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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to _______________.
Commission File Number 1-10670
HANGER ORTHOPEDIC GROUP, INC.
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(Exact name of registrant as specified in its charter.)
<TABLE>
<S> <C>
Delaware 84-0904275
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7700 Old Georgetown Road, Bethesda, MD 20814
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(Address of principal executive offices) (Zip Code)
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Registrant's phone number, including area code: (301) 986-0701
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
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(Title of Class)
Securities registered pursuant to section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes X No
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The aggregate market value of the registrant's Common Stock,
par value $.01 per share, held as of February 23, 1996 by non-affiliates of the
registrant was $20,757,984 based on the $3.25 closing sale price of the Common
Stock on the American Stock Exchange on such date.
As of February 23, 1996, the registrant had 8,290,544 shares
of its Common Stock issued and outstanding.
Indicate by check mark if disclosure of delinquent filers
pursuant to item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K./ /
DOCUMENTS INCORPORATED BY REFERENCE
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The information called for by Part III of the Form 10-K is
incorporated by reference from the registrant's definitive proxy statement or
amendment hereto which will be filed not later than 120 days after the end of
the fiscal year covered by this report.
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PART I
ITEM 1. BUSINESS.
Introduction
Hanger Orthopedic Group, Inc. ("Hanger" or the "Company") is
one of the nation's largest practice management companies in the orthotic and
prosthetic ("O&P") rehabilitation industry. In addition to providing O&P
patient care services through its operating subsidiaries, Hanger also
manufactures and distributes components and finished patient care products to
the O&P industry. Hanger's largest subsidiary, J. E. Hanger, Inc. ("JEH"), was
founded in 1861 by a Civil War amputee and is the oldest company in the O&P
industry in the United States.
Orthotics is the design, fabrication, fitting and supervised
use of custom-made braces and other devices such as knee, spinal, neck and
cervical braces and foot orthoses, that provide external support to treat
musculoskeletal disorders. Musculoskeletal disorders are ailments of the back,
extremities or joints caused by traumatic injuries, chronic conditions,
diseases, congenital disorders or injuries resulting from sports or other
activities. Prosthetics is the design, fabrication and fitting of custom-made
artificial limbs for patients who have lost limbs as a result of traumatic
injuries, vascular diseases, diabetes, cancer or congenital disorders.
The Company manages O&P patient care practices. Care of O&P
patients is part of a continuum of rehabilitation services from diagnosis to
treatment and prevention of future injury. This continuum involves the
integration of several medical disciplines that begins with the attending
physician's diagnosis. Once a course of treatment is determined, the physician,
generally an orthopedic surgeon, vascular surgeon or physiatrist, refers a
patient to one of Hanger's patient care centers for treatment. A Hanger
practitioner then consults with both the referring physician and the patient to
formulate the prescription for and design of an orthotic or prosthetic device
to meet the patient's needs.
The fitting process involves several stages in order to
successfully achieve desired functional and cosmetic results. The practitioner
creates a cast and takes detailed measurements of the patient to ensure an
anatomically correct fit. All of the prosthetic devices fitted by Hanger's
practitioners are custom designed and fabricated by skilled practitioners who
can balance fit, support and comfort. Of the orthotic devices provided by
Hanger, approximately one-half are custom designed, fabricated and fitted and
the other half are prefabricated but custom fitted.
Custom devices are fabricated by the Company's skilled
technicians using the castings, measurements and designs made by the
practitioner. Technicians use advanced materials and technologies to fabricate
a custom device under stringent quality assurance guidelines. After final
adjustments to the device by the practitioner, the patient is instructed in the
use, care and maintenance of the device. A program of scheduled follow-up and
maintenance visits is used to provide post-fitting treatment, including
adjustments or replacements as the patient's physical condition and lifestyle
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changes. Generally, the useful life of most custom designed and fabricated O&P
devices ranges from three to five years.
A substantial portion of Hanger's O&P services involves
treatment of a patient in a non-hospital setting, such as one of Hanger's
patient care centers, a physician's office, an out-patient clinic or other
facilities. In addition, O&P services are increasingly rendered to patients in
hospitals, nursing homes, rehabilitation centers and other alternate-site
healthcare facilities. In a hospital setting, the practitioner works with a
physician to provide either orthotic devices or temporary prosthetic devices
that are later replaced by permanent prostheses. Hanger's distribution
division allows its personnel faster access to the products needed to fabricate
devices for patients. This is accomplished at competitive prices, as a result
of direct purchases by the Company's distribution division from manufacturers.
As a result of faster access to products, the length of a patient's treatment
in the hospital can be reduced, thereby contributing to healthcare cost
containment.
Each of the Company's patient care centers is closely
supervised by one or more Certified Practitioners, which enables the Company to
assure the highest quality of services and patient care satisfaction. Hanger
currently employs 313 patient care practitioners, of whom 98 are Certified
Practitioners or candidates for formal certification by the American Board of
Certification in Orthotics and Prosthetics. The balance of the Company's
patient care practitioners are highly trained technical personnel who assist in
the provision of services to patients and fabricate various O&P devices.
The O&P practices currently managed by the Company provide O&P
services through patient care centers in Alabama, Arizona, California,
Colorado, Connecticut, Delaware, District of Columbia, Florida, Kentucky,
Maryland, Massachusetts, Michigan, Mississippi, Montana, New Mexico, New York,
North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West
Virginia and Wyoming. Hanger also manufactures a number of specialized O&P
components and finished patient care products at its manufacturing facilities
in Florida, Illinois, Maryland and New York and maintains a central
distribution facility in Maryland.
The Company was originally incorporated under Colorado law in
March 1983. It initially engaged in activities other than its current line of
business, which activities were discontinued during 1986 when the Company
entered the O&P business. The Company changed its name to Sequel Corporation
("Sequel") in February 1986 and reincorporated under Delaware law in April
1988. On May 15, 1989, the Company acquired JEH in a transaction which was
treated for accounting purposes as a reverse acquisition, i.e., as though JEH
acquired Hanger. The Company changed its name to Hanger Orthopedic Group, Inc.
in July 1989. The Company's executive offices are located at 7700 Old
Georgetown Road, Bethesda, Maryland 20814. Its telephone number is (301)
986-0701. Hanger is a holding company which transacts business through its
subsidiaries. Unless the context otherwise requires, all references herein to
Hanger include its subsidiaries.
THE MARKET FOR ORTHOPEDIC REHABILITATION SERVICES
In addition to O&P patient care practice management, the
Company is engaged in O&P product manufacturing and distribution activities.
The O&P industry in the United States, including
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patient care services, manufacturing and distribution, is estimated to generate
$1 billion in sales annually. Of that amount, an estimated $700 million is
attributed to the patient care services sector, a highly fragmented market with
over 2,740 Certified Practitioners and 1,230 certified O&P facilities,
generally operated as small group practices. The Company believes that the
demand for orthopedic rehabilitation is increasing at a rapid rate due to a
combination of the following factors:
- Growing Elderly Population. The growth rate of the
over-65 age group is nearly triple that of the
under-65 age group. The elderly require orthopedic
rehabilitation more frequently than younger age
groups. With broader medical insurance coverage,
increasing disposable income, longer life expectancy,
greater mobility and improved technology and devices
they are expected to seek orthopedic rehabilitation
services more often.
- Cost-effective Reduction in Hospitalization. As
public and private payors encourage reduced hospital
admissions and reduced length of stay, out-patient
rehabilitation is in greater demand. O&P services
and devices have enabled patients to become
ambulatory more quickly after receiving medical
treatment in the hospital. The Company believes that
significant cost savings can be achieved through the
early use of O&P services. The provision of O&P
services in many cases reduces the need for more
expensive treatment modalities, thus representing a
cost savings to the third-party payor.
- Growing Physical Health Consciousness. There is a
growing emphasis on physical fitness, leisure sports
and conditioning, such as running and aerobics, which
has led to increased injuries requiring orthopedic
rehabilitative services and products. In addition,
as the current middle-age population ages, it brings
its more active life-style and accompanying emphasis
on physical fitness to the over-65 age group. These
trends are evidenced by the increasing demand for new
devices which provide support for injuries, prevent
further or new injuries or enhance physical
performance.
- Advancing Technology. The range and effectiveness of
treatment options have increased in connection with
the technological sophistication of O&P devices.
Advances in design technology and lighter, stronger
and more cosmetically acceptable materials have
enabled the industry to produce more new O&P
products, which provide greater comfort, protection
and patient acceptability. Therefore, treatment can
be more effective and of shorter duration,
contributing to greater mobility and a more active
lifestyle for the patient. Orthotic devices are more
prevalent and visible in many sports, including but
not limited to skiing.
- Need for Replacement and Continuing Care. Because
the useful life of most custom fitted and fabricated
O&P devices is approximately three to five years,
such devices need retrofitting and replacement.
There is also an attendant need for continuing
patient care services, which contributes to the
increasing demand for orthopedic rehabilitation.
BUSINESS STRATEGY
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The Company's business strategy is to significantly expand its
O&P practice management presence in the patient care services segment of the
O&P industry, which is a highly fragmented market with over 2,740 Certified
Practitioners and 1,230 certified O&P facilities in the United States. Most of
these facilities operate as small group practices. The Company's strategy
involves: (i) broadening the Company's presence in targeted geographic areas
through a program of selected acquisitions; (ii) expanding and improving O&P
practice management operations at existing and acquired patient care facilities
through more efficient operating practices and the use of professional
marketing programs not generally utilized in the O&P industry; (iii) increasing
in the manufacturing and distribution of O&P components and products used by
others in the O&P industry as well as by its own patient care centers; (iv)
opening new patient care centers in existing markets including centers within
rehabilitation hospitals; (v) developing contract business with managed care
organizations, including health maintenance organizations ("HMOs") and
preferred provider organizations ("PPOs"); and (vi) developing a proprietary
referral network between selected O&P service providers and the Company's
contract business with managed care organizations. See "Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ACQUISITION STRATEGY
The Company considers both operating and financial factors in
evaluating prospective acquisitions. Operating factors include Hanger's
emphasis on high standards of professionalism and patient care and the presence
of Certified Practitioners at each of its facilities. Financial factors
include historical earnings and cash flow history and the projected benefits of
applying Hanger's management, marketing, information systems and other
operational programs, such as access to its manufacturing and wholesale
distribution facilities, to the acquired company's business. Hanger's
acquisition criteria also include the retention and support of the existing
management of the acquired company, typically through the use of employment
contracts, non-compete agreements and incentive programs. In evaluating
acquisitions in geographic areas where the Company has an established presence,
Hanger targets businesses that complement its existing network of patient care
centers. In locations where the Company has not yet established a presence,
the Company generally focuses on strong regional businesses which have multiple
patient care centers and experienced practitioners. The Company also reviews
the operational and financial performance of its acquisitions to determine
whether to maintain or dispose of any such acquisition. In the event an
acquisition performs at levels which meet or exceed the operational and
financial standards of the Company, then such acquisition will be maintained by
the Company. However, in the event an acquired operation performs at levels
which are below the operational and financial standards of the Company, even
after sufficient remedial efforts have been applied, then such operation will
be sold or closed by the Company.
The Company also plans to expand its contractual relationships
with large rehabilitation hospitals pursuant to which Hanger operates such
facilities' O&P patient care centers. In 1989, the Company commenced the
provision of all in-patient O&P services to patients of The Rusk Institute of
Rehabilitation Medicine at the New York University Medical Center. In 1990, by
virtue of its acquisition of Scott Orthopedics, Inc. ("Scott"), the Company
commenced provision of all O&P services to the patients of the Rocky Mountain
Regional Spinal Injury Center of the Craig Hospital in
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Colorado. In March 1992, the Company commenced a similar service with the
Harmarville Rehabilitation Center in Pennsylvania.
OPERATIONAL STRATEGY
The Company's O&P practice management operational strategy
includes the continued development and implementation of programs designed to
enhance the efficiency of its consolidated clinical practices. These programs
permit its Certified Practitioners to allocate a greater portion of their time
to patient care activities by reducing the administrative responsibilities of
operating the business. Such programs include: (i) sales and marketing
initiatives designed to attract new patient referrals through established
relationships with physicians, therapists, employers, managed care
organizations, such as HMOs and PPOs, hospitals, rehabilitation centers,
out-patient clinics and insurance companies; (ii) professional management and
information systems designed to improve efficiencies of administrative and
operational functions under guidelines of the Company's patient care centers;
(iii) professional educational programs for practitioners emphasizing
state-of-the-art developments in the increasingly sophisticated field of O&P
clinical therapy; (iv) the regional centralization of fabrication and
purchasing activities which provides overnight access to component parts and
products at prices that are typically 20% lower than traditional procurement
methods; and (v) the acquisition of state-of-the-art equipment which is
financially more difficult for smaller, independent facilities to obtain.
Management believes that the programs which have been created by the Company to
enhance its operational strategy have made the Company attractive to clinical
practices, which enhances the Company's ability to expand through acquisitions.
SALES AND MARKETING
The Company believes that the application of modern sales and
marketing techniques is a key element of its O&P practice management business
strategy. While patient referrals have always been a source of new business,
historically there has been an absence of a comprehensive sales and marketing
effort in the patient care segment of the O&P industry. The success of an O&P
business has been largely a function of its local reputation for quality of
care, responsiveness and length of service in the community. This is due
primarily to the fragmented nature of the industry, with individual
practitioners relying almost exclusively on referrals from local physicians or
physical therapists.
Hanger's patient care marketing efforts are managed by a Vice
President of Marketing hired in 1992 and are directed toward referring
physicians, therapists, employers, HMOs, PPOs, hospitals, rehabilitation
centers, out-patient clinics and insurance companies on both a local, regional
and national basis. While specialized physicians, such as orthopedic and
vascular surgeons and physiatrists, have been principal referral sources,
regional and national third-party payors such as managed care organizations,
including HMOs and PPOs, have grown important as sources of patient referrals.
Hanger has also targeted other rehabilitation professionals in the continuum of
care for O&P patients, including physical therapists, orthopedic nurses and
technicians and other professionals. Hanger employs personnel whose
responsibilities include the solicitation of new business from these referral
sources. The Company has been successful in procuring the approval of
broad-based managed care plans and other institutional healthcare providers and
payors. As part of
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this effort, the Company employed a Vice President of Contract Services in
1993 whose primary responsibility is to develop and implement new marketing
techniques directed toward such managed-care plans and other institutional
healthcare providers and payors.
Although referrals are instrumental in establishing initial
contact with patients, the Company's O&P practice management policies continue
to emphasize the primary importance of its service to its patients. Hanger
believes that it is important to develop the doctor/patient relationship in
order to properly meet the needs of the patient, ensure the patient's
satisfaction with the O&P device and establish a long-term relationship between
the doctor and patient in order for the patient to understand adequately the
rehabilitation program, which is attendant to regaining mobility, and the
proper maintenance of the O&P device to ensure ongoing performance of the brace
or device. The patient orientation of Hanger's services are designed to ensure
the patient's return to Hanger for his or her orthotic or prosthetic needs.
ACQUISITIONS
The following table sets forth information regarding the O&P
businesses which the Company has acquired since 1986:
<TABLE>
<CAPTION>
Name of Acquired Company Year
(Year Commenced Business) Acquired O&P Patient Care Centers and Facilities
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State Number Cities
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Capital Orthopedics, Inc. (1968) 1986 Maryland 2 Bethesda
Gaithersburg
Virginia 1 Vienna (1)
West Virginia 1 Martinsburg (1)
Greiner and Saur Orthopedics, Inc.
(1897) 1986 Pennsylvania 4 Broomall
Philadelphia (two)
Reading
R&G Orthopedics, Inc. (1949) 1988 Washington, D.C. 1 Washington, D.C.
J. E. Hanger, Inc. (1861) 1989 California 4 Monterey (1)
San Jose (1)
Santa Teresa (1)
Salinas (1)
Washington, D.C. 2 Washington, D.C. (two)
Maryland 2 Baltimore
Forestville (2)
Massachusetts 1 Brighton (1)(5)
New York 3 Kenmore
New York (two) (3)
No. Carolina 2 Raleigh
Rocky Mount (1)
Pennsylvania 2 Philadelphia
Pittsburgh (3)
</TABLE>
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<TABLE>
<CAPTION>
Name of Acquired Company Year
(Year Commenced Business) Acquired O&P Patient Care Centers and Facilities
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State Number Cities
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<S> <C> <C> <C> <C>
Virginia 3 Newport News
Portsmouth
Richmond
West Virginia 4 Beckley (1)
Charleston
Clarksburg (1)
Morgantown
Amsterdam Brothers, Inc. (1919) 1989 Delaware 1 Wilmington
Nulty-Coggins, Inc. (1928) 1989 Pennsylvania 1 Philadelphia
Zielke Orthotics and Prosthetics, Inc.
and affiliated company (1945) 1989 Pennsylvania 2 Lancaster
York
Schumacher Orthopedic
Appliances, Inc. (1958) 1989 Connecticut 2 Wallingford
Woodbridge
Massachusetts 1 Worcester (1)
Summit Health Care
Group, Inc. (1987) 1989 New Jersey 1 Voorhees (4)
Scott Orthopedics, Inc. and
affiliated companies (1947) 1990 Colorado 5 Boulder
Denver
Englewood
Greeley
New Mexico 1 Albuquerque
Manufacturing Division of
Ralph Storrs, Inc. (1979) 1990 Illinois 1 Kankakee
Lynchburg Orthopaedic
Laboratory, Inc. (1954) 1991 Virginia 1 Lynchburg
Memphis Orthopedic, an
operation of Durr-Fillauer
Medical, Inc. Orthopedic
Division (1924) 1991 Tennessee 3 Memphis (two)
Cordova (1)
Mississippi 1 Corinth (1)
Dorsch Prosthetics and
Orthotics, Inc. (1950) 1991 New York 2 New York
Elmsford (4)
Metro Orthopedic Appliances,
Inc. (1972) 1991 Maryland 1 Landover Hills
</TABLE>
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<TABLE>
<CAPTION>
Name of Acquired Company Year
(Year Commenced Business) Acquired O&P Patient Care Centers and Facilities
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State Number Cities
----- ------ ------
<S> <C> <C> <C> <C>
Northeast Paramedical
Industries, Inc. (1971) 1991 Maryland - Forestville (2)
New York - New York (2)
York Prosthetics, Inc. (1980) 1992 Kentucky 1 Paducah
Tennessee 1 Union City (5)
Bay Orthopedics, Inc. (1981) 1992 California 1 San Mateo
Norton Shoes (1938) 1992 Colorado 1 Colorado Springs
Metzgers Orthopaedic
Services, Inc. (1932) 1992 California 2 Cypress (4)
Long Beach (4)
DOBI-Symplex, a division of
Caretenders Health Corp. (1982) 1992 Florida 1 Orlando
Raiford's Shoes, Inc. (1948) 1992 Tennessee 1 Memphis
Advanced Orthopedic Appliance
Company and Rehab Resources
Orthotics and Prosthetics,
operations of a subsidiary of
Caretenders Health Corp. (1986) 1992 Alabama 2 Birmingham
Decatur
AO Artificial Limb, Inc. and
Dallas Prosthetic and
Orthotic Center, Inc. (1973) 1992 Texas 4 Fort Worth (two)
Dallas
Denton (1) (4)
Kinetics Engineering (1970) 1992 Colorado 1 Pueblo
Rehab Systems, Inc. (1984) 1992 California 1 Long Beach (4)
Lenox Hill, an operation of
Minnesota Mining and
Manufacturing Company
("3M") (1961) 1992 New York 1 Long Island City
Anne Arundel Orthopaedics, Inc.
(1977) 1993 Maryland 2 Annapolis
Hughesville
Billings Orthopaedic, Inc. (1947) 1993 Montana 2 Billings
Bozeman
Wyoming 1 Thermopolis (1)
</TABLE>
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<TABLE>
<CAPTION>
Name of Acquired Company Year
(Year Commenced Business) Acquired O&P Patient Care Centers and Facilities
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State Number Cities
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<S> <C> <C> <C> <C>
Certified Orthopedics, Inc. (1989) 1993 California 1 Orange (4)
Winter Park Orthotics &
Prosthetics, Inc. (1987) 1993 Florida 1 Winter Park
Billings Comfort Shoes, Inc. (1984) 1993 Montana 1 Billings
Institute for the Advancement
of Prosthetics, Inc. (1978) 1993 Michigan 3 Lansing
Jackson (1)
Ann Arbor (1)
Columbia Brace Shop, Inc. (1929) 1994 South Carolina 2 Columbia
Florence (1)
No. Charleston (1)
Orthotic & Prosthetic Division
of M-D Medical, a division of
Health Industries, Inc. (1975) 1994 Arizona 4 Phoenix
Scottsdale
Sun City
Tucson (1)
J.E. Hanger, Inc. of New England 1994 Massachusetts 1 Boston
(1966)
Pedi-Mac Shoe Company, Inc.
(1946) 1994 Massachusetts 1 Boston
Gulf Coast Orthopaedic Supply, Inc. 1995 Florida 1 Ft. Myers
Summit Prosthetics and Orthotics 1995 Montana 1 Great Falls
---
Total........... 93 (4)
===
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(1) Opened Monterey in January 1992; San Jose in October 1992;
Beckley in November 1992; Santa Teresa in March 1993;
Portsmouth, Virginia in November 1993, Bozeman and Cordova in
September 1993; Salinas in December 1993; Clarksburg, Denton
and St. Louis in January 1994; Corinth and Florence in
February 1994; Martinsburg in September 1994; Rocky Mount,
Thermopolis, Jackson and Ann Arbor in June 1994; Charleston
and Tucson in September 1994; Brighton in June 1994; Santa
Clara in September 1994. Vienna Virginia in May 1995,
Washington, D.C. in June 1995 and Worcester, Massachusetts in
April 1995.
(2) The Company's central distribution facility was opened at this
location in Maryland in August 1991 as a result of the
combination of the Company's existing distribution division,
Washington Prosthetic Services, and the inventory and certain
other assets of Northeast Paramedical Industries, Inc., a
distributor of components for O&P devices, that were purchased
by the Company and moved from New York to its central
distribution facility in Maryland. In 1992, the Company
closed its sales office in New York and moved it to
Forestville, Maryland.
(3) Operations commenced at one of the New York City locations
pursuant to an agreement, effective July 1989, with New York
University Medical Center to provide all in-patient O&P
services to patients of The Rusk Institute of Rehabilitation
Medicine. Operations at the Pittsburgh location commenced in
March 1992 pursuant to an agreement with the Harmarville
Rehabilitation Center to provide O&P services to its patients.
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(4) In 1995, the Company closed the following offices or sold the
assets relating to the following operations: Denton in
January 1995; Santa Clara in February 1995; Long Beach, Cyprus
and Orange in March 1995; Voorhees in July 1995 and Elmsford
in November 1995.
(5) In 1992, the Company moved its Madison, Kentucky office to
Union City, Tennessee. In June 1994, the Company moved one of
its Boston, Massachusetts offices to Brighton, Massachusetts.
The Company continues to be engaged in discussions with
prospective acquisition candidates and with several other O&P companies
relating to the Company's possible acquisition of their patient care centers.
The Company's investigations of such other companies' affairs are in their
formative stages and no final representations can be made as to whether, when
or on what terms such possible acquisitions will be effected.
MANUFACTURING AND DISTRIBUTION
In addition to on-site fabrication of custom devices
incidental to the services rendered at its O&P patient care centers, Hanger
also manufactures a number of non-customized orthotic components and finished
patient care products at DOBI-Symplex, Inc. ("DOBI-Symplex"), a facility in
Orlando, Florida, a Ralph Storrs, Inc. facility in Kankakee, Illinois, a Lenox
Hill facility in Long Island City, New York and an Ortho-Mold facility in
Forestville, Maryland. The principal products manufactured are pre-fabricated
and custom-made spinal orthoses as well as a custom and off-the-shelf Precision
Fit derotation knee braces. These products are supplied to Hanger's patient
care centers, as well as sold to unaffiliated O&P patient care facilities. For
the years ended December 31, 1991, 1992, 1993, 1994 and 1995 sales of products
manufactured by the Company accounted for 7% ,10%, 18%, 18% and 16%,
respectively, of Hanger's historical net sales.
O&P Express, a division of JEH located in Forestville,
Maryland, is primarily engaged in the distribution of O&P products, a majority
of which are manufactured by others and distributed by O&P Express primarily to
others in the O&P industry. The O&P Express facility inventories over 20,000
items. For the years ended December 31, 1991, 1992, 1993, 1994 and 1995
revenues attributable to distribution by O&P Express accounted for 6%, 6%, 5%,
4% and 5%, respectively, of Hanger's historical net sales.
Marketing of Hanger's manufactured products and distribution
services is conducted on a national basis, primarily through catalogues and
through exhibits at industry and medical meetings and conventions. Hanger
directs specialized catalogues to segments of the healthcare industry, such as
orthopedic surgeons and physical and occupational therapists, and also directs
its broad-based marketing to the O&P industry.
The Company's manufacturing activities and capabilities were
expanded with the acquisition of Ralph Storrs, Inc. ("Storrs") in November
1990. Storrs' revenues are derived primarily from the manufacture of orthotic
devices. One such device is a hyperextension brace for lumbar and thoracic
spinal support which Storrs holds a United States patent which expires in 1996.
Another orthopedic device, for which Storrs manufactures the brace components
pursuant to what was a requirements arrangement with the patent holder, is an
internationally recognized derotation knee orthosis, and
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which business Hanger acquired on December 31, 1992 from Minnesota Mining and
Manufacturing Company ("3M"). See "Acquisitions."
To provide timely custom fabrication and service to its
patients, the Company employs technical personnel and maintains laboratories at
each of its patient care centers. Hanger also maintains several larger, fully
staffed central fabrication facilities to service its patient care centers.
These centrally-located facilities enable Hanger to fabricate those O&P
products which are more easily produced in larger quantities and in a more cost
effective manner, as well as serving as an auxiliary production center for
products normally fabricated at individual patient care centers. The Company
believes that the laboratories in its patient care centers are critical for the
provision of patient care services.
DOBI-Symplex is engaged primarily in the manufacture and
distribution of plastic spinal orthotic devices. Its activities include: (i)
the fabrication of custom-made plastic orthotic devices from patient molds
and/or measurements, which account for approximately 80% of its annual
revenues; (ii) the manufacture of prefabricated plastic orthotic devices that
are mass-produced and sold to distributors and patient care providers, which
account for approximately 15% of its annual revenues; and (iii) the fabrication
of custom-made prosthetic devices. A significant product manufactured and sold
by DOBI-Symplex is the custom-made Charleston Bending Brace, an orthotic device
designed for nocturnal use to correct spinal curvature in adolescents.
On December 31, 1992, DOBI-Symplex, as a wholly-owned
subsidiary of the Company, acquired from 3M substantially all of 3M's assets
relating to the custom derotation knee brace business primarily known in the
O&P industry as the "Lenox Hill" derotation knee brace. The purchase of 3M's
Lenox Hill derotation knee brace business complements the manufacturing
activities of DOBI-Symplex, which include the fabrication of custom-made
plastic orthotic devices and the manufacture of pre-fabricated plastic orthotic
devices. Storrs, another subsidiary of the Company, has, since 1980,
manufactured and sold metal components used by Lenox Hill in its custom knee
brace manufacturing activities.
On September 1, 1993, DOBI-Symplex purchased from 3M
substantially all of 3M's assets relating directly and solely to its
off-the-shelf Precision-Fit knee brace business. The purchase of the
off-the-shelf Precision-Fit knee brace business compliments the custom Lenox
Hill derotation knee brace business.
On April 15, 1994, the Company acquired from Brunswick Medical
Corporation substantially all the assets relating to the custom fitted
thermo-plastic spinal brace business primarily known as Ortho-Mold. The
purchase of the Ortho-Mold business complements the manufacturing activities of
DOBI-Symplex, which includes the pre-fabricated plastic insert to the
Ortho-Mold product.
Patient Reimbursement Sources
The principal reimbursement sources for Hanger's O&P services
are: (i) private payor/third-party insurer sources which consist of
individuals, private insurance companies, HMOs, PPOs, hospitals, vocational
rehabilitation, workers' compensation and similar sources; (ii) Medicare, which
is
11
<PAGE> 14
a Federally funded health insurance program providing health insurance
coverage for persons age 65 or older and certain disabled persons, and
Medicaid, which is a health insurance program jointly funded by Federal and
state governments providing health insurance coverage for certain persons in
financial need, regardless of age, and which may supplement Medicare benefits
for financially needy persons aged 65 or older; and (iii) the United States
Veterans Administration, with which Hanger has entered into contracts to
provide O&P services.
Medicare, Medicaid, the United States Veterans Administration
and certain state agencies have set maximum reimbursement levels for payments
for O&P services and products. The healthcare policies and programs of these
agencies have been subject to changes in payment and methodologies during the
past several years. There can be no assurance that future changes will not
reduce reimbursements for O&P services and products from these sources.
The Company provides O&P services to eligible veterans
pursuant to several contracts with the United States Veterans Administration.
The United States Veterans Administration establishes rates for reimbursement
for itemized products and services under contracts, which expire in March 1996,
with the option to renew for a one year period. The contracts, awarded on a
non-exclusive basis, establish the amount of reimbursement to the eligible
veteran if the veteran should choose to use the Company's products and
services. The Company has been awarded United States Veterans Administration
contracts in the past and expects that it will obtain additional contracts when
its present agreements expire.
The Omnibus Budget Reconciliation Act of 1990 ("OBRA 1990"),
which was enacted on November 5, 1990, provides for the separate treatment of
O&P reimbursement and the general category of durable medical equipment ("DME")
reimbursement for Medicare purposes. Previously, O&P devices were included
within the DME category which failed to acknowledge the fact that O&P devices
are custom fabricated and subjected O&P to the same budget reductions that were
applicable to DME. The separate recognition of O&P for Medicare reimbursement
purposes will enable O&P to have its own budget estimates and administration
process in connection with the regulatory activities of the United States
Health Care Financing Administration ("HCFA"). Pursuant to OBRA 1990, HCFA has
established separate professional O&P fee schedules that generally reflect the
cost of O&P services. Effective January 1, 1992, HCFA commenced the
regionalization of O&P fee schedules whereby regional fee schedule averages may
not exceed 125% of the national fee schedule average. The Company believes that
OBRA 1990's separation of O&P from DME for Medicare reimbursement purposes will
not adversely affect the Company.
Competition
The O&P industry is highly fragmented, with approximately
1,230 certified facilities providing patient care services in the United
States. There are also several regional and multi-regional competitors which
operate a number of patient care centers. The competition among O&P patient
care centers is primarily for referrals from physicians, therapists, employers,
HMOs, PPOs, hospitals, rehabilitation centers, out-patient clinics and
insurance companies on both a local and regional basis. In addition to O&P
facilities, Hanger competes with other providers of O&P services, such as
hospitals, physicians and therapists. The Company believes that distinguishing
competitive
12
<PAGE> 15
factors in the O&P industry are quality and timeliness of patient care, service
to the customer and referring source and, to a lesser degree, charges for
services. While the Company believes it is one of the largest suppliers of O&P
services in the U.S., certain competitors may have greater financial and
personnel resources than Hanger. Hanger competes with others in the industry
for trained personnel. To date, however, Hanger has been able to achieve its
staffing needs and has experienced a relatively low turnover rate of employees.
The Company has not encountered significant competition to
date in the identification and acquisition of O&P businesses. However, no
assurance can be given that such competition will not be encountered in the
future.
Government Regulations and O&P Certification
Certain state and Federal agencies require that practitioners
providing services to such agencies be certified by the American Board for
Certification in Orthotics and Prosthetics (the "ABC"). Hanger's practitioners
currently comply with all such requirements. Hanger provides services under
various contracts to such Federal agencies. These contracts are subject to
regulations governing Federal contracts, including the ability of the
government to terminate for its convenience. Revenue from such contracts is
not material to Hanger.
The Company's manufactured or fabricated devices are not
subject to approval or review of the U.S. Food and Drug Administration nor are
there any requirements for governmental certification of orthotists or
prosthetists or accreditation of Hanger's facilities.
The ABC conducts a certification program for practitioners and
an accreditation program for patient care centers. The minimum requirements
for a Certified Practitioner are a college degree, completion of an accredited
academic program, one year of staff experience at a patient care center under
the supervision of a Certified Practitioner and successful completion of
certain examinations. Minimum requirements for an ABC-accredited patient care
center include the presence of a Certified Practitioner and specific plant and
equipment requirements.
Employees
As of March 4, 1996, Hanger had 497 full-time employees. Of
these employees, 313 are patient care practitioners. The balance are
executive, sales and administrative personnel. None of the Company's employees
is subject to a collective bargaining agreement. The Company considers its
relationship with its employees to be good.
Insurance
The Company currently maintains insurance of the type and in
the amount customary in the orthopedic rehabilitation industry, including
coverage for malpractice liability, product liability, workers' compensation
and property damage. Hanger's general liability insurance coverage is at least
$500,000 per incident. Based on the Company's experience and prevailing
industry practices, Hanger believes its coverage is adequate as to risks and
amount.
13
<PAGE> 16
ITEM 2. PROPERTIES.
During 1995, Hanger operated 93 patient care centers and
facilities in 23 states and in Washington, D.C. Of these, ten centers are
owned by Hanger. The remaining centers are occupied under leases expiring
between the years of 1995 and 2002. Hanger believes that the centers leased or
owned by it are adequate for carrying on its current O&P operations at its
existing locations, as well as its anticipated future needs at those locations.
Hanger believes it will be able to renew such leases as they expire or find
comparable or additional space on commercially suitable terms.
Hanger also leases manufacturing and distribution facilities
in Illinois, New York, Maryland and Florida, its corporate headquarters in
Bethesda, Maryland and a corporate office in New Canaan, Connecticut. Several
of Hanger's O&P related properties are pledged to collateralize debt incurred
in connection with acquisitions made by Hanger. See Notes H and K to Hanger's
Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
Legal proceedings to which Hanger is subject arise in the
ordinary course of business. Currently, Hanger is not a party to any material
legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of the
fiscal year covered by this report to a vote of stockholders through the
solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth information regarding the
Company's current executive officers:
<TABLE>
<CAPTION>
Office with Appointed
Name Age the Company to Office
---- --- ----------- ---------
<S> <C> <C>
Ivan R. Sabel, CPO 51 Chairman of the Board, 1987
President, Chief Executive
Officer and Director
Richard A. Stein 36 Vice President-Finance, 1987
Secretary and Treasurer
</TABLE>
Ivan R. Sabel has been Chairman of the Board and Chief
Executive Officer of Hanger since August 1995 and President since November
1987. Mr. Sabel also served as Chief Operating Officer of Hanger from November
1987 to August 1995. Prior to that time, Mr. Sabel was Vice President -
Corporate Development since September 1986. From 1968 until joining Hanger in
1986,
14
<PAGE> 17
Mr. Sabel was the founder and President of Capital Orthopedics, Inc. Mr. Sabel
is a Certified Prosthetist and Orthotist ("CPO"), a clinical instructor in
orthopedics at Georgetown University Medical School in Washington, D.C., a
member of the Board of Directors of the American Orthotic and Prosthetic
Association, a former Chairman of the National Commission for Health Certifying
Agencies, a former member of the Strategic Planning Committee and a current
member of the Veterans Administration Affairs Committee of the American
Orthotic and Prosthetic Association and a former President of the American
Board for Certification in Orthotics and Prosthetics.
Richard A. Stein has been Vice President - Finance, Secretary
and Treasurer of Hanger since April 1987. Mr. Stein was also the President of
Greiner & Saur Orthopedics, Inc., a subsidiary of the Company, from April 1987
until November 1989. Mr. Stein is a Certified Public Accountant and was
employed by Coopers & Lybrand from September 1982 until he joined Hanger in
1987.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The following table sets forth for the periods indicated the
high and low closing sales prices per share for the Common Stock on the AMEX:
<TABLE>
<CAPTION>
1994 High Low
---------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 6.625 $ 5.750
Second Quarter 5.875 4.125
Third Quarter 4.375 3.250
Fourth Quarter 4.125 2.625
</TABLE>
<TABLE>
<CAPTION>
1995 High Low
---------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 3.250 $ 2.500
Second Quarter 3.500 2.190
Third Quarter 3.875 2.750
Fourth Quarter 3.500 2.560
</TABLE>
As of February 23, 1996 there were 500 holders of record of
the Common Stock.
Dividend Policy
The Company has never paid cash dividends on its Common Stock
and intends to continue this policy for the foreseeable future. Hanger plans to
retain earnings for use in its business. The terms of Hanger's agreements with
its financing sources and certain other agreements prohibit the payment of
dividends on its Common Stock and Preferred Stock and such agreements will
continue to prohibit the payment of dividends in the future. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors of the Company and will be dependent on Hanger's results of
operations, financial condition, contractual and legal restrictions and any
other factors deemed to be relevant.
16
<PAGE> 19
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION.
The selected financial information presented below has been
derived from the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
SELECTED FINANCIAL STATEMENTS
(In thousands, except per share data)
Years Ended December 31,
----------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $22,622 $32,406 $43,877 $50,300 $52,468
Gross profit 13,082 17,277 24,207 27,091 27,896
Selling, general & administrative 9,218 13,064 17,124 21,340 19,362
Depreciation and amortization 1,502 2,100 2,655 3,137 2,691
Restructuring cost (1) --- --- --- 460 ---
Loss from disposal of assets (2) --- --- --- (2,150) ---
Income from operations 2,362 2,113 4,428 4 5,843
Interest expense (2,122) (1,279) (1,167) (1,746) (2,056)
Income (loss) from operations
before taxes, extraordinary
item and accounting change 240 807 3,221 (1,922) 3,680
Provision for income taxes 204 487 1,626 358 1,544
Income (loss) from operations
before extraordinary item and
accounting change 36 320 1,595 (2,280) 2,135
Income (loss) from discontinued
operations (3) 16 (35) (105) (407) ---
Income (loss) before extraordinary
item and accounting change 52 285 1,490 (2,687) ---
Extraordinary loss on early
extinguishment of debt (676) (1,139) (23) --- ---
Cumulative effect of change in
accounting for income taxes --- --- 1,190 --- ---
Net income (loss) $ (624) $ (854) $ 2,655 $ (2,687) $ 2,135
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before discontinued
operations and extraordinary item $ (0.03) $ 0.03 $ 0.19 $ (0.28) $ 0.26
Income (loss) from discontinued
operations --- --- (0.01) (0.05) ---
Extraordinary loss on early
extinguishment of debt (0.15) (0.15) --- --- ---
Cumulative effect of change in
accounting for income taxes --- --- 0.14 --- ---
----------- --------- --------- ------------ ----------
Net income (loss) per share (4) $ (0.18) $ (0.12) $ 0.32 $ (0.33) $ 0.26
=========== ========== ======== ========== ==========
Weighted average number of common
shares outstanding used in computing
net income (loss) per share 4,587,000 7,565,000 8,344,000 8,290,000 8,290,000
========= ========= ========= ========= =========
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 4,689 $11,887 $ 15,738 $18,412 $20,622
Total assets 30,287 47,996 56,571 61,481 61,800
Long-term debt 10,150 14,970 19,153 24,330 22,925
Redeemable preferred stock 1,278 194 212 232 254
Shareholders' equity 13,408 28,564 31,681 29,178 31,291
</TABLE>
(1) Restructuring costs recorded in 1994 are associated
with the closing of unprofitable patient care centers. See
Note F to the Company's consolidated financial statements.
(2) The loss from disposal of assets recorded in 1994
relates to the 1995 sale of the Company's southern California
patient care centers. See Note D to the Company's
consolidated financial statements.
(3) Loss from discontinued operations consists of the
loss from discontinued operations and the sale of the
discontinued operation of the Company's Apothecaries, Inc.
subsidiary which was sold in 1994. See Note E to the
Company's Consolidated Financial Statements.
(4) Net income (loss) per common share, which has been
adjusted for preferred stock dividends, is computed on the
basis of the weighted average number of shares of Common Stock
issued and outstanding.
18
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Set forth below is a discussion of the results of the
Company's operations for the years ended December 31, 1993, 1994 and 1995, and
the Company's liquidity and capital resources at December 31, 1995. The
discussion which follows should be read in conjunction with Hanger's Selected
Consolidated Financial Statements and the Consolidated Financial Statements
included elsewhere herein.
RESULTS OF OPERATIONS
Growth in net sales during the last three fiscal periods has
been achieved principally through acquisitions and growth in net sales
attributable to patient care centers and facilities that were in operation
during the three periods. Gross profit as a percent of net sales has
fluctuated between approximately 53% and 55% during these periods. Fluctuations
in gross profit were a result of the timing of acquisitions and pricing
pressures from managed care companies. Selling, general and administrative
expenses have fluctuated between 37% and 42% as a percent of net sales. The
decrease in general and administrative expenses as a percent of net sales in
1995 is primarily a result of implementing a plan to restructure its operations
providing for the sale or closure of certain under-performing assets and
focused plans to reduce overhead costs, including payroll and other operating
costs. Interest expense has fluctuated between 2.7% and 3.9% as a percent of
net sales due to an increase in bank debt used to consummate additional
acquisitions in 1993 through 1995 and an increase in average interest rates.
The following table sets forth for the periods indicated
certain items of the Company's statements of operations and their percentage of
the Company's net sales:
<TABLE>
<CAPTION>
Historical
For the Years Ended December 31,
---------------------------------------
1993 (1) 1994 (2) 1995 (3)
----- ----- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of products and services sold 44.8 46.1 46.8
Gross profit 55.2 53.9 53.2
Selling, general and administrative expenses 39.0 42.4 36.9
Depreciation and amortization 4.7 4.8 3.8
Amortization of excess cost over net
assets acquired 1.4 1.4 1.3
Restructuring cost .9
Loss from disposal of assets 4.3
Income from operations 10.1 .0 11.1
Interest expense 2.7 3.5 3.9
Income (loss) from continuing operations 7.4 (3.8) 7.0
Income taxes 3.7 .7 2.9
Loss from discontinued operations (.8)
Cumulative effect of accounting change 2.7
Net income (loss) 6.1 (5.3) 4.1
</TABLE>
19
<PAGE> 22
(1) Includes Anne Arundel Orthopaedics, Inc. from February 5,
1993, Billings Orthopaedic, Inc. from April 16, 1993,
Certified Orthopedics, Inc. from May 20, 1993, Winter Park
Orthotics & Prosthetics, Inc. from May 26, 1993, Billings
Comfort Shoes, Inc. from September 30, 1993, Institute for the
Advancement of Prosthetics, Inc. from October 18, 1993.
(2) Includes all companies listed in footnote (1) for the entire
period: Columbia Brace Shop from January 3, 1994, Orthotic
and Prosthetic Division of M-D Medical, a Division of Health
Industries, Inc. from January 7, 1994, Pedi-Mac Shoe Company,
Inc. from January 31, 1994, Ortho-Mold from April 15, 1994 and
J.E. Hanger, Inc. of New England from October 7, 1994.
(3) Includes all companies listed in footnotes (1) and (2) for the
entire period: Summit Prosthetics and Orthotics from January
5, 1995, Gulf Coast Orthopaedic Supply, Inc. from March 17,
1995 and excludes the nine patient care centers sold or closed
during 1994.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales for the year ended December 31, 1995 amounted to
approximately $52,468,000, an increase of approximately $2,168,000, or 4.3%,
over net sales of approximately $50,300,000 for the year ended December 31,
1994. The increase was primarily a result of an increase of $2,059,000, or an
increase of 5%, in net sales attributable to patient care centers and
facilities that were in operation during both periods ("Internal Base Net
Sales"). Of the $2,059,000 increase in Internal Base Net Sales, $1,704,000, or
an increase of 5%, was attributable to patient care centers and $355,000 was
attributable to the Company's manufacturing and distribution activities. The
balance of the increase in net sales was attributable to O&P patient care
centers and facilities acquired by the Company in late 1994 and 1995. The
increase of $2,168,000 in net sales occurred notwithstanding the sale or
closure of nine patient care centers during late 1994 and the first quarter of
1995 in connection with the restructuring (the "Restructuring") undertaken by
the Company in 1994 and consummated in March 1995. These nine centers
accounted for net sales of $1,770,000 during the year ended December 31, 1994
compared with only $74,000 during the year ended December 31, 1995.
Gross profit increased by approximately $805,000, or 3.0%,
over the prior year. Gross profit as a percent of net sales decreased from
53.9% in 1994 to 53.2% in 1995. The cost of products and services sold for the
year ended December 31, 1995 amounted to $24,572,000 compared to $23,209,000
for the year ended December 31, 1994. Gross profit as a percent of net sales
for patient care services remained the same during 1994 and 1995 at 53%. Gross
profit as a percent of net sales for manufacturing and distribution declined
from 37% in 1994 to 36% in 1995. This decline resulted principally from
pricing pressures in the distribution and manufacturing divisions.
Selling, general and administrative expenses in 1995 decreased
by approximately $1,978,000, or 9.3%, compared to 1994. In addition to
decreasing in dollar amount, selling, general and administrative expenses as a
percent of net sales decreased to 36.9% for the year ended December 31, 1995
from 42.4% of net sales for the year ended December 31, 1994. The decrease in
selling, general and administrative expenses was primarily a result of the sale
and closure of nine patient care centers during late 1994 and the first quarter
of 1995 in connection with the Restructuring undertaken by the Company in 1994,
and consummated in March 1995. These nine centers accounted for selling,
general and administrative expenses of $1,043,000 during the year ended
December 31, 1994 compared with only $67,000 during the year ended December 31,
1995. The remaining reduction in selling, general
20
<PAGE> 23
and administrative expenses was primarily a result of additional cost cutting
at the patient care center level.
Principally as a result of the above, income from operations
in 1995 totalled approximately $5,843,000, an increase of $5,839,000 over the
prior year. Income from operations as a percent of net sales increased 11% in
1995 as compared to 1994.
Interest expense for the year ended December 31, 1995 amounted
to approximately $2,056,000, which is an increase of $310,000, or 17.8%, over
the $1,746,000 of interest expense incurred during the year ended December 31,
1994. The increase in interest expense was primarily attributable to the facts
that (i) average borrowings in 1995 were $1.8 million higher than the average
borrowing during 1994, and (ii) borrowing rates from the bank were 1% higher in
1995 when compared to 1994.
The provision for income taxes in 1995 amounted to
approximately $1,544,000, as compared to $358,000 in 1994. The increase of
$1,186,000 was primarily a result of a $5,839,000 increase in income from
operations and a reduction in the non-tax deductible amortization of excess
cost over net assets acquired, offset by the reversal of the valuation
allowance relating to state net operating loss carryforwards.
As a result of the above, the Company reported net income of
$2,135,000, or $.26 per share, for the year ended December 31, 1995, as
compared to a net loss of $2,687,000, or $.33 per share, for the year ended
December 31, 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Net sales for the year ended December 31, 1994, amounted to
approximately $50,300,000, an increase of approximately $6,423,000, or 14.6%,
over net sales of approximately $43,877,000 for the year ended December 31,
1993. The increase was primarily attributable to the $7,804,000 net sales
contribution of O&P patient care centers and facilities acquired by the Company
in 1994 and late 1993, offset by a decline in net sales attributable to patient
care centers and facilities that were in operation during both years ("Internal
Base Net Sales") of $1,381,000, or 3%. The decline in Internal Base Net Sales
was primarily due to severe weather conditions in the first quarter of 1994.
Of the $1,381,000 decline in Internal Base Net Sales, $1,158,000 was
attributable to patient care centers and $223,000 was attributable to the
Company's manufacturing and distribution activities.
Gross profit increased by approximately $2,884,000, or 11.9%,
in 1994 over the prior year. Gross profit as a percent of net sales decreased
to 53.9% in 1994 from 55.2% in 1993. The cost of products and services sold
for the year ended December 31, 1994 amounted to $23,208,000 compared to
$19,669,000 for the year ended December 31, 1993. Gross profit as a percent of
net sales for patient care services declined from 54% in 1993 to 53% in 1994.
This decline resulted primarily from the decrease in base business growth in
the first quarter of 1994 due principally to severe weather conditions while
labor costs remained constant. Gross profit as a percent of net sales for
manufacturing and distribution declined from 38% in 1993 to 37% in 1994. This
decline resulted
21
<PAGE> 24
principally from pricing pressures in the distribution division offset by an
increase in gross profit as a percent of net sales for the manufacturing
division.
Selling, general and administrative expenses in 1994 increased
by approximately $4,216,000, or 24.6%, over 1993 due in significant part to the
acquisition of additional patient care and manufacturing companies by the
Company. Selling, general and administrative expenses as a percent of net
sales increased from 39.0% in 1993 to 42.4% in 1994. This increase in selling,
general and administrative expenses resulted primarily from the decline in
Internal Base Net Sales as a result of severe weather conditions in the first
quarter of 1995 while selling, general and administrative expenses remained the
same.
The $460,000 of non-recurring Restructuring costs recorded in
1994 relate to the closure of unprofitable start-up patient care centers
located in Elmsford, Aurora and the Long Beach location of Rehab Systems, Inc.
Such Restructuring costs primarily consist of charges to reserve for
non-cancellable future lease commitments for the facilities that have been
closed.
The $2.15 million loss from the disposal of assets recorded
during 1994 relate to the 1995 sale of the Company's southern California
patient care centers located in Long Beach, Cyprus and Orange, California in
connection with the Restructuring. In March 1995, the Company entered into an
agreement to sell such patient care centers for $288,000 under a 10-year
promissory note bearing interest at 8% per annum.
Principally as a result of the above, income from operations
in 1994 totalled approximately $4,000, a decrease of $4,424,000 from the prior
year. Income from operations as a percent of net sales decreased to .0% in
1994 from 10.1% in 1993.
Interest expense in 1994 amounted to approximately $1,746,000,
an increase of approximately $579,000, or 49.6%, above the $1,167,000 of
interest expense incurred in 1993. Interest expense as a percent of net sales
amounted to 3.5% in 1994, as compared to 2.7% in 1993. The increase in
interest expense was primarily attributable to the issuance of approximately
$3,000,000 in bank term loans in connection with additional acquisitions in
late 1993 and 1994 and the increase in the bank's lending rate.
The provision for income taxes in 1994 amounted to
approximately $358,000, as compared to $1,627,000 in 1993. A net income tax
expense was incurred in 1994, notwithstanding a pre-tax loss, due to the fact
that nondeductible goodwill was included in the Company's pre-tax loss during
1994. Such goodwill resulted from the loss from the disposal of assets related
to certain of the Company's southern California patient care centers.
Income (loss) from discontinued operations represents the loss
from operations of the Company's subsidiary, Apothecaries, Inc., totalling
$248,000 (net of a tax benefit of $179,000) and the loss on disposal of the
assets totalling $159,000 (net of a tax benefit of $115,000). This subsidiary
was the only non-orthotic and prosthetic division the Company operated. The
sale of the assets in September 1994 was for $181,000 in cash.
22
<PAGE> 25
As a result of above, the Company reported a net loss of
$2,687,000, or $.33 per share for the year ended December 31, 1994, as compared
to net income of $2,655,000, or $.32 per share for the year ended December 31,
1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital at December 31,
1995 was approximately $20,622,000. Cash and cash equivalents available at
that date was approximately $1,456,000. The net cash provided by operations
in 1995 was $3,722,000. The Company's cash resources available during 1995
were satisfactory to meet its obligations during the year.
The Company's total long-term debt at December 31, 1995,
including a current portion of approximately $1.8 million, was approximately
$24.7 million. Such indebtedness included: (i) $4.0 million principal amount
of an 8.5% Convertible Note; (ii) $1.0 million principal amount of an 8.25%
Convertible Note; (iii) $12.7 million borrowed under the Company's revolving
credit facility with NationsBank, N.A. (formerly Maryland National Bank; the
"Bank"); (iv) a total of $4.6 million in term loans borrowed from the Bank; and
(v) approximately $2.4 million of other indebtedness.
Under the terms of the Financing and Security Agreement, as
amended, between the Bank and the Company (the "Financing Agreement"), the Bank
currently provides a $13.0 million revolving credit facility (the "Revolving
Credit Facility"), which reflects a reduction from its original amount of $13.5
million. The Revolving Credit Facility bears interest, at the Company's
option, at either a fluctuating rate equal to the Bank's prime lending rate
plus .25% or a fixed rate equal to the three-month London InterBank Offered
Rate ("LIBOR") plus 2.5%. On June 30, 1995, the Company made a mandatory
curtailment payment of $250,000 to the Bank to reduce the maximum amount of the
Revolving Credit Facility from $13.5 million to $13.25 million. On October 2,
1995, the Company and the Bank entered into Amendment No. 8 to the Financing
Agreement which reduced the mandatory curtailment payment required by the
Company under the Revolving Credit Facility from a $1.0 million curtailment to
a $250,000 curtailment at September 30, 1995. On September 30, 1995, the
Company made such mandatory curtailment payment of $250,000 to the Bank to
reduce the maximum amount of the Revolving Credit Facility from $13.25 million
to its current amount of $13.0 million. On November 13, 1995, the Company and
the Bank agreed to the terms of Amendment No. 9 to the Financing Agreement,
which (i) eliminated the previously required mandatory curtailment payments of
the Revolving Credit Facility of $250,000 at each of December 31, 1995 and
March 31, 1996, and (ii) extended the expiration date of the Revolving Credit
Facility from September 30, 1996 to June 30, 1997.
The Revolving Credit Facility is collateralized by
substantially all the assets of the Company and contains convenants
restricting, among other things, the payment of dividends, the making of
acquisitions and other transactions, and imposes net worth, fixed charge ratio,
debt service coverage and other financial maintenance requirements. In the
first quarter of 1995, the Company was in default under the debt to net worth
covenant of the Financing Agreement. The Bank has issued a waiver to the
Company for this default.
23
<PAGE> 26
In September 1994, the Company repaid a $1.8 million term loan
from the Bank with a portion of the proceeds from a new $3.0 million term loan
provided by the Bank. This new $3.0 million term loan bears interest at prime
plus .75%, provides for monthly principal and interest payments and matures on
March 31, 1998. In addition to such new term loan, the Company also has three
other existing term loans with the Bank, consisting of: (i) a $1.575 million
term loan provided by the Bank on November 17, 1993 which currently bears
interest at a fixed rate equal to the three-month LIBOR plus 2.75% and matures
on November 30, 1998; (ii) a $600,000 term loan provided by the Bank on
December 22, 1993, which currently bears interest at a fixed rate equal to the
Bank's prime lending rate plus .50% and matures on December 31, 1998; and (iii)
a $200,000 term loan provided by the Bank on May 3, 1994, which currently bears
interest at a fixed rate equal to the three-month LIBOR plus 2.75% and matures
on April 30, 1999. The Company has the option to periodically elect to change
the interest rates under each of these term loans between either a fluctuating
rate equal to the Bank's prime lending rate plus .50% or a fixed rate equal to
LIBOR plus 2.75%.
The Company plans to finance future acquisitions through
internally generated funds or borrowings under the Revolving Credit Facility,
the issuance of notes or shares of common stock of the Company, or through a
combination thereof.
The Company is actively engaged in ongoing discussions with
prospective acquisition candidates. The Company plans to continue to expand its
operations through acquisitions, at a slower rate, with a view towards
increasing efficiency and profitability of its existing facilities.
During the year ended December 31, 1995, the Company acquired
two orthotic and prosthetic companies. Negotiations relating to those
acquisitions commenced prior to the Restructuring. The total purchase price of
the acquisitions effected during that period was $385,000, of which $210,000
was paid in cash and $175,000 was financed through seller notes. The cash paid
to effect such acquisitions was borrowed under the Revolving Credit Facility
established between the Company and the Bank.
OTHER
Inflation has not had a significant effect on the Company's
operations, as increased costs to the Company generally have been offset by
increased prices of products and services sold.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company primarily provides customized devices or services
throughout the United States and is reimbursed, in large part, by the patients'
third party insurers or governmentally funded health insurance programs. The
ability of the Company's debtors to meet their obligations is principally
dependent upon the financial stability of the insurers of the Company's
patients and future legislation and regulatory actions.
24
<PAGE> 27
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" which is effective for years beginning after December 15, 1995. This
statement established criteria for recognizing, measuring and disclosing
impairments of long-lived assets, including intangibles and goodwill. The
Company plans to adopt SFAS 121 in 1996, but does not expect that the adoption
will have a material effect on its consolidated financial position or results
of operations.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
is required to be adopted for fiscal years beginning after December 15, 1995.
SFAS No. 123 encourages a fair value based method of accounting for employee
stock options or similar equity instruments, but allows continued use of the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. APB 25, "Accounting for Stock Issued to Employee."
Companies electing to continue to use APB No. 25 must make proforma disclosures
of net income and earnings per share as if the fair value based method of
accounting had been applied. The Company is evaluating the provisions of SFAS
No. 123, but has not yet determined whether it will continue to follow the
provisions of APB No. 25 or change to the fair value method of SFAS No. 123.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements and schedules required
hereunder and contained herein are listed under Item 14(a) below. The Company
is not subject to the requirement to file selected quarterly financial data
under Item 302 of Regulation S-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
25
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) of Form 10-K, the
information called for by this item regarding directors is hereby incorporated
by reference from the Company's definitive proxy statement or amendment hereto
to be filed pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report. Information regarding the Company's
executive officers is set forth under Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3) of Form 10-K, the
information called for by this item is hereby incorporated by reference from
the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G(3) of Form 10-K, the
information called for by this item is hereby incorporated by reference from
the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G(3) of Form 10-K, the
information called for by this item is hereby incorporated by reference from
the Company's definitive proxy statement or amendment hereto to be filed
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K.
(a) Financial Statements and Financial Statement
Schedule:
(1) Financial Statements:
HANGER ORTHOPEDIC GROUP, INC.
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1994
26
<PAGE> 29
and 1995
Consolidated Statements of Operations for the years
ended December 31, 1993, 1994 and 1995
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31,
1993, 1994 and 1995
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1994 and 1995
Notes to Consolidated Financial Statements
(2) Financial Statements Schedule:
Report of Independent Accountants
Schedule II - Valuation and qualifying accounts
All other schedules are omitted either because they are not applicable or
required, or because the required information is included in the financial
statements or notes thereto:
(b) Reports on Form 8-K:
None.
(c) Exhibits: The following exhibits are filed
herewith or incorporated by reference:
Exhibit No. Document
----------- --------
3(a) Certificate of Incorporation, as amended, of the
Registrant. (Incorporated herein by
reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1988.)
3(b) Certificate of Amendment of the Registrant's
Certificate of Incorporation (which, among
other things, changed the Registrant's
corporate name from Sequel Corporation to
Hanger Orthopedic Group, Inc.), as filed
on August 11, 1989 with the Office of the
Secretary of State of Delaware.
(Incorporated herein by reference to
Exhibit 3(b) to the Registrant's Current
Report on Form 10-K dated February 13,
1990.)
3(c) Certificate of Agreement of Merger of Sequel
Corporation and Delaware Sequel
Corporation. (Incorporated herein by
reference to Exhibit 3.1(a) to the
Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30,
1988.)
27
<PAGE> 30
3(d) Certificate of Ownership and Merger of Hanger
Acquisition Corporation and J. E. Hanger,
Inc. as filed with the Office of the
Secretary of the State of Delaware on
April 11, 1989. (Incorporated herein by
reference to Exhibit 2(f) to the
Registrant's Current Report on Form 8-K
dated May 15, 1989.)
3(e) Certificate of Designation, Preferences and
Rights of Preferred Stock of the
Registrant as filed on February 12, 1990
with the Office of the Secretary of State
of Delaware. (Incorporated herein by
reference to Exhibit 3(a) of the
Registrant's Current Report on Form 8-K
dated February 13, 1990.)
3(f) By-Laws of the Registrant, as amended.
(Incorporated herein by reference to
Exhibit 3 to the Registrant's Current
Report on Form 8-K dated May 15, 1989.)
10(a) Employment and Non-Compete Agreements, dated May
15, 1989 between Sequel Corporation and
each of Gerald E. Bisbee, Jr., Ivan R.
Sabel and Richard A. Stein. (Incorporated
herein by reference to Exhibit 10(i) to
the Registrant's Current Report on Form
8-K dated May 15, 1989.) *
10(b) Guaranty Agreement, dated May 15, 1989, by Sequel
Corporation, Capital Orthopedics, Inc. and
Greiner and Saur Orthopedics, Inc. in
favor of Chemical Equity Associates.
(Incorporated herein by reference to
Exhibit 10(j) to the Registrant's Current
Report on Form 8-K dated May 15, 1989.)
10(c) Stockholders' Agreement, dated as of
May 15, 1989, by and among Sequel
Corporation, Ronald J. Manganiello, Joseph
M. Cestaro, Gerald E. Bisbee, Jr., Ivan R.
Sabel, Richard A. Stein, Chemical Venture
Capital Associates and Chemical Equity
Associates. (Incorporated herein by
reference to Exhibit 10(k) to the
Registrant's Current Report on Form 8-K
dated May 15, 1989.)
10(d) Registration Agreement, dated May 15, 1989,
between Sequel Corporation, First
Pennsylvania Bank, N.A., Gerald E. Bisbee,
Jr., Ivan R. Sabel, Richard A. Stein,
Ronald J. Manganiello, Joseph M. Cestaro
and Chemical Venture Capital Associates.
(Incorporated herein by reference to
Exhibit 10(l) to the Registrant's Current
Report on Form 8-K dated May 15, 1989.)
10(e) Amendment to Employment Agreement, dated February
28, 1989, between J. E. Hanger, Inc. and
Joseph M. Cestaro; and Employment and
Non-Compete Agreement, dated as of
February 28, 1989, between J. E. Hanger,
Inc. and Ronald J. Manganiello.
(Incorporated herein by reference to
Exhibit 10(n) to the Registrant's Current
Report on Form 8-K dated May 15, 1989.) *
* Management contract or compensatory plan.
28
<PAGE> 31
10(f) Amendment No. 1, dated as of February 12, 1990,
to the Stockholders' Agreement, dated May
15, 1989, by and among Hanger Orthopedic
Group, Inc., Ivan R. Sabel, Richard A.
Stein, Ronald J. Manganiello, Joseph M.
Cestaro, Chemical Venture Capital
Associates and Chemical Equity Associates.
(Incorporated herein by reference to
Exhibit 10(l) to the Registrant's Current
Report on Form 8-K dated February 13,
1990.)
10(g) First Amendment dated as of February 12, 1990, to
the Registration Agreement, dated as of
May 15, 1989, by and among Hanger
Orthopedic Group, Inc., First Pennsylvania
Bank, N.A., Ivan R. Sabel, Richard A.
Stein, Ronald J. Manganiello, Joseph M.
Cestaro and Chemical Venture Capital
Associates. (Incorporated herein by
reference to Exhibit 10(m) to the
Registrant's Current Report on Form 8-K
dated February 13, 1990.)
10(h) Third Amendment, dated as of February 12, 1990, to
the Stock and Note Purchase Agreement,
dated as of February 28, 1989 and as
amended on May 9, 1989 and May 15, 1989,
by and among J. E. Hanger, Inc., as
successor to Hanger Acquisition
Corporation, Ronald J. Manganiello,
Chemical Venture Capital Associates and
Chemical Equity Associates. (Incorporated
herein by reference to Exhibit 10(n) to
the Registrant's Current Report on Form
8-K dated February 13, 1990.)
10(i) Form of Stock Option and Vesting Agreements,
dated as of August 13, 1990, between
Chemical Venture Capital Associates and
Ronald J. Manganiello, Ivan R. Sabel,
Joseph M. Cestaro and Richard A. Stein.
(Incorporated herein by reference to
Exhibit 10(ccc) to the Registrant's
Registration Statement on Form S-2, File
No. 33-37594.) *
10(j) Fourth Amendment, dated as of June 19, 1990 to
the Stock and Note Purchase Agreement,
dated as of February 28, 1989 and as
amended on May 9, 1989, May 15, 1989 and
February 12, 1990, by and among J. E.
Hanger, Inc., as successor to Hanger
Acquisition Corporation, Hanger Orthopedic
Group, Inc., Ronald J. Manganiello, Joseph
M. Cestaro, Chemical Venture.
(Incorporated herein by reference to
Exhibit 10(qqq) to the Registrant's
Registration Statement on Form S-2, File
No. 33-37594.)
10(k) Form of Stock Option Agreements, dated as of
August 13, 1990, between Hanger
Orthopedic Group, Inc. and Thomas P.
Cooper, James G. Hellmuth, Walter F.
Abendschein, Jr., Norman Berger, Bruce B.
Grynbaum and Joseph S. Torg. (Incorporated
herein by reference to Exhibit 10(rrr) to
the Registrant's Registration Statement on
Form S-2, File No. 33-37594.) *
* Management contract or compensatory plan.
29
<PAGE> 32
10(l) Amendment No. 3, dated as of November 8, 1990,
to the Stockholders' Agreement, dated as
of May 15, 1989 and as amended on February
12, 1990 and August 13, 1990, by and among
Hanger Orthopedic Group, Inc., Gerald E.
Bisbee, Jr., Ivan R. Sabel, Richard A.
Stein, Ronald J. Manganiello, Joseph M.
Cestaro, Chemical Venture Capital
Associates and Chemical Equity
Associates. (Incorporated herein by
reference to Exhibit 10(www) to the
Registrant's Registration Statement on
Form S-2, File No. 33-37594.)
10(m) Form of Stock Option and Vesting Agreements, dated
March 14, 1991, between Chemical Venture
Capital Associates and Ronald J.
Manganiello, Ivan R. Sabel and Richard A.
Stein. (Incorporated herein by reference
to Exhibit 10(cccc) to the Registrant's
Registration Statement on Form S-2, File
No. 33-37594.) *
10(n) Convertible Junior Subordinated Note Agreement,
dated as of March 1, 1992, from Hanger
Orthopedic Group, Inc. to R. S. Lauder,
Gaspar & Co., L.P. regarding $4,000,000
8.5% Convertible Junior Subordinated Notes
due March 31, 1999. (Incorporated herein
by reference to Exhibit 10(jjjj) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991.)
10(o) Form of Sixth Amendment to the Subordination
Agreement, dated as of February 20, 1992,
between CoreStates Bank, N.A., Chemical
Equity Associates, and Chemical Venture
Capital Associates. (Incorporated herein
by reference to Exhibit 10(mmmm) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991.)
10(p) Form of Eighth Amendment to the Stock and Note
Purchase Agreement, dated as of February
20, 1992, by and among J.E. Hanger, Inc.,
Hanger Orthopedic Group, Inc., Ronald J.
Manganiello, Joseph M. Cestero, Chemical
Venture Capital Associates and Chemical
Equity Associates. (Incorporated herein
by reference to Exhibit 10(nnnn) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991.)
10(q) Form of Amendment to Stock Option and Vesting
Agreement and Amendment Agreement, dated
as of February 20, 1992, by and among
Chemical Venture Capital Associates,
Chemical Equity Associates, Exeter Capital
L.P., Hanger Orthopedic Group, Inc.,
Ronald J. Manganiello, Ivan R. Sabel and
Richard A. Stein. (Incorporated herein by
reference to Exhibit 10(pppp) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991.) *
* Management contract or compensatory plan.
30
<PAGE> 33
10(r) Form of Asset Purchase Agreement between DOBI
Assets Acquisition Corp., Hanger
Orthopedic Group, Inc., National
Orthopedic & Rehabilitation Services, Inc.
and Caretenders Health Corp.
(Incorporated herein by reference to
Exhibit 10(rrrr) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1991.)
10(s) Amendment No. 9, dated as of April 30, 1992, to
the Bank Credit Agreement, dated as of May
15, 1989 and as amended through April 30,
1992, among Hanger Orthopedic Group, Inc.,
Albuquerque Prosthetic Center, Inc.,
Apothecaries, Inc., Capital Orthopedics,
Inc., DOBI-Symplex, Inc., Dorsch
Prosthetics and Orthotics, Inc., Greiner &
Saur Orthopedics, Inc., J.E. Hanger, Inc.,
J.E. Hanger of California, Inc., Memphis
Orthopedic, Inc., Metzgers Orthopaedic
Services, Inc., Ralph Storrs, Inc., Scott
Orthopedics, Inc., Scott Orthopedics, of
Northern Colorado, Inc., York Prosthetics,
Inc., Zielke Orthotics & Prosthetics, Inc.
and CoreStates Bank, N.A. (Incorporated
by reference to Exhibit 22 to the
Registrant's Current Report on Form 8-K
dated March 31, 1992.)
10(t) Amendment No. 10, dated as of September 3, 1992,
to the Bank Credit Agreement, dated as of
May 15, 1989 and as amended through
September 3, 1992, among Hanger Orthopedic
Group, Inc., Albuquerque Prosthetic
Center, Inc., Apothecaries, Inc., Capital
Orthopedics, Inc., DOBI-Symplex, Inc.,
Dorsch Prosthetics & Orthotics, Inc.,
Greiner & Saur Orthopedics, Inc., J.E.
Hanger, Inc., J.E. Hanger of California,
Inc., Memphis Orthopedic, Inc., Metzgers
Orthopaedic Services, Inc., Ralph Storrs,
Inc., Scott Orthopedics, Inc., Scott
Orthopedics of Northern Colorado, Inc.,
York Prosthetics, Inc., Zielke Orthotics &
Prosthetics, Inc. and CoreStates Bank,
N.A. (Incorporated by reference to Exhibit
22 to the Registrant's Current Report on
Form 8-K dated March 31, 1992.)
10(u) Amendment No. 11, dated as of December 8, 1992, to
the Bank Credit Agreement, dated as of May
15, 1989 and as amended through December
8, 1992, among Hanger Orthopedic Group,
Inc., Albuquerque Prosthetic Center, Inc.,
Apothecaries, Inc., Capital Orthopedics.,
Inc., DOBI-Symplex, Inc., Dorsch
Prosthetics & Orthotics, Inc., Greiner &
Saur Orthopedics, Inc., J.E. Hanger, Inc.,
J.E. Hanger of California, Inc., Memphis
Orthopedic, Inc., Metzgers Orthopaedic
Services, Inc., Ralph Storrs, Inc., Scott
Orthopedics, Inc., Scott Orthopedics of
Northern Colorado, Inc., York Prosthetics,
Inc., Zielke Orthotics & Prosthetics, Inc.
and CoreStates Bank, N.A. (Incorporated by
reference to Exhibit 22 to the
Registrant's Current Report on Form 8-K
dated March 31, 1992.)
10(v) Asset Purchase Agreement, dated as of December 31,
1992, between DOBI-Symplex, Inc. and
Minnesota Mining and Manufacturing
Company. (Incorporated
31
<PAGE> 34
herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K,
dated March 31, 1992.)
10(w) Amendment No. 12 dated as of March 12, 1993, to
the Bank Credit Agreement referred to in
Exhibit 10(u) above. (Incorporated herein
by reference to Exhibit 10 (w) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
10(x) Convertible Junior Subordinated Note Agreement
dated as of May 7, 1993, from Hanger
Orthopedic Group, Inc. to R.S. Lauder,
Gaspar & Co., L.P. regarding $1,000,000
8.25% Convertible Junior Subordinated
Notes due March 31, 1999. (Incorporated
herein by reference to Exhibit 10 (x) of
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.)
10(y) Amendment No. 1, dated as of May 7, 1993, to the
Convertible Junior Subordinated Note
Agreement referred to in Exhibit (x)
above. (Incorporated herein by reference
to Exhibit 10 (y) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.)
10(z) Revolving Promissory Note, dated as of July 2,
1993 from Hanger Orthopedic Group, Inc.,
Albuquerque Prosthetic Center, Inc.,
Apothecaries, Inc., Capital Orthopedics,
Inc., Dorsch Prosthetics & Orthotics,
Inc., DOBI-Symplex, Inc., Greiner and Saur
Orthopedics, Inc., J.E. Hanger, Inc., J.E.
Hanger of California, Inc., Memphis
Orthopedic, Inc., Metzgers Orthopaedic
Services, Inc., Ralph Storrs, Inc., Scott
Orthopedics of Northern Colorado, Inc.,
York Prosthetics, Inc., Zielke Orthotics &
Prosthetics, Inc., to Maryland National
Bank regarding $12,500,000 principal
amount due June 30, 1996. (Incorporated
herein by reference to Exhibit 10 (z) of
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.)
10(aa) Financing and Security Agreement between Maryland
National Bank and Hanger Orthopedic Group,
dated as of July 2, 1993. (Incorporated
herein by reference to Exhibit 10 (aa) of
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1993.)
10(bb) Asset Purchase Agreement, dated August 31, 1993,
between DOBI-Symplex, Inc., Hanger
Orthopedic Group, Inc. and Minnesota
Mining and Manufacturing Company.
(Incorporated herein by reference to
Exhibit 10 (bb) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.)
* Management contract or compensatory plan.
32
<PAGE> 35
10(cc) Incentive Stock Option Agreement, dated as of
September 14, 1993, between Hanger
Orthopedic Group, Inc. and Ronald J.
Manganiello. (Incorporated herein by
reference to Exhibit 10 (cc) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)*
10(dd) Incentive Stock Option Agreement, dated as of
September 14, 1993, between Hanger
Orthopedic Group, Inc. and Ivan R. Sabel.
(Incorporated herein by reference to
Exhibit 10 (dd) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.)*
10(ee) Incentive Stock Option Agreement, dated as of
September 14, 1993, between Hanger
Orthopedic Group, Inc. and Richard A.
Stein. (Incorporated herein by reference
to Exhibit 10 (ee) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.)*
10(ff) Non-qualified Stock Option Agreement, dated as of
October 12, 1993, between Hanger
Orthopedic Group, Inc. and Thomas P.
Cooper. (Incorporated herein by reference
to Exhibit 10 (ff) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.)*
10(gg) Non-qualified Stock Option Agreement, dated as of
October 12, 1993, between Hanger
Orthopedic Group, Inc. and James H.
Hellmuth. (Incorporated herein by
reference to Exhibit 10 (gg) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)*
10(hh) Non-qualified Stock Option Agreement, dated as of
October 12, 1993, between Hanger
Orthopedic Group, Inc. and B. Martha
Cassidy. (Incorporated herein by
reference to Exhibit 10 (hh) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)*
10(ii) Non-qualified Stock Option Agreement, dated as of
October 12, 1993, between Hanger
Orthopedic Group, Inc. and William L.
McCulloch. (Incorporated herein by
reference to Exhibit 10 (ii) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)*
10(jj) Non-qualified Stock Option Agreement, dated as of
October 12, 1993, between Hanger
Orthopedic Group, Inc. and Walter J.
McNerney. (Incorporated herein by
reference to Exhibit 10 (jj) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)*
10(kk) Non-qualified Stock Option Agreement, dated as of
October 12, 1993, between Hanger
Orthopedic Group, Inc. and Robert J.
Glaser. (Incorporated herein by reference
to Exhibit 10 (kk) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1993.)*
* Management contract or compensatory plan.
33
<PAGE> 36
10(ll) Term Note, dated as of November 17, 1993, from
Hanger Orthopedic Group, Inc. to Maryland
National Bank regarding $1,575,000
principal amount due November 30, 1998.
(Incorporated herein by reference to
Exhibit 10 (ll) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.)
10(mm) Amendment No. 1, dated as of November 17, 1993, to
the Financing and Security Agreement,
dated as of July 2, 1993, and as amended
through November 17, 1993, among Hanger
Orthopedic Group, Inc. and Maryland
National Bank. (Incorporated herein by
reference to Exhibit 10 (mm) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
10(nn) Term Note, dated as of December 22, 1993, form
Hanger Orthopedic Group, Inc. to Maryland
National Bank regarding $600,000 principal
amount due December 31, 1998.
(Incorporated herein by reference to
Exhibit 10 (nn) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993.)
10(oo) Amendment No. 2, dated as of December 22, 1993, to
the Financing and Security Agreement,
dated as of July 2, 1993, and as amended
through December 22, 1993, among Hanger
Orthopedic Group, Inc. and Maryland
National Bank. (Incorporated herein by
reference to Exhibit 10 (oo) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
10(pp) Asset Purchase Agreement, dated as of January 3,
1994, between Columbia Brace Shop, Inc.,
Austin T. Moore, Jr., Columbia Brace
Acquisitions Corp. and Hanger orthopedic
Group, Inc. (Incorporated herein by
reference to Exhibit 10 (pp) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(qq) Asset Purchase Agreement, dated as of January
10,1994, between J.E. Hanger of
California, Inc., Health Industries, Inc.,
Louis Goldstein and Barbara Goldstein.
(Incorporated herein by reference to
Exhibit 10 (qq) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)
10(rr) Asset Purchase Agreement, dated as of January
31, 1994, between J.E. Hanger, Inc.,
Pedi-Mac Shoe Company, Inc., and Thomas
McGillicuddy. (Incorporated herein by
reference to Exhibit 10 (rr) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(ss) Amendment No. 3, dated as of April 15, 1994, to
the Financing and Security Agreement,
dated as of July 2, 1993, and as amended
through April 15, 1994, from Hanger
Orthopedic Group, Inc. and Maryland
National Bank.
34
<PAGE> 37
(Incorporated herein by reference to
Exhibit 10 (ss) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)
10(tt) Promissory Note, dated as of April 15, 1994,
from Hanger Orthopedic Group, Inc. and
Maryland National Bank regarding
$1,800,000 principal amount due September
30, 1994. (Incorporated herein by
reference to Exhibit 10 (tt) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(uu) Amendment No. 4, dated as of May 3, 1994, to the
Financing and Security Agreement, dated as
of July 2, 1993, and as amended through
May 3, 1994, among Hanger Orthopedic
Group, Inc. and NationsBank, N.A.
(formerly Maryland National Bank).
(Incorporated herein by reference to
Exhibit 10 (uu) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)
10(vv) Term Note, dated as of May 3, 1994, from Hanger
Orthopedic Group, Inc. and NationsBank,
N.A. (formerly Maryland National Bank)
regarding $200,000 principal amount due
April 30, 1999. (Incorporated herein by
reference to Exhibit 10 (vv) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(ww) Employment and Non-Compete Agreement, dated as of
May 16, 1994, between Hanger Orthopedic
Group, Inc. and Ronald J. Manganiello.*
(Incorporated herein by reference to
Exhibit 10 (ww) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)
10(xx) Employment and Non-Compete Agreement, dated as of
May 16, 1994, between Hanger Orthopedic
Group, Inc. and Ivan R. Sabel.*
(Incorporated herein by reference to
Exhibit 10 (xx) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)
10(yy) Employment and Non-Compete Agreement, dated as of
May 16, 1994, between Hanger Orthopedic
Group, Inc. and Richard A. Stein.*
(Incorporated herein by reference to
Exhibit 10 (yy) of the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1994.)
* Management contract or compensatory plan.
35
<PAGE> 38
10(zz) Second Amendment, dated as of May 16, 1994, to the
Stock Option and Vesting Agreements, dated
as of March 14, 1991 and as amended
through May 16, 1994, by and among
Chemical Venture Capital Associates,
Chemical Equity Associates, Exeter Capital
L.P., Hanger Orthopedic Group, Inc.
Ronald J. Manganiello, Ivan R. Sabel and
Richard A. Stein.* (Incorporated herein
by reference to Exhibit 10 (zz) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(aaa) Stock Option Agreement, dated as of May 16, 1994,
between Chemical Venture Capital
Associates and Ronald J. Manganiello.*
(Incorporated herein by reference to
Exhibit 10 (aaa) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(bbb) Stock Option Agreement, dated as of May 16, 1994,
between Chemical Venture Capital
Associates and Ivan R. Sabel.*
(Incorporated herein by reference to
Exhibit 10 (bbb) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(ccc) Stock Option Agreement, dated as of May 16, 1994,
between Chemical Venture Capital
Associates and Richard A. Stein.*
(Incorporated herein by reference to
Exhibit 10 (ccc) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(ddd) Non-qualified Stock Option Agreement, dated as of
June 22, 1994, between Hanger Orthopedic
Group, Inc. and B. Martha Cassidy.*
(Incorporated herein by reference to
Exhibit 10 (ddd) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(eee) Non-qualified Stock Option Agreement, dated as of
June 22, 1994, between Hanger Orthopedic
Group, Inc. and Thomas P. Cooper.*
(Incorporated herein by reference to
Exhibit 10 (eee) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(fff) Non-qualified Stock Option Agreement, dated as of
June 22, 1994, between Hanger Orthopedic
Group, Inc. and Robert J. Glaser.*
(Incorporated herein by reference to
Exhibit 10 (fff) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(ggg) Non-qualified Stock Option Agreement, dated as of
June 22, 1994, between Hanger Orthopedic
Group, Inc. and James H. Hellmuth.*
(Incorporated herein by reference to
Exhibit 10 (ggg) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
* Management contract or compensatory plan.
36
<PAGE> 39
10(hhh) Non-qualified Stock Option Agreement, dated as of
June 22, 1994, between Hanger Orthopedic
Group, Inc. and William L. McCulloch.*
(Incorporated herein by reference to
Exhibit 10 (hhh) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(iii) Non-qualified Stock Option Agreement, dated as of
June 22, 1994, between Hanger Orthopedic
Group, Inc. and Walter J. McNerney.*
(Incorporated herein by reference to
Exhibit 10 (iii) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(jjj) Amendment No. 5, dated as of August 12, 1994, to
the Financing and Security Agreement,
dated as of July 2, 1993, and as amended
through August 12, 1994, among Hanger
Orthopedic Group, Inc. and NationsBank,
N.A. (formerly Maryland National Bank).
(Incorporated herein by reference to
Exhibit 10 (jjj) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(kkk) Amendment No. 6, dated as of September 13, 1994,
to the Financing and Security Agreement,
dated as of July 2, 1993, and as amended
through September 13, 1994, among Hanger
Orthopedic Group, Inc. and NationsBank,
N.A. (formerly Maryland National Bank).
(Incorporated herein by reference to
Exhibit 10 (kkk) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(lll) Amended and Restated Revolving Promissory Note,
dated September 13, 1994, from Hanger
orthopedic Group, Inc. to NationsBank,
N.A. (formerly Maryland National Bank)
regarding $13,500,000 principal amount.
(Incorporated herein by reference to
Exhibit 10 (lll) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(mmm) Term Note, dated as of September 13, 1994, from
Hanger Orthopedic Group, Inc. and
NationsBank, N.A. (formerly Maryland
National Bank) regarding $3,000,000
principal amount due March 31, 1998.
(Incorporated herein by reference to
Exhibit 10 (mmm) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(nnn) Third Amendment, dated as of September 22, 1994,
to the Stock Option and Vesting
Agreements, dated as of March 14, 1991 and
as amended through September 22, 1994, by
and among Chemical Venture Capital
Associates, Chemical Equity Associates,
Exeter Capital L.P., Hanger Orthopedic
Group, Inc., Ronald J. Manganiello, Ivan
R. Sabel and Richard A. Stein.*
(Incorporated herein by reference to
Exhibit 10 (nnn) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
* Management contract or compensatory plan.
37
<PAGE> 40
10(ooo) Letter Agreement, dated as of September 29, 1994,
between Apothecaries Inc. and Eakles Drug
Store, Inc. (Incorporated herein by
reference to Exhibit 10 (ooo) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(ppp) Asset Purchase Agreement, dated as of October 7,
1994, between J.E. Hanger, Inc., J.E.
Hanger, Inc. of New England and Samuel
Polsky. (Incorporated herein by reference
to Exhibit 10 (ppp) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(qqq) Agreement, dated as of November 30, 1994, between
J.E. Hanger, Inc., G.O. Formation, L.L.C.
and Barbara Ziegler. (Incorporated herein
by reference to Exhibit 10 (qqq) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(rrr) Asset Purchase Agreement, dated as of January 5,
1995, between J.E. Hanger of California,
Inc., Summit Prosthetics & Orthotics and
Timothy R. Chaffin. (Incorporated herein
by reference to Exhibit 10 (rrr) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(sss) Incentive Stock Option Agreement, dated as of
January 31, 1995, between Hanger
Orthopedic Group, Inc. and Ronald J.
Manganiello.* (Incorporated herein by
reference to Exhibit 10 (sss) of the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994.)
10(ttt) Incentive Stock Option Agreement, dated as of
January 31, 1995, between Hanger
Orthopedic Group, Inc. and Ivan R.
Sabel.* (Incorporated herein by reference
to Exhibit 10 (ttt) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(uuu) Incentive Option Agreement, dated as of January
31, 1995, between Hanger Orthopedic Group,
Inc. and Richard A. Stein.* (Incorporated
herein by reference to Exhibit 10 (uuu) of
the Registrant's Annual Report on Form
10-K for the year ended December 31,
1994.)
10(vvv) Amendment No. 7, dated as of March 24, 1995, to
the Financing and Security Agreement,
dated as of July 2, 1993, and as amended
through March 24, 1995, among Hanger
Orthopedic Group, Inc. and NationsBank,
N.A. (formerly Maryland National Bank).
(Incorporated herein by reference to
Exhibit 10 (vvv) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
* Management contract or compensatory plan.
38
<PAGE> 41
10(www) Amended and Restated Revolving Promissory Note,
dated March 24, 1995, from Hanger
Orthopedic Group, Inc. to NationsBank,
N.A. (formerly Maryland National Bank)
regarding $13,500,000 principal amount.
(Incorporated herein by reference to
Exhibit 10 (www) of the Registrant's
Annual Report on Form 10-K for the year
ended December 31, 1994.)
10(xxx) Letter Agreement, dated March 17, 1995, relating
to the purchase by Hanger Orthopedic
Group, Inc. of the assets of Gulf Coast
Orthopedic Supply, Inc.
10(yyy) Non-Qualified Stock Option Agreement, dated as of
June 14, 1995, between Hanger Orthopedic
Group, Inc. and B. Martha Cassidy.*
10(zzz) Non-Qualified Stock Option Agreement, dated as of
June 14, 1995, between Hanger Orthopedic
Group, Inc. and Thomas P. Cooper.*
10(aaaa) Non-Qualified Stock Option Agreement, dated as of
June 14, 1995, between Hanger Orthopedic
Group, Inc. and Robert J. Glaser.*
10(bbbb) Non-Qualified Stock Option Agreement, dated as of
June 14, 1995, between Hanger Orthopedic
Group, Inc. and James C. Hellmuth.*
10(cccc) Non-Qualified Stock Option Agreement, dated as of
June 14, 1995, between Hanger Orthopedic
Group, Inc. and William L. McCulloch.*
10(dddd) Non-Qualified Stock Option Agreement, dated as of
June 14, 1995, between Hanger Orthopedic
Group, Inc. and Walter J. McNerney.*
10(eeee) Agreement, dated as of July 31, 1995, between
Hanger Orthopedic Group, Inc. and Ronald
J. Manganiello.
10(ffff) Amendment No. 8, dated as of October 2, 1995, the
Financing and Security Agreement, dated as
of July 2, 1993 and as amended through
October 2, 1995, among Hanger Orthopedic
Group, Inc. and NationsBank, N.A.
(formerly Maryland National Bank).
10(gggg) Fourth Amendment, dated as of October 27, 1995, to
the Stock Option and Vesting Agreements,
dated as of March 14, 1991 and as amended
through October 27, 1995, by and among
Chemical Venture Capital Associates,
Chemical Equity Associates, Exeter Capital
L.P., Hanger Orthopedic Group, Inc.,
Ronald J. Manganiello, Ivan R. Sabel and
Richard A. Stein.*
* Management contract or compensatory plan.
39
<PAGE> 42
10(hhhh) Fifth Amendment, dated as of October 27, 1995,
to the Stock Option and Vesting
Agreements, dated as of March 14, 1991 and
as amended through October 27, 1995, by
and among Chemical Venture Capital
Associates, Chemical Equity Associates,
Exeter Capital L.P., Hanger Orthopedic
Group, Inc., Ronald J. Manganiello, Ivan
R. Sabel and Richard A. Stein*
10(iiii) Amendment No. 9, dated as of November 16, 1995,
to the Financing and Security Agreement,
dated as of July 2, 1993 and as amended
through November 16, 1995, among Hanger
Orthopedic Group, Inc. and NationsBank,
N.A. (formerly Maryland National Bank).
10(jjjj) Second Amended and Restated Revolving Promissory
Note, dated November 16, 1995, from Hanger
Orthopedic Group, Inc. to NationsBank,
N.A. (formerly Maryland National Bank)
regarding $13,000,000 principal amount.
10(kkkk) Incentive Stock Option Agreement, dated as of
February 21, 1996, between Hanger
Orthopedic Group, Inc. and Ivan R.
Sabel.*
10(llll) Incentive Stock Option Agreement, dated as of
February 21, 1996, between Hanger
Orthopedic Group, Inc. and Richard A.
Stein.*
11 Computation of earnings per share.
21 List of Subsidiaries of the Registrant.
23 Consent of Coopers & Lybrand L.L.P.
* Management contract or compensatory plan.
40
<PAGE> 43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
HANGER ORTHOPEDIC GROUP, INC.
Dated: March 29, 1996 By: IVAN R. SABEL, CPO
------------------------------------------
Ivan R. Sabel, CPO
Chief Executive Officer
(Principal Executive Officer)
Dated: March 29, 1996 By: RICHARD A. STEIN
------------------------------------------
Richard A. Stein
Vice President - Finance
(Principal Financial and
Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons, on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Dated: March 29, 1996 IVAN R. SABEL, CPO
----------------------------------
Ivan R. Sabel, CPO
Chief Executive Officer
and Director (Principal
Executive Officer)
Dated: March 29, 1996 RICHARD A. STEIN
------------------------------------------
Richard A. Stein
Vice President - Finance,
Treasurer and Secretary
(Principal Financial and
Accounting Officer)
Dated: March 29, 1996 MITCHELL J. BLUTT, MD
----------------------------------
Mitchell J. Blutt, M.D.
</TABLE>
41
<PAGE> 44
<TABLE>
<S> <C> <C>
Director
Dated: March 29, 1996 B. MARTHA CASSIDY
----------------------------------
B. Martha Cassidy
Director
Dated: March 29, 1996 THOMAS P. COOPER, M.D.
-------------------------
Thomas P. Cooper, M.D.
Director
Dated: March 29, 1996 ROBERT J. GLASER, M.D.
----------------------------------
Robert J. Glaser, M.D.
Director
Dated: March 29, 1996 JAMES G. HELLMUTH
----------------------------------
James G. Hellmuth
Director
Dated: March 29, 1996 RONALD J. MANGANIELLO
-------------------------
Ronald J. Manganiello
Director
Dated: March 29, 1996 WILLIAM L. MCCULLOCH
-------------------------
William L. McCulloch
Director
Dated: March 29, 1996 WALTER J. MCNERNEY
----------------------------------
Walter J. McNerney
Director
</TABLE>
42
<PAGE> 45
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HANGER ORTHOPEDIC GROUP, INC.
- -----------------------------
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1994
and 1995 F-2
Consolidated Statements of Operations for the years
ended December 31, 1993, 1994 and 1995 F-4
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1993,
1994 and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended December 31, 1993, 1994 and 1995 F-6
Notes to Consolidated Financial Statements F-7
FINANCIAL STATEMENT SCHEDULE
- ----------------------------
Report of Independent Accountants S-1
Schedule II - Valuation and Qualifying Accounts S-2
</TABLE>
43
<PAGE> 46
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Hanger
Orthopedic Group, Inc.
We have audited the accompanying consolidated balance sheets of Hanger
Orthopedic Group, Inc. and Subsidiaries as of December 31, 1994 and 1995 and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Hanger Orthopedic
Group, Inc., and subsidiaries as of December 31, 1994 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Note B to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 8, 1996
F-1
<PAGE> 47
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995
----------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $1,048,381 $1,456,305
Accounts receivable, less allowances for doubtful accounts
of $975,600 and $1,144,000 in 1994 and 1995, respectively 12,392,843 13,324,991
Inventories 9,465,186 10,312,289
Prepaid and other assets 1,149,026 1,040,914
Deferred income taxes 1,264,790 804,499
----------- ----------
Total current assets 25,320,226 26,938,998
----------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land 2,991,245 2,991,245
Buildings 2,288,357 2,592,214
Machinery and equipment 3,232,442 3,654,780
Furniture and fixtures 1,526,237 1,575,493
Leasehold improvements 1,075,481 1,184,782
----------- ----------
11,113,762 11,998,514
Less accumulated depreciation and amortization 3,104,828 4,232,858
----------- ----------
8,008,934 7,765,656
----------- ----------
INTANGIBLE ASSETS
Excess cost over net assets acquired 26,633,643 27,133,528
Non-compete agreements 4,751,371 4,786,371
Other intangible assets 3,762,307 3,825,240
----------- ----------
35,147,321 35,745,139
Less accumulated amortization 7,532,295 9,035,394
----------- ----------
27,615,026 26,709,745
----------- ----------
OTHER ASSETS
Other 537,032 385,662
----------- ----------
TOTAL ASSETS $61,481,218 $61,800,061
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
<PAGE> 48
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1994 1995
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $2,132,076 $1,828,953
Accounts payable 1,562,625 1,612,401
Accrued expenses 1,300,070 710,510
Customer deposits 392,722 489,758
Accrued wages and payroll taxes 1,422,741 1,495,013
Deferred revenue 97,690 180,587
----------- -----------
Total current liabilities 6,907,924 6,317,222
----------- -----------
Long-term debt 24,329,710 22,925,124
Deferred income taxes 563,902 706,965
Other liabilities 269,871 305,499
Mandatorily redeemable preferred stock class C, 300 shares authorized,
liquidation preference of $500 per share (See Note M) 232,086 253,886
Mandatorily redeemable preferred stock class F, 100,000 shares authorized,
liquidation preference of $1,000 per share (See Note M)
Commitments and contingent liabilities
SHAREHOLDERS' EQUITY
Common stock, $.01 par value; 25,000,000 shares authorized,
8,424,039 shares issued and 8,290,544 shares
outstanding in 1994 and 1995, respectively 84,241 84,241
Additional paid-in capital 33,595,857 33,574,058
Accumulated deficit (3,846,811) (1,711,372)
----------- -----------
29,833,287 31,946,927
Treasury stock, cost --(133,495 shares) (655,562) (655,562)
----------- -----------
29,177,725 31,291,365
----------- -----------
$61,481,218 $61,800,061
=========== ===========
TOTAL LIABILITES & SHAREHOLDERS' EQUITY
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENT
F-3
<PAGE> 49
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $43,876,801 $50,300,297 $52,467,899
Cost of products and services sold 19,669,645 23,208,944 24,572,089
----------- ----------- -----------
Gross profit 24,207,156 27,091,353 27,895,810
Selling, general and administrative 17,123,684 21,340,148 19,361,701
Depreciation and amortization 2,056,390 2,435,727 2,005,113
Amortization of excess cost over net assets acquired 599,321 701,018 686,275
Restructuring cost 459,804
Loss from disposal of assets 2,150,310
----------- ----------- -----------
Income from operations 4,427,761 4,346 5,842,721
Interest expense (1,166,606) (1,745,781) (2,056,140)
Other expense, net (39,956) (180,940) (106,644)
----------- ----------- -----------
Income (loss) from operations before
taxes, extraordinary item, and accounting change 3,221,199 (1,922,375) 3,679,937
Provision for income taxes 1,626,706 358,029 1,544,498
----------- ----------- -----------
Income (loss) from operations before
extraordinary item and accounting change 1,594,493 (2,280,404) 2,135,439
Loss from discontinued operations (104,808) (247,655)
Loss from sale of discontinued operations (159,379)
----------- ----------- -----------
Income (loss) before extraordinary item and
accounting change 1,489,685 (2,687,438) 2,135,439
Extraordinary loss on early extinguishment of debt, net of tax (23,168)
Cumulative effect of change in accounting 1,188,706
----------- ----------- -----------
Net income (loss) $2,655,223 ($2,687,438) $2,135,439
=========== =========== ===========
Income (loss) before extraordinary item and
accounting change applicable
to common stock $1,576,294 ($2,300,286) $2,113,640
=========== =========== ===========
INCOME (LOSS) PER COMMON SHARE:
Income (loss) before extraordinary item and
accounting change $0.19 ($0.28) $0.26
Loss from discontinued operations (0.01) (0.03)
Loss from sale of discontinued operations (0.02)
Cumulative effect of change in accounting 0.14
----------- ----------- -----------
Net income (loss) per share $0.32 ($0.33) $0.26
=========== =========== ===========
Weighted average number of common shares outstanding
used in computing net income (loss) per share 8,343,784 8,290,276 8,290,544
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
<PAGE> 50
HANGER ORTHOPEDIC GROUP, INC
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Additional
Common Common Paid in Accumulated Treasury Deferred
Shares Stock Capital Deficit Stock Compensation Total
----------- -------- ------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 8,177,029 $83,071 $32,952,360 ($3,814,596) ($632,262) ($24,885) $28,563,688
Issuance of Common Stock for
the purchase of Billings 46,764 468 279,532 280,000
Issuance of Common Stock for
purchase of Certified 7,029 70 49,930 50,000
Issuance of Common Stock in
connection with the exercise
of stock options 30,458 305 152,443 152,748
Repurchase of Common Stock (3,389) (23,300) (23,300)
Amortization of deferred
compensation 20,688 20,688
Preferred dividends declared (18,199) (18,199)
Net Income 2,655,223 2,655,223
----------- -------- ------------ ------------ ----------- ------------ -----------
Balance, December 31, 1993 8,257,891 83,914 33,416,066 (1,159,373) (655,562) (4,197) 31,680,848
Issuance of Common Stock for
purchase of Columbia Brace 32,653 327 199,673 200,000
Amortization of
deferred compensation 4,197 4,197
Preferred dividends declared (19,882) (19,882)
Net Loss (2,687,438) (2,687,438)
----------- -------- ------------ ------------ ----------- ------------ -----------
Balance, December 31, 1994 8,290,544 84,241 * 33,595,857 (3,846,811) (655,562) 29,177,725
Preferred dividends declared (21,799) (21,799)
Net Income 2,135,439 2,135,439
----------- -------- ------------ ------------ ----------- ------------ -----------
Balance, December 31, 1995 8,290,544 $84,241 $33,574,058 ($1,711,372) ($655,562) $31,291,365
=========== ======== ============ ============ =========== ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
<PAGE> 51
HANGER ORTHOPEDIC GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $2,655,223 ($2,687,438) $2,135,439
Adjustments to reconcile net income (loss) to net cash provided by
(used in) continuing operations:
Cumulative effect of change in accounting for income taxes 1,188,706
Discontinued operations 174,808 426,991
Loss from sale of discontinued operations 274,791
Loss from sale of disposal of assets 2,150,310
Provision for bad debt 688,036 973,678 1,008,731
Amortization of deferred compensation 20,688 4,197
Depreciation and amortization 2,056,390 2,435,727 2,005,113
Amortization of excess cost over net assets acquired 599,321 701,018 686,275
Deferred taxes (1,410,912) (629,674) 755,869
Extraordinary loss on early extinguishment of debt 39,168
Changes in assets and liabilities, net of effects from acquired companies:
Accounts receivable (3,134,295) (3,639,274) (1,922,572)
Inventories (618,295) (1,169,232) (800,933)
Prepaid and other assets (197,314) 131,714 108,112
Other assets 13,600 3,782 151,367
Accounts payable 132,218 (54,555) 48,462
Accrued expenses (46,310) 776,860 (742,075)
Accrued wages & payroll taxes 129,484 (116,852) 72,272
Customer deposits (34,919) 143,070 97,036
Deferred revenue (52,306) (22,691) 82,897
Other liabilities (69,250) 156,884 35,628
----------- ----------- -----------
Net cash provided by (used in) continuing operations 2,134,041 (140,694) 3,721,621
Net cash provided by (used in) discontinued operations 66,043 (172,146)
----------- ----------- -----------
Net cash provided by (used in) operating activities 2,200,084 (312,840) 3,721,621
----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (655,236) (1,114,551) (934,798)
Acquisitions, net of cash (3,200,719) (2,599,133) (273,939)
Purchase of patent (41,020) (59,382) (70,552)
Proceeds from sale of certain assets 180,806
Purchase of non-compete agreements (454,500) (480,500) (35,000)
Purchase of customer list (2,500)
(Decrease) increase in other intangibles (388,345) (265,624) (24,321)
----------- ----------- -----------
Net cash used in investing activities (4,742,320) (4,338,384) (1,338,610)
----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving credit agreement 10,164,551 2,635,449 (100,000)
Proceeds from bank borrowings 2,175,000
Proceeds from the sale of common stocks 152,749
Purchase of treasury stock (23,300)
Proceeds from long-term debt 1,000,000 5,000,000
Repayment of debt (10,559,768) (3,276,608) (1,882,706)
(Increase) decrease in financing costs (354,123) (63,393) 7,619
----------- ----------- -----------
Net cash provided by (used in) financing activities 2,555,109 4,295,448 (1,975,087)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents for the year 12,873 (355,776) 407,924
Cash and cash equivalents at beginning of year 1,391,284 1,404,157 1,048,381
----------- ----------- -----------
Cash and cash equivalents at end of year $1,404,157 $1,048,381 $1,456,305
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE> 52
HANGER ORTHOPEDIC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - THE COMPANY
Hanger Orthopedic Group, Inc. ("the Company") is one of the
nation's largest practice management companies in the orthotic and prosthetic
("O&P") rehabilitation industry. In addition to providing O&P patient care
services through its operating subsidiaries, the Company also manufactures and
distributes components and finished patient care products to the O&P industry
primarily in the United States. Hanger's largest subsidiary, J.E. Hanger, Inc.
("JEH"), was founded in 1861 by a Civil War amputee and is the oldest company
in the O&P industry in the United States. Orthotics is the design,
fabrication, fitting and supervised use of custom-made braces and other devices
that provide external support to treat musculoskeletal disorders. Prosthetics
is the design, fabrication and fitting of custom-made artificial limbs.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
Use of Estimates: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash includes currency on hand and
demand deposits with financial institutions. Cash equivalents are highly
liquid investments with original maturities of three months or less at the date
of purchase.
Fair Value of Financial Instruments: At December 31, 1994 and
1995, the carrying value of financial instruments such as cash and cash
equivalents, trade receivables, trade payables, and debt approximates fair
value.
Inventories: Inventories, which consist principally of
purchased parts, are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
Long-Lived Asset Impairment: In March 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standard
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" which is effective for years beginning
after December 15, 1995. This statement established criteria for recognizing,
measuring and disclosing impairments of long-lived assets, including
intangibles and goodwill. The
F-7
<PAGE> 53
Company plans to adopt SFAS 121 in 1996, and does not expect that the adoption
will have a material effect on its consolidated financial position or results
of operations.
Property, Plant and Equipment: Property, plant and equipment
are recorded at cost. The cost and related accumulated depreciation of assets
sold, retired or otherwise disposed of are removed from the respective
accounts, and any resulting gains or losses are included in the statement of
operations. Depreciation is computed for financial reporting purposes using the
straight-line method over the estimated useful lives of the related assets.
Depreciation expense was approximately $875,000, $1,090,000 and $1,136,000 for
the years ended December 31, 1993, 1994 and 1995, respectively.
Intangible Assets: Intangible assets, including non-compete
agreements, are recorded based on agreements entered into by the Company and
are being amortized over their estimated useful lives ranging from 5 to 7 years
using the straight-line method. Other intangible assets are recorded at cost
and are being amortized over their estimated useful lives of up to 16 years
using the straight-line method. Excess cost over net assets acquired
represents the excess of purchase price over the value assigned to net
identifiable assets of purchased businesses and is being amortized using the
straight-line method over 40 years. It is the Company's policy to periodically
review and evaluate whether there has been a permanent impairment in the value
of excess cost over net assets acquired and other intangible assets. Factors
considered in the evaluation include current operating results, trends,
prospects and anticipated undiscounted future cash flows.
Pre-opening Costs: The Company capitalizes certain costs
relating to the pre-opening of new patient care centers. These costs are
amortized over a twelve-month period using the straight-line method commencing
on the date in which the patient care center opens.
Revenue Recognition: Revenue on the sale of orthotic and
prosthetic devices is recorded when the device is accepted by the patient.
Deferred revenue represents billings made prior to the final fitting and
acceptance by the patient. Revenue is recorded at its net realizable value,
taking into consideration all governmental and contractual discounts and
allowances.
Credit Risk: The Company primarily provides customized
devices or services throughout the United States and is reimbursed by the
patients' third-party insurers or governmentally funded health insurance
programs. The Company performs ongoing credit evaluations of its distribution
customers. The accounts receivable are not collateralized. The ability of the
Company's debtors to meet their obligations is dependent upon the financial
stability of the insurers of the Company's customers and future legislation and
regulatory actions. Additionally, the Company maintains reserves for potential
losses from these receivables that historically have been within management's
expectations. The Company maintains its cash and cash equivalents with high
quality financial institutions.
Income Taxes: Effective January 1, 1993, the Company adopted
SFAS No. 109 "Accounting for Income Taxes" (SFAS 109), which requires
recognition of deferred income tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred income tax liabilities
and assets are
F-8
<PAGE> 54
determined based on the difference between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the differences are expected to reverse. SFAS 109 also provides for the
recognition of deferred tax assets if it is more likely than not that the
assets will be realized in future years. The Company recognized a cumulative
effect to January 1, 1993 of the change in accounting for income taxes of
approximately $1,189,000 ($.14 per share). Approximately $2,918,000 of the net
operating loss carryforwards recognized by the Company in the cumulative effect
on January 1, 1993 were generated prior to the acquisition of the Company in
1989. As a result, the Company has reduced excess of cost over net assets
acquired related to this acquisition by approximately $992,000 through the
recording of the cumulative effect.
Net Income (Loss) Per Share: Net income (loss) per common
share is computed on the basis of the weighted average number of shares of
common stock issued and outstanding. In 1994 common share equivalents are not
included in the per share calculations because they are anti-dilutive. Income
(loss) before extraordinary item and cumulative effect of accounting change
applicable to common stock has been adjusted for the dividends declared
applicable to certain classes of cumulative preferred stock.
Stock Based Compensation: In October 1995, the Financial
Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is required to be adopted for fiscal years
beginning after December 15, 1995. SFAS No. 123 encourages a fair value based
method of accounting for employee stock options or similar equity instruments,
but allows continued use of the intrinsic value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employee." Companies electing to continue to use APB No.
25 must make proforma disclosures of net income and earnings per share as if
the fair value based method of accounting had been applied. The Company is
evaluating the provisions of SFAS No. 123, but has not yet determined whether
it will continue to follow the provisions of APB No. 25 or change to the fair
value method of SFAS No. 123.
F-9
<PAGE> 55
NOTE C - SUPPLEMENTAL CASH FLOW FINANCIAL INFORMATION
The following are the supplemental disclosure requirements for
the statements of cash flows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Cash paid during the period for:
Interest $ 928,729 $1,690,742 $2,166,877
Income taxes 652,000 212,000 712,800
Non-cash financing and investing activities:
Preferred dividends declared 18,199 19,882 21,799
Issuance of notes in connection with acquisitions 1,600,000 1,925,000 175,000
Issuance of common stock in connection with 330,000 200,000
acquisitions
Reduction in the excess cost over net assets acquired
through the utilization of net operating loss
carryforwards 992,081
</TABLE>
NOTE D - ACQUISITIONS AND SALE OF ASSETS
During 1993, the Company acquired the net assets of several
orthotic and prosthetic companies and one manufacturer of orthotic devices.
The purchase price for these companies was $2,987,473 in cash plus $1,600,000
in notes and 53,793 shares of common stock valued at $330,000. The notes are
payable over 3 to 5 years with interest ranging from 6% to 7%.
During 1994, the Company acquired the net assets of several
orthotic and prosthetic companies and one manufacturer of orthotic devices.
The purchase price for these companies was $2,780,000 in cash, plus $1,925,000
in notes and 32,653 shares of common stock valued at $200,000. The notes are
payable over one to five years with interest from 6% to 7%.
During 1995, the Company acquired two orthotic and prosthetic
companies. The aggregate purchase price was $385,000 comprised of $210,000 in
cash and $175,000 in promissory notes. The cash portion of the purchase prices
for these acquisitions was borrowed under the Company's revolving credit
facility.
All of the above acquisitions have been accounted for as
business combinations in accordance with the purchase method. The results of
operations for these acquisitions are included in the Company's results of
operations from their date of acquisition. Excess cost over net assets acquired
in these acquisitions amounting to approximately $3,557,000 and $376,000 in
1994 and 1995, respectively, are amortized using the straight-line method over
40 years.
F-10
<PAGE> 56
The following table summarizes the unaudited consolidated pro
forma information, assuming the acquisitions had occurred at the beginning of
each of the following periods:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Net sales $51,392,000 $52,512,000
Income from operations 152,000 5,850,000
Net income (loss) (2,550,000) 2,143,000
Net income (loss) per share $(.31) $.26
</TABLE>
The pro forma results do not necessarily represent results
which would have occurred if the acquisitions had taken place at the beginning
of each period, nor are they indicative of the results of future combined
operations.
During 1994, the Company commenced discussions and on March
23, 1995, the Company entered into an agreement to sell certain assets related
to its operations in southern California for $288,000 under a 10-year
promissory note bearing interest at 8%. As a result, the Company recorded a
loss in 1994 of $2,150,000, which primarily consisted of the write-off of the
related goodwill.
NOTE E - DISCONTINUED OPERATIONS
In the fourth quarter of 1993, the Company declared its intent
to seek a buyer for the assets of its subsidiary, Apothecaries, Inc.
("Apothecaries"). On September 30, 1994, the Company sold those assets for
$181,000 in cash and reported a loss on the sale of $159,379 (net of a tax
benefit of $115,412). Apothecaries has been classified in the Consolidated
Statements of Operations as a discontinued operation, with all revenue,
expenses and other income having been excluded from continuing operations.
The operating results of Apothecaries for the year ended
December 31, 1993, and for the nine months ended September 30, 1994, were as
follows:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Sales $1,462,657 $1,294,341
Loss before taxes (174,808) (426,991)
Tax benefit (70,000) (179,336)
---------- ----------
Loss from discontinued operations $ (104,808) $ (247,655)
========== ==========
</TABLE>
NOTE F - RESTRUCTURING COSTS
Results of operations for 1994 include a charge of $460,000
which was recorded in the fourth quarter for costs associated with the closing
of several patient care centers in conjunction with management's plan to
consolidate the Company's operations. The restructuring charges include future
rental payments on buildings that the Company has abandoned, for which the
leases cannot be cancelled and subleasing attempts have been unsuccessful.
NOTE G - INVENTORY
Inventories at December 31, 1994 and 1995 consist of the
following:
F-11
<PAGE> 57
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Raw materials $8,078,838 $ 8,526,760
Work in-process 835,934 1,107,289
Finished goods 550,414 678,240
---------- -----------
$9,465,186 $10,312,289
========== ===========
</TABLE>
NOTE H - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1994
and 1995:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Revolving credit facility expiring in June, 1997 with interest
payable monthly at the Company's option of either the Bank's
prime rate plus .25% or the three month LIBOR plus 2.50%
(8.175% and 8.75% at December 31, 1995 and
8.25% and 9.0% at December 31, 1994) $12,800,000 $12,700,000
Senior term loans, with principal and interest payable monthly
and with one loan at the Bank's prime rate plus .75%, with the
remaining loans at the Company's option of either the Bank's
prime rate plus .50% or the three-month LIBOR plus 2.75%
(9.25% and 8.4375% at December 31, 1995 and 9.25%,
9.0% and 8.25% at December 31, 1994) with balloon
payments due in November and December 1998 5,210,301 4,596,663
8.5% Convertible Junior Subordinated Note 4,000,000 4,000,000
8.25% Convertible Junior Subordinated Note 1,000,000 1,000,000
Subordinated seller notes with principle and interest payable
in either monthly or quarterly installments at interest rates
ranging from 6% to 10%, maturing through April 15, 1999 3,344,966 2,375,609
Other subordinated notes 106,519 81,805
------------ -----------
26,461,786 24,754,077
Less current portion 2,132,076 1,828,953
------------ -----------
$ 24,329,710 $22,925,124
============ ===========
</TABLE>
Under the terms of the Financing and Security Agreement, as
amended, between NationsBank, N.A. ("the Bank") and the Company (the "Financing
Agreement"), the Bank currently provides a $13.0 million revolving credit
facility (the "Revolving Credit Facility"), which reflects a reduction from its
original amount of $13.5 million. The Revolving Credit Facility bears
interest, at the Company's option, at either a fluctuating rate equal to the
Bank's prime lending rate plus .25% or a fixed rate equal to the three-month
London InterBank Offered Rate ("LIBOR") plus 2.5%. On June 30, 1995, the
Company made a mandatory curtailment payment of $250,000 to the Bank to reduce
the maximum
F-12
<PAGE> 58
amount of the Revolving Credit Facility from $13.5 million to $13.25 million.
On October 2, 1995, the Company and the Bank entered into Amendment No. 8 to
the Financing Agreement which reduced the mandatory curtailment payment by the
Company under the Revolving Credit Facility from a $1.0 million curtailment to
a $250,000 curtailment at September 30, 1995. On September 30, 1995, the
Company made such mandatory curtailment payment of $250,000 to the Bank to
reduce the maximum amount of the Revolving Credit Facility from $13.25 million
to its current amount of $13.0 million. On November 13, 1995, the Company and
the Bank agreed to the terms of Amendment No. 9 to the Financing Agreement,
which (i) eliminated the previously required mandatory curtailment payments of
the Revolving Credit Facility of $250,000 at each of December 31, 1995 and
March 31, 1996, and (ii) extended the expiration date of the Revolving Credit
Facility from September 30, 1996 to June 30, 1997. Borrowings outstanding
under the Revolving Credit Facility amounted to $12.7 million at December 31,
1995.
The Revolving Credit Facility is collateralized by
substantially all the assets of the Company and contains covenants restricting,
among other things, the payment of dividends, the making of acquisitions and
other transactions, and imposes net worth, debt service coverage and other
financial maintenance requirements. At December 31, 1994, the Company was in
default under the fixed charge ratio covenant of the Revolving Credit Facility.
The event was cured by a March 31, 1995 amendment. In the first quarter of
1995, the Company was in default under the debt to net worth covenant of the
Revolving Credit Facility. The Bank has issued a waiver to the Company for
this default.
In September 1994, the Company repaid a $1.8 million term loan
from the Bank with a portion of the proceeds from a new $3.0 million term loan
provided by the Bank. This new $3.0 million term loan bears interest at the
Bank's prime rate plus .75%, provides for monthly principal and interest
payments and matures on March 31, 1998. In addition to such new term loan, the
Company also has three other existing term loans with the Bank, consisting of:
(i) a $1.575 million term loan provided by the Bank on November 17, 1993 which
currently bears interest at a fixed rate equal to the three-month LIBOR plus
2.75% and matures on November 30, 1998; (ii) a $600,000 term loan provided by
the Bank on December 2, 1993, which currently bears interest at the Bank's
prime lending rate plus .50% and matures on December 31, 1998; and (iii) a
$200,000 term loan provided by the Bank on May 3, 1994, which currently bears
interest at the three-month LIBOR plus 2.75% and matures on April 30, 1999.
The Company has a $4,000,000 Convertible Junior Subordinated
Note with (the "8.5% Junior Note") interest payable semi-annually. The 8.5%
Junior Note matures in March 1999 and is convertible into shares of common
stock at $8.80 per share. The Company may require, subject to certain
conditions, that the 8.5% Junior Note be fully converted in the event the
market price of the common stock exceeds $18.00 for ten consecutive business
days. The interest rate of the 8.5% Junior Note may increase by up to two
percent in the event of an uncured default. The 8.5% Junior Note is not
collateralized.
The Company has a $1,000,000 Convertible Junior Subordinated
Note (the "8.25% Junior Note") which matures in March 1999 in the principal
amount of $1,000,000 at 8.25% interest payable semi-annually. The Junior Note
matures in March 1999 and is convertible into shares of common stock at $6.74
per share. The Company may require that the Junior Note be fully converted in
the event the market price of the common stock exceeds $9.16 for ten
consecutive business days. The 8.25% Junior Note is not collateralized.
F-13
<PAGE> 59
Deferred financing costs of $39,000 relating to retirement of
debt have been expensed and accounted for as an extraordinary item in 1993.
Maturities of long-term debt, at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996 $ 1,828,953
1997 14,737,079
1998 2,848,022
1999 5,340,023
------------
$ 24,754,077
============
</TABLE>
NOTE I - INCOME TAXES
The provisions for income taxes for the years ended December
31, 1993, 1994 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $1,337,417 $ 454,955 $ 541,626
State 350,297 238,000 370,973
---------- ----------- -----------
Total 1,687,714 692,955 912,599
Deferred:
Federal and State (61,008) (334,926) 631,899
---------- ----------- -----------
Provision for income taxes on
income before discontinued
operations and extraordinary item 1,626,706 358,029 1,544,498
Tax benefit from
discontinued operations (70,000) (179,336)
Tax benefit from
sale of discontinued operations (115,412)
Tax benefit from extra-
ordinary item (16,000)
---------- ------------ ------------
Provision for income taxes $1,540,706 $ 63,281 $ 1,544,498
========== ============ ============
</TABLE>
F-14
<PAGE> 60
A reconciliation of the federal statutory tax rate to the
effective tax rate for the years ended December 31, 1993, 1994 and 1995 is as
follows:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory tax rate $ 1,095,207 $ (653,608) $1,251,349
Increase (reduction) in taxes
resulting from:
State income taxes (net of
federal effect) 231,196 151,080 249,047
Amortization of the excess cost
over net assets acquired 100,599 178,160 92,777
Disposal of assets 459,340
Valuation allowance 70,000 (70,000)
Other, net 199,704 153,057 21,325
----------- ----------- ----------
Provision for income taxes on
income before extraordinary item 1,626,706 358,029 1,544,498
Tax benefit from discontinued
operations (70,000) (179,336)
Tax benefit from sale of discontinued
operations (115,412)
Tax benefit from extraordinary
item (16,000)
----------- ----------- ----------
Provision for income taxes $ 1,540,706 $ 63,281 $1,544,498
=========== =========== ==========
</TABLE>
Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities as of December 31, 1994 and 1995 are as
follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Deferred Tax Liabilities:
Book basis in excess of tax $ 775,838 $ 775,838
Depreciation and amortization 584,132 666,920
-------------- ------------
1,359,970 1,442,758
-------------- ------------
Deferred Tax Assets:
Net operating loss, Federal 420,210 369,624
Net operating loss, States 171,035 211,165
Accrued expenses 225,500 334,790
Reserve for bad debts 339,773 393,322
Alternative minimum tax 325,483
Inventory capitalization 245,318 218,086
Other 16,619
Restructuring 114,920 13,305
Asset dispositions 272,000
-------------- ------------
Gross deferred tax assets 2,130,858 1,540,292
-------------- ------------
Valuation allowance (70,000)
-------------- ------------
Net deferred tax assets $ 700,888 $ 97,534
============== ============
</TABLE>
For Federal and State tax purposes at December 31, 1995, the
Company has available approximately $1,087,000 of net operating loss
carryforwards expiring from 1998 through 2007 and
F-15
<PAGE> 61
are subject to a limitation in their utilization of approximately $149,000 per
year as a result of several changes in shareholder control.
At December 31, 1995, the Company evaluated the realizability
of the state net operating losses, and based upon revised projections of
taxable income by state, has concluded that a valuation allowance is not
necessary. The remaining balance of the deferred tax assets should be realized
through future taxable income and the reversal of taxable temporary
differences.
NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is engaged in legal proceedings in the normal
course of business. The Company believes that any unfavorable outcome from
these suits not covered by insurance would not have a material adverse effect
on the financial position or results of operations of the Company.
NOTE K - OPERATING LEASES
The Company leases office space under noncancellable operating
leases. Certain of these leases contain escalation clauses based on the
consumer price index. Future minimum rental payments, by year and in the
aggregate, under operating leases with terms of one year or more consist of the
following at December 31, 1995:
<TABLE>
<S> <C>
1996 $1,841,000
1997 1,135,000
1998 778,000
1999 513,000
2000 368,000
Thereafter 284,000
----------
$4,919,000
==========
</TABLE>
Rent expense was approximately $2,172,000, $2,499,000 and
$2,144,000 for the years ended December 31, 1993, 1994 and 1995 respectively.
NOTE L- PENSION AND PROFIT SHARING PLANS
Previously, the Company had a 401(k) Saving and Retirement
Plan (the "Plan") available to all employees of J.E. Hanger, Inc. ("JEH"), a
wholly-owned subsidiary of the Company. The Company matched the participant's
contributions and made discretionary matching contributions. On January 1,
1993, the Company froze the Plan such that no new employees of JEH were able to
participate. On December 31, 1995, the Company terminated the Plan. There was
no employer contribution made to the Plan in 1995. Benefit expense was
$132,000 and $130,000 for the years ended December 31, 1993 and 1994,
respectively.
The Company maintains a 401(k) Savings and Retirement plan to
include all of the employees of the Company. The Company may make
discretionary contributions. Under this 401(k) plan, employees may defer such
amounts of their compensation up to the levels permitted by the Internal
Revenue Service. The Company has not made any contributions to this plan.
F-16
<PAGE> 62
NOTE M - REDEEMABLE PREFERRED STOCKS
The Company has 10,000,000 authorized shares of preferred
stock, par value $.01 per share, which may be issued in various classes with
different characteristics.
The 300 issued and outstanding shares of non-voting,
non-convertible Class C preferred stock have an aggregate liquidation value
equal to $150,000 plus accrued dividends at 9% and are required to be redeemed
on February 1, 2000. Accrued dividends at December 31, 1994 and 1995, were
$20,000 and $22,000 respectively.
The 100,000 authorized shares of Class F preferred stock,
accrues dividends cumulatively at 16.5% and is required to be redeemed prior to
any other class of preferred stock, before September 1998, for the aggregate
liquidation value of $1,000 per share, plus accrued dividends. As of December
31, 1994 and 1995, none of the Class F preferred stock was issued or
outstanding.
NOTE N - WARRANTS AND OPTIONS
WARRANTS
In November 1990, the Company entered into a $2,450,000 Note
which required the Company, based on certain repayment provisions, to issue to
an affiliate in 1991 warrants to purchase 297,883 and 322,699 shares of common
stock at $4.16 and $7.65 per share, respectively. These warrants are
exercisable through December 31, 2001. The Company had allocated $1,600,000 of
the debt proceeds to the warrant. In 1992, the Note was repaid and the
unamortized portion of the debt discount was expensed. No warrants have been
exercised to date.
OPTIONS
Under the Company's 1991 Stock Option Plan ("SOP"), 1,500,000
shares of common stock are authorized for issuance under options that may be
granted to employees. The number of shares that remain available for grant at
December 31, 1994 and 1995, were 1,007,417 and 892,790, respectively. Under
the SOP, options may be granted at an exercise price not less than the fair
market value of the common stock on the date of grant. Vesting and expiration
periods are established by the Compensation Committee of the Board of Directors
and generally vest three years following grant and generally expire eight to
ten years after grant.
In addition to the SOP, non-qualified options may be granted
with exercise prices that are less than the current market value. Accordingly,
compensation expense for the difference between current market value and
exercise price is recorded at the date of grant.
F-17
<PAGE> 63
The following is a summary of option transactions and exercise
prices:
<TABLE>
<CAPTION>
Stock Non-qualified
Option Plan Stock Options
------------------------------ ----------------------------------
Price Price
Shares Per Share Shares Per Share
-------- --------- -------- -----------
<S> <C> <C> <C>
Outstanding at
December 31, 1993 473,434 47,693
------- --------
Granted 82,000 $ 6.00 30,000 $ 4.38
Terminated (17,833) $6.00 to $12.25
Expired (3,559) $14.08 (5,191) $14.08
------- --------
Outstanding at
December 31, 1994 534,042 $6.00 to $12.25 72,502 $4.38 to $6.00
------- --------
Granted 171,918 $2.75 to $3.25 37,500 $ 3.00
Terminated (57,291) $6.00 to $12.25
------- --------
Outstanding at
December 31 1995 648,669 $2.75 to $12.25 110,002 $3.00 to $6.00
======= =======
Vested at
December 31, 1995 361,668 34,375
======= =======
</TABLE>
In August 1990, a principle shareholder (the "Grantor")
granted options (the "Manager Options") to three members of management (the
"Managers") of the Company to purchase 413,750 shares of Company Common Stock
owned by the Grantor at an exercise price of $6.00 per share. The Grantor
agreed upon exercise of the Manager Options to transfer 27.5% of the exercise
price of each Manager Option to the Company as a capital contribution. The
Manager Options were scheduled to expire in May 1994.
In March 1991, the Grantor granted options (the "Additional
Manager Options") to the Managers to purchase 248,265 and 100,000 shares of
Company Common Stock owned by the Grantor at exercise prices of $6.00 and $8.00
per share, respectively. The Additional Manager Options were to expire in
December 1994.
In May 1994, the Manager Options expired and the Grantor (i)
agreed to extend the expiration date from December 1994 to December 1995
relating to an aggregate of 264,124 shares of Company Common Stock, and (ii)
grant new options (the "New Manager Options") to the Managers to purchase
313,788 shares of Company Common Stock owned by the Grantor at an exercise
price of $6.00 per share. The remaining 84,141 shares of Company Common Stock
which underlied the balance of the Additional Manager Options continued to have
an expiration date of December 1994. The New Manager Options vested
immediately upon the date of grant and were scheduled to expire in May 1995.
In September 1994, the Grantor agreed to (i) decrease the
option exercise price of each of the New Manager Options and the previously
extended portion of the Additional Manager Options relating to 264,124 shares
of Company Common Stock to the then current market price of the Company Common
Stock of $3.875 per share and (ii) extend the expiration dates of all such New
Manager Options and such portion of the Additional Manager Options to March
1996.
In October 1995, the Grantor agreed to allow for the payment
of the option exercise price of all New Manager Options and Additional Manager
Options in cash and/or the reduction in the remaining number of shares issuable
upon the exercise of such options, as well as to extend the
F-18
<PAGE> 64
expiration dates of all the New Manager Options and Additional Manager Options
as follows: (i) the expiration date of New Manager Options relating to 232,720
shares was extended from March 22, 1996 to March 22, 1997, (ii) the expiration
date of new Manager Options relating to 81,068 shares was extended from March
22, 1996 to December 31, 1997, (iii) the expiration date of Additional Manager
Options relating to 93,389 shares was extended from March 22, 1996 to March 22,
1997 and (iv) the expiration date of Additional Manager Options relating to
170,735 shares was extended from March 22, 1996 to December 31, 1997.
Under the Company's 1993 Non-Employee Director Stock Option
Plan, 250,000 shares of common stock are authorized for issuance to directors
of the Company who are not employed by the Company or any affiliate of the
Company. Under this plan, an option to purchase 5,000 shares of common stock
is granted automatically on an annual basis to each eligible director on the
third business day following the date of each Annual Meeting of Stockholders of
the Company at which the eligible director is elected. The exercise price of
each option will be equal to 100% of the fair market value of the common stock
on the date of grant. Each option will vest at the rate of 25% each year for
the first four years after the date of grant of the option and each such option
will expire ten years from the date of grant; provided, however, that in the
event of termination of a director's service other than by reason of total and
permanent disability or death, then the outstanding options of such holder will
expire three months after such termination. Outstanding options remain
exercisable for one year after termination of service by reason of total and
permanent disability or death. The number of shares that remain available for
grant at December 31, 1994 and 1995 were 190,000 and 160,000, respectively.
F-19
<PAGE> 65
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Hanger
Orthopedic Group, Inc. and Subsidiaries is included on Page F-1 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on Page 43
of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 8, 1996
S-1
<PAGE> 66
HANGER ORTHOPEDIC GROUP, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
YEAR CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS YEAR
---- -------------- ------- -------- ---------- ----
<S> <C> <C> <C> <C> <C>
1995 Allowance for
doubtful accounts $976,000 $1,009,000 $841,000 $1,144,000
1994 Allowance for
doubtful accounts $662,000 $974,000 $660,000 $976,000
1993 Allowance for
doubtful accounts $447,000 $688,000 $473,000 $662,000
</TABLE>
S-2
<PAGE> 1
Memphis Orthopedic, Inc.
7700 Old Georgetown Road
Second Floor
Bethesda, Maryland 20814
March 17, 1995
Mr. Robert Brown, President
Gulf Coast Orthopaedic Supply, Inc.
3660 Central Avenue, Suite 9
Fort Myers, FL 33901
Re: Purchase of Business Assets
Dear Mr. Brown:
This letter will memorialize the agreement by Memphis
Orthopedic, Inc. (the "Company"), a wholly-owned subsidiary of Hanger
Orthopedic Group, Inc., to purchase from Gulf coast Orthopaedic Supply, Inc.
(the "Seller") and you, as the sole owner of the stock of the Seller (the
"Shareholder"), the business inventory, machinery, equipment, business name,
customer lists, customer records, furniture, fixtures, signs and telephone
numbers of the Seller as set forth on Exhibit A hereto, together with the
execution by the Seller and Shareholder of a covenant not to compete with the
Company and the separate execution by Gary Curtis of an employment and
non-competition agreement with the Company (such items are collectively
referred to hereinafter as the "Assets"). The Company will not assume the
existing lease ("the Lease") of the Seller relating to the business premises
located at 3660 Central Avenue, Suite 9, Fort Myers, Florida 33901. The
Company will not assume any liabilities whatsoever of the Seller or
Shareholder, including, but not limited to, any liability of the Seller or
Shareholder under the Lease.
The form of convenant not to compete to be executed by the
Seller and Shareholder is attached hereto as Exhibit B. The form of employment
and non-competition agreement to be executed by Gary Curtis is attached hereto
as Exhibit C.
The purchase price for the Assets, which is based on the
current valuation of the Assets, will be $35,000.00, all of which shall be paid
in cash at a closing that shall occur on or before March 17, 1995.
The closing shall take place at the offices of the Company.
(The Seller and Shareholder shall provide to the Company, prior to the closing,
with an updated accounting and valuation of the Assets which, if necessary, may
result in an appropriate adjustment in the purchase price for the Assets.)
<PAGE> 2
the Company (i) all documents necessary to vest the company with the
unencumbered ownership of the Assets, (ii) the covenant not to compete as
executed by the Seller and Shareholder, (iii) the employment and
non-competition agreement as executed by Gary Curtis and (iv) a Bill of Sale,
substantially in the form of Exhibit D hereto. At the closing, the Company
shall deliver to the Seller a check for $35,000. Furthermore, from and after
the closing, the Seller and Shareholder shall make the Assets available for
transport by the Company.
Indemnification of Seller appears in Exhibit E.
From and after the closing, the Seller and Shareholder consent
to the exclusive ownership and use by the Company or the Company's designee of
the business name of "Gulf Coast Orthopaedic Supply."
The Seller and Shareholder represent and warrant to the
Company as follows: (a) the Seller is, and at the closing shall be, duly
organized and validly existing as a corporation under the laws of the State of
Florida with all requisite power and authority to enter into the transactions
described in this letter and to perform its obligations hereunder; (b) neither
the Seller nor the Shareholder knows or has any reasonable ground to know of
any basis for the assertion against the Seller or Shareholder, as of the date
of their signing of this letter agreement, of any claim or liability of any
nature against either of them which could have an affect on the Assets or their
ownership interest in the Assets; (c) as of the date of their signing of this
letter agreement, neither the Seller nor the Shareholder knows of any damage,
destruction or loss to any of the Assets, whether or not covered by insurance,
which has adversely effected or impaired or which may adversely effect or
impair the Assets or the ability of the Seller to conduct its business with the
Assets; (d) the Seller and Shareholder have filed all required federal, state
and local tax returns and reports and have duly paid all taxes which are due,
and will pay those taxes that will be due when they become due; (e) the Seller
has good title, free and clear of all liens, claims, encumbrances, charges,
easements and restrictions of any nature whatsoever, to the Assets; (f) the
Assets are in good operating and/or marketable condition and repair and, in the
specific case of the customer lists and customer records, such lists and
records are current, up-to-date and have never been licensed, sold,
disseminated or loaned to any other person or entity; (g) there is no suit,
action, proceeding, inquiry or any change in the laws effecting the Assets
which, to the knowledge of the Seller or the Shareholder,
2
<PAGE> 3
might, severally or in the aggregate, adversely effect the Assets, the Seller
or the Shareholder; (h) the Seller and the Shareholder have action to approve
the transactions described in this letter agreement and the performance of the
obligations of the Seller and Shareholder hereunder; (i) no consents of any
federal, state or local governmental body are necessary in connection with the
sale of the Assets by the Seller and Shareholder to the Company; (j) the Seller
and the Shareholder have no knowledge of any claim or reason to believe that
they are or may be infringing on or otherwise acting adversely to the rights of
any other person under or in respect of the business name of "Gulf Coast
Orthopaedic Supply," nor is the Seller or the Shareholder under any obligation
or under any liability to make any payments by way of royalties, fees or
otherwise to any owner or licensee or other claimant to the business name of
"Gulf Coast Orthopaedic Supply;" (k) neither the Seller nor the Shareholder are
a party to any agreement or instrument or subject to any restriction which
would materially and adversely effect the Assets; and (l) no representation or
warranty by the Seller or the Shareholder herein contains or will contain any
untrue statement of material fact or omit to state any material fact required
to make the information herein not misleading.
All negotiations relating to the transactions contemplated by
this letter agreement have been carried on without the intervention of any
other person in any such manner so as to give rise to any valid claim against
the Seller, the Shareholder or the company for a finder's fee, brokerage
commission or other like payment. The Seller and Shareholder agree to
indemnify the Company from any claims for finder's fees, brokerage commissions
or other like payments.
The Seller assumes all risk of destruction, loss or damage due
to fire or other casualty up through the time of the closing hereunder. Upon
the destruction, loss or damage due to fire or other casualty of any part of
the Assets prior to the closing, the Company shall have the option to either
terminate its obligation to purchase the Assets or to offer to the Seller and
the Shareholder an appropriate adjustment in the purchase price. The Seller
and the Shareholder agree to comply with all applicable provisions of the
Uniform Commercial Code - Bulk Transfers provisions and to indemnify the
Company against and save the Company harmless from all liabilities and
obligations arising from the failure of the Seller and the Shareholder to
comply with the Uniform Commercial Code - Bulk Transfers provisions.
3
<PAGE> 4
The Company, the Seller and the Shareholder shall each pay all
of their own respective costs and expenses incurred with respect to the
transactions contemplated under this letter agreement, including without
limitation, legal, accounting and other professional fees incurred or to be
incurred by such party in negotiating and carrying out the transactions
contemplated under this letter agreement.
The provisions of this letter agreement can only be amended by
a written instrument signed by both the Company and the Seller. This letter
agreement shall be governed by the laws of the State of Florida.
Please sign and date this letter agreement where indicated
below and return this document to me as promptly as possible.
Sincerely,
MEMPHIS ORTHOPEDIC, INC.
/s/ IVAN R. SABEL
-----------------------------
Ivan R. Sabel
President
SEEN AND AGREED TO:
GULF COAST ORTHOPAEDIC SUPPLY, INC.
By: /s/ ROBERT BROWN Dated: March 17, 1995
----------------------------------
Robert Brown
President
ATTEST:
By: /s/ MARIA E. RIVERA Dated: March 17, 1995
---------------------------------
Name: Maria E. Rivera
Secretary
N0TARY PUBLIC, STATE OF FLORIDA AT LARGE
[SEAL] MY COMMISSION EXPIRES APRIL 24, 1995
BONDED THRU ASHTON AGENCY INC.
4
<PAGE> 1
EXHIBIT 10(yyy)
HANGER ORTHOPEDIC GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of June 14, 1995, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and B.
Martha Cassidy (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company desires to grant to the Optionee a stock
option under the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Plan") to purchase shares of the Company's common stock, par value $.01
per share (the "Common Stock"), in consideration for the Optionee's service as
a member of the Board of Directors of the Company (the "Board of Directors").
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions
of this Agreement and the Plan, the Company hereby grants to the Optionee the
right and option to purchase from the Company all or part of an aggregate of
5,000 shares of Common Stock. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE AND TIME OF EXERCISE. The per-share
purchase price at which the shares subject to option may be purchased by
Optionee pursuant to the exercise of this option shall be $3.00, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on June 14, 1995, the date of grant of this option. In
accordance with Section 6(a) of the Plan, such date is the third business day
following the June 9, 1995 Annual Meeting of Shareholders. The Optionee's
right to exercise this option shall vest as to 25% of the shares of Common
Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 5 below, at
the close of business on June 14, 2005.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired upon such
exercise and indicating whether the exercise is being paid for (i) in cash,
(ii) in shares of Common Stock already owned
<PAGE> 2
by the Optionee and valued at their fair market value on the date of exercise
of the option, or (ii) by a combination of (i) and (ii) above.
4. NON-TRANSFERABILITY. This option is not transferable
by the Optionee except as otherwise provided in Paragraph 5 below, and during
the Optionee's lifetime is exercisable only by him or her.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE BOARD
OF DIRECTORS. In the event of termination of the Optionee's membership on the
Board of Directors by reason of total and permanent disability, this option
shall continue to mature and become exercisable in accordance with Paragraph 3
above and the Optionee may exercise the matured installment(s) at any time
within one year after such disability, but in no event after the expiration
date of the option. In the event of the termination of the Optionee's
membership on the Board of Directors by reason of the death of the Optionee,
the option shall immediately mature and become exercisable in full by the
Optionee's legal representative at any time within one year after death, but in
no event after the expiration date of the option. In the event of the
termination of the Optionee's membership on the Board of Directors other than
by reason of total and permanent disability or death, this option will expire
three months after such termination.
6. ADJUSTMENT. If there shall be any change in the
Common Stock through a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, exchange of stock or other change in the corporate
structure, appropriate adjustments shall be made in the aggregate number and
kind of shares or other securities subject to this option and in the purchase
price of this option to reflect such change.
7. MERGER, CONSOLIDATION OR LIQUIDATION. At least 30
days prior written notice of a merger, consolidation or liquidation of the
Company shall be given by the Company to the Optionee, in which case vesting
shall accelerate and the Option shall become fully exercisable. Upon the
occurrence of a merger, consolidation or liquidation of the Company, this
option shall automatically terminate unless the surviving or acquiring
corporation shall assume this option or substitute a new option for it.
8. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This
option and all rights hereunder shall be non-assignable and non-transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan
nor this option shall constitute or be evidence of any agreement or
understanding, express or implied, that the Optionee has a right to continue as
a member of the Company's Board of Directors for any
<PAGE> 3
period of time.
(b) NO STOCKHOLDER'S RIGHTS FOR OPTIONS. The Optionee
shall have no rights as a stockholder with respect to the shares covered by
this option until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for any dividends or other rights for which the
record date is prior to the date such certificate is issued.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its Secretary, and the Optionee has affixed his
or her signature hereto.
B. MARTHA CASSIDY
--------------------------------------
B. Martha Cassidy
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ---------------------- -----------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
3
<PAGE> 1
EXHIBIT 10(zzz)
HANGER ORTHOPEDIC GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of June 14, 1995, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and
Thomas P. Cooper (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company desires to grant to the Optionee a stock
option under the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Plan") to purchase shares of the Company's common stock, par value $.01
per share (the "Common Stock"), in consideration for the Optionee's service as
a member of the Board of Directors of the Company (the "Board of Directors").
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions
of this Agreement and the Plan, the Company hereby grants to the Optionee the
right and option to purchase from the Company all or part of an aggregate of
5,000 shares of Common Stock. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE AND TIME OF EXERCISE. The per-share
purchase price at which the shares subject to option may be purchased by
Optionee pursuant to the exercise of this option shall be $3.00, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on June 14, 1995, the date of grant of this option. In
accordance with Section 6(a) of the Plan, such date is the third business day
following the June 9, 1995 Annual Meeting of Shareholders. The Optionee's
right to exercise this option shall vest as to 25% of the shares of Common
Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 5 below, at
the close of business on June 14, 2005.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired upon such
exercise and indicating whether the exercise is being paid for (i) in cash,
(ii) in shares of Common Stock already owned
<PAGE> 2
by the Optionee and valued at their fair market value on the date of exercise
of the option, or (ii) by a combination of (i) and (ii) above.
4. NON-TRANSFERABILITY. This option is not transferable
by the Optionee except as otherwise provided in Paragraph 5 below, and during
the Optionee's lifetime is exercisable only by him or her.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE BOARD
OF DIRECTORS. In the event of termination of the Optionee's membership on the
Board of Directors by reason of total and permanent disability, this option
shall continue to mature and become exercisable in accordance with Paragraph 3
above and the Optionee may exercise the matured installment(s) at any time
within one year after such disability, but in no event after the expiration
date of the option. In the event of the termination of the Optionee's
membership on the Board of Directors by reason of the death of the Optionee,
the option shall immediately mature and become exercisable in full by the
Optionee's legal representative at any time within one year after death, but in
no event after the expiration date of the option. In the event of the
termination of the Optionee's membership on the Board of Directors other than
by reason of total and permanent disability or death, this option will expire
three months after such termination.
6. ADJUSTMENT. If there shall be any change in the
Common Stock through a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, exchange of stock or other change in the corporate
structure, appropriate adjustments shall be made in the aggregate number and
kind of shares or other securities subject to this option and in the purchase
price of this option to reflect such change.
7. MERGER, CONSOLIDATION OR LIQUIDATION. At least 30
days prior written notice of a merger, consolidation or liquidation of the
Company shall be given by the Company to the Optionee, in which case vesting
shall accelerate and the Option shall become fully exercisable. Upon the
occurrence of a merger, consolidation or liquidation of the Company, this
option shall automatically terminate unless the surviving or acquiring
corporation shall assume this option or substitute a new option for it.
8. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This
option and all rights hereunder shall be non-assignable and non-transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan
nor this option shall constitute or be evidence of any agreement or
2
<PAGE> 3
understanding, express or implied, that the Optionee has a right to continue as
a member of the Company's Board of Directors for any period of time.
(b) NO STOCKHOLDER'S RIGHTS FOR OPTIONS. The Optionee
shall have no rights as a stockholder with respect to the shares covered by
this option until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for any dividends or other rights for which the
record date is prior to the date such certificate is issued.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its Secretary, and the Optionee has affixed his
or her signature hereto.
THOMAS P. COOPER
--------------------------------------
Thomas P. Cooper
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ---------------------- -----------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
3
<PAGE> 1
EXHIBIT 10(aaaa)
HANGER ORTHOPEDIC GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of June 14, 1995, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and
Robert J. Glaser (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company desires to grant to the Optionee a stock
option under the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Plan") to purchase shares of the Company's common stock, par value $.01
per share (the "Common Stock"), in consideration for the Optionee's service as
a member of the Board of Directors of the Company (the "Board of Directors").
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions
of this Agreement and the Plan, the Company hereby grants to the Optionee the
right and option to purchase from the Company all or part of an aggregate of
5,000 shares of Common Stock. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE AND TIME OF EXERCISE. The per-share
purchase price at which the shares subject to option may be purchased by
Optionee pursuant to the exercise of this option shall be $3.00, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on June 14, 1995, the date of grant of this option. In
accordance with Section 6(a) of the Plan, such date is the third business day
following the June 9, 1995 Annual Meeting of Shareholders. The Optionee's
right to exercise this option shall vest as to 25% of the shares of Common
Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 5 below, at
the close of business on June 14, 2005.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired
1
<PAGE> 2
upon such exercise and indicating whether the exercise is being paid for (i) in
cash, (ii) in shares of Common Stock already owned by the Optionee and valued
at their fair market value on the date of exercise of the option, or (ii) by a
combination of (i) and (ii) above.
4. NON-TRANSFERABILITY. This option is not transferable
by the Optionee except as otherwise provided in Paragraph 5 below, and during
the Optionee's lifetime is exercisable only by him or her.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE BOARD
OF DIRECTORS. In the event of termination of the Optionee's membership on the
Board of Directors by reason of total and permanent disability, this option
shall continue to mature and become exercisable in accordance with Paragraph 3
above and the Optionee may exercise the matured installment(s) at any time
within one year after such disability, but in no event after the expiration
date of the option. In the event of the termination of the Optionee's
membership on the Board of Directors by reason of the death of the Optionee,
the option shall immediately mature and become exercisable in full by the
Optionee's legal representative at any time within one year after death, but in
no event after the expiration date of the option. In the event of the
termination of the Optionee's membership on the Board of Directors other than
by reason of total and permanent disability or death, this option will expire
three months after such termination.
6. ADJUSTMENT. If there shall be any change in the
Common Stock through a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, exchange of stock or other change in the corporate
structure, appropriate adjustments shall be made in the aggregate number and
kind of shares or other securities subject to this option and in the purchase
price of this option to reflect such change.
7. MERGER, CONSOLIDATION OR LIQUIDATION. At least 30
days prior written notice of a merger, consolidation or liquidation of the
Company shall be given by the Company to the Optionee, in which case vesting
shall accelerate and the Option shall become fully exercisable. Upon the
occurrence of a merger, consolidation or liquidation of the Company, this
option shall automatically terminate unless the surviving or acquiring
corporation shall assume this option or substitute a new option for it.
8. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This
option and all rights hereunder shall be non-assignable and non-transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan
nor this option shall constitute or be evidence of any agreement or
<PAGE> 3
understanding, express or implied, that the Optionee has a right to continue as
a member of the Company's Board of Directors for any period of time.
(b) NO STOCKHOLDER'S RIGHTS FOR OPTIONS. The Optionee
shall have no rights as a stockholder with respect to the shares covered by
this option until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for any dividends or other rights for which the
record date is prior to the date such certificate is issued.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its Secretary, and the Optionee has affixed his
or her signature hereto.
ROBERT J. GLASER
---------------------------------------
Robert J. Glaser
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A.STEIN By: IVAN R. SABEL
- ---------------------- ----------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
3
<PAGE> 1
EXHIBIT 10(bbbb)
HANGER ORTHOPEDIC GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of June 14, 1995, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and
James J. Hellmuth (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company desires to grant to the Optionee a stock
option under the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Plan") to purchase shares of the Company's common stock, par value $.01
per share (the "Common Stock"), in consideration for the Optionee's service as
a member of the Board of Directors of the Company (the "Board of Directors").
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions
of this Agreement and the Plan, the Company hereby grants to the Optionee the
right and option to purchase from the Company all or part of an aggregate of
5,000 shares of Common Stock. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE AND TIME OF EXERCISE. The per-share
purchase price at which the shares subject to option may be purchased by
Optionee pursuant to the exercise of this option shall be $3.00, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on June 14, 1995, the date of grant of this option. In
accordance with Section 6(a) of the Plan, such date is the third business day
following the June 9, 1995 Annual Meeting of Shareholders. The Optionee's
right to exercise this option shall vest as to 25% of the shares of Common
Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 5 below, at
the close of business on June 14, 2005.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired
1
<PAGE> 2
upon such exercise and indicating whether the exercise is being paid for (i) in
cash, (ii) in shares of Common Stock already owned by the Optionee and valued
at their fair market value on the date of exercise of the option, or (ii) by a
combination of (i) and (ii) above.
4. NON-TRANSFERABILITY. This option is not transferable
by the Optionee except as otherwise provided in Paragraph 5 below, and during
the Optionee's lifetime is exercisable only by him or her.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE BOARD
OF DIRECTORS. In the event of termination of the Optionee's membership on the
Board of Directors by reason of total and permanent disability, this option
shall continue to mature and become exercisable in accordance with Paragraph 3
above and the Optionee may exercise the matured installment(s) at any time
within one year after such disability, but in no event after the expiration
date of the option. In the event of the termination of the Optionee's
membership on the Board of Directors by reason of the death of the Optionee,
the option shall immediately mature and become exercisable in full by the
Optionee's legal representative at any time within one year after death, but in
no event after the expiration date of the option. In the event of the
termination of the Optionee's membership on the Board of Directors other than
by reason of total and permanent disability or death, this option will expire
three months after such termination.
6. ADJUSTMENT. If there shall be any change in the
Common Stock through a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, exchange of stock or other change in the corporate
structure, appropriate adjustments shall be made in the aggregate number and
kind of shares or other securities subject to this option and in the purchase
price of this option to reflect such change.
7. MERGER, CONSOLIDATION OR LIQUIDATION. At least 30
days prior written notice of a merger, consolidation or liquidation of the
Company shall be given by the Company to the Optionee, in which case vesting
shall accelerate and the Option shall become fully exercisable. Upon the
occurrence of a merger, consolidation or liquidation of the Company, this
option shall automatically terminate unless the surviving or acquiring
corporation shall assume this option or substitute a new option for it.
8. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This
option and all rights hereunder shall be non-assignable and non-transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan
nor this option shall constitute or be evidence of any agreement or
<PAGE> 3
understanding, express or implied, that the Optionee has a right to continue as
a member of the Company's Board of Directors for any period of time.
(b) NO STOCKHOLDER'S RIGHTS FOR OPTIONS. The Optionee
shall have no rights as a stockholder with respect to the shares covered by
this option until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for any dividends or other rights for which the
record date is prior to the date such certificate is issued.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its Secretary, and the Optionee has affixed his
or her signature hereto.
JAMES J. HELLMUTH
--------------------------------------
James J. Hellmuth
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ---------------------- ---------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
3
<PAGE> 1
EXHIBIT 10(cccc)
HANGER ORTHOPEDIC GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of June 14, 1995, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and
William J. McCulloch (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company desires to grant to the Optionee a stock
option under the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Plan") to purchase shares of the Company's common stock, par value $.01
per share (the "Common Stock"), in consideration for the Optionee's service as
a member of the Board of Directors of the Company (the "Board of Directors").
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions
of this Agreement and the Plan, the Company hereby grants to the Optionee the
right and option to purchase from the Company all or part of an aggregate of
5,000 shares of Common Stock. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE AND TIME OF EXERCISE. The per-share
purchase price at which the shares subject to option may be purchased by
Optionee pursuant to the exercise of this option shall be $3.00, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on June 14, 1995, the date of grant of this option. In
accordance with Section 6(a) of the Plan, such date is the third business day
following the June 9, 1995 Annual Meeting of Shareholders. The Optionee's
right to exercise this option shall vest as to 25% of the shares of Common
Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 5 below, at
the close of business on June 14, 2005.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired
1
<PAGE> 2
upon such exercise and indicating whether the exercise is being paid for (i) in
cash, (ii) in shares of Common Stock already owned by the Optionee and valued
at their fair market value on the date of exercise of the option, or (ii) by a
combination of (i) and (ii) above.
4. NON-TRANSFERABILITY. This option is not transferable
by the Optionee except as otherwise provided in Paragraph 5 below, and during
the Optionee's lifetime is exercisable only by him or her.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE BOARD
OF DIRECTORS. In the event of termination of the Optionee's membership on the
Board of Directors by reason of total and permanent disability, this option
shall continue to mature and become exercisable in accordance with Paragraph 3
above and the Optionee may exercise the matured installment(s) at any time
within one year after such disability, but in no event after the expiration
date of the option. In the event of the termination of the Optionee's
membership on the Board of Directors by reason of the death of the Optionee,
the option shall immediately mature and become exercisable in full by the
Optionee's legal representative at any time within one year after death, but in
no event after the expiration date of the option. In the event of the
termination of the Optionee's membership on the Board of Directors other than
by reason of total and permanent disability or death, this option will expire
three months after such termination.
6. ADJUSTMENT. If there shall be any change in the
Common Stock through a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, exchange of stock or other change in the corporate
structure, appropriate adjustments shall be made in the aggregate number and
kind of shares or other securities subject to this option and in the purchase
price of this option to reflect such change.
7. MERGER, CONSOLIDATION OR LIQUIDATION. At least 30
days prior written notice of a merger, consolidation or liquidation of the
Company shall be given by the Company to the Optionee, in which case vesting
shall accelerate and the Option shall become fully exercisable. Upon the
occurrence of a merger, consolidation or liquidation of the Company, this
option shall automatically terminate unless the surviving or acquiring
corporation shall assume this option or substitute a new option for it.
8. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This
option and all rights hereunder shall be non-assignable and non-transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan
nor this option shall constitute or be evidence of any agreement or
<PAGE> 3
understanding, express or implied, that the Optionee has a right to continue as
a member of the Company's Board of Directors for any period of time.
(b) NO STOCKHOLDER'S RIGHTS FOR OPTIONS. The Optionee
shall have no rights as a stockholder with respect to the shares covered by
this option until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for any dividends or other rights for which the
record date is prior to the date such certificate is issued.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its Secretary, and the Optionee has affixed his
or her signature hereto.
WILLIAM L. MCCULLOCH
-------------------------------------
William L. McCulloch
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ---------------------- ----------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
3
<PAGE> 1
EXHIBIT 10(dddd)
HANGER ORTHOPEDIC GROUP, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of June 14, 1995, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and
Walter J. McNerney (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company desires to grant to the Optionee a stock
option under the Company's 1993 Stock Option Plan for Non-Employee Directors
(the "Plan") to purchase shares of the Company's common stock, par value $.01
per share (the "Common Stock"), in consideration for the Optionee's service as
a member of the Board of Directors of the Company (the "Board of Directors").
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions
of this Agreement and the Plan, the Company hereby grants to the Optionee the
right and option to purchase from the Company all or part of an aggregate of
5,000 shares of Common Stock. This option is not intended to qualify as an
incentive stock option within the meaning of Section 422A of the Internal
Revenue Code of 1986, as amended.
2. OPTION PRICE AND TIME OF EXERCISE. The per-share
purchase price at which the shares subject to option may be purchased by
Optionee pursuant to the exercise of this option shall be $3.00, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on June 14, 1995, the date of grant of this option. In
accordance with Section 6(a) of the Plan, such date is the third business day
following the June 9, 1995 Annual Meeting of Shareholders. The Optionee's
right to exercise this option shall vest as to 25% of the shares of Common
Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 5 below, at
the close of business on June 14, 2005.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired
1
<PAGE> 2
upon such exercise and indicating whether the exercise is being paid for (i) in
cash, (ii) in shares of Common Stock already owned by the Optionee and valued
at their fair market value on the date of exercise of the option, or (ii) by a
combination of (i) and (ii) above.
4. NON-TRANSFERABILITY. This option is not transferable
by the Optionee except as otherwise provided in Paragraph 5 below, and during
the Optionee's lifetime is exercisable only by him or her.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE BOARD
OF DIRECTORS. In the event of termination of the Optionee's membership on the
Board of Directors by reason of total and permanent disability, this option
shall continue to mature and become exercisable in accordance with Paragraph 3
above and the Optionee may exercise the matured installment(s) at any time
within one year after such disability, but in no event after the expiration
date of the option. In the event of the termination of the Optionee's
membership on the Board of Directors by reason of the death of the Optionee,
the option shall immediately mature and become exercisable in full by the
Optionee's legal representative at any time within one year after death, but in
no event after the expiration date of the option. In the event of the
termination of the Optionee's membership on the Board of Directors other than
by reason of total and permanent disability or death, this option will expire
three months after such termination.
6. ADJUSTMENT. If there shall be any change in the
Common Stock through a merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, exchange of stock or other change in the corporate
structure, appropriate adjustments shall be made in the aggregate number and
kind of shares or other securities subject to this option and in the purchase
price of this option to reflect such change.
7. MERGER, CONSOLIDATION OR LIQUIDATION. At least 30
days prior written notice of a merger, consolidation or liquidation of the
Company shall be given by the Company to the Optionee, in which case vesting
shall accelerate and the Option shall become fully exercisable. Upon the
occurrence of a merger, consolidation or liquidation of the Company, this
option shall automatically terminate unless the surviving or acquiring
corporation shall assume this option or substitute a new option for it.
8. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This
option and all rights hereunder shall be non-assignable and non-transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or the
Optionee's guardian or legal representative.
9. LIMITATION OF RIGHTS.
(a) NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the Plan
nor this option shall constitute or be evidence of any agreement or
<PAGE> 3
understanding, express or implied, that the Optionee has a right to continue as
a member of the Company's Board of Directors for any period of time.
(b) NO STOCKHOLDER'S RIGHTS FOR OPTIONS. The Optionee
shall have no rights as a stockholder with respect to the shares covered by
this option until the date of the issuance of a stock certificate therefor, and
no adjustment will be made for any dividends or other rights for which the
record date is prior to the date such certificate is issued.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its Secretary, and the Optionee has affixed his
or her signature hereto.
WALTER J. MCNERNEY
----------------------------------
Walter J. McNerney
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ---------------------- --------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
3
<PAGE> 1
EXHIBIT 10(eeee)
AGREEMENT
AGREEMENT, made as of July 31, 1995, by and between HANGER
ORTHOPEDIC GROUP, INC. (the "Company"), 7700 Old Georgetown Road, Bethesda,
Maryland 20814, and RONALD J. MANGANIELLO ("RJM") 389 West Road, New Canaan,
Connecticut 06840.
WHEREAS, RJM has been serving as Chairman of the Board and
Chief Executive Officer of the Company since 1989;
WHEREAS, RJM has determined to submit, and the Company is
agreeable to accept, his resignation from such positions; and
WHEREAS, RJM and the Company each wish to enter into an
agreement regarding RJM's future relationship with the Company that is
different in terms from the provisions in RJM's Employment Agreement with the
Company dated May 16, 1994.
WHEREAS, RJM and the Company both waive the requirement
contained in the Employment and Non-Compete Agreement dated May 16, 1994 and
RJM to give the Company not less than three months notice.
IT IS NOW, THEREFORE, hereby agreed as follows:
1. RJM will, simultaneously with the execution of this
Agreement, submit his resignation as Chairman of the Board and Chief Executive
Officer of the Company, said resignation will be effective as of the close of
business on July 31, 1995.
2. RJM will remain a director of the Company until the
next Annual Meeting of Shareholders, unless determined otherwise by the
shareholders. Whether RJM will be a member of the slate of directors presented
to the shareholders at the Company's next Annual Meeting will be determined by
the Board in accordance with its normal procedures.
3. RJM will be retained by the Company as an independent
consultant at his current base annual compensation from August 1, 1995 through
July 31, 1996 subject to the conditions set forth herein. For the period from
August 1, 1995 through January 31, 1996, RJM's retention and payment is
guaranteed. For the period from February 1, 1996 through July 31, 1996, RJM's
retention and payment will be contingent upon his availability to the Company
for reasonable assignments as requested by the Company relating to possible
acquisitions or other corporate financing activities. RJM shall receive at
least ten (10) days advance notice of such assignments and the Company agrees
to consider in good faith the opinion of RJM as to the nature and timing of
such assignments. Such assignments shall cumulatively be for no more than one
week duration per quarter unless the assignment relates to a fee-based
transaction pursuant to Paragraphs 4 or 5 hereof. If, during this
<PAGE> 2
period, RJM is, in the reasonable business judgment of the Board, not available
to perform such assignments in a timely fashion or if RJM is engaged in
business activities or conduct that, in the reasonable business judgment of the
Board, are adversarial or detrimental to the business or business prospects of
the Company, the Board reserves the right to terminate the consulting
arrangement upon written notice to RJM. The nature of any assignments given to
RJM during this consulting period must be approved by the Board.
4. If a transaction, initiated by RJM subsequent to July
31, 1995, results in a sale of the Company, or any portion thereof, RJM will be
paid a fee to be negotiated with the Board at the time a transaction
opportunity is presented by RJM to the Company. The fee will be in accordance
with generally accepted industry standards for comparable transactions.
5. If the Company consummates an acquisition introduced
by RJM subsequent to July 31, 1995, or if RJM is instrumental in raising
capital for the Company, the Company will pay RJM a fee to be negotiated with
the Board on a case-by-case basis prior to any substantive discussions with the
proposed acquisition company or source of financing. Such fee will be in
accordance with generally accepted industry standards for comparable
transactions.
6. With respect to any activities encompassed by
Paragraphs 4 and 5 above, RJM will serve at the direction of the Company's
Chief Executive Officer and/or the Board and the fee arrangement would not be
applicable to a transaction with any company with which the Company has had
prior discussions about sale, acquisition or merger of a material nature, or
which is part of the Company's acquisition candidate file as of July 31, 1995.
7. RJM will continue to receive the health benefits he
is currently receiving through January 31, 1996. RJM will then be eligible to
pay for such benefits through COBRA. RJM will, beginning August 1, 1995,
reimburse the Company for automobile lease payments made on his behalf. RJM
will be paid a $1,000 per month expense allowance from August 1, 1995 through
January 31, 1996.
8. RJM will be reimbursed for any pre-approved business
expenses he incurs in fulfilling his obligations as a consultant when
conducting business performed at the direction of the Company.
9. Stock options previously granted to RJM by the
Company will continue to vest during the period RJM is consulting with the
Company pursuant to this Agreement. If the consulting arrangement is
terminated pursuant to Paragraph 3 hereof, the vesting of options will also
cease at the time of termination. RJM will have six (6) months from the end of
the consulting period to exercise the options.
10. This Agreement supersedes the Employment Agreement
<PAGE> 3
between RJM and the Company dated May 16, 1994 and the parties hereto agree
that this Agreement, which can only be amended in writing, shall control the
relationship between RJM and the Company subsequent to July 31, 1995, with the
exception that the provisions of Paragraph 5 relating to non-competition and
Paragraph 6 relating to Confidential Information shall remain in full force and
effect during the term of RJM's consulting period.
11. The Company agrees to indemnify RJM for any past,
present or future claims and related expenses to defend such claims brought
against RJM if such claims are related to his duties carried out in his
capacity of employee or director.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of this date first above written.
Attest (Seal): HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ----------------------------- ----------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
RONALD J. MANGANIELLO
-------------------------------
Ronald J. Manganiello
3
<PAGE> 1
EXHIBIT 10(ffff)
EIGHTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made the 2nd day of October, 1995 but effective as of
September 30, 1995, by HANGER ORTHOPEDIC GROUP, INC., a corporation organized
and existing under the laws of the State of Delaware (the "Borrower"), and
NATIONSBANK, N.A., successor by merger to Maryland National Bank, its
successor and assigns (the "Lender").
RECITALS
A. The Borrower and the Lender entered into a Financing and Security
Agreement dated July 3, 1993, (the same, as amended, modified, substituted,
extended, and renewed from time to time, the "Financing Agreement"). The
Financing Agreement includes, without limitation, the following amendments:
<TABLE>
<CAPTION>
Number of Amendment Date
------------------- ----
<S> <C>
First November 17, 1993
Second December 22, 1993
Third April 15, 1994
Fourth May 3, 1994
Fifth August 12, 1994
Sixth September 13, 1994
Seventh March 24, 1995
</TABLE>
B. Pursuant to the provisions of the Financing Agreement, the Lender
has from time to time made certain credit facilities available to the
Borrower, including the following: (i) a revolving credit facility in the
current maximum principal amount of $13,500,000 (the "Revolving Loan"); (ii)
one or more term loans in the aggregate principal amount of $2,375,000 (the
"Term Loans"); and (iii) an acquisition loan in the principal amount of
$3,000,000 (the "Acquisition Loan").
C. The Borrower has requested that the Lender agree to reduce the
scheduled reduction of the Revolving Credit Committed Amount from $1,000,000
to $250,000 as of September 30, 1995.
D. The Lender is willing to agree to the Borrower's request on the
condition, among others, that this Agreement be executed.
<PAGE> 2
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrower
and the Lender agree as follows:
1. The Borrower and the Lender agree that the Recitals above are a part
of this Agreement. Unless otherwise expressly defined in this Agreement, terms
defined in the Financing Agreement shall have the same meaning under this
Agreement.
2. Amendment. The Financing Agreement is hereby amended as follows:
(a) Mandatory Reduction. Effective as of the date hereof, Section
2.1.9 of the Financing Agreement is amended and restated in its entirety as
follows:
2.1.9 Mandatory Reduction of Revolving Credit Committed
Amount. The Revolving Credit Committed Amount shall be
automatically and permanently reduced to by the amounts listed below
as of the dates listed below (individually and collectively, the
"Mandatory Revolving Credit Reduction"). The Borrower shall on or
before each of the dates listed below make a Revolving Loan
Mandatory Prepayment in an amount necessary to reduce the
outstanding principal balance of the Revolving Credit Facility to
the applicable Revolving Credit Committed Amount.
<TABLE>
<CAPTION>
Mandatory Reduction Revolving Credit
Date Reduction Amount Committed Amount
------------------- ---------------- ----------------
<S> <C> <C>
June 30, 1995 $250,000 $13,250,000
September 20, 1995 $250,000 $13,000,000
December 31, 1995 $250,000 $12,750,000
March 31, 1996 $250,000 $12,500,000
</TABLE>
3. Conditions Precedent. This Agreement shall become effective on the
date the Lender receives the following documents, each of which shall be
satisfactory in form and substance to the Lender:
(a) this Agreement executed and delivered by the Borrower and the
Guarantors;
(b) a certificate of an officer of the Borrower to the effect that
there has been no change to the Articles of Incorporation or Bylaws of the
Borrower as delivered to the Lender in connection with the Loans made under
the Financing Agreement, all evidence of all actions taken by the Borrower
approving each Financing Document to which it is a party and as to the
incumbency and the specimen signature of each officer of
2
<PAGE> 3
the Borrower executing this Agreement, and other documents executed in
connection herewith and a certification by the President or Vice President of
the Borrower as to the incumbency and signature of the Secretary of the
Borrower and any other documents as the Lender may reasonably require the
Borrower to execute in form and substance acceptable to the Lender; and
(c) proof that the Borrower has paid all costs and expenses of the
Lender in connection with the Loans and with this Agreement, including but not
limited to all Lender's attorneys' fees.
4. Representations; No Novation. The Borrower hereby issues, ratifies
and confirms the representations, warranties and covenants contained in the
Financing Agreement, as amended hereby. The Borrower represents and warrants
that there exists no Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default under the Financing
Documents. The Borrower agrees that this Agreement is not intended to and
shall not cause a novation with respect to any or all of the Obligations.
5. Lender Release. The Borrower acknowledges and warrants that the
Lender has acted in good faith and has conducted in a commercially reasonable
manner its relationships with the Borrower in connection with this Agreement
and generally in connection with the Financing Agreement and the Obligations,
the Borrower hereby waiving and releasing any claims to the contrary.
6. Expenses. The Borrower shall pay at the time this Agreement is
executed and delivered all fees, commissions, costs, charges, taxes and other
expenses incurred by the Lender and its counsel in connection with this
Agreement, including, but not limited to, reasonable fees and expenses of the
Lender's counsel and all recording fees, taxes and charges.
7. Counterparts. This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and all taken together shall
constitute but one and the same instrument. The Borrower agrees that the
Lender may rely on a telecopy of any signature of any Borrower. The Lender
agrees that the Borrower may rely on a telecopy of this Agreement executed by
the Lender.
8. Entire Agreement. This Agreement contains the entire understanding
between the Lender and the Borrower with respect to the subject matter hereof
and supersedes any prior understandings and agreements between them respecting
the subject matter hereof.
9. Governing Law. This Agreement is one of the Financing Documents in
the Financing Agreement and shall be governed by and
3
<PAGE> 4
construed in accordance with the laws of the State of Maryland and shall be
deemed an instrument under seal pursuant to said law.
10. Headings. The headings and captions used in this Agreement are for
the convenience of the parties only and are not a part of this Agreement.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement under seal as of the date and year first written above.
ATTEST: HANGER ORTHOPEDIC GROUP, INC.
By: (SEAL)
- ------------------------- ----------------------
, Secretary Richard A. Stein
- -------------- Vice President
WITNESS: NATIONSBANK, N.A., as successor by
merger to Maryland National Bank
By: (SEAL)
- ------------------------- ----------------------
Louise M. Webster
Vice President
4
<PAGE> 5
AGREEMENT OF GUARANTORS
The undersigned are the "Guarantors" under various Guaranty of Payment
Agreements, dated July 2, 1993 and a Confirmation of Guaranty and Security
Agreement dated September 13, 1994 (collectively, as amended, modified,
substituted, extended and renewed from time to time, the "Guaranty"), in favor
of the foregoing Lender. In order to induce the Lender to enter into the
foregoing Agreement, the undersigned (a) consent to the transactions
contemplated by, and agreements made by the Borrower under, the foregoing
Agreement, and (b) ratify, confirm and reissue the terms, conditions,
promises, covenants, grants, assignments, security agreements, agreements,
representations, warranties and provisions contained in the Guaranty. Without
limiting the foregoing, the undersigned acknowledge and agree that the
Obligations (defined in the Financing Agreement) are covered by the Guaranty.
WITNESS signatures and seals of the undersigned as of the date of the
Agreement.
GUARANTORS:
ATTEST: ALBUQUERQUE PROSTHETIC CENTER, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: CAPITAL ORTHOPEDICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: COLUMBIA BRACE ACQUISITION CORP.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
5
<PAGE> 6
ATTEST: DORSCH PROSTHETICS & ORTHOTICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: DOBI-SYMPLEX, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: GREINER AND SAUR ORTHOPEDICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: J.E. HANGER, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: J.E. HANGER OF CALIFORNIA, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: MEMPHIS ORTHOPEDIC, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
6
<PAGE> 7
ATTEST: RALPH STORRS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: SCOTT ORTHOPEDICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: SCOTT ORTHOPEDICS OF NORTHERN COLORADO, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: YORK PROSTHETICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: ZIELKE ORTHOTICS & PROSTHETICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
7
<PAGE> 1
EXHIBIT 10(gggg)
FOURTH AMENDMENT TO STOCK OPTION
AND VESTING AGREEMENTS
AND AMENDMENT AGREEMENT
THIS FOURTH AMENDMENT (this "Amendment"), dated as of October
27, 1995, is by and among Chemical Venture Capital Associates, A California
Limited Partnership ("CVCA"), Chemical Equity Associates, A California Limited
Partnership ("CEA"), Hanger Orthopedic Group, Inc., a Delaware corporation (the
"Company") and Messrs. Ronald J. Manganiello, Ivan R. Sabel and Richard A.
Stein (such individuals hereinafter referred to individually as an "Optionee"
and collectively as the "Optionees"). This Amendment amends (i) the Stock
Option and Vesting Agreements, dated as of March 14, 1991, by and between CVCA
and the Optionees (the "Additional Manager Option Agreements") and (ii) the
Stock Option and Vesting Agreements, dated as of May 16, 1994, by and between
CVCA and the Optionees (the "New Manager Option Agreements").
WHEREAS, pursuant to the Stock Option and Vesting Agreements,
dated as of August 13, 1990, by and between CVCA and the Optionees (the
"Manager Option Agreements"), CVCA granted options to the Optionees and Joseph
M. Cestaro to purchase a total of 496,250 shares of common stock, par value
$.01 per share, of the Company (the "Common Stock"), which number of shares
gave effect to the one-for-four reverse split of the Common Stock effected on
December 31, 1990; and, as a result of the cancellation on March 31, 1991 of an
option for 82,500 shares upon the resignation of Joseph M. Cestaro, options
were then held by the Optionees for a total of 413,750 shares (the "Manager
Options") under the Manager Option Agreements;
WHEREAS, pursuant to paragraph 3 of the Amendment Agreement,
dated as of August 13, 1990, by and among the Company, CVCA, CEA, the Optionees
and Joseph M. Cestaro (the "Amendment Agreement"), CVCA agreed to promptly pay
to the Company 27.5% of the exercise price received by CVCA upon the exercise
of any Manager Options (the "Company Payment");
WHEREAS, pursuant to the Additional Manager Option Agreements,
CVCA granted options to the Optionees (the "Additional Manager Options") to
purchase from CVCA an aggregate of 348,265 shares of Common Stock in accordance
with the terms of the Additional Manager Option Agreements;
WHEREAS, CVCA, CEA and Exeter Capital, L.P., a Delaware
Limited Partnership ("Exeter"), entered into an agreement, dated as of February
20, 1992 (the "Termination Agreement"), pursuant to paragraph 6 of which CVCA
and Exeter agreed to enter into an agreement amending each of the Manager
Option Agreements and
1
<PAGE> 2
Additional Manager Option Agreements to provide that Exeter would be obligated
as optionor with respect to 24.16% of the shares of Common Stock covered by
each of the Manager Options and Additional Manager Options;
WHEREAS, CVCA, CEA, Exeter, the Company and the Optionees
entered into an Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of February 20, 1992 (the "First Amendment"), pursuant to
which, among other things, (i) each Manager Option Agreement and Additional
Manager Option Agreement was amended to provide that of the shares of Common
Stock underlying each Manager Option and Additional Manager Option, 75.84% of
the shares could be purchased by the Optionees from CVCA and 24.16% of the
shares could be purchased by the Optionees from Exeter, with each Optionee
being required to provide separate written notices to each of CVCA and Exeter
with respect to each exercise of a Manager Option or Additional Manager Option
by the Optionee, and that 75.84% and 24.16% of the shares of Common Stock
purchased and purchase price payable by the Optionee must be purchased from and
paid to CVCA and Exeter, respectively; (ii) the Amendment Agreement was amended
to provide that 75.84% and 24.16% of the Company Payment would be made by CVCA
and Exeter, respectively; and (iii) each of CVCA and Exeter would not be liable
for any obligation of the other under the Manager Option Agreements and the
Manager Options granted pursuant thereto or the Additional Manager Option
Agreements and the Additional Manager Options granted pursuant thereto, as
amended by the First Amendment;
WHEREAS, the Manager Option Agreements and the Manager Options
granted pursuant thereto expired on May 15, 1994, together with the expiration
on that date of the obligation of CVCA and Exeter to pay the Company Payment,
as set forth in the Amendment Agreement and the First Amendment;
WHEREAS, pursuant to the New Manager Option Agreements, CVCA
granted options to the Optionees to purchase a total of 313,788 shares of
Common Stock (the "New Manager Options") to replace the 75.84% portion of the
shares of Common Stock that were previously purchasable by the Optionees from
CVCA under the Manager Option Agreements and the Manager Options that expired
on May 15, 1994 (it being understood by the Company that it has no right to a
Company Payment with respect to such New Manager Option Agreements);
WHEREAS, CVCA, CEA, the Company and the Optionees entered into
a Second Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of May 16, 1994 (the "Second Amendment"), pursuant to which
each Additional Manager Option Agreement between CVCA and the Optionees was
amended by replacing the then existing expiration date of December 14, 1994,
with a new expiration date of December 14, 1995, with such extension having no
effect on the expiration date of the exercise period relating to the 24.16%
portion of each Additional Manager Option, which expired on December 14, 1994
and for which Exeter was solely responsible as provided under the terms of the
First Amendment;
<PAGE> 3
WHEREAS, CVCA, CEA, the Company and the Optionees entered into
a Third Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of September 22, 1994 (the "Third Amendment"), pursuant to
which each New Manager Option Agreement and each Additional Manager Option
Agreement between CVCA and the Optionees was amended by (i) changing the
exercise price per share of each New Manager Option and each Additional Manager
Option to equal $3.875, which exercise price exceeded the closing sale price of
$3.625 per share of Common Stock as reported on the American Stock Exchange as
of the close of business on September 22, 1994, (ii) extending the expiration
date of each New Manager Option from May 16, 1995 to March 22, 1996 and (iii)
extending the expiration date of each Additional Manager Option from December
14, 1995 to March 22, 1996; and
WHEREAS, CVCA, CEA, the Company and Ronald J. Manganiello each
desire to further amend each New Manager Option Agreement and each Additional
Manager Option Agreement between CVCA and Ronald J. Manganiello to (i) extend
the expiration date of the New Manager Option of Ronald J. Manganiello from
March 22, 1996 to March 22, 1997; (ii) extend the expiration date of the
Additional Manager Option of Ronald J. Manganiello from March 22, 1996 to March
22, 1997; and (iii) provide for the payment of the exercise price of the New
Manager Option and Additional Manager Option of Ronald J. Manganiello with cash
and/or the reduction in the number of shares of Common Stock issuable upon the
exercise of the subject option.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto agree as follows:
1. Each and all of the recital paragraphs set forth
above are hereby incorporated as if set forth herein.
2. Paragraph 3(b)(i) of the New Manager Option Agreement
between CVCA and Ronald J. Manganiello is hereby amended by replacing the
existing expiration date of March 22, 1996, with the new expiration date of
March 22, 1997.
3. Paragraph 3(b)(i) of the Additional Manager Option
Agreement between CVCA and Ronald J. Manganiello is hereby amended by replacing
the existing expiration date of March 22, 1996, with the new expiration date of
March 22, 1997.
4. Paragraph 5 of the New Manager Option Agreement
between CVCA and Ronald J. Manganiello is hereby amended by replacing the
existing text thereof with the following language:
5. Exercise of Option. Written notice of the
exercise of the Option or any portion thereof shall be given
to CVCA accompanied by the aggregate Exercise Price for the
Option Shares proposed to be acquired payable (i)
3
<PAGE> 4
in cash by certified or bank cashier's check, (ii) by
instructing CVCA to cancel that portion of this Option
exercisable for that number of shares of Company Common Stock
(the "Relinquished Shares") having an aggregate Market Value
on the last business day immediately preceding the date of
exercise equal to sum of (A) the Exercise Price multiplied by
the number of Relinquished Shares plus (B) the Exercise Price
multiplied by the number of shares subject to such exercise or
(iii) by a combination of the foregoing. If any exercise is
made pursuant to clause (ii) above, the Option shall
automatically be adjusted to reduce the number of shares
issuable upon exercise of the Option by the number of
Relinquished Shares. No exercise may be made pursuant to
clause (ii) above if the number of shares subject to such
exercise and the number of Relinquished Shares exceeds the
number of shares issuable upon exercise of the Option. As
used herein, "Market Value" means as to any security the
average of the closing prices of such security's sales on the
United States securities exchanges on which such security may
at the time be listed, or, if there have no sales on any such
exchange on the subject day, the average of the highest bid
and lowest asked prices on such exchange at the end of such
day, or, if on any such day such security is not so listed,
the average of the representative bid and asked prices quoted
on the NASDAQ System as of 4:00 P.M., New York time on such
day, or, if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or
any similar or successor organization.
5. Paragraph 5 of the Additional Manager Option
Agreement between CVCA and Ronald J. Manganiello is hereby amended by replacing
the existing text thereof with the following language:
5. Exercise of Option. Written notice of the
exercise of the Option or any portion thereof shall be given
to CVCA accompanied by the aggregate Exercise Price for the
Vested Shares proposed to be acquired payable (i) in cash by
certified or bank cashier's check, (ii) by instructing CVCA to
cancel that portion of this Option exercisable for that number
of shares of Company Common Stock (the "Relinquished Shares")
having an aggregate Market Value on the last business day
immediately preceding the date of exercise equal to sum of (A)
the Exercise Price multiplied by the number of Relinquished
Shares plus (B) the Exercise Price multiplied by the number of
shares subject to such exercise or (iii) by a combination of
the foregoing. If any exercise is made
4
<PAGE> 5
pursuant to clause (ii) above, the Option shall automatically
be adjusted to reduce the number of shares issuable upon
exercise of the Option by the number of Relinquished Shares.
No exercise may be made pursuant to clause (ii) above if the
number of shares subject to such exercise and the number of
Relinquished Shares exceeds the number of shares issuable upon
exercise of the Option. As used herein, "Market Value" means
as to any security the average of the closing prices of such
security's sales on the United States securities exchanges on
which such security may at the time be listed, or, if there
have no sales on any such exchange on the subject day, the
average of the highest bid and lowest asked prices on such
exchange at the end of such day, or, if on any such day such
security is not so listed, the average of the representative
bid and asked prices quoted on the NASDAQ System as of 4:00
P.M., New York time on such day, or, if on any day such
security is not quoted in the NASDAQ System, the average of
the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar or successor
organization.
6. Except as otherwise herein amended, the terms and
conditions of the New Manager Option Agreements, the Additional Manager Option
Agreements and the Amendment Agreement shall remain in force.
[SIGNATURES APPEAR ON NEXT PAGE]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
CHEMICAL VENTURE CAPITAL ASSOCIATES
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: MITCHELL J. BLUTT, M.D.
------------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
CHEMICAL EQUITY ASSOCIATES
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: MITCHELL J. BLUTT, M.D.
---------------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
HANGER ORTHOPEDIC GROUP, INC.
By: IVAN R. SABEL
----------------------------------
Ivan R. Sabel
President
OPTIONEE
RONALD J. MANGANIELLO
---------------------------------
Ronald J. Manganiello
6
<PAGE> 1
EXHIBIT 10(hhhh)
FIFTH AMENDMENT TO STOCK OPTION
AND VESTING AGREEMENTS
AND AMENDMENT AGREEMENT
THIS FIFTH AMENDMENT (this "Amendment"), dated as of October
27, 1995, is by and among Chemical Venture Capital Associates, A California
Limited Partnership ("CVCA"), Chemical Equity Associates, A California Limited
Partnership ("CEA"), Hanger Orthopedic Group, Inc., a Delaware corporation (the
"Company") and Messrs. Ronald J. Manganiello, Ivan R. Sabel and Richard A.
Stein (such individuals hereinafter referred to individually as an "Optionee"
and collectively as the "Optionees"). This Amendment amends (i) the Stock
Option and Vesting Agreements, dated as of March 14, 1991, by and between CVCA
and the Optionees (the "Additional Manager Option Agreements") and (ii) the
Stock Option and Vesting Agreements, dated as of May 16, 1994, by and between
CVCA and the Optionees (the "New Manager Option Agreements").
WHEREAS, pursuant to the Stock Option and Vesting Agreements,
dated as of August 13, 1990, by and between CVCA and the Optionees (the
"Manager Option Agreements"), CVCA granted options to the Optionees and Joseph
M. Cestaro to purchase a total of 496,250 shares of common stock, par value
$.01 per share, of the Company (the "Common Stock"), which number of shares
gave effect to the one-for-four reverse split of the Common Stock effected on
December 31, 1990; and, as a result of the cancellation on March 31, 1991 of an
option for 82,500 shares upon the resignation of Joseph M. Cestaro, options
were then held by the Optionees for a total of 413,750 shares (the "Manager
Options") under the Manager Option Agreements;
WHEREAS, pursuant to paragraph 3 of the Amendment Agreement,
dated as of August 13, 1990, by and among the Company, CVCA, CEA, the Optionees
and Joseph M. Cestaro (the "Amendment Agreement"), CVCA agreed to promptly pay
to the Company 27.5% of the exercise price received by CVCA upon the exercise
of any Manager Options (the "Company Payment");
WHEREAS, pursuant to the Additional Manager Option Agreements,
CVCA granted options to the Optionees (the "Additional Manager Options") to
purchase from CVCA an aggregate of 348,265 shares of Common Stock in accordance
with the terms of the Additional Manager Option Agreements;
WHEREAS, CVCA, CEA and Exeter Capital, L.P., a Delaware
Limited Partnership ("Exeter"), entered into an agreement, dated as of February
20, 1992 (the "Termination Agreement"), pursuant to paragraph 6 of which CVCA
and Exeter agreed to enter into an agreement amending each of the Manager
Option Agreements and Additional Manager Option Agreements to provide that
Exeter would be obligated as optionor with respect to 24.16% of the shares of
<PAGE> 2
Common Stock covered by each of the Manager Options and Additional Manager
Options;
WHEREAS, CVCA, CEA, Exeter, the Company and the Optionees
entered into an Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of February 20, 1992 (the "First Amendment"), pursuant to
which, among other things, (i) each Manager Option Agreement and Additional
Manager Option Agreement was amended to provide that of the shares of Common
Stock underlying each Manager Option and Additional Manager Option, 75.84% of
the shares could be purchased by the Optionees from CVCA and 24.16% of the
shares could be purchased by the Optionees from Exeter, with each Optionee
being required to provide separate written notices to each of CVCA and Exeter
with respect to each exercise of a Manager Option or Additional Manager Option
by the Optionee, and that 75.84% and 24.16% of the shares of Common Stock
purchased and purchase price payable by the Optionee must be purchased from and
paid to CVCA and Exeter, respectively; (ii) the Amendment Agreement was amended
to provide that 75.84% and 24.16% of the Company Payment would be made by CVCA
and Exeter, respectively; and (iii) each of CVCA and Exeter would not be liable
for any obligation of the other under the Manager Option Agreements and the
Manager Options granted pursuant thereto or the Additional Manager Option
Agreements and the Additional Manager Options granted pursuant thereto, as
amended by the First Amendment;
WHEREAS, the Manager Option Agreements and the Manager Options
granted pursuant thereto expired on May 15, 1994, together with the expiration
on that date of the obligation of CVCA and Exeter to pay the Company Payment,
as set forth in the Amendment Agreement and the First Amendment;
WHEREAS, pursuant to the New Manager Option Agreements, CVCA
granted options to the Optionees to purchase a total of 313,788 shares of
Common Stock (the "New Manager Options") to replace the 75.84% portion of the
shares of Common Stock that were previously purchasable by the Optionees from
CVCA under the Manager Option Agreements and the Manager Options that expired
on May 15, 1994 (it being understood by the Company that it has no right to a
Company Payment with respect to such New Manager Option Agreements);
WHEREAS, CVCA, CEA, the Company and the Optionees entered into
a Second Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of May 16, 1994 (the "Second Amendment"), pursuant to which
each Additional Manager Option Agreement between CVCA and the Optionees was
amended by replacing the then existing expiration date of December 14, 1994,
with a new expiration date of December 14, 1995, with such extension having no
effect on the expiration date of the exercise period relating to the 24.16%
portion of each Additional Manager Option, which expired on December 14, 1994
and for which Exeter was solely responsible as provided under the terms of the
First Amendment;
WHEREAS, CVCA, CEA, the Company and the Optionees entered into
<PAGE> 3
a Third Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of September 22, 1994 (the "Third Amendment"), pursuant to
which each New Manager Option Agreement and each Additional Manager Option
Agreement between CVCA and the Optionees was amended by (i) changing the
exercise price per share of each New Manager Option and each Additional Manager
Option to equal $3.875, which exercise price exceeded the closing sale price of
$3.625 per share of Common Stock as reported on the American Stock Exchange as
of the close of business on September 22, 1994, (ii) extending the expiration
date of each New Manager Option from May 16, 1995 to March 22, 1996 and (iii)
extending the expiration date of each Additional Manager Option from December
14, 1995 to March 22, 1996;
WHEREAS, CVCA, CEA, the Company and Ronald J. Manganiello
entered into a Fourth Amendment to Stock Option and Vesting Agreements and
Amendment Agreement, dated as of October 27, 1995 (the "Fourth Amendment"),
pursuant to which each New Manager Option Agreement and each Additional Manager
Option Agreement between CVCA and Ronald J. Manganiello was amended by (i)
extending the expiration date of the New Manager Option of Ronald J.
Manganiello from March 22, 1996 to March 22, 1997; (ii) extending the
expiration date of the Additional Manager Option of Ronald J. Manganiello from
March 22, 1996 to March 22, 1997; and (iii) providing for the payment of the
exercise price of the New Manager Option and Additional Manager Option of
Ronald J. Manganiello with cash and/or shares of Common Stock; and
WHEREAS, CVCA, CEA, the Company, Ivan R. Sabel and Richard A.
Stein each desire to further amend each New Manager Option Agreement and each
Additional Manager Option Agreement between CVCA and Ivan R. Sabel and Richard
A. Stein to (i) extend the expiration date of the New Manager Options of each
of Ivan R. Sabel and Richard A. Stein from March 22, 1996 to March 22, 1997
with respect to 67,000 shares underlying the New Manager Options of Ivan R.
Sabel and 33,000 shares underlying the New Manager Options of Richard A. Stein,
with the expiration date for the balance of 51,500 shares for Ivan R. Sabel and
29,568 shares for Richard A. Stein that underlie their respective New Manager
Options being extended from March 22, 1996 to December 31, 1997; (ii) extend
the expiration date of the Additional Manager Options of each of Ivan R. Sabel
and Richard A. Stein from March 22, 1996 to December 31, 1997; and (iii)
provide for the payment of the exercise price of each such New Manager Option
and Additional Manager Option of Ivan R. Sabel and Richard A. Stein with cash
and/or the reduction in the number of shares of Common Stock issuable upon the
exercise of the subject option.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements herein contained, the parties hereto agree as follows:
3
<PAGE> 4
1. Each and all of the recital paragraphs set forth
above are hereby incorporated as if set forth herein.
2. Paragraph 3(b)(i) of each New Manager Option
Agreement between CVCA and each of Ivan R. Sabel and Richard A. Stein is hereby
amended by replacing the existing expiration date of March 22, 1996, with (A)
the new expiration date of March 22, 1997 with respect to 67,000 shares for
Ivan R. Sabel and 33,000 shares for Richard A. Stein and (B) the new expiration
date of December 31, 1997 with respect to the balance of the 51,500 shares
underlying such New Manager Option of Ivan R. Sabel and 29,568 shares
underlying such New Manager Option of Richard A. Stein.
3. Paragraph 3(b)(i) of each Additional Manager Option
Agreement between CVCA and each of Ivan R. Sabel and Richard A. Stein is hereby
amended by replacing the existing expiration date of March 22, 1996, with the
new expiration date of December 31, 1997.
4. Paragraph 5 of each New Manager Option Agreement
between CVCA and each of Ivan R. Sabel and Richard A. Stein is hereby amended
by replacing the existing text thereof with the following language:
5. Exercise of Option. Written notice of the
exercise of the Option or any portion thereof shall be given
to CVCA accompanied by the aggregate Exercise Price for the
Option Shares proposed to be acquired payable (i) in cash by
certified or bank cashier's check, (ii) by instructing CVCA to
cancel that portion of this Option exercisable for that number
of shares of Company Common Stock (the "Relinquished Shares")
having an aggregate Market Value on the last business day
immediately preceding the date of exercise equal to sum of (A)
the Exercise Price multiplied by the number of Relinquished
Shares plus (B) the Exercise Price multiplied by the number of
shares subject to such exercise or (iii) by a combination of
the foregoing. If any exercise is made pursuant to clause
(ii) above, the Option shall automatically be adjusted to
reduce the number of shares issuable upon exercise of the
Option by the number of Relinquished Shares. No exercise may
be made pursuant to clause (ii) above if the number of shares
subject to such exercise and the number of Relinquished Shares
exceeds the number of shares issuable upon exercise of the
Option. As used herein, "Market Value" means as to any
security the average of the closing prices of such security's
sales on the United States securities exchanges on which such
security may at the time be listed, or, if there have no sales
on any such exchange on the subject day, the average of the
highest bid and lowest asked prices on such exchange at the
end of such
4
<PAGE> 5
day, or, if on any such day such security is not so listed,
the average of the representative bid and asked prices quoted
on the NASDAQ System as of 4:00 P.M., New York time on such
day, or, if on any day such security is not quoted in the
NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or
any similar or successor organization.
5. Paragraph 5 of each Additional Manager Option
Agreement between CVCA and each of Ivan R. Sabel and Richard A. Stein is hereby
amended by replacing the existing text thereof with the following language:
5. Exercise of Option. Written notice of the
exercise of the Option or any portion thereof shall be given
to CVCA accompanied by the aggregate Exercise Price for the
Option Shares proposed to be acquired payable (i) in cash by
certified or bank cashier's check, (ii) by instructing CVCA to
cancel that portion of this Option exercisable for that number
of shares of Company Common Stock (the "Relinquished Shares")
having an aggregate Market Value on the last business day
immediately preceding the date of exercise equal to sum of (A)
the Exercise Price multiplied by the number of Relinquished
Shares plus (B) the Exercise Price multiplied by the number of
shares subject to such exercise or (iii) by a combination of
the foregoing. If any exercise is made pursuant to clause
(ii) above, the Option shall automatically be adjusted to
reduce the number of shares issuable upon exercise of the
Option by the number of Relinquished Shares. No exercise may
be made pursuant to clause (ii) above if the number of shares
subject to such exercise and the number of Relinquished Shares
exceeds the number of shares issuable upon exercise of the
Option. As used herein, "Market Value" means as to any
security the average of the closing prices of such security's
sales on the United States securities exchanges on which such
security may at the time be listed, or, if there have no sales
on any such exchange on the subject day, the average of the
highest bid and lowest asked prices on such exchange at the
end of such day, or, if on any such day such security is not
so listed, the average of the representative bid and asked
prices quoted on the NASDAQ System as of 4:00 P.M., New York
time on such day, or, if on any day such security is not
quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic
over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar or successor
organization.
5
<PAGE> 6
6. Except as otherwise herein amended, the terms and
conditions of the New Manager Option Agreements, the Additional Manager Option
Agreements and the Amendment Agreement shall remain in force.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
CHEMICAL VENTURE CAPITAL ASSOCIATES
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: MITCHELL J. BLUTT, M.D.
-----------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
CHEMICAL EQUITY ASSOCIATES
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: MITCHELL J. BLUTT, M.D.
------------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
HANGER ORTHOPEDIC GROUP, INC.
By: IVAN R. SABEL
-------------------------------
Ivan R. Sabel
President
OPTIONEES
IVAN R. SABEL
--------------------------------------
Ivan R. Sabel
RICHARD A. STEIN
-------------------------------------
Richard A. Stein
6
<PAGE> 1
EXHIBIT 10(iiii)
NINTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT
THIS NINTH AMENDMENT TO FINANCING AND SECURITY AGREEMENT (this
"Agreement") is made the 16th day of November, 1995, by HANGER ORTHOPEDIC
GROUP, INC., a corporation organized and existing under the laws of the State
of Delaware (the "Borrower"), and NATIONSBANK, N.A., successor by merger to
Maryland National Bank, its successor and assigns (the "Lender").
RECITALS
A. The Borrower and the Lender entered into a Financing and Security
Agreement dated July 3, 1993, (the same, as amended, modified, substituted,
extended, and renewed from time to time, the "Financing Agreement"). The
Financing Agreement includes, without limitation, the following amendments:
<TABLE>
<CAPTION>
Number of Amendment Date
------------------- ----
<S> <C>
First November 17, 1993
Second December 22, 1993
Third April 15, 1994
Fourth May 3, 1994
Fifth August 12, 1994
Sixth September 13, 1994
Seventh March 24, 1995
Eighth October 2, 1995
</TABLE>
B. Pursuant to the provisions of the Financing Agreement, the Lender
has from time to time made certain credit facilities available to the
Borrower, including the following: (i) a revolving credit facility in the
current maximum principal amount of $13,000,000 (the "Revolving Loan"); (ii)
one or more term loans in the aggregate principal amount of $2,375,000 (the
"Term Loans"); and (iii) an acquisition loan in the principal amount of
$3,000,000 (the "Acquisition Loan").
C. The Borrower has requested that the Lender agree to eliminate the
scheduled reductions of the Revolving Credit Committed Amount and to maintain
the Revolving Credit Committed Amount at $13,000,000. The Borrower has also
requested that the Lender extend the maturity date of the Revolving Loan,
increase the limit on the Borrower's capital expenditures and eliminate the
Revolving Line of Unused Line Fee and make certain other changes in the
Financing Agreement.
<PAGE> 2
D. The Lender is willing to agree to the Borrower's requests on the
condition, among others, that this Agreement be executed.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, the Borrower
and the Lender agree as follows:
1. The Borrower and the Lender agree that the Recitals above are a part
of this Agreement. Unless otherwise expressly defined in this Agreement, terms
defined in the Financing Agreement shall have the same meaning under this
Agreement.
2. Amendments. The Financing Agreement is hereby amended as follows:
(a) Elimination of Certain Definitions. Effective as of the date
hereof, the following definitions shall henceforth be eliminated from Section
1.1 of the Financing Agreement:
"Revolving Credit Unused Line Fee"
"Revolving Loan Mandatory Prepayment" and "Revolving Loan
Mandatory Prepayments"
(b) Modification of Certain Definitions. Effective as of the date
hereof, the following definitions in Section 1.1 of the Financing Agreement
are amended and restated as follows:
"Eligible Inventory" means all of the Borrower's and each of its
Subsidiary's Inventory, valued at the lowest of (a) the Borrower's and
each of its Subsidiary's net purchase cost or net manufacturing cost, (b)
the lowest bulk market price, (c) the Borrower's and each of its
Subsidiary's lowest bulk selling price, minus estimated expenses for
completion and disposal, and minus an allowance for normal profit margin
for bulk sales, (d) any ceiling prices which may be established by any
Laws of any Governmental Authority or (e) prevailing market value,
excluding, however, any Inventory which consists of (i) any goods located
outside of the United States, (ii) any goods located outside of a State
in which the Lender has properly and unavoidably perfected its security
interests by filing, free and clear of all other Liens, (iii) any goods
not in the actual possession of, or in transit to, or from, the Borrower
or any Subsidiary, (iv) any goods in the possession of a bailee,
warehouseman, consignee or similar third party, (v) work-in-process, (vi)
any goods the sale or other disposition of which has given rise to a
Receivable, (vii) any goods as to
2
<PAGE> 3
which the Lender determines in the exercise of its sole and absolute
discretion at any time and in good faith are defective, unmerchantable,
slow moving or obsolete, and (viii) any goods which the Lender in the
good faith exercise of its sole and absolute discretion has deemed to be
ineligible because the Lender otherwise considers the collateral value
thereof to the Lender to be impaired or its ability to realize such value
to be insecure. In the event of any dispute, under the foregoing
criteria, as to whether goods are, or have ceased to be, Eligible
Inventory, the decision of the Lender in the good faith exercise of its
sole and absolute discretion shall control.
"Eligible Receivable" and "Eligible Receivables" mean, at any time
of determination thereof, each Account which conforms and continues to
conform to the following criteria to the satisfaction of the Lender: (a)
the account arose in the ordinary course of the Borrower's or any
Subsidiary's business from a bona fide outright sale or lease of goods by
the Borrower or a Subsidiary, or from services performed by the Borrower,
and (i) such goods have been delivered to the appropriate Account Debtors
or their respective designees, the Borrower or a Subsidiary has in its
possession shipping and delivery receipts evidencing such shipment and
delivery, no return, rejection or repossession has occurred, and such
goods have been finally accepted by the Account Debtor, or (ii) such
services have been satisfactorily completed and accepted by the
appropriate Account Debtor; (b) the Account is based upon an enforceable
order or contract, written or oral, for goods delivered or for services
performed, and the same were shipped, held, or performed in accordance
with such order or contract; (c) the title of the Borrower or its
Subsidiary to the Account and, except as to the Account Debtor and any
creditor which finances the Account Debtor's purchase of such goods, to
any goods is absolute and is not subject to any prior assignment, claim,
Lien, or security interest, except Permitted Liens and Liens created by
the Account Debtors in connection with their interests in the goods, and
the Borrower or its Subsidiary otherwise have the full and unqualified
right and power to assign and grant a security interest in it to the
Lender as security and collateral for the payment of the Obligations; (d)
the amount shown on the books of the Borrower or its Subsidiary and on
any invoice, certificate, schedule or statement delivered to the Lender
is owing to the Borrower or its Subsidiary and no partial payment has
been received unless reflected with that delivery; (e) the Account is not
subject to any claim of reduction, counterclaim, setoff, recoupment, or
other defense in law or equity, or any claim for credits, allowances, or
adjustments by the Account Debtor because of returned, inferior, or
damaged goods or unsatisfactory
3
<PAGE> 4
services, or for any other reason; (f) the Account Debtor has not
returned or refused to retain, or otherwise notified the Borrower or any
Subsidiary of any dispute concerning, or claimed nonconformity of, any of
the goods or services from the sale of which the Account arose; (g) the
Account is not outstanding more than one hundred twenty (120) days from
the date of the invoice therefor; (h) the account is not owing by any
Account Debtor for which the Lender has deemed fifty percent (50%) or
more of such Account Debtor's other accounts (or any portion thereof) due
to the Borrower to be non-Eligible Receivables; (i) the Account does not
arise out of a contract with, or order from, an Account Debtor that, by
its terms, forbids or makes void or unenforceable the assignment by the
Borrower to the Lender of the Account arising with respect thereto; (j)
the Account Debtor is not a Subsidiary or other Affiliate of the
Borrower; (k) the Account Debtor is not incorporated in or primarily
conducting business in any jurisdiction located outside of the United
States of America; (l) the Borrower or any Subsidiary is not indebted in
any manner to the Account Debtor, with the exception of customary
credits, adjustments and/or discounts given to an Account Debtor by the
Borrower or any Subsidiary in the ordinary course of their businesses,
(m) no part of the Account represents a progress billing or a retainage,
and (n) the Lender in the exercise of its sole and absolute discretion
has not deemed the Account ineligible because of uncertainty as to the
creditworthiness of the Account Debtor or because the Lender otherwise
considers the collateral value thereof to the Lender to be impaired or
its ability to realize such value to be insecure. In the event of any
dispute, under the foregoing criteria, as to whether an account is, or
has ceased to be, an Eligible Receivable, the decision of the Lender in
the exercise of its sole and absolute discretion shall control.
"Revolving Credit Expiration Date" means June 30, 1997.
(c) Addition of Certain Definitions. Effective as of the date
hereof, the following definitions shall be added to Section 1.1 of the
Financing Agreement:
"Borrowing Base" shall have the meaning given such term in
Section 2.1.10.
"Borrowing Base Deficiency" shall have the meaning given
such term in Section 2.1.10.
4
<PAGE> 5
"Borrowing Base Report" and "Borrowing Base Reports" shall
have the meaning given such terms in Section 2.1.10.
(d) Revolving Credit Facility Fee. Effective as of the date
hereof, Section 2.1.8 of the Financing Agreement is amended and restated in
its entirety as follows:
2.1.8 Revolving Credit Facility Fee. The Borrower shall
pay to the Lender a revolving credit commitment fee, (a "Revolving
Credit Facility Fee") on June 30, 1996 in an amount equal to Twenty
Five Thousand Dollars ($25,000).
(e) Elimination of Mandatory Reduction. Effective as of the date
hereof, Section 2.1.9 of the Financing Agreement is deleted in its entirety.
(f) Elimination of Revolving Credit Unused Line Fee. Effective as
of the date hereof, existing Section 2.1.10 of the Financing Agreement is
deleted in its entirety.
(g) Borrowing Base. Paragraph 3 of the Fifth Amendment to
Financing and Security Agreement dated August 12, 1994 is hereby deleted and
is replaced by replacement Section 2.1.10:
2.1.10 Borrowing Base for Revolving Loan. (a) From and
after April 1, 1996, the Revolving Credit Committed Amount shall
equal the lesser of (i) $13,000,000, or (ii) the most current
Borrowing Base (as hereinafter defined). As used herein, the term
"Borrowing Base" means at any time an amount equal to the aggregate
of (i) eighty percent (80%) of the amount of Eligible Receivables,
plus (ii) fifty percent (50%) of the amount of Eligible Inventory
but not to exceed $7,000,000.
(b) If at any time during the period referenced in
sub-part (a) of this Section the outstanding principal amount
outstanding under the Revolving Loan exceeds the Borrowing Base, a
borrowing base deficiency ("Borrowing Base Deficiency") shall exist.
Each time a Borrowing Base Deficiency exists, the Borrower shall pay
to the Lender the Borrowing Base Deficiency on demand from time to
time. Without implying any limitation on the Lender's discretion
with respect to determining the Borrowing Base, the criteria for
Eligible Receivables and for Eligible Inventory contained in the
respective definitions of Eligible Receivables and of Eligible
Inventory are in part based
5
<PAGE> 6
upon the business operations of the Borrower and the Subsidiaries
existing on or about the date of this Agreement and upon information or
records furnished to the Lender by the Borrower and its Subsidiaries. If
at any time or from time to time hereafter, the business operations of
the Borrower or any of its Subsidiaries change so as to impair the
financial condition of the Borrower or any of its Subsidiaries or impair
the value of Collateral or such information or records furnished to the
Lender are materially incorrect or materially misleading, the Lender in
its discretion, may at any time and from time to time during the duration
of the Financing Agreement upon prior written notice to the Borrower
change such Borrowing Base criteria and add new Borrowing Base criteria.
(c) The Borrower will furnish to the Lender no less
frequently than the fifteenth day of each month and at such other
times as may be requested by the Lender a report of the Borrowing
Base (each a "Borrowing Base Report"; collectively, the "Borrowing
Base Reports") in the form required from time to time by the Lender,
appropriately completed and duly signed. The Borrowing Base Report
shall contain the amount and payments on the Receivables, the value
of the Inventory and the calculations of the Borrowing Base as of
the end of the preceding month, all in such detail, and accompanied
by such supporting and other information, as the Lender may from
time to time request. Upon the Lender's request and upon the
creation of any Receivables, or at such intervals as the Lender may
require, the Borrower shall provide the Lender with: (a)
confirmatory assignment schedules; (b) copies of Account Debtor
invoices; (c) evidence of shipment or delivery; (d) such further
schedules, documents and/or information regarding Receivables and
the Inventory as the Lender may reasonably require. The items to be
provided under this subsection shall be in form satisfactory to the
Lender and certified as true and correct by a Responsible Officer,
and delivered to the Lender from time to time solely for the
Lender's convenience in maintaining records of the Collateral. The
Borrower's failure to deliver any of such items the Lender shall not
affect, terminate, modify or otherwise limit the Lender's security
interest in the Collateral.
(h) Capital Expenditures. Effective as of the date hereof, Section
6.4.5 of the Financing Agreement is amended and restated in its entirety as
follows:
6
<PAGE> 7
6.4.5 Capital Expenditures. Without the prior written
consent of the Lender, the Borrower will not, or will not permit any
Subsidiary to, directly or indirectly (by way of the acquisition of
the securities of a Person or otherwise other than the Acquisitions
permitted by this Agreement), make any expenditure in respect of the
purchase or other acquisition (including by way of incurring Lease
Obligations which should be, in accordance with GAAP, capitalized)
of Fixed or Capital Assets (excluding normal replacements and
maintenance which are properly charged to current operations in the
ordinary course of business) in the aggregate for the Borrower and
their Subsidiaries (taken as a whole) in any Fiscal Year exceeding
One Million Two Hundred Thousand Dollars ($1,200,000).
3. Conditions Precedent. This Agreement shall become effective on the
date the Lender receives the following documents, each of which shall be
satisfactory in form and substance to the Lender:
(a) this Agreement executed and delivered by the Borrower and the
Guarantors;
(b) a certificate of an officer of the Borrower to the effect that
there has been no change to the Articles of Incorporation or Bylaws of the
Borrower as delivered to the Lender in connection with the Loans made under
the Financing Agreement, all evidence of all actions taken by the Borrower
approving each Financing Document to which it is a party and as to the
incumbency and the specimen signature of each officer of the Borrower
executing this Agreement, and other documents executed in connection herewith
and a certification by the President or Vice President of the Borrower as to
the incumbency and signature of the Secretary of the Borrower and any other
documents as the Lender may reasonably require the Borrower to execute in form
and substance acceptable to the Lender; and
(c) proof that the Borrower has paid all costs and expenses of the
Lender in connection with the Loans and with this Agreement, including but not
limited to all Lender's attorneys' fees.
4. Representations; No Novation. The Borrower hereby issues, ratifies
and confirms the representations, warranties and covenants contained in the
Financing Agreement, as amended hereby. The Borrower represents and warrants
that there exists no Event of Default or event which with the giving of notice
or passage of time would constitute an Event of Default under the Financing
Documents. The Borrower agrees that this Agreement is not intended to and
shall not cause a novation with respect to any or all of the Obligations.
7
<PAGE> 8
5. Lender Release. The Borrower acknowledges and warrants that the
Lender has acted in good faith and has conducted in a commercially reasonable
manner its relationships with the Borrower in connection with this Agreement
and generally in connection with the Financing Agreement and the Obligations,
the Borrower hereby waiving and releasing any claims to the contrary.
6. Expenses. The Borrower shall pay at the time this Agreement is
executed and delivered all fees, commissions, costs, charges, taxes and other
expenses incurred by the Lender and its counsel in connection with this
Agreement, including, but not limited to, reasonable fees and expenses of the
Lender's counsel and all recording fees, taxes and charges.
7. Counterparts. This Agreement may be executed in any number of
duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and all taken together shall
constitute but one and the same instrument. The Borrower agrees that the
Lender may rely on a telecopy of any signature of any Borrower. The Lender
agrees that the Borrower may rely on a telecopy of this Agreement executed by
the Lender.
8. Entire Agreement. This Agreement contains the entire understanding
between the Lender and the Borrower with respect to the subject matter hereof
and supersedes any prior understandings and agreements between them respecting
the subject matter hereof.
9. Governing Law. This Agreement is one of the Financing Documents in
the Financing Agreement and shall be governed by and construed in accordance
with the laws of the State of Maryland and shall be deemed an instrument under
seal pursuant to said law.
10. Headings. The headings and captions used in this Agreement are for
the convenience of the parties only and are not a part of this Agreement.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement under seal as of the date and year first written above.
8
<PAGE> 9
ATTEST: HANGER ORTHOPEDIC GROUP, INC.
By: (SEAL)
- ------------------------- ----------------------
, Secretary Richard A. Stein
- -------------- Vice President
WITNESS: NATIONSBANK, N.A., as successor by merger to
Maryland National Bank
By: (SEAL)
- ------------------------- ----------------------
Louise M. Webster
Vice President
9
<PAGE> 10
AGREEMENT OF GUARANTORS
The undersigned are the "Guarantors" under various Guaranty of Payment
Agreements, dated July 2, 1993 and a Confirmation of Guaranty and Security
Agreement dated September 13, 1994 (collectively, as amended, modified,
substituted, extended and renewed from time to time, the "Guaranty"), in favor
of the foregoing Lender. In order to induce the Lender to enter into the
foregoing Agreement, the undersigned (a) consent to the transactions
contemplated by, and agreements made by the Borrower under, the foregoing
Agreement, and (b) ratify, confirm and reissue the terms, conditions,
promises, covenants, grants, assignments, security agreements, agreements,
representations, warranties and provisions contained in the Guaranty. Without
limiting the foregoing, the undersigned acknowledge and agree that the
Obligations (defined in the Financing Agreement) are covered by the Guaranty.
WITNESS signatures and seals of the undersigned as of the date of the
Agreement.
GUARANTORS:
ATTEST: ALBUQUERQUE PROSTHETIC CENTER, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: CAPITAL ORTHOPEDICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: COLUMBIA BRACE ACQUISITION CORP.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
10
<PAGE> 11
ATTEST: DORSCH PROSTHETICS & ORTHOTICS,
INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: DOBI-SYMPLEX, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: GREINER AND SAUR ORTHOPEDICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: J.E. HANGER, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: J.E. HANGER OF CALIFORNIA, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: MEMPHIS ORTHOPEDIC, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
11
<PAGE> 12
ATTEST: RALPH STORRS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: SCOTT ORTHOPEDICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: SCOTT ORTHOPEDICS OF NORTHERN
COLORADO, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: YORK PROSTHETICS, INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
ATTEST: ZIELKE ORTHOTICS & PROSTHETICS,
INC.
By: (SEAL)
- ------------------------- --------------------------
Name:
Title:
12
<PAGE> 1
EXHIBIT 10(jjjj)
SECOND AMENDED AND RESTATED REVOLVING PROMISSORY NOTE
$13,000,000 Bethesda, Maryland
November 16, 1995
FOR VALUE RECEIVED, HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation
(the "Borrower"), promises to pay to the order of NATIONSBANK, N.A, a national
banking association, successor by merger to Maryland National Bank, its
successors and assigns (the "Lender"), the principal sum of THIRTEEN MILLION
DOLLARS ($13,000,000) (the "Principal Sum"), or so much thereof as has been or
may be advanced or readvanced to or for the account of the Borrower pursuant
to the terms and conditions of the Financing Agreement (as hereinafter
defined), together with interest thereon at the rate or rates hereinafter
provided, in accordance with the following:
1. INTEREST. (a) Commencing as of the date hereof and continuing
until repayment in full of all sums due hereunder, each advance under this
Note (hereafter an "Advance") shall bear interest at either the Lender's
fluctuating Prime Rate Option (as hereinafter defined) or the Lender's LIBOR
Rate Option (as hereinafter defined). Selection of the interest rate
applicable for each Advance shall be made by the Borrower at least three (3)
Business Days (as defined in the Financing Agreement) prior to the date of
each Advance or any renewal of any prior Advance which is accruing interest at
the LIBOR Rate option. In the event the Borrower fails to select either the
Prime Rate Option
<PAGE> 2
or the LIBOR Rate Option for any Advance or any renewal of any prior Advance
which is accruing interest at the LIBOR Rate option, the Borrower shall be
conclusively deemed to have elected the Prime Rate Option with respect to such
Advance or renewal thereof.
(b) For purposes hereof, the "Prime Rate Option" shall mean the
fluctuating prime rate of interest established and declared by the Lender from
time to time (the "Prime Rate") plus one-quarter of one percent (1/4%) per
annum. The Prime Rate Option does not necessarily represent the lowest rate
of interest charged by the Lender to borrowers. The rate of interest charged
on each Advance accruing interest at the Prime Rate Option shall change
immediately and contemporaneously with any change in the Prime Rate.
(c) For purposes hereof, the "LIBOR Rate Option" shall mean a fixed
rate equal to the daily London Interbank Offered Rate for three-month U.S.
Dollar deposits as quoted by the Lender as of 11:00 A.M. (Washington, D.C.
time) three (3) business days prior to the date of each advance or renewal
thereof, which rate shall be adjusted for any Federal Reserve Board reserve
requirements imposed upon the Lender from time to time (the "LIBOR Rate") plus
two and one-half percent (2.5%) per annum.
(d) Interest on the unpaid Principal Sum shall be computed on the
basis of a 360-day year and the actual number of days which have elapsed.
-2-
<PAGE> 3
2. PAYMENTS AND MATURITY. The unpaid Principal Sum, together with
interest thereon at the rate or rates provided above, shall be payable as
follows:
(a) Interest on the unpaid Principal Sum shall be due and payable
monthly, commencing December 1, 1995, and on the first day of each month
thereafter to maturity; and
(b) Unless sooner paid, the entire unpaid Principal Sum, together
with all interest accrued and unpaid thereon, shall be due and payable in full
on June 30, 1997.
The fact that the balance hereunder may be reduced to zero from time to
time pursuant to the Financing Agreement will not affect the continuing
validity of this Note or the Financing Agreement, and the balance may be
increased to the Principal Sum after any such reduction to zero.
3. DEFAULT INTEREST. Upon the occurrence of an Event of Default (as
hereinafter defined), the unpaid Principal Sum shall bear interest thereafter
at a rate one percent (1.0%) per annum in excess of the then current rate or
rates of interest hereunder until such Event of Default is cured.
4. LATE CHARGES. If the Borrower shall fail to make any payment under
the terms of this Note within fifteen (15) days after the date such payment is
due, the Borrower shall pay to the Lender on demand a late charge equal to
five percent (5%) of such payment.
-3-
<PAGE> 4
5. APPLICATION AND PLACE OF PAYMENTS. All payments, made on account of
this Note shall be applied first to the payment of any late charge then due
hereunder, second to the payment of accrued and unpaid interest then due
hereunder, and the remainder, if any, shall be applied to the unpaid Principal
Sum. All payments on account of this Note shall be paid in lawful money of
the United States of America in immediately available funds during regular
business hours of the Lender at its principal office at 10 Light Street,
Baltimore, Maryland 21202 or at such other times and places as the Lender may
at any time and from time to time designate in writing to the Borrower.
6. FINANCING AGREEMENT AND OTHER FINANCING DOCUMENTS. This Note is the
"Revolving Note" described in a Financing and Security Agreement dated July 2,
1993 by and between the Borrower and the Lender (as thereafter amended from
time to time, the "Financing Agreement"). This Note amends and restates in
its entirety that certain Amended and Restated Revolving Promissory Note dated
September 13, 1994 from the Borrower in favor of the Lender. The Borrower
agrees that the indebtedness evidenced by said Amended and Restated Revolving
Promissory Note has not been extinguished or discharged hereby and is not
intended to and shall not cause or result in a novation with regard to the
Revolving Note. The indebtedness evidenced by this Note is included within
the meaning of the term "Obligations" as defined in the Financing Agreement.
The term "Financing Documents" as
-4-
<PAGE> 5
used in this Note shall mean collectively this Note, the Financing Agreement
and any other instrument, agreement, or document previously, simultaneously,
or hereafter executed and delivered by the Borrower and/or any other person,
singularly or jointly with any other person, evidencing, securing,
guaranteeing, or in connection with the Principal Sum, this Note and/or the
Financing Agreement.
7. SECURITY. This Note is secured as provided in the Financing
Agreement.
8. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an event of default (individually, an "Event
of Default" and collectively, the "Events of Default") under the terms of this
Note:
(a) The failure of the Borrower to pay to the Lender within ten
(10) days after Notice thereof any and all amounts payable by the Borrower to
the Lender under the terms of this Note; or
(b) The occurrence of an event of default (as defined therein)
under the terms and conditions of any of the other Financing Documents.
9. REMEDIES. Upon the occurrence of an Event of Default, at the option
of the Lender, all amounts payable by the Borrower to the Lender under the
terms of this Note shall immediately become due and payable by the Borrower to
the Lender without notice to the Borrower or any other person, and the Lender
shall
-5-
<PAGE> 6
have all of the rights, powers, and remedies available under the terms of this
Note, any of the other Financing Documents and all applicable laws. The
Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment,
protest and demand, notice of protest, notice of demand and of dishonor and
non-payment of this Note and expressly agree that this Note or any payment
hereunder may be extended from time to time without in any way affecting the
liability of the Borrower, guarantors and endorsers.
10. CONFESSED JUDGMENT. Upon the occurrence of an Event of Default, the
Borrower hereby authorizes any attorney designated by the Lender or any clerk
of any court of record to appear for the Borrower in any court of record and
confess judgment without prior hearing against the Borrower in favor of the
Lender for and in the amount of the unpaid Principal Sum, all interest accrued
and unpaid thereon, all other amounts payable by the Borrower to the Lender
under the terms of this Note or any of the other Financing Documents, costs of
suit, and attorneys' fees of $300,000. The Borrower hereby releases, to the
extent permitted by applicable law, all errors and all rights of exemption,
appeal, stay of execution, inquisition, and other rights to which the Borrower
may otherwise be entitled under the laws of the United States of America or of
any state or possession of the
-6-
<PAGE> 7
United States of America now in force and which may hereafter be enacted. The
authority and power to appear for and enter judgment against the Borrower
shall not be exhausted by one or more exercises thereof or by any imperfect
exercise thereof and shall not be extinguished by any judgment entered
pursuant thereto. Such authority may be exercised on one or more occasions or
from time to time in the same or different jurisdictions as often as the
Lender shall deem necessary or desirable, for all of which this Note shall be
a sufficient warrant.
11. EXPENSES. The Borrower promises to pay to the Lender on demand by
the Lender all costs and expenses incurred by the Lender in connection with
the collection and enforcement of this Note, including, without limitation,
all attorneys' fees and expenses and all court costs.
12. NOTICES. Any notice, request, or demand to or upon the Borrower or
the Lender shall be deemed to have been properly given or made when delivered
in accordance with Section 8.3 of the Financing Agreement.
13. MISCELLANEOUS. Each right, power, and remedy of the Lender as
provided for in this Note or any of the other Financing Documents, or now or
hereafter existing under any applicable law or otherwise shall be cumulative
and concurrent and shall be in addition to every other right, power, or remedy
provided for in this Note or any of the other Financing Documents or now or
hereafter existing under any applicable law, and the exercise or
-7-
<PAGE> 8
beginning of the exercise by the Lender of any one or more of such rights,
powers, or remedies shall not preclude the simultaneous or later exercise by
the Lender of any or all such other rights, powers, or remedies. No failure
or delay by the Lender to insist upon the strict performance of any term,
condition, covenant, or agreement of this Note or any of the other Financing
Documents, or to exercise any right, power, or remedy consequent upon a breach
thereof, shall constitute a waiver of any such term, condition, covenant, or
agreement or of any such breach, or preclude the Lender from exercising any
such right, power, or remedy at a later time or times. By accepting payment
after the due date of any amount payable under the terms of this Note, the
Lender shall not be deemed to waive the right either to require prompt payment
when due of all other amounts payable under the terms of this Note or to
declare an Event of Default for the failure to effect such prompt payment of
any such other amount. No course of dealing or conduct shall be effective to
amend, modify, waive, release, or change any provisions of this Note.
14. PARTIAL INVALIDITY. In the event any provision of this Note (or any
part of any provision) is held by a court of competent jurisdiction to be
invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provision (or
remaining part of the affected provision) of this Note; but this Note shall be
-8-
<PAGE> 9
construed as if such invalid, illegal, or unenforceable provision (or part
thereof) had not been contained in this Note, but only to the extent it is
invalid, illegal, or unenforceable.
15. CAPTIONS. The captions herein set forth are for convenience only
and shall not be deemed to define, limit, or describe the scope or intent of
this Note.
16. GOVERNING LAW. The provisions of this Note shall be construed,
interpreted and enforced in accordance with the laws of the State of Maryland
as the same may be in effect from time to time.
17. CONSENT TO JURISDICTION. The Borrower irrevocably submits to the
jurisdiction of any state or federal court sitting in the State of Maryland
over any suit, action, or proceeding arising out of or relating to this Note.
The Borrower irrevocably waives, to the fullest extent permitted by law, any
objection that the Borrower may now or hereafter have to the laying of venue
of any such suit, action, or proceeding brought in any such court and any
claim that any such suit, action, or proceeding brought in any such court has
been brought in an inconvenient forum. Final judgment in any such suit,
action, or proceeding brought in any such court shall be conclusive and
binding upon the Borrower and may be enforced in any court in which the
Borrower is subject to jurisdiction by a suit upon such judgment provided that
service of process is effected upon the
-9-
<PAGE> 10
Borrower as provided in this Note or as otherwise permitted by applicable law.
18. SERVICE OF PROCESS. The Borrower hereby consents to process being
served in any suit, action, or proceeding instituted in connection with this
Note by (a) the mailing of a copy thereof by certified mail, postage prepaid,
return receipt requested, to the Borrower and (b) serving a copy thereof upon
Jay W. Freedman, Esquire, 1050 Connecticut Avenue, N.W., Suite 825,
Washington, D.C. 20036, the agent hereby designated and appointed by the
Borrower as the Borrower's agent for service of process. The Borrower
irrevocably agrees that such service shall be deemed to be service of process
upon the Borrower in any such suit, action, or proceeding. Nothing in this
Section shall affect the right of the Lender to serve process in any manner
otherwise permitted by law and nothing in this Section will limit the right of
the Lender otherwise to bring proceedings against the Borrower in the courts
of any jurisdiction or jurisdictions, however the Lender will use its best
efforts to serve the Borrower in the manner set forth above. If such agent
shall cease so to act, the Borrower shall irrevocably designate and appoint
without delay appoint another such agent in the State of Maryland satisfactory
to the Lender and shall promptly deliver to the Lender evidence in writing of
such agent's acceptance of such appointment and its agreement that such
appointment shall be irrevocable by the Borrower.
-10-
<PAGE> 11
19. WAIVER OF TRIAL BY JURY. The Borrower hereby waives trial by jury
in any action or proceeding to which the Borrower and the Lender may be
parties, arising out of or in any way pertaining to (a) this Note or (b) the
Financing Documents. It is agreed and understood that this waiver constitutes
a waiver of trial by jury of all claims against all parties to such actions or
proceedings, including claims against parties who are not parties to this
Note.
This waiver is knowingly, willingly and voluntarily made by the
Borrower, and the Borrower hereby represents that no representations of fact
or opinion have been made by any individual to induce this waiver of trial by
jury or to in any way modify or nullify its effect. The Borrower further
represents that it has been represented in the signing of this Note and in the
making of this waiver by independent legal counsel, selected of its own free
will, and that it has had the opportunity to discuss this waiver with counsel.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized officer(s) as of the date first written
above.
WITNESS OR ATTEST: HANGER ORTHOPEDIC GROUP, INC.
By: (SEAL)
- ------------------------------ --------------------------
Richard A. Stein
Vice President
-11-
<PAGE> 1
EXHIBIT 10(kkkk)
HANGER ORTHOPEDIC GROUP, INC.
Incentive Stock Option Agreement
THIS AGREEMENT is made as of February 21, 1996, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and Ivan
R. Sabel (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company desires to grant to the Optionee an
incentive stock option under the Company's 1991 Stock Option Plan to purchase
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), in consideration for the Optionee's service to the Company.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. Grant of Option. Subject to the terms and conditions
of this Agreement, the Company hereby grants to Optionee the right and option
to purchase from the Company all or part of an aggregate of 67,000 shares of
Common Stock. This option is intended to constitute an incentive stock option
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code").
2. Option Price and Time of Exercise. The per-share
purchase price at which the shares subject to option hereunder may be purchased
by Optionee pursuant to his exercise of this option shall be $3.50, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on February 21, 1996, the date of grant of this option. The
Optionee's right to exercise this option shall vest as to 25% of the shares of
Common Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 7 below,
after the day preceding the tenth anniversary hereof (the "Option Period").
3. Method of Exercise and Payment for Shares. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired upon such
exercise and indicating whether the exercise is being paid for (i) in cash,
(ii) in shares of Common Stock already owned by the Optionee and valued at
their fair market value on the date of exercise of the option, (iii) by
requesting the Company to withhold from the number of shares of Common Stock
otherwise issuable upon exercise of the option that number of shares of Common
Stock having an aggregate fair market value on the date of exercise equal to
the option price for all the shares of Common
<PAGE> 2
Stock subject to such exercise, or (iv) by a combination of (i), (ii) and/or
(iii) above.
4. Non-transferability. This option is not transferable
by Optionee except as otherwise provided in Paragraph 7 below, and during
Optionee's lifetime is exercisable only by him.
5. Agreement to Continue in Employment. The Optionee
hereby agrees to remain in the employment of the Company, at the pleasure of
the Company, for a continuous period of at least six months after the date
hereof, at the salary rate in effect as of the date hereof or at such increased
salary as may be fixed, from time to time, by the Company.
6. Notice of Sale of Stock; Withholding. The Optionee
hereby agrees to notify the Company in writing if any shares of Common Stock
acquired hereunder are "disposed of" within the meaning of Section 422A of the
Code, within two years after the date of grant of this option or within one
year after the transfer of such shares of Common Stock to the Optionee. If the
Optionee does "dispose of" any shares of Common Stock acquired hereunder within
either such time period, then the Optionee further agrees to make appropriate
arrangements with the Company to provide for the amount of additional
withholding required by Sections 3102 and 3402 of the Code and applicable state
income tax laws.
7. Exercise After Death or Termination of Service to the
Company. In the event Optionee dies before the expiration of this option,
Optionee's estate, or the person or persons to whom his rights under this
option shall pass by will or the laws of descent and distribution, may exercise
this option, to the extent exercisable at the date of death, at any time within
six months following Optionee's death (but in any event before the expiration
of the Option Period). In the event Optionee ceases to be employed by the
Company or a subsidiary of the Company by reason of termination of employment
other than for cause, before expiration of the Option Period, Optionee may
exercise this option, to the extent exercisable upon termination of employment,
at any time within three months next following such termination of employment
(but in any event before the expiration of the Option Period). If Optionee's
employment is otherwise terminated, this option shall terminate at the time of
such termination of employment.
8. Adjustments.
(a) Adjustments by Stock Split, Stock Dividend, Etc. If
the Company shall at any time increase or decrease the number of its
outstanding shares of Common Stock, or change in any way the rights and
privileges of such shares, by means of the payment of a Common Stock dividend
or the making of any other distribution upon such shares payable in Common
Stock, or through a Common Stock split or subdivision of shares, or a
consolidation or combination of shares, or through a reclassification or
recapitalization involving the
<PAGE> 3
Common Stock, then the numbers, rights and privileges of the shares of Common
Stock underlying the option granted hereunder shall be increased, decreased or
changed in like manner as if they had been issued and outstanding, fully paid
and nonassessable at the time of such occurrence.
(b) Dividend Payable in Stock of Another
Corporation, Etc. If the Company shall at any time pay or make any dividend or
other distribution upon the Common Stock payable in securities or other
property (except money or Common Stock), a proportionate part of such
securities or other property shall be set aside and delivered to the Optionee
upon exercise hereof.
(c) Apportionment of Price. Upon any occurrence
described in the preceding subsections (a) and (b) of this Section 8, the total
option price hereunder shall remain unchanged but shall be apportioned ratably
over the increased or decreased number or changed kinds of securities or other
property subject to this option.
(d) Rights to Subscribe. If the Company shall at
any time grant to the holders of its Common Stock rights to subscribe pro rata
for additional shares thereof or for any other securities of the Company or of
any other corporation, there shall be added to the number of shares underlying
this option the Common Stock or other securities which the Optionee would have
been entitled to subscribe for if immediately prior to such grant the Optionee
had exercised his entire option, and the option price shall be increased by the
amount which would have been payable by the Optionee for such Common Stock or
other securities.
(e) Determination by the Company. Adjustments
under this Section 8 shall be made by the Company, whose determinations with
regard thereto shall be final and binding. No fractional shares of Common
Stock shall be issued on account of any such adjustment.
9. Merger, Consolidation, Etc.
(a) Effect of Transaction. Upon the occurrence
of any of the following events, if the notice required by Section 9(b) hereof
shall have first been given, the option granted hereunder shall automatically
terminate and be of no further force and effect whatsoever, without the
necessity for any additional notice or other action by the Company: (i) the
merger, consolidation or liquidation of the Company or the acquisition of its
assets or stock pursuant to a nontaxable reorganization, unless the surviving
or acquiring corporation, as the case may be, shall assume all outstanding
options of the Company or substitute new options for them pursuant to Section
425(a) of the Code; (ii) the dissolution or liquidation of the Company; (iii)
the appointment of a receiver for all or substantially all of the Company's
assets or business;
3
<PAGE> 4
(iv) the appointment of a trustee for the Company after a petition has been
filed for the Company's reorganization under applicable statutes; or (v) the
sale, lease or exchange of all or substantially all of the Company's assets and
business.
(b) Notice of Such Occurrences. At least 30
days' prior written notice of any event described in Section 9(a) hereof,
except the transactions described in subsections 9(a)(iii) and (iv) as to which
no notice shall be required, shall be given by the Company to the Optionee. If
the Optionee is so notified, he may exercise all or a portion of the entire
unexercised portion of this option at any time before the occurrence of the
event requiring the giving of notice, regardless of whether all conditions of
exercise relating to continuation of employment for specified periods of time
have been satisfied. Such notice shall be deemed to have been given when
delivered personally to the Optionee or when mailed to the Optionee by
registered or certified mail, postage prepaid, at the Optionee's last address
known to the Company.
10. Binding Effect, Entire Agreement. Subject to the
limitations stated above, this Agreement shall be binding upon and inure to the
benefit of the personal representatives of Optionee and the successors of the
Company. This Agreement constitutes the entire agreement between the parties
and cannot be altered, modified, or changed in any way unless made in writing
and signed by the party against whom such alteration, modification, or change
is asserted.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its Chairman and its corporate seal to be hereunto affixed and
attested by its Secretary, and the Optionee has affixed his signature hereto.
IVAN R. SABEL
----------------------------------
Ivan R. Sabel
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- ------------------------ --------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
4
<PAGE> 1
EXHIBIT 10(llll)
HANGER ORTHOPEDIC GROUP, INC.
Incentive Stock Option Agreement
THIS AGREEMENT is made as of February 21, 1996, by and between
HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and
Richard A. Stein (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Company desires to grant to the Optionee an
incentive stock option under the Company's 1991 Stock Option Plan to purchase
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), in consideration for the Optionee's service to the Company.
NOW, THEREFORE, the parties hereto, intending to be legally
bound, do agree as follows:
1. Grant of Option. Subject to the terms and conditions
of this Agreement, the Company hereby grants to Optionee the right and option
to purchase from the Company all or part of an aggregate of 33,000 shares of
Common Stock. This option is intended to constitute an incentive stock option
within the meaning of Section 422A of the Internal Revenue Code of 1986, as
amended (the "Code").
2. Option Price and Time of Exercise. The per-share
purchase price at which the shares subject to option hereunder may be purchased
by Optionee pursuant to his exercise of this option shall be $3.50, which price
equals the closing sale price per share of the Common Stock on the American
Stock Exchange on February 21, 1996, the date of grant of this option. The
Optionee's right to exercise this option shall vest as to 25% of the shares of
Common Stock underlying the option at the end of each of the first four years
following the date hereof. The right to exercise the option shall be
cumulative to the extent not theretofore exercised. The right to exercise the
option shall in all events expire, except as provided in Paragraph 7 below,
after the day preceding the tenth anniversary hereof (the "Option Period").
3. Method of Exercise and Payment for Shares. This
option shall be exercised by written notice directed to the Company at its
principal office, specifying the number of shares to be acquired upon such
exercise and indicating whether the exercise is being paid for (i) in cash,
(ii) in shares of Common Stock already owned by the Optionee and valued at
their fair market value on the date of exercise of the option, (iii) by
requesting the Company to withhold from the number of shares of Common Stock
otherwise issuable upon exercise of the option that number of shares of Common
Stock having an aggregate fair market value on the date of exercise equal to
the option price for all the shares of Common Stock subject to such exercise,
or (iv) by a combination of (i),
<PAGE> 2
(ii) and/or (iii) above.
4. Non-transferability. This option is not transferable
by Optionee except as otherwise provided in Paragraph 7 below, and during
Optionee's lifetime is exercisable only by him.
5. Agreement to Continue in Employment. The Optionee
hereby agrees to remain in the employment of the Company, at the pleasure of
the Company, for a continuous period of at least six months after the date
hereof, at the salary rate in effect as of the date hereof or at such increased
salary as may be fixed, from time to time, by the Company.
6. Notice of Sale of Stock; Withholding. The Optionee
hereby agrees to notify the Company in writing if any shares of Common Stock
acquired hereunder are "disposed of" within the meaning of Section 422A of the
Code, within two years after the date of grant of this option or within one
year after the transfer of such shares of Common Stock to the Optionee. If the
Optionee does "dispose of" any shares of Common Stock acquired hereunder within
either such time period, then the Optionee further agrees to make appropriate
arrangements with the Company to provide for the amount of additional
withholding required by Sections 3102 and 3402 of the Code and applicable state
income tax laws.
7. Exercise After Death or Termination of Service to the
Company. In the event Optionee dies before the expiration of this option,
Optionee's estate, or the person or persons to whom his rights under this
option shall pass by will or the laws of descent and distribution, may exercise
this option, to the extent exercisable at the date of death, at any time within
six months following Optionee's death (but in any event before the expiration
of the Option Period). In the event Optionee ceases to be employed by the
Company or a subsidiary of the Company by reason of termination of employment
other than for cause, before expiration of the Option Period, Optionee may
exercise this option, to the extent exercisable upon termination of employment,
at any time within three months next following such termination of employment
(but in any event before the expiration of the Option Period). If Optionee's
employment is otherwise terminated, this option shall terminate at the time of
such termination of employment.
8. Adjustments.
(a) Adjustments by Stock Split, Stock Dividend, Etc. If
the Company shall at any time increase or decrease the number of its
outstanding shares of Common Stock, or change in any way the rights and
privileges of such shares, by means of the payment of a Common Stock dividend
or the making of any other distribution upon such shares payable in Common
Stock, or through a Common Stock split or subdivision of shares, or a
consolidation or combination of shares, or through a reclassification or
recapitalization involving the Common Stock, then the numbers, rights and
privileges of the shares of Common Stock underlying the option granted
hereunder shall be
<PAGE> 3
increased, decreased or changed in like manner as if they had been issued and
outstanding, fully paid and nonassessable at the time of such occurrence.
(b) Dividend Payable in Stock of Another
Corporation, Etc. If the Company shall at any time pay or make any dividend or
other distribution upon the Common Stock payable in securities or other
property (except money or Common Stock), a proportionate part of such
securities or other property shall be set aside and delivered to the Optionee
upon exercise hereof.
(c) Apportionment of Price. Upon any occurrence
described in the preceding subsections (a) and (b) of this Section 8, the total
option price hereunder shall remain unchanged but shall be apportioned ratably
over the increased or decreased number or changed kinds of securities or other
property subject to this option.
(d) Rights to Subscribe. If the Company shall at
any time grant to the holders of its Common Stock rights to subscribe pro rata
for additional shares thereof or for any other securities of the Company or of
any other corporation, there shall be added to the number of shares underlying
this option the Common Stock or other securities which the Optionee would have
been entitled to subscribe for if immediately prior to such grant the Optionee
had exercised his entire option, and the option price shall be increased by the
amount which would have been payable by the Optionee for such Common Stock or
other securities.
(e) Determination by the Company. Adjustments
under this Section 8 shall be made by the Company, whose determinations with
regard thereto shall be final and binding. No fractional shares of Common
Stock shall be issued on account of any such adjustment.
9. Merger, Consolidation, Etc.
(a) Effect of Transaction. Upon the occurrence
of any of the following events, if the notice required by Section 9(b) hereof
shall have first been given, the option granted hereunder shall automatically
terminate and be of no further force and effect whatsoever, without the
necessity for any additional notice or other action by the Company: (i) the
merger, consolidation or liquidation of the Company or the acquisition of its
assets or stock pursuant to a nontaxable reorganization, unless the surviving
or acquiring corporation, as the case may be, shall assume all outstanding
options of the Company or substitute new options for them pursuant to Section
425(a) of the Code; (ii) the dissolution or liquidation of the Company; (iii)
the appointment of a receiver for all or substantially all of the Company's
assets or business; (iv) the appointment of a trustee for the Company after a
petition has been filed for the Company's reorganization under applicable
3
<PAGE> 4
statutes; or (v) the sale, lease or exchange of all or substantially all of the
Company's assets and business.
(b) Notice of Such Occurrences. At least 30
days' prior written notice of any event described in Section 9(a) hereof,
except the transactions described in subsections 9(a)(iii) and (iv) as to which
no notice shall be required, shall be given by the Company to the Optionee. If
the Optionee is so notified, he may exercise all or a portion of the entire
unexercised portion of this option at any time before the occurrence of the
event requiring the giving of notice, regardless of whether all conditions of
exercise relating to continuation of employment for specified periods of time
have been satisfied. Such notice shall be deemed to have been given when
delivered personally to the Optionee or when mailed to the Optionee by
registered or certified mail, postage prepaid, at the Optionee's last address
known to the Company.
10. Binding Effect, Entire Agreement. Subject to the
limitations stated above, this Agreement shall be binding upon and inure to the
benefit of the personal representatives of Optionee and the successors of the
Company. This Agreement constitutes the entire agreement between the parties
and cannot be altered, modified, or changed in any way unless made in writing
and signed by the party against whom such alteration, modification, or change
is asserted.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be signed by its President and its corporate seal to be hereunto affixed and
attested by its Chairman, and the Optionee has affixed his signature hereto.
RICHARD A. STEIN
------------------------------------
Richard A. Stein
Optionee
Attest: HANGER ORTHOPEDIC GROUP, INC.
RICHARD A. STEIN By: IVAN R. SABEL
- -------------------------- --------------------------------
Richard A. Stein Ivan R. Sabel
Secretary President
4
<PAGE> 1
HANGER ORTHOPEDIC GROUP, INC.
EXHIBIT 11
COMPUTATION OF NET INCOME PER SHARE
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $2,655,223 $(2,687,438) $2,135,439
Less:
Dividends declared 18,199 19,882 21,799
---------- ----------- ----------
Total $2,637,024 $(2,707,320) $2,113,640
========== =========== ==========
Divided by:
Weighted average number of shares
outstanding 8,343,784 8,290,276 8,290,544
Net income (loss) per share $ .32 $ (.33) $ .26
========== =========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
The following is a list of the subsidiaries of Hanger
Orthopedic Group, Inc. as of December 31, 1995, all of which are wholly-owned
except as noted below, and their respective states of incorporation:
Albuquerque Prosthetic Center, Inc. - New Mexico
Apothecaries, Inc. - Delaware
Capital Orthopedics, Inc. - Colorado
Columbia Brace Acquisition Corp. - Delaware (80%-owned)
DOBI-Symplex, Inc. - Delaware
Dorsch Prosthetics & Orthotics, Inc. - New York
Greiner & Saur Orthopedics, Inc. - Colorado
J.E. Hanger, Inc. - Delaware
J.E. Hanger of California, Inc. - Delaware
Memphis Orthopedic, Inc. - Delaware
Metzgers Orthopaedic Services, Inc. - California
Ralph Storrs, Inc. - Delaware
Scott Orthopedics, Inc. - Colorado
Scott Orthopedics of Northern Colorado, Inc. - Colorado
York Prosthetics, Inc. - Delaware
Zielke Orthotics & Prosthetics, Inc. - Delaware
<PAGE> 1
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
Hanger Orthopedic Group, Inc. on Form S-8 (File No. 33-63191) of our reports
dated March 8, 1996, which includes an explanatory paragraph relating to the
Company changing its method of accounting for income taxes effective January 1,
1993, on our audits of the consolidated financial statements and financial
statement schedule of Hanger Orthopedic Group, Inc. as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995,
which report is included in this Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 28, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,456,305
<SECURITIES> 0
<RECEIVABLES> 14,468,991
<ALLOWANCES> 1,144,000
<INVENTORY> 10,312,289
<CURRENT-ASSETS> 26,938,998
<PP&E> 11,998,514
<DEPRECIATION> 4,232,858
<TOTAL-ASSETS> 61,800,061
<CURRENT-LIABILITIES> 6,317,222
<BONDS> 22,925,124
253,886
0
<COMMON> 84,241
<OTHER-SE> 31,207,124
<TOTAL-LIABILITY-AND-EQUITY> 61,800,061
<SALES> 52,467,899
<TOTAL-REVENUES> 52,467,899
<CGS> 24,572,089
<TOTAL-COSTS> 24,572,089
<OTHER-EXPENSES> 22,159,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,056,140
<INCOME-PRETAX> 3,679,937
<INCOME-TAX> 1,544,498
<INCOME-CONTINUING> 2,135,439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,135,439
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
