<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
HEALTHCARE FINANCIAL PARTNERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6799 52-1844418
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
--------------
2 WISCONSIN CIRCLE, SUITE 320
CHEVY CHASE, MARYLAND 20815
(301) 961-1640
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
JOHN K. DELANEY
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
HEALTHCARE FINANCIAL PARTNERS, INC.
2 WISCONSIN CIRCLE, SUITE 320
CHEVY CHASE, MARYLAND 20815
(301) 961-1640
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES TO:
G. WILLIAM SPEER, ESQ. TODD H. BAKER, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY STEPHANIE TSACOUMIS, ESQ.
SIXTEENTH FLOOR GIBSON, DUNN & CRUTCHER LLP
191 PEACHTREE STREET, N.E. ONE MONTGOMERY STREET, SUITE 3100
ATLANTA, GEORGIA 30303 SAN FRANCISCO, CALIFORNIA 94104
(404) 572-6600 (415) 393-8200
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 2,415,000 $14.00 $33,810,000 $11,659
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes 315,000 shares subject to the Underwriters' over-allotment
option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NO. FORM S-1 CAPTION CAPTION OR LOCATION IN PROSPECTUS
---- ---------------- ---------------------------------
<C> <S> <C>
1. Forepart of the
Registration Statement
and Outside Front Cover
Page of Prospectus...... Facing Page of the Registration Statement; Cross
Reference Sheet; Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus.............. Inside Front and Outside Back Cover Pages
3. Summary Information,
Risk Factors and Ratio
of Earnings to Fixed
Charges................. Prospectus Summary; Risk Factors
4. Use of Proceeds......... Use of Proceeds; Certain Transactions
5. Determination of
Offering Price.......... Outside Front Cover Page; Underwriting
6. Dilution................ Dilution
7. Selling Security
Holders................. Not Applicable
8. Plan of Distribution.... Outside Front Cover Page; Underwriting
9. Description of
Securities to be
Registered.............. Description of Capital Stock
10. Interests of Named
Experts and Counsel..... Legal Matters; Experts
11. Information with Respect
to the Registrant....... Prospectus Summary; Risk Factors; Dividend
Policy; Capitalization; Pro Forma Financial
Information; Management's Discussion and
Analysis of Pro Forma Financial Condition and
Pro Forma Results of Operations; Selected
Historical Financial Data; Management's
Discussion and Analysis of Historical Financial
Condition and Historical Results of Operations;
Business; Management; Certain Transactions;
Principal Stockholders; Description of Capital
Stock; Shares Eligible for Future Sale;
Underwriting; Financial Statements
12. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............. Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE +
+WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES +
+LAWS OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996
2,100,000 SHARES
[LOGO]
HEALTHCARE FINANCIAL PARTNERS, INC.
COMMON STOCK
All of the shares of Common Stock, $.01 par value per share (the "Common
Stock"), offered hereby (the "Offering") are being sold by HealthCare Financial
Partners, Inc. (the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. It is currently anticipated that the
initial public offering price will be between $12.00 and $14.00 per share. See
"Underwriting" for a discussion of factors to be considered in determining the
initial public offering price.
Application has been made to list the Common Stock on the Nasdaq National
Market under the trading symbol "H C F P."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share................................. $ $ $
Total (3)................................. $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
315,000 additional shares of Common Stock solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , Underwriting Discount will total $ and Proceeds
to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices
of Montgomery Securities on or about , 1996.
-----------
Montgomery Securities Stifel, Nicolaus & Company
Incorporated
, 1996
<PAGE>
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
----------------
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors,"
appearing elsewhere in this Prospectus, and the financial statements and notes
thereto. Unless the context otherwise requires, the information set forth in
this Prospectus gives effect to the proposed transactions described herein
under "--The Reorganization," and the term "Company" refers to HealthCare
Financial Partners, Inc. and its consolidated partnerships after giving effect
to such transactions. Unless otherwise indicated, the information set forth in
this Prospectus does not give effect to the exercise of the Underwriters' over-
allotment option. All information set forth in this Prospectus reflects the
amendment and restatement of the Company's Certificate of Incorporation, which,
among other things, increased the number of authorized shares, and gives
retroactive effect to a 4.56 to 1 split of the Common Stock, effected in the
form of a stock dividend on September 13, 1996.
THE COMPANY
HealthCare Financial Partners, Inc. (the "Company") is a specialty finance
company offering asset-based financing to healthcare service providers, with a
primary focus on clients operating in sub-markets of the healthcare industry,
including long-term care, home healthcare and physician practices. The Company
also provides asset-based financing to clients in other sub-markets of the
healthcare industry, including pharmacies, durable medical equipment suppliers,
hospitals, mental health providers, rehabilitation companies and disease state
management companies. The Company targets small and middle market healthcare
service providers with financing needs in the $100,000 to $10 million range in
healthcare sub-markets which have favorable characteristics for working capital
financing, such as those where growth, consolidation or restructuring appear
likely in the near to medium term. Management believes that the Company's
healthcare industry expertise and specialized information systems, combined
with its responsiveness to clients, willingness to finance relatively small
transactions, and flexibility in structuring transactions, give it a
competitive advantage in its target markets over commercial banks, diversified
finance companies and traditional asset-based lenders. From its inception in
1993 through June 30, 1996, the Company has advanced $407.1 million to its
clients in 151 transactions, including $210.9 million advanced during the six
months ended June 30, 1996. The Company had 94 clients as of June 30, 1996, of
which 26 were affiliates of one or more other clients. The average amount
outstanding per client or affiliated client group at June 30, 1996 was
approximately $856,000. For the six months ended June 30, 1996, the Company's
annualized yield on finance receivables (total interest and fee income divided
by average finance receivables for the period) was 18.2%.
At August 31, 1996, 51.4% of the Company's portfolio consisted of finance
receivables from businesses in the long-term care and home healthcare sub-
markets. Estimated expenditures in 1995 for the long-term care, home healthcare
and physician practice sub-markets, which the Company currently emphasizes,
collectively constituted approximately $306 billion of the over $1 trillion
U.S. healthcare market. These sub-markets are highly fragmented, and companies
operating in these sub-markets generally have significant working capital
finance requirements. The Company's clients operating in these sub-markets tend
to be smaller, growing companies. The Company believes that many of its
potential clients have limited access to traditional sources of working capital
financing from commercial banks, diversified finance companies and asset-based
lenders because many such lenders have not developed the healthcare industry
expertise needed to underwrite smaller healthcare service companies or the
specialized systems necessary to track and monitor healthcare accounts
receivable transactions. Some of the Company's clients are also constrained
from obtaining financing from more traditional working capital sources, due to
their inadequate equity capitalization, limited operating history, lack of
profitability, or financing needs below commercial bank size requirements. As
an asset-based lender, the Company provides financing to its clients based
principally on an assessment of the net collectible value of client receivables
from third-party payors.
3
<PAGE>
The Company currently provides financing to its clients through (i) revolving
lines of credit secured by accounts receivable (the "ABL Program"), (ii)
advances against accounts receivable (the "AR Advance Program"), and (iii) to a
lesser extent, term loans secured by accounts receivable and other assets,
generally in conjunction with financing provided under either the ABL Program
or the AR Advance Program. In all cases, the accounts receivable are
obligations of third-party payors, such as federal and state Medicare and
Medicaid programs and other government financed programs ("Government
Programs"), commercial insurance companies, health maintenance organizations
and other managed healthcare concerns, self-insured corporations and, to a
limited extent, other healthcare service providers. Under both the ABL Program
and AR Advance Program, the Company generally advances only 65% to 85% of the
Company's estimate of the net collectible value of client receivables from
third-party payors. The Company's credit risk is mitigated by the Company's
ownership of or security interest in the remaining balance of such receivables
("Excess Collateral"). Clients continue to bill and collect the accounts
receivable, subject to lockbox collection and sweep arrangements established
for the benefit of the Company. The Company uses its proprietary information
systems to monitor its clients' accounts receivable base on a daily basis and
to assist its clients in improving and streamlining their billing and
collection efforts with respect to such receivables. The Company conducts
extensive due diligence on potential clients for all its financing programs and
follows written underwriting and credit policies in providing financing to
clients. To date, the Company has not incurred any credit losses, although it
periodically makes provisions for possible future losses in the ordinary course
of its business.
The Company has developed low cost means of marketing its services on a
nationwide basis to selected healthcare sub-markets. The Company primarily
markets its services by telemarketing to prospective clients identified by the
Company, advertising in industry specific periodicals and participating in
industry trade shows. The Company also markets its services by developing
referral relationships with accountants, lawyers, venture capital firms,
billing and collection companies and investment banks. The Company's clients
also assist the Company's marketing efforts by providing referrals and
references.
To date, the Company has funded its activities primarily through a bank line
of credit, partnership capital and stockholders' equity. Recently, the Company
received a proposal from an affiliate of a major international financial
institution for $100 million of financing under an investment grade, asset-
backed commercial paper program (the "proposed CP Facility"). The proposed CP
Facility has been approved by the credit committee of such institution, and the
Company is currently negotiating the terms of a binding commitment.
The Company is a Delaware corporation which was organized in April, 1993 and
commenced its business in September, 1993. Until September 13, 1996 the
Company's name was HealthPartners Financial Corporation. On that date its
corporate name was changed to HealthCare Financial Partners, Inc. The Company's
principal executive offices are located at 2 Wisconsin Circle, Suite 320, Chevy
Chase, Maryland 20815, and its telephone number is (301)961-1640.
4
<PAGE>
STRATEGY
The Company's goal is to be the leading finance company in its targeted sub-
markets of the healthcare services industry. The Company's strategy for growth
is based on the following key elements:
. Target sub-markets within the healthcare industry that have favorable
characteristics for working capital financing, such as fragmented sub-
markets experiencing growth, consolidation or restructuring;
. Focus on healthcare service providers with financing needs of between
$100,000 and $10 million, a market that the Company believes has been
under served by commercial banks, diversified finance companies,
traditional asset-based lenders and other competitors of the Company;
. Introduce new financial products to leverage the Company's existing
expertise in healthcare finance and its origination, underwriting and
servicing capabilities within its target sub-markets; and
. Enhance the Company's credit risk management and improve servicing
capabilities through continued development of information management
systems, which can also be used to assist the Company's clients in
managing the growth of their businesses.
THE REORGANIZATION
Since inception, the Company has conducted its operations principally in its
capacity as the general partner of HealthPartners Funding, L.P. ("Funding") and
HealthPartners DEL, L.P. ("DEL"). Management concluded that the Company's
future financial position and results of operations would be enhanced if the
Company directly owned the portfolio assets of each of these limited
partnerships. Therefore, the transactions described below (the
"Reorganization") have been or will be effected by the Company prior to or
simultaneously with the completion of the Offering. See "Pro Forma Financial
Information" and "Certain Transactions."
Effective as of September 1, 1996, Funding acquired all of the net assets of
DEL, consisting principally of finance receivables, for $472,369 in cash, which
amount approximated the fair value of DEL's net assets. Immediately following
the acquisition, DEL distributed the purchase price to its partners and was
dissolved. The purpose of the transaction was to consolidate the assets of DEL
and Funding in anticipation of the acquisition by the Company of the limited
partnership interests of Funding described below. See "Certain Transactions."
Effective upon completion of the Offering, the Company will acquire from
HealthPartners Investors, L.L.C. ("HP Investors"), the sole limited partner of
Funding, all of the limited partnership interests in Funding. The purchase
price for such limited partnership interests will be $21.8 million, which will
be paid from the proceeds of the Offering. See "Use of Proceeds." Effective
upon consummation of the acquisition of the limited partnership interests of
Funding, the Company will cause Funding to be liquidated and dissolved, and all
of its net assets at the date of transfer, consisting principally of advances
made under the ABL Program and the AR Advance Program (an aggregate of $60.4
million at June 30, 1996), will be transferred to the Company. The principal
purposes of the Company's acquisition of Funding are (i) to consolidate
ownership of such assets and related business operations in the Company, a
single entity with greater access to the public and private capital markets,
(ii) to simplify the corporate and management structures of the Company by
eliminating its general partnership interest in Funding and the concomitant
management responsibilities of the Company as a general partner of Funding, and
(iii) to allow the Company to realize the return on the assets transferred to
the Company which otherwise would have been paid to HP Investors as the limited
partner of Funding. See "Certain Transactions."
In connection with the liquidation of Funding, HP Investors will exercise
warrants for the purchase of 379,998 shares of Common Stock acquired on
December 28, 1994 for an aggregate payment of $500. No additional consideration
will be paid in connection with the exercise of the warrants.
5
<PAGE>
In anticipation of the Offering and the liquidations of Funding and DEL,
Fleet Financial Corporation ("Fleet") has consented to the assignment to the
Company of the agreements relating to the lines of credit (the "Bank Facility")
made available to Funding and DEL (up to $31,250,000 and $3,750,000,
respectively), which will enable the Company to borrow from Fleet up to $50
million (an increase of $15 million from the previous levels) on the same terms
as previously extended to Funding and DEL. See "Business--Capital Resources."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........ 2,100,000 shares
Common Stock to be outstanding after the
Offering.................................. 5,899,991 shares(1)
Use of Proceeds............................ Of the net proceeds of the Offering, $21.8
million will be used to acquire the limited
partnership interests in Funding and the
remainder will be used for general corporate
purposes.
Proposed Nasdaq National Market symbol..... "HCFP"
</TABLE>
- --------
(1) Does not include 750,000 shares of Common Stock reserved for issuance
pursuant to the HealthCare Financial Partners, Inc. 1996 Stock Incentive
Plan (the "Incentive Plan"), of which options to purchase 300,000 shares
have been granted (but are not presently exercisable). See "Management-
Stock Incentive Plan." Also does not include an option to purchase 38,381
shares of Common Stock granted outside the Incentive Plan on November 1,
1995, which option is presently exercisable.
6
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following sets forth summary unaudited pro forma financial information
derived from the unaudited pro forma financial information included elsewhere
in this Prospectus. The summary unaudited pro forma statements of operations
give effect to the Reorganization as if it had occurred at the beginning of the
respective periods. The summary unaudited pro forma balance sheet as of June
30, 1996 has been prepared as if the Offering and the Reorganization had
occurred on June 30, 1996.
The summary unaudited pro forma financial information does not purport to
present the actual financial position or results of operations of the Company
had the transactions and events assumed therein in fact occurred on the dates
specified, nor is it necessarily indicative of the results of operations that
may be achieved in the future. The summary unaudited pro forma financial
information is based on certain assumptions and adjustments further described
herein. See "Pro Forma Financial Information" and "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of Operations."
PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PRO FORMA FOR
THE SIX MONTH
PRO FORMA FOR PERIOD ENDED JUNE 30,
THE YEAR ENDED ---------------------
DECEMBER 31, 1995 1995 1996
----------------- ---------- ----------
<S> <C> <C> <C>
Fee and interest income
Fee income........................... $4,814,504 $1,510,087 $3,960,286
Interest income...................... 403,659 59,742 1,204,010
---------- ---------- ----------
Total fee and interest income...... 5,218,163 1,569,829 5,164,296
Interest expense....................... 634,556 112,778 1,381,156
---------- ---------- ----------
Net fee and interest income........ 4,583,607 1,457,051 3,783,140
Provision for losses on receivables.... 217,388 217,388 396,801
---------- ---------- ----------
Net fee and interest income after
provision for losses on
receivables....................... 4,366,219 1,239,663 3,386,339
Operating expenses..................... 2,096,297 650,546 1,486,020
Other income........................... 224,691 93,234 18,000
---------- ---------- ----------
Income before income taxes............. 2,494,613 682,351 1,918,319
Income taxes........................... 972,899 266,117 748,144
---------- ---------- ----------
Pro forma net income................... $1,521,714 $ 416,234 $1,170,175
========== ========== ==========
Pro forma net income per share (1)..... $ .26 $ .07 $ .20
========== ========== ==========
Pro forma weighted average shares
outstanding (1)....................... 5,938,372 5,938,372 5,938,372
</TABLE>
7
<PAGE>
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
PRO FORMA AS OF
JUNE 30, 1996
---------------
<S> <C>
Assets
Cash and cash equivalents................................... $ 6,385,290
Finance receivables......................................... 65,913,529
Less:
Allowance for losses on receivables....................... 961,828
Unearned discount fees.................................... 480,380
-----------
Net finance receivables................................. 64,471,321
Prepaid expenses and other.................................. 764,776
-----------
Total assets.................................................. $71,621,387
===========
Liabilities and stockholders' equity
Line of credit.............................................. $35,406,243
Client holdbacks............................................ 10,558,004
Accounts payable to clients................................. 920,693
Accounts payable and accrued expenses....................... 513,694
-----------
Total liabilities............................................. 47,398,634
Stockholders' equity.......................................... 24,222,753
-----------
Total liabilities and stockholders' equity.................... $71,621,387
===========
OTHER DATA
Number of clients being provided financing at period end (2).. 94
Allowance for losses on receivables as a percentage of finance
receivables.................................................. 1.5%
Yield on finance receivables (3)(4)........................... 18.2%
Total operating expenses as a percentage of average assets
(4).......................................................... 4.8%
</TABLE>
- --------
(1) Pro forma net income per share was computed by dividing pro forma net
income by the pro forma weighted average shares outstanding, which gives
effect to the Offering and to a dilutive outstanding stock option.
(2) Includes 26 clients who are affiliates of one or more other clients.
(3) Fee and interest income divided by monthly average finance receivables.
(4) Calculated on an annualized basis.
8
<PAGE>
RISK FACTORS
Investment in the Company's Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, together with the other information included in this Prospectus,
before purchasing the shares of Common Stock offered hereby.
RISK OF NONPAYMENT AND CLIENT FRAUD
The Company's ability to fully recover amounts due under the AR Advance
Program and the ABL Program may be adversely affected by, among other things,
the financial failure of the Company's clients or their third-party payors,
fraud (e.g., the purchase of fraudulent receivables from a client),
misrepresentation, conversion of account proceeds by clients (e.g., client
misappropriation of account proceeds in violation of the terms of the ABL
Program or AR Advance Program), third-party payor disputes, and third-party
claims with respect to security interests. All of these risks are exacerbated
by concentrations of clients or third-party payors at any time. Accordingly,
the Company makes provisions for losses on finance receivables by establishing
an allowance for losses. In evaluating the adequacy of the allowance,
management of the Company considers trends in past-due accounts, historical
charge-off and recovery rates, credit risk indicators, economic conditions,
on-going credit evaluations, overall portfolio size, average client balances,
Excess Collateral and underwriting policies, among other items. Many of these
considerations involve significant estimation by management and are subject to
rapid changes which may be unforeseen and could result in immediate increased
losses and material adjustments to the allowance. Historically, the Company
has experienced no losses on finance receivables, but there is no assurance
that the Company will not experience losses on finance receivables in the
future, and such future losses could be significant and may vary from current
estimates. In addition, the amount of provisions for losses on finance
receivables may be either greater or less than actual future charge-offs of
finance receivables relating to these provisions. See "Business--Credit Loss
Policy and Experience" and "Management's Discussion and Analysis of Pro Forma
Financial Condition and Pro Forma Results of Operations--Provision and
Allowance for Possible Losses on Receivables."
DILUTION OF CLIENT RECEIVABLES; GOVERNMENT RIGHT OF OFFSET
Dilution of accounts receivable occurs when such receivables are not fully
collectible for reasons other than a third-party payor's financial inability
to pay (such as disagreements as to appropriate reimbursement for services
provided). Dilution with respect to any client's receivables increases the
risk that the Company will be unable to collect amounts advanced by the
Company to the client. The Company generally advances funds to its clients up
to a specified percentage of the Company's estimate of the net collectible
value of such client's receivables. In order to determine its estimate of the
net collectible value of a prospective client's receivables, the Company works
with third-party claim verifiers to contact third-party payors and reviews
historical collection factors by types of third-party payors. Should dilution
occur with respect to any client in an amount greater than the Excess
Collateral with respect to such client, the Company will typically need to
look to newer accounts receivable generated by such client or to other rights
the Company may have for the collection of the outstanding obligation to the
Company. If no such new accounts receivable are forthcoming or the Company is
unsuccessful in pursuing such other rights, the Company may incur a loss. Some
dilution occurs with respect to most, if not all, clients and may be more
significant with respect to Medicare and Medicaid receivables as a result of
the government's right of offset. Federal and state government agencies, in
accordance with Medicare and Medicaid statutes and regulations, have broad
rights to audit a healthcare service provider and offset any amounts it
determines were overpaid to such provider on any claims against payments due
on other current, unrelated claims. This right of offset could create losses
to the extent the Company has made advances against the accounts receivable
for such unrelated claims. The Company monitors dilution on a daily basis but
may not be able to react quickly enough to dilution to avoid losses and to
ensure collection of finance receivables. See "Business--Operations."
9
<PAGE>
CONCENTRATION OF CLIENT BASE AND THIRD-PARTY PAYOR BASE
At August 31, 1996, approximately 28.3% of the Company's finance receivables
were concentrated in receivables from two clients or groups of affiliated
clients. Adverse conditions affecting any of these clients could have a
material adverse effect on the Company's ability to collect advances to such
clients. At and for the six month period ended June 30, 1996, Southampton
Hospital accounted for approximately 14.1% of the Company's finance
receivables and 12.2% of the Company's total fee and interest income for this
period. The loss of this client could have a material adverse effect on the
Company's results of operations and financial condition. At August 31, 1996,
approximately 47.5% of the accounts receivable that the Company had purchased
or that were pledged to the Company were payable under Government Programs.
Any situation which would result in the inability of the federal and state
governments to fully fund such programs could have a material adverse effect
on the Company and its ability to collect advances to such clients. See
"Business--Operations."
INABILITY TO COLLECT HEALTHCARE RECEIVABLES DIRECTLY FROM MEDICARE AND
MEDICAID
With certain limited exceptions, federal law prohibits payment of amounts
owed to healthcare providers under the Medicare and/or Medicaid programs to
any entity other than providers. Except pursuant to a court order, the Company
is unable to force collection directly against third-party payors in a
Government Program. Accordingly, the Company is unable to collect receivables
payable under Government Programs directly, and, instead, the Company requires
that Medicare and Medicaid proceeds be paid to a segregated lockbox account
under the control of the client, the collected balances of which are then
swept to the Company via wire transfer on a daily basis. The Company must
closely monitor its clients' collection efforts to ensure compliance with the
foregoing procedures. Although to date the Company has been successful in
monitoring the collection of government-based receivables from its clients in
accordance with their contractual obligations, there can be no assurance that
the Company will continue to be successful in monitoring such collection
activities in the future. See "Business--Operations."
RISKS RELATED TO LOWER CREDIT GRADE BORROWERS
The Company focuses its marketing efforts on small and middle market
healthcare service providers. Some of these providers may be unable to obtain
financing from more traditional credit sources, such as commercial banks.
Advances made to these types of clients may entail a higher risk of loss than
advances made to clients who are able to utilize traditional credit sources.
While the Company employs underwriting criteria and monitoring procedures to
mitigate the higher risks inherent in advances made to some of its clients, no
assurance can be given that such criteria or procedures will afford adequate
protection against such risks. In the event that collection of amounts due
under the AR Advance Program and the ABL Program are less than anticipated,
the Company's results of operations and financial condition could be adversely
affected.
DEPENDENCE ON AVAILABILITY OF FUNDING SOURCES
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability and the terms of financing. In addition
to proceeds from the Offering, the Company expects to fund its future
financing activities principally from (i) the proposed CP Facility, which is
expected to have a five-year term, and (ii) the Bank Facility, which will
expire on March 9, 1998, subject to automatic renewals for one-year periods
thereafter unless terminated by Fleet. While the Company expects to be able to
obtain or renew these facilities and to have continued access to other sources
of credit after the expiration of these facilities, there is no assurance that
such financing will be available, or, if available, that it will be on terms
favorable to the Company. In the event the Company is not able to obtain or
renew the proposed CP Facility or the Bank Facility or find alternative
financing for its activities, the Company would be forced to curtail or cease
its ABL Program and AR Advance Program, which action would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Capital Resources" and "Management's Discussion and
Analysis of Pro Forma Financial Condition and Pro Forma Results of
Operations--Liquidity and Capital Resources."
10
<PAGE>
ABILITY OF THE COMPANY TO CONTINUE ITS GROWTH STRATEGY
The Company's growth strategy is principally dependent upon its ability to
increase its finance receivables by making advances against accounts
receivable meeting its underwriting standards. No assurance is given that the
rate of growth experienced by the Company to date will be sustainable or
indicative of future results. Of the Company's clients at December 31, 1995,
12.9% were no longer being financed by the Company at June 30, 1996, due
primarily to consolidation in the healthcare industry, competition and certain
credit issues. See "Business--Operations." Therefore, the Company's ability to
further implement its strategy for continued growth is largely dependent upon
its ability to attract and retain new clients in a competitive market. The
Company's growth is also dependent on the business growth of its clients,
which may be affected by a number of factors not within the Company's control.
See "Business--Strategy." At August 31, 1996, 51.4% of the Company's portfolio
consisted of finance receivables of long-term care and home healthcare
businesses. If demand for working capital financing in either of these sub-
markets declines, the Company's ability to increase its finance receivables
could be adversely affected.
RISKS ASSOCIATED WITH NEW PRODUCT OFFERINGS
The Company may in the future provide services not previously offered by it
to healthcare industry clients, or offered only on a limited basis, such as
financing in the form of term loans and financing secured by real estate,
equipment and inventory. See "Business--Strategy." The Company has either very
limited or no experience with these new services, and there is no assurance
that the Company will be able to market these new services successfully or
that the return on these services will be consistent with the Company's
historical financial results.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of members of its senior management, particularly John K.
Delaney, the Company's Chairman, President and Chief Executive Officer; Ethan
D. Leder, the Company's Vice-Chairman and Executive Vice President; and Edward
P. Nordberg, Jr., the Company's Senior Vice President-Legal and Financial
Affairs and Secretary, as well as other officers and key personnel, many of
whom would be difficult to replace. The future success of the Company also
depends on its ability to identify, attract and retain additional qualified
technical and managerial personnel, particularly with experience in healthcare
financing. Although the Company has employment agreements with Messrs.
Delaney, Leder and Nordberg, the loss of Messrs. Delaney, Leder or Nordberg or
other officers and key personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
COMPETITION
The Company competes with numerous commercial banks, diversified finance
companies, asset-based lenders and specialty healthcare finance companies.
Many of these competitors have greater financial and other resources than the
Company and may have significantly lower cost of funds. Competition can take
many forms, including the pricing of financing, the timeliness and
responsiveness in processing a prospective client's application, and customer
service. The Company's competitors target the same type of healthcare service
providers as those targeted by the Company and, with the exception of most
specialty healthcare finance companies, generally have operated in the markets
serviced by the Company for a longer period of time than the Company. See
"Business--Competition."
LIMITED OPERATING HISTORY
The Company commenced its business in September, 1993. Management has
limited operating results on which to base any expectations regarding future
performance of the Company's business. There is no assurance that the Company
will continue to be profitable, increase its volume of finance receivables
and/or maintain its existing credit standards and lack of credit losses. See
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations."
11
<PAGE>
GOVERNMENT REGULATIONS
The Company's healthcare finance business is subject to numerous federal and
state laws and regulations, which, among other things, may (i) require the
Company to obtain and maintain certain licenses and qualifications, (ii) limit
the interest rates, fees and other charges that the Company is allowed to
collect, (iii) limit or prescribe certain other terms of its finance
receivables arrangements with clients, and (iv) subject the Company to certain
claims, defenses and rights of offset. Although the Company believes that it
is currently in compliance with statutes and regulations applicable to its
business, there can be no assurance that the Company will be able to maintain
such compliance without incurring significant expense. The failure to comply
with such statutes and regulations could have a material adverse effect upon
the Company. Furthermore, the adoption of additional statutes and regulations,
changes in the interpretation and enforcement of current statutes and
regulations, or the expansion of the Company's business into jurisdictions
that have adopted more stringent regulatory requirements than those in which
the Company currently conducts business could have a material adverse effect
upon the Company. See "--Reliance on Reimbursements by Third-Party Payors;
Risk of Adverse Effect of Healthcare Reform" and "Business--Government
Regulation."
RELIANCE ON REIMBURSEMENTS BY THIRD-PARTY PAYORS; RISK OF ADVERSE EFFECT OF
HEALTHCARE REFORM
The Company's clients receive payment for services rendered to patients from
third-party payors (including health maintenance organizations, managed care
concerns and other insurers), large corporations (which may be self-insured),
other healthcare providers and patients themselves, and from Government
Programs. The healthcare industry is experiencing a trend toward cost
containment, as government and other third-party payors seek to impose lower
reimbursement and utilization rates and negotiate reduced payment schedules
with healthcare providers.
In addition to extensive existing government healthcare regulation (see
"Business--Government Regulation"), there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for
and availability of healthcare services, including a number of proposals that
would significantly limit reimbursement under Government Programs. It is not
clear at this time what proposals, if any, will be adopted or, if adopted,
what effect such proposals would have on the Company's business. Aspects of
certain of these healthcare proposals, such as cutbacks in Government
Programs, containment of healthcare costs on an interim basis by means that
could include a short-term freeze on prices charged by healthcare providers, a
restructuring of the way in which Medicare pays for certain services, and
permitting greater state flexibility in the administration of Medicaid, could
adversely affect the Company.
There can be no assurance that currently proposed or future healthcare
legislation or other changes in the administration or interpretation of
Government Programs will not have an adverse effect on the Company or that
payments under Government Programs will remain at levels comparable to present
levels or will be sufficient to cover the costs allocable to patients eligible
for reimbursement pursuant to such programs. Concern about the potential
effects of the proposed reform measures has contributed to the volatility of
prices of securities of companies in healthcare and related industries, and
may similarly affect the price of the Company's Common Stock in the future.
In addition, certain private reform efforts have been instituted throughout
the healthcare industry, including the capitation of certain healthcare
expenditures. Capitation is the pre-payment of certain healthcare costs by
third-party payors (typically health maintenance organizations and other
managed healthcare concerns), based upon a predetermined monthly fee for the
aggregate patient lives under any given healthcare provider's care. The
healthcare provider then provides healthcare to such patients when and as
needed, and assumes the risk that its prepayments will cover its costs and
provide a profit for all of such services rendered. Since capitation
essentially eliminates the clients' accounts receivable that are the primary
source of payment for the Company's finance receivables, capitation could
materially adversely affect the Company's business, financial condition and
results of operations. See "--Government Regulations" and "Business--
Government Regulation."
12
<PAGE>
RESTRICTIVE DEBT COVENANTS
The Bank Facility contains financial and operating covenants, including the
requirement that the Company maintain an adjusted tangible net worth of more
than $5.0 million, a ratio of total liabilities to adjusted tangible net worth
of not more than 10.0 to 1.0 and a ratio of debt to equity of not more than
3.0 to 1.0. In addition, under the Bank Facility the Company is not allowed to
have at any time a cumulative negative cash flow (as defined in the Bank
Facility) in excess of $1.0 million. At June 30, 1996, on a pro forma basis,
assuming the use of the net proceeds of the Offering as described herein, the
Company had an adjusted tangible net worth of approximately $24.2 million, the
Company's ratio of total liabilities to adjusted tangible net worth was
approximately 2.0 to 1.0 and the Company's ratio of debt to equity was
approximately 1.5 to 1.0. The Company anticipates that intercreditor
arrangements to be entered into in connection with the proposed CP Facility
will exclude borrowings under the proposed CP Facility from debt for purposes
of calculation of the debt-to-equity ratio. The Bank Facility also includes
certain limitations on the ability of the Company to consolidate, merge or
transfer all or substantially all of its assets, incur debt, create liens on
its property, make capital expenditures, dispose of assets or make
investments. See "Business--Capital Resources."
Future financing agreements, including the proposed CP Facility, may also
contain similar financial and operating covenants. The foregoing limitations
in the Bank Facility and any future financing agreements could adversely
affect the Company's ability to implement its growth strategy. Failure to
comply with the obligations contained in these agreements could result in an
event of default under such agreements which could permit acceleration of the
indebtedness under the Bank Facility, the proposed CP Facility or any future
financing agreements.
GENERAL ECONOMIC RISKS
The Company's business could be affected by general economic conditions in
the United States, and any sustained period of economic slowdown or recession
could materially adversely affect the Company's business, financial condition
and results of operations. The risks to which the Company's business is
subject become more acute during an economic slowdown or recession because
fewer accounts receivable may be generated by clients, resulting in decreased
fees for the Company. In addition, the financial ability of certain third-
party payors to pay outstanding accounts receivable and of clients to pay
outstanding advances may be impaired, resulting in increased credit losses.
Further, some of the Company's clients are startup or less mature ventures
that may be more susceptible to economic slowdowns or recessions.
NO DIVIDENDS
The Company has not paid any cash dividends to date and does not intend to
pay cash dividends in the foreseeable future. The Company intends to retain
earnings to finance the development and expansion of its business. See
"Dividend Policy."
CONTROL BY CERTAIN STOCKHOLDERS
Upon completion of the Offering, the Company's executive officers and
directors and stockholders holding 5% or more of the Common Stock will
beneficially own 3,755,470 shares of Common Stock representing 63.7% of the
outstanding shares of Common Stock. Consequently, such stockholders will have
substantial influence on the operation of the Company, and, if they act
together, will be able effectively to control all matters requiring approval
by the Company's stockholders, including the election of all directors and the
approval of any business combination involving the Company. See "Principal
Stockholders" and "Description of Capital Stock--Special Provisions of the
Certificate of Incorporation and Bylaws."
13
<PAGE>
POSSIBLE ADVERSE IMPACT ON TRADING PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have 5,899,991 shares of
Common Stock outstanding (6,214,991 shares if the Underwriters' over-allotment
is exercised in full). All of the shares of Common Stock sold in the Offering
will be freely tradeable without restriction under the Securities Act of 1933,
as amended (the "Securities Act"), except for any shares purchased by existing
affiliates of the Company, which shares will be subject to the resale
limitations of Rule 144 as promulgated under the Securities Act ("Rule 144").
All of the remaining shares of Common Stock held by existing stockholders will
be "restricted" securities as that term is defined in Rule 144. Subject to the
180 day lock-up agreement and a certain other agreement restricting five of
the Company's existing stockholders from selling Common Stock, each of which
is described below, these "restricted" securities will be eligible for sale
pursuant to Rule 144 in the public market following the consummation of the
Offering. Additional shares of Common Stock, including shares issuable upon
exercise of employee stock options, will also become eligible for sale in the
public market from time to time. In addition, certain stockholders and members
of senior management have been granted certain registration rights relating to
shares of Common Stock held by them for sale under the Securities Act.
However, the Company, all of its officers and directors and certain other
stockholders, who in the aggregate own 3,755,470 shares of Common Stock, have
agreed that, for a period of 180 days after the date of this Prospectus, they
will not, without the prior written consent of the Underwriters, offer to
sell, sell or otherwise dispose of any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock (the
"180 day lock-up agreement"). Further, five of the existing stockholders of
the Company, who in the aggregate own 3,205,977 shares of Common Stock, have
agreed that, without the prior written consent of the Company, they will not
effect any sales of Common Stock for a period of 18 months after expiration of
the 180 day lock-up agreement in excess of the volume limitations provided
under Rule 144 (the "Rule 144 Sale Agreement"). Following the Offering and
upon the expiration of the 180 day lock-up agreement and the Rule 144 Sale
Agreement, sales of substantial amounts of the Company's Common Stock in the
public market pursuant to Rule 144 or otherwise, or the availability of such
shares for sale, could adversely affect the prevailing market price of the
Common Stock and impair the Company's ability to raise additional capital
through the sale of equity securities. See "Shares Eligible for Future Sale."
ABSENCE OF PUBLIC MARKET; POSSIBLE FLUCTUATIONS OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock. There can be no assurance that an active trading market for the
Common Stock will develop or that, if developed, it will be sustained after
the Offering or that it will be possible to resell the shares of Common Stock
at or above the initial public offering price. The market price of the Common
Stock could be subject to significant fluctuations in response to the
Company's operating results and other factors. In addition, the stock market
in recent years has experienced extreme price and volume fluctuations that
often have been unrelated or disproportionate to the operating performance of
companies. Such fluctuations, and general economic and market conditions, may
adversely affect the market price of the Common Stock.
DILUTION
Based upon an assumed initial public offering price of $13.00 per share,
purchasers of the Common Stock offered hereby will experience immediate
dilution in net tangible book value of Common Stock in the amount of $8.89.
See "Dilution."
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
In addition to the Common Stock, the Company's Amended and Restated
Certificate of Incorporation authorizes the issuance of up to 10,000,000
shares of "blank check" preferred stock. Following the Offering, there will be
no shares of preferred stock outstanding, and the Company has no present
intention to issue any shares of preferred stock. However, since the rights
and preferences of any class or series of preferred stock may be set by the
Board of Directors in its sole discretion, the rights and preferences of any
such preferred stock may be superior to those of the Common Stock, and thus
may adversely affect the rights of holders of Common Stock. The ability to
issue preferred stock could have the effect of delaying or preventing a change
in control of the Company. See "Description of Capital Stock--Preferred
Stock."
14
<PAGE>
POSSIBLE ANTI-TAKEOVER EFFECTS
Certain provisions of the Delaware General Corporation Law and the Company's
Amended and Restated Certificate of Incorporation may be deemed to have anti-
takeover effects and may delay or prevent a takeover attempt that a
stockholder of the Company might consider to be in the best interests of the
Company or its stockholders. See "Description of Capital Stock--Special
Provisions of the Certificate of Incorporation and Bylaws."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Those statements include, among other things, the discussions of the
Company's business strategy and expectations concerning the Company's market
position, future operations, margins, profitability, funding sources,
liquidity and capital resources. Investors in the Common Stock offered hereby
are cautioned that reliance on any forward-looking statement involves risks
and uncertainties, and that although the Company believes that the assumptions
on which the forward-looking statements contained herein are based are
reasonable, any of those assumptions could prove to be inaccurate, and as a
result, the forward-looking statements based on those assumptions also could
be incorrect. The uncertainties in this regard include, but are not limited
to, those identified in the risk factors discussed above. In light of these
and other uncertainties, the inclusion of a forward-looking statement herein
should not be regarded as a representation by the Company that the Company's
plans and objectives will be achieved.
15
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $13.00 per share, the net
proceeds to be received by the Company from the issuance and sale of the
Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be approximately $24.9 million
(approximately $28.7 million if the over-allotment option granted to the
Underwriters is exercised in full).
The Company intends to use $21.8 million of the net proceeds from the
Offering to acquire the limited partnership interests in Funding and the
remainder for general corporate purposes. See "Capitalization" and "Certain
Transactions." Pending such uses, the net proceeds will be invested in short-
term, interest bearing securities.
DIVIDEND POLICY
The Company intends to retain all future earnings for the operation and
expansion of its business, and does not anticipate paying cash dividends in
the foreseeable future. Any future determination as to the payment of cash
dividends will depend upon the Company's results of operations, financial
condition and capital requirements and any regulatory restrictions or
restrictions under credit agreements or other funding sources of the Company
existing from time to time, as well as other matters which the Company's Board
of Directors may consider.
16
<PAGE>
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of June 30, 1996 giving effect to (i) a net additional capital contribution
of $2.0 million made by the limited partner of Funding subsequent to June 30,
1996, (ii) the acquisition of the net assets of DEL by Funding, and (iii) the
elimination of transactions among DEL, Funding and the Company. Pro forma
capitalization as adjusted gives effect to the Offering and the application of
$21.8 million of the estimated net proceeds therefrom to acquire the limited
partnership interests in Funding, assuming an initial public offering price of
$13.00 per share for the Common Stock. This table should be read in
conjunction with the unaudited pro forma financial information appearing
elsewhere in this Prospectus. See "Use of Proceeds" and "Description of
Capital Stock."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------
PRO FORMA AS
PRO FORMA ADJUSTED
----------- ------------
<S> <C> <C>
Line of credit....................................... $35,406,243 $35,406,243
=========== ===========
EQUITY
Limited partner capital in Funding(1)................ $22,328,866 --
Stockholders' equity (deficit)
Preferred stock, $0.01 par value 10,000,000 shares
authorized; none outstanding......................
Common stock, $.01 par value; 30,000,000 shares
authorized; 3,799,991 shares outstanding, pro
forma; 5,899,991 shares outstanding, pro forma as
adjusted(2)....................................... 38,000 59,000
Additional paid-in capital......................... -- 24,868,000
Retained earnings (deficit)........................ (704,247) (704,247)
----------- -----------
Total stockholders' equity (deficit)................. (666,247) 24,222,753
----------- -----------
Total equity......................................... $21,662,619 $24,222,753
=========== ===========
</TABLE>
- --------
(1)Includes undistributed net income.
(2) Does not include 750,000 shares of Common Stock reserved for issuance
pursuant to the Incentive Plan, of which options to purchase 300,000
shares have been granted (but are not presently exercisable). See
"Management-Stock Incentive Plan." Also does not include an option to
purchase 38,381 shares of Common Stock granted outside of the Incentive
Plan on November 1, 1995, which option is presently exercisable.
17
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company as of June
30, 1996, giving effect to the Reorganization, was $(666,247) or $(0.18) per
common share. Pro forma net tangible book value per share represents the
amount of total tangible assets less total liabilities, divided by the pro
forma number of shares of Common Stock outstanding. After giving effect to the
sale by the Company of 2,100,000 shares of Common Stock (at an assumed initial
public offering price of $13.00 per share) and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company at June 30, 1996 would have been $24,222,753 or $4.11 per share. This
represents an immediate increase in net tangible book value of $4.29 per share
to existing stockholders and an immediate dilution in net tangible book value
of $8.89 per share to purchasers of Common Stock in the Offering ("New
Investors"). The following table illustrates the dilution in net tangible book
value per share to New Investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................ $13.00
Pro forma tangible book value (deficit) per share at June 30,
1996.......................................................... $(0.18)
Increase per share attributable to New Investors............... 4.29
------
Pro forma net tangible book value per share after the Offering... 4.11
------
Net tangible book value dilution per share to New Investors...... $ 8.89
======
</TABLE>
The following table sets forth, on a pro forma basis, as of June 30, 1996,
the difference between existing stockholders and New Investors with respect to
the number of shares purchased from the Company, the total consideration paid
to the Company and the average price paid per share, giving pro forma effect
to the sale of Common Stock offered hereby at an assumed offering price of
$13.00:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 3,799,991 64.4% $ 8,371 .03% $ --
New Investors..................... 2,100,000 35.6 27,300,000 99.97 13.00
--------- ----- ----------- ------
Total........................... 5,899,991 100.0% $27,308,371 100.00%
========= ===== =========== ======
</TABLE>
18
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Statements of Operations for the six-month periods
ended June 30, 1995 and 1996 and the year ended December 31, 1995 and the
Unaudited Pro Forma Balance Sheet as of June 30, 1996 give effect to: (i) the
Reorganization and (ii) the sale by the Company of 2,100,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $13.00 per
share and the use of $21.8 million of the net proceeds therefrom to acquire
the limited partnership interests in Funding, as if such transactions had
occurred on June 30, 1996 as to the Pro Forma Balance Sheet, and the beginning
of the respective periods as to the Pro Forma Statements of Operations. The
pro forma information does not necessarily indicate what the Company's results
of operations would have been had such transactions occurred at the beginning
of such periods.
PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------
PRO FORMA
HEALTHCARE FINANCIAL
PARTNERS, INC.
AND DEL PRO FORMA PRO FORMA PRO FORMA,
(COMBINED) FUNDING ADJUSTMENTS(1) AS ADJUSTED
-------------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income..................... $ 565,512 $4,248,992 $4,814,504
Interest income................ 403,659 403,659
---------- ---------- ----------
Total fee and interest income.. 565,512 4,652,651 5,218,163
Interest expense................. 79,671 554,885 634,556
---------- ---------- ----------
Net fee and interest income.... 485,841 4,097,766 4,583,607
Provision for losses on
receivables..................... 45,993 171,395 217,388
---------- ---------- ----------
Net fee and interest income
after provision for losses on
receivables................... 439,848 3,926,371 4,366,219
Operating expenses............... 1,472,240 1,024,057 $ (400,000) 2,096,297
Other income..................... 1,221,837 (997,146) 224,691
---------- ---------- ---------- ----------
Income before income taxes....... 189,445 2,902,314 (597,146) 2,494,613
Income taxes..................... 73,884 1,131,902 (232,887) 972,899
---------- ---------- ---------- ----------
Pro forma net income............. $ 115,561 $1,770,412 $ (364,259) $1,521,714
========== ========== ========== ==========
Pro forma net income per share
(2)............................. $ .26
==========
Pro forma weighted average shares
outstanding (2)................. 5,938,372
</TABLE>
19
<PAGE>
PRO FORMA STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995
----------------------------------------------------------
PRO FORMA
HEALTHCARE FINANCIAL
PARTNERS, INC.
AND DEL PRO FORMA PRO FORMA PRO FORMA,
(COMBINED) FUNDING ADJUSTMENTS(1) AS ADJUSTED
-------------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income............ $164,592 $1,345,495 $1,510,087
Interest income....... 59,742 59,742
-------- ---------- ----------
Total fee and
interest income.... 164,592 1,405,237 1,569,829
Interest expense........ 21,941 90,837 112,778
-------- ---------- ----------
Net fee and interest
income............... 142,651 1,314,400 1,457,051
Provision for losses on
receivables............ 45,993 171,395 217,388
-------- ---------- ----------
Net fee and interest
income after
provision for losses
on receivables....... 96,658 1,143,005 1,239,663
Operating expenses...... 462,953 387,593 $ (200,000) 650,546
Other income............ 311,964 (218,730) 93,234
-------- ---------- ---------- ----------
Income before income
taxes.................. (54,331) 755,412 (18,730) 682,351
Income taxes (benefit).. (21,189) 294,611 (7,305) 266,117
-------- ---------- ---------- ----------
Pro forma net income.... $(33,142) $ 460,801 $ (11,425) $ 416,234
======== ========== ========== ==========
Pro forma net income per
share (2).............. $ .07
==========
Pro forma weighted
average shares
outstanding (2)........ 5,938,372
<CAPTION>
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
----------------------------------------------------------
PRO FORMA
HEALTHCARE FINANCIAL
PARTNERS, INC.
AND DEL PRO FORMA PRO FORMA PRO FORMA,
(COMBINED) FUNDING ADJUSTMENTS(1) AS ADJUSTED
-------------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income............ $607,149 $3,353,137 $3,960,286
Interest income....... 1,204,010 1,204,010
-------- ---------- ----------
Total fee and
interest income.... 607,149 4,557,147 5,164,296
Interest expense........ 112,096 1,269,060 1,381,156
-------- ---------- ----------
Net fee and interest
income............... 495,053 3,288,087 3,783,140
Provision for losses on
receivables............ 75,311 321,490 396,801
-------- ---------- ----------
Net fee and interest
income after
provision for losses
on receivables....... 419,742 2,966,597 3,386,339
Operating expenses...... 857,969 828,051 $ (200,000) 1,486,020
Other income............ 610,770 (592,770) 18,000
-------- ---------- ---------- ----------
Income before income
taxes.................. 172,543 2,138,546 (392,770) 1,918,319
Income taxes............ 67,292 834,033 (153,181) 748,144
-------- ---------- ---------- ----------
Pro forma net income.... $105,251 $1,304,513 $ (239,589) $1,170,175
======== ========== ========== ==========
Pro forma net income per
share (2).............. $ .20
==========
Pro forma weighted
average shares
outstanding (2)........ 5,938,372
</TABLE>
20
<PAGE>
PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
------------------------------------------------------------
HEALTHCARE
FINANCIAL
PARTNERS, INC.
AND DEL
(COMBINED) FUNDING PRO FORMA THE COMPANY
(HISTORICAL) (HISTORICAL) ADJUSTMENTS(3) PRO FORMA
-------------- ------------ -------------- -----------
<S> <C> <C> <C> <C>
Assets
Cash and cash
equivalents........... $ 2,288,754 $ 4,096,536 (a)(b) $ 6,385,290
Finance receivables.... $5,493,815 60,419,714 65,913,529
Less:
Allowance for losses
on receivables...... 142,151 819,677 961,828
Unearned discount
fees................ 73,135 407,245 480,380
---------- ----------- ------------ -----------
Net finance receiv-
ables.............. 5,278,529 59,192,792 64,471,321
Prepaid expenses and
other................. 234,711 865,174 (335,109)(d) 764,776
---------- ----------- ------------ -----------
Total assets............ $5,513,240 $62,346,720 $ 3,761,427 $71,621,387
========== =========== ============ ===========
Liabilities and equity
Line of credit......... $3,529,776 $31,876,467 $35,406,243
Client holdbacks....... 1,371,443 9,186,561 10,558,004
Accounts payable to
clients............... 920,693 920,693
Accounts payable and
accrued expenses...... 814,670 330,605 $ (631,581)(d) 513,694
---------- ----------- ------------ -----------
Total liabilities....... 5,715,889 42,314,326 (631,581) 47,398,634
Equity
Partners' capital....... 463,598 20,032,394 2,000,000 (c)
(463,598)(a)
(22,328,866)(b)
296,472 (d)
Stockholders' equity
(deficit).............. (666,247) 24,889,000 (b) 24,222,753
---------- ----------- ------------ -----------
Total equity (deficit).. (202,649) 20,032,394 4,393,008 24,222,753
---------- ----------- ------------ -----------
Total liabilities and
equity................. $5,513,240 $62,346,720 $3,761,427 $71,621,387
========== =========== ============ ===========
</TABLE>
- --------
(1) Pro forma Statements of Operations adjustments reflect the following:
(a) The provisions for income taxes (at an estimated effective tax rate of
39%) for DEL and Funding which previously were not subject to such taxes as
partnerships. (b) The elimination of transactions between the Company and
Funding, principally management fees paid/received and the elimination of
the Company's income from its investment in Funding.
(2) Pro forma net income per share was computed by dividing pro forma net
income by the pro forma weighted average shares outstanding, which gives
effect to the Offering and to a dilutive outstanding stock option.
(3) Pro forma Balance Sheet adjustments reflect the following:
(a) Acquisition of net assets of DEL by Funding at net book value ($463,598
at June 30, 1996) and liquidation of DEL. (b) Net proceeds of Offering,
acquisition of limited partnership interests in Funding, payment of
undistributed profits to limited partners and additional working capital.
(c) Additional limited partner net capital contribution to Funding after
June 30, 1996.
(d) Elimination of intercompany accounts.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PRO FORMA FINANCIAL CONDITION AND
PRO FORMA RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
under "Pro Forma Financial Information" and the combined financial statements,
including the notes thereto, of HealthCare Financial Partners, Inc. and DEL,
and the financial statements of Funding, including the notes thereto,
appearing elsewhere in this Prospectus.
OVERVIEW
The Company is a specialty finance company offering asset-based financing to
healthcare service providers, with a primary focus on clients operating in
sub-markets of the healthcare industry, including long-term care, home
healthcare and physician practices. The Company targets small and middle
market healthcare service providers with financing needs in the $100,000 to
$10 million range in those healthcare sub-markets where growth, consolidation
or restructuring appear likely in the near to medium term. From its inception
in September, 1993 through June 30, 1996, the Company has advanced $407.1
million to its clients in 151 transactions, including $210.9 million advanced
during the six months ended June 30, 1996. The Company had 94 clients as of
June 30, 1996, of which 26 were affiliates of one or more clients. The average
amount outstanding per client or affiliated client group at June 30, 1996 was
approximately $856,000.
From its inception in September, 1993 through the year ended December 31,
1995, the Company principally originated finance receivables through the AR
Advance Program. The AR Advance Program was characterized by high and varying
yields, as a result of the differing terms of AR Advance Program transactions
negotiated with individual clients. The yield on finance receivables generated
under the AR Advance Program was 22.8% during the year ended December 31,
1995, and 19.5% during the six months ended June 30, 1996. By June 30, 1996,
the finance receivables originated through the Company's ABL Program had grown
to 39.3% of total finance receivables, as the Company focused its marketing
efforts on larger balance, prime-rate based ABL Program advances to more
creditworthy borrowers. ABL Program advances are characterized by lower
overall yields than AR Advance Program advances, but provide the Company with
the opportunity to expand the range of potential clients while reducing costs
as a percentage of finance receivables. The yield on finance receivables
generated under the ABL Program was 15.5% during the six months ended June 30,
1996 (on an annualized basis). The Company anticipates that finance
receivables generated under the ABL Program will account for a significant
majority of its finance receivables in future periods. As a result, the
Company's overall yield on finance receivables, which was 18.2% for the six
months ended June 30, 1996 (on an annualized basis), is expected to decline
gradually (assuming a stable interest rate environment) to approach the yields
generated by the ABL Program.
On September 25, 1995, the Company acquired certain assets and rights under
agreements with healthcare service providers of MediMax Receivables Funding
L.P. II ("MediMax"), which was in the business of providing advances against
accounts receivable in a manner similar to the AR Advance Program. The Company
paid $7.5 million for such assets which represented a discount to book value
but received certain assurances from such providers, which simultaneously
became clients of the Company, that such assets would be collectible in full
at book value. Accordingly, the Company generated $430,000 of non-recurring
pre-tax income for the third quarter of 1995, and increased its earning asset
base for the remainder of 1995 and the first six months of 1996.
22
<PAGE>
The following table provides certain unaudited pro forma financial
information as of and for the periods indicated.
<TABLE>
<CAPTION>
PRO FORMA FOR PRO FORMA FOR THE
THE YEAR ENDED SIX MONTH PERIOD
DECEMBER 31, ENDED JUNE 30,
----------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRO FORMA STATEMENTS OF OPERA-
TIONS
Fee and interest income:
Fee income................... $ 291,752 $ 4,814,504 $ 1,510,087 $ 3,960,286
Interest income.............. 2,770 403,659 59,742 1,204,010
---------- ----------- ----------- -----------
Total fee and interest
income.................... 294,522 5,218,163 1,569,829 5,164,296
Interest expense............... 3,975 634,556 112,778 1,381,156
---------- ----------- ----------- -----------
Net fee and interest
income.................... 290,547 4,583,607 1,457,051 3,783,140
Provision for losses on
receivables................... 328,894 217,388 217,388 396,801
---------- ----------- ----------- -----------
Net fee and interest income
after provision for losses
on receivables............ (38,347) 4,366,219 1,239,663 3,386,339
Operating expenses............. 485,831 2,096,297 650,546 1,486,019
Other income................... 289,994 224,691 93,234 18,000
---------- ----------- ----------- -----------
Income (loss) before income
taxes......................... (234,184) 2,494,613 682,351 1,918,320
Income taxes................... 972,899 266,117 748,145
---------- ----------- ----------- -----------
Pro forma net income (loss).... $ (234,184) $ 1,521,714 $ 416,234 $ 1,170,175
========== =========== =========== ===========
Pro forma net income (loss) per
share......................... $ (.04) $ .26 $ .07 $ .20
========== =========== =========== ===========
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30,
----------------------- -----------------------
1994 1995 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
OTHER DATA
Finance receivables--AR Advance
Program....................... $6,236,663 $32,443,023 $14,603,602 $39,989,071
Finance receivables--ABL
Program....................... -- 6,270,629 1,581,478 25,924,458
---------- ----------- ----------- -----------
Total finance receivables.. $6,236,663 $38,713,652 $16,185,080 $65,913,529
========== =========== =========== ===========
</TABLE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total fee and interest income increased from $1.6 million for the six month
period ended June 30, 1995 to $5.2 million for the six month period ended June
30, 1996, a 228.9% increase. This increase was principally the result of the
Company's introduction of the ABL Program and the corresponding increase of
$18.6 million in average ABL Program finance receivables for the six month
period ended June 30, 1996, and an increase of $25.5 million in average AR
Advance Program finance receivables for the same period. Interest expense
increased from $112,778 for the six month period ended June 30, 1995 to $1.4
million for the comparable period in 1996. This increase in interest expense
was the result of higher average borrowings required to support the Company's
growth. Net fee and interest income increased from $1.5 million for the six
month period ended June 30, 1995 to $3.8 million for the six month period
ended June 30, 1996, a 159.6% increase, primarily as a result of overall
growth in the Company's finance receivables described above.
The Company's provisions for losses on receivables increased from $217,388
for the six month period ended June 30, 1995 to $396,801 for the six month
period ended June 30, 1996, a 82.5% increase. This increase is primarily
attributable to an increase in outstanding finance receivables and an increase
in the Company's average client balances, which are among the factors
considered by the Company in assessing the adequacy of its allowance for
possible losses on receivables. The Company experienced no credit losses in
either six month period.
23
<PAGE>
Operating expenses increased from $650,546 for the six month period ended
June 30, 1995 to $1.5 million for the comparable period in 1996, a 128.4%
increase. This increase was primarily the result of the increase in
compensation, rent and other expenses related to the expansion of the
Company's operations.
Other income decreased from $93,234 for the six month period ended June 30,
1995 to $18,000 for the six month period ended June 30, 1996, a decrease of
80.6%, primarily as a result of the termination of a servicing arrangement
with a client.
Net income increased from $416,234 for the six month period ended June 30,
1995 to $1.2 million for the comparable period in 1996, a 181.1% increase,
primarily as a result of the overall growth in the Company's finance
receivables described above.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total fee and interest income increased from $294,522 for the year ended
December 31, 1994 to $5.2 million for the year ended December 31, 1995. This
increase was principally the result of a $18.4 million increase in average
outstanding finance receivables for 1995 compared to 1994. Interest expense
increased from $3,975 for the year ended December 31, 1994 to $634,556 for the
year ended December 31, 1995. This increase in interest expense was the result
of the commencement of borrowings in 1995 to support the Company's growth. Net
fee and interest income increased from $290,547 for the year ended December
31, 1994 to $4.6 million for the year ended December 31, 1995, primarily as a
result of the overall growth in the Company's finance receivables described
above.
The Company's provision for credit losses decreased from $328,894 for the
year ended December 31, 1994 to $217,388 for the year ended December 31, 1995,
a 33.9% decrease. This decrease is primarily attributable to a decrease in the
Company's average client balances, one of the factors considered by the
Company in assessing the adequacy of its allowance for possible losses on
receivables. "See--Quarterly Financial Data." The Company experienced no
credit losses in either period.
Operating expenses increased from $485,831 for the year ended December 31,
1994 to $2.1 million for the year ended December 31, 1995, a 331.5% increase.
This increase was primarily the result of the increase in compensation, rent
and other expenses related to the expansion of the Company's operations.
Other income decreased from $289,994 for the year ended December 31, 1994 to
$224,691 for the year ended December 31, 1995, a 22.5% decrease, as a result
of reduced balances under a servicing arrangement with a client.
Net income increased from a loss of $234,184 for the year ended December 31,
1994 to net income of $1.5 million for the year ended December 31, 1995,
primarily as a result of the overall growth in the Company's finance
receivables described above.
24
<PAGE>
QUARTERLY FINANCIAL DATA
The following table summarizes unaudited pro forma quarterly operating
results for the most recent six fiscal quarters.
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
-------------------------------------------------------------
MARCH JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
31, 1995 1995 1995 1995 1996 1996
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fee and interest income
Fee income............ $707,666 $802,421 $1,734,704 $1,569,713 $1,869,433 $2,090,853
Interest income....... 9,366 50,376 103,624 240,293 411,703 792,307
-------- -------- ---------- ---------- ---------- ----------
Total fee and
interest income.... 717,032 852,797 1,838,328 1,810,006 2,281,136 2,883,160
Interest expense........ 3,883 108,895 140,582 381,196 580,030 801,126
-------- -------- ---------- ---------- ---------- ----------
Net fee and interest
income............... 713,149 743,902 1,697,746 1,428,810 1,701,106 2,082,034
Provision for losses on
receivables............ 217,388 343,155 53,646
-------- -------- ---------- ---------- ---------- ----------
Net fee and interest
income after
provision for losses
on receivables....... 713,149 526,514 1,697,746 1,428,810 1,357,951 2,028,388
Operating expenses...... 361,666 288,880 556,892 888,859 676,627 809,392
Other income............ 45,377 47,857 93,278 38,179 10,000 8,000
-------- -------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 396,860 285,491 1,234,132 578,130 691,324 1,226,996
Income taxes............ 154,776 111,341 481,311 225,471 269,617 478,528
-------- -------- ---------- ---------- ---------- ----------
Pro forma net income.... $242,084 $174,150 $ 752,821 $ 352,659 $ 421,707 $ 748,468
======== ======== ========== ========== ========== ==========
</TABLE>
The Company's quarterly results of operations are not generally affected by
seasonal factors.
The Company's historical methodology for assessing the adequacy of its
allowance for possible losses on receivables focused, in significant part, on
the average per client amount of finance receivables outstanding. This caused
the quarterly provisions for losses on receivables to fluctuate as average
client balances varied due to the Company's growth and the mix of finance
receivables generated from the ABL Program and the AR Advance Program changed
over time. Given the current level of the allowance, the Company does not
anticipate that the provision for losses on receivables in future quarterly
periods will reflect the level of variability experienced historically. In
future periods, the Company anticipates that quarterly provisions will be made
primarily based on changes in overall portfolio size and composition, and, to
the extent required, based on analysis of credit risks in particular
transactions.
The results of operations for the quarter ended September 30, 1995 were
impacted by the Company's acquisition of certain assets from MediMax. See "--
Overview."
EXCESS COLLATERAL AND CLIENT HOLDBACKS
The Company's primary protection against credit losses is the Excess
Collateral, which consists of client accounts receivable due from third-party
payors which collateralize advances under the ABL Program and against which
the Company makes advances under the AR Purchase Program. The Company
frequently obtains a security interest in other assets of a client and
maintains a provision for losses on receivables. In addition, amounts paid or
advanced to clients with respect to specific accounts receivable are cross-
collateralized by the Company's security interest in other accounts receivable
of the client.
Under the ABL Program, the Company will extend credit only up to a maximum
percentage, ranging from 65% to 85%, of the estimated net collectible value of
the accounts receivable due from third-party payors. The Company obtains a
perfected, first priority security interest in all of a client's accounts
receivable, however, and
25
<PAGE>
may apply payments received with respect to the full amount of any accounts
receivable to offset any amounts due from a client. The estimated net
collectible value of a client's accounts receivable thus exceeds at any time
amounts advanced under the ABL Program secured by such accounts receivable.
Under the AR Advance Program, the Company purchases a client's accounts
receivable at a discount from the estimated net collectible value of the
accounts receivable. The Company will advance only 65% to 85% of the purchase
price of any batch of accounts receivable purchased. The excess of the
purchase price for a batch of receivables over the amount advanced with
respect to such batch (a "client holdback") is treated as a reserve and
provides additional security to the Company, insofar as holdback amounts may
be applied to offset amounts due with respect to the related batch of client
receivables, or any other batch of client receivables.
In addition, under both programs the Company frequently obtains a security
interest in other assets of a client and may have recourse against personal
assets of the principals or parent company of a client. See "Risk Factors--
Dilution of Client Receivables; Government Right of Offset."
The Company's results of operations are affected by its collections of
client accounts receivable. The Company's turnover of its finance receivables,
calculated by dividing total collections of client accounts receivable for
each of the following quarters by the average month-end balance of finance
receivables during such quarter, was 3.7x for the quarter ended March 31,
1995, 2.5x for the quarter ended June 30, 1995, 2.8x for the quarter ended
September 30, 1995, 2.8x for the quarter ended December 31, 1995, 2.4x for the
quarter ended March 31, 1996, and 2.4x for the quarter ended June 30, 1996.
PROVISION AND ALLOWANCE FOR POSSIBLE LOSSES ON RECEIVABLES
The Company regularly reviews its outstanding advances and purchased
accounts receivable to determine the adequacy of its allowance for possible
losses on receivables. To date, the Company has experienced no credit losses.
The allowance for possible losses on receivables is maintained at an amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. In evaluating the adequacy of the
allowance, management of the Company considers trends in past-due accounts,
historical charge-off and recovery rates, credit risk indicators, economic
conditions, on-going credit evaluations, overall portfolio size, average
client balances, Excess Collateral, and underwriting policies, among other
items. As of June 30, 1996, the Company's general reserve was $961,828, or
1.5% of finance receivables. To the extent that management deems specific
finance receivable advances to be wholly or partially uncollectible, the
Company establishes a specific loss reserve equal to any such amount. At June
30, 1996, the Company had no specific reserves. Management believes that its
reserve for losses on receivables is adequate at this time. See "--Quarterly
Financial Data."
LIQUIDITY AND CAPITAL RESOURCES
Historically, the sources of capital available to the Company to fund
advances under the ABL Program and the AR Advance Program have included the
Bank Facility and the Company's equity. Recently, the Company has also
received a proposal from an affiliate of an international bank for $100
million of financing under the proposed CP Facility.
In conjunction with the Reorganization and in contemplation of the Offering,
at the request of the Company, Fleet increased the committed line of credit
under the Bank Facility from $35 million to $50 million. The Bank Facility is
a revolving line of credit. The interest rates payable by the Company under
the Bank Facility adjust, based on the prime rate of Fleet National Bank
("Fleet's prime rate"); however, the Company has the option to borrow any
portion of the Bank Facility over $500,000 based on the 30-day, three-month or
six-month LIBOR plus 3.0%. As of June 30, 1996, $35.4 million was outstanding
under the Bank Facility (the excess over the committed line was borrowed under
an overline accommodation). The Bank Facility contains financial and operating
covenants, including the requirement that the Company maintain an adjusted
tangible net worth of not less than $5.0 million and a ratio of total debt to
equity of not more than 3.0 to 1.0. The Company anticipates that intercreditor
arrangements to be entered into in connection with the proposed CP Facility
will exclude borrowing under the proposed CP Facility from debt for purposes
of calculating the debt-to-equity ratio. At June
26
<PAGE>
30, 1996, the Company had an adjusted tangible net worth of approximately
$24.2 million and the Company's ratio of total debt to equity was
approximately 1.5 to 1.0. The expiration date for the Bank Facility is March
9, 1998, subject to automatic renewal for one-year periods thereafter unless
terminated by Fleet. See "Risk Factors" and "Business--Capital Resources."
Under the terms of the proposed CP Facility, the Company anticipates that it
will be able to borrow up to $100 million. The proposed CP Facility will
require the Company to transfer advances and related receivables under its ABL
Program or its AR Advance Program to a bankruptcy remote, special purpose
wholly-owned subsidiary of the Company. The special purpose corporation will
pledge finance receivables to a commercial paper conduit, which will lend
against such assets through the issuance of commercial paper. The maturity
date for the proposed CP Facility is expected to be five years from the
closing of such facility. However, after three years, the program may be
terminated by the Company without penalty. See "Risk Factors--Restrictive Debt
Covenants" and "Business--Capital Resources."
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability and the terms of financing. In addition
to the proceeds from the Offering, the Company expects to fund its future
financing activities principally from (i) the proposed CP Facility, which is
expected to have a five-year term and (ii) the Bank Facility, which expires on
March 9, 1998, subject to automatic renewals for one-year periods thereafter
unless terminated by Fleet. While the Company expects to be able to obtain or
renew these facilities and to have continued access to other sources of credit
after expiration of these facilities, there is not assurance that such
financing will be available, or, if available, that it will be on terms
favorable to the Company.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the change in interest spread between
the yield on the Company's portfolio and the cost of funds necessary to
finance the portfolio (i.e., the Bank Facility and the proposed CP Facility)
resulting from changes in interest rates. To the extent that interest income
and interest expense do not respond equally to changes in interest rates, or
that all rates do not change uniformly, earnings are affected. The interest
rates charged on the ABL Program adjust based upon changes in the prime rate.
The fees charged on the AR Advance Program are fixed at the time of any
advance against a batch of receivables, although such fees may increase
depending upon the timing of collections of receivables within the batch. The
interest rates on the Company's term loans are generally fixed at origination
for stated maturities generally of one year or less. The interest rates
payable by the Company under the Bank Facility adjust, based on Fleet's prime
rate; however, the Company has the option to borrow any portion of the Bank
Facility over $500,000 based on the 30-day, three-month or six-month LIBOR
plus 3.0%. The interest rate on the proposed CP Facility will adjust based
upon changes in commercial paper rates. Because the Company expects to finance
most of the ABL Program activity through the proposed CP Facility, there
exists some interest rate risk since the interest rate on advances to the
Company's clients under the ABL Program will adjust based on the prime rate,
and the interest rate on most of the Company's liabilities under the proposed
CP Facility will adjust based on commercial paper rates. Management does not
believe that such limited interest rate sensitivity on the ABL Program
portfolio would have a material adverse effect on the Company's net interest
income if interest rates change. Additionally, because the AR Advance Program
portfolio's fees are generally fixed and will be financed with both the
proposed CP Facility and the Bank Facility which adjust with changes in
commercial paper rates and the prime rate, respectively, there exists interest
rate sensitivity with respect to the AR Advance portfolio which, if interest
rates increase significantly, could have a material adverse effect on the
Company's net interest income. However, this interest rate sensitivity is
mitigated by the fact that the Company does not make long-term commitments in
the AR Advance Program and therefore retains substantial flexibility to
negotiate fees based on changes in interest rates. Interest rate sensitivity
also exists with respect to the Company's term loans which at June 30, 1996
constituted less than 1.5% of the Company's assets.
INFLATION
Inflation has not had a significant effect on the Company's operating
results to date.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data. The
selected historical statements of operations and balance sheet data presented
below were derived from the combined financial statements of HealthCare
Financial Partners, Inc. and DEL as of and for the period from inception
(April 22, 1993) through December 31, 1993, the two years ended December 31,
1994 and 1995 and for the six month periods ended June 30, 1995 and 1996, and
of Funding as of and for the period from inception (September 12, 1994)
through December 31, 1994, the year ended December 31, 1995, and for the six
month periods ended June 30, 1995 and 1996. Operating results for the six
months ended June 30, 1996 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. The data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Historical Financial Condition and Historical Results of Operation" and the
combined financial statements, including the notes thereto, of HealthCare
Financial Partners, Inc. and DEL, and the financial statements of Funding,
including the notes thereto, appearing elsewhere in this Prospectus.
HEALTHCARE FINANCIAL PARTNERS, INC. AND DEL COMBINED
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE SIX MONTH
YEAR ENDED PERIOD ENDED
AT OR FOR THE PERIOD FROM DECEMBER 31, JUNE 30,
INCEPTION (APRIL 22, 1993) --------------------- ----------------------
THROUGH DECEMBER 31, 1993 1994 1995 1995 1996
-------------------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Fee income............. $ 856 $ 13,036 $ 565,512 $ 164,592 $ 607,149
Interest expense....... -- 3,975 79,671 21,941 112,096
-------- --------- ---------- ---------- ----------
Net fee income......... 856 9,061 485,841 142,651 495,053
Provision for losses on
receivables........... 18,745 2,102 45,993 45,993 75,311
-------- --------- ---------- ---------- ----------
Net fee income after
provision for losses
on receivables........ (17,889) 6,959 439,848 96,658 419,742
Operating expenses..... 30,204 439,514 1,472,240 462,953 857,969
Other income (loss).... 23,772 106,609 1,221,837 311,964 610,770
-------- --------- ---------- ---------- ----------
Income (loss) before
income taxes.......... (24,321) (325,946) 189,445 (54,331) 172,543
Income taxes
(benefit)............. -- -- (5,892) -- (13,268)
-------- --------- ---------- ---------- ----------
Net income (loss)(1)... $(24,321) $(325,946) $ 195,337 $ (54,331) $ 185,811
======== ========= ========== ========== ==========
Pro forma provision for
income taxes(1)....... $ 73,884 $ 67,292
---------- ----------
Pro forma net
income(1)............. $ 115,561 $ 105,251
========== ==========
BALANCE SHEET DATA
Finance receivables.... $115,454 $ 279,148 $2,552,441 $1,743,722 $5,493,815
Allowance for losses on
receivables........... 18,475 20,847 66,840 66,840 142,151
Total assets........... 329,588 344,850 2,669,939 1,418,436 5,513,240
Client holdbacks....... 21,729 112,374 814,607 612,530 1,371,443
Line of credit......... -- -- 1,433,542 936,353 3,529,776
Total liabilities...... 203,534 558,759 2,795,404 1,686,676 5,715,889
Limited partners'
capital............... 155,410 144,857 415,305 178,964 463,598
Stockholders' deficit.. (29,356) (358,766) (540,770) (447,204) (666,247)
</TABLE>
28
<PAGE>
FUNDING
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTH
AT OR FOR THE PERIOD ENDED
AT OF FOR THE PERIOD FROM YEAR ENDED JUNE 30,
INCEPTION (SEPTEMBER 12, 1994) DECEMBER 31, -----------------------
THROUGH DECEMBER 31, 1994 1995 1995 1996
------------------------------ ------------- ----------- -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Fee income............. $ 278,716 $ 4,248,992 $ 1,345,495 $ 3,353,137
Interest income........ 2,770 403,659 59,742 1,204,010
---------- ----------- ----------- -----------
Total fee and interest
income............... 281,486 4,652,651 1,405,237 4,557,147
Interest expense....... -- 554,885 90,837 1,269,060
---------- ----------- ----------- -----------
Net fee and interest
income............... 281,486 4,097,766 1,314,400 3,288,087
Provision for losses on
receivables........... 326,792 171,395 171,395 321,490
---------- ----------- ----------- -----------
Net fee and interest
income after
provision for losses
on receivables....... (45,306) 3,926,371 1,143,005 2,966,597
Operating expenses..... 166,317 1,024,057 387,593 828,051
---------- ----------- ----------- -----------
Net income (loss) (1).. $ (211,623) $ 2,902,314 $ 755,412 $ 2,138,546
========== =========== =========== ===========
Pro forma provision for
income taxes (1)...... $ 1,131,902 $ 294,811 $ 834,033
----------- ----------- -----------
Pro forma net income
(1)................... $ 1,770,412 $ 460,801 $ 1,304,513
=========== =========== ===========
BALANCE SHEET DATA
Finance receivables.... $6,012,475 $37,164,708 $14,846,206 $60,419,714
Allowance for losses on
receivables........... 326,792 498,187 498,187 819,677
Total assets........... 7,754,522 38,979,184 15,656,698 62,346,720
Client holdbacks....... 2,362,800 8,175,870 3,962,411 9,186,561
Line of credit......... -- 16,374,318 2,931,153 31,876,467
Total liabilities...... 2,629,651 26,140,008 7,938,248 42,314,326
Partners' capital...... 5,124,871 12,839,176 7,718,450 20,032,394
</TABLE>
- --------
(1) Net income for HealthCare Financial Partners, Inc. and DEL combined is
presented with DEL on a partnership reporting basis for tax purposes and
net income for Funding is presented on a partnership reporting basis for
tax purposes (i.e. no provision for income tax included in their historical
financial statements). A pro forma tax rate of 39% was applied to calculate
the pro forma income tax provision and the pro forma net income amounts.
29
<PAGE>
MANAGEMENT'S DISCUSSION ANDANALYSIS OF HISTORICAL FINANCIAL CONDITION AND
HISTORICAL RESULTS OF OPERATIONS
Due to the structure of the Company's operations prior to the
Reorganization, the Company believes that the Company's historical financial
condition and results of operations will not be comparable to the Company's
future operations following the Reorganization and the Offering. The following
discussion only pertains to the Company's historical financial condition and
results of operations, and therefore should be read in conjunction with
"Selected Historical Financial Data," the combined financial statements,
including the notes thereto of HealthCare Financial Partners, Inc. and DEL,
and the financial statements, including the notes thereto of Funding. See "Pro
Forma Financial Information" and "Management's Discussion and Analysis of Pro
Forma Financial Condition and Pro Forma Results of Operations."
HEALTHCARE FINANCIAL PARTNERS, INC. AND DEL COMBINED RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total fee and interest income increased from $164,592 for the six month
period ended June 30, 1995 to $607,149 for the six month period ended June 30,
1996, a 268.9% increase. This increase was principally the result of an
increase of $4.3 million in average finance receivables for the six month
period ended June 30, 1996. Interest expense increased from $21,941 for the
six month period ended June 30, 1995 to $112,096 for the comparable period in
1996, a 410.9% increase. This increase in interest expense was the result of
higher average borrowings required to support the growth of HealthCare
Financial Partners, Inc. and DEL. Net fee and interest income increased from
$142,651 for the six month period ended June 30, 1995 to $495,053 for the six
month period ended June 30, 1996, a 247.0% increase, primarily as a result of
overall growth in HealthCare Financial Partners, Inc. and DEL's finance
receivables described above.
The provision for losses on receivables increased from $45,993 for the six
month period ended June 30, 1995 to $75,311 for the six month period ended
June 30, 1996, a 63.7% increase. This increase is primarily attributable to an
increase in outstanding finance receivables. Neither HealthCare Financial
Partners, Inc. nor DEL experienced credit losses in either six month period.
Operating expenses increased from $462,953 for the six month period ended
June 30, 1995 to $857,969 for the comparable period in 1996, an 85.3%
increase. This increase was primarily the result of the increase in
compensation, rent and other expenses related to the expansion of the
operations of HealthCare Financial Partners, Inc. and DEL.
Other income, consisting primarily of amounts paid by Funding as management
fees and partnership income, increased from $311,964 for the six month period
ended June 30, 1995 to $610,770 for the six month period ended June 30, 1996,
an increase of 95.8%, as a result of the expansion of Funding's operations.
Net income increased from a loss of $54,331 for the six month period ended
June 30, 1995 to net income of $185,811 for the comparable period in 1996, a
442.0% increase, primarily as a result of the growth in the finance
receivables and other income.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Total fee and interest income increased from $13,036 for the year ended
December 31, 1994 to $565,512 for the year ended December 31, 1995. This
increase was principally the result of a $1.4 million increase in average
outstanding finance receivables for 1995 compared to 1994. Interest expense
increased from $3,975 for the year ended December 31, 1994 to $79,671 for the
year ended December 31, 1995. This increase in interest expense was the result
of the commencement of borrowings to support growth. Net fee and interest
income increased from $9,061 for the year ended December 31, 1994 to $485,841
for the year ended December 31, 1995, primarily as a result of the overall
growth in finance receivables described above.
30
<PAGE>
The provision for losses on receivables increased from $2,102 for the year
ended December 31, 1994 to $45,993 for the year ended December 31, 1995. This
increase is primarily attributable to the increase in its outstanding finance
receivables. Neither HealthCare Financial Partners, Inc. nor DEL experienced
credit losses in either period.
Operating expenses increased from $439,514 for the year ended December 31,
1994 to $1.5 million for the year ended December 31, 1995. This increase was
primarily the result of the increase in compensation, rent and other expenses
related to the expansion of operations.
Other income increased from $106,609 for the year ended December 31, 1994 to
$1.2 million for the year ended December 31, 1995, as a result of the
expansion of Funding's operations.
Net income increased from a loss of $325,946 for the year ended December 31,
1994 to net income of $195,337, for the year ended December 31, 1995, a 158.1%
increase, primarily as a result of the growth in finance receivables and other
income described above.
Year Ended December 31, 1994 Compared to Period Ended December 31, 1993
Because HealthCare Financial Partners, Inc. and DEL had only limited
operations for the period ended December 31, 1993, period-to-period
comparisons are not meaningful.
FUNDING RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Total fee and interest income increased from $1.4 million for the six month
period ended June 30, 1995 to $4.6 million for the six month period ended June
30, 1996, a 224.3% increase. This increase was principally the result of
Funding's introduction of the ABL Program and the corresponding increase of
$18.6 million in average ABL Program finance receivables for the six month
period ended June 30, 1996, and an increase of $21.2 million in average AR
Advance Program finance receivables for the same period, as the Company
expanded its client base. Interest expense increased from $90,837 for the six
month period ended June 30, 1995 to $1.3 million for the comparable period in
1996. This increase in interest expense was the result of higher average
borrowings required to support Funding's growth. Net fee and interest income
increased from $1.3 million for the six month period ended June 30, 1995 to
$3.3 million for the six month period ended June 30, 1996, a 150.1% increase,
primarily as a result of overall growth in Funding's finance receivables
described above.
Funding's provision for losses on receivables increased from $171,395 for
the six month period ended June 30, 1995 to $321,490 for the six month period
ended June 30, 1996, a 87.6% increase. This increase is principally
attributable to an increase in outstanding finance receivables. Funding
experienced no credit losses in either six month period.
Operating expenses increased from $387,593 for the six month period ended
June 30, 1995 to $828,051 for the comparable period in 1996, a 113.6%
increase. This increase was primarily the result of the increase in
commission, legal and other expenses related to the growth of Funding's
portfolio of finance receivables.
Net income increased from $755,412 for the six month period ended June 30,
1995 to $2.1 million for the comparable period in 1996, a 183.1% increase,
primarily as a result of overall growth in Funding's finance receivables
described above.
Year Ended December 31, 1995 Compared to Period Ended December 31, 1994
Total fee and interest income increased from $281,486 for the period
December 31, 1994 to $4.7 million for the year ended December 31, 1995. This
increase was principally the result of a $16.9 million increase in average
outstanding finance receivables for 1995 compared to 1994. Interest expense
increased from $0 for the
31
<PAGE>
period ended December 31, 1994 to $554,885 for the year ended December 31,
1995. This increase in interest expense was the result of the commencement of
borrowings in 1995 to support Funding's growth. Net fee and interest income
increased from $281,486 for the period ended December 31, 1994 to $4.1 million
for the year ended December 31, 1995, primarily as a result of overall growth
in Funding's finance receivables described above.
Funding's provision for losses on receivables decreased from $326,792 for
the period ended December 31, 1994 to $171,395 for the year ended December 31,
1995. This decrease is primarily attributable to a decrease in average client
balances. Funding experienced no credit losses in either period.
Operating expenses increased from $166,317 for the period ended December 31,
1994 to $1.0 million for the year ended December 31, 1995. This increase was
primarily the result of the increase in commission, legal and other expenses
related to the growth of Funding's portfolio of finance receivables.
Net income increased from a loss of $211,623 for the period ended December
31, 1994 to net income of $2.9 million for the year ended December 31, 1995,
primarily as a result of overall growth in Funding's finance receivables
described above.
OTHER INFORMATION
For other information regarding the financial condition and results of
operations of HealthCare Financial Partners, Inc., DEL and Funding see
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations."
32
<PAGE>
BUSINESS
GENERAL
The Company is a specialty finance company offering asset-based financing to
healthcare service providers, with a primary focus on clients operating in
sub-markets of the healthcare industry, including long-term care, home
healthcare and physician practices. The Company also provides asset-based
financing to clients in other sub-markets of the healthcare industry,
including pharmacies, durable medical equipment suppliers, hospitals, mental
health providers, rehabilitation companies and disease state management
companies. The Company targets small and middle market healthcare service
providers with financing needs in the $100,000 to $10 million range in
healthcare sub-markets which have favorable characteristics for working
capital financing, such as those where growth, consolidation or restructuring
appear likely in the near to medium term. Management believes that the
Company's healthcare industry expertise and specialized information systems,
combined with its responsiveness to clients, willingness to finance relatively
small transactions, and flexibility in structuring transactions, give it a
competitive advantage in its target markets over commercial banks, diversified
finance companies and traditional asset-based lenders. From its inception in
1993 through June 30, 1996, the Company has advanced $407.1 million to its
clients in 151 transactions, including $210.9 million advanced during the six
months ended June 30, 1996. The Company had 94 clients as of June 30, 1996, of
which 26 were affiliates of one or more other clients. The average amount
outstanding per client at June 30, 1996 was approximately $856,000. For the
six months ended June 30, 1996, the Company's annualized yield on finance
receivables was 18.2%.
HEALTHCARE INDUSTRY
According to Healthcare Financing Administration ("HCFA") estimates, total
domestic healthcare expenditures for 1995 exceeded $1.0 trillion, or
approximately 14.2% of gross domestic product, compared to expenditures of
$376.4 billion or 10% of gross domestic product in 1985. The annual compound
growth rate of healthcare expenditures from 1985 to 1995 was 11.6%. The
breakdown of estimated healthcare expenditures for 1995 is as follows (dollars
in billions):
<TABLE>
<CAPTION>
HEALTHCARE INDUSTRY SEGMENT ESTIMATED 1995 EXPENDITURES
--------------------------- ---------------------------
<S> <C>
Acute Care (hospitals)........................... $ 364.5
Physician Services............................... 198.0
Other Medical Non-Durables....................... 84.7
Long-Term Care (nursing homes)................... 80.2
Other Professional Services...................... 62.9
Insurance--net of healthcare costs............... 51.9
Dental Services.................................. 42.9
Home Healthcare.................................. 27.9
Government Public Health......................... 27.9
Other Personal Care.............................. 22.7
Research......................................... 15.9
Construction..................................... 14.2
Vision Products and Other Medical Durables....... 13.9
--------
Total.......................................... $1,007.6
========
</TABLE>
- --------
Source: HCFA, Office of the Actuary.
The Company believes that there are several distinct trends that will
continue to fuel the demand for and the dollar value of healthcare services in
the United States and the demand for the Company's services, including: (i)
dramatic change driven by governmental and market forces which have put
pressure on healthcare service providers to reduce healthcare delivery costs
and increase efficiency, often resulting in short-term working capital
requirements by such providers as their businesses grow; (ii) favorable
demographic trends, including both the general increase in the U.S. population
and the aging of the U.S. population, which should increase the size of the
Company's principal target markets; (iii) growth, consolidation and
restructuring of
33
<PAGE>
fragmented sub-markets of healthcare, including long-term care, home
healthcare and physician services; and (iv) advances in medical technology,
which have increased demand for healthcare services by expanding the types of
diseases that can be effectively treated and by extending the population's
life expectancy.
According to HCFA, total annual expenditures in the long-term care market
grew from $30.7 billion in 1985 to an estimated $80.0 billion in 1995, and are
projected to grow to $121.0 billion by the year 2000. The Company's long-term
care clients include single nursing home operators (1-2 homes), small nursing
home chains (3-10 homes) and regional nursing home chains (11-50 homes). The
long-term care industry remains widely diversified and fragmented, with all
nursing home chains controlling only 34.5% of the market, and the largest 20
chains constituting only 18.0% of the market.
According to HCFA, total annual home healthcare expenditures grew from $6.2
billion in 1985 to an estimated $26.5 billion in 1995, and are projected to
grow to $45.9 billion by the year 2000. According to the National Association
of Health Care, the number of Medicare certified home health agencies has
grown from 5,963 in 1985 to 8,747 in 1995. The home healthcare business
remains highly fragmented, with only a small percentage of such companies
having any significant market share.
According to HCFA, the physician services market grew from $83.6 billion in
1985 to an estimated $198.0 billion in 1995, and is projected to grow to
$309.8 billion by the year 2000. The American Medical Association ("AMA")
reports that approximately 565,000 physicians are actively involved in patient
care in the U.S., with a growing number participating in multi-specialty or
single-specialty groups. According to the AMA, as of 1995, there were 17,567
physician groups with three or more physicians, while over two-thirds of all
physicians still work in practices of one or two persons.
MARKET FOR HEALTHCARE RECEIVABLES FINANCING
Businesses generally utilize working capital or accounts receivable
financing to bridge the shortfall between the turnover of current assets and
the maturity of current liabilities. A business will often experience this
shortfall during periods of revenue growth because cash flow from new revenues
lags behind cash outlays required to produce new revenues. For example, a
growing labor intensive business will often need to fund payroll obligations
before payments are received on new services provided or products produced.
Many of the Company's clients are labor intensive and growing and therefore
require accounts receivable financing to fund their growth.
In addition to the Company, working capital financing for small and middle
market healthcare service providers is currently provided by several different
sources. Some commercial banks and diversified finance companies have formed
groups or divisions to provide working capital financing for healthcare
service providers. The Company believes, however, that such groups or
divisions generally focus on providing financing to companies with borrowing
needs in excess of $5 million, and often require more extensive collateral in
addition to accounts receivable to secure such financing. The Company believes
that, as a general matter, these lenders typically have been less willing to
provide financing to healthcare service providers of the types served by the
Company because such lenders have not developed the healthcare industry
expertise needed to underwrite smaller healthcare service companies or the
specialized systems necessary for tracking and monitoring healthcare
receivables transactions, which are different from traditional accounts
receivable finance transactions. Several independent healthcare finance
companies that have raised funds through securitization programs also provide
financing to healthcare service providers. However, the Company believes that
many of the financing programs offered by such securitization companies are
often rigid and cumbersome for healthcare service providers to implement.
The Company believes that the growth in healthcare expenditures, the
consolidation of certain segments of the healthcare market, and the
reorganization of the healthcare delivery system (caused by both cost
containment pressures and the introduction of new products and services), will
have positive effects on the demand for the Company's services since they in
many cases will increase the working capital needs of the Company's clients.
Historically, these trends have affected different sub-markets of the
healthcare industry at different times. The Company expects these trends to
continue, thereby providing the Company with long-term growth opportunities.
34
<PAGE>
STRATEGY
The Company's goal is to be the leading finance company in its targeted sub-
markets of the healthcare services industry. The Company's strategy for growth
is based on the following key elements:
Target sub-markets within the healthcare industry that have favorable
characteristics for working capital financing, such as fragmented sub-markets
experiencing growth, consolidation or restructuring. At August 31, 1996, 51.4%
of the Company's portfolio consisted of finance receivables from businesses in
the long-term care and home healthcare sub-markets, and management believes
that growth, consolidation and restructuring in these sub-markets will
continue to provide opportunities for the Company to expand. By continuing to
focus on these sub-markets and by expanding its financing of the physician
practice sub-market, the Company believes that it can achieve attractive
returns while controlling overall credit risk. The Company believes that in
the future different healthcare sub-markets may experience increased demand
for working capital, and the Company intends to be in a position to move into
these new markets as opportunities arise.
Focus on healthcare service providers with financing needs of between
$100,000 and $10 million, a market that the Company believes has been under
served by commercial banks, diversified finance companies, traditional asset-
based lenders and other competitors of the Company. The Company believes that
most commercial banks, diversified finance companies and traditional asset-
based lenders have focused on providing financing to companies with borrowing
needs in excess of $5 million. While actively pursuing healthcare service
providers with borrowing needs of between $5 and $10 million, the Company
primarily targets for its ABL Program clients that desire to borrow less than
$5 million, and for its AR Advance Program clients that desire to borrow less
than $1 million. The Company believes that its target market is much larger,
in terms of the number of available financing opportunities, and is less
competitive than the market servicing larger borrowing needs, thereby
producing growth opportunities at attractive rates.
Introduce new financial products to leverage the Company's existing
expertise in healthcare finance and its origination, underwriting and
servicing capabilities within its target sub-markets. The Company employs
significant resources in the origination, underwriting and servicing of
clients in its target sub-markets. To further deepen its penetration of these
sub-markets, the Company intends to offer additional financing products such
as loans secured by equipment, inventory, real estate or stock. The Company
intends to originate these products directly as an adjunct to its existing ABL
Program and AR Advance Program relationships, or as part of cooperative
arrangements with other lenders where the origination and servicing
relationship will remain with the Company. The Company believes that it will
enhance its competitive position with respect to existing and new clients by
meeting their changing financing needs with a broader array of financial
products. These products will enable the Company to diversify its revenue
stream and enhance its growth opportunities.
Enhance the Company's credit risk management and improve servicing
capabilities through continued development of information management systems,
which can also be used to assist the Company's clients in managing the growth
of their businesses. The Company has developed proprietary information systems
that effectively monitor its assets and which also serve as valuable tools to
the Company's smaller less sophisticated clients in managing their working
capital resources and streamlining their billing and collection efforts. The
Company believes that this "servicing" capability provides a competitive
advantage by strengthening relationships with clients, providing early
identification of dilution of client accounts receivable, and increasing the
Company's understanding of its clients' operational needs.
FINANCING PROGRAMS
General. The Company provides asset-based financing to healthcare service
providers primarily through the AR Advance Program and ABL Program.
Accounts Receivable Advance Program. Under the AR Advance Program, the
Company purchases, on a revolving basis, a specified batch of a client's
accounts receivable owed to such client from third-party payors. The purchase
price for each batch of receivables is the estimated net collectible value of
such batch less a purchase discount, comprised of funding and servicing fees.
The purchase discount can be either a one-time fee for each batch of
receivables purchased or a periodic fee based on the average outstanding
balance of a batch of
35
<PAGE>
receivables. With each purchase of a batch of receivables, the Company
advances to the client 65%-85% of the purchase price of such batch. The
Company assigns a collection period to batches of receivables purchased which
period generally ranges from 60 to 120 days from the purchase date depending
on the type of receivables purchased. The excess of the purchase price for a
batch of receivables over the amount advanced with respect to such batch (a
"client holdback") is treated as a reserve and provides additional security to
the Company. The Company targets smaller healthcare service providers for its
AR Advance Program, for which commitments are generally less than $1 million
and terms are generally for one year with renewal options. The average
annualized yield on the AR Advance Program for the six months ended June 30,
1996 was 19.5%. As of August 31, 1996, the Company was financing 79 clients in
its AR Advance Program.
Asset-Based Lending Program. Under the ABL Program, the Company offers
healthcare service providers revolving lines of credit secured by accounts
receivable. The terms of the Company's ABL Program permit a client to borrow,
on a revolving basis, 65%-85% of the estimated net collectible value of the
client's accounts receivable due from third-party payors, which are pledged to
the Company. The Company charges its clients a base floating interest rate
(above the then applicable prime rate) and a variety of other fees which may
include a loan management fee, a commitment fee, a set-up fee, and an unused
line fee. The Company targets larger healthcare service providers for its ABL
Program, for which the minimum commitment amount is $1 million and the maximum
commitment amount is $10 million. The Company's advances under its ABL Program
are recourse to the client and generally have a term of one to three years.
The average annualized yield on the ABL Program for the six months ended
June 30, 1996 was 15.5%. As of August 31, 1996, the Company was financing 29
clients in its ABL Program, and the ABL Program constituted 41.3% of total
finance receivables. At August 31, 1996, seven clients were in both the ABL
Program and AR Advance Program. The ABL Program has grown rapidly since
inception, and the Company believes that it will comprise an increasing
percentage of the Company's total assets within the next several years. ABL
Program loans are characterized by lower overall yields, but provide the
Company with the opportunity to expand the range of potential clients while
reducing costs as a percentage of finance receivables.
Term Loans. To a lesser degree, from time to time the Company also provides
its clients with fixed rate term loans secured by their receivables or other
assets, generally in conjunction with either an ABL Program or AR Advance
Program. At June 30, 1996, the Company had approximately $869,000 in term
loans outstanding, issued under seven separate term loans, which amount
outstanding represented less than 1.5% of the Company's assets. The average
annualized yield on such term loans for the six months ended June 30, 1996 was
15.0%.
The following table sets forth on a pro forma basis the Company's portfolio
activity at or for the periods indicated:
PORTFOLIO ACTIVITY
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED
-----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1995 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Finance Receivables--AR
Advance Program........ $11,461,264 $14,603,602 $20,960,568 $32,443,023 $36,664,745 $39,989,071
Finance Receivables--ABL
Program................ -- 1,581,478 5,073,933 6,270,629 20,783,045 25,924,458
Total Clients--AR
Advance Program........ 37 52 63 72 68 74
Number of New Clients--
AR Advance Program..... 9 18 21 16 14 12
Total Clients--ABL
Program................ -- 4 11 13 22 24
Number of New Clients--
ABL Program............ -- 4 7 2 9 2
Average Finance
Receivables Outstanding
Per Client:
AR Advance Program..... $ 309,764 $ 280,839 $ 332,708 $ 450,598 $ 539,187 $ 540,393
ABL Program............ -- 395,370 461,267 482,356 864,684 1,080,186
</TABLE>
36
<PAGE>
OPERATIONS
Marketing. The Company has developed low cost means of marketing its
services on a nationwide basis to selected healthcare sub-markets. The Company
primarily markets its services by telemarketing to prospective clients
identified by the Company, advertising in industry specific periodicals and
participating in industry trade shows. While the healthcare industry is large
and diverse, the Company has been able to identify prospective clients through
the retention of experienced marketing personnel with specific industry
expertise and through analyses of selective information on the healthcare
industry. At June 30, 1996, the Company employed a staff of eight sales and
marketing representatives. The Company maintains a satellite marketing office
in Boca Raton, Florida. Marketing personnel are compensated with a base salary
plus performance bonuses. The Company's clients also assist the Company's
marketing efforts by providing referrals and references. The Company has and
will continue to rely primarily on direct marketing efforts to generate new
clients for its services.
The Company also markets its services by developing referral relationships
with accountants, lawyers, venture capital firms, billing and collection
companies and investment banks (which typically are professionals focusing on
the healthcare industry and who have a pre-existing relationship with a
prospective client). The Company usually does not pay a fee for referrals from
professional firms. However, the Company has closed transactions with clients
through referrals from independent brokers that generally specialize in the
healthcare industry, which brokers have been paid a one-time brokerage
commission upon the closing of a transaction. While not a primary focus of its
marketing efforts, the Company expects to continue to generate referrals
through independent brokers.
Underwriting and Monitoring. The Company follows written underwriting and
credit policies, and its credit committee, consisting of senior officers of
the Company, must unanimously approve a transaction before the Company enters
into either an ABL Program, AR Advance Program or term loan with a prospective
client. The Company's underwriting policies require a due diligence review of
the prospective client, its principals, its financial condition and strategic
position, including a review of all available financial statements and other
financial information, legal documentation and operational matters, as well as
a detailed examination of its accounts receivable, accounts payable, billing
and collection systems and procedures and management information systems. Such
a review is conducted after the Company and the prospective client execute a
non-binding term sheet, which requires the prospective client to pay a due
diligence deposit to defray the Company's expenses. The Company's due
diligence review is supervised by the sponsoring member of the credit
committee, and is conducted by either an in-house field auditor or third-party
consulting underwriters that have been approved by the credit committee. The
Company independently confirms certain matters with respect to the prospective
client's business and the collectibility of its accounts receivable and any
other collateral by conducting public record searches, and, where appropriate,
by contacting third-party payors about the prospective client's receivables.
In order to determine its estimate of the net collectible value of a
prospective client's accounts receivable, the Company works with third-party
claim verifiers, who conduct extensive due diligence to evaluate the
receivables likely to be received within a defined collection period. Net
collectible value due diligence typically includes: a review of historical
collections by type of third-party payor; a review of remittance advice and
information relating to claim denials (including explanations of benefits); a
review of claims files and related medical records; and an analysis of billing
and collections staff and procedures. In addition, third-party payors are
contacted. Such third-party claim verifiers are also generally used on a
periodic basis to determine the net collectible value of a client's accounts
receivable. Claim verifiers include healthcare billing and collection
companies, healthcare accounting firms with expertise in reviewing cost
reports filed with Medicaid and Medicare, and specialized consultants with
expertise in certain sub-markets of the healthcare industry. Claim verifiers
are pre-approved by the Company's credit committee. When deemed necessary by
the Company for credit approval, the Company may obtain corporate or personal
guaranties or other collateral in connection with the closing of a
transaction.
The Company monitors the collections of client accounts receivable and its
finance receivables on a daily basis. Each client is assigned an account
manager, who receives draw and advance requests, posts collections
37
<PAGE>
and serves as the primary contact between the Company and the client. All draw
or advance requests must be approved by the Company's senior credit officer or
a member of the Company's credit committee. At June 30, 1996, the Company
employed seven account managers in its Chevy Chase, Maryland headquarters. The
Company's proprietary information systems enable the Company to monitor each
client's account, as well as permit management to evaluate and mitigate
against risks on a portfolio basis. See "--Information Systems." In addition,
the Company conducts audits of the client's billing and collection procedures,
financial condition and operating strategies at least annually, and more
frequently if warranted, particularly with respect to the ABL Program, where
audits are usually conducted on a quarterly basis. Such audits are conducted
by in-house field auditors or by third-party consulting underwriters.
Documentation. The Company's documentation for the ABL Program and AR
Advance Program is described below.
ABL Program. Advances under the ABL Program are made pursuant to a loan and
security agreement ("ABL Agreement"), a note, and ancillary documents. ABL
Agreements generally have stated terms of one year, with automatic one-year
extensions, and provide for payment of liquidated damages to the Company in
the event of early termination by the client. Under the ABL Program, the
Company generally advances only 65% to 85% of the Company's estimate of the
net collectible value of client receivables from third-party payors. As
security for such advances, the Company is granted a first priority security
interest in all of the client's then-existing and future accounts receivable,
inventory, goods, general intangibles, equipment, deposit accounts, cash,
other assets and proceeds (the "Collateral").
Clients who borrow under the ABL Program are subject to a number of negative
covenants set forth in the ABL Agreement, including covenants limiting
additional borrowings, restricting the client's ability to pledge assets,
prohibiting payment by the client of dividends or management fees or returning
capital to investors, and imposing minimum net worth and, if applicable,
minimum census requirements. In the event of a client default, all debt owing
under the ABL Agreement may be accelerated and the Company may exercise its
rights, including foreclosing on the Collateral.
AR Advance Program. Advances under the AR Advance Program are made pursuant
to a Receivables Purchase and Sale Agreement (the "AR Agreement") and are
structured as purchases of eligible accounts receivable designated from time
to time on a "batch" basis. AR Agreements provide for the Company's purchase
of eligible accounts receivable offered by the client from time to time to the
Company. AR Agreements generally have stated terms of one to three years, with
automatic one-year extensions. The client is required to sell to the Company a
minimum amount of eligible accounts receivable each month during the term of
an AR Agreement; however, the Company's total investment in eligible accounts
receivable under an AR Agreement is limited to a specified "commitment"
amount. The Company may accept or reject in its discretion any portion of
eligible accounts receivable offered for sale by the client to the Company.
Although accounts receivable purchased by the Company under the AR Advance
Program are assigned to the Company pursuant to the AR Agreement, the client
retains its rights to receive payment and to make claims with respect to
Government Program-related receivables.
The purchase price for each batch of eligible accounts receivable under the
AR Advance Program is the estimated net collectible value of the such
receivables less a purchase discount, comprised of funding and servicing fees.
An amount equal to 65% to 85% of the purchase price is paid to the client; the
Company retains the balance of the purchase price as a reserve, held as
additional security for the client's obligations under the AR Agreement. The
reserve is released to the client (i) upon receipt by the Company of payments
relating to the receivables in an amount equal to the estimated net
collectible value of the receivables or (ii) upon expiration of the collection
period assigned to the respective batch of receivables, except that if the
Company has not received payments at least equal to the purchase price for the
receivables, then the Company may at its option either (x) offset any
shortfall against reserves relating to any other batch or from amounts due to
the client from the sale of other batches, or (y) require the client to
replace the uncollected receivables with substitute eligible accounts
receivable.
38
<PAGE>
The AR Agreement also contemplates that the client may grant to the Company
a security interest in other assets of the client as may be mutually agreed.
In addition, pursuant to the AR Agreement, the client agrees to indemnify the
Company for all losses arising out of or relating to the AR Agreement.
Under the AR Agreement, the client covenants to notify payors of the sale of
accounts receivable to the Company and to assist the Company in collecting
payments on the purchased receivables and causing such payments to be remitted
to the Company. The client agrees to instruct all payors that payments are to
be made to such lockbox or other account as the Company may direct.
Collection Procedures. The Company's cash collection procedures vary by (i)
the type of program provided by the Company, either the AR Advance Program or
the ABL Program, and (ii) the type of accounts receivable due and owing to
clients from either insurance companies and health maintenance organizations
("Commercial Insurers"), Government Programs, or in certain limited
circumstances, other healthcare service providers.
Receivables due and owing from Government Programs are subject to certain
laws and regulations not applicable to commercial insurers. Except in certain
limited cases, Medicare and Medicaid laws and regulations provide that
payments for services rendered under Government Programs can only be made to
the healthcare service provider that has rendered the services. See "Risk
Factors--Inability to Collect Healthcare Receivables Directly From Medicare
and Medicaid."
With respect to the ABL Program, clients continue to bill and collect
accounts receivable in the ordinary course of business. Clients are required
to maintain a lockbox account and a related depository account. If Government
Program-related receivables are involved, the lockbox is maintained in the
name of the client and the depository account is maintained in the name of the
Company. If no such receivables are involved, both the lockbox and the
depository account are maintained in the name of the Company. In each case,
all of the client's collections are required to be directed to the lockbox,
and all items of payment received in the lockbox are deposited daily into the
depository account. The Company applies funds received in the depository
account on a daily basis to reduce outstanding indebtedness under the ABL
Agreement. Collections received directly by clients are required to be
immediately remitted to the lockbox.
With respect to the AR Advance Program, clients continue to bill and collect
accounts receivable in the ordinary course of business; provided, however,
that subject to certain limitations applicable to Government Program-related
receivables, the Company retains the right to assume the billing and
collection process upon notice to the client. The Company maintains a general
lockbox in the Company's name into which payments with respect to all
receivables purchased from clients in the AR Advance Program, other than
Government Program-related receivables, are required to be remitted. If a
client in the AR Advance Program generates Government Program-related
receivables, the client is required to establish a lockbox in the client's
name into which payments on such receivables are to be directed. Balances from
all lockboxes maintained in connection with the AR Advance Program are swept
on a daily basis to the Company.
39
<PAGE>
The following table sets forth the percentages of the Company's finance
receivables in the AR Advance Program and the ABL Program as of August 31,
1996 by type of third-party payor.
FINANCE RECEIVABLES BY THIRD-PARTY PAYOR TYPE
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1996
---------------------------
AR
ADVANCE ABL TOTAL
PROGRAM PROGRAM RECEIVABLES
------- ------- -----------
<S> <C> <C> <C>
Third Party
Payors
- -----------
Commercial Insurers/Contract Claims................ 60.8% 26.2% 47.8%
Government Programs:
Medicare......................................... 20.7 27.1 23.1
Medicaid......................................... 10.8 46.7 24.4
---- ---- ----
Total Government Programs...................... 31.5 73.8 47.5
Other Healthcare Service Providers................. 7.8 -- 4.8
</TABLE>
CLIENTS
The Company's client base is diversified. As of August 31, 1996, the Company
was servicing clients located in 33 states across the country, in a number of
different sub-markets of the healthcare industry, with a concentration in the
long-term care and home healthcare industries.
PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
AS OF AUGUST 31, 1996
--------------------------------------------
NUMBER OF PERCENT OF FINANCE PERCENT OF
CLIENTS(1) CLIENTS RECEIVABLES PORTFOLIO
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Industry Group
- --------------
Home Healthcare .................. 36 35.6% $17,203,193 23.4%
Long-Term Care.................... 25 24.8 20,528,809 27.9
Physician Practice................ 11 10.9 1,652,612 2.3
Mental Health..................... 10 9.9 10,131,028 13.8
Rehabilitation.................... 8 7.9 4,717,263 6.4
Durable Medical Equipment......... 5 4.9 1,673,655 2.3
Diagnostic........................ 3 3.0 177,382 0.3
Hospital.......................... 2 2.0 12,445,369 16.9
Other............................. 1 1.0 4,945,594 6.7
--- ----- ----------- -----
Total........................... 101 100.0% $73,474,905 100.0%
=== ===== =========== =====
Program Breakdown
- -----------------
AR Advance Program................ 79 73.2% $43,110,549 58.7%
ABL Program....................... 29 26.8 30,364,356 41.3
--- ----- ----------- -----
Total........................... 108 100.0% $73,474,905 100.0%
=== ===== =========== =====
</TABLE>
- --------
(1) At August 31, 1996, seven clients were in both the AR Advance Program and
ABL Program.
40
<PAGE>
CAPITAL RESOURCES
Sources of capital available to the Company to fund advances under the ABL
Program and advances against accounts receivable under the AR Advance Program
have included the Bank Facility, partnership equity, stockholders' equity, and
upon the closing of the proposed CP Facility, will include the CP Facility.
Bank Facility. The Bank Facility is a revolving line of credit for up to $50
million. The interest rates payable by the Company under the Bank Facility
adjust, based on Fleet's prime rate; however, the Company has the option to
borrow any portion of the Bank Facility over $500,000 based on the 30-day,
three-month or six-month LIBOR plus 3.0%. The Bank Facility contains certain
financial covenants which must be maintained by the Company in order to obtain
funds. The expiration date for the Bank Facility is March 9, 1998, subject to
automatic renewal for one-year periods thereafter unless terminated by Fleet.
See "Risk Factors--Restrictive Debt Covenants."
Proposed CP Facility. Under the terms of the proposed CP Facility, the
Company will be able to borrow up to $100 million. The Company will form a
bankruptcy remote, special purpose corporation to which the Company will
transfer loans and receivables which meet certain conditions and as to which
the Company will make certain representations and warranties. The special
purpose corporation will pledge the loans and receivables to a commercial
paper conduit sponsored by an affiliate of a major international financial
institution, which will lend against such assets through the issuance of
commercial paper. The maturity date for the proposed CP Facility is expected
to be five years from closing. However, after three years, the program may be
terminated by such institution without penalty.
CREDIT LOSS POLICY AND EXPERIENCE
The Company regularly reviews its outstanding loan advances and purchased
accounts receivable to determine the adequacy of its allowance for credit
losses. To date, the Company has experienced no credit losses. The allowance
for credit losses on receivables is maintained at the amount estimated to be
sufficient to absorb future losses, net of recoveries, inherent in the finance
receivables. In evaluating the adequacy of the allowance, management of the
Company considers trends in past-due accounts, historical charge-off and
recovery rates, credit risks indicators, economic conditions, on-going credit
evaluations, overall portfolio size, average client balances, Excess
Collateral, and underwriting policies, among other items. As of June 30, 1996,
the Company's general reserve was $961,828, or 1.5% of finance receivables. To
the extent that management deems specific advances to be wholly or partially
uncollectible, the Company establishes a specific loss reserve equal to any
such amount. The Company has not established any specific reserves. Management
believes that its reserve for losses on receivables is adequate at this time.
INFORMATION SYSTEMS
The Company owns a proprietary information system to monitor both the ABL
Program and the AR Advance Program which it refers to as the Receivables
Tracking System (the "RTS"). The RTS was developed by Creative Information
Systems, Inc., a stockholder of the Company. The RTS gives the Company the
ability to track and reconcile both asset-based loans under the ABL Program
and receivables that the Company advances against under the AR Advance
Program.
With respect to the ABL Program, the amount of any advances, collections and
adjustments are entered manually into the RTS by the Company's account
managers on a daily basis. With respect to the AR Advance Program, certain
client parameters are entered manually into the RTS, and more detailed
information on each batch of receivables is generally entered electronically
based on pre-established formats tailored to the client's software systems.
Upon the collection of funds advanced under the AR Advance Program,
information about such collections are entered into the RTS by the Company's
account managers who then apply the funds by directing the RTS to search its
data base to locate the receivable and batch that has received a payment.
The RTS generates daily, weekly and monthly reports summarizing the current
status of each batch of receivables in the AR Advance Program, and indicating
draws and collections, trend analysis, and interest and
41
<PAGE>
fee charges for management's review. The RTS is also able to generate reports
for the Company's lenders with respect to pledged loans and batches of
receivables, along with concentrations in the Company's ABL Program and AR
Advance Program portfolios by client and third-party payor type.
Certain reports generated through the RTS, including cash application
detail, batch summary and trend analysis reports, can also be used to assist
the Company's clients in monitoring changes in their cash flow and managing
the growth of their businesses. These reports are provided to all of the
Company's clients on a weekly basis, and are generally relied upon as a
management tool more frequently by smaller clients in the AR Advance Program,
which tend to have less sophisticated management information systems.
The RTS utilizes a Compaq Proliant 1500 production server, with RAID 5 back-
up technology (three hard disk back-ups) and other redundant back-up systems,
on a Novell netware operating system. The Company also operates a second
server with Novell netware supporting certain accounting and administrative
functions.
COMPETITION
The Company encounters significant competition in its healthcare finance
business from numerous commercial banks, diversified finance companies, asset-
based lenders and specialty healthcare finance companies. Additionally,
healthcare service providers often seek alternative sources of financing from
a number of sources, including venture capital firms, small business
investment companies, suppliers and individuals. As a result, the Company
competes with a significant number of local and regional sources of financing
and several large national competitors. Many of these competitors have greater
financial and other resources than the Company and may have significantly
lower cost of funds. Competition can take many forms, including, among others,
the pricing of financing, transaction structuring (e.g., securitization vs.
portfolio lending), timeliness and responsiveness in processing a client's
financing application, and customer service.
GOVERNMENT REGULATION
The Company's healthcare finance business is subject to federal and state
regulation and supervision and is required to be licensed or registered in
various states. In addition, the Company is subject to applicable usury and
other similar laws in the jurisdictions where the Company operates. These laws
generally limit the amount of interest and other fees and charges that a
lender may contract for, charge or receive in connection with a loan.
Applicable local law typically establishes penalties for violations of these
laws in that jurisdiction. These penalties could include the forfeiture to the
lender of usurious interest contracted for, charged or received and, in some
cases, all principal as well as all interest and other charges that the lender
has charged or received.
In addition to the inability of the Company to directly collect receivables
under Government Programs and the right of payors under such programs to
offset against unrelated receivables, the Company's healthcare finance
business is indirectly affected by healthcare regulation to the extent that
any of its clients' failure to comply with such regulation affects such
clients' ability to collect receivables or repay loans made by the Company.
See "Risk Factors--Dilution of Receivables; Government Right of Offset." The
most significant healthcare regulations that could potentially affect the
Company are: (i) certificate of need regulation, which many states require
upon the provision of new health services, particularly for long-term care and
home healthcare companies; (ii) Medicare-Medicaid fraud and abuse statutes,
which prohibit, among other things, the offering, payment, solicitation, or
receipt of remuneration, directly or indirectly, as an inducement to refer
patients to facilities owned by physicians if such facilities receive
reimbursement from Medicare or Medicaid; and (iii) other prohibitions of
physician self-referral that have been promulgated by the states.
LEGAL PROCEEDINGS
The Company is currently not a party to any material litigation although it
is involved from time to time in routine litigation incidental to its
business.
EMPLOYEES
As of August 31, 1996, the Company employed 25 people on a full-time basis.
The Company believes that its relations with employees are good.
42
<PAGE>
PROPERTY
The Company's headquarters occupy approximately 7,000 square feet at 2
Wisconsin Circle, Chevy Chase, Maryland. This space is provided under the
terms of a lease that expires in April, 2001, with a five-year renewal option.
The current cost is approximately $14,000 per month. In addition, the Company
leases small satellite offices in Boca Raton, Florida and San Francisco,
California. The Company believes that its current facilities are adequate for
its existing needs and that additional suitable space will be available as
required.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
September 15, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John K. Delaney................ 33 Chairman of the Board, Chief Executive
Officer, President and Director
Ethan D. Leder................. 33 Vice-Chairman of the Board, Executive Vice
President and Director
Edward P. Nordberg, Jr......... 36 Senior Vice President--Legal and Financial
Affairs, Secretary and Director
Hilde M. Alter................. 54 Treasurer
Michael G. Gardullo............ 38 Vice President and Senior Credit Officer
Steven M. Curwin............... 38 Vice President and General Counsel
John F. Dealy (1)(2)(3)........ 57 Director
Geoffrey E. D. 40
Brooke (1)(2)(3).............. Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Nominated Director.
John K. Delaney serves as Chairman of the Board, Chief Executive Officer,
President and Director of the Company. Mr. Delaney co-founded the Company in
1993 and has served as Chairman of the Board, Chief Executive Officer and
President since the formation of the Company. From 1990 through 1992, Mr.
Delaney co-owned and operated American Home Therapies, Inc., a provider of
home care and home infusion therapy services, which was sold in 1992. Prior to
1990, Mr. Delaney was a practicing attorney with Shaw, Pittman, Potts &
Trowbridge in Washington, D.C. Mr Delaney received his A.B. degree from
Columbia University in 1985 and his J.D. degree from the Georgetown University
Law Center in 1988.
Ethan D. Leder serves as Vice-Chairman of the Board, Executive Vice
President and Director of the Company. Mr. Leder co-founded the Company in
1993 and has served as Vice-Chairman of the Board and Executive Vice President
since the formation of the Company. From 1993 through September, 1996, Mr.
Leder also served as Treasurer to the Company. From 1990 through 1992, Mr.
Leder co-owned and operated American Home Therapies, Inc., a provider of home
care and home infusion therapy services, which was sold in 1992. Prior to
1990, Mr. Leder was engaged in the private practice of law in Baltimore,
Maryland and Washington, D.C. Mr. Leder received his B.A. degree from Johns
Hopkins University in 1984 and his J.D. degree from the Georgetown University
Law Center in 1987.
Edward P. Nordberg, Jr. serves as Senior Vice President-Legal and Financial
Affairs, Secretary and Director of the Company. Mr. Nordberg co-founded the
Company in 1993 and has served as Senior Vice President and Secretary of the
Company since the formation of the Company. From 1993 through April 1996, Mr.
Nordberg also served as General Counsel of the Company. Prior to 1993, Mr.
Nordberg was a practicing attorney with Williams & Connolly in Washington,
D.C. Mr. Nordberg received his B.A. degree from Washington College in 1982,
his M.B.A. degree from Loyola College in 1985, and his J.D. degree from the
Georgetown University Law Center in 1989.
Hilde M. Alter serves as Treasurer of the Company. Ms. Alter joined the
Company in September, 1996. From 1981 to joining the Company, Ms. Alter was a
partner with the accounting firm of Keller, Bruner & Co. in Bethesda,
Maryland. Ms. Alter is a certified public accountant. Ms. Alter received her
B.A. degree from American University in 1966.
44
<PAGE>
Michael G. Gardullo serves as Vice President and Senior Credit Officer of
the Company. Mr. Gardullo joined the Company in February, 1996. From June,
1995 to joining the Company, Mr. Gardullo was a Senior Account
Executive/Manager at The FINOVA Group in King of Prussia, Pennsylvania. From
1993 to 1995, Mr. Gardullo was Vice President and Regional Credit Manager at
LaSalle Business Credit, an affiliate of ABN AMRO Bank, N.V., in Baltimore,
Maryland. From 1991 to 1993, Mr. Gardullo was Vice President and Manager,
respectively, at StanChart Business Credit in Baltimore, Maryland and London,
England. From 1982 through 1991, Mr. Gardullo held various management and
operational positions at several asset-based lending institutions. Mr.
Gardullo received his B.S. degree from Seton Hall University in 1981 and his
M.B.A. degree from Rutgers University in 1982.
Steven M. Curwin serves as Vice President and General Counsel of the
Company. Mr. Curwin joined the Company in August, 1996, and has served as a
full-time consultant to the Company since May, 1996. From September, 1996 to
joining the Company, Mr. Curwin was a practicing attorney with Shulman,
Rogers, Gandal, Pordy & Ecker, P.A. in Rockville, Maryland. From January, 1989
to August, 1994, Mr. Curwin was a practicing attorney with Dewey Ballantine in
Washington, D.C. Mr. Curwin received his B.A. degree from Franklin & Marshall
College in 1980 and his J.D. degree from the Boston University School of Law
in 1985.
John F. Dealy has agreed to become a Director of the Company upon completion
of the Offering. Mr. Dealy has been President of The Dealy Strategy Group, a
management consulting firm, since 1983. In addition, Mr. Dealy has been Senior
Counsel to Shaw, Pittman, Potts & Trowbridge in Washington, D.C. since 1982,
as well as a professor in the Georgetown University School of Business since
1982. Mr. Dealy is currently a director of the First Maryland Bancorp. From
1976 to 1982, Mr. Dealy was President of Fairchild Industries, Inc. Prior to
1976, Mr. Dealy held a number of management positions at Fairchild Industries,
Inc. Mr. Dealy received his B.S. degree from Fordham College in 1961 and his
L.L.B. degree from the New York University School of Law in 1964.
Geoffrey E. D. Brooke has agreed to become a Director of the Company upon
completion of the Offering. Dr. Brooke is Senior Member, Rothschild Bioscience
Unit, a division of Rothschild Asset Management Limited, and is responsible
for its venture capital operations in the Asian Pacific region. Prior to
joining Rothschild, from June, 1992 to September, 1996, Dr. Brooke was the
President of MedVest, Inc., a healthcare venture capital firm in Washington,
D.C. which he co-founded with Johnson & Johnson, Inc. Prior to co-founding
MedVest, Inc., Dr. Brooke managed the life sciences portfolio of a publicly
traded group of Australian venture capital funds. Dr. Brooke is licensed in
clinical medicine by the Medical Board of Victoria, Australia. Dr. Brooke
earned his medical degree from the University of Melbourne, Australia and a
M.B.A. from IMD in Lausanne, Switzerland.
Pursuant to the Company's Amended and Restated Certificate of Incorporation,
the Board of Directors has been divided into three classes. Class I will
consist of Messrs. Nordberg and Brooke whose terms will expire at the annual
meeting of stockholders in 1997; Class II will consist of Mr. Leder whose term
will expire at the annual meeting of stockholders in 1998; and Class III will
consist of Messrs. Delaney and Dealy whose terms will expire at the annual
meeting of stockholders in 1999.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon consummation of the Offering, the Board of Directors will establish a
Compensation Committee and an Audit Committee. The Compensation Committee,
which will be comprised of Messrs. Dealy and Brooke, will have the authority
to determine compensation for the Company's executive officers and to
administer the Incentive Plan. Messrs. Dealy and Brooke are "disinterested
persons" within the meaning of Rule 16b-3, as amended from time to time, under
the Exchange Act and "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). The Audit
Committee, which will be comprised of Messrs. Dealy and Brooke, will have the
authority to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants, review the
independence of the independent public accounts, consider the range of audit
and non-audit fees and review the adequacy of the Company's internal
accounting controls.
45
<PAGE>
DIRECTOR COMPENSATION
Outside directors are paid $2,000 per meeting. Upon election to the Board of
Directors, outside directors are granted options to purchase 10,000 shares of
Common Stock at the then-prevailing fair market value, and are granted options
to purchase 5,000 shares of Common Stock at the then-prevailing fair market
value annually thereafter. See "--Director Plan" for a description of the
material terms of these options.
EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
earned for services rendered in all capacities to the Company for the year
ended December 31, 1995 by the Chief Executive Officer and each of the other
executive officers whose salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY(1) BONUS COMPENSATION(2) COMPENSATION (2)
- ------------------------------ --------- ------- --------------- ----------------
<S> <C> <C> <C> <C>
John K. Delaney............. $196,538 $94,166 $-- $--
Chairman, Chief Executive
Officer and President
Ethan D. Leder.............. 196,539 94,166 -- --
Vice Chairman of the Board
and Executive Vice
President
Edward P. Nordberg, Jr...... 169,038 94,166 -- --
Senior Vice President and
Secretary
</TABLE>
- --------
(1) Includes $60,000, $60,000 and $30,000 paid to Messrs. Delaney, Leder and
Nordberg, respectively, pursuant to a certain Support Services Agreement
described in "Certain Transactions."
(2) Certain of the Company's executive officers receive benefits in addition
to salary and cash bonuses. The aggregate amount of such benefits,
however, do not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus of such executive officer.
No options to purchase the Company's Common Stock were granted under the
Incentive Plan prior to September 13, 1996. See "--Stock Incentive Plan." An
option to purchase 38,381 shares of Common Stock was granted to a consultant
of the Company on November 1, 1995 outside of the Incentive Plan at an
exercise price of $2.61 per share.
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
Mr. Delaney serves as Chairman of the Board, President and Chief Executive
Officer of the Company pursuant to the terms of an employment agreement which
continues in effect until January 1, 2001. On the first anniversary of the
date of the employment agreement, and on each anniversary date thereafter, the
employment period is extended for an additional one-year period, unless the
Company or Mr. Delaney notifies the other of its or his intention not to
extend the employment period. Under the terms of the employment agreement, Mr.
Delaney presently receives an annual salary of $240,000. Commencing January 1,
1997, Mr. Delaney will receive an annual salary which is not less than the
greater of (i) $300,000 or (ii) any subsequently established base salary, in
either case increased annually by not less than 50% of the annual increase in
the Consumer Price Index for Urban Wage Earners and Clerical Workers ("CPI-
W"). Commencing on March 31, 1997, and on the last day of each calendar
quarter thereafter during the term of the employment agreement, Mr. Delaney
will be paid a quarterly bonus of $25,000, provided that the Company has
achieved profitability for such quarter. In the event the Company has not
achieved profitability in a quarter in any calendar year but the Company's
profits in any subsequent quarter of that year are equal to the losses in all
prior quarters of that year plus one dollar, Mr. Delaney will be paid his then
current quarterly bonus, plus any bonus amount not paid for any prior
unprofitable quarter of that year. In the event the Company terminates Mr.
Delaney's employment without cause,
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Mr. Delaney will be entitled to receive his compensation and benefits for the
remainder of the term of the employment agreement. The first three years of
such payments of compensation and benefits is guaranteed and not subject to
reduction or offset. In the event Mr. Delaney's employment is terminated, he
will be restricted from competing with the Company for 18 months.
Mr. Leder serves as Vice-Chairman of the Board and Executive Vice President
of the Company pursuant to the terms of an employment agreement which
continues in effect until January 1, 2001. On the first anniversary of the
date of the employment agreement, and on each anniversary date thereafter, the
employment period is extended for an additional one-year period, unless the
Company or Mr. Leder notifies the other of its or his intention not to extend
the employment period. Under the terms of the employment agreement, Mr. Leder
presently receives an annual salary of $240,000. Commencing January 1, 1997,
Mr. Leder will receive an annual salary which is not less than the greater of
(i) $275,000 or (ii) any subsequently established base salary, in either case
increased annually by not less than 50% of the annual increase in the CPI-W.
Commencing on March 31, 1997, and on the last day of each calendar quarter
thereafter during the term of the employment agreement, Mr. Leder will be paid
a quarterly bonus of $25,000, provided that the Company has achieved
profitability for such quarter. In the event the Company has not achieved
profitability in a quarter in any calender year but the Company's profits in
any subsequent quarter of that year are equal to the losses in all prior
quarters of that year plus one dollar, Mr. Leder will be paid his then current
quarterly bonus, plus any bonus amount not paid for any prior unprofitable
quarter of that year. In the event the Company terminates Mr. Leder's
employment without cause, Mr. Leder will be entitled to receive his
compensation and benefits for the remainder of the term of the employment
agreement. The first three years of such payments of compensation and benefits
is guaranteed and not subject to reduction or offset. In the event Mr. Leder's
employment is terminated, he will be restricted from competing with the
Company for 18 months.
Mr. Nordberg serves as Senior Vice President--Legal and Financial Affairs
and Secretary of the Company pursuant to the terms of an employment agreement
which continues in effect until January 1, 2001. On the first anniversary of
the date of the employment agreement, and on each anniversary date thereafter,
the employment period is extended for an additional one-year period, unless
the Company or Mr. Nordberg notifies the other of its or his intention not to
extend the employment period. Under the terms of the employment agreement, Mr.
Nordberg presently receives an annual salary of $210,000. Commencing January
1, 1997, Mr. Nordberg will receive an annual salary which is not less than the
greater of (i) $250,000 or (ii) any subsequently established base salary, in
either case increased annually by not less than 50% of the annual increase in
the CPI-W. In the event the Company terminates Mr. Nordberg's employment
without cause, Mr. Nordberg will be entitled to receive his compensation and
benefits for the remainder of the term of the employment agreement. The first
three years of such payments of compensation and benefits is guaranteed and
not subject to reduction or offset. In the event Mr. Nordberg's employment is
terminated, he will be restricted from competing with the Company for 18
months.
STOCK INCENTIVE PLAN
The Company maintains the HealthCare Financial Partners, Inc. 1996 Stock
Incentive Plan (the "Incentive Plan"). The Board of Directors has reserved
750,000 shares of Common Stock for issuance pursuant to awards that may be
made under the Incentive Plan, subject to adjustment as provided therein.
Awards under the Incentive Plan are determined by a committee of no less
than two members of the Board of Directors (the "Committee"), the members of
which are selected by the Board of Directors. Upon consummation of the
Offering, Messrs. Dealy and Brooke will serve as members of the Committee. The
full membership of the Board of Directors currently serves as the Committee.
Key employees, officers, directors and consultants of the Company or an
affiliate are eligible for awards under the Incentive Plan. The Incentive Plan
permits the Committee to make awards of shares of Common Stock, awards of
derivative securities related to the value of the Common Stock and certain
cash awards to eligible persons. These discretionary awards may be made on an
individual basis, or pursuant to a program approved by the Committee for the
benefit of a group of eligible persons. The Incentive Plan permits the
Committee to make
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awards of a variety of equity-based incentives, including (but not limited to)
stock awards, options to purchase shares of Common Stock and to sell shares of
Common Stock back to the Company, stock appreciation rights, so-called "cash-
out" or "limited stock appreciation rights" (which the Committee may make
exercisable in the event of certain changes in control of the Company or other
events), phantom shares, performance incentive rights, dividend equivalent
rights and similar rights (together, "Stock Incentives"). The number of shares
of Common Stock as to which a Stock Incentive is granted and to whom any Stock
Incentive is granted, and all other terms and conditions of a Stock Incentive,
is determined by the Committee, subject to the provisions of the Incentive
Plan. The terms of particular Stock Incentives may provide that they
terminate, among other reasons, upon the holder's termination of employment or
other status with respect to the Company and any affiliate, upon a specified
date, upon the holder's death or disability, or upon the occurrence of a
change in control of the Company. Stock Incentives may also include exercise,
conversion or settlement rights to a holder's estate or personal
representative in the event of the holder's death or disability. At the
Committee's discretion, Stock Incentives that are held by an employee who
suffers a termination of employment may be cancelled, accelerated, paid or
continued, subject to the terms of the applicable Stock Incentive agreement
and to the provisions of the Incentive Plan. Stock Incentives generally are
not transferable or assignable during a holder's lifetime.
The maximum number of shares of Common Stock with respect to which options
or stock appreciation rights may be granted during any fiscal year of the
Company as to certain eligible recipients shall not exceed 100,000, to the
extent required by Section 162(m) of the Code for the grant to qualify as
qualified performance-based compensation.
The number of shares of Common Stock reserved for issuance in connection
with the grant or settlement of Stock Incentives or to which a Stock Incentive
is subject, as the case may be, and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company or
similar event, effected without the receipt of consideration. In the event of
certain corporate reorganizations and similar events, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the
Committee, provided such adjustment is not inconsistent with the express terms
of the Incentive Plan or the applicable Stock Incentive agreement.
On September 13, 1996, the Company granted incentive stock options to
purchase an aggregate of 187,500 shares of Common Stock at an exercise price
of $11.05 per share. All current, full-time employees, other than Messrs.
Delaney, Leder and Nordberg, were granted these options. Each option is
subject to a maximum ten-year term, but becomes vested and exercisable only on
and after the seventh anniversary of the date of grant; however, if the
Offering is successfully consummated, these options will vest and become
exercisable in 25% increments on each anniversary of the grant date,
commencing on September 13, 1997. In addition, on September 13, 1996, each of
Messrs. Delaney, Leder and Nordberg was granted incentive stock options to
purchase 37,500 shares of Common Stock at an exercise price equal to the
initial public offering price of the Common Stock in the Offering. These
options are contingent upon the consummation of the Offering and will vest and
become exercisable in 25% increments on each anniversary of the grant date,
commencing on September 13, 1997.
DIRECTOR PLAN
The Company maintains the HealthCare Financial Partners, Inc. 1996 Director
Incentive Plan (the "Director Plan"). The Board of Directors has reserved
100,000 shares of Common Stock for issuance pursuant to awards that may be
made under the Director Plan, subject to adjustment as provided therein.
Awards under the Director Plan are determined by the express terms of the
Director Plan. Rules, regulations and interpretations necessary for the
ongoing administration of the Director Plan will be made by the full
membership of the Board of Directors.
Only non-employee directors of the Company are eligible to participate in
the Director Plan. The Director Plan contemplates three types of non-statutory
option awards: (a) initial appointment awards that are granted upon a non-
employee director's initial appointment to the Board of Directors providing an
option to purchase
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10,000 shares of Common Stock at a per share exercise price equal to the then
fair market value of a share of Common Stock; (b) annual service awards that
are granted to each non-employee director who continues to serve as a non-
employee director as of each annual meeting of the stockholders of the Company
following his or her initial appointment providing an option to purchase 5,000
shares of Common Stock at a per share exercise price equal to the then fair
market value of a share of Common Stock; and (c) discount awards under which
each non-employee director also has the opportunity to elect annually, subject
to rules established by the Board of Directors, to forego receipt of cash
retainer and fees for scheduled meetings of the Board of Directors and
committees thereof that would otherwise be paid during each fiscal year of the
Company, and in lieu thereof that director be granted an option to acquire
shares of Common Stock with an exercise price per share equal to 50% of the
then fair market value of a share of Common Stock. The number of shares of
Common Stock subject to any option of this type granted for a fiscal year is
determined by taking the amount of cash foregone by the director for the
fiscal year in question and dividing that amount by the per share option
exercise price.
Each option granted pursuant to the Director Plan is immediately vested;
becomes exercisable 12 months following the date of grant; and expires upon
the earlier to occur of the tenth anniversary of the grant date or 18 months
following the director's termination of service upon the Board of Directors
for any reason. The options generally are not transferable or assignable
during a holder's lifetime.
The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are
subject to adjustment in the event of any recapitalization of the Company or
similar event, effected without the receipt of consideration. The number of
shares of stock subject to options granted in connection with initial
appointments or as annual service awards are also subject to adjustment in
such events. In the event of certain corporate reorganizations and similar
events, the options may be adjusted or cashed-out, depending upon the nature
of the event.
As of the date of this Prospectus, no options had been granted under the
Director Plan, but each of Messrs. Dealy and Brooke will receive initial
appointment grants upon their election to the Board of Directors.
INDEMNIFICATION ARRANGEMENTS
The Company has entered into indemnification agreements pursuant to which it
has agreed to indemnify certain of its directors and officers against
judgments, claims, damages, losses and expenses incurred as a result of the
fact that any director or officer, in his capacity as such, is made or
threatened to be made a party to any suit or proceeding. Such persons will be
indemnified to the fullest extent now or hereafter permitted by the Delaware
General Corporation Law (the "DGCL"). The indemnification agreements also
provide for the advancement of certain expenses to such directors and officers
in connection with any such suit or proceeding. The Company's Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
for the indemnification of the Company's directors and officers to the fullest
extent permitted by the DGCL. See "Description of Capital Stock--Special
Provisions of the Certificate of Incorporation and Bylaws."
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CERTAIN TRANSACTIONS
Effective as of September 1, 1996, Funding acquired all of the assets of DEL
consisting principally of client receivables, for $472,369 in cash, which
amount approximated the fair value of DEL's net assets, and assumed all of
DEL's liabilities. DEL subsequently distributed the remaining proceeds from
the sale pro-rata (i) to John K. Delaney, Ethan D. Leder and Edward P.
Nordberg, Jr., the sole limited partners of DEL and each a director and
officer of the Company, in the amounts of $188,559, $188,558 and $94,279,
respectively, in respect of their limited partnership interests, and (ii) $973
to the Company in respect of its general partnership interest. DEL was
subsequently dissolved.
The amount paid by Funding for the assets of DEL was equal to the book value
or net investment of DEL in the assets transferred, consisting principally of
client receivables. The objective was for DEL to recognize no gain or loss on
the transaction. The purpose of the transaction was to consolidate the assets
of DEL and Funding in anticipation of the Offering and the acquisition by the
Company of the limited partnership interests of Funding described below. The
cost to the Company and each of Messrs. Delaney, Leder and Nordberg for their
interests in DEL were $7,654, $419,220, $418,381 and $177,157, respectively,
and the Company and such persons each had received, prior to the sale,
distributions from DEL in respect of their interests in the amounts of $6,681,
$230,661, $229,823, and $82,878, respectively.
Effective upon completion of the Offering, the Company will acquire from HP
Investors, the sole limited partner of Funding, all of the limited partnership
interests in Funding. The purchase price for such limited partnership
interests will be $21.8 million which will be paid from the proceeds of the
Offering. See "Use of Proceeds." HP Investors paid $24.8 million in cash for
its limited partnership interests and, through August 31, 1996 had received
income distributions in respect of its limited partnership interests
aggregating $4.2 million. Subsequent to August 31, 1996, $3.0 million of
limited partner capital was distributed to HP Investors.
Effective upon the acquisition of the limited partnership interests of
Funding, the Company will cause Funding to be liquidated and dissolved and all
of its net assets at the date of transfer, consisting principally of advances
made under the ABL Program and the ABL Advance Program ($60.4 million at June
30, 1996), will be transferred to the Company. The principal purposes of the
Company's acquisition of Funding are (i) to consolidate ownership of such
assets and related business operations in the Company, a single entity with
greater access to the public and private capital markets, (ii) to simplify the
corporate and management structures of the Company by eliminating its general
partnership interest in Funding and the concomitant management
responsibilities of the Company as a general partner of Funding, and (iii) to
allow the Company to realize the return on the assets transferred to the
Company which otherwise would have been paid to HP Investors as the limited
partner of Funding.
In connection with the liquidation of Funding, HP Investors will exercise
warrants for the purchase of 379,998 shares of Common Stock, which warrants
were acquired on December 28, 1994 for an aggregate payment of $500. No
additional consideration will be paid in connection with the exercise of such
warrants.
Pursuant to a Software License Agreement (the "Software License Agreement"),
dated as of August 31, 1993, by and between Ampro Financial Corporation
("Ampro") and the Company, Ampro granted to the Company a non-exclusive
perpetual license to use the RTS. In October, 1995, Ampro sold and assigned
its rights and obligations in the Software License Agreement to Creative
Information Systems, LLC ("Creative"), a stockholder of the Company. See
"Principal Stockholders." For the fiscal year ended December 31, 1995, the
Company paid an aggregate of $100,000 in license fees pursuant to the Software
License Agreement, or $8,333 per month. From January 1, 1996 through August
31, 1996, the Company has continued to license the RTS from Creative for
$8,333 per month. Pursuant to a Software Purchase and License Agreement, dated
as of September 1, 1996, by and between the Company and Creative, the Company
acquired the RTS from Creative for $25,000 in cash, payable in three equal
consecutive monthly installments, and granted back to Creative a non-exclusive
perpetual license to use the RTS.
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Pursuant to a Support Services Agreement (the "Support Services Agreement"),
dated as of October 1, 1994, by and between the Company and The Leddel Group,
a general partnership ("Leddel") (the sole partners of which are Messrs.
Delaney, Leder and Nordberg), Leddel: (i) leased to the Company approximately
2,500 square feet of office space in Washington, D.C. for $7,500 per month;
(ii) rented to the Company the use of certain office equipment for $2,500 per
month; and (iii) provided to the Company certain professional services,
including legal and consulting services, for a fee of $2,500 per month. For
the fiscal year ended December 31, 1995, the Company paid an aggregate of
$150,000 to Leddel. The Support Services Agreement expired on December 31,
1995.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of September 1, 1996,
and as adjusted to reflect the Reorganization and completion of the Offering,
by: (i) each person or entity known by the Company to own beneficially five
percent or more of the outstanding Common Stock, (ii) each member and proposed
member of the Board of Directors of the Company, (iii) each executive officer
of the Company, and (iv) all executive officers of the Company and all members
and proposed members of the Board of Directors as a group. Unless otherwise
indicated, the address of the stockholders as beneficially owing more than
five percent of the Common Stock listed below is that of the Company's
principal executive offices. Except as indicated in the footnotes to the
table, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING THE OFFERING
NAME OF --------------------------------------------
BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
---------------- ----------- --------------------- ----------
<S> <C> <C> <C> <C>
John K. Delaney.................... 731,113 19.24% 731,113 12.39%
Ethan D. Leder..................... 731,113 19.24 731,113 12.39
Edward P. Nordberg, Jr............. 731,113 19.24 731,113 12.39
John Dealy(1)...................... -- -- -- --
Geoffrey E. D. Brooke(2)........... -- -- -- --
HealthPartners Investors, LLC(3)... 549,493 14.46 549,493 9.31
JMR Capital Partners, Inc.(4)...... 506,319 13.32 506,319 8.58
Creative Information Systems,
LLC(5)............................ 506,319 13.32 506,319 8.58
All directors and executive
officers as a group
(8 persons)(6).................... 2,193,339 57.72 2,193,339 37.18
</TABLE>
- --------
(1) The business address of Mr. Dealy is 2300 N Street, N.W., Washington, D.C.
20037.
(2) The business address of Mr. Brooke is 1568 Springhill Road, McLean,
Virginia 22102.
(3) The business address of HealthPartners Investors, LLC is One Maritime
Plaza, Suite 1325, San Francisco, California 94111.
(4) The business address of JMR Capital Partners, Inc. is 3201 Broad Branch
Terrace, N.W., Washington D.C. 20008.
(5) The business address of Creative Information Systems, LLC is 5151 Beltline
Road, Suite 1201, Dallas, Texas 75240.
(6) For information concerning options granted to the directors and executive
officers of the Company, see "--Stock Incentive Plan" and "--Director
Plan."
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of blank check
preferred stock, par value $.01 per share. As of the date of this Prospectus,
there are 3,799,991 shares of Common Stock outstanding and held of record by
13 stockholders and no shares of preferred stock are issued and outstanding.
COMMON STOCK
General
Holders of shares of Common Stock are entitled to share ratably in such
dividends as may be declared by the Board of Directors and paid by the Company
out of funds legally available therefor, subject to prior rights of
outstanding shares of any preferred stock and certain restrictions under
agreements governing the Company's indebtedness. See "Dividend Policy,"
"Management's Discussion and Analysis of Pro Forma Financial Condition and Pro
Forma Results of Operations--Liquidity and Capital Resources," and "Business--
Capital Resources." In the event of any dissolution, liquidation or winding up
of the Company, holders of shares of Common Stock are entitled to share
ratably in assets remaining after payment of all liabilities and liquidation
preferences, if any.
Except as otherwise required by law, the holders of Common Stock are
entitled to one vote per share on all matters voted on by stockholders,
including the election of directors. The holders of a majority of Common Stock
represented at a meeting of stockholders can elect all of the directors to be
elected at such meeting.
Holders of shares of Common Stock have no preemptive, cumulative voting,
subscription, redemption or conversion rights. The currently outstanding
shares of Common Stock are fully paid and nonassessable, and the shares of
Common Stock to be outstanding upon completion of the Offering will be fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to the rights of any series of preferred stock which
the Company may issue in the future.
Transfer Agent and Registrar
Upon consummation of the Offering, the registrar and transfer agent for the
Common Stock will be .
PREFERRED STOCK
The Board of Directors may, without further action by the Company's
stockholders, from time to time, authorize the issuance of shares of preferred
stock in one or more classes or series and may, at the time of issuance,
determine the powers, rights, preferences, qualifications and limitations of
any such class or series. Satisfaction of any dividend preferences on
outstanding shares of preferred stock would reduce the amount of funds
available for the payment of dividends on Common Stock. Also, holders of
preferred stock would be entitled to receive a preference payment in the event
of any liquidation, dissolution or winding up of the Company before any
payment is made to the holders of Common Stock. Under certain circumstances,
the issuance of such preferred stock may render more difficult or tend to
discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities or the removal of
incumbent directors.
SPECIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS.
The Amended and Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Amended and Restated Bylaws ("Bylaws") of the Company
include certain provisions that could have anti-takeover effects. The
provisions are intended to enhance the likelihood of continuity and stability
in the composition of, and in the policies formulated by, the Board of
Directors. These provisions also are intended to help ensure that the Board of
Directors, if confronted by an unsolicited proposal from a third party that
has
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acquired a block of stock of the Company, will have sufficient time to review
the proposal, to develop appropriate alternatives to the proposal, and to act
in what the Board of Directors believes to be the best interests of the
Company and its stockholders. The foregoing provisions of the Certificate of
Incorporation may not be amended or repealed by the stockholders of the
Company except upon the vote, at a regular or special stockholders' meeting,
of the holders of at least a majority of the outstanding shares of each class
of the Company's capital stock then entitled to vote thereon.
The following is a summary of the provisions of the Certificate of
Incorporation and Bylaws and is qualified in its entirety by reference to such
documents in the respective forms filed as exhibits to the Registration
Statement of which this Prospectus forms a part.
Amendment of Bylaw Provisions
The Certificate of Incorporation provides that Bylaw provisions may be
adopted, altered, amended or repealed only by the affirmative vote of (i) at
least a majority of the members of the Board of Directors who are elected by
the holders of Common Stock or (ii) at least a majority of the outstanding
shares of each class of the Company's capital stock then entitled to vote
thereon.
Classified Board of Directors
The Certificate of Incorporation provides for a Board of Directors divided
into three classes of directors serving staggered three-year terms. The
classification of directors has the effect of making it more difficult for
stockholders to change the composition of the Board of Directors in a short
period of time. At least two annual meetings of stockholders, instead of one,
will generally be required to effect a change in a majority of the Board of
Directors. See "Management."
Number of Directors; Filling Vacancies; Removal
The Certificate of Incorporation provides that the Board of Directors will
consist of at least three and no more than ten members (plus such number of
directors as may be elected from time to time pursuant to the terms of any
series of preferred stock that may be issued and outstanding from time to
time). The number of directors constituting the entire Board of Directors may
be changed only by an amendment to the applicable provision of the Certificate
of Incorporation (which will require the vote of the holders of at least a
majority of each class of the Company's outstanding voting securities then
entitled to vote thereon). The Bylaws provide that the Board of Directors,
acting by a majority vote of the directors then in office, may fill any newly
created directorships or vacancies on the Board of Directors.
Under Delaware law, in the case of a corporation having a classified board,
stockholders may remove a director only for cause. This provision, when
coupled with the provision of the Bylaws authorizing the Board of Directors to
fill vacant directorships, will preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of the Board of
Directors by filling the vacancies created by such removal with its own
nominees.
Special Meetings of Stockholders
The Bylaws and Certificate of Incorporation provide that special meetings of
stockholders may be called by a majority of the Board of Directors, the
Chairman of the Board or any holder or holders of at least 40% of any class of
the Company's outstanding capital stock then entitled to vote at the meeting.
Advance Notice Requirements for Stockholder Proposals and Director Nominees
The Bylaws establish an advance notice procedure with regard to business
proposed to be submitted by a stockholder at any annual or special meeting of
stockholders of the Company, including the nomination of candidates for
election as directors. The procedure provides that a notice of proposed
stockholder business must
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<PAGE>
be timely given in writing to the Secretary of the Company prior to the
meeting. In all cases, to be timely, notice relating to an annual meeting must
be received at the principal executive office of the Company not less than 120
days before the first anniversary of the prior year's annual meeting.
Notice to the Company from a stockholder who proposes to nominate a person
at a meeting for election as a director must contain all information relating
to such person that is required to be disclosed in solicitations of proxies
for election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act, including such person's written consent
to being named in the proxy statement as a nominee and to serving as a
director if elected.
The chairman of a meeting of stockholders may determine that a person is not
nominated in accordance with the nomination procedure, in which case such
person's nomination will be disregarded. If the chairman of a meeting of
stockholders determines that other business has not been properly brought
before such meeting in accordance with the Bylaw procedures, such business
will not be conducted at the meeting. Nothing in the nomination procedure or
the business will preclude discussion by any stockholder of any nomination or
business properly made or brought before the annual or any other meeting in
accordance with the foregoing procedures.
Limitations on Directors' Liability
The Company's Certificate of Incorporation provides that, to the fullest
extent permitted by Delaware law, no director shall be liable to the Company
or its stockholders for monetary damages for breach of fiduciary duty as a
director. By virtue of these provisions, a director of the Company is not
personally liable for monetary damages for a breach of such director's
fiduciary duty except for liability for (i) breach of the duty of loyalty to
the Company or to its stockholders, (ii) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (iii)
dividends or stock repurchases or redemptions that are unlawful under the DGCL
and (iv) any transaction from which such director receives an improper
personal benefit. In addition, the Certificate of Incorporation provides that
if the DGCL is amended to authorize the further elimination or limitation of
the liability of a director, then the liability of the directors will be
eliminated or limited to the fullest extent permitted by the DGCL, as amended.
Delaware Statute
The Company has elected to be subject to Section 203 of the DGCL ("Section
203"). Under Section 203, certain transactions and business combinations
between a corporation and an "interested stockholder" owning 15% or more of
the corporation's outstanding voting stock are restricted for a period of
three years from the date the stockholder becomes an interested stockholder.
Generally, Section 203 prohibits significant business transactions such as a
merger with, disposition of assets to, or receipt of disproportionate
financial benefits by, the interested stockholder, or any other transaction
that would increase the interested stockholder's proportionate ownership of
any class or series of the Company's capital stock unless: (i) the transaction
resulting in a person's becoming an interested stockholder, or the business
combination, has been approved by the Board of Directors before the person
becomes an interested stockholder, (ii) the interested stockholder acquires
85% or more of the outstanding voting stock of the Company in the same
transaction that makes it an interested stockholder, or (iii) on or after the
date the person becomes an interested stockholder, the business combination is
approved by the Board of Directors or by the holders of at least two-thirds of
the Company's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, 5,899,991 shares of Common Stock will be
outstanding. Of these shares, 2,100,000 shares sold in the Offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the
Company, as that term is defined in Rule 144 ("Affiliates"), may generally
only be sold in compliance with the limitations of Rule 144 described below.
SALES OF RESTRICTED SHARES
All of the remaining 3,799,991 shares of Common Stock held by existing
stockholders are deemed "Restricted Shares" under Rule 144. Subject to the 180
day lock-up agreement and the Rule 144 Sale Agreement, the Restricted Shares
will be eligible for sales pursuant to Rule 144 in the public market following
the consummation of the Offering.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an Affiliate, who has beneficially
owned Restricted Shares for at least two years is entitled to sell, within any
three-month period, a number of such shares that does not exceed the greater
of 1% of the then outstanding shares of Common Stock (approximately 58,999
shares immediately after the Offering), or the average weekly trading volume
in the Common Stock in the Nasdaq National Market during the four calendar
weeks preceding the date on which notice of such sale is filed under Rule 144.
In addition, under Rule 144(k), a person who is not an Affiliate and has not
been an Affiliate for at least three months prior to the sale and who has
beneficially owned Restricted Shares for at least three years may resell such
shares without compliance with the foregoing requirements. In calculating the
two and three year holding periods described above, a holder of Restricted
Shares can include the holding periods of a prior owner who was not an
Affiliate.
However, the Company, all of its officers and directors and certain other
stockholders, who in the aggregate own 3,755,470 shares of Common Stock, have
agreed to sign the 180 lock-up agreement. Further, five of the existing
stockholders of the Company, who in the aggregate own 3,205,977 shares of
Common Stock, have agreed that, without the prior written consent of the
Company, they will not effect any sales of Common Stock, for a period of 18
months after expiration of the 180 day lock-up agreement, in excess of the
volume limitations provided in Rule 144.
OPTIONS
Rule 701 under the Securities Act provides that shares of Common Stock
acquired on the exercise of outstanding options may be resold by persons other
than Affiliates, beginning 90 days after the date of this Prospectus, subject
only to the manner of sale provisions of Rule 144, and by Affiliates under
Rule 144 without compliance with its two-year minimum holding period, subject
to certain limitations. The Company intends to file one or more registration
statements on Form S-8 under the Securities Act to register all of the 850,000
shares of Common Stock subject to outstanding stock options and Common Stock
issuable pursuant to the Company's stock option plans which do not qualify for
an exemption under Rule 701 from the registration requirements of the
Securities Act. The Company expects to file these registration statements as
soon as practicable after the closing of the Offering, and such registration
statements are expected to become effective upon filing. Shares covered by
these registration statements will thereupon be eligible for sale in the
public markets, subject to the lock-up agreements described above, if
applicable.
REGISTRATION RIGHTS
After the completion of the Offering, holders of a total of shares
of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in the shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by Affiliates of the Company) immediately upon the effectiveness of
such registration, subject to the 180 day lock-up agreement and the Rule 144
Sale Agreement referenced above.
There has been no public market for the Common Stock of the Company and no
prediction can be made as to the effect, if any, that market sales of shares
or the availability of such shares for sale will have on the market price of
the Common Stock. Sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
55
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Stifel, Nicolaus & Company, Incorporated (the "Representatives"), have
severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names at the initial
public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent,
and that the Underwriters are committed to purchase all of such shares if any
are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Stifel, Nicolaus & Company, Incorporated...........................
---------
Total............................................................ 2,100,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to initially offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. The concession to selected dealers and the
reallowances to other dealers may be changed by the Representatives and, after
the public offering, the offering price and other selling terms may be changed
by the Representatives. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject an order in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 315,000 additional shares of Common Stock to cover over-allotments,
if any, at the offering price less the underwriting discount set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise
this option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the table above. The Underwriters may purchase such
shares only to cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or contribute to payments the Underwriters may be required
to make in respect thereof.
All of the Company's officers and directors and certain stockholders, who in
the aggregate hold 3,755,470 shares of Common Stock, have agreed that they
will not, without the prior written consent of the Representatives, directly
or indirectly offer to sell, sell or otherwise dispose of any shares of Common
Stock of the Company owned by them for a period of 180 days after the date of
this Prospectus. In addition, the Company has agreed that for a period of 180
days after the date of this Prospectus, it will not, without the prior written
consent of the Representatives, directly or indirectly offer to sell, sell,
issue, distribute or otherwise dispose of any equity securities or securities
convertible into or exercisable for equity securities or any options, rights
or warrants with respect to any equity securities, except that the Company
may, without such consent, grant options and securities pursuant to employee
benefit plans described in this Prospectus and issue Common Stock upon the
exercise of outstanding options.
56
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price will be determined by
negotiations between management and the Underwriters. Among the factors to be
considered in such negotiation are the history of, and the prospects for, the
Company and the industry in which it competes, an assessment of management,
the Company's past and present operations, its past and present earnings and
the trend of such earnings, the prospects for future earnings of the Company,
the present state of the Company's development, the general condition of the
securities market at the time of the Offering and the market price of publicly
traded common stock of comparable companies in recent periods.
The Company has been advised by the Representatives that each of the
Representatives currently intends to make a market in the Common Stock.
However, the Representatives are not obligated to do so and may discontinue
any market making activities at any time without notice. Accordingly, no
assurance can be given with respect to the development or liquidity of any
trading market for the Common Stock.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia. Certain legal
matters in connection with the Offering will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher LLP, San Francisco, California.
EXPERTS
The combined financial statements of HealthCare Financial Partners, Inc. and
HealthPartners DEL, L.P. and the financial statements of HealthPartners
Funding, L.P., as of June 30, 1996 and for the six month period ended June 30,
1996 appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of HealthCare Financial Partners, Inc. and
HealthPartners DEL, L.P. as of December 31, 1995 and 1994 and for the years
ended December 31, 1995 and 1994 and for the period from April 22, 1993 to
December 31, 1993 and the financial statements of HealthPartners Funding, L.P.
as of December 31, 1995 and 1994 and for the year ended December 31, 1995 and
for the period September 12, 1994 to December 31, 1994 included in this
Prospectus and Registration Statement have been audited by McGladrey & Pullen,
LLP, independent auditors, as indicated in their reports with respect thereto,
and are included herein in reliance upon the authority of said firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement. Certain items are omitted
in accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement, including exhibits,
schedules and reports filed as part thereof. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
are not necessarily complete, and, in each instance, reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Room 1024, Washington, D.C. 20549 and at the Commission's Regional
Offices located at the Northwestern Atrium Center, 500 West Madison Street,
57
<PAGE>
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material may be obtained at prescribed
rates by mail from the public reference section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Commission maintains
a web site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with Commission,
including the Company. The address is http://www.sec.gov.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
Report of Independent Auditors, Ernst & Young LLP........................ F-2
Report of Independent Auditors, McGladrey & Pullen, LLP.................. F-3
Combined Balance Sheets as of December 31, 1994 and 1995, and June 30,
1996.................................................................... F-4
Combined Statements of Operations for the period from April 22, 1993
(Date of Inception) through December 31, 1993, the years ended December
31, 1994 and 1995 and for the six month period ended June 30, 1996 and
for the six month period ended June 30, 1995 (unaudited)................ F-5
Combined Statements of Equity for the period from April 22, 1993 (Date of
Inception) through December 31, 1993, the years ended December 31, 1994
and 1995 and for the six month period ended June 30, 1996............... F-6
Combined Statements of Cash Flows for the period from April 22, 1993
(Date of Inception) through December 31, 1993, the years ended December
31, 1994 and 1995 and for the six month period ended June 30, 1996 and
for the six month period ended June 30, 1995 (unaudited)................ F-7
Notes to Combined Financial Statements................................... F-8
HEALTHPARTNERS FUNDING, L.P.
Report of Independent Auditors, Ernst & Young LLP........................ F-13
Report of Independent Auditors, McGladrey & Pullen, LLP.................. F-14
Balance Sheets as of December 31, 1994 and 1995, and June 30, 1996....... F-15
Statements of Operations for the period from September 12, 1994 (Date of
Inception) through December 31, 1994, the year ended December 31, 1995
and for the six month period ended
June 30, 1996 and for the six month period ended June 30, 1995
(unaudited)............................................................. F-16
Statements of Partners' Capital for the period from September 12, 1994
(Date of Inception) through December 31, 1994, the year ended December
31, 1995 and for the six month period ended
June 30, 1996 .......................................................... F-17
Statements of Cash Flows for the period from September 12, 1994 (Date of
Inception) through December 31, 1994, the year ended December 31, 1995
and for the six month period ended
June 30, 1996 and for the six month period ended June 30, 1995
(unaudited)............................................................. F-18
Notes to Financial Statements............................................ F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
HealthCare Financial Partners, Inc.
HealthPartners DEL, L.P.
We have audited the accompanying combined balance sheet of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P. as of June 30, 1996 and
the related combined statements of operations, equity, and cash flows for the
six month period then ended. These financial statements are the responsibility
of management of the Company and the Partnership. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P. as of June 30, 1996, and
the combined results of their operations and their cash flows for the six
month period then ended in conformity with generally accepted accounting
principles.
Washington, D.C. Ernst & Young LLP
September 13, 1996
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
HealthCare Financial Partners, Inc.
We have audited the accompanying combined balance sheets of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P., a limited partnership,
as of December 31, 1995 and 1994 and the related combined statements of
operations, equity, and cash flows for each of the years in the two year
period ended December 31, 1995 and the period from inception April 22, 1993
through December 31, 1993. These financial statements are the responsibility
of management of the Company and the Partnership. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of HealthCare
Financial Partners, Inc. and HealthPartners DEL, L.P. as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the years in the two year period ended December 31, 1995, and the period from
inception April 22, 1993 through December 31, 1993, in conformity with
generally accepted accounting principles.
Richmond, Virginia McGladrey & Pullen, LLP
September 13, 1996
F-3
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1994 1995 1996
--------- ---------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ 6,978
Finance receivables......................... 279,148 $2,552,441 $5,493,815
Less:
Allowance for losses on receivables....... 20,847 66,840 142,151
Unearned discount fees.................... 12,064 55,676 73,135
--------- ---------- ----------
Net finance receivables................. 246,237 2,429,925 5,278,529
Accounts receivable from related parties.... 129,696
Property and equipment...................... 47,814 76,140 135,514
Prepaid expenses and other.................. 43,821 34,178 99,197
--------- ---------- ----------
Total assets............................ $ 344,850 $2,669,939 $5,513,240
========= ========== ==========
LIABILITIES AND EQUITY
Cash overdraft.............................. $ 35,150 $ 5,786
Line of credit.............................. 1,433,542 3,529,776
Client holdbacks............................ $ 112,374 814,607 1,371,443
Amounts due to limited partnership.......... 256,891 149,537 296,472
Accounts payable to related parties......... 80,588 159,444 335,109
Accounts payable and accrued expenses....... 33,906 94,335 67,077
Notes payable to related parties............ 75,000 75,000
Notes payable............................... 21,198 83,267
Accrued interest............................ 12,591 26,959
--------- ---------- ----------
Total liabilities....................... 558,759 2,795,404 5,715,889
Equity
Limited partners' capital................. 144,857 415,305 463,598
Stockholders' deficit:
Common stock, par value $.01 per share;
30,000,000 shares authorized; 3,419,993
shares issued and outstanding............ 34,200 34,200 34,200
Retained deficit.......................... (392,966) (574,970) (700,447)
--------- ---------- ----------
Total stockholders' deficit............. (358,766) (540,770) (666,247)
--------- ---------- ----------
Total equity deficit.................... (213,909) (125,465) (202,649)
--------- ---------- ----------
Total liabilities and equity............ $ 344,850 $2,669,939 $5,513,240
========= ========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 22, 1993
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ------------------------ --------------------
1993 1994 1995 1995 1996
-------------- ----------- ----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Fee income:
Discount fees......... $ 856 $ 12,460 $ 469,964 $117,411 $423,229
Origination fees...... 81,500
Other fees............ 576 95,548 47,181 102,420
-------- ----------- ----------- -------- --------
Total fee income........ 856 13,036 565,512 164,592 607,149
Interest expense........ 3,975 79,671 21,941 112,096
-------- ----------- ----------- -------- --------
Net fee income.......... 856 9,061 485,841 142,651 495,053
Provision for losses on
receivables............ 18,745 2,102 45,993 45,993 75,311
-------- ----------- ----------- -------- --------
Net fee income (loss)
after provision for
losses on receivables.. (17,889) 6,959 439,848 96,658 419,742
Operating expenses:
Compensation and bene-
fits................. 2,434 152,600 931,189 254,073 481,370
Occupancy............. 6,000 70,794 156,720 60,144 98,663
Professional fees..... 10,000 60,060 153,948 32,907 67,884
Other................. 11,770 156,060 230,383 115,829 210,052
-------- ----------- ----------- -------- --------
Total operating ex-
penses................. 30,204 439,514 1,472,240 462,953 857,969
Other income:
Income (loss) from
limited partnership.. (303,385) 597,146 18,730 392,770
Management fees from
affiliates........... 120,000 400,000 200,000 200,000
Management fees from
others............... 16,910 286,023 224,691 83,723
Other................. 6,862 3,971 9,511 18,000
-------- ----------- ----------- -------- --------
Total other income...... 23,772 106,609 1,221,837 311,964 610,770
-------- ----------- ----------- -------- --------
Income (loss) before
income taxes
(benefit).............. (24,321) (325,946) 189,445 (54,331) 172,543
Income taxes (benefit).. (5,892) (13,268)
-------- ----------- ----------- -------- --------
Net income (loss)....... $(24,321) $ (325,946) $ 195,337 $(54,331) $185,811
======== =========== =========== ======== ========
Unaudited pro forma da-
ta:
Income taxes.......... $ 73,884 $ 67,292
----------- --------
Net income............ $ 115,561 $105,251
=========== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
COMBINED STATEMENTS OF EQUITY
<TABLE>
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------
LIMITED
PARTNERS' COMMON PAID-IN RETAINED TOTAL
CAPITAL STOCK CAPITAL DEFICIT TOTAL EQUITY
--------- ------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issuance of 1,710 shares
of $1.00 par value
common stock at April
22, 1993............... $ 1,710 $ (1,335) $ 375 $ 375
Capital contributions... $ 150,000 150,000
Net income (loss)....... 5,410 (29,731) (29,731) (24,321)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1993................... 155,410 1,710 (31,066) (29,356) 126,054
Issuance of 379,998
common stock warrants.. $ 500 500 500
Conversion of $1.00 par
value shares to $.01
par value shares....... (1,693) 1,693
Issuance of 3,418,283
shares of $.01 par
value common stock..... 34,183 (2,193) (24,494) 7,496 7,496
Capital contributions... 123,830 123,830
Net income (loss)....... 11,460 (337,406) (337,406) (325,946)
Distributions to
partners............... (145,843) (145,843)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1994................... 144,857 34,200 (392,966) (358,766) (213,909)
Capital contributions... 89,021 89,021
Net income (loss)....... 377,341 (182,004) (182,004) 195,337
Distributions to
partners............... (195,914) (195,914)
--------- ------- ------ --------- --------- ---------
Balance at December 31,
1995................... 415,305 34,200 (574,970) (540,770) (125,465)
Net income (loss)....... 311,288 (125,477) (125,477) 185,811
Distributions to
partners............... (262,995) (262,995)
--------- ------- ------ --------- --------- ---------
Balance at June 30,
1996................... $ 463,598 $34,200 $ -- $(700,447) $(666,247) $(202,649)
========= ======= ====== ========= ========= =========
</TABLE>
See accompanying notes.
F-6
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 22, 1993
(DATE OF
INCEPTION)
THROUGH YEAR ENDED DECEMBER 31, SIX MONTH SIX MONTH
DECEMBER 31, ------------------------ PERIOD ENDED PERIOD ENDED
1993 1994 1995 JUNE 30, 1995 JUNE 30, 1996
-------------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...... $ (24,321) $ (325,946) $ 195,337 $(54,331) $ 185,811
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operations:
Depreciation.......... 742 11,817 17,309 6,645 29,231
Provision for losses
on receivables....... 18,745 2,102 45,993 45,993 75,311
Losses (earnings) of
unconsolidated
limited partnership.. 303,385 (597,146) (18,730) (392,770)
Deferred income tax
benefit.............. (17,067)
Changes in assets and
liabilities:
Decrease (increase)
in accounts
receivable from
related parties..... (89,490) 89,490 (129,696) 129,696
Decrease (increase)
in prepaid expenses
and other........... (43,821) 26,710 (1,650) (65,019)
Increase (decrease)
in cash overdraft... 35,150 (29,364)
Increase (decrease)
accrued interest.... 12,591 14,368
Increase (decrease)
in accounts payable
to related parties.. 100,000 (19,412) 78,856 451,142 175,665
Increase (decrease)
in accounts payable
and accrued
expenses............ 1,547 32,359 60,429 28,637 (27,258)
--------- ----------- ----------- ---------- ----------
Net cash provided by
(used in) operating
activities........... 7,223 49,974 (271,534) 458,306 95,671
INVESTING ACTIVITIES....
Increase in finance
receivables, net...... (86,744) (67,966) (1,527,448) (1,535,443) (2,367,079)
Decrease (increase) in
investment in limited
partnership........... (46,494) 489,792 151,008 539,705
Purchase of property
and equipment, net.... (17,684) (42,689) (45,635) (5,153) (88,605)
--------- ----------- ----------- ---------- ----------
Net cash used in in-
vesting activities... (104,428) (157,149) (1,083,291) (1,389,588) (1,915,979)
FINANCING ACTIVITIES....
Net borrowings under
line of credit........ 1,433,542 936,353 2,096,234
Increase (decrease) in
notes payable to
related parties....... 75,000 250 (75,000)
Increase in notes
payable............... 21,198 62,069
Issuance of common
stock and warrants.... 375 7,996
(Distributions to)
contributions from
partners, net......... 150,000 (22,013) (106,893) 69,392 (262,995)
--------- ----------- ----------- ---------- ----------
Net cash provided by
(used in) financing
activities........... 225,375 (14,017) 1,347,847 1,005,995 1,820,308
--------- ----------- ----------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents........... 128,170 (121,192) (6,978) 74,713
Cash and cash
equivalents at
beginning of period... 128,170 6,978 6,978
--------- ----------- ----------- ---------- ----------
Cash and cash
equivalents at end of
period................ $ 128,170 $ 6,978 $ -- $ 81,691 $ --
========= =========== =========== ========== ==========
Supplemental disclosure
of cash flow
information:
Cash payments for
interest............. $ -- $ 3,975 $ 67,080 $ 21,941 $ 97,728
========= =========== =========== ========== ==========
</TABLE>
See accompanying notes.
F-7
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED JUNE 30, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
AND PERIOD FROM APRIL 22, 1993 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1993
1. NATURE OF BUSINESS
HealthCare Financial Partners, Inc. (Company), which was incorporated and
previously doing business as HealthPartners Financial Corporation from
inception to September 13, 1996, was formed in 1993 under the laws of the
state of Delaware. The Company owns a 1% general partner interest in Health
Partners DEL, L.P. (DEL) and HealthPartners Funding, L.P. (Funding). In
addition, the majority owners of the Company own all of the limited
partnership interests of DEL. The Company's principal activity is its interest
in Funding. Additionally, the Company provides operational and management
support to Funding for a fee. Funding's principal activities are purchasing
accounts receivable from health care providers throughout the United States
and providing financing to health care providers under asset-based lending
arrangements.
The combined financial statements include the accounts and operations of the
Company and DEL. The financial statements are combined as a result of common
control and management between the two entities. All transactions between the
Company and DEL have been eliminated in preparation of the combined financial
statements. The Company accounts for its investment in Funding on the equity
basis.
Under the terms of its partnership agreement, DEL will cease to exist
December 31, 2020, unless an event of dissolution shall occur prior to such
time (see Note 9). The limited partners' liability is limited to the capital
they have contributed.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.
FINANCE RECEIVABLES
Purchased finance receivables are recorded at estimated realizable value at
date of purchase, which is equal to the contractual purchase amount less the
discount fee. In the event that a group of purchased receivables becomes
delinquent, DEL has certain rights of offset to apply client holdbacks (or
future fundings) against delinquent accounts receivable.
ALLOWANCE FOR LOSSES ON RECEIVABLES
The allowance for losses on receivables is maintained at the amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. The provision for losses on receivables
is the periodic cost of maintaining an adequate allowance. In evaluating the
adequacy of the allowance, management considers trends in past-due accounts,
historical charge-off and recovery rates, credit risk indicators, economic
conditions, on-going credit evaluations, overall portfolio size, average
client balances, excess collateral, and underwriting policies, among other
items.
Additionally, client holdbacks are available to offset losses on
receivables. And, under certain circumstances, credit losses can be offset
against client holdbacks related to other financings.
F-8
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment, principally computer and related peripherals, are
stated at cost less accumulated depreciation ($48,255, $29,868, and $12,559 at
June 30, 1996, December 31, 1995 and 1994, respectively). Depreciation expense
is computed primarily using the straight-line method.
CLIENT HOLDBACKS
Client holdbacks represent the excess of the net recorded amount of
purchased receivables over the amount advanced. In its purchase agreements
with clients, the Company retains the right to apply any past-due or
uncollectible amounts against these holdbacks. Holdbacks are assigned to
specific purchased receivables. The client holdbacks are payable upon
collection of the respective purchased receivable amount.
REVENUE RECOGNITION
Discount fees may be charged at closing or periodically based on the
outstanding receivable balance and are recognized in income under methods that
approximate the effective interest method.
Origination fees are charged at closing to cover the direct closing costs of
the contract, and are recognized in income under a method that approximates
the effective interest method.
INCOME TAXES
The Company uses the liability method of accounting for income taxes as
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Under the liability method, deferred-tax assets and
liabilities are determined based on differences between the financial
statement carrying amounts and the tax basis of existing assets and
liabilities (i.e. temporary differences) and are measured at the enacted rates
that will be in effect when these temporary differences reverse. Net deferred
taxes are not material to the combined financial statements.
DEL has elected partnership reporting status under the Internal Revenue
Code. Accordingly, taxable income or loss is allocated to the partners in
accordance with the partnership agreement and is reported on the individual
partner's income tax return. Therefore, no provision for income tax is
included in the historical financial statements for DEL.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
PRO FORMA INCOME TAXES (UNAUDITED)
Federal and state income tax laws require that the income or loss of DEL, a
partnership, be included in the income tax returns of the partners.
Accordingly, income taxes for DEL are not included in the historical combined
financial statements of the Company. Assuming the completion of the proposed
initial public offering (see Note 9), the operations of DEL will be subject to
corporate income taxes. Accordingly, for informational purposes, the
statements of operations include disclosure of pro forma adjustments for
income taxes which would have been recorded if DEL had been a corporation,
based on the tax laws in effect during those periods.
F-9
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet,
for which it is practicable to estimate that value. Due to the short-term
nature and the variable rates of all the Company's financial instruments,
there are no significant differences between recorded values and fair values.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (FASB) issued FASB
Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" (the Statement). The Statement encourages companies to
recognize expense for stock-based awards based on their fair value on the date
of grant, however, the Statement allows companies to continue the existing
intrinsic value method of accounting provided that pro forma disclosures are
made of what net income and earnings per share would have been had the fair
value method been used. The Company will continue with the intrinsic value
method of accounting for stock-based awards. As of June 30, 1996, there was no
impact to the Company's financial statements from the adoption of the
Statement.
3. ALLOWANCE FOR LOSSES ON RECEIVABLES
Activity in the allowance for losses on receivables was as follows:
<TABLE>
<CAPTION>
APRIL 22, 1993 YEAR ENDED SIX MONTHS ENDED
(DATE OF INCEPTION) DECEMBER 31, JUNE 30,
THROUGH --------------- --------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------- ------- ------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Beginning of period..... $18,745 $20,847 $20,847 $ 66,840
Provision for losses on
receivables............ $18,745 2,102 45,993 45,993 75,311
------- ------- ------- ------- --------
End of period........... $18,745 $20,847 $66,840 $66,840 $142,151
======= ======= ======= ======= ========
</TABLE>
4. LINE OF CREDIT
DEL maintains a revolving line of credit with a bank. The line matures on
March 9, 1998; however, it will be automatically renewed each year for a one-
year period if not terminated by the bank, which requires six months notice,
or by DEL. The line of credit is collateralized by DEL's purchased finance
receivables.
DEL has the ability to borrow up to $3,750,000 as of June 30, 1996. The rate
of interest charged under the agreement is the bank's base rate of interest,
as defined, plus 1.5%, or the revolving credit LIBOR rate plus 3% determined
at the option of DEL upon each additional draw, subject to certain
limitations. As of June 30, 1996 and December 31, 1995, the weighted average
interest rate was 9.2% and 9.7%, respectively. DEL pays an unused line fee
monthly of one twelfth of 0.5% on the amount by which the facility cap
sublimit exceeds the average amount outstanding during the preceding month.
(See Note 9 for amendment to line of credit agreement subsequent to June 30,
1996.)
DEL is required to comply with certain financial covenants throughout the
year. DEL was not in compliance with the debt to adjusted tangible net worth
ratio requirement of ten-to-one at June 30, 1996. DEL has received a waiver
for this covenant as of June 30, 1996.
F-10
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. EQUITY
On December 28, 1994, the Company issued warrants providing the right to
receive 379,998 shares of the Company's common stock. The warrants will be
exercised in connection with the reorganization described in Note 9.
On November 1, 1995, the Company issued stock options to purchase 38,381
shares of the Company's common stock at an exercise price of $2.61 per share.
The stock options expire in 2005.
6. LEASE COMMITMENTS
The Company leases office space under noncancelable operating leases. The
future minimum lease payments as of June 30, 1996 were as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 84,633
1997.............................................................. 160,494
1998.............................................................. 139,410
1999.............................................................. 143,471
2000.............................................................. 147,531
Thereafter........................................................ 49,628
--------
$725,167
========
</TABLE>
Rent expense for the six month period ended June 30, 1996, for the years
ended December 31, 1995 and 1994, and for the period from April 22, 1993
through December 31, 1993 was $ 69,000, $ 156,720, $ 70,794, and $ 6,000,
respectively.
7. RELATED PARTY TRANSACTIONS
The Company has an agreement with Funding, whereby Funding pays a monthly
management fee for operational and management support provided. Management
fees under this agreement were $200,000, $400,000 and $120,000 for the six
month period ended June 30, 1996, and the years ended December 31, 1995 and
1994, respectively.
Additionally, DEL has entered into an agreement with Funding whereby certain
purchased finance receivables of Funding are assigned to DEL with risks and
rewards of ownership. All purchased receivables outstanding as of June 30,
1996 were assigned from Funding under the agreement.
8. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK
Concentrations of credit as of the respective period ends were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF FINANCE
NUMBER RECEIVABLES
OF CLIENTS OUTSTANDING
---------- -----------
<S> <C> <C>
June 30, 1996....................................... 5 48%
December 31, 1995................................... 2 35%
December 31, 1994................................... 3 71%
</TABLE>
Additionally, the Company earned fee revenue in excess of 10% of total fee
revenue from two customers, aggregating 22% of total revenue, for the six
month period ended June 30, 1996.
F-11
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
HEALTHPARTNERS DEL, L.P.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. REORGANIZATION AND INITIAL PUBLIC OFFERING
The Company expects to issue 2,100,000 shares of common stock in an initial
public offering (offering). In contemplation of the offering, the Company
increased its authorized common shares from 1,000,000 shares to 30,000,000 and
effected a 4.56-to-1 split of the common stock in the form of a stock
dividend, including outstanding warrants and options, on September 13, 1996.
Shares of common stock outstanding for all periods presented have been
retroactively restated to give effect to the stock split. The Company also
authorized 10,000,000 shares of preferred stock. The rights and preferences of
the preferred stock are established by the Board of Directors in its sole
discretion. The specific rights and preferences have not been established and
no preferred stock has been issued.
On September 13, 1996, the Company adopted the HealthCare Financial Partners
1996 Stock Incentive Plan (the Incentive Plan). The Company has reserved
750,000 shares for issuance under the Incentive Plan. Pursuant to the adoption
of the Incentive Plan, the Company granted options thereunder to all current,
full-time employees other than the senior executive officers of the Company to
purchase an aggregate of 187,500 shares of common stock at an exercise price
of $11.05 per share. The options are exercisable seven years after the grant
date and are subject to a maximum ten year term. If the offering is
successful, however, the options will vest and become exercisable in 25%
increments at each anniversary of the grant date, commencing on September 13,
1997. Also, under the Incentive Plan, the Company granted 37,500 options on
September 13, 1996 to each of the three senior executive officers of the
Company at an exercise price equal to the initial offering price. These
options are contingent upon the completion of the offering and will vest and
become exercisable in 25% increments on each anniversary date of the grant
date, commencing on September 13, 1997.
Also on September 13, 1996, the Company adopted the HealthCare Financial
Partners, Inc. 1996 Director Incentive Plan (the Director Plan). The Company
has reserved 100,000 shares of common stock for issuance pursuant to awards
under the Director Plan. No shares have been granted under the Director Plan.
Effective as of September 1, 1996, in contemplation of the offering, Funding
acquired the assets of DEL, consisting principally of client receivables, by
assuming DEL's liabilities and paying $472,369 in cash. The cash payment
approximated the fair value of DEL's net assets. Immediately following the
acquisition, DEL was dissolved.
Effective upon the completion of the offering, the Company will acquire from
the sole limited partner all limited partnership interests in Funding and the
partnership will be liquidated.
In anticipation of the offering and the liquidations of Funding and DEL, the
bank that had previously provided lines of credit to those entities has
consented to the assignment to the Company of the agreements related to those
lines of credit and agreed to increase the aggregate credit facilities from
$35 million to $50 million. In July 1996, the Company began negotiations with
an international financial institution for financing under an investment
grade, asset-backed commercial paper program and expects to finalize the terms
of the agreement prior to the closing of the initial public offering. Under
the proposed terms of the commercial paper program, the Company will be able
to borrow up to $100 million.
F-12
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
HealthPartners Funding, L.P.
We have audited the accompanying balance sheet of HealthPartners Funding,
L.P., a limited partnership, as of June 30, 1996 and the related statements of
operations, partners' capital, and cash flows for the six month period then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthPartners Funding,
L.P. as of June 30, 1996, and the results of its operations and its cash flows
for the six month period then ended in conformity with generally accepted
accounting principles.
Washington, D.C.
September 13, 1996 Ernst & Young LLP
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
HealthPartners Funding, L.P.
We have audited the accompanying balance sheets of HealthPartners Funding,
L.P, a limited partnership, as of December 31, 1995 and 1994 and the related
statements of operations, partners' capital, and cash flows for the year ended
December 31, 1995 and the period from inception September 12, 1994 through
December 31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HealthPartners Funding,
L.P. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995 and the period from
inception September 12, 1994 through December 31, 1994, in conformity with
generally accepted accounting principles.
Richmond, Virginia McGladrey & Pullen, LLP
September 13, 1996
F-14
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.................... $1,963,089 $ 2,140,316 $ 2,288,754
Finance receivables.......................... 6,012,475 37,164,708 60,419,714
Less:
Allowance for losses on receivables...... 326,792 498,187 819,677
Unearned discount fees................... 141,228 388,010 407,245
---------- ----------- -----------
Net finance receivables................ 5,544,455 36,278,511 59,192,792
Accounts receivable from related parties..... 195,790 159,444 335,109
Prepaid expenses and other................... 51,188 400,913 530,065
---------- ----------- -----------
Total assets............................... $7,754,522 $38,979,184 $62,346,720
========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Line of credit............................... $16,374,318 $31,876,467
Client holdbacks............................. $2,362,800 8,175,870 9,186,561
Accounts payable to related parties.......... 334,475
Accounts payable to clients.................. 239,032 1,045,043 920,693
Accounts payable and accrued expenses........ 27,819 71,530 87,299
Accrued interest............................. 138,772 243,306
---------- ----------- -----------
Total liabilities............................ 2,629,651 26,140,008 42,314,326
Partners' capital............................ 5,124,871 12,839,176 20,032,394
---------- ----------- -----------
Total liabilities and partners' capital.... $7,754,522 $38,979,184 $62,346,720
========== =========== ===========
</TABLE>
See accompanying notes.
F-15
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12,
1994
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, ----------------------
1994 1995 1995 1996
------------- ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Fee and interest income:
Discount fees.............. $ 268,584 $3,472,592 $1,148,210 $2,708,656
Commitment fees............ 506,401 30,000 359,227
Other fees................. 10,132 269,999 167,285 285,254
Interest income............ 2,770 403,659 59,742 1,204,010
--------- ---------- ---------- ----------
Total fee and interest
income.................. 281,486 4,652,651 1,405,237 4,557,147
Interest expense............. 554,885 90,837 1,269,060
--------- ---------- ---------- ----------
Net fee and interest income.. 281,486 4,097,766 1,314,400 3,288,087
Provision for losses on
receivables................. 326,792 171,395 171,395 321,490
--------- ---------- ---------- ----------
Net fee and interest income
(loss) after provision for
losses on receivables....... (45,306) 3,926,371 1,143,005 2,966,597
Operating expenses:
Commissions................ 7,466 103,505 33,338 223,478
Management fees paid to
general partner........... 120,000 400,000 200,000 200,000
Professional fees.......... 14,692 215,178 53,524 175,348
Licensing fees............. 16,242 107,038 36,024 59,382
Other...................... 7,917 198,336 64,707 169,843
--------- ---------- ---------- ----------
Total operating expenses..... 166,317 1,024,057 387,593 828,051
--------- ---------- ---------- ----------
Net income (loss)............ (211,623) 2,902,314 755,412 2,138,546
Net income allocable to
limited partners............ 91,762 2,305,168 736,682 1,745,776
--------- ---------- ---------- ----------
Net income (loss) allocable
to general partner.......... $(303,385) $ 597,146 $ 18,730 $ 392,770
========= ========== ========== ==========
Unaudited pro forma data:
Income taxes............... $1,131,902 $ 834,033
---------- ----------
Net income................. $1,770,412 $1,304,513
========== ==========
</TABLE>
See accompanying notes.
F-16
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED TOTAL
PARTNER PARTNERS PARTNERS' CAPITAL
---------- ----------- -----------------
<S> <C> <C> <C>
Capital contributions at September
12, 1994 (Date of Inception)...... $ 52,900 $ 5,290,000 $ 5,342,900
Net income (loss).................. (303,385) 91,762 (211,623)
Capital distributions.............. (6,406) (6,406)
---------- ----------- -----------
Balance at December 31, 1994....... (256,891) 5,381,762 5,124,871
Capital contributions.............. 75,000 7,500,000 7,575,000
Net income......................... 597,146 2,305,168 2,902,314
Capital distributions.............. (564,792) (2,198,217) (2,763,009)
---------- ----------- -----------
Capital at December 31, 1995....... (149,537) 12,988,713 12,839,176
Capital contributions.............. 70,000 7,000,000 7,070,000
Net income......................... 392,770 1,745,776 2,138,546
Capital distributions.............. (609,705) (1,405,623) (2,015,328)
---------- ----------- -----------
Capital at June 30, 1996........... $ (296,472) $20,328,866 $20,032,394
========== =========== ===========
</TABLE>
See accompanying notes.
F-17
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12,
1994
(DATE OF
INCEPTION) SIX MONTH PERIOD
THROUGH YEAR ENDED ENDED JUNE 30,
DECEMBER 31, DECEMBER 31, -------------------------
1994 1995 1995 1996
------------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...... $ (211,623) $ 2,902,314 $ 755,412 $ 2,138,546
Adjustments to reconcile
net income (loss) to
net cash provided by
operations:
Provision for losses
on receivables....... 326,792 171,395 171,395 321,490
Amortization of
organization costs... 1,870 18,857 9,429 8,786
Changes in assets and
liabilities:
Decrease (increase) in
accounts receivable
from related
parties.............. (195,790) 36,346 (336,540) (175,665)
Increase in prepaid
expenses and other... (53,058) (368,582) (194,629) (137,938)
Increase (decrease) in
accounts payable to
clients.............. 239,032 806,011 1,014,493 (124,350)
Increase (decrease) in
accounts payable to
related parties...... 334,475 (129,696)
Increase in accrued
interest............. 127,824 104,534
Increase (decrease) in
accounts payable and
accrued expenses..... 27,819 54,659 31,118 (189,010)
----------- ------------ ----------- ------------
Net cash provided by
operating activities.. 135,042 4,083,299 1,450,678 1,816,697
INVESTING ACTIVITIES
Increase in finance
receivables, net...... (3,508,447) (25,092,381) (7,287,476) (22,225,080)
FINANCING ACTIVITIES
Net borrowings under
line of credit........ 16,374,318 2,931,153 15,502,149
Partners' capital
contributions......... 5,342,900 7,575,000 2,727,000 7,070,000
Partners' capital
distributions......... (6,406) (2,763,009) (888,833) (2,015,328)
----------- ------------ ----------- ------------
Net cash provided by
financing activities.. 5,336,494 21,186,309 4,769,320 20,556,821
----------- ------------ ----------- ------------
Net increase (decrease)
in cash and cash
equivalents........... 1,963,089 177,227 (1,067,478) 148,438
Cash and cash
equivalents at
beginning of period... 1,963,089 1,963,089 2,140,316
----------- ------------ ----------- ------------
Cash and cash
equivalents at end of
period................ $ 1,963,089 $ 2,140,316 $ 895,611 $ 2,288,754
=========== ============ =========== ============
Supplemental disclosure
of cash flow
information
Cash payments for
interest............. $ -- $ 416,113 $ 90,837 $ 1,164,526
=========== ============ =========== ============
</TABLE>
See accompanying notes.
F-18
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1996 AND
YEAR ENDED DECEMBER 31, 1995 AND
THE PERIOD FROM SEPTEMBER 12, 1994 (DATE OF INCEPTION)
THROUGH DECEMBER 31, 1994
1. NATURE OF BUSINESS
HealthPartners Funding, L.P., a limited partnership (the Partnership), was
formed as a limited partnership under the laws of the state of Delaware on
September 12, 1994. HealthCare Financial Partners, Inc., which was
incorporated and previously doing business as HealthPartners Financial
Corporation from inception to September 13, 1996, (Company), owns 1% of the
Partnership. The limited partners are Farallon Capital Partners, Limited
Partnership, which owns 84% of the Partnership and RR Capital Partners,
Limited Partnership, which owns 15% of the Partnership. On March 28, 1996, the
limited partners assigned their interest to HealthPartners Investors L.L.C.
The Partnership's principal activity is purchasing accounts receivable from
health care providers throughout the United States and providing financing to
health care providers under asset-based lending agreements.
The Partnership shall continue to operate until the earliest of the
following dates: (i) December 31, 1997, unless extended to December 31, 1998
at the election, prior to June 30, 1997, of Limited Partner having capital
accounts the aggregate value of which exceeds 50% of the value of all Limited
Partners capital accounts as of such date, or (ii) the date on which a
Partnership disabling event occurs. However, the General Partner may terminate
the Partnership on 90-days written notice to each of the Limited Partners.
(See Note 8.)
The Limited Partners' liability is limited to the capital they have
contributed to the Partnership.
2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash and other liquid financial
instruments with an original maturity of three months or less.
FINANCE RECEIVABLES
Purchased finance receivables are recorded at estimated realizable value at
date of purchase, which is equal to the contractual purchase amount less the
discount fee. In the event that a group of purchased receivables becomes
delinquent, the Partnership has certain rights of offset to apply client
holdbacks (or future fundings) against delinquent accounts receivable.
Asset-based lending is provided in the form of either a term note or
revolving line of credit. The amount of credit granted is based on a
predetermined percentage of the customer's total accounts receivable, and the
notes are secured by the accounts receivable.
ALLOWANCE FOR LOSSES ON RECEIVABLES
The allowance for losses on receivables is maintained at the amount
estimated to be sufficient to absorb future losses, net of recoveries,
inherent in the finance receivables. The provision for credit losses is the
periodic cost of maintaining an adequate allowance. In evaluating the adequacy
of the allowance, management considers trends in past due accounts, historical
charge-off and recovery rates, credit risk indicators, economic conditions,
on-going credit evaluations, overall portfolio size, average client balances,
excess collateral, and underwriting policies, among other items.
Additionally, client holdbacks are available to offset losses on
receivables. And, under certain circumstances, credit losses can be offset
against client holdbacks related to other financings.
The Partnership performs a loan-by-loan review for all asset-based loans to
identify loans to be charged off.
F-19
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CLIENT HOLDBACKS
Client holdbacks represent the excess of the net recorded amount of
purchased receivables over the amount advanced. In its purchase agreements
with clients, the Partnership retains the right to apply any past-due or
uncollectible amounts against these holdbacks. Holdbacks are assigned to
specific purchased receivables. The client holdbacks are payable upon
collection of the respective purchased receivable amount.
REVENUE RECOGNITION
Discount fees may be charged at closing or periodically based on the
outstanding receivable balance and are recognized in income under methods that
approximate the effective interest method.
Commitment fees are charged at closing to cover the direct closing costs of
the contract, and are recognized in income under a method that approximates
the effective interest method.
Accrual of interest income on asset-based loans is suspended when a loan is
contractually delinquent for 90 days or more. The accrual is resumed when the
loan becomes contractually current, and past due interest income is recognized
at that time.
NET INCOME ALLOCATION
Net income and loss are allocated between the General Partner and the
Limited Partners pursuant to the terms of the partnership agreement.
Generally, this results in an allocation of 20% to the General Partner, as a
preferred distribution, and the remaining 80% among the general and limited
partners pro rata, in accordance with their respective partnership
percentages. The 20% preferred distribution to the General Partner is
calculated on net income from operations excluding interest on overnight
investments. The preferred distribution may increase based upon the General
Partner's performance. Once the limited partners have received a 20% return on
their invested capital, net income is then distributed 40% to the General
Partner and 60% to the Limited Partners.
INCOME TAXES
The Partnership elected partnership reporting status under the Internal
Revenue Code. Accordingly, taxable income or loss, is allocated to the
partners in accordance with the partnership agreement and is reported on the
individual partner's income tax return. Therefore, no provision for income tax
is included in the historical financial statement.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-20
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PRO FORMA INCOME TAXES (UNAUDITED)
Federal and state income tax laws require that the income or loss of the
Partnership be included in the income tax returns of the partners.
Accordingly, income taxes are not included in the historical financial
statements. Assuming the completion of the proposed initial public offering
(see Note 8), the operations of the Partnership will be subject to corporate
income taxes. Accordingly, for informational purposes, the statement of
operations includes disclosure of pro forma adjustments for income taxes which
would have been recorded if the Partnership had been a corporation, based on
the tax laws in effect during those periods.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized on the balance sheet,
for which it is practicable to estimate that value. Due to the short-term
nature and the variable rates of all the Partnership's financial instruments,
there are no significant differences between recorded values and fair values.
3. FINANCE RECEIVABLES
Finance receivables consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Purchased accounts receivable............... $5,957,515 $29,890,582 $34,495,256
Asset-based loans........................... 6,270,629 25,924,458
Advances to clients......................... 47,536 856,277
Other....................................... 7,424 147,220
---------- ----------- -----------
Total finance receivables................. $6,012,475 $37,164,708 $60,419,714
========== =========== ===========
</TABLE>
4. ALLOWANCE FOR LOSSES ON RECEIVABLES
Activity in the allowance for losses on receivables was as follows:
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 12,
1994
(DATE OF
INCEPTION) YEAR ENDED SIX MONTHS
THROUGH DECEMBER 31, ENDED JUNE 30,
DECEMBER 31, ENDED --------------------
1994 1995 1995 1996
------------- ------------ ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning of period........... $326,792 $326,792 $498,187
Provision for losses on
receivables.................. $326,792 171,395 171,395 321,490
-------- -------- -------- --------
End of period................. $326,792 $498,187 $498,187 $819,677
======== ======== ======== ========
</TABLE>
5. LINE OF CREDIT
The Partnership maintains a revolving line of credit with a bank. The line
matures on March 9, 1998, however, it will be automatically renewed each year
for a one-year period if not terminated by the bank, which requires six months
notice, or by the Partnership. The line of credit is collateralized by the
finance receivables of the Partnership.
F-21
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Partnership has the ability to borrow up to $31,250,000 as of June 30,
1996. As of June 30, 1996, the Partnership was granted a one day overline
accomodation up to $32,000,000 from the bank. The rate of interest charged
under the agreement is the bank's base rate of interest, as defined, or the
revolving credit LIBOR rate plus 3% determined at the option of the
Partnership upon each additional draw, subject to certain limitations. As of
June 30, 1996 and December 31, 1995, the weighted average interest rate was
8.8% and 9.6%, respectively. The Partnership pays an unused line fee monthly
of one twelfth of 0.5% on the amount by which the facility cap sublimit
exceeds the average amounts outstanding during the preceding month. (See Note
8 for amendment to line of credit agreement subsequent to June 30, 1996.)
The Partnership is required to comply with certain financial covenants
throughout the year. The Partnership was in compliance with all financial
covenants at June 30, 1996.
6. RELATED PARTY TRANSACTIONS
The Partnership has an agreement with the General Partner whereby the
Partnership pays a monthly management fee for operational and management
support provided. Management fees under this agreement were $200,000, $400,000
and $120,000 for the six month period ended June 30, 1996, the year ended
December 31, 1995 and the period from September 12, 1994 through December 31,
1994, respectively. The General Partner is required to maintain a 1% capital
account balance in the Partnership. The General Partner was not in compliance
with this requirement. However, the Partnership has granted a waiver to the
General Partner as of June 30, 1996.
The Partnership pays a licensing fee to a stockholder of the General Partner
for use of computer software. Amounts paid for the six month period ended June
30, 1996, the year ended December 31, 1995, and the period from September 12,
1994 through December 31, 1994 were $47,000, $63,000, and $16,000,
respectively.
7. COMMITMENTS AND CONCENTRATIONS OF CREDIT RISK
At June 30, 1996, the Partnership has committed lines of credit to its
customers of $37,850,000 of which approximately $13,200,000 was unused. The
Partnership extends credit based upon qualified client receivables outstanding
and is subject to contractual collateral and loan-to-value ratios.
Concentrations of credit as of the respective period ends were as follows:
<TABLE>
<CAPTION>
PERCENTAGE
OF FINANCE
NUMBER RECEIVABLES
OF CLIENTS OUTSTANDING
---------- -----------
<S> <C> <C>
June 30, 1996....................................... 3 39%
December 31, 1995................................... 3 38%
December 31, 1994................................... 4 73%
</TABLE>
The number of clients generating fee revenue in excess of 10% of the total
fee revenue, and the respective aggregate percentages of fee revenue earned
from those clients, were as follows:
<TABLE>
<CAPTION>
AGGREGATE
PERCENTAGE
NUMBER OF TOTAL FEE
OF CLIENTS REVENUE
---------- ------------
<S> <C> <C>
June 30, 1996...................................... 2 23%
December 31, 1995.................................. 2 25%
December 31, 1994.................................. 4 64%
</TABLE>
F-22
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SUBSEQUENT EVENTS AND INITIAL PUBLIC OFFERING
In connection with a planned initial public offering (offering) of common
stock by the Company, effective as of September 1, 1996, Funding acquired the
assets of DEL, consisting principally of client receivables, by assuming DEL's
liabilities and paying $472,369 in cash. The cash payment approximated the
fair value of DEL's net assets. Immediately following the acquisition, DEL was
dissolved.
Effective upon the completion of the offering, the Company will acquire from
the sole limited partner all limited partnership interests in Funding and the
partnership will be liquidated.
In anticipation of the offering and the liquidations of Funding and DEL, the
bank that had previously provided lines of credit to those entities has
consented to the assignment to the Company of the agreements related to these
lines of credit and agreed to increase the aggregate credit facility from $35
million to $50 million. In July 1996, the Company began negotiations with an
international financial institution for financing under an investment grade,
asset-backed commercial paper program and expects to finalize the terms of the
agreement in conjunction with the closing of the initial public offering.
Under the proposed terms of the commercial paper program, the Company will be
able to borrow up to $100 million.
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offer made hereby and, if given or
made, such information or representations must not be relied upon as having
been so authorized by the Company or any of the Underwriters. This Prospectus
does not constitute an offer to sell or a solicitation of an offer to buy any
of the securities offered hereby to any person or by anyone in any jurisdic-
tion in which it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any cir-
cumstances, create any implication that there has been no change in the af-
fairs of the Company or that the information contained herein is correct as of
any time subsequent to the date hereof.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Pro Forma Financial Information.......................................... 19
Management's Discussion and Analysis of Pro Forma Financial Condition and
Pro Forma Results of Operations......................................... 22
Selected Historical Financial and Other Data............................. 28
Management's Discussion and Analysis of Historical Financial Condition
and Historical Results of Operations.................................... 30
Business................................................................. 33
Management............................................................... 44
Certain Transactions..................................................... 50
Principal Stockholders................................................... 51
Description of Capital Stock............................................. 52
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 56
Legal Matters............................................................ 57
Experts.................................................................. 57
Additional Information................................................... 57
Index to Financial Statements............................................ F-1
</TABLE>
Until , 1996 (25 days after the date of this Prospectus), all dealers ef-
fecting transactions in the registered securities, whether or not participat-
ing in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
Underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,100,000 SHARES
[LOGO]
HEALTHCARE
FINANCIAL
PARTNERS, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
STIFEL, NICOLAUS & COMPANY
Incorporated
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by HealthCare Financial Partners, Inc. (the
"Company") in connection with the issuance and distribution of the Common
Stock being registered:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
Securities and Exchange Commission registration fee................... $ 11,659
NASD filing fee....................................................... 3,881
Nasdaq National Market listing fee.................................... 32,250
Blue Sky fees and expenses............................................ *
Printing and engraving expenses....................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Transfer Agent and Registrar fee...................................... *
Miscellaneous......................................................... *
--------
Total............................................................... $500,000
========
</TABLE>
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is organized under the laws of the State of Delaware. The
Delaware General Corporation Law, as amended (the "DGCL"), provides that a
Delaware corporation has the power generally to indemnify its directors,
officers, employees and other agents (each, a "Corporate Agent") against
expenses and liabilities (including amounts paid in settlement) in connection
with any proceeding involving such person by reason of his being a Corporate
Agent, other than a proceeding by or in the right of the corporation, if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, such person had no reasonable cause to believe his
conduct was unlawful. In the case of an action brought by or in the right of
the corporation, indemnification of a Corporate Agent against expenses is
permitted if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation;
however, no indemnification is permitted in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the Court of Chancery or the
court in which such proceeding was brought shall determine upon application
that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
such indemnification. To the extent that a Corporate Agent has been successful
on the merits of such proceeding, whether or not by or in the right of the
corporation, or in the defense of any claim, issue or matter therein, the
corporation is required to indemnify the Corporate Agent for expenses in
connection therewith. Expenses incurred by a Corporate Agent in connection
with a proceeding may, under certain circumstances, be paid by the corporation
in advance of the final disposition of the proceeding as authorized by the
board of directors. The power to indemnify and advance the expenses under the
DGCL does not exclude other rights to which a Corporate Agent may be entitled
to under the certificate of incorporation, bylaws, agreement, vote of
stockholders or disinterested directors or otherwise.
Under the DGCL, a Delaware corporation has the power to purchase and
maintain insurance on behalf of any Corporate Agent against any liabilities
asserted against and incurred by him in such capacity, whether or not the
corporation has the power to indemnify him against such liabilities under the
DGCL.
As permitted by the DGCL, the Company's Amended and Restated Certificate of
Incorporation contains provisions which limit the personal liability of
directors for monetary damages for breach of their fiduciary duties as
directors except to the extent such limitation of liability is prohibited by
the DGCL. In accordance with the
II-1
<PAGE>
DGCL, these provisions do not limit the liability of any director for any
breach of the director's duty of loyalty to the Company or its stockholders;
for acts of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; for certain unlawful payments of
dividends or stock repurchases under Section 174 of the DGCL; or for any
transaction from which the director derives an improper personal benefit.
These provisions do not limit the rights of the Company or any stockholder to
seek an injunction or any other non-monetary relief in the event of a breach
of a director's fiduciary duty. In addition, these provisions apply only to
claims against a director arising out of his role as a director and do not
relieve a director from liability for violations of statutory law, such as
certain liabilities imposed on a director under the federal securities laws.
In addition, the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws provide for the indemnification of Corporate
Agents for certain expenses, judgments, fines and payments incurred by them in
connection with the defense or settlement of claims asserted against them in
their capacities as Corporate Agents to the fullest extent authorized by the
DGCL. The Company expects to purchase directors and officers liability
insurance in order to limit its exposure to liability for indemnification of
directors and officers.
In addition, the Company has entered into indemnification agreements with
each of its officers and directors, the form of which is filed as Exhibit 10.6
to this Registration Statement.
Reference is made to Sections 102(b)(7) and 145 of the DGCL in connection
with the above summary of indemnification, insurance and limitation of
liability.
The purpose of these provisions is to assist the Company in retaining
qualified individuals to serve as officers, directors or other Corporate
Agents of the Company by limiting their exposure to personal liability for
serving as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since its inception, the Company has issued and sold (without payment of any
selling commission to any person), the following unregistered securities:
1. In connection with the organization of the Company on April 23, 1993,
the Company issued an aggregate of 1,710 shares of common stock to four
persons, three of whom are executive officers, for an aggregate
consideration of $375.
2. On December 28, 1994, the Company issued an aggregate of 3,418,283
shares of common stock to a total of 13 persons, four of whom were existing
stockholders, for an aggregate consideration of $7,496.25.
3. On December 28, 1994, the Company issued warrants to purchase an
aggregate of 379,998 shares of common stock to Farallon Capital Partners,
L.P. and Tinicum Partners, L.P. for an aggregate consideration of $500.
Tinicum Partners, L.P. subsequently assigned its warrants to RR Partners,
L.P. as of October 3, 1995. Each of Farallon Capital Partners, L.P. and RR
Partners, L.P. subsequently assigned their warrants to HealthPartners
Investors, L.L.C. as of March 28, 1996. On November 1, 1995, the Company
issued an option to purchase 38,381 shares of common stock to Steven
Silver, a consultant to the Company, at an option exercise price of $2.61
per share.
4. On September 13, 1996, options to purchase an aggregate of 300,000
shares of common stock were granted under the Company's 1996 Incentive
Stock Plan (the "Incentive Plan") to certain officers and employees of the
Company (24 persons in total). For a description of this transaction and
the Incentive Plan, see "Management--Incentive Stock Plan" in the
Prospectus filed as a part of this Registration Statement. The Company will
file a Registration Statement on Form S-8 with the Securities and Exchange
Commission within 90 days after the completion of the Offering to cover
sales of shares of common stock under the Incentive Plan.
5. From time to time, the Company has issued notes to certain limited
partnerships to finance its working capital purposes.
All issuances of securities described above were made in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933 as transactions by an issuer not involving a public offering or Rule 701
promulgated under the Securities Act. All of the securities were acquired by
the recipients for investment and with no view toward the resale or
distribution thereof. In each instance, the recipient was either an employee
of the Company or a sophisticated investor, the offers and sales were made
without any public solicitation and the stock certificates bear restrictive
legends. No underwriter was involved in the transactions and no commissions
were paid.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement.*
2.1 --Assignment and Assumption of Partnership Interest, dated as of ,
1996, between the Company and HealthPartners Investors L.L.C.*
3.1 --Amended and Restated Certificate of Incorporation of the Company.
3.2 --Amended and Restated Bylaws of the Company.
4.1 --Specimen Common Stock certificate.*
4.2 --See Exhibits 3.1 and 3.2 for the provisions of the Company's Amended
and Restated Certificate of Incorporation and Amended and Restated
Bylaws governing the rights of holders of securities of the Company.
5.1 --Opinion of Powell, Goldstein, Frazer & Murphy.*
10.1 --Employment Agreement, dated as of January 1, 1996, between the
Company and John K. Delaney, as amended September 19, 1996.
10.2 --Employment Agreement, dated as of January 1, 1996, between the
Company and Ethan D. Leder, as amended September 19, 1996.
10.3 --Employment Agreement, dated as of January 1, 1996, between the
Company and Edward P. Nordberg, Jr.
10.4 --HealthCare Financial Partners, Inc. 1996 Incentive Stock Plan,
together with form of Incentive Stock Option award.
10.5 --HealthCare Financial Partners, Inc. 1996 Director Stock Option Plan.
10.6 --Form of Indemnification Agreement between the Company and each of
its directors and executive officers.
10.7 --Form of Registration Rights Agreement between the Company and
certain stockholders.*
10.8 --Marketing Services Agreement, dated as of November 1, 1995, among
HealthPartners Funding L.P., the Company and Steven Silver and
assignment by Steven Silver to Medical Marketing and Services, Inc.
dated January 1, 1996.
10.9 --Loan and Security Agreement, dated as of March 9, 1999, between
Fleet Capital Corporation (as successor to Shawmut Capital
Corporation) and HealthPartners Funding, L.P., as amended May 22,
1996.
10.10 --Office Lease, dated January 4, 1996, between Two Wisconsin Circle
Joint Venture and the Company, as amended on July 26, 1996 and August
13, 1996.
10.11 --Software Purchase and License Agreement, dated as of September 1,
1996, between Creative Systems, L.L.C. and the Company.
10.12 --Amended and Restated Limited Partnership Agreement of HealthPartners
Funding, L.P., dated as of December 1, 1995, among the Company,
Farrallon Capital Partners L.P. and RR Capital Partners, L.P., as
amended and assigned on March 28, 1996.
21.1 --List of Subsidiaries of the Registrant.
23.1 --Consent of Powell, Goldstein, Frazer & Murphy (included in its
opinion filed as Exhibit 5.1).*
23.2 --Consent of Ernst & Young LLP.
23.3 --Consent of McGladrey & Pullen, LLP.
23.4 --Consent of John Dealy.
23.5 --Consent of Geoffrey E.D. Brooke.
24.1 --Power of Attorney (included in the signature page in Part II of the
Registration Statement).
</TABLE>
- --------
* To be filed by amendment.
II-3
<PAGE>
(b) Financial Statement Schedules:
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the underwriters at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHEVY CHASE, STATE OF
MARYLAND, ON THE 20TH DAY OF SEPTEMBER, 1996.
HealthCare Financial Partners, Inc.
By: /s/ John K. Delaney
---------------------------------
JOHN K. DELANEY
CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
John K. Delaney, Ethan D. Leder and Edward P. Nordberg, Jr. as their true and
lawful attorneys-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement, to sign
any related registration statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE 20TH DAY OF SEPTEMBER, 1996.
SIGNATURE TITLE
/s/ John K. Delaney Chairman of the Board, President,
- ------------------------------------- Chief Executive Officer and
JOHN K. DELANEY Director (principal executive
officer)
/s/ Ethan D. Leder Vice Chairman of the Board,
- ------------------------------------- Executive Vice President and
ETHAN D. LEDER Director
/s/ Edward P. Nordberg, Jr. Senior Vice President--Legal and
- ------------------------------------- Financial Affairs, Secretary and
EDWARD P. NORDBERG, JR. Director (principal financial
officer)
/s/ Hilde M. Alter Treasurer (principal accounting
- ------------------------------------- officer)
HILDE M. ALTER
II-5
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HEALTHPARTNERS FINANCIAL CORPORATION
(Pursuant to Section 245 of the
General Corporation Law of the State of Delaware)
HEALTHPARTNERS FINANCIAL CORPORATION (the "Corporation") is a corporation
duly organized and existing under the General Corporation Law of the State of
Delaware and does hereby certify as follows:
1. The Corporation's original Certificate of Incorporation was filed with
the Secretary of State of the State of Delaware on April 23, 1993, as amended on
December 28, 1994.
2. This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation, as amended, and was
duly adopted by the written consent of the stockholders of the Corporation
entitled to vote thereon in accordance with the provisions of Sections 242 and
245 of the General Corporation Law of the State of Delaware.
3. The Certificate of Incorporation of the Corporation, as amended and
restated hereby, shall, upon its filing with the Secretary of State of the State
of Delaware, read in its entirety as follows:
Article I. Name
The name of the corporation is HealthCare Financial Partners, Inc. (the
"Corporation").
Article II. Registered Office
The registered office of the Corporation in the State of Delaware is
located at 1013 Centre Road, in the City of Wilmington, 19805, County of New
Castle. The name of the registered agent at such address is The Prentice-Hall
Corporation System, Inc.
Article III. Purpose
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "GCL").
<PAGE>
Article IV. Capital Stock
The total number of shares of capital stock which the Corporation is
authorized to issue is 40,000,000 divided into two classes as follows:
(1) 30,000,000 shares of common stock, $.01 par value per share
("Common Stock"); and
(2) 10,000,000 shares of preferred stock, $.01 par value per
share ("Preferred Stock").
The designations, preferences, qualifications, limitations, restrictions
and the special or relative rights granted to or imposed upon the Common Stock
and Preferred Stock of the Corporation are as follows:
(a) Provisions Relating to the Common Stock
---------------------------------------
(1) Each holder of Common Stock shall be entitled to one vote for
each share of Common Stock standing in such holder's name on the
records of the Corporation on each matter submitted to a vote of the
stockholders.
(2) Subject to the rights of the holders of the Preferred Stock,
the holders of the Common Stock shall be entitled to receive when, as,
and if declared by the Board of Directors of the Corporation, out of
funds legally available therefor, dividends payable in cash, stock or
otherwise.
(3) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, and after the holders
of the Preferred Stock and the holders of any bonds, debentures, or
other obligations of the Corporation shall have been paid in full the
amounts to which they shall be entitled (if any), or a sum sufficient
for such payment in full shall have been set aside, the remaining net
assets of the Corporation shall be distributed pro rata to the holders
of the Common Stock in accordance with their respective rights and
interests, to the exclusion of the holders of the Preferred Stock and
any bonds, debentures, or other obligations of the Corporation.
(b) Provisions Relating to the Preferred Stock
------------------------------------------
(1) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have
such designations and powers, preferences and rights, and the
qualifications, limitations, and restrictions thereof as are stated
and expressed herein and in the resolution or resolutions providing
for the issuance of such class or series adopted by the Board of
Directors of the Corporation as hereafter prescribed.
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<PAGE>
(2) Authority is hereby expressly granted to and vested in the
Board of Directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series,
and with respect to each such class or series of the Preferred Stock,
to fix and state by the resolution or resolutions from time to time
adopted providing for the issuance thereof the following:
(i) whether or not such class or series is to have voting
rights, full, special, or limited, or is to be without voting
rights, and whether or not such class or series is to be entitled
to vote as a separate class either alone or together with the
holders of one or more other classes or series of stock;
(ii) the number of shares to constitute such class or series
and the designations thereof;
(iii) the preferences, and relative, participating,
optional, or other special rights, if any, and the
qualifications, limitations, or restrictions thereof, if any,
with respect to any such class or series;
(iv) whether or not the shares of any such class or series
shall be redeemable at the option of the Corporation or the
holders thereof or upon the happening of any specified event,
and, if redeemable, the redemption price or prices (which may be
payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and
conditions upon which, such shares shall be redeemable and the
manner of redemption;
(v) whether or not the shares of such class or series shall
be subject to the operation of retirement or sinking funds to be
applied to the purchase or redemption of such shares for
retirement, and, if such retirement or sinking fund or funds are
to be established, the annual amount thereof, and the terms and
provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, or a
combination thereof, the conditions upon which and the times when
such dividends are payable, the preference to or the relation to
the payment of dividends payable on any other class or classes or
series of stock, whether such dividends shall be cumulative or
noncumulative, and if cumulative, the date or dates from which
such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof
which the holders of any such class or series shall be entitled
to receive upon the voluntary and involuntary dissolution of, or
upon any distribution of the assets of, the Corporation;
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<PAGE>
(viii) whether or not the shares of any such class or
series, at the option of the Corporation or the holder thereof or
upon the happening of any specified event, shall be convertible
into or exchangeable for the shares of any other class or classes
or of any other series of the same or any other class or classes
of stock, securities, or other property of the Corporation, and
the conversion price or prices, ratio or ratios, or the rate or
rates at which such exchange may be made, with such adjustments,
if any, as shall be stated and expressed or provided for in such
resolution or resolutions; and
(ix) such other special rights and provisions with respect
to any such class or series as may seem advisable to the Board of
Directors of the Corporation.
(3) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or
all of the foregoing respects. The Board of Directors of the
Corporation may increase the number of shares of Preferred Stock
designated for any existing class or series by a resolution adding to
such class or series authorized and unissued shares of the Preferred
Stock not designated for any other class or series. The Board of
Directors of the Corporation may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a
resolution, subtracting from such series unissued shares of the
Preferred Stock designated for such class or series, and the shares so
subtracted shall become authorized, unissued, and undesignated shares
of the Preferred Stock.
(c) General
-------
(1) Subject to the foregoing provisions of this Amended and
Restated Certificate of Incorporation, the Corporation may issue
shares of its Preferred Stock and Common Stock from time to time for
such consideration (in any form, but not less in value than the par
value thereof) as may be fixed by the Board of Directors of the
Corporation, which is expressly authorized to fix the same in its
absolute and uncontrolled discretion subject to the foregoing
conditions. Shares so issued for which the consideration shall have
been paid or delivered to the Corporation shall be deemed fully paid
stock and shall not be liable to any further call or assessment
thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
(2) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase or otherwise
acquire shares of the Corporation's capital stock of any class or
series or other securities of the Corporation, and such rights and
options shall be evidenced by instrument(s) approved by the Board of
Directors of the Corporation or any committee thereof. The Board of
Directors of the Corporation or any committee thereof shall be
empowered to set the exercise price, duration, times for exercise, and
other terms of
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<PAGE>
such options or rights; provided, however, that the consideration to
be received (which may be in any form) for any shares of capital stock
subject thereto shall have a value not less than the par value
thereof.
Article V. Transactions With Officers, Directors or Stockholders
No contract or transaction between the Corporation and one or more of its
directors, officers, or stockholders or between the Corporation and any person
(as used herein "person" means any other corporation, partnership, association,
firm, trust, joint venture, political subdivision, or instrumentality) or other
organization in which one or more of its directors, officers, or stockholders
are directors, officers, or stockholders, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board of Directors
or committee which authorizes the contract or transaction, or solely because
his, her or their votes are counted for such purpose, if: (a) the material facts
as to his or her relationship or interest and as to the contract or transaction
are disclosed to or are known by the Board of Directors or the committee, and
the Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (b)
the material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed to or are known by the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or (c) the contract or
transaction is fair as to the Corporation as of the time it is authorized,
approved, or ratified by the Board of Directors, a committee thereof (to the
extent permitted by applicable law), or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
Article VI. Indemnification
(a) The Corporation shall indemnify to the fullest extent authorized or
permitted by law (as now or hereafter in effect) any person who is or was made,
or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, including, without limitation, an action by or in the right of
the Corporation to procure a judgment in its favor, by reason of the fact that
such person, or a person of whom such person is the legal representative, is or
was a director or officer of the Corporation, or is or was serving in any
capacity at the request of the Corporation for any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise (an
"Other Entity"), against judgments, fines, penalties, excise taxes, amounts paid
in settlement and costs, charges and expenses (including attorneys' fees and
disbursements). Persons who are not directors or officers of the Corporation
may be similarly indemnified in respect of service to the Corporation to the
extent the Board of Directors at any time specifies that such persons are
entitled to the benefits of this Article.
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<PAGE>
(b) The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of an Other Entity, against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article, the Amended and Restated Bylaws or under Section 145
of the GCL or any other provision of law.
(c) Any director or officer of the Corporation serving in any capacity for
(i) another corporation of which a majority of the shares entitled to vote in
the election of its directors is held, directly or indirectly, by the
Corporation or (ii) any employee benefit plan of the Corporation or any
corporation referred to in clause (i) of this paragraph shall be deemed to be
doing so at the request of the Corporation.
Article VII. Amendment of Bylaws
All the powers of the Corporation, insofar as the same may be lawfully
vested by this Amended and Restated Certificate of Incorporation in the Board of
Directors, are hereby conferred upon the Board of Directors. In furtherance and
not in limitation of that power, the Board of Directors shall have the power,
upon the affirmative vote of a majority of the Classified Directors (as
hereinafter defined) at a meeting lawfully convened, to make, adopt, alter,
amend, and repeal from time to time the Bylaws of the Corporation and to make
from time to time new Bylaws of the Corporation, subject to the right of the
stockholders entitled to vote thereon to adopt, alter, amend, and repeal Bylaws
made by the Board of Directors or to make new Bylaws.
Article VIII. Reservation of Right to Amend the Certificate of Incorporation
Except for the provisions of Articles VI and IX herein, the Corporation
reserves the right to amend, alter, change, or repeal any provision contained in
this Amended and Restated Certificate of Incorporation in the manner now or
hereafter prescribed by law and all rights conferred on officers, directors, and
stockholders herein are granted subject to this reservation.
Article IX. Exculpation of Directors
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (c) under Section 174 of the GCL, or (d) for any transaction
from which the director derived an improper personal benefit. Any repeal or
amendment of this Article by the stockholders of the Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the Corporation arising from an act or omission
occurring prior to the time
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<PAGE>
of such repeal or amendment. In addition to the circumstances in which a
director of the Corporation is not personally liable as set forth in the
foregoing provisions of this Article, a director shall not be liable to the
Corporation or its stockholders to such further extent as permitted by any law
hereafter enacted, including without limitation any subsequent amendment to the
GCL.
Article X. Board of Directors
(a) The number of directors constituting the Board of Directors shall be
fixed by, or in the manner provided in, the Amended and Restated Bylaws of the
Corporation, provided that such number shall be no fewer than three (3) and no
more than ten (10) (plus such number of directors as may be elected from time to
time pursuant to the terms of any series of Preferred Stock that may be issued
and outstanding from time to time). The directors of the Corporation (exclusive
of directors who are elected pursuant to the terms of, and serve as
representatives of the holders of, any series of Preferred Stock) shall be
referred to herein as "Classified Directors" and shall be divided into three
classes, with the first class referred to herein as "Class I," the second class
as "Class II," and the third class as "Class III." Each class shall consist as
nearly as possible of one-third (1/3) of the total number of directors making up
the entire Board of Directors. The term of office of the initial Class I
directors shall expire at the 1997 annual meeting of stockholders, the term of
office of the initial Class II directors shall expire at the 1998 annual meeting
of stockholders, and the term of office of the initial Class III directors shall
expire at the 1999 annual meeting of stockholders, with each director to hold
office until his or her successor shall have been duly elected and qualified.
At each annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified.
(b) Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of Common
Stock), to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features of such
directorships shall be governed by the terms of this Amended and Restated
Certificate of Incorporation (including any amendment to this Amended and
Restated Certificate of Incorporation that designates a series of Preferred
Stock), and such directors so elected by the holders of Preferred Stock shall
not be divided into classes pursuant to this Article unless expressly provided
by such terms.
(c) Any or all Classified Directors may be removed, with cause, at any
annual or special meeting of stockholders, upon the affirmative vote of the
holders of a majority of the outstanding shares of each class of capital stock
of the Corporation then entitled to vote in person or by proxy at an election of
such Classified Directors, provided that notice of the intention to act upon
such matter shall have been given in the notice calling such meeting.
(d) Election of directors, whether Classified Directors or otherwise, need
not be by written ballot.
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<PAGE>
Article XI. Business Combinations
The Corporation expressly elects to be governed by Section 203 of the GCL.
Article XII. Special Meetings of Stockholders
Special meetings of stockholders of the Corporation may be called by the
Board of Directors pursuant to a resolution adopted by a majority of the
Classified Directors then serving, by the Chairman of the Board, or by any
holder or holders of at least forty percent (40%) of the outstanding shares of
capital stock of the Corporation then entitled to vote on any matter for which
the respective special meeting is being called.
Article XIII. Existence
The existence of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Amended and Restated Certification of Incorporation to
be executed by John K. Delaney, its Chairman, President and Chief Executive
Officer, and Edward P. Nordberg, Jr., its Senior Vice President and Secretary,
this 11th day of September, 1996.
By: /s/ John K. Delaney
-----------------------------------------------
John K. Delaney
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
/s/ Edward P. Nordberg, Jr.
- -------------------------------------------
Edward P. Nordberg, Jr.
Senior Vice President - Legal and Financial
Affairs and Secretary
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<PAGE>
EXHIBIT 3.2
AMENDED AND
RESTATED BYLAWS
OF
HEALTHCARE FINANCIAL PARTNERS, INC.
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
HEALTHCARE FINANCIAL PARTNERS, INC.
PREAMBLE
These Bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware Corporation Law") and the Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") of
HealthCare Financial Partners, Inc., a Delaware corporation (the "Corporation").
In the event of a direct conflict between the provisions of these Bylaws and the
mandatory provisions of the Delaware Corporation Law or the provisions of the
Certificate of Incorporation, such provisions of the Delaware Corporation Law or
the Certificate of Incorporation, as the case may be, will be controlling.
ARTICLE I: OFFICES
1.1 Registered Office and Agent. The registered office and registered
---------------------------
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
-------------
places, both within and without the State of Delaware, as the Board of Directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE II: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
--------------
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the Board of Directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may be properly brought before the meeting.
2.2 Special Meeting. A special meeting of the stockholders may be called
---------------
by the Board of Directors pursuant to a resolution adopted by a majority of the
Classified Directors (as defined in Section 3.2 hereof) then serving, by the
Chairman of the Board, or by any holder or holders of record of at least forty
percent (40%) of the outstanding shares of capital stock of the Corporation then
entitled to vote on any matter for which the respective special meeting is being
called (considered for this purpose as one class). A special meeting shall be
held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
<PAGE>
transacted at a special meeting as may be stated or indicated in the notice of
such meeting given in accordance with these Bylaws or in a duly executed waiver
of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
-----------------
any place within or without the State of Delaware designated by the Board of
Directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal offices of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and time of
------
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
(10) nor more than sixty (60) days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person(s) calling the meeting, to each stockholder of record
entitled to vote at such meeting. If such notice is to be sent by mail, it
shall be directed to such stockholder at his or her address as it appears on the
records of the Corporation, unless he or she shall have filed with the Secretary
of the Corporation a written request that notices to him or her be mailed to
some other address, in which case it shall be directed to him or her at such
other address. Notice of any meeting of stockholders shall not be required to
be given to any stockholder who shall attend such meeting in person or by proxy
and shall not, at the beginning of such meeting, object to the transaction of
any business because the meeting is not lawfully called or convened, or who
shall, either before or after the meeting, submit a signed waiver of notice, in
person or by proxy.
2.5 Notice of Stockholder Business; Nomination of Director Candidates.
-----------------------------------------------------------------
(a) At annual or special meetings of the stockholders, only such
business shall be conducted as shall have been brought before meetings (i)
pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the Board of Directors, or (iii) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 2.5, who shall be entitled to vote at such
meeting, and who complies with the notice procedures set forth in this
Section 2.5.
(b) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors may be made
at an annual or special meeting of stockholders (i) by or at the direction
of the Board of Directors, (ii) by any stockholder of the Corporation who
is a stockholder of record at the time of giving of notice provided for in
this Section 2.5, who shall be entitled to vote for the election of
directors at the meeting, and who complies with the notice procedures set
forth in this Section 2.5.
(c) A stockholder must give timely, written notice to the Secretary of
the Corporation to nominate directors at an annual or special meeting
pursuant to Section 2.5(b) hereof or to propose business to be brought
before an annual or special meeting pursuant to
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<PAGE>
clause (iii) of Section 2.5(a) hereof. To be timely in the case of an
annual meeting, a stockholder's notice must be received at the principal
executive offices of the Corporation not less than one-hundred twenty (120)
days before the first anniversary of the preceding year's annual meeting.
To be timely in the case of a special meeting or in the event that the date
of the annual meeting is changed by more than thirty (30) days from such
anniversary date, a stockholder's notice must be received at the principal
executive offices of the Corporation no later than the close of business on
the tenth (10th) day following the earlier of the day on which notice of
the meeting date was mailed or public disclosure of the meeting date was
made. Such stockholder's notice shall set forth (i) with respect to each
matter, if any, that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the
meeting and the reasons for conducting such business at the meeting, (ii)
with respect to each person, if any, whom the stockholder proposes to
nominate for election or re-election as a director, all information
relating to such person (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director)
that is required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (iii) the name and address, as they appear on the
Corporation's records, of the stockholder proposing such business or
nominating such persons (as the case may be), and the name and address of
the beneficial owner, if any, on whose behalf the proposal or nomination is
made, (iv) the class and number of shares of capital stock of the
Corporation that are owned beneficially and of record by such stockholder
of record and by the beneficial owner, if any, on whose behalf the proposal
or nomination is made, and (v) any material interest or relationship that
such stockholder of record and/or the beneficial owner, if any, on whose
behalf the proposal or nomination is made may respectively have in such
business or with such nominee. At the request of the Board of Directors,
any person nominated for election as a director shall furnish to the
Secretary of the Corporation the information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee.
(d) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted, and no person shall be nominated to serve as a
director, at an annual or special meeting of stockholders, except in
accordance with the procedures set forth in this Section 2.5 and elsewhere
in these Bylaws. The chairman of the meeting shall, if the facts warrant,
determine that business was not properly brought before the meeting, or
that a nomination was not made, in accordance with the procedures
prescribed by these Bylaws and, if he or she shall so determine, he or she
shall so declare to the meeting, and any such business not properly brought
before the meeting shall not be transacted and any defective nomination
shall be disregarded. Notwithstanding the foregoing provisions of these
Bylaws, a stockholder shall also comply with all applicable requirements of
the Exchange Act, and the rules and regulations thereunder with respect to
the matters set forth in this Section 2.5.
2.6 Voting List. Prior to each meeting of stockholders, the Secretary or
-----------
other officer of the Corporation who has responsibility of the Corporation's
stock ledger, either directly or through another officer appointed by him or her
or through a transfer agent appointed by the Board of Directors, shall prepare a
complete list of stockholders entitled to vote thereat, arranged in
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<PAGE>
alphabetical order and showing the address of each stockholder and number of
shares of capital stock registered in the name of each stockholder. To the
extent required by law, such list shall be kept on file at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of meeting or a duly executed waiver of notice of such meeting or, if not
so specified, at the place where the meeting is to be held and shall be open to
examination by any stockholder during ordinary business hours. Such list shall
be produced at such meeting and kept at the meeting at all times during such
meeting and may be inspected by any stockholder who is present.
2.7 Quorum. The holders of a majority of the outstanding shares of
------
capital stock entitled to vote on a matter, present in person or by proxy, shall
constitute a quorum at any meeting of stockholders, except as otherwise provided
by law, the Certificate of Incorporation, or these Bylaws. If a quorum shall
not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy
(or, if no stockholder entitled to vote is present, any officer of the
Corporation), may adjourn the meeting from time to time without notice other
than announcement at the meeting (unless the Board of Directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been present; provided that, if the adjournment is for more than
thirty (30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
2.8 Required Vote; Withdrawal of Quorum. When a quorum is present at any
-----------------------------------
meeting, the vote of the holders of at least a majority of the outstanding
shares of capital stock entitled to vote thereat who are present, in person or
by proxy, shall decide any question brought before such meeting, unless the
question is one on which, by express provision of law, the Certificate of
Incorporation, or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.9 Method of Voting; Proxies. Except as otherwise provided in the
-------------------------
Certificate of Incorporation or by law, each outstanding share of capital stock,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote at a meeting of stockholders. Elections of directors need not be by
written ballot. At any meeting of stockholders, every stockholder having the
right to vote may vote either in person or by a proxy executed in writing by the
stockholder or by his or her duly authorized attorney-in-fact. Each such proxy
shall be filed with the Secretary of the Corporation before or at the time of
the meeting. No proxy shall be valid after three (3) years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be voted. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power or unless otherwise made
irrevocable by law.
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<PAGE>
2.10 Record Date. For the purpose of determining stockholders entitled
-----------
(a) to notice of or to vote at any meeting of stockholders or any adjournment
thereof, (b) to receive payment of any dividend or other distribution or
allotment of any rights, or (c) to exercise any rights in respect of any change,
conversion, or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, for any such determination of stockholders, such date in
any case to be not more than sixty (60) days and not less than ten (10) days
prior to such meeting nor more than sixty (60) days prior to any other action.
If no record date is fixed:
(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
2.11 Conduct of Meeting. The Chairman of the Board, if such office has
------------------
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the Vice-Chairman of the Board, if such office has been filled,
and, if not or if the Vice Chairman of the Board is absent or otherwise unable
to act, the President shall preside at all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the
absence or inability to act for any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or non-
acting officer under these Bylaws or by some person appointed by the meeting.
2.12 Inspectors. The Board of Directors may, in advance of any meeting of
----------
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors.
Each inspector, before entering upon the discharge of his or her duties, shall
take and sign an oath faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of his or her
ability. The inspectors shall determine the number of shares of capital stock
of the Corporation outstanding and the voting power of each, the number of
shares represented at the meeting, the existence of a quorum, and the validity
and effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count, and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request,
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or matter determined by them and shall execute a certificate of any fact found
by them. No director or candidate for the office of director shall act as an
inspector of an election of directors. Inspectors need not be stockholders.
ARTICLE III: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
----------
managed by the Board of Directors. Subject to the restrictions imposed by law,
the Certificate of Incorporation, or these Bylaws, the Board of Directors may
exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The Board of Directors shall
-------------------------------------
consist of no fewer than three (3) and no more than ten (10) directors (plus
such number of directors as may be elected from time to time pursuant to the
terms of any series of preferred stock that may be issued and outstanding from
time to time). The directors of the Corporation (exclusive of directors who are
elected pursuant to the terms of, and serve as representatives of the holders
of, any series of preferred stock of the Corporation) shall be referred to
herein as "Classified Directors" and shall be divided into three classes, with
the first class referred to herein as "Class I," the second class as "Class II,"
and the third class as "Class III." Each class shall consist as nearly as
possible of one-third (1/3) of the total number of directors making up the
entire Board of Directors. The term of office of the initial Class I directors
shall expire at the 1997 annual meeting of stockholders, the term of office of
the initial Class II directors shall expire at the 1998 annual meeting of
stockholders, and the term of office of the initial Class III directors shall
expire at the 1999 annual meeting of stockholders, with each director to hold
office until his or her successor shall have been duly elected and qualified.
At each annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until his or her successor shall
have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of preferred stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of common
stock), to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features of such
directorships shall be governed by the terms of the Certificate of Incorporation
(including any amendment to the Certificate of Incorporation that designates a
series of preferred stock), and such directors so elected by the holders of
preferred stock shall not be divided into classes pursuant to this Section 3.2
unless expressly provided by the terms of the Certificate of Incorporation.
3.3 Change in Number. No decrease in the number of directors constituting
----------------
the entire Board of Directors shall have the effect of shortening the term of
any incumbent director.
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3.4 Removal; Vacancies.
------------------
(a) Any or all Classified Directors may be removed, with cause, at any
annual or special meeting of stockholders, upon the affirmative vote of the
holders of a majority of the outstanding shares of each class of capital
stock of the Corporation then entitled to vote in person or by proxy at an
election of such Classified Directors, provided that notice of the
intention to act upon such matter shall have been given in the notice
calling such meeting. Newly created directorships resulting from any
increase in the authorized number of Classified Directors, and any
vacancies occurring in the Board of Directors, whether caused by death,
resignation, retirement, disqualification, removal or other termination
from office of any Classified Director or otherwise, may be filled by the
vote of a majority of the Classified Directors then in office, though less
than a quorum, or by the affirmative vote, at any annual meeting or any
special meeting of the stockholders called for the purpose of filling such
directorship, of the holders of a majority of the outstanding shares of
each class of capital stock then entitled to vote in person or by proxy at
an election of such Classified Directors. Each successor Classified
Director so chosen shall hold office until the next election of the class
for which such director shall have been chosen and until his or her
respective successor shall have been duly elected and qualified.
(b) Unless otherwise provided by the terms of the Certificate of
Incorporation (including any amendment thereto that designates a series of
preferred stock), any or all directors other than Classified Directors may
be removed, with or without cause, at any annual or special meeting of
stockholders, upon the affirmative vote of the holders of a majority of the
outstanding shares of each class of capital stock then entitled to vote in
person or by proxy at an election of such directors, provided that notice
of the intention to act upon such matter shall have been given in the
notice calling such meeting. Unless otherwise provided by the terms of the
Certificate of Incorporation (including any amendment thereto that
designates a series of preferred stock), any vacancies occurring in the
Board of Directors caused by death, resignation, retirement,
disqualification, removal or other termination from office of any directors
other than Classified Directors may be filled by the vote of a majority of
the Board of Directors then in office, though less than a quorum, or by the
affirmative vote, at any annual meeting or any special meeting of the
stockholders called for the purpose of filling such directorship, of the
holders of a majority of the outstanding shares of each class of capital
stock then entitled to vote in person or by proxy at an election of such
directors. Each successor director so chosen shall hold office until the
next election of the class for which such director shall have been chosen
and until his or her respective successor shall have been duly elected and
qualified.
3.5 Meetings of Directors. The directors may hold their meetings and may
---------------------
have an office and keep the records of the Corporation, except as otherwise
provided by law, in such place or places within or without the State of Delaware
as the Board of Directors may from time to time determine or as shall be
specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
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3.6 Annual Meeting. The Board of Directors may hold an annual meeting, if
--------------
a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.
3.7 Election of Officers. At the first meeting of the Board of Directors
--------------------
after each annual meeting of stockholders at which a quorum shall be present,
the Board of Directors shall elect the officers of the Corporation.
3.8 Regular Meetings. Regular meetings of the Board of Directors shall be
----------------
held at such times and places as shall be designated from time to time by
resolution of the Board of Directors. Notice of such regular meetings shall not
be required.
3.9 Special Meetings. Special meetings of the Board of Directors shall be
----------------
held whenever called by the Chairman of the Board, the Vice-Chairman of the
Board, the Chief Executive Officer, the President, or any two directors.
3.10 Notice. Notice of each special meeting shall be given to each
------
director at least twenty-four (24) hours before the meeting. Notice of any such
meeting need not be given to any director who, either before or after the
meeting, submits a signed waiver of notice or who shall attend such meeting
without protesting, prior to or at its commencement, the lack of notice to him.
The purpose of any special meeting shall be specified in the notice or waiver of
notice of such meeting.
3.11 Quorum; Majority Vote. At all meetings of the Board of Directors, a
---------------------
majority of the directors fixed in the manner provided in these Bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
Board of Directors there is less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the Certificate of Incorporation, or these Bylaws, the act of a majority of the
directors present at a meeting at which a quorum is in attendance shall be the
act of the Board of Directors. At any time that the Certificate of
Incorporation provides that directors elected by the holders of a class or
series of stock shall have more or less than one vote per director on any
matter, every reference in these Bylaws to a majority or other proportion of
directors shall refer to a majority or other proportion of the votes of such
directors.
3.12 Procedure. At meetings of the Board of Directors, business shall be
---------
transacted in such order as from time to time the Board of Directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
Vice-Chairman of the Board, if such office has been filled, and, if not or if
the Vice-Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the Board of Directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the Board of Directors from among the directors present. The Secretary of
the Corporation shall act as the secretary of each meeting of the Board of
Directors unless the Board of Directors appoints another person to act as
secretary of the meeting. The Board of
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Directors shall keep regular minutes of its proceedings which shall be placed in
the minute book of the Corporation.
3.13 Presumption of Assent. A director of the Corporation who is present
---------------------
at the meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his or her
dissent shall be entered in the minutes of the meeting or unless he or she shall
file his or her written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who voted in favor of such action.
3.14 Compensation. The Board of Directors shall have the authority to fix
------------
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the Board of
Directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE IV: COMMITTEES
4.1 Designation. The Board of Directors may, by resolution adopted by a
-----------
majority of the entire Board of Directors, designate one or more committees,
including without limitation an Executive Committee, Audit Committee and
Compensation Committee as hereinafter described.
4.2 Number; Qualification; Term. Each committee shall consist of one (1)
---------------------------
or more directors appointed by resolution adopted by a majority of the entire
Board of Directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
Board of Directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his or her term as director, (ii) his or her
resignation as a committee member or as a director, or (iii) his or her removal
as a committee member or as a director.
4.3 Authority. Each committee, to the extent expressly provided in the
---------
resolution establishing such committee, shall have and may exercise all of the
authority of the Board of Directors in the management of the business and the
property of the Corporation except to the extent expressly restricted by such
resolution or by law, the Certificate of Incorporation, or these Bylaws.
4.4 Committee Changes. The Board of Directors shall have the power at any
-----------------
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The Board of Directors may designate
-------------------------------
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or
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disqualified, the member or members of such committee present at any meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held
----------------
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 Special Meeting. Special meetings of any committee may be held
---------------
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two (2) days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of
---------------------
the number of members designated by the Board of Directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the Certificate of Incorporation, or
these Bylaws.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
-------
prepared and shall report the same to the Board of Directors upon the request of
the Board of Directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the Board of
------------
Directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.11 Responsibility. The designation of any committee and the delegation
--------------
of authority to it shall not operate to relieve the Board of Directors or any
director of any responsibility imposed upon it or such director by law.
4.12 Executive Committee. The Board of Directors may, by resolution,
-------------------
designate one (1) or more of its members to constitute an Executive Committee.
The Executive Committee shall have and may exercise all of the authority of the
Board of Directors in the management of the business and affairs of the
Corporation within the limits permitted by law, including without limitation,
the power and authority: (i) to authorize the seal of the Corporation to be
affixed to all papers; (ii) to declare a dividend; (iii) to authorize the
issuance of stock; (iv) to adopt a certificate of ownership and merger pursuant
to Section 253 of the Delaware Corporation Law; and (v) to the extent
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authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors, to fix any of the preference rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into, or the exchange of shares
for, shares of any other class or classes or any other series of the same of any
other class or classes of stock of the Corporation.
4.13 Audit Committee. The Board of Directors may, by resolution, designate
---------------
not less than two (2) of the directors then in office to constitute an Audit
Committee. At least a majority of such directors must be independent of
management and free from any relationship that, in the opinion of the Board of
Directors, would interfere with such directors' exercise of independent judgment
as a committee member. The Audit Committee, if established, shall (i) consider
and make recommendations to the Board of Directors with respect to the
employment of a firm of independent public accountants, (ii) confer with the
Corporation's independent public accountants to determine the scope of the audit
that such accountants will perform, (iii) receive reports from the independent
public accountants and transmit such reports to the Board of Directors, and
after the close of the fiscal year, transmit to the Board of Directors the
financial statements certified by such accountants, (iv) inquire into, examine
and make comments on the accounting procedures of the Corporation and the
reports of the independent public accountants, and (v) consider and make
recommendations to the Board of Directors upon matters presented to it by the
officers of the Corporation pertaining to the audit practices and procedures
adhered to by the Corporation. The Board of Directors may designate one (1)
member of the Audit Committee to act as its chairman.
4.14 Compensation Committee. The Board of Directors may, by resolution,
----------------------
designate not less than two (2) of the directors then in office to constitute a
Compensation Committee, at least one (1) of whom shall be independent of
management so as to exercise independent judgment as a committee member. The
Compensation Committee may exercise all of the authority of the Board of
Directors in administering the Corporation's executive compensation plans,
including stock option plans.
4.15 Other Committees. In addition to the Executive Committee, the Audit
----------------
Committee and the Compensation Committee, the Board of Directors may, by
resolution, designate one or more other committees of the Board of Directors in
accordance with the provisions of these Bylaws.
ARTICLE V: NOTICE
5.1 Method. Whenever by statute, the Certificate of Incorporation, or
------
these Bylaws, notice is required to be given to any committee member, director,
or stockholder and no provision is made as to how such notice shall be given,
personal notice shall not be required and any such notice may be given (a) in
writing, by mail, postage prepaid, addressed to such committee member, director,
or stockholder at his or her address as it appears on the books or (in the case
of a stockholder) the stock transfer records of the Corporation, or (b) by any
other method permitted by law (including but not limited to overnight courier
service, telegram, telex, or telefax). Any notice required or permitted to be
given by mail shall be deemed to be delivered and given at the time when
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the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by overnight courier service shall be deemed
to be delivered and given at the time delivered to such service with all charges
prepaid and addressed as aforesaid. Any notice required or permitted to be
given by telegram, telex, or telefax shall be deemed to be delivered and given
at the time transmitted with all charges prepaid and addressed as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
------
stockholder, director, or committee member of the Corporation by statute, the
Certificate of Incorporation, or these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be equivalent to the giving of such notice.
Attendance of a stockholder, director, or committee member at a meeting shall
constitute a waiver of notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE VI: OFFICERS
6.1 Number, Titles, Term of Office. The officers of the Corporation shall
------------------------------
be a Chairman of the Board, a President, a Secretary, and such other officers as
the Board of Directors may from time to time elect or appoint, including a Vice-
Chairman of the Board, Chief Executive Officer, Chief Financial Officer, one or
more Vice Presidents (with each Vice President to have such descriptive title,
if any, as the Board of Directors shall determine), Controller and a Treasurer.
Each officer shall hold office until his or her successor shall have been duly
elected and shall have qualified, until his or her death, or until he or she
shall resign or shall have been removed in the manner hereinafter provided. Any
two (2) or more offices may be held by the same person. None of the officers
need be a stockholder or a director of the Corporation or a resident of the
State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the Board of
-------
Directors may be removed by the Board of Directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
---------
death, resignation, removal, or otherwise) may be filled by the Board of
Directors.
6.4 Authority. Officers shall have such authority and perform such duties
---------
in the management of the Corporation as are provided in these Bylaws or as may
be determined by resolution of the Board of Directors not inconsistent with
these Bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall
------------
be fixed from time to time by the Board of Directors or any committee thereof;
provided, however, that the Board
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of Directors may delegate the power to determine the compensation of any officer
and agent (other than the officer to whom such power is delegated) to any other
officer of the Corporation.
6.6 Chairman. The Chairman of the Board shall preside at all meetings of
--------
the Board of Directors and shall exercise such powers and perform such other
duties as shall be determined from time to time by the Board of Directors.
6.7 Vice-Chairman. The Vice-Chairman shall, in the absence or disability
-------------
of the Chairman, exercise the powers and perform the duties of the Chairman and
shall exercise such powers and perform such other duties as shall be determined
from time to time by the Board of Directors.
6.8 Chief Executive Officer. The Chief Executive Officer shall be the
-----------------------
chief executive officer of the Corporation and shall have general supervision
and direction over the business of the Corporation, subject, however, to the
control of the Board of Directors and of any duly authorized committee of
directors. The Chief Executive Officer, in the absence of the Chairman or the
Vice-Chairman, as the case may be, shall preside at each meeting of the
stockholders and of the Board of Directors. He or she may sign and execute in
the name of the Corporation deeds, mortgages, bonds, contracts and other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law otherwise to be
signed or executed, and, in general, shall perform all duties incident to the
office of Chief Executive Officer and such other duties as from time to time may
be assigned to him or her by the Board of Directors or by these Bylaws.
6.9 President. The President shall assist the Chief Executive Officer in
---------
the management of and supervision and direction over the business and affairs of
the Corporation, subject, however, to the direction of the Chief Executive
Officer and the control of the Board of Directors. The President may, in the
absence of the Chairman, the Vice-Chairman and the Chief Executive Officer, as
the case may be, preside, if present, at each meeting of the stockholders and of
the Board of Directors. The President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts and other instruments except in
cases in which the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these Bylaws to some other officer or agent of the
Corporation or shall be required by law otherwise to be signed or executed and,
in general, shall perform all duties incident to the office of the President and
such other duties as from time to time may be assigned to him or her by the
Board of Directors, by these Bylaws or by the Chief Executive Officer.
6.10 Chief Financial Officer. The Chief Financial Officer shall be the
-----------------------
chief financial officer of the Corporation, and shall render to the Board of
Directors, whenever the Board of Directors may require, an account of the
financial condition of the Corporation; shall make, sign and file financial, tax
and similar reports to any state, federal or municipal government, agency or
department, or any self-regulatory organization; shall provide for the
continuous review of all accounts and reports; and shall perform such other
duties as from time to time may be assigned to him or her by the Board of
Directors, by these Bylaws or the Chief Executive Officer or President.
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6.11 Vice Presidents. Each Vice President shall have such powers and
---------------
perform such duties as from time to time may be assigned to such Vice President
or by the Board of Directors or by the Chief Executive Officer or the President
and shall perform such other duties as may be prescribed in these Bylaws.
6.12 Secretary. The Secretary shall attend all meetings of the
---------
stockholders and shall record all the proceedings of the meetings of the Board
of Directors and of the stockholders in a book to be kept for that purpose, and
shall perform like duties for committees of the Board of Directors, when
required. The Secretary shall give, or cause to be given, notice of all special
meetings of the Board of Directors and of the stockholders and shall perform
such other duties as may be prescribed by the Board of Directors or by the Chief
Executive Officer, under whose supervision the Secretary shall be. The
Secretary shall have custody of the corporate seal of the Corporation, and the
Secretary, or an Assistant Secretary, shall have authority to impress the same
on any instrument requiring it, and when so impressed the seal may be attested
by the signature of the Secretary or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to impress the seal of the Corporation and to attest the same by such
officer's signature. The Secretary or an Assistant Secretary may also attest
all instruments signed by the Chairman, the Vice-Chairman, the Chief Executive
Officer or the President. The Secretary shall have charge of all the books,
records and papers of the Corporation relating to its organization and
management, shall see that the reports, statements and other documents required
by statute are properly kept and filed and, in general, shall perform all duties
incident to the office of Secretary of a corporation and such other duties as
may from time to time be assigned to the Secretary by the Board of Directors, by
these Bylaws, by the Chief Executive Officer or by the President.
6.13 Treasurer. The Treasurer shall have charge and custody of, and be
---------
responsible for, all funds, securities and notes of the Corporation; receive and
give receipts for moneys due and payable to the Corporation from any sources
whatsoever; deposit all such moneys and valuable effects in the name and to the
credit of the Corporation in such depositaries as may be designated by the Board
of Directors; against proper vouchers, cause such funds to be disbursed by
checks or drafts on the authorized depositaries of the Corporation signed in
such manner as shall be determined by the Board of Directors and be responsible
for the accuracy of the amounts of all moneys so disbursed; regularly enter or
cause to be entered in books or other records maintained for such purpose full
and adequate accounting of all moneys received or paid for the account of the
Corporation; have the right to require from time to time reports or statements
giving such information as the Treasurer may desire with respect to any and all
financial transactions of the Corporation from the officers or agents
transacting the same; render to the Chairman, the Vice-Chairman, the Chief
Executive Officer, the President or the Board of Directors, whenever the
Chairman, the Vice-Chairman, the Chief Executive Officer, the President or the
Board of Directors shall require the Treasurer so to do, an accounting of the
financial condition of the Corporation and of all financial transactions of the
Corporation; exhibit at all reasonable times the records and books of account to
any of the directors upon application at the office of the Corporation where
such records and books are kept; disburse the funds of the Corporation as
ordered by the Board of Directors; and, in general, perform all duties incident
to the office of Treasurer of a corporation and
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such other duties as may from time to time be assigned to the Treasurer by the
Board of Directors, by these Bylaws or by the Chief Executive Officer or by the
President.
6.14 Assistant Secretaries and Assistant Treasurers. Assistant Secretaries
----------------------------------------------
and Assistant Treasurers shall perform such duties as shall be assigned to them
by the Secretary or by the Treasurer, respectively, or by the Board of
Directors, by these Bylaws, by the Chief Executive Officer or by the President.
ARTICLE VII: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificates for shares of stock of the
-----------------------
Corporation shall be in such form as shall be approved by the Board of
Directors. The certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer or the President or a Vice President and also by the
Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any and all signatures on the certificate may be a facsimile and may
be sealed with the seal of the Corporation or a facsimile thereof. If any
officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if he or she were such
officer, transfer agent, or registrar at the date of issue. The certificates
shall be consecutively numbered and shall be entered in the books of the
Corporation as they are issued and shall exhibit the holder's name and the
number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The Board of Directors
---------------------------------------------
may direct a new certificate or certificates to be issued in place of a
certificate or certificates theretofore issued by the Corporation and alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates representing shares to be lost
or destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or to give the Corporation a bond with a surety
or sureties satisfactory to the Corporation in such sum as it may direct as
indemnity against any claim, or expense resulting from a claim, that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
------------------
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat
-----------------------
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be
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bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by law.
7.5 Regulations. The Board of Directors shall have the power and
-----------
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The Board of Directors shall have the power and authority to
-------
provide that certificates representing shares of stock bear such legends as the
Board of Directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE VIII: MISCELLANEOUS; PROVISIONS
8.1 Dividends. Subject to provisions of law and the Certificate of
---------
Incorporation, dividends may be declared by the Board of Directors at any
regular or special meeting and may be paid in cash, in property, or in shares of
stock of the Corporation. Such declaration and payment shall be at the
discretion of the Board of Directors.
8.2 Reserves. There may be created by the Board of Directors out of funds
--------
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the Board of Directors shall
consider beneficial to the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall keep correct and complete
-----------------
books and records of account, shall keep minutes of the proceedings of its
stockholders and Board of Directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
-----------
Board of Directors.
8.5 Seal. The seal of the Corporation shall be such as from time to time
----
may be approved by the Board of Directors.
8.6 Resignations. Any director, committee member, or officer may resign
------------
by so stating at any meeting of the Board of Directors or by giving written
notice to the Board of Directors, the Chairman of the Board, the Vice-Chairman,
the Chief Executive Officer, the President, or the Secretary. Such resignation
shall take effect at the time specified therein or, if no time is specified
-16-
<PAGE>
therein, immediately upon its receipt. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the
--------------------------------
Vice-Chairman, the Chief Executive Officer, the President, or any Vice President
of the Corporation shall have the power and authority to transfer, endorse for
transfer, vote, consent, or take any other action with respect to any securities
of another issuer which may be held or owned by the Corporation and to make,
execute, and deliver any waiver, proxy, or consent with respect to any such
securities.
8.8 Telephone Meetings. Stockholders (acting for themselves or through a
------------------
proxy), members of the Board of Directors, and members of any committee of the
Board of Directors may participate in and hold a meeting of such stockholders,
Board of Directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
8.9 Action Without a Meeting.
------------------------
(a) Except as otherwise provided in the Certificate of Incorporation,
any action required by the Delaware Corporation Law to be taken at any
annual or special meeting of the stockholders, or any action which may be
taken at any annual or special meeting of the stockholders, may be taken
without a meeting, without prior notice, and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed
by the holders (acting for themselves or through a proxy) of outstanding
stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which the
holders of all shares entitled to vote thereon were present and voted and
shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of
stockholders shall bear the date of signature of each stockholder who signs
the consent and no written consent shall be effective to take the corporate
action referred to therein unless, within sixty (60) days of the earliest
dated consent delivered in the manner required by this Section 8.9(a) to
the Corporation, written consents signed by a sufficient number of holders
to take action are delivered to the Corporation by delivery to its
registered office in the State of Delaware, its principal place of
business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office, principal place of
business, or such officer or agent shall be by hand or by certified or
registered mail, return receipt requested.
(b) Except as otherwise provided in the Certificate of Incorporation
or in these Bylaws, any action required or permitted to be taken at a
meeting of the Board of Directors,
-17-
<PAGE>
or of any committee of the Board of Directors, may be taken without a
meeting if a consent or consents in writing, setting forth the action so
taken, shall be signed by all the directors or all the committee members,
as the case may be, entitled to vote with respect to the subject matter
thereof, and such consent shall have the same force and effect as a vote of
such directors or committee members, as the case may be, and may be stated
as such in any certificate or document filed with the Secretary of State of
the State of Delaware or in any certificate delivered to any person. Such
consent or consents shall be filed with the minutes of proceedings of the
Board of Directors or committee, as the case may be.
8.10 Invalid Provisions. If any part of these Bylaws shall be held invalid
------------------
or inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.
8.11 Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
--------------
other instrument executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the Board of Directors
authorizing such execution expressly state that such attestation is necessary.
8.12 Headings. The headings used in these Bylaws have been inserted for
--------
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.13 Amendments. The Board of Directors shall have the power, upon the
----------
affirmative vote of a majority of the Classified Directors at a meeting lawfully
convened, to make, adopt, alter, amend, and repeal from time to time these
Bylaws and to make from time to time new Bylaws, subject to the right of the
stockholders entitled to vote thereon to adopt, alter, amend, and repeal Bylaws
made by the Board of Directors or to make new Bylaws.
-18-
<PAGE>
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1996, between
HEALTHPARTNERS FINANCIAL CORPORATION, a Delaware corporation (the
"Corporation"), and JOHN K. DELANEY (the "Executive").
W I T N E S S E T H:
--------------------
The Executive is the President of the Corporation and possesses an
intimate knowledge of the business and affairs of the Corporation. The
Corporation recognizes the Executive's contribution to the growth and success
of the Corporation and desires to assure to the Corporation the continued
benefits of the Executive's expertise and knowledge on the terms herein
provided. The Executive, in turn, desires to continue in full-time employment
with the corporation on the terms provided herein.
Accordingly, in consideration of the mutual covenants and
representations contained herein, the parties agree as follows:
1. Full-Time Employment of Executive.
----------------------------------
1.1. Duties and Status.
------------------
(a) The corporation hereby engages the Executive as a
full-time executive employee for the period specified in paragraph 4 (the
"Employment Period"), and the Executive accepts such employment, on the terms
and conditions set forth in this Agreement. During the Employment Period, the
Executive shall, subject at all times to the direction and review of the
Executive Committee of the Board of Directors of the Corporation (hereinafter
the "Board"), be entitled to exercise such authority and perform such
executive duties as are commensurate with the authority being exercised and
duties being performed by the Executive for the Corporation and its affiliates
immediately prior to the effective date of this Agreement.
(b) During the Employment Period, the Executive shall
(i) devote his full time and efforts to the business of the Corporation and
its affiliates and will not engage in consulting work or any trade or business
for his own account or for or on behalf of any other person, firm or
corporation or any other activity which, in the judgment of the Board,
competes, conflicts or interferes with the performance of his duties hereunder
in any way, and (ii) accept and perform any and all other duties assigned to
him by the Board, provided that the performance of such duties shall not be
inconsistent with the scope of the duties provided for in subparagraph (a) of
this paragraph 1.1.
(c) The primary location from which the Executive shall
be required to perform the services and duties provided for in subparagraph
(a) of this paragraph 1.1 shall be at
-1-
<PAGE>
the Company's main office in Chevy Chase, Maryland or such other location in the
greater Washington metropolitan area as the Board may designate.
1.2. Compensation and General Benefits. As compensation for
---------------------------------
his services under this Agreement, the Executive shall be compensated as
follows:
(a) Commencing January 1, 1996, the Corporation shall pay
the Executive an annual salary of $240,000, and commencing January 1, 1997, the
Corporation shall pay the Executive an annual salary which is not less than the
greater of (i) $300,000 or (ii) any subsequently established higher annual base
salary, in either case increased annually by not less than 50% of the annual
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), Washington, D.C. All Items (1967 - 100) published by the Bureau of
Labor Statistics, U.S. Department of Labor or any comparable successor index.
Such salary shall be payable in periodic equal installments which are no less
frequent than the periodic installments relating to employees of the Company
generally.
(b) The Executive shall be eligible to participate in
such profit-sharing, stock option, bonus, incentive and performance award
programs as are in effect and are available to officers of comparable rank;
provided, however, that nothing in this Agreement shall preclude the Board from
(i) providing special benefits or making awards to other employees for
meritorious service by them, which benefits or awards are in excess of those
granted to the Executive, and (ii) discontinuing any such plan or program at any
time that the Board determines that such discontinuance is in the best interests
of the Corporation.
(c) Commencing on March 31, 1997, and on the last day of
each calendar quarter thereafter during the term of this Agreement, Executive
shall be paid a bonus of $25,000 quarterly.
(d) The Executive shall be entitled to receive and obtain
the benefit of employee benefits, including, without limitation, pension and
supplemental retirement plans and programs, disability insurance, group and
other life insurance programs, sickness, accident and health insurance programs,
and perquisites provided by the Corporation to executives which are the greater
of the employee benefits and perquisites then provided by the Corporation to
executives with comparable authority or duties (and in any event not less than
those provided to executives with junior authority or duties), provided,
however, that nothing in this Agreement shall preclude the Board from
discontinuing any such plan or program at any time that the Board determines
that such discontinuance is in the best interests of the Corporation.
-2-
<PAGE>
(e) Executive shall be entitled to receive four (4) weeks
vacation during each year.
(f) Executive shall be entitled to an automobile
allowance of $800 per month.
2. Competition; Confidential Information. The Executive and the
---------------------------------------
Corporation recognize that due to the nature of his prior association with the
Corporation and its affiliates and of his engagements hereunder, and the
relationship of the Executive to the Corporation and its affiliates, both in the
past as an executive and in the future hereunder, the Executive has had access
to and has acquired, will have access to and will acquire, and has assisted in
and may assist in developing, confidential and proprietary information relating
to the business and operations of the Corporation and its affiliates, including,
without limiting the generality of the foregoing, information with respect to
present and proposed projects, transactions completed and under negotiation,
financing and sales and marketing methods. The Executive acknowledges that such
information has been and will continue to be of vital importance to the business
of the Corporation and its affiliates and that disclosure of it to or its use by
others could cause substantial loss to the Corporation. The Executive and the
Corporation also recognize that an important part of the Executive's duties will
be to develop good will for the Corporation and its affiliates through his
personal contact with customers, agents and others having business relationships
with the Corporation and its affiliates, and that there is a danger that this
good will, a proprietary asset of the Corporation and its affiliates, may follow
the Executive if and when his relationship with the Corporation is terminated.
The Executive accordingly agrees as follows:
2.1. Non-Competition and Non-Solicitation.
-------------------------------------
(a) For purposes of this Agreement, the "Non-Competition
Period" shall be a period of 18 months from and after termination of the
Executive's employment with the Corporation.
(b) During the Employment Period the Executive will not,
directly or indirectly, either individually or as owner, partner, agent,
employee, consultant or otherwise, except for the account of and on behalf of
the Corporation or its affiliates, compete with the Corporation or any of its
affiliates in any manner whatsoever. During the Employment Period, the Executive
shall report and make available to the Corporation in a prompt and timely manner
all business opportunities which are within the scope of the business of the
Corporation or its affiliates and which become available to the Executive or of
which he has knowledge.
(c) During the Employment Period and the Non-Competition
Period, the Executive will not, directly or indirectly, either individually or
as owner, partner, agent, employee,
-3-
<PAGE>
consultant or otherwise (except during the Executive's employment with the
Corporation and then only for the account and on behalf of the Corporation or
its affiliates), solicit, attempt to solicit or otherwise engage the services
of, or become associated in any business similar to any business of the
Corporation with, any person who was an employee, officer or director of the
Corporation or any of its affiliates during the 12 months preceding the date the
Executive's employment with the Corporation is terminated.
(d) Anything in this Agreement to the contrary
notwithstanding, nothing in this paragraph 2.1 shall be construed to prevent the
Executive from owning, as an investment, not more than 1% of a class of equity
securities issued by any competitor of the Corporation or its affiliates and
publicly traded and registered under Section 12 of the Securities Exchange Act
of 1934.
2.2. Trade Secrets. The Executive will keep confidential
-------------
any trade secrets or confidential or proprietary information of the Corporation
and its affiliates which are now known to him or which hereafter may become
known to him as a result of his employment or association with the Corporation
and shall not at any time directly or indirectly disclose any such information
to any person, firm or corporation, or use the same in any way other than in
connection with the business of the Corporation or its affiliates during and at
all times after the expiration of the Employment Period. For purposes of this
Agreement, "trade secrets or confidential or proprietary information" means
information unique to the Corporation or any of its affiliates which has a
significant business purpose and is not known or generally available from
sources outside the Corporation or any of its affiliates or typical of industry
practice.
3. Corporation's Remedies for Breach. It is recognized that
---------------------------------
damages in the event of a breach of paragraph 2 by the Executive would be
difficult, if not impossible, to ascertain, and it is therefore agreed that the
Corporation, in addition to and without limiting any other remedy or right it
may have, shall have the right to an injunction or other equitable relief in any
court of competent jurisdiction, enjoining any such breach, and the Executive
hereby waives any and all defenses he may have on the ground of lack of
jurisdiction or competence of the court to grant such an injunction or other
equitable relief. The existence of this right shall not preclude any other
rights and remedies at law or in equity which the Corporation may have.
4. Employment Period.
-----------------
4.1. Duration and Extension.
----------------------
(a) The Employment Period shall commence on the date of
this Agreement and shall continue until the earlier of (i) the close of business
on the day immediately preceding the
-4-
<PAGE>
fifth anniversary of the date of this Agreement, (ii) the Executive's normal
retirement date under the Corporation's retirement plan as in effect on the
date of this Agreement ("Normal Retirement Date"), or (iii) the death or Total
Disability of the Executive .
(b) On the first anniversary of the date of this
Agreement, and on each anniversary date thereafter, the Employment period shall
be extended for an additional one year period (but not beyond the Normal
Retirement Date, death or Total Disability of the Executive), unless the
Corporation or the Executive notifies the other in writing prior to such
anniversary date of its or his intention not to so extend the Employment Period.
4.2. Termination of Employment.
--------------------------
(a) The Executive may terminate his employment under this
Agreement upon 90 days prior written notice to the Corporation. During such
period, upon the request of the Corporation the Executive will perform his
regular duties, and in addition will perform such consulting services as may be
requested by the Corporation to assist in the orderly transition of his duties
to another person or persons and/or to assist in the training of his
replacement.
(b) The Corporation may immediately terminate the
employment of the Executive for cause, and, upon such termination, the
Corporation will have no further obligation to the Employee. In the event the
Corporation terminates Executive's employment without cause, Executive shall be
entitled to continue to receive compensation and benefits as provided in Section
1.2 hereof for the balance of the term of the Agreement. The first three years
of such payments of compensation and benefits shall be guaranteed and shall not
be subject to reduction or offset as a result of any earnings of Executive.
(c) The employment of the Executive will be automatically
terminated by his death or Total Disability. In the event that the Employee dies
while this Agreement is in effect, the Corporation will pay to the Executive's
spouse (or if he is not married at the time of his death, to his estate)
compensation under Paragraph 1.2 through the end of the month in which his
employment terminated.
4.3. Return of Corporation Property. The Employee authorizes the
------------------------------
Corporation to withhold any amounts due to him until all property of the
Corporation or entrusted to the Executive by the Corporation at any time during
his employment has been returned to the Corporation. The Employee authorizes
the Corporation to deduct from any amounts otherwise due to him, an amount equal
to any outstanding advances made by the Corporation to him or on his behalf, any
obligations he incurred for which he is responsible, and any amounts otherwise
owed by him to the Corporation.
-5-
<PAGE>
4.4. Definitions. The following words shall have the specified
-----------
meanings when used in the paragraphs specified:
(a) In this Agreement, the term "cause" means an action or
failure to act by the Executive constituting (i) fraud, misappropriation or
intentional material damage to the property or business of the Corporation, the
commission of an act of deliberate and material dishonesty, a material breach of
this Agreement, commission of a crime resulting in a fine of $10,000 or more
and/or imprisonment of six months or more, or causing the Corporation to commit
such a crime; or (ii) continuance of willful and repeated failure by the
Executive to perform his duties in compliance with this Agreement after written
notice to the Executive by the Board of Directors specifying such failure and
the failure to cure such deficient performance within 30 days after receipt of
such written notice; provided that such "cause" shall have been found by a
majority vote of the entire Board of Directors of the Corporation (and not
merely the Executive Committee) after at least 30 days' written notice to the
Executive specifying the cause proposed to be claimed and after an opportunity
for the Executive to be heard at a meeting of such Board of Directors.
(b) In this Agreement, the term "Total Disability" means
any incapacity, injury, illness or other physical or mental condition of the
Executive which in the opinion of a majority of the members of the entire Board
of Directors (and not merely the Executive Committee) results in the inability
of the Executive, for a period of six months or more during any twelve month
period, to perform substantially the duties performed or required to be
performed hereunder prior to such disability.
5. Indemnification. To the maximum extent permitted by law and the
---------------
Corporation's charter and by-laws, the Corporation shall indemnify, save and
hold the Executive harmless from and against any and all claims and expenses,
including, but not limited to, attorneys', accountants' sand experts' fees,
arising out of or in connection with the Executive's duties under this
Agreement.
6. Legal Costs. If the Corporation shall fail to pay or provide for
-----------
payment of any amounts required to be paid or provided for hereunder at any
time, the Executive shall be entitled to consult with independent counsel, and
the Corporation agrees to pay the reasonable fees and expenses of such counsel
for the Executive in advising him in connection therewith or in bringing any
proceedings, or in defending any proceedings, involving the Executive's rights
under this Agreement, such right to reimbursement to be immediate upon the
presentment by the Executive of written billings for such reasonable fees and
expenses. The Executive shall be entitled to interest at the average prime rate
as set forth in the money rates column of the Wall Street Journal for any
payments of such expenses, or any other payments under this Agreement, that are
overdue.
-6-
<PAGE>
7. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and personally
delivered or sent by registered or certified mail to the Executive at the last
address he has filed in writing with the Corporation or, in the case of the
Corporation, at its principal executive offices.
8. Binding Agreement. This Agreement shall be effective as of
------------------
the date hereof and shall be binding upon and inure to the benefit of the
Executive, his executors, administrators and personal representatives. The
rights and obligations of the Corporation under this Agreement shall inure to
the benefit of and shall be binding upon any successor of the Corporation,
provided, that this Agreement may not be assigned by the Corporation without the
consent of the Executive, and in the case of a successor by transfer of all or
substantially all of the assets of the Corporation, or any other successor in
which the Corporation does not cease to exist by operation of the transaction in
question as a matter of law, the Corporation shall not be relieved of its
obligations hereunder .
9. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the Executive and the Corporation with respect to the subject
matter hereof and supersedes any and all prior understandings written or oral.
This Agreement may not be changed, modified, or discharged orally, but only by
an instrument in writing signed by the parties. This Agreement shall be governed
by the laws of the State of Maryland and the invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement the date first above written.
ATTEST: CORPORATION:
HEALTHPARTNERS FINANCIAL
CORPORATION
[SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
- ------------------------------ -------------------------------
WITNESS: EXECUTIVE:
[SIGNATURE APPEARS HERE] /s/ John K. Delaney
- ------------------------------ ----------------------------------
John K. Delaney
-7-
<PAGE>
AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of September 19, 1996,
between HealthCare Financial Partners, Inc. (f/k/a HealthPartners Financial
Corporation), a Delaware corporation (the "Corporation"), and ETHAN D. LEDER
(the "Executive").
RECITALS
--------
WHEREAS, the Corporation and the Executive entered into that certain
Employment Agreement dated as of January
<PAGE>
1, 1996 (the "Original Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the Original
Agreement on the terms provided herein;
NOW THEREFORE, in consideration of the terms contained herein, the
Corporation and the Executive agree as follows:
1. Section 1.2(c) of the Original Agreement is hereby deleted in its
entirety and replaced by the following:
<PAGE>
(c) Commencing on March 31, 1997, and on the last day of each calendar
quarter thereafter during the term of this Agreement, Executive shall be paid a
bonus of $25,000 quarterly; provided, however, that the payment of such bonus is
-------- -------
conditional upon the Corporation achieving profitability for any such quarter;
provided further, however, that in the event the Corporation has not achieved
- -------- ------- -------
profitability in a quarter in any calendar year but the Corporation's profits in
any subsequent quarter are equal to the loss or losses in all of the prior
quarters of that
<PAGE>
year plus one dollar, the Executive will be paid his then current quarterly
bonus, plus any bonus amount not paid for any prior unprofitable quarter of that
year.
2. Except as modified herein, the Original Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on
the date first above written.
CORPORATION:
HEALTHCARE FINANCIAL
PARTNERS INC.
By: /s/ Edward P. Nordberg, Jr.
------------------------------
Title: Senior Vice President
<PAGE>
EXECUTIVE:
/s/ John K. Delaney
------------------------------
John K. Delaney
<PAGE>
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1996, between
HEALTHPARTNERS FINANCIAL CORPORATION, a Delaware corporation (the
"Corporation"), and ETHAN LEDER (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
The Executive is the Executive Vice President of the Corporation and
possesses an intimate knowledge of the business and affairs of the Corporation.
The Corporation recognizes the Executive 's contribution to the growth and
success of the Corporation and desires to assure to the Corporation the
continued benefits of the Executive's expertise and knowledge on the terms
herein provided. The Executive, in turn, desires to continue in full-time
employment with the Corporation on the terms provided herein.
Accordingly, in consideration of the mutual covenants and
representations contained herein, the parties agree as follows:
1. Full-Time Employment of Executive.
----------------------------------
1.1. Duties and Status.
------------------
(a) The Corporation hereby engages the Executive as a full-
time executive employee for the period specified in paragraph 4 (the "Employment
Period"), and the Executive accepts such employment, on the terms and conditions
set forth in this Agreement. During the Employment Period, the Executive shall,
subject at all times to the direction and review of the Executive Committee of
the Board of Directors of the Corporation (hereinafter the "Board"), be entitled
to exercise such authority and perform such executive duties as are commensurate
with the authority being exercised and duties being performed by the Executive
for the Corporation and its affiliates immediately prior to the effective date
of this Agreement.
(b) During the Employment Period, the Executive shall
(i) devote his full time and efforts to the business of the Corporation and its
affiliates and will not engage in consulting work or any trade or business for
his own account or for or on behalf of any other person, firm or corporation or
any other activity which, in the judgment of the Board, competes, conflicts or
interferes with the performance of his duties hereunder in any way, and
(ii) accept and perform any and all other duties assigned to him by the Board,
provided that the performance of such duties shall not be inconsistent with the
scope of the duties provided for in subparagraph (a) of this paragraph 1.1.
(c) The primary location from which the Executive shall be
required to perform the services and duties provided for in subparagraph (a) of
this paragraph 1.1 shall be at the Company's main office in Chevy Chase,
Maryland or such other
-1-
<PAGE>
location in the greater Washington metropolitan area as the Board may designate.
1.2. Compensation and General Benefits. As compensation for
---------------------------------
his services under this Agreement, the Executive shall be compensated as
follows:
(a) Commencing January 1, 1996 the Corporation shall pay
the Executive an annual salary of $240,000, and commencing January 1, 1997, the
Corporation shall pay the Executive an annual salary which is not less than the
greater of (i) $275,000 or (ii) any subsequently established higher annual base
salary, in either case increased annually by not less than 50% of the annual
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), Washington, D.C. All Items (1967 - 100) published by the Bureau of
Labor Statistics, U.S. Department of Labor or any comparable successor index.
Such salary shall be payable in periodic equal installments which are no less
frequent than the periodic installments relating to employees of the Company
generally.
(b) The Executive shall be eligible to participate in such
profit-sharing, stock option, bonus, incentive and performance award programs as
are in effect and are available to officers of comparable rank; provided,
however, that nothing in this Agreement shall preclude the Board from (i)
providing special benefits or making awards to other employees for meritorious
service by them, which benefits or awards are in excess of those granted to the
Executive, and (ii) discontinuing any such plan or program at any time that the
Board determines that such discontinuance is in the best interests of the
Corporation.
(c) Commencing on March 31, 1997, and on the last day of
each calendar quarter thereafter during the term of this Agreement, Executive
shall be paid a bonus of $25,000 quarterly.
(d) The Executive shall be entitled to receive and obtain
the benefit of employee benefits, including, without limitation, pension and
supplemental retirement plans and programs, disability insurance, group and
other life insurance programs, sickness, accident and health insurance programs,
and perquisites provided by the Corporation to executives which are the greater
of the employee benefits and perquisites then provided by the Corporation to
executives with comparable authority or duties (and in any event not less than
those provided to executives with junior authority or duties), provided,
however, that nothing in this Agreement shall preclude the Board from
discontinuing any such plan or program at any time that the Board determines
that such discontinuance is in the best interests of the Corporation.
(e) Executive shall be entitled to receive four (4) weeks
vacation during each year.
-2-
<PAGE>
(f) Executive shall be entitled to an automobile
allowance of $800 per month.
2. Competition; Confidential Information. The
----------------------------------------
Executive and the Corporation recognize that due to the nature of his prior
association with the Corporation and its affiliates and of his engagements
hereunder, and the relationship of the Executive to the Corporation and its
affiliates, both in the past as an executive and in the future hereunder, the
Executive has had access to and has acquired, will have access to and will
acquire, and has assisted in and may assist in developing, confidential and
proprietary information relating to the business and operations of the
Corporation and its affiliates, including, without limiting the generality of
the foregoing, information with respect to present and proposed projects,
transactions completed and under negotiation, financing and sales and marketing
methods. The Executive acknowledges that such information has been and will
continue to be of vital importance to the business of the Corporation and its
affiliates and that disclosure of it to or its use by others could cause
substantial loss to the Corporation. The Executive and the Corporation also
recognize that an important part of the Executive's duties will be to develop
good will for the Corporation and its affiliates through his personal contact
with customers, agents and others having business relationships with the
Corporation and its affiliates, and that there is a danger that this good will,
a proprietary asset of the Corporation and its affiliates, may follow the
Executive if and when his relationship with the Corporation is terminated. The
Executive accordingly agrees as follows:
2.1. Non-Competition and Non-solicitation.
-------------------------------------
(a) For purposes of this Agreement, the "Non-Competition
Period" shall be a period of 18 months from and after termination of the
Executive's employment with the Corporation.
(b) During the Employment Period the Executive will not,
directly or indirectly, either individually or as owner, partner, agent,
employee, consultant or otherwise, except for the account of and on behalf of
the Corporation or its affiliates, compete with the Corporation or any of its
affiliates in any manner whatsoever. During the Employment Period, the Executive
shall report and make available to the Corporation in a prompt and timely manner
all business opportunities which are within the scope of the business of the
Corporation or its affiliates and which become available to the Executive or of
which he has knowledge.
(c) During the Employment Period and the Non-Competition
Period, the Executive will not, directly or indirectly, either individually or
as owner, partner, agent, employee, consultant or otherwise (except during the
Executive's employment with the Corporation and then only for the account and on
behalf of the Corporation or its affiliates), solicit, attempt to solicit or
-3-
<PAGE>
otherwise engage the services of, or become associated in any business similar
to any business of the Corporation with, any person who was an employee, officer
or director of the Corporation or any of its affiliates during the 12 months
preceding the date the Executive's employment with the Corporation is
terminated.
(d) Anything in this Agreement to the contrary
notwithstanding, nothing in this paragraph 2.1 shall be construed to prevent the
Executive from owning, as an investment, not more than 1% of a class of equity
securities issued by any competitor of the Corporation or its affiliates and
publicly traded and registered under section 12 of the Securities Exchange Act
of 1934.
2.2. Trade Secrets. The Executive will keep confidential any trade
-------------
secrets or confidential or proprietary information of the Corporation and its
affiliates which are now known to him or which hereafter may become known to him
as a result of his employment or association with the Corporation and shall not
at any time directly or indirectly disclose any such information to any person,
firm or corporation, or use the same in any way other than in connection with
the business of the Corporation or its affiliates during and at all times after
the expiration of the Employment Period. For purposes of this Agreement, "trade
secrets or confidential or proprietary information" means information unique to
the Corporation or any of its affiliates which has a significant business
purpose and is not known or generally available from sources outside the
Corporation or any of its affiliates or typical of industry practice.
3. Corporation's Remedies for Breach. It is recognized that damages
---------------------------------
in the event of a breach of paragraph 2 by the Executive would be difficult, if
not impossible, to ascertain, and it is therefore agreed that the Corporation,
in addition to and without limiting any other remedy or right it may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and the Executive hereby
waives any and all defenses he may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right shall not preclude any other rights and remedies at
law or in equity which the Corporation may have.
4. Employment Period.
------------------
4.1. Duration and Extension.
-----------------------
(a) The Employment Period shall commence on the date of
this Agreement and shall continue until the earlier of (i) the close of business
on the day immediately preceding the fifth anniversary of the date of this
Agreement, (ii) the Executive's normal retirement date under the Corporation's
retirement plan as in effect on the date of this Agreement ("Normal
-4-
<PAGE>
Retirement Date"), or (iii) the death or Total Disability of the Executive.
(b) On the first anniversary of the date of this Agreement,
and on each anniversary date thereafter, the Employment Period shall be extended
for an additional one year period (but not beyond the Normal Retirement Date,
death or Total Disability of the Executive), unless the Corporation or the
Executive notifies the other in writing prior to such anniversary date of its or
his intention not to so extend the Employment Period.
4.2. Termination of Employment.
--------------------------
(a) The Executive may terminate his employment under this
Agreement upon 90 days prior written notice to the Corporation. During such
period, upon the request of the Corporation the Executive will perform his
regular duties, and in addition will perform such consulting services as may be
requested by the Corporation to assist in the orderly transition of his duties
to another person or persons and/or to assist in the training of his
replacement.
(b) The Corporation may immediately terminate the employment
of the Executive for cause, and, upon such termination, the Corporation will
have no further obligation to the Employee. In the event the Corporation
terminates Executive's employment without cause, Executive shall be entitled to
continue to receive compensation and benefits as provided in Section 1.2 hereof
for the balance of the term of the Agreement. The first three years of such
payments of compensation and benefits shall be guaranteed and shall not be
subject to reduction or offset as a result of any earnings of Executive.
(c) The employment of the Executive will be automatically
terminated by his death or Total Disability. In the event that the Employee dies
while this Agreement is in effect, the Corporation will pay to the Executive's
spouse (or if he is not married at the time of his death, to his estate)
compensation under Paragraph 1.2 through the end of the month in which his
employment terminated.
4.3. Return of Corporation Property. The Employee authorizes the
------------------------------
Corporation to withhold any amounts due to him until all property of the
Corporation or entrusted to the Executive by the Corporation at any time during
his employment has been returned to the Corporation. The Employee authorizes
the Corporation to deduct from any amounts otherwise due to him, an amount equal
to any outstanding advances made by the Corporation to him or on his behalf, any
obligations he incurred for which he is responsible, and any amounts otherwise
owed by him to the Corporation.
4.4. Definitions. The following words shall have the specified
-----------
meanings when used in the paragraphs specified:
-5-
<PAGE>
(a) In this Agreement, the term "cause" means an action or
failure to act by the Executive constituting (i) fraud, misappropriation or
intentional material damage to the property or business of the Corporation, the
commission of an act of deliberate and material dishonesty, a material breach of
this Agreement, commission of a crime resulting in a fine of $10,000 or more
and/or imprisonment of six months or more, or causing the Corporation to commit
such a crime; or (ii) continuance of willful and repeated failure by the
Executive to perform his duties in compliance with this Agreement after written
notice to the Executive by the Board of Directors specifying such failure and
the failure to cure such deficient performance within 30 days after receipt of
such written notice; provided that such "cause" shall have been found by a
majority vote of the entire Board of Directors of the Corporation (and not
merely the Executive Committee) after at least 30 days' written notice to the
Executive specifying the cause proposed to be claimed and after an opportunity
for the Executive to be heard at a meeting of such Board of Directors.
(b) In this Agreement, the term "Total Disability" means
any incapacity, injury, illness or other physical or mental condition of the
Executive which in the opinion of a majority of the members of the entire Board
of Directors (and not merely the Executive Committee) results in the inability
of the Executive, for a period of six months or more during any twelve month
period, to perform substantially the duties performed or required to be
performed hereunder prior to such disability.
5. Indemnification. To the maximum extent permitted by law and the
---------------
Corporation's charter and by-laws, the Corporation shall indemnify, save and
hold the Executive harmless from and against any and all claims and expenses,
including, but not limited to, attorneys', accountants' and experts' fees,
arising out of or in connection with the Executive's duties under this
Agreement.
6. Legal Costs. If the Corporation shall fail to pay or provide for
-----------
payment of any amounts required to be paid or provided for hereunder at any
time, the Executive shall be entitled to consult with independent counsel, and
the Corporation agrees to pay the reasonable fees and expenses of such counsel
for the Executive in advising him in connection therewith or in bringing any
proceedings, or in defending any proceedings, involving the Executive's rights
under this Agreement, such right to reimbursement to be immediate upon the
presentment by the Executive of written billings for such reasonable fees and
expenses. The Executive shall be entitled to interest at the average prime rate
as set forth in the money rates column of the Wall Street Journal for any
payments of such expenses, or any other payments under this Agreement, that are
overdue.
7. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and personally
delivered or sent by registered or
-6-
<PAGE>
********************************
certified mail to the Executive at the last address he has filed in writing with
the Corporation or, in the case of the Corporation, at its principal executive
offices.
8. Binding Agreement. This Agreement shall be effective as of
------------------
the date hereof and shall be binding upon and inure to the benefit of the
Executive, his executors, administrators and personal representatives. The
rights and obligations of the Corporation under this Agreement shall inure to
the benefit of and shall be binding upon any successor of the Corporation,
provided, that this Agreement may not be assigned by the Corporation without the
consent of the Executive, and in the case of a successor by transfer of all or
substantially all of the assets of the Corporation, or any other successor in
which the Corporation does not cease to exist by operation of the transaction in
question as a matter of law, the Corporation shall not be relieved of its
obligations hereunder.
9. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the Executive and the Corporation with respect to the subject
matter hereof and supersedes any and all prior understandings written or oral.
This Agreement may not be changed, modified, or discharged orally, but only by
an instrument in writing signed by the parties. This Agreement shall be governed
by the laws of the State of Maryland and the invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement the date first above written.
ATTEST: CORPORATION:
HEALTHPARTNERS FINANCIAL
CORPORATION
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
- --------------------------- By: ---------------------------
WITNESS: EXECUTIVE:
[SIGNATURE APPEARS HERE] /s/ Ethan Leder
- --------------------------- ---------------------------
Ethan Leder
-7-
<PAGE>
AMENDMENT TO
EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT, dated as of September 19, 1996,
between HealthCare Financial Partners, Inc. (f/k/a HealthPartners Financial
Corporation), a Delaware corporation (the "Corporation"), and ETHAN D. LEDER
(the "Executive").
RECITALS
--------
WHEREAS, the Corporation and the Executive entered into that certain
Employment Agreement dated as of January
<PAGE>
1, 1996 (the "Original Agreement"); and
WHEREAS, the Corporation and the Executive desire to amend the Original
Agreement on the terms provided herein;
NOW THEREFORE, in consideration of the terms contained herein, the
Corporation and the Executive agree as follows:
1. Section 1.2(c) of the Original Agreement is hereby deleted in its
entirety and replaced by the following:
<PAGE>
(c) Commencing on March 31, 1997, and on the last day of each calendar
quarter thereafter during the term of this Agreement, Executive shall be paid a
bonus of $25,000 quarterly; provided, however, that the payment of such bonus is
-------- -------
conditional upon the Corporation achieving profitability for any such quarter;
provided further, however, that in the event the Corporation has not achieved
- -------- ------- -------
profitability in a quarter in any calendar year but the Corporation's profits in
any subsequent quarter are equal to the loss or losses in all of the prior
quarters of that
<PAGE>
year plus one dollar, the Executive will be paid his then current quarterly
bonus, plus any bonus amount not paid for any prior unprofitable quarter of that
year.
2. Except as modified herein, the Original Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment on
the date first above written.
CORPORATION:
HEALTHCARE FINANCIAL
PARTNERS INC.
By: /s/ Edward P. Nordberg, Jr.
---------------------------
Title: Senior Vice President
<PAGE>
EXECUTIVE:
/s/ Ethan D. Leder
------------------------------
Ethan D. Leder
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1996, between
HEALTHPARTNERS FINANCIAL CORPORATION, a Delaware corporation (the
"Corporation"),and EDWARD P. NORDBERG, Jr. ("the Executive").
W I T N E S S E T H:
-------------------
The Executive is the Senior Vice President of the Corporation and
possesses an intimate knowledge of the business and affairs of the Corporation.
The Corporation recognizes the Executive's contribution to the growth and
success of the Corporation and desires to assure to the Corporation the
continued benefits of the Executive's expertise and knowledge on the terms
herein provided. The Executive, in turn, desires to continue in full-time
employment with the Corporation on the terms provided herein.
Accordingly, in consideration of the mutual covenants and
representations contained herein, the parties agree as follows:
1. Full-Time Employment of Executive.
---------------------------------
1.1. Duties and Status.
-----------------
(a) The Corporation hereby engages the Executive as a full-
time executive employee for the period specified in paragraph 4 (the "Employment
Period"), and the Executive accepts such employment, on the terms and conditions
set forth in this Agreement. During the Employment Period, the Executive shall,
subject at all times to the direction and review of the Executive Committee of
the Board of Directors of the Corporation (hereinafter the "Board"), be entitled
to exercise such authority and perform such executive duties as are commensurate
with the authority being exercised and duties being performed by the Executive
for the Corporation and its affiliates immediately prior to the effective date
of this Agreement.
(b) During the Employment Period, the Executive shall (i)
devote his full time and efforts to the business of the Corporation and its
affiliates and will not engage in consulting work or any trade or business for
his own account or for or on behalf of any other person, firm or corporation or
any other activity which, in the judgment of the Board, competes, conflicts or
interferes with the performance of his duties hereunder in any way, and (ii)
accept and perform any and all other duties assigned to him by the Board,
provided that the performance of such duties shall not be inconsistent with the
scope of the duties provided for in subparagraph (a) of this paragraph 1.1.
(c) The primary location from which the Executive shall be
required to perform the services and duties provided for in subparagraph (a) of
this paragraph 1.1 shall be at
<PAGE>
the Company's main office in Chevy Chase, Maryland or such other location in the
greater Washington metropolitan area as the Board may designate.
1.2. Compensation and General Benefits. As compensation
---------------------------------
for his services under this Agreement, the Executive shall be compensated as
follows:
(a) Commencing January 1, 1996, the Corporation shall pay
the Executive an annual salary of $210,000, and commencing January 1, 1997, the
Corporation shall pay the Executive an annual salary which is not less than the
greater of (i) $250,000 or (ii) any subsequently established higher annual base
salary, in either case increased annually by not less than 50% of the annual
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), Washington, D.C. All Items (1967 - 100) published by the Bureau of
Labor Statistics, U.S. Department of Labor or any comparable successor index.
Such salary shall be payable in periodic equal installments which are no less
frequent than the periodic installments relating to employees of the Company
generally.
(b) The Executive shall be eligible to participate in such
profit-sharing, stock option, bonus, incentive and performance award programs as
are in effect and are available to officers of comparable rank; provided,
however, that nothing in this Agreement shall preclude the Board from (i)
providing special benefits or making awards to other employees for meritorious
service by them, which benefits or awards are in excess of those granted to the
Executive, and (ii) discontinuing any such plan or program at any time that the
Board determines that such discontinuance is in the best interests of the
Corporation.
(c) The Executive shall be entitled to receive and obtain
the benefit of employee benefits, including, without limitation, pension and
supplemental retirement plans and programs, disability insurance, group and
other life insurance programs, sickness, accident and health insurance programs,
and perquisites provided by the Corporation to executives which are the greater
of the employee benefits and perquisites then provided by the Corporation to
executives with comparable authority or duties (and in any event not less than
those provided to executives with junior authority or duties), provided,
however, that nothing in this Agreement shall preclude the Board from
discontinuing any such plan or program at any time that the Board determines
that such discontinuance is in the best interests of the Corporation.
(d) Executive shall be entitled to receive four (4) weeks
vacation during each year.
(e) Executive shall be entitled to an automobile allowance
of $800 per month.
-2-
<PAGE>
2. Competition; Confidential Information. The Executive and the
----------------------------------------
Corporation recognize that due to the nature of his prior association with the
Corporation and its affiliates and of his engagements hereunder, and the
relationship of the Executive to the Corporation and its affiliates, both in the
past as an executive and in the future hereunder, the Executive has had access
to and has acquired, will have access to and will acquire, and has assisted in
and may assist in developing, confidential and proprietary information relating
to the business and operations of the Corporation and its affiliates, including,
without limiting the generality of the foregoing, information with respect to
present and proposed projects, transactions completed and under negotiation,
financing and sales and marketing methods. The Executive acknowledges that such
information has been and will continue to be of vital importance to the business
of the Corporation and its affiliates and that disclosure of it to or its use by
others could cause substantial loss to the Corporation. The Executive and the
Corporation also recognize that an important part of the Executive's duties will
be to develop good will for the Corporation and its affiliates through his
personal contact with customers, agents and others having business relationships
with the Corporation and its affiliates, and that there is a danger that this
good will, a proprietary asset of the Corporation and its affiliates, may follow
the Executive if and when his relationship with the Corporation is terminated.
The Executive accordingly agrees as follows:
2.1. Non-Competition and Non-Solicitation.
-------------------------------------
(a) For purposes of this Agreement, the "Non-Competition
Period" shall be a period of 18 months from and after termination of the
Executive's employment with the Corporation.
(b) During the Employment Period the Executive will not,
directly or indirectly, either individually or as owner, partner, agent,
employee, consultant or otherwise, except for the account of and on behalf of
the Corporation or its affiliates, compete with the Corporation or any of its
affiliates in any manner whatsoever. During the Employment Period, the Executive
shall report and make available to the Corporation in a prompt and timely manner
all business opportunities which are within the scope of the business of the
Corporation or its affiliates and which become available to the Executive or of
which he has knowledge.
(c) During the Employment Period and the Non-Competition
Period, the Executive will not, directly or indirectly, either individually or
as owner, partner, agent, employee, consultant or otherwise (except during the
Executive's employment with the Corporation and then only for the account and on
behalf of the Corporation or its affiliates), solicit, attempt to solicit or
otherwise engage the services of, or become associated in any business similar
to any business of the Corporation with, any person who was an employee, officer
or director of the Corporation
-3-
<PAGE>
or any of its affiliates during the 12 months preceding the date the Executive's
employment with the Corporation is terminated.
(d) Anything in this Agreement to the contrary
notwithstanding, nothing in this paragraph 2.1 shall be construed to prevent the
Executive from owning, as an investment, not more than 1% of a class of equity
securities issued by any competitor of the Corporation or its affiliates and
publicly traded and registered under Section 12 of the Securities Exchange Act
of 1934.
2.2. Trade Secrets. The Executive will keep confidential any trade
-------------
secrets or confidential or proprietary information of the Corporation and its
affiliates which are now known to him or which hereafter may become known to
him as a result of his employment or association with the Corporation and shall
not at any time directly or indirectly disclose any such information to any
person, firm or corporation, or use the same in any way other than in
connection with the business of the Corporation or its affiliates during and at
all times after the expiration of the Employment Period. For purposes of this
Agreement, "trade secrets or confidential or proprietary information" means
information unique to the Corporation or any of its affiliates which has a
significant business purpose and is not known or generally available from
sources outside the Corporation or any of its affiliates or typical of industry
practice.
3. Corporation's Remedies for Breach. It is recognized that damages
---------------------------------
in the event of a breach of paragraph 2 by the Executive would be difficult, if
not impossible, to ascertain, and it is therefore agreed that the Corporation,
in addition to and without limiting any other remedy or right it may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and the Executive hereby
waives any and all defenses he may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right shall not preclude any other rights and remedies at
law or in equity which the Corporation may have.
4. Employment Period.
------------------
4.1. Duration and Extension.
-----------------------
(a) The Employment Period shall commence on the date of
this Agreement and shall continue until the earlier of (i) the close of business
on the day immediately preceding the fifth anniversary of the date of this
Agreement, (ii) the Executive's normal retirement date under the Corporation's
retirement plan as in effect on the date of this Agreement ("Normal Retirement
Date"), or (iii) the death or Total Disability of the Executive .
-4-
<PAGE>
(b) On the first anniversary of the date of this
Agreement, and on each anniversary date thereafter, the Employment Period shall
be extended for an additional one year period (but not beyond the Normal
Retirement Date, death or Total Disability of the Executive), unless the
Corporation or the Executive notifies the other in writing prior to such
anniversary date of its or his intention not to so extend the Employment Period.
4.2. Termination of Employment.
--------------------------
(a) The Executive may terminate his employment under this
Agreement upon 90 days prior written notice to the Corporation. During such
period, upon the request of the Corporation the Executive will perform his
regular duties, and in addition will perform such consulting services as may be
requested by the Corporation to assist in the orderly transition of his duties
to another person or persons and/or to assist in the training of his
replacement.
(b) The Corporation may immediately terminate the
employment of the Executive for cause, and, upon such termination, the
Corporation will have no further obligation to the Employee. In the event the
Corporation terminate's Executive's employment without cause, Executive shall be
entitled to continue to receive compensation and benefits as provided in Section
1.2 hereof for the balance of the term of the Agreement. The first three years
of such payments of compensation and benefits shall be guaranteed and shall not
be subject to reduction or offset as a result of any earnings of Executive.
(c) The employment of the Executive will be automatically
terminated by his death or Total Disability. In the event that the Employee dies
while this Agreement is in effect, the Corporation will pay to the Executive's
spouse (or if he is not married at the time of his death, to his estate)
compensation under Paragraph 1.2 through the end of the month in which his
employment terminated.
4.3. Return of Corporation Property. The Employee authorizes the
------------------------------
Corporation to withhold any amounts due to him until all property of the
Corporation or entrusted to the Executive by the Corporation at any time during
his employment has been returned to the Corporation. The Employee authorizes
the Corporation to deduct from any amounts otherwise due to him, an amount equal
to any outstanding advances made by the Corporation to him or on his behalf, any
obligations he incurred for which he is responsible, and any amounts otherwise
owed by him to the Corporation.
4.4. Definitions. The following words shall have the specified
-----------
meanings when used in the paragraphs specified:
(a) In this Agreement, the term "cause" means an action or
failure to act by the Executive constituting
-5-
<PAGE>
(i) fraud, misappropriation or intentional material damage to the property or
business of the Corporation, the commission of an act of deliberate and material
dishonesty, a material breach of this Agreement, commission of a crime resulting
in a fine of $10,000 or more and/or imprisonment of six months or more, or
causing the Corporation to commit such a crime; or (ii) continuance of willful
and repeated failure by the Executive to perform his duties in compliance with
this Agreement after written notice to the Executive by the Board of Directors
specifying such failure and the failure to cure such deficient performance
within 30 days after receipt of such written notice; provided that such "cause"
shall have been found by a majority vote of the entire Board of Directors of the
Corporation (and not merely the Executive Committee) after at least 30 days'
written notice to the Executive specifying the cause proposed to be claimed and
after an opportunity for the Executive to be heard at a meeting of such Board of
Directors.
(b) In this Agreement, the term "Total Disability" means
any incapacity, injury, illness or other physical or mental condition of the
Executive which in the opinion of a majority of the members of the entire Board
of Directors (and not merely the Executive Committee) results in the inability
of the Executive, for a period of six months or more during any twelve month
period, to perform substantially the duties performed or required to be
performed hereunder prior to such disability.
5. Indemnification. To the maximum extent permitted by law and the
---------------
Corporation's charter and by-laws, the Corporation shall indemnify, save and
hold the Executive harmless from and against any and all claims and expenses,
including, but not limited to, attorneys', accountants' and experts' fees,
arising out of or in connection with the Executive's duties under this
Agreement.
6. Legal Costs. If the Corporation shall fail to pay or provide for
-----------
payment of any amounts required to be paid or provided for hereunder at any
time, the Executive shall be entitled to consult with independent counsel, and
the Corporation agrees to pay the reasonable fees and expenses of such counsel
for the Executive in advising him in connection therewith or in bringing any
proceedings, or in defending any proceedings, involving the Executive's rights
under this Agreement, such right to reimbursement to be immediate upon the
presentment by the Executive of written billings for such reasonable fees and
expenses. The Executive shall be entitled to interest at the average prime rate
as set forth in the money rates column of the Wall Street Journal for any
payments of such expenses, or any other payments under this Agreement, that are
overdue.
7. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and personally
delivered or sent by registered or certified mail to the Executive at the last
address he has filed in
-6-
<PAGE>
writing with the Corporation or, in the case of the Corporation, at its
principal executive offices.
8. Binding Agreement. This Agreement shall be effective as of
------------------
the date hereof and shall be binding upon and inure to the benefit of the
Executive, his executors, administrators and personal representatives. The
rights and obligations of the Corporation under this Agreement shall inure to
the benefit of and shall be binding upon any successor of the Corporation,
provided, that this Agreement may not be assigned by the Corporation without the
consent of the Executive, and in the case of a successor by transfer of all or
substantially all of the assets of the Corporation, or any other successor in
which the Corporation does not cease to exist by operation of the transaction in
question as a matter of law, the Corporation shall not be relieved of its
obligations hereunder.
9. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the Executive and the Corporation with respect to the subject
matter hereof and supersedes any and all prior understandings written or oral.
This Agreement may not be changed, modified, or discharged orally, but only by
an instrument in writing signed by the parties. This Agreement shall be governed
by the laws of the State of Maryland and the invalidity or unenforceability of
any provision hereof shall in no way affect the validity or enforceability of
any other provision.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement the date first above written.
ATTEST: CORPORATION:
HEALTHPARTNERS FINANCIAL
CORPORATION
[SIGNATURE APPEARS HERE] By: [SIGNATURE APPEARS HERE]
- --------------------------- ----------------------------
WITNESS: EXECUTIVE:
[SIGNATURE APPEARS HERE] /s/ Edward P. Nordberg, Jr.
- --------------------------- --------------------------------
Edward P. Nordberg, Jr.
-7-
<PAGE>
EXHIBIT 10.4
HEALTHCARE FINANCIAL PARTNERS, INC.
1996 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1 DEFINITIONS...................................................... 1
1.1 Definitions................................................ 1
SECTION 2 THE STOCK INCENTIVE PLAN......................................... 4
2.1 Purpose of the Plan........................................ 4
2.2 Stock Subject to the Plan.................................. 4
2.3 Administration of the Plan................................. 5
2.4 Eligibility and Limits..................................... 5
SECTION 3 TERMS OF STOCK INCENTIVES........................................ 6
3.1 Terms and Conditions of All Stock Incentives............... 6
3.2 Terms and Conditions of Options............................ 7
(a) Option Price......................................... 7
(b) Option Term.......................................... 8
(c) Payment.............................................. 8
(d) Conditions to the Exercise of an Option.............. 8
(e) Termination of Incentive Stock Option................ 8
(f) Special Provisions for Certain Substitute Options.... 9
3.3 Terms and Conditions of Stock Appreciation Rights.......... 9
(a) Payment.............................................. 9
(b) Conditions to Exercise............................... 9
3.4 Terms and Conditions of Stock Awards....................... 9
3.5 Terms and Conditions of Dividend Equivalent Rights......... 10
(a) Payment.............................................. 10
(b) Conditions to Payment................................ 10
3.6 Terms and Conditions of Performance Unit Awards............ 10
(a) Payment.............................................. 10
(b) Conditions to Payment................................ 10
3.7 Terms and Conditions of Phantom Shares..................... 10
(a) Payment............................................... 11
(b) Conditions to Payment................................. 11
3.8 Treatment of Awards Upon Termination of Service............ 11
SECTION 4 RESTRICTIONS ON STOCK............................................ 11
4.1 Escrow of Shares.......................................... 11
4.2 Forfeiture of Shares...................................... 12
4.3 Restrictions on Transfer.................................. 12
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 5 GENERAL PROVISIONS............................................... 12
5.1 Withholding............................................... 12
5.2 Changes in Capitalization; Merger; Liquidation............ 12
5.3 Cash Awards............................................... 13
5.4 Compliance with Code...................................... 13
5.5 Right to Terminate Service................................ 13
5.6 Restrictions on Delivery and Sale of Shares; Legends...... 13
5.7 Non-alienation of Benefits................................ 14
5.8 Termination and Amendment of the Plan..................... 14
5.9 Stockholder Approval...................................... 14
5.10 Choice of Law............................................. 14
5.11 Effective Date of Plan.................................... 14
</TABLE>
-ii-
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
-----------
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Board of Directors" means the board of directors of the Company.
------------------
(b) "Cause" has the same meaning as provided in the employment
-----
agreement between the Participant and the Company or, if applicable, any
affiliate of the Company on the date of Termination of Service, or if no such
definition or employment agreement exists, "Cause" means conduct amounting to
(1) fraud or dishonesty against the Company or its affiliates, (2) Participant's
willful misconduct, repeated refusal to follow the reasonable directions of the
board of directors of the Company or its affiliates, or knowing violation of law
in the course of performance of the duties of Participant's service with the
Company or its affiliates, (3) repeated absences from work without a reasonable
excuse, (4) repeated intoxication with alcohol or drugs while on the Company or
affiliates' premises during regular business hours, (5) a conviction or plea of
guilty or nolo contendere to a felony or a crime involving dishonesty, or (6) a
breach or violation of the terms of any agreement to which Participant and the
Company or its affiliates are party.
(c) "Change in Control" means any one of the following events which
-----------------
may occur following completion of the initial public offering, if any, of the
Company, but only if the event shall have occurred without the approval of the
Board of Directors:
(1) there occurs the acquisition by any person or persons acting
in concert of the Company's then outstanding voting securities if, after the
transaction, the acquiring person (or persons) owns, controls or holds with
power to vote twenty-five percent (25%) or more of any class of voting
securities of the Company;
(2) within any twelve-month period the persons who were
directors of the Company immediately before the beginning of such twelve-month
period (the "Incumbent Directors") shall cease to constitute at least a majority
of the Board of Directors; provided that any director who was not a director
immediately following any initial public offering shall be deemed to be an
Incumbent Director if that director was elected to the Board of Directors by, or
on the recommendation of or with the approval of, at least two-thirds of the
directors who then qualified as Incumbent Directors; and provided further that
no director whose initial assumption of office is in connection with an actual
or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities Exchange Act of 1934) relating
to the election of directors of the Company shall be deemed to be an Incumbent
Director;
(3) there occurs the approval by stockholders of the Company of a
reorganization, merger or consolidation, with respect to which persons who were
the stockholders
<PAGE>
of the Company immediately prior to such reorganization, merger or consolidation
do not, immediately thereafter, own more than fifty percent (50%) of the
combined voting power entitled to vote in the election of directors of the
reorganized, merged or consolidated company's then outstanding voting
securities; or
(4) there occurs the sale, transfer or assignment of all or
substantially all of the assets of the Company and its subsidiaries to any third
party.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means the committee appointed by the Board of
---------
Directors to administer the Plan pursuant to Plan Section 2.3.
(f) "Company" means HealthCare Financial Partners, Inc., a Delaware
-------
corporation.
(g) "Disability" has the same meaning as provided in the long-term
----------
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any affiliate of the Company for
the Participant. If no long-term disability plan or policy was ever maintained
on behalf of the Participant or, if the determination of Disability relates to
an Incentive Stock Option, Disability shall mean that condition described in
Code Section 22(e)(3), as amended from time to time. In the event of a dispute,
the determination of Disability shall be made by the Board of Directors and
shall be supported by advice of a physician competent in the area to which such
Disability relates.
(h) "Disposition" means any conveyance, sale, transfer, assignment,
-----------
pledge or hypothecation, whether outright or as security, inter vivos or
testamentary, with or without consideration, voluntary or involuntary.
(i) "Dividend Equivalent Rights" means certain rights to receive cash
--------------------------
payments as described in Plan Section 3.5.
(j) "Fair Market Value" refers to the determination of value of a
-----------------
share of Stock. If the Stock is actively traded on any national securities
exchange or any Nasdaq quotation or market system, Fair Market Value shall mean
the closing price at which sales of Stock shall have been sold on the most
recent trading date immediately prior to the date of determination, as reported
by any such exchange or system selected by the Committee on which the shares of
Stock are then traded. If the shares of Stock are not actively traded on any
such exchange or system, Fair Market Value shall mean the arithmetic mean of the
bid and asked prices for the shares of Stock on the most recent trading date
within a reasonable period prior to the determination date as reported by such
exchange or system. If there are no bid and asked prices within a reasonable
period or if the shares of Stock are not traded on any exchange or system as of
the determination date, Fair Market Value shall mean the fair market value of a
share of Stock as determined by the Committee taking into account such facts and
circumstances deemed to be material by the Committee to the value of the Stock
in the hands of the Participant; provided that, for purposes of granting awards
other than Incentive Stock
-2-
<PAGE>
Options, Fair Market Value of a share of Stock may be determined by the
Committee by reference to the average market value determined over a period
certain or as of specified dates, to a tender offer price for the shares of
Stock (if settlement of an award is triggered by such an event) or to any other
reasonable measure of fair market value and provided further that, for purposes
of granting Incentive Stock Options, Fair Market Value of a share of Stock shall
be determined in accordance with the valuation principles described in the
regulations promulgated under Code Section 422.
(k) "Incentive Stock Option" means an incentive stock option, as
----------------------
defined in Code Section 422, described in Plan Section 3.2.
(l) "Non-Qualified Stock Option" means a stock option, other than an
--------------------------
option qualifying as an Incentive Stock Option, described in Plan Section 3.2.
(m) "Option" means a Non-Qualified Stock Option or an Incentive Stock
------
Option.
(n) "Over 10% Owner" means an individual who at the time an Incentive
--------------
Stock Option is granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Parents or Subsidiaries,
determined by applying the attribution rules of Code Section 424(d).
(o) "Parent" means any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company if, with respect to
Incentive Stock Options, at the time of granting of the Option, each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
(p) "Participant" means an individual who receives a Stock Incentive
-----------
hereunder.
(q) "Performance Unit Award" refers to a performance unit award
----------------------
described in Plan Section 3.6.
(r) "Phantom Shares" refers to the rights described in Plan Section
--------------
3.7.
(s) "Plan" means the HealthCare Financial Partners, Inc. 1996 Stock
----
Incentive Plan.
(t) "Stock" means the Company's common stock, $.01 par value.
-----
(u) "Stock Appreciation Right" means a stock appreciation right
------------------------
described in Plan Section 3.3.
(v) "Stock Award" means a stock award described in Plan Section 3.4.
-----------
(w) "Stock Incentive Agreement" means an agreement between the Company
-------------------------
and a Participant or other documentation evidencing an award of a Stock
Incentive.
-3-
<PAGE>
(x) "Stock Incentive Program" means a written program established by
-----------------------
the Committee pursuant to which Stock Incentives, other than Options or Stock
Appreciation Rights, are awarded under the Plan under uniform terms, conditions
and restrictions set forth in such written program and distributed among
eligible officers, employees and directors.
(y) "Stock Incentives" means, collectively, Dividend Equivalent
----------------
Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Unit
Awards, Phantom Shares, Stock Appreciation Rights and Stock Awards.
(z) "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company if, with respect to
Incentive Stock Options, at the time of the granting of the Option, each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
(aa) "Termination of Service" means the termination of the service
----------------------
relationship, whether employment or otherwise, between a Participant and the
Company and its affiliates, regardless of the fact that severance or similar
payments are made to the Participant for any reason, including, but not by way
of limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee shall, in its absolute discretion, determine the
effect of all matters and questions relating to Termination of Service,
including, but not by way of limitation, the question of whether a leave of
absence constitutes a Termination of Service, or whether a Termination of
Service is for Cause.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive to
-------------------
officers, employees, directors and consultants of the Company and its affiliates
to stimulate their efforts toward the continued success of the Company and to
operate and manage the business in a manner that will provide for the long-term
growth and profitability of the Company; (b) encourage stock ownership by
officers, employees, directors and consultants by providing them with a means to
acquire a proprietary interest in the Company by acquiring shares of Stock or to
receive compensation which is based upon appreciation in the value of Stock; and
(c) provide a means of obtaining and rewarding key personnel.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
-------------------------
Section 5.2, 750,000 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Stock Incentives. At no time
shall the Company have outstanding Stock Incentives and shares of Stock issued
in respect of Stock Incentives in excess of the Maximum Plan Shares. The shares
of Stock attributable to the nonvested, unpaid, unexercised, unconverted or
otherwise unsettled portion of any Stock Incentive that is forfeited or
cancelled or expires or terminates for any reason without becoming vested, paid,
exercised, converted or otherwise settled in full shall again be available for
purposes of the Plan.
-4-
<PAGE>
2.3 Administration of the Plan. The Plan shall be administered by the
--------------------------
Committee. The Committee shall have full authority in its discretion to
determine the officers, employees, directors and consultants of the Company or
its affiliates to whom Stock Incentives shall be granted and the terms and
provisions of Stock Incentives, subject to the Plan. Subject to the provisions
of the Plan, the Committee shall have full and conclusive authority to interpret
the Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Stock Incentive
Agreements or Stock Incentive Programs and to make all other determinations
necessary or advisable for the proper administration of the Plan. The
Committee's determinations under the Plan need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive, awards
under the Plan (whether or not such persons are similarly situated). The
Committee's decisions shall be final and binding on all Participants.
As to any matter involving a Participant who is not a "reporting person"
for purposes of Section 16 of the Securities Exchange Act of 1934, the Committee
may delegate to any member of the Board of Directors or officer of the Company
the administrative authority to (a) interpret the provisions of the
Participant's Stock Incentive Agreement and (b) determine the treatment of Stock
Incentives upon a Termination of Service, as contemplated by Plan Section 3.8.
The Committee shall consist of at least two members of the Board of
Directors each of whom, during those periods that the Company is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, shall qualify
as a "non-employee director," as defined in Rule 16b-3 as promulgated under the
Securities Exchange Act of 1934, and each of whom, during those periods that the
Company has issued equity securities required to be registered under Section 12
of the Securities Exchange Act of 1934, shall separately qualify as an "outside
director," within the meaning of Code Section 162(m) and the regulations
promulgated thereunder. The Board of Directors may from time to time remove
members from or add members to the Committee. Vacancies on the Committee shall
be filled by the Board of Directors.
2.4 Eligibility and Limits. Stock Incentives may be granted only to
----------------------
officers, employees, directors and consultants of the Company or an affiliate;
provided, however, that an Incentive Stock Option may only be granted to an
employee of the Company or any Parent or Subsidiary. In the case of Incentive
Stock Options, the aggregate Fair Market Value (determined as at the date an
Incentive Stock Option is granted) of stock with respect to which stock options
intended to meet the requirements of Code Section 422 become exercisable for the
first time by an individual during any calendar year under all plans of the
Company and its Parents and Subsidiaries shall not exceed $100,000; provided
further, that if the limitation is exceeded, the Incentive Stock Option(s) which
cause the limitation to be exceeded shall be treated as Non-Qualified Stock
Option(s); except as the terms of the Stock Incentive Agreement may expressly
provide otherwise. To the extent required under Code Section 162(m) and
regulations thereunder for compensation to be treated as qualified performance-
based compensation, the maximum number of shares of Stock with respect to which
Options or Stock Appreciation Rights may be granted during any single fiscal
year of the Company to any Participant who is a "covered employee," within the
meaning of Code Section 162(m) and the regulations promulgated thereunder (a
"Covered Employee"), shall not exceed 100,000.
-5-
<PAGE>
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 Terms and Conditions of All Stock Incentives.
---------------------------------------------
(a) The number of shares of Stock as to which a Stock Incentive shall
be granted shall be determined by the Committee in its sole discretion, subject
to the provisions of Section 2.2 as to the total number of shares available for
grants under the Plan. If a Stock Incentive Agreement so provides, a
Participant may be granted a new Option to purchase a number of shares of Stock
equal to the number of previously owned shares of Stock tendered in payment of
the Exercise Price (as defined below) for each share of Stock purchased pursuant
to the terms of the Stock Incentive Agreement.
(b) Each Stock Incentive shall be evidenced either by a Stock
Incentive Agreement in such form and containing such terms, conditions and
restrictions as the Committee may determine is appropriate or be made subject to
the terms of a Stock Incentive Program, containing such terms, conditions and
restrictions as the Committee may determine is appropriate. Each Stock
Incentive Agreement or Stock Incentive Program shall be subject to the terms of
the Plan and any provision in a Stock Incentive Agreement or Stock Incentive
Program that is inconsistent with the Plan shall be null and void.
(c) The date a Stock Incentive is granted shall be the date on which
the Committee has approved the terms and conditions of the Stock Incentive
Agreement or Stock Incentive Program and has determined the recipient of the
Stock Incentive and the number of shares covered by the Stock Incentive and has
taken all such other action necessary to complete the grant of the Stock
Incentive.
(d) The Committee may provide in any Stock Incentive Agreement or
pursuant to any Stock Incentive Program (or subsequent to the award of a Stock
Incentive but prior to its expiration or cancellation, as the case may be) that,
in the event of a Change in Control, the Stock Incentive shall or may be cashed
out on the basis of any price not greater than the highest price paid for a
share of Stock in any transaction reported by any market or system selected by
the Committee on which the shares of Stock are then actively traded during a
specified period immediately preceding or including the date of the Change in
Control or offered for a share of Stock in any tender offer occurring during a
specified period immediately preceding or including the date the tender offer
commences; provided that, in no case shall any such specified period exceed one
(1) year (the "Change in Control Price"). For purposes of this Subsection, the
cash-out of a Stock Incentive shall be determined as follows:
(i) Options shall be cashed out on the basis of the excess, if
any, of the Change in Control Price (but not more than the Fair Market Value of
the Stock on the date of the cash-out in the case of Incentive Stock Options)
over the Exercise Price with or without regard to whether the Option may
otherwise be exercisable only in part;
-6-
<PAGE>
(ii) Stock Awards and Phantom Shares shall be cashed out in an
amount equal to the Change in Control Price with or without regard to any
conditions or restrictions otherwise applicable to any such Stock Incentive; and
(iii) Stock Appreciation Rights, Dividend Equivalent Rights and
Performance Unit Awards shall be cashed out with or without regard to any
conditions or restrictions otherwise applicable to any such Stock Incentive and
the amount of the cash out shall be determined by reference to the number of
shares of Stock that would be required to pay the Participant in kind for the
value of the Stock Incentive as of the date of the Change in Control multiplied
by the Change in Control Price.
(e) Any Stock Incentive may be granted in connection with all or any
portion of a previously or contemporaneously granted Stock Incentive. Exercise
or vesting of a Stock Incentive granted in connection with another Stock
Incentive may result in a pro rata surrender or cancellation of any related
Stock Incentive, as specified in the applicable Stock Incentive Agreement or
Stock Incentive Program.
(f) Stock Incentives shall not be transferable or assignable except by
will or by the laws of descent and distribution and shall be exercisable, during
the Participant's lifetime, only by the Participant; in the event of the
Disability of the Participant, by the legal representative of the Participant;
or in the event of the death of the participant, by the personal representative
of the Participant's estate or if no personal representative has been appointed,
by the successor in interest determined under the Participant's will.
3.2 Terms and Conditions of Options. Each Option granted under the
-------------------------------
Plan shall be evidenced by a Stock Incentive Agreement. At the time any Option
is granted, the Committee shall determine whether the Option is to be an
Incentive Stock Option or a Non-Qualified Stock Option, and the Option shall be
clearly identified as to its status as an Incentive Stock Option or a Non-
Qualified Stock Option. At the time any Incentive Stock Option is exercised,
the Company shall be entitled to place a legend on the certificates representing
the shares of Stock purchased pursuant to the Option to clearly identify them as
shares of Stock purchased upon exercise of an Incentive Stock Option. An
Incentive Stock Option may only be granted within ten (10) years from the
earlier of the date the Plan is adopted by the Board of Directors or approved by
the Company's stockholders.
(a) Option Price. Subject to adjustment in accordance with Section
------------
5.2 and the other provisions of this Section 3.2, the exercise price (the
"Exercise Price") per share of Stock purchasable under any Option shall be as
set forth in the applicable Stock Incentive Agreement. With respect to each
grant of an Incentive Stock Option to a Participant who is not an Over 10% Owner
or to each grant of any Option to a Participant who is then a Covered Employee,
the Exercise Price per share shall not be less than the Fair Market Value on the
date the Option is granted. With respect to each grant of an Incentive Stock
Option to a Participant who is an Over 10% Owner, the Exercise Price shall not
be less than 110% of the Fair Market Value on the date the Option is granted.
-7-
<PAGE>
(b) Option Term. The term of an Option shall be as specified in the
-----------
applicable Stock Incentive Agreement; provided, however that any Incentive Stock
Option granted to a Participant who is not an Over 10% Owner shall not be
exercisable after the expiration of ten (10) years after the date the Option is
granted and any Incentive Stock Option granted to an Over 10% Owner shall not be
exercisable after the expiration of five (5) years after the date the Option is
granted.
(c) Payment. Payment for all shares of Stock purchased pursuant to
-------
exercise of an Option shall be made in any form or manner authorized by the
Committee in the Stock Incentive Agreement or by amendment thereto, including,
but not limited to, cash or, if the Stock Incentive Agreement provides, (1) by
delivery to the Company of a number of shares of Stock which have been owned by
the holder for at least six (6) months prior to the date of exercise having an
aggregate Fair Market Value of not less than the product of the Exercise Price
multiplied by the number of shares the Participant intends to purchase upon
exercise of the Option on the date of delivery; (2) in a cashless exercise
through a broker; or (3) by having a number of shares of Stock withheld, the
Fair Market Value of which as of the date of exercise is sufficient to satisfy
the Exercise Price. In its discretion, the Committee also may authorize (at
the time an Option is granted or thereafter) Company financing to assist the
Participant as to payment of the Exercise Price on such terms as may be offered
by the Committee in its discretion. Payment shall be made at the time that the
Option or any part thereof is exercised, and no shares shall be issued or
delivered upon exercise of an option until full payment has been made by the
Participant. The holder of an Option, as such, shall have none of the rights of
a stockholder.
(d) Conditions to the Exercise of an Option. Each Option granted
---------------------------------------
under the Plan shall be exercisable by whom, at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of an Option, the Committee, at any time before complete termination
of such Option, may accelerate the time or times at which such Option may be
exercised in whole or in part, including, without limitation, upon a Change in
Control and may permit the Participant or any other designated person to
exercise the Option, or any portion thereof, for all or part of the remaining
Option term notwithstanding any provision of the Stock Incentive Agreement to
the contrary.
(e) Termination of Incentive Stock Option. With respect to an
-------------------------------------
Incentive Stock Option, in the event of the Termination of Service of a
Participant, the Option or portion thereof held by the Participant which is
unexercised shall expire, terminate, and become unexercisable no later than the
expiration of three (3) months after the date of Termination of Service;
provided, however, that in the case of a holder whose Termination of Service is
due to death or Disability, one (1) year shall be substituted for such three (3)
month period. For purposes of this Subsection (e), Termination of Service of
the Participant shall not be deemed to have occurred if the Participant is
employed by another corporation (or a parent or subsidiary corporation of such
other corporation) which has assumed the Incentive Stock Option of the
Participant in a transaction to which Code Section 424(a) is applicable.
-8-
<PAGE>
(f) Special Provisions for Certain Substitute Options.
-------------------------------------------------
Notwithstanding anything to the contrary in this Section 3.2, any Option issued
in substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained in the
previously issued option being replaced thereby.
3.3 Terms and Conditions of Stock Appreciation Rights. Each Stock
-------------------------------------------------
Appreciation Right granted under the Plan shall be evidenced by a Stock
Incentive Agreement. A Stock Appreciation Right may be granted in connection
with all or any portion of a previously or contemporaneously granted Stock
Incentive or not in connection with a Stock Incentive. A Stock Appreciation
Right shall entitle the Participant to receive the excess of (a) the Fair Market
Value of a specified or determinable number of shares of the Stock at the time
of payment or exercise over (b) a specified price (1) which, in the case of a
Stock Appreciation Right granted in connection with an Option, shall be not less
than the Exercise Price for that number of shares and (2) which, in the case of
a Stock Appreciation Right that is granted to a Participant who is then a
Covered Employee, shall not be less than the Fair Market Value of the Stock at
the time of the award. A Stock Appreciation Right granted in connection with a
Stock Incentive may only be exercised to the extent that the related Stock
Incentive has not been exercised, paid or otherwise settled. The exercise of a
Stock Appreciation Right granted in connection with a Stock Incentive shall
result in a pro rata surrender or cancellation of any related Stock Incentive to
the extent the Stock Appreciation Right has been exercised.
(a) Settlement. Upon settlement of a Stock Appreciation Right, the
----------
Company shall pay to the Participant the appreciation in cash or shares of Stock
(valued at the aggregate Fair Market Value on the date of payment or exercise)
as provided in the Stock Incentive Agreement or, in the absence of such
provision, as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Right granted
----------------------
under the Plan shall be exercisable or payable at such time or times, or upon
the occurrence of such event or events, and in such amounts, as the Committee
shall specify in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the Committee, at any
time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised or paid in whole or in part.
3.4 Terms and Conditions of Stock Awards. The number of shares of
------------------------------------
Stock subject to a Stock Award and restrictions or conditions on such shares, if
any, shall be as the Committee determines, and the certificate for such shares
shall bear evidence of any restrictions or conditions. Subsequent to the date
of the grant of the Stock Award, the Committee shall have the power to permit,
in its discretion, an acceleration of the expiration of an applicable
restriction period with respect to any part or all of the shares awarded to a
Participant. The Committee may require a cash payment from the Participant in
an amount no greater than the aggregate Fair Market Value of the shares of Stock
awarded determined at the date of grant in exchange for the grant of a Stock
Award or may grant a Stock Award without the requirement of a cash payment.
-9-
<PAGE>
3.5 Terms and Conditions of Dividend Equivalent Rights. A Dividend
--------------------------------------------------
Equivalent Right shall entitle the Participant to receive payments from the
Company in an amount determined by reference to any cash dividends paid on a
specified number of shares of Stock to Company stockholders of record during the
period such rights are effective. The Committee may impose such restrictions
and conditions on any Dividend Equivalent Right as the Committee in its
discretion shall determine, including the date any such right shall terminate
and may reserve the right to terminate, amend or suspend any such right at any
time.
(a) Payment. Payment in respect of a Dividend Equivalent Right may be
-------
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the Stock Incentive Agreement or, in the
absence of such provision, as the Committee may determine.
(b) Conditions to Payment. Each Dividend Equivalent Right granted
---------------------
under the Plan shall be payable at such time or times, or upon the occurrence of
such event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Dividend Equivalent Right, the Committee, at any
time before complete termination of such Dividend Equivalent Right, may
accelerate the time or times at which such Dividend Equivalent Right may be paid
in whole or in part.
3.6 Terms and Conditions of Performance Unit Awards. A Performance
-----------------------------------------------
Unit Award shall entitle the Participant to receive, at a future date, payment
of an amount equal to all or a portion of the value of a number of units (stated
in terms of a designated dollar amount per unit) granted by the Committee, all
as the Committee shall specify in the Stock Incentive Agreement or Stock
Incentive Program. At the time of the grant, the Committee must determine the
base value of each unit, the number of units subject to a Performance Unit
Award, the performance factors applicable to the determination of the ultimate
payment value of the Performance Unit Award and the period over which Company
performance shall be measured. The Committee may provide for an alternate base
value for each unit under certain specified conditions.
(a) Payment. Payment in respect of Performance Unit Awards may be
-------
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the Stock Incentive Agreement or Stock
Incentive Program or, in the absence of such provision, as the Committee may
determine.
(b) Conditions to Payment. Each Performance Unit Award granted under
---------------------
the Plan shall be payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Performance Unit Award, the Committee, at any time
before complete termination of such Performance Unit Award, may accelerate the
time or times at which such Performance Unit Award may be paid in whole or in
part.
3.7 Terms and Conditions of Phantom Shares. Phantom Shares shall
--------------------------------------
entitle the Participant to receive, at a future date, payment of an amount equal
to all or a portion of the Fair Market Value of a number of shares of Stock at
the end of a certain period, all as the Committee shall specify in the Stock
Incentive Agreement or Stock Incentive Program. At the time of the grant,
-10-
<PAGE>
the Committee shall determine the factors which will govern the portion of the
rights so payable, including, at the discretion of the Committee, any
performance criteria that must be satisfied as a condition to payment.
(a) Payment. Payment in respect of Phantom Shares may be made by the
-------
Company in cash or shares of Stock (valued at Fair Market Value on the date of
payment) as provided in the Stock Incentive Agreement or Stock Incentive Program
or, in the absence of such provision, as the Committee may determine.
(b) Conditions to Payment. Each Phantom Share granted under the Plan
---------------------
shall be payable at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee shall specify in the Stock
Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Phantom Share, the Committee, at any time before
complete termination of such Phantom Share, may accelerate the time or times at
which such Phantom Share may be paid in whole or in part.
3.8 Treatment of Awards Upon Termination of Service. Except as
-----------------------------------------------
otherwise provided by Plan Section 3.2(e), any award under this Plan to a
Participant who suffers a Termination of Service may be cancelled, accelerated,
paid or continued, as provided in the Stock Incentive Agreement or Stock
Incentive Program or, in the absence of such provision, as the Committee may
determine. The portion of any award exercisable in the event of continuation or
the amount of any payment due under a continued award may be adjusted by the
Committee to reflect the Participant's period of service from the date of grant
through the date of the Participant's Termination of Service or such other
factors as the Committee determines are relevant to its decision to continue the
award.
SECTION 4 RESTRICTIONS ON STOCK
4.1 Escrow of Shares. Any certificates representing the shares of
----------------
Stock issued under the Plan shall be issued in the Participant's name, but, if
the Stock Incentive Agreement or Stock Incentive Program so provides, the shares
of Stock shall be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive
Program providing for transfer of shares of Stock to the Custodian shall appoint
the Custodian as the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive Program, with
full power and authority in the Participant's name, place and stead to transfer,
assign and convey to the Company any shares of Stock held by the Custodian for
such Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Incentive Agreement or Stock Incentive Program. During the
period that the Custodian holds the shares subject to this Section, the
Participant shall be entitled to all rights, except as provided in the
applicable Stock Incentive Agreement or Stock Incentive Program, applicable to
shares of Stock not so held. Any dividends declared on shares of Stock held by
the Custodian shall, as the Committee may provide in the applicable Stock
Incentive Agreement or Stock Incentive Program, be paid directly to the
Participant or, in the alternative, be retained by the Custodian until the
expiration of the term specified in the applicable Stock Incentive Agreement or
Stock Incentive Program and shall then be delivered, together with any proceeds,
with the shares of Stock to the Participant or to the Company, as applicable.
-11-
<PAGE>
4.2 Forfeiture of Shares. Notwithstanding any vesting schedule set
--------------------
forth in any Stock Incentive Agreement or Stock Incentive Program, in the event
that the Participant violates a noncompetition agreement as set forth in the
Stock Incentive Agreement or Stock Incentive Program, all Stock Incentives and
shares of Stock issued to the holder pursuant to the Plan shall be forfeited;
provided, however, that the Company shall return to the holder the lesser of any
consideration paid by the Participant in exchange for Stock issued to the
Participant pursuant to the Plan or the then Fair Market Value of the Stock
forfeited hereunder.
4.3 Restrictions on Transfer. The Participant shall not have the
------------------------
right to make or permit to exist any Disposition of the shares of Stock issued
pursuant to the Plan except as provided in the Plan or the applicable Stock
Incentive Agreement or Stock Incentive Program. Any Disposition of the shares
of Stock issued under the Plan by the Participant not made in accordance with
the Plan or the applicable Stock Incentive Agreement or Stock Incentive Program
shall be void. The Company shall not recognize, or have the duty to recognize,
any Disposition not made in accordance with the Plan and the applicable Stock
Incentive Agreement or Stock Incentive Program, and the shares so transferred
shall continue to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
SECTION 5 GENERAL PROVISIONS
5.1 Withholding. The Company shall deduct from all cash
-----------
distributions under the Plan any taxes required to be withheld by federal, state
or local government. Whenever the Company proposes or is required to issue or
transfer shares of Stock under the Plan or upon the vesting of any Stock Award,
the Company shall have the right to require the recipient to remit to the
Company an amount sufficient to satisfy any federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
such shares or the vesting of such Stock Award. A Participant may pay the
withholding tax in cash, or, if the applicable Stock Incentive Agreement or
Stock Incentive Program provides, a Participant may elect to have the number of
shares of Stock he is to receive reduced by, or with respect to a Stock Award,
tender back to the Company, the smallest number of whole shares of Stock which,
when multiplied by the Fair Market Value of the shares of Stock determined as of
the Tax Date (defined below), is sufficient to satisfy federal, state and local,
if any, withholding taxes arising from exercise or payment of a Stock Incentive
(a "Withholding Election"). A Participant may make a Withholding Election only
if both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax Date")
by executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 Changes in Capitalization; Merger; Liquidation.
----------------------------------------------
(a) The number of shares of Stock reserved for the grant of Options,
Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Stock
-12-
<PAGE>
Awards; the number of shares of Stock reserved for issuance upon the exercise or
payment, as applicable, of each outstanding Option, Dividend Equivalent Right,
Performance Unit Award, Phantom Share and Stock Appreciation Right and upon
vesting or grant, as applicable, of each Stock Award; the Exercise Price of each
outstanding Option and the specified number of shares of Stock to which each
outstanding Dividend Equivalent Right, Phantom Share and Stock Appreciation
Right pertains shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Stock resulting from a subdivision or combination
of shares or the payment of an ordinary stock dividend in shares of Stock to
holders of outstanding shares of Stock or any other increase or decrease in the
number of shares of Stock outstanding effected without receipt of consideration
by the Company.
(b) In the event of any merger, consolidation, extraordinary dividend
(including a spin-off), reorganization or other change in the corporate
structure of the Company or its Stock or tender offer for shares of Stock, the
Committee, in its sole discretion, may make such adjustments with respect to
awards and take such other action as it deems necessary or appropriate to
reflect or in anticipation of such merger, consolidation, extraordinary
dividend, reorganization, other change in corporate structure or tender offer,
including, without limitation, the substitution of new awards, the termination
or adjustment of outstanding awards, the acceleration of awards or the removal
of restrictions on outstanding awards. Any adjustment pursuant to this Section
5.2 may provide, in the Committee's discretion, for the elimination without
payment therefor of any fractional shares that might otherwise become subject to
any Stock Incentive.
(c) The existence of the Plan and the Stock Incentives granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
5.3 Cash Awards. The Committee may, at any time and in its
-----------
discretion, grant to any holder of a Stock Incentive the right to receive, at
such times and in such amounts as determined by the Committee in its discretion,
a cash amount which is intended to reimburse such person for all or a portion of
the federal, state and local income taxes imposed upon such person as a
consequence of the receipt of the Stock Incentive or the exercise of rights
thereunder.
5.4 Compliance with Code. All Incentive Stock Options to be granted
--------------------
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all Incentive Stock Options granted hereunder shall be construed in
such manner as to effectuate that intent.
5.5 Right to Terminate Service. Nothing in the Plan or in any Stock
--------------------------
Incentive Agreement or Stock Incentive Program shall confer upon any Participant
the right to continue as an employee, officer, director or consultant of the
Company or any of its affiliates or affect the right of the Company or any of
its affiliates to terminate the Participant's service at any time.
5.6 Restrictions on Delivery and Sale of Shares; Legends. Each Stock
----------------------------------------------------
Incentive is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Stock Incentive upon any securities
-13-
<PAGE>
exchange or under any state or federal law is necessary or desirable as a
condition of or in connection with the granting of such Stock Incentive or the
purchase or delivery of shares thereunder, the delivery of any or all shares
pursuant to such Stock Incentive may be withheld unless and until such listing,
registration or qualification shall have been effected. If a registration
statement is not in effect under the Securities Act of 1933 or any applicable
state securities laws with respect to the shares of Stock purchasable or
otherwise deliverable under Stock Incentives then outstanding, the Committee may
require, as a condition of exercise of any Option or as a condition to any other
delivery of Stock pursuant to a Stock Incentive, that the Participant or other
recipient of a Stock Incentive represent, in writing, that the shares received
pursuant to the Stock Incentive are being acquired for investment and not with a
view to distribution and agree that the shares will not be disposed of except
pursuant to an effective registration statement, unless the Company shall have
received an opinion of counsel that such disposition is exempt from such
requirement under the Securities Act of 1933 and any applicable state securities
laws. The Company may include on certificates representing shares delivered
pursuant to a Stock Incentive such legends referring to the foregoing
representations or restrictions or any other applicable restrictions on resale
as the Company, in its discretion, shall deem appropriate.
5.7 Non-alienation of Benefits. Other than as specifically provided
--------------------------
with regard to the death of a Participant, no benefit under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge; and any attempt to do so shall be void. No such
benefit shall, prior to receipt by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
5.8 Termination and Amendment of the Plan. The Board of Directors at
-------------------------------------
any time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of a Stock Incentive shall adversely
affect the rights of the Participant under such Stock Incentive.
5.9 Stockholder Approval. The Plan shall be submitted to the
--------------------
stockholders of the Company for their approval within twelve (12) months before
or after its adoption by the Board of Directors. If such approval is not
obtained, any Stock Incentive granted under the Plan shall be void.
5.10 Choice of Law. The laws of the State of Delaware shall govern the
-------------
Plan, to the extent not preempted by federal law.
5.11 Effective Date of Plan. The Plan shall become effective upon
----------------------
the date the Plan is approved by the Board of Directors.
-14-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed
this 13th day of September, 1996.
HEALTHCARE FINANCIAL PARTNERS, INC.
By: /s/ John K. Delaney
---------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
Attest:
/s/ Edward P. Nordberg, Jr.
- ------------------------------
Secretary
[CORPORATE SEAL]
-15-
<PAGE>
INCENTIVE STOCK OPTION AWARD PURSUANT TO THE
HEALTHCARE FINANCIAL PARTNERS, INC. 1996 STOCK INCENTIVE PLAN
THIS AWARD is made as of the Grant Date by HEALTHCARE FINANCIAL PARTNERS,
INC. (the "Company") to (the
----------------------------------------
"Optionee").
Upon and subject to the Terms and Conditions attached hereto and
incorporated herein by reference, the Company hereby awards as of the Grant Date
to Optionee an incentive stock option (the "Option"), as described below, to
purchase the Option Shares.
A. Grant Date: .
----------------------
B. Type of Option: Incentive stock option issued under the Healthcare
Financial Partners, Inc. 1996 Stock Incentive Plan.
C. Option Shares: All or any part of shares of the
-------------------
Company's common stock, $.01 par value per share ("Common Stock"),
subject to adjustment as provided in the attached Terms and
Conditions.
D. Exercise Price: $ per share of Common Stock, subject to
----
adjustment as provided in the attached Terms and Conditions.
E. Option Period: The Option may be exercised as to all or any portion
of the Option Shares, but only during the Option Period, which
commences six (6) months following the Grant Date and ends,
generally, on the earliest of (a) the tenth (10th) anniversary of the
Grant Date; (b) thirty (30) days following the date of the Optionee's
Termination of Employment for any reason other than due to death or
Disability; or (c) one (1) year following the date of the Optionee's
Termination of Employment due to death or Disability; provided that
the Option may be exercised as to no more than the vested Option
Shares, determined pursuant to the Vesting Schedule attached as
Schedule 1. Note that other limitations to exercising the Option, as
described in the attached Terms and Conditions, may apply.
F. Vesting Schedule: The Option Shares shall become vested in accordance
with the attached Vesting Schedule. All or a portion of the Option
Shares may become vested on an earlier date as provided in the
attached Terms and Conditions.
IN WITNESS WHEREOF, the Company has executed and sealed this Award as of
the Grant Date set forth above.
HEALTHCARE FINANCIAL PARTNERS, INC.
By:
--------------------------------------------
Title:
-----------------------------------------
Page 1 of 5
<PAGE>
TERMS AND CONDITIONS TO THE
INCENTIVE STOCK OPTION AWARD
PURSUANT TO HEALTHCARE FINANCIAL PARTNERS, INC.
1996 STOCK INCENTIVE PLAN
1. Exercise of Option. Subject to the provisions provided herein or in
------------------
the Award made pursuant to the Plan:
(a) the Option may be exercised with respect to all or any portion of
the vested Option Shares at any time during the Option Period by the
delivery to the Company, at its principal place of business, of a written
notice of exercise in substantially the form attached hereto as Exhibit 1,
which shall be actually delivered to the Company no earlier than thirty
(30) days and no later than ten (10) days prior to the date upon which
Optionee desires to exercise all or any portion of the Option; and
(b) payment to the Company of the Exercise Price multiplied by the
number of Option Shares being purchased (the "Purchase Price") as provided
in Section 2.
(c) Notwithstanding anything to the contrary in the Terms and
Conditions or the Award, the Option shall not become exercisable until
after the date of stockholder approval of the Plan and if such stockholder
approval is not obtained within twelve months following the adoption of the
Plan by the Board of Directors, the Option shall be rendered null and void.
Upon acceptance of such notice and receipt of payment in full of the Purchase
Price, the Company shall cause to be issued a certificate representing the
Option Shares purchased.
2. Purchase Price. Payment of the Purchase Price for all Option Shares
--------------
purchased pursuant to the exercise of an Option shall be made in cash or
certified check or, alternatively, as follows:
(a) by delivery to the Company of a number of shares of Common Stock
which have been owned by the Optionee for at least six (6) months prior to
the date of the Option's exercise having a fair market value, as determined
under the Plan, on the date of exercise either equal to the Purchase Price
or in combination with cash or a certified check to equal the Purchase
Price; or
(b) by receipt of the Purchase Price in cash from a broker, dealer or
other "creditor" as defined by Regulation T issued by the Board of
Governors of the Federal Reserve System following delivery by the Optionee
to the Committee of instructions in a form acceptable to the Committee
regarding delivery to such broker, dealer or other creditor of that number
of Option Shares with respect to which the Option is exercised.
Page 2 of 5
<PAGE>
3. Vested Option Shares. The Option Shares shall become vested in the
--------------------
manner provided in the Vesting Schedule attached hereto; provided, however, that
all Option Shares shall become vested no later than the date of a Change in
Control, or any earlier date specified by the Committee in writing to the
Optionee subsequent to or contemporaneously with a determination by the
Committee that a Change in Control is imminent.
4. Rights as Shareholder. Until the stock certificates reflecting the
---------------------
Option Shares accruing to the Optionee upon exercise of the Option are issued to
the Optionee, the Optionee shall have no rights as a shareholder with respect to
such Option Shares. The Company shall make no adjustment for any dividends or
distributions or other rights on or with respect to Option Shares for which the
record date is prior to the issuance of that stock certificate, except as the
Plan or the attached Award otherwise provides.
5. Restriction on Transfer of Option and of Option Shares. The Option
------------------------------------------------------
evidenced hereby is nontransferable other than by will or the laws of descent
and distribution and shall be exercisable during the lifetime of the Optionee
only by the Optionee (or in the event of his disability, by his personal
representative) and after his death, only by his legatee or the executor of his
estate.
6. Changes in Capitalization.
-------------------------
(a) If the number of shares of Common Stock shall be increased or
decreased by reason of a subdivision or combination of shares of Common
Stock, the payment of a stock dividend in shares of Common Stock or any
other increase or decrease in the number of shares of Common Stock
outstanding effected without receipt of consideration by the Company, an
appropriate adjustment shall be made by the Committee, in a manner
determined in its sole discretion, in the number and kind of Option Shares
and in the Exercise Price.
(b) Subject to any other action which the Committee is authorized to
take pursuant to Section 5.2(b) of the Plan, in the event of any merger,
consolidation, extraordinary dividend (including a spin-off),
reorganization, other change in corporate structure or tender offer,
including a Change in Control, pursuant to which the Company is not the
surviving entity and the surviving entity does not agree to the assumption
of the Option, the Committee may elect to terminate the Option Period as of
the date of the event in consideration of the payment to the Optionee of
the sum of the difference between the then Fair Market Value of the Common
Stock and the Exercise Price for each Option Share as to which the Option
has not been exercised as of the date of the event.
(c) The existence of the Plan and the Option granted pursuant to this
Agreement shall not affect in any way the right or power of the Company to
make or authorize any adjustment, reclassification, reorganization or other
change in its capital or business structure, any merger or consolidation of
the Company, any issue of debt or equity securities having preferences or
priorities as to the Common Stock or the rights thereof, the dissolution or
liquidation of the Company, any sale or transfer of all or any part of its
business or assets, or any other corporate act or proceeding. Any
adjustment pursuant to this Section may
Page 3 of 5
<PAGE>
provide, in the Committee's discretion, for the elimination without payment
therefor of any fractional shares that might otherwise become subject to
any Option.
7. Special Limitation on Exercise. No purported exercise of the Option
------------------------------
shall be effective without the approval of the Committee, which may be withheld
to the extent that the exercise, either individually or in the aggregate
together with the exercise of other previously exercised stock options and/or
offers and sales pursuant to any prior or contemplated offering of securities,
would, in the sole and absolute judgment of the Committee, require the filing of
a registration statement with the United States Securities and Exchange
Commission or with the securities commission of any state. If a registration
statement is not in effect under the Securities Act of 1933 or any applicable
state securities law with respect to shares of Common Stock purchasable or
otherwise deliverable under the Option, the Optionee (a) shall deliver to the
Company, prior to the exercise of the Option or as a condition to the delivery
of Common Stock pursuant to the exercise of an Option exercise, such
information, representations and warranties as the Company may reasonably
request in order for the Company to be able to satisfy itself that the Option
Shares are being acquired in accordance with the terms of an applicable
exemption from the securities registration requirements of applicable federal
and state securities laws and (b) shall agree that the shares of Common Stock so
acquired will not be disposed of except pursuant to an effective registration
statement, unless the Company shall have received an opinion of counsel that
such disposition is exempt from such requirement under the Securities Act of
1933 and any applicable state securities law.
8. Legend on Stock Certificates. Certificates evidencing the Option
----------------------------
Shares, to the extent appropriate at the time, shall have noted conspicuously on
the certificates a legend intended to give all persons full notice of the
existence of the conditions, restrictions, rights and obligations set forth
herein and in the Plan.
9. Governing Laws. This Award and the Terms and Conditions shall be
--------------
construed, administered and enforced according to the laws of the State of
Delaware.
10. Successors. This Award and the Terms and Conditions shall be binding
----------
upon and inure to the benefit of the heirs, legal representatives, successors
and permitted assigns of the Optionee and the Company.
11. Notice. Except as otherwise specified herein, all notices and other
------
communications under this Award shall be in writing and shall be deemed to have
been given if personally delivered or if sent by registered or certified United
States mail, return receipt requested, postage prepaid, addressed to the
proposed recipient at the last known address of the recipient. Any party may
designate any other address to which notices shall be sent by giving notice of
the address to the other parties in the same manner as provided herein.
12. Severability. In the event that any one or more of the provisions or
------------
portion thereof contained in the Award and these Terms and Conditions shall for
any reason be held to be invalid, illegal or unenforceable in any respect, the
same shall not invalidate or otherwise affect any other provisions of the Award
and these Terms and Conditions, and the Award and these Terms and
Page 4 of 5
<PAGE>
Conditions shall be construed as if the invalid, illegal or unenforceable
provision or portion thereof had never been contained herein.
13. Entire Agreement. Subject to the terms and conditions of the Plan,
----------------
the Award and the Terms and Conditions express the entire understanding of the
parties with respect to the Option.
14. Violation. Any transfer, pledge, sale, assignment, or hypothecation
---------
of the Option or any portion thereof shall be a violation of the terms of the
Award or these Terms and Conditions and shall be void and without effect.
15. Headings and Capitalized Terms. Section headings used herein are for
------------------------------
convenience of reference only and shall not be considered in construing the
Award or these Terms and Conditions. Capitalized terms used, but not defined,
in either the Award or the Terms and Conditions shall be given the meaning
ascribed to them in the Plan.
16. Specific Performance. In the event of any actual or threatened
--------------------
default in, or breach of, any of the terms, conditions and provisions of the
Award and these Terms and Conditions, the party or parties who are thereby
aggrieved shall have the right to specific performance and injunction in
addition to any and all other rights and remedies at law or in equity, and all
such rights and remedies shall be cumulative.
17. No Right to Continued Retention. Neither the establishment of
-------------------------------
the Plan nor the award of Option Shares hereunder shall be construed as giving
the Optionee the right to continued employment with the Company or any
affiliate.
Page 5 of 5
<PAGE>
EXHIBIT 1
---------
NOTICE OF EXERCISE OF
STOCK OPTION TO PURCHASE
COMMON STOCK OF
HEALTHCARE FINANCIAL PARTNERS, INC.
Name
------------------------------------
Address
----------------------------------
-----------------------------------------
Date
-------------------------------------
HealthCare Financial Partners, Inc.
2 Wisconsin Circle
Suite 320
Chevy Chase, Maryland 20815
Attention: President
Re: Exercise of Incentive Stock Option
Gentlemen:
Subject to acceptance hereof by HealthCare Financial Partners, Inc. (the
"Company") pursuant to the provisions of the HealthCare Financial Partners, Inc.
1996 Stock Incentive Plan (the "Plan"), I hereby give notice of my election to
exercise options granted to me to purchase shares of common stock
--------------
of the Company ("Common Stock") under the Incentive Stock Option Award (the
"Award") dated as of . The purchase shall take place as of
---------------------
, 199 (the "Exercise Date").
- ---------------------- --
On or before the Exercise Date, I will pay the applicable purchase price as
follows:
[ ] by delivery of cash or a certified check for $ for the full
-----------
purchase price payable to the order of Healthcare Financial Partners,
Inc.
[ ] by delivery of cash or a certified check for $ representing
-----------
a portion of the purchase price with the balance to consist of shares
of Common Stock that I have owned for at least six months and that are
represented by a stock certificate I will surrender to the Company
with my endorsement. If the number of shares of Common Stock
represented by such stock certificate exceed the number to be applied
Exhibit 1 - Page 1 of 4
<PAGE>
against the purchase price, I understand that a new stock certificate
will be issued to me reflecting the excess number of shares.
[ ] by delivery of a stock certificate representing shares of Common Stock
that I have owned for at least six months which I will surrender to
the Company with my endorsement as payment of the purchase price. If
the number of shares of Common Stock represented by such certificate
exceed the number to be applied against the purchase price, I
understand that a new certificate will be issued to me reflecting the
excess number of shares.
[ ] by delivery of the purchase price by , a
-------------------------
broker, dealer or other "creditor" as defined by Regulation T issued
by the Board of Governors of the Federal Reserve System. I hereby
authorize the Company to issue a stock certificate for the number of
shares indicated above in the name of said broker, dealer or other
creditor or its nominee pursuant to instructions received by the
Company and to deliver said stock certificate directly to that broker,
dealer or other creditor (or to such other party specified in the
instructions received by the Company from the broker, dealer or other
creditor) upon receipt of the purchase price.
As soon as the stock certificate is registered in my name, please deliver
it to me at the above address.
If the Common Stock being acquired is not registered for issuance to and
resale by the Optionee pursuant to an effective registration statement on Form
S-8 (or successor form) filed under the Securities Act of 1933, as amended (the
"1933 Act"), I hereby represent, warrant, covenant, and agree with the Company
as follows:
The shares of the Common Stock being acquired by me will be acquired
for my own account without the participation of any other person, with the
intent of holding the Common Stock for investment and without the intent of
participating, directly or indirectly, in a distribution of the Common
Stock and not with a view to, or for resale in connection with, any
distribution of the Common Stock, nor am I aware of the existence of any
distribution of the Common Stock;
I am not acquiring the Common Stock based upon any representation,
oral or written, by any person with respect to the future value of, or
income from, the Common Stock but rather upon an independent examination
and judgment as to the prospects of the Company;
The Common Stock was not offered to me by means of publicly
disseminated advertisements or sales literature, nor am I aware of any
offers made to other persons by such means;
I am able to bear the economic risks of the investment in the Common
Stock, including the risk of a complete loss of my investment therein;
Exhibit 1 - Page 2 of 4
<PAGE>
I understand and agree that the Common Stock will be issued and sold
to me without registration under any state law relating to the registration
of securities for sale, and will be issued and sold in reliance on the
exemptions from registration under the 1933 Act, provided by Sections 3(b)
and/or 4(2) thereof and the rules and regulations promulgated thereunder;
The Common Stock cannot be offered for sale, sold or transferred by me
other than pursuant to: (A) an effective registration under the 1933 Act or
in a transaction otherwise in compliance with the 1933 Act; and (B)
evidence satisfactory to the Company of compliance with the applicable
securities laws of other jurisdictions. The Company shall be entitled to
rely upon an opinion of counsel satisfactory to it with respect to
compliance with the above laws;
The Company will be under no obligation to register the Common Stock
or to comply with any exemption available for sale of the Common Stock
without registration or filing, and the information or conditions necessary
to permit routine sales of securities of the Company under Rule 144 under
the 1933 Act are not now available and no assurance has been given that it
or they will become available. The Company is under no obligation to act
in any manner so as to make Rule 144 available with respect to the Common
Stock;
I have and have had complete access to and the opportunity to review
and make copies of all material documents related to the business of the
Company, including, but not limited to, contracts, financial statements,
tax returns, leases, deeds and other books and records. I have examined
such of these documents as I wished and am familiar with the business and
affairs of the Company. I realize that the purchase of the Common Stock is
a speculative investment and that any possible profit therefrom is
uncertain;
I have had the opportunity to ask questions of and receive answers
from the Company and any person acting on its behalf and to obtain all
material information reasonably available with respect to the Company and
its affairs. I have received all information and data with respect to the
Company which I have requested and which I have deemed relevant in
connection with the evaluation of the merits and risks of my investment in
the Company;
I have such knowledge and experience in financial and business matters
that I am capable of evaluating the merits and risks of the purchase of the
Common Stock hereunder and I am able to bear the economic risk of such
purchase; and
The agreements, representations, warranties and covenants made by me
herein extend to and apply to all of the Common Stock of the Company issued
to me pursuant to this Award. Acceptance by me of the certificate
representing such Common Stock shall constitute a confirmation by me that
all such agreements, representations, warranties and covenants made herein
shall be true and correct at that time.
I understand that the certificates representing the shares being purchased
by me in accordance with this notice shall bear a legend referring to the
foregoing covenants, representations and warranties and restrictions on
transfer, and I agree that a legend to that effect may be placed on any
Exhibit 1 - Page 3 of 4
<PAGE>
certificate which may be issued to me as a substitute for the certificates being
acquired by me in accordance with this notice. I further understand that
capitalized terms used in this Notice of Exercise without definition shall have
the meanings given to them in the Plan.
Very truly yours,
----------------------------------------
AGREED TO AND ACCEPTED:
HEALTHCARE FINANCIAL PARTNERS, INC.
By:
---------------------------
Title:
------------------------
Number of Shares
Exercised:
--------------------
Number of Shares Remaining: Date:
--------------- --------------
Exhibit 1 - Page 4 of 4
<PAGE>
[Name of Optionee]
SCHEDULE 1
TO HEALTHCARE FINANCIAL PARTNERS, INC.
INCENTIVE STOCK OPTION AWARD
Vesting Schedule
----------------
"Vested Shares" means only that percentage of the Option Shares as to which
the Option becomes exercisable following completion of the years of service
indicated in the schedule first set forth below.
Percentage of Option Shares Years of Service
Which are Vested Shares after Grant Date
--------------------------- ----------------
0% Less than 7
100% 7 or more
Notwithstanding the foregoing Vesting Schedule, the Option shall become subject
to the alternative Vesting Schedule set forth below during the Option Period but
only on and after the first day following consummation of the initial public
offering of the Common Stock.
Percentage of Option Shares Years of Service
Which are Vested Shares after Grant Date
--------------------------- ----------------
0% Less than 1
25% 1
50% 2
75% 3
100% 4 or more
- ----------------
1. Construction. (a) For purposes of the Vesting Schedule, Optionee
------------
shall be granted a year of service for each consecutive twelve-consecutive-month
period following the Grant Date and during which Optionee continues, at all
times, as an employee of the Company or a Subsidiary.
(b) The right of Optionee to vest in Common Stock shall cease upon the
termination of his or her service as an employee with the Company and any
Subsidiaries. Thereafter, no further shares shall become Vested Shares. The
Option shall be exercisable only as to Vested Shares during the Option Period
specified in the Award.
Schedule 1 - Page 1 of 1
<PAGE>
Exhibit 10.5
HEALTHCARE FINANCIAL PARTNERS, INC.
1996 DIRECTOR STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1 DEFINITIONS 1
1.1 Definitions 1
SECTION 2 GENERAL PROVISIONS 2
2.1 The Purpose of the Plan............................... 2
2.2 Stock Subject to the Plan............................. 2
2.3 Administration of the Plan............................ 2
2.4 Eligibility 2
SECTION 3 TYPES OF OPTION AWARDS 3
3.1 General 3
3.2 Initial Appointment Awards............................ 3
3.3 Annual Awards......................................... 3
3.4 Discount Options...................................... 3
3.5 Exercise and Payment of Options....................... 4
3.6 Non-Transferability 4
3.7 Condition to All Option Grants........................ 4
SECTION 4 MISCELLANEOUS PROVISIONS 4
4.1 Changes in Capitalization; Merger; Liquidation........ 4
4.2 Right to Remove Director.............................. 5
4.3 Restrictions on Delivery and Sale of Shares; Legends.. 5
4.4 Non-alienation of Benefits............................ 5
4.5 Termination and Amendment of the Plan................. 5
4.6 Choice of Law......................................... 6
4.7 Effective Date of Plan................................ 6
-i-
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
1996 DIRECTOR STOCK OPTION PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
-----------
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Annual Director Compensation" shall mean the amount of fees which
----------------------------
a director will be entitled to receive during a Plan Year or, if later, as of
the first day an individual becomes a Participant for serving as a director or
as a member of any committee of the Board of Directors pursuant to the policy in
effect for such Plan Year, including retainers paid periodically and fees paid
for attendance at or participation in scheduled meetings of the Board of
Directors or any committee thereof; provided, however, that if a director elects
to receive an Option in lieu of only a portion of Annual Director Compensation,
the Annual Director Compensation for purposes of the foregoing formula shall
equal the portion of the Annual Director Compensation so elected. Annual
Director Compensation shall not include expenses reimbursed by the Company for
attendance at or participation in meetings of the Board of Directors or any
committee thereof or fees for any other services to be provided to the Company.
(b) "Board of Directors" means the board of directors of the Company.
------------------
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Committee" means the Board of Directors.
---------
(e) "Company" means HealthCare Financial Partners, Inc., a Delaware
-------
corporation.
(f) "Disability" means that condition described in Code Section
----------
22(e)(3), as amended from time to time. In the event of a dispute, the
determination of Disability shall be made by the Board of Directors and shall be
supported by advice of a physician competent in the area to which such
Disability relates.
(g) "Effective Date" means the first date the Plan is approved and
--------------
adopted by both the Board of Directors and the stockholders of the Company.
(h) "Fair Market Value" refers to the determination of value of a
-----------------
share of Stock. If the Stock is actively traded on any national securities
exchange or any Nasdaq quotation or market system, Fair Market Value shall mean
the closing price at which sales of Stock shall have been sold on the most
recent trading date immediately prior to the date of determination, as reported
by any such exchange or system selected by the Committee on which the shares of
Stock are then traded. If the shares of Stock are not actively traded on any
such exchange or system, Fair Market Value shall mean the arithmetic mean of the
bid and asked prices for the shares of Stock on the most recent trading date
within a reasonable period prior to the determination date as reported by such
exchange or system. If there are no bid and asked prices within a reasonable
period or if the shares of Stock are not traded on any exchange or system as of
the determination date, Fair Market Value shall mean the fair market value of a
share of Stock as determined by the Committee taking into account such
<PAGE>
facts and circumstances deemed to be material by the Committee to the value of
the Stock in the hands of the Participant.
(i) "Option" means an option granted under the Plan to buy shares of
------
Stock as set forth in Plan Section 3.
(j) "Option Exercise Price" refers to the per share purchase price for
---------------------
Stock subject to each Option granted under Section 3.4 and that per share
purchase price shall be fifty percent (50%) of the Fair Market Value of the
Stock as of the date the Option is granted.
(k) "Participant" means an individual who, pursuant to Plan Section
-----------
2.4, is eligible to participate in the Plan.
(l) "Plan" means the HealthCare Financial Partners, Inc. 1996 Director
----
Stock Option Plan.
(m) "Stock" means the Company's common stock, $.01 par value.
-----
(n) "Stock Incentive Agreement" means an agreement between the Company
-------------------------
and a Participant or other documentation evidencing an award of a Stock
Incentive.
SECTION 2 GENERAL PROVISIONS
2.1 The Purpose of the Plan. The Plan is intended to (a) provide
-----------------------
incentive to non-employee directors of the Company to stimulate their efforts
toward the continued success of the Company and to manage the business of the
Company in a manner that will provide for the long-term growth and profitability
of the Company; (b) encourage stock ownership by non-employee directors by
providing them with a means to acquire a proprietary interest in the Company;
and (c) provide a means of obtaining and rewarding non-employee directors.
Accordingly, the Plan is intended to promote a close identity of interests among
the Company, the directors and its stockholders, as well as to provide a means
to attract and retain well-qualified directors.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
-------------------------
Section 4.1, 100,000 shares of Stock (the "Maximum Plan Shares") are
hereby reserved exclusively for issuance pursuant to Options. At no time shall
the aggregate of (a) shares of Stock issuable pursuant to outstanding Options;
and (b) shares of Stock issued pursuant to Options exceed the Maximum Plan
Shares. If an Option expires or terminates for any reason without being
exercised in full, the unpurchased shares subject to such Option shall again be
available for purposes of the Plan.
2.3 Administration of the Plan. The Plan shall be administered by the
--------------------------
Committee. Subject to the provisions of the Plan, the Committee shall have full
and conclusive authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Stock Incentive Agreements consistent with the
provisions of the Plan and to make all other determinations necessary or
advisable for the proper administration of the Plan. The Committee's decisions
shall be final and binding on all Participants.
2.4 Eligibility. Any member of the Board of Directors who is not an
-----------
employee of the Company shall be a Participant.
-2-
<PAGE>
SECTION 3 TYPES OF OPTION AWARDS
3.1 General. Each Option contemplated by this Section 3 shall be
-------
evidenced by a Stock Incentive Agreement which shall incorporate the applicable
terms of the Plan. The terms of each Stock Incentive Agreement shall provide:
(a) that the Option is immediately vested; (b) that the Option is exercisable as
to all of the shares of Stock subject thereto after the expiration of twelve
(12) months from the date of grant; and (c) that the Option shall expire upon
the earlier of the tenth (10th) anniversary following the date of grant or
eighteen (18) months from the date of the director's termination of service upon
the Board of Directors for any reason.
3.2 Initial Appointment Awards. Each non-employee director of the Board
--------------------------
of Directors shall be granted as of the date of his or her initial appointment
to the Board of Directors following the Effective Date an Option to purchase
10,000 shares of Stock. The exercise price for each share of Stock subject to an
Option granted pursuant to this Section 3.2 shall equal the Fair Market Value of
a share of Stock as of the date of the Option grant.
3.3 Annual Awards. Each non-employee director of the Board of Directors
-------------
shall be granted as of the date of each annual meeting of the stockholders of
the Company following the Effective Date an Option to purchase 5,000 shares of
Stock; provided that such director's service on the Board of Directors continues
through the date of that annual meeting. The exercise price for each share of
Stock subject to an Option granted pursuant to this Section 3.3 shall equal the
Fair Market Value of a share of Stock as of the date of the Option grant.
3.4 Discount Options.
----------------
(a) Election. Options shall be granted as of the first day of each
--------
Plan Year (as hereafter defined), to each non-employee director who, no later
than the last day of the preceding Plan Year or, if later, no later than the
effective date of the non-employee director's appointment to the Board of
Directors (and subject to such other rules as the Committee may adopt from time
to time), has filed with the Company an irrevocable election to receive an
Option to purchase shares of Stock in lieu of all or a specified percentage of
the Annual Director Compensation expected to be earned by such director for the
upcoming twelve-month period beginning on the first day of the first fiscal
quarter of the Company and ending on the last day of the fourth fiscal quarter
of the Company ("Plan Year"). A separate election may be made for each Plan
Year; provided, however, that no amendment or revocation may be made during a
Plan Year with respect to such Plan Year. A non-employee director shall not be
entitled to receive in cash any portion of the Annual Director Compensation for
which an election has been made to receive an Option pursuant to this Section
3.4.
(b) Formula for Discount Options. The number of shares of Stock
----------------------------
subject to each Option granted to any director for a Plan Year pursuant to this
Section shall be equal to the nearest number of whole shares of Stock, with cash
payment for fractional shares, determined in accordance with the following
formula:
Foregone Annual Director Compensation = Number of Shares
-------------------------------------------
Option Exercise Price
(c) Forfeiture. That portion of an Option granted pursuant to this
----------
Section which is attributable to any portion of the Annual Director Compensation
which is not earned due to
-3-
<PAGE>
termination of service as a member of the Board of Directors or as a member of a
committee of the Board of Directors (for any reason) or because of lack of
attendance or participation in any meeting of the Board of Directors or any
committee thereof shall automatically abate and be forfeited.
3.5 Exercise and Payment of Option Awards. All Options may be exercised
-------------------------------------
only by written notice to the Company. Payment for all shares of Stock
purchased pursuant to exercise of an Option shall be made (a) in cash; (b) by
delivery to the Company of a number of shares of Stock which have been
beneficially owned by the director for at least six (6) months prior to the date
of exercise having an aggregate Fair Market Value of not less than the product
of the exercise price multiplied by the number of shares the director intends to
purchase upon exercise of the Option on the date of delivery; or (c) in a
cashless exercise through a broker. Payment shall be made at the time that the
Option or any part thereof is exercised, and no shares shall be issued or
delivered upon exercise of an Option until full payment has been made by the
director. Payment shall be made at the time that the Option or any part thereof
is exercised, and no shares shall be issued or delivered upon exercise of an
Option until full payment has been made by the Participant. The holder of an
Option, as such, shall have none of the rights of a stockholder.
3.6 Non-Transferability. An Option shall not be transferable or
-------------------
assignable except by will or by the laws of descent and distribution and shall
be exercisable, during the Participant's lifetime, only by the Participant, or
in the event of the Participant's Disability, by his or her legal
representative.
3.7 Condition to All Option Grants. In the event the remaining number of
------------------------------
shares of Stock reserved for issuance under the Plan is insufficient to grant
Options for the appropriate number of shares of Stock to all eligible non-
employee directors as of any grant date, then no Options shall be granted as of
that grant.
SECTION 4 MISCELLANEOUS PROVISIONS
4.1 Changes in Capitalization; Merger; Liquidation.
----------------------------------------------
(a) The number of shares of Stock reserved with respect to Options
that may be granted under the Plan, the number of shares of Stock reserved for
issuance upon the exercise of each outstanding Option, the number of shares of
Stock that may be awarded under Sections 3.2 and 3.3, and the exercise price of
each outstanding Option shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Stock resulting from a subdivision or
combination of shares or the payment of a stock dividend (including, but limited
to, an extraordinary dividend (including a spin-off)) in shares of Stock to
holders of outstanding shares of Stock or any other increase or decrease in the
number of shares of Stock outstanding effected without receipt of consideration
by the Company.
(b) If the Company shall be the surviving corporation in any merger or
consolidation, recapitalization, reclassification of shares or similar
reorganization, an appropriate adjustment shall be made in each Stock Incentive
Agreement such that the Participant shall be entitled to purchase or receive the
number and class of securities to which a holder of the number of shares of
Stock subject to the Stock Incentive Agreement at the time of such transaction
would have been entitled to receive as a result of such transaction, and a
corresponding adjustment shall be made in the exercise price of each outstanding
Option. A dissolution or liquidation of the Company shall cause Options to
terminate as to any portion thereof not exercised as of the effective date of
the
-4-
<PAGE>
dissolution or liquidation. In the event of a sale of substantially all the
Stock or property of the Company or the merger or consolidation of the Company
into another corporation where the purchaser does not agree to the assumption of
the Options, the Option shall be terminated in consideration of the payment to
the Participant of the difference between the then Fair Market Value of the
Stock subject to the unexercised portion of the Option and the aggregate
exercise price.
(c) The existence of the Plan and the Options granted pursuant to the
Plan shall not affect in any way the right or power of the Company to make or
authorize any adjustment, reclassification, reorganization or other change in
its capital or business structure, any merger or consolidation of the Company,
any issue of debt or equity securities having preferences or priorities as to
the Stock or the rights thereof, the dissolution or liquidation of the Company,
any sale or transfer of all or any part of its business or assets, or any other
corporate act or proceeding.
4.2 Right to Remove Director. Nothing in the Plan or in any Stock
------------------------
Incentive Agreement shall confer upon any Participant the right to continue as a
member of the Board of Directors or affect the right of the Company to terminate
a Participant's directorship at any time.
4.3 Restrictions on Delivery and Sale of Shares; Legends. Each Option is
----------------------------------------------------
subject to the condition that if at any time the Committee, in its discretion,
shall determine that the listing, registration or qualification of the shares
covered by such Option upon any securities exchange or under any state or
federal law is necessary or desirable as a condition of or in connection with
the granting of such Option or the purchase or delivery of shares thereunder,
the delivery of any or all shares pursuant to such Option may be withheld unless
and until such listing, registration or qualification shall have been effected.
If a registration statement is not in effect under the Securities Act of 1933 or
any applicable state securities laws with respect to the shares of Stock
purchasable or otherwise deliverable under Options then outstanding, the
Participant shall, as a condition of exercise of any Option or as a condition to
any other delivery of Stock pursuant to an Option, represent, in writing, that
the shares received pursuant to the Option are being acquired for investment and
not with a view to distribution and agree that the shares will not be disposed
of except pursuant to an effective registration statement, unless the Company
shall have received an opinion of counsel that such disposition is exempt from
such requirement under the Securities Act of 1933 and any applicable state
securities laws. The Company may include on certificates representing shares
delivered pursuant to an Option such legends referring to the foregoing
representations or restrictions or any other applicable restrictions on resale
as the Company, in its discretion, shall deem appropriate.
4.4 Non-alienation of Benefits. Other than as specifically provided with
--------------------------
regard to the death of a Participant, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge; and any attempt to do so shall be void. No such benefit
shall, prior to receipt by the Participant, be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
4.5 Termination and Amendment of the Plan. The Board of Directors at any
-------------------------------------
time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No termination,
modification or amendment of the Plan, without the consent of a Participant who
has been awarded an Option shall adversely affect the rights of that Participant
under such Option.
-5-
<PAGE>
4.6 Choice of Law. The laws of the State of Delaware shall govern the
-------------
Plan, to the extent not preempted by federal law.
4.7 Effective Date of Plan. The Plan shall become effective on the
----------------------
Effective Date.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
13th day of September , 1996.
- ---------- --------------------------------
HEALTHCARE FINANCIAL PARTNERS, INC.
By:/s/ John K. Delaney
-------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
ATTEST:
/s/ Edward P. Nordberg, Jr.
- --------------------------------
Secretary
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made and entered into as of
, 1996, by and between HEALTHCARE FINANCIAL PARTNERS, INC., a
- -------------
Delaware corporation (the "Corporation"), and ("Indemnitee").
------------------
WHEREAS, the Indemnitee is a director of the Corporation; and
WHEREAS, the Bylaws of the Corporation provide for indemnification of
directors of the Corporation; and
WHEREAS, the parties believe it appropriate to further memorialize and
reaffirm the Corporation's obligation to indemnify the Indemnitee as set forth
in the Bylaws;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties agree as follows:
1. Agreement to Indemnify.
----------------------
(a) Subject to Section 2 hereof and except as provided in subsection
1(b) below, the Corporation shall indemnify the Indemnitee against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by the Indemnitee in connection
with any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, and whether
formal or informal ("Proceeding") in which the Indemnitee was or is or is
threatened to be made a party because he is or was a director of the
Corporation or was serving at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise if (i) the
Indemnitee acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and (ii) with
respect to any criminal Proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any Proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the Indemnitee
did not act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal Proceeding, that the Indemnitee had reasonable
cause to believe that his conduct was unlawful.
(b) Notwithstanding anything to the contrary set forth in subsection
1(a) above, the Corporation shall not be required to indemnify the
Indemnitee in connection with any Proceeding by or in the right of the
Corporation in which the Indemnitee shall have been adjudged to be liable
to the Corporation unless and only to the extent that the Court of Chancery
or the court in which the Proceeding was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of
<PAGE>
the case, the Indemnitee is fairly and reasonably entitled to indemnity of
such expenses which the Court of Chancery or other such court shall deem
proper.
2. Indemnification Against Expenses. Notwithstanding the other
--------------------------------
provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise, including the dismissal of a Proceeding
without prejudice or the settlement of a Proceeding without admission of
liability, in defense of any Proceeding or in defense of any claim, issue or
matter therein, the Corporation shall indemnify the Indemnitee against all
expenses (including attorneys' fees) actually and reasonably incurred by the
Indemnitee in connection therewith.
3. Determination of Right of Indemnification. Any indemnification under
-----------------------------------------
Section 1 above (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that the
indemnification of the Indemnitee is proper in the circumstances because the
Indemnitee has met the applicable standards of conduct set forth in Section 1.
Such determination shall be made (i) by the Board of Directors by a majority
vote of a quorum consisting of directors who are not or were not parties to such
Proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
if a quorum of disinterested directors so directs, by independent legal counsel
in a written opinion, or (iii) by the stockholders of the Corporation.
4. Advances of Expenses. Except as limited by Section 5 hereof, expenses
--------------------
incurred by the Indemnitee in defending or investigating any Proceeding shall be
paid by the Corporation in advance of the final disposition of such matter if
the Corporation has received an undertaking on behalf of the Indemnitee,
substantially in the form attached hereto as Annex I, to repay such amount in
-------
the event that it is ultimately determined, as provided herein, that the
Indemnitee is not entitled to indemnification. However, no advance of such
expenses shall be made by the Corporation if a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by independent legal
counsel in a written opinion, that, based upon the facts known to the Board of
Directors or such counsel at the time such determination is made, the Indemnitee
acted in bad faith and in a manner that the Indemnitee believed not to be in or
opposed to the best interests of the Corporation, or, with respect to any
criminal Proceeding, that the Indemnitee believed or had reasonable cause to
believe his conduct was unlawful. In no event shall any advance or expenses be
made in instances where the Board of Directors or such counsel reasonably
determines that such person deliberately breached such person's duty to the
Corporation or its stockholders.
5. Procedure for Making Demands. Any indemnification or advance of
----------------------------
expenses hereunder shall be made promptly, and in any event within forty-five
(45) days, upon the written request of the Indemnitee, unless (i) with respect
to indemnification under Section 1 hereof, a determination is reasonably and
promptly made by a majority vote of a quorum of disinterested directors,
independent legal counsel or the stockholders, as provided in Section 3, that
the applicable standards of conduct set forth in Section 1 have not been met,
and (ii) with respect to advance of expenses under Section 4 hereof, the
determination is made by a majority vote of a quorum of disinterested directors
or by independent legal counsel, as provided in Section 4, that
-2-
<PAGE>
no such advance of expenses shall be made by the Corporation for the reasons
stated in that Section. The right to indemnification or advances hereunder
shall be enforceable by the Indemnitee in any court of competent jurisdiction if
the Board of Directors or independent legal counsel denies the claim, in whole
or in part, or if no disposition of such claim is made within forty-five (45)
days after application by the Indemnitee for indemnification or advance of
expenses. The Indemnitee's expenses incurred in connection with successfully
establishing the Indemnitee's right to indemnification or advance of expenses,
in whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
6. Successors. This Agreement establishes contract rights which shall be
----------
binding upon, and shall inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
7. Contract Rights Not Exclusive. The contract rights conferred by this
-----------------------------
Agreement shall be in addition to, but not exclusive of, any other right which
the Indemnitee may have or may hereafter acquire under any statute, the Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws of the
Corporation, any agreement by the vote of stockholders or disinterested
directors of the Corporation, or otherwise.
8. Indemnitee's Obligations. The Indemnitee shall promptly advise the
------------------------
Corporation in writing of the institution of any Proceeding which is or may be
subject to this Agreement and keep the Corporation generally informed of, and
consult with the Corporation with respect to, the status of any such Proceeding.
Notices to the Corporation shall be directed to HealthCare Financial Partners,
Inc., 2 Wisconsin Circle, Suite 320, Chevy Chase, Maryland 20815, Attn:
President (or such other address as the Corporation shall designate in writing
to the Indemnitee), and shall be given by personal delivery or by mailing the
same by United States Postal Service, postage prepaid, certified or registered
mail, with return receipt requested. In addition, the Indemnitee shall give the
Corporation such information and cooperation as it may reasonably require and as
shall be within the Indemnitee's power.
9. Severability. Should any provision of this Agreement, or any clause
------------
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
10. Modification and Waiver. No supplement, modification or amendment of
-----------------------
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
11. Choice of Law. The validity, interpretation, performance and
-------------
enforcement of this Agreement shall be governed by the laws of the State of
Delaware.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
-3-
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
By:
--------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
INDEMNITEE
By:
--------------------------------------------
Name:
-------------------------------------
Director
-4-
<PAGE>
ANNEX I
-------
UNDERTAKING AGREEMENT
This AGREEMENT is made on , between
-------------------------------
HEALTHCARE FINANCIAL PARTNERS, INC., a Delaware corporation (the
"Corporation"), and , a member of the Board of
-------------------------
Directors of the Corporation ("Indemnitee").
WHEREAS, Indemnitee has become involved in investigations, claims, actions,
suits or proceedings which have arisen as a result of Indemnitee's service to
the Corporation; and
WHEREAS, Indemnitee desires that the Corporation pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Corporation is willing to make such payments but, in
accordance with [Article VIII of the Amended and Restated Certificate of
Incorporation] of the Corporation and Section 145 of the General Corporation Law
of the State of Delaware, the Corporation may make such payments only if it
receives an undertaking to repay from Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. In regard to any payments made by the Corporation to Indemnitee
pursuant to the terms of the Indemnification Agreement dated
, 1996, between the Corporation and Indemnitee, Indemnitee
- -------------------
hereby undertakes and agrees to repay to the Corporation any and all amounts so
paid promptly and in any event within thirty (30) days after the disposition,
including any appeals, of any litigation or threatened litigation on account of
which payments were made; provided, however, that Indemnitee shall not be
required to repay the amount as to which he is determined to be entitled to be
indemnified by the Corporation under [Article VIII of the Amended and Restated
Certificate of Incorporation] of the Corporation and Section 145 of the General
Corporation Law of the State of Delaware or other applicable law.
2. This Agreement shall not affect in any manner the rights which
Indemnitee may have against the Corporation, any insurer or any other person to
seek indemnification for or reimbursement of any expenses referred to herein or
any judgment which may be rendered in any litigation or proceeding.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date first above written.
HEALTHCARE FINANCIAL PARTNERS, INC.
By:
-----------------------------------------
Name:
-----------------------------------
Title:
---------------------------------
INDEMNITEE
--------------------------------------------
Name:
---------------------------------------
2
<PAGE>
Exhibit 10.8
MARKETING SERVICES AGREEMENT
MARKETING SERVICES AGREEMENT, dated as of November 1, 1995, between
HEALTHPARTNERS FUNDING LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Partnership"), HEALTHPARTNERS FINANCIAL CORPORATION, a Delaware corporation
(the "General Partner") and STEVEN SILVER, (the "Consultant") .
W I T N E S E T H:
------------------
The Partnership is in the business of financing the operations,
accounts receivable, and equipment of middle market health care service
companies. The Partnership's customers include nursing home companies, home
health care companies, hospitals, large physician practices and other health
care service providers.
The General Partner is the general partner of the partnership.
Consultant is in the business of providing consulting services in the
field of marketing and systems analysis.
The Partnership desires to obtain and engage Consultant to provide
marketing services to the Partnership on the terms and conditions herein set
forth, and the Consultant desires to provide such services to the Partnership.
Accordingly, in consideration of the mutual covenants and
representations contained herein, the parties agree as follows:
1. Full-Time Engagement of Executive.
----------------------------------
1.1. Duties and Status.
------------------
(a) The Partnership hereby engages the Consultant for the
period specified in paragraph 4 (the "Term"), and the Consultant accepts such
engagement, on the terms and conditions set forth in this Agreement. During the
Term, the Consultant shall, subject at all times to the direction and review of
the General Partner, be entitled to exercise such authority and perform such
duties as are commensurate with the authority exercised and duties performed by
a marketing director. The Consultant shall, subject at all times to the
direction and review of the Board, develop and implement all advertising and
promotion campaigns, coordinate all sales and marketing efforts, and supervise
all sales persons employed or retained by the Partnership.
(b) During the Term, the Consultant shall (i) not engage in
consulting work or any trade or business for his own account or for or on behalf
of any other person, firm or corporation or any other activity which, in the
judgment of the Board, competes, conflicts or interferes with the performance of
-1-
<PAGE>
his duties hereunder in any way, and (ii) accept and perform any and all other
duties assigned to it by the Board, provided that the performance of such duties
shall not be inconsistent with the scope of the duties provided for in
subparagraph (a) of this paragraph 1.1.
(c) The consulting services called for hereunder shall be
provided by Steven Silver, or such other individual or individuals as may be
accepted by the Partnership. Consultant agrees to cause all employees or agents
of Consultant who are providing services hereunder to execute a written
agreement binding such individual to the provisions of Sections 2 and 3 hereof.
1.2. Compensation. As compensation for his services under this
------------
Agreement, the Partnership shall pay the Consultant a commission equal to one
half of all commitment or initiation fees paid to the Partnership with respect
to any transaction generated directly by the efforts of Consultant. The fees
payable to Consultant shall be paid within thirty (30) days after receipt by the
Partnership of such commitment or initiation fees.
1.3. Stock Options.
--------------
(a) Grant of Option. The General Partner represents and
---------------
warrants that as of the date hereof there exist 750,000 shares of common stock
outstanding and options to purchase 83,333 shares of the same, and except as
aforesaid there is no outstanding stock of the General Partner. The General
Partner, for value received, hereby grants to the Consultant the option to
acquire from the General Partner 8,417 duly authorized, validly issued, fully
paid and nonassessable shares of the common stock of the General Partner at a
purchase price of $11.89 per share. The General Partner shall reserve and keep
available such number of shares as will satisfy the requirements of this option.
Appropriate adjustment shall be made to the number of shares subject to the
option granted hereunder in order to give effect to any stock splits,
subdivisions, combinations or stock dividends, occurring after the date of this
Agreement, such that immediately after the distribution date of such stock
dividend or the effective date of such subdivision, split-up or combination, as
the case may be, the Consultant shall be entitled to purchase the number of
shares that he would have held after such stock dividend, subdivision, split-up
or combination, as the case may be, at the aggregate price he would have paid
for such shares, if he had exercised this option immediately prior to such
event. The decision of the Board of Directors of the General Partner as to the
amount of timing of any such adjustment shall be binding and conclusive on all
parties.
(b) Reorganization Reclassification. If any capital
-------------------------------
reorganization or reclassification of the capital stock of
-2-
<PAGE>
the General Partner shall be effected in such a way that the then holders of
capital stock shall be entitled to receive stock, securities or assets with
respect to or in exchange for their capital stock, then, as a condition of such
reorganization or reclassification, lawful and adequate provisions shall be made
which grant the Consultant the right to purchase and receive upon the basis and
upon the terms and conditions specified in this Option and in lieu of the
shares immediately theretofore purchasable hereunder and receivable upon the
exercise of this Option, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares equal in value of outstanding shares immediately theretofore purchasable
and receivable upon the exercise of this Option, and in any such case
appropriate provision shall be made with respect to the rights and interests of
the Consultant to the end that the provisions hereof (including, without
limitation, to the extent provided herein, provisions for adjustments of the
number of shares purchasable and receivable upon the exercise of this Option)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise hereof.
(c) Notice of Adjustment. The General Partner shall
---------------------
give notice to the Consultant as soon as practicable after any adjustment of the
exercise price or of the number of shares purchasable upon exercise of this
Option. Such notice shall state the exercise price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Option, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is made.
(d) Sale of the General Partner.
----------------------------
(i) Definitions. As used in this Option, the
-----------
following terms shall have the meaning set forth below:
(A) "Sale of the General Partner" shall mean a
transaction in which an Independent Third Party or group of Independent Third
Parties acquire (1) all of the issued and outstanding capital stock of the
General Partner, whether by merger, consolidation or sale or transfer of stock,
or (2) all or substantially all of the General Partner's assets.
(B) "Independent Third Party" shall mean any person
or entity who, immediately prior to the contemplated transaction, does not own
in excess of 5% of the General Partner's common stock on a fully diluted basis
(a "5% Owner"), who is not controlling, controlled by or under common control
with any such 5% Owner, and who is not a family Member of any such 5% Owner.
(ii) Sale of the General Partner. In the event of any
---------------------------
Sale of the General Partner, the Consultant shall be
- 3 -
<PAGE>
obligated to exercise the Option and sell the shares of common stock in
connection with such Sale of the General Partner, except that in lieu of
exercising the Option, the Consultant shall be entitled to surrender the Option
back to the General Partner.
(e) Notices of Stock Dividends. Redemptions, Subscriptions,
-------------------------------------------------------
Reclassifications, Consolidations, Mergers, Etc. If at any time: (i) the
- ------------------------------------------------
General Partner shall declare a dividend on its common stock; (ii) the General
Partner shall authorize the granting to the holders of its common stock of
rights to subscribe for or purchase any shares of capital stock of any class or
of any other rights; or (iii) there shall be any capital reorganizations, or
reclassification of the capital stock of the General Partner, or consolidation
or merger of the General Partner with, or sale of all or substantially all of
its assets to, another corporation or firm; or (iv) there shall be filed a
registration statement pursuant to the Securities Act of 1933, as amended, or
(v) there shall be a redemption or repurchase in excess of an aggregate of
$1,000,000 in one transaction of the General Partner's equity securities; or
(vi) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the General Partner (items (i) through (vi) above, "Notice
Events"); then, at least ten (10) days prior to the applicable record date
hereinafter specified or in the absence of such record date, the date such event
is expected to become effective, the General Partner shall deliver notice to
the Consultant summarizing such Notice Event and stating, as applicable,
the record date (or if a record is not to be taken the date as of which the
rights of the shareholders of record are to be determined) the date on which
such Notice Event is expected to become effective, and, if applicable, the date
as of which it is expected the holders of capital stock of record shall be
entitled to effect any change of their capital stock for cash, securities or
other property deliverable upon such Notice Event.
(f) Exercise Period. The option granted under the Plan will expire
---------------
on the 10th anniversary of the date of this Agreement.
(g) Limitation Upon Transfer of Options. The option granted herein may
----------------------------------
not be assigned (except by will or intestacy), pledged or hypothecated, and
shall not be subject to execution, attachment or similar process. Upon any
attempt to transfer an option, or to assign, pledge, hypothecate or otherwise
dispose of an option in violation of this provision, or upon the levy of any
attachment or similar process upon such option or such rights, this option shall
immediately lapse and become null and void.
(h) Termination and Forfeiture of Options. In the event of the
-------------------------------------
termination of this Consulting Agreement for any reason, all unexercised
options of the Consultant will terminate, be forfeited and will lapse unless
such options are
-4-
<PAGE>
exercised by the Consultant within one year after the Consulting Agreement with
the Partnership is terminated.
(i) Exercise of Options. To exercise an option, the Consultant shall
-------------------
give written notice to the General Partner's Secretary, substantially in the
form as Exhibit A attached hereto, at the General Partner's principal place of
business accompanied by full payment for the shares being purchased and a
written statement that the shares are purchased for investment and not with a
view toward distribution; however, this statement will not be required in the
event the shares subject to the option are registered under the Securities Act
of 1933, as amended.
(j) Manner of Payment. Consultant may pay the option price for the
-----------------
shares being purchased upon exercise of the option either (i) in cash or by
check made payable to the order of the General Partner, (ii) with shares of the
General Partner, to the extent the Fair Market Value of such shares on the date
of exercise equals the option price for the shares being purchased, (iii) by
surrender to the General Partner of options to purchase shares, to the extent of
the difference between the exercise price of such options and the Fair Market
Value of the shares subject to such options (the "spread"), or (iv) a
combination of (i), (ii) and (iii) above. The General Partner shall have the
right to withhold and deduct from the number of shares deliverable upon the
exercise of any options hereunder a number of shares having an aggregate Fair
Market Value equal to the amount of any taxes and other charges that the General
Partner is obligated to withhold or deduct from amounts payable to the
Consultant.
(k) Fair Market Value. In the event that shares are not listed and
-----------------
actively traded on any established national securities exchange, the "Fair
Market Value" per share as of any particular date shall be determined by the
Board of Directors of the Company. In the event that shares are so listed and
actively traded, the "Fair Market Value" per share as of any particular date
shall be the closing price per share on the trading day immediately preceding
such date on such national securities exchange on which the shares are listed on
such date.
(l) Share Certificates. Certificates representing shares issued
------------------
pursuant to this Option which have not been registered under the Securities Act
of 1933 shall bear a legend to the following effect:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 and may not be
transferred unless registered under the provisions of that Act
or if an exemption from registration is available."
-5-
<PAGE>
The General Partner shall not be required to transfer or deliver any
certificate or certificates for shares purchased upon any exercise of an option:
(i) until after compliance with all then applicable requirements of law; and
(ii) prior to admission of such shares to listing on any stock exchange on which
the General Partner's outstanding shares may then be listed.
(m) Registration. If the General Partner shall be advised by its
------------
counsel that shares deliverable upon any exercise of an option are required to
be registered under the Securities Act of 1933, or that the consent of any other
authority is required for their issuance, the General Partner may effect such
registration or obtain such consent, and delivery of the shares by the General
Partner may be deferred until registration is effected or consent obtained. The
General Partner agrees that the Consultant shall have registration rights pari-
pasu with those that may be obtained by the existing principals of the General
Partner.
(n) Issuance of Shares. No shares will be issued until full
------------------
payment for such shares has been made. Consultant shall have no rights as a
shareholder with respect to optioned shares until the date the option shall have
been properly exercised and all conditions to the exercise of the option and
purchase of shares shall have been complied with in all respects to the
satisfaction of the Company. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such option is exercised, except as otherwise provided herein.
(o) Period of Exercise of Option. The Option shall be immediately
----------------------------
exercisable and fully vested as of the date hereof, notwithstanding any
termination of this Services Agreement.
1.4. Reimbursement of Expenses. Consultant shall be entitled to be
-------------------------
reimbursed for all reasonable expenses incurred on behalf of the Partnership in
connection with Consultant's services hereunder. Provided, however, nothing
herein shall be construed as obligating the Company to reimburse Consultant for
its ordinary and necessary operating expenses, including, but not limited to,
salaries, and general administrative overhead expenses.
2. Competition; Confidential Information. The Consultant and the
-------------------------------------
Partnership recognize that due to the nature of his association with the
Partnership and its affiliates and of his engagements hereunder, and the
relationship of the consultant to the Partnership and its affiliates, the
Consultant will have access to and will acquire, and may assist in developing,
confidential and proprietary information relating to the business and operations
of the Partnership and its affiliates, including, without limiting the
generality of the foregoing, information with respect to present and proposed
projects, transactions completed and under negotiation, financing and sales and
marketing methods. The Consultant
- 6 -
<PAGE>
acknowledges that such information will continue to be of vital importance to
the business of the Partnership and its affiliates and that disclosure of it to
or its use by others could cause substantial loss to the Partnership. The
Consultant and the Partnership also recognize that an important part of the
Consultant's duties will be to develop good will for the Partnership and its
affiliates through his personal contact with customers, agents and others having
business relationships with the Partnership and its affiliates, and that there
is a danger that this good will, a proprietary asset of the Partnership and its
affiliates, may follow the Consultant if and when his relationship with the
Partnership is terminated. The Consultant accordingly agrees as follows:
2.1. Non-Competition and Non-Solicitation.
-------------------------------------
(a) For purposes of this Agreement, the "Non-Competition
Period" shall be a period of 3 months from and after termination of the
Consultant's Consulting Agreement with the Partnership.
(b) During the Term the Consultant will not, directly or
indirectly, either individually or as owner, partner, agent, employee,
consultant or otherwise, except for the account of and on behalf of the
Partnership or its affiliates, compete with the Partnership or any of its
affiliates in any manner whatsoever. During the Term, the Consultant shall
report and make available to the Partnership in a prompt and timely manner all
business opportunities which are within the scope of the business of the
Partnership or its affiliates and which become available to the Consultant or of
which he has knowledge.
(c) During the Term, and the Non-competition Period, the
Consultant will not, directly or indirectly, either individually or as owner,
partner, agent, employee, consultant or otherwise (except during the
Consultant's Consulting Agreement with the Partnership and then only for the
account and on behalf of the Partnership or its affiliates), solicit, attempt to
solicit or otherwise engage the services of, or become associated in any
business similar to any business of the Partnership with, any person who was an
employee, officer or director of the Partnership or any of its affiliates during
the 12 months preceding the date the Consultant's Consulting Agreement with the
Partnership is terminated.
2.2. Trade Secrets. The Consultant will keep confidential any trade
-------------
secrets or confidential or proprietary information of the Partnership and its
affiliates which are now known to him or which hereafter may become known to him
as a result of his association with the Partnership and shall not at any time
directly or indirectly disclose any such information to any person, firm or
corporation, or use the same in any way other than in connection with the
business of the Partnership or its affiliates
- 7 -
<PAGE>
during and at all times after the expiration of the Term. For purposes of this
Agreement, "trade secrets or confidential or proprietary information" means
information unique to the Partnership or any of its affiliates which has a
significant business purpose and is not known or generally available from
sources outside the Partnership or any of its affiliates or typical of industry
practice. The parties hereto agree that the Consultant's pre-existing contact
list of clients and prospects shall not be considered trade secrets or
confidential or proprietary information of the Partnership.
3. Partnership's Remedies for Breach. It is recognized that damages
---------------------------------
in the event of a breach of paragraph 2 by the Consultant would be difficult, if
not impossible, to ascertain, and it is therefore agreed that the Partnership,
in addition to and without limiting any other remedy or right it may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and the Consultant hereby
waives any and all defenses he may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right shall not preclude any other rights and remedies at
law or in equity which the Partnership may have.
4. Term.
-----
4.1. Duration and Extension.
-----------------------
(a) The Term shall commence on the date of this Agreement
and shall continue until the close of business on December 31, 1996.
(b) On December 31, 1996, and on each December 31,
thereafter, the Term shall be extended for an additional one year period, unless
the Partnership or the Consultant notifies the other in writing at least 30 days
prior to such anniversary date of its intention not to so extend the Term.
4.2. Termination.
------------
(a) Either party may immediately terminate this Agreement
for cause, and, upon such termination, the terminating party will have no
further obligation to the other party.
4.3. Return of Partnership Property. Consultant authorizes the
------------------------------
Partnership to withhold any amounts due to it until all property of the
Partnership or entrusted to the consultant by the Partnership at any time during
the Term has been returned to the Partnership. The Consultant authorizes the
Consultant to deduct from any amounts otherwise due to it, an amount equal to
any outstanding advances made by the Partnership to it or on its
- 8 -
<PAGE>
behalf, any obligations it incurred for which it is responsible, and any amounts
otherwise owed by it to the Partnership.
4.4. Definitions. The following words shall have the specified
-----------
meanings when used in the paragraphs specified:
In this Agreement the term "cause" means:
(a) with respect to the Consultant, (1) an action or failure to act
constituting fraud, misappropriation or intentional material damage to the
property or business of the Partnership, (2) the commission of an act of
deliberate and material dishonesty, (3) a material breach of this Agreement,
(4) commission of a crime resulting in a fine of $500 or more and/or
imprisonment, or causing the Partnership to commit such a crime; or (5)
continuance of willful and repeated failure by the Consultant to perform his
duties in compliance with this Agreement after written notice to the Consultant
by the General Partner specifying such failure; provided that such "cause"
shall have been found by a majority vote of the entire Board of Directors of the
General Partner after at least 10 days' written notice to the Consultant
specifying the cause proposed to be claimed and after an opportunity for the
Consultant to be heard at a meeting of such Board of Directors; and
(b) with respect to the Partnership, a material breach of the
Partnership's obligations under this Agreement.
5. Notices. Any notices, requests, demands and other communications
-------
provided for by this Agreement shall be sufficient if in writing and personally
delivered or sent by registered or certified mail to the Consultant at the last
address he has filed in writing with the Partnership or, in the case of the
Partnership, at its principal executive offices.
6. Binding Agreement. This Agreement shall be effective as of the
-----------------
date hereof and shall be binding upon and inure to the benefit of the Consultant
and its successors and assigns. Consultant may not assign its rights or
obligations under this Agreement without the written consent of the Partnership
and the General Partner. The rights and obligations of the Partnership under
this Agreement shall inure to the benefit of and shall be binding upon any
successor of the Partnership. The Partnership shall have the right to assign
this Agreement to any successors to its Business or substantially all of its
assets, without the consent of Consultant.
7. Entire Agreement. This Agreement constitutes the entire
----------------
understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior understandings written or oral. This Agreement may
not be changed, modified, or discharged orally, but only by an instrument in
writing signed by the parties. This Agreement shall be governed by the laws of
the
- 9 -
<PAGE>
State of Maryland and the invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement the date first above written.
ATTEST: HEALTHPARTNERS FUNDING LIMITED
PARTNERSHIP
By: HEALTHPARTNERS FINANCIAL CORPORATION
{SIGNATURE APPEARS HERE] Name:
- -------------------------- Title: /s/ John K. Deloney
-------------------------------
John K. Deloney
-------------------------------
President
-------------------------------
Attest:
[SIGNATURE APPEARS HERE] Name:
- -------------------------- Title: /s/ John K. Deloney
-------------------------------
John K. Deloney
-------------------------------
President
-------------------------------
WITNESS:
[SIGNATURE APPEARS HERE] /s/ Steven Silver
- -------------------------- -------------------------------
Steven Silver
- 10 -
<PAGE>
EXHIBIT A
---------
Date:____________________
Secretary
HEALTHPARTNERS FINANCIAL CORPORATION
To the Secretary:
I hereby exercise my option to purchase _______________ shares of
common stock, par value $ .01 per share ("Shares"), of HealthPartners Financial
Corporation in accordance with the terms set forth in the Marketing Services
Agreement with Steven Silver dated ______________________________.
In full payment for such exercise, please find enclosed
[_] check in the amount of $____________
[_] Shares having a Fair Market Value of $__________
[_] Options, bearing an exercise price of $_________, to purchase
______ Shares having a Fair Market Value of $ _________ ,
resulting in a "spread" of $__________.
I authorize the Company to withhold a number of Shares equal to any withholding
obligation applicable to me.
Very truly yours,
----------------------------------------
----------------------------------------
Print Name
- 11 -
<PAGE>
CONSENT
-------
This Consent is entered into as of January 1, 1996 between
HEALTHPARTNERS FUNDING LIMITED PARTNERSHIP, a Delaware limited partnership (the
"Partnership"), HEALTHPARTNERS FINANCIAL CORPORATION, a Delaware corporation
(the "General Partner"), STEVEN SILVER, (the "Consultant"), and MEDICAL
MARKETING AND SERVICES, INC., a Maryland corporation (the "Assignee").
RECITALS
--------
The Partnership, the General Partner, and Consultant entered into a
marketing services agreement on November 1, 1995 (the "Agreement").
Under the terms of the Agreement, the services to be provided
thereunder were to be provided personally by Steven Silver and any assignment of
Consultant's rights or obligations under the Agreement required the consent of
the Partnership.
The Consultant desires to assign his rights under the Agreement to the
Assignee. The Consultant owns a majority of the stock in the Assignee and is
the controlling shareholder of the Assignee.
The Consultant has requested that the Partnership and the General
Partner consent to the assignment of a portion of his rights and obligations
under the Agreement to the Assignee.
- 12 -
<PAGE>
NOW, THEREFORE, in. consideration of the foregoing recitals, which are
deemed to be a substantive part hereof, the mutual promises of the parties
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Consultant hereby assigns its rights and obligations under the
Agreement to Medical Marketing & Services, Inc. reserving unto himself the stock
option granted pursuant to Section 1.3 of the Agreement. Medical Marketing
Services, Inc. agrees that any and all commissions or other compensation
received from the Partnership on account of Consultant's performance under the
Agreement shall be paid directly to Consultant from Medical Marketing Services,
Inc. as compensation, without setoff.
2. Assignee hereby agrees to be bound by all of the terms and
conditions of the Agreement.
3. Consultant agrees that he shall remain subject to the provisions
of Section 2 and Section 3 of the Agreement regarding non-competition, non-
solicitation and confidential information as if the Agreement had not been
assigned.
4. The Partnership and the General partner hereby consent to the
assignment of the agreement to the assignee in accordance with the terms hereof.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
WITNESS/ATTEST: HEALTHPARTNERS FUNDING, L.P
SIGNATURE APPEARS HERE By: SIGNATURE APPEARS HERE (SEAL)
- ----------------------------- --------------------------
WITNESS/ATTEST: HEALTHPARTNERS FINANCIAL
CORPORATION
SIGNATURE APPEARS HERE By: SIGNATURE APPEARS HERE (SEAL)
- ----------------------------- --------------------------
WITNESS/ATTEST:
SIGNATURE APPEARS HERE By: /s/ Steven Silver (SEAL)
- ----------------------------- --------------------------
Steven Silver
WITNESS/ATTEST: MEDICAL MARKETING AND SERVICES,
INC.
SIGNATURE APPEARS HERE By: SIGNATURE APPEARS HERE (SEAL)
- ----------------------------- --------------------------
- 14 -
<PAGE>
Exhibit 10.9
- --------------------------------------------------------------------------------
HEALTHPARTNERS FUNDING, L.P.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
Dated: March 9, 1995
$23,125,000.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHAWMUT CAPITAL CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
SECTION 1. CREDIT FACILITY......................................... 1
1.1 Revolving Credit Loans........................................ 1
----------------------
SECTION 2. INTEREST, FEES AND CHARGES.............................. 2
2.1 Interest...................................................... 2
--------
2.2 Computation of Interest and Fees.............................. 4
--------------------------------
2.3 Commitment Fee................................................ 4
--------------
2.4 Unused Line Fee............................................... 4
---------------
2.5 Collection Charges............................................ 4
------------------
2.6 Audit Fees.................................................... 4
----------
2.7 Reimbursement of Expenses..................................... 4
-------------------------
2.8 Bank Charges.................................................. 5
------------
2.9 Indemnity re: LIBOR........................................... 5
-------------------
SECTION 3. LOAN ADMINISTRATION..................................... 5
3.1 Manner of Borrowing Revolving Credit Loans.................... 5
------------------------------------------
3.2 Payments...................................................... 6
--------
3.3 Prepayments................................................... 6
-----------
3.4 Application of Payments and Collections....................... 7
---------------------------------------
3.5 All Loans to Constitute One Obligation........................ 7
--------------------------------------
3.6 Loan Account.................................................. 7
------------
3.7 Statements of Account......................................... 7
---------------------
SECTION 4. TERM AND TERMINATION.................................... 7
4.1 Term of Agreement............................................. 7
-----------------
4.2 Termination................................................... 7
-----------
SECTION 5. SECURITY INTERESTS...................................... 8
5.1 Security Interest in Collateral............................... 8
-------------------------------
5.2 Lien Perfection: Further Assurances........................... 9
-----------------------------------
SECTION 6. COLLATERAL ADMINISTRATION............................... 9
6.1 General....................................................... 9
-------
6.2 Administration of Accounts.................................... 10
--------------------------
6.3 Payment of charges............................................ 11
------------------
SECTION 7. REPRESENTATIONS AND WARRANTIES........................... 11
7.1 General Representations and Warranties........................ 11
--------------------------------------
7.2 Continuous Nature of Representations and Warranties........... 16
---------------------------------------------------
7.3 Survival of Representations and Warranties.................... 16
------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS..................... 16
8.1 Affirmative Covenants......................................... 16
---------------------
8.2 Negative Covenants............................................ 19
------------------
8.3 Specific Financial Covenants.................................. 21
----------------------------
SECTION 9. CONDITIONS PRECEDENT.................................... 22
9.1 Documentation................................................. 22
-------------
9.2 No Default.................................................... 22
----------
9.3 Other Loan Documents.......................................... 22
--------------------
9.4 Equity........................................................ 22
------
9.5 Availability.................................................. 22
------------
9.6 Software License.............................................. 22
----------------
9.7 No Litigation................................................. 22
-------------
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON
DEFAULT................................................. 22
10.1 Events of Default............................................. 22
-----------------
10.2 Acceleration of the Obligations............................... 24
-------------------------------
10.3 Other Remedies................................................ 25
--------------
10.4 Remedies Cumulative; No Waiver................................ 25
------------------------------
SECTION 11. MISCELLANEOUS........................................... 26
11.1 Power of Attorney............................................. 26
-----------------
11.2 Indemnity..................................................... 26
---------
11.3 Modification of Agreement: Sale of Interest................... 27
-------------------------------------------
11.4 Confidentiality............................................... 27
---------------
11.5 Severability.................................................. 28
------------
11.6 Successors and Assigns........................................ 28
--------------------------------------------
11.7 Cumulative Effect; Conflict of Terms.......................... 28
------------------------------------
11.8 Execution in Counterparts..................................... 28
-------------------------
11.9 Notice........................................................ 28
------
11.10 Lender's Consent.............................................. 29
----------------
11.11 Credit Inquiries.............................................. 29
----------------
11.12 Entire Agreement.............................................. 29
----------------
11.13 Interpretation................................................ 29
--------------
11.14 GOVERNING LAW; CONSENT TO FORUM............................... 29
-------------------------------
11.15 WAIVERS BY BORROWER........................................... 30
-------------------
</TABLE>
- ii -
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made this 9th day of March, 1995, by
and between SHAWMUT CAPITAL CORPORATION ("Lender"), a Connecticut corporation
with an office at 12 East 49th Street, 33rd Floor, New York, New York 10017; and
HealthPartners Funding, L.P. ("Borrower"), a Delaware limited partnership with
its chief executive office and principal place of business at 2001 L Street,
N.W., Suite 402, Washington, D.C. 20036. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General Definitions.
Accounting terms not otherwise specifically defined herein shall be construed in
accordance with GAAP consistently applied.
SECTION 1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Revolving Credit Facility of up to the
"Facility Cap" available upon Borrower's request therefor, as follows:
1.1 Revolving Credit loans.
----------------------
1.1.1 Loans and Reserves. Lender agrees, for so long as no Event
------------------
of Default exists, to make Revolving Credit Loans to Borrower from time to time,
as requested by Borrower in the manner set forth in subsection 3.1.1 hereof, up
to a maximum principal amount at any time outstanding equal to the Borrowing
Base at such time minus reserves, if any. If the unpaid balance of the Revolving
-----
Credit Loans should exceed the Borrowing Base or any other limitation set forth
in this Agreement, such Overadvance shall nevertheless constitute Obligations
that are due and payable on demand, and which are secured by the Collateral and
entitled to all the benefits thereof. Lender shall have the right to establish
reserves in such amounts, and with respect to such matters, as Lender shall
reasonably deem necessary or appropriate, against the amount of Revolving Credit
Loans which Borrower may otherwise request under this subsection 1.1.1,
including, without limitation, with respect to (i) other sums chargeable against
Borrower's Loan Account as Revolving Credit Loans under any section of this
Agreement; (ii) amounts owing by Borrower to any Person to the extent secured
by a Lien on, or trust over, any Property of Borrower; and (iii) such other
matters, events, conditions or contingencies as to which Lender reasonably
determines reserves should be established from time to time hereunder.
1.1.2 Use of Proceeds. The Revolving Credit loans shall be used
---------------
solely for the purchase by Borrower of Eligible Accounts from Providers,
representing obligations of Third Party Payors to make payments to Providers
under Receivable Acquisition Agreements and for Borrower's general operating
needs (including Distributions permitted by this Agreement), in a manner
consistent with the provisions of this Agreement and all applicable laws.
1.1.3 Facility Cap Sublimits. Revolving Credit Loans outstanding
----------------------
to Borrower at any one time shall not exceed the following sublimits during the
following time periods: from the Closing Date up to, but not including, the
first anniversary of the Closing Date, $9,250,000; on the first anniversary of
the Closing Date and thereafter up to, but not including, the second anniversary
of the Closing Date, $18,500,000; and on the second anniversary of the Closing
Date and at all times thereafter, $23,125,000; (each a "Facility Cap Sublimit").
Provided no Event of Default has occurred and is continuing, Borrower
- 1 -
<PAGE>
may, upon 30 days' prior written notice increase any then applicable Facility
Cap Sublimit to the Facility Cap. In addition, if Borrower gives Lender at least
60 days' notice prior to the second anniversary of the Closing Date that
Borrower elects not to utilize the increase in the Facility Cap Sublimit, then
the Facility Cap Sublimit shall thereafter remain at $18,500,000.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
--------
2.1.1 Revolving Credit Interest:
-------------------------
(a) Rate Options. At the time of each Revolving Credit Loan
------------
under the Revolving Credit Facility, and thereafter from time to time, Borrower
shall have the right, subject to the terms and conditions of this Agreement and
provided no Event of Default has occurred and is continuing, to designate to
Lender in writing that all, or a portion of the Revolving Credit Loans shall
bear interest at either the (i) Revolving Credit LIBOR Rate or (ii) Revolving
Credit Base Rate. Interest on each portion thereof shall accrue and be paid at
the time and rate applicable to the respective option selected by Borrower or
otherwise governing under the terms of this Agreement. If for any reason the
Revolving Credit LIBOR Rate option is unavailable, the Revolving Credit Base
Rate shall apply. The rate of interest on Revolving Credit Base Rate Loans shall
increase or decrease by an amount equal to any increase or decrease in the Base
Rate effective as of the opening of business on the day that any such change in
the Base Rate occurs.
(b) Revolving Credit LIBOR Rate Option:
----------------------------------
(i) Requests. Provided no Event of Default has occurred
--------
and is continuing, and subject to the provisions of this Section 2.1.1 (a)(i),
if Borrower desires to have the Revolving Credit LIBOR Rate apply to all or a
portion of the Revolving Credit Loans, Borrower shall give Lender a written
irrevocable request no later than 11:00 A.M. Eastern time on the second (2nd)
Business Day prior to the requested borrowing date specifying (i) the date the
Revolving Credit LIBOR Rate shall apply (which shall be a Business Day), (ii)
the LIBOR Interest Period, and (iii) the amount to be subject to the Revolving
Credit LIBOR Rate provided that such amount shall be an integral multiple of
$500,000. In no event may Borrowers have outstanding at any time LIBOR Rate
Loans with more than three (3) different LIBOR Interest Periods.
(ii) LIBOR Interest Periods. Revolving Credit LIBOR Rate
---------------------
Loans shall be selected by Borrower for a LIBOR Interest Period; provided,
however, that if the LIBOR Interest Period would otherwise end on a day which
shall not be a London Business Day, such LIBOR Interest Period shall be
shortened or extended to the immediately preceding or next succeeding London
Business Day as is the Bank's custom in the market to which such Revolving
Credit LIBOR Rate Loan relates. All accrued and unpaid interest on a Revolving
Credit LIBOR Rate Loan shall be repaid in full on the day the applicable LIBOR
Rate Period expires. Interest shall also be due and payable, for a Revolving
Credit LIBOR Rate Loan having a LIBOR Interest Period of 6 months on the day of
such 6 month period that would have been the last day of such period if such 6
month period were a 3 month period. No LIBOR Interest Period with respect to the
Revolving Credit may end after the Revolving Credit Maturity Date. Subject to
all of the terms and conditions applicable to a request to convert all or a
portion of the
- 2 -
<PAGE>
Revolving Credit Base Rate Loans to a Revolving Credit LIBOR Rate Loan, Borrower
may extend a Revolving Credit LIBOR Rate Loan as of the last day of the LIBOR
Interest Period to a new Revolving Credit LIBOR Rate Loan. If Borrower fails to
notify the Lender of the LIBOR Interest Period for a subsequent Revolving Credit
LIBOR Rate Loan at least 2 Business Days prior to the last day of the then
current LIBOR Interest Period of an outstanding Revolving Credit LIBOR Rate
Loan, then such outstanding Revolving Credit LIBOR Rate Loan shall, at the end
of the applicable LIBOR Interest Period accrue interest at the Revolving Credit
Base Rate.
(iii) Adjustments. The Adjusted LIBOR Rate may be
-----------
automatically adjusted by Lender on a prospective basis to take into account the
additional or increased cost of maintaining any necessary reserves for
Eurodollar deposits or increased costs due to changes in applicable law or
regulation or the interpretation thereof occurring subsequent to the
commencement of the then applicable LIBOR Interest Period, including but not
limited to changes in tax laws (except changes of general applicability in
corporate income tax laws) and changes in the reserve requirements imposed by
the Board of Governors of the Federal Reserve System (or any successor or other
applicable governing body), excluding the Reserve Percentage and any Reserve
which has resulted in a payment pursuant to Section 2.12 below, that increase
the cost to Lender of funding the Revolving Credit LIBOR Rate Loan. Lender shall
promptly give Borrower notice of such a determination and adjustment, which
determination shall be prima facie evidence of the correctness of the fact and
the amount of such adjustment.
(iv) Unavailability. If Borrower shall have requested the
--------------
rate based on the Adjusted LIBOR Rate in accordance with this Section
2.1.1(a)(i) and Lender shall have determined, in good faith, that Eurodollar
deposits equal to the amount of the principal of the requested Revolving Credit
LIBOR Rate Loan and for the LIBOR Interest Period specified are unavailable, or
that the rate based on the Adjusted LIBOR Rate will not adequately and fairly
reflect the cost of the Adjusted LIBOR Rate applicable to the specified LIBOR
Interest Period, of making or maintaining the principal amount of the requested
Revolving Credit LIBOR Rate Loan during the LIBOR Interest Period specified, or
that by reason of circumstances affecting Eurodollar markets, adequate means do
not exist for ascertaining the rate based on the Adjusted LIBOR Rate applicable
to the specified LIBOR Interest Period, Lender shall promptly give notice of
such determination to Borrower that the rate based on the Adjusted LIBOR Rate is
not available. A determination, in good faith, by Lender hereunder shall be
prima facie evidence of the correctness of the fact and amount of such
additional costs or unavailability. Upon such a determination, (i) the
obligation to convert to, or maintain a Revolving Credit LIBOR Rate Loan at the
rate based on the Adjusted LIBOR Rate shall be suspended until Lender shall have
notified Borrower that such conditions shall have ceased to exist, and (ii) the
portion of the Revolving Credit Loans subject to the request or requested
conversion shall accrue interest at the Revolving Credit Base Rate.
2.1.2 Default Rate of Interest. Upon and after the occurrence
------------------------
of an Event of Default and during the continuation thereof, the principal amount
of all Loans shall bear interest at a rate per annum equal to 2.0% above the
interest rate otherwise applicable thereto (the "Default Rate").
2.1.3 Maximum Interest. In no event whatsoever shall the
----------------
aggregate of all amounts deemed interest hereunder and charged or collected
pursuant to the terms of this Agreement exceed the highest rate permissible
under any law which a court of competent jurisdiction shall, in a final
determination, deem applicable hereto. If any provisions of this Agreement are
in contravention of any such law, such provisions shall be deemed amended to
conform thereto.
- 3 -
<PAGE>
2.2 Computation of Interest and Fees. Interest, unused line fees and
--------------------------------
collection charges hereunder stall be calculated daily and shall be computed on
the actual number of days elapsed over a year of 360 days. For the purpose only
of computing interest hereunder (and not for the purpose of determining the
principal balance outstanding within the meaning of Section 1.1.1 hereof), all
items of payment received by Lender shall be deemed applied by Lender on account
of the Obligations (subject to final payment of such items) on the second
Business Day after receipt by Lender of fully collected funds from the Dominion
Account.
2.3 Commitment Fee. Borrower shall pay to Lender a commitment fee equal
--------------
to .625% of the then applicable Facility Cap Sublimit less all commitment fees
previously paid by Borrower to Lender. Such Facility Fee shall be hilly earned
and non-refundable on the Closing Date and shall be calculated and paid an the
Closing Date and on the first and second anniversary of the Closing Date or any
such earlier date when Lender elects pursuant to Paragraph 1.1.3 to increase the
amount of the then applicable Facility Cap Sublimit to the Facility Cap.
2.4 Unused Line Fee. Commencing on the date which is 3 months from the
---------------
Closing Date, Borrower shall pay to Lender a monthly fee equal to 1/12th of .5%
of the average amount by which the then applicable Facility Cap Sublimit exceeds
the average amount of the outstanding principal balance of the Revolving Credit
Loans during the preceding month. The unused line fee shall be payable monthly
in arrears on the first day of each calendar month thereafter.
2.5 Collection Charges. If items of payment are received by Lender at a
------------------
time when there are no Revolving Credit Loans outstanding, such items of payment
shall be subject to a collection charge equal to 2 days' interest on the amount
thereof at the rate then applicable to Revolving Credit Loans, which collection
charges shall be payable on the first Business Day of each month.
2.6 Audit Fees. Borrower shall pay to Lender audit fees in accordance with
----------
Lender's current schedule of fees in effect from time to time in connection with
audits of Borrower's books and records and such other matters as Lender shall
reasonably deem appropriate, plus all out-of-pocket expenses incurred by Lender
in connection with such audits. Audit fees shall be payable on the first day of
the month following the date of issuance by Lender of a request for payment
thereof to Borrower;
2.7 Reimbursement of Expenses. If, at any time or times regardless of
-------------------------
whether or not an Event of Default has occurred, Lender incurs legal expenses or
any other out-of-pocket costs or expenses in connection with (i) the negotiation
and preparation of this Agreement or any of the other Loan Documents, any
amendment of or modification of this Agreement or any of the other loan
Documents; (ii) to the extent deemed reasonably necessary by Lender, the
administration of this Agreement or any of the other Loan Documents and the
transactions contemplated hereby and thereby; (iii) any litigation, contest,
dispute, suit, proceeding or action (whether instituted by Lender, Borrower or
any other Person) in any way relating to the Collateral, this Agreement or any
of the other Loan Documents or Borrower's affairs; (iv) any attempt to enforce
any rights of Lender against Borrower or any other Person which may be obligated
to Lender by virtue of this Agreement or any of the other Loan Documents,
including, without limitation, the Providers or the Account Debtors; or (v) any
attempt to protect, preserve, restore, collect, sell, liquidate or otherwise
dispose of or realize upon the Collateral; then all such legal and other out-of-
pocket costs and expenses of Lender shall be charged to Borrower; provided
--------
however, that Borrower is obligated to reimburse lender for out-of-pocket
- -------
attorney and other legal fees and related
- 4 -
<PAGE>
expenses incurred by Lender in connection with the preparation and negotiation
of this Agreement and the initial closing of the transactions contemplated
herein on the Closing Date only in amounts not exceeding $28,000 in the
aggregate. All amounts chargeable to Borrower under this Section 2.7 shall be
Obligations secured by all of the Collateral, shall be payable on demand to
Lender, and shall bear interest from the date such demand is made until paid in
full at the rate applicable to Revolving Credit Loans from time to time.
Borrower shall also reimburse Lender for expenses incurred by Lender in its
administration of the Collateral to the extent and in the manner provided in
Section 6 hereof.
2.8 Bank Charges. Borrower shall pay to Lender, on demand, any and all
------------
reasonable fees, costs or expenses which Lender or any Participating Lender pays
to a bank or other similar institution (including, without limitation, any fees
paid by Lender to any Participating Lender) arising out of or in connection with
(i) the forwarding to Borrower or any other Person on behalf of Borrower, by
Lender or any Participating Lender, of proceeds of loans made by Lender to
Borrower pursuant to this Agreement and (ii) the depositing for collection,
by Lender or any Participating Lender, of any check or item of payment received
or delivered to Lender or any Participating Lender on account of the
Obligations.
2.9 Indemnity re: LIBOR. Borrower hereby indemnifies Lender and holds
-------------------
Lender harmless from and against any and all losses or expenses that Lender may
sustain or incur as a consequence of any prepayment or any Default by Borrower
in the payment of the principal of or interest on any LIBOR Rate Loan or failure
by Borrower to complete a borrowing of, a prepayment of or conversion of or to a
LIBOR Rate Loan after notice thereof has been given, including (but not limited
to) any interest payable by Lender to lenders of funds obtained by it in order
to make or maintain its LIBOR Rate Loans hereunder, and any other loss or
expense incurred by Lender by reason of the liquidation or reemployment of
deposits or other funds acquired by Lender to make, continue, convert into or
maintain, a LIBOR Rate Loan.
SECTION 3. LOAN ADMINISTRATION.
3.1 Manner of Borrowing Revolving Credit Loans. Borrowings under the
------------------------------------------
credit facility established pursuant to Section 1 hereof shall be as follows:
3.1.1 Loan Requests. A request for a Revolving Credit Loan shall be
-------------
made, or shall be deemed to be made in the following manner: (i) Borrower may
give lender notice of its intention to borrow, in which notice Borrower shall
specify the amount of the proposed borrowing and the proposed borrowing date, no
later than 11:00 a.m. Eastern time on the proposed borrowing date, provided,
--------
however, that no such request may be made at a time when there exists an Event
of Default; and (ii) the becoming due of any amount required to be paid under
this Agreement, whether as interest or for any other Obligation, shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in the
amount required to pay such interest or other Obligation. As an accommodation to
Borrower, Lender may permit telephonic requests for loans and electronic
transmittal of instructions, authorizations, agreements at reports to Lender by
Borrower. Unless Borrower specifically directs Lender in writing not to accept
or act upon telephonic or electronic communications from Borrower, Lender shall
have no liability to Borrower for any loss or damage suffered by Borrower as a
result of Lender's honoring of any requests, execution of any instructions,
authorizations or agreements or reliance on any reports communicated to it
telephonically or electronically and purporting to have been sent to Lender by
Borrower and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
- 5 -
<PAGE>
3.1.2 Disbursement. Borrower hereby irrevocably authorizes Lender to
------------
disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this subsection 3.1.2 as follows: (i) the proceeds of
each Revolving Credit loan requested under subsection 3.1.1(i) shall be
disbursed by Lender in lawful money of the United States of America in
immediately available funds, in the case of the initial borrowing, in accordance
with the terms of the written disbursement letter from Borrower, and in the case
of each subsequent borrowing, by wire transfer to such bank account as may be
agreed upon by Borrower and Lender from time to time or elsewhere if pursuant to
a written direction from Borrower; and (ii) file proceeds of each Revolving
Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by Lender by
way of direct payment of the relevant interest or other Obligation.
3.1.3 Authorization. Borrower hereby irrevocably authorizes Lender,
-------------
in Lender's sole discretion, to advance to Borrower, and to charge to Borrower's
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees and expenses at any time owed by Borrower to Lender
hereunder.
3.2 Payments. Except where evidenced by notes or other instruments issued
--------
or made by Borrower to Lender specifically containing payment provisions which
are in conflict with this Section 3.2 (in which event the conflicting provisions
of said notes or other instruments shall govern and control), the Obligations
shall be payable as follows:
3.2.1 Principal. Principal payable on account of Revolving Credit
---------
Loans shall be payable by Borrower to Lender immediately upon the earliest of
(i) the receipt by Lender or Borrower of any proceeds of any of the Collateral,
to the extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which Lender elects to accelerate the maturity and payment of the
Obligations, or (iii) termination of this Agreement pursuant to Section 4
hereof; provided, however, that if an Overadvance shall exist at any time,
--------- -------
Borrower shall, on demand, repay the Overadvance.
3.2.2 Interest. Interest accrued on the Revolving Credit Loans shall
--------
be due on the earliest of (i) the first calendar day of each month (for the
immediately preceding month), computed through the last calendar day of the
preceding month, (ii) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of The Obligations or
(iii) termination of this Agreement pursuant to Section 4 hereof.
3.2.3 Costs, Fees and Charges. Costs, fees and charges payable
-----------------------
pursuant to this Agreement shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.
3.2.4 Other Obligations. The balance of the Obilgations requiring the
-----------------
payment of money, if any, shall be payable by Borrower to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is later.
3.3 Prepayments. No portion of the LIBOR Rate Loans may be prepaid during
-----------
a LIBOR Interest Period unless Borrower first satisfies in full its obligations
under Section 2.9 above arising from such prepayment.
- 6 -
<PAGE>
3.4 Application of Payments and Collections. All items of payment
----------------------------------------
received by Lender by 2:00 p.m., Eastern time, on any Business Day shall be
deemed received on that Business Day. All items of payment received after 2:00
p.m., Eastern time, on any Business Day shall be deemed received on the
following Business Day. Subject to Section 2.2 hereof, payments deemed received
shall be applied immediately on account of the Obligations. Borrower
irrevocably waives the right to direct the application of any and all payments
and collections at any time or times hereafter received by Lender from or on
behalf of Borrower, and Borrower does hereby irrevocably agree that Lender shall
have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Lender or
its agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as the
result of collections of Accounts as authorized by subsection 6.2.6 hereof a
credit balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrower, but shall be available to Borrower at any time or
times.
3.5 All Loans to Constitute One Obligation. The Loans shall constitute one
--------------------------------------
general Obligation of Borrower, and shall be secured by Lender's Lien upon all
of the Collateral.
3.6 Loan Account. Lender shall enter all Loans as debits to the Loan
------------
Account and shall also record in the Loan Account all payments made by Borrower
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrower.
3.7 Statements of Account. Lender will account to Borrower monthly with a
---------------------
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrower unless Lender is notified by Borrower in writing to the contrary
within 30 days of the date each accounting is mailed to Borrower. Such notice
shall only be deemed an objection to those items specifically objected to
therein.
SECTION 4. TERM AND TERMINATION
4.1 Term of Agreement. Subject to Lender's right to cease making Loans to
-----------------
Borrower upon or after the occurrence and during the continuance of any Event of
Default, this Agreement shall be in effect for a period of 3 years from the date
hereof, through and including March 9, 1998 (the "Original Term"), and this
Agreement shall automatically renew itself for one-year periods thereafter (the
"Renewal Terms"), unless terminated as provided in Section 4.2 hereof.
4.2 Termination.
-----------
4.2.1 Termination by Lender. Upon at least 6 months prior written
----------------------
notice to Borrower, Lender may terminate this Agreement as of the last day of
the Original Term or the then current Renewal Term and, subject to Section 10
hereof, Lender may terminate this Agreement without notice upon or after the
occurrence of an Event of Default. Lender may also terminate this Agreement on 6
months' prior written notice to Borrower in the event that (i) neither Farallon
Capital Partners, L.P. nor one of in Affiliates is a limited partner of
Borrower or (ii) any two of the following individuals: John
- 7 -
<PAGE>
K. Delaney, Ethan D. Leder and Edward P. Nordberg, shall cease to be the senior
management of Borrower and its general partner.
4.2.2 Termination by Borrower. Upon at least 75 days prior written
-----------------------
notice to Lender, Borrower may, at its option, terminate this Agreement;
provided, however, no such termination shall be effective until Borrower has
- -------- -------
paid all of the Obligations in immediately available funds. Any notice of
termination given by Borrower shall be irrevocable unless Lender otherwise
agrees in writing, and Lender shall have no obligation to make any Loans on or
after the termination date stated in such notice. Borrower may elect to
terminate this Agreement in its entirety only. No section of this Agreement or
type of Loan available hereunder may be terminated singly.
4.2.3 Termination Charges. At the effective date of termination of
-------------------
this Agreement by Borrower pursuant to Section 4.2.2 hereof, Borrower shall pay
to Lender (in addition to the then outstanding principal, accrued interest and
other charges owing under the terms of this Agreement and any of the other Loan
Documents) as liquidated damages for the loss of the bargain and not as a
penalty, an amount equal to 3.0% of the avenge outstanding principal balance of
the Revolving Credit Loans during the previous 12 months (or such lesser time as
the Revolving Credit Facility may have been outstanding) if termination occurs
during the first twelve-month period of the Original Term (March 9, 1995 through
March 9, 1996; 2.0% of the average outstanding principal balance of the
Revolving Credit Loans during the previous 12 months if termination occurs
during the second 12-month period of the Original Term (March 9, 1996 through
March 9, 1997); and 1.0% of the average outstanding principal balance of the
Revolving Credit Loans during the previous 12 months if termination occurs
during the third 12-month period of the Original Term (March 9, 1997 through
March 9, 1998). If termination occurs on the last day of the Original Term or
the last day of any Renewal Term, no termination charge shall be payable.
4.2.4 Effect of Termination. All of the Obligations shall be
---------------------
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrower contained in the Loan Documents shall
survive any such termination and Lender shall retain its Liens in the Collateral
and all of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrower has paid the Obligations to Lender, in full, in
immediately available funds, together with the applicable termination charge, if
any. Notwithstanding the payment in full of the Obligations, Lender shall not be
required to terminate its security interests in the Collateral unless, with
respect to any loss or damage Lender may incur as a result of dishonored checks
or other items of payment received by Lender from Borrower or any Account Debtor
and applied to the Obligations, Lender shall, at its option, (i) have received a
written agreement, executed by Borrower and by any Person whose loans or other
advances to Borrower are used in whole or in part to satisfy the Obligations,
indemnifying Lender from any such loss or damage; or (ii) have retained such
monetary reserves and Liens on the Collateral for such period of time as Lender,
in its reasonable discretion, may deem necessary to protect Lender from any such
loss or damage.
SECTION 5. SECURITY INTERESTS
5.1 Security Interest in Collateral. To secure the prompt payment and
-------------------------------
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of Borrower's assets,
- 8 -
<PAGE>
including all of the following Property and interests in Property of Borrower,
whether now owned or existing or hereafter created, acquired or arising and
wheresoever located:
(i) Accounts;
(ii) General Intangibles;
(iii) Deposit Accounts;
(iv) All monies and other Property of any kind now or at any
time or times hereafter in the possession or under the control of Lender or
a bailee or Affiliate of Lender;
(v) All of Borrower's rights under each Receivables
Acquisition Agreement, all sums due to Borrower thereunder, and any
security interests, guarantees or other collateral received by Borrower
from a Provider in connection with such Receivables Acquisition Agreement;
(vi) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i) through (v)
above, including without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and
(vii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records) of Borrower pertaining to any of (i)
through (v) above
5.2 Lien Perfection: Further Assurances. Borrower shall execute such
-----------------------------------
UCC-1 financing statements as are required by The Code and such other
instruments, assignments or documents as are necessary to perfect Lender's Lien
upon any of the Collateral and shall take such other action at Lender's request
as may be required to perfect or to continue the perfection of Lender's Lien
upon the Collateral. Unless prohibited by applicable law, Borrower hereby
authorizes Lender to execute and file any such financing statement on Borrower's
behalf. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof. At Lender's request Borrower shall also
promptly execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements reasonably deemed necessary by Lender to
give effect to or carry out the terms or intent of the Loan Documents.
SECTION 6. COLLATERAL ADMINISTRATION
6.1 General
-------
6.1.1 Location of Collateral. All Collateral other than Deposit
----------------------
Accounts and certain billing and collection records which are maintained at the
offices of a Provider or its agent will at all times be kept by Borrower at its
Chief Executive Office as set forth in Exhibit B hereto and shall not, without
---------
the prior written approval of Lender, be moved therefrom.
6.1.2 Protection of Collateral. All expenses of protecting and
------------------------
maintaining the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority
- 9 -
<PAGE>
on any of the Collateral or in respect of file purchase or collection thereof
shall be borne and paid by Borrower. If Borrower fails to promptly pay any
portion thereof when due, Lender may, at its option, but shall not be required
to, pay the same and charge Borrower therefor. Lender shall not be liable or
responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto (except for reasonable care in the custody thereof while
any Collateral is in Lender's actual possession) or for any diminution in the
value thereof, or for any act or default of any warehouseman, carrier,
forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
6.2 Administration of Accounts.
--------------------------
6.2.1 Records, Schedules and Assignments of Accounts. Borrower shall
----------------------------------------------
keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Lender on such periodic basis as Lender
shall request a sales and collections report for the preceding period, in form
reasonably satisfactory to Lender. On or before the fifteenth day of each month
from and after the date hereof, Borrower shall deliver to Lender, in form
reasonably acceptable to Lender, a detailed aged trial balance of all Accounts
existing as of the last day of the preceding month, specifying the names,
addresses, face value, dates of invoices and due dates for each Third Party
Payor obligated on an Account so listed ("Schedule of Accounts"), and, upon
Lender's request therefor, copies of proof of purchase of such Accounts from the
Providers, proof that the payments due to the Provider in connection with such
purchase have been made and the original copy of all documents, including,
without limitation, repayment histories and present status reports relating to
the Accounts so scheduled and such other matters and information relating to the
status of then existing Accounts as Lender shall reasonably request. In the
event that Accounts having an aggregate initial purchase price in excess of
$10,000 within any Batch(s) become ineligible because they fall within one of
the specified categories of ineligibility set forth in the definition of
Eligible Accounts, then Borrower shall notify Lender of such occurrence on the
first Business Day following such occurrence and the Borrowing Base shall
thereupon be adjusted to reflect such occurrence. If requested by Lender,
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts weekly or daily, which shall include all Accounts that have been
created since the date of the last assignment.
6.2.2 Discounts, Allowances, Disputes. If Borrower or, to Borrower's
-------------------------------
knowledge, any Provider grants any discounts, allowances or credits that are
not reflected in the calculation of Fair Reimbursable Value for the Account
involved, Borrower shall report such discounts, allowances or credits, as the
case may be, to Lender as part of the next required Schedule of Accounts. If
any amounts due and owing in excess of $10,000 with respect to any Batch are in
dispute between Borrower and any Account Debtor, Borrower shall provide Lender
with written notice thereof at the time of submission of the next Schedule of
Accounts, explaining in detail the reason for the dispute, all claims related
thereto and the amount in controversy. Upon and after an acceleration of the
Loans by Lender, Lender shall have the right to settle or adjust all disputes
and claims directly with the Account Debtor and to compromise the amount or
extend the time for payment of the Accounts upon such terms and conditions as
Lender may deem advisable, and to charge the deficiencies, costs and expenses
thereof, including attorney's fees, to Borrower.
6.2.3 Taxes. If an Account includes a charge for any tax payable to
-----
any governmental taxing authority, Lender is authorized, in its sole discretion,
to pay the amount thereof to the proper taxing authority for the account of
Borrower and to charge Borrower therefor, provided,
- 10 -
<PAGE>
however that Lender shall not be liable for any taxes to any governmental taxing
authority that may be due by Borrower.
6.2.4 Account Verification. Whether or not an Event of Default has
--------------------
occurred, any of Lender's officers, employees or agents shall have the right,
at any time or times hereafter, in the name of Lender, any designee of Lender or
Borrower, to verify the validity, amount or any other matter relating to any
Accounts by mail, telephone, telegraph or otherwise. Lender shall use its best
efforts to assure that the exercise of such right does not interfere with the
conduct of Borrower's business. Borrower shall cooperate fully with Lender in an
effort to facilitate and promptly conclude any such verification process.
6.2.5 Maintenance of Dominion Account. Borrower shall maintain a
-------------------------------
Dominion Account pursuant to a lockbox arrangement acceptable to Lender with
Bank One Arizonia, N.A., d/b/a Bank Star, or such other banks as may be selected
by Borrower and be acceptable to Lender. Borrower shall issue to any such
banks an irrevocable letter of instruction directing such banks to deposit all
payments or other remittances received in the lockbox to the Dominion Account
for application on account of the Obligations. All funds deposited in the
Dominion Account shall immediately become the property of Lender, and Borrower
shall obtain the agreement by such banks in favor of Lender to waive any offset
rights against the funds so deposited. Lender assumes no responsibility for such
lockbox arrangement, including, without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder. Borrower shall require each Provider to direct all Account Debtors
to remit payment on Accounts directly to the lockbox or the Dominion Account.
Notwithstanding anything in this Agreement to the contrary, Borrower may permit
the Provider to have access to a separate lockbox to which payments by
Medicare/Medicaid Account Debtor may be made, to the extent required by
applicable law. Any such funds received in such other lockbox shall be swept
daily and deposited into the Dominion Account.
6.2.6 Collection of Accounts. Proceeds of Collateral. To expedite
----------------------------------------------
collection, Borrower shall endeavor in the first instance to make collection of
its Accounts for Lender. All remittances received by Borrower on account of
Accounts, together with the proceeds of any other Collateral, shall be held as
Lender's property by Borrower as trustee of an express trust for Lender's
benefit and Borrower shall immediately deposit same in kind in the Dominion
Account. Lender retains the right at all times after the occurrence and during
the continuance of an Event of Default to notify Account Debtors that Accounts
have been assigned to Lender and to collect Accounts directly in its own name
and to charge the collection costs and expenses, including attorneys' fees to
Borrower.
6.3 Payment of Charges. All amounts chargeable to Borrower under Section 6
------------------
hereof shall be Obligations secured by all of the Collateral, shall be payable
on demand and shall bear interest from the date such advance was made until paid
in full at the rate applicable to Revolving Credit Loans from time to time.
SECTION 7. REPRESENTATIONS AND WARRANTIES
7.1 General Representations and Warranties. To induce Lender to enter into
--------------------------------------
this Agreement and to make advances hereunder, Borrower warrants, represents and
covenants to Lender that:
- 11 -
<PAGE>
7.1.1 Organization and Qualification. Borrower is a limited
-------------------------------
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its formation. Borrower is duly qualified and is
authorized to do business and is in good standing in each state or jurisdiction
listed on Exhibit C hereto and in all other states and jurisdictions where the
---------
character of its Properties or the nature of its activities make such
qualification necessary unless such failure does not have a Material Adverse
Effect.
7.1.2 Power and Authority. Borrower is duly authorized and empowered
-------------------
to enter into, execute, deliver and perform this Agreement and each of the other
Loan Documents to which it is a party. The execution, delivery and performance
of this Agreement and each of the other Loan Documents have been duly authorized
by all necessary action and do not and will not (i) require any consent or
approval of the limited partners of Borrower; (ii) contravene Borrower's
limited partnership agreement or certificate of Limited Partnership; (iii)
violate, or cause Borrower to be in default under, any provision of any law
rule, regulation order, writ, judgment, injunction, decree, determination or
award in effect having applicability to Borrower; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which Borrower is a party or by which it
or its Properties may be bound or affected; or (v) result in, or require, the
creation or imposition of any Lien (other than Permitted Liens) upon or with
respect to any of the Properties now owned or hereafter acquired by Borrower.
7.1.3 Legally Enforceable Agreement. This Agreement is, and each of
-----------------------------
the other Loan Documents when delivered under this Agreement will be, a legal,
valid and binding obligation of Borrower enforceable against it in accordance
with its respective terms.
7.1.4 Capital Structure. Exhibit D hereto states the correct name of
------------------ ---------
Borrower's Affiliates and the nature of the affiliation. There are no
outstanding options to purchase from Borrower, or any rights or warrants to
subscribe for, or any commitments or agreements of Borrower to issue or sell, or
any Securities or obligations of Borrower convertible into, partnership
interests of Borrower. Borrower has no subsidiaries.
7.1.5 Partnership Names. Borrower has not been known as or used any
-----------------
fictitious or trade names except those listed on Exhibit E hereto. Except as set
---------
forth on Exhibit E, Borrower has not been the surviving entity of a merger or
---------
consolidation or acquired all or substantially all of the assets of any Person.
7.1.6 Business Locations; Agent for Process. Borrower's chief
-------------------------------------
executive office and other places of business are as listed on Exhibit B hereto.
---------
During the preceding one-year period, Borrower has not had an office, place of
business or agent for service of process other than as listed on Exhibit B.
---------
7.1.7 Title to Properties; Priority of Liens. Borrower has good title
--------------------------------------
to all of the Collateral and all of its other Property (subject to applicable
limitations on the ability of Borrower to receive direct payment as assignee
from a Medicare/Medicaid Account Debtor), in each case, free and clear of all
Liens except Permitted Liens. Borrower has paid or discharged all lawful claims
which, if unpaid, might become a Lien against any of Borrower's Properties that
is not a Permitted Lien. The Liens granted to Lender under Section 5 hereof are
first priority Liens, subject only to Permitted Liens.
-12 -
<PAGE>
7.1.8 Accounts. Lender may rely, in determining which Accounts
--------
are Eligible Accounts, on all statements and representations made by Borrower
with respect to any Account or Accounts. Unless otherwise indicated in writing
to lender, with respect to each Account, to the best of Borrower's knowledge
after due investigation consistent with past practices of Borrower:
(i) It is genuine and in all respects what it purports to be,
and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and delivery
---- ----
of goods or rendition of services by a Provider in the ordinary course of
its business and in accordance with The terms and conditions of all
purchase orders, contracts, certification, participation, certificate of
need, Third Party Payor contract or other documents relating thereto and
forming a part of the contract between the Provider and the Third Party
Payor;
(iii) It is for a liquidated amount;
(iv) Such Account to the extent of the Fair Reimbursable Value,
and Lender's security interest therein, is not, and will not (by voluntary
act or omission of Borrower) be in the future, subject to any offset, Lien,
deduction, defense, dispute, counterclaim or any other adverse condition,
and each such Account is absolutely owing to Borrower and is not
contingent in any respect or for any reason;
(v) Borrower has made no agreement with any Account Debtor
thereunder for any extension compromise, settlement or modification of any
such Account or any deduction therefrom in, except discounts or allowances
which are granted by a Provider in the ordinary course of its business for
prompt payment and which are reflected in the calculation of the net amount
of each respective invoice related thereto, or which do not reduce the
balance due on such Account below the Fair Reimbursable Value for such
Account and which are reflected in the Schedules of Accounts submitted to
Lender pursuant to subsection 6.2.1 hereof;
(vi) There are no facts, events or occurrences which in any way
impair the validity or enforceability of any Accounts or tend to reduce
the amount payable thereunder to less than the Fair Reimbursable Value with
respect thereto;
(vii) To the best of Borrower's knowledge, the Third Party Payor
thereunder (1) had the capacity to contract at the time any contract or
other document giving rise to the Account was executed and (2) such Third
Party Payor is Solvent;
(viii) To the best of Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any Third
Party Payor thereunder which might result in any material adverse change in
the collectibility of such Account;
(ix) It has been or will promptly be billed and forwarded to a
Medicare/Medicaid Account Debtor or Third Party Payor for payment in
accordance with applicable laws and compliance and conformance with any and
all requisite procedures, requirements and regulations governing payment by
such Medicare/Medicaid Account Debtor or Third Party Payor with respect
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<PAGE>
to such Account and such Account if due from a Medicare/Medicaid Account
Debtor is properly payable directly to the Provider from which Borrower
purchased such Account by such Medicare/Medicaid Account Debtor or if due
from any other Third Party Payor is properly payable directly to Borrower
in accordance with the terms and conditions of a validly existing and
legally binding certification, participation or other third party payor
contract;
(x) Each Eligible Provider has obtained and currently has all
Certificates of Need and Medicare and Medicaid Provider Numbers as are
necessary to operate its business. Each Eligible Provider's Certificates of
Need, Provider Numbers and all written agreements between each Eligible
Provider and any Medicare/Medicaid Account Debtor or other commercial
payor, hospital, pharmacy, or managed-care payor regarding payment for
goods sold and services rendered by any Eligible Provider to such Third
Party Payor will be forwarded upon request to Borrower. All cost reports
required to be filed by an Eligible Provider with such third party payors
have been properly filed.
7.1.9 Financial Statements: Fiscal Year. The balance sheets of
---------------------------------
Borrower as of December 31, 1994, and the related statements of income, changes
in equity, and changes in financial position for the periods ended on such
dates, have been prepared in accordance with GAAP, and present fairly the
financial position of Borrower at such dates and the results of Borrower's
operations for such periods. Since December 31, 1994, there has been no material
adverse change in the condition, financial or otherwise, of Borrower except
changes in the ordinary course of business, none of which individually or in the
aggregate has been materially adverse. The fiscal year of Borrower ends on
December 31 of each year.
7.1.10 Full Disclosure. The financial statements referred to in
---------------
subsection 7.1.9 hereof do not, nor does this Agreement and any other written
statement of Borrower to Lender, taken as a whole, contain any untrue statement
of a material fact or omit a material fact necessary to make the statements
contained therein or herein not misleading at the time the statements were made.
There is no fact which Borrower has failed to disclose to lender in writing
which materially affects adversely or, so far as Borrower can now foresee, will
materially affect adversely the Properties, business, prospects, profits or
condition (financial or otherwise) of Borrower or the ability of Borrower or
its Subsidiaries to perform this Agreement or the other Loan Documents.
7.1.11 Solvent Financial Condition. Borrower is and, after giving
---------------------------
effect to the Loans to be made hereunder, at all times will be, Solvent.
7.1.12 Surety Obligations. Borrower is not obligated as surety or
------------------
indemnitor under any surety or similiar bond or other contract issued or entered
into any agreement to assure payment, performance or completion of performance
of any undertaking or obligation of any Person.
7.1.13 Taxes. Borrower's federal tax identification number is
-----
52-1891034. Borrower has filed all federal, state and local tax returns and
other reports it is required by law to file and has paid, or made provision for
the payment of, all taxes, assessments, fees, levies and other governmental
charges upon it, its income and Properties as and when such taxes, assessments,
fees, levies and charges that are due and payable, unless and to the extent any
thereof are being actively contested in good faith and by appropriate
proceedings and Borrower maintains reasonable reserves on its books therefor.
The provision
- 14 -
<PAGE>
for taxes on the books of Borrower is adequate for all years not closed by
applicable statutes, and for its current fiscal year.
7.1.14 Brokers. Borrower has not engaged any broker or finder or
-------
committed to pay, and is not aware of, any claims for brokerage commissions,
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement other than the fee of Kent M. Klineman, which is
the sole obligation and responsibility of Borrower.
7.1.15 Patents, Trademarks, Copyrights and Licenses. Borrower owns or
--------------------------------------------
possesses all the patents, trademarks, service marks, trade names, copyrights
and licenses necessary for the present and planned future conduct of its
business without any known conflict with the rights of others. All such patents,
trademarks, service marks, trade names, copyrights, licenses and other similar
rights are listed on Exhibit G hereto.
---------
7.1.16 Governmental Consents. Borrower has, and is in good standing
---------------------
with respect to, all governmental consents, approvals, licenses, authorizations,
permits, certificates, inspections and franchises necessary to continue to
conduct its business as heretofore or proposed to be conducted by it and to own
or lease and operate its Properties as now owned or leased by it, except where
the failure to comply would not have a Material Adverse Effect.
7.1.17 Compliance with Laws. Borrower has duly complied with, and its
--------------------
Properties, business operations and leaseholds are in compliance in all material
respects with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, as applicable, its Properties or the conduct
of its business and there have been no citations, notices or orders of
noncompliance issued to Borrower under any such law, rule or regulation, except
where the failure so to comply would not have a Material Adverse Effect.
7.1.18 Restrictions. Borrower is not a party or subject to any
------------
contract agreement, or charter or other corporate restriction, which materially
and adversely affects its business or the use or ownership of any of its
Properties. Borrower is not a party or subject to any contract or agreement
which restricts its right or ability to incur Indebtedness, other than as set
forth on Exhibit H hereto, none of which prohibit the execution of or compliance
---------
with this Agreement or the other Loan Documents by Borrower, as applicable.
7.1.19 Litigation. Except as set forth on Exhibit I hereto, there are
---------- ---------
no actions, suits, proceedings or investigations pending, or to the knowledge of
Borrower, threatened, against or affecting Borrower, or the business,
operations, Properties, profits or condition of Borrower taken as a whole.
Borrower is not in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
7.1.20 No Defaults. No event has occurred and no condition
-----------
exists which would, upon or after the execution and delivery of this Agreement
or Borrower's performance hereunder, constitute a Default or an Event of
Default. Borrower is not in default, and no event has occurred and no condition
exists which constitutes, or which with the passage of time or the giving of
notice or both would constitute, a default in the payment of any Indebtedness to
any Person for Money Borrowed.
- 15 -
<PAGE>
7.1.21 Leases. Exhibit J hereto is a complete listing of all
------- ---------
capitalized leases of Borrower and Exhibit K hereto is a complete listing of all
---------
operating leases of Borrower. Borrower is in full compliance with all of the
terms of each of its respective capitalized and operating leases, except where
the failure so to comply would not have a Material Adverse Effect.
7.1.22 Pension Plans. Except as disclosed on Exhibit L hereto,
------------- ---------
Borrower has no Plan. Borrower is in full compliance with the requirements of
ERISA and the regulations promulgated thereunder with respect to each Plan. No
fact or situation that could result in a material adverse change in the
financial condition of Borrower or any of its Subsidiaries exists in connection
with any Plan. Borrower has no withdrawal liability in connection with a
Multiemployer Plan.
7.1.23 Trade Relations. There exists no actual or threatened
---------------
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any Provider or any group of
Providers whose business with Borrower, individually or in the aggregate are
material to the business of Borrower, or with any material supplier, and there
exists no present condition or state of facts or circumstances which would
materially affect adversely Borrower or prevent Borrower from conducting such
business after the consummation of the transaction contemplated by this
Agreement in substantially the same manner in which it has heretofore been
conducted.
7.1.24 Labor Relations. Except as described on Exhibit M hereto,
--------------- ---------
Borrower is not a party to any collective bargaining agreement. There are no
material grievances, disputes or controversies with any union or any other
organization of Borrower's employees, or threats of strikes, work stoppages or
any asserted pending demands for collective bargaining by any union or
organization.
7.2 Continuous Nature of Representations and Warranties. Each
---------------------------------------------------
representation and warranty contained in this Agreement and the other Loan
Documents shall be continuous in nature and shall remain in all material
respects accurate, complete and not misleading at all times during the term of
this Agreement, except for changes that Lender has consented to or which are not
expressly prohibited by this Agreement.
7.3 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION COVENANTS AND CONTINUING AGREEMENTS
8.1 Affirmative Covenants. During the term of this Agreement, and
---------------------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.1.1 Visits and Inspections. Permit representatives of Lender, from
----------------------
time to time, as often as may be reasonably requested, but only during normal
business hours and so as not to unreasonably disrupt the operation of Borrower's
business operations, to visit and inspect the Properties of Borrower and
accompany Borrower on any visit or inspection of any Provider, and to inspect,
audit and make extracts from its books and records, and discuss with its
officers, its employees and its independent
-16-
<PAGE>
accountants, Borrower's or any Provider's business, assets, liabilities,
financial condition, business prospects and results of operations. Borrower
shall give Lender 3 Business Days prior notice of any scheduled due
diligence visit to any new Provider to permit Lender or its representative to
accompany Borrower on such visit.
8.1.2 Notices. Promptly notify Lender in writing of the occurrence of
-------
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading.
8.1.3 Financial Statements. Keep adequate records and books of
--------------------
account with respect to its business activities in which proper entries are
made in accordance with GAAP reflecting all its financial transactions; and
cause to be prepared and furnished to Lender the following (all to be prepared
in accordance with GAAP applied on a consistent basis, unless Borrower's
certified public accountants concur in any change therein and such change is
disclosed to Lender and is consistent with GAAP):
(i) not later than 90 days after the close of each fiscal year
of Borrower, unqualified audited financial statements of Borrower and its
Subsidiaries as of the end of such year, on a Consolidated and
consolidating basis, certified by the firm of Keller, Brunner & Company of
Washington, D.C. or any other firm of independent certified public
accountants of recognized standing selected by Borrower but acceptable to
Lender (except for a qualification for a change in accounting principles
with which the accountant concurs);
(ii) not later than 20 days after the end of each month
hereafter, including the last month of Borrower's fiscal year, unaudited
interim financial statements of Borrower as of the end of such month and of
the portion of Borrower's financial year then elapsed, certified by the
principal financial officer of Borrower as prepared in accordance with GAAP
and fairly presenting the financial position and results of operations of
Borrower for such month and period subject only to changes from audit and
year-end adjustments and except that such statements need not contain
notes;
(iii) promptly after the sending or filing thereof, as the case
may be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its partners and copies of any
regular, periodic and special reports or registration statements which
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(iv) promptly after the filing thereof, copies of any annual
report to be filed in accordance with ERISA in connection with each Plan;
and
(v) such other data and information (financial and otherwise)
as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's financial condition or results of
operations.
Concurrently with the delivery of the financial statements described
in clause (i) of this subsection 8.1.3, Borrower shall forward to Lender a copy
of the accountants' letter to Borrower's
-17-
<PAGE>
management that is prepared in connection with such financial statements and
also shall cause to be prepared and shall furnish to Lender a certificate of the
aforesaid certified public accountants certifying to Lender that, based solely
upon the examination of the financial statements of Borrower performed in
connection with their examination of said financial statements, they are not
aware of any Default or Event of Default, or, if they are aware of such Delault
or Event of Default, specifying the nature thereof, and acknowledging, in a
manner satisfactory to Lender, that they are aware that Lender is relying on
such financial statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the financial statements described in clauses
(i) and (ii) of this subsection 8.1.3, or more frequently if requested by
Lender, Borrower shall cause to be prepared and furnished to Lender a Compliance
Certificate in the form of Exhibit N hereto executed by the Chief Financial
---------
Officer of the General Partner of Borrower.
8.1.4 Landlord and Storage Agreements. Provide Lender with copies of
-------------------------------
all agreements between Borrower and any landlord of any premises at which any
books and records or other Collateral may, from time to time, be kept.
8.1.5 Projections. No later than 30 days prior to the end of each
-----------
fiscal year of Borrower, deliver to Lender Projections of Borrower for the
forthcoming fiscal year, month by month.
8.1.6 Medicare and Medicaid Audits. Obtain for each Eligible Provider
----------------------------
and, upon request, make available to Lender a copy of any Medicare and Medicaid
audit.
8.1.7 Settlement and Confirmation Statement. Borrower shall provide
-------------------------------------
Lender with the Settlement and Confirmation Statement in the form attached
hereto as Exhibit Q for each Batch purchased by Borrower which shall include an
identification number for such Batch, a detailed listing of each Account, the
Fair Reimbursable Value therefor and the amount of the initial advance made by
Borrower to the Provider to purchase such Account.
8.1.8 Batch Reporting. Borrower shall provide Lender with weekly
---------------
investment summaries in form and substance acceptable to Lender showing the
number of days each Batch has been outstanding since its purchase date. Borrower
shall provide Lender with a copy of all of the Receivable Acquisition Agreements
for each Eligible Provider and all other UCC filings, UCC searches and other
instruments, documents and agreements executed and delivered by such Provider to
Borrower and shall permit all of such documents, instruments and agreements to
be reviewed by Lender's outside legal counsel upon Lender's request.
8.1.9 Fair Reimbursable Value. If, as a result of any verification
-----------------------
procedure undertaken by Lender in accordance with Section 6.2.4 or 8.1.8, Lender
determines that there is a material question as to the adequacy or accuracy of
the methodology used to determine Fair Market Value with respect to a Provider,
then Lender may at Borrower's cost and expense obtain a consultant to
independently review the adequacy and accuracy of the Fair Reimbursable Value or
the independent verifier retained by Borrower to determine the Fair Reimbursable
Value.
- 18 -
<PAGE>
8.2 Negative Covenants. During the term of this Agreement, and thereafter
------------------
for so long as there are any Obligations to Lender, Borrower covenants that,
unless Lender has first consented thereto in writing, it will not:
8.2.1 Mergers; Consolidations; Acquisitions. Merge or consolidate
-------------------------------------
with any Person; or acquire all or any substantial part of the Property of any
Person.
8.2.2 Loans. Make any loans or other advances of money (other than
-----
for salary, travel advances, advances against commissions and other similar
advances in the ordinary course of business) to any Person other than (i)
advances to Providers pursuant to a Receivable Acquisition Agreement, (ii) loans
to Providers secured by accounts receivable of such Providers, and (iii) loans
to Providers secured by real estate, equipment and other assets of such
Providers in an amount not to exceed in the aggregate at any one time 25% of
Borrower's Net Worth.
8.2.3 Total Indebtedness. Create, incur, assume, or suffer to exist
------------------
any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) accounts payable to trade creditors and current operating
expenses (other than for Money Borrowed) which are not aged more than 120
days from billing date or more than 30 days from the due date, in each case
incurred in the ordinary course of business and paid within such time
period, unless the same are being actively contested in good faith and by
appropriate and lawful proceedings; and Borrower shall have set aside such
reserves, if any, with respect thereto as are required by GAAP and deemed
adequate by Borrower and its independent accountants;
(iii) Obligations to pay Rentals permitted by subsection
8.2.13;
(iv) Permitted Purchase Money Indebtedness; and
(v) contingent liabilities arising out of endorsements of
checks and other negotiable instrurments for deposit or collection in the
ordinary course of business .
8.2.4 Affiliate Transactions. Except as disclosed on any Schedule
----------------------
hereto, enter into, or be a party to any transaction with any Affiliate of
Borrower, including any Partner of Borrower or any Provider, except in the
ordinary course of and pursuant to the reasonable requirements of Borrower's
business and upon fair and reasonable terms which are fully disclosed to Lender
and are no less favorable to Borrower than Borrower would obtain in a comparable
arm's length transaction with a Person not an Affiliate or partner of Borrower.
8.2.5 Limitation on Liens. Create or suffer to exist any Lien upon
-------------------
any of its Property, income or profits, whether now owned or hereafter acquired,
except:
(i) Liens at any time granted in favor of Lender;
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<PAGE>
(ii) Liens for taxes (excluding any Lien imposed pursuant to any
of the provisions of ERISA not yet due, or being contested in the manner
described in subsection 7.1.13 hereto, but only if in Lender's judgment
such lien does not adversely affect Lender's rights or the priority of
Lender's Lien in the Collateral or with respect to Liens for taxes imposed
against the Provider which sold any Accounts to Borrower, provided that
such Account shall not be an Eligible Account;
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in respect
of any such Lien is not at the time required and such Liens do not, in the
aggregate, materia1ly detract from the value of the Property of Borrower or
materially impair the use thereof in the operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(v) such other Liens as appear on Exhibit 0 hereto; and
---------
(vi) such other Liens as Lender may hereafter approve in
writing.
8.2.6 Subordinated Debt. Make any payment of any part or all of
-----------------
any Subordinated Debt or take any other action or omit to take any other action
in respect of any Subordinated Debt, except in accordance with any Subordination
Agreement relative thereto.
8.2.7 Distributions. Declare or make any Distributions; provided
-------------
however that so long as after taking any contemplated Distribution into effect
no Event of Default has occurred and is continuing, Borrower may make
Distributions to its general partner and limited partners pursuant to the terms
of its Partnership Agreement.
8.2.8 Capital Expenditures. Make Capital Expenditures (including,
--------------------
without limitation, by way of capitalized leases) in excess of $100,000 in the
aggregate during the Original Term and any Renewal Term.
8.2.9 Disposition of Assets. Sell, lease or otherwise dispose of
---------------------
any of, or permit any Subsidiary of Borrower to sell, lease or otherwise dispose
any of, its Properties, including any disposition of Property as part of a sale
and leaseback transaction, to or in favor of any Person, except (i) dispositions
expressly authorized by this Agreement, (ii) occurring in the ordinary course of
Borrower's business, and (iii) prior to the occurrence of an Event of Default,
the sale of all of the Eligible Accounts of a Provider for a cash purchase price
equal to or greater than that portion of the Borrowing Base allocable to such
Eligible Accounts.
8.2.10 Stock of Subsidiaries. Form any Subsidiaries
---------------------
8.2.11 Restricted Investment. Make or have, or permit any
---------------------
Subsidiary of Borrower to make or have, any Restricted Investments at any one
time with an aggregate cost greater than 25% of Borrower's Net Worth.
8.2.12 Leases. Become a lessee under any operating lease of
------
Property in excess of $50,000 in any calendar year.
- 20 -
<PAGE>
8.2.13 Tax Consolidation. File or consent to the filing of any
-----------------
consolidated income tax return with any Person other than a Subsidiary of
Borrower.
8.2.14 Partnership Agreement. Amend or modify the terms of the
---------------------
Partnership Agreement without Lender's prior written consent, which consent
shall not be unreasonably withheld, provided, however, that no consent shall be
needed to amend Schedule B--Borrowing Schedule to the Partnership Agreement to
permit Borrower to borrow based on a ratio of up to 3 to 1, debt-to-equity
basis, with respect to all Unreturned Capital Contributions (as defined in the
Partnership Agreement).
8.2.15 Certificates of Need. Consent to allow any Eligible Provider
--------------------
to amend, alter or suspend or terminate or make provisional in any material
way, any Certificate of Need or Provider Number or third party payor contract
of such Eligible Provider without prior written notice to Lender.
8.2.16 Receivable Acquisition Agreements. Amend or modify in any
---------------------------------
material respect the terms of any Receivable Acquisition Agreement in effect
with a Provider without Lender's prior written consent.
8.3 Specific Financial Covenants. During the term of this Agreement, and
-------- --------- ---------
thereafter for so long as there are any Obligations to Lender, Borrower
covenants that, unless otherwise consented to by Lender in writing, it shall:
8.3.1 Minimum Adjusted Tangible Net Worth. Maintain at all times
-----------------------------------
Adjusted Tangible Net Worth of not less than the amount shown below for the
period corresponding thereto:
Period Amount
------ ------
Closing Date and at all times thereafter $5,000,000
8.3.2 Debt to Adjusted Tangible Net Worth Ratio. Maintain at all times
-----------------------------------------
a ratio of Debt to Adjusted Tangible Net Worth of not more than the ratio shown
below for the period corresponding thereto:
Period Ratio
------
Closing Date and at all times thereafter 5 to 1
8.3.3 Cash Flow. Achieve cumulative Cash Flow during The Original Term
---------
and all Renewal Terms which is not less than negative $1,000,000 (i.e., not
worse than a cumulative cash deficit after the Closing Date of $1,000,000).
- 21 -
<PAGE>
SECTION 9. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Lender
under the other sections of this Agreement, Lender shall not be required to
make any Loan under this Agreement unless and until each of the following
conditions has been and continues to be satisfied:
9.1 Documentation. Lender shall have received, in form and substance
-------------
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional certificates as
Lender and its counsel shall reasonably require not otherwise inconsistent with
the express provisions of this Agreement and the other Loan Documents in
connection therewith from time to time, all in form and substance reasonably
satisfactory to Lender and its counsel.
9.2 No Default. No Event of Default shall exist.
----------
9.3 Other Loan Documents. Each of the conditions precedent set forth in
--------------------
the other Loan Documents shall have been satisfied.
9.4 Equity. Lender shall have received evidence satisfactory to it that
------
not less than a total of $5,000,000 in cash has been contributed as equity to
the capital of Borrower.
9.5 Availability. Lender shall have determined that immediately after
------------
Lender has made the initial Loan contemplated hereby, Aggregate Adjusted
Availability shall not be less than $1,000,000.
9.6 Software License. Lender shall have received a written agreement, in
----------------
form and substance acceptable to Lender and its counsel, from Ampro Corporation
("Ampro") providing that Borrower's software license from Ampro may be used
without charge by Lender to monitor and service the collection of Accounts upon
the occurrence of an Event of Default under this Agreement.
9.7 No Litigation. No action, proceeding, investigation, regulation or
-------------
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby.
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
10.1 Events of Default. The occurrence of one or more of the following
-----------------
events shall constitute an "Event of Default":
10.1.1 Payment of Obligations. Borrower shall fail to pay any of the
----------------------
Obligations on the due date thereof (whether due at stated maturity, on demand,
upon acceleration or otherwise).
10.1.2 Misrepresentations. Any representation, warranty or other
------------------
statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto
- 22 -
<PAGE>
proves to have been false in any material respect or misleading in any material
respect when made or furnished or when reaffirmed pursuant to Section 7.2
hereof.
10.1.3 Breach of Specific Covenants. Borrower shall fail or
----------------------------
neglect to perform, keep or observe any covenants contained in Sections 5.2,
6.1.1, 6.2.5, 6.2.6, or 8.2 (other than 8.2.2, 8.2.3, 8.2.4, 8.2.5, 8.2.7,
8.2.11 and 8.2.15) hereof on the date that borrower is required to perform, keep
or observe covenant or Borrower shall fail or neglect to perform, keep or
observe any covenant contained in Sections 8.1.3, 8.2.2, 8.2.5, 8.2.7, 8.2.11 or
8.2.15 hereof on the date that Borrower is required to perform, keep or observe
such covenant and the breach of such covenant is not cured to Lender's
reasonable satisfaction within 10 days after Borrower's receipt of notice of
such breach from Lender or the date on which such failure or neglect first
becomes known to any officer of Borrower.
10.1.4 Breach of Other Covenants. Borrower shall fail or
-------------------------
neglect to perform, keep or observe in any material respect any covenant
contained in this Agreement (other than a covenant which is dealt with
specifically elsewhere in Section 10.1 hereof) and the breach of such other
covenant is not cured to Lender's reasonable satisfaction within 40 days after
Borrower's receipt of notice of such breach from Lender or the date on which
such failure or neglect first becomes known to any officer of Borrower.
10.1.5 Default Under Security Documents/Other
--------------------------------------
Agreements/Purchase Documents. Borrower shall default in any material respect
- -----------------------------
in the performance or observance of any term, covenant, condition or agreement
contained in, any of the Security Documents; or the Other Agreements or any
Receivables Acquisition Agreement and such default is not cured to Lender's
reasonable satisfaction within 40 days after Borrower's receipt of notice of
such breach from Lender or the date on which such failure or neglect first
becomes known to any officer of Borrower.
10.1.6 Other Defaults. There shall occur any default or event
--------------
of default on the part of Borrower under any agreement, document or instrument
to which Borrower is a party or by which Borrower or any of its Property is
bound, creating or relating to any Indebtedness (other than the Obligations if
the payment or maturity of such Indebtedness is accelerated in consequence of
such event of default or demand for payment of such Indebtedness is made and
such default or event of default is not cured to Lender's reasonable
satisfaction within 40 days after Borrower's receipt of notice of such breach
from Lender or the date on which such failure or neglect first becomes known to
any officer of Borrower.
10.1.7 Adverse Changes. There shall occur any event or
---------------
condition which results in a Material Adverse Effect.
10.1.8 Insolvency and Related Proceedings. Borrower shall
----------------------------------
cease to be Solvent or shall suffer the appointment of a receiver, trustee,
custodian or similar fiduciary, or shall make an assignment for the benefit of
creditors, or any petition for an order for relief shall be filed by or against
Borrower under the Bankruptcy Code (and if filed against Borrower, the
continuation of such proceeding for more than 30 days), or Borrower shall make
any offer of settlement, extension or composition to their respective unsecured
creditors generally.
-23-
<PAGE>
10.19 Business Disruption; Condemnation. There shall
---------------------------------
occur a cessation of a substantial part of the business of Borrower for a period
which significantly affects Borrower's capacity to continue its business, on a
profitable basis; or Borrower shall suffer the loss or revocation of any license
or permit now held or hereafter acquired by Borrower which is necessary to the
continued or lawful operation of its business and the loss thereof would have a
Material Adverse Effect; or Borrower shall be conducting all or any material
part of its business affairs; or any material lease or agreement pursuant to
which Borrower leases, uses or occupies any Property shall be canceled or
terminated by the other party to such lease or agreement prior to the expiration
of its stated term and the loss thereof would have a Material Adverse Effect; or
any part of the Collateral shall be taken through condemnation or the value of
such Property shall be impaired through condemnation.
10.1.10 Change of Ownership. HealthPartners Financial
-------------------
Corporation shall cease to be the general partner of Borrower.
10.1.11 Change of Management. All of John K. Delaney,
--------------------
Ethan D. Leder and Edward P. Nordberg shall cease to be senior management of
Borrower or its general partner.
10.1.12 ERISA. A Reportable Event shall occur which
-----
Lender, in its sole discretion, shall determine in good faith constitutes
grounds for the termination by the Pension Benefit Guaranty Corporation of any
Plan or for the appointment by the appropriate United States district court of a
trustee for any Plan, or if any Plan shall be terminated or any such trustee
shall be requested or appointed, of if Borrower is in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
resulting from Borrower's complete or partial withdrawal from such Plan and such
Reportable Event is not cured to Lender's reasonable satisfaction within 40 days
after Borrower's receipt of notice of such breach from Lender or the date on
which such failure or neglect first becomes known to any officer of Borrower.
10.1.13 Challenge to Agreement. Borrower or any Affiliate
----------------------
of Borrower, shall challenge or contest in any action suit or proceeding the
validity or enforceability of this Agreement, or any of the other Loan
Documents, the legality or enforceability of any of the Obligations or the
perfection or priority of any Lien granted to Lender in connection with this
Agreement.
10.1.14 Criminal Forfeiture. Borrower shall be criminally
-------------------
indicted or convicted under any law that could lead to a forfeiture of any
Property of Borrower, any Subsidiary of Borrower.
10.1.15 Judgments. Any money judgment, writ of attachment
---------
or similar process in excess of $250,000 is filed against Borrower or its
Property and is not fully bonded, vacated, stayed or discharged within 20 days,
other than any judgement against a Provider which attaches to Accounts
purchased by Borrower from such Provider and to sums due from Borrower to such
Provider under the Receivable Acquisition Agreement (which Accounts shall not be
Eligible Accounts).
10.2 Acceleration of the Obligations. Without in any way limiting the
-------------------------------
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with Section 3.2 hereof, upon or at any time after the
occurrence and during the continuance of an Event of Default, all or any portion
of the Obligations shall, at the option of Lender and without presentment,
demand protest or further
-24-
<PAGE>
notice by Lender, become at once due and payable and Borrower shall forthwith
pay to Lender, the full amount of such Obligations, provided, that upon the
--------
occurrence of an Event of Default specified in subsections 10.1.8 hereof, all of
the Obligations shall become automatically due and payable without declaration,
notice or demand by Lender.
10.3 Other Remedies. Upon and during the continuance of an Event of
--------------
Default, Lender shall have and may exercise from time to time the following
rights and remedies:
10.3.1 All of the rights and remedies of a secured party
under the Code or under other applicable law, and all other legal and equitable
rights to which Lender may be entitled, all of which rights and remedies shall
be cumulative and shall be in addition to any other rights or remedies contained
in this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
10.3.2 The right to take immediate possession of the
Collateral, and to (i) require Borrower to assemble the Collateral, at
Borrower's expense, and make it available to Lender at a place designated by
Lender which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
Borrower, Borrower agrees not to charge Lender for storage thereof).
10.3.3 The right to sell or otherwise dispose of all or
any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that 10 days written
notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right
to conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the costs, expenses and attorneys'
fees incurred by Lender in collecting the Obligations, in enforcing the rights
of Lender under the Loan Documents and in collecting, retaking, completing,
protecting, removing, storing, advertising for sale, selling and delivering any
Collateral, second to the interest due upon any of the Obligations; and third,
to the principal of the Obligations. If any deficiency shall arise, Borrower
shall remain jointly and severally liable to Lender thereof.
10.3.4 Lender is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, solely for the
purpose of advertising for sale and selling any Collateral, and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit for such purpose.
10.4 Remedies Cumulative; No Waiver. All covenants, conditions,
-------------------------------
provisions, warranties, guaranties, indemnities, and other undertakings of
Borrower contained in this Agreement and the other Loan Documents, or in any
document referred to herein or contained in any agreement supplementary
-25-
<PAGE>
hereto or in any schedule or in any Guaranty Agreement given to Lender or
contained in any other agreement between Lender and Borrower, heretofore,
concurrently, or hereafter entered into, shall be deemed cumulative to and not
in derogation or substitution of any of the terms, covenants, conditions, or
agreements of Borrower herein contained. The failure or delay of Lender to
require strict performance by Borrowcr of any provision of this Agreement or to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such performance, Liens, rights, powers and
remedies, but all such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrower to Lender shall have been fully
satisfied. None of the undertakings, agreements, warranties, Covenants and
representations of Borrower contained in this Agreement or any of the other
Loan Documents and no Event of Default by Borrower under this Agreement or any
other Loan Documents shall be deemed to have been suspended or waived by Lender,
unless such suspension or waiver is by an instrument in writing specifying such
suspension or waiver and is signed by a duly authorized representative of Lender
and directed to Borrower.
SECTION II. MISCELLANEOUS
11.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
-----------------
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawfull attorney (and agent-in-fact) with respect to the
Collateral and Lender, or Lender's agent, may without notice to Borrower and in
either Borrower's or Lender's name, but at the cost and expense of Borrower:
11.1.1 At such time or times upon or after the occurrence and during
the continuance of an Event of Default as Lender or said agent, in its sole
discretion, may determine, endorse Borrower's name on any checks, notes,
acceptances, drafts, money orders or any other evidence of payment or proceeds
of the Collateral which Come into the possession of Lender or under Lender's
control.
11.1.2 At such time or times upon or after the occurrence and during
the continuance of an Event of Default as lender or its agent in its sole
discretion may determine: (i) demand payment of the Accounts from the Account
Debtors, enforce payment of the Accounts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings brought
to collect any of the Accounts or other Collateral; (iii) sell or assign any of
the Accounts and other Collateral upon such terms, for such amounts and at such
time or times as Lender deems advisable; (iv) take control, in any manner, of
any item of payment or proceeds relating to any Collateral; (v) prepare, file
and sign Borrower's name to a proof of claim in bankruptcy or similar document
against any Account Debtor or to any notice of lien, assignment or
satisfaction of lien or similar document in connection with any of the
Collateral; (vi) receive, open and dispose of all mail addressed to Borrower and
notify postal authorities to change the address for delivery Thereof to such
address as lender may designate; (vii) endorse the name of Borrower upon any of
the items of payment or proceeds relating to any Collateral and deposit the same
to the account of lender on account of the Obligations; (viii) endorse the name
of Borrower upon any chattel paper, document, instrument invoice, or similar
document or agreement relating to the Accounts, and any other Collateral; (ix)
use Borrower's stationery and sign the name of Borrower to verifications of the
Accounts and notices thereof to Account Debtors; (x) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, and any other Collateral; (xi) make and
adjust claims
- 26 -
<PAGE>
under policies of insurance; and (xii) do all other acts and things necessary,
in Lender's determination, to fulfill Borrower's obligations under this
Agreement.
11.2 Indemnity. Except with respect to any gross negligence or willful
--------- -------
misconduct on the part of Lender, Borrower hereby agrees to indemnify Lender and
hold Lender harmless from and against any liability, loss, damage, suit, action
or proceeding ever suffered or incurred by Lender (including reasonable
attorneys fees and legal expenses) as the result of Borrower's failure to
observe, perform or discharge Borrower's duties hereunder. Except with respect
to any gross negligence or willful misconduct on the part of Lender, in
addition, Borrower shall defend Lender against and save it harmless from all
claims of any Person with respect to the Collateral. Except with respect to any
gross negligence or willful misconduct on the part of Lender, without limiting
the generality of the foregoing, these indemnities shall extend to any claims
asserted against Lender by any Person under any Environmental Laws or similar
laws by reason of Borrower's or any other Person's failure to comply with laws
applicable to solid or hazardous waste materials or other toxic substances.
Notwithstanding any contrary provision in this Agreement, the obligation of
Borrower under this Section 11.2 shall survive the payment in full of the
Obligations and the termination of this Agreement.
11.3 Modification of Agreement: Sale of Interest. This Agreement may not
-------------------------------------------
be modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder (i) to any Affiliate of Lender, or (ii) in connection
with any sale, assignment, transfer or other disposition of Lender's business or
portfolio of loans of this type, or ((iii)) to any other person provided that
after such participation, sale, assignment, transfer or other disposition,
Lender retains at least a 25% interest in the Loans; provided, however, if in
connection with any sale, assignment, transfer or other disposition of this
Agreement and any of the other Loan Documents as permitted in Section 11.3(ii)
above, there is a change in the identity of the group manager and loan
administration manager of Lender with respect to Borrower, then in such event
within 60 days of such change Borrower may provide Lender with notice of its
intention to terminate this Agreement in accordance with Section 4.2.2 and upon
such termination, Borrower shall not be obligated to pay the termination charges
provided for in Section 4.2.3 of this Agreement. In the case of an assignment,
the assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would if it were "Lender" hereunder and Lender
shall be relieved of all obligations hereunder upon any such assignments.
Borrower agrees that it will use its best efforts to assist and cooperate with
Lender in any manner reasonably requested by Lender to effect the sale of
participations in or assignments of any of the Loan Documents or any portion
thereof or interest therein, including, without limitation, assisting in the
preparation of appropriate disclosure documents. Borrower further agrees that
Lender may disclose credit information regarding Borrower and its Subsidiaries
to any potential participant or assignee so long as such person agrees in
writing to maintain in confidence any information delivered to it with respect
to Borrower.
11.4 Confidentiality. For so long as any provision of this Agreement
---------------
remains in effect, Lender shall maintain confidential any and all information
relating to Borrower's business that was made available
- 27 -
<PAGE>
to Lender by Borrower except (i) as permitted by Borrower from time to time;
(ii) to Lender's officers, employees, agents, advisors, and actual or
prospective assignees or participants so long as such agents, assignees or
participants agree in writing to maintain the confidentiality of such
information; (iii) to the extent such information is publicly available; (iv) to
the extent Lender is required by law to disclose such information or such
disclosure is required by any regulator having supervisory authority over
Lender; or (v) to the extent Lender determines in its reasonable discretion that
the disclosure of such information is required in order to permit Lender to
administer the Loans or to exercise or enforce its rights hereunder or under any
of the other Loan Documents.
11.5 Severability. Wherever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
11.6 Successors and Assigns. This Agreement, the Other Agreements and the
----------------------
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 11.3
hereof.
11.7 Cumulative Effect: Conflict of Terms. The provisions of the Other
------------------------------------
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control.
11.8 Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
11.9 Notice. Except as otherwise provided herein, all notices, requests
------
and demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent addressed as follows:
If to Lender: Shawmut Capital Corporation
200 Glastonbury Boulevard
Glastonbury, CT 06033
Attention: Northeast Loan Administration
Facsimile No.: 203-657-7759
- 28-
<PAGE>
With a copy to: Blank, Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Attention: Lawrence F. Flick, II, Esq.
Facsimile No.: 215-569-5555
If to Borrowers: HealthPartners Funding, L.P.
2001 L Street, N.W., Suite 402
Washington, D.C. 20036
Attention: President
Facsimile No.: (202) 452-1473
With a copy to: Kronish, Lieb, Weiner & Hellman
1114 Avenue of the Americas
New York, NY 10036
Attention: Russell S. Berman, Esq.
Facsimile No.: (212) 479-6275
or to such other address as each party may designate for itself by notice given
in accordance with this Section 11.8; provided, however, that any notice,
-------- -------
request or demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2
hereof shall be effective only upon receipt by Lender.
11.10 Lender's Consent. Whenever Lender's consent or approval is required
----------------
to be obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
except as otherwise provided herein, Lender shall be authorized to give or
withhold such consent or approval in its sole and absolute discretion and to
condition its consent or approval upon the giving of additional collateral
security for the Obligations, the payment of money or any other matter.
11.11 Credit Inquiries. Borrower hereby authorizes and permits Lender to
----------------
respond to usual and customary credit inquiries from third parties concerning
Borrower or any of its Subsidiaries.
11.12 Entire Agreement. This Agreement and the other Loan Documents,
----------------
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
11.13 Interpretation. No provision of this Agreement or any of the other
--------------
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision
11.14 GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
-------------------------------
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN NEW YORK,
NEW YORK. THIS AGREEMENT SHALL BE GOVERNED
- 29 -
<PAGE>
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK; PROVIDED,
--------
HOWEVER, THAT IF ANY OF THE COLLATERAL SHAll BE LOCATED IN ANY JURISDICTION
- -------
OTHER THAN NEW YORK, THE LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD,
MANNER AND PROCEDURE FOR FORECLOSURE OF LENDER'S LIEN UPON SUCH COLLATERAL AND
THE ENFORCEMENT OF LENDER'S OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE
EXTENT THAT THE LAWS OF SUCH JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT
WITH THE LAWS OF NEW YORK. AS PART OF THE CONSIDERATION FOR NEW VALUE
RECEIVED, AND REGARDLESS OF ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF
BUSINESS OF BORROWER OR LENDER, BORROWER HEREBY CONSENTS AND AGREES THAT THE
SUPREME COURT OF NEW YORK, NEW YORK COUNTY, OR, AT LENDER'S OPTION, THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSlY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
----- --- ----------
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN
THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR
ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO
ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
11.15 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL
-------------------
BY JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
- ----------
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE
(EXCEPT AS SPECIFICAllY SET FORTH IN THIS AGREEMENT) PRIOR TO TAKING
- 30 -
<PAGE>
POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT BE
REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF LENDER'S
REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION LAWS;
AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE FOREGOING
WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS AGREEMENT AND
THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH
BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING
WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
IN WITNESS WHEREOF, this Agreement has been duly executed in Philadelphia
------------
PA on the day and year specified at the beginning of this Agreement.
- --
ATTEST: HEALTHPARTNERS FUNDING, L.P.
("Borrower")
BY: HEALTHPARTNERS FINANCIAL CORPORATION
its general partner
[signature appears here] By: [signature appears here]
- ------------------------ -------------------------------------
Secretary Title: President
CORPORATE SEAL ----------------------------------
Accepted in New York, New York:
SHAWMUT CAPITAL CORPORATION
("Lender")
By: [signature appears here]
---------------------------------------
Title: SVP
------------------------------------
- 31 -
<PAGE>
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of March ___,
1995, by and between Shawmut Capital Corporation and Healthpartners Funding
L.P., the following terms shall have the following meanings (terms defined in
the singular to have the same meaning when used in the plural and vice versa):
Account Debtor - any Third Party Payor or other Person who is or may
--------------
become obligated under or on account of an Account
Accounts - all accounts, contract rights, chattel paper, instruments
--------
and documents, whether flow owned or hereafter created or acquired by
Borrower or in which and to the extent that Borrower now has or hereafter
acquires any interest.
Adjusted LABOR Rate - For any LIBOR Interest Period, as applied to a
-------------------
Revolving Credit LIBOR Rate Loan the rate per annum (rounded upwards, if
necessary to the next 1/16 of 1%) determined pursuant to the following
formula:
Adjusted Libor Rate = Libor Rate
----------
(1.00- Reserve Percentage)
For purposes hereof, "Libor Rate" shall mean the arithmetic average of the
rates of interest per annum (rounded upwards, if necessary to the next 1/16
of 1%) at which flank is offered deposits of United States Dollars in the
interbank eurodollar loan market on or about 2:00 P.M. New York time two
(2) Business Days prior to the commencement of such LIBOR IN Period on
amounts substantially equal to the Revolving Credit LIBOR Rate Loan as to
which Borrower may elect the Adjusted LIBOR Rate to be applicable with a
maturity of comparable duration to the LIBOR Interest Period selected by
Borrower, for such Revolving Credit LIBOR Rate Loan.
Adjusted Net Earnings From Operations. With respect to any fiscal
-------------------------------------
period, means the net earnings (or loss) after provision for income taxes
for such fiscal period of Borrower, as reflected on the financial statement
of Borrower supplied to Lender pursuant to subsection 8.1.3 of the
Agreement, but excluding:
(i) any gain or loss arising from the sale of capital assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of Borrower accrued prior to
the date it became a Subsidiary;
(iv) earnings of any corporation, substantially all the assets
of which have been acquired in any manner by Borrower, realized by such
corporation prior to the date of such acquisition;
<PAGE>
(v) net earnings of any business entity (other than a Subsidiary
of Borrower) in which Borrower has an ownership interest unless such net
earnings shall have actually been received by a Borrower in the form of cash
distributions;
(vi) any portion of the net earnings of any Subsidiary of Borrower
which for any reason is unavailable for payment of dividends to Borrower;
(vii) the earnings of any Person to which any assets of Borrower
shall have been sold, transferred of disposed of, or into which Borrower shall
have merged, or been a party to any consolidadon or other form of
reorganization, prior to the date of such transaction;
(viii) any gain arising from the acquisition of any Securities of
Borrower; and
(ix) any gain arising from extraordinary or non-recurring items.
Adjusted Tangible Assets. All assets except: (i) any surplus resulting from
------------------------
any write-up of assets subsequent to December 31, 1994; (i) deferred assets,
other than prepaid insurance and prepaid taxes; (iii) patents, copyrights,
trademarks, trade names, non-compete agreements, franchises and other similar
intangibles; (iv) goodwill, including any amounts, however designated on a
Consolidated balance sheet of a Person or its Subsidiaries, representing the
excess of the purchase price paid for assets or stock over the value assigned
thereto on the books of such Person; (v) Restricted Investments; (vi)
unamortized debt discount and expense; (vii) assets located and notes and
receivables due from obligors outside of the United States of America; (viii)
Accounts, notes and other receivables due from Affiliates or employees; and (ix)
loans to Providers.
Adjusted Tangible Net Worth. At any date means a sum equal to:
---------------------------
(i) the net book value (after deducting related depreciation,
obsolescence, amortization, valuation, and other proper reserves) at which the
Adjusted Tangible Assets of a Person would be shown on a balance sheet at such
date in accordance with GAAP, minus
-----
(it) the amount at which such Person's liabilities (other than
capital stock and surplus) would be shown on such balance sheet in accordance
with GAAP, and including as liabilities all reserves for contingencies and other
potential liabilities.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
---------
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, a Person; (ii) which beneficially owns or holds 5%
or more of any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
---------
sentence of this Appendix A, all Exhibits thereto and this Appendix A
-2-
<PAGE>
Aggregate Adjusted Availability - an amount equal to (i) Availability minus
------------------------------- -----
(ii) all sums owed to Providers under the Receivable Acquisition Agreements that
are due and payable under such agreements as of the closing Date or which are
outstanding beyond Borrower's normal practice of paying such sums to Providers.
Availability - the amount of money which Borrower is entitled to borrow
------------
from time to time as Revolving Credit Loans, such amount being the difference
derived when the sum of the principal amount of Revolving Credit loans then
outstanding (including any amounts which Lender may have paid for the account of
Borrower pursuant to any of the Loan Documents and which have not been
reimbursed by Borrower) is subtracted from the Borrowing Base. If the amount
outstanding is equal to or greater than the Borrowing Base, Availability is 0.
Bank - Shawmut Bank Connecticut, N.A.
----
Base Rate - the rate of interest announced or quoted by Bank from time to
---------
time as its prime rate for commercial loans, whether or not such rate is the
lowest rate charged by Bank to its most preferred borrowers; and, if such prime
rate for commercial loans is discontinued by Bank as a standard, a comparable
reference rate designated by Bank as a substitute therefor shall be the Base
Rate.
Batch. A group of Accounts purchased from a Provider under the terms of a
-----
Receivables Acquisition Agreement.
Borrowing Base - as at any date of determination thereof, an amount equal
--------------
to the lesser of:
(a) 90% of The Initial Payment (as defined in the Receivables
Acquisition Agreement) amount actually advanced (or to be advanced
with respect to the Initial Payment) by Borrower to a Provider to
acquire Eligible Accounts; and
(b) 65% of the Fair Reimbursable Value of Eligible Accounts.
Business Day - any day excluding Saturday, Sunday and any day which is a
------------
legal holiday under the laws of the State of New York or is a day on which
banking institutions located in such state are closed.
Capital Expenditures - expenditures made or liabilities incurred for the
--------------------
acquisition of any fixed assets or improvements, replacements, substitutions or
additions thereto which have a useful life of more than one year, including the
total principal portion of Capitalized Lease Obligations.
Cash Flow - for any period, means Borrower's (i) Adjusted Net Earnings from
---------
Operations for such period, plus (ii) depreciation and amortization expenses for
----
such period, plus (iii) deferred taxes for such period, plus (iv) the net effect
----
(even if negative) of FASB 106 minus (v) unfinanced capital expenditures and
-----
principal payments on account of long-term indebtedness, all as determined in
accordance with GAAP.
-3-
<PAGE>
Capitalized Lease Obligation - any Indebtedness represented by obligations
----------------------------
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Closing Date - the date on which all of the conditions precedent in Section
------------
9 of the Agreement are satfsfled and the initial Loan is made under the
Agreement
Code - the Uniform Commercial Code as adopted and in force in the State of
----
New York, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
----------
Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
Consolidated - the consolidation in accordance with GAAP of the accounts or
------------
other items as to which such term applies.
Debt to Adjusted Tangible Net Worth Ratio - with respect to any date, the
-----------------------------------------
ratio of (i) Total Liabilities for such date to (ii) Adjusted Tangible Net Worth
for such date, all as determined in accordance with GAAP.
Default - an event or condition the occurrence of which would, with the
-------
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 21.2 of the Agreement.
------------
Distribution - means and includes (i) payment of any funds to the limited
------------
or general partners of Borrower other than the management fees paid to the
general partner in an amount not to exceed $33,333.33 during any calendar month
and (ii) the redemption or acquisition of partnership interests unless made
contemporaneously from the net proceeds of the sale or issuance of partnership
interests.
Dominion Account - a special account of Lender established by Borrower
----------------
pursuant to the Agreement at Bank One or any other bank selected by Borrower,
but acceptable to Lender in its reasonable discretion, and over which Lender
shall have sole and exclusive access and control for withdrawal purposes.
EBIT - with respect to any fiscal period, the sum of Borrower's
----
Consolidated net earnings (or loss) before interest expense and taxes for said
period as determined in accordance with GAAP.
Eligible Account - an Account payable by an Eligible Third Party Payor
----------------
purchased (or to be purchased with proceeds of a Revolving Credit Lean) in the
ordinary course of Borrower's business from an Eligible Provider and arising in
the ordinary course of such Provider's business from the sale of goods or
rendition of medical or health care services unless Lender, in its reasonable
credit judgment, deems it not to be an Eligible Account Without limiting the
generality of the foregoing, no Account shall be an Eligible Account if:
-4-
<PAGE>
(i) it arises out of a sale made or services rendered by the Borrower
or the Provider to a Subsidiary or an Affiliate of Borrower or the Provider or
to a Person controlled by an Affiliate of Borrower or the Provider; or
(ii) it is part of a Batch which remains unpaid more than 90 days after
the date such Batch was purchased by Borrower; provided, however. Accounts which
--------- -------
are part of a Batch with a Fair Reimbursable Value of up to $250,000 in the
aggregate outstanding at any one time and which remain unpaid for more than 90
days, but less than 120 days after the date such Batch was purchased by
Borrower, may be Eligible Accounts; or
(iii) 50% or more of the Accounts owed by the Eligible Third Party Payor
(other than any Medicare/Medicaid Account Debtor), are not deemed Eligible
Accounts hereunder; or
(iv) the total unpaid Accounts of the Third Party Payor (other than any
Medicare/Medicaid Account Debtor) exceed 20% of the net amount of all Eligible
Accounts, to the extent of such excess; or
(v) the total unpaid Accounts purchased from the Provider (a) during the
period from the Closing Date until the expiration of 6 months thereafter exceed
the greater of $2,000,000 or 20% of the net amount of all Eligible Accounts, or
(b) after such 6-month period exceed 15% of the Net Amount of all Eligible
Accounts, to the extent of such excess; or
(vi) any covenant, representation or warranty contained in this Agreement
or the Receivables Acquisition Agreement with respect to such Account has been
breached in any material respect; or
(vii) the Account Debtor is also Borrower's or the Provider which sold the
Account to Borrower's, creditor or supplier, or the Account Debtor has disputed
liability with respect to such Account, or the Account Debtor has made any
claim with respect to any other Account due from such Account Debtor to
Borrower or to the Provider, or the Account otherwise is or may become subject
to any right of setoff by the Account Debtor, to the extent of such claim or
setoff; or
(viii) the Thfrd Party Payor or the Provider which sold the Account to
Borrower has commenced a voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or made an assignment for the benefit of
creditors, or a decree or order for relief has been entered by a court having
jurisdiction in the premises in respect of the Account Debtor or Provider in an
involuntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or any other petition or other application for relief under
the federal bankruptcy laws has been flied against the Third Party Payor or
Provider, or if the Account Debtor or Provider has failed, suspended business,
or consented to or suffered a receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion of its assets or affairs;
or
-5-
<PAGE>
(ix) it arises from a sale or provision of services by a Provider
located outside the United States; or
(x) the Account is subject to a Lien other than a Permitted Lien;
or
(xi) the services giving rise to such Account have not been
performed by the Provider or the Account otherwise does not represent a
final sale; or
(xii) title Account is evidenced by chattel paper or an instrument of
any kind, or has been reduced to judgment; or
(xiii) Borrower or the Provider has made any agreement with the
Account Debtor for any deduction therefrom, except for discounts or
allowances which are Made in the ordinary course of business for prompt
payment or which are reflected in the calculation of the Fair Reimbursable
Value related to such Account; or
(xiv) Borrower has made an agreement with the Account Debtor to
extend the time of payment thereof for more than 120 days from the date of
the purchase of the relevant Batch; or
(xv) the Account is subject to any limitation which would make
payment of the Fair Reimbursable Value by the Account Debtor conditional;
or
(xvi) the Account is payable in part (but not in whole), by a
Medicare/Medicaid Account Debtor or other Third Party Payor, to the extent
such Account exceeds the portion payable by such Medicare/Medicaid Account
Debtor or Third Party Payor; and
(xvii) Under no circumstance will Lender advance against any Account
or any portion of any Account to the extent such Account or a portion
thereof is payable by an individual beneficiary, recipient or subscriber
individually and not by a Medicare/Medicaid Account Debtor or other
Eligible Third Party Payor.
Eligible Third Party Payor - any Third Party Payor which Borrower has
--------------------------
deemed an "Eligible Insurer" pursuant to the Receivables Acquisition Agreements
unless Lender, in its reasonable credit judgment, determines that such Third
Party Payor is unacceptable.
Eligible Provider - any Provider which has entered into a Receivable
-----------------
Acquisition Agreement with Borrower; provided that (i) such Provider is not in
material default under any of the material terms or conditions of such
Receivable Acquisition Agreement, (ii) Borrower has filed appropriate UCC-1
Financing Statements as would be necessary to perfect a security interest
obtained by Borrower in the Accounts of such Provider with a priority over all
other Liens in favor of any other creditor of such Provider, and (iii) the most
recent Medicare and Medicaid audits for such Provider are acceptable to Lender
in its reasonable discretion.
-6-
<PAGE>
Borrower's operations or owned by Borrower or in which Borrower has an interest,
whether now owned or hereafter acquired by Borrower and wherever located, and
all parts, accessories and special tools and all increases and accessions
thereto and substitutions and replacements therefor.
ERISA - the Employee Retirement Income Security Act of 1974, as amended,
-----
and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
----------------
Facility Can - $23,125,000.
------------
Facility Can Sublimit - as defined in Section 1.1.3 of the Agreement.
---------------------
Fair Reimbursable Value - the fair reimbursable value or amount expected to
-----------------------
be collected from the Third Party Payor of Accounts purchased from Providers, as
established by Borrower, or an independent verification company reasonably
acceptable to Lender; provided, however, that the fair reimbursable value of any
Account or Borrower's method of calculation thereof, shall be acceptable to
Lender in the reasonable exercise of its credit discretion.
GAAP - generally accepted accounting principles in the United States of
----
America in effect from time to time.
General Intangibles - all personal property of Borrower (including things
-------------------
in action) other than goods, Accounts, chattel paper, documents, instruments and
money, whether now owned or hereafter created or acquired by Borrower.
Indebtedness as applied to a Person means, without duplication
------------
(i) all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a balance
sheet of such Person as at the date as of which Indebtedness is to be
determined, including, without limitation, Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such
Person, and
(iv) in the case of Borrower (without duplication), the Obligations.
Inventory - all of Borrower's inventory, whether now owned or hereafter
---------
acquired including, but not limited to, all goods intended for sale or lease by
Borrower, or for display or demonstration; all work in process; all raw
materials and other materials and supplies of every nature and description used
or which might be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such goods or otherwise
used or consumed in
-7-
<PAGE>
Borrower's business; and all documents evidencing and General Intangibles
relating to any of the foregoing, whether now owned or hereafter acquired by
Borrower.
LIBOR Interest Period - a period of 1, 2,3 or 6 months duration during
---------------------
which the Revolving Credit LIBOR Rate or Term UBOR Rate, as the case may be, is
applicable.
LIBOR Rate Loans - collectively, all Revolving Credit LIBOR Rate Loans.
----------------
Lien - any interest in Property securing an obligation owed to, or a claim
----
by, a Person other than the owner of the Property, whether such interest is
based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the Agreement, Borrower shall be deemed
to be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established on the books of Lender pursuant
------------
to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
--------------
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to the
-----
Agreement.
London Business Day - Any Business Day on which banks in London, England
-------------------
are open for business.
Material Adverse Effect - means a material adverse effect on (i) the
-----------------------
business, assets, operations and financial or other condition of the Borrower
and any Subsidiaries taken as a whole, (ii) the ability of the Borrower to pay
the Obligations in accordance with the terms of this Agreement and any Security
Documents or Other Agreements, (iii) the rights and remedies of the Bank under
this Agreement, any Security Documents or Other Agreements, or (iv) the value of
the Lender's security interest in the Collateral or the perfection or priority
of such security interest.
Medicare/Medicaid Account Debtor - any Account Debtor which is (i) United
--------------------------------
States of America acting under the Medicare/Medicaid program established
pursuant to the Social Security Act, (ii) any state acting pursuant to a health
plan adopted pursuant to Title XIX of the Social Security Act or (iii) any
agent, carrier, administrator or intermediary for any of the foregoing.
Money Borrowed - means (i) Indebtedness arising from the lending of money
--------------
by any Person to Borrower; (ii) Indebtedness, whether or not in any such case
arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbunement obligations with
-8-
<PAGE>
respect to letters of credit or guaranties of letters of credit and (v)
Indebtedness of Borrower under any guaranty of obligations that would constitute
Indebtedness for Money Borrowed under clauses (i) through (iii) hereof, if owed
directly by Borrower.
Multiemplover Plan - has the meaning set forth in Section 4001(a)(3) of
------------------
ERISA.
Net Worth - at any date of determination thereof, (i) the aggregate amount
---------
of all assets of Borrower and in Subsidiaries on a Consolidated basis as may be
properly classified as such, less (ii) the aggregate amount of all liabilities
of Borrower and its Subsidiaries on a Consolidated basis, all as determined in
accordance with GAAP.
Obligations - all Loans and all other advances, debts, liabilities,
-----------
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from Borrower to Lender of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising and however acquired. The term
includes without limitation, all interest, charges, fees, expenses, attorneys'
fees, and any other sums chargeable to Borrowers under any of the Loan
Documents.
Original Term - as defined in Section 4.1 of the Agreement.
-------------
Other Agreements - any and all agreements, instruments and documents (other
----------------
than the Agreement and the Security Documents), heretofore, now or hereafter
executed by any Borrower, any Subsidiary of Borrower or any other third party
and delivered to Lender in respect of the transactions contemplated by the
Agreement, as each of the same may be amended, modified, renewed, extended,
replaced, restated or substituted from time to time.
Overadvance - the amount, if any, by which the outstanding principal amount
-----------
of Revolving Credit Loans exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by Lender
--------------------
to participate in any of the Loans described in the Agreement and who shall have
entered into a participation agreement in form and substance satisfactory to
Lender.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of the
---------------
Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
-------------------------------------
Borrower incurred after the date hereof which is secured by a Purchase Money
Lien.
Person - an individual, partnership, corporation, limited liability
------
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
-9-
<PAGE>
Plan - an employee benefit plan now or hereafter maintained for employees
----
of Borrower that is covered by Title IV of ERISA.
Projections - Borrower's forecasted (i) balance sheets, (ii) profit and
-----------
loss statements, and (iii) cash flow statements, all prepared on a consistent
basis with Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
Property - any interest in any kind of property or asset, whether real,
--------
personal or mixed, or tangible or intangible.
Provider - any provider of medical or health care goods or services
--------
including physician services, nurse and therapist services, dental services,
hospital services, skilled nursing facility services, comprehensive outpatient
rehabilitation services, home healthcare services and medicine or healthcare
equipment and/or any other service provided by such person for any necessary or
specifically requested valid and proper medical or healthcare purpose.
Purchase Money Indebtedness - means and includes (i) Indebtedness (other
---------------------------
than the Obligations) for the payment of all or any part of the purchase price
of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred
at the time of or within 10 days prior to or after the acquisition of any fixed
assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase Money
-------------------
Indebtedness, but only if such Lien shall at all times be confined solely to the
fixed assets the purchase price of which was financed through the incurrence of
the Purchase Money Indebtedness secured by such Lien.
Receivable Acquisition Agreements - the Agreements between Borrower and
---------------------------------
each Provider in the form attached hereto as Exhibit P.
Regulation D - Regulation D of the Board of Governors of the Federal
------------
Reserve System, comprising Part 204 of Title 12, Code of Federal Regulations, as
amended, and any successor thereto.
Reserve - for any day, that reserve (expressed as a decimal) which is in
-------
effect (whether or not actually incurred) with respect to Bank on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor or any other banking authority to which Bank is subject including any
board or governmental or administrative agency of the United States or any other
jurisdiction to which Bank is subject), for determining the maximum reserve
requirement (including without limitation any basic, supplemental, marginal or
emergency reserves) for Eurocurrency liabilities as defined in Regulation D.
Reserve Percentage - for Bank on any day, that percentage (expressed as a
------------------
decimal) which is in effect on such day, prescribed by the Board of Governors of
the Federal Reserve System (or any successor or any other banking authority to
which Lender is subject, including any board or
-10-
<PAGE>
governmental or administrative agency of the United States or any other
jurisdiction to which Bank is subject) for determining the maximum reserve
requirement (including without limitation any basic, supplemental, marginal or
emergency reserves) for (i) deposits of United States Doilars or (ii)
Eurocurrency liabilities as defined in Regulation D, in each case used to fund
a Revolving Credit LIBOR Rate Loan or Term LIBOR Rate Loan subject to an
Adjusted LIBOR Rate. The Adjusted LIBOR Rate shall be adjusted automatically on
and as of the effective day of any change in the Reserve Percentage.
Rentals - as defined in subsection 8.2.12 of the Agreement.
-------
Renewal Terms - as defined in Section 4.1 of the Agreement.
-------------
Reportable Event - any of the events set forth in Section 4043(b) of ERISA.
----------------
Restricted Investment - any investment made in cash or by delivery of
---------------------
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property, and Including loans permitted by Section
8.2.2(iii) except the following:
(1) investments in one or more Subsidiaries of Borrower to the
extent existing on the Closing Date;
(ii) Property (including Accounts) to be used in the ordinary course
of business;
(iii) Current Assets arising from the sale of goods and services in
the ordinary course of business of Borrower and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one year
from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within one year
from the date of acquisition issued by a bank or trust company organized
under the laws of the United States or any state thereof having capital
surplus and undivided profits aggregating at least $100,000,000; and
(vi) investments in commercial paper given the highest rating by a
national credit rating agency and maturing not more than 270 days from the
date of creation thereof.
Revolving Credit Base Rate - a per annum rate equal to the sum of the Base
--------------------------
Rate plus 150 basis paints.
Revolving Credit Base Rate Loan - that portion of the Revolving Credit
-------------------------------
Loans that bears interest at the Revolving Credit Base Rate.
-11-
<PAGE>
Revolving Credit Facility - the credit facility established for Borrowers
-------------------------
by Lender under and pursuant to the terms of this Agreement under which
Revolving Credit Loans may be made from time to time.
Revolving Credit LIBOR Rate - a per annum rate equal to the sum of the
---------------------------
Adjusted LIBOR plus 300 basis points.
Revolving Credit LIBOR Rate Loan - that portion of the Revolving Credit
--------------------------------
Loans on which interest accrues at the Revolving Credit LIBOR Rate.
Revolving Credit Loan - a Loan made by Lender as provided in Section 1.1 of
---------------------
the Agreement.
Revolving Credit Maturity Date - the last day of the Original Term or, if
------------------------------
any Renewal Term is in effect, then the last day of such Renewal Term.
Schedule of Accounts - as defined in subsection 6.2.1 of the Agreement.
--------------------
Security - shall have the same meaning as in Section 2(1) of the Securities
--------
Act of 1933, as amended.
Security Documents - and all other instruments and agreements now or at any
------------------
time hereafter securing the whole or any part of the Obligations.
Solvent - as to any Person, such Person (i) owns Property whose fair
-------
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subordinated Debt - Indebtedness of Borrower that is subordinated to the
-----------------
Obligations in a manner satisfactory to Lender.
Subordination Agreement - an agreement in form and substance acceptable to
-----------------------
Lender pursuant to which the holder of any Subordinated Debt has subordinated
the Indebtedness owed to it to the Obligations.
Subsidiary - any corporation of which a Person owns, directly or indirectly
----------
through one or more intermediaries, more than 50% of the Voting Stock at the
time of determination.
Third Party Payor - any Medicare/Medicaid Account Debtor or other
-----------------
commercial payor or managed care payor which has agreed to make payment to a
Provider for goods sold or medical or health care services rendered by such
Provider.
Total Liabilities - at any date means all amounts properly classified as
-----------------
liabilities on a balance sheet at such date in accordance with GAAP, plus all
reserves for contingencies and all other
-12-
<PAGE>
potential liabilities for which no reserves have previously been
established on such balance sheet, to the extent such amounts are not
already classified as liabilities in accordance with GAAP.
Other Terms. All other terms contained in the Agreement shall have,
-----------
when the context so indicates, the meanings provided for by the. Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
-------------------------------
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
-13-
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit B Borrower's and each Subsidiary's Business Locations
Exhibit C Jurisdictions in which Borrower and each Subsidiary is Authorized to
do Business
Exhibit D Capital Structure of Borrower
Exhibit E Corporate Names
Exhibit F Tax Identification Numbers of Subsidiaries
Exhibit G Patents, Trademarks, Copyrights and Licenses
Exhibit H Contracts Restricting Borrower's Right to Incur Debts
Exhibit I Litigation
Exhibit J Capitalized Leases
Exhibit K Operating Leases
Exhibit L Pension Plans
Exhibit M Labor Contracts
Exhibit N Compliance Certificate
Exhibit 0 Permitted Liens
Exhibit P Forms of Receivable Acquisition Agreement
Exhibit Q Form of Settlement and Confirmation Statement
-14-
<PAGE>
EXHIBIT B
Borrower's Business Locations
-----------------------------
1. 2001 L Street, N.W.
Suite 402
Washington, D.C. 20036
2. Borrower provides receivables financing to clients located in approximately
twenty-three (23) states and the District of Columbia.
<PAGE>
EXHIBIT C
Jurisdictions in Which Borrower is Authorized to do Business
------------------------------------------------------------
1. Borrower is organized under the laws of the state of Delaware.
2. Borrower is authorized to do business in the District of Columbia.
<PAGE>
EXHIBIT D
Affiliates, Partners and Issued,
--------------------------------
Outstanding and Treasury Stock of Borrower
------------------------------------------
<TABLE>
<CAPTION>
PARTNERS: PARTNERSHIP
PERCENTAGE
<S> <C>
Limited Partners:
----------------
Farallon Capital Partners, L.P. - 84%
Tinicum Partners, L.P. - 15%
General Partner:
---------------
HealthPartners Financial Corporation - 1%
AFFILIATES:
HealthPartners DEL, L.P.
Cash Flow Management, L.P.
</TABLE>
<PAGE>
EXHIBIT E:
Corporate Names
---------------
1. None. (Borrower has conducted its business in part through its general
partner, HealthPartners Financial Corporation, and affiliated partnerships,
HealthPartners DEL, L.P., Cash Flow Management, L.P., and HealthPartners
ARM, L.P. HealthPartners ARM, L.P. was liquidated as of December 1, 1993.
<PAGE>
EXHIBIT F
Tax Identification Numbers of Subsidiaries
------------------------------------------
1. None.
<PAGE>
EXHIBIT G
Patents, Trademarks, Copyrights and Licenses
--------------------------------------------
1. Software license agreement with Ampro Financial Corporation attached hereto
as Schedule G.1.
<PAGE>
EXHIBIT H
Contracts Restricting Borrower's Right to Incur Debt
----------------------------------------------------
1. Borrower's Partnership Agreement (Specifically Schedule B attached thereto)
attached hereto as Schedule H.1.
<PAGE>
EXHIBIT I
Litigation
----------
1. None.
<PAGE>
EXHIBIT J
Capitalized Leases
------------------
1. None.
<PAGE>
EXHIBIT K
Operating Leases
----------------
1. None.
<PAGE>
EXHIBIT L
Pension Plans
-------------
1. None.
<PAGE>
EXHIBIT M
Labor Contracts
---------------
1. None.
<PAGE>
EXHIBIT "N"
COMPLIANCE CERTIFICATE
[Letterhead of Borrower]
19
------------------------, --
Shawmut Capital Corporation
200 Glastonbury Boulevard
Glastonbury, CT 06033
The undersigned, the chief financial officer of HealthPartners Funding,
L.P., a Delaware limited partnership ("Borrower"), gives this certificate to
Shawmut Capital Corporation ("Lender") in accordance with the requirements of
subsection 8.1.2 of that certain Loan and Security Agreement dated March 9,
1995, between Borrower and Lender ("Loan Agreement"). Capitalized terms used
in this Certificate, unless otherwise defined herein, shall have the meanings
ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of income of
Borrower for the [fiscal year] [quarter period] ending _______________ l9__,
copies of which are attached hereto, I hereby certify that:
[(a) Adjusted Net Earnings From Operations for the period
was $_______ ;]
[(b) The Debt to Adjusted Tangible Net Worth is_______ to 1;]
[(c) Cumulative Cash Flow is $__________ ;] and
[(d) Capital Expenditures during the period and for the fiscal year to
date total $_______ and $___________, respectively.)
2. No Default exists on the date hereof, other than:
_______________________________________[if none, so state]; and
3. No Event of Default exists on the date hereof, other
than: ___________________________________ [if none, so state].
Very truly yours,
---------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT 0
Permitted Liens
---------------
1. Midlantic Bank, N.A., as successor by merger to Continental
Bank -- lien subordinated to Borrower granted by HPC
America, Inc. and its subsidiaries
2. First Interstate Bank of Arizona, N.A. -- lien subordinated to Borrower
granted by SunQuest Healthcare Corporation and SunQuest SPC, Inc.
3. Cindy G. Brillman -- lien subordinated to Borrower granted by SNI Home
Care, Inc., SNI Facilities Management, Inc. and Skilled Nursing, Inc.
<PAGE>
EXHIBIT P
Receivables Acquisition Agreement
---------------------------------
1. Receivables Acquisition Agreement attached hereto as Schedule P.1.
2. Receivables Purchase and Sale Agreement attached hereto as Schedule P.2.
<PAGE>
EXHIBIT Q
2001 L. Street NW
Suite 402
HEALTHPARTNERS FINANCIAL CORPORATION Washington, DC 20036
- -------------------------------------------------------- 202-872-1640
FAX 202-452-1473
.F.
SETTLEMENT AND CONFIRMATION STATEMENT #919
Client:_________________________________________________________________
Transmitted by: ____________________________ Date: ___________
On this date we have purchased Eligible Receivables from you pursuant to
the Receivables Purchase and Sale Agreement between us and/or have otherwise
disbursed funds as summarized below. Should you have any questions about this
statement, please contact us immediately.
<TABLE>
<CAPTION>
Batch: A Batch: B
-------- --------
<S> <C> <C>
Our Batch ID Designation:
Net Outstanding Balance or
verified Amount of Purchased
Receivables: $ 0.00 $ 0.00
Purchase Discount: $ 0.00 $ 0.00
Purchase Price: $ 0.00 $ 0.00
Reserve: $ 0.00 $ 0.00
Initial Payment: $ 0.00 $ 0.00
- --------------------------------------------------------------------------------
(Total Initial Payment) $ 0.00
Other Available Funds:
Reserves: $ 0.00
Less Reserves Applied: 0.00 ________________________
Net Reserves Paid: $ 0.00
Payables: $ 0.00
Less Payables Applied: 0.00 ________________________
Net Payables Paid: $ 0.00
Advance: ____________________________ $ 0.00
Advance Repayment: $ 0.00
Other Deductions:
Payments To: ____________________________________________ $ 0.00
Funds Withheld Applied (ADJ-W)
To Batch: ________________________________________ $ 0.00
Net Funds Disbursed $ 0.00
----------
Funds Disbursed by Wire Transfer - Sequence # 0
------
Funds Disbursed by Check # 0
------
</TABLE>
<PAGE>
RECEIVABLES ACQUISITION AGREEMENT
made this __ day of ______ 199_ between HealthPartners
Funding, L.P., a Delaware limited partnership. (Purchaser) and [name of
-------
Sellers],a [type of entity, e.g. a (state of incorporation) corporation,
------- -----------------------------------------------------------
a (state of formation) partnership or sole proprietorship] (Seller).
---------------------------------------------------------
R E C I T A L S
A. Seller wishes to sell certain Receivables generated from Medical
Services ; and
B. The parties wish to confirm tile terms and conditions under which
Purchaser may acquire certain of Seller's Receivables.
NOW, THEREFORE, in consideration of tile mutual covenants and
promises herein contained, the parties agree as follows:
Section l. DEFINITIONS
-----------
Except where the context otherwise requires, the following
capitalized terms shall have the following meanings in this Agreement:
Affiliate. A Person directly or indirectly controlling or
---------
controlled by another Person.
Authorized Persons. A Person designated in writing by Seller to act
------------------
on Seller's behalf under this Agreement.
Bankruptcy. Any of the following events: (a) a receiver, custodian,
----------
liquidator or trustee of any of a Person's assets is appointed by a court
order; (b) an order for relief under any bankruptcy, reorganization or
insolvency law is entered after the filing of a petition by or against a
Person; (c) a petition to reorganize or rehabilitate under any
bankruptcy, reorganization or insolvency laws is filed by or against a
Person and not dismissed within thirty (30) days of the filing date; (d)
a Person requests reorganization, arrangement, composition, readjustment,
dissolution, rehabilitation, liquidation or similar relief under any
provision of any present or future law or consents to the filing of any
petition by or against it under such law; (e) a Person makes a general
assignment for the benefit of creditors, admits in writing its inability
to pay its debts generally as they become due, generally fails to pay its
debts as they become due, consents to the appointment of a receiver,
trustee or liquidator of all or any part of its assets, or otherwise
commits a similar act.
Batch. A group of Eligible Receivables offered to and acquired by
-----
Purchaser under this Agreement.
<PAGE>
Batch Value. The Verified Net Claim Payment Amount of each Batch on
-----------
the Purchase Date less the Discount.
Business Day. A day other than a Saturday, Sunday or Federal
------------
holiday.
Collection. Cash received by Purchaser, or Seller on behalf of
----------
Purchaser with respect to a Purchased Receivable.
Collection Period. The period from the Purchase Date of a Batch
-----------------
through ________ (_) days from such date; however, such period may be
extended at Purchaser's option by notice to Seller containing extension
terms.
Commitment. ______________ Dollars ($________).
----------
Default. Any of the following events: (a) Seller fails to remit
-------
immediately to Purchaser all or any portion of any Collection received
by Seller on account of a Purchased Receivable; (b) Seller's Bankruptcy;
(c) Seller fails to assign to Purchaser additional Eligible Receivables
if Purchaser exercises any option described in Section 2.7 below; (d) a
-----------
medical claims management and processing entity approved by Purchaser
ceases to participate in the management of Seller's Receivable
processing; (e) Purchaser does not receive Collections with respect to a
Batch equal to its Investment in that Batch; or (f) Seller's failure to
honor any obligations under this Agreement.
Delinquent Purchased Receivable. A Purchased Receivable that: (a)
-------------------------------
remains unpaid in whole or in part, for more than
---------------------
(__) days after the Lien Date or upon the expiration of the Collection
Period, whichever date last occurs, or (b) is not recoverable as
determined by Purchaser in good faith.
Discount. An amount equal to ________ percent (__%) of the aggregate
--------
Verified Net Claim Payment Amount of each Batch acquired by Purchaser
under this Agreement.
Eligible Insurer. A Person approved by Purchaser who insures a
----------------
Patient against certain costs incurred in the receipt of Medical
Services.
Eligible Receivable. A Receivable satisfying the following criteria:
-------------------
(a) A bona fide obligation of an Eligible Insurer, or a bona fide
obligation assigned to Seller by a Patient, arising from Seller's
rendition of Medical Services;
(b) The obligation of an Eligible Insurer described in Subsection
(a) above has been verified by a process approved by Purchaser and
Seller's Lien has been forwarded to an Eligible Insurer for payment; and
(c) Not an Excluded Receivable.
2
<PAGE>
Excluded Receivables. The following Receivables are not Eligible
--------------------
Receivables:
(a) Promissory notes, instruments or chattel paper;
(b) Amounts due from Affiliates or employees of Seller;
(c) Amounts subject to any Lien;
(d) Amounts due from a Person located outside the United States of
America;
(e) Amounts payable in non United States dollars;
(f) Amounts due from an Eligible Insurer with respect to whom a
Bankruptcy has occurred and is continuing.
Government Program. Medicare, Medicaid, Title V Maternal and Child Health
------------------
Services Block Grant Program and Title XX Social Services Block Grant Program.
Initial Offer. Defined in Section 2.1, below.
-------------
Initial Payment. An amount equal to ____ percent (__%) of the Batch Value
---------------
of a Batch or any additional payment paid by Purchaser to Seller with respect to
that Batch.
Investment. The amount of the Initial Payment for a Batch plus the Purchase
----------
Discount with respect to that Batch which Purchaser has not recovered in cash.
Lien. Any claim, mortgage, pledge, security interest, encumbrance or
----
charge of any kind, including an agreement to allow or give any of the
foregoing, conditional sale or other title retention agreement.
Lien Date. The date a Lien is submitted by Seller or a designee to an
---------
Eligible Insurer obligated to pay a Purchased Receivable.
Medical Services. Health care services provided by Seller to a Patient
----------------
including, but not limited to, services covered by a policy issued by an
Eligible Insurer covering physician services, nurse and therapist services,
dental services, hospital services, skilled nursing facility services,
comprehensive outpatient rehabilitation services, home health care services and
medicine or health care equipment and/or any other service provided by Seller to
a Patient for a necessary or specifically requested valid and proper medical or
health care purpose.
Medicare and Medicaid. As the context may require, the Medicare program
---------------------
existing under 42 U.S.C. & 1395 et seq. and regulations thereunder, the Medicaid
-- ----
program adopted by any state under 42 U.S.C. & 1396 et seq. and regulations
-- ----
thereunder, and every intermediary, carrier or administrator of such programs.
3
<PAGE>
Net Outstanding Balance. The net balance outstanding at any time of the
-----------------------
Verified Net Claim Payment Amount of a Purchased Receivable.
Offer. An offer by Seller to sell a Batch of Eligible Receivables to
-----
Purchaser pursuant to an Offer Letter.
Offer Letter. A letter from Seller to Purchaser in substantially the form
------------
or Exhibit A attached, or such other form as may be supplied to Seller by
---------
Purchaser.
Patient. A Person who receives Medical Services, including all Persons
-------
liable to pay Seller for such services, except Eligible Insurers.
Person. An individual, corporation, partnership, joint venture, trust,
------
unincorporated organization, or any other juridical and/or business entity, or
government, or any agency or political subdivision thereof.
Purchase Date. For Eligible Receivables, the date an Offer is accepted by
-------------
Purchaser; however, such date shall be not later than a Business Day at least
two (2) Business Days after receipt by Purchaser of an Offer Letter concerning
such Receivables.
Purchase Documents. This Agreement, all Offer Letters, all statements from
------------------
Purchaser to Seller of Purchased Receivables and all amendments or other
documents, certificates and agreements related thereto.
Purchased Receivables. Eligible Receivables and the Related Security
---------------------
acquired by Purchaser under this Agreement.
Receivable. An "account" (as defined by the Uniform Commercial Code in
----------
effect in the State of Maryland) generated by Seller on account of its provision
of Medical Services.
Related Security. Seller's rights and/or interests in: (a) guarantees,
----------------
indemnities, payments or performance bonds, payments from Eligible Insurers,
warranties and other similar arrangements supporting or securing payment of
Purchased Receivables; (b) as a provider of Medical Services or other services
or as a seller of goods or unpaid seller or lienor, including, without
limitation, attachment, replevin and reclamation; (c) files, records, including,
without limitation, computerized records and applicable medical records, books,
ledger cards, including, without limitation, computer programs, tapes and
related electronic data processing software and writings related to the
foregoing; and (d) all proceeds and products of the foregoing or any Purchased
Receivable.
Replacement Date. The fifth (5th) Business Day after a Purchased Receivable
----------------
becomes an Excluded Receivable or a Delinquent Purchased Receivable.
4
<PAGE>
Reserve. With respect to any Batch, an amount equal to the Batch Value less
-------
the Initial Payment.
Settlement Date. Each Friday if it is a Business Day.
---------------
Verified Net Claim Payment Amount. A dollar amount payable to Seller by an
---------------------------------
Eligible Insurer obligated on a Purchased Receivable for which a Lien verified
by Purchaser has been submitted to such insurer by Seller or a designee, less
any and all deductions with respect to such Lien which Purchaser, in its sole
discretion, deems applicable.
Section 2. PURCHASE AND COLLECTION.
-----------------------
2.1 Purchase. If Seller satisfies the conditions precedent described in
--------
Section 4 below, Seller may submit an Offer to Purchaser on any Business Day and
- ---------
the first Offer is the Initial Offer.
2.2 Offer Procedure.
----------------
2.2.1 At least two (2) Business Days prior to a Purchase Date, Seller
shall deliver to Purchaser: (a) an Offer Letter and such other
information as Purchaser shall require; and (b) an Assignment of
Receivables in the form attached as Exhibit B, duly executed by an
---------
Authorized Person.
2.2.2 Any Offer is subject to the condition that Purchaser's
aggregate Investment in Purchased Receivables does not exceed the
Commitment; however, Purchaser may, in its sole discretion, accept or
reject all or any part of any Offer. If Purchaser is willing to accept
all or any part of an Offer, Purchaser shall: (a) determine the
Verified Net Claim Payment Amount of a Batch and advise Seller
of that amount; (b) deliver an accepted copy of the Offer Letter to
Seller not later than 10:00 a.m. on the Purchaser Date; and (c) make
the Initial Payment to Seller not later than 2:00 p.m. on the Purchase
Date.
2.3 Ownership of Purchased Receivables. Seller understands that except
----------------------------------
for any rights to an amount equal to the Reserve applicable to a Batch described
in Section 2.4 below, Seller's receipt of the Initial Payment shall transfer to
-----------
Purchaser title to and ownership of the Purchased Receivables and thereafter
Seller shall have no ownership rights therein. Notwithstanding the foregoing
sentence, Seller shall retain the right to receive payment and any right to
demand or otherwise assert a Lien with respect to any Purchased Receivables that
represents an obligation under a Government Program; however, Seller
acknowledges that Purchaser is the beneficial owner of such Receivable.
5
<PAGE>
2.4 Reserve.
--------
2.4.1 An amount equal to the Reserve applicable to a Batch, or such
portions thereof as provided in this Subsection 2.4, shall be paid by
Purchaser to Seller on the earliest of: (a) the Settlement Date next
following receipt by Purchaser of the Verified Net Claim Payment
Amount of that Batch; or (b) the Settlement Date next following the
expiration of the Collection Period applicable to that Batch;
provided, however, if at such date a Default exists, that Reserve
shall be cancelled and all uncollected Purchased Receivables in that
Batch shall be assigned by Purchaser to Seller without recourse or
warranties of any kind.
2.4.2 In the event of a Default, Purchaser may (a) offset against any
other Reserve applicable to any other Batch (i) the difference, if
any, between Collections received and the Purchaser's aggregate
Investment; or (ii) any amount due Seller for the purchase of other
Batches; or (b) exercise any option described in Section 2.7 below.
-----------
2.4.3 If, at the date of a Default, Purchaser has received more than
its aggregate Investment, but less than the Verified Net Claim Payment
Amounts with respect to all Batches, Purchaser shall release any such
excess to Seller. In that event, the balance of all Reserves shall be
cancelled and all uncollected Purchased Receivables in such Batch
shall be assigned by Purchaser to Seller without recourse or
warranties of any kind.
2.4.4 Seller acknowledges that a Reserve represents accounting
entries and not a cash balance.
2.5 Reserve Payment. On a Settlement Date, provided there is no Default,
---------------
Purchaser shall pay Seller the amounts Seller is entitled to pursuant to this
Agreement with respect to a Reserve applicable to a Batch and such payment shall
be accompanied by Purchaser's settlement statement. If any Settlement Date is
also a Purchase Date or a Replacement Date, any amount payable to Seller by
Purchaser on account of this Section 2.5 shall be netted or credited by
-----------
Purchaser against any other amounts due Seller.
2.6 Reports. During a Collection Period, Seller may request, but not more
-------
frequently than weekly, that Purchaser submit, or cause a third party to submit,
to Seller a statement showing the status of Collections with respect to all
Batches together with a reconciliation of the aggregate Investment as of the
statement date.
2.7 Replacement Option.
-------------------
2.7.1 If the Net Outstanding Balance of a Purchased Receivable is
either: (a) reduced or cancelled as a result of any defective,
rejected, repossessed or returned services or any cash discount.
retainage or any other adjustment, or (b)
6
<PAGE>
reduced or cancelled as a result of any dispute, setoff or agreement
in respect of any claim by any Eligible Insurer, or any claim by a
Patient against Seller, Purchaser shall have an option to require
Seller to replace such Receivable by assigning to Purchaser on the
next Replacement Date Eligible Receivables with an aggregate Verified
Net Claim Payment Amount on such date of at least one hundred percent
(100%) of the amount of any such reduction, cancellation or
adjustment.
2.7.2 If a Purchased Receivable ceases to be an Eligible Receivable,
or becomes a Delinquent Purchased Receivable (unless such Delinquent
Purchased Receivable is the result of the bankruptcy, insolvency or
inability to pay of the Eligible Insurer of such Receivable as
demonstrated by Seller to Purchaser's reasonable satisfaction),
Purchaser shall have an option to require Seller to replace such
Receivable by an assignment to Purchaser on the next Replacement Date
of Eligible Receivables with an aggregate Verified Net Claim Payment
Amount on such date of at least one hundred percent (100%) of the Net
Outstanding Balance of the replaced Receivable.
2.7.3 On the Purchase Date following any Replacement Date, in lieu of
exercising, or not exercising the options provided in Subsections
2.7.1 and 2,7.2 above, Purchaser may elect to reduce the aggregate
Batch Value for Eligible Receivables acquired by Purchaser on such
date by one hundred percent (100%) of the Net Outstanding Balance then
remaining unpaid of Purchased Receivables that Purchaser has an option
to replace under the said Subsections.
2.7.4 If a Purchaser elects to exercise either of the replacement
options described in Subsections 2.7.1 and 2.7.2 above,
contemporaneously with Seller's assignment of the required amount of
additional Eligible Receivables on the applicable Replacement Date,
Purchaser shall assign the replaced Receivable to Seller without
recourse or warranties of any kind.
2.8 No Assumption. Purchaser does not and shall not be deemed to assume
-------------
any obligations of Seller relating to any Purchased Receivable or the
transactions giving rise to such Receivables.
2.9 Receivable Purchases; Not a Loan. The transactions contemplated by
--------------------------------
this Agreement are acquisitions of Receivables and amounts paid by Purchaser for
Purchased Receivables are not loans to Seller nor shall Seller have any
obligations to repay such amounts.
2.10 Ownership of Purchased Receivables. Seller acknowledges that
----------------------------------
Purchaser's acquisition of Purchased Receivables constitutes ownership of all
right, title and interest in and to such Receivables free and clear of any lien,
claim, redemption or conditional ownership by Seller.
7
<PAGE>
2.11 Security Interest In Other Assets. As security for Seller's
---------------------------------
obligations hereunder, Seller hereby grants Purchaser a security interest
pursuant to the laws of the State of Maryland evidenced by a contemporary
financing statement executed by the parties.
Section 3. SELLER'S REPRESENTATIONS AND WARRANTIES
---------------------------------------
3.1 Existence. Seller is a corporation, or other entity duly organized or
---------
validly formed, duly existing and in good standing under the laws of its state
of incorporation or formation, duly qualified to transact business and in good
standing in each jurisdiction where the nature of its business or properties
requires such qualification. Seller has all requisite powers, authorities,
licenses, permits and approvals material to the operation of its business,
including the Purchased Receivables.
3.2 Capacity. Seller has all requisite power and authority to execute,
--------
deliver and perform this Agreement and the Purchase Documents.
3.3 Authorization. Seller's execution of this Agreement and the Purchase
-------------
Documents have been duly authorized by all requisite action, are not in
contravention of any applicable law, Seller's Articles or Certificate of
Incorporation or By-laws or other formation documents, or of any credit or loan
agreement, indenture, lease, franchise, marketing agreement, license, mortgage
or deed of trust, or other material agreement, undertaking or arrangement to
which Seller is a party or by which it, or any of its assets, may be bound and
such documents do not create any Lien on Seller's assets.
3.4 Consent. No consent, approval, authorization, or declaration to any
-------
tribunal, Person or entity, including, without limitation, Patients or Eligible
Insurers obligated on Purchased Receivables, or shareholder approvals is
required in connection with the execution of this Agreement and the Purchase
Documents.
3.5 Place of Business. Seller's principal office is located at the
-----------------
address set forth below and Seller's books and records are maintained at that
office.
3.6 Seller's Ownership of Purchased Receivables. Seller: (a) owns all
-------------------------------------------
right, title and interest to the Purchased Receivables free and clear of any
Lien; and (b) has not sold, assigned, hypothecated, pledged or granted any Lien
on such Receivables.
Section 4. CONDITIONS PRECEDENT
--------------------
4.1 Seller may not make an Initial Offer until the requirements set forth
in this Section 4 have been satisfied and Purchaser has received copies of the
---------
following:
4.1.1 Articles or Certificates of Incorporation or Formation
------------------------------------------------------
Documents. Seller's Articles or Certificate of Incorporation, or formation
---------
documents and all amendments thereto accompanied by: (a) a certificate of
the Secretary of State of the
8
<PAGE>
jurisdiction of its incorporation or formation, dated as of a date no later than
ten (10) days prior to the date of the Initial Offer, to the effect that such
copies are accurate; and (b) a certificate of an Authorized Person, dated as of
the date of the Initial Offer, that said copies and Seller's By-laws, if
applicable, are complete and that no changes have been made therein after the
date of the certificate described in Subparagraph 4.1(a) above.
4.1.2 Good Standing. A certificate of the Secretary of State of Seller's
-------------
jurisdiction of incorporation, or formation bearing a date not later than (10)
days prior to the date of the Initial Offer, to the effect that Seller is a
corporation, or entity duly organized and in good standing under the laws of
that jurisdiction.
4.1.3 Incumbency. Certificates of incumbency of all Authorized Persons
----------
executed by an Authorized Person and dated as of the date of the Initial Offer.
4.1.4 Resolutions. Copies of resolutions of the Board of Directors,
------------
partners or owners of Seller approving the execution of this Agreement and the
Purchase Documents accompanied by a certificate of an Authorized Person, dated
as of the date of the Initial Offer, that such resolutions were adopted at a
duly called meeting, or by unanimous written consent (if permitted by applicable
law) of such Persons and that such resolutions are in full force and effect as
of the date of the Initial Offer.
4.1.5 Financing Statements. UCC-1's and such other financing statements
--------------------
requested by Purchaser evidencing the sale of Purchased Receivables pursuant to
this Agreement and the Purchase Documents, duly executed by Seller and delivered
to Purchaser for filing.
4.1.6 Opinion of Counsel. An opinion of Seller's counsel addressed to
------------------
Purchaser stating that counsel has examined this Agreement and such other
documents and matters as counsel may deem necessary to reach the conclusions
that: (a) Seller is a corporation or other entity, duly organized, validly
existing and in good standing under the laws of its state of incorporation or
formation; (b) to the best of its counsel's knowledge, Seller is duly qualified
to transact business and in good standing in each jurisdiction where the nature
of its business or properties requires such qualifications; (c) Seller has all
requisite power and authority to execute and perform this Agreement; (d) the
execution and performance by Seller of this Agreement: (i) have been duly
authorized by all requisite corporate or similar action; (ii) to the best of
counsel's knowledge are not in contravention of any applicable law; and (iii)
are not in contravention of its Articles or Certificate of Incorporation or by-
laws or other formation documents, or, to the best of counsel's knowledge, of
any credit or loan agreement, indenture, lease, franchise, marketing agreement,
license, mortgage or deed of trust, or other material agreement, undertaking or
arrangement (written or oral) to which Seller is a party or by which it may be
bound; (e) this Agreement when executed by Seller will constitute its valid,
legal and binding obligation, enforceable, subject to customary qualifications,
in accordance
9
<PAGE>
with its terms; (f) to the best of counsel's knowledge, no consent,
approval or authorization of, registration with or declaration to any
tribunal or Person, including without limitation, Patients or Eligible
Insurers obligated on the Purchased Receivables is required in connection
with Seller's execution of this Agreement, any sale of the Purchased
Receivables to Purchaser in accordance with the terms thereof, or the
performance by Seller of any covenant or agreement contained herein; (g) no
approval by shareholders or other owners of Seller is required in
connection with Seller's execution of this Agreement; and (h) the Purchased
Receivables owned by Seller are not subject to any Lien.
4.1.7 Closing Certificate. Certificates executed by an Authorized
-------------------
Person, dated as of the date of the Initial Offer, certifying that the
representations and warranties contained therein are true and correct as of
that date, and that no Termination Event has occurred as of that date.
4.1.8 UCC Forms. Copies of certificates on form UCC-11 of the
---------
Secretary of State of each jurisdiction where Seller has its principal
office or maintains its books and records, and copies of all financing
statements listed thereon evidencing that no Person, other than Purchaser,
has a Lien on any Purchased Receivables owned by Seller.
4.1.9 Other Documents. Any other document or certificate reasonably
---------------
requested by Purchaser in connection with its purchase of Eligible
Receivables under this Agreement.
Section 5. SELLER'S COVENANTS
------------------
5.1 Collections by Seller. From and after the date of the Initial Offer,
---------------------
Seller shall assist Purchaser in Collections and remit Collections received by
it to Purchaser as provided herein. If under any law affecting the rights of
creditors generally, Purchaser is required by a court to return any Collection
previously received, Seller shall promptly transfer to Purchaser, without
setoff, deduction or counterclaim of any kind, additional Eligible Receivables
with a Verified Net Claim Payment Amount on such date of at least one hundred
100% of any returned Collections.
5.2 No Modifications of Purchased Receivables' Terms. Seller shall not
------------------------------------------------
modify the terms of any Purchased Receivables so as to impair their value or
collectability.
5.3 Payment of Collections. Seller shall instruct all Eligible Insurers
----------------------
obligated to pay Purchased Receivables and if required by Purchaser, all other
Receivable obligors to make payments thereon to such lockbox or other accounts
as Purchaser, or any assign, may direct; provided, however, payments under
Government Programs shall be made in compliance with laws, rules or regulations
applicable to such payments. If Seller receives any payment on any Purchased
Receivables including a Government Program, such payment shall be promptly
delivered by Seller to Purchaser, or as directed by Purchaser.
10
<PAGE>
5.4 Records. Seller shall maintain accurate books and records concerning
-------
Purchased Receivables and Collections received by it in accordance with
generally accepted accounting principles and such books and records shall be
marked to reflect Purchaser's ownership of Purchased Receivables. Seller's books
and records, together with other information concerning Seller and Medical
Services shall be available for Purchaser's inspection, audit and copying during
reasonable business hours.
5.5 Relationship of Parties. Seller is an independent contractor and
-----------------------
nothing contained in this Agreement shall constitute Seller as Purchaser's
agent, and in no event shall this Agreement be construed to create a partnership
or joint venture between the parties.
5.6 Duty of Care. In Seller's administration and/or collection of
------------
Purchased Receivables and any other action contemplated by this Agreement,
Seller shall use the same degree of care it employs in the collection of other
Receivables owned by it.
5.7 Notice of Changes. Seller shall notify Purchaser at least thirty (30)
-----------------
Business Days prior to the date of any change of name, principal office, or
where its books and records are maintained. Not later than fifteen (15) days
after the occurrence of any of the said changes, Seller shall deliver to
Purchaser acknowledgment copies of amendments on form UCC-3 reflecting such
changes duly executed and duly filed before the effective date of the change in
each jurisdiction in. which UCC-1 filings were made evidencing the sale of
Purchased Receivables under this Agreement.
5.8 Patient Compliance. Seller shall cause Patients to satisfy all
------------------
conditions precedent to an Eligible Insurer's obligation to pay the Verified Net
Claim Payment Amount of Purchased Receivables.
Section 6. OTHER RIGHTS
------------
6.1 Collections; Notice to Eligible insurers: Seller's Books and Records.
--------------------------------------------------------------------
Any time after the submission of the Initial Offer, Purchaser may: (a) terminate
any duties of Seller with respect to Collections; and (b) upon five (5) days
prior notice to Seller, notify any Eligible Insurers obligated to pay Purchased
Receivables, other than payors under Government Programs, if such notification
would be ineffectual or unlawful, of (i) the sale and assignment of Purchased
Receivables to Purchaser; and (ii) such insurer's obligation to make payments on
Purchased Receivables directly to Purchaser, or an assign. Upon its receipt of
such notice, Seller shall promptly deliver to Purchaser, or an assign, all boots
and records (including, without limitation, computerized records and all
applicable medical records) relating to Purchased Receivables.
6.2 Termination of Agreement.
------------------------
11
<PAGE>
6.2.1 Upon thirty (30) days prior notice to Seller, Purchaser may
terminate this Agreement and the Commitment; however, in the event of
a Default, this Agreement shall terminate automatically without
further action by Purchaser.
6.2.2 Seller my terminate this Agreement at any time following one
(1) year from the date hereof upon thirty (30) days prior notice to
Purchaser.
6.2.3 From and after termination of this Agreement, Seller may not
make further Offers; however, Seller shall comply with its other
obligations hereunder.
6.2.4 Prior to a termination of this Agreement, each month Seller
shall Offer to Purchaser Eligible Receivables with an aggregate
Verified Net Claim Payment amount of at least $___________.
Section 7. GENERAL PROVISIONS
------------------
7.1 Assigns. Seller may not assign any of its rights or duties hereunder
-------
without Purchaser's prior consent. Purchaser may, without Seller's consent,
assign any portion of its rights hereunder to such Persons as Purchaser selects.
7.2 Modifications and Waivers. No delay on the part of any party in
-------------------------
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver operate as a waiver of any other right, power or
privilege hereunder. All rights and remedies provided herein are cumulative and
are not exclusive of any rights or remedies which the parties may otherwise have
at law or in equity. No waiver shall be valid unless the party against whom the
enforcement of such waiver is sought consents thereto.
7.3 Writings. All notices, consents or other agreements hereunder shall
--------
be in writing (including telegraphic or telecopy communication) and, if mailed,
shall be deemed to be given three (3) days after being sent by registered or
certified mail, postage prepaid, or if telegraphed or telecopied when delivered
in person to the addressee and a receipt given therefore, and in all such
instances such information shall be addressed to the parties at the addresses
set forth on the signature page hereof, or as such other address as the
addressee may, by notice to the other party, designate as the appropriate
address for purposes of notice hereunder.
7.4 Amendment. This Agreement may not be amended, supplemented or
---------
modified, except by agreement of the parties.
7.5 CHOICE OF LAWS; ENTIRETY. THIS AGREEMENT SHALL BE GOVERNED BY AND
------------------------
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF MARYLAND
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THAT STATE. IT EMBODIES THE
ENTIRE AGREEMENT AMONG THE PARTIES AND SUPERSEDES ALL PRIOR AGREEMENTS AND
12
<PAGE>
UNDERSTANDINGS, IF ANY, WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
7.6 Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or invalidity without invalidating the
remaining options hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
7.7 Execution. This Agreement may be executed in one or more
---------
counterparts, each of which shall be deemed an original and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
7.8 Survival. All covenants, agreements, undertakings, indemnities,
--------
representations, and warranties made herein shall survive the termination of
this Agreement.
7.9 Headings. The headings, captions, and arrangements used herein are
--------
for convenience only and shall not be deemed to limit, amplify or modify the
terms of this Agreement.
7.10 Further Assurances. Seller shall: (a) furnish to Purchaser such
------------------
additional information concerning the Purchased Receivables as Purchaser may
from time to time reasonably request; and (b) execute, acknowledge and deliver
such supplements and such further instruments and documents as may reasonably be
required or appropriate and permitted by law to further express the intention of
the parties or to facilitate Seller's performance of this Agreement.
7.11 Fees and Expenses. Within fifteen (15) days after Seller's receipt of
-----------------
Purchaser's notices, Seller shall pay Purchaser, or an assign, all out-of-pocket
costs, fees and expenses, including reasonable attorney's and auditing fees,
incurred by Purchaser, or an assign incident to the exercise of Purchaser's
rights and the enforcement of Seller's obligations hereunder. Upon Purchaser's
or an assign's request, Seller shall reimburse Purchaser, or an assign, their
routine expenses, including credit research, filing searches, filing fees, wire
transfer costs, overnight mail and travel expenses.
7.12 Indemnity. Seller hereby indemnifies and holds Purchaser, or an
---------
assign, harmless against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against Purchaser, or an assign, due to any action or inaction of
Seller arising out of this Agreement.
7.13 Limited Power of Attorney. Seller hereby irrevocably constitutes and
-------------------------
appoints Purchaser, or an assign, as its agent and attorney-in-fact for so long
as any Purchased Receivables are uncollected for the limited purposes of: (a)
preparing, executing and filing, on Seller's behalf, any notice or other
instrument which Purchaser, or an assign, determines
13
<PAGE>
necessary, including without limitation, the delivery of any medical records or
other records or information to an Eligible Insurer to aid in Collections; and
(b) the receipt and endorsement an Seller's behalf of any drafts, checks or
other payment instruments and cash evidencing Collections or the Collection of
any other Receivables of Seller on which Purchaser, or an assign has a Lien, and
depositing same in accordance with this Agreement. If requested by Purchasers,
or an assign, Seller shall execute and deliver to Purchaser, or an assign, a
separate Power of Attorney in favor of Purchaser, or an assign, evidencing the
foregoing Power of Attorney and the said power may be filed of record and
provided to third parties.
SELLER PURCHASER
(Name] HEALTHPARTNERS FUNDING, L.P.
[Address] c/o HealthPartners Financial Corporation
2001 L Street N.W., 402, Washington, D.C. 20036
By: By: Healthpartners Financial Corporation
---------------------- General Partner
Name:
--------------------
Title:
------------------
By:
---------------------------------------------
John K. Delaney. President
14
<PAGE>
EXHIBIT A
---------
Form of Offer Letter
--------------------
[Date of Offer Letter]
To: HEALTHPARTNERS FUNDING, L.P.
c/o HealthPartners Financial Corporation
2001 L Street N.W., No. 402
Washington, D.C. 20036
Attention: John K. Delaney, President
FROM: [Seller's name]
The capitalized terms used herein have the meaning defined in an Agreement
between Purchaser and Seller dated _____, 199_.
Seller hereby offers for sale to Purchaser the Batch of Eligible
Receivables described in Schedule A attached which Exhibit shall include the
----------
Patient's name, the Eligible Insurer, the gross dollar amount of each Receivable
in a Batch and its Verified Net Claim Payment Amount.
In connection with its offer, Seller warrants and represents that:
(a) Such Receivables constitute Eligible Receivables which have not been sold
by Seller and relate to Patients.
(b) Seller has fully performed all of its obligations under the Agreement.
(c) Seller's representations and warranties in the Agreement are true and
correct in all material respects as of the date of this Offer Letter.
(d) Purchaser's acceptance of this Offers, in whole or in part, and payment of
the Initial Payment, shall transfer ownership of the Purchased Receivables to
Purchaser; and
(e) Upon Purchaser's acceptance of this Offer, Seller shall execute an
Assignment of Receivables in substantially the form of Schedule B attached.
----------
<PAGE>
[Seller's Name]
By:
-------------------------
Name:
-----------------------
Title:
----------------------
The Offer contained in this Offer Letter is hereby accepted by Purchaser as
of ______, 199_.
HEALTHPARTNERS FUNDING, L.P.
By: Healthpartners Financial Corporation,
General Partner
By:
---------------------------------------------
John K. Delaney, President
2
<PAGE>
EXHIBIT B
---------
Assignment of Eligible Receivables
----------------------------------
The capitalized terms used herein have the meaning defined in an Agreement
between Purchaser and Seller date ______, 199_.
For good and valuable consideration the receipt and sufficiency of which
are hereby acknowledged, Seller hereby assigns, sells and conveys to Purchaser
the Eligible Receivables described in an Offer Letter dated ________, 199_ and
listed on Schedule A attached thereto, together with all Related Security in
----------
accordance with the said Agreement.
Dated:______________ 199_
[Seller]
By:
------------------------
Name:
----------------------
Title:
---------------------
1
<PAGE>
FRAUD GUARANTY
____________ ____, 1994
HealthPartners Funding, L.P.
c/o HealthPartners Financial Corporation
2001 L Street N.W., No. 402
Washington, D.C. 20036
Gentlemen:
The capitalized terms used herein have the meanings set forth in an
Agreement between Purchaser and Seller of even date.
In order to induce Purchaser to enter into the Agreement, the undersigned
(Guarantor), an officer and/or shareholder and/or a Person interested in Seller,
hereby warrants, covenants and guarantees the following to Purchaser:
1. All Purchased Receivables are or will be genuine and in all respects
what they purport, and they represent bona fide obligations of Patients or other
Persons arising out of Seller's delivery of Medical Services.
2. Seller has not and shall not assign any Purchased Receivables in
respect of which there are offsets, contra-accounts or counterclaims of any
nature whatsoever and Seller shall do nothing to impede or interfere with the
normal collection and payment of such Receivables.
3. Seller is solvent.
4. The Purchased Receivables are or when purchased will be free and clear
of Liens.
Guarantor hereby indemnifies and holds Purchaser harmless from and against
any liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature which may
be imposed on, incurred by or asserted against Purchaser, or any assign, due to
any fraud, deceit or criminal act on the part of any officer, employee or agent
of Seller in connection with the Agreement.
Nothing contained in this Fraud Guarantee shall be in any way impaired or
affected by any change in or amendment to the Agreement, or documents ancillary
thereto and this Fraud
1
<PAGE>
Guarantee shall be binding upon Guarantor, his heirs, personal representatives,
successors and assigns.
Guarantor's liabilities hereunder are direct and unconditional, and may be
enforced without requiring Purchaser to resort to any other right, remedy or
security against Seller.
It shall not be necessary for Purchaser to give notice to Guarantor of any
changes in the Agreement, or documents ancillary thereto, or Purchaser's
financial arrangements with Seller and Guarantor hereby consents to such
changes.
WITNESS: GUARANTOR:
- --------------- By:
---------------------
Name
2
<PAGE>
State of Delaware PAGE 1
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
PARTNERSHIP OF "HEALTHPARTNERS FUNDING, L.P.", FILED IN THIS OFFICE ON THE
THIRTEENTH DAY OF SEPTEMBER, A.D. 1994, AT 9 O'CLOCK A.M.
[STATE OF DELAWARE SEAL APPEARS HERE]
/s/ Edward J. Freel
[SECRETARY OF STATE SEAL APPEARS HERE] ----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 7237489
DATE: 09-13-94
<PAGE>
RECEIVABLES PURCHASE AND SALE AGREEMENT
This Receivables Purchase and Sale Agreement (the "Agreement") is entered
into as of ____________ __, 1995, between HealthPartners Funding, L.P., a
Delaware limited partnership (the "Purchaser") and _________________________,
a ______________________ corporation (the "Seller").
WITNESSETH
WHEREAS, Purchaser is in the business of purchasing receivables; and
WHEREAS, Seller is desirous of selling to Purchaser certain of its receivables
generated in the ordinary course of Seller's business; and
WHEREAS, Purchaser and Seller wish to confirm the terms and conditions pursuant
to which certain receivables of Seller will be sold to Purchaser during the term
of this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions.
-----------
The following definitions shall apply to the following terms wherever used
in the Purchase Documents (such definitions to be equally applicable to both the
singular and plural forms of such terms), except where the terms are expressly
defined otherwise or where the context clearly requires otherwise:
Affiliate (or a Person "affiliated with" a specified Person). Any Person
------------------------------------------------------------
directly or indirectly, through one or more intermediaries, controlling or
controlled by, or under direct or indirect common control with, another Person.
A person shall be deemed to control another Person for the purposes of this
definition if such first Person possesses, directly or indirectly, the power to
direct, or to cause the direction of, the management and policies of the second
Person, whether through the ownership of voting securities, through common
directors, trustees or officers, by contract or otherwise.
Agreement. This Receivables Purchase and Sale Agreement, with any and all
---------
exhibits and schedules attached hereto, and any and all amendments, supplements
and modifications hereof.
Authorized Persons. The Persons designated in writing from time to time by
------------------
the Seller on behalf of Seller with respect to all matters involving this
Agreement.
<PAGE>
Bankruptcy Event. With respect to any Person, when: (a) a receiver,
----------------
custodian, liquidator or trustee of any of its assets is appointed by court
order; (b) an order for relief under any bankruptcy, reorganization or
insolvency Law is entered after the filing of a petition by or against it; (c)
any of its assets are sequestered or attached by court order; (d) a petition to
reorganize or rehabilitate it under any bankruptcy, reorganization or insolvency
Laws is filed against it and is not described within thirty (30) days of the
filing thereof; (e) such Person requests reorganization, arrangement, com-
position, readjustment, dissolution, rehabilitation, liquidation or similar
relief under any provision of any present or future Law or consents to the
filing of any petition against it under such Law; or (f) such Person makes a
general assignment for the benefit of its creditors, admits in writing its
inability to pay its debts generally as they become, due, generally fails to pay
its debts as they become due, consents to the appointment of a receiver, trustee
or liquidator of all or any part of its assets, or otherwise commits any
similar act.
Batch. A group of Eligible Receivables periodically submitted by Seller to
-----
Purchaser for Purchase pursuant to the terms hereof or a group of Eligible
Receivables actually purchased, as applicable.
Business Day. A day other than Saturday or Sunday on which the United
------------
States Post Office is open for regular business in Washington, D.C.
Claim Date. The date of submission of a claim to the Insurer obligated to
----------
pay a Receivable.
Collection Period. The period from the Purchase Date of a Batch through and
-----------------
including _________ (__) days from such Purchase Date; provided that at the
option of the Purchaser the Collection Period may be extended pursuant to a
written notification to Seller together with the terms of such extension.
Collections. All cash collections or cash proceeds received by the
-----------
Purchaser or by the Seller on behalf of the Purchaser in respect of any
Purchased Receivables or Related Security or other Receivables of Seller, as
appropriate.
Commitment. _______________Dollars ($___________).
----------
Delinquent Purchased Receivable. A Purchased Receivable which, (i) remains
-------------------------------
unpaid in whole or in part more than _______ (__) days after the Claim Date
thereof or at the expiration of the Collection Period applicable thereto or (ii)
is not recoverable as determined in good faith by Purchaser.
Eligible Insurer. An Insurer approved by the Purchaser.
----------------
Eligible Receivable. A Receivable which satisfies all of the following
-------------------
criteria:
2
<PAGE>
(a) such Receivable is a bonn fide undisputed contractual or other
obligation owed to Seller by an Eligible Insurer (or assigned to Seller by a
Patient) that arises from the Seller having performed Medical Services with
respect to a Patient entitled to insurance benefits under an insurance policy
between the Patient and the Insurer;
(b) the insurance claim related thereto has been verified by a process
approved by the Purchaser and has been forwarded to the Insurer for payment; and
(c) such Receivable is not an Excluded Receivable.
Excluded Receivables. The following Receivables shall not constitute
--------------------
Eligible Receivables;
(a) Receivables that are evidenced by promissory notes or other
instruments or chattel paper;
(b) Receivables that represent amounts due from Affiliates or employees of
the Seller;
(c) Receivables that are subject to any Lien;
(d) Receivables that represent amounts due from a payor located outside
the United States of America;
(e) Receivables payable in any currency other than United States dollars;
(f) Receivables that represent amounts due from an Insurer with respect to
which a Bankruptcy Event has occurred and is continuing.
Government Programs. Medicare, Medicaid, Title V Maternal and Child Health
-------------------
Services Block Grant Program and the Title XX Social Services Block Grant Pro-
gram.
Initial Offer. As defined in Section 2.1.
------------- -----------
Initial Payment. With respect to a Batch, an amount equal to _______
---------------
percent (__%) of the Purchase Price for a Batch, payable on the Purchase Date.
Insurer. A Person that insures a Patient against certain of the costs
-------
incurred in the receipt by such Patient of Medical Services.
Investment. At any time, that portion of the Purchase Price actually paid
----------
by the Purchaser to Seller for Purchased Receivables which have not been re-
assigned by
3
<PAGE>
Purchaser to Seller, less all Collections with respect thereto which have been
received by the Purchaser.
Law or Laws. Statute(s), law(s), ordinance(s), regulation(s), order(s),
-----------
writ(s), injunction(s) or decree(s) of any political or governmental body or
tribunal (federal, state, county, municipal, foreign or domestic, or otherwise)
having competent jurisdiction.
Lien. Any claim, mortgage, pledge, security interest, encumbrance, lien or
----
charge of any kind (including without limitation, any agreement to allow or give
any of the foregoing), any conditional sale or other title retention agreement,
or any lease in the nature thereof, or the interest of the lessor under any
capitalized lease obligation.
Medical Services. Medical and health care services provided to a Patient,
----------------
including, but not limited to, medical and health care services provided to a
Patient and performed by Seller which are covered by a policy of insurance
issued by an Insurer, and includes physician services, nurse and therapist
services, dental services, hospital services, skilled nursing facility services,
comprehensive outpatient rehabilitation services, home health care services, and
medicine or health care equipment provided by Seller to a Patient for a
necessary or specifically requested valid and proper medical or health purpose.
Medicare and Medicaid. As the context may require, the Medicare program
---------------------
existing pursuant to 42 U.S.C. &1395 et seq., and regulations adopted under the
-- ----
authority thereof, the Medicaid program adopted by any state pursuant to 42
U.S.C. &1396 et seq., and regulations adopted under the authority thereof, and
-------
every intermediary, carrier and administrator of any of such programs.
Net Outstanding Balance. As of any date, the balance of the Verified Net
-----------------------
Claim Payment Amount applicable to a Purchased Receivable.
Offer. Each offer by the Seller to sell Eligible Receivable(s) to the
-----
Purchaser pursuant to an Offer Letter, including the Initial Offer.
Offer Letter. A letter from the Seller to the Purchaser supplying the
------------
information specified in the form attached hereto as Exhibit A or in such other
---------
form as Purchaser may direct.
Patient. Any Person receiving Medical Services from Seller and all Persons
-------
legally liable to pay Seller for such Medical Services other than Insurers.
4
<PAGE>
Person. An individual, corporations, partnership, joint venture, trust,
------
incorporated organization, or any juridical and/or business entity, or a
government or any agency or political subdivision thereof.
Purchase Date. For Eligible Receivable(s), the effective date of an Offer,
-------------
which shall be a Business Day at least two (2) Business Days after receipt by
the Purchaser of an Offer Letter with respect to such Eligible Receivable(s).
Purchase Discount. An amount equal to ________ percent (__%) of the
-----------------
aggregate Verified Net Claim Payment Amount for a Batch of Eligible
Receivable(s) purchased under this Agreement. The Purchase Discount applies for
the Collection Period.
Purchase Documents. This Agreement, each Offer Letter, each Purchased
------------------
Receivables Statement and all future amendments, supplements or modifications of
each of the foregoing, and all other documents, certificates and agreements
executed or delivered (or to be executed or delivered) pursuant to any of the
foregoing documents.
Purchase Price. For each Batch of Eligible Receivables purchased by the
--------------
Purchaser hereunder, the Verified Net Claim Payment Amount thereof on the
Purchase Date, less the Purchase Discount.
Purchased Receivables. Eligible Receivables, and the Related Security
---------------------
therefor, which have been purchased by the Purchaser pursuant to an Offer Letter
by payment of the Initial Payment therefor.
Receivable. An "account" (as defined in the Uniform Commercial Code as in
----------
effect in the State of Maryland) generated by the Seller in the ordinary course
of its business of providing Medical Services.
Related Security. (a) All of the Seller's interest in all rights, security,
----------------
guarantees, indemnities, payment or performance bonds, insurance policies,
warranties and other agreements and arrangements supporting or securing payment
of a Receivable; (b) all of the Seller's rights as a provider of Medical
Services, other services, seller of goods or unpaid seller or lienor,
including, without limitation, attachment, replevin and reclamation; (c) all
files, records (including, without limitation, computerized records and all
applicable medical records), books, ledger cards (including, without limitation,
computer programs, tapes and related electronic data processing software) and
writings of the Seller or in which it has interest in any way relating to the
foregoing; and (d) all proceeds and products of the foregoing or any Receivable.
Replacement Date. The fifth (5th) Business Day after any Purchased
----------------
Receivable ceases to be an Eligible Receivable or becomes a Delinquent Purchased
Receivable.
5
-
<PAGE>
Reserve. With respect to a Batch, an amount equal to the Purchase Price for
-------
such Batch less the Initial Payment applicable thereto, which Reserve shall be
held and applied in the manner set forth in Section 2.3.
-----------
Sentiment Date. Friday of each week if such day is a Business Day or any
--------------
other mutually agreed upon day.
Termination Event. (a) The Seller fails to remit immediately to the
-----------------
Purchaser all or any portion of any Collection with respect to a Purchased
Receivable which it may receive; (b) the occurrence of a Bankruptcy Event with
respect to the Seller; (c) the Seller fails to assign to the Purchaser
additional Eligible Receivable after the Purchaser has exercised the option
described in Section 2.6 hereof; (d) a medical claims management and processing
-----------
entity acceptable to Purchaser in its sole discretion shall cease to participate
in the management of Seller's medical claims processing; or (e) the Seller fails
to honor any other obligations set forth in this Agreement.
Verified Net Claim Payment Amount. The dollar amount payable to Seller by
---------------------------------
an eligible Insurer obligated on a Receivable, a claim for which has been
submitted to the Insurer, less any and all deductions deemed applicable by
Purchaser in its sole discretion, and verified by Purchaser.
2. Purchase, Sale and Collection of Receivables.
--------------------------------------------
2.1 Revolving Purchases. On the date on which all conditions precedent
-------------------
described in Section 4 hereof have been satisfied, the Seller may offer Batches
---------
of Eligible. Receivables for sale to the Purchaser on any Business Day (the
First such offer is referred to herein as the "Initial Offer").
2.2 Offer Procedures.
----------------
(a) At least two (2) Business Days prior to the Purchase Date of any
Offer, the Seller shall deliver to the Purchaser with respect to each Offer
(i) an Offer Letter, duly executed by Authorized Persons of the Seller,
certifying that each Receivable subject to such Offer Letter is an Eligible
Receivable and containing the other information specified therein, and attached
to which shall be a printout or listing describing the Insurer, the gross claim
amount of each Eligible Receivable in the Batch subject to the Offer Letter,
the Verified Net Claim Payment Amount of the Batch if then available and such
other information as the Purchaser shall require and (ii) an Assignment of
Receivables in the form attached hereto as Exhibit B, duly executed by
---------
Authorized Persons of the Seller.
(b) Each Offer of Eligible Receivables for sale to the Purchaser shall be
subject to the condition that the Purchaser's total Investment in Purchased
Receivables shall at no time exceed the Commitment. The Purchaser may, in its
sole discretion,
6
<PAGE>
accept or reject all or part of any Offer. If the Purchaser accepts all or any
part of any Offer, the Purchaser shall (i) if not earlier determined determine
the Verified Net Claim Payment Amount of the Batch, (ii) advise Seller thereof,
(iii) notify the Seller of such acceptance no later than 10:00 a.m. on the
Purchase Date, and (iv) make the Initial Payment therefor to the Seller no later
than 2:00 p.m. on the Purchase Date. Seller understands and agrees that except
for its rights in the Reserve applicable to a Batch as set forth herein, payment
of the Initial Payment shall complete the transfer to the Purchaser of full
legal and beneficial title to and full and absolute ownership of the Purchased
Receivables and all Related Security therefor and Seller shall have no further
ownership rights therein. Notwithstanding the foregoing, with respect to any
Purchased Receivable which represents an obligation under a Government Program,
Seller shall retain the right to receipt of payment and any right to demand or
otherwise make a claim under such a Government Program.
2.3 Reserve. Each Reserve account applicable to a Batch shall be held as
-------
additional security for Seller's obligations hereunder (and Seller hereby grants
a Security Interest therein to Purchaser) and may be credited, charged, or
applied against such obligations of Seller, including adjustments to the
Purchase Discount. A Reserve (or a portion thereof as provided below) shall be
released and paid to Seller on the earlier to occur of (i) the Settlement Date
next following receipt by Purchaser of the aggregate Verified Net Claim Payment
Amount of the respective Batch or (ii) the Settlement Date next following the
expiration of the Collection Period applicable to the Batch; provided that if at
the expiration of the Collection Period, Purchaser shall have received
Collections in an amount (a) less than the sum of the Initial Payment plus the
Purchase Discount (as the same may be adjusted) for the Batch, the Reserve
account shall be canceled, all uncollected Purchased Receivables in the Batch
shall be re-assigned to Seller without recourse or warranties of any kind and,
at its option, Purchaser may offset the difference between the Collections
received and the sum of the Initial Payment plus the Purchase Discount from any
other Reserve account for any other Batch of Purchased Receivables or from
amounts due Seller from the purchase of other Batches or Purchaser may exercise
the Replacement Option in Section 2.6, or (b) more than the sum of the Initial
-----------
Payment plus the Purchase Discount (as adjusted) but less than the Verified Net
Claim Payment Amount for such Batch, Purchaser shall release to Seller such
portion of the Reserve account equal to the excess received, the balance of the
Reserve account applicable to the Batch shall be canceled and all uncollected
Purchased Receivables in the Batch shall be re-assigned to Seller without
recourse or warranties of any kind. Seller understands and agrees that a Reserve
account may represent accounting entries and not cash balances.
2.4 Reserve Settlement. On each Settlement Date, Purchaser shall release
------------------
any amounts in any Reserve account that Seller is then entitled to pursuant to
the terms hereof. Such settlement shall be accompanied by a settlement statement
in a form prepared by Purchaser. If any Settlement Date is also a Purchase Date
or Replace-
7
<PAGE>
ment Date, the aggregate amount to be remitted to Seller by Purchaser shall be
netted or credited against any amounts then due Purchaser.
2.5 Reports. At such times during a Collection Period as Seller shall
-------
request but not more frequently than weekly, Purchaser shall submit to Seller,
or cause a third party to submit to Seller, a Purchased Receivables Statement or
other acceptable report reporting the status of Collections with respect to all
Batches of Purchased Receivables, together with a reconciliation of Purchaser's
Investment in Purchased Receivables as of the date of the report.
2.6 Replacement Option.
------------------
(a) If the Net Outstanding Balance of any Purchased Receivable is either
(i) reduced or cancelled as a result of any defective, rejected, repossessed or
returned services, any cash discount or any retainage or any other adjustment,
or (ii) reduced or cancelled as a result of any dispute, setoff or by agreement,
in respect of any claim by the Insurer thereof or by a Patient against the
Seller, then the Purchaser shall have the option of requiring the Seller to
replace such Purchased Receivable by assigning to the Purchaser, on the next
Replacement Date, additional Eligible Receivables with an aggregate Verified Net
Claim Payment Amount on such Replacement Date of at least one hundred ________
percent (__%) of the amount of such reduction, adjustment or cancellation.
(b) If any Purchased Receivable ceases to be an Eligible Receivable or
any Purchased Receivable becomes a Delinquent Purchased Receivable (unless such
Delinquent Purchased Receivable is the result of the bankruptcy, insolvency or
financial inability to pay of the Insurer thereof as demonstrated by the Seller
to the reasonable satisfaction of the Purchaser), then the Purchaser shall have
the option of requiring the Seller to replace such Purchased Receivable by
assigning to the Purchasers, on the next Replacement Date, additional Eligible
Receivable with an aggregate Verified Net Claim Payment Amount on such
Replacement Date equal to at least one hundred ________ percent (__%) of the Net
Outstanding Balance of the replaced Purchased Receivable.
(c) On the Purchase Date following the Replacement Date, in lieu of the
provisions of paragraphs (a) and (b) above, the Purchaser may elect to reduce
the aggregate Purchase Price for Eligible Receivables purchased by the Purchaser
on such date by one hundred _________ percent (__%) of the Net Outstanding
Balance then remaining unpaid on any Purchased Receivable being replaced.
(d) If the Purchaser elects to exercise the replacement option described
above with respect to any Purchased Receivable(s), the Purchaser wills,
contemporaneously with the assignment of the required amount of additional
Eligible Receivables on the
8
<PAGE>
Replacement Date, re-assign the replaced Purchased Receivable(s) to the Seller
without recourse or warrants of any kind.
2.7 No Assumption. The Purchaser does not, and shall not be deemed to,
-------------
assume any obligations of the Seller relating to any Receivables or the
transactions giving rise to any Receivables.
2.8 Receivables Purchase Transaction: Not a Loan. The transactions
--------------------------------------------
contemplated by this Agreement are purchases of Receivables. The Purchase Price
paid for the Purchased Receivables by the Purchaser does not constitute a loan
to the Seller, and the Seller shall not have any obligation to repay such
Purchase Price or any other obligation with respect to Purchased Receivables
except as specified herein. The Purchaser's ownership of the Purchased
Receivables constitutes full and absolute ownership of all right, title and
interest in such Receivables free and clear of any redemption or conditional
ownership by Seller.
2.9 Security Interest in Other Assets. As additional security for Seller's
---------------------------------
obligations hereunder, Seller hereby grants a Security Interest in such other
assets of Seller as Purchaser and Seller shall agree, which agreement shall be
evidenced by a Financing Statement executed by Purchaser and Seller.
3. Representations and Warranties of the Seller.
--------------------------------------------
To induce the Purchaser to enter into this Agreement, the Seller represents
and warrants to the Purchaser as follows:
3.1 Existence. The Seller is a corporation or other entity duly organized
---------
or formed, validly existing and in good standing under the laws of its state of
incorporation or formation. The Seller is duly qualified to transact business,
and is in good standing, in each jurisdiction where the nature of its business
or properties requires such qualification. The Seller has all requisite power,
authority, licenses, permits and approvals material to the ownership and
operation of its properties and to the carrying on of its business.
3.2 Capacity. The Seller has all requisite power and authority to execute
--------
and deliver, and to perform under this Agreement and the other Purchase
Documents.
3.3 Authorization. The execution and delivery of, and performance by the
-------------
Seller under, this Agreement and the other Purchase Documents, have been duly
authorized by all requisite action; are not in contravention of any applicable
Law; are not in contravention of the terms of its Articles or Certificate of
Incorporation or other formation documents or bylaws (if a corporation), the
terms of any credit or loan agreement, indenture, lease, franchise, marketing
agreement, license, mortgage or deed of trust, or other material agreement,
undertaking or arrangement (written or
2
<PAGE>
oral) to which the Seller is a party or by which it (or any of its assets) may
be bound; and will not give rise to the creation of any Lien upon any of the
assets of the Seller.
3.4 Validity. This Agreement and the other Purchase Documents, when
--------
executed and delivered by all parties thereto, will constitute the valid, legal
and binding obligation of the Seller, enforceable against the Seller in
accordance with its terms.
3.5 Consent. No consent, approval or authorization of, registration with or
-------
declaration to any tribunal, Person or entity, including, without limitation,
the Patients or the Insurers obligated on the Purchased Receivables, or approval
by the shareholders of the Seller (if Seller is a corporation), is required in
connection with the execution and delivery of this Agreement and the other
Purchase Documents or in connection with the performance by the Seller of any
covenant or agreement contained herein or therein.
3.6 Defaults Under Other Documents. The Seller is not, nor will the
------------------------------
execution, delivery, performance of or compliance with the terms of this
Agreement and the other Purchase Documents cause the Seller to be, in default or
in violation (nor has any event or condition occurred which, with notice or
lapse of time or both, would constitute a default violation) under (a) its
Articles or Certificate of Incorporation or other formation documents or by laws
(if a corporation), or (b) any credit or loan agreement, indenture, lease,
franchise, marketing agreement, license, mortgage or deed of trust, or other
material agreement, undertaking or arrangement (written or oral) to which it is
a party or by which it (or its assets) may be bound.
3.7 Compliance with Laws. The Seller is not, and the execution, delivery
--------------------
and performance of, and compliance with, the terms of this Agreement and the
other Purchase Documents will not cause the Seller to be, in violation of any
Laws in any respect that could have any material adverse effect, whatsoever upon
(a) the validity, performance or enforceability of any of the terms of this
Agreement and the other Purchase Documents, or (b) the financial condition or
business operations of the Seller.
3.8 Place of Business. The place of business of the Seller, or the Seller's
-----------------
chief executive office if the Seller has more than one place of business, is
located at the address of the Seller set forth herein, and the Seller keeps its
books and records regarding its Receivables at that address.
3.9 Receivables. The Seller (a) is the sole owner of all right, title and
-----------
interest in and to all of its Receivables (including the Purchased Receivables)
free and clear of any Lien and (b) has not sold, assigned, hypothecated,
pledged or granted any Lien or security interest in all or any portion of such
Receivables.
4. Conditions Precedent.
--------------------
-10-
<PAGE>
The Seller shall not be deemed to have made the Initial Offer until all
requirements set forth in this Section 4 are satisfied and the Purchaser has
---------
received the documentation set forth in this Section 4:
---------
4.1 Formation Documents and Certificates. Copies of the Articles of
------------------------------------
Incorporation, or other formation documents, and all amendments thereto, of the
Seller, to be accompanied by (i) a certificate of the Secretary of State of its
jurisdiction of incorporation or formation, dated as of a date no more than ten
(10) days prior to the date of the Initial Offer, to the effect that such
copies are correct and complete, and (ii) a certificate of its Secretary, dated
as of the date of the Initial Offer, that each such copy is correct and complete
and that no changes have occurred therein after the date of the foregoing
official certificate.
4.2 Bylaws. If Seller is a corporation, copies of the bylaws, and all
------
amendments thereto, of the Seller, to be accompanied by a certificate, dated as
of the date of the Initial Offer, of its Secretary that such copies are correct
and complete.
4.3 Good Standing. A certificate of the Secretary of State of Sellers
-------------
jurisdiction of incorporation or formation bearing a date not more than (10)
days prior to the date of the Initial Offer, to the effect that the Seller is a
corporation or other entity duly organized and in good standing under the Laws
of the State of its incorporation or formation.
4.4 Incumbency. Certificates of incumbency of all officers of the Seller
----------
who will be authorized to execute or attest any of the Purchase Documents on
behalf of the Seller, executed by the Secretary of the Seller, dated as of the
date of the Initial Offer.
4.5 Resolutions. Copies of resolutions of the Board of Directors or
-----------
partners of the Seller, approving the execution of this Agreement and the other
Purchase Documents and authorizing the performance of the obligations of the
Seller contemplated in this Agreement and in the other Purchase Documents,
accompanied by a certificate of its Secretary, dated as of the date of the
Initial Offer, that such copies are complete and correct copies of resolutions
duly adopted at a meeting of (which may be held by conference telephone or
similar communication equipment by means of which all Persons participating in a
meeting can hear each other if permitted by applicable Law) or by the unanimous
written consent of (if permitted by applicable Law) such Board of Directors or
partners, and that such resolutions have not been amended, modified or revoked
in any respect, and are in full force and effect as of the date of the Initial
Offer.
4.6 Financing Statements. All financing statements requested by the
--------------------
Purchaser to evidence the sale of Receivables pursuant to this Agreement or
otherwise required by this Agreement, duly executed by the Seller and filed in
the appropriate jurisdictions.
11
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<PAGE>
4.7 Opinion of Counsel. Unless waived by Purchaser, the opinion of counsel
------------------
to the Seller, addressed to the Purchaser, to the effect that such counsel has
examined this Agreement and such other documents and matters as such counsel
deemed necessary to reach the conclusions stated in the opinion, which
conclusions shall include the following: (1) the Seller is a corporation or
other entity, duly organized, validly existing and in good standing under the
laws of its state of incorporation or formation; (ii) to the best knowledge of
such counsel, the Seller is duly qualified to transact business, and is in good
standing, in each jurisdiction where the nature of its business or properties
requires such qualifications; (iii) the Seller has all requisite power and
authority to execute and deliver and perform under, this Agreement; (iv) the
execution and delivery of, and performance by the Seller under, this Agreement
(A) have been duly authorized by all requisite action, (B) to the best knowledge
of such counsel, are not in contravention of any applicable Law, and (C) are not
in contravention of its Articles or Certificate of Incorporation or other
formation documents, or bylaws (if a corporation), or to the best knowledge of
such counsel, the terms of any credit or loan agreement, indenture, lease,
franchise, marketing agreement, license, mortgage or deed of trust, or other
material agreement, undertaking or arrangement (written or oral) to which the
Seller is a party or by which it (or any of its assets) may be bound; (v) this
Agreement, when executed and delivered by all parties hereto, will constitute
the valid, legal and binding obligation of the Seller, enforceable, subject to
customary qualifications, in accordance with its term; (vi) to the best
knowledge of such counsel, no consent, approval or authorization of,
registration with or declaration to any tribunal, Person or entity, including
without limitation, the Patients or Insurers obligated on the Receivables, is
required in connection with the execution and delivery of this Agreement, the
sale of the Receivables to the Purchaser in accordance with the terms hereof or
in connection with the performance by the Seller of any covenant or agreement
contained herein; (vii) no approval by the shareholders of the Seller (if Seller
is a corporation) is required in connection with the execution and delivery of
this Agreement or in connection with the performance by the Seller of any
covenant or agreement contained herein; and (viii) Receivables owned by the
Seller are not subject to any Lien, other than the Purchaser's interest therein.
4.8 Closing Certificate. Certificates of the Seller, duly executed by
-------------------
Authorized Persons of the Seller, dated as of the date of the Initial Offer,
certifying that the representations and warranties contained herein are true and
correct as of such date, and that no Termination Event has occurred as of such
date.
4.9 UCC Searches. Copies of Certificates on form UCC-11 of the Secretary
------------
of State of each jurisdiction where the Seller has its chief executive office or
keeps its books and records regarding Receivables, and copies of all financing
statements listed thereon, evidencing that no Person (other than the Purchaser)
has an interest in or Lien on any Receivables owned by the Seller, whether such
interest or Lien arises because such Receivables are proceeds of inventory or
otherwise.
12
--
<PAGE>
4.10 Other Documents. Any and all other documents or certificates
---------------
reasonably requested by the Purchaser in connection with the purchase of
Eligible Receivables pursuant to this Agreement.
5. Covenants of the Seller.
-----------------------
5.1 Collection by the Seller. From and after the date of the Initial
------------------------
Offer, the Seller, as independent contractor on behalf of the Purchaser in
accordance with the requirements of this Agreement, shall assist Purchaser and
its representatives in collecting all payments on the Purchased Receivables and,
if required by Purchaser, all other receivables of Seller, and cause such
Collections to be remitted to the Purchaser as provided herein. If under any
bankruptcy, insolvency, fraudulent transfer or other law affecting the rights of
creditors generally, the Purchaser is required by a court to return to any
Person any amount of Collections previously received by the Purchaser, the
Seller agrees to promptly assign to the Purchaser, without setoff, deduction or
counterclaim of any kind, additional Eligible Receivables with a Verified Net
Claim Payment Amount on such date of at least one hundred ___ percent (___%) of
such amount of Collections required to be returned.
5.2 Operations. The Seller shall assist in collecting the Purchased
----------
Receivables in an orderly and efficient manner consistent with good business
practices and in accordance with all applicable Laws. The Seller shall not
modify the terms of any Purchased Receivables so as to impair the value or
collectability thereof.
5.3 Payment of Collections. The Seller shall instruct all Insurers
----------------------
obligated to pay Purchased Receivables and if required by Purchaser, all other
Receivables of Seller, to make all payments thereon to such lockbox or other
account(s) as the Purchaser, or any lender to the Purchaser, may direct,
provided that payments from payors under Government Programs shall be made to
such account(s) or otherwise in compliance with all applicable Laws, rules or
regulations applicable to such payments. If the Seller shall receive any
payments on any Purchased Receivables, such payments shall be promptly
delivered, uncashed by the Seller and without commingling such payments with
other funds of the Seller, to the Purchaser or as directed by the Purchaser.
5.4 Records. The Seller shall at all times maintain full and accurate
-------
books and records regarding the Purchased Receivables and Collections thereon in
accordance with generally accepted accounting principles. Such books and records
shall be marked to indicate the ownership interest of the Purchaser in the
Purchased Receivables. Subject to any prohibitions or any Law, such books and
records, together with other financial and business information concerning
Seller and all applicable medical records, shall be available for inspection,
audit and copying by the Purchaser and its representatives during reasonable
business hours.
13
<PAGE>
5.5 Relationship of Parties. The Seller shall have the status of and act
-----------------------
as an independent contractor in the collection of Purchased Receivables on
behalf of the Purchaser, and shall in no event be, or be deemed to be, an agent
of the Purchaser. Furthermore, this Agreement shall not be construed to create a
partnership or joint venture between the Purchaser and the Seller.
5.6 Duty of Care. In the administration and collection of the Purchased
------------
Receivables and in all actions contemplated by this Agreement, the Seller shall
use the same degree of care that the Seller uses in the collection of any other
accounts receivable owned by the Seller.
5.7 Notice of Changes. The Seller shall notify Purchaser in writing at
-----------------
least thirty (30) Business Days prior to the date of change of its name, the
location of its chief executive office, its principal place of business, or the
place where it keeps its books and records. No later than fifteen (15) days
after the occurrence of any of the aforementioned changes, the Seller shall
deliver to the Purchaser acknowledgment copies of amendments on form UCC-3
reflecting such change duly executed and duly filed before the effective date of
the change in each jurisdiction in which UCC-1 filings were made in order to
evidence the sale of Receivables pursuant to this Agreement.
5.8 Patient Compliance. Seller shall ensure that Patients have satisfied
------------------
all conditions precedent to the Insurer's obligation to pay at least the
Verified Net Claim Payment Amount under insurance policies relating to Purchased
Receivables.
6. Certain Rights.
--------------
6.1 Notice to Insurers. At any time after the date of the Initial Offer,
------------------
the Purchaser may (i) terminate any duties of the Seller with respect to
assisting in the collection of the Purchased Receivables, and (ii) upon five (5)
days prior written notice to Seller, notify any Insurers obligated on the
Purchased Receivables (other than payors under Government Programs if such
notification would be ineffectual or unlawful) (A) of the sale and assignment of
the Purchased Receivables to the Purchaser, and (B) to make all payments on the
Purchased Receivables directly to the Purchaser or its designee. Upon the
receipt of such notice, the Seller shall promptly deliver to the Purchaser or
its designee all books and records (including, without limitation, computerized
records and all applicable medical records) relating to the Purchased
Receivables.
6.2 Termination. At any time, upon either (i) immediately upon the
-----------
occurrence of a Termination Event, or (ii) upon thirty (30) days prior written
notice to the Seller from the Purchaser, the Purchaser may terminate this
Agreement and the Commitment of the Purchaser to purchase Eligible Receivables;
provided that if a Termination Event occurs, this Agreement shall be terminated
automatically, without any further action by the Purchaser. At any time, after
one (1) year from the date hereof, upon
<PAGE>
thirty (30) days prior written notice to Purchaser, the Seller may terminate
this Agreement. From and after termination, the Seller shall not make any
further Offers; provided however, the Seller shall continue to comply with all
of its obligations hereunder, including obligations with respect to outstanding
Purchased Receivables. During the term of this Agreement, each month Seller
shall sell to Purchaser Eligible Receivables having an aggregate Verified Net
Payment Amount of at least $_______.
7. General Provisions.
------------------
7.1 Assigns. Seller may not assign any of its rights or duties hereunder
-------
without the prior written consent of the Purchaser and any attempt to do so
shall be void. Purchaser may, without the consent of Seller, assign all or any
portion of its rights hereunder by way of participations or otherwise to such
other entities that such Purchaser may select.
7.2 Modifications and Waivers. No delay on the part of any party in
-------------------------
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver of any right, power or privilege hereunder
operate as a waiver of any other right, power or privilege hereunder, nor shall
any single or partial exercise of any right, power or privilege hereunder. All
rights and remedies herein provided are cumulative and are not exclusive of any
rights or remedies which the parties hereto may otherwise have at law or in
equity. No waiver shall be valid in the absence of the written and signed
consent of the party against which enforcement of such is sought.
7.3 Notice. Except as otherwise specifically provided herein, any notice
------
hereunder shall be in writing (including telegraphic or telecopy communication)
and, if mailed, shall be deemed to be given three (3) days after being sent by
registered or certified mail, postage prepaid, or if telegraphed when delivered
to the telegraph company, or if telecopied when transmitted, or otherwise when
delivered in person to the addressee and a receipt given for, in all such
instances addressed to the parties as set forth on the signature page hereof, or
as such other address as the addressee may, by written notice received by the
other party hereto, designate as the appropriate address for purposes of notice
hereunder.
7.4 Amendment. This Agreement may be amended, supplemented or modified, and
---------
the observance of any term of provision hereof may be waived, only with the
written consent of the Seller and the Purchaser.
7.5 CHOICE OF LAW. THIS AGREEMENT, AND THE VALIDITY AND ENFORCEMENT HEREOF,
-------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF
THE STATE OF MARYLAND.
15
<PAGE>
7.6 Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or invalidity without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provisions in any other jurisdiction.
7.7 ENTIRETY. THIS AGREEMENT EMBODIES THE ENTIRE AGREEMENT AMONG THE
--------
PARTIES HERETO AND SUPERSEDES ALL PRIOR AGREEMENTS AND UNDERSTANDINGS, IF ANY,
RELATING TO THE SUBJECT MATTER HEREOF. THIS WRITTEN AGREEMENT REPRESENTS THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
7.8 Execution. This Agreement may be executed in one or more
---------
counterparts, each of which for all purposes is to be deemed an original. It
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
7.9 Survival. All covenants, agreements, undertakings, indemnities,
--------
representations, and warranties made herein shall survive both the execution and
the termination hereof, and shall not be affected by any investigation made by
any party.
7.10 Money. All references herein to "Dollars," "dollars," the sign "$"
-----
"money," "payments," or other similar financial or monetary terms are references
to currency of the United States of America.
7.11 Headings. The headings, captions, and arrangements used in this
--------
Agreement are for convenience only and shall not be deemed to limit, amplify or
modify the terms of this Agreement.
7.12 Sections, Etc. All references to "Section," "Sections,"
--------
"Subsection," "Paragraph" or "paragraphs" contained herein are, unless
specifically indicated otherwise, reference to articles, sections, subsections
and paragraphs of this Agreement. All references to "Exhibits" and "Schedules"
contained herein are references to Exhibits and Schedules attached hereto, all
of which are made a part hereof for all purposes, the same as if set forth
herein verbatim, it being understood that if any Exhibit or Schedule attached
hereto which is to be executed and delivered, contains blanks or is otherwise
required to be updated from time to time, the same shall be completed correctly
and in accordance with the terms and provisions contained herein and as
contemplated herein prior to or at the time of the execution and delivery
thereof.
<PAGE>
7.13 Third Party Beneficiaries. It is expressly agreed and understood
-------------------------
among the parties to this Agreement that no provisions of this Agreement are
intended to benefit any third party and no third party is entitled to rely upon
any provisions contained herein; provided that any participant or assignee of
the Purchaser shall be entitled to the benefits hereof.
7.14 Further Assurances. The Seller shall furnish to Purchaser at
------------------
Purchaser's request such additional information concerning the Purchased
Receivables or Related Security as Purchaser may from time to time reasonably
request in order to establish compliance with the terms and conditions of this
Agreement, and execute, acknowledge and deliver, or cause to be executed,
acknowledged or delivered, such supplements hereto and such further instruments
and documents as may reasonably be required or appropriate and permitted by Law
to further express the intention, or to facilitate the performance, of this
Agreement.
7.15 Fees and Expenses. The Seller shall pay to the Purchaser (or any
-----------------
assignee or participant) the out-of-pocket costs, fees and expenses (including
reasonable attorney's fees and auditing fees) incurred by the Purchaser (or any
assignee or participant) incident to the exercise of the rights of the Purchaser
and the enforcement of the Seller's obligations hereunder, or the bankruptcy or
insolvency of the Seller, within fifteen (15) days of the receipt of notice
thereof. If auditing is done by Purchaser (or any assignee or participant) the
fee will not exceed $500.00 per quarter. Upon request, Seller will reimburse
Purchaser (or any assignee or participant) certain routine expenses, including
credit research, filing searches, filing fees, wire transfer costs, overnight
mail and travel expenses.
7.16 Indemnity. The Seller hereby indemnifies and holds harmless Purchaser
---------
(or any assignee or participant) against any and all liabilities, obligations,
losses, damages, penalties, action, judgments, suits, claims, cost, expenses and
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Purchaser (or any assignee or participant) due to any
action or inaction of the Seller, or through the Seller, in any way relating to,
or arising out of, this Agreement or any of the transactions contemplated
herein. The indemnities contained in this Section shall survive any termination
of this Agreement.
7.17 Limited Power of Attorney. The Seller hereby irrevocably constitutes
-------------------------
and appoints Purchaser (or any assignee or participant) as its agent and
attorney-in-fact for so long as any Purchased Receivables are uncollected for
the limited purposes of (i) preparing, executing on behalf of Seller and filing
for record any notices or other instruments which Purchaser (or any assignee or
participant) determines is necessary to protect its interests in Purchased
Receivables, (ii) preparing, executing on behalf of Seller and/or delivering all
documents, instruments or information pertaining to any Related Security which
Purchaser (or any assignee or participant) determines is necessary, including
without limitation, delivering any medical records or other records or
17
--
<PAGE>
information to an Insurer to aid in the collection of a Purchased Receivable,
and (iii) receiving and endorsing for Seller any drafts, checks or other
payment instruments and cash evidencing Purchased Receivables or any Related
Security or any other Receivables of Seller then being collected by Purchaser
(or any assignee or participant) and depositing the same in accordance with the
provisions of this Agreement. If requested by Purchaser (or any assignee or
participant), Seller shall execute and deliver to Purchaser (or any assignee or
participant) a separate Power of Attorney in favor of Purchaser (or any assignee
or participant) evidencing the foregoing Power of Attorney which may be filed of
record and provided to third parties if so determined by Purchaser (or any
assignee or participant).
HEALTHPARTNERS FUNDING, L.P.
c/o HealthPartners Financial Corporation
2001 L Street NW, Suite 402
Washington, DC, 20036
By: HEALTHPARTNERS Financial Corporation,
General Partner
By: --------------------------------------
John K. Delaney, President
[SELLER]
- ---------------------------------------
- ---------------------------------------
By:-----------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
---------
Form of Offer Letter
--------------------
TO: HealthPartners Funding, L.P.
c/o HealthPartners Financial Corporation
2001 L. Street NW, Suite 402
Washington, DC, 20036
Attn: John K. Delancy
FROM: [Seller]
PURCHASE DATE:______________, 199_
Pursuant to that certain Receivables Purchase and Sale Agreement dated
_____, 199_ (the "Agreement") between the Purchaser and the undersigned Seller,
the undersigned Seller hereby offers for sale the Batch of Eligible Receivables
described on Schedule A* attached hereto (the "Subject Receivables").
The Seller hereby certifies that:
(a) All of the Subject Receivables constitute Eligible Receivables which have
not heretofore been sold and relate to Patients or residents currently being
provided Medical Services by Seller;
(b) The Seller has fully performed all of its obligations under the Agreement;
(c) The place of business of the Seller, or the Seller's chief executive office
if the Seller has more than one place of business, is located at the address
given for the Seller in the Agreement, and the Seller keeps its books and
records regarding its Receivables at such address;
(d) The representations and warranties made by the Seller in the Agreement are
true and correct in all material respects as if made as of the date of this
Offer Letter;
(e) Acceptance of this Offer, in whole or in part, and payment of the Initial
Payment, shall transfer full legal and beneficial title to and full absolute
ownership of and to all of the Subject Receivables purchased, and all Related
Security therefor; and
(f) No Termination Event has occurred.
- ----------------------------------
* Schedule A must describe the name of the Patient, the Insurer, the gross
dollar amount of each Subject Receivable and the Verified Net Claim Payment
Amount of each Subject Receivable.
Capitalization terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement.
[Seller]
By:
------------------------------------
Name:
--------------------------
Title:
-------------------------
Date of Offer Letter:
<PAGE>
EXHIBIT B
---------
Assignment of Receivables
-------------------------
For good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the undersigned Seller hereby assigns, sells and
conveys HEALTHPARTNERS FUNDING, L.P. the Subject Receivables specified in the
Offer Letter dated ____________, 199_ and listed on Schedule A attached hereto,
together with all Related Security therefor, all in accordance with and subject
to the terms of that certain Receivables Purchase and Sale Agreement dated ____,
199_, (the "Agreement"). Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Agreement or the Offer Letter referred
to herein.
Effective Date:__________________ 199_
[Seller]
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
[LOGO OF FLEET CAPITAL APPEARS HERE]
May 22, 1996
HealthPartners Funding, L.P.
2 Wisconsin Circle, Suite 320
Chevy Chase, MD 20815
Attention: John K. Delaney, President
Dear John:
Reference is made to that certain Loan and Security Agreement dated March 9,
1995 (the "Loan Agreement") by and between HealthPartners Funding, L.P.
("Borrower") and Fleet Capital Corporation (successor by merger to Shawmut
Capital Corporation) ("Lender"), together with all documents, agreements,
instruments, mortgages and letters executed pursuant thereto (collectively, the
"Financing Agreements"). All capitalized terms used herein without definition
shall have the meanings ascribed to such terms in the Loan Agreement unless the
context clearly indicates otherwise.
You have asked that the Loan Agreement be amended to, among other things,
increase the Facility Cap, and Lender is willing to do so upon the following
terms and conditions:
In consideration of the foregoing, Borrower and Lender agree as follows:
1. Paragraph 1.1.3 of the Loan Agreement is hereby deleted in its entirety
and replaced to read as follows:
1.1.3 Facility Cap Sublimit. Revolving Credit Loans outstanding to Borrower
---------------------
at any one time shall not exceed $31,250,000 (the "Facility Cap Sublimit").
2. Paragraph 2.2 of the Loan Agreement is hereby deleted in its entirety and
replaced to read as follows:
2.2 Computation of Interest and Fees. Interest and collection charges
--------------------------------
hereunder shall be calculated daily and shall be computed on the actual number
of days elapsed over a year of 360 days. For the purpose of computing interest
hereunder, all
<PAGE>
HealthPartners Funding, L.P.
May 22, 1996
Page 2
items of payment received by Lender shall be deemed applied by Lender on Account
of the Obligations (subject to final payment of such items) on the first
Business Day after receipt by lender of fully collected funds from the Dominion
Account.
3. The definition of "Facility Cap" is hereby deleted in its entirety to
read and replaced to read as follows:
"Facility Cap" -- $31,250,000.
------------
4. This letter shall not be effective until Lender shall be in receipt of:
(i) a duly executed Revolving Credit Note, executed by Borrower in favor of
Lender, in the principal amount of $31,250,000; and (ii) a corporate resolution
from the general partner of Borrower, authorizing the general partner to execute
this letter amendment on behalf of Borrower; and (iii) Borrower's payment of
all of Lender's fees and expenses under the Loan Agreement as of the date of
Borrower's signature hereto, including, without limitation, Lender's attorneys'
fees incurred in connection with this letter and any recordation taxes to be
paid in connection with the filing of the new uniform commercial code financing
statement.
5. Except as expressly set forth above, nothing contained herein shall
constitute a waiver or limitation of any of the Lender's rights or remedies
under any of the Financing Agreements which at all times shall remain in full
force and effect under applicable law. Borrower acknowledges and agrees that
Financing Agreements remain in full force and effect, including without
limitation Lender's security interest in and lien upon the Collateral and that
no Default or Event of Default exists as of the date of Borrower's signature
hereto.
6. Except as expressly provided herein, all of the representations,
warranties, terms, covenants and conditions contained in the Financing
Agreements shall remain unamended and shall continue to be and shall remain in
full force and effect in accordance with their respective terms. The terms set
forth herein shall be limited precisely as provided for herein and shall not be
deemed an amendment to or modification of any other term or provision of the
Financing Agreements.
<PAGE>
HealthPartners Funding, L.P.
May 22, 1996
Page 3
7. It is understood and agreed that the modifications to the Loan
Agreement effected by this letter shall be deemed effective as of April 3, 1996.
Please indicate your agreement with all of the above by signing one of the
enclosed originals and returning it to the Lender's attention via nationally
recognized overnight courier. Notwithstanding anything to the contrary set forth
herein, the agreements contained herein shall not be binding on the Lender until
such time as a fully executed original of this letter is received by the Lender,
which signed letter shall be received no later than May 30, 1996.
Sincerely,
Fleet Capital Corporation
By:
----------------------
Acknowledged and Agreed:
HealthPartners Funding, L.P.
By: HealthPartners, L.P.
Corporation, its general partner
By: [SIGNATURE APPEARS HERE]
--------------------------
Title: President Date: 5-23 , 1996
------------------------ --------
<PAGE>
AMENDED AND RESTATED REVOLVING CREDIT NOTE
$31,250,000.00 Dated as of April 3, 1996
Philadelphia, Pennsylvania
FOR VALUE RECEIVED, and intending to be legally bound, the undersigned
("Borrower") hereby promises to pay to the order of FLEET CAPITAL CORPORATION
(successor by merger to SHAWMUT CAPITAL CORPORATION), a Rhode Island corporation
(hereinafter "Lender"), in such coin or currency of the United States which
shall be legal tender in payment of all debts and dues, public and private, at
the time of payment, the maximum principal sum of $31,250,000.00 or such lesser
sum which then represents the aggregate unpaid principal balance of Revolving
Credit Loans, together with interest from and after the date hereof on the
unpaid principal balance outstanding at the rates per annum set forth in the
Loan Agreement (as defined below). Interest shall be computed in the manner
provided in subsection 2.2 of the Loan Agreement.
This Revolving Credit Note (the "Note") is issued pursuant to, that certain
Loan and Security Agreement between Borrower and Lender dated the date hereof
(hereinafter, as amended from time to time, the "Loan Agreement"), and is
entitled to all of the benefits and security of the Loan Agreement. All of the
terms, covenants and conditions of the Loan Agreement and the Security Documents
are hereby made a part of this Note and are deemed incorporated herein in full.
All capitalized terms used herein, unless otherwise specifically defined in this
Note, shall have the meanings ascribed to them in the Loan Agreement.
For so long as no Event of Default shall have occurred, the principal
amount and accrued interest of this Note shall be due and payable on the dates
and in the manner set forth in the Loan Agreement and all outstanding principal,
together with any and all other amounts due hereunder, shall be due and payable
on the Revolving Credit Maturity Date.
Notwithstanding the foregoing, the entire unpaid principal balance and
accrued interest on this Note shall be due and payable immediately upon
acceleration of the maturity and payment of the Obligations by Lender or
termination of the Loan Agreement pursuant to Section 4 thereof.
This Note shall be subject to prepayment in accordance with the provisions
of Section 3.3 of the Loan Agreement. Borrower may also terminate the Loan
Agreement and, in connection with such termination, prepay this Note in the
manner provided in Section 4 of the Loan Agreement.
<PAGE>
Upon the occurrence of an Event of Default, Lender shall have all of the
rights and remedies set forth in Section 10 of the Loan Agreement.
Time is of the essence of this Note. To the fullest extent permitted by
applicable law, Borrower, for itself and its legal representatives, successors
and assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption of insolvency laws.
Wherever possible, each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or remaining provisions of this
Note. No delay or failure on the part of Lender in the exercise of any right or
remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in
any default, nor shall any single or partial exercise by Lender of any right or
remedy preclude any other right or remedy. Lender, at its option, may enforce
its rights against any Collateral securing this Note without enforcing its
rights against Borrower or any other property or indebtedness due or to become
due to Borrower. Borrower agrees that, without releasing or impairing
Borrower's liability hereunder, Lender may at any time release, surrender,
substitute or exchange any Collateral securing this Note and may at any time
release any party primarily or secondarily liable for the indebtedness evidenced
by this Note.
The Lender and the undersigned agree that it is their intention that
nothing herein shall be construed to extinguish, release or discharge or
constitute, create or effect a novation of, or an agreement to extinguish, any
of the obligations, indebtedness and liabilities of the Dealer or any other
party under the provisions of that certain Revolving Credit Note, dated March 9,
1995, in the principal amount of $23,125,000, executed by the undersigned in
favor of Lender (the "Original Note") or any assignment or pledge to the Lender
of, or any security interest or lien, granted to the Lender in or on, any
collateral and security for the Obligations. Nevertheless, this Note replaces
the Original Note.
This Note shall be governed by, and construed and enforced in accordance
with, the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Amended and Restated Revolving
Credit Note to be duly executed and delivered in Philadelphia, Pennsylvania on
the date first above written.
HEALTHPARTNERS FUNDING, L.P.
By: HEALTHPARTNERS FINANCIAL
CORPORATION, Its General Partner
ATTEST: By: [SIGNATURE APPEARS HERE]
---------------------------------
[SIGNATURE APPEARS HERE] Title: President
- ------------------------------------ ------------------------------
Secretary
(Corporate Seal)
<PAGE>
EXHIBIT 10.10
OFFICE LEASE FOR
HEALTH PARTNERS FINANCIAL CORPORATION
CHEVY CHASE METRO BUILDING
TWO WISCONSIN CIRCLE
CHEVY CHASE, MARYLAND
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEMISED PREMISES............................................... 1
2. TERM........................................................... 1
3. USE............................................................ 4
4. RENT........................................................... 4
5. RENTAL ESCALATION FOR INCREASES IN EXPENSES.................... 5
6. DEPOSIT........................................................ 5
7. ASSIGNMENT AND SUBLETTING...................................... 6
8. PRE-OCCUPANCY TENANT WORK...................................... 9
9. ALTERATIONS.................................................... 10
10. MECHANIC'S LIEN................................................ 12
11. MAINTENANCE BY LESSEE AND LESSOR............................... 12
12. SIGNS AND ADVERTISEMENTS....................................... 13
13. DELIVERIES AND MOVING OF LESSEE'S PROPERTY..................... 13
14. LESSEE'S EQUIPMENT............................................. 14
15. SERVICES AND UTILITIES......................................... 15
16. LESSEE'S RESPONSIBILITY FOR DAMAGE............................. 17
17. ENTRY FOR INSPECTIONS, REPAIRS AND INSTALLATIONS............... 17
18. INSURANCE...................................................... 17
19. REQUIREMENTS FOR LESSEE'S INSURANCE POLICIES................... 19
20. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON........... 19
i
<PAGE>
21. DAMAGE TO THE BUILDING AND/OR THE DEMISED PREMISES............. 20
22. DEFAULT OF LESSEE.............................................. 21
23. BANKRUPTCY..................................................... 24
24. SUBORDINATION.................................................. 26
25. CONDEMNATION................................................... 27
26. RULES AND REGULATIONS.......................................... 28
27. NO PARTNERSHIP................................................. 28
28. NO REPRESENTATIONS BY LESSOR................................... 28
29. BROKER AND AGENT............................................... 28
30. WAIVER OF JURY TRIAL........................................... 29
31. NOTICES........................................................ 29
32. ESTOPPEL CERTIFICATES.......................................... 29
33. HOLDING OVER................................................... 30
34. PARKING........................................................ 31
35. OPTION TO EXTEND TERM.......................................... 31
36. RIGHT OF FIRST NEGOTIATION..................................... 32
37. COVENANTS OF LESSOR............................................ 33
38. GENDER......................................................... 33
39. CORPORATE LESSEE............................................... 33
40. BENEFIT AND BURDEN............................................. 34
41. GOVERNING LAW.................................................. 34
42. ENTIRE AGREEMENT............................................... 34
ii
<PAGE>
TWO WISCONSIN CIRCLE
OFFICE LEASE
THIS LEASE, made and entered into on this 4th day of January, 1996, by and
---
between TWO WISCONSIN CIRCLE JOINT VENTURE, a Maryland joint venture,
hereinafter called "Lessor," and HEALTH PARTNERS FINANCIAL CORPORATION, a
Delaware corporation, hereinafter called "Lessee"
WITNESSETH, That, for and in consideration of the rents, mutual covenants,
and agreements hereinafter set forth, the parties hereto do hereby mutually
agree as follows:
1. DEMISED PREMISES
----------------
Lessor does hereby lease to Lessee, and Lessee does hereby lease from
Lessor, for the term and upon the conditions hereinafter provided, approximately
5,414 square feet of rentable area on the third (3rd) floor of the office
building situated at Two Wisconsin Circle, Chevy Chase, Maryland (such building
being hereinafter referred to as the "Building" and such rentable area being
hereinafter referred to as the "Demised Premises"). The Demised Premises has
been assigned Suite Nos. 320 and 340 and is outlined on the floor plan attached
hereto and made a part hereof as Exhibit A. The exact area of the Demised
Premises has been measured by Lessor's architect in accordance with the
Washington, D.C. Association of Realtors Standard Method of Measurement.
2. TERM
----
(A) Subject to and upon the covenants, agreements and conditions of
Lessor and Lessee set forth herein, or in any Exhibit or Addendum hereto, the
term of this Lease shall commence on the Commencement Date, which shall be the
1st day of March, 1996 (the "Anticipated Commencement Date"), or such later date
as may be established pursuant to the provisions below in this Section 2, and
shall expire on the last day of the calendar month during which the fifth (5th)
anniversary of the Commencement Date occurs, unless the term is extended
pursuant to section 35 below; provided, however, that in no event shall the
Commencement Date occur earlier than fourteen (14) days after the date Lessor
(in consultation with its architect) has confirmed to Lessee in writing the
substantial completion of the Pre-occupancy Tenant Work to be performed by
Lessor pursuant to Section 8 below; during which 14-day period Lessee may enter
upon the Demised Premises at reasonable times and
1
<PAGE>
as coordinated with Lessor for the purpose of installing its telephone system
and cabeling. Such pre-term entry by Lessee shall be upon the terms and
conditions of this Lease, including Lessee's indemnification of Lessor pursuant
to Section 18 below, and excluding only Lessee's obligation to pay rent.
(B) In the event Lessor has not completed the Pre-occupancy Tenant Work to
be performed by it pursuant to Section 8 below by the Anticipated Commencement
Date, except for punch list items that will not materially affect the use of the
Demised Premises, Lessor, its agent and employees shall not be liable or
responsible for any claims, damages, or liabilities arising in connection
therewith or by reason thereof, nor shall Lessee be excused from its obligations
to perform under the Lease. The Commencement Date shall be extended however, in
accordance with the provisions of this section of the Lease, to the earlier of
(i) the date the Demised Premises are occupied by Lessee or (ii) the date which
is fourteen (14) days after the date Lessor has notified Lessee in writing that
all such Pre-occupancy Tenant Work has been completed, other than punch list
items as previously described. The term "Preoccupancy Tenant Work," as generally
used herein, shall have the same meaning as given to the term in the section of
this Lease entitled "PRE-OCCUPANCY TENANT WORK." When Lessee accepts possession
of the Demised Premises, Lessor and Lessee shall execute the "Declaration as to
Date of Delivery and Acceptance of Possession of Demised Premises," attached
hereto as Exhibit D, which shall specify the Commencement Date.
(C) In the event Lessee fails to furnish to Lessor:
(i) Lessee's requirements for Pre-occupancy Tenant Work in the
Demised Premises including partitioning finishes, its electric, telephone
and reflected ceiling requirements, and other requirements of Lessee for
the Demised Premises within ten (10) days after full execution of this
Lease;
(ii) Lessee's written approval of Lessor's working drawings
for Pre-occupancy Tenant Work as submitted by Lessor within ten (10) days
after receipt of Lessor's working drawings for Pre-occupancy Tenant Work in
the Demised Premises, or, alternately, Lessee's approval within said ten
(10) day period of Lessor's working drawings annotated to reflect only
those changes to the working drawings required to make the working drawings
comply with Lessee's previously furnished requirements for Pre-occupancy
Tenant Work;
(iii) Written approval of Lessor's estimate of the cost of all
Pre-occupancy Tenant Work in excess of the Tenant Allowance (as defined in
Section 8 below), within ten (10) days from receipt of said estimate; or
(iv) Information requested by Lessor which is required by Lessor to
proceed with preparation of the plans, specifications, working drawings,
ordering of
2
<PAGE>
materials, preparation and letting of bids for work to be performed or for
performance of construction work within five (5) working days from the receipt
of Lessor's request for information;
then any delay in completing such Pre-occupancy Tenant Work caused by such
failure of Lessee to furnish such requirements, approvals or information shall
not in any manner delay or affect the Commencement Date, including Lessee's
obligation to pay monthly rent from the Commencement Date. In the event Lessee
fails to furnish one or more of the items described above by the date or within
the number of days provided therein, Lessor shall complete the Demised Premises
in accordance with the provisions of Section 8 below not later than the
Anticipated Commencement Date of this Lease stated above, plus the number of
days required by Lessee to furnish such requirements, approvals or information
to Lessor after the specified date or the number of days provided above (the
"Extended Date").
(D) In the event Lessor fails to complete the Pre-occupancy Tenant Work to
be performed by it pursuant to Section 8 below, except for said punch list
items, on or before the Extended Date, for any reason or cause, Lessor, its
agents and employees shall not be liable or responsible for any claims, damages
or liabilities in connection therewith or by reason thereof, nor shall Lessee be
excused from the obligations under the Lease, except that payment of rent shall
abate commencing on the Extended Date until the earlier of (i) the date Lessee
first occupies the Demised Premises or (ii) the day which is fourteen (14) days
after Lessor has notified Lessee in writing that all such Pre-occupancy Tenant
Work, other than punch list items, has been completed; provided, however, that
if Lessor's failure to complete such Preoccupancy Tenant Work on or before the
Extended Date is attributable to Lessee's requirements for materials, finishes
or installations other than building standard, or the performance and/or
completion of work by a person, firm or corporation employed by Lessee, then
Lessee will be entitled to no rent credit or abatement of any kind.
(E) Notwithstanding the foregoing, in the event the Commencement Date of
this Lease shall not have occurred on or before one hundred eighty (180) days
from the date of Lessee's written approval of Lessor's cost estimate as provided
in Section 2(C)(iii) above, through no fault of Lessee, then Lessee shall have
the option to cancel and terminate this Lease by giving written notice of such
cancellation and termination to Lessor on or before ten (10) days after the
expiration of the said 180-day period. It is an express condition to the
foregoing right of Lessee to so cancel and terminate this Lease that Lessee
shall not initiate any change order which would delay Lessor in the completion
of such Pre-occupancy Tenant Work. Further, Lessee shall not have any right to
so cancel and terminate this Lease if Lessor has completed all Pre-occupancy
Tenant Work to be performed by Lessor except for (i) such items thereof as are
attributable to Lessee's requirements for materials, finishes or installations
other than building standard, and which have not been completed because of delay
in the delivery of materials, fixtures or equipment necessary to complete such
items and/or
3
<PAGE>
the performance or completion of work by a person, firm or corporation employed
by Lessee, and (ii) other items thereof which may not be completed until after
installation of the items referred to in the immediately preceding clause (i).
(F) It is understood and agreed that the obligations of Lessor and Lessee
under the Lease are contingent upon the existing tenant(s) of the Demised
Premises vacating and surrendering full possession of the same on or about
January 31, 1996. In the event Lessor is unable to deliver possession of the
Demised Premises on March 1, 1996 because the existing tenant(s) has failed to
so vacate, Lessor shall not be liable or responsible for any claims, damages or
liability arising in connection therewith or by reason thereof, nor shall Lessee
be excused or released from this Lease because of Lessor's inability to deliver
possession of the Demised Premises on that date. The Commencement Date, however,
shall be extended consistent with the terms of the preceding paragraphs to the
earlier of (i) the date the Demised Premises are occupied by Lessee or (ii) the
date which is fourteen (14) days after the date Lessor has notified Lessee in
writing that all Pre-occupancy Tenant Work to be performed by Lessor pursuant to
Section 8 below has been substantially completed; provided, however, that if the
existing tenant(s) fail to vacate and surrender full possession of the Demised
Premises on or before February 29, 1996, then either Lessor or Lessee shall have
the right to cancel and terminate this Lease without further liability by giving
written notice of such cancellation and termination to the other on or before
March 15, 1996, and this Lease shall be null and void and of no further force or
effect upon the delivery of such notice. Lessor shall endeavor to keep Lessee
informed as to the status of its efforts to recapture possession of the Demised
Premises from the existing tenant(s).
3. USE
---
Lessee will use and occupy the Demised Premises solely for general office
purposes in accordance with the applicable zoning regulations. Lessor represents
that general office use is a permitted use under current zoning regulations. The
Demised Premises will not be used for any other purpose without the prior
written consent of Lessor. Lessee will not use or occupy the Demised Premises
for any unlawful purpose, and will comply with all present and future laws,
ordinances, regulations, and orders of all governments, government agencies and
any other public authority having jurisdiction over the Demised Premises,
including without limitation, the requirements of the Americans with
Disabilities Act ("ADA") of 1990 and its implementing regulations, as existing
or hereafter amended, applicable to the Demised Premises. Lessor shall be
responsible for compliance with ADA as applicable generally to the common areas
of the Building without regard to Lessee's specific use of the Demised Premises.
4
<PAGE>
4. RENT
----
(A) Lessee covenants and agrees to pay to Lessor rent of any kind or
nature, including Monthly Rent (as hereinafter defined) and any sums, charges,
expenses and costs identified in this Lease as additional rent to be paid by
Lessee to Lessor. Lessee's obligation to pay rent shall begin on the
Commencement Date (as specified in the executed "Declaration as to Date of
Delivery and Acceptance of Possession of Demised Premises" in the form attached
hereto as Exhibit D) and shall continue to remain an obligation of Lessee until
completely satisfied.
Lessee will make all payments of rent by check to the Lessor's agent, The
Chevy Chase Land Company, Suite 1001,8401 Connecticut Avenue, Chevy Chase,
Maryland 20815, or to such other party or to such other address as Lessor may
designate from time to time by written notice to Lessee, without demand and
without deduction, set-off or counterclaim. If Lessor shall at any time or times
accept rent after it shall become due and payable, such acceptance shall not
excuse delay upon subsequent occasions, or constitute, or be construed as, a
waiver of any or all of the Lessor's rights hereunder.
(B) The monthly rent for the Demised Premises (hereinafter referred to as
"Monthly Rent") which Lessee hereby agrees to pay in advance to Lessor and
Lessor hereby agrees to accept, shall be as follows:
<TABLE>
<CAPTION>
Lease Period Monthly Rent
------------ -------------
<S> <C>
-From the Commencement Date
through the twelfth (12th)
full calendar month $11,053.58
-From the thirteenth (13th)
full calendar month through
the twenty-fourth (24th) full
calendar month $11,391.96
-From the twenty-fifth (25th)
full calendar month through
the thirty-sixth (36th) full
calendar month $11,730.33
-From the thirty-seventh (37th)
full calendar month through
the forty-eighth (48th) full
calendar month $12,068.71
</TABLE>
5
<PAGE>
-From the forty-ninth (49th)
full calendar month through
the sixtieth (60th) full
calendar month $12,407.08
If the term of this Lease begins on a date other than the first day of a
calendar month, rent from such date until the first day of the following
calendar month shall be prorated at the rate of one thirtieth (1/30th) of the
Monthly Rent for each day, payable in advance.
(C) Monthly Rent as specified above shall be payable in advance on the
first day of each calendar month during the term of this Lease. Monthly Rent
shall not be subject to any escalation or increases other than those specified
in Section 4(B) above.
5. RENTAL ESCALATION FOR INCREASES IN EXPENSES
-------------------------------------------
(Section 5 has been intentionally omitted). Lessee shall not be obligated
for the payment of any additional rent based upon increases in the operating or
common expenses for the building).
6. DEPOSIT
-------
Simultaneously with the execution of this Lease by Lessee, Lessee shall
deposit with Lessor the following sums to serve as security for the payment and
performance by Lessee of all Lessee's obligations under this Lease:
(i) The sum of Eleven Thousand Fifty-Three and 58/100 Dollars
($11,053.58), as a non-interest bearing cash security deposit to be
applied to payment and satisfaction of the Monthly Rent for the first
(1st) full calendar month of the term of this Lease. Such cash
deposit, prior to its being applied to the payment of the said
Monthly Rent, shall be security for the payment and performance by
Lessee of all Lessee's obligations, covenants, conditions and
agreements under this Lease, and Lessor shall have the right, but
shall not be obligated, to apply all or any portion of the deposit to
cure any default by Lessee, in which event Lessee shall be obligated
to promptly deposit with Lessor the amount necessary to restore the
cash deposit to Eleven Thousand Fifty-Three and 58/100 Dollars
($11,053.58)
6
<PAGE>
(ii) The further sum of Twelve Thousand Four Hundred Seven and 08/100
Dollars ($12,407.08) as an additional non-interest bearing cash
security deposit. Such additional cash security deposit shall be
security for the payment and performance by Lessee of all Lessee's
obligations, covenants, conditions and agreements under this Lease
throughout the term hereof. Accordingly, Lessor shall have the right,
but shall not be obligated, to apply all or any portion of the
additional cash deposit to cure Lessee's default, in which event
Lessee shall be obligated to promptly deposit with Lessor cash in an
amount sufficient to restore this security item to Twelve Thousand
Four Hundred Seven and 08/100 Dollars ($12,407.08).
In the event Lessee fails to perform its obligations and to take possession
of the Demised Premises on the Commencement Date provided herein, said cash
deposits shall not be deemed liquidated damages and Lessor may apply the said
cash deposits to reduce Lessor's damages, and such application of the deposits
shall not preclude Lessor from recovering from Lessee all additional damages
incurred by Lessor. Within sixty (60) days after the expiration of the term
hereof (as may be renewed or extended), and provided that Lessee is not in
default under the terms hereof, Lessor shall return only the said additional
cash deposit to Lessee, less such portion thereof as Lessor shall have retained
to cure any default by Lessee with respect to any of Lessee's obligations,
covenants, conditions or agreements hereunder.
7. ASSIGNMENT AND SUBLETTING
-------------------------
(A) Lessor's Prior Consent Required. Lessee and Lessee's representatives,
--------------------------------
successors and assigns will not assign, transfer, mortgage or otherwise encumber
this Lease or sublet or rent (or permit the occupancy or use of) the Demised
Premises, or any part thereof, without obtaining the prior written consent of
Lessor, nor shall any assignment or transfer of this Lease or the right of
occupancy hereunder be effectuated by operation of law or otherwise without the
prior written consent of Lessor, which consent shall not be unreasonably
withheld, conditioned or delayed, subject to and as more fully set forth in
Section 7(B) below; provided, however, that Lessee may assign this Lease or
sublet the Demised Premises or any part thereof without Lessor's consent (but
upon prior written notice to Lessor) if and only if such assignment or
subletting is to or with any subsidiary or affiliate of Lessee. A "subsidiary"
of Lessee shall mean any corporation not less than fifty percent (50%) of whose
outstanding voting stock shall, at the time, be owned by the Lessee. An
"affiliate" of Lessee shall mean any corporation or partnership which controls
or is controlled by or is under common control with Lessee, "control" meaning
the power
7
<PAGE>
to direct or cause the direction of the management and policy of a corporation
or partnership through the ownership of voting securities or partnership
interests.
(B) Qualifications of Subtenant. Subject to the provisions of Subsection
---------------------------
(C) hereof, if all of the following conditions are met, Lessor shall not
unreasonably withhold its consent hereunder to any sublease by Lessee, it being
understood that Lessor's right to withhold consent if the following conditions
are not met is a material consideration for Lessor's agreement to enter into
this Lease.
(i) Lessee must first notify Lessor, in writing, of any proposed
sublease, at least forty (40) days prior to the effective date of such proposed
sublease. The notice to Lessor must include a copy of the proposed sublease and
a copy of the proposed subtenant's most recent financial statement, prepared by
a certified public accountant:
(ii) The subtenant must have a credit rating satisfactory to Lessor
(in Lessor's reasonable judgment);
(iii) The sublease must be expressly subject and subordinate to this
Lease, must require that any subtenant must comply with and abide by all of the
terms of this Lease, and must provide that any termination of this Lease shall
extinguish the sublease as well;
(iv) The subtenant may not change the use of the premises or propose
to conduct its business in a manner which, in Lessor's sole judgment, is not
appropriate for a first class office building in the Metropolitan Washington,
D.C. Area;
(v) The subtenant may not be a tenant, subtenant, or other occupant of
any part of the Building, unless there is no other comparable space in the
Building available to Lessor to offer to a subtenant; and
(vi) The Lessee may not be in default under this Lease beyond any
applicable notice and cure period, or have committed two events of monetary or
material nonmonetary default hereunder during the previous twelve (12) months,
whether cured or not.
(C) Lessor's Right of First Refusal. Lessor shall have the right, within
-------------------------------
thirty (30) days after receipt of the notice from Lessee required under
Subsection (B)(i) above that Lessee proposes to sublease all or a portion of the
Demised Premises, to elect (i) to sublet the Demised Premises from Lessee at the
rent then being paid by Lessee for the Demised Premises under Section 4 hereof
(or that portion thereof which Lessee proposes to sublease) by a proportionate
reduction in the rent as hereinafter set forth; (ii) to terminate this Lease,
effective thirty (30) days after notification
8
<PAGE>
thereof, in its entirety if Lessee intends to sublet all of the Demised Premises
or, if Lessee proposes to sublet a portion of the Demised Premises, to terminate
this Lease only with respect to such portion of the Demised Premises; or
(iii) consent to the sublease in which event Lessee shall continue to pay rent
as provided in Section 4 hereof and, in addition, Lessee shall be required to
pay Lessor each month during the term of the sublease and within five (5) days
of receipt of rent from the sublessee, one-half (1/2) of the amount of rent
payable by such sublessee (less Lessee's reasonable costs of subleasing, such as
leasing commissions, legal fees and tenant improvements, amortized monthly on a
straight-line basis over the term of the sublease) in excess of the amount of
rent payable by Lessee hereunder with respect to the portion of the Demised
Premises sublet. Upon exercise by Lessor of either of the options set forth in
subclauses (i) or (ii) above, Lessee shall surrender the Demised Premises or
such portion thereof, as the case may be, to Lessor, and thereafter the rent to
be paid by Lessee pursuant to Section 4 above shall be that portion of the total
rent which the amount of square foot area remaining in the possession of Lessee
bears to the total square foot area of the Demised Premises. In the event that
Lessor does not exercise its right to sublet the Demised Premises, or such
portion thereof, as the case may be, or to terminate this Lease within said
thirty (30) day period, Lessee shall have the right, subject to the provisions
of subclause (iii) above, to sublet the Demised Premises or a portion thereof
after first obtaining the written consent of Lessor as provided in Subsection
(A) above. Upon exercise by Lessor of the option set forth in subclause (iii)
above, Lessee covenants and agrees to provide Lessor with quarterly statements,
prepared and verified by Lessee's comptroller or chief financial officer,
stating the amount of rent received by Lessee from its subtenant(s) during such
quarterly period. If such statement shows Lessee failed to make the full
payments required by subclause (iii) above, a late charge equal to ten percent
(10%) of the amount due shall be paid by Lessee, as additional rent hereunder.
(D) Transfer of Interest in Lessee. Subject to the provision of Section
7(A) above regarding assignment or subletting to or with a subsidiary or
affiliate of Lessee, any transfer after the date hereof, whether to one or more
persons or entities and whether at one or more different times, of a controlling
interest in Lessee (regardless of whether Lessee is a corporation, partnership,
or other entity) whether voluntarily, by operation of law, or otherwise, shall
be deemed an assignment of this Lease within the meaning of this Section 7.
(E) No Waiver or Release. The consent by Lessor to any assignment or
---------------------
subletting shall not be construed as a waiver or release of Lessee from the
terms of any covenant or obligation under this Lease, nor shall the collection
or acceptance of rent from any such assignee, subtenant or occupant constitute a
waiver or release of Lessee from any covenant or obligation contained in this
Lease, nor shall any such assignment or subletting be construed to relieve
Lessee from obtaining the consent in writing of Lessor to any further assignment
or subletting. Lessee and any guarantor shall remain fully responsible and
liable for all of Lessee's obligations under this Lease,
9
<PAGE>
and the assignee, subtenant or occupant shall automatically be jointly and
severally liable to the extent to the assigned, sublet or occupied portion of
the Demised Premises. Lessee hereby assigns to Lessor the rent due from any
assignee, subtenant or occupant of Lessee and hereby authorizes each such
assignee, subtenant or occupant to pay said rent directly to Lessor, at Lessor's
option, in the event of any default by Lessee under the terms of this Lease.
8. PRE-OCCUPANCY TENANT WORK
-------------------------
All Pre-occupancy Tenant Work shown on the working drawings and to be
performed by Lessor at Lessor's cost is set forth in and shall be performed in
accordance with the provisions of Exhibit B; provided, however, that quantity
allowances and additional tenant finishes to be furnished by Lessor at its
expense shall be in such reasonable quantities and of such reasonable nature as
depicted on the mutually approved working drawings notwithstanding anything to
the contrary in Exhibit B; and provided further, however, that in no event shall
the total cost of all Pre-occupancy Tenant Work to be performed by Lessor at its
expense exceed One Hundred Eight Thousand Two Hundred Eighty and 00/100 Dollars
($108,280.00) (the "Tenant Allowance"). The Pre-occupancy Tenant Work to be
performed by Lessor at its expense shall include the "Design Services" specified
in Exhibit B. All Pre-occupancy Tenant Work shown on the working drawings, the
cost of which exceeds the Tenant Allowance, shall be purchased and installed by
Lessor or its contractors at Lessee's expense. Prior to commencing any Pre-
occupancy Tenant Work, the cost of which exceeds the Tenant Allowance, Lessor
will submit to Lessee written estimates for the cost of any such work; it being
understood that Lessor will request bids from at least three (3) responsible and
licensed general contractors for the performance of all such Pre-occupancy
Tenant Work. If Lessee shall fail to approve in writing the drawings, plans or
specifications and/or the cost estimates within the time periods set forth in
Section 2 above, the same shall be deemed disapproved by Lessee, and Lessor
shall not be authorized to proceed therewith and any delay in completing Pre-
occupancy Tenant Work caused by such failure of Lessee to furnish such
approval(s) shall not in any manner delay or affect the Commencement Date.
Lessee agrees to pay to Lessor, promptly upon being billed therefor, the cost of
any such Pre-occupancy Tenant Work in excess of the Tenant Allowance, together
with ten percent (10%) overhead on such costs. Lessee shall pay one-half (1/2)
of such costs in excess of the Tenant Allowance upon approval of the cost
estimates, and the entire remaining balance of such costs in excess of the
Tenant Allowance when such work is complete as determined by Lessor's architect
and/or engineer. All such payments shall constitute additional rent, and in the
event of nonpayment thereof by Lessee, Lessor shall have all the rights and
remedies set forth in this Lease with respect to nonpayment of rent.
10
<PAGE>
In the event the entire amount of the Tenant Allowance is not exhausted by
application to the total cost of all Pre-occupancy Tenant Work to be performed
by Lessor at its expense, then such balance of the Tenant Allowance shall be
available for disbursement to Lessee to reimburse Lessee (to the extent of such
balance of the Tenant Allowance) for the direct costs incurred by Lessee for the
acquisition and installation of systems furniture within the Demised Premises in
connection with Lessee's initial occupancy thereof; such disbursement to Lessee
to be made upon (i) completion of installation of such systems furniture, (ii)
on the basis of paid invoices, and (iii) subject to inspection and approval by
Lessor, which approval shall not be unreasonably withheld or delayed; provided
that all such systems furniture shall be and remain the property of Lessor and
be surrendered in place with the Demised Premises upon expiration or earlier
termination of this Lease. In the event any further balance of the Tenant
Allowance remains after such application to systems furniture costs incurred by
Lessee, then such further balance of the Tenant Allowance shall be applied to
the payment and satisfaction in whole or in part, as the case may be, of the
Monthly Rent for the second (2nd) full calendar month of the term of this Lease
and each consecutive calendar month thereafter, if required, until such further
balance of the Tenant Allowance is exhausted.
Subject to the prior written approval of Lessor, Lessee shall have the
right to retain contractors to perform specialized work, such as the fabrication
of millwork, including shelving, work surfaces, etc., and the installation of
Lessee's equipment. Approval of a contractor by Lessor shall be based upon the
contractor being properly licensed and insured in accordance with Section 18(D)
below, his financial posture, experience and past job performance. Lessor may
further require that Lessee obtain and deliver to Lessor written and
unconditional waivers of mechanic's and materialmen's liens upon the land and
Building for all work, labor and services to be performed, and materials to be
furnished in connection with such work, signed by all contractors,
subcontractors, and materialmen to become involved in such work. If a contractor
retained by Lessee and approved by Lessor is a non-union contractor and said
contractor's retention or presence causes Lessor's general contractor or other
subcontractors present in the Building to experience labor problems, Lessee
agrees to take action as necessary to eliminate said labor problems by
(a) adjusting Lessee's contractor's work schedules, or (b) deferring the work of
Lessee's contractor until the general contractor and other subcontractors' work
in the Demised Premises and the Building has been completed, or (c) terminating
Lessee's contractor. Lessor shall have the right to inspect and approve all work
performed by Lessee's contractors. Further, all provisions of Section 10 below
shall apply to all work performed by Lessee's contractors.
All Pre-occupancy Tenant Work, whether made by Lessor or Lessee, and
whether at Lessor's or Lessee's expense, or the joint expense of Lessor and
Lessee, shall become and remain the property of Lessor. Notwithstanding the
foregoing, however, and provided this Lease shall remain free from default by
Lessee (this shall be interpreted to mean that lessee shall be free from any
uncured default), those
11
<PAGE>
elements of Pre-occupancy Tenant Work installed in the Demised Premises at the
sole cost and expense of Lessee and for which Lessee has not received or been
granted any credit or allowance by Lessor, and which can be removed without
causing material damage to the Demised Premises or to the Building, shall be and
remain the property of Lessee. In the event Lessee removes these elements of
Pre-occupancy Tenant Work, Lessee agrees to repair any damage to the Demised
Premises and the Building and restore the Demised Premises to a condition no
less than the Building standard level as identified in Exhibit B. Any
replacement of any property, fixtures or improvements of Lessor, whether made at
Lessee's expense or otherwise, shall be and remain the property of Lessor.
9. ALTERATIONS
-----------
After Lessee's initial occupancy of the Demised Premises and installation
of Lessee's approved Pre-occupancy Tenant Work, Lessee shall make no
alterations, installations, additions or improvements (herein collectively
called "Alterations") in or to the Demised Premises or the Building without
Lessor's prior written consent. Items of a cosmetic nature and purely decorative
modifications which do not affect the structure of the Building or its
mechanical, plumbing, or electrical systems are not deemed to be alterations.
Consent by Lessor to Lessee's Alterations shall not be unreasonably withheld,
except that Lessor may withhold its consent for any reason with regard to
requested Alterations by Lessee which affect the structure of the Building or
the mechanical, plumbing or electrical systems of the Building. Lessee, at its
sole cost and expense, must provide Lessor with a copy of the original or
revised full-floor mechanical and electrical plans for the floor or floors on
which the Alterations are to be made, revised by the Building architect and
engineers to show Lessee's proposed Alterations. If any Alterations are made
without the prior written consent of Lessor, Lessor may correct or remove the
same, and Lessee shall be liable for any and all expenses incurred by Lessor in
the performance of this work. All Alterations shall be made at Lessee's sole
expense, at such times and in such manner as Lessor may designate, and only by
such contractors or mechanics as are approved in writing by Lessor. Approval of
contractors or mechanics by Lessor shall be based upon the contractors or
mechanics being properly licensed and insured in accordance with Section 18(D)
below, their financial posture, experience and past job performance. Lessor may
further require that Lessee obtain and deliver to Lessor written and
unconditional waivers of mechanics' and materialmen's liens upon the Land and
the Building for all work, labor and services to be performed, and materials to
be furnished, in connection with any permitted Alterations, signed by all
contractors, subcontractors and materialmen to become involved in any permitted
Alterations. Lessor shall not be liable for any damages or losses caused by
Lessee's contractors, and Lessee agrees to pay any and all expenses, claims or
damages to person or property which may arise directly or indirectly by reason
of making any Alterations, all in accordance with Sections 10, 16 and 18(B)
below.
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All Alterations to the Demised Premises, whether made by Lessor or Lessee,
and whether at Lessor's or Lessee's expense, or the joint expense of Lessor and
Lessee, shall be and remain the property of Lessor. Notwithstanding the
foregoing, however, and provided this Lease shall remain free from default by
Lessee, any Alterations, fixtures or any other property installed in the Demised
Premises at the sole expense of Lessee and with respect to which Lessee has not
been granted any credit or allowance by Lessor, whether pursuant to Exhibit B or
otherwise, and which can be removed without causing material damage to the
Demised Premises and the Building or the Demised Premises, shall be and remain
the property of Lessee. In the event Lessee removes any of these Alterations and
the like, Lessee agrees to repair any damage to the Building caused by said
removal and to restore the Demised Premises to a condition no less than the
Building standard level as identified in Exhibit B. Any replacements of any
property or improvements of Lessor, whether made at Lessee's expense or
otherwise, shall be and remain the property of Lessor.
Lessor, at the expiration or earlier termination of the term of the Lease,
may elect to require Lessee to remove all or any part of the Alterations made by
Lessee subsequent to the Commencement Date, as long as Lessor specifies the
Alterations which will be required to be so removed at the time Lessor consents
to the Alterations. Removal of Lessee's Alterations shall be at Lessee's cost
and expense, and Lessee shall, at its cost and expense, repair any damage to the
Demised Premises or the Building caused by such removal.
Lessee shall remove all of Lessee's property at the expiration or earlier
termination of the Lease. In the event Lessee does not remove Lessee's property
at the expiration or earlier termination of the Lease, such property shall
become the property of Lessor.
In the event Lessee fails to remove its property or the Alterations
requested to be removed by Lessor on or before the expiration, or earlier
termination, of the term of the Lease, then and in such event, Lessor may remove
such property and Alterations from the Demised Premises at Lessee's expense, and
Lessee hereby agrees to pay to Lessor, as additional rent, the cost of such
removal together with any and all damages which Lessor may suffer and sustain by
reason of the failure of Lessee to remove the same. Said amount of additional
rent shall be due and payable upon receipt by Lessee of a written statement of
costs and damages from Lessor.
10. MECHANIC'S LIEN
---------------
If any mechanic's lien is filed against the Demised Premises, or the
Building of which the Demised Premises are a part, for work claimed to have been
done for Lessee or materials claimed to have been furnished to Lessee, such
mechanic's lien shall be discharged by Lessee, at its sole cost and expense,
within ten (10) days from
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the date Lessee receives written demand from Lessor to discharge said lien, by
the payment thereof or by filing any bond required by law. If Lessee shall fail
to discharge any such mechanic's lien, Lessor may, at its option, discharge the
same and treat the cost thereof as additional rent, due and payable upon receipt
by Lessee of a written statement of costs from Lessor. It is hereby expressly
covenanted and agreed that such discharge of any mechanic's lien by Lessor shall
not be deemed to waive or release Lessee from its default under the Lease for
failing to discharge the same. Lessee will indemnify and hold harmless Lessor
from and against any and all expenses, liens, claims or damages to person or
property which may or might arise as a result of Lessee undertaking Pre-
occupancy Tenant Work in the Demised Premises at its own cost and under its own
control and direction, or making any Alterations to the Demised Premises.
11. MAINTENANCE BY LESSEE AND LESSOR
--------------------------------
(A) Lessee will keep the Demised Premises and the fixtures and equipment
therein in clean, safe and sanitary condition, will take good care thereof and
will suffer no waste or injury thereto. At the expiration or other termination
of the term of this Lease, Lessee will surrender the Demised Premises broom
clean and in the same order and condition in which they were on the Commencement
Date, ordinary wear and tear and damage by the elements, fire and other insured
casualty excepted.
(B) Lessor shall keep the exterior, common area elements and public
spaces of the Building, and the mechanical, electrical, HVAC and plumbing
systems thereof in a clean, safe and sanitary operating condition and in good
repair, all in a manner in keeping with a first-class office building in Chevy
Chase, Maryland.
12. SIGNS AND ADVERTISEMENTS
------------------------
No sign, advertisement or notice shall be inscribed, painted, affixed or
displayed on any part of the outside or the inside of the Building so as to be
visible from outside the Demised Premises, except with Lessor's prior written
consent and then only in such place, number, size, color and style (i.e.,
Building standard lettering) as is authorized by Lessor. If any such sign,
advertisement or notice is exhibited without first obtaining Lessor's written
consent, Lessor shall have the right to remove the same, and Lessee shall be
liable for any and all expenses incurred by Lessor by said removal.
Lessor agrees to display Lessee's name on the Building directory or
directories in the size and style of lettering used by Lessor, at Lessee's
expense. The number of individual names listed on the Building directory or
directories shall be subject to such limitation as shall be established from
time to time by Lessor. Lessee may display its
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name on either the main entry door of the Demised Premises or the adjacent
corridor wall, as directed by Lessor, in Building standard color, size and style
of lettering, to be furnished by Lessor at Lessee's expense.
Lessor shall have the right to prohibit any published advertisement of
Lessee which in its opinion tends to impair the reputation of the Building or
its desirability as a high quality office building, and, upon written notice
from Lessor, Lessee shall immediately refrain from and discontinue any such
advertisement.
13. DELIVERIES AND MOVING OF LESSEE'S PROPERTY
------------------------------------------
No furniture, equipment or other bulky matter of any description will be
received into the Building or carried in the elevators except in the manner and
during the times reasonably approved by Lessor. Lessee shall obtain Lessor's
determination prior to moving said property into the Building. Any such activity
undertaken by Lessee shall be subject to Lessee's responsibility for damage in
accordance with Section 16 below. All moving of furniture, equipment and other
material within the public areas shall be under the direct control and
supervision of Lessor who shall, however, not be responsible for any damage to
or charges for moving the same. Lessor shall have the sole right to determine
the load capacities of the elevators of the Building and to determine if
Lessee's property can be safely transported in the elevators. Lessee agrees
promptly to remove from the sidewalks adjacent to the Building any of the
Lessee's furniture, equipment or other material there delivered or deposited.
14. LESSEE'S EQUIPMENT
------------------
Lessee will not install or operate in the Demised Premises any electrically
operated equipment or other machinery, other than general office equipment and
office kitchen equipment normally employed for general office use which do not
require high electricity consumption for operation, without first obtaining the
prior written consent of Lessor, who may condition such consent upon payment by
Lessee of additional rent as compensation for additional consumption of
electricity and/or other utility services.
If any portion or all of Lessee's equipment shall require electricity
consumption in excess of the capacity of the electrical system installed by
Lessor in the Demised Premises, all additional transformers, distribution panels
and wiring that may be required to provide the amount of electricity required
for Lessee's equipment shall be installed by Lessor at the cost and expense of
Lessee. If Lessee's equipment shall cause Lessee's Consumption of electricity to
exceed an average of five (5) watts per rentable square foot, or if such
equipment is to be consistently operated beyond the normal Building hours of
8:00 a.m. to 6:00 p.m., Monday through Friday, and 8:00 a.m. to 2:00 p.m. on
Saturday, Lessor may install at its option, but at Lessee's sole
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cost and expense (i) a separate electric meter for the Demised Premises, or
(ii) a separate meter for the specific equipment that is causing Lessee's
excessive consumption of electricity. In the event Lessor installs a separate
meter for the Demised Premises, Lessee shall then pay the cost of electricity it
consumes as recorded by such meter directly to the electric company, and an
appropriate adjustment as reasonably determined by Lessor will be made to
Lessee's proportionate share of Operating Costs to reflect Lessee's reduced
consumption of electricity because of such separate metering of the Demised
Premises. In the event Lessor separately meters the specific equipment, Lessee
shall be billed periodically by Lessor based upon such consumption and no
adjustment shall be made to Lessee's proportionate share of Operating Costs nor
to the Operating Costs of those tenants not separately metered.
Lessee shall not install any equipment of any kind or nature whatsoever
which will or may necessitate any changes, replacements or additions to, or in
the use of, the water system, heating system, plumbing system, air-conditioning
system, or electrical system of the Demised Premises or the Building without
first obtaining prior written consent of Lessor. Business machines and
mechanical equipment belonging to Lessee which cause noise or vibration that may
be transmitted to the structure of the Building or to any space therein to such
a degree as to be objectionable to Lessor or to any tenant in the Building shall
be installed and maintained by Lessee, at Lessee's expense, on vibration
eliminators or other devices sufficient to eliminate such noise and vibration.
Lessor shall have the right to prescribe the weight and position of all
heavy equipment and fixtures, including, but not limited to, data processing
equipment, record and file systems, and safes which Lessee intends to install or
locate within the Demised Premises. Lessee shall obtain Lessor's prior review
and approval before installing or locating heavy equipment and fixtures in the
Demised Premises, and if installation or location of such equipment or fixtures,
in Lessor's opinion, requires structural modifications or reinforcement of any
portion of the Demised Premises or the Building, and Lessor elects to make such
structural modifications or reinforcement, it being understood that Lessor shall
have no obligation to do so, Lessee agrees to pay to Lessor any and all costs
incurred by Lessor to make such required modifications or reinforcements, and
such modifications or reinforcements shall be completed prior to Lessee
installing or locating such equipment or fixtures in the Demised Premises.
Lessee shall pay one-half (1/2) of said costs upon its approval of the cost
estimates therefor and the entire remaining balance of such costs when the work
is complete as determined by Lessor's architect and/or engineer.
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15. SERVICES AND UTILITIES
----------------------
(A) So long as Lessee shall fully perform all of the terms and conditions
of this Lease to be performed by it, including without limitation, the payment
of all items of rent and additional rent, Lessor shall provide the following
utilities and services:
(1) Hot and cold water and lavatory supplies, it being understood and
agreed that hot and cold water shall be furnished by Lessor only at those points
of supply depicted on the approved working drawings for the Pre-occupancy Tenant
Work.
(2) Automatically operated elevator service at all times, including
elevator access to the parking garage.
(3) Cleaning and char services, as specified in Exhibit E, after
normal business hours, Monday through Friday of each week, except on the
holidays listed in subparagraph (4) below.
(4) Heat and air-conditioning in season, Monday through Friday from
8:00 a.m. to 6:00 p.m., and on Saturday from 8:00 a.m. to 2:00 p.m., except for
the following holidays: New Year's Day, Martin Luther King Day, Washington's
Birthday, Memorial Day, Fourth of July, Labor Day, Columbus Day, Veteran's Day,
Thanksgiving Day, and Christmas Day, and any other national holiday promulgated
by a Presidential Executive Order or Congressional Act. Lessor shall provide
heat and air-conditioning at times in addition to those specified in the
preceding sentence at Lessee's expense, provided Lessee gives Lessor notice
prior to 1:00 p.m. (in the case of after-hours service on weekdays) and prior to
3:00 p.m. on Fridays (in the case of after-hours service on Saturdays, Sundays
or said holidays) Lessor shall charge Lessee for said after-hours services the
same rate it charges other tenants, which is $65.00 per hour on the date of
execution of this Lease. Lessor reserves the right, in its sole discretion, to
increase the hourly charge for said after-hours service, but in no event will
the rate per hour charged Lessee be more than the rate per hour charged other
tenants. In the event the same after-hours service is also requested by other
tenants of the Building in addition to Lessee, the charge therefor to each
tenant requesting such after-hours service shall be prorated among all
requesting tenants based upon the respective square footages of each of the
demised premises of the tenants requesting such after-hours service.
(5) Maintenance, painting and electric lighting service for all public
areas and special service areas in the Building.
(6) Electricity and proper electrical facilities to furnish sufficient
electricity for equipment of Lessee installed pursuant to the section of this
Lease entitled "LESSEE'S EQUIPMENT."
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(B) In the event any utility company supplying energy requires, or
government law, regulation, executive or administrative order results in a
requirement, that Lessor or Lessee must reduce, or maintain at a certain level,
the consumption of electricity for the Demised Premises or Building, which
affects the heating, air-conditioning, lighting, or hours of operation of the
Demised Premises or Building, Lessor and Lessee shall each adhere to and abide
by said laws, regulations or executive orders without any reduction in rent.
(C) Lessor's inability to furnish, to any extent, these defined services,
or any cessation thereof resulting from causes beyond the control of Lessor,
shall not render Lessor liable for damages to either person or property, nor be
construed as an eviction of Lessee, nor work an abatement of any portion of
rent, nor relieve Lessee from fulfillment of any covenant or agreement hereof.
Should any of the Building equipment or machinery cease to function properly for
any cause, Lessor shall use reasonable diligence to repair the same promptly,
but Lessee shall have no claim for damages or for a rebate of any portion of
rent on account of any interruptions in any services occasioned thereby or
resulting therefrom. Notwithstanding the foregoing, if for any reason other than
the negligence or willful misconduct of Lessee, or a casualty described in
Section 21 below, a service interruption shall occur and continue for more than
five (5) consecutive days such as to materially interfere with or deny Lessee's
use of the Demised Premises, and Lessee as a result thereof actually ceases to
occupy the Demised Premises, then the Monthly Rent shall be abated on a per diem
basis from the date of such service interruption until the service is restored;
provided, however, that if prior to the date on which service is restored, any
part of the Demised Premises shall be rendered tenantable and shall be used or
occupied by Lessee for its normal business purpose, then the amount by which the
Monthly Rent shall abate shall be equitably apportioned for the period from the
date of any such partial use or occupancy to the date on which such service is
restored, and provided further that if such service interruption shall continue
for more than thirty (30) consecutive days, then Lessee shall have the option to
terminate this Lease by written notice delivered to Lessor within ten (10)
business days after the expiration of such 30-day period, and this Lease shall
terminate upon Lessor's receipt of such notice with the same force and effect as
if the date of said receipt was the date fixed for expiration of the term of
this Lease.
16. LESSEE'S RESPONSIBILITY FOR DAMAGE
----------------------------------
Any and all injury, breakage or damage to the Building, arising from any
cause, done by Lessee or its agents, contractors, servants, employees and
visitors, or by individuals and persons making deliveries to or from the Demised
Premises, except as provided for in the section of this Lease entitled "DAMAGE
TO THE BUILDING AND/OR THE DEMISED PREMISES," shall be repaired by Lessor at the
sole expense of Lessee. Payment of the cost of such repairs by Lessee shall be
due as additional
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rent with the next installment of Monthly Rent after Lessee receives a bill for
such repairs from Lessor. This provision shall not be in limitation of any other
rights and remedies which Lessor has or may have in such circumstances.
17. ENTRY FOR INSPECTIONS, REPAIRS AND INSTALLATIONS
------------------------------------------------
Lessee will permit Lessor, or its agent, employees or contractors, upon at
least one (1) day's notice to Lessee to enter the Demised Premises at all
reasonable times and in a reasonable manner, without charge to Lessor or without
diminution of Monthly Rent payable by Lessee, to examine, inspect and protect
the same, and, upon one (1) day written notice, to make such repairs as in the
judgment of Lessor may be deemed necessary to maintain or protect the Demised
Premises or the Building, or to make installations related to the construction
of pre-occupancy tenant work being performed by Lessor for other tenants of the
Building, or to exhibit the same to prospective purchasers or lenders at any
reasonable time or to prospective tenants during the last one hundred twenty
(120) days of the term of this Lease. Lessor shall use reasonable efforts to
minimize interference to Lessee's business when making repairs, but Lessor shall
not be required to perform the repairs at a time other than during normal
working hours. It is expressly understood that the Demised Premises do not
include any mechanical, electrical, telephone and similar rooms which service
the Building; janitor closets; elevator, pipe and other vertical shafts and
ducts; flues; stairwells (except any stairwells exclusively serving the Demised
Premises); and the area above the acoustical ceiling.
In the event of an emergency, Lessor may enter the Demised Premises without
notice and make whatever repairs are necessary to protect the Demised Premises
or the Building without any liability whatsoever resulting from such entry.
18. INSURANCE
---------
(A) Insurance Rating. Lessee will not conduct or permit to be conducted any
----------------
activity, or place any equipment or property in or about the Demised Premises
that will increase in any way the rate of fire insurance or other insurance on
the Building, unless consented to by Lessor. Lessor's consent may be conditioned
upon Lessee's payment of any costs arising directly or indirectly from such
increase. If any increase in the rate of fire insurance or other insurance on
the Building is stated by any insurance company or by the applicable Insurance
Rating Bureau to be due to Lessee's activity, equipment or property in or about
the Demised Premises, said statement shall be conclusive evidence that the
increase in such rate is due to such activity, equipment or property and, as a
result thereof, Lessee shall be liable for such increase. Any such rate increase
and related costs incurred by Lessor shall be deemed additional rent due and
payable by Lessee to Lessor upon receipt by Lessee of a written
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statement of the rate increase and costs. Lessee may contest, at its sole cost
and expense, any insurance rate increase, provided such action by Lessee will
not adversely affect the insurance coverage of Lessor.
(B) Indemnity and Public Liability Insurance. Lessee agrees that it will
----------------------------------------
indemnify and save harmless Lessor from any and all liability, damage, expense,
cause of action, suits, claims, judgments and cost of defense arising from
injury to person or personal property in and on the Demised Premises, or upon
any adjoining sidewalks or public areas of the Building, which arise out of the
act, failure to act or negligence of Lessee, its agents or employees.
In order to assure such indemnity, Lessee agrees, at its sole cost, to
carry and keep in full force and effect at all times during the term of this
Lease for the protection of Lessor and Lessee, a comprehensive general liability
policy with a single limit of at least One Million Dollars ($1,000,000.00)
including coverage for bodily injury, property damage and personal injury
liability. Said policy shall name Lessor as an additional insured and shall have
attached thereto an endorsement to the effect that no act or omission of Lessee
shall affect the obligation of the insurer to pay Lessor the full amount of any
loss sustained by Lessor.
(C) Mutual Waiver of Subrogation. Lessor and Lessee each waive the right of
----------------------------
subrogation for all risk of loss or damage to property of the other whether such
loss or damage is caused by the negligence of either party. Any willful or
malicious action on the part of either party voids this waiver.
(D) Lessee's Contractor's Insurance. Lessee shall require any contractor of
-------------------------------
Lessee performing work on the Demised Premises to carry and maintain, at no
expense to Lessor,
(a) comprehensive general liability insurance, including
contractor's liability coverage, contractual liability coverage,
completed operations coverage, broad form property damage
endorsement and contractor's protective liability coverage, to
afford protection with limits, for each occurrence, of not less
than One Million Dollars ($1,000,000.00) with respect to
personal injury or death, and One Million Dollars
($1,000,000.00) with respect to property damage; and
(b) worker's compensation or similar insurance in form and amounts
required by law.
(E) Lessee Property Insurance. Lessee will, during the term of this Lease,
--------------------------
carry and maintain a fire and extended casualty insurance policy covering all
items of Lessee's Pre-occupancy Tenant Work, Alterations, trade fixtures and
personal property
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from time to time in or upon the Demised Premises, and in an amount not less
than the full replacement cost thereof from time to time during the term of this
Lease, and providing protection against perils included within the standard form
of fire and extended coverage insurance policy.
19. REQUIREMENTS FOR LESSEE'S INSURANCE POLICIES
--------------------------------------------
The company or companies writing any insurance which Lessee is required to
carry and maintain or cause to be carried or maintained pursuant to this Lease
shall be a good and responsible insurance company, licensed to do business in
the State of Maryland. Lessee's public liability and fire and extended casualty
insurance policies shall contain a provision by which the insurer agrees that
such policy shall not be canceled except after thirty (30) days' written notice
to Lessor. Lessee agrees to provide to Lessor prior to taking possession of the
Demised Premises, and from time to time as may be required, the certificates
evidencing such insurance; Lessor may withhold delivery of the Demised Premises
without delaying the Commencement Date, or resulting in any abatement of rent,
if Lessee fails to provide Lessor with these certificates.
Any insurance carried or to be carried by Lessee hereunder shall be primary
over any policy that might be carried by Lessor. If Lessee shall fail to perform
any of its obligations regarding the acquisition and maintenance of insurance,
Lessor may perform the same and the cost of same shall be deemed additional rent
and shall be payable upon Lessor's demand.
20. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY AND PERSON
----------------------------------------------------
Lessee shall protect its property and insure the same to its own
satisfaction. All personal property of Lessee, its employees, agents, business
invitees, licensees, customers, clients, family members, guests or trespassers,
in and on the Demised Premises shall be and remain in and on the Demised
Premises and the Building at the sole risk of said parties and unless such
parties establish that there has been gross negligence or a willful act or
failure to act on the part of Lessor, its agents or employees causing a
hereinafter described act or event, Lessor shall not be liable to any such
person or party for any damage to, or loss of personal property thereof,
including loss or damage arising from (a) any act, including theft, or any
failure to act, of any other persons, (b) the leaking of the roof, (c) the
bursting, rupture, leaking or overflowing of water, sewer or steam pipes,
(d) the rupture or leaking of heating or plumbing fixtures, including security
and protective systems, (e) short-circuiting or malfunction of electrical wires
or fixtures, including security and protective systems or (f) the failure of the
heating or air conditioning Systems. Lessor shall also not be liable for the
interruption or loss to Lessee's business arising from any of the above-
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described acts or causes. Lessee specifically agrees to save Lessor harmless in
all such cases.
Lessor shall not be liable for any personal injury to Lessee, Lessee's
employees, agents, business invitees, licensees, customers, clients, family
members, guests or trespassers arising from the use, occupancy and condition of
the Demised Premises or the Building, unless such party establishes that there
has been gross negligence or a willful act or failure to act on the part of
Lessor, its agents or employees.
21. DAMAGE TO THE BUILDING AND/OR THE DEMISED PREMISES
--------------------------------------------------
If the Demised Premises shall be damaged by fire or other casualty insured
against by Lessor's fire and extended coverage insurance policy covering the
Building and the Demised Premises can be fully repaired, in Lessor's opinion
(as reported in writing to Lessee as soon as practicable following the date of
such damage), within one hundred eighty (180) days from the date of such damage,
Lessor, at Lessor's expense, shall repair such damage; provided, however, Lessor
shall have no obligation (a) to repair any damage to, or to replace, Lessee's
non-building standard tenant Improvements or any other property located in the
Demised Premises, the repair of which shall be the responsibility of, and shall
be undertaken by Lessee, or (b) to repair if such damage occurs during the last
year of the lease term, excluding any renewal option which is unexercised at the
date of such damage, or (c) to repair if the mortgagee does not allow the
insurance proceeds to be used for such purposes. Except as otherwise provided
herein, if the entire Demised Premises shall be rendered untenantable by reason
of any such damage, then Monthly Rent shall abate for the period from the date
of such damage to the date when such damage shall have been repaired, and if
only a part of the Demised Premises shall be so rendered untenantable, then
Monthly Rent shall abate for such period in the proportion which the area of the
part of the Demised Premises so rendered untenantable bears to the total area of
the Demised Premises; provided, however, if, prior to the date when all of such
damage shall have been repaired, any part of the Demised Premises so damaged
shall be rendered tenantable and shall be used or occupied by Lessee or any
person claiming through or under Lessee, then the amount by which the Monthly
Rent shall abate shall be equitably apportioned for the period from the date of
any such use or occupancy to the date when all such damage shall have been
repaired. No compensation or claim or reduction of rent will be allowed or paid
by Lessor by reason of inconvenience, annoyance, or injury to business arising
from the necessity of repairing the Demised Premises or any portion of the
Building of which they are a part. Further, no abatement of Monthly Rent shall
be made under the provisions of this Section 21 while this Lease is in effect if
such damage shall have been caused through the negligence or willful misconduct
of Lessee, its agents, employees, contractors, invitees, licensees, lessees or
assigns.
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Notwithstanding the foregoing, if, prior to or during the term of this
Lease, (a) the Demised Premises shall be so damaged that, in Lessor's opinion
(as reported in writing to Lessee as soon as practicable following the date of
such damage), the Demised Premises cannot be fully repaired within one hundred
eighty (180) days from the date the damage occurred, or (b) the Building shall
be so damaged by fire or other casualty that, in Lessor's opinion, substantial
repair or reconstruction of the Building shall be required (whether or not the
Demised Premises shall have been damaged or rendered untenantable) then, in any
of such events, Lessor, at its option, may give to Lessee, within sixty (60)
days after such fire or other casualty, a thirty (30) days' notice of
termination of this Lease and, in the event such notice is given, this Lease
shall terminate (whether or not the term shall have commenced) upon the
expiration of such thirty (30) days with the same effect as if the date of
expiration of such thirty (30) days were the date definitely fixed for
expiration of the term of the Lease, and the then-applicable Monthly Rent shall
be apportioned as of such date, including any rent abatement as provided
above.
22. DEFAULT OF LESSEE
-----------------
(A) Termination of Lease. This Lease shall, at the option of Lessor, cease
--------------------
and terminate if (i) Lessee shall fail to pay rent, including installment of
Monthly Rent, costs of Pre-occupancy Tenant Work, if any, or any sums, charges,
expenses and costs of any kind or nature identified in this Lease as additional
rent, although no legal or formal demand has been made, and such failure to pay
rent shall continue for a period of five (5) business days after written notice
addressed to Lessee has been delivered by Lessor to the Demised Premises, or
(ii) Lessee shall violate or fail to perform any of the other conditions,
covenants or agreements of this Lease made by Lessee, and any violation or
failure to perform any of those conditions, covenants or agreements shall
continue for a period of fifteen (15) days after written notice thereof has been
delivered by Lessor to Lessee, or, in cases where the violation or failure to
perform cannot be corrected within fifteen (15) days, Lessee does not begin to
correct the violation or failure to perform within fifteen (15) days after
receiving Lessor's written notice and/or Lessee thereafter does not diligently
pursue the correction of the violation or failure to perform. Any said violation
or failure to perform or to pay any rent, if left uncorrected, shall operate as
a notice to quit, any further notice to quit or notice of Lessor's intention to
reenter being hereby expressly waived. Lessor may thereafter proceed to recover
possession under and by virtue of the provisions of the laws of the State of
Maryland or by such other proceedings, including re-entry and possession, as may
be applicable. If Lessor elects to terminate this Lease, everything herein
contained on the part of Lessor to be done and performed shall cease without
prejudice to the right of Lessor to recover from Lessee all rent accruing up to
and through the date of termination of this Lease or the date of recovery of
possession of the Demised Premises by Lessor, whichever is later. Should this
Lease be terminated before the expiration of the term of this Lease by reason of
Lessee's default as
23
<PAGE>
hereinabove provided, or if Lessee shall abandon or vacate the Demised Premises
before the expiration or termination of the term of this Lease, the Demised
Premises may be relet by Lessor for such rent and upon such terms as are not
unreasonable under the circumstances, and Lessee shall be liable for all damages
sustained by Lessor and all costs of reletting and repossessing the Demised
Premises, including, without limitation, deficiency in rent, reasonable
attorneys' fees, brokerage fees, and expenses of placing the Demised Premises in
first-class rentable condition. Any damage or loss of rent sustained by Lessor
may be recovered by Lessor, at Lessor's option, at the time of the reletting, or
in separate actions, from time to time, as said damage shall have been made more
easily ascertainable by successive relettings, or, at Lessor's option, may be
deferred until the expiration of the term of this Lease, in which event the
cause of action shall not be deemed to have accrued until the date of expiration
of said term. In no event shall Lessee be entitled to receive the excess, if
any, of net rent collected after reletting over the sums payable by Lessee to
Lessor hereunder. The provisions contained in this section shall be in addition
to and shall not prevent the enforcement of any claim Lessor may have against
Lessee for anticipatory breach of the unexpired term of this Lease.
(B) Repeated Defaults. If Lessee shall be in default of this Lease for the
-----------------
same or substantially the same reason more than three (3) times during any
twelve (12) month period during the term of this Lease, then, at Lessor's
election, Lessee shall not have the right to cure such repeated default, any
other terms and conditions of this Section 22 notwithstanding. In the event of
Lessor's election not to allow a cure of repeated default, Lessor shall have all
of the rights provided for in such section of this Lease for an uncured default.
(C) Waiver. If Lessor shall institute legal or administrative proceedings
------
against Lessee and a compromise or settlement thereof shall be made, the same
shall not constitute a waiver of Lessee's obligations to comply with any
covenant, agreement or condition, nor of any of Lessor's rights hereunder. No
waiver by Lessor of any breach of any covenant, condition, or agreement
specified herein shall operate as an invalidation or as a continual waiver of
such covenant, condition or agreement itself, or of any subsequent breach
thereof. No payment by Lessee or receipt by Lessor of a lesser amount than the
amount of rent due Lessor shall be deemed to be other than on account of the
earliest stipulated rent, nor shall any endorsement or statement on any check or
letter accompanying a check for payment of such rent be deemed an accord and
satisfaction, and Lessor may accept such check or payment without prejudice to
Lessor's right to recover the balance of such rent or to pursue any other remedy
provided for in this Lease or in the governing law of the jurisdiction in which
the Building is located. No re-entry by Lessor, and no acceptance by Lessor of
keys from Lessee, shall be considered an acceptance of a surrender of the Lease.
(D) Right of Lessor to Cure Lessee's Default. If Lessee defaults in the
----------------------------------------
making of any payment to any third party, or doing any act required to be made
or done by
-24-
<PAGE>
Lessee relating to the Demised Premises, then following the expiration of any
applicable notice or grace period, Lessor may , but shall not be required, make
such payment or do such act, and the amount of the expense thereof, if made or
done by Lessor, with interest thereon at a rate equal to two (2) percentage
points above the then applicable prime rate of interest per annum as
published in the Money Rates section of The Wall Street Journal, or its
-----------------------
successors, accruing from the date paid by Lessor, shall be paid by Lessee to
Lessor and shall constitute additional rent hereunder due and payable by Lessee
upon receipt of a written statement of costs from Lessor. The making of such
payment or the doing of such act by Lessor shall not operate to cure Lessee's
default, nor shall it prevent Lessor from the pursuit of any remedy to which
Lessor would otherwise be entitled.
(E) Late Payment. If Lessee fails to pay, within five (5) days of the date
------------
due and payable, any installment of Monthly Rent, costs to Pre-occupancy Tenant
Work, additional rent or other charges to be paid by Lessee pursuant to this
Lease, then Lessee shall pay to Lessor a late charge of five percent (5%) of the
amount due but not paid, and in addition such unpaid amount shall bear interest
at a per annum rate equal to two (2) percentage points above the then prime rate
of interest per annum as published in the Money Rates section of The Wall Street
---------------
Journal, or its successors, accruing from the date such installment or payment
- -------
became due and payable to the date of payment thereof by Lessee. Such late
charge and interest shall constitute additional rent due and payable to Lessor
by Lessee upon the date of payment of the delinquent payment referenced above.
(F) Enforcement of Lease. In the event that either Lessor or Lessee takes
--------------------
legal action to enforce against the other the performance of the other's
obligations under the Lease, then Lessor or Lessee, as the case may be, shall
immediately reimburse the other for all expenses, including without limitation,
reasonable attorney's fees, incurred by the prevailing party in its successful
prosecution of that legal action.
(G) Lien for Rent. In consideration of the mutual benefits arising under
-------------
this Lease, Lessee hereby grants to Lessor a security interest and lien on all
property of Lessee now or hereafter placed in or upon the Demised Premises
(except such part of any property as may be exchanged, replaced, or sold from
time to time in the ordinary course of business operations or trade of Lessee,
as well as all computer equipment, workpapers, software, files and documents
pertaining to Lessee's business operations and its customers and clients) and
such property shall be and remain subject to such lien of Lessor for payment of
all rent and other sums agreed to be paid by Lessee herein. At Lessor's request,
Lessee shall execute and deliver to Lessor a financing statement sufficient to
perfect this security interest and lien, or Lessor may file a copy of the
relevant portions of this Lease as a financing statement. Said lien shall be in
addition to and cumulative upon Lessor's liens provided by law. Said lien shall
be second in priority to the rights of any lessor of, or the mortgagee of , any
equipment
25
<PAGE>
or personal property under any equipment lease or mortgage, the rights of the
seller under any conditional sales contract, or the rights of the lender under
any leasehold mortgage consented to by Lessor.
(H) Anticipatory Breach; Cumulative Remedies. Nothing contained herein
----------------------------------------
shall prevent the enforcement of any claim Lessor may have against Lessee for
anticipatory breach of the unexpired term of this Lease. In the event of a
breach or anticipatory breach by Lessee of any of the covenants or provisions
hereof, Lessor shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if reentry, summary proceedings and
other remedies were not provided for herein. Mention in this Lease of any
particular remedy shall not preclude Lessor from any other remedy, in law or in
equity.
23. BANKRUPTCY
----------
(A) Events of Bankruptcy. The following shall be "Events of
--------------------
Bankruptcy" under this Lease:
(i) Lessee's becoming insolvent, as that term is defined in Title
11 of the United States Code, entitled Bankruptcy, 11 U.S.C. Par. 101 et seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States (the "Insolvency Laws");
(ii) the appointment of a receiver or custodian for all or a
substantial portion of Lessee's property or assets, or the institution of a
foreclosure action upon all or a substantial portion of Lessee's real or
personal property;
(iii) the filing of a voluntary petition by Lessee under the
provisions of the Bankruptcy Code or Insolvency Laws;
(iv) the filing of an involuntary petition against Lessee as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within thirty (30) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is earlier; or
(v) Lessee's making or consenting to an assignment for the
benefit of creditors or a common law composition of creditors.
(B) Lessor's Remedies.
-----------------
(i) Termination of Lease. The occurrence of an Event of
--------------------
Bankruptcy shall be deemed a default under this Lease and Lessor shall have the
right to terminate this Lease by giving written notice to Lessee whereupon
Lessee shall be immediately
26
<PAGE>
obligated to quit the Demised Premises and Lessor shall have all the rights and
remedies as provided in Section 22; provided, however, and notwithstanding the
foregoing, Lessor shall not have the right to terminate this Lease while a case
in which Lessee is the subject debtor under the Bankruptcy Code is pending,
unless Lessee or Lessee's trustee in bankruptcy is unable to comply with the
provisions of Section 23(B)(ii), (iii), and (iv) below.
(ii) Assumption or Assignment by Trustee. In the event Lessee
-----------------------------------
becomes the subject debtor in a case pending under the Bankruptcy Code, Lessor's
right to terminate this Lease pursuant to this Section 23 shall be subject to
the rights of the Trustee in bankruptcy to assume or assign this Lease. The
Trustee shall not have the right to assume or assign this Lease unless the
Trustee (a) promptly cures all defaults under this Lease, (b) promptly
compensates Lessor for monetary damages incurred as a result of such default,
(c) provides "adequate assurance of future performance" (as hereinafter defined)
and (d) complies with the provisions of Section 7 hereof.
(iii) Adequate Assurance of Future Performance. Lessor and Lessee
----------------------------------------
hereby agree in advance that the phrase "adequate assurance of future
performance," as used in this Section 23(B), shall mean that all of the
following minimum criteria must be met: (a) the Trustee must pay to Lessor, at
the time the next payment of rent is then due under this Lease, in addition to
such Payment of rent, an amount equal to the next three (3) months rent due
under this Lease, said amount to be held by Lessor in escrow until either the
Trustee or Lessee defaults in its payment of rent or other obligations under
this Lease (whereupon Lessor shall have the right to draw upon such escrowed
funds) or until the expiration of this Lease (whereupon the funds shall be
returned to Trustee or Lessee) (b) the Lessee or Trustee must agree to pay to
Lessor, at any time the Lessor is authorized to and does draw upon the funds
escrowed pursuant to clause (a) above, the amount necessary to restore such
escrow account to the original level required by said provision; (c) Lessee must
pay the cost of all services, if any, provided by Lessor for which Lessee is
charged other than pursuant to Section 4 hereof (whether directly or through
agents or contractors, and whether or not the cost of such services is to be
passed through to Lessee) in advance of the performance or provision of such
services; (d) the Trustee must agree that Lessee's business shall be conducted
in a first class manner, and that no liquidation sales, auctions, or other
non-first class business operations shall be conducted on the Demised Premises;
(e) the Trustee must agree that the use of the Demised Premises as stated in
this Lease will remain unchanged; and (f) the Trustee must agree that the
assumption or assignment of this Lease will not violate or affect the rights of
other tenants in the Building.
(iv) Failure to Provide Adequate Assurance. In the event Lessee is
-------------------------------------
unable (a) to cure its defaults, (b) to reimburse Lessor for its monetary
damages, (c) to pay when due the rent due under this Lease, or any other
payments required of
27
<PAGE>
Lessee under this Lease, or (d) to meet the criteria and obligations imposed by
Sections 23(B)(ii) and (iii) above, then Lessee agrees in advance that it has
not met its burden to provide adequate assurance of future performance, and this
Lease may be terminated by Lessor in accordance with Section 23(B)(i) above.
24. SUBORDINATION
-------------
This Lease is subject and subordinate to the lien of all and any mortgages
(which term "mortgages" shall include both construction and permanent financing
and shall include deeds of trust and similar security instruments) which may now
hereafter encumber or otherwise affect the real estate (including the Building)
of which the Demised Premises is a part, and to all and any renewals,
extensions, modifications, recastings or refinancing thereof. This
subordination provision is selfoperative and no further instrument is required
to effect it however, in confirmation of such subordination, Lessee shall, at
Lessor's request, promptly execute any requisite or appropriate certificate or
other document. Lessee hereby constitutes and appoints Lessor as Lessee's
attorney-in-fact to execute any such certificate or other document for or on
behalf of Lessee if Lessee does not execute said certificate or document within
ten (10) days from receipt thereof.
Lessee agrees that in the event that any proceedings are brought for the
foreclosure of any such mortgage, Lessee shall attorn to the purchaser at such
foreclosure sale, if requested to do so by such purchaser. Lessee shall also
recognize such purchaser as the Lessor under this Lease. Lessee waives the
provisions of any statute or rule of law, now or hereafter in effect, which may
give or purport to give Lessee any right to terminate or otherwise adversely
affect this Lease and the obligations of Lessee hereunder in the event that any
such foreclosure proceeding is prosecuted or completed. Lessor will, upon the
request of Lessee, use its good-faith efforts to obtain a non-disturbance
agreement in favor of the Lessee, in customary form, from any mortgagee holding
any such mortgage, but the failure to obtain the same shall in no way affect the
continued validity of this Lease in any way whatsoever. Lessor represents that
the Building is currently unencumbered by any such mortgage.
If the Building, the Demised Premises or any part respectively thereof is
at any time subject to a mortgage or a deed of trust or other similar
instrument, and this Lease or the rents are assigned to such mortgagee, trustee
or beneficiary, and the Lessee is given written notice thereof, including the
post office address of such assignee, the Lessee shall not terminate this Lease
for any default on the part of lessor without first giving written notice by
certified or registered mail, return receipt requested, to such Assignee,
Attention: Mortgage Loan Department. The notice shall specify the default in
reasonable detail, and afford such assignee a reasonable opportunity to make
performance, at its election, for and on behalf of Lessor.
28
<PAGE>
25. CONDEMNATION
------------
If the whole or a substantial part of the Demised Premises, or the
Building shall be condemned or acquired in lieu of condemnation by any
governmental authority for any public or quasi-public use or purpose, then the
term of this Lease shall cease and terminate as of the date when title vests in
such governmental authority. Lessee shall have no claim against Lessor or the
condemning authority for any portion of the amount of the condemnation award or
settlement that Lessee claims as its damages arising from such condemnation or
acquisition, or for the value of any unexpired term of the Lease. Lessee may
make a separate claim against the condemning authority for a separate award for
the value of any of Lessee's tangible personal property and trade fixtures, for
moving and relocation expenses and for such business damages and/or
consequential damages as may be allowed by law, provided the same shall not
diminish Lessor's award.
If less than a substantial part of the Demised Premises is condemned or
acquired in lieu of condemnation by any governmental authority for any public or
quasi-public use or purpose, the rent shall be equitably adjusted on the date
when title vests in such governmental authority and the Lease shall otherwise
continue in full force and effect. For purposes of this section, a "substantial
part of the Demised Premises" shall be considered to have been taken if twenty-
five percent (25%) or more of the Demised Premises are condemned or acquired in
lieu of condemnation.
If twenty-five percent (25%) or more of the Building is condemned (whether
or not the Demised Premises shall have been condemned) Lessor may elect to
demolish the remainder of the Building, in which event this Lease shall be
terminated.
26. RULES AND REGULATIONS
---------------------
Lessee, its agents and employees shall abide by and observe the rules and
regulations attached hereto as Exhibit C. Lessee, its agent and employees shall
abide by and observe such other reasonable rules and regulations from the time
of actual notice as may be promulgated from time to time by Lessor for the
operation and maintenance of the Building, provided a copy thereof is sent to
Lessee. Nothing contained in this Lease shall be construed to impose upon Lessor
any duty or obligation to enforce such rules and regulations, or the terms,
conditions or covenants contained in any other lease as against any other
tenant, and Lessor shall not be liable to Lessee for violation of the same by
any other tenant, any other tenant's employees, agents, business invitees,
licensees, customers, clients, family members or guests. Lessor shall not
discriminate against Lessee in the enforcement of any rule or regulation.
<PAGE>
27. NO PARTNERSHIP
--------------
Nothing contained in this Lease shall be deemed or construed to
create a partnership or joint venture of or between Lessor and Lessee, or
to create any other relationship between the parties hereto other than
that of Lessor or Lessee.
28. NO REPRESENTATIONS BY LESSOR
----------------------------
Neither Lessor nor any agent or employee of Lessor has made any
representations or promises with respect to the Demised Premises or the
Building except as herein expressly set forth, and no rights, privileges,
easements or licenses are acquired by Lessee except as herein set forth.
Lessee, by taking possession of the Demised Premises, shall accept the
same in the then "as is" condition, except for latent defects and punch
list items. Taking of possession of the Demised Premises by Lessee shall
be conclusive evidence that the Demised Premises and the Building are in
good and satisfactory condition at the time of such taking of possession,
as provided for in Exhibit D.
29. BROKER AND AGENT
----------------
Lessor and Lessee each represent and warrant one to another that,
except as hereinafter set forth, neither of them has employed any broker
in carrying on the negotiations, or had any dealings with any broker,
relating to this Lease. Lessor recognizes that Spaulding & Slye Services,
L.P. has brokered this lease transaction on behalf of Lessee, and Lessor
shall be responsible for the commission due to said broker pursuant to a
separate agreement. Lessor shall indemnify and hold Lessee harmless, and
Lessee shall indemnify and hold Lessor harmless, from and against any
claim or claims for brokerage or other commission arising from or out of
any breach of the foregoing representation and warranty by the respective
indemnitors.
Lessor appoints and Lessee recognizes, until such time as Lessor
otherwise notifies Lessee in writing, The Chevy Chase Land Company of
Montgomery County, Maryland as Lessor's exclusive agent (herein referred
to in this Lease as "Agent" or "Management Agent") for The management and
operations of the Building and for the service of process, issuance and
receipt of all notices, and instituting and processing all legal actions
on behalf of Lessor under this Lease.
30. WAIVER OF JURY TRIAL
--------------------
Lessor and Lessee hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto
against the other on or in respect
30
<PAGE>
of any matter whatsoever arising out of or in any way connected with this
Lease, the relationship of Lessor and Lessee hereunder, Lessee's use or
occupancy of the Demised Premises, and/or any claim of injury or damage.
31. NOTICES
-------
All notices or other communications hereunder shall be in writing
and shall be deemed duly given if delivered by certified mail, return
receipt requested, or by registered mail, postage prepaid, or by
messenger or overnight courier, or by telegram or facsimile transmission,
in each case with proof or confirmation of delivery requested: (i) if to
Lessor, c/o The Chevy Chase Land Company of Montgomery County, Maryland,
Suite 1001, 8401 Connecticut Avenue, Chevy Chase, Maryland 20815; and
(ii) if to Lessee, at 2001 L Street, N.W., 4th Floor, Washington, D.C.
20036 prior to the Commencement Date and at the Demised Premises
thereafter. The party to receive notices and the place notices are to be
sent for either Lessor or Lessee may be changed by notice given pursuant
to the provisions of this section.
32. ESTOPPEL CERTIFICATES
---------------------
Lessee agrees, at any time and from time to time, upon not less than
five (5) business days' prior written notice by Lessor, to execute,
acknowledge and deliver to Lessor or other designated recipient a
statement in writing (i) certifying that this Lease is unmodified and in
full force and effect (or, if there have been modifications, that the
Lease is in full force and effect as modified and stating the
modifications) (ii) certifying whether or not the Lessee has accepted
possession of the Demised Premises and whether or not any improvements
required by the terms of this Lease to be made by Lessor have been
completed, and if not specifying such improvements remaining to be
completed, (iii) stating that no rent has been paid more than thirty
(30) days in advance of its due date, and the dates to which the rent
and other charges hereunder have been paid by Lessee, (iv) stating
whether or not the Lessee has any charge, lien or claim of setoff under
this Lease or otherwise against rents or other charges due or to become
due hereunder, and if so, specifying each such charge, lien, or claim of
setoff, (v) stating that the address to which notices to Lessee should be
sent is as set forth in this Lease, (vi) agreeing not to pay rent more
than thirty (30) days in advance or to amend this Lease without the
consent of the designated recipient, and (vii) agreeing that the Lessee
will not seek to terminate this Lease by reason of any act or Commission
of the Lessor until the Lessee shall have given written notice of such
act or omission to the designated recipient by certified or registered
mail, return receipt requested, at the address furnished to the Lessee
and until a reasonable period of time shall have elapsed following the
giving of such notice, during which period the designated recipient shall
have the right, but shall not be obligated, to remedy such act or
omission. Any such statement delivered pursuant hereto may be relied upon
31
<PAGE>
by any owner of the Building, any prospective purchaser of the Building,
any mortgagee or prospective mortgagee of the Building or of Lessor's
interest, or any prospective assignee of any such mortgage.
33. HOLDING OVER
------------
In the event that Lessee shall not immediately surrender the Demised
Premises on the date of expiration of the term of this Lease or any
extension period thereof, Lessee shall, by virtue of this section of the
Lease, become a lessee by the month and hereby agrees to pay to Lessor a
Monthly Rent equal to one and one-half (1 1/2) times the amount of the
Monthly Rent in effect during the last month of the term of this Lease.
The month-to-month tenancy shall commence with the first day next after
the expiration of the term of this Lease. Lessee as a month-to-month
tenant shall continue to be subject to all of the conditions and
covenants of this Lease, except that (if applicable) Lessee shall have no
right to renew or extend the term of this Lease. Lessee shall give to
Lessor at least thirty (30) days' written notice of any intention to quit
the Demised Premises. Lessee shall be entitled to thirty (30) days'
written notice to quit the Demised Premises, except in the event of
nonpayment of the modified Monthly Rent in advance, in which event Lessee
shall not be entitled to any notice to quit, the usual thirty (30) days'
notice to quit being hereby expressly waived.
In the event that Lessee shall hold over after the expiration of the
term of the Lease or extension period thereof, and if Lessor shall desire
to regain possession of the Demised Premises promptly at the expiration
of the term of this Lease or extension period thereof, then at any time
prior to Lessor's acceptance of modified Monthly Rent from Lessee as a
month to month tenant hereunder, Lessor, at its option, may forthwith
reenter and take possession of the Demised Premises without process, or
by any legal process in force in the jurisdiction in which the Building
is located.
34. PARKING
-------
Throughout the term of this Lease, as may be extended, Lessee shall
have the option to lease up to one (1) space in the building parking
garage for every full five hundred (500) square feet of rentable area
within the Demised Premises, such parking spaces to be for use only by
Lessee, its employees and permitted sublessees; it being understood,
however, that such parking spaces shall not be leased to Lessee on a
reserved or designated space basis. If Lessee shall elect to exercise
said option, it shall do so by giving written notice thereof to Lessor
not later than thirty (30) days following the Commencement Date of this
Lease. Any such lease of parking spaces shall be with the manager of said
parking garage, and shall be on a monthly basis, upon the same terms as
leased to other monthly users, and at the same prevailing rate
32
<PAGE>
charged by the garage operator from time to time to other monthly users, which
prevailing monthly rate is currently Ninety Dollars ($90.00) per space.
35. OPTION TO EXTEND TERM
---------------------
At the expiration of the initial term of this Lease, if this Lease shall
then be in full force and effect and Lessee is not in default under any of the
provisions of this Lease beyond the expiration of any applicable notice or grace
period, then Lessee shall have the option to extend the term of this Lease for
one (1) additional period of five (5) years; it being understood and agreed that
such option to extend the term of this Lease is not assignable, and that the
same shall be deemed null and void upon any assignment of transfer of this Lease
by Lessee. Such extended term shall be upon the same terms and conditions as
contained in this Lease, except that the Monthly Rent to be paid throughout such
extended term shall be the fair market rent prevailing, as of the date of
commencement of such extended term, for comparable space in comparable office
buildings in the vicinity of the Building, as such fair market rent may be
mutually agreed upon between Lessor and Lessee; provided, however, that in the
event Lessor and Lessee fail to agree upon such fair market rent within thirty
(30) days after Lessor's receipt of Lessee's notice of its exercise of such
option to extend, then such fair market rent shall be determined in accordance
with the appraisal procedure set forth in this Section 35 below, and provided
further than in no event shall the Monthly Rent be less than that payable
immediately prior to the commencement of such extended term.
If Lessee shall elect to exercise said option, it shall do so by giving
written notice thereof to Lessor not later than six (6) months prior to the
expiration date of the initial 5-year term of this Lease, time being of the
essence.
The aforesaid appraisal procedure shall be implemented as follows: Lessor
shall promptly appoint an appraiser with at least ten (10) years of professional
experience as an appraiser of commercial real estate in the Washington
Metropolitan Area and who has been qualified as an expert appraisal witness in
the courts of the State of Maryland and the Lessee shall similarly promptly
appoint an appraiser with at least ten (10) years of professional experience as
an appraiser of commercial real estate in the Washington Metropolitan Area who
has been qualified as an expert appraisal witness in the courts of the State of
Maryland. The two (2) appraisers so appointed will perform independent fair
market rent appraisals and will attempt to mutually agree upon said fair market
rent for the Demised Premises. If the two (2) appraisers so appointed are unable
to agree upon said fair market rent on or before two (2) months prior to the
expiration date of the initial term of this Lease, then they shall appoint a
third appraiser with at least ten (10) years of professional experience as an
appraiser of commercial real estate in the Washington Metropolitan Area and who
has been qualified as an expert appraisal witness in the courts of the State of
Maryland, and the
33
<PAGE>
majority decision of the three (3) appraisers shall be binding on Lessor and
Lessee. The fees and expenses of each of the first two (2) appraisers shall be
paid by the party appointing the appraiser, and the fees and expenses of the
third appraiser, if appointed, shall be shared equally by Lessor and Lessee.
36. RIGHT OF FIRST NEGOTIATION
--------------------------
If this Lease shall then be unassigned, in full force and effect and Lessee
shall have fully performed all of its terms and conditions (it being understood
and agreed that the right granted to Lessee in this Section 36 is not assignable
and that the same shall be deemed null and void upon any assignment or transfer
of this Lease by Lessee), Lessor agrees that if during the term of this Lease,
as may be extended, and after occupancy of the same by the existing tenant and
subject to any lease renewal rights now or hereafter granted to the existing
tenant and subject to an expansion option heretofore granted to Victor 0.
Schinnerer & Company, Inc., Suite 310 adjacent to the Demised Premises becomes
available to Lessor for leasing to third parties, then Lessor shall give to
Lessee notice of such availability. At such time as Lessor shall give to Lessee
any such notice of availability, Lessor shall advise Lessee in writing as to
Lessor's opinion (acting reasonably and in good faith) as to the fair market
rent for Suite 310. Lessee shall then have a period of ten (10) days in which to
notify Lessor in writing of Lessee's desire to lease Suite 310 at said rental,
time being of the essence. Should Lessee fail to notify Lessor in writing within
said ten (10) day period of Lessee's desire to lease Suite 310, or should Lessor
and Lessee fail to agree on all other terms and conditions upon which Lessee
shall lease Suite 310 (as evidenced by the full execution and delivery of an
addendum to this Lease or a new Lease covering Suite 310) within twenty (20)
days after Lessor's notice of availability to Lessee, time being of the essence,
then Lessee's right to lease Suite 310 shall thereupon terminate and be of no
force or effect, and Lessor shall be free to lease Suite 310 to any party upon
any terms and conditions.
37. COVENANTS OF LESSOR
-------------------
Lessor covenants that it has the right to make this Lease for the term of
the Lease aforesaid, and that if Lessee shall pay the rent and shall perform all
of the covenants, agreements and conditions specified in this Lease to be
performed by Lessee, Lessee shall, for the term of the Lease, freely, peaceably
and quietly occupy and enjoy the full possession of the Demised Premises without
molestation or hindrance by Lessor, its agents or employees. Lessor reserves the
right to decorate and make repairs, alterations, additions and improvements to
and about the Building and its common areas, and such work shall not be deemed a
violation by Lessor of its covenant of quiet enjoyment hereunder as long as the
Demised Premises remain reasonably accessible.
34
<PAGE>
38. GENDER
------
Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number,
in any place or places herein in which the context may require such
substitution or substitutions.
39. CORPORATE LESSEE
----------------
If Lessee is or will be a corporation, the persons executing this Lease
on behalf of Lessee hereby represent and warrant that Lessee is a duly
incorporated or a duly qualified (if a foreign corporation) corporation and
authorized to do business in the State of Delaware; and that the person or
persons executing this Lease on behalf of Lessee is an officer or are officers
of Lessee, and that he, she or they as such officers are duly authorized to
sign and execute this Lease. Upon request of Lessor to Lessee, Lessee shall
deliver to Lessor documentation satisfactory to Lessor evidencing Lessee's
compliance with the provisions of this section. Further, Lessee warrants and
represents that any financial statements heretofore or hereafter provided to
Lessor in connection with this Lease are accurate and not materially
misleading.
40. BENEFIT AND BURDEN
------------------
The terms and provisions of this Lease shall be binding upon and shall
inure to the benefit of the parties hereto and each of their respective
representatives, successors and permitted assigns. Lessor may freely and fully
assign its interest hereunder. In the event of any sale or transfer of the
Building by operation of law or otherwise by the party named as Lessor
hereunder (or any subsequent successor, transferee or assignee) then said
party, whose interest is thus sold or transferred shall be and is completely
released and forever discharged from and in respect to all covenants,
obligations and liabilities as Lessor hereunder after the date of such sale or
transfer.
In the event Lessor shall be in default under this Lease, and if as a
consequence of such default, Lessee shall recover a money judgment against
Lessor, such judgment shall be satisfied only out of the proceeds of sale
received upon execution of such judgment against the right, title and interest
of Lessor in the Building as the same may then be constituted and encumbered,
and Lessor shall not be liable for any deficiency. In no event shall Lessee
have the right to levy upon any property of Lessor other than its interest in
the Building.
35
<PAGE>
41. GOVERNING LAW
-------------
This Lease and the rights and obligations of Lessor and Lessee hereunder
shall be governed by the laws of the jurisdiction in which the Building is
located.
42. ENTIRE AGREEMENT
----------------
This Lease, together with Exhibits A, B, C, D and E attached hereto and
made a part hereof, contains and embodies the entire agreement of the parties
hereto, and no representations, inducements, or agreements, oral or otherwise,
between the parties not contained and embodied in this Lease and Exhibits shall
be of any force or effect, and the same may not be modified, changed or
terminated in whole or in part in any manner other than by an agreement in
writing duly signed by all parties hereto.
(Signatures on Following Pages)
36
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have caused this Lease to be signed
in their names by their duly authorized representatives and delivered as their
act and deed, intending to be legally bound by its terms and provisions.
LESSOR:
TWO WISCONSIN CIRCLE JOINT VENTURE,
a Maryland joint venture
By: The Chevy Chase Land Company
of Montgomery County, Maryland
a General Partner
Attest:
/s/ Signature appears here By: /s/ Signature Appears Here
- -------------------------- ---------------------------
Assistant Vice President Name: /s/ Edward Hall Asher
(SEAL) Title: Vice President
STATE OF MARYLAND
COUNTY OF MONTGOMERY, ss:
I, Catherine M. Costoponlos , Notary Public in and for the State of
---------------------------------
Maryland, do hereby certify that Edward Hall Asher ,
--------------------------------------------
who is personally well known to me as the person who executed the foregoing and
annexed Lease, dated the 4th day of January 1996, on behalf of the Lessor, to
-----
acknowledge the same, personally appeared before me in said jurisdiction and
acknowledged said Lease to be the act and deed of The Chevy Chase Land Company
of Montgomery County, Maryland, as a general partner of and for and on behalf of
the Lessor, and delivered the same as such.
GIVEN under my hand and seal this 17th day of January , 1996.
---- ---------------
/s/ Catherine M. Costoponlos
-------------------------------------
Notary Public
My commission expires: 2/28/99
LESSEE:
37
<PAGE>
HEALTH PARTNERS FINANCIAL
CORPORATION, a Delaware
Attest: corporation
/s/ Signature appears here By: /s/ Signature appears here
------------------------------- ------------------------------
Secretary Name: Ethan D. Leder
(SEAL) Title: Executive Vice President
STATE OF VIRGINIA )
COUNTY OF FAIRFAX ) ss:
I, Lynn Pratt Eanes , a Notary Public in and for the
-----------------------------------------
jurisdiction aforesaid, do hereby certify that Ethan D. Leder ,
-----------------------------
who is personally well known to me to be the person who executed the foregoing
and annexed Lease, dated the 4th day of January, 1996 on behalf of Lessee, to
----
acknowledge the same, personally appeared before me in said jurisdiction and
acknowledged said Lease to be the act and deed of Health Partners Financial
Corporation and delivered the same as such.
GIVEN under my hand and seal this 16th day of January , 1996.
---- ----------
/s/ Lynn Pratt Eanes
---------------------------
Notary Public
My commission expires: My commission expires February 20, 1996
I was commissioned as Sheila Lynn Pratt
38
<PAGE>
EXHIBIT "A"
[PICTURE OF WISCONSIN CIRCLE THIRD FLOOR PLAN APPEARS HERE]
Chevy Chase
2 Wisconsin Circle Land Company
Third Floor 301-986-8809
<PAGE>
TWO WISCONSIN CIRCLE
EXHIBIT "B"
SPECIFICATIONS FOR OFFICE SPACE
1.Partitions:
-----------
A. Interior partitioning shall be constructed floor to lay-in ceiling of
2 1/2" metal studs, 1/2" gypsum wallboard on each side with no visible
joints and finished to ceiling height. Tenant allowance is one linear
foot of partitioning for each 12 square feet of rentable area leased.
B. Corridor and demising partitioning shall be slab-to-slab with 2 1/2"
sound insulation. All corridor and 1/2 demising partition shall be
charged against allowance.
2. Suite Entry Door:
-----------------
One full height (3'0" x 8'O"), solid core, white oak veneer corridor
entrance door, installed in a white oak frame and furnished with mortise
lockset and surface mounted closer, shall be building standard.
3. Interior Doors:
---------------
Full height (3'0" x 8'0") solid core, paint grade doors installed in
painted metal frames and furnished with lockset, shall be provided based on
one door for each 250 square feet of rentable area leased.
4. Ceiling:
-------
A lay-in type 2' x 2' revealed edge mineral fissured acoustical tile with
exposed grid shall be installed within Lessee's suite.
5. Light Fixtures:
---------------
One 2' x 4' parabolic fixture, featuring a fully recessed, glare reducing
louver design, shall be installed for each 80 square feet of rentable area
leased. One light switch shall be provided for each room.
40
<PAGE>
6. Telephone & Electric Outlets:
-----------------------------
One interior wall mounted, 120V, duplex outlet for each 150 square feet of
rentable area leased, and one interior wall mounted telephone outlet with
6' dragwire, plate and cover for each 200 square feet of rentable area
leased will be provided within Lessee's suite. Floor outlets, dedicated
circuits, and outlets on exterior walls are not building standard. Building
requires teflon telephone wiring.
7. Painting:
---------
All partitioning, columns and walls will receive two coats of latex flat
paint. Door frames and metal trim shall receive two coats of semi-gloss
enamel to match adjacent finish. Lessee may select colors from building
standard paint manutacturer's selection with a choice of one color per room
and three colors per suite.
8. Floor Covering:
---------------
$1.25 per square foot of the net rentable area leased will be applied
toward floor covering with 4" high vinyl base selected from building
standard color selections. One base color per tenant.
9. Window Covering:
----------------
Thin line (1") aluminum horizontal blinds for all exterior windows within
Lessee's suite.
10. Heating and Air Conditioning:
-----------------------------
Lessee will be provided with building standard heating and cooling for
normal office use. Any excess capacity, special controls, or exhaust
required by Lessee shall be provided by Lessor at Lessee's expense.
11. Floor Load:
-----------
Office floors shall be designed for a 100 pound per square foot total load.
12. Life Safety:
------------
One fire alarm pull station and bell per tenant suite if required. Two exit
lights for each typical floor elevator lobby. One exit light per tenant
under 2000 square feet of rentable area leased if required. Two exit lights
per tenant over 2000 square feet of rentable area leased. One recessed
sprinkler head per 150
41
<PAGE>
square feet. Additional sprinkler heads or relocation are not within
building standard.
13. Design Services:
----------------
Not more than one preliminary layout with two revisions will be supplied
by Lessor's space planner at Lessor's expense. Lessor will provide one
set of mechanical, electrical, and plumbing working drawings for building
standard improvements based on preliminary layouts.
14. Allowances:
-----------
The specifications and allowances as outlined above are maximum limits to
be provided at no cost to Lessee. Extra tenant finishes will be provided
by Lessor, subject to Lessor's approval, at Lessee's expense.
Lessor reserves the right to make reasonable substitutions for building
standard materials in the event of unavailability of materials or field
conditions.
42
<PAGE>
TWO WISCONSIN CIRCLE
EXHIBIT "C"
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, vestibules,
stairways, corridors or halls or other parts of the Building not occupied by any
Lessee shall not be obstructed or encumbered by any Lessee or used for any
purpose other than ingress and egress to and from the demised premises; and if
the demised premises are situated on the ground floor of the Building the Lessee
thereof shall, at said Lessee's own expense, keep the sidewalks and curb
directly in front of said demised premises clean and free from ice and snow.
Lessor shall have the right to control and operate the public portions of the
Building, and the facilities furnished for the common use of the Lessees, in
such manner as Lessor deems best for the benefit of the Lessees generally. No
Lessee shall permit the visit to the demised premises of persons in such numbers
or under such conditions as to interfere with the use and enjoyment by other
Lessees of the entrances, corridors, elevators and other public portions or
facilities of the Building.
2. No awnings or other projections shall be attached to the outside
walls of the Building without the prior written consent of the Lessor. No
drapes, blinds, shades, or screens shall be attached to or hung in, or used in
connection with any window or door of the demised premises, without the prior
written consent of the Lessor. Such awnings, projections, curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner approved by Lessor.
3. No sign, advertisement, notice or other lettering shall be
exhibited, inscribed, painted or affixed by any Lessee on any part of the
outside or inside of the demised premises or Building so as to be visible from
outside the demised premises without the prior written consent of the Lessor. In
the event of the violation of the foregoing by any Lessee, Lessor may remove
same without any liability, and may charge the expense incurred by such removal
to the Lessee or Lessees violating this rule. Interior signs on doors and
directory tablet shall be inscribed, painted or affixed for each Lessee by the
Lessor at the expense of such Lessee, and shall be of a size, color and style
acceptable to the Lessor.
4. No show cases or other articles shall be put in front of or affixed
to any part of the exterior of the Building, nor placed in the halls, corridors
or vestibules without the prior written consent of the Lessor.
43
<PAGE>
5. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were constructed, and no
sweepings, rubbish, rags, or other substances shall be thrown therein. All
damages resulting from any misuse of the fixtures shall be borne by the Lessee
who, or whose servants, employees, agents, visitors or licensees, shall have
caused the same.
6. There shall be no marking, painting, drilling into or in any way
defacing any part of the demised premises or the Building, except for the
hanging of prints, pictures, artwork or other similar decorations. No boring,
cutting or stringing of wires shall be permitted. Lessee shall not construct,
maintain, use or operate within the demised premises or elsewhere within or on
the outside of the building, any electrical device, wiring or apparatus in
connection with a loud speaker system or other sound system.
7. No bicycles, vehicles, animals, birds or pets of any kind shall be
brought into or kept in or about the premises, and no cooking shall be done or
permitted by any Lessee on said premises, except in connection with an office
kitchen facility within the demised premises for use by Lessee's employees,
clients or invitees and approved by Lessor in accordance with the applicable
terms of the Lease. No Lessee shall cause or permit any unusual or
objectionable odors to be produced upon or permeate from the demised premises.
8. No space in the Building shall be used for manufacturing or for the
sale of merchandise, goods or property of any kind at auction, nor shall any
space leased for general office purposes be used for the storage of
merchandise.
9. No Lessee shall make, or permit to be made, any unseemly or
disturbing noises or disturb or interfere with occupants of this or
neighboring buildings or premises of those having business with them whether
by the use of any musical instrument, radio, unmusical noise, whistling,
singing, or in any other way. No Lessee shall throw anything out of the doors
or windows or down the corridors or stairs.
10. No inflammable, combustible or explosive fluid, chemical or
substance shall be brought or kept upon the demised premises.
11. Unless Lessee shall furnish to Lessor keys or a master key to access
the same, no additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Lessee, nor shall any changes be made in existing
locks or the mechanism thereof, The doors leading to the corridors or main
halls shall be kept closed during business hours except as they may be used
for ingress or egress. Each Lessee shall, upon the termination of his tenancy,
restore to Lessor all keys of stores, offices, storage, and toilet rooms
either furnished to, or otherwise procured by, such Lessee, and in the event
of the loss of any keys, so furnished, such Lessee shall pay to the Lessor the
cost thereof.
44
<PAGE>
12. All removals, or the carrying in or out of any safes, freight,
furniture or bulky matter of any description must take place during the hours
which the Lessor or its Agent may determine from time to time. The Lessor
reserves the right to inspect all freight to be brought into the building and to
exclude from the Building all freight which violates any of these Rules and
Regulations or the lease of which these Rules and Regulations are a part.
13. Any person employed by any Lessee to do janitor work within the
demised premises must obtain Lessor's consent and such person shall, while in
the Building and outside of said demised premises, comply with all instructions
issued by the Superintendent of the Building. No Lessee shall engage or pay any
employees on the demised premises, except those actually working for such Lessee
on said premises.
14. No Lessee shall purchase spring water, ice, coffee, soft drinks,
towels, or other like service, from any company or persons which Lessor shall
advise Lessee are not approved by Lessor based upon reputation or prior
experience as it relates to damage to the Building or its facilities occurring
in the delivery process.
15. Lessor shall have the right to prohibit any advertising by any Lessee
which, in Lessor's opinion, tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from Lessor,
Lessee shall refrain from or discontinue such advertising.
16. The Lessor reserves the right to exclude from the Building at all
times any person who is not known or does not properly identify himself to the
building management or watchman on duty. Lessor may at its option require the
registration of all persons admitted to or leaving the Building between the
hours of (i) 6:00 p.m. and 8:00 a.m., Monday through Friday, (ii) 6:00 p.m.
Friday and 8:00 a.m. Saturday, (iii) 2:00 p.m. Saturday and 12:00 a.m. Sunday,
and (iv) all day Sunday and legal holidays. Each Lessee shall be responsible for
all persons for whom he authorizes entry into or exit out of the Building, and
shall be liable to the Lessor for all acts of such persons.
17. The premises shall not be used for lodging or sleeping or for any
immoral or illegal purpose.
18. Each Lessee, before closing and leaving the demised premises at any
time, shall use reasonable efforts to see that all windows are closed and all
lights turned off.
19. The requirements of Lessees will be attended to only upon application
at the office of the Building. Employees shall not perform any work or do
anything
45
<PAGE>
outside of the regular duties, unless under special instruction from the
management of the Building.
20. Canvassing, soliciting and peddling in the Building is prohibited and
each Lessee shall cooperate to prevent the same.
21. No plumbing or electrical fixtures shall be installed by any Lessee.
22. There shall not be used in any space, or in the public halls of the
Building, either by any Lessee or by jobbers or others, in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards.
23. Access plates to under floor conduits shall be left exposed. Where
carpet is installed, carpet shall be cut around access plates. Where Lessee
elects not to provide removable plates in its carpet for access into the under
floor duct system, it shall be the Lessee's responsibility to pay for the
removal and replacement of the carpet for any access needed into the duct system
at any time in the future.
24. Mats, trash or other objects shall not be placed in the public
corridors.
25. The Lessor does not maintain or clean suite finishes which are
nonstandard: such as bathrooms, wallpaper, special lights, etc. However, should
the need for repairs arise, the Lessor will arrange for the work to be done at
the Lessee's expense.
26. Drapes installed by the Lessee for its use which are visible from the
exterior of the Building must be approved by Lessor in writing and be cleaned by
the Lessee.
27. The Lessor will furnish and install light bulbs for the building
standard fluorescent or incandescent fixtures only. For special fixtures the
Lessee will stock his own bulbs, which will be installed by the Lessor when so
requested by the Lessee.
28. Violation of these rules and regulations, or any amendments thereto,
shall be a default as referenced in Section 22 of the Lease, and shall be
subject to the applicable notice and cure period therein.
29. The Lessor may, upon request by any Lessee, waive the compliance by
such Lessee of any of the foregoing rules and regulations, provided that (i) no
waiver shall be effective unless signed by Lessor or Lessor's authorized agent,
(ii) any such waiver shall not relieve such Lessee from the obligation to comply
with such rule or regulation in the future unless expressly consented to by
Lessor, and (iii) no waiver granted to any Lessee shall relieve any other Lessee
from the obligation of complying
46
<PAGE>
with the foregoing rules and regulations unless such other Lessee has received a
similar waiver in writing from Lessor.
47
<PAGE>
TWO WISCONSIN CIRCLE
EXHIBIT "D"
DECLARATION AS TO DATE OF DELIVERY
AND ACCEPTANCE OF POSSESSION OF
DEMISED PREMISES
Attached to and made a part of the Lease, dated the _____ day of January,
1996 entered into by and between Two Wisconsin Circle Joint Venture, as Lessor,
and Health Partners Financial Corporation, as Lessee.
Lessor and Lessee do hereby declare and evidence that possession of the
Demised Premises was accepted by Lessee on the ___ day of ___________, 1996. The
Building, the Demised Premises and other improvements required to be constructed
and finished by Lessor in accordance with Section 8 of the Lease have been
satisfactorily completed by Lessor and accepted by Lessee. The Lease is now in
full force and effect. For the purpose of this Lease, the Commencement Date is
established as beginning on the _____ day of __________, 1996. As of the date of
delivery and acceptance of possession of the Demised Premises as herein set
forth, there is no right of set off against rents claimed by Lessee against
Lessor.
Lessee, if a corporation, stares that its registered agent is
having an address at
- -------------------------------------------
_______________________________________________ and that it is a corporation in
good standing in the jurisdiction in which the Building is located.
LESSEE: LESSOR:
HEALTH PARTNERS FINANCIAL TWO WISCONSIN CIRCLE JOINT VENTURE
CORPORATION
By: The Chevy Chase Land Company
of Montgomery County, Maryland
General Partner
By: By:
-------------------------- ---------------------------
Name: Name:
Title: Title:
48
<PAGE>
TWO WISCONSIN CIRCLE
EXHIBIT "E"
SPECIFICATIONS FOR OFFICE CLEANING
I. DEMISED PREMISES: (Includes office areas, kitchens, stock rooms, Xerox
rooms and conference rooms.
Daily:
------
1. Collect trash.
2. Empty ash trays; damp wipe clean.
3. Dust furniture, desks, machines, phones, file cabinets, window
ledges, etc. (Papers left on desks will not be disturbed.)
4. Vacuum carpet; dry sweep resilient tile and wood floors, spot clean.
5. Spot clean walls, doors and partitions.
Weekly:
-------
1. Vacuum upholstered furniture.
Monthly:
--------
l. Recondition resilient tile floors.
2. Dust picture frames, charts, graphs, etc.
3. Vacuum air vents.
Quarterly:
----------
1. Clean partitions.
2. Dust vertical surfaces; walls, etc.
WINDOWS:
As Needed:
----------
1. Dust and clean venetian blinds.
49
<PAGE>
DOORS & LIGHTS:
Daily:
------
l. Turn off lights and check all doors on completion of work.
TRASH:
Daily:
------
l. Deposit all trash in the designated area.
NOTE: Only trash placed in waste containers, or clearly marked
"TRASH" will be removed.
PRIVATE LAVATORIES AND KITCHENS:
Daily:
------
1. Remove all trash, garbage and refuse.
II. PUBLIC AREAS:
(A) Lavatories:
Daily:
------
l. Clean and disinfect all toilet bowls, wash bowls and urinals.
2. Resupply all dispensers.
As Needed:
----------
1. Wash or wipe all surfaces in rest rooms.
(B) Corridors:
Daily:
------
1. Collect trash.
2. Empty ash trays; damp wipe clean.
3. Vacuum carpet, dry sweep resilient tile and wood floors, spot
clean.
4. Spot clean walls and doors.
5. Spot clean carpet.
50
<PAGE>
*Where possible, spots and spills that are soluble and respond to
standard spotting procedures will be removed.
Should Lessee install specialty items, other than building standard
items as outlined in Exhibit "B," which will increase in any way the rate
being charged by the cleaning contractor for the demised premises, Lessee
shall be liable for such increases and will reimburse Lessor for any
additional cost.
51
<PAGE>
TWO WISCONSIN CIRCLE
ADDENDUM NO. l TO OFFICE LEASE
------------------------------
THIS ADDENDUM NO. l TO OFFICE LEASE (this "Addendum") is made and entered
into this 26 day of July, 1996, by and between TWO WISCONSIN CIRCLE JOINT
VENTURE, a Maryland joint venture, hereinafter called "Lessor," and HEALTH
PARTNERS FINANCIAL CORPORATION, a Delaware corporation, hereinafter called
"Lessee."
WITNESSETH:
WHEREAS, by Office Lease dated the 4th day of January, 1996 (the "Lease"),
Lessor leased to Lessee approximately 5,414 square feet of rentable area on the
third (3rd) floor of the building situated at Two Wisconsin Circle, Chevy Chase,
Maryland; and
WHEREAS, Section 8 of the Lease provides for a Tenant Allowance (as
therein defined), and Lessee has requested that Lessor advance an additional
Fifty-Two Thousand Five Hundred Ninety-Nine and 81/100 Dollars ($52,599.81) for
the costs incurred by Lessee for new office furniture acquired and placed upon
the Demised Premises (as defined in the Lease), as well as certain relocation
expenses incurred by Lessee in relocating its offices from their current
location to the Demised Premises; and
WHEREAS, Lessor is willing to advance the said additional sum for such
costs incurred, subject to repayment thereof by Lessee and otherwise subject to
and upon the terms and conditions hereinafter set forth.
52
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto do mutually agree that the Lease shall
be and is hereby amended to provide as follows, all capitalized terms being as
defined in the Lease unless otherwise noted:
l. ADDITIONAL ADVANCE
------------------
In addition to the Tenant Allowance to be provided by Lessor pursuant to
and in accordance with the terms and provisions of Section 8 of the Lease,
Lessor shall provide a cash advance in the amount of Fifty-Two Thousand Five
Hundred Ninety-Nine and 81/100 Dollars ($52,599.81) the "Additional Advance") to
be available to pay directly to vendors or suppliers (to the extent of the
Additional Advance) (i) first, the direct costs incurred by Lessee for the
acquisition and installation of new office desks, chairs, file cabinets and
reception area furnishings (collectively, the "Office Furniture") upon the
Demised Premises in connection with Lessee's initial occupancy thereof, and (ii)
second, certain relocation expenses incurred by Lessee in relocating its offices
from their current location to the Demised Premises, The Office Furniture does
not include the systems furniture currently addressed in Section 8 of the Lease,
which systems furniture is to be and remain the property of Lessor and be
surrendered in place with the Demised Premises upon the expiration or earlier
termination of the Lease.
Such disbursement of the Additional Advance by Lessor shall be subject to
repayment thereof by Lessee as hereinafter set forth,
53
<PAGE>
and shall be made (i) following completion of the acquisition and installation
of the Office Furniture and the relocation of Lessee's offices from their
current location to the Demised Premises, (ii) on the basis of paid invoices,
and (iii) subject to inspection and approval by Lessor, which approval shall not
be unreasonably withheld or delayed.
2. REPAYMENT OF ADDITIONAL ADVANCE
-------------------------------
Lessee agrees to repay to Lessor the Additional Advance, with interest
thereon at the rate of ten percent (10%) per annum, in equal and consecutive
monthly installments of One Thousand One Hundred Eighteen and 00/100 Dollars
($1,118.00) each, commencing on the 1st day of May, 1996 and continuing on the
1st day of each successive calendar month through and including the 1st day of
February, 2001, subject to acceleration as hereinafter set forth. The entire
unpaid aggregate balance of the Additional Advance, with all interest accrued
and unpaid thereon, shall be due and payable in full on the 1st day of March,
2001.
Such repayment of the Additional Advance shall be due and payable as
additional rent under the Lease, as amended hereby, in addition to the payment
of Monthly Rent and any other sums payable as additional rent under the
Lease as amended hereby. Simultaneously with the execution of this Addendum
by Lessee, Lessee shall pay to Lessor any arrearage that shall have accrued
since May 1, 1996 in such repayment of the Additional Advance. In the event
Lessee fails to repay the Additional Advance in accordance with the
foregoing payment terms, then Lessor shall have
54
<PAGE>
all rights and remedies set forth herein, as well as all rights and remedies set
forth in the Lease with respect to the nonpayment of rent.
Notwithstanding anything to the contrary, in the event either
(i) Lessee shall fail to pay any installment of the Additional Advance when due,
and such default shall continue beyond the expiration of the applicable notice
and cure period set forth in Section 22 of the Lease, (ii) Lessee shall default
in the payment of any installment of Monthly Rent or any other sums payable as
additional rent under the Lease as amended hereby, and such default shall
continue beyond the expiration of the applicable notice and cure period set
forth in Section 22 of the Lease, (iii) Lessor shall elect to terminate the
Lease, as amended hereby, pursuant to Section 22 thereof as a result of any
other default by Lessee in the performance of its obligations under the Lease as
amended hereby, or (iv) Lessee shall assign or sublet the Demised Premises such
as to require Lessor's consent pursuant to Section 7 thereof, then in any such
event the Lease shall cease and terminate at the option of Lessor in accordance
with Section 22 of the Lease, and Lessor may proceed to recover possession of
the Demised Premises pursuant to Section 22 of the Lease. Further, the entire
unpaid aggregate balance of the Additional Advance, with all interest accrued
and unpaid thereon, shall at once become due and payable in full at the option
of Lessor. Lessor may exercise such option to accelerate full payment of the
Additional Advance following any default by Lessee (which default continues
beyond the expiration of
-55-
<PAGE>
the applicable notice and cure period set forth in Section 22 of the Lease)
regardless of any prior forebearance.
3. LIEN AND SECURITY DEPOSIT
-------------------------
To secure the repayment of the Additional Advance in accordance with
the payment terms set forth above, Lessee hereby grants to Lessor a security
interest and lien on all Office Furniture placed in or upon the Demised
Premises, and all Office Furniture shall be and remain subject to such lien of
Lessor for repayment of the Additional Advance. In the event of any default by
Lessee in the repayment of the Additional Advance, Lessor may proceed under the
Uniform Commercial Code as adopted in the State of Maryland, and this Addendum
shall be deemed a security agreement, as therein defined, as to all or any part
of the Office Furniture. Lessee agrees that Lessor shall have, with respect to
the Office Furniture, all rights, remedies and powers of a secured party under
said Uniform Commercial Code, including without limitation, the right and power
to replevy, sell or otherwise dispose of, foreclose upon, or utilize all or any
part of the Office Furniture in any matter authorized and permitted under said
Uniform Commercial Code, as now or hereafter amended; and that Lessor shall give
Lessee five (5) days prior notice of the time and place of any public sale of
any of the Office Furniture or of the time after which any private sale or other
disposition thereof is to be made, and Lessee agrees that such notice shall be
deemed and considered reasonable.
56
<PAGE>
At Lessor's request, Lessee shall execute and deliver to Lessor a financing
statement sufficient to perfect this security interest and lien, or Lessor may
file a copy of the relevant portions of this Addendum as a financing statement.
Said lien shall be in addition to and cumulative upon Lessor's liens provided
by law.
4. LEASE PROVISIONS APPLICABLE
---------------------------
All of the terms and conditions of the Lease, as amended hereby, shall be
and remain applicable and in full force and effect, which terms and conditions
are hereby ratified and affirmed.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Addendum to be
signed in their names by their duly authorized representatives and delivered as
their act and deed, intending to be legally bound by its terms and provisions.
(Signatures Appear on the Following Pages)
57
<PAGE>
LESSOR :
TWO WISCONSIN CIRCLE JOINT VENTURE,
a Maryland joint venture
By: The Chevy Chase Land Company of
Montgomery County, Maryland, a
Attest: General Partner
[SIGNATURE APPEARS HERE] By: /s/ Edward Asher, VP
- ---------------------------- ---------------------------
Assistant Secretary Name:
(SEAL) Title:
STATE OF MARYLAND
COUNTY OF MONTGOMERY, ss:
I, Deborah Tarver Smith, a Notary Public in and for the State
Maryland, do hereby certify that Edward Hall Asher, who is personally well
known to me as the person who executed the foregoing and annexed Addendum, dated
22nd day of July 1996, on behalf of the Lessor, to acknowledge the same,
personally appeared before me in said jurisdiction and acknowledged said
Addendum to be the act and deed of The Chevy Chase Land Company of Montgomery
County, Maryland, as a general partner of and for and on behalf of the Lessor,
and delivered the same as such.
GIVEN under my hand and seal this 22nd day of July, 1996.
/s/ Deborah Tarver Smith
-----------------------------
Notary Public
My commission expires:
DEBORAH TARVER SMITH
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires January 10, 1999
58
<PAGE>
LESSEE :
HEALTH PARTNERS FINANCIAL CORPORATION
a Delaware corporation
Attest:
[SIGNATURE APPEARS HERE] By: /s/ Ethan Leder
- ------------------------------ ------------------------------
Secretary Name: Ethan Leder
(SEAL) Title: EVP
STATE OF Maryland )
COUNTY OF Montgomery) ss:
I, Christa D. Dale, a Notary Public in and for the jurisdiction
aforesaid, do hereby certify that Ethan Leder, who is personally well known to
me as the person who executed the foregoing and annexed Addendum, dated 26
day of July 1996, on behalf of the Lessee, to acknowledge the same, personally
appeared before me in said jurisdiction and acknowledged said Addendum to be the
act and deed of Health Partners Financial Corporation and delivered the same as
such.
GIVEN under my hand and seal this 26 day of July, 1996.
/s/ Christa D. Dale
----------------------------
Notary Public
My commission expires:
Christa D. Dale, Notary Public
Montgomery County
State of Maryland
My Commission Expires Feb. 13, 1999
59
<PAGE>
TWO WISCONSIN CIRCLE
ADDENDUM NO.2 TO OFFICE LEASE
-----------------------------
THIS ADDENDUM NO. 2 TO OFFICE LEASE (this "Addendum") is made and entered
into this 13 day of August, 1996, by and between TWO WISCONSIN CIRCLE JOINT
VENTURE, a Maryland joint venture, hereinafter called "Lessor," and HEALTH
PARTNERS FINANCIAL CORPORATION, a Delaware corporation, hereinafter called
"Lessee."
WITNESSETH:
WHEREAS, by Office Lease dated the 4th day of January, 1996, as amended by
Addendum No. 1 to Office Lease dated the 26 day of July, 1996 (as so amended,
the "Lease"), Lessor leased to Lessee approximately 5,414 square feet of
rentable area (the "Initial Demised Premises") on the third (3rd) floor of the
building situated at Two Wisconsin Circle, Chevy Chase, Maryland (the
"Building"); and
WHEREAS, Lessor and Lessee desire to expand the Initial Demised Premises by
adding thereto and incorporating therein, upon the terms and conditions
hereinafter set forth, additional space comprising approximately 1,347 square
feet of rentable area on the fourth (4th) floor of the Building.
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto do mutually agree that the Lease shall
be and is hereby amended to provide as follows, all capitalized terms being as
defined in the Lease unless otherwise noted:
60
<PAGE>
1. ADDITIONAL SPACE
----------------
There is hereby added to the Initial Demised Premises effective as of
the Addition Date (as defined in Section 2 below), and Lessor does hereby lease
to Lessee, and Lessee does hereby lease from Lessor, approximately l.347 square
feet of rentable area on the fourth (4th) floor of the Building (such rentable
area being hereinafter referred to as the "Additional Space"), subject to and
upon all of the terms and conditions of the Lease, except to the extent modified
or supplemented hereby. The Additional Space is outlined on the floor plan
attached hereto and made a part hereof as Exhibit A.
2. TERM
----
The Additional Space shall be added to the Initial Demised Premises on
the 1st day of September, 1996 (the "Addition Date"), and the term of the Lease
as to the Additional Space shall expire on the 31st day of August, 1997. It is
expressly understood and agreed that the term of the Lease as to the Additional
Space shall not be coterminous with the term of the Lease as to the Initial
Demised Premises, and that the earlier expiration of the term of the Lease as to
the Additional Space shall not in any manner whatsoever affect the remaining
term of the Lease as to the Initial Demised Premises. In the event that Lessee
shall not immediately surrender the Additional Space on the date of expiration
of the term of the Lease as to the Additional Space or any extension thereof,
Lessee shall become a lessee thereof by the month and hereby agrees to pay to
Lessor an Additional Monthly Rent (as defined in Section 3 below) equal to one
and one-half (1 1/2) times the Additional Monthly Rent in effect during the last
month of the term of the Lease as to the Additional Space, and such month-to-
month tenancy shall otherwise be in accordance with and governed by Section 33
of the Lease.
61
<PAGE>
3. RENT
----
The monthly rent for the Additional Space ("Additional Monthly Rent"),
which Lessee hereby agrees to pay in advance to Lessor and Lessor hereby agrees
to accept, shall be the sum of Three Thousand One Hundred Forty-Three and 00/100
Dollars ($3,143.00) payable in advance on the first day of each calendar month
during the term of the Lease as to the Additional Space. The Additional Monthly
Rent shall not be subject to any escalation or increases during the term of the
Lease as to the Additional Space.
4. PRE-OCCUPANCY TENANT WORK
-------------------------
Lessee shall accept the Additional Space "as is" upon the Addition
Date, and Lessor shall have no obligation to furnish or install any items
whatsoever of tenant work within the Additional Space. All tenant work and
installations desired by Lessee for its occupancy of the Additional Space shall
be undertaken by Lessee at its cost and expense pursuant to Section 9 of the
Lease.
5. LEASE PROVISIONS APPLICABLE
---------------------------
All of the terms and conditions of the Lease, as amended or supplemented
hereby, shall be applicable to the Additional Space hereby added to the Initial
Demised Premises. Once added to the Initial Demised Premises and continuing
until the later to occur of (i) the expiration of the term of the Lease as to
the Additional Space, or (ii) the termination of Lessee's occupancy of the
Additional Space, the Additional Space shall be deemed to be a part of the
premises demised under the Lease for all purposes, and the term "Demised
Premises" as used throughout the Lease shall be construed to include both the
Initial Demised Premises and the Additional Space. All
-62-
<PAGE>
terms and conditions of the Lease, as amended or supplemented hereby, are
hereby ratified and affirmed and shall remain in full force and effect.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Addendum to be
signed in their names personally by their duly authorized representatives and
delivered as their act and deed, intending to be legally bound by its terms and
provisions.
(Signatures Appear on the Following Pages)
- 63 -
<PAGE>
LESSOR:
TWO WISCONSIN CIRCLE JOINT VENTURE,
a Maryland joint venture
By: The Chevy Chase Land Company of
Montgomery County, Maryland, a
General Partner
Attest:
[SIGNATURE APPEARS HERE] By: /s/ Edward Hall Asher, VP
- --------------------------------- -------------------------------
Assistant Secretary Name:
(SEAL) Title:
STATE OF MARYLAND
COUNTY OF MONTGOMERY, ss:
I, Deborah Tarver Smith, a Notary Public in and for the State Maryland,
---------------------
do hereby certify that Edward Hall Asher, who is personally well known to me
-----------------
as the person who executed the foregoing and annexed Addendum, dated 22nd day of
----
August 1996, on behalf of the Lessor, to acknowledge the same, personally
appeared before me in said jurisdiction and acknowledged said Addendum to be the
act and deed of The Chevy Chase Land Company of Montgomery County, Maryland, as
a general partner of and for and on behalf of the Lessor, and delivered the same
as such.
GIVEN under my hand and seal this 22nd day of August, 1996.
----
/s/ Deborah Tarver Smith
--------------------------
Notary Public
My commission expires:
DEBORAH TARVER SMITH
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires January 10, 1999
- 64 -
<PAGE>
LESSEE:
HEALTH PARTNERS FINANCIAL CORPORATION
a Delaware corporation
Attest:
[SIGNATURE APPEARS HERE] By: /s/ John K. Delaney
- ------------------------------- ---------------------------
Secretary Name: John K. Delaney
(SEAL) Title: President
STATE OF )
COUNTY OF ) ss:
I, Deborah Tarver Smith, a Notary Public in and for the jurisdiction
aforesaid, do hereby certify that John K. Delaney, who is personally well known
to me as the person who executed the foregoing and annexed Addendum, dated 13th
day of August 1996, on behalf of the Lessee, to acknowledge the same, personally
appeared before me in said jurisdiction and acknowledged said Addendum to be the
act and deed of Health Partners Financial Corporation and delivered the same as
such.
GIVEN under my hand and seal this 13th day of August, 1996.
/s/ Deborah Tarver Smith
--------------------------------
Notary Public
My commission expires:
DEBORAH TARVER SMITH
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires January 10, 1999
65
<PAGE>
Exhibit 10.11
SOFTWARE PURCHASE AND LICENSE AGREEMENT
This Software Purchase and License Agreement (the "Agreement") is
entered into and shall be effective as of September 1, 1996 by and between
Creative Information Systems, L.L.C., a Texas limited liability company
("Creative") and HealthPartners Financial Corporation, a Delaware corporation
("HealthPartners").
WHEREAS, Creative and HealthPartners are parties to that certain
Software License Agreement dated August 13, 1993 (the "License Agreement"); and
WHEREAS, HealthPartners has participated in the development of the
software which is the subject of the License Agreement, which software is
generally known as "RTS" and desires to purchase the same from Creative; and
WHEREAS, HealthPartners desires to license RTS to Creative:
NOW, THEREFORE, Creative and HealthPartners agree as follows:
1. Sale of RTS. Subject to the provisions hereof, Creative hereby sells
HealthPartners RTS, including a copy of the source code therefore. The purchase
price for RTS shall be Twenty-Five Thousand ($25,000) Dollars payable in three
equal consecutive monthly installments commencing as of the effective date
hereof and terminating three months thereafter. The sale of RTS includes all
related materials that Creative may possess.
2. License Grant. In partial consideration of the sale of RTS,
HealthPartners hereby grants Creative a non-exclusive unrestricted perpetual
license of RTS, including the name "RTS," the source code and all related
materials.
3. Upgrades, Modifications and Enhancements. Creative and
HealthPartners agree that to the extent either of them shall upgrade, modify or
enhance RTS, or receive the benefit of any upgrade, modification or enhancement
to RTS, they shall provide the other, at no cost or charge, with any such
upgrade, modification or enhancement, including the source code therefore, as
soon as such is available.
4. Support. Creative and HealthPartners agree to cooperate with each
other to support RTS should the need arise on such terms and conditions as they
shall mutually agree at the time.
<PAGE>
5. Termination of License Agreement. Upon the execution of the Agreement,
the License Agreement shall be terminated.
6. Disclaimer of Warranties. RTS AND RELATED MATERIALS ARE SOLD "AS IS" AND
WITHOUT EXPRESS OR LIMITED WARRANTY OF ANY KIND BY EITHER CREATIVE OR ANYONE WHO
HAS BEEN INVOLVED IN THE CREATION, PRODUCTION OR DISTRIBUTION OF RTS, INCLUDING
BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE. THE ENTIRE RISK AS TO THE QUALITY AND PERFORMANCE OF RTS AND
RELATED MATERIALS IS WITH HEALTHPARTNERS. SHOULD RTS PROVE DEFECTIVE
HEALTHPARTNERS (AND NOT CREATIVE OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE
CREATION, PRODUCTION OR DISTRIBUTION OF RTS) ASSUMES THE ENTIRE COST OF ALL
NECESSARY SERVICING, REPAIR OR CORRECTION. CREATIVE DOES NOT WARRANT THAT THE
FUNCTIONS CONTAINED IN RTS WILL MEET HEALTHPARTNERS' REQUIREMENTS OR THAT THE
OPERATION OF RTS WILL BE UNINTERRUPTED OR ERROR FREE.
7. Limitation of Liability. IN NO EVENT WILL CREATIVE OR ANYONE OTHER
PERSON INVOLVED IN THE CREATION, PRODUCTION OR DISTRIBUTION OF RTS BE LIABLE TO
HEALTHPARTNERS (i) ON ACCOUNT OF ANY CLAIM FOR DAMAGES, INCLUDING ANY LOST
PROFITS, LOST SAVINGS OR OTHER SPECIAL INCIDENTAL, CONSEQUENTIAL, OR EXEMPLARY
DAMAGES ARISING OUT OF THE USE, INABILITY TO USE, QUALITY OR PERFORMANCE OF RTS
OR ANY RELATED MATERIALS OR (ii) BASED UPON PRINCIPLES OF CONTRACT, WARRANTY,
NEGLIGENCE, STRICT LIABILITY FOR THE NEGLIGENCE OF CREATIVE OR OTHER TORT,
BREACH OF ANY STATUTORY DUTY, PRINCIPLES OF INDEMNITY OR CONTRIBUTION, THE
FAILURE OF ANY REMEDY TO ACHIEVE ITS ESSENTIAL PURPOSE OR OTHERWISE.
8. Notice. Any notice required by this Agreement shall be in writing
(including telegraphic or telecopy communication) and if mailed shall be deemed
to be given three (3) days after being sent by registered or certified mail,
postage prepaid, or if telegraphed, when delivered to the telegraph company, or
if telecopied, when transmitted, or otherwise when delivered in person to the
addressee and a receipt given for, in all such instances addressed to the
parties as set forth on the signature page hereof or such other address as the
addressee may, by written notice received by the other party, designate as the
appropriate address for the purposes of this Agreement.
CONTINUED AND EXECUTED ON THE FOLLOWING PAGE
2
<PAGE>
Creative Information Systems, L.L.C. HealthPartners Financial Corporation
17194 Preston Rd. #123 2 Wisconsin Circle
Suite 267 Suite 320
Dallas, Texas 75248 Chevy Chase, Maryland 20815
By: /s/ N.J. Metcalf By: /s/ John K. Delaney
--------------------------------- ----------------------------------
N.J. Metcalf John K. Delaney
Manager President
3
<PAGE>
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
HEALTHPARTNERS FUNDING, L.P.
Dated as or December 1, 1995
<PAGE>
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
HEALTHPARTNERS FUNDING, L.P.
TABLE OF CONTENTS
Page
ARTICLE I: General Provisions ................................ 1
Sec. 1.01. Name, Principal Office and Records ................ 1
Sec. 1.02. Purposes and Powers of the Partnership ............ 1
Sec. 1.03. Commencement of Business .......................... 1
Sec. 1.04. Fiscal Year ....................................... 1
Sec. 1.05. Liability of Partners ............................. 2
ARTICLE II: Management of Partnership ......................... 2
Sec. 2.01. Management Generally .............................. 2
Sec. 2.02. Authority of General Partner ...................... 2
Sec. 2.03. Limitation on Authority ........................... 3
Sec. 2.04. General Partner's Responsibilities ................ 3
Sec. 2.05. Management Fees ................................... 4
Sec. 2.06. Expenses .......................................... 4
Sec. 2.07. Other Activities of the Partners .................. 5
Sec. 2.08. Reliance by Third Parties ......................... 6
Sec. 2.09. Exculpation ....................................... 6
Sec. 2.10. Indemnification ................................... 6
ARTICLE III: Capital Contributions, Drawdowns and Distributions 7
Sec. 3.01. Definitions ....................................... 7
Sec. 3.02. Capital Contributions ............................. 9
Sec. 3.03. Drawdowns ......................................... 9
Sec. 3.04. Allocation of Profits and Losses .................. 10
Sec. 3.05. Distributions ..................................... 13
Sec. 3,06. Withdrawals ....................................... 13
Sec. 3.07. Reserves .......................................... 14
Sec. 3.08. Reinvestment ...................................... 14
Sec. 3.09. Allocation or Income and Loss for Tax Purposes .... 14
Sec. 3.10. Special Allocations ............................... 14
(i)
<PAGE>
Page
ARTICLE IV: Admission and Withdrawals of Partners; Transfers ... 15
Sec. 4.01. Admission of Additional Limited Partners ........... 15
Sec. 4.02. Withdrawals of Partners ............................ 16
Sec. 4.03. Transfers .......................................... 16
ARTICLE V: Representations, Warranties and Covenants .......... 16
Sec. 5.01. Representations of the General Partner ............. 16
Sec. 5.02. Covenants of the General Partner ................... 17
Sec. 5.03. Representations of the Limited Partners ............ 17
ARTICLE VI: Duration and Termination of Partnership ............ 18
Sec. 6.01. Duration and Dissolution of Partnership ............ 18
Sec. 6.02. Liquidation of Partnership ......................... 19
ARTICLE VII: Tax Returns; Reports to Partners ................... 20
Sec. 7.01. Piling of Tax Returns .............................. 20
Sec. 7.02. Reports to Current and Former Partners ............. 20
Sec. 7.03. Tax Matters Partner ................................ 21
ARTICLE VIII: Miscellaneous ...................................... 21
Sec. 8.01. General ............................................ 21
Sec. 8.02. Power of Attorney .................................. 21
Sec. 8.03. Amendments to Partnership Agreement ................ 22
Sec. 8.04. Choice of Law ...................................... 22
Sec. 8.05. Notices ............................................ 22
Sec. 8.06. Headings ........................................... 23
Schedule A - Schedule of Partners
Schedule B - Borrowing Schedule
Schedule C - Existing Providers
Schedule D - MediMax Clients
(ii)
<PAGE>
AMENDED AND RESTATED
UNITED PARTNERSHIP AGREEMENT
OF
HEALTHPARTNERS FUNDING L.P.
Dated as of December 1, 1995
The undersigned (herein called the "Partners") hereby agree to continue a
limited partnership (herein called the "Partnership") formed pursuant to the
provisions of the Delaware Revised Uniform Limited Partnership Act (the "Act")
which shall be governed by, and operated pursuant to, the terms and provisions
of this Amended and Restated Limited Participation Agreement (herein called the
"Agreement").
ARTICLE I
General Provisions
Sec. 1.01. Name, Principal Office and Records. The name of the Partnership
is HealthPartners Funding, L.P. Its principal office is located at 2001 L
Street, N.W., Suite 402, Washington, D.C. 20036, or at such other location as
the General Partner (as defined in Sec. 1.05) in the future may designate with
the prior consent of each of the Limited Partners (as defined in Sec. 1.05),
which consent shall not be unreasonably withheld. All of the books and records
of the Partnership shall be maintained at the principal office of the
Partnership.
Sec. 1.02. Purposes and Powers of the Partnership, The Partnership is
organized for the purpose of purchasing, providing loans against or financing
Receivables generated by health care providers, including, without limitation,
hospitals, physician groups, nursing homes, out-patient surgery centers, home
health care companies, durable medical equipment companies and similar entities
("Health Care Receivables"), and taking such actions as may be necessary and
incidental to such purpose. The Partnership may not engage in any investment,
trading or financing activity of any kind other than as set forth above, but
subject to such limitation, the Partnership shall have the power to engage in
all activities and transactions that the General Partner may deem necessary or
advisable in connection with the foregoing purpose.
Sec. 1.03. Commencement of Business. The Partnership shall commence
business on the Initial Funding Date (as defined in Sec. 3.01).
Sec. 1.04. Fiscal Year. The fiscal year of the Partnership (herein called
the "Fiscal Year") shall end on December 31 of each year.
<PAGE>
Sec. 1.05. Liability of Partners. The names of all of the Partners are set
forth in Schedule A attached hereto and incorporated as a part of this Agreement
by reference, which schedule shall be maintained with the records of the
Partnership at the Partnership's principal office (as set forth in Sec. 1.01).
The Partner designated in Part I of Schedule A as the General Partner (herein
called the "General Partner") shall have unlimited liability for the repayment
and discharge of all debts and obligations of the Partnership in accordance with
and to the extent provided by the Act. The Partners designated in Part II of
Schedule A as Limited Partners (herein called the "Limited Partners") shall be
liable for the repayment and discharge of all debts and obligations of the
Partnership only to the extent of their respective interests in the Partnership.
The Partners shall share all losses, liabilities or expenses suffered or
incurred by virtue of the operation of this Sec. 1.05 in the proportions of
their respective interests in the Partnership. A Limited Partner's share of all
losses, liabilities or expenses shall not be greater than its interest in the
Partnership. The General Partner shall be liable for the losses, liabilities or
expenses suffered or incurred in excess of the interests of the Limited
Partners. Except in the case of a Drawdown (as defined in Sec. 3.01) pursuant to
Sec. 3.03., in no event shall any Limited Partner (or former Limited Partner) be
obligated to make any additional contribution whatsoever to the Partnership, nor
shall any Limited Partner (or former Limited Partner) have any liability for the
repayment and discharge of the debts and obligations of the Partnership (apart
from his interest in the Partnership).
ARTICLE II
Management of Partnership
Sec. 2.01. Management Generally. The power to manage the affairs of the
Partnership and to act on behalf of the Partnership shall be vested exclusively
in the General Partner. Except as authorized by the General Partner, the Limited
Partners shall have no right or authority to participate in the management of
the Partnership, and shall have no right or authority to act on behalf of the
Partnership in connection with any matter,
Sec. 2.02. Authority of General Partner. Except as otherwise expressly
provided in this Agreement, the General Partner shall have the authority on
behalf and in the name of the Partnership to take any action or make any
decisions on behalf of the Partnership hereunder in order to carry out the
purpose of the Partnership set forth in Sec. 1.02 and to perform all acts and
enter into and perform all contracts and other undertakings which it may deem
necessary or advisable or incidental in relation thereto, including, without
limitation, the power:
(a) to identify, evaluate, purchase, provide loans against or finance
Health Care Receivables subject to and in accordance with all of the provisions
of this Agreement;
-2-
<PAGE>
(b) to cause the Partnership to borrow money or otherwise obtain financing
required for the business and affairs of the Partnership and to secure repayment
of any such loans or borrowings by subjecting to security interest(s) all or any
part of the Partnership's assets and to prepay, refinance, increase, modify or
extend the maturities or other terms of any or all of such loans or borrowings
as the General Partner deems in the best interests of the Partnership, provided
that any such borrowings must comply with the borrowing schedule set forth in
Schedule B attached hereto;
(c) to pay out of the funds of the Partnership any management fees
permitted to be paid pursuant to Sec. 2.05 and any expenses permitted to be
incurred by the Partnership pursuant to Sec. 2.06;
(d) to manage and direct the business affairs of the Partnership, to do any
and all acts on behalf of the Partnership, and to exercise all rights of the
Partnership with respect to its interest in any Health Care Receivables or other
collateral, including , without limitation, participation in arrangements with
insurers and insurance agents, the ins titution and settlement or compromise of
claims, suits and administrative proceedings and other like or similar matters;
(e) to hire consultants, attorneys and accountants for the Partnership;
(f) to open, maintain and close bank accounts and draw checks or other
orders for the payment of management fees permitted to be paid pursuant to Sec.
2.05 and expenses permitted to be incurred by the Partnership pursuant to Sec.
2.06;
(g) to invest cash held by the Partnership in money market or other
short-term instruments;
(h) to act as nominee for the Partnership with respect to any of the
foregoing matters; and
(i) to authorize any employee or other agent to act for and on behalf of
the Partnership and the General Partner, directly or as nominee, as to the
foregoing and all matters pertaining thereto.
Sec. 2.03. Limi tation on Authority. The General Partner shall not take any
actions other than those specifically authorized by Sec. 2.02 or confess a
judgment against the Partnership without the prior written consent of all of the
Limited Partners and shall not do any act in contravention of this Agreement.
Sec. 2.04. General Partner's Responsibilities
(a) The General Partner shall execute and cause to be filed original or
amended certificates and shall take any and all other actions as may be
reasonably necessary
-3-
<PAGE>
to perfect and maintain the status of the Partnership as a limited partnership
under the laws of the State of Delaware and any other jurisdictions in which the
Partnership engages in business. Immediately after initially purchasing,
providing a loan against or financing any Health Care Receivables for or on
behalf of the Partnership, the General Partner shall forward a photocopy of the
Receivables Purchase and Sale Agreement and any other agreements entered into by
the Partnership with respect to such Health Care Receivables to Farallon Capital
Management, Inc. ("FCMI"), acting on behalf of each Limited Partner, or such
other person as the Limited Partners may designate from time to time. The
General Partner shall, on behalf of the Partnership, keep or cause to be kept
full and complete books of account in which shall be entered fully and
accurately all transactions of the Partnership . The General Partner will make
the books and records of the Partnership available during reasonable business
hours for inspection by any of the Partners and their representatives at the
principal office of the Partnership . The General Partner shall take any and all
actions necessary to cause the Partnership to comply with all applicable laws
and regulations, including laws and regulations applying to purchasing, loaning
against or financing Health Care Receivables.
(b) Born during and after the term of this Agreement, the General Partner
shall hold in strict confidence and shall not, without the written consent of
each of the Limited Partners, disclose to any person the identity of the Limited
Partners (except as such disclosure may be required by law), the identity of
any of the principals or beneficial holders of any of the Limited Partners or
the terms of this Agreement, provided that each Limited Partner agrees to make
itself reasonably available as a reference in the ordinary course of the
Partnership's business. The General Partner shall take all reasonable steps,
including, but not limited to, refraining from doing business in jurisdictions
which may require disclosure of the identity of any of the principals or
beneficial holders of any of the Limited Partners, to avoid such disclosure.
The General Partner shall provide 10 days' prior written notice to the Limited
Partners of the disclosure of the identity of the Limited Partners or the terms
of this Agreement.
Sec. 2.05. Management Fees. For providing management services, the General
Partners shall be entitled to a cash payment out of the assets of the
Partnership equal to $400,000.00 per annum, payable in monthly installments of
$33,333.33 each and in advance as of the first day of each month.
Sec. 2.06. Expenses. The General Partner shall bear all general and
administrative expenses of the Partnership ("General Partner Expenses") on the
terms and conditions set forth in this Sec. 2.06. General Partner Expenses
include recurring routine expenses incident to operating the business of the
Partnership, including compensation and expenses of employees of the General
Partner and expenses for administrative services, office space and facilities
and telephone. General Partner Expenses exclude, without limitation any taxes
which may be assessed against the Partnership, licensing fees for the software
to be used by the Partnership, brokerage commissions, financing and banking
expenses incurred (including interest or discount expenses, lock-box or similar
fees and expenses incurred in
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establisbing or maintaining Partnership financing arrangements), outside
accounting, tax return preparation, legal and professional consulting expenses
incurred with respect to Partnership activities, expenses attributable to
verification of Receivables, portfolio valuations and due diligence with respect
to Partnership investments (including, without limitation, research, travel and
related expenses), expenses attributable to the Partnership relating to
litigation or threatened litigation involving the Partnership and expenses
deemed by the General Panners to be extraordinary or non-recurring that result
from the operation of the Partnership (such excluded expenses and payments to
the General Partner paid pursuant to Sec. 2.05, collectively, "Partnership
Expenses"). Notwithstanding anything herein to the contrary, the Partnership may
assume liabilities relating to any lease for office space entered into by the
General Partner on or prior to May 1, 1996, provided that such liabilities shall
be allocated solely to the capital account of the General Partner.
Sec. 2.07. Other Activities of the Partners.
(a) The General Partner and its officers, directors, employees or other
agents (together with employees of the Partnership, collectively called the
"Affiliates") shall devote so much of their time to the affairs of the
Partnership as in the judgment of the General Partner the conduct of the
business of the Partnership shall reasonably require. The General Partner and
any person which is a parent, shareholder, subsidiary or Affiliate of the
General Partner, or any person in which the General Partner or any of its
shareholders, parents, subsidiaries or Affiliates may have an interest, may
engage in or own an interest in any other business, investment or profession of
any kind and description, so long as it is not in the business of purchasing,
providing loans against or otherwise financing Health Care Receivables, and
neither the Partnership nor any or its Partners shall have any rights by virtue
of this Agreement in or to any of such businesses, professions or investments,
or in or to any income or profit derived therefrom; provided, however, that the
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General Partner is specifically authorized to manage (i) the health care
division of Cash Flow Management, L.P., a Tennessee Limited partnership
("CPM"), with respect to health care Receivables acquired or financed by CPM
prior to December 1, 1995, but only so long as capital contributions to the
health care division of CFM do not at any time exceed $5,000,000 and
(ii) HealthPartners-DEL, L.P. ("DEL"), a Delaware limited partnership formed by
the principals of the General Partner for the purpose of purchasing, providing
loans against and financing Health Care Receivables, but only so long as capital
contributions to DEL do not exceed $375,000.
(b) The Partnership and DEL, to the extent that each has available capital
and to the extent that sufficient batches of Health Care Receivables are
available, shall invest in the Health Care Receivables of the same providers,
including the Health Care Receivables of the providers listed in Schedule C
attached hereto. Each of the Partnership and DEL shall invest individually in a
batch of Health Care Receivables of a particular provider, but the total batches
of Health Care Receivables from such provider shall be allocated among the
Partnership and DEL on a pro rata basis in accordance with, respectively, the
aggregate Capital Commitments (as defined in Sec. 3.01) made to the Partnership
and the maximum
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amount that may be invested pursuant to paragraph (a) above by DEL in Health
Care Receivables.
(c) Nothing in this Agreement shall be deemed to prohibit any Limited
Partner or any person which is a shareholder, parent, subsidiary or affiliate of
any Limited Partner, or in which any Limited Partner or such person may have an
interest, from engaging in or owning an interest in any other business,
profession or investment of any kind or description, whether or not in direct or
indirect competition with the Partnership, and neither the Partnership nor any
of the Partners shall have any rights by virtue of this Agreement in or to any
of such businesses, professions or investments, or in or to any income or profit
derived therefrom,
Sec. 2.08. Reliance by Third Parties. Persons dealing with the Partnership
are entitled to rely conclusively upon the certificate of the General Partner to
the effect that it is then acting as the General Partner, and upon the power and
authority of the General Partner as herein set forth.
Sec. 2.09. Exculpation. No Partner or Affiliate (as defined in Sec. 2.07)
shall be liable to any Partner or the Partnership for mistakes of judgment or
for any action or inaction unless such action or inaction constitutes gross
negligence, fraud or willful misconduct. Each Partner and Affiliate may consult
with counsel, accountants and other advisers to the Partnership in respect of
Partnership affairs and be fully protected and justified in any action or
inaction which is taken in accordance with the advice or opinion of such
counsel, accountants or other advisers, provided that they shall have been
selected with reasonable care.
Notwithstanding any of the foregoing to the contrary, the provisions of
this Sec. 2.09 shall not be construed so as to relieve (or attempt to relieve)
any Partner or Affiliate of any liability, to the extent (but only to the
extent) that such liability may not be waived, modified or limited under
applicable law, but shall be construed so as to effectuate the provisions of
this Sec. 2.09 to the fullest extent permitted by law.
Sec. 2.10. Indemnification
(a) To the fullest extent permitted by law, the Partnership shall indemnify
and hold harmless each Partner, each Affiliate (as defined in Sec. 2.07) and the
legal representatives of each of them (herein called an "Indemnified Party")
from and against any loss or expense suffered or sustained by an Indemnified
Party by reason of the fact that such person is or was an Indemnified Party,
including without limitation any judgment, settlement, reasonable attorney's
fees and other costs or expenses incurred in connection with the defense of any
actual or threatened action or proceeding, provided that such loss or expense
resulted from a mistake of judgment on the part of an Indemnified Party or from
action or inaction, unless such action or inaction constituted gross negligence,
fraud or willful misconduct, and, with respect to any criminal proceeding,
provided that such Indemnified
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Party had no reasonable cause to believe the conduct of such Indemnified Person
was unlawful. The Partnership shall advance to the Indemnified Party reasonable
attorney's fees and other costs and expenses incurred in connection with the
defense of any action or proceeding which arises out of such conduct. Each
Indemnified Party hereby agrees, that in the event such person receives any such
advance, such Indemnified Party shall reimburse the Partnership for such fees,
costs and expenses to the extent that it shall be determined that such person
was not entitled to indemnification under this Sec. 2.10.
(b) The indemnification provided by this Sec. 2.10 shall not be deemed to
be exclusive of any other rights to which each Indemnified Party may be entitled
under any agreement, or as a matter of law, or otherwise, both as to action in
such Indemnified Party's official capacity and to action in another capacity,
and shall continue as to such Indemnified Party who has ceased to have an
official capacity for acts or omissions during such official capacity or
otherwise when acting at the request of the General Partner and shall inure to
the benefit of the heirs, successors and administrators of such Indemnified
Party.
(c) Notwithstanding any of the foregoing to the contrary, the provisions of
this Sec. 2.10 shall not be construed so as to provide for the indemnification
of an Indemnified Party for any liability when such indemnification would be in
violation of applicable law or when such liability may not be waived, modified
or limited under applicable law, but shall be construed so as to effectuate the
provisions of this Sec. 2.10 to the fullest extent permitted by law.
ARTICLE III
Capital Contributions, Drawdowns
and Distributions
Sec. 3.01. Definitions. For the purposes of this Agreement, unless the
context otherwise requires:
(a) "Capital Commitment" means the aggregate amount set forth on Schedule A
which each Limited Partner agrees to contribute to the Partnership from time to
time pursuant to the terms of this Agreement.
(b) "Commitment Period" means the period commencing on the Initial Funding
Date and ending on (i) September 30, 1997 or, (ii) at the election prior to June
30, 1997 of Limited Partners having capital accounts the aggregate value of
which exceeds 50% of the value of all Limited Partner capital accounts as of
such date, September 30, 1998.
(c) "Drawdown" means with respect to the Partners collectively a
contribution by the Partners to the capital of the Partnership of such amount as
shall be determined by the General Partner, at the request of the General
Partner in accordance with
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Sec. 3.03, and means with respect to any one Partner such Partner's proportional
share of such Drawdown determined by reference to such Partner's Partnership
Percentage.
(d) "Initial Funding Date" means September 13, 1994.
(e) A "Loss" with respect to any batch of Health Care Receivables shall
mean the amount, determined as of the date such batch of Health Care Receivables
should have been paid in full, by which (A), the sum of (i) the purchase price
of such batch, (ii) interest expenses with respect to borrowings made by the
Partnership in connection with such batch, and (iii) a pro rata portion of
--- ----
Partnership Expenses, such portion to be determined by multiplying Partnership
Expenses for the period of collection of such batch by a fraction, the numerator
of which is the purchase price of such batch, and the denominator of which is
the aggregate purchase price of batches outstanding during such period, exceeds
(B), total cash receipts with respect to such batch; provided, however, that a
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Loss shall be reduced by any cash receipts received by the Partnership during
such period with respect to another batch (the "Other Batch") of Health Care
Receivables of the same health care provider from whom the batch of Health Care
Receivables resulting in the Loss (the "Loss Batch") was purchased, to the
extent that such health care provider would have had a claim against such
receipts from the Other Batch had there not been a Loss Batch.
(f) "MediMax Funding Date" means the first date on which a contribution to
the capital of the Partnership is made pursuant to a Drawdown made with respect
to a MediMax Receivable.
(g) "MediMax Profits" means the portion of Profits attributable to MediMax
Receivables.
(h) "MediMax Receivables" means any Health Care Receivables held by MediMax
Receivables Funding II, L.P. or the persons identified on Schedule D attached
hereto that are purchased, loaned against or otherwise financed by the
Partnership.
(i) "MediMax Return Amount" shall mean an amount calculated as of the end
of each month equal to a 1.67% per month (20% on an annualized basis) return,
compounded, on the weighted average of Unreturned Capital Contributions as of
the end of each month from the MediMax Funding Date through the end of the
particular month.
(j) "Net Loss" for any period shall mean the excess of aggregate Losses
with respect to batches for the period over aggregate Profits with respect to
batches for the period.
(k) "Net Profits" for any period shall mean the excess of aggregate Profits
with respect to batches for the period over aggregate Losses with respect to
batches for the period, as such may be reduced by any balances in the Loss
Recovery Account pursuant to Sec.3.04(a).
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(l) "Partnership Percentage" means a percentage set forth in Schedule
A for each Partner.
(m) "Profits" with respect to any batch of Health Care Receivables for
any period shall mean the excess of (i) the cash receipts received by the
Partnership with respect to such batch and against which the health care
provider shall have no claims over (ii) the sum of (x) a pro rata portion of the
--- ----
purchase price paid to such provider for such batch, such portion to be
determined by multiplying the purchase price by a fraction, the numerator of
which is the cash receipts received by the Partnership with respect to such
batch during such period (against which tile health care provider shall have no
claim), and the denominator of which is the amount of total cash receipts
expected to be received by the Partnership with respect to such batch (against
which the health care provider shall have no claim), (y) a pro rata portion of
--- ----
Partnership Expenses for the period, such portion to be determined by
multiplying Partnership Expenses for the period by a fraction, the numerator of
which is the purchase price of such batch, and the denominator of which is the
aggregate purchase price of batches outstanding during such period, and (z)
interest expenses paid during the period with respect to any borrowings made by
the Partnership in connection with such batch.
(n) "Threshold Return Amount" shall mean an amount calculated as of
the end of each fiscal year equal to a 5% per quarter (20% on an annualized
basis) return, compounded, on the weighted average of Unreturned Capital
Contributions as of the end of each quarter from the Initial Funding Date
through the end of the particular year.
(o) "Unreturned Capital Contribution" shall mean, with respect to a
Partner, the sum of all Drawdowns contributed to the Partnership by such Partner
pursuant to Sec. 3.03, reduced (but not below zero) by the sum of all amounts
distributed to such Partner pursuant to Sec. 3.05(b).
Sec. 3.02. Capital Contributions. In order to provide the Partnership
with capital to fund the purchases, loans against and financings of Health Care
Receivables, each Partner shall make its Capital Commitment available for
Drawdowns. No Partner shall be entitled to interest on any capital contributed
to the Partnership, or to the return thereof, other than in connection with
distributions made pursuant to Sec. 3.05.
Sec. 3.03. Drawdowns.
(a) Each Drawdown shall be made by the General Partner submitting to
each Partner a notice of Drawdown at least 10 business days prior to the
proposed date of the Drawdown (a "Drawdown Notice"). Such Drawdown Notice shall
identity the intended use of the funds to be contributed to the capital of the
Partnership as a result of the Drawdown, and the projected timing of the
expenditure by the Partnership of such funds. In particular, such Drawdown
Notice shall identity tile approximate number and value of Health Care
Receivables proposed to be initially purchased, loaned against or financed by
the Partnership
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out of such Drawdown, the projected dates on which such Health Care Receivables
will be initially purchased, loaned against or financed by the Partnership and
the average amount of such Health Care Receivables expected to be outstanding.
(b) All contributions to the capital of the Partnership made in
conjunction with any Drawdown shall be in cash, made by wire transfer to a bank
account in the name of the Partnership specified in the Drawdown Notice by the
General Partner.
(c) Drawdowns may not be requested by the General Partner in an amount
materially in excess of expenditures by the Partnership reasonably projected by
the General Partner to be made within 15 days of the date of the Drawdown, which
shall be subject to verification at the request of any Limited Partner. A
Drawdown requested by the General Partner may not exceed the available Capital
Commitments. If there are available Capital Commitments at the end of the
Commitment Period, no further Drawdowns may be requested by the General Partner
and the Partners shall have no further obligation to fund Drawdowns, other than
those duly requested prior to the end of the Commitment Period.
Sec. 3.04. Allocation Of Profits and Losses.
(a) Within 15 days of the end of each calendar month, the Net Profits
or Net Loss of the Partnership for such month shall be determined. Subject to
Secs. 3.04(e)(i), 3.04(e)(ii), 3.04(e)(iii) and 3.04(e)(iv), Net Profits for
the month shall be allocated 80% among the Partners pro rata in accordance with
--- ----
their respective Partnership Percentages and 20% to the General Partner (such
20% allocation being referred to as the "Incentive Allocation"): provided that
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Net Profits shall be reduced to the extent of any remaining unrecovered balance
in the Loss Recovery Account (defined below) maintained on the books and records
of the Partnership (such amount by which Net Profits are reduced, the "Reduction
Amount"), and the Reduction Amount shall be allocated among the Partners pro
---
rata in accordance with their respective Partnership Percentages. The amount of
- ----
the unrecovered balance remaining in the Loss Recovery Account shall be the
amount existing immediately prior to its reduction pursuant to Sec. 3.04(b).
(b) There shall be established on the books of the Partnership a
memorandum account (the "Loss Recovery Account"), the opening balance of which
shall be zero. At the end of each month, the balance in the Loss Recovery
Account shall be adjusted as follows: first, if there has been a Net Loss for
the month, an amount equal to the Net Loss shall be debited to the Loss Recovery
Account: second, if there have been Net Profits for the month, an amount equal
to such Net Profits shall be credited to and reduce any unrecovered balance in
the Loss Recovery Account, but not beyond zero; and, third, to the extent that
the General Partner returns an amount to the Partnership pursuant to
Sec. 3.04(e)(ii), an amount equal to five times such returned amount shall be
credited to and reduce any unrecovered balance in the Loss Recovery Account, but
not beyond zero.
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(c) All interest earned on cash deposits and money market instruments
of the Partnership shall be allocated among the Partners pro rata in accordance
--- ----
with their respective Partnership Percentages.
(d) Net Loss shall be allocated among the Partners pro rata in
--- ----
accordance with their respective Partnership Percentages.
(e) Within 30 days of the end of each fiscal year, the General Partner
shall determine (i) Net Profits or Net Loss, as the case may be, for such fiscal
year, (ii) the MediMax Return Amount through the end of such fiscal year, and
(iii) the Threshold Return Amount through the end of such fiscal year.
(i) In the event that as of the end of any fiscal year, Net Profits
and earnings on cash deposits and money market instruments allocated to the
Limited Partners since the MediMax Funding Date do not equal or exceed the
MediMax Return Amount determined as of the end of such fiscal year, 100% of the
MediMax Profits earned during the last month of the fiscal year shall be
allocated among the Partners pro rata in accordance with their respective
--- ----
Partnership Percentages until all the Partners shall have been allocated Net
Profits sufficient, together with earnings on cash deposits and money market
instruments, to provide Partners, in the aggregate, with the MediMax Return
Amount. To the extent that MediMax Profits earned during the last month of the
fiscal year are insufficient to provide the Limited Partners, in the aggregate,
with the MediMax Return Amount, men the General Partner shall return to the
Partnership an amount equal to the portion of the MediMax Profits allocated to
it since the MediMax Funding Date (which returned amount shall not reduce the
Capital Commitment of the General Partner and shall be made within 45 days of
the end of the fiscal yea) which, if distributed to the Partners pro rata in
accordance with their respective Partnership Percentages, would provide
Partners, in the aggregate, with the MediMax Return Amount. Such returned amount
shall be distributed to the Partners pro rata in accordance with their
respective Partnership Percentages.
(ii) Subject to Sec. 3.04(e)(iv), if the Incentive Allocations made
to the General Partner during a fiscal year exceed 20% of Net Profits for such
fiscal year (or such lesser percentage as may result from the application of
Sec. 3.04(e)(i)), or if Incentive Allocations have been made during such fiscal
year and the Partnership experienced a Net Loss for such fiscal year, Net
Profits earned during the last month of such fiscal year, if any, shall be
allocated so that 80% of Net Profits for the fiscal year (subject to increase
pursuant to Sec. 3.04(c), if applicable) shall have been allocated to the
Partners pro rata in accordance with their respective Partnership Percentages,
--- ----
and to the extent that Net Profits earned during the last month of the fiscal
year, if any, are insufficient to result in such an allocation of Net Profits
for the fiscal year, then the General Partner shall return to the Partnership
the excess portion of Net Profits allocated to it for such fiscal year (which
returned amount shall not reduce the Capital Commitment of the General Partner
and shall be made within 45 days of the end of the fiscal year), which shall be
an amount equal to the excess of (i) the Incentive
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Allocations made to the General Partner during such fiscal year over (ii) 20% of
Net Profits, if any, for such fiscal year (subject to reduction pursuant to Sec.
3.04(e)(i), if applicable). The amount so returned by the General Partner shall
be allocated to the Partners pro rata in accordance with their respective
--- ----
Partnership Percentages.
(iii) Subject to Sec. 3.04(e)(iv), if Incentive Allocations made to
the General Partner during a fiscal year are less than 20% of Net Profits for
such fiscal year (other than as a result of the application of
Sec. 3. 04(e)(i)), Net Profits earned during the last month of the fiscal year
shall be allocated so that Incentive Allocations for such fiscal year equal 20%
of Net Profits for such fiscal year (or such lesser percentage as may result
from the application of Sec. 3.04(e)(i)), and to the extent that Net Profits
earned during the last month of the fiscal year, if any, are insufficient to
result in such an allocation of Net Profits for the fiscal year, then the
Partners shall return an amount to the Partnership, pro rata in accordance with
--- ----
their respective Partnership Percentages, sufficient to allow for an Incentive
Allocation of 20% of Net Profits for the fiscal year (subject to reduction
pursuant to Sec. 3.04(e)(i), if applicable) to the General Partner (which
returned amount shall not reduce their Capital Commitments and shall be made
within 45 days of the end of the fiscal year), which shall be an amount equal to
the excess of (i) Net Profits allocated to the Partners during such fiscal year
(other than Incentive Allocations allocated to the General Partner) over (ii)
80% of Net Profits for such fiscal year (or such greater percentage as may
result from the application of Sec. 3.04(e)(i)). The amount so returned by the
Partners shall be allocated to the General Partner.
(iv) In the event that as of the end of the fiscal year Net Profits
and earnings on cash deposits and money market instruments distributed to the
Limited Partners since the Initial Funding Date exceed the Threshold Return
Amount through the end of such fiscal year, the General Partner shall be
entitled to an allocation of 40% of Net Profits earned since the Initial Funding
Date in excess of the Threshold Return Amount (the "Excess Amount"), and 60% of
the Excess Amount shall be allocated to the Partners pro rata in accordance with
--- ----
their respective Partnership Percentages.
(v) To the extent possible, Net Profits earned during the last month
of the fiscal year shall be allocated so that 20% of Net Profits below the
Threshold Return Amount and 40% of the Excess Amount shall have been allocated
to the General Partner since the commencement of operations of Partnership (such
40% allocation being referred to as the "Additional Incentive Allocation"). To
the extent that Net Profits earned in the last month of the fiscal year are
insufficient to make the Additional Incentive Allocation, the Partners shall
return an amount to the Partnership, pro rata in accordance with their
--- ----
Partnership Percentages, sufficient to allow for the Additional Incentive
Allocation to be made to the General Partner (which returned amount shall not
reduce their Capital Commitments and shall be made within 45 days of the end of
the fiscal year), which shall be an amount equal to the excess of (i) the amount
of the Additional Incentive Allocation over (ii) the portion of the Excess
Amount allocated to the General Partner. The amount so returned by the Partners
shall be allocated to the General Partner.
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(vi) In the event that at the conclusion of the fiscal year following
a fiscal year with respect to which an Additional Incentive Allocation was made
(a "Prior Additional Incentive Allocation Year"), the Excess Amount as of the
conclusion of such fiscal year is less than the Excess Amount as of the
conclusion of the Prior Additional Incentive Allocation Year, the General
Partner shall return to the Partnership an amount equal to 20% of the difference
between (A) the Excess Amount for the Prior Additional Incentive Allocation Year
and (B) the Excess Amount for such fiscal year. The amount so returned by the
General Partner shall be allocated to the Partners pro rata in accordance with
--- ----
their respective Partnership Percentages.
(vii) In the event that at the conclusion of the fiscal year following
a Prior Additional Incentive Allocation Year, the distributions of Net Profits
and earnings on cash deposits and money market instruments since the Initial
Funding Date do not exceed the Threshold Return Amount through the end of such
fiscal year, the General Partner shall return to the Partnership an amount equal
to the excess of (x) the Incentive Allocations and the Additional Incentive
Allocation made to the General Partner during the Prior Additional Incentive
Allocation Year over (y) the amount that would have been allocated to the
General Partner had all Net Profits for the Prior Additional Incentive
Allocation Year been allocated 80% to all Partners pro rata in accordance with
--- ----
their respective Partnership Percentages and 20% to the General Partner (or such
other percentages as would result from the application of Sec. 3.04(e)(i)). The
amount so returned by the General Partner shall be allocated to the Partners pro
---
rata in accordance with their respective Partnership Percentages.
- ----
Sec. 3.05. Distributions.
(a) Within 15 days following the end of each month except for the last
month of the fiscal year, the Partnership shall distribute to the Partners all
Net Profits and interest earned on cash balances that had been allocated to such
Partners during such month pursuant to Sec. 3.04; within 30 days of the end of
the fiscal year, the Partnership shall distribute to the Partners all Net
Profits and interest earned on cash balances that had been allocated to such
Partners during the last month of such fiscal year pursuant to Secs.
3.04(e)(ii), 3.04(e)(iii) and 3.04(e)(v); and within 45 days of the end of the
fiscal year, the Partnership shall distribute to the Partners or the General
Partner, as the case may be, the amounts returned, if any, by the Partners or
the General Partner, as the case may be, pursuant to Secs. 3.04(e)(ii),
3.04(e)(iii), 3.04(e)(v), 3.04(e)(vi) and 3.04(e)(vii)
(b) In the event that the portion of the assets of the Partnership not
invested in Health Care Receivables exceeds 10% of the Partnership's net assets,
the General Partner shall distribute to each Partner an amount equal to the
Partnership Percentage of such Partner multiplied by such excess amount. Such
amount shall be distributed within 10 days of the date on which such percentage
limitation is exceeded.
Sec. 3.06. Withdrawals. Other than pursuant to distributions made
under Sec. 3.05, no Partner may withdraw capital from the Partnership without
the consent of the
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General Partner. The General Partner must at all times maintain its capital
account equal to at least 1% of the aggregate capital accounts of all Partners.
Sec. 3.07. Reserves. The General Partner may set aside any portion or
all of any capital contributions as reserves if the General Partner reasonably
determines that such reserves are required for the proper operation of the
Partnership's business. The General Partner may add to any reserve established
upon its reasonable determination that such reserves are required and shall
release funds from such reserves at such time as they are no longer reasonably
required. For so long as any reserves have been established by the General
Partner, it shall report to the Limited Partners at least once each month the
amount of such reserves and the projected use and need for such reserves. Such
reserves shall be invested and held in the name of the Partnership in money
market or similar short-term instruments pursuant to Sec. 2.02.
Sec. 3.08. Reinvestment. To the extent distributions are not made
pursuant to Sec. 3.05, the Partnership may reinvest cash receipts from
investments in Health Care Receivables in purchases of, loans against and
financings of Health Care Receivables.
Sec. 3.09. Allocation of Income and Loss for Tax Purposes. For each
fiscal year, the General Partner shall allocate items of income, deduction,
gain or loss for federal income tax purposes among the Partners in such manner
as to reflect equitably amounts distributed or to be distributed to each Partner
pursuant to Sec. 3.05(a) hereof for the prior and current fiscal years. It is
the intention of the Partners under the previous sentence that, to the maximum
extent practicable, taxable income not be allocated to a Partner to the extent
that it would exceed the amount of cash previously distributed (or to be
distributed in respect of the current fiscal year) to such Partner pursuant to
Sec. 3.05(a) hereof, reduced by net taxable income previously allocated to such
Partner in respect of prior fiscal years. Allocations under this Sec. 3.09
shall be made pursuant to the principles of Code Sections 704(b) and 704(c) and
in conformity with the Regulations promulgated thereunder. Notwithstanding
anything to the contrary in this Sec. 3.09. the General Partner shall be
allocated for federal income tax purposes at least 1% of the income, deduction,
gain or loss of the Partnership for the taxable year and the amounts otherwise
allocable in any taxable year to the other Partners shall be reduced,
proportionately, by an amount necessary for the General Partner to receive an
appropriate allocation of 1% of the income, deduction, gain or loss of the
Partnership, as the case may be.
Sec. 3.10. Special Allocations. Notwithstanding Sec. 3.04 and Sec.
3.09 hereof, it is the intent of the Partners that allocations of net income,
gain and loss (or items thereof) of the Partnership shall be made in a manner
which complies with the provisions of Sections 704(b) and 704(c) of the Code and
the Treasury Regulations thereunder and reflects the Partners' interests in the
Partnership as determined under Treasury Regulations Section 1.704-1(b)(3). In
furtherance of the foregoing, the General Partner is authorized and directed to
allocate income, gain, loss or deduction in a manner which is inconsistent with
Sec. 3.04 hereof to the extent necessary to comply with Sections 704(b) and
704(c) of the
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Code and the Treasury Regulations thereunder, In this regard, (i) items of net
loss and deduction attributable to Partner Nonrecourse Debt (as defined in the
7040 (b) Regulations) shall be allocated as provided in the 7040 (b)
Regulations; (ii) if, in any period, there is a net decrease in the amount of
the Partnership's Minimum Gain (as termed in the 704(b) Regulations), or in the
amount of Minimum Gain attributable to Partner Nonrecourse Debt (as defined in
the 7040 (b) Regulations), then the Partners shall be allocated items of income
or gain for such period and subsequent periods to the extent and in the manner
provided in Treasury Regulations Sections 1.704-2(f) and 1.704-2(i)(4) as
Minimum Gain Chargebacks (as defined in the 704(b) Regulations); (iii) the
Partnership shall make such allocations of income as shall be required by a
Qualified Income Offset provision (as defined in the 7040 (b) Regulations) as
described in Treasury Regulation Section 1.704-1(b) (2)(ii)(d); and (iv) in no
event shall net losses or deductions be allocated to a Partner if such
allocation would result in such Partner having a Qualified Income Offset amount.
The allocations set forth in this Sec. 3.10 (the "Regulatory
Allocations") are intended to comply with certain requirements of Regulations
Sections 1.704-1(b) and 1.704-2. The Regulatory Allocations may not be
consistent with the manner in which the Partners intend to allocate Net Profits
and Net Loss or make Partnership distributions. Accordingly, notwithstanding the
other provisions of this Article III, but subject to the Regulatory Allocations,
the General Partner is hereby directed to reallocate items of income, deduction,
gain or loss (or items thereof) among the Partners so as to eliminate the effect
of the Regulatory Allocations and thereby cause the respective amounts
distributed to the Partners to be the amounts (or as close thereto as possible)
that would have been distributed if such items of income, deduction, gain or
loss had been allocated without reference to the Regulatory Allocations. In
general, the Partners anticipate that this will be accomplished by specially
allocating other items of income, deduction, gain or loss among the Partners so
that the net amount of the Regulatory Allocations and such special allocations
to each such Partner is zero. The General Partner shall have discretion to
accomplish this result in any reasonable manner.
ARTICLE IV
Admission and Withdrawals of Partners; Transfers
Sec. 4.01. Admission of Additional Limited Partners. The General
Partner may admit additional Limited Partners, when and as it may determine in
its sole discretion; provided, however, that whenever the General Partner shall
-------- -------
offer additional limited partnership interests, the General Partner shall
notify any then existing Limited Partners of its intention and such existing
Limited Partners shall have a right to subscribe to the additional interests
being offered, within 30 days of such notice, on the same terms and conditions
offered to such offerees, in the same proportion that their respective capital
accounts bear to the aggregate capital accounts then outstanding; provided,
--------
however, that any Limited Partner that is an affiliate of FCMI may subscribe for
- -------
all or a portion of such additional interests for which another Limited Partner
that is an affiliate of FCMI elects not
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<PAGE>
to subscribe. The General Partner is specifically authorized and entitled to
purchase Limited Partner interests.
Sec. 4.02. Withdrawals of Partners. No Partner may withdraw from the
Partnership except upon dissolution of the Partnership as set forth in Sec.
6.02.
Sec. 4.03. Transfers. A Limited Partner may transfer its interest in
the Partnership; provided, however, that no transferee of such interest shall be
-------- -------
admitted to the Partnership as a substituted Limited Partner unless (a) the
General Partner consents to such admission, which consent it may withhold in its
sole discretion and (b) the transferee becomes a party to this Agreement and
agrees to be bound by all of its terms and conditions (including, without
limitation, restrictions on further transfers of such interest), assumes all
debts and obligations of the transferor to the Partnership with respect to the
transferred interest and provides such further written assurances relating to
the foregoing as the General Partner may reasonably request. The General
Partner may transfer its interest in the Partnership only with the unanimous
consent of, and upon such terms and conditions as determined by, the Limited
Partners.
ARTICLE V
Representations, Warranties and Covenants
Sec. 5.01. Representations of the General Partner. The General
Partner represents and warrants to each Limited Partner as follows:
(a) Existence and Authority. The General Partner is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction set forth opposite its name on Schedule A. It has the corporate
power and authority to make, execute, deliver and perform this Agreement, and
this Agreement has been duly authorized and approved by all required corporate
action of it. This Agreement is a valid and binding obligation of the General
Partner enforceable against it in accordance with its terms.
(b) No Restrictions. The execution and delivery of this Agreement by
the General Partner and the consummation of the transactions contemplated hereby
(i) will not violate any provision of the organizational documents of the
General Partner, (ii) will not violate any statute, rule, regulation, order or
decree by which the General Partner or any of its properties are bound or
require any notice to or filing with or authorization, consent or approval of
any public body or authority and (iii) will not result in a violation or breach
of, or constitute a default under, any license, franchise, permit, indenture,
agreement or other instrument to which the General Partner is a party, or by
which the General Partner or any of its properties is bound, excluding from the
foregoing clauses (ii) and (iii) violations, breaches or defaults which, either
individually or in the aggregate, would not prevent the General Partner from
performing its obligations under this Agreement or consummation of the
transactions contemplated by this Agreement and excluding from the foregoing
clause (ii)
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<PAGE>
notices, filings, authorizations, consents and approvals which have been given,
made or obtained and are in full force and effect or the failure of which to
give, make or obtain would not, individually and in the aggregate, have an
adverse effect on the business or condition (financial or otherwise) or results
of operation of the General Partner or adversely affect the ability of the
General Partner to perform its obligations under this Agreement or consummate
the transactions contemplated by this Agreement.
(c) No Partnership Disabling Event. Neither the General Partner nor
Ethan Leder or John Delaney is subject to any of the Partnership Disabling
Events specified in Sec. 6.01.
Sec. 5.02. Covenants of the General Partner. The General Partner
covenants to each Limited Partner as follows:
(a) Compliance With Applicable Law. The General Partner shall comply
with all laws and regulations applicable to the conduct of the Partnership's
business, including, but not limited to, obtaining and maintaining all required
licenses and/or authorizations to conduct such business. The General Partner
shall also file in a timely manner all required license renewal forms and shall
pay in a timely manner all required license renewal fees. The General Partner
shall comply with the orders of all governmental authorities and shall cooperate
with such governmental authorities so as to maintain the Partnership's ability
to transact its business.
Sec. 5.03. Representations of the Limited Partners. Each Limited
Partner individually represents and warrants to the General Partner as follows:
(a) Existence and Authority. If such Limited Partner is a corporation
or partnership, such Limited Partner is duly organized, validly existing and in
good standing under the laws of the jurisdiction set forth opposite the name of
such Limited Partner in Schedule A; if such Limited Partner is an individual,
such Limited Partner is a resident of the jurisdiction set forth opposite the
name of such Limited Partner in Schedule A. Such Limited Partner has the
authority to make, execute, deliver and perform this Agreement and this
Agreement has been duly authorized and approved by all required action of such
Limited Partner. This Agreement has been duly executed and delivered on behalf
of such Limited Partner and constitutes the valid and binding obligation of such
Limited Partner enforceable against it in accordance with its terms.
(b) No Restrictions on the Limited Partners. The execution and
delivery of this Agreement by such Limited Partner and the consummation of the
transactions contemplated hereby (i) will not violate any statute, rule,
regulation, order or decree of or require any notice to or filing with or
authorization, consent or approval of any governmental body or authority by
which such Limited Partner or any of the properties of such Limited Partner are
bound and (ii) will not result in a violation or breach of, or constitute a
default under, any license, franchise, permit, indenture, agreement or other
instrument to which such
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<PAGE>
Limited Partner or any of its properties is bound, excluding from the foregoing
violations, breaches or defaults which either individually or in the aggregate,
would not have an adverse effect on the business or condition (financial or
otherwise) or results of operations of such Limited Partner or adversely affect
the ability of such Limited Partner to consummate the transactions contemplated
hereby and excluding from the foregoing clause (i) notices, filings,
authorizations, consent and approvals which have been given, made or obtained
and are in full force and effect or which the failure to give, make or obtain
would not, individually or in the aggregate, have an adverse effect on the
business or condition (financial or otherwise) or results of operations of such
Limited Partner or adversely affect the ability of such Limited Partner to
consummate the transactions contemplated by this Agreement.
ARTICLE VI
Duration and Termination of Partnership
Sec. 6.01. Duration and Dissolution of Partnership. The Partnership
shall continue to operate until die earliest of the following dates:
(i) December 31, 1997, unless extended to December 31, 1998 at the election
prior to June 30, 1997 of Limited Partner having capital accounts the aggregate
value of which exceeds 50% of the value of all Limited Partners capital accounts
as of such date, or (ii) the date on which a Partnership Disabling Event,
defined below, occurs; provided, however, that the General Partner may terminate
-------- -------
the Partnership on 90-days written notice to each of the Limited Partners, which
written notice may not be given prior to October 1, 1996, in the event that such
termination of the Partnership is related to a change in control of the General
Partner or a recapitalization of the General Partner by a person unaffiliated
with the General Partner as of the date hereof.
For purposes of the foregoing, a Partnership Disabling Event shall
occur:
(i) upon any date on which it becomes unlawful for the
Partnership to engage in the business of purchasing, loaning against or
financing Health Care Receivables;
(ii) upon the mutual consent of the General Partner and Limited
Partners having capital accounts the aggregate value of which exceeds 50%
of the value of all Limited Partner capital accounts;
(iii) when the General Partner becomes insolvent, enters into any
bankruptcy proceedings whether voluntary or involuntary (unless dismissed
within 60 days thereafter), makes an assignment for the benefit of
creditors or is liquidated, wound-up or otherwise loses its legal
existence;
(iv) when the General Partner fails to obtain by the date of the
first Drawdown, or thereafter loses or has suspended or materially
restricted, any license
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<PAGE>
or authorization (whether express or implied) required for the transaction
of the Partnership's business, which failure, loss, suspension or
restriction has a material adverse effect on the Partnership's business;
(v) when during the Commitment Period, either Ethan Leder or John
Delaney ceases to be a principal of the General Partner or is otherwise no
longer involved substantially in performing the duties of the General
Partner hereunder, dies, is materially disabled, becomes insolvent, enters
into any bankruptcy proceeding or makes an assignment for the benefit of
creditors; and
(vi) when (x) either Ethan Leder or John Delaney becomes the
subject of any civil, criminal or administrative proceeding or
investigation involving allegations or charges of fraud or violations of
law and (y) Limited Partners having capital accounts the aggregate value of
which exceeds 50% of the value of the capital accounts of all Limited
Partners elect, at least three months following the commencement of such a
proceeding or investigation and while such proceeding or investigation is
ongoing, to dissolve the Partnership.
Upon the occurrence of a Partnership Disabling Event, the Partnership
shall be wound up, unless, within 30 days after the occurrence of such
Partnership Disabling Event, the remaining Partners owning a majority of the
profits interests and a majority of the capital interests agree in writing to
continue the business of the Partnership. The Partnership shall not be wound up
upon the withdrawal, death, permanent disability, adjudication of incompetency,
dissolution, termination or bankruptcy of any Limited Partner.
Sec. 6.02. Liquidation of Partnership. Upon the dissolution of the
Partnership as provided in Sec. 6.01, unless the Partnership is reconstituted
and continued pursuant to Sec. 6.01, the General Partner, out of Partnership
assets, shall pay first the expenses of winding up, liquidation and dissolution
of the Partnership, and thereafter all of the remaining assets of the
Partnership shall be distributed in the following order:
(a) to creditors, in the order of priority as provided by law;
(b) to the Partners in accordance with Sec. 3.05(a);
(c) to the Partners to the extent of their Unreturned Capital
Contributions; and
(d) to the Partners in accordance with their respective
Partnership Percentages.
Notwithstanding the foregoing, in-kind distributions of Health Care
Receivables or interests shall not be made in the course of liquidating the
Partnership. If, at the time of dissolution, the Partnership holds Health Care
Receivables, the General Partner
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<PAGE>
shall promptly attempt to sell such receivables for cash consideration, such
sales to be made to a non-affiliated third party on a prudent basis to maximize
the value of such assets. The winding up and liquidation of the Partnership
shall not be concluded until either (i) such receivables have been sold or (ii)
all of the amounts payable to the Partnership in respect of such receivables
have been received by the Partnership.
ARTICLE VII
Tax Returns; Reports to Partners
Sec. 7.01. Filing of Tax Returns. The General Partner shall prepare
and file, or cause the accountants of the Partnership to prepare and file, a
Federal information tax return in compliance with Section 6031 of the Code and
any required state and local income tax and information returns for each tax
year of the Partnership.
Sec. 7.02. Reports to Current and Former Partners.
(a) Within 15 days after the end of each calendar month, the General
Partner shall prepare and mail to each Partner a report setting forth as of the
end of the such calendar month the value of the assets and liabilities of the
Partnership and each Partner's proportional interest therein, along with a
statement of the value as of or through such date of: Drawdowns, cash deposits
and money market instruments, Unreturned Capital Contributions, Loss Recovery
Account balances and distributions of Net Profits and earnings on cash deposits
and money market instruments. In addition, such report shall include the
information with respect to borrowings by the Partnership specified in Schedule
B attached hereto. The General Partner shall establish and maintain with the
books and records of the Partnership a capital account for each Partner, which
shall be adjusted each month in accordance with the provisions of Part III to
reflect each such Partner's interest in the Partnership as of such date.
(b) Within 30 days after the end of each fiscal year, the General
Partner shall prepare and mail, or cause the accountants of the Partnership to
prepare and mail, to each Partner and, to the extent necessary, to each former
Partner (or his legal representative), a report setting forth in sufficient
detail such information as shall enable such Partner or former Partner (or his
legal representative) to prepare his federal income tax return in accordance
with the laws, rules and regulations then prevailing.
(c) The books and records of the Partnership shall be audited by its
accountants as of the end of each fiscal year of the Partnership. Within 60 days
after the end of each fiscal year, the Partnership shall prepare and mail to
each Partner, together with the report thereon of the Partnership's accountants,
the audited financial statements of the Partnership, including the Partnership's
year-end balance sheet and income statement. The Partnership's accountants shall
be Arthur Andersen & Co., unless agreed to otherwise by the
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<PAGE>
General Partner and Limited Partners having capital accounts the aggregate value
of which exceeds 50% of the value of all Limited Partner capital accounts.
Sec. 7.03. Tax Matters Partner. The General Partner shall be
designated on the Partnership's annual federal information tax return as the Tax
Matters Partner of the Partnership for purposes of Section 6231(a)(7) of the
Code. Each person (for purposes of this Sec. 7.03, called a "Pass-Thru
Partner") that holds or controls an interest as a Limited Partner on behalf
of, or for the benefit of another person or persons, or which Pass-Thru
Partner is beneficially owned (directly or indirectly) by another person or
persons shall, within 30 days following receipt from the Tax Matters Partner of
any notice, demand, request for information or similar document, convey such
notice or other document in writing to all holders of beneficial interests in
the Partnership holding such interests through such Pass-through Partner. In the
event the Partnership shall be the subject of an income tax audit by any
federal, state or local authority, to the extent the Partnership is treated as
an entity for purposes of such audit, including administrative settlement and
judicial review, the Tax Matters Partner shall be authorized to act for and its
decision shall be final and binding upon, the Partnership and each Partner
thereof; provided, however, that if the resolution of such audit may have a
-------- -------
material adverse effect on any Limited Partner, the Tax Matters Partner shall
not finally resolve such audit without the written consent of such Limited
Partner.
ARTICLE VIII
Miscellaneous
Sec. 8.01. General. This Agreement: (a) shall be binding on the
executors, administrators, estates, heirs, legal successors and representatives
of the Partners; and (b) may be executed, through the use of separate signature
pages or in any number of counterparts with the same effect as if the parties
executing such counterparts had all executed one counterpart; provided, however,
-------- -------
that each such counterpart shall have been executed by the General Partner and
that the counterparts, in the aggregate, shall have been signed by all of the
Partners.
Sec. 8.02. Power of Attorney. Each of the Limited Partners hereby
appoints the General Partner, or any Partner or Partners then acting as the
General Partner, with power of substitution as his true and lawful
representative and attorney-in-fact, in his name, place and stead to make,
execute, sign, acknowledge, swear to and file:
(a) any and all instruments, certificates, and other documents which
may be deemed necessary or desirable to effect the winding-up and termination of
the Partnership;
(b) any business certificate, fictitious name certificate, amendment
thereto, or other instrument or document of any kind necessary or desirable to
accomplish
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<PAGE>
the business, purpose and objectives of The Partnership, or required by any
applicable federal, state or local law: and
(c) all amendments or modifications to the Agreement to the extent
made in accordance with Sec. 8.03 hereof.
The power of attorney hereby granted by each of the Partners is
coupled with an interest, is irrevocable, and shall survive, and shall not be
affected by, the subsequent death, disability, incapacity, incompetency,
termination, bankruptcy or insolvency of such Partner,
Sec. 8.03. Amendments to Partnership Agreement. The terms and
provisions of This Agreement may be modified or amended at any time and from
time to time by the General Partner and all of the Limited Partners.
Sec. 8.04. Choice of Law. notwithstanding the place where this
Agreement may be executed by any of the parties hereto, the parties expressly
agree that all the terms and provisions hereof shall be construed under the laws
of the State of Delaware and, without limitation thereof, that the Act as now
adopted or as may be hereafter amended shall govern this Agreement.
Sec. 8.05. Notices. Each notice or other communication relating to
this Agreement shall be in writing and delivered in person or by registered or
certified mail. All such communications to the Partnership shall be addressed to
its principal office and place of business. All such communications addressed to
a Partner (or his legal representative) shall be addressed to such Partner at
the address set forth on Schedule A. Any Partner may designate a new address by
notice to that effect given to the Partnership. Unless otherwise specifically
provided in this Agreement, a notice shall be deemed to have been effectively
given when mailed by registered or certified mail to the proper address or
delivered in person.
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<PAGE>
Sec. 8.06. Headings. The titles of the Articles and the headings of
the Sections of this Agreement are for convenience of reference only, and are
not to be considered in construing the terms and provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as
of the date first set forth above.
GENERAL PARTNER: LIMITED PARTNERS:
HEALTHPARTNERS FINANCIAL FARALLON CAPITAL PARTNERS, L.P.
CORPORATION
By: /s/ John K. Delaney By: /s/ Jason M. Fish
------------------------- -------------------------
John K. Delaney Jason M. Fish
President General Partner
RR CAPITAL PARTNERS, L.P.
By: /s/ Jason M. Fish
-------------------------
Jason M. Fish
General Partner
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<PAGE>
SCHEDULE A
Schedule of Partners
PART I
General Partner
Partnership Capital
General Partner Jurisdiction Percentage Commitment
- --------------- ------------ ---------- ----------
HealthPartners Delaware 1% $202,000
Financial Corporation
PART II
Limited Partners
Partnership Capital
General Partner Jurisdiction Percentage Commitment
- --------------- ------------ ---------- ----------
FARALLON Capital Partners, L.P. California 84% $17,000,000
One Maritime Plaza
Suite 1325
San Francisco, CA 94111
Attention: Mr. Jason M. Fish
RR Capital Partners, L.P. New York 15% $ 3,000,000
One Maritime Plaza
Suite 1325
Sam Francisco, CA 94111
Attention: Mr. Jason M. Fish
<PAGE>
SCHEDULE B
Borrowing Schedule
Unreturned Capital Contributions Permissible Borrowings
- -------------------------------- ----------------------
Up to $15,000,000 The Partnership may borrow
on a 1.5:1 debt to equity basis with
respect to Unreturned Capital Contributions
up to $15,000,000.
Over $15,000,000 Once Unreturned Capital Contributions
exceed $15,000,000, the Partnership may
borrow on a 2:1 debt to equity basis with
respect to all Unreturned Capital
Contributions.
In addition to the foregoing restrictions, and even if under the foregoing
restrictions borrowings on a 1.5:1 basis or 2:1 basis would be permissible,
borrowings by the Partnership shall be restricted in the following manner:
Client Category Permissible Borrowings
- --------------- ----------------------
A The Partnership may borrow on a 2:1. debt to
equity basis with respect to any batch of
Health Care Receivables purchased from a
Category A client.
B The Partnership may borrow on a 1:1 debt to
equity basis with respect to any batch of
Health Care Receivables purchased from a
Category B client.
C The Partnership may not borrow with respect
to any batch of Health Care Receivables
purchased from a Category C client.
The determination of the category into which a client falls shall be made by
the General Partner. Each report to the Limited Partners prepared pursuant to
Sec. 7.02(a) shall describe each borrowing by the Partnership outstanding during
such month and the categorization of each client related to each borrowing.
Within seven days of its receipt of such monthly report, a Limited Partner shall
have the right to send to the General Partner a written objection to any such
categorization by the General Partner.
<PAGE>
SCHEDULE C
Existing Providers
A. Purchase Program (participated with HealthPartners-DEL, L.P.):
1. Associated Rehabilitation Services, Inc.*
2. Ashland Regional Medical Center, Inc."
3. Charles J. Bier, M.D.
4. Branch Villa Health Care Center, Inc.
5. ConsultAmerica East Haven, Inc.; ConsultAmerica Cottage Hills, Inc.
6. Commonwealth Care, Inc.
7. Chancellor Health Care Management, Inc. (and affiliates)
8. Chase Health Care Management, Inc.
9. Central Jersey Rehabilitation Services, Inc.
10. Community Rehabilitation Associates, Inc. (and affiliates)
11. Clinical Support Services, Inc.
12. ExtenCare, Inc.
13. First Health Corporation, d/b/a Rosewood Terraces*
14. Global Health Management, Inc.
15. Home Patient Care, Inc. (and affiliates)
16. Logan Health Care Management, Inc. (and affiliates)
17. MedTel International, L.P.
18. Maryland NeuroRehab Center, Inc.
- --------------------------
* Also a MediMax Client
<PAGE>
19. MedPremises, Inc.
20. National Care Resources, Inc.-Texas: National Care Resources, Inc.
-New York
21. Newton Hospital, Inc.
22. Nursing Enterprises, Inc.
23. Professional Home Health Services, Inc.
24. Priority Professional Services, Inc.
25. Riverdale Home Therapies, Inc.
26. Ronald D. Sager, M.D.
27. Samy El-Touhky M.D., d/b/a/ Needles Medical Center
28. Seafield Center, Inc.*
29. Skilled Nursing, Inc.; SNI Homecare, Inc.
30. Southampton Hospital*
31. SPARC, Inc.
32. Sunquest Healthcare Corporation (and affiliates)
33. The Terraces, Inc.,
34. Terrace View Diversified Health Care, Inc.
35. Urology Medical Group, Inc.
36. Visiting Nurses of Del Rio, Inc.
37. The Well Mill, Inc.
Loan Program (not participated with HealthPartners-DEL,, L.P.):
1. American Psych Systems, Inc.
2. Delta Health Group (and affiliates)
- ---------------------------------
* Also a MediMax Client
<PAGE>
3. Health Management Associates, Inc.
4. PENNMED Healthcare Group (and affiliates)
5. Physicians Home Health Care, Inc.
6. Rehab Designs of America, Inc.
MediMax Clients (not participated with HealthPartners-DEL, L.P.):
1. Hempstead Hospital
2. Primary Health Management Systems, Inc., CAMDCON, Inc., d/b/a S.T.E.P.S.
and CDCO, Inc., d/b/a/ Anacapa Hospital
<PAGE>
SCHEDULE D
MediMax Clients
1. Southampton Hospital
2. Seafield Center, Inc.
3. Hempstead General Hospital
4. Esperanza Health Systems, Inc.
5. Amtech Inc.
6. Primary Health Management Systems, Inc., CAMDO, Inc., d/b/a/ S.T.E.P.S.
and CDCO, Inc., d/b/a/ Anacapa Hospital
7. Associated Rehabilitation Services, Inc.
8. The Terraces, L.C.
9. Branch Villa Health Care Center, Inc.
10. First Health Corporation
11. Ashland Regional Medical Center
<PAGE>
2. Assignee hereby accepts the assignment of the Partnership Interest and
hereby expressly assumes all of Assignor's obligations to the partnership
whether now existing or hereafter incurred, including, without limitation, the
obligation of Assignor to make capital contributions pursuant to the
provisions of Article III of the Partnership Agreement. Assignee hereby
represents for the benefit of Assignor and the Partnership that it is acquiring
the Partnership Interest for its own account for investment and not with a view
to the resale or distribution thereof and agrees that it will not transfer,
sell, or dispose of, or offer to transfer, sell, or dispose of, all or any
portion of the Partnership Interest or solicit offers to buy from or otherwise
approach or negotiate in respect thereof with any person or persons whomsoever,
all or any portion of the Partnership Interest in any manner which would violate
or cause the Partnership or HFC to violate applicable Federal and state
securities laws.
3. This Assignment of Partnership Interest and Assumption shall be
interpreted, construed and enforced in accordance with the laws of the State of
Delaware.
4. This Assignment of Partnership Interest and Assumption shall be binding
upon and shall inure to the benefit of the respective parties hereto and their
respective legal representatives, successors and assigns.
5. This Assignment of Partnership interest and Assumption may be executed
in counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment of
Partnership Interest and Assumption as of the day and year first above written.
ASSIGNOR:
FARALLON CAPITAL PARTNERS, L.P.
By /s/ Jason M. Fish
-----------------------------------
Title: General Partner
ASSIGNEE:
HEALTHPARTNERS INVESTORS, LLC
By FARALLON CAPITAL MANAGEMENT, INC.,
Manager
By: Jason M. Fish
-----------------------------
Title: Managing Director
2.
<PAGE>
CONSENT
The undersigned, it its capacity as general partner of the Partnership,
hereby consents to the assignment and assumption provided for in the foregoing
Assignment of Partnership Interest and Assumption and to the substitution of
Assignee as a limited partner in the Partnership.
IN WITNESS WHEREOF, the undersigned has executed this Consent as of the
28th day of March, 1996.
HEALTHPARTNERS FINANCIAL CORPORATION
a Delaware corporation
By: [SIGNATURE APPEARS HERE-ILLEGIBLE]
-------------------------------------------
Title: President
3.
<PAGE>
ASSIGNMENT AND ASSUMPTION
THIS ASSIGNMENT AND ASSUMPTION, dated as of the 28th day of March, 1996 by
and between RR CAPITAL PARTNERS, L.P., a Delaware limited partnership
("Assignor") and HEALTHPARTNERS INVESTORS, LLC, a Delaware limited liability
company ("Assignee").
WITNESSETH:
WHEREAS, Assignor is a limited partner of that certain Delaware limited
partnership known as "HEALTHPARTNERS FUNDING, L.P." (the "Partnership"), which
is currently governed by that certain partnership agreement captioned "LIMITED
PARTNERSHIP AGREEMENT OF HEALTHPARTNERS FUNDING, L.P.", dated September 12,
1994, by and among Health Partners Financial Corporation, a Delaware corporation
("HFC"), Farallon Capital Partners, L.P., a California limited partnership
("FCP"), and Tinicum Partners, L.P., a New York Limited Partnership ("Tinicum"),
as amended by that certain amendment captioned "HEALTHPARTNERS FUNDING, L.P.
AMENDMENT NO. ONE TO LIMITED PARTNERSHIP AGREEMENT", dated as of October 3,
1995, by and among HFC, FCP, Tinicum, and Assignor, pursuant to which Assignor
was substituted as a limited partner in the Partnership in lieu of Tinicum (as
so amended, the "Partnership Agreement"); and
WHEREAS, Assignor desires to assign to Assignee Assignor's entire limited
partnership interest in the Partnership (the "Partnership Interest"), and
Assignee desires to acquire the Partnership Interest; and
WHEREAS, it is intended that Assignee become a substituted limited partner
in the Partnership;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Assignor hereby unconditionally assigns, sells transfers, conveys and
sets over to Assignee all of Assignor's right, title and interest in and to the
Partnership Interest, including without limitation, all of Assignor's interest
in the capital and the profits and losses of the Partnership and all rights to
receive distributions of money, profits and other assets from the Partnership.
Assignor hereby represents and warrants to Assignee that Assignor has not
heretofore assigned, sold, transferred, conveyed or hypothecated the
Partnership Interest in whole or in part, to any person or entity and that it
Owns the Partnership Interest free and clear of all liens, claims, charges and
other encumbrances. Except as otherwise expressly provided herein, the
Partnership Interest is being assigned, sold, transferred, conveyed and set over
by Assignor to Assignee "AS IS" and without representation or warranty
whatsoever,
<PAGE>
2. Assignee hereby accepts the assignment of the Partnership Interest and
hereby expressly assumes all of Assignor's obligations to the Partnership
whether now existing or hereafter incurred, including, without limitation, the
obligation of Assignor to make capital contributions pursuant to the provisions
of Article III of the Partnership Agreement. Assignee hereby represents for the
benefit of Assignor and the Partnership that it is acquiring the Partnership
interest for its own account for investment and not with a view to the resale or
distribution thereof and agrees that it will not transfer, sell, or dispose of,
or offer to transfer, sell, or dispose of, all or any portion of the Partnership
Interest or solicit offers to buy from or otherwise approach or negotiate in
respect thereof with any person or persons whomsoever, all or any portion of the
Partnership Interest in any manner which would violate or cause the Partnership
or HFC to violate applicable Federal and state securities laws.
3. This Assignment of Partnership Interest and Assumption shall be
interpreted, construed and enforced in accordance with the laws of the State of
Delaware.
4. This Assignment of Partnership Interest and Assumption shall be binding
upon and shall inure to the benefit of the respective parties hereto and their
respective legal representatives, successors and assigns.
5. This Assignment of Partnership Interest and Assumption may be executed
in counterparts, each of which shall constitute an original and all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment of
Partnership Interest and Assumption as of the day and year first above written.
ASSIGNOR:
RR CAPITAL PARTNERS, L.P.
By: /s/ Jason M. Fish
---------------------------------------
Title: General Partner
ASSIGNEE:
HEALTHPARTNERS INVESTORS, LLC
By: FARALLON CAPITAL MANAGEMENT, INC.,
Manager
By: /s/ Jason M. Fish
------------------------------
Title: Managing Director
2.
<PAGE>
CONSENT
The undersigned, in its capacity as general partner of the Partnership,
hereby consents to the assignment and assumption provided for in the foregoing
Assignment of Partnership Interest and Assumption and to the substitution of
Assignee as a limited partner in the Partnership.
IN WITNESS WHEREOF, the undersigned has executed this Consent as of the
28th day of March, 1996.
HEALTHPARTNERS FINANCIAL CORPORATION
a Delaware corporation
By: /s/ John K. Delaney
----------------------------------------
Title:
3.
<PAGE>
HEALTHPARTNERS FUNDING, L.P.
AMENDMENT NO. TWO TO LIMITED PARTNERSHIP AGREEMENT
THIS AMENDMENT NO. TWO TO LIMITED PARTNERSHIP AGREEMENT, dated as of the
28th day of March, 1996, by and among HEALTHPARTNERS FINANCIAL CORPORATION, a
Delaware corporation, ("HFC"), FARALLON CAPITAL PARTNERS, L.P., a California
limited partnership ("FCP"), RR CAPITAL PARTNERS, L.P., a Delaware limited
partnership ("Capital") and HEALTHPARTNERS INVESTORS, LLC, a Delaware limited
liability company ("Investors").
W I T N E S S E T H:
WHEREAS, HEALTHPARTNERS FUNDING, L.P., a Delaware limited partnership (the
"Partnership"), is currently governed by that certain partnership agreement
captioned "LIMITED PARTNERSHIP AGREEMENT OF HEALTHPARTNERS FUNDING, L.P.", dated
September 12, 1994. by and among HFC, FCP and Tinicum Partners, L.P., a New York
Limited Partnership ("Tinicum"), as amended by that certain amendment captioned
"HEALTHPARTNERS FUNDING, L.P. AMENDMENT NO. ONE TO LIMITED PARTNERSHIP
AGREEMENT, dated as of October 3, 1995, by and among HFC, FCP, Tinicum, and
Capital, pursuant to which Capital was substituted as a limited partner in the
Partnership in lieu of Tinicum (as so amended, the "Partnership Agreement"); and
WHEREAS, by Assignment and Assumption, dated as of March 28, 1996, by and
between FCP and Investors, FCP assigned to Investors FCP's entire limited
partnership interest in the Partnership, and Investors assumed all obligations
of FCP to the Partnership; and
WHEREAS, by Assignment and Assumption, dated as of March 28, 1996, by and
between Capital and Investors, Capital assigned to Investors Capital's entire
limited partnership interest in the Partnership, and Investors assumed all
obligations of Capital to the Partnership; and
WHEREAS, HFC, in its capacity as general partner of the Partnership has
consented to the foregoing assignments and to the substitution of Investors as a
limited partner in the Partnership in lieu of both FCP and Capital; and
WHEREAS, the parties desire to amend the Partnership Agreement to reflect
the foregoing assignment and assumption and the substitution of Investors as a
limited partner in the Partnership in lieu of both FCP and Capital;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
1. Capitalized terms not otherwise defined in this Amendment shall have
the meanings assigned to such terms in the Partnership Agreement.
2. Investors hereby consents and agrees to be bound by all of the terms
and provisions of the Partnership Agreement, as amended by this Amendment.
3. The parties hereby confirm the substitution of Investors as a limited
partner in the Partnership in lieu of both FCP and Capital, effective as of
March 28, 1996, without any further action being required pursuant to the
provisions of section 4.03 of the Partnership Agreement or otherwise.
4 In order to give effect to the foregoing assignment, assumption and
substitution, Schedule A to the Partnership Agreement is hereby amended in its
entirety to read as set forth in Schedule A attached hereto.
5. So long as Investors is the only Limited Partner of the Partnership,
all references in the Partnership Agreement, as amended by this Amendment, to
the "Limited Partners" shall be to Investors as the sole limited partner.
6. This Amendment shall be interpreted, construed and enforced in
accordance with the laws of the State of Delaware.
7. This Amendment may be executed in counterparts, each of which shall
constitute an original and all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
HEALTHPARTNERS FINANCIAL CORPORATION
By: /s/ John K. Delaney
-----------------------------------------
Title:
FARALLON CAPITAL PARTNERS L.P.
By: /s/ Jason M. Fish
-----------------------------------------
Title: General Partner
RR CAPITAL PARTNERS, L.P.
By: /s/ Jason M. Fish
---------------------------------------
Title: General Partner
2.
<PAGE>
Exhibit 21.1
List of Subsidiaries:
1) HP Funding, Inc.
<PAGE>
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated September 13, 1996 with respect to the combined
financial statements of HealthCare Financial Partners, Inc. and HealthPartners
DEL, L.P. and the financial statements of HealthPartners Funding, L.P. in the
Registration Statement (Form S-1 No. 333- ) and the related Prospectus of
HealthCare Financial Partners, Inc. dated September 20, 1996.
/s/ ERNST & YOUNG LLP
Washington, D.C.
September 19, 1996
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated September 13, 1996 with respect to the combined
financial statements of HealthCare Financial Partners, Inc. and HealthPartners,
DEL, L.P. for the years ended December 31, 1995 and 1994 and the period from
inception April 22, 1993 to December 31, 1993 and the financial statements of
HealthPartners Funding, L.P. for the year ended December 31, 1995 and the period
from inception September 12, 1994 to December 31, 1994 in the Registration
Statement on Form S-1 and the related Prospectus of HealthCare Financial
Partners, Inc. dated September 20, 1996
/s/ McGladrey & Pullen, LLP
Richmond, Virginia
September 20, 1996
<PAGE>
EXHIBIT 23.4
CONSENT
The undersigned hereby consents to be named in the Registration
Statement on Form S-1 (and the Prospectus included therein) of HealthCare
Financial Partners, Inc. (the "Corporation") as a person nominated or chosen to
be appointed as a director of the Corporation and to serve as a director of the
Corporation if so appointed.
Dated: September 19, 1996 /s/ John Dealy
--------------------------------------------------
John Dealy
<PAGE>
Exhibit 23.5
CONSENT
The undersigned hereby consents to be named in the Registration
Statement on Form S-1 (and the Prospectus included therein) of HealthCare
Financial Partners, Inc. (the "Corporation") as a person nominated or chosen to
be appointed as a director of the Corporation and to serve as a director of the
Corporation if so appointed.
Dated: September 19, 1996 /s/ Geoffrey E.D. Brooke
-----------------------------------------------------
Geoffrey E.D. Brooke
