CORAM HEALTHCARE CORP - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
COMMISSION FILE NUMBER 1-11343

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

DELAWARE 33-0615337
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)

1675 BROADWAY, SUITE 900
DENVER, 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:

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 11, 2003, 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 11, 2003, 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 28, 2002, 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 $31.3 million.

DOCUMENTS INCORPORATED BY REFERENCE
None

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 Coram's 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 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 obtain necessary financing to fund a pending 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
successfully implement significant additions to or modifications of its
company-wide information systems; the company's need for financing related to
additions to, and upgrades of, current information technology systems; the
company's ability to obtain adequate funding for and successfully deploy certain
critical replacement infusion pumps and related tubing sets for certain products
that have been discontinued by a vendor; the company's dependence upon the
prices paid by third-party payers for the company's services; adverse changes in
the average wholesale prices paid for drugs that Coram provides to its patients;
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, 2002, 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 and, through July 31, 2000,
pharmacy benefit management and specialty mail order pharmacy services. See Note
17 to the company's Consolidated Financial Statements for further discussion of
the company's industry segments.

Coram's primary business strategy is to focus its efforts on the delivery
of its core infusion therapies, such as nutrition, anti-infective therapies,
pain management, intravenous immunoglobulin ("IVIG"), therapies for persons
receiving transplants and coagulant and blood clotting therapies for persons
with hemophilia. Management has implemented programs focused on the reduction
and control of the costs of providing services and operating expenses,
assessment of under-performing branches and review of branch efficiencies. In
connection therewith, several branches have been closed or scaled back to serve
as satellites for other branches and personnel have been eliminated (see Note 6
to the company's Consolidated Financial Statements). Most of the company's
alternate site infusion therapy net revenue is derived from third-party payers
such as private indemnity insurers, managed care organizations 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, cost reductions have been
achieved while simultaneously improving the quality and consistency of care.
Furthermore, management continues to concentrate on reimbursement for services
rendered 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.

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Prior to August 1, 2000, the company delivered pharmacy benefit management
and specialty mail-order pharmacy services through its Coram Prescription
Services ("CPS") business, which provided services and mail-order prescription
drugs for chronically ill patients from one primary mail order facility, four
satellite mail order facilities and one retail pharmacy. CPS's pharmacy benefit
management services were delivered through a network of retail pharmacies, which
provided on-line claims administration, formulary management and certain drug
utilization review services. CPS's specialty mail-order pharmacy services were
delivered through its six facilities, which provided distribution, compliance
monitoring, patient education and clinical support to a wide variety of
patients. On July 31, 2000, the company completed the sale of CPS to Curascript
Pharmacy Services, Inc. and Curascript PBM Services, Inc., which were newly
formed affiliates of GTCR Golder Rauner, L.L.C. and are led by certain members
of the former CPS management team. See Note 5 to the company's Consolidated
Financial Statements for further details.

While management believes the implementation of its overall business
strategy has improved operating performance throughout the company, no
assurances can be given as to its ultimate success. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

COMPANY HISTORY

Coram was formed on July 8, 1994 as a result of a merger by and among
T(2) 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. In
addition, effective September 12, 1994, Coram acquired H.M.S.S., Inc., a leading
regional provider of home infusion therapies based in Houston, Texas. As a
result of these and other acquisitions, Coram became 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, 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, the Debtors are no longer debtors-in-possession under
Chapter 11 of the Bankruptcy Code. None of the company'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 the company's other subsidiaries is a debtor
in any bankruptcy case. 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: Risk Factors" 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.
Additionally, Coram delivers alternate site infusion therapy services through
joint venture and partnership agreements at several other geographic locations.
Infusion therapy involves the parenteral administration of nutrition,
anti-infective therapies, intravenous immunoglobulin ("IVIG"), coagulant and
blood clotting, pain management, chemotherapy and other therapies, as well as,
the provision of enteral nutrition.

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 freedom 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.

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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;

(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,
collections and benefit verification;

(ix) marketing to local referral sources, including doctors, hospitals
and payers; and

(x) general management.

A typical full service branch has a fully equipped infusion pharmacy,
offices for clinical and administrative personnel and a storage warehouse. It
also employs a branch manager, licensed pharmacists, pharmacy technicians,
registered nurses, dietitians, and sales and administrative personnel. Such a
branch also 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 locations
maintain limited supplies and pharmacy operations and are used as support
centers to respond to patient needs in specific geographic areas. Coram's full
service branches and satellite locations are leased and range from 530 to 32,000
square feet of space, primarily in suburban office parks, 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, assessment of
certain social factors such as the safety and cleanliness of the home
environment and the availability of family members or others to assist in the
administration of the patient's therapy, if necessary. 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 provider or governmental payer.

When 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 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.

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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 or carepartner has 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. 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.

ALTERNATE SITE INFUSION THERAPY: PRODUCTS AND SERVICES

General. Coram provides a variety of infusion therapies, principally
nutrition, anti-infective therapies, 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 therapies, 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 designated carepartner or an employee of Coram administers infusion
therapies at the patient's home. In some patient groups, such as
immuno-suppressed patients (e.g., AIDS/HIV, cancer, transplant patients, etc.),
blood coagulant therapies or anti-infective therapies 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 to introduce the nutrient solution 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 parenteral nutrition patients suffer is recurrent in
nature requiring periodic re-hospitalization for treatment followed by
resumption of parenteral nutrition at home. Some patients must remain on 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 longer.

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 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 (e.g., epidural) therapy, often in
connection with the delivery of other core 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 which affect the blood's ability to clot. In these
disorders, one or more of the normal blood clotting factors is not produced in
sufficient amounts by

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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. Persons with hemophilia and others who have inherited
clotting disorders will require these products throughout their lives.

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 market, 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 (a single patient's
requirements may, at any given time, expend what would otherwise be adequate
inventory for multiple patients) 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. Additionally, management is taking further proactive steps to ensure a
ready supply of factor products for current and future patients. However,
product shortages will continue to occur due to the nature of the manufacturing
and regulatory environment of 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 is
providing 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 partnership 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, and anti-nausea therapy for chemotherapy induced emesis or hyperemesis
gravidarum. Hydration therapy is often administered in conjunction with
intravenous chemotherapy. Other non-core therapies, as described herein, are not
generally 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. At December 31, 2001, the branches were
divided into two geographic areas, each having a Senior Vice President of
Operations. During the year ended December 31, 2002, the company further 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 President and
an Area Vice President of Sales reporting directly to the Senior Vice President
of Sales. The aforementioned changes during 2002 fostered a greater level of
interactive collaboration between the Area Vice Presidents of Sales and the
company's sales force and allowed the Senior Vice Presidents of Operations to
focus on their areas in a more comprehensive manner. Moreover, this
organizational structure was designed to create operating and decision-making
efficiencies. Management believes that the functional approach to management
facilitates high quality local decision-making, which allows Coram to attract
and retain experienced local managers and be responsive to local market needs.
Management continuously reviews operations, focusing on cost effective delivery
of quality patient care. For example, Coram established a Hemophilia Services
Division and specialty hemophilia distribution centers in Malvern, Pennsylvania,

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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.

Coram endeavors to ensure that its local managers have the appropriate
authority and ability to perform effectively by providing training, education,
policies and procedures and standardized systems. Coram maintains various
management incentive plans that reward performance based on revenue growth,
accounts receivable collection, inventory control and contribution of earnings
before interest expense, income taxes, depreciation and amortization ("EBITDA").

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. The company successfully completed
its triennial survey of all locations with the Joint Commission on the
Accreditation of Health Care Organizations in 2001. In anticipation of the
beginning of a new triennial period and as a normal course of business, Coram
evaluated its options for accreditation by a nationally recognized independent
organization. In connection therewith, Coram elected to pursue recurring
national accreditation from the Accreditation Commission on Health Care, Inc.
("ACHC"). To prevent a lapse in accreditation, Coram underwent its corporate
survey with ACHC in December 2001 and received Accreditation with Commendation,
which applies to all services provided at all locations effective January 1,
2002. ACHC will conduct ongoing surveys at Coram locations to monitor continued
compliance with ACHC standards throughout the three year accreditation period.
During the year ended 2002, thirty six locations participated in the ACHC survey
process and all such locations received accreditation.

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,
responding as necessary to achieve better customer service;

(iv) monitor clinical outcome measures, including access device related
outcomes and rehospitalizations, analyze trends and act as necessary
to improve customer 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 the 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 local and national
levels, as well as, the comprehensive tracking, measuring and monitoring of
important clinical outcomes. It also encompasses the measurement of management's
success in achieving the desired operational and fiscal benchmarks that are key
to the company's success.

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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 Detroit, Michigan.
Coram also provides these services through one of its partnerships with three
locations in Wisconsin. In 2002, Coram completed the sale of its respiratory and
durable medical equipment business located in New Orleans, Louisiana (see Notes
3 and 5 to the company's Consolidated Financial Statements for further details)
and closed its Casper, Wyoming facility.

CLINICAL RESEARCH

Coram has been providing support services for clinical research studies
since 1995. In 1998, the company created a Clinical Research division and began
devoting additional resources to, and actively marketing, its capabilities in
this area. This division is operated through the company's wholly-owned
subsidiary, CTI Network, Inc. ("CTI"). Utilizing integrated information systems
and Coram's national network of approximately 700 full-time equivalent 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, dialysis
and cardioplegia solutions, which are compounded and dispensed by select Coram
branch pharmacies under highly controlled conditions that are consistent with
guidelines established by the American Society of Health-System Pharmacists.
Each bag of compounded solution is individually labeled based on customer
specifications and delivered to the hospital on a daily basis. 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.

8

CPS: PHARMACY BENEFIT MANAGEMENT AND SPECIALTY MAIL-ORDER PHARMACY SERVICES

On July 31, 2000, the company completed the sale of CPS to Curascript
Pharmacy Services, Inc. and Curascript PBM Services, Inc. (collectively the
"Buyers"). The Buyers were newly formed affiliates of GTCR Golder Rauner, L.L.C.
and were led by certain members of the former CPS management team. See Note 5 to
the company's Consolidated Financial Statements for further details.

CPS offered HMO, PPO, at-risk physician groups, self funded employer
benefit plans, labor organizations and other managed care customers pharmacy
benefit management and specialty mail-order pharmacy services. The pharmacy
benefit management services included on-line claims administration, formulary
management and drug utilization review and were provided through a nationwide
network of over 51,000 retail pharmacies. The company generally maintained
approximately 60 such arrangements in place for pharmacy benefit management
services. CPS's specialty mail-order pharmacy service included centralized
distribution, compliance monitoring, patient education and clinical support to
patients with specialized needs. In particular, CPS focused its marketing
efforts on patients with organ transplants, HIV/AIDS, growth deficiencies and
other chronic conditions. As of July 31, 2000, CPS had approximately 6,200
active patients receiving its specialty mail-order pharmacy services.

REIMBURSEMENT OF SERVICES

Virtually all of Coram's operating revenue is derived from third-party
payers, including private insurers, managed care organizations such as HMOs and
PPOs, at-risk physician groups 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. 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 management. 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 will be received in a timely
manner.

In certain instances, fixed fee or capitated fee arrangements are utilized.
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 per member per month rates will be adjusted or reconciled
periodically to reflect actual utilization to prevent excess losses by the
company or excess expenditures by the payer customer. As of December 31, 2002,
Coram was a party to only three capitated arrangements (one of which converted
to a fee-for-service arrangement effective January 1, 2003). Capitated contracts
represented approximately 8.0%, 6.3% and 4.0% of the company's consolidated net
revenue for the years ended December 31, 2002, 2001 and 2000, respectively.
Approximately 6.6%, 5.5% and 3.4% of the company's consolidated net revenue for
the years ended December 31, 2002, 2001 and 2000, respectively, related to a
capitated agreement that provides services to members in the California
marketplace. See Note 2 to the company's Consolidated Financial Statements for
further details.

Reimbursement amounts are collected from various sources, such as insurance
companies, self-insured employers, patients and the Medicare and Medicaid
programs. The Centers for Medicare & Medicaid Services ("CMS") has developed,
for use in the Medicare Part B program, a national fee schedule for respiratory
therapy, home medical equipment and infusion therapy, which provides
reimbursement at 80% of the amount of any fee on the designated fee schedule.
The remaining 20% co-insurance portion is the obligation of secondary insurance
and/or the patient. A substantial amount of the revenue Coram earns under the
Medicare program originates from the Part B program. Private indemnity payers
typically reimburse at a higher amount for a given service and provide a broader
range of benefits than governmental and managed care payers, although net
revenue and gross profit from both private and other third-party
non-governmental payers have been affected by continuing efforts to contain or
reduce reimbursement for healthcare services. In recent years, an increasing
percentage of Coram's net revenue has been derived from agreements with HMOs,
PPOs, managed care providers and other contracted payers. Although these
agreements often provide for negotiated reimbursement at reduced rates, they
generally result in lower bad debts and provide opportunities to capture a
greater volume of business as compared to traditional indemnity referrals.

Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation and revision. Management acknowledges and
is complying with certain ongoing audits and reviews with respect to prior
reimbursements from Medicare and Medicaid. While management believes that the
company is in substantial compliance with all applicable laws and regulations,
compliance with such laws and regulations can be subject to future government
review and interpretation, as well as, significant regulatory action, including
fines, penalties and exclusion from the Medicare and Medicaid programs. To
minimize the

9

potential exposure to the company and to more readily comply with the applicable
federal and state regulations, Coram established a national compliance committee
to regularly review audit activity and to identify and correct compliance
issues. See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations: Risk Factors" for further details.

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 is generally 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. There can be no assurances
that government or private healthcare programs 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 government or private
health insurance programs 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 Regulations" 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. In December 2000, Coram announced that as part of its continuing
efforts to improve efficiency and overall performance, several Patient Financial
Service Centers (reimbursement sites) were being consolidated and the related
reimbursement positions were being eliminated. By consolidating to fewer sites,
management expects 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 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. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations: Risk Factors" for
further details.

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; and

(iv) physicians and physician-owned organizations, such as independent
practice associations and multi-specialty group practices.

Coram has experienced increased competition in its alternate site infusion
therapy business from hospitals and physicians that have sought to increase the
scope of services offered through their facilities, 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. This change in business strategy by one
of the company's national competitors 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 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

10

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
healthcare 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.

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
and/or EBITDA enhancements.

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
organizations and provider networks that offer high quality, cost-effective
care. Coram maintains a dedicated sales force in 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 a
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 persons with hemophilia and for persons
receiving certain types of organ and bone marrow/blood cell transplants.

Sales and marketing activities for CTI are directed at the top fifty
pharmaceutical and biotech companies conducting clinical research studies
related to biologics, intravenous injectables, devices and oral and enteral
medications within 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 conventions and distribution of direct mail information.
Marketing efforts focus on the presentation of CTI's clinical research in
multiple therapeutic areas and CTI's dedicated staff. In addition, satisfaction
surveys with existing clients have proven to be an important tool for CTI and
such surveys have contributed to several new study awards from
pharmaceutical/biotech companies. Furthermore, during 2002 CTI began advertising
in a clinical research publication.

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

11

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 volume pricing discounts to study sponsors.
CTI's overall objective is to be a pharmaceutical/biotech company's preferred
in-house clinical research provider.

SoluNet's services are marketed through its Business Development Managers
who are responsible for established national sales territories. Using public
healthcare information sources, such as the American Hospital Association, and
proprietary data collected from the company's network of infusion branches,
SoluNet targets specific markets for business development based upon the
presence of large hospitals and hospital systems, which represent the best
potential sources of new business. Additionally, SoluNet participates in and
demonstrates its capabilities at selected trade shows, including the American
Society of Health System Pharmacist's Midyear Clinical Meeting.

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 25% of consolidated net revenue for the year ended
December 31, 2002. No other payer accounted for more than 5% of Coram's net
revenue during 2002, except for one payer with a capitated contract in the
California marketplace.

The aforementioned capitated contract in the California marketplace
represented approximately 6.6% of the company's consolidated revenue during the
year ended December 31, 2002. Additionally, Coram owns 50% of a partnership
located in California that derived approximately 41.8% of its net revenue during
2002 from services provided under such capitated agreement. Risk under this
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 underlying two year agreement expired by
its terms on December 31, 2002 but it is subject to automatic annual renewals
absent a written termination notice from one of the contracting parties. The
company and its partnership continue to render services subject to the automatic
renewal provisions of the contract. On February 28, 2003, the contracted payer
invited Coram, as well as a limited group of other providers, to respond to a
request for proposal ("RFP") that covers the services provided exclusively by
Coram. Management believes that the payer will select a provider or providers in
July 2003 and the new contract or contracts will become effective January 1,
2004. Management can provide no assurances that the company will successfully
procure such contract on economic and operational terms that are favorable to
the company. The loss of this capitated contract or significant modifications to
the terms and conditions of the existing contract could have a materially
adverse impact on the results of operations, cash flows and financial condition
of the company and its partnership. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations: Risk Factors" for
further details.

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
ongoing bankruptcy proceedings. 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.
Management's understanding of alternate vendor sources includes products
currently being purchased through Cardinal Health, Inc., FFF Enterprises, Inc.
and Baxter Healthcare Corporation, three of Coram's major suppliers of drugs and
supplies. During the year ended December 31, 2002, Coram purchased drugs and
supplies aggregating approximately $61.2 million from Cardinal Health, Inc.,
$43.9 million from FFF Enterprises, Inc. and $27.5 million from Baxter
Healthcare Corporation, or approximately 34%, 24% and 15%, respectively, of its
total drugs and supplies.

The principal supplier of Coram's infusion pumps, Sabratek Corporation
("Sabratek"), filed for protection under Chapter 11 of the Bankruptcy Code on
December 17, 1999. In January 2000, Baxter Healthcare Corporation ("Baxter")
purchased certain Sabratek assets, including Sabratek's pump manufacturing
division, and continued to produce the related tubing and infusion sets needed
to operate the Sabratek pole-mounted 3030 Pumps (the "3030 Pumps") and the
Sabratek 6060 Homerun Pumps (the "6060 Pumps") that are used by Coram. Baxter
previously discontinued production of the 3030 Pumps and, in March 2003,
manufacturing of the related tubing and infusion sets necessary for repairs and
operation of such pumps was also terminated, thereby substantially exhausting
the company's inventory of such required supplies. In response to this inventory
shortage, management has taken certain steps to ensure that patient care will
not be disrupted while the company transitions to alternate tubing and infusion
set sources. As a result of the company's longstanding evaluation of several
pole-mounted infusion pump alternatives, including local branch comparative
clinical

12

and operational testing, management concluded that the company should replace
its entire fleet of 3030 Pumps. In connection therewith, Coram entered into two
separate agreements with B. Braun Medical, Inc. ("B. Braun") in 2003 to purchase
1,000 Vista Basic pole-mounted pumps at an aggregate cost of approximately $1.5
million. Additionally, the Chapter 11 trustee filed a motion in the Bankruptcy
Court seeking approval for the company to lease an additional 1,000 Vista Basic
pumps from B. Braun for an aggregate three year commitment, including related
interest, of approximately $1.5 million. The Bankruptcy Court is scheduled to
hear the aforementioned motion on May 1, 2003. Management is taking other
actions, including, but not limited to, comprehensive employee training, to
ensure a smooth transition from the 3030 Pumps to the Vista Basic pumps.
However, no assurances can be provided that patient care will not be disrupted
due to the pole-mounted infusion pump transition or the company's ongoing
shortage of 3030 Pump tubing and infusion sets during the transition period.

Management expects that Baxter will extend the period during which it will
produce the tubing and infusion sets necessary for operation of the 6060 Pumps;
however, no assurances can be given that Baxter will make such an extension.
Moreover, the company's fleet of 6060 Pumps requires certain costly software and
hardware upgrades and the 6060 Pumps are currently experiencing significant and
recurring repairs that are not covered under warranty. Such upgrades and
extensive ongoing repairs will require a substantial cash outlay by the company
and would temporarily remove numerous company-owned pumps from revenue-producing
activities (thereby requiring the company to lease incremental pumps on a
month-to-month basis). Given the issues surrounding the 6060 pumps, management
is currently evaluating several alternatives, including replacement of the
entire 5,500 unit fleet. No assurances can be given that the company will
develop an alternative that will be economically viable, including
identification of a source of long-term financing, or meet with the approval of
the Chapter 11 trustee and the Bankruptcy Court.

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, the provision of pharmacy, 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 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.

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 and all other applicable 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 the activities of
Coram will not be reviewed and challenged or that government sponsored
healthcare reform, if enacted, 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 general 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
construed broadly and has not

13

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
service agreements pursuant to which the company provides pharmacy products. In
each case, the relationship has been structured, based on advice of legal
counsel, using an arrangement management 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 9 to the company's Consolidated Financial
Statements for further details), at December 31, 2002 the company's
stockholders' equity was above the required level. However, in light of the
company's recurring operational losses during each of the years in the three
year period ended December 31, 2002, 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 the
company'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 Medicare or Medicaid programs or run a
significant risk of noncompliance with Stark II. Because referrals of the
company's patients with such government-sponsored benefit programs comprise
approximately 25% of the company's consolidated net revenue for the year ended
December 31, 2002, discontinuing the acceptance of patients with
government-sponsored benefit programs would have a material adverse effect on
the financial condition, results of operations and cash flows of the company.
Additionally, ceasing to accept such referrals could materially adversely affect
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 can also be

14

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.

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.

Medicare and Healthcare Reform. As part of the Balanced Budget Act of 1997
(the "BBA"), Congress made numerous changes that affect Part A certified home
health agencies and 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") and the Medicare,
Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (the "BIPA").

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. CMS has
indicated that the new compliance date will be sixty days after the publication
of the final rule. Management believes that, based upon currently available
information derived from discussions with surety bond brokers and organizations
that issue surety bonds, the necessary bonds will not be generally available to
home health providers until CMS revises its bonding requirements in a way that
clarifies and/or limits the types of liabilities that will be covered by the
bonds. As of April 11, 2003, the company had only one Medicare Part A certified
home health provider location, which has not obtained a surety bond.

As required by the BBA, CMS also intends to issue separate surety bond
regulations applicable to Medicare Part B suppliers; however, such regulations
have not yet been finalized. Virtually all of Coram's branch offices participate
as suppliers in the Medicare Part B program. Additionally, similar bonding
requirements are being reviewed by state Medicaid programs and at least one
state requires Medicaid suppliers to maintain a surety bond. 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 have to cease its participation in the Medicare and/or Medicaid
programs for some or all of its branch locations. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations:
Liquidity and Capital Resources - Part A and Part B Medicare Surety Bonds" for
further details.

The BBA also reduced reimbursement for oxygen and oxygen related therapies
by 25% effective January 1, 1998 with an additional 5% reduction effective
January 1, 1999 and in subsequent years. In addition, the BBA eliminated
consumer price index updates for durable medical equipment and parenteral and
enteral nutrients, supplies and equipment for five years, thereby "freezing" the
payment amount for such items until the year 2003. The BBRA restored a portion
of the durable medical equipment and oxygen payments for 2001 and 2002, and the
BIPA further modified payments for durable medical equipment by providing a full
inflation update for items of durable medical equipment (but not oxygen and
oxygen equipment) in 2001.

The BBA also mandated the implementation of a prospective payment system
("PPS") for home health services, which went into effect on October 1, 2000.
Under PPS, Medicare pays home health agencies for each covered 60-day episode of
care, based on the care needs of the patients, as determined by a standardized
assessment tool used to assess patient needs. Agencies are also eligible for
outlier payments if the costs of caring for an individual beneficiary are
significantly higher than the specified payment rate. The BIPA

15

delayed a scheduled 15% reduction in aggregate home health PPS amounts until
October 1, 2002. The Medicare Payment Advisory Commission ("MedPAC"), a
Congressional advisory panel, did not endorse repealing the 15% cut in PPS rates
in its March 2003 report to Congress.

The aggregate amount of Medicare payments to home health agencies in each
of the fiscal years 2002 and 2003 will equal the aggregate payments in the
preceding fiscal year, updated by the market basket index ("MBI") increase,
minus 1.1%. For fiscal year 2004, home health agencies are scheduled to receive
a full MBI update. However, MedPAC's March 2003 report to Congress recommended
that this fiscal year 2004 MBI update be eliminated because of high industry
profit margins. MedPAC also recommended that Congress provide additional funding
for certain home health agencies serving beneficiaries in rural areas.

The BIPA also addressed CMS' policies regarding coverage of and payment for
drugs and biologicals. For instance, the BIPA required that payment for drugs
under Part B of the Medicare program be made on an assigned basis; in other
words, the provider must accept the Medicare fee schedule amount as payment in
full.

The BIPA further addressed CMS' attempts to modify the use of the average
wholesale price ("AWP") for purposes of Medicare payment for certain drugs. In
recent years, state and federal government enforcement agencies have conducted
ongoing investigations of manufacturers' practices with respect to AWP in which
they have suggested that "inflated" AWPs have led to excessive government
payments for prescription drugs and biologicals. Several private lawsuits have
also been filed against manufacturers based on similar allegations seeking
recoveries on behalf of patients and private healthcare plans. As a result of
these investigations, federal and state policymakers have begun to question the
appropriateness of continuing to reimburse for drugs and biologicals under
federal programs using AWP-based methodologies. For example, the BIPA required
the General Accounting Office ("GAO") to study Medicare reimbursement for drugs
and biologicals and related services. The Secretary of the Department of Health
and Human Services (the "DHHS") is required to revise the current Medicare
payment methodologies for covered drugs and biologicals and related services
based on the GAO's recommendations. The BIPA also placed a temporary moratorium
on decreases (but not increases) in Medicare reimbursement for Part B drugs
until the Secretary of the DHHS reviews the GAO report.

The GAO released its AWP report in September 2001, which found that
physicians are able to obtain Medicare-covered drugs at prices significantly
below current Medicare payments. Likewise, the GAO found that wholesalers' and
group purchasing organizations' prices, which would generally be available to
physicians, were less than AWPs used to establish the Medicare payment for these
drugs. In connection with these findings, the GAO recommended that CMS reimburse
providers for Medicare Part B-covered drugs and related services at levels
reflecting the provider's acquisition costs. CMS agreed that Medicare should
appropriately pay for both Part B-covered drugs and the services required to
furnish them, although CMS has not yet released a comprehensive plan to reform
drug payments. However, 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 (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. A number of legislative proposals to revise the
Medicare payment methodology for drugs and biologicals has also been introduced
in Congress, but they have not been enacted to date.

In addition, as part of government investigations of AWP, 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. The Medicare program proposed that these revised AWPs be
used in determining Medicare reimbursement amounts, but this proposal was
withdrawn in light of the BIPA provision described above. However, according to
an October 2001 report by the DHHS Office of Inspector General, approximately 30
state Medicaid programs are using the revised AWPs to establish reimbursement
amounts for some of the listed drugs and biologicals in certain patient care
settings. If government or private health insurance programs discontinue or
modify the use of AWP or otherwise adopt payment reductions for drugs or
biologicals, it could adversely affect Coram's reimbursement for these products.

The BBA also authorized certain demonstration projects for competitive
bidding through December 31, 2002. The first competitive bidding project in Polk
County, Florida used payment rates that were between 13% and 31% lower than
Medicare's existing fee schedule for five categories of products, including
oxygen equipment and supplies, enteral nutrition equipment and supplies and
urological supplies. Another round of competitive bidding began in Polk County
in October 2001, covering oxygen equipment and supplies, hospital beds and
accessories, urological supplies and surgical dressings. A second competitive
bidding project was launched on February 1, 2001 in the San Antonio, Texas area
and applied to, among other things, oxygen equipment and supplies and nebulizer
inhalation drugs. Although CMS' competitive bidding demonstration projects have
lapsed, President Bush and

16

many members of Congress have called for expanded Medicare competitive bidding
authority for medical equipment, and corresponding legislation could be
considered in the future to provide for such programs.

The long-range impact of the home health prospective payment system and
future competitive bidding projects is unclear. Accordingly, there can be no
assurances that adoption of these or other payment systems and the
implementation of the Medicare reimbursement reductions and freezes described
above will not result in a material decrease in the amount of reimbursement
Coram receives from the Medicare program for the services it currently provides
and any other home health or related oxygen, durable medical equipment or home
infusion services Coram may provide in the future.

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. Sanctions for failing to comply with the HIPAA health
information practices provisions include criminal penalties and civil sanctions.

Although HIPAA was intended ultimately to reduce administrative expenses
and burdens faced within the healthcare industry, the law may initially bring
about significant and, in some cases, costly changes. The DHHS has released
three 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. This rule went into effect 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 will 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.

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. The privacy standards
were issued on December 28, 2000 and became effective on April 14, 2001, with a
mandatory compliance date of April 14, 2003. In August 2002, the DHHS announced
final revisions to certain aspects of the privacy rule but did not change the
compliance date. As of April 11, 2003, Coram has completed company-wide employee
training, established new policies and procedures related to the privacy of
protected healthcare information and has created, or is in the process of
creating, business associates agreements in accordance with 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 will be effective April 21, 2003 with a mandatory
compliance date of April 21, 2005 for most covered entities.

The company is evaluating the effect of HIPAA and taking steps to achieve
compliance. At this time, management anticipates that the company will be able
to fully comply with the HIPAA requirements that have been adopted. However,
management cannot, at this time, estimate the cost of such compliance, nor can
management estimate the 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.

Further statutes or regulations may be adopted which 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. There is significant national concern today
about the availability and rising cost of healthcare in the United States. It is
anticipated that new federal and/or state legislation will be passed and
regulations adopted to attempt to provide broader and better healthcare services
and to manage and contain costs. Management is unable to predict the content of
any legislation or what, if any, changes may occur in the method and rates of
Medicare and Medicaid reimbursement or other governmental regulations that may

17

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 its operations,
as currently conducted, are in material compliance with existing applicable
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 facility to obtain, renew or maintain any required
regulatory approvals or licenses could adversely affect the existing operations
of that branch facility.

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 Boards 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 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.

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

18

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 and a Senior Vice President of Operations, along with 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 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, or any combination of the penalties discussed above, depending upon
the agency involved in such investigation and prosecution.

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

As of December 31, 2002, Coram had approximately 2,300 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 32% 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
its 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 11, 2003, Coram maintained 77 branch locations
throughout the United States and Canada, totaling approximately 0.8 million
square feet of facility space with annual rent aggregating approximately $9.7
million. In addition, the company maintains a lease agreement that expires on
August 31, 2003 for space in Bannockburn, Illinois where the company's
information systems equipment and personnel and the CTI business are located.
Management is currently reviewing several real property alternatives for the
existing Bannockburn, Illinois operations, including a proposed consolidation of
such facility with the company's Mount Prospect, Illinois branch location.
Moreover, management believes that a lease termination at any one facility would
not materially affect the company's operations.

In September 2000, the Bankruptcy Court approved a Debtors' motion to
reject four unexpired, non-residential real property leases and any associated
subleases. The rejected leases included underutilized locations in: (i)
Allentown, Pennsylvania; (ii) Denver, Colorado; (iii) Philadelphia,
Pennsylvania; and (iv) Whippany, New Jersey. In December 2002, the Bankruptcy
Court extended the Debtors' motion to assume or reject unexpired leases of
non-residential real property up to and including June 30, 2003.

ITEM 3. LEGAL PROCEEDINGS

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 to the
company's Consolidated Financial Statements 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 through the
proceedings within 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. The Official Committee of the Equity Security Holders of Coram
Healthcare Corporation (the "Equity Committee") objected to the Restated Joint
Plan and the Second Joint Plan, contending, among other things, that the
valuations upon which the Restated Joint Plan and the Second Joint Plan were
premised and the underlying projections and assumptions were flawed. At various
times during 2001, the Debtors and the Equity Committee

19

reviewed certain company information regarding, among other things, the Equity
Committee's contentions. In connection therewith, on July 30, 2001, the Equity
Committee filed a motion to terminate the Debtors' exclusivity period and file
its own plan of reorganization; however, such motion was denied by the
Bankruptcy Court.

Additionally, in February 2001, the Equity Committee filed a motion with
the Bankruptcy Court seeking permission to bring a derivative lawsuit directly
against the company's 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 of
reorganization terminated, the Equity Committee filed a proposed plan of
reorganization (the "Proposed Equity Committee Plan") in respect of the Debtors'
in the Bankruptcy Court on December 19, 2002. The Proposed Equity Committee Plan
incorporates a variation of the aforementioned proposed derivative lawsuit. See
Note 3 to the company's Consolidated Financial Statements for further discussion
of the status of the Proposed Equity Committee Plan and the related Disclosure
Statement within the Debtors' bankruptcy proceedings.

Management is aware that the Chapter 11 trustee continues to be engaged in
settlement discussions and negotiations with the company's noteholders, the
Equity Committee and other interested parties in connection with settling
disputes and attempting to negotiate a consensual plan or plans of
reorganization. Management cannot predict whether an amicable settlement will be
reached, the ultimate outcome of the Proposed Equity Committee Plan, whether
future objections of any party will be forthcoming to a proposed plan or plans
of reorganization or how a future settlement or objections thereto might impact
confirmation of any plan or plans of reorganization proposed by the Chapter 11
trustee, the Equity Committee or any other interested party.

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.s 99-2888 (MFW) and 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. A complete description of such
plan is set forth in the disclosure statement filed contemporaneously therewith,
which is available on the docket of the Resource Network Subsidiaries'
bankruptcy cases at docket numbers 1003 and 1004. The Chapter 11 trustee has
objected to the disclosure statement and a hearing thereon is currently
scheduled for May 14, 2003.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Bankruptcy Cases seeking, among other things, to have the Resource Network
Subsidiaries' bankruptcy proceedings substantively consolidated with the
Bankruptcy Cases. If this motion had been granted, the bankruptcy proceedings
involving the Resource Network Subsidiaries and the Debtors would have been
combined such that the assets and liabilities of the Resource Network
Subsidiaries would have been joined with the assets and liabilities of the
Debtors, the liabilities of the combined entity would have been satisfied from
the combined assets and all intercompany claims would have been eliminated.
Furthermore, the creditors of both proceedings would have voted on any
reorganization plan for the combined entities. The Resource Network Subsidiaries
and the Debtors engaged in discovery related to this substantive consolidation
motion and then reached a settlement agreement in November 2000. The settlement
agreement was approved by the Bankruptcy Court in December 2000 and, in
connection therewith, the Debtors made a payment of $0.5 million to the Resource
Network Subsidiaries' estate in January 2001 and the substantive consolidation
motion was withdrawn with prejudice.

Notwithstanding the withdrawal of the substantive consolidation motion, the
Resource Network Subsidiaries still 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
objections to confirmation of the Second Joint Plan, as well as, a motion to
lift the automatic stay in the Debtors' bankruptcy proceedings to pursue its
claims against the Debtors. On June 6, 2002, the Bankruptcy Court granted the
motion of the R-Net Creditors' Committee and lifted the automatic stay in the
Bankruptcy Cases, thereby allowing the R-Net Creditors' Committee to pursue its
claims against the Debtors.

20

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 the disallowance of the Debtors' claims against
the Resource Network Subsidiaries, punitive damages and attorneys' fees. The
Debtors 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 and, accordingly, they are vigorously
contesting the allegations.

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.
The parties to (i) the second amended complaint, (ii) the Debtors' motion for an
order expunging the proofs of claims filed by the Resource Network Subsidiaries
and (iii) the Resource Network Subsidiaries' objections to the Debtors' proofs
of claims are proceeding with discovery under a case management order. 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. Now pending before the District Court are motions 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 appropriate insurance coverage for its directors and
officers, who are also vigorously contesting the allegations.

Principally due to the early stages of the aforementioned Resource Network
Subsidiaries' matters, the ultimate outcome thereof cannot be predicted with any
degree of certainty, nor can management predict the amount of any recoveries
that the company may ultimately receive from its insurance carrier.

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). In its demand, TBOB
claims that the company breached its obligations under an agreement entered into
by the parties in 1996 relating to a prior 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 (the latter amount is recorded in the company's Consolidated Financial
Statements). Furthermore, pursuant to the underlying agreement with TBOB,
additional liabilities may result from post-petition interest on the final
scheduled earn-out payment. In accordance with SOP 90-7, such interest estimated
to aggregate approximately $0.4 million at December 31, 2002 using the
contractual interest rate of 18%, has not been recorded in the company's
consolidated financial statements because TBOB's claim for interest may
ultimately not be sustainable. TBOB reiterated its monetary demand through a
proof of claim filed against CHC's estate for the aggregate amount of
approximately $2.2 million (the scheduled earn-out payment plus the alleged
damages). Any action relating to the final $1.3 million earn-out payment
scheduled for March 2001, the alleged damages of $0.9 million and any interest
accrued thereon have been stayed by operation of Chapter 11 of the Bankruptcy
Code. On July 5, 2001, the company received a letter from TBOB's legal counsel
requesting that the aforementioned arbitration remain in abeyance pending
resolution of the Bankruptcy Cases. 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.

Internal Revenue Service ("IRS") Proposed Settlement. The company has
reached a proposed settlement with the IRS regarding a notice of deficiency
previously issued by such taxing authority and management is currently
negotiating payment terms with the IRS. If ultimately approved, the proposed
settlement would result in a federal tax liability of approximately $9.9
million, plus interest of

21

approximately $8.8 million at December 31, 2002, both of which have been
recorded in the company's Consolidated Financial Statements. See Note 10 to the
company's Consolidated Financial Statements for further details.

Alan Furst et al. v. Stephen Feinberg, et al. Alan Furst and Michael S.
Harrison, individually and on behalf of all persons similarly situated, filed a
complaint in the United States District Court for the District of New Jersey on
November 8, 2000 and an Amended Class Action Complaint was filed on November 15,
2000, alleging that certain current and former officers and directors of the
company and the company's principal lenders, Cerberus Partners, L.P., Foothill
Capital Corporation and Goldman, Sachs & Co., implemented a scheme to perpetrate
a fraud upon the stock market regarding the common stock of CHC. A Second
Amended Class Action Complaint (the "Second Amended Complaint") was filed on
March 21, 2001, which removed all of the officers and directors of the company
as defendants, except for the company's former Chief Executive Officer and a
former member of CHC's Board of Directors, and continued to name Cerberus
Partners, L.P., Foothill Capital Corporation and Goldman, Sachs & Co. as
defendants. The plaintiffs' purported class action suit alleges that the
defendants artificially depressed the trading price of the company's publicly
traded shares and created the false impression that stockholders' equity was
decreasing in value and was ultimately worthless. The plaintiffs further allege
that members of the class sustained total investment losses of $50 million or
more. On June 14, 2001, a third Amended Class Action Complaint (the "Third
Amended Complaint") was filed naming the same defendants as the Second Amended
Complaint. The plaintiffs' allegations in the Third Amended Complaint were
substantially similar to the allegations in the Second Amended Complaint;
however, the Third Amended Complaint eliminated references to the corporate
assets of the company. All defendants moved to dismiss the Third Amended
Complaint for failure to state a claim upon which relief can be granted and, in
connection therewith, on May 6, 2002 the presiding judge granted the defendants'
motion to dismiss, with prejudice and also denied plaintiffs' request for leave
to replead. The plaintiffs filed a timely appeal to the United States Court of
Appeals for the Third Circuit (the "Third Circuit") and filed their brief in
support of their appeal with that court on July 24, 2002. The defendants filed
their opposition brief on August 23, 2002 and the plaintiffs filed a reply brief
on September 20, 2002. On December 18, 2002, the Third Circuit affirmed the
lower court's order dismissing the case with prejudice. On December 30, 2002,
the plaintiffs filed a petition for rehearing with the Third Circuit, however,
such petition was denied on January 14, 2003. Management believes the company's
financial obligation for the legal and professional fees related to this matter
is limited to the deductible of the underlying insurance policy and,
accordingly, such amount has been accrued in the company's Consolidated
Financial Statements.

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 presently be
determined. Adverse outcomes in some or all of the proceedings could have a
material adverse effect on the financial position, results of operations and
liquidity of the company.

The company and its subsidiaries are also parties to various other actions
arising out of the normal course of their businesses, including employee claims,
reviews of cost reports and billings submitted to Medicare and Medicaid, as well
as, examinations by regulators such as Medicare and Medicaid fiscal
intermediaries and the Centers for Medicare & Medicaid Services ("CMS").
Management believes that the ultimate resolution of such actions will not have a
material adverse effect on the financial position, results of operations or
liquidity of the company.

PricewaterhouseCoopers LLP. On July 7, 1997, the company filed suit 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
and PricewaterhouseCoopers LLP filed a motion to dismiss the company's lawsuit
on several grounds, but its motion was denied on March 15, 1999.
PricewaterhouseCoopers LLP filed an additional motion to dismiss the lawsuit in
May 1999 and that motion was dismissed on January 28, 2000. On April 19, 2001,
PricewaterhouseCoopers LLP filed a motion for partial summary judgment with
regard to a portion of Caremark's claims; however, this motion was subsequently
denied. The lawsuit is currently in the discovery stage and a trial date is
being scheduled. Management cannot predict the outcome of this litigation or
whether there will be any recovery from PricewaterhouseCoopers LLP or its
insurance carriers.

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

22

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 and service
agreements pursuant to which the company provides pharmacy products. 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 the company's common
stock. The Stark II law includes an exception for the ownership of publicly
traded stock in companies with equity above certain levels. This exception of
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 9 to the company's Consolidated Financial
Statements for further details), at December 31, 2002 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, 2003.

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 the
company'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 Medicare or Medicaid programs or run a
significant risk of Stark II noncompliance. Because referrals of the company's
patients with such government-sponsored benefit programs comprised approximately
25% of the company's consolidated net revenue for the years ended December 31,
2002 and 2001, discontinuing the acceptance of patients with
government-sponsored benefit programs would have a material adverse effect on
the financial condition, results of operations and cash flows of the company.
Additionally, ceasing to accept such referrals could materially adversely affect
the company's business reputation in the market 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

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS

Prior to March 7, 2000, shares of the common stock of Coram Healthcare
Corporation ("CHC") had been listed and traded on the New York Stock Exchange
("NYSE") under the symbol "CRH." Beginning on March 7, 2000, the shares have
been traded through the Over the Counter Bulletin Board ("OCBB") maintained by
the National Association of Securities Dealers, Inc., under the symbol "CRHE."
Since the Debtors' filing under Chapter 11 of the Bankruptcy Code, CHC has been
trading under the symbol "CRHEQ." The following table sets forth the high and
low sales prices of the company's common stock, as reported on the OCBB for the
two years ended December 31, 2002:

As of April 11, 2003, there were 4,286 record holders of the CHC's common
stock. On April 11, 2003, the last bid for CHC's common stock on the OCBB was
$0.64 per share and the last reported ask price was $0.66 per share. These
quotations reflect inter-dealer prices without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.

Trading of the CHC's common stock moved to the OCBB following an agreement
between the company and the NYSE that shares of CHC's common stock no longer met
the requirements for trading on the NYSE. Coram had received notice in 1999 that
it had fallen below the minimum listing criteria of the NYSE, including the
minimum share price of $1.00, the minimum market capitalization of $50 million
and the minimum equity of $50 million.

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. Coram currently intends to retain all 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 any
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,
2002 that were not registered under the Securities Exchange Act of 1933 (the
"Act"), as amended. However, on December 31, 2002 CHC's wholly-owned subsidiary,
Coram, Inc. ("CI"), exchanged with Cerberus Partners, L.P., Goldman Sachs Credit
Partners L.P. and Foothill Capital Corporation (the "Noteholders") approximately
$40.2 million of Series A Senior Subordinated Unsecured Notes (the "Series A
Notes"), $7.3 million of accrued but unpaid interest on the Series A Notes,
$83.1 million of Series B Senior Subordinated Unsecured Convertible Notes (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 CI's Series B Cumulative Preferred
Stock with an aggregate liquidation preference of approximately $147.2 million
(see Note 12 to the company's Consolidated Financial Statements for further
details). These preferred shares were issued under exemptions from registration
under Section 4(2) of the Act.

At April 11, 2003, the Noteholders remaining Series B Notes in the
aggregate principal amount of $9.0 million are convertible into an aggregate of
4.5 million shares of CHC common stock, which would reflect approximately 8.3%
of the CHC voting interest at December 31, 2002. In addition, at December 31,
2002 the Noteholders and/or their affiliates collectively owned approximately
1,451.6 and 1,218.3 shares of CI Series A Cumulative Preferred Stock and CI
Series B Cumulative Preferred Stock, respectively, with aggregate contingent
voting rights not to exceed 49% of the aggregate CI voting securities, including
CI's common stock. At such date, the aforementioned Noteholder preferred stock
holdings had aggregate liquidation preferences of approximately $175.4 million
and $147.2 million, respectively. Subject to the authority of the Chapter 11
trustee and any plan or plans of reorganization, the

24

Noteholders could collectively exert significant influence, but not control,
over the company if they elect to convert their debt holdings. See Note 9 to the
company's Consolidated Financial Statements for further details.

The Debtors' Second Joint Plan of reorganization, if approved, would have
effectively eliminated all of CHC's common stock for consideration of up to $10
million because CHC would have been dissolved as soon as practicable after the
effective date of the plan of reorganization and, in connection therewith, all
equity interests in CHC would have been completely eliminated. However,
confirmation of the Second Joint Plan of reorganization was denied by the
Bankruptcy Court on December 21, 2001. Moreover, on February 12, 2002 the
Bankruptcy Court denied renewed motions filed by the Official Committee of
Equity Security Holders of Coram Healthcare Corporation (the "Equity Committee")
(1) to require the company to call a stockholders' meeting and (2) 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. See Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note 3 to the company's
Consolidated Financial Statements for further details.

The following table summarizes the company's stock-based compensation plans
as of December 31, 2002 (see Notes 2 and 13 to the company's Consolidated
Financial Statements for further details):

(1) This category consists of stock options issued under the 1994 Coram
Healthcare Corporation Stock Option/Stock Issuance Plan (the "1994 Plan"),
as well as, certain stock options granted outside the 1994 Plan and
separately approved by CHC's stockholders.

(2) 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.

(3) This category consists of an individual stock option award granted on
October 13, 1995 to Donald J. Amaral outside of the 1994 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 services 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 11, 2003.

25

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.

- ----------

(1) The company recognized a transitional impairment charge of $71.9 million
in accordance with the adoption of Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets ("Statement
142"), on January 1, 2002. 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 ceased amortizing goodwill in
accordance with Statement 142. See Note 8 to the company's Consolidated
Financial Statements for further details.

26

(2) 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. During 1998, it was determined
that the original reserve established in 1994 as a result of formation of
the company (i.e., the Coram Consolidation Plan), was substantially
complete and the reserve was reversed. See Note 6 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 $62.5 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 infusion branches to which the associated goodwill and
other long-lived assets related. See Note 8 to the company's Consolidated
Financial Statements for further details.

(4) Interest expense for the years ended December 31, 2002 and 2001 primarily
reflects the recognition of interest expense on the proposed 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 proposed settlement with the IRS,
resulting in $4.5 million of incremental interest expense. On December
31, 2001, Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P. and
Foothill Capital Corporation (collectively the "Exchange Parties") agreed
to exchange $21.0 million aggregate principal amount of the Series A
Senior Subordinated Unsecured Notes (the "Series A Notes") and
approximately $1.9 million of aggregate contractual unpaid interest
thereon for approximately 189.6 shares of Coram, Inc. Series A Cumulative
Preferred Stock. On December 29, 2000, the Exchange Parties agreed to
exchange $97.7 million aggregate principal amount of the Series A Notes
and $11.6 million aggregate contractual unpaid interest on the Series A
Notes and the Series B Senior Subordinated Unsecured Convertible Notes
(the "Series B Notes") for 905 shares of Coram, Inc. Series A Cumulative
Preferred Stock. No interest expense related to the Series A Notes and
the Series B Notes was recognized in 2002 and 2001 in connection with the
execution of the Exchange Agreements, which qualified as troubled debt
restructurings, and the non-recognition criteria for interest expense
established pursuant to SOP 90-7. See Notes 9 and 12 to the company's
Consolidated Financial Statements for further details.

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 Agreement. The 1999 interest expense reflects the forbearance of
interest from November 15, 1999 through April 20, 2000 (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. Interest expense in 1998 reflects this repayment of the company's
former senior credit facility and a restructuring of its subordinated
debt.

(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 CPS 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. See Note 5
to the company's Consolidated Financial Statements for further details.
In 1998 Coram sold its remaining lithotripsy business to Integrated
Health Services, Inc. and recorded a gain on sale of approximately $0.7
million.

(6) During the years ended December 31, 2002, 2001 and 2000, the company
incurred approximately $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, expenses related to success and
retention plans, Office of the United States Trustee fees and other
expenditures during the Chapter 11 proceedings, offset by interest earned
on

27

accumulated cash due to the Debtors not paying their pre-petition
liabilities. See Note 3 to the company's Consolidated Financial
Statements for further details.

(7) During the year ended December 31, 2002, 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 of approximately $123.5 million. Furthermore, in connection with the
December 31, 2001 and December 29, 2000 Exchange Agreements described in
footnote (4) above, the company recognized extraordinary gains on
troubled debt restructurings of approximately $20.7 million in 2001 and
$107.8 million, net of tax of $0.4 million, in 2000. See Notes 9 and 12
to the company's Consolidated Financial Statements for further details.

(8) Basic and diluted income (loss) per share were identical for each year in
the five year period ended December 31, 2002. In each such year, 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 when losses from continuing operations
are in evidence because to do so would be anti-dilutive.

(9) 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 $15.6 million, $139.3 million and
$159.4 million at December 31, 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.

(10) The Series A Notes (until their liquidation) and the Series B Notes
aggregating approximately $9.0 million, $132.3 million and $153.3 million
at December 31, 2002, 2001 and 2000, respectively, were classified as
current liabilities subject to compromise. See Notes 3 and 9 to the
company's Consolidated Financial Statements for further details. The
current maturities of long-term debt, which give effect to certain
previous debt restructuring transactions, were $0.1 million, $0.1
million, $0.2 million, $0.4 million and $0.3 million at December 31,
2002, 2001, 2000, 1999 and 1998, respectively.

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
Coram's 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 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 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 of the company's financing agreements, the ability to
obtain necessary financing to fund a proposed 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 its (commonly known as "Stark

28

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.

BACKGROUND. During 2002, Coram was engaged primarily in the business of
furnishing alternate site (outside the hospital) infusion therapies, including
non-intravenous home health products such as respiratory therapy services and
durable medical equipment. Other services offered by Coram in 2002 include
centralized management, administration and clinical support for clinical
research trials, as well as, outsourced hospital compounding services. Effective
July 31, 2000, the company sold its pharmacy benefit management and specialty
mail order pharmacy services business to Curascript Pharmacy, Inc. and
Curascript PBM Services, Inc. (collectively the "Buyers"). The Buyers were newly
formed affiliates of GTCR Golder Rauner, L.L.C. and are led by certain members
of the former CPS management team. See Note 5 to the company's Consolidated
Financial Statements for further details.

Also, Coram's Resource Network Subsidiaries are being liquidated through
proceedings that are currently pending in the Bankruptcy Court. These
proceedings originated in August 1999 following the filing of an involuntary
bankruptcy petition against Coram Resource Network, Inc. All of the R-Net
locations have been closed in connection with the pending liquidation of R-Net.
Additionally, Coram employees who were members of the Resource Network
Subsidiaries' Board of Directors resigned during the year ended December 31,
2000, and currently only the Chief Restructuring Officer appointed by the
Bankruptcy Court remains on the Board of Directors to manage and operate the
liquidation of the R-Net business. See Note 4 to the company's Consolidated
Financial Statements for further details.

REORGANIZATION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE

(I) 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,
the Debtors are no longer debtors-in-possession under Chapter 11 of the
Bankruptcy Code. 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 the physician ownership and referral
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
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
9 to the company's Consolidated Financial Statements for details of the executed
agreement); and (iv) use of all company bank accounts for normal business
operations. In September 2000, the Bankruptcy Court approved the Debtors' motion
to reject four unexpired, non-residential real property leases and any
associated subleases. The rejected leases included underutilized locations in:
(i) Allentown, Pennsylvania; (ii) Denver, Colorado; (iii) Philadelphia,
Pennsylvania; and (iv) Whippany, New Jersey. The successful rejection of the
Whippany, New Jersey lease caused the company to reverse certain reserves during
the year ended December 31, 2000 that had previously been established for the
closure of its discontinued operations.

The Bankruptcy Court granted the Debtors five extensions of the period of
time that they must assume or reject unexpired leases of non-residential real
property, which expired at the end of January 4, 2001, May 4, 2001, September 3,
2001, January 1, 2002 and May 2, 2002. On May 1, 2002, the Chapter 11 trustee
moved 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 and is awaiting issuance of the enabling order by the Bankruptcy
Court. However, on September 6, 2002 and December 26, 2002, the Bankruptcy Court
granted two separate

29

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 and June 30, 2003, respectively.

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. 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 and
(ii) December 31, 2001. Due to events that have 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
Chief Executive Officer and Executive Vice President 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 ending 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 Chief Executive Officer. The incremental retention
bonuses, aggregating approximately $0.8 million, were paid on March 25, 2002.
The Bankruptcy Court postponed its rulings on the Debtors' motions pertaining to
the 2002 retention plan and payment of the Chief Executive Officer's retention
amounts. However, 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 amount. The company has fully accrued the Chief Executive
Officer's retention amounts as of December 31, 2002.

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 the company's Chief Executive Officer.

On March 21, 2001, CHC's Compensation Committee of the Board of Directors
approved a management incentive program for the year ending 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 approximately $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
separately with each of the company's Chief Executive Officer and its Executive
Vice President: (i) not to request any 2001 MIP payment to the 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
company's Chief Executive Officer's and Executive Vice President'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 amounts in any proposed plan or plans of reorganization.

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. Under the terms of
the 2001 Financing Agreement, the Debtors made a down payment of approximately
$1.1 million. The amount financed was approximately $2.1 million and was paid in
eight monthly installments of approximately $0.3 million each 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 Chapter 11 trustee and 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. Under the terms of the 2002 Financing Agreement, CHC made
down payments of approximately $1.5 million and financed approximately $2.7
million. The 2002 Financing Agreement was secured by the unearned premiums and
any loss payments under the covered insurance polices. Commencing on May 15,
2002, the amount financed was paid in seven monthly installments of
approximately $0.4 million each, including interest at a per annum rate of 4.9%.

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

30

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, the
Bankruptcy Code imposes an automatic stay that will generally preclude the
creditors and other interested parties under such arrangements from taking
remedial action in response to any such resulting default without prior
Bankruptcy Court authorization.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Bankruptcy Cases seeking, among other things, to have the Resource Network
Subsidiaries' bankruptcy proceedings substantively consolidated with the
Bankruptcy Cases. The Resource Network Subsidiaries and the Debtors engaged in
discovery related to this substantive consolidation motion and, in connection
therewith, the parties reached a settlement agreement in November 2000, which
was approved by an order of the Bankruptcy Court. Under the terms of the
settlement agreement, the Resource Network Subsidiaries withdrew the substantive
consolidation motion with prejudice. Additionally, the Official Committee of
Unsecured Creditors in the Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. bankruptcy proceedings filed motions for relief from
the automatic stay to pursue claims against the Debtors and certain of their
operating subsidiaries. The Bankruptcy Court granted such motion on June 6,
2002. See Note 14 to the company's Consolidated Financial Statements for further
details.

(II) THE DEBTORS' FIRST JOINT PLAN 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. Among other things, the Restated Joint Plan provided for: (i)
a conversion of all of the CI obligations represented by the company's Series A
Senior Subordinated Unsecured Notes (the "Series A Notes") and the Series B
Senior Subordinated Unsecured Convertible Notes (the "Series B Notes") into (a)
a four year, interest only note in the principal amount of $180 million that
would bear interest at the rate of 9% per annum and (b) all of the equity in the
reorganized CI; (ii) the payment in full of all secured, priority and general
unsecured debts of CI; (iii) the payment in full of all secured and priority
claims against CHC; (iv) the impairment of certain general unsecured debts of
CHC, including, among others, CHC's obligations under the Series A Notes and the
Series B Notes; and (v) the complete elimination of CHC's equity interests.
Furthermore, pursuant to the Restated Joint Plan, CHC would be dissolved as soon
as practicable after the effective date of the Restated Joint Plan and the
common stock of CHC would no longer be publicly traded. Therefore, under the
Restated Joint Plan, as filed, the existing stockholders of CHC would have
received no value for their shares and all of the outstanding equity of CI, as
the surviving entity, would be owned by the holders of the Series A Notes and
the Series B Notes. Representatives of the company negotiated the principal
aspects of the Restated Joint Plan with representatives of the holders of the
Series A Notes and the Series B Notes and the parties to the Senior Credit
Facility prior to the filing of such Restated Joint Plan.

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. The
Debtors did not send ballots to the holders of unimpaired classes, who were
deemed to accept the Restated Joint Plan, and classes that were not receiving
any distribution, who were deemed to reject the Restated Joint Plan. Eligible
voters responded in favor of 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' 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.

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 Notes for 905 shares of Coram, Inc. Series A Cumulative Preferred
Stock, $0.001 par value per share (see Notes 9 and 12 to the company's
Consolidated Financial Statements for further details). Hereafter, the Coram,
Inc. Series A Cumulative Preferred Stock is referred to as the "CI Series A
Preferred Stock." 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 to the company's
Consolidated Financial Statements for further discussion regarding Stark II.

31

(III) THE SECOND JOINT PLAN OF REORGANIZATION AND RELATED ACTIVITIES

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 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
said 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.

On April 25, 2001 and July 11, 2001, the Bankruptcy Court extended the
period during which the Debtors had the exclusive right to file a plan of
reorganization to July 11, 2001 and August 1, 2001, respectively. On August 1,
2001, the Bankruptcy Court denied the Equity Committee's motion to terminate the
Debtors' exclusivity periods and file its own plan of reorganization. Moreover,
on August 2, 2001, the Bankruptcy Court extended the Debtors' exclusivity period
to solicit acceptances of any filed plan or plans to November 9, 2001 (the date
to solicit acceptances of the plan for CHC's equity holders was subsequently
extended to November 12, 2001). On or about November 7, 2001, the Debtors filed
a motion seeking to extend the periods to file a plan or plans of reorganization
and solicit acceptances thereof to December 31, 2001 and March 4, 2002,
respectively. The Bankruptcy Court extended exclusivity to January 2, 2002.
Thereafter, the Debtors' exclusivity period terminated.

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 those
described in the Restated Joint Plan; however, utilizing Goldin's
recommendations, as set forth in the Goldin Report, the following substantive
modifications were included in the Second Joint Plan:

- the payment of up to $3.0 million to the holders of allowed CHC
general unsecured claims;

- the payment of up to $10.0 million to the holders of CHC equity
interests (contingent upon such holders voting in favor of the
Second Joint Plan);

- cancellation of the issued and outstanding CI Preferred Stock, and

- a $7.5 million reduction in certain performance bonuses payable to
the company's Chief Executive Officer.

Under certain circumstances, as more fully disclosed in the Second
Disclosure Statement, the general unsecured claim holders could have been
entitled to receive a portion of the $10.0 million cash consideration allocated
to the holders of CHC equity interests.

The Second Joint Plan was subject to a vote by certain impaired creditors
and equity holders and confirmation by the Bankruptcy Court. On September 6,
2001 and September 10, 2001, hearings before the Bankruptcy Court considered the
adequacy of the Second Disclosure Statement. In connection therewith, the Equity
Committee, as well as, the Official Committee of Unsecured Creditors in the
Coram Resource Network, Inc. and Coram Independent Practice Association, Inc.
bankruptcy cases filed objections. Notwithstanding the aforementioned
objections, the Second Disclosure Statement was approved by the Bankruptcy Court
for distribution to holders of certain claims in interests entitled to vote on
the Second Joint Plan. On or about September 21, 2001, the Debtors mailed
ballots to those parties entitled to vote on the Second Joint Plan.

The CHC equity holders voted against confirmation of the Second Joint Plan
and all other classes of claimholders voted in favor of the Second Joint Plan.
If certain conditions of Chapter 11 of the Bankruptcy Code are satisfied, the
Bankruptcy Court can confirm a plan of reorganization notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity holders.
However, 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; however,
such appeal was subsequently dismissed.

32

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 Notes 9 and 12 to the company's Consolidated
Financial Statements 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. See Note 14 to the company's
Consolidated Financial statements for further discussion regarding Stark II.

(IV) 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 Cl'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 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
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 under the Bankruptcy Code.

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 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 or about July 24, 2002, the Bankruptcy Court granted a motion submitted
by the Chapter 11 trustee to (i) defer payment on account of certain approved
interim professional fee applications, (ii) defer the Bankruptcy Court's
decisions regarding the allowance or disallowance of compensation and expense
reimbursements requested in certain interim professional fee applications, (iii)
disallow certain professional fee applications requesting payment for
professional services rendered and expense reimbursements subsequent to March 6,
2002 and (iv) disallow certain other professional fee and expense reimbursement
applications. Certain legal counsel engaged during the period the Debtors
operated as debtors-in-possession have filed final fee applications seeking,
inter alia, a final order allowing payment of professional fees and
reimbursement of expenses incurred in connection with the Bankruptcy Cases. The
Chapter 11 trustee filed an omnibus objection to all final professional fee
applications and seeks to adjourn the adjudication of such final professional
fee applications until sometime after confirmation of a plan or plans of
reorganization. Through April 11, 2003, the Bankruptcy Court has not yet
adjudicated any final fee applications. On or about July 24, 2002, the
Bankruptcy Court also approved several motions filed by the Chapter 11 trustee
related to fiduciary and administrative matters, including (i) the maintenance
of the Debtors' existing bank accounts, (ii) continued use of the company's
business forms and record retention policies and procedures and (iii)
expenditure authorization/check disbursement policies.

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 to provide services focusing on the restructuring and
reorganization of the Debtors. The

33

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 the 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.

On December 19, 2002, the Equity Committee filed a proposed plan of
reorganization (the "Proposed Equity Committee Plan") in respect of the Debtors
in the Bankruptcy Court. A complete description of the Proposed Equity Committee
Plan is set forth in the Disclosure Statement of the Official Committee of
Equity Security Holders of Coram Healthcare Corporation and Coram, Inc. and
Exhibits A through I thereto (collectively the "Proposed Disclosure Statement").
The Proposed Disclosure Statement was filed contemporaneously with the Proposed
Equity Committee Plan in the Bankruptcy Court, Jointly Administered Case No.
00-3299, and is available at docket numbers 2019, 2020, 2021 and 2022 in such
case. The Proposed Disclosure Statement must be approved by the Bankruptcy Court
as containing adequate information before the Equity Committee may solicit votes
in favor of confirmation of the Proposed Equity Committee Plan. Under Chapter 11
of the Bankruptcy Code, all parties-in-interest, including stockholders,
noteholders, general unsecured creditors and the Chapter 11 trustee, may file
objections to the Proposed Disclosure Statement and the Proposed Equity
Committee Plan and, in connection therewith, certain parties have already filed
objections. A hearing date for the Proposed Disclosure Statement and the
Proposed Equity Committee Plan has been tentatively scheduled for June 5, 2003.

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 9 and 12 to the company's Consolidated
Financial Statements for further details). Hereafter 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 ending December 31, 2003. See
Note 14 to the company's Consolidated Financial Statements for further
discussion regarding Stark II.

(V) BANKRUPTCY RELATED ACTIVITIES SUBSEQUENT TO DECEMBER 31, 2002

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 (i) the earlier of 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, has 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.

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 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,
acting General Counsel and acting Secretary, expired by its terms on November
29, 2002. The Chapter 11 trustee has agreed to continue the employment of Mr.
Marabito in his prior capacity and, in addition, Mr. Marabito has assumed the
duties and responsibilities previously performed by Mr. Crowley. Mr. Marabito's
employment is at will with a base salary of $375,000 per annum, plus the same
employee benefits as prior to the expiration of his employment contract. As more
fully discussed in Part III, Item 11. "Compensation of Directors and Executive
Officers," under

34

certain circumstances Mr. Marabito may be entitled to a retention bonus of
$380,000 under the company's 2003 Key Employee Retention Plan discussed below.
The loss of Mr. Marabito's services could have a material adverse effect on the
company.

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 provides for (i) retention bonus payments of approximately $3.1
million to key employees of the company (the "2003 KERP Compensation") and (ii)
other bonus payments of approximately $0.3 million to certain branch management
personnel (the "Branch Incentive Compensation"). In connection therewith, the
company is scheduled to pay approximately $1.8 million to the eligible
participants in April 2003. Under the provisions of the 2003 KERP, the 2003 KERP
Compensation is 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 (the
"Second Payment Date"). Should a 2003 KERP Compensation participant voluntarily
leave the company or be terminated for cause prior to the Second Payment Date,
such participant must return any amounts previously received under the 2003
KERP, less applicable taxes withheld. The entire Branch Incentive Compensation
amount was due and payable to the eligible participants upon approval of the
2003 KERP by the Bankruptcy Court.

The Chapter 11 trustee intends to file his own plan or plans of
reorganization with the Bankruptcy Court on or before May 15, 2003.

(VI) 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 as debtors-in-possession.
These claims are reflected in the consolidated balance sheets as liabilities
subject to compromise. Additional Chapter 11 claims have arisen and may continue
to arise subsequent to the filing date due to the rejection of executory
contracts and unexpired non-residential real property leases and from the
determination 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 also are 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 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 CI Series A Preferred Stock and the CI Series B
Preferred Stock (collectively the "CI Preferred Stock Holders") continue to
maintain claim positions within the Bankruptcy Cases in the aggregate amount of
their cumulative liquidation preferences. Furthermore, in connection with the
note exchange effective on December 31, 2002, the Bankruptcy Court 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 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 of common shareholder of Coram, Inc. The complaint alleges, among other
things, that the aforementioned defendants have (i) engaged in inequitable
conduct, (ii) conferred an unfair advantage upon themselves and (iii) caused
damage to Coram Healthcare Corporation. The adversary proceeding is currently
pending before the Bankruptcy Court and the defendants have not yet responded to
the complaint.

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. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. 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. Therefore, it is not
possible to fully or completely estimate the fair value of the liabilities
subject to compromise at December 31, 2002 due to the Bankruptcy Cases and the
uncertainty surrounding the ultimate amount and settlement terms for such
liabilities.

35

BUSINESS STRATEGY. The major strategic alternatives and initiatives
currently being implemented by Coram include: (i) continued focus on growth in
net revenue from core therapies; (ii) continued investment and development of
services provided by CTI Network, Inc. ("CTI"); (iii) continued strategic
development and investment in the company's newly organized subsidiary, SoluNet
LLC ("SoluNet"); (iv) cost reduction initiatives (including certain
reimbursement and information technology activities); (v) improving cash
collections; (vi) additions to and upgrades of current information technology
systems; (vii) emergence from the Bankruptcy Cases; and (viii) liquidation of
the Resource Network Subsidiaries. Management believes that success in the
foregoing will improve Coram's financial prospects and improve and stabilize
relationships with payers and referral sources. There can be no assurances that
any of the strategic alternatives will be consummated or will be available to
Coram on commercially acceptable terms.

Coram's focus is on 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 SoluNet. Accordingly,
management's primary business strategy is to focus Coram's efforts on the
delivery of its core infusion therapies, such as nutrition, anti-infective
therapies, intravenous immunoglobulin ("IVIG"), therapies for person receiving
transplants, 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 cost 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. Additionally, a reimbursement site consolidation plan was initiated
and completed during 2001 (see Note 6 to the company's Consolidated Financial
Statements for further details). Management is also reviewing the manner in
which the company provides nursing care and is implementing changes to its
practices to maintain Coram's high level of patient satisfaction and effective
clinical results while reducing the actual number of nursing visits.

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. In December 2000, Coram announced that as part of its continuing
efforts to improve efficiency and overall performance, several Patient Financial
Service Centers (reimbursement sites) were being consolidated and the related
reimbursement positions were to be eliminated. By consolidating to fewer sites,
management expects 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 Services 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 ("DSO") and/or unfavorable
aging trends in its accounts receivable. See Item 7. under the caption "Risk
Factors" for further discussion on the company's ability to meet its increased
cash requirements.

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.

Effective August 8, 2000, the company began presenting its Consolidated
Financial Statements in accordance with the provisions of AICPA 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 and billed
net of contractual allowances and related discounts. Contractual allowances
represent

36

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 amount 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
25% of the company's consolidated net revenue for each of the years ended
December 31, 2002 and 2001 and 22% of the company's consolidated net revenue for
the year ended December 31, 2000. Laws and regulations governing the Medicare
and Medicaid programs are complex and subject to interpretation and revision.
Management believes that the company is in substantial compliance with all
applicable laws and regulations. Compliance with such laws and regulations can
be subject to future government review and interpretation, as well as,
significant regulatory action, including fines, penalties and exclusion from the
Medicare and Medicaid programs.

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, the company
establishes supplemental specific reserves for accounts that are deemed
uncollectible due to occurrences such as payer financial distress and payer
bankruptcy fillings. 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 provisions 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 its ability
to adequately supervise and train personnel in billing and collections, and
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
eliminates the amortization of goodwill and intangible assets with indefinite
useful lives. The company adopted Statement 142 on January 1, 2002. Under
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 levels 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 second quarter of 2002, 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 potentially significant impairment of the company's goodwill
existed. The company performed the second step of the process described in
Statement 142 during the fourth quarter of 2002. Determining the amount of the
impairment required management to identify the implied fair value of the
company's goodwill. The company's enterprise value at January 1, 2002

37

was determined based upon a recent 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, is reflected in the
consolidated financial statements as a cumulative effect of a change in an
accounting principle in the first quarter of 2002.

Furthermore, due to unfavorable conditions and trends prevalent in the
public equity markets throughout 2002, the company's enterprise value was
adversely impacted during the 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 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 annual
goodwill impairment analysis, which was completed on a basis consistent with the
transitional impairment analysis, the company recognized an additional charge of
approximately $62.5 million that is reflected in the consolidated financial
statements in the fourth quarter of 2002.

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 set forth by the Debtors'
Chapter 11 trustee or another interested party 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 analysis is subject to the volatility inherent in
the underlying enterprise value determination.

Capitalized Software Development Costs. 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, 2002 and 2001, software development costs aggregating
approximately $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 and financial condition
in 2002 and which may impact Coram in the future:

(i) maintaining compliance with the provisions of Stark II by, in part,
exchanging a sufficient amount of debt and related accrued
contractual interest for equity in the form of Coram, Inc. Series B
Cumulative Preferred Stock in order to increase stockholders' equity
above the required levels;

(ii) the Bankruptcy Cases and the related reorganization expenses,
including, but not limited to, professional fees and related
reimbursable expenses and key employee retention plans;

(iii) changes in average wholesale prices that adversely impact
reimbursement amounts paid to the company;

(iv) management's focus on and the increased costs associated with the
company's additions and upgrades to its company-wide information
technology systems;

(v) increased costs associated with continued efforts to improve
efficiency and overall performance in billing and cash collection
functions;

(vi) the Resource Network Subsidiaries' Chapter 11 bankruptcy filings,
including certain litigation discussed in Note 14 to the company's
Consolidated Financial Statements, and their pending liquidation
through such proceedings;

(vii) an increased focus on the company's respiratory therapy services and
durable medical equipment businesses, including non-consolidated
joint venture locations;

38

(viii) continuing pricing pressure in the company's business from managed
care organizations and other contracted payers and intense
competition among infusion providers;

(ix) 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;

(x) a $6.8 million or 31% increase in net revenue during the year ended
December 31, 2002 compared to the year ended December 31, 2001
related to the company's largest capitated payer contract.
Additionally, management is currently responding to a request for
proposal ("RFP") that covers the services provided exclusively by
the company and one of its partnerships under such capitated
contract. See Item 7. "Risk Factors" and Note 2 to the company's
Consolidated Financial Statements for further details;

(xi) increased focus on the company's military business, which resulted
in a $2.0 million or 27% increase in net revenue during the year
ended December 31, 2002 compared to the year ended December 31,
2001;

(xii) increased costs associated with providing certain infusion therapy
services, including increased costs for clinical staffing, product
delivery, on-call personnel and other volume related costs
associated with such therapies;

(xiii) the proposed relocation of the company's Bannockburn, Illinois data
center and CTI operations, as well as, other additions or changes to
the company's real estate portfolio;

(xiv) critical focus on the formation of SoluNet and its related business
development;

(xv) increased repair costs and reduced equipment availability related to
the company's fleet of Sabratek 6060 Homerun Pumps and focus on
alternatives related to required prospective upgrades and repairs of
such pumps, as well as, evaluation of the company's options for
replacing its fleet of Sabratek pole-mounted 3030 Pumps;

(xvi) increased net revenue from certain core therapies resulting from the
discontinuation of certain acute therapy services by one of the
company's national competitors subsequent to such competitor's
acquisition by another entity;

(xvii) favorable acquisition cost trends relating to factor and IVIG
products and an increase in related product availability in the
marketplace during 2002; and

(xviii) focus on attaining Health Insurance Portability and Accountability
Act of 1996 ("HIPAA") compliance 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 timely and adequate levels of
reimbursement and profitability.

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, 2002 the Resource Network
Subsidiaries had no operations.

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 increase is primarily attributable to net revenue
increases in the company's core infusion therapies, including a combined $36.4
million increase in net revenue from coagulant and blood clotting, intravenous
immunoglobulin, anti-infective, pain management and total parenteral nutrition
therapies, as well as, incremental increases of approximately $3.2 million in
non-core enteral therapies and $1.1 million related to CTI operations. Such net
revenue increases were offset by adverse changes in the average wholesale price
("AWP") reimbursement rates for certain anti-infective drugs, as further
discussed below.

39

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 $28.4
million and $21.7 million, respectively, of the company's consolidated net
revenue, related to a capitated agreement that provides services to members in
the California marketplace. Additionally, Coram owns 50% of a partnership
located in California that derived approximately 41.8% of its net revenue during
the year ended December 31, 2002 from services provided under such capitated
agreement. The underlying two year agreement expired by its terms on December
31, 2002 but it is subject to automatic annual renewals absent a written
termination notice from one of the contracting parties. The company and its
partnership continue to render services subject to the automatic renewal
provisions of the contract. On February 28, 2003, the contracted payer invited
the company, as well as, a limited group of other providers, to respond to an
RFP that covers the services provided exclusively by the company and its
partnership. Management believes that the payer will select a provider or
providers in July 2003 and the new contract or contracts will become effective
January 1, 2004. 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 company's other core therapies), favorable pricing
changes in the products related to the company's intravenous immunoglobulin
therapies and favorable changes in the company's overall payer mix.

The favorable gross margin trends were offset by a larger proportion of
coagulant and blood clotting therapies in the company's therapy mix, which
generally have a higher product cost as a percentage of net revenue than the
company's other core 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.

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 related 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 director and officer
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.

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

40

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 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. The 2002 provision for estimated
uncollectible accounts reflects management's best estimate of the net realizable
value of the company's accounts receivable at December 31, 2002. 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.

Amortization of Goodwill. Effective January 1, 2002, the company adopted
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("Statement 142"), which eliminates the amortization of
goodwill and intangible assets with indefinite useful lives. Statement 142 also
requires that such assets be reviewed for impairment at least annually. See
"Charges for Impairments of Goodwill and Other Long-Lived Assets" below and Note
8 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 6 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 $62.5 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 fair value. During the year ended December 31,
2001, the company recognized an impairment of goodwill and other long-lived
assets (primarily goodwill) of $3.3 million. The 2001 impairment charges
resulted primarily from recurring operating losses or substandard performance at
the infusion branches to which the associated goodwill and other long-lived
assets related. See Note 8 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 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 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 exchange agreements on December 29, 2000
and December 31, 2001, which qualified as troubled debt restructurings. See
Notes 9 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.

Gains on Sales of Businesses. 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
5 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

41

partnerships. During the year ended December 31, 2002, the company, with the
approval of 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, expenses related to key
employee retention plans, Office of the United States Trustee fees and other
expenditures during the Chapter 11 bankruptcy proceedings, 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 $13.0 million of
bankruptcy-related professional fees during the years ended December 31, 2002
and 2001, respectively. The Chapter 11 trustee evaluated the needs for services
of the professionals previously engaged by the Debtors while
debtors-in-possession and re-engaged only certain of these professionals.
Furthermore, the Chapter 11 trustee engaged certain new professionals for the
benefit of the Debtors' estates. See Note 3 to the company's Consolidated
Financial Statements for further details, including motions submitted by the
Chapter 11 trustee related to administrative professionals that have been
granted by the Bankruptcy Court.

Income Tax Expense. See Note 10 to the company's Consolidated Financial
Statements for discussion of the variance between the statutory income tax rate
and the company's effective income tax rate.

Loss from Disposal of Discontinued Operations. For the years ended December
31, 2002 and 2001, the company recorded losses from disposal of discontinued
operations of $0.7 million and $0.3 million, respectively. Such amounts relate
to legal costs for certain pending litigation between the Official Committee of
Unsecured Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. 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. 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 9 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 $71.9
million related to the adoption of Statement 142. In accordance with the
underlying provisions of Statement 142, such charge was recorded in the
company's Consolidated Financial Statements as a cumulative effect of a change
in accounting principle during the first quarter of the year ended December 31,
2002. See Note 8 to the company's Consolidated Financial Statements for further
details.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net Revenue. Net revenue decreased $71.2 million or 15.3% to $393.6 million
in 2001 from $464.8 million in 2000. The decrease is primarily due to the sale
of CPS on July 31, 2000 (CPS recorded net revenue of $61.4 million during the
year ended December 31, 2000) and a $2.2 million decline in net revenue
attributable to CTI. Additionally, a decrease in infusion net revenue of
approximately $7.6 million is due, in part, to the termination of the Aetna
National Ancillary Services Agreement, effective April 12, 2000, an adverse
change in the AWP reimbursement rates for certain anti-infective drugs (as
discussed further below) and management's continued focus on more profitable
core therapies. The infusion net revenue decrease was partially offset by an
increase of approximately $5.7 million attributable to one of the company's
capitated arrangements covering member lives in California. See Note 2 to the
company's Consolidated Financial Statements for further details.

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 $2.9 million
or 19.9% to $11.7 million during the year ended December 31, 2001 from $14.6
million during the year ended December 31, 2000. The net revenue reduction
included

42

an unfavorable pricing variance of $3.8 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.

Gross Profit. Gross profit decreased $8.8 million to $114.4 million (gross
margin of 29.1%) in 2001 from $123.2 million (gross margin of 26.5%) in 2000.
The gross margin percentage increase is primarily due to a favorable
product/therapy mix and the sale of CPS, which had a lower gross margin
percentage than that of the infusion business segment and thereby caused a lower
blended consolidated percentage during the year ended December 31, 2000.
However, commencing on July 1, 2001, there was an offsetting decrease in gross
margin percentage due to reductions in the AWP reimbursement rates for
Vancomycin and certain other drugs used in the company's operations. The
components of gross margin are as follows (in millions):

Selling, General and Administrative ("SG&A") Expenses. SG&A expenses
decreased $6.5 million or 7.2% to $83.8 million in 2001 from $90.3 million in
2000. The decrease during the year ended December 31, 2001 is primarily due to
approximately $4.7 million of SG&A expenses directly related to CPS personnel
and other CPS related activities that were eliminated upon the divestiture of
the CPS business segment and a decrease in expenses related to management
incentive compensation of $10.7 million. In connection with the management
incentive plans, the company recorded compensation expense of $2.9 million and
$13.6 million for the years ended December 31, 2001 and 2000, respectively. The
aforementioned expense decreases are partially offset by additional costs in
2001 of approximately $3.6 million to stabilize and enhance the company's sales
force and approximately $1.9 million to improve the company-wide information
systems and related data circuit lines. Moreover, the company incurred
additional costs in 2001 to enhance its risk insurance profile and relocate its
corporate headquarters.

Provision for Estimated Uncollectible Accounts. The provision for estimated
uncollectible accounts was $17.5 million or 4.4% of net revenue in 2001,
compared to $9.8 million or 2.1% of net revenue in 2000. The percentage increase
is due to of the 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) during the year ended
December 31, 2001 that resulted in the company recognizing additional expenses
of $5.5 million. The company also experienced poor cash collections in its
durable medical equipment operations and correspondingly higher write-offs in
2001, including a contract dispute with an HMO plan resulting in approximately
$0.6 million of bad debt expense. Moreover, the 2001 bad debt expense percentage
is higher than 2000 due to the disposition of CPS, which had a lower bad debt
experience rate than that of the infusion business segment, thereby causing a
lower blended consolidated effective rate during the year ended December 31,
2000. Lastly, the company experienced a bad debt recovery of $0.3 million during
the year ended December 31, 2000.

Restructuring Cost Recoveries. During the year ended December 31, 2001, the
company recognized restructuring cost recoveries of approximately $0.7 million
primarily related to the assumption of one of the company's real property leases
by a third party and certain changes in estimates attributable to severance
liabilities. Net restructuring cost recoveries of $0.3 million during the year
ended December 31, 2000 resulted from management's reevaluation of the reserves
necessary to complete its restructuring plans. Such items were previously
reserved for as part of accrued merger and restructuring costs. See Note 6 to
the company's Consolidated Financial Statements for further details.

Charges for Impairments of Goodwill and Other Long-Lived Assets. During the
years ended December 31, 2001 and 2000, Coram recognized impairments of goodwill
and other long-lived assets (primarily goodwill) of $3.3 million and $8.3
million, respectively. These impairment charges 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.
See Note 8 to the company's Consolidated Financial Statements for further
details.

Interest Expense. Interest expense decreased $20.1 million to $6.7 million
in 2001 from $26.8 million in 2000. The decrease is primarily due to (i) reduced
outstanding borrowings on revolving credit arrangements and (ii) the
non-recognition of interest expense related to the Series A Notes and the Series
B Notes in connection with the execution of the Exchange Agreement on December
29, 2000, which qualified as a troubled debt restructuring (see Notes 9 and 12
to the company's Consolidated Financial Statements for

43

further details) and the non-recognition criteria for interest expense
established pursuant to SOP 90-7. These decreases are partially offset by the
recognition of approximately $5.9 million of interest expense, including $4.5
million of incremental interest expense related to changes in estimates during
2001, for the proposed settlement of a dispute with the Internal Revenue
Service. See Note 10 to the company's Consolidated Financial Statements for
further details.

Gains on Sales of Businesses. During 2000, the company recorded gains on
sales of businesses of approximately $18.6 million, consisting primarily of the
gain on the sale of the CPS business and the receipt of a contingent earn-out
payment relating to one of the company's operating subsidiaries. See Note 5 to
the company's Consolidated Financial Statements for further details.

Other Income, Net. In 2001, the company recognized $0.1 million in other
income, compared to $2.5 million in 2000. The 2000 amount is primarily
attributable to the recovery of a non-operating receivable of $2.0 million and
the receipt of $1.0 million in life insurance proceeds, offset by the
recognition of a $0.7 million reserve for an escrow deposit receivable related
to the 1997 sale of the company's lithotritpsy partnerships. Such reserve was
based on management's determination, at that time, of the collectibility of the
outstanding amount from a party in a bankruptcy proceeding; however, such escrow
deposit was subsequently recovered during the year ended December 31, 2002. See
Note 2 to the company's Consolidated Financial Statements for further details.

Reorganization Expenses, Net. During the years ended December 31, 2001 and
2000, the company recognized $14.4 million and $8.3 million, respectively, in
net reorganization expenses related to the Bankruptcy Cases. The principal
reason for the increased reorganization expenses is the commencement of the
company's bankruptcy proceedings in third quarter of the year ended December 31,
2000 and the continuation of such proceedings during the entire year ended
December 31, 2001. These expenses include, but are not limited to, professional
fees, expenses related to employee retention plans, a $1.8 million success bonus
in 2000, Office of the United States Trustee fees and other expenditures during
the Chapter 11 proceedings, offset by interest earned on accumulated cash due to
the Debtors not paying their pre-petition liabilities. 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 the variance between the statutory income tax rate
and the company's effective income tax rate.

Loss from Disposal of Discontinued Operations. For the year ended December
31, 2001, the company recorded a $0.3 million loss from disposal of discontinued
operations related to certain pending litigation between the Official Committee
of Unsecured Creditors of Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. and the Debtors and several of their non-debtor
subsidiaries. The net charge of $0.7 million for the year ended December 31,
2000 includes incremental reserves for litigation and other R-Net wind-down
costs, net of certain insurance recoveries, facility cost reserve reductions
resulting from the Bankruptcy Cases, reserve adjustments due to changes in the
estimated amounts of legal and professional fees necessary to complete R-Net's
Chapter 11 bankruptcy proceedings and a $0.5 million settlement with the Debtors
for a substantive consolidation matter. See Notes 4 and 14 to the company's
Consolidated Financial Statements for further details.

Extraordinary Gains on Troubled Debt Restructurings. With approvals from
the Bankruptcy Court, the Debtors exchanged debt and related interest for equity
in the form of Coram, Inc. Series A Cumulative Preferred Stock and, as a result,
recognized extraordinary gains on troubled debt restructurings of approximately
$20.7 million in 2001 and $107.8, net of $0.4 million of income taxes, in 2000.
See Notes 9 and 12 to the company's Consolidated Financial Statements for
further details.

44

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.

(1) In accordance with Statement 142, the transitional goodwill impairment
charge was recorded as the cumulative effect of a change in accounting
principle, which resulted in the restatement of the period ended March 31, 2002.
See Note 8 to the company's Consolidated Financial Statements for further
details.

(2) For each of the periods presented in the above table, the incremental
common stock equivalents utilized to calculate diluted income (loss) per share
were nominal or the effect of utilizing common stock equivalents was
anti-dilutive. Accordingly, basic and diluted income (loss) per 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.

45

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 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. Although
the filing of the Bankruptcy Cases constitutes a 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 effected 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. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. 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. Therefore, it is not
possible to fully or completely estimate the fair value of the liabilities
subject to compromise at December 31, 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, 2002 and through April 11, 2003, 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 the approval of the Chapter 11 trustee and
the Bankruptcy Court.

Pursuant to an order of the Bankruptcy Court in February 2001, 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.). Such letters of credit
aggregated approximately $0.8 million at December 31, 2002 but were reduced to
approximately $0.5 million in January and February 2003. The company's letters
of credit are fully secured by interest-bearing cash deposits held by Wells
Fargo. The outstanding letters of credit have maturity dates in September 2003
($187,000) and February 2004 ($278,000). 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 enhance existing letters of credit or establish new
letters of credit in order to ensure the availability of products for its
patients' medical needs.

On December 31, 2002, the Securities Exchange Agreement was amended
("Amendment No. 6") and a third Exchange Agreement was simultaneously executed.
Pursuant to such arrangements, Cerberus Partners, L.P., Goldman Sachs Credit
Partners L.P. and Foothill Capital Corporation (collectively the "Holders")
agreed to exchange approximately $40.2 million aggregate principal amount of
Series A Senior Subordinated Unsecured Notes (the "Series A Notes"), $7.3
million of aggregate contractual unpaid interest on the Series A Notes, $83.1
million aggregate principal amount of Series B Senior Subordinated Convertible
Unsecured Notes (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 Coram, Inc. Series B Cumulative Preferred Stock (see Note 12 to the
company's Consolidated Financial Statements for further details regarding the
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.

Although the principal amounts under the Series A Notes and Series B Notes
were not paid on their scheduled maturity date of June 30, 2002 and the company
was in technical default of the Securities Exchange Agreement from that date
until the execution of Amendment No. 6, the Holders were stayed from any
remedies pursuant to the provisions of Chapter 11 of the Bankruptcy Code.
Notwithstanding this default for non-payment of principal, subsequently cured by
Amendment No. 6, management believes that at December 31, 2002 the company was
in compliance with all covenants of the Securities Exchange Agreement. However,
there can be no assurances as to whether further covenant violations or defaults
will occur in future periods and whether any necessary waivers would be granted.

46

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 of the company's financing agreements, the ability to obtain
necessary financing to fund a proposed 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
requirements.

Cash and Cash Equivalents. Cash and cash equivalents increased $9.3 million
to $30.6 at December 31, 2002 compared to $21.3 million at December 31, 2001.

Net cash provided by operating activities was approximately $14.4 million
for the year ended December 31, 2002 compared to $3.4 million for the year ended
December 31, 2001. The significant components of the operating cash flows are as
follows (in millions):

(i) Continuing Operations After Non-Cash Charges and Before Gains on
Sales of Businesses. During the years ended December 31, 2002 and
2001, continuing operations provided cash of approximately $42.6
million and $36.7 million, respectively. The increase of
approximately $5.9 million is primarily due to management's
continued focus on the company's core therapy mix, which provides a
higher gross margin percentage to the company, and more efficient
utilization of company resources toward profit generation.
Additionally, during the year ended December 31, 2002, the company
was favorably impacted by a one-time payment of approximately $1.0
million from an escrow deposit that related to certain 1997
dispositions of lithotripsy partnerships (see Note 2 to the
company's Consolidated Financial Statements for further details).

(ii) Accounts Receivable. During the years ended December 31, 2002 and
2001, the accounts receivable activity utilized cash of
approximately $30.8 million and $28.7 million, respectively. The
increase of approximately $2.1 million principally relates to a
10.4% increase in the company's net revenue in 2002 compared to
2001. In addition, during 2002 the company continued to experience
slow cash collections from several payers, primarily Medicare and
Medicaid and certain large commercial payers, which caused an
increase in accounts receivable, as well as, an increase in the
percentage of aged accounts receivable over 90 days past due.

(iii) Prepaid Expenses, Inventories and Other Assets. During the year
ended December 31, 2002, prepaid expenses, inventories and other
assets provided cash of approximately $1.8 million whereas such
activity for the year ended December 31, 2001 used cash of
approximately $1.1 million. The 2002 amount principally relates to
(i) a decrease in amounts receivable from non-consolidated joint
ventures and partnerships as a result of their improved operating
results and cash collections and (ii) a decrease in inventories from
the utilization of certain factor product that was strategically

47

purchased in bulk late in 2001. The 2001 use of cash was principally
related to that year's strategic purchase of factor product.

(iv) Current and Other Liabilities. Included in current and other
liabilities are amounts attributable to interest on a proposed
settlement with the Internal Revenue Service and management
incentive compensation aggregating approximately $4.0 million and
$8.8 million for 2002 and 2001, respectively. After removing the
effects of these items, during the year ended December 31, 2002
current and other liabilities provided cash of approximately $2.1
million whereas a nominal amount was used in 2001. This adjusted
change principally relates to an increase in accounts payable in
2002 due to the company's increased business.

(v) Cash Basis Restructuring Costs. Net cash used for restructuring
costs was approximately $0.3 million and $1.0 million for the years
ended December 31, 2002 and 2001, respectively. The decrease in cash
expenditures is primarily due to the expiration of certain of the
company's real property leases and severance payments related to the
consolidation of several of the company's Patient Financial Service
Centers (reimbursement sites) during 2001.

(vi) Operating Cash Flows Used By Reorganization Items. Net cash used for
reorganization was approximately $5.2 million and $10.8 million
during the years ended December 31, 2002 and 2001, respectively.
These expenditures primarily relate to professional services, 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 pre-petition liabilities. The principal cause of the reduced
cash expenditures for reorganization items during 2002 was an
approved Bankruptcy Court motion submitted by the Chapter 11 trustee
to (i) defer payment on account of certain approved interim
professional fee applications, (ii) defer the Bankruptcy Court's
decisions regarding the allowance or disallowance of compensation
and expense reimbursements requested in certain interim professional
fee applications, (iii) disallow certain professional fee
applications requesting payment for professional services rendered
and expense reimbursements subsequent to March 6, 2002 and (iv)
disallow certain other professional fee and expense reimbursement
applications. See Note 3 to the company's Consolidated Financial
Statements for further details.

Net cash used in investing activities was approximately $4.4 million and
$7.5 million for the years ended December 31, 2002 and 2001, respectively.
During both years, cash used in investing activities was primarily due to
purchases of property and equipment. Such expenditures during 2002 and 2001
aggregated approximately $4.5 million and $7.6 million, respectively.
Approximately $1.4 million of the 2002 purchases and approximately $4.2 million
of the 2001 purchases related to capital expenditures to upgrade Coram's
company-wide information systems. Additionally, approximately $3.1 million of
the 2002 purchases and approximately $2.7 million of the 2001 purchases related
to property and equipment expenditures in the normal course of business. Lastly,
during 2001, Coram spent approximately $0.7 million in conjunction with the
relocation of the company's corporate office. Partially offsetting the 2002 cash
used in investing activities was the receipt of approximately $0.1 million in
cash proceeds related to the sale of a durable medical equipment business
located in New Orleans, Louisiana. The 2001 cash used in investing activities
was partially offset by cash proceeds of approximately $0.1 million relating to
dispositions of property and equipment.

Net cash used in financing activities was approximately $0.5 million and
$1.8 million for the years ended December 31, 2002 and 2001, respectively. 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 partial
refunds of deposits to collateralize the company's letters of credit. For 2001,
cash used in financing activities included net deposits to collateralize the
company's letters of credit of $1.1 million, principal debt repayments of $0.3
million and cash distributions paid to minority interests of $0.4 million.

Working capital increased $141.8 million to $65.6 million at December 31,
2002 from a working capital deficit of $76.2 million at December 31, 2001. The
favorable change in working capital is primarily due to a decrease in
liabilities subject to compromise resulting from the exchange of approximately
$123.3 million of the Series A Notes and the Series B Notes for Coram, Inc.
Series B Cumulative Preferred Stock (see Notes 9 and 12 to the company's
Consolidated Financial Statements for further details) and a $14.9 million
increase in net accounts receivable. Other items contributing to the change in
working capital were (i) a $9.3 million increase in cash and cash equivalents,
(ii) a decrease of $0.4 million in inventories, (iii) a $0.8 million increase in
other current assets (reflected in this increase is a $1.8 million federal
income tax refund receivable for a refund requested during the year ended
December 31, 2002), (iv) a $4.1 million increase in accounts payable, (v) a $2.5
million decrease in accrued compensation and related liabilities, (vi) a $3.0
million increase in income taxes payable (primarily due to the reclassification
of $3.1 million of long-term liabilities related to a proposed settlement with
the Internal Revenue Service (see Note 10 to the company's Consolidated
Financial

48

Services for further details)), (vii) a $2.1 million increase in other accrued
liabilities and (viii) a $0.4 million decrease in accrued merger and
restructuring costs.

The table below summarizes the company's debt and lease obligations for the
years ending December 31 (in thousands). See Notes 9 and 14 to the company's
Consolidated Financial Statements for further details.

Management believes that the net costs for the Bankruptcy Cases will result
in a significant use of cash for the year ending December 31, 2003 and
thereafter. These costs principally consist of professional fees and expenses
and certain pending employee retention payments. On or about July 24, 2002, the
Bankruptcy Court granted a motion submitted by the Chapter 11 trustee to (i)
defer payment on account of certain approved interim professional fee
applications, (ii) defer the Bankruptcy Court's decisions regarding the
allowance or disallowance of compensation and expense reimbursements requested
in certain interim professional fee applications, (iii) disallow certain
professional fee applications requesting payment for professional services
rendered and expense reimbursements subsequent to March 6, 2002 and (iv)
disallow certain other professional fee and expense reimbursement applications.
Certain legal counsel engaged during the period the Debtors operated as
debtors-in-possession have filed final fee applications seeking, inter alia, a
final order allowing payment of professional fees and reimbursement of expenses
incurred in connection with the Bankruptcy Cases. The Chapter 11 trustee filed
an omnibus objection to all final professional fee applications and seeks to
adjourn the adjudication of such final professional fee applications until
sometime after confirmation of a plan or plans of reorganization. Through April
11, 2003, the Bankruptcy Court has not yet adjudicated any final fee
applications. On or about July 24, 2002, the Bankruptcy Court also approved
several motions filed by the Chapter 11 trustee related to fiduciary and
administrative matters, including (i) the maintenance of the Debtors' existing
bank accounts, (ii) continued use of the company's business forms and record
retention policies and procedures and (iii) expenditure authorization/check
disbursement policies.

Management cannot predict whether any future objections of the Official
Committee of the Equity Security Holders of Coram Healthcare Corporation or any
other interested parties in the Bankruptcy Cases will be forthcoming. Outcomes
unfavorable to the company or unknown additional actions 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 principal supplier of Coram's infusion pumps, Sabratek Corporation
("Sabratek"), filed for protection under Chapter 11 of the Bankruptcy Code on
December 17, 1999. In January 2000, Baxter Healthcare Corporation ("Baxter")
purchased certain Sabratek assets, including Sabratek's pump manufacturing
division, and continued to produce the related tubing and infusion sets needed
to operate the Sabratek pole-mounted 3030 Pumps (the "3030 Pumps") and the
Sabratek 6060 Homerun Pumps (the "6060 Pumps") that are used by Coram. Baxter
previously discontinued production of the 3030 Pumps and, in March 2003,
manufacturing of the related tubing and infusion sets necessary for repairs and
operation of such pumps was also terminated, thereby substantially exhausting
the company's inventory of such required supplies. In response to this inventory
shortage, management has taken certain steps to ensure that patient care will
not be disrupted while the company transitions to alternate tubing and infusion
set sources. As a result of the company's longstanding evaluation of several
pole-mounted infusion pump alternatives, including local branch comparative
clinical and operational testing, management concluded that the company should
replace its entire fleet of 3030 Pumps. In connection therewith, Coram entered
into two agreements with B. Braun Medical, Inc. ("B. Braun") in 2003 to purchase
1,000 Vista Basic pole-mounted pumps at an aggregate cost of approximately $1.5
million. Additionally, the Chapter 11 trustee filed a motion in the Bankruptcy
Court seeking approval for the company to lease an additional 1,000 Vista Basic
pumps from B. Braun for an aggregate three year commitment, including related
interest, of approximately $1.5 million. The Bankruptcy Court is scheduled to
hear the aforementioned motion on May 1, 2003. Management is taking other
actions, including, but not limited to, comprehensive employee training, to
ensure a smooth transition from the 3030 Pumps to the Vista Basic pumps.
However, no assurances can be provided that patient care will not be disrupted
due to the pole-mounted infusion pump transition or the company's ongoing
shortage of 3030 Pump tubing and infusion sets during the transition period.

Management expects that Baxter will extend the period during which it will
produce the tubing and infusion sets necessary for operation of the 6060 Pumps;
however, no assurances can be given that Baxter will make such an extension.
Moreover, the company's fleet of 6060 Pumps requires certain costly software and
hardware upgrades and the 6060 Pumps are currently experiencing significant

49

and recurring repairs that are not covered under warranty. Such upgrades and
extensive ongoing repairs will require a substantial cash outlay by the company
and would temporarily remove numerous company-owned pumps from revenue-producing
activities (thereby requiring the company to lease incremental pumps on a
month-to-month basis). Given the issues surrounding the 6060 pumps, management
is currently evaluating several alternatives, including replacement of the
entire 5,500 unit fleet. No assurances can be given that the company will
develop an alternative that will be economically viable, including
identification of a source of long-term financing, or meet with the approval of
the Chapter 11 trustee and the Bankruptcy Court.

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 provides for (i) retention bonus payments of approximately $3.1
million to key employees of the company (the "2003 KERP Compensation") and (ii)
other bonus payments of approximately $0.3 million to certain branch management
personnel (the "Branch Incentive Compensation"). In connection therewith, the
company is scheduled to pay approximately $1.8 million to the eligible
participants in April 2003. Under the provisions of the 2003 KERP, the 2003 KERP
Compensation is 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 (the
"Second Payment Date"). Should a 2003 KERP Compensation participant voluntarily
leave the company or be terminated for cause prior to the Second Payment Date,
such participant must return any amounts previously received under the 2003
KERP, less applicable taxes withheld. The entire Branch Incentive Compensation
amount was due and payable to the eligible participants upon approval of the
2003 KERP by the Bankruptcy Court.

The company sponsors a Management Incentive Plan ("MIP"), which provides for
annual bonuses payable to certain key employees. The bonuses are predicated on
overall corporate performance (principally sales of the company's core infusion
therapies, cash collections and earnings before interest expense, taxes,
reorganization expenses, restructuring costs, depreciation and amortization and
certain other non-recurring items), as well as, individual performance targets
and objectives. On March 20, 2001, the CHC Compensation Committee of the Board
of Directors approved an overall award of approximately $13.6 million to
participating individuals for the year ended December 31, 2000 (the "2000 MIP").
On September 7, 2001, the Bankruptcy Court approved payment of up to
approximately $2.7 million of the 2000 MIP to all such participating
individuals, except for the amounts due to Daniel D. Crowley, the company's
former Chairman of the Board of Directors, Chief Executive Officer and
President. In connection therewith, payments to those approved participating
individuals were made in September 2001. Pursuant to the provisions of the MIP
for the year ended December 31, 2001 (the "2001 MIP"), which was previously
approved by CHC's Compensation Committee of the Board of Directors, the
individuals included thereunder were entitled to an aggregate payment of
approximately $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, 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 separately with
Mr. Crowley and Allen J. Marabito, the company's Executive Vice President: (i)
not to request any 2001 MIP payment to Mr. Crowley and (ii) to request the
payment of a portion of the 2001 MIP amount to which Mr. Marabito was otherwise
entitled. The Bankruptcy Court 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 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 amounts in any proposed
plan or plans of reorganization. Payments of (i) the remaining 2001 MIP and 2000
MIP amounts, (ii) contractual incentive compensation payable to Mr. Crowley in
the amount of $1.95 million and to Mr. Marabito in the amount of $1.05 million
(subject to reduction in an amount equal to or greater than Mr. Marabito's 2003
KERP allocation), as determined pursuant to their expired employment agreements
and under an MIP plan previously approved by the CHC Compensation Committee for
the year ended December 31, 2002, (iii) unpaid amounts from the first and second
key employee retention plans and (iv) a $1.8 million refinancing success bonus
due to Mr. Crowley remain subject to approval by the Bankruptcy Court and the
Chapter 11 trustee. If approved, the company intends to fund such amounts with
available cash balances and cash provided by operations.

In connection with the Second Joint Plan, Mr. Crowley voluntarily offered to
accept a $7.5 million reduction in certain performance bonuses, contingent on
the confirmation and consummation of the Second Joint Plan. As discussed in Note
3 to the company's Consolidated Financial Statements, confirmation of the Second
Joint Plan was denied by the Bankruptcy Court on December 21, 2001. The company
cannot predict what, if any, reduction in Mr. Crowley's incentive, retention or
success bonuses, which are accrued in the company's Consolidated Financial
Statements, will be proposed or opposed in a new plan or plans of reorganization
submitted by the Chapter 11 trustee or any other interested party. However, Mr.
Crowley has indicated that he reserves the right to claim the full outstanding
amounts of such bonuses and incentive compensation, as well as, all other
compensation.

50

On January 14, 2003, 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 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.

With the approval of the Chapter 11 trustee, in November 2002 the company
modified its paid time off ("PTO") policy for the year ended December 31, 2002.
The transitional PTO policy authorized cash payouts to employees with aggregate
vested PTO time meeting certain criteria and/or exceeding certain predetermined
thresholds. In connection therewith, payments aggregating approximately $0.3
million were made in December 2002 and management anticipates that the company's
incremental cash outlay for this program in April 2003 will be approximately
$0.3 million. Such amounts will be funded through available cash balances and
cash provided by operations.

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.
Additionally, the company's malpractice insurance carrier will no longer offer
such coverage to its insureds and, in connection therewith, management has been
advised that in order to maintain adequate insurance coverage its related
premiums will substantially increase. During 2002, pursuant to an order
previously entered by the Bankruptcy Court, the Chapter 11 trustee and 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 the 2002 financing agreement was made in November 2002.
The company is incurring and anticipates incurring substantial incremental
insurance premium rate increases in 2003. No assurances can be given that the
Debtors will be able to negotiate another financing arrangement or that the
Chapter 11 trustee and the Bankruptcy Court will approve such an arrangement for
2003. Additionally, no assurances can be given that the Debtors will be able to
obtain and/or maintain adequate D&O, GLPL and malpractice insurance coverage in
2003 and beyond. In the event that the Debtors are unable to obtain and/or
maintain such insurance at a price that will be economically viable, there could
be a material adverse effect on the company's operations.

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 proposed plan of liquidation under Chapter 11 of the
Bankruptcy Code filed with the Bankruptcy Court, 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 3, 4 and 14 to the company's
Consolidated Financial Statements for further details.

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 the disallowance of the Debtors' claims against
the Resource Network Subsidiaries, punitive damages and attorneys' fees. The
Debtors 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 and, accordingly, they are vigorously
contesting the allegations.

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.
The parties to (i) the second amended complaint, (ii) the Debtors' motion for an
order expunging the proofs of claims filed by the Resource Network Subsidiaries
and (iii) the Resource Network Subsidiaries' objections to the Debtors' proofs
of claims are proceeding with discovery under a case management order. On
January 10, 2003, the United States District Court for the District of

51

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. Now pending before the District Court are
motions 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 appropriate insurance coverage for its directors
and officers, who are also vigorously contesting the allegations.

Principally due to the early stages of the aforementioned Resource Network
Subsidiaries' matters, the ultimate outcome thereof cannot be predicted with any
degree of certainty, nor can management predict the amount of any recoveries
that the company may ultimately receive from its insurance carrier. Through
December 31, 2002, the company incurred approximately $0.9 million in legal
fees, including legal fees associated with indemnifications of the company's
directors and officers related to the second amended complaint filed by the
R-Net Creditors' Committee. Management expects to incur substantial legal fees
in future periods related to this matter, which the company intends to fund with
available cash balances and cash provided by operations.

The CHC Board of Directors approved management's request to upgrade Coram's
company-wide information systems. In connection therewith, the company entered
into an agreement whereby a new financial, materials management, procurement,
human resource and payroll (collectively the "Back Office") software package and
related licenses were procured. The total purchase price for the Back Office
software package was approximately $1.3 million. All of the Back Office modules
were operational before June 30, 2002, except for the human resource and payroll
software modules, which are scheduled to become operational in 2003.
Additionally, management is negotiating with a third party vendor for the
acquisition of a software system and appropriate upgrades thereto in order 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 2003. In addition to the cost
of the aforementioned Back Office software package, substantial internal and
external costs have been and will continue to be incurred to implement the
remaining Back Office (human resource and payroll modules) and Front Office
software solutions, as well as, resolve certain residual functional issues in
the Back Office modules (financial, materials management and procurement).
Internal personnel time and expenses and external vendor consultation costs of
approximately $6.0 million were expended from January 1, 2001 through December
31, 2002 on these projects. Through December 31, 2002, the company also
purchased certain hardware necessary to run the new information systems
aggregating approximately $2.9 million; however, supplemental hardware and
peripheral equipment will be required in order to support the new Front Office
software suites. Although management cannot readily determine the aggregate
costs to implement the Back Office and Front Office solutions and resolve the
remaining functional issues in the current operating environment, the company
plans to manage the timing of such efforts in order to fund its current and
future information system requirements, including potentially substantial
supplemental consulting services, with its available cash balances and cash
provided by operations. Any disruptions to transaction processing may adversely
affect management's ability to report, analyze and utilize data for purposes of
making proactive business decisions and complying with various financial
reporting requirements.

Coram entered into a proposed settlement agreement with the Internal Revenue
Service (the "IRS") to resolve a dispute regarding certain tax refunds
previously received by the company and management is currently negotiating
payment terms with the IRS. The proposed settlement agreement has been approved
by the Joint Committee on Taxation and, if approved by the Chapter 11 trustee
and the Bankruptcy Court, would result in a federal tax liability of
approximately $9.9 million, plus interest of approximately $9.2 million at April
11, 2003. The federal income tax adjustments would also give rise to additional
state tax liabilities. If the company is not able to negotiate an installment
payment plan on favorable terms with the IRS or if the Bankruptcy Court or the
Chapter 11 trustee do not approve the proposed settlement amount or an
installment payment plan, the financial position and liquidity of the company
could be materially adversely affected. Additionally, in connection with
recently enacted legislation, during the year ended December 2002 the company
filed refund claims with the IRS requesting approximately $1.8 million of
previously paid alternative minimum taxes, of which, one refund claim of
approximately $0.1 million was received by the company in January 2003.

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. CMS has
indicated that the new compliance date will be sixty days after the publication
of the final rule. Management believes that, based upon currently available
information derived from discussions with surety bond brokers and organizations
that issue surety bonds, the necessary bonds will not be generally available to
home health providers until CMS revises its bonding requirements in a way that
clarifies and/or limits the types of liabilities that will be covered by the
bonds. As of April 11, 2003, the company had only one Medicare Part A certified
home health provider location, which has not obtained a surety bond.
Additionally, as required by the BBA, CMS also intends to issue separate surety
bond regulations applicable to Medicare Part B

52

suppliers. Virtually all of Coram's branch offices participate as suppliers in
the Medicare Part B program. Similar bonding requirements are being reviewed by
state Medicaid programs and at least one state requires Medicaid suppliers to
maintain a surety bond. Currently there is no federal surety bond requirement in
effect for Medicare Part B suppliers. If such a requirement becomes effective
and if Coram is not able to obtain all of the necessary surety bonds, it may
have to cease its participation in the Medicare and Medicaid programs for some
or all of its branch locations. 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.

Certain administrative simplification provisions of the Health Insurance
Portability and Accountability Act of 1996 ("HIPAA") 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 new provisions are currently scheduled to take effect no
later than October 16, 2003. These changes are having a critical 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, it will be necessary for the company to renegotiate
or amend a significant number of its commercial payer contracts within the next
year. The standard billing code sets available under the HIPAA provisions may
require that the company separate certain elements of its services, thereby
resulting in possible reductions of the overall revenue that the company may
earn under its payer contracts. Additionally, several large commercial payers
are seeking to attain HIPAA compliance by renewing their contracts with their
providers on terms and conditions that may not be favorable to the provider,
bidding out their provider services through an open proposal process,
terminating existing provider contracts, requiring providers to contract with a
third party administrator at less favorable rates and unilaterally imposing new
billing codes and fee structures on existing providers. Moreover, the company's
payers may experience difficulties and/or distractions as they strive to become
HIPAA compliant, thereby disrupting the company's cash collections and
reimbursement activities. As a result of the aforementioned HIPAA compliance
activities and payer contracting initiatives, the company may not be successful
in negotiating new contracts and/or renewing existing contracts in order to
provide timely and adequate levels of reimbursement and profitability.

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.
Consequently, as the company grows its revenue related to its core therapies,
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 the company's accounts receivable may not be sufficient to cover the
expenses associated with its 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. In December 2000, Coram announced that as part of its continuing
efforts to improve efficiency and overall performance, several Patient Financial
Service Centers (reimbursement sites) were being consolidated and the related
reimbursement positions were being eliminated. By consolidating to fewer sites,
management expects 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 receiver 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 ("DSO") and/or unfavorable
aging trends in its accounts receivable.

53

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 plan
or plans of reorganization and 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 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. In addition, the company
may experience difficulty in attracting and retaining patients and personnel as
a result of the Bankruptcy Cases.

Coram may not be able to maintain certain 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. A federal law, known as 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 and 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, 2003 based on stockholders' equity at December 31,
2002. However, in light of the company's recurring operational losses during
each of the years in the three year period ended December 31, 2002, 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 25% of the company's consolidated net
revenue for the year ended December 31, 2002. Therefore, ceasing to accept such
referrals could materially adversely affect the company's financial condition
and business reputation in the market 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 which could adversely affect
the company's continued operations and stock price.

Numerous factors have impacted Coram's performance and financial condition
to date, including, among others: (i) ongoing pricing pressure in the infusion
therapy business as a result of a shift in payer mix from private indemnity
insurance to managed care and governmental payers 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; and (iii) 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.

The outcome of pending bankruptcy and legal proceedings 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 submitted by the Chapter 11 trustee or
another interested party.

54

The outcome of the Resource Network Subsidiaries' bankruptcy proceedings
and their pending liquidation, as well as, 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 proposed plan of liquidation under Chapter 11 of the
Bankruptcy Code filed with the Bankruptcy Court, 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 3, 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 appropriate insurance coverage for its directors and officers. See Note 14
to the company's Consolidated Financial Statements for further details.

Principally due to the early stages of the aforementioned Resource Network
Subsidiaries' matters, the ultimate outcome thereof 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 December 31, 2002, the company incurred approximately $0.9
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 expects to incur substantial legal fees in future
periods related to this matter. Unfavorable outcomes related to the
aforementioned matters 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 continuing business operations.

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 net costs for the Bankruptcy Cases will result
in a significant use of cash for the year ending December 31, 2003 and
thereafter. These costs principally consist of professional fees and expenses
and certain pending employee retention payments. 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 material 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 material 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 $334.6
million at March 31, 2003, 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. In December 2000, Coram announced that as part of its continuing
efforts to improve efficiency and overall performance, several Patient Financial
Service Centers (reimbursement sites) were being consolidated and the related
reimbursement positions were to be 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

55

Patient Financial Services 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.

Coram has experienced pressures from vendors to shorten payment terms for
drugs and supplies. Noncompliance with vendor terms and conditions could result
in the company losing access to necessary drugs and supplies in order to
maintain or grow its present business. In addition, Coram relies on the
collection of third party payments from insurance providers to pay these
vendors. In connection therewith, 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.

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 the upgrade of its company-wide information technology
systems, infusion pump replacement programs, branch relocations and certain
other cash requirements related to the company's real estate portfolio.
Management believes that cash sufficient to meet its operating and capital
requirements 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.

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.

The CHC Board of Directors approved management's request to upgrade Coram's
company-wide information systems. In connection therewith, the company entered
into an agreement whereby a new financial, materials management, procurement,
human resource and payroll (collectively the "Back Office") software package and
related licenses were procured. All of the Back Office modules were operational
before June 30, 2002, except for the human resource and payroll software
modules, which are scheduled to become operational in 2003. Additionally,
management is negotiating with a third party vendor for the acquisition of a
software system and appropriate upgrades thereto in order 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 2003. In addition to the cost of the Back Office
software package, substantial internal and external costs have been and will
continue to be incurred to implement the remaining Back Office (human resource
and payroll modules) and Front Office software solutions, as well as, resolve
certain residual functional issues in the Back Office modules (financial,
materials management and procurement). 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 suites. Although management cannot readily determine the
aggregate costs to implement the Back Office and Front Office solutions and
resolve the remaining functional issues in the current operating environment,
the company plans to manage the timing of such efforts in order to fund its
current and future information system requirements, including potentially
substantial supplemental consulting services, with its available cash balances
and cash provided by operations. Any disruptions to transaction processing may
adversely affect management's ability to report, analyze and utilize data for
purposes of making proactive business decisions and complying with various
financial reporting requirements.

Management anticipates that the Front Office project will be implemented in
stages, with final completion projected in early 2005. 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
purchase and highly customize a vendor software product to replace the existing
Front Office systems. In order to mitigate risk, management intends to
diligently define and test the new systems prior to 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 these systems, the company's ability to maintain and improve
the

56

quality of its patient care, generate and bill revenue 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 satisfaction during the transition to the new Front Office systems.

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 therapies that can be administered
orally, such as protease inhibitors for the treatment of HIV/AIDS, 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.

Coram's financial position and liquidity may be adversely affected by the
outcome of current negotiations with the Internal Revenue Service (the
"IRS").

Coram entered into a proposed settlement with the IRS to resolve a dispute
regarding certain tax refunds previously received by the company and management
is currently negotiating payment terms with the IRS. The proposed settlement
agreement has been approved by the Joint Committee of Taxation and, if approved
by the Chapter 11 trustee and the Bankruptcy Court, would result in a federal
tax liability of approximately $9.9 million, plus interest of approximately $9.2
million at April 11, 2003. The federal income tax adjustments would also give
rise to additional state tax liabilities. If the company is not able to
negotiate an installment payment plan on favorable terms with the IRS, or if the
Bankruptcy Court or the Chapter 11 trustee do not approve the proposed
settlement amount or an installment payment plan, the financial position and
liquidity of the company could be materially adversely affected. See Note 10 to
the company's Consolidated Financial Statements for further details.

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 is generally 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 recent years, state and federal government enforcement agencies have
conducted ongoing investigations of manufacturers' practices with respect to AWP
in which they have suggested that "inflated" AWPs have led to excessive
government payments for prescription drugs and biologicals. Several private
lawsuits have also been filed against manufacturers based on similar allegations
seeking recoveries on behalf of patients and private healthcare plans. As a
result of these investigations, federal and state policymakers have begun to
question the appropriateness of continuing to reimburse for drugs and
biologicals under federal programs using AWP-based methodologies. For example,
the Medicare, Medicaid and SCHIP Benefits and Improvement and Protection Act of
2000 (the "BIPA") required the General Accounting Office ("GAO") to study
Medicare reimbursement for drugs and biologicals and related services. The
Secretary of the Department of Health and Human Services (the "DHHS") is
required to revise the current Medicare payment methodologies for covered drugs
and biologicals and related services based on the GAO's recommendations. The
BIPA also placed a temporary moratorium on decreases (but not increases) in
Medicare reimbursement for Part B drugs until the Secretary of the DHHS reviews
the GAO report.

The GAO released its AWP report in September 2001, which found that
physicians are able to obtain Medicare-covered drugs at prices significantly
below current Medicare payments. Likewise, the GAO found that wholesalers' and
group purchasing organizations' prices, which would generally be available to
physicians, were less than AWPs used to establish the Medicare payment for these
drugs. In connection with these findings, the GAO recommended that CMS reimburse
providers for Medicare Part B-covered drugs and related services at levels
reflecting the provider's acquisition costs. CMS agreed that Medicare should
appropriately pay for both Part B-covered drugs and the services required to
furnish them, although CMS has not yet released a comprehensive plan to reform
drug payments. However, 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 (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. A number of legislative proposals to revise

57

the Medicare payment methodology for drugs and biologicals has also been
introduced in Congress, but they have not been enacted to date.

In addition, as part of government investigations of AWP, 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. The Medicare program proposed that these revised AWPs be
used in determining Medicare reimbursement amounts, but this proposal was
withdrawn in light of the BIPA provisions which are more fully described in Item
1. "Business: Government Regulation." However, according to an October 2001
report by the DHHS Office of Inspector General, approximately 30 state Medicaid
programs are using the revised AWPs to establish reimbursement amounts for some
of the listed drugs and biologicals in certain patient care settings.

There can be no assurances that government or private healthcare programs
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 government or private health insurance programs discontinue or
modify the use of AWP or otherwise adopt payment reductions 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 effect on the
company's overall profit margins.

The company's revenue and profitability are subject to prices paid by third
party payers.

The company receives payment from government programs 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
providing for the assumption by healthcare providers of 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 material 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 improve its relationships with such third parties. There can be no assurances
that the company will successfully improve and maintain such relationships or
that additional relationships will be developed and maintained in existing
and/or future markets. The loss of existing relationships or the failure to
continue to develop and maintain ongoing relationships could have a material
adverse effect on the company's business, financial condition and results of
operations. See Item 7. "Business Strategy."

Reduced reimbursement rates that Coram receives for persons covered under
benefit plans funded by governmental or managed care payers could have a
material adverse effect on the company's business, financial condition,
results of operations and liquidity.

Since the inception of Coram's business in 1994, it has been experiencing a
shift in its payer sources from private indemnity payers to governmental and
managed care payers. Private indemnity payers typically reimburse at a higher
amount for a given service and provide a broader range of benefits than
governmental and managed care payers. Additionally, Congress has reduced
reimbursement rates applicable to certain home health and durable medical
equipment services. Other legislative and regulatory proposals have also been
made which, if adopted, would have the effect of reducing the amount received by
Coram for its services. Moreover, intense competition among providers of
healthcare services has encouraged managed care payers to continue to reduce the
prices paid for services, including the services offered by Coram. Significant
reductions in the reimbursement rates for products and services provided by
Coram could have a material adverse effect on the company's business, financial
condition, results of operations and liquidity.

58

A material contract for capitated revenue is subject to renewal.

Approximately 6.6% of the company's consolidated net revenue for the year
ended December 31, 2002 related to a capitated agreement that provided services
to members in the California marketplace. Additionally, Coram owns 50% of a
partnership located in California that derived approximately 41.8% of its net
revenue during 2002 from services provided under such capitated agreement. The
underlying two year agreement expired by its terms on December 31, 2002 but it
is subject to automatic annual renewals absent a written termination notice from
one of the contracting parties. The company and its partnership continue to
render services subject to the automatic renewal provisions of the contract. On
February 28, 2003, the contracted payer invited Coram, as well as a limited
group of other providers, to respond to a request for proposal ("RFP") that
covers the services provided exclusively by Coram and its partnership.
Management believes that the payer will select a provider or providers in July
2003 and the new contract or contracts will become effective January 1, 2004.
Management can provide no assurances that the company will successfully procure
such contract on economic and operational terms that are favorable to the
company. The loss of this capitated contract or significant modifications to the
terms and conditions of the existing contract could have a materially adverse
impact 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. The
combined aggregate drug and supply purchases from these three vendors accounted
for approximately 73% of the total activity for the year ended December 31,
2002. Although management considers its relationships with these three important
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 additional price increases on
some contracts and/or breaches of other contracts that could have significant
negative 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 activity 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 market, 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 (a single patient's
requirements may, at any given time, expend what would otherwise be adequate
inventory for multiple patients) 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. Additionally, management is taking further proactive steps to ensure a
ready supply of factor products for current and future patients. However,
product shortages will continue to occur due to the nature of the manufacturing
and regulatory environment of these products and any disruption to the company's
factor product supply chain could have a materially adverse impact on future
operating results.

Coram's business, results of operations and liquidity may be adversely
affected by significant acquisition and operating costs relating to its
fleet of infusion pumps.

The principal supplier of Coram's infusion pumps, Sabratek Corporation
("Sabratek"), filed for protection under Chapter 11 of the Bankruptcy Code on
December 17, 1999. In January 2000, Baxter Healthcare Corporation ("Baxter")
purchased certain Sabratek assets, including Sabratek's pump manufacturing
division, and continued to produce the related tubing and infusion sets needed
to operate the Sabratek pole-mounted 3030 Pumps (the "3030 Pumps") and the
Sabratek 6060 Homerun Pumps (the "6060 Pumps") that are used by Coram. Baxter
previously discontinued production of the 3030 Pumps and, in March 2003,
manufacturing of the related tubing and infusion sets necessary for repairs and
operation of such pumps was also terminated, thereby substantially exhausting
the company's inventory of such required supplies. In response to this inventory
shortage, management has taken certain steps to ensure that patient care will
not be disrupted while the company transitions to alternate tubing and infusion
set sources. As a result of the company's longstanding evaluation of several
pole-mounted infusion pump alternatives, including local branch comparative
clinical

59

and operational testing, management concluded that the company should replace
its entire fleet of 3030 Pumps. In connection therewith, Coram entered into two
agreements with B. Braun Medical, Inc. ("B. Braun") in 2003 to purchase 1,000
Vista Basic pole-mounted pumps at an aggregate cost of approximately $1.5
million. Additionally, the Chapter 11 trustee filed a motion in the Bankruptcy
Court seeking approval for the company to lease an additional 1,000 Vista Basic
pumps from B. Braun for an aggregate three year commitment, including related
interest, of approximately $1.5 million. The Bankruptcy Court is scheduled to
hear the aforementioned motion on May 1, 2003. Management is taking other
actions, including, but not limited to, comprehensive employee training, to
ensure a smooth transition from the 3030 Pumps to the Vista Basic pumps.
However, no assurances can be provided that patient care will not be disrupted
due to the pole-mounted infusion pump transition or the company's ongoing
shortage of 3030 Pump tubing and infusion sets during the transition period.

Management expects that Baxter will extend the period during which it will
produce the tubing and infusion sets necessary for operation of the 6060 Pumps;
however, no assurances can be given that Baxter will make such an extension.
Moreover, the company's fleet of 6060 Pumps requires certain costly software and
hardware upgrades and the 6060 Pumps are currently experiencing significant and
recurring repairs that are not covered under warranty. Such upgrades and
extensive ongoing repairs will require a substantial cash outlay by the company
and would temporarily remove numerous company-owned pumps from revenue-producing
activities (thereby requiring the company to lease incremental pumps on a
month-to-month basis). Given the issues surrounding the 6060 pumps, management
is currently evaluating several alternatives, including replacement of the
entire 5,500 unit fleet. No assurances can be given that the company will
develop an alternative that will be economically viable, including
identification of a source of long-term financing, or meet with the approval of
the Chapter 11 trustee and the Bankruptcy Court.

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 material
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; and

(iv) physicians and physician-owned organizations, such as independent
practice associations and multi-specialty group practices.

Coram has experienced increased competition in its alternate site infusion
therapy business from hospitals and physicians that have sought to increase the
scope of services offered through their facilities or offices, 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 result in increased competition. The introduction of new and
enhanced services, acquisitions, industry consolidation and the development of
strategic relationships by Coram's

60

competitors could cause a decline in revenue, loss of market acceptance of
Coram's services, price competition, or make the company's services less
attractive. 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 material 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.

Coram may be unable to maintain sufficient Directors' & Officers' ("D&O")
insurance, which could adversely affect its ability to retain qualified
directors and officers.

During the year ended December 31, 2002, 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 2003
policy year and management believes that the company will be able to maintain
its current level of coverage with funding and available cash balances to cover
the enhanced premiums. 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 material adverse effect on the company's operations.

Insurance may not be sufficient to cover losses from professional liability
and products liability exposure.

The services performed and products sold by Coram involve an inherent risk
of professional and products liability. While the company maintains insurance
consistent with industry practices, there can be no assurances that the amount
of insurance currently maintained 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. Coram cannot predict
the effect that claims, regardless of their ultimate outcome, might have on its
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, acting General
Counsel and acting Corporate Secretary. 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 and, in addition, Mr.
Marabito has 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. The Chapter 11 trustee continues to examine other options relative to
the replacement of Mr. Crowley through the ongoing reorganization process. The
company's future growth and success depends, in large part, upon its ability to
obtain, retain and expand its staff of executive personnel. However, there can
be no assurances that the company will be successful in its efforts to attract
and retain such personnel.

Coram may be unable to recruit appropriate personnel, which would have a
material 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 certain states in which the company has
operations, are currently experiencing a shortage of these licensed
professionals. Coram has been affected by this shortage and management believes
that its current financial position has made it more difficult for the company
to recruit and retain experienced professional personnel. As a result, the
company has experienced higher contract labor costs. 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 material 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. Should a plan or plans of
reorganization similar to the Second Joint Plan of reorganization be approved,
the complete elimination of the equity interests of CHC could occur. See Note 3
to the company's Consolidated Financial Statements for further details.

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

61

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 respect to
Coram. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon 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 Boards 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 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.

As a result of payer contracting activities prompted by the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"), the company
may not be successful in negotiating new contracts and/or renewing old
contracts in order to provide timely and adequate levels of reimbursement
and profitability. Additionally, the company may not be successful in fully
complying with the HIPAA health information practices provisions on a
timely basis.

Certain administrative simplification provisions of HIPAA 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 new provisions are currently scheduled to take effect no
later than October 16, 2003. These changes are having a critical 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, it will be necessary for the company to renegotiate
or amend a significant number of its commercial payer contracts within the next
year. The standard billing code sets available under the HIPAA provisions may
require that the company separate certain elements of its services, thereby
resulting in possible reductions of the overall revenue that the company may
earn under its payer contracts. Additionally, several large commercial payers
are seeking to attain HIPAA compliance by renewing their contracts with their
providers on terms and conditions that may not be favorable to the provider,
bidding out their provider services through an open proposal process,
terminating existing provider contracts, requiring providers to contract with a
third party administrator at less favorable rates and unilaterally imposing new
billing codes and fee structures on existing providers. Moreover, the company's
payers may experience difficulties and/or distractions as they strive to become
HIPAA compliant, thereby disrupting the company's cash collections and
reimbursement activities. As a result of the aforementioned HIPAA compliance
activities and payer contracting initiatives, the company may not be successful
in negotiating new contracts and/or renewing existing contracts in order to
provide timely and adequate levels of reimbursement and profitability. These
circumstances could have a material adverse effect on Coram's business,
financial condition, results of operations and liquidity.

Additionally, although management believes that it is taking the necessary
steps to fully comply with HIPAA requirements, no assurances can be given that
full compliance will be achieved within the prescribed deadlines. Failure to
comply with HIPAA health information practices provisions could lead to criminal
penalties and civil sanctions that could have a material adverse effect on
Coram's business, financial condition, results of operations and liquidity. See
Item 1. "Business: Government Regulation" for further details.

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 also is subject to
certain state and federal laws prohibiting the payment of remuneration for
patient or business

62

referrals and the provision of services where a prohibited financial
relationship exists between a referring physician and the entity providing the
service.

New 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 the laws or new interpretations of existing laws could also have an
adverse effect on the company's methods 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 and
continue 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 effected 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 beyond Medicare and Medicaid to all payers; 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 the Omnibus Budget
Reconciliation Act of 1993 (commonly referred to as "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 material adverse effect on the company. In addition, various
federal laws 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.

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.

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
investigation/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 material adverse effect on Coram.

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, 2002, 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. Management is aware of
certain current audits and reviews with respect to prior reimbursements from
Medicare and Medicaid. While management believes that the company is in
substantial compliance with all applicable laws and regulations, compliance with
such laws and regulations can be subject to future government review and
interpretation, as well as, significant regulatory action, including fines,
penalties and exclusion from the Medicare and Medicaid programs.

63

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 22
states and pharmacy services in 49 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 served 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 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 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 have
dramatically reduced profit margins for healthcare providers. Continued growth
in managed care and capitated plans have 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 market areas. 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 are subjecting the healthcare
industry in the United States to extensive and dynamic change, and 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 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 proposed reductions in Medicare
and Medicaid payments, if successfully developed and adopted, could have a
material 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 and public debate of these
issues will likely continue in the future. 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 material 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, 2001, the company had outstanding long-term debt of
approximately $153.6 million of which approximately $153.3 million matured on
June 30, 2002 and bore interest at 9.0% per annum; however, the $153.3 million
was not paid on such date and the creditors' remedies were stayed pursuant to
the Bankruptcy Cases. In connection with a debt to equity exchange transaction
executed on December 31, 2002, the company reduced its total long-term debt to
approximately $9.3 million, including $9.0 million which was amended to mature
on June 30, 2003. Because substantially all of the interest on the company's
debt is 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 9 to the
company's Consolidated Financial Statements for further details.

The debt to equity exchange transactions described in Note 9 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.

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ITEM 8. FINANCIAL STATEMENTS

The company's Consolidated Financial Statements, Notes to Consolidated
Financial Statements and financial statement schedule at December 31, 2002 and
2001 and for the years ended December 31, 2002, 2001 and 2000 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.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

CHAPTER 11 TRUSTEE AND THE BOARD OF DIRECTORS

On March 7, 2002, the Bankruptcy Court granted the approval of the
appointment of Arlin M. Adams, Esquire as the Debtors' Chapter 11 trustee.
Chapter 11 of 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 is obligated to investigate the
debtor's operations, financial condition and any other matter relevant to the
formulation of a plan of reorganization. Chapter 11 of the Bankruptcy Code also
provides 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, Chapter 11 of 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 in the presiding bankruptcy court; however,
non-ordinary course actions still require the authorization of the presiding
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 Board of Directors' management rights and responsibilities and the rights
and responsibilities of all committees of the Board of Directors. Prior to the
appointment of the Chapter 11 trustee, the Board of Directors met seven times
during 2002. Subsequent to the appointment of Mr. Adams, the Board of Directors
met one time on April 12, 2002 with respect to the company's Annual Report on
Form 10-K for the year ended December 31, 2001. On May 16, 2002, the Audit
Committee of the Board of Directors met with respect to the company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002.

The table below sets forth certain information concerning the Chapter 11
trustee and each member of Coram's Board of Directors as of April 11, 2003.
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.

Arlin M. Adams, Esquire, Chapter 11 Trustee. Mr. Adams is of counsel with
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. He served 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 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

66

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 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 bono work 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.

Daniel D. Crowley, Former Chairman of the Board of Directors. Mr. Crowley
joined CHC as its Chairman, Chief Executive Officer and President on November
30, 1999. In addition, Mr. Crowley serves as Chairman, Chief Executive Officer
and President of Dynamic Healthcare Solutions, LLC ("DHS"), a privately held
management consulting and investment firm that he established in 1997. Prior to
founding DHS, Mr. Crowley served as the Chairman, Chief Executive Officer and
President of Foundation Health Corporation, a post that he had served for more
than five years.

Mr. Crowley's employment contract with Coram 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. 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 (i)
the earlier of 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, has 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.

Effective August 1, 1999, Mr. Crowley and an affiliate of Cerberus
Partners, L.P. ("Cerberus"), a party to the company's debtor-in-possession
financing agreement, former Senior Credit Facility and Securities Exchange
Agreement, as well as, a holder of certain Coram, Inc. preferred stock equity
interests, 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 agreed to suspend their contract and
all related obligations immediately after the Bankruptcy Court's denial of the
Second Joint Plan of reorganization on December 21, 2001. In September 2002, Mr.
Crowley formally terminated the Cerberus employment contract.

Mr. Crowley was also the Chairman of the Board of Directors of Winterland
Productions, Inc. ("Winterland"), a privately held affinity merchandise company,
which was a Cerberus affiliate portfolio investment. On January 2, 2001,
Winterland voluntarily filed for protection under Chapter 11 of the Bankruptcy
Code in the Northern District of California. On December 12, 2001, such
bankruptcy court approved the sale of substantially all of the assets of
Winterland to Signatures Network, Inc. Since that date, Winterland has been
liquidated and Mr. Crowley is no longer a director or officer of the company.

In February 2001, the Official Committee of 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 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,

67

2002, in connection with the authorization for a Chapter 11 trustee, the
Bankruptcy Court denied the renewed motion without prejudice.

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.

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 Coram
since September 1997. Since 1983, Mr. Casey has served as a consultant in the
healthcare industry, specializing in hospital management evaluation, hospital
planning, managed care contracting and turnaround services. From 1986 to 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 Coram since
July 1994. 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 also serves on the Board of Directors of Matrix,
Inc. and AMSYS, Inc. 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 Coram's Board of
Directors on February 10, 2000. Ms. Smoley is the Chairperson 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")
brought an adversary proceeding in the Bankruptcy Court 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") against, 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 appropriate insurance coverage for its directors. Management
cannot predict the outcome of this case nor can it predict the amount of any
recoveries that the company may ultimately receive from its insurance carrier.
See Note 14 in the company's Consolidated Financial Statements for further
details.

Board of Directors Committees. The members of the Compensation Committee of
CHC's Board of Directors are Messrs. Amaral and Smith. The members of the Audit
Committee are Mr. Crowley, until his resignation effective March 31, 2003, Mr.
Casey and Ms.

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Smoley. Prior to the appointment of the Chapter 11 trustee, the Board of
Directors met seven times during 2002. Subsequent to the appointment of Mr.
Adams, the Board of Directors met one time on April 12, 2002 with respect to the
company's Annual Report on Form 10-K for the year ended December 31, 2001. On
May 16, 2002, the Audit Committee of the Board of Directors met with respect to
the company's Quarterly Report on Form 10-Q for the quarter ended March 31,
2002. The Chapter 11 trustee has assumed all committee rights and
responsibilities, including that of the Audit Committee, as part of his overall
duties and responsibilities. The Chapter 11 trustee held meetings, as the Audit
Committee, with management and the company's independent auditors on August 16,
2002 and November 15, 2002 with respect to the company's Quarterly Reports on
Form 10-Q for the quarters ended June 30, 2002 and September 30, 2002,
respectively.

Stipulation Agreements. Effective March 6, 2003, Messrs. Amaral, Casey,
Crowley and Smith and Ms. Smoley 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 members of the Board of
Directors in exchange for waivers of the expiration of any statutory time
limitation as a defense against the commencement of such proceedings. DHS
entered into a similar stipulation agreement with the Chapter 11 trustee.

EXECUTIVE OFFICERS

The following table sets forth certain information as of April 11, 2003
concerning each of the executive officers of Coram, who serve at the pleasure of
the Board of Directors and, subsequent to his appointment on March 7, 2002, the
Chapter 11 trustee. Biographical information with respect to Daniel D. Crowley
is set forth under the caption "Chapter 11 Trustee and the Board of Directors"
above.

Allen J. Marabito joined Coram on November 30, 1999 as Executive Vice
President. Effective January 15, 2002, Mr. Marabito also assumed the
responsibilities of Coram's acting General Counsel and acting Corporate
Secretary. Additionally, effective April 1, 2003, Mr. Marabito assumed the
duties and responsibilities previously performed by Mr. Crowley. From 1997 to
1999, Mr. Marabito was in private law practice and Senior Vice President with
DHS. 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. Previously,
Mr. Danitz was employed by First Data Corporation from 1989 through 1997 and
held various positions, the most recent of which had been Vice President and
Controller, Payment Instruments division.

Michael A. Saracco has served the company in several positions and, since
July 2002, he 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 also currently serves as
President and Chief Operating Officer of the company's wholly-owned subsidiary,
SoluNet LLC, which 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.

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. Previously, Ms. Meyer held various
positions, including General Manager, with Medisys, Inc., which

69

was one of the companies that merged together 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.

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, Mr. Danitz. 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. Mr. Danitz has indicated through legal
counsel that he intends to vigorously defend himself in this complaint. Coram
notified its insurance carrier of the complaint and intends to avail itself of
any appropriate insurance coverage for its executive officers. Management cannot
predict the outcome of this case nor can it predict the amount of any recoveries
that the company may ultimately receive from its insurance carrier. See Note 14
in the company's Consolidated Financial Statements for further details.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16 of the Securities Exchange Act of 1934, as amended, requires
Coram's directors, executive officers and persons who beneficially own greater
than 10% of a registered class of Coram's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). 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, 2002 all of
its directors, executive officers and greater than 10% beneficial owners were in
compliance with these filing requirements, except as discussed in the following
sentence. Michael A. Saracco and Deborah M. Meyer failed to file their Forms 3
during the year ended December 31, 2002 but subsequently filed such information
with the Commission in April 2003.

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 11, 2003,
the Bankruptcy Court has authorized payments to Mr. Adams for fees in the amount
of $64,778 and reimbursable expenses in the amount of $2,196, which cover the
period from March 7, 2002 (the date of his appointment) through November, 30
2002. Of this amount, $54,018 was paid during 2002 and $12,956 was paid
subsequent to December 31, 2002.

Payments to Party Related to Mr. Adams. Mr. Adams is of counsel with 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 11, 2003, Schnader Harrison has submitted to the
Bankruptcy Court fees aggregating $1,143,233 and reimbursable expenses
aggregating $36,974, which cover the period March 7, 2002 through November 25,
2002. Of this amount, $830,717 was paid during 2002 and $175,934 was paid
subsequent to December 31, 2002.

COMPENSATION OF DIRECTORS

Fees for Board Service. Under current company 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. All directors are entitled to reimbursement for expenses
incurred in connection with attending meetings of the Board of Directors or
committees thereof. Compensation for participation on the 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. Effective April 1, 2000, the Board of
Directors adopted resolutions approving an annual retainer of $12,000 (payable
quarterly) for each non-employee director; however, only payments relative to
the quarter ended March 31, 2002 were made during 2002.

Prior to the appointment of the Chapter 11 trustee, there were seven Board
of Directors' meetings. After the appointment of the Chapter 11 trustee, there
was one Board of Directors Meeting and one Audit Committee meeting. Due to the
Debtors' bankruptcy proceedings, certain amounts payable to members of the Board
of Directors have been stayed and, in connection therewith, such members have
filed proofs of claims against the Debtors' bankruptcy estates.

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Mr. Crowley, the only director who was also an employee, received no
additional compensation for service on the Board of Directors. As indicated in
Item 10. "Directors and Executive Officers of the Registrant," Mr. Crowley
resigned from the company effective March, 31, 2003. In addition to
reimbursement for out-of-pocket expenses relating to meeting attendance,
non-employee directors of Coram earned the following compensation for Board of
Directors' meetings during the year ended December 31, 2002:

Donald J. Amaral........................................ $ 10,250
William J. Casey........................................ 10,250
L. Peter Smith.......................................... 6,000
Sandra R. Smoley........................................ 10,250

Outside Directors' Automatic Option Grant Program. Non-employee members of
the Board of Directors participate in the Automatic Option Grant Program in
effect under Coram's 1994 Stock Option Plan. On the date of each annual meeting
of CHC's stockholders, each individual who will continue to serve as a
non-employee member of the Board of Directors receives 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. Due to the absence of an annual meeting of CHC's stockholders during the
year ended December 31, 2002, no stock options were granted pursuant to the
Automatic Option Grant Program. Additionally, each non-employee member of the
Board of Directors, upon being newly appointed or elected to CHC's Board of
Directors, is automatically granted, at the time of such initial election or
appointment, a non-statutory option to purchase 75,000 shares of CHC's common
stock. No stock options were granted pursuant to this program during the year
ended December 31, 2002.

With regard to the stock options for both the newly appointed/elected Board
of Director members and the continuing Board of Director members, each option is
immediately exercisable for all of the option shares. However, any shares
purchased under the option will be subject to repurchase by CHC at the original
exercise price paid per share upon the optionee's cessation of service prior to
the vesting of such shares. The optionee's option shares vest in a series of
equal monthly installments over twelve months of Board of Directors' service
measured from the automatic option grant date. The shares subject to each
automatic option grant under the Coram 1994 Stock Option Plan vest in full upon
(i) the optionee's cessation of Board of Directors' service due to death or
disability, (ii) an acquisition of CHC by merger or asset sale or (iii) a change
in control of CHC. As of April 11, 2003, all stock options granted to members of
the Board of Directors under the Automatic Option Grant Program are fully
vested.

Each automatic option granted to a non-employee member of the Board of
Directors includes a limited stock appreciation right which 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. Under 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.

The Second Joint Plan of reorganization, confirmation of which was denied
by the Bankruptcy Court on December 21, 2001, would have effectively eliminated
all options to purchase CHC's common stock because Coram Healthcare Corporation
would have been dissolved as soon as practicable after the effective date of the
plan of reorganization and all equity interests therein would have been
completely eliminated. Another plan or plans proposed by the Chapter 11 trustee
or other interested parties may have a similar effect; however, appropriate
approvals thereof in accordance with Chapter 11 of the Bankruptcy Code would be
required.

CHC entered into indemnification agreements with each of its directors and
executive officers that would require CHC to provide indemnification to each
such person in certain circumstances for claims made against them in connection
with their service on behalf of CHC.

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SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth the annual and long-term compensation earned
by the former Chief Executive Officer and the four most highly compensated
executive officers of the company (other than such former Chief Executive
Officer) during the year ended December 31, 2002 (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, 2002.

SUMMARY COMPENSATION TABLE

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 paid in March 2001 are included in
the above table as "All Other Compensation" for 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. Principally due to the then pending appointment of a Chapter 1l
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' 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
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 provides for (i) retention bonus payments of approximately $3.1
million to key employees of the company (the "2003 KERP Compensation") and (ii)
other bonus payments of approximately $0.3 million to certain branch management
personnel (the "Branch Incentive Compensation"). In connection therewith, the
company is scheduled to pay approximately $1.8 million to the eligible
participants in April 2003. Under the provisions of the 2003 KERP, the 2003 KERP
Compensation is 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 (the
"Second Payment Date"). Should a 2003 KERP Compensation participant voluntarily
leave the company or be terminated for cause prior to the Second Payment Date,
such participant must return any amounts previously received under the 2003
KERP, less applicable taxes withheld. The entire

72

Branch Incentive Compensation amount was due and payable to the eligible
participants upon approval of the 2003 KERP by the Bankruptcy Court. No amounts
for the 2003 KERP are included in the above table as such amounts remain subject
to each of the participant's continued employment during 2003.

The company also sponsors a Management Incentive Plan ("MIP"), which
provides for annual bonuses payable to certain key employees. The bonuses are
predicated on overall corporate performance (principally cash collections and
earnings from continuing operations before interest expense, 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 2001 bonuses.

On March 31, 2001, CHC's Compensation Committee also approved a management
incentive program for the year ended December 31, 2001 (the "2001 MIP"). Under
the terms of the 2001 MIP, participants thereunder 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, 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
separately with Mr. Crowley and Mr. 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 amounts in any proposed plan or plans of
reorganization.

Amounts paid during 2002 to the Named Executive Officers relating to the
2001 MIP are reflected in the above table as 2002 bonuses.

(1) See information above under the captions "Chapter 11 Trustee and the
Board of Directors" and "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
include (i) $3,600 per month for corporate housing, the annual premium
for a company sponsored $1.0 million life insurance policy with Mr.
Crowley's designee as the beneficiary and an auto allowance of $l,800
per month for Mr. Crowley, (ii) $3,500 per month for corporate housing
and an auto allowance of $1,000 per month for Mr. Marabito, (iii) an
auto allowance of $900 per month for Mr. Danitz, (iv) auto allowances
of $400 per month for each Mr. Saracco and Ms. Meyer and (v) relocation
expense reimbursements of $19,167 for Ms. Meyer in 2000. The
aforementioned corporate housing and auto allowances for Messrs.
Crowley, Marabito and Danitz, as well as certain commutation expenses
for Mr. Marabito, are subject to customary tax gross-up adjustments.
Such adjustments are included in the "Other Annual Compensation"
amounts.

(3) Mr. Crowley participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amount under the
First and Second KERP Installments aggregates $800,000. Mr. Crowley's
allocated MIP amount for the year ended December 31, 2000 is
approximately $10.8 million, subject to Chapter 11 trustee and
Bankruptcy Court approval. In connection with the Debtors' filing of
the Second Joint Plan of reorganization, Mr. Crowley voluntarily
offered to accept the lesser amount of $5.9 million in lieu of his full
2000 MIP amount, contingent on the confirmation and consummation of the
Second Joint Plan of reorganization; however, such plan of
reorganization was denied by the Bankruptcy Court on December 21, 2001.

Pursuant to the terms and conditions of Mr. Crowley's employment
contract, which expired by its own terms on November 29, 2002, Mr.
Crowley is entitled to incentive compensation of $1.95 million and $1.0
million for the years ended December

73

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 is to be paid $1.8
million following the successful refinancing of the company's debt. In
connection therewith and the December 29, 2000 debt to preferred stock
conversion discussed in Notes 3 and 9 to the company's Consolidated
Financial Statements, the company recorded a $1.8 million success bonus
expense for the year ended December 31, 2000. Such success bonus will
not to be payable until such time as a plan or plans of reorganization
are fully approved by the Bankruptcy Court. Payment of this award may
require further approval by the Chapter 11 trustee and the Bankruptcy
Court.

None of the aforementioned incentive compensation, success or other
bonuses for Mr. Crowley are included in the above table.

Mr. Crowley owns DHS, a management consulting and investment company
from which Coram purchased services. For the years ended December 31,
2002, 2001 and 2000, the company paid approximately $0.3 million, $0.3
million and $0.7 million, respectively, to DHS for related consulting
services and reimbursable expenses (such payments to DHS are not
included in the table above). 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. DHS continues to bill Coram
the actual costs it attributes to the DHS Sacramento, California
location where Mr. Crowley and other persons are located and perform
services for or on behalf of the company. Such reimbursements generally
do not include any element of profit for DHS.

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.

(4) Mr. Marabito participates 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 on or about September 16, 2002. Pursuant to the terms and
conditions of Mr. Marabito's employment contract, which expired by its
own terms on November 29, 2002, Mr. Marabito is 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. The 2002 Incentive Compensation, as well as the remaining
2001 MIP balance, have not been authorized or approved by the Chapter
11 trustee or the Bankruptcy Court. However, Mr. Marabito will be
entitled to a 2003 KERP allocation of $380,000 if he agrees to waive a
portion of his 2002 Incentive Compensation in an amount equal to or
greater than his 2003 KERP allocation.

(5) Mr. Danitz participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amount under the
First and Second KERP Installments aggregated $100,000 (paid in two
equal amounts on March 15, 2001 and on March 25, 2002). Mr. Danitz's
allocated 2000 MIP amount of $245,000 was paid in September 2001 and
his allocated 2001 MIP amount of $90,025 was paid on or about September
16, 2002. Mr. Danitz's allocated 2003 KERP amount is $150,000.

(6) Mr. Saracco participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, his allocated amount under the
First and Second KERP Installments aggregated $80,000 (paid in two
equal amounts on March 15, 2001 and on March 25, 2002). Mr. Saracco's
allocated 2000 MIP amount of $91,250 was paid in September 2001 and his
allocated 2001 MIP amount of $91,224 was paid on or about September 16,
2002. Mr. Saracco's allocated 2003 KERP amount is $200,000.

74

(7) Ms. Meyer participates in both the KERP and MIP retention/incentive
arrangements. In connection therewith, her allocated amount under the
First and Second KERP Installments aggregated $80,000 (paid in two
equal amounts on March 15, 2001 and on March 25, 2002). Ms. Meyer's
allocated 2000 MIP amount of $172,975 was paid in September 2001 and
her allocated 2001 MIP amount of $89,424 was paid on or about September
16, 2002. Ms. Meyer's allocated 2003 KERP amount is $200,000.

OPTION GRANTS IN LAST FISCAL YEAR

There were no stock options or stock appreciation rights granted to any
Named Executive Officers during the year ended December 31, 2002.

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, 2002. 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, 2002.

(1) Whether an option is "in-the-money" is determined by subtracting the
exercise price of the option from the closing price for CHC's common
stock on December 31, 2002 ($0.62 per share) from 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, 2002 is greater than the exercise price of the option, the option
is "in-the-money." For the purpose of such calculation, the market
price per share is the applicable market price as of December 31, 2002
and does not reflect market price changes subsequent to December 31,
2002.

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.

In addition, prior to the appointment of the Chapter 11 trustee, the
Compensation Committee of the Board of Directors, as the 1994 Stock Option Plan
administrator, had the authority to provide for the accelerated vesting of the
shares of CHC's common stock subject to outstanding options held by the
company's executive officers. Similarly, the Compensation Committee could have
accelerated vesting of any unvested shares actually held by those individuals
under the 1994 Stock Option Plan in connection with a hostile takeover of the
company effected through a successful tender offer for more than 50% of the
company's outstanding securities, or through a change in the majority of the
Board of Directors as a result of one or more contested elections for Board of
Director membership, or in the event such individual's employment were
involuntarily terminated following such hostile takeover.

The Debtors' Second Joint Plan of reorganization, confirmation of which was
denied by the Bankruptcy Court on December 21, 2001, would have effectively
eliminated all options to purchase CHC's common stock because Coram Healthcare
Corporation would have been dissolved as soon as practicable after the effective
date of the plan of reorganization and all equity interests therein would have
been completely eliminated. Another plan or plans of reorganization proposed by
the Chapter 11 trustee or other interested parties may have a similar effect;
however, appropriate approvals thereof in accordance with Chapter 11 of the
Bankruptcy Code would be required.

75

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.

Daniel D. Crowley. Effective November 30, 1999, Coram entered into an
employment agreement with Mr. Crowley for a three year term commencing on such
date. The 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; however,
the Chapter 11 trustee and Mr. Crowley agreed extend his employment thereafter
in order to continue their discussions and negotiations regarding what Mr.
Crowley's role would be with the company. 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 serve as CHC's Chief
Transition and Restructuring Officer for a term not to exceed (i) the earlier of
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 he had 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. Subsequently, Mr. Crowley resigned from the
company effective March 31, 2003. During the period from November 30, 2002
through March 31, 2003, Mr. Crowley remained an at will employee and continued
to function on a basis consistent with his previous role with 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 (except that no arrangements were made for a bonus or other form of
incentive compensation).

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, which could be shared with other individuals as designated by
Mr. Crowley, if the company's EBITDA exceeded $35 million. The refinancing
success bonus provides for a $1.8 million award upon confirmation of the
Debtors' plan or plans of reorganization, if the plan or plans 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 9 to the company's
Consolidated Financial Statements for further details). In March 2001, the
Compensation Committee and 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 are now expected to expire 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
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 which competes with the company's business in the
company's geographical

76

area. In addition, Mr. Crowley may 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 and similar welfare benefit plans, as well as, the
aforementioned company sponsored $1.0 million life insurance policy.

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 continued to function on a basis consistent with his previous
role but, 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 employment is at will with
a base salary of $375,000 per annum, plus the same employee benefits as prior to
the expiration of his employment contract. Mr. Marabito will be entitled to a
2003 KERP allocation of $380,000 if he agrees to waive a portion of his 2002
Incentive Compensation in an amount equal to or greater than his 2003 KERP
allocation.

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 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 November 30, 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.
Pursuant to the expired employment agreement, Mr. Marabito also received 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 was also eligible to participate
in the company's health, dental, medical, group life insurance and similar
welfare benefit plans. 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.

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 on substantially the same terms and conditions as the original
agreement. Mr. Danitz serves as Senior Vice President, Chief Financial Officer
and Treasurer of the company. Mr. Danitz 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. 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 was
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

77

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.

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
$290,000 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.

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 $250,000
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.

The Debtors' bankruptcy proceedings and the corresponding impact of Chapter
11 of the Bankruptcy Code could impose certain 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

The members of CHC's Compensation Committee of the Board of Directors are
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.). The Compensation
Committee did not meet during the year ended December 31, 2002 and the Chapter
11 trustee has assumed responsibility for substantially all executive
compensation decisions, subject to Bankruptcy Court approval in certain cases.

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ITEM 12. SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The table below sets forth, as of April 11, 2003 (unless otherwise noted),
the number of shares of outstanding CHC common stock beneficially owned 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 as of
December 31, 2002, (iii) each of the members of the CHC Board of Directors as of
December 31, 2002 and (iv) 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 Commission or upon information provided by
such persons to CHC.

* 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 numbers presented in the table above include shares
of common stock acquirable upon exercise of common stock subject to options
within 60 days of April 11, 2003 for the following persons: Mr. Amaral
2,500,000; Mr. Casey 80,000; Mr. Crowley 1,000,000 (Mr. Crowley resigned
effective March 31, 2003 and, unless he elects to exercise his options on
or before June 29, 2003, they will lapse on such date); Mr. Danitz 95,000;
Mr. Marabito 500,000; Ms. Meyer 150,000; Mr. Saracco 140,000; Mr. Smith
87,500 and Ms. Smoley 75,000. 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 as the number of shares of common stock
outstanding on April 11, 2003, plus shares of common stock acquirable
within 60 days upon exercise of stock options and upon conversion of debt
securities.

(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 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.

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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 Bankruptcy Court, their interests would be adequately
represented by this committee and, as a results 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.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

L. Peter Smith, a member CHC's Board of Directors, previously served on the
Board of Directors of Sabratek Corporation ("Sabratek"), a manufacturer of
medical devices. In December 1998, Coram agreed to amend its agreement with
Sabratek to make Sabratek the company's sole supplier of multi-therapy infusion
pumps and related proprietary telemedicine technology during the next ten years.
This agreement contained a provision that allowed either party to cancel the
agreement upon 90 days notice. The pricing schedule applicable to the infusion
pumps and related technology to be purchased was negotiated by certain of
Coram's management after proposals from other manufacturers for comparable
equipment had been solicited. The company purchased approximately $2.8 and $7.8
million of multi-therapy infusion pumps and related proprietary telemedicine
technology from Sabratek during the years ended December 31, 1999 and 1998,
respectively. Sabratek 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's Device Business were acquired by Baxter
Healthcare Corporation ("Baxter"). On April 19, 2001, the Bankruptcy Court
confirmed Sabratek's Second Amended Joint Plan of Liquidation and, in connection
therewith, liquidation proceedings are ongoing. Coram filed a $1.3 million proof
of claim in Sabratek's bankruptcy proceedings for vendor rebates earned but not
paid. Baxter subsequently filed a proof claim of approximately $0.3 million in
the Debtors' bankruptcy proceedings for products the company purchased from
Sabratek. Management continues to evaluate the validity of Baxter's proof of
claim. Notwithstanding the separate proofs of claim filings, Baxter and the
company have an ongoing amicable business relationship involving drugs, supplies
and pumps sold by Baxter to the company.

Daniel D. Crowley, CHC's former Chairman of the Board of Directors, Chief
Executive Officer and President, is the Chairman, Chief Executive Officer and
President of Dynamic Healthcare Solutions, LLC ("DHS"), a privately held
management consulting and investment firm. For the year ended December 31, 2002,
the company paid approximately $0.3 million to DHS for the actual costs it
attributes to DHS' Sacramento, California location where certain individuals are
located and perform services for or on behalf of the company. Subsequent to
December 31, 2002, approximately $0.1 million was paid to DHS for such costs.
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. In 2003, DHS and the Chapter 11
trustee entered into a month-to-month lease for office space related to the
Sacramento, California location where certain company employees are located. The
rent, including parking and certain utilities, is approximately $7,900 per month
and commenced as of April 1, 2003.

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. On December 31, 2002,
with approval from the Bankruptcy Court, the Securities Exchange Agreement was
amended and an Exchange Agreement was simultaneously executed. Pursuant to such
agreements, Cerberus Partners, L.P., Goldman Sachs Credit Partners L.P. and
Foothill Capital Corporation (collectively the "Holders") exchanged the entire
then outstanding principal balance of the company's Series A Senior Subordinated
Unsecured Notes of approximately $40.2 million and the related outstanding
balance of contractual unpaid interest of approximately $7.3 million, as well
as, approximately $83.1 million of the Series B Note principal and $16.6 million
of contractual unpaid interest thereon for approximately 1,218.3 shares of
Coram, Inc. Series B Cumulative Preferred Stock, having a liquidation preference
of approximately $147.2 million. See Note 12 to the company's Consolidated
Financial Statements for further details regarding the preferred stock. Such
shares of Coram, Inc. Series B Cumulative Preferred Stock were issued to the
Holders on a pro rata basis.

In addition to the Coram, Inc. Series B Cumulative Preferred Stock, the
Holders, or their affiliates, also own certain shares of Coram, Inc. Series A
Cumulative Preferred Stock. During the year ended December 31, 2002, an event of
default occurred whereby Coram, Inc. was required to pay in-kind dividends at
the default rate of 16% for the three quarters ended September 30, 2002.
Accordingly, the holders of the Coram, Inc. Series A Cumulative Preferred Stock
received in-kind dividends in the following amounts for the year ended December
31, 2002:

Effective August 1, 1999, Mr. Crowley and Cerberus Capital Management, L.P.
(Cerberus Partners, L.P. and Cerberus Capital Management, L.P. are collectively
referred to as the "Cerberus Entities") executed a three year employment
agreement whereby Mr. Crowley provided certain services and was paid $960,000
per annum, plus the potential for performance-related bonus opportunities,
equity options and fringe benefits. Additionally, Mr. Crowley was entitled to
expense reimbursements and participation in the vacation, pension, profit
sharing, life insurance, hospitalization, major medical and other employee
benefit plans as may be offered by the Cerberus Entities. The bonuses
contemplated under the agreement were

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predicated on a sophisticated set of financial criteria that principally related
to the fiscal performance, market value and disposition proceeds of the Cerberus
Entities' equity investees. Moreover, Mr. Crowley maintained an option to
purchase up to 3% of the capital stock in the Cerberus Entities' equity
investees, exclusive of CHC. The employment 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 Cerberus
Entities were also permitted to unilaterally terminate the employment agreement
with written notice; however, all unpaid salary and bonuses on the remaining
term of the initial three year agreement, as well as participation in employee
benefit plans, would continue to be obligations of the Cerberus Entities
pursuant to the terms and conditions of the employment agreement. Termination
for cause, disability, death and breach of the employment contract would result
in varying degrees of severance and employee benefit plan participation. The
services rendered by Mr. Crowley included, but were not limited to, business and
strategic healthcare investment advice to executive management at the Cerberus
Entities. Mr. Crowley and Cerberus Capital Management, L.P. agreed to suspend
their contract and all related obligations immediately after the Bankruptcy
Court's denial of the Second Joint Plan of reorganization on December 21, 2001.
In September 2002, Mr. Crowley formally terminated the related employment
contract.

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.

In November 2001, the R-Net Creditors' Committee filed an adversary
complaint 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, 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 and
several current and former directors, executive officers and employees of the
company. 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. See Note
14 in the company's Consolidated Financial Statements for further details.

All fees and expense reimbursements payable to Arlin M. 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 11, 2003, the Bankruptcy Court
has authorized payments to Mr. Adams for fees in the amount of $64,778 and
reimbursable expenses in the amount of $2,196, which cover the period from March
7, 2002 (the date of his appointment) through November 30, 2002. Of this amount,
$54,018 was paid during 2002 and $12,956 was paid subsequent to December 31,
2002.

Mr. Adams is of counsel with the law firm Schnader Harrison Segal & Lewis
LLP ("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 11, 2003, Schnader Harrison has submitted to the Bankruptcy Court
fees aggregating $1,143,233 and reimbursable expenses aggregating $36,974, which
cover the period March 7, 2002 through November 25, 2002. Of this amount,
$830,717 was paid during 2002 and $175,934 was paid subsequent to December 31,
2002.

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: Donald J. Amaral, William J. Casey,
Daniel D. Crowley, L. Peter Smith, Sandra R. Smoley, DHS, Foothill Capital
Corporation, Goldman Sachs Credit Partners L.P. and Cerberus Capital Management,
L.P.

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ITEM 14. DISCLOSURE CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure 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 Officer 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 Rule 13a-14(c) and Rule 15d-14(c) promulgated under
the Securities Exchange Act of 1934, as amended, within 90 days prior to the
filing of this report. Based upon their evaluation, the company's Executive Vice
President and the 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.

(b) Changes in Internal Controls

There were no significant changes in the company's internal controls or in
other factors that could significantly affect the company's internal controls
subsequent to the date of their most recent evaluation.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate professional fees for services provided by the company's
principal accountant, Ernst & Young LLP ("E&Y"), were as follows (in thousands):

Audit fees relate to professional fees billed to the company for services
rendered in connection with the audit of the company's consolidated financial
statements and timely Statement of Auditing Standards No. 71 reviews of the
company's consolidated financial statements included in quarterly reports on
Form 10-Q. Audit-related fees pertain to professional fees billed for assurance
and related services that are reasonably related to the performance of the audit
of the company's consolidated financial statements (principally the audits
relating to the company's defined contribution benefit plan and consultations
regarding financial accounting and reporting matters). Tax fees consist of
professional fees billed for consultations regarding tax compliance, tax advice
and tax planning (the aforementioned tax services principally relate to matters
involving the Debtors' bankruptcy proceedings). All other fees consist of
professional fees billed for services in connection with legal matters,
technical accounting research and billing coordination.

The above table disclosing the aggregate professional fees billed by E&Y
for audit fees only covers fee applications submitted to the Bankruptcy Court
through the period ended February 28, 2003. Management anticipates that E&Y will
bill the company additional professional fees ranging from $150,000 to $200,000
related to the audit of the company's consolidated financial statements for the
year ended December 31, 2002.

The Chapter 11 trustee has 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
acting as the Audit Committee, has 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 Securities and Exchange Commission. The Chapter 11 trustee has determined
that the rendering of non-audit services by E&Y was compatible with maintaining
their independence.

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E&Y was engaged directly by the Chapter 11 trustee as an administrative
professional to the Debtors' bankruptcy estates. Accordingly, all fees and
expense reimbursements payable to E&Y in their capacity as the Chapter 11
trustee's accounting and tax advisor constitute administrative fees. Such fees
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 Bankruptcy Court. 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.

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PART IV

ITEM 16. 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, 2002 and 2001

Consolidated Statements of Income -- Years ended December 31, 2002, 2001
and 2000

Consolidated Statements of Stockholders' Equity -- Years ended December 31,
2002, 2001 and 2000

Consolidated Statements of Cash Flows -- Years ended December 31, 2002,
2001 and 2000

Notes to Consolidated Financial Statements

2. Financial Statement Schedule. The following consolidated financial
statement schedule of the registrant for the years ended December 31, 2002, 2001
and 2000 is presented following the Notes to Consolidated Financial Statements.

Schedule II -- Valuation and Qualifying Account

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 November 29, 2002, Coram Healthcare Corporation filed a report on
Form 8-K regarding an extension of employment through December 6, 2002 for
Daniel D. Crowley, who served as the Chairman of the Board of Directors,
Chief Executive Officer and President of the company through the November
29, 2002.

On December 11, 2002, Coram Healthcare Corporation filed a report on
Form 8-K regarding a further extension of employment through December 31,
2002 for Daniel D. Crowley.

On December 16, 2002, Coram Healthcare Corporation filed a report on
Form 8-K regarding a motion filed by Arlin M. Adams, the Chapter 11 trustee
for the bankruptcy estates of Coram Healthcare Corporation and Coram, Inc.
(collectively the "Debtors"), with the United States Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court") on October 14, 2002
requesting approval for the retention of investment bankers and financial
advisors to provide services focusing on the restructuring and
reorganization of the Debtors. On December 2, 2002, the Bankruptcy Court
approved the aforementioned motion and SSG Capital Advisors, L.P. and Ewing
Monroe Bemiss & Co. were engaged as advisors by the Chapter 11 trustee.

On January 10, 2003, Coram Healthcare Corporation filed a report on
Form 8-K regarding a disclosure statement and a proposed plan of
reorganization filed by the Official Committee of Equity Security Holders
of Coram Healthcare Corporation in respect of Coram Healthcare Corporation
and Coram, Inc. in the United States Bankruptcy Court for the District of
Delaware.

On January 17, 2003, Coram Healthcare Corporation filed a report on
Form 8-K regarding the conversion of approximately $40.2 million of Series
A Senior Subordinated Unsecured Notes (the "Series A Notes"), $7.3 million
of accrued but unpaid interest on the Series A Notes, $83.1 million of
Series B Senior Subordinated Unsecured Notes (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.

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On January 24, 2003, Coram Healthcare Corporation filed a report on
Form 8-K regarding a motion filed by Arlin M. Adams, the Chapter 11 trustee
for the bankruptcy estates of Coram Healthcare Corporation and Coram, Inc.,
with the United States Bankruptcy Court for the District of Delaware on
January 24, 2003 seeking authorization to enter into an agreement,
effective January 1, 2003, with Daniel D. Crowley to have Mr. Crowley serve
as the Chief Transition and Restructuring Officer of Coram Healthcare
Corporation.

On February 26, 2003, Coram Healthcare Corporation filed a report on
Form 8-K regarding a motion filed by the attorneys for Daniel D. Crowley in
response to the Shareholders Committee's Motion for an Order Terminating
Daniel Crowley's Employment and for Other Relief in the United States
Bankruptcy Court for the District of Delaware.

On March 6, 2003, Coram Healthcare Corporation filed a report on Form
8-K regarding the resignation of Daniel D. Crowley from his leadership
position effective March 31, 2003.

On March 7, 2003, Coram Healthcare Corporation filed a report on Form
8-K/A amending its report on Form 8-K filed on March 6, 2003 regarding the
resignation of Daniel D. Crowley from his leadership position.

(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.

EXHIBIT
NUMBER EXHIBIT
------- -------

2.1 -- 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).

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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).

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).

87

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).

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).

88

10.13 -- Curaflex Directors' Nonqualified Stock Option Plan.
(Incorporated by reference to Exhibit 10.59 of Registration No.
33-53957 on Form S-4).

10.14 -- Clinical Homecare Ltd. 1990 Incentive Stock Option Plan, as
amended. (Incorporated by reference to Exhibit 10.61 of
Registration No. 33-53957 on Form S-4).

10.15 -- Clinical Homecare Ltd. 1990 Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.62 of Registration No.
33-53957 on Form S-4).

10.16 -- 1989 Stock Option Plan of Medisys. (Incorporated by reference
to Exhibit 10.85 of Registration No. 33-53957 on Form S-4).

10.17 -- Form of Non-Plan Option Agreement of Medisys. (Incorporated by
Reference to Exhibit 10.86 of Registration No. 33-53957 on Form
S-4).

10.18 -- Credit Agreement among Coram Healthcare Corporation, Coram,
Inc., the Lenders named therein and Chemical Bank, as
Administrative Agent, Collateral Agent and Fronting Bank 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)

89

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).

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).

90

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).

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).

91

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).

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).

92

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).

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).

93

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
T(2)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).

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. *

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.*

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.*

10.83 -- Agreement, dated March 28, 2003, between Coram Healthcare
Corporation and B. Braun Medical, Inc. for the purchase of
Vista Basic IV pumps.*

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.*

10.85 -- Coram Employment Agreement, dated August 1, 2000, between
Coram, Inc. and Deborah Meyer. *

10.86 -- Coram Employment Agreement, dated August 1, 2000, between
Coram, Inc. and Michael Saracco. *

94

10.87 -- Agreement, dated April 11, 2003, between Coram Healthcare
Corporation and B. Braun Medical, Inc. for the purchase of
Vista Basic IV pumps.*

10.88 -- 2001 Management Incentive Program Agreement by and among Coram,
Inc. and Scott Danitz.*

10.89 -- 2001 Management Incentive Program Agreement by and among Coram,
Inc. and Debbie Meyer.*

10.90 -- 2001 Management Incentive Program Agreement by and among Coram,
Inc. and Michael Saracco.*

10.91 -- 2001 Management Incentive Program Agreement by and among Coram,
Inc. and Allen J. Marabito.*

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.*

99.1 -- 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. *

99.2 -- 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. *

(a) Certain exhibits and schedules of this Exhibit have been omitted. The
registrant agrees to furnish supplementally any omitted schedule or exhibit
to the Securities and Exchange Commission.

* Filed herewith.

95

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
15, 2003.

CORAM HEALTHCARE CORPORATION

By: /s/ ALLEN J. MARABITO
-------------------------------------
Allen J. Marabito
Executive Vice President
(Principal Executive Officer)

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 Executive Vice President April 15, 2003
------------------------------ (Principal Executive Officer)
Allen J. Marabito

/s/ SCOTT R. DANITZ Senior Vice President, Chief April 15, 2003
------------------------------ Financial Officer and Treasurer
Scott R. Danitz (Principal Financial Officer)

/s/ ARLIN M. ADAMS, ESQUIRE Chapter 11 Trustee for the April 15, 2003
------------------------------ Bankruptcy Estates of
Arlin M. Adams, Esquire Coram Healthcare Corporation and
Coram, Inc., effective March 7, 2002(1)

(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.

96

CERTIFICATION

I, Allen J. Marabito, certify that:

1. I have reviewed this annual report on Form l0-K of Coram Healthcare
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, -particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: April 15, 2003

/s/ ALLEN J. MARABITO
-----------------------------------------------------------
Allen J. Marabito
Executive Vice President and principal executive officer
fulfilling the duties and responsibilities of president and
chief executive officer of the company

97

CERTIFICATION

I, Scott R Danitz, certify that:

1. I have reviewed this annual report on Form l0-K of Coram Healthcare
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: April 15, 2003

/s/ SCOTT R. DANITZ
--------------------------------------------
Scott R. Danitz
Senior Vice President,
Chief Financial Officer and Treasurer

98

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

F-1

REPORT OF INDEPENDENT AUDITORS

Stockholders, Chapter 11 Trustee and the Board of Directors
Coram Healthcare Corporation

We have audited the accompanying consolidated balance sheets of Coram
Healthcare Corporation (the "Company") as of December 31, 2002 and 2001, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 2002. Our audits
also included the financial statement schedule listed in the Index at Item
16(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, 2002 and 2001, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2002, 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. However, the Company
has incurred net losses from continuing operations in each of the three years in
the period ended December 31, 2002 and, as more fully described in Note 9 to the
consolidated financial statements, the Company has not been in compliance with
certain covenants 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, the ability to formulate a plan
or plans of reorganization which will gain approval of the requisite parties
under Chapter 11 of the Bankruptcy Code and confirmation of 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 2 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
March 3, 2003, except for
Note 3 which is
as of April 7, 2003

F-2

CORAM HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes to consolidated financial statements.

F-3

CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

See accompanying notes to consolidated financial statements.

F-4

CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

See accompanying notes to consolidated financial statements.

F-5

CORAM HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

See accompanying notes to consolidated financial statements.

F-6

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002

1. DESCRIPTION OF BUSINESS

Business Activity. As of December 31, 2002, Coram Healthcare Corporation
("CHC") and its subsidiaries ("Coram" or the "company") were engaged primarily
in the business of furnishing alternate site (outside the hospital) infusion
therapy, including non-intravenous home health products such as durable medical
equipment and respiratory therapy services. 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. 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, the Debtors are no
longer debtors-in-possession under the Bankruptcy Code. None of the company'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 the
company's other subsidiaries is a debtor in any bankruptcy case. See Notes 3 and
4 for further details.

Coram's focus is on 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 strategy is to focus Coram's efforts
on the delivery of its core infusion therapies, such as nutrition,
anti-infective therapies, intravenous immunoglobulin ("IVIG"), therapies for
persons receiving transplants, pain management and coagulant and blood clotting
therapies for persons with hemophilia. Management also implemented programs
focused on the reduction and control of operating expenses and other costs of
providing services, 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. Additionally, a reimbursement site consolidation plan was initiated
and completed during 2001. See Note 6 for further details.

Prior to August 1, 2000, the company delivered pharmacy benefit management
and specialty mail-order pharmacy services for chronically ill patients through
its Coram Prescription Services ("CPS") business from one primary mail order
facility, four satellite mail order facilities and one retail pharmacy. The
pharmacy benefit management service provided on-line claims administration,
formulary management and certain drug utilization review services through a
nationwide network of retail pharmacies. CPS's specialty mail-order pharmacy
services were delivered through its six facilities, which provided distribution,
compliance monitoring, patient education and clinical support to a wide variety
of patients. On July 31, 2000, Coram completed the sale of its CPS business to a
management-led group financed by GTCR Golder Rauner, L.L.C. for a one-time
payment of $41.3 million. See Note 5 for further details.

Concentration of 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, 2002, 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 the FDIC
insurance limits 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 FDIC 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-7

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Accounts receivable are primarily from third-party payers, including
private indemnity insurers, managed care organizations and state and federal
governmental payers such as Medicare and Medicaid, and are unsecured. Accounts
receivable under the Medicare program represented approximately 33% and 32% of
the company's consolidated accounts receivable at December 31, 2002 and December
31, 2001, respectively. No other individual payer exceeded 5% of consolidated
accounts receivable at those dates. Credit risk is mitigated by the large number
of entities that comprise the third-party payer base and credit evaluations of
patients and third-party payers.

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 of the company's financing
agreements, the ability to obtain necessary financing to fund a proposed
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 December 31, 2001 consolidated
balance sheet have been reclassified to conform to the 2002 presentation.

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 to account for
investments in entities in which it exhibits significant influence, but not
control, and has an ownership interest of 50% or less.

Bankruptcy Reporting. Effective August 8, 2000, the company began
presenting its consolidated financial statements in accordance with the
provisions of SOP 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 and billed
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 amount pursuant to the underlying federal and
state regulations for such governmental programs.

F-8

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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, 2002, Coram was
a party to only three capitated arrangements (one of which converted to a
fee-for-service arrangement effective January 1, 2003). Certain information
regarding the company's capitated agreements is as follows:

Approximately 6.6%, 5.5% and 3.4% of the company's consolidated net revenue
for the years ended December 31, 2002, 2001 and 2000, respectively, related to a
capitated agreement that provides services to members in the California
marketplace. Additionally, Coram owns 50% of a partnership located in California
that derived approximately 41.8% of its net revenue during the year ended
December 31, 2002 from services provided under such capitated agreement. Risk
under this 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 underlying two year
agreement expired by its terms on December 31, 2002 but it is subject to
automatic annual renewals absent a written termination notice from one of the
contracting parties. The company and its partnership continue to render services
subject to the automatic renewal provisions of the contract. On February 28,
2003, the contracted payer invited Coram, as well as a limited group of other
providers, to respond to a request for proposal ("RFP") that covers the services
provided exclusively by Coram. Management believes that the payer will select a
provider or providers in July 2003 and the new contract or contracts will become
effective January 1, 2004. Management can provide no assurances that the company
will successfully procure such contract on economic and operational terms that
are favorable to the company. The loss of this capitated contract or significant
modifications to the terms and conditions of the existing contract could have a
materially adverse impact on the results of operations, cash flows and financial
condition of the company and its partnership.

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.

Revenue from the Medicare and Medicaid programs accounted for approximately
25% of the company's consolidated net revenue for each of the years ended
December 31, 2002 and 2001 and 22% of the company's consolidated net revenue for
the year ended December 31, 2000. Laws and regulations governing the Medicare
and Medicaid programs are complex and subject to interpretation and revision.
Management believes that the company is in substantial compliance with all
applicable laws and regulations. Compliance with such laws and regulations can
be subject to future government review and interpretation, as well as,
significant regulatory action, including fines, penalties and exclusion from the
Medicare and Medicaid programs.

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. 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 net bad debt settlement expense
aggregating approximately $0.6 million for the year ended December 31, 2001 and,
for the year ended December 31, 2000, the company recorded net bad debt
settlement recoveries of approximately $0.4 million. 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.

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, the company
establishes supplemental specific reserves for accounts that are deemed
uncollectible due to occurrences such as payer financial distress and payer
bankruptcy

F-9

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 provisions 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 its ability to
adequately supervise and train personnel in billing and collections, and
maximize integration efficiencies related to reimbursement site consolidations
and information system changes.

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. In December 2000, Coram announced that as part of its continuing
efforts to improve efficiency and overall performance, several Patient Financial
Service Centers (reimbursement sites) were being consolidated and the related
reimbursement positions were being eliminated. By consolidating to fewer sites,
management expects 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 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.

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 equipment, infusion pumps,
furniture, fixtures and vehicles. 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. 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, 2002 and 2001, software development costs aggregating
approximately $1.2 million and $1.5 million, respectively, were capitalized in
accordance with SOP 98-1.

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):

F-10

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 loss from continuing operations disclosed
above may not be representative of compensation expense in future pro forma
years. See Note 13 for further discussion of the company's stock-based
compensation plans and assumptions used in determining the pro forma stock-based
employee compensation expense in the above table.

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 continue to provide the pro forma disclosures required pursuant to
Statement 123, as amended.

Income (Loss) Per Share. Basic and diluted income (loss) per share were
identical for each year in the three year period ended December 31, 2002. In
each such year, 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 when losses from continuing operations are in
evidence because to do so would be anti-dilutive.

Other Income. 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. During the year ended December 31, 2000, the company
recorded a $0.7 million reserve and other expense related to such escrow deposit
based on management's determination, at that time, of the collectibility of the
outstanding amount from a party in a bankruptcy proceeding.

Comprehensive Income. The FASB issued Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income ("Statement 130"),
establishing rules for reporting and displaying comprehensive income.
Comprehensive income is defined as essentially all changes in stockholders'
equity exclusive of transactions with owners (e.g., dividends, stock options,
etc.) and includes net income plus changes in certain assets and liabilities
that are reported directly in equity, referred to as "Other Comprehensive
Income." Other Comprehensive Income includes unrealized gains or losses on
available-for-sale securities, translation adjustments on investments in foreign
subsidiaries and certain changes in minimum pension liabilities. The company has
no material activity that requires disclosure under Statement 130.

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. Statement 143 is effective for fiscal years
beginning after June 15, 2002. The adoption of this accounting pronouncement is
not currently anticipated to have a material impact on the company's financial
position or results of operations.

Reporting Extinguishment of Debt. In April 2002, the FASB issued Statement
of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4,
44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections
("Statement 145"). Statement 145 requires gains and losses on extinguishments of
debt to be classified as income or loss from continuing operations rather than
as extraordinary items, as previously required under Statement of Financial
Accounting Standards No. 4, Reporting Gains and Losses From Extinguishments of
Debt. Extraordinary treatment will be required for certain extinguishments of
debt as provided in Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. Statement 145 also amends Statement of Financial Accounting
Standards No 13, Accounting for Leases, to require that certain modifications to
capital leases be treated as sale-leaseback transactions and modifies the
accounting for sub-leases when the original lessee remains a secondary obligor
(or guarantor). Statement 145, as it relates to the rescission of Statement of
Financial Accounting Standards No. 4, is effective for the company's year ending
December 31, 2003. The provisions of Statement 145 related to Statement of
Financial Accounting Standards No. 13 are effective for all transactions entered
into subsequent to May 15, 2002. Management is currently reviewing the detail
provisions of Statement 145 to determine the impact of this new accounting
pronouncement on the company's financial statement presentation, financial
position and results of operations.

F-11

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Accounting for Costs Associated with Exit or Disposal Activities. In
October 2002, the FASB issued Statement of Financial Accounting Standards No.
146, Accounting for Costs Associated with Exit or Disposal Activities
("Statement 146"). Statement 146 supersedes the Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring) ("EITF Issue No. 94-3"). Statement 146 requires that a liability
for a cost associated with an exit or disposal activity be recognized when the
liability is incurred rather than at the date of the entity's commitment to an
exit plan, as prescribed in EITF Issue No. 94-3. Statement 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. The
adoption of this accounting pronouncement is not currently anticipated to have a
material impact on the company's financial position or results of operations.

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,
the Debtors are no longer debtors-in-possession under Chapter 11 of the
Bankruptcy Code. 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 the physician ownership and referral
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 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
9 for details of the executed agreement); and (iv) use of all company bank
accounts for normal business operations. In September 2000, the Bankruptcy Court
approved the Debtors' motion to reject four unexpired, non-residential real
property leases and any associated subleases. The rejected leases included
underutilized locations in: (i) Allentown, Pennsylvania; (ii) Denver, Colorado;
(iii) Philadelphia, Pennsylvania; and (iv) Whippany, New Jersey. The successful
rejection of the Whippany, New Jersey lease caused the company to reverse
certain reserves during the year ended December 31, 2000 that had previously
been established for the closure of its discontinued operations.

The Bankruptcy Court granted the Debtors five extensions of the period of
time that they must assume or reject unexpired leases of non-residential real
property, which expired at the end of January 4, 2001, May 4, 2001, September 3,
2001, January 1, 2002 and May 2, 2002. On May 1, 2002, the Chapter 11 trustee
moved 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 and is awaiting issuance of the enabling order by the Bankruptcy
Court. However, on September 6, 2002 and December 26, 2002, the Bankruptcy Court
granted two 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 and June 30, 2003, respectively.

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. 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 and
(ii) December 31, 2001. Due to events that have 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
Chief Executive Officer and Executive Vice President 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 ending 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 Chief Executive Officer. The incremental retention
bonuses, aggregating approximately $0.8 million,

F-12

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

were paid on March 25, 2002. The Bankruptcy Court postponed its rulings on the
Debtors' motions pertaining to the 2002 retention plan and payment of the Chief
Executive Officer's retention amounts. However, 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 amount. The company has fully accrued
the Chief Executive Officer's retention amounts as of December 31, 2002.

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 the company's Chief Executive Officer.

On March 21, 2001, CHC's Compensation Committee of the Board of Directors
approved a management incentive program for the year ending 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 approximately $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
separately with each of the company's Chief Executive Officer and its Executive
Vice President: (i) not to request any 2001 MIP payment to the 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
company's Chief Executive Officer's and Executive Vice President'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 amounts in any proposed plan or plans of reorganization.

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. Under the terms of
the 2001 Financing Agreement, the Debtors made a down payment of approximately
$1.1 million. The amount financed was approximately $2.1 million and was paid in
eight monthly installments of approximately $0.3 million each 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 Chapter 11 trustee and 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. Under the terms of the 2002 Financing Agreement, CHC made
down payments of approximately $1.5 million and financed approximately $2.7
million. The 2002 Financing Agreement was secured by the unearned premiums and
any loss payments under the covered insurance polices. Commencing on May 15,
2002, the amount financed was paid in seven monthly installments of
approximately $0.4 million each, including interest at a per annum rate of 4.9%.

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, the
Bankruptcy Code imposes an automatic stay that will generally preclude the
creditors and other interested parties under such arrangements from taking
remedial action in response to any such resulting default without prior
Bankruptcy Court authorization.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Bankruptcy Cases seeking, among other things, to have the Resource Network
Subsidiaries' bankruptcy proceedings substantively consolidated with the
Bankruptcy Cases. The Resource Network Subsidiaries and the Debtors engaged in
discovery related to this substantive consolidation motion and, in connection
therewith, the parties reached a settlement agreement in November 2000, which
was approved by an order of the Bankruptcy Court. Under the terms of the
settlement agreement, the Resource Network Subsidiaries withdrew the substantive
consolidation motion with prejudice. Additionally, the Official Committee of
Unsecured Creditors in the Coram Resource Network, Inc. and Coram Independent
Practice Association, Inc. bankruptcy proceedings filed motions for relief from
the automatic stay to

F-13

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

pursue claims against the Debtors and certain of their operating subsidiaries.
The Bankruptcy Court granted such motion on June 6, 2002. See Note 14 for
further details.

The Debtors' First Joint Plan 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. Among other things, the Restated Joint Plan provided for: (i)
a conversion of all of the CI obligations represented by the company's Series A
Senior Subordinated Unsecured Notes (the "Series A Notes") and the Series B
Senior Subordinated Unsecured Convertible Notes (the "Series B Notes") into (a)
a four year, interest only note in the principal amount of $180 million that
would bear interest at the rate of 9% per annum and (b) all of the equity in the
reorganized CI; (ii) the payment in full of all secured, priority and general
unsecured debts of CI; (iii) the payment in full of all secured and priority
claims against CHC; (iv) the impairment of certain general unsecured debts of
CHC, including, among others, CHC's obligations under the Series A Notes and the
Series B Notes; and (v) the complete elimination of CHC's equity interests.
Furthermore, pursuant to the Restated Joint Plan, CHC would be dissolved as soon
as practicable after the effective date of the Restated Joint Plan and the
common stock of CHC would no longer be publicly traded. Therefore, under the
Restated Joint Plan, as filed, the existing stockholders of CHC would have
received no value for their shares and all of the outstanding equity of CI, as
the surviving entity, would be owned by the holders of the Series A Notes and
the Series B Notes. Representatives of the company negotiated the principal
aspects of the Restated Joint Plan with representatives of the holders of the
Series A Notes and the Series B Notes and the parties to the Senior Credit
Facility prior to the filing of such Restated Joint Plan.

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. The
Debtors did not send ballots to the holders of unimpaired classes, who were
deemed to accept the Restated Joint Plan, and classes that were not receiving
any distribution, who were deemed to reject the Restated Joint Plan. Eligible
voters responded in favor of 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' 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.

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 Notes for 905 shares of Coram, Inc. Series A Cumulative Preferred
Stock, $0.001 par value per share (see Notes 9 and 12 for further details).
Hereafter, the Coram, Inc. Series A Cumulative Preferred Stock is referred to as
the "CI Series A Preferred Stock." 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.

The Second Joint Plan of Reorganization and Related Activities

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 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
said 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.

F-14

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

On April 25, 2001 and July 11, 2001, the Bankruptcy Court extended the
period during which the Debtors had the exclusive right to file a plan of
reorganization to July 11, 2001 and August 1, 2001, respectively. On August 1,
2001, the Bankruptcy Court denied the Equity Committee's motion to terminate the
Debtors' exclusivity periods and file its own plan of reorganization. Moreover,
on August 2, 2001, the Bankruptcy Court extended the Debtors' exclusivity period
to solicit acceptances of any filed plan or plans to November 9, 2001 (the date
to solicit acceptances of the plan for CHC's equity holders was subsequently
extended to November 12, 2001). On or about November 7, 2001, the Debtors filed
a motion seeking to extend the periods to file a plan or plans of reorganization
and solicit acceptances thereof to December 31, 2001 and March 4, 2002,
respectively. The Bankruptcy Court extended exclusivity to January 2, 2002.
Thereafter, the Debtors' exclusivity period terminated.

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 those
described in the Restated Joint Plan; however, utilizing Goldin's
recommendations, as set forth in the Goldin Report, the following substantive
modifications were included in the Second Joint Plan:

o the payment of up to $3.0 million to the holders of allowed CHC
general unsecured claims;

o the payment of up to $10.0 million to the holders of CHC equity
interests (contingent upon such holders voting in favor of the Second
Joint Plan);

o cancellation of the issued and outstanding CI Preferred Stock, and

o a $7.5 million reduction in certain performance bonuses payable to the
company's Chief Executive Officer.

Under certain circumstances, as more fully disclosed in the Second
Disclosure Statement, the general unsecured claim holders could have been
entitled to receive a portion of the $10.0 million cash consideration allocated
to the holders of CHC equity interests.

The Second Joint Plan was subject to a vote by certain impaired creditors
and equity holders and confirmation by the Bankruptcy Court. On September 6,
2001 and September 10, 2001, hearings before the Bankruptcy Court considered the
adequacy of the Second Disclosure Statement. In connection therewith, the Equity
Committee, as well as, the Official Committee of Unsecured Creditors in the
Coram Resource Network, Inc. and Coram Independent Practice Association, Inc.
bankruptcy cases filed objections. Notwithstanding the aforementioned
objections, the Second Disclosure Statement was approved by the Bankruptcy Court
for distribution to holders of certain claims in interests entitled to vote on
the Second Joint Plan. On or about September 21, 2001, the Debtors mailed
ballots to those parties entitled to vote on the Second Joint Plan.

The CHC equity holders voted against confirmation of the Second Joint Plan
and all other classes of claimholders voted in favor of the Second Joint Plan.
If certain conditions of Chapter 11 of the Bankruptcy Code are satisfied, the
Bankruptcy Court can confirm a plan of reorganization notwithstanding the
non-acceptance of the plan by an impaired class of creditors or equity holders.
However, 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; however,
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 Notes 9 and 12 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. See
Note 14 for further discussion regarding Stark II.

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

F-15

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 Cl'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 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
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 under the Bankruptcy Code.

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 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 or about July 24, 2002, the Bankruptcy Court granted a motion submitted
by the Chapter 11 trustee to (i) defer payment on account of certain approved
interim professional fee applications, (ii) defer the Bankruptcy Court's
decisions regarding the allowance or disallowance of compensation and expense
reimbursements requested in certain interim professional fee applications, (iii)
disallow certain professional fee applications requesting payment for
professional services rendered and expense reimbursements subsequent to March 6,
2002 and (iv) disallow certain other professional fee and expense reimbursement
applications. Certain legal counsel engaged during the period the Debtors
operated as debtors-in-possession have filed final fee applications seeking,
inter alia, a final order allowing payment of professional fees and
reimbursement of expenses incurred in connection with the Bankruptcy Cases. The
Chapter 11 trustee filed an omnibus objection to all final professional fee
applications and seeks to adjourn the adjudication of such final professional
fee applications until sometime after confirmation of a plan or plans of
reorganization. Through April 7, 2003, the Bankruptcy Court has not yet
adjudicated any final fee applications. On or about July 24, 2002, the
Bankruptcy Court also approved several motions filed by the Chapter 11 trustee
related to fiduciary and administrative matters, including (i) the maintenance
of the Debtors' existing bank accounts, (ii) continued use of the company's
business forms and record retention policies and procedures and (iii)
expenditure authorization/check disbursement policies.

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 to provide services focusing on the restructuring and
reorganization of the Debtors. 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 the 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.

On December 19, 2002, the Equity Committee filed a proposed plan of
reorganization (the "Proposed Equity Committee Plan") in respect of the Debtors
in the Bankruptcy Court. A complete description of the Proposed Equity Committee
Plan is set forth in the Disclosure Statement of the Official Committee of
Equity Security Holders of Coram Healthcare Corporation and Coram, Inc. and
Exhibits A through I thereto (collectively the "Proposed Disclosure Statement").
The Proposed Disclosure Statement was filed contemporaneously with the Proposed
Equity Committee Plan in the Bankruptcy Court, Jointly Administered Case No.
00-3299, and is available at docket numbers 2019, 2020, 2021 and 2022 in such
case. The Proposed Disclosure Statement must be approved by the Bankruptcy Court
as containing adequate information before the Equity Committee may solicit votes
in favor of confirmation of the Proposed Equity Committee Plan. Under Chapter 11
of the Bankruptcy Code, all parties-in-interest, including stockholders,
noteholders, general unsecured creditors and the Chapter 11 trustee, may file
objections to the Proposed Disclosure Statement and the Proposed Equity
Committee Plan and, in connection therewith, certain parties have already filed
objections. A hearing date for the Proposed Disclosure Statement and the
Proposed Equity Committee Plan has been tentatively scheduled for June 5, 2003.

F-16

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 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 9 and 12 for further details). Hereafter
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
ending December 31, 2003. See Note 14 for further discussion regarding Stark II.

Bankruptcy Related Activities Subsequent to December 31, 2002

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 (i) the earlier of 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, has 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.

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,
acting General Counsel and acting Secretary, expired by its terms on November
29, 2002. The Chapter 11 trustee has agreed to continue the employment of Mr.
Marabito in his prior capacity and in addition, Mr. Marabito has assumed the
duties and responsibilities previously performed by Mr. Crowley. Mr. Marabito's
employment is at will with a base salary of $375,000 per annum, plus the same
employee benefits as prior to the expiration of his employment contract. Under
certain circumstances, Mr. Marabito may be entitled to a retention bonus of
$380,000 under the company's 2003 Key Employee Retention Plan discussed below.
The loss of Mr. Marabito's services could have a material adverse effect on the
company.

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 provides for (i) retention bonus payments of approximately $3.1
million to key employees of the company (the "2003 KERP Compensation") and (ii)
other bonus payments of approximately $0.3 million to certain branch management
personnel (the "Branch Incentive Compensation"). In connection therewith, the
company is scheduled to pay approximately $1.8 million to the eligible
participants in April 2003. Under the provisions of the 2003 KERP, the 2003 KERP
Compensation is 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 (the
"Second Payment Date"). Should a 2003 KERP Compensation participant voluntarily
leave the company or be terminated for cause prior to the Second Payment Date,
such participant must return any amounts previously received under the 2003
KERP, less applicable taxes withheld. The entire Branch Incentive Compensation
amount was due and payable to the eligible participants upon approval of the
2003 KERP by the Bankruptcy Court.

The Chapter 11 trustee intends to file his own plan or plans of
reorganization with the Bankruptcy Court on or before May 15, 2003.

F-17

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Other Bankruptcy-Related Disclosures

Under 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 as debtors-in-possession. These claims
are reflected in the consolidated balance sheets as liabilities subject to
compromise. Additional Chapter 11 claims have arisen and may continue to arise
subsequent to the filing date due to the rejection of executory contracts and
unexpired non-residential real property leases and from the determination 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 also
are 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 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 claims
accrued in the consolidated balance sheets at December 31, 2002 and 2001 and
included in liabilities subject to compromise are summarized as follows (in
thousands):

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 maintain claim positions within
the Bankruptcy Cases in the aggregate amount of their cumulative liquidation
preferences. Furthermore, in connection with the note exchange effective on
December 31, 2002, the Bankruptcy Court 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 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 of common shareholder of Coram, Inc. The complaint alleges, among other
things, that the aforementioned defendants have (i) engaged in inequitable
conduct, (ii) conferred an unfair advantage upon themselves and (iii) caused
damage to Coram Healthcare Corporation. The adversary proceeding is currently
pending before the Bankruptcy Court and defendants have not yet responded to the
complaint.

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. Differences between amounts shown by the Debtors and claims
filed by creditors are being investigated and resolved. 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. Therefore, it is not
possible to fully or completely estimate the fair value of the liabilities
subject to compromise at December 31, 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 result of the reorganization. These items include,
but are not limited to, professional fees, expenses related to key employee
retention plans, Office of the United States Trustee fees and other expenditures
relating to the Bankruptcy Cases, offset by interest earned on cash

F-18

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

accumulated as a result of the Debtors not paying their pre-petition liabilities
during the pendency of the Bankruptcy Cases. The principal components of
reorganization expenses for the years ended December 31, 2002, 2001 and 2000 are
as follows (in thousands):

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. In April 1998, the company entered into a
five-year capitated agreement with Aetna U.S. Healthcare, Inc. ("Aetna") (the
"Master Agreement") for the management and provision of certain home health
services, including home infusion, home nursing, respiratory therapy, durable
medical equipment, hospice care and home nursing support for several of Aetna's
disease management programs.

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 Coram Independent
Practices Association, Inc. (the "R-Net Creditors' Committee") filed a competing
proposed Liquidating Chapter 11 Plan. A complete description of such plan is set
forth in the disclosure statement filed contemporaneously therewith, which is
available on the docket of the Resource Network Subsidiaries' bankruptcy cases
at docket numbers 1003 and 1004. The Chapter 11 trustee has objected to the
disclosure statement and a hearing thereon is scheduled for May 14, 2003.

The agreements that R-Net had for the provision of ancillary network
management services, including the Aetna Master Agreement, have been terminated
and R-Net is no longer providing any ancillary network management services.
Additionally, all of the R-Net locations have been closed in connection with its
proposed liquidation. Coram employees who were members of the Resource Network
Subsidiaries' Board of Directors resigned and only the Chief Restructuring
Officer appointed by the Bankruptcy Court remains on the R-Net Board of
Directors to manage the liquidation of the R-Net business.

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 the consolidated statements of income as
discontinued operations; however, R-Net had no operating activity for the three
years in the period ended December 31, 2002.

On April 20, 2000, the company and Aetna reached an amicable resolution to
then outstanding disputes related to the Master Agreement and, in connection
therewith, all claims and counterclaims amongst the parties were dismissed from
the courts of appropriate jurisdiction. The financial impact associated with the
final resolution of these matters, which was charged to discontinued operations
for the year ended December 31, 2000, did not have a material effect on the
company's consolidated financial position or results of operations.
Additionally, the loss from disposal of discontinued operations during the year
ended December 31, 2000 of approximately $0.7 million includes incremental
reserves for litigation and other wind-down costs, net of certain insurance
recoveries, facility cost reserve reductions resulting from the Bankruptcy
Cases, reserve adjustments due to changes in the estimated amounts of legal and
professional fees necessary to complete R-Net's bankruptcy proceedings and a
$0.5 million settlement with the Debtors for a certain substantive consolidation
matter (discussed in further detail at Note 3).

For the year ended December 31, 2001, Coram recorded a $0.3 million loss
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. During the year ended December 31, 2002, the company recorded an
additional $0.7 million loss from disposal of discontinued operations for

F-19

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

legal costs related to the R-Net Creditors' Committee litigation, as well as,
legal costs associated with corresponding indemnifications provided to the
company's officers and directors.

As of December 31, 2002, the company has provided approximately $27.3
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 (e.g., R-Net
creditors ultimately may successfully assert claims against the company). See
Note 14 for further details regarding the R-Net Creditors' Committee litigation
and related matters.

5. SALE OF CPS AND OTHER BUSINESSES

On July 31, 2000, the company completed the sale of substantially all of
the assets and the assignment of certain related liabilities of the CPS business
to Curascript Pharmacy, Inc. and Curascript PBM Services, Inc. (collectively the
"Buyers") for a one-time cash payment of approximately $41.3 million. The Buyers
were effectively a management-led group that was financed by GTCR Golder Rauner,
L.L.C. The company's gain on the sale of the CPS business was approximately
$18.3 million. The cash proceeds, after related expenses, were applied to the
then outstanding principal balance under the company's revolving line of credit
of $28.5 million and an additional $9.5 million was applied to the principal
balance of the Series A Senior Subordinated Unsecured Notes. See Note 9 for
further details.

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. The contingency
related to the operating activities of the subsidiary through June 30, 2000.
Upon payment of the contingent consideration, substantially all conditions of
the initial sale and purchase agreement were satisfied.

During the year ended December 31, 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 of approximately
$46,000.

6. MERGER AND RESTRUCTURING RESERVES

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 "Caremark Business"), during May
1995 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 additional facilities and reduction
of personnel. In connection therewith, the company reserved for (i) personnel
reduction costs relating to severance payments, fringe benefits and taxes for
employees that have been or may be terminated and (ii) facility closing costs
that consist of rent, common area maintenance and utility costs for fulfilling
lease commitments of approximately fifteen branch and corporate facilities that
have been or may 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 signed and executed contracts. As part of the
Coram Restructure Plan, the company informed certain reimbursement sites of
their estimated closure dates. Such operations were closed during the first half
of 2001, including the severance of approximately 80 employees.

F-20

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Under the Caremark Business Consolidation Plan and the Coram Restructure
Plan, the total charges through December 31, 2002, the estimate of total future
cash expenditures and the estimated total charges are as follows (in thousands):

During the year ended December 31, 2002, significant items impacting the
restructuring reserves that were not subject to compromise are summarized as
follows (in thousands):

Balance at December 31, 2001 .......................... $ 583
Activity during the year ended December 31, 2002:
Payments under the plans ........................... (280)
Change in estimate attributable to future
utilization of a
leased facility ................................ (100)
Early termination of the leased facility ........... (13)
------------
Balance at December 31, 2002 .......................... $ 190
============

The company estimates that the future cash expenditures related to the
aforementioned restructuring plans will be made in the following periods: 73%
through December 31, 2003, 21% through December 31, 2004 and 6% through December
31, 2005.

7. PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows (in thousands):

The above table includes immaterial amounts of equipment under capital
leases. The work in process balance at December 31, 2001 includes software,
computer equipment and costs capitalized in accordance with SOP 98-1
(principally related to upgrades of Coram's company-wide information systems).
For the years ended December 31, 2002, 2001 and 2000, depreciation and
amortization expense related to property and equipment aggregated approximately
$7.9 million, $7.6 million and $7.6 million, respectively.

F-21

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

8. 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
eliminates the amortization of goodwill and intangible assets with indefinite
useful lives. Statement 142 also requires that goodwill and other intangible
assets with indefinite useful lives be reviewed for impairment at least
annually. The company adopted Statement 142 on January 1, 2002. Under 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 levels 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 second quarter of 2002, 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 potentially significant impairment of the company's goodwill
existed.

The company performed the second step of the process described in Statement
142 during the fourth quarter of 2002. 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 set forth by the
Debtors' Chapter 11 trustee or another interested party 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 recent 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, is reflected in the
consolidated financial statements as a cumulative effect of a change in an
accounting principle in the first quarter of 2002. Accordingly, the results of
operations and financial position of the company for the first quarter of 2002
have been restated in the quarterly results presented in Note 16 and will be
restated in future quarterly and annual consolidated financial statements filed
with the Securities and Exchange Commission.

Furthermore, due to unfavorable conditions and trends prevalent in the
public equity markets throughout 2002, the company's enterprise value was
adversely impacted during the 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 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 annual
goodwill impairment analysis, which was completed on a basis consistent with the
transitional impairment analysis, the company recognized an additional charge of
approximately $62.5 million that is reflected in the consolidated financial
statements in the fourth quarter of 2002.

F-22

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The following table presents the changes in the carrying amount of goodwill
for the years ended December 31, 2002 and 2001 (in thousands):

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.
Income (loss) before extraordinary items, net income and related earnings per
share, adjusted to exclude the amortization of goodwill for the years ended
December 31, 2001 and 2000, are as follows (in thousands, except per share
amounts):

F-23

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

The reconciliation of reported net income to adjusted net income is as
follows (in thousands):

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 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 years ended December 31, 2001 and 2000, Coram recognized charges
for impairments of goodwill and other long-lived assets of approximately $3.3
million and $8.3 million, respectively. These impairment charges 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 impairment charges were 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, 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.

Other Intangible Assets. In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("Statement 144"), which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes Statement of Financial Accounting Standards No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,
and Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
insofar as they relate to the disposal of a segment of a business. The company
adopted Statement 144 on January 1, 2002. The adoption of Statement 144 had no
effect on the company's results of operations or financial position.

The principal components of intangible assets other than goodwill are as
follows (in thousands):

F-24

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Amortization expense related to intangible assets, which is included in
selling, general and administrative expenses, was approximately $0.9 million,
$2.5 million and $2.5 million during the years ended December 31, 2002, 2001 and
2000, respectively.

Estimated future amortization expense related to intangible assets for each
of the five years ending December 31, 2007 is as follows (in thousands):

9. DEBT OBLIGATIONS

Debt obligations are as follows (in thousands):

As a result of the Bankruptcy Cases, substantially all short and long-term
debt obligations at the August 8, 2000 filing date have been classified as
liabilities subject to compromise in the accompanying 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 under 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.

The recognition of interest expense pursuant to SOP 90-7 is appropriate
during the Bankruptcy Cases if it is probable that such interest will be an
allowed priority, secured or unsecured claim. The Second Joint Plan (see Note 3
for further details), which was denied by the Bankruptcy Court on December 21,
2001, would have effectively eliminated all post-petition interest on
pre-petition borrowings. The final confirmed plan or plans of reorganization put
forth by the Debtors' Chapter 11 trustee or any other interested party may have
a similar effect on post-petition interest; however, appropriate approvals
thereof in accordance with Chapter 11 of the Bankruptcy Code would be required.

F-25

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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.

Debtor-In-Possession Financing Agreement. Effective August 30, 2000 and
approved by the Bankruptcy Court on September 12, 2000, the Debtors entered into
the DIP Agreement. The DIP Agreement 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 under 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.

Senior Credit Facility. On August 20, 1998, the company entered into the
Senior Credit Facility, which provided for the availability of up to $60.0
million for acquisitions, working capital, letters of credit and other corporate
purposes. The terms of the agreement also provided for the issuance of letters
of credit of up to $25.0 million provided that available credit would not fall
below zero. In connection with the sale of CPS, effective July 31, 2000, the
company reduced its outstanding borrowing under the Senior Credit Facility by
$28.5 million, only leaving outstanding irrevocable letter of credit obligations
totaling $2.7 million. Furthermore, on September 21, 2000 and January 29, 2001,
the company permanently reduced the Senior Credit Facility commitment to $2.7
million and $2.1 million, respectively, in order to reduce the fees related to
commitments on which the company was not able to borrow against due to the
Bankruptcy Cases. Effective February 6, 2001, the Lenders and the company
terminated the Senior Credit Facility. In connection with the termination of the
Senior Credit Facility and pursuant to orders 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 Senior Credit Facility and the Securities Exchange Agreement). Such
letters of credit aggregated approximately $0.8 million at December 31, 2002 but
were reduced to approximately $0.5 million in January and February 2003. The
company's letters of credit are fully secured by interest-bearing cash deposits
held by Wells Fargo. The outstanding letters of credit have maturity dates in
September 2003 ($187,000) and February 2004 ($278,000).

The Senior Credit Facility provided for interest on outstanding
indebtedness at the rate of prime plus 1.5%, payable in arrears. Additionally,
the terms of the agreement provided for a fee of 1.0% per annum on the
outstanding letter of credit obligations, also payable in arrears. The Senior
Credit Facility further provided for additional fees to be paid on demand to any
letter of credit issuer pursuant to the application and related documentation
under which such letters of credit were issued. The Senior Credit Facility was
secured by the capital stock of the company's subsidiaries, as well as, the
accounts receivable and certain other assets held by the company and its
subsidiaries. The Senior Credit Facility contained other customary covenants and
events of default.

Among other fees, the company paid approximately $0.6 million upon
consummation of the Senior Credit Facility and was thereafter liable for
commitment fees on the unused facility at 0.375% per annum, due quarterly in
arrears. Additionally, the terms of the agreement provided for the issuance of
warrants to purchase up to 1.9 million shares of the company's common stock at
$0.01 per share, subject to customary anti-dilution adjustments (the "1998
Warrants"). The estimated fair value of the 1998 Warrants was determined on the
date of issuance and capitalized as deferred debt issuance costs. Such costs
were amortized ratably to interest expense over the life of the Senior Credit
Facility; however, contemporaneous with the permanent reduction of the borrowing
capacity on September 21, 2000, the company charged to interest expense
approximately $1.1 million of remaining deferred debt issuance costs related to
the Senior Credit Facility. The 1998 Warrants expired on February 6, 2001 when
the Senior Credit Facility was terminated.

Securities Exchange Agreement. In April 1998, the Securities Exchange
Agreement cancelled a previously outstanding subordinated rollover note, related
deferred interest and fees and related warrants to purchase up to 20% of the
outstanding common stock of the company on a fully diluted basis in an exchange
for the payment of $4.3 million in cash and the issuance by the company to the
Holders of (i) $150.0 million in 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

F-26

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 entered into Amendment No. 2 (the "Note
Amendment") to the Securities Exchange Agreement with the Holders. Pursuant to
the Note Amendment, the outstanding principal amount of the Series B Notes is
convertible into shares of the company's common stock at a conversion price of
$2.00 per share (subject to customary anti-dilution adjustments). Prior to
entering into the Note Amendment, the Series B Notes were convertible into
common stock at a conversion price of $3.00 per share, which was subject to
downward (but not upward) adjustment based on prevailing market prices for the
company's common stock on April 13, 1999 and October 13, 1999. Based on reported
market closing prices for the company's common stock prior to April 13, 1999,
this conversion price would have been adjusted to below $2.00 on such date had
the company not entered into the Note Amendment. Pursuant to the Note Amendment,
the parties also increased the interest rate applicable to the Series A Notes
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 an 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 Series A Notes'
and Series B Notes' scheduled maturity date of June 30, 2001 were both 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."
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 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 has been 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 fourth quarter of the year ended December 31, 2002
of approximately $123.5 million.

F-27

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Although the principal amounts under the Series A Notes and Series B Notes
were not paid on their scheduled maturity date of June 30, 2002 and the company
was in technical default of the Securities Exchange Agreement from that date
until the execution of Amendment No. 6, the Holders were stayed from any
remedies pursuant to the provisions of Chapter 11 of the Bankruptcy Code.
Moreover, the default was effectively cured by Amendment No. 6.

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. Additionally, the company was not in compliance with other
covenants relating to (i) certain contractual relationships its wholly-owned
Resource Network Subsidiaries had with certain parties that were contracted to
provide services pursuant to the Aetna Master Agreement, effective May 1, 1998,
and (ii) other covenants relating to the capitalization of subsidiaries. The
company received waivers from its lenders regarding such events of
noncompliance. The voluntary filing of Chapter 11 bankruptcy petitions by the
Resource Network Subsidiaries caused further defaults under the Securities
Exchange Agreement; however, such defaults were waived by the Holders. In
connection with these waivers and the waivers provided for certain matters of
noncompliance under the Senior Credit Facility, the company and the Holders
entered into a Securities Credit Agreement amendment on November 15, 1999
pursuant to which the Holders agreed that no interest on the Series A Notes and
the Series B Notes would be due for the period from November 15, 1999 through
the earlier of (i) final resolution of certain litigation with Aetna or (ii) May
15, 2000. The Aetna litigation was settled on April 20, 2000 and, as a result,
the obligation to pay interest on the Series A Notes and the Series B Notes
resumed on such date. However, due to the Bankruptcy Cases, no interest has been
paid subsequent to August 8, 2000.

Notwithstanding the aforementioned default for non-payment of principal on
the Series A Notes and the Series B Notes on June 30, 2002, subsequently cured
by Amendment No. 6, management believes that at December 31, 2002 the company
was in compliance with all covenants of the Securities Exchange Agreement.
However, there can be no assurances as to whether further covenant violations or
defaults 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 interest is being 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 by the Bankruptcy
Court, at 103% of the then outstanding principal amount, plus accrued interest.

In connection with the disposition of CPS, effective July 31, 2000, the
company applied $9.5 million of the net cash proceeds derived therefrom to
prepay a portion of the principal amount outstanding under the Series A Notes.
The Holders of the Series A Notes waived the 103% prepayment premium thereby
permitting the company to reduce the then outstanding principal balance by the
full amount of the $9.5 million payment.

F-28

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

10. INCOME TAXES

The amount of income tax expense allocated to continuing operations,
discontinued operations, extraordinary gains on troubled debt restructurings and
the cumulative effect of a change in accounting principle is as follows (in
thousands):

The components of consolidated income tax expense attributable to
continuing operations are as follows (in thousands):

The following table reconciles the federal statutory rate to the effective
income tax expense rate attributable to continuing operations:

The effective income tax rates for each of the years in the three year
period ended December 31, 2002 are higher than the statutory rate because the
company is not recognizing the deferred income tax benefits of annual losses.

F-29

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):

Deferred tax assets have been limited to amounts expected to be recovered,
net of deferred tax liabilities that would otherwise become payable in the
carryforward period. As management believes that realization of the balance of
deferred tax assets is sufficiently uncertain at this time, they have been
wholly offset by valuation allowances at both December 31, 2002 and 2001.

As of December 31, 2002, the company had net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $194.0 million, which
are available to offset future federal taxable income and expire in varying
amounts in the years 2003 through 2022. This NOL balance includes approximately
$34.4 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 $194.0 million of federal NOLs and certain of the company's state NOLs is
uncertain due to income tax rules related to 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 2000 and Coram, Inc. Series B Cumulative
Preferred Stock (the "CI Series B Preferred Stock") in December 2002 (see Note
12 for further details). As of December 31, 2002, the company had alternative
minimum tax credit carryforwards of approximately $2.8 million, which are
available to offset future regular income taxes and have an indefinite
carryforward period.

As a result of the issuance of CI Series A Preferred Stock in December
2000, the company effectuated a deconsolidation of its group for federal income
tax purposes. Accordingly, subsequent to December 29, 2000 CI filed income tax
returns as the parent company of the new consolidated group and CHC filed its
own separate income tax returns. The issuance of the CI Series A Preferred Stock
in December 2000 also caused an ownership change at CI for federal income tax
purposes. However, CI currently operates under the jurisdiction of the
Bankruptcy Court and meets certain other bankruptcy related conditions of the
Internal Revenue Code ("IRC"). The bankruptcy provisions of IRC Section 382
impose limitations on the utilization of NOLs and other tax attributes. The
extraordinary gains on troubled debt restructurings included in the consolidated
financial statements are generally not subject to tax pursuant to the
cancellation of debt provisions included in IRC Section 108.

In connection with recently enacted legislation, during the year ended
December 2002 the company filed refund claims with the Internal Revenue Service
("IRS") requesting approximately $1.8 million of previously paid alternative
minimum taxes. Such amount has been reflected in the consolidated financial
statements. Moreover, approximately $0.1 million of the filed refund claims was
received by the company in January 2003.

F-30

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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 to prior tax liabilities. The company had previously agreed to
adjustments of $24.4 million that only affected available NOLs. The adjustments
involve the deductibility of warrants, write-offs of goodwill and the ability of
the company to categorize certain NOLs as specified liability losses and offset
income in prior years. In May 1999, the company received a statutory notice of
deficiency totaling approximately $12.7 million (obtained from federal tax
refunds), plus interest and penalties to be determined, with respect to certain
proposed adjustments seeking to recover taxes previously refunded. 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 the petition be denied. The Tax Court proceeding is currently
stayed by reason of the Bankruptcy Cases.

Pursuant to standard IRS procedures, the resolution of the issues contained
in the Tax Court petition were assigned to the administrative appeals function
of the IRS. The company reached a tentative settlement agreement with the IRS
Appeals office on the aforementioned issues and subsequently entered into
proposed Decision and Stipulation agreements with the IRS (collectively the
"Proposed Settlement"). Subject to obtaining necessary approvals from the Joint
Committee of Taxation, the Debtors' Chapter 11 trustee and the Bankruptcy Court,
the Proposed Settlement will be filed with the Tax Court. In September 2002, the
Joint Committee of Taxation approved the Proposed Settlement and the Chapter 11
trustee is currently reviewing such settlement agreement.

If ultimately approved by all parties, the Proposed Settlement would result
in a federal tax liability of approximately $9.9 million, plus interest of
approximately $8.8 million at December 31, 2002. In connection therewith, the
consolidated financial statements include short-term and long-term liability
reserves for the Proposed Settlement aggregating $18.7 million, including
approximately $1.5 million, $1.4 million and $1.1 million of interest expense
recorded during the years ended December 31, 2002, 2001 and 2000, 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. The federal income tax adjustments would also give rise to additional
state tax liabilities.

In October 2002, the company submitted a proposed payment plan to the IRS
and management is currently negotiating payment terms with the IRS. The
consolidated balance sheet at December 31, 2002 includes approximately $3.1
million of short-term liabilities which represent management's projection of the
principal amount that will be due on or before December 31, 2003. If the company
is not able to finalize an installment plan with the IRS with respect to the
Proposed Settlement amount or if the Chapter 11 trustee or the Bankruptcy Court
do not approve the Proposed Settlement amount or an installment plan, the
financial position and liquidity of the company could be materially adversely
affected.

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 Debtors' bankruptcy proceedings
for products purchased from Sabratek. Management continues to evaluate the
validity of Baxter's proof of claim. 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 claim against Sabratek.
Notwithstanding the separate proofs of claim filings, Baxter and the company
have an ongoing business relationship involving drugs, supplies and pumps.

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. 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. DHS has continued to bill the company
the actual costs it attributes to DHS' Sacramento, California location where Mr.
Crowley and other persons are located and perform services for or on behalf of
the company. Subsequent to December 31, 2002, approximately $0.1 million 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, and $0.7
million for the year ended December 31, 2000 for reimbursable costs and
consulting services. DHS also provides management consulting services to third
parties and third party entities other than the company. In 2003, DHS and the
Chapter 11 trustee entered into a month-to-month lease for office space related
to the Sacramento, California location where certain company employees are
located. The rent, including parking and certain utilities, is approximately
$7,900 per month and is scheduled to commence on April 1, 2003.

F-31

Effective August 2, 2000, the CHC Board of Directors approved a contingent
bonus to Mr. Crowley. Under the agreement, subject to certain material terms and
conditions, Mr. Crowley is to be paid $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 9, 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 the Chapter 11 trustee's or another interested
party's plan or plans of reorganization, which provide for payment of such
bonus, are fully approved by the Bankruptcy Court. Mr. Crowley is also entitled
to performance bonuses for the years ended December 31, 2002, 2001 and 2000
aggregating approximately $13.8 million based on overall company performance
under the Management Incentive Plans. Mr. Crowley also participates in the
company's key employee retention plans. In connection with the Second Joint
Plan, Mr. Crowley voluntarily offered to accept a $7.5 million reduction in
certain performance bonuses, contingent on the confirmation and consummation of
the Second Joint Plan. As discussed in Note 3, confirmation of the Second Joint
Plan was denied by the Bankruptcy Court on December 21, 2001. The company cannot
predict what, if any, reduction in Mr. Crowley's incentive, retention or success
bonuses, which are accrued in the consolidated financial statements, will be
proposed or opposed in a new plan or plans of reorganization submitted by the
Chapter 11 trustee or any other interested party. However, Mr. Crowley has
indicated that he reserves the right to claim the full outstanding amounts of
his incentive, retention, success bonus and other compensation.

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.

Mr. Crowley was also the Chairman of the Board of Directors of Winterland
Productions, Inc. ("Winterland"), a privately held affinity merchandise company
in which an interest was owned by an affiliate of Cerberus. On January 2, 2001,
Winterland voluntarily filed for protection under Chapter 11 of the Bankruptcy
Code in the Northern District of California. On December 12, 2001, such
bankruptcy court approved the sale of substantially all of the assets of
Winterland to Signatures Network, Inc. Since that date, Winterland has been
liquidated and Mr. Crowley is no longer a director or officer of the company.

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 the 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 counsel at 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. During the year ended December 31, 2002, the
company recognized aggregate compensation, professional fees and reimbursed
expenses for Mr. Adams and Schnader Harrison of approximately $0.1 million and

F-32

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

$1.4 million, respectively. Since March 7, 2002, $66,974 and $1,006,651 have
been paid to Mr. Adams and Schnader Harrison, respectively.

12. MINORITY INTERESTS

The following summarizes the minority interests in consolidated joint
ventures and preferred stock issued by a subsidiary (in thousands):

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 9 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 9 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 9 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).

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 for the
three years ended December 31, 2002 is as follows (in thousands, except share
amounts):

F-33

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

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, 2002 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 common stock of CI 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 three quarters 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 of this nature.

The organizational documents and other agreements underlying the CI
Preferred Stock include usual and customary affirmative and negative covenants
for a 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 Preferred Stock, each of the three Holders shall have the right to
appoint an observer to Cl'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 stockholders of CI. As of December 31, 2002, the Holders had
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

F-34

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

cash payments. Upon payment of the March 31, 2003 dividends-in-kind, the
aggregate CI Preferred Stock liquidation preferences will be approximately
$334.6 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"). The Purchase Plan was
suspended in December 1999; however, at December 31, 2002, 0.4 million common
shares are reserved for future issuance under the Purchase Plan. No further
options or awards will be granted under any of these plans unless so determined
by the Chapter 11 trustee.

The 1994 Plan contains three separate incentive programs which provide for
the granting of stock options to certain officers, key employees, consultants
and non-employee members of the company's Board of Directors. Coram's 1994 Plan
authorized the granting of options for up to 10.0 million shares of the
company's common stock. Options granted under the 1994 Plan may constitute
either incentive stock options, non-statutory options or stock appreciation
rights based on the type of incentive program utilized. For each of the
incentive programs, options may be granted at exercise prices ranging from 85%
to 100% of the fair market value of the company's stock at the date of grant.
All options granted expire ten years from the date of grant and become
exercisable at varying dates depending upon the incentive program utilized.
Until the appointment of the Chapter 11 trustee, the 1994 Plan was administered
by a 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 shares reserved for future issuance include approximately 1.0
million shares of common stock 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 losses from continuing
operations and net losses per share is required by Statement 123 and has been
determined as if the company had accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
accounting pronouncement. The fair value for the options granted in 2000 was
estimated at the date of grant using a Black-Scholes multiple option pricing
model with the following assumptions: (1) risk free interest rates ranging from
6.42% to 6.59%, (2) volatility factors of the expected market price of the
company's common stock ranging from 1.0 to 2.0, (3) the expected lives of the
options are deemed to be one year past vesting and (4) the dividend yield is 0%.
No stock options were granted in 2002 or 2001.

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

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):

Exercise prices for options outstanding and the weighted average remaining
contractual life of those options at December 31, 2002 are as follows:

Outstanding and exercisable stock options at December 31, 2002 include 1.0
million stock options granted to the company's former Chief Executive Officer
and President, who resigned effective March 31, 2003, at a stock price of $0.75
per share. Unless he elects to exercise his options on or before June 29, 2003,
all 1.0 million stock options will lapse on such date. Prior to the formation of
the company, certain of the company's predecessor companies issued warrants to
purchase 1,193 shares of common stock at $12.58 per share. Such warrants remain
outstanding and have no expiration date.

The Second Joint Plan, which was denied by the Bankruptcy Court on December
21, 2001, would have effectively eliminated all options and warrants to purchase
CHC stock because CHC would have been dissolved as soon as practicable after the
effective date of the plan of reorganization and all CHC equity interests would
have been completely eliminated. Another plan or plans of reorganization put
forth by the Chapter 11 trustee or other interested parties may have a similar
effect; however, appropriate approvals thereof in accordance with the Bankruptcy
Code would be required (see Note 3 for further details).

F-36

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

14. COMMITMENTS AND CONTINGENCIES

Leases. The company leases office and other operating space and equipment
under various operating and capital leases. The leases provide for monthly
rental payments, including real estate taxes and other operating costs. Total
rental expense for the years ended December 31, 2002, 2001 and 2000 was
approximately $9.8 million, $9.7 million and $10.3 million, respectively,
exclusive of amounts charged to restructuring reserves. At December 31, 2002,
the aggregate future minimum lease commitments were as follows (in thousands):

Capital lease obligations are included in other debt obligations (see Note
9 for further details). Operating lease obligations are net of sublease rentals.
Operating lease obligations include $0.3 million accrued as part of the
restructuring costs under the Caremark Business Consolidation Plan and the Coram
Restructure Plan (see Note 6 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 under such agreements from taking remedial action in
response to any defaults. Moreover, no amounts are included in the table above
for lease rejections that have been approved by the Bankruptcy Court (see Note 3
for further details).

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,
Coram amended its defined contribution benefit plan 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.

Purchase Commitments. As a result of the company's longstanding evaluation
of several pole-mounted infusion pump alternatives, management concluded that
the company should replace its entire pole-mounted fleet. In connection
therewith, Coram entered into two agreements in 2003 to purchase pole-mounted
pumps at a cost of approximately $1.5 million. Additionally, the Chapter 11
trustee filed a motion in the Bankruptcy Court seeking approval for the company
to lease additional pole-mounted pumps for an aggregate three year commitment,
including related interest, of approximately $1.5 million. The Bankruptcy Court
is scheduled to hear the aforementioned motion on May 1, 2003.

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 through the
proceedings within 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. The Official Committee of the Equity Security Holders of Coram
Healthcare Corporation (the "Equity Committee") objected to the Restated Joint
Plan and the Second Joint

F-37

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Plan, contending, among other things, that the valuations upon which the
Restated Joint Plan and the Second Joint Plan were premised and the underlying
projections and assumptions were flawed. At various times during 2001, the
Debtors and the Equity Committee reviewed certain company information regarding,
among other things, the Equity Committee's contentions. In connection therewith,
on July 30, 2001, the Equity Committee filed a motion to terminate the Debtors'
exclusivity period and file its own plan of reorganization; however, such motion
was denied by the Bankruptcy Court.

Additionally, in February 2001, 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 of
reorganization terminated, the Equity Committee filed a proposed plan of
reorganization (the "Proposed Equity Committee Plan") in respect of the Debtors'
in the Bankruptcy Court on December 19, 2002. The Proposed Equity Committee Plan
incorporates a variation of the aforementioned proposed derivative lawsuit. See
Note 3 for further discussion of the status of the Proposed Equity Committee
Plan and the related Disclosure Statement within the Debtors' bankruptcy
proceedings.

Management is aware that the Chapter 11 trustee continues to be engaged in
settlement discussions and negotiations with the company's noteholders, the
Equity Committee and other interested parties in connection with settling
disputes and attempting to negotiate a consensual plan or plans of
reorganization. Management cannot predict whether an amicable settlement will be
reached, the ultimate outcome of the Proposed Equity Committee Plan, whether
future objections of any party will be forthcoming to a proposed plan or plans
of reorganization or how a future settlement or objections thereto might impact
confirmation of any plan or plans of reorganization proposed by the Chapter 11
trustee, the Equity Committee or any other interested party.

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.s 99-2888 (MFW) and 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. A complete description of such
plan is set forth in the disclosure statement filed contemporaneously therewith,
which is available on the docket of the Resource Network Subsidiaries'
bankruptcy cases at docket numbers 1003 and 1004. The Chapter 11 trustee has
objected to the disclosure statement and a hearing thereon is currently
scheduled for May 14, 2003.

On September 11, 2000, the Resource Network Subsidiaries filed a motion in
the Bankruptcy Cases seeking, among other things, to have the Resource Network
Subsidiaries' bankruptcy proceedings substantively consolidated with the
Bankruptcy Cases. If this motion had been granted, the bankruptcy proceedings
involving the Resource Network Subsidiaries and the Debtors would have been
combined such that the assets and liabilities of the Resource Network
Subsidiaries would have been joined with the assets and liabilities of the
Debtors, the liabilities of the combined entity would have been satisfied from
the combined assets and all intercompany claims would have been eliminated.
Furthermore, the creditors of both proceedings would have voted on any
reorganization plan for the combined entities. The Resource Network Subsidiaries
and the Debtors engaged in discovery related to this substantive consolidation
motion and then reached a settlement agreement in November 2000. The settlement
agreement was approved by the Bankruptcy Court in December 2000 and, in
connection therewith, the Debtors made a payment of $0.5 million to the Resource
Network Subsidiaries' estate in January 2001 and the substantive consolidation
motion was withdrawn with prejudice.

Notwithstanding the withdrawal of the substantive consolidation motion, the
Resource Network Subsidiaries still 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
objections to confirmation of the Second Joint Plan, as well as, a motion to
lift the automatic stay in the Debtors' bankruptcy proceedings to pursue its
claims against the Debtors. On June 6, 2002, the Bankruptcy

F-38

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Court granted the motion of the R-Net Creditors' Committee and lifted the
automatic stay in the Bankruptcy Cases, 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 the disallowance of the Debtors' claims against
the Resource Network Subsidiaries, punitive damages and attorneys' fees. The
Debtors 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 and, accordingly, they are vigorously
contesting the allegations.

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.
The parties to (i) the second amended complaint, (ii) the Debtors' motion for an
order expunging the proofs of claims filed by the Resource Network Subsidiaries
and (iii) the Resource Network Subsidiaries' objections to the Debtors' proofs
of claims are proceeding with discovery under a case management order. 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. Now pending before the District Court are motions 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 appropriate insurance coverage for its directors and
officers, who are also vigorously contesting the allegations.

Principally due to the early stages of the aforementioned Resource Network
Subsidiaries' matters, the ultimate outcome thereof cannot be predicted with any
degree of certainty, nor can management predict the amount of any recoveries
that the company may ultimately receive from its insurance carrier.

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). In its demand, TBOB
claims that the company breached its obligations under an agreement entered into
by the parties in 1996 relating to a prior 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 (the latter amount is recorded in the consolidated financial statements).
Furthermore, pursuant to the underlying agreement with TBOB, additional
liabilities may result from post-petition interest on the final scheduled
earn-out payment. In accordance with SOP 90-7, such interest estimated to
aggregate approximately $0.4 million at December 31, 2002 using the contractual
interest rate of 18%, has not been recorded in the company's consolidated
financial statements because TBOB's claim for interest may ultimately not be
sustainable. TBOB reiterated its monetary demand through a proof of claim filed
against CHC's estate for the aggregate amount of approximately $2.2 million (the
scheduled earn-out payment plus the alleged damages). Any action relating to the
final $1.3 million earn-out payment scheduled for March 2001, the alleged
damages of $0.9 million and any interest accrued thereon have been stayed by
operation of Chapter 11 of the Bankruptcy Code. On July 5, 2001, the company
received a letter from TBOB's legal counsel requesting that the aforementioned
arbitration remain in abeyance pending resolution of the Bankruptcy Cases.
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.

F-39

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Internal Revenue Service ("IRS") Proposed Settlement. The company has
reached a proposed settlement with the IRS regarding a notice of deficiency
previously issued by such taxing authority and management is currently
negotiating payment terms with the IRS. If ultimately approved, the proposed
settlement would result in a federal tax liability of approximately $9.9
million, plus interest of approximately $8.8 million at December 31, 2002, both
of which have been recorded in the consolidated financial statements. See Note
10 for further details.

Alan Furst et al. v. Stephen Feinberg, et al. Alan Furst and Michael S.
Harrison, individually and on behalf of all persons similarly situated, filed a
complaint in the United States District Court for the District of New Jersey on
November 8, 2000 and an Amended Class Action Complaint was filed on November 15,
2000, alleging that certain current and former officers and directors of the
company and the company's principal lenders, Cerberus Partners, L.P., Foothill
Capital Corporation and Goldman, Sachs & Co., implemented a scheme to perpetrate
a fraud upon the stock market regarding the common stock of CHC. A Second
Amended Class Action Complaint (the "Second Amended Complaint") was filed on
March 21, 2001, which removed all of the officers and directors of the company
as defendants, except for the company's former Chief Executive Officer and a
former member of CHC's Board of Directors, and continued to name Cerberus
Partners, L.P., Foothill Capital Corporation and Goldman, Sachs & Co. as
defendants. The plaintiffs' purported class action suit alleges that the
defendants artificially depressed the trading price of the company's publicly
traded shares and created the false impression that stockholders' equity was
decreasing in value and was ultimately worthless. The plaintiffs further allege
that members of the class sustained total investment losses of $50 million or
more. On June 14, 2001, a third Amended Class Action Complaint (the "Third
Amended Complaint") was filed naming the same defendants as the Second Amended
Complaint. The plaintiffs' allegations in the Third Amended Complaint were
substantially similar to the allegations in the Second Amended Complaint;
however, the Third Amended Complaint eliminated references to the corporate
assets of the company. All defendants moved to dismiss the Third Amended
Complaint for failure to state a claim upon which relief can be granted and, in
connection therewith, on May 6, 2002 the presiding judge granted the defendants'
motion to dismiss, with prejudice and also denied plaintiffs' request for leave
to replead. The plaintiffs filed a timely appeal to the United States Court of
Appeals for the Third Circuit (the "Third Circuit") and filed their brief in
support of their appeal with that court on July 24, 2002. The defendants filed
their opposition brief on August 23, 2002 and the plaintiffs filed a reply brief
on September 20, 2002. On December 18, 2002, the Third Circuit affirmed the
lower court's order dismissing the case with prejudice. On December 30, 2002,
the plaintiffs filed a petition for rehearing with the Third Circuit, however,
such petition was denied on January 14, 2003. Management believes the company's
financial obligation for the legal and professional fees related to this matter
is limited to the deductible of the underlying insurance policy and,
accordingly, such amount has been accrued in the consolidated financial
statements.

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 presently be
determined. Adverse outcomes in some or all of the proceedings could have a
material adverse effect on the financial position, results of operations and
liquidity of the company.

The company and its subsidiaries are also parties to various other actions
arising out of the normal course of their businesses, including employee claims,
reviews of cost reports and billings submitted to Medicare and Medicaid, as well
as, examinations by regulators such as Medicare and Medicaid fiscal
intermediaries and the Centers for Medicare & Medicaid Services ("CMS").
Management believes that the ultimate resolution of such actions will not have a
material adverse effect on the financial position, results of operations or
liquidity of the company.

PricewaterhouseCoopers LLP. On July 7, 1997, the company filed suit 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
and PricewaterhouseCoopers LLP filed a motion to dismiss the company's lawsuit
on several grounds, but its motion was denied on March 15, 1999.
PricewaterhouseCoopers LLP filed an additional motion to dismiss the lawsuit in
May 1999 and that motion was dismissed on January 28, 2000. On April 19, 2001,
PricewaterhouseCoopers LLP filed a motion for partial summary judgment with
regard to a portion of Caremark's claims; however, this motion was subsequently
denied. The lawsuit is currently in the discovery stage and a trial date is
being scheduled. Management cannot predict the outcome of this litigation or
whether there will be any recovery from PricewaterhouseCoopers LLP or its
insurance carriers.

F-40

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 and service agreements pursuant to which the
company provides pharmacy products. 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 the company's common stock. The Stark II law
includes an exception for the ownership of publicly traded stock in companies
with equity above certain levels. This exception of 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 9 for further details), at December 31, 2002 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, 2003.

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 the
company'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 Medicare or Medicaid programs or run a
significant risk of Stark II noncompliance. Because referrals of the company's
patients with such government-sponsored benefit programs comprised approximately
25% of the company's consolidated net revenue for the years ended December 31,
2002 and 2001, discontinuing the acceptance of patients with
government-sponsored benefit programs would have a material adverse effect on
the financial condition, results of operations and cash flows of the company.
Additionally, ceasing to accept such referrals could materially adversely affect
the company's business reputation in the market 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

The financial instruments included in the company's current assets and
current liabilities (excluding the current portion of long-term debt and
liabilities subject to compromise) are reflected in the consolidated financial
statements at amounts approximating their fair value due to their short-term
nature.

The company's ability to borrow is limited. At December 31, 2002 and 2001,
total long-term debt, including current maturities, had a carrying value of
approximately $9.3 and $132.6 million, respectively. As a result of the
Bankruptcy Cases and in accordance with the provisions of SOP 90-7, the company
classified the Series A Notes and the Series B Notes as liabilities subject to
compromise in the consolidated balance sheets. See Notes 3 and 9 for further
details of the Bankruptcy Cases and the components of long-term debt,
respectively. As of December 31, 2002 and 2001, due to the ongoing Bankruptcy
Cases and the absence of an approved plan or plans of reorganization, the fair
value of the company's long-term debt cannot be reasonably estimated.

F-41

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

16. QUARTERLY RESULTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)

F-42

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(1) In accordance with FASB Statement No. 142, the transitional goodwill
impairment charge was recorded as the cumulative effect of a change in
accounting principle, which resulted in the restatement of the period
ended March 31, 2002. See Note 8 for further details.

(2) The incremental common stock equivalents utilized to calculate diluted
income per share for each of the quarters ended September 30, 2002,
June 30, 2002 and March 31, 2002 were nominal. Accordingly, basic and
diluted income per share were the same for each of the aforementioned
periods.

In the fourth quarter of 2002, Coram recognized an impairment of goodwill
and other long-lived assets of approximately $62.5 million, expense of $3.0
million related to management incentive compensation, approximately $0.9 million
of miscellaneous and sundry 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. During the fourth quarter of 2002 management finalized (and the company
recorded) the cumulative effect of a change in accounting principle of
approximately $71.9 million; however, the corresponding transitional goodwill
impairment charge is recognized in restated operating results for the quarter
ended March 31, 2002. See Notes 8, 9 and 12 for further details.

In the fourth quarter of 2001, Coram recognized an impairment of goodwill
and other long-lived assets of $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, accounts receivable and
Days Sales Outstanding ("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 9 and 12 for further details.

In the fourth quarter of 2000, Coram recognized an impairment of goodwill
and other long-lived assets of $8.3 million, a success bonus accrual of $1.8
million (reorganization expense), a recovery of a non-operating receivable of
approximately $2.0 million (other income), life insurance proceeds of $1.0
million (other income), an escrow deposit receivable reserve of approximately
$0.7 million (other expense) and an extraordinary gain on troubled debt
restructuring of approximately $107.8 million, net of tax. In addition, in the
fourth quarter's discontinued operations, Coram recognized $1.3 million in
facility cost reserve reductions as a result of the Bankruptcy Cases and $0.8
million in legal and professional fee reserve reductions due to changes in the
estimated amounts necessary to complete the Resource Network Subsidiaries'
Chapter 11 bankruptcy proceedings. See Notes 2, 4, 9 and 12 for further details.

17. INDUSTRY SEGMENT AND GEOGRAPHIC AREA OPERATIONS

Management regularly evaluates the operating performance of the company by
reviewing results on a product or service basis. The company's reportable
segments are Infusion and CPS. Infusion is the company's base business, which
derives its revenue primarily from alternate site infusion therapy and related
services (including non-intravenous home health products such as durable medical
equipment and respiratory therapy services). Also, included in the Infusion
operating results are nominal amounts related to the company's outsourced
hospital compounding services provided by SoluNet LLC, which was organized in
November 2002. CPS, which was divested by the company on July 31, 2000,
primarily provided specialty mail-order pharmacy and pharmacy benefit management
services. The other non-reportable segment principally represents centralized
management, administration and clinical support for clinical research trials
provided by CTI Network, Inc.

Management uses earnings before interest expense, income taxes,
depreciation and amortization ("EBITDA") for purposes of performance
measurement. Corporate costs are allocated on a revenue basis. EBITDA excludes
the gain on the sale of CPS, reorganization expenses, merger and restructuring
charges, charges for impairments of goodwill and other long-lived assets,
extraordinary items, the cumulative effects of changes in accounting principles
and results from discontinued operations. The measurement basis for segment
assets includes net accounts receivable, inventories, net property and equipment
and other current assets.

F-43

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

Summary information by segment is as follows (in thousands):

Reconciliations of the company's segment revenue, segment EBITDA profit
(loss) and segment assets to the corresponding amounts in the consolidated
financial statements are as follows (in thousands):

F-44

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

For each of the years presented, the company's primary operations and
assets were within 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 operations.

18. DEBTOR/NON-DEBTOR FINANCIAL STATEMENTS

The following Condensed Consolidating Balance Sheets as of December 31,
2002 and 2001 and the related Condensed Consolidating Statements of Income and
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000
are presented in accordance with SOP 90-7. Certain amounts in the 2001 Condensed
Consolidating Balance Sheet and the 2001 and 2000 Condensed Consolidating
Statements of Cash Flows have been reclassified to conform to the 2002
presentation.

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2002
(IN THOUSANDS)

F-45

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2001
(IN THOUSANDS)

F-46

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)

F-47

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)

F-48

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)

F-49

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002
(IN THOUSANDS)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)

F-50

CORAM HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)

F-51

CORAM HEALTHCARE CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

(1) Accounts receivable written off, net of recoveries.

(2) Reclassify certain reserves and adjustments for the disposition of the
Coram Prescription Services division.

(3) Fully reserved vendor rebate receivables written off.

(4) Obsolete inventories written off during the year ended December 31,
2000.

(5) Full reserve for escrow deposit receivable related to dispositions of
lithotripsy partnerships.

(6) Revenue adjustments.

(7) The fully reserved escrow deposit receivable was collected in October
2002 in connection with a settlement agreement approved by United
States Bankruptcy Court for the District of Delaware.

(8) Full reserve for insurance deductible amounts receivable related to a
certain risk insurance policy.

S-1

EXHIBIT INDEX

(a) Certain exhibits and schedules of this Exhibit have been omitted. The
registrant agrees to furnish supplementally any omitted schedule or exhibit
to the Securities and Exchange Commission.

* Filed herewith.