for the quarter ended June
30, 1998).10.44
    
    
    
    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.
(Incorporated by reference to Exhibit 10.03 of the registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).10.45
    
    
    
    Securities Exchange Agreement among the registrant, Cerberus Partners,
L.P., Goldman Sachs Credit Partners L.P. and Foothill Capital
Corporation. (Incorporated by reference to Exhibit 10.01 of the
registrants Quarterly Report on Form 10-Q for the quarter ended March
31, 1998). (a)10.46
    
    
    
    Form of Letter of Credit required by the Master Agreement by and
between the registrant and its applicable affiliates and Aetna U.S.
Healthcare, Inc. and its applicable affiliates. (Incorporated by
reference to Exhibit 10.02 of the registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998).10.47
    
    
    
    Addendum amendment to Sabratek Corporation and Coram Healthcare
Exclusive Supply Agreement for IV Infusion pumps, IV Disposable Sets
and Related Items, dated as of February 26, 1997, as of December 7,
1998. (Incorporated by reference to Exhibit 10.47 of the registrants
Annual Report on Form 10-K for the year ended December 3l, l998).10.48
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Richard
M. Smith, dated as of April 26, 1999. (Incorporated by reference to
Exhibit 10.4 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).10.49
    
    
    
    Agreement between Coram Healthcare Corporation and Richard M. Smith,
dated as of November 11, 1999. (Incorporated by reference to Exhibit
10.2 of the registrants Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).10.50
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Wendy L.
Simpson, dated as of April 26, 1999. (Incorporated by reference to
Exhibit 10.5 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).10.51
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Joseph
D. Smith, dated as of April 26, 1999. (Incorporated by reference to
Exhibit 10.6 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).10.52
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Daniel
D. Crowley, dated as of November 30, 1999, together with Amendment No.
1 thereto. (Incorporated by reference to Exhibit 10.51 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1999).




---



##### Table of Contents



10.53
    
    
    
    Employment Agreement, between Coram Healthcare Corporation and Allen
J. Marabito, dated as of November 30, 1999, together with amendment
No. 1 thereto. (Incorporated by reference to Exhibit 10.52 of the
registrants Annual Report on Form 10-K for the year ended December
31, 1999).10.54
    
    
    
    First Amendment to Prime Vendor Agreement, dated as of January 1, 2000
by and between the registrant and Cardinal Health, Inc. (Incorporated
by reference to Exhibit 10.53 of the registrants Annual Report on
Form 10-K for the year ended December 31, 1999).10.55
    
    
    
    Second Amendment to Employment Agreement between Coram Healthcare
Corporation and Daniel D. Crowley, dated as of April 6, 2000.
(Incorporated by reference to Exhibit 10.1 of the registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000).10.56
    
    
    
    Settlement agreement entered into by and among Coram Resource Network,
Inc., Coram Independent Practice Association, Inc., Coram Healthcare
Corporation and Coram, Inc. (Incorporated by reference to Exhibit 10.1
of the registrants Current Report on Form 8-K dated as of November
17, 2000).10.57
    
    
    
    Amendment No. 4, dated December 29, 2000, in respect of the Securities
Exchange Agreement dated as of May 6, 1998, among Coram Healthcare
Corporation, Coram, Inc., Cerberus Partners, L.P., Goldman Sachs
Credit Partners L.P. and Foothill Capital Corporation. (Incorporated
by reference to Exhibit 10.1 of the registrants Current Report on
Form 8-K dated as of December 28, 2000).10.58
    
    
    
    Exchange Agreement, dated December 29, 2000, among Coram, Inc.,
Goldman Sachs Credit Partners L.P., Cerberus Partners, L.P. and
Foothill Capital Corporation. (Incorporated by reference to Exhibit
10.2 of the registrants Current Report on Form 8-K dated as of
December 28, 2000).10.59
    
    
    
    Third Amendment to Employment Agreement between Coram Healthcare
Corporation and Daniel D. Crowley, dated August 2, 2000. (Incorporated
by reference to Exhibit 10.58 of the registrants Annual Report on
Form 10-K for the year ended December 31, 2000).10.60
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Scott R.
Danitz, dated August 1, 2000. (Incorporated by reference to Exhibit
10.59 of the registrants Annual Report on Form 10-K for the year
ended December 31, 2000).10.61
    
    
    
    Employment Agreement between Coram Healthcare Corporation and Vito
Ponzio, Jr., dated April 26, 1999. (Incorporated by reference to
Exhibit 10.60 of the registrants Annual Report on Form 10-K for the
year ended December 31, 2000).10.62
    
    
    
    Consulting Services Agreement between Coram Healthcare Corporation and
Joseph D. Smith, dated June 30, 2000. (Incorporated by reference to
Exhibit 10.61 of the registrants Annual Report on Form 10-K for the
year ended December 31, 2000).10.63
    
    
    
    Consulting Services Agreement between the company and Donald J.
Amaral, dated May 16, 2000. (Incorporated by reference to Exhibit
10.62 of the registrants Annual Report on Form 10-K for the year
ended December 31, 2000).10.64
    
    
    
    Exchange Agreement and related schedules dated as of December 31,
2001, among Coram, Inc., Goldman Sachs Credit Partners L.P., Cerberus
Partners, L.P. and Foothill Capital Corporation. (Incorporated by
reference to Exhibits 99.4 and 99.4a through 99.4f of the registrants
Current Reports on Form 8-K and Form 8-K/A dated as of December 21,
2001).10.65
    
    
    
    Amendment No. 5 to Securities Exchange Agreement, dated as of December
31, 2001, among Coram, Inc., Coram Healthcare Corporation, Goldman
Sachs Credit Partners L.P., Cerberus Partners, L.P., and Foothill
Capital Corporation. (Incorporated by reference to Exhibits 99.6 and
99.6a through 99.6b of the registrants Current Reports on Form 8-K
and Form 8-K/A dated as of December 21, 2001).




---



##### Table of Contents



10.66
    
    
    
    Product Purchase Agreement, dated September 1, 2001, between Coram,
Inc. and FFF Enterprises, Inc. Certain portions of the Product
Purchase Agreement have been omitted pursuant to a request for
confidential treatment. The entire Product Purchase Agreement has been
filed confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.68 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.67
    
    
    
    Prime Vendor Agreement, dated April 19, 2001, between Coram Healthcare
Corporation and Cardinal Distribution, Inc. (Incorporated by reference
to Exhibit 10.69 of the registrants Annual Report on Form 10-K for
the year ended December 31, 2001).10.68
    
    
    
    I.V. Systems Division Purchase Agreement, dated October 23, 2000,
between Coram, Inc., and Baxter Healthcare Corporation. Certain
portions of the I.V. Systems Division Purchase Agreement have been
omitted pursuant to a request for confidential treatment. The entire
I.V. Systems Division Purchase Agreement has been filed confidentially
with the Securities and Exchange Commission. (Incorporated by
reference to Exhibit 10.70 of the registrants Annual Report on Form
10-K for the year ended December 31, 2001).10.69
    
    
    
    Letter Amendment, dated October 25, 2000, between Coram, Inc., and
Baxter Healthcare Corporation. Certain portions of the Letter
Amendment have been omitted pursuant to a request for confidential
treatment. The entire Letter Amendment has been filed confidentially
with the Securities and Exchange Commission. (Incorporated by
reference to Exhibit 10.71 of the registrants Annual Report on Form
10-K for the year ended December 31, 2001).10.70
    
    
    
    Amendment to I.V. Systems Division Purchase Agreement, dated January
28, 2002, between Coram, Inc., and Baxter Healthcare Corporation.
(Incorporated by reference to Exhibit 10.72 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.71
    
    
    
    Therapeutics Purchase Agreement, dated January 7, 2002, between Coram,
Inc., and Baxter Healthcare Corporation. Certain portions of the
Agreement have been omitted pursuant to a request for confidential
treatment. The entire Therapeutics Purchase Agreement has been filed
confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.73 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.72
    
    
    
    Hemophilia Product Volume Commitment Agreement, dated December 19,
2001, between Coram, Inc., and Baxter Healthcare Corporation. Certain
portions of the Hemophilia Product Volume Commitment Agreement have
been omitted pursuant to a request for confidential treatment. The
entire Hemophilia Product Volume Commitment Agreement has been filed
confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.74 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2001).10.73
    
    
    
    Settlement, General Release and Waiver of Claims, dated July 15, 2002,
between Coram Alternate Site Services, Inc. and Arlin M. Adams,
Chapter 11 trustee to the Bankruptcy Estates of Coram Healthcare
Corporation and Coram, Inc. and Humana Health Plan, Inc. (Incorporated
by reference to Exhibit 99.3 of the registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).10.74
    
    
    
    Settlement and Mutual Release Agreement, (I) by and between Arlin M.
Adams, Chapter 11 trustee to the Bankruptcy Estates of Coram
Healthcare Corporation and Coram, Inc. and Richard M. Smith on July
12, 2002 and (II) by and among certain non-debtor subsidiaries of
Coram Healthcare Corporation and Coram, Inc. and Richard M. Smith on
July 16, 2002. (Incorporated by reference to Exhibit 99.4 of the
registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002).10.75
    
    
    
    Settlement Agreement, dated August 26, 2002, by and between T2
Medical, Inc. and Northside Hospital & Heart Institute. (Incorporated
by reference to Exhibit 99.5 of the registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002).10.76
    
    
    
    Engagement Letter, dated October 8, 2002, between Arlin M. Adams,
Esquire, the Chapter 11 trustee for the bankruptcy estates of Coram
Healthcare Corporation and Coram, Inc. and SSG Capital Advisors, L.P.
and Ewing Monroe Bemiss & Co. relating to investment banking and
restructuring advisory services. (Incorporated by reference to Exhibit
99.1 of the registrants Current Report on Form 8-K dated as of
December 2, 2002).




---



##### Table of Contents



10.77
    
    
    
    Exchange Agreement and related schedules dated as of December 31,
2002, by and among Coram, Inc., Goldman Sachs Credit Partners L.P.,
Cerberus Partners, L.P. and Foothill Capital Corporation.
(Incorporated by reference to Exhibit 99.1 of the registrants Current
Report on Form 8-K dated as of December 31, 2002).10.78
    
    
    
    Amendment No. 6 to Securities Exchange Agreement, dated as of December
31, 2002, by and among Coram, Inc., Coram Healthcare Corporation,
Goldman Sachs Credit Partners L.P., Cerberus Partners, L.P., and
Foothill Capital Corporation. (Incorporated by reference to Exhibit
99.3 of the registrants Current Report on Form 8-K dated as of
December 31, 2002).10.79
    
    
    
    Motion of Arlin M. Adams, Esquire, the Chapter 11 trustee for the
bankruptcy estates of Coram Healthcare Corporation and Coram, Inc.,
dated January 24, 2003, for Authorization To Enter Into Termination
And Employment Extension Agreement With Daniel D. Crowley, filed with
the United States Bankruptcy Court for the District of Delaware.
(Incorporated by reference to Exhibit 99.1 of the registrants Current
Report on Form 8-K dated as of January 14, 2003).10.80
    
    
    
    First Amendment, dated December 13, 2002, to Hemophilia Product Volume
Commitment Agreement by and among Baxter Healthcare Corporation and
Coram, Inc., Through Its Therapeutic Services Division Under Date of
December 19, 2001. Certain portions of the First Amendment to the
Hemophilia Product Volume Commitment Agreement have been omitted
pursuant to a request for confidential treatment. The entire First
Amendment to the Hemophilia Product Volume Commitment has been filed
confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.80 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.81
    
    
    
    Pricing changes letter, dated February 20, 2003, by and among Baxter
Healthcare Corporation and FFF Enterprises, Inc., related to pricing
changes for Coram Healthcare Corporation and Coram, Inc. Certain
portions of the Pricing changes letter have been omitted pursuant to a
request for confidential treatment. The entire Pricing changes letter
has been filed confidentially with the Securities and Exchange
Commission. (Incorporated by reference to Exhibit 10.81 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.82
    
    
    
    Collateralization Agreement, dated January 30, 2003 by and among
Harris Trust and Savings Bank and Arlin M. Adams, Esquire, Trustee for
the bankruptcy cases of Coram Healthcare Corporation and Coram, Inc.
(Incorporated by reference to Exhibit 10.82 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.83
    
    
    
    Agreement, dated March 28, 2003, between Coram Healthcare Corporation
and B. Braun Medical, Inc. for the purchase of Vista Basic IV pumps.
(Incorporated by reference to Exhibit 10.83 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.84
    
    
    
    Settlement Agreement, dated as of October 17, 2002 by and among Coram
Healthcare Corporation, Curaflex Health Services, Inc., and Curascript
Pharmacy, Inc., and Curascript PBM Services, Inc. Certain portions of
the Settlement Agreement have been omitted pursuant to a request for
confidential treatment. The entire Settlement Agreement has been
filed confidentially with the Securities and Exchange Commission.
(Incorporated by reference to Exhibit 10.84 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).10.85
    
    
    
    Coram Employment Agreement, dated August 1, 2000, between Coram, Inc.
and Deborah Meyer. (Incorporated by reference to Exhibit 10.85 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.86
    
    
    
    Coram Employment Agreement, dated August 1, 2000, between Coram, Inc.
and Michael Saracco. (Incorporated by reference to Exhibit 10.86 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.87
    
    
    
    Agreement, dated April 11, 2003, between Coram Healthcare Corporation
and B. Braun Medical, Inc. for the purchase of Vista Basic IV pumps.
(Incorporated by reference to Exhibit 10.87 of the registrants Annual
Report on Form 10-K for the year ended December 31, 2002).




---



##### Table of Contents



10.88
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Scott Danitz. (Incorporated by reference to Exhibit 10.88 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.89
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Debbie Meyer. (Incorporated by reference to Exhibit 10.89 of the
registrants Annual Report on Form 10-K for the year ended December
31, 2002).10.90
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Michael Saracco. (Incorporated by reference to Exhibit 10.90 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.91
    
    
    
    2001 Management Incentive Program Agreement by and among Coram, Inc.
and Allen J. Marabito. (Incorporated by reference to Exhibit 10.91 of
the registrants Annual Report on Form 10-K for the year ended
December 31, 2002).10.92
    
    
    
    Master Agreement, dated December 3, 2002, by and between AT&T
Corporation and Coram, Inc. (Incorporated by reference to Exhibit
10.92 of the registrants Annual Report on Form 10-K/A Amendment No. 1
for the year ended December 31, 2002).10.93
    
    
    
    United States Bankruptcy Court For The District Of Delaware Order
Dated, December 27, 2002, Granting Motion Of The Chapter 11 Trustee
For Authorization To Issue Preferred Stock In Exchange For Debt.
(Incorporated by reference to Exhibit 10.93 of the registrants Annual
Report on Form 10-K/A Amendment No. 1 for the year ended December 31,
2002).10.94
    
    
    
    Abstract from the United States Bankruptcy Court For The District Of
Delaware hearing held on December 27, 2002. (Incorporated by reference
to Exhibit 10.94 of the registrants Annual Report on Form 10-K/A
Amendment No. 1 for the year ended December 31, 2002).10.95
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement and Rider to
2003 Coram Key Employee Retention Incentive Program Agreement by and
between Coram, Inc. and Allen Marabito. (Incorporated by reference to
Exhibit 10.1 of the registrants Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended March 31, 2003).10.96
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement by and between
Coram, Inc. and Scott Danitz. (Incorporated by reference to Exhibit
10.2 of the registrants Quarterly Report on Form 10-Q/A Amendment No.
1 for the quarter ended March 31, 2003).10.97
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement by and between
Coram, Inc. and Deborah Meyer. (Incorporated by reference to Exhibit
10.3 of the registrants Quarterly Report on Form 10-Q/A Amendment No.
1 for the quarter ended March 31, 2003).10.98
    
    
    
    2003 Coram Key Employee Retention Incentive Agreement by and between
Coram, Inc. and Michael Saracco. (Incorporated by reference to Exhibit
10.4 of the registrants Quarterly Report on Form 10-Q/A Amendment No.
1 for the quarter ended March 31, 2003).10.99
    
    
    
    Agreement dated May 12, 2003 between Curaflex Health Services, Inc.
and B. Braun Medical, Inc. for the lease of 1,000 Vista Basic pumps.
(Incorporated by reference to Exhibit 10.5 of the registrants
Quarterly Report on Form 10-Q/A Amendment No. 1 for the quarter ended
March 31, 2003).10.100
    
    
    
    Agreement dated November 17, 1995 by and between McGaw, Inc. and Coram
Healthcare Corporation for the purchase and sale of products,
including various amendments thereto. Certain portions of the
agreement and related amendments have been omitted pursuant to a
request for confidential treatment. The entire agreement and related
amendments have been filed confidentially with the Securities and
Exchange Commission. (Incorporated by reference to Exhibit 10.6 of the
registrants Quarterly Report on Form 10-Q/A Amendment No. 1 for the
quarter ended March 31, 2003).




---



##### Table of Contents



10.101
    
    
    
    Amendment to agreement for purchase and sale of certain disposables
and IV products, dated May 12, 2003, by and between B. Braun Medical,
Inc. and Coram Healthcare Corporation. Certain portions of the
amendment have been omitted pursuant to a request for confidential
treatment. The entire amendment has been filed confidentially with
the Securities and Exchange Commission. (Incorporated by reference to
Exhibit 10.7 of the registrants Quarterly Report on Form 10-Q/A
Amendment No. 1 for the quarter ended March 31, 2003).10.102
    
    
    
    Purchase Agreement, dated May 29, 2003, by and between Baxter
Healthcare Corporation and Coram, Inc. for the purchase and sale of
certain therapeutics. Certain portions of the Purchase Agreement have
been omitted pursuant to a request for confidential treatment. The
entire Purchase Agreement has been filed with the Securities and
Exchange Commission. (Incorporated by reference to Exhibit 10.1 of
the registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2003).10.103
    
    
    
    Settlement Agreement and Mutual Release, dated May 2, 2003, by and
among Hobart G. Truesdell, in his capacity as Chief Restructuring
Officer of Coram Resource Network, Inc. and Coram Independent Practice
Association, Inc., Coram Resource Network, Inc., Coram Independent
Practice Association, Inc., the Official Committee of Unsecured
Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc., Arlin M. Adams, in his capacity as Chapter
11 Trustee for the Bankruptcy Estates of Coram Healthcare Corporation
and Coram, Inc., Coram Healthcare Corporation and Coram, Inc. This
settlement agreement resolves certain claims and counterclaims amongst
the aforementioned parties. (Incorporated by reference to Exhibit
10.2 of the registrants Quarterly Report on Form 10-Q for the quarter
ended June 30, 2003).10.104
    
    
    
    (i) Ancillary Provider Services Agreement, dated January 1, 2001, by
and between Health Net Inc. and Coram, Inc. for the provision of
professional healthcare services, supplies, products and related
services, (ii) First Amendment to the Ancillary Provider Services
Agreement, dated January 1, 2003, by and between Health Net Inc. and
Coram, Inc. and (iii) Second Amendment to the Ancillary Provider
Services Agreement, dated October 1, 2003, by and between Health Net
Inc. and Coram, Inc. Certain portions of the Ancillary Provider
Services Agreement and the first and second amendments thereto have
been omitted pursuant to a request for confidential treatment. The
entire Ancillary Provider Services Agreement and the first and second
amendments thereto have been filed with the Securities and Exchange
Commission. (Incorporated by reference to Exhibit 10.1 of the
registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2003).10.105
    
    
    
    Second Amendment to Hemophilia Product Volume Commitment Agreement,
dated September 24, 2003, by and between Baxter Healthcare Corporation
and Coram, Inc. for the purchase and sale of certain blood products.
Certain portions of the amendment have been omitted pursuant to a
request for confidential treatment. The entire amendment has been
filed with the Securities and Exchange Commission. (Incorporated by
reference to Exhibit 10.2 of the registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 2003).10.106
    
    
    
    Supply Agreement, dated June 10, 1998, by and between Becton Dickinson
and Company and Coram Healthcare Corporation for the purchase and sale
of certain medical devices and healthcare products. Certain portions
of the agreement have been omitted pursuant to a request for
confidential treatment. The entire agreement has been filed with the
Securities and Exchange Commission. (Incorporated by reference to
Exhibit 10.3 of the registrants Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003).10.107
    
    
    
    First Addendum to the Engagement Agreement dated October 8, 2002, by
and between the Chapter 11 Trustee (the Trustee) for the Bankruptcy
Estates of Coram Healthcare Corporation and Coram, Inc., and SSG
Capital Advisors, L.P. and Ewing Bemiss & Co. (collectively the
Advisors) in connection with the Advisors engagement as exclusive
investment bankers and financial advisors to the Trustee.
(Incorporated by reference to Exhibit 10.4 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).10.108
    
    
    
    Settlement Agreement and Mutual Release, dated August 25, 2003, by and
between TBOB Enterprises, Inc. and Arlin M. Adams, as Chapter 11
Trustee for the Bankruptcy Estates of Coram Healthcare Corporation and
Coram, Inc., to settle a contingent consideration dispute.
(Incorporated by reference to Exhibit 10.5 of the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30,
2003).




---



##### Table of Contents



10.109
    
    
    
    Amendment to Purchase Agreement, dated January 15, 2004, between
Baxter Healthcare Corporation and Coram, Inc. for the purchase and
sale of certain therapeutics. Certain portions of the agreement have
been omitted pursuant to a request for confidential treatment. The
entire agreement has been filed with the Securities and Exchange
Commission.*10.110
    
    
    
    Therapeutics and Devices Purchase Agreement, dated March 12, 2004,
between Baxter Healthcare Corporation and Coram, Inc. for the purchase
and sale of certain therapeutics. Certain portions of the agreement
have been omitted pursuant to a request for confidential treatment.
The entire agreement has been filed with the Securities and Exchange
Commission.*10.111
    
    
    
    Therapeutics and Devices Purchase Agreement, dated March 23, 2004,
between Baxter Healthcare Corporation and Coram, Inc. for the purchase
and sale of certain intravenous immunoglobulin products. Certain
portions of the agreement have been omitted pursuant to a request for
confidential treatment. The entire agreement has been filed with the
Securities and Exchange Commission.*10.112
    
    
    
    Medication Delivery Division Infusion Device Group Agreement, dated
December 30, 2003, between Baxter Healthcare Corporation, Coram, Inc.
and Curaflex Health Services, Inc. for the lease of 5,200 6060
Multi-Therapy Ambulatory Infusion Pumps and for the purchase of
related pump accessories. Certain portions of the agreement have been
omitted pursuant to a request for confidential treatment. The entire
agreement has been filed confidentially with the Securities and
Exchange Commission.*10.113
    
    
    
    Second Amendment to Prime Vendor Agreement, dated October 12, 2003,
between Cardinal Health and Coram Healthcare Corporation. Certain
portions of the agreement have been omitted pursuant to a request for
confidential treatment. The entire amendment has been filed
confidentially with the Securities and Exchange Commission.*10.114
    
    
    
    Decision and Stipulation Agreement, dated January 26, 2004, and
Installment Agreement, dated March 3, 2004, between the Department of
Treasury  Internal Revenue Service and T2 Medical, Inc.*10.115
    
    
    
    Second Addendum to the Engagement
Agreement dated October 8, 2002 and
the First Addendum dated July 31, 2003, by and between the Chapter 11
Trustee (the Trustee) for the Bankruptcy Estates of Coram Healthcare
Corporation and Coram, Inc., and SSG Capital Advisors, L.P. and Ewing
Bemiss & Co. (collectively the Advisors) in connection with the
Advisors engagement as exclusive investment bankers and financial
advisors to the Trustee.*10.116
    
    
    
    Agreement dated March 2, 2004, by and between the Chapter 11 Trustee
and Concord Group, Inc. d/b/a Executive Round Table (the Chapter 11
Trustees Financial Advisor) for advisory services that the Chapter
11 Trustees Financial Advisor will perform in connection with the
Chapter 11 Trustees role on the companys audit committee.*10.117
    
    
    
    License and Support Agreement and Software Development Agreement,
dated December 19, 2003, between Specialized Clinical Services, Inc.
and Coram, Inc. for the purchase of and enhancements to certain
software.*10.118
    
    
    
    Medication Delivery Division Purchase Agreement, dated January 5,
2004, between Baxter Healthcare Corporation, Coram, Inc. and Curaflex
Health Services, Inc. for the
purchase and sale of certain frozen drug products. Certain portions of
the agreement have been omitted pursuant to a request for confidential
treatment. The entire agreement has been filed confidentially with the
Securities and Exchange Commission.*10.119
    
    
    
    Mutual Waiver of Damages, dated
April 5, 2004, by and between Baxter
Healthcare Corporation and Coram, Inc.*14.1
    
    
    
    Corporate Compliance Handbook and the Coram Healthcare Corporation
Code of Ethics for Principal Executive Officer(s) and Senior Financial
Officers.*




---



##### Table of Contents



20.1
    
    
    
    Stockholder Rights Agreement (the Stockholder Rights Agreement),
dated as of June 25, 1997, between Coram Healthcare Corporation and
BankBoston, N.A., which includes the form of Certificate of
Designation, Preferences and Rights setting forth the terms of the
Series X Participating Preferred Stock, par value $0.001 per share, as
Exhibit A, the Summary of Stockholder Rights Agreement as Exhibit B
and the form of Rights Certificate as Exhibit C. Pursuant to the
Stockholder Rights Agreement, printed Rights Certificates will not be
mailed until as soon as practicable after the earlier of the tenth
business day after public announcement that a person or group has
become an Acquiring Person or the tenth business day after a person
commences, or announces its intention to commence, a tender offer or
exchange offer the consummation of which would result in such person
becoming an Acquiring Person. (Incorporated by reference to Exhibit 1
of the registrants Current Report on Form 8-K dated as of June 25,
1997).21.1
    
    
    
    Subsidiaries of the registrant.*23.1
    
    
    
    Consent of Ernst & Young LLP.*31.1
    
    
    
    Chief Executive Officer Certification pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of Regulation 13a of the Securities Exchange Act of
1934, as amended. *31.2
    
    
    
    Chief Financial Officer Certification pursuant to Rule 13a-14(a) and
Rule 15d-14(a) of Regulation 13a of the Securities Exchange Act of
1934, as amended. *32.1
    
    
    
    Chief Executive Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002. *32.2
    
    
    
    Chief Financial Officer Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of
2002. *99.1
    
    
    
    Chapter 11 Trustees Amended Joint Plan Of Reorganization.
(Incorporated by reference to Exhibit 99.1 of the registrants Current
Report on Form 8-K filed on July 11, 2003).99.2
    
    
    
    Second Amended Disclosure Statement With Respect To The Chapter 11
Trustees Amended Joint Plan Of Reorganization. (Incorporated by
reference to Exhibit 99.2 of the registrants Current Report on Form
8-K filed on July 11, 2003).99.3
    
    
    
    Second Amended Plan of Reorganization Of The Official Committee Of
Equity Security Holders Of Coram Healthcare Corporation and Coram,
Inc. (Incorporated by reference to Exhibit 99.3 of the registrants
Current Report on Form 8-K filed on July 11, 2003).99.4
    
    
    
    Third Amended Disclosure Statement Of The Equity Committee Of Coram
Healthcare Corporation In Connection With The Second Amended Plan Of
Reorganization Of Coram Healthcare Corporation And Coram, Inc.
(Incorporated by reference to Exhibit 99.4 of the registrants Current
Report on Form 8-K filed on July 11, 2003).99.5
    
    
    
    Modification to the Chapter 11 Trustees Amended Joint Plan of
Reorganization. (Incorporated by reference to Exhibit 99.1 of the
registrants Current Report on Form 8-K filed on September 23, 2003).99.6
    
    
    
    Plan Supplement To The Chapter 11 Trustees Amended Joint Plan of
Reorganization. (Incorporated by reference to Exhibit 99.1 of the
registrants Current Report on Form 8-K filed on October 14, 2003).99.7
    
    
    
    Initial Plan Supplement To The Second Amended Plan Of Reorganization
Of The Official Committee Of Equity Security Holders Of Coram
Healthcare Corporation. (Incorporated by reference to Exhibit 99.2 of
the registrants Current Report on Form 8-K filed on October 14,
2003).99.8
    
    
    
    Second Supplement To The Second Amended Plan Of Reorganization Of The
Official Committee Of Equity Security Holders Of Coram Healthcare
Corporation. (Incorporated by reference to Exhibit 99.3 of the
registrants Current Report on Form 8-K filed on October 14, 2003).




---



##### Table of Contents



99.9
    
    
    
    Amendment To Second Supplement To The Second Amended Plan Of
Reorganization Of The Official Committee Of Equity Security Holders Of
Coram Healthcare Corporation And Coram, Inc. (Incorporated by
reference to Exhibit 99.1 of the registrants Current Report on Form
8-K filed on February 26, 2004).
  (a)
    
    Certain exhibits and schedules of this Exhibit have been omitted. The
registrant agrees to supplementally furnish any omitted schedule or
exhibit to the Securities and Exchange Commission.*
    
    Filed herewith.