<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER: 0-21425
HEALTHCARE FINANCIAL PARTNERS, INC.
(Exact name of Registrant as specified in its Charter)
DELAWARE 52-1844418
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 WISCONSIN CIRCLE, SUITE 320
CHEVY CHASE, MARYLAND 20815
(Address of principal executive offices) (Zip code)
(301) 961-1640
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock ($.01 par value) 9,669,341 as of September 30, 1997
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<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 (Unaudited).......................................................... 1
Condensed Consolidated Statements of Operations for the three
and nine months ended September 30, 1997 and September 30, 1996 (Unaudited)................ 2
Condensed Consolidated Statements of Equity for the
year and nine months ended December 31, 1996 and September 30, 1997 (Unaudited)............ 3
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and September 30, 1996 (Unaudited)................................ 4
Notes to Condensed Consolidated Financial Statements (Unaudited)........................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................. 19
Item 2. Changes in Securities......................................................................... 19
Item 3. Defaults Upon Senior Securities............................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders........................................... 19
Item 5. Other Information............................................................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................................................. 19
SIGNATURES............................................................................................. 20
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1997 1996
----------------- ----------------
<S> <C> <C>
Cash and cash equivalents $ 15,600,980 $ 11,734,705
Finance receivables 218,501,952 89,328,928
Less:
Allowance for losses on receivables 2,343,992 1,078,992
Unearned fees 2,333,957 723,804
------------ ------------
Net finance receivables 213,824,003 87,526,132
Accounts receivable from related parties 80,884 5,576
Property and equipment 333,828 223,397
Goodwill 1,784,655
Prepaid expenses and other 5,208,600 1,783,279
------------ ------------
Total assets $236,832,950 $101,273,089
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 26,203,662 $ 21,829,737
Commercial paper facility 84,941,287 37,209,098
Warehouse facility 23,721,720
Client holdbacks 10,304,490 11,739,326
Accounts payable to clients 691,181 1,020,131
Amounts due to related parties 317,993
Accounts payable and accrued expenses 5,382,594 1,925,504
Notes payable 128,319 126,389
Accrued interest 609,585 383,935
------------ ------------
Total liabilities 151,982,838 74,552,113
Stockholders' equity
Preferred stock, par value $.01 per share; 10,000,000 shares
authorized; none outstanding
Common stock, par value $.01 per share; 30,000,000 shares
authorized; 9,669,341 and 6,214,991 shares issued and
outstanding in 1997 and 1996, respectively 96,694 62,150
Paid-in-capital 79,769,559 26,704,234
Retained equity (deficit) 4,983,859 (45,408)
------------ ------------
Total stockholders' equity 84,850,112 26,720,976
------------ ------------
Total liabilities and equity $236,832,950 $101,273,089
============ ============
</TABLE>
See accompanying notes.
1
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- ----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------- ----------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
Fee and interest income:
Discount fees $ 1,343,643 $1,973,526 $ 4,381,455 $5,105,411
Commitment fees 430,746 25,003 1,074,056 384,230
Other fees 1,241,216 118,475 2,577,957 587,649
Interest income 4,936,268 1,006,997 9,867,280 2,211,007
----------- ---------- ----------- ----------
Total fee and interest income 7,951,873 3,124,001 17,900,748 8,288,297
Interest expense 1,984,344 923,175 5,086,069 2,304,331
----------- ---------- ----------- ----------
Net fee and interest income 5,967,529 2,200,826 12,814,679 5,983,966
Provision for losses on receivables 605,000 216,315 1,005,000 613,116
----------- ---------- ----------- ----------
Net fee and interest income after provision
for losses on receivables 5,362,529 1,984,511 11,809,679 5,370,850
Operating expenses:
Compensation and benefits 946,622 344,689 2,638,383 826,059
Commissions 52,146 113,092 124,729 336,570
Professional fees 79,403 23,929 365,365 267,161
Occupancy 56,832 19,993 159,867 118,656
Administrative and other 537,072 294,523 1,673,115 733,799
----------- ---------- ----------- ----------
Total operating expenses 1,672,075 796,226 4,961,459 2,282,245
Other income 300,004 153,651 1,110,126 171,651
----------- ---------- ----------- ----------
Income before deduction of
preacquisition earnings and income taxes 3,990,458 1,341,936 7,958,346 3,260,256
Deduction of preacquisition earnings 1,393,523 3,450,587
----------- ---------- ----------- ----------
Income (loss) before income taxes 3,990,458 (51,587) 7,958,346 (190,331)
Income taxes (benefit) 1,532,034 2,929,079 (13,268)
----------- ---------- ----------- ----------
Net income (loss) $ 2,458,424 $ (51,587) $ 5,029,267 $ (177,063)
=========== ========== =========== ==========
Net income per share $0.25 $0.67
Weighted average shares outstanding 9,665,580 7,554,750
Fully diluted net income per share $0.25 $0.64
Fully diluted weighted average
shares outstanding 10,007,679 7,896,849
</TABLE>
See accompanying notes.
2
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------
LIMITED RETAINED TOTAL
PARTNER'S COMMON PAID-IN EARNINGS EQUITY
CAPITAL STOCK CAPITAL (DEFICIT) TOTAL (DEFICIT)
--------- -------- ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995
(combined) $ 415,305 $ 34,200 $ (574,970) $ (540,770) $ (125,465)
Issuance of 2,415,000 shares
of $.01 par value common stock 24,150 $ 26,708,034 26,732,184 26,732,184
Conversion of common stock
warrants to 379,998 shares of $.01
par value common stock 3,800 (3,800)
Net distributions to partners (415,305) (415,305)
Net income 529,562 529,562 529,562
--------- -------- ------------- ---------- ----------- -----------
Balance at December 31, 1996
(consolidated) 62,150 26,704,234 (45,408) 26,720,976 26,720,976
Issuance of 3,450,000 shares of $.01
par value common stock 34,500 53,005,310 53,039,810 53,039,810
Common stock issuable under
performance option plan 11,991 11,991 11,991
Common stock issued under
employee option plans 44 48,024 48,068 48,068
Net income 5,029,267 5,029,267 5,029,267
--------- -------- ------------- ---------- ----------- -----------
Balance at September 30, 1997
(consolidated) $ 96,694 $ 79,769,559 $4,983,859 $84,850,112 $84,850,112
========= ======== ============= ========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ENDED SEPTEMBER 30,
------------------------------------
1997 1996
----------------- ----------------
<S> <C> <C>
Operating activities
Net income (loss) $ 5,029,267 $ (177,063)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation 91,115 33,124
Amortization of goodwill 47,690
Stock compensation plan 11,991
Provision for losses on receivables 1,005,000 613,116
Deferred income taxes (527,308)
Preacquisition earnings 3,450,587
Changes in assets and liabilities:
Increase in accounts receivable
from related parties (75,308) (204,779)
Increase in prepaid expenses
and other (3,086,013) (516,246)
Decrease in cash overdraft (23,979)
Increase in accrued interest 225,650 290,529
Increase (decrease) in accounts payable and accrued expenses 2,413,050 (461,173)
------------- ------------
Net cash provided by operating activities 5,135,134 3,004,116
INVESTING ACTIVITIES
Increase in finance receivables, net (114,466,705) (32,857,485)
Addition of net cash from Funding 2,140,316
Purchase of property and equipment, net (201,546) (167,666)
Purchase of limited partnership interest, net of cash acquired (15,200,257)
------------- ------------
Net cash used in investing activities (129,868,508) (30,884,835)
FINANCING ACTIVITIES
Net borrowings under line of credit 4,373,925 24,799,770
Net borrowings under commercial paper facility 47,732,189
Net borrowings under warehouse facility 23,721,720
Issuance of common stock, net of expenses 53,087,878
Increase in notes payable 1,930 38,283
(Distributions to) contributions from limited partners, net (317,993) 5,507,244
------------- ------------
Net cash provided by financing activities 128,599,649 30,345,297
------------- ------------
Net increase in cash and cash equivalents 3,866,275 2,464,578
Cash and cash equivalents at beginning of period 11,734,705
------------- ------------
Cash and cash equivalents at end of period $ 15,600,980 $ 2,464,578
============= ============
Supplemental disclosure of cash flow information:
Cash payments for interest $ 4,860,419 $ 2,013,802
============= ============
</TABLE>
See accompanying notes.
4
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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 issued 2,415,000 shares of common stock, in an initial
public offering (offering) in November 1996. In connection with 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. Effective upon the
completion of the offering, the Company used the proceeds of the offering to
acquire, using the purchase method of accounting, all the limited partnership
interests in HealthPartners Funding, L.P. (Funding) and Funding was liquidated
(the acquisition) (See Note 4). The amount paid to acquire the limited
partnership interest approximated both the fair value and the book value of
Funding at the date of the acquisition. Prior to the offering and the
acquisition of Funding by the Company, the Company owned a 1% general partner
interest in HealthPartners DEL, L.P. (DEL) and Funding. In addition, the
majority owners of the Company owned all of the limited partnership interests of
DEL. Prior to the offering, the Company's principal activity was its interest in
Funding. Additionally, the Company provided operational and management support
to Funding for a fee. Funding's principal activities were, and now the Company'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 financial statements of the Company for 1996 are consolidated assuming
the acquisition of Funding occurred as of January 1, 1996 under the provisions
of Accounting Research Bulletin No. 51. The deduction of preacquisition earnings
reflects the operations of Funding and DEL allocated to the limited partners of
Funding and DEL prior to the acquisition.
On September 1, 1996, in contemplation of the offering, Funding acquired,
using the purchase method of accounting, 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 and book value of
DEL's net assets. Immediately following the acquisition, DEL was dissolved.
Effective in March 1997, the Company formed HealthCare Financial Partners-
Funding II, L.P. (Funding II, L.P.), a limited partnership in which HCFP Funding
II, Inc., a wholly owned subsidiary of the Company (Funding II), became the
General Partner. Funding II, L.P. was established to expand the Company's
secured term lending program. On June 17, 1997, the Company sold 3,450,000
shares of common stock to the public in a secondary offering. The proceeds of
this offering were $53 million. Subsequent to this offering, utilizing the
purchase method of accounting, Funding II acquired all of the limited
partnership interest in Funding II, L.P. for a purchase price of $15.5 million,
paying $15.2 million net of cash acquired, and Funding II, L.P. was then
liquidated. This payment reflected the fair value of the business and exceeded
the book value by $1.6 million, which was recorded as goodwill.
5
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
1. BASIS OF PRESENTATION (CONTINUED)
Effective April 1, 1997, the Company formed HealthCare Analysis
Corporation, a wholly owned subsidiary, to perform due diligence services and
ongoing audits on the Company's clients.
Effective August, 1997, the Company formed HealthCare Financial Partners -
Funding III, L.P. (Funding III, L.P.), a limited partnership in which HCFP
Funding III, Inc., a wholly owned subsidiary of the Company (Funding III),
became the General Partner. Funding III, L.P. was established to introduce the
Company's presence in a new market, with a new product line. Funding III, L.P.
participated in a Department of Housing & Urban Development (HUD) auction of a
distressed mortgage loan portfolio, from which it purchased four loans. Funding
III holds a 1% General and 49% Limited partnership interest in Funding III, L.P.
and receives 60% of the income from the partnership's activities, which is
included in other income on the consolidated financial statements under the
equity basis of accounting, as Funding III, and therefore the Company, does not
have sufficient control to warrant consolidation.
The accompanying unaudited condensed consolidated financial statements of
the Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete consolidated financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The preparation of
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. Operating results for the three and nine
months ended September 30, 1997 are not necessarily indicative of the results
for the year ending December 31, 1997. The notes to the consolidated financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 should be read in conjunction with these condensed
consolidated financial statements.
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.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding, including dilutive stock options. Fully
diluted earnings per share is computed using the higher of the average or the
period end stock price in the dilutive stock option calculation. Earnings per
share are not presented for periods prior to December 31, 1996 because they are
not meaningful due to the partnership reporting basis of DEL and Funding and to
the reorganization and offering described in Note 1.
6
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
3. BORROWINGS
On June 7, 1997, the Company and Funding II entered into a financing
agreement (the "Warehouse Facility") with Credit Suisse First Boston Mortgage
Capital, LLC ("CSFB") to securitize certain loans under the Company's Secured
Term Loan ("STL") Program. The Company has total borrowing capacity under the
agreement of $50,000,000.
In connection with this agreement, Funding II formed a wholly owned
subsidiary, Wisconsin Circle II Funding Corporation (Wisconsin II), a single
purpose bankruptcy remote corporation, to purchase qualifying receivables from
Funding II, which are subsequently securitized. The amount outstanding under the
Warehouse Facility may not exceed 88% of the principal amount of the STL Program
loans securitized. Interest accrues under the Warehouse Facility a rate of
LIBOR plus 3.75%. The facility is in place until June 27, 1999. Subsequent to
that date, no new loans may be securitized under the existing agreement, however
previous loans securitized will remain outstanding until they have been fully
repaid. Additionally, under the terms of the agreement, Wisconsin II has the
right to repurchase any assets securitized at a price equal to the fair market
value of such assets. At September 30, 1997, the Company had borrowed $23.7
million under this facility, which is the amount outstanding at that time.
4. PURCHASE OF FUNDING
Effective upon the completion of its initial public offering described in
Note 1, the Company acquired, using the purchase method of accounting, the
limited partnership interest in Funding, consisting primarily of finance
receivables and related borrowings. The amount paid to acquire Funding, net of
cash acquired, of $16.2 million approximated both the fair value and book value
of Funding at the date of acquisition.
The financial statements of the Company for 1996 are consolidated assuming
the acquisition of Funding occurred as of January 1, 1996 under the provisions
of Accounting Research Bulletin No. 51. The pro forma results of operations
following reflect the operating results of the Company for the three and nine
months ended September 30, 1997 and 1996 as if the acquisition of Funding had
occurred on January 1, 1996, and Funding's operations were included with the
Company.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
1997 1996 1997 1996
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net fee and interest income $5,967,529 $2,200,826 $12,814,679 $5,983,966
Provision for losses on receivables 605,000 216,315 1,005,000 613,116
Net operating expenses 2,904,105 1,165,930 6,780,412 3,382,094
---------- ---------- ----------- ----------
Net income $2,458,424 $ 818,581 $ 5,029,267 $1,988,756
========== ========== =========== ==========
</TABLE>
7
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(UNAUDITED)
4. PURCHASE OF FUNDING (CONTINUED)
The stand-alone results of operations of Funding for the three and nine
months ended September 30, 1996 were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ended Sept. 30, 1996 ENDED SEPT. 30, 1996
-------------------- --------------------
<S> <C> <C>
Net fee and interest income $2,010,378 $5,298,465
Provision for losses on receivables 216,315 537,805
Net operating expenses 398,342 1,226,393
---------- ----------
Income before income taxes and deduction $1,395,721 $3,534,267
========== ==========
of preacquisition earnings
</TABLE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which is
effective for the year ended December 31, 1997 for the Company. The SFAS
changes the way primary and fully diluted earnings per share will be computed.
The Company does not believe the SFAS will have a material impact on the
Company's earnings per share information.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
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
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.
The Company had 180 clients as of September 30, 1997, of which 82 were
affiliates of one or more clients. The average amount outstanding per client or
affiliated client group at September 30, 1997 was approximately $1.8 million.
For the three and nine month periods ended September 30, 1996, the Company's pro
forma net income was $818,581 and $2.0 million, respectively, and for the three
and nine month periods ended September 30, 1997, the Company's net income was
$2.5 and $5.0 million, respectively. (The Company used the proceeds of its
initial public offering on November 21, 1996 (the "Offering") to acquire limited
partnership interests in partnerships it formerly managed for a fee. As a
result, the Company believes that net income for the three and nine month
periods ended September 30, 1996 is more accurately presented on a pro forma
basis. See --"The Reorganization".) On June 17, 1997 the Company completed a
secondary stock offering (the "Secondary Offering"), and raised an additional
$53 million of capital.
The Company currently provides financing to its clients through (i)
revolving lines of credit secured by accounts receivable and advances against
accounts receivable ("Accounts Receivable Program") and, (ii) term loans secured
by real estate, accounts receivable and other assets as well as senior debt with
warrants (the "STL Program"), often in conjunction with financing provided under
the Accounts Receivable Program. The yield on finance receivables generated
under the Accounts Receivable Program for the three and nine month periods ended
September 30, 1997, was 16.9% and 16.6%, respectively; for the STL Program the
yields for the three and nine month periods was 18.2% and 16.9%, respectively.
The yield on finance receivables generated under the Accounts Receivable Program
for the three and nine month periods ended September 30, 1996, was 17.1% and
18.0%, respectively. The Company had no STL Program finance receivables
outstanding for the three and nine month periods ended September 30, 1996. As of
September 30, 1997, the finance receivables originated through the Company's
Accounts Receivable Program were 78.8% of total finance receivables. As a result
of the Company's introduction of new financial products, STL Program loans
increased and comprised 21.2% of finance receivables at September 30, 1997, and
may comprise an increasing percentage of the Company's assets within the
foreseeable future. While base interest rates on such loans are expected to be
less than the yields generated from the Accounts Receivable Program, term loans
under the STL Program may also include warrants or success fees that could
enhance the effective yields on such loans.
In March 1997, in order to fund the Company's expansion of the STL Program,
the Company formed HCFP Funding II, Inc., ("Funding II"), a wholly owned
subsidiary, to serve as general partner in HealthCare Financial Partners-Funding
II, L.P. ("Funding II, L.P.") and obtained a $20.0 million commitment from
Farallon Capital Management, LLC ("Farallon") to fund secured term loans made by
Funding II, L.P. to healthcare providers. Affiliates of Farallon are
shareholders of the Company. See --"The Reorganization". Utilizing funds
available from this partnership to make STL Program loans provided liquidity to
the Company for the initial stages of the STL Program without requiring the
Company to incur significant additional credit risk. Subsequent to the
Secondary Offering, Funding II, utilizing the purchase method of accounting,
acquired all of the limited partnership interest in Funding II, L.P. for a
purchase price of $15.5 million, by paying $15.2 million, net of cash acquired
and Funding II, L.P. was then liquidated. The cash payment to the limited
partner reflected the fair value of the business purchased, and exceeded the
book value of the
9
<PAGE>
limited partners interest by $1.6 million, which was recorded
as goodwill.
THE REORGANIZATION
Prior to the Offering, the Company conducted its operations principally in
its capacity as the general partner of two limited partnerships it formerly
managed for a fee, 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 and the
transactions described below (the "Reorganization") were effected by the Company
prior to or simultaneously with the Offering.
Effective as of September 1, 1996, Funding acquired all of the net assets
of DEL, consisting principally of finance receivables, for $486,630 in cash,
which amount approximated the fair value of DEL's net assets. 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.
Effective upon completion of the Offering, the Company acquired from
HealthPartners Investors, L.L.C. ("HP Investors"), the sole limited partner of
Funding, all of the limited partnership interests in Funding and paid the $21.8
million purchase price for such assets from the proceeds of the Offering. Such
purchase price represented the limited partner's interest in the net assets of
Funding and approximated both the fair value and book value of the net assets.
Funding was subsequently 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 were transferred to the Company.
In connection with the liquidation of Funding, Farallon and RR Capital
Partners, L.P. ("RR Partners"), the only two members of HP Investors, exercised
warrants for the purchase of an aggregate of 379,998 shares of Common stock
acquired on December 28, 1994 for an aggregate payment of $500, which
represented the fair value of the warrants at that date. No additional
consideration was paid in connection with the exercise of the warrants. HP
Investors transferred the warrants to Farallon and RR Partners in contemplation
of the liquidation of Funding.
In November 1996, Fleet Capital Corporation ("Fleet") made available to the
Company a line of credit which prior to such time had been available to Funding.
This line of credit currently enables the Company to borrow from Fleet up to $40
million. See "--Liquidity and Capital Resources."
FINANCIAL INFORMATION
The following discussion should be read in conjunction with the condensed
consolidated financial statements, including the notes thereto, of HealthCare
Financial Partners, Inc.
10
<PAGE>
RESULTS OF OPERATIONS
Three Month Period ended September 30, 1997 Compared to the Three Month Period
Ended September 30, 1996
Total fee and interest income increased from $3.1 million for the three
month period ended September 30, 1996 to $8.0 million for the three month period
ended September 30, 1997, an increase of 154.5%. The increase principally
resulted from an increase of $107.9 million in average finance receivables
outstanding due to the Company's growth in the Accounts Receivable Program and
its introduction of the STL Program during the last quarter of 1996. Interest
earned from the STL and Accounts Receivable Program increased from $1.0 million
for the three month period ended September 30, 1996 to $4.9 million for the
three month period ended September 30, 1997, which accounted for $3.9 million of
the $4.9 million growth in total fee and interest income between the periods.
The Company increased its client base in the Accounts Receivable Program from
112 clients at September 30, 1996 to 171 clients at September 30, 1997.
Additionally, existing clients increased their average borrowings from the
Company in three month period ended September 30, 1997 as compared to the prior
year. The yield on finance receivables increased from 17.1% for the three month
period ended September 30, 1996 to 17.6% for the three month period ended
September 30, 1997. Therefore, the increase in fee and interest income was due
to growth in the volume of finance receivables, as well as the increase in
yield. Although the yield on the Accounts Receivable Program for the three month
period ended September 30, 1997 decreased to 16.9% from 17.1% for the three
month period ended September 30, 1996 due to a substantially greater volume of
Accounts Receivable Program finance receivables outstanding during the three
month period ended September 30, 1997 to larger, more creditworthy borrowers at
lower interest rates, the yield on finance receivables for the three month
period ended September 30, 1997 was increased from 17.1% to 17.6% due to the
growth of the STL Program which returned an overall yield of 18.2% for the three
month period ended September 30, 1997.
Interest expense increased from $923,175 for the three month period ended
September 30, 1996 to $2.0 million for the three month period ended September
30, 1997. However the Company's average cost of borrowed funds decreased from
10.4% for the three month period ended September 30, 1996 to 8.3% for the three
month period ended September 30, 1997, as a result of utilization of the
commercial paper facility for the majority of the borrowings for 1997 through
September 30. This increase in interest expense was the result of higher
average borrowings required to support the Company's growth. Because of the
Company's overall growth in finance receivables and lower interest cost, net fee
and interest income increased 171.1%, from $2.2 million for the three month
period ended September 30, 1996 to $6.0 million for the three month period ended
September 30, 1997. The increased borrowings at lower rates, and the increased
yield on finance receivables, resulted in an increase in the annualized net
interest margin from 12.0% for the three month period ended September 30, 1996
to 13.2% for the three month period ended September 30, 1997.
The Company's provision for losses on receivables increased from $216,315
for the three month period ended September 30, 1996 to $605,000 for the three
month period ended September 30, 1997. This increase is attributable to the
growth of the Company's finance receivables and the size of the Company's
average client balance, which increased to approximately $1.8 million, which are
among the factors considered by the Company in assessing the adequacy of its
allowance for losses on receivables. The Company experienced no credit losses in
either period.
Operating expenses increased from $796,226 for the three month period ended
September 30, 1996 to $1.7 million for the three month period ended September
30, 1997, a 110.0% increase. This increase was the result of a 174.6% increase
in compensation and benefits due to hiring additional personnel, as well as
increases in other operating expenses, all relating to the expansion of the
Company's operations.
11
<PAGE>
Other income increased from $153,651 for the three month period ended
September 30, 1996 to $300,004 for the three month period ended September 30,
1997, mainly attributable to the Company passing through to and collecting from
clients the costs of legal services rendered by in-house legal personnel who
were hired to perform these previously outsourced legal services in connection
with the Company's lending operations. During the three month period ended
September 30, 1996, the Company outsourced all legal activities.
Net income increased, on a historical basis, from a loss of $51,587 for the
three month period ended September 30, 1996, to net income of $2.5 million for
the three month period ended September 30, 1997. However, in recognition of the
Company's Reorganization, management believes a discussion and analysis of the
Company's net income is most effectively presented on a pro forma basis.
The following table summarizes unaudited pro forma operating results for
the three month period ended September 30, 1996 and the unaudited historical
operating results for the three month period ended September 30, 1997. The pro
forma three month quarterly financial data reflects the Reorganization and is
prepared as if the Reorganization had occurred on January 1, 1996. The proforma
adjustments for the three month period ended September 30, 1996 are the
elimination of the deduction for preacquisition earnings to limited partners and
the proforma provision for income taxes because earnings attributable to DEL and
Funding are presented on a partnership reporting basis for tax purposes (i.e.,
no provision for income tax is included in the historical financial statements
in the limited partners allocation of earnings). A pro forma tax rate of 39% was
applied to calculate the proforma income tax provision and the proforma net
income amounts.
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
-------------- --------------
SEPT. 30, SEPT. 30,
1997 1996
-------------- --------------
<S> <C> <C>
Fee and interest income
Fee income $3,015,605 $2,117,004
Interest income 4,936,268 1,006,997
---------- ----------
Total fee and interest income 7,951,873 3,124,001
Interest expense 1,984,344 923,175
---------- ----------
Net fee and interest income 5,967,529 2,200,826
Provision for losses on
receivables 605,000 216,315
---------- ----------
Net fee and interest income after provision
for losses on receivables 5,362,529 1,984,511
Operating expenses 1,672,075 796,226
Other income 300,004 153,651
---------- ----------
Income before income taxes 3,990,458 1,341,936
Income taxes 1,532,034 523,355
---------- ----------
Pro forma net income $2,458,424 $ 818,581
========== ==========
</TABLE>
Net income increased from $818,581 income (as shown on a proforma basis in
1996) for the three month period ended September 30, 1996 to $2.5 million for
the three month period ended September 30, 1997, a 200.3% increase, primarily as
a result of the overall growth in the Company's finance receivables as described
above.
12
<PAGE>
RESULTS OF OPERATIONS
Nine Month Period ended September 30, 1997 Compared to the Nine Month Period
Ended September 30, 1996
Total fee and interest income increased from $8.3 million for the nine
month period ended September 30, 1996 to $17.9 million for the nine month period
ended September 30, 1997, an increase of 116.0%. The increase principally
resulted from an increase of $80.4 million in average finance receivables
outstanding due in part to the Company's growth in the Accounts Receivable
Program and its introduction of the STL Program during the last quarter of 1996.
Interest earned from the STL and Accounts Receivable Programs increased from
$2.2 million for the nine month period ended September 30, 1996 to $9.9 million
for the nine month period ended September 30, 1997, which accounted for $7.7
million of the $9.6 million growth in total fee and interest income between the
periods. The Company increased its client base in the Accounts Receivable
Program from 112 clients at September 30, 1996 to 171 clients at September 30,
1997. Additionally, existing clients increased their average borrowings from the
Company in the nine month period ended September 30, 1997 as compared to the
prior year. Because the yield on finance receivables declined from 18.0% for the
nine month period ended September 30, 1996 to 16.9% for the nine month period
ended September 30, 1997, the increase in fee and interest income was due to
growth in the volume of finance receivables, and was somewhat offset by the
decline in yield. The yield on finance receivables for the nine month period
ended September 30, 1997 was lower due to a substantially greater volume of
Accounts Receivable Program finance receivables outstanding during the nine
month period ended September 30, 1997 to larger, more creditworthy borrowers at
lower interest rates. Interest expense increased from $2.3 million for the nine
month period ended September 30, 1996 to $5.1 million for the nine month period
ended September 30, 1997. However the Company's average cost of borrowed funds
decreased from 10.2% for the nine month period ended September 30, 1996 to 8.6%
for the nine month period ended September 30, 1997 as a result of utilization of
the commercial paper facility for the majority of the borrowings for 1997
through September 30. This increase in interest expense was the result of higher
average borrowings required to support the Company's growth. Because of the
Company's overall growth in finance receivables and lower interest cost, net fee
and interest income increased 114.2%, from $6.0 million for the nine month
period ended September 30, 1996 to $12.8 million for the nine month period ended
September 30, 1997. Lower yield on finance receivables due to making larger
loans to more credit worthy borrowers at lower rates, somewhat offset by
increased borrowings at lower rates, resulted in a decrease in the annualized
net interest margin from 13.0% for the nine month period ended September 30,
1996 to 12.1% for the nine month period ended September 30, 1997.
The Company's provision for losses on receivables increased from $613,116
for the nine month period ended September 30, 1996 to $1,005,000 for the nine
month period ended September 30, 1997. This increase is attributable to the
growth of the Company's finance receivables over the last two years, and the
size of the Company's average client balance which increased to $1.8 million,
which are among the factors considered by the Company in assessing the adequacy
of its allowance for losses on receivables. The Company experienced no credit
losses in either period.
Operating expenses increased from $2.3 million for the nine month period
ended September 30, 1996 to $5.0 million for the nine month period ended
September 30, 1997, a 117.4% increase. This increase was the result of a 219.4%
increase in compensation and benefits due to hiring additional personnel, a
36.8% increase in professional fees due to the regulatory requirements imposed
upon a public company, a 34.7% increase in
13
<PAGE>
occupancy expense as well as increases in other operating expenses, all relating
to the expansion of the Company's operations.
Other income increased from $171,651 for the nine month period ended
September 30, 1996 to $1.1 million for the nine month period ended September 30,
1997. This increase is mainly attributable to the Company receiving fees from
clients for legal and due diligence services performed by in-house personnel.
These fees were previously paid by the clients but passed through to the outside
firm that performed the services. Additionally, partnership income earned by
Funding II, L.P. accounted for $82,757 of other income in 1997.
Net income increased, on a historical basis, from a loss of $177,063 for
the nine month period ended September 30, 1996, to net income of $5.0 million
for the nine month period ended September 30, 1997. However, in recognition of
the Company's Reorganization, management believes a discussion and analysis of
the Company's net income is most effectively presented on a pro forma basis.
The following table summarizes unaudited pro forma operating results for
the nine month period ended September 30, 1996 and the unaudited historical
operating results for the nine month period ended September 30, 1997. The pro
forma nine month quarterly financial data reflects the Reorganization and is
prepared as if the Reorganization had occurred on January 1, 1996. The proforma
adjustments for the nine month period ended September 30, 1996 are the
elimination of the deduction for preacquisition earnings to limited partners and
the proforma provision for income taxes because earnings attributable to DEL and
Funding are presented on a partnership reporting basis for tax purposes (i.e.,
no provision for income tax is included in the historical financial statements
in the limited partners allocation of earnings). A pro forma tax rate of 39% was
applied to calculate the proforma income tax provision and the proforma net
income amounts.
<TABLE>
<CAPTION>
HISTORICAL PROFORMA
-------------- --------------
SEPT. 30, SEPT. 30,
1997 1996
-------------- --------------
<S> <C> <C>
Fee and interest income
Fee income $ 8,033,468 $6,077,290
Interest income 9,867,280 2,211,007
----------- ----------
Total fee and interest income 17,900,748 8,288,297
Interest expense 5,086,069 2,304,331
----------- ----------
Net fee and interest income 12,814,679 5,983,966
Provision for losses on
receivables 1,005,000 613,116
----------- ----------
Net fee and interest income after provision
for losses on receivables 11,809,679 5,370,850
Operating expenses 4,961,459 2,282,245
Other income 1,110,126 171,651
----------- ----------
Income before income taxes 7,958,346 3,260,256
Income taxes 2,929,079 1,271,500
----------- ----------
Pro forma net income $ 5,029,267 $1,988,756
=========== ==========
</TABLE>
Net income increased from $2.0 million income (as shown on a proforma basis
in 1996) for the nine month period ended September 30, 1996 to $5.0 million for
the nine month period ended September 30, 1997,
14
<PAGE>
a 152.9% increase, primarily as a result of the overall growth in the Company's
finance receivables as described above.
EXCESS COLLATERAL AND CLIENT HOLDBACKS
The Company's primary protection against credit losses is its security
interest in client accounts receivable due from third-party payors which
collateralize either line of credit advances or advances the Company makes when
it purchases its clients' accounts receivable under the Accounts Receivable
Program. The Company obtains a first priority security interest in all of the
client's accounts receivable, including receivables not financed by the Company
("Excess Collateral"). As a result, 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. In
addition, 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. The Company always maintains an allowance for
losses on receivables.
Under the Accounts Receivable Program, the Company will extend credit on
revolving lines of 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 applies payments received with respect to the
full amount of the client's accounts receivable to offset any amounts due from
the client. The estimated net collectible value of a client's accounts
receivable thus exceeds at any time amounts advanced against those accounts and
is secured by such accounts receivable.
Also under the Accounts Receivable Program, the Company will,
alternatively, purchase 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. As is the case with the revolving lines of credit, the Company
obtains a first priority security interest in all of the client's accounts
receivable.
Under the STL Program, the Company's term loans to clients are secured by a
lien on various types of collateral, such as accounts receivable, real estate,
equipment, inventory and stock, depending on the circumstances of each loan and
the availability of collateral. Additionally, the Company issues senior debt
with warrants under this program.
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 September 30,
1996, 3.5x for the quarter ended December 31, 1996, 2.6x for the quarter ended
March 31, 1997, 2.8x for the quarter ended June 30, 1997, and 2.7x for quarter
ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows resulting from operating activities have provided sources of
cash amounting to $3.0 million and $7.0 million for the nine months ended
September 30, 1996 and 1997, respectively. The most significant source of cash
from operating activities is derived from the Company's generation of net fee
and interest income from its finance receivables, and the more significant uses
of cash from internal operating activities are
15
<PAGE>
derived from cash payments for compensation and employee benefits, rent expense,
and professional fees. As the Company's number of clients and resulting business
opportunities have grown, the Company has primarily used cash in the acquisition
of finance receivables under its Accounts Receivable Program and STL Program.
The Company's financing activities have provided the necessary source of funds
for the acquisition of receivables. These financing activities have occurred
from both debt and equity sources. As of September 30, 1997, debt sources of
capital available to the Company to fund advances under the Accounts Receivable
Program, and loans under the STL Program were a revolving line of credit (the
"Bank Facility") with Fleet, an investment-grade asset backed commercial paper
program (the "CP Facility") with ING Baring (U.S.) Capital Markets, Inc.
("ING"), and a revolving warehouse line of credit with Credit Suisse First
Boston ("Warehouse Facility") for $50 million to fund advances under its STL
program. The sources of equity financing were primarily from limited partner
capital contributions prior to the Reorganization and the Offering. See "The
Reorganization". Subsequent to the Offering, the limited partnership interest
(in Funding) was purchased using a significant portion of the Offering proceeds,
the limited partnership was dissolved and its assets transferred to the Company.
The Company completed the Secondary Offering in the second quarter of 1997, and
raised $53 million. Subsequently, the limited partnership interest in Funding II
was purchased for $15.5 million, the limited partnership was dissolved, and its
assets transferred to the Company. The Company increased its outstanding
balances under the Bank Facility by $24.8 million during the nine months ended
September 30, 1996. The Company increased its outstanding balance under the Bank
Facility by $4.4 million during the nine months ended September 30, 1997. On
December 5, 1996, the Company entered into an agreement with ING for $100
million of financing under the CP Facility. The Company increased its
outstanding balance under the CP Facility by $47.8 million in the nine months
ended September 30, 1997. The CP Facility was not available in the nine months
ended September 30, 1996. The limited partners provided capital contributions of
$12.0 million during the nine months ended September 30, 1996 and the limited
partners also received cash distributions from their capital accounts of $6.5
million during the nine months ended September 30, 1996. Subsequent to the
Offering all of the limited partners' capital was returned to them. The Company
initiated its borrowings under the Warehouse Facility in the third quarter of
1997 by borrowing $23.7 million.
The Bank Facility is a $40 million 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 in an integral multiple of
$500,000 based on the one-month, two-month, three-month or six-month LIBOR plus
2.75%. As of September 30, 1997, $26.2 million was outstanding under the Bank
Facility. 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. 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. The intercreditor arrangements
entered into in connection with the CP Facility excludes borrowings under the
CP Facility from debt for purposes of calculating the debt-to-equity ratio. At
September 30, 1997, the Company was in compliance with all of its covenants
under the Bank Facility. The expiration date for the Bank Facility is March 9,
1998, subject to automatic renewal for one-quarter periods thereafter unless
terminated by Fleet, which requires nine months prior written notice. The
Company is currently considering a term sheet to raise the borrowing limit to
$75 million.
Under the terms of the CP Facility, the Company is able to borrow up to
$100 million. The CP Facility requires the Company to transfer advances and
related receivables under its ABL Program or its AR Advance Program which meet
certain criteria to a bankruptcy remote, special purpose subsidiary of the
Company. The special purpose subsidiary pledges the finance receivables
transferred by the Company to Holland Limited Securitization Inc., a commercial
paper conduit which is an affiliate of ING (the "Conduit"). The Conduit lends
against such pledged assets through the issuance of commercial paper. As of
September 30, 1997, $84.9
16
<PAGE>
million of commercial paper was outstanding under the CP Facility. The CP
Facility requires the maintenance of a minimum overcollateralization percentage
of 125%. Under the CP Facility, ING can refuse to make any advances in the event
the Company fails to maintain a tangible net worth of at least $20 million and
to make advances in excess of $75 million in the event the Company fails to
maintain a tangible net worth of at least $25 million. At September 30, 1997,
the Company was in compliance with all of its covenants under the CP Facility.
The maturity date for the CP Facility is March 5, 2001. However, the commercial
paper program may be terminated by the Company at anytime after March 5, 1999,
without penalty. The Company is negotiating with Holland Limited Securitization,
Inc. to increase the upper borrowing limit to $200 million.
On June 27, 1997, the Company and Funding, II effected the Warehouse
Facility by entering into a series of financing agreements with Credit Suisse
First Boston Mortgage Capital, LLC ("CSFB") and First Trust of New York,
National Association (the "Trustee") to securitize certain loans under the
Secured Term Loan Program ("STL Program"). In connection with these agreements,
Funding II formed a wholly owned subsidiary, Wisconsin Circle II Funding
Corporation, ("Wisconsin II"), a single purpose, bankruptcy remote corporation.
Under these agreements, STL Program loans originated by the Funding II which
meet certain criteria set forth therein may be transferred to Wisconsin II, and
subsequently securitized. The amount outstanding under the financing agreements
may not exceed 88% of the principal amount of the loans securitized, subject to
a $50 million maximum. Interest will accrue under the financing agreement at a
rate equal to LIBOR plus 3.75%. The facility is in place until June 27, 1999, at
which time the Warehouse Facility expires as to new loans. However, previous
loans securitized will remain outstanding until they are fully repaid or their
terms expire. The Company had borrowed $23.7 million, which was outstanding at
September 30, 1997, under the Warehouse Facility and was in compliance with all
of the covenants.
The Company is also negotiating a fourth source of debt, a $50-$100 million
securitization of a portion of its finance receivable portfolio. This
securitization is anticipated to occur in the fourth quarter of 1997 or first
quarter of 1998. It is expected that the securitization will be an on Balance
Sheet financing and no "gain on sale accounting" is anticipated.
During the third quarter of 1997, funds committed by the limited partners
in Funding III, L.P. became available to allow Funding III, L.P. to purchase at
a discount from their principal balance four distressed mortgages from the
Department of Housing and Urban Development ("HUD") at auction for approximately
$1.6 million. Utilizing such capital under this partnership structure to fund
such loans allowed the Company to expand its product lines without incurring the
credit risk associated with concentration of clients in the inception of the
program.
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 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 Accounts Receivable Program generally adjust based upon changes in the prime
rate. However, the fees charged on the AR Advance Program within the Accounts
Receivable 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 historically were fixed at origination for stated maturities
generally of one year or less. However, under the expanded STL Program, interest
rates are being charged based on prime. 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
17
<PAGE>
borrow any portion of the Bank Facility in an integral multiple of $500,000
based on the one-month, two-month, three-month or six-month LIBOR plus 2.75%.
The interest rate on the Warehouse Facility adjusts based on LIBOR plus 3.75%.
The interest rate on the CP Facility adjusts based upon changes in commercial
paper rates. Because the Company expects to finance the majority of the Accounts
Receivable Program activity through the CP Facility, there exists some interest
rate sensitivity since the interest rate on advances to the Company's clients
under Accounts Receivable Program will adjust based on the prime rate, and the
interest rate on most of the Company's liabilities under the CP Facility will
adjust based on commercial paper rates. Such limited interest rate sensitivity
on the Accounts Receivable Program portfolio is not expected to have a material
effect on the Company's net interest income if interest rates change.
Additionally, because $26.6 million of the Company's net finance receivables are
purchased by the Company under the Accounts Receivable Program for which fees
are generally fixed with each batch purchased and financed with the 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 this portion of the portfolio. If interest rates increase
significantly, this interest rate sensitivity 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 with respect to finance receivables that are purchased, and
therefore retains substantial flexibility to negotiate fees based on changes in
interest rates. Interest rate sensitivity related to loans under the STL Program
exists to the extent that such loans have fixed interest rates; however, fixed
rate loans under the STL Program at September 30, 1997 constituted less than 1%
of the Company's assets. Such interest rate sensitivity with respect to STL
Program loans is expected to continue to be normal in the future as adjustable
rates are charged on most new loans.
INFLATION
Inflation has not had a significant effect on the Company's operating
results to date.
18
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings -- Not Applicable
Item 2. Changes in Securities -- Not Applicable
Item 3. Defaults Upon Senior Securities -- Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders --Not Applicable
Item 5. Other Information -- Not Applicable
Item 6. Exhibits and Reports on Form 8-K
Material Contracts:
-------------------
10.15 Employment Agreement between the Company and Hilde M. Alter,
dated as of July 1, 1997
10.16 Employment Agreement between the Company and Steven M.
Curwin, dated as of September 1, 1997
10.17 Employment Agreement between the Company and Steven I.
Silver, dated as of October 1, 1996
10.18 Amendment No. 1 to Employment Agreement between the Company
and Steven I. Silver, dated as of July 1, 1997
Supplementary Exhibits
----------------------
99. Supplementary Data:
Additional financial and statistical information
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTHCARE FINANCIAL PARTNERS, INC.
DATE: November 12, 1997 /s/ Edward P. Nordberg, Jr.
-----------------------------------
By: EDWARD P. NORDBERG, JR.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
20
<PAGE>
Exhibit 10.15
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1997, between HEALTHCARE
FINANCIAL PARTNERS, INC., a Delaware corporation (the "Corporation"), and HILDE
M. ALTER (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
The Executive is the Treasurer and Chief Accounting Officer for 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, and pursuant to the terms of the letter dated October 1, 1996
furnished by the Corporation to Executive, 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
Treasurer and Chief Accounting Officer 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 accounting
and other duties as are commensurate with the authority being exercised and
duties being performed by the Executive for the Corporation and its subsidiaries
and affiliates immediately prior to the effective date of this Agreement. The
Corporation shall in no event diminish Executive's duties and responsibilities
at any time after the date of this Agreement and throughout the Employment
Period.
(b) During the Employment Period, the Executive shall (i) devote her
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 her own account
or for or on behalf of any other person, firm or corporation or any other
activity which, in the reasonable judgment of the Board, competes, conflicts or
interferes with the performance of her duties hereunder in any way, and (ii)
accept and perform any and all other duties assigned to her by the Board,
provided that the performance of such duties shall not be inconsistent with, or
in any way diminish, the scope and significance to the Corporation of the duties
provided for in subparagraph (a) of this Paragraph 1.1.
<PAGE>
(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 location in the greater Washington metropolitan area as the Board may
designate.
1.2 Compensation and General Benefits. As compensation for her
---------------------------------
services under this Agreement, the Executive shall be compensated as follows:
(a) Commencing July 1, 1997, the Corporation shall pay the Executive
an annual salary of $175,000. Commencing January 1, 1998, and on January 1 of
each year thereafter, the Corporation shall pay the Executive an annual salary
which is not less than the greater of (i) $175,000 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, 401(k), insurance, 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. In addition, the Corporation shall reimburse Executive for
forty (40) hours of continuing professional education per calendar year.
(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 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 take annual paid vacation of
durations determined in her reasonable discretion.
2
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2. Competition, Confidential Information.
-------------------------------------
2.1 Employee's Access to Confidential and Proprietary Information.
-------------------------------------------------------------
(a) The Executive and the Corporation recognize that due to the nature
of her prior association with the Corporation and its affiliates and of her
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 her 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 her relationship with the Corporation is terminated. The
Executive accordingly agrees as follows:
2.2 Non-Competition and Non-Solicitation.
------------------------------------
(a) For purposes of this Agreement, the "Non-Competition Period" shall
included (i) the Employment Period (as defined in Paragraph 4.1 of this
Agreement) and (ii) the twelve (12) months immediately following the termination
of Executive's employment with the Corporation pursuant to Paragraph 4.2(a) or
(b) of this Agreement. The term "Territory" shall include all states of the
United States, the District of Columbia, and all United States territories and
possessions.
(b) For purposes of this Agreement, the term "compete" shall mean to
own or otherwise participate in, any business enterprise that provides financing
to "small- to medium-size health care companies." The term small- to medium-
size health care companies" means a health care company with annual revenues up
to and including $250 million, and the term "business of the HCFP Companies"
means engaging in any and all financing, management, consulting, or advisory
activities directed to the small-to-medium size health care company market.
(c) For purposes of this Agreement, the term "HCFP Companies" shall
mean and include the Corporation, HCFP Funding, Inc., a Delaware corporation,
and any other corporations, partnerships, limited liability companies, firms,
associations or other entities in
3
<PAGE>
which the Corporation has (directly or indirectly) a more than fifty percent
(50%) equity ownership interest.
(d) During the Non-Competition Period, Executive will not, directly or
indirectly, either individually or as owner, partner, agent, joint venturer,
independent contractor, shareholder, security holder, employee, consultant or
otherwise, except for the account of and on behalf of HCFP Companies or their
affiliates, compete with the HCFP Companies or any of their affiliates in any
manner whatsoever within the Territory. This prohibition, however, shall apply
only if Executive's employment is terminated pursuant to Paragraphs (a) or (b)
of Paragraph 4.2 of this Agreement. During the Employment Period, Executive
shall report and make available to the HCFP companies in a prompt and timely
manner all business opportunities which are within the scope of the business of
the HCFP Companies or their affiliates and which becomes available to Employee
or of which she has knowledge.
(e) During the Non-Competition Period, Executive will not directly, or
indirectly, either individually or as owner, partner, agent, joint venturer,
independent contractor, shareholder, security holder, employee, consultant or
otherwise (except during the Employment Period for the account and on behalf of
the HCFP Companies or their affiliates), solicit, attempt to solicit or
otherwise engage the services of, or become associated in any business that may
compete with the HCFP Companies or their subsidiaries or affiliates, with any
person who was an employee, officer or director of the HCFP Companies or any of
their affiliates during the 12 months preceding the date Executive's employment
with the Corporation was terminated.
(f) Anything in this Agreement to the contrary notwithstanding,
nothing in this Paragraph 2.2 shall be construed to prevent Executive from
owning , as an investment, not more than 1% of a class of equity securities
issued by any company that competes with the HCFP Companies or their affiliates
and that is publicly traded and has a class of securities registered under
Paragraph 12 of the Securities Exchange Act of 1934.
2.3 Trade Secrets. Employee will keep confidential any trade secrets
-------------
or confidential or proprietary information of the HCFP Companies and their
affiliates which are known to her or which hereafter may become known to her as
a result of her 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 HCFP Companies and their affiliates during and at all times
after the expiration of the Employment Period. For purposes of this Agreement,
"trade secrets or confidential proprietary information" means information unique
to the HCFP Companies or any available from sources outside the HCFP Companies
or any of their affiliates or typical of industry practice.
4
<PAGE>
3. The Corporation's Remedies for Breach. It is recognized that damages
-------------------------------------
in the event of a breach of Paragraph 2 by Employee 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 if may have, shall
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and Employee hereby waives
any and all defenses she 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 third annual anniversary of the date of this
Agreement, subject to extension pursuant to Paragraph 4.1(b), (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 annual anniversary of the date of this Agreement, and
on each annual anniversary date thereafter, the Employment Period shall be
automatically 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 her intention not to so extend the Employment Period.
4.2 Termination of Employment.
-------------------------
(a) The Executive may terminate her 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 her regular duties,
and in addition will perform such consulting services as may be requested by the
Corporation to assist in the orderly transition of her duties to another person
or persons and/or to assist in the training of her replacement.
(b) The Corporation may terminate the employment of the Executive for
cause (as defined in Paragraph 4.4(a)) and, upon such termination, the
Corporation will have no further obligation to the Employee. The Corporation
shall not be entitled to terminate the employment of the Executive without
cause. In the event, however that the Corporation or any successor upon a Sale
of the Corporation (as defined in Paragraph 4.4(c)) terminates Executive's
employment without cause (as defined in Paragraph 4.4(a)), Executive shall be
paid a lump sum payment in cash, immediately upon the termination without cause,
equal to the aggregate
5
<PAGE>
compensation and benefits as calculated pursuant to Paragraph 1.2 at the annual
salary rate in effect at the time of termination, with such lump sum payment to
be equal to the aggregate compensation that would otherwise be payable to
Executive for the then remaining portion of the Employment Period (i.e. 2 1/2
years if terminated without cause on January 1, 1998). If the successor upon a
Sale of the Corporation fails to make such lump sump payment upon a termination
of Executive without cause, the Corporation shall be obligated to immediately
make such payment.
(c) The employment of the Executive will be automatically terminated
by her death or Total Disability. In the event that the Executive dies while
this Agreement is in effect, the Corporation will pay to the Executive's spouse
(or if she is not married at the time of her death, to her estate) compensation
under Paragraph 1.2 through the end of the month in which her employment
terminated.
(d) The Corporation shall have no right to terminate Executive's
employment other than in strict accordance with the terms of this Paragraph 4.2.
4.3 Return of Corporation Property.
------------------------------
The Executive authorizes the Corporation to withhold any amounts due
to her until all property of the Corporation or entrusted to the Executive by
the Corporation at any time during her employment has been returned to the
Corporation. The Executive authorizes the Corporation to deduct from any
amounts otherwise due to her, an amount equal to any outstanding advances made
by the Corporation to her or on her behalf, any obligations she incurred for
which she is responsible, and any amounts otherwise owed by her 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 (i) fraud, misappropriation or intentional
material damage in 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 $10,000.00 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 her 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 any 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.
6
<PAGE>
(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.
(c) "Sale of the Corporation" shall mean a transaction in which an
Independent Third Party or a group of Independent Third Parties acquires (1) all
or substantially all of the issued and outstanding capital stock of the
Corporation, whether by merger, consolidation or sale or transfer of stock, or
(2) all or substantially all of the Corporation's assets.
(d) "Independent Third Party" shall mean any person or entity who,
immediately before the contemplated transaction, does not own in excess of 5% of
the Corporation's common stock on a fully diluted basis (a "5% Owner"), who is
not controlling, controlled by or under common control with any 5% Owner, and
who is not a family member of any 5% Owner.
5. Indemnification. To the maximum extent permitted by law and
---------------
the Corporation's articles of incorporation 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 (and/or its successors upon a
-----------
Sale of 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 her in connection therewith or in bringing any proceedings, or in
defending any proceedings, involving the Executive's rights under this
Agreement, with 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 she 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,
her executors, administrators and personal representatives. The rights and
obligations of the Corporation under
7
<PAGE>
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. Specific Performance. In the event of any breach of any
--------------------
provision of this Agreement, including without limitation, Paragraph 4 hereof,
the non-breaching party shall be entitled to seek a decree of specific
performance thereof against the breaching party. Such remedy, however, shall be
cumulative and nonexclusive and shall be in addition to any other remedy to
which the parties may be entitled.
10. 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
unenforceabilility of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ATTEST: CORPORATION:
HEALTHCARE FINANCIAL
PARTNERS, INC.
Steven M. Curwin By: Edward P. Nordberg, Jr.
- ----------------------- ------------------------------
Name: Steven M. Curwin Name: Edward P. Nordberg, Jr. (SEAL)
Title: Secretary Title: Executive Vice President
WITNESS: EXECUTIVE:
Melissa L. Schroeder Hilde M. Alter
- ---------------------- --------------------------
Hilde M. Alter (SEAL)
9
<PAGE>
Exhibit 10.16
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of September 1, 1997, between HEALTHCARE
FINANCIAL PARTNERS, INC., a Delaware corporation (the "Corporation"), and STEVEN
M. CURWIN (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
The Executive is the Senior Vice President and General Counsel for 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
General Counsel and an 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 legal and
Executive duties as are commensurate with the authority being exercised and
duties being performed by the Executive for the Corporation and its subsidiaries
and affiliates immediately prior to the effective date of this Agreement. The
Corporation shall in no event diminish Executive's legal and executive duties
and responsibilities at any time after the date of this Agreement and throughout
the Employment Period.
(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 reasonable 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, or
in any way diminish, the scope and significance to the Corporation of the duties
provided for in subparagraph (a) of this Paragraph 1.1.
<PAGE>
(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 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 September 1, 1997, the Corporation shall pay the
Executive an annual salary of $170,000. Commencing January 1, 1998, and on
January 1 of each year thereafter, the Corporation shall pay the Executive an
annual salary which is not less than the greater of (i) $170,000 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 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 three (3) weeks paid
vacation during each year, subject to increase in accordance with the
Corporation's written policies or subsequent arrangements entered into with
Executive.
2
<PAGE>
2. Competition, Confidential Information.
-------------------------------------
2.1 Employee's Access to Confidential and Proprietary Information.
-------------------------------------------------------------
(a) 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:
2.2 Non-Competition and Non-Solicitation.
------------------------------------
(a) For purposes of this Agreement, the "Non-Competition Period" shall
included (i) the Employment Period (as defined in Paragraph 4.1 of this
Agreement) and (ii) the twelve (12) months immediately following the termination
of Executive's employment with the Corporation pursuant to Paragraph 4.2(a) or
(b) of this Agreement. The term "Territory" shall include all states of the
United States, the District of Columbia, and all United States territories and
possessions.
(b) For purposes of this Agreement, the term "compete" shall mean to
devote more than fifty percent (50%) of Executive's efforts to the legal
representation of, or other participation in, any business enterprise that
provides financing to "small- to medium-size health care companies." The term
small- to medium-size health care companies" means a health care company with
annual revenues up to and including $250 million, and the term "business of the
HCFP Companies" means engaging in any and all financing, management, consulting,
or advisory activities directed to the small-to-medium size health care company
market.
(c) For purposes of this Agreement, the term "HCFP Companies" shall
mean and include the Corporation, HCFP Funding, Inc., a Delaware corporation,
and any other corporations, partnerships, limited liability companies, firms,
associations or other entities in
3
<PAGE>
which the Corporation has (directly or indirectly) a more than fifty percent
(50%) equity ownership interest.
(d) During the Non-Competition Period, Executive will not, directly or
indirectly, either individually or as owner, partner, agent, joint venturer,
independent contractor, shareholder, security holder, employee, consultant or
otherwise, except for the account of and on behalf of HCFP Companies or their
affiliates, compete with the HCFP Companies or any of their affiliates in any
manner whatsoever within the Territory. This prohibition, however, shall apply
only if Executive's employment is terminated pursuant to Paragraphs (a) or (b)
of Paragraph 4.2 of this Agreement. During the Employment Period, Executive
shall report and make available to the HCFP companies in a prompt and timely
manner all business opportunities which are within the scope of the business of
the HCFP Companies or their affiliates and which becomes available to Employee
or of which he has knowledge.
(e) During the Non-Competition Period, Executive will not directly, or
indirectly, either individually or as owner, partner, agent, joint venturer,
independent contractor, shareholder, security holder, employee, consultant or
otherwise (except during the Employment Period for the account and on behalf of
the HCFP Companies or their affiliates), solicit, attempt to solicit or
otherwise engage the services of, or become associated in any business that may
compete with the HCFP Companies or their subsidiaries or affiliates, with any
person who was an employee, officer or director of the HCFP Companies or any of
their affiliates during the 12 months preceding the date Executive's employment
with the Corporation was terminated.
(f) Anything in this Agreement to the contrary notwithstanding,
nothing in this Paragraph 2.2 shall be construed to prevent Executive from
owning , as an investment, not more than 1% of a class of equity securities
issued by any company that competes with the HCFP Companies or their affiliates
and that is publicly traded and has a class of securities registered under
Paragraph 12 of the Securities Exchange Act of 1934.
2.3 Trade Secrets. Employee will keep confidential any trade secrets
-------------
or confidential or proprietary information of the HCFP Companies and their
affiliates which are 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 HCFP Companies and their affiliates during and at all times
after the expiration of the Employment Period. For purposes of this Agreement,
"trade secrets or confidential proprietary information" means information unique
to the HCFP Companies or any available from sources outside the HCFP Companies
or any of their affiliates or typical of industry practice.
3. The Corporation's Remedies for Breach. It is recognized that damages
-------------------------------------
in the event of a breach of Paragraph 2 by Employee would be difficult, if not
impossible, to ascertain, and it is therefore agreed that the Corporation, in
addition to and without limiting any other
4
<PAGE>
remedy or right if may have, shall have the right to an injunction or other
equitable relief in any court of competent jurisdiction, enjoining any such
breach, and Employee 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 annual anniversary of the date of this
Agreement, subject to extension pursuant to Paragraph 4.1(b), (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 annual anniversary of the date of this Agreement, and
on each annual anniversary date thereafter, the Employment Period shall be
automatically 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 terminate the employment of the Executive for
cause (as defined in Paragraph 4.4(a)) and, upon such termination, the
Corporation will have no further obligation to the Employee. The Corporation
shall not be entitled to terminate the employment of the Executive without
cause. In the event, however that the Corporation or any successor upon a Sale
of the Corporation (as defined in Paragraph 4.4(c)) terminates Executive's
employment without cause (as defined in Paragraph 4.4(a)), Executive shall be
paid a lump sum payment in cash, immediately upon the termination without cause,
equal to the aggregate compensation and benefits as calculated pursuant to
Paragraph 1.2 at the annual salary rate in effect at the time of termination,
with such lump sum payment to be equal to the aggregate
5
<PAGE>
compensation that would otherwise be payable to Executive for the then remaining
portion of the Employment Period (i.e. 4 1/2 years if terminated without cause
on March 1, 1998), but in no event less than three (3) years' aggregate cash
compensation. If the successor upon a Sale of the Corporation fails to make
such lump sump payment upon a termination of Executive without cause, the
Corporation shall be obligated to immediately make such payment.
(c) The employment of the Executive will be automatically terminated
by his death or Total Disability. In the event that the Executive 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.
(d) The Corporation shall have no right to terminate Executive's
employment other than in strict accordance with the terms of this Paragraph 4.2.
4.3 Return of Corporation Property.
------------------------------
The Executive 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 Executive 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 (i) fraud, misappropriation or intentional
material damage in 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 $10,000.00 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 any 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
6
<PAGE>
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.
(c) "Sale of the Corporation" shall mean a transaction in which an
Independent Third Party or a group of Independent Third Parties acquires (1) all
or substantially all of the issued and outstanding capital stock of the
Corporation, whether by merger, consolidation or sale or transfer of stock, or
(2) all or substantially all of the Corporation's assets.
(d) "Independent Third Party" shall mean any person or entity who,
immediately before the contemplated transaction, does not own in excess of 5% of
the Corporation's common stock on a fully diluted basis (a "5% Owner"), who is
not controlling, controlled by or under common control with any 5% Owner, and
who is not a family member of any 5% Owner.
5. Indemnification. To the maximum extent permitted by law and
---------------
the Corporation's articles of incorporation 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 (and/or its successors upon a
-----------
Sale of 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, with 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 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
7
<PAGE>
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. Specific Performance. In the event of any breach of any
--------------------
provision of this Agreement, including without limitation, Paragraph 4 hereof,
the non-breaching party shall be entitled to seek a decree of specific
performance thereof against the breaching party. Such remedy, however, shall be
cumulative and nonexclusive and shall be in addition to any other remedy to
which the parties may be entitled.
10. 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
unenforceabilility of any provision hereof shall in no way affect the validity
or enforceability of any other provision.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
ATTEST: CORPORATION:
HEALTHCARE FINANCIAL
PARTNERS, INC.
Debra Van Alstyne By: Edward P. Nordberg, Jr.
- --------------------------- ---------------------------
Name: Debra Van Alstyne Name: Edward P. Nordberg, Jr. (SEAL)
Title: Vice President Title: Executive Vice President (SEAL)
WITNESS: EXECUTIVE:
Kanchan V. Deshmukh Steven M. Curwin
- --------------------------- ------------------------------
Steven M. Curwin (SEAL)
9
<PAGE>
Exhibit 10.17
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is effective as of October 1,
1996, and is made by and between HEALTHCARE FINANCIAL PARTNERS, INC., a Delaware
corporation (the "Corporation") (formerly known as HEALTHPARTNERS FINANCIAL
CORPORATION), and STEVEN I. SILVER ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
A. Employee is a consultant currently providing marketing and systems
analysis services to the Corporation pursuant to a marketing services agreement
between Employee and the Corporation dated November 1, 1995 (the "Marketing
Services Agreement") and possesses an intimate knowledge of the business and
affairs of the Corporation.
B. The Corporation recognizes Employee's contribution to the growth and
success of the Corporation and desires to assure to the Corporation the
continued benefits of Employee's expertise and knowledge by terminating the
Marketing Services Agreement and hiring Employee as a full-time employee of the
Corporation on the terms provided in this Agreement.
C. Employee desires to terminate the Marketing Services Agreement and
commence full-time employment with the Corporation on the terms provided in this
Agreement.
D. The Corporation and Employee recognize that Employee's knowledge of
the business and affairs of the Corporation make it necessary to have certain
restrictions on Employee's right to engage in activities that may be detrimental
to the Corporation.
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants and representations contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Full-Time Employment of Employee.
--------------------------------
1.1 Duties and Status
-----------------
(a) The Corporation hereby engages Employee as a full-time executive
employee for the period specified in paragraph 4 (the "Employment Period"), and
Employee accepts the employment, on the terms and conditions set forth in this
Agreement. During the Employment Period, Employee shall, subject at all times
to the direction and review of the President of the Corporation or his designee
(hereinafter the "President") develop and implement all advertising and
promotion campaigns, develop and coordinate a broker network, coordinate all
sales and marketing efforts, and hire and supervise all sales persons (including
telemarketers) employed or retained by the Corporation, and be entitled to
exercise such authority and perform such duties as are commensurate with the
authority exercised and duties performed by a sales and
<PAGE>
marketing director. Upon the termination of that certain adversary proceeding
involving Employee and his former employer, Towers Financial Corporation, the
Corporation shall cause Employee to be elected an officer of the Company in the
position of Vice President of Marketing.
(b) During the Employment Period, Employee 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 President, 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 President, 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 Employee shall be required to
perform the services and duties provided for in paragraph (a) of this paragraph
1.1 shall be at the Corporation's main office in Chevy Chase, Maryland or such
other location in the greater Washington metropolitan area as the Corporation
may designate.
1.2 Compensation and General Benefits. As compensation for his
---------------------------------
services under this Agreement, Employee shall be compensated as follows:
(a) Beginning on the date of this Agreement, the Corporation shall pay
Employee an annual salary of $125,000. Beginning on January 1, 1998, and on
each January 1 thereafter during the employment period, the Corporation shall
pay Employee an annual salary that is not less than the greater of (i) $135,000
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. The salary shall be
payable in periodic equal installments that are no less frequent than the
periodic salary installments paid to employees of the Corporation generally.
(b) Employee shall be eligible to participate in those profit-sharing,
stock option, bonus, incentive and performance award programs as are in effect
and are available to officers of comparable rank. Notwithstanding the
foregoing, however, nothing in this Employment Agreement shall preclude the
Corporation's Board of Directors (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 Employee, and (ii)
discontinuing any plan or program at any time that the Board determines that the
discontinuance is in the best interests of the Corporation. Employee will be
reimbursed for any expenses incurred on behalf of the Corporation.
2
<PAGE>
(c) Beginning on December 31, 1996, and on the last day of each
calendar quarter thereafter during the term of this Agreement, Employee shall be
paid a bonus of $12,500. At the request of Employee, the bonus shall be paid in
periodic equal installments that are no less frequent than the periodic
installments relating to employees of the Corporation generally. Employee shall
also be entitled to receive an annual bonus at the discretion of the Board based
upon the Corporation's general performance, and the specific performance of the
Corporation's marketing efforts.
(d) Employee shall be entitled to receive and obtain the benefit of
those 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 those perquisites 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 plan or program
at any time that the Board determines that the discontinuance is in the best
interests of the Corporation.
(e) Employee shall be entitled to receive three (3) weeks
vacation during each year.
2. Competition; Confidential Information.
-------------------------------------
2.1 Employee's Access to Confidential and Proprietary Information.
--------------------------------------------------------------
(a) Employee and the Corporation acknowledge and recognize that due to
the nature of Employee's prior association with the Corporation, its
subsidiaries and its affiliates and his duties and responsibilities under this
Agreement, and due to the relationship of Employee to the Corporation and its
affiliates, both in the past as a consultant and in the future under this
Agreement, Employee 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 HCFP
Companies (as defined in paragraph 2.2(c) below) and their 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.
(b) Employee acknowledges that confidential and proprietary
information has been and will continue to be of vital importance to the business
of the HCFP Companies and their affiliates and that disclosure of that
information to or use of that information by others could cause substantial loss
to the Corporation.
(c) Employee and the Corporation acknowledge and recognize that an
important part of Employee's duties will be to develop good will for the HCFP
Companies and their affiliates through his personal contact with customers,
agents and others having business
3
<PAGE>
relationships with the HCFP Companies and their affiliates, and that there is a
danger that this good will, a proprietary asset of the HCFP Companies and their
affiliates, may follow Employee if and when his relationship with the
Corporation is terminated.
(d) Employee and the Corporation acknowledge and agree that these
circumstances require that Employee agree to certain non-competition terms.
2.2 Non-Competition and Non-Solicitation.
------------------------------------
(a) For purposes of this Agreement, the "Non-Competition Period" shall
include (i) the Employment Period (as defined in paragraph 4.1 of this
Agreement), and (ii) the twelve (12) months immediately following the
termination of Employee's employment with the Corporation pursuant to paragraph
4.2(a) and (b) of this Agreement. The term "Territory" shall include all states
of the United States, the District of Columbia, and all United States
territories and possessions.
(b) For purposes of this Agreement, the term "compete" shall mean to
engage in any sales and marketing efforts to obtain financing for any "small- to
medium-size health care company, " the term "small- to medium-size health care
company" means a health care company with annual revenues up to and including
$250 million. and the term "business of the HCFP Companies" means engaging in
any and all financing, management, consulting, or advisory activities directed
to the small-to-medium size health care company market.
(c) For purposes of this Agreement, the term "HCFP Companies" shall
mean and include the Corporation, HCFP Funding, Inc., a Delaware corporation,
and any other corporations, partnerships, limited liability companies, firms,
associations or other entities in which the Corporation has (directly or
indirectly) a more than fifty percent (50%) equity ownership interest.
(d) During the Non-Competition Period, Employee will not, directly or
indirectly, either individually or as owner, partner, agent, joint venturer,
independent contractor, shareholder, security holder, employee, consultant or
otherwise, except for the account of and on behalf of the HCFP Companies or
their affiliates, compete with the HCFP Companies or any of their affiliates in
any manner whatsoever within the Territory. This prohibition, however, shall
apply only if Employee's employment is terminated pursuant to paragraphs (a) or
(b) of paragraph 4.2 of this Agreement. During the Employment Period, Employee
shall report and make available to the HCFP Companies in a prompt and timely
manner all business opportunities which are within the scope of the business of
the HCFP Companies or their affiliates and which become available to Employee or
of which he has knowledge.
(e) During the Non-Competition Period, Employee will not, directly or
indirectly, either individually or as owner, partner, agent, joint venturer,
independent contractor, shareholder, security holder, employee, consultant or
otherwise (except during the Employment
4
<PAGE>
Period for the account and on behalf of the HCFP Companies or their affiliates),
solicit, attempt to solicit or otherwise engage the services of, or become
associated in any business that may compete with the HCFP Companies or their
subsidiaries or affiliates, with any person who was an employee, officer or
director of the HCFP Companies or any of their affiliates during the 12 months
preceding the date Employee's employment with the Corporation was terminated.
(f) Anything in this Agreement to the contrary notwithstanding,
nothing in this paragraph 2.2 shall be construed to prevent Employee from
owning, as an investment, not more than 1% of a class of equity securities
issued by any company that competes with the HCFP Companies or their affiliates
and that is publicly traded and has a class of securities registered under
paragraph 12 of the Securities Exchange Act of 1934.
2.3 Trade Secrets. Employee will keep confidential any trade secrets
-------------
or confidential or proprietary information of the HCFP Companies and their
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 HCFP Companies and their affiliates during and at all times
after the expiration of the Employment Period. For purposes of this Agreement,
"trade secrets or confidential proprietary information" means information unique
to the HCFP Companies or any of their affiliates which has a significant
business purpose and is not known or generally available from sources outside
the HCFP Companies or any of their affiliates or typical of industry practice
(excluding information obtained and professional relationships developed by
Employee prior to his association with the Corporation on November 1, 1995).
3. The Corporation's Remedies for Breach. It is recognized that damages
-------------------------------------
in the event of a breach of paragraph 2 by Employee 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 Employee 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. The employment period of Employee (the
----------------------
"Employment Period") shall begin on the date of this Agreement and shall
continue until the earliest of (i) the close of business on the day immediately
preceding the third anniversary of the date of this Agreement, (ii) Employee's
normal retirement date under the Corporation's retirement plan as in effect on
the date of this Agreement ("Normal Retirement Date"), (iii) the death or Total
Disability of Employee, or (iv) an earlier termination pursuant to paragraph 4.2
of
5
<PAGE>
this Agreement. Following the termination of the Employment Period, the
Corporation shall have no further obligation to Employee.
4.2 Termination of Employment.
-------------------------
(a) Employee may terminate his employment under this Agreement upon 30
days prior written notice to the Corporation. During the 30-day period
following Employee's notice of termination, and if so requested by the
Corporation, Employee will perform his regular duties and, in addition, will
perform those consulting services that may be requested by the Corporation to
assist in the orderly transition of Employee's duties to another person or
persons and/or to assist in the training of Employee's replacement.
(b) The Corporation may immediately terminate the employment of
Employee for Cause upon written notice to Employee of the termination ("Notice
of Termination for Cause"). Upon the termination of Employee for Cause, the
Corporation will have no further obligation to Employee except for payment of
all accrued salary and benefits up to the date of termination.
(c) If the Corporation terminates Employee's employment without Cause,
Employee shall be entitled to continue to receive compensation and benefits as
provided in paragraph 1.2 of this Agreement for a period of one year following
the date of the termination.
(d) The employment of Employee will be automatically terminated by his
death or Total Disability. If Employee dies or suffers a Total Disability
while this Agreement is in effect, the Corporation will pay to Employee's spouse
(or if he is not married at the time of his death, to his estate) compensation
under paragraph 1.2 as would be accrued through the end of the month in which
his employment terminated.
4.3 Return of the Corporation's Property. Employee authorizes the
------------------------------------
Corporation to withhold any amounts due to him until all property of the
Corporation entrusted to Employee by the Corporation at any time during his
employment has been returned to The Corporation. 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 Employee 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, commission of a crime resulting in a fine
of $10,000 or more and/or imprisonment of
6
<PAGE>
six months or more, or causing the Corporation to commit such a crime; or (ii)
continuance of willful and repeated failure by Employee to perform his duties in
compliance with this Agreement after written notice to Employee by the President
specifying the failure and the failure to cure the deficient performance within
30 days after receipt of the written notice.
(b) In this Agreement, the term "Total Disability" means any
incapacity, injury, illness or other physical or mental condition of Employee
that, in the opinion of a physician selected by the Corporation, results in the
inability of Employee, for a period of six months or more during any twelve
month period, to perform substantially the duties performed or required to be
performed by Employee under this Agreement before the disability.
5. Marketing Service Agreement; The Option
---------------------------------------
(a) Termination of Marketing Service Agreement. Beginning on the date
------------------------------------------
of this Agreement, except as is expressly provided in this paragraph 5, Employee
and HealthPartners Funding Limited Partnership, a Delaware Limited Partnership
(the "Partnership") that is an affiliate of the Corporation, hereby terminate
the Marketing Services Agreement. The Partnership joins in the execution of
this Agreement solely for the purposes of this paragraph 5. The Corporation
expressly ratifies the grant of options to Employee pursuant to paragraph 1.3(a)
of the Marketing Services Agreement (the "Option"), and, to the extent any
portion of the Option is unexercised as of the date of this Agreement, Employee
shall continue to hold the Option in accordance with the terms of this paragraph
5.
(b) Reservation of Stock. The Corporation shall reserve and keep
--------------------
available the number of shares that will satisfy the requirements of the
Option. Appropriate adjustment shall be made to the number of shares subject to
the Option to give effect to any stock splits, subdivisions, combinations or
stock dividends occurring after the effective date of the Marketing Services
Agreement, so that immediately after the distribution date of the stock dividend
or the effective date of the subdivision, stock split or combination, as the
case may be, Employee shall be entitled to purchase the number of shares that he
would have held after the stock dividend, subdivision, stock split or
combination, as the case may be, at the total price he would have paid for the
shares if he had exercised the Option immediately before the event. The
decision of the Board as to the amount and timing of any adjustment shall be
binding and conclusive on all parties.
(c) Reorganization; Reclassification. If at anytime following the
--------------------------------
effective date of the Marketing Services Agreement, any capital reorganization
or reclassification of the capital stock of the Corporation 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 the reorganization or reclassification, lawful
and adequate
7
<PAGE>
provisions shall be made that grant Employee the right to purchase and receive,
upon the basis and upon the terms and conditions specified in the Option and in
lieu of the shares purchasable immediately before and receivable upon the
exercise of the Option, the shares of stock, securities or assets that may be
issued or payable with respect to or in exchange for a number of outstanding
shares equal in value to the outstanding shares purchasable immediately before
and receivable upon the exercise of the Option. In any such case, appropriate
provision shall be made with respect to the rights and interests of Employee to
the end that the provisions of this Agreement (including, without limitation, to
the extent provided in this Agreement and in the Marketing Services Agreement,
provisions for adjustments of the number of shares purchasable and receivable
upon the exercise of the 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 of the Option.
(d) Notice of Adjustment. The Corporation shall give notice to
--------------------
Employee as soon as practicable after any adjustment of the exercise price or of
the number of shares purchasable upon exercise of the Option. The notice shall
state the exercise price resulting from the adjustment and the increase or
decrease, if any, in the number of shares purchasable at that price upon the
exercise of the Option, setting forth in reasonable detail the method of
calculation and the facts upon which the calculation is made.
(e) Sale of the Corporation.
-----------------------
(i) Definitions. As used in the Option, the following terms
-----------
shall have the meaning set forth below:
(A) "Sale of the Corporation" shall mean a transaction in
which an Independent Third Party or a group of
Independent Third Parties acquires (1) all of the issued
and outstanding capital stock of the Corporation,
whether by merger, consolidation or sale or transfer of
stock, or (2) all or substantially all of the
Corporation's assets.
(B) "Independent Third Party" shall mean any person or
entity who, immediately before the contemplated
transaction, does not own in excess of 5% of the
Corporation's common stock on a fully diluted basis (a
"5% Owner"), who is not controlling,
8
<PAGE>
controlled by or under common control with any 5% Owner,
and who is not a family member of any 5% Owner.
(ii) Sale of the Corporation. In the event of any Sale of the
------------------------
Corporation, Employee shall be obligated to exercise the Option and sell the
shares of common stock in connection with the Sale of the Corporation, except
that in lieu of exercising the Option, Employee shall be entitled to surrender
the Option back to the Corporation.
(f) Notices of Stock Dividends, Redemptions, Subscriptions,
-------------------------------------------------------
Reclassifications, Consolidations, Mergers, etc. If, at any time: (i) the
- ------------------------------------------------
Corporation shall declare a dividend on its common stock; (ii) the Corporation
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 Corporation, or consolidation or
merger of the Corporation 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 Corporation's equity securities; or (vi)
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of the Corporation (items (i) through (vi) above are referred to as "Notice
Events"); then, at least ten (10) days before the applicable record date
specified below or, in the absence of a record date, the date the Notice Event
is expected to become effective, the Corporation shall deliver notice to
Employee summarizing the Notice Event and stating, as applicable, the record
date (or if a record is not taken the date as of which the rights of the
shareholders of record are to be determined) the date on which the 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 the Notice Event.
(g) Exercise Period. The Option will expire on October 31, 2005.
---------------
(h) Limitation Upon Transfer of Option. The Option 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 the Option, or to assign, pledge, hypothecate or otherwise dispose of
the Option in violation of this provision, or upon the levy of any attachment or
similar process upon the Option, the Option shall immediately lapse and become
null and void.
(i) Termination and Forfeiture of Option. If Employee's employment
------------------------------------
under this Agreement is terminated by the Corporation without Cause, any
unexercised portion of the Option of Employee will terminate, be forfeited and
will lapse unless it is exercised by Employee by October 31, 2005. If
Employee's employment under this Agreement is terminated pursuant to
9
<PAGE>
paragraph 4.2(a) or (b) of this Agreement, any unexercised portion of the Option
shall immediately terminate and be null and void, and the Corporation shall have
the right, but not the obligation, to purchase from Employee all shares of stock
then held by Employee as a result of the exercise of the Option at a price equal
to the Option price for the shares, provided, however, (A) if the termination
------------------
occurs on or after October 1, 1996 but before October 1, 1997, Employee shall be
entitled to retain a total of one-third (1/3) of such shares and unexercised
portion of the Option, (B) if the termination occurs on or after October 1, 1997
but before October 1, 1998, Employee shall be permitted to retain a total of
two-thirds of such shares and unexercised portion of the Option, and (C) if the
termination occurs after October 1, 1998, Employee shall be entitled to retain
all of such shares and/or Options under the same terms as if this Agreement were
terminated without Cause. The Corporation may exercise its rights under this
paragraph 5(i) by giving Employee written notice, specifying the number of
shares to be purchased, the purchase price, the closing date and the location of
the closing, within ninety (90) days of the Notice of Termination for Cause.
(j) Exercise of Options. To exercise an Option, Employee shall give
-------------------
written notice to the Corporation's Secretary, substantially in the form of
Exhibit A to this Agreement, at the Corporation's principal place of business,
accompanied by full payment for the shares and such written evidence as the
Corporation may reasonably require that Employee is purchasing the shares for
investment purposes and not with a view toward distribution. A statement as to
Employee's investment purpose will not be required, however, if the shares
underlying the Option are registered under the Securities Act of 1933, as
amended.
(k) Manner of Payment. Employee may pay the Option price for the
-----------------
shares being purchased upon exercise of an Option (i) by delivering cash or a
check made payable to the order of the Corporation, (ii) by delivering shares of
the Corporation's common stock, to the extent the Fair Market Value of the
shares on the date of exercise of the Option equals the Option price for the
shares being purchased, (iii) by surrendering to the Corporation Options to
purchase shares, to the extent the difference between the exercise price of the
Options and the market price of the underlying shares (the "spread") or (iv) by
complying with a combination of (i), (ii) and (iii) above. The Corporation
shall have the right to withhold and deduct from the number of shares
deliverable upon the exercise of any Option a number of shares having an
aggregate Fair Market Value equal to the amount of any taxes and other charges
that the Corporation is obligated to withhold or deduct from amounts payable to
Employee.
(l) Fair Market Value. If shares of the Corporation's common stock
-----------------
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. If the 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 that date on the
national securities exchange on which the shares are listed on that date.
10
<PAGE>
(m) Share Certificates. Certificates representing shares that have
------------------
been issued pursuant to the exercise of the Option and that 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, as amended, and may
not be sold, pledged or transferred unless registered under the
provisions of that Act or unless an opinion of counsel is
delivered to the Corporation, from counsel acceptable to the
Corporation, stating that an exemption from registration is
available."
The Corporation shall not be required to transfer or deliver any
certificate or certificates for shares purchased upon any exercise of an Option
until after compliance with all then applicable requirements of law.
(n) Registration. If the Corporation 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 Corporation may effect the
registration or obtain the consent; delivery of the shares by the Corporation
may be deferred until the registration is effected or the consent obtained.
The Corporation agrees that Employee shall have registration rights pari passu
with those that may be obtained by the existing executive officers of the
Corporation.
(o) Issuance of Shares. No shares will be issued until full payment
------------------
for the shares has been made. Employee shall have no rights as a shareholder
with respect to shares underlying the Options until the date an Option shall
have been properly exercised and all conditions to the exercise of the Option
and purchase of the shares shall have been complied with in all respects, to the
satisfaction of the Corporation. 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 before the date the
Option is exercised, except as otherwise provided in this Agreement.
(p) Survival of Paragraph 5. Notwithstanding anything to the contrary
-----------------------
in this Agreement, this paragraph 5 shall survive the termination of this
Agreement.
6. 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 Employee at the last
address he has filed in writing with the Corporation or, in the case of the
Corporation, at its principal executive offices.
11
<PAGE>
7. Binding Agreement. This Agreement shall be effective as of the date
-----------------
first above written and shall be binding upon and inure to the benefit of
Employee, 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.
Notwithstanding the foregoing, this Agreement may not be assigned by the
Corporation without the consent of Employee 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 under this Agreement.
8. Entire Agreement. This Agreement constitutes the entire understanding
----------------
of Employee and the Corporation with respect to its subject matter hereof and
supersedes any and all prior understandings, whether written or oral. This
Agreement may not be changed, modified, or discharged orally, but only by an
instrument in writing signed by the parties.
9. Separability. Should any provision of this Agreement be deemed
-------------
invalid or unenforceable as contrary to applicable law, the parties agree that
such provision shall automatically be deemed to be reformed as to be consistent
with applicable law.
10. Governing Law. This Agreement shall be governed by the laws of the
--------------
State of Maryland, without regard to conflict or choice of laws.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first above written.
ATTEST: THE CORPORATION:
HEALTHCARE FINANCIAL PARTNERS, INC.
a Delaware corporation
Edward P. Nordberg, Jr. By: Ethan D. Leder
- ------------------------------- ----------------------------------
Secretary Name: Ethan D. Leder
Its: Executive Vice President
WITNESS: EMPLOYEE:
Michelle Robinson Steven I. Silver
- ---------------------------------- ---------------------------------------
Steven I. Silver
PARTNERSHIP:
(As to paragraph 5 of the Agreement)
By: HEALTHCARE FINANCIAL
PARTNERS, INC.
a Delaware corporation
as successor-in-interest to
HEALTHPARTNERS FUNDING
LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Edward P. Nordberg, Jr.
-----------------------------------
Name: Edward P. Nordberg, Jr.
Its: Secretary
13
<PAGE>
EXHIBIT A
---------
Date:
---------
Corporate Secretary
HealthCare Financial Partners, Inc.
To the Secretary:
I hereby exercise my option to purchase shares of common stock,
-----------
par value $.01 per share ("Shares"), of HealthCare Financial Partners, Inc. in
accordance with the terms set forth in the Employment Agreement with Steven I.
Silver dated as of October 1, 1996.
In full payment for the 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 Corporation to withhold a number of Shares equal to any
withholding obligation applicable to me.
Very truly yours,
---------------------------------
---------------------------------
Print Name
14
<PAGE>
Exhibit 10.18
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
--------------------
This Amendment No. 1 to Employment Agreement ("Amendment") is effective as
of July 1, 1997, and is made by and between HEALTHCARE FINANCIAL PARTNERS, INC.,
a Delaware corporation (the "Corporation") and STEVEN I. SILVER ("Employee").
W I T N E S S E T H:
- - - - - - - - - -
A. Employee and the Corporation have entered into an Employment Agreement
("Agreement") dated as of October 1, 1996.
B. The Corporation desires to further recognize Employee's contribution
to the growth and success of the Corporation by amending the term of the
Agreement, and to make Employee an executive officer of the Corporation.
NOW, THEREFORE, in consideration of the foregoing premises, and of the
mutual covenants and representations contained in this Amendment, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Section 4.1 of the Agreement is hereby amended and restated in its
entirety to read as follows:
4.1 Duration and Extension.
----------------------
(a) The Employment Period shall commence on the original date of the
Agreement and shall continue until the earlier of (i) the close of business on
the day immediately preceding the third annual anniversary of the date of the
Agreement (i.e. October 1, 1999), subject to extension pursuant to Paragraph
----
4.1(b), (ii) the Employee'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 Employee.
(b) On the first annual anniversary of the date of this Agreement
(i.e. October 1, 1997), and on each annual anniversary date thereafter, the
- -----
Employment Period shall be automatically extended for an additional one year
period (but not beyond the Normal Retirement Date, death or Total Disability of
the Employee), unless the Corporation or the Employee notifies the other in
writing prior to such anniversary date of its or his intention not to so extend
the Employment Period."
2. In view of the satisfactory resolution of that certain adversary
proceeding identified in Section 1.1(a) of the Agreement, Employee shall assume
the office of Vice President of Marketing effective as of the date of this
Amendment.
3. Except as expressly modified by this Amendment, the Agreement remains
in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Amendment
No. 1 To Employment Agreement as of the date first above written.
ATTEST: THE CORPORATION:
HEALTHCARE FINANCIAL
PARTNERS, INC.
a Delaware corporation
Edward P. Nordberg, Jr. By: Ethan D. Leder
- ----------------------------- ----------------------------
Edward P. Nordberg, Jr. Name: Ethan D. Leder
Its: President
WITNESS: EMPLOYEE:
Debra M. Van Alstyne Steven I. Silver
- -------------------------- -----------------------------------------
Debra M. Van Alstyne Steven I. Silver
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 15,600,980 15,600,980
<SECURITIES> 0 0
<RECEIVABLES> 218,501,952 218,501,952
<ALLOWANCES> 2,343,992 2,343,992
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 515,715 515,715
<DEPRECIATION> 181,887 181,997
<TOTAL-ASSETS> 236,832,950 236,832,950
<CURRENT-LIABILITIES> 151,982,838 151,982,838
<BONDS> 0 0
0 0
0 0
<COMMON> 96,694 96,694
<OTHER-SE> 84,753,418 84,753,418
<TOTAL-LIABILITY-AND-EQUITY> 236,832,950 236,832,950
<SALES> 7,951,873 17,900,748
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,672,075 4,961,459
<LOSS-PROVISION> 605,000 1,005,000
<INTEREST-EXPENSE> 1,984,344 5,086,069
<INCOME-PRETAX> 3,990,458 7,958,346
<INCOME-TAX> 1,532,034 2,929,079
<INCOME-CONTINUING> 2,458,424 5,029,267
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,458,424 5,029,267
<EPS-PRIMARY> 0.25 0.67
<EPS-DILUTED> 0.25 0.64
</TABLE>
<PAGE>
SUPPLEMENTARY DATA
FOR THE QUARTER ENDED: SEPTEMBER 30, 1997
1) CONDENSED BALANCE SHEETS (UNAUDITED):
<TABLE>
<CAPTION>
ASSETS SEPT. 30, 1997 DEC. 31, 1996 (1)
-------------------- -------------------
<S> <C> <C>
Cash and cash equivalents $ 15,600,980 $ 11,734,705
Finance receivables 218,501,952 89,328,928
Less:
Allowance for losses on receivables 2,343,992 1,078,992
Unearned fees 2,333,957 723,804
-------------------- -------------------
Net finance receivables 213,824,003 87,526,132
Accounts receivable from related parties 80,884 5,576
Property and equipment 333,828 223,397
Goodwill 1,784,655
Prepaid expenses and other 5,208,600 1,783,279
-------------------- -------------------
Total assets $236,832,950 $101,273,089
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Line of credit $ 26,203,662 $ 21,829,737
Commercial paper facility 84,941,287 37,209,098
Warehouse facility 23,721,720
Client holdbacks 10,304,490 11,739,326
Accounts payable to clients 691,181 1,020,131
Amounts due to related parties 317,993
Accounts payable and accrued expenses 5,382,594 1,925,504
Notes payable 128,319 126,389
Accrued interest 609,585 383,935
-------------------- -------------------
Total liabilities $151,982,838 $ 74,552,113
Stockholders' equity
Preferred stock, par value $.01 per share;
10,000,000 shares authorized; none outstanding
Common stock, par value $.01 per share;
30,000,000 shares authorized;
9,669,341 and 6,214,991 shares
issued and outstanding in 1997 and
1996, respectively 96,694 62,150
Paid-in-capital 79,769,559 26,704,234
Retained equity (deficit) 4,983,859 (45,408)
-------------------- -------------------
Total stockholders' equity 84,850,112 26,720,976
-------------------- -------------------
Total liabilities and equity $236,832,950 $101,273,089
==================== ===================
</TABLE>
(1) The balance sheet at December 31,1996 has been derived from audited
financial statements at that date, but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
1
Exhibit 99
<PAGE>
2) KEY BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF
SEPT. 30, 1997 DEC. 31, 1996
------------------------------------------
<S> <C>
Finance Receivables:
Accounts Receivable Program $ 172,170,799 79% $ 86,875,670 97%
STL Program 46,331,153 21% 2,453,258 3%
------------------------------------------
Total $ 218,501,952 100% $ 89,328,928 100%
==========================================
Allowance for losses on receivables $ 2,343,992 $ 1,078,992
==========================================
Total Assets $ 236,832,950 $101,273,089
==========================================
Debt
Line of Credit $ 26,203,662 19% $ 21,829,737 37%
Commercial Paper Facility 84,941,287 63% 37,209,098 63%
Warehouse Facility 23,721,720 18% 0%
------------------------------------------
Total $ 134,866,669 100% $ 59,038,835 100%
Debt
------------------------------------------
Total Liabilities $ 151,982,838 $ 74,552,113
Total 134,866,669 61% 59,038,835 69%
Debt
Total Stockholders' Equity 84,850,112 39% 26,720,976 31%
------------------------------------------
Capitalization 219,716,781 100% 85,759,811 100%
==========================================
Book Value Per Share $ 8.78 $ 4.30
============== ============
</TABLE>
Note: See attached Balance Sheet for additional information
2
Exhibit 99
<PAGE>
3) CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED):
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
CONSOLIDATED PRO FORMA CONSOLIDATED PRO FORMA
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fee and interest income
Fee income $ 3,015,605 $ 2,117,004 $ 8,033,468 $ 6,077,290
Interest income 4,936,268 1,006,997 9,867,280 2,211,007
------------ ------------ ------------ ------------
Total fee and interest income 7,951,873 3,124,001 17,900,748 8,288,297
Interest expense 1,984,344 923,175 5,086,069 2,304,331
------------ ------------ ------------ ------------
Net fee and interest income 5,967,529 2,200,826 12,814,679 5,983,966
Provision for losses on receivables 605,000 216,315 1,005,000 613,116
------------ ------------ ------------ ------------
Net fee and interest income after provision
For losses on receivables 5,362,529 1,984,511 11,809,679 5,370,850
Operating expenses 1,672,075 796,226 4,961,459 2,282,245
Other income 300,004 153,651 1,110,126 171,651
------------ ------------ ------------ ------------
Income before income taxes 3,990,458 1,341,936 7,958,346 3,260,256
Income taxes 1,532,034 523,355 2,929,079 1,271,500
------------ ------------ ------------ ------------
Net income $ 2,458,424 $ 818,581 $ 5,029,267 $ 1,988,756
============ ============ ============ ============
Net income per share $ 0.25 $ 0.14 $ 0.67 $ 0.33
Weighted average shares outstanding 9,665,580 5,938,372 7,554,750 5,938,372
Net income per share-fully diluted $ 0.25 $ 0.64
Weighted average shares outstanding-fully diluted 10,007,679 7,896,849
</TABLE>
3
Exhibit 99
<PAGE>
4) COMMON SHARES INFORMATION:
<TABLE>
<CAPTION>
AS OF
9/30/97 12/31/96
--------- ----------
<S> <C> <C>
Total Shares Outstanding 9,669,341 6,214,991
Weighted Average Shares
Outstanding 9,665,580 4,064,071
</TABLE>
4
Exhibit 99
<PAGE>
5) SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
AS OF OR FOR THE AS OF OR FOR THE
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Number of clients being financed (1) 180 112 180 112
YIELD STATISTICS:
- ---------------------------
Yield on finance receivables 17.57% 17.10% 16.85% 18.03%
Yield on Accounts Receivable Program receivables 16.91% 17.10% 16.60% 18.03%
Yield on STL Program receivables 18.21% 16.92%
FINANCE SPREAD AND MARGIN:
- ----------------------------------------
Average yield on finance receivables 17.57% 17.10% 16.85% 18.03%
Average cost of debt 8.25% 10.38% 8.55% 10.23%
--------- --------- --------- ---------
Net fee and interest spread 9.32% 6.72% 8.30% 7.80%
Net interest and fee margin 13.19% 12.04% 12.06% 13.01%
YEAR-TO-YEAR GROWTH STATISTICS:
- ----------------------------------------
Finance Receivables 174.61% 187.63% 174.61% 187.63%
Fee and interest income 154.54% 121.82% 115.98% 178.30%
Net income 200.33% 66.88% 152.89% 119.33%
Earnings per share (1996 data proforma) 78.57% 75.00% 103.03% 120.00%
OTHER OPERATING STATISTICS:
- ----------------------------------------
Return on average working assets 5.43% 4.48% 4.35% 4.33%
Finance receivable turnover ratio (# times) 2.7 3.7 2.7 2.8
Total operating expenses as a percentage
of average working assets 3.70% 4.36% 4.29% 4.96%
Efficiency ratio (oper. exp./fee & interest income) 21.03% 25.49% 27.72% 27.54%
Leverage ratio (debt/equity) 1.59 1.97 1.59 1.97
Equity/Assets 35.83% 26.46% 35.83% 26.46%
</TABLE>
(1) Includes 82 and 26 clients who were affiliates of one or more clients in
1997 and 1996 respectively.
5
Exhibit 99
<PAGE>
6) CLIENT ANALYSIS BY PROGRAM
<TABLE>
<CAPTION>
DEC-95 MAR-96 JUN-96 SEP-96 DEC-96 MAR-97 JUN-97 SEP-97
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVOLVING LOAN PROGRAMS:
- ------------------------
Beginning Clients 74 85 90 98 112 129 137 145
New Clients 18 23 14 15 35 26 29 27
Clients Transferred to STL Program 8
Lost Clients 7 18 6 1 10 18 21 1
Ending Clients 85 90 98 112 129 137 145 171
- -----------------------------------------------------------------------------------------------------------
STL PROGRAM:
- ------------
Beginning Clients 0 0 0 0 0 8 20 25
New Clients 0 0 0 0 0 14 8 9
Clients Transferred from Recble Program 0 0 0 0 8 0
Lost Clients 0 0 0 0 0 2 3 2
Ending Clients 0 0 0 0 8 20 25 32
- -----------------------------------------------------------------------------------------------------------
TOTAL COMPANY:
- --------------
Beginning Clients 74 85 90 98 112 137 157 170
New Clients 18 23 14 15 35 40 37 36
Lost Clients 7 18 6 1 10 20 24 3
Ending Clients 85 90 98 112 137 157 170 203
Less Clients in Both Programs 7 5 11 23
Ending Clients (net of clients in both) 85 90 98 112 130 152 159 180
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Includes 82 clients who were affiliates of one or more clients in Sept-1997
6
Exhibit 99
<PAGE>
7) OTHER CORPORATE INFORMATION:
A) Corporate Headquarters:
HealthCare Financial Partners, Inc.
2 Wisconsin Circle, Suite 320
Chevy Chase, MD 20815
Phone: 301-961-1640
Fax: 301-664-9860
E-mail: [email protected]
B) Stock Exchange and Symbol:
NASDAQ National Market / HCFP
C) World Wide Web Home Page
www.hcfp.com
D) Corporate Officers:
John K. Delaney, Chairman of the Board, Chief Executive Officer and
Director
Ethan D. Leder, Vice Chairman of the Board, President and Director
Edward P. Nordberg, Jr., Executive Vice President, Chief Financial
Officer and Director
Hilde M. Alter, Treasurer and Chief Accounting Officer
Steven M. Curwin, Senior Vice President, General Counsel and Secretary
Michael G. Gardullo, Vice President and Senior Credit Officer
Jeffrey P. Hoffman, Vice President and Portfolio Manager
Steven I. Silver, Vice President, Portfolio Development
Howard T. Widra, Vice President, Portfolio Development
Debra M. Van Alstyne, Vice President, Deputy General Counsel and
Assistant Secretary
Chris J. Woods, Vice President and Chief Information Officer
James L. Buxbaum, President of HealthCare Analysis Corporation
(a subsidiary of the Company)
E) Board of Directors:
John K. Delaney, Chairman of the Board, Chief Executive Officer and
Director
Ethan D. Leder, Vice Chairman of the Board, President and Director
Edward P. Nordberg, Jr., Executive Vice President, Chief Financial
Officer and Director
John F. Dealy, President of The Dealy Strategy Group, a management
consulting firm
Geoffrey E.D. Brooke, Senior Member, Rothschild Bioscience Unit,
responsible for venture capital operations in the Asian Pacific
region
F) Professional Affiliations:
Independent Accountants
---------------------------------
Ernst & Young LLP
1225 Connecticut Avenue, N. W.
Washington, DC 20036
Transfer Agent
-----------------------
First Union National Bank of North Carolina
230 South Tryon Street, 11th Floor
Charlotte, North Carolina 28288-1153
G) Analysts Providing Research Coverage on HealthCare Financial
Partners, Inc.
Montgomery Securities Joseph Jolson (415-627-2216)
Lehman Brothers Angus MacDonald (617-342-4414)
ABN AMRO Chicago Robert Napoli (312-855-2867)
Corporation
Stifel, Nicolaus & Co, Inc. W. Coleman Bitting (314-342-2074)
Stephens Inc. Jerry L. Robinson (404-239-0166)
7
Exhibit 99
