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SCHEDULE 14A
(RULE 14A -- 101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by 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
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HEALTHCARE FINANCIAL PARTNERS, INC.
-------------------------------
(Name of Registrant as Specified in its Charter)
----------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14-a6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
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2) Aggregate number of securities to which transaction applies:
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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):
Not Applicable
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4) Proposed maximum aggregate value of transaction:
Not Applicable
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5) Total Fee paid:
None
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[ ] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRELIMINARY COPY
HEALTHCARE FINANCIAL PARTNERS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 27, 1999
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 Embassy Suites Hotel, 4300 Military Road N.W. (Wisconsin
Avenue at Western Avenue), Washington, D.C. 20015, on Thursday, May 27, 1999 at
9:00 A.M., local time, for the following purposes:
(1) To elect two Directors to serve for a three-year term expiring at
the 2002 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
1,750,000 to 2,250,000; and
(3) To consider and take action upon any other matters that may
properly come before the 1999 Annual Meeting or any adjournment thereof.
By Order of the Board of Directors
Steven M. Curwin
Secretary
Chevy Chase, Maryland
April __, 1999
WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON, PLEASE MARK,
DATE, AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY.
<PAGE>
PRELIMINARY COPY
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 1999 Annual Meeting of Stockholders to be held at the Embassy Suites
Hotel, 4300 Military Road N.W. (Wisconsin Avenue at Western Avenue), Washington,
D.C. 20015, on May 27, 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, 1998 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 ___, 1999.
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 14, 1999 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
14, 1999, there were approximately ____________ 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 two Class III Directors to serve until
the 2002 Annual Meeting of Stockholders, stockholders of the Company voting by
proxy may vote in favor of the nominees or may withhold their vote for the
nominees. 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. If no specific
instructions are given, shares of Common Stock represented by a properly
executed proxy will be voted FOR the nominees for election as Class III
Directors, FOR the amendments to the Company's Incentive Plan, 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 TWO CLASS III DIRECTORS
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 John F. Dealy and John K. Delaney
for election as Directors at the Annual Meeting. Each of the nominees is
currently a member of the Board of Directors and each has consented to serve as
a Director if elected. Each of the Directors elected at the Annual Meeting (and
any Director later appointed to fill the existing vacancy) will serve until the
2002 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 each of the nominees named above,
unless a stockholder directs otherwise. In the event that a vacancy (which is
not anticipated) arises among the nominees prior to the Annual Meeting, the
proxy will be voted for the remaining nominee and may be voted for a substitute
nominee designated by the Board of Directors. The affirmative vote of a
plurality of the votes cast by the holders of Common Stock will be required to
elect each nominee as a Director of the Company for the ensuing year.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE TWO
NOMINEES NAMED IN THIS PROPOSAL.
Set forth below is information concerning the nominees for Director to
be elected at the Annual Meeting for a three-year term expiring at the 2002
Annual Meeting, as well as certain information concerning the Directors whose
terms extend beyond the Annual Meeting.
DIRECTORS TO BE ELECTED AT THE ANNUAL MEETING
Set forth below with respect to each nominee is his name, age,
principal occupation and business experience for the past five years and length
of service as a director.
JOHN F. DEALY (age 59) 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 from 1982 through
1998. 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 35) 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 his 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.
2
<PAGE>
DIRECTORS WHOSE TERMS EXTEND BEYOND THE ANNUAL MEETING
GEOFFREY E.D. BROOKE (age 42) became a Director of the Company in
January 1997. Dr. Brooke is Director, 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.
ETHAN D. LEDER (age 36) 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 2001 Annual Meeting. Mr. Leder serves on the
Executive Committee of the Board of Directors of the Company.
EDWARD P. NORDBERG, JR. (age 38) 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 or 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.
3
<PAGE>
DIRECTOR COMPENSATION
Outside directors are paid $2,000 per meeting. Upon election to the
Board of Directors, outside directors are granted options to purchase 10,000
shares of Common Stock at the then-prevailing fair market value, and are granted
options to purchase 5,000 shares of Common Stock at the then-prevailing fair
market value annually thereafter. See "- 1996 Director Incentive Plan" for a
description of the material terms of these options.
Pursuant to the Director Plan, each of Dr. Brooke and Mr. Dealy elected
to forgo receipt of cash fees for 1998 and each was granted an option to acquire
457 shares of Common Stock, at an exercise price of $17.50 per share. In
addition, pursuant to the Director Plan, Dr. Brooke and Mr. Dealy were each
granted options to purchase 5,000 shares of Common Stock at an exercise price of
$47.438 as of May 28, 1998, the date of the 1998 Annual Meeting of Stockholders
of the Company.
MEETINGS
The Board of Directors, and each Board committee, other than the
Executive Committee held [THREE] meetings in 1998. 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 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
4
<PAGE>
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.
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 that a sale transaction in March
1998 by the wife of Michael G. Gardullo, Vice President, as custodian for their
minor son, was not reported until July 1998:
EXECUTIVE OFFICERS
The executive officers and directors of the Company and their ages as
of March 31, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
John K. Delaney(1)............... 35 Chairman of the Board, Chief Executive Officer and Director
Ethan D. Leder(1)................ 36 Vice-Chairman of the Board, President and Director
Edward P. Nordberg, Jr.(1)....... 38 Executive Vice President, Chief Financial Officer and Director
Hilde M. Alter................... 57 Treasurer and Chief Accounting Officer
Steven M. Curwin................. 40 Senior Vice President, General Counsel and Secretary
Steven I. Silver................. 38 Senior Vice President - Marketing
Howard T. Widra.................. 30 Senior Vice President and Chief Operating Officer
Chris J. Woods................... 48 Senior Vice President and Chief Administrative Officer
John F. Dealy(2)(3).............. 59 Director
Geoffrey E.D. Brooke(2)(3)....... 42 Director
</TABLE>
- ------------------
(1) Member of Executive Committee
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
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
5
<PAGE>
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.
Steven I. Silver serves as Senior Vice President - Marketing. 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.
Howard T. Widra serves as Senior Vice President and Chief Operating
Officer of the Company. Mr. Widra joined the Company in January 1997. From June
1996 until joining the Company, Mr. Widra was general 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 Senior Vice President and Chief Administrative
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.
6
<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)........................................ 470,367 3.44%
Ethan D. Leder (1)......................................... 439,521 3.21%
Edward P. Nordberg, Jr. (1)................................ 473,413 3.46%
Steven I. Silver........................................... 30,881 *
Steven M. Curwin........................................... 12,250 *
John F. Dealy (2).......................................... 31,712 *
Geoffrey E. D. Brooke (3).................................. 16,712 *
All directors and executive officers as a group (10
persons)................................................... 1,524,856 11.15%
</TABLE>
- -----------
* Less than one percent
(1) Does not include 227,199, 207,201 and 132,201 shares, respectively, subject
to options not exercisable within 60 days.
(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.
7
<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, 1996, 1997 and 1998 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 NUMBER OF
ANNUAL SHARES ALL OTHER
SALARY BONUS COMPENSATION(1) UNDERLYING COMPENSATION(2)
NAME AND PRINCIPAL POSITIONS YEAR $ $ $ OPTIONS $
---------------------------- ---- ------- ------- ------- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
John K. Delaney............... 1998 309,000 100,000 -- 204,999 [92,137]
Chairman, Chief Executive 1997 306,515 230,000 -- -- --
Officer 1996 245,400 -- -- 37,000 --
Ethan D. Leder................ 1998 283,250 100,000 -- 185,001 [92,833]
Vice Chairman of the Board 1997 286,633 210,000 -- -- --
and President 1996 242,502 -- -- 37,000 --
Edward P. Nordberg, Jr........ 1998 257,500 -- 110,001 [92,377]
Executive Vice President 1997 243,450 75,000 -- -- --
and Chief Financial 1996 212,790 -- -- 37,000 --
Officer
Steven I. Silver.............. 1998 187,396 80,000 -- 50,000 5,000
Senior Vice President, 1997 165,855 75,000 -- -- --
Marketing 1996 52,127 -- -- 20,000 --
Steven M. Curwin.............. 1998 177,396 50,000 -- 55,000 5,000
Senior Vice President, 1997 139,264 20,000 -- -- --
and General Counsel 1996 36,502 -- -- 20,000 --
- -------------------
</TABLE>
(1) 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.
(2) Reflects for 1998 the dollar value of premiums paid by the Company on
split-dollar life insurance policies maintained for Messrs. Delaney,
Leder and Nordberg in the amounts of [$92,137], [$92,833] and [$87,377],
respectively. Premiums paid by the Company for each employee are
required to be refunded to the Company upon the earlier to occur of the
death or termination of employment of such employee. The policies were
issued in 1998 and at December 31, 1998 had no cash surrender value.
Also reflects employer contributions to the Company's 401(k) plan on
behalf of Mr. Nordberg, Mr. Silver and Mr. Curwin in the amounts of
$5,000, $5,000 and $5,000, respectively.
8
<PAGE>
The following table summarizes options granted during 1998 to the Named
Executives. The Company has not granted any stock appreciation rights.
OPTIONS GRANTED IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM
------------------------------------------------------- -------------------------
PERCENT OF
SHARES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE PRICE EXPIRATION
NAME OPTIONS(#) EMPLOYEES (%) PER SHARE($) DATE 5%($) 10%($)
---- ---------- ------------- ------------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
John K. Delaney............ 68,333 6.76% 40.00 5/28/08 2,484,208 5,574,721
68,333 6.76% 46.50 5/28/08 2,040,043 5,130,556
68,333 6.76% 53.00 5/28/08 1,595,879 4,686,392
Ethan D. Leder............. 61,667 6.10% 40.00 5/28/08 2,241,869 5,030,897
61,667 6.10% 46.50 5/28/08 1,841,033 4,630,062
61,667 6.10% 53.00 5/28/08 1,440,198 4,229,226
Edward P. Nordberg, Jr..... 36,667 3.63% 40.00 5/28/08 1,333,008 2,991,355
36,667 3.63% 46.50 5/28/08 1,094,673 2,753,020
36,667 3.63% 53.00 5/28/08 856,337 2,514,684
Steven I. Silver........... 10,000 0.99% 35.00 1/16/08 220,113 557,810
40,000 3.96% 29.25 12/18/08 735,807 1,864,679
Steven M. Curwin........... 25,000 2.47% 35.00 1/16/08 550,283 1,394,525
25,000 2.47% 29.25 12/18/08 459,879 1,165,424
</TABLE>
- ----------------
The following table summarizes options exercised by the named
executives during 1998 and presents the value of unexercised options held by the
Named Executives at December 31, 1998.
TOTAL OPTIONS EXERCISED IN 1998 AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
UNEXERCISABLE OPTIONS AT IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 1998(#) AT DECEMBER 31, 1998($)
ACQUIRED ON VALUE ---------------------------- ---------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John K. Delaney.............. -- -- 14,800 227,199 405,150 607,725
Ethan D. Leder............... -- -- 14,800 207,201 405,150 607,725
Edward P. Nordberg, Jr....... -- -- 14,800 132,201 405,150 607,725
Steven I. Silver............. 20,000 939,132 28,381 60,000 1,015,418 762,000
Steven M. Curwin............. 5,000 193,938 5,000 60,000 144,125 675,750
</TABLE>
- -------------
During 1998, 1,032,165 options were granted under the Incentive Plan to
new and current employees, 86,398 options were forfeited and 37,251 options were
exercised.
9
<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, 2004. 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
$321,000, 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, 2004. 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 $295,000, and in future years
under his employment agreement, he will receive an annual salary that is not
less than the greater of (1) $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, 2004. 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
$265,225, 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 Senior Vice President - Marketing of the Company
pursuant to the terms of an employment agreement that continues in effect until
October 1, 2000. On each anniversary 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
10
<PAGE>
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 immediately after such termination a lump-sum payment equal
to the compensation and benefits that would otherwise have been payable to him.
for the remainder of the term of the employment agreement. If Mr. Silver's
employment is terminated, he will be restricted from competing with the Company
for one year.
Mr. Curwin serves as Senior Vice President, Secretary and General
Counsel of the Company pursuant to the terms of an employment agreement that
continues in effect until August 31, 2001. On each anniversary of the date of
the employment agreement, the employment agreement is extended for an additional
one-year period, unless the Company or Mr. Curwin notifies the other of its or
his intention not to extend the employment period. Under the terms of the
employment agreement, Mr. Curwin currently receives an annual salary of
$185,000, and in future years under his employment agreement, he will receive an
annual salary that is not less than the greater of (i) $170,000 or (ii) any
subsequently established higher annual base salary, in either case increased
annually by not less than 50% of the annual increase in the CPI-W. If the
Company terminates Mr. Curwin's employment without cause, Mr. Curwin will be
entitled to receive immediately after such termination a lump-sum payment equal
to the compensation and benefits that would otherwise have been payable to him
for the remainder of the term of the employment agreement, but not less than
three (3) years' aggregate cash compensation. If Mr. Curwin'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 or her capacity as such, is made or
threatened to be made a party to any suit or proceeding. Such persons are
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
HEALTHCARE FINANCIAL PARTNERS REIT, INC.
In January 1998, a real estate investment trust known as HealthCare
Financial Partners REIT, Inc. (the "REIT") was formed. Certain senior officers
of the Company who founded the REIT became senior officers of the REIT. The
REIT's principal activity is investing in income-producing real estate and real
estate related assets in the healthcare industry, consisting principally of
purchase leaseback transactions of long-term care facilities, acquisitions of
medical office buildings, and mortgage lending.
In connection with the formation of the REIT, the Company made
investments in the REIT. In January 1998, the Company acquired 241,665 shares of
the REIT's common stock in a private placement. In May 1998, in a private
placement of units (the "Units"), the Company acquired 100,000 Units. Each Unit
consisted of five shares of the REIT's common stock and one warrant to purchase
one share of common stock. In connection with an amendment made to a
registration rights agreement regarding the aforementioned Units, the REIT
granted all Unit holders of record on October 30, 1998 one additional warrant to
purchase one share of common stock for each Unit held. The warrants acquired as
part of the Units purchased in May 1998 and the additional warrants granted, as
mentioned above, have exercise prices of $20, became exercisable in November
1998, and expire in April 2001.
At December 31, 1998, the Company's investment in the REIT, accounted
for under the cost method, was approximately $10.1 million and consisted of
741,665 shares of common stock and 200,000 common stock purchase warrants. For
the year ended December 31, 1998, dividend income related to the Company's
investment in the REIT was approximately $378,000. At December 31, 1998,
$111,000 of the dividend income was receivable from the
11
<PAGE>
REIT. This amount was included as a component of "due to affiliates, net" at
that date, and was subsequently collected in January 1999.
In 1998, a wholly-owned subsidiary of the Company known as HCFP REIT
Management, Inc. (the "Manager") entered into a management agreement (the
"Management Agreement") with the REIT. Under the Management Agreement, the
Manager advised the REIT as to the activities and operations of the REIT and was
responsible for the day-to-day operations of the REIT pursuant to authority
granted to it by the REIT's Board of Directors. Pursuant to the Management
Agreement, the Manager was paid a management fee. Among other things, this
management fee was paid to compensate the employees of the Manager who conducted
the business of the REIT; the majority of personnel managing the REIT were
employees of the Manager. The fee was calculated and paid quarterly. The amount
was equal to a percentage of the REIT's average invested assets (as defined by
the Management Agreement) over the year. The percentages applied were to range
from 1.5% for the first $300 million of average invested assets to 0.5% for
average invested assets exceeding $1.2 billion. From the inception of the
Management Agreement through December 11, 1998, the Company earned a management
fee in connection with the REIT of approximately $1.3 million.
On December 11, 1998, the Management Agreement was terminated and
certain employees of the Manager became employees of the REIT. Upon this
termination, the Company and the REIT approved an agreement under which the
Company is paid by the REIT a fee of 2.5% of the purchase price or principal
amount of each transaction which it originates on the REIT's behalf. In
connection with this agreement, the Company earned approximately $872,000 in
December 1998.
At December 31, 1998, the REIT owed the Company approximately $1.2
million in connection with a prorated fourth quarter management fee in
accordance with the Management Agreement, the fee earned in December 1998 as
discussed above, and other amounts attributable to reimbursable expenditures
made by the Company on the REIT's behalf. This amount was included as a
component of "due to affiliates, net" at December 31, 1998.
As of December 31, 1998, the Company had a $6.75 million outstanding
secured term loan to the REIT. The loan is secured by a skilled nursing facility
owned by the REIT which is leased to an operator independent of both the Company
and the REIT. The loan matures in November 1999, and is interest-only at the
rate of 11%. During 1998, $66,000 of interest was paid to the Company by the
REIT under this note.
FUNDING III, L.P.
In August 1997, the Company formed HealthCare Financial Partners
Funding III, L.P. ("Funding III, L.P."), a limited partnership in which HCFP
Funding III, Inc., a wholly-owned subsidiary of the Company ("Funding III") was
the General Partner and the limited partner was an unaffiliated third party.
Funding III, L.P. participated in a Department of Housing and Urban Development
auction of a distressed mortgage loan portfolio. Funding III holds a 1% General
and 49% limited partnership interest in Funding III, L.P. and receives 60% of
the income from the partnership's activities. The Company accounts for its
investment in Funding III, L.P. under the equity method of accounting, as it
does not have sufficient control to warrant consolidation. At December 31, 1998
and 1997, the investment in Funding III, L.P. was $1,304,000 and $767,000,
respectively. For the years ended December 31, 1998 and 1997, income relating to
the investment in Funding III, L.P. was approximately $537,000 and $2,000,
respectively. At December 31, 1998, the Company owed Funding III, L.P.
approximately $2 million. This amount was included as a component of "due to
affiliates, net" at December 31, 1998.
12
<PAGE>
FUNDING II, L.P.
In March 1997, the Company formed HealthCare Financial Partners Funding
II, L.P. ("Funding II, L.P."), a limited partnership in which HCFP Funding II,
Inc., a wholly-owned subsidiary of the Company ("Funding II"), was the General
Partner and the limited partner was an unaffiliated third party. Funding II,
L.P. was established to develop the STL Program. In June 1997, using proceeds
from the Company's secondary offering of shares of Common Stock to the public,
Funding II acquired all of the limited partnership interests in Funding II,
L.P., utilizing the purchase method of accounting, for a purchase price of $15.5
million. Funding II, L.P. was then liquidated. This payment reflected the fair
value of the business and exceeded the book value by $1.6 million, which was
recorded as goodwill, and is being amortized over ten years using a
straight-line method. For the year ended December 31, 1997, income relating to
the investment in Funding II, L.P. was approximately $83,000.
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 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In early 1998, the Compensation Committee established general
guidelines for the allocation of 1998 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 OEstablish 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 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;
13
<PAGE>
(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 1998 are, and in 1999 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 1998 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 1998 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 1998 the criteria were entirely subjective, based on the
Committee's assessment of the officer's overall contribution to the Company's
success during 1998.
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 1998 to the Company's named executive officers, see "Executive
Compensation - Options Granted in 1998."
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 1998 by the Compensation
Committee, resulting in a 1998 base salary of $309,000. 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 the bonus of $100,000
(payable quarterly) provided in his employment agreement. Pursuant to the
criteria set forth above under "-Long Term
14
<PAGE>
Incentive Compensation - Stock Options," options to purchase a total of 204,999
shares of Common Stock were awarded to Mr. Delaney for 1998. See "Executive
Compensation - Options Granted in 1998."
Limitations on Deductibility of Compensation. Under the Omnibus Budget
Reconciliation Act, a portion of annual compensation payable 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. The term of the Advisory
Services Agreement was extended to December 31, 1999, in 1998. Pursuant to the
Advisory Services Agreement, the Company agreed to pay DSG $50,000 in each of
1997 and 1998, which was paid in quarterly installments, and $50,000 in 1999.
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, 15,000 options are
currently exercisable.
STOCKHOLDER RETURN PERFORMANCE GRAPH
The Company's Common Stock is currently traded on the New York Stock
Exchange under the symbol "HCF". From November 21, 1996 (the date of the
Company's initial public offering of Common Stock) to December 30, 1998, the
Common Stock was quoted on the Nasdaq Stock Market under the symbol "HCFP". The
following graph compares for the period beginning November 21, 1996 and ending
December 31, 1998, 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.
INSERT GRAPH
15
<PAGE>
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
The Company maintains the HealthCare Financial Partners, Inc. 1996
Stock Incentive Plan (the "Incentive Plan"). The Board of Directors has reserved
1,750,000 shares of Common Stock for issuance pursuant to awards that may be
made under the Incentive Plan, subject to adjustment as provided in the
Incentive Plan. The Board of Directors has approved an amendment to the
Incentive Plan to increase the number of shares of Common Stock reserved under
the Incentive Plan from 1,750,000 shares to 2,250,000 shares.
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 225,000,
to the extent required by Section 162(m) of the Code for the grant to qualify as
qualified performance-based compensation. The number of shares of Common Stock
reserved for issuance in connection with the grant or settlement of Stock
Incentives or to which a Stock Incentive is subject, as the case may be, and the
exercise price of each option are subject to adjustment in the event of any
recapitalization of the Company or similar event, effected without the receipt
of consideration. In the event of certain corporate reorganizations and similar
events, Stock Incentives may be substituted, cancelled, accelerated, cashed-out
or otherwise adjusted by the Committee, provided such adjustment is not
inconsistent with the express terms of the Incentive Plan or the applicable
Stock Incentive agreement.
16
<PAGE>
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
1,750,000 shares of Common Stock that are currently available for such awards
under the Incentive Plan have been reduced significantly and only 97,319 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 by 500,000 shares, to a total of 2,250,000.
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 97,319 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 500,000 shares would be reserved for the grant of stock-based awards
under the 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 nonqualified 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.
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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.
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 1,750,000 TO 2,250,000.
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.
STOCKHOLDER PROPOSALS FOR 2000 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 2000 and to have
the proposal considered for inclusion in the Company's proxy materials relating
the 2000 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 26, 1999 and must otherwise comply with the rules of the
Securities and Exchange Commission relating to stockholder proposals.
The proxy or proxies designated by the Company will have discretionary
authority to vote on any matter properly presented by a shareholder for
consideration at the 2000 Annual Meeting of Shareholders but not submitted for
inclusion in the proxy materials for such meeting unless notice of the matter is
received by the Company at its principal executive office not later than April
12, 2000 and certain other conditions of the applicable rules of the Securities
and Exchange Commission are satisfied.
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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.
<PAGE>
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 the, 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 1999 Annual Meeting of Stockholders of the Company, to be held at
the Embassy Suites Hotel, 4300 Military Road, N.W. (Wisconsin Avenue at Western
Avenue), Washington, D.C. 20015, on Thursday, May 27, 1999, 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 nominees listed below to serve until the
2002 Annual Meeting of Stockholders and until his successor is elected and
qualified (except as marked to the contrary below):
[ ] FOR THE NOMINEES [ ] WITHHOLD AUTHORITY
to vote for the nominees
listed below:
John F. Dealy
John K. Delaney
(2) To approve an amendment of the Company's 1996 Stock Incentive Plan,
increasing the number of shares of Common Stock reserved for option grants from
1,750,000 to 2,250,000.
[ ] FOR [ ] AGAINST
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 reserve side)
<PAGE>
(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: _______________________, 1999
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 dully authorized officer.
