SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by Rule
14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ((section))240.14a-11(c) or
((section))240.14a-12
HEALTHCARE FINANCIAL PARTNERS, INC.
--------------------------------------------------------
Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Filing Fee Required.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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Notes:
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
----------------
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Stockholders of
HealthCare Financial Partners, Inc., a Delaware corporation (the "Company"),
will be held at the Four Seasons Hotel, 2800 Pennsylvania Avenue N.W.,
Washington, D.C. 20007, on Thursday, May 28, 1998 at 9:00 A.M., local time, for
the following purposes:
(1) To elect one Director to serve for a three-year term expiring at the
2001 Annual Meeting of Stockholders;
(2) To approve an amendment to the Company's 1996 Stock Incentive Plan,
increasing the number of shares of Common Stock reserved for option grants from
750,000 to 1,750,000 and increasing to 225,000 the limit on the number of shares
of Common Stock subject to options and stock appreciation rights that may be
granted to any single employee during any fiscal year;
(3) To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation, increasing the number of authorized shares of
Common Stock from 30,000,000 to 60,000,000; and
(4) To consider and take action upon any other matters that may properly
come before the 1998 Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
Steven M. Curwin
Secretary
Chevy Chase, Maryland
April __, 1998
WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON, PLEASE MARK, DATE, AND
SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY.
<PAGE>
HEALTHCARE FINANCIAL PARTNERS, INC.
2 WISCONSIN CIRCLE, FOURTH FLOOR
CHEVY CHASE, MARYLAND 20815
----------------
PROXY STATEMENT
----------------
The enclosed proxy is solicited by the Board of Directors of HealthCare
Financial Partners, Inc., a Delaware corporation (the "Company"), in connection
with the 1998 Annual Meeting of Stockholders to be held at the Four Seasons
Hotel, 2800 Pennsylvania Avenue N.W., Washington, D.C. 20007, on May 28, 1998 at
9:00 am, local time, or any adjournment thereof (the "Annual Meeting"). The
Company's Annual Report to Stockholders for the year ended December 31, 1997
accompanies this Proxy Statement. This Proxy Statement and the accompanying
Notice of Annual Meeting of Stockholders and the enclosed proxy card were first
sent or given to stockholders of the Company on or about April __, 1998.
Holders of record of the Company's Common Stock, $.01 par value per share
(the "Common Stock"), as of the close of business on April 15, 1998 will be
entitled to vote at the Annual Meeting, and each holder of record of Common
Stock on such date will be entitled to one vote for each share held. As of April
15, 1998, there were approximately [13,342,215] shares of Common Stock
outstanding, held by holders of record.
Shares of Common Stock cannot be voted at the Annual Meeting unless the
beneficial owner is present or represented by proxy. Any stockholder giving a
proxy may revoke it at any time before it is voted by giving written notice of
revocation to the Company, c/o Steven M. Curwin, Secretary, at the address shown
above, or by executing and delivering before the Annual Meeting a proxy bearing
a later date. Any stockholder who attends the Annual Meeting may revoke the
proxy by voting his or her shares of Common Stock in person.
All properly executed proxies, unless previously revoked, will be voted at
the Annual Meeting in accordance with the directions given. The presence, in
person or by proxy, of a majority of the shares entitled to vote will constitute
a quorum for the Annual Meeting. Abstentions from voting, which may be specified
on all matters except the election of directors, will be counted as present but
not voting for purposes of determining the existence of a quorum at the Annual
Meeting. Thus, on all matters except the election of directors, abstentions will
have the same effect as a vote against the matter. If a broker indicates on a
proxy that the broker does not have discretionary authority as to certain shares
to vote on a particular matter, those shares will not be considered as present
and entitled to vote with respect to that matter; accordingly, those shares will
have no effect on the vote with respect to that matter.
With respect to the election of one Class II Director to serve until the
2001 Annual Meeting of Stockholders, stockholders of the Company voting by proxy
may vote in favor of the nominee or may withhold their vote for the nominee.
With respect to the proposal to approve the amendments to the Company's 1996
Stock Incentive Plan (the "Incentive Plan"), stockholders of the Company voting
by proxy may vote in favor of the amendments, against the amendments, or
withhold their vote on the amendments. With respect to the proposal to approve
the amendment to the Company's Amended and Restated Certificate of
Incorporation, stockholders of the Company voting by proxy may vote in favor of
the amendment, against the amendment, or withhold their vote on the amendment.
If no specific instructions are given, shares of Common Stock represented by a
properly executed proxy will be voted FOR the nominee for election as a Class II
Director, FOR the amendment of the Company's Incentive Plan, FOR the amendment
of the Amended and Restated Certificate of Incorporation, and in the discretion
of the persons named as proxies on all other matters that may be brought before
the Annual Meeting.
<PAGE>
PROPOSAL ONE
------------
ELECTION OF ONE CLASS II DIRECTOR
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws provide that the Board of Directors of the Company shall be
divided into three approximately equal classes of Directors. The Company's Board
of Directors is currently comprised of five Directors, two classes consisting of
two Directors each and one class consisting of one Director. Each Director is
elected for a three-year term, with one class of Directors being elected at each
annual meeting of stockholders.
The Board of Directors has nominated Ethan D. Leder for election as a
Director at the Annual Meeting. The nominee is currently a member of the Board
of Directors and has consented to serve as a Director if elected. The Director
elected at the Annual Meeting (and any Director later appointed to fill the
existing vacancy) will serve until the 2001 Annual Meeting and until the
election and qualification of his successor or until his earlier death,
resignation or removal.
It is the intention of the persons named as proxies to vote the proxies FOR
the election to the Board of Directors of the nominee named above, unless a
stockholder directs otherwise. The affirmative vote of a plurality of the votes
cast by the holders of Common Stock will be required to elect the nominee as a
Director of the Company for the ensuing year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEE NAMED
IN THIS PROPOSAL.
Set forth below is information concerning the nominee for Director to be
elected at the Annual Meeting for a three-year term expiring at the 2001 Annual
Meeting, as well as certain information concerning the Directors whose terms
extend beyond the Annual Meeting.
DIRECTOR TO BE ELECTED AT THE ANNUAL MEETING
Set forth below with respect to the nominee is his name, age, principal
occupation and business experience for the past five years and length of service
as a director.
ETHAN D. LEDER (age 35) serves as Vice-Chairman of the Board, President and
Director of the Company. Mr. Leder co-founded the Company in 1993 and served as
Vice-Chairman of the Board and Executive Vice President since the formation of
the Company until March 1997, when he was elected to his current positions. From
1993 through September 1996, Mr. Leder also served as Treasurer of the Company.
From 1990 through 1992, Mr. Leder co-owned and operated American Home Therapies,
Inc., a provider of home care and home infusion therapy services, which was sold
in 1992. Prior to 1990, Mr. Leder was engaged in the private practice of law in
Baltimore, Maryland and Washington, D.C. Mr. Leder received his B.A. degree from
John Hopkins University in 1984 and his J.D. degree from the Georgetown
University Law Center in 1987. Mr. Leder's term as Director of the Company will
expire at the 1998 Annual Meeting. Mr. Leder serves on the Executive Committee
of the Board of Directors of the Company.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE ANNUAL MEETING
GEOFFREY E.D. BROOKE (age 41) 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. Dr. Brooke resides in Australia. Prior
to joining Rothschild, from June 1992 to September 1996, Dr. Brooke was
President of MedVest, Inc., a healthcare venture capital firm in Washington,
D.C. which he co-founded with Johnson & Johnson, Inc. Prior to co-founding
MedVest, Inc., Dr. Brooke managed the life sciences portfolio of a publicly
traded group of Australian venture capital funds. Dr. Brooke is licensed in
clinical medicine by the Medical Board of Victoria, Australia. Dr. Brooke earned
his medical degree from the University of Melbourne, Australia and a M.B.A. from
IMD in Lausanne, Switzerland. Dr. Brook's term as a Director of the Company will
expire at the 2000 Annual Meeting. Dr. Brooke serves on the Audit and
Compensation Committees of the Board of Directors of the Company.
2
<PAGE>
JOHN F. DEALY (age 58) 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 1996, as well
as a professor in the Georgetown University School of Business since 1982. Mr.
Dealy is currently a director of 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. Mr. Dealy's term as a Director of
the Company will expire at the 1999 Annual Meeting. Mr. Dealy serves on the
Audit and Compensation Committees of the Board of Directors of the Company.
JOHN K. DELANEY (age 34) serves as Chairman of the Board, Chief Executive
Officer and Director of the Company. Mr. Delaney co-founded the Company in 1993
and has served as Chairman of the Board, Chief Executive Officer and President
since the formation of the Company until March 1997, when he was elected to his
current positions. 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 in A.B. degree from Columbia University in 1985 and his J.D. degree
from Georgetown University Law Center in 1988. Mr. Delaney's term as Director of
the Company will expire at the 1999 Annual Meeting. Mr. Delaney serves on the
Executive Committee of the Board of Directors of the Company.
EDWARD P. NORDBERG, JR. (age 37) serves as Executive Vice President, Chief
Financial Officer and Director of the Company. Mr. Nordberg co-founded the
Company in 1993 and served as Senior Vice President and Secretary of the Company
since the formation of the Company until March 1997 when he was elected to his
current positions. 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. Mr. Nordberg's term as a Director of the Company will expire at the
2000 Annual Meeting. Mr. Nordberg serves on the Executive Committee of the Board
of Directors of the Company.
BOARD OF DIRECTORS
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee, a
Compensation Committee and an Audit Committee. The Executive Committee,
comprised of Messrs. Delaney, Leder and Nordberg, may exercise all of the powers
and authority of the Board of Directors during the periods between regularly
scheduled Board meetings, except that the Executive Committee may not approve a
merger or consolidation involving the Company, a sale of all or substantially
all of the Company's assets, amend the Company's Certificate of Incorporation or
Bylaws, or authorize the issuance of capital stock of the Company. The
Compensation Committee, comprised of Messrs. Dealy and Brooke, has the authority
to determine compensation for the Company's executive officers and to administer
the Incentive Plan. Messrs. Dealy and Brooke are "disinterested persons" within
the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"). The Audit Committee, comprised of Messrs. Dealy and Brooke, has
the authority to make recommendations concerning the engagement of independent
public accountants, review with the independent public accountants the plan and
results of the audit engagement, review the independence of the independent
public accountants, consider the range of audit and non-audit fees and review
the adequacy of the Company's internal accounting controls.
DIRECTOR COMPENSATION
Outside directors are paid $2,000 per meeting. Upon election to the Board
of Directors, outside directors are granted options to purchase 10,000 shares of
Common Stock at the then-prevailing fair market value, and are granted options
to purchase 5,000 shares of Common Stock at the then-prevailing fair market
value annually thereafter. See "-- 1996 Director Incentive Plan" for a
description of the material terms of these options.
3
<PAGE>
MEETINGS
The Board of Directors, and each Board committee, other than the Executive
Committee, held three meetings in 1997. As the Executive Committee is
responsible for the day-to-day management of the Company, it meets as necessary,
on a far more frequent basis than the other Board committees. All directors
attended at least 75% of the meetings of the Board of Directors and of the Board
committees on which they served, either by attending in person or by telephone
conference call.
1996 DIRECTOR INCENTIVE PLAN
The Company maintains the HealthCare Financial Partners, Inc. 1996 Director
Incentive Plan (the "Director Plan"). The Board of Directors has reserved
100,000 shares of Common Stock for issuance pursuant to awards that may be under
the Director Plan, subject to adjustment as provided in the Director Plan.
Awards under the Director Plan are determined by the express terms of the
Director Plan. Rules, regulations and interpretations necessary for the ongoing
administration of the Director Plan will be made by the full membership of the
Board of Directors.
Only non-employee directors of the Company are eligible to participate in
the Director Plan. The Director Plan contemplates three types of non-statutory
option awards: (a) initial appointment awards that are granted upon a
non-employee director's initial appointment to the Board of Directors providing
an option to purchase 10,000 shares of Common Stock at a per share exercise
price equal to the then fair market value of a share of Common Stock; (b) annual
service awards that are granted to each non-employee director who continues to
serve as a non-employee director as of each annual meeting of the stockholders
of the Company following his or her initial appointment providing an option to
purchase 5,000 shares of Common Stock at a per share exercise price equal to the
then fair market value of a share of Common Stock; and (c) discount awards under
which each non-employee director also has the opportunity to elect annually,
subject to rules established by the Board of Directors, to forgo receipt of cash
retainer and fees for scheduled meetings of the Board of Directors and
committees thereof that would otherwise be paid during each fiscal year of the
Company, and in lieu thereof that director be granted an option to acquire
shares of Common Stock with an exercise price per share equal to 50% of the then
fair market value of a share of Common Stock. The number of shares of Common
Stock subject to any option of this type granted for a fiscal year is determined
by taking the amount of cash foregone by the director for the fiscal year in
question and dividing that amount by the per share option exercise price.
Each option granted pursuant to the Director Plan is immediately vested,
becomes exercisable 12 months following the date of grant, and expires upon the
earlier to occur of the tenth anniversary of the grant date or 18 months
following the director's termination of service upon the Board of Directors for
any reason. The options generally are not transferable or assignable during a
holder's lifetime.
The number of shares of Common Stock reserved for issuance upon exercise of
options granted under the Director Plan, the number of shares of Common Stock
subject to outstanding options and the exercise price of each option are subject
to adjustment in the event of any recapitalization of the Company or similar
event, effected without the receipt of consideration. The number of shares of
stock subject to options granted in connection with initial appointments or as
annual service awards are also subject to adjustment in such events. In the
event of certain corporation reorganizations and similar events, the options may
be adjusted or cashed-out, depending upon the nature of the event.
Pursuant to the Director Plan, each of Dr. Brooke and Mr. Dealy elected to
forgo receipt of cash fees for 1997 and was granted an option to acquire 1,255
shares of Common Stock, at an exercise price of $6.375 per share. In addition,
pursuant to the Director Plan, Dr. Brooke and Mr. Dealy were each granted
options to purchase 10,000 shares of Common Stock at an exercise price of $12.75
per share at the time of their initial appointment to the Board of Directors in
January 1997.
4
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who beneficially own more than 10% of the Company's Common Stock to file
with the Securities and Exchange Commission (the "Commission") initial reports
of beneficial ownership and reports of changes in beneficial ownership of the
Common Stock. Directors, executive officers and beneficial owners of more than
10% of the Company's Common Stock are required by Commission rules to furnish
the Company with copies of all such reports.
Based solely on the Company's review of Forms 3, 4 and 5, and amendments
thereto, furnished to the Company through the date of this filing, all required
reports were timely filed, except the following: the initial Forms 3 for
Geoffrey E.D. Brooke and John F. Dealy, who became directors of the Company at
the time of the Company's initial public offering in November 1996, were not
filed until July 1997; a purchase transaction in November 1996 by Steven M.
Curwin, Senior Vice President, made in connection with the Company's initial
public offering, was not reported until May 1997; a purchase transaction in May
1997 by the wife of Michael G. Gardullo, Vice President, as custodian for their
minor son, was not reported until February 1998; a purchase transaction in
November 1996 by Jeffrey P. Hoffman, made in connection with the Company's
initial public offering, was not reported until May 1997; an option award made
to Howard Widra, Vice President, in January 1997, before he became an executive
officer in April 1997, was not reported on his initial Form 3, which was timely
filed, but was reported on an amended Form 3 filed in May 1997; and the initial
Form 3 for Steven I. Silver, who became an executive officer of the Company on
December 1, 1997, was not filed until January 1998.
EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as of
March 31, 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 Secre-
tary
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 HealthCare Analysis Corporation (a subsidiary of
the Company)
Jay C. Beam .......................... 35 Vice President of HealthCare Analysis Corporation (a subsid-
iary of the Company)
Flint D. Besecker .................... 32 Vice President of HealthCare Analysis Corporation (a subsid-
iary of the Company)
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.
5
<PAGE>
The biographies of Messrs. Delaney, Leder, Nordberg, Brooke and Dealy can
be found under "Election of Director."
Hilde M. Alter serves as Treasurer and Chief Accounting Officer of the
Company. Ms. Alter joined the Company in September, 1996. From 1982 to joining
the Company, Ms. Alter was a partner with the accounting firm of Keller, Bruner
& Company 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 jointed 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 serves as Vice President of Portfolio Development. He has
been associated with 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, where he was principally
responsible for business development in the healthcare finance industry. From
1987 to 1993, Mr. Silver was 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 Corporation Finance of the
Securities and Exchange Commission. From January 1993 until July 1993, Ms. Van
Alstyne was an attorney with the law firm of Gibson Hoffman & Pancione in Los
Angeles, California. Prior to that time, she was in private law practice in Los
Angeles. 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 general
6
<PAGE>
counsel 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,
L.L.P. 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 until 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.
Jay C. Beam serves as Vice President of HealthCare Analysis Corporation.
Mr. Beam joined that company in April 1997. He served since October 1995 as a
consultant to the Company. From 1991 until he joined the Company, Mr. Beam was
the founding partner of the accounting and consulting firm Beam & Associates in
Annandale, Virginia. From 1984 to 1991, Mr. Beam was senior manager in the audit
and tax departments of various national accounting firms in the Washington, D.C.
metropolitan area. Mr. Beam is a certified public accountant. Mr. Beam received
his B.S. degree in Accounting from the university of Maryland in 1984. Mr. Beam
is the brother-in-law of Mr. Leder.
Flint. D. Besecker serves as Vice President of HealthCare Analysis
Corporation. Mr. Besecker joined that company in May 1997. He served since March
1996 as a health care due diligence consultant for the Company. From 1988 to
1997 he held various positions as a practicing certified public accountant and
health care consultant in the State of New York for Freed Maxick Sachs & Murphy
P.C., Welch Foods, Inc., and KMPG Peat Marwick. Mr. Besecker received his B.S.
degree in Accounting from Canisius College in 1988.
7
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of March 31, 1998 by: (i)
each person or entity known by the Company to own beneficially five percent or
more of the outstanding Common Stock, (ii) each member of the Board of Directors
of the Company, (iii) each executive officer of the Company, and (iv) all
executive officers of the Company and all members of the Board of Directors as a
group. Unless otherwise indicated, the address of the stockholders shown as
beneficially owning more than five percent of the Common Stock listed below is
that of the Company's principal executive offices. Stock ownership information
has been furnished to the Company by such beneficial owners or is based upon
information contained in filings made by such beneficial owners with the
Commission. Except as indicated in the footnotes to the table, the persons and
entities named in the table have sole voting and investment power with respect
to all shares beneficially owned.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
-----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- -------------------------------------------------------- ------------ --------
<S> <C> <C>
John K. Delaney (1) ............................... 462,967 3.42 %
Ethan D. Leder (1) ................................ 453,561 3.35 %
Edward P. Nordberg, Jr. (1) ....................... 503,513 3.72 %
Steven I. Silver (1) .............................. 43,381 *
Howard Widra (1) .................................. 1,000 *
John F. Dealy (2) ................................. 20,630 *
Geoffrey E. D. Brooke (3) ......................... 11,255 *
All directors and executive officers as a group (16
persons) ........................................ 1,569,579 11.61 %
</TABLE>
- ----------
* Less than one percent
(1) Does not include 234,599, 214,601, 139,601, 24,000 and 41,500 shares,
respectively, subject to options not exercisable within 60 days (of which
204,999, 185,001 and 110,001 shares, respectively, have been granted to
Messrs. Delaney, Leder and Nordberg subject to stockholder approval of the
proposal to amend the Incentive Plan).
(2) The business address of Mr. Dealy is 2300 N Street, N.W., Washington, D.C.
20037.
(3) The business address of Mr. Brooke is 1 Collins Street, 10th Floor,
Melbourne, Victoria 3000, Australia.
8
<PAGE>
EXECUTIVE COMPENSATION
The following table presents information concerning compensation earned for
services rendered in all capacities to the Company for the years ended December
31, 1995, 1996 and 1997 by the Chief Executive Officer and the four other most
highly compensated executive officers (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ($) AWARD
------------------------------------ ------------------
OTHER
ANNUAL NUMBER OF SHARES ALL OTHER
SALARY (1) BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR ($) ($) ($) OPTIONS ($)
- ------------------------------- ------ ----------- --------- -------------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John K. Delaney ............... 1997 306,515 230,000 -- -- --
Chairman, Chief Executive 1996 245,400 -- -- 37,000 --
Officer 1995 196,538 94,166 -- -- --
Ethan D. Leder ................ 1997 286,633 210,000 -- -- --
Vice Chairman of the Board 1996 242,502 -- -- 37,000 --
and President 1995 196,539 94,166 -- -- --
Edward P. Nordberg, Jr. ....... 1997 243,450 75,000 -- -- --
Executive Vice President 1996 212,790 -- -- 37,000 --
and Chief Financial Officer 1995 169,038 94,166 -- -- --
Steven I. Silver .............. 1997 165,855 75,000 -- -- --
Vice President, Portfolio 1996 52,127 -- -- 20,000 --
Development 1995 -- -- -- 38,381 --
Howard Widra .................. 1997 107,775 75,000 -- 35,000 --
Vice President, Portfolio 1996 -- -- -- -- --
Development 1995 -- -- -- -- --
</TABLE>
- ----------
(1) Includes $60,000, $60,000 and $30,000 paid to Messrs. Delaney, Leder and
Nordberg, respectively, in 1995, pursuant to a certain Support Services
Agreement described in "Certain Relationships and Related Transactions."
(2) Certain of the Company's executive officers receive benefits in addition to
salary and cash bonuses. The aggregate amount of such benefits, however, do
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
of such executive officer.
9
<PAGE>
The following table summarizes options granted during 1997 to the Named
Executives. The Company has not granted any stock appreciation rights. No other
Stock Incentives were granted or awarded in 1996 or 1997.
OPTIONS GRANTED IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
----------------------------------------------------------- --------------------
PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS(#) EMPLOYEES(%) PER SHARE($) DATE 5%($) 10%($)
- ----------------------------- --------------- -------------- ---------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
John K. Delaney ............. -- -- -- -- -- --
Ethan D. Leder .............. -- -- -- -- -- --
Edward P. Nordberg, Jr. ..... -- -- -- -- -- --
Steven I. Silver ............ -- -- -- -- -- --
Howard T. Widra ............. 10,000(1) 3.72 12.75 01/09/07 80,184 203,202
25,000(2) 9.30 28.25 09/23/07 444,157 450,232
</TABLE>
- ----------
(1) Of such options, all of which are Incentive Stock Options, 25% (2,500)
became exercisable on January 10, 1998 and were subsequently exercised by
Mr. Widra on February 12, 1998. Of the remaining 7,500 options, 2,500 become
exercisable on each of January 10, 1999, January 10, 2000 and January 10,
2001.
(2) Of such options, 9,644 are Incentive Stock Options and 15,356 are
Non-Qualified Options. 25% (2,411) of the Incentive Stock Options become
exercisable on each of September 23, 1998, September 23, 1999, September 23,
2000 and September 23, 2001. 25% (3,839) of the Non-Qualified Options become
exercisable on each of September 23, 1998, September 23, 1999, September 23,
2000 and September 23, 2001.
The following table summarizes options exercised by the named executives
during 1997 and presents the value of unexercised options held by the Named
Executives at December 31, 1997.
TOTAL OPTIONS EXERCISED IN 1997 AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1997(#) AT DECEMBER 31, 1997($)
ACQUIRED ON VALUE ----------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------- ------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John K. Delaney ................. None None 7,400 29,600 170,200 680,800
Ethan D. Leder .................. None None 7,400 29,600 170,200 680,800
Edward P. Nordberg, Jr. ......... None None 7,400 29,600 170,200 680,800
Steven I. Silver ................ None None 43,381 15,000 1,384,568 366,750
Howard T. Widra ................. None None 2,500* 32,500 56,875 351,875
</TABLE>
- ----------
* Subsequent to December 31, 1997, Mr. Widra exercised such options.
During 1997, 268,750 options were granted under the Incentive Plan to new
and current employees, 3,750 options were forfeited and, 5,300 options were
exercised.
10
<PAGE>
EMPLOYMENT AND NON-COMPETITION AGREEMENTS
Mr. Delaney serves as Chairman of the Board and Chief Executive Officer of
the Company pursuant to the terms of an employment agreement that continues in
effect until January 1, 2001. On each anniversary of the date of the employment
agreement, the employment period is extended for an additional one-year period,
unless the Company or Mr. Delaney notifies the other of its or his intention not
to extend the employment period. Under the terms of the employment agreement,
Mr. Delaney currently receives an annual salary of $300,000, and in future years
under his employment agreement, he will receive an annual salary that is not
less than the greater of (i) $300,000 or (ii) any subsequently established base
salary, in either case increased annually by not less than 50% of the annual
increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers
("CPI-W"). Commencing on March 31, 1997, and on the last day of each calendar
quarter thereafter during the term of the employment agreement, Mr. Delaney is
paid a quarterly bonus of $25,000, provided that the Company has achieved
profitability for such quarter. If the Company has not achieved profitability in
a quarter in any calendar year but the Company's profits in any subsequent
quarter of that year are equal to the losses in all prior quarters of that year
plus one dollar, Mr. Delaney will be paid his then current quarterly bonus, plus
any bonus amount not paid for any prior unprofitable quarter of that year. If
the Company terminates Mr. Delaney's employment without cause, Mr. Delaney will
be entitled to receive his compensation and benefits for the remainder of the
term of the employment agreement. The first three years of such payments of
compensation and benefits is guaranteed and not subject to reduction or offset.
If Mr. Delaney's employment is terminated, he will be restricted from competing
with the Company for 18 months.
Mr. Leder serves as Vice-Chairman of the Board and President of the Company
pursuant to the terms of an employment agreement that continues in effect until
January 1, 2001. On each anniversary of the date of the employment agreement,
the employment period is extended for an additional one-year period, unless the
Company or Mr. Leder notifies the other of its or his intention not to extend
the employment period. Under the terms of the employment agreement, Mr. Leder
currently receives an annual salary of $275,000, and in future years under his
employment agreement, he will receive an annual salary that is not less than the
greater of (i) $275,000 or (ii) any subsequently established base salary, in
either case increased annually by not less than 50% of the annual increase in
the CPI-W. Commencing on March 31, 1997, and on the last day of each calendar
quarter thereafter during the term of the employment agreement, Mr. Leder is
paid a quarterly bonus of $25,000, provided that the Company has achieved
profitability for such quarter. If the Company has not achieved profitability in
a quarter in any calendar year but the Company's profits in any subsequent
quarter of that year are equal to the losses in all prior quarters of that year
plus one dollar, Mr. Leder will be paid his then current quarterly bonus, plus
any bonus amount not paid for any prior unprofitable quarter of that year. If
the Company terminates Mr. Leder's employment without cause, Mr. Leder will be
entitled to receive his compensation and benefits for the remainder of the term
of the employment agreement. The first three years of such payments of
compensation and benefits is guaranteed and not subject to reduction or offset.
If Mr. Leder's employment is terminated, he will be restricted from competing
with the Company for 18 months.
Mr. Nordberg serves as Executive Vice President and Chief Financial Officer
of the Company pursuant to the terms of an employment agreement that continues
in effect until January 1, 2001. On each anniversary of the date of the
employment agreement, the employment period is extended for an additional
one-year period, unless the Company or Mr. Nordberg notifies the other of its or
his intention not to extend the employment period. Under the terms of the
employment agreement, Mr. Nordberg currently receives an annual salary of
$250,000, and in future years under his employment agreement, he will receive an
annual salary which is not less than the greater of (i) $250,000 or (ii) any
subsequently established base salary, in either case increased annually by not
less than 50% of the annual increase in the CPI-W. If the Company terminates Mr.
Nordberg's employment without cause, Mr. Nordberg will be entitled to receive
his compensation and benefits for the remainder of the term of the employment
agreement. The first three years of such payments of compensation and benefits
is guaranteed and not subject to reduction or offset. If Mr. Nordberg's
employment is terminated, he will be restricted from competing with the Company
for 18 months.
Mr. Silver serves as Vice President -- Portfolio Development of the
Company pursuant to the terms of an employment agreement that continues in
effect until October 1, 2000. On each anniversary
11
<PAGE>
of the date of the employment agreement, the employment agreement is extended
for an additional one-year period, unless the Company or Mr. Silver notifies the
other of its or his intention not to extend the employment period. Under the
terms of the employment agreement, Mr. Silver currently receives an annual
salary of $185,000, and in future years under his employment agreement, he will
receive an annual salary which is not less that the greater of (i) $185,000 or
(ii) any subsequently established higher annual base salary, in either case
increased annually by not less than 50% of the annual increase in the CPI-W. If
the Company terminates Mr. Silver's employment without cause, Mr. Silver will be
entitled to receive his compensation and benefits under the employment agreement
for one year. If Mr. Silver's employment is terminated, he will be restricted
from competing with the Company for one year.
INDEMNIFICATION ARRANGEMENTS
The Company has entered into indemnification agreements pursuant to which
it has agreed to indemnify certain of its directors and officers against
judgments, claims, damages, losses and expenses incurred as a result of the fact
that any director or officer, in his capacity as such, is made or threatened to
be made a party to any suit or proceeding. Such persons will be indemnified to
the fullest extent now or hereafter permitted by the Delaware General
Corporation Law (the "DGCL"). The indemnification agreements also provide for
the advancement of certain expenses to such directors and officers in connection
with any such suit or proceeding. The Company's Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws provide for the indemnification
of the Company's directors and officers to the fullest extent permitted by the
DGCL.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Before completion of the Company's initial public offering on November 21,
1996 (the "Initial Public Offering"), the business of the Company was operated
through HealthPartners Funding, L.P. ("Funding") and HealthPartners DEL, L.P.
("DEL"), both Delaware partnerships. Effective as of September 1, 1996, Funding
acquired all of the assets of DEL, consisting principally of client receivables,
for $486,630 in cash, which amount approximated the fair value of DEL's net
assets, and assumed all of DEL's liabilities. DEL subsequently distributed the
remaining proceeds from the sale pro-rata (i) to John K. Delaney, Ethan D. Leder
and Edward P. Nordberg, Jr., the sole limited partners of DEL and each a
director and officer of the Company, in the amounts of $197,044, $197,044 and
$98,522, respectively, in respect of their limited partnership interests, and
(ii) $1,188 to the Company in respect of its general partnership interest. DEL
was subsequently dissolved.
The amount paid by Funding for the assets of DEL was equal to the book
value or net investment of DEL in the assets transferred, consisting principally
of client receivables. The objective was for DEL to recognize no gain or loss on
the transaction. The purpose of this transaction was to consolidate the assets
of DEL and Funding in anticipation of the Initial Public Offering and the
acquisition by the Company of the limited partnership interests of Funding
described below. The cost to the Company and each of Messrs. Delaney, Leder and
Nordberg for their interests in DEL were $7,869, $427,735, $426,897 and $81,400,
respectively, and the Company and such persons each had received, prior to the
sale, distributions from DEL in respect of their interests in the amounts of
$6,681, $230,661, $229,823, and $82,878, respectively.
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. The purchase price
for the limited partnership interests was $21.8 million, which was paid from the
proceeds of the Initial Public Offering. This purchase price approximated both
the fair value and book value of the net assets. HP Investors paid $24.8 million
in cash for its limited partnership interests and, prior to the sale of its
limited partnership interests to the Company, HP Investors had received income
distributions in respect of its limited partnership interests aggregating $6.8
million and limited partner capital distributions of $3.0 million. Effective
upon the acquisition of the limited partnership interests of Funding, Funding
was liquidated and dissolved and all of its net assets at the date of transfer
(approximately $16.2 million, net of cash) were transferred to the Company.
12
<PAGE>
In connection with the liquidation of Funding, Farallon Capital Partners,
L.P. ("Farallon") and RR Capital Partners, L.P. ("RR Partners") exercised
warrants for the purchase of 379,998 shares of Common Stock, which warrants were
acquired by Farallon and a predecessor of RR Partners on December 28, 1994 for
an aggregate payment of $500, and which were subsequently assigned to HP
Investors. HP Investors transferred the warrants to Farallon and RR Partners in
contemplation of the liquidation of Funding. No additional consideration was
paid in connection with the exercise of such warrants. There was no affiliation
between the Company and Farallon and RR Partners other than the ownership of the
warrants and 169,495 shares of Common Stock. The warrants were issued to provide
equity ownership in the Company to the warrant holders and to serve as a means
of further strengthening the business relationship between the parties.
In March 1997 the Company formed HealthCare Financial Partners -- Funding
II, L.P., a Delaware limited partnership ("Funding II L.P."), and an affiliate
of Farallon committed to invest up to $20 million to Funding II L.P. In June
1997, the Company acquired Farallon's limited partnership interest in Funding II
L.P. and then liquidated Funding II L.P.
In August 1997, the Company formed HealthCare Financial Partners -- Funding
III, LP, a Delaware limited partnership ("Funding III L.P."). An affiliate of
Farallon invested $800,000 into Funding III L.P. Funding III L.P. participated
in a HUD auction of distressed loans in which it purchased four mortgage loans.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Under the SEC rules for proxy statement disclosure of executive
compensation, the Compensation Committee of the Board of Directors of the
Company has prepared the following report on executive compensation. Set forth
below is a discussion of the Company's executive compensation philosophy and
policies as established and implemented by the Compensation Committee for 1997.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In early 1997, the Compensation Committee established general guidelines
for the allocation of 1997 executive officers' compensation among base salary,
short-term incentive and long-term incentive compensation components. The
guidelines were based generally upon (i) perceived levels and types of
compensation paid by the Company's competitors to their executive officers, (ii)
the desire to have some portion of each executive officer's compensation be
incentive in nature, and (iii) an evaluation of each executive officer's ability
to contribute to the continued success of the Company.
In determining appropriate compensation packages for employees, the
Compensation Committee has worked toward establishing an increasingly objective
policy designed to:
o Provide for an annual evaluation of the base salaries and incentive
compensation paid to executive officers in an effort to maintain the
Company's competitive position;
o Emphasize the incentive aspect of compensation for executive officers by
making the incentive element (primarily bonuses) comprise as much as 25% to
75% of the total compensation package for such officers;
o Motivate and reward executive officers and align their interests with the
interests of shareholders through the grant of stock options; and
o Establish compensation packages such that the Company's executive officers
and other key employees are paid in the upper half of the "market" for
comparable positions.
As noted above, the Compensation Committee annually evaluates and adjusts, if
necessary, the proportions of the base, short-term incentive and long-term
incentive compensation components of each executive officer's compensation
package to accommodate changes in the market for such officer's services and to
encourage desired individual performance modifications. Changes in total
compensation levels
13
<PAGE>
are made annually based on an assessment of each executive officer's performance
and the composition of the officer's current compensation package. Changes in
annual compensation are generally effective on January 1 of each year.
Performance is judged according to the following criteria:
(1) The officer's ability to meet financial and non-financial performance
goals and objectives of the Company for which he or she has significant
responsibility;
(2) The officer's ability to manage projects and implement strategies in a
timely manner within his or her department or functional unit in the context of
Company plans;
(3) The officer's ability to use problem-solving, communication and
technical skills effectively; and
(4) The officer's ability to handle administrative matters and
relationships with other employees and third parties competently and
professionally.
In light of the Company's compensation policy, the components of its
executive compensation program in 1997 are, and in 1998 will be, base salaries,
short-term incentive awards in the form of cash bonuses and long-term incentive
awards in the form of stock options. The procedure used to determine the level
of each of these components of compensation is discussed in more detail below.
Base Salaries. The Compensation Committee typically reviews various studies
and reports regarding base salary levels for executive officers of other public
companies in its industry (defined generally as companies included in the NASDAQ
Financial Stocks Index) who hold positions similar to those of the executive
officers of the Company. The Compensation Committee then sets each executive
officer's salary level based on the officer's experience level, the scope and
complexity of the position held (taking into account any expected changes in
duties) and the officer's performance during the past year. Generally, base
salaries are targeted to be in the upper half of compensation paid by such other
comparable companies, although in certain instances base salaries may be set
higher in order to retain and reward exceptional employees.
Short-Term Incentive Compensation -- Bonuses and Commissions. The goal of
the short-term incentive component of the Company's compensation packages is to
place a significant portion of each executive officer's compensation at risk to
encourage and reward a high level of performance each year. The incentive
component of an executive officer's compensation package consists of an annual
cash bonus, which for 1997 was determined based on the Committee's assessment of
the officer's overall contribution to the Company's performance for the year and
an assessment of the officer's performance of his or her particular job
responsibilities. No specific weight was given to any single factor. Bonuses for
1997 paid to executive officers ranged from 25% to 75% of base salary. Under the
terms of the employment agreements between the Company and certain executive
officers, including the chief executive officer, the executive officers are
entitled to receive at least a minimum bonus based on the achievement of
criteria specified in the employment agreement. See "Executive Compensation --
Employment and Non-Competition Agreements."
Generally, the Compensation Committee seeks to set short-term incentive
compensation or bonus levels at 25% to 75% of salary. The criteria for earning
bonuses differ slightly for each executive officer depending upon his or her
functional duties. For 1997 the criteria were entirely subjective, based on the
Committee's assessment of the officer's overall contribution to the Company's
success during 1997.
Long-Term Incentive Compensation -- Stock Options. The goal of the
long-term incentive component of the Company's compensation packages is to
secure, motivate and reward officers and align their interests with the
interests of shareholders through the grant of stock options. Under the
Incentive Plan, the Compensation Committee is authorized to grant incentive and
non-qualified stock options to key employees. The number of options granted is
based on the position held by the individual, his or her performance, the prior
level of equity holdings by the officer and the Compensation Committee's
assessment of the officer's ability to contribute to the long-term success of
the Company. No specific weight is given to any single factor. For a summary of
option grants in 1997 to the Company's named executive officers, see "Executive
Compensation -- Options Granted in 1997."
14
<PAGE>
Compensation of the Chief Executive Officer. Mr. Delaney's minimum base
salary and bonuses are set forth in his employment agreement. Additional base
salary for Mr. Delaney was then established for 1997 by the Compensation
Committee, resulting in a 1997 base salary of $306,515. The salary was based on
the Compensation Committee's assessment of Mr. Delaney's contributions to the
Company and his experience and capabilities in the Company's industry. Mr.
Delaney's short-term incentive compensation consisted of a bonus of $230,000,
which exceeded the minimum bonus of $100,000 (payable quarterly) provided in his
employment agreement. The Compensation Committee's decision to award additional
bonus compensation was based entirely on subjective criteria, according to the
Compensation Committee's assessment of Mr. Delaney's overall contribution to the
Company's success in 1997. No stock options were awarded to Mr. Delaney for
1997.
Limitations on Deductibility of Compensation. Under the Omnibus Budget
Reconciliation Act, a portion of annual compensation payable after 1993 to any
of the Company's five highest paid executive officers would not be deductible by
the Company for federal income tax purposes to the extent such officer's overall
compensation exceeds $1,000,000. Qualifying performance-based incentive
compensation, however, would be both deductible and excluded for purposes of
calculating the $1,000,000 base. Although the Compensation Committee has not and
does not currently intend to award compensation in excess of the $1,000,000 cap,
it will continue to address this issue when formulating compensation
arrangements for executive officers.
THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
John F. Dealy
Geoffrey E.D. Brooke
The report on executive compensation of the Board of Directors shall not be
deemed to be incorporated by reference as a result of any general incorporation
by reference of this Proxy Statement or any part hereof in the Company's Annual
Report to Shareholders or Form 10-K.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors was established in
January 1997 and consists of Geoffrey E.D. Brooke and John F. Dealy, neither of
whom serves as an officer or employee of the Company or any of its subsidiaries.
On September 15, 1996, the company entered into an Advisory Services Agreement
with The Dealy Strategy Group ("DSG"), a consulting firm controlled by Mr.
Dealy, for DSG to provide business advisory services to the Company for the
period from January 1, 1997 through December 31, 1998. Pursuant to the Advisory
Services Agreement, the Company agreed to pay DSG $50,000 in 1997, which was
paid in quarterly installments, and $50,000 in 1998, which is payable in
quarterly installments. Pursuant to the Advisory Services Agreement, the Company
also granted DSG options to purchase 15,000 shares of Common Stock at a price of
$11.05 per share. The options vest in increments of 1,875 shares at the end of
each quarter that DSG is furnishing business advisory services, beginning with
the quarter ending March 31, 1997, and are exercisable for a period of ten years
from the date of grant. As of the date of this Proxy Statement, 9,375 options
are currently exercisable.
15
<PAGE>
STOCKHOLDER RETURN PERFORMANCE GRAPH
The following graph compares for the period beginning November 21, 1996
(the date on which the Company's Common Stock was first listed for quotation on
the Nasdaq National Market) and ending December 31, 1997, the percentage change
in the cumulative total stockholder return on the Company's Common Stock with
the cumulative total return of the Nasdaq Stock Market Index and the cumulative
total return of Nasdaq Financial Stocks (SIC 6000-6799, U.S. and foreign
companies), a regularly published index consisting of companies whose lines of
business are comparable to those of the Company.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG HEALTHCARE FINANCIAL PARTNERS, INC., NASDAQ
STOCK MARKET INDEX (U.S. COMPANIES) AND NASDAQ
FINANCIAL STOCKS
(SIC 6000 - 6799, U.S. AND FOREIGN)
[GRAPHIC OMITTED]
* Assumes $100 investment in the common stock of Healthcare Financial Partners,
Inc., Nasdaq Stock Market (U.S. Companies), and Nasdaq Financial Stocks (SIC
6000-6799 U.S. and Foreign), derived from compounded daily returns with
dividend reinvestment on the ex-date.
<TABLE>
<CAPTION>
CUMULATIVE VALUE OF INITIAL $100 INVESTMENT 11/22/96 12/31/96 12/31/97
- -------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Nasdaq Stock Market (U.S. Companies) ............. $ 100.00 $ 101.51 $ 124.59
Nasdaq Financial Stocks (SIC 6000-6799) .......... $ 100.00 $ 102.75 $ 156.97
HealthCare Financial Partners, Inc. .............. $ 100.00 $ 102.00 $ 284.00
</TABLE>
<TABLE>
<CAPTION>
NON-CUMULATIVE ANNUAL RETURN 11/22/96 12/31/96 12/31/97
- -------------------------------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
Nasdaq Stock Market (U.S. Companies) ............. NA 1.51% 22.74%
Nasdaq Financial Stocks (SIC 6000-6799) .......... NA 2.75% 52.77%
HealthCare Financial Partners, Inc. ............. NA 2.00% 178.43%
</TABLE>
PROPOSAL 2
----------
AMENDMENT OF THE 1996 STOCK INCENTIVE PLAN TO INCREASE
THE NUMBER OF SHARES THAT MAY BE RESERVED FOR THE GRANT
OF OPTIONS UNDER THE PLAN AND TO INCREASE THE NUMBER OF OPTIONS THAT MAY BE
GRANTED TO AN EMPLOYEE IN A FISCAL YEAR
The Company maintains the HealthCare Financial Partners, Inc. 1996 Stock
Incentive Plan (the "Incentive Plan"). The Board of Directors has reserved
750,000 shares of Common Stock for issuance pursuant to awards that may be made
under the Incentive Plan, subject to adjustment as provided in the
16
<PAGE>
Incentive Plan. As of January 16, 1998, the Board of Directors approved an
amendment to the Incentive Plan to increase the number of shares of Common Stock
reserved under the Incentive Plan from 750,000 shares to 1,750,000 shares, and
to increase from 100,000 to 225,000 the limit on the number of shares of Common
Stock subject to options and stock appreciation rights that may be granted to
any single employee during any fiscal year of the Company.
DESCRIPTION OF THE 1996 STOCK INCENTIVE PLAN
Awards under the Incentive Plan are determined by a committee of no less
than two members of the Board of Directors (the "Committee"), the members of
which are selected by the Board of Directors. Messrs. Dealy and Brooke serve as
members of the Committee.
Key employees, officers, directors and certain consultants of the Company
or an affiliate are eligible for awards under the Incentive Plan. The Incentive
Plan permits the Committee to make awards of shares of Common Stock, awards of
derivative securities related to the value of the Common Stock, and certain cash
awards to eligible persons. These discretionary awards may be made on an
individual basis, or pursuant to a program approved by the Committee for the
benefit of a group of eligible persons. The Incentive Plan permits the Committee
to make awards of a variety of equity-based incentives, including (but not
limited to) stock awards, options to purchase shares of Common Stock from, and
to sell shares of Common Stock back to, the Company, stock appreciation rights,
"cash-out" or "limited stock appreciation rights" (which the Committee may make
exercisable in the event of certain changes in control of the Company or other
events), phantom shares, performance incentive rights, dividend equivalent
rights and similar rights (together, "Stock Incentives"). The number of shares
of Common Stock as to which a Stock Incentive is granted and to whom any Stock
Incentive is granted, and all other terms and conditions of a Stock Incentive,
are determined by the Committee, subject to the provisions of the Incentive
Plan. The terms of particular Stock Incentives may provide that they terminate,
among other reasons, upon the holder's termination of employment or other status
with respect to the Company and any affiliate, upon a specified date, upon the
holder's death or disability, or upon the occurrence of a change in control of
the Company. Stock Incentives may also include exercise, conversion or
settlement rights to a holder's estate or personal representative in the event
of the holder's death or disability. At the Committee's discretion, Stock
Incentives that are held by an employee who suffers a termination of employment
may be cancelled, accelerated, paid or continued, subject to the terms of the
applicable Stock Incentive agreement and to the provisions of the Incentive
Plan. Stock Incentives generally are not transferable or assignable during a
holder's lifetime.
The maximum number of shares of Common Stock with respect to which options
or stock appreciation rights may be granted during any fiscal year of the
Company as to certain eligible recipients currently may not exceed 100,000, to
the extent required by Section 162(m) of the Code for the grant to qualify as
qualified performance-based compensation. (This maximum is proposed to be
increased to 225,000 pursuant to the amendments described below.) The number of
shares of Common Stock reserved for issuance in connection with the grant or
settlement of Stock Incentives or to which a Stock Incentive is subject, as the
case may be, and the exercise price of each option are subject to adjustment in
the event of any recapitalization of the Company or similar event, effected
without the receipt of consideration. In the event of certain corporate
reorganizations and similar events, Stock Incentives may be substituted,
cancelled, accelerated, cashed-out or otherwise adjusted by the Committee,
provided such adjustment is not inconsistent with the express terms of the
Incentive Plan or the applicable Stock Incentive agreement.
PURPOSE AND EFFECT OF THE AMENDMENTS TO THE 1996 STOCK INCENTIVE PLAN
The purpose of the Incentive Plan is to strengthen the Company by providing
incentives in the form of stock-based awards to officers, employees and certain
consultants to encourage them to devote their abilities and energy to the
success of the Company's business. Due to the Company's rapid growth and the
Company's commitment to granting stock-based awards to each employee, the
750,000 shares of Common Stock that were initially available for such awards
under the Incentive Plan have been essentially exhausted, as only 35,000 remain
available. The Company's Board of Directors believes that the number of shares
available for the grant of stock-based awards under the Incentive Plan should be
increased significantly, by 1,000,000 shares, to a total of 1,750,000.
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The Board of Directors believes that the grant of stock-based awards is one
of the Company's principal methods for attracting and retaining its employees.
Thus, the Board of Directors believes that it is in the best interests of the
Company to increase the maximum number of shares that may be made subject to
stock-based awards under the Incentive Plan and to increase the limit on the
number of shares of Common Stock that may be subject to the grant of a
stock-based award to an employee in any fiscal year, to (i) continue to attract
and retain skilled, highly motivated employees and (ii) provide additional
incentive and reward opportunities to current employees to encourage them to
enhance the profitability of the Company. As of the date of this Proxy
Statement, only 35,000 shares of Common Stock are available for the grant of new
stock-based awards. If the amendments to the Incentive Plan are approved, an
additional 1,000,000 shares would be reserved for the grant of stock-based
awards under the Plan. In January 1998, 204,999, 185,001, and 110,001 options
were granted to Messrs. Delaney, Leder and Nordberg, respectively, subject to
approval by the shareholders of these amendments to the Incentive Plan.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion outlines generally the federal income tax
consequences of participation in the Incentive Plan. Individual circumstances
may vary and each participant should rely on his or her own tax counsel for
advice regarding federal income tax treatment under the Incentive Plan.
INCENTIVE STOCK OPTIONS
A participant who exercises an incentive stock option will not be taxed at
the time he or she exercises his or her option or a portion thereof. Instead,
the participant will be taxed at the time he or she sells the shares of Common
Stock purchased pursuant to the incentive stock option. The participant will be
taxed on the difference between the price he or she paid for the Common Stock
and the amount for which he or she sells the Common Stock. If the participant
does not sell the shares of Common Stock prior to two years from the date of
grant of the incentive stock option and one year from the date the Common Stock
is transferred to him or her, the gain will be capital gain and the Company will
not get a corresponding deduction. If the participant sells the shares of Common
Stock at a gain prior to that time, the difference between the amount the
participant paid for the Common Stock and the lesser of fair market value on the
date of exercise or the amount for which the stock is sold will be taxed as
ordinary income. If the participant sells the shares of Common Stock for less
than the amount he or she paid for the stock prior to the one- or two-year
period indicated, no amount will be taxed as ordinary income and the loss will
be taxed as a capital loss. Exercise of an incentive stock option may subject a
participant to, or increase a participant's liability for, the alternative
minimum tax.
NON-QUALIFIED OPTIONS
A participant will not recognize income upon the grant of a non-qualified
option or at any time prior to the exercise of the option or a portion thereof.
At the time the participant exercises a non-qualified option or portion thereof,
he or she will recognize compensation taxable as ordinary income in an amount
equal to the excess of the fair market value of the Common Stock on the date the
option is exercised over the price paid for the Common Stock, and the Company
will then be entitled to a corresponding deduction.
Depending upon the period shares of Common Stock are held after exercise,
the sale or other taxable disposition of shares acquired through the exercise of
a non-qualified option generally will result in a short- or long-term capital
gain or loss equal to the difference between the amount realized on such
disposition and the fair market value of such shares when the non-qualified
option was exercised.
Special rules apply to a participant who exercises a non-qualified option
by paying the exercise price, in whole or in part, by the transfer of shares of
Common Stock to the Company.
OTHER STOCK INCENTIVES
A participant will not recognize income upon the grant of a stock
appreciation right, dividend equivalent right, performance unit award or phantom
share (the "Equity Incentives"). Generally, at the time a participant receives
payment under any Equity Incentive, he or she will recognize compensation
taxable as ordinary income in an amount equal to the cash or the fair market
value of the Common Stock received, and the Company will then be entitled to a
corresponding deduction.
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A participant will not be taxed upon the grant of a stock award if such
award is not transferable by the participant or is subject to a "substantial
risk of forfeiture," as defined in the Code. However, when the shares of Common
Stock that are subject to the stock award are transferable by the participant
and are no longer subject to a substantial risk of forfeiture, the participant
will recognize compensation taxable as ordinary income in an amount equal to the
fair market value of the stock subject to the stock award, less any amount paid
for such stock, and the Company will then be entitled to a corresponding
deduction. However, if a participant so elects at the time of receipt of a stock
award, he or she may include the fair market value of the stock subject to the
stock award, less any amount paid for such stock, in income at that time and the
Company also will be entitled to a corresponding deduction at that time.
Adoption of this proposal requires the affirmative vote of a majority of
the shares of Common Stock represented, in person or by proxy, and entitled to
vote on the matter at this Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE AMENDMENT TO THE 1996
STOCK INCENTIVE PLAN TO INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE
UNDER THE PLAN FROM 750,000 TO 1,750,000 AND TO INCREASE FROM 100,000 TO 225,000
THE LIMIT ON THE NUMBER OF SHARES OF COMMON STOCK SUBJECT TO OPTIONS AND STOCK
APPRECIATION RIGHTS THAT MAY BE GRANTED TO ANY SINGLE EMPLOYEE DURING ANY FISCAL
YEAR.
PROPOSAL 3
----------
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED
NUMBER OF SHARES OF COMMON STOCK
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") authorizes the issuance of 30,000,000 shares of
Common Stock, $.01 par value, and 10,000,000 shares of Preferred Stock, $.01 par
value. As of January 16, 1998, the Board of Directors of the Company approved an
amendment to the Certificate of Incorporation to increase the authorized number
of shares of Common Stock from 30,000,000 to 60,000,000.
PURPOSE AND EFFECT OF THE AMENDMENT
The general purpose and effect of the proposed amendment to the Company's
Certificate of Incorporation will be to authorize 30,000,000 additional shares
of Common Stock. The Board of Directors believes that it is prudent for the
Company to have additional shares of Common Stock available for general
corporate purposes, including acquisitions, equity financings, grants of stock
options, payments of stock dividends, stock splits or other recapitalizations.
The Company currently has 30,000,000 authorized shares of Common Stock. As
of April 15, 1998, the Company had [13,342,215] shares of Common Stock issued
and outstanding. Of the remaining [16,657,785] authorized but unissued shares of
Common Stock, the Company has reserved approximately 719,786 shares in
connection with the possible exercise of stock options already granted under the
Incentive Plan.
Except in connection with the reserved shares described above, the Company
currently has no arrangements or understandings for the issuance of additional
shares of Common Stock, although opportunities for acquisitions or equity
financings could occur at any time.
The increase in the authorized number of shares of Common Stock could have
an anti-takeover effect. If the Board of Directors decided to issue additional
shares in the future, the issuance could dilute the voting power of a person
seeking control of the Company, which could deter or make more difficult a
merger, tender offer, proxy contest or extraordinary corporate transaction that
was opposed by the Company.
Adoption of this proposal requires the affirmative vote of a majority of
the shares of Common Stock represented, in person or by proxy, and entitled to
vote on the matter at this Annual Meeting.
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THE BOARD OF DIRECTORS RECOMMENDS THE APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK FROM 30,000,000 TO 60,000,000.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Ernst & Young LLP has served as the Company's independent
certified public accountants since June 21, 1996. The appointment of auditors is
a matter of determination by the Audit Committee of the Board of Directors and
is not being submitted to the stockholders for approval or ratification. A
representative of this firm is expected to attend the Annual Meeting, to respond
to questions from stockholders and to make a statement if he so desires. During
the Company's two most recent fiscal years and during the current fiscal year
prior to its engagement, neither the Company nor anyone acting on its behalf
consulted Ernst & Young LLP, regarding either the application of accounting
principles to a specified transaction (either completed or proposed) or the type
of audit opinion that might be rendered on the Company's financial statements.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Any stockholder of the Company wishing to submit a proposal for action at
the Company's annual meeting of stockholders to be held in 1999 and to have the
proposal considered for inclusion in the Company's proxy materials relating the
1999 Annual Meeting must provide a written copy of the proposal to the
management of the Company at the Company's principal executive office not later
than December ___, 1998 and must otherwise comply with the rules of the
Securities and Exchange Commission relating to stockholder proposals.
MISCELLANEOUS
The Board of Directors does not intend to present and knows of no other
person who intends to present any matter of business at the Annual Meeting other
than as set forth in the accompanying Notice to Annual Meeting of Stockholders.
However, if other matters properly come before the meeting, it is the intention
of the persons named on the enclosed proxy card to vote in accordance with their
best judgment.
The Company will bear the costs of preparing and mailing the Proxy
Statement, proxy card and other material that may be sent to stockholders in
connection with this solicitation. In addition to solicitations by mail,
officers and other employees of the Company may solicit proxies personally or by
telephone or telegram.
By Order of the Board of Directors
Steven M. Curwin
Secretary
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY; THEREFORE, STOCKHOLDERS ARE
REQUESTED TO FILL IN, SIGN AND RETURN THE PROXY FORM AS SOON AS POSSIBLE,
WHETHER OR NOT THE STOCKHOLDER INTENDS TO ATTEND THE MEETING IN PERSON.
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REVOCABLE PROXY COMMON STOCK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS
The undersigned hereby appoints John K. Delaney and Steven M. Curwin, and
each of them, proxies, with full power of substitution, to act for and in the
name of the undersigned to vote all shares of Common Stock of HealthCare
Financial Partners, Inc. (the "Company") which the undersigned is entitled to
vote at the 1997 Annual Meeting of Stockholders of the Company, to be held at
the Four Seasons Hotel, 2800 Pennsylvania Avenue N.W., Washington, DC 20007, on
Thursday, May 28, 1998, at 9:00 a.m., local time, and at any and all
adjournments thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS LISTED
BELOW
(1) Elect as a director the nominee listed below to serve until the 2001 Annual
Meeting of Stockholders and until his successor is elected and qualified
(except as marked to the contrary below):
[ ] FOR THE NOMINEE [ ] WITHHOLD AUTHORITY to vote for
the nominee listed below:
Ethan D. Leder
(2) To approve an amendment to the Company's Incentive Plan, increasing the
number of shares of Common Stock reserved for option grants from 750,000 to
1,750,000 and increasing from 100,000 to 225,000 the limit on shares of
Common Stock subject to options and stock appreciation rights that may be
granted to any single employee during a fiscal year;
(3) To approve an amendment to the Company's Amended and Restated Certificate of
Amendment, increasing the number of authorized shares of Common Stock from
30,000,000 to 60,000,000; and
In their discretion, the proxies are authorized to vote upon such other
business as properly may come before the Annual Meeting and any and all
adjournments thereof.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE WHETHER OR NOT YOU CURRENTLY PLAN TO ATTEND THE ANNUAL
MEETING.
(Continued, and to be signed and dated, on the reverse side)
(Continued from the other side)
PROXY -- SOLICITED BY THE BOARD OF DIRECTORS
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY CARD WILL BE VOTED "FOR" EACH OF THE PROPOSALS LISTED ON
THE REVERSE SIDE OF THIS PROXY CARD. IF ANY OTHER BUSINESS IS PRESENTED AT THE
ANNUAL MEETING, THIS PROXY CARD WILL BE VOTED BY THE PROXIES IN THEIR BEST
JUDGMENT.
The Board of Directors currently knows of no other business to be presented
at the Annual Meeting.
The undersigned may elect to withdraw this proxy card at any time prior to
its use by giving written notice to Secretary of the Company, by executing and
delivering to the Secretary a duly executed proxy card bearing a later date, or
by appearing at the Annual Meeting and voting in person.
Do you plan to attend the
Annual Meeting? [ ] YES [ ] NO ---------------------------------------
Signature
---------------------------------------
Signature, if shares held jointly
Date: -------------------------- , 1998
Please mark, date and sign exactly as your name appears on this proxy card. When
shares are held jointly, both holders should sign. When signing as attorney,
executor, administrator, trustee, guardian or custodian, please give your full
title. If the holder is a corporation or a partnership, the full corporate or
partnership name should be signed by a duly authorized officer.
