<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HANGER ORTHOPEDIC GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
43928
<PAGE> 2
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
May 1, 1997
Dear Stockholder:
We are pleased to invite you to attend our Annual Meeting of Stockholders.
This year it will be on Tuesday, June 3, 1997, at 10:00 a.m., local time, at the
Company's executive offices at 7700 Old Georgetown Road (Second Floor),
Bethesda, Maryland. The primary business of the meeting will be to elect
directors and ratify the selection of independent accountants.
A Notice of the Annual Meeting and the Proxy Statement follow. You will
also find enclosed a proxy card. We invite you to attend the meeting in person,
but if this is not feasible, we think it advisable for you to be represented by
proxy. Therefore, if you cannot attend the meeting, we urge you to sign the
enclosed proxy card and mail it promptly in the return-addressed,
postage-prepaid envelope provided for your convenience.
Sincerely,
/s/ IVAN R. SABEL
Ivan R. Sabel
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
Notice is hereby given that the Annual Meeting of Stockholders of Hanger
Orthopedic Group, Inc., a Delaware corporation ("Hanger" or the "Company"), will
be held at the Company's executive offices at 7700 Old Georgetown Road (Second
Floor), Bethesda, Maryland 20814 on Tuesday, June 3, 1997, at 10:00 a.m., local
time, for the following purposes:
1. To elect nine persons to serve as directors of the Company for the
ensuing year;
2. To ratify the selection of Coopers & Lybrand as the independent
accountants for the Company for the current fiscal year; and
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 18, 1997, are
entitled to notice of, and to vote at, the Annual Meeting.
By order of the Board of Directors,
/s/ RICHARD A. STEIN
Richard A. Stein
Secretary
May 1, 1997
YOUR VOTE IS IMPORTANT
PLEASE DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES.
MAIL THE PROXY TO US IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
THE GIVING OF THE PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD
YOU ATTEND THE MEETING.
<PAGE> 4
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Hanger Orthopedic Group, Inc., a Delaware corporation
("Hanger" or the "Company"), of proxies of stockholders to be voted at the
Annual Meeting of Stockholders to be held at the Company's executive offices at
7700 Old Georgetown Road (Second Floor), Bethesda, Maryland at 10:00 a.m., local
time, on Tuesday, June 3, 1997, and any and all adjournments thereof.
Any stockholder executing a proxy retains the right to revoke it at any
time prior to its being exercised by giving notice to the Secretary of the
Company.
This Proxy Statement and the accompanying proxy are being mailed or given
to stockholders of the Company on or about May 1, 1997.
VOTING SECURITIES
As of April 18, 1997, a total of 9,360,270 shares of common stock of the
Company, par value $.01 per share ("Common Stock"), which is the only class of
voting securities of the Company, were issued and outstanding. At the Annual
Meeting or any adjournment thereof, all holders of record of the Common Stock as
of the close of business on April 18, 1997, will be entitled to one vote for
each share held upon the matters listed in the Notice of Annual Meeting.
Cumulative voting is not permitted.
Shares of Common Stock represented by proxy at the Annual Meeting will be
voted according to the instructions, if any, given in the proxy. Unless
otherwise instructed, the person or persons named in the proxy will vote (1) FOR
the election of the nine nominees for director listed herein (or their
substitutes in the event any of the nominees is unavailable for election); (2)
FOR the ratification of the selection of Coopers & Lybrand as the independent
accountants for the Company for the current fiscal year; and (3) in their
discretion, with respect to such other business as may properly come before the
meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed by the Company for the meeting. The number
of shares represented at the meeting in person or by proxy will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote by the inspectors of election with
respect to that matter.
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers or regular employees of the Company in person
or by telephone.
PROPOSAL ONE -- ELECTION OF DIRECTORS
Nine directors are to be elected at the Company's Annual Meeting of
Stockholders, each to serve for one year or until his successor is elected and
qualified. Proxies will be voted at the Annual Meeting, unless authority is
withheld, FOR the election of the nine persons named below, all of whom
currently are directors of the Company. The Company does not contemplate that
any of the persons named below will be unable or will decline to serve; however,
if any such nominee is unable or declines to serve, the persons named in the
<PAGE> 5
accompanying proxy will vote for a substitute, or substitutes, in their
discretion. The following table sets forth information regarding the nominees.
<TABLE>
<CAPTION>
BECAME
NAME POSITION WITH THE COMPANY AGE DIRECTOR
- ---------------------------------- ------------------------------- --- --------
<S> <C> <C> <C>
Ivan R. Sabel, CPO................ Chairman of the Board, 52 1986
President, Chief Executive
Officer and Director
Mitchell J. Blutt, M.D. .......... Director 40 1989
Edmond E. Charrette, M.D. ........ Director 62 1996
Thomas P. Cooper, M.D. ........... Director 53 1990
Robert J. Glaser, M.D. ........... Director 78 1993
James G. Hellmuth................. Director 74 1990
William L. McCulloch.............. Director 76 1991
Daniel A. McKeever, CP............ Director 86 1996
H.E. Thranhardt, CPO.............. Director 57 1996
</TABLE>
Ivan R. Sabel has been Chairman of the Board of Directors and Chief
Executive Officer of Hanger since August 1995 and President of Hanger since
November 1987. Mr. Sabel also served as the Chief Operating Officer of Hanger
from November 1987 until August 1995. Prior to that time, Mr. Sabel had been
Vice President -- Corporate Development from September 1986 to November 1987.
From 1968 until joining Hanger in 1986, Mr. Sabel was the founder, owner and
President of Capital Orthopedics, Inc. before that company was acquired by
Hanger. Mr. Sabel is a Certified Prosthetist and Orthotist ("CPO"), a clinical
instructor in orthopedics at the Georgetown University Medical School in
Washington, D.C., a member of the Board of Directors of the American Orthotic
and Prosthetic Association ("AOPA"), 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 AOPA and a former President of the American Board for Certification
in Orthotics and Prosthetics.
Mitchell J. Blutt, M.D. has served as an Executive Partner of Chase Capital
Partners (and its predecessor organizations), an affiliate of Chase Manhattan
Bank (and its predecessor corporations), since June 1991. He joined that firm in
July 1987 and became a General Partner in June 1988. Dr. Blutt also has been
engaged in the practice of medicine for over five years. Previously, Dr. Blutt
was a Robert Wood Johnson Foundation Fellow at the University of Pennsylvania
from July 1985 to June 1987. He is an adjunct Assistant Professor at the New
York Hospital/Cornell Medical Center. Dr. Blutt is also a director of Urohealth
Systems, Inc., a public company engaged in the manufacture, marketing and
distribution of products used by urologists and gynecologists, and Landec Corp.,
a public company engaged in the design, development, manufacture and sale of
temperature-activated polymer products for a variety of industrial, medical and
agricultural applications, as well as numerous privately-held companies.
Edmond E. Charrette, M.D. is the co-founder and Chairman of Health
Resources Corporation (principally engaged in occupational medicine services).
He also is a Partner of Ascendant Healthcare International (an investment group
with equity investments in the Latin American healthcare sector) and serves as
President of Latin Healthcare Investment Management Co., LLC (a group composed
of Ascendant Healthcare International and The Global Environmental Fund which
manages and directs the investment activities of the Latin Healthcare Investment
Fund). Previously, he was the Executive Vice President and Chief Medical Officer
of Advantage Health Corporation (a multi-hospital rehabilitation and post-acute
care system) from June 1994 to March 1996. From 1988 to May 1994, Dr. Charrette
served as the Corporate Medical Director and Senior Vice President of Medical
Affairs of Advantage Health Corporation. Dr. Charrette also is a director of
Nu-Tech Biomed Corporation, which is principally engaged in the development of
medical diagnostic tests.
Thomas P. Cooper, M.D. has been employed as the President and Chief
Executive Officer of Mobilex U.S.A., providing portable diagnostic services to
long-term care facilities, since May 1989. Dr. Cooper has also been employed as
the President and Chief Executive Officer of Senior Psychology Services
Management, Inc.,
2
<PAGE> 6
which supplies psychologists to nursing home patients, since June 1991. Dr.
Cooper was the founder of Spectrum Emergency Care, a provider of emergency room
physicians to hospitals and clinics, and Correctional Medical Systems, a
provider of health services to correctional facilities. Dr. Cooper has served as
Director of Quality Assurance for ARA Living Centers, a company which operates
long-term healthcare facilities, and as Medical Director for General Motors
Corporation Assembly Division. He currently serves as a consultant to Chase
Capital Partners and has served on the faculty of the University of California,
San Diego Medical School.
Robert J. Glaser, M.D. has been the Director for Medical Science and a
Trustee of the Lucille P. Markey Charitable Trust, which provides major grants
in support of basic biomedical research, since 1984. He is also a Consulting
Professor of Medicine at Stanford University, where he served as the Dean of the
School of Medicine from 1965 to 1970. Dr. Glaser was a founding member of the
Institute of Medicine at the National Academy of Sciences and is a director of
Alza Corporation (principally engaged in pharmaceutical research) and Nellcor
Puritan Bennett Incorporated (principally engaged in the manufacture of medical
equipment). He was a director of Hewlett-Packard Company from 1971 to 1991, and
has continued to serve as a consultant to that company on health matters.
James G. Hellmuth serves as a director of BT Capital Corporation, an
affiliate of Bankers Trust New York Corporation, as well as a part-time
consultant to Chase Capital Partners. He has been a Commissioner of the Port
Authority of New York and New Jersey since 1969. In addition, Mr. Hellmuth was a
Managing Director of Bankers Trust Company from 1972 to 1988.
Brig. Gen. William L. McCulloch, USMC (Ret.) has served as the President of
Association Communication and Marketing Services, a public relations firm, since
October 1989. Previously, Gen. McCulloch was the Executive Director of AOPA, the
trade association of the orthotic and prosthetic industry, from October 1976 to
September 1989. In 1976, Gen. McCulloch retired from active military service
after serving 30 years as a U.S. Marine infantry officer.
Daniel A. McKeever, CP is the former Chairman of the Board of J.E. Hanger,
Inc. of Georgia ("JEH"). He served in that capacity from September 13, 1972 to
November 1, 1996, on which date JEH was acquired by Hanger. He also served as
the Treasurer of JEH from September 31, 1937 to November 1, 1996. Mr. McKeever
was President of the American Board for Certification in Orthotics and
Prosthetics in 1954 and 1955 and President of the American Orthotics and
Prosthetics Association in 1949 and 1950.
H.E. Thranhardt, CPO is the former President and Chief Executive Officer of
JEH. He served in that capacity from January 1, 1977 to November 1, 1996, on
which date JEH was acquired by Hanger. Mr. Thranhardt, who commenced his
employment with JEH in 1958, has occupied leadership positions in numerous
professional O&P associations, including Chairman of the Board of the Orthotics
and Prosthetics National Office in 1994 and 1995, President of the American
Orthotics and Prosthetics Association in 1992 and 1993, President of the
American Board for Certification in Orthotics and Prosthetics in 1979 and 1980
and President of The American Academy of Orthotics and Prosthetics in 1976 and
1977.
MANAGEMENT RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE NOMINEES
AS DIRECTORS OF THE COMPANY.
There are no family relationships between any of the nominees.
The Board of Directors has an Audit Committee, which met one time during
1996 and presently consists of Mitchell J. Blutt, M.D., Thomas P. Cooper, M.D.
and James G. Hellmuth. The Audit Committee is responsible for meeting with the
Company's independent accountants to review the proposed scope of the annual
audit of the Company's books and records, reviewing the findings of the
independent accountants upon completion of the annual audit, and reporting to
the Board of Directors with respect thereto. The Board of Directors also has a
Compensation Committee, which conducted three meetings during 1996, presently
consists of Edmond E. Charrette, M.D., William L. McCulloch and Robert J.
Glaser, M.D., and is responsible for advising the Board on matters relating to
the compensation of officers and key employees and certain of the Company's
employee benefit plans. The Board of Directors met eight times during 1996. Each
incumbent
3
<PAGE> 7
director attended at least 75% of the aggregate number of meetings of the Board
and committee(s) on which he served while he was a director and committee member
during 1996.
COMPENSATION AND RELATED MATTERS
The following Summary Compensation Table sets forth the annual salary
(column c) and bonus (column d) paid and options granted (column g) during each
of the past three years to the Company's Chief Executive Officer and the other
executive officer of the Company whose annual salary and bonus in 1996 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION PAYOUTS
-------------------------------------------- AWARDS -------
(e) -------------------------- (h)
(c) (d) OTHER ANNUAL (f) (g) LTIP
(a) (b) SALARY BONUS(1) COMPENSATION(2) RESTRICTED STOCK OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARD(S)($) (#)(3) ($)
- ------------------------------ ---- -------- -------- --------------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel................. 1996 $278,469 $315,000 -- -- 134,000 --
Chairman, President & 1995 252,000 40,000 -- -- 40,000 --
Chief Executive Officer(4) 1994 252,000 52,000 -- -- -- --
Richard A. Stein.............. 1996 143,184 $ 70,000 -- -- 66,000 --
Vice President-Finance, 1995 131,250 27,000 -- -- 20,000 --
Secretary & Treasurer 1994 131,250 26,000 -- -- -- --
</TABLE>
- ---------------
(1) With respect to 1996, the above reported bonuses were paid in November 1,
1996 and related to 1996 performance. With respect to 1995, the above
reported bonuses were paid in March 1996 and related to 1995 performance.
With respect to 1994, $20,000 was paid to Mr. Sabel and $10,000 was paid to
Mr. Stein in May 1995 in lieu of options and the balance of the
above-reported bonuses were paid in April 1994 and related to 1993
performance.
(2) Does not report the approximate cost to the Company of an automobile
allowance furnished to the above persons, which amounts do not exceed the
lesser of either $50,000 or 10% of the total of the person's annual salary
and bonuses for 1996.
(3) Reports the number of shares underlying options granted during each of the
respective years. Does not include information relating to options granted
in 1997. For information relating to options granted to the above persons by
a principal stockholder of the Company, see "Other Options" below.
(4) Effective July 31, 1995, Mr. Sabel, President of the Company, was appointed
to the additional positions of Chairman and Chief Executive Officer of the
Company.
4
<PAGE> 8
The following Option Grants Table sets forth, for each of the named
executive officers, information regarding individual grants of options granted
in 1996 and their potential realizable value. Information regarding individual
option grants includes the number of options granted, the percentage of total
grants to employees represented by each grant, the per-share exercise price and
the expiration date. The table does not set forth information regarding options
granted in 1997. The potential realizable value of the options are based on
assumed annual 0%, 5% and 10% rates of stock price appreciation over the term of
the option.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES OF STOCK
---------------------------------------------------------- PRICE APPRECIATION FOR OPTION
OPTIONS % OF TOTAL OPTIONS EXERCISE TERM(4)
GRANTED GRANTED TO EMPLOYEES PRICE EXPIRATION -----------------------------
NAME (#)(1) IN FISCAL YEAR(2) ($/SH)(3) DATE 0% 5%($) 10%($)
- --------------------- ------- -------------------- --------- ---------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel........ 67,000 8.4% $ 6.125 11/1/06 $0 $258,083 $654,032
67,000 8.4 3.50 2/21/06 0 147,476 373,733
Richard A. Stein..... 33,000 4.1 6.125 11/1/06 0 127,115 322,135
33,000 4.1 3.50 2/21/06 0 72,637 184,077
</TABLE>
- ---------------
(1) The options are non-qualified stock options granted on February 21, 1996 and
November 1, 1996 under the Company's 1991 Stock Option Plan that become
exercisable cumulatively as to 25%, 50%, 75% and 100% after the first,
second, third and fourth anniversaries, respectively, after the date of
grant.
(2) Based on options for a total of 802,250 shares granted to all employees.
(3) The exercise price is equal to the fair market value on the date of grant of
the option.
(4) The potential realizable values shown in the columns are net of the option
exercise price. These amounts assume annual compounded rates of stock price
appreciation of 0%, 5%, and 10% from the date of grant to the option
expiration date, a term of ten years. These rates have been set by the U.S.
Securities and Exchange Commission and are not intended to forecast future
appreciation, if any, of the Company's Common Stock. Actual gains, if any,
on stock option exercises are dependent on several factors including the
future performance of the Company's Common Stock, overall stock market
conditions, and the optionee's continued employment through the vesting
period. The amounts reflected in this table may not actually be realized.
5
<PAGE> 9
The following Aggregate Option Exercises and Fiscal Year-End Option Value
Table sets forth, for each of the named executive officers, information
regarding the number and value of unexercised options granted by the Company at
December 31, 1996. No options were exercised by such persons during 1996.
AGGREGATE OPTION EXERCISES AND FISCAL
YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
(e)
(d) VALUE OF UNEXERCISED
(b) NUMBER OF UNEXERCISED IN-THE-
NUMBER OF OPTIONS AT FY-END(#)(1) MONEY OPTIONS AT FY-END($)
(a) SHARES ACQUIRED ON (c)
NAME EXERCISE VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(4)
- ------------------- ------------------ ----------------- ----------------------- --------------------------
<S> <C> <C> <C> <C>
Ivan R. Sabel...... -- -- 96,750/157,250(2) $96,281/$255,875
Richard A. Stein... -- -- 50,750/77,750 (3) $48,094/$126,625
</TABLE>
- ---------------
(1) The reported options were granted by the Company to the named executive
officers. Reference is made to "Other Options" below for information
regarding options previously granted to such persons by a principal
stockholder of the Company.
(2) The above-reported options entitle Mr. Sabel to purchase from the Company
(i) 80,000 shares at a price of $6.25 per share through September 14, 2003
under an option granted on September 14, 1993; (ii) 40,000 shares at a price
of $2.75 per share through January 31, 2005 under an option granted on
January 31, 1995; (iii) 67,000 shares at a price of $3.50 per share through
February 21, 2006 under an option granted on February 21, 1996; and (iv)
67,000 shares at a price of $6.125 per share through November 1, 2006 under
an option granted on November 1, 1996.
(3) The above-reported options entitle Mr. Stein to purchase from the Company
(i) 2,500 shares at a price of $8.00 per share through October 11, 1998
under an option granted on October 11, 1989; (ii) 40,000 shares at a price
of $6.25 per share through September 14, 2001 under an option granted on
September 14, 1993; (iii) 20,000 shares at a price of $2.75 per share
through January 31, 2005 under an option granted on January 31, 1995; (iv)
33,000 shares at a price of $3.50 per share through February 21, 2006 under
an option granted on February 21, 1996; and (v) 33,000 shares at a price of
$6.125 per share through November 1, 2006 under an option granted on
November 1, 1996.
(4) Market value of underlying shares at December 31, 1996, minus the exercise
price.
No Long-Term Incentive Plan Awards Table is set forth herein because no
long-term incentive plan awards were made to the above-named executive officers
during 1996.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The employment and non-compete agreement, dated May 16, 1994, between the
Company and Ivan R. Sabel, Chairman, President and Chief Executive Officer of
the Company, provides for the continuation of his employment in those positions
for a period of five years. Pursuant to that agreement, Mr. Sabel receives
annual compensation equal to a base salary, which was increased from $263,000 to
$385,000 effective November 1, 1996, plus an annual CPI-related adjustment and
any bonus compensation as may be determined by the Board of Directors. On
November 1, 1996, Mr. Sabel received a bonus of $315,000 based upon the
Company's successful acquisition of JEH effective November 1, 1996, and the
Company's 1996 performance. The determination of any bonus compensation based on
the Company's 1997 performance will be based upon a formula established by the
Board relating to growth in revenues and pre-tax earnings, the targets for which
are established annually by the Board.
The employment and non-compete agreement, dated May 16, 1994, between the
Company and Richard A. Stein, Vice President-Finance, Secretary and Treasurer of
the Company, provides for the continuation of his employment in those positions
for a period of five years. Pursuant to that agreement, Mr. Stein receives
annual compensation equal to a base salary, which was increased from $135,000 to
$185,000, effective November 1, 1996, plus an annual CPI-related adjustment and
any bonus compensation as
6
<PAGE> 10
may be determined by the Board of Directors. On November 1, 1996, Mr. Stein
received a bonus of $70,000 based upon the Company's successful acquisition of
JEH effective November 1, 1996, and upon the Company's 1996 performance. The
determination of any bonus based on the Company's 1997 performance will be based
upon a formula established by the Board relating to growth in revenues and
pre-tax earnings, the targets for which are established annually by the Board.
COMPENSATION COMMITTEE REPORT
Practices and Policies Regarding Principal Executive Officers
The following description of the Company's executive compensation practices
and policies is presented on behalf of the Compensation Committee of the
Company's Board of Directors (the "Committee"). The fundamental philosophy of
the Company's executive compensation program is to offer competitive
compensation reflecting both individual and Company performance.
The components of executive compensation consist of annual salaries,
short-term compensation incentives or bonuses and stock option grants as a
long-range incentive. The Committee seeks to reasonably compensate executives in
amounts that fairly reward the executive officers for their performance as
reflected by corporate accomplishments and create adequate incentives for their
continued contributions to the Company's success.
Annual salaries paid to the Company's principal executive officers during
1996 were slightly higher than those paid in 1995, as set forth above in the
Summary Compensation Table. On February 21, 1996, the Compensation Committee
granted incentive stock options to Messrs. Sabel and Stein under the 1991 Stock
Option Plan to purchase 67,000 shares and 33,000 shares, respectively, at an
exercise price of $3.50 per share, which was the closing sale price of the
Company's Common Stock on the date of grant of the options. Those options were
granted in recognition of the Company's significantly improved results of
operations for the year ended December 31, 1995 in comparison with the prior
year and as a long-term incentive for the future growth of the Company. The
Company's net income for the year ended December 31, 1995 amounted to
$2,135,000, or $.26 per share, compared to a net loss of $2,687,000, or $.33 per
share, in the year ended December 31, 1994.
Effective November 1, 1996, the annual salaries of the Company's principal
executive officers were increased primarily in recognition of their successful
efforts in consummating the Company's acquisition, effective November 1, 1996,
of JEH. As a result of that acquisition, which more than doubled the Company's
total assets, the Company increased the number of its patient care centers from
93 in 15 states and the District of Columbia to 178 in 28 states and the
District of Columbia and significantly expanded its distribution capabilities.
The annual salary of Ivan R. Sabel, Chairman of the Board, President and Chief
Executive Officer of the Company, was increased from $263,000 to $385,000, and
the annual salary of Richard A. Stein, the Company's Vice President-Finance,
Treasurer and Secretary, was increased from $135,000 to $185,000. Although
primarily based upon the successful consummation of the JEH acquisition and the
officers' expanded responsibilities resulting therefrom, the salary increases
were to a lesser degree in recognition of the 4.3% increase in net sales, 6.1%
increase in gross profit and 9.5% increase in net income recorded by the Company
for the nine months ended September 30, 1996 over the prior year's comparable
nine-month period.
Generally, decisions as to the payment of annual bonuses and the granting
of stock options are based on both Company and individual performance and
involve a consideration of numerous factors, including revenue growth,
acquisitions by the Company, profitability increases (both as to total amount
and as a percent of revenues) and expense curtailment (both as to total amount
and as a percent of revenues) relevant to the corporate responsibilities borne
by the particular executive officer. Effective November 1, 1996, Messrs. Sabel
and Stein were awarded bonuses of $315,000 and $70,000, respectively, primarily
in recognition of the successful acquisition of JEH described above and, to a
lesser degree, the Company's improved results of operations in 1996 referred to
above. Effective November 1, 1996, in recognition of the Company's acquisition
of JEH referred to above, the Compensation Committee granted incentive stock
options to the Company's principal executive officers under the Company's 1991
Stock Option Plan. Messrs. Ivan R. Sabel and Richard A. Stein received options
to purchase 67,000 shares, and 33,000 shares, respectively, at an exercise
7
<PAGE> 11
price of $6.125 per share, which was the closing sale price of the Company's
Common Stock on the date of grant of the options.
Effective March 14, 1997, the Compensation Committee granted additional
incentive stock options to Messrs. Sabel and Stein under the 1991 Stock Option
Plan, primarily as a long-term incentive as discussed below, to purchase 67,000
shares and 33,000 shares, respectively, at an exercise price of $6.125 per
share, which was the closing sale price of the Company's Common Stock on the
date of grant of the options. Although those options were primarily intended to
serve as a long-term incentive, they also were granted in recognition of the
Company's improved results of operations for the year ended December 31, 1996.
The Company's net sales increased by more than 27% over the prior year to
approximately $66.8 million in 1996. Net income declined from approximately $2.1
million in 1995 to approximately $1 million in 1996. However, excluding the
non-recurring acquisition and integration costs recognized in 1996 in connection
with the JEH acquisition and the extraordinary loss on early extinguishment of
debt recognized in connection with the Company's refinancing of bank
indebtedness in late 1996, net income for the year ended December 31, 1996 would
have approximated $3.6 million, an increase of more than 67% above the prior
year. The Company's total assets at December 31, 1996 amounted to approximately
$135 million, which is approximately 118% higher than total assets at the end of
1995. Shareholders equity at December 31, 1996 amounted to approximately $40
million, which is approximately 30% higher than shareholders equity at the end
of the prior year.
The stock options granted on March 14, 1997, to the Company's principal
executive officers were intended to further incentivize those officers to (i)
successfully integrate the former operations of JEH into the Company's
operations, (ii) increase the Company's revenues, (iii) continue to centralize
the administrative functions of acquired patient-care centers to achieve cost
efficiencies, (iv) continue to transform the Company's network of patient-care
centers into a fully integrated practice management organization and (v) align
the long-term interests of the executive officers with those of the Company's
stockholders by affording them an opportunity to increase their equity interest
in the Company through the acquisition of additional shares of Common Stock upon
the exercise of the options.
The above described options granted to Messrs. Sabel and Stein become
exercisable cumulatively to the extent of 25% per year during the first four
years after grant and expire ten years after grant.
The employment agreements with Messrs. Sabel and Stein provide for the
possible payment of bonuses to them in the future based on a formula adopted by
the Board relating to growth in revenues and pre-tax earnings, the targets for
which will be established annually by the Board. In addition, pursuant to the
employment agreements, the Board will consider the grant of additional options
on an annual basis.
By: The Compensation Committee of the
Board of Directors
Edmond E. Charrette, M.D., Chairman
William L. McCulloch
Robert J. Glaser, M.D.
STOCK OPTIONS
1991 STOCK OPTION PLAN. In December 1983, the Board of Directors adopted
and the stockholders of Hanger approved, and in September 1991 the stockholders
amended, a Stock Option Plan (the "1991 Plan"), which provides for the grant of
both "incentive stock options" under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), as well as nonqualified stock options. The
1991 Plan is administered by the Committee and provides for the grant of options
to officers and key employees of Hanger to purchase up to an aggregate of
1,500,000 shares of Common Stock at not less than 100% of fair market value on
the date granted. As of April 18, 1997, incentive stock options and nonqualified
stock options granted under the 1991 Plan to purchase a total of 1,364,450
shares of Common Stock under the 1991 Plan, at prices ranging from $2.75 to
$12.25 per share, were outstanding and held by a total of 211 persons. Of such
options, options relating to 440,782 shares of Common Stock are presently
exercisable.
8
<PAGE> 12
1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. Under the Company's 1993
Non-Employee Directors Stock Option Plan (the "1993 Plan"), directors of the
Company who are not employed by the Company or any affiliate of the Company are
eligible to receive options under the 1993 Plan. A total of 250,000 shares of
Common Stock were reserved for possible issuance upon the exercise of options
under the 1993 Plan. On June 21, 1996, an option for 5,000 shares was granted to
each of the six eligible directors, for a total of 30,000 shares, at an exercise
price of $5.875 per share (which was equal to the closing sale price of the
shares on the American Stock Exchange on the date of grant). Under the 1993
Plan, an option to purchase 5,000 shares will be granted automatically on an
annual basis to each eligible director on the third business day following the
date of each Annual Meeting of Stockholders at which the eligible director is
elected. The exercise price of each option will be equal to 100% of the closing
sale price of the shares as reported by the American Stock Exchange on the date
the option is granted. Each option will become exercisable in four equal annual
installments, commencing on the first anniversary of the date of grant.
NONQUALIFIED STOCK OPTIONS. Hanger has granted nonqualified stock options
other than pursuant to the 1991 Plan and the 1993 Plan to certain directors,
officers and other persons which permit such persons to acquire shares of Common
Stock generally at not less than 100% of fair market value on the date granted.
As of April 18, 1997, nonqualified stock options granted other than pursuant to
the 1991 Plan and the 1993 Plan to purchase a total of 70,000 shares of Common
Stock, at prices ranging from $3.00 to $12.00 per share, were outstanding and
held by a total of 9 persons. Of such nonqualified stock options, options
relating to 68,750 shares of Common Stock are presently exercisable.
DIRECTORS' FEES
Directors who are not officers or employees of the Company receive an
annual fee of $2,000 plus $1,500 for each meeting attended.
WARRANTS
In connection with the Company's purchase on November 8, 1990, of the
Manufacturing Division of Ralph Storrs, Inc. ("Storrs"), the Company effected a
$2.45 million, seven-year loan (the "Loan") from Chemical Venture Capital
Associates, L.P., a predecessor to Chase Venture Capital Associates, L.P.
("CVCA"), in connection with which the Company was required to issue to CVCA
warrants to purchase shares of the Company's Common Stock in the event the Loan
was not repaid prior to certain dates. Because the Loan was not repaid prior to
August 6, 1991 (i.e., 271 days after the date of the Loan), the Company,
pursuant to its loan agreement with CVCA dated November 8, 1990, issued warrants
to CVCA entitling it to purchase 225,914 shares of Common Stock at a price of
$4.16 per share. Because the Loan was not repaid prior to November 5, 1991
(i.e., 361 days after the date of the Loan), the Company, pursuant to its
November 8, 1990 loan agreement with CVCA, issued to CVCA additional warrants
entitling it to purchase 244,735 shares of Common Stock at a price of $7.65 per
share. The warrants are exercisable on or before December 31, 2001, and the
exercise prices are equal to the market value of the Common Stock on the dates
of grant of the warrants.
OTHER OPTIONS
On May 16, 1994, CVCA granted Messrs. Sabel and Stein options (the "New
Manager Options") entitling them to purchase from CVCA 118,500 shares and 62,568
shares, respectively, at a price of $6.00 per share on or before May 16, 1995.
(Those options replaced options previously granted by CVCA to the executive
officers in 1990 that expired on May 15, 1994.) On September 22, 1994, the
expiration date of the New Manager Options was extended to March 22, 1996 and
the exercise price of such options was reduced to $3.875 per share, which amount
exceeded the $3.625 closing sale price of the Common Stock as reported on the
American Stock Exchange at the close of business on September 22, 1994. In
addition, on September 22, 1994, the December 31, 1995 expiration date of
additional stock options that previously had been granted by CVCA to Messrs.
Sabel and Stein on March 14, 1991 (the "Additional Manager Options") was
extended to March 22, 1996 and the previous $6.00 and $8.00 per share exercise
prices thereof were reduced to $3.875 per share. Messrs. Sabel and Stein were
entitled to purchase 107,609 shares and 63,126 shares, respectively, from
9
<PAGE> 13
CVCA pursuant to the Additional Manager Options. On October 27, 1995, CVCA
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 expiration dates of all the New Manager Options to March 22,
1997, and Additional Manager Options to December 31, 1997. On August 12, 1996
and January 7, 1997, Messrs. Sabel and Stein exercised their New Manager Options
and Additional Manager Options to acquire an aggregate of 94,041 shares and
52,570 shares, respectively, upon the exercise in full of their New Manager
Options and Additional Manager Options. The exercise price was funded by the
optionor's retention of the shares representing the balance of the shares
underlying the options.
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of April 18, 1997 by: (i) each person known by Hanger to
be the beneficial owner of 5% or more of such class of securities, (ii) each
director and nominee for director of Hanger and (iii) all directors, nominees
and officers of Hanger as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DIRECTORS AND 5% SHARES OF OUTSTANDING
STOCKHOLDERS COMMON STOCK(1) COMMON STOCK(1)
- ------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Chase Venture Capital Associates, L.P.(2).................... 2,066,689 21.02%
Ivan R. Sabel, CPO(3)........................................ 238,033 2.52
Mitchell J. Blutt, M.D.(4)................................... -- --
Thomas P. Cooper, M.D.(5).................................... 14,250 .15
Robert J. Glaser, M.D.(6).................................... 12,250 .13
James G. Hellmuth(7)......................................... 7,750 *
William L. McCulloch(8)...................................... 15,000 .16
Walter J. McNerney(9)........................................ 13,750 .15
Edmond E. Charrette, M.D.(10)................................ 30,000 .32
Daniel A. McKeever, CP(11)................................... 161,729 1.73
H.E. Thranhardt, CPO(12)..................................... 219,570 2.35
All directors and officers as a group (11 persons)(13)....... 831,170 8.70
</TABLE>
- ---------------
* Holding constitutes less than .1% of the outstanding shares of the class.
(1) Assumes in the case of each stockholder listed in the above list that all
presently exercisable warrants or options held by such stockholder were
fully exercised by such stockholder, without the exercise of any warrants
or options held by any other stockholders.
(2) Includes 470,649 shares subject to exercisable warrants to purchase shares
from the Company and excludes 800,000 shares subject to unvested warrants
that have not yet become exercisable. Reference is made to notes (4) and
(5) below for information relating to two directors of the Company that are
affiliated with CVCA. The address of CVCA and its sole general partner,
Chase Capital Partners, is 270 Park Avenue (5th Floor), New York, New York
10017.
(3) Includes 96,750 shares subject to exercisable options to purchase shares
from the Company and excludes 224,250 shares subject to unvested options
that have not yet become exercisable.
(4) Does not include the shares reported above as owned by CVCA. Dr. Blutt is
an Executive Partner of Chase Capital Partners, the sole general partner of
CVCA. He disclaims beneficial ownership of the shares beneficially owned by
CVCA.
(5) Includes 7,750 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable. Dr. Cooper currently serves as a
consultant to Chase Capital Partners.
(6) Includes 11,250 shares subject to exercisable options to purchase shares
from the Company and excludes 13,750 shares subject to unvested options
that have not yet become exercisable.
10
<PAGE> 14
(7) Includes 7,750 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(8) Includes 7,500 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(9) Includes 13,750 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(10) Excludes 5,000 shares subject to unvested options that have not yet become
exercisable.
(11) Includes 105,022 shares owned indirectly by Mr. McKeever and 55,707 shares
owned indirectly by his wife through a family limited partnership; does not
include 410,444 shares owned indirectly by other members of Mr. McKeever's
family through that family limited partnership, of which Mr. McKeever
possesses sole voting power as the Managing General Partner.
(12) Includes 184,027 shares owned directly by Mr. Thranhardt and 35,543 shares
owned indirectly by him as trustee for members of his family; does not
include 150,000 shares subject to an unvested option that has not yet
become exercisable.
(13) Includes a total of 195,500 shares subject to exercisable options held by
directors and officers of the Company to purchase shares from the Company
and excludes a total of 553,750 shares subject to unvested options held by
such persons that have not yet become exercisable.
The preceding table does not include 300 shares of the Company's non-voting
Class C Preferred Stock, which constitutes all the outstanding shares of that
class, held by the former stockholders of Scott Orthopedics, Inc., which company
was acquired by Hanger on February 13, 1990.
11
<PAGE> 15
STOCK PERFORMANCE CHART
The following chart compares the Company's cumulative total stockholder
return with the S&P 500 Index, a performance indicator of the overall stock
market, and Company-determined peer group index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
AMONG HANGER ORTHOPEDIC GROUP, INC., S&P 500 INDEX &
PEER GROUP INDICES
<TABLE>
<CAPTION>
HANGER
ORTHOPEDIC
MEASUREMENT PERIOD GROUP, INC. - FORMER PEER NEW PEER GROUP
(FISCAL YEAR COVERED) COMMON STOCK S&P 500 INDEX GROUP INDEX(3) INDEX(4)
<S> <C> <C> <C> <C>
1991 100.00 100.00 100.00 100.00
1992 80.49 107.62 75.50 79.56
1993 60.98 118.46 56.88 62.06
1994 29.27 120.03 53.59 61.66
1995 26.83 165.13 72.14 92.30
1996 63.41 203.05 101.27 117.10
</TABLE>
Assumes $100 in vested on January 1, 1991.
(1) Total return assumes reinvestment of dividends and based on market
capitalization.
(2) Fiscal year ending December 31.
(3) The six issuers of common stock included in the former peer group index are
Comprehensive Corp., DRCA Medical Co., Healthsouth Corp., Meadowbrook
Rehabilitation Co., Nexthealth Inc. and Novacare Inc. One other company
(Advantage Health Corporation) that previously was included in that peer
group ceased its existence as a separate issuer during 1996.
(4) The ten issuers of common stock included in the new peer group index are
American Homepatient, Inc., American Oncology Resources, Inc., Healthsouth
Corporation, National Surgery Centers, Inc., NovaCare, Inc., OccuSystems,
Inc., Orthodontic Centers of America, Inc., Renal Care Group, Inc., Renal
Treatment Centers, Inc. and Total Renal Care Holdings, Inc. The Company is
changing its peer group from the former peer group to the new peer group in
order to achieve greater comparability.
12
<PAGE> 16
PROPOSAL TWO -- INDEPENDENT ACCOUNTANTS
The Company's Board of Directors has appointed the accounting firm of
Coopers & Lybrand to serve as the Company's independent accountants for the
current fiscal year ending December 31, 1997. The firm has served in that
capacity for the Company's past nine fiscal years. A resolution will be
presented at the Annual Meeting to ratify the appointment by the Company's Board
of Directors of Coopers & Lybrand to serve as the Company's independent public
accountants for the current fiscal year. A majority vote is required for
ratification. A representative of Coopers & Lybrand will be present at the
Annual Meeting to answer any questions concerning the Company's financial
statements and to make a statement if he desires to do so.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company s officers and directors, and persons who own more than 10% of a
registered class of the Company s equity securities, to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission. Statements of Changes of Beneficial Ownership of Securities
on Form 4 are required to be filed by the tenth day of the month following the
month during which the change in beneficial ownership of securities occurred.
The Company believes that all reports of securities ownership and changes in
such ownership required to be filed during 1996 were timely filed except that
the Form 4 of Edmond E. Charrette, M.D., a director of the Company, reporting
his purchase of 5,000 shares of common stock of the Company in the open market
on December 4, 1996, which should have been filed by January 10, 1997, was filed
on February 10, 1997.
1998 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting, which presently is expected to be held in June 1998, must be received
by the Secretary of the Company, 7700 Old Georgetown Road, Bethesda, Maryland
20814, no later than January 2, 1998, in order for them to be considered for
inclusion in the 1998 Proxy Statement.
OTHER MATTERS
Management is not aware of any other matters to be considered at the Annual
Meeting. If any other matters properly come before the Annual Meeting, the
persons named in the enclosed Proxy will vote said Proxy in accordance with
their discretion.
By Order of the Board of Directors
HANGER ORTHOPEDIC GROUP, INC.
/s/ RICHARD A. STEIN
Richard A. Stein
Secretary
May 1, 1997
13
<PAGE> 17
PROXY
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
This proxy is solicited by the Board of Directors for the ANNUAL
MEETING OF STOCKHOLDERS of Hanger Orthopedic Group, Inc. (the "Company"), a
Delaware corporation, on June 3, 1997, 10:00 a.m., local time.
The undersigned appoints Ivan R. Sabel and Richard A. Stein, and each
of them, a proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock, par value $.01 per share, of the Company which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
on June 3, 1997, or at any adjournment thereof, with all powers the undersigned
would have if personally present.
<PAGE> 18
<TABLE>
<S> <C>
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE FOLLOWING PROPOSALS: Please mark your vote as indicated
in this example [X]
MITCHELL J. BLUTT, M.D., EDMOND E. CHARRETTE, M.D., THOMAS P.
1. To Elect Directors COOPER, M.D., ROBERT J. GLASER, M.D., JAMES G. HELLMUTH, WILLIAM
L. MCCULLOCH, DANIEL A. MCKEEVER, CP, IVAN R. SABEL, CPO AND
FOR all nominees WITHHOLD H.E. THRANHARDT, CPO
listed to the right AUTHORITY
(except as marked to the to vote for all nominees (INSTRUCTION: To withhold authority for any individual nominee, write that
contrary) listed to the right nominee's name on the space provided below.)
[ ] [ ]
------------------------------------------------------------------------------
2. Proposal to ratify the selection of Coopers & Lybrand 3. In their discretion, the Proxies are authorized to vote
as the independent accountants for the Company upon such other business as properly may come before the
for the current fiscal year. meeting.
FOR AGAINST ABSTAIN Sign exactly as your name appears hereon. When
[ ] [ ] [ ] signing in a representative or fiduciary
capacity, indicate title. If shares are held
jointly, each holder should sign.
Date , 1997
----------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Signature of Stockholder(s)
THE SHARES WILL BE VOTED AS DIRECTED ABOVE, AND
WITH RESPECT TO OTHER MATTERS OF BUSINESS PROPERLY
BEFORE THE MEETING AS THE PROXIES SHALL DECIDE. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2.
</TABLE>
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