TRANSWORLD HEALTHCARE INC, 10-Q, 1998-02-13

TRANSWORLD HEALTHCARE INC
10-Q, 1998-02-13
HOME HEALTH CARE SERVICES

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<PAGE>

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 December 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.

Class Outstanding at February 10, 1998
------------ --------------------------------
Common Stock 16,384,515 Shares

<PAGE>

Transworld HealthCare, Inc.
First Quarter Report On Form 10-Q
---------------------------------
Table of Contents
------------------

<TABLE>
<CAPTION>
Part I. Page
----
<S> <C>
Item 1. Financial Statements (Unaudited).............................. 3

Condensed Consolidated Balance Sheets
December 31, 1997 and September 30, 1997...... 4
Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 1997
and January 31, 1997.......................... 5
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1997
and January 31, 1997.......................... 6
Notes to Condensed Consolidated Financial
Statements.................................... 7

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................. 16

Part II.

Item 5. Other Information............................................. 24

Item 6. Exhibits and Reports on Form 8-K.............................. 24
</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
<PAGE>

PART I

Item 1. Financial Statements (Unaudited)

The financial statements of Transworld HealthCare, Inc. (the
"Company") begin on page 4.

Page 3
<PAGE>

TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and temporary investments $ 11,131 $ 10,626
Accounts receivable, less allowance for doubtful
accounts of $11,827 and $11,909 31,465 31,475
Inventories 4,344 3,226
Investment in Health Management, Inc. 4,289 22,367
Prepaid income taxes 2,972 2,742
Deferred income taxes 6,530 6,530
Prepaid expenses and other current assets 5,368 6,093
--------- ---------

Total current assets 66,099 83,059

Property & equipment, net 9,099 8,448
Intangible assets, net of accumulated amortization of
$4,065 and $3,283 105,534 103,385
Deferred income taxes 2,356 2,356
Other assets 3,810 4,033
--------- ---------

Total assets $ 186,898 $ 201,281
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt, including obligations
under capital leases $ 1,546 $ 25,051
Accounts payable 7,698 7,844
Accrued expenses, related parties 7,500 7,500
Accrued expenses 14,198 13,672
Income taxes payable 1,559 2,387
Acquisitions payable 500 194
--------- ---------

Total current liabilities 33,001 56,648

Long-term debt, including obligations under capital leases 61,391 61,400
Deferred income taxes and other 1,402 1,328
--------- ---------

Total liabilities 95,794 119,376
--------- ---------

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
16,337 and 15,300 shares 163 153
Additional paid-in capital 118,245 111,774
Translation adjustment 179 (2,192)
Retained deficit (27,483) (27,830)
--------- ---------

Total stockholders' equity 91,104 81,905
--------- ---------

Total liabilities and stockholders' equity $ 186,898 $ 201,281
========= =========
</TABLE>

See notes to condensed consolidated financial statements.
Page 4

<PAGE>

TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended
----------------------------
December 31, January 31,
1997 1997
------------ -----------
<S> <C> <C>
Revenues:
Net respiratory, medical equipment and supplies sales $18,307 $12,228
Net patient services 16,530 4,765
Net infusion services 2,968 3,304
------- -------
Total revenues 37,805 20,297
------- -------
Cost of revenues:
Respiratory, medical equipment and supplies sales 10,256 5,013
Patient services 11,421 2,471
Infusion services 1,849 2,005
------- -------
Total cost of revenues 23,526 9,489
------- -------
Gross profit 14,279 10,808

Selling, general and administrative expenses 12,039 8,486
------- -------
Operating income 2,240 2,322

Interest income (195) (682)
Interest expense 1,741 998
------- -------
Income before income taxes 694 2,006

Provision for income taxes 347 883
------- -------
Net income $ 347 $ 1,123
======= =======
Net income per share of common stock:
Basic $ .02 $ .11
======= =======
Diluted $ .02 $ .10
======= =======
Weighted average number of common shares outstanding:
Basic 16,628 10,315
======= =======
Diluted 17,130 11,194
======= =======
</TABLE>

See notes to condensed consolidated financial statements.
Page 5

<PAGE>

TRANSWORLD HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended
----------------------------
December 31, January 31,
1997 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 347 $ 1,123
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,272 686
Provision for doubtful accounts 1,847 1,529
Amortization of debt discount and issuance costs 287 197
Debt issuance costs (500)
Changes in assets and liabilities:
Increase in account receivable (1,581) (4,695)
Increase in inventories (1,094) (275)
Increase in prepaid expenses and other assets (723) (117)
(Decrease) increase in accounts payable and other liabilities (1,001) 556
-------- --------
Net cash in operating activities (646) (1,496)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,027) (410)
Proceeds from sale of Health Management, Inc.'s assets 24,725
Investment in Health Management, Inc. (6,319) (30,227)
Proceeds from sale of subsidiary 1,204
Acquisitions-net of cash acquired (481)
Payments on acquisition payable (79) (1,677)
-------- --------
Net cash provided by (used in) in investing activities 18,023 (32,314)
-------- --------
Cash flows from financing activities:
Payments on revolving loan (23,500)
Borrowing under revolving loan 31,347
Stock options and warrants exercised, including tax benefit 6,481 83
Other, net (15) 31
-------- --------
Net cash (used in) provided by financing activities (17,034) 31,461
-------- --------
Effect of exchange rate on cash 162
-------- --------
Increase (decrease) in cash 505 (2,349)

Cash and temporary investment, beginning of period 10,626 4,598
-------- --------
Cash and temporary investment, end of period $ 11,131 $ 2,249
======== ========
Supplemental cash flow information:
Cash paid for interest $ 1,519 $ 311
======== ========
Cash paid for income taxes $ 1,414 $ 28
======== ========
</TABLE>

See notes to condensed consolidated financial statements.
Page 6
<PAGE>

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 provider of a broad
range of home health care services and products with operations in the United
States ("U.S.") and the United Kingdom ("U.K."). The Company provides the
following services and products to patients in their homes: (i) specialty
mail-order pharmaceuticals, medical supplies, respiratory therapy and home
medical equipment; (ii) patient services, including nursing and
para-professional services; and (iii) infusion therapy.

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
September 30, 1997.

The Company changed its fiscal year end from October 31 to September
30 effective for fiscal 1997. Quarterly information presented for prior periods
is based upon the Company's former fiscal year end and it has been deemed not
practicable to include comparable prior period information based upon the
Company's current fiscal year end of September 30. There were no factors which
affected the comparability of the information or trends reflected. Although the
Company's operations are not highly seasonal, the results of operations for the
three months ended December 31, 1997 and January 31, 1997 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.

Note 2: Earnings Per Share

Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" ("EPS"). SFAS No. 128 replaced primary EPS with basic EPS and fully
diluted EPS with diluted EPS. Basic EPS is computed using the weighted average
number of common shares outstanding, after giving effect to contingently
issuable shares. Diluted EPS is computed using the weighted average number of
common shares outstanding, after giving effect to contingently issuable

Page 7
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 2: Earnings Per Share (cont.)

shares and dilutive stock options and warrants using the treasury stock method.
EPS data presented for the three months ended January 31, 1997 has been
restated to reflect the provisions of SFAS No. 128.

The earnings per share calculations for the three months ended
December 31, 1997 and January 31, 1997, were computed as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1997 JANUARY 31, 1997
------------------------ ------------------------
<S> <C> <C>

Net income $347 $1,123
======================== ========================

Weighted average number of shares outstanding 15,557 9,994

Weighted average number of shares
contingently issuable per agreements 1,071 321
------------------------ ------------------------

Weighted average number of shares
used in basic calculation 16,628 10,315

Incremental shares, after application of treasury
stock method, of stock options and warrants 502 879
------------------------ ------------------------

Weighted average number of shares
used in diluted calculation 17,130 11,194
======================== ========================

Net income per share of common stock:
Basic $ .02 $ .11

======================== ========================
Diluted $ .02 $ .10
======================== ========================
</TABLE>

Note 3: Business Combinations and Disposals

The acquisitions of Omnicare Group, plc ("Omnicare") at the end of
June 1997 and Allied Medicare Limited ("Allied") effective June 23, 1997 have
been accounted for using the purchase method of accounting. The results of
operations for Omnicare and Allied have been included in the financial
statements from their respective dates of acquisition.

Page 8
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 3: Business Combinations and Disposals (cont.)

The following represents the unaudited pro forma results of operations
and related per share information assuming the Company acquired Omnicare and
Allied on November 1, 1996. The pro forma results are based on the historical
financial statements of the Company for the three months ended January 31,
1997, Omnicare for the three months ended March 31, 1997 and Allied for the
twelve weeks ended January 5, 1997.

The unaudited pro forma information in not necessarily indicative
either of the results of operations that would have occurred had the
acquisitions been made on November 1, 1996 or that may occur in the future.

Three Months Ended
January 31, 1997
------------------------------------

Net revenues $36,773

Net income 1,574

Net income per share of common stock:

Basic $.15
Diluted $.14

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.

Page 9
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 3: Business Combinations and Disposals (cont.)

On October 1, 1997, the Company, through a wholly-owned subsidiary,
completed the merger with HMI. Under the terms of the Merger Agreement, HMI
stockholders received $.30 in cash for each outstanding share of HMI common
stock not already owned by the Company. Concurrently with the closing of the
merger, the Company sold substantially all of the businesses and operations of
HMI in an asset sale (the "Asset Sale") to Counsel Corporation ("Counsel") for
$40,000. Of the $40,000 proceeds, $30,000 was received in cash at closing with
$7,500 being paid to the Company as HMI's accounts receivable, existing at date
of sale, are collected, with the remaining $2,500 held in escrow for
post-closing adjustments. As of December 31, 1997 an aggregate of $30,505 was
received, of which $23,500 was used to reduce the senior secured debt owed by
the Company under the Credit Facility (as defined in Note 4), $2,800 was used
to complete the merger and the remainder was used for costs, fees and other
expenses to complete the Asset Sale, as well as to satisfy liabilities and
wind-down costs not assumed by Counsel. The Company also amended its Credit
Facility on October 1, 1997 to accommodate the merger with HMI and the sale to
Counsel. At December 31, 1997 and September 30, 1997 the estimated net
realizable value of the investment in HMI was $4,289 and $22,367, respectively,
and was included in current assets as HMI was held for sale. At December 31,
1997 the investment in HMI represents primarily the remaining receivable from
the Asset Sale offset by liabilities and wind-down costs not assumed by
Counsel.

Pursuant to the Asset Sale, Counsel did not assume any liabilities of
HMI other than certain liabilities arising after the closing under assumed
contracts and certain employee-related liabilities.

Note 4: Debt

The Company amended its $100,000 senior secured revolving credit
facility (the "Credit Facility") during the three months ended December 31,
1997 to accommodate, among other things, the merger with HMI and the Asset Sale
and to adjust certain covenants for fiscal 1997 and for fiscal periods
beginning October 1, 1997.

As of September 30, 1997, $25,000 of the Credit Facility was
classified as current, as the Credit Facility, as amended, required repayment
of $25,000 from the proceeds of the Asset Sale, of which $23,500 was paid
during the first quarter of fiscal 1998. Accordingly, as of December 31, 1997,
$1,500 of the Credit Facility, was classified as current.

Page 10
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 5: Stockholders' Equity

In the first quarter of fiscal 1998, 960 public warrants (total 1,100)
were exercised for aggregate proceeds of $6,041. The remaining warrants expired
on December 8, 1997. In addition, other warrants (69) were exercised for
aggregate proceeds of $440.

Hyperion Partners II L.P. ("HPII") has purchased certain of HMI's
trade payables (the "HMI Payables") aggregating approximately $18,300 at
various discounts. On March 26, 1997, the Company entered into a stock purchase
agreement (the "AP Stock Purchase Agreement"), with HPII, as amended, pursuant
to which HPII and the Company agreed, that subject to the conditions stated in
the AP Stock Purchase Agreement, the Company would issue such number of shares
(the "AP Shares") determined by 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 the lesser of $7 5/8 and the closing price of
the Company's common stock on the last trading day prior to the date of
issuance. The value of the AP Shares is currently estimated to be approximately
$7,500 which was recorded in accrued expenses, related parties on the
accompanying balance sheet. Completion of this transaction is subject to
customary closing conditions including shareholder approval to be at a
special meeting of shareholders of the Company. Accordingly, for purposes of
earnings per share calculations, the contingently issuable shares of the
Company's common stock under this transaction have been included in both basic
and diluted earnings per share calculations for the three month period ended
December 31, 1997 (See Note 2).

Note 6: Commitments and Contingencies

The Company was served with a complaint (the "Complaint") on
February 12, 1998, in an action (the "Action") entitled Primary Health
Services, Inc., Chuck Davis and Gregory Gaiser v. Transworld Acquisiton Corp.,
Transworld Healthcare, Inc., The PromptCare Companies, Inc., and Hyperion
Partners II LP, Index No. 606/95/97, Supreme Court of the State of New York,
County of New York. The Action was commenced on December 4, 1997, with the
filing of a Summons with Notice of Compliant against the Company, Transworld
Acqusition Corp. ("Acquisition") and Hyperion Partners L.P. The Complaint
contains, among claims, a claim of breach of contract against the Company,
Acquisition and The PromptCare Companies, Inc. ("PromptCare") for breach of
an asset purchase agreement among Acquisition and the plaintiffs, breach of
a management agreement against the Company, interference with prospective
business relations and fraud. The Action seeks compensatory damages of
$3,275 and punitive damages of $5,000. Although it is too early to predict
the ultimate outcome, the Company intends to vigorously defend this proceeding
and currently does not expect that there will be a material adverse effect
on the Company's consolidated financial position, results of operations or
cash flows.

Page 11
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 6: Commitments and Contingencies (cont.)

On July 11 and July 22, 1997, the Company's Respiflow, Inc.
("Respiflow") and MK Diabetic Support Services, Inc. ("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 has been informed that the audit has been
extended to cover the Company's DermaQuest, Inc. subsidiary. 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. There can be no assurance that such amount, if any,
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.

On November 19, 1997, the Company was notified by the Office of the
United States Attorney for the Eastern District of Texas that it, Respiflow and
MK Diabetic (subsidiaries of the Company), and other non-affiliated entities
had been named defendants in a qui tam action under the Federal False Claims
Act. The qui tam action was filed under seal in the United States District
Court, and it will remain under seal while the government evaluates the merits
of the lawsuit and decides whether to intervene in and take over the conduct of
the litigation. The government has not made a copy of the sealed complaint
available to the Company; however, the Company has been informed that no
individuals associated with it or its affiliates have been named as defendants.
The Company further understands that the issues raised in the lawsuit involve
payments to durable medical equipment dealers who acted as the Company's
marketing representatives. The Company cannot predict whether the Federal
government will intervene in this action or whether the outcome of this action
will have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.

Effective October 1, 1997, the Company owned 100% of the common stock
of HMI.

Page 12
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 6: Commitments and Contingencies (cont.)

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 action 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 reached a
settlement of the consolidated action which received court approval on June 9,
1997. The settlement provided for a cash payment of $4,550 of which $3,200 was
paid at the time the court's approval of the settlement became final. In
October 1997, subsequent to the closing of the Merger Agreement, the remaining
$1,350 was paid. HMI is in the process of negotiating with its directors and
officers liability insurance carrier with respect to coverage 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 were named
as defendants, and HMI was 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 (ADS). The
consolidated action alleged 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. A Stipulation and Order of Voluntary Dismissal with
Prejudice of this action was filed on February 7, 1998.

BDO Seidman, LLP was named as a defendant, and HMI was 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
alleged claims for breach of contract, professional malpractice, negligent
misrepresentation, contribution and indemnification against BDO Seidman, LLP
arising out of alleged misrepresentations and omissions contained in certain of
HMI's previous securities filings. BDO Seidman, LLP was HMI's auditor at the
time those filings were made. A stipulation providing for the discontinuation
of this action with prejudice was entered into between the parties on
November 24, 1997.

Page 13
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 6: Commitments and Contingencies (cont.)

HMI and certain of its 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 formerly
entitled Nicholas Volonnino et al. v. Health Management, Inc., W. James Nicol,
Paul S. Jurewicz and James Mieszala, 97 Civ. 1646. The action was amended on
September 12, 1997, and is now entitled Dennis Baker et al. v. Health
Management, Inc., BDO Seidman, LLP, Transworld HealthCare, Inc., W. James
Nicol, Paul S. Jurewicz and James Mieszala. This action alleges claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, arising out of misrepresentations and omissions by HMI
in connection with certain of its previous securities filings and press
releases. The action now purports to represent a class of persons who purchased
shares of HMI common stock between April 26, 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. On November 19, 1997, HMI and the individual defendants
filed a motion to dismiss the claims against them for failure to state proper
claims for relief. The Company made a similar motion on November 24, 1997. The
plaintiffs were to have responded to such motion by February 11, 1998 and the
defendants reply brief is due on March 20, 1998.

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. HMI has been named as a
defendant in a lawsuit filed on November 25, 1997 in the Chancery Court of the
State of Delaware for New Castle County entitled Clifford E. Hotte v. Health
Management, Inc., CA No. 16060NC. The plaintiff in that action is seeking
reimbursement and advancement of legal fees and expenses in the amount of
$1,000. In addition, a former director of HMI through her attorneys had
demanded advancement of legal fees and expenses in the amount of $150. HMI
filed its answer to that suit on December 23, 1997.

The enforcement division of the Securities and Exchange Commission
(the "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 Commission for
documentary evidence.

Page 14
<PAGE>

TRANSWORLD HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
(In thousands, except per share data)
(Unaudited)

Note 6: Commitments and Contingencies (cont.)

The outcomes of certain of the foregoing lawsuits and the
investigation with respect to HMI are uncertain and the ultimate outcomes could
have a material adverse affect on the Company.

The Company is involved in various other legal proceedings and claims
incidental to its normal business activities. The Company is vigorously
defending its position in all such proceedings. Management believes these
matters should not have a material adverse impact on the financial condition,
cash flows or results of operations.

Note 7. Subsequent Events

On October 13, 1997, the Company together with HPII submitted a
proposal to Apria Healthcare Group, Inc. ("Apria") in connection with a
potential strategic combination between the Company and Apria. On February 4,
1998, Apria announced that it was pursuing a transaction with another investor
group.

Page 15
<PAGE>

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations

General
- -------

The Company changed its fiscal year to end on September 30 from
October 31, the Company's prior fiscal year end. This has resulted in the
quarterly information for the three months ended December 31, 1997 being
compared with prior period quarterly information for the three months ended
January 31, 1997. The Company has decided that it is not practicable to include
financial statements for corresponding periods of the prior year. There were no
factors which affected the comparability of the information or trends
reflected.

Results of Operations
- ---------------------

THREE MONTHS ENDED DECEMBER 31, 1997 VS. THREE MONTHS ENDED JANUARY 31, 1997

Revenues. Total revenues increased by $17,508,000 or 86.3% to
$37,805,000 for the three months ended December 31, 1997 from $20,297,000 for
the three months ended January 31, 1997. This increase was primarily
attributable to the inclusion of results for Omnicare Group, plc ("Omnicare")
($6,231,000) and Allied Medicare Limited ("Allied") ($14,043,000) (sometimes
collectively referred to herein as the "U.K. Operations") for the three months
ended December 31, 1997. This increase was partly offset by decreases in
patient service revenues primarily attributable to the sale in July 1997 of the
Company's Radamerica, Inc. ("Radamerica") subsidiary ($1,838,000).
(See below for discussion of anticipated reimbursement changes).

Cost of Revenues. Cost of revenues increased by $14,037,000 to
$23,526,000 for the three months ended December 31, 1997 from $9,489,000 for
the three months ended January 31, 1997. As a percentage of total revenues,
cost of revenues increased to 62.2% from 46.8% for the three months ended
December 31, 1997 and January 31, 1997, respectively. Cost of revenues as a
percentage of sales increased for respiratory, medical equipment and supplies
sales (56.0% for the three months ended December 31, 1997 versus 41.0% for the
three months ended January 31, 1997), increased for patient services (69.1% for
the three months ended December 31, 1997 versus 51.9% for the three months
ended January 31, 1997) and increased for infusion services (62.3% for the
three months ended December 31, 1997 versus 60.7% for the three months ended
January 31, 1997). The increases in the respiratory, medical equipment and
supplies sales are principally attributable to the inclusion of Omnicare's
results in the three months ended December 31, 1997 which carry a higher cost
of revenues (71.3%) than the U.S. respiratory, medical equipment and supplies
sales operations (48.2%) as well as an increase in the mix of higher cost
products at the Company's specialty mail-order pharmacy and medical supplies
operations. The increase in patient services costs are the result of the sale
of Radamerica in July 1997 which carried a lower cost of service (26.3%) and
the inclusion of Allied's results in the three months ended December 31, 1997
which carry cost of revenues of 69.2%.

Page 16
<PAGE>

Results of Operations (cont.)
- -----------------------------

Pursuant to the recent passage of the Balanced Budget Act, a 10%
reduction in Medicare reimbursement of diabetic testing strips became 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 expenses ("S,G&A") increased by $3,553,000 to $12,039,000
(41.9%) for the three months ended December 31, 1997 from $8,486,000 for the
three months ended January 31, 1997. This increase was primarily due to the
inclusion of the U.K. Operations ($4,380,000) partially offset by the sale of
Radamerica ($937,000). Included in S,G&A for the three months ended December
31, 1997 is $629,000 of intangible amortization (primarily goodwill) related to
the acquisition of the U.K. Operations which was not included in the comparable
prior year period.

Interest Income. Interest income decreased by $487,000 to $195,000 for
the three months ended December 31, 1997 from $682,000 for the three months
ended January 31, 1997. This decrease was attributable to interest income
earned under a credit agreement with HMI ($668,000) in the first quarter of
fiscal 1997 offset by interest earned in the first quarter of fiscal 1998 on a
higher level of funds invested than in the first quarter of fiscal 1997.

Interest Expense. Interest expense increased by $743,000 to $1,741,000
for the three months ended December 31, 1997 from $998,000 for the three months
ended January 31, 1997. This increase was primarily due to the increase in
borrowings under the Company's Credit Facility (as defined herein).

Provision for Income Taxes. Provision for income taxes as a percentage
of income before income taxes was 50.0% for the three months ended December 31,
1997 and 44.0% for the three months ended January 31, 1997. The increase from
the prior year is attributable to higher levels of non-deductible expenses,
primarily amortization of intangibles offset by a lower statutory tax rate for
the U.K. Operations (31%).

Net Income. As a result of the foregoing, the Company had a net income
of $347,000 for the three months ended December 31, 1997 compared to a net
income of $1,123,000 for the three months ended January 31, 1997.

Page 17
<PAGE>

Liquidity and Capital Resources
- -------------------------------

During the three months ended December 31, 1997 the Company utilized
$646,000 in operating activities and recognized $18,023,000 from investing
activities as follows: $24,725,000 received from the Asset Sale (as defined
herein) partly offset by $6,319,000 paid to complete the merger with HMI as
well as for fees and expenses in connection with the merger and to satisfy
existing HMI obligations which were retained by the Company; $1,204,000
received in connection with the sale of Radamerica; net of the utilization of
$1,027,000 for capital expenditures and $560,000 for acquisitions. Funds
generated by investing activities along with net proceeds of $6,481,000 from
the exercise of the Company's warrants were used to reduce the Company's
borrowings under the Credit Facility by $23,500,000 and to fund operating
activities.

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 December 31, 1997 and
September 30, 1997, $31,465,000 (16.8%) and $31,475,000 (15.6%), 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.

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 December 31, 1997 and September 30,
1997, the Company's average DSOs were relatively constant at 75 and 80,
respectively.

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), plus 1% or the
Eurodollar Rate, plus 2%. As of December 31, 1997 and February 10, 1998,
Eurodollar Rate borrowings bore interest at rates of 7.94% to 7.97% and 7.57%
to 7.63%, respectively. The Company reduced its outstanding borrowings under
the Credit Facility by $23,500,000 during the three months ended December 31,
1997. As of December 31, 1997, the Company had $62,855,000 outstanding under
the Credit Facility. The unused portion of the Credit Facility was $37,145,000
as of December 31, 1997.

Page 18
<PAGE>

Liquidity and Capital Resources (cont.)
- ---------------------------------------

Under the Credit Facility, as amended, the Company is required to make
minimum payments of $500,000 and $1,000,000 on or before February 28, 1998 and
June 30, 1998 respectively. Accordingly, $1,500,000 has been classified as
current.

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.
The Company amended the Credit Facility during the three months ended December
31, 1997 to accommodate, among other things, the merger with HMI and the Asset
Sale and to adjust certain covenants for fiscal 1997 and for fiscal periods
beginning October 1, 1997. At December 31, 1997 the Company was in compliance
with all financial convenants contained in the Credit Facility.

Sale of Radamerica. The Company finalized the sale of its Radamerica
subsidiary resulting in additional proceeds of $1,204,000, which were received
during November 1997.

Acquisition of HMI/Sale to Counsel. On October 1, 1997, the Company,
through a wholly-owned subsidiary, completed the previously announced merger
with HMI. Under the terms of the merger agreement, HMI stockholders received
$.30 in cash for each outstanding share of HMI common stock not already owned
by the Company. Concurrently with the closing of the merger, the Company
completed the sale of substantially all of the businesses and operations of HMI
(the "Asset Sale") to Counsel Corporation ("Counsel") for $40,000,000. Of the
$40,000,000 proceeds, $30,000,000 was received in cash with $7,500,000 to be
paid to the Company as HMI's accounts receivable, existing at date of sale, are
collected, with the remaining $2,500,000 held in escrow for post-closing
adjustments. Of the $30,000,000 proceeds received at closing, $23,500,000 was
used to reduce the senior secured debt owed by the Company under the Credit
Facility, $2,800,000 was used to complete the merger and the remainder was used
for costs, fees and other expenses to complete the Asset Sale as well as to
satisfy liabilities not assumed by Counsel. As of February 10, 1998, the
Company received $4,356,000 of the $7,500,000 to be paid in connection with the
collection of HMI's account receivable, existing at the date of sale.

Pursuant to the Asset Sale, Counsel will not assume any liabilities of
HMI other than certain liabilities arising after the closing under assumed
contracts and certain employee-related liabilities. Satisfaction of liabilities
not assumed by Counsel, as well as certain wind-down and contingent obligations
of HMI (including litigation - see "Litigation" with respect to certain legal
proceedings concerning HMI), have been considered in determining the net
realizable value of the HMI investment at December 31,1997.

Page 19
<PAGE>

Liquidity and Capital Resources (cont.)
- ---------------------------------------

HMI Payables. Hyperion Partners II L.P. ("HPII") has purchased certain
of HMI's trade payables (the "HMI Payables") aggregating approximately
$18,300,000 at various discounts. On March 26, 1997, the Company entered into a
stock purchase agreement (the "AP Stock Purchase Agreement"), with HPII, as
amended, pursuant to which HPII and the Company agreed, that subject to the
conditions stated in the AP Stock Purchase Agreement, the Company would issue
such number of shares of the Company's common stock (the "AP Shares")
determined by 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 the lower of $7.625 or the market value of the Company's common stock
at the close of the last trading day before the closing of the AP Stock
Purchase Agreement. The value of the AP Shares is currently estimated to be
approximately $7,500,000. Completion of this transaction is subject to
customary closing conditions including shareholder approval to be at a special
meeting of the shareholders.

Litigation. The Company was served with a complaint (the "Complaint")
on February 12, 1998, in an action (the "Action") entitled Primary Health
Services, Inc., Chuck Davis and Gregory Gaiser v. Transworld Acqusition Corp.,
Transworld Healthcare, Inc., The PromptCare Companies, Inc. and Hyperion
Partners II LP, Index No. 606/95/97, Supreme Court of the State of New York,
County of New York. The Action was commenced on December 4, 1997, with the
filing of a Summons with Notice of Complaint against the Company, Transworld
Acquisition Corp. ("Acquisition") and Hyperion Partners L.P. The Complaint
contains, among claims, a claim of breach of contract against the Company,
Acquisition and The PromptCare Companies, Inc.("PromptCare") for breach of an
asset purchase agreement among Acquisition and the plaintiffs, breach of a
management agreement against the Company, interference with prospective
business relations and fraud. The Action seeks compensatory damages of
$3,275,000 and punitive damages of $5,000,000. Although it is too early to
predict the ultimate outcome, the Company intends to vigorously defend this
proceeding and currently does not expect that there will be a material adverse
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, Inc.
("Respiflow") and MK Diabetic Support Services, Inc. ("MK Diabetic")
subsidiaries, respectively, each received a letter (the "Audit Letters") 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 Letters
indicate, among other things, that the OIG is conducting an industry-wide
audit of marketing fees and commissions paid from pharmacies to home medical
equipment companies. The Company has been informed that the audit has been
extended to cover the Company's DermaQuest, Inc. subsidiary. The Company is
cooperating fully with the OIG and has produced documentation which it believes
is responsive to the requests set forth in the Audit Letters. While the Company
believes that its former arrangements with home 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. There can be no assurance that such amount, if any, will not
have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.

Page 20
<PAGE>

Liquidity and Capital Resources (cont.)
- ---------------------------------------

On November 19, 1997, the Company was notified by the Office of the
United States Attorney for the Eastern District of Texas that it, Respiflow, MK
Diabetic, and other non-affiliated entities had been named defendants in a qui
tam action under the Federal False Claims Act. The qui tam action was filed
under seal in the United States District Court, and it will remain under seal
while the government evaluates the merits of the lawsuit and decides whether to
intervene in and take over the conduct of the litigation. The government has
not made a copy of the sealed complaint available to the Company; however, the
Company has been informed that no individuals associated with it or its
affiliates have been named as defendants. The Company further understands that
the issues raised in the lawsuit involve payments to durable medical equipment
dealers who acted as the Company's marketing representatives. The company
cannot predict whether the Federal government will intervene in this action or
whether the outcome of this action will have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.

Effective October 1, 1997, the Company owned 100% of the common stock
of HMI.

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 action 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 reached a settlement of the consolidated action which
received court approval on June 9, 1997. The settlement provided for a cash
payment of $4,550,000 of which $3,200,000 was paid at the time the court's
approval of the settlement became final. In October 1997, subsequent to the
closing of the Merger Agreement, the remaining $1,350,000 was paid. HMI is in
the process of negotiating with its directors and officers liability insurance
carrier with respect to coverage 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.

Page 21
<PAGE>

Liquidity and Capital Resources (cont.)
- ---------------------------------------

duty and contribution against the individual director defendants arising out of
alleged misrepresentations and omissions contained in certain of HMI's previous
securities filings. A Stipulation and Order of Voluntary Dismissal with
Prejudice of this action was filed on February 7, 1998.

BDO Seidman, LLP was named as a defendant, and HMI was 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
alleged claims for breach of contract, professional malpractice, negligent
misrepresentation, contribution and indemnification against BDO Seidman, LLP
arising out of alleged misrepresentations and omissions contained in certain of
HMI's previous securities filings. BDO Seidman, LLP was HMI's auditor at the
time those filings were made. The stipulation providing for the discontinuation
of this action with prejudice was entered into between the parties on
November 24, 1997.

HMI and certain of its 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 formerly
entitled Nicholas Volonnino et al. v. Health Management, Inc., W. James Nicol,
Paul S. Jurewicz and James Mieszala, 97 Civ. 1646. The action was amended on
September 12, 1997, and is now entitled Dennis Baker et al., v. Health
Management, Inc., BDO Seidman, LLP, Transworld HealthCare, Inc., W. James
Nicol, Paul S. Jurewicz and James Mieszala. This action alleges claims under
Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
promulgated thereunder, arising out of misrepresentations and omissions by HMI
in connection with certain of its previous securities filings and press
releases. The action now purports to represent a class of persons who purchased
shares of HMI common stock between April 26, 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. On November 19, 1997, HMI and the individual defendants
filed a motion to dismiss the claims against them for failure to state proper
claims for relief. The Company made a similar motion on November 24, 1997. The
plaintiffs were to have responded to such motion by February 11, 1998 and the
defendants reply brief is due on March 20, 1998.

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. HMI has been named as a
defendant in a lawsuit filed on November 25, 1997 in the Chancery Court of the
State of Delaware for New Castle County entitled Clifford E. Hotte v. Health
Management, Inc., CA No. 16060NC. The plaintiff in that action is seeking
reimbursement and advancement of legal fees and expenses in the amount of
$1,000,000. In addition, a former director of HMI through her attorneys had
demanded advancement of legal fees and expenses in the amount of $150,000. HMI
filed its answer to that suit on December 23, 1997.

Page 22
<PAGE>

Liquidity and Capital Resources (cont.)
- ---------------------------------------

The outcomes of certain of the foregoing lawsuits and the
investigation with respect to HMI are uncertain and the ultimate outcomes could
have a material adverse affect on the Company.

Page 23
<PAGE>

PART II

Item 5. Other Information.

Effective January 5, 1998 Robert W. Fine resigned his
positions as President and Chief Operating Officer of the Company. The Company
has entered into a resignation agreement and a six-month consulting agreement
with Mr. Fine.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits.

10.1 Ninth Amendment to Credit Agreement, dated as
of February 5, 1998, between the Company and
Bankers Trust Company.

10.2 Agreement between the Company and Robert W.
Fine relating to resignation, effective as of
January 5, 1998.

10.3 Consulting Agreement between the Company and
Robert W. Fine, effective January 5, 1998.

27 Financial Data Schedule

(b) Reports on Form 8-K.

The Company filed on or about October 10, 1997 a
Form 8-K dated October 1, 1997.

The Company filed on or about October 16, 1997 a
Form 8-K dated October 13, 1997.

Page 24
<PAGE>

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: February 13, 1998

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 25
<PAGE>

EXHIBIT INDEX

Exhibit Description

10.1 Ninth Amendment to Credit Agreement, dated as of February 5,
1998, between the Company and Bankers Trust Company.

10.2 Agreement between the Company and Robert W. Fine relating to
resignation, effective as of January 5, 1998.

10.3 Consulting Agreement between the Company and Robert W. Fine,
effective January 5, 1998.

27 Financial Data Schedule

Page 26

<PAGE>

NINTH AMENDMENT TO CREDIT AGREEMENT
-----------------------------------

NINTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated
as of February 5, 1998, 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 9.05(a) of the Credit Agreement is hereby amended by (i)
deleting the second proviso thereto in its entirety and inserting the following
new proviso in lieu thereof :

" provided further, that so long as no Default or Event of
Default then exists the preceding proviso shall not apply during the
period from and including the Ninth Amendment Effective Date to and
including April 30, 1998;"

and (ii) inserting the word "second" immediately before the phrase "preceding
proviso" appearing in the third proviso thereto.

2. Section 11 of the Credit Agreement is hereby amended by inserting
in appropriate alphabetical order the following new definition:

<PAGE>

"Ninth Amendment Effective Date" shall have the meaning
provided in the Ninth Amendment, dated as of February 5, 1998, to this
Agreement.

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 Ninth
Amendment Effective Date (as defined below), 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 Ninth 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 Ninth 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 "Ninth
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 Ninth Amendment
Effective Date.

-2-
<PAGE>

6. From and after the Ninth 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.

* * *

-3-
<PAGE>

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
-------------------------------------
Title:

THE BANK OF NEW YORK

By
-------------------------------------
Title:
<PAGE>

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
-------------------------------------
Title:

BANKERS TRUST COMPANY,
Individually and as Agent

By /s/ Patricia Hogan
-------------------------------------
Patricia Hogan
Title: Principal

THE BANK OF NEW YORK

By
-------------------------------------
Title:
<PAGE>

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
-------------------------------------
Title:

BANKERS TRUST COMPANY,
Individually and as Agent

By
-------------------------------------
Title:

THE BANK OF NEW YORK

By /s/ Vincent P. O'Leary
-------------------------------------
VINCENT P. O'LEARY
Title: SENIOR VICE PRESIDENT

<PAGE>

BANQUE PARIBAS

By
-------------------------------------
Title:

UNION BANK OF SWITZERLAND,
NEW YORK BRANCH

By /s/ Leo L. Baltz
-------------------------------------
Leo L. Baltz
Title: Director

By /s/ Robert L. Wells
-------------------------------------
Robert L. Wells
Title: Director

FLEET BANK, N.A.

By
-------------------------------------
Title:

<PAGE>

Each of the undersigned, each being a Subsidiary Guarantor pursuant to the
Credit Agreement referenced in the foregoing Ninth Amendment and a party to
various Security Documents, hereby acknowledges and agrees to the foregoing
provisions of the Ninth Amendment.

Acknowledged and
Agreed this 5th day
of Februar, 1998.

DERMAQUEST, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

MK DIABETIC SUPPORT
SERVICES, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

THE PROMPTCARE COMPANIES, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

<PAGE>

THE PROMPTCARE LUNG CENTER, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

STERI-PHARM, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

TRANSWORLD HOME HEALTHCARE NURSING DIVISION, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

RESPIFLOW, INC.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

<PAGE>

TRANSWORLD ACQUISITION CORP.,
as a Pledgor

By /s/ Wayne A. Palladino
----------------------------
Title: VP

<PAGE>

December 29, 1997

Mr. Robert W. Fine
111 Ashley Avenue
Brielle, NJ 08730

Dear Bob:

This letter sets forth our agreement (the "Agreement") with respect to your
resignation as an employee, officer and member of the board of directors of
Transworld HealthCare, Inc. a New York corporation (the "Company"), and any and
all of its subsidiary companies and affiliated companies (the Company and such
subsidiary and affiliated companies hereinafter individually and collectively
called the "Companies") of which you may be an employee, officer or director.
The terms of this Agreement supersede and replace the terms of the Employment
Agreement dated as of October 31, 1994 by and between you and the Company (the
"Employment Agreement").

1. Resignation. You hereby irrevocably resign as an officer, director
and employee of each of the Companies and from any other position you hold with
any of the Companies not otherwise set forth herein or any of their benefit or
other plans or trusts, effective on the later of (i) the execution and delivery
hereof or (ii) the close of business on December 21, 1997 (the "Resignation
Date").

2. Severance. In consideration of your entering into this Agreement
and performing your obligations hereunder, and in lieu of any other
termination, severance or other payment of benefits of any kind whatsoever, the
Company will pay or provide to you the following (in each case, where
appropriate, less applicable withholding and other taxes):

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 2

a. Payment. The Company will pay you consideration
pursuant to a Consulting Agreement between us dated as of December
22, 1997, a copy of which is attached hereto, marked as Exhibit "A"
and incorporated herein by this reference (the "Consulting
Agreement"); provided, however, that the Consulting Agreement shall
only become effective ten (10) days after the effective date of
this Agreement (the "Effective Date").

b. Options. You currently hold options to purchase 175,000
shares of common stock of the Company. As of the Resignation Date, 115,000 of
these options are vested and exercisable (the "Vested Options"). The term of
any such Vested Options that would otherwise have expired on or before
September 20, 1998 is extended to and including September 20, 1998. In
addition, you may exercise all or any portion of such Vested Options (to the
extent not previously exercised) at any time commencing on the Effective Date
through and including September 20, 1998. All corporate action necessary to
effectuate such extension has been taken.

c. Expenses. The Company shall reimburse you on the
Effective Date for all documented customary expenses incurred by
you in connection with your duties through and including the
Resignation Date.

d. Continued Medical Coverage. In the event that you elect
COBRA continuation of your coverage under the Company's medical and
hospitalization plan (the "Medical Plan") for periods after the date your
coverage would otherwise terminate on account of your resignation of
employment, the Company will pay the monthly premium required to maintain such
coverage for each month of such coverage to which you are entitled under the
terms of the Medical Plan and applicable law, up to a maximum of 18 months.

e. Vacation Pay. Between January 1, 1998 and January
10, 1998, the Company will pay to you, in in a single lump sum
payment and less any applicable withholdings, the aggregate sum of

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 3

$19,600 which represents all earned and unused vacation accrued
through the Resignation Date.

Except for any consideration to which you may become entitled pursuant to the
Consulting Agreement, you acknowledge and agree that the payments and benefits
provided for in this Paragraph 2 are in full discharge of any and all of the
Companies' liabilities and obligations to you, including without limitation any
and all obligations arising under the Employment Agreement or under any alleged
written or oral policies, plans, practices or procedures of any of the
Companies, or agreements, understandings or arrangements between you and any of
the Companies, except with respect to any benefits to which you may be entitled
pursuant to the terms of any tax-qualified retirement plan of any of the
Companies in which you are a participant.

3. Trade Secrets; Confidentiality. You recognize and acknowledge that,
in connection with your employment with the Companies, you have had access to
valuable trade secrets and confidential information of the Companies including,
but not limited to, customer lists, business methods and processes, marketing,
promotional, pricing, financial information and data relating to employees and
consultants (collectively "Confidential Information") and that such
Confidential Information was made available to you only in connection with the
furtherance of your employment with the Companies. You agree that hereafter,
you shall not disclose any of such Confidential Information to any individual,
corporation, partnership, association, joint-stock company, trust,
unincorporated organization, joint venture, court or government (or political
subdivision or agency thereof), except that disclosure of Confidential
Information will be permitted (i) to the Companies and their respective
advisors; (ii) if such Confidential Information has previously become available
to the public through no fault of yours; (iii) if required by any court or
governmental agency or body or if otherwise required by law; (iv) if necessary
to establish or assert your rights hereunder; or (v) if expressly consented to
in writing by the Company.

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 4

4. Restrictive Covenants.

a. You agree that for a period commencing with the execution
hereof through December 31, 1998, you will not directly or indirectly hire or
solicit any employee and/or agent of the Companies or any person who was an
employee and/or agent of the Companies at any time within the three month
period immediately prior to the Effective Date, or encourage any such employee
and/or agent of the Companies to terminate such employment or agency
relationship.

b. You acknowledge and agree that the agreements set
forth in Paragraphs 3. and 4a. are reasonable and valid in
geographical and temporal scope and in all other respects. If any
court determines that any of the provisions of Paragraphs 3. and/or
4a. or any part(s) thereof, are invalid or unenforceable, the
remainder of such provisions and/or part(s) thereof shall not
thereby be affected and shall be given full force and effect,
without regard to the invalid or unenforceable part(s).

c. If any court determines that any of the provisions
of Paragraphs 3. and/or 4a. or any part(s) thereof, are invalid or
unenforceable for any reason, such court shall have the power to
modify such provisions and/or parts and, in its modified form, the
provisions of Paragraphs 3. and/or 4a. shall then be valid and
enforceable.

5. Releases; Covenants Not to Sue.

a. Release of the Companies. You, for yourself and your
heirs, dependents, executors, administrators, legal representatives, successors
and assigns (collectively, the "Releasors"), hereby release, remise, and
forever discharge each of the Companies, each of their predecessors, successors
and assigns, each of their employee benefit and/or pension plans and funds,
each of the foregoing's present and former directors, officers, partners,
stockholders, employees, agents, fiduciaries and trustees

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 5

and each of the foregoing's heirs, executors, administrators, legal
representatives, successors and assigns (collectively, the "Company Releasees")
of and from any and all actions, causes of action, suits, debts, liabilities,
claims and potential claims, sums of money, covenants, agreements, promises,
damages, judgments and demands whatsoever, in law or equity, whether known or
unknown, which against the Company Releasees or any of them, any of the
Releasors ever had, now has, or which he or it hereafter can, shall or may
have, for, upon, or by reason of any fact, matter, cause or thing whatsoever
from the beginning of the world to the Effective Date, including, without
limitation, any claims under the Age Discrimination in Employment Act, as
amended, arising prior to the Effective Date, other than any claim arising out
of this agreement and any indemnification obligations of the Company to you
with respect to claims of third parties pursuant to the Company's existing
indemnification policies covering its officers and directors (collectively the
"Discharged Company Matters"). You covenant that you shall never commence,
institute, maintain, prosecute or participate in any action or proceeding of
any kind, judicial or administrative, based in whole or in part on any of the
Discharged Company Matters, except to the extent required pursuant by the order
of a court of competent jurisdiction. You represent that, as of the date of
your execution of this Agreement, you have not taken any action referred to in
the preceding sentence.

b. Release of You. The Companies, for themselves and
their successors and assigns (collectively the "Company
Releasors"), hereby release, remise and forever discharge you and
each of your heirs, executors, administrators, legal representatives and
assigns (collectively the "Fine Releasees") of and from any and all actions,
causes of action, suits, debts, liabilities, claims and potential claims, sums
of money, covenants, agreements, promises, damages, judgments and demands
whatsoever, in law or equity, known or unknown, which against the Fine
Releasees or any of them, any of the Company Releasors ever had, now has, or
which it hereafter can, shall or may have, for, upon or by reason of any fact,
matter, cause or thing whatsoever from the beginning of the world to the
Effective Date (the "Discharged Fine Matters").

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 6

The Company covenants that its shall never commence, institute, maintain,
prosecute or participate in as a party any action, or proceeding of any kind,
judicial or administrative, based in whole or in part on any of the Discharged
Fine Matters except to the extent required pursuant to the order of a court of
competent jurisdiction. The Company represents that, as of the date of this
Agreement, it has not taken any action referred to in the preceding sentence.

c. Relief. Any breach of the Trade Secrets,
Confidentiality or Restrictive Covenant provisions of Paragraphs 3
and 4a. above, or the Covenants Not to Sue provision contained in
Paragraphs 5a. and 5b. above, shall be considered a material breach
of this Agreement. In the event of a breach or threatened breach
by you of any of the provisions contained in Paragraphs 3, 4a., 5a.
or 5b. hereof, the Company shall be entitled to a temporary
restraining order, a preliminary injunction and/or a permanent
injunction restraining you from breaching or continuing to breach
any of said paragraphs. Nothing herein contained shall be
construed as prohibiting the Company from pursuing any other
remedies that may be available to it for such breach or threatened
breach, including the recovering of damages.

6. Miscellaneous.

a. The making of this Agreement is not intended, nor shall it
be construed, as an admission that any of the Companies or any of the Company
Releasees has violated any federal, state or local law, ordinance or
regulation, breached any contract or committed any wrong whatsoever against
you.

b. You acknowledge that you have read this Agreement in its
entirety, fully understand all of its terms and their significance and
knowingly and voluntarily assent to all the terms and conditions contained
herein.

c. The parties shall cooperate and take such actions,
and execute such other documents, as either party may reasonably

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 7

request in order to carry out the provisions or purposes of this Agreement.

d. If any clause of provision of this Agreement shall be held
to be invalid or unenforceable, such clause or provision shall be construed and
enforced as if it had been drawn so as not to be invalid or unenforceable and
such invalidity or unenforceability shall not affect or render invalid or
unenforceable any other clause or provision of this Agreement.

e. This Agreement and the Consulting Agreement collectively
set forth the parties' final and entire agreement, and supersede any and all
prior understandings and/or agreements with respect to their subject matter.
This Agreement can be amended, supplemented or changed, and any provision
hereof can be waived, only by a written instrument signed by the party against
whom enforcement of any such amendment, supplement, change or waiver is sought.

f. The paragraph headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement.

g. This Agreement shall be governed by and construed and
interpreted in accordance with the internal laws of the State of New York
(without referenced to its rules as to conflicts of law). Any legal action or
proceeding with respect to or arising out of this Agreement shall be brought in
the courts of the State of New York or of the United States of America, located
in the County, City and State of New York, and, by execution and delivery of
this Agreement, each of the parties hereby accepts, generally and
unconditionally, the exclusive jurisdiction of such courts. Each of the parties
hereby irrevocably waives, in connection with any such action or proceeding,
any objection, including without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens, which he or it may now
or hereafter have to the bringing of any such action or proceeding in such
jurisdiction.

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 8

h. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which taken
together shall constitute one and the same instrument.

7. Revocation. You have twenty-one (21) calendar days from your
receipt of this Agreement to sign and return it to the Company. We advise you
to consult with an attorney before signing this Agreement. You may sign this
Agreement prior to the expiration of such twenty-one (21) day period. In
addition, you will have seven (7) days after signing this Agreement to revoke
your acceptance of its terms by giving written notice of revocation by personal
delivery to Gregory E. Marsella at the address of the Company shown on this
first page of this letter. This Agreement and the Consulting Agreement will not
become effective (and you will not receive any payments or other benefits under
this Agreement or the Consulting Agreement) until you have signed this
Agreement and the revocation period has expired.

<PAGE>

Mr. Robert W. Fine
December 29, 1997
Page 9

If the foregoing correctly sets forth your understanding of our agreement,
please so indicate by signing and returning to us a copy of this Agreement
within twenty-one (21) calendar days from your receipt of this Agreement.

Very truly yours,

TRANSWORLD HEALTHCARE, INC.

By:/s/ Gregory E. Marsella
----------------------------------
Gregory E. Marsella
Vice President and General Counsel

Accepted and agreed to this 29th day of December, 1997

/s/ Robert W. Fine
- -------------------------------------
Robert W. Fine

Sworn to before me this 29th day of December, 1997

/s/ Patricia M. Findlay
- -------------------------------------
Notary Public

GEM:gre
finesev1.fin

<PAGE>

CONSULTING AGREEMENT
--------------------

This Agreement is made as of this 22nd day of December, 1997,
by and between Transworld HealthCare, Inc. ("Transworld") and
Robert W. Fine ("Consultant").

R E C I T A L S

WHEREAS, Consultant has extensive experience in the area of healthcare
operations and desires to render consulting services to Transworld related to
the foregoing; and

WHEREAS, Transworld requires such consulting services for its
subsidiaries known as Health Management, Inc. ("HMI"), Respiflow,
Inc., Dermaquest, Inc. and M.K. Diabetic Support Services, Inc.;
(each of the three foregoing companies is hereinafter collectively
referred to as the "Florida Subsidiaries"); and

WHEREAS, Transworld believes that it can utilize Consultant's services
for the purposes of, among other things, assisting the Company in (1) winding
up its HMI operations, (2) seeking contribution for obligations related to the
Florida Subsidiaries, and (3) selling the Company's nursing subsidiary known as
Transworld Home Healthcare - Nursing Division, Inc. ("Transworld Nursing"); and

WHEREAS, Consultant wishes to enter into an agreement with Transworld
to perform consulting services as set forth below.

NOW, THEREFORE, the parties agree as follows:

1. Compensation. Transworld agrees to retain Consultant as
an independent contractor for the purpose of rendering
various forms of consulting services up to forty (40)
hours per week. As compensation for these services,
Transworld agrees to compensate Consultant, through the
Term, in the sum of $120,000, payable in equal monthly
installments of $20,000. Transworld shall also reimburse
Consultant for his reasonable travel expenses incurred in
performing the duties set forth herein upon presentation
of appropriate supporting documentation.

2. Duties. The value of Consultant's advice is not
measurable in any quantitative manner and Consultant
shall render advice and assistance in good faith but

<PAGE>

shall not be obligated to spend any specific amount of time
in doing so. Consultant shall provide advice and assistance
to the Company concerning the following:

A. winding up Transworld's HMI operations, including
negotiating trade payables, early buy-outs and/or
subletting of facilities leases and other post-
closing matters;

B. securing funds from the former owners of the Florida
Subsidiaries related to obligations arising from the
OIG audit of the Florida Subsidiaries which
commenced in July, and additional bad debt reserves
which have been incurred by the Transworld in
December, 1997 for Dermaquest, Inc.
("Dermaquest");

C. negotiating and consummating the sale of the stock
of Transworld Nursing to a third party;

D. monitoring the collection of HMI accounts
receivable by Counsel Corporation ("Counsel") and
liaison with Counsel regarding the disbursements to
Transworld of any amounts held in escrow accounts
related thereto;

E. resolving any outstanding issues which relate to
HMI employment matters; and

F. assisting any other consultants who also may be
retained by Transworld for the purpose of
performing services which relate to the winding up
of HMI's operations.

3. Bonus Compensation. Consultant shall be entitled to
additional compensation related to the duties
specifically outlined above in Section 2(A) through 2(C),
above, as follows:

A. if Consultant successfully negotiates the post-
closing HMI matters at or below the targets set
forth below which relate to Consultant's activities

<PAGE>

as outlined in Section 2(A), above, then Consultant
shall be entitled to immediate vesting of 20,000
shares (the "Bonus Shares") of the 60,000 shares
granted to Consultant pursuant to that certain Stock
Option Agreement dated as of August 13, 1997 (a copy
of which is attached hereto as Exhibit "A"), which
options are in addition to the 115,000 options due
Consultant under the Letter Agreement executed
contemporaneously herewith; provided, however, that
the Bonus Shares must be exercised, upon vesting,
within ninety (90) days following the termination of
this Agreement:

(1) the HMI account payable related to Novartis
must be no greater than $1,350,000; and

(2) the termination of the lease obligations
for the HMI facilities located in Chicago,
Pittsburgh and New York, and the
termination of the obligations for related
furniture, fixtures and equipment,
collectively, shall result in obligations
to the Company of no more than 1.1 million
(net of any sales proceeds).

B. if Consultant's efforts result in the payment of
6.5 million (the "Target Recovery") to Transworld
from any or all of the former owners of the Florida
Subsidiaries as outlined in Section 2(B) above,
then Transworld shall pay Consultant $100,000 (it
being understood that Consultant shall receive no
additional compensation hereunder if the
consideration paid to Transworld is less than the
Target Recovery); provided, however, that the
Target Recovery (i) must actually be paid to and
received either by Transworld or an agreed upon
escrow agent in a single, lump sum cash payment,
and (ii) must be final, unconditional and not
contingent or repayable by Transworld for any
reason.

C. if Consultant negotiates and successfully
consummates the sale of the stock of Transworld

<PAGE>

Nursing to a third party as set forth in Section
2(C), above, then Consultant shall be paid, upon the
closing of such transaction, a fee equal to one
percent (1%) of the amount by which the purchase
price exceeds $4 million (the "Transaction Bonus");
provided, however, that the Transaction Bonus shall
not be paid to Consultant unless and until (i) each
portion of the purchase price is actually paid to
and received by Transworld or an agreed upon escrow
agent in a single, lump sum cash payment; (ii) the
purchase price is final, unconditional and not
contingent or repayable by Transworld for any
reason; and (iii) the sale is consummated within
ninety (90) days following the effective date of
this Agreement.

4. Term. The term of this Agreement shall be for a period
of six (6) months from the date first set forth above,
subject to the provisions set forth below in Paragraphs
5 and 14. However, Consultant shall receive the bonus
compensation described in Sections 3A and 3B above for
any transaction that occurs within one year of the
expiration of the term of this Agreement as a result of
Consultant's efforts during the term of this Agreement.

5. Termination. Transworld shall be entitled to immediately
terminate this Agreement with Consultant for Cause (as
defined below), upon which Consultant shall only be
entitled to the unpaid portion of the compensation set
forth in Section 1 herein through the date of termination
and shall not be entitled to any additional compensation
as set forth in Section 3 herein (to the extent that
Consultant has not otherwise already been paid
thereunder). For purposes of this Section 5, "Cause"
shall exist if Consultant (i) fails, in any material
respect, to perform his obligations hereunder as provided
herein; (ii) has been convicted of a crime related to the
Company or its affairs which constitutes a felony under
applicable law or, during the Term, has taken any action
or omitted to act, the result of which could have an
adverse effect on the Company or its affiliates, or their
businesses, prospects, or affairs; or (iii) has committed
any act which constitutes fraud or gross negligence under

<PAGE>

applicable law related to these transactions.

6. Indemnification. Each party agrees to indemnify and
defend the other party against all losses and claims for
damages which arise as a result of the indemnifying
party's negligence or wilful misconduct in the
performance of its or his duties hereunder.

7. Relationship of Parties. None of the provisions of this
Agreement are intended to create nor shall be deemed or
construed to create any relationship between the parties
hereto other than that of independent contractors solely
for the purpose of effecting the provisions of this
Agreement. Neither of the parties hereto, nor any of
their respective officers, directors or employees, shall
act as nor be construed to be the agent, employee or
representative of the other. Consultant shall not be
entitled to any benefits of any kind from Transworld.

8. Taxes. Consultant shall be responsible for the payment
of all taxes which may arise under or be due and owing as
a result of this Agreement.

9. Notices. Notices required pursuant to this Agreement
shall be deemed given if delivered via certified mail,
postage fully prepaid, via Federal Express, or via
facsimile to the addresses listed below:

If to Transworld:

Transworld HealthCare, Inc.
Attention: General Counsel
555 Madison Avenue, 30th Floor
New York, NY 10022
Telephone: (212) 750-0064
Telecopy: (212) 750-7221

If to Consultant:

Robert W. Fine
111 Ashley Avenue
Brielle, NJ 08730
Telephone: (732) 223-9289
Telecopy: (732) 528-4812

<PAGE>

Each party agrees to notify the other party upon a change in
the addresses set forth above.

10. Confidentiality. Consultant agrees, during the Term of
this Agreement, not to disclose the terms of this
Agreement, as well as any information regarding
Transworld's programs, products or services, to any third
parties without the express written consent of
Transworld. Transworld may disclose this Agreement or
any of the terms hereof if, in its opinion, such
disclosure is required by law or contract.

11. Entire Agreement. This Agreement and the Letter
Agreement executed contemporaneously herewith set forth
the entire agreement between the parties with respect to
the terms and conditions set forth herein and supersede
all oral and written agreements, understandings, and
memoranda between them.

12. Choice of Law. This Agreement shall be governed by and
construed with the laws of New York, without reference to
its rules on conflicts of law.

13. Attorneys' Fees. If an action is instituted by either
party to enforce the terms of this Agreement, the
prevailing party shall be entitled to recover its
reasonable attorneys' fees and costs.

14. Condition Precedent to Agreement Becoming Effective.
Notwithstanding anything contained herein to the contrary,
this Agreement shall not become effective until the Effective
Date (as defined in the Letter Agreement) of that certain
letter agreement dated December 29, 1997, by and between
Consultant and Transworld (the "Letter Agreement").

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.

TRANSWORLD HEALTHCARE, INC. CONSULTANT:

By:/s/ Gregory E. Marsella /s/ Robert W. Fine
------------------------------ -----------------------------------
Gregory E. Marsella Robert W. Fine
Vice President

<PAGE>

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