<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 20, 1998
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
--------------
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, FOURTH FLOOR
CHEVY CHASE, MARYLAND 20815
(301) 961-1640
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL OFFICE)
JOHN K. DELANEY
CHAIRMAN AND CEO
HEALTHCARE FINANCIAL PARTNERS, INC.
2 WISCONSIN CIRCLE, FOURTH FLOOR
CHEVY CHASE, MARYLAND 20815
(301) 961-1640
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------
COPIES OF COMMUNICATIONS TO:
G. WILLIAM SPEER, ESQ. TODD H. BAKER, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP GIBSON, DUNN & CRUTCHER LLP
SIXTEENTH FLOOR ONE MONTGOMERY STREET
191 PEACHTREE STREET, N.E. SUITE 3100
ATLANTA, GEORGIA 30303 SAN FRANCISCO, CALIFORNIA
(404) 572-6600 (415) 393-8200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement
number of the earlier effective registration statement for the same
offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par
value................. 3,392,500 shares $38.6875 $131,247,344 $38,717.96
</TABLE>
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(1) Pursuant to Rule 457(c), the proposed offering price and registration fee
are based upon the average of the high and low prices of the Common Stock
on February 18, 1998 as reported by the Nasdaq National Market System.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 20, 1998
2,950,000 SHARES
[LOGO OF HEALTHCARE FINANCIAL PARTNERS APPEARS HERE]
COMMON STOCK
Of the 2,950,000 shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby (the "Offering"), 2,800,000 shares are being sold by HealthCare
Financial Partners, Inc. (the "Company") and 150,000 shares are being sold by
the Selling Stockholders. See "Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares by the Selling
Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"HCFP." On February 18, 1998, the last reported sale price of the Common Stock
as reported on the Nasdaq National Market was $38.125 per share. See "Price
Range of Common Stock."
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to Proceeds to Selling
Public Discount(1) Company(2) Stockholders
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<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to 442,500 additional shares of Common Stock
solely to cover over-allotments, if any. If the Underwriters exercise this
option in full, the Price to Public will total $ , the Underwriting
Discount will total $ , the Proceeds to Company will total $ and the
Proceeds to Selling Stockholders will total $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein,
subject to receipt and acceptance by them, and subject to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the offices
of NationsBanc Montgomery Securities LLC on or about , 1998.
------------
Joint Lead Managers and Joint Bookrunners
NationsBanc Montgomery Securities LLC Lehman Brothers
ABN AMRO Incorporated
Piper Jaffray Inc.
Stephens Inc.
, 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF COMMON STOCK FOLLOWING
THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN THE COMMON
STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON STOCK, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information, including "Risk Factors,"
appearing elsewhere in this Prospectus, and the financial statements and notes
thereto and other information incorporated by reference herein. Unless the
context otherwise requires, the information set forth in this Prospectus gives
effect to the transactions described herein under "The Reorganization," which
were completed in November 1996, in connection with the Company's initial
public offering of Common Stock (the "Initial Public Offering"), and the term
"Company" refers to HealthCare Financial Partners, Inc. and its former
partnerships and consolidated subsidiaries after giving effect to such
transactions. Unless otherwise indicated, the information set forth in this
Prospectus does not give effect to the exercise of the Underwriters' over-
allotment option.
THE COMPANY
HealthCare Financial Partners, Inc. (the "Company") is a specialty finance
company offering asset-based financing to healthcare service providers, with a
primary focus on clients operating in sub-markets of the healthcare industry,
including long-term care, home healthcare and physician practice. The Company
also provides asset-based financing to clients in other sub-markets of the
healthcare industry, including pharmacies, durable medical equipment suppliers,
hospitals, mental health providers, rehabilitation companies, disease state
management companies and other providers of finance and management services to
the healthcare industry. The Company targets small and middle market healthcare
service providers with financing needs in the $100,000 to $10 million range in
healthcare sub-markets which have favorable characteristics for working capital
financing, such as those where growth, consolidation or restructuring appear
likely in the near to medium term. Management believes, based on its industry
experience, that the Company's healthcare industry expertise and specialized
information systems, combined with its responsiveness to clients, willingness
to finance relatively small transactions, and flexibility in structuring
transactions, give it a competitive advantage in its target markets over
commercial banks, diversified finance companies and traditional asset-based
lenders. See "Business."
From its inception in 1993 through December 31, 1997, the Company has
advanced $1.9 billion to its clients in over 560 transactions, including $1.2
billion advanced during the year ended December 31, 1997. The Company had 174
clients as of December 31, 1997, of which 60 were affiliates of one or more
other clients. The average amount outstanding per client or affiliated client
group at December 31, 1997 was approximately $1.5 million. For the years ended
December 31, 1995 and 1996, the Company's pro forma net income was $1.5 million
and $3.0 million, respectively. For the year ended December 31, 1997, the
Company's consolidated net income was $8.0 million. For the year ended December
31, 1997, the Company's yield on finance receivables (total interest and fee
income divided by average finance receivables for the period) was 16.8%. See
"--Summary Financial Information."
At December 31, 1997, 69.2% of the Company's portfolio consisted of finance
receivables from businesses in the long-term care, home healthcare and
physician practice sub-markets. Estimated expenditures in 1997 for the long-
term care, home healthcare and physician practice sub-markets, which the
Company currently emphasizes, collectively constituted approximately $399.9
billion of the over $1.3 trillion U.S. healthcare market. These sub-markets are
highly fragmented, and companies operating in these sub-markets generally have
significant working capital finance requirements. The Company's clients
operating in these sub-markets tend to be smaller, growing companies with
limited access to traditional sources of working capital financing from
commercial
1
<PAGE>
banks, diversified finance companies and asset-based lenders because many such
lenders have not developed the healthcare industry expertise needed to
underwrite smaller healthcare service companies or the specialized systems
necessary to track and monitor healthcare accounts receivable transactions.
Some of the Company's clients are also constrained from obtaining financing
from more traditional working capital sources due to their inadequate equity
capitalization, limited operating history, lack of profitability, or financing
needs below commercial bank size requirements. See "Business--Financing
Programs."
The Company currently provides financing to its clients through (i) revolving
lines of credit secured by, and advances against, accounts receivable (the
"Accounts Receivable Program"), and (ii) term loans (accompanied, in certain
cases, by warrants) secured by first or second liens on real estate, accounts
receivable or other assets (the "STL Program"). Loans under the STL Program are
often made in conjunction with financing provided under the Accounts Receivable
Program. To date, the Company has not incurred any credit losses in either
program, although it periodically makes provisions for possible future losses
in the ordinary course of its business. See "Business--Financing Programs."
Under the Accounts Receivable Program, the accounts receivable are
obligations of third-party payors, such as federal and state Medicare and
Medicaid programs and other government financed programs ("Government
Programs"), commercial insurance companies, health maintenance organizations
and other managed healthcare concerns, self-insured corporations and, to a
limited extent, other healthcare service providers. The Company generally
advances only 65% to 85% of the Company's estimate of the net collectible value
of client receivables from third-party payors. The Company's credit risk is
mitigated by the Company's ownership of or security interest in the remaining
balance of such receivables ("Excess Collateral"). Clients continue to bill and
collect the accounts receivable, subject to lockbox collection and sweep
arrangements established for the benefit of the Company. The Company uses its
proprietary information systems to monitor its clients' accounts receivable
base on a daily basis and to assist its clients in improving and streamlining
their billing and collection efforts with respect to such receivables. The
Company conducts extensive due diligence on potential clients for all its
financing programs and follows written underwriting and credit policies in
providing financing to clients.
During 1997, the Company expanded the STL Program to increase its penetration
of targeted healthcare sub-markets. Through the STL Program, the Company serves
clients that have more diverse and complex financing needs, such as healthcare
facility acquisitions and expansions. In addition to the collateral securing
the loans, the Company generally has recourse to the borrower. STL Program
loans generally have terms of one to three years. As a result of the Company's
expansion of the STL Program, loans under that program comprised 25.9% of
finance receivables at December 31, 1997. While yields on STL Program loans are
generally lower than the yields generated from the Accounts Receivable Program,
some STL Program loans also include warrants and other fees that may enhance
their effective yields.
In order to enhance its underwriting capabilities, reduce its reliance on
third parties and increase its fee revenue, the Company established a new
subsidiary, HealthCare Analysis Corporation ("HCAC"), in March 1997. HCAC
specializes in due diligence, reimbursement consulting and audit services for
businesses in the healthcare industry. As of January 31, 1998, HCAC employed 17
healthcare auditors and had offices in Maryland, California, Georgia,
Massachusetts and New York. Prior to establishing HCAC, the Company used third
parties for the due diligence and audit work necessary in connection with
financings provided to its clients. By using HCAC to provide all of such
services, the Company has become more responsive to its
2
<PAGE>
clients while benefitting from HCAC's high quality due diligence and consistent
audit documentation. Fees charged by HCAC for its services are passed on to
such clients and prospective clients.
The Company has developed low cost means of marketing its services on a
nationwide basis to selected healthcare sub-markets. The Company primarily
markets its services by telemarketing to prospective clients identified by the
Company, advertising in industry specific periodicals and participating in
industry trade shows. The Company also markets its services by developing
referral relationships with accountants, lawyers, venture capital firms,
billing and collection companies and investment banks. The Company's clients
also assist the Company's marketing efforts by providing referrals and
references.
The Company currently funds its operations through: (i) a $50 million
revolving line of credit (the "Bank Facility") with Fleet Capital Corporation
("Fleet"); (ii) an investment-grade asset-based commercial paper program (the
"CP Program") with ING Baring (U.S.) Capital Markets, Inc. ("ING") which
enables the Company to borrow up to $200 million; and (iii) a $100 million
revolving warehouse line of credit (the "Warehouse Facility") with Credit
Suisse First Boston ("First Boston").
The Company is a Delaware corporation which was organized in April 1993 and
commenced its business in September 1993. The Company's principal executive
offices are located at 2 Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland
20815, and its telephone number is (301) 961-1640.
STRATEGY
The Company's goal is to be the leading finance company in its targeted sub-
markets of the healthcare services industry and to become the primary source
for all of the financing needs of its clients. The Company's strategy for
growth is based on the following key elements (see "Business--Strategy"):
. Target sub-markets within the healthcare industry that have favorable
characteristics for working capital financing, such as fragmented sub-
markets experiencing growth, consolidation or restructuring;
. Focus on healthcare service providers with financing needs of between
$100,000 and $10 million, a market that has been underserved by commercial
banks, diversified finance companies, traditional asset-backed lenders and
other competitors of the Company;
. Become the primary source for the financing needs of clients by introducing
new financial products to leverage the Company's existing expertise in
healthcare finance and its origination, underwriting and servicing
capabilities within its target sub-markets;
. Increase the Company's offering of fee-based and value-added services to
clients, such as the reimbursement consulting and clinical auditing services
provided by HCAC;
. Seek to make strategic acquisitions of and investments in businesses that
are engaged in the same or similar business as the Company or that are
engaged in lines of business complementary to the Company's business; and
. Enhance the Company's credit risk management and improve servicing
capabilities through continued development of information management
systems.
3
<PAGE>
RECENT DEVELOPMENTS
The Company's assets increased 168.9% from $101.3 million at January 1, 1997
to $272.4 million at December 31, 1997, and growth continued in early 1998 as
the Company's assets increased to $296.2 million at January 31, 1998.
On February 9, 1998, the Company announced that it had formed HealthCare
Financial Partners REIT, Inc., an entity that will elect to be taxed as a real
estate investment trust (the "HCFP REIT"). The HCFP REIT will be managed by a
newly formed subsidiary of the Company that will be compensated on a fee basis
for its management services. The Company's management believes that the HCFP
REIT represents an effective means for the Company to enhance its client
relationships by referring such clients' long-term real estate financing needs
to the HCFP REIT.
It is anticipated that the HCFP REIT will fund its operations with the
proceeds of an initial public offering (the "REIT Offering") (estimated to be
approximately $200 million, less underwriting discounts and commissions), and
that the Company will purchase up to a 9.9% ownership position in the HCFP REIT
in the REIT Offering. The Company's management anticipates that the HCFP REIT
will invest in financing products not offered by the Company, which include
permanent (long-term) mortgage loans, real estate, purchase-leaseback
transactions and other income-producing real estate-related assets in the
healthcare industry. The Company's management expects that the REIT Offering
will be consummated in the second quarter of 1998.
THE REORGANIZATION
Prior to the Initial Public Offering, the Company conducted its operations
principally in its capacity as the general partner of HealthPartners Funding,
L.P. ("Funding") and HealthPartners DEL, L.P. ("DEL"). Management concluded
that the Company's future financial position and results of operations would be
enhanced if the Company directly owned the portfolio assets of each of these
limited partnerships and the transactions described below (the
"Reorganization") were effected by the Company prior to or simultaneously with
the Initial Public 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 Initial Public Offering, the Company
acquired from HealthPartners Investors, LLC ("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
Initial Public 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 Accounts Receivable Program, were
transferred to the Company.
4
<PAGE>
In connection with the liquidation of Funding, Farallon Capital Partners L.P.
("FCP") 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, which warrants were 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 warrants. HP Investors transferred the warrants to FCP and RR
Partners in contemplation of the liquidation of Funding.
5
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common Stock offered by the Company................ 2,800,000 shares
Common Stock offered by the Selling Stockholders... 150,000 shares
Common Stock to be outstanding after the Offering.. 12,473,978 shares (1)
Use of Proceeds.................................... To finance the antici-
pated growth of the
Company's Accounts Re-
ceivable and STL Pro-
grams and for general
corporate purposes,
which may include stra-
tegic acquisitions and
investments, including
the potential investment
in up to approximately
9.9% of the common stock
of the HCFP REIT. See
"Use of Proceeds" and
"Recent Developments."
Nasdaq National Market symbol...................... "HCFP"
</TABLE>
- --------
(1) Does not include 741,013 shares of Common Stock reserved for issuance at
February 18, 1998 pursuant to the HealthCare Financial Partners, Inc. 1996
Stock Incentive Plan (the "Incentive Plan"), under which options to
purchase 556,013 shares are outstanding (of which 111,467 are presently
exercisable). Also does not include 100,000 shares of Common Stock reserved
for issuance pursuant to the HealthCare Financial Partners, Inc. 1996
Director Incentive Plan (the "Director Incentive Plan"), under which
options to purchase 22,510 shares have been granted (all of which are
presently exercisable). Also does not include an option to purchase 38,381
shares of Common Stock granted outside the Incentive Plan on November 1,
1995, which option is presently exercisable.
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary unaudited pro forma statements of operations for the years ended
December 31, 1995 and 1996 are derived from the unaudited pro forma financial
information for such periods. The summary unaudited pro forma statements of
operations give effect to the Reorganization as if it had occurred at the
beginning of the respective periods. Management believes the pro forma
information giving effect to the Reorganization is the most meaningful
presentation of the Company's operating results. The summary consolidated
statement of operations for the year ended December 31, 1997, and the balance
sheet data as of December 31, 1996 and December 31, 1997, are derived from the
Company's audited historical financial statements.
The summary unaudited pro forma statements of operations do not purport to
present the actual results of operations of the Company had the transactions
and events assumed therein in fact occurred on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved
in the future. The summary unaudited pro forma statements of operations are
based on certain assumptions and adjustments described in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, incorporated by
reference herein.
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
FOR THE YEAR ENDED FOR THE YEAR
DECEMBER 31, ENDED DECEMBER 31,
--------------------- ------------------
1995 1996 1997
---------- ---------- ------------------
<S> <C> <C> <C>
SUMMARY STATEMENTS OF OPERATIONS
Fee and interest income
Fee income.......................... $4,814,504 $8,518,215 $11,493,775
Interest income..................... 403,659 3,497,756 16,251,302
---------- ---------- -----------
Total fee and interest income....... 5,218,163 12,015,971 27,745,077
Interest expense...................... 634,556 3,408,562 7,921,330
---------- ---------- -----------
Net fee and interest income......... 4,583,607 8,607,409 19,823,747
Provision for losses on receivables... 217,388 656,116 1,315,122
---------- ---------- -----------
Net fee and interest income after
provision for losses on
receivables........................ 4,366,219 7,951,293 18,508,625
Operating expenses.................... 2,096,297 3,326,994 7,219,372
Other income.......................... 224,691 233,982 1,582,852
---------- ---------- -----------
Income before income taxes............ 2,494,613 4,858,281 12,872,105
Income taxes.......................... 972,899 1,894,730 4,877,257
---------- ---------- -----------
Net income............................ $1,521,714 $2,963,551 $ 7,994,848
========== ========== ===========
Basic earnings per share(1)........... $ 0.26 $ 0.50 $ 0.99
Weighted average shares
outstanding(1)....................... 5,899,991 5,906,032 8,087,857
Diluted earnings per share(1)......... $ 0.26 $ 0.50 $ 0.96
Diluted weighted average shares
outstanding(1)....................... 5,903,078 5,931,188 8,310,111
</TABLE>
(Footnotes appear on next page)
7
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL
FOR OR AT THE YEAR FOR OR AT THE YEAR
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------ ------------------
1996 1997
------------------ ------------------
<S> <C> <C>
OTHER DATA
Number of clients being provided
financing at period end(2)............ 130 174
Yield on finance receivables(3)........ 18.4% 16.8%
Net interest and fee margin............ 13.2% 12.2%
Accounts Receivable Program turnover
ratio(4).............................. 11.0x 11.4x
Allowance for losses on receivables as
a percentage of finance receivables... 1.2% 1.1%
Ratio of expenses as a percentage of
total fee and interest income......... 27.7% 26.0%
Return on average finance
receivables(5)........................ 4.1% 4.9%
<CAPTION>
HISTORICAL AT DECEMBER 31,
-------------------------------------
1996 1997
------------------ ------------------
<S> <C> <C>
BALANCE SHEET DATA
Total assets........................... $101,273,089 $272,354,946
Finance receivables.................... 89,328,928 250,688,138
Client holdbacks....................... 11,739,326 6,173,260
Line of credit......................... 21,829,737 40,157,180
Commercial paper facility.............. 37,209,098 101,179,354
Warehouse line of credit facility...... -- 27,932,520
Total liabilities...................... 74,552,113 184,524,758
Stockholders' equity................... 26,720,976 87,830,188
</TABLE>
- --------
(1) Pro forma earnings per share for the years ended December 31, 1995 and 1996
computed by dividing pro forma net income by the pro forma weighted average
shares outstanding and pro forma diluted weighted average shares
outstanding, to give effect to the Reorganization.
(2) Includes 26 clients in 1996 and 60 clients in 1997 who are affiliates of
one or more other clients.
(3) Calculated by dividing fee and interest income by the average of the month
end finance receivables balances for the year.
(4) Calculated by dividing total collections of client accounts receivable for
the year by the average of the month-end finance receivables balances for
the year.
(5) Calculated by dividing net income by the average of the month-end finance
receivables balances for the year.
8
<PAGE>
RISK FACTORS
Investment in the Company's Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, together with the other information included in this Prospectus,
before purchasing the shares of Common Stock offered hereby.
This Prospectus contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Those statements include, among
other things, the discussions of the Company's business strategy and
expectations concerning the Company's market position, future operations,
margins, profitability, funding sources, liquidity and capital resources.
Investors in the Common Stock offered hereby are cautioned that reliance on
any forward-looking statement involves risks and uncertainties, and that
although the Company believes that the assumptions on which the forward-
looking statements contained herein are reasonable, any of the assumptions
could prove to be inaccurate, and as a result, the forward-looking statements
based on the assumptions also could be incorrect. The uncertainties in this
regard include, but are not limited to, those identified in the risk factors
discussed below. In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved.
RISK OF NONPAYMENT AND CLIENT FRAUD
The Company's ability to fully recover amounts due under the Accounts
Receivable Program and the STL Program may be adversely affected by, among
other things, the financial failure of the Company's clients or their third-
party payors, fraud (e.g., the purchase of fraudulent receivables from a
client), misrepresentation, conversion of account proceeds by clients (e.g.,
client misappropriation of account proceeds in violation of the terms of the
Accounts Receivable or the STL Program), third-party payor disputes, and
third-party claims with respect to security interests. All of these risks are
exacerbated by concentrations of clients or third-party payors at any time.
Accordingly, the Company makes provisions for losses on finance receivables by
establishing an allowance for losses. In evaluating the adequacy of the
allowance, management of the Company considers trends in healthcare sub-
markets, past-due accounts, historical charge-off and recovery rates, credit
risk indicators, economic conditions, on-going credit evaluations, overall
portfolio size, average client balances, Excess Collateral, real estate
collateral valuations and underwriting policies, among other items. Many of
these considerations involve significant estimation by management and are
subject to rapid changes which may be unforeseen and could result in immediate
increased losses and material adjustments to the allowance. In addition, loans
under the STL Program may be secured by other types of collateral, such as
real estate, equipment, inventory and stock. There can be no assurance that
the proceeds from the sale of such collateral resulting from a loan default
under the STL Program would be sufficient to pay the outstanding balance of
such loan. Historically, the Company has experienced no credit losses in its
Accounts Receivable and STL Programs, but there is no assurance that the
Company will not experience losses on finance receivables in the future, and
such future losses could be significant and may vary from current reserve
estimates. The Company does not maintain insurance covering credit losses. In
addition, the amount of provisions for losses on finance receivables may be
either greater or less than actual future charge-offs of finance receivables
relating to these provisions. See "Business-Credit Loss Policy and
Experience".
DILUTION OF CLIENT RECEIVABLES; GOVERNMENT RIGHT OF OFFSET
Dilution of accounts receivable occurs when such receivables are not fully
collectible for reasons other than a third-party payor's financial inability
to pay (such as disagreements as to
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<PAGE>
appropriate reimbursement for services provided). Dilution with respect to any
client's receivables increases the risk that the Company will be unable to
collect amounts advanced by the Company to the client. The Company generally
advances funds to its clients up to a specified percentage of the Company's
estimate of the net collectible value of such client's receivables. In order
to determine its estimate of the net collectible value of a prospective
client's receivables, the Company works with HCAC and third-party claim
verifiers to contact third-party payors and reviews historical collection
factors by types of third-party payors. Should dilution occur with respect to
any client in an amount greater than the Excess Collateral with respect to
such client, the Company will typically need to look to newer accounts
receivable generated by such client or to other rights the Company may have
for the collection of the outstanding obligation to the Company. If no such
new accounts receivable are forthcoming or the Company is unsuccessful in
pursuing such other rights, the Company may incur a loss. Some dilution occurs
with respect to most, if not all, clients and may be more significant with
respect to Medicare and Medicaid receivables as a result of the government's
right of offset. The Company's historical dilution has not exceeded its Excess
Collateral. However, the Company does not track such activity and, therefore,
knows only that it has not exceeded its Excess Collateral. Federal and state
government agencies, in accordance with Medicare and Medicaid statutes and
regulations, have broad rights to audit a healthcare service provider and
offset any amounts it determines were overpaid to such provider on any claims
against payments due on other current, unrelated claims. The Company monitors
collections on a daily basis but may not be able to react quickly enough to
dilution to cover resulting losses through collections on newer accounts
receivable generated by the relevant client. See "Business--Operations."
CONCENTRATION OF CLIENT BASE AND THIRD-PARTY PAYOR BASE
At December 31, 1997, approximately 14.3% of the Company's finance
receivables were concentrated in receivables from three clients or groups of
affiliated clients, the largest of which accounted for 5.6% of such finance
receivables. Adverse conditions affecting any of these clients could have a
material adverse effect on the Company's ability to collect finance
receivables from these clients. The Company's client concentration has
decreased as the number of its clients has increased over time; however, there
can be no assurance that such concentration will continue to decrease in the
future.
At December 31, 1997, approximately 67.4% of the accounts receivable that
the Company had purchased or that were pledged to the Company were payable
under Government Programs. Any situation which would result in the inability
of the federal and state governments to fully fund such programs could have a
material adverse effect on the Company and its ability to collect advances to
its clients. See "Business--Operations."
INABILITY TO COLLECT HEALTHCARE RECEIVABLES DIRECTLY FROM MEDICARE AND
MEDICAID
With certain limited exceptions, federal law prohibits payment of amounts
owed to healthcare providers under the Medicare and/or Medicaid programs to
any entity other than providers. Except pursuant to a court order, the Company
is unable to force collection directly against third-party payors in a
Government Program. Accordingly, the Company is unable to collect receivables
payable under Government Programs directly, and, instead, the Company requires
that Medicare and Medicaid proceeds be paid to a segregated lockbox account
under the control of the client, the collected balances of which are then
swept to the Company via wire transfer on a daily basis. The Company must
closely monitor its clients' collection efforts to ensure compliance with the
foregoing procedures. At December 31, 1997, approximately 67.4% of the
accounts receivable that the Company had purchased or that were pledged to the
Company were payable under Government Programs. Although to date the Company
has been successful in monitoring the collection of government-based
receivables from its clients in accordance with their contractual
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<PAGE>
obligations, there can be no assurance that the Company will continue to be
successful in monitoring such collection activities in the future. See
"Business--Operations."
RISKS RELATED TO LOWER CREDIT GRADE BORROWERS
The Company focuses its marketing efforts on small and middle market
healthcare service providers. Some of these providers may be unable to obtain
financing from more traditional credit sources, such as commercial banks.
Advances made to these types of clients may entail a higher risk of loss than
advances made to clients who are able to utilize traditional credit sources.
While the Company employs underwriting criteria and monitoring procedures to
mitigate the higher risks inherent in advances made to some of its clients, no
assurance can be given that such criteria or procedures will afford adequate
protection against such risk. See "Business-- Operations." In the event that
collection of amounts due under the Accounts Receivable or STL Programs are
less than anticipated, the Company's results of operations and financial
condition could be adversely affected.
RISK OF FAILURE TO RENEW FUNDING SOURCES
The Company requires substantial capital to finance its business.
Consequently, the Company's ability to grow and the future of its operations
will be affected by the availability and the terms of financing. In addition
to proceeds from the Offering, the Company expects to fund its future growth
principally from (i) the $200 million CP Facility, which will expire on
December 5, 2001, (ii) the $50 million Bank Facility, which will expire on
March 29, 2002, subject to automatic renewals for one-year periods thereafter
unless terminated by either party, and (iii) the $100 million Warehouse
Facility, which will expire as to new loans on June 27, 1999. While the
Company expects to be able to obtain new financing facilities or renew these
existing financing facilities and to have continued access to other sources of
credit after the expiration of these facilities, there is no assurance that
such financing will be available, or, if available, that it will be on terms
favorable to the Company. In the event the Company is not able to renew the CP
Facility, the Bank Facility, or the Warehouse Facility or find alternative
financing for its activities, the Company would be forced to curtail or cease
its Accounts Receivable and STL Programs, which action would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Capital Resources."
RISKS ASSOCIATED WITH REAL PROPERTY COLLATERAL
STL Program Loans are often secured by real property collateral. Real
property investments in the healthcare industry are subject to varying degrees
of risk. The economic performance and values of healthcare real estate can be
affected by many factors including governmental regulation, general economic
conditions, local and regional fluctuations in the value of commercial
property and demand for healthcare services. There can be no assurance that
the value of property securing any STL Program loan will not depreciate as a
result of these or other factors. In addition, healthcare facilities are
"special purpose" properties and cannot be readily converted to general
residential, retail or office use. Transfers of operations of healthcare
facilities are often subject to regulatory approval not required for transfers
of other types of commercial operations and other types of real estate.
Therefore, if the operation of any facility securing a loan under the STL
Program becomes unprofitable due to competition, changes in government
regulation or reimbursement policies, age of improvements or other factors,
such that the Company's borrower becomes unable to meet its obligations on
such loan, the liquidation value of such facility may be substantially less
than would be the case if it were readily adaptable to other uses. In many
cases the Company holds a junior lien on the client's real property and is
therefore subordinate to the prior interests of senior lenders. The Company
currently requires borrowers in the STL Program to secure adequate
comprehensive property and liability insurance. However, certain risks are
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<PAGE>
uninsurable or not economically insurable and there can be no assurance that
any such borrower will have adequate funds to cover all contingencies should
an uninsured loss occur.
RISK OF INABILITY OF THE COMPANY TO CONTINUE ITS GROWTH STRATEGY
The Company's growth strategy is principally dependent upon its ability to
increase its finance receivables by making advances against accounts
receivable meeting its underwriting standards. No assurance is given that the
rate of growth experienced by the Company to date will be sustainable or is
indicative of future results. Of the Company's clients at December 31, 1996,
35.4% were no longer being financed by the Company at December 31, 1997, due
primarily to competition, consolidation in the healthcare industry and
clients' ability to self finance. Of the 46 clients which comprised the 35.4%
which have left since 1996, nine refinanced their receivables with other
sources, 22 terminated their relationships with the Company because they were
sold, nine repaid the Company with internally generated funds and six
terminated business after repayment of all amounts owed to the Company. See
"Business--Operations." Therefore, the Company's ability to further implement
its strategy for continued growth is largely dependent upon its ability to
attract and retain new clients in a competitive market. The Company's growth
is also dependent on the business growth of its clients, which may be affected
by a number of factors not within the Company's control. See "Business--
Strategy." At December 31, 1997, 69.2% of the Company's portfolio consisted of
finance receivables of long-term care, home healthcare and physician practice
businesses. If demand for financing in any of these sub-markets declines, the
Company's ability to increase its finance receivables could be adversely
affected. In the event the Company is unable to continue to attract new
clients, such inability could have a material adverse effect on the Company's
business, financial condition and results of operations.
RISKS ASSOCIATED WITH NEW PRODUCT OFFERINGS
The Company has recently begun to provide or expand products and services
not previously offered by it to healthcare industry clients, or offered only
on a limited basis, such as financing under its STL Program and certain fee-
based services, and may, in the future seek to introduce other new products
and services. See "Business--Strategy." The Company has very limited
experience with these new products and services, and there is no assurance
that the Company will be able to market these new products and services
successfully or that the return on these products and services will be
consistent with the Company's historical financial results.
RISKS ASSOCIATED WITH FAILURE TO CONSUMMATE REIT OFFERING
While the Company intends to utilize a portion of the proceeds of the
Offering to make an investment in up to approximately 9.9% of the common stock
of the HCFP REIT, the Company is subject to the normal risk, which accompanies
any initial public offering, that the REIT Offering will not be completed.
Should the REIT Offering not occur, the Company will have excess equity equal
to its contemplated investment in the HCFP REIT. While the Company would use
the proceeds for other purposes, such as repayment of existing debt, the
failure to complete the REIT Offering and the resulting excess equity could
have a detrimental impact on the performance of the Company's Common Stock.
RISKS ASSOCIATED WITH INVESTMENT IN THE HCFP REIT
The Company will be subject to various conflicts of interest arising from
its relationship with the HCFP REIT. Through its management of the HCFP REIT
by a newly formed subsidiary, the Company will have fiduciary responsibilities
to the HCFP REIT that may not always be aligned with the Company's interests.
While the Company and the HCFP REIT are expected to enter into agreements to
mitigate these risks, no assurances can be given that conflicts will not arise
or that the Company's efforts to mitigate these risks will be effective. For
example, to the extent that the
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<PAGE>
Company and the HCFP REIT both have credit exposure to the same clients, any
inability by those clients to meet their financial obligations could create
inter-creditor conflicts between the Company and the HCFP REIT. Although the
Company and the HCFP REIT anticipate establishing policies and procedures to
ensure that transactions, clients or situations involving both the Company and
the HCFP REIT are handled on an arms'-length basis on substantially the same
terms as would be present in situations with unaffiliated parties, there can
be no assurance that these policies and procedures will be sufficient to solve
potential conflicts of interest. Furthermore, the impact on the Company of
conflicts that may arise between the Company and the HCFP REIT, if any, and
the impact of the ultimate resolution of these conflicts cannot be predicted.
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of members of its senior management, particularly John K.
Delaney, the Company's Chairman and Chief Executive Officer; Ethan D. Leder,
the Company's Vice-Chairman and President; and Edward P. Nordberg, Jr., the
Company's Executive Vice President and Chief Financial Officer, as well as
other officers and key personnel, many of whom would be difficult to replace.
The future success of the Company also depends on its ability to identify,
attract and retain additional qualified technical and managerial personnel,
particularly with experience in healthcare financing. Although the Company has
employment agreements with Messrs. Delaney, Leder and Nordberg, the loss of
Messrs. Delaney, Leder and Nordberg or other officers and key personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company does not maintain key man life
insurance on any officers. See "Management."
It is anticipated that, after the REIT Offering, certain members of the
Company's senior management will also be senior executives of both the HCFP
REIT and its manager. These senior managers may experience conflicts of
interest in allocating management time between their responsibilities with the
Company and their responsibilities with the HCFP REIT and its manager.
RISKS ASSOCIATED WITH INABILITY TO SUCCESSFULLY COMPETE
The Company competes with numerous commercial banks, diversified finance
companies, asset-based lenders and specialty healthcare finance companies.
Many of these competitors have greater financial and other resources than the
Company and may have significantly lower cost of funds. This disparity in cost
of funds ranges from approximately 1% to 5% and reflects commercial banks'
access to deposits and other low cost sources of capital and other
competitors' greater access to the capital markets. Competition can take many
forms, including the pricing of financing, the timeliness and responsiveness
in processing a prospective client's application, and customer service. The
Company's competitors target the same type of healthcare service providers as
those targeted by the Company and, with the exception of most specialty
healthcare finance companies, generally have operated in the markets serviced
by the Company for a longer period of time than the Company. If the Company is
unable to successfully compete, its financial position and results of
operations would be adversely affected. See "Business--Competition."
FAILURE TO COMPLY WITH GOVERNMENT REGULATIONS
The Company's healthcare finance business is subject to numerous federal and
state laws and regulations, which, among other things, may (i) require the
Company to obtain and maintain certain licenses and qualifications, (ii) limit
the interest rates, fees and other charges that the Company is allowed to
collect, (iii) limit or prescribe certain other terms of its finance
receivables arrangements with clients, and (iv) subject the Company to certain
claims, defenses and rights of
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<PAGE>
offset. Although the Company believes that it is currently in compliance with
statutes and regulations applicable to its business, there can be no assurance
that the Company will be able to maintain such compliance without incurring
significant expense. The failure to comply with such statutes and regulations
could have a material adverse effect upon the Company. Furthermore, the
adoption of additional statutes and regulations, changes in the interpretation
and enforcement of current statutes and regulations, or the expansion of the
Company's business into jurisdictions that have adopted more stringent
regulatory requirements than those in which the Company currently conducts
business could have a material adverse effect upon the Company. See "--Risk of
Adverse Effect of Healthcare Reform" and "Business--Government Regulation."
RELIANCE ON REIMBURSEMENTS BY THIRD-PARTY PAYORS
The Company's clients receive payment for services rendered to patients from
third-party payors (including health maintenance organizations, managed care
concerns and other insurers), large corporations (which may be self-insured),
other healthcare providers and patients themselves, and from Government
Programs. The clients rely on prompt payments from third-party payors to
enable them to satisfy their obligations to the Company under the Accounts
Receivable Program. The healthcare industry is experiencing a trend toward
cost containment, as government and other third-party payors seek to impose
lower reimbursement and utilization rates and negotiate reduced payment
schedules with healthcare providers. Such cost containment could adversely
affect the ability of the Company's clients to make payments owed to the
Company, which would have an adverse impact on the Company's business and
financial performance.
RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM
In addition to extensive existing government healthcare regulation (see
"Business-- Government Regulation"), there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for
and availability of healthcare services, including a number of proposals that
would significantly limit reimbursement under Government Programs. It is not
clear at this time what proposals, if any, will be adopted or, if adopted,
what effect such proposals would have on the Company's business. Aspects of
certain of these healthcare proposals, such as cutbacks in Government
Programs, containment of healthcare costs on an interim basis by means that
could include a short-term freeze on prices charged by healthcare providers, a
restructuring of the way in which Medicare pays for certain services, and
greater state flexibility permitted in the administration of Medicaid, could
adversely affect the Company.
There can be no assurance that currently proposed or future healthcare
legislation or other changes in the administration or interpretation of
Government Programs will not have an adverse effect on the Company or that
payments under Government Programs will remain at levels comparable to present
levels or will be sufficient to cover the costs allocable to patients eligible
for reimbursement pursuant to such programs. Concern about the potential
effects of the proposed reform measures has contributed to the volatility of
prices of securities of companies in healthcare and related industries, and
may similarly affect the price of the Company's Common Stock in the future.
In addition, certain private reform efforts have been instituted throughout
the healthcare industry, including the capitation of certain healthcare
expenditures. Capitation is the pre-payment of certain healthcare costs by
third-party payors (typically health maintenance organizations and other
managed healthcare concerns), based upon a predetermined monthly fee for the
aggregate patient lives under any given healthcare provider's care. The
healthcare provider then provides healthcare to such patients when and as
needed, and assumes the risk that its prepayments will cover its costs and
provide a profit for all of such services rendered. Since capitation
essentially eliminates the clients' accounts receivable that are the primary
source of
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<PAGE>
payment for the Company's finance receivables, capitation could materially
adversely affect the Company's business, financial condition and results of
operations. See "--Failure to Comply with Government Regulations" and
"Business--Government Regulation."
RESTRICTIVE DEBT COVENANTS
The Bank Facility contains financial and operating covenants, including the
requirement that the Company maintain an adjusted tangible net worth of more
than $5.0 million, and a ratio of debt to equity of not more than 3.0 to 1.0
exclusive of its borrowings under the CP Facility. In addition, under the Bank
Facility the Company is not allowed to have at any time a cumulative negative
cash flow (as defined in the Bank Facility) in excess of $1.0 million. At
December 31, 1997, the Company was in compliance with all of such covenants.
Under the Bank Facility, borrowings under the CP Facility are excluded from
debt for purposes of calculation of the Bank Facility debt-to-equity ratio.
The Bank Facility also includes certain limitations on the ability of the
Company to consolidate, merge or transfer all or substantially all of its
assets, incur debt, create liens on its property, make capital expenditures,
dispose of assets or make investments. Under the terms of the CP Facility, ING
has the option to refuse to make any advances in the event the Company fails
to maintain a tangible net worth of at least $50.0 million. See "Business--
Capital Resources."
Future financing agreements may also contain similar financial and operating
covenants. The foregoing limitations in the Bank Facility and the CP Facility
and any future financing agreements could adversely affect the Company's
ability to implement its growth strategy. Failure to comply with the
obligations contained in these agreements could result in an event of default
under such agreements which could permit acceleration of the indebtedness
under the Bank Facility, the CP Facility or any future financing agreements.
RISKS ASSOCIATED WITH YEAR 2000
The Company has implemented a program designed to ensure that all software
used by the Company in connection with its services will manage and manipulate
data involving the transition of dates from 1999 to 2000 without functional or
data abnormality and without inaccurate results related to such data. However,
the Company believes that some of its clients and payors may not have
implemented such programs. The failure by clients and payors to implement
necessary software changes may disrupt client billing and reimbursement cycles
and adversely effect clients' cash flow and collectability of pledged accounts
receivable. The Company is unable to predict the effects that any such failure
may have on the financial condition and results of the operations of the
Company.
GENERAL ECONOMIC RISKS
The Company's business could be affected by general economic conditions in
the United States, and any sustained period of economic slowdown or recession
could materially adversely affect the Company's business, financial condition
and results of operations. The risks to which the Company's business is
subject become more acute during an economic slowdown or recession because
fewer accounts receivable may be generated by clients, resulting in decreased
fees for the Company. In addition, the financial ability of certain third-
party payors to pay outstanding accounts receivable and of clients to pay
outstanding advances may be impaired, resulting in increased credit losses.
Further, some of the Company's clients are startup or less mature ventures
that may be more susceptible to economic slowdowns or recessions.
NO DIVIDENDS
The Company has not paid any cash dividends to date and does not intend to
pay cash dividends in the foreseeable future. The Company intends to retain
earnings to finance the
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<PAGE>
development and expansion of its business. In addition, the Bank Facility and
the CP Facility do, and future financing arrangements may, impose minimum net
worth covenants, debt-to-equity covenants and other limitations that could
restrict the Company's ability to pay dividends. See "--Restrictive Debt
Covenants" and "Dividend Policy."
POSSIBLE ADVERSE IMPACT ON TRADING PRICE OF SHARES ELIGIBLE FOR FUTURE SALE
Following the Offering, the Company will have 12,473,978 shares of Common
Stock outstanding (which includes 3,687 shares issued upon exercise of options
after December 31, 1997). All of the shares of Common Stock sold in the
Offering, 4,312,500 shares of Common Stock sold in the Company's public
offering of Common Stock in June 1997, and 2,415,000 shares of Common Stock
sold in the Initial Public Offering are freely tradeable without restriction
under the Securities Act of 1933, as amended (the "Securities Act"), except
for any shares purchased by existing affiliates of the Company, which shares
are subject to the resale limitations of Rule 144 as promulgated under the
Securities Act ("Rule 144"). All of the remaining shares of outstanding Common
Stock are "restricted securities" as that term is defined in Rule 144. Subject
to the 90-day lock-up agreement and certain other agreements restricting seven
of the Company's existing stockholders from selling Common Stock, each of
which is described below, these restricted securities will be eligible for
sale pursuant to Rule 144 in the public market following the consummation of
the Offering. Additional shares of Common Stock, including shares issuable
upon exercise of employee stock options, will also become eligible for sale in
the public market from time to time. In addition, certain stockholders and
members of senior management have been granted certain registration rights
relating to shares of Common Stock held by them for sale under the Securities
Act. However, the Company, certain of its officers and directors and certain
other stockholders, who in the aggregate will own 1,619,341 shares of Common
Stock after the Offering, have agreed that, for a period of 90 days after the
date of this Prospectus, they will not, without the prior written consent of
the Underwriters, offer to sell, sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exchangeable for shares of
Common Stock (the "90-day lock-up agreement"), except that the Company may
grant options and issue shares of Common Stock under the Company's existing
option plans and may issue Common Stock in acquisition transactions not
involving a public offering. Further, five of the existing stockholders of the
Company, who in the aggregate will own 2,211,979 shares of Common Stock after
this Offering, have agreed that, without the prior written consent of the
Company, they will not effect any sales of Common Stock prior to November 21,
1998 in excess of the volume limitations provided under Rule 144 (the "Rule
144 Sale Agreement"). Following this Offering and upon the expiration of the
90-day lock-up agreement and the Rule 144 Sale Agreement, sales of substantial
amounts of the Company's Common Stock in the public market pursuant to Rule
144 or otherwise, or the availability of such shares for sale, could adversely
affect the prevailing market price of the Common Stock and impair the
Company's ability to raise additional capital through the sale of equity
securities.
POSSIBLE FLUCTUATIONS OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations in response to the Company's operating results and other factors.
In addition, the stock market in recent years has experienced extreme price
and volume fluctuations that often have been unrelated or disproportionate to
the operating performance of companies. Such fluctuations, and general
economic and market conditions, may adversely affect the market price of the
Common Stock.
AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE
In addition to the Common Stock, the Company's Amended and Restated
Certificate of Incorporation authorizes the issuance of up to 10,000,000
shares of "blank check" preferred stock. Following the Offering, there will be
no shares of preferred stock outstanding, and the Company has
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<PAGE>
no present intention to issue any shares of preferred stock. However, since
the rights and preferences of any class or series of preferred stock may be
set by the Board of Directors in its sole discretion, the rights and
preferences of any such preferred stock may be superior to those of the Common
Stock, and thus may adversely affect the rights of holders of Common Stock.
The ability to issue preferred stock could have the effect of delaying or
preventing a change in control of the Company.
POSSIBLE ANTI-TAKEOVER EFFECTS
Certain provisions of the Delaware General Corporation Law and the Company's
Amended and Restated Certificate of Incorporation may be deemed to have anti-
takeover effects and may delay or prevent a takeover attempt that a
stockholder of the Company might consider to be in the best interests of the
Company or its stockholders. These provisions include authorized blank check
preferred stock, limitations on the persons who may call a special meeting of
stockholders, a classified Board of Directors, the ability of the directors to
fill vacancies on the Board of Directors and advance notice requirements for
stockholder proposals and director nominees. The Company has also elected to
be subject to Section 203 of the Delaware General Corporation Law which
prohibits certain business transactions involving certain stockholders without
the approval of the Board of Directors or stockholders.
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USE OF PROCEEDS
The net proceeds to be received by the Company from the issuance and sale of
the Common Stock offered hereby, after deducting the underwriting discount and
estimated offering expenses, are estimated to be $100.6 million. The Company
will not receive any of the proceeds from the sale of shares of Common Stock
by the Selling Stockholders.
The Company intends to use the net proceeds from the Offering to finance
anticipated growth of the Company's Accounts Receivable and STL Programs and
for general corporate purposes, including possible strategic acquisitions and
investments. The Company anticipates making an investment in up to
approximately 9.9% of the common stock of the HCFP REIT in the event the REIT
Offering is consummated. The Company does not currently have any agreement,
arrangement or understanding regarding any such acquisition or investments,
other than its proposed investment in the HCFP REIT. See "Prospectus Summary--
Recent Developments" and "Risk Factors--Risks Associated with Failure to
Consummate REIT Offering." Pending such uses, the net proceeds to the Company
will be used to temporarily repay amounts then due under the Bank Facility,
the Warehouse Facility or the CP Facility. See "Business--Capital Resources"
for a description of the interest rates, the maturity dates and other terms
applicable to the Bank Facility, the Warehouse Facility and the CP Facility.
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PRICE RANGE OF COMMON STOCK
The Common Stock is listed for trading on the Nasdaq National Market under
the trading symbol "HCFP." The following table sets forth the high and low
sales prices of the Common Stock as reported by the Nasdaq National Market for
each of the calendar quarters indicated:
<TABLE>
<CAPTION>
QUARTER HIGH LOW
------- ------- -------
<S> <C> <C>
1996
Fourth (from November 21, 1996)........................... $14.000 $12.125
1997
First..................................................... $19.000 $12.375
Second.................................................... $20.500 $ 9.750
Third..................................................... $31.500 $19.000
Fourth.................................................... $37.375 $28.875
1998
First (through February 18, 1998)......................... $42.375 $32.500
</TABLE>
On February 18, 1998, the closing sale price of the Common Stock, as
reported on the Nasdaq National Market, was $38.125.
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DIVIDEND POLICY
The Company intends to retain all future earnings for the operation and
expansion of its business, and does not anticipate paying cash dividends in
the foreseeable future. Any future determination as to the payment of cash
dividends will depend upon the Company's results of operations, financial
condition and capital requirements and any regulatory restrictions or
restrictions under credit agreements or other funding sources of the Company
existing from time to time, as well as other matters which the Company's Board
of Directors may consider. In addition, the Bank Facility and the CP Facility
currently, and financing arrangements in the future may, impose minimum net
worth covenants, debt-to-equity covenants and other limitations that could
restrict the Company's ability to pay dividends. See "Risk Factors--
Restrictive Debt Covenants."
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 and as adjusted to give effect to this Offering at the
assumed public offering price of $38.125 per share and the application of the
net proceeds thereof. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Total borrowings.................................. $169,269,054 $ 88,423,429
============ ============
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none outstanding..................... $ -- $ --
Common stock, $.01 par value; 30,000,000 shares
authorized; 9,670,291 shares outstanding;
12,470,291 shares outstanding as adjusted(1)..... 96,703 124,703
Additional paid-in capital........................ 79,784,045 180,401,670
Retained earnings................................. 7,949,440 7,949,440
------------ ------------
Total stockholders' equity...................... $ 87,830,188 $188,475,813
============ ============
</TABLE>
- --------
(1) Does not include 744,700 shares of Common Stock reserved for issuance
pursuant to the Incentive Plan and 100,000 shares of Common Stock reserved
for issuance pursuant to the Director Incentive Plan. Also does not
include an option to purchase 38,381 shares of Common Stock granted
outside the Incentive Plan on November 1, 1995.
21
<PAGE>
BUSINESS
GENERAL
The Company is a specialty finance company offering asset-based financing to
healthcare service providers, with a primary focus on clients operating in
sub-markets of the healthcare industry, including long-term care, home
healthcare and physician practices. The Company also provides asset-based
financing to clients in other sub-markets of the healthcare industry,
including pharmacies, durable medical equipment suppliers, hospitals, mental
health providers, rehabilitation companies, disease state management companies
and other providers of finance and management services to the healthcare
industry. The Company targets small and middle market healthcare service
providers with financing needs in the $100,000 to $10 million range in
healthcare sub-markets which have favorable characteristics for working
capital financing, such as those where growth, consolidation or restructuring
appear likely in the near to medium term. Management believes that the
Company's healthcare industry expertise and specialized information systems,
combined with its responsiveness to clients, willingness to finance relatively
small transactions, and flexibility in structuring transactions, give it a
competitive advantage in its target markets over commercial banks, diversified
finance companies and traditional asset-based lenders.
From its inception in 1993 through December 31, 1997, the Company has
advanced $1.9 billion to its clients in over 560 transactions, including $1.2
billion advanced during the year ended December 31, 1997. The Company had 174
clients as of December 31, 1997, of which 60 were affiliates of one or more
other clients. The average amount outstanding per affiliated client group at
December 31, 1997 was approximately $1.5 million. For the years ended December
31, 1995 and 1996, the Company's pro forma net income was $1.5 million and
$3.0 million, respectively. For the year ended December 31, 1997, the
Company's consolidated net income was $8.0 million. For the year ended
December 31, 1997, the Company's yield on finance receivables was 16.8%.
HEALTHCARE INDUSTRY
According to Healthcare Financing Administration ("HCFA") estimates, total
domestic healthcare expenditures for 1997 exceeded $1.2 trillion, or 14.8% of
gross domestic product, compared to expenditures of $428.2 billion or 10.2% of
gross domestic product in 1985. The annual compound growth rate of healthcare
expenditures from 1985 to 1997 was 9.5%. The breakdown of estimated healthcare
expenditures for 1997 is as follows (dollars in billions):
<TABLE>
<CAPTION>
ESTIMATED 1997
HEALTHCARE INDUSTRY SEGMENT EXPENDITURES
--------------------------- --------------
<S> <C>
Acute-Care (hospitals)........................................ $ 449.0
Physician Services............................................ 258.9
Other Medical Non-Durables.................................... 105.5
Long-Term Care (nursing homes)................................ 102.6
Other Professional Services................................... 85.2
Insurance-net healthcare costs................................ 64.7
Dental Services............................................... 52.2
Home Healthcare............................................... 38.4
Government Public Health...................................... 33.5
Other Personal Care........................................... 30.1
Research...................................................... 17.9
Vision Products and Other Medical Durables.................... 16.2
Construction.................................................. 15.2
--------
Total......................................................... $1,269.4
========
</TABLE>
- --------
Source: HCFA, Office of the Actuary.
22
<PAGE>
The Company believes that there are several distinct trends that will
continue to fuel the demand for and the dollar value of healthcare services in
the United States and the demand for the Company's services, including: (i)
dramatic change driven by governmental and market forces which have put
pressure on healthcare service providers to reduce healthcare delivery costs
and increase efficiency, often resulting in short-term working capital needs
by such providers as their businesses grow; (ii) favorable demographic trends,
including both the general increase in the U.S. population and the aging of
the U.S. population, which should increase the size of the Company's principal
target markets; (iii) growth, consolidation and restructuring of fragmented
sub-markets of healthcare, including long-term care, home healthcare and
physician services; and (iv) advances in medical technology, which have
increased demand for healthcare services by expanding the types of diseases
that can be effectively treated and by extending the population's life
expectancy.
According to HCFA, total annual expenditures in the long-term care market
grew from $30.7 billion in 1985 to an estimated $102.6 billion in 1997, and
are projected to grow to $121.2 billion by the year 2000. The Company's long-
term care clients include single nursing home operators (1-2 homes), small
nursing home chains (3-10 homes) and regional nursing home chains (11-50
homes). According to the Guide to the Nursing Home Industry published in 1996
by HCIA, Inc., a healthcare information services company, the long-term care
industry remains widely diversified and fragmented, with all nursing home
chains controlling only 34.5% of the market, and the largest 20 chains
constituting only 18.0% of the market.
According to HCFA, total annual home healthcare expenditures grew from $5.6
billion in 1985 to an estimated $38.4 billion in 1997, and are projected to
grow to $45.9 billion by the year 2000. According to the National Association
of Health Care, the number of Medicare certified home health agencies has
grown from 5,983 in 1985 to 10,027 in 1996. The home healthcare business
remains highly fragmented, with only a small percentage of such companies
having any significant market share.
According to HCFA, total annual physician services expenditures, grew from
$83.6 billion in 1985 to an estimated $258.9 billion in 1997, and are
projected to grow to $309.8 billion by the year 2000. The American Medical
Association ("AMA") reports that, as of December 31, 1995, approximately
642,000 physicians were actively involved in patient care in the U.S., with a
growing number participating in multispecialty or single-specialty groups.
According to the AMA, as of December 31, 1995, there were 19,787 physician
groups with three or more physicians, while over two-thirds of all physicians
still work in practices of one or two persons.
MARKET FOR HEALTHCARE ASSET-BASED FINANCING
Businesses generally utilize working capital or accounts receivable
financing to bridge the shortfall between the turnover of current assets and
the maturity of current liabilities. A business will often experience this
shortfall during periods of revenue growth because cash flow from new revenues
lags behind cash outlays required to produce new revenues. For example, a
growing labor intensive business will often need to fund payroll obligations
before payments are received on new services provided or products produced.
Many of the Company's clients are labor intensive and growing and therefore
require accounts receivable financing to fund their growth.
In addition to the Company, working capital financing for small and middle
market healthcare service providers is currently provided by several different
sources. Some commercial banks and diversified finance companies have formed
groups or divisions to provide working capital financing for healthcare
service providers. Such groups or divisions generally focus on providing
financing to companies with borrowing needs in excess of $5 million, and often
require more extensive collateral in addition to accounts receivable to secure
such financing. As a general
23
<PAGE>
matter, these lenders typically have been less willing to provide financing to
healthcare service providers of the types served by the Company because such
lenders have not developed the healthcare industry expertise needed to
underwrite smaller healthcare service companies or the specialized systems
necessary for tracking and monitoring healthcare receivables transactions,
which are different from traditional accounts receivable finance transactions.
Several independent healthcare finance companies that have raised funds
through securitization programs also provide financing to healthcare service
providers. However, many of the financing programs offered by such
securitization companies are often rigid and cumbersome for healthcare service
providers to implement because, among other things, securitization programs
typically impose more stringent and inflexible qualification requirements on
borrowers and also impose concentration and other limitations on the asset
portfolio, as a result of rating agencies and other requirements.
In addition to working capital, small to middle market healthcare service
providers often require additional sources of financing, including term loans
to facilitate the growth or restructuring of their businesses. A majority of
the Company's clients are facility-based health care service providers, such
as nursing homes, that grow through the acquisition of additional facilities.
Facility-based healthcare service providers can often acquire additional
facilities at attractive valuations if, after identifying an opportunity, such
providers can obtain the necessary financing to quickly close on the
acquisition. Many of the Company's clients also have a need for term loans as
their businesses grow in order to support expanding infrastructure
requirements such as information systems, enhanced professional management and
marketing and business development costs. To address this market need, the
Company introduced the STL Program in late 1996.
Management believes that the growth in healthcare expenditures, the
consolidation of certain segments of the healthcare market, and the
reorganization of the healthcare delivery system (caused by both cost
containment pressures and the introduction of new products and services) will
have positive effects on the demand for the Company's services since they in
many cases will increase the working capital needs of the Company's clients.
Historically, these trends have affected different sub-markets of the
healthcare industry at different times. The Company expects these trends to
continue, thereby providing the Company with long-term growth opportunities.
STRATEGY
The Company's goal is to be the leading finance company in its targeted sub-
markets of the healthcare services industry and to become the primary source
for all of the financing needs of its clients. The Company's strategy for
growth is based on the following key elements:
Target sub-markets within the healthcare industry that have favorable
characteristics for working capital financing, such as fragmented sub-markets
experiencing growth, consolidation or restructuring. At December 31, 1997,
69.2% of the Company's portfolio consisted of finance receivables from
businesses in the long-term care, home healthcare and physician practice sub-
markets, and management believes that growth, consolidation and restructuring
in these sub-markets will continue to provide opportunities for the Company to
expand. By continuing to focus on these sub-markets, the Company seeks to
achieve attractive returns while controlling overall credit risk. In the
future different healthcare sub-markets may experience increased demand for
working capital and the Company intends to be in a position to move into these
new markets as opportunities arise.
Focus on healthcare service providers with financing needs of between
$100,000 and $10 million, a market that has been underserved by commercial
banks, diversified finance companies, traditional asset-based lenders and
other competitors of the Company. Most commercial banks, diversified finance
companies and traditional asset-based lenders have typically focused on
providing
24
<PAGE>
financing to companies with borrowing needs in excess of $5 million. The
Company believes that its target market for transactions between $100,000 and
$10 million is much larger, in terms of the number of available financing
opportunities, and is less competitive than the market servicing larger
borrowing needs, thereby producing growth opportunities at attractive rates.
Become the primary source for all of the financing needs of clients by
introducing new financial products to leverage the Company's existing
expertise in healthcare finance and its origination, underwriting and
servicing capabilities within its target sub-markets. The Company employs
significant resources in the origination, underwriting and servicing of
clients in its target sub-markets. To further deepen its penetration of these
sub-markets and to meet the changing financial needs of new and existing
clients with a broader array of financial products, the Company began in late
1996 to offer additional financing products through the STL Program. The
Company expects to continue to selectively introduce new products to existing
and new clients, depending upon the needs of its clients, general economic
conditions, the Company's resources and other relevant factors. In some cases,
the Company anticipates that new products may be introduced as part of
cooperative arrangements with other lenders where the origination and
servicing relationship will remain with the Company.
Increase the Company's offering of fee-based and value-added services to
clients such as the reimbursement consulting and clinical auditing services
provided by HCAC. The Company constantly seeks to increase the range of fee-
based services which it offers its clients in order to (i) reduce its
dependence on profits derived from the difference between the yield on finance
receivables and its cost of funds, (ii) supplement its total revenues by the
amount of such fees, and (iii) offer a broader range of services to its
clients. The fee-generating capabilities of HCAC and the HCFP REIT (via the
management agreement, if the REIT Offering is consummated) are expected to
increase fee income of the Company.
Seek to make strategic acquisitions of and investments in businesses that
are engaged in the same or similar business as the Company or that are engaged
in lines of business complementary to the Company's business. Because of the
growth of the Company's core finance receivables business, the Company
increasingly is offered opportunities to invest in, or acquire interests in,
healthcare service businesses that are involved in financial services,
receivables management, outsourcing, or financial and administrative
infrastructure development activities. The Company believes that businesses in
these areas are synergistic with the Company's core lending business and could
allow the Company to leverage its expertise in healthcare to meet the needs of
the Company's customer base. See "Recent Developments." The Company will also
seek to take advantage of appropriate opportunities to acquire portfolios of
loans backed by healthcare receivables and to invest in or acquire companies
in the same or similar lines of business as the Company.
Enhance the Company's credit risk management and improve servicing
capabilities through continued development of information management systems.
The Company has developed proprietary information systems that effectively
monitor its assets and which also serve as valuable tools to the Company's
smaller less sophisticated clients in managing their working capital resources
and streamlining their billing and collection efforts. The Company believes
that this "servicing" capability provides a competitive advantage by
strengthening relationships with clients, providing early identification of
dilution of client accounts receivable and increasing the Company's
understanding of its clients' operational needs.
FINANCING PROGRAMS
The Company provides asset-based financing to healthcare service providers
through the Accounts Receivable Program and the STL Program.
25
<PAGE>
Accounts Receivable Program. Under the Accounts Receivable Program, the
Company offers healthcare service providers revolving lines of credit secured
by, and advances against, accounts receivable. Revolving lines of credit
offered through the Accounts Receivable Program permit a client to borrow, on
a revolving basis, 65% to 85% of the estimated net collectible value of the
client's accounts receivable due from third-party payors, which are pledged to
the Company. The Company charges its clients a base floating interest rate
ranging from one to three percent above the then applicable prime rate and a
variety of other fees, which may include a loan management fee, a commitment
fee, a set-up fee and an unused line fee, which fees collectively range from
one to four percent. The Company targets larger healthcare service providers
for revolving lines of credit secured by accounts receivable, for which the
minimum commitment amount is generally $1 million and the maximum commitment
amount is generally $10 million. Such financings are recourse to the client
and generally have a term of one to three years.
In connection with advances against receivables, the Company purchases, on a
revolving basis, a specified batch of a client's accounts receivable owed to
such client from third-party payors. The purchase price for each batch of
receivables is the estimated net collectible value of such batch less a
purchase discount, comprised of funding and servicing fees. The purchase
discount can be either a onetime fee for each batch of receivables purchased
or a periodic fee based on the average outstanding balance of a batch of
receivables ranging from one to five percent of the net collectible value of
such batch. With each purchase of a batch of receivables, the Company advances
to the client 65% to 85% of the purchase price (which is equal to aggregate
net collectible value minus a purchase discount) of such batch. The Company
assigns a collection period to batches of receivables purchased, which period
generally ranges from 60 to 120 days from the purchase date depending on the
type of receivables purchased. The excess of the purchase price for a batch of
receivables over the amount advanced with respect to such batch (a "client
holdback") is treated as a reserve and provides additional security to the
Company. The Company targets smaller healthcare service providers for
financings involving advances against receivables. Commitments for such
financings are generally less than $1 million and terms are generally for one
year with renewal options.
As of December 31, 1997, the Company was financing 161 clients in its
Accounts Receivable Program, and the finance receivables originated through
the Accounts Receivable Program constituted 74.1% of total finance
receivables. The yield on finance receivables generated under the Accounts
Receivable Program for the year ended December 31, 1997 was 17.0%. Of the
Company's finance receivables in its Accounts Receivables Program at December
31, 1997, 32.6% represented payables by commercial insurers or other non-
governmental third-party payors, 25.9% represented payables from Medicare and
41.5% represented payables from Medicaid.
STL Program. Under the STL Program, the Company provides its clients with
term loans for up to three years secured by first or second liens on real
estate, accounts receivable or other assets, such as equipment, inventory and
stock. The Company introduced the STL Program in late 1996, in an effort to
service clients' financing needs which the Company could not provide through
its Accounts Receivable Program. Such loans have been made to clients to
finance acquisitions and expansions of existing healthcare facilities, as well
as to provide working capital, and are often provided to clients in
conjunction with financing under the Accounts Receivable Program. Such loans
are generally recourse to the borrower.
At December 31, 1997, the Company had $65.0 million in STL Program loans
outstanding. The yield on finance receivables generated under the STL Program
for the year ended December 31, 1997, was 16.3%. At December 31, 1997, STL
Program loans comprised 25.9% of the Company's total finance receivables.
While yields on such loans are generally lower than the
26
<PAGE>
yields generated by the Accounts Receivable Program, some term loans under the
STL Program also include warrants or success fees that may enhance the
effective yield on such loans.
The following table sets forth the Company's portfolio activity at or for
the periods indicated:
PORTFOLIO ACTIVITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTERS ENDED
----------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 31, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
--------- -------- --------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Outstanding:
AR Program............. $57,448 $65,914 $79,567 $86,876 $104,865 $118,960 $172,171 $185,728
STL Program............ -- -- -- 2,453 11,923 33,420 46,331 64,961
Total AR Program
Clients................ 90 98 112 129 137 145 171 161
New AR Program Clients.. 23 14 15 35 26 29 27 28
Total STL Program
Clients................ -- -- -- 8 20 25 32 39
New STL Program
Clients................ -- -- -- -- 14 8 9 10
Avg. Finance
Receivables/ Client:
AR Program............. $ 638 $ 673 $ 710 $ 673 $ 765 $ 820 $ 1,007 $ 1,154
STL Program............ -- -- -- 307 596 1,337 1,448 1,666
</TABLE>
- -------
* "AR" means Accounts Receivable
OPERATIONS
Portfolio Development. The Company has established a portfolio development
group which is primarily responsible for new business generation, including
both marketing and underwriting.
Marketing. The Company has developed low cost means of marketing its
services on a nationwide basis to selected healthcare sub-markets. The Company
primarily markets its services by telemarketing to prospective clients
identified by the Company, advertising in industry specific periodicals and
participating in industry trade shows. The Company's clients also assist the
Company's marketing efforts by providing referrals and references. The Company
has and will continue to rely primarily on direct marketing efforts to
generate new clients for its services.
The Company also markets its services by developing referral relationships
with accountants, lawyers, venture capital firms, billing and collection
companies and investment banks (which typically are professionals focusing on
the healthcare industry and who have a pre-existing relationship with a
prospective client). The Company usually does not pay a fee for referrals from
professional firms. However, the Company has closed transactions with clients
through referrals from independent brokers that generally specialize in the
healthcare industry, which brokers have been paid a one-time brokerage
commission upon the closing of a transaction. While not a primary focus of its
marketing efforts, the Company expects to continue to generate referrals
through independent brokers.
At January 31, 1998, the Company employed a staff of 11 sales and marketing
representatives at its headquarters in Chevy Chase, Maryland. In November
1997, the Company opened an office for marketing in Dallas, Texas, and
currently has one employee in its Dallas office. Marketing personnel are
compensated with a base salary plus performance bonuses.
Underwriting. The Company follows written underwriting and credit policies,
and its credit committee, consisting of senior officers of the Company, must
unanimously approve each transaction
27
<PAGE>
which is proposed for the Accounts Receivable Program or STL Program with a
prospective client. The Company's underwriting policies require a due
diligence review of the prospective client, its principals, its financial
condition and strategic position, including a review of all available
financial statements and other financial information, legal documentation and
operational matters. The Company's due diligence review also includes a
detailed examination of a prospective client's accounts receivable, accounts
payable, billing and collection systems and procedures, management information
systems and real and personal property and other collateral. Such a review is
conducted after the Company and the prospective client execute a non-binding
term sheet, which requires the prospective client to pay a due diligence
deposit to defray the Company's expenses. The Company's due diligence review
is organized by the Company's underwriters and supervised by the sponsoring
member of the credit committee. At January 31, 1998, the Company employed four
underwriters at its headquarters in Maryland. HCAC independently confirms
certain matters with respect to the prospective client's business and the
collectibility of its accounts receivable and any other collateral by
conducting public record searches, and, where appropriate, by contacting
third-party payors about the prospective client's receivables. For loans
primarily secured by real property, the Company requires third-party
appraisals and Phase I environmental surveys prior to making such loans.
In order to determine its estimate of the net collectible value of a
prospective client's accounts receivable, HCAC conducts extensive due
diligence to evaluate the receivables likely to be paid within a defined
collection period. This evaluation typically includes: (i) a review of
historical collections by type of third-party payor; (ii) a review of
remittance advice and information relating to claim denials (including
explanations of benefits); (iii) a review of claims files and related medical
records; and (iv) an analysis of billing and collections staff and procedures.
HCAC may also periodically employ third-party claim verifiers to assist it in
determining the net collectible value of a client's accounts receivable. Claim
verifiers include healthcare billing and collection companies, healthcare
accounting firms with expertise in reviewing cost reports filed with Medicaid
and Medicare, and specialized consultants with expertise in certain sub-
markets of the healthcare industry. Claim verifiers are pre-approved by the
Company's credit committee. When deemed necessary by the Company for credit
approval, the Company may obtain corporate or personal guaranties or other
collateral in connection with the closing of a transaction.
Loan Administration. The Company has established a loan administration group
which is primarily responsible for monitoring the performance of its loans, as
well as its collection procedures.
Monitoring. The Company monitors the collections of client accounts
receivable and its finance receivables on a daily basis. Each client is
assigned an account manager, who receives draw and advance requests, posts
collections and serves as the primary contact between the Company and the
client. Each client is also assigned to a loan officer who is primarily
responsible for monitoring that client's financial condition and the adequacy
of the Company's collateral with respect to loans to such client. All draw or
advance requests must be approved by the client's loan officer and by the
Company's senior credit officer or a portfolio manager. At January 31, 1998,
the Company employed ten account managers and four loan officers in its
Maryland headquarters. The Company's proprietary information system enables
the Company to monitor each client's account, as well as permit management to
evaluate and mitigate against risks on a portfolio basis. See "--Information
Systems." In addition, the Company conducts audits of its clients' billing and
collection procedures, financial condition and operating strategies at least
annually, and more frequently if warranted, particularly with respect to the
loans with outstanding balances of more than $1.5 million, where audits are
usually conducted on a quarterly basis. Such audits are conducted by HCAC.
The Company grades performing STL Program loans on a scale of 1 to 4, with
grade 1 assigned to those loans involving the least amount of risk. The
grading system is intended to
28
<PAGE>
reflect the performance of a borrower's business, the collateral coverage of
the loan and other factors considered relevant. Each loan is initially graded
based on the financial performance of the borrower and other specific risk
factors associated with the borrower, including growth, collateral coverage,
capitalization, quality of management, value of intangible assets and
availability of working capital. All new loans are assigned a grade 3 for a
period of six months in the absence of an extraordinary event during that
period. After the initial six months, loans are assigned a grade of 1 to 4.
Thereafter, all loans are reviewed and graded on at least a quarterly basis.
Performing loans are generally serviced by the Company's account managers,
with loans in grade 4 being serviced in some cases by a member of the
Company's loan workout group, which currently consists of a loan officer and
the Company's Senior Credit Officer.
Non-performing loans are graded on a scale of N1 or N2. Grade N1 is assigned
to a non-performing loan which the Company believes may be brought back into
compliance by the borrower's current management. Non-performing loans are
placed on the Company's watch list and are serviced by a member of the loan
workout group. Grade N2 is assigned to a loan that the Company believes cannot
be brought back into compliance. Such loans are liquidated either informally
or through legal proceedings.
Collection Procedures. The Company's cash collection procedures vary by (i)
the type of program provided by the Company and (ii) the type of accounts
receivable due and owing to clients from either insurance companies and health
maintenance organizations ("Commercial Insurers"), Government Programs, or in
certain limited circumstances, other healthcare service providers.
Receivables due and owing from Government Programs are subject to certain
laws and regulations not applicable to Commercial Insurers. Except in certain
limited cases, Medicare and Medicaid laws and regulations provide that
payments for services rendered under Government Programs can only be made to
the healthcare service provider that has rendered the services. See "Risk
Factors-Inability to Collect Healthcare Receivables Directly From Medicare and
Medicaid."
With respect to the Accounts Receivable Program, clients continue to bill
and collect accounts receivable in the ordinary course of business; provided,
however, that subject to certain limitations applicable to Government Program-
related receivables, the Company retains the right to assume the billing and
collection process upon notice to the client. The Company maintains a general
lockbox in the Company's name into which payments with respect to all
receivables purchased from clients in the Accounts Receivable Program, other
than Government Program-related receivables, are required to be remitted. If a
client in the Accounts Receivable Program generates Government Program-related
receivables, the client is required to establish a lockbox in the client's
name into which payments on such receivables are to be directed. Balances from
all lockboxes maintained in connection with the Accounts Receivable Program
are swept on a daily basis to the Company.
With respect to the STL Program, clients make periodic interest and/or
principal payments, generally monthly. The Company will undertake collection
efforts if such payments are not made on a timely basis. Such efforts may
include acceleration of amounts due under the loan and institution of
foreclosure proceedings with respect to any property securing the loan. In
addition, if the loan is secured by personal guaranties, the Company may
pursue remedies to collect amounts owed by the guarantors.
Documentation. The Company's documentation for the Accounts Receivable and
STL Programs is described below.
Accounts Receivable Program. Revolving lines of credit secured by accounts
receivable are made pursuant to a loan and security agreement (the "AR Loan
Agreement"), a note, and ancillary
29
<PAGE>
documents. The AR Loan Agreements generally have stated terms of one to three
years, with automatic one-year extensions, and provide for payment of
liquidated damages to the Company in the event of early termination by the
client. The Company generally advances only 65% to 85% of the Company's
estimate of the net collectible value of client receivables from third-party
payors. As security for such advances, the Company is granted a first priority
security interest in all of the client's then-existing and future accounts
receivable, and frequently obtains a security interest in inventory, goods,
general intangibles, equipment, deposit accounts, cash, other assets and
proceeds.
The AR Loan Agreement contains a number of negative covenants, including
covenants limiting additional borrowings, prohibiting the client's ability to
pledge assets, restricting payment by the client of dividends or management
fees or returning capital to investors, and imposing minimum net worth and, if
applicable, minimum census requirements. In the event of a client default, all
debt owing under the AR Loan Agreement may be accelerated and the Company may
exercise its rights, including foreclosing on the collateral.
Advances against accounts receivable under the Accounts Receivable Program
are made pursuant to a Receivables Purchase and Sale Agreement (the "AR
Agreement") and are structured as purchases of eligible accounts receivable
designated from time to time on a "batch" basis. AR Agreements provide for the
Company's purchase of eligible accounts receivable offered by the client from
time to time to the Company. AR Agreements generally have stated terms of one
to three years, with automatic one-year extensions. The client is required to
sell to the Company a minimum amount of eligible accounts receivable each
month during the term of an AR Agreement; however, the Company's total
investment in eligible accounts receivable under an AR Agreement is limited to
a specified "commitment" amount. The Company may accept or reject in its
discretion any portion of eligible accounts receivable offered for sale by the
client to the Company. Although accounts receivable purchased by the Company
under the Accounts Receivable Program are assigned to the Company pursuant to
the AR Agreement, the client retains its rights to receive payment and to make
claims with respect to Government Program-related receivables.
The purchase price for each batch of eligible accounts receivable under the
AR Agreements is the estimated net collectible value of such receivables less
a purchase discount, comprised of funding and servicing fees. An amount equal
to 65% to 85% of the purchase price is paid to the client; the Company retains
the balance of the purchase price as a client holdback, held as additional
security for the client's obligations under the AR Agreement. The client
holdback is released to the client (i) upon receipt by the Company of payments
relating to the receivables in an amount equal to the estimated net
collectible value of the receivables or (ii) upon expiration of the collection
period assigned to the respective batch of receivables, except that if the
Company has not received payments at least equal to the purchase price for the
receivables, then the Company may at its option either (x) offset any
shortfall against client holdbacks relating to other batches or from amounts
due to the client from the sale of other batches, or (v) require the client to
replace the uncollected receivables with substitute eligible accounts
receivable.
The AR Agreement also contemplates that the client may grant to the Company
a security interest in other assets of the client as may be mutually agreed.
In addition, pursuant to the AR Agreement, the client agrees to indemnify the
Company for all losses arising out of or relating to the AR Agreement.
Under the AR Agreement, the client covenants to notify payors of the sale of
accounts receivable to the Company and to assist the Company in collecting
payments on the purchased receivables and causing such payments to be remitted
to the Company. The client agrees to instruct all payors that payments are to
be made to such lockbox or other account as the Company may direct.
30
<PAGE>
STL Program. Because of the nature of the STL Program loans, which are made
to finance particular needs of clients such as acquisitions and expansions of
existing healthcare facilities, the Company's documentation for loans under
the STL Program is tailored to the needs of the particular borrower and the
type of available collateral. Such documentation generally includes a term
loan agreement and promissory note (the "STL Loan Agreement") and a mortgage
and security agreement with respect to the collateral for the loan. The STL
Loan Agreement contains financial and other covenants similar to those in the
AR Loan Agreement. In the event of a client default, all debt owed under the
STL Loan Agreement may be accelerated and the Company may exercise its rights,
including foreclosing on the collateral. The Company requires an appraisal and
a Phase I environmental survey for real property collateral securing an STL
Program Loan.
STL Program loans often include provision for warrants or other equity
interests in the borrower. Documentation of the warrant or other equity
interest may include provisions relating to, among other things, anti-dilution
protection, registration rights, put and call features and representation of
the Company on the board of directors or similar body of the borrower in
certain circumstances.
31
<PAGE>
CLIENTS
The Company's client base is diversified. As of December 31, 1997, the
Company was servicing clients located in 37 states across the country, in a
number of different sub-markets of the healthcare industry, with a
concentration in the long-term care, home healthcare and physician practice
sub-markets.
PORTFOLIO ANALYSIS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------------------------
NUMBER
OF PERCENT OF FINANCE PERCENT OF
INDUSTRY GROUP CLIENTS CLIENTS RECEIVABLES PORTFOLIO
- -------------- ------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Long Term Care..................... 62 35.6% $ 104,992,876 41.9%
Home Healthcare.................... 42 24.1 42,616,475 17.0
Physician Practice................. 25 14.4 25,773,842 10.3
Mental Health...................... 12 6.9 23,931,715 9.5
Hospital........................... 7 4.0 16,331,760 6.5
Rehabilitation..................... 11 6.3 14,013,363 5.6
Other.............................. 6 3.4 9,483,990 3.8
Disease State Management........... 2 1.2 6,213,990 2.5
Ambulatory Services................ 3 1.7 4,270,334 1.7
Diagnostic......................... 2 1.2 2,112,557 0.8
Durable Medical Equipment.......... 2 1.2 947,236 0.4
--- ----- ------------- -----
Total............................ 174 100.0% $ 250,688,138 100.0%
=== ===== ============= =====
PROGRAM BREAKDOWN(1)
- --------------------
Accounts Receivable Program........ 161 80.5% $ 185,727,628 74.1%
STL Program........................ 39 19.5 64,960,510 25.9
--- ----- ------------- -----
Total............................ 200 100.0% $ 250,688,138 100.0%
=== ===== ============= =====
</TABLE>
- --------
(1) At December 31, 1997, 26 clients were in both the Accounts Receivable and
STL Programs.
CAPITAL RESOURCES
Sources of capital available to the Company to fund finance receivables
under the Accounts Receivable and STL Programs include the Bank Facility, the
CP Facility, the Warehouse Facility and stockholders' equity.
Bank Facility. The Bank Facility is a revolving line of credit for up to $50
million. The interest rates payable by the Company under the Bank Facility
adjust, based on Fleet's prime rate; however, the Company has the option to
borrow any portion of the Bank Facility in an integral multiple of $500,000
based on the one-month, two-month, three-month or six-month LIBOR plus 2.75%.
The Bank Facility contains certain financial covenants which must be
maintained by the Company in order to obtain funds. The expiration date for
the Bank Facility is March 29, 2002, subject to automatic renewal for one-year
periods thereafter unless terminated by either party. See "Risk Factors--Risk
of Failure to Renew Funding Sources."
CP Facility. Under the terms of the CP Facility, the Company may borrow up
to $200 million. The Company formed a bankruptcy remote, special purpose
corporation to which the Company has transferred loans and receivables which
meet certain conditions required by the CP
32
<PAGE>
Facility. The special purpose corporation pledges the loans and receivables to
a commercial paper conduit, which lends against such assets through the
issuance of commercial paper. The maturity date for the CP Facility is
December 5, 2001. However, the program may be terminated by the Company at any
time after December 5, 1999, without penalty. See "Risk Factors--Risk of
Failure to Renew Funding Sources."
Warehouse Facility. Under the terms of the Warehouse Facility, the Company
may borrow up to $100 million. The Company formed a bankruptcy remote, special
purpose corporation to which the Company has transferred loans under the STL
Program which meet certain conditions required by the Warehouse Facility. The
amount outstanding under the Warehouse Facility may not exceed 88% of the
principal amount of the loans transferred, subject to a $100 million maximum.
Interest accrues under the Warehouse Facility at a rate equal to LIBOR plus
3.75% on the first $50 million of amounts outstanding under the Warehouse
Facility and LIBOR plus 3.0% on amounts over $50 million. The Warehouse
Facility expires on June 27, 1999, as to new loans. However, previous loans
securitized under the Warehouse Facility remain outstanding following such
expiration until such loans are fully repaid or expire by their terms. See
"Risk Factors--Risk of Failure to Renew Funding Sources."
CREDIT LOSS POLICY AND EXPERIENCE
The Company regularly reviews its outstanding finance receivables to
determine the adequacy of its allowance for losses on receivables. To date,
the Company has not experienced any credit losses. The allowance for losses on
receivables is maintained at an amount estimated to be sufficient to absorb
future losses, net of recoveries, inherent in the finance receivables. In
evaluating the adequacy of the allowance, management of the Company considers
trends in healthcare sub-markets, past-due accounts, historical charge-off and
recovery rates, credit risk indicators, economic conditions, on-going credit
evaluations, overall portfolio size, average client balances, Excess
Collateral, real estate collateral valuations and underwriting policies, among
other items. As of December 31, 1996, the Company's general reserve was $1.1
million or 1.2% of finance receivables; at December 31, 1997, it was $2.7
million or 1.1% of finance receivables. To the extent that management deems
specific finance receivable advances to be wholly or partially uncollectible,
the Company establishes a specific loss reserve equal to such amount. At
December 31, 1996 and 1997, the Company had no specific reserves. In the
opinion of management, based on a review of the Company's portfolio, the
allowance for losses on receivables is adequate at this time, although there
can be no assurance that such reserve will be adequate in the future.
INFORMATION SYSTEMS
The Company owns a proprietary information system to monitor the Account
Receivable and STL Programs, which it refers to as the Receivables Tracking
System (the "RTS"). The RTS was developed by Creative Information Systems,
Inc., a stockholder of the Company. The RTS gives the Company the ability to
track and reconcile receivables that the Company loans or advances against
under the Accounts Receivable Program and loans made under the STL Program.
With respect to the loans under the Accounts Receivable and STL Programs,
the amount of any advances, collections and adjustments are entered manually
into the RTS by the Company's account managers on a daily basis. With respect
to advances against client receivables under the Accounts Receivable Program,
certain client parameters are entered manually into the RTS, and more detailed
information on each batch of receivables is generally entered electronically
based on pre-established formats tailored to the client's software systems.
Upon the collection of funds advanced, information about such collections are
entered into the RTS by the Company's account managers who then apply the
funds by directing the RTS to search its data base to locate the receivable
and batch that has received a payment.
33
<PAGE>
The RTS generates daily, weekly and monthly reports summarizing the current
status of each batch of receivables in the Accounts Receivable Program, and
indicating draws and collections, trend analysis, and interest and fee charges
for management's review. The RTS is also able to generate reports for the
Company's lenders with respect to pledged loans and batches of receivables,
along with concentrations in the Accounts Receivable Program portfolios by
client and third-party payor type.
Certain reports generated through the RTS, including cash application
detail, batch summary and trend analysis reports, can also be used to assist
the Company's clients in monitoring changes in their cash flow and managing
the growth of their businesses. These reports are provided to all of the
Company's clients on a weekly basis, and are generally relied upon as a
management tool more frequently by smaller clients in the Accounts Receivable
Program, which tend to have less sophisticated management information systems.
COMPETITION
The Company encounters significant competition in its healthcare finance
business from numerous commercial banks, diversified finance companies, asset-
based lenders and specialty healthcare finance companies. Additionally,
healthcare service providers often seek alternative sources of financing from
a number of sources, including venture capital firms, small business
investment companies, suppliers and individuals. As a result, the Company
competes with a significant number of local and regional sources of financing
and several large national competitors. Many of these competitors have greater
financial and other resources than the Company and may have significantly
lower cost of funds. Competition can take many forms, including, among others,
the pricing of financing, transaction structuring (e.g., securitization vs.
portfolio lending), timeliness and responsiveness in processing a client's
financing application, and customer service.
GOVERNMENT REGULATION
The Company's healthcare finance business is subject to federal and state
regulation and supervision and is required to be licensed or registered in
various states. In addition, the Company is subject to applicable usury and
other similar laws in the jurisdictions where the Company operates. These laws
generally limit the amount of interest and other fees and charges that a
lender may contract for, charge or receive in connection with a loan.
Applicable local law typically establishes penalties for violations of these
laws in that jurisdiction. These penalties could include the forfeiture to the
lender of usurious interest contracted for, charged or received and, in some
cases, all principal as well as all interest and other charges that the lender
has charged or received.
Government at both the federal and state levels has continued in its efforts
to reduce, or at least limit the growth of, spending for healthcare services.
On August 5, 1997, President Clinton signed into law The Balanced Budget Act
of 1997 (the "BBA") which contains numerous Medicare and Medicaid cost-saving
measures. The BBA has been projected to save $115 billion in Medicare spending
over the next five years, and $13 billion in the Medicaid program. Section
4711 of the BBA, entitled "Flexibility in Payment Methods for Hospital,
Nursing Facility, ICF/MR, and Home Health Services", repealed the Boren
Amendment, which had required that state Medicaid programs pay to nursing home
providers amounts reasonable and adequate to meet the costs which must be
incurred by efficiently and economically operated facilities in order to
provide care and services in conformity with applicable state and federal
laws, regulations and quality and safety standards and to assure access to
hospital services. The Boren Amendment was previously
34
<PAGE>
the foundation of litigation by healthcare facilities seeking rate increases.
In place of the Boren Amendment, the BBA requires only that, for services and
items furnished on or after October 1, 1997, a state Medicaid program must
provide for a public process for determination of Medicaid rates of payment
for nursing facility services, under which proposed rates, the methodologies
underlying the establishment of such rates, and justification for the proposed
rates are published, and which gives providers, beneficiaries and other
concerned state residents a reasonable opportunity for review and comment on
the proposed rates, methodologies and justifications. States are actively
seeking ways to reduce Medicaid spending for healthcare by such methods as
capitated payments and substantial reductions in reimbursement rates. The BBA
also requires that nursing homes transition to a prospective payment system
under the Medicare program during a three-year "transition period" commencing
with the first cost reporting period beginning on or after July 1, 1998. The
BBA also contains several new antifraud provisions. Given the recent enactment
of the BBA, the Company is unable to predict the impact of the BBA and
potential changes in state Medicaid reimbursement methodologies on the
revenues of its clients.
In addition to the inability of the Company to directly collect receivables
under Government Programs and the right of payors under such programs to
offset against unrelated receivables, the Company's healthcare finance
business is indirectly affected by healthcare regulation to the extent that
any of its clients' failure to comply with such regulation affects such
clients' ability to collect receivables or repay loans made by the Company.
See "Risk Factors--Dilution of Receivables; Government Right of Offset." The
most significant healthcare regulations that could potentially affect the
Company are: (i) certificate of need regulation, which many states require
upon the provision of new health services, particularly for long-term care and
home healthcare companies; (ii) Medicare--Medicaid fraud and abuse statutes,
which prohibit, among other things, the offering, payment, solicitation, or
receipt of remuneration, directly or indirectly, as an inducement to refer
patients to facilities owned by physicians if such facilities receive
reimbursement from Medicare or Medicaid; and (iii) other prohibitions of
physician self-referral that have been promulgated by the states.
Certificate of Need Regulation. Many states regulate the provision of new
healthcare service or acquisition of healthcare equipment through Certificate
of Need or similar programs. The Company believes these requirements have had
a limited effect on its business, although there can be no assurance that
future changes in those laws will not adversely affect the Company.
Additionally, repeal of existing regulations of this type in jurisdictions
where the Company's customers have met the specific requirements could
adversely affect the Company since such customers could face increased
competition. In addition, there is no assurance that expansion of the
Company's health care financing business within the nursing home and home care
industries will not be increasingly affected by regulations of this type.
Medicare--Medicaid Fraud and Abuse Statutes. The Department of Health and
Human Services ("HHS") has increased its enforcement efforts under the
Medicare--Medicaid fraud and abuse statutes in cases where physicians own an
interest in a facility to which they refer their patients for treatment or
diagnosis. These statutes prohibit the offering, payment, solicitation or
receipt of remuneration, directly or indirectly, as an inducement to refer
patients for services reimbursable in whole or in part by the Medicare--
Medicaid programs. HHS has taken the position that distributions of profits
from corporations or partnerships to physician investors who refer patients to
the entity for a procedure which is reimbursable under Medicare or Medicaid
may be prohibited by the statute. Since the Company's clients often rely on
prompt payment from the Government Program to satisfy their obligations to the
Company, reduced or denied payments under the Government Programs could have
an adverse effect on the Company's business. See "Risk Factors--Reliance on
Reimbursements by Third-Party Payors."
35
<PAGE>
Further Regulation of Physician Self-Referral. Additional regulatory
attention has been directed toward physician-owned healthcare facilities and
other arrangements whereby physicians are compensated, directly or indirectly,
for referring patients to such healthcare facilities. In 1988, legislation
entitled the "Ethics in Patient Referrals Act" (H.R. 5198) was introduced
which would have prohibited Medicare payments for all patient services
performed by an entity which a patient's referring physician had an investment
interest. As enacted, the law prohibited only Medicare payments for patient
services per-formed by a clinical laboratory. The Comprehensive Physician
Ownership and Referral Act (H.R. 345), which was enacted by Congress in 1993
as part of the Deficit Reduction Package, is more comprehensive than H.R. 5198
and covers additional medical services including medical imaging radiation
therapy, physical rehabilitation and others. A variety of existing and pending
state laws prohibit or limit a physician from referring patients to a facility
in which that physician has a proprietary or ownership interest. Many states
also have laws similar to the Medicare fraud and abuse statute which are
designed to prevent the receipt or payment of consideration in connection with
the referral of a patient. Accounts receivable resulting from a referral in
violation of these laws could be denied from payment which could adversely
affect the Company's clients and the Company. See "Risk Factors--Reliance on
Reimbursements by Third Party Payors."
LEGAL PROCEEDINGS
The Company is currently not a party to any material litigation although it
is involved from time to time in routine litigation incidental to its
business.
EMPLOYEES
As of January 31, 1998, the Company employed 71 people on a full-time basis.
The Company believes that its relations with employees are good.
PROPERTY
The Company's headquarters occupy approximately 15,600 square feet at 2
Wisconsin Circle, Chevy Chase, Maryland. This space is provided under the
terms of a lease that expires in January, 2003, with a five-year renewal
option. The current cost is approximately $40,000 per month. The Company
believes that its current facilities are adequate for its existing needs and
that additional suitable space will be available as required.
36
<PAGE>
MANAGEMENT
The executive officers and directors of the Company and their ages as of
February 1, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John K. Delaney(1)............ 34 Chairman of the Board, Chief Executive
Officer and Director
Ethan D. Leder(1)............. 35 Vice-Chairman of the Board, President and
Director
Edward P. Nordberg, Jr.(1).... 37 Executive Vice President, Chief Financial
Officer and Director
Hilde M. Alter................ 56 Treasurer and Chief Accounting Officer
Steven M. Curwin.............. 39 Senior Vice President, General Counsel and
Secretary
Michael G. Gardullo........... 39 Vice President and Senior Credit Officer
Jeffrey P. Hoffman............ 37 Vice President and Portfolio Manager
Steven I. Silver.............. 37 Vice President, Portfolio Development
Debra M. Van Alstyne.......... 46 Vice President, Deputy General Counsel and
Assistant Secretary
Howard T. Widra............... 29 Vice President and Senior Analyst
Chris J. Woods................ 47 Vice President and Chief Information Officer
James L. Buxbaum.............. 42 President of HCAC
John F. Dealy(2) (3).......... 58 Director
Geoffrey E.D. Brooke(2) (3)... 41 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
John K. Delaney serves as Chairman of the Board, Chief Executive Officer and
a Director of the Company. Mr. Delaney co-founded the Company in 1993 and
served as Chairman of the Board, Chief Executive Officer and President from
the formation of the Company until March 1997. From 1990 through 1992, Mr.
Delaney co-owned and operated American Home Therapies, Inc., a provider of
home care and home infusion therapy services, which was sold in 1992. Prior to
1990, Mr. Delaney was a practicing attorney with Shaw, Pittman, Potts &
Trowbridge in Washington, D.C. Mr. Delaney received his A.B. degree from
Columbia University in 1985 and his J.D. degree from the Georgetown University
Law Center in 1988.
Ethan D. Leder serves as Vice-Chairman of the Board, President and a
Director of the Company. Mr. Leder co-founded the Company in 1993 and served
as Vice-Chairman of the Board and Executive Vice President from the formation
of the Company until March 1997. From 1993 through September 1996, Mr. Leder
also served as Treasurer to the Company. From 1990 through 1992, Mr. Leder co-
owned and operated American Home Therapies, Inc., a provider of home care and
home infusion therapy services, which was sold in 1992. Prior to 1990, Mr.
Leder was engaged in the private practice of law in Baltimore, Maryland and
Washington, D.C. Mr. Leder received
37
<PAGE>
his B.A. degree from Johns Hopkins University in 1984 and his J.D. degree from
the Georgetown University Law Center in 1987.
Edward P. Nordberg, Jr. serves as Executive Vice President, Chief Financial
Officer and a Director of the Company. Mr. Nordberg co-founded the Company in
1993 and served as a Senior Vice President and Secretary of the Company from
the formation of the Company until March 1997. From 1993 through April 1996,
Mr. Nordberg also served as General Counsel of the Company. Prior to 1993, Mr.
Nordberg was a practicing attorney with Williams & Connolly in Washington,
D.C. Mr. Nordberg received his B.A. degree from Washington College in 1982,
his M.B.A. degree from Loyola College in 1985, and his J.D. degree from the
Georgetown University Law Center in 1989.
Hilde M. Alter serves as Treasurer and Chief Accounting Officer of the
Company. Ms. Alter joined the Company in September 1996. From 1981 to joining
the Company, Ms. Alter was a partner with the accounting firm of Keller,
Bruner & Co. in Bethesda, Maryland. Ms. Alter is a certified public
accountant. Ms. Alter received her B.A. degree from American University in
1966.
Steven M. Curwin serves as Senior Vice President, General Counsel and
Secretary of the Company. Mr. Curwin joined the Company in August 1996, and
has served as a Vice President from August 1996 and as a full-time consultant
to the Company since May 1996. From September 1994 to joining the Company, Mr.
Curwin was a practicing attorney with Shulman, Rogers, Gandal, Pordy & Ecker,
P.A. in Rockville, Maryland. From January 1989 to August 1994, Mr. Curwin was
a practicing attorney with Dewey Ballantine in Washington, D.C. Mr. Curwin
received his B.A. degree from Franklin & Marshall College in 1980 and his J.D.
degree from the Boston University School of Law in 1985.
Michael G. Gardullo serves as Vice President and Senior Credit Officer of
the Company. Mr. Gardullo joined the Company in February 1996. From June 1995
to joining the Company, Mr. Gardullo was a Senior Account Executive/Manager at
The FINOVA Group in King of Prussia, Pennsylvania. From 1993 to 1995, Mr.
Gardullo was Vice President and Regional Credit Manager at LaSalle Business
Credit, an affiliate of ABN AMRO Bank, N.V., in Baltimore, Maryland. From 1991
to 1993, Mr. Gardullo was Vice President and Manager, respectively, at
StanChart Business Credit in Baltimore, Maryland and London, England. From
1982 through 1991, Mr. Gardullo held various management and operational
positions at several asset-based lending institutions. Mr. Gardullo received
his B.S. degree from Seton Hall University in 1981 and his M.B.A. degree from
Rutgers University in 1982.
Jeffrey P. Hoffman serves as Vice President and Portfolio Manager of the
Company. Mr. Hoffman joined the Company in September 1996. From 1994 to
joining the Company, Mr. Hoffman was a Vice President-Senior Loan Officer and
from 1990 to 1993, Mr. Hoffman was a Vice President-Senior Underwriter at
Fleet Capital Corporation and its predecessor companies, Shawmut Capital
Corporation and Barclays Business Credit, in Glastonbury, Connecticut and New
York, New York. From 1988 through 1990, Mr. Hoffman was an assistant vice
president with Bankers Trust Company in New York, New York. From 1982 through
1988, Mr. Hoffman held various management positions with Bank of Boston, in
New York, New York. Mr. Hoffman received his B.A. degree from the State
University of New York at Albany in 1982 and his M.B.A. degree from Adelphi
University in 1987.
Steven I. Silver, CPA, serves as Vice President, Portfolio Development. He
has been employed by the Company since November, 1995, initially as a
marketing consultant and subsequently as an officer in portfolio development
activities. Prior to joining the Company, Mr. Silver was a vice president with
MediMax, Inc., in New York, New York from 1993 to 1995 principally responsible
for business development in the healthcare finance industry. From 1987 to
1993, Mr. Silver was
38
<PAGE>
employed by several commercial finance and brokerage firms in New York, New
York. From 1983 to 1987, Mr. Silver was an accountant with Coopers & Lybrand
in New York, New York. Mr. Silver received a B.S. in accounting from the State
University of New York at Albany in 1983.
Debra M. Van Alstyne serves as Vice President, Deputy General Counsel and
Assistant Secretary of the Company. Ms. Van Alstyne joined the Company in
March 1997. From July 1993 through July 1995, Ms. Van Alstyne was an attorney-
advisor, and from August 1995 until joining the Company in March 1997, Ms. Van
Alstyne was a Senior Attorney, with the Division of Corporate Finance of the
Securities and Exchange Commission. From January 1993 until July 1993, Ms. Van
Alstyne was a practicing attorney with the law firm of Gibson Hoffman &
Panzione in Los Angeles, California, and from April 1992 until January 1993,
she was a practicing attorney with the law firm of Aprahamian & Ducote in
Newport Beach, California. Ms. Van Alstyne received her B.A. degree from the
University of California, Irvine, California in 1974, and received her J.D.
degree from UCLA School of Law, Los Angeles, California in 1977.
Howard T. Widra serves as Vice President and Senior Analyst of the Company.
Mr. Widra joined the Company in January 1997. From June 1996 until joining the
Company, Mr. Widra was a consultant to America Long Lines, Inc., a long
distance phone carrier. From October 1993 until May 1996, Mr. Widra was a
practicing attorney with Steptoe & Johnson, LLP in Washington, D.C. Mr. Widra
received his B.A. degree from the University of Michigan in 1990 and his J.D.
degree from Harvard Law School in 1993.
Chris J. Woods serves as Vice President and Chief Information Officer of the
Company. Mr. Woods joined the Company in March 1997. From 1991 to the time Mr.
Woods joined the Company, he was an independent technical consultant for
clients primarily in the health care and telecommunications industries. In
1983, Mr. Woods co-founded a technical consulting company and served as
Executive Vice President of such company until his departure in 1991. Prior to
1983, Mr. Woods worked for Control Data Corporation. Mr. Woods received his
B.S. degrees in Computer Science and Geology from the State University of New
York at Buffalo in 1972.
James L. Buxbaum serves as President of HealthCare Analysis Corporation, a
wholly-owned subsidiary of the Company. Mr. Buxbaum became President of that
company in March 1997. From October 1993 until March 1997, Mr. Buxbaum was
President of J.L. Buxbaum, Inc., a mergers and acquisition consulting company
in Baltimore, Maryland. From November 1989 to October 1993, he was a partner
with the accounting firm of Wolpoff & Company in Baltimore, Maryland. Mr.
Buxbaum received his B.B.A. degree from George Washington University in 1977
and is a certified public accountant.
John F. Dealy became a Director of the Company in January 1997. Mr. Dealy
has been President of The Dealy Strategy Group, a management consulting firm,
since 1983. In addition, Mr. Dealy was Senior Counsel to Shaw, Pittman, Potts
& Trowbridge in Washington, D.C. from 1982 through 1966, as well as a
professor in the Georgetown University School of Business since 1982. Mr.
Dealy is currently a director of the First Maryland Bancorp. From 1976 to
1982, Mr. Dealy was President of Fairchild Industries, Inc. Prior to 1976, Mr.
Dealy held a number of management positions at Fairchild Industries, Inc. Mr.
Dealy received his B.S. degree from Fordham College in 1961 and his L.L.B.
degree from the New York University School of Law in 1964.
Geoffrey E. D. Brooke became a Director of the Company in January 1997. Dr.
Brooke is Senior Member, Rothschild Bioscience Unit, a division of Rothschild
Asset Management Limited, and is responsible for its venture capital
operations in the Asian Pacific region. Mr. Brooke resides in Australia. Prior
to joining Rothschild, from June 1992 to September 1996, Dr. Brooke was the
President of MedVest, Inc., a healthcare venture capital firm in Washington,
D.C. which he co-
39
<PAGE>
founded with Johnson & Johnson, Inc. Prior to co-founding MedVest, Inc., Dr.
Brooke managed the life sciences portfolio of a publicly traded group of
Australian venture capital funds. Dr. Brooke is licensed in clinical medicine
by the Medical Board of Victoria, Australia. Dr. Brooke earned his medical
degree from the University Of Melbourne, Australia and a M.B.A. from IMD in
Lausanne, Switzerland.
Pursuant to the Company's Amended and Restated Certificate of Incorporation,
the Board of Directors has been divided into three classes. Class I consists
of Messrs. Nordberg and Brooke whose terms will expire at the annual meeting
of stockholders in 2000; Class II consists of Mr. Leder whose term will expire
at the annual meeting of stockholders in 1998; and Class III consists of
Messrs. Delaney and Dealy whose terms will expire at the annual meeting of
stockholders in 1999.
40
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of February 18, 1998,
and as adjusted to give effect to the Offering, by each Selling Stockholder.
See "Management" for information regarding the Selling Stockholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR NUMBER OF OWNED AFTER
TO THE OFFERING SHARES THE OFFERING
--------------- BEING ---------------
NAME OF SELLING STOCKHOLDER NUMBER PERCENT OFFERED NUMBER PERCENT
- --------------------------- ------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
John K. Delaney(1)................... 586,967 5.96% 50,000 536,967 4.30
Ethan D. Leder(1).................... 578,561 5.88 50,000 528,561 4.24
Edward P. Nordberg, Jr.(1) .......... 626,013 6.36 50,000 576,013 4.62
</TABLE>
- --------
(1) Includes 7,400, 7,400 and 7,400 shares subject to options issued under the
Incentive Plan to Messrs. Delaney, Leder and Nordberg, respectively, which
are exercisable within 60 days. Does not include 234,599, 214,601 and
139,601 shares, respectively, subject to options not exercisable within 60
days.
41
<PAGE>
UNDERWRITING
NationsBanc Montgomery Securities LLC, Lehman Brothers Inc., ABN AMRO
Incorporated, Piper Jaffray Inc. and Stephens Inc. (the "Underwriters"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement, to purchase from the Company the number of shares of
Common Stock indicated below opposite their respective names at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. The Underwriting Agreement provides that the obligations of
the Underwriters are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of such shares if any are
purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC..............................
Lehman Brothers Inc. ..............................................
ABN AMRO Incorporated..............................................
Piper Jaffray Inc. ................................................
Stephens Inc. .....................................................
---------
Total............................................................ 2,950,000
=========
</TABLE>
The Underwriters have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $ per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the Offering, the offering price and
other selling terms may be changed by the Underwriters. The Common Stock is
offered subject to receipt and acceptance by the Underwriters, and to certain
other conditions, including the right to reject an order in whole or in part.
The Underwriters may offer the shares of Common Stock through a selling group.
The Company and the Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 307,500 and 135,000 additional
shares of Common Stock, respectively, to cover over-allotments, if any, at the
same price per share as the initial 2,950,000 shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise this option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the table above. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make
in respect thereof.
The Selling Stockholders have agreed, subject to certain limited exceptions,
not to sell or offer to sell, contract to sell, transfer the economic risk of
ownership in, make any short sale, pledge or otherwise dispose of the shares
of Common Stock currently held by them after the Offering, or any securities
exercisable or exchangeable for or any other rights to purchase or acquire any
shares of Common Stock for a period of 90 days after the Effective Date
without the prior written consent of NationsBanc Montgomery Securities LLC
other than shares sold in the Offering. NationsBanc Montgomery Securities LLC,
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to these lock-up agreements. In addition,
the Company
42
<PAGE>
has agreed that for a period of 90 days after the Effective Date it will not,
without the prior written consent of NationsBanc Montgomery Securities LLC,
issue, offer, sell, grant options to purchase or otherwise dispose of any
equity securities or securities convertible into, exercisable or exchangeable
for Common Stock or other equity securities, subject to certain limited
exceptions including granting of options and sales of shares under the
Company's existing option plans and issuance of Common Stock in acquisition
transactions not involving a public offering.
In connection with the distribution of the Common Stock, rules of the
Securities and Exchange Commission (the "Commission") permit the Underwriters
to engage in certain transactions that stabilize the price of the Common
Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Stock. If the
Underwriters create a short position in the Common Stock in connection with
the Offering, i.e., if they sell more shares of Common Stock than are set
forth on the cover page of this Prospectus, the Underwriters may reduce that
short position by purchasing Common Stock in the open market. The Underwriters
may also elect to reduce any short position by exercising all or part of the
over-allotment option described above. The Underwriters may also impose a
penalty bid on certain selling group members. This means that if the
Underwriters purchase shares of Common Stock in the open market to reduce the
Underwriters' short position or to stabilize the price of the Common Stock,
they may reclaim the amount of the selling concession from the selling group
members who sold those shares as part of the Offering.
In general, purchase of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
NationsBanc Montgomery Securities LLC, Lehman Brothers Inc., ABN AMRO
Incorporated, Piper Jaffray Inc. and Stephens Inc. also propose to act as
underwriters in connection with the REIT Offering.
43
<PAGE>
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia. Certain
legal matters in connection with the Offering will be passed upon for the
Underwriters by Gibson, Dunn & Crutcher LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of HealthCare Financial Partners, Inc.
appearing in the Annual Report on Form 10-K of HealthCare Financial Partners,
Inc. for the year ended December 31, 1997 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such financial statements
referred to above are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of HealthCare Financial Partners, Inc. and
HealthPartners DEL, L.P. as of December 31, 1995 and for the year ended
December 31, 1995 incorporated by reference in this Prospectus and
Registration Statement have been audited by McGladrey & Pullen, LLP,
independent auditors, as indicated in their reports with respect thereto, and
are incorporated by reference herein in reliance upon the authority of said
firm as experts in accounting and auditing.
44
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, has been filed with the Commission and is incorporated in this
Prospectus by reference and made a part hereof. In addition, the description
of the Company's Common Stock contained in the Company's Registration
Statement filed pursuant to Section 12 of the Exchange Act on Form 8-A, as
amended, is incorporated in this Prospectus by reference and made a part
hereof.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 and
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the Offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the respective dates
of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute part of this
Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner of Common Stock, to whom a copy of this Prospectus has
been delivered, upon written or oral request, a copy of any or all information
incorporated by reference in this Prospectus (not including exhibits to such
information, unless such exhibits are specifically incorporated by reference
into such information).
Such requests should be directed to HealthCare Financial Partners, Inc.,
Attention: Edward P. Nordberg, Jr., Chief Financial Officer, at 2 Wisconsin
Circle, Fourth Floor, Chevy Chase, Maryland 20815, telephone number (301) 961-
1640.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Exchange
Act. In accordance with the Exchange Act, the Company files reports, proxy
statements and other information with the Commission. The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities that the Commission maintains at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at 7 World Trade Center, 13th Floor, New York, New York 10048, and
Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of these
materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. Such documents may also be
obtained at the Web site maintained by the Commission (http://www.sec.gov).
The Company's Common Stock is quoted on the Nasdaq National Market and such
reports, proxy statements and other information may be inspected at the
National Association of Securities Dealers, Inc., 1735 K Street N.W.,
Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (the "Registration Statement") under the Securities Act with respect to
the Common Stock. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are contained in schedules and
exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. Statements made in the Prospectus concerning
the contents of any documents referred to herein are not necessarily complete.
With respect to each such document filed with the Commission as an exhibit to
the Registration Statement, reference is made to the exhibit for a more
complete description, and each such statement shall be deemed qualified in its
entirety by such reference.
45
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations other than those contained
in this Prospectus in connection with the offering made hereby and, if given or
made, such information or representations must not be relied upon as having
been so authorized by the Company, any Selling Stockholder or any of the
Underwriters. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person or by anyone in any jurisdiction in which it is unlawful to make such
offer or solicitation. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------
TABLE OF CONTENTS
------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 9
Use of Proceeds............................................................ 18
Price Range of Common Stock................................................ 19
Dividend Policy............................................................ 20
Capitalization............................................................. 21
Business................................................................... 22
Management................................................................. 37
Selling Stockholders....................................................... 41
Underwriting............................................................... 42
Legal Matters.............................................................. 44
Experts.................................................................... 44
Additional Information..................................................... 45
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,950,000 SHARES
[LOGO OF HEALTHCARE FINANCIAL PARTNERS APPEARS HERE]
COMMON STOCK
---------------
PROSPECTUS
---------------
Joint Lead Managers and Joint Bookrunners
NationsBanc Montgomery
Securities LLC
Lehman Brothers
ABN AMRO Incorporated
Piper Jaffray Inc.
Stephens Inc.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses, other than underwriting discounts
and commissions, to be borne by HealthCare Financial Partners, Inc. (the
"Company") in connection with the issuance and distribution of the Common
Stock being registered:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- -----------
<S> <C>
Securities and Exchange Commission registration fee.......... $ 38,717.96
NASD filing fee.............................................. 11,912.82
Nasdaq National Market listing fee........................... *
Blue Sky fees and expenses................................... *
Printing and engraving expenses.............................. *
Legal fees and expenses...................................... *
Accounting fees and expenses................................. *
Transfer Agent and Registrar fee............................. *
Miscellaneous................................................ *
-----------
Total.................................................... $500,000.00
===========
</TABLE>
--------
* To be completed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is organized under the laws of the State of Delaware. The
Delaware General Corporation Law, as amended (the "DGCL"), provides that a
Delaware corporation has the power generally to indemnify its directors,
officers, employees and other agents (each, a "Corporate Agent") against
expenses and liabilities (including amounts paid in settlement) in connection
with any proceeding involving such person by reason of his being a Corporate
Agent, other than a proceeding by or in the right of the corporation, if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal proceeding, such person had no reasonable cause to believe his
conduct was unlawful. In the case of an action brought by or in the right of
the corporation, indemnification of a Corporate Agent against expenses is
permitted if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation;
however, no indemnification is permitted in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the Court of Chancery or the
court in which such proceeding was brought shall determine upon application
that despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
such indemnification. To the extent that a Corporate Agent has been successful
on the merits of such proceeding, whether or not by or in the right of the
corporation, or in the defense of any claim, issue or matter therein, the
corporation is required to indemnify the Corporate Agent for expenses in
connection therewith. Expenses incurred by the Corporate Agent in connection
with any proceeding may, under certain circumstances, be paid by the
corporation in advance of the final disposition of the proceeding as
authorized by the board of directors. The power to indemnify and advance the
expenses under the DGCL does not exclude other rights to which a Corporate
Agent may be entitled to under the certificate of incorporation, bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
Under the DGCL, a Delaware corporation has the power to purchase and
maintain insurance on behalf of any Corporate Agent against any liabilities
asserted against and included by him in
II-1
<PAGE>
such capacity, whether or not the corporation has the power to indemnify him
against such liabilities under the DGCL.
As permitted by the DGCL, the Company's Amended and Restated Certificate of
Incorporation contains provisions which limit the personal liability of
directors for monetary damages for breach of their fiduciary duties as
directors except to the extent such limitation of liability is prohibited by
the DGCL. In accordance with the DGCL, these provisions do not limit the
liability of any director for any breach of the director's duty of loyalty to
the Company or its stockholders; for acts of omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; for
certain unlawful payments of dividends or stock purchases under Section 174 of
the DGCL; or for any transaction from which the director derives an improper
personal benefit. These provisions do not limit the rights of the Company or
any stockholder to seek an injunction or any other non-monetary relief in the
event of a breach of a director's fiduciary duty. In addition, these
provisions apply only to claims against a director arising out of his role as
a director and do not relieve a director from liability for violations of
statutory law, such as certain liabilities imposed on a director under the
federal securities laws.
In addition, the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated Bylaws provide for the indemnification of Corporate
Agents for certain expenses, judgments, fines and payments incurred by them in
connection with the defense or settlement of claims asserted against them in
their capacities as Corporate Agents to the fullest extent authorized by the
DGCL. The Company expects to purchase directors and officers liability
insurance in order to limit its exposure to liability for indemnification of
directors and officers.
In addition, the Company has entered into indemnification agreements with
each of its officers and directors.
Reference is made to Sections 102(b)(7) and 145 of the DGCL in connection
with the above summary of indemnification, insurance and limitation of
liability.
The purpose of this provisions is to assist the Company in retaining
qualified individuals to serve as officers, directors or other Corporate
Agents of the Company by limiting their exposure to personal liability for
serving as such.
The Registrant maintains an insurance policy insuring the Registrant and its
directors and officers against certain liabilities, including liabilities
under the Securities Act of 1933.
II-2
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation of the Company.(1)
3.2 Amended and Restated Bylaws of the Company.(1)
4.1 See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws of the
Company defining rights of holders of Common Stock of the Company.
5 Opinion of Powell, Goldstein, Frazer & Murphy LLP as to the legality
of the securities being registered.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of McGladrey & Pullen, LLP.
23.3 Consent of Powell, Goldstein, Frazer & Murphy LLP is contained in
its opinion filed as Exhibit 5 hereto.
24 Power of Attorney (see signature page to this Registration
Statement).
</TABLE>
--------
(1) Incorporated herein by reference to exhibit of the same number in the
Company's Registration Statement on Form S-1 (Registration No. 333-
12479).
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the underwriters at the closing
specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction to the questions whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an annual report for an
employee benefit plan pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in this Registration Statement shall be deemed to be
a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance
II-3
<PAGE>
upon Rule 430A and contained in a form of prospectus filed by the Company
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CHEVY CHASE, STATE OF MARYLAND, ON FEBRUARY 19, 1998.
Healthcare Financial Partners, Inc.
/s/ Edward P. Nordberg, Jr.
By: _________________________________
EDWARD P. NORDBERG, JR.
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints each of JOHN K. DELANEY, ETHAN D. LEDER and
EDWARD P. NORDBERG, JR., as his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ John K. Delaney Chairman of the February 19, 1998
- ------------------------------------- Board, Chief
JOHN K. DELANEY Executive Officer
and Director
(principal
executive officer)
/s/ Ethan D. Leder Vice Chairman of the February 19, 1998
- ------------------------------------- Board, President
ETHAN D. LEDER and Director
/s/ Edward P. Nordberg, Jr. Executive Vice February 19, 1998
- ------------------------------------- President, Chief
EDWARD P. NORDBERG, JR. Financial Officer
and Director
(principal
financial officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
/s/ Hilde M. Alter Treasurer (principal February 19, 1998
- ------------------------------------- accounting officer)
HILDE M. ALTER
Director February 19, 1998
- -------------------------------------
JOHN F. DEALY
Director February 19, 1998
- -------------------------------------
GEOFFREY E.D. BROOKE
II-6
<PAGE>
3,220,000 Shares
HealthCare Financial Partners, Inc.
Common Stock
Underwriting Agreement
dated February __, 1998
<PAGE>
Table of Contents
Page
----
Section 1. Representations and Warranties....................................2
A. Representations and Warranties of the Company.................2
Compliance with Registration Requirements...................2
Offering Materials Furnished to Underwriters................3
Distribution of Offering Material By the
Company..................................................3
The Underwriting Agreement..................................3
Authorization of the Common Shares..........................3
No Applicable Registration or Other Similar
Rights...................................................3
No Material Adverse Change..................................4
Independent Accountants.....................................4
Preparation of the Financial Statements.....................4
Incorporation and Good Standing of the
Company and its Subsidiaries.............................4
Capitalization and Other Capital Stock Matters..............5
Stock Exchange Listing......................................5
Non-Contravention of Existing Instruments; No
Further Authorizations or Approvals
Required.................................................6
No Material Actions or Proceedings..........................6
Intellectual Property Rights................................6
Compliance with Laws; All Necessary Permits,
etc......................................................7
Title to Properties.........................................7
Tax Law Compliance..........................................7
Company Not an "Investment Company..........................7
Insurance...................................................8
No Price Stabilization or Manipulation......................8
Related Party Transactions..................................8
No Unlawful Contributions or Other Payments.................8
Company's Accounting System.................................8
Adequate Environmental Procedures...........................8
Exchange Act Compliance.....................................9
B. Representations and Warranties of the Selling
Stockholders................................................9
The Underwriting Agreement..................................9
The Custody Agreement and Power of Attorney.................9
Title to Common Shares to be Sold; All
Authorizations Obtained..................................9
i
<PAGE>
Delivery of the Common Shares to be Sold...................10
Non-Contravention; No Further Authorizations
or Approvals Required...................................10
No Registration or Other Similar Rights....................10
No Further Consents, etc...................................10
Disclosure Made by Such Selling Stockholder
in the Prospectus.......................................11
No Price Stabilization or Manipulation.....................11
Confirmation of Company Representations and
Warranties..............................................11
Section 2. Purchase, Sale and Delivery of Common Shares.....................11
The Firm Common Shares.....................................11
The First Closing Date.....................................11
The Optional Common Shares; the Second
Closing Date............................................12
Public Offering of the Common Shares.......................12
Payment for the Common Shares..............................13
Delivery of the Common Shares..............................13
Delivery of Prospectus to the Underwriters.................13
Section 3. Additional Covenants.............................................14
A. Covenants of the Company.....................................14
B. Covenants of the Selling Stockholders........................16
Section 4. Payment of Expenses.............................................17
Section 5. Conditions of the Obligations of the Underwriters................18
Accountants' Comfort Letter................................18
Compliance with Registration Requirements; No
Stop Order; No Objection from NASD......................18
No Material Adverse Change or Ratings Agency
Change..................................................19
Opinion of Counsel for the Company.........................19
Opinion of Counsel for the Underwriters....................19
Officers' Certificate......................................19
Bring-Down Comfort Letter..................................20
Opinion of Counsel for the Selling
Stockholders............................................20
Selling Stockholders' Certificate..........................20
Selling Stockholders' Documents............................20
Lock-Up Agreement from Certain Stockholders
of the Company Other Than Selling
Stockholders............................................20
Additional Documents.......................................21
ii
<PAGE>
Section 6. Reimbursement of Underwriters' Expenses..........................21
Section 7. Effectiveness of this Agreement..................................21
Section 8. Indemnification..................................................22
Indemnification of the Underwriters........................22
Indemnification of the Company, its Directors
and Officers, and Selling Stockholders..................23
Selling Stockholder Indemnification........................24
Notifications and Other Indemnification
Procedures..............................................24
Settlements................................................25
Section 9. Contribution.....................................................27
Section 10. Default of One or More of the Several Underwriters..............28
Section 11. Termination of this Agreement...................................29
Section 12. Representations and Indemnities to Survive Delivery.............29
Section 13. Notices.........................................................29
Section 14. Successors......................................................30
Section 15. Partial Unenforceability........................................30
Section 16. Governing Law Provisions........................................31
Section 17. Failure of One or More of the Selling Stockholders to
Sell and Deliver Common Shares..................................31
Section 18. General Provisions..............................................31
iii
<PAGE>
Underwriting Agreement
February __, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
LEHMAN BROTHERS
ABN AMRO INCORPORATED
PIPER JAFFRAY INC.
STEPHENS INC.
c/o NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
Introductory. HealthCare Financial Partners, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 2,800,000 shares of its Common
- ----------
Stock, par value $0.01 per share (the "Common Stock"). The 2,800,000 shares of
Common Stock to be sold by the Company are called the "Firm Common Shares". In
addition, the stockholders of the Company named in Schedule B (collectively, the
----------
"Selling Stockholders") have severally granted to the Underwriters an option to
purchase up to an additional 420,000 shares of Common Stock, each Selling
Stockholder selling up to the amount set forth opposite such Selling
Stockholder's name in Schedule B, all as provided in Section 2. The additional
----------
420,000 shares to be sold by the Selling Stockholders pursuant to such option
are collectively called the "Optional Common Shares". The Firm Common Shares
and, if and to the extent such option is exercised, the Optional Common Shares,
are collectively called the "Common Shares".
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-_____), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the "Securities Act"), including all documents incorporated or
deemed to be incorporated by reference therein, any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act or the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder (collectively, the "Exchange Act"), is
called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement", and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "Prospectus"; provided, however, if the Company has, with the consent
of NationsBanc
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Montgomery Securities LLC, elected to rely upon Rule 434 under the Securities
Act, the term "Prospectus" shall mean the Company's prospectus subject to
completion (each, a "preliminary prospectus") dated _____________, 1998 (such
preliminary prospectus is called the "Rule 434 preliminary prospectus"),
together with the applicable term sheet (the "Term Sheet") prepared and filed by
the Company with the Commission under Rules 434 and 424(b) under the Securities
Act and all references in this Agreement to the date of the Prospectus shall
mean the date of the Term Sheet. All references in this Agreement to the
Registration Statement, the Rule 462(b) Registration Statement, a preliminary
prospectus, the Prospectus or the Term Sheet, or any amendments or supplements
to any of the foregoing, shall include any copy thereof filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR").
All references in this Agreement to financial statements and schedules and
other information that is "contained," "included" or "stated" in the
Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information that is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act that is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
The Company and each of the Selling Stockholders hereby confirms their
respective agreements with the Underwriters as follows:
Section 1. Representations and Warranties.
A. Representations and Warranties of the Company. The Company hereby
represents, warrants and covenants to each Underwriter and each Selling
Stockholder as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-
T under the Securities Act), was identical to the copy thereof delivered to
the Underwriters for use in connection with the offer and sale of the
Common Shares. Each of the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendment thereto, at the
time it became effective and at all subsequent times, complied and will
comply in all material
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respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. The Prospectus, as amended or supplemented, as of its date
and at all subsequent times, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations and
warranties set forth in the two immediately preceding sentences do not
apply to statements in or omissions from the Registration Statement, any
Rule 462(b) Registration Statement, or any post-effective amendment
thereto, or the Prospectus, or any amendments or supplements thereto, made
in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter
expressly for use therein. There are no contracts or other documents
required to be described in the Prospectus or to be filed as exhibits to
the Registration Statement that have not been described or filed as
required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to each Underwriter one complete manually signed copy of the
Registration Statement and of each consent and certificate of experts filed
as a part thereof, and conformed copies of the Registration Statement
(without exhibits) and preliminary prospectuses and the Prospectus, as
amended or supplemented, in such quantities and at such places as each
Underwriter has reasonably requested.
(c) Distribution of Offering Material by the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with
the offering and sale of the Common Shares other than a preliminary
prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized
for issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, other than the
Selling Stockholders with respect to the Common Shares
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included in the Registration Statement, except for such persons whose
rights have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is
given in the Prospectus: (i) there has been no material adverse change, or
any development that could reasonably be expected to result in a material
adverse change, in the condition, financial or otherwise, or in the
earnings, business, operations or prospects, whether or not arising from
transactions in the ordinary course of business, of the Company and its
subsidiaries, considered as one entity (any such change is called a
"Material Adverse Change"); (ii) the Company and its subsidiaries,
considered as one entity, have not incurred any material liability or
obligation, indirect, direct or contingent, not in the ordinary course of
business nor entered into any material transaction or agreement not in the
ordinary course of business; and (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company or, except
for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by
the Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. Ernst & Young, LLP and McGladrey &
Pullen, LLP, who have expressed their opinion with respect to the financial
statements (which term as used in this Agreement includes the related notes
thereto) and supporting schedules filed with the Commission as a part of
the Registration Statement and included in the Prospectus, are independent
public or certified public accountants as required by the Securities Act
and the Exchange Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and
included in the Prospectus present fairly the consolidated financial
position of the Company and its subsidiaries as of and at the dates
indicated and the results of their operations and cash flows for the
periods specified. The supporting schedules included in the Registration
Statement present fairly the information required to be stated therein.
Such financial statements and supporting schedules have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules are required to be included in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary -- Summary Selected Financial Data",
"Selected Historical Financial Data," "Pro Forma Financial Information" and
"Capitalization" fairly present the information set forth therein on a
basis consistent with that of the audited financial statements contained in
the Registration Statement.
(j) Incorporation and Good Standing of the Company and its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has corporate
power and authority to own, lease and operate its
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properties and to conduct its business as described in the Prospectus and,
in the case of the Company, to enter into and perform its obligations under
this Agreement. Each of the Company and each subsidiary is duly qualified
as a foreign corporation to transact business and is in good standing in
the State of Maryland and each other jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions (other
than the State of Maryland) where the failure to so qualify or to be in
good standing would not, individually or in the aggregate, result in a
Material Adverse Change. All of the issued and outstanding capital stock of
each subsidiary has been duly authorized and validly issued, is fully paid
and nonassessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or claim. The Company does not own or control, directly
or indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21.1 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options described in the
Prospectus). The Common Stock (including the Common Shares) conforms in
all material respects to the description thereof contained in the
Prospectus. All of the issued and outstanding shares of Common Stock
(including the shares of Common Stock owned by Selling Stockholders) have
been duly authorized and validly issued, are fully paid and nonassessable
and have been issued in compliance with federal and state securities laws.
None of the outstanding shares of Common Stock were issued in violation of
any preemptive rights, rights of first refusal or other similar rights to
subscribe for or purchase securities of the Company. There are no
authorized or outstanding options, warrants, preemptive rights, rights of
first refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock of
the Company or any of its subsidiaries other than those accurately
described in the Prospectus. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options
or other rights granted thereunder, set forth in the Prospectus accurately
and fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Stock (including the Common
Shares) is registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934 (the "Exchange Act") and is listed on the Nasdaq National
Market, and the Company has taken no action designed to, or likely to have
the effect of, terminating the registration of the Common Stock under the
Exchange Act or delisting the Common Stock from the Nasdaq National Market,
nor has the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. (the "NASD") is
contemplating terminating such registration or listing.
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(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement, note,
contract, franchise, lease or other instrument to which the Company or any
of its subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any of its
subsidiaries is subject (each, an "Existing Instrument"), except for such
Defaults as would not, individually or in the aggregate, result in a
Material Adverse Change. The Company's execution, delivery and performance
of this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions of
the charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a breach of, or Default under, or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or any of its subsidiaries pursuant to, or require
the consent of any other part to, any Existing Instrument, except for such
conflicts, breaches, Defaults, liens, charges or encumbrances as would not,
individually or in the aggregate, result in a Material Adverse Change and
(iii) will not result in any violation of any law, administrative
regulation or administrative or court decree applicable to the Company or
any subsidiary. No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental or regulatory
authority or agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under the
Securities Act, applicable state securities or blue sky laws and from the
National Association of Securities Dealers, Inc. (the "NASD").
(n) No Material Actions or Proceedings. There are no legal or
governmental actions, suits or proceedings pending or, to the best of the
Company's knowledge, threatened (i) against or affecting the Company or any
of its subsidiaries, (ii) that has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination matters,
where in any such case (A) there is a reasonable possibility that such
action, suit or proceeding might be determined adversely to the Company or
such subsidiary and (B) any such action, suit or proceeding, if so
determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the best
of the Company's knowledge, is threatened or imminent.
(o) Intellectual Property Rights. The Company and its subsidiaries
own or possess sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to
conduct their businesses as now conducted; and the expected expiration of
any of such Intellectual Property Rights would not result in a Material
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<PAGE>
Adverse Change. Neither the Company nor any of its subsidiaries has
received any notice of infringement or conflict with asserted Intellectual
Property Rights of others, which infringement or conflict, if the subject
of an unfavorable decision, would result in a Material Adverse Change.
(p) Compliance with Laws; All Necessary Permits, etc. The Company and
its subsidiaries are conducting their respective businesses in compliance
in all material respects with applicable federal, state and local laws,
rules, regulations, decisions, directives and orders. The Company and each
subsidiary possess such valid and current certificates, authorizations or
permits issued by the appropriate state, federal or foreign regulatory
agencies or bodies necessary to conduct their respective businesses, and
neither the Company nor any subsidiary has received any notice of
proceedings relating to the revocation or modification of, or noncompliance
with, any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
could result in a Material Adverse Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section l(A) (i) above, in
each case free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
materially interfere with the use made or proposed to be made of such
property by the Company or such subsidiary. The real property,
improvements, equipment and personal property held under lease by the
Company or any subsidiary are held under valid and enforceable leases, with
such exceptions as are not material and do not materially interfere with
the use made or proposed to be made of such real property, improvements,
equipment or personal property by the Company or such subsidiary.
(r) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise
tax returns or have properly requested extensions thereof and have paid all
taxes required to be paid by any of them and, if due and payable, any
related or similar assessment, fine or penalty levied against any of them
except as may be being contested in good faith and by appropriate
proceedings. The Company has made adequate charges, accruals and reserves
in the applicable financial statements referred to in Section l(A)(i) above
in respect of all federal, state and foreign income and franchise taxes for
all periods as to which the tax liability of the Company or any of its
consolidated subsidiaries has not been finally determined.
(s) Company Not an "Investment Company". The Company has been advised
of the rules and requirements under the Investment Company Act of 1940, as
amended (the "Investment Company Act"). The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of Investment Company Act and will conduct its
business in a manner so that it will not become subject to the Investment
Company Act.
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(t) Insurance. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks as are
generally deemed adequate and customary for their businesses including, but
not limited to, policies covering real and personal property owned or
leased by the Company and its subsidiaries against theft, damage,
destruction, acts of vandalism and earthquakes. The Company has no reason
to believe that it or any subsidiary will not be able (i) to renew its
existing insurance coverage as and when such policies expire or (ii) to
obtain comparable coverage from similar institutions as may be necessary or
appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Change. Neither of the Company nor
any subsidiary has been denied any insurance coverage that it has sought or
for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of the Common Shares.
(v) Related Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or
any other person required to be described in the Prospectus which have not
been described as required.
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles as applied in the United States and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(y) Adequate Environmental Procedures. The Company and each of its
subsidiaries making loans secured by real property have in effect policies
and procedures at least commensurate with those generally in effect in the
finance industry for determining the existence of any emissions,
discharges, chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum and petroleum products on, and whether or
not there exists a breach of any law or regulation relating to pollution or
protection of human health or the environment (including air, water, land
surface or subsurface strata)
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with respect to, any such real property security prior to the Company's or
any of its subsidiary's foreclosure of its lien thereon.
(z) Exchange Act Compliance. The documents incorporated or deemed to
be incorporated by reference in the Prospectus, at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and at
the First Closing Date and the Second Closing Date, as the case may be,
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
Any certificate signed by an officer of the Company and delivered to the
Underwriters or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
B. Representations and Warranties of the Selling Stockholders. Each
Selling Stockholder, as to itself only, severally, and not jointly and
severally, represents, warrants and covenants to each Underwriter as follows:
(a) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as
the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
the rights and remedies of creditors or by general equitable principles.
(b) The Custody Agreement and Power of Attorney. Each of the (i)
Custody Agreement signed by such Selling Stockholder and Powell, Goldstein,
Frazer & Murphy LLP, as custodian (the "Custodian"), relating to the
deposit of the Common Shares to be sold by such Selling Stockholder (the
"Custody Agreement") and (ii) Power of Attorney appointing certain
individuals named therein as such Selling Stockholder's attorneys-in-fact
(each, an "Attorney-in-Fact") to the extent set forth therein relating to
the transactions contemplated hereby and by the Prospectus (the "Power of
Attorney"), of such Selling Stockholder has been duly authorized, executed
and delivered by such Selling Stockholder and is a valid and binding
agreement of such Selling Stockholder, enforceable in accordance with its
terms, except as rights to indemnification thereunder may be limited by
applicable law and except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by general
equitable principles.
(c) Title to Common Shares to be Sold; All Authorizations Obtained.
Such Selling Stockholder has, and on the Second Closing Date (as defined
below) will have,
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good and valid title to all of the Common Shares that may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the legal
right and power, and all authorizations and approvals required by law and
under its charter or by-laws, partnership agreement or other organizational
documents, if such Selling Stockholder is not an individual, to enter into
this Agreement and its Custody Agreement and Power of Attorney, to sell,
transfer and deliver all of the Common Shares that may be sold by such
Selling Stockholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) Delivery of the Common Shares to be Sold. Delivery of the Common
Shares are sold by such Selling Stockholder pursuant to this Agreement will
pass good and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lien, encumbrance or other claim.
(e) Non-Contravention; No Further Authorizations or Approvals
Required. The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement and the Power of Attorney will not
contravene or conflict with, result in a breach of, or constitute a Default
under, or require the consent of any other party to, the charter or by-
laws, partnership agreement or other organizational documents of such
Selling Stockholder, if such Selling Stockholder is not an individual, or
any other agreement or instrument to which such Selling Stockholder is a
party or by which it is bound or under which it is entitled to any right or
benefit, any provision of applicable law or any judgment, order, decree or
regulation applicable to such Selling Stockholder of any court, regulatory
body, administrative agency, governmental body or arbitrator having
jurisdiction over such Selling Stockholder. No consent, approval,
authorization or other order of, or registration or filing with, any court
or other governmental authority or agency, is required for the consummation
by such Selling Stockholder of the transactions contemplated in this
Agreement, except such as have been obtained or made and are in full force
and effect under the Securities Act, applicable state securities or blue
sky laws and from the NASD.
(f) No Registration or Other Similar Rights. Such Selling Stockholder
does not have any registration or other similar rights to have any equity
or debt securities registered for sale by the Company under the
Registration Statement or included in the offering contemplated by this
Agreement, except for such rights as are described in the Prospectus under
"Shares Eligible for Future Sale".
(g) No Further Consents, etc.. Except for the (i) exercise by such
Selling Stockholder of certain piggyback registration rights pursuant to
the Registration Rights Agreement dated as of November 21, 1996 (which
registration rights have been duly exercised pursuant thereto), and (ii)
consent of such Selling Stockholder to the respective number of Common
Shares to be sold by all of the Selling Stockholders pursuant to this
Agreement, no consent, approval or waiver is required under any instrument
or agreement to which such Selling Stockholder is a party or by which it is
bound or under which it is
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entitled to any right or benefit, in connection with the offering, sale or
purchase by the Underwriters of any of the Common Shares that may be sold
by such Selling Stockholder under this Agreement or the consummation by
such Selling Stockholder of any of the other transactions contemplated
hereby.
(h) Disclosure Made by Such Selling Stockholder in the Prospectus.
All information furnished by or on behalf of such Selling Stockholder in
writing expressly for use in the Registration Statement and Prospectus is,
and on the Second Closing Date will be, true, correct, and complete in all
material respects, and does not, and on the Second Closing Date will not,
contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading. Such
Selling Stockholder confirms as accurate the number of shares of Common
Stock set forth opposite such Selling Stockholder's name in the Prospectus
under the caption "Principal and Selling Stockholders" (both prior to and
after giving effect to the sale of the Common Shares).
(i) No Price Stabilization or Manipulation. Such Selling Stockholder
has not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(j) Confirmation of Company Representations and Warranties. Such
Selling Stockholder is not prompted to sell shares of Common Stock by any
information concerning the Company that is not set forth in the
Registration Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
to be a representation and warranty by such Selling Stockholder to each
Underwriter as to the matters covered thereby.
Section 2. Purchase, Sale and Delivery of Common Shares.
The Firm Common Shares. Upon the terms herein set forth, (i) the Company
agrees to issue and sell to the several Underwriters the Firm Common Shares. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
- ----------
Underwriters to the Company shall be $_____ per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NationsBanc Montgomery Securities LLC, 600 Montgomery Street, San
Francisco, California (or such other place as may be agreed to by the Company
and the Underwriters) at 6:00 a.m. San Francisco time, on March __, 1998, or
such other time and date not later than 10:30 a.m. San Francisco time, on March
__, 1998 as the Underwriters shall designate by notice to the Company (the time
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and date of such closing are called the "First Closing Date"). The Company
hereby acknowledges that circumstances under which the Underwriters may provide
notice to postpone the First Closing Date as originally scheduled include, but
are in no way limited to, any determination by the Company or the Underwriters
to recirculate to the public copies of an amended or supplemented Prospectus or
a delay as contemplated by the provisions of Section 10 of this Agreement.
The Optional Common Shares; the Second Closing Date. In addition, on the
basis of the representations, warranties and agreements herein contained, and
upon the terms but subject to the conditions herein set forth, the Selling
Stockholders severally, and not jointly and severally, hereby grant an option to
the several Underwriters to purchase, severally and not jointly, up to an
aggregate of 420,000 Optional Common Shares from the Selling Stockholders at the
purchase price per share to be paid by the Underwriters for the Firm Common
Shares. The option granted hereunder is for use by the Underwriters solely in
covering any over-allotments in connection with the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at any time
(but not more than once) upon notice by the Underwriters to the Selling
Stockholders (with a copy to the Company), which notice may be given at any time
within 30 days from the date of this Agreement. Such notice shall set forth (i)
the aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Underwriters and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, (a) each Underwriter agrees, severally and not
jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Underwriters may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on Schedule A
----------
opposite the name of such Underwriter bears to the total number of Firm Common
Shares and (b) each Selling Stockholder agrees, severally and not jointly, to
sell the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Underwriters may determine) that bears the
same proportion to the total number of Optional Common Shares to be sold as the
number of Optional Common Shares set forth in Schedule B opposite the name of
----------
such Selling Stockholder bears to the total number of Optional Common Shares.
The Underwriters may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Selling Stockholders (with a
copy to the Company).
Public Offering of the Common Shares. The Underwriters hereby advise the
Company and the Selling Stockholders that the Underwriters intend to offer for
sale to the public, as described in the Prospectus, their respective portions of
the Common Shares as soon after this Agreement has been executed and the
Registration Statement has been declared effective as the Underwriters, in their
sole judgment, have determined is advisable and practicable.
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Payment for the Common Shares. Payment for the Common Shares to be sold by
the Company shall be made at the First Closing Date by wire transfer of
immediately available funds to the order of the Company. Payment for the Common
Shares to be sold by the Selling Stockholders shall be made, if applicable, at
the Second Closing Date by wire transfer of immediately available funds to the
order of the Custodian.
It is understood that NationsBanc Montgomery Securities LLC has been
authorized, for its own account and the accounts of the several Underwriters, to
accept delivery of and receipt for, and make payment of the purchase price for,
the Firm Common Shares and any Optional Common Shares the Underwriters have
agreed to purchase. NationsBanc Montgomery Securities LLC, individually, may
(but shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by
NationsBanc Montgomery Securities LLC by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will pay all stock
transfer taxes, stamp duties and other similar taxes, if any, payable upon the
sale or delivery of the Common Shares to be sold by such Selling Stockholder to
the several Underwriters, or otherwise in connection with the performance of
such Selling Stockholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the proceeds to such
Selling Stockholder hereunder and to hold such amounts for the account of such
Selling Stockholder with the Custodian under the Custody Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to be
delivered, to NationsBanc Montgomery Securities LLC for the accounts of the
several Underwriters certificates for the Firm Common Shares to be sold by it at
the First Closing Date, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price therefor. The
Selling Stockholders shall deliver, or cause to be delivered, to NationsBanc
Montgomery Securities LLC for the accounts of the several Underwriters,
certificates for the Optional Common Shares the Underwriters have agreed to
purchase from them at the Second Closing Date, against the irrevocable release
of a wire transfer of immediately available funds for the amount of the purchase
price therefor. The certificates for the Common Shares shall be in definitive
form and registered in such names and denominations as the Underwriters shall
have requested at least two full business days prior to the First Closing Date
(or the Second Closing Date, as the case may be) and shall be made available for
inspection on the business day preceding the First Closing Date (or the Second
Closing Date, as the case may be) at a location in New York City as NationsBanc
Montgomery Securities LLC may designate. Time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m. on
the second business day following the date the Common Shares are released by the
Underwriters for sale to the public, the Company shall deliver or cause to be
delivered copies of the Prospectus in such quantities and at such places as the
Underwriters shall request.
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Section 3. Additional Covenants
A. Covenants of the Company. The Company further covenants and agrees
with each Underwriter and each Selling Stockholder as follows:
(a) Review of Proposed Amendments and Supplements. During such period
beginning on the date hereof and ending on the later of the First Closing
Date or such date, as in the opinion of counsel for the Underwriters, the
Prospectus is no longer required by law to be delivered in connection with
sales by an Underwriter or dealer (the "Prospectus Delivery Period"), prior
to amending or supplementing the Registration Statement (including any
registration statement filed under Rule 462(b) under the Securities Act) or
the Prospectus (including any amendment or supplement through incorporation
by reference of any report filed under the Exchange Act), the Company shall
furnish to NationsBanc Montgomery Securities LLC and each Selling
Stockholder for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which NationsBanc Montgomery Securities LLC or any Selling
Stockholder reasonably objects.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Underwriters and each Selling Stockholder
in writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of the
time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any preliminary
prospectus or the Prospectus, (iii) of the time and date that any post-
effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the threatening or initiation of any proceedings for any
of such purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of such
order at the earliest possible moment. Additionally, the Company agrees
that it shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) were
received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in the
light of the circumstances when the Prospectus is delivered to a purchaser,
not misleading, or if in the opinion of the Underwriters or counsel for the
Underwriters it is otherwise necessary to amend or supplement the
Prospectus to comply with law, the Company agrees to promptly prepare
(subject to
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Section 3(A)(a) hereof), file with the Commission and furnish at its own
expense to the Underwriters and to dealers, amendments or supplements to
the Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Underwriters, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto (including documents incorporated or
deemed incorporated by reference therein) as the Underwriters may request.
(e) Blue Sky Compliance. The Company shall cooperate with the
Underwriters and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the Blue Sky or state securities laws of those jurisdictions designated by
the Underwriters, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as required
for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to take any action that
would subject it to general service of process in any such jurisdiction
where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise the
Underwriters promptly of the suspension of the qualification or
registration of (or any such exemption relating to) the Common Shares for
offering, sale or trading in any jurisdiction or any initiation or threat
of any proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at the
earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Underwriters an
earnings statement (which need not be audited) covering the twelve-month
period ending December 31, 1999 that satisfies the provisions of Section
11(a) of the Securities Act.
(j) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and
the Nasdaq National Market, all reports and documents required to be filed
under the Exchange Act.
(k) Agreement Not To Offer or Sell Additional Securities. During the
period of 90 days following the date of the Prospectus, the Company will
not, without the prior
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<PAGE>
written consent of NationsBanc Montgomery Securities LLC (which consent may
be withheld at the sole discretion of NationsBanc Montgomery Securities
LLC), directly or indirectly, sell, offer, contract or grant any option to
sell, pledge, transfer or establish an open "put equivalent position"
within the meaning of Rule 16a-1(h) under the Exchange Act, or otherwise
dispose of, or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares
of Common Stock, options or warrants to acquire shares of the Common Stock
or securities exchangeable or exercisable for or convertible into shares of
Common Stock (other than as contemplated by this Agreement with respect to
the Common Shares); provided, however, that the Company may issue shares of
its Common Stock (i) upon exercise of outstanding options under the
HealthCare Financial Partners, Inc. 1996 Stock Incentive Plan and the
HealthCare Financial Partners, Inc. 1996 Director Incentive Plan
(collectively, the "Plans") and the Company may grant options or similar
rights to acquire shares of the Common Stock under the Plans, or (ii) in
connection with merger or acquisition transactions not involving a public
offering.
(l) Future Reports to the Underwriters. During the period of five
years hereafter the Company will furnish to the Underwriters, c/o
NationsBanc Montgomery Securities LLC at 600 Montgomery Street, San
Francisco, CA 94111, Attention: Kathy Smythe: (i) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the
Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report
on Form 8-K or other report filed by the Company with the Commission, the
NASD or any securities exchange; and (iii) as soon as available, copies of
any report or communication of the Company mailed generally to holders of
its capital stock.
(m) Exchange Act Compliance. During the Prospectus Delivery Period,
the Company will file all documents required to be filed with the
Commission pursuant to Section 13, 14 or 15 of the Exchange Act in the
manner and within the time periods required by the Exchange Act.
B. Covenants of the Selling Stockholders. Each Selling Stockholder, as to
itself only, severally, and not jointly and severally, further covenants and
agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. Such
Selling Stockholder will not, without the prior written consent of
NationsBanc Montgomery Securities LLC (which consent may be withheld in its
sole discretion), directly or indirectly, sell, offer, contract or grant
any option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position," within the meaning
of Rule 16a-l(h) under the Exchange Act, or otherwise dispose of any shares
of Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or
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hereafter owned either of record or beneficially (as defined in Rule 13d-3
under Securities Exchange Act of 1934, as amended) by the undersigned, or
publicly announce the undersigned's intention to do any of the foregoing,
for a period commencing on the date hereof and continuing through the close
of trading on the date 90 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to NationsBanc
Montgomery Securities LLC prior to the Second Closing Date a properly
completed and executed United States Treasury Department Form W-8 (if the
Selling Stockholder is a non-United States person) or Form W-9 (if the
Selling Stockholder is a United States Person).
NationsBanc Montgomery Securities LLC, on behalf of the several
Underwriters, may, in its sole discretion, waive in writing the performance by
the Company or any Selling Stockholder of any one or more of the foregoing
covenants or extend the time for their performance.
Section 4. Payment of Expenses. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of their obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares by the Company to the Underwriters, (iv) all fees
and expenses of the Company's counsel, independent public or certified public
accountants and other advisors, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement (including financial statements, exhibits, schedules,
consents and certificates of experts), each preliminary prospectus and the
Prospectus, and all amendments and supplements thereto, and this Agreement, (vi)
all filing fees, attorneys' fees and expenses incurred by the Company or the
Underwriters in connection with qualifying or registering (or obtaining
exemptions from the qualification or registration of) all or any part of the
Common Shares for offer and sale under the Blue Sky laws, and, if requested by
the Underwriters, preparing and printing a "Blue Sky Survey" or memorandum, and
any supplements thereto, advising the Underwriters of such qualifications,
registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with including the Common Shares on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in Item 14 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6, Section
8 and Section 9 hereof, the Underwriters shall pay their own expenses, including
the fees and disbursements of their counsel.
The Selling Stockholders further agree with each Underwriter to pay
(directly or by reimbursement) all fees and expenses incident to the performance
of their obligations under this Agreement which are not otherwise specifically
provided for herein, including but not limited to (i) fees and expenses of
counsel and other advisors for such Selling Stockholders (ii) fees and expenses
of the Custodian and (iii) expenses and taxes incident to the sale and delivery
of the
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Common Shares to be sold by such Selling Stockholders to the Underwriters
hereunder (which taxes, if any, may be deducted by the Custodian under the
provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid agreement
relating to the allocation of payment of expenses between the Company, on the
one hand, and the Selling Stockholders, on the other hand.
Section 5. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the Underwriters
shall have received from Ernst & Young LLP and McGladrey & Pullen LLP,
independent public or certified public accountants for the Company, a
letter dated the date hereof addressed to the Underwriters, in form and
substance satisfactory to the Underwriters , containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to the audited
and unaudited financial statements and certain financial information
contained in the Registration Statement and the Prospectus.
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed
a post-effective amendment to the Registration Statement containing
the information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act and obtained the
Underwriter's consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period
required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective
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amendment to the Registration Statement shall be in effect and no
proceedings for such purpose shall have been instituted or threatened
by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change or Ratings Agency Change. For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second
Closing Date:
(i) in the reasonable judgment of the Underwriters there shall
not have occurred any Material Adverse Change; and
(ii) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any
securities of the Company or any of its subsidiaries by any
"nationally recognized statistical rating organization" as such term
is defined for purposes of Rule 436(g)(2) under the Securities Act.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received the
favorable opinion of Powell, Goldstein, Frazer & Murphy LLP, counsel for
the Company, dated as of such Closing Date, the form of which is attached
as Exhibit A.
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(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Underwriters shall have
received the favorable opinion of Gibson, Dunn & Crutcher LLP, counsel for
the Underwriters, dated as of such Closing Date, with respect to the
incorporation and good standing of the Company, the absence of any
preemptive right, right of first refusal or similar right of any
stockholder of the Company or any other person to subscribe for or purchase
securities of the Company, the due authorization, execution and delivery of
this Agreement by the Company, the validity of the issuance of the Common
Shares, the approval of the Shares for listing on the Nasdaq National
Market and other related matters as you may reasonably require.
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Underwriters shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to the
effect set forth in subsections (b)(ii) and (c)(ii) of this Section 5, and
further to the effect that:
(i) for the period from and after the date of this Agreement
and prior to such Closing Date, there has not occurred any Material
Adverse Change;
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(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date.
(g) Bring-Down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Underwriters shall have received from Ernst &
Young, LLP and McGladrey & Pullen, LLP, independent public or certified
public accountants for the Company, a letter dated such date, in form and
substance satisfactory to the Underwriters, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant to
subsection (a) of this Section 5, except that the specified date referred
to therein for the carrying out of procedures shall be no more than three
business days prior to the First Closing Date or Second Closing Date, as
the case may be.
(h) Opinion of Counsel for the Selling Stockholders. On the Second
Closing Date the Underwriters shall have received the favorable opinions of
[Richards, Spears, Kibbe & Orbe and] Powell, Goldstein, Frazer & Murphy
LLP, counsel for certain Selling Stockholders, respectively, dated as of
such Closing Date, the form of which is attached as Exhibit B.
---------
(i) Selling Stockholders' Certificate. On the Second Closing Date the
Underwriters shall receive a written certificate executed by the Attorney-
in-Fact of each Selling Stockholder, dated as of such Closing Date, to the
effect that:
(i) the representations, warranties and covenants of such
Selling Stockholder set forth in Section 1(B) of this Agreement are
true and correct with the same force and effect as though expressly
made by such Selling Stockholder on and as of such Closing Date; and
(ii) such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at or prior to such Closing Date.
(j) Selling Stockholders' Documents. On the date hereof, the Company
and the Selling Stockholders shall have furnished for review by the
Underwriters copies of the Powers of Attorney and Custody Agreements
executed by each of the Selling Stockholders and such further information,
certificates and documents as the Underwriters may reasonably request.
(k) Lock-Up Agreement from Certain Stockholders of the Company Other
Than Selling Stockholders. On the date hereof, the Company shall have
furnished to the Underwriters an agreement in the form of Exhibit C hereto
---------
from the Stockholders of the
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Company set forth on Appendix A to Exhibit C, and such agreement shall be
---------
in full force and effect on each of the First Closing Date and the Second
Closing Date.
(l) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Underwriters and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and as
required to be satisfied, this Agreement may be terminated by NationsBanc
Montgomery Securities LLC by notice to the Company and the Selling Stockholders
at any time on or prior to the First Closing Date and, with respect to the
Optional Common Shares, at any time prior to the Second Closing Date, which
termination shall be without liability on the part of any party to any other
party, except that Section 4, Section 6, Section 8 and Section 9 shall at all
times be effective and shall survive such termination.
Section 6. Reimbursement of Underwriters' Expenses. If this Agreement is
terminated by NationsBanc Montgomery Securities LLC pursuant to Section 5,
Section 11 (but only with respect to a termination as a result of a Material
Adverse Change relating to the Company) or Section 17, or if the sale to the
Underwriters of the Common Shares on the First Closing Date is not consummated
because of any refusal, inability or failure on the part of the Company to
perform any agreement herein or to comply with any provision hereof, the Company
agrees to reimburse the Underwriters (or such Underwriters as have terminated
this Agreement with respect to themselves), severally, upon demand for all out-
of-pocket expenses (the "Reimbursable Expenses") that shall have been reasonably
incurred by the Underwriters in connection with the proposed purchase and the
offering and sale of the Common Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
Section 7. Effectiveness of this Agreement.
This Agreement shall not become effective until the later of (i) the
execution of this Agreement by the parties hereto and (ii) notification by the
Commission to the Company and the Underwriters of the effectiveness of the
Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company or the Selling Stockholders to
any Underwriter, except that the Company shall be obligated to reimburse the
expenses of the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any
Underwriter to the Company or the Selling Stockholders, or (c) any party hereto
to any other party except that the provisions of Section 8 and Section 9 shall
at all times be effective and shall survive such termination.
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Section 8. Indemnification.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees,
and each person, if any, who controls any Underwriter within the meaning of
the Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as
such loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule 434
under the Securities Act, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or
alleged untrue statement of a material fact contained in any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), or
the omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading; or (iii) in whole or in part
upon any inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the
Company to perform its respective obligations hereunder or under law; or
(v) upon any act or failure to act or any alleged act or failure to act by
any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as
part of or referred to in any loss, claim, damage, liability or action
arising out of or based upon any matter covered by clause (i) or (ii)
above, provided that the Company shall not be liable under this clause (v)
to the extent that a court of competent jurisdiction shall have determined
by a final judgment that such loss, claim, damage, liability or action
resulted directly from any such acts or failures to act undertaken or
omitted to be taken by such Underwriter through its gross negligence or
willful misconduct; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NationsBanc Montgomery Securities LLC)
as such expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent, but
only to the extent, arising out of or based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in reliance
upon and in conformity with written information furnished to the Company
and the Selling Stockholders by the Underwriters expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto); and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense
22
<PAGE>
purchased Common Shares, or any person controlling such Underwriter, if
copies of the Prospectus were timely delivered to the Underwriter pursuant
to Section 2 and a copy of the Prospectus (as then amended or supplemented
if the Company shall have furnished any amendments or supplements thereto)
was not sent or given by or on behalf of such Underwriter to such person,
if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if the
Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense; and
provided, further, that the Company and the Selling Stockholders may agree,
as among themselves and without limiting the rights of the Underwriters
under this Agreement, as to the respective amounts of such liability for
which they shall be responsible. The indemnity agreement set forth in this
Section 8(a) shall be in addition to any liabilities that the Company and
the Selling Stockholders may otherwise have.
(b) Indemnification of the Company, its Directors and Officers, and
Selling Stockholders. Each Underwriter agrees, severally and not jointly,
to indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, the Selling
Stockholders, each of its officers, partners and each person, if any, who
controls the Company or any Selling Stockholder within the meaning of the
Securities Act or the Exchange Act, against any loss, claim, damage,
liability or expense, as incurred, to which the Company, or any such
director, officer, Selling Stockholder, each of its officers, partners or
controlling person may become subject, under the Securities Act, the
Exchange Act, or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter),
insofar as such loss, claim, damage, liability or expense (or actions in
respect thereof as contemplated below) arises out of or is based upon any
untrue or alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or arises out of or is based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company
and the Selling Stockholders by the Underwriters expressly for use therein;
and to reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer, Selling
Stockholder or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The Company and each of the Selling
Stockholders hereby acknowledge that the only information that the
Underwriters have furnished to the Company and the Selling Stockholders
expressly for use in the Registration Statement, any preliminary prospectus
or the Prospectus (or any amendment or supplement thereto) are the
statements set forth (A) as the last [two] paragraphs on the inside front
cover page
23
<PAGE>
of the Prospectus concerning stabilization and passive market making by the
Underwriters and (B) in the table in the first paragraph and as the second
paragraph under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Selling Stockholder Indemnification. Each of the Selling
Stockholders, severally, and not jointly and severally, agrees to indemnify
and hold harmless each Underwriter, its officers and employees, and each
person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage,
liability or expense, as incurred, to which such Underwriter or such
controlling person may become subject, under the Securities Act, the
Exchange Act or other federal or state statutory law or regulation, or at
common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Selling
Stockholder), insofar as such loss, claim, damage, liability or expense (or
actions in respect thereof as contemplated below) arises out of or is based
(i) upon any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto), or arises out of or is
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in
reliance upon and in conformity with written information furnished by the
respective Selling Stockholder to the Company and the Underwriters
expressly for use therein; (ii) in whole or in part upon any inaccuracy in
the representations and warranties of such respective Selling Stockholder
contained herein; or (iii) in whole or in part upon any failure of such
respective Selling Stockholder to perform its respective obligations
hereunder or under law, and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by Montgomery Securities) as such expenses
are reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or paying
any such loss, claim, damage, liability, expense or action.
(d) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
for contribution or otherwise than under the indemnity agreement contained
in this Section 8 or to the extent it is not prejudiced as a proximate
result of such failure. In case any such action is brought against any
indemnified party and such indemnified party seeks or intends to seek
indemnity from an indemnifying party, the indemnifying party will be
entitled to
24
<PAGE>
participate in, and, to the extent that it shall elect, jointly with all
other indemnifying parties similarly notified, by written notice delivered
to the indemnified party promptly after receiving the aforesaid notice from
such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that a conflict may arise between the positions of the
indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or
other indemnified parties that are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable for
the expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (NationsBanc Montgomery
Securities LLC in the case of Section 8(b) and Section 9), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the
fees and expenses of counsel shall be at the expense of the indemnifying
party.
(e) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party against any loss, claim, damage, liability or expense by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by Section 8(d) hereof, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into
more than 30 days after receipt by such indemnifying party of the aforesaid
request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement, compromise or consent to
the entry of judgment in any pending or threatened action, suit or
proceeding in respect of which any indemnified party is or could have been
a party and indemnity was or could have been sought hereunder by such
indemnified party, unless such settlement, compromise or consent includes
an unconditional release of such
25
<PAGE>
indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
26
<PAGE>
Section 9. Contribution. If the indemnification provided for in Section 8
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, the Selling
Stockholder on the other hand, and the Underwriters, on the other hand, from the
offering of the Common Shares pursuant to this Agreement or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company, on
the one hand, the Selling Stockholder on the other hand, and the Underwriters,
on the other hand, in connection with the statements or omissions or
inaccuracies in the representations and warranties herein that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company, on the
one hand, the Selling Stockholder on the other hand, and the Underwriters, on
the other hand, in connection with the offering of the Common Shares pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company on the one hand
and the Selling Stockholders on the other hand, and the total underwriting
discount received by the Underwriters, in each case as set forth on the front
cover page of the Prospectus (or, if Rule 434 under the Securities Act is used,
the corresponding location on the Term Sheet) bear to the aggregate initial
public offering price of the Common Shares as set forth on such cover. The
relative fault of the Company, on the one hand, the Selling Stockholder on the
other hand, and the Underwriters, on the other hand, shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact or any such inaccurate or alleged inaccurate representation or warranty
relates to information supplied by the Company, on the one hand, the Selling
Stockholder on the other hand, or the Underwriters, on the other hand, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(d), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(d) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(d) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other
27
<PAGE>
method of allocation which does not take account of the equitable considerations
referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public nor shall any Selling Stockholder be
required to contribute in excess of the amount received. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 9 are several, and not joint, in proportion
to their respective underwriting commitments as set forth opposite their names
in Schedule A. For purposes of this Section 9, each officer and employee of an
----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company with the meaning of the Securities Act and the Exchange
Act shall have the same rights to contribution as the Company. For purposes of
this Section 9, the liability of each Selling Stockholder shall be several, and
not joint and several, in proportion to the number of shares sold by each
Selling Stockholder set forth on Schedule B.
----------
Section 10. Default of One or More of the Several Underwriters. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares that such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
----------
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the non- defaulting Underwriters, to purchase the Common Shares
that such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date. If, on the First Closing Date or the Second Closing
Date, as the case may be, any one or more of the Underwriters shall fail or
refuse to purchase Common Shares and the aggregate number of Common Shares with
respect to which such default occurs exceeds 10% of the aggregate number of
Common Shares to be purchased on such date, and arrangements satisfactory to the
Underwriters and the Company for the purchase of such Common Shares are not made
within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 6, Section 8 and Section 9 shall at all times be effective and shall
survive such termination. In any such case either the Underwriters or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
28
<PAGE>
As used in this Agreement, the term "Underwriter" shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
Section 11. Termination of this Agreement . Prior to the First Closing
Date this Agreement may be terminated by NationsBanc Montgomery Securities LLC
by notice given to the Company and the Selling Stockholders if at any time (i)
trading or quotation in any of the Company's securities shall have been
suspended or limited by the Commission or by the Nasdaq Stock Market, or trading
in securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any of federal, New York or California authorities; (iii) there
shall have occurred any outbreak or escalation of national or international
hostilities or any crisis or calamity, or any change in the United States or
international financial markets, or any substantial change or development
involving a prospective substantial change in United States' or international
political, financial or economic conditions, as in the judgment of the
Underwriters is material and adverse and makes it impracticable to market the
Common Shares in the manner and on the terms described in the Prospectus or to
enforce contracts for the sale of securities; (iv) in the reasonable judgment of
the Underwriters there shall have occurred any Material Adverse Change; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Underwriters may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 11 shall be without liability
on the part of (a) the Company or the Selling Stockholders to any Underwriter,
except that the Company and the Selling Stockholders shall be obligated to
reimburse the expenses of the Underwriters pursuant to Sections 4 and 6 hereof,
(b) any Underwriter to the Company or the Selling Stockholders, or (c) any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
Section 12. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers , of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
Section 13. Notices. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Underwriters:
29
<PAGE>
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, CA 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, CA 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
HealthCare Financial Partners, Inc.
2 Wisconsin Circle
Chevy Chase, MD 20815
Facsimile: (301) 664-9860
Attention: John K. Delaney
If to the Selling Stockholders:
Powell, Goldstein, Frazer & Murphy LLP
191 Peachtree Street, N.E., 16th Floor
Atlanta, GA 30303
Facsimile: (404) 572-6999
Attention: G. William Speer
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
Section 14. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
Section 15. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to
30
<PAGE>
be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
Section 16. Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
Section 17. Failure of One or More of the Selling Stockholders to Sell and
Deliver Common Shares. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Stockholders at the Second Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from NationsBanc Montgomery Securities LLC to the Company and the Selling
Stockholders, either (i) terminate this Agreement without any liability on the
part of any Underwriter or, except as provided in Sections 4, 6, 8 and 9 hereof,
the Company or the Selling Stockholders, or (ii) purchase the shares that the
Company and other Selling Stockholders have agreed to sell and deliver in
accordance with the terms hereof. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Stockholders pursuant to this Agreement at the
Second Closing Date, then the Underwriters shall have the right, by written
notice from NationsBanc Montgomery Securities LLC to the Company and the Selling
Stockholders, to postpone the Second Closing Date, but in no event for longer
than seven days in order that the required changes, if any, to the Registration
Statement and the Prospectus or any other documents or arrangements may be
effected.
Section 18. General Provisions. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
31
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company and the Custodian the enclosed copies
hereof, whereupon this instrument, along with all counterparts hereof, shall
become a binding agreement in accordance with its terms.
Very truly yours,
HealthCare Financial Partners, Inc.
By:
-----------------------------------
Title:
John K. Delaney
By:
-----------------------------------
Title: Attorney-in-fact
Ethan D. Leder
By:
-----------------------------------
Title: Attorney-in-fact
Edward P. Nordberg, Jr.
By:
-----------------------------------
Title: Attorney-in-fact
Selling Stockholder
By:
-----------------------------------
Title: Attorney-in-fact
Selling Stockholder
By:
-----------------------------------
Title: Attorney-in-fact
Selling Stockholder
By:
-----------------------------------
Title: Attorney-in-fact
32
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Underwriters in San Francisco, California as of the date first above
written.
NationsBanc Montgomery Securities LLC
Lehman Brothers
ABN AMRO Incorporated
Piper Jaffray Inc.
Stephens Inc.
By: NationsBanc Montgomery Securities LLC
By:
---------------------------------------------
Title:
33
<PAGE>
SCHEDULE A
Underwriters Number of Firm Common
Shares To Be Purchased
NationsBanc Montgomery Securities LLC.........
Lehman Brothers...............................
ABN AMRO Incorporated.........................
Piper Jaffray Inc.............................
Stephens Inc..................................
<PAGE>
SCHEDULE B
Maximum Number
of Optional Common
Selling Stockholder Shares To Be Sold
John K. Delaney
c/o Healthcare Financial Partners, Inc.
2 Wisconsin Circle, Fourth Floor
Chevy Chase, MD 20805
Ethan D. Leder
c/o Healthcare Financial Partners, Inc.
2 Wisconsin Circle, Fourth Floor
Chevy Chase, MD 20805
Edward P. Nordberg, Jr.
c/o Healthcare Financial Partners, Inc.
2 Wisconsin Circle, Fourth Floor
Chevy Chase, MD 20805
Total:.............................
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to Section 5(e)
of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Maryland and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the State of Maryland) where the
failure to so qualify or to be in good standing would not, individually or
in the aggregate, result in a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus
and, to the best knowledge of such counsel, is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for
such jurisdictions where the failure to so qualify or to be in good
standing would not, individually or in the aggregate, result in a Material
Adverse Change.
(v) All of the issued and outstanding capital stock of each
significant subsidiary has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, directly or
through subsidiaries, to the best knowledge of such counsel, free and clear
of any security interest, mortgage, pledge, lien, encumbrance or any
pending or threatened claim.
(vi) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof
set forth in the Prospectus. All of the outstanding shares of Common Stock
(including the shares of Common Stock owned by Selling Stockholders) have
been duly authorized and validly issued, are fully paid and nonassessable
and, to the best of such counsel's knowledge, have been issued in
compliance with the registration and qualification requirements of
A-1
<PAGE>
federal and state securities laws. The form of certificate used to evidence
the Common Stock is in due and proper form and complies with all applicable
requirements of the charter and by-laws of the Company and the General
Corporation Law of the State of Delaware. The description of the Company's
stock option, stock bonus and other stock plans or arrangements, and the
options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by
operation of the charter or by-laws of the Company or the General
Corporation Law of the State of Delaware or (ii) to the best knowledge of
such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ix) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
(x) The Registration Statement and the Rule 462(b) Registration
Statement, if any, has been declared effective by the Commission under the
Securities Act. To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or the
Rule 462(b) Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been instituted or
are pending or are contemplated or threatened by the Commission. Any
required filing of the Prospectus and any supplement thereto pursuant to
Rule 424(b) under the Securities Act has been made in the manner and within
the time period required by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus and each amendment or supplement to
the Registration Statement and the Prospectus, as of their respective
effective or issue dates (other than the financial statements and
supporting schedules included therein or in exhibits to or excluded from
the Registration Statement, as to which no opinion need be rendered) comply
as to form in all material respects with the applicable requirements of the
Securities Act.
(xii) The Common Shares have been approved for listing on the Nasdaq
National Market.
A-2
<PAGE>
(xiii) The statements (i) in the Prospectus under the captions "Risk
Factors--Failure to Comply with Government Regulations", "Risk Factors --
Inability to Collect Healthcare Receivables Directly from Medicare and
Medicaid," "Risk Factors -- Dilution of Client Receivables; Government
Right of Offset," "Description of Capital Stock", "Business--Government
Regulation", "Certain Relationships and Related Transactions", "Shares
Eligible for Future Sale" and (ii) in Item 14 and Item 15 of the
Registration Statement, insofar as such statements constitute matters of
law, summaries of legal matters, the Company's charter or by-law
provisions, documents or legal proceedings, or legal conclusions, has been
reviewed by such counsel and fairly present and summarize, in all material
respects, the matters referred to therein.
(xiv) To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits
thereto; and the descriptions thereof and references thereto are correct in
all material respects.
(xvi) No consent, approval, authorization or other order of, or
registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance
of the Underwriting Agreement and consummation of the transactions
contemplated thereby and by the Prospectus, except as required under the
Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xvii) The execution and delivery of the Underwriting Agreement by
the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations under
the indemnification section of the Underwriting Agreement, as to which no
opinion need be rendered) (i) have been duly authorized by all necessary
corporate action on the part of the Company; (ii) will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary; (iii) will not constitute a breach of, or Default under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its subsidiaries
pursuant to, any Existing Instrument identified to such counsel in a
certificate of the President of the Company as being material to the
Company; or (iv) to the best knowledge of such counsel, will not result in
any violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary.
(xviii) The Company is not, and after receipt of payment for the
Common Shares will not be, an "investment company" within the meaning of
Investment Company Act.
A-3
<PAGE>
(xix) Except as disclosed in the Prospectus, to the best knowledge of
such counsel, there are no persons with registration or other similar
rights to have any equity or debt securities registered for sale under the
Registration Statement or included in the offering contemplated by the
Underwriting Agreement , other than the Selling Stockholders, except for
such rights as have been duly waived.
(xx) To the best knowledge of such counsel, neither the Company nor
any subsidiary is in violation of its charter or by-laws or any law,
administrative regulation or administrative or court decree applicable to
the Company or any subsidiary or is in Default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change.
(xxi) Each document filed pursuant to the Exchange Act (other than
the financial statements and supporting schedules included therein, as to
which no opinion need be rendered) and incorporated or deemed to be
incorporated by reference in the Prospectus complied when so filed as to
form in all material respects with the Exchange Act.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the law of the State of New York, or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and
A-4
<PAGE>
substance to the Underwriters) of other counsel of good standing whom they
believe to be reliable and who are satisfactory to counsel for the Underwriters;
provided, however, that such counsel shall further state that they believe that
they and the Underwriters are justified in relying upon such opinion of other
counsel, and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
A-5
<PAGE>
EXHIBIT B
The opinion of such counsel pursuant to Section 5(h) shall be rendered to
the Underwriters at the request of the Company and shall so state therein.
References to the Prospectus in this Exhibit B include any supplements thereto
---------
at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed
and delivered by or on behalf of, and is a valid and binding agreement of,
such Selling Stockholder, enforceable in accordance with its terms, except
as rights to indemnification thereunder may be limited by applicable law
and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement and its Power of Attorney
will not contravene or conflict with, result in a breach of, or constitute
a default under, the charter or by-laws, partnership agreement, trust
agreement or other organizational documents, as the case may be, of such
Selling Stockholder, or, to the best of such counsel's knowledge, violate
or contravene any provision of applicable law or regulation, or violate,
result in a breach of or constitute a default under the terms of any other
agreement or instrument to which such Selling Stockholder is a party or by
which it is bound, or any judgment, order or decree applicable to such
Selling Stockholder of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over such Selling
Stockholder.
(iii) Such Selling Stockholder has the legal right and power, and all
authorizations and approvals required under its charter and by-laws,
partnership agreement or other organizational documents, as the case may
be, to enter into the Underwriting Agreement and its Custody Agreement and
its Power of Attorney, to sell, transfer and deliver all of the Common
Shares which may be sold by such Selling Stockholder under the Underwriting
Agreement and to comply with its other obligations under the Underwriting
Agreement, its Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of such
Selling Stockholder has been duly authorized, executed and delivered by
such Selling Stockholder and is a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(v) Assuming that the Underwriters purchase the Common Shares which
are sold by such Selling Stockholder pursuant to the Underwriting Agreement
for value, in good faith and without notice of any adverse claim, the
delivery of such Common Shares
B-1
<PAGE>
pursuant to the Underwriting Agreement will pass good and valid title to
such Common Shares, free and clear of any security interest, mortgage,
pledge, lien encumbrance or other claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court
or governmental authority or agency, is required for the consummation by
such Selling Stockholder of the transactions contemplated in the
Underwriting Agreement, except as required under the Securities Act,
applicable state securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the law of the State of New York or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Underwriters) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Stockholders and public officials.
B-2
<PAGE>
EXHIBIT C
To be attached.
<PAGE>
[LETTERHEAD OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP APPEARS HERE]
Exhibit 5
February 19, 1998
HealthCare Financial Partners, Inc.
2 Wisconsin Circle, Fourth Floor
Chevy Chase, Maryland 20805
Gentlemen:
We have acted as counsel to HealthCare Financial Partners, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company of a Registration Statement on Form S-3, as amended, (Registration
No. 333-______) (the "Registration Statement") relating to the public offering
of up to 3,220,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), of the Company.
We have examined copies of the Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws of the Company, the Registration
Statement, and such other corporate records and documents as we deemed necessary
to form the basis for the opinion hereinafter expressed. In our examination of
such material, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
original documents of all copies submitted to us. As to various questions of
fact material to such opinion, we have relied upon statements and certificates
of officers and representatives of the Company and others.
Based upon the foregoing, we are of the opinion that all of the Common
Stock has been duly authorized and, when issued and sold in accordance with the
terms described in the Prospectus forming a part of the Registration Statement,
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the reference to us in the Prospectus and to the
filing of this opinion as an exhibit to any application made by or on behalf of
the Company or any dealer in connection with the registration of the Common
Stock under the securities or blue sky laws of any state or jurisdiction. In
giving such permission, we do not admit hereby that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3 No. 333- ) and related Prospectus of HealthCare
Financial Partners, Inc. for the registration of 3,220,000 shares of its common
stock and to the incorporation by reference therein of our report dated February
12, 1998 with respect to the consolidated financial statements of HealthCare
Financial Partners, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Washington, D.C.
February 19, 1998
<PAGE>
[LETTERHEAD OF MCGLADREY & PULLEN, LLP APPEARS HERE]
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus of HealthCare
Financial Partners, Inc. for the registration of 3,220,000 shares of its common
stock and to the incorporation by reference therein of our report dated
September 13, 1996, with respect to the combined financial statements of
HealthCare Financial Partners, Inc. and HealthPartners DEL, L.P. included or
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1997, filed with the Securities and Exchange Commission.
/s/ McGladrey & Pullen, L.L.P.
Charlotte, North Carolina
February 19, 1998
