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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No.13)*
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HANGER ORTHOPEDIC GROUP, INC.
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(Name of Issuer)
Common Stock, $0.1 par value
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(Title of Class of Securities)
41043F-208
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(CUSIP Number)
Harvey M. Eisenberg, Esq.
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza - 41st Floor
New York, New York 10112
(212) 408-2400
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 1, 1996
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(Date of Event which Requires Filing of this Statement)
Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4),
check the following box / /
Check the following box if a fee is being paid with this statement. (A fee is
not required only if the reporting person: (1) has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits, should be filed with
the Commission. See Rule 13d-1(a) for other parties to whom copies are to be
sent.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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Page 1 of 28
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SCHEDULE 13D
CUSIP No. 4103F-208 Page 2 of 28 Pages
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Chase Venture Capital Associates, L.P.
(f/k/a Chemical Venture Capital Associates), a California Limited
Partnership
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
00
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(e). / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
Number of 7 SOLE VOTING POWER
2,976,566
Shares
8 SHARED VOTING POWER
Beneficially -0-
Owned By Each 9 SOLE DISPOSITIVE POWER
2,976,566
Person
10 SHARED DISPOSITIVE POWER
With -0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,976,566
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
/ /
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
18.31%
14 TYPE OF REPORTING PERSON*
PN
page 2 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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Preliminary Note.
All information set forth herein has been adjusted to reflect a change in the
name and address of the reporting person, the exercise by management of certain
options for Common Stock of the Issuer granted by the reporting person and the
issuance of additional equity by the Issuer to the reporting person.
Item 2. Identity and Background.
The response to Item 2 is amended in its entirety to read as follows:
This statement is being filed by Chase Venture Capital
Associates, L.P. (f/k/a Chemical Venture Capital Associates), a California
Limited Partnership (hereinafter referred to as "CVCA"), whose principal office
is located at 380 Madison Avenue, 12th Floor, New York, New York 10017.
CVCA is engaged in the venture capital and leveraged buyout
business. The general partner of CVCA is Chase Capital Partners (f/k/a Chemical
Venture Partners), a New York general partnership ("CCP"), which is also engaged
in the venture capital and leveraged buyout business, and whose principal office
is located at the same address as CVCA.
Set forth below are the names of each general partner of CCP
who is a natural person. Each such general partner is a U.S. citizen, whose
principal occupation is general partner of CCP and whose business address
(except for Messrs. Ferguson and Soghikian) is c/o Chase Capital Partners, 380
Madison Avenue, 12th Floor, New York, New York 10017.
John R. Baron
Mitchell J. Blutt, M.D.
Arnold L. Chavkin
David L. Ferguson
Michael R. Hannon
Donald J. Hofmann, Jr.
Stephen P. Murray
Brian J. Richmand
Shahan D. Soghikian
Jeffrey C. Walker
Damion E. Wicker, M.D.
Mr. Ferguson's address is c/o Chase Capital Partners, 840 Apollo Street, Suite
223, El Segundo, California 90245. Mr. Soghikian's address is c/o Chase Capital
Partners, 125 London Wall, London EC2Y5AJ, England.
Jeffrey C. Walker is the managing general partner of CCP. The
remaining general partners of CCP are Chemical Capital Corporation, a New York
corporation ("Chemical Capital"), CCP Principals, L.P. (f/k/a CVP Principals,
L.P.), a Delaware limited partnership ("Principals") and CCP European
Principals, L.P., a
page 3 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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Delaware limited partnership ("European Principals"), each of whose principal
office is located at 380 Madison Avenue, 12th Floor, New York, New York 10017.
Chemical Capital is a wholly-owned subsidiary of The Chase Manhattan Corporation
(f/k/a Chemical Banking Corporation). The general partners of Principals and
European Principals is Chemical Capital. Chemical Capital, Principals and
European Principals are each engaged in the venture capital and leveraged buyout
business. Set forth in Schedule A hereto and incorporated herein by reference
are the names, business addresses and principal occupations or employments of
each executive officer and director of Chemical Capital, each of whom is a U.S.
citizen.
The Chase Manhattan Corporation ("Chase") is a Delaware
corporation engaged (primarily through subsidiaries) in the commercial banking
business with its principal office located at 270 Park Avenue, New York, New
York 10017. Set forth in Schedule B hereto and incorporated herein by reference
are the names, business addresses, principal occupations and employments of each
executive officer and director of Chase, each of whom is a U.S. citizen.
To CVCA's knowledge, the response to Items 2(d) and (e) of
Schedule 13D is negative with respect to CVCA and all persons to whom
information is required hereunder by virtue of CVCA's response to Item 2.
Insofar as the requirements of Items 3-6 inclusive of this
Schedule 13D Statement require that, in addition to CVCA, the information called
for therein should be given with respect to each of the persons listed in this
Item 2, including CCP, CCP's individual general partners, Chemical Capital,
Chemical Capital's executive officers and directors, Principals, and Principals'
controlling partner, European Principals and European Principals' controlling
partner, Chase and Chase's executive officers and directors, the information
provided in Items 3-6 with respect to CVCA should also be considered fully
responsive with respect to the aforementioned persons who have no separate
interests in the Issuer's Common Stock which is required to be reported
thereunder. Although the definition of "beneficial ownership" in Rule 13d-3
under the Securities and exchange Act of 1934, as amended (the "Exchange Act"),
might also be deemed to constitute these persons beneficial owners of the
Issuer's Common Stock acquired by CVCA, neither the filing of this statement nor
any of its contents shall be deemed an admission that any of such persons is a
beneficial owner of the Issuer's Common Stock acquired by CVCA or a member of a
group together with CVCA either for the purpose of Schedule 13D of the Exchange
Act or for any other purpose with respect to the Issuer's Common Stock.
Item 3. Source and Amount of Funds or Other Consideration.
The response to Item 3 is amended in its entirety to read as follows:
page 4 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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Transactions Involving the Issuer
On February 28, 1989, CVCA, the Issuer, Hanger Acquisition
Corporation, a Delaware corporation ("HAC"), J.E. Hanger, Inc., a Delaware
corporation ("Hanger"), Ronald J. Manganiello ("Manganiello") and Joseph M.
Cestaro ("Cestaro") entered into a Stock Exchange Agreement (the "Exchange
Agreement"). A copy of the Exchange Agreement is filed as Exhibit 1 hereto.
Pursuant to the Exchange Agreement, the Issuer agreed to issue (at an exchange
ratio of 100:1 on a pre-split basis or 25:1 on a post-split basis) to CVCA and
Messrs. Manganiello and Cestaro (the "Exchanging Stockholders") newly issued
capital stock of Hanger owned by each of the Exchanging Stockholders. The
transactions contemplated by the Exchange Agreement were consummated as of May
15, 1989 (the "Closing"). Immediately after the Closing, Hanger became a
wholly-owned subsidiary of the Issuer. Prior to the Closing, CVCA (which was
entitled pursuant to the Exchange Agreement, to become the owner of 1,690,281.25
shares of the Issuer's Common Stock, 105,800 shares of the Issuer's Class A
Preferred Stock, par value $.01 (the "Class A Preferred Stock"), and 140,574
shares of the Issuer's Class B Preferred Stock, $.01 par value (the "Class B
Preferred Stock") convertible at any time on a share-for-share basis into Common
Stock) entered into a Beneficial Ownership Agreement dated as of May 9, 1989
(the "Beneficial Ownership Agreement") with Exeter Capital, L.P. ("Exeter"),
whereby CVCA sold to Exeter, at CVCA's pro rata cost basis therein, beneficial
ownership of shares of Hanger capital stock which upon the Closing of the
Exchange Agreement were exchanged for beneficial ownership of 416,822.75 shares
of the Issuer's Common Stock and 24,926 shares of Class A Preferred Stock. CVCA
received $427,642.15 and $29,379.60 (inclusive of $714.70 of accrued dividends)
from Exeter as full payment for the beneficial interest in shares of Hanger
capital stock. The Beneficial Ownership Agreement is filed as Exhibit 11 hereto.
On May 9, 1989, Chase Equity Associates, L.P. ("CEA"), a California Limited
Partnership (whose general partner is also CCP) and Exeter entered into a
Participation Agreement (the "Participation Agreement") whereby Exeter acquired
a 36.34773% undivided participation in $5,600,000 of Hanger's 1989 Subordinated
Notes (as defined herein) purchased by CEA on February 28, 1989 and May 9, 1989.
The purchase price for such participation was $2,035,472.88, which is equal to
CEA's pro rata original cost for the 1989 Subordinated Notes.
Immediately after the Closing, pursuant to a Stock Redemption
Agreement (the "Stock Redemption Agreement") dated as of May 15, 1989 by and
between CVCA and the Issuer, CVCA sold to the Issuer 105,373 shares of Common
Stock at an aggregate purchase price equal to $108,108.15, representing CVCA's
original cost basis in such shares. The purpose of such sale was to provide the
Issuer with a reserve of Common Stock for possible future issuance upon exercise
of a warrant to purchase the Issuer's Common Stock granted as of May 15, 1989 to
CorreStates Bank, N.A., which was formerly known as Philadelphia National Bank
and First Pennsylvania Bank, N.A. (the "Bank") in connection with a Bank Credit
Agreement (the "Bank Credit Agreement") dated as of such date by and among the
Issuer, its subsidiaries and the Bank. The Stock Redemption Agreement is filed
as Exhibit 12 hereto.
Except for the beneficial interest in the capital stock of
Hanger acquired by Exeter from CVCA, all of the capital stock of Hanger
exchanged by CVCA and the other Exchanging Stockholders upon the Closing was
indirectly acquired by them pursuant to a transaction effected in the form of a
leveraged buyout. On February 28, 1989, CVCA and CEA and Messrs. Manganiello and
Cestaro (who were then principal management stockholders of Hanger (hereinafter
the "Hanger Management")), entered into a Stock and Note Purchase Agreement (the
"Hanger Investment Agreement") with HAC. The Hanger Investment Agreement is
filed as Exhibit 18 hereto. HAC was formed by CVCA to effect the acquisition of
Hanger. CVCA and the Hanger Management purchased for cash newly issued common
stock, Class A preferred stock and Class B
page 5 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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preferred stock of HAC. The HAC capital stock purchased by CVCA included common
stock purchased for $1,734,155, Class A preferred stock for $121,670, and Class
B preferred stock for $144,223. In addition, CEA purchased for cash a $7,400,000
nonconvertible 15% Senior Demand Bridge Note (the "Senior Bridge Note") of HAC
payable on demand, and a 14% $5,400,000 nonconvertible Subordinated Note of HAC
(including the notes described in the following sentence, the "1989 Subordinated
Notes"). On May 9, 1989, pursuant to a First Amendment to the Hanger Investment
Agreement, CEA purchased an additional $200,000 of principal amount of the 1989
Subordinated Notes. On May 15, 1989 (immediately before the Closing), pursuant
to a Second 1989 Amendment to the Hanger Investment Agreement, CEA agreed to
extend the time of principal repayment to the 1989 Subordinated Notes and to
subordinate the 1989 Subordinated Notes to all obligations owing to the Bank
pursuant to the Bank Credit Agreement. The terms of such subordination are set
forth in a Subordination Agreement, dated as of May 15, 1989, between CEA and
the Bank. The Subordination Agreement, as amended, is filed hereto as Exhibit
19-19.6. The principal amount of the 1989 Subordinated Notes described above are
payable in four equal semi-annual installments on the first business day of
September 1996, March 1997, September 1997 and March 1998. CVCA's and CEA's
total cash investment in the capital stock, and the Senior Bridge Note and 1989
Subordinated Notes were $2,000,048 and $13,000,000, respectively. On May 25,
1989, in connection with the Closing of the transactions contemplated by the
Exchange Agreement, the Issuer and its subsidiaries, including Hanger, entered
into the Bank Credit Agreement with the Bank whereby certain of the proceeds of
borrowing thereunder were used to repay all of the outstanding principal amount
and accrued interest on the Senior Bridge Note.
On February 28, 1989, HAC, Hanger, the Issuer and all of the
securityholders and a warrant holder of Hanger (the "Hanger Securityholders")
entered into an Amendment (the "Amendment") to a Stock and Warrant Purchase
Agreement (as amended, the "Hanger Purchase Agreement") dated January 12, 1989
by and among the Issuer (as purchaser) , Hanger and the Hanger Securityholders
(as sellers) . Pursuant to the Amendment, the Issuer assigned all of its right,
title, interest and obligations in the Hanger Purchase Agreement to HAC. On
February 28, 1989, HAC consummated the acquisition of all of the outstanding
capital stock of Hanger pursuant to the terms of the Hanger Purchase Agreement.
Effective as of April 11, 1989, HAC merged with and into Hanger (the "Merger").
Pursuant to the Merger, CVCA received 67,611.25 shares of Hanger common stock
representing approximately 93.4% of the outstanding common stock, 1,058 shares
of Hanger's outstanding Class A preferred stock representing approximately 24.3%
of the outstanding Class A preferred stock, and 5,622.96 shares of Hanger Class
B preferred stock representing all of the outstanding Class B preferred stock.
Hanger, as a successor by merger to HAC, became obligated to CEA on the
$7,400,000 Senior Bridge Note and the $5,600,000 1989 Subordinated Notes.
On February 12, 1990, the Issuer, CVCA, Messrs. Manganiello
and Cestaro, Ivan R. Sabel ("Sabel") and Richard A. Stein ("Stein") (CVCA and
Messrs. Manganiello, Cestaro, Sabel and Stein are collectively referred to as
the "Purchasers") entered into a Stock Purchase Agreement (the "Stock Purchase
Agreement") whereby the Issuer issued and sold to the Purchasers an aggregate of
100 shares of the Issuer's Class D Preferred Stock, par value $.01 per share
(the "Class D Preferred Stock") and 100 shares of the Issuer's Class E Preferred
Stock, $.01 par value (the "Class E Preferred Stock") for a purchase price of
$6,173 per share and $2,922.67 per share, respectively. Pursuant to the Stock
Purchase Agreement, CVCA acquired 91.4661 shares of Class D Preferred Stock and
80.5356 shares of Class E Preferred Stock. A copy of the Stock Purchase
Agreement, including Schedule A thereto which sets forth the shares of Class D
Preferred Stock and Class E Preferred Stock acquired by each of the Purchasers,
is filed as Exhibit 15 hereto.
page 6 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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The purpose of the Purchasers' investment in the Class D
Preferred Stock and Class E Preferred Stock was to provide equity capital to the
Issuer for use in connection with the acquisition as of February 13, 1990 from
unaffiliated parties of all of the outstanding common stock of three companies
engaged in the same line of business as the Issuer (hereinafter the "Scott
Acquisition"). Information concerning the Scott Acquisition is reported in the
Issuer's Current Report on Form 8-K dated February 13, 1990. In connection with
these transactions and pursuant to a third amendment to the Hanger Investment
Agreement dated as of February 12, 1990, CEA loaned $500,000 to Hanger in
consideration for a nonconvertible 14% Subordinated Promissory Note of Hanger
(the "First 1990 Subordinated Note"). The first two years' interest on the First
1990 Subordinated Note will be deferred and added to the principal amount, which
is payable in four equal semi-annual installments on March 1, 1997, September 1,
1997, March 1, 1998 and September 1, 1998. Other terms and provisions of the
First 1990 Subordinated Note are substantially the same as the terms and
provisions of the 1989 Subordinated Notes as set forth in the Hanger Investment
Agreement as amended. Pursuant to a First Amendment to Subordination Agreement
dated as of February 12, 1990, the First 1990 Subordinated Note also has been
subordinated to all obligations owing to the Bank under the Bank Credit
Agreement.
CVCA and Exeter entered into a First Amended and Restated
Beneficial Ownership Agreement (the "Restated Beneficial Ownership Agreement")
dated as of March 1, 1990 in the form filed as Exhibit 11.1 hereto whereby CVCA
sold to Exeter, at CVCA's pro rata cost basis therein, 20.8268 shares of the
Issuer's Class D Preferred Stock and 18.9742 shares of the Issuer's Class E
Preferred Stock. CVCA received $128,563.84 plus accrued dividends of $838.31
from February 12 - March 1, 1990 and $55,455.52 plus accrued dividends of
$361.60 from February 12 - March 1, 1990 from Exeter as full payment for the
Class D Preferred Stock and Class E Preferred Stock, respectively. CEA and
Exeter also entered into a First Amended and Restated Participation Agreement
(the "Restated Participation Agreement") as of March 1, 1990 whereby Exeter
acquired a 36.34773% undivided participation in the First 1990 Subordinated
Note. The purchase price for such participation was $181,738.65 plus $1,185.04,
which represented CEA's pro rata cost basis plus accrued interest from February
12 - March 1, 1990.
Effective June 19, 1990, the parties to the Hanger Investment
Agreement entered into a fourth amendment to such agreement. The fourth
amendment was entered into to induce the Bank to amend certain provisions of the
Bank Credit Agreement. In connection with such fourth amendment, CEA and the
Bank also entered into a Second 1989 Amendment to the Subordination Agreement
which required CEA to defer certain cash interest payments in the event certain
financial covenants set forth in the Bank Credit Agreement are not satisfied.
On November 8, 1990, the Issuer, Hanger, CVCA, CEA and Messrs.
Manganiello and Cestaro entered into a fifth amendment to the Hanger Investment
Agreement whereby CEA loaned $2,450,000 to Hanger in consideration for a seven
year non-convertible 14% Subordinated Promissory Note of Hanger (the "Second
1990 Subordinated Note" and together with the First 1990 Subordinated Note, the
"1990 Subordinated Notes"). Pursuant to such fifth amendment, interest on all of
the 1989 and 1990 Subordinated Notes accrues and compounds semi-annually, but is
not payable in cash until all amounts owing under the Bank Credit Agreement are
paid in full. The purpose of the loan was to primarily provide the Issuer with
capital for use in connection with the acquisition as of November 8, 1990 of
substantially all of the assets of Ralph Storrs, Inc. (hereinafter the
page 7 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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"Storrs Acquisition"). Information concerning the Storrs Acquisition is
contained in the Issuer's Current Report on Form 8K, filed on November 21, 1990
and amended January 15, 1991.
The fifth amendment to the Hanger Investment Agreement
provided for the following with respect to the Second 1990 Subordinated Note:
(i) a placement fee which ranges from a minimum of $24,500 (in the event the
loan is repaid within 90 days) to a maximum of $294,000 (in the event the loan
is repaid after 360 days); and, (ii) the issuance by the Company to CVCA (or its
designee) of warrants to purchase shares of common stock of the Company in an
amount equal to 5% of the then outstanding shares on and after 271 days after
November 8, 1990 and warrants equal to an additional 5% of the then outstanding
shares on and after 361 days after November 8, 1990, if at either date the
Second 1990 Subordinated Note is not repaid in full. The exercise price of the
warrants (the "Contingent Warrants") will be the market price of the common
stock at the time of the grant of the Contingent Warrants; provided, however,
that in the event the Company engages in an underwritten public offering
pursuant to which the Company sells at least $5,000,000 of its common stock
within 90 days of the date of the grant of such warrants and such public
offering price is greater than the market value of the common stock on the date
of the grant of such warrants, then the exercise price of such warrants shall be
increased to such higher public offering price. The fifth amendment also
provided for (i) the relative payment priorities between the Second 1990
Subordinated Note on the one hand and the 1989 Subordinated Notes and First 1990
Subordinated Note on the other hand and (ii) the transfer of the 1989
Subordinated Notes and First 1990 Subordinated Notes from CEA to CVCA.
CVCA, CEA and the Bank also entered into a Third Amendment to
the Subordination Agreement dated as of November 8, 1990, whereby CVCA agreed,
as and when necessary to enable the Issuer and its subsidiaries to satisfy
certain net worth covenants with the Bank, to exchange that portion of the 1989
and First 1990 Subordinated Notes held by CVCA for shares of the Issuer's Class
F Preferred Stock, par value $.01 per share (the "Class F Preferred Stock"). The
terms and conditions of the Class F Preferred Stock are set forth at pages 29-35
of Exhibit 3.1 hereto and incorporated herein by reference. CVCA, CEA and Exeter
also entered into an Amendment Agreement dated as of November 8, 1990 (amending
the Amended Participation Agreement and the Amended Beneficial Ownership
Agreement) which is filed as Exhibit 11.3 hereto and incorporated herein by
reference. The Amendment Agreement provides for Exeter's acquisition of (i) a
21.73% participation in the Second 1990 Subordinated Note issued to CEA in
connection with the financing of the Storrs acquisition, (ii) 24.16% of any
placement fee received pursuant to the fifth amendment to the Hanger Investment
Agreement and (iii) 24.16% of any Contingent Warrants which may subsequently be
issued to CEA or its designee. Exeter paid CEA $532,394 (or 21.73% of the face
amount of the Second 1990 Original Subordinated Note) for its interests
described above.
On March 1, 1991, the Issuer, Hanger, CVCA, CEA and Messrs.
Manganiello and Cestaro entered into a sixth amendment to the Hanger Investment
Agreement (filed as Exhibit 18.6 hereto) whereby CEA loaned $800,000 to Hanger
in consideration for a seven year non-convertible 14% Subordinated Promissory
Note of Hanger (the "First 1991 Subordinated Note" and together with the 1989
Subordinated Notes and the 1990 Subordinated Notes, the "Original Subordinated
Notes"). Interest on the First 1991 Original Subordinated Note accrues and
compounds semi-annually, but is not payable in cash until all amounts owing
under the Bank Credit Agreement are paid in full. The purpose of the loan was to
primarily provide the Issuer with capital to pay
page 8 of 28
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SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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certain expenses associated with the Issuer's proposed public offering.
Information concerning the public offering is contained in the Issuer's Final
Prospectus, dated April 30, 1991 (the "Final Prospectus").
The sixth amendment to the Hanger Investment Agreement
provided for the following with respect to the First 1991 Subordinated Note: (i)
a placement fee which ranges from a minimum of $8,000 (in the event the loan is
repaid within 90 days) to a maximum of $96,000 (in the event the loan is repaid
after 360 days); and, (ii) a $10,000 closing fee. The sixth amendment also
provided for the relative payment priorities between the Second 1990 Original
Subordinated Note on the one hand and the 1989 Subordinated Notes and First 1990
Subordinated Note on the other hand.
CVCA, CEA and the Bank also entered into a Fourth Amendment to
the Subordination Agreement dated as of March 1, 1991, whereby CEA agreed to
waive certain acceleration rights with respect to the First 1991 Subordinated
Note if the Issuer and its subsidiaries failed to satisfy certain net worth
covenants with the Bank. CVCA, CEA and Exeter also entered into an Amendment
Agreement dated as of March 1, 1991 (amending the Amended Participation
Agreement and the Amended Beneficial Ownership Agreement) which is filed as
Exhibit 11.4 hereto and incorporated herein by reference. The Amendment
Agreement provides for Exeter's acquisition of (i) a 24.16% participation in the
First 1991 Subordinated Note issued to CEA and (ii) 24.16% of any placement fee
(but not closing fee) received pursuant to the sixth amendment to the Hanger
Investment Agreement. Exeter paid CEA $193,280 (or 24.16% of the face amount of
the First 1991 Subordinated Note) for its interests described above.
On March 20, 1991, the Issuer, Hanger, CVCA, CEA and Messrs.
Manganiello and Cestaro entered into a seventh amendment to the Hanger
Investment Agreement. The seventh amendment to the Hanger Investment Agreement
provided for the following with respect to the Second 1990 and First 1991
Subordinated Notes: (i) the transfer of such notes from CEA to CVCA (resulting
in CVCA holding all of the Original Subordinated Notes), (ii) amending such
notes to become convertible into Class F Preferred Stock, at the option of the
holder of such notes (provided that CVCA had previously agreed with the Issuer
to not convert any Original Subordinated Notes into Class F Preferred Stock
until May 3, 1991) and (iii) the terms upon which the placement fees associates
with such notes will be paid if such notes are partially or fully converted into
Class F Preferred Stock. The seventh amendment also provided for the relative
payment priorities among all of the Original Subordinated Notes. On May 31,
1991, CVCA and the Issuer entered into a letter agreement amending the relative
payment priorities among all of the Original Subordinated Notes. See Exhibit
18.8.
CVCA, CEA and the Bank also entered into a Fifth Amendment to
the Subordination Agreement dated as of November 8, 1990, whereby CVCA agreed,
as and when necessary to enable the Issuer and its subsidiaries to satisfy
certain net worth covenants with the Bank, to exchange that portion of the
Original Subordinated Notes held by CVCA (including the Second 1990 and First
1991 Subordinated Notes) for shares of the Issuer's Class F Preferred Stock.
CVCA, CEA and Exeter also entered into an Amendment Agreement dated as of March
20, 1991 (amending the Amended Participation Agreement and the Amended
Beneficial Ownership Agreement) which is filed as Exhibit 11.5 hereto and
incorporated herein by reference. The Amendment Agreement provides for, among
other things, Exeter's consent to the foregoing transactions.
page 9 of 28
<PAGE>
SCHEDULE 13D
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Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
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On May 1, 1991, all of the holders of Class B Preferred Stock
and Class D Preferred Stock converted all such shares into Common Stock on the
terms set forth in the Issuer's Restated Certificate of Designations,
Preferences and Rights of Preferred Stock. CVCA received 140,574 and 419,285
shares of Common Stock upon conversion of 140,574 shares of Class B Preferred
Stock and 70.6393 shares of Class D Preferred Stock, respectively. Exeter
received beneficial ownership of 123,619 shares of Common Stock upon conversion
of 20.8268 shares of Class D Preferred Stock.
On April 30, 1991, the Issuer's Registration Statement on Form
S-2 for the sale of 2,750,000 shares of its Common Stock was declared effective.
On May 7, 1991 and pursuant to the Registration Statement and Final Prospectus,
the Issuer sold 2,750,000 shares of its Common Stock for $5.00 per share. CVCA
purchased 200,000 of such shares for $5.00 per share, through the Issuer's
underwriter, PaineWebber Incorporated. Effective June 1, 1991, CVCA sold Exeter
48,320 of such shares for $5.00 per share. See Exhibit 11.6.
Shortly after the public offering was completed, the Issuer
repaid the Bank all amounts owing to the Bank. As a result of such prepayment,
CVCA and Exeter expected that all of the Original Subordinated Notes will pay
interest currently. A portion of the Original Subordinated Notes and related
original placement fees equaling approximately $955,000 was repaid from the
proceeds of the public offering on May 30, 1991. CVCA and Exeter waived all
prepayment penalties otherwise owing with respect to such prepayments.
Since the Second 1990 Subordinated Note was not repaid prior
to August 6, 1991 (i.e., 271 days after the date of such note), the Company
issued warrants as of that date to CVCA and Exeter entitling them to purchase a
total of 225,914 and 71,969 shares, respectively (equal to 5% of the then
outstanding shares of Common Stock and rights to acquire Common Stock at an
exercise price equal to or less than $5.20 per share). Such warrants are
exercisable by CVCA and Exeter on or before December 31, 2001 at an exercise
price initially equal to $4.16 per share. In the event the Company engages in an
underwritten public offering pursuant to which it sells at least $5 million of
its Common Stock within 90 days of the date of grant of the warrants and the
public offering price is greater than $4.16, then the exercise price of any such
warrants will be increased to such higher public offering price. These warrants
issued to CVCA and Exeter are included as Exhibits 20 and 20.1 hereto.
Since the Second 1990 Subordinated Note was not repaid prior
to November 5, 1991 (i.e., 361 days after the date of such note), the Company
became obligated to issue warrants as of that date to CVCA and Exeter entitling
them to purchase a total of 244,735 and 77,964 shares, respectively (equal to 5%
of the then outstanding shares of Common Stock and rights to acquire Common
Stock at an exercise price equal to or less than $9.56 per share). Such warrants
will be exercisable by CVCA and Exeter on or before December 31, 2001 at an
exercise price initially equal to $7.65 per share. In the event the Company
engages in an underwritten public offering pursuant to which it sells at least
$5 million of its Common Stock within 90 days of the date of grant of the
warrants and the public offering price is greater than $7.65, then the exercise
price of any such warrants will be increased to such higher public offering
price. Forms of these warrants issued to CVCA and Exeter are included as
Exhibits 21 and 21.1 hereto.
page 10 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
As of February 20, 1992, the Issuer, Hanger, CVCA, CEA and
Messrs. Manganiello and Cestaro entered into an eighth amendment to the Hanger
Investment Agreement (filed as Exhibit 18.7 hereto) whereby the Original
Subordinated Notes were amended to make interest payable currently and eliminate
their convertibility to Class F Preferred Stock, CVCA, CEA and the Bank also
entered into a Sixth Amendment to the Subordination Agreement, dated as of
February 20, 1992 (filed as Exhibit 19.6 hereto), whereby the Bank authorized
the transactions contemplated in the eighth amendment to the Hanger Investment
Agreement.
As of February 20, 1992, CVCA transferred of record to Exeter
all of the Issuer's securities and the portion of the Original Subordinated
Notes beneficially owned by Exeter. In connection therewith, Exeter became a
party to the Hanger Investment Agreement, the Stockholders Agreement, the
Subordination Agreement, the Amended and Restated Registration Rights Agreement
and the Manager Options and Additional Manager Options (as such terms are
defined in Section 6 hereof). The agreements which effected the foregoing
transactions were a letter agreement, dated as of February 20, 1992, between
CVCA and Exeter (which is attached hereto as Exhibit 11.7) and an Amendment to
Stock Option and Vesting Agreements and Amendment Agreement, dated as of
February 20, 1992, among CVCA, CEA, Exeter, the Issuer and Messrs. Manganiello,
Sabel and Stein (which is attached hereto as Exhibit 5.3).
On April 13, 1992, CVCA, Exeter and the Issuer entered into an
Amendment to Warrants (attached hereto as Exhibit 22) whereby the Warrants
previously issued to CVCA and Exeter in connection with the Storrs financing
were amended to permit the exercise price payable thereunder to be paid in cash,
securities of the Issuer or Original Subordinated Notes.
On May 8, 1992, the Issuer's Registration Statement on Form
S-2 for the sale of 1,850,000 shares of its Common Stock was declared effective.
On May 15, 1992, pursuant to such Registration Statement, the Issuer sold
1,850,000 shares of its Common Stock for $8.00 per share. On May 15, 1992, the
Issuer used a portion of the proceeds from such public offering to repay the
Original Subordinated Notes in full and redeem all of the outstanding Class A
Preferred Stock and Class E Preferred Stock, including such preferred shares
held by CVCA and Exeter. CVCA and Exeter waived all prepayment penalties due
upon the early prepayment of the Original Subordinated Notes.
On November 1, 1996, the Issuer, Paribas Principal Inc.
("PPI") and CVCA entered into a Senior Subordinated Note Purchase Agreement
dated as of November 1, 1996 in the form filed as Exhibit 23 hereto (the "1996
Note Purchase Agreement") whereby PPI and CVCA each loaned $4,000,000 to the
Issuer consideration for an eight year 8% Senior Subordinated Note of the Issuer
in the original principal amount of $4,000,000 (the "1996 Subordinated Note")
and 800,000 warrants to purchase 800,000 shares of the Issuer's Common Stock
(the "1996 Warrants"). Pursuant to such 1996 Note Purchase Agreement, interest
on the 1996 Subordinated Note accrues and compounds semi-annually and is payable
on each June 30 and December 31, commencing June 30, 1997, either (i) entirely
in cash in an amount equal to 8% of the unpaid principal amount of the 1996
Subordinated Note when due or (ii) at the Issuer's option, in a combination of
(x) cash in an amount at least equal to 3.2% per annum of the unpaid principal
amount of the 1996 Subordinated Note when due and (y) newly issued senior
subordinated notes (the "Subsequent 1996 Subordinated Notes"), in an aggregate
principal amount equal to the remaining amount of accrued interest on the 1996
Subordinated Notes for such period (which includes all Subsequent 1996
Subordinated Notes which may have been issued prior to such period). The 1996
page 11 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Subordinated Note and all Subsequent 1996 Subordinated Notes are subordinated to
loans in an aggregate amount of up to $88 million (the "1996 Senior Bank Debt)
made to the Issuer by Banque Paribas, as agent for a syndicate of bank's.
Pursuant to the 1996 Warrants issued to CVCA in the form filed as Exhibit 24
hereto, the 1996 Warrants are exercisable by CVCA at any time and from time to
time after November 1, 1996 provided that CVCA may not exercise any 1996 Warrant
if after giving effect to such exercise the total number of shares of Common
Stock issued upon exercise thereof would exceed the product of (x) (i) .45, if
such date of exercise is on or prior to November 1, 1997; or (ii) .50 if such
date of exercise is on or prior to May 1, 1998 but after November 1, 1997; or
(iii) 1.00 if such date is after May 1, 1988 and (y) the total number of shares
of Common Stock issuable upon exercise thereof as of November 1, 1996 (as
adjusted pursuant to Article 5 thereof). The exercise price of the 1996 Warrants
shall be $6.375 with respect to the 335,150 shares of Common Stock and $4.00865
with respect to 464,850 shares of Common Stock issuable upon exercise of the
1996 Warrants. Although the 1996 Warrants initially entitle CVCA to purchase
800,000 shares of the Issuer's Common Stock, the 1996 Warrants also provide that
in the event that the Issuer shall have repaid in full all amounts outstanding
under the 1996 Note Purchase Agreement, the number of shares of Common Stock
issuable upon exercise of the 1996 Warrants shall be reduced by that number of
shares which is equal to the product of (x) (i) .55, if such date of repayment
is on or prior to November 1, 1997 or .50, if such date of repayment is on or
prior to May 1, 1998 but after November 1, 1997; and (y) the total number of
shares of Common Stock issuable upon exercise thereof on November 1, 1996 (as
adjusted pursuant to Article 5 thereof).
The purpose of the loan was to provide the Issuer with capital
to be used solely to refinance debt outstanding under the Bank Credit Agreement,
pay related fees, commissions and expenses, finance ongoing working capital
requirements and other general corporate purposes of the Issuer and its
subsidiaries.
Source of Funds
The funds provided by CVCA for the purchase of HAC capital
stock, the Issuer's capital stock and the 1996 Warrants, and the funds provided
by CEA for the purchase of the Senior Bridge Note and by CVCA for the purchase
of all of the Original Subordinated Notes and the 1996 Subordinated Note were
obtained from CVCA's and CEA's respective contributed capital, which includes
funds that are held available for such purposes.
The purchase price of $17,972 paid by Mr. Stein to acquire his
shares of Class D Preferred Stock and Class E Preferred Stock from the Issuer
was borrowed from CVCA. Such borrowing (which has since been repaid) is
evidenced by a note and a stock pledge agreement filed as Exhibit 16 hereto.
Disclaimer of Group Status
As noted above, Messrs. Manganiello and Cestaro together with
CVCA were Exchanging Stockholders under the Exchange Agreement. They each
received the Issuer's Common Stock and Class A Preferred Stock upon consummation
of the transactions contemplated by the Exchange Agreement, although only CVCA
received the Issuer's Class B Preferred Stock. In connection with the Exchange
Agreement and the Closing of the transactions contemplated thereby, CVCA entered
into certain agreements with the Hanger Management as well as certain members of
key management and principal stockholders of the Issuer (the "Issuer's
Management"). Exeter became a party to such agreements when it acquired record
ownership of the
page 12 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Hanger Securities previously held of record by CVCA but beneficially owned by
Exeter. The terms of these agreements, which are summarized elsewhere in this
statement, provided generally that the Hanger Management and the Issuer's
Management agree with CVCA and the Issuer as to restrictions on transferability
of their stockholdings, certain rights to participate with CVCA and Exeter in
certain private sales arranged by CVCA or Exeter or registration of their
stockholdings along with CVCA or Exeter for sale pursuant to the Securities Act
of 1933 as amended (the "1933 Act"), and agreements to cooperate and rights to
participate in transactions involving a merger, consolidation or reorganization
of the Issuer or a sale of all or substantially all of the Issuer's business. In
addition, Messrs. Manganiello, Cestaro, Sabel and Stein together with CVCA, were
the Purchasers of the Issuer's Class D Preferred Stock and Class E Preferred
Stock pursuant to the Stock Purchase Agreement and Mr. Stein has pledged his
shares of Common Stock and Class E Preferred Stock to CVCA as security for
CVCA's financing of the purchase price thereof. As disclosed under Item 6(a)
(ii) of this Statement, Messrs. Manganiello, Sabel and Stein also have been
granted options to currently purchase a total of 762,015 shares of Common Stock
held of record by CVCA and Exeter.
Notwithstanding the existence of these agreements, CVCA's
decision to acquire the HAC securities, its decision to enter into the Exchange
Agreement with respect to acquisition of the Issuer's equity securities at
Closing, and CVCA's decision to purchase the Issuer's Class D Preferred Stock
and Class E Preferred Stock, are decisions made unilaterally by CVCA. The
purpose and overall effect of the foregoing agreements is to facilitate CVCA's
ability to exercise control over the Issuer and its management. In CVCA's
opinion, none of these agreements materially affect their respective rights to
vote and dispose of the Issuer's Common Stock, although certain of the
agreements may afford the other parties thereto an opportunity to elect to
participate with CVCA and Exeter in certain transactions initiated by CVCA and
Exeter, including a sale of the Issuer's business or a disposition of a majority
of CVCA's and Exeter's holdings of the Issuer's equity securities. Prior to
execution of the Exchange Agreement and the Hanger Investment Agreement on
February 28, 1989, neither CVCA nor Exeter had any contractual or other
relationship with the Hanger Management, the Issuer's Management or others with
respect to beneficial ownership of the Issuer's Common Stock. Prior to May 9,
1989, CVCA and Exeter did not have any contractual or other agreement with
respect to beneficial or record ownership of the Issuer's equity securities.
As a result of the repayment of all of the Original
Subordinated Notes and the redemption of all of the Class A and Class E
Preferred Stock on May 15, 1992, Exeter is no longer a creditor of the Issuer or
any of its subsidiaries and substantially all of CVCA's and Exeter's restrictive
covenants in the Stockholders Agreement have terminated. As a result of these
changes, and the dilution of CVCA's and Exeter's percentage ownership of the
Issuer caused by the May 8, 1992 public offering of 1,850,000 shares, CVCA and
Exeter decided that it was no longer in their best interests to act as a group.
Accordingly, effective May 15, 1992, CVCA and Exeter each disclaim that it is
acting as a group with each other. Therefore, Exeter has filed its own, separate
Schedule 13D with respect to its ownership of the Issuer's securities.
CVCA disclaims that it is member of a group with any other
persons either for purposes of this Schedule 13D or for any other purpose
related to its beneficial ownership of the Issuer's securities.
page 13 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Item 5. Interest in Securities of the Issuer.
The response to Item 5 is amended in its entirety to read as follows:
CVCA may be deemed the beneficial owner of 2,976,566 shares of
the Issuer's Common Stock. CVCA's deemed beneficial ownership represents 18.31%
of the Common Stock. CVCA has sole voting power and dispositive power with
respect to its shares of Common Stock.
Based upon the cash investment made by CVCA in the respective
classes of HAC securities (and without taking into consideration the purchase of
Hanger debt securities by CEA or CVCA or the receipt or forfeiture of any shares
of Common Stock pursuant to the agreements described in Item 6(a) below), the
effective cost per share to CVCA of the Issuer's Class A Preferred Stock, Class
B Preferred Stock and Common Stock received in the Exchange may be deemed to be
approximately $1.15, $1.04, and $1.04, respectively. CEA paid $7,400,000 for the
Senior Bridge Note, which was repaid on the date of Closing, and CEA paid an
aggregate of $5,600,000 for the 1989 Subordinated Notes.
Effective as of February 12, 1990, CVCA invested an additional
$800,000 in the Issuer in connection with CVCA's purchase of 91.4661 shares of
Class D Preferred Stock at a purchase price of $6,173 per share and its purchase
of 80.5356 shares of Class E Preferred Stock at a purchase price of $2,922.68
per share. This investment is exclusive of $17,972 loaned by CVCA to Mr. Stein
for his acquisition of Class D Preferred Stock and Class E Preferred Stock
pursuant to the Stock Purchase Agreement, and CEA's purchase for $500,000 of the
First 1990 Original Subordinated Note.
On November 8, 1990, CEA purchased for $2,450,000 the Second
1990 Subordinated Note and transferred the 1989 Subordinated Notes and First
1990 Subordinated Note to CVCA. In connection with such financing, CEA and
Exeter received the Contingent Warrants, without charge, because the Second 1990
Subordinated Note was not repaid within 270 and 360 days after its issuance.
See, Item 3 above.
On March 1, 1991, CEA purchased for $800,000 the First 1991
Subordinated Note. On March 20, 1991, CEA transferred the Second 1990 and First
1991 Subordinated Notes to CVCA.
On May 7, 1991, CVCA purchased for $5.00 per share 200,000 of
the Issuer's publicly-registered Common Stock from Paine Webber Incorporated,
the Issuer's underwriter. Effective June 1, 1991, Exeter purchased from CVCA
48,320 of such shares for $5.00 per share.
On May 15, 1992, the Issuer repaid all outstanding Original
Subordinated Notes and redeemed all outstanding shares of Class A and Class E
Preferred Stock.
CVCA's aggregate cost basis in the Issuer's equity securities
described above was reduced by approximately $640,326.41 due to its sale to
Exeter of a participation in the Class A Preferred Stock, Class D Preferred
Stock, Class E Preferred Stock and Common Stock acquired in the Exchange.
page 14 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
During the months of September 1992 through January 18, 1993,
CVCA sold the following shares of Common Stock in Rule 144 transactions:
Date Shares Price
- ---- ------ -----
9/21 10,000 8.750
11/18 25,000 8.500
11/19 10,000 8.500
12/3 5,000 8.63
12/3 5,000 8.750
12/3 5,000 8.88
1/7 5,000 8.500
1/8 5,000 8.500
1/12 30,000 8.38
1/13 10,000 8.500
1/14 10,000 8,500
On August 7, 1996, CVCA sold 226,109 shares of Common Stock to
Mr. Manganiello upon the exercise of his New Manger Option and Additional Manger
Option (each as defined in Item 6(a) below) at an exercise price of $3.875 per
share. Mr. Manganiello paid the exercise price of such options through the
cancellation of his remaining New Manager Options and Additional Manager Options
to acquire 143,048 additional shares of Common Stock of the Issuer owned by
CVCA. On August 9, 1996, CVCA sold 33,000 shares of Common Stock to Mr. Stein
and 67,000 shares of Common Stock to Mr. Sabel upon the exercise of a portion of
their New Manger Option (as defined in Item 6(a) below) at an exercise price of
$3.875 per share. Mr. Stein paid the purchase price of his options through the
cancellation of New Manager Options to acquire 20,878 additional shares of
Common Stock of the Issuer owned by CVCA and Mr. Sabel paid the exercise price
of his options through the cancellation of New Manager Options to acquire 42,429
additional shares of Common Stock of the Issuer owned by CVCA. Mr. Stein and Mr.
Sabel continue to collectively own New Manager Options to purchase 17,761
shares of Common Stock of the Issuer owned by CVCA and Additional Manager
Options to purchase 170,735 shares of Common Stock of the Issuer owned by CVCA,
in each case, having an exercise price of $3.875 and expiring on December 31,
1997.
On November 1, 1996, CVCA purchased for $4,000,000 the 1996
Subordinated Note and the 1996 Warrants.
Except as reported in Item 6 below and incorporated herein by
reference, there have been no transactions in the Common Stock during the past
sixty days which are required to be reported in this Statement. No person other
than CVCA has the right to receive or the power to direct the receipt of
dividends from or the proceeds from the sale of the Common Stock owned
beneficially by CVCA.
page 15 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
The response to Item 6(a)(ii) is amended in its entirety to read as follows:
(i) Issuance of Options By CVCA and Exeter
Effective as of August 13, 1990, CVCA and Exeter (the
"Optioners") granted to Messrs. Manganiello, Cestaro, Sabel and Stein (the
"Managers") options (the "Manager Options") to purchase a total of 496,250
shares of the Issuer's Common Stock owned beneficially by the Optioners at an
exercise price of $6.00 per share. Upon exercise of the Manager Options, the
Optioners will transfer 27.5% of the exercise price of each Manager Option
(approximately $1.65 per share) to the Issuer, thereby enabling the Issuer to
receive up to the same approximate maximum amount it would have been entitled to
receive upon exercise of the maximum amount of options that might have been
granted and exercised under the Incentive Plan. Manager Options for 82,500
shares were canceled upon the resignation of Mr. Cestaro as President of JEH
effective March 31, 1991.
On March 14, 1991, the Optioners granted to Messrs.
Manganiello, Sabel and Stein additional options to purchase from CVCA and Exeter
a total of 348,265 shares of Common Stock owned by CVCA and Exeter, of which
options for 248,265 shares are exercisable at a price of $6.00 per share and
100,000 shares are exercisable at a price of $8.00 per share. Such additional
options are hereinafter called the "Additional Manager Options."
The Manager Options and Additional Manager Options generally
become exercisable on a cumulative basis to the extent of 33 1/3% at the end of
each of the first three years following the date of grant so long as the
optionee continues to be employed by the Issuer. The options become fully
exercisable upon an earlier sale of the Issuer or termination of the optionee's
employment by reason of optionee's death or disability. The Manager Options
expired on May 13, 1994 without being exercised.
Exeter and CVCA entered into an Amendment Agreement, dated as
of August 13, 1990 and an Amendment Agreement, dated March 20, 1991 (both
amending the Amended Participation Agreement and the Amended Beneficial
Ownership Agreement) whereby Exeter became obligated to sell 24.16% of any
shares sold to the Managers upon exercise of the Manager Options and Additional
Manager Options. On February 20, 1992, pursuant to an agreement attached hereto
as Exhibit 5.3, Exeter assumed such obligations directly.
On May 16, 1994, pursuant to the Stock Option Agreements
attached hereto as Exhibit 5.4, CVCA granted Messrs. Manganiello, Sabel and
Stein new Manager Options (the "New Manager Options") for the same number of
shares of Common Stock and at the same exercise price as the prior Manager
Options granted by CVCA (exclusive of Exeter's portion), and with an expiration
date of May 16, 1995. The New Manager Options are fully vested as of the date of
granting. The Additional Manager Options had an original expiration date of
December 14, 1994; their expiration date was later extended to December 14, 1995
pursuant to an agreement attached hereto as Exhibit 5.5, provided that such
extension had no effect on the expiration date of
page 16 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
the exercise period relating to the 24.16% portion of each Additional Manager
Option for which Exeter is solely responsible.
Pursuant to the Third Amendment to Stock Option and Vesting
Agreements and Amendment Agreement attached hereto as Exhibit 5.6, CVCA agreed
to (i) reduce the exercise price of the Additional Manager Options (excluding
that portion of such options for which Exeter is solely responsible) and the New
Manager Options to $3.875 per share and (ii) extend the expiration date of the
Additional Manager Options (excluding that portion of such options for which
Exeter is solely responsible) and the New Manager Options to March 22, 1996.
Pursuant to the Fourth Amendment to Stock Option and Vesting
Agreements and Amendment Agreement attached hereto as Exhibit 5.7, CVCA agreed
to (i) extend the expiration date of the New Manager Option and the Additional
Manager Option (excluding that portion of such options which Exeter is solely
responsible) of Mr. Manganiello to March 22, 1997 and (ii) provide for the
payment of the exercise price of the New Manager Option and the Additional
Manager Option (excluding that portion of such Options which Exeter is solely
responsible) of Mr. Manganiello with cash and/or the reduction in the number of
shares of common stock issuable upon the exercise of the subject option.
Pursuant to the Fifth Amendment to Stock Option and Vesting
Agreements and Amendment Agreement attached hereto as Exhibit 5.8, CVCA agreed
to (i) extend the expiration date of the New Manager Options of Messrs. Sabel
and Stein to March 22,1997 with respect to 67,000 shares underlying the New
Manager Options of Mr. Sabel and 33,000 shares underlying the New Manager
Options of Mr. Stein with the expiration date for the balance of 51,500 shares
for Mr. Sabel and 29,568 shares for Mr. Stein that underlie their respective New
Manager Options being extended to December 31, 1997; (ii) extend the expiration
date of the Additional Manager Options (excluding that portion of such options
for which Exeter is solely responsible) of Messrs. Sabel and Stein to December
31, 1997; and (iii) provide for the payment of the exercise price of each such
New Manager Option and Additional Manager Option (excluding that portion of such
options for which Exeter is solely responsible) of Messrs. Sabel and Stein with
cash and/or the reduction in the number of shares of common stock issuable upon
the exercise of the subject option.
In August 1996, (i) Mr. Manganiello exercised his New Manager
Option and Additional Manager Option to purchase 226,109 shares of common stock
from CVCA at an exercise price of $3,875 per share; (ii) Mr. Stein exercised a
portion of his new Manager Option to purchase 33,000 shares of common stock from
CVCA at an exercise price of $3.875 per share and (iii) Mr. Sabel exercised a
portion of his New Manager Option to purchase 67,000 shares of common stock from
CVCA at an exercise price of $3.875 per share. Mr. Manganiello paid the exercise
price of such options through the cancellation of his remaining New Manager
Options and Additional Manager Options to acquire 143,048 additional shares of
Common Stock of the Issuer owned by CVCA; Mr. Stein paid the purchase price of
his options through the cancellation of New Manager Options to acquire 20,878
additional shares of Common Stock of the Issuer owned by CVCA; and Mr. Sabel
paid the exercise price of his options through the cancellation of New Manager
Options to acquire 42,429 additional shares of Common Stock of the Issuer owned
by CVCA. Mr. Stein and Mr. Sabel continue to collectively own New Manager
Options to purchase 17,761 shares of Common Stock of the Issuer owned by CVCA
and Additional Manager Options to purchase 170,735 shares of Common Stock of
the Issuers owned by CVCA, in each case, having an exercise price of $3.875 and
expiring on December 31, 1997.
page 17 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Item 7. Material to be Filed as Exhibits.
*1. Stock Exchange Agreement dated February 28, 1989, by and among the
Issuer, HAC, Hanger, CVCA and Messrs. Manganiello and Cestaro,
including certain exhibits thereto listed separately below.
*2. Stockholders' Agreement, dated as of May 15, 1989, by and among the
Issuer, CVCA, CEA, Messrs. Manganiello and Cestaro, Gerald E. Bisbee,
Jr., Ivan R. Sabel, and Richard A. Stein.
*2.1. Amendment No. 1 to Stockholders' Agreement dated as of February 12,
1990.
*2.2 Amendment Agreement, dated as of August 13, 1990, between the Issuer,
CVCA, CEA, and Messrs. Manganiello, Sabel, Cestaro and Stein, amending
for the second time, among other things, the Stockholders' Agreement.
*2.3 Stock Forfeiture Memorandum, dated as of October 30, 1990, between the
Issuer, CVCA, Exeter, the Bank and Messrs. Manganiello and Cestaro.
*2.4 Amendment No. 3 to Stockholders' Agreement, dated as of November 8,
1990.
*3. Certificate of Designations, Preferences and Rights of the Issuer's
Preferred Stock.
*3.1 Restated Certificate of Designations, Preferences and Rights of
Issuer's Preferred Stock.
*4. Management Incentive Stock Option Plan (Terminated by Exhibit 2.2).
*5. Chemical Stock Forfeiture Agreement, dated as of May 15, 1989, by and
between the Issuer and CVCA (Terminated by Exhibit 2.2).
*5.1 Form of Stock Option and Vesting Agreements, each dated as of August
13, 1990, between CVCA on the one hand and each of Messrs. Manganiello,
Sabel, Cestaro and Stein on the other hand (filed as Exhibits A-D to
Exhibit 2.2 above).
*5.2 Stock Option and Vesting Agreements, each dated as of March 14, 1991,
between CVCA on the one hand and each of Messrs. Manganiello, Sabel and
Stein on the other hand.
*5.3 Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of February 20, 1992, by and among CVCA, CEA,
Exeter, the Issuer and Messrs. Manganiello, Sabel and Stein.
*5.4 Stock Option Agreements, each dated as of May 16, 1994, between CVCA on
the one hand and each of Messrs. Manganiello, Sabel and Stein on the
other hand.
*5.5 Second Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of May 16, 1994, by and among CVCA, CEA, the Issuer
and Messrs. Manganiello, Sabel and Stein.
*Filed Previously
page 18 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
*5.6 Third Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of September 22, 1994, by and among CVCA, CEA, the
Issuer and Messrs. Manganiello, Sabel and Stein.
5.7 Fourth Amendment to Stock Option and Vesting Agreements and Amendments
and Amendment Agreement, dated as of October 27, 1995 by and among
CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein.
5.8 Fifth Amendment to Stock Option and Vesting Agreements and Amendment
Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the
Issuer and Messrs. Manganiello, Sabel and Stein.
*6. Management Stock Forfeiture Agreement, dated as of May 15, 1989, by and
among CVCA and Messrs. Bisbee, Sabel, Stein, Manganiello and Cestaro
(Terminated by Exhibit 2.2).
*7. Guaranty Agreement, dated as of May 15, 1989, executed by the Issuer
and its subsidiaries in favor of CEA.
*7.1 First Amendment to Guaranty Agreement dated as of February 12, 1990.
*7.2 Second Amendment to Guaranty Agreement, dated as of November 8, 1990.
*7.3 Third Amendment to Guaranty Agreement, dated as of March 1, 1991.
*7.4 Fourth Amendment to Guaranty Agreement, dated as of March 20, 1991.
*7.5 Fifth Amendment to Guaranty Agreement, dated as of February 20, 1992.
*8. Registration Agreement, dated as of May 15, 1989, by and among the
Issuer, CVCA, Bank, and Messrs. Bisbee, Sable, Stein, Manganiello and
Cestaro.
*8.1 First Amendment to Registration Agreement dated as of February 12,
1990.
*8.2 Amended and Restated Registration Rights Agreement, dated as of
November 8, 1990.
*9. The Issuer's Principal Stockholders' Agreement dated as of February 28,
1989, by and among Gerald E. Bisbee, Jr., Ivan R. Sabel, Miles Lerman,
Gershon A. Stern, Capital Orthopedics, Inc., Richard A. Stein, and HAC.
*10. Agreement dated as of February 28, 1989, by and among the Issuer, Miles
Lerman, and Gershon A. Stern.
*11. Beneficial Ownership Agreement dated as of May 9, 1989 by and between
CVCA and Exeter.
*11.1 First Amended and Restated Beneficial Ownership Agreement dated as of
March 1, 1990 by and between CVCA and Exeter.
*Filed Previously
page 19 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
*11.2 Amendment Agreement, dated as of August 13, 1990, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.3 Amendment Agreement, dated as of November 8, 1990, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.4 Amendment Agreement, dated as of March 1, 1991, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.5 Amendment Agreement, dated as of March 20, 1991, amending among other
things, the First Amended and Restated Beneficial Ownership Agreement.
*11.6 Stock Purchase Agreement, dated as of June 1, 1991, between CVCA and
Exeter.
*11.7 Letter Agreement, dated as of February 20, 1992, between CVCA and
Exeter.
*12. Stock Redemption Agreement dated as of May 15, 1989 by and between CVCA
and the Issuer.
*13. Letter, dated April 15, 1989, from CVCA to the Issuer.
*14. Agreement dated as of May 15, 1989 by and between CVCA and Exeter with
respect to filing Schedule 13D.
*15. Stock Purchase Agreement dated as of February 12, 1990 by and among the
Issuer, CVCA and Messrs. Manganiello, Cestaro, Sabel and Stein.
*16. Note and Stock Pledge Agreement dated as of February 12, 1990 between
CVCA and Mr. Stein.
*17. Warrant Agreement dated as of May 15, 1989 by and among the Issuer,
Bank and CVCA.
*18. Stock and Note Purchase Agreement, dated as of February 28, 1989, among
Hanger, CEA, CVCA and Messrs. Manganiello and Cestaro.
*18.1 First Amendment to Stock and Note Purchase Agreement, dated as of May
9, 1989.
*18.2 Second Amendment to Stock and Note Purchase Agreement, dated as of May
15, 1989.
*18.3 Third Amendment to Stock and Note Purchase Agreement, dated as of
February 12, 1990.
*18.4 Fourth Amendment to Stock and Note Purchase Agreement, dated as of June
19, 1990.
*18.5 Fifth Amendment to Stock and Note Purchase Agreement, dated as of
November 8, 1990, among the previous parties to the Stock and Note
Purchase Agreement and the Issuer.
*Filed Previously
page 20 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
*18.6 Sixth Amendment to Stock and Note Purchase Agreement, dated March 1,
1991.
*18.7 Seventh Amendment to Stock and Note Purchase Agreement, dated March 20,
1991.
*18.8 Letter Agreement, dated May 31, 1991, between Hanger and CVCA.
*18.9 Eighth Amendment to Stock and Note Purchase Agreement, dated as of
February 20, 1992.
*19. Subordination Agreement, dated as of May 15, 1989, between the Bank and
CEA and acknowledged by the Issuer and each of the Issuer's
subsidiaries.
*19.1 First Amendment to Subordination Agreement, dated as of February 12,
1990.
*19.2 Second Amendment to Subordination Agreement, dated as of June 19, 1990.
*19.3 Third Amendment to Subordination Agreement, dated as of November 8,
1990, among the previous parties to the Subordination Agreement and
CVCA.
*19.4 Fourth Amendment to Subordination Agreement, dated as of March 1, 1991.
*19.5 Fifth Amendment to Subordination Agreement, dated as of March 20, 1991.
*19.6 Sixth Amendment to Subordination Agreement, dated as of February 20,
1992.
*20. Warrant, dated as of August 6, 1991, issued by the Company to CVCA.
*20.1 Warrant, dated as of August 6, 1991, issued by the Company to Exeter.
*21. Form of Warrant, dated as of November 5, 1991, issued by the Company to
CVCA.
*21.1 Form of Warrant, dated as of November 5, 1991 issued by the Company to
Exeter.
*22. Amendment to Warrants, dated as of February 20, 1992, among the Issuer,
CVCA and Exeter.
23. Senior Subordinated Note Purchase Agreement, dated as of November 1,
1996 between the Issuer, PPI and CVCA.
24. Warrant dated November 1, 1996 issued by the Issuer to CVCA.
* Filed Previously
page 21 of 28
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
SCHEDULE A
Item 2 information for executive officers and directors of Chemical Capital
Corporation.
SCHEDULE B
Item 2 information for executive officers and directors of The Chase Manhattan
Corporation.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, Its General Partner
By: /s/Mitchell J. Blutt
-------------------------------------------------
Name: Mitchell J. Blutt
Title: General Partner of Chase Capital Partners
February 7, 1997
- ----------------
Date
page 22 of 27
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
SCHEDULE A
CHEMICAL CAPITAL CORPORATION
Executive Officers
President Jeffrey C. Walker**
Executive Vice President Mitchell J. Blutt, M.D.**
Vice President & Secretary Gregory Meridith*
Vice President & Treasurer Donna L. Carter**
Assistant Secretary Robert C. Carroll*
Directors
William B. Harrison, Jr.*
Jeffrey C. Walker**
- --------------------------------------------------------------------------------
* Principal occupation is employee and/or officer of Chase. Business
address is c/o Chase Manhattan Corporation, 270 Park Avenue, New York,
New York 10017.
** Principal occupation is employee of Chase and/or general partner of Chase
Capital Partners. Business address is c/o Chase Capital Partners, 380
Madison Avenue, 12th Floor, New York, NY 10017.
page 23 of 27
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
SCHEDULE B
THE CHASE MANHATTAN CORPORATION
Executive Officers*
Walter V. Shipley, Chairman and CEO
Edward D. Miller, Senior Vice Chairman
Thomas G. Labrecque, President and COO
William B. Harrison, Jr., Vice Chairman
Directors**
Principal Occupation or Employment;
Name Business or Residence Address
- ---- -----------------------------------
Frank A. Bennack, Jr. President and Chief Executive Officer
The Hearst Corporation
959 Eighth Avenue
New York, New York 10019
Susan V. Berresford President
The Ford Foundation
320 E. 43rd Street
New York, New York 10017
- --------------------------------------------------------------------------------
* Principal Occupation is executived officer and/or employee of The Chase
Manhattan Bank. Business address is c/o The Chase Manhattan Bank, 270
Park Avenue, New York, New York 10017. Each executive officer of Chase
is a U.S. Citizen.
** Each of the persons named below is a citizen of the United States of
America, except for John H. McArthur who is a citizen of Canada
page 24 of 27
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Principal Occupation or Employment;
Name Business or Residence Address
- ---- -----------------------------------
M. Anthony Burns Chairman of the Board, President and
Chief Executive Officer
Ryder System, Inc.
2800 N.W. 82nd Avenue
Miami, Florida 33166
J. Bruce Llewellyn Chairman of the Boards of The
Philadelphia Coca-Cola Bottling
The Coca-Cola Bottling Company
of Wilmington, Inc.
Queen City Broadcasting, Inc.
30 Rockefeller Plaza, 29th Floor
New York, New York 10112
Edward D. Miller Senior Vice Chairman of the Board
The Chase Manhattan Corporation
270 Park Avenue
New York, New York 10017
Edmund T. Pratt, Jr. Chairman Emeritus
Pfizer Inc.
Astors Lane
Port Washington, New York 11050
Henry B. Schacht Chairman of the Board and
Chief Executive Officer
Lucent Technologies Inc.
600 Mountain Avenue, Rm. 6A611
Murray Hill, New Jersey 07974
H. Laurence Fuller Chairman of the Board and
Chief Executive Officer
Amoco Corporation
200 East Randolph Drive
Chicago, Illinois 60601
page 25 of 27
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Principal Occupation or Employment;
Name Business or Residence Address
- ---- -----------------------------------
Melvin R. Goodes Chairman of the Board and
Chief Executive Officer
Warner-Lambert Company
201 Tabor Road
Morris Plains, New Jersey 07950
William H. Gray, III President and Chief Executive Officer
United Negro College Fund, Inc.
9860 Willow Oaks Corporate Drive
P.O. Box 10444
Fairfax, Virginia 22031
George V. Grune Chairman of the Board
Dewitt Wallace Reader's Digest Fund
Lila Wallace Reader's Digest Fund
Two Park Avenue
New York, New York 10016
William B. Harrison, Jr. Vice Chairman of the Board
The Chase Manhattan Corporation
270 Park Avenue
New York, New York 10017
Harold S. Hook Chairman and Chief Executive Officer
American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Helene L. Kaplan Of Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue - Room 39-72
New York, New York 10022
Thomas G. Labrecque President and Chief Operating Officer
The Chase Manhattan Corporation
270 Park Avenue
New York, New York 10017
page 26 of 27
<PAGE>
SCHEDULE 13D
------------
Issuer: Hanger Orthopedic Group, Inc. CUSIP Number: 4013F-208
- --------------------------------------------------------------------------------
Principal Occupation or Employment;
Name Business or Residence Address
- ---- -----------------------------------
Walter V. Shipley Chairman of the Board and
Chief Executive Officer
The Chase Manhattan Corporation
270 Park Avenue
New York, New York 10017
Andrew C. Sigler Chairman of the Board and
Chief Executive Officer
Champion International Corporation
One Champion Plaza
Stamford, Connecticut 06921
John R. Stafford Chairman, President and
Chief Executive Officer
American Home Products Corporation
5 Giralda Farms
Madison, New Jersey 07940
Marina v. N. Whitman Professor of Business Adminstration
and Public Policy
The University of Michigan
School of Public Policy
411 Lorch Hall, 611 Tappan Street
Ann Arbor, Michigan 48109-1220
page 27 of 27
<PAGE>
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 $.0l 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 Common Stock
covered by each of the Manager Options and Additional Manager Options;
<PAGE>
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 a Third
Amendment to Stock Option and Vesting Agreements and
2
<PAGE>
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) in cash by
certified or bank cashier's check, (ii) by instructing CVCA to cancel that
portion of this Option
3
<PAGE>
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 pursuant to clause (ii) above, the Option shall automatically be
adjusted to reduce the number of shares
4
<PAGE>
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>
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: /s/ Mitchell J. Blutt, M.D.
-------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
CHEMICAL EQUITY ASSOCIATES
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: /s/ Mitchell J. Blutt, M.D.
--------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
HANGER ORTHOPEDIC GROUP, INC.
By: /S/ Ivan R. Sabel
--------------------------------
Ivan R. Sabel
President
OPTIONEE
/s/ Ronald J. Manganiello
-----------------------------------
Ronald J. Manganiello
6
<PAGE>
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 $.0l 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 Common Stock
covered by each of the Manager Options and Additional Manager Options;
<PAGE>
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 reguired 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 a Third
Amendment to Stock Option and Vesting Agreements and
2
<PAGE>
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 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>
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>
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 or 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. 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 Partner
By: /s/ Mitchell J. Blutt, M.D.
-------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
CHEMICAL EQUITY ASSOCIATES
By: CHEMICAL VENTURE PARTNERS,
Its General Partner
By: /s/ Mitchell J. Blutt, M.D.
-------------------------------
Mitchell J. Blutt, M.D.,
Executive Partner
HANGER ORTHOPEDIC GROUP, INC.
By: /s/ Ivan R. Sabel
-------------------------------
Ivan R. Sabel
President
OPTIONEE
By: /s/ Ivan R. Sabel
-------------------------------
Ivan R. Sabel
By: /s/ Richard A. Stein
-------------------------------
Richard A. Stein
6
<PAGE>
EXECUTION COPY
SENIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
dated as of
November 1, 1996
among
HANGER ORTHOPEDIC GROUP, INC.
and
The Purchasers listed on the
signature pages hereof
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS ............................ 1
SECTION 1.1. Definitions ............................................. 1
SECTION 1.2. Accounting Terms and Determinations ..................... 17
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS ............ 17
SECTION 2.1. Commitments to Purchase Notes ........................... 17
SECTION 2.2. Commitments to Warrants ................................. 18
SECTION 2.3. The Closing ............................................. 18
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY ....................... 18
SECTION 3.1. Incorporation, Standing, etc ........................... 18
SECTION 3.2. Capitalization; Ownership ............................. 19
SECTION 3.3. Subsidiaries ........................................... 20
SECTION 3.4. Qualification .......................................... 20
SECTION 3.5. Business and Financial Statements ...................... 20
SECTION 3.6. Changes, etc ........................................... 21
SECTION 3.7. Tax Returns and Payments ............................... 21
SECTION 3.8. Debt ................................................... 21
SECTION 3.9. Title to Properties; Liens ............................. 22
SECTION 3.10. Litigation ............................................. 22
SECTION 3.11. Compliance with Other Instruments ...................... 22
SECTION 3.12. Governmental Consents .................................. 23
SECTION 3.13. Permits, Patents, Trademarks, etc ...................... 23
SECTION 3.14. Representations in Acquisition Agreement ............... 24
SECTION 3.15. Offer of Notes ......................................... 24
SECTION 3.16. Federal Reserve Regulations ............................ 24
SECTION 3.17. Status Under Certain Federal Statutes .................. 25
SECTION 3.18. Compliance with ERISA .................................. 25
SECTION 3.19. Solvency ............................................... 26
SECTION 3.20. Disclosure ............................................. 26
SECTION 3.21. Use of Proceeds ........................................ 26
SECTION 3.22. Environmental Compliance ............................... 26
SECTION 3.23. Note Purchase Agreement ................................ 27
ARTICLE IV
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<PAGE>
Page
REPRESENTONS AND WARRANTIES OF PURCHASERS ......... 27
SECTION 4.1. Private Placement ....................................... 27
SECTION 4.2. Margin Compliance ....................................... 27
SECTION 4.3. Accredited Investor ..................................... 27
SECTION 4.4. Source of Funds ......................................... 27
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING.............. 28
SECTION 5.1. Conditions to Purchasers' Obligations to Purchase Notes. 28
SECTION 5.2. Conditions to Company's Obligations to Issue and Sell
the Notes and to Issue the Warrants ......................... 32
ARTICLE VI
COVENANTS......................... 33
SECTION 6.1. Financial Statements, etc .............................. 33
SECTION 6.2. Furnishing of Disclosure Information ................... 38
SECTION 6.3. Books of Record and Account; ........................... 38
SECTION 6.4. Payment of Taxes and Claims; Tax Consolidation ......... 38
SECTION 6.5. Maintenance of Properties; Corporate Existence
and Business......................................... 39
SECTION 6.6. Insurance .............................................. 39
SECTION 6.7. Inspection ............................................. 39
SECTION 6.8. Compliance with Laws, etc .............................. 39
SECTION 6.9. Subsidiary Guarantees .................................. 40
SECTION 6.10. Limitations on Restricted Payments .................... 40
SECTION 6.11. Limitations on Incurrence of Debt and
Issuance of Disqualified Stock...................... 42
SECTION 6.12. Liens ................................................. 44
SECTION 6.13. Consolidation, Merger, Sale of Assets, etc ............ 45
SECTION 6.14. Limitation on Transactions with Affiliates ............ 46
SECTION 6.15. Dividend and Other Payment Restrictions
Affecting Subsidiaries ............................. 46
SECTION 6.16. Limitation on Other Senior Subordinated Indebtedness .. 48
SECTION 6.18. Change of Control ..................................... 48
SECTION 6.19. Asset Sales ........................................... 50
SECTION 6.20. No Restrictive Agreements ............................. 51
SECTION 6.21. Private Placement Numbers ............................. 51
ARTICLE VII
TERMS OF THE NOTES .................... 51
SECTION 7.1. Form of Notes; Issuance of Notes ....................... 51
SECTION 7.2. Registration, Transfer, Exchange and Substitution
of Notes ............................................ 51
SECTION 7.3. Payments on the Notes .................................. 52
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<PAGE>
Page
SECTION 7.4. Optional Prepayment .................................... 53
SECTION 7.5. Mandatory Prepayments Upon Equity Offerings ............ 54
SECTION 7.6. Events of Default; Acceleration of Maturity; Waiver
of Default .......................................... 54
SECTION 7.7. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default .................................... 56
SECTION 7.8. Waiver of Past Defaults ................................ 57
ARTICLE VIII
SUBORDINATION OF NOTES .................. 57
SECTION 8.1. Notes Subordinated to Senior Indebtedness ............ 57
SECTION 8.2. Payment Over of Proceeds Upon Dissolution etc ........ 57
SECTION 8.3. No Payment When Senior Indebtedness is in Default .... 59
SECTION 8.4. Payment Permitted if No Default ...................... 60
SECTION 8.5. Subrogation to Rights of Holders of Senior
Indebtedness ...................................... 60
SECTION 8.6. Provisions Solely to Define Relative Rights .......... 61
SECTION 8.7. No Waiver of Subordination Provisions ................ 61
SECTION 8.8. Notice to Holders of Notes ........................... 61
SECTION 8.9. Reliance of Holders of Senior Indebtedness ........... 62
SECTION 8.10. Reliance on Judicial order or Certificate of
Liquidating Agent ................................. 62
SECTION 8.11. This Article Not to Prevent Events of Default ........ 62
SECTION 8.12. Reinstatement ........................................ 63
ARTICLE IX
SUBSTITUTION; LIMITATION ON TRANSFERS .......... 63
SECTION 9.1. Substitution of Purchasers Prior to Closing Date ....... 63
SECTION 9.2. Restrictions on Transfer ............................... 63
ARTICLE X
INDEMNIFICATION ..................... 64
SECTION 10.1. Indemnification ....................................... 64
ARTICLE XI
MISCELLANEOUS ....................... 65
SECTION 11.1. Notices ............................................... 65
SECTION 11.2. No Waivers; Amendments ................................ 66
SECTION 11.3. Survival of Provisions ................................ 66
SECTION 11.4. Expenses; Documentary Taxes ........................... 66
SECTION 11.5. Termination; Termination Fees ......................... 66
SECTION 11.6. Confidentiality ....................................... 67
SECTION 11.7. Successors and Assigns ................................ 67
SECTION 11.8. NEW YORK LAW .......................................... 67
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<PAGE>
Page
SECTION 11.9. Counterparts; Effectiveness ........................... 67
SECTION 11.10. Entire Agreement ..................................... 67
SECTION 11.11. Consent to Jurisdiction .............................. 68
ARTICLE XII
SMALL BUSINESS ADMINISTRATION MATTERS ............ 68
SECTION 12.1. SBIC Forms ............................................ 68
SECTION 12.2. SBIC Information ...................................... 68
SECTION 12.3. Inspection ............................................ 68
SECTION 12.4. Information ........................................... 68
SECTION 12.5. Use of Proceeds ....................................... 69
SECTION 12.6. Business .............................................. 69
SECTION 12.7. Non-Discrimination .................................... 69
SECTION 12.8. Company Awareness ..................................... 69
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<PAGE>
Schedule 3.2 - Capital Stock
Schedule 3.3 - Subsidiaries
Schedule 3.5 - Financial Statements
Schedule 3.8 - Debt
Schedule 3.9 - UCC Financing Statements
Schedule 3.10 - Litigation
Schedule 3.12 - Governmental Consents
Schedule 3.13 - Permits, Patents, Trademarks, etc.
Schedule 3.18 - Multiemployer Plan Contribution Obligations
Schedule 5.1(h) - Consents
Schedule 5.1(l) - Company Projections
Exhibit A - Form of Senior Subordinated Note
Exhibit B - Form of Subsidiary Guaranty Agreement
Exhibit C - Opinion of Freedman, Levy, Kroll & Simonds
-v-
<PAGE>
SENIOR SUBORDINATED
NOTE PURCHASE AGREEMENT
SENIOR SUBORDINATED NOTE PURCHASE AGREEMENT, dated as of November 1,
1996 among HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (together with
its successors, the "Company") and the Purchasers listed on the signature pages
hereof (the 'Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, having
the following meanings:
"Acquired Debt" means, with respect to any specified Person, (i) Debt
of any other Person existing at the time such other Person merged with or into
or became a Restricted Subsidiary of such specified Person, including Debt
incurred in connection with, or in contemplation of, such other Person merging
with or into or becoming a Restricted Subsidiary of such specified Person and
(ii) Debt encumbering any asset acquired by such specified Person.
"Acquisition" shall mean the acquisition by the Company of 100% of
the issued and outstanding shares of capital stock of Southern pursuant to the
merger of Newco with and into Southern in accordance with the Acquisition
Agreement.
"Acquisition Agreement" shall mean the Agreement and Plan of Merger,
dated as of July 29, 1996, between the Company, Newco and Southern as in effect
on the date hereof.
"Acquisition Costs" shall mean all costs and expenses incurred by the
Company in connection with the Acquisition and the financing thereof, including,
without limitation, (a) payments in respect of the purchase price pursuant to
the Acquisition Agreement; and (b) all fees, commissions and expenses relating
to the Acquisition and the financing thereof (including, without limitation,
investment banking, brokerage, investment advisory, finder's, accounting,
publicity, appraisal, engineering, environmental audit, legal, syndication,
placement, commitment and interest rate hedging fees, commissions and expenses).
"Affiliate" shall mean, with respect to any designated Person, any
other Person that has a relationship with the designated Person whereby either
of such Persons directly or indirectly controls or is controlled by or is under
common control with the other of such Persons, excluding the Purchasers and the
Senior Lenders. The term "control" means the
<PAGE>
2
possession, directly or indirectly, of the direction of the management or
policies of any Person, whether through ownership of voting securities, by
contract or otherwise.
"Agent Bank" means Banque Paribas, in its capacity as agent under the
Credit Agreement, and any successor agent thereunder.
"Agreement" shall mean this Senior Subordinated Note Purchase
Agreement, as the same may be amended from time to time.
"Asset Sale" means:
(a) the sale, conveyance, transfer or other disposition (whether
in a single transaction or a series of related transactions) of property or
assets (including by way of a sale and leaseback) of the Company or any
Restricted Subsidiary other than in the ordinary course of business (each
referred to in this definition as a "disposition") or
(b) the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of related
transactions), in each case, other than:
(i) a disposition of obsolete equipment in the ordinary
course of business;
(ii) the disposition of all or substantially all of the
assets of the Company in a manner permitted pursuant to the provisions
described under Section 6.13 or any disposition that constitutes a
Change of Control pursuant to this Agreement;
(iii) any disposition that is a Restricted Payment or that is
a dividend or distribution permitted under the covenant described under
Section 6.10 or any Investment that is not prohibited thereunder or any
disposition of cash or Cash Equivalents;
(iv) any disposition, or related series of dispositions, of
assets with an aggregate fair market value of less than $1,000,000;
(v) any sale of Equity Interests in, or Indebtedness or
other securities of, an Unrestricted Subsidiary; and
(vi) foreclosures on assets.
"Basic Documents" shall mean this Agreement, the Subsidiary Guaranty
Agreement, the Acquisition Agreement, the Credit Agreement and Warrants.
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York City.
<PAGE>
3
"Capital Stock" means with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock of such Person, including, without limitation, if such Person is
a partnership, partnership interests (whether general or limited) and any other
interest or participation that confers on a Person the right to receive a share
of the profits and losses of, or distributions of assets of, such partnership.
"Capitalized Lease Obligation" shall mean the obligation to pay rent
or other amounts under a lease of (or other agreement conveying the right to
use) real and/or personal property which obligations are required to be
classified and accounted for as a capital lease on a balance sheet of the lessee
under GAAP and, for purposes of this Agreement, the amount of such obligations
shall be the capitalized amount thereof, determined in accordance with GAAP.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof, (iii) certificates of
deposit, time deposits and eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding one year and overnight bank deposits, in each case with any commercial
bank having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations for underlying securities of the types described in clauses (ii) and
(iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated A-1 or the
equivalent thereof by Moody's or S&P and in each case maturing within one year
after the date of acquisition, (vi) investment funds investing 95% of their
assets in securities of the types described in clauses (i)-(v) above, (vii)
readily marketable direct obligations issued by any state of the United States
of America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's or S&P, (viii) Indebtedness or
Preference Stock issued by Persons with a rating of "A" or higher from S&P or
"A2" or higher from Moody's and (ix) Cash Equivalents, as defined under the
Credit Agreement, as in effect on the Closing Date.
"Change of Control" shall occur at any time that (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Exchange Act), in a single
transaction or through a series of related transactions, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 50% of the total Voting Stock of the Company; (ii)
the Company consolidates or merges with or into another corporation or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation consolidates or merges with or into the Company, in any such event
pursuant to a transaction in which the outstanding Voting Stock of the Company
is changed into or exchanged for cash, securities or other property, other than
any such transaction where (A) the outstanding Voting Stock of the Company is
changed into or exchanged for (x) Voting Stock of the surviving corporation
which is not Disqualified Stock and/or (y) cash, securities or other property in
an amount which could be paid by the Company as a Restricted Payment and (B) the
holders of the Voting Stock of the Company immediately prior to such transaction
own, directly or indirectly, not less than 50% of the Voting Stock of the
surviving corporation immediately after such transaction, (iii) during any
period of two consecutive
<PAGE>
4
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of at least 50% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the Company then in
office; or (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.2(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall mean the shares of common stock, par value $0.1
per share, of the Company.
"Company Financial Statements" shall have the meaning ascribed to such
term in Section 3.5(b).
"Company Projections" shall have the meaning specified in Section
5.1(m).
"Consolidated" shall mean, with respect to any Person, the
consolidation of the accounts of such Person and its Subsidiaries in accordance
with GAAP, including in the case of the Company and its Subsidiaries, principles
of consolidation consistent with those applied in the preparation of the
Company's financial statements unless the context provides which Subsidiaries
are to be Consolidated.
"Consolidated Depreciation and Amortization Expense" means with
respect to any Person for any period, the total amount of depreciation and
amortization expense and other noncash charges (excluding any noncash item that
represents an accrual, reserve or amortization of a cash expenditure for a
future period) of such Person and its Restricted Subsidiaries for such period on
a consolidated basis and otherwise determined in accordance with GAAP.
"Consolidated Income Tax Expense" for any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations of such Person and its Restricted
Subsidiaries with respect to such period in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any period, the
sum of: (a) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (except to the extent
accrued in a prior period), to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments, the interest component of Capitalized Lease
Obligations, and net payments (if any) pursuant to Hedging Obligations,
excluding amortization of deferred financing fees) and (b) consolidated
capitalized interest of such
<PAGE>
5
Person and its Restricted Subsidiaries for such period, whether paid or accrued,
to the extent such expense was deducted in computing Consolidated Net Income.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, and otherwise determined
in accordance with GAAP; provided, however, that (i) the Net Income for such
period of any Person that is not a Subsidiary, or is an Unrestricted Subsidiary,
or that is accounted for by the equity method of accounting, shall be included
only to the extent of the amount of dividends or distributions or other payments
paid in cash (or to the extent converted into cash) to the referent Person or a
Wholly Owned Restricted Subsidiary thereof in respect of such period, (ii) the
Net Income of any Person acquired in a pooling of interests transaction shall
not be included for any period prior to the date of such acquisition and (iii)
the Net Income for such period of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar distributions
by that Restricted Subsidiary of its Net Income is not at the date of
determination permitted without any prior governmental approval (which has not
been obtained) or, directly or indirectly, by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, unless such restriction with respect to the payment of dividends
or in similar distributions has been legally waived.
"Contingent Obligations" means, with respect to any Person, any
obligation of such Person guaranteeing any leases, dividends or other
obligations that do not constitute Indebtedness ("primary obligations") of any
other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (i) for the purchase or payment of any such primary obligation or
(ii) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, or (c)
to purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the primary
obligor to make payment of such primary obligation against loss in respect
thereof.
"Credit Agreement" shall mean the Credit Agreement dated as of
November 1, 1996 among the Company, JEH Acquisition Corporation, the banks from
time to time parties thereto and the Agent Bank, together with all related
documents, instruments and agreements executed in connection therewith
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements, documents or instruments may be
amended (including any amendment or restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including,
without limitation, increasing the amount of available borrowings thereunder or
adding subsidiaries of the Company as additional borrowers or guarantors
thereunder) all or any portion of the Debt under such agreement or any successor
or replacement agreement and whether by the same or any other agent, lender or
group of lenders.
<PAGE>
6
"CVCA" shall mean Chase Venture Capital Associates, L.P., a California
limited partnership.
"Debt" shall mean with respect to any Person, (a) any indebtedness of
such Person, whether or not contingent (i) in respect of borrowed money, (ii)
evidenced by bonds. notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof), (iii) representing the
balance deferred and unpaid of the purchase price of any property (including
Capitalized Lease Obligations), except any such balance that constitutes an
accrued expense or trade payable or any other monetary obligation of a trade
creditor (whether or not an Affiliate), or (iv) representing any Hedging
Obligations, if and to the extent any of the foregoing Debt (other than letters
of credit and Hedging Obligations) would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP, (b) to the extent not
otherwise included, any Contingent Obligations (other than by endorsement of
negotiable instruments for collection in the ordinary course of business) and
(c) to the extent not otherwise included, Debt of another Person secured by a
Lien on any asset owned by such Person (whether or not such Debt is assumed by
such Person); provided, however, that Contingent Obligations incurred in the
ordinary course of business shall be deemed not to constitute Debt.
"Default" shall mean any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction or series of related transactions.
"Disqualified Stock" means, with respect to any Person, any Capital
Stock of such Person which, by its terms (or by the terms of any security into
which it is convertible or for which it is putable or exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fluid obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to November 1, 2004; provided,
however, that if such Capital Stock is either (i) redeemable or repurchasable
solely at the option of such Person or (ii) issued to employees of the Company
or its Subsidiaries or to any plan for the benefit of such employees, such
Capital Stock shall not constitute Disqualified Stock unless so designated.
"EBITDA" shall mean for any period the Consolidated Net Income for
such period plus the sum of the following for any Person (determined on a
Consolidated basis in accordance with GAAP and without duplication) to the
extent deducted in calculating Consolidated Net Income: (i) Consolidated Income
Tax Expense, (ii) Consolidated Interest Expense, (iii) Consolidated Depreciation
and Amortization Expense and (iv) all other non-cash charges (excluding any such
non-cash charge constituting an extraordinary item or loss or any non-cash item
which require an accrual of or reserve for cash charges in future
<PAGE>
7
periods) and less any non-cash items which have the effect of increasing
(decreasing in the case of a loss) Consolidated Net Income for such period.
"Environmental Laws" shall mean any and all federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to the environment or the release of any
materials into the environment, including but not limited to those related to
hazardous substances or wastes, air emissions and discharges to waste or public
systems.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" shall mean any sale or issuance after the Closing
Date of equity of the Company or any of its Subsidiaries (other than equity
issued on the Closing Date to the shareholders of Southern in connection with
the Acquisition).
"Equity Offering Proceeds" shall mean 100% of the cash proceeds (net
of underwriting discounts and commissions and all other reasonable costs
associated with such transaction) from any Equity Offering.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" shall have the meaning ascribed to such term in
Section 7.6.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
SEC thereunder, all as the same shall be in effect at the time.
"Existing Debt" means Debt of the Company or its Restricted
Subsidiaries in existence on the Closing Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes until such
amounts are repaid.
"Existing Loan Documents" shall mean any and all agreements, notes,
pledges, guarantees or other documents governing the Refinanced Indebtedness (as
defined in the Credit Agreement).
"Facility Letter of Credit" shall mean any letter of credit issued
pursuant to the Credit Agreement.
"Financial Statements" shall mean the collective reference to the
Southern Financial Statements and the Company Financial Statements.
<PAGE>
8
"Fiscal Quarter" shall mean the three month period ending on March 31,
June 30, September 30 or December 31, as applicable.
"Fiscal Year" shall mean the fifty-two week period ending on December
31.
"Fixed Assets" of any Person shall mean any real property, plant or
equipment used by such Person in the ordinary course of its business.
"Fixed Charge Coverage Ratio" means, with respect to any Person for
any period, the ratio of EBITDA of such Person for such period to the Fixed
Charges of such Person for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Debt
(other than repayments of revolving credit borrowings with respect to which the
related commitment remains outstanding) or issues or redeems Preference Stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed
Charge Coverage Ratio shall be calculated giving pro forma effect to such
incurrence, assumption, guarantee or redemption of Debt, or such issuance or
redemption of Preference Stock, as if the same had occurred at the beginning of
the applicable four-quarter period. For purposes of making the computation
referred to above, Investments, acquisitions, dispositions which constitute all
or substantially all of an operating unit of a business and discontinued
operations (as determined in accordance with GAAP) that have been made by the
Company or any of its Restricted Subsidiaries, including all mergers,
consolidations and dispositions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
shall be calculated on a pro forma basis assuming that all such Investments,
acquisitions, dispositions, discontinued operations, mergers, consolidations
(and the reduction of any associated fixed charge obligations and the change in
EBITDA resulting therefrom) had occurred on the first day of the four-quarter
reference period and without regard to clause (ii) of the definition of
Consolidated Net Income. If since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Investment, acquisition, disposition which constitutes all or
substantially all of an operating unit of a business, discontinued operation,
merger or consolidation that would have required adjustment pursuant to this
definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro
forma effect thereto for such period as if such Investment, acquisition,
disposition, discontinued operation, merger or consolidation had occurred at the
beginning of the applicable four-quarter period and without regard to clause
(ii) of the definition of Consolidated Net Income. For purposes of this
definition, whenever pro forma effect is to be given to a transaction, the pro
forma calculations shall be made in good faith by a responsible financial or
accounting officer of the Company. If any Debt bears a floating rate of interest
and is being given pro forma effect, the interest of such Debt shall be
calculated as if the rate in effect on the Calculation Date had been the
applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Debt). Interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined by a
responsible financial or accounting officer of the Company to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
<PAGE>
9
Interest on Debt that may optionally be determined at an interest rate based
upon a factor of a prime or similar rate, a eurocurrency interbank offered rate,
or other rate, shall be deemed to have been based upon the rate actually chosen,
or, if none, then based upon such optional rate chosen as the Company may
designate.
"Fixed Charges" shall mean, for any period, the sum of (a)
Consolidated Interest Expense of such Person for such period and (b) all cash
dividend payments (excluding items eliminated in consolidation) on any series of
Preference Stock of such Person.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Closing Date. For the purposes of this
Agreement, the term "consolidated" with respect to any Person shall mean such
Person consolidated with its Restricted Subsidiaries, and shall not include any
Unrestricted Subsidiary.
"Guarantee" shall mean, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which such
Person is otherwise directly or indirectly liable, including, without
limitation, any such obligation of a partnership in which such Person is a
general partner, and any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise), or to maintain
the solvency or any balance sheet or other financial condition of the obligor of
such obligation, or to make payment for any products, materials or supplies or
for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or interest rate swap
agreements, currency exchange or interest rate cap agreements and currency
exchange or interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in currency
exchange or interest rates.
"Interest Payment Date" shall mean June 30 and December 31 of each
year, commencing June 30, 1997.
<PAGE>
10
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the form of loans
(including guarantees), advances or capital contributions (excluding advances to
customers, commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions of
securities issued by any other Person and investments that are required by GAAP
to be classified on the balance sheet of the Company in the same manner as the
other investments included in this definition to the extent such transactions
involve the transfer of cash or other property. For purposes of the definition
of "Unrestricted Subsidiary" and the covenant contained in Section 6.10, (i)
"Investments" shall include the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of a
Subsidiary of the Company at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided, however, that upon a redesignation of such
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to the
amount (if positive) equal to (x) the Company's Investment in such Subsidiary at
the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Lien" shall mean, as to any Person, any mortgage, lien, pledge,
adverse claim, charge, security interest or other encumbrance in or on, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
capital lease with respect to, any property or asset owned or held by such
Person, or the signing or filing of a financing statement which names such
Person as debtor, or the signing of any security agreement authorizing any other
party as the secured party thereunder to file any financing statement. For the
purposes of this Agreement, a Person shall be deemed to be the owner of any
assets which it has placed in trust for the benefit of the holders of Debt of
such Person and such trust shall be deemed to be a Lien if such Debt is deemed
to be extinguished under GAAP but such Person remains legally liable therefor.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001 (a)(3) of ERISA).
"Net Income" of any Person shall mean, for any period, such Person's
after-tax net income determined in accordance with GAAP.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and brokerage and sales
commissions), and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available tax
<PAGE>
11
credits or deductions and any tax sharing arrangements), amounts required to be
applied to the repayment of principal, premium (if any) and interest on
Indebtedness required (other than required by clause (i) of Section 6.19(b)) to
be paid as a result of such transaction and any deduction of appropriate amounts
to be provided by the Company as a reserve in accordance with GAAP against any
liabilities associated with the asset disposed of in such transaction and
retained by the Company after such sale or other disposition thereof, including,
without limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters or against any indemnification
obligations associated with such transaction.
"Newco" shall mean JEH Acquisition Corporation, a corporation
organized and existing under the laws of the State of Georgia and a wholly-owned
subsidiary of the Company.
"Nonvoting Stock" shall mean the Company's non-voting, non-convertible
Class C Preferred Stock and the Company's non-voting, non-convertible Class F
Preferred Stock, each par value $.0l per share.
"Noteholders" or "Holders" shall mean the registered holders from time
to time of the Notes.
"Notes" shall mean (a) the Company's $8,000,000 aggregate principal
amount of Subordinated Notes originally issued hereunder or (b) any Subsequent
Notes issued hereunder, each substantially in the form of Exhibit A hereto, or
any note delivered in substitution or exchange for any such Note.
"Obligations" means any principal, interest, premium, penalties, fees,
expenses, indemnification, reimbursements (including, without limitation,
reimbursement obligations with respect to letters of credit and bankers'
acceptances), damages and other liabilities payable under the documentation
governing any Debt.
"Officers' Certificate" shall mean for any Person a certificate
executed on behalf of such Person by the Chairman of the Board or its President
or one of its Vice Presidents and its Chief Financial Officer.
"Original Notes" shall have the meaning ascribed to such term in
Section 5.1(a).
"Pari Passu Indebtedness" means (a) with respect to the Notes, Debt
which ranks pari passu in right of payment to the Notes and (b) with respect to
the Subsidiary Guaranty Agreement, Debt which ranks pari passu in right of
payment to such Subsidiary Guaranty Agreement.
"Paribas Principal, Inc." means Paribas Principal, Inc.
<PAGE>
12
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
governmental authority succeeding to any of its functions.
"Permitted Business" shall mean a line of business in which the
Company is engaged on the Closing Date and reasonably related extensions
thereof.
"Permitted Investments" means (a) any Investment in the Company or any
Restricted Subsidiary that in each case is a Permitted Business; (b) any
Investment in cash and Cash Equivalents; (c) any Investment by the Company or
any Restricted Subsidiary of the Company in a Person that is a Permitted
Business if as a result of such Investment (i) such Person becomes a Restricted
Subsidiary of the Company or (ii) such Person, in one transaction or a series of
related transactions, is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary of the Company; (d) any Investment in
securities or other assets not constituting cash or Cash Equivalents and
received in connection with an Asset Sale made pursuant to the provisions of
Section 6.18 or any other disposition of assets not constituting an Asset Sale;
(e) any Investment existing on the Closing Date; (f) any Investment by
Restricted Subsidiaries in other Restricted Subsidiaries and Investments by
Subsidiaries that are not Restricted Subsidiaries in other Subsidiaries that are
not Restricted Subsidiaries; (g) advances to employees not in excess of $750,000
outstanding at any one time; (h) any Investment acquired by the Company or any
of its Restricted Subsidiaries (i) in exchange for any other Investment or
accounts receivable held by the Company or any such Restricted Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or accounts receivable
or (ii) as a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of title
with respect to any secured Investment in default; (i) Hedging Obligations; (j)
loans and advances to officers, directors and employees for business-related
travel expenses, moving expenses and other similar expenses, in each case
incurred in the ordinary course of business; and (k) Investments the payment for
which consists exclusively of Equity Interests (exclusive of Disqualified Stock)
of the Company.
"Person" shall mean any individual, corporation, partnership, trust,
joint venture, unincorporated association or other enterprise or any government
or any agency, instrumentality or political subdivision thereof.
"Plan" shall mean an "employee pension benefit plan" (as defined in
Section 3 of ERISA).
"Preference Stock" shall mean with respect to any Person any shares of
such Person which shall be entitled to preference or priority over any other
shares of such Person in respect of either the payment of dividends or the
distribution of assets upon liquidation or both.
<PAGE>
13
"Preferred Stock" shall mean the Company's non-voting, non-convertible
Class C Preferred Stock and the Company's non-voting, non-convertible Class F
Preferred Stock, each par value $.0l per share.
"Purchasers" shall mean the Purchasers listed on the signature pages
hereto.
"Related Person" shall mean any corporation or trade or business that
is a member of the same controlled group of corporations (within the meaning of
section 414(b) of the Code) as the Company or is under common control (within
the meaning of section 414(c) of the Code) with the Company or is a member of
any affiliated service group (within the meaning of section 414(m) of the Code)
which includes the Company or is otherwise treated as part of the controlled
group which includes the Company (within the meaning of section 414(o) of the
Code).
"Reimbursement Obligations" shall mean, at any time, the aggregate of
the obligations of the Company to the Senior Lenders and the Agent Bank in
respect of all unreimbursed payments or disbursements made by the Lenders and
the Agent under or in respect of any letters of credit issued pursuant to the
Credit Agreement.
"Reportable Event" means an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV of ERISA other than
those events as to which the 30-day notice period is waived under subsection
.13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 4043.
"Required Holders" shall mean, at any time, Noteholders of at least
50.1% of the aggregate principal amount of the Notes then outstanding.
"Required Lenders" shall mean the "Required Banks" under the Credit
Agreement.
"Restricted Investment" means an investment other than a Permitted
Investment.
"Restricted Subsidiary" shall mean any Subsidiary of the Company which
is not an Unrestricted Subsidiary; provided, however, that upon the occurrence
of any Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such
Subsidiary shall be included in the definition of "Restricted Subsidiary."
"Restricted Payment" shall have the meaning set forth in Section 6.10.
"Revolving Credit Commitment" shall mean the obligation of the Senior
Lenders to make Revolving Credit Loans and issue Facility Letters of Credit
under the Credit Agreement.
"Revolving Credit Loans" shall mean the revolving credit loans made
pursuant to the Credit Agreement.
<PAGE>
14
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time.
"Security Agreement" shall have the meaning ascribed to such term in
the Credit Agreement.
"Security Documents" shall have the meaning ascribed to such term in
the Credit Agreement.
"Senior Indebtedness" shall mean, without duplication, (i) all
Obligations of the Company at any time payable under or in respect of, the
Credit Agreement; (ii) all Debt and other obligations of the Company permitted
to be incurred by the Company under the terms of this Agreement, unless the
instrument under which such Debt is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the Notes; and (iii)
post-petition interest accruing on Indebtedness under (i) and (ii) above, at the
applicable contract rate (including the default rate), after the filing of a
petition initiating any bankruptcy, insolvency or similar proceeding, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding. Notwithstanding the foregoing, the term Senior Indebtedness shall
not include (a) Debt of the Company which, when incurred and without respect to
any election under Section 1111(b) of Title 11, United States Code, was without
recourse to the Company, (b) any Debt of the Company to an Affiliate of the
Company (including Subsidiaries), (c) any Debt of the Company incurred in
violation of this Agreement, (d) Debt to any officer, director or employee of
the Company, (e) Trade Payables, (f) Debt evidenced by the Notes, (g) Capital
Stock of the Company, (h) any liability for federal, state, or other taxes owed
or owing by the Company and (i) any Debt, guarantee or obligation of the Company
which is subordinate or junior in right to any other Debt, guarantee or
obligation of the Company.
"Senior Lenders" shall mean each of the banks or financial
institutions which have commitments or outstanding amounts under the Credit
Agreement.
"Senior Loans" shall have the meaning ascribed to "Loans" under the
Credit Agreement.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the Closing Date.
"Solvent" shall mean, with respect to any Person on a particular date,
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liabilities of such Person on its debts as they become absolute
<PAGE>
15
and matured, (c) such Person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in a business or a transaction, and is not about to engage
in a business or transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged.
"Southern" shall mean J.E. Hanger Inc. of Georgia, a Georgia
corporation, and its successors.
"Southern Financial Statements" shall have the meaning ascribed to
such term in Section 3.5(a).
"Specified Senior Indebtedness" shall mean all Senior Indebtedness
from time to time outstanding under the Credit Agreement.
"Subordinated Indebtedness" means any Debt of the Company which is by
its terms subordinated in right of payment to the Notes.
"S&P" means Standard and Poor's Ratings Group.
"Subordinated Obligations" shall mean all Obligations payable under
the documentation governing the Notes, including, without limitation, any
amounts received upon the exercise of rights of recision or other rights of
action (including claims for damages) or otherwise, to the extent relating to
the purchase price of the Notes.
"Subsequent Notes" shall have the meaning ascribed to such term in
Section 7.3(c).
"Subsidiary" shall mean, with respect to any Person, any corporation,
association, partnership, joint venture, joint adventure or other business
entity whether now existing or hereafter organized or acquired in which such
Person or one or more Subsidiaries of such Person owns sufficient voting
securities to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity.
"Subsidiary Guarantors" shall mean the Subsidiaries of the Company
from time to time parties to the Subsidiary Guaranty Agreement and their
respective successors.
"Subsidiary Guaranty Agreement" shall mean the Subsidiary Guaranty
Agreement dated as of November l , 1996 among the Subsidiary Guarantors and the
Purchasers listed on the signature pages thereto, substantially in the form of
Exhibit B hereto.
<PAGE>
16
"Trade Payable" shall mean accounts payable or any other indebtedness
or monetary obligations to trade creditors created or assumed by the Company or
any Subsidiary of the Company in the ordinary course of business in connection
with the obtaining of materials or services.
"Transactions" means the transactions contemplated by the Basic
Documents.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the plan.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
which at the time of determination is an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below) and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the Company
may designate any Subsidiary of the Company (including any Subsidiary and any
newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary
unless such subsidiary owns any Equity Interests of, or owns, or holds any Lien
on, any property of, any Subsidiary of the Company (other than any Subsidiary of
the Subsidiary to be so designated), provided that (a) any Unrestricted
Subsidiary must be an entity of which shares of the capital stock or other
equity interests (including partnership interests) entitled to cast at least a
majority of the votes that may be cast by all shares or equity interests having
ordinary voting power for the election of directors or other governing body are
owned, directly or indirectly, by the Company, (b) the Company certifies that
such designation complies with Section 6.10 and (c) each of (II) the Subsidiary
to be so designated and ([1) its Subsidiaries has not at the time of
designation, and does not thereafter, create, incur, issue, assume, guarantee or
otherwise become directly or indirectly liable with respect to any Debt pursuant
to which the lender has recourse to any of the assets of the Company or any of
its Restricted Subsidiaries. The Board of Directors may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that,
immediately after giving effect to such designation, the Company could incur at
least $1.00 of additional Debt pursuant to the Fixed Charge Coverage Ratio test
described under Section 6.10 on a pro forma basis taking into account such
designation.
"Voting Stock" means stock of the class or classes pursuant to which
the holders hereof have the general voting power under ordinary circumstances to
elect at least a majority of the board of directors, managers or trustees of a
corporation (irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency).
"Warrants" shall mean (a) the Warrant, dated as of November 1, 1996,
between the Company and CVCA and (b) the Warrant, dated as of November 1, 1996,
between the Company and Paribas Principal, Inc., each substantially in the form
of Exhibit B hereto, and any Warrants issued upon transfer, division or
combination thereof, or in substitution therefor.
<PAGE>
17
"Warrantholder" shall mean any person holding a Warrant.
"Weighted Average Life to Maturity" means, when applied to any Debt or
Disqualified Stock, as the case may be, at any date, the number of years
obtained by dividing (a) the sum of the products obtained by multiplying (x) the
amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment,
by (b) the then outstanding principal amount or liquidation preference, as
applicable, of such Debt or Disqualified Stock, as the case may be.
"Wholly-Owned" shall mean, as applied to any Subsidiary, a Subsidiary
all the outstanding shares (other than directors' qualifying shares, if required
by law) of every class of stock of which are at the time owned by the Company or
by one of the Wholly-Owned Subsidiaries or by the Company and one or more
Wholly-Owned Subsidiaries.
"Wholly Owned Restricted Subsidiary" is any Wholly Owned Subsidiary
that is a Restricted Subsidiary.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such
Person 95% of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
SECTION 1.2. Accounting Terms and Determinations. (a) Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Noteholders hereunder shall
(unless otherwise disclosed to the Noteholders in writing at the time of
delivery thereof in the manner described in paragraph (b) below) be prepared, in
accordance with GAAP. All calculations made for the purposes of determining
compliance with the provisions of this Agreement shall (except as otherwise
expressly provided herein) be made by application of GAAP applied on a basis
consistent with those used in the preparation of the financial statements
furnished to the Noteholders pursuant to Section 6.1 hereof (or at any time
prior to the delivery of the initial such financial statements, consistent with
those in effect on the date hereof).
(b) To enable the ready and consistent determination of compliance
with the covenants set forth herein, unless otherwise required by law, the
Company will not change the last day of its Fiscal Year, or its Fiscal Quarters
as defined herein.
ARTICLE II
PURCHASE AND SALE OF NOTES AND WARRANTS
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18
SECTION 2.1. Commitments to Purchase Notes. (a) Upon the basis of the
representations and warranties herein contained of each Purchaser, but subject
to the terms and conditions hereinafter stated, the Company agrees to issue and
sell to each Purchaser listed on the signature pages hereto and each Purchaser,
upon the basis of the representations and warranties herein contained of the
Company, but subject to the terms and conditions hereinafter stated, agrees
severally but not jointly, to purchase from the Company the principal amount of
Notes and set forth below such Purchaser's name on the signature pages hereof.
(b) The purchase price for the Notes shall, in the case of each
Purchaser, be the principal amount of Notes being purchased by such Purchaser.
SECTION 2.2. Commitments to Warrants. Upon the basis of the
representations and warranties herein contained of each Purchaser, but subject
to the terms and conditions hereinafter stated, the Company agrees to issue to
each Purchaser listed on the signature pages hereto the Warrants for the number
of shares set forth below such Purchaser's name on the signature pages hereof.
SECTION 2.3. The Closing. (a) The purchases and sales of the Notes and
the issuance of the Warrants will both take place at a closing (the "Closing")
at the offices of White & Case, 1155 Avenue of the Americas, New York, New York,
at 9:00 a.m., New York City time on November 1, 1996 or on such other Business
Day thereafter as agreed upon by the Company and the Purchasers. The Company
shall notify the Purchasers of the date and time of the Closing not less than
two Business Days prior to the date thereof (or within such other time period as
the parties hereto may agree). The date and time of Closing are referred to
herein as the "Closing Date."
(b) Each Purchaser shall, not later than the Closing Date, deliver to
the Company in immediately available funds an amount equal to the aggregate
purchase price of the Notes being purchased by such Purchaser from the Company.
(c) At the Closing, the Company shall deliver to each Purchaser, (a)
the Warrants (b) against payment of the purchase price therefor Notes in
definitive form and registered in such names and in such denominations as such
Purchaser shall have requested not later than one Business Day prior to the
Closing Date. The authorized denominations for the Notes are $1,000,000 and any
larger multiple of $100,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to each Purchaser that as
of the date hereof and after giving effect to the Acquisition and the other
transactions contemplated hereby and thereby:
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19
SECTION 3.1 Incorporation, Standing, etc. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority (i) to own
and operate its properties, (ii) to carry on its business as now conducted and
as proposed to be conducted following the Acquisition, (iii) to enter into this
Agreement, the Acquisition Agreement and the Subsidiary Guarantee Agreement,
(iv) to issue and sell the Notes, (v) to issue the Warrants and (vi) to carry
out the terms of the Basic Documents.
SECTION 3.2. Capitalization; Ownership. Immediately following the
Acquisition, the authorized capital stock of the Company will consist of (i)
25,000,000 shares of Common Stock, of which (a) 9,315,634 shares (including
1,000,000 shares issued in connection with the Acquisition) will be outstanding
and validly issued, fully paid and nonassessable, (b) 1,600,000 shares will be
reserved for issuance upon exercise of the Warrants, (c) 480,000 shares will be
reserved for issuance upon the exercise of options granted under the Company's
1991 Stock Option Plan at an exercise price of the market price of Common Stock
as of the date hereof, (d) 100,000 shares will be reserved for issuance upon the
exercise of options granted to the Company's management under the Company's 1991
Stock Option Plan at an exercise price of the market price of Common Stock as of
the date hereof, (e) 153,945 shares will be reserved for issuance upon the
exercise of warrants exercisable through December 31, 2001 at a price of $4.16
per share, (f) 322,699 shares will be reserved for issuance upon the exercise of
warrants exercisable through December 31, 2001 at a price of $7.65 per share,
(g) 773,950 shares will be reserved for issuance upon the exercise of options
granted under the Company's 1991 Stock Option Plan at prices ranging from $2.75
to $12.25 per share, (h) 113,750 shares will be reserved for issuance upon the
exercise of options granted under the Company's 1993 Non-Employee Directors
Stock Option Plan at prices ranging from $3.00 to $6.00 per share and (i) 70,000
shares will be reserved for issuance upon the exercise of non-qualified options
granted other than pursuant to the Company's 1991 Stock Option Plan or the
Parent's 1993 Non-Employee Directors Stock Option Plan and exercisable at prices
ranging from $3.00 to $12.00 per share; (ii) 300 shares of Class C Preferred
Stock, par value $.0l per share, of which 300 shares will be outstanding and
validly issued to the Persons listed in Schedule 3.2 hereto and will be fully
paid and nonassessable and (iii) 100,000 shares of Class F Preferred Stock, par
value $.0l per share, of which no shares will be outstanding. Schedule 3.2
hereto lists the Persons who will hold more than 5% of any class of such capital
stock immediately following the Acquisition. Except as set forth above, no
shares of capital stock or other equity securities of the Company are issued,
reserved for issuance or outstanding. All outstanding shares of capital stock of
the Company are, and all shares which may be issued pursuant to the Company's
stock option plans in existence on the date hereof will be, when issued, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. Except as set forth above, there are no outstanding bonds,
debentures, notes or other indebtedness or other securities of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of the Company
may vote. Except as set forth above, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company or any of its subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold,
<PAGE>
20
additional shares of capital stock or other equity or voting securities of the
Company or of any of its subsidiaries or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security, option,
warrant, call, right, commitment, agreement, arrangement or undertaking.
SECTION 3.3. Subsidiaries. Schedule 3.3 correctly lists as to each
Subsidiary of the Company (a) its name, (b) the jurisdiction of its
incorporation, (c) the percentage of its issued and outstanding shares owned by
the Company or another such Subsidiary (specifying such other Subsidiary), and
(d) whether it is a Restricted Subsidiary of the Company. Each such Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
and authority to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted following the Acquisition and to
enter into the Subsidiary Guaranty Agreement to which such Subsidiary is a
party. All the outstanding shares of capital stock of each Subsidiary of the
Company are validly issued, fully paid and nonassessable, and all such shares
indicated in Schedule 3.3 as owned by the Company or by any other such
Subsidiary are so owned beneficially and of record by the Company or by such
other Subsidiary free and clear of any Lien except as contemplated hereby. The
income of Hanger Europe N.V. during its previous fiscal year represented less
than 5% of the Consolidated Net Income of the Company.
SECTION 3.4. Qualification. Each of the Company and its Subsidiaries
is duly qualified and in good standing as a foreign corporation authorized to do
business in each jurisdiction (other than the jurisdiction of its incorporation)
in which its ownership, lease or operation of property or the conduct of its
business as now conducted and as proposed to be conducted following the
Acquisition require such qualification, except those jurisdictions in which the
failure of the Company or such Subsidiary so to qualify would not, individually
or in the aggregate, have a material adverse effect on the business, operations,
affairs, condition, properties or prospects of the Company or such Subsidiary.
SECTION 3.5. Business and Financial Statements. (a) Southern has
delivered to the Purchasers complete and correct copies of (i) the audited
balance sheets of Southern as of December 31, 1994 and December 31, 1995 and the
related statements of operations for the Fiscal Years then ended and (ii) the
unaudited historical balance sheet of Southern as of June 30, 1996 and the
related statements of operations and cash flows for the period then ended
(collectively, the "Southern Financial Statements"). Except as disclosed on
Schedule 3.5, to the best knowledge of the Company, the Southern Financial
Statements have been prepared in accordance with GAAP (except as otherwise
specified therein) applied on a consistent basis throughout the periods
specified and present fairly the financial position, results of operations and
cash flows, of Southern as of the respective dates and for the respective
periods specified. The Company Projections are based on good faith estimates and
assumptions which the management of the Company and Southern believe to be
reasonable. In preparing the Company Projections, such estimates and assumptions
have been applied in a consistent manner.
<PAGE>
21
(b) The Company has delivered to the Purchasers complete and correct
copies of (i) the audited balance sheets of the Company as of December 31 1994
and December 31, 1995 and the related statement of operations and cash flows for
the Fiscal Years then ended and (ii) the unaudited historical balance sheets of
the Company as of March 31, 1996 and June 30, 1996 and the related statement of
operations and cash flows for the period then ended (collectively, the "Company
Financial Statements"). Except as disclosed on Schedule 3.5, to the best
knowledge of the Company, the Company Financial Statements have been prepared in
accordance with GAAP (except as otherwise specified therein) applied on a
consistent basis throughout the periods specified and present fairly the
financial position, results of operations and cash flows, of the Company as of
the respective dates and for the respective periods specified.
(c) The pro forma financial statements of the Company and its
subsidiaries included in the Company's Information Memorandum, dated as of
October 17, 1996, relating to the Transactions, present fairly the information
shown therein, have been prepared in accordance with the SEC's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions or circumstances referred to
therein.
SECTION 3.6. Changes, etc. (a) Since June 30, 1996, there has been no
change in the business, operations, affairs, condition, properties or prospects
of the Company and its Subsidiaries which has been materially adverse to the
Company and its Subsidiaries, other than such changes as are contemplated by or
disclosed herein. To the best knowledge of the Company, after reasonable inquiry
and review, since June 30, 1996, there has been no change in the business,
operations, affairs, conditions, properties or prospects of the Company and its
Subsidiaries which has been materially adverse to the Company and its
Subsidiaries, other than such changes as are contemplated by or disclosed
herein.
SECTION 3.7. Tax Returns and Payments. Each of the Company and its
Subsidiaries and, to the best knowledge of the Company, Southern and its
Subsidiaries has filed all tax returns required by law to be filed by them and
have paid all taxes, assessments and other governmental charges levied upon each
of the Company, Southern and their respective Subsidiaries or any of their
respective properties, assets, income or franchises which are due and payable.
There are no tax liens upon any assets of each of the Company and Southern and
their respective Subsidiaries except for statutory liens for taxes accruing but
not yet due and payable. The charges, accruals and reserves on the books of the
Company, Southern and their respective Subsidiaries in respect of federal, state
or other income taxes for all fiscal periods are adequate in all material
respects, and the Company does not know of any unpaid assessment for additional
federal, state or other income taxes for any period or any basis for any such
assessment.
SECTION 3.8. Debt. Schedule 3.8 correctly summarizes, as of the date
hereof, all Debt (other than the Notes and the Debt issued under the Credit
Agreement) of the Company and its Subsidiaries (including Southern and its
Subsidiaries) (a) outstanding, or proposed to be outstanding at the Closing and
after giving effect to the Acquisition and the
<PAGE>
22
other transactions contemplated thereby and hereby, or (b) for which the Company
and any of its Subsidiaries has commitments, or will have commitments at the
Closing and after giving effect to the Acquisition and the other transactions
contemplated thereby and hereby. As of the date hereof and after giving effect
to the Acquisition and the other transactions contemplated thereby and hereby,
neither the Company nor any of its Subsidiaries will be in default with respect
to any Debt or any instrument or agreement relating thereto, and no instrument
or agreement applicable to or binding on the Company or such Subsidiary will
contain any restriction on the incurrence by the Company or any such Subsidiary
of Debt except this Agreement and the Credit Agreement.
SECTION 3.9. Title to Properties, Liens. The Company and each
Subsidiary of the Company will have good and, in the case of real property,
marketable title to all property necessary to the conduct of its business, and
none of such properties or assets will be subject to any Liens except such as
are permitted by Section 6.12. At the time of Closing and after giving effect to
the Acquisition, the Company and each Subsidiary of the Company will enjoy
peaceful and undisturbed possession under all leases of real property on which
facilities owned or operated by them are situated, and all such leases will be
valid and subsisting and in full force and effect and no default on the part of
the Company or any Subsidiary of the Company shall exist thereunder. Except to
perfect security interests of the character permitted by Section 6.12, at the
time of the Closing and after giving effect to the Acquisition and the other
transactions contemplated hereby, (i) except as described in Schedule 3.9, no
presently effective financing statement under the Uniform Commercial Code which
names the Company or any Subsidiary of the Company as debtor or lessee will be
on file in any jurisdiction in which the Company or any Subsidiary of the
Company will own or lease real property or in which the inventory of the Company
or any Subsidiary of the Company will be located after the Acquisition or, to
the Company's best knowledge, in any other jurisdiction, except financing
statements in respect of Liens which will be discharged prior to or concurrently
with the Acquisition, and (ii) except as described in Schedule 3.9, neither the
Company nor any Subsidiary of the Company has signed any presently effective
financing statement or any presently effective security agreement authorizing
any secured party thereunder to file any such financing statement.
SECTION 3.10. Litigation. Except as described in Schedule 3.10 there
is no action or proceeding pending or, to the knowledge of the Company,
threatened (or any basis therefor known to the Company) or to the best knowledge
of the Company, any investigation which questions the validity of the Basic
Documents, or any action taken or to be taken pursuant to the Basic Documents,
or which is reasonably likely to result, either in any case or in the aggregate,
in any adverse change in the business, operations, condition, properties or
prospects of the Company and its Subsidiaries, taken as a whole, or in any
material liability on the part of the Company or any Subsidiary of the Company.
SECTION 3.11. Compliance with Other Instruments. (a) Neither the
execution, delivery or performance by the Company, Southern or any of their
Subsidiaries of any the Basic Documents to which any of them are a party, nor
compliance by any of them with the terms and provisions thereof, (i) will
contravene any provision of any applicable law, statute, rule or regulation or
any order, writ, injunction or decree of any court or
<PAGE>
23
governmental instrumentality, (ii) will conflict with or result in any breach of
any of the terms, covenants, conditions or provisions of, or constitute a
default under, or result in the creation or imposition or (or the obligation to
create or impose) any Lien (except pursuant to the Credit Agreement) upon any of
the property or assets of the Company, Southern or any of their Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement or loan agreement, or any other agreement, contract or instrument to
which the Company, Southern or their Subsidiaries is a party or by which it or
any of their property or assets is bound or to which they my be subject or (iii)
will violate any provision of the Certificate of Incorporation of By-Laws (or
similar organizational documents) of the Company, Southern or any of their
Subsidiaries.
(b) On the date hereof and after giving effect to the Acquisition and
the other transactions contemplated hereby, neither the Company nor any
Subsidiary of the Company will be in violation of any term of any agreement or
instrument to which it is a parry or by which it is bound, or any applicable
law, ordinance, rule or regulation of any governmental authority, or of any
applicable order, judgment or decree of any court, arbitrator or governmental
authority (including, without limitation, any such law, ordinance, rule,
regulation, order, judgment or decree relating to environmental protection and
pollution control, occupational health and safety requirements), the consequence
of any of which violation is reasonably likely to have a material adverse effect
on the business, operations, condition, properties or prospects of the Company
and its Subsidiaries taken as a whole. Neither the execution, delivery and
performance of the Basic Documents nor the consummation of the Acquisition and
the other transactions contemplated hereby or thereby will result in any
violation of or be in conflict with or constitute a default under any such term
or result in the creation of (or impose any obligation on the Company or any of
its Subsidiaries to create) any Lien upon any of the properties of the Company
or any of its Subsidiaries pursuant to any such term other than the Security
Documents; and there are no such terms which, either in any case or in the
aggregate, material adversely affect, or in the future is reasonably likely to
materially adversely affect, the business, operations, condition, properties or
prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.12. Governmental Consents. Except as disclosed in Schedule
3.12, no consent, approval or authorization of, or declaration or filing with,
any governmental authority on the part of the Company or any of its Subsidiaries
is required for the valid execution and delivery of the Basic Documents, or the
consummation of the Acquisition and the other transactions contemplated thereby
or hereby, or the valid offer, issue, sale and delivery of the Notes pursuant
hereto.
SECTION 3.13. Permits, Patents, Trademarks, etc. (a) The Company,
together with its Subsidiaries, has a license to use or otherwise has the right
to use, free and clear of pending or threatened Liens, all the material patents,
patent applications, trademarks, service marks, trade names, trade secrets,
copyrights, proprietary information, computer programs, data bases, licenses,
franchises and formulas, or rights with respect to the foregoing (collectively,
"Intellectual Property"), and has obtained all licenses and other rights of
whatever nature, necessary for the present conduct of its business, without any
known conflict with the rights of others which, or the failure to obtain which,
as the case may be, could
<PAGE>
24
reasonably be expected to have a material adverse effect on the performance,
business, assets, nature of assets, liabilities, operations, properties,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole.
(b) The Company, together with its Subsidiaries, has the right to
practice under and use all Intellectual Property used in connection with
Southern which Southern had a right to practice under and use immediately prior
to the Acquisition.
(c) Neither the Company nor any of its Subsidiaries has knowledge of
any claim by any third party contesting the validity, enforceability, use or
ownership of the Intellectual Property, or of any existing state of facts that
would support a claim that use by the Company or any of its Subsidiaries of any
such Intellectual Property has infringed or otherwise violated any Intellectual
Property right of any other Person and that to the best knowledge of the Company
and its Subsidiaries no claim is threatened except for such claims that could
not individually or in the aggregate reasonably be expected to have a material
adverse effect on the performance, business, assets, nature of assets,
liabilities, operations, properties, condition (financial or otherwise) or
prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.14. Representations in Acquisition Agreement. To the best
knowledge of the Company, the representations and warranties made in and
pursuant to the Acquisition Agreement by Southern were true and correct in all
material respects when made, are true and correct in all material respects as of
the date hereof, and will be true and correct in all material respects as of the
Closing, and such representations and warranties made by Southern are hereby
incorporated herein by reference with the same effect as though set forth herein
in their entirety.
SECTION 3.15. Offer of Notes. Neither the Company nor any Person
acting on its behalf has directly or indirectly offered the Notes or any part
thereof or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
anyone other than the Purchasers. Neither the Company nor any Person acting on
its behalf has taken or will take any action which would subject the issuance
and sale of the Notes to the provisions of Section 5 of the Securities Act, or
to the provisions of any state securities law requiring registration of
securities, notification of the issuance or sale thereof or confirmation of the
availability of any exemption from such registration.
SECTION 3.16. Federal Reserve Regulations. Neither the Company nor any
of its Subsidiaries will, directly or indirectly, use any of the proceeds of the
sale of the Notes or the Warrants, as the case may be, for the purpose, whether
immediate, incidental or ultimate, of buying any "margin stock" or of
maintaining, reducing or retiring any Debt originally incurred to purchase a
stock that is currently any "margin stock", or for any other purpose which might
constitute this transaction a "purpose credit", in each case within the meaning
of Regulation G of the Board of Governors of the Federal Reserve System (12
C.F.R. 207, as amended), or Regulation U of such board (12 C.F.R. 221, as
amended), or otherwise take or permit to be taken any action which would involve
a violation of such
<PAGE>
25
Regulation G or Regulation U or of Regulation T (12 CF.R. 220, as amended) or
Regulation X (12 C.F.R. 224, as amended) or any other regulation of such board.
No Debt being reduced or retired out of the proceeds of the sale of the Notes or
the Warrants, as the case may be, was incurred for the purpose of purchasing or
carrying any such "margin stock", and neither the Company nor any of its
Subsidiaries owns or has any present intention of acquiring any such "margin
stock."
SECTION 3.17. Status Under Certain Federal Statutes. The Company is
not (a) a "holding company" or a "subsidiary company" of a "holding company", or
an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility", as such term is defined in the Federal
Power Act, as amended, or (c) an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended. Neither the Company nor any of its Subsidiaries is a "rail
carrier", or a "person controlled by or affiliated with a rail carrier", within
the meaning of Title 49 U.S.C., and the Company is not a "carrier" to which 49
U.S.C. Section 11301(b)(l) is applicable.
SECTION 3.18. Compliance with ERISA. (a) Neither the Company, Southern
nor any of their Subsidiaries has breached the fiduciary rules of ERISA or
engaged in any prohibited transaction with respect to the assets of any Plan in
connection with which the Company, Southern or any of their Subsidiaries could
be subjected to or incur liability in respect of (in the case of any such
breach) a suit for damages or (in the case of any such prohibited transaction)
either a civil penalty assessed under section 502(i) of ERISA or a tax imposed
by section 4975 of this Code, which suit, penalty or tax, in any case, would be
materially adverse to the Company and its Subsidiaries, taken as a whole.
(b) Neither the Company, Southern nor any Related Person has incurred
nor do any of them expect to incur any liability to the PBGC, other than for the
payment of premiums, or to any Plan, other than for the payment of contributions
in the ordinary course. Each Plan is in compliance in all material respects
with, and has been operated and administered in accordance with the applicable
provisions of, ERISA, the Code and any other applicable Federal or state law
except to the extent the failure to so comply, or to so operate or administer
any such Plan, would not be materially adverse to the Company and its
Subsidiaries, taken as a whole.
(c) Full payment has been timely made of all amounts which the
Company, Southern or any Related Person is required under applicable law, the
terms of each Plan or any applicable collective bargaining agreement to have
paid as contributions to such Plan as of the date hereof and no accumulated
funding deficiency (as defined in section 302 of ERISA or section 412 of the
Code), whether or not waived, has occurred or is expected to occur with respect
to any Plan (other than a Multiemployer Plan or a "multiple employer Plan").
Neither the Company, Southern nor any Related Person is subject to any lien
arising under ERISA or Section 412(n) of the Code. The present value of the
benefit liabilities (whether or not vested) under each Plan subject to Title IV
of ERISA (other than a Multiemployer Plan or a "multiple employer Plan") did not
exceed the current value of the
<PAGE>
26
assets of such Plan allocable to such benefit liabilities by more than $l00,000
and the aggregate present value of the benefit liabilities under all Plans
subject to Title IV of ERISA (other than Multiemployer Plans and "multiple
employer Plans") did not exceed the current value of the assets of such Plans,
in all cases, determined as of the end of such Plans' most recently ended plan
year on the basis of actuarial assumptions which would be used in a termination
of such Plan. The terms "benefit liabilities" and "current value" have the
respective meanings specified in section 3 or 4001 of ERISA, as applicable.
(d) Except as set forth in Schedule 3.18, neither the Company,
Southern nor any Related Person is or has ever been obligated to contribute to
any "multiple employer plan" (within the meaning of section 4063 of ERISA) or to
any Multiemployer Plan.
(e) The execution and delivery of this Agreement and the Subsidiary
Guaranty Agreement, and the issue and sale of the Notes hereunder will not
constitute any transaction which is subject to the prohibitions of section 406
of ERISA or in connection with which a tax could be imposed pursuant to section
4975 of the Code. The representation by the Company in the preceding sentence is
made in reliance upon and subject to the accuracy of the representation in
Section 4.3 as to the source of the funds used to pay the purchase price of the
Notes purchased by the Purchasers.
SECTION 3.19. Solvency. The Company is, and immediately after the
Closing (after giving effect to the Transactions) will be, Solvent.
SECTION 3.20. Disclosure. Neither this Agreement, the Financial
Statements, the Pro Forma Financial Statements nor any other document,
certificate or instrument delivered to you by or on behalf of the Company in
connection with the transactions contemplated hereby, all such information taken
as a whole, contains (in the case of the Southern Financial Statements, to the
best knowledge of the Company) any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading. There is no fact known to the Company which
materially adversely affects or in the future is reasonably likely to have a
material adverse effect on the business, operations, condition, properties or
prospects of the Company and its Subsidiaries, taken as a whole, which has not
been set forth herein or in the other documents, certificates and instruments
delivered to the Purchasers by or on behalf of the Company specifically for use
in connection with the transactions contemplated hereby.
SECTION 3.21. Use of Proceeds. Subject to Section 12.5, the Company
will apply the proceeds of the sale of the Notes solely to refinance Debt
outstanding under the Existing Loan Documents, pay related fees, commissions and
expenses, finance ongoing working capital requirements and other general
corporate purposes of the Company and its Subsidiaries.
SECTION 3.22. Environmental Compliance. Each of the Company and its
Subsidiaries has been complying, and to the best knowledge of the Company, each
of Southern and its Subsidiaries has been complying, since its incorporation
with, and, upon consummation of the Acquisition, will be in compliance with, all
Environmental Laws in each
<PAGE>
27
jurisdiction where it has done business, is presently doing business or will be
doing business after the Acquisition and where the consequence of such violation
would have a material adverse effect on the business, operations, condition,
properties or prospects of the Company and its Subsidiaries taken as a whole.
SECTION 3.23. Note Purchase Agreement. This Agreement has been duly
authorized by all necessary corporate action on the part of the Company. This
Agreement has been executed and delivered by the Company and constitutes the
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws of general application relating to or affecting the rights and
remedies of creditors and by general principles of equity.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser severally, and not jointly, hereby represents and
warrants to the Company as follows:
SECTION 4.1. Private Placement. The Notes to be acquired by such
Purchaser pursuant to this Agreement are being acquired for its own account and
not as nominee or agent for any other Person and not for offer or sale in any
manner that would be in violation of the securities laws of the United States of
America or any state thereof, without prejudice, however, to its right at all
times to sell or otherwise dispose of all or any part of said Notes under a
registration under the Securities Act or under an exemption from such
registration available under such Securities Act. The Purchasers understand that
the Notes have not been registered under the Securities Act and may be resold
only if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such exemption is required by law, and that the
Company is not required to register the Notes.
SECTION 4.2. Margin Compliance. Such Purchaser is not relying,
directly or indirectly, on any "margin stock" (as defined in Regulation G of the
Federal Reserve Board) as collateral for the Notes.
SECTION 4.3. Accredited Investor. Such Purchaser is an "accredited"
investor within the meaning of Regulation D promulgated under the Securities
Act.
SECTION 4.4. Source of Funds. If any part of the funds to be used to
purchase the Notes constitutes assets of any employee benefit plan within the
meaning of Section 3 of ERISA, such Notes are being purchased pursuant to an
available exemption from the provisions of Section 406 of ERISA and Section 4975
of the Code.
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ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. Conditions to Purchasers' Obligations to Purchase Notes.
The obligation of each Purchaser to purchase the Notes to be purchased by it
hereunder is subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) Notes. Such Purchaser shall have received duly executed
certificates representing the Notes being purchased by such Purchaser
pursuant hereto (the "Original Notes").
(b) Warrants. Such Purchaser shall have received a duly executed
counterpart of each of the Warrants and the Company shall have complied
with all agreements on its part contained therein and delivered all
documents called for thereunder on or prior to the Closing Date.
(c) Corporate Action. Such Purchaser shall have received certified
copies of the charter and by-laws (or equivalent documents) of the Company
and each Subsidiary Guarantor and of all corporate action taken by the
Company and each Subsidiary Guarantor (including, without limitation, a
certificate of the secretary of the Company and each Subsidiary Guarantor
setting forth the resolutions of its Board of Directors authorizing the
transactions contemplated thereby) authorizing the making and performance
of each of the Basic Documents to which each of the Company and the
Subsidiary Guarantor is a party and (in the case of the Company)
authorizing the issuance of the Notes and the Warrants hereunder.
(d) Incumbency. The Company and each Subsidiary Guarantor shall have
delivered a certificate to each Purchaser in respect of each of the name
and signature of each of the officers (i) who is authorized to execute on
its behalf the Basic Documents to which it is a party and (ii) who will,
until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with such Basic
Documents (and each Purchaser may conclusively rely on such certificates
until it receives notice in writing from the Company to the contrary).
(e) Acquisition Agreement. The Acquisition Agreement shall have been
duly executed and delivered by the Company, as the case may be, and the
other parties thereto and shall be in full force and effect, and no term or
condition has been amended, modified or waived without the prior written
consent of the Purchasers. Such Purchaser shall have received copies of the
Acquisition Agreement, each as originally executed and delivered by the
parties, together with all exhibits and schedules thereto, and each
agreement, certificate, opinion of counsel or other writing required under
the Acquisition Agreement to be delivered or filed in connection with the
consummation of the Acquisition on or prior to the date hereof, each of
the foregoing documents certified as complete and correct by the Company.
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29
(f) Acquisition Certificate. Such Purchaser shall have received an
Officers' Certificate to the effect that: (i) the Acquisition Agreement as
originally executed and delivered by the parties thereto and delivered to
such Purchaser, or any provision thereof, has not been amended, waived or
otherwise modified without the prior written consent of the Purchasers; and
(ii) (x) each of the conditions precedent to the consummation of the
Acquisition contained in the Acquisition Agreement have been satisfied (or
waived with the prior written consent of the Purchasers), (y) all
governmental and third party authorization, consents, approvals, exemptions
or other actions required in connection with the Acquisition shall have
been duly received or taken; and (z) the Acquisition has been duly
consummated substantially in accordance with the terms of the Acquisition
Agreement.
(g) Adverse Litigation, Etc. There shall be no suit, action,
investigation, inquiry or other proceeding by any governmental body or any
other Person or any other legal or administrative proceeding pending or
threatened which (a) seeks to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, the
Acquisition or the financing thereof or the other transactions contemplated
hereby, or (b) is related to the Acquisition, this Agreement, the
Subsidiary Guaranty Agreement, any other Basic Document or the Notes and
would, in your reasonable opinion, have a reasonable likelihood of having a
material adverse effect on either of the parties hereto or any of the
transactions contemplated hereby or thereby.
(h) Consents. Except as set forth in Schedule 5.1(h), all necessary
governmental and third party consents and approvals in connection with the
execution, delivery, performance, validity and enforceability of each of
the Basic Documents have been obtained and are in full force and effect.
(i) Insurance. Such Purchaser shall have received an Officer's
Certificate from the Company dated the Closing Date certifying that
insurance with respect to its properties and business complying with the
provisions of Section 6.6 is in full force and effect.
(j) Credit Agreement. The Company and the Senior Lenders shall have
entered into the Credit Agreement, the terms and provisions of which shall
be satisfactory to such Purchaser, and such Purchaser shall have received
a copy of the Credit Agreement certified by the Company as being complete
and correct. The Credit Agreement shall be in full force and effect as on
the date hereof, no term or condition of the Credit Agreement or any other
document or agreement delivered pursuant to the Credit Agreement shall
have been amended, modified or waived without the prior written consent of
the Purchasers, and the Company shall have borrowed such amounts pursuant
to the Credit Agreement (not exceeding $57,000,000, which together with the
proceeds of the sale of the Notes and the Common Stock shall be sufficient
to consummate the Acquisition). The Senior Lenders shall have confirmed to
the Company that (i) the Closing Date (as defined in the Credit
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30
Agreement) has occurred and (ii) the conditions set forth in Section 5 of
the Credit Agreement have been fulfilled to their satisfaction.
(k) Capitalization. Prior to or concurrently with the Closing, (i)
pursuant to the terms of the Acquisition Agreement, the Company shall have
sold to the shareholders of Southern for cash or the fair market value of
contributed property one million shares of Common Stock for an aggregate of
$5,250,000.
(l) Financial Statements. Such Purchaser shall have received copies of
(i) the consolidated pro forma balance sheet and pro forma five-year
financial projections of the Company and its Subsidiaries as at the Closing
Date attached hereto as Schedule 5.1(l) (the "Company Projections") giving
effect to the issuance and sale of the Notes, borrowings under the Credit
Agreement, the Acquisition, the other Transactions and the other
transactions contemplated hereby, which Company Projections, pro forma
balance sheets and pro forma financial projections shall be in form and
substance satisfactory to the Purchasers and (ii) the due diligence report
by Coopers & Lybrand relating to the historical financial statements of
Southern and the pro forma financial statements provided by Southern, in
form and substance satisfactory to the Purchasers.
(m) Payment of Acquisition Costs. Such Purchaser shall have received
evidence satisfactory to such Purchaser that all Acquisition Costs required
to be paid by the Company on or prior to the Closing Date shall have been
paid.
(n) Representations and Warranties. The representations and
warranties of (i) the Company contained or incorporated herein, (ii)
Southern contained or incorporated by reference herein and (iii) of each
Subsidiary Guarantor contained or incorporated in the Subsidiary Guaranty
Agreement and otherwise made in writing by or on behalf of the Company,
Southern or any Subsidiary Guarantor in connection with the transactions
contemplated hereby shall be true and correct when made and on and as of
the Closing Date as if made on and as of such date.
(o) No Default. As of the Closing Date and after giving effect to the
Acquisition and the transactions contemplated by the Basic Documents, no
Default shall have occurred and be continuing.
(p) Performance of Basic Documents. The Company and each Subsidiary
shall have performed and complied with all agreements and conditions
required by any of the Basic Documents to be performed or complied with by
it at or prior to the Closing Date.
(q) Officers' Certificate. Such Purchaser shall have received an
Officers' Certificate from the Company dated the Closing Date (i) to the
effect set forth in subsections (o), (p) and (q) of this Section and (ii)
certifying that after giving effect to the Acquisition and the other
transactions contemplated hereby (including the sale of the Notes), the
Company will be in compliance with all limitations on the incurrence
<PAGE>
31
by the Company of Debt contained in any instrument or agreement applicable
to or binding the Company or any of its Subsidiaries.
(r) Solvency Certificate. Such Purchaser shall have received a
certificate from the chief financial officer or controller of the Company,
in the form of Exhibit K to the Credit Agreement, supporting the
conclusions that, after giving effect to the Acquisition, the Credit
Agreement, this Agreement and the transactions and financings contemplated
thereby, the Company and its subsidiaries taken as a whole are not
insolvent and will not be rendered insolvent by the Debt to be incurred in
connection with the Acquisition, the Credit Agreement, this Agreement and
the transactions and financings contemplated thereby, will not be left with
unreasonably small capital with which to engage in their respective
businesses and will not have incurred debts beyond their ability to pay such
debts as they mature.
(s) Compliance with Regulatory Matters. The offering and sale of the
Notes to be issued at the Closing, the actions to be taken in connection
with the consummation of the Acquisition on or prior to the Closing and the
other transactions contemplated hereby shall have complied with all
applicable requirements of federal, state and local laws, including,
without limitation, Regulation G of the Board of Governors of the Federal
Reserve System (12 C.F.R. 207, as amended), Regulation U of such board (12
C.F.R. 221, as amended), Regulation T of such board (12 C.F.R. 220, as
amended) or Regulation X of such board (12 C.F.R. 224, as amended), and
such Purchaser shall have received evidence thereof satisfactory to it.
(t) Compliance with Securities Laws. The offering and sale of the
Notes to be issued at the Closing and the other actions taken in connection
with the consummation of the Acquisition shall have complied with all
applicable requirements of Federal and state securities laws, and such
Purchaser shall have received evidence thereof satisfactory to it.
(u) No Contravention. The purchase of the Notes by any Purchaser shall
not violate any law, rule or regulation applicable to such Purchaser.
(v) Opinions of Counsel. Such Purchaser shall have received an opinion
dated the Closing Date and satisfactory to it of Freedman, Levy, Krill &
Simonds, counsel to the Company and the Subsidiary Guarantors,
substantially in the form of Exhibit C hereto and covering such other
matters relating to the transactions contemplated hereby as it may
reasonably request. In addition, such Purchaser shall have received copies
of the opinions delivered in connection with the Acquisition, accompanied
by letters from counsel rendering such opinions stating that such
Purchaser is entitled to rely on such opinions as if they were addressed to
such Purchaser.
(w) Subsidiary Guaranty Agreements. Such Purchaser shall have received
the Subsidiary Guaranty Agreement, duly executed by each of the Subsidiary
Guarantors party thereto.
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32
(x) Tax Assumptions, etc. Such Purchaser shall have reviewed and
determined that each of the following is satisfactory to it: (i) the
Company tax assumptions, (ii) the ownership, capital, corporate,
organizational and legal structure of the Company and its Subsidiaries and
(iii) material contracts.
(aa) No Adverse Legislation, Action or Decision, etc. No legislation
shall have been enacted by either house of Congress or by any state
legislature, no other action shall have been taken by any United States or
state or local governmental authority, whether by order, regulation, rule,
ruling or otherwise, and no decision shall have been rendered by any court
of competent jurisdiction in the United States which would materially
adversely affect the Notes or the Warrants being purchased by the
Purchasers hereunder as an investment.
(bb) Existing Loan Documents. The Company shall have satisfied in full
all amounts then due and payable under the Existing Loan Documents and the
Company shall have caused all Liens securing and all Guarantees of the
obligations thereunder to be released and terminated.
(cc) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be satisfactory to such
Purchaser and its counsel, and such Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as it or they may reasonably request.
(dd) Other Documents. Such Purchaser shall have received such other
documents relating to the transactions contemplated hereby or by any of the
Basic Documents as it may reasonably request.
(ee) Fees. The Company shall have paid to the Purchasers, for their
accounts, such other fees as have been agreed to in writing by the Company
and the Purchasers.
SECTION 5.2. Conditions to Company's Obligations to Issue and Sell the
Notes and to Issue the Warrants. The obligations of the Company to issue and
sell the Notes and to issue the Warrants pursuant to this Agreement to any
Purchaser are subject to the satisfaction, at or prior to the Closing Date, of
the following conditions:
(a) The representations and warranties of such Purchaser contained
herein shall be true and correct in all material respects on and as of the
Closing Date as if made on and as of such date, except that any such
representation or warranty stated to relate to a specific earlier date
will be true and correct as of such earlier date; and
(b) Such Purchaser shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by such Purchaser at or prior to the Closing Date.
<PAGE>
33
ARTICLE VI
COVENANTS
The Company hereby agrees as follows for the benefit of each Noteholder
for so long as any amount is payable with respect to any Note of which it is the
Holder:
SECTION 6.1. Financial Statements, etc. The Company will deliver to each
Noteholder holding Notes on the date hereof so long as such Noteholder or its
nominee shall hold any Notes and to any other Noteholder holding at least
$250,000 outstanding principal amount of Notes at the time outstanding:
(a) as soon as practicable, and in any event within 45 days after the
end of each fiscal month in each Fiscal Year, the consolidated balance
sheet of the Company and the Restricted Subsidiaries as at the end of such
period and the related consolidated statements of income of the Company
and the Restricted Subsidiaries for such period and setting forth in
comparative form the consolidated historical figures for the corresponding
periods of the previous Fiscal Year (or, in the case of the balance sheet,
at the end of the previous Fiscal Year) and the corresponding figures
included in the Company Projections, all in reasonable detail and certified
as complete and correct by the chief financial officer of the Company and
as fairly presenting the financial condition and results of operation of
the Company and its Restricted Subsidiaries in accordance with GAAP,
consistently applied, as at the end of, and for, such period (subject to
normal year-end audit adjustments and the omission of footnotes), and (ii)
as soon as practicable, and in any event within 45 days after the end of
each fiscal month in each Fiscal Year, the consolidated balance sheet of
the Unrestricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and of cash flows
of the Unrestricted Subsidiaries for such period and (in the case of the
first eleven calendar months in any Fiscal Year) for the period from the
beginning of such Fiscal Year to the end of such fiscal month, setting
forth in comparative form the consolidated figures for the corresponding
periods of the previous Fiscal Year (or, in the case of the balance sheet,
at the end of the previous Fiscal Year), all in reasonable detail and
certified as complete and correct by the chief financial officer of the
Company and as fairly presenting the financial condition and results of
operation of the Company and its Unrestricted Subsidiaries in accordance
with GAAP, consistently applied, as at the end of, and for, such period
(subject to normal year-end audit adjustments and the omission of
footnotes);
(b) within 60 days after the end of each of the first three Fiscal
Quarters in each Fiscal Year, the consolidated balance sheet of the Company
and the Restricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and cash flows and
changes in financial position of the Company and the Restricted
Subsidiaries for such period and (in the case of the second and third
Fiscal Quarters) for the period from the beginning of the current
<PAGE>
34
Fiscal Year to the end of such Fiscal Quarter, setting forth in comparative
form the consolidated figures for the corresponding periods of the previous
Fiscal Year (or, in the case of such balance sheet, at the end of the
previous Fiscal Year) and setting forth in each case comparisons with the
Company Projections for the period for which such financial statements are
being provided, all in reasonable detail and certified as complete and
correct by the chief financial officer of the Company and as fairly
presenting the financial condition and results of operation of the Company
and its Restricted Subsidiaries in accordance with GAAP, consistently
applied, as at the end of, and for, such period (subject to normal year-end
audit adjustments and the omission of footnotes);
(c) within 120 days after the end of each Fiscal Year, the
consolidated balance sheet of the Company and the Restricted Subsidiaries
as at the end of such year and the related consolidated statements of
income and retained earnings and cash flows and changes in financial
position of the Company and the Restricted Subsidiaries for such Fiscal
Year, setting forth in each case in comparative form the consolidated
figures for the previous Fiscal Year, all in reasonable detail and in the
case of such consolidated financial statements, accompanied by an
unqualified report thereon of Coopers & Lybrand or other independent public
accountants of recognized national standing selected by the Company, which
report shall state that such financial statements present fairly the
financial position of the Company and the Restricted Subsidiaries as at the
dates indicated and the results of their operations and cash flows for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior years (except as otherwise specified in such report) and that
the audit by such accountants in connection with such financial statements h
as been made in with generally accepted auditing standards;
(d) within 60 days after the end of each of the first three Fiscal
Quarters in each Fiscal Year, the consolidated balance sheets of the
Unrestricted Subsidiaries as at the end of such period and the related
consolidated statements of income and retained earnings and cash flows of
the Unrestricted Subsidiaries for such period and (in the case of the
second and third Fiscal Quarters) for the period from the beginning of the
current Fiscal Year to the end of such Fiscal Quarter, setting forth in
comparative form the consolidated figures for the corresponding periods of
the previous Fiscal Year (or, in the case of such balance sheets, at the
end of the previous Fiscal Year), all in reasonable detail and certified
as complete and correct by the chief financial officer of the Company;
(e) within 120 days after the end of each Fiscal Year, the
consolidated balance sheet of the Unrestricted Subsidiaries as at the end
of such year and the related consolidated statements of income and
retained earnings and cash flows of the Unrestricted Subsidiaries for such
Fiscal Year, setting forth in each case in comparative form the
consolidated figures for the previous Fiscal Year, all in reasonable
detail and in the case of such consolidated financial statements,
accompanied by the report thereon of Coopers & Lybrand or other independent
public accountants of recognized national standing selected by the Company,
which report
<PAGE>
35
shall state that such financial statements present fairly the financial
position of the Unrestricted Subsidiaries as at the dates indicated and the
results of their operations and cash flows for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years (except
as otherwise specified in such report) and that the audit by such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards;
(f) together with each delivery of financial statements pursuant to
subdivisions (b), (c), (d) and (e) above, an Officers' Certificate (i)
stating that the signers have reviewed the terms hereof and of the Notes
and have made, or caused to be made under their supervision, a review of
the transactions and condition of the Company and its Subsidiaries during
the accounting period covered by such financial statements and that such
review has not disclosed the existence during or at the end of such
accounting period, and that the signers do not have knowledge of the
existence as at the date of such Officers' Certificate, of any condition or
event which constitutes a Default or Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken or is taking or
proposes to take with respect thereto, and (ii) demonstrating in reasonable
detail compliance during and at the end of such accounting period with the
restrictions contained in this Agreement;
(g) as soon as available, and in any event within 60 days after the
end of each Fiscal Year, a financial plan of the Company and its
Subsidiaries consisting of the operating budget, proposed capital
expenditures, and projected cash flow and profit and loss statements on a
quarterly and month-by-month basis for the immediately succeeding Fiscal
Year, in form customarily prepared by the Company, such budget and
projections to be accompanied by an Officer's Certificate specifying the
assumptions on which budget and projections were prepared and stating that
such officer has no reason to question the reasonableness of any material
assumptions on which such budget and projections were prepared;
(h) promptly upon receipt thereof, copies of all reports submitted to
the Company by independent public accountants in connection with each
annual, interim or special audit of the books of the Company or any of its
Subsidiaries made by such accountants, including, without limitation, any
comment letter submitted to management by such accountants in connection
with their annual audit and any report as to material inadequacies in
accounting controls (including reports as to the absence of any such
inadequacies) submitted by independent public accountants in connection
with any audit of the Company or any of its Subsidiaries;
(i) promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its public security holders (if any) or by any
Subsidiary of the Company to its security holders other than the Company
or another Subsidiary, of all regular and periodic reports and all
registration statements (other than on Form S-8) and prospectuses filed by
the Company or any such Subsidiary with any securities
<PAGE>
36
exchange or with the SEC or any governmental authority succeeding to any
of its functions, and of all press releases and other written statements
made available generally by the Company or any such Subsidiary to the
public concerning material developments in the business of the Company or
such Subsidiary;
(j) promptly and in any event, within 5 days of any officer of the
Company obtaining knowledge of any condition or event which constitutes a
Default or Event of Default, or that the holder of any Note has given any
notice or taken any other action with respect to a claimed default
hereunder, or that any Person has given any notice to the Company or any
of its Subsidiaries or taken any other action with respect to a claimed
default of the type referred to in Section 7.6(e), an Officers'
Certificate describing the same and the period of existence thereof and
specifying what action the Company has taken or is taking or proposes to
take with respect thereto;
(k) as soon as possible and, in any event, within ten (10) days after
the Company, any Subsidiary of the Company or any Related Person knows or
has reason to know of the occurrence of any of the following, a certificate
of the chief financial officer of the Company setting forth the full
details as to such occurrence and the action, if any that the Company, such
Subsidiary or such Related Party is required or proposes to take, together
with any notices required or proposed to be given to or filed with or by
the Company, the Subsidiary, the Related Party, the PBGC, a Plan
participant of the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency,
within the meaning of Section 412 of the Code of Section 302 of ERISA, has
been incurred or any application may be or has been made for a waiver or
modification of the minimum funding standard (including any required
installment payments) or an extension of any amortization period under
Section 412 of the Code or Section 303 or 304 of ERISA with respect to a
Plan; that any contribution required to be made with respect to a Plan has
not been timely made; that a Plan has been or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA;
that a Plan has an Unfunded Current Liability; that proceedings may be or
have been instituted to terminate or appoint a trustee to administer a Plan
which is subject to Title IV of ERISA; that a proceeding has been
instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the Company, any Subsidiary of the Company or
any ERISA Affiliate will or may incur any liability (including any
indirect, contingent, or secondary liability) to or on account of the
termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
6069, 4201, 4204 or 4212 or ERISA or with respect to a Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code of Section 409 or 502(i) or
502(l) of ERISA or with respect to a group health plan (as defined in
Section 607(l) of ERISA or Section 4980B(g)(2) of the Code) under Section
4980B of the Code; or that the Borrower or any Subsidiary of the Borrower
may incur any material liability pursuant to any employee welfare benefit
plan (as defined in Section 3(l) of ERISA) that provides benefits to
retired employees or other former employees (other than as required by
Section 601 of ERISA) or any Plan. The company will deliver to each
Noteholder a complete copy of the annual report (on Internal Revenue
Service Form 5500-series) of each Plan (including, to the extent required,
the related
<PAGE>
37
financial and actuarial statements and opinions and other supporting
statements, certifications, schedules and information) required to be filed
with the Internal Revenue Service. In addition to any certificates or
notices delivered to the Noteholders pursuant to the first sentence hereof,
copies of annual reports and any material notices received by the Company,
any Subsidiary of the Company and any Related Party with respect to any
Plan shall be delivered to the Noteholders no later than ten (10) days
after the date such report has been filed with the Internal Revenue
Services or such notice has been received by the Company, the Subsidiary
or the Related Party, as applicable.
(l) promptly upon the occurrence of any of the following events, an
Officers' Certificate describing such event: (i) the Company or any
Subsidiary of the Company shall have filed any amendment to its charter
documents or changed its jurisdiction of incorporation, or (ii) the Company
or any Subsidiary of the Company shall have changed its corporate name, or
(iii) the Company or any Subsidiary of the Company shall have changed its
principal place of business or its chief executive offices, or (iv) the
Company or any Subsidiary of the Company shall have become a party to any
suit, action or proceeding which, if adversely determined, would have a
materially adverse effect on the business, operations, condition,
properties or prospects of the Company and its Subsidiaries taken as a
whole, or (v) the Company or any of its Subsidiaries shall have opened or
closed other than in the ordinary course of business any material place of
business, or (vi) any strike, walkout, work stoppage or other material
employee disruption relating to any plant or facility owned or leased by
the Company or any of its Subsidiaries, or the expiration of any labor
contract to which the Company or any of its Subsidiaries is a party or by
which it is bound (unless there exists a new labor contract in substitution
therefor), or (vii) the Company or any of its Subsidiaries shall have
obtained knowledge that any of its insurance policies will be cancelled or
not renewed and such cancellation or failure to renew could have a material
adverse effect on the business, operations, condition, properties or
prospects of the Company or any of its Subsidiaries (unless there exists,
or the Company or such Subsidiary reasonably expects to obtain upon such
policy's termination, a similar insurance policy in substitution therefor);
(m) as soon as practicable and in any event no later than December 31,
1996, a copy of the unaudited balance sheet of the Company at the time of
the Closing after giving effect to the Acquisition and the other
transactions contemplated hereby, certified as fairly presenting the
condition of the Company in all material respects (subject to year end
adjustments and the omission of footnotes) by the chief financial officer
of the Company;
(n) on or before April 15 of each year and at such other times as any
holder of Notes may reasonably request, a statement setting forth the
amount, if any, of any distribution with respect to any stock of the
Company made or deemed to be made pursuant to the Code during the calendar
year preceding such year that constitutes a dividend within the meaning of
section 316 of the Code, and promptly after request the certification
referred to in Treasury Regulations section 1.897-2(h) to the
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38
effect that the interest of such holder in the Company is not a United
States real property interest;
(o) within 5 days after receipt by the Company of a written request
from any Noteholder holding Notes on the date hereof, so long as such
Noteholder or its nominee shall be a Noteholder, or any other holder of at
least 1,000,000 principal amount of Notes at the time outstanding, the
Company shall request, and promptly upon receipt thereof, provide to all
holders of the Notes, the most current statement of withdrawal liability
from each Multiemployer Plan provided that the Company shall not be
obligated to request or deliver such statement for any Multiemployer Plan
more than once in any Fiscal Year; and
(p) with reasonable promptness, such other information and data with
respect to the Company or any Subsidiary as from time to time may be
reasonably requested.
SECTION 6.2. Furnishing of Disclosure Information. For so long as the
Company is subject to the reporting requirements of Section 13 or 15 of the
Exchange Act, the Company covenants that it will file reports required to be
filed by it under Section 13(a) or 15(d) of the Exchange Act and the rules and
regulations adopted by the SEC thereunder, that if it ceases to be so required
to file such reports, it will upon the request of any Noteholder (i) make
publicly available such information as is necessary to permit sales pursuant
to Rule 144 under the Securities Act, (ii) deliver such information to a
prospective purchaser as is necessary to permit sales pursuant to Rule 144A
under the Securities Act and it will take such further action as any
Noteholder may reasonably request, and (iii) take such further action that is
reasonable in the circumstances, in each case, to the extent required from time
to time to enable such Noteholder to sell its Notes without registration under
the Securities Act within the limitation of the exemptions provided by (x)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, (y) Rule 144A under the Securities Act, as Rule may be amended from time
to time, or (z) any similar rules or regulations hereafter adopted by the SEC.
Upon the request of any Noteholder, the Company will deliver to such Noteholder
a written statement as to whether it has complied with such requirements.
SECTION 6.3. Books of Record and Account; Reserves. The Company will,
and will cause each of its Subsidiaries to, keep proper books of record and
account and set aside appropriate reserves, all in accordance with GAAP.
SECTION 6.4. Pavement of Taxes and Claims; Tax Consolidation. (a) The
Company will, and will cause each of its Subsidiaries to, pay all taxes,
assessments and other governmental charges imposed upon it or any of its
properties or assets or in respect of any of its franchises, business, income
or profits when the same become due and payable as shown on the return
therefor as prepared in good faith by the Company, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for
sums which have become due and payable and which by law have or might become a
Lien upon any of its properties or assets, provided that no such charge or
claim need be paid if being
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39
contested in good faith by appropriate proceedings promptly initiated and
diligently conducted and if such reserves or other appropriate provision, if
any, as shall be required by GAAP shall have been made therefor.
(b) The Company will not consent to or permit the filing of or be a
party to any consolidated income tax return on behalf of itself or, in the
case of the Company, on behalf of any of its Subsidiaries with any Person
(other than a consolidated return of the Company and the Subsidiaries of the
Company).
SECTION 6.5. Maintenance of Properties; Corporate Existence and
Business. The Company will maintain or cause to be maintained in good repair,
working order and condition all material properties used or useful in the
business of the Company and its Subsidiaries and from time to time will make
or cause to be made all appropriate repairs, renewals, replacements and
improvements thereof in order that such business may be conducted in the
ordinary course. The Company will at all times preserve and keep in full force
and effect its corporate existence, and rights and franchises material to its
business, and those of each of its Subsidiaries. The Company will not, and will
not permit, any of its Subsidiaries to engage in any business other than a
Permitted Business.
SECTION 6.6. Insurance. The Company will, and will cause each of its
Subsidiaries to, carry and maintain in full force and effect at all times with
financially sound and reputable insurers (or, as to workers' compensation or
similar insurance, in an insurance fund or by self-insurance authorized by the
jurisdiction in which its operations are carried on) insurance against such
other risks as are customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated.
Such insurance may be subject to co-insurance, deductibility or similar clauses
which, in effect, result in self-insurance of certain losses, provided that such
self-insurance is in accord with the practices of corporations similarly
situated and adequate insurance reserves are maintained in connection with such
self-insurance.
SECTION 6.7. Inspection. The Company will permit any authorized
representatives designated by each Noteholder holding Notes on the date hereof,
so long as such Noteholder or its nominee shall be a Noteholder, or by any
other Noteholder holding at least $1,000,000 in principal amount of Notes at
the time outstanding, without expense to the Company, to visit and inspect any
of the properties of the Company or any of its Subsidiaries, including its and
their books of account, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their
officers and independent public accountants (and by this provision the Company
authorizes such accountants to discuss with such representatives the affairs,
finances and accounts of the Company and its Subsidiaries, whether or not the
Company is present), all at such reasonable times and as often as may be
reasonably requested.
SECTION 6.8. Compliance with Laws. etc. The Company covenants that it
will, and will cause each of its Subsidiaries to, comply with the requirements
of all applicable laws, rules, regulations and orders of any governmental
authority, the noncompliance with which could reasonably be expected to
have a material adverse effect on the business,
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40
financial condition, assets, properties or operations of the Company and its
Subsidiaries taken as a whole.
SECTION 6.9. Subsidiary Guarantees. The Company shall cause each
Person that becomes a Restricted Subsidiary of the Company after the Closing
Date (if such Person guarantees Obligations arising under the Credit Agreement)
to execute and deliver to each Noteholder the Subsidiary Guaranty Agreement
pursuant to which such Restricted Subsidiary shall become a Subsidiary
Guarantor and shall guarantee on a senior subordinated basis the obligations
of the Company under the Notes hereunder. Such Subsidiary Guaranty Agreement
shall be appropriately completed, accompanied by such corporate or partnership
resolutions, as the case may be, authorizing the execution and delivery of the
Subsidiary Guaranty Agreement and evidence as to its due execution.
Notwithstanding the foregoing, Hanger Europe N.V. shall not be required to
execute and deliver to each Noteholder a Subsidiary Guaranty Agreement.
SECTION 6.10. Limitations on Restricted Payments. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any distribution on
account of the Company's or any of its Restricted Subsidiaries' Equity
Interests (other than (1) dividends or distributions by the Company payable in
Equity Interests (other than Disqualified Stock) of the Company or (2)
dividends or distributions by a Restricted Subsidiary of the Company so long
as, in the case of any dividend or distribution payable on or in respect of any
class or series of securities issued by a Subsidiary other than a Wholly Owned
Subsidiary, the Company or a Restricted Subsidiary of the Company receives at
least its pro rata share of such dividend or distribution in accordance with
its Equity Interests in such class or series of securities); (ii) purchase,
redeem, defease or otherwise acquire or retire for value any Equity Interests
of the Company; (iii) make any principal payment on, or redeem, repurchase,
defease or otherwise acquire or retire for value in each case, prior to any
scheduled repayment, or maturity, any Subordinated Indebtedness; or (iv) make
any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments"), unless, at the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) immediately before and immediately after giving effect to such
transaction on a pro forma basis, the Company could incur $1.00 of additional
Debt under the provisions of the first paragraph of Section 6.11; and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the Closing Date (including Restricted Payments permitted by clause (i) below
of the next succeeding paragraph, but excluding all other Restricted Payments
permitted by the next succeeding paragraph), is less than the sum of (U) 50% of
the Consolidated Net Income of the Company for the period (taken as one
accounting period) from the fiscal quarter that first begins after the Closing
Date to the end of the Company's most recently ended fiscal quarter for which
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41
internal financial statements are available at the time of such Restricted
Payment (or, in the case such Consolidated Net Income for such period is a
deficit, minus 100% of such deficit), plus (V) 100% of the aggregate net cash
proceeds and the fair market value, as determined in good faith by the Board of
Directors, of marketable securities received by the Company since the Closing
Date from the issue or sale of Equity Interests (including Retired Capital Stock
(as defined below)), or debt securities of the Company that have been converted
into such Equity Interests of the Company (other than Refunding Capital Stock
(as defined below) or Equity Interests or convertible debt securities of the
Company sold to a Restricted Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into Disqualified
Stock), plus (W) 100% of the aggregate amounts contributed to the capital of the
Company, plus (X) 100% of the aggregate amounts received in cash and the fair
market value of marketable securities (other than Restricted Investments)
received from (i) the sale or other disposition of Restricted Investments made
by the Company and its Restricted Subsidiaries or (ii) a dividend from, or the
sale of the stock of, an Unrestricted Subsidiary, plus (Y) other Restricted
Payments in an aggregate amount not to exceed $5,000,000.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at the date of declaration such payment would have
complied with the provisions of this Agreement;
(ii) the redemption, repurchase, retirement or other acquisition of any
Equity Interests (the "Retired Capital Stock") or Subordinated Indebtedness
of the Company or any Restricted Subsidiary in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than to a Restricted
Subsidiary of the Company) of Equity Interests of the Company (other than
any Disqualified Stock) (the "Refunding Capital Stock");
(iii) the redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness of the Company made by exchange for, or out of
the proceeds of the substantially concurrent sale of, new Debt of the
Company so long as (A) the principal amount of such new Debt does not
exceed the principal amount of the Subordinated Indebtedness being so
redeemed, repurchased, acquired or retired for value in the amount of any
premium required to be paid under the terms of the instrument governing the
Subordinated Indebtedness being so redeemed, repurchased, acquired or
retired), (B) such Debt is subordinated to Senior Indebtedness and the
Notes at least to the same extent as such Subordinated Indebtedness so
purchased, exchanged, redeemed, repurchased, acquired or retired for value,
(C) such Debt has a final scheduled maturity date later than the final
scheduled maturity date of the Notes and (D) such Debt has a Weighted
Average Life to Maturity equal to or greater than the remaining Weighted
Average Life to Maturity of the Notes; and
(iv) repurchases of Equity Interests deemed to occur upon exercise of
stock options if such Equity Interests represent a portion of the exercise
price of such options;
<PAGE>
42
provided, further, that at the time of, and after giving effect to, any
Restricted Payment permitted under clauses (i), (ii), (iii) and (iv), no Default
or Event of Default shall have occurred and be continuing or would occur as a
consequence thereof; and provided further that for purposes of determining the
aggregate amount expended for Restricted Payments in accordance with clause (c)
of the immediately preceding paragraph, only the amounts expended under clause
(i) shall be included.
As of the Issuance Date, all of the Company's Subsidiaries will be
Restricted Subsidiaries. The Company will not permit any Unrestricted
Subsidiary to become a Restricted Subsidiary except pursuant to the last
sentence of the definition any Restricted Subsidiary as an Unrestricted
Subsidiary, all outstanding Investments by the Company and its Restricted
Subsidiaries (except to the extent repaid) in the Subsidiary so designated will
be deemed to be Restricted Payments in an amount equal to the book value of
such Investment at the time of such designation. Such designation will only be
permitted if a Restricted Payment in such amount would be permitted at such
time and if such Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. Unrestricted Subsidiaries will not be subject to any of the
restrictive covenants set forth in this Agreement.
SECTION 6.11. Limitations on Incurrence of Debt and Issuance of
Disqualified Stock. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, Guarantee or otherwise become directly or indirectly liable with
respect to (collectively, "incur" and correlatively, an "incurrence" of) any
Debt (including Acquired Debt) or any shares of Disqualified Stock; provided,
however, that the Company may incur Debt or issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for the Company and its Restricted
Subsidiaries for the most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date of
such incurrence would have been at least 2.00 to 1.00 determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Debt had been incurred or the Disqualified Stock had been
issued, as the case may be, and the application of proceeds had occurred at the
beginning of such four-quarter period.
The foregoing limitations will not apply to:
(a) the incurrence (i) by the Company and Southern of Debt under the
Credit Agreement and the issuance of letters of credit thereunder (with
letters of credit being deemed to have a principal amount equal to the
face amount thereof) up to an aggregate principal amount of $90,000,000
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving and acquisition
loans and letters of credit under the Credit Agreement made after the
Closing Date, if any (excluding any principal repayments or commitment
reductions to the extent refinanced at the time of payment under a replaced
Credit Agreement); provided that Southern shall be limited to the
incurrence of $44,000,000 of Debt under the Credit Agreement; provided,
further that the amount of Debt permitted to be incurred pursuant to the
Credit Agreement by the Company in accordance with this clause (a) shall be
in addition to any Indebtedness permitted to be
<PAGE>
43
incurred under the Credit Agreement in reliance on, and in accordance with,
clause (i) of this Section 6.l;
(b) the obligations of the Restricted Subsidiaries and the Company
incurred in connection with guarantees entered into in connection with the
Credit Agreement;
(c) Existing Indebtedness;
(d) the incurrence by the Company of Debt represented by the Notes and
the obligations of the Restricted Subsidiaries under the Subsidiary
Guaranty Agreement;
(e) Debt incurred by the Company or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of credit is
sued in the ordinary course of business, including without limitation
letters of credit in respect of workers' compensation claims or
self-insurance, or other Debt with respect to reimbursement type
obligations regarding workers' compensation claims;
(f) Debt arising from agreements of the Company or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with
the disposition of any business, assets or a Subsidiary, other than
Guarantees of Debt incurred by any Person acquiring all or any portion of
such business, assets or a Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of
all such Debt shall at no time exceed the gross proceeds actually received
by the Company and its Restricted Subsidiaries in connection with such
disposition;
(g) Debt of the Company to a Restricted Subsidiary and Debt of a
Restricted Subsidiary to the Company or another Restricted Subsidiary;
provided however, that any subsequent issuance or transfer of any Capital
Stock or any other event which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any other subsequent transfer of
any such Debt (except to the Company or a Restricted Subsidiary) shall be
deemed, in each case to be an incurrence of Debt at the time the Restricted
Subsidiary ceased to be a Restricted Subsidiary;
(h) obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
in the ordinary course of business;
(i) Debt not otherwise permitted hereunder in an amount under this
clause (i) not to exceed $10,000,000 at any one time;
(j) Debt or Disqualified Stock of Persons that are acquired by the
Company or any of its Restricted Subsidiaries or merged into a Restricted
Subsidiary in accordance with the terms of this Agreement; provided that
such Debt or Disqualified Stock is not incurred in contemplation of such
acquisition or merger; and provided further that the Fixed Charge Coverage
Ratio for the Company and its Restricted Subsidiaries for the
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44
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such transaction
would have been at least 2.00 to 1.00 determined on a pro forma basis, as if
such transaction had occurred at the beginning of such four-quarter period
and such Debt or Disqualified Stock and the EBITDA of such merged or
acquired Person had been included for all purposes in such pro forma
calculation;
(k) any Guarantee by the Company of Debt or other obligations of any
of its Restricted Subsidiaries so long as the incurrence of such Debt
incurred by such Restricted Subsidiary is permitted under the terms of the
Indenture;
(l) Debt (including Capitalized Lease Obligations) incurred by the
Company or any of its Restricted Subsidiaries to finance the purchase,
lease or improvement of property (real or personal) or equipment (whether
through the direct purchase of assets or the Capital Stock of any Person
owning such assets) in an aggregate principal amount which, when aggregated
with the principal amount of all other Debt then outstanding and incurred
pursuant to this clause (l) (including any refinancing thereof), does not
exceed $5,000,000;
(m) Indebtedness in respect of Hedging Obligations to establish a
fixed or maximum interest rate for an aggregate notional amount of at least
50% of the outstanding principal amount of the Term Loans for a period of
at least three years; and
(n) the incurrence by the Company or any of its Restricted
Subsidiaries of Debt which serves to refund, refinance or restructure any
Debt incurred as permitted under the first paragraph of this covenant or
any other Debt incurred as permitted under the first paragraph of this
covenant and clauses (c), (d) and (j) above, or any Debt issued to so
refund, refinance or restructure such Debt including additional Debt
incurred to pay premiums and fees in connection therewith (the
"Refinancing Indebtedness") prior to its respective maturity; provided
however that such Refinancing Indebtedness (a) has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred which is
not less than the remaining Weighted Average Life to Maturity of Debt being
refunded or refinanced and (b) to the extent such Refinancing Indebtedness
refinances Subordinated Indebtedness or Pari Passu Indebtedness, such
Refinancing Indebtedness is subordinated or pari passu to the Notes at
least to the same extent as the Debt being refinanced or refunded; and
provided further that subclauses (a) and (b) of this clause (k) will not
apply to any refunding or refinancing of any Senior Indebtedness.
SECTION 6.12. Liens. The Company will not directly or indirectly
create, incur, assume or suffer to exist any Lien that secures obligations
under any Pari Passu Indebtedness or Subordinated Indebtedness on any asset or
property of the Company or such Restricted Subsidiary, or any income or profits
therefrom, or assign or convey any right to receive income therefrom, unless
the Notes are equally and ratably secured with the obligations so secured or
until such time as such obligations are no longer secured by a Lien.
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45
The Restricted Subsidiaries of the Company will not, directly or
indirectly, create, incur, assume or suffer to exist any Lien that secures
obligations under any Pari Passu Indebtedness or Subordinated Indebtedness of
such Restricted Subsidiary on any asset or property of such Restricted
Subsidiary or any income or profits therefrom, or assign or convey any right to
receive income therefrom, unless the Guarantee of such Restricted Subsidiary
under the Subsidiary Guaranty Agreement is equally and ratably secured with the
obligations so secured or until such time as such obligations are no longer
secured by a Lien.
SECTION 6.13. Consolidation, Merger, Sale of Assets, etc. The Company
may not consolidate or merge with or into or wind up into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, any Person unless (i) the
Company is the surviving corporation or the Person formed by or surviving any
such consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made is a corporation organized or existing under the laws of the United
States, any state thereof, the District of Columbia, or any territory thereof;
(ii) the Person formed by or surviving any such consolidation or merger (if
other than the Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under this Agreement and the Notes pursuant to
documents or instruments in form reasonably satisfactory to the Required
Holders under this Agreement and the Notes; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) the Company or any
Person formed by or surviving any such consolidation or merger, or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made will, at the time of such transaction and after giving pro forma
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Debt pursuant to the Fixed Charge Coverage Ratio test set forth in
the covenant described under Section 6.11. Notwithstanding the foregoing
clauses (iii) and (iv), (a) any Restricted Subsidiary may consolidate with,
merge into or transfer all or part of its properties and assets to the Company
and (b) the Company may merge with an Affiliate incorporated solely for the
purpose of reincorporating the Company in another jurisdiction.
Each Subsidiary Guarantor shall not, and the Company will not permit a
Subsidiary Guarantor to, consolidate or merge with or into or wind up into
(whether or not such Subsidiary Guarantor is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets in one or more related
transactions to, any Person unless (i) such Subsidiary Guarantor is the
surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than such Subsidiary Guarantor) or to which
such sale, assignment, transfer, lease, conveyance or other disposition will
have been made is a corporation organized or existing under the laws of the
United States, any state thereof, the District of Columbia, or any territory
thereof (such Subsidiary Guarantor or such Person, as the case may be, being
herein called the "Successor Guarantor"); (ii) the Successor Guarantor (if other
than such Subsidiary Guarantor) expressly assumes all the obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty Agreement pursuant to
documents or instruments in form reasonably satisfactory to the
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46
Required Holders; (iii) immediately after such transaction no Default or Event
of Default exists; and (iv) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that such
consolidation, merger or transfer and such documents (if any) comply with this
Agreement. The Successor Guarantor will succeed to and be substituted for, such
Subsidiary Guarantor under this Agreement and the Subsidiary Guaranty Agreement.
SECTION 6.14. Limitation on Transactions with Affiliates. The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of assets,
property or services) with any Affiliate of the Company (other than the Company
or a Wholly Owned Restricted Subsidiary) unless (a) such transaction or series
of related transactions is in writing and on terms that are no less favorable to
the Company or such Restricted Subsidiary, as the case may be, than those that
would be available in a comparable transaction in arm's-length dealings with an
unrelated third party, (b) with respect to any transaction or series of related
transactions involving aggregate value in excess of $1,000,000, the Company
delivers an Officers' Certificate to the Noteholders certifying that such
transaction or series of related transactions complies with clause (a) above and
such transaction or series of transactions has been approved by a majority of
the board of directors of the Company, (c) with respect to any transaction or
series of related transactions involving aggregate payments in excess of
$2,000,000, such transaction or series of related transactions has been approved
by the Disinterested Directors of the Company (or in the event there is only one
Disinterested Director, by such Disinterested Director) and (d) with respect to
any transaction or series of related transactions involving aggregate payments
in excess of $5,000,000, such transaction or series of related transactions has
been approved by the Disinterested Directors of the Company (or in the event
there is only one Disinterested Director, by such Disinterested Director) and
the Company delivers to the Noteholders a written opinion of an investment
banking firm of national standing or other recognized independent expert with
experience appraising the terms and conditions of the type of transaction or
series of related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, that
the provision with respect to clause (d) above shall not apply to (A) any
transaction with an officer or director of the Company entered into in the
ordinary course of business (including compensation or employee benefit
arrangements with any officer or director of the Company) or (B) any agreements,
transactions or series of related transactions in existence on the date of this
Agreement and any renewal or extension thereof under substantially the same
terms as the original terms.
SECTION 6.15. Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any consensual encumbrance or consensual restriction on the ability
of any such Restricted Subsidiary to:
(a)(i) pay dividends or make any other distributions to the Company or
any of its Restricted Subsidiaries on its Capital Stock or any other
interest participation in,
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47
or measured by, its profits or (ii) pay any Debt owed to the Company or any
of its Restricted Subsidiaries;
(b) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(c) sell, lease, or transfer any of its properties or assets to the
Company, or any of its Restricted Subsidiaries, except (in each case) for
such encumbrances or restrictions existing under or by reason of:
(1) contractual encumbrances or restrictions in effect on the Closing
Date, including pursuant to the Credit Agreement and its related
documentation;
(2) this Agreement and the Notes;
(3) by reason of customary non-assignment or subletting provisions in
leases entered into in the ordinary course of business and consistent with
past practices;
(4) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions acquired;
(5) applicable law or any applicable rule, regulation or order;
(6) Existing Indebtedness and Debt or Capital Stock of Restricted
Subsidiaries that are acquired by or merged with or into the Company or any
of its Restricted Subsidiaries after the Issuance Date; provided that such
Debt or Capital Stock is in existence at the time of such acquisition and
was not incurred, assumed or issued in contemplation of such acquisition or
merger;
(7) other Debt permitted to be incurred subsequent to the Closing Date
pursuant to Section 6.11; provided that any such restrictions are ordinary
and customary with respect to the type of Debt being incurred (under the
relevant circumstances);
(8) contracts for the sale of assets, including, without limitation
customary restrictions with respect to a Restricted Subsidiary pursuant to
agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary;
(9) secured Debt otherwise permitted to be incurred pursuant to the
covenants described under Section 6.11 and Section 6.12 that limit the
right of the debtor to dispose of the assets securing such Debt;
(10) customary provisions contained in leases and other agreements
entered into in the ordinary course of business;
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(11) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business;
and
(12) any encumbrances or restrictions imposed by any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings of the contracts, instruments or obligations
referred to in clauses (1) through (11) above, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings are, in the good faith judgment of
the Company's Board of Directors, no more restrictive with respect to such
dividend and other payment restrictions than those contained in the
dividend or other payment restrictions prior to such amendment,
modification, restatement, renewal, increase, supplement, refunding,
placement or refinancing.
SECTION 6.16. Limitation on Other Senior Subordinated Indebtedness. The
Company will not, directly or indirectly, incur any Debt (including Acquired
Debt) that is subordinate in right of payment to any Debt of the Company unless
such Debt is either (a) Pari Passu Indebtedness or (b) subordinate in right of
payment to the Notes, in the same manner and at least to the same extent as the
Notes are subordinate to Senior Indebtedness.
SECTION 6.17. Limitation on Preference Stock of Restricted
Subsidiaries. The Company will not permit any of Its Restricted Subsidiaries to
issue, directly or indirectly, any Preference Stock, except (i) Preference
Stock issued to and held by the Company or a Wholly Owned Restricted
Subsidiary, except that any subsequent issuance or transfer of any Capital
Stock which results in any Wholly Owned Restricted Subsidiary ceasing to be a
Wholly Owned Restricted Subsidiary or any transfer of such Preference Stock to
a Person no a Wholly Owned Restricted Subsidiary will be deemed an issuance of
Preference Stock; (ii) Preference Stock issued by a Person prior to the time
(a) such Person became a Restricted Subsidiary of the Company, (b) such person
merges with or into a Restricted Subsidiary or (c) another person merges with
or into such Person (in a transaction in which such Person becomes a Restricted
Subsidiary), in each case if such Preference Stock was not issued in
anticipation of such transaction; and (iii) Preference Stock issued in exchange
for, or the proceeds of which are used to refund Debt or refinance Preference
Stock issued pursuant to clauses (i) or (ii) (other than Disqualified Stock);
provided that (a) the liquidation value of such Preference Stock so issued
shall not exceed the principal amount or the liquidation value of the Debt or
Preference Stock, as the case may be, so refunded or refinanced and (b) the
Preference Stock so issued (i) shall have a stated maturity not earlier than
the stated maturity of the Debt or Preference Stock being refunded or
refinanced and (2) shall have a Weighted Average Life to Maturity equal to or
greater than the remaining Weighted Average Life to Maturity of the Debt or
Preference Stock being refinanced or refunded.
SECTION 6.18. Change of Control. (a) Upon the occurrence of a Change of
Control, the Company will make an offer to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of the Notes pursuant to the offer
described below (the "Change of Control Offer") at a price in cash (the "Change
of Control Payment") equal to 100% of the aggregate principal amount thereof
plus accrued and unpaid interest thereon, if any, to the date of purchase. With
in 30 days following any Change of Control, the Company will mail a
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notice to each Noteholder with the following information: (1) a Change of
Control Offer is being made pursuant to the covenant entitled "Change of
Control,' and that all Notes properly tendered pursuant to such Change of
Control Offer will be accepted for payment; (2) the purchase price and the
purchase date, which will be no earlier than 30 days nor later than 60 days from
the date such notice is mailed, except as may be otherwise required by
applicable law (the "Change of Control Payment Date"); (3) any Note not properly
tendered will remain outstanding and continue to accrue interest; (4) unless the
Company defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest on the Change of Control Payment Date; (5) Noteholders electing
to have any Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, and at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Change of Control Payment Date; (6) Noteholders will be entitled
to withdraw their tendered Notes and their election to require the Company to
purchase such Notes, provided, that the Company receives, not later than the
close of business on the last day of the offer period, a telegram, telex,
facsimile transmission or letter setting forth the name of the Noteholder, the
principal amount of Notes tendered for purchase, and a statement that such
Holder is withdrawing his tendered Notes and his election to have such Notes
purchased; and (7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
(b) Prior to complying with the provisions of this covenant, but in any
event within 30 days following a Change of Control, the Company will either
repay all outstanding amounts under the Credit Agreement or offer to repay in
full all outstanding amounts under the Credit Agreement and repay the
obligations held by each lender who has accepted such offer or obtain the
requisite consents, if any, under the Credit Agreement to permit the
repurchase of the Notes required by this covenant.
(c) The Company will comply with the requirements of Rule 14e-l under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws or regulations are applicable in connection with the repurchase
of the Notes pursuant to a Change of Control Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
this Agreement, the Company will comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations hereunder.
On the Change of Control Payment Date, the Company will, to the extent
permitted by law, (1) accept for payment all Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit an amount equal
to the aggregate Change of Control Payment in respect of all Notes or portions
thereof so tendered and (3) cancel the Notes so accepted together with an
Officers' Certificate stating that such Notes or portions thereof have been
tendered to and purchased by the Company. The Company will promptly mail to
each Noteholder the Change of Control Payment for such Notes, and the Company
will promptly mail to each Noteholder a new Note equal in principal amount to
any
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50
unpurchased portion of the Notes surrendered, if any, provided, that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof.
SECTION 6.19. Asset Sales. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, cause, make or suffer to exist
an Asset Sale, unless (x) the Company, or its Restricted Subsidiaries, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value (as determined in good faith by the Company) of
the assets sold or otherwise disposed of and (y) at least 75% of the proceeds
from such Asset Sale when received consists of cash or Cash Equivalents;
provided that, the amount of any liabilities (as shown on the Company's or such
Restricted Subsidiary's most recent balance sheet) of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the Notes) that are assumed by the transferee of any such
assets and (b) any notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are immediately converted
by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to
the extent of the cash received), shall be deemed to be cash for the purposes
of this provision.
(b) Within 365 days after the Company's or any Restricted Subsidiary's
receipt of the Net Proceeds of any Asset Sale, the Company or such Restricted
Subsidiary may apply the Net Proceeds from such Asset Sale, at its option, (i)
to permanently reduce Obligations under the Credit Agreement (and, if
applicable, to correspondingly reduce commitments with respect thereto) or
other Senior Indebtedness or Pari Passu Indebtedness, (ii) to an investment in
any one or more businesses, capital expenditures or acquisitions of other
assets in each case, used or useful in a Permitted Business or (iii) to an
investment in properties or assets that replace the properties and assets that
are the subject of such Asset Sale. Pending the final application of any such
Net Proceeds, the Company or such Restricted Subsidiary may temporarily reduce
Indebtedness under a revolving credit facility, if any, or otherwise invest
such Net Proceeds in Cash Equivalents. Any Net Proceeds from the Asset Sale
that are not invested as provided and within the time period set forth in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5,000,000, the
Company shall make an offer to all Noteholders (an "Asset Sale Offer") to
purchase the maximum principal amount of Notes, that is an integral multiple of
$1,000, that may be purchased out of the Excess Proceeds at an offer price in
cash in an amount equal to 100% of the principal amount thereof, plus accrued
and unpaid interest, if any, to the date fixed for the closing of such offer.
The Company will commence an Asset Sale Offer with respect to Excess Proceeds
within ten business days after the date that Excess Proceeds exceeds $5,000,000
by mailing a notice to the Noteholders. To the extent that the aggregate amount
of Notes tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Notes surrendered by
Noteholders thereof exceeds the amount of Excess Proceeds, the Company shall
select the Notes to be purchased in the manner described below in paragraph
(c). Upon completion of any such Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
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(c) If less than all of the Notes are to be redeemed in an Asset Sale
Offer at any time, selection of such Notes for redemption wilt be made by the
Company on a pro rata basis, by lot or by such other method as the Company
shall deem fair and appropriate (and in such manner as complies with
applicable legal requirements); provided that no Notes of $1,000 or less shall
be redeemed in part.
(d) Notices of an Asset Sale Offer shall be mailed by first class mail,
postage prepaid, at least 30 but not more than 60 days before the purchase date
to each Noteholder to be purchased or redeemed at such Noteholder's registered
address. If any Note is to be purchased or redeemed in part only, any notice of
purchase or redemption that relates to such Note shall state the portion of the
principal amount thereof that has been or is to be purchased or redeemed. A new
Note in principal amount equal to the unpurchased portion of any Note purchased
in part will be issued in the name of the Noteholder thereof upon cancellation
of the original Note. On and after the purchase date, unless the Company
defaults in payment of the purchase or redemption price, interest shall cease
to accrue on Notes or portions thereof purchased.
SECTION 6.20. No Restrictive Agreements. Except for the Credit
Agreement, the Company will not and will not permit any of its Subsidiaries to
enter into any agreement that would restrict or prohibit the amendment,
modification, waiver or termination of this Agreement, the Notes, the Warrants
or the Subsidiary Guaranty Agreement.
SECTION 6.21. Private Placement Numbers. Upon request by any Purchaser,
the Company shall obtain for the Notes a Private Placement Number issued by
Standard & Poor's CUSIP Service Bureau.
ARTICLE VII
TERMS OF THE NOTES
SECTION 7.1. Form of Notes; Issuance of Notes. The Notes shall be in
registered form in the form of Exhibit A hereto and shall be transferrable in
accordance with the limitations set forth in this Agreement.
SECTION 7.2. Registration, Transfer, Exchange and Substitution of
Notes. (a) The Company shall keep at its principal office a register (the
"Register") in which shall be entered the names and addresses and account
numbers of the registered holders of the Notes and particulars of the
respective Notes held by them and of all transfers of such Notes. References to
the "Noteholder" or "Holder" shall mean the Person listed in the Register as
the payee of any Note unless the payee shall have presented such Note to the
Company for transfer and the transferee shall have been entered in the
Register as a subsequent holder. The ownership of the Notes shall be proved by
the Register. For the purpose of paying interest and principal and all other
amounts due on the Notes, the Company shall be entitled to rely on the names
and addresses in the Register.
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52
(b) If any Note is presented at the Company's office for the purpose of
transfer or exchange (accompanied in the case of a transfer by a written
instrument of transfer duly executed by or on behalf of the Noteholder), the
Company, at its own expense, will deliver in exchange one or more new Notes in
any authorized denominations, as requested by the Noteholder, of like tenor and
aggregate unpaid principal amount. Any Note or Notes issued in the transfer or
exchange shall carry the same rights to interest (unpaid and to accrue) carried
by the Note or Notes so exchanged or transferred so that there will not be any
loss or gain of interest on the Note or Notes surrendered.
(c) Upon receipt by the Company of evidence satisfactory to it of the
loss, theft, destruction or mutilation of any Note, and upon surrender and
cancellation of such Note, if mutilated, the Company will pay any unpaid
principal and interest (and any prepayment charge) then or theretofore due and
payable on such Note and will deliver in lieu of such Note a new Note of like
tenor for any remaining balance.
SECTION 7.3. Payments on the Notes. (a) The Company shall pay the
principal amount of the Notes and all accrued but unpaid interest on such
amount to the Noteholder on November 1, 2004 (the "Maturity Date").
(b) Interest on the Notes will accrue at the rate of 8% per annum and
will be payable on each June 30 and December 31, commencing June 30, 1997, to
the Noteholders of record of Notes at the close of business on the June 15 and
December 15 preceding such Interest Payment Dates. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the Closing Date. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
(c) Interest payable on any Interest Payment Date (except on the
Maturity Date) may be paid by the Company to the Noteholders either (i)
entirely in cash in the amount of 8.00% per annum of the unpaid principal
amount of the Notes on such Interest Payment Date or, at the option of the
Company, (ii) in a combination of (A) cash in an amount at least equal to the
3.2% per annum of the unpaid principal amount of the Notes (inclusive of
Subsequent Notes) on such Interest Payment Date and (B) newly-issued Notes
(each, a "Subsequent Note") issued to the Noteholders in an aggregate principal
amount equal to the remaining amount of accrued interest on the Notes for such
period (inclusive of Subsequent Notes) on such Interest Payment Date. Interest
payable on the Maturity Date shall only be payable in cash.
(d) Interest on principal of, premium, if any, and interest on the
Notes that is not paid when due shall accrue from and including the date the
same became due to but excluding the date the same is paid in full at the rate
per annum which is 2% above the otherwise applicable interest rate on the Notes
("Default Interest"). Default Interest shall be payable on demand to the
Noteholders either (i) entirely in cash or at the option of the Company (ii) in
a combination of (A) cash in an amount at least equal to 40% of Default Interest
and (B) Subsequent Notes issued to the Noteholders in an aggregate principal
amount equal to the remaining amount of the Default Interest (inclusive of
Subsequent Notes).
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53
(e) All payments on the Notes shall be made by wire transfer of
immediately available funds by 11:00 am on the date when due to the account of
the Noteholder at a bank in the United States specified in writing by the
Noteholder to the Company or in the case of a Purchaser to the account
specified beneath such Purchaser's name on the signature pages hereof (or to
such other account as such Purchaser may specify in writing to the Company) and
shall be in lawful funds of the United States of America; provided that the
Noteholders must surrender Notes to the Company to collect principal payments.
(f) All payments made by the Company hereunder or under any Note will
be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature or hereafter imposed by any taxing jurisdiction or
by any political subdivision or taxing authority thereof or therein with
respect to such payments, and all interest, penalties or similar liabilities
assessed with respect thereto. If any taxes are so levied or imposed, the
Company agrees to pay the full amount of such taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or any Note after withholding or deduction for or on account of any
taxes, will not be less than the amount provided for herein or in such Note. If
any amounts are payable in respect of taxes pursuant to the preceding sentence,
the Company agrees to reimburse each Noteholder, upon the written request of
such Noteholder, for taxes imposed on or measured by the net income or net
profits of such Noteholder pursuant to the laws of the jurisdiction in which
such Noteholder is located or under the laws of any political subdivision or
taxing authority of any such jurisdiction in which such Noteholder is organized
or in which the principal office or applicable lending office of such
Noteholder is located and for any withholding of taxes as such Noteholder shall
determine are payable by, or withheld from, such Noteholder, in respect of such
amounts so paid to or on behalf of such Noteholder pursuant to the preceding
sentence and in respect of any amounts paid to or on behalf of such Noteholder
pursuant to this sentence.
(g) Each Noteholder that is not a United States person for U.S. federal
income tax purposes agrees to deliver to the Company on or prior to the Closing
Date, or in the case of a Noteholder that is an assignee or transferee of an
interest under this Agreement, on the date of such Assignment, (i) two accurate
and complete original signed copies of Internal Revenue Service Form 4224 or
1001 (or successor forms) certifying to such Noteholder's entitlement to a
complete exemption from United States withholding tax with respect to payments
to be made under this Agreement and under any note. All Noteholders a party to
this Agreement or any Assignment shall provide additional original signed
copies of Form 4224 or 1001 when a lapse in time or a change in circumstances
renders the previously filed forms inaccurate or obsolete, or said Noteholders
shall notify the Company and the Agent of its inability to deliver such forms or
certificates.
SECTION 7.4. Optional Prepayment. The Company may, at any time, at its
option on not less than 30 and not more than 60 Business Days' notice to each
Noteholder, prepay the Notes in whole but not in part at a price equal to the
principal amount of such Notes outstanding with accrued but unpaid interest
through the date of prepayment (in cash).
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54
At least two and not more than Five Business Days prior to the date of
prepayment specified in the Company's notice, the Company will give each
Noteholder further written notice specifying the amount (if any) payable on such
date with respect to such principal amount to be prepaid.
SECTION 7.5. Mandatory Prepayments Upon Equity Offerings. Upon the
repayment in full of all Obligations under the Credit Agreement and permanent
reduction of all lending commitments under the Credit Agreement to zero or to
the extent permitted by the Credit Agreement, in the event that the Company
shall complete an Equity Offering, the Company shall, within two Business Days
after receipt of any related Equity Offering Proceeds, apply, or cause to be
applied, such Equity Offering Proceeds to prepay on a pro rata basis the
principal amount of the Notes which is equal to the amount of such Equity
Offering Proceeds. The Notes to be prepaid pursuant to this Section 7.5 shall
be prepaid at the principal amount of such Notes together with interest
accrued to the date of prepayment.
SECTION 7.6. Events of Default; Acceleration of Maturity; Waiver of
Default. In case one or more of the following events (each an "Event of
Default") (whatever the reason for such Event of Default and whether it shall
be voluntary or involuntary or be effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body or otherwise) shall have occurred and
be continuing:
(a) if the Company shall default in the payment of any principal or
premium, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) if the Company shall default in the payment of any interest on any
Note or on any other amount payable under this Agreement for more than 30
days after the same becomes due and payable; or
(c) if the Company shall default in the performance of or compliance
with any term contained herein other than those referred to above in this
Section 7.6, and such default shall not have been remedied within 40 days
after receipt by the Company of written notice of such default from any
holders representing 25% in aggregate principal amount of the Notes; or
(d) if any representation or warranty made by or on behalf of the
Company or any Subsidiary Guarantor herein or in the Subsidiary Guaranty
Agreement, as the case may be, shall be false on the date as of which it
was made except to the extent such falsehood does not have a material
adverse effect on the business, operations, affairs, condition, properties
or prospects of the Company or such Subsidiary Guarantor; or
(e) (i) there shall have occurred one or more defaults by the Company
or any of its Restricted Subsidiaries (as principal or as guarantor or
other surety) in the payment of the principal of (or premium, if any) on
any Debt aggregating at least
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55
$1,000,000 or more when the same becomes due and payable at its final
maturity or (ii) Debt of the Company or any of its Restricted Subsidiaries
aggregating $1,000,000 or more shall have been accelerated or otherwise
declared due and payable prior to its maturity (which acceleration or
declaration is not rescinded, annulled or otherwise cured within 20 days
of receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration, declaration or demand); or
(f) if the Company or any Significant Subsidiary shall (i) admit in
writing its inability to pay its debts as they become due, (ii) file, or
consent by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, (iii) make any general assignment for
the benefit of its creditors, (iv) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, or
(v) take corporate action for the purpose of any of the foregoing; or
(g) if a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or any
Significant Subsidiary of the Company a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect to any
substantial part of its property, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution or
winding-up if any such petition shall be filed against the Company or any
Significant Subsidiary of the Company and such petition is not controverted
within 15 days or is not discharged or dismissed within 60 days; or
(h) if a final judgment which, with other outstanding final judgments
against the Company or its Significant Subsidiaries exceeds $5,000,000
shall be entered against the Company or any Significant Subsidiary of the
Company and if, within 60 days after entry thereof, such judgment shall not
have been discharged or execution thereof stayed pending appeal, or if,
within 60 days after the expiration of any such stay, such judgment shall
not have been discharged; or
(i) Cessation of all or any portion of the Subsidiary Guaranty
Agreement to be in full force and effect or the declaration of all or any
portion of the Subsidiary Guaranty Agreement to be null and void and
unenforceable or the finding that all or any portion of such Subsidiary
Guaranty Agreement is invalid or the denial of any Subsidiary Guarantor of
its liability under the Subsidiary Guarantee Agreement (other than by
reason of release of a Subsidiary Guarantor in accordance with its terms).
then, and in each and every such case (other than an Event of Default with
respect to the Company specified in subsections (f) or (g) hereof), unless the
principal of all of the Notes shall have already become due and payable, the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, by notice in writing to the Company (the
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56
"Acceleration Notice"), may declare the Notes to be due and payable immediately,
and upon any such declaration there shall become immediately due and payable an
amount (the "Default Amount") equal to the sum of the entire principal amount of
the Notes plus interest accrued thereon; provided that, so long as any Specified
Senior Indebtedness is outstanding, such declaration shall not become effective
until the earlier of (i) 15 days after delivery of the Acceleration Notice to
the Company if at such time the Default or Event of Default which gave rise to
the Acceleration Notice has not been cured or waived, and (ii) acceleration of
any Specified Senior Indebtedness. If an Event of Default specified in
subsection (f) or (g) occurs, the Default Amount on the Notes shall become and
be immediately due and payable without any declaration or other act on the part
of any Noteholder.
The provision, however, is subject to the condition that if at any time
after the principal of the Notes shall have been so declared due and payable,
and before any judgment or decree for the payment of the moneys due shall have
been obtained or entered as hereinafter provided, the Company shall pay or shall
deposit in trust for the benefit of the Noteholders a sum sufficient to pay all
matured installments of interest upon all the Notes and the principal of any and
all Notes which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest is
enforceable under applicable law, on overdue installments of interest, at the
same rate as the rate of interest specified herein, to the date of such payment
or deposit), and if any and all Events of Default under this Note, other than
the non-payment of the principal of the Notes which shall have become due by
acceleration, shall have been cured, waived or otherwise remedied as provided
herein, then and in every such case the Required Holders, by written notice to
the Company, may waive all defaults and rescind and annul such declaration and
its consequences, but no such waiver or rescission and annulment shall extend to
or shall affect any subsequent default or shall impair any right consequent
thereon.
The Company shall promptly upon receipt of an Acceleration Notice
provide written notice to the Agent Bank of the receipt of such Acceleration
Notice. Failure to deliver such notice shall not affect the validity of the
notice delivered by the Noteholders in accordance with the provisions referred
to above.
SECTION 7.7. Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default. No right or remedy herein conferred upon or reserved to the
Noteholders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
No delay or omission of the Noteholders to exercise any right or power
accruing upon any Event of Default occurring and continuing as aforesaid shall
impair any such right or power or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein; and every power and remedy given
by the Notes or by law may be exercised from time to time, and as often as
shall be deemed expedient, by the Noteholders.
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SECTION 7.8. Waiver of Past Defaults. Prior to the declaration of the
acceleration of maturity of the Notes as provided in Section 7.6, the Required
Holders may on behalf of the Holders of all the Notes waive any past Default or
Event of Default hereunder and its consequences, except a Default in the payment
of principal of or interest on any of the Notes. In the case of any such waiver,
the Company and the Holders of the Notes shall be restored to their former
positions and rights hereunder, respectively; but no such waiver shall extend to
any subsequent or other Default or impair any right consequent thereon.
Upon any such waiver, such Default shall cease to exist and be deemed
to have been cured and not to have occurred, and any Event of Default arising
therefrom shall be deemed to have been cured, and not to have occurred for
every purpose of this Note; but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.
ARTICLE VIII
SUBORDINATION OF NOTES
SECTION 8.1. Notes Subordinated to Senior Indebtedness. Any term or
provision of this Agreement or the Notes to the contrary notwithstanding, the
Company covenants and agrees, and each holder of any Note, whether upon
original issue or upon transfer, assignment or exchange thereof, by its
acceptance thereof, shall be deemed likewise to have covenanted and agreed,
that, to the extent and in the manner hereinafter set forth in this Article
VIII, the Subordinated Obligations are hereby expressly made subordinate and
subject in right of payment to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness of the Company and shall not be
subordinated to any indebtedness of the Company other than Senior Indebtedness
of the Company.
SECTION 8.2. Pavement Over of Proceeds Upon Dissolution, etc. (a) Upon
any payment, distribution or transfer of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon (i) any
insolvency or bankruptcy case or proceeding, or any receivership, liquidation,
reorganization, readjustment, composition or other similar case or proceeding in
connection therewith, relative to the Company or to its creditors, as such, or
to its assets, or (ii) any liquidation, dissolution or other winding up of the
Company, whether voluntary or involuntary and whether or not involving
insolvency or bankruptcy proceedings, or (iii) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of the Company,
then and in any such event:
(1) all amounts due or to become due upon all Senior Indebtedness
shall first be paid in full in cash or cash equivalents before any payment
is made on account of the Subordinated Obligations, or to acquire any of
the Notes for cash or property; and
(2) any payment, distribution or transfer of assets of the Company of
any kind or character, whether in cash, property or securities, to which
the holders of the
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Notes would be entitled but for the provisions hereof, including any such
payment, distribution or transfer which may be payable or deliverable by
reason of the payment of any other Debt of the Company being subordinated
to the payment of the Notes (except for any such payment, distribution or
transfer of equity or debt securities, the payment of which debt
securities is subordinated, to at least the same extent as provided in this
Article VIII with respect to the Notes, to the payment of all Senior
indebtedness and to any securities issued in respect of such Senior
Indebtedness then outstanding and which equity or debt securities are not
redeemable or payable until one year after the maturity of the Senior
Indebtedness, as such maturity may have been extended in the case or
proceeding referred to in this Section 8.2 and after the maturity of any
such securities issued in respect of Senior Indebtedness) shall be paid by
the liquidating trustee or agent or other person making such payment,
distribution or transfer, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the holders of Senior
Indebtedness or their representative or representatives or to the trustee
or trustees under any indenture under which any instruments evidencing any
of such Senior Indebtedness may have been issued, ratably according to the
aggregate amounts remaining unpaid on account of the Senior Indebtedness,
to the extent necessary to make payment in full in cash or cash equivalents
of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment, distribution or transfer to the holders of such Senior
Indebtedness.
(b) In the event that, notwithstanding the foregoing, the holder of any
Note shall have received any such payment, distribution or transfer of assets
of the Company of any kind or character, whether in cash, property or
securities (other than the securities referred to in the parenthetical of the
foregoing subclause (2)), including any such payment, distribution or transfer
which may be payable, deliverable or transferrable by reason of the payment of
any other Debt of the Company being subordinated to the payment of the Notes,
before all Senior Indebtedness is paid in full in cash or cash equivalents or
payment thereof provided for, then and in such event such payment, distribution
or transfer shall be paid over, delivered or transferred forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment, distribution or transfer of assets of the
Company for application to the payment of all Senior Indebtedness remaining
unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash
or cash equivalents, after giving effect to any concurrent payment,
distribution or transfer to or for the holders of Senior Indebtedness.
(c) The consolidation of the Company with, or the merger of the Company
into, another corporation or the liquidation or dissolution of the Company
following the conveyance or transfer of its properties and assets as an
entirety, or substantially as an entirety, to another corporation upon the
terms and conditions set forth in Section 6.13 shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the
benefit of creditors or marshalling of assets and liabilities of the Company
for the purposes of this Article VIII if the corporation formed by such
consolidation or into which the Company is merged or the corporation which
acquires by conveyance or transfer such properties and assets as an entirety,
or substantially as an entirety, as the case may be, shall, as a part of
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such consolidation, merger, conveyance or transfer, comply with the conditions
set forth in Section 6.13.
(d) Any term or provision of this Section 8.2 to the contrary
notwithstanding, if any case or proceeding referred to above is commenced by
or against the Company, and if the holders of the Notes do not file a proper
claim or proof of claim in the form required in such case or proceeding prior
to 30 days before the expiration of time to file such claims or proofs or fail
to respond to any objection of any party or applicable order in such case or
proceeding in a timely manner, then so long as any Senior Indebtedness remains
outstanding, any holder of Senior Indebtedness is hereby authorized and
empowered (in its own name or in the name of any holder of the Notes or
otherwise), but shall have no obligation, to file such proof of claim or
respond to such objection or order on behalf of such holders of the Notes, as
their interests may appear
SECTION 8.3. No Payment When Senior Indebtedness is in Default. In the
event that (a) any payment with respect to any Obligations with respect to any
Specified Senior Indebtedness is not made when due (whether at maturity, by
acceleration or otherwise) (a "Senior Pavement Default"), or (b) unless the
foregoing clause (a) shall apply, any other default occurs and is continuing
with respect to Specified Senior Indebtedness permitting the holders of such
Specified Senior Indebtedness to declare such Specified Senior Indebtedness due
and payable prior to the date on which it would otherwise have become due and
payable (a "Non-payment default"), then no direct or indirect payment by or on
behalf of the Company or any Subsidiary Guarantor or from any of the Company's
assets, any judgments or any other sources (in cash, property or securities or
by set-off or otherwise, other than the payment, distribution or transfer of
equity or debt securities, the payment of which debt securities is subordinated,
at least to the same extent as provided in this Article VIII with respect to the
Notes, to the payment of all Senior Indebtedness and to any securities issued in
respect of such Senior Indebtedness) shall be made or agreed to be made on
account of the principal of, or premium, if any, or interest on or other amounts
with respect to any Subordinated Obligations, or as a sinking fund for
Subordinated Obligations, or in respect of any redemption, retirement, purchase
or other acquisition or defeasance of any Subordinated Obligations (x) in case
of a Senior Payment Default described in clause (a), unless and until such
defaulted Senior Indebtedness shall have been paid in the amount then due or
discharged or until the holders of such Senior Indebtedness or their agents have
waived in writing the benefits of this Section 8.3 in respect of such Senior
Payment Default, or (y) in case of any non-payment default specified in clause
(b), from the earlier of the date the Company receives written notice of such
non-payment default from the Required Lenders or the Agent Bank (a "Blockage
Notice") until the earlier of (1)179 days after such date and (2) the date, if
any, on which the Specified Senior Indebtedness to which such non-payment
default relates is discharged or such non-payment default is waived (and no
other non-payment default is then in existence) in writing by the holders of
such Specified Senior Indebtedness or otherwise cured (the "Blockage Period"),
provided, however, that (i) only one Blockage Notice may be given during any one
360-day period and (ii) a further Blockage Notice relating to the same or any
other non-payment default which had given rise to, or had occurred and was
continuing during, any prior Blockage Period shall not be effective for purposes
of this clause (y) unless such non-payment default shall in the interim have
been cured or waived for a
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period of at least 90 consecutive days. At the expiration of a Blockage Period
the Company shall, subject to foregoing provisions, promptly pay to the holders
of the Notes all amounts which it would have been obligated to pay during such
period but for the operation of such provisions.
In the event that, notwithstanding the foregoing, any payment,
distribution or transfer shall be collected or received by the holder of any
Note, in contravention of the foregoing provisions of this Section 8.3, then
and in such event such payment, distribution or transfer shall be paid over and
delivered forthwith to the Agent Bank on behalf of the holders of Specified
Senior Indebtedness or to the holders of Senior Indebtedness, in either case,
for application to the payment of Senior Indebtedness remaining unpaid, to the
extent necessary to pay all Senior Indebtedness remaining unpaid in full in cash
or cash equivalents, after giving effect to any concurrent payment, distribution
or transfer to or for the holders of Senior Indebtedness and until so paid over
and delivered, the same shall be held in trust by any such holder of a Note as
the property of the holders of such Senior Indebtedness.
The provisions of this Section 8.3 shall not apply to any payment with
respect to which Section 8.2 would be applicable.
SECTION 8.4. Payment Permitted if No Default. Nothing contained in this
Article VIII or elsewhere in this Agreement or in any of the Notes shall
prevent the Company, at any time except during the pendency of any case or
proceeding referred to in Section 8.2 or under the conditions described in
Section 8.3, from making payments on the scheduled payment dates or thereafter
at any time of the Subordinated Obligations.
SECTION 8.5. Subrogation to Rights of Holders of Senior Indebtedness.
Upon the payment in full in cash or cash equivalents of all Senior
Indebtedness, the holders of the Notes shall be subrogated (equally and
ratably with the holders of all Debt of the Company which by its express terms
is subordinated to Senior Indebtedness of the Company to the same extent as the
Notes are subordinated and which is entitled to like rights of subrogation) to
the rights of the holders of such Senior Indebtedness to receive payments,
distributions or transfers of cash, property and securities applicable to the
Senior Indebtedness until the principal of and interest on the Notes shall be
paid in full. For purposes of such subrogation, (a) no payments, distributions
or transfers to the holders of Senior Indebtedness of any cash, property or
securities to which the holders of the Notes would be entitled except for the
provisions of this Article VIII, and no payments over pursuant to the
provisions of this Article VIII to the holders of Senior Indebtedness by
holders of the Notes, shall, as among the Company, its creditors other than
holders of Senior Indebtedness, and the holders of the Notes, be deemed to be
a payment, distribution or transfers by the Company to or on account of the
Senior Indebtedness, and (b) no payments, distributions or transfers of cash,
property or securities to or for the benefit of the holders of the Notes
pursuant to the subrogation provision of this Article VIII, which would
otherwise have been paid to the holders of Senior Indebtedness, shall be
deemed to be a payment by the Company to or for the account of the Notes.
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61
In the event that, notwithstanding the foregoing, any payment,
distribution or transfer shall be collected or received by any holder of Senior
Indebtedness to which the Noteholders would otherwise have been entitled under
this Section 8.5, this Section 8.5, then and in such case, the Noteholders
shall be entitled to receive from such holders of Senior Indebtedness any
payments, distributions or transfer received by such holders of Senior
Indebtedness in excess of the amount required to make payment in full of such
Senior Indebtedness.
SECTION 8.6. Provisions Solely to Define Relative Rights. The
provisions of this Article VIII are solely and are intended solely for the
purpose of defining the relative rights of the holders of the Notes on the one
hand and the holders of Senior Indebtedness on the other hand. Nothing
contained in this Article VIII or elsewhere in this Agreement or in the Notes
is intended to or shall (a) impair, as among the Company, its creditors other
than holders of Senior Indebtedness and the holders of the Notes, the
obligation of the Company, which is absolute and unconditional, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with their terms; or (b) affect
the relative rights against the Company of the holders of the Notes and
creditors of the Company other than the holders of Senior Indebtedness; or (c)
prevent the holder of any Note from exercising all remedies otherwise permitted
by this Agreement (including without limitation Section 7.6 hereof) and by
applicable law upon default under this Agreement, subject to the rights under
this Article VIII of the holders of Senior Indebtedness, under the conditions
specified in Sections 8.2 and 8.3, to receive cash, property and securities
otherwise payable or deliverable to such holder.
SECTION 8.7. No Waiver of Subordination Provisions. No right of any
present or future holder of any Senior Indebtedness to enforce subordination
as herein provided shall at any time in any way be prejudiced or impaired by
any act or failure to act on the part of the Company or by any act or failure
to act by any such holder, or by any non-compliance by the Company with the
terms, provisions and covenants of this Agreement, regardless of any knowledge
thereof any such holder may have or be otherwise charged with. The holders of
Senior Indebtedness may release, sell or exchange or enforce any security there
of or Guarantee thereof or elect any right or remedy, or delay in enforcing or
release any right or remedy and otherwise deal freely with the Company and any
guarantor, all without notice to the holders of Notes and all without affecting
the liabilities and obligation of the holders of the Notes.
SECTION 8.8. Notice to Holders of Notes. The Company shall give prompt
written notice to each holder of any Note of any fact known to the Company
which would prohibit the making of any payment to it in respect of the Notes.
Notwithstanding the provisions of this Article VIII or any other provision of
this Agreement (but without however limiting any rights of the holders of Senior
Indebtedness under this Article VIII to recover from Noteholders any payment
made to such Noteholder which it is not entitled to retain under this Article
VIII), (a) no holder of any Note shall be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to it in
respect of the Notes, unless and until such holder shall have received written
notice thereof from the Company, or a holder of Senior Indebtedness or from any
trustee, fiduciary or agent therefor;
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62
and, (b) prior to the receipt of any such written notice absent actual knowledge
thereof, each such holder of the Notes shall be entitled in all respects to
assume that no such facts exist.
Each holder of any Note shall be entitled to rely (provided such holder
is acting reasonably and in good faith) on the delivery to it of a written
notice by a Person representing himself to be a holder of Senior Indebtedness
(or a trustee, fiduciary or agent therefor) to establish that such notice has
been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent
therefor). In the event that such holder reasonably determines in good faith
that further evidence is required with respect to the right of any Person as a
holder of Senior Indebtedness to participate in any payment, distribution or
transfer pursuant to this Article VIII, such holder may request such Person to
furnish evidence to the reasonable satisfaction of such holder as to the amount
of Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment, distribution or transfer and any other
facts pertinent to the rights of such Person under this Article VIII, and if
such evidence is not furnished, such holder may defer any payment to such Person
until such evidence is furnished.
SECTION 8.9. Reliance of Holders of Senior Indebtedness. Each
Noteholder by its acceptance thereof shall be deemed to acknowledge and agree
that the foregoing subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior Indebtedness,
whether such Senior Indebtedness was created or acquired before or after the
creation of Subordinated Obligations, to acquire and hold, or to continue to
hold, such Senior Indebtedness, and such holder of Senior Indebtedness shall
be deemed conclusively to have relied on such subordination provision in
acquiring and holding, or in continuing to hold, such Senior Indebtedness.
SECTION 8.10. Reliance on Judicial order or Certificate of Liquidating
Agent. Upon any payment, distribution or transfer of assets of the Company
referred to in this Article VIII, the holders of the Notes shall be entitled to
rely upon any order or decree entered by any court of competent jurisdiction in
which such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other Person making
such payment, distribution or transfer, delivered to the holders of Notes, for
the sole purpose of ascertaining the Persons receiving such payment,
distribution or transfer, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid, distributed or transferred thereon and all other facts
pertinent thereto or to this Article VIII. Nothing contained in this Section
8.10 shall affect the respective substantive rights of the holders of the Notes
and the holders of Senior Indebtedness under this Article VIII.
SECTION 8.11. This Article Not to Prevent Events of Default. The
failure to make a payment on account of principal of or interest on the Notes
by reason of any provision of this Article will not be construed as preventing
the occurrence of an Event of Default.
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SECTION 8.12. Reinstatement The agreements contained in this Article
VIII shall continue to be effective or be reinstated, as the case may be, if
at any time any payment of any of the Senior Indebtedness is rescinded or must
otherwise be returned by a holder of Senior Indebtedness upon any bankruptcy or
similar proceeding of the Company or any of its Subsidiaries, all as though
such payment had not been made.
ARTICLE IX
SUBSTITUTION; LIMITATION ON TRANSFERS
SECTION 9.1. Substitution of Purchasers Prior to Closing Date. If (i)
any Purchaser (a "Defaulting Purchaser") shall not purchase all or part of the
Notes such Defaulting Purchaser has agreed to purchase hereunder, and (ii) one
or more other Persons satisfactory to the Company is willing to assume the
obligations of such Defaulting Purchaser under this Agreement, then the
obligations of such Defaulting Purchaser to purchase Notes pursuant to this
Agreement may be assumed by such other Person by executing and delivering a
copy of this Agreement (or, if such other Person is already a Purchaser under
this Agreement, by executing and delivering an amended signature page of this
Agreement with the amount of Notes to be purchased hereunder appropriately
increased) and documents and representations satisfactory to the Company for
the purpose of assuring the Company that the purchase of Notes hereunder by
such Person hereunder will not result in a violation of any provision of
applicable law. The assumption by such other Person of the obligations of a
Defaulting Purchaser pursuant to this Section 9.1 shall not constitute a waiver
of any rights the Company may have against such Defaulting Purchaser that has
defaulted in its obligations under this Agreement.
SECTION 9.2. Restrictions on Transfer. No Purchaser or Noteholder shall
dispose of all or any part of the Notes (other than pursuant to an effective
registration statement under the Securities Act or a sale or other disposition
made pursuant to Rule 144 or Rule 144A) unless, if requested by the Company,
such Purchaser or Noteholder, as the case may be, delivers to the Company an
opinion of counsel (who may be in-house counsel), reasonably satisfactory in
form and substance to the Company, that an exemption from registration under the
Securities Act is available. In the case of sales or other dispositions pursuant
to Rule 144 or Rule 144A, if requested by the Company, such holder will deliver
certificates evidencing compliance with Rule 144 or Rule 144A, reasonably
satisfactory in form and substance to the Company. Each certificate for the
Notes issued to a Purchaser or to a subsequent transferee shall, unless at such
time as the same is no longer required under the applicable requirements of the
Securities Act, shall bear the following legend:
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT
BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISON HEREOF,
THE HOLDER (1) REPRESENTS THAT (A) IT IS A "QUALIFIED
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INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR
(B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501
(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED
INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN
OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE YEARS AFTER
THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS NOTE
EXCEPT (A) TO HANGER ORTHOPEDIC GROUP, INC. (THE "COMPANY"), OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY
A U.S. BROKER-DEALER) TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY),
(D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL
GIVE TO EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE
HEREOF, THE NOTEHOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM
MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT."
ARTICLE X
INDEMNIFICATION
SECTION 10.1. Indemnification.
The Company agrees to indemnify and hold harmless each Purchaser or
Noteholder, its directors, officers, employees, Affiliates and each Person, if
any, who controls such Purchaser or Noteholder within the meaning of the
Securities Act or the Exchange Act (any and all of whom are referred to as the
"Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several (including all reasonable legal fees and other
expenses reasonably incurred by any Indemnified Party in connection with the
preparation for or defense of any pending or threatened claim, action or
proceeding, whether or not resulting in any liability), to which such
Indemnified Party may become subject (whether or not such Indemnified Party is
a party thereto) under any applicable federal, state
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65
or local law or otherwise caused by or arising out of, or allegedly caused by or
arising out of, the Basic Documents or any transaction contemplated hereby or
thereby (including without limitation, the Acquisition), other than losses,
claims, damages or liabilities resulting from any representation made by such
Purchaser or Noteholder in Article IV.
Promptly after receipt by an Indemnified Party of notice of any claim,
action or proceeding with respect to which an Indemnified Party is entitled to
indemnity hereunder, such Indemnified Party will notify the Company of such
claim or the commencement of such action or proceeding, provided that the
failure of an Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 10.1 with respect to
such Indemnified Party, except to the extent that the Company is actually
prejudiced by such failure. The Company will assume the defense of such claim,
action or proceeding and will employ counsel satisfactory to the Indemnified
Party and will pay the fees and expenses of such counsel. Notwithstanding the
preceding sentence, the Indemnified Party will be entitled, at the expense of
the Company, to employ counsel separate from counsel for the Company and for
any other party in such action if the Indemnified Party reasonably determines
that a conflict of interest or other reasonable basis exists which makes
representation by counsel chosen by the Company not advisable. The Company
further agrees to reimburse each indemnified Party for all legal or other
expenses (including, without limitation, fees and expenses of counsel) incurred
by the Indemnified Party in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (whether or not such Indemnified Party is a party to any action or
proceeding out of which such expenses arise), including, without limitation,
the Indemnified Party appearing as a witness in any action or proceeding
brought against the Company or any of its Subsidiaries (or any of its officers,
directors or employees).
In the event that the foregoing indemnity is unavailable or
insufficient to hold an Indemnified Party harmless, then the Company shall
contribute to amounts paid or payable by such Indemnified Party in respect of
such losses, claims, damages, liabilities and expenses in such proportion as
appropriately reflects the relative benefits received by, and fault of, the
Company on the one hand and such Indemnified Party on the other hand in
connection with matters as to which such losses, claims, damages, liabilities
or expenses relate and other equitable considerations. The agreement of the
Company in this paragraph shall be in addition to any liability the Company
may otherwise have.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. Notices. All notices, requests and other communications
to any party hereunder shall be in writing (including facsimile or similar
writing) and shall be given to such party at its address or facsimile number
set forth on the signature pages hereof, or such other address or facsimile
number as such party may hereinafter specify to the party giving such notice.
Each such notice, request or other communication shall be effective (i) if
given by facsimile, when such facsimile is transmitted to the facsimile number
referred to in
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this Section 11.1 and a telephone call that confirms the receipt of the
facsimile is made or received or, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid.
addressed as aforesaid or, (iii) if given by any other means, when delivered at
the address referred to in this Section 11.1.
SECTION 11.2. No Waivers, Amendments. (a) No failure or delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
(b) Any provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Company and the Required Holders; provided that no such amendment or waiver
shall, unless signed by all of the Purchasers or the Noteholders, as the case
may be, (i) except as provided in Section 9.1, change the amount of any Notes
to be purchased by any Purchaser pursuant to this Agreement, (ii) extend the
period of time during which the Purchasers shall be obligated to purchase Notes
pursuant to this Agreement, (iii) change the number of Purchasers or the
Noteholders, as the case may be, that shall be required for the Purchasers or
the Noteholders, as the case may be, or any of them to take any action under
this Section 11.2(b) or any other provision of this Agreement, (iv) reduce the
rate or amount or extend the time for payment of interest or premium, if any,
on any Note, (v) reduce the principal amount of or extend the fixed maturity of
any Notes or alter the redemption provisions with respect thereto or (vi) make
any Note payable in money or property other than as stated herein.
SECTION 11.3. Survival of Provisions. The representations and
warranties, covenants and agreements contained in this Agreement shall survive
beyond the Closing Date and the issuance of the Notes.
SECTION 11.4. Expenses; Documentary Taxes. The Company agrees to pay
all fees and disbursements of each Purchaser (including reasonable fees and
expenses of counsel) in connection with the purchase and sale of the Notes as
contemplated by this Agreement or any amendments thereto and the fees and
disbursements of each Noteholder (including reasonable fees and expenses of
counsel) in connection with this Agreement, the Notes, the Subsidiary Guaranty
Agreement, the Warrants or any waiver or consent under, or any amendment of any
of, the foregoing or any enforcement action relating thereto. In addition, the
Company agrees to pay any and all stamp, transfer and other similar taxes
payable or determined to be payable in connection with the execution and
delivery of this Agreement, any Notes or the issuance or transfer of the Notes.
SECTION 11.5. Termination: Termination Fees. (a) This Agreement may be
terminated by the Company and the Required Purchasers by mutual agreement at
any time prior to the Closing Date. This Agreement will terminate automaticaly
at 5:00 p.m. on November 1, 1996 unless all conditions to the Purchasers'
obligations hereunder are satisfied or waived by such date.
67
(b) Upon termination of this Agreement, the Company hereby agrees to
pay the Purchasers the fees and expenses which are payable pursuant to Section
11.4 hereof.
SECTION 11.6. Confidentiality. Each Noteholder agrees that it will use
reasonable efforts not to disclose without the prior consent of the Company
(other than to its investment advisers, employees, auditors or counsel or to
another Noteholder) any information with respect to the Company or any
Subsidiary which is furnished pursuant to Section 6.1 and which is designated by
the Company to such Noteholder in writing as confidential, provided that it may
disclose any such information (a) as has become generally available to the
public, (b) as may be required or appropriate in any report, statement or
testimony submitted to any municipal, state or Federal regulatory body having or
claiming to have jurisdiction over such Noteholder, (c) as may be required or
appropriate in response to any summons or subpoena or in connection with any
litigation or as otherwise required by law, (d) to the extent that such
Noteholder believes it appropriate in order to protect its investment in the
Notes or Warrants or in order to comply with any law, order, regulation or
ruling applicable to such Noteholder, (e) to the prospective transferee in
connection with any contemplated transfer of any of the Notes or Warrants by
such Noteholder, or (f) upon the request or demand of any regulatory agency or
authority having jurisdiction over such Noteholder and provided further that the
Company agrees that such Noteholder will not be liable for damages to the
Company unless any such information is disclosed as a result of such
Noteholder's gross negligence or willful misconduct.
SECTION 11.7. Successors and Assigns. (a) All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
inure to the benefit of the respective successors and assigns of the parties
hereto including the holders from time to time of the Notes or Warrants whether
so expressed or not, except that the Company may not assign or transfer any of
its rights or obligations under this Agreement.
(b) All provisions hereunder purporting to give rights to the
Purchasers shall extend to and include those entities receiving the beneficial
interest of the Notes at the Closing Date.
SECTION 11.8. NEW YORK LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF. Each of the parties hereto
agrees to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Agreement.
SECTION 11.9. Counterparts; Effectiveness. This Agreement may be
executed in any number of counterparts each of which shall be an original with
the same effect as if the signatures thereto and hereto were upon the same
instrument.
SECTION 11.10. Entire Agreement. This Agreement constitutes the entire
agreement and understanding among the parties hereto and supersedes any and all
prior agreements and understandings, written or oral, relating to the subject
matter hereof.
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SECTION 11.11. Consent to Jurisdiction. The Company hereby irrevocably
consents to the nonexclusive jurisdiction of the courts of the State of New
York and of any federal court located in such state over each of them in
connection with any action or proceeding arising out of or relating to this
Agreement and, to the fullest extent permitted by law, further agrees (and
shall not contest) that the proper venue for filing and maintaining any such
action or proceeding shall be in the State of New York. In any such action or
proceeding, the Company waives personal service of any summons, complaint or
other process or notice and agrees that service by first class mail, return
receipt requested, to the Company at its address for notices hereunder, or any
other form of service provided for in New York civil practice law and rules
then in effect shall constitute good and sufficient service or notice upon
such person or entity.
ARTICLE XII
SMALL BUSINESS ADMINISTRATION MATTERS
SECTION 12.1. SBIC Forms. On the date hereof, the Purchasers shall have
received from the Company fully executed Small Business Administration Forms
480 and 652 (together with Small Business Administration Form 1031, the "SBA
Forms").
SECTION 12.2. SBIC Information. All information set forth in the SBA
Forms regarding the Company and its Affiliates is accurate and complete. Copies
of such forms have been, on or prior to the date hereof (or within 20 days of
closing in the case of Form 1031), completed and executed by the Company and
delivered to the Purchasers.
SECTION 12.3. Inspection. The Company covenants and agrees that it will
permit the Purchasers and their permitted transferees and their representatives
(including without limitation, examiners from the Small Business Administration)
to inspect the properties of the Company and to examine and make extracts and
copies from the books and records of the Company during normal business hours
(including, without limitation, for purposes of verifying the certifications and
representations made by the Company in the SBA Forms and this Note Purchase
Agreement and in verifying compliance with the covenants contained in this Note
Purchase Agreement).
SECTION 12.4. Information. In addition, the Company covenants and
agrees to provide to the Noteholders any other information which the Noteholders
reasonably requests, including without limitation, at least annually, sufficient
financial and other information necessary to allow the Noteholder to evaluate
the financial condition of the Company for the purpose of valuing the
Noteholder's interest in the Company, to determine the continued eligibility of
the Company under the Small Business Investment Act of 1958, as amended (the
"SBIA") and the regulations thereunder, including Title 13, Code of Federal
Regulations, Section 121.301, and to verify the use of the proceeds received by
the Company from the purchase of the shares. All such information shall be
certified by the President, Chief Executive Officer, Treasurer or Chief
Financial Officer of the Company. Within 20 days of the date hereof, the Company
shall have provided the Purchasers a completed Small
<PAGE>
69
Business Administration Form 1031. Promptly after the end of each fiscal year of
the Company (and in any event prior to February 28 of each year), the Company
shall provide to the Purchasers a written assessment in form and substance
satisfactory to the Purchasers of the economic impact of the financing
assistance provided to the Company by the Purchasers, specifying the full time
equivalent jobs created or retained, and the impact of the financing on the
revenues and profits of the business and on taxes paid by the business and its
employees. Upon the request of any Purchaser the Company will also provide all
information requested by such Purchaser in order for it to prepare and file SBA
Form 468 and any other information requested or required by any governmental
agency asserting jurisdiction over such Purchaser.
SECTION 12.5. Use of Proceeds. The Company agrees that it will not use
the proceeds from the sale of the Notes for any purpose that would be a
violation of Section 1-07.720 of Title 13 of the Code of Federal Regulations.
SECTION 12.6. Business. For a period of one year following the date
hereof, the Company will not change its business activity if such change would
render the Company ineligible to receive financial assistance from a Small
Business Investment Company under the Small Business Act and the regulations
thereunder.
SECTION 12.7. Non-Discrimination. The Company will at all times comply
with the nondiscrimination requirements of 13 C.F.R., Parts 112, 113 and 117.
SECTION 12.8. Company Awareness. The Company acknowledges its awareness
that the Purchasers are Federal licensees under the Small Business Investment
Act of 1958, as amended.
<PAGE>
70
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers (or, in the case of
parties that are not corporations, other authorized persons), as of the date
first above written.
HANGER ORTHOPEDIC GROUP, INC.
By /s/Ivan R. Sabel
Title: President
CHASE VENTURE CAPITAL Associates, L P,
a California limited partnership
By: Chase Capital Partners,
its general partner
By: /s/ Mitchell Blutt
Title: General Partner
Principal Amount of Notes: $4,000,000.00
Number of Warrants: 800,000 to purchase
800,000 shares of Common Stock
Address: c/o Chase Capital Partners
380 Madison Avenue, 12th Floor
New York, NY 10017
Attention: Dr. Mitchell Blutt
Telephone: 212-622-3100
Telecopier: 212-622-3101
PARIBAS PRINCIPAL, INC.
By: /s/ M. S. Alexander
Title: President
Principal Amount of Notes: $4,000,000.00
Number of Warrants: 800,000 to purchase
800,000 shares of Common Stock
Address: 787 Seventh Avenue
New York, NY 10019
Attention: M.S. Alexander
Telephone: 212-841-2115
Telecopier: 212-841-3558
<PAGE>
EXHIBIT A
[FORM OF SENIOR SUBORDINATED NOTE)
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501 (a)(l), (2), (3) OR (7) UNDER THE SECURITIES
ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING
THIS NOTE IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS NOTE RESELL OR OTHERWISE TRANSFER THIS
NOTE EXCEPT (A) TO HANGER ORTHOPEDIC GROUP, INC. (THE "COMPANY"), OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH
RULE 144A UNDER THE SECURITIES ACT, (C) TO AN ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER-DEALER) TO THE COMPANY A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE
FORM OF WHICH LETTER CAN BE OBTAINED FROM THE COMPANY), (D) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE), OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN
CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THREE YEARS AFTER THE ORIGINAL
ISSUANCE HEREOF, THE NOTEHOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF
THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
<PAGE>
2
HANGER ORTHOPEDIC GROUP, INC.
8.00% Senior Subordinated Note
Due November 1, 2004
No. ____ New York, New York
November 1, 1996
FOR VALUE RECEIVED, the undersigned HANGER ORTHOPEDIC GROUP, INC. (the
"Company"), a Delaware corporation, hereby promises to pay to [CHASE VENTURE
CAPITAL ASSOCIATES, L.P., a California limited partnership] PARIBAS PRINCIPAL
INC. or registered assigns, the principal sum of FOUR MILLION AND NO/100
DOLLARS ($4,000,000) on November 1, 2004 and to pay interest (computed on the
basis of a 360-day year, based on the actual number of days elapsed) on the
unpaid principal amount hereof at the rate of 8.00% per annum from the date
hereof, payable semi-annually in arrears on each June 30 and December 31,
commencing June 30, 1997, (unless said day is not a Business Day, in which
event on the next succeeding Business Day) until the principal hereof (or any
portion thereof) shall have become due and payable, and on any overdue payment
of principal, premium, if any, and interest, (without regard to any applicable
grace periods) until paid, at a rate per annum equal to 2% above the otherwise
applicable interest rate on this Note to the extent lawful.
1. Definitions. Terms defined in the Senior Subordinated Note Purchase
Agreement, dated as of November 1, 1996 (the "Note Purchase Agreement"), among
the Company and the Purchasers listed on the signature pages thereto, and not
otherwise defined herein have, as used herein, the respective meanings provided
for therein.
2. Manner of Payment. Interest payable on any Interest Payment Date
(except on the Maturity Date) may be paid by the Company to the Noteholders
either (i) entirely in cash in the amount of 8.00% per annum of the unpaid
principal amount of the Notes on such Interest Payment Date or, at the option
of the Company, (ii) in a combination of (A) cash in an amount at least equal
to the 3.2% per annum of the unpaid principal amount of the Notes (inclusive of
Subsequent Notes) on such Interest Payment Date and (B) newly-issued Notes
(each, a "Subsequent Note") issued to the Noteholders in an aggregate principal
amount equal to the remaining amount of accrued interest on the Notes for such
period (inclusive of Subsequent Notes); provided that only one such method of
payment may be selected on any Interest Payment Date. Excluding the Maturity
Date, interest on the Notes will be payable on each June 30 and December 31 to
the Noteholders of record at the close of business on the December 15 and June
15 preceding such Interest Payment Dates. Interest payable on the Maturity Date
shall only be payable in cash. Noteholders must surrender Notes to the Company
to collect principal payments. All cash payments in respect of the Notes will
be made by wire transfer of immediately available funds by 11:00 a.m. on the
date
<PAGE>
3
when due to the account of the Noteholder at a bank in the United States
specified in writing by the Noteholder to the Company.
3. Issuance Pursuant to Note Purchase Agreement. This Note is one of a
duly authorized issue of Notes the Company originally issued in an aggregate
principal amount of $8,000,000 pursuant to the Note Purchase Agreement. The
Noteholder is entitled to enforce the provisions of the Note Purchase Agreement
and to enjoy the benefits thereof and is subject to the restrictions contained
therein, including without limitation the restrictions on transfer.
4. Prepayments. As provided in the Note Purchase Agreement, this Note
is subject to optional and contingent prepayments, in whole or in part,
together with accrued but unpaid interest.
5. Subordination. Payments of principal, premium and interest in
respect of this Note are subordinate, to the extent specified in the Note
Purchase Agreement, to all Senior Indebtedness of the Company, whether
outstanding on the date of the Note Purchase Agreement or thereafter created,
incurred, assumed or guaranteed. Each Holder by his acceptance hereof agrees to
be bound by such provisions.
6. Guarantee. Pursuant to the Note Purchase Agreement and the Subsidiary
Guaranty Agreement, each dated as of November 1, 1996 among the Subsidiary
Guarantors and the Purchasers listed on the signature pages thereto, Obligations
with respect to this Note have been guaranteed by each of the Subsidiary
Guarantors, respectively, subject to the limitations, priorities and provisions
for amendment of such guarantee, including without limitation the subordination
of such guarantees to the Subsidiary Guarantor's obligations in respect of their
guarantees of the Senior Indebtedness.
7. Restrictive Covenants. The Note Purchase Agreement imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries to,
among other things, incur additional Debt, pay dividends or make certain other
Restricted Payments, create liens, consummate certain Asset Sales, enter into
certain transactions with Affiliates, and consummate certain mergers and
consolidations or sales of all or substantially all of its assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Noteholders on compliance with such
limitations.
8. Registration and Transfer. This Note is transferable only on the
register of the Company upon presentation at the principal office of the
Company, accompanied by a written instrument of transfer in form satisfactory
to the Company, duly executed by, or on behalf of, the Holder. The Company may
treat the person in whose name this Note is registered as the owner hereof for
the purposes of receiving payment and for all other purposes. Transfer of this
Note may not be effected except in compliance with the Securities Act of 1933,
as amended, and is also subject to the additional restrictions contained in the
Note Purchase Agreement and the legend hereon.
<PAGE>
4
9. Events of Default. In case an Event of Default shall occur and be
continuing, the principal of this Note may be declared due and payable in the
manner and with the effect provided in the Note Purchase Agreement.
10. GOVERNING LAW. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
HANGER ORTHOPEDIC GROUP, INC.
By
------------------------------------
Name:
Title:
<PAGE>
EXECUTION COPY
WARRANT
To Purchase Common Stock of
HANGER ORTHOPEDIC GROUP, INC.
Issuance Date: November 1, 1996
Number of Shares of Common Stock:
800,000 (subject to adjustment)
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE 1. DEFNITIONS................................................. 1
ARTICLE 2. EXERCISE OF WARRANTS....................................... 5
2.1 Manner of Exercise.......................................... 5
2.2 Exercise Price.............................................. 6
2.3 Payment of Taxes............................................ 6
2.4 Fractional Shares........................................... 7
2.5 Continued Validity 7
ARTICLE 3. TRANSFER, DIVISION AND COMBINATION, ADDITIONAL
WARRANTS................................................... 7
3.1 Transfer..................................................... 7
3.2 Division and Combination..................................... 7
3.3 Expenses..................................................... 8
3.4 Maintenance of Books......................................... 8
ARTICLE 4. REDUCTION IN NUMBER OF ISSUABLE SHARES OF WARRANT
STOCK...................................................... 8
4.1 Share Reduction.............................................. 8
4.2 Pro Rata Effect.............................................. 8
4.3 New Warrants................................................. 8
ARTICLE 5. ADJUSTMENTS................................................ 8
5.1 Stock Splits, Combinations, etc. ............................ 8
5.2 Reclassification, Combinations, Mergers, etc. ............... 9
5.3 Issuance of Options or Convertible Securities................ 9
5.4 Dividends and Distributions.................................. 10
5.5 Self-Tenders................................................. 11
5.6 Issuance of Additional Shares of Common Stock................ 11
5.7 Certain Distributions........................................ 11
5.8 Consideration Received....................................... 12
5.9 Deferral or Exclusion of Certain Adjustments................. 12
5.10 Changes in Options and Convertible Securities............... 12
5.11 Expiration of Options and Convertible Securities............ 12
5.12 Other Adjustments........................................... 13
5.13 Other Action Affecting Common Stock......................... 13
ARTICLE 6. NOTICES TO WARRANT HOLDERS................................. 13
6.1 Notice of Adjustments....................................... 13
6.2 Notice of Certain Corporate Action.......................... 14
<PAGE>
Page
----
ARTICLE 7. NO IMPAIRMENT.............................................. 14
ARTICLE 8. COMMON STOCK; RESERVATION AND AUTHORIZATION OF
REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY..................................... 14
ARTICLE 9. TAKING OF RECORD; STOCK AND WARRANT
TRANSFER BOOKS............................................. 15
ARTICLE 10. RESTRICTIONS ON TRANSFERABILITY........................... 15
10.1 Restrictive Legend.......................................... 15
10.2 Restriction on Transfers.................................... 16
10.3 Listing on Securities Exchange or NASDAQ.................... 16
ARTICLE 11. REGISTRATION RIGHTS....................................... 16
11.1 Incidental Registrations.................................... 16
11.2 Registration on Request..................................... 17
11.3 Registration Procedures..................................... 19
11.5 Rule 144.................................................... 24
11.6 Selection of Counsel........................................ 25
11.7 Holdback Agreement.......................................... 25
ARTICLE 12. LOSS OR MUTILATION........................................ 25
ARTICLE 13. OFFICE OF THE COMPANY..................................... 26
ARTICLE 14. FINANCIAL AND BUSINESS INFORMATION........................ 26
ARTICLE 15. LIMITATION OF LIABILITY................................... 26
ARTICLE 16. MISCELLANEOUS............................................. 27
16.1 Nonwaiver and Expenses...................................... 27
16.2 Notice Generally............................................ 27
16.3 Successors and Assigns...................................... 27
16.4 Amendment................................................... 27
16.5 Severability................................................ 28
16.6 Headings.................................................... 28
16.7 GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE............ 28
16.8 MUTUAL WAIVER OF JURY TRIAL................................. 28
EXHIBIT A SUBSCRIPTION FORM
EXHIBIT B ASSIGNMENT FORM
<PAGE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF,
AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933,
AS AMENDED, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT.
WARRANT
To Purchase 800,000 Shares of
Common Stock (subject to adjustment) of
HANGER ORTHOPEDIC GROUP, INC.
THIS IS TO CERTIFY THAT, for value received, CHASE VENTURE
CAPITAL ASSOCIATES, L.P., a California limited partnership (the "Initial
Holder"), or its registered assigns, is the owner of eight hundred thousand
(800,000) Warrants (as hereinafter defined), which entitle the Holder (as
hereinafter defined), at any time prior to the Expiration Date (as hereinafter
defined), to purchase from HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation
(the "Company"), eight hundred thousand (800,000) shares of Common Stock (as
hereinafter defined and such number subject to adjustment as provided herein),
in whole or in part, including fractional parts, all on the terms and conditions
and pursuant to the provisions hereinafter set forth.
ARTICLE 1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Issuance Date, other than
the Warrant Stock.
"Affiliate" shall mean, as to any Person, (i) any other Person
directly or indirectly controlling, controlled by, or under common
control with such Person or (ii) any director, officer or partner of
such Person or any Person specified in clause (i) above.
"Aggregate Exercise Price" shall mean, with respect to the
exercise of all or a portion of the Warrant, the Exercise Price
multiplied by the number of shares of Warrant Stock purchased upon
such exercise.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in
the State of New York or the State of Maryland.
<PAGE>
2
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean the collective reference to the common
stock of the Company, par value $.0 1 per share, as constituted on the
Issuance Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof in
which the shares of Common Stock are converted into a new class of
capital stock and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 5.2) received by or
distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 5.2.
"Convertible Securities" shall have the meaning set forth in
Section 5.3 hereof.
"CVCA" shall mean Chase Venture Capital Associates, L.P., a
California limited partnership.
"Demand Party" shall mean any other Holder or Holders that,
either individually or in aggregate with all other Holders with whom it
is acting together to demand registration, own(s) at least 50% of the
total number of Registrable Securities (whether in the form of Warrants
or Warrant Stock).
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Exercise Price" shall have the meaning set forth in Section 2.2
hereof.
"Expiration Date" shall mean the date which is the eighth
anniversary of the Issuance Date.
"Fair Value" shall mean, with respect to the valuation of any
evidences of indebtedness, other securities, properties, assets,
options, warrants or subscription or purchase rights, the fair market
value thereof as determined in good faith by the Board of Directors of
the Company and, if required by the Majority Holders, supported by an
opinion from an investment banking firm acceptable to the Majority
Holders, which approval shall not be unreasonably withheld, of such
Valuation Properties; provided however that the Fair Value of any Notes
tendered in connection with any exercise of this Warrant pursuant to
Section 2.1 shall be equal to the principal amount of such tendered
Notes plus any accrued and unpaid interest or other obligations owed in
respect thereof.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name this Warrant is
registered on the books of the Company maintained for such purpose or
the Person holding any Warrant Stock, including, without limitation, in
each case, transferees thereof.
<PAGE>
3
"Issuance Date" shall mean November 1, 1996.
"Maioritv Holders" shall mean the Holders of Warrants
exercisable for in excess of 50% of the aggregate number of shares of
Common Stock then receivable upon exercise of all Warrants.
"Market Price" shall mean, as of any exercise date or other
relevant date, the average of the per share closing prices of a share of
Common Stock for the 10 consecutive Trading Days immediately preceding
such date on the principal national securities exchange in the United
States on which the shares of Common Stock are listed or admitted to
trading, or if not listed or admitted to trading on any national
securities exchange on such Trading Day, on the National Association of
Securities Dealers Automated Quotations National Market System, or if
the shares of Common Stock are not listed or admitted to trading on any
national securities exchange or quoted on such National Market System on
such Trading Day, the average of the closing bid and asked prices of a
share of Common Stock in the over-the-counter market on such Trading Day
as furnished by any New York Stock Exchange member firm selected from
time to time by the Company. If the Common Stock is not quoted or listed
by any such organization, exchange or market, the Market Price of the
Common Stock as of such exercise or other relevant date shall be
determined in good faith by the Board of Directors of the Company.
"NASD" shall mean the National Association of Securities
Dealers, Inc., or any successor entity thereto.
"NASDAQ" shall mean the National Association of Securities
Dealers Automatic Quotation System.
"Notes" the 8.00% Senior Subordinated Notes issued pursuant to
the Note Purchase Agreement.
"Note Purchase Agreement" shall mean the Senior Subordinated
Note Purchase Agreement, dated as of November 1, 1996, among the
Company, CVCA and Paribas.
"Options" shall have the meaning set forth in Section 5.3
hereof.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be
determined, all issued shares of Common Stock, except shares then owned
or held by or for the account of the Company or any Subsidiary, and
shall include all shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of Common
Stock.
Paribas shall mean Paribas Principal, Inc.
"Permitted Issuances" shall mean the issuance of shares of
Common Stock upon exercise of rights to acquire shares of Common Stock
exercisable pursuant to options held by employees or directors under
stock option plans which may from time to time be adopted by the Company
after the Issuance Date.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation,
<PAGE>
4
entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registrable Securities" shall mean (i) the Warrants and (ii)
the Warrant Stock. As to any particular Registrable Securities, once
issued, such securities shall cease to be Registrable Securities when
(i) a registration statement with respect to the sale by the Holder of
such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such
registration statement, (ii) such securities shall have been distributed
to the public pursuant to Rule 144 (or any successor provision) under
the Securities Act, (iii) such securities shall have been otherwise
transferred, new certificates for such securities not bearing a legend
restricting further transfer shall have been delivered by the Company
and subsequent disposition of such securities shall not require
registration or qualification of such securities under the Securities
Act or any state securities or blue sky law then in force, or (iv) such
securities shall have ceased to be Outstanding.
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance with Article 11 of this Agreement,
including, without limitation, (i) all Commission and stock exchange or
NASD registration and filing fees (including, if applicable, the fees
and expenses of any "qualified independent underwriter," as such term is
defined in Schedule E to the By-laws of the NASD, and of its counsel),
(ii) all fees and expenses of complying with securities or blue sky laws
(including fees and disbursements of counsel for the underwriters in
connection with blue sky qualifications of the Registrable Securities),
(iii) all printing, messenger and delivery expenses, (iv) all fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange pursuant to clause (viii) of
Section 11.3 and all rating agency fees, (v) the fees and disbursements
of counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, (vi)
the reasonable fees and disbursements of counsel selected pursuant to
Section 11.6 hereof by the Holders of the Registrable Securities being
registered to represent such Holders in connection with each such
registration, (vii) any fees and disbursements of underwriters
customarily paid by the issuers or sellers of securities, including
liability insurance if the Company so desires or if the underwriters so
require, and the reasonable fees and expenses of any special experts
retained in connection with the requested registration, but excluding
underwriting discounts and commissions and certain transfer taxes, if
any, and (viii) other reasonable out-of-pocket expenses of Holders
(provided that such expenses shall not include expenses of counsel other
than those provided for in clause (vi) above).
"Responsible Officer" shall mean the chief executive officer of
the Company, the president of the Company or the chief financial officer
of the Company.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Subsidiary" shall mean any corporation of which an aggregate of
more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the board of directors of such corporation
(irrespective of whether, at the time, stock of any other class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time, directly or
indirectly, owned of record or beneficially by the Company and/or one or
more other Subsidiaries of the Company.
<PAGE>
5
"Tender Offer" shall mean any public offer to substantially all
holders of Common Stock to purchase at least 50% of the Common Stock at
the time outstanding.
"Trading Day" shall mean each weekday other than any day on
which any Common Stock is not traded on any national securities
exchange, on NASDAQ or in the over-the-counter market.
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a
sale or transfer of a beneficial interest thereof within the meaning of
the Securities Act (excluding any transfer to an Affiliate of the
Initial Holder).
"Warrant Stock" shall mean all shares of Common Stock issued or
issuable upon the exercise hereof, including any such shares of Common
Stock transferred to any transferee of such Holder.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, this
Warrant. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock
for which they may be exercised.
ARTICLE 2. EXERCISE OF WARRANT
2.1 Manner of Exercise. At any time and from time to time from
and after the Issuance Date and until 5:00 P.M., New York time, on the
Expiration Date, Holder may exercise this Warrant, on any Business Day, for all
or any part of the number of shares of the Common Stock issuable hereunder;
provided that Holder may not exercise this Warrant if after giving effect to
such exercise the total number of shares of Common Stock issued upon exercise
hereof would exceed the product of:
(i) (a) 0.45, if such date of exercise is on or prior to
November 1, 1997; or
(b) 0.50, if such date of exercise is on or prior to
May 1, 1998 but after November 1, 1997; or
(c) 1.00, if such date is after May 1, 1998; times
(ii) the total number of shares of Common Stock issuable upon
exercise hereof as of the Issuance Date (as such number
of shares shall have been adjusted pursuant to Article 5
immediately prior to such exercise).
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 7700 Old Georgetown
Road, Bethesda, Maryland 20814 or at the office or agency designated by the
Company pursuant to Article 13, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to which the exercise shall relate and (ii) this Warrant. Such notice
shall be substantially in the form of the subscription form appearing at the end
of this Warrant as Exhibit A (the "Subscription Form"), duly executed by Holder
or its agent or attorney.
Upon receipt by the Company of (a) this Warrant and (b) the
Subscription Form with the applicable box checked thereon, the Company shall
issue the number of shares of Common Stock set forth in the next paragraph.
<PAGE>
6
To the extent Holder has checked the box on the Subscription
Form contemplating payment of either (x) the Aggregate Exercise Price in cash or
(y) pursuant to the surrender by Holder of Notes having a Fair Value equal to
the Aggregate Exercise Price in connection with an exercise hereof, then upon
payment, by certified or official bank check payable to the order of the Company
or by wire transfer of immediately available funds to an account designated by
the Company, of the Aggregate Exercise Price for the shares of Warrant Stock to
be purchased pursuant to the exercise of the Warrant, the Company shall, as
promptly as practicable, and in any event within two (2) Business Days
thereafter, execute or cause to be executed and deliver or cause to be delivered
to Holder a certificate or certificates representing the aggregate number of
shares of Common Stock issuable upon such exercise. To the extent Holder has
checked the box on the Subscription Form by which Holder elects not to pay the
Aggregate Exercise Price in cash and instead to make such payment by way of
Warrant surrender, the Company shall, as promptly as practicable, and in any
event within two (2) Business Days thereafter, (i) execute or cause to be
executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of shares of Common Stock to be
issued to Holder upon such "cashless" exercise and (ii) cancel the number of
shares of Warrant Stock issuable upon exercise of this Warrant having an
aggregate value (based on the Market Price at the time of exercise minus the
Exercise Price) equal to the Aggregate Exercise Price for the number of shares
described in clause (i) above.
In either case, the stock certificate or certificates so
delivered shall be in such denomination or denominations as such Holder shall
request in the Subscription Form and shall be registered in the name of Holder
or, subject to Article 10, such other name as shall be designated in the
Subscription Form.
This Warrant shall be deemed to have been exercised and such
certificate or certificates shall be deemed to have been issued, and Holder or
any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
notice is received by the Company.
If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
the Warrant Stock issued upon such exercise, deliver to Holder a new Warrant
evidencing the right of Holder to receive the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such exercise less
the number of shares issued pursuant to such exercise of this Warrant and/or,
where applicable, less the number of shares surrendered in non-cash payment in
connection with such exercise, which new Warrant shall in all respects (other
than number of shares) be identical to this Warrant.
2.2 Exercise Price. Subject to adjustment as hereinafter set
forth, the price payable upon exercise hereof (the "Exercise Price"), with
respect to each share of Common Stock, shall be:
(a) with respect to 335,150 shares of Common Stock (the "Section
2.2(a) Warrant Stock") issuable upon exercise hereto, $6.375; and
(b) with respect to 464,850 shares of Common Stock
(the "Section 2.2(b) Warrant Stock") issuable upon exercise hereof,
$4.00865.
2.3 Payment of Taxes. All shares of Common Stock issuable upon
the exercise of this Warrant shall be validly issued, fully paid and
nonassessable and shall have been issued free from any preemptive or similar
right and shall be free and clear of any lien, claim or similar charge or
restriction. The Company shall pay all expenses in connection with, and all
documentary, stamp or similar issue or transfer taxes, if any, and all other
taxes and other governmental charges that may be
<PAGE>
7
imposed with respect to, the issue and delivery of this Warrant, and all shares
of capital stock and other securities or property issuable or deliverable upon
the exercise of this Warrant, and shall indemnify and hold any Holder, its
directors, agents, general and limited partners and Affiliates from any taxes,
interest and penalties which may become payable by any of such Persons as a
result of the failure or delay by the Company to pay such taxes or charges. The
Company shall not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issue of any certificate for
shares of Common Stock issuable upon exercise of this Warrant in any name other
than that of Holder and its Affiliates.
2.4 Fractional Shares. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of Warrants. If any
fraction of a share of Common Stock would be issuable on the exercise of any
Warrant (or specified portion thereof), the Company shall pay to the Holder of
the Warrant an amount in cash equal to such fraction multiplied by the then-
current Market Price per share of Common Stock. For the purposes of this Section
2.3, the date from which the Market Price of Common Stock shall be computed
shall be the date on which notice is received by the Company pursuant to Section
2.1.
2.5 Continued Validity. A Holder of shares of Warrant Stock
shall continue to be entitled with respect to such shares to all rights and
subject to all obligations to which it would have been entitled or subject as
Holder of this Warrant under Articles 10, 11, 14 and 16 of this Warrant.
ARTICLE 3. TRANSFER DIVISION AND COMBINATION, ADDITIONAL
WARRANTS
3.1 Transfer. Subject to compliance with Article 10, transfer of
this Warrant and all rights hereunder, in whole or in part, shall be registered
on the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1
or the office or agency designated by the Company pursuant to Article 13,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder or its agent or attorney and funds
sufficient to pay any transfer taxes payable pursuant to Section 2.3 upon the
making of such transfer. Upon such surrender and, if required, such payment, the
Company shall, subject to Article 10, execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denomination
specified in such instrument of assignment, and shall issue to the assignor a
new Warrant evidencing the portion of this Warrant not so assigned, and this
Warrant shall promptly be cancelled. A Warrant, if properly assigned in
compliance with Article 10, may be exercised by a new Holder for the receipt of
shares of Common Stock without having a new Warrant issued. If requested by the
Company, a new Holder shall acknowledge in writing, in form reasonably
satisfactory to the Company, such Holder's continuing obligations under Articles
10 and 16.
3.2 Division and Combination. Subject to Article 10, this
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Article 10, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
<PAGE>
8
3.3 Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes not payable by the Company pursuant
to Section 2.3) the new Warrant or Warrants under this Article 3.
3.4 Maintenance of Books. The Company agrees to maintain, at its
aforesaid office or agency, books for the registration or transfer of the
Warrants.
ARTICLE 4. REDUCTION IN NUMBER OF ISSUABLE SHARES OF WARRANT
STOCK
4.1 Share Reduction. If, prior to May 1, 1998, the Company shall
have repaid in full all amounts borrowed pursuant to the Note Purchase Agreement
on or prior to the dates set forth in clause (i) below, then the number of
shares of Common Stock issuable upon exercise of this Warrant as of the close of
business on the date of such repayment shall be reduced (but not below zero) by
that number of shares which is equal to the product of: (i) 0.55, if such date
of repayment is on or prior to November 1, 1997, or 0.50, if such date of
repayment is on or prior to May 1, 1998 but after November 1, 1997; and (ii) the
total number of shares of Common Stock issuable upon exercise hereof as of the
Issuance Date (as such number of shares shall have been adjusted pursuant to
Article 5 prior to such close of business).
4.2 Pro Rata Effect. Any reduction in shares pursuant to Section
4.1 shall be applied to reduce the number of shares of Section 2.2(a) Warrant
Stock and Section 2.2(b) Warrant Stock then issuable, pro rata, based on the
relative number of shares in each such category then issuable (but not then
issued) upon exercise of this Warrant. No reduction in shares pursuant to
Section 4.2 shall have any effect on any Section 2.2(a) Warrant Stock and/or
Section 2.2(b) Warrant Stock issued prior to such reduction.
4.3 New Warrants. Upon any reduction pursuant to this Article 4,
the Company (at its own expense and subject to Section 2.3) will deliver to
Holder a new Warrant evidencing the rights of Holder to receive the number of
shares of Common Stock upon exercise of this Warrant less the number of shares
to which such reduction relates, which new Warrant shall in all respects (other
than number of shares) be identical to this Warrant.
ARTICLE 5. ADJUSTMENTS
The Exercise Price and the number of shares of Common Stock for
which this Warrant is exercisable shall be subject to adjustment from time to
time as set forth in this Article 5. The Company shall give each Holder notice
of any event described below which requires an adjustment pursuant to this
Article 5 at the time of such event. At any time and from time to time, the
Company shall promptly, without any action required of the Holders, cause the
appropriate adjustment or adjustments (to the extent that more than one event
requiring an adjustment has occurred since the last adjustment made) to be made
pursuant to this Article 5 in respect of each Warrant outstanding.
5.1 Stock Splits, Combinations etc.. In case the Company shall
hereafter (A) pay a dividend or make a distribution on its Common Stock in
shares of its capital stock (whether shares of Additional Common Stock or of
capital stock of any other class), (B) subdivide its outstanding shares of
Common Stock or (C) combine its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
action shall be adjusted so that the Holder of any Warrant thereafter exercised
shall be entitled to receive the number of shares of Capital Stock of the
Company which such Holder would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this
<PAGE>
9
paragraph shall become effective immediately after the record date in the case
of a dividend and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this paragraph, the Holder of any Warrant
thereafter exercised shall become entitled to receive shares of two or more
classes of Capital Stock of the Company, the Board of Directors of the Company
shall in good faith determine the allocation of the adjusted Exercise Price
between or among shares of such classes of Capital Stock.
5.2 Reclassification, Combinations, Mergers. etc.. In case of
any reclassification or change of outstanding shares of Common Stock issuable
upon exercise of the Warrants (other than as set forth in Section 5.1 above and
other than a change in par value, or from par value to no par value, or from no
par value to par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and which does not result in any reclassification or change of the
then outstanding shares of Common Stock or other Capital Stock issuable upon
exercise of the Warrants (other than a change in par value, or from par value to
no par value, or from no par value to par value or as a result of a subdivision
or combination)) or in case of any sale or conveyance to another corporation of
all or substantially all of the assets of the Company, then, as a condition of
such reclassification, change, consolidation, merger, sale or conveyance, the
Company or such a successor or purchasing corporation, as the case may be, shall
forthwith make lawful and adequate provision whereby the Holder of such Warrant
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance and enter into a supplemental warrant
agreement so providing. Such provisions shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 5. If the issuer of securities deliverable upon
exercise of Warrants under the supplemental warrant agreement is an Affiliate of
the formed, surviving or transferee corporation, that issuer shall join in the
supplemental warrant agreement. The above provisions of this Section 5.2 shall
similarly apply to successive reclassifications and changes of shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant Agreement to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate (as determined by resolution of the Board of Directors of the
Company) in order to provide for adjustments of shares of the Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Article 5. For purposes of
this Section 5.2 "shares of stock and other securities" of a successor or
acquiring corporation shall include stock of such corporation of any class which
is not preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 5.2 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
5.3 Issuance of Options or Convertible Securities In the event
the Company shall, at any time or from time to time after the date hereof,
issue, sell, distribute or otherwise grant in any
<PAGE>
10
manner (including by assumption) to all holders of the Common Stock any rights
to subscribe for or to purchase, or any warrants or options for the purchase of,
Common Stock or any stock or securities convertible into or exchangeable for
Common Stock (any such rights, warrants or options being herein called "Options"
and any such convertible or exchangeable stock or securities being herein called
"Convertible Securities") or any Convertible Securities (other than upon
exercise of any Option), whether or not such Options or the rights to convert or
exchange such Convertible Securities are immediately exercisable, and the price
per share at which Common Stock is issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities (determined by
dividing (i) the aggregate amount, if any, received or receivable by the Company
as consideration for the issuance, sale, distribution or granting of such
Options or any such Convertible Security, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Options or upon conversion or exchange of all such Convertible
Securities, plus, in the case of Options to acquire Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
conversion or exchange of all such Convertible Securities, by (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of all such
Options or upon the conversion or exchange of all such Convertible Securities or
upon the conversion or exchange of all Convertible Securities issuable upon the
exercise of all such Options) shall be less than the Market Price per share of
Common Stock on the record date for the issuance, sale, distribution or granting
of such Options (any such event being herein called a "Distribution") then,
effective upon such Distribution, the Exercise Price shall be reduced to the
price (calculated to the nearest 1/1,000 of one cent) determined by multiplying
the Exercise Price in effect immediately prior to such Distribution by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding (exclusive of any treasury shares) immediately prior to
such Distribution multiplied by the Market Price per share of Common Stock on
the date of such Distribution plus (ii) the consideration, if any, received by
the Company upon such Distribution, and the denominator of which shall be the
product of (A) the total number of shares of Common Stock outstanding (exclusive
of any treasury shares) immediately after such Distribution multiplied by (B)
the Market Price per share of Common Stock on the record date for such
Distribution. For purposes of the foregoing, the total maximum number of shares
of Common Stock issuable upon exercise of all such Options or upon conversion or
exchange of all such Convertible Securities or upon the conversion or exchange
of the total maximum amount of the Convertible Securities issuable upon the
exercise of all such Options shall be deemed to have been issued as of the date
of such Distribution and thereafter shall be deemed to be outstanding and the
Company shall be deemed to have received as consideration therefor such price
per share, determined as provided above. Except as provided in Sections 5.9 and
5.10 below, no additional adjustment of the Exercise Price shall be made upon
the actual exercise of such Options or upon conversion or exchange of the
Convertible Securities or upon the conversion or exchange of the Convertible
Securities issuable upon the exercise of such Options.
5.4 Dividends and Distributions. In the event the Company shall,
at any time or from time to time after the date hereof, distribute to all the
holders of Common Stock any dividend or other distribution of cash, evidences of
its indebtedness, other securities or other properties or assets (in each case
other than (i) dividends payable in Additional Common Stock, Options or
Convertible Securities and (ii) any cash dividend from current or retained
earnings), or any options, warrants or other rights to subscribe for or purchase
any of the foregoing, then (A) the Exercise Price shall be decreased to a price
determined by multiplying the Exercise Price then in effect by a fraction, the
numerator of which shall be the Market Price per share of Common Stock on the
record date for such distribution less the sum of (X) the cash portion, if any,
of such distribution per share of Common Stock outstanding (exclusive of any
treasury shares) on the record date for such distribution plus (r) the then fair
market value (as determined in good faith by the Board of Directors of the
Company) per share of Common Stock outstanding (exclusive of any treasury
shares) on the record date for such distribution of that portion, if any, of
such distribution consisting of evidences of indebtedness, other securities,
properties,
<PAGE>
11
assets, options, warrants or subscription or purchase rights, and the
denominator of which shall be such Market Price per share of Common Stock and
(B) the number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be increased to a number determined by multiplying the number of
shares of Common Stock so purchasable immediately prior to the record date for
such distribution by a fraction, the numerator of which shall be the Exercise
Price in effect immediately prior to the adjustment required by clause (A) of
this sentence and the denominator of which shall be the Exercise Price in effect
immediately after such adjustment. The adjustments required by this Section 5.4
shall be made whenever any such distribution occurs retroactive to the record
date for the determination of stockholders entitled to receive such
distribution.
5.5 Self-Tenders. In case of the consummation of a tender or
exchange offer (other than an odd-lot tender offer) made by the Company or any
subsidiary of the Company for all or any portion of the Common Stock to the
extent that the cash and value of any other consideration included in such
payment per share of Common Stock exceeds the first reported sales price per
share of Common Stock on the trading day next succeeding the Expiration Time,
the Exercise Price shall be reduced so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
Expiration Time by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
at the Expiration Time multiplied by the first reported sales price of the
Common Stock on the trading day next succeeding the Expiration Time, and the
denominator shall be the sum of (A) the fair market value (determined by the
Board of Directors of the Company, whose determination shall be conclusive and
described in a resolution of the Board of Directors) of the aggregate
consideration payable to stockholders based on the acceptance (up to any maximum
specified in the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the "Purchased
Shares") and (B) the product of the number of shares of Common Stock outstanding
(less any Purchased Shares) on the Expiration Time and the first reported sales
price of the Common Stock on the trading day next succeeding the Expiration
Time, such reduction to become effective immediately prior to the opening of
business on the day following the Expiration Time.
5.6 Issuance of Additional Shares of Common Stock. If at any
time the Company shall (except as hereinafter provided) issue or sell any
Additional Shares of Common Stock for consideration in an amount per Additional
Share of Common Stock less than the Market Price, then the number of shares of
Common Stock for which this Warrant is exercisable shall be adjusted to equal
the product obtained by multiplying the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to such issue or sale by a
fraction (A) the numerator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale, and (B) the denominator
of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale, and (2) the aggregate
consideration received from the issuance or sale of the Additional Shares of
Common Stock divided by the Market Price. For the purposes of this Section 5.6,
the date as of which the Market Price per share of Common Stock shall be
computed shall be the earlier of (a) the date on which the Company shall enter
into a firm contract for the issuance of such Additional Shares of Common Stock
or (b) the date of actual issuance of such Additional Shares of Common Stock.
Notwithstanding the foregoing, no adjustment shall be made under this Section
for issuances of Additional Shares of Common Stock (i) with respect to Permitted
Issuances or (ii) upon exercise of the Warrants.
5.7 Certain Distributions. If the Company shall pay a dividend
or make any other distribution payable in Options or Convertible Securities,
then, for purposes of Section 5.3 above, such Options or Convertible Securities
shall be deemed to have been issued or sold without consideration.
<PAGE>
12
5.8 Consideration Received. If any shares of Common Stock,
Options or Convertible Securities shall be issued, sold or distributed for a
consideration other than cash, the amount of the consideration other than cash
received by the Company in respect thereof shall be deemed to be the then fair
market value of such consideration (as determined in good faith by the Board of
Directors of the Company). If any Options shall be issued in connection with the
issuance and sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have been issued
without consideration; provided, however, that if such Options have an exercise
price equal to or greater than the Market Price of the Common Stock on the date
of issuance of such Options, then such Options shall be deemed to have been
issued for consideration equal to such exercise price.
5.9 Deferral or Exclusion of Certain Adjustments. No adjustment
to the Exercise Price (including the related adjustment to the number of shares
of Common Stock purchasable upon the exercise of each Warrant) shall be required
hereunder unless such adjustment, together with other adjustments carried
forward as provided below, would result in an increase or decrease of at least
one percent (1%) of the Exercise Price; provided that any adjustments which by
reason of this Section 5.9 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. No adjustment need be made
for a change in the par value of the Common Stock. All calculations under this
Article shall be made to the nearest 1/1,000 of one cent or to the nearest
1/1000th of a share, as the case may be. No adjustment to the Exercise Price
shall be made at any time hereunder in connection with the issuance by the
Company of a warrant to purchase 35,000 shares of Common Stock at an exercise
price of $2.44 pursuant to the warrant agreement, dated as of November 1, 1996,
among Hanger Orthopedic Group, Inc., J.E. Hanger, Inc. of Georgia and Wade L.
Harghausen.
5.10 Changes in Options and Convertible Securities. If the
exercise price provided for in any Options referred to in Section 5.3 above, the
additional consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in Section 5.3 above, or the rate at which
any Convertible Securities referred to in Section 5.3 above are convertible into
or exchangeable for Common Stock shall change at any time (other than under or
by reason of provisions designed to protect against dilution upon an event which
results in a related adjustment pursuant to this Article 5), the Exercise Price
then in effect and the number of shares of Common Stock purchasable upon the
exercise of each Warrant shall forthwith be readjusted (effective only with
respect to any exercise of any Warrant after such readjustment) to the Exercise
Price and number of shares of Common Stock so purchasable that would then be in
effect had the adjustment made upon the issuance, sale, distribution or granting
of such Options or Convertible Securities been made based upon such changed
purchase price, additional consideration or conversion rate, as the case may be,
but only with respect to such Options and Convertible Securities as then remain
outstanding.
5.11 Expiration of Options and Convertible Securities. It, at
any time after any adjustment to the number of shares of Common Stock
purchasable upon the exercise of each Warrant shall have been made pursuant to
Sections 5.3 or 5.10 above or this Section 5.11, any Options or Convertible
Securities shall have expired unexercised, the number of such shares so
purchasable shall, upon such expiration, be readjusted and shall thereafter be
such as they would have been had they been originally adjusted (or had the
original adjustment not been required, as the case may be) as if (i) the only
shares of Common Stock deemed to have been issued in connection with such
Options or Convertible Securities were the shares of Common Stock, if any,
actually issued or sold upon the exercise of such Options or Convertible
Securities and (ii) such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such exercise plus
the aggregate consideration, if any, actually received by the Company for the
issuance, sale, distribution or
<PAGE>
13
granting of all such Options or Convertible Securities, whether or not
exercised; provided that no such readjustment shall have the effect of
decreasing the number of such shares so purchasable by an amount (calculated by
adjusting such decrease to account for all other adjustments made pursuant to
this Article 5 following the date of the original adjustment referred to above)
in excess of the amount of the adjustment initially made in respect of the
issuance, sale, distribution or granting of such Options or Convertible
Securities.
5.12 Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Article 5, the Holders shall
become entitled to receive any securities of the Company other than shares of
Common Stock, thereafter the number of such other securities so receivable upon
exercise of the Warrants and the Exercise Price applicable to such exercise
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the shares of
Common Stock contained in this Article 5.
5.13 Other Action Affecting Common Stock. In case at any time or
from time to time the Company shall take any action in respect of its Common
Stock, other than any action described in this Article 5, then the number of
shares of Common Stock or other stock for which this Warrant is exercisable
shall be adjusted in such manner as may be equitable in the circumstances. If
the Company shall at any time and from time to time issue or sell (i) any shares
of any class of common stock other than Common Stock, (ii) any evidences of its
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for such shares of common stock, with or without the payment of
additional consideration in cash or property or (iii) any warrants or other
rights to subscribe for or purchase any such shares of common stock or any such
evidences, shares of stock or other securities, then in each such case such
issuance shall be deemed to be of, or in respect of, Common Stock for purposes
of this Article 5; provided, however, that, without limiting the generality of
the foregoing, if the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend payable in, or
other distribution of, common stock other than Common Stock, including shares of
non-voting common stock, then the number of shares of Common Stock for which
this Warrant is exercisable immediately after the occurrence of any such event
shall be adjusted to equal the aggregate number of shares of such common stock
and of Common Stock which a record holder of the same number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the occurrence
of such event would own or be entitled to receive after the happening of such
event.
ARTICLE 6. NOTICES TO WARRANT HOLDERS
6.1 Notice of Adjustments. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, and the Exercise Price
payable therefor, shall be adjusted pursuant to Article 5, the Company shall
forthwith prepare a certificate to be executed by a member of the Board of
Directors or one of its executive officers, setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair market value of any evidences of
indebtedness. other securities, properties, assets, options, warrants or
subscription or purchase rights), specifying the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 5.2, 5.12 or 5.13) describing the number and kind of any
other shares of stock or property for which this Warrant is exercisable. In the
event that the Majority Holders shall challenge any of the calculations set
forth in such certificate within 20 days after the Company's notification
thereof, the Company shall retain a firm of independent certified public
accountants of national standing selected by the Company and reasonably
acceptable to the Majority Holders, to prepare and execute a certificate
verifying the
<PAGE>
14
method by which the adjustment was calculated, the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 5.2, 5.12 or 5.13) describing the number and kind of any
other shares of stock or property for which this Warrant is exercisable. The
Company shall promptly cause a signed copy of any certificate prepared pursuant
to this Section 6.1 to be delivered to each Holder in accordance with Section
16.2. The Company shall keep at its office or agency designated pursuant to
Article 13 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by any Holder or any
prospective purchaser of a Warrant designated by a Holder thereof.
6.2 Notice of Certain Corporate Action. The Holder of any
Warrant shall be entitled to the same rights to receive notice of corporate
action as any holder of Common Stock.
ARTICLE 7. NO IMPAIRMENT
The Company shall not by any action including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant, and
(b) use its best efforts to obtain all such authorizations, exemptions or
consents from any public regulatory body having jurisdiction thereof as may be
necessary to enable the Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during
the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
ARTICLE 8. COMMON STOCK; RESERVATION AND AUTHORIZATION
OF REGISTRATION WITH OR APPROVAL OF ANY
GOVERNMENTAL AUTHORITY
From and after the Issuance Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant in accordance with the terms of such Warrant, shall be validly
issued, fully paid and nonassessable and shall have been issued free from any
preemptive or similar right and shall be free and clear of any lien, claim or
similar charge or restriction.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable, the
Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
<PAGE>
15
If any shares of Common Stock required to be reserved for
issuance upon exercise of Warrants require registration or qualification with
any governmental authority under any federal or state law (otherwise than as
provided in Article 11) before such shares may be so issued, the Company will in
good faith and as expeditiously as possible and at its expense endeavor to cause
such shares to be duly registered.
ARTICLE 9. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Article 5 refers to the taking of a record of such holders, the Company will
in each such case take such a record and will take such record as of the close
of business on a Business Day. The Company will not at any time close its stock
transfer books or Warrant transfer books so as to result in preventing or
delaying the exercise or transfer of any Warrant.
ARTICLE 10. RESTRICTIONS ON TRANSFERABILITY
10.1 Restrictive Legend. (a) Except as otherwise provided in
this Article 10, each certificate for Warrant Stock initially issued upon the
exercise of this Warrant, and each certificate for Warrant Stock issued to any
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND ARE SUBJECT TO CERTAIN PROVISIONS SPECIFIED IN A
CERTAIN WARRANT DATED NOVEMBER 1, 1996, ORIGINALLY ISSUED BY HANGER
ORTHOPEDIC GROUP, INC. (THE "WARRANT"), AND MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF OR ENCUMBERED WITHOUT COMPLIANCE WITH THE
PROVISIONS OF, AND ARE OTHERWISE RESTRICTED BY THE PROVISIONS OF, THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
THEREUNDER AND THE WARRANT. A COPY OF THE FORM OF SAID WARRANT IS ON
FILE WITH THE SECRETARY OF HANGER ORTHOPEDIC GROUP, INC. THE HOLDER OF
THIS CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND
BY THE PROVISIONS OF SUCH WARRANT."
(b) Except as otherwise provided in this Article 10, each
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY NOT BE TRANSFERRED, SOLD, ASSIGNED,
EXCHANGED, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF OR
ENCUMBERED WITHOUT COMPLIANCE WITH THE PROVISIONS OF, AND ARE OTHERWISE
RESTRICTED BY THE PROVISIONS OF, THE SECURITIES ACT OF 1933, AS
AMENDED, THE RULES AND REGULATIONS THEREUNDER AND THIS WARRANT."
<PAGE>
16
10.2 Restriction on Transfers. (a) Subject to Section 10.2(b)
below, prior to any Transfer of any Warrants or any shares of Warrant Stock
(other than a Transfer by a Holder to the Company), the Holder of such Warrants
or Warrant Stock shall deliver notice of such Transfer to the Company. Upon the
Company's receipt of such notice, such Holder shall be entitled to Transfer such
Warrants or such Warrant Stock in compliance with the Securities Act. Each
certificate, if any, evidencing such shares of Warrant Stock issued upon such
Transfer shall bear the restrictive legend set forth in Section 10.1(a), and
each Warrant issued upon such Transfer shall bear the restrictive legend set
forth in Section 10.1(b), unless such legend is not required in order to ensure
compliance with the Securities Act.
(b) Notwithstanding any other provision of this Warrant, the
restrictions imposed by this Article 10 upon transferability of the Warrants and
the Warrant Stock and the legend requirements of Section 10.1, shall terminate
as to any particular Warrant or share of Warrant Stock when and so long as such
security shall have been effectively registered under the Securities Act and
disposed of pursuant thereto. Whenever the restrictions imposed by this Article
10 shall terminate as to this Warrant, as hereinabove provided, the Holder
hereof shall be entitled to receive from the Company, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THIS WARRANT CONTAINED
IN ARTICLE 10 HEREOF TERMINATED ON _________, ____, AND ARE OF NO
FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Article 10 shall terminate as to any share of Warrant Stock, as
hereinabove provided, the Holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 10.1(a).
(c) Notwithstanding anything in this Warrant to the contrary, in
the event of a Tender Offer, the restrictive legends referred to in Sections
9.1(a) and 9.1) may be omitted from any Warrants or Warrant Stock sold by a
Holder to the maker of the Tender Offer.
10.3 Listing on Securities Exchange or NASDAQ. If the Company
shall list any shares of Common Stock on any securities exchange or on NASDAQ,
it will, at its expense, list thereon, maintain and, when necessary, increase
such listing of, all shares of Common Stock issued or, to the extent permissible
under the applicable securities exchange or NASDAQ rules, issuable upon the
exercise of this Warrant so long as any shares of Common Stock shall be so
listed during any such Exercise Period.
10.4 Covenant Regarding Consents. The Company hereby covenants
to use its best efforts upon request of one or more Holders to seek any waivers
or consents, or to take any other action required, to effectuate the exercise of
this Warrant by any Holder.
ARTICLE 11. REGISTRATION RIGHTS
11.1 Incidental Registrations. (a) Right to Include Registrable
Securities. If the Company at any time after the date hereof proposes to
register its Common Stock (or any security which is convertible into or
exchangeable or exercisable for Common Stock) under the Securities Act
<PAGE>
17
(other than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own account,
in a manner which would permit registration of Registrable Securities for sale
to the public under the Securities Act, it will, at each such time, give prompt
written notice to all Holders of Registrable Securities of its intention to do
so and of such Holders' rights under this Section 11.1. Upon the written request
of any such Holder made within 15 days after the receipt of any such notice
(which request shall specify the Registrable Securities intended to be disposed
of by such Holder), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities which the
Company has been so requested to register by the Holders thereof, to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered; provided that (i) if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to proceed with the proposed registration of
the securities to be sold by it, the Company may, at its election, give written
notice of such determination to each Holder of Registrable Securities and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), and (ii) if such
registration involves an underwritten offering, all Holders of Registrable
Securities requesting to be included in the Company's registration must sell
their Registrable Securities to the underwriters selected by the Company on the
same terms and conditions as apply to the Company, with such differences,
including any with respect to indemnification and liability insurance, as may be
customary or appropriate in combined primary and secondary offerings. If a
registration requested pursuant to this Section 11.1(a) involves an underwritten
public offering, any Holder of Registrable Securities requesting to be included
in such registration may elect, in writing prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration. Nothing in this
Section 11.1 shall operate to limit the right of Holder to (i) request the
registration of Warrant Stock issuable upon exercise of Warrants held by such
Holder notwithstanding the fact that at the time of request, such Holder holds
only Warrants or (ii) request the registration at one time of both Warrants and
Warrant Stock.
(b) Exnenses. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 11.1.
(c) Priority in Incidental Registrations. If a registration
pursuant to this Section 11.1 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering, so as to be likely to have an adverse effect
on the price, timing or distribution of the Securities offered in such offering
as contemplated by the Company (other than the Registrable Securities), then the
Company will include in such registration (i) first, 100% of the securities the
Company proposes to sell and (ii) second, to the extent of the number of
Registrable Securities requested to be included in such registration which, in
the opinion of such managing underwriter, can be sold without having the adverse
effect referred to above, the number of Registrable Securities which the Holders
have requested to be included in such registration, such amount to be allocated
pro rata among all requesting Holders on the basis of the relative number of
shares of Registrable Securities then held by each such Holder (provided that
any shares thereby allocated to any such Holder that exceed such Holder's
request will be reallocated among the remaining requesting Holders in like
manner).
11.2 Registration on Request. (a) Request by the Demand Party.
At any time, upon the written request of the Demand Party requesting that the
Company effect the registration under the Securities Act of all or part of such
Demand Party's Registrable Securities and specifying the amount and intended
method of disposition thereof, the Company will promptly give written notice of
such
<PAGE>
18
requested registration to all other Holders of such Registrable Securifies, and
thereupon will, as expeditiously as possible, use its best efforts to effect the
registration under the Securities Act of:
(i) such Registrable Securities which the Company has been so
requested to register by the Demand Party; and
(ii) all other Registrable Securities as are to be registered at
the request of a Demand Party and which the Company has been requested
to register by any other Holder thereof by written request given to the
Company within 15 days after the giving of such written notice by the
Company (which request shall specify the amount and intended method of
disposition of such Registrable Securities),
all to the extent necessary to permit the disposition (in accordance with the
intended method thereof as aforesaid) of the Registrable Securities so to be
registered, provided, that, unless Holders of a majority of the Registrable
Securities held by Holders consent thereto in writing, the Company shall not be
obligated to file a registration statement relating to any registration request
under this Section 11.2(a) (x) within a period of nine months after the
effective date of any other registration statement relating to any registration
request under this Section 11.2(a) which was not effected on Form S-3 (or any
successor or similar short-form registration statement) or relating to any
registration effected under Section 11.1, or (y) if with respect thereto the
managing underwriter, the Commission, the Securities Act or the rules and
regulations thereunder, or the form on which the registration statement is to be
filed, would require the conduct of an audit other than the regular audit
conducted by the Company at the end of its fiscal year, in which case the filing
may be delayed until the completion of such regular audit (unless the Holders of
the Registrable Securities to be registered agree to pay the expenses of the
Company in connection with such an audit other than the regular audit). Nothing
in this Section 11.2 shall operate to limit the right of Holder to (i) request
the registration of Warrant Stock issuable upon exercise of Warrants held by
such Holder notwithstanding the fact that at the time of request, such Holder
holds only Warrants or (ii) request the registration at one time of both
Warrants and Warrant Stock.
(b) Registration Statement Form. If any registration requested
pursuant to this Section 11.2 which is proposed by the Company to be effected by
the filing of a registration statement on Form S-3 (or any successor or similar
short-form registration statement) shall be in connection with an underwritten
public offering, and if the managing underwriter shall advise the Company in
writing that, in its opinion, the use of another form of registration statement
is of material importance to the success of such proposed offering, then such
registration shall be effected on such other form.
(c) Expenses. The Company will pay all Registration Expenses in
connection with the first two (2) registrations of each class or series of
Registrable Securities pursuant to this Section 11.2 upon the written request of
any of the Holders; provided that the Company will pay Registration Expenses in
connection with an additional two (2) such registrations if the Company shall
have not repaid in full all amounts borrowed pursuant to the Note Purchase
Agreement on or prior to May 1, 1998; provided, further that any requested
registration by Holder of both Warrants and Warrant Stock at one time shall only
count as one registration. All expenses for any subsequent registrations of
Registrable Securities pursuant to this Section 11.2 shall be paid pro rata by
the Company and all other Persons (including the Holders) participating in such
registration on the basis of the relative number of Warrants or shares of
Warrant Stock, as the case may be, of each such person whose Registrable
Securities are included in such registration.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 11.2 will not be deemed to have been effected unless it
has become effective and all of the Registrable
<PAGE>
19
Securities registered thereunder have been sold; provided that if, within 180
days after it has become effective, the offering of Registrable Securities
pursuant to such registration is interfered with by any stop order, injunction
or other order or requirement of the Commission or other governmental agency or
court, such registration will be deemed not to have been effected.
(e) Selection of Underwriters. If a requested registration
pursuant to this Section 11.2 involves an underwritten offering, the Holders of
a majority of the Registrable Securities which are held by Holders and which the
Company has been requested to register shall have the right to select the
investment banker or bankers and managers to administer the offering; provided,
however, that such investment banker or bankers and managers shall be reasonably
satisfactory to the Company.
(f) Priority in Requested Registrations. If a requested
registration pursuant to this Section 11.2 involves an underwritten offering and
the managing underwriter advises the Company in writing that, in its opinion,
the number of securities requested to be included in such registration
(including securities of the Company which are not Registrable Securities)
exceeds the number which can be sold in such offering, the Company will include
in such registration only the Registrable Securities requested to be included in
such registration. In the event that the number of Registrable Securities
requested to be included in such registration exceeds the number which, in the
opinion of such managing underwriter, can be sold, the number of such
Registrable Securities to be included in such registration shall be allocated
pro rata among all requesting Holders on the basis of the relative number of
Registrable Securities then held by each such Holder (provided that any shares
thereby allocated to any such Holder that exceed such Holder's request shall be
reallocated among the remaining requesting Holders in like manner). In the event
that the number of Registrable Securities requested to be included in such
registration is less than the number which, in the opinion of the managing
underwriter, can be sold, the Company may include in such registration the
securities the Company proposes to sell up to the number of securities that, in
the opinion of the underwriter, can be sold.
(g) Additional Rights. If the Company at any time grants to any
other holders of capital stock any rights to request the Company to effect the
registration under the Securities Act of any such shares of capital stock on
terms more favorable to such holders than the terms set forth in this Section
11.2, the terms of this Section 11.2 shall be deemed amended or supplemented to
the extent necessary to provide the Holders such more favorable rights and
benefits.
11.3 Registration Procedures. If and whenever the Company is
required to use its best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in this Agreement,
the Company will, as expeditiously as possible:
(i) prepare and, in any event within 120 days after the end of
the period within which a request for registration may be given to the
Company, file with the Commission a registration statement with respect
to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, provided, however, that the
Company may discontinue any registration of its securities which is
being effected pursuant to Section 11.1 at any time prior to the
effective date of the registration statement relating thereto;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period not in excess of 270 days and to
comply with the provisions of the Securities Act, the Exchange Act and
the rules and regulations of the Commission thereunder with respect to
the disposition of all securities covered by such registration
statement during such period in accordance with the intended
<PAGE>
20
methods of disposition by the seller or sellers thereof set forth in
such registration statement; provided that before filing a
registration statement or prospectus, or any amendments or supplements
thereto, the Company will furnish to counsel selected pursuant to
Section 11.6 hereof by the Holders of the Registrable Securities
covered by such registration statement to represent such Holders,
copies of all documents proposed to be filed, which documents will be
subject to the review of such counsel;
(iii) furnish to each seller of such Registrable Securities such
number of copies of such registration statement and of each amendment
and supplement thereto (in each case including all exhibits filed
therewith, including any documents incorporated by reference), such
number of copies of the prospectus included in such registration
statement (including each preliminary prospectus and summary
prospectus), in conformity with the requirements of the Securities Act,
and such other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Securities by such
seller;
(iv) use its best efforts to register or qualify such
Registrable Securities covered by such registration in such
jurisdictions as each seller shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or
advisable to enable such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller,
except that the Company shall not for any such purpose be required to
qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this clause (iv), it
would not be obligated to be so qualified, to subject itself to
taxation in any such jurisdiction or to consent to general service of
process in any such jurisdiction;
(v) use its best efforts to cause such Registrable Securities
covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the seller or sellers thereof to consummate the
disposition of such Registrable Securities;
(vi) notify each seller of any such Registrable Securities
covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in clause (ii) of this Section
11.3, of the Company's becoming aware that the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing, and at the
request of any such seller, prepare and furnish to such seller a
reasonable number of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable (but not
more than eighteen months) after the effective date of the registration
statement, an earnings statement which shall satisfy the provisions of
Section 11(a) of the Securities Act and the rules and regulations
promulgated thereunder;
(viii) (A) if such Registrable Securities are Warrant Stock, use
its best efforts to list such Registrable Securities on any securities
exchange on which the Common Stock is then
<PAGE>
21
listed if such Registrable Securities are not already so listed and if
such listing is then permitted under the rules of such exchange; (B) if
such Registrable Securities are Warrants, upon the reasonable request
of sellers of a majority of such Registrable Securities, use its best
efforts to list the Warrants and, if requested, the Warrant Stock
underlying the Warrants, notwithstanding that at the time of request
such sellers hold only Warrants, on any securities exchange so
requested, if such Registrable Securities are not already so listed,
and if such listing is then permitted under the rules of such exchange;
(C) and use its best efforts to provide a transfer agent and registrar
for such Registrable Securities covered by such registration statement
not later than the effective date of such registration statement;
(ix) enter into such customary agreements (including an
underwriting agreement in customary form), which may include
indemnification provisions in favor of underwriters and other persons
in addition to, or in substitution for the provisions of Section 11.4
hereof, and take such other actions as sellers of a majority of such
Registrable Securities or the underwriters, if any, reasonably
requested in order to expedite or facilitate the disposition of such
Registrable Securities;
(x) obtain a 'cold comfort" letter or letters from the Company's
independent public accounts in customary form and covering matters of
the type customarily covered by "cold comfort" letters as the seller
or sellers of a majority of shares of such Registrable Securities shall
reasonably request provided that Registrable Securities constitute at
least 25% of the securities covered by such registration statement);
(xi) make available for inspection by any seller of such
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other
agent retained by any such seller or any such underwriter, all
pertinent financial and other records, pertinent corporate documents
and properties of the Company, and cause all of the Company's officers,
directors and employees to supply all information reasonably requested
by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(xii) notify counsel (selected pursuant to Section 11.6 hereof)
for the Holders of Registrable Securities included in such registration
statement and the managing underwriter or agent, immediately, and
confirm the notice in writing (i) when the registration statement, or
any post-effective amendment to the registration statement, shall have
become effective, or any supplement to the prospectus or any amendment
prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request of the Commission to amend
the registration statement or amend or supplement the prospectus or for
additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the registration
statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of
the registration statement for offering or sale in any jurisdiction, or
of the institution or threatening of any proceedings for any of such
purposes;
(xiii) make every reasonable effort to prevent the issuance of
any stop order suspending the effectiveness of the registration
statement or of any order preventing or suspending the use of any
preliminary prospectus and, if any such order is issued, to obtain the
withdrawal of any such order at the earliest possible moment;
<PAGE>
22
(xiv) if requested by the managing underwriter or agent or any
Holder of Registrable Securities covered by the registration statement,
promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter or agent or such
Holder reasonably requests to be included therein, including, without
limitation, with respect to the number of Registrable Securities being
sold by such Holder to such underwriter or agent, the purchase price
being paid therefor by such underwriter or agent and with respect to
any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering; and make all required filings
of such prospectus supplement or post-effective amendment as soon as
practicable after being notified of the matters incorporated in such
prospectus supplement or post-effective amendment;
(xv) cooperate with the Holders of Registrable Securities
covered by the registration statement and the managing underwriter or
agent, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing
securities to be sold under the registration statement, and enable such
securities to be in such denominations and registered in such names as
the managing underwriter or agent, if any, or such Holders may request;
(xvi) obtain for delivery to the Holders of Registrable
Securities being registered and to the underwriter or agent an opinion
or opinions from counsel for the Company in customary form and in form,
substance and scope reasonably satisfactory to such Holders,
underwriters or agents and their counsel; and
(xvii) cooperate with each seller of Registrable Securities and
each underwriter or agent participating in the disposition of such
Registrable Securities and their respective counsel in connection with
any filings required to be made with the NASD.
The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish the Company with such
information regarding such seller and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as the
Company may from time to time reasonably request in writing.
Each Holder of Registrable Securities agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in clause (vi) of this Section 11.3, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by clause (vi)
of this Section 11.3, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in clause (ii) of this Section 11.3 shall be extended by the number of
days during the period from and including the date of the giving of such notice
pursuant to clause (vi) of this Section 11.3 and including the date when each
seller of Registrable Securities covered by such registration statement shall
have received the copies of the supplemented or amended prospectus contemplated
by clause (vi) of this Section 11.3.
11.4 Indemnification. (a) Indemnification by the Company. In the
event of any registration of any securities of the Company under the Securities
Act pursuant to Section 11.1 or 10.2, the Company will, and it hereby does,
indemnify and hold harmless, to the extent permitted by law, the seller of any
Registrable Securities covered by such registration statement, each affiliate of
such seller and their respective directors and officers or general and limited
partners (including any
<PAGE>
23
director, officer, affiliate, employee, agent and controlling Person of any
of the foregoing), each other Person who participates as an underwriter in the
offering or sale of such securities and each other Person, if any, who controls
such seller or any such underwriter within the meaning of the Securities Act
(collectively, the "Indemnified Parties"), against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including reasonable
attorney's fees and reasonable expenses of investigation) to which such
Indemnified Party may become subject under the Securities Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof, whether or not such Indemnified Party is a party
thereto) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (b) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under which
they were made) not misleading, and the Company will reimburse such Indemnified
Party for any legal or any other expenses reasonably incurred by it in
connection with investigating or defending against any such loss, claim,
liability, action or proceeding, provided that the Company shall not be liable
to any Indemnified Party in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation thereof. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such seller or any Indemnified Party and shall survive the transfer of such
securities by such seller.
(b) Indemnification by the Seller. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed in accordance with Section 11.3 herein, that the Company shall have
received an undertaking reasonably satisfactory to it from the prospective
seller of such Registrable Securities or any underwriter to indemnify and hold
harmless (in the same manner and to the same extent as set forth in subdivision
(a) of this Section 11.4) the Company and all other prospective sellers with
respect to any untrue statement or alleged untrue statement in or omission or
alleged omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by such seller or underwriter
specifically stating that it is for use in the preparation of such registration
statement, preliminary, final or summary prospectus or amendment or supplement,
or a document incorporated by reference into any of the foregoing. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any of the prospective sellers, or any of
their respective affiliates, directors, officers or controlling Persons and
shall survive the transfer of such securities by such seller. In no event shall
the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Notices of Claims. Etc. Promptly after receipt by an
Indemnified Party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 11.4, such Indemnified Party will, if a claim in
respect thereof is to be made against an indemnifying party, give written notice
to the latter of the commencement of such action; provided that the failure of
the Indemnified Party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding
<PAGE>
24
subdivisions of this Section 11.4, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action is brought against an Indemnified Party, unless in such Indemnified
Party's reasonable judgment a conflict of interest between such Indemnified
Party and indemnifying parties may exist in respect of such claim, the
indemnifying party will be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified to the
extent that it may wish, with counsel reasonably satisfactory to such
Indemnified Party, and after notice from the indemnifying party to such
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof, the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If the indemnification provided for in this
Section 11.4 from the indemnifying party is unavailable to an Indemnified Party
hereunder in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then the indemnifying party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and Indemnified Parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and Indemnified Parties shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or Indemnified Parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party under this Section 11.4 as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 11.4 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Section 11.4 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities with respect to any required registration or other qualification of
securities under any federal or state law or regulation or governmental
authority other than the Securities Act.
(f) Non-Exclusivity. The obligations of the parties under this
Section 11.4 shall be in addition to any liability which any party may otherwise
have to any other party.
11.5 Rule 144. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, it will, upon the request of any
Holder of Registrable Securities, make publicly available such information), and
it will
<PAGE>
25
take such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder
of Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements. Notwithstanding
anything contained in this Section 11.5, the Company may, with the consent of
the Majority Holders, deregister under Article 12 of the Exchange Act if it then
is permitted to do so pursuant to the Exchange Act and the rules and regulations
thereunder.
11.6 Selection of Counsel. In connection with any registration
of Registrable Securities pursuant to Sections 11.1 and 11.2 hereof, the Holders
of a majority of the Registrable Securities covered by any such registration may
select one counsel to represent all Holders of Registrable Securities covered by
such registration; provided, however, that in the event that the counsel
selected as provided above is also acting as counsel to the Company in
connection with such registration, the remaining Holders shall be entitled to
select one additional counsel to represent all such remaining Holders.
11.7 Holdback Agreement. If any such registration shall be in
connection with an underwritten public offering, each Holder of Registrable
Securities agrees not to effect any public sale or distribution, including any
sale pursuant to Rule 144 under the Securities Act, of any equity securities of
the Company, or of any security convertible into or exchangeable or exercisable
for any equity security of the Company (in each case, other than as part of such
underwritten public offering), within 7 days before, or such period not to
exceed 180 days as the underwriting agreement may require (or such lesser period
as the managing underwriters may permit) after, the effective date of such
registration (except as part of such registration), and the Company hereby also
so agrees and agrees to cause each other holder of any equity security, or of
any security convertible into or exchangeable or exercisable for any equity
security, of the Company purchased from the Company (at any time other than in a
public offering) to so agree.
11.8 Specific Performance. The parties hereto acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Article 11 were not performed in accordance with their
specific terms or were otherwise breached. Accordingly, it is agreed that they
shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Article II and to enforce specifically the terms and
provisions thereof in any court of competent jurisdiction in the United States
or any state thereof, in addition to any other remedy to which they may be
entitled at law or in equity.
ARTICLE 12. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to it (it being understood that the written agreement of the Holder shall be
sufficient indemnity) and in case of mutilation upon surrender and cancellation
hereof, the Company will execute and deliver in lieu hereof a new Warrant of
like tenor to such Holder (without expense to the Holder); provided, in the case
of mutilation, no indemnity shall be required if this Warrant in identifiable
form is surrendered to the Company for cancellation.
<PAGE>
26
ARTICLE 13. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant.
ARTICLE 14. FINANCIAL AND BUSINESS INFORMATION
The Company will deliver to CVCA and Paribas (so long as the
CVCA and Paribas hold any Warrant) and to each subsequent holder of a Warrant
representing at least 25% of the Warrant Shares:
(a) so long as the Note Purchase Agreement is in effect, all
financial statements, projections, certificates and other information required
to be delivered to the "Purchasers" pursuant to Section 6.1 of the Note Purchase
Agreement, the terms of which are incorporated herein by reference and deemed to
be a part hereof, which statements, projections, certificates and other
information will be delivered at such times as they are required to be delivered
to the "Purchasers" under the Note Purchase Agreement;
(b) from and after such time as the Note Purchase Agreement is
no longer in effect, all financial statements, projections, certificates and
other information required to be delivered by the Company and its Subsidiaries
to their senior lenders; and
(c) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company generally sends to its stockholders.
Except as otherwise required by law or judicial order or decree
or by any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under this Article 14
will maintain the confidentiality of all nonpublic information obtained by it
hereunder which the Company has reasonably designated as proprietary or
confidential in nature; provided that each such Person may disclose such
information in connection with the sale or transfer or proposed sale or transfer
of any Warrant Shares if such Person's transferee (or proposed transferee)
agrees in writing to be bound by the provisions of this paragraph.
ARTICLE 15. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by the
Holder hereof to receive shares of Common Stock, and no enumeration herein of
the rights or privileges of the Holder hereof, shall give rise to any liability
of such Holder for any value subsequently assigned to the Common Stock or as a
stockholder of the Company, whether such liability is asserted by the Company or
by creditors of the Company. Notwithstanding any other provision of this
Agreement, neither the general partners nor limited partners of a Holder, nor
any future general partners or limited partners of a Holder, shall have any
personal liability for performance of any obligation of a Holder under this
Agreement in excess of the respective capital contribution of such general
partner and limited partners to such Holder.
<PAGE>
27
ARTICLE 16. MISCELLANEOUS
16.1 Nonwaiver and Expenses. No course of dealing or any delay
or failure to exercise any right hereunder on the part of the Holder hereof
shall operate as a waiver of such right or otherwise prejudice such Holder's
rights, powers or remedies. If the Company fails to make, when due, any payments
provided for hereunder, or fails to comply with any other provision of this
Warrant, the Company shall pay to the Holder hereof such amounts as shall be
sufficient to cover any costs and expenses including, but not limited to,
reasonable attorneys' fees, including those of appellate proceedings, incurred
by such Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
16.2 Notice Generally. Any notice, demand, request, consent,
approval, declaration, delivery or other communication hereunder to be made
pursuant to the provisions of this Warrant shall be sufficiently given or made
if in writing and either delivered in person with receipt acknowledged or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
(a) If to any Holder, at its last known address appearing on the
books of the Company maintained for such purpose.
(b) If to the Company at:
Hanger Orthopedic Group, Inc.
7700 Old Georgetown Road
Bethesda, Maryland 20814
Attention: Richard A. Stein
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, or three (3) Business Days after the same
shall have been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, approval, declaration,
delivery or other communication to the person designated above to receive a copy
shall in no way adversely affect the effectiveness of such notice, demand,
request, approval, declaration, delivery or other communication.
16.3 Successors and Assgins. Subject to the provisions of
Section 3.1 and Articles 10 and 12, this Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors of the Company
and the successors and assigns of the Holder hereof The provisions of this
Warrant are intended to be for the benefit of all Holders from time to time of
this Warrant, and shall be enforceable by any such Holder. Without limitation to
the foregoing, in the event that a Holder distributes or otherwise transfers any
shares of the Registrable Securities to any of its present or future general or
limited partners, the Company hereby acknowledges that the registration rights
granted pursuant to Article 11 of this Agreement shall be transferred to such
partner or partners on a pro rata basis, and that at or after the time of any
such distribution or transfer, any such partner or group of partners may
designate a Person to act on its behalf in delivering any notices or making any
requests hereunder.
16.4 Amendment. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived with the written consent of
the Company and holders of Warrants
<PAGE>
28
exercisable for in excess of 50% of the aggregate number of shares of Common
Stock then receivable upon exercise of all Warrants whether or not then
exercisable, provided that no such Warrant may be modified or amended in a
manner which is adverse to the CVCA or Paribas or any of its successors or
assigns, so long as such Person holds any Warrants or Warrant Stock, without the
prior written consent of such Person.
16.5 Severabilitv. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
16.6 Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
16.7 GOVERNING LAW, CONSENT TO JURISDICTION AND VENUE. IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
THE COMPANY CONSENTS TO PERSONAL JURISDICTION, WAIVES ANY OBJECTION AS TO
JURISDICTION OR VENUE, AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE, IN THE COUNTY OF NEW YORK, STATE OF NEW YORK. THE PARTIES
AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT
CERTIFICATE AND THE WARRANTS EVIDENCED HEREBY. SERVICE OF PROCESS ON THE COMPANY
OR HOLDER IN ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
EFFECTIVE IF MAILED TO SUCH PARTY IN ACCORDANCE WITH THE PROCEDURES AND
REQUIREMENTS SET FORTH IN SECTION 16.2.
16.8 MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT
OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS
AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon.
Dated; November 1, 1996
HANGER ORTHOPEDIC GROUP, INC.
By /s/ Richard Stein
------------------------------
Name: Richard Stein
Title: Vice President
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of the accompanying Warrant
exercises such Warrant for ________ shares of Section 2.2(_) Warrant Stock(1) of
Hanger Orthopedic Group, Inc., all on the terms and conditions specified in such
Warrant and
/ / herewith tenders payment of either (x) the Aggregate Exercise Price in
cash or (y) pursuant to the surrender by Holder of Notes having a Fair
Value equal to the Aggregate Exercise Price for the number of shares of
Common Stock specified above to the order of Hanger Orthopedic Group,
Inc. in the amount of $__________ in accordance with the terms hereof;
or
/ / elects not to pay the Aggregate Exercise Price with respect to the
shares of Common Stock specified above and, in lieu thereof, elects to
surrender this Warrant (or the relevant portion thereof) in exchange
for such number of shares of Common Stock having an aggregate value
(based on the Market Price on the date hereof minus the Exercise Price)
equal to the Aggregate Exercise Price for the number of shares
requested for exercise above.
- ------------------
(1) Specify the number of shares of Section 2.2(a) Warrant Stock and/or
Section 2.2(b) Warrant Stock being exercised hereby.
<PAGE>
2
The undersigned requests that certificates for [all] [__ of] the
shares of Common Stock to be received pursuant hereto (and any securities or
other property issuable upon such exercise) be issued in the name of and
delivered to _______________________________________________________ whose
address is ____________________________________________ [add any additional
names and addresses together with the number of shares of Common Stock (and any
securities or other property issuable upon such exercise) to be issued to such
person or entity)], and, if such shares of Common Stock shall not include all of
the shares of Common Stock issuable as provided in this Warrant, that a new
Warrant of like tenor and date for the balance of the shares of Common Stock
issuable hereunder be delivered to the undersigned.
- -----------------------------
(Name of Registered Owner)
- -----------------------------
(Signature of Registered Owner)
- -----------------------------
(Street Address)
- -----------------------------
(City) (State) (Zip Code)
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock, adjusted as of the date of this assignment as provided
in the Warrant, set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ----------------
and does hereby irrevocably constitute and appoint ______________
attorney-in-fact to register such transfer on the books of Hanger Orthopedic
Group, Inc. maintained for the purpose, with full power of substitution in the
premises.
Dated:
----------------------
Print
Name:
-----------------------
Signature:
------------------
Witness:
--------------------
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
