<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for the Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
</TABLE>
TRANSWORLD HOME HEALTHCARE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
<PAGE> 2
TRANSWORLD HOME HEALTHCARE, INC.
75 TERMINAL AVENUE
CLARK, NEW JERSEY 07066
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
MAY 28, 1997
------------------------
To the Shareholders of
TRANSWORLD HOME HEALTHCARE, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting (the "Annual Meeting") of
shareholders of Transworld Home HealthCare, Inc. (the "Company") will be held at
805 Third Avenue, New York, New York 10022, 20th Floor, on May 28, 1997, at
11:00 a.m., local time, for the following purposes, all as more fully described
in the attached Proxy Statement:
I. To elect five directors to serve for a term of one year and until
their respective successors are duly elected and qualified.
II. To ratify and approve an amendment to the Company's 1992 Stock
Option Plan to increase the number of shares of the Company's common stock,
par value $0.01 per share for which options may be granted under such Plan.
III. To ratify and adopt the Company's 1997 Option Plan for
Non-Employee Directors.
IV. To ratify the appointment by the Company's Board of Directors of
Coopers & Lybrand L.L.P., as independent accountants of the Company for the
fiscal year ending October 31, 1997.
V. To transact such other business as may properly come before the
Annual Meeting and any and all adjournments thereof.
The accompanying Proxy Statement forms a part of this Notice.
The Board of Directors has fixed the close of business on April 21, 1997 as
the record date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting or any adjournment thereof.
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1996 is enclosed.
YOU ARE EARNESTLY REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE
ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT PURPOSE
(TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN THE UNITED STATES) WHETHER OR
NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON. THE PROXY IS REVOCABLE BY
YOU AT ANY TIME PRIOR TO ITS EXERCISE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN
PERSON IN THE EVENT YOU ATTEND THE ANNUAL MEETING. THE PROMPT RETURN OF THE
PROXY WILL BE OF ASSISTANCE IN PREPARING FOR THE ANNUAL MEETING AND YOUR
COOPERATION IN THIS RESPECT WILL BE GREATLY APPRECIATED.
By Order of the Board of Directors
/s/ Leslie J. Levinson
Leslie J. Levinson
Secretary
May 2, 1997
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY
IN THE ENCLOSED RETURN ENVELOPE.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INTRODUCTION..................................................................... 1
Annual Meeting Matters......................................................... 1
General........................................................................ 1
VOTING RIGHTS AND VOTING SECURITIES.............................................. 2
Voting at the Annual Meeting................................................... 2
Security Ownership of Certain Beneficial Owners and Management................. 3
Compliance With Section 16(a) of the Securities Exchange Act of 1934........... 4
PROPOSAL I: ELECTION OF DIRECTORS............................................... 4
Required Affirmative Vote...................................................... 4
Directors and Officers of the Company.......................................... 4
Meetings of the Board of Directors............................................. 7
Board Committees............................................................... 7
Executive Compensation......................................................... 8
Employment Agreements; Termination of Employment and Change-in-Control
Arrangements................................................................ 9
Compensation Committee Interlocks And Insider Participation.................... 10
Stock Option Plans............................................................. 10
Executive Bonus Plan........................................................... 11
Indemnification................................................................ 11
Compensation Committee Report.................................................. 12
Comparative Performance of the Company......................................... 14
Certain Relationships and Related Transactions................................. 15
PROPOSAL II: RATIFICATION AND APPROVAL OF AMENDMENT TO THE 1992 STOCK OPTION
PLAN............................................................... 17
The 1992 Option Plan........................................................... 17
Certain Federal Income Tax Consequences........................................ 18
Incentive Options.............................................................. 18
Non-Qualified Options.......................................................... 18
Deduction by the Company....................................................... 19
Required Affirmative Vote...................................................... 20
PROPOSAL III: RATIFICATION AND ADOPTION OF 1997 OPTION PLAN FOR NON-EMPLOYEE
DIRECTORS......................................................... 20
Director Option Plan........................................................... 20
Certain Federal Income Tax Consequences........................................ 20
Required Affirmative Vote...................................................... 20
PROPOSAL IV: RATIFICATION OF INDEPENDENT AUDITORS............................... 21
Required Affirmative Vote...................................................... 21
1997 SHAREHOLDER PROPOSALS....................................................... 21
OTHER MATTERS.................................................................... 21
SOLICITATION OF PROXIES.......................................................... 21
ADDITIONAL INFORMATION........................................................... 22
OPTION PLAN FOR NON-EMPLOYEE DIRECTORS........................................... Exhibit A
</TABLE>
i
<PAGE> 4
TRANSWORLD HOME HEALTHCARE, INC.
75 TERMINAL AVENUE
CLARK, NEW JERSEY 07066
------------------------
PROXY STATEMENT
FOR THE
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 28, 1997
------------------------
INTRODUCTION
This Proxy Statement and the accompanying proxy are being furnished to
shareholders of Transworld Home HealthCare, Inc. (the "Company") in connection
with the solicitation of proxies by the Board of Directors for use in voting at
the Annual Meeting of Shareholders to be held at 805 Third Avenue, New York, New
York 10022, 20th Floor, on May 28, 1997, at 11:00 a.m., and at any and all
adjournments thereof (the "Annual Meeting"). This Proxy Statement, the attached
Notice of Annual Meeting of Shareholders, and the accompanying proxy, together
with a copy of the Annual Report of the Company on Form 10-K for the fiscal year
ended October 31, 1996, including the financial statements contained therein,
are first being mailed or delivered to shareholders of the Company on or about
May 2, 1997.
ANNUAL MEETING MATTERS
At the Annual Meeting, shareholders of the Company as of the close of
business on April 21, 1997 (the "Record Date") will consider and vote upon the
following: (i) Proposal I for the election of five directors to serve for a term
of one year and until their respective successors are duly elected and
qualified; (ii) Proposal II for the ratification and adoption of an amendment to
the Company's 1992 Stock Option Plan (the "1992 Option Plan") to increase the
number of shares of the Company's common stock, par value $0.01 per share (the
"Common Stock") for which options may be granted from 1,500,000 shares to
3,000,000 shares; (iii) Proposal III for the ratification and adoption of the
Company's 1997 Option Plan for Non-Employee Directors (the "Director Plan")
providing for the grant of stock options to non-employee directors of the
Company, as described more fully herein; and (iv) Proposal IV for the
ratification of the appointment by the Company's Board of Directors of Coopers &
Lybrand L.L.P., as independent accountants of the Company for the fiscal year
ending October 31, 1997.
APPROVAL OF PROPOSAL I TO ELECT FIVE DIRECTORS REQUIRES THE AFFIRMATIVE
VOTE OF A PLURALITY OF THE SHARES OF COMMON STOCK REPRESENTED IN PERSON OR BY
PROXY AT THE ANNUAL MEETING.
APPROVAL OF PROPOSAL II TO AMEND THE 1992 OPTION PLAN REQUIRES THE
AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON
STOCK.
APPROVAL OF PROPOSAL III TO RATIFY AND ADOPT THE DIRECTOR PLAN REQUIRES THE
AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON
STOCK.
APPROVAL OF PROPOSAL IV TO RATIFY THE APPOINTMENT OF COOPERS & LYBRAND
L.L.P., AS INDEPENDENT ACCOUNTANTS OF THE COMPANY FOR THE FISCAL YEAR ENDING
OCTOBER 31, 1997 REQUIRES THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF THE
SHARES OF COMMON STOCK REPRESENTED IN PERSON OR BY PROXY AT THE ANNUAL MEETING.
GENERAL
The enclosed proxy provides that each shareholder may specify that his or
her shares be voted "for," "against" or "abstain" from voting with respect to
each of the proposals. If the enclosed proxy is properly executed, duly returned
to the Company in time for the Annual Meeting and not revoked, your shares will
be voted in accordance with the instructions contained thereon. Where a signed
proxy is returned, but no specific instructions are indicated, your shares will
be voted FOR each of the proposals.
<PAGE> 5
Proxies marked as abstaining will be treated as present for purposes of
determining a quorum for the Annual Meeting, but will not be counted as voting
in respect of any matter as to which abstinence is indicated. Proxies returned
by brokers as "non-votes" on behalf of shares held in street name because
beneficial owners' discretion has been withheld as to one or more matters on the
agenda for the Annual Meeting will not be treated as present for purposes of
determining a quorum for the Annual Meeting unless they are voted by the broker
on at least one matter on the agenda. Such shares will not be counted as to the
matters for which a non-vote is indicated on the broker's proxy.
Any shareholder who executes and returns a proxy may revoke it in writing
at any time before it is voted at the Annual Meeting by: (i) filing with the
Secretary of the Company, at the above address, written notice of such
revocation bearing a later date than the proxy or a subsequent proxy relating to
the same shares; or (ii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy).
Representatives of Coopers & Lybrand L.L.P., independent accountants of the
Company, are expected to be present at the Annual Meeting and available to
respond to appropriate questions. Such representatives also will have the
opportunity, should they so desire, to make any statements to the shareholders
which they deem appropriate.
Whether or not you attend the Annual Meeting, your vote is important.
Accordingly, you are asked to sign and return the accompanying proxy regardless
of the number of shares you own. Shares can be voted at the Annual Meeting only
if the holder is represented by proxy or is present.
VOTING RIGHTS AND VOTING SECURITIES
VOTING AT THE ANNUAL MEETING
The Board of Directors has fixed the close of business on April 21, 1997 as
the Record Date for the determination of shareholders entitled to notice of, and
to vote at, the Annual Meeting. Only shareholders of record at the close of
business on the Record Date will be entitled to vote at the Annual Meeting or
any and all adjournments thereof. On the Record Date, the Company had 15,104,056
shares of Common Stock issued and outstanding. The Common Stock is the only
class of outstanding voting securities of the Company. Each shareholder of
Common Stock will be entitled to one vote per share, either in person or by
proxy, on each matter presented to the shareholders of the Company at the Annual
Meeting. The holders of a majority of all of the outstanding shares of Common
Stock entitled to vote at the Annual Meeting constitute a quorum at the Annual
Meeting. The affirmative vote of the holders of a plurality of the shares of
Common Stock represented in person or by proxy at the Annual Meeting is required
to approve Proposal I. The affirmative vote of the holders of a majority of the
outstanding shares of Common Stock is required to approve Proposals II and III.
The affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting is required to approve
Proposal IV.
2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of
Common Stock beneficially owned, as of the Record Date, by (i) all persons known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock; (ii) each director of the Company; (iii) each of the Company's
"named executive officers" as defined under the rules and regulations of the
Securities Act of 1933, as amended (the "Securities Act"); and (iv) all
directors and executive officers of the Company as a group (8 persons).
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED OWNED
------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Timothy M. Aitken(1)......................................... 100,000 *
Robert W. Fine(2)............................................ 148,621 *
Richard A. Yoken(3).......................................... 18,000 *
Wayne A. Palladino........................................... 89,190 *
H. Gene Berger(4)(5)......................................... 163,515 1.0%
Michael P. Garippa(6)........................................ 44,085 *
Scott A. Shay(7)............................................. 12,415,333 68.6%
Hyperion Partners II L.P.(8)................................. 12,415,333 68.6%
Hyperion TW Fund L.P.(9)..................................... 12,415,333 68.6%
All executive officers and directors as a group (8
persons)(5)(7)(10)......................................... 13,044,317 70.6%
</TABLE>
- ---------------
* Less than one percent.
(1) Includes 100,000 shares subject to options exercisable within 60 days from
the Record Date.
(2) Includes 128,045 shares subject to options exercisable within 60 days from
the Record Date.
(3) Includes 15,000 shares subject to options exercisable within 60 days from
the Record Date.
(4) Includes 94,768 shares subject to options exercisable within 60 days from
the Record Date.
(5) Includes an aggregate of 2,000 shares and 3,100 shares issuable upon
exercise of the Company's publicly traded warrants owned by the wife and
one child of Mr. Berger, an Executive Vice President of the Company, as to
which Mr. Berger disclaims beneficial ownership. Also includes an aggregate
of 372 the Company's publicly traded warrants owned jointly by Mr. Berger
and his wife.
(6) Includes 3,333 shares subject to options exercisable within 60 days from
the Record Date.
(7) Includes 5,298,877 shares of Common Stock and the 3,000,000 shares of
Common Stock underlying the Warrants (as defined herein) which Hyperion
Partners II L.P. ("HPII") and 4,116,456 shares of Common Stock which
Hyperion TW Fund L.P. (the "Fund") (affiliates of Mr. Shay) have purchased
and as to which Mr. Shay disclaims beneficial ownership. Excludes any
shares of Common Stock included in the Payable Shares (as defined herein).
See "Certain Relationships and Related Transactions -- Transactions with
Principal Shareholders."
(8) Includes 4,116,456 shares of Common Stock which the Fund (an affiliate of
HPII) has purchased and as to which HPII disclaims beneficial ownership and
3,000,000 shares subject to Warrants exercisable within 60 days from the
Record Date. The address of HPII is 50 Charles Lindbergh Parkway,
Uniondale, New York 11553. Excludes any shares of Common Stock included in
the Payable Shares. See "Certain Relationships and Related
Transactions -- Transactions with Principal Shareholders."
(9) Includes 5,298,877 shares of Common Stock and 3,000,000 shares subject to
the Warrants which HPII (an affiliate of the Fund) has purchased and as to
which the Fund disclaims beneficial ownership. The address of the Fund is
50 Charles Lindbergh Parkway, Uniondale, New York 11553.
(10) Includes all shares held by Messrs. Aitken, Fine, Yoken, Palladino, Berger,
Garippa and one other executive officer, and those shares subject to
publicly traded warrants or options held by such individuals exercisable
within 60 days from the Record Date.
3
<PAGE> 7
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
The Securities and Exchange Commission (the "Commission") has comprehensive
rules relating to the reporting of securities transactions by directors,
officers and shareholders who beneficially own more than 10% of the Company's
Common Stock (collectively, the "Reporting Persons"). These rules are complex
and difficult to interpret. Based solely on a review of Section 16 reports
received by the Company from Reporting Persons, the Company believes that no
Reporting Person has failed to file a Section 16 report on a timely basis during
the most recent fiscal year other than (i) Wayne A. Palladino, the Senior Vice
President and Chief Financial Officer of the Company, who filed a Form 4 late
with respect to two transactions that occurred in December 1995; (ii) H. Gene
Berger, an Executive Vice President of the Company, who filed a Form 4 late with
respect to one transaction that occurred in March, 1996; (iii) Joseph J.
Raymond, the former Chairman and Chief Executive Officer of the Company, who
filed a Form 4 late with respect to one transaction that occurred in April 1996;
(iv) Michael P. Garippa, a Vice President of the Company, who filed two Form 4s
late with respect to two transactions that occurred in December 1995 and April
1996; and (v) Kevin M. Buhrman, a Vice President of the Company, who filed two
Form 4s late with respect to two transactions that occurred in April 1996 and
February 1997.
PROPOSAL I: ELECTION OF DIRECTORS
The Company's Board of Directors currently consists of six members.
Pursuant to resolution of the Board of Directors, effective as of and after the
Annual Meeting, the Company's Board of Directors shall consist of five members.
At the Annual Meeting, five directors are to be elected to serve for a term of
one year and until their respective successors are duly elected and qualified.
Other than Lewis S. Ranieri, all of the nominees are currently members of the
Board of Directors.
The persons named in the enclosed proxy intend to vote for the election of
the Company's nominees, who are listed below, unless the proxy is marked to
indicate that such authorization is expressly withheld. Should any of the listed
persons be unable to accept nomination or election (which the Board of Directors
does not anticipate), it is the intention of the persons named in the enclosed
proxy to vote for the election of such persons as the Board of Directors may
recommend. Proxies cannot be voted for a greater number of persons than the
number of nominees named.
REQUIRED AFFIRMATIVE VOTE
Approval of Proposal I to elect five directors requires the affirmative
vote of a plurality of the shares of Common Stock represented in person or by
proxy at the Annual Meeting.
DIRECTORS AND OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the Company's
directors and officers, including the nominees of the Board of Directors:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ---------------------- --- --------------------------------------------------
<S> <C> <C>
Timothy M. Aitken*.... 52 Chairman of the Board and Chief Executive Officer
Robert W. Fine*....... 60 President, Chief Operating Officer and Director
Wayne A. Palladino.... 38 Senior Vice President and Chief Financial Officer
H. Gene Berger........ 56 Executive Vice President
Michael P. Garippa.... 42 Vice President
Kevin M. Buhrman...... 45 Vice President
Leslie J. Levinson.... 42 Secretary
Richard A. Yoken*..... 46 Director
Scott A. Shay*........ 39 Director
Lewis S. Ranieri*..... 50 Director Nominee
</TABLE>
- ---------------
* Indicates director nominee.
4
<PAGE> 8
Certain biographical information regarding each director, officer and
director nominee of the Company is set forth below:
Timothy M. Aitken has served as Chairman of the Board and Chief Executive
Officer of the Company since January 15, 1997. Prior to joining the Company, Mr.
Aitken served as an independent consultant to the health care industry from
November 1996 until January 1997. From June 1995 until November 1996, Mr. Aitken
served as the vice chairman and president of Apria Healthcare Group, Inc., a
California based home health care company. Since September 1995, he has also
served as chairman of the board of Omnicare plc, a publicly listed company in
the United Kingdom. From 1990 until June 1995, Mr. Aitken served as chairman of
the board, president and chief executive officer of Abbey Healthcare Group Inc.,
a California based home health care company.
Robert W. Fine has been a Director of the Company since July 1988. Mr. Fine
has served as Chief Operating Officer since June 1993, President of the Company
since August 1995 and Acting Chief Executive Officer from May 1996 to January
1997. From June 1993 until August 1995, he also served as a Vice President of
the Company. From November 1990 until June 1993, Mr. Fine was the president of
the domestic operations of Fortress Company, a manufacturer of wheelchairs and
related equipment.
Wayne A. Palladino has been a Vice President and Chief Financial Officer of
the Company since February 1991 and a Senior Vice President since September
1996. From September 1989 until joining the Company, he served as the vice
president -- finance and chief financial officer of ESC Electronics Corp., an
electronics manufacturer. From December 1985 until January 1991, he was a
principal in Pennwood Capital Corporation, a private investment concern. From
January 1984 through December 1985, Mr. Palladino was a senior associate in the
business development unit of W.R. Grace & Co., Inc.
H. Gene Berger has been an Executive Vice President of the Company since
July 1995 and served as a Vice President from June 1992 until July 1995. From
June 1992 until November 1993, Mr. Berger was the principal officer in charge of
operations at Steri-Pharm, Inc., a subsidiary of the Company. From October 1991
to June 1992, Mr. Berger was the President, Chief Operating and Executive
Officer of the Company. Prior thereto, from January 1990, Mr. Berger was
president of Jayile Associates, a consulting firm to the health care industry.
Beginning in January 1987, Mr. Berger was employed by Biotech Capital
Corporation, a venture capital firm, and was designated by such firm to serve as
president of three affiliated companies in the health care sector. From January
1984 through November 1986, Mr. Berger was chairman of the board, chief
executive officer and president of Clinical Sciences, Inc., a company in the
immunodiagnostics and biotechnology fields.
Michael P. Garippa has been a Vice President of the Company and the
principal officer in charge of the Company's infusion therapy, respiratory
therapy and home medical equipment operations since September 1993. Since June
1985, Mr. Garippa has been the president of The PromptCare Companies, Inc., a
subsidiary of the Company.
Kevin M. Buhrman has been a Vice President of the Company since June 1992.
Since November 1993, Mr. Buhrman has been the principal officer in charge of the
Company's nursing and para-professional operations. From June 1992 until
November 1993, Mr. Buhrman was the principal officer in charge of the Company's
Transworld Home HealthCare -- Nursing Division, Inc. ("Nurses") operations. From
February 1990 to June 1992, Mr. Buhrman was executive vice president of Nurses.
From February 1988 to 1990, Mr. Buhrman was the corporate administrator of
Nurses' New Jersey offices. From 1970 through 1988, he managed the Respiratory
Care Department of Riverview Medical Center in Red Bank, New Jersey.
Leslie J. Levinson has served as Secretary of the Company since October
1990. Since June 1991, he has been a partner in the law firm of Baer Marks &
Upham LLP, which firm serves as counsel to the Company. From January 1988 until
June 1991, he was a partner in the law firm of Dow, Lohnes & Albertson, which
firm served as counsel to the Company.
Richard A. Yoken has been a Director of the Company since June 1992. Since
May 1990, Mr. Yoken has been the chairman, president and chief executive officer
of The Portfolio Strategy Group, Inc., an investment
5
<PAGE> 9
consulting firm. Since July 1984, he also has been the president and principal
shareholder of Yoken & Company, Inc., a corporate and personal financial
consulting firm.
Scott A. Shay has been a Director of the Company since January 1996 and
served as Acting Chairman of the Board from September 1996 until January 1997.
Since March 1995, Mr. Shay has been the executive vice president of Hyperion
Funding II Corp., the general partner of the general partner of HPII. Since
1988, Mr. Shay has been a control person of Hyperion Partners L.P., an affiliate
of HPII, and has at various times acted as a director of various entities owned
directly and indirectly by Hyperion Partners L.P., including, currently, Bank
United Corp. and Hyperion Capital Management, Inc. Since 1988, Mr. Shay also has
been a managing director of Ranieri & Co., Inc., an investment consulting firm.
Prior to joining Ranieri & Co., Inc. Mr. Shay was a director of Salomon Brothers
Inc., where he was employed from 1980 until 1988, and where he was responsible
at various times for the firm's thrift mergers and acquisition practice and for
mortgage banking financing and mergers and acquisitions.
The Company has nominated Lewis S. Ranieri and Mr. Ranieri has consented to
serve as a director of the Company for a term of one year and until his
respective successor is duly elected and qualified.
Lewis S. Ranieri is the chairman of Bank United Corp., a position he has
held since 1988; he was also the president, chief executive of Bank United Corp.
and chairman of Bank United, the subsidiary of Bank United Corp., from 1988
until July 15, 1996. Mr. Ranieri is also the chairman and president of Ranieri &
Co., Inc., positions he has held since founding Ranieri & Co., Inc., in 1988.
Mr. Ranieri is a founder of Hyperion Partners L.P. and of Hyperion Partners II
L.P. He is also chairman of Hyperion Capital Management, Inc., a registered
investment advisor and The Hyperion Total Return Fund, Inc. He is director of
the Hyperion 1999 Term Trust, Inc., the Hyperion 1997 Term Trust, Inc., the
Hyperion 2002 Term Trust, Inc. and Hyperion 2005 Investment Grade Opportunity
Trust, Inc. Mr. Ranieri is also chairman and president of various other indirect
subsidiaries of Hyperion Partners L.P. and Hyperion Partners II L.P. He is also
chairman of the board and a director of American Marine Holdings, Inc. Mr.
Ranieri is also a director of Delphi Financial Group, Inc. Mr. Ranieri is a
former vice chairman of Salomon Brothers where he was employed from 1968 to
1987, and was one of the principal developers of the secondary mortgage market.
He is a member of the National Association of Home Builders Mortgage Roundtable.
All directors of the Company are elected by the shareholders for a one-year
term and hold office until the next annual meeting of shareholders of the
Company and until their successors are duly elected and qualified. There are no
family relationships among the directors and officers of the Company. All
directors who are not employees of the Company are entitled to receive a fee of
$10,000 per annum. In addition, all directors are reimbursed for all reasonable
expenses incurred by them in acting as a director or as a member of any
committee of the Board of Directors. Officers are chosen by and serve at the
discretion of the Board of Directors. All of the Company's executive officers
other than Kevin M. Buhrman have employment agreements with the Company. See
"Executive Compensation" and "Employment Agreements; Termination of Employment
and Change-in-Control Arrangements."
In May 1996, Joseph J. Raymond resigned as Chief Executive Officer of the
Company. In order to facilitate an orderly transition of responsibilities, Mr.
Raymond remained as Chairman of the Board until August 15, 1996. Effective with
Mr. Raymond's resignation, Mr. Fine assumed the additional role of Acting Chief
Executive Officer and in September 1996, Mr. Shay became Acting Chairman.
Messrs. Fine and Shay relinquished such additional duties effective January 15,
1997, when Mr. Aitken joined the Company.
In connection with Mr. Raymond's resignation as Chief Executive Officer of
the Company, on May 14, 1996 the Company entered into an agreement with Mr.
Raymond, which provided for, among other things: a cash payment to Mr. Raymond
of $350,000 (which payment was made on May 23, 1996); the vesting of 46,667
unvested stock options previously granted to Mr. Raymond; until April 30, 2000,
the voting of all shares of Common Stock held by Mr. Raymond in the same
proportion as the votes cast by other shareholders at all meetings of
shareholders; and the continuation of certain non-compete provisions applicable
to him as well as other provisions customarily found in agreements of this kind.
The Company also entered into a consulting agreement with Mr. Raymond, whereby
among other things, Mr. Raymond will provide consulting services to the Company
until April 30, 2000. Mr. Raymond will be compensated for such services at a
rate equal to $150,000 per annum, less the amount by which certain amounts paid
to or on his behalf exceed $60,000 per
6
<PAGE> 10
annum. In addition, on June 7, 1996, TWHH Funds L.P., a subsidiary of HPII,
loaned the sum of $1,100,000 to Mr. Raymond, which loan was repaid in full on
February 18, 1997.
Pursuant to a shareholders' agreement, dated as of August 5, 1994, by and
among the Company, Paribas Principal, Inc., an affiliate of Banque Paribas, the
Company's former principal senior lender ("Paribas Principal") and Mr. Raymond,
upon the request of Paribas Principal, the Company and Mr. Raymond have agreed
to use their best efforts to cause a representative of Paribas Principal to be
elected to the Board of Directors.
Concurrent with the closing of, and pursuant to the terms of, the
Subordinated Loan (as defined herein), Scott A. Shay, a designee of HPII, became
a Director of the Company. See "Certain Relationships and Related Transactions
- -- Transactions with Principal Shareholders."
Vincent J. Caruso resigned as Executive Vice President and Chief
Administrative Officer of the Company effective May 9, 1997.
MEETINGS OF THE BOARD OF DIRECTORS
The business affairs of the Company are managed under the direction of the
Board of Directors. Members of the Board of Directors are informed about the
Company's affairs through various reports and documents distributed to them,
through operating and financial reports routinely presented at meetings of the
Board of Directors and committee meetings by the Chairman and other officers,
and through other means. In addition, directors of the Company discharge their
duties throughout the year not only by attending Board of Directors meetings,
but also through personal meetings and other communications, including telephone
contact with the Chairman of the Board and others regarding matters of interest
and concern to the Company.
During the fiscal year ended October 31, 1996, the Company's Board of
Directors held three formal meetings and acted by unanimous written consent in
lieu of a meeting, on 13 separate occasions. Each director attended all of the
Board meetings and any applicable committee meetings during fiscal 1996.
BOARD COMMITTEES
The Company's Board of Directors has an Audit Committee and a Compensation
Committee but does not have a nominating committee. The members of each
committee are appointed by the Board of Directors.
Audit Committee. The Audit Committee recommends to the Board of Directors
the auditing firm to be selected each year as independent auditors of the
Company's financial statements and to perform services related to the completion
of such audit. The Audit Committee also has responsibility for: (i) reviewing
the scope and results of the audit; (ii) reviewing the Company's financial
condition and results of operations with management; (iii) considering the
adequacy of the internal accounting and control procedures of the Company; and
(iv) reviewing any non-audit services and special engagements to be performed by
the independent auditors and considering the effect of such performance on the
auditor's independence. The Company intends to reconstitute the Audit Committee
following the Annual Meeting. The Audit Committee was also in session during
each of the Company's three formal meetings of its Board of Directors during
fiscal 1996.
Compensation Committee. The Compensation Committee reviews and approves
overall policy with respect to compensation matters, including such matters as
compensation plans for employees and employment agreements and compensation for
executive officers. The Compensation Committee currently consists of Messrs.
Shay and Yoken. The Compensation Committee was also in session during each of
the Company's three formal meetings of its Board of Directors during fiscal
1996.
7
<PAGE> 11
EXECUTIVE COMPENSATION
The following table summarizes all compensation earned by or paid to the
Company's Chief Executive Officer and each of the four other most highly
compensated executive officers of the Company whose total annual salary and
bonus compensation exceeded $100,000 (collectively, the "Named Officers") for
services rendered in all capacities to the Company for the three years ended
October 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
NAME AND FISCAL ------------------- STOCK UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS OPTIONS COMPENSATION
- ------------------------------- ------ -------- -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph J. Raymond(1)........... 1996 $158,654 $ -- $ -- -- $415,577(2)
Former Chairman of the 1995 272,621 -- -- 70,000 --
Board and Chief Executive 1994 151,036 150,000 -- -- --
Officer
Robert W. Fine(3).............. 1996 $228,461 $ -- $ -- -- $ --
President and Chief 1995 218,000 -- -- 15,000 --
Operating Officer 1994 135,000 100,000 -- 100,000 --
Vincent J. Caruso(4)........... 1996 $161,538 $ -- $ -- 50,000 $ 10,267(5)
Former Executive Vice 1995 -- -- -- -- --
President and Chief 1994 -- -- -- -- --
Administrative Officer
H. Gene Berger................. 1996 $181,731 $ -- $ -- -- $ --
Executive Vice President 1995 175,293 -- -- 15,000 --
1994 151,250 50,000 -- 25,000 --
Wayne A. Palladino............. 1996 $181,731 $ -- $ -- -- $ --
Senior Vice President and 1995 174,134 -- -- 15,000 --
Chief Financial Officer 1994 126,677 50,000 -- 50,000 --
Michael P. Garippa............. 1996 $129,087 $ 87,500 $ -- 10,000 $ --
Vice President 1995 125,000 87,500 -- -- --
1994 123,154 87,500 -- -- --
</TABLE>
- ---------------
(1) Mr. Raymond resigned as Chief Executive Officer of the Company effective May
1996 and as Chairman of the Board effective August 1996.
(2) Includes $65,577 earned in respect of consulting services provided to the
Company from May through October 1996 and $350,000 in a one-time payment
pursuant to Mr. Raymond's termination agreement.
(3) Mr. Fine served as Acting Chief Executive Officer from May 1996 until
January 1997.
(4) Mr. Caruso resigned as Executive Vice President and Chief Administrative
Officer of the Company effective May 9, 1997.
(5) Reflects reimbursements for moving expenses.
8
<PAGE> 12
The following table sets forth certain information regarding individual
options granted in fiscal 1996 to each of the Named Officers pursuant to the
Company's 1992 Option Plan. In accordance with the rules of the Commission, the
table sets forth the hypothetical gains or "option spreads" that would exist for
the options at the end of their respective terms. These gains are based on
assumed rates of annual compound stock price appreciation of 5% and 10% from the
date the option was granted to the end of the option's term.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES OF
PERCENTAGE OF STOCK PRICE APPRECIATION
SECURITIES TOTAL OPTIONS FOR
UNDERLYING GRANTED TO OPTION TERM(3)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ------------------------ ---------- ------------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Vincent J. Caruso....... 50,000(1) 71.4% $ 8.875 1/10/01 $122,600 $270,914
Michael P. Garippa...... 10,000(2) 14.3 10.000 4/26/01 26,628 61,051
</TABLE>
- ---------------
(1) Exercisable in three equal installments commencing immediately and then on
the next two successive anniversaries of January 10, 1996.
(2) Exercisable in three equal installments commencing on the next three
successive anniversaries of April 26, 1996.
(3) The 5% and 10% assumed annual compound rates of stock price appreciation are
mandated by the Commission and do not represent the Company's estimate or
projection of future Common Stock prices.
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND
1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ----------- -------- ------------------------------- -------------------------
<S> <C> <C> <C> <C>
Joseph J. Raymond........ 70,000 $183,750 --/ -- $ --/$ --
Robert W. Fine........... -- -- 128,045/ 5,000 762,337/12,813
Vincent J. Caruso........ -- -- 16,667/33,333 26,041/52,084
H. Gene Berger........... 49,941 354,331 94,768/ 5,000 610,829/12,813
Wayne A. Palladino....... 4,781 30,335 114,987/ 5,000 735,219/12,813
Michael P. Garippa....... -- -- 33,334/10,000 201,921/ 4,375
</TABLE>
- ---------------
(1) Calculated on the basis of $10.4375 per share, the closing sale price of the
Common Stock as reported on the NASDAQ National Market on October 31, 1996,
minus the exercise price.
EMPLOYMENT AGREEMENTS; TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
In January 1997, the Company entered into an employment agreement with Mr.
Aitken, which expires in January 1998. The agreement will renew for one-year
terms absent notice of non-renewal from either party. This agreement provides
for a base salary of $250,000, increasing to $300,000 if the agreement is
renewed. The agreement contains, among other things, customary confidentiality
and termination provisions and provides that in the event of the termination of
the executive following a "change of control" of the Company (as defined
therein), Mr. Aitken will be entitled to receive a cash payment of up to 2.9
times his average annual base salary during the preceding five years.
The Company has three-year employment agreements with Messrs. Fine,
Palladino and Berger, each of which expires in October 1997. These employment
agreements provide for base salaries of $220,000, $175,000 and $175,000,
respectively, which base salaries are subject to review and adjustment by the
Board of Directors of the Company. Each agreement contains, among other things,
customary non-compete, non-solicitation, confidentiality and termination
provisions and also provides that in the event of the termination of the
9
<PAGE> 13
executive following a "change of control" of the Company (as defined therein) or
a significant change in the responsibilities of such person, each of Messrs.
Fine, Palladino and Berger will be entitled to receive a cash payment of up to
2.9 times his base salary then in effect plus any accrued and unpaid bonuses and
unreimbursed expenses.
The Company had a three-year employment agreement with Michael P. Garippa
which expired in October 1996 subject to automatic one-year extensions absent
notice of non-renewal from either party. Pursuant to such agreement, Mr.
Garippa's agreement has been extended for an additional one-year period. The
agreement provides for base compensation to Mr. Garippa of $125,000. In
addition, Mr. Garippa's base salary will be reviewed periodically by the
Compensation Committee and may be increased, subject to approval by such
committee. Under the employment agreement, Mr. Garippa may receive bonuses from
time to time as determined by the Compensation Committee. Mr. Garippa also is
entitled to an advance of $87,500 in each year, to be credited against any
bonuses he earns under his employment agreement. In the event Mr. Garippa fails
to earn a bonus sufficient to cover any advances taken in any given year, any
such deficiency will be carried forward to the next year and applied against
future bonuses, if any. In the event that, among other things, Mr. Garippa's
responsibilities are significantly diminished or upon his termination following
a "change of control" of the Company (as defined therein), Mr. Garippa will be
entitled to receive the remainder of his salary as then in effect together with
any unpaid bonuses for the remainder of the term of the agreement. The agreement
also contains, among other things, customary non-compete, non-solicitation,
confidentiality and termination provisions.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until his resignation in August 1996, Mr. Raymond, the former Chairman of
the Board and Chief Executive Officer of the Company, was also a member of the
Compensation Committee. Mr. Raymond's prior employment agreement (which was
terminated in May 1996 in connection with Mr. Raymond's resignation from the
Company) was approved by the Compensation Committee and ratified by the Board of
Directors, although Mr. Raymond did not vote on the approval of his employment
agreement. Mr. Raymond's termination arrangement was approved by the Board of
Directors. See "Certain Relationships and Related Transactions" and "Directors
and Officers of the Company."
STOCK OPTION PLANS
1992 Stock Option Plan. In July 1992, the Company's Board of Directors and
shareholders approved the Company's 1992 Option Plan. The 1992 Option Plan
provides for the grant of options to key employees, officers, directors and
non-employee independent contractors of the Company. The 1992 Option Plan is
administered by the Compensation Committee of the Board of Directors. The number
of shares of Common Stock available for issuance thereunder is 1,500,000 shares.
The Company proposes to amend the 1992 Option Plan to increase the number of
shares available for issuance thereunder to 3,000,000.
Options granted under the 1992 Option Plan may be either incentive stock
options ("Incentive Options"), which are intended to meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options that do not qualify as Incentive Options ("Non-Qualified Stock
Options"). Under the 1992 Option Plan, the Compensation Committee may grant (i)
Incentive Options at an exercise price per share which is not less than the fair
market value of a share of Common Stock on the date on which such Incentive
Options are granted (and not less than 110% of the fair market value in the case
of any optionee who beneficially owns more than 10% of the total combined voting
power of the Company) and (ii) Non-Qualified Stock Options at an exercise price
per share which is determined by the Compensation Committee (and which may be
less than the fair market value of a share of Common Stock on the date on which
such Non-Qualified Stock Options are granted). The 1992 Option Plan further
provides that the
10
<PAGE> 14
maximum period in which options may be exercised will be determined by the
Compensation Committee, except that Incentive Options may not be exercised after
the expiration of ten years from the date the Incentive Option was initially
granted (and five years in the case of any optionee who beneficially owns more
than 10% of the total combined voting power of the Company). Under the 1992
Option Plan, if an optionee's employment is terminated, generally the
unexercised Incentive Options must be exercised within three months after
termination. However, if the termination is due to the optionee's death or
permanent disability, the option must be exercised within one year of the
termination of employment. If the optionee's employment is terminated for cause
by the Company, or if the optionee voluntarily terminates his employment
generally, his options will expire as of the termination date. Any option
granted under the 1992 Option Plan will be nontransferable, except by will or by
the laws of descent and distribution, and may be exercised upon payment of the
option price in cash or by delivery of shares of Common Stock with a fair market
value equal to the option price.
Shares delivered under the 1992 Option Plan will be available from
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Company. Shares of Common Stock that are subject to options
under the 1992 Option Plan which have terminated or expired unexercised will
return to the pool of shares available for issuance under the 1992 Option Plan.
Effective January 10, 1996 and January 14, 1997, respectively, the Company
granted to Mr. Caruso options under the 1992 Option Plan to purchase 50,000
shares and 25,000 shares of Common Stock at an exercise price of $8.875 per
share and $12.00 per share, respectively.
On April 26, 1996, the Company granted to each of Messrs. Garippa and
Buhrman options under the 1992 Option Plan to purchase 10,000 shares of Common
Stock at an exercise price of $10.00 per share.
Effective January 15, 1997, the Company granted to Mr. Aitken options under
the 1992 Option Plan to purchase 500,000 shares of Common Stock at an exercise
price of $11.375 per share.
1987 Stock Option Plan. The Company had a non-qualified stock option plan
pursuant to which 203,007 shares of Common Stock were reserved for issuance (the
"1987 Plan"). No additional options may be granted under the 1987 Plan and, as
of the Record Date, there were no options outstanding under the 1987 Plan.
EXECUTIVE BONUS PLAN
The Company has adopted a performance-based bonus plan pursuant to which it
may grant bonuses to each of the Company's executive officers and certain other
employees of the Company as may be designated by the Board of Directors. Under
the bonus plan, participants may receive a bonus of up to 50% of their base
salary. The grant of any bonus is within the sole discretion of the Compensation
Committee and such bonuses may be paid, in whole or in part, in cash or in
shares of Common Stock.
INDEMNIFICATION
As permitted under the Business Corporation Law of the State of New York,
the Company's Restated Certificate of Incorporation provides that a director of
the Company will not be personally liable to the Company or its shareholders for
monetary damages for breach of a fiduciary duty owed to the Company or its
shareholders. By its terms and in accordance with the law of the State of New
York, however, this provision does not eliminate or otherwise limit the
liability of a director of the Company for any breach of duty based upon (i) an
act or omission (A) resulting from acts committed in bad faith or involving
intentional misconduct or involving a knowing violation of law or (B) from which
the director personally derived a financial benefit to which he was not legally
entitled, or (ii) an improper declaration of dividends or purchases of the
Company's securities.
The Company's Restated Certificate of Incorporation and By-Laws provide
that the Company shall indemnify its directors and officers to the fullest
extent permitted by New York law. The Company also has entered into
indemnification agreements with each of its directors and officers.
11
<PAGE> 15
COMPENSATION COMMITTEE REPORT
Overall Policy
The Company's executive compensation program is designed to be closely
linked to corporate performance and returns to shareholders. To this end, the
Company has developed a compensation strategy and specific compensation plans
that tie a significant portion of executive compensation to the Company's
success in meeting specified performance goals. The overall objectives of this
strategy are to attract and retain the best possible executive talent, to
motivate these executives to achieve the goals inherent in the Company's
business strategy and to provide a compensation package that recognizes
individual contributions as well as overall business results.
Each year the Compensation Committee conducts a review of the Company's
executive compensation program. This review includes comparing the Company's
executive compensation, corporate performance, stock price appreciation and
total return to shareholders to a peer group of public corporations that
represent the Company's most direct competitors for executive talent. The peer
groups used for compensation analysis generally are not the same as the peer
group index in the Performance Graph included in this Proxy Statement. The
Compensation Committee believes that the Company's most direct competitors for
executive talent are not necessarily all of the companies that would be included
in a peer group established for comparing shareholder returns. The annual
compensation reviews permit an ongoing evaluation of the link between the
Company's performance and its executive compensation in the context of the
compensation programs of other companies.
The Compensation Committee determines the compensation of the Named
Officers and sets the policies for and reviews the compensation awarded to other
executive officers of the Company.
The key elements of the Company's executive compensation program consist of
base salary, annual bonus, and stock options. The Compensation Committee's
policies with respect to each of these elements are discussed below. Although
the elements of compensation described below are considered separately, the
Compensation Committee generally takes into account the full compensation
package afforded to the executive.
Base Salaries
The base salary for an executive officer is initially determined by
evaluating the responsibilities of the position held and the experience of the
individual, and by reference to the competitive marketplace for executive
talent, including a comparison to base salaries for comparable positions at
other companies.
Annual salary adjustments are exclusive of those which have been determined
pursuant to employment agreements, if any, and are determined by (i) evaluating
the performance of the Company and (ii) the performance of each executive,
including any new responsibilities assumed by such person. In the case of
executive officers with responsibility for a particular business division, such
division's financial results also are considered. In evaluating the performance
of the Company, the Compensation Committee, where appropriate, also considers
non-financial indicia, including, but not limited to, increased market share,
efficiency gains, improvements in quality and improvements in relations with
customers, suppliers and employees.
Mr. Raymond resigned as Chief Executive Officer of the Company in May 1996
and as Chairman of the Board in August 1996. Mr. Raymond's base salary for
fiscal 1995-96 (pro rated accordingly) was established pursuant to his
employment agreement with the Company, which agreement was terminated in May
1996. At such time, Mr. Fine became Acting Chief Executive Officer in addition
to his duties as President and Chief Operating Officer. Pursuant to his
employment agreement with the Company entered into in October 1994 when Mr. Fine
was not the Acting Chief Executive Officer of the Company, Mr. Fine was granted
a base salary of $220,000 for each year of his employment contract. The amounts
paid in fiscal 1995-96 reflects no increase in base salary over fiscal 1994-95.
12
<PAGE> 16
Annual Bonuses
The Company's executive officers are eligible for an annual bonus pursuant
to a bonus program instituted in October 1994 which provides for bonuses of up
to 50% of their base salary. See "Executive Bonus Plan."
In fiscal 1996, the Company did not exceed its pre-tax income goals. Based
on these results, no bonuses were issued to executive officers.
Stock Options
Under the 1992 Option Plan, stock options may be granted to, among others,
the Company's directors, executive officers and employees. The Compensation
Committee sets guidelines for the size of stock option awards based on similar
factors as are used to determine base salaries and annual bonuses. In the event
of poor corporate performance, the Compensation Committee can elect not to award
any stock options.
Stock options are designed to align the interests of the Company's
directors, executives and employees with those of its shareholders. Stock
options are granted with an exercise price and vesting schedule designed to
encourage the creation of shareholder value over the long-term since the full
benefit of the compensation package cannot be realized unless stock price
appreciation occurs over a number of years.
In fiscal 1996, in connection with his initial employment with the Company,
Vincent J. Caruso, the former Executive Vice President and Chief Administrative
Officer of the Company, received options to purchase an aggregate of 50,000
shares of Common Stock at an exercise price of $8.875 per share vesting one-
third at the date of grant, with the balance vesting on the first and second
anniversaries of the date of grants.
In fiscal 1996, each of Michael Garippa, a Vice President of the Company
and the officer responsible for the Company's infusion therapy, respiratory
therapy and home medical equipment operations and Kevin Buhrman, a Vice
President of the Company and the principal officer responsible for the Company's
nursing and para-professional operations, each received options to purchase an
aggregate of 10,000 shares of Common Stock at an exercise price of $10.00 per
share vesting in three equal installments commencing on the first anniversary of
the date of grant. No other stock options were awarded by the Compensation
Committee to the Company's executive officers in fiscal 1996.
The Compensation Committee believes that significant equity interests in
the Company held by the Company's management align the interests of shareholders
and management.
Conclusion
As is indicated by the programs described above, a significant portion of
the Company's executive compensation is linked directly to individual and
corporate performance. The Compensation Committee intends to continue its
practice of linking executive compensation to corporate performance and
shareholders' returns, recognizing that the cyclical nature of the Company's
business may, from time to time, result in a temporary imbalance over a
particular period.
The Compensation Committee:
Scott A. Shay
Richard A. Yoken
13
<PAGE> 17
COMPARATIVE PERFORMANCE OF THE COMPANY
The Commission requires the Company to present a chart comparing the
cumulative total shareholder return on its Common Stock with the cumulative
total shareholder return of (i) a broad equity market index, and (ii) a
published industry index or peer group. Although such a chart would normally be
for a five-year period, the Common Stock has been publicly traded only since
December 7, 1992 and, as a result, the following chart commences as of such
date. Such chart compares the Common Stock with (i) the NASDAQ National Market
Index (the "NASDAQ/NMS Index"), and (ii) a group of public companies, each of
which may be regarded as an alternate site healthcare provider (the "Index of
Alternate Site HealthCare Providers"), and assumes an investment of $100 on
December 7, 1992 in each of the Common Stock, the securities comprising the
NASDAQ/NMS Index and the securities comprising the Index of Alternate Site
HealthCare Providers.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
TRANSWORLD HOME HEALTHCARE, INC.
Prepared by the Center for Research in Security Prices
Produced on 02/10/97 including data to 10/31/96
<TABLE>
<CAPTION>
Nasdaq Health
Nasdaq Stock Services Stocks
Measurement Period 'Transworld Home Market (US SIC 8000-8099 US
(Fiscal Year Covered) HealthCare, Inc.' Companies) & Foreign
<S> <C> <C> <C>
10/31/91 80.428 83.599
<CAPTION>
Measurement Period
(Fiscal Year Covered) 77.728 83.043
Measurement Period
(Fiscal Year Covered) 87.224 95.921
Measurement Period
(Fiscal Year Covered) 92.324 98.407
Measurement Period
(Fiscal Year Covered) 94.416 98.161
Measurement Period
(Fiscal Year Covered) 89.96 90.589
Measurement Period
(Fiscal Year Covered) 86.102 85.017
Measurement Period
(Fiscal Year Covered) 87.22 87.021
Measurement Period
(Fiscal Year Covered) 83.81 81.219
Measurement Period
(Fiscal Year Covered) 86.779 87.252
Measurement Period
(Fiscal Year Covered) 84.126 85.371
Measurement Period
(Fiscal Year Covered) 87.254 86.41
<S> <C> <C> <C>
10/30/92 90.69 87.792
<CAPTION>
Measurement Period
(Fiscal Year Covered) 97.906 98.395
Measurement Period
(Fiscal Year Covered) 100 100 100
Measurement Period
(Fiscal Year Covered) 104.012 101.51 99.37
Measurement Period
(Fiscal Year Covered) 97.292 104.399 106.98 7
Measurement Period
(Fiscal Year Covered) 73.62 100.505 86.296
Measurement Period
(Fiscal Year Covered) 75 103.413 89.024
Measurement Period
(Fiscal Year Covered) 88.014 99 88.59
Measurement Period
(Fiscal Year Covered) 78.285 104.914 97.777
Measurement Period
(Fiscal Year Covered) 96.59 105.399 93.728
Measurement Period
(Fiscal Year Covered) 117.152 105.523 97.872
Measurement Period
(Fiscal Year Covered) 97.442 110.977 93.209
Measurement Period
(Fiscal Year Covered) 103.16 114.282 100.679
<S> <C> <C> <C>
10/29/93 108.024 116.851 101.486
<CAPTION>
Measurement Period
(Fiscal Year Covered) 98.643 113.366 109.912
Measurement Period
(Fiscal Year Covered) 93.732 116.526 114.649
Measurement Period
(Fiscal Year Covered) 106.422 120.063 125.921
Measurement Period
(Fiscal Year Covered) 104.376 118.941 124.384
Measurement Period
(Fiscal Year Covered) 100.632 111.625 116.848
Measurement Period
(Fiscal Year Covered) 97.011 110.177 112.167
Measurement Period
(Fiscal Year Covered) 138.346 110.446 116.636
Measurement Period
(Fiscal Year Covered) 173.143 106.407 100.423
Measurement Period 100.992
(Fiscal Year Covered) 222.685 108.589 ch 0]
Measurement Period
(Fiscal Year Covered) 218.487 115.512 119.626
Measurement Period
(Fiscal Year Covered) 208.848 115.217 127.195
<S> <C> <C> <C>
10/31/94 228.126 117.481 128.931
<CAPTION>
Measurement Period
(Fiscal Year Covered) 314.878 113.584 125.435
Measurement Period
(Fiscal Year Covered) 356.647 113.902 123.009
Measurement Period
(Fiscal Year Covered) 404.843 114.541 129.245
Measurement Period
(Fiscal Year Covered) 475.53 120.598 128.082
Measurement Period
(Fiscal Year Covered) 454.645 124.172 134.781
Measurement Period
(Fiscal Year Covered) 440.186 128.081 114.207
Measurement Period
(Fiscal Year Covered) 404.843 131.384 113.516
Measurement Period
(Fiscal Year Covered) 430.547 142.031 116.014
Measurement Period
(Fiscal Year Covered) 379.139 152.471 128.117
Measurement Period
(Fiscal Year Covered) 269.895 155.561 128.399
Measurement Period
(Fiscal Year Covered) 228.126 159.138 134.704
<S> <C> <C> <C>
10/31/95 260.256 158.226 132.715
<CAPTION>
Measurement Period
(Fiscal Year Covered) 260.256 161.941 149.191
Measurement Period
(Fiscal Year Covered) 231.339 161.079 156.248
Measurement Period
(Fiscal Year Covered) 257.043 161.876 162.89
Measurement Period
(Fiscal Year Covered) 202.421 168.045 166.13
Measurement Period
(Fiscal Year Covered) 257.043 168.604 162.904
Measurement Period
(Fiscal Year Covered) 260.256 182.589 178.554
Measurement Period
(Fiscal Year Covered) 231.339 190.972 187.755
Measurement Period
(Fiscal Year Covered) 234.552 182.366 177.591
Measurement Period
(Fiscal Year Covered) 234.552 166.124 157.086
Measurement Period
(Fiscal Year Covered) 268.289 175.433 168.106
Measurement Period
(Fiscal Year Covered) 253.83 188.86 176.921
<S> <C> <C> <C>
10/31/96 268.289 186.79 153.206
</TABLE>
14
<PAGE> 18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Principal Shareholders
Effective January 7, 1994, Joseph J. Raymond, Elliott H. Vernon, Kinder
Investments, L.P. and a former director of the Company (collectively, the
"Holders") were granted demand and piggyback registration rights which presently
cover approximately 709,346 shares of Common Stock. The registration rights will
expire on February 7, 1999. The Holders have the right to cause the Company, on
two separate occasions (the first at the Company's expense and the second at the
Holders' expense) to use its best efforts to effect registration under the
Securities Act of the shares of Common Stock of the demanding Holders. Holders
who in the aggregate hold at least 50% of the subject Common Stock must make
such demand in order for the Company to be required to effect such registration.
In addition, if the Company proposes to register any of its Common Stock under
the Securities Act, the Company is required to notify the Holders and to use its
best efforts to include in such registration all shares of Common Stock of the
Holders requested to be included therein by the Holders.
On November 20, 1995, the Company entered into a purchase agreement with
HPII (the "Purchase Agreement") pursuant to which HPII purchased an aggregate of
4,400,000 units (the "Units"), at a purchase price of $9.00 per Unit for an
aggregate purchase price of $39,600,000. Such Units represent an aggregate of
4,400,000 shares of Common Stock and warrants to purchase an additional
3,000,000 shares of Common Stock (the "Warrants"). The aggregate number of
shares represented (assuming all the Warrants are exercised), therefore, by all
of the Units sold to HPII in connection with the Purchase Agreement was
7,400,000.
The Warrants issued to HPII grant the holder thereof the right to purchase
a share of Common Stock upon payment of the exercise price of $12.45 per whole
share of Common Stock. The Warrants are exercisable at any time after issuance
thereof until the fifth anniversary of the original issuance date. The Warrants
contain provisions that protect the holders thereof against dilution by
adjustment of the exercise price therefore (and, in certain instances, a related
change in the number of shares of Common Stock underlying each Warrant) upon the
occurrence of certain events, such as stock dividends, stock splits, mergers, a
sale of substantially all of the Company's assets and other extraordinary
events, as well as the issuance by the Company of shares of Common Stock at a
purchase price below the then effective exercise price of the Warrants (which
initially is $12.45 per share).
Pursuant to a registration rights agreement entered into at the initial
closing of the sale of the Units to HPII (the "Initial Closing"), the Company
granted to HPII registration rights with respect to all shares of Common Stock
now or hereafter owned by HPII (the "Registration Agreement"). The Registration
Agreement also grants to the holders certain "piggyback" rights to have included
in a registration statement to be filed by the Company for either its own
benefit or for the registration of securities for the account of other
shareholders of the Company. The Company will bear all expenses, other than
underwriting discounts and commissions, in connection with any such
registrations. The Registration Agreement precludes the Company from granting
any further registration rights without the consent of HPII.
On January 10, 1996, HPII loaned to the Company the sum of $10,000,000 (the
"Subordinated Loan".) The Subordinated Loan bore interest at the rate of 20% per
annum through May 29, 1996 and 12% thereafter and was repaid on July 31, 1996
with proceeds from the second closing of the sale of the Units to HPII (the
"Second Closing") under the Purchase Agreement with HPII.
The Subordinated Loan provided that at the closing thereof the number of
directors constituting the Company's Board of Directors would be increased to
seven (7) and that HPII would have the right to designate one director. Pursuant
to such rights, HPII designated Mr. Shay to serve as a director of the Company.
Concurrent with the Second Closing, the Purchase Agreement provided that
the Company's Board of Directors would be comprised of seven (7) members with
two (2) additional designees to be appointed by HPII. At the Second Closing,
HPII designated Messrs. David Golush and Robert Zalaznick to serve on the Board
of Directors. Until the fifth anniversary of the Second Closing, HPII has the
right to designate to the Board of Directors of the Company the greater of three
directors and 40% of the number of Directors constituting the entire Board of
Directors. Messrs. Ranieri and Shay are the HPII designees to serve on the Board
of Directors.
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The Purchase Agreement also provides that for a period of five (5) years
commencing on the date of the Initial Closing, all shares of Common Stock held
by HPII will be voted by HPII on any matter submitted to the shareholders in the
same proportion as the votes cast by the other holders of Common Stock.
Notwithstanding the foregoing, HPII retains its right to vote its shares of
Common Stock in any manner it chooses with respect to the following specified
matters: (i) the election to the Board of Directors of HPII's designees; (ii)
amendments to the Company's By-Laws or Certificate of Incorporation; (iii)
mergers and the sale, lease or exchange of the Company's assets; (iv) the
authorization or issuance of Company securities; (v) a reclassification of
securities or reorganization of the Company; (vi) the liquidation or dissolution
of the Company; and (vii) any affiliated party transaction. The Purchase
Agreement provides that the requirement that HPII votes its shares in proportion
with all other shareholders shall terminate in the event that the aggregate
number of shares of Common Stock owned by Messrs. Raymond, Fine, Palladino and
Berger shall be less than 415,000 shares or on the date when any person or group
unaffiliated with HPII becomes the beneficial owner of 25% or more of the
then-outstanding shares of the Company's capital stock.
Messrs. Raymond, Fine, Palladino and Berger have agreed in their individual
capacities to take all steps necessary, including voting their shares for the
election of HPII's designees to the Board of Directors, and to utilize their
best efforts, to secure the election by the Company's shareholders of HPII's
designees to the Board of Directors. The Company has also agreed to such
provisions (other than the voting of shares).
The Purchase Agreement further provides that commencing on the date of the
Second Closing, all actions to be taken by the Board of Directors will require
the affirmative vote of a majority of the directors present at a duly
constituted meeting (which is the status currently), except that it shall
require the affirmative vote of 66 2/3% of the entire Board of Directors to
authorize any action taken with respect to a proposed acquisition, whether by
purchase of stock or assets, of another company and any action to increase above
seven (7) the number of directors constituting the entire Board of Directors,
except in connection with the appointment of the Paribas Principal designee. See
"Directors and Officers of the Company."
In connection with the Company's pending acquisition of Health Management,
Inc. ("HMI"), HPII has purchased certain of HMI's trade payables aggregating
approximately $18,000,000 at various discounts. The Company and HPII have
entered into a Stock Purchase Agreement pursuant to which HPII will purchase at
closing 1,234,176 shares (the "Payable Shares") of Common Stock at a purchase
price of $9.875 per share (representing an aggregate purchase price of
$12,187,488) in exchange for the assignment to the Company of certain of such
trade payables. Closing of the transaction is subject to, among other things,
approval of the Company's shareholders. The shares of Common Stock issued
pursuant to this agreement are also covered by the Registration Agreement. The
members of the Company's Board of Directors who are not affiliated with HPII
ratified such transaction on April 1, 1997.
On January 8, 1997, the Company entered into a stock purchase agreement
with HPII pursuant to which HPII agreed, subject to the conditions stated
therein, to purchase 898,877 shares of Common Stock at a purchase price of
$11.125 per share for an aggregate purchase price of $10,000,000 (the
"Additional Shares"). The closing of the sale of the Additional Shares occurred
on April 21, 1997. The Additional Shares are also covered by the Registration
Agreement.
Effective March 26, 1997, the Company entered into a stock purchase
agreement with the Fund, an affiliate of HPII, pursuant to which the purchaser
agreed, subject to the conditions stated therein, to purchase 4,116,456 shares
of the Company's Common Stock (the "March Shares") at a purchase price of $9.875
per share for an aggregate purchase price of $40,650,000. The closing of the
sale of the March Shares occurred on April 21, 1997. At the closing, the Company
and the Fund entered into a registration rights agreement containing
substantially the same terms and conditions as those contained in the existing
Registration Agreement with HPII.
On August 5, 1994, the Company issued to Paribas Principal, 225,000 shares
of Common Stock and on December 12, 1994, Paribas Principal purchased an
additional 200,000 shares of Common Stock at a price of $8.43 per share,
pursuant to an agreement with the Company. The Company has also entered into a
shareholders agreement and a registration rights agreement with Paribas
Principal. The registration rights agreement precludes the Company from granting
further registration rights with respect to its Common Stock
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<PAGE> 20
without the consent of Paribas Principal. Paribas Principal has consented to the
Registration Agreement and the registration rights agreement with the Fund. In
addition, the Company paid approximately $298,750 to Banque Paribas (an
affiliate of Paribas Principal) in fees and expenses in fiscal 1996 in
connection with the former credit agreement with Banque Paribas.
Transactions with Directors and Executive Officers
On December 14, 1992, Mr. Fine and Robert P. Giuliano, formerly a principal
shareholder of the Company, each sold 6,666 shares of Common Stock at a price of
$5.00 per share to each of Messrs. Berger, Palladino and Buhrman, respectively.
On such date, the Company loaned Messrs. Berger, Palladino and Buhrman the funds
necessary to consummate such purchases. These loans bear interest at the prime
rate of the Company's principal lender plus 1% per annum, are secured by a
pledge of the purchased stock, but are otherwise non-recourse to such
purchasers. Interest only is payable on these loans, until July 31, 1997, when
the entire principal balance and all accrued interest shall be due and payable.
Messrs. Raymond, Fine, Berger and Palladino (collectively, the "Restricted
Transferees") have entered into a stock restriction agreement (the "Restriction
Agreement"), pursuant to which they have agreed to limit the transferability of
their shares of Common Stock as well as other "Common Equivalents" to the extent
described therein. Unless otherwise consented to in writing by HPII, none of the
Restricted Transferees may transfer any of his shares of Common Stock or other
Common Equivalents owned by him if, at the time of such transfer or after giving
effect thereto, the Restricted Transferee's "Shareholder Percentage" would be
less than the lesser of 0.75 and the "HPII Percentage." For purposes of the
Restriction Agreement, the term "Shareholder Percentage" means a fraction, the
denominator of which is the number of Common Equivalents that such shareholder
and his related persons owned or had the right to acquire on the date of the
Purchase Agreement, and the numerator of which is the numerical amount of the
denominator less the number of Common Equivalents transferred by such Restricted
Transferee; and the term "HPII Percentage" means a fraction, the denominator of
which is the number of Common Equivalents purchased by HPII or which HPII has
the right to purchase pursuant to the Purchase Agreement, and the numerator of
which is the numerical amount of the denominator less the number of Common
Equivalents transferred by HPII. The effect of the Restriction Agreement, in
general, is to limit a Restricted Transferee's ability to sell his shares of
Common Stock to the extent that his shareholdings would be less than 75% of his
current holdings or, if less, the HPII Percentage.
Certain directors and executive officers of the Company have been granted
options to purchase shares of Common Stock under the Company's stock option
plans. See "Stock Option Plans."
Mr. Raymond has received certain payments from the Company in connection
with his resignation as Chief Executive Officer and has also entered into a
consulting agreement with the Company. See "Directors and Officers of the
Company."
The Company has agreed to pay to an affiliate of Mr. Aitken, the sum of
$96,000 for consulting services rendered in connection with potential financing
opportunities. Such amount will be paid in fiscal 1997.
PROPOSAL II: RATIFICATION AND APPROVAL OF AMENDMENT
TO THE 1992 STOCK OPTION PLAN
The Board of Directors proposes that the 1992 Option Plan be amended to
increase the aggregate number of shares subject to issuance under such plan by
1,500,000 shares from 1,500,000 shares to 3,000,000 shares.
THE 1992 OPTION PLAN
The purpose of the 1992 Option Plan is to strengthen the ability of the
Company to attract and retain well-qualified executive and managerial personnel,
to furnish an additional incentive to those persons responsible for the
successful management of the Company, and thereby to enhance shareholder value.
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The 1992 Option Plan was originally adopted by the Board of Directors in
July 1992 and was submitted to and approved by shareholders at the Company's
1992 annual meeting of shareholders. Amendments to the 1992 Option Plan were
submitted to and approved by shareholders in April 1994 and April 1996,
respectively. For a description of the principle features of the 1992 Option
Plan, see "Stock Option Plans."
The Board of Directors has retained the right to amend or terminate the
1992 Option Plan as it deems advisable. However, no amendment shall be made to
increase the number of shares of Common Stock which may be issued under the 1992
Option Plan, change the class of employees eligible to receive grants under the
1992 Option Plan or materially increase the benefits which may accrue to
participants under the 1992 Option Plan without submitting such amendments to
the Company's shareholders for approval. In addition, no amendments to, or
termination of, the 1992 Option Plan can impair the rights of any individual
with respect to options previously granted to such individual without that
individual's consent. The 1992 Option Plan shall terminate in 2002. Any option
outstanding under the 1992 Option Plan at the time of the 1992 Option Plan's
termination shall remain outstanding until the option expires by its terms.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary outlines certain federal income tax consequences of
the 1992 Option Plan to the Company and participants under present law.
INCENTIVE OPTIONS
A participant will not recognize income for federal income tax purposes
upon the grant of an Incentive Option. A participant also will not be taxed on
the exercise of an Incentive Option, provided that the Common Stock acquired
upon exercise of the Incentive Option is not sold by the participant within two
years after the Option was granted and one year after the Option is exercised
(the "required holding period").
However, for alternative minimum tax ("AMT") purposes, the difference
between the exercise price of the Incentive Option and the fair market value of
the Common Stock acquired upon exercise is an item of tax preference in the year
the Incentive Option is exercised. The participant is required to include such
amount in AMT income in such year and to compute the tax basis of the shares so
acquired in the same manner as if a Non-Qualified Option had been exercised,
including the availability of a Section 83 election (discussed below). Whether a
participant will be liable for AMT in the year the Incentive Option is exercised
will depend on the participant's particular tax circumstances. AMT paid in such
year will be allowed as a credit to the extent regular tax exceeds AMT in
subsequent years.
On a sale, after the required holding period, of Common Stock that was
acquired by exercising an Incentive Option, the difference between the
participant's tax basis in the Common Stock and the amount received in the sale
is taxed as long-term capital gain or loss.
If Common Stock acquired upon the exercise of an Incentive Option is
disposed of by the participant during the required holding period (a
"disqualifying disposition"), the excess, if any, of (i) the amount realized on
such disposition (up to the fair market value of the Common Stock on the
exercise date) over (ii) the exercise price, will be taxed to the participant as
ordinary income. If a participant pays the exercise price of an Incentive Option
by delivering Common Stock that was previously acquired by exercising an
Incentive Option and such delivery occurs before the end of the required holding
period of such Common Stock, the participant is treated as making a disqualified
disposition of the Common Stock so delivered.
The Code puts a $100,000 limit on the value of stock subject to Incentive
Options that first become exercisable in any one year, based on the fair market
value of the underlying Common Stock on the date of grant. To the extent Options
exceed this limit, they are taxed as Non-Qualified Options.
NON-QUALIFIED OPTIONS
A participant who receives a Non-Qualified Option does not recognize
taxable income on the grant of the Option. Upon exercise of a Non-Qualified
Option, a participant generally has ordinary income in an amount
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equal to the excess of the fair market value of the shares at the time of
exercise over the exercise price paid for the shares.
However, if the participant (i) is an officer or director of the Company or
the beneficial owner of more than 10% of the Company's equity securities (in
each case, within the meaning of Section 16 of the Exchange Act -- as so
defined, an "Insider"), (ii) does not make a Section 83 election and (iii)
receives shares upon the exercise of a Non-Qualified Option, the recognition of
income (and the determination of the amount of income) is deferred until the
earlier of (a) six months after the shares are acquired or (b) the earliest date
on which the Insider could sell the shares at a profit without being subject to
liability under Section 16(b) of the Exchange Act (six months after the
Non-Qualified Option is granted, in the case of an "in-the-money" Option). If
the participant makes a Section 83 election, income is not deferred. Rather,
income is recognized on the date of exercise of the Non-Qualified Option in an
amount equal to the excess of the fair market value of the shares acquired upon
exercise over the exercise price. A Section 83 election must be filed with the
Internal Revenue Service within thirty (30) days after an Option is exercised.
A participant's tax basis in shares received upon exercise of a
Non-Qualified Option is equal to the amount of ordinary income recognized on the
receipt of the shares plus the amount of cash, if any, paid upon exercise. The
holding period for the shares begins on the day after the shares are received
or, in the case of an Insider that has not made a Section 83 election, on the
day after the date on which income is recognized by the Insider on account of
the receipt of the shares.
If a participant exercises a Non-Qualified Option by delivering previously
held shares in payment of the exercise price, the participant does not recognize
gain or loss on the delivered shares, even if their fair market value is
different from the participant's tax basis in the shares. The exercise of the
Non-Qualified Option is taxed however, and the Company generally is entitled to
a deduction, in the same amount and at the same time as if the participant had
paid the exercise price in cash. Provided the participant receives a separate
identifiable stock certificate therefor, his tax basis in the number of shares
received that is equal to the number of shares surrendered on exercise will be
the same as his tax basis in the shares surrendered. His holding period for such
number of shares will include his holding period for the shares surrendered. The
participant's tax basis and holding period for the additional shares received
upon exercise will be the same as it would if the participant had paid the
exercise price in cash.
If a participant receives shares upon the exercise of a Non-Qualified
Option and thereafter disposes of the shares in a taxable transaction, the
difference between the amount realized on the disposition and the participant's
tax basis in the shares is taxed as capital gain or loss (provided the shares
are held as a capital asset on the date of disposition), which is long-term or
short-term depending on the participant's holding period for the shares.
DEDUCTION BY THE COMPANY
The Company is not allowed a federal income tax deduction on the grant or
exercise of an Incentive Option or the disposition, after the required holding
period, of shares acquired by exercising an Incentive Option. On a disqualifying
disposition of such shares, the Company is allowed a federal income tax
deduction in an amount equal to the ordinary income recognized by the
participant as a result of the disqualifying disposition, provided that such
amount constitutes an ordinary and necessary business expense of the Company, is
reasonable in amount and is not disallowed by Section 162(m) of the Code
(discussed above).
The ordinary income recognized by an employee of the Company on account of
the exercise of a Non-Qualified Option is subject to both wage withholding and
employment taxes. A deduction for federal income tax purposes is allowed to the
Company in an amount equal to the amount of ordinary income taxable to the
participant, provided that such amount constitutes an ordinary and necessary
business expense of the Company, that such amount is reasonable, and that the
Company satisfies any tax reporting obligation that it has with respect to such
income.
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REQUIRED AFFIRMATIVE VOTE
Approval of the amendment to the 1992 Option Plan requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock. The
Board of Directors believes that the proposal is in the best interests of the
Company and its shareholders and recommends that the shareholders vote FOR
approval of the amendment to the 1992 Option Plan as set forth in this Proposal
II.
PROPOSAL III: RATIFICATION AND ADOPTION OF 1997 OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
DIRECTOR OPTION PLAN
The Board of Directors of the Company has adopted, subject to approval of
the shareholders at the Annual Meeting, the Company's 1997 Option Plan for
Non-Employee Directors (the "Director Plan") pursuant to which 100,000 shares of
Common Stock of the Company were reserved for issuance upon the exercise of
options granted to non-employee directors of the Company. The purpose of the
Director Plan is to encourage ownership of Common Stock by non-employee
directors of the Company whose continued services are considered essential to
the Company's future progress and to provide them with a further incentive to
remain as directors of the Company. As of the Record Date, no such options have
been granted. A copy of the Director Plan is attached hereto as Exhibit A.
The Director Plan is administered by the Board of Directors. Directors of
the Company who are not employees of the Company or any subsidiary or affiliate
of the Company are eligible to participate in the Director Plan. The term of the
Director Plan is ten years from the date of approval by the stockholders;
however, options outstanding on the expiration of the term shall continue to
have full force and effect in accordance with the provisions of the instruments
evidencing such options. The Board of Directors may suspend, terminate, revise
or amend the Director Plan, subject to certain limitations.
Under the Director Plan, the Board of Directors may from time to time in
its discretion determine which of the eligible directors should receive options,
the number of shares subject to such options and the dates on which such options
are to be granted. Each such option is immediately exercisable for a period of
ten years from the date of grant generally, but may not be exercised more than
90 days after the date an optionee ceases to serve as a director of the Company.
Options granted under the Director Plan are not transferable by the optionee
other than by will, laws of descent and distribution or as required by law.
Common Stock may be purchased from the Company upon the exercise of an
option by payment in cash or cash equivalent, through the delivery of shares of
Common Stock having a fair market value equal to the cash exercise price of the
option or any combination of the above, subject to the discretion of the Board
of Directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For a discussion outlining certain federal income tax consequences of the
Director Plan to the Company and participants under present law see the section
"Certain Federal Income Tax Consequences -- Non-Qualified Options" and
"-- Deduction by the Company" contained in the discussion under the 1992 Option
Plan.
REQUIRED AFFIRMATIVE VOTE
Approval of ratification and adoption of the Director Plan requires the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock. The Board of Directors believes that the proposal is in the best
interests of the Company and its shareholders and recommends that the
shareholders vote FOR approval of ratification and adoption of the Director Plan
as set forth in this Proposal III.
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PROPOSAL IV: RATIFICATION OF INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P. currently serves as the Company's independent
accountants. They have served in that capacity since 1992 and prior to that,
served as the independent accountants of the Company's nursing subsidiary,
commencing in 1990. During the fiscal year ended October 31, 1996, Coopers &
Lybrand L.L.P. audited the accounts of the Company and its subsidiaries and also
provided other audit and accounting services to the Company in connection with
Commission filings.
Upon recommendation of the Audit Committee of the Board of Directors, the
Board has appointed Coopers & Lybrand L.L.P. as the independent accountants for
the fiscal year ending October 31, 1997. The shareholders are being asked to
ratify this action of the Board. The ratification requires a majority vote of
those shares of Common Stock represented at the Annual Meeting. In the event the
ratification is not approved, the Board of Directors will reconsider its
selection.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting and available to respond to appropriate questions. Such
representatives also will have the opportunity, should they so desire, to make
any statements to the shareholders which they deem appropriate.
REQUIRED AFFIRMATIVE VOTE
Approval of the ratification of Coopers & Lybrand L.L.P., as independent
accountants of the Company for the fiscal year ending October 31, 1997 requires
the affirmative vote of the holders of a majority of the shares of Common Stock
represented in person or by proxy at the Annual Meeting. The Board of Directors
unanimously recommends that the shareholders vote FOR Proposal IV.
1997 SHAREHOLDER PROPOSALS
In order for shareholder proposals for the 1997 Annual Meeting of
Shareholders to be eligible for inclusion in the Company's 1997 Proxy Statement,
they must be received by the Company at its principal executive offices, 75
Terminal Avenue, Clark, New Jersey 07066 (Attn: Secretary), prior to November 1,
1997. The Board of Directors will review any shareholder proposals that are
filed as required and will determine whether such proposals meet applicable
criteria for inclusion in the Company's 1997 Proxy Statement for the Annual
Meeting.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for consideration at the Annual Meeting. Should any other matters
properly come before the Annual Meeting, it is the intention of the persons
named in the accompanying proxy to vote such proxy on behalf of the shareholders
they represent in accordance with their best judgment.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the Board of Directors. The
Company will bear the costs of preparing and mailing the proxy materials to its
shareholders in connection with the Annual Meeting. The Company will solicit
proxies by mail and the directors and certain officers and employees of the
Company may solicit proxies personally or by telephone or telegraph. These
persons will receive no additional compensation for such services but will be
reimbursed for reasonable out-of-pocket expenses. The Company also will request
brokers, dealers, banks and their nominees to solicit proxies from their
clients, where appropriate, and will reimburse them for reasonable out-of-pocket
expenses related thereto.
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ADDITIONAL INFORMATION
The Company will make available to any shareholder, without charge, and
upon a written request therefor, additional copies of the Company's Annual
Report on Form 10-K for the fiscal year ended October 31, 1996. Any such request
should be directed to Transworld Home HealthCare, Inc., Attention: H. Gene
Berger at the following address: 75 Terminal Avenue, Clark, New Jersey 07066.
/s/ Leslie J. Levinson
Leslie J. Levinson
Secretary
May 2, 1997
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EXHIBIT A
TRANSWORLD HOME HEALTHCARE, INC.
1997 OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE
The purpose of this 1997 Option Plan for Non-Employee Directors (the
"Plan") of Transworld Home Healthcare, Inc., a New York corporation (the
"Company"), is to encourage ownership in the Company by non-employee directors
of the Company whose continued services are considered essential to the
Company's future progress and to provide them with a further incentive to remain
as directors of the Company.
2. ADMINISTRATION
The Board of Directors of the Company (the "Board") shall supervise and
administer the Plan. Grants of stock options under the Plan and the amount and
nature of the awards to be granted shall be determined by the Board in
accordance with Section 5. However, all questions of interpretation of the Plan
or of any options issued under it shall be determined by the Board and such
determination shall be final and binding upon all persons having or claiming to
have an interest in the Plan.
3. DIRECTORS ELIGIBLE FOR PARTICIPATION
Each director of the Company who is not an employee of the Company or any
subsidiary or affiliate of the Company shall be eligible to participate in the
Plan. Directors who receive options under this Plan shall not be precluded from
receiving options pursuant to other option plans, grants or awards made by the
Company.
4. STOCK SUBJECT TO THE PLAN
(a) The maximum number of shares which may be issued under the Plan shall
be 100,000 shares of the Company's Common Stock, $0.01 par value per share (the
"Common Stock").
(b) If any outstanding option under the Plan for any reason expires or is
terminated without having been exercised in full, the shares allocable to the
unexercised portion of such option shall again become available for grant
pursuant to the Plan.
(c) All options granted under the Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended to date and as may be amended from time to time (the
"Code").
5. TERMS, CONDITIONS AND FORM OF OPTIONS
Each option granted under the Plan shall be evidenced by a written
agreement in such form as the Board shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) Grant of Options. The Board may from time to time in its
discretion determine which of the eligible directors shall be granted
options under the Plan, the number of shares subject to any such options
and the dates as of which any such options are to be granted (the "Grant
Date"). Subject to Sections 5(d), 5(e) and 11, all options granted under
the Plan will be immediately exercisable.
(b) Option Exercise Price. The option exercise price per share for
each option granted under the Plan shall equal: (i) if the Common Stock is
then listed on a national securities exchange or quoted on Nasdaq
("Nasdaq"), the closing sales price per share for the last preceding date
prior to the Grant Date of such option on which there was a sale of such
Common Stock on such exchange or Nasdaq; or (ii) if, prior to the Grant
Date, the Common Stock is not listed or quoted as described in (i), the
fair market value of the Common Stock on the Grant Date, as determined in
good faith by the Board.
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(c) Options Non-Transferable. Each option granted under the Plan by
its terms shall not be transferable by the optionee otherwise than by will
or by the laws of descent and distribution, and shall be exercised during
the lifetime of the optionee only by him or her. No option or interest
therein may be transferred, assigned, pledged or hypothecated by the
optionee during his lifetime (except in accordance with Section 5(h)),
whether by operation of law or otherwise, or be made subject to execution,
attachment or similar process.
(d) Exercise Period. Except as otherwise provided in the Plan, each
option may be exercised fully on and after the date of grant of such
option, provided that, subject to the provisions of Section 5(e), no option
may be exercised more than ninety (90) days after the optionee ceases to
serve as a director of the Company. Notwithstanding the above, no option
shall be exercisable after the expiration of ten (10) years from the date
of grant or prior to approval of the Plan (or any amendment thereto
requiring stockholder approval) by the stockholders of the Company;
however, options outstanding on the expiration of the Plan shall continue
to have full force and effect in accordance with the provisions of the
instruments evidencing such options.
(e) Exercise Period Upon Disability or Death. Notwithstanding the
provisions of Section 5(d), any option granted under the Plan:
(i) may be exercised in whole or in part by an optionee who becomes
disabled (within the meaning of Section 22 (e) (3) of the Code or any
successor provision thereto) while serving as a director of the Company;
or
(ii) may be exercised in whole or in part
(x) upon the death of an optionee while serving as a director of
the Company, or
(y) upon the death of an optionee within ninety (90) days of
ceasing to serve as a director of the Company, by the person to whom
it is transferred by will, by the laws of descent and distribution,
or by written notice filed pursuant to Section 5(h);
in each such case within six months (or such longer period as may be determined
by the Board in its sole discretion) after the date the optionee ceases to be
such a director; provided, that no option shall be exercisable after the
expiration of ten (10) years from the date of grant or prior to approval of the
Plan (or any amendment thereto requiring stockholder approval by the
stockholders of the Company).
(f) Exercise Procedure. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment of the
full consideration of the exercise price for the shares as to which they
are exercised.
(g) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price (i) by delivery of cash (or
cash equivalent) in an amount equal to the exercise price of such options,
or (ii) to the extent provided in the applicable option agreement, by
delivery to the Company of shares of Common Stock then owned by the
optionee having a fair market value equal in amount to the exercise price
of the options being exercised, or (iii) by any combination of such methods
of payment. The fair market value of any shares of Common Stock or other
non-cash consideration which may be delivered upon exercise of an option
shall be determined by the Board, in its discretion.
(h) Exercise by Representative Following Death of Director. A
director, by written notice to the Company, may designate one or more
persons (and from time to time change such designation), including his
legal representative, who, by reason of his death, shall acquire the right
to exercise all or a portion of the option. If the person or persons so
designated wishes to exercise any portion of the option, they must do so
within the exercise period as provided in Section 5(e)(ii). Any exercise by
a representative shall be subject to the provisions of the Plan.
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<PAGE> 28
6. ASSIGNMENTS
The rights and benefits under the Plan may not be assigned except for the
designation of a beneficiary as provided in Section 5.
7. LIMITATION OF RIGHTS
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
of an option nor any other action taken pursuant to the Plan, shall constitute
or be evidence of any agreement or understanding, express or implied, that the
Company will retain a director for any period of time.
(b) No Stockholders' Rights for Options. An optionee shall have no rights
as a stockholder with respect to the shares covered by his or her options until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such certificate is issued.
8. CHANGES IN CAPITAL STOCK
(a) If (x) the outstanding shares of Common Stock are increased, decreased
or exchanged for a different number or kind of shares or other securities of the
Company, or (y) additional shares of Common Stock or new or different shares of
Common Stock or other securities of the Company or other non-cash assets are
distributed with respect to such shares or other securities, through or as a
result of any merger, consolidation, sale of all or substantially all of the
assets of the Company, reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or other similar transaction with
respect to such shares or other securities, an appropriate and proportionate
adjustment, as determined by the Board in its discretion shall be made in (i)
the maximum number and kind of shares reserved for issuance under the Plan, and
(ii) the number and kind of shares or other securities subject to then
outstanding options under the Plan, and (iii) the price for each share subject
to any then-outstanding options under the Plan, without changing the aggregate
purchase price as to which such options remain exercisable. No fractional shares
will be issued under the Plan on account of any such adjustments.
Notwithstanding the foregoing, no adjustment shall be made pursuant to this
Section 8 if such adjustment would cause the Plan to fail to comply with Rule
16b-3 or any successor rule promulgated pursuant to Section 16 of the Securities
Exchange Act of 1934, as amended.
(b) In the event that the Company is merged or consolidated into or with
another corporation (in which consolidation or merger the stockholders of the
Company receive distributions of cash or securities of another issuer as a
result thereof), or in the event that all or substantially all of the assets of
the Company are acquired by any other person or entity, or in the event of a
reorganization or liquidation of the Company, the Board, or the board of
directors of any corporation assuming the obligations of the Company, shall, as
to outstanding options under the Plan, take one or more of the following
actions: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), (ii) upon written notice to the optionees, provide that all
unexercised options will terminate immediately prior to the consummation of such
transaction unless exercised by the optionee within a specified period following
the date of such notice, or (iii) if, under the terms of a merger transaction,
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the merger (the "Merger
Price"), make or provide for a cash payment to the optionees equal to the
difference between (A) the Merger Price times the number of shares of Common
Stock subject to such outstanding options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such outstanding options in exchange for the termination of such options.
9. AMENDMENT AND TERMINATION OF THE PLAN
The Board may suspend or terminate the Plan or revise or amend it in any
respect whatsoever; provided, however, that to the extent required to comply
with the requirements for exemption under Rule 16b-3 (as defined in Section 12
below), without approval of the stockholders of the Company no revision or
amendment shall change the number of shares subject to the Plan, change the
designation of the class of directors eligible to receive options, or materially
increase the benefits accruing to participants under the Plan; and provided
A-3
<PAGE> 29
further that, no such amendment, revision, suspension, or termination shall
impair the rights of any optionee in and to any options awarded to such optionee
under the Plan.
10. WITHHOLDING
Prior to and as a condition of the issuance of shares of Common Stock upon
exercise of an option, the optionee shall pay or make adequate provision for any
federal, state or local taxes of any kind required by law to be withheld by the
Company with respect to any shares issued upon exercise of options under the
Plan.
11. EFFECTIVE DATE AND DURATION OF THE PLAN
(a) Effective Date. The Plan shall become effective when adopted by the
Board and approved by the Company's stockholders. Amendments to the Plan not
requiring stockholder approval shall become effective as of the date specified
by the Board; amendments requiring stockholder approval shall become effective
as of the date specified by the Board, but no option granted after the date of
such amendment shall become exercisable (to the extent that such amendment to
the Plan was required to enable the Company to grant such option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained at or prior
to the first annual meeting of the shareholders of the Company after the Board's
adoption of such amendment, any options granted on or after the date of such
amendment shall terminate to the extent that such amendment to the Plan was
required to enable the Company to grant such option to a particular optionee.
(b) Termination. Unless sooner terminated in accordance with Section 9,
the Plan shall terminate upon the close of business on the day next preceding
the tenth anniversary of the date of its approval by the Company's stockholders.
12. COMPLIANCE WITH RULE 16B-3 AND APPLICABLE LAW
Transactions under the Plan are intended to comply with all applicable
conditions for exemption under Rule 16b-3 or its successor promulgated pursuant
to Section 16 of the Securities Exchange Act of 1934, as amended. To the extent
any provision of the Plan or action by the Board in administering the Plan fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Board. In addition to the above, the Company shall
not be obligated to cause to be issued or delivered any certificates for shares
pursuant to the exercise of an option granted hereunder, unless and until the
Company is advised by its counsel that such issuance and delivery is in
compliance with all applicable laws, regulations of governmental authority, and
the requirements of any exchange upon which the Common Stock is traded.
13. GOVERNING LAW
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of New York, without giving effect to
the principles thereof relating to the conflicts of law.
14. SUCCESSORS AND ASSIGNS
This Plan shall inure to the benefit of and be binding upon each successor
and assign of the Company. All obligations imposed upon a optionee, and all
rights granted to the Company hereunder, shall be binding upon the optionee's
heirs, legal representatives and successors.
15. ENTIRE AGREEMENT
This Plan and the written agreement with respect to each option granted
under this Plan constitute the entire agreement with respect to the subject
matter hereof and thereof, provided that in the event of any inconsistency
between the Plan and such written agreement, the terms and conditions of this
Plan shall control.
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<PAGE> 30
PROXY
TRANSWORLD HOME HEALTHCARE, INC.
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Timothy M. Aitken, Scott A. Shay and
Robert W. Fine (with full power to act without the other and with power to
appoint his substitute) as the undesigned's proxies to vote all of the
undersigned's shares of common Stock of TRANSWORLD HOME HEALTHCARE, INC., a New
York corporation (the "Company"), which the undersigned would be entitled to
vote at the Annual Meeting of Shareholders of the Company (the "Annual
Meeting") to be held at 805 Third Avenue, New York, New York 10022, 20th
Floor, on May 28, 1997 at 11:00 a.m., local time, and at any and all
adjournments thereof as follows:
The shares of common stock represented by this Proxy will be voted in
accordance with the foregoing instructions. In the absence of any instructions,
such shares will be voted for the election of all the nominees listed in item I
and for the proposals in Items II, III and IV.
[See Reverse]
[ Side ]
<PAGE> 31
[ X ] Please mark your
votes as in this
example
FOR all nominees
listed below WITHOUT AUTHORITY
(except as marked to vote for all
to the contrary nominees listed
below) below
I. ELECTION OF [ ] [ ] Nominees:
DIRECTORS TIMOTHY M. AITKEN,
ROBERT W. FINE,
(INSTRUCTION: To withhold authority to vote for RICHARD A. YOKEN,
any individual nominee, write that nominee's LEWIS S. RANIERI and
name on the line set forth below.) SCOTT A. SHAY.
_____________________________________________
FOR AGAINST ABSTAIN
II. Proposal to ratify and approve an amendment [ ] [ ] [ ]
to the Company's 1992 Option Plan, as
described more fully in the Company's
Proxy Statement dated May 2, 1997.
III. Proposal to ratify and adopt the Company's [ ] [ ] [ ]
1997 Director Plan as described more fully
in the Company's Proxy Statement dated
May 2, 1997.
IV. Proposal to ratify the Board of Directors' [ ] [ ] [ ]
recommendation of Coopers & Lybrand L.L.P.,
certified public accountants, as independent
auditors of the Company for the fiscal year
ending October 31, 1997.
V. In their discretion, such other business as may properly come before the
Annual Meeting and any and all adjournments thereof.
The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of
Shareholders to be held on May 28, 1997, the Proxy Statement of the Company,
each dated May 2, 1997, and the Company's annual Report on Form 10-K for the
fiscal year ended October 31, 1996, each of which has been enclosed herewith.
The undersigned hereby revokes any proxy to vote shares of common stock of the
Company heretofore given by the undersigned.
Signature(s) _________________________________________ Dated _________________
Please date, sign exactly as your name appears on this Proxy and promptly
return in the enclosed envelope. In the case of joint ownership, each joint
owner must sign. When signing as guardian, executor, administrator, attorney,
trustee, custodian, or in any other similar capacity, please give full title.
If a corporation, sign in full corporate name by president or other authorized
officer, giving title, and affix corporate seal. If a partnership, sign in
partnership name by authorized person.
