<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended July 31, 1997
Commission File Number 1-11570
-------------------------------------------------------------
Transworld HealthCare, Inc.
-------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New York 13-3098275
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
555 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 750-0064
-------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
___ ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at September 11, 1997
<S> <C>
Common Stock 15,374,692 Shares
</TABLE>
<PAGE> 2
Transworld HealthCare, Inc.
Third Quarter Report On Form 10-Q
Table of Contents
<TABLE>
<CAPTION>
Part I. Page
<S> <C> <C>
Item 1. Financial Statements (Unaudited)............................................. 3
Condensed Consolidated Balance Sheets
July 31, 1997 and October 31, 1996........................... 4
Condensed Consolidated Statements of Operations
For the Three and Nine Months Ended July 31, 1997
and 1996..................................................... 5
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended July 31, 1997
and 1996..................................................... 6
Notes to Condensed Consolidated Financial
Statements................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................. 17
Part II.
Item 4. Submission of Matters to a Vote of Security Holders.......................... 31
Item 5. Other Information............................................................ 32
Item 6. Exhibits and Reports on Form 8-K............................................. 32
</TABLE>
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. This Quarterly Report contains certain forward
looking statements and information that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. The statements contained in this Quarterly Report relating to
matters that are not historical facts are forward looking statements that
involve risks and uncertainties, including, but not limited to, future demand
for the company's products and services, general economic conditions, government
regulation, competition and customer strategies, capital deployment, the impact
of pricing and reimbursement and other risks and uncertainties. Should one or
more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated or expected.
Page 2
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PART I
Item 1. Financial Statements (Unaudited)
The financial statements of Transworld HealthCare, Inc. (the "Company")
begin on page 4.
Page 3
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TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
July 31, October 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary investments $ 7,165 $ 4,598
Accounts receivable, less allowance for doubtful
accounts of $13,177 and $5,471 36,127 24,414
Inventories 3,203 1,829
Prepaid income taxes 1,096 600
Deferred income taxes 6,822 2,902
Prepaid expenses and other current assets 7,113 2,204
--------- -------
Total current assets 61,526 36,547
Property & equipment, net 8,226 3,934
Investment in Health Management, Inc., held for sale 25,000
Intangible assets, net of accumulated amortization of
$1,548 and $3,385 104,818 44,496
Other assets 4,255 5,750
--------- -------
Total assets $ 203,825 $90,727
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other current
liabilities $ 17,696 $ 8,544
Liabilities in connection with HMI transaction 10,985
Acquisitions payable 68 1,802
--------- -------
Total current liabilities 28,749 10,346
Long-term debt, including obligations under capital leases 86,389 12,505
Deferred income taxes and other 760 651
--------- -------
Total liabilities 115,898 23,502
--------- -------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized
2,000 shares, issued and outstanding - none
Common stock, $.01 par value; authorized
30,000 shares, issued and outstanding
15,117 and 9,940 shares 151 99
Additional paid-in capital 112,629 62,221
Translation adjustment (727)
Retained (deficit) earnings (24,126) 4,905
--------- -------
Total stockholders' equity 87,927 67,225
--------- -------
Total liabilities and stockholders' equity $ 203,825 $90,727
========= =======
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
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TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended July 31, Ended July 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net respiratory, medical equipment and supplies sales $ 14,696 $ 11,939 $ 40,150 $ 34,746
Net patient services 5,736 4,754 15,152 14,222
Net infusion services 3,007 2,543 9,103 7,434
-------- -------- -------- --------
Total revenues 23,439 19,236 64,405 56,402
-------- -------- -------- --------
Cost of revenues:
Respiratory, medical equipment and supplies sales 7,778 4,721 18,723 13,719
Patient services 2,636 2,570 7,419 7,517
Infusion services 2,160 1,524 6,171 4,423
-------- -------- -------- --------
Total cost of revenues 12,574 8,815 32,313 25,659
-------- -------- -------- --------
Gross profit 10,865 10,421 32,092 30,743
Selling, general and administrative expenses 12,811 8,627 29,815 24,770
One-time and special charges 34,433 34,433
Equity in losses of Health Management, Inc., net 296
-------- -------- -------- --------
Operating (loss) income (36,379) 1,794 (32,452) 5,973
Interest income ( 1,467) ( 21) ( 2,575) ( 48 )
Interest expense 1,603 1,312 3,716 3,897
-------- -------- -------- --------
(Loss) income before income taxes and
extraordinary loss (36,515) 503 (33,593) 2,124
(Benefit) provision for income taxes ( 6,128) 211 ( 4,562) 892
-------- -------- -------- --------
(Loss) income before extraordinary loss (30,387) 292 (29,031) 1,232
Extraordinary loss - early extinguishment of debt
(net of income tax benefit of $971) 1,342 1,342
-------- -------- -------- --------
Net loss $(30,387) $( 1,050) $(29,031) $( 110)
======== ======== ======== ========
(Loss) income per share of common stock from:
(Loss) income before extraordinary loss $( 1.89) $ .04 $( 2.24) $ .18
Extraordinary loss - early extinguishment of debt ( .19) ( .20)
-------- -------- -------- --------
Net loss $( 1.89) $( .15) $( 2.24) $( .02)
======== ======== ======== ========
Weighted average number of common shares outstanding 16,064 7,006 12,979 6,748
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5
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TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $( 29,031) $( 110)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,941 2,770
Provision for doubtful accounts 7,531 4,602
Equity in losses of Health Management, Inc. 637
One-time and special charges 34,433
Deferred income taxes (4,000)
Extraordinary loss - early extinguishment
of debt 2,313
Debt issuance costs ( 1,539) ( 3,373)
Changes in assets and liabilities:
Increase in accounts receivable ( 10,395) ( 9,195)
(Increase) decrease in inventories ( 63) 228
Increase in prepaid expenses and other assets ( 5,183) ( 642)
Increase (decrease) in accounts payable and other
liabilities 121 ( 4,065)
--------- --------
Net cash used in operating activities ( 4,548) ( 7,472)
--------- --------
Cash flows from investing activities:
Notes receivable issued ( 70)
Capital expenditures ( 1,437) ( 698)
Advances to and investment in Health Management, Inc. ( 36,684)
Payments received from Health Management, Inc. 2,032
Proceeds from sale of subsidiary, net of cash overdraft when sold 12,114
Purchase of subsidiaries, net of cash acquired ( 93,161)
Proceeds from termination of agreement with VIP 500
Payments on acquisition payable ( 1,734) (11,051)
--------- --------
Net cash used in investing activities (118,440) (11,749)
--------- --------
Cash flows from financing activities:
Proceeds from notes payable 10,000
Payments on notes payable ( 11) (10,000)
Proceeds from short-term debt 1,000
Payments on short-term debt ( 2,000)
Borrowing under revolving loan 96,847 14,982
Payments on revolving loan ( 22,983) (10,990)
Proceeds from long-term debt 47 18
Payments on long-term debt ( 254) (21,030)
Proceeds from stock issuance 50,650 38,351
Payments for stock issuance costs ( 135)
Stock options and warrants exercised, including tax benefit 494 206
--------- --------
Net cash provided by financing activities 124,655 20,537
--------- --------
Effect of exchange rate on cash 900
--------- --------
Increase in cash 2,567 1,316
Cash and temporary investments, beginning of period 4,598 915
--------- --------
Cash and temporary investments, end of period $ 7,165 $ 2,231
--------- --------
Supplemental cash flow information:
Cash paid for interest $ 2,540 $ 3,427
--------- --------
Cash paid for income taxes $ 2,301 $ 1,788
========= ========
Supplemental disclosure of non-cash
investing and financing activities:
Common stock issued for payment on acquisition payable $ 3,832
========
Details of businesses acquired in
purchase transactions:
Fair value of assets acquired $ 106,066
=========
Liabilities assumed and incurred $ 12,040
=========
Cash paid for acquisitions (including
related expenses) $ 94,026
Cash acquired 865
---------
Net cash paid for acquisitions $ 93,161
=========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
(Unaudited)
Note 1: Basis of Presentation
Transworld HealthCare, Inc. (the "Company") is a regional provider of a
broad range of alternate site health care services and products. The Company
provides the following services and products to patients in their homes or in an
outpatient setting: (i) respiratory therapy, home medical equipment and
specialized mail-order pharmaceuticals and medical supplies, including
respiratory and diabetic medications and supplies, wound care dressings and
ostomy and orthotic products; (ii) patient services, including nursing and
para-professional services and radiation therapy; and (iii) infusion therapy.
The Company also provides nursing and para-professional services, respiratory
therapy products and services, and dispenses a range of surgical products
nationwide in the United Kingdom.
The Condensed Consolidated Financial Statements included herein are
unaudited and include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations of the interim
period pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed financial statements
should be read in conjunction with the Company's Form 10-K for the year ended
October 31, 1996. Although the Company's operations are not highly seasonal, the
results of operations for the three and nine months ended July 31, 1997 and 1996
are not necessarily indicative of the operating results for the full year.
Prior year's financial statements have been reclassified to conform with the
current year's presentation.
For international operations, assets and liabilities are translated
using current exchange rates in effect at the balance sheet date of translation
and income statement items are translated using weighted average exchange rates
during the period. Resulting translation adjustments are recorded as a separate
component of stockholders' equity. Gains and losses resulting from foreign
currency transactions are included in determining net income.
Note 2: Earnings Per Share
Primary and fully diluted earnings per share are computed using the
weighted average number of shares of common stock outstanding, after giving
effect to issuable shares under certain acquisition agreements and dilutive
stock options and warrants using the treasury stock method. Fully diluted
earnings per share has not been presented as the dilutive effect is not
material.
Page 7
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 2: Earnings Per Share (cont.)
The earnings per share calculations for the three and nine months ended
July 31, 1997 and 1996 were computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31, NINE MONTHS ENDED JULY 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Loss) income before extraordinary loss $(30,387) $ 292 $(29,031) $ 1,232
Extraordinary loss - early extinguishment of
debt -- 1,342 -- 1,342
-------- ------- -------- -------
Net loss $(30,387) $(1,050) $(29,031) $ (110)
======== ======= ======== =======
Weighted average number of shares outstanding
during applicable periods 15,123 5,982 11,907 5,510
Weighted average number of shares
issuable per acquisition agreements 321 321 321 445
Incremental shares, after application of
treasury stock method, of stock options and
warrants 620 703 751 793
-------- ------- -------- -------
Shares used in calculation of net income per
common share 16,064 7,006 12,979 6,748
======== ======= ======== =======
Loss income per share of common stock from:
(Loss) income before extraordinary loss $ (1.89) $ .04 $ (2.24) $ .18
Extraordinary loss - early extinguishment of
debt (.19) (.20)
-------- ------- -------- -------
Net loss per common share $ (1.89) $ (.15) $ (2.24) $ (.02)
======== ======= ======== =======
</TABLE>
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share." SFAS No. 128 simplifies the computation of earnings per share
("EPS") and replaces primary EPS with basic EPS and fully diluted EPS with
diluted EPS. SFAS No. 128 is effective for annual and interim financial
statements issued after December 15, 1997 and earlier application is not
permitted. SFAS No. 128 requires the restatement of EPS data for all prior
periods. The Company has not yet determined the impact that this statement will
have on its EPS amounts when adopted.
Note 3: Business Combinations
ACQUISITIONS
OMNICARE
At the end of June 1997 Transworld HealthCare (UK) Limited ("Transworld
UK"), a wholly owned subsidiary of the Company acquired Omnicare Group plc
("Omnicare") pursuant to a recommended cash offer to acquire all the issued and
to be issued shares of Omnicare (not already owned by Transworld UK)) for
approximately $29,028, which was paid during July 1997. In addition 1,765 share
were purchased from Hyperion Partners II L.P. ("HPII") on
Page 8
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
May 30, 1997 for $2,857. Accordingly, the Company has included the results of
operations, financial position and cash flows of Omnicare in its consolidated
results effective July 1, 1997.
Omnicare provides respiratory equipment and services to patients at
home in the United Kingdom under the terms of contracts and licenses with
various United Kingdom National Health Service agencies. The Company also
dispenses and supplies a range of medical and surgical products, principally
ostomy products, to patients at home, as well as providing those patients with
advisory and other services through its network of regional care centers.
The total cost of the acquisition was allocated on the basis of the
fair value of the assets acquired and liabilities assumed and incurred.
Accordingly, assets and liabilities were assigned values of approximately
$16,082 and $8,905, respectively, with the excess of $24,708 allocated to
goodwill which is being amortized on a straight-line basis over forty years.
ALLIED MEDICARE LIMITED
Effective June 23, 1997 Transworld UK acquired all of the issued and
outstanding capital stock of Allied Medicare Limited ("Allied"), a privately
held provider of nursing and other care-giving services to home care patients
throughout 63 locations in the United Kingdom, for approximately $60,042.
Accordingly, the Company has included the results of operations, financial
position and cash flows of Allied in its consolidated results effective June 23,
1997.
The total cost of the acquisition was allocated on the basis of the
fair value of the assets acquired and liabilities assumed and incurred.
Accordingly, assets and liabilities were assigned values of approximately
$10,062 and $7,667, respectively, with the excess allocated to covenants not to
compete of $734 and goodwill of $56,913. The covenants and goodwill are being
amortized on a straight-line basis over three and forty years, respectively.
COMBINED PRO FORMAS
The following represents the unaudited pro forma results of operations and
related per share information assuming the Company acquired Omnicare and Allied
at the beginning of the respective periods presented. The pro forma results for
the nine months ended July 31, 1997 are based on the historical financial
statements of the Company for the nine months ended July 31, 1997 (including
Omnicare and Allied from the dates of acquisition), Omnicare for the eight
months ended June 30, 1997 and Allied for the thirty-six weeks ended June 22,
1997. The pro forma results for the nine months ended July 31, 1996 are based on
the historical financial statements of the Company and Omnicare for the nine
months ended July 31, 1996 and Allied for the thirty-six weeks ended July 21,
1996.
The unaudited pro forma information is not necessarily indicative either of the
results of operations that would have occurred had the acquisitions been made
on the dates indicated or that may occur in the future.
<TABLE>
<CAPTION>
Nine Months Ended
July 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Net revenues $ 89,361 $67,912
(Loss) income before extraordinary loss (28,354) 120
Net loss (28,354) (1,222)
(Loss) income per share of common stock
before extraordinary loss:
Primary (2.18) 0.02
Fully diluted (2.18) 0.02
Net loss per share of common stock:
Primary (2.18) (0.17)
Fully diluted (2.18) (0.18)
</TABLE>
Page 9
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
DISPOSITION
RADAMERICA
Effective July 31, 1997 the Company sold Radamerica, Inc.,
("Radamerica") for $12,100 plus additional amounts (estimated at $900) based
on accounts receivable collections. As part of the consideration for the
acquisition of Radamerica, the Company had issued 250 shares of its common
stock valued at $5,000 based on a $20 per share market price guarantee to the
selling shareholders of Radamerica. Per the agreement, the market price
guarantee of $8.25 was paid to the selling shareholders through issuance of
321,275 shares of common stock of the Company during August 1997.
Results for Radamerica have been included in the overall Company's
results for the three and nine months ended July 31, 1997. Accordingly, for
purposes of earnings per share calculations, issuable shares of the Company's
common stock under the per share market price guarantee have been included in
both primary and fully diluted earnings per share calculations.
The Company recognized a gain on the sale of Radamerica of
approximately $403. The gain on the sale has been recorded in one-time and
special charges (see Note 7).
TERMINATION OF PENDING ACQUISITIONS
VIP COMPANIES
On June 30, 1994, the Company entered into stock purchase agreements,
as amended, to acquire all of the issued and outstanding capital stock of VIP
Health Services, Inc. and Kwik Care, Ltd. (collectively, the "VIP Companies").
On July 23, 1997, the Company and the VIP Companies terminated the stock
purchase agreements principally due to delays in completing the transaction.
As a result of the termination of the agreements, the Company has taken
a pre-tax non-cash charge of approximately $1,622 during its third quarter of
fiscal 1997 relating to the termination of the transaction, a contract deposit
and other acquisition-related expenses. This charge has been recorded in
one-time and special charges (see Note 7).
Page 10
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
HMI
On November 13, 1996, the Company entered into a number of agreements
including a stock purchase agreement (the "Stock Purchase Agreement") and a
merger agreement (the "Merger Agreement") to acquire 100% of the issued and
outstanding stock of Health Management, Inc. ("HMI") in a series of
transactions. HMI is a Buffalo Grove, Illinois based provider of integrated
pharmacy management services to patients with chronic medical conditions and to
health care professionals, drug manufacturers and third-party payors involved in
such patients' care.
Also, on November 13, 1996, the Company acquired HMI's senior secured
indebtedness under the credit agreement between HMI and its senior lenders (the
"HMI Credit Agreement") for $21,263 directly from such lenders. HMI is currently
in default under the HMI Credit Agreement. Borrowings under the HMI Credit
Agreement bear interest at a rate (10.0% at July 31, 1997) which floats with the
Company's senior lending rate.
In mid January 1997, the Stock Purchase Agreement was completed,
pursuant to which the Company acquired 8,964 newly issued shares of HMI common
stock, representing approximately 49% of HMI's outstanding common stock for $1
per share or $8,964. The Company also received an option to purchase shares
representing up to an additional 2% of HMI's then outstanding common stock for
$1 per share, which expires on January 14, 1998.
Page 11
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
Page 12
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
The $9,714 investment in HMI as of January 31, 1997 represents 49% of
HMI's equity in net tangible assets and after fair value adjustment $15,835 was
preliminarily allocated to goodwill, which is being amortized on a straight-line
basis over thirty years.
The Merger Agreement, as amended on March 26, 1997, provides for the
acquisition by the Company of the remaining issued and outstanding common shares
of HMI, not previously owned by the Company for $.30 per share. Consummation of
the Merger Agreement is subject to various closing conditions, including
approval of the Company's lenders under the Credit Facility. On August 1,
1997, the Company announced that it was unable to obtain bank consent necessary
to conclude the Merger Agreement.
Page 13
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 3: Business Combinations (cont.)
On August 14, 1997, the Company entered into an agreement in principle
with Counsel Corporation ("Counsel") relating to the sale of all of the
businesses and operations of HMI. The agreement calls for the purchase of HMI
assets by Counsel for approximately $40,000. The transaction, which will be in
the form of an asset sale (the "Asset Sale") is expected to close on or prior to
the end of September 1997. The closing of the transaction is subject to the
consummation of the Merger Agreement. The Asset Sale is also subject to approval
of the Company's lenders under the Credit Facility (as defined in Note 4),
completion of definitive documentation and other customary closing conditions.
During the three months ended July 31, 1997, events and circumstances
indicated that the Company's investment in HMI might be impaired. Included in
those events was the recognition by HMI of a $31,000 charge related to the
impairment of certain facilities and the related goodwill, continuing
deterioration in HMI's financial performance, and an inability of the Company to
obtain the consent of its lenders under the Credit Facility to consummate the
Merger Agreement. As a result, on August 1, 1997, the Company announced that it
would be unable to complete the merger with HMI and that HMI and the Company
were actively pursuing alternative transactions.
Subsequent to July 31, 1997, the Company entered into discussions with
various parties regarding a potential transaction to sell HMI. As a result of
the Company's agreement in principle to sell substantially all of the businesses
and operations of HMI to Counsel, the Company was able to establish its best
estimate of the net realizable value of its investment in HMI. Based on the
proposed terms of the Asset Sale, the Company recorded a pre-tax charge of
$20,000 to adjust the carrying value of its investment in HMI to the estimated
net realizable value of $25,000, and to record the estimated costs, fees and
other expenses to complete the Asset Sale.
Realization of net cash proceeds of $25,000 from the HMI investment is
highly dependent upon the ultimate consummation of the HMI Asset Sale, and there
can be no assurance that the transaction will be completed or that it will be
completed on substantially the same terms as currently contemplated. If the
Asset Sale or any similar transaction is not completed, it is likely that HMI
would seek protection under the Federal Bankruptcy laws which would have a
materially adverse effect on the ultimate value recognized from the HMI
investment and require a revision to the estimate of net realizable value.
The acquisition of 49% of the outstanding shares of HMI common stock is
being accounted for by the Company under the equity method of accounting
(effective as of January 31, 1997). Equity in HMI net losses for the three
months ended July 31, 1997 have been accounted for in the reduction of the
investment in HMI to net realizable value.
For the years ended April 30, 1997 and 1996, HMI reported net sales of
$158,419 and $158,860, respectively and net losses of $66,099 and $10,927,
respectively. Included in the net loss for the year ended April 30, 1997 are
charges of $49,982, related to (i) a write-off for the impairment of certain
facilities and the related goodwill ($30,944); (ii) an additional provision
reflecting a change in the estimation of the allowance for doubtful accounts
($10,000); (iii) estimated costs related to the settlement of stockholder class
action litigation ($4,550); (iv) costs and other expenses related to the closing
or sale of three retail pharmacies, including a goodwill write-off ($2,813); (v)
costs associated with overpayments from New York State Medicaid ($1,400); and
(vi) estimated costs related to the settlement of a derivative lawsuit ($275).
Included in the net loss for the year ended April 30, 1996 are charges of
$16,840, related to (i) a write-off of medical device inventory ($2,840); (ii)
an additional provision reflecting a change in the estimation of the allowance
for doubtful accounts ($8,400); (iii) costs associated with organizational
consideration and other cost reduction programs ($3,600); and (iv) professional
fees related to HMI's litigation and restatement of fiscal 1995 financial
statements ($2,000).
The table below contains summarized financial information of HMI as of
July 31, 1997 for balance sheet data and for the six months ended July 31, 1997
for statement of operations data based on unaudited financial information
provided by HMI.
<TABLE>
<CAPTION>
Condensed Balance Sheet Data July 31, 1997
- ---------------------------- -------------
<S> <C>
Current assets $36,123
Noncurrent assets 2,590
Current liabilities 62,113
Noncurrent liabilities 585
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
Condensed Statement of Operations Data July 31, 1997
- -------------------------------------- ----------------
<S> <C>
Net revenues $ 77,041
Gross profit 13,408
Operating loss (38,597)
Net loss (38,089)
</TABLE>
Note 4: Debt
The Company amended its $100,000 senior secured revolving credit
facility (the "Credit Facility") during the nine months ended July 31, 1997 to
accommodate the sale of the Additional Shares and the AP Shares (as defined
herein), the purchase of HMI's senior debt, 49% of HMI's common stock, and
certain working capital advances to HMI, and the purchase of Omnicare and
Allied.
Page 14
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TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 4: Debt (cont.)
On July 31, 1997 the Company used the $12,100 it received from the
disposition of Radamerica to reduce outstanding borrowings under the Credit
Facility.
At July 31, 1997 the Company was in technical default of the Credit
Facility due to non-compliance with certain financial covenants (interest
coverage, debt to EBITDA and minimum EBITDA) caused by the recording of the
one-time and special charges ($34,433,000) and additional bad debt expense
($3,323,000) related to the business realignment (Note 7). The Company has
received approval from the required banks under the Credit Facility for
modifications to the Credit Agreement to accommodate these charges, bringing
the Company into compliance with the Credit Facility. Excluding these charges,
the Company would have been in compliance with all financial covenants contained
in the Credit Facility at July 31, 1997.
Note 5: Stockholders' Equity
On April 21, 1997, HPII purchased an additional 899 shares of the
Company's common stock at $11.125 per share and Hyperion TW Fund L.P. purchased
4,117 shares of the Company's common stock at $9.875 per share for an aggregate
purchase price of $50,650 (collectively, the "Additional Shares").
On March 26, 1997, HPII agreed to invest an additional $12,187 of
equity capital, representing a purchase of 1,234 shares (the "AP Shares") at
$9.875 per share, the consideration for which will be comprised of the transfer
to the Company of HPII's receivables from HMI, representing certain trade
payables of HMI previously acquired by HPII. The Company has reached an
agreement in principle with HPII to amend the value of AP Shares to be issued
for the HMI receivables with such value to be based on a formula geared to the
net cash proceeds ultimately realized by the Company upon sale of the HMI
assets. The value per share of the AP Shares will be determined by the market
value of the Company's common stock on the date of issuance. The value of the AP
Shares is currently estimated to be approximately $8,000. Completion of this
transaction is subject to satisfactory documentation of the amended agreement
and customary closing conditions including, but not limited to, shareholder
approval and approval of the Company's senior lenders.
Payment of the Radamerica per share price guarantee payment in August
1997 will result in the reclassification of $3 from additional paid-in capital
to common stock.
Page 15
<PAGE> 16
TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)
Note 6: Commitments and Contingencies
On November 2, 1994, an action was filed in the Supreme Court of the
State of New York, County of Westchester against the Company, alleging that one
of its drivers negligently caused the death of the plaintiff's husband while
operating his motor vehicle during a delivery for the Company. The plaintiffs
were seeking $12,580 in damages. The case was settled on April 16, 1997 for
$760, of which the Company's portion amounted to $710, and was paid on May 6,
1997 by the Company's insurance company. Since this settlement was within the
policy limits of the Company's insurance policies it did not have any effect on
the Company's consolidated financial position, results of operations or cash
flows.
On July 11 and July 22, 1997, the Company's Respiflow and MK Diabetic
subsidiaries, respectively, each received a letter (the "Audit Letter") from
the Office of Audit Services (a division of the U.S. Department of Health and
Human Services, Office of Inspector General) ("OIG"). The Audit Letter
indicates, among other things, that the OIG is conducting an industry-wide
audit of marketing fees and commissions paid from pharmacies to durable medical
equipment companies. The company is cooperating fully with the OIG and has
produced documentation which it believes is responsive to the requests set
forth in each of the Audit Letters. While the Company believes that its former
arrangements with durable medical equipment suppliers do not violate any
Federal or state laws, it cannot predict whether the audit will ultimately
result in any liability to the government and in such event, the amount thereof.
See Management's Discussion and Analysis of Financial Condition and
Results of Operations -- "Liquidity and Capital Resources" for litigation and
contingencies regarding HMI.
Note 7: Business Realignment
The Company took a number of significant steps during the three months
ended July 31, 1997 to define its business as a focused regional home health
care provider and specialty pharmacy and medical supply distributor in the
United States and an integrated national provider of home and alternate site
health care products and services in the United Kingdom. These steps included
(i) selling non-core assets (i.e.: Radamerica); (ii) exiting businesses that
were deemed not to have a potential to earn an adequate return on capital
employed over the long term (wound care and orthotic product lines in the
continental United States, as well as the Company's pulmonary rehabilitation
center in Cherry Hill, New Jersey); (iii) entering into an agreement in
principle to sell the assets of HMI; and (iv) terminating the agreements to
purchase the VIP Companies.
For the three and nine months ended July 31, 1997 the Company incurred
pre-tax one-time and special charges in relation to these actions of $34,433,
made up of the following items: (i) $20,000 related to the impairment of the
investment in HMI as well as to record estimated costs, fees and other expenses
related to the anticipated sale of the HMI assets (Note 3); (ii) $12,079 for the
write-off of goodwill and other intangible assets related to the decision to
exit substantially all of DermaQuest's product lines in the continental United
States (principally wound care and orthotics); (iii) $1,622 for the termination
of the agreements to purchase the VIP Companies (Note 3); (iv) $437 principally
for the write-off of goodwill and other intangible assets and estimated costs
associated with the closure of the Company's pulmonary rehabilitation center in
Cherry Hill, New Jersey; and (v) $698 of other charges, partly offset by a gain
of $403 on the sale of Radamerica.
In addition to these one-time and special charges, the Company
recognized additional bad debt expense of $3,323 principally related to its
DermaQuest product lines ($2,360) and pulmonary rehabilitation center ($663),
which is reflected in selling, general and administrative expense.
Note 8: Recent Accounting Pronouncements
In June 1997 SFAS No. 130, "Reporting Comprehensive Income," was
issued and established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in the
financial statements. This statement requires that all items that are
recognized under accounting standards and components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 addresses disclosure issues; and,
therefore, will not have any effect on the financial position or results of
operations of the Company. The Company is in the process of evaluating the
statement's implementation. This statement is effective for fiscal years
beginning after December 15, 1997.
Also in June 1997 the FASB issued Statement 131, "Disclosures About
Segments of an Enterprise and Related Information." This Statement, which
supersedes Statement 14, "Financial Reporting for Segments of a Business
Enterprise," changes the way public companies report information about segments
by moving to the management approach to segment reporting. In addition, the
statement has requirements relating to disclosure of products, services,
customers, and the material countries in which the entity holds assets and
reports revenues. As with SFAS No. 130 this statement addresses disclosure
issues and therefore will not have an effect in the Company's financial
position or results of operations. The Statement is effective for periods
beginning after December 15, 1997.
Page 16
<PAGE> 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company took a number of significant steps during the three months
ended July 31, 1997 to realign its business as a focused regional home health
care provider and specialty pharmacy and medical supply distributor in the
United States and an integrated national provider of home and alternate site
health care products and services in the United Kingdom. These steps included:
(i) selling non-core assets (i.e.: Radamerica); (ii) exiting businesses that
were deemed not to have a potential to earn an adequate return on capital
employed over the long term (wound care and orthotic product lines in the
continental United States, as well as the Company's pulmonary rehabilitation
center in Cherry Hill, New Jersey); (iii) entering into an agreement in
principle to sell the assets of HMI (the "HMI Asset Sale"); and (iv) terminating
the agreements to purchase the VIP Companies. In relation to these actions, the
Company has recorded one-time and special charges of $34,433,000 (see "One-Time
and Special Charges") and additional bad debt expense of $3,323,000 (see
"Results of Operations"). Despite special charges, the Company expects to
generate net cash proceeds of approximately $38,000,000 through asset sales
($12,100,000 of which was received on July 31, 1997 from the sale of
Radamerica), net of approximately $214,000 which represents the total expected
pre-tax cash outflows related to the charges described above (see "Liquidity
and Capital Resources").
In addition to this restructuring and refocusing of its United States
operations, the Company made significant strides toward becoming one of the only
integrated national providers of home and alternative site health care in the
United Kingdom ("UK") through the purchase of Omnicare Group plc ("Omnicare")
for approximately $31,000,000 and Allied Medicare Limited ("Allied") for
approximately $60,000,000. Omnicare provides respiratory equipment and services
and supplies a range of medical and surgical products to patients at home
throughout the UK through its network of seven regional facilities. Allied is a
national provider of nursing and other care giving services to home care
patients with 63 locations throughout the UK. The Company intends to utilize its
recently acquired UK operations as a platform to introduce new products and
services to the UK market which have already been widely accepted in the United
States, as well as for add-on acquisitions. The Company believes the UK home
health care market is less developed than in the United States and presents a
significant opportunity to leverage its existing expertise in home health care.
Page 17
<PAGE> 18
Results of Operations
THREE MONTHS ENDED JULY 31, 1997 VS. THREE MONTHS ENDED JULY 31, 1996
Revenues. Total revenues increased by $4,203,000 or 21.8% to
$23,439,000 for the three months ended July 31, 1997 from $19,236,000 for the
three months ended July 31, 1996. This increase was primarily attributable to
the inclusion of results for Omnicare ($1,981,000) and Allied ($1,160,000)
(sometimes collectively referred to herein as "Transworld UK") as well as to an
increase in the number of patients serviced in the Company's specialty
mail-order pharmacy and medical supplies operations ($671,000) and the inclusion
of U.S. HomeCare Infusion Therapy Services Corporation of New Jersey ("USNJ")
($1,047,000). (See below for discussion of anticipated reimbursement changes).
Cost of Revenues. Cost of revenues increased by $3,759,000 or 42.6% to
$12,574,000 for the three months ended July 31, 1997 from $8,815,000 for the
three months ended July 31, 1996. As a percentage of total revenues, cost of
revenues increased to 53.6% from 45.8% for the three months ended July 31, 1997
and 1996, respectively. Cost of revenues as a percentage of sales increased for
respiratory, medical equipment and supplies sales (52.9% for the three months
ended July 31, 1997 versus 39.5% for the corresponding 1996 period), increased
for infusion services (71.8% for the three months ended July 31, 1997 versus
59.9% for the corresponding 1996 period) and decreased for patient services
(46.0% for the three months ended July 31, 1997 versus 54.1% for the
corresponding 1996 period). The increases in the respiratory, medical equipment
and supplies sales and the infusion services costs are primarily attributable to
an increase in the mix of higher cost products at the Company's specialty mail
order pharmacy and medical supplies operations and therapies with higher product
costs at its infusion therapy operations.
Cost of revenues as a percentage of revenues for patient services is
expected to be positively impacted by the inclusion of Allied which has a cost
of revenues of approximately 30% versus 54.1% for the Company's 1996 historical
period.
Pursuant to the recent passage of the Balanced Budget Act, a 10%
reduction in Medicare reimbursement of diabetic testing strips will become
effective January 1, 1998. This reduction is expected to increase cost of
revenues as a percentage of revenues and decrease gross profit for respiratory,
medical equipment and supplies sales effective with the reimbursement reduction.
The amount of the impact will be dependent upon product mix, the amount of
product cost concessions that the Company is able to obtain from its suppliers
and the number of patients serviced whose primary insurance coverage is
Medicare.
Selling, General and Administrative Expenses. Selling, general and
administrative ("SG&A") expenses increased by $4,184,000 to $12,811,000 (48.5%)
for the three months ended July 31, 1997 from $8,627,000 for the comparable 1996
period. This increase was principally due to an increase in SG&A expenses at the
Company's specialty mail-order pharmacy and medical supplies operations
($2,079,000) which increased primarily due to additional bad debt expense for
DermaQuest product lines ($2,360,000). Also contributing to the increase in SG&A
was the inclusion of Transworld UK ($891,000) and additional bad debt expense
for the Company's pulmonary rehabilitation center in Cherry Hill, New Jersey
($663,000).
Page 18
<PAGE> 19
Results of Operations (cont.)
One-Time and Special Charges. As a result of the Company's realignment
of its business discussed under "General", the Company recorded one-time and
special charges of $34,433,000 during the three months ended July 31, 1997
related to the following items: (i) $20,000,000 non-cash charge related to the
impairment of the investment in HMI as well as to record estimated costs, fees
and other expenses related to the completion of the HMI Asset Sale (Note 3);
(ii) $12,079,000 non-cash charge for the write-off of goodwill and other
intangible assets related to exiting the wound care and orthotic product lines
of the Company's DermaQuest operations; (iii) $1,622,000 non-cash charge for the
termination of the agreements to purchase the VIP Companies; (iv) $437,000
charge principally for the write-off of goodwill and other intangible assets and
estimated costs associated with the closure of the Company's pulmonary
rehabilitation center in Cherry Hill, New Jersey; and (v) $698,000 of other
charges, partly offset by a $403,000 gain on the sale of Radamerica.
Equity in Losses of Health Management, Inc. ("HMI"). Equity in losses
of HMI for the three months ended July 31, 1997 were accounted for in adjusting
the investment in HMI to estimated net realizable value and included as a
component of the non-cash charge recorded during the period.
Interest Income. Interest income increased by $1,446,000 to $1,467,000
for the three months ended July 31, 1997 from $21,000 for the comparable 1996
period. This increase was attributable to interest income earned under the HMI
Credit Agreement (as defined herein) ($773,000) in the third quarter of 1997 and
interest earned ($490,000) on the funds received from HPII in connection with
the purchase of the Company's common stock.
Interest Expense. Interest expense increased by $291,000 to $1,603,000
for the three months ended July 31, 1997 from $1,312,000 for the comparable 1996
period. This increase in interest expense was primarily due to the increase in
borrowings under the Company's Credit Facility (defined herein).
(Benefit) provision for Income Taxes. (Benefit) provision for income
taxes decreased the Company's net loss by $6,128,000 for the three months ended
July 31, 1997. The Company's effective tax rate was 16.8% for the three months
ended July 31, 1997 compared to 42.0% for the same period in 1996. The decrease
from the prior year is attributable to a lower statutory tax rate for Transworld
UK (31.0%) and tax benefits from the one-time and special charges described
above.
Page 19
<PAGE> 20
Results of Operations (cont.)
Net Loss. As a result of the foregoing, the Company incurred a net loss
of $30,387,000 for the three months ended July 31, 1997 compared to a net loss
of $1,050,000 for the three months ended July 31, 1996. Excluding the
$34,433,000 in one-time and special charges and $3,323,000 of additional bad
debt expense, net of a $6,675,000 tax benefit, the Company would have recorded
net income of $694,000.
NINE MONTHS ENDED JULY 31, 1997 VS. NINE MONTHS ENDED JULY 31, 1996
Revenues. Total revenues increased by $8,003,000 or 14.2% to
$64,405,000 for the nine months ended July 31, 1997 from $56,402,000 for the
nine months ended July 31, 1996. This increase was primarily attributable to the
inclusion of Omnicare ($1,981,000) and Allied ($1,160,000) and an increase of
$3,191,000 or 10.2% in net respiratory, medical equipment and supplies sales
resulting from an increase in the number of patients serviced in the Company's
specialty mail-order pharmacy and medical supplies operations. Net infusion
service revenues also increased by $1,669,000 or 22.5% due primarily to the
inclusion of USNJ for the nine months ended July 31, 1997. (See below for
discussion of anticipated reimbursement changes).
Cost of Revenues. Cost of revenues increased by $6,654,000 or 25.9% to
$32,313,000 for the nine months ended July 31, 1997 from $25,659,000 for the
nine months ended July 31, 1996. As a percentage of total revenues, cost of
revenues increased to 50.2% from 45.5% for the nine months ended July 31, 1997
and 1996, respectively. Cost of revenues as a percentage of sales increased for
respiratory, medical equipment and supplies sales (46.6% for the nine months
ended July 31, 1997 versus 39.5% for the corresponding 1996 period), increased
for infusion services (67.8% for the nine months ended July 31, 1997 versus
59.5% for the corresponding 1996 period) and decreased for patient services
(49.0% for the nine months ended July 31, 1997 versus 52.9% for the
corresponding 1996 period). The increases in the respiratory, medical equipment
and supplies sales and the infusion services costs are primarily attributable
to an increase in the mix of higher cost products at its specialty pharmacy
operations and therapies with higher product costs at its infusion therapy
operations.
Cost of revenues as a percentage of revenues for patient services is
expected to be positively impacted by the inclusion of Allied which has a cost
of revenues of approximately 30% versus 52.9% for the Company's 1996 historical
period.
Pursuant to the recent passage of the Balanced Budget Act, a 10%
reduction in Medicare reimbursement of diabetic testing strips will become
effective January 1, 1998. This reduction is expected increase cost of revenues
as a percentage of revenues and decrease gross profit for respiratory, medical
equipment and supplies sales effective with the reimbursement reduction. The
amount of the impact will be dependent upon product mix, the amount of product
cost concessions that the Company is able to obtain from its suppliers and
number of patients serviced whose primary insurance coverage is Medicare.
Selling, General and Administrative Expenses. SG&A expenses increased
by $5,045,000 to $29,815,000 for the nine months ended July 31, 1997 from
$24,770,000 for the comparable 1996 period. This increase was principally due to
an increase in SG&A expenses at the Company's specialty mail-order pharmacy and
medical supplies operations ($2,959,000) which increased primarily due to
additional bad debt expense for DermaQuest product lines ($2,360,000). Also
contributing to the increase in SG&A was the inclusion of Transworld UK
($891,000) and additional bad debt expense for the Company's pulmonary
rehabilitation center in Cherry Hill, New Jersey ($663,000).
Page 20
<PAGE> 21
Results of Operations (cont.)
One-Time and Special Charges. The Company recorded one-time and special
charges of $34,433,000 during the three months ended July 31, 1997 related to
the following items: (i) $20,000,000 non-cash charge related to impairment of
the investment in HMI as well as to record estimated costs, fees and other
expenses related to completion of the HMI Asset Sale (Note 3); (ii) $12,079,000
non-cash charge for the write-off of goodwill and other intangible assets
related to exiting the wound care and orthotic product lines of the Company's
DermaQuest subsidiary; (iii) $1,622,000 non-cash charge for the termination of
the agreements to purchase the VIP Companies; (iv) $437,000 charge for closure
of the Company's pulmonary rehabilitation center in Cherry Hill, New Jersey; and
(v) $698,000 of other charges, partly offset by a $403,000 gain on the sale of
Radamerica.
Equity in Losses of HMI. Equity in losses of HMI was $296,000 for the
nine months ended July 31, 1997 versus $0 for the comparable 1996 period. This
represents 49% of HMI's losses for the six months ended July 31, 1997. The 49%
interest in HMI was acquired in mid January 1997 and included in the results of
operations effective February 1, 1997. Equity in losses of HMI for the three
months ended July 31, 1997 were accounted for in adjusting the investment in HMI
to estimated net realizable value and was included as a component of the
non-cash charge recorded during the period.
Interest Income. Interest income increased by $2,527,000 to $2,575,000
for the nine months ended July 31, 1997 from $48,000 for the comparable 1996
period. This increase was primarily attributable to interest income earned,
after the elimination of intercompany interest (49%) for the six months ended
July 31, 1997, under the HMI Credit Agreement (as defined herein) ($796,000) for
the nine months of 1997 and interest earned on the funds received from HPII in
connection with the purchase of the Company's common stock (see Note 5).
Interest Expense. Interest expense, decreased by $181,000 to $3,716,000
for the nine months ended July 31, 1997 from $3,897,000 for the comparable 1996
period. This decrease was primarily attributable to interest expense
($1,040,000) in the nine months ended July 31, 1996 on a $10,000,000
subordinated loan which was repaid on July 31, 1996 partially offset by an
increase in interest expense ($880,000) due to increased borrowings under the
Company's Credit Facility (defined herein).
(Benefit) Provision for Income Taxes. (Benefit) Provision for income
taxes as a percentage of income before income taxes was 13.8% for the nine
months ended July 31, 1997 and 42.0% for the nine months ended July 31, 1996.
The decrease from the prior year is attributable to a lower statutory tax rate
for Transworld UK (31.0%) and the benefits received from the one-time and
special charges previously mentioned.
Net Loss. As a result of the foregoing, the Company incurred a net loss
of $29,031,000 for the nine months ended July 31, 1997 compared to a net loss of
$110,000 for the nine months ended July 31, 1996. Excluding the Company's share
of HMI's losses for the three months ended April 30, 1997, amounting to $637,000
(excluding a $341,000 reduction in interest income), the $34,433,000 in one-time
and special charges and $3,323,000 of additional bad debt expense, net of a
$6,675,000 tax benefit, the Company would have recorded net income of
$2,687,000.
Page 21
<PAGE> 22
Liquidity and Capital Resources
During the nine months ended July 31, 1997, the Company utilized
$130,984,000 ($118,440,000 net of proceeds from asset sales and other
miscellaneous transactions) in investing activities as follows: $93,161,000 for
the acquisition of the UK operations (Omnicare and Allied); $34,652,000 for the
purchase of 49% of HMI and HMI's senior debt and related advances (the "HMI
Investments"); $1,734,000 for acquisitions payable; and $1,437,000 for capital
expenditures. In addition, the Company utilized $4,548,000 for operating
activities (primarily increases in accounts receivable of $2,864,000.
Substantially all of the financing for operating and investing activities was
provided by borrowings under the Company's Credit Facility of $73,864,000, the
equity investment by HPII and Hyperion TW Fund L.P. aggregating $50,650,000 and
proceeds of $12,100,000 from the sale of Radamerica.
The Company also recorded one-time and special charges of $34,433,000
and additional bad debt expense of $3,323,000 related to a number of steps to
realign its business (see "General"). As a result of these actions, the Company
expects to generate net cash proceeds of approximately $38,000,000 from asset
sales through the sale of Radamerica-$13,000,000 ($12,100,000 of which was
received on July 31, 1997), and $25,000,000 through the HMI Asset Sale. The net
pre-tax cash outflow related to the $37,756,000 of charges described above is
approximately $214,000.
Realization of net cash proceeds of $25,000,000 from HMI is highly
dependent upon the ultimate consummation of the HMI Asset Sale, and there can be
no assurance that the transaction will be completed or that it will be completed
on substantially the same terms as currently contemplated. If the HMI Asset Sale
or any similar transaction is not completed, it is likely that HMI would seek
protection under the Federal Bankruptcy laws which would have a materially
adverse effect on the ultimate amount of cash recognized from HMI.
Credit Facility. Loans under the Company's $100,000,000 senior secured
revolving credit facility (the "Credit Facility") are collateralized by, among
other things, a lien on substantially all of the Company's and its subsidiaries'
assets, a pledge of the Company's ownership interest in its subsidiaries and
guaranties by the Company's subsidiaries. The Credit Facility provides that
subject to the terms thereof, the Company may make borrowings either at the Base
Rate (as defined in the Credit Facility), of 8.50% (at July 31, 1997) plus 1% or
the Eurodollar Rate, plus 2% (5.69% at July 31, 1997). As of September 10, 1997,
the Company had outstanding $86,355,000 under the Credit Facility. Availability
under the Credit Facility was $13,645,000 as of September 10, 1997.
Subject to certain exceptions, the Credit Facility prohibits or
restricts, among other things, the incurrence of liens, the incurrence of
indebtedness, certain fundamental corporate changes, dividends, the making of
specified investments and certain transactions with affiliates. In addition, the
Credit Facility contains affirmative and negative financial covenants
customarily found in agreements of this kind, including the maintenance of
certain financial ratios, such as interest coverage, debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA") and minimum EBITDA.
At July 31, 1997 the Company was in technical default of the Credit
Facility due to non-compliance with certain financial covenants (interest
coverage, debt to EBITDA and minimum EBITDA) caused by the recording of the
one-time and special charges ($34,433,000) and additional bad debt expense
($3,323,000) related to the business realignment. The Company has received
approval from the required banks under the Credit Facility for modifications to
the Credit Agreement to accommodate these charges, bringing the Company in to
compliance with the Credit Facility. Excluding these charges, the Company would
have been in compliance with all financial covenants contained in the Credit
Facility at July 31, 1997.
The Company amended the Credit Facility during the nine months ended
July 31, 1997 to accommodate the sale of the Additional Shares and the AP Shares
(as defined in Note 5 to the Condensed Consolidated Financial Statements), the
HMI Investments, and the purchase of Omnicare and Allied.
Hyperion Transaction. On April 21, 1997, HPII purchased 898,877 shares
of the Company's common stock at $11.125 per share and Hyperion TW Fund L.P.
purchased 4,116,456 shares of the Company's common stock at $9.875 per share for
an aggregate purchase price of $50,650,000 (collectively, the "Additional
Shares"). In addition, the Company and HPII have reached agreement in principle
with regard to modifying the terms of the issuance of the AP Shares (See Note 5
to the Condensed Consolidated Financial Statements).
Accounts Receivable. The Company maintains a cash management program
that focuses on the reimbursement function, as growth in accounts receivable has
been the main operating use of cash historically. At July 31, 1997 and October
31, 1996, $36,127,000 (17.7%) and $24,414,000 (26.9%), respectively, of the
Company's total assets consisted of accounts receivable all of which are
substantially from third-party payors. Such payors generally require substantial
documentation in order to process claims. The collection time for accounts
receivable is typically the longest for services that relate to new patients or
additional services requiring medical review for existing patients.
Accounts receivable increased by $11,713,000 from October 31, 1996 to
July 31, 1997 primarily due to the inclusion of Transworld UK ($10,715,000) and
an increase in accounts receivable at the Company's specialty mail-order
pharmacy and medical supply operations ($2,398,000).
During fiscal 1996 and during the first nine months of 1997, the
Company experienced a significant increase in accounts receivable at one of its
specialty mail-order pharmacy and medical supplies operations, DermaQuest, Inc.
("DermaQuest"), whose main product lines include wound care and orthotic
products. The Medicare program, to whom substantially all DermaQuest claims are
initially submitted for payment, has subjected these claims to an extensive
review process and, in many cases, has required DermaQuest to pursue payment
through the fair hearing process of the applicable Medicare intermediary. This
has created significant delays in payments, in many cases extending beyond
twelve months, leading to the significant buildup in accounts receivable with
the corresponding negative impact on cash
Page 22
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Liquidity and Capital Resources (cont.)
flow. The Company believes that this trend will continue through the remainder
of the 1997 fiscal year. The Company conducted a review of the DermaQuest
receivables during the quarter ended July 31, 1997 in connection with the
decision to discontinue these product lines in the continental United States
and, as a result, established additional reserves of $2,360,000.
In establishing the net realizable value of its accounts receivable for
DermaQuest, the Company has relied on its historical payment experience which
includes its highly favorable outcomes in the fair hearing process. The Company
believes that based on such prior favorable payment experience, current
regulations and its billing and related documentation practices, and third
quarter review, the DermaQuest accounts receivable reflect the net realizable
value of these receivables.
Management's goal is to maintain accounts receivable levels equal to or
less than industry average, which would tend to mitigate the risk of recurrence
of negative cash flows from operations by reducing the required investment in
accounts receivable and thereby increasing cash flows from operations. Days
sales outstanding ("DSOs") is a measure of the average number of days taken by
the Company to collect its accounts receivable, calculated from the date
services are rendered. At July 31, 1997, and October 31, 1996, the Company's
average DSOs were 92 and 109, respectively. The decrease in DSO's was primarily
due to the inclusion of the UK operations which tend to have DSO's generally
less than those in the United States. As the proportion of third-party payors'
claims related to alternate site health care increases, the Company believes
that third-party payors are likely to increase their review of such claims, the
effect of which would be to generally increase DSO's.
Page 23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES (Cont.)
Radamerica Price Support Payment. In connection with the disposition
of Radamerica, the Company settled the Radamerica price support payment per the
acquisition agreement with the issuance of 321,275 shares on August 4, 1997.
Page 24
<PAGE> 25
Liquidity and Capital Resources (cont.)
VIP Companies. On July 23, 1997, the Company and the VIP Companies
terminated the stock purchase agreements. The Company has taken a pre-tax
non-cash charge of $1,622,000 during its third quarter of fiscal 1997 relating
to the termination of the transaction and other acquisition-related expenses.
Pending HMI Acquisition. On November 13, 1996, the Company acquired the
senior secured indebtedness of HMI under its credit agreement (the "HMI Credit
Agreement") from HMI's senior lenders for $21,263,000. HMI is currently in
default under the HMI Credit Agreement.
On November 13, 1996, the Company and HMI also entered into a stock
purchase agreement, as amended (the "Stock Purchase Agreement"), pursuant to
which on January 14, 1997, the Company acquired 8,964,292 shares of HMI common
stock, representing approximately 49% of HMI's outstanding common stock for a
cash purchase price of $8,964,292. On November 13, 1996, HMI also issued to the
Company an option (the "Option"), until January 14, 1998, to purchase newly
issued shares representing up to an additional 2% of HMI's then outstanding
common stock for a purchase price of $1.00 per share.
On November 13, 1996, the Company and HMI also entered into an
agreement and plan of merger, as amended (the "Merger Agreement"), whereby each
outstanding share of HMI common stock not already owned by the Company will be
acquired by the Company at a price of $.30 per share. Consummation of the Merger
Agreement is subject to various closing conditions, including approval of the
Company's lenders under the Credit Facility. On August 1, 1997, the Company
announced that it was unable to obtain bank consent necessary to conclude the
Merger Agreement.
Page 25
<PAGE> 26
Liquidity and Capital Resources (cont.)
On August 14, 1997, the Company announced that it entered into an
agreement with Counsel Corporation ("Counsel") relating to the sale of all of
the businesses and operations of HMI. The agreement calls for the purchase of
HMI assets by Counsel for approximately $40,000,000. The transaction, which will
be in the form of an asset sale, is expected to close on or prior to the end of
September 1997. The closing of the transaction is subject to the purchase of HMI
by the Company. The closing of the transaction is subject to approval of the
Company's lenders under the Credit Facility.
During the three months ended July 31, 1997, events and circumstances
indicated that the Company's investment in HMI might be impaired. Included in
those events was the recognition by HMI of a $31,000,000 charge related to the
impairment of certain facilities and the related goodwill, continuing
deterioration in HMI's financial performance, and an inability of the Company to
obtain the consent of its lenders under the Credit Facility to consummate the
Merger Agreement. As a result, on August 1, 1997, the Company announced that it
would be unable to complete the merger with HMI and that HMI and the Company
were actively pursuing alternative transactions.
Subsequent to July 31, 1997, the Company entered into discussions with
various parties regarding a potential transaction to sell HMI. As a result of
the Company's agreement in principle to sell substantially all of the businesses
and operations of HMI to Counsel, the Company was able to establish its best
estimate of the net realizable value of its investment in HMI. Based on the
proposed terms of the Asset Sale, the Company recorded a pre-tax charge of
$20,000,000 to adjust the carrying value of its investment in HMI to the
estimated net realizable value of $25,000,000 and to record the estimated costs,
fees and other expenses to complete the Asset Sale.
Realization of net cash proceeds of $25,000,000 from the HMI investment
is highly dependent upon the ultimate consummation of the HMI Asset Sale, and
there can be no assurance that the transaction will be completed or that it will
be completed on substantially the same terms as currently contemplated. If the
Asset Sale or any similar transaction is not completed, it is likely that HMI
would seek protection under the Federal Bankruptcy laws which would have a
materially adverse effect on the ultimate value recognized from the HMI
investment and require a revision to the estimate of net realizable value.
Page 26
<PAGE> 27
Liquidity and Capital Resources (cont.)
Litigation. On November 2, 1994, an action was filed in the Supreme
Court of the State of New York, County of Westchester by Celia M. Consiglio,
individually and as administratrix of her husband's estate against the Company,
alleging that one of its drivers negligently caused the death of the plaintiff's
husband while operating his motor vehicle during a delivery for the Company. The
plaintiffs were seeking $12,580,000 in damages. The case was settled on April
16, 1997 for $760,000, of which the Company's portion amounted to $710,000, and
was paid on May 6, 1997 by the Company's insurance company. Since this
settlement was within the policy limits of the Company's insurance policies it
had no effect on the Company's consolidated financial position, results of
operations or cash flows.
The following information relating to certain legal proceedings
concerning HMI is derived from information contained in the HMI Form 10-K for
the year ended April 30, 1997 filed with the Commission on or about September 4,
1997. The information contained herein is qualified in its entirety by reference
to the HMI Form 10-K.
HMI and certain of its former directors and officers and its outside
auditors, BDO Seidman, LLP, have been named as defendants in a consolidated
class action securities fraud lawsuit filed on February 29, 1996 in the United
States District Court for the Eastern District of New York entitled In re Health
Management, Inc. Securities Litigation, Master File No. 96 Civ. 0889 (ADS). This
consolidated action alleges claims under Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 arising out of alleged misrepresentations and
omissions by HMI in connection with certain of its previous securities filings.
The consolidated action purports to represent a class of persons who purchased
HMI shares of common stock between August 25, 1994 and February 27, 1996, the
date HMI announced that it would have to restate certain of its financial
statements. The consolidated actions sought unspecified monetary damages
reflecting the decline in the trading price of the HMI shares of common stock
that allegedly resulted from HMI's February 1996 announcements. HMI entered into
a Stipulation of Partial Settlement with plaintiffs' counsel and on September
18, 1996 such Stipulation of Partial Settlement received preliminary court
approval (the "Original Settlement"). The Original Settlement provided for,
among other things, the payment by HMI of $2,000,000 in cash and the issuance of
2,200,000 HMI shares of common stock and warrants to purchase 2,200,000 HMI
shares of common stock. As a condition to the Company's obligation to close the
Stock Purchase Agreement, preliminary court approval was obtained with respect
to a modified settlement providing for a $7,200,000 cash payment in lieu of the
consideration provided in the Original Settlement to be paid after the merger is
consummated. This settlement was further amended on April 23, 1997, to provide
for the settlement of such consolidated action for a reduced settlement amount
of $4,550,000, of which $1,350,000 is conditioned on the merger with the Company
being consummated. The $4,550,000 was included in HMI's financial statements for
the year ended April 30, 1997. Court approval was received on June 9, 1997. The
recorded settlement amount was reduced to $4,550,000 in the fourth quarter of
fiscal 1997 from the $7,200,000 recorded in HMI's second quarter of fiscal
Page 27
<PAGE> 28
Liquidity and Capital Resources (cont.)
1997. HMI placed $3,200,000 in escrow on April 29, 1997, with respect to this
settlement, which was released from escrow when the courts' approval became
final. This $3,200,000 was borrowed by HMI from the Company, with the remaining
$1,350,000 included in accrued unusual charges and settlement costs at April 30,
1997. HMI is in the process of negotiating with its directors and officers
liability insurance carrier with respect to coverages for damages in connection
with the stockholder class action lawsuit and certain payments received from
such carrier may reduce HMI's liability with respect to such settlement.
Certain of HMI's current and former officers and directors have been
named as defendants, and HMI has been named as a nominal defendant, in a
consolidated derivative action filed on March 15, 1996 in the United States
District Court for the Eastern District of New York entitled In re Health
Management, Inc. Stockholders' Derivative Litigation, Master File No. 96 Civ.
1208 (TCP). The consolidated action alleges claims for breach of fiduciary duty
and contribution against the individual director defendants arising out of
alleged misrepresentations and omissions contained in certain of HMI's previous
securities filings. The consolidated action seeks unspecified monetary damages
on behalf of HMI as well as declaratory and injunctive relief. An amended
consolidated complaint was served on HMI on August 12, 1996. HMI filed a motion
to dismiss the amended consolidated complaint on June 2, 1997. HMI's motion
argued, among other things, that plaintiffs failed to lodge a presuit demand
upon HMI's Board of Directors and that plaintiffs will lose standing upon the
consummation of the merger. A hearing on HMI's motion is currently scheduled to
take place on October 17, 1997. In December 1996, HMI and the plaintiffs'
counsel tentatively agreed on a cash settlement of $175,000; however, the
parties subsequently were unable to agree on the other terms of the settlement
and currently there is no settlement offer pending.
BDO Seidman has been named as a defendant, and HMI has been named as a
nominal defendant, in a derivative lawsuit filed on June 12, 1996 in the Supreme
Court for the State of New York, County of New York entitled Howard Vogel, et
al. v. BDO Seidman, LLP, et al., Index No. 96-603064. The complaint alleges
claims for breach of contract, professional malpractice, negligent
misrepresentation, contribution and indemnification against BDO Seidman arising
out of alleged misrepresentations and omissions contained in certain of HMI's
previous securities filings. BDO Seidman was HMI's auditor at the time those
filings were made and has continued to serve as such. The complaint seeks
unspecified monetary damages on behalf of HMI as well as declaratory and
injunctive relief. Pursuant to stipulation, HMI's time to answer or otherwise
move against the complain in this action as been adjourned indefinitely. HMI's
unable to make an estimate of the anticipated loss, if any, arising from this
suit.
Certain of HMI's current and former officers have been named as
defendants in an alleged class action lawsuit filed on April 3, 1997 in the
United States District Court for the Eastern District of New York entitled
Nicholas Volonnino et al. v. Health Management, Inc., W. James Nicol, Paul S.
Jurewicz and James Mieszala, 97 Civ. 1646. This action alleges claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
Page 28
<PAGE> 29
Liquidity and Capital Resources (cont.)
promulgated thereunder arising out of misrepresentations and omissions by HMI in
connection with certain of its previous securities filings and press releases.
The action purports to represent a class of persons who purchased shares of HMI
common stock between September 15, 1996 and March 17, 1997, the date HMI
announced that it would have to restate certain of its financial statements and
that it was renegotiating its deal with the Company. The action seeks
unspecified compensatory damages for the harm sustained as a result of the
alleged wrongdoing. HMI has not responded to the complaint and the plaintiff has
indicated it will file an amended complaint on September 2, 1997. HMI intends to
vigorously defend itself in such action.
Under HMI's Certificate of Incorporation and Bylaws, certain officers
and directors may be entitled to indemnification, or advancement of expenses for
legal fees in connection with the above lawsuits. HMI may be required to make
payments in respect thereof in the future. As of April 30, 1997, no amounts have
been accrued in HMI's financial statements related to these expenses.
On May 22, 1997, a Writ of Summons was sent to HMI in respect of action
brought in the Superior Court at Nashua, New Hampshire, entitled Linley v.
Health Management, Inc. Mr. Linley alleges, among other things, breach of
contract, estoppel, negligent misrepresentation, fraud and breach of fiduciary
duties and obligation of good faith and fair dealing in connection with an
alleged joint venture between plaintiff and HMI. HMI's management believes this
action to be without merit and not material to HMI's consolidated results of
operations or financial condition.
As of April 30, 1997, HMI has recorded the estimated minimum losses
expected to result from the litigation discussed above. The final resolution of
these matters could have a material adverse effect in the near term on HMI's
consolidated financial position and results of operations.
HMI and the Company have been named as defendants in a lawsuit filed on
March 11, 1997 in the Chancery Court of the State of Delaware for New Castle
County entitled Drew Bergman v. Health Management, Inc. and Transworld Home
HealthCare, Inc., CA No. 15609NC. The plaintiff in the case sought reimbursement
and advancement of legal fees and expenses. The Company was dismissed as a
defendant from the lawsuit prior to its settlement on April 29, 1997, for
$275,000.
The enforcement division of the Securities and Exchange Commission has
issued a formal order of investigation relating to matters arising out of HMI's
public announcement on February 27, 1996 that HMI would have to restate its
financial statements for prior periods as a result of certain accounting
irregularities. HMI is fully cooperating with this investigation and has
responded to the requests of the Securities and Exchange Commission for
documentary evidence.
Page 29
<PAGE> 30
Liquidity and Capital Resources (cont.)
On April 3, 1995, American Preferred Prescription, Inc. ("APP") filed a
complaint against HMI, Preferred Rx, Inc., Community Prescription Services and
Sean Strub in the New York Supreme Court for tortious interference with existing
and prospective contractual relationships, for lost customers and business
opportunities resulting from allegedly slanderous statements and for allegedly
false advertising and promotions. Four separate causes of action are alleged,
each for up to $10,000,000 in damages. By motion dated March 12, 1996, APP
moved, in the Supreme Court of the State of New York, to amend its complaint to
add, among other things, a cause of action against HMI alleging that a proposed
plan of reorganization presented by HMI to the Bankruptcy Court in APP's
bankruptcy case was based on financial statements of HMI that were allegedly
fraudulent. On September 17, 1996 the Court granted APP's motion to amend its
complaint to add a fifth cause of action. HMI noticed an appeal of this order in
November, 1996. HMI's management believes APP's suit against it to be without
merit, intends to defend the proceeding vigorously and believes the outcome will
not have a material adverse effect on HMI's results of operations or financial
position.
According to HMI if the merger is not consummated, the outcomes of
certain of the foregoing lawsuits and the investigation are uncertain and the
ultimate outcomes could have a material adverse effect on HMI.
Page 30
<PAGE> 31
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on May 28, 1997
(the "Annual Meeting"). The proposals voted upon at the Annual Meeting and the
results with respect to each proposal are set forth below:
Proposals Voted Upon
1. To elect five directors to serve for a term of one year and until
their respective successors are duly elected and qualified;
2. 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 for
which options may be granted under such Plan;
3. To ratify and adopt to Company's 1997 Option Plan for Non-Employee
Directors' and
4. To ratify the appointment by the Board of Directors of Coopers &
Lybrand L.L.P., as independent accountants of the Company for the fiscal year
ended October 31, 1997.
Voting Results
<TABLE>
<CAPTION>
PROPOSAL FOR AGAINST ABSTAIN/NON VOTING
- -------- --- ------- ------------------
<S> <C> <C> <C>
No. 1 (election of Directors) 561,905
Messrs. Timothy Aitken 11,359,591 --- 553,286
Robert Fine 11,366,091 --- 553,286
Richard Yoken 11,366,091 --- 553,286
Lewis Ranieri 13,750,586 --- 553,286
Scott Shay 13,750,586 --- 553,286
No. 2 7,760,258 347,981 2,856,809
No. 3 8,064,373 353,202 2,614,255
No. 4 11,941,831 8,250 11,157
</TABLE>
Page 31
<PAGE> 32
Item 5. Other Information.
On July 11 and July 22, 1997, the Company's Respiflow and MK
Diabetic subsidiaries, respectively, each received a letter (the "Audit Letter")
from the Office of Audit Services (a division of the U.S. Department of Health
and Human Services, Office of Inspector General) ("OIG"). The Audit Letter
indicates, among other things, that the OIG is conducting an industry-wide audit
of marketing fees and commissions paid from pharmacies to durable medical
equipment companies. The Company is cooperating fully with the OIG and has
produced documentation which it believes is responsive to the requests set forth
in each of the Audit Letters. While the Company believes that its former
arrangements with durable medical equipment suppliers do not violate any Federal
or state laws, it cannot predict whether the audit will ultimately result in any
liability to the government and in such event, the amount thereof.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
11 Statement Re Computation of Per Share
Earnings
19.1 Fourth Amendment to Credit Agreement
19.2 Fifth Amendment to Credit Agreement
27 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Form 8-K/A (Amendment No.3) dated
January 14, 1997 on or about June 10, 1997.
The Company filed a Form 8-K dated April 21, 1997 on
or about May 6, 1997.
The Company filed a Form 8-K dated June 24, 1997 on
or about June 27, 1997.
The Company filed a Form 8-K/A (Amendment No.1) dated
June 24, 1997 on or about July 2, 1997.
The Company filed a Form 8-K dated July 3, 1997 on or
about July 3, 1997.
The Company filed a Form 8-K dated July 29, 1997 on
or about July 31, 1997.
Page 32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: September 15, 1997
TRANSWORLD HEALTHCARE, INC.
By: /s/ Wayne A. Palladino
--------------------------------------
Wayne A. Palladino
Senior Vice President and Chief Financial
Officer (Principal Financial Officer and
Officer Duly Authorized to Sign on Behalf of
Registrant)
Page 33
<PAGE> 34
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
11 Statement Re Computation of Per Share
Earnings
19.1 Fourth Amendment to Credit Agreement
19.2 Fifth Amendment to Credit Agreement
27 Financial Data Schedule
</TABLE>
Page 34
<PAGE> 1
Exhibit 11
Transworld HealthCare, Inc.
Statement Re Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Primary Computation Primary Computation
Three Months Nine Months
Ended July 31, Ended July 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Loss) income before extraordinary loss ($30,387) $ 292 ($29,031) $ 1,232
Extraordinary loss - early extinguishment of debt 1,342 1,342
-------- ------- -------- -------
Net loss ($30,387) ($1,050) ($29,031) ($ 110)
======== ======= ======== =======
Weighted average number of shares outstanding 15,123 5,982 11,907 5,510
Weighted average number of shares
issuable per acquisition agreements 321 321 321 445
Incremental shares, after application of treasury
stock method, of stock options and warrants 620 703 751 793
-------- ------- -------- -------
Shares used in calculation of net (loss) income per 16,064 7,006 12,979 6,748
common share ======== ======= ======= =======
Primary (loss) income per share of common stock:
(Loss) income before extraordinary loss ($ 1.89) $ 0.04 ($ 2.24) $ 0.18
Extraordinary loss - early extinguishment of debt (0.19) (0.20)
-------- ------- -------- -------
Net loss per share ($ 1.89) ($ 0.15) ($ 2.24) ($ 0.02)
======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Fully Diluted Computation Fully Diluted Computation
Three Months Nine Months
Ended July 31, Ended July 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Loss) income before extraordinary loss ($30,387) $ 292 ($29,031) $ 1,232
Extraordinary loss - early extinguishment of debt 1,342 1,342
-------- ------- -------- -------
Net loss ($30,387) ($1,050) ($29,031) ($ 110)
======== ======= ======== =======
Weighted average number of shares outstanding 15,123 5,982 11,907 5,510
Weighted average number of shares
issuable per acquisition agreements 321 321 321 445
Incremental shares, after application of treasury
stock method, of stock options and warrants 620 703 752 830
-------- ------- -------- -------
Shares used in calculation of net (loss) income per
common share 16,064 7,006 12,980 6,785
======== ======= ======== =======
Fully diluted (loss) income per share of common stock:
(Loss) income before extraordinary loss ($ 1.89) $ 0.04 ($ 2.24) $ 0.18
Extraordinary loss - early extinguishment of debt (0.19) (0.20)
-------- ------- -------- -------
Net loss per share ($ 1.89) ($ 0.15) ($ 2.24) ($ 0.02)
======== ======= ======== =======
</TABLE>
Page 35
<PAGE> 1
FOURTH AMENDMENT TO CREDIT AGREEMENT
FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated
as of May 30, 1997, among TRANSWORLD HEALTHCARE, INC. (the "Borrower"), the
lenders from time to time party to the Credit Agreement referred to below (each
a "Bank" and, collectively, the "Banks"), and BANKERS TRUST COMPANY, as Agent
(the "Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent are parties to
a Credit Agreement, dated as of July 31, 1996 (as in effect on the date hereof,
the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement
as provided herein;
NOW, THEREFORE, it is agreed:
I. Amendments and Modifications to Credit Agreement.
1. Section 8.13 of the Credit Agreement is hereby amended by inserting
the following sentence at the end thereof:
"Notwithstanding anything to the contrary contained in the
second preceding sentence, U.K. Holdings may directly own no less than
90% of the issued share capital of Omnicare until such time as the
remaining issued share capital of Omnicare shall have been compulsorily
acquired in accordance with Sections 428 to 430E of the Companies Act
1985 of Great Britain with the result that U.K. Holdings then owns 100%
of the issued share capital of Omnicare; provided, that such compulsory
acquisition shall be completed no later than 60 days after the Tender
Offer has become unconditional as to acceptances."
<PAGE> 2
2. Section 9.01 of the Credit Agreement is hereby amended by inserting
the following new clause (d) at the end thereof:
"(d) U.K. Holdings will engage in no business activities
(other than the ownership of the share capital of Omnicare) and will
not have any significant assets (other than the share capital of
Omnicare) or liabilities (other than those liabilities otherwise
permitted by this Agreement)."
3. Section 9.02 of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (i) thereof, (ii)
deleting the period appearing at the end of clause (j) thereof and inserting ";
and" in lieu thereof and (iii) inserting the following new clause (k) at the end
thereof:
"(k) the Omnicare Acquisition shall be permitted so long as
(i) no Default or Event of Default is in existence at the time of the
consummation thereof or immediately after giving effect thereto, (ii)
at least 90% of the Shares shall have been tendered to U.K. Holdings in
connection with the Tender Offer, (iii) all Shares that have been
tendered to U.K. Holdings shall have been validly tendered to U.K.
Holdings and not withdrawn and available for purchase by U.K. Holdings
in accordance with the terms of the Tender Offer, (iv) such tendered
Shares shall be free and clear of all Liens and restrictions to
purchase imposed by applicable law or otherwise and (v) the Agent shall
have received an opinion of counsel, addressed to the Agent and each of
the Banks, from Ashurst Morris Crisp, counsel to U.K. Holdings, which
opinion of counsel shall be in form and substance reasonably
satisfactory to the Agent and shall cover such matters incident to the
Omnicare Acquisition as the Agent may reasonably request."
4. Section 9.05 of the Credit Agreement is hereby amended by deleting
clause (q) appearing therein in its entirety and inserting the following new
clause (q) in lieu thereof:
"(q) U.K. Holdings may consummate the Omnicare Stock Purchase
so long as (1) no Default or Event of Default is in existence at the
time of the consummation thereof or immediately after giving effect
thereto,(2) all consideration therefor shall be paid in cash in an
aggregate amount not to exceed $3,100,000, (3) all representations and
warranties contained herein and in the other Credit Documents shall be
true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of
the date of consummation of the Omnicare Stock Purchase (both before
and after giving effect thereto), unless stated to relate to a specific
earlier
-2-
<PAGE> 3
date, in which case such representations and warranties shall be true
and correct in all material respects as of such earlier date, (4)
neither the Borrower nor any of its Subsidiaries is or becomes liable
for any Indebtedness or other obligations of any nature whatsoever
(whether absolute, contingent or otherwise and whether or not due) of
Omnicare or any of its Subsidiaries and (5) such purchase is
consummated in all respects pursuant to and in accordance with the
Omnicare Stock Purchase Agreement;"
5. Section 9.05 of the Credit Agreement is hereby further amended by
(i) deleting the word "and" appearing at the end of clause (q) thereof, (ii)
deleting the period appearing at the end of clause (r) thereof and inserting ";
and" in lieu thereof and (iii) inserting the following new clause (s) at the end
thereof:
"(s) the Borrower may make an Intercompany Loan to U.K.
Holdings so long as (i) the aggregate principal amount of such
Intercompany Loan does not exceed $31,000,000 (determined without
regard to any write-downs or write-offs) and (ii) notwithstanding
anything to the contrary contained in this Agreement, such Intercompany
Loan is evidenced by an Intercompany Note that will be pledged to the
Collateral Agent pursuant to the Pledge Agreement."
6. Section 9.12 of the Credit Agreement is hereby amended by inserting
the following new clause (c) at the end thereof:
"(c) The Borrower will not, and will not permit any of its
Subsidiaries to, amend, modify or change any provision of the Tender
Offer Documents, other than any amendment, modification or change which
does not in any way adversely affect the interests of the Banks."
7. Section 11 of the Credit Agreement is hereby amended by deleting the
definitions of "Omnicare Stock Purchase" and "Omnicare Stock Purchase Agreement"
appearing therein in their entirety and inserting in the appropriate
alphabetical order the following new definitions of "Omnicare Stock Purchase
Agreement" in lieu thereof:
"Omnicare Stock Purchase" shall mean the purchase by U.K.
Holdings pursuant to the Omnicare Stock Purchase Agreement of 1,765,000
shares of the issued shares of Omnicare, representing not more than 20%
of the issued share capital of Omnicare.
"Omnicare Stock Purchase Agreement" shall mean the sale and
purchase agreement between U.K. Holdings and Hyperion Partners II, all
of the terms and conditions of which shall be required to be
satisfactory in form and
-3-
<PAGE> 4
substance to the Agent and the Required Banks in their sole and
absolute discretion.
8. Section 11 of the Credit Agreement is hereby further amended by
inserting in appropriate alphabetical order the following new definitions:
"Fourth Amendment Effective Date" shall have the meaning
provided in the Fourth Amendment, dated as of May 30, 1997 to this
Agreement.
"Omnicare Acquisition" shall mean the purchase by U.K.
Holdings for cash of the Shares pursuant to the Recommended Cash Offer.
"Shares" shall mean the share capital issued and to be issued
of Omnicare, other than those issued shares to be acquired by U.K.
Holdings pursuant to the Omnicare Stock Purchase Agreement.
"Tender Offer" shall mean the recommended cash offer to be
made by U.K. Holdings for the whole of the share capital issued and to
be issued of Omnicare pursuant to a press announcement issued by U.K.
Holdings on May 28, 1997, in form and substance reasonably satisfactory
to the Agent and the Required Banks and as the same may be amended,
modified or supplemented from time to time pursuant to the terms
thereof and hereof.
"Tender Offer Documents" shall mean the offer document, the
press announcements and all related documents distributed to the
shareholders of Omnicare.
"U.K. Holdings" shall mean Transworld Healthcare (UK) Limited,
a company organized under the laws of England with registered number
3370146.
9. Notwithstanding anything in the contrary contained in Section 9.03
of the Credit Agreement, the Banks hereby consent to the Borrower placing an
amount not to exceed $31.0 million in escrow with Ashurst Morris Crisp for the
purpose of satisfying the cash consideration payable in connection with the
Omnicare Acquisition, pursuant to an escrow arrangement satisfactory to the
Agent.
II. Miscellaneous Provisions.
1. In order to induce the Banks to enter into this Amendment, the
Borrower hereby represents and warrants that:
-4-
<PAGE> 5
(a) no Default or Event of Default exists as of the Fourth
Amendment Effective Date (as defined below), both before and after
giving effect to this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects on the Fourth Amendment Effective Date, both
before and after giving effect to this Amendment, with the same effect
as though such representations and warranties had been made on and as
of the Fourth Amendment Effective Date (it being understood that any
representation or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
5. This Amendment shall become effective as of the date (the "Fourth
Amendment Effective Date") when the Borrower, each other Credit Party and the
Required Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office. The Agent shall
promptly notify the Borrower and the Banks in writing of the Fourth Amendment
Effective Date.
6. From and after the Fourth Amendment Effective Date, all references
in the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
TRANSWORLD HEALTHCARE, INC.,
as Borrower
By /s/ Wayne A. Palladino
-------------------------------------
Title: CFO
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Patricia Hogan
-------------------------------------
Title: PATRICIA HOGAN
VICE PRESIDENT
THE BANK OF NEW YORK
By
-------------------------------------
Title:
<PAGE> 7
BANQUE PARIBAS
By
-------------------------------------
Title:
By
-------------------------------------
Title:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
By /s/ Leo L. Baltz
-------------------------------------
Title: LEO L. BALTZ
VICE PRESIDENT
By /s/ Eduardo Salazar
-------------------------------------
Title: EDUARDO SALAZAR
VICE PRESIDENT
<PAGE> 8
Each of the undersigned, each being a Subsidiary Guarantor pursuant to the
Credit Agreement referenced in the foregoing Fourth Amendment and a party to
various Security Documents, hereby acknowledges and agrees to the foregoing
provisions of the Fourth Amendment.
Acknowledged and
Agreed this 30th day
of May, 1997.
DERMAQUEST, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
MK DIABETIC SUPPORT
SERVICES, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
THE PROMPTCARE COMPANIES, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
<PAGE> 9
THE PROMPTCARE LUNG CENTER,
INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
STERI-PHARM, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
TRANSWORLD HOME HEALTHCARE NURSING DIVISION, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
RADAMERICA, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
<PAGE> 10
RESPIFLOW, INC.,
as a Pledgor
By /s/ Wayne A. Palladino
--------------------------------
Title: Vice President
<PAGE> 1
FIFTH AMENDMENT TO CREDIT AGREEMENT
FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of
June 30, 1997, among TRANSWORLD HEALTHCARE, INC. (the "Borrower"), the lenders
party to the Credit Agreement referred to below (each a "Bank" and,
collectively, the "Banks"), and BANKERS TRUST COMPANY, as Agent (in such
capacity, the "Agent"). All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent are parties to a
Credit Agreement, dated as of July 31, 1996 (as in effect on the date hereof,
the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
provided herein;
NOW, THEREFORE, it is agreed:
I. Amendments and Modifications to Credit Agreement.
1. Section 8 of the Credit Agreement is hereby amended by adding the
following new Section 8.20 immediately after the existing Section 8.19:
"Section 8.20. Take-Out Financing. (a) The Borrower shall, on or
prior to the Fifth Amendment Effective Date, engage one or more investment
banks (collectively, the "Take-Out Banks") satisfactory to the Agent to
publicly sell or privately place subordinated debt securities (the
"Take-Out Securities") of the Borrower providing net cash proceeds to the
Borrower of not less than $100,000,000 to refinance this Agreement.
(b) The Borrower shall use its best efforts to complete an offering
memorandum for use in the placement of the Take-Out Securities by the
Take-Out Banks and take any other steps reasonably required to place the
Take-Out Securities as expeditiously as reasonably possible.
(c) Notwithstanding anything to the contrary contained in this
Section 8.20, no Take-Out Securities shall be issued unless (i) the net
cash proceeds
<PAGE> 2
received by the Borrower from the sale of the Take-Out Securities are at
least $100,000,000 and (ii) after giving effect to the issuance of the
Take-Out Securities and the application of the proceeds thereof, the Total
Commitment is terminated and all Obligations hereunder paid in full."
2. Section 9.01 of the Credit Agreement is hereby amended by deleting
clause (d) thereof in its entirety and inserting the following new clause (d) in
lieu thereof:
"(d) U.K. Holdings will engage in no business activities (other than
the acquisition and ownership of the share capital of Omnicare and Allied)
and will not have any significant assets (other than the share capital of
Omnicare and Allied) or liabilities (other than those liabilities
otherwise permitted by this Agreement)."
3. Section 9.02 of the Credit Agreement is hereby amended by (i) deleting
the word "and" appearing at the end of clause (j) thereof, (ii) deleting the
period appearing at the end of clause (k) thereof and inserting "; and" in lieu
thereof and (iii) inserting the following new clause (l) immediately following
existing clause (k) thereof:
"(l) the Allied Acquisition shall be permitted so long as (i) no
Default or Event of Default is in existence at the time of the
consummation thereof or immediately after giving effect thereto, (ii) the
aggregate consideration paid in connection therewith shall not exceed
$63.0 million, (iii) such acquisition is consummated in accordance with
the terms and provisions of the Allied Stock Purchase Documents and all
applicable laws, rules and regulations relating thereto, and (iv) the
Agent shall have received an opinion of counsel, addressed to the Agent
and each of the Banks, from Ashurst Morris Crisp, counsel to U.K.
Holdings, which opinion of counsel shall be in form and substance
reasonably satisfactory to the Agent and shall cover such matters incident
to the Allied Acquisition as the Agent may reasonably request."
4. The text of Section 9.04(e) is hereby deleted in its entirety and the
following new text is inserted in lieu thereof:
"Indebtedness constituting Intercompany Loans to the extent
permitted by Sections 9.05(f), (s) and (t);"
5. Section 9.05 of the Credit Agreement is hereby amended by (i) deleting
the amount "$250,000" in clause (f) thereof and inserting "$1,000,000" in lieu
thereof
-2-
<PAGE> 3
and (ii) deleting clause (s) thereof in its entirety and inserting the following
new clause (s) in lieu thereof:
"(s) in connection with the Omnicare Stock Purchase and the Omnicare
Acquisition, the Borrower may (x) make an Intercompany Loan to U.K.
Holdings and/or capitalize U.K. Holdings with a cash contribution so long
as (x) the sum of the aggregate principal amount of such Intercompany Loan
(determined without regard to write-downs or write-offs) and cash
contribution does not exceed $31,000,000, (y) notwithstanding anything to
the contrary contained in this Agreement, such Intercompany Loan is
evidenced by an Intercompany Note that will be pledged to the Collateral
Agent pursuant to the Pledge Agreement and (z) the aggregate amount of
such cash contribution does not exceed 50% of the sum of the aggregate
principal amount of such Intercompany Loan (determined without regard to
write-offs or write-downs) and cash contribution."
6. Section 9.05 of the Credit Agreement is hereby further amended by (i)
deleting the word "and" appearing at the end of clause (r) thereof, (ii)
deleting the period at the end of clause (s) thereof and inserting "; and" in
lieu thereof and (iii) inserting the following new clause (t) immediately
following existing clause (s) thereof:
"(t) in connection with the Allied Acquisition, the Borrower may
make an Intercompany Loan to U.K. Holdings so long as (x) the sum of the
aggregate principal amount of such Intercompany Loan (determined without
regard to any write-downs or write-offs) and cash contribution does not
exceed $63,000,000, (y) notwithstanding anything to the contrary contained
in this Agreement, such Intercompany Loan is evidenced by an Intercompany
Note that will be pledged to the Collateral Agent pursuant to the Pledge
Agreement and (z) the aggregate amount of such cash contribution does not
exceed 50% of the sum of the aggregate principal amount of such
Intercompany Loan (determined without regard to write-offs or write-downs)
and cash contribution."
7. Section 9.09 of the Credit Agreement is hereby amended by deleting the
amounts "$11,000,000", "$12,000,000", "$13,000,000" and "$14,000,000 appearing
therein and inserting the amounts "$17,000,000", "$21,000,000", "$25,000,000"
and "$30,000,000", respectively, in lieu thereof.
8. Section 9.10 of the Credit Agreement is hereby amended by deleting the
table contained therein in its entirety and inserting in lieu thereof the
following table:
"Period Ratio
-3-
<PAGE> 4
Effective Date to and 1.75 : 1.0
including July 31, 1998
August 1, 1998 to and 2.25 : 1.0
including July 31, 1999
August 1, 1999 to and 2.75 : 1.0
including July 31, 2000
August 1, 2000 and thereafter 3.00 : 1.0"
9. Section 9.11 of the Credit Agreement is hereby amended by deleting the
table contained therein in its entirety and inserting in lieu thereof the
following table:
"Period Ratio
Effective Date to and 5.50 : 1.0
including July 31, 1998
August 1, 1998 to and 5.00 : 1.0
including July 31, 1999
August 1, 1999 to and 4.50 : 1.0
including July 31, 2000
August 1, 2000 and thereafter 4.00 : 1.0"
10. Section 9.12(c) of the Credit Agreement is hereby amended by inserting
the words "or the Allied Stock Purchase Documents" immediately after the words
"Tender Offer Documents" but before the comma appearing therein.
11. Section 11 of the Credit Agreement is hereby amended by inserting in
appropriate alphabetical order the following new definitions:
""Allied" shall mean Allied Medicare Limited, a private limited
company organized under the laws of England with registered number
1689856.
"Allied Acquisition" shall mean the purchase by U.K. Holdings of
100% of the issued share capital of Allied.
-4-
<PAGE> 5
"Allied Stock Purchase Agreement" shall mean the stock purchase
agreement, dated as of July 1, 1997, among Vanessa Rosamund
Wynn-Griffiths, David Wynn Griffiths and U.K. Holdings, as in effect on
the Fifth Amendment Effective Date.
"Allied Stock Purchase Documents" shall mean the Allied Stock
Purchase Agreement and any other agreement entered into in connection with
the Allied Stock Purchase, together with any annexes, exhibits or
schedules thereto, as the same may be amended, modified or supplemented
from time to time in accordance with the terms hereof and thereof.
"Fifth Amendment Effective Date" shall have the meaning provided in
the Fifth Amendment, dated as of June 30, 1997, to this Agreement.
"Take-Out Banks" shall have the meaning provided in Section 8.20.
"Take-Out Securities" shall have the meaning provided in Section
8.20."
12. Section 13.12 of the Credit Agreement is hereby amended by (i)
deleting the word "or at the end or clause (a)(iv) thereof and inserting in lieu
thereof a comma and (ii) inserting at the end of clause (a)(v) the following new
clause (vi) immediately prior to the semicolon:
"or (vi) amend, modify or waive any provision of Section 3.03(d)".
II. Miscellaneous Provisions.
1. In order to induce the Banks to enter into this Amendment, the Borrower
hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Fifth Amendment
Effective Date (as defined below), both before and after giving effect to
this Amendment; and
(b) all of the representations and warranties contained in the
Credit Agreement and the other Credit Documents are true and correct in
all material respects as of the Fifth Amendment Effective Date, both
before and after giving effect to this Amendment, with the same effect as
though such representations and warranties had been made on and as of the
Fifth Amendment Effective Date
-5-
<PAGE> 6
(it being understood that any representation or warranty made as of a
specific date shall be true and correct in all material respects as of
such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
5. This Amendment shall become effective as of the date (the "Fifth
Amendment Effective Date") when the Borrower, each other Credit Party and the
Required Banks shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office. The Agent shall
promptly notify the Borrower and the Banks in writing of the Fifth Amendment
Effective Date.
6. From and after the Fifth Amendment Effective Date, all references in
the Credit Agreement and each of the other Credit Documents to the Credit
Agreement shall be deemed to be references to the Credit Agreement as modified
hereby.
* * *
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment as of the date first
above written.
TRANSWORLD HEALTHCARE, INC.,
as Borrower
/s/ Wayne Palladino
By______________________________
Title: Chief Financial Officer
BANKERS TRUST COMPANY,
Individually and as Agent
/s/ Gina S. Thompson
By______________________________
Title: Vice President
THE BANK OF NEW YORK
/s/ Vincent P. O'Leary
By______________________________
Title: Senior Vice President
<PAGE> 8
BANQUE PARIBAS
/s/ David I. Canavan
By_______________________________
Title: Group Vice President
/s/ Judith Kirshner
By_______________________________
Title: Vice President
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH
/s/ Stephen A. Cayer
By_______________________________
Title: Assistant Vice President
/s/ Eduardo Salazar
By_______________________________
Title: Vice President
<PAGE> 9
FLEET BANK, N.A.
/s/ Robert Isaksen
By_____________________________
Title: Vice President
<PAGE> 10
Each of the undersigned, each being a Subsidiary Guarantor pursuant to the
Credit Agreement referenced in the foregoing Fifth Amendment and a party to
various Security Documents, hereby acknowledges and agrees to the foregoing
provisions of the Fifth Amendment.
Acknowledged and
Agreed this 30th day
of June, 1997.
DERMAQUEST, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
MK DIABETIC SUPPORT
SERVICES, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
THE PROMPTCARE COMPANIES, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
<PAGE> 11
THE PROMPTCARE LUNG CENTER,
INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
STERI-PHARM, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
TRANSWORLD HOME HEALTHCARE NURSING DIVISION, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
RADAMERICA, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
<PAGE> 12
RESPIFLOW, INC.,
as a Pledgor
/s/ Wayne Palladino
By_____________________________
Title: Vice President
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<EXCHANGE-RATE> 1
<CASH> 7,165
<SECURITIES> 0
<RECEIVABLES> 36,127
<ALLOWANCES> 13,177
<INVENTORY> 3,203
<CURRENT-ASSETS> 61,526
<PP&E> 15,401
<DEPRECIATION> 7,175
<TOTAL-ASSETS> 203,825
<CURRENT-LIABILITIES> 28,749
<BONDS> 0
0
0
<COMMON> 151
<OTHER-SE> 87,776
<TOTAL-LIABILITY-AND-EQUITY> 203,825
<SALES> 23,439
<TOTAL-REVENUES> 23,439
<CGS> 12,574
<TOTAL-COSTS> 12,574
<OTHER-EXPENSES> 47,244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136
<INCOME-PRETAX> (36,515)
<INCOME-TAX> (6,128)
<INCOME-CONTINUING> (30,387)
<DISCONTINUED> 0
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<NET-INCOME> (30,387)
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