<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
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[ ] Definitive Additional Materials
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<PAGE> 2
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
April 21, 1998
Dear Stockholder:
We are pleased to invite you to attend our Annual Meeting of Stockholders.
This year it will be on Tuesday, May 19, 1998, at 10:00 a.m., local time, at the
Hyatt Regency Bethesda Hotel, One Bethesda Metro Center, Bethesda, Maryland. The
primary business of the meeting will be to elect directors, vote on a proposed
increase in the number of shares of common stock issuable under the Company's
Stock Option Plan and ratify the selection of independent accountants.
A Notice of the Annual Meeting and the Proxy Statement follow. You will
also find enclosed a proxy card. We invite you to attend the meeting in person,
but if this is not feasible, we think it advisable for you to be represented by
proxy. Therefore, if you cannot attend the meeting, we urge you to sign the
enclosed proxy card and mail it promptly in the return-addressed,
postage-prepaid envelope provided for your convenience.
Sincerely,
/s/ Ivan R. Sabel
Ivan R. Sabel
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 3
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
Notice is hereby given that the Annual Meeting of Stockholders of Hanger
Orthopedic Group, Inc., a Delaware corporation ("Hanger" or the "Company"), will
be held at the Hyatt Regency Bethesda Hotel, One Bethesda Metro Center,
Bethesda, Maryland 20814 on Tuesday, May 19, 1998, at 10:00 a.m., local time,
for the following purposes:
1. To elect nine persons to serve as directors of the Company for the
ensuing year;
2. To approve a proposed amendment to the Company's 1991 Stock Option
Plan to increase by 1,500,000 shares the number of shares of the Company's
Common Stock authorized for possible issuance under such plan;
3. To ratify the selection of Coopers & Lybrand as the independent
accountants for the Company for the current fiscal year; and
4. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 6, 1998, are
entitled to notice of, and to vote at, the Annual Meeting.
By order of the Board of Directors,
/s/ RICHARD A. STEIN
Richard A. Stein
Secretary
April 21, 1998
YOUR VOTE IS IMPORTANT
PLEASE DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES.
MAIL THE PROXY TO US IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
THE GIVING OF THE PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD
YOU ATTEND THE MEETING.
<PAGE> 4
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Hanger Orthopedic Group, Inc., a Delaware corporation
("Hanger" or the "Company"), of proxies of stockholders to be voted at the
Annual Meeting of Stockholders to be held at the Hyatt Regency Bethesda Hotel,
One Bethesda Metro Center, Bethesda, Maryland at 10:00 a.m., local time, on
Tuesday, May 19, 1998, and any and all adjournments thereof.
Any stockholder executing a proxy retains the right to revoke it at any
time prior to its being exercised by giving notice to the Secretary of the
Company.
This Proxy Statement and the accompanying proxy are being mailed or given
to stockholders of the Company on or about April 21, 1998.
VOTING SECURITIES
As of April 6, 1998, a total of 15,649,584 shares of common stock of the
Company, par value $.01 per share ("Common Stock"), which is the only class of
voting securities of the Company, were issued and outstanding. At the Annual
Meeting or any adjournment thereof, all holders of record of the Common Stock as
of the close of business on April 6, 1998, will be entitled to one vote for each
share held upon the matters listed in the Notice of Annual Meeting. Cumulative
voting is not permitted.
Shares of Common Stock represented by proxy at the Annual Meeting will be
voted according to the instructions, if any, given in the proxy. Unless
otherwise instructed, the person or persons named in the proxy will vote (1) FOR
the election of the nine nominees for director listed herein (or their
substitutes in the event any of the nominees is unavailable for election); (2)
FOR the approval of the proposed amendment to Company's 1991 Stock Option Plan
increasing the number of shares of Common Stock issuable thereunder; (3) FOR the
ratification of the selection of Coopers & Lybrand as the independent
accountants for the Company for the current fiscal year; and (4) in their
discretion, with respect to such other business as may properly come before the
meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed by the Company for the meeting. The number
of shares represented at the meeting in person or by proxy will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote by the inspectors of election with
respect to that matter.
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers or regular employees of the Company in person
or by telephone.
PROPOSAL ONE -- ELECTION OF DIRECTORS
Nine directors are to be elected at the Company's Annual Meeting of
Stockholders, each to serve for one year or until his successor is elected and
qualified. Proxies will be voted at the Annual Meeting, unless authority is
withheld, FOR the election of the nine persons named below, all of whom
currently are directors of the Company. The Company does not contemplate that
any of the persons named below will be unable or will decline to serve; however,
if any such nominee is unable or declines to serve, the persons named in the
<PAGE> 5
accompanying proxy will vote for a substitute, or substitutes, in their
discretion. The following table sets forth information regarding the nominees.
<TABLE>
<CAPTION>
BECAME
NAME POSITION WITH THE COMPANY AGE DIRECTOR
---- ------------------------- --- --------
<S> <C> <C> <C>
Ivan R. Sabel, CPO............. Chairman of the Board, President, Chief 53 1986
Executive Officer and Director
Mitchell J. Blutt, M.D. ....... Director 41 1989
Edmond E. Charrette, M.D. ..... Director 63 1996
Thomas P. Cooper, M.D. ........ Director 54 1990
Robert J. Glaser, M.D. ........ Director 79 1993
James G. Hellmuth.............. Director 75 1990
William L. McCulloch........... Director 77 1991
H.E. Thranhardt, CPO........... Director 58 1996
Risa J. Lavizzo-Mourey,
M.D. ........................ Nominee 43 --
</TABLE>
Ivan R. Sabel has been Chairman of the Board of Directors and Chief
Executive Officer of Hanger since August 1995 and President of Hanger since
November 1987. Mr. Sabel also served as the Chief Operating Officer of Hanger
from November 1987 until August 1995. Prior to that time, Mr. Sabel had been
Vice President -- Corporate Development from September 1986 to November 1987.
From 1968 until joining Hanger in 1986, Mr. Sabel was the founder, owner and
President of Capital Orthopedics, Inc. before that company was acquired by
Hanger. Mr. Sabel is a Certified Prosthetist and Orthotist ("CPO"), a clinical
instructor in orthopedics at the Georgetown University Medical School in
Washington, D.C., a member of the Board of Directors of the American Orthotic
and Prosthetic Association ("AOPA"), a former Chairman of the National
Commission for Health Certifying Agencies, a former member of the Strategic
Planning Committee and a current member of the Veterans Administration Affairs
Committee of AOPA and a former President of the American Board for Certification
in Orthotics and Prosthetics.
Mitchell J. Blutt, M.D. has served as an Executive Partner of Chase Capital
Partners (and its predecessor organizations), an affiliate of Chase Manhattan
Bank (and its predecessor corporations), since June 1991. He joined that firm in
July 1987 and became a General Partner in June 1988. Dr. Blutt also has been
engaged in the practice of medicine for over five years. Previously, Dr. Blutt
was a Robert Wood Johnson Foundation Fellow at the University of Pennsylvania
from July 1985 to June 1987. He is an adjunct Assistant Professor at the New
York Hospital/Cornell Medical Center. Dr. Blutt is also a director of Urohealth
Systems, Inc., a public company engaged in the manufacture, marketing and
distribution of products used by urologists and gynecologists, and Landec Corp.,
a public company engaged in the design, development, manufacture and sale of
temperature-activated polymer products for a variety of industrial, medical and
agricultural applications, as well as numerous privately-held companies.
Edmond E. Charrette, M.D. is the co-founder and Chairman of Health
Resources Corporation (principally engaged in occupational medicine services).
He also is a Partner of Ascendant Healthcare International (an investment group
with equity investments in the Latin American healthcare sector) and serves as
President of Latin Healthcare Investment Management Co., LLC (a group composed
of Ascendant Healthcare International and The Global Environmental Fund which
manages and directs the investment activities of the Latin Healthcare Investment
Fund). Previously, he was the Executive Vice President and Chief Medical Officer
of Advantage-Health Corporation (a multi-hospital rehabilitation and post-acute
care system) from June 1994 to March 1996. From 1988 to May 1994, Dr. Charrette
served as the Corporate Medical Director and Senior Vice President of Medical
Affairs of Advantage Health Corporation.
Thomas P. Cooper, M.D. has been employed as the President and Chief
Executive Officer of Mobilex U.S.A., providing portable diagnostic services to
long term care facilities, since May 1989. Dr. Cooper has also been employed as
the President and Chief Executive Officer of Senior Psychology Services
Management, Inc., which supplies psychologists to nursing home patients, since
June 1991. Dr. Cooper was the founder of Spectrum Emergency Care, a provider of
emergency room physicians to hospitals and clinics, and Correctional Medical
Systems, a provider of health services to correctional facilities. Dr. Cooper
has served as Director of Quality Assurance for ARA Living Centers, a company
which operates long-term healthcare
2
<PAGE> 6
facilities, and as Medical Director for General Motors Corporation Assembly
Division. He currently serves as a consultant to Chase Capital Partners and has
served on the faculty of the University of California, San Diego Medical School.
Robert J. Glaser, M.D. was the Director for Medical Science and a Trustee
of the Lucille P. Markey Charitable Trust, which provided major grants in
support of basic biomedical research, from 1984 to June 1997. He is a Consulting
Professor of Medicine Emeritus at Stanford University, where he served as the
Dean of the School of Medicine from 1965 to 1970. Dr. Glaser was a founding
member of the Institute of Medicine at the National Academy of Sciences and is a
director of Alza Corporation (principally engaged in pharmaceutical research).
He was a director of Hewlett-Packard Company from 1971 to 1991, and has
continued to serve as a consultant to that company on health matters.
James G. Hellmuth formerly served as a director of BT Capital Corporation,
an affiliate of Bankers Trust New York Corporation, as well as a part-time
consultant to Chase Capital Partners. He has been a Commissioner of the Port
Authority of New York and New Jersey since 1969. In addition, Mr. Hellmuth was a
Managing Director of Bankers Trust Company from 1972 to 1988.
Brig. Gen. William L. McCulloch, USMC (Ret.) has served as the President of
Association Communication and Marketing Services, a public relations firm, since
October 1989. Previously, Gen. McCulloch was the Executive Director of AOPA, the
trade association of the orthotic and prosthetic industry, from October 1976 to
September 1989. In 1976, Gen. McCulloch retired from active military service
after serving 30 years as a U.S. Marine infantry officer.
H.E. Thranhardt, CPO is the former President and Chief Executive Officer of
JEH. He served in that capacity from January 1, 1977 to November 1, 1996, on
which date JEH was acquired by Hanger. Mr. Thranhardt, who commenced his
employment with JEH in 1958, has occupied leadership positions in numerous
professional O&P associations, including Chairman of the Board of the Orthotics
and Prosthetics National Office in 1994 and 1995, President of the American
Orthotics and Prosthetics Association in 1992 and 1993, President of the
American Board for Certification in Orthotics and Prosthetics in 1979 and 1980
and President of The American Academy of Orthotics and Prosthetics in 1976 and
1977.
Risa J. Lavizzo-Mourey, M.D., M.B.A., has been the Sylvan Eisman Professor
of Medicine at the University of Pennsylvania School of Medicine since July 1997
and has served as the Director of the Institute on Aging at the University of
Pennsylvania since December 1995. From February 1998 to present, Dr.
Lavizzo-Mourey has served as a Member of the Institute of Medicine; from August
1996 to present, on the American Board of Internal Medicine; and from March 1995
to present, on the Board of Regents of the American College of Physicians. From
March 1997 to March 1998, Dr. Lavizzo-Mourey also served as a Member of the
United States Presidential Advisory Commission on Consumer Protection and
Quality of Care in Health Care. From April 1992 to April 1994, Dr.
Lavizzo-Mourey further served in each of the following positions: Chairperson of
the Quality of Care Working Group White House Task Force on Health Care Reform;
Deputy Administrator of the Agency on Health Care Policy and Research of the
U.S. Department of Health and Human Services; and as a Member of the Senior
Executive Service of the Public Health Service of the U.S. Department of Health
and Human Services. Dr. Lavizzo-Mourey also currently serves on the Board of
Directors of Kapson Senior Quarters (assisted living health care company),
Beverly Enterprises (long-term and sub-acute health care company), Managed Care
Solutions (management services for long-term health care organizations) and
Medicus Systems (medical information software company).
MANAGEMENT RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE NOMINEES
AS DIRECTORS OF THE COMPANY.
There are no family relationships between any of the nominees.
The Board of Directors has an Audit Committee, which met one time during
1997 and presently consists of Mitchell J. Blutt, M.D., Thomas P. Cooper, M.D.
and James G. Hellmuth. The Audit Committee is responsible for meeting with the
Company's independent accountants to review the proposed scope of the annual
audit of the Company's books and records, reviewing the findings of the
independent accountants upon completion of the annual audit, and reporting to
the Board of Directors with respect thereto. The Board of
3
<PAGE> 7
Directors also has a Compensation Committee, which conducted three meetings
during 1997, presently consists of Edmond E. Charrette, M.D., William L.
McCulloch and Robert J. Glaser, M.D., and is responsible for advising the Board
on matters relating to the compensation of officers and key employees and
certain of the Company's employee benefit plans. The Board of Directors also has
a Nominating Committee, which conducted two meetings during 1997, consists of
Robert J. Glaser, M.D. and Thomas P. Cooper, M.D., and is responsible for
advising the Board on matters relating to the identification of nominees to the
Board of Directors. The Board of Directors met six times during 1997. Each
incumbent director attended at least 75% of the aggregate number of meetings of
the Board and committee(s) on which he served while he was a director and
committee member during 1997 except Dr. Blutt, who attended 57% of such
meetings, and Mr. Hellmuth, who attended 71% of such meetings.
COMPENSATION AND RELATED MATTERS
The following Summary Compensation Table sets forth the annual salary
(column c) and bonus (column d) paid and options granted (column g) during each
of the past three years to the Company's Chief Executive Officer and the other
executive officer of the Company whose annual salary and bonus in 1997 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION PAYOUTS
-------------------------------------------- AWARDS -------
(e) -------------------------- (h)
(c) (d) OTHER ANNUAL (f) (g) LTIP
(a) (b) SALARY BONUS(1) COMPENSATION(2) RESTRICTED STOCK OPTIONS PAYOUTS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) AWARD(S)($) (#)(3) ($)
--------------------------- ---- -------- -------- --------------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel................. 1997 $385,000 $293,333 -- -- 167,667 --
Chairman, President & 1996 278,469 315,000 -- -- 134,000 --
Chief Executive Officer(4) 1995 252,000 40,000 -- -- 40,000 --
Richard A. Stein.............. 1997 $185,000 $146,667 -- -- 80,333 --
Vice President-Finance, 1996 143,184 70,000 -- -- 66,000 --
Secretary & Treasurer 1995 131,250 27,000 -- -- 20,000 --
</TABLE>
- ---------------
(1) With respect to 1997, the above reported bonuses were paid on September 23,
1997 and January 27, 1998 and related to 1997 performance. With respect to
1996, the above reported bonuses were paid in November 1, 1996 and related
to 1996 performance. With respect to 1995, the above reported bonuses were
paid in March 1996 and related to 1995 performance.
(2) Does not report the approximate cost to the Company of an automobile
allowance furnished to the above persons, which amounts do not exceed the
lesser of either $50,000 or 10% of the total of the person's annual salary
and bonuses for 1997.
(3) Reports the number of shares underlying options granted during each of the
respective years. Does not include information relating to options granted
in 1998. For information relating to options previously granted to the above
persons by a principal stockholders of the Company, see "Other Options"
below.
(4) Effective July 31, 1995, Mr. Sabel, President of the Company, was appointed
to the additional positions of Chairman and Chief Executive Officer of the
Company.
4
<PAGE> 8
The following Option Grants Table sets forth, for each of the named
executive officers, information regarding individual grants of options granted
in 1997 and their potential realizable value. Information regarding individual
option grants includes the number of options granted, the percentage of total
grants to employees represented by each grant, the per-share exercise price and
the expiration date. The table does not set forth information regarding options
granted in 1998. The potential realizable value of the options are based on
assumed annual 0%, 5% and 10% rates of stock price appreciation over the term of
the option.
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(4)
------------------------------------------------------- ---------------------------------
OPTIONS % OF TOTAL OPTIONS EXERCISE
GRANTED GRANTED TO EMPLOYEES PRICE EXPIRATION
NAME (#)(1) IN FISCAL YEAR(2) ($/SH)(3) DATE 0% 5%($) 10%($)
---- ------- -------------------- --------- ---------- --- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel........ 67,667 10.0% $ 6.125 3/14/07 $0 $260,652 $ 650,543
50,000 7.4 13.25 9/19/07 0 416,643 1,055,854
50,000 7.4 11.3125 12/17/07 0 355,719 901,461
Richard A. Stein..... 33,333 4.9 6.125 3/14/07 0 128,398 325,386
25,000 3.7 13.250 9/19/07 0 208,321 527,927
25,000 3.7 11.3125 12/17/07 0 177,859 450,730
</TABLE>
- ---------------
(1) The options are non-qualified stock options granted on March 14, September
19 and December 17, 1997 under the Company's 1991 Stock Option Plan that
become exercisable cumulatively as to 25%, 50%, 75% and 100% after the
first, second, third and fourth anniversaries, respectively, after the date
of grant.
(2) Based on options for a total of 675,000 shares granted to all employees.
(3) The exercise price is equal to the fair market value on the date of grant of
the option.
(4) The potential realizable values shown in the columns are net of the option
exercise price. These amounts assume annual compounded rates of stock price
appreciation of 0%, 5%, and 10% from the date of grant to the option
expiration date, a term of ten years. These rates have been set by the U.S.
Securities and Exchange Commission and are not intended to forecast future
appreciation, if any, of the Company's Common Stock. Actual gains, if any,
on stock option exercises are dependent on several factors including the
future performance of the Company's Common Stock, overall stock market
conditions, and the optionee's continued employment through the vesting
period. The amounts reflected in this table may not actually be realized.
5
<PAGE> 9
The following Aggregate Option Exercises and Fiscal Year-End Option Value
Table sets forth, for each of the named executive officers, information
regarding (i) the number of shares acquired during 1997 upon the exercise of
options and the value realized in connection therewith, and (ii) the number and
value of unexercised options granted by the Company at December 31, 1997.
AGGREGATE OPTION EXERCISES AND FISCAL
YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
NUMBER OF NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES ACQUIRED ON OPTIONS AT FY-END(#)(1) MONEY OPTIONS AT FY-END($)
NAME EXERCISE VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(4)
---- ------------------ ----------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ivan R. Sabel........ 100,000 $681,059 77,000/244,000 (2) $641,438/$1,171,813
Richard A. Stein..... 69,000 491,269 21,500/121,000 (3) $183,656/$578,475
</TABLE>
- ---------------
(1) The reported options were granted by the Company to the named executive
officers. Reference is made to "Other Options" below for information
regarding options previously granted to such persons by a principal
stockholder of the Company.
(2) The above-reported options entitle Mr. Sabel to purchase from the Company
(i) 20,000 shares at a price of $2.75 per share through January 31, 2005
under an option granted on January 31, 1995; (ii) 67,000 shares at a price
of $3.50 per share through February 21, 2006 under an option granted on
February 21, 1996; (iii) 67,000 shares at a price of $6.125 per share
through November 1, 2006 under an option granted on November 1, 1996; (iv)
66,667 shares at a price of $6.125 per share through March 14, 2007 under an
option granted on March 14, 1997; (v) 50,000 shares at a price of $13.25 per
share through September 19, 2007 under an option granted on September 19,
1997; and (vi) 50,000 shares at a price of $11.3125 per share through
December 17, 2007 under an option granted on December 17, 1997.
(3) The above-reported options entitle Mr. Stein to purchase from the Company
(i) 10,000 shares at a price of $2.75 per share through January 31, 2005
under an option granted on January 31, 1995; (ii) 24,750 shares at a price
of $3.50 per share through February 21, 2006 under an option granted on
February 21, 1996; (iii) 24,750 shares at a price of $6.125 through November
1, 2006 under an option granted on November 1, 1996; (iv) 33,333 shares at a
price of $6.125 through March 14, 2007 under an option granted on March 14,
1997; (v) 25,000 shares at a price of $13.25 per share through September 19,
2007 under an option granted on September 19, 1997; and (vi) 25,000 shares
at a price of $11.3125 per share through December 17, 2007 under an option
granted on December 17, 1997.
(4) Market value of underlying shares at December 31, 1997, minus the exercise
price.
No Long-Term Incentive Plan Awards Table is set forth herein because no
long-term incentive plan awards were made to the above-named executive officers
during 1997.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The employment and non-compete agreements, dated May 16, 1994, between the
Company and Ivan R. Sabel, Chairman, President and Chief Executive Officer of
the Company, and Richard A. Stein, Vice President -- Finance Secretary and
Treasurer of the Company, provide for the continuation of their employment in
those positions for a period of five years. Pursuant to those agreements,
Messrs. Sabel and Stein receive annual compensation equal to a base salary plus
an annual CPI-related adjustment and any bonus compensation as may be determined
by the Board of Directors based upon a formula established by the Board relating
to growth in revenues and pre-tax earnings, the targets for which are
established annually by the Board.
COMPENSATION COMMITTEE REPORT
The following description of the Company's executive compensation practices
and policies is presented on
6
<PAGE> 10
behalf of the Compensation Committee of the Company's Board of Directors (the
"Committee"). The fundamental philosophy of the Company's executive compensation
program is to offer competitive compensation reflecting both individual and
Company performance.
The components of executive compensation consist of annual salaries,
short-term compensation incentives or bonuses and stock option grants as a
long-range incentive. The Committee seeks to reasonably compensate executives in
amounts that fairly reward the executive officers for their performance as
reflected by corporate accomplishments and create adequate incentives for their
continued contributions to the Company's success.
The amounts of the annual salaries paid in 1997 to Mr. Ivan R. Sabel,
Chairman, President and Chief Executive Officer of the Company, and Mr. Richard
A. Stein, Vice President-Finance, Secretary and Treasurer of the Company,
remained at the levels set for them by the Board of Directors in November 1996.
In December 1997, the Board of Directors determined to increase each of their
annual salaries by 5% in 1998. The salary increases were primarily in
recognition of the improved results of operations of the Company in 1997
described below.
On March 14, 1997, the Compensation Committee granted incentive stock
options to Messrs. Sabel and Stein under the 1991 Stock Option Plan to purchase
67,000 shares and 33,000 shares, respectively, at an exercise price of $6.125
per share, which was the closing sale price of the Company's common stock on the
date of grant of the options. The options primarily were intended to further
incentivize the executive officers to (i) successfully integrate the former
operations of J.E. Hanger, Inc. of Georgia ("JEH"), which the Company acquired
on November 1, 1996, into the Company's operations, (ii) increase the Company's
revenues, (iii) continue to centralize the administrative functions of acquired
patient-care centers to achieve cost efficiencies, (iv) continue to transform
the Company's network of patient-care centers into a fully integrated practice
management organization and (v) align the long-term interests of the executive
officers with those of the Company's stockholders by affording them an
opportunity to increase their equity interest in the Company through the
acquisition of additional shares of common stock upon the exercise of options.
In addition, the grant of the options in March 1997 also was in recognition of
the Company's improved results of operations in 1996. The Company's net sales in
that year increased by more than 27% over the prior year and excluding the
non-recurring acquisition and integration costs recognized in 1996 in connection
with the JEH acquisition and the extraordinary loss on early extinguishment debt
recognized in connection with the Company's refinancing of indebtedness in late
1996, net income for 1996 would have reflected an increase of more than 67% over
the prior year. The Company's total assets and shareholders' equity at December
31, 1996 were 118% and 30% higher, respectively, than at the end of 1995.
On September 19, 1997, Messrs. Sabel and Stein were awarded bonuses of
$100,000 and $50,000, respectively, and were granted options to purchase 50,000
shares and 25,000 shares, respectively, at an exercise price of $13.25 per
share, which was the closing sale price of the Company's common stock on the
date of grant of the options. Those awards were in recognition of the successful
consummation in August 1997 of the Company's underwritten public offering of
5,570,000 shares of common stock, in connection with which the Company received
net proceeds of approximately $59 million. As a result of that offering, the
Company was able to reduce its long-term debt from approximately $73 million to
approximately $24 million and to increase its shareholders' equity from
approximately $41 million to approximately $91 million.
In December 1997, the Board of Directors awarded annual bonuses of $193,333
and $96,667 to Messrs. Sabel and Stein, respectively, and granted them
additional incentive stock options to purchase 50,000 shares and 25,000 shares,
respectively, at an exercise price of $11.3125 per share, which was the closing
sale price of common stock on the date of grant of the options. Those awards
were in recognition of the Company's improved results of operations in 1997. Net
sales in 1997 amounted to $145.6 million, a 118% increase over 1996, and net
income before an extraordinary item in 1997 amounted to $7.6 million, or $.58
per share, compared to $1.1 million, or $.12 per share, in 1996. (A $2.7
million, or $.21 per share, extraordinary item was incurred upon the early
extinguishment of debt in connection with the 1997 public offering.)
Contributing to the significant increase in net sales in 1997 were sales
attributable to the Company's acquisition of J.E.Hanger, Inc. of Georgia ("JEH")
effective November 1, 1996, as well as an 11.7% increase
7
<PAGE> 11
in sales by those Company patient-care centers operating during both years. Also
favorably affecting the Company's results of operations in 1997 were the
effectiveness of cost cutting measures completed during the fourth quarter of
1996 and the first six months of 1997, which resulted in a decrease in selling,
general and administrative expenses as a percent of net sales in 1977.
Generally, decisions as to the payment of annual bonuses and the granting
of stock options are based on both company and individual performance and
involve a consideration of numerous factors, including revenue growth,
acquisitions by the Company, profitability increases (both as to total amount
and as a percent of revenue) and expense curtailment (both as to total amount
and as a percent of revenue) relevant to the corporate responsibilities borne by
the particular executive officer. The above described options granted to Messrs.
Sabel and Stein become exercisable cumulatively to the extent of 25% per year
during the first four years after grant and expire ten years after grant. The
employment agreements with Messrs. Sabel and Stein provide for the possible
payment of bonuses to them in the future based on a formula adopted by the Board
relating to growth and revenues and pre-tax earnings, the targets for which are
established annually by the Board.
Generally, decisions as to the payment of annual bonuses and the granting
of stock options are based on both Company and individual performance and
involve a consideration of numerous factors, including revenue growth,
acquisitions by the Company, profitability increases (both as to total amount
and as a percent of revenues) and expense curtailment (both as to total amount
and as a percent of revenues) relevant to the corporate responsibilities borne
by the particular executive officer.
By: The Compensation Committee of the
Board of Directors
Edmond E. Charrette, M.D., Chairman
William L. McCulloch
Robert J. Glaser, M.D.
STOCK OPTIONS
1991 STOCK OPTION PLAN. In December 1983, the Board of Directors adopted
and the stockholders of Hanger approved, and in September 1991 the stockholders
amended, a Stock Option Plan (the "1991 Plan"), which provides for the grant of
both "incentive stock options" under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), as well as nonqualified stock options. The
1991 Plan is administered by the Committee and provides for the grant of options
to officers and key employees of Hanger to purchase up to an aggregate of
1,500,000 shares of Common Stock at not less than 100% of fair market value on
the date granted. As of April 6, 1998, incentive stock options and nonqualified
stock options granted under the 1991 Plan to purchase a total of 1,490,735
shares of Common Stock under the 1991 Plan, at prices ranging from $2.75 to
$14.25 per share, were outstanding and held by a total of 379 persons. Of such
options, options relating to 379,725 shares of Common Stock are presently
exercisable.
1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. Under the Company's 1993
Non-Employee Directors Stock Option Plan (the "1993 Plan"), directors of the
Company who are not employed by the Company or any affiliate of the Company are
eligible to receive options under the 1993 Plan. A total of 250,000 shares of
Common Stock were reserved for possible issuance upon the exercise of options
under the 1993 Plan. On June 6, 1997, an option for 5,000 shares was granted to
each of the seven eligible directors, for a total of 35,000 shares, at an
exercise price of $8.75 per share (which was equal to the closing sale price of
the shares on the American Stock Exchange on the date of grant). Under the 1993
Plan, an option to purchase 5,000 shares is granted automatically on an annual
basis to each eligible director on the third business day following the date of
each Annual Meeting of Stockholders at which the eligible director is elected.
The exercise price of each option is equal to 100% of the closing sale price of
the shares as reported by the American Stock Exchange on the date the option is
granted. Each option will becomes exercisable in four equal annual installments,
commencing on the first anniversary of the date of grant.
8
<PAGE> 12
NONQUALIFIED STOCK OPTIONS. Hanger has granted nonqualified stock options
other than pursuant to the 1991 Plan and the 1993 Plan to certain officers and
members of the Board of Advisors which permit such persons to acquire shares of
Common Stock generally at not less than 100% of fair market value on the date
granted. As of March 31, 1998, nonqualified stock options granted other than
pursuant to the 1991 Plan and the 1993 Plan to purchase a total of 64,375 shares
of Common Stock, at prices ranging from $3.00 to $12.00 per share, were
outstanding and held by a total of 9 persons. All of such nonqualified stock
options are presently exercisable.
DIRECTORS' FEES
Directors who are not officers or employees of the Company receive an
annual fee of $7,500 plus $1,000 for each meeting attended. In addition,
directors serving on committees of the Board receive a fee of $1,000 per
committee meeting attended.
WARRANTS
In connection with the Company's purchase on November 8, 1990, of the
Manufacturing Division of Ralph Storrs, Inc. ("Storrs"), the Company effected a
$2.45 million, seven-year loan (the "Loan") from Chemical Venture Capital
Associates, L.P., a predecessor to Chase Venture Capital Associates, L.P.
("CVCA"), in connection with which the Company was required to issue to CVCA
warrants to purchase shares of the Company's Common Stock in the event the Loan
was not repaid prior to certain dates. Because the Loan was not repaid prior to
August 6, 1991 (i.e., 271 days after the date of the Loan), the Company,
pursuant to its loan agreement with CVCA dated November 8, 1990, issued warrants
to CVCA entitling it to purchase 225,914 shares of Common Stock at a price of
$4.16 per share. Because the Loan was not repaid prior to November 5, 1991
(i.e., 361 days after the date of the Loan), the Company, pursuant to its
November 8, 1990 loan agreement with CVCA, issued to CVCA additional warrants
entitling it to purchase 244,735 shares of Common Stock at a price of $7.65 per
share. The warrants are exercisable on or before December 31, 2001, and the
exercise prices are equal to the market value of the Common Stock on the dates
of grant of the warrants.
OTHER OPTIONS
On May 16, 1994, CVCA granted Messrs. Sabel and Stein options (the "New
Manager Options") entitling them to purchase from CVCA 118,500 shares and 62,568
shares, respectively, at a price of $6.00 per share on or before May 16, 1995.
(Those options replaced options previously granted by CVCA to the executive
officers in 1990 that expired on May 15, 1994.) On September 22, 1994, the
expiration date of the New Manager Options was extended to March 22, 1996 and
the exercise price of such options was reduced to $3.875 per share, which amount
exceeded the $3.625 closing sale price of the Common Stock as reported on the
American Stock Exchange at the close of business on September 22, 1994. In
addition, on September 22, 1994, the December 31, 1995 expiration date of
additional stock options that previously had been granted by CVCA to Messrs.
Sabel and Stein on March 14, 1991 (the "Additional Manager Options") was
extended to March 22, 1996 and the previous $6.00 and $8.00 per share exercise
prices thereof were reduced to $3.875 per share. Messrs. Sabel and Stein were
entitled to purchase 107,609 shares and 63,126 shares, respectively, from CVCA
pursuant to the Additional Manager Options. On October 27, 1995, CVCA agreed to
allow for the payment of the option exercise price of all New Manager Options
and Additional Manager Options in cash and/or the reduction in the remaining
number of shares issuable upon the exercise of such options, as well as to
extend the expiration dates of all the New Manager Options to March 22, 1997,
and Additional Manager Options to December 31, 1997. On August 12, 1996 and
January 7, 1997, Messrs. Sabel and Stein exercised their New Manager Options and
Additional Manager Options to acquire an aggregate of 94,041 shares and 52,570
shares, respectively, upon the exercise in full of their New Manager Options and
Additional Manager Options. The exercise price was funded by the optionor's
retention of the shares representing the balance of the shares underlying the
options.
9
<PAGE> 13
PROPOSAL TWO -- PROPOSED AMENDMENT TO
1991 STOCK OPTION PLAN
On March 12, 1998, the Board of Directors of the Company approved an
amendment to Section 5 of the Company's 1991 Stock Option Plan (the "Plan")
providing for an increase in the total number of shares of Common Stock
authorized for issuance under the Plan from 1,500,000 shares to 3,000,000
shares. At April 6, 1998, there were no additional shares available for the
granting of additional options in the future. Approval of the amendment by the
holders of a majority of the Company's outstanding shares of Common Stock
present or represented at the Annual Meeting is required for the amendment to be
duly adopted and become effective.
The following description of the material provisions of the Plan is
qualified by reference to the full provisions of the Plan, a copy of which is
set forth as Exhibit A to this Proxy Statement.
ADMINISTRATION. The Plan is administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company consisting of three
directors appointed by the Board. The members of the Committee are not eligible
to receive options under the Plan. The Committee has the authority to determine
the employees to whom options are granted and, subject to the provisions of the
Plan, the terms of the options granted and whether such options are incentive
stock options under Section 422A of the Code ("ISOs") or non-qualified stock
options ("NQSOs"). (ISOs and NQSOs granted under the Plan are collectively
referred to hereinafter as "Options.")
PURPOSE. The purpose of the Plan is to attract, retain and motivate
officers and key employees of the Company and its subsidiaries and to provide a
means by which such persons may be given an opportunity to acquire a proprietary
interest in the Company through the ownership of Common Stock.
ELIGIBLE EMPLOYEES. The Plan provides for the granting of ISOs only to
executive officers and key employees of the Company and its subsidiaries that
are selected by the Committee. Approximately 500 persons currently are eligible
to participate under the Plan.
NUMBER OF AUTHORIZED SHARES. Subject to possible adjustment in the event
of a recapitalization, stock split or similar transaction, a total of 1,500,000
shares of Common Stock currently are authorized for possible issuance under the
Plan. The proposed amendment to the Plan calls for the authorization of an
additional 1,500,000 shares of Common Stock over the amount previously
authorized for issuance under the Plan. Options to purchase an aggregate of
2,204,443 shares of Common Stock under the Plan have been granted in the past,
of which Options to purchase 472,260 shares have been exercised and Options to
purchase 241,448 shares have either terminated or lapsed. As of April 6, 1998,
Options to purchase a total of 1,490,735 shares of Common Stock under the Plan,
at prices ranging from $2.75 to $14.25 per share, were outstanding. Therefore,
Options to purchase 462,995 shares have been granted which are in excess of the
total amount of shares previously authorized by shareholders for possible
issuance under the Plan. However, of the currently outstanding Options, Options
for only 379,725 shares were vested and exercisable as of April 6, 1998. The
exercisability of Options to purchase a total of 339,000 shares is specifically
conditioned upon shareholder approval of the proposed amendment to the Plan
increasing the number of shares authorized for possible issuance thereunder.
Assuming approval of the proposed amendment to the Plan, a total of 1,037,005
shares of Common Stock will be available to underlie additional Options to be
granted under the Plan in the future. Shares of Common Stock subject to Options
that lapsed or are canceled will become available for issuance pursuant to other
Options granted under the Plan.
Information relating to stock options recently granted under the Company's
1991 Stock Option Plan to Ivan R. Sabel and Richard A. Stein is set forth above
under "Compensation and Related Matters" and the "Compensation Committee
Report." Such options will become exercisable to the cumulative extent of 25%
each year for four years and will expire ten years after grant.
OPTION EXERCISE AND PAYMENT. The aggregate fair market value of the shares
of Common Stock with respect to which ISOs granted under the Plan are
exercisable for the first time by an optionee during any calendar year may not
exceed $100,000. Furthermore, no ISO may be granted under the Plan to any person
who, as the time of the grant, owns capital stock of the Company possessing more
than 10% of the total combined voting power of the Company, unless the exercise
price of the ISO is at least 110% of the fair
10
<PAGE> 14
market value on the date of grant of the shares of Common Stock subject to the
ISO, and the term of the ISO does not exceed five years from the date of grant.
The exercise price of ISOs as well as NQSOs under the Plan may not be less
than the fair market value of the Common Stock on the date of the Option grant.
In some cases, as discussed above, the exercise price of ISOs may not be less
than 110% of the fair market value of the Common Stock on the date of grant.
"Fair market value" is defined under the Plan generally to mean the reported
last sale price of the Common Stock on a particular date as reported by the
American Stock Exchange (or such other national securities exchange or
interdealer quotation system on or in which the shares of Common Stock are
listed or included in the future).
The Plan currently requires that the exercise price of an ISO granted
thereunder be paid for (i) in cash, (ii) in shares of Common Stock already owned
by the optionee and valued at their fair market value on the date of exercise of
the Option, (iii) by requesting the Company to withhold from the number of
shares of Common Stock otherwise issuable upon exercise of the Option that
number of shares of Common Stock having an aggregate fair market value on the
date of exercise equal to the Option price for all the shares of Common Stock
subject to such exercise or (iv) by a combination of (i), (ii) and/or (iii)
above, in the manner provided in the Option agreement entered into in connection
with each Option.
No Option granted under the Plan may be exercised after the expiration of
10 years from the date it was granted. No Option granted under the Plan will
become exercisable until at least six months following its date of grant.
Subject to the above limitations, provisions relating to the time or times
at which an Option may be exercisable will be included in the Option agreement
entered into by the Company and an optionee upon the granting of an Option.
Options granted under the Plan are non-transferable by the optionee otherwise
than by will or the laws of descent and distribution and are exercisable during
the optionee's lifetime only by him or her.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event a change in the
Company's capitalization results from a stock split or payment of a stock
dividend or any other increase or decrease in the number of shares of Common
Stock effected without the receipt of consideration, appropriate adjustments
will be made in the exercise price of and number of shares subject to all
outstanding Options. In the event of a proposed dissolution or liquidation of
the Company, each Option will terminate unless otherwise provided by the Board
of Directors. In the event of a proposed sale of substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
outstanding Options will be assumed or equivalent options will be substituted
unless the Board of Directors makes the Options fully exercisable prior to the
merger. If the Board makes an Option terminate upon a merger or sale of assets,
the Board will notify the optionee that the Option will be fully exercisable for
a period of 30 days from the date of such notice and the Option will terminate
upon the expiration of such period.
AMENDMENT AND TERMINATION OF THE PLAN. The Plan provides that the Board of
Directors may amend the Plan at any time or from time to time or may terminate
it without the approval of shareholders; provided, however, that the approval of
the holders of a majority of the outstanding shares of the Company entitled to
vote is required for any amendment which would (i) materially increase the
benefits accruing to participants under the Plan, (ii) materially increase the
number of shares of Common Stock which may be issued under the Plan, or (iii)
materially modify the requirements as to eligibility for participation in the
Plan. No such action by the Board of Directors or shareholders may unilaterally
alter or impair any Option previously granted under the Plan without the consent
of the optionee.
FEDERAL INCOME TAX CONSEQUENCES. The grant or exercise of an ISO generally
will not result in taxable income to the optionee. However, the amount by which
the fair market value of the shares of Common Stock at the time of the exercise
of an ISO exceeds the exercise price will be included in determining the
optionee's alternative minimum tax under the Code. Generally, if shares acquired
upon the exercise of an ISO are sold more than two years from the date of grant
of the ISO and more than one year from the date of exercise, the amount, if any,
by which the sale price of such shares exceeds the exercise price will qualify
as a long-term
11
<PAGE> 15
capital gain and will be subject or ordinary income tax rates. If those holding
periods are satisfied, no deduction will be available to the Company upon the
sale of shares acquired through the exercise of an ISO. If the optionee disposes
of the shares before expiration of those holding periods, the optionee will
realize at the time of such disposition taxable ordinary income equal to the
lesser of (i) the excess of the shares' fair market value on the date of
exercise over the exercise price or (ii) the optionee's actual gain, if any, on
the purchase and sale.
The grant of a NQSO generally will not result in taxable income to the
optionee. However, upon exercise of a NQSO, the excess of the fair market value
of the shares of Common Stock on the exercise date over the exercise price
generally will constitute ordinary taxable income to the optionee. In the event
of a subsequent sale of shares acquired upon exercise of a NQSO, the amount, if
any, by which the sale price of such shares after the date of exercise of the
NQSO exceeds the exercise price of the NQSO will generally qualify as a capital
gain. The Company will be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the ordinary income
recognized by the optionee, provided any federal income tax withholding
requirements are satisfied.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF THE
AMENDMENT AUTHORIZING ADDITIONAL SHARES FOR POSSIBLE ISSUANCE UNDER THE PLAN.
12
<PAGE> 16
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 31, 1998 by: (i) each person known by Hanger to
be the beneficial owner of 5% or more of such class of securities, (ii) each
director and nominee for director of Hanger and (iii) all directors, nominees
and officers of Hanger as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DIRECTORS AND 5% SHARES OF OUTSTANDING
STOCKHOLDERS COMMON STOCK(1) COMMON STOCK(1)
---------------- --------------- ---------------
<S> <C> <C>
Chase Venture Capital Associates, L.P.(2)................... 2,426,689 14.725%
Ivan R. Sabel, CPO(3)....................................... 147,097 0.935
Mitchell J. Blutt, M.D.(4).................................. -- --
Thomas P. Cooper, M.D.(5)................................... 20,500 0.131
Robert J. Glaser, M.D.(6)................................... 19,750 0.126
James G. Hellmuth(7)........................................ 14,000 *
William L. McCulloch(8)..................................... 21,250 0.136
Edmond E. Charrette, M.D.(9)................................ 32,500 0.208
H.E. Thranhardt, CPO(10).................................... 327,525 2.086
Risa J. Lavizzo-Mourey, M.D. ............................... 2,000 *
All directors, nominees and officers as a group (10
persons)(11).............................................. 657,471 4.145
</TABLE>
- ---------------
* Holding constitutes less than .1% of the outstanding shares of the class.
(1) Assumes in the case of each stockholder listed in the above list that all
presently exercisable warrants or options held by such stockholder were
fully exercised by such stockholder, without the exercise of any warrants
or options held by any other stockholders.
(2) Includes 830,649 shares subject to exercisable warrants to purchase shares
from the Company. Reference is made to notes (4) and (5) below for
information relating to two directors of the Company that are affiliated
with CVCA. The address of CVCA and its sole general partner, Chase Capital
Partners, is 380 Madison Avenue (12th Floor), New York, New York 10017.
(3) Includes 77,000 shares subject to exercisable options to purchase shares
from the Company and excludes 244,000 shares subject to unvested options
that have not yet become exercisable.
(4) Does not include the shares reported above as owned by CVCA. Dr. Blutt is
an Executive Partner of Chase Capital Partners, the sole general partner of
CVCA. He disclaims beneficial ownership of the shares beneficially owned by
CVCA.
(5) Includes 14,000 shares subject to exercisable options to purchase shares
from the Company and excludes 11,250 shares subject to unvested options
that have not yet become exercisable. Dr. Cooper currently serves as a
consultant to Chase Capital Partners.
(6) Includes 18,750 shares subject to exercisable options to purchase shares
from the Company and excludes 11,250 shares subject to unvested options
that have not yet become exercisable.
(7) Includes 14,000 shares subject to exercisable options to purchase shares
from the Company and excludes 11,250 shares subject to unvested options
that have not yet become exercisable.
(8) Includes 13,750 shares subject to exercisable options to purchase shares
from the Company and excludes 11,250 shares subject to unvested options
that have not yet become exercisable.
(9) Includes 2,500 shares subject to exercisable options to purchase shares
from the Company and excludes 7,500 shares subject to unvested options that
have not yet become exercisable.
(10) Consists of 184,027 shares owned directly by Mr. Thranhardt, 51,250 shares
subject to exercisable options to purchase shares from the Company, 35,543
shares owned indirectly by him as trustee for members of his family, and
56,705 shares owned indirectly by him as general partner of a family
partnership; does not include 103,750 shares subject to unvested options
that have not yet become exercisable.
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<PAGE> 17
(11) Includes (i) 51,349 shares owned directly by Richard A. Stein, an officer
of the Company, and (ii) a total of 212,750 shares subject to exercisable
options held by directors and officers of the Company to purchase shares
from the Company. Excludes a total of 521,250 shares subject to unvested
options held by such persons that have not yet become exercisable.
The preceding table does not include 300 shares of the Company's non-voting
Class C Preferred Stock, which constitutes all the outstanding shares of that
class, held by the former stockholders of Scott Orthopedics, Inc., which company
was acquired by Hanger on February 13, 1990.
STOCK PERFORMANCE CHART
The following chart compares the Company's cumulative total stockholder
return with the S&P 500 Index, a performance indicator of the overall stock
market, and Company-determined peer group index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
AMONG HANGER ORTHOPEDIC GROUP, INC., S&P 500 INDEX &
PEER GROUP INDEX
<TABLE>
<CAPTION>
HANGER
ORTHOPEDIC
GROUP, INC. - NEW PEER
COMMON S&P 500 GROUP
YEAR (2) STOCK INDEX INDEX(3)
<S> <C> <C> <C>
1992 100.00 100.00 100.00
1993 75.76 110.08 78.00
1994 36.36 111.53 77.50
1995 33.33 153.45 116.01
1996 78.79 188.68 147.08
1997 156.06 251.63 197.33
</TABLE>
Assumes $100 invested on January 1, 1992.
(1) Total return assumes reinvestment of dividends and based on market
capitalization.
(2) Fiscal year ending December 31.
(3) The ten issuers of common stock included in the peer group index are
American Homepatient, Inc., American Oncology Resources, Inc., Concentra
Managed Care Inc., Healthsouth Corporation, National Surgery Centers, Inc.,
NovaCare, Inc., Orthodontic Centers of America, Inc., Renal Care Group,
Inc., Renal Treatment Centers, Inc. and Total Renal Care Holdings, Inc. The
Company is changing its peer group from the former peer group to the new
peer group in order to achieve greater comparability.
14
<PAGE> 18
PROPOSAL THREE -- INDEPENDENT ACCOUNTANTS
The Company's Board of Directors has appointed the accounting firm of
Coopers & Lybrand to serve as the Company's independent accountants for the
current fiscal year ending December 31, 1998. The firm has served in that
capacity for the Company's past ten fiscal years. A resolution will be presented
at the Annual Meeting to ratify the appointment by the Company's Board of
Directors of Coopers & Lybrand to serve as the Company's independent public
accountants for the current fiscal year. A majority vote is required for
ratification. A representative of Coopers & Lybrand will be present at the
Annual Meeting to answer any questions concerning the Company's financial
statements and to make a statement if he desires to do so.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission. Statements of Changes of Beneficial Ownership of Securities
on Form 4 are required to be filed by the tenth day of the month following the
month during which the change in beneficial ownership of securities occurred.
The Company believes that all reports of securities ownership and changes in
such ownership required to be filed during 1996 were timely filed.
1999 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting, which presently is expected to be held in May 1999, must be received by
the Secretary of the Company, 7700 Old Georgetown Road, Bethesda, Maryland
20814, no later than December 16, 1998, in order for them to be considered for
inclusion in the 1999 Proxy Statement.
OTHER MATTERS
Management is not aware of any other matters to be considered at the Annual
Meeting. If any other matters properly come before the Annual Meeting, the
persons named in the enclosed Proxy will vote said Proxy in accordance with
their discretion.
By Order of the Board of Directors
HANGER ORTHOPEDIC GROUP, INC.
/s/ RICHARD A. STEIN
Richard A. Stein
Secretary
April 21, 1998
15
<PAGE> 19
EXHIBIT A
HANGER ORTHOPEDIC GROUP, INC.
1991 STOCK OPTION PLAN (AS PROPOSED TO BE AMENDED)
1. PURPOSE. The purpose of the 1991 Stock Option Plan (the "Plan") of
Hanger Orthopedic Group, Inc. (the "Company") is to make shares of the common
stock, $.01 par value per share (the "Stock"), of the Company available for
purchase by selected officers and key employees of the Company or subsidiaries
of the Company, upon terms which will give them an added incentive to continue
service with the Company and a more direct interest in the future success of its
operations. The options granted hereunder shall either be incentive stock
options ("ISOs") within the meaning of Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"), or nonqualified stock options ("NQSOs"). ISOs
and NQSOs collectively are referred to hereinafter as "Options."
2. ADMINISTRATION.
(a) THE STOCK OPTION COMMITTEE. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board") composed of not less than three directors of the
Company, who shall be appointed by and serve at the pleasure of the Board.
A majority of the Committee shall constitute a quorum and the acts of a
majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by a majority of the Committee, shall
be the acts of the Committee. Each member of the Committee shall be
ineligible to be granted Options under the Plan and shall otherwise be a
"disinterested person" within the meaning of Rule 16b-3(c)(2)(i) under the
Securities Exchange Act of 1934, as amended. The Committee shall keep
minutes of its meetings.
(b) AUTHORITY OF THE COMMITTEE. Subject to the provisions of the
Plan, the Committee shall have full authority and power to determine the
employees to whom Options shall be granted, the number of shares of Stock
to be included in each Option, the price at which the shares of Stock
included therein may be purchased, the Option period and time(s) and manner
of exercise and whether the Option shall be an ISO or a NQSO. All decisions
of the Committee may be reviewed by the Board and modified or overruled
within 10 days after the date of the Committee's decision; provided,
however, that the Board shall have no power to modify or overrule a
decision of the Committee with respect to the grant of an Option once the
Committee has made a grant of such Option pursuant to the Plan. Nothing
contained in the Plan shall be construed to give any employee the right to
be granted an Option to purchase Stock or to insist upon the inclusion of
any term or condition in any Option which may be granted, except such as
may be authorized by the Committee. The Committee shall have the authority
and power to adopt such rules and regulations and to take such action as it
shall consider advisable for the administration of the Plan. The Committee
shall have the authority and power to construe, interpret and administer
the Plan, and the decisions of the Committee shall be final and binding
upon the Company, its employees, Option holders and all other persons. No
member of the Committee shall incur any liability by reason of any action
or determination made in good faith with respect to the Plan or any Option.
3. PARTICIPATION.
(a) ELIGIBLE EMPLOYEES. Selected officers and key employees of the
Company or subsidiaries of the Company who are, in the sole opinion of the
Committee, from time to time primarily responsible for the management of,
or in a position to contribute materially to the growth and financial
success of the Company and its subsidiaries (including employees who are
members of the Board) shall be eligible to receive Options to purchase
Stock under the Plan, provided, however, that no member of the Committee
may be granted Options under the Plan. From such eligible employees, the
Committee shall from time to time choose those to whom Options shall be
granted. The Committee shall determine the number of shares of Stock
subject to each such Option, whether the Option is an ISO or NQSO, and the
terms and provisions of the Option agreements. An employee who has been
granted an Option may, if he is otherwise eligible, be granted an
additional Option or Options if the Committee shall so determine.
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(b) LIMITATIONS.
(i) Except as permitted below, no ISO may be granted under the Plan
to any employee who, immediately before the granting of such ISO, owns
directly or indirectly Stock possessing more than 10 percent of the
total combined voting power or value of all classes of capital stock of
the Company. An ISO may be granted to an employee in excess of the 10
percent limit if such ISO has an exercise price of at least 110 percent
of the fair market value of the Stock subject to such ISO on the date of
grant and if such ISO by its terms is not exercisable after the
expiration of five years from the date such ISO is granted.
(ii) The aggregate fair market value (determined as of the time an
ISO is granted) of the Stock for which any employee may be granted ISOs
in any calendar year (under this Plan and all other incentive stock
option plans of the employer corporation and its parent and subsidiary
corporations, if any) may exceed $100,000; provided, however, that such
ISOs cannot be exercised for the first time by the employee with respect
to more than $100,000 of Stock in any calendar year.
4. STOCK OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by a written stock option agreement ("Option Agreement") which shall
be entered into by the Company and the employee to whom the Option is granted
(the "Option Holder"), and which shall contain the following terms and
conditions, as well as such other terms and conditions not inconsistent
therewith, as the Committee may consider appropriate in each case.
(a) PRICE. The price at which each share of Stock covered by an
Option may be purchased shall be determined in each case by the Committee
and set forth in the Option Agreement. In no event shall the price be less
than 100 percent of the Fair Market Value of the Stock on the date the
Option is granted. "Fair Market Value" means (i) if the Stock is listed on
a national securities exchange, the last sale price of the Stock as
reported by the consolidated tape of such exchange on the date of grant of
the Option, or, if there is no Stock transaction on such date, on the
immediately preceding date on which there is a Stock transaction; (ii) if
the Stock is included in the NASDAQ National Market System, the last sale
price of the Stock as reported thereby on the date of grant of the Option
or, if there is no Stock transaction on such date, on the immediately
preceding date on which there is a Stock transaction; or (iii) if the Stock
is not listed on a national securities exchange or included in the NASDAQ
National Market System, the mean of the highest and lowest bid prices for
the Stock in the over-the-counter market on the date of grant of the Option
or the value determined to be fair and reasonable by the Committee.
(b) DURATION OF OPTIONS. Each Option Agreement shall state the period
of time, determined by the Committee, within which the Option may be
exercised by the Option Holder. Such period must end, in all cases, not
more than 10 years from the date such Option is granted. No Option shall be
exercisable until it has been held for at least six months from the date of
grant. Any ISO granted prior to January 1, 1987 may not be exercised while
any other incentive stock option within the meaning of Section 422A of the
Code granted to the same Option Holder prior to January 1, 1987 is
outstanding. An ISO shall be treated as outstanding until it is exercised
in full or expires by reason of time.
(c) TRANSFERABILITY. Each Option Agreement shall provide that the
Option granted therein is not transferable by the Option Holder except by
will or pursuant to the laws of descent and distribution and that such
Option is exercisable during the Option Holder's lifetime only by such
Option Holder.
(d) AGREEMENT TO CONTINUE IN EMPLOYMENT. Each Option Agreement shall
contain the Option Holder's agreement to remain in the employment of the
Company, at the pleasure of the Company, for a continuous period of at
least six months after the date of such Option Agreement, at the salary
rate in effect on the date of such agreement or at such increased rate as
may be fixed, from time to time, by the Company.
(e) NATURE AND EXERCISE OF, AND PAYMENT FOR, OPTION. Each Option
Agreement shall specify whether the Option is an ISO or NQSO and shall
provide that the method for exercising the Option granted therein shall be
by delivery to the Company of written notice specifying the number of
shares of Stock with respect to which such Option is exercised. If
requested by the Company, such notice shall
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contain the Option Holder's representation that he is purchasing the Stock
for investment purposes only and his agreement not to sell any Stock so
purchased in any manner which is in violation of the Securities Act of
1933, as amended, or any applicable state law. Such restrictions, or notice
thereof, shall be placed on the certificates representing the Stock so
purchased. The purchase of such Stock shall take place at the principal
offices of the Company within 20 days following delivery of such notice.
The purchase price of Stock upon exercise of any Option shall be paid in
full (a) in cash, (b) in Stock valued at its Fair Market Value on the date
of exercise of the Option, (c) by requesting the Company to withhold from
the number of shares of Stock otherwise issuable upon exercise of the
Option that number of shares of Stock having an aggregate Fair Market Value
on the date of exercise equal to the Option price for all of the shares of
Stock subject to such exercise, or (d) by a combination thereof, in the
manner provided in the Option Agreement. Certificates for such shares of
Stock tendered in payment shall be in a form for good delivery and, if the
certificates were issued pursuant to the exercise of an ISO, the Option
Holder must have held the tendered shares for at least one year.
(f) DATE OF GRANT. An Option shall be considered as having been
granted on the date the Committee decides to grant the Option.
(g) NOTICE OF SALE OF STOCK; WITHHOLDING. Each Option Agreement shall
provide (i) that the Option Holder shall notify the Company in writing if
Stock acquired under an ISO is "disposed of" within the meaning of Section
422A of the Code within two years after the date of the grant of the ISO or
within one year after the transfer of such Stock to the Option Holder; and
(ii) that if the Option Holder does "dispose of" Stock within such period,
the Option Holder shall make appropriate arrangements with the Company to
provide for the amount of additional withholding required by Sections 3102
and 3402 of the Code and applicable state income tax laws.
5. THE STOCK. The total number of shares of Stock as to which Options may
be granted under this Plan shall not exceed 3,000,000 in the aggregate, except
as such number of shares shall be adjusted in accordance with the provisions of
Section 6 hereof. If any outstanding Option under the Plan shall expire or be
terminated for any reason before the end of the 10-year period during which
Options may be granted hereunder, the shares of Stock allocable to the
unexercised portion of such Option may again be included in an Option under the
Plan. The Company shall at all times retain as authorized and unissued Stock at
least the number of shares from time to time included in outstanding Options, or
otherwise assure itself of its ability to perform its obligations thereunder.
6. ADJUSTMENTS.
(a) ADJUSTMENTS BY STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company
shall at any time increase or decrease the number of its outstanding shares
of Stock, or change in any way the rights and privileges of such shares, by
means of the payment of a Stock dividend or the making of any other
distribution upon such shares payable in Stock, or through a Stock split or
subdivision of shares, or a consolidation or combination of shares, or
through a reclassification or recapitalization involving the Stock, then
the numbers, rights and privileges of the following shall be increased,
decreased or changed in like manner as if they had been issued and
outstanding, fully paid and nonassessable at the time of such occurrence:
(i) the shares of Stock on which Options may be granted under the Plan;
(ii) the maximum number of shares of Stock with respect to which an
employee may receive an Option hereunder; and (iii) the shares of Stock
then included in each outstanding Option granted hereunder.
(b) DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the
Company shall at any time pay or make any dividend or other distribution
upon the Stock payable in securities or other property (except money or
Stock), a proportionate part of such securities or other property shall be
set aside and delivered to each Option Holder then holding an Option
hereunder upon exercise thereof.
(c) APPORTIONMENT OF PRICE. Upon any occurrence described in the
preceding subsections (a) and (b) of this Section 6, the total Option price
under any then outstanding Option shall remain unchanged but shall be
apportioned ratably over the increased or decreased number or changed kinds
of securities or other property subject to the Option.
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(d) RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to
the holders of its Stock rights to subscribe pro rata for additional shares
thereof or for any other securities of the Company or of any other
corporation, there shall be added to the number of shares then underlying
each outstanding Option the Stock or other securities which the Option
Holder would have been entitled to subscribe for if immediately prior to
such grant the Option Holder had exercised his entire Option, and the
Option price shall be increased by the amount which would have been payable
by the Option Holder for such Stock or other securities.
(e) DETERMINATION BY THE COMMITTEE, ETC. Adjustments under this
Section 6 shall be made by the Committee, whose determinations with regard
thereto shall be final and binding. No fractional shares of Stock shall be
issued on account of any such adjustment.
7. MERGER, CONSOLIDATION, ETC.
(a) EFFECT OF TRANSACTION. Upon the occurrence of any of the
following events, if the notice required by Section 7(b) hereof shall have
first been given, this Plan and all Options then outstanding under it shall
automatically terminate and be of no further force and effect whatsoever,
without the necessity for any additional notice or other action by the
Committee, the Board or the Company: (i) the merger, consolidation or
liquidation of the Company or the acquisition of its assets or stock
pursuant to a nontaxable reorganization, unless the surviving or acquiring
corporation, as the case may be, shall assume the outstanding Options or
substitute new options for them pursuant to Section 425(a) of the Code;
(ii) the dissolution or liquidation of the Company; (iii) the appointment
of a receiver for all or substantially all of the Company's assets or
business; (iv) the appointment of a trustee for the Company after a
petition has been filed for the Company's reorganization under applicable
statutes; or (v) the sale, lease or exchange of all or substantially all of
the Company's assets and business.
(b) NOTICE OF SUCH OCCURRENCES. At least 30 days' prior written
notice of any event described in Section 7(a) hereof, except the
transactions described in subsections 7(a)(iii) and (iv) as to which no
notice shall be required, shall be given by the Company to each Option
Holder theretofore granted an Option under the Plan. The Option Holders so
notified may exercise their Options at any time before the occurrence of
the event requiring the giving of notice, regardless of whether all
conditions of exercise relating to continuation of employment for specified
periods of time have been satisfied. Such notice shall be deemed to have
been given when delivered personally to an Option Holder or when mailed to
an Option Holder by registered or certified mail, postage prepaid, at such
Option Holder's last address known to the Company.
8. EXPIRATION. The Plan shall terminate whenever the Board adopts a
resolution to that effect. If not sooner terminated under the preceding sentence
hereof, the Plan shall wholly cease and expire 10 years from the effective date
hereof. After termination, no Options shall be granted under the Plan, but the
Company shall continue to recognize Options previously granted.
9. GENERAL PROVISIONS.
(a) AMENDMENTS, ETC. The Board may from time to time amend, modify,
suspend or terminate the Plan. Nevertheless, no such amendment,
modification, suspension or termination shall (i) impair any Option
theretofore granted under the Plan or deprive any Option Holder of any
shares of Stock which he may have acquired through or as a result of the
Plan, or (ii) be made without the approval of the shareholders of the
Company where such change would (A) materially increase the benefits
accruing to Option Holders under the Plan, (B) materially increase the
total number of shares of Stock which may be issued under the Plan, or (C)
materially modify the requirements as to eligibility for participation in
the Plan.
(b) QUALIFICATION UNDER INTERNAL REVENUE CODE. The Company intends
that all ISOs granted under the Plan shall constitute incentive stock
options within the meaning of Section 422A of the Code and the Plan shall
be construed and administered in order to effect such intention.
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<PAGE> 23
(c) TREATMENT OF PROCEEDS. Proceeds from the sale of Stock pursuant
to Options granted under the Plan shall constitute general funds of the
Company.
(d) EFFECTIVE DATE. The Plan shall become effective as of the date of
its approval by shareholders of the Company on September 26, 1991. ISOs
previously granted under the Company's 1983 Incentive Stock Option Plan and
outstanding as of the effective date of the Plan shall continue to be
governed by the terms of the Option Agreements entered into in connection
with such ISOs.
(e) PARAGRAPH HEADINGS. The paragraph headings are included herein
only for convenience and they shall have no effect on the interpretation of
the Plan.
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<PAGE> 24
PROXY
HANGER ORTHOPEDIC GROUP, INC.
7700 Old Georgetown Road
Bethesda, Maryland 20814
This proxy is solicited by the Board of Directors for the ANNUAL
MEETING OF STOCKHOLDERS of Hanger Orthopedic Group, Inc. (the "Company"), a
Delaware corporation, on May 19, 1998, 10:00 a.m., local time.
The undersigned appoints Ivan R. Sabel and Richard A. Stein, and each
of them, a proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock, par value $.01 per share, of the Company which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be held
on May 19, 1998, or at any adjournment thereof, with all powers the undersigned
would have if personally present.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE FOLLOWING PROPOSALS:
Please mark your votes as indicated in this
example [X]
1. To Elect Directors
FOR all nominees WITHHOLD
listed to the right AUTHORITY
(except as marked to the to vote for all nominees
contrary) listed to the right
[ ] [ ]
2. Proposal to amend the Company's 1991 Stock Option Plan to increase by
1,500,000 shares the number of shares of Common Stock authorized for issuance
thereunder.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MITCHELL J. BLUTT, M.D., EDMOND E. CHARRETTE, M.D., THOMAS P. COOPER, M.D.,
ROBERT J. GLASER, M.D., JAMES G. HELLMUTH, WILLIAM L. MCCULLOCH, IVAN R.
SABEL, CPO, H.E. THRANHARDT, CPO AND RISA J. LAVIZZO-MOUREY, M.D.
(INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, WRITE THAT
NOMINEE'S NAME ON THE SPACE PROVIDED BELOW).
- --------------------------------------------------------------------------------
3. Proposal to ratify the selection of Coopers & Lybrand as the independent
accountants for the Company for the current fiscal year.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the Proxies are authorized to vote upon such other
business as properly may come before the meeting.
Sign exactly as your name appears hereon. When signing in a representative or
fiduciary capacity, indicate title. If shares are held jointly, each holder
should sign.
Date , 1998
----------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Signature of Stockholder(s)
THE SHARES WILL BE VOTED AS DIRECTED ABOVE, AND WITH RESPECT TO OTHER
MATTERS OF BUSINESS PROPERLY BEFORE THE MEETING AS THE PROXIES SHALL DECIDE.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2 and 3.
