SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-K/A No. 1
(For Year Ended December 31, 1998)
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Hanger Orthopedic Group, Inc.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-10670 84-0904275
---------------------------- ------------ --------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
7700 Old Georgetown Road
Bethesda, Maryland 20814
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (301) 986-0701
--------------
The undersigned registrant hereby amends its Annual Report on Form 10-K
for the year ended December 31, 1998, to include the information called for by
the following items, as set forth in the pages attached hereto:
Part III. Item 10. Directors and Executive Officers
of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain
Beneficial Owners and Management
Item 13. Certain Relationships and
Related Transactions
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
By: /s/RICHARD A. STEIN
-------------------
Richard A. Stein
Vice President - Finance,
Secretary and Treasurer
Date: April 20, 1999
2
<PAGE>
HANGER ORTHOPEDIC GROUP, INC.
AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
Because definitive proxy soliciting material relating to the 1999 Annual
Meeting of Stockholders of Hanger Orthopedic Group, Inc. ("Hanger" or the
"Company") will be filed later than April 30, 1999, the information called for
by Part III of the Company's Form 10-K for the year ended December 31, 1998 is
included in this Amendment No. 1 to such Form 10-K.
PART III OF FORM 10-K FOR YEAR
ENDED DECEMBER 31, 1998
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS OF THE COMPANY
The following sets forth information regarding the directors of the
Company:
<TABLE>
<CAPTION>
POSITION WITH BECAME
NAME THE COMPANY AGE DIRECTOR
---- ------------- --- --------
<S> <C> <C> <C>
Ivan R. Sabel, CPO Chairman of the Board,
President, Chief Executive 54 1986
Officer and Director
Mitchell J. Blutt, M.D. Director 42 1989
Edmond E. Charrette, M.D. Director 64 1996
Thomas P. Cooper, M.D. Director 55 1990
Robert J. Glaser, M.D. Director 80 1993
James G. Hellmuth Director 76 1990
Risa J. Lavizzo-Mourey, M.D. Director 44 1998
Brigadier General William L.
McCulloch, USMC (Retired) Director 78 1991
H.E. Thranhardt, CPO Director 59 1996
</TABLE>
3
<PAGE>
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
ChaseMellon 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 General Partner of Ascendant Healthcare International (an
investment group with equity investments in the Latin American healthcare
sector) and serves as a director and the 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
4
<PAGE>
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 Cove Healthcare, providing portable diagnostic services
to long term care facilities, since January 1997. From May 1989 to January
1997, Dr. Cooper served as the President and Chief Executive Officer of
Mobilex U.S.A., a provider of portable diagnostic services to long term care
facilities. Since June 1991, Dr. Cooper also has been employed as the
President and Chief Executive Officer of Senior Psychology Services
Management, Inc., which supplies psychologists to nursing home patients. Dr.
Cooper was the founder of Spectrum Emergency Care, a provider of emergency
room physicians to hospitals and clinics, and Correctional Medical Systems, a
provider of health services to correctional facilities. Dr. Cooper has served
as Director of Quality Assurance for ARA Living Centers, a company which
operates long-term healthcare facilities, and as Medical Director for General
Motors Corporation Assembly Division. He currently serves as a consultant to
Chase Capital Partners and has served on the faculty of the University of
California, San Diego Medical School.
ROBERT J. GLASER, M.D. 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.
5
<PAGE>
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.
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).
BRIGADIER GENERAL WILLIAM J. MCCULLOCH, USMC (RET.), is the President of
AC&MS, a communications and marketing firm. Previously, General McCulloch was,
for 12 years, the Executive Director of the three associations in the orthotic
and prosthetic profession, i.e., the American Orthotic and Prosthetic
Association, the American Board for Certification in Orthotics and
Prosthetics, and the American Academy of Orthotists and Prosthetics. Before
becoming the Executive Director of these associations, he served as the
Special Assistant for Legislative Affairs for a member of the U.S. Congress.
General McCulloch retired from the Marine Corps in 1975 after a distinguished
6
<PAGE>
career as an infantry troop commander in three wars, and as a Marine Corps
public relations specialist. He serves on the Boards of Directors of various
civic, professional, and business organizations.
H.E. THRANHARDT, CPO is the former President and Chief Executive Officer
of J.E. Hanger, Inc. of Georgia ("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 orthotic and prosthetic ("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.
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 1998 were
timely filed.
EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the Company's executive officers is set forth
under Item 4A of the Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the annual salary
(column c) and bonus (column d) paid and options granted (column g) during
7
<PAGE>
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 1998
exceeded $100,000.
<TABLE>
<CAPTION>
=================================================================================================================================
Summary Compensation Table
---------------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
-------------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
Other Annual Restricted Stock LTIP
Name and Principal Position Year Salary Bonus(1) Compensation(2) Award(s) Options Payouts
($) ($) ($) $ (#)(3) ($)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel 1998 $419,478 $260,000 - 100,000 -
Chairman, President & 1997 385,000 293,333 - - 167,667 -
Chief Executive Officer 1996 278,469 315,000 - - 134,000 -
---------------------------------------------------------------------------------------------------------------------------------
Richard A. Stein 1998 $201,567 $130,000 - 50,000 -
Vice President-Finance, 1997 185,000 146,667 - - 80,333 -
Secretary & Treasurer 1996 143,184 70,000 - - 66,000 -
=================================================================================================================================
-----------------------
<FN>
1 With respect to 1998, the above reported bonuses were paid on January 8,
1999 and related to 1998 performance. 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.
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 $50,000 or 10% of the total of the person's annual salary and
bonuses for 1998.
3 Reports the number of shares underlying options granted during each of
the respective years.
</FN>
</TABLE>
The following Option Grants Table sets forth, for each of the named
executive officers, information regarding individual grants of options granted
in 1998 and their potential realizable value. Information regarding individual
option grants includes the number of options granted, the percentage of total
grants to employees represented by each grant, the per-share exercise price
and the expiration date. The potential realizable value of the options are
8
<PAGE>
based on assumed annual 0%, 5% and 10% rates of stock price appreciation over
the term of the option.
<TABLE>
<CAPTION>
=================================================================================================================================
Option Grants Table
---------------------------------------------------------------------------------------------------------------------------------
Potential Realizable Value at Assumed
Annual Rates of Stock Price
Individual Grants Appreciation for Option Term(4)
---------------------------------------------------------------------------------------------------------------------------------
Options % of Total Options Granted to
Granted Employees in Fiscal Exercise Expiration
Name (#)(1) Year(2) Price($/SH)(3) Date 0% 5% 10%
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel(2) 100,000 38.6% $22.3125 12/15/08 $0 $1,403,221 $3,556,038
Richard A. Stein(3) 50,000 19.3 $22.3125 12/15/08 0 $701,611 $1,778,019
=================================================================================================================================
--------------------
<FN>
1 The stock options were granted on December 15, 1998 under the Company's
1991 Stock Option Plan and 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 258,750 shares granted to all employees
in 1998.
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.
</FN>
</TABLE>
9
<PAGE>
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 1998 upon the exercise of
options and the value realized in connection therewith, and (ii) the number
and value of unexercised options held at December 31, 1998.
<TABLE>
<CAPTION>
=================================================================================================================================
Aggregate Option Exercises and Fiscal
Year-End Option Value Table
---------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
Number of Number of Unexercised Options Value of Unexercised In-The-Money
Shares Acquired on Value at FY-End(#)(1) Options at FY-End($)
Name Exercise Realized($) Exercisable/Unexercisable Exercisable/Unexercisable(4)
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ivan R. Sabel 77,000 1,190,063 41,750/302,250 $529,750/$2,990,563
Richard A. Stein 21,500 336,844 20,750/150,250 $262,828/$1,480,297
=================================================================================================================================
--------------------
<FN>
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) 10,000 shares at a price of $2.75 per share through January 31,
2005 under an option granted on January 31, 1995; (ii) 33,500 shares at a
price of $3.50 per share through February 21, 2006 under an option granted on
February 21, 1996; (iii) 33,500 shares at a price of $6.125 per share through
November 1, 2006 under an option granted on November 1, 1996; (iv) 50,250
shares at a price of $6.125 per share through March 14, 2007 under an option
granted on March 14, 1997; (v) 37,500 shares at a price of $13.25 per share
through September 19, 2007 under an option granted on September 19, 1997; (vi)
37,500 shares at a price of $11.3125 per share through December 17, 2007 under
an option granted on December 17, 1997; and (vii) 100,000 shares at a price of
$22.3125 per share through December 15, 2008 under an option granted on
December 15, 1998.
3 The above-reported options entitle Mr. Stein to purchase from the
Company (i) 5,000 shares at a price of $2.75 per share through January 31,
2005 under an option granted on January 31, 1995; (ii) 16,500 shares at a
price of $3.50 per share through February 21, 2006 under an option granted on
10
<PAGE>
February 21, 1996; (iii) 16,500 shares at a price of $6.125 through November
1, 2006 under an option granted on November 1, 1996; (iv) 24,750 shares at a
price of $6.125 through March 14, 2007 under an option granted on March 14,
1997; (v) 18,750 shares at a price of $13.25 per share through September 19,
2007 under an option granted on September 19, 1997; (vi) 18,750 shares at a
price of $11.3125 per share through December 17, 2007 under an option granted
on December 17, 1997; and (vii) 50,000 shares at a price of $22.3125 per share
through December 15, 2008 under an option granted on December 15, 1998.
4 Market value of underlying shares at December 31, 1998, minus the
exercise price.
</FN>
</TABLE>
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 1998.
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.
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
11
<PAGE>
purchase up to an aggregate of 3,000,000 shares of Common Stock at not less
than 100% of fair market value on the date granted. As of March 17, 1999,
incentive stock options and nonqualified stock options granted under the 1991
Plan to purchase a total of 1,571,322 shares of Common Stock under the 1991
Plan, at prices ranging from $2.75 to $22.50 per share, were outstanding and
held by a total of 311 persons. Of such options, options relating to 435,397
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 May 12, 1998, 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 $18.625 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.
NONQUALIFIED STOCK OPTIONS. Hanger has granted nonqualified stock
options other than pursuant to the 1991 Plan and the 1993 Plan to certain
officers and other persons which permit such persons to acquire shares of
Common Stock generally at not less than 100% of fair market value on the date
granted. As of March 17, 1999, nonqualified stock options granted other than
pursuant to the 1991 Plan and the 1993 Plan to purchase a total of 13,875
shares of Common Stock, at prices ranging from $3.00 to $12.00 per share, were
outstanding and held by a total of 12 persons. All of such nonqualified stock
options are presently exercisable.
12
<PAGE>
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 17, 1999 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 executive officer of Hanger and (iii) all directors and executive
officers of Hanger as a group.
<TABLE>
<CAPTION>
Number of Percent of
Directors, Executive Officers Shares of Outstanding
and 5% Stockholders Common Stock(1) Common Stock(1)
<S> <C> <C>
Chase Venture Capital
Associates, L.P.(2) ...................... 1,626,689 8.28%
The TCW Group, Inc.(3) ..................... 986,730 5.24
Mitchell J. Blutt, M.D.(4) ................. - -
Thomas P. Cooper, M.D.(5) .................. 24,250 .13
Edmond E. Charrette, M.D.(6) ............... 23,750 .13
Robert J. Glaser, M.D.(7) .................. 23,500 .13
James G. Hellmuth(8) ....................... 17,750 .09
Risa J. Lavizzo-Mourey, M.D.(9) ............ 2,000 .01
Brigadier General William L. McCulloch
(USMC Retired)(10) ....................... 20,500 .11
Ivan R. Sabel, CPO(11) ..................... 129,219 .69
H.E. Thranhardt, CPO(12) ................... 377,525 2.00
Richard A. Stein(13) ....................... 68,106 .36
All directors and executive officers
as a group (10 persons)(14) .............. 686,600 3.50
----------------
<FN>
(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.
13
<PAGE>
(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) The address of The TCW Group, Inc. is 865 South Figueroa Street, Los
Angeles, California 90017.
(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 17,750 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable. Dr. Cooper currently serves as a
consultant to Chase Capital Partners.
(6) Includes 3,750 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 22,500 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(8) Includes 17,500 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(9) Excludes 5,000 shares subject to unvested options that have not yet
become exercisable.
(10) Includes 10,000 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(11) Includes 33,500 shares subject to exercisable options to purchase shares
from the Company and excludes 258,750 shares subject to unvested options
that have not yet become exercisable.
(12) Consists of 184,027 shares owned directly by Mr. Thranhardt, 101,250
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
14
<PAGE>
of a family partnership; does not include 58,750 shares subject to
unvested options that have not yet become exercisable.
(13) Includes 16,500 shares subject to exercisable options to purchase shares
from the Company and excludes 128,750 shares subject to unvested options
that have not yet become exercisable.
(14) Includes a total of 222,750 shares subject to exercisable options held
by directors and executive officers of the Company to purchase shares
from the Company and excludes a total of 512,500 shares subject to
unvested options held by such persons that have not yet become
exercisable.
</FN>
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 297,883 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 322,699 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. In May 1997, warrants for 71,969
shares were exercised at $4.16 per share, which resulted in the issuance of
11,694 shares.
On November 1, 1996, in connection with the Company's acquisition of
J.E. Hanger, Inc. of Georgia, the Company entered into a Senior Subordinated
Note Purchase Agreement with CVCA providing for the issuance of a Senior
Subordinated Note (the "Senior Subordinated Note") in the principal amount of
$4 million and detachable warrants to purchase 800,000 shares of Common Stock.
15
<PAGE>
The fair market value of the Common Stock on the date of grant on the warrants
was $6.125 per share. The Company used the net proceeds of its public offering
of Common Stock in July 1997 to repay the Senior Subordinated Note, as a
result of which the warrants were amended to reduce the number of underlying
shares to 360,000 shares. These detachable warrants, which are exercisable on
or before November 1, 2004, have an exercise price of $4.01 as to 209,183
shares and an exercise price of $6.38 as to 150,818 shares.
16
