<PAGE>
As filed with the Securities and Exchange Commission on October 27, 1999
Registration No. 333-85045
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
HANGER ORTHOPEDIC GROUP, INC.
(Exact Name of Registrant and its Guarantor Subsidiaries* as Specified in its
Charter)
(*A complete list is set forth on the following page.)
----------------
DELAWARE 5999 84-0904275
(State or Other (Primary Standard (I.R.S.
Jurisdiction of Industrial EmployerIdentification
Incorporation or Classification Code No.)
Organization) Number)
Two Bethesda Metro Center -- Suite 1200
Bethesda, MD 20814
(301) 986-0701
(Address, including ZIP code, and telephone number,
including area code, of the Registrant's principal executive offices)
----------------
Ivan R. Sabel
Chairman and Chief Executive Officer
Hanger Orthopedic Group, Inc.
Two Bethesda Metro Center -- Suite 1200
Bethesda, MD 20814
(301) 986-0701
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
Copy to:
Arthur H. Bill, Esq.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W. (Suite #825)
Washington, DC 20036
(202) 457-5103
----------------
Approximate date of commencement of proposed offer to the public: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
----------------
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
NAME, ADDRESS AND TELEPHONE NUMBER (1) ORGANIZATION
- -------------------------------------- ----------------
<S> <C>
Hanger Prosthetics & Orthotics, Inc. Delaware
Southern Prosthetic Supply, Inc. Georgia
Seattle Orthopedic Group, Inc. Delaware
OPNET, Inc. Nevada
Eugene Teufel & Son Orthotics & Prosthetics, Inc. Pennsylvania
HPO Acquisition Corp. Delaware
NovaCare Orthotics & Prosthetics, Inc. Delaware
Advanced Orthopedic Technologies, Inc. Nevada
Advanced Orthopedic Technologies, Inc. New York
NovaCare Orthotics & Prosthetics Holdings, Inc. Delaware
NovaCare Orthotics & Prosthetics West, Inc. California
NovaCare Orthotics & Prosthetics East, Inc. Delaware
Advanced Orthopedic Technologies (Clayton), Inc. New Jersey
Advanced Orthopedic Technologies (Lett), Inc. West Virginia
Advanced Orthopedic Technologies (New Jersey), Inc. New Jersey
Advanced Orthopedic Technologies (New Mexico), Inc. New Mexico
Advanced Orthopedic Technologies (New York), Inc. New York
Advanced Orthopedic Technologies (OTI), Inc. New York
Advanced Orthopedic Technologies (Parmeco), Inc. West Virginia
Advanced Orthopedic Technologies (SFV), Inc. California
Advanced Orthopedic Technologies (Virginia), Inc. Virginia
Advanced Orthopedic Technologies (West Virginia), Inc. West Virginia
Advanced Orthopedic Technologies Management Corp. New York
AD Craig Company California
Advance Orthotics, Inc. Texas
Advanced Orthopedic Systems, Inc. California
Advanced Orthotics and Prosthetics, Inc. Washington
Artificial Limb and Brace Center Arizona
Central Valley Prosthetics & Orthotics, Inc. California
Certified Orthopedic Appliance Co., Inc. Arizona
Fresno Orthopedic Company California
High Desert Institute of Prosthetics and Orthotics California
McFarlen & Associates, Inc. Texas
Professional Orthotics and Prosthetics, Inc. New Mexico
Professional Orthotics and Prosthetics, Inc. of Santa Fe New Mexico
Progressive Orthopedic California
Robin-Aids Prosthetics, Inc. California
Salem Orthopedic & Prosthetic, Inc. Oregon
San Joaquin Orthopedic, Inc. California
Texoma Health Care Center, Inc. Texas
Tucson Limb & Brace, Inc. Arizona
American Rehabilitation Systems, Inc. Georgia
Atlanta Prosthetics, Inc. Georgia
Bowman-Shelton Orthopedic Service, Incorporated Oklahoma
Cahill Orthopedic Laboratory, Inc. New York
Dale Clark Prosthetics, Inc. Iowa
E.A. Warnick-Pomeroy Co., Inc. Pennsylvania
Frank J. Malone & Son, Inc. Pennsylvania
J.E. Hanger, Incorporated Missouri
Kroll's, Inc. Minnesota
McKinney Prosthetics/Orthotics, Inc. Illinois
Meadowbrook Orthopedics, Inc. Michigan
Medical Arts O&P Services, Inc. Wisconsin
Northland Regional Orthotic and Prosthetic Center, Inc. Minnesota
Opus Care, Inc. Illinois
</TABLE>
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER
JURISDICTION OF
INCORPORATION OR
NAME, ADDRESS AND TELEPHONE NUMBER (1) ORGANIZATION
- -------------------------------------- ----------------
<S> <C>
Ortho East, Inc. Massachusetts
Ortho-Fab Laboratories, Inc. Illinois
Orthopedic Appliances, Inc. Iowa
Orthopedic Rehabilitative Services, Ltd. Illinois
Orthotic & Prosthetic Rehabilitation Technologies, Inc. Florida
Orthotic Specialists, Inc. Michigan
Orthotic and Prosthetic Associates, Inc. Massachusetts
Physical Restoration Laboratories, Inc. Illinois
Prosthetics-Orthotics Associates, Inc. Illinois
Protech Orthotic and Prosthetic Center, Inc. Illinois
Rehabilitation Fabrication, Inc. Massachusetts
Reid Medical System, Inc. Florida
Southern Illinois Prosthetic & Orthotic of Missouri, Ltd. Missouri
Southern Illinois Prosthetic & Orthotic, Ltd. Illinois
T.D. Rehab Systems, Inc. New Jersey
University Orthotic & Prosthetic Consultants, Ltd. Pennsylvania
Mica Corporation Washington
</TABLE>
- --------
(1) The mailing address and telephone number for each of the additional
registrants is Two Bethesda Metro Center, Suite 1200, Bethesda, Maryland
20814; (301) 986-0701.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This information in this prospectus is not complete and may be changed. We +
+may not offer these securities until the Registration Statement filed with +
+the Securities and Exchange Commission is effective. This prospectus is not +
+an offer to sell these securities and we are not soliciting an offer to buy +
+these securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 27, 1999.
[HANGER ORTHOPEDIC GROUP, INC. LOGO APPEARS HERE]
HANGER ORTHOPEDIC GROUP, INC.
Exchange Offer for
11 1/4% Senior Subordinated Notes due 2009
This is an offer to exchange the outstanding, unregistered Hanger Orthopedic
Group 11 1/4% Senior Subordinated Notes you now hold for new, substantially
identical 11 1/4% Senior Subordinated Notes that will be free of the transfer
restrictions that apply to the old notes. This offer will expire at 5:00 p.m.,
New York City time, on November 29, 1999, unless we extend it. You must tender
your old, unregistered notes by the deadline to obtain new, registered notes
and the liquidity benefits they offer.
We agreed with the initial purchasers of the old notes to make this offer and
register the issuance of the new notes following the closing of the sale of the
old notes. This offer applies to any and all old notes tendered by the
deadline.
The new notes will not trade on any established exchange. The new notes have
the same financial terms and covenants as the old notes, and are subject to the
same business and financial risks.
A DESCRIPTION OF THOSE RISKS BEGINS ON PAGE 16.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
October 28, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 17
Where You Can Find More Information...................................... 22
Delivery of Prospectus................................................... 22
Use of Proceeds.......................................................... 22
Our Recent Acquisition of NovaCare O&P and Related Financing
Transactions............................................................ 22
Capitalization........................................................... 24
Unaudited Pro Forma Consolidated Financial Statements.................... 25
Selected Historical Consolidated Financial Statements and Other Data of
Hanger Orthopedic Group................................................. 41
Selected Historical Consolidated Financial Statements and Other Data of
NovaCare O&P............................................................ 43
Hanger Orthopedic Group Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 46
NovaCare O&P Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 54
Business................................................................. 60
Management............................................................... 73
Security Ownership of Certain Beneficial Owners and Management........... 77
The Exchange Offer....................................................... 78
Description of the New Credit Facility and the Redeemable Preferred
Stock................................................................... 88
Description of the Notes................................................. 90
Book-Entry; Delivery and Form............................................ 121
Certain United States Federal Income Tax Consequences.................... 123
Plan of Distribution..................................................... 125
Incorporation of Material Documents by Reference......................... 126
Legal Matters............................................................ 127
Experts.................................................................. 127
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
Hanger Orthopedic Group, Inc.
We develop, acquire and operate orthotic and prosthetic patient-care centers.
Our O&P centers are staffed by orthotists and prosthetists, who design,
fabricate, fit and supervise the use of external musculoskeletal support
devices and artificial limbs. As the country's only vertically integrated O&P
company, we also manufacture custom-made and prefabricated O&P devices and are
the country's largest distributor of O&P components and finished O&P patient-
care products.
Our products primarily are technologically advanced, custom devices designed
for adding functionality to patients' lives. We serve a clearly identified
patient need and provide tangible benefits to patients. Our industry is
characterized by stable, recurring revenues resulting from the need for
regular, periodic replacement or modification of O&P devices.
On July 1, 1999, we acquired NovaCare Orthotics and Prosthetics, Inc. As a
result of that acquisition, we are the leading provider of O&P patient-care
services in the United States. At September 30, 1999, we had 630 patient-care
centers and approximately 977 practitioners in 42 states and the District of
Columbia. For the twelve months ended June 30, 1999, we had total pro forma net
sales of $490.4 million, EBITDA of $61.3 million and Adjusted EBITDA of $69.4
million.
In November 1996, we acquired J.E. Hanger, Inc. of Georgia, an O&P provider
with 96 patient-care centers in 15 states and the largest O&P product
distribution business in the United States at that time. We successfully
integrated those operations, essentially doubling our number of patient-care
centers and certified practitioners and significantly expanding our
distribution capabilities. NovaCare O&P also has been an active acquirer of O&P
businesses, having acquired over 90 O&P businesses since 1992.
Our acquisition of NovaCare O&P again more than doubled our number of
patient-care centers and certified O&P practitioners. The acquisition provided
national scope to our operations, expanding coverage into 11 additional states,
including Illinois, Missouri, Oklahoma and Iowa, and increasing our previous
presence in key existing markets, including California, New York, Arizona,
Florida, Texas and Pennsylvania.
We have identified cost savings relating to our acquisition of NovaCare O&P
that we believe will enhance EBITDA by approximately $8.1 million annually. We
also expect to achieve additional benefits from operational efficiencies and
economies of scale, as well as from the marketing and cross-selling of
innovative products of Hanger Orthopedic Group and NovaCare O&P at our combined
patient-care centers.
1
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The O&P Industry
We estimate that the U.S. O&P patient-care services industry represented
approximately $1.9 billion in sales in 1997. Key trends expected to increase
the demand for O&P services include: (i) the growing elderly population; (ii)
more active lifestyles and emphasis on physical fitness; (iii) cost savings
through the use of outpatient O&P treatment to reduce hospitalization; (iv)
advancing technology in the design and manufacture of O&P devices; and (v) the
inherent need for replacement of O&P devices and continuing care.
The O&P patient-care services market is highly fragmented and relatively
under-penetrated by multi-site operators. There are an estimated 3,300
certified prosthetists and/or orthotists and approximately 2,850 O&P patient-
care centers in the United States. We estimate that the combined revenues of
Hanger Orthopedic Group and NovaCare O&P, which were already the two largest
companies in the O&P industry prior to Hanger Orthopedic Group's acquisition of
NovaCare O&P, account for approximately 20% of total estimated O&P patient-care
services revenue. We do not believe that any other competitor has a market
share of more than 5% of total estimated O&P patient-care services revenue. We
believe that the O&P industry will continue to consolidate as a result of a
variety of factors, including: (i) increased pressures from growth in managed
care; (ii) demonstrated benefits from economies of scale; and (iii) desire by
independent orthotists and prosthetists to focus more on patient care and less
on administration.
Competitive Strengths
We believe that the following competitive strengths will enable us to
continue to increase revenues, EBITDA and market share by (i) providing "one-
stop shopping" to large, national payor organizations and other customers, (ii)
maximizing operating efficiencies and economies of scale, and (iii) maintaining
a superior platform for strategic acquisitions:
Leading Market Position in a Fragmented Industry. We are the nation's largest
provider of O&P services, with approximately 20% market share, 977 O&P
practitioners and 630 O&P patient-care centers in 42 states and the District of
Columbia.
Vertically Integrated Provider. We are the only vertically integrated
provider of O&P services in the United States. Along with our patient-care
services operations, we also manufacture custom-made and prefabricated O&P
devices. Additionally, we are the nation's largest distributor of O&P
components and finished O&P patient-care products, which allows us to reduce
the materials costs of our patient-care centers and offer prompt delivery of
components and products.
Balanced Business Mix. Our business is fairly evenly distributed in terms of
both service mix and payor mix. For the twelve months ended June 30, 1999, our
pro forma consolidated orthotics, prosthetics, manufacturing and distribution
revenues made up approximately 39.0%, 52.2%, 2.2% and 6.6%, respectively, of
consolidated net sales. For the same period, our combined payor mix was
approximately 56.8% private pay, 31.7% Medicare, 7.8% Medicaid and 3.7% U.S.
Veterans Administration.
Innovative Products and Strong Brand Equity. We have earned a strong
reputation within the O&P industry for the development and use of innovative
technology. For example, our patented Charleston Bending Brace, Seattle Foot,
Ortho-Mold, Lenox Hill Knee Brace and prosthetic Sabolich Socket have increased
patient comfort and capability and can significantly shorten the rehabilitation
process. The quality of our products and the success of our technological
advances have generated broad media coverage, enhancing our brand equity among
payors, patients and referring physicians.
2
<PAGE>
Ability to Successfully Integrate Acquisitions. Prior to our acquisition of
NovaCare O&P, we had acquired and integrated over 75 O&P businesses since 1986,
and NovaCare O&P had acquired and integrated over 90 O&P businesses since 1992.
We have demonstrated an ability to improve the operating performance of
integrated businesses, resulting in significantly increased "same-store" net
sales and operating margins. Hanger Orthopedic Group's net sales grew 39% per
year from 1994 through 1998, while EBITDA grew 54% per year during the same
period.
Experienced and Committed Management Team. We have a senior management team
with extensive experience in the O&P business. Ivan R. Sabel, our Chairman of
the Board, President and Chief Executive Officer, is a certified orthotist and
prosthetist who has worked in the O&P industry for 32 years, including 20 years
as a practitioner. He has led our senior management team since 1995 and has
been a member of that team since 1986. We will continue to provide senior
management and O&P practitioners of Hanger Orthopedic Group with performance-
based bonuses, stock options, and opportunities for corporate advancement that
will give them a significant financial interest in our performance.
Business Strategy
Our objective is to build on our position as a full-service, nationwide O&P
company focused on the operation of O&P patient-care centers and the
manufacture and distribution of O&P products. The key elements of our strategy
for achieving this objective are to:
Implement Acquisition-Related Synergies. We believe we can reduce costs and
increase net sales by implementing acquisition-related synergies. We expect
that our operating margins will improve due to anticipated reductions in
administrative and personnel costs and have identified approximately $8.1
million of annual cost savings related to our acquisition of NovaCare O&P. We
also expect to reduce materials costs at NovaCare O&P's patient-care centers
due to increased purchases from Hanger Orthopedic Group. We will attempt to
increase "same-store" net sales by cross-selling Hanger Orthopedic Group and
NovaCare O&P products at our patient-care centers and using our expanded
geographic coverage to exploit national contracting opportunities. Our
operating results and financial condition should also benefit from enhanced
capital availability and other efficiencies resulting from our increased size.
Increase Number of O&P Managed Care Contracts. We intend to continue to
pursue O&P managed care contracts to increase market share and "same-store" net
sales growth. A national network of O&P patient-care centers will enable us to
negotiate for contracts with any local, regional or national third-party payor
seeking a single-source O&P provider.
Expand our O&P Manufacturing and Distribution Operations. Expansion of our
patient-care division, including as a result of our acquisition of NovaCare
O&P, will increase captive demand for our manufacturing and distribution
business. As the volume of our distribution increases, it will allow us to
achieve volume discounts in the cost of our distributed products. Our
manufacturing division should also benefit from increased net sales at the
distribution division by providing proprietary products to meet the increased
demand. Our manufacturing efforts will focus on the acquisition and/or
development of proprietary, patented products, such as our Lenox Hill knee
brace, Charleston Bending Brace, Seattle Foot, Ortho-Mold braces and prosthetic
Sabolich Socket.
Acquire and Integrate O&P Practices in Targeted Geographical Areas Across the
United States. Our expansion program is focused on building on our position as
a national O&P patient-care network. When identifying patient-care centers for
acquisition, we seek to fill gaps strategically in our existing geographic
coverage. Typically, acquired practitioners sign multi-year non-compete
agreements, receive approximately 50% of acquisition consideration in multi-
year seller notes and can earn performance-based stock options and bonuses.
3
<PAGE>
Develop New O&P Patient-Care Centers in Existing Markets. In addition to
acquiring patient-care centers, we intend to open new patient-care centers in
existing markets. We plan to pursue this strategy by opening satellite centers
in areas where a strong demand for O&P services has been identified. In opening
satellite patient-care centers, we minimize up-front investment by utilizing
professionals from a nearby existing center on a part-time basis to test the
viability of a full-time practice.
Expand and Improve Operations at Existing and Acquired Patient-Care
Centers. As we continue to add patient-care centers, we will be able to improve
margins by spreading administrative fixed costs and capital expenditures for
state-of-the-art equipment such as CAD/CAM systems. We can also enhance sales
by using brand-based marketing programs that are generally not available to
practitioners in smaller, independent practices.
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount at maturity of our 11 1/4% Senior
Subordinated Notes due 2009 which have been
registered under the Securities Act for each
$1,000 principal amount at maturity of our
outstanding 11 1/4% Senior Notes due 2009 which
were issued on June 16, 1999 in a private
offering. In order to be exchanged, an old note
must be properly tendered and accepted. We will
exchange all notes validly tendered and not
validly withdrawn. As of this date, there is
$150.0 million aggregate principal amount at
maturity of old notes outstanding.
Expiration and Exchange
Dates...................... This offer will expire at 5:00 p.m., New York
City time, on November 29, 1999, unless we extend
it, and we will consummate the exchange on the
next business day.
Registration Rights You have the right to exchange the old notes that
Agreement.................. you now hold for new notes with substantially
identical terms. This exchange offer is intended
to satisfy these rights. After the exchange offer
is complete, you will no longer be entitled to
any exchange or registration rights with respect
to your old notes.
Conditions.................. This offer is conditioned only upon compliance
with the securities laws. The offer applies to
any and all old notes tendered by the deadline.
Withdrawal Rights........... You may withdraw your tender of old notes at any
time before the exchange offer expires.
Federal Income Tax The exchange will not be a taxable event for
Consequences............... United States federal income tax purposes. You
will not recognize any taxable gain or loss or
any interest income as a result of such exchange.
Resale Without Further
Registration...............
We believe that the new notes may be offered for
resale, resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the Securities
Act so long as the following statements are true:
- you acquire the new notes issued in the
exchange offer in the ordinary course of your
business;
- you are not an "affiliate," as defined under
Rule 405 of the Securities Act, of ours; and
- you are not participating, and do not intend
to participate, and have no arrangement or
understanding with any person to participate,
in the distribution of the new notes issued to
you in the exchange offer.
By tendering your notes as described below, you
will be making representations to this effect.
5
<PAGE>
Transfer Restrictions on You may incur liability under the Securities Act
New Notes.................. if:
(1) any of the representations listed above are
not true; and
(2) you transfer any new note issued to you in
the exchange offer without:
- delivering a prospectus meeting the
requirements of the Securities Act; or
- an exemption from the Securities Act's
requirements to register your new notes.
We do not assume or indemnify you against such
liability. Each broker-dealer that is issued new
notes for its own account in exchange for old
notes that were acquired as a result of market-
making or other trading activities, must
acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in
connection with any resale of the new notes. A
broker-dealer may use this prospectus for an
offer to resell, a resale or other retransfer of
the new notes issued to it in the exchange offer.
Procedures for Tendering
Old Notes..................
Each holder of old notes who wishes to accept the
exchange offer must:
- complete, sign and date the accompanying
letter of transmittal, or a facsimile thereof;
or
- arrange for the Depository Trust Company to
transmit certain required information to the
exchange agent in connection with a book-entry
transfer.
You must mail or otherwise deliver such
documentation and your old notes to the U.S. Bank
Trust National Association, as exchange agent, at
the address set forth under "The Exchange Offer--
Exchange Agent."
Failure to exchange will affect you adversely. If
you are eligible to participate in the exchange
offer and you do not tender your old notes, you
will not have any further registration or
exchange rights and your old notes will continue
to be subject to some restrictions on transfer.
Accordingly, the liquidity of the old notes could
be adversely affected.
Special Procedures for
Beneficial Owners..........
If you beneficially own old notes registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and you wish to
tender your old notes in the exchange offer, you
should contact such registered holder promptly
and instruct it to tender on your behalf. If you
wish to tender on your own behalf, you must,
before completing and executing the letter of
transmittal for the exchange offer and delivering
your old notes, either arrange to have your old
notes registered in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time.
6
<PAGE>
Guaranteed Delivery You may comply with the procedures described in
Procedures................. this prospectus under the heading "The Exchange
Offer--Guaranteed Delivery Procedures" if you
wish to tender your old notes and:
- time will not permit your required documents
to reach the exchange agent by the expiration
date of the exchange offer,
- you cannot complete the procedure for book-
entry transfer on time, or
- your old notes are not immediately available.
7
<PAGE>
The New Notes
The new notes have the same financial terms and conditions as the old notes,
which are as follows:
Issuer...................... Hanger Orthopedic Group, Inc.
June 15, 2009.
Interest.................... Interest accrues from June 16, 1999 at a rate of
Maturity.................... 11 1/4% per year, payable semi-annually on each
June 15 and December 15, beginning on December
15, 1999.
Ranking.....................
The new notes are uncollateralized senior
subordinated obligations of Hanger Orthopedic
Group and rank junior to our existing and future
senior debt. The guarantees by our subsidiaries
are subordinated to existing and future senior
debt of our subsidiaries that guarantee the
notes. As of June 30, 1999, giving effect to the
pro forma adjustments that relate to our
acquisition of NovaCare O&P, we estimate that we
and our subsidiaries had approximately $206.7
million of senior debt, excluding approximately
$93.3 million that we have available to borrow
under our bank credit facility.
Guarantees.................. Certain of our subsidiaries unconditionally
guarantee the notes. If we create or acquire a
new domestic subsidiary, it will guarantee the
notes unless we designate the subsidiary as an
"unrestricted subsidiary" under the indenture or
the subsidiary does not have significant assets.
Optional Redemption......... We cannot redeem the new notes until June 15,
2004. Thereafter, we may redeem some or all of
the notes at the redemption prices listed in the
"Description of the Notes" section under the
heading "Redemption," plus accrued interest.
Optional Redemption after
Public Equity Offerings....
At any time (which may be more than once) before
June 16, 2002, we can choose to buy back up to
33% of the outstanding notes with money that we
raise in one or more public equity offerings, as
long as:
. we pay 111.25% of the face amount of the
notes, plus interest;
. we buy the notes back within 30 days of
completing the public equity offering; and
. at least 67% of the sum of the aggregate
principal amount of notes issued under the
indenture remain outstanding immediately after
redemption.
8
<PAGE>
If a change in control of Hanger Orthopedic Group
occurs, we must give holders of the new notes the
opportunity to sell us their notes at 101% of
Change of Control Offer..... their face amount, plus accrued interest.
We might not be able to pay you the required
price for notes you present to us at the time of
a change of control, because:
. we might not have enough funds at that time;
or
. the terms of our senior debt may prevent us
from paying.
Asset Sale Proceeds......... If we engage in asset sales, we generally must
either invest the net cash proceeds from such
sales in our business within a period of time,
repay senior debt or make an offer to purchase a
principal amount of the notes equal to the excess
net cash proceeds. The purchase price of the
notes will be 100% of their principal amount,
plus accrued interest.
Certain Indenture The indenture under which the old notes have
Provisions.................. been, and the new notes are being, issued
contains covenants generally limiting our (and
most or all of our subsidiaries') ability to:
. incur additional debt;
. pay dividends or distributions on capital
stock or repurchase capital stock;
. issue stock of subsidiaries;
. make certain investments;
. create liens on our assets to collateralize
debt;
. enter into transactions with affiliates;
. merge or consolidate with another company; and
. transfer and sell assets.
For additional information regarding the new notes, see "Description of the
Notes" and "Certain United States Federal Tax Consequences."
RISK FACTORS
See "Risk Factors" immediately following this summary for a discussion of
risks related to the new notes, all of which apply to the old notes as well.
9
<PAGE>
Summary Pro Forma Consolidated Financial and Statistical Data
The following table sets forth unaudited Summary Pro Forma Consolidated
Financial and Statistical Data of Hanger Orthopedic Group for the periods ended
and as of the dates indicated. The unaudited pro forma income statement data
give effect to pro forma adjustments that give effect to Hanger Orthopedic
Group's acquisition of NovaCare O&P as of the beginning of the periods
indicated. The unaudited pro forma balance sheet data give effect to the
acquisition and the related financing transactions as if they had occurred as
of June 30, 1999. The "Other Financial Data" below are not set forth in the
Hanger Orthopedic Group or NovaCare O&P historical consolidated financial
statements and have been presented to provide additional analysis. The Summary
Pro Forma Consolidated Financial and Statistical Data do not purport to
represent what Hanger Orthopedic Group's financial position or results of
operations would actually have been had the acquisition, related financing
transactions and other acquisitions in fact occurred on the assumed dates, or
to project Hanger Orthopedic Group's financial position or results of
operations for any future date or period. The Summary Pro Forma Consolidated
Financial and Statistical Data have been derived from, and should be read in
conjunction with, the Unaudited Pro Forma Consolidated Financial Statements and
the notes thereto included elsewhere in this prospectus.
10
<PAGE>
Summary Pro Forma Consolidated Financial and Statistical Data-- Hanger
Orthopedic Group and NovaCare O&P
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Twelve Months Ended ------------------ Twelve Months Ended
December 31, 1998 1998 1999 June 30, 1999
------------------- -------- -------- -------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Income Statement Data:
Net sales............. $492,417 $243,217 $241,238 $490,438
Gross profit(1)....... 239,610 121,118 111,670 230,162
Depreciation and
amortization......... 22,061 11,220 10,707 21,549
Income from
operations........... 54,284 29,789 15,259 39,754
Net income (loss)..... 2,497 2,361 (4,599) (4,462)
Net income (loss) per
common share--
diluted(2)........... $ (0.10) $ 0.01 $ (0.36) $ (0.47)
Other Financial Data:
Ratio of earnings to
fixed charges(3)..... - --
EBITDA(4)............. $ 76,345 $ 41,009 $ 25,967 $ 61,303
Adjusted EBITDA(5).... 84,421 45,047 30,005 69,380
Capital expenditures.. 8,069 4,127 4,826 8,768
Gross margin.......... 48.7% 49.8% 46.3% 46.9%
EBITDA margin......... 15.5% 16.9% 10.8% 12.5%
Adjusted EBITDA
margin............... 17.1% 18.5% 12.4% 14.1%
Ratio of Adjusted
EBITDA to interest
expense.............. -- -- -- 1.7x
Ratio of total debt to
Adjusted EBITDA...... -- -- -- 6.0x
Service Mix--Net Sales:
Prosthetics........... 53.0% 52.1% 51.6% 52.2%
Orthotics............. 38.5 39.2 39.2 39.0
Distribution/other.... 6.6 7.2 7.0 6.6
Manufacturing......... 1.9 1.5 2.2 2.2
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
Payor Mix--Net Sales:
Private pay/other..... 55.3% 56.0% 58.0% 56.8%
Medicare.............. 33.2 33.4 30.6 31.7
Medicaid.............. 7.8 7.3 7.7 7.8
Veterans
Administration....... 3.7 3.3 3.7 3.7
-------- -------- -------- --------
100.0% 100.0% 100.0% 100.0%
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of
June 30, 1999
--------------
<S> <C>
Balance Sheet Data:
Working capital................................................ $113,397
Total assets................................................... 713,546
Total debt..................................................... 414,632
Shareholders' equity........................................... 171,761
Statistical Data:
Patient-care centers........................................... 653
Certified practitioners........................................ 948
Number of states (including D.C.).............................. 43
</TABLE>
(Footnotes on following page)
11
<PAGE>
- --------
(1) Pro forma gross profit for the 12 month periods ended December 31, 1998 and
June 30, 1999, and the six month period ended June 30,1999, was
significantly impacted by a $13.5 million book-to-physical inventory
adjustment recorded by NovaCare O&P during the fourth quarter of its fiscal
year ended June 30, 1999. The adjustment resulted from a physical inventory
conducted in connection with the preparation of the financial statements of
NovaCare O&P for that fiscal year. The adjustment, which reduced inventory
and increased cost of services, was required because NovaCare O&P's
inventory amounts recorded during the first three quarters of the fiscal
year were determined on the basis of cost of services estimates that did
not fully reflect actual costs as determined by valuation of the subsequent
physical inventory. The book-to-physical adjustment increased pro forma
cost of services by approximately $6.8 million for the 12 months ended
December 31, 1998 and $13.5 million for the 12 month period ended June 30,
1999. Because the adjustment, which was recorded by NovaCare O&P during the
fourth quarter of its fiscal year ended June 30, 1999, is believed to
affect each of the three earlier quarters of that fiscal year, such
adjustment has been reflected in gross profit and therefore affected the
calculation of pro forma gross profit during the 12 month period ended
December 31, 1998 as well as the 12 month period ended June 30, 1999.
Hanger Orthopedic Group management believes that its centralized purchasing
and cost controls should enable it to decrease its materials costs in the
future and thereby enhance gross profit margins.
Pro forma selling, general and administrative expenses for the 12 month
periods ended December 31, 1998 and June 30, 1999 and the six month period
ended June 30, 1999 were similarly affected by an increase in NovaCare O&P's
provision for uncollectible accounts receivable that was recognized during
the fourth quarter of its fiscal year ended June 30, 1999. Such provision,
which amounted to $4.8 million as of NovaCare O&P's fiscal year ended June
30, 1998, increased to $10.3 million for its fiscal year ended June 30,
1999. The increase in the provision for uncollectible accounts was deemed
necessary in view of both the increase in NovaCare O&P's net revenues, as
well as the increased age of its accounts receivable. The adjustment
increased pro forma selling, general and administrative expenses by
approximately $2.4 million for the 12 months ended December 31, 1998, and
$4.2 million for the 12 months ended June 30, 1999.
The NovaCare O&P's book-to-physical adjustment and the increase in its
provision for uncollectable accounts receivable was identified subsequent to
Hanger Orthopedic Group's acquisition of NovaCare O&P on July 1, 1999, in
connection with the preparation of NovaCare O&P's financial statements for
its fiscal year ended June 30, 1999.
(2) For the 12 months ended December 31, 1998, the six months ended June 30,
1999, and the 12 months ended June 30, 1999, net income per common share
excludes potential dilutive common stock as the effect would be anti-
dilutive. For the six months ended June 30, 1998, net income per common
share excludes common stock into which the 7% Redeemable Preferred Stock
would be convertible as the effect would be anti-dilutive.
(3) Due to the consolidated Hanger Orthopedic Group and NovaCare O&P loss in
the twelve months ended December 31, 1998 and six months ended June 30,
1999, the ratio coverage was less than 1:1. The consolidated companies
would have had to generate additional earnings of approximately $6.4
million in the twelve months ended December 31, 1998 and $7.2 million in
the six months ended June 30, 1999, respectively, to have achieved coverage
of 1:1 in those periods.
(4) "EBITDA" is defined as net income (loss) before interest expense, taxes,
depreciation and amortization, discontinued operations, non-recurring
charges, extraordinary items and accounting change. EBITDA is not a measure
of performance under Generally Accepted Accounting Principles ("GAAP").
While EBITDA should not be considered in isolation or as a substitute for
net income, cash flows from operating activities and other income or cash
flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity, management understands that EBITDA is
customarily used as a criteria in evaluating health care companies.
Moreover, substantially all of Hanger Orthopedic Group's financing
agreements contain covenants in which EBITDA is used as a measure of
financial performance. EBITDA margin is defined as EBITDA as a percent of
net sales. The declines in pro forma EBITDA also reflect the book-to-
physical inventory adjustment and, to a lesser extent, the increase in
NovaCare O&P's provision for uncollectible accounts receivable as discussed
in note (1) above.
(5) "Adjusted EBITDA" is defined as EBITDA for the period presented, plus
certain anticipated cost savings, net of certain incremental expenses,
which cost savings we expect to result from our acquisition of NovaCare
O&P. We estimate that the net cost savings of approximately $8.1 million
could have been achieved in fiscal 1998 had the acquisition been
consummated on January 1, 1998. The components of these estimated cost
savings are set forth below.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
Twelve Months Ended ----------------- Twelve Months Ended
December 31, 1998 1998 1999 June 30, 1999
------------------- -------- -------- -------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
EBITDA.................. $76,345 $41,009 $25,967 $61,303
======= ======== ======== =======
Employee terminations... 6,358 3,179 3,179 6,358
Closure of NovaCare O&P
facilities............. 747 374 374 747
Elimination of corporate
allocations from parent
of NovaCare O&P........ 971 485 485 971
------- -------- -------- -------
Total estimated cost
savings............... 8,076 4,038 4,038 8,076
------- -------- -------- -------
Adjusted EBITDA......... $84,421 $45,047 $30,005 $69,379
======= ======== ======== =======
</TABLE>
12
<PAGE>
Actual results and cost savings may differ materially from those reflected
in Adjusted EBITDA due to a number of factors, including without limitation,
(i) an inability to reduce headcount, (ii) an inability to consolidate
facilities and (iii) an increase in other costs of Hanger Orthopedic Group.
Such estimated cost savings do not qualify as pro forma adjustments under
Regulation S-X promulgated under the Securities Act and constitute forward-
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995, as amended. The declines in adjusted EBITDA also reflect
the book-to-physical inventory adjustment and, to a lesser extent, the
increase in NovaCare O&P's provision for uncollectible accounts receivable,
as discussed in note (1) above.
13
<PAGE>
Summary Historical Financial and Statistical Data--Hanger Orthopedic Group
The following table sets forth summary historical financial and statistical
data of Hanger Orthopedic Group as of and for each of the three years in the
period ended December 31, 1998 and for the six-month periods ended June 30,
1998 and June 30, 1999. The income statement data for the three years in the
period ended December 31, 1998 were derived from our Selected Historical
Consolidated Financial Data included elsewhere in this prospectus and audited
historical financial statements incorporated in this prospectus by reference.
The unaudited income statement data for the six-month periods ended June 30,
1998 and June 30, 1999 and the unaudited balance sheet data at June 30, 1999,
were derived from our unaudited financial statements incorporated in this
prospectus by reference. "Other Financial Data" below are not directly derived
from our historical financial statements, but have been presented to provide
additional analysis. In the opinion of our management, the unaudited data
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the data for such periods. Interim results for the
six-month period ended June 30, 1999, are not necessarily indicative of results
that can be expected in future periods. The Summary Historical Financial and
Statistical Data presented below should be read in conjunction with "Hanger
Orthopedic Group Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus and the
historical consolidated financial statements of Hanger Orthopedic Group and
notes thereto incorporated in this prospectus by reference.
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended December 31, June 30,
--------------------------------- -----------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales............... $ 66,806 $ 145,598 $ 187,870 $87,650 $105,562
Gross profit............ 34,573 72,065 94,967 43,086 53,118
Selling, general and ad-
ministrative........... 24,550 49,076 63,512 30,183 35,151
Income from operations.. 4,695 18,308 25,673 10,289 14,485
Interest expense, net... 2,547 4,932 1,902 1,314 1,075
Extraordinary loss on
early extinguishment of
debt (1)............... 83 2,694 -- -- --
Net income.............. 998 4,946 13,840 5,314 7,996
Net income per common
share - diluted........ $ 0.11 $ 0.37 $ 0.75 $ 0.31 $ 0.40
Other Financial Data:
Ratio of earnings to
fixed charges.......... 1.5x 3x 6.8x 4.8x 6.8x
Depreciation and amorti-
zation................. $ 2,848 $ 4,681 $ 5,782 $ 2,613 $ 3,482
EBITDA (2).............. 10,023 22,989 31,455 12,902 17,967
Capital expenditures.... 1,239 2,581 2,859 1,452 2,557
Statistical Data:
Patient-care centers.... 178 213 256 244 258
Certified practition-
ers.................... 199 249 321 283 327
Number of states (in-
cluding D.C.).......... 29 30 31 32 32
Same-center net sales
growth (3)............. 5.8% 11.7% 11.1% 11.2% 6.0%
</TABLE>
<TABLE>
<CAPTION>
June 30,
1999
--------
<S> <C>
Balance Sheet Data:
Working capital....................................................... $207,836
Total assets.......................................................... 387,538
Total debt............................................................ 185,338
Shareholders' equity.................................................. 171,761
</TABLE>
- --------
(1) In connection with the indebtedness extinguished as a result of our public
offerings of common stock, certain debt issuance costs were charged to
operations in 1996 and 1997.
(2) "EBITDA" is defined as net income (loss) before interest expense, taxes,
depreciation and amortization, discontinued operations, non-recurring
charges, extraordinary items and accounting change. EBITDA is not a
measure of performance under GAAP. While EBITDA should not be considered
in isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used as a criteria in
evaluating health care companies. Moreover, substantially all of our
financing agreements contain covenants in which EBITDA is used as a
measure of financial performance. EBITDA margin is defined as EBITDA as a
percent of net sales.
(3) Net sales contributed by those patient-care centers that were owned by us
and open during the entire period as well as the prior year's entire
comparable period.
14
<PAGE>
Summary Historical Financial and Statistical Data--NovaCare O&P
The following table sets forth summary historical financial and statistical
data of NovaCare O&P as of and for each of the three fiscal years in the period
ended June 30, 1999. The balance sheet data at June 30, 1999, and the income
statement data for the three years in the period ended June 30, 1999 have been
derived from NovaCare O&P's audited historical consolidated financial
statements incorporated in this prospectus by reference. "Other Financial Data"
below are not directly derived from the NovaCare O&P historical financial
statements, but have been presented to provide additional analysis. The Summary
Historical Financial and Statistical Data below should be read in conjunction
with "NovaCare O&P Management's Discussion and Analysis of Results of
Operations" included elsewhere in this prospectus and the historical
consolidated financial statements of NovaCare O&P and notes thereto
incorporated in this prospectus by reference.
15
<PAGE>
Summary Historical Financial and Statistical Data--NovaCare O&P
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------
1997 1998 1999
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues.......................... $161,074 $251,732 $278,820
Gross profit (1)...................... 40,956 63,033 55,411
Selling, general and administrative
expense.............................. 9,157 16,367 15,971
Selling, general and administrative
expense allocated from related party
(2).................................. 6,103 9,624 17,015
Operating income...................... 18,794 25,604 4,663
Interest expense-related party (3).... 4,291 7,453 5,891
Interest expense-third parties........ 1,910 3,239 2,811
Net (loss) income..................... $ 1,014 $ (2,839) $(13,422)
Other Financial Data:
Depreciation and amortization......... $ 6,858 $ 10,549 $ 11,741
EBITDA (4)............................ 25,652 36,153 16,404
Capital expenditures.................. 3,819 4,851 4,804
Statistical Data:
Patient-care centers.................. 274 378 395
Certified practitioners............... 398 628 621
Number of states...................... 34 36 37
Same-market growth (decline) (5)...... 2.8% 5.5% (1.0)%
</TABLE>
<TABLE>
<CAPTION>
As of June 30, 1999
-------------------
<S> <C>
Balance Sheet Data:
Excess of current liabilities over current assets (6)..... $(39,961)
Total assets.............................................. 371,179
Total debt................................................ 37,305
NovaCare net investment................................... 203,654
</TABLE>
- --------
(1) NovaCare O&P's gross profit for its fiscal year ended June 30, 1999 as
compared to its prior fiscal year ended June 30, 1998 was impacted by a
$13.5 million book-to-physical inventory adjustment recorded by NovaCare
O&P in the fourth quarter of its fiscal year ended June 30, 1999. The
adjustment, which reduced inventory and increased cost of services, was
required because NovaCare O&P's inventory amounts during the first three
quarters of the fiscal year were determined on the basis of cost of
services estimates that did not fully reflect actual costs as determined by
valuation of the physical inventory conducted in connection with the
preparation of NovaCare O&P's financial statements for the fiscal year
ended June 30, 1999.
(2) NovaCare O&P's selling, general and administrative services has
historically been provided by its parent, NovaCare, including leased office
space at the parent's headquarters and certain services provided by its
parent including shared management, legal, information systems, finance and
human resources. These expenses were allocated based on net revenues,
specific utilization, or other methods which management of NovaCare O&P
believes to be reasonable. The increase in 1999 was principally due to
implementation of a revised agreement with NovaCare Employee Services.
(3) NovaCare O&P received certain advances from its parent which were funded
through a line of credit arrangement. The annual interest rate on the line
of credit is the prime rate of the parent's lending bank plus 1.5% on the
daily outstanding balance.
(4) "EBITDA" is defined as operating income (loss) before depreciation and
amortization and provision for restructure. EBITDA is not a measure of
performance under GAAP. While EBITDA should not be considered in isolation
or as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP,
or as a measure of profitability or liquidity, management understands that
EBITDA is customarily used as a criteria in evaluating health care
companies. EBITDA margin is defined as EBITDA as a percent of net revenues.
(5) Same-market growth (decline) represents the increase (decrease) in current
period net revenues over prior period net revenues adjusted to include
historical net revenues of acquired companies for the period prior to
acquisition.
(6) Excess of current liabilities over current assets includes accounts payable
and accrued expenses--related party of $94,592. If this item was to be
excluded from the calculation, working capital would be $54,631.
16
<PAGE>
RISK FACTORS
Risks relating to the notes
The new notes, like the old notes, entail the following risks:
We have substantial existing debt and may incur additional debt, so we may be
unable to pay interest or principal on the notes.
As of June 30, 1999, giving effect to the pro forma adjustments assuming our
acquisition of NovaCare O&P, we had outstanding $414.6 million of total debt.
Because of this substantial debt, we may be unable to pay interest or
principal on the notes. In addition to this debt, we may incur substantial
additional debt in the future, including additional debt under our bank credit
facility. If we incur additional debt, the risk that we may be unable to pay
interest or principal on your notes could increase.
Our substantial debt may limit our ability to adapt to adverse economic
conditions, to fund capital needs, research and other expenditures, and to
compete in our industry.
Additionally, our substantial debt, and any further debt we incur in the
future, may:
. increase our vulnerability to general adverse economic and industry
conditions;
. reduce our ability to fund future working capital, capital expenditures,
research and development and other general corporate requirements; and
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry.
We could default on our bank credit facility if we fail to meet certain
financial tests.
Our bank credit facility requires us to satisfy certain financial tests and
covenants. If we fail to do so, we will be in default under the facility,
which could cause the outstanding debt under the facility to become
immediately due and payable. If this occurs, we may not be able to repay this
debt or refinance it on favorable terms, and, as a result, we may be unable to
pay the interest or principal on the notes.
Because the notes are uncollateralized and subordinated to our other
indebtedness, you may not be fully repaid if we become insolvent.
The notes and the guarantees are uncollateralized and contractually
subordinated to our bank credit facility and any other existing and future
senior indebtedness. If we are in default under the bank credit facility, we
may be required to pay all amounts due under the facility before we make any
payments of interest or principal on your notes.
In addition, our bank credit facility provides the senior bank lenders a
first priority lien on substantially all of our assets and the assets of each
of our subsidiaries that serve as guarantors under this credit facility. If we
are in default under our bank credit facility, or in a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding, the senior
bank lenders could foreclose on our assets and on the assets of our subsidiary
guarantors. As a result, we might be unable to pay the interest or principal
on the notes.
Because the notes are structurally subordinated to the obligations of our
subsidiaries that are not guarantors, there may be few assets of these
subsidiaries available to repay the notes.
The notes are effectively subordinated to all indebtedness of our
subsidiaries that are not guarantors of the notes, including indebtedness owed
to trade creditors. In a bankruptcy, reorganization, insolvency, receivership
or similar proceeding involving these non-guaranteeing subsidiaries, creditors
of these subsidiaries generally would be entitled to payment of their claims
from the assets of these subsidiaries before any such assets would be made
available to pay the interest or principal on the notes.
17
<PAGE>
If a court concludes that we issued the notes as part of a fraudulent
conveyance, the notes could be voided or further subordinated under federal or
state laws.
Federal and state statutes allow courts, under specific circumstances
including fraudulent conveyance, to void the notes and the guarantees and
require you to return payments you receive. This could occur if a court
concludes that we or one or more of our subsidiaries were insolvent at the
time we issued the notes, or that the notes and the guarantees caused us or
one or more of our subsidiaries to become insolvent. Generally, a company is
considered insolvent if its liabilities exceed the saleable value of its
assets, or if the company cannot pay its debts as they become due. The
specific tests for determining a company's insolvency vary from state to
state.
If we are subject to a change in control, we may not have sufficient funds to
repay the notes upon request.
Upon certain changes of control, you will have the right to require us to
repurchase your notes at a purchase price equal to 101% of the principal
amount of your notes plus accrued and unpaid interest. However, we may not
have sufficient funds at the time of the change of control to repurchase your
notes. In addition, our senior lenders may prohibit us from repurchasing your
notes. Our failure to repurchase the notes under such circumstances would
cause us to default under the indenture.
There is no existing market for the notes, so you may be unable to sell the
notes.
The notes are new securities for which there is currently no market.
Consequently, the notes will be relatively illiquid, and you may be unable to
sell your notes. We do not intend to apply to list the notes on any securities
exchange or to seek to include them on any automated quotation system.
Accordingly, a liquid market for the notes may not develop.
The market for the notes, if any, may be subject to disruptions and
volatility, which may impact the price of the notes.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of
securities similar to your notes. The market for your notes, if any, may be
subject to similar disruptions. Any such disruptions may adversely affect the
value of your notes.
Risks relating to Hanger Orthopedic Group
We may not be able to successfully integrate NovaCare O&P's operations with
our operations.
Our acquisition of NovaCare O&P will more than double our number of patient-
care centers and certified practitioners and will be difficult to implement
successfully. We may not be able to successfully integrate NovaCare O&P's
patient-care operations with our patient-care operations. We have limited
experience integrating an acquisition as large and as complicated as the
acquisition of NovaCare O&P. As a result, we may not be able to predict
accurately the difficulties associated with assimilating a large organization,
and we may not be able to achieve the operating efficiencies and other
synergies that we believe to be achievable.
We may not be able to successfully integrate and operate other orthotics and
prosthetics businesses that we acquire in the future.
In addition to the acquisition of NovaCare O&P, our business strategy
contemplates the continued acquisition and integration of orthotics and
prosthetics businesses. However, we may not be able to be successfully
consummate and/or integrate future acquisitions. The success of any future
acquisition we make will depend on:
. how well we identify acquisition candidates;
. our ability to acquire and finance businesses on acceptable terms; and
. our ability to integrate and operate the acquired businesses profitably
after acquisition.
18
<PAGE>
We may not be able to raise adequate debt or equity capital to fund our
growth.
Our acquisition program may require substantial capital resources. We may
not have sufficient sources and amounts of capital to finance future
acquisitions.
We may not be able to successfully pursue and manage our planned growth.
We plan to continue to pursue an aggressive growth strategy. Such rapid
growth may overextend our financial and management resources.
Government reimbursement levels for orthotics and prosthetics services and
products may decline, which could substantially impact our revenues.
We derive a substantial portion of our revenues from reimbursements for
orthotics and prosthetics services from programs administered by Medicare,
Medicaid, the U.S. Veterans Administration, and certain state agencies. Each
of these programs sets maximum reimbursement levels for orthotics and
prosthetics services and products. If these organizations reduce reimbursement
levels for orthotics and prosthetic services and products in the future, our
revenues could substantially decline. In addition, the percentage of our
revenues derived from these sources may increase as the portion of the U.S.
population over age 65 continues to grow, making us more vulnerable to maximum
reimbursement level reductions by these organizations.
Furthermore, the health care industry is experiencing a trend towards cost
containment as government and other third-party payors seek to impose lower
reimbursement rates and negotiate reduced contract rates with service
providers. This trend could adversely affect our revenues.
Proposed changes in Medicare funding could adversely affect our revenue.
Currently, Medicare provides for reimbursement for orthotics and prosthetics
products and services based on regional prices set forth in fee schedules,
with the actual amount paid varying within a range of the established regional
prices. Further, certain third-party payors also tie their reimbursement rates
to Medicare reimbursement rates. President Clinton's budget for the fiscal
year 2000 initially included a proposal that would have modified the Medicare
fee schedules to include upper limits based on national median prices. Such a
proposal is no longer included in the proposed budget. However, if the U.S.
Congress were to enact such modifications into law, our revenues from Medicare
reimbursements and other payors could be adversely affected, which could have
a material adverse effect on us. We cannot predict whether any such
modifications to the fee schedules will be enacted or what the final form of
any modifications might be.
We may not be able to attract and retain qualified orthotics and prosthetic
practitioners and managerial and technical personnel.
Our success depends in part on our ability to attract and retain qualified
orthotics and prosthetic practitioners and other managerial and technical
personnel. We face competition in the attraction and retention of skilled
practitioners. We may not be able to attract and retain all of the personnel
necessary for continued growth and success. The loss of the services of key
personnel could adversely affect our business and operations.
We may not have insurance coverage for liabilities associated with the
products and services we provide.
We risk incurring substantial liability from lawsuits resulting from the
orthotics and prosthetic services and products that we provide. We may be
unable to obtain adequate insurance coverage in the future at commercially
reasonable prices. Also, our insurance policies may not cover actual future
liabilities that we incur. As a result, we could become exposed to liability
which may adversely affect our financial performance.
We may not be able to comply with applicable governmental regulations.
Our business subjects us to various federal and state laws pertaining to
licensing and health care fraud and abuse, including anti-kickback laws, false
claims laws, antitrust laws and physician self-referral laws. If found to
19
<PAGE>
be in violation of any of these laws, we could face criminal and civil
sanctions. We could also be excluded from participating in federal health care
programs, including Medicare, Medicaid, Veteran's Administration health
programs and the Civilian Health and Medical Program for the Uniformed
Services. The occurrence of one or more of these events could have a
substantial effect on our business and results of operations. The antitrust
laws have been applied to the establishment of certain networks of otherwise
competing health care providers. Governmental authorities might bring an
investigation or proceeding challenging this or some other aspect of our
operations under these laws. Such an investigation or proceeding could
adversely impact our business and results of operations.
Competition may adversely affect us in our orthotics and prosthetic services
and products business, as well as in our acquisition of other orthotics and
prosthetic companies.
We compete with local regional and multi-regional competitors, including
orthotics and prosthetic clinics, hospitals, physicians and therapists, to
provide orthotics and prosthetic services. We also compete with other
manufacturers of non-customized orthotic and prosthetic components, and with
numerous smaller companies engaged in the distribution of orthotics and
prosthetic products. We also may encounter competition from other companies to
acquire additional orthotics and prosthetic patient-care practices. Such
competition may adversely affect our business and may prevent us from
successfully implementing our acquisition strategy, which also may adversely
affect our business.
We may be adversely affected by the "Year 2000" problem.
Many computer systems and software products may not function properly
following December 31, 1999 as a result of computer programs being written
using two digits rather than four to define the applicable year. This problem
is often referred to as the "Year 2000" problem. We are currently working to
evaluate and resolve the potential impact of the Year 2000 problem on our
processing of date-sensitive information and network systems. We are in the
process of contacting all our significant suppliers, contractors and major
systems developers to determine our vulnerability to their Year 2000
situations. We presently believe that the Year 2000 problem will only have a
minimal cost impact. However, we cannot assure you that other companies will
convert their systems on a timely basis or that their failure to do so will
not have an adverse effect on our systems. Any failure by our customers,
suppliers, contractors or major systems developers to resolve their Year 2000
problems in a timely manner may adversely affect us. Further, the computer
systems of governmental agencies and private payors are vulnerable to the Year
2000 problem. If these entities cannot solve their Year 2000 problems prior to
the end of this year, we could face substantial interruptions and delays in
receipts of reimbursement payments due to us from governmental agencies and
other payors.
20
<PAGE>
This prospectus includes forward-looking statements
Some of the statements contained in this prospectus are not historical
facts, but are "forward-looking statements," as such term is defined in the
Private Securities Litigation Reform Act of 1995. They include statements
about our expectations, beliefs, plans, objectives, assumptions or future
events or performance. These risk factors may be identified by the use of
forward-looking terminology such as "believes," "expects," "plans," "may,"
"will," "would," "could," "should," or "anticipates" or the negative of those
words or other variations of those words or other comparable words, or by
discussions of strategy that involve risks and uncertainties. These forward-
looking statements are based on our expectations and are subject to a number
of risks and uncertainties. Certain of these risks and uncertainties are
beyond our control. We wish to caution you that our actual results may differ
materially from those suggested by these forward-looking statements for
various reasons, including those discussed under the section entitled "Risk
Factors." Some of the key factors that have a direct bearing on our results of
operations are:
. the demand for our orthotic and prosthetic services and products,
. our ability to integrate effectively the operations of NovaCare O&P, as
well as other acquisitions that we will make in the future,
. our ability to attract and retain qualified O&P practitioners,
. federal Medicare reimbursement levels and other governmental policies
affecting O&P operations,
. changes in prevailing interest rates and the availability of favorable
terms of equity and debt financing to fund the anticipated growth of our
business,
. inflation,
. changes in, or failure to comply with, federal, state and/or local
governmental regulations,
. liability relating to O&P services and products and other claims
asserted against us, and
. our significant indebtedness after the acquisition of NovaCare O&P and
the impact of increases in interest rates on such indebtedness.
Given these uncertainties, you are cautioned not to place undue reliance on
such forward-looking statements and plans. Such forward-looking statements
speak solely as of the date hereof, and we expressly disclaim any obligation
to update any such statements or to publicly announce the results of any
revisions to any of such statements to reflect future events or developments.
21
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. We have also filed with the SEC a registration
statement on Form S-4 to register this exchange offer. This prospectus, which
forms part of the registration statement, does not contain all of the
information included in that registration statement. For further information
about us and the new notes offered in this prospectus, you should refer to the
registration statement and its exhibits.
You may read and copy any document we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the
Public Reference Room. We file our SEC materials electronically with the SEC,
so you can also review our filings by accessing the web site maintained by the
SEC at http:// www.sec.gov. This site contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the SEC.
Our principal executive offices are located at Two Bethesda Metro Center -
Suite 1200, Bethesda, MD 20814. Our telephone number there is (301) 986-0701.
DELIVERY OF PROSPECTUS
We remind professional securities dealers of their obligation under the
securities laws to deliver a copy of this prospectus to anyone who buys new
notes from them until January 26, 2000, which is the 90th day after the date
of this prospectus. Securities dealers who were initial purchasers of the old
notes and are acting as underwriters of unsold allotments have additional
prospectus delivery requirements.
USE OF PROCEEDS
Hanger Orthopedic Group will not receive any cash proceeds from the issuance
of the new notes as described in this prospectus. Hanger Orthopedic Group will
receive in exchange old notes in like principal amount. The old notes
surrendered in exchange for the new notes will be retired and canceled and
cannot be reissued. Accordingly, the issuance of the new notes will not result
in any change in the indebtedness of Hanger Orthopedic Group.
OUR RECENT ACQUISITION OF NOVACARE O&P AND RELATED FINANCING TRANSACTIONS
On July 1, 1999, we acquired NovaCare O&P for a total of $445 million by (i)
the assumption of approximately $37.3 million principal amount of promissory
notes payable by NovaCare O&P, or its subsidiaries, to sellers of O&P
businesses acquired by NovaCare O&P, (ii) the payment of certain severance
obligations of NovaCare Inc., the parent of NovaCare O&P, to certain key
management personnel in the amount of approximately $1.1 million and (iii) the
balance in cash.
Of the cash portion of the purchase price, $15 million was placed in escrow
pending certain post-closing adjustments relating to working capital. If, as
of July 1, 1999, the adjusted working capital of NovaCare O&P is less than
approximately $94 million, the cash portion of the purchase price will be
reduced by the amount of such deficiency. If, however, the adjusted working
capital exceeds approximately $94 million, the cash portion will be increased
by the amount of the excess. Adjusted working capital will be determined by
September 30, 1999 (i.e., within 90 days of the closing). For purposes of this
calculation, adjusted working capital will be comprised of cash in an amount
of at least $2 million, accounts receivable, inventory, other current assets,
accounts payable, and accrued expenses to third-parties (excluding all inter-
company obligations, accrued but unpaid taxes and the current portion of the
promissory notes owed to sellers of businesses acquired by NovaCare O&P)
calculated on a basis consistent with NovaCare O&P's past practice and in
accordance with GAAP.
22
<PAGE>
We required approximately $430.2 million in cash to close our acquisition of
NovaCare O&P, pay approximately $20 million of related fees and expenses and
refinance existing debt of approximately $2.5 million. The funds were raised
by (i) borrowing approximately $230 million of revolving credit and term loans
under a new bank credit facility; (ii) the sale of the $150 million of 11 1/4%
Senior Subordinated Notes due 2009 and (iii) by the sale of $60 million of 7%
Redeemable Preferred Stock.
The new bank credit facility consists of a $100 million revolving credit
facility, approximately $30 million of which was drawn on July 1, 1999 in
connection with our acquisition of NovaCare O&P, a $100 million tranche A term
facility and a $100 million tranche B term facility. The tranche A term
facility and the revolving credit facility mature on July 1, 2005 and carry an
interest rate of adjusted LIBOR plus 2.50% or ABR plus 1.50%. The tranche B
term facility matures on January 1, 2007 and carries an interest rate of
adjusted LIBOR plus 3.50% or ABR plus 2.50%.
The revolving credit facility will be made available to us to use in
connection with future acquisitions and for working capital and general
corporate purposes. The bank loans will be collateralized by all of our
assets. For a detailed discussion of the terms of the notes, the new bank
credit facility and the preferred stock, see "Description of the Notes" and
"Description of the New Credit Facility and the Redeemable Preferred Stock"
herein.
Subsequent to July 1, 1999, in connection with the preparation of the
financial statements of NovaCare O&P for its fiscal year ended June 30, 1999,
it was determined that it would be necessary for NovaCare O&P to record a
$13.5 million book-to-physical inventory adjustment, reducing inventory and
increasing cost of services, in the fourth quarter of the fiscal year. The
adjustment was determined to be necessary because NovaCare O&P had determined
its inventory amounts during the first three quarters of the fiscal year on
the basis of cost of service estimates which did not fully reflect actual
costs as determined by valuation of the subsequent physical inventory. Hanger
Orthopedic Group management believes that its centralized purchasing and cost
controls should enable it to decrease its materials cost in the future and
thereby enhance gross profit margins.
Also subsequent to July 1, 1999, in connection with the preparation of
NovaCare O&P's financial statements for its fiscal year ended June 30, 1999,
it was determined that it would be necessary to increase its provision for
uncollectible accounts receivable from $4.8 million for the fiscal year ended
June 30, 1998 to $10.3 million for the fiscal year ended June 30, 1999. The
increase was deemed necessary in light of both the increase in NovaCare O&P's
net revenues as well as the increased age of its receivables.
23
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1999: (i) the cash and cash
equivalents and capitalization of Hanger Orthopedic Group; and (ii) the cash
and cash equivalents and capitalization of Hanger Orthopedic Group and
NovaCare O&P on a pro forma basis to reflect (a) consummation of Hanger
Orthopedic Group's acquisition of NovaCare O&P and related financing
transactions, including the sale of the old notes, all as if they occurred on
June 30, 1999, and (b) the other pro forma adjustments set forth in the
Unaudited Pro Forma Consolidated Financial Statements relating to other
acquisitions by Hanger Orthopedic Group and NovaCare O&P. The following table
should be read in conjunction with the historical financial statements of
Hanger Orthopedic Group and NovaCare O&P, incorporated by reference in this
prospectus and the Unaudited Pro Forma Consolidated Financial Statements set
forth elsewhere in this Prospectus.
<TABLE>
<CAPTION>
June 30, 1999
-------------------
Actual Pro forma
-------- ---------
(dollars in
thousands)
<S> <C> <C>
Cash and cash equivalents............................... $159,661 $ 9,661
======== ========
Current portion of long-term debt....................... $ 3,774 $ 16,157(1)
Long-term debt, less current installments:
Tranche A Term Facility............................... -- 100,000
Tranche B Term Facility............................... -- 100,000
Revolving Credit Facility............................. 6,000 12,658
Senior Subordinated Notes............................. 150,000 150,000
Seller notes and other miscellaneous obligations...... 25,564 35,817
-------- --------
Total debt.......................................... 185,338 414,632
-------- --------
7% Exchangeable Cumulative Redeemable Senior Preferred
Stock--par value $0.01 per share....................... -- 60,000
Shareholders' equity:
Common stock -- par value $.01 per share.............. 190 190
Additional paid-in capital............................ 146,158 146,158
Retained earnings..................................... 26,068 26,068
Treasury stock, cost--133,495 shares.................. (655) (655)
-------- --------
Total shareholders' equity.......................... 171,761 171,761
-------- --------
Total capitalization................................ $357,099 $646,393
======== ========
</TABLE>
- --------
(1) Includes $12,383 NovaCare O&P current portion of financing arrangements--
third parties.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Financial Statements (as
defined below) of Hanger Orthopedic Group are based on the financial
statements of Hanger Orthopedic Group and NovaCare O&P incorporated by
reference in this prospectus, as adjusted to illustrate the estimated effects
of Hanger Orthopedic Group's acquisition of NovaCare O&P, related financing
transactions and other acquisitions by Hanger Orthopedic Group and NovaCare
O&P during the periods presented, and reclassifications to NovaCare O&P
financial statements to conform with Hanger Orthopedic Group's calendar year
presentation and financial statement classifications. The unaudited pro forma
adjustments are based upon available information and certain assumptions that
management believes are reasonable. The Unaudited Pro Forma Consolidated
Financial Statements and accompanying notes should be read in conjunction with
the historical financial statements of Hanger Orthopedic Group and NovaCare
O&P and other financial information pertaining to Hanger Orthopedic Group and
NovaCare O&P appearing elsewhere in this prospectus, including "Hanger
Orthopedic Group's acquisition of NovaCare O&P and Related Financing
Transactions," "Capitalization," "Hanger Orthopedic Group Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"NovaCare O&P Management's Discussion and Analysis of Results of Operations."
The Unaudited Pro Forma Consolidated Financial Statements have been prepared
to give effect to Hanger Orthopedic Group's acquisition of NovaCare O&P and
related financing transactions, including the sale of the 11 1/4 % Senior
Subordinated Notes due 2009 on June 16, 1999, and the application of the net
proceeds therefrom, as if such transactions had occurred as of January 1, 1998
for the consolidated statements of operations (collectively, the "Unaudited
Pro Forma Consolidated Statements of Operations"), and as of June 30, 1999 for
the consolidated balance sheet (the "Unaudited Pro Forma Consolidated Balance
Sheet" and, together with the Unaudited Pro Forma Consolidated Statements of
Operations, the "Unaudited Pro Forma Consolidated Financial Statements").
Hanger Orthopedic Group's acquisition of NovaCare O&P is being treated as a
purchase for financial accounting purposes.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
be indicative of what our financial position or results of operations would
actually have been had our acquisition of NovaCare O&P been completed on such
date or at the beginning of the periods indicated or to project our results of
operations for any future period.
25
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
as of June 30, 1999
<TABLE>
<CAPTION>
Hanger NovaCare
Orthopedic Orthotics and Pro Forma
Group, Inc. Prosthetics, Inc. Adjustments Pro Forma(7)
------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents.......... $159,660,524 $ -- $(150,000,000)(4) $ 9,660,524
Accounts receivable,
net.................. 44,299,460 58,326,917 -- 102,626,377
Inventories........... 20,829,466 32,312,183 789,000 (1) 53,930,649
Prepaids and other
assets............... 5,322,540 3,101,724 -- 8,424,264
Deferred income
taxes................ 4,497,724 2,525,000 141,000 7,163,724
------------ ------------ ------------- ------------
Total Current Assets.... 234,609,714 96,265,824 (149,070,000) 181,805,538
------------ ------------ ------------- ------------
Property, plant and
equipment, net....... 23,710,993 13,479,250 2,648,000 (1) 39,838,243
Intangible assets,
net.................. 127,612,325 258,893,753 101,164,000 (2)(4) 487,670,078
Other assets.......... 1,605,502 2,539,675 87,000 (1) 4,232,177
------------ ------------ ------------- ------------
Total Assets............ $387,538,534 $371,178,502 $ (45,171,000) $713,546,036
============ ============ ============= ============
LIABILITIES
Current Liabilities:
Current portion of
long-term debt....... $ 3,773,993 $ 12,382,831 $ -- $ 16,156,824
Accounts payable...... 7,159,968 105,089,809 (94,591,809)(3) 17,657,968
Accrued expenses and
other................ 6,494,885 18,753,675 -- 25,248,560
Customer deposits..... 546,127 -- -- 546,127
Accrued wages and
payroll taxes........ 8,683,869 -- -- 8,683,869
Deferred revenue...... 115,167 -- -- 115,167
------------ ------------ ------------- ------------
Total Current
Liabilities............ 26,774,009 136,226,315 (94,591,809) 68,408,515
------------ ------------ ------------- ------------
Long-term debt........ 181,563,971 24,922,417 191,988,581 (4) 398,474,969
Deferred income
taxes................ 5,222,766 5,156,000 1,086,000 (1) 11,464,766
Other liabilities..... 2,217,256 1,219,998 3,437,254
------------ ------------ ------------- ------------
Total Liabilities....... 215,778,002 167,524,730 98,482,772 481,785,504
------------ ------------ ------------- ------------
7% Redeemable Preferred
Stock.................. -- -- 60,000,000 60,000,000
SHAREHOLDERS' EQUITY
Common stock............ 189,866 -- -- 189,866
Additional paid in
capital................ 146,158,198 -- -- 146,158,198
Retained Earnings....... 26,068,030 -- -- 26,068,030
NovaCare, Inc., net
investment............. -- 203,653,772 (203,653,772)(6) --
------------ ------------ ------------- ------------
172,416,094 203,653,772 (203,653,772) 172,416,094
Treasury Stock........ (655,562) -- -- (655,562)
------------ ------------ ------------- ------------
Total Shareholders'
Equity................. 171,760,532 203,653,772 (203,653,772) 171,760,532
------------ ------------ ------------- ------------
Total Liabilities and
Shareholders' Equity... $387,538,534 $371,178,502 $ (45,171,000) $713,546,036
============ ============ ============= ============
</TABLE>
26
<PAGE>
(1) Reflects adjustment of NovaCare O&P assets and liabilities to fair value.
(2) Reflects excess of NovaCare O&P purchase price over net assets acquired.
(3) Adjusts for net liabilities not assumed by Hanger Orthopedic Group.
(4) Represents debt incurred in connection with the acquisition of NovaCare
O&P and related cash disbursements:
<TABLE>
<S> <C>
Tranche A Term Facility..................................... $100,000,000
Tranche B Term Facility..................................... 100,000,000
Notes....................................................... 150,000,000
Revolving Credit Facility................................... 6,657,581
------------
$356,657,581
============
Less:
Notes issued June 1999...................................... 150,000,000
Amounts drawn down on revolver prior to June 30, 1999....... 14,669,000
------------
$191,988,581
============
</TABLE>
(5) Reflects the issuance of Preferred Stock in conjunction with the
acquisition of NovaCare O&P.
(6) Eliminates NovaCare parent's ownership interest in NovaCare O&P being
acquired by Hanger Orthopedic Group.
(7) Excludes potential future contingent consideration to be paid to former
shareholders of acquired companies based on prescribed formulas.
Contingent consideration is to be accounted for as additional purchase
price consideration if and when it becomes probable.
27
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
for the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Hanger NovaCare Other
Orthopedic Orthotics and Acquired Pro Forma Pro Forma
Group, Inc. Prosthetics Inc.* Companies(1) Adjustments (13)(14)
------------ ----------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $187,870,312 $273,995,445 $33,574,693 $ (3,023,256)(2) $492,417,194
Cost of products &
services sold.......... 92,903,145 147,317,537 15,765,998 (2,632,079)(2) 252,806,974
(547,627)(3)
------------ ------------ ----------- ------------ ------------
Gross profit............ 94,967,167 126,677,908 17,808,695 156,450 239,610,220
Selling, general &
administrative......... 63,512,051 109,019,622 11,806,001 (1,847,046)(3) 163,264,760
(24,344)(4)
(16,105,625)(5)
(3,095,899)(6)
Depreciation &
amortization........... 5,781,754 11,597,865 831,461 52,569 (7) 22,061,158
2,195,236 (8)
1,602,273 (15)
------------ ------------ ----------- ------------ ------------
Income from operations.. 25,673,362 6,060,421 5,171,233 17,379,286 54,284,302
Interest expense, net... (1,902,315) (11,300,871) (115,438) 8,172,068 (4) (44,474,418)
(2,471,936)(9)
(35,204,926)(10)
(1,651,000)(16)
Other expense, net...... (315,337) (182,948) (48,853) (8,153)(4) (555,291)
------------ ------------ ----------- ------------ ------------
Income before taxes..... 23,455,710 (5,423,398) 5,006,942 (13,784,661) 9,254,593
Provision (benefit) for
income taxes........... 9,616,000 509,669 50,631 (3,418,821)(11) 6,757,479
------------ ------------ ----------- ------------ ------------
Net income (loss)....... $ 13,839,710 $ (5,933,067) $ 4,956,311 $(10,365,840) $ 2,497,114
============ ============ =========== ============ ============
Diluted income per
common share (12)...... $ 0.75 $ (0.10)
============ ============
Shares used to compute
diluted income per
common share........... 18,515,567 16,950,170
============ ============
</TABLE>
- --------
* The historical statement of operations data for NovaCare O&P, as adjusted
to conform with Hanger Orthopedic Group's financial statement
classifications. Adjustments primarily relate to the following
reclassifications:
. Administrative salary expense of $20.2 million, rent expense of $13.2
million and other administrative expenses of $25.5 million
reclassified from cost of products and services sold to selling,
general & administrative expense.
. Depreciation and amortization expense of $3.6 million reclassified
from cost of products and services sold to depreciation & amortization
expense.
. Royalty fee expense of $16.1 million reclassified from other expense
to selling, general & administrative expense.
(1) Other Acquired Companies (along with NovaCare O&P, the "Acquired
Companies") for the year ended December 31, 1998 represent the results of
operations of such companies from January 1, 1998 to the earlier of their
respective dates of acquisition or December 31, 1998. Each of the
acquisitions has been accounted for as a purchase. Accordingly, the
results of operations of each of the Acquired Companies are included in
the historical results of operations of Hanger Orthopedic Group from the
date of its acquisition.
28
<PAGE>
Results of operations of the companies acquired by Hanger Orthopedic Group
during the period January 1, 1998 through June 30, 1999 ("Other Acquired
Companies (Hanger Orthopedic Group)") prior to their acquisition dates for
the periods presented are as follows:
<TABLE>
<CAPTION>
Company Acquired as of Net Sales Net Income (Loss)
------- -------------- --------- -----------------
<S> <C> <C> <C>
Wayne Rosen................... January 14, 1998 $ 38,061 $ (1,964)
NOPS.......................... March 4, 1998 1,069,662 (156,803)
Teufel........................ March 31, 1998 1,005,452 16,711
Hattiesberg................... April 30, 1998 117,156 34,405
Augusta Brace................. May 15, 1998 219,584 (30,344)
P&O Rehab. Tech............... June 11, 1998 238,772 (2,997)
Associated O&P................ June 19, 1998 574,856 98,858
Orthotics Techniques.......... July 17, 1998 180,650 16,120
Seattle Limb System........... August 1, 1998 9,859,000 2,707,000
Advanced Prosthetics.......... September 25, 1998 1,145,518 549,792
Orthopedic Services........... September 30, 1998 1,949,068 364,438
Fessenden O&P................. November 13, 1998 1,220,622 399,168
Baltimore Orthotics........... December 1, 1998 1,015,829 71,084
Manasota Orthopedic........... December 4, 1998 340,642 (24,682)
OST Patient Advocates......... December 11, 1998 585,161 2,092
Thornton Orthopedic........... January 5, 1999 934,586 39,679
Carolina...................... January 6, 1999 1,551,188 397,002
Universal O&P................. January 29, 1999 821,677 (7,766)
Medical Center Brace.......... February 12, 1999 3,736,592 50,143
----------- ----------
Total....................... $26,604,076 $4,521,936
=========== ==========
Results of operations of the companies acquired by NovaCare O&P during the
period January 1, 1998 through June 30, 1999 ("Other Acquired Companies
(NovaCare O&P)") prior to their acquisition dates for the periods presented
are as follows:
<CAPTION>
Company Acquired as of Net Sales Net Income (Loss)
------- -------------- --------- -----------------
<S> <C> <C> <C>
Kroll's....................... January 1, 1998 $ -- $ --
Atlanta Prosthetics........... January 1, 1998 -- --
TD Rehab Systems.............. January 1, 1998 -- --
Shamp Prosthetics-Orthotics... January 1, 1998 -- --
Cajon Orthotics & Prosthet-
ics.......................... January 1, 1998 -- --
Cahill Orthopedic Laboratory.. February 1, 1998 138,793 4,324
CPO Prosthetics and
Orthotics.................... February 1, 1998 392,244 (24,025)
Kessler Associates............ March 1, 1998 126,000 10,858
University O&P Consultants.... April 1, 1998 381,332 (23,708)
Advanced Orthopedic Systems... May 1, 1998 167,601 642
Central Valley Prosthetics &
Orthotics.................... May 1, 1998 133,230 48,204
Meadowbrook Orthopedics....... May 1, 1998 318,438 9,590
O.S. Orthotics & Prosthetics.. May 1, 1998 266,246 75,861
Binghamton Limb & Brace....... June 1, 1998 726,183 96,737
Stockton Orthopedic........... June 1, 1998 445,561 24,127
Protech O&P Center............ June 1, 1998 636,632 41,383
American Rehabilitation Sys-
tems......................... June 1, 1998 362,343 8,663
Orthopedic Laboratories....... June 1, 1998 201,111 10,748
Columbus Orthopaedic
Prosthetic &
Orthotic Center.............. June 1, 1998 906,163 57,095
Tuscon Limb & Brace........... June 1, 1998 1,078,530 45,849
Physical Restoration Laborato-
ries......................... June 1, 1998 690,210 48,027
----------- ----------
Total....................... $ 6,970,617 $ 434,375
=========== ==========
</TABLE>
29
<PAGE>
(2) Reflects the elimination of profit on intercompany sales during the period
presented. Net sales and cost of products & services sold have been
reduced by $3,023,256 and $2,632,079, respectively.
(3) Reflects a net reduction in cost of products and services sold and
selling, general and administrative expense of $547,627 and $1,847,046,
respectively, for employee and practitioner salaries of the Acquired
Companies to reflect the difference between such historical amounts and
amounts specified in employment contracts for comparable employment
positions with Hanger Orthopedic Group.
<TABLE>
<CAPTION>
Year Ended
Company December 31, 1998
------- -----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group).... $1,552,171
Other Acquired Companies (NovaCare O&P)............... 842,502
----------
Total................................................ $2,394,673
==========
</TABLE>
(4) Adjustments to selling, general and administrative expense, interest
expense and other income to reflect the elimination of historical income
and expense generated from assets not acquired and/or liabilities not
assumed:
<TABLE>
<CAPTION>
Selling,
general and Interest
Company administrative expense Other
------- -------------- ---------- ------
<S> <C> <C> <C>
NovaCare O&P............................ $ - $8,090,290 $ -
Other Acquired Companies (Hanger
Orthopedic Group)...................... 10,074 18,115 8,153
Other Acquired Companies
(NovaCare O&P)......................... 14,270 63,663 -
------- ---------- ------
Total.................................. $24,344 $8,172,068 $8,153
======= ========== ======
</TABLE>
(5) Adjustment to reduce selling, general and administrative expense by the
royalty fee of $16,105,625 charged by NovaCare Inc. to NovaCare O&P.
(6) Reduction in selling, general and administrative expense related to
elimination of intercompany profit of $3,095,899 previously allocated to
Novacare O&P for personnel provided by a subsidiary of NovaCare Inc.
(7) Reflects increases in historical amounts of the Acquired Companies for
amortization expense resulting from non-compete agreements signed in
connection with acquisitions, as follows:
<TABLE>
<CAPTION>
Year Ended
Company December 31, 1998
------- -----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)..... $52,569
</TABLE>
(8) Reflects additional amortization over a 40-year period, as if such
Acquired Companies were acquired as of the beginning of the period
presented, as follows:
<TABLE>
<CAPTION>
Year Ended
Company December 31, 1998
------- -----------------
<S> <C>
NovaCare O&P.......................................... $1,474,791
Other Acquired Companies (Hanger Orthopedic Group).... 580,827
Other Acquired Companies (NovaCare O&P)............... 139,618
----------
Total................................................ $2,195,236
==========
</TABLE>
(9) Reflects additional interest expense that would have been incurred if the
consideration (in the form of cash and promissory notes) for the Other
Acquired Companies had been paid at January 1, 1998. The interest rates
used to calculate pro forma interest on the assumed additional debt
required to fund the cash payments reflects Hanger Orthopedic Group's
approximate borrowing rate.
<TABLE>
<CAPTION>
Year Ended
Company December 31, 1998
------- -----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)..... $2,072,700
Other Acquired Companies (NovaCare O&P)................ 399,236
----------
Total................................................. $2,471,936
==========
</TABLE>
30
<PAGE>
(10) Represents the interest expense on the financing for the acquisition of
NovaCare O&P as of the beginning of the period presented :
<TABLE>
<CAPTION>
Source Amount Interest Rate Interest
------ ------------ ------------- -----------
<S> <C> <C> <C>
Revolving Credit Facility......... $ 6,657,000 8.16% $ 1,009,926(a)
Tranche A Term Facility........... 100,000,000 8.16% 8,160,000
Tranche B Term Facility........... 100,000,000 9.16% 9,160,000
Notes............................. 150,000,000 11.25% 16,875,000
-----------
$35,204,926
===========
</TABLE>
--------
(a) Interest expense includes $466,715 related to the unused portion not
borrowed under the Revolving Credit Facility.
An increase or decrease of 0.125% in the assumed interest rate on the
Revolving Credit Facility, Tranche A Term Facility and Tranche B Term
Facility would change the pro forma interest expense by $260,000 for the
twelve months ended December 31, 1998.
(11) To reflect income taxes as if Hanger Orthopedic Group and Acquired
Companies were a C Corporation for the period presented, at an effective
tax rate of 41% after giving effect to non deductible amortization.
(12) Historical and pro forma diluted income per share is computed by dividing
net income adjusted for preferred stock dividends by the number of
weighted average common and common-equivalent shares outstanding for the
period. The shares used in the computation of net income per common share
on a pro forma basis also include common stock issued in connection with
acquisitions and excludes potential dilutive common stock as the effect
would be anti-dilutive.
(13) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former shareholders of acquired companies
based on prescribed formulas. Contingent consideration is to be accounted
for as additional purchase price consideration if and when it becomes
probable.
(14) Does not reflect reductions to historical amounts as a result of future
termination of employment of certain employees, the closure of certain
facilities and management's estimate of certain costs that were
previously allocated to Novacare O&P. Following is a summary of estimated
cost savings not reflected in the historical amounts and the related
impact on pro forma EBITDA, net income and EPS:
<TABLE>
<S> <C>
Employee terminations...................................... $ 6,358,176
Closure of NovaCare O&P facilities......................... 747,576
Elimination of corporate allocations of parent of NovaCare
O&P....................................................... 970,797
-----------
$ 8,076,549
===========
EBITDA..................................................... $76,345,460
Adjusted EBITDA............................................ $84,421,009
Net income................................................. $ 2,497,114
Adjusted net income........................................ $ 7,262,278
EPS........................................................ $ (0.10)
Adjusted EPS............................................... $ 0.16
Reported EPS............................................... $ 0.75
</TABLE>
(15) Reflects additional amortization resulting from other intangible assets,
primarily patents, over a period of 8 to 11 years, as if NovaCare O&P
were acquired as of the beginning of the period presented, of $1,602,273.
(16) Reflects amortization of debt issuance costs on the financing for the
acquisition of Novacare O&P as of the beginning of the period presented
of $1,651,000.
31
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
for the Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
Hanger NovaCare Other
Orthopedic Orthotics and Acquired Pro Forma Pro Forma
Group, Inc. Prosthetics, Inc.* Companies(1) Adjustments (13)(14)
----------- ------------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $87,649,908 $132,238,158 $26,013,894 (2,684,946)(2) $243,217,014
Cost of products &
services sold.......... 44,564,173 68,189,103 12,196,930 (2,303,974)(2) 122,098,605
(547,627)(3)
----------- ------------ ----------- ----------- ------------
Gross profit............ 43,085,735 64,049,055 13,816,964 166,655 121,118,409
Selling, general &
administrative......... 30,183,450 50,099,793 9,153,465 (1,023,766)(3) 80,109,406
(284,408)(4)
(7,627,445)(5)
(391,683)(6)
Depreciation &
amortization........... 2,613,169 5,685,538 695,229 37,545 (7) 11,219,586
1,386,969 (8)
801,136 (15)
----------- ------------ ----------- ----------- ------------
Income from operations.. 10,289,116 8,263,724 3,968,270 7,268,307 29,789,417
Interest expense, net... (1,313,830) (5,760,103) (93,605) 4,135,234 (4) (23,349,894)
(1,889,627)(9)
(17,602,463)(10)
(825,500)(16)
Other income (expense),
net.................... 30,345 (70,920) 6,853 (33,722)
----------- ------------ ----------- ----------- ------------
Income (loss) before
taxes.................. 9,005,631 2,432,701 3,881,518 (8,914,049) 6,405,801
Provision (benefit) for
income taxes........... 3,692,000 3,247,000 30,187 (2,924,048) 4,045,139
----------- ------------ ----------- ----------- ------------
Net income (loss)....... $ 5,313,631 $ (814,299) $ 3,851,331 $(5,990,001) $ 2,360,662
=========== ============ =========== =========== ============
Diluted income (loss)
per common share (12).. $ 0.31 $ 0.01
=========== ============
Shares used to compute
diluted income per
common share........... 17,274,607 17,496,885
=========== ============
</TABLE>
- --------
* The historical statements of operations data for Novacare O&P, as adjusted
to conform with Hanger Orthopedic Group's financial statement
classifications. Adjustments primarily relate to the following
reclassifications:
. Administrative salary expense of $8.4 million, rent expense of $6.3
million and other administrative expenses of $13.3 million
reclassified from cost of products and services sold to selling,
general & administrative expense.
. Depreciation and amortization expense of $1.8 million reclassified
from cost of products and services sold to depreciation & amortization
expense.
. Royalty fee expense of $7.6 million reclassified from other expense to
selling, general & administrative expense.
(1) Other Acquired Companies (along with NovaCare O&P, the "Acquired
Companies") for the six months ended June 30, 1998 represent the results
of operations of such companies from January 1, 1998 to the earlier of
their respective dates of acquisition or June 30, 1998. Each of the
acquisitions has been accounted for as a purchase. Accordingly, the
results of operations of each of the Acquired Companies are included in
the historical results of operations of Hanger Orthopedic Group from the
date of its acquisition.
Results of operations of the companies acquired by Hanger Orthopedic Group
during the period January 1, 1998 through June 30, 1999 ("Other Acquired
Companies (Hanger Orthopedic Group)") prior to their acquisition dates for
the periods presented are as follows:
<TABLE>
<CAPTION>
Company Acquired as of Net Sales Net Income
------- -------------- ----------- ----------
<S> <C> <C> <C>
Wayne Rosen....................... January 14, 1998 $ 38,061 $ (1,964)
NOPS.............................. March 4, 1998 1,069,662 (156,803)
Teufel............................ March 31, 1998 1,005,452 16,711
Hattiesberg....................... April 30, 1998 117,156 34,405
Augusta Brace..................... May 15, 1998 219,584 (30,344)
P&O Rehab. Tech................... June 11, 1998 238,772 (2,997)
Associated O&P.................... June 19, 1998 574,856 98,858
Orthotics Techniques.............. July 17, 1998 164,228 14,114
Seattle Limb System............... August 1, 1998 8,283,029 2,334,615
Advanced Prosthetics.............. September 25, 1998 769,378 369,264
Orthopedic Services............... September 30, 1998 1,285,100 240,288
Fessenden O&P..................... November 13, 1998 693,098 226,658
Baltimore Orthotics............... December 1, 1998 551,018 38,565
Manasota Orthopedic............... December 4, 1998 220,906 (4,984)
OST Patient Advocates............. December 11, 1998 290,955 1,040
Thornton Orthopedic............... January 5, 1999 467,293 19,840
Carolina.......................... January 6, 1999 775,594 198,501
Universal O&P..................... January 29, 1999 410,839 (3,883)
Medical Center Brace.............. February 12, 1999 1,868,296 25,072
----------- ----------
Total........................... $19,043,277 $3,416,956
=========== ==========
</TABLE>
32
<PAGE>
Results of operations of the companies acquired by NovaCare O&P during the
period January 1, 1998 through June 30, 1999 ("Other Acquired Companies
(NovaCare O&P)") prior to their acquisition dates for the periods presented
are as follows:
<TABLE>
<CAPTION>
Company Acquired as of Net Sales Net Income (Loss)
------- -------------- ---------- -----------------
<S> <C> <C> <C>
Kroll's...................... January 1, 1998 $ -- $ --
Atlanta Prosthetics.......... January 1, 1998 -- --
TD Rehab Systems............. January 1, 1998 -- --
Shamp Prosthetics-Orthotics.. January 1, 1998 -- --
Cajon Orthotics and Prosthet-
ics......................... January 1, 1998 -- --
Cahill Orthopedic Laborato-
ry.......................... February 1, 1998 138,793 4,324
CPO Prosthetics and
Orthotics................... February 1, 1998 392,244 (24,025)
Kessler Associates........... March 1, 1998 126,000 10,858
University O&P Consultants... April 1, 1998 381,332 (23,708)
Advanced Orthopedic Systems.. May 1, 1998 167,601 642
Central Valley Prosthetics &
Orthotics................... May 1, 1998 133,230 48,204
Meadowbrook Orthopedics...... May 1, 1998 318,438 9,590
O.S. Orthotics & Prosthet-
ics......................... May 1, 1998 266,246 75,861
Binghamton Limb & Brace...... June 1, 1998 726,183 96,737
Stockton Orthopedic.......... June 1, 1998 445,561 24,127
Protech O&P Center........... June 1, 1998 636,632 41,383
American Rehabilitation Sys-
tems........................ June 1, 1998 362,343 8,663
Orthopedic Laboratories...... June 1, 1998 201,111 10,748
Columbus Orthopaedic Pros-
thetic & Orthotic Center.... June 1, 1998 906,163 57,095
Tuscon Limb & Brace.......... June 1, 1998 1,078,530 45,849
Physical Restoration Labora-
tories...................... June 1, 1998 690,210 48,027
---------- --------
Total...................... $6,970,617 $434,375
========== ========
</TABLE>
(2) Reflects the elimination of profit on intercompany sales during the period
presented. Net sales and cost of products and services sold have been
reduced by $2,684,946 and $2,303,974, respectively.
(3) Reflects a net reduction in cost of products and services sold and
selling, general and administrative expense of $547,627 and $1,023,766,
respectively, for employee and practitioner salaries of the Acquired
Companies to reflect the difference between such historical amounts and
amounts specified in employment contracts for comparable employment
positions with Hanger Orthopedic Group.
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1998
------- ----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)...... $ 728,891
Other Acquired Companies (NovaCare O&P)................. 842,502
----------
Total.................................................. $1,571,393
==========
</TABLE>
(4) Adjustments to selling, general and administrative expense, interest
expense and other income to reflect the elimination of historical income
and expense generated from assets not acquired and/or liabilities not
assumed:
<TABLE>
<CAPTION>
Selling,
general and Interest
Company administrative expense
------- -------------- ---------- ---
<S> <C> <C> <C>
NovaCare O&P............................... $ -- $4,071,572
Other Acquired Companies (Hanger Orthopedic
Group).................................... 270,138 --
Other Acquired Companies (NovaCare O&P).... 14,270 63,662
-------- ---------- ---
Total..................................... $284,408 $4,135,234
======== ========== ===
</TABLE>
(5) Adjustment to reduce selling, general and administrative expense by the
royalty fee of $7,627,445 charged by NovaCare Inc. to NovaCare O&P.
(6) Reduction in selling, general and administrative expense related to
elimination of intercompany profit of $391,683 previously allocated to
NovaCare O&P for personnel provided by a subsidiary of NovaCare Inc.
(7) Reflects increases in historical amounts of the Acquired Companies for
amortization expense resulting from non-compete agreements signed in
connection with acquisitions, as follows:
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1998
------- ----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)....... $37,545
</TABLE>
33
<PAGE>
(8) Reflects additional amortization over a 40-year period, as if such
Acquired Companies were acquired as of the beginning of the period
presented, as follows:
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1998
------- ----------------
<S> <C>
NovaCare O&P............................................ $ 854,864
Other Acquired Companies (Hanger Orthopedic Group)...... 392,487
Other Acquired Companies (NovaCare O&P)................. 139,618
----------
Total.................................................. $1,386,969
==========
</TABLE>
(9) Reflects additional interest expense that would have been incurred if the
consideration (in the form of cash and promissory notes) for the Other
Acquired Companies had been paid at January 1, 1998. The interest rates
used to calculate pro forma interest on the assumed additional debt
required to fund the cash payments reflects Hanger Orthopedic Group's
approximate borrowing rate.
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1998
------- ----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)...... $1,490,391
Other Acquired Companies (NovaCare O&P)................. 399,236
----------
Total.................................................. $1,889,627
==========
</TABLE>
(10) Represents the interest expense on the financing for the acquisition of
NovaCare O&P as of the beginning of the period presented.
<TABLE>
<CAPTION>
Source Amount Interest Rate Interest
------ ------------ ------------- -----------
<S> <C> <C> <C>
Revolving Credit Facility......... $ 6,657,000 8.16% $ 504,963
Tranche A Term Facility........... 100,000,000 8.16% 4,080,000
Tranche B Term Facility........... 100,000,000 9.16% 4,580,000
Notes............................. 150,000,000 11.25% 8,437,500
-----------
Total............................ $17,602,463
===========
</TABLE>
--------
(a) Interest expense includes $233,358 related to the unused portion
not borrowed under the Revolving Credit Facility.
An increase or decrease of 0.125% in the assumed interest rate on the
Revolving Credit Facility, Tranche A Term Facility and Tranche B Term
Facility would change the pro forma interest expense by $130,000 for the
six months ended June 30, 1998.
(11) To reflect income taxes as if Hanger Orthopedic Group and Acquired
Companies were a C Corporation for the period presented, at an effective
tax rate of 41%, after giving effect to non deductible amortization.
(12) Historical and pro forma diluted income per share, is computed by
dividing net income adjusted for preferred stock dividends by the number
of weighted average common and common-equivalent shares outstanding for
the period. The shares used in the computation of net income per common
share on a pro forma basis also include common stock issued in connection
with acquisitions but exclude common stock into which shares of 7%
Redeemable Preferred Stock would be convertible as the effect would be
anti-dilutive.
(13) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former shareholders of acquired companies
based on prescribed formulas. Contingent consideration is to be accounted
for as additional purchase price consideration if and when it becomes
probable.
(14) Does not reflect reductions to historical amounts as a result of future
termination of employment of certain employees, the closure of certain
facilities and management's estimate of certain costs that were
previously allocated to Novacare O&P. Following is a summary of estimated
cost savings not reflected in the historical amounts and the related
impact on pro forma EBITDA, net income and EPS:
<TABLE>
<S> <C>
Employee terminations....................................... $ 3,179,088
Closure of NovaCare O&P facilities.......................... 373,788
Elimination of corporate allocations of parent of NovaCare
O&P........................................................ 485,398
-----------
$ 4,038,274
===========
EBITDA...................................................... $41,009,003
Adjusted EBITDA............................................. $45,047,277
Net income.................................................. $ 2,360,662
Adjusted net income......................................... $ 4,743,244
EPS......................................................... $ 0.01
Adjusted EPS................................................ $ 0.15
Reported EPS................................................ $ 0.31
</TABLE>
(15) Reflects additional amortization resulting from other intangible assets,
primarily patents, over a period of 8 to 10 years as if NovaCare O&P were
acquired as of the beginning of the period presented of $801,136.
(16) Reflects amortization of debt issuance costs on the financing for the
acquisition of NovaCare O&P as of the beginning of the period presented
of $825,500.
34
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
for the Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
Hanger NovaCare Other
Orthopedic Orthotics and Acquired Pro Forma Pro Forma
Group, Inc. Prosthetics, Inc.* Companies(1) Adjustments (13)(14)
------------ ------------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $105,561,886 $137,062,799 $505,078 $(1,891,863)(2) $241,237,900
Cost of products &
services sold.......... 52,443,729 78,419,739 340,370 (1,636,389)(2) 129,567,449
------------ ------------ -------- ----------- ------------
Gross profit............ 53,118,157 58,643,060 164,708 (255,474) 111,670,451
Selling, general &
administrative......... 35,151,172 58,531,827 126,485 (65,934)(3) 85,703,581
(1,259)(4)
(4,104,710)(5)
(3,934,000)(6)
Depreciation &
amortization........... 3,481,928 5,829,615 3,685 1,087 (7) 10,707,433
589,982 (8)
801,136 (15)
------------ ------------ -------- ----------- ------------
Income from operations.. 14,485,057 (5,718,382) 34,538 6,458,224 15,259,437
Interest expense, net... (1,075,160) (3,159,824) (3,344) 1,871,933 (4) (20,144,990)
(32,600)(9)
(16,920,495)(10)
(825,500)(16)
Other income (expense),
net.................... (99,317) (88,002) 199 -- (187,120)
------------ ------------ -------- ----------- ------------
Income (loss) before
taxes.................. 13,310,580 (8,966,208) 31,393 (9,448,438) (5,,072,673)
Provision (benefit) for
income taxes........... 5,315,000 (662,669) 4,724 (5,130,992) (473,937)
------------ ------------ -------- ----------- ------------
Net income (loss)....... $ 7,995,580 $ (8,303,539) $ 26,669 $(4,317,446) $ (4,598,736)
============ ============ ======== =========== ============
Diluted income per
common share (12)...... $ 0.40 $ (0.36)
============ ============
Shares used to compute
diluted income per
common share........... 20,131,175 18,823,480
============ ============
</TABLE>
- --------
* The historical statements of operations data for NovaCare O&P, as adjusted
to conform with Hanger Orthopedic Group's financial statement
classifications. Adjustments primarily relate to the following
reclassifications:
.Administrative salary expense of $11.8 million, rent expense of
$7.1 million and other administrative expenses of $12.5 million
reclassified from cost of products and services sold to selling,
general & administrative expense.
. Depreciation and amortization expense of $1.8 million reclassified
from cost of products and services sold to depreciation & amortization
expense.
.Royalty fee expense of $4.1 million reclassified from other expense to
selling, general & administrative expense.
(1) Other Acquired Companies (along with NovaCare O&P, the "Acquired
Companies") for the six months ended June 30, 1999 represent the results
of operations of such companies from January 1, 1999 to the earlier of
their respective dates of acquisition or June 30, 1999. Each of the
acquisitions has been accounted for as a purchase. Accordingly, the
results of operations of each of the Acquired Companies are included in
the historical results of operations of Hanger Orthopedic Group from the
date of its acquisition. NovaCare O&P did not make any acquisitions during
the period from January 1, 1999 through June 30, 1999.
Results of operations of Other Acquired Companies acquired during the
period January 1, 1999 through June 30, 1999 prior to their acquisition
dates for the periods presented are as follows:
<TABLE>
<CAPTION>
Company Acquired as of Net Sales Net Income
------- ----------------- --------- ----------
<S> <C> <C> <C>
Thornton Orthopedic................ January 5, 1999 $ -- $ --
Carolina........................... January 6, 1999 -- --
Universal O&P...................... January 29, 1999 49,625 17,326
Medical Center Brace............... February 12, 1999 455,453 9,343
-------- -------
Total.............................. $505,078 $26,669
======== =======
</TABLE>
(2) The adjustments to reduce net sales $1,891,863 and cost of products and
services sold $1,636,389 reflect the elimination of profit on intercompany
sales during the period presented.
(3) Reflects a net reduction to historical amounts of $65,934 for employee and
practitioner salaries of the Other Acquired Companies to reflect the
difference between such historical amounts and amounts specified in
employment contracts for comparable employment positions with Hanger
Orthopedic Group.
(4) Adjustments to selling, general and administrative expense and interest
expense to reflect the elimination of historical expense generated from
assets not acquired and/or liabilities not assumed:
<TABLE>
<CAPTION>
Selling,
general and Interest
Company administrative expense
------- -------------- ----------
<S> <C> <C>
NovaCare O&P................................... -- $1,871,933
Other Acquired Companies....................... $1,259 --
------ ----------
Total........................................ $1,259 $1,871,933
====== ==========
</TABLE>
35
<PAGE>
(5) Adjustment to reduce selling, general and administrative expense by the
royalty fee of $4,104,710 charged by NovaCare Inc. to NovaCare O&P.
(6) Reduction in selling, general and administrative expense related to
elimination of intercompany profit of $3,934,000 previously allocated to
NovaCare O&P for personnel provided by a subsidiary of NovaCare Inc.
(7) Reflects increases in historical amounts of the Acquired Companies for
amortization expense resulting from non-compete agreements signed in
connection with acquisitions as follows:
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1999
------- ----------------
<S> <C>
Other Acquired Companies................................. $1,087
</TABLE>
(8) Reflects additional amortization over a 40-year period, as if such
Acquired Companies were acquired as of the beginning of the period
presented, as follows:
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1999
------- ----------------
<S> <C>
NovaCare O&P............................................ $575,693
Other Acquired Companies................................ 14,289
--------
Total................................................. $589,982
========
</TABLE>
(9) Reflects additional interest expense that would have been incurred if the
consideration (in the form of cash and promissory notes) for the Other
Acquired Companies had been paid at January 1, 1999. The interest rates
used to calculate pro forma interest on the assumed additional debt
required to fund the cash payments reflects Hanger Orthopedic Group's
approximate borrowing rate.
<TABLE>
<CAPTION>
Six Months Ended
Company June 30, 1999
------- ----------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)....... $32,600
</TABLE>
(10) Represents the interest expense on the financing for the acquisition of
NovaCare O&P as of the beginning of the period presented.
<TABLE>
<CAPTION>
Source Amount Interest Rate Interest
------ ------------ ------------- -----------
<S> <C> <C> <C>
Revolving Credit Facility...... $ 6,657,000 7.50% $ 482,995(a)
Tranche A Term Facility........ 100,000,000 7.50% 3,750,000
Tranche B Term Facility........ 100,000,000 8.50% 4,250,000
Notes.......................... 150,000,000 11.25% 8,437,500
-----------
Total........................ $16,920,495
===========
</TABLE>
--------
(a)Interest expense includes $233,358 related to the unused portion
not borrowed under the Revolving Credit Facility.
An increase or decrease of 0.125% in the assumed interest rate on the
Revolving Credit Facility, Tranche A Term Facility and Tranche B Term
Facility would change the pro forma interest expense by $130,000 for the
six months ended June 30, 1999.
(11) To reflect income taxes as if Hanger Orthopedic Group and Acquired
Companies were a C Corporation for the period presented, at an effective
tax rate of 40%, after giving effect to non-deductible amortization.
(12) Historical and pro forma diluted income per share, which has been
adjusted for preferred stock dividends, is computed by dividing net
income by the number of weighted average common and common-equivalent
shares outstanding for the period. The shares used in the computation of
net income per common share on a pro forma basis also include common
stock issued in connection with acquisitions, and excludes potential
dilutive common stock as the effect would be anti-dilutive.
If approved by the Hanger Orthopedic Group's stockholders in the future,
Hanger Orthopedic Group may, at its option, make the 7% Redeemable
Preferred Stock convertible into Hanger Orthopedic Group's Common Stock.
The computation of net income per common share on a pro forma basis does
not include the common stock into which such shares of 7% Redeemable
Preferred Stock would be convertible. If such shares were included in the
computation, there would be an immaterial impact on pro forma EPS.
(13) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former shareholders of acquired companies
based on prescribed formulas. Contingent consideration is to be accounted
for as additional purchase price consideration if and when it becomes
probable.
36
<PAGE>
(14) Does not reflect reductions to historical amounts as a result of future
termination of employment of certain employees, the closure of certain
facilities and management's estimate of certain costs that were
previously allocated to Novacare O&P. Following is a summary of estimated
cost savings not reflected in the historical amounts and the related
impact on pro forma EBITDA, net income and EPS:
<TABLE>
<S> <C>
Employee terminations...................................... $ 3,179,088
Closure of NovaCare O&P facilities......................... 373,788
Elimination of corporate allocations of parent of NovaCare
O&P....................................................... 485,398
-----------
$ 4,038,274
===========
EBITDA..................................................... $25,966,870
Adjusted EBITDA............................................ $30,005,144
Net loss................................................... $(4,598,736)
Adjusted net loss.......................................... $(2,175,772)
EPS........................................................ $ (0.36)
Adjusted EPS............................................... $ (0.23)
Reported EPS............................................... $ 0.40
</TABLE>
(15) Reflects additional amortization resulting from other intangible assets,
primarily patents, over a period of 8 to 11 years, as if NovaCare O&P
were acquired as of the beginning of the period presented totaling
$801,136.
(16) Reflects amortization of debt issuance costs on the financing for the
acquisition of NovaCare O&P as of the beginning of the period presented
of $825,500.
37
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
for the Twelve Months Ended June 30, 1999
<TABLE>
<CAPTION>
Hanger NovaCare
Orthopedic Orthotics and Other Acquired Pro Forma Pro Forma
Group, Inc. Prosthetics Inc. * Companies (1) Adjustments (13)(14)
------------ ------------------ -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............................. $205,782,290 $278,820,086 $8,065,877 $ (2,230,174)(2) $490,438,079
Cost of products & services sold...... 100,782,701 157,548,173 3,909,438 (1,964,494)(2) 260,275,818
------------ ------------ ---------- ------------- ------------
Gross profit.......................... 104,999,589 121,271,913 4,156,439 (265,680) 230,162,261
Selling, general & administrative..... 68,479,773 117,451,656 2,779,021 (510,554)(3) 168,858,935
(119,855)(4)
(12,582,890)(5)
(6,638,216)(6)
Depreciation & amortization........... 6,650,513 11,741,942 139,916 8,631 (7) 21,549,006
1,405,731 (8)
1,602,273 (15)
------------ ------------ ---------- ------------- ------------
Income from operations................ 29,869,303 (7,921,685) 1,237,502 16,569,200 39,754,320
Interest expense, net................. (1,663,645) (8,700,592) (25,177) 5,909,286 (4) (41,269,520)
(615,434)(9)
(34,522,958)(10)
(1,651,000)(16)
Other expense, net.................... (444,999) (200,030) (55,507) (8,153)(4) (708,689)
------------ ------------ ---------- ------------- ------------
Income (loss) before taxes............ 27,760,659 (16,822,307) 1,156,818 (14,319,059) (2,223,889)
Provision (benefit) for income taxes.. 11,239,000 (3,400,000) 25,169 (5,625,766) 2,238,403
------------ ------------ ---------- ------------- ------------
Net income (loss)..................... $ 16,521,659 $(13,422,307) $1,131,649 $ (8,693,293) $ (4,462,292)
============ ============ ========== ============= ============
Diluted income per common share (12).. $ 0.79 $ (0.47)
============ ============
Shares used to compute diluted income
per common share..................... 20,943,851 18,430,492
============ ============
</TABLE>
- --------
* The historical statements of operations data for NovaCare O&P, as adjusted
to conform with Hanger Orthopedic Group's financial statement
classifications. Adjustments primarily relate to the following
reclassifications:
. Administrative salary expense of $23.6 million, rent expense of $13.9
million and other administrative expenses of $24.8 million reclassified
from cost of products and services sold to selling, general &
administrative expense.
. Depreciation and amortization expense of $3.6 million reclassified from
cost of products and services sold to depreciation & amortization
expense.
. Royalty fee expense of $12.6 million reclassified from other expense to
selling, general & administrative expense.
(1) Other Acquired Companies (along with NovaCare O&P, the "Acquired
Companies") for the twelve months ended June 30, 1999 represent the
results of operations of such companies from July 1, 1998 to the earlier
of their respective dates of acquisition or June 30, 1999. Each of the
acquisitions has been accounted for as a purchase. Accordingly, the
results of operations of each of the Acquired Companies are included in
the historical results of operations of Hanger Orthopedic Group from the
date of its acquisition.
Results of operations of the companies acquired by Hanger Orthopedic Group
during the period July 1, 1998 through June 30, 1999 ("Other Acquired
Companies (Hanger Orthopedic Group)") prior to their acquisition dates for
the periods presented are as follows:
<TABLE>
<CAPTION>
Company Acquired as of Net Sales Net Income (Loss)
------- -------------- --------- -----------------
<S> <C> <C> <C>
Hattiesberg................ April 30, 1998 $ -- $ --
Augusta Brace.............. May 15, 1998 -- --
P&O Rehab. Tech............ June 11, 1998 -- --
Associated O&P............. June 19, 1998 -- --
Orthotics Techniques....... July 17, 1998 15,975 1,359
Seattle Limb System........ August 1, 1998 1,408,429 386,692
Advanced Prosthetics....... September 25, 1998 381,839 183,264
Orthopedic Services........ September 30, 1998 768,310 114,460
Fessenden O&P.............. November 13, 1998 523,124 171,072
Baltimore Orthotics........ December 1, 1998 461,740 32,311
Manasota Orthopedic........ December 4, 1998 188,819 (3,589)
OST Patient Advocates...... December 11, 1998 260,072 930
Thornton Orthopedic........ January 5, 1999 467,293 19,840
Carolina................... January 6, 1999 775,594 198,501
Universal O&P.............. January 29, 1999 479,312 (4,530)
Medical Center Brace....... February 12, 1999 2,335,370 31,339
---------- ----------
Total..................... $8,065,877 $1,131,649
========== ==========
</TABLE>
38
<PAGE>
(2) Reflects the elimination of profit on intercompany sales during the period
presented. Net sales and cost of products and services sold have been
reduced by $2,230,174 and $1,964,494, respectively.
(3) Reflects a net reduction in selling, general and administrative expense of
$510,554 for employee and practitioner salaries of the Acquired Companies
to reflect the difference between such historical amounts and amounts
specified in employment contracts for comparable employment positions with
Hanger Orthopedic Group.
<TABLE>
<CAPTION>
Twelve Months Ended
Company June 30, 1999
------- -------------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)..... $510,554
</TABLE>
(4) Adjustments to selling, general and administrative expense, interest
expense and other income to reflect the elimination of historical income
and expense generated from assets not acquired and/or liabilities not
assumed:
<TABLE>
<CAPTION>
Selling,
general and Interest
Company administrative expense Other
------- -------------- ---------- ------
<S> <C> <C> <C>
NovaCare O&P $ -- $5,888,901 $ --
Other Acquired Companies (Hanger Orthope-
dic Group)............................... 119,855 20,385 8,153
-------- ---------- ------
Total.................................... $119,855 $5,909,286 $8,153
======== ========== ======
</TABLE>
(5) Adjustment to reduce selling, general, and administrative expense by the
royalty fee of $12,582,890 charged by NovaCare Inc. to NovaCare O&P.
(6) Reduction in selling, general and administrative expense related to
elimination of intercompany profit of $6,638,216 previously allocated to
NovaCare O&P for personnel provided by a subsidiary of NovaCare Inc.
(7) Reflects increases in historical amounts of the Acquired Companies for
amortization expenses resulting from non-compete agreements signed in
connection with acquisitions, as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
Company June 30, 1999
------- -------------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)..... $8,631
</TABLE>
(8) Reflects additional amortization over a 40-year period, as if such
Acquired Companies were acquired as of the beginning of the period
presented, as follows:
<TABLE>
<CAPTION>
Twelve Months Ended
Company June 30, 1999
------- -------------------
<S> <C>
NovaCare O&P.......................................... $1,195,622
Other Acquired Companies (Hanger Orthopedic Group).... 210,109
----------
Total................................................ $1,405,731
==========
</TABLE>
39
<PAGE>
(9) Reflects additional interest expense that would have been incurred if the
consideration (in the form of cash and promissory notes) for the Other
Acquired Companies had been paid at January 1, 1998. The interest rates
used to calculate pro forma interest on the assumed additional debt
required to fund the cash payments reflects Hanger Orthopedic Group's
approximate borrowing rate.
<TABLE>
<CAPTION>
Twelve Months Ended
Company June 30, 1999
------- -------------------
<S> <C>
Other Acquired Companies (Hanger Orthopedic Group)..... $615,434
</TABLE>
(10) Represents the interest expense on the financing for the acquisition of
NovaCare O&P as of the beginning of the period presented.
<TABLE>
<CAPTION>
Source Amount Interest Rate Interest
------ ------------ ------------- -----------
<S> <C> <C> <C>
Revolving Credit Facility........ $ 6,657,000 7.83% $ 987,958(a)
Tranche A Term Facility.......... 100,000,000 7.83% 7,830,000
Tranche B Term Facility.......... 100,000,000 8.83% 8,830,000
Notes............................ 150,000,000 11.25% 16,875,000
-----------
Total........................... $34,522,958
===========
</TABLE>
--------
(a) Interest expense includes $466,715 related to the unused portion not
borrowed under the Revolving Credit Facility.
An increase or decrease of 0.125% in the assumed interest rate on the
Revolving Credit Facility, Tranche A Term Facility and Tranche B Term
Facility would change the pro forma interest expense by $260,000 for the
twelve months ended June 30, 1999.
(11) To reflect income taxes as if Hanger Orthopedic Group and Acquired
Companies were a C Corporation for the period presented, at an effective
tax rate of approximately 40%, after giving effect to non-deductible
amortization.
(12) Historical and pro forma diluted income per share is computed by dividing
net income adjusted for preferred stock dividends by the number of
weighted average common and common-equivalent shares outstanding for the
period. The shares used in the computation of net income per common share
on a pro forma basis also include common stock issued in connection with
acquisitions, and excludes potential dilutive common stock as the effect
would be anti-dilutive.
(13) The unaudited pro forma amounts exclude potential future contingent
consideration to be paid to former shareholders of acquired companies
based on prescribed formulas. Contingent consideration is to be accounted
for as additional purchase price consideration if and when it becomes
probable.
(14) Does not reflect reductions to historical amounts as a result of future
termination of employment of certain employees, the closure of certain
facilities and management's estimate of certain costs that were
previously allocated to NovaCare O&P. Following is a summary of estimated
cost savings not reflected in the historical amounts and the related
impact on pro forma EBITDA, net income and EPS:
<TABLE>
<S> <C>
Employee terminations........................................ $ 6,358,176
Closure of NovaCare O&P facilities........................... 747,576
Elimination of corporate allocations of parent of NovaCare
O&P......................................................... 970,797
-----------
$ 8,076,549
===========
EBITDA....................................................... $61,303,326
Adjusted EBITDA.............................................. $69,379,875
Net loss..................................................... $(4,462,292)
Adjusted net income.......................................... $ 383,637
EPS.......................................................... $ (0.47)
Adjusted EPS................................................. $ (0.21)
Reported EPS................................................. $ 0.79
</TABLE>
(15) Reflects additional amortization resulting from other intangible assets,
primarily patents, over a period of 8 to 11 years, as if NovaCare O&P
were acquired as of the beginning of the period presented of $1,602,273.
(16) Reflects amortization of debt issuance costs on the financing for the
acquisition of NovaCare O&P as of the beginning of the period presented
of 1,651,000.
40
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA OF HANGER ORTHOPEDIC GROUP
The selected consolidated financial data of Hanger Orthopedic Group set
forth below as of December 31, 1997 and 1998 and for the years ended December
31, 1996, 1997 and 1998 have been derived from the Consolidated Financial
Statements of Hanger Orthopedic Group which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are incorporated by
reference in this prospectus. The selected consolidated financial data of
Hanger Orthopedic Group set forth below as of December 31, 1994, 1995 and 1996
and for the years ended December 31, 1994 and 1995 have been derived from the
selected consolidated financial data of Hanger Orthopedic Group set forth in
its Annual Report on Form 10-K for the year ended December 31, 1998, as filed
with the Commission and incorporated herein by reference. The unaudited income
statement data for the six-month periods ended June 30, 1998 and June 30, 1999
were derived from the unaudited financial statements of Hanger Orthopedic
Group incorporated by reference in this prospectus. In the opinion of our
management, the unaudited data includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the data for such
periods. Interim results for the six months ended June 30, 1999, are not
necessarily indicative of results that can be expected in future periods. The
information presented below should be read in conjunction with "Unaudited Pro
Forma Consolidated Financial Statements" and "Hanger Orthopedic Group
Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus and Hanger Orthopedic
Group's Consolidated Financial Statements incorporated by reference in this
prospectus.
41
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA OF HANGER ORTHOPEDIC GROUP, INC.
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
---------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales.............. $50,300 $52,468 $66,806 $145,598 $187,870 $87,650 $105,562
Gross profit........... 27,091 27,896 34,573 72,065 94,967 43,086 53,118
Selling, general and
administrative........ 21,340 19,362 24,550 49,076 63,512 30,183 35,151
Depreciation and
amortization.......... 3,137 2,691 2,848 4,681 5,782 2,613 3,482
Acquisition and
integration costs(1).. -- -- 2,480 -- -- -- --
Restructuring cost(1).. 460 -- -- -- -- -- --
Loss from disposal of
assets(1)............. 2,150 -- -- -- -- -- --
Income from
operations............ 4 5,843 4,695 18,308 25,673 10,289 14,485
Interest expense, net.. (1,746) (2,056) (2,547) (4,932) (1,902) (1,314) (1,075)
Income (loss) from
continuing operations
before taxes,
extraordinary item.... (1,922) 3,680 1,971 13,166 23,456 9,006 13,311
Provision for income
taxes................. 358 1,545 890 5,526 9,616 3,692 5,315
Income (loss) from
continuing operations
before extraordinary
item.................. (2,280) 2,135 1,081 7,640 13,840 5,314 7,996
Loss from discontinued
operations(2)......... (407) -- -- -- -- -- --
Income (loss) before
extraordinary item.... (2,687) 2,135 1,081 7,640 13,840 5,314 7,996
Extraordinary loss on
early extinguishment
of debt............... -- -- (83) (2,694) -- -- --
Net income (loss)...... (2,687) 2,135 998 4,946 13,840 5,314 7,996
Net income (loss) per
common share -
diluted.............. $ (0.33) $ 0.25 $ 0.11 $ 0.37 $ 0.75 $ 0.31 $ 0.40
Other Financial Data:
Ratio of earnings to
fixed charges(3)...... -- 2.2x 1.5x 3x 6.8x 4.8x 6.8x
EBITDA(4).............. $ 5,751 $ 8,534 $10,023 $ 22,989 $ 31,455 $12,902 $17,967
Capital expenditures... 1,115 935 1,239 2,581 2,859 1,452 2,557
Statistical Data:
Patient-care centers... 85 84 178 213 256 244 258
Certified
practitioners......... 125 119 199 249 321 283 327
Number of states
(including D.C.)...... 25 24 29 30 31 32 32
Same-center sales
growth................ (3.7%) 5.2% 5.8% 11.7% 11.1% 11.2% 6.0%
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------ June 30,
1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............. $ 1,048 $ 1,456 $ 6,572 $ 6,557 $ 9,683 $159,661
Working capital.......... 18,412 20,622 25,499 39,031 49,678 207,836
Total assets............. 61,481 61,800 134,941 157,983 205,948 387,539
Long-term debt........... 24,330 22,925 64,298 23,237 11,154 181,564
Shareholders' equity..... 29,178 31,291 39,734 106,320 162,553 171,761
</TABLE>
- --------
(1) The 1994 results include restructuring costs of $460,000 associated with
the closing of unprofitable patient-care centers and a loss from the
disposal of assets of $2.2 million resulting from the sale of our southern
California patient-care centers. The 1996 results include acquisition and
integration costs of $2.5 million incurred in connection with the purchase
of J.E. Hanger, Inc. of Georgia effective November 1, 1996.
(2) Loss from discontinued operations consists of the loss from discontinued
operations and the sale of the discontinued operation of our Apothecaries,
Inc. subsidiary, the assets of which were sold in 1994.
(3) Due to Hanger Orthopedic Group's loss in 1994, the ratio coverage was less
than 1:1. Hanger Orthopedic Group would have had to generate additional
earnings of $1,922,000 in 1994 to have achieved coverage of 1:1 in that
year.
(4) "EBITDA" is defined as net income (loss) before interest expense, taxes,
depreciation and amortization, discontinued operations, non-recurring
charges, extraordinary items and accounting change. EBITDA is not a
measure of performance under GAAP. While EBITDA should not be considered
in isolation or as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used as a criteria in
evaluating health care companies. Moreover, substantially all of our
financing agreements contain covenants in which EBITDA is used as a
measure of financial performance. EBITDA margin is defined as EBITDA as a
percent of net sales.
42
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA OF NOVACARE O&P
The selected historical consolidated financial and other data of NovaCare
O&P set forth below as of June 30, 1997, 1998, and 1999 and for the years
ended June 30, 1996, 1997, 1998 and 1999 have been derived from the
Consolidated Financial Statements of NovaCare O&P which have been audited by
PricewaterhouseCoopers LLP, independent accountants, and are incorporated by
reference in this prospectus. The selected historical consolidated financial
and other data of NovaCare O&P set forth below as of June 30, 1995 and 1996
and for the years ended June 30, 1995 have been derived from unaudited
financial statements of NovaCare O&P that are not included or incorporated by
reference in this prospectus. The information presented below is qualified in
its entirety by, and should be read in conjunction with "Unaudited Pro Forma
Consolidated Financial Statements" and "NovaCare O&P Management's Discussion
and Analysis of Results of Operations" included elsewhere in this prospectus
and NovaCare O&P's Consolidated Financial Statements incorporated by reference
in this prospectus.
43
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL
AND OTHER DATA OF NOVACARE O&P
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues............... $ 91,936 $100,886 $161,074 $251,732 $278,820
Cost of services........... 69,424 74,788 120,118 188,699 223,409
-------- -------- -------- -------- --------
Gross profit............... 22,512 26,098 40,956 63,033 55,411
Selling, general and
administrative............ 14,756 11,093 9,157 16,367 15,971
Selling, general and
administrative allocated
from related party(1)..... 2,219 2,949 6,103 9,624 17,015
Provision for uncollectible
accounts.................. 1,440 1,870 2,841 4,840 10,332
Amortization of excess cost
of net assets acquired.... 2,267 2,177 4,061 6,598 7,430
Provision for
restructure(2)............ 5,443 1,477 - - -
-------- -------- -------- -------- --------
Operating income (loss).... (3,613) 6,532 18,794 25,604 4,663
Interest expense-related
party(3).................. (9,142) (2,146) (4,291) (7,453) (5,891)
Interest expense-third
parties................... (852) (603) (1,910) (3,239) (2,811)
Royalty expense-related
party(4).................. (5,516) (5,924) (9,106) (15,244) (12,583)
Minority interest.......... (81) (111) (114) (135) (200)
-------- -------- -------- -------- --------
(Loss) income before income
taxes..................... (19,204) (2,252) 3,373 (467) (16,822)
Income tax (benefit)
provision................. (5,195) (1,281) 2,359 2,372 (3,400)
-------- -------- -------- -------- --------
Net (loss) income.......... $(14,009) $ (971) $ 1,014 $ (2,839) $(13,422)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30,
------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents.............. $ 6,371 $ 1,261 $ 1,724 $ 1,959 $ -
(Excess of current
liabilities over current
assets) working
capital(7)............... 3,556 3,304 (19,946) (49,324) (39,961)
Total assets.............. 124,171 126,166 263,053 379,570 371,179
Financing arrangements-
third parties............ 11,545 8,508 35,411 55,732 37,305
Financing arrangements-
related parties.......... 74,100 976 57,894 83,029 -
NovaCare net investment... $ 23,086 $ 98,419 $ 87,122 $ 99,490 $203,654
Statistical Data:
Patient-care centers...... 129 130 274 378 395
Certified practitioners... 221 240 398 628 621
Number of states.......... 24 27 34 36 37
Same-market growth
(decline)(5)............. 6.0% 6.0% 2.8% 5.5% (1.0)%
</TABLE>
- --------
(1) NovaCare O&P's selling, general and administrative services has
historically been provided by its parent, NovaCare, Inc. including leased
office space at the parent's headquarters and certain services provided by
its parent, including shared management, legal, information systems,
finance and human resources. These expenses were allocated based on net
revenues, specific utilization, or other methods which management of
NovaCare O&P believes to be reasonable. The increase in 1999 was
principally due to implementation of a revised agreement with NovaCare
Employee Services.
(2) The provision for restructure expense in 1995 and 1996 pertained to
consolidations and reorganizations of NovaCare O&P's operations and
certain administrative functions.
(3) NovaCare O&P received certain advances from its parent which were funded
through a line of credit arrangement. The annual interest rate on the line
of credit is the prime rate of the parent's lending bank plus 1.5% on the
daily outstanding balance.
(4) NovaCare O&P is charged a fee equal to a percentage of revenues for the
use of the "NovaCare" name and trademark. Fees are paid to NovaCare O&P's
parent on a quarterly basis.
(5) Same market growth (decline) represents the increase (decrease) in current
period net revenues over prior period net revenues adjusted to include
historical net revenues of acquired companies for the period prior to
acquisition.
44
<PAGE>
(7) Working capital (excess of current liabilities over current assets)
includes accounts payable and accrued expenses--related party. If this
item was not included working capital would be as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------
1995 1996 1997 1998 1999
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(Excess of current
liabilities over current
assets) working capital.... $ 3,556 $ 3,304 $(19,946) $(49,324) $(39,961)
Current portion of financing
agreements--related party.. - - - - -
Accounts payable and accrued
expenses--related party.... 15,223 19,959 65,684 116,925 94,592
------- ------- -------- -------- --------
Working capital as
adjusted................... $18,779 $23,263 $ 45,738 $ 67,601 $ 54,631
======= ======= ======== ======== ========
</TABLE>
45
<PAGE>
HANGER ORTHOPEDIC GROUP MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The significant growth in our net sales has resulted from an aggressive
program of acquiring and developing O&P patient-care centers. Similarly,
growth in our O&P distribution and manufacturing net sales is attributable
primarily to acquisitions. At June 30, 1999, Hanger Orthopedic Group operated
258 patient-care centers, six distribution facilities, three of which contain
central fabrication operations, and three manufacturing facilities.
Expansion
The following table sets forth the number of patient-care centers, certified
practitioners and states (including the District of Columbia) in which we
operated at the end of each of the past three years and at June 30, 1998 and
1999:
<TABLE>
<CAPTION>
December 31, June 30,
-------------- ---------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Number of patient-care centers...................... 178 213 256 244 258
Number of certified practitioners................... 199 249 321 283 327
Number of states (including D.C.)................... 29 30 31 32 32
</TABLE>
Recent Acquisitions
During 1998, we acquired 17 O&P companies for an aggregate consideration,
excluding potential earn-out provisions, of $25.3 million. These O&P companies
operated 39 patient-care centers and employed 189 persons at December 31,
1998. In addition, during 1998 we acquired one prosthetic component
manufacturing company for $13.8 million. During the six months ended June 30,
1999, we acquired four O&P companies for an aggregate consideration, excluding
potential earn-out provisions, of approximately $7.5 million. These O&P
companies, which operated four patient-care centers at June 30, 1999, had
combined net sales of approximately $7.0 million in the year ended December
31, 1998.
Same-Center Net Sales Growth
In addition to acquisitions of new patient-care centers, the growth in our
net sales from O&P patient-care services is attributable to a lesser degree to
increases in net sales from existing patient-care centers. The following table
sets forth, for the periods indicated, the percent increase (decrease) in net
sales contributed by those patient-care centers that were owned by us and open
during the entire period as well as the prior year's entire comparable period:
<TABLE>
<CAPTION>
December 31, June 30,
---------------- ----------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percent increase (decrease) in same-center
net sales................................... 5.8% 11.7% 11.1% 11.2% 6.0%
</TABLE>
Sources of Net Sales
Although the majority of our net sales continue to be derived from operating
patient-care centers, the percent of our total net sales attributable to O&P
distribution activities has increased. The following table sets forth the
percent contributed to net sales in each of the periods indicated by the
principal sources of our net sales. The increase in the percentage of net
sales contributed by distribution activities in 1997 is attributable to our
acquisition of J.E. Hanger, Inc. of Georgia in late 1996 and increased sales
to O&P practitioners in our OPNET network. Manufacturing as a percent of net
sales declined to 4.5% in 1998 versus 5.3% in 1997. However, there was an
increase in the actual dollar amount of net sales attributable to
manufacturing.
<TABLE>
<CAPTION>
Six
Months Ended
Years Ended December 31, June 30,
---------------------------- --------------
1996 1997 1998 1998 1999
-------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Source of net sales:
Patient-care services........ 78.2% 77.1% 81.1% 80.1% 80.6%
Manufacturing................ 12.0 5.3 4.5 3.7 5.1
Distribution................. 9.8 17.6 14.4 16.2 14.3
-------- -------- -------- ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ====== ======
</TABLE>
46
<PAGE>
Payor Mix
We receive payments for O&P services rendered to patients from private
insurers, HMOs, PPOs, the patients directly and governmental payors, including
Medicare, Medicaid and the VA. The sources and amounts of our net sales
derived from its patient-care centers are determined by a number of factors,
including the number and nature of O&P services rendered and the rates of
reimbursement among payor categories. Generally, private insurance and other
third-party reimbursement levels are greater than managed care (HMO/PPO),
Medicare, Medicaid and VA reimbursement levels. Changes in our payor mix can
affect our profitability. The following table sets forth the percent
contributed to net sales in each of the following periods by the principal
categories of payors:
<TABLE>
<CAPTION>
Six
Years Months Ended
Ended December 31, June 30,
---------------------- --------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Payor mix(1):
Private pay and other............ 43.2% 38.0% 46.3% 44.5% 52.8%
Medicare/Medicaid/VA/state
agencies........................ 56.8 62.0 53.7 55.5 47.2
------ ------ ------ ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ====== ======
</TABLE>
- --------
(1) Payor mix data is based on a sampling of approximately 75% of the
patient care centers in 1996 and 1997 and approximately 41% of the
patient-care centers in 1998 and the six months ended March 31, 1998
and 1999.
EBITDA and Operating Margin Trends
Our EBITDA and operating margins increased gradually over the past three
years. In 1997, margins were higher than 1996, primarily from the integration
of J.E. Hanger, Inc. of Georgia and the elimination of duplicative expenses.
EBITDA margin in 1998 increased compared to 1997 as a result of consummating
acquisitions of O&P patient-care centers with historical EBITDA margins of
approximately 20%. The following sets forth our EBITDA and operating margins
during each of the past five years and the six months ended June 30, 1998 and
1999:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31, June 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBITDA margin(1) 15.0% 15.8% 16.7% 14.7% 17.0%
Operating margin........... 10.7% 12.6% 13.7% 11.7% 13.7%
</TABLE>
- --------
(1) "EBITDA" is defined as net income (loss) before interest expense,
taxes, depreciation and amortization, discontinued operations, non-
recurring charges, extraordinary items and accounting change. EBITDA is
not a measure of performance under GAAP. While EBITDA should not be
considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash flow statement data
prepared in accordance with GAAP, or as a measure of profitability or
liquidity, management understands that EBITDA is customarily used as a
criteria in evaluating health care companies.
47
<PAGE>
Seasonality
Our results of operations are affected by seasonal considerations. The
adverse weather conditions often experienced in certain geographical areas of
the United States during the first quarter of each year, together with a
greater degree of patients' sole responsibility for their insurance deductible
payment obligations during the beginning of each calendar year, have
contributed to lower Hanger Orthopedic Group's net sales during that quarter.
Results of Operations
The following table sets forth for the periods indicated certain items of
our statements of operations as a percentage of our net sales:
<TABLE>
<CAPTION>
For the Years Six Months
Ended December Ended
31, June 30,
------------------- ------------
1996 1997 1998 1998 1999
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products & services sold........ 48.2 50.5 49.5 50.8 49.7
Gross profit............................ 51.8 49.5 50.5 49.2 50.3
Selling, general and administrative..... 36.7 33.7 33.8 34.4 33.3
Depreciation and amortization........... 3.0 2.0 1.8 1.7 1.9
Acquisition and integration costs....... 3.7 -- -- -- --
Amortization of excess cost over net
assets acquired........................ 1.2 1.2 1.3 1.3 1.4
Income from operations.................. 7.0 12.6 13.7 11.7 13.7
Interest expense, net................... 3.8 3.4 1.0 1.5 1.0
Income before taxes and extraordinary
item................................... 3.0 9.0 12.5 10.3 12.6
Income taxes............................ 1.3 3.8 5.1 4.2 5.0
Net income.............................. 1.5 3.4 7.4 6.1 7.6
</TABLE>
Six Months Ended June 30, 1999 and June 30, 1998
Net Sales. Net sales for the six months ended June 30, 1999, amounted to
approximately $105.6 million, an increase of approximately $17.9 million, or
20.4%, over net sales of approximately $87.7 million for the six months ended
June 30, 1998. Contributing to the increase were (i) a 6.0% increase in same-
center net sales and (ii) net sales by patient-care centers acquired
subsequent to June 30, 1998.
Gross Profit. Gross profit during the six months ended June 30, 1999
amounted to approximately $53.1 million, an increase of approximately $10.0
million, or 23.3%, over gross profit of approximately $43.1 million for the
six months ended June 30, 1998. Gross profit as a percent of net sales
increased to 50.3% for the six months ended June 30, 1999 from 49.2% for the
six months ended June 30, 1998. The increase in the gross profit margin is
primarily a result of the continuing increase in the portion of our revenues
attributable to patient-care services. A majority of our acquisitions have
been and will continue to be in the area of patient-care services, which
historically has experienced higher gross profit margins than the distribution
and manufacturing areas.
Selling, General and Administrative. Selling, general and administrative
expenses in the six months ended June 30, 1999 amounted to approximately $35.2
million, an increase of approximately $5.0 million, or 16.5%, compared to
approximately $30.2 million in the six months ended June 30, 1998. The
increase in selling, general and administrative expenses was primarily a
result of the acquisitions subsequent to June 30, 1998. Selling, general and
administrative expenses as a percent of net sales in the first six months of
1999 decreased to 33.3% from 34.4% for the same period a year ago. The
decrease in selling, general and administrative expenses as a percent of net
sales is primarily the result of acquisitions in the patient-care services
division, which has lower selling, general and administrative margins than
Hanger Orthopedic Group on a consolidated basis, and economies of scale
resulting from the low level of variable costs in that division.
48
<PAGE>
Income from Operations. Principally as a result of the above, income from
operations in the six months ended June 30, 1999 amounted to approximately
$14.5 million, an increase of $4.2 million, or 40.8%, over $10.3 million
during the prior year's comparable six-month period. Income from operations as
a percent of net sales for the six months ended June 30, 1999 increased to
13.7%, from 11.7% for the same period a year ago.
Interest Expense, Net. Interest expense, net in the first six months of 1999
amounted to approximately $1.1 million, a decrease of approximately $0.2
million, or 18.2%, from the approximately $1.3 million of interest expense
incurred in the first six months of 1998. Interest expense as a percent of net
sales decreased to 1.0% in the first six months of 1999 from 1.5% for the same
period a year ago. The decrease in interest expense was primarily attributable
to the repayment of $24.7 million of indebtedness during August of 1998 from
the proceeds of an underwritten public offering in which we sold 3,300,000
shares of common stock at $17.00 per share.
Income Taxes. Our effective tax rate was 40% in the first six months of 1999
versus 41% in 1998. The provision for income taxes in the first six months of
1999 amounted to approximately $5.3 million compared to approximately $3.7
million in the first six months of 1998.
Net Income. As a result of the above, we recorded net income of
approximately $8.0 million, or $.40 per diluted common share on approximately
20,131,175 shares outstanding for the six months ended June 30, 1999, compared
to net income of approximately $5.3 million, or $.31 per diluted common share
on approximately 17,274,607 shares outstanding in the six months ended June
30, 1998.
Years Ended December 31, 1998 and 1997
Net Sales. Net sales for the year ended December 31, 1998 were approximately
$187.9 million, an increase of approximately $42.3 million, or 29.1%, over net
sales of approximately $145.6 million for the year ended December 31, 1997.
The increase was primarily a result of: (i) acquisitions during 1998, and (ii)
an 11.1% increase in same-center net sales.
Gross Profit. Gross profit in 1998 was approximately $95.0 million, an
increase of approximately $22.9 million, or 31.8%, over gross profit of
approximately $72.1 million in the prior year. Gross profit as a percent of
net sales for patient-care service was 53.5% and 53.3% in the years ended
December 31, 1998 and 1997, respectively. Gross profit as a percent of net
sales for manufacturing and distribution was 45% and 18% for 1998 compared to
49% and 19% for 1997, respectively. Our total gross profit as a percent of net
sales increased from 49.5% in 1997 to 50.5% in 1998, primarily due to the
increase in the percent of net sales from patient-care services from 77% to
81%.
Selling, General and Administrative. Selling, general and administrative
expenses in 1998 amounted to approximately $63.5 million, an increase of
approximately $14.4 million, or 29.3%, compared to approximately $49.1 million
in 1997. The increase in selling, general and administrative expenses was
primarily a result of the acquisition of O&P patient-care centers. Selling,
general and administrative expenses as a percent of net sales increased to
33.8% in 1998 from 33.7% in 1997.
Income from Operations. Principally as a result of the above, income from
operations in 1998 totaled approximately $25.7 million, an increase of $7.4
million, or 40.4%, over approximately $18.3 million in the prior year. Income
from operations as a percent of net sales increased to 13.7% in 1998 from
12.6% in 1997.
Interest Expense, Net. Interest expense, net for the year ended December 31,
1998 was approximately $1.9 million, a decrease of approximately $3.0 million,
or 61.2%, from the approximately $4.9 million of interest expense incurred
during 1997. Interest expense as a percent of net sales decreased to 1.0% in
1998 from 3.4% for 1997. The decrease in interest expense was primarily
attributable to the repayment of bank debt out of the proceeds of the public
equity offering in the third quarter of 1998.
Income Taxes. Our effective tax rate was 41% in 1998 versus 42% in 1997. The
decrease in 1998 is a result of the disproportionate impact of the
amortization of the excess costs over net assets acquired in relation to
taxable income in 1997.
49
<PAGE>
Extraordinary Item. A pre-tax extraordinary item of $4.6 million ($2.7
million, net of tax benefit) in 1997, represents entirely a write-off of debt
issue costs and debt discount as a result of extinguishing approximately $58.3
million of bank debt from the net proceeds of the 1997 public equity offering.
Net Income. As a result of the above, we recorded income before
extraordinary item of $13.8 million for the year ended December 31, 1998,
compared to $7.6 million for the prior year. A pre-tax extraordinary item of
$4.6 million ($2.7 million, net of tax benefit) on early extinguishment of
debt was recognized in 1997 in connection with refinancing of bank
indebtedness. No extraordinary item was recognized in 1998.
As a result of the above, we reported net income of $13.8 million, or $.75
per common dilutive share, for the year ended December 31, 1998, as compared
to net income of $4.9 million, or $.37 per common dilutive share, for the year
ended December 31, 1997.
Years Ended December 31, 1997 and 1996
Net Sales. Net sales for the year ended December 31, 1997 were approximately
$145.6 million, an increase of approximately $78.8 million, or 118%, over net
sales of approximately $66.8 million for the year ended December 31, 1996. The
increase was primarily a result of: (i) the acquisition of J.E. Hanger, Inc.
of Georgia on November 1, 1996, as well as other acquisitions during 1997, and
(ii) an 11.7% increase in net sales attributable to patient-care centers and
facilities operating during both periods.
Gross Profit. Gross profit in 1997 was approximately $72.1 million, an
increase of approximately $37.5 million, or 108%, over approximately $34.6
million in the prior year. Gross profit as a percent of net sales for patient-
care service was 53.3% and 55.1% in the years ended December 31, 1997 and
1996, respectively. Gross profit as a percent of net sales for manufacturing
and distribution was 49% and 19% for 1997 compared to 47% and 11% for 1996,
respectively. Our total gross profit as a percent of net sales declined to
49.5% in 1997 from 51.8% in 1996, primarily attributable to the acquisition of
J.E. Hanger, Inc. of Georgia, which operated a large distribution division
that had lower gross profit margins than patient-care services.
Selling, General and Administrative. Selling, general and administrative
expenses in 1997 amounted to approximately $49.1 million, an increase of
approximately $24.5 million, or 99.6%, compared to approximately $24.6 million
in 1996. The increase in selling, general and administrative expenses was
primarily a result of the acquisition of J.E. Hanger, Inc. of Georgia and
other acquisitions. Selling, general and administrative expenses as a percent
of net sales decreased to 33.7% in 1997 from 36.7% in 1996, primarily as a
result of cost-cutting measures completed during the fourth quarter of 1996
and the first six months of 1997.
Income from Operations. Principally as a result of the above, income from
operations in 1997 totaled approximately $18.3 million, an increase of $13.6
million, or 290.0%, over approximately $4.7 million in the prior year. Income
from operations as a percent of net sales increased to 12.6% in 1997 from 7.0%
in 1996.
Interest Expense, Net. Interest expense, net, for the year ended December
31, 1997 was approximately $4.9 million, an increase of approximately $2.4
million, or 93.6%, over the approximately $2.5 million of interest expense,
net, incurred during 1996. Interest expense, net, as a percent of net sales
decreased to 3.4% in 1997 from 3.8% for 1996. The increase in interest
expense, net, was primarily attributable to the increase in bank debt
resulting from the acquisition of J.E. Hanger, Inc. of Georgia in November
1996, which was offset in part by the repayment of bank debt out of the
proceeds of the public equity offering in the third quarter of 1997.
Income Taxes. Our effective tax rate was 42% in 1997 versus 45% in 1996. The
decrease in 1997 is a result of the disproportionate impact of the
amortization of the excess costs over net assets acquired in relation to
taxable income in 1996.
Extraordinary Item. A pre-tax extraordinary item of $4.6 million ($2.7
million, net of tax benefit) in 1997, represents entirely a write-off of debt
issue costs and debt discount as a result of extinguishing approximately $58.3
million of bank debt from the net proceeds of the third quarter public equity
offering.
50
<PAGE>
Net Income. As a result of the above, we recorded income from operations
before extraordinary item of $7.6 million for the year ended December 31,
1997, compared to $1.1 million for the prior year. A pre-tax extraordinary
item of $4.6 million ($2.7 million, net of tax benefit) on early
extinguishment of debt was recognized in 1997 compared to $139,000 ($83,000,
net of tax benefit) in 1996. Both extraordinary items were in connection with
refinancings of bank indebtedness.
As a result of the above, we reported net income of $4.9 million, or $.37
per common dilutive share, for the year ended December 31, 1997, as compared
to net income of $1.0 million, or $.11 per common dilutive share, for the year
ended December 31, 1996.
Liquidity and Capital Resources
Our consolidated working capital at June 30, 1999 was approximately $207.8
million and cash and cash equivalents available were approximately $159.7
million.
We required approximately $430.2 million in cash to close our acquisition of
NovaCare O&P on July 1, 1999, pay approximately $20.0 million of expenses in
connection with the transaction and refinance existing debt of approximately
$2.5 million. The funds were raised by (i) borrowing approximately $230
million of revolving credit and term loans under our new bank credit facility;
(ii) the sale of the $150 million of 11 1/4% Senior Subordinated Notes due
2009; and (iii) the sale of $60 million of 7% Redeemable Preferred Stock. The
Preferred Stock accrues annual dividends, compounded quarterly, equal to 7%
and, subject to the Put Rights described below under "Description of the New
Credit Facility and the Redeemable Preferred Stock--The Preferred Stock," will
not require principal payments prior to maturity. The bank credit facility
consists of a $100 million revolving credit facility, a $100 million tranche A
term facility and a $100 million tranche B term facility. The tranche A term
facility and the revolving credit facility will mature on June 1, 2005 and
carry an interest rate of adjusted LIBOR plus 2.50% or ABR plus 1.50%. The
tranche B term facility will mature on January 1, 2007 and carry an interest
rate of adjusted LIBOR plus 3.50% or ABR plus 2.50%. The revolving credit
facility is available for use in connection with future acquisitions and for
working capital and general corporate purposes. The bank credit facility is
collateralized by substantially all our assets, restricts the payment of
dividends, and contains certain affirmative and negative covenants customary
in an agreement of this nature.
On July 29, 1998, 3,300,000 shares of our common stock were sold in an
underwritten public offering at $17.00 per share. Of that amount, 2,400,000
shares were sold by us and 900,000 shares were sold by certain of our
stockholders. Of the approximately $37.8 million of net proceeds of the
offering, a total of $24.7 million was used to repay the amounts of bank
borrowings outstanding at that time.
Our total debt at June 30, 1999, including a current portion of
approximately $3.8 million, was approximately $185.3 million. Such
indebtedness included (i) $150,000,000 of senior subordinated notes; (ii)
$15,157,000 borrowed under a prior acquisition loan; (iii) $6,000,000 borrowed
under a prior revolving loan; and (iv) a total of $14,181,000 of other
indebtedness.
During 1998, we acquired 17 O&P companies and one prosthetic component
manufacturing company. The aggregate purchase price, excluding potential earn-
out provisions, was $39.1 million, comprised of $28.8 million in cash, $7.9
million in promissory notes and 141,417 shares of our Common Stock valued at
$2.4 million. During the six months ended June 30, 1999, we acquired four O&P
companies. The aggregate purchase price, excluding potential earn-out
provisions, was $7.5 million, comprised of $6.1 million in cash, $0.9 million
in promissory notes and shares of our Common Stock valued at $0.5 million. The
cash portion of the purchase price of these acquisitions was borrowed under
our previous credit facility.
51
<PAGE>
We plan to finance future acquisitions through internally generated funds or
borrowings under our revolving credit facility, the issuance of notes or
shares of common stock or securities convertible into our common stock, or
through a combination thereof. We are actively engaged in ongoing discussions
with prospective acquisition candidates and plan to continue to expand our
operations through acquisitions.
Proposed Reduction In Federal Medicare Program
Currently, Medicare provides for reimbursement for orthotics and prosthetics
products and services based on regional prices set forth in fee schedules,
with the actual amount paid varying within a range of the established regional
prices. Further, certain third-party payors also tie their reimbursement rates
to Medicare reimbursement rates. President Clinton's budget for the fiscal
year 2000 initially included a proposal that would have modified the Medicare
fee schedules to include upper limits based on national median prices. Such a
proposal is no longer included in the proposed budget. However, if the U.S.
Congress were to enact these modifications into law, our revenues from
Medicare reimbursements and other payors could be adversely affected, which
could have a material adverse effect on us. We cannot predict whether any such
modifications to the fee schedules will be enacted or what the final form of
any modifications might be.
New Accounting Standards
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal years
beginning after June 15, 2000. SFAS 133 requires that an entity recognize all
derivative instruments as either assets or liabilities on its balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction, and, if it is, the
type of hedge transaction. We will adopt SFAS 133 by the first quarter of
2001. Due to our limited use of derivative instruments, SFAS 133 is not
expected to have a material effect on our financial position or results of
operations.
Year 2000 Program
We currently are upgrading our patient-care, manufacturing and headquarters
information systems. Included in the upgrading is a program to ensure that all
significant computer systems are substantially Year 2000 compliant by the year
ending December 31, 1999. The program is divided into three major components:
(1) identification of all information technology systems and non-information
technology systems that are not Year 2000 compliant: (2) repair or replacement
of the identified non-compliant systems; and (3) testing of the repaired or
replaced systems. We have no "in house" developed or proprietary IT Systems.
We use commercially developed software, the majority of which is constantly
upgraded through existing maintenance contracts. Parts (1) and (2) of the Year
2000 program are currently underway. Part (1), identification, was completed
during the first quarter of 1999. Review of accounting and financial reporting
systems is nearly finished and we are continuing to review Non-IT Systems that
have embedded microprocessors in various types of equipment. Part (2),
repairing and replacing, currently continues, primarily under maintenance
contracts with our software vendors. While most of the major systems are Year
2000 compliant, the software vendors have targeted October 1999 as a
completion date. Part (3), testing, started in the first quarter of 1999 and
is expected to be substantially finished at the end of October and to
continue, as needed, into the new millennium.
We have been contacting key suppliers and business partners about the Year
2000 issue. While no assurance can be given that key suppliers and business
partners will remedy their own Year 2000 issues, we, to date, have not
identified any material impact on its ability to continue normal business
operations with suppliers or other third parties who fail to address the
issue.
52
<PAGE>
We presently estimate that projected costs to implement our Year 2000
program, primarily for hardware, will approximate $1.3 million. The projected
total costs for the upgrading of our information systems, including the Year
2000 program, are estimated to range from $2.25 million to $2.75 million. The
projected costs for converting NovaCare O&P's information systems is estimated
to be approximately $2.5 million.
We will continue to monitor and evaluate the impact of the Year 2000 issue
on its operations. Until it is into the final testing part of our program, the
risks from potential Year 2000 failures cannot be fully assessed. Due to this
situation, we cannot now begin final contingency plans. These plans will be
developed as potential Year 2000 failures are identified in the final testing
stages. The agreement providing for our acquisition of NovaCare O&P required
NovaCare O&P to be Year 2000 compliant as of July 1, 1999, and NovaCare Inc.,
the former parent of NovaCare O&P, is required to substantially indemnify us
to the extent of any non-compliance.
Other
Inflation has not had a significant effect on our operations, as increased
costs to us generally has been offset by increased prices of products and
services sold.
We primarily provide services and customized devices throughout the United
States and are reimbursed, in large part, by the patients' third-party
insurers or governmentally funded health-insurance programs. The ability of
our debtors to meet their obligations is principally dependent upon the
financial stability of the insurers of our patients and future legislation and
regulatory actions.
53
<PAGE>
NOVACARE O&P MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Overview
The significant growth in NovaCare O&P's net revenues has resulted from an
aggressive program of acquiring O&P patient-care centers. At June 30, 1999,
NovaCare O&P operated 395 patient-care centers and six central fabrication
operations.
Expansion
The following table sets forth the number of patient-care centers, certified
practitioners and states in which NovaCare O&P operated at the end of each of
the past three fiscal years in the period ended June 30, 1999.
<TABLE>
<CAPTION>
As of
--------------
June 30,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Number of patient-care centers............................. 274 378 395
Number of certified practitioners.......................... 398 628 621
Number of states........................................... 34 36 37
</TABLE>
After a period of limited acquisitions, NovaCare O&P's acquisition program
was resumed in fiscal year 1997. The significant increase in the number of
patient-care centers and certified practitioners in fiscal years 1997 and 1998
was attributable primarily to NovaCare O&P's 33 and 42 businesses acquired
during such fiscal years. There were no acquisitions during the year ended
June 30, 1999.
Recent Acquisitions
During fiscal year 1998, NovaCare O&P acquired 42 O&P companies for an
aggregate consideration, excluding potential earn-out provisions, of $78.2
million. These O&P companies operated 127 patient-care centers. During the
fiscal year ended June 30, 1999, NovaCare made no acquisitions.
Same-Market Revenue Growth
The following table sets forth, for the periods indicated, the percent
increase in net revenues resulting from same-market revenue growth, which
represents the increase in current period net revenue over the prior period,
adjusted to include historical net revenues of acquired companies for the
period prior to acquisition.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
-------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
Percent increase (decrease) in same-
market revenue......................... 2.8% 5.5% (1.0)%
</TABLE>
In addition to acquisitions of new patient-care centers, the growth
(decline) in NovaCare O&P's net revenues is attributable to a lesser degree to
increases (decreases) in net revenues from existing patient-care centers.
54
<PAGE>
Payor Mix
NovaCare O&P receives payments for O&P services rendered to patients from
private insurers, HMOs, PPOs, the patients directly and governmental payers,
including Medicare, Medicaid and the VA. The sources and amounts of NovaCare
O&P's net revenues derived from its patient-care centers are determined by a
number of factors, including the number and nature of O&P services rendered
and the rates of reimbursement among payor categories. Generally, private
insurance and other third-party reimbursement levels are greater than managed
care (HMO/PPO), Medicare, Medicaid and VA reimbursement levels. Changes in
NovaCare O&P's payor mix can affect its profitability. The following table
sets forth the percent contributed to net sales in each of the following
periods by the principal categories of payors:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Payor mix:
Private pay and other........................ 68.2% 64.1% 61.8%
Medicare/Medicaid/VA......................... 31.8 35.9 38.2
-------- -------- --------
100.0% 100.0% 100.0%
======== ======== ========
</TABLE>
EBITDA and Operating Margin Trends
NovaCare O&P's EBITDA and operating margins have fluctuated over the past
three fiscal years. The decrease from fiscal year 1997 to fiscal year 1998
resulted from increased selling, general and administrative expenses in fiscal
year 1998 related to additional support for acquisitions and clinical programs
and an increase in material costs. The decrease from fiscal year 1998 to
fiscal year 1999 resulted from a significant book-to-physical adjustment
recognized in the fourth quarter of fiscal year 1999 which was required
because NovaCare O&P's inventory amounts during the first three quarters of
the fiscal year were determined on the basis of cost of services estimates
that did not fully reflect actual costs as determined by valuation of the
subsequent physical inventory, reflecting the increased pressure by managed
care entities for additional discounting and increased component purchase
costs, as well as increased selling, general and administrative expenses
allocated from a related party, and an increase in the provision for
uncollectable accounts receivable. The following sets forth NovaCare O&P's
EBITDA and operating margins during each of the past three fiscal years.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30,
------------------------------
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
EBITDA margin............................... 15.9% 14.4% 5.8%
Operating margin............................ 11.7% 10.2% 1.7%
</TABLE>
- --------
55
<PAGE>
Results of Operations
The following table sets forth for the periods indicated certain items of
NovaCare O&P's statements of operations as a percentage of NovaCare O&P's net
revenues:
<TABLE>
<CAPTION>
Fiscal
Year Ended June 30,
----------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net Revenues.......................................... 100.0% 100.0% 100.0%
Cost of Services...................................... 74.6 75.0 80.1
Gross Profit.......................................... 25.4 25.0 19.9
Selling, general and administrative................... 5.6 6.5 5.7
Selling, general and administrative allocated from
related party........................................ 3.8 3.8 6.1
Provision for uncollectible accounts.................. 1.8 1.9 3.7
Amortization of excess cost over net assets acquired.. 2.5 2.6 2.7
Income from operations................................ 11.7 10.2 1.7
Interest expense - related party...................... 2.7 3.0 2.1
Interest expense, net - third party................... 1.2 1.3 1.0
Royalty expense - related party....................... 5.6 6.0 4.5
Minority interest..................................... 0.1 0.1 0.1
Income (loss) before taxes............................ 2.1 (0.2) (6.0)
Income tax (benefit) provision........................ 1.5 0.9 (1.2)
Net income (loss)..................................... 0.6 (1.1) (4.8)
</TABLE>
Fiscal Years Ended June 30, 1999 and 1998
Net Revenues. Net revenues for the fiscal year ended June 30, 1999 were
approximately $278.8 million, an increase of approximately $27.1 million, or
10.8%, over net revenues of approximately $251.7 million for the fiscal year
ended June 30, 1998. The increase was principally a result of the inclusion of
a full year of the fiscal year 1998 acquisitions.
Gross Profit. Gross profit for the fiscal year ended June 30, 1999 was
approximately $55.4 million, a decrease of approximately $7.6 million, or
12.1%, from approximately $63.0 million in the prior fiscal year. Gross profit
as a percent of net revenues decreased from 25.0% in fiscal year 1998 to 19.9%
in fiscal year 1999, primarily as a result of the need to record a fourth
quarter book-to-physical inventory adjustment of approximately $13.5 million
in the fiscal year ended June 30, 1999, reducing inventory and increasing cost
of services. Associated with the need to record such an inventory adjustment
is increased pressure by managed care entities for additional discounting as
those entities continue to rationalize their cost structure, as well as
increased component purchase costs. Book inventory amounts during the year
were determined based on cost of services estimates that did not fully reflect
actual costs as determined by a valuation of the year-end physical inventory.
Selling, General, and Administrative. Selling, general and administrative
expenses for the fiscal year ended June 30, 1999 amounted to approximately
$16.0 million, a decrease of approximately $.4 million, or 2.4%, compared to
$16.4 million for the fiscal year June 30, 1998. The decrease in selling,
general and administrative expenses was primarily a result of the elimination
of certain functions and costs previously shared with the Parent. Selling,
general, and administrative expenses as a percent of net revenues decreased to
5.7% for fiscal year ended June 30, 1999 from 6.5% for the fiscal year ended
June 30, 1998.
Selling, General, and Administrative Allocated from Related Party. Selling,
general and administrative expenses allocated from related party for the
fiscal year ended June 30, 1999 amounted to approximately $17.0 million, an
increase of approximately $7.4 million, or 76.8%, over approximately $9.6
million in the prior fiscal year. Selling, general and administrative expenses
allocated from related party as a percent of net revenues increased to 6.1%
from 3.8%. For services received, NovaCare O&P is charged a fee that includes
an allowance for selling, general and administrative expenses. The increase is
principally due to implementation of a revised agreement with NovaCare
Employee Services ("NCES"). As of July 1, 1999, Hanger Orthopedic Group
entered into a new contract with NCES to provide payroll and benefit
management administration services relating to NovaCare O&P employees. The
agreement is for one year and provides for a fee that is less than that
charged prior to July 1, 1999.
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Provision for Uncollectible Accounts. The provision for uncollectible
accounts increased to $10.3 million for the fiscal year ended June 30, 1999,
an increase of $5.5 million, or 113.5%, over $4.8 million the prior fiscal
year. The increase was related to the increase in net revenues and an increase
in the age of receivables. The provision for uncollectible accounts as a
percent of net revenues increased to 3.7% for fiscal year ended June 30, 1999
from 1.9% for the fiscal year ended June 30, 1998.
Amortization of Excess Cost of Net Assets Acquired. Amortization of excess
cost of net assets acquired amounted to approximately $7.4 million, an
increase of $.8 million, or 12.6%, compared to $6.6 million for the fiscal
year ended June 30, 1998. The increase was the result of a full fiscal year of
amortization on 1998 acquisitions. Amortization of excess cost of net assets
acquired as a percent of net revenues increased to 2.7% for fiscal year ended
June 30, 1999 from 2.6% for the fiscal year ended June 30, 1998.
Operating Income. As a result of the above, operating income for the fiscal
year ended June 30, 1999 totaled approximately $4.7 million, a decrease of
$20.9 million or 81.8%, over $25.6 million in the prior fiscal year. Income
from operations as a percentage of net revenues decreased to 1.7% for the
fiscal year ended June 30, 1999 from 10.2% for the fiscal year ended June 30,
1998.
Interest Expense - Related Party. Interest expense-related party for the
fiscal year ended June 30, 1999 was approximately $5.9 million, a decrease of
approximately $1.6 million, or 21.0%, from the approximately $7.5 million
incurred during the fiscal year ended June 30, 1998. The increase is primarily
attributable to a full fiscal year effect on borrowings from NovaCare O&P's
parent to finance acquisitions. Interest expense - related party as a percent
of net revenues decreased to 2.1% in the fiscal year ended June 30, 1999 from
3.0% for the fiscal year ended June 30, 1998.
Interest Expense - Third Parties. Interest expense for fiscal year ended
1999 was approximately $2.8 million, a decrease of approximately $.4 million,
or 13.2%, from the approximately $3.2 million of interest expenses incurred
during fiscal year 1998. Interest expense as a percent of net sales decreased
to 1.0% in the fiscal year 1999 from 1.3% for the fiscal year 1988. The
decrease in interest expense was attributed principally to reduced debt
resulting from principal payments made during fiscal year 1999.
Royalty Expense - Related Party. Royalty expense-related party for the
fiscal year ended June 30, 1999 was approximately $12.6 million, a decrease of
approximately $2.7 million or 17.5%, from the approximately $15.2 incurred
during the fiscal year ended June 30, 1998. As of April 1, 1999, the trademark
agreement was terminated and NovaCare O&P was no longer charged a royalty fee,
causing the decrease. Royalty expense-related party as a percent of net
revenues decreased to 4.5% in the fiscal year ended June 30, 1999 from 6.1%
for the fiscal year ended June 30, 1998.
Income Taxes. NovaCare O&P's effective tax rate was 20.21% in for the fiscal
year ended June 30, 1999 versus 507.9% for the fiscal year ended June 30,
1998. The change is a result of a larger loss for the fiscal year ended June
30, 1999 as compared to the prior fiscal year.
Net (Loss). As a result of the above, NovaCare O&P recorded a net loss of
$13.4 million for the fiscal year ended June 30, 1999 compared to net loss of
$2.8 million for the prior fiscal year.
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<PAGE>
Fiscal Years Ended June 30, 1998 and 1997
Net Revenues. Net revenues for fiscal year 1998 were approximately $251.7
million, an increase of approximately $90.7 million, or 56.3%, over net
revenues of approximately $161.1 million for fiscal year 1997. The increase
was a result principally of: (i) acquisitions consummated during fiscal year
1998 and the full year effect of fiscal year 1997 acquisitions and (ii) a 5.5%
increase in net revenues attributable to same market growth.
Gross Profit. Gross profit in fiscal year 1998 was approximately $63.0
million, an increase of approximately $22.1 million or 53.9%, over
approximately $41.0 million in the prior year. Gross profit as a percent of
net revenues decreased from 25.4% in fiscal year 1997 to 25.0% in fiscal year
1998, primarily due to an increase in material costs which was not reimbursed.
Selling, General and Administrative. Selling, general and administrative
expenses in fiscal year 1998 amounted to approximately $16.4 million, an
increase of approximately $7.2 million, or 78.7%, compared to approximately
$9.2 million in fiscal year 1997. The increase in selling, general and
administrative expenses was a result principally of support for acquisitions
and additional clinical programs. Selling, general and administrative expenses
as a percent of net revenues increased to 6.5% in fiscal year 1998 from 5.6%
in fiscal year 1997.
Selling, General and Administrative Allocated from Related Party. Selling,
general and administrative allocated from related party in fiscal year 1998
amounted to approximately $9.6 million, an increase of approximately $3.5
million, or 57.7%, compared to approximately $6.1 million in fiscal year 1997.
Selling, general and administrative allocated from related party as a percent
of net revenues remained constant from fiscal year 1997 to fiscal year 1998 at
3.8%.
Provision for Uncollectible Accounts. The provision for uncollectible
accounts increased to $4.8 million in 1998, an increase of $2.0 million, or
70.4%, over $2.8 million the prior fiscal year. The increase was related
principally to the increase in net revenues. The provision for uncollectible
accounts as a percent of net revenues increased to 1.9% in fiscal year 1998
from 1.8% in fiscal year 1997.
Amortization of Excess Cost of Net Assets Acquired. Amortization of excess
cost of net assets acquired amounted to approximately $6.6 million in fiscal
year 1998, an increase of approximately $2.5 million, or 62.5%, compared to
approximately $4.1 million in fiscal year 1997. The increase is the result of
the fiscal year 1998 acquisitions and a full year of amortization of fiscal
year 1997 acquisitions. Amortization of excess cost of net assets acquired as
a percent of net revenues increased to 2.6% in fiscal year 1998 from 2.5% in
fiscal year 1997.
Operating Income. Principally as a result of the above, operating income in
fiscal year 1998 totaled approximately $25.6 million, an increase of $6.8
million, or 36.2%, over $18.8 million in the prior fiscal year. Income from
operations as a percent of net revenues decreased from 11.7% in fiscal year
1997 to 10.2% in fiscal year 1998.
Interest Expense--Related Party. Interest expense--related party for fiscal
year 1998 was approximately $7.5 million, an increase of approximately $3.2
million, or 73.7%, from the approximately $4.3 million incurred during fiscal
year 1997. Interest expense--related party as a percent of net revenues
increased to 3.0% in fiscal year 1998 from 2.7% in fiscal year 1997. The
increase is primarily attributable to increased borrowings from NovaCare O &
P's parent to finance acquisitions.
Interest Expense--Third Parties. Interest expense for fiscal year 1998 was
approximately $3.2 million, an increase of approximately $1.3 million, or
69.6%, from the approximately $1.9 million of interest expense incurred during
fiscal year 1997. Interest expense as a percent of net sales increased to 1.3%
in fiscal year 1998 from 1.2% for fiscal year 1997. The increase in interest
expense was primarily attributable to the full year effect of debt related to
fiscal year 1997 acquisitions and debt related to acquisitions made during
fiscal year 1998.
Royalty Expense--Related Party. Royalty expense--related party for fiscal
year 1998 was approximately $15.2 million, an increase of approximately $6.1
million, or 67.4%, from the approximately $9.1 million incurred during fiscal
year 1997. The increase is the result of increased net revenue on which
royalty expense was charged. Royalty expense--related party increased to 6.0%
of net revenues in fiscal year 1998 from 5.6% in fiscal year 1997.
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Income Taxes. NovaCare O&P's effective tax rate was 507.9% in fiscal year
1998 versus 69.9% in fiscal year 1997. The change is a result of the impact of
the amortization of the excess costs over net assets acquired.
Net Income (Loss). As a result of the above, NovaCare O&P recorded a net
loss of $(2.8) million for fiscal year 1998, compared to net income of $1.0
million for the prior fiscal year.
New Accounting Standards
In June 1998, the Financial Accounting Standard Board issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities", which is effective for fiscal years
beginning after June 15, 2000. SFAS 133 requires that an entity recognize all
derivative instruments as either assets or liabilities on its balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether
a derivative is designated as part of a hedge transaction, and, if it is, the
type of hedge transaction. We will adopt SFAS 133 by the first quarter of
2001. Due to our limited use of derivative instruments, SFAS 133 is not
expected to have a material effect on our financial position or results of
operations.
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BUSINESS
Overview
We develop, acquire and operate orthotic and prosthetic patient-care
centers. Our O&P centers are staffed by orthotists and prosthetists, who
design, fabricate, fit and supervise the use of external musculoskeletal
support devices and artificial limbs. As the country's only vertically
integrated O&P company, we also manufacture custom-made and prefabricated O&P
devices and are the country's largest distributor of O&P components and
finished O&P patient-care products.
Our products primarily are technologically advanced, custom devices designed
for adding functionality to patients' lives. We serve a clearly identified
patient need and provide tangible benefits to patients. Our industry is
characterized by stable, recurring revenues resulting from the need for
regular, periodic replacement or modification of O&P devices.
On July 1, 1999, we acquired NovaCare O&P. As a result of that acquisition,
we are the leading provider of O&P patient-care services in the United States.
At September 30, 1999, we had 630 patient-care centers and approximately 977
practitioners in 42 states and the District of Columbia. For the twelve months
ended June 30, 1999, we had total pro forma net sales of $490.4 million,
EBITDA of $61.3 million and Adjusted EBITDA of $69.4 million.
In November 1996, we acquired J.E. Hanger, Inc. of Georgia, an O&P provider
with 96 patient-care centers in 15 states and the largest O&P product
distribution business in the United States at that time. We successfully
integrated those operations, essentially doubling our number of patient-care
centers and certified practitioners and significantly expanding our
distribution capabilities. NovaCare O&P also has been an active acquirer of
O&P businesses, having acquired over 90 O&P businesses since 1992.
Our acquisition of NovaCare O&P again more than doubled our number of
patient-care centers and certified O&P practitioners. The acquisition provided
national scope to our operations, expanding coverage into 11 additional
states, including Illinois, Missouri, Oklahoma and Iowa, and increasing our
presence in key existing markets, including California, New York, Arizona,
Florida, Texas and Pennsylvania.
We have identified cost savings relating to our acquisition of NovaCare O&P
that we believe will enhance EBITDA by approximately $8.1 million annually. We
also expect to achieve additional benefits from operational efficiencies and
economies of scale, as well as from the marketing and cross-selling of
innovative products of Hanger Orthopedic Group and NovaCare O&P at our
combined patient-care centers.
Competitive Strengths
We believe that the following competitive strengths will enable us to
continue to increase revenues, EBITDA and market share by (i) providing "one-
stop shopping" to large, national payor organizations and other customers,
(ii) maximizing operating efficiencies and economies of scale, and (iii)
maintaining a superior platform for strategic acquisitions:
Leading Market Position in a Fragmented Industry. We are the nation's
largest provider of O&P services, with approximately 20% market share, 977 O&P
practitioners and 630 O&P patient-care centers in 42 states and the District
of Columbia.
Vertically Integrated Provider. We are the only vertically integrated
provider of O&P services in the United States. Along with our patient-care
services operations, we also manufacture custom-made and
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<PAGE>
prefabricated O&P devices. Additionally, we are the nation's largest
distributor of O&P components and finished O&P patient-care products, which
allows us to reduce the materials costs of our patient-care centers and offer
prompt delivery of components and products.
Balanced Business Mix. Our business is fairly evenly distributed in terms of
both service mix and payor mix. For the twelve months ended June 30, 1999, our
pro forma consolidated orthotics, prosthetics, manufacturing and distribution
revenues made up approximately 39.0%, 52.2%, 2.2% and 6.6%, respectively, of
consolidated net sales. For the same period, our combined payor mix was
approximately 56.8% private pay, 31.7% Medicare, 7.8% Medicaid and 3.7% U.S.
Veterans Administration.
Innovative Products and Strong Brand Equity. We have earned a strong
reputation within the O&P industry for the development and use of innovative
technology. For example, our patented Charleston Bending Brace, Seattle Foot,
Ortho-Mold, Lenox Hill Knee Brace and prosthetic Sabolich Socket have
increased patient comfort and capability, and can significantly shorten the
rehabilitation process. The quality of our products and the success of our
technological advances have generated broad media coverage, enhancing our
brand equity among payors, patients and referring physicians.
Ability to Successfully Integrate Acquisitions. Prior to our acquisition of
NovaCare O&P, we had acquired and integrated over 75 O&P businesses since
1986, and NovaCare O&P had acquired and integrated over 90 O&P businesses
since 1992. We have demonstrated an ability to improve the operating
performance of integrated businesses, resulting in significantly increased
"same-store" net sales and operating margins. Hanger Orthopedic Group's net
sales grew 39% per year from 1994 through 1998, while EBITDA grew 54% per year
during the same period.
Experienced and Committed Management Team. We have a senior management team
with extensive experience in the O&P business. Ivan R. Sabel, our Chairman of
the Board, President and Chief Executive Officer, is a certified orthotist and
prosthetist, has worked in the O&P industry for 32 years, including 20 years
as a practitioner. He has led our senior management team since 1995 and has
been a member of that team since 1986. We will continue to provide senior
management and O&P practitioners of Hanger Orthopedic Group with performance-
based bonuses, stock options and opportunities for corporate advancement that
will give them a significant financial interest in our performance.
Business Strategy
Our objective is to build on our position as a full-service, nationwide O&P
company focused on the operation of O&P patient-care centers and the
manufacture and distribution of O&P products. The key elements of our strategy
for achieving this objective are to:
Implement Acquisition-Related Synergies. We believe we can reduce costs and
increase net sales by implementing Acquisition-related synergies. We expect
that our operating margins will improve due to anticipated reductions in
administrative and personnel costs and have identified approximately $8.1
million of annual cost savings relating to our acquisition of NovaCare O&P. We
also expect to reduce materials costs at NovaCare O&P's patient-care centers
due to increased purchases from Hanger Orthopedic Group. We will attempt to
increase "same-store" net sales by cross-selling Hanger Orthopedic Group and
NovaCare O&P products at our patient-care centers and using our expanded
geographic coverage to exploit national contracting opportunities. Our
operating results and financial condition should also benefit from enhanced
capital availability and other efficiencies resulting from our increased size.
Increase Number of O&P Managed Care Contracts. We intend to continue to
pursue O&P managed care contracts to increase market share and "same-store"
net sales growth. A national network of O&P patient-care centers will enable
us to negotiate for contracts with any local, regional or national third-party
payor seeking a single-source O&P provider.
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Expand our O&P Manufacturing and Distribution Operations. Expansion of our
patient-care division, including as a result of the acquisition of NovaCare
O&P, will increase captive demand for our manufacturing and distribution
business. As the volume of our distribution increases, it will allow us to
achieve volume discounts in the cost of our distributed products. Our
manufacturing division should also benefit from increased net sales at the
distribution division by providing proprietary products to meet the increased
demand. Our manufacturing efforts will focus on the acquisition and/or
development of proprietary, patented products, such as our Lenox Hill knee
brace, Charleston Bending Brace, Seattle Foot, Ortho-Mold braces and
prosthetic Sabolich Socket.
Acquire and Integrate O&P Practices in Targeted Geographical Areas Across
the United States. Our expansion program is focused on building on our
position as a national O&P patient-care network. When identifying patient-care
centers for acquisition, we seek to fill gaps strategically in our existing
geographic coverage. Typically, acquired practitioners sign multi-year non-
compete agreements, receive approximately 50% of acquisition consideration in
multi-year seller notes and can earn performance-based stock options and
bonuses.
Develop New O&P Patient-Care Centers in Existing Markets. In addition to
acquiring patient-care centers, we intend to open new patient-care centers in
existing markets. We plan to pursue this strategy by opening satellite centers
in areas where a strong demand for O&P services has been identified. In
opening satellite patient-care centers, we minimize up-front investment by
utilizing professionals from a nearby existing center on a part-time basis to
test the viability of a full-time practice.
Expand and Improve Operations at Existing and Acquired Patient-Care
Centers. As we continue to add patient-care centers, we will be able to
improve margins by spreading administrative fixed costs and capital
expenditures for state-of-the-art equipment such as CAD/CAM systems. We can
also enhance sales by using brand-based marketing programs that are generally
not available to practitioners in smaller, independent practices.
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Patient-Care Centers and Facilities
As of September 30, 1999, we operated a total of 630 patient-care centers,
six distribution facilities and two manufacturing facilities, substantially
all of which are leased, as detailed in the following table:
<TABLE>
<CAPTION>
Patient-
Care Distribution Manufacturing
Jurisdiction Centers Facilities Facilities
------------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Alabama.......................... 14 - -
Arizona.......................... 18 - -
Arkansas......................... 4 - -
California....................... 64 - -
Colorado......................... 9 - -
Connecticut...................... 17 - -
Delaware......................... 2 - -
District of Columbia............. 2 - -
Florida.......................... 47 1 1
Georgia.......................... 26 1 -
Illinois......................... 26 1 -
Indiana.......................... 12 - -
Iowa............................. 11 - -
Kansas........................... 13 - -
Kentucky......................... 10 - -
Louisiana........................ 9 - -
Maryland......................... 8 1 -
Massachusetts.................... 8 - -
Michigan......................... 8 - -
Minnesota........................ 10 - -
Mississippi...................... 9 - -
Missouri......................... 18 - -
Montana.......................... 4 - -
Nebraska......................... 10 1 -
Nevada........................... 5 - -
New Hampshire.................... 4 - -
New Jersey....................... 13 - -
New Mexico....................... 13 - -
New York......................... 36 - -
North Carolina................... 15 - -
Ohio............................. 27 - -
Oklahoma......................... 14 - -
Oregon........................... 9 - -
Pennsylvania..................... 38 - -
South Carolina................... 12 - -
South Dakota..................... 2 - -
Tennessee........................ 18 - -
Texas............................ 25 1 -
Virginia......................... 12 - -
West Virginia.................... 13 - -
Washington....................... 8 - 1
Wisconsin........................ 5 - -
Wyoming.......................... 2 - -
--- --- ---
TOTAL.......................... 630 6 2
=== === ===
</TABLE>
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<PAGE>
Industry Background
Orthotics is the design, fabrication, fitting and supervised use of custom-
made braces and other devices that provide external support to treat
musculoskeletal disorders. Musculoskeletal disorders are ailments of the back,
extremities or joints caused by traumatic injuries, chronic conditions,
diseases, congenital disorders or injuries resulting from sports or other
activities. Prosthetics is the design, fabrication and fitting of custom-made
artificial limbs for patients who have lost limbs as a result of traumatic
injuries, vascular diseases, diabetes, cancer or congenital disorders.
Care of O&P patients is part of a continuum of rehabilitation services from
diagnosis to treatment and prevention of future injury. This continuum
involves the integration of several medical disciplines that begins with the
attending physician's diagnosis. Once a course of treatment is determined, the
physician, generally an orthopedic surgeon, vascular surgeon or physiatrist,
refers a patient to an O&P patient-care service provider for treatment. An O&P
practitioner then consults with both the referring physician and the patient
to formulate the prescription for and design of, an orthotic or prosthetic
device to meet the patient's needs.
We estimate that the patient-care O&P industry in the United States
represented approximately $1.9 billion in sales in 1997. Key trends expected
to increase demand for orthopedic rehabilitation services include the
following:
Growing Elderly Population. The growth rate of the over-65 age group is
nearly triple that of the under-65 age group. With broader medical
insurance coverage, increasing disposable income, longer life expectancy,
greater mobility and improved technology and devices, the elderly are
expected to seek orthopedic rehabilitation services more often.
Cost-Effective Reduction in Hospitalization. As public and private payors
encourage reduced hospital admissions and reduced length of stay, out-
patient rehabilitation is in greater demand. O&P services and devices have
enabled patients to become ambulatory more quickly after receiving medical
treatment in the hospital. We believe that significant cost savings can be
achieved through the early use of O&P services. The provision of O&P
services in many cases reduces the need for more expensive treatments, thus
representing a cost savings to the third-party payor.
Growing Physical Health Consciousness. There is a growing emphasis on
physical fitness, leisure sports and conditioning, such as running and
aerobics, which has led to increased injuries requiring orthopedic
rehabilitative services and products. In addition, as the current middle-
age population ages, it brings its more active life-style and accompanying
emphasis on physical fitness to the over-65 age group. These trends are
evidenced by the increasing demand for new devices which provide support
for injuries, prevent further or new injuries or enhance physical
performance.
Advancing Technology. The range and effectiveness of treatment options
have increased in connection with the technological sophistication of O&P
devices. Advances in design technology and lighter, stronger and more
cosmetically acceptable materials have enabled the industry to produce new
O&P products, which provide greater comfort, protection and patient
acceptability. Therefore, treatment can be more effective and of shorter
duration, contributing to greater mobility and a more active lifestyle for
the patient. As a result of advancing technology, orthotic devices have
become more prevalent and visible in many sports, including skiing, running
and tennis.
Need for Replacement and Continuing Care. Because the useful life of most
custom fitted and fabricated O&P devices is approximately three to five
years, such devices need retrofitting and replacement. There is also an
attendant need for continuing patient-care services, which contributes to
the increasing demand for orthopedic rehabilitation.
Industry Consolidation
The O&P patient-care services market is highly fragmented and relatively
underpenetrated by multi-site operators. There are an estimated 3,300
certified prosthetists and/or orthotists and approximately 2,850 O&P patient-
care centers in the United States. We estimate that we account for
approximately 20% of total estimated
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O&P patient-care net sales. We do not believe that any other competitor has a
market share of more than 5% of total estimated O&P patient-care net sales. We
believe that the O&P industry will continue to consolidate as a result of a
variety of factors, including: (i) increased pressures from growth in managed
care; (ii) demonstrated benefits from economies of scale; and (iii) desire by
independent orthotists and prosthetists to focus more on patient care and less
on administration.
Increased Managed Care Penetration. The expanding geographical reach of the
large managed care organizations makes it increasingly important for them to
contract for their patient-care needs with counterparts who have large,
national operations. Managed care companies therefore prefer to contract with
a single provider for all their O&P patient-care services. As a result, small
independent O&P practices feel pressure to consolidate in order to access
managed care referrals.
Economies of Scale. A significant portion of the cost of O&P services is
attributable to the cost of materials used in orthoses and prostheses.
Achieving purchase discounts through group purchasing can increase
profitability at each patient-care center. In addition, economies of scale
provide O&P practices with access to additional capital and personnel which
can be used in growing their businesses.
Financial Liquidity for O&P Practices. The security of a large O&P network
is extremely appealing to small providers who desire to reduce the financial
and personal liabilities of their businesses. Through consolidation,
individual providers are able to realize some financial liquidity while
enabling them to continue to provide patient-care services as employees of a
national O&P services provider.
Patient-Care Center Administration
We provide all senior management, accounting, accounts payable, payroll,
sales and marketing, human resources and management information systems
services for our patient-care centers. By providing these services on a
centralized basis, we are able to provide such services to our patient-care
centers and practitioners more efficiently and cost-effectively than if such
services had to be generated at each center. The centralization of these
services also permits our certified practitioners to allocate a greater
portion of their time to patient-care activities by reducing the
administrative responsibilities of operating the patient-care centers. Billing
and collections are handled on a decentralized basis, which we believe
enhances collectibility.
We also develop and implement programs designed to enhance the efficiency of
our clinical practices. Such programs include: (i) sales and marketing
initiatives to attract new-patient referrals by establishing relationships
with physicians, therapists, employers, managed care organizations, hospitals,
rehabilitation centers, out-patient clinics and insurance companies; (ii)
professional management and information systems to improve efficiencies of
administrative and operational functions; (iii) professional-education
programs for practitioners emphasizing new developments in the increasingly
sophisticated field of O&P clinical therapy; (iv) the regional centralization
of fabrication and purchasing activities, which provides overnight access to
component parts and products at prices that are typically 25% lower than
traditional procurement methods; and (v) access to expensive, state-of-the-art
equipment that is financially more difficult for smaller, independent
facilities to obtain.
We believe that the application of sales and marketing techniques is a key
element of our operational strategy. Due primarily to the fragmented nature of
the industry, the success of an O&P patient-care center has been largely a
function of its local reputation for quality of care, responsiveness and
length of service in the community. Individual practitioners have relied
almost exclusively on referrals from local physicians or physical therapists
and typically have not used marketing techniques.
Patient-Care Services
At September 30, 1999, we provided O&P patient-care services through 630 O&P
patient-care centers and approximately 977 patient-care practitioners in 42
states and the District of Columbia. The majority of our practitioners are
certified practitioners or candidates for formal certification by the O&P
industry certifying boards. Each of our patient-care centers is closely
supervised by one or more certified practitioners. The balance of our patient-
care practitioners are highly trained technical personnel who assist in the
provision of services to patients and fabricate various O&P devices.
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A patient in need of O&P patient-care services is referred to one of our
patient-care centers upon a determination by the attending physician of a
course of treatment. One of our practitioners then consults with both the
referring physician and the patient to formulate the prescription for, and
design of, an orthotic or prosthetic device to meet the patient's needs.
The fitting process involves several stages in order to successfully achieve
desired functional and cosmetic results. The practitioner creates a cast and
takes detailed measurements of the patient to ensure an anatomically correct
fit. All of the prosthetic devices fit by our practitioners are custom
designed and fabricated by skilled practitioners who can balance fit, support
and comfort. Of the orthotic devices provided by us, a majority are custom
designed, fabricated and fit and the balance is prefabricated but custom fit.
Custom devices are fabricated by our skilled technicians using the castings,
measurements and designs made by the practitioner. Technicians use advanced
materials and technologies to fabricate a custom device under quality
assurance guidelines. After final adjustments to the device by the
practitioner, the patient is instructed in the use, care and maintenance of
the device. A program of scheduled follow-up and maintenance visits is used to
provide post-fitting treatment, including adjustments or replacements as the
patient's physical condition and lifestyle change.
A substantial portion of our O&P services involves treatment of a patient in
a non-hospital setting, such as one of our patient-care centers, a physician's
office, an out-patient clinic or other facility. In addition, O&P services are
increasingly rendered to patients in hospitals, nursing homes, rehabilitation
centers and other alternate-site health care facilities. In a hospital
setting, the practitioner works with a physician to provide either orthotic
devices or temporary prosthetic devices that are later replaced by permanent
prostheses.
We also operate in-patient O&P patient-care centers at The Rusk Institute of
Rehabilitation Medicine at the New York University Medical Center in New York,
New York, the Harmarville Rehabilitation Center in Pittsburgh, Pennsylvania
and the Newington Children's Hospital in Newington, Connecticut.
OPNET
In 1995, we formed OPNET, a proprietary national preferred provider O&P
referral network serving managed care organizations, including HMOs and PPOs.
Through this network, managed care organizations can contract for O&P services
with any O&P patient-care center in the OPNET network. As of July 30, 1999,
OPNET had a network of 793 patient-care centers (653 of which are owned and
operated by us) serving 414 managed care plans. We intend to continue OPNET as
a vehicle to achieve complete nationwide O&P patient-care coverage, to
increase market share and to increase "same-store" sales growth. A national
network will enable OPNET to negotiate for contracts with any local, regional
or national third-party payor seeking a single-source O&P provider.
Manufacturing and Distribution
In addition to on-site fabrication of custom O&P devices incidental to the
services rendered at its O&P patient-care centers, we manufacture O&P
components and finished patient-care products for both the O&P industry and
our own patient-care centers. We manufacture components and finished products
under various name brands such as Lenox Hill, CASH Brace, Ortho-Mold,
Charleston Bending Brace, DOBI-Symplex, Seattle Limb Systems and Sea Fab. The
principal products manufactured are prefabricated and custom-made spinal
orthoses as well as custom-made and off-the-shelf derotation knee braces. We
distribute O&P components and finished patient-care products to the O&P
industry and to our own patient-care practices. We inventory over 20,000
items, a majority of which are manufactured by other companies and are
distributed by us. During 1998, we acquired Model and Instrument Development
Corporation, a manufacturing facility located in Seattle, Washington which
operated under the trade name of Seattle Limb Systems and manufactured
prosthetic and related equipment.
The Sabolich Socket is a patented design that presently is only available at
our patient-care centers. A socket is the connecting point between a
prosthesis and the body of the patient. The Sabolich Socket is a highly
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contoured flexible socket which has revolutionized both above-knee and below-
knee prosthetics. It features anatomically designed channels to accommodate
various muscle, bone, tendon, vascular and nerve areas. This unique approach
to socket design is generally accepted as superior to previous socket systems.
Our distribution capability allows our personnel faster access to the
products needed to fabricate devices for patients. This is accomplished at
competitive prices, as a result of either manufacturing by us or direct
purchases by us from other manufacturers. As a result of faster access to
products, the length of a patient's treatment in the hospital can be reduced,
thereby contributing to health care cost containment.
Marketing of our manufactured products and distribution services is
conducted on a national basis, primarily through approximately 36 sales
representatives, catalogues and exhibits at industry and medical meetings and
conventions. We direct specialized catalogues to segments of the health care
industry, such as orthopedic surgeons and physical and occupational
therapists. In addition, we direct our broad-based marketing to the O&P
industry and the home health care industry.
To provide timely custom fabrication and service to its patients, we employ
technical personnel and maintain laboratories at each of its patient-care
centers. We use advanced computer-aided design and computer-aided machinery
("CAD/CAM") technology to produce precise and uniform products. We have
several large, fully staffed central fabrication facilities to service its
patient-care centers. These strategically located facilities enable us to
fabricate those O&P products that are more easily produced in larger
quantities and in a more cost-effective manner, as well as serving as an
auxiliary production center for products normally fabricated at individual
patient-care centers.
We have earned a strong reputation within the O&P industry for the
development and use of innovative technology in our products which has
increased patient comfort and capability, and can significantly shorten the
rehabilitation process. The quality of our products and the success of our
technological advances have generated broad media coverage, enhancing our
brand equity among payors, patients and referring physicians.
As the only vertically integrated provider of O&P services in the United
States, we benefit from our ability to market and deliver O&P products through
its patient-care centers. As the patient-care division expands as a result of
our acquisition of NovaCare O&P, as well as continued future expansion through
the opening of additional satellite offices and additional future
acquisitions, it will heighten captive demand for our distribution business.
As the nation's largest distributor of O&P components and finished O&P
patient-care products, we will receive the profit margin associated with O&P
product manufacturing and distribution, reduce the materials cost of our
patient-care centers and offer prompt delivery of components and products. Our
manufacturing division should also benefit from increased net sales at the
distribution division by providing proprietary products to meet the increased
demand. Our manufacturing efforts will focus on the acquisition and/or
development of proprietary patented products, such as our Lenox Hill knee
brace, Charleston Bending Brace, Seattle Foot, Ortho-Mold braces and
prosthetic Sabolich Socket. Furthermore, proprietary patented products, which
were previously available only at the patient-care centers of either Hanger
Orthopedic Group or NovaCare O&P, will, as a result of our acquisition of
NovaCare O&P, be hereafter marketed and sold throughout our national network
of patient-care centers.
Research & Development
We will continue to engage actively in O&P product research and development
within our current cost parameters. Our manufacturing division currently
establishes an annual research and development budget in an amount equal to
less than ten percent of the net sales of the manufacturing division for the
prior year. This budgeted amount is then divided into two categories, with
approximately one-third of such amount being applied to improving existing
products manufactured by us and the remaining portion being applied to
research and development of new products. Improvements to existing products
are made through the use of newer and more
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advanced materials, as well as through requests by existing purchasers of
products who express their willingness to purchase a greater number of such
products if requested product improvements are implemented. Thus, improvements
to existing products are expected to increase sales of such products,
especially to those customers who requested the product improvements.
Research and development of new products begins with numerous meetings with
patient-care practitioners and sales personnel in the O&P industry to identify
new product needs. Research and development expenditures for new products are
divided between two categories, with a majority of such expenditures applied
to new products which have a high probability of successful sales with low
technical risk and small development effort to manufacture the product, and
with the remaining amount applied to new products which have higher technical
risk and a higher risk of failure, but with higher sales potential. Our
manufacturing division then reviews the best use of its budgeted funds and
technical resources necessary to develop and manufacture all new products in
determining which new products will proceed to a product development stage.
Budgets are then developed for each new product project and weekly reviews are
conducted of the progress, time and cost of each project throughout its
development process. The economic viability of each potential new product is
tested during the first half of the product development process, and we
thereafter continue to pursue the development of those new products that are
expected to generate profitable sales.
Acquisitions
From 1986 to June 1999, Hanger Orthopedic Group acquired over 75 businesses
in 31 states and the District of Columbia. From 1992 to June 1999, NovaCare
O&P acquired over 90 O&P businesses in 37 states. On July 1, 1999, Hanger
Orthopedic Group acquired NovaCare O&P.
We continue to be engaged in discussions with several O&P companies relating
to our possible acquisition of their patient-care centers. Our investigations
of these businesses are in the formative stages and no representations can be
made as to whether, when or on what terms such possible acquisitions may be
effected.
We consider both operating and financial factors in evaluating prospective
acquisitions. Operating factors include high standards of professionalism and
patient care, the presence of certified practitioners at each of its
facilities and reputation in the O&P industry. Financial factors include
earnings and cash flow history and the projected benefits of applying our
operating model to the acquired company's patient-care centers. In evaluating
acquisitions in geographic areas where we have an established presence, we
target businesses that complement our existing network of patient-care
centers. In geographic areas where we have not yet established a presence, we
generally focus on acquiring strong regional businesses which have multiple
patient-care centers and experienced practitioners.
Our acquisition strategy also includes the retention and support of the
existing management of the acquired company, typically through the use of
employment contracts containing non-compete provisions generally for a
duration of two years after the date of termination of employment, and non-
compete agreements from sellers and key personnel generally for a duration of
five years from the date of closing of the acquisition, and incentive
programs. In addition, acquisition consideration typically consists of 50%
cash and 50% unsecured, subordinated promissory notes. Upon the completion of
an acquisition, we will integrate the business of the acquired company by: (i)
transferring all administrative and financial management responsibilities to
our corporate headquarters; (ii) providing all new personnel with compensation
and benefit packages and training by our Human Resources Department; and (iii)
providing the management of the acquired company with instruction on our
latest marketing and sales techniques. Thereafter, we will provide the
management and staff of the newly acquired company with financial incentives
to induce greater financial performance, with such financial incentives
generally being in the form of bonuses based upon the profitability of the
office(s) in which such employees perform services and the grant of
performance-based stock options to purchase shares of our common stock.
New-Center Development
In addition to acquired patient-care centers, we develop new satellite
patient-care centers in existing markets with underserved demand for O&P
services. These satellite centers require less capital to develop than
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complete O&P centers since the satellite centers usually consist of only a
waiting room and patient fitting rooms, but without a fabrication laboratory
for creating O&P devices. An O&P practitioner will spend one or two days each
week in a satellite center treating those patients who find it inconvenient to
visit the O&P practitioner's primary center.
These satellite centers also tend to receive new patient referrals from
hospitals and physicians located near the newly developed center, driving new
patient growth and center revenue. While a partial revenue shift occurs from
the O&P practitioner's main center to the satellite center because the O&P
practitioner is now seeing some of the same patients out of a new center, the
additional patient volume in the satellite center increases the O&P
practitioner's overall revenue. If demand for O&P services at a satellite
center increases beyond the ability of the O&P practitioner to service in one
or two days a week, the Company will staff the satellite office on a full-time
basis. We estimate that the cost of opening a new satellite patient-care
center is approximately $100,000, which includes equipment, leasehold
improvements and working capital. We expect a new patient-care center to reach
profitability, as measured by EBITDA, within six months to one year of
opening. No assurance can be given that we will be successful in achieving
these start-up and profitability goals with regard to new patient-care
centers.
Reimbursement Sources
The principal reimbursement sources for our O&P services are: (i) private
payor/third-party insurer sources which consist of individuals, private
insurance companies, HMOs, PPOs, hospitals, vocational rehabilitation,
workers' compensation and similar sources; (ii) Medicare, which is a federally
funded health-insurance program providing health insurance coverage for
persons aged 65 or older and certain disabled persons; (iii) Medicaid, which
is a health-insurance program jointly funded by federal and state governments
providing health insurance coverage for certain persons in financial need,
regardless of age, and which may supplement Medicare benefits for financially
needy persons aged 65 or older; and (iv) the VA, with which Hanger has entered
into contracts to provide O&P services.
Medicare, Medicaid, the VA and certain state agencies, which accounted for
approximately 56.8%, 62.0% and 53.7% of our net sales in 1996, 1997 and 1998,
respectively (based on a sampling of approximately 75%, 75% and 41% of
patient-care centers in 1996, 1997 and 1998, respectively), have set maximum
reimbursement levels for payments for O&P services and products. The health
care policies and programs of these agencies have been subject to changes in
payment and methodologies during the past several years. There can be no
assurance that future changes will not reduce reimbursements for O&P services
and products from these sources.
We provide O&P services to eligible veterans pursuant to several contracts
with the VA. The VA establishes its reimbursement rates for itemized products
and services on a competitive bidding basis. Our contracts with the VA expire
in September 1999, with the option to renew for a one- or two-year period. The
contracts, awarded on a non-exclusive basis, establish the amount of
reimbursement to the eligible veteran if the veteran should choose to use our
products and services. Hanger Orthopedic Group has been awarded VA contracts
in the past and expects that it will obtain additional contracts when its
present agreements expire.
Competition
The competition among O&P patient-care centers is primarily for referrals
from physicians, therapists, employers, HMOs, PPOs, hospitals, rehabilitation
centers, out-patient clinics and insurance companies on both a local and
regional basis. We believe that distinguishing competitive factors in the O&P
industry are quality and timeliness of patient care and, to a lesser degree,
charges for services. We compete with others in the industry for trained
personnel. To date, however, we have been able to achieve our staffing needs
and have experienced a relatively low turnover rate of employees.
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Government Regulation
Certification and Licensure
Most states do not require separate licensure for O&P practitioners.
However, several states currently require O&P practitioners to be certified by
an organization such as the American Board for Certification.
The American Board for Certification conducts a certification program for
practitioners and an accreditation program for patient-care centers. The
minimum requirements for a certified practitioner are a college degree,
completion of an accredited academic program, one to four years of residency
at a patient-care center under the supervision of a certified practitioner and
successful completion of certain examinations. Minimum requirements for an
American Board for Certification-accredited patient-care center include the
presence of a certified practitioner and specific plant and equipment
requirements. While we endeavor to comply with all state licensure
requirements, no assurance can be given that we will be in compliance at all
times with these requirements.
We provide services under various contracts to federal agencies. These
contracts are subject to regulations governing federal contracts, including
the ability of the government to terminate for its convenience.
Medical Device Regulation
We manufacture and distribute products that are subject to regulation as
medical devices by the Food and Drug Administration ("FDA") under the Federal
Food, Drug, and Cosmetic Act and accompanying regulations. We believe that the
products we manufacture and/or distribute, including O&P accessories and
components, are exempt from FDA's regulations for premarket clearance or
approval requirements and from requirements relating to good manufacturing
practices: (except for certain recordkeeping and complaint handling
requirements). We are required to adhere to regulations regarding adverse
event reporting, and are subject to inspection by the FDA for compliance with
all applicable requirements. Labeling and promotional materials also are
subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Although we have never been challenged by FDA for
noncompliance with FDA requirements, no assurance can be given that we would
be found to be or to have been in compliance at all times. Noncompliance could
result in a variety of civil and/or criminal enforcement actions, which could
have a material adverse effect on our business and results of operations.
Fraud and Abuse
We are subject to various federal and state laws pertaining to health care
fraud and abuse, including antikickback laws, false claims laws, and physician
self-referral laws. Violations of these laws are punishable by criminal and/or
civil sanctions, including, in some instances, imprisonment and exclusion from
participation in federal health care programs, including Medicare, Medicaid,
VA health programs and CHAMPUS. We have never been challenged by a
governmental authority under any of these laws and believe that, based on this
history, our operations are in material compliance with such laws. However,
because of the far-reaching nature of these laws, there can be no assurance
that one or more of our practices would not be required to alter its practices
as a result, or that the occurrence of one or more of these events would not
result in a material adverse effect on our business and results of operations.
Antikickback Laws. Our operations are subject to federal and state
antikickback laws. The Federal Health Care Programs Antikickback Statute
(section 1128B(b) of the Social Security Act) prohibits persons or entities
from knowingly and willfully soliciting, offering, receiving, or paying any
remuneration in return for, or to induce, the referral of persons eligible for
benefits under a Federal Health Care Program (including Medicare, Medicaid,
the VA health programs and CHAMPUS), or the ordering, purchasing or leasing of
items or services that may be paid for, in whole or in part, by a Federal
Health Care Program. The statute may be violated when
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even one purpose (as opposed to a primary or sole purpose) of a payment is to
induce referrals or other business. The regulations create a small number of
"safe harbors." Practices which meet all the criteria of an applicable safe
harbor will not be deemed to violate the statute; practices that do not
satisfy all elements of a safe harbor do not necessarily violate the statute,
although such practices may be subject to scrutiny by enforcement agencies.
Several states also have antikickback laws which vary in scope and may apply
regardless of whether a Federal Health Care Program is involved.
These laws may apply to certain of our operations. We have instituted
various types of discount programs for individuals or entities that purchase
its products and services. We also maintain financial relationships with
individuals and entities who may: (i) purchase our products and services; (ii)
refer patients to our O&P patient-care centers; or (iii) receive referrals
through OPNET. These relationships include, among other things, lease
arrangements with hospitals and OPNET participation arrangements. Because some
of these arrangements may not satisfy all elements of an applicable safe
harbor, they could be subject to scrutiny and challenge under one or more such
laws.
False Claims Laws. We are also subject to federal and state laws prohibiting
individuals or entities from knowingly and willfully presenting, or causing to
be presented, claims for payment to third-party payors (including Medicare and
Medicaid) that are false or fraudulent or are for items or services not
provided as claimed. Each of our O&P patient-care centers is responsible for
preparation and submission of reimbursement claims to third-party payors for
items and services furnished to patients. In addition, our personnel may, in
some instances, provide advice on billing and reimbursement for our products
to purchasers. While we endeavors to ensure that our billing practices comply
with applicable laws, if claims submitted to payors are deemed to be false,
fraudulent, or for items or services not provided as claimed, we could face
liability for presenting or causing to be presented such claims.
Physician Self-Referral Laws. We are also subject to federal and state
physician self-referral laws. With certain exceptions, the federal
Medicare/Medicaid physician self-referral law (the "Stark" law, section 1877
of the Social Security Act) prohibits a physician from referring Medicare and
Medicaid beneficiaries to an entity for "designated health services"--
including prosthetics, orthotics and prosthetic devices and supplies--if the
physician has either an investment interest in the entity or a compensation
arrangement with the entity. An exception is recognized for referrals made to
a publicly traded entity in which the physician has an investment interest if
the entity's shares are traded on certain exchanges, including the New York
Stock Exchange, and had shareholders' equity exceeding $75.0 million for its
most recent fiscal year, or on average during the three previous fiscal years.
We meet these tests.
Antitrust
We are subject to federal and state antitrust laws which prohibit, among
other things, the establishment of ventures that result in certain
anticompetitive conduct. These laws have been applied to the establishment of
certain networks of otherwise competing health care provider. In September
1995, the Antitrust Division of the Department of Justice issued a business
review letter which concluded, in part, that the description of OPNET
voluntarily furnished to the Department of Justice by us "did not pose any
significant competitive issues" and, therefore, Department of Justice "has no
present intention of challenging [OPNET]" under federal antitrust law.
Although we are not able to assure that the continued operation of OPNET will
comply in all respects with the terms specified in the business review letter,
noncompliance with these terms does not mean that the antitrust authorities or
private parties would challenge the conduct, and we believe that the current
operation of OPNET is not anticompetitive and results in significant
efficiencies. However, the Department of Justice reserves the right to bring
an investigation or proceeding if it determines that OPNET is anticompetitive
in purpose or effect. There can be no assurance that the Department of Justice
will not bring an investigation or proceeding challenging OPNET (or other
aspects of our operations) under these laws, or that such an investigation or
proceeding would not result in a material adverse effect on our business and
results of operations.
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Personnel
None of our employees are subject to a collective-bargaining agreement. We
believe that we have satisfactory relationships with its employees and strives
to maintain these relationships by offering competitive benefit packages,
training programs and opportunities for advancement. The following table
summarizes our employees as of September 30, 1999:
<TABLE>
<S> <C>
Part-time......................................................... 222
Full-time......................................................... 3,283
-----
Total........................................................... 3,505
</TABLE>
Insurance
We currently maintain insurance of the type and in the amount customary in
the orthopedic rehabilitation industry, including coverage for malpractice
liability, product liability, workers' compensation and property damage. Our
general liability insurance coverage is $500,000 per incident, with a $25
million umbrella insurance policy. Based on our experience and prevailing
industry practices, we believe our coverage is adequate as to risks and
amount.
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MANAGEMENT
The following table sets forth information with respect to those persons who
serve as our executive officers and directors and as executive officers of
certain of our subsidiaries:
<TABLE>
<CAPTION>
Director
Name Age Position Since
- ---- --- -------- --------
<S> <C> <C> <C>
Ivan R. Sabel, CPO...... 54 Chairman of the Board, President, Chief 1986
Executive Officer and Director
Richmond L. Taylor...... 50 Executive Vice President of Hanger --
Orthopedic Group and Chief Operating
Officer of each of Hanger Prosthetics &
Orthotics, Inc. and NovaCare O&P (Patient-
Care Services)
Richard A. Stein........ 40 Executive Vice President, Chief Financial --
Officer, Secretary and Treasurer
James G. Cairns, Jr..... 61 President and Chief Operating Officer of --
Seattle Orthopedic Group, Inc.
(Manufacturing)
Ron May................. 52 President and Chief Operating Officer of --
Southern Prosthetic Supply, Inc.
(Distribution)
Jeffrey L. Martin....... 45 Vice President of OPNET, Inc. --
Mitchell J. Blutt, 42 Director 1989
M.D....................
Edmond E. Charrette, 64 Director 1996
M.D.(1)................
Thomas P. Cooper, 55 Director 1990
M.D.(2)................
Robert J. Glaser, 80 Director 1993
M.D.(1)................
C. Raymond Larkin, Jr... 51 Director 1999
Risa J. Lavizzo-Mourey, 44 Director 1998
M.D....................
William L. 78 Director 1991
McCulloch(1)...........
H.R. Thranhardt, CPO.... 59 Director 1996
</TABLE>
- --------
(1) Member of Compensation Committee of the Board of Directors
(2) Member of Audit Committee of the Board of Directors
Ivan R. Sabel, CPO, has been Chairman of the Board of Directors and Chief
Executive Officer of Hanger Orthopedic Group since August 1995. He has been
the President of Hanger Orthopedic Group since October 14, 1999 and also
served as President from November 1987 to July 1, 1999. Mr. Sabel also served
as the Chief Operating Officer of Hanger Orthopedic Group from November 1987
until August 1995. Prior to that time, Mr. Sabel had been Vice President--
Corporate Development from September 1986 to November 1987. Mr. Sabel was the
founder, owner and President of Capital Orthopedics, Inc. from 1968 until that
company was acquired by Hanger Orthopedic Group in 1986. Mr. Sabel is a
Certified Prosthetist and Orthotist ("CPO"), 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. Mr. Sabel
also serves on the Board of Directors of Mid-Atlantic Medical Services, Inc.,
a company engaged in the health care management services business.
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Richmond L. Taylor was the Executive Vice President and Chief Operating
Officer of NovaCare O&P until July 1, 1999, when he became an Executive Vice
President of Hanger Orthopedic Group and Chief Operating Officer of each of
Hanger Prosthetics & Orthotics, Inc. and NovaCare O&P, the two wholly-owned
subsidiaries of Hanger Orthopedic Group which operate all of our patient-care
centers. Previously, Mr. Taylor served as the Regional Vice President of
NovaCare O&P for the West Region since 1989. Prior to joining NovaCare, Mr.
Taylor spent 20 years in the health care industry in a variety of management
positions including Regional Manager at American Hospital Supply Corporation,
Vice President of Operations at Medtech, Vice President of Sales at Foster
Medical Corporation and Vice President of Sales at Integrated Medical Systems.
Richard A. Stein is the Executive Vice President and Chief Financial Officer
of Hanger Orthopedic Group. Mr. Stein has served in that capacity, as well as
serving as its Secretary and Treasurer, since April 1987. Mr. Stein was also
the President of Greiner & Saur Orthopedics, Inc., a former subsidiary of
Hanger Orthopedic Group, from April 1987 until November 1989. Mr. Stein is a
Certified Public Accountant and was employed by PricewaterhouseCoopers LLP
from September 1982 until he joined us in 1987.
James G. Cairns, Jr. has served as the President and Chief Operating Officer
of Seattle Orthopedic Group, Inc., a wholly-owned subsidiary of Hanger
Orthopedic Group that designs, manufactures and distributes orthotic and
prosthetic products, since our acquisition of Model and Instrument Development
Corporation in August 1998, of which he had served as the President and Chief
Executive Officer since 1992.
Ron May has been the President and Chief Operating Officer of Southern
Prosthetic Supply, Inc., a wholly-owned subsidiary of Hanger Orthopedic Group
that distributes orthotic and prosthetic products, since December 1998. From
January 1984 to December 1998, Mr. May was Executive Vice President of the
distribution division of J.E. Hanger, Inc. of Georgia until we acquired that
company in November 1996.
Jeffrey L. Martin has been the Vice President of OPNET, our preferred
provider network of O&P service professionals, since October 1995. In addition
to being responsible for the recruitment of OPNET members and the planning and
implementation of OPNET member services Mr. Martin directs the solicitation
and management of OPNET managed care contracts. From 1984 until joining Hanger
Orthopedic Group in 1995, Mr. Martin was Director of Marketing for the Ohio
Willow Wood Company, a manufacturer of prosthetic components.
Mitchell J. Blutt, M.D. has served as an Executive Partner of Chase Capital
Partners (and its predecessor organizations), the $7 billion private capital
investment fund of The 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 participates in the overall management
of Chase Capital Partners, is responsible for venture capital strategy and
directs all health care investing for Chase Capital Partners. In addition to
being the Executive Partner of Chase Capital Partners, Dr. Blutt is an Adjunct
Assistant Professor of Medicine at the New York Hospital/Cornell Medical
Center. Prior to joining Chase Capital Partners and Cornell, Dr. Blutt was a
Robert Wood Johnson Foundation Fellow at the University of Pennsylvania School
of Medicine and the Wharton School. In addition to Hanger Orthopedic Group,
Dr. Blutt currently serves on the Boards of Directors of Senior Psychology
Services Corporation, Utilimed, Inc., Vista HealthCare Asian Pte Ltd., Fisher
Scientific Corporation, Cove Healthcare Group, La Petite Academy, Inc.,
DonJoy, L.L.C., IBC Health Care, China and Medical Arts Press. In addition,
Dr. Blutt currently serves on the Investment Committees of Cassandra Chase
Entertainment Partners and IMG/Chase Sports Fund as well as the Advisory
Boards of Dubilier & Co. Fund, DS Polaris Fund, Israel and The Tinicum Fund.
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 health care 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 investment
activities of the Latin Healthcare Investment Fund).
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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.
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.
C. Raymond Larkin, Jr. has served as principal of 3xNELL, LLC, a company
that invests in and provides consulting services to early stage medical
device, bio-technology and pharmaceutical companies, since July 1998. He
served as the President and Chief Executive Officer of Nellcor Puritan
Bennett, Inc., a medical instrumentation company, from February 1989 to March
1998 and earlier in various management capacities for that company. Prior to
joining that company in 1983, Mr. Larkin was employed in various sales
management positions by Bentley Laboratories, a manufacturer of specialized
monitoring and medical equipment. Mr. Larkin is a director of Arthrocare Corp.
(manufacturers and markets surgical instruments).
Risa J. Lavizzo-Mourey, M.D., 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.
Brigadier General William L. 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.
H.E. Thranhardt, CPO, is the former President and Chief Executive Officer of
J.E. Hanger, Inc. of Georgia. He served in that capacity from January 1, 1977
to November 1, 1996, on which date that company was acquired by Hanger
Orthopedic Group. Mr. Thranhardt, who commenced his employment with J.E.
Hanger, Inc. of Georgia 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.
Employment Agreements and Arrangements
The employment and non-compete agreements, dated as of April 29, 1999,
between Hanger Orthopedic Group and Ivan R. Sabel, Chairman and Chief
Executive Officer, and Richard A. Stein, Executive Vice President, Chief
Financial Officer, Secretary and Treasurer, provide for the continuation of
their employment in those positions for a period of five years. Pursuant to
those agreements, Mr. Sabel's annual base compensation is $495,000, plus
performance related bonuses. Mr. Sabel was granted an option to purchase
150,000 shares of our common stock as of the date of his employment agreement
for an exercise price of $14.75 per share, which was the closing sale price of
our common stock on the date of the employment agreement. Mr. Sabel also will
be granted an option to purchase 100,000 shares of our common stock on each of
the first, second and third anniversaries of his employment in the event we
achieve certain targeted results of operations, with the exercise price of
such stock options to be equal to the then current market price of the our
common stock on the date of grant. All such stock options will become
exercisable at the rate of 25% of the shares underlying each option per year,
beginning at the end of the first year following the date of grant of each
option.
Mr. Sabel's employment agreement also contains non-compete provisions which
provide that upon the termination of his employment either voluntarily or for
cause (as defined in the agreement), Mr. Sabel will be restricted from
engaging in the O&P industry anywhere in the United States for a period of 24
months from the date of termination.
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<PAGE>
Mr. Stein's arrangement is similar to Mr. Sabel's, except that his base
salary is $325,000. An option to purchase 75,000 shares of our common stock
was granted to him as of the date of his employment agreement for an exercise
price of $14.75 per share, which was the closing sale price of our common
stock on the date of the employment agreement. An additional option to
purchase 50,000 shares will be granted on each of the first, second and third
anniversaries of his employment in the event we achieve the applicable certain
targeted results of operations, with the exercise price of such stock options
to be equal to the then current market price of the our common stock on the
date of grant. His non-compete will be for a period of 18 months within the
O&P industry in the United States.
Richmond L. Taylor entered into a five-year employment agreement with Hanger
Orthopedic Group that became effective upon effectiveness of our acquisition
of NovaCare O&P on July 1, 1999, with Mr. Taylor serving as an Executive Vice
President and the Chief Operating Officer of our patient-care services
subsidiaries. Mr. Taylor's arrangement is similar to Mr. Stein's with respect
to base salary, annual bonus compensation and percentages, severance
compensation and non-compete provisions, except that Mr. Taylor was granted an
option to purchase 150,000 shares of common stock for an exercise price of
$14.1875 per share, which was the closing sale price of the common stock on
July 1, 1999. Mr. Taylor was granted an option to purchase 46,666 shares of
common stock on each of the first, second and third anniversaries of his
employment in the event we achieve certain targeted results of operations,
with the exercise price of such stock options to be equal to the then current
market price of the common stock on the date of grant. All such stock options
will become exercisable at the rate of 25% of the shares underlying each
option per year, beginning at the end of the first year following the date of
grant of each option.
Upon effectiveness of our acquisition of NovaCare O&P on July 1, 1999,
Ronald G. Hiscock, who previously had served as the President and Chief
Executive Officer of NovaCare O&P, became the President and Chief Operating
Officer of Hanger Orthopedic Group. His employment agreement with Hanger
Orthopedic Group provided for an annual base salary of $400,000 plus
performance related bonuses, and he was granted an option to purchase 225,000
shares of our common stock at an exercise price of $14.1875 per share. On
October 15, 1999, Mr. Hiscock resigned, and pursuant to the severance
provisions of his employment agreement, he is entitled to receive a total of
approximately $1,248,000, which includes a pro-rata portion of a bonus, and
his stock option will be fully exercisable on and prior to October 15, 2000.
On May 14, 1999, we issued to certain employees options to purchase a total
of 203,500 shares of common stock at an average exercise price of $16.50 per
share in accordance with our normal practice of annually granting options to
employees. We also entered into agreements with ten employees of NovaCare O&P
on July 1, 1999 providing for the grant to them of options to purchase a total
of 220,000 shares of common stock at an exercise price per share of $14.1875,
which was the closing sale price thereof on that date.
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SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of our common stock
beneficially owned as of July 16, 1999 by: (i) each person we know to be the
beneficial owner of 5% or more of such class of securities, (ii) each of our
directors and executive officers and (iii) all of our directors and executive
officers 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>
The TCW Group, Inc.(2)......................... 986,730 5.24%
Chase Equity Associates, L.P.(3)............... 796,040 4.19
Mitchell J. Blutt, M.D.(4)..................... - -
Thomas P. Cooper, M.D.(5)...................... 29,250 *
Edmond E. Charrette, M.D.(6)................... 27,500 *
Robert J. Glaser, M.D.(7)...................... 28,500 *
C. Raymond Larkin, Jr.......................... - -
Risa J. Lavizzo-Mourey, M.D.(8)................ 3,250 *
Brigadier General William L. McCulloch (USMC
Retired)(9)................................... 25,500 *
Ivan R. Sabel, CPO(10)......................... 141,719 *
H.E. Thranhardt, CPO(11)....................... 380,025 2.01
Richard A. Stein(12)........................... 68,106 *
All directors and executive officers as a group
(10 persons)(13).............................. 714,100 3.75
</TABLE>
- --------
* Represents less than 1% of the outstanding shares.
(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) The address of The TCW Group, Inc. is 865 South Figueroa Street, Los
Angeles, California 90017.
(3) Excludes 830,649 shares subject to exercisable warrants to purchase
shares from Hanger Orthopedic Group. Reference is made to note (4) below
for information relating to one of our directors that is affiliated with
Chase Equity Associates, L.P. The address of Chase Equity Associates and
its sole general partner, Chase Capital Partners, is 380 Madison Avenue
(12th Floor), New York, New York 10017. Chase Equity Associates, L.P.
purchased $50 million of 7% Redeemable Preferred Stock from Hanger
Orthopedic Group on July 1, 1999, which stock is convertible into non-
voting common stock at a conversion price of $16.50 per share, subject to
adjustment. If the 7% Redeemable Preferred Stock owned by Chase Equity
Associates, L.P. were converted into 3,030,303 shares of non-voting
common stock, the total number of shares of common stock (including both
voting and non-voting common stock) beneficially owned by Chase Equity
Associates, L.P. would be 4,656,992, or 20.38% of the then outstanding
shares. The amount reported above does not include the common stock into
which such shares of 7% Redeemable Preferred Stock are convertible.
(4) Does not include the shares reported above as owned by Chase Equity
Associates, L.P. Dr. Blutt is an Executive Partner of Chase Capital
Partners, the sole general partner of Chase Equity Associates, L.P. He
disclaims beneficial ownership of the shares beneficially owned by Chase
Equity Associates, L.P., except to the extent that he has a pecuniary
interest.
(5) Includes 22,750 shares subject to exercisable options to purchase shares
from us and excludes 7,500 shares subject to unvested options that have
not yet become exercisable.
(6) Includes 7,500 shares subject to exercisable options to purchase shares
from us and excludes 7,500 shares subject to unvested options that have
not yet become exercisable.
(7) Includes 7,500 shares subject to exercisable options to purchase shares
from us and excludes 7,500 shares subject to unvested options that have
not yet become exercisable.
(8) Includes 1,250 shares subject to exercisable options to purchase shares
from us and excludes 3,750 shares subject to unvested options that have
not yet become exercisable.
(9) Includes 15,000 shares subject to exercisable options to purchase shares
from us and excludes 7,500 shares subject to unvested options that have
not yet become exercisable.
(10) Includes 33,500 shares subject to exercisable options to purchase shares
from us and excludes 442,250 shares subject to unvested options that have
not yet become exercisable.
(11) Consists of 184,027 shares owned directly by Mr. Thranhardt, 103,750
shares subject to exercisable options to purchase shares from us, 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 56,250 shares subject to unvested options
that have not yet become exercisable.
(12) Includes 16,500 shares subject to exercisable options to purchase shares
from us and excludes a total of 203,750 shares subject to unvested
options that have not yet become exercisable.
(13) Includes a total of 250,250 shares subject to exercisable options held by
our directors and executive officers to purchase shares from us and
excludes a total of 743,500 shares subject to unvested options held by
such persons that have not yet become exercisable.
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<PAGE>
THE EXCHANGE OFFER
BACKGROUND
We originally sold the outstanding 11 1/4% Senior Subordinated Notes due
2009 on June 16, 1999 in a transaction exempt from the registration
requirements of the Securities Act. Deutsche Banc Alex. Brown, Chase
Securities Inc. and Paribas Corporation, as the initial purchasers,
subsequently resold the notes to qualified institutional buyers in reliance on
Rule 144A and under Regulation S under the Securities Act. As of the date of
this prospectus, $150.0 million aggregate principal amount of unregistered
notes are outstanding.
Hanger Orthopedic Group and the initial purchasers of the outstanding notes
entered into a registration rights agreement under which we agreed that we
would, at our own cost,
. file an exchange offer registration statement under the Securities
Act within 60 days after June 16, 1999, the original issue date of
the old notes, and
. use our reasonable best efforts to cause the exchange offer
registration statement to become effective under the Securities Act
at the earliest possible time, but no later than 125 days following
June 16, 1999.
Due to a delay in the completion of the NovaCare O&P's financial statements
for its fiscal year ended June 30, 1999, the exchange offer registration
statement did not become effective under the Securities Act until October 28,
1999. The registration rights agreement entered into by Hanger Orthopedic
Group and the initial purchasers of the outstanding notes provided that if the
exchange offer registration statement did not become effective on or prior to
October 19, 1999, then commencing on October 20, 1999, additional interest
would accrue on the notes at a rate of 0.50% per annum until the registration
statement became effective. Consequently, a total of approximately $18,493 of
additional interest for the nine day period following October 19, 1999 accrued
on the notes and will be payable on December 15, 1999 to holders of record of
the notes at the close of business on December 1, 1999.
The summary in this prospectus of provisions of the registration rights
agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the registration rights agreement, a
copy of which is filed as an exhibit to the registration statement of which
this prospectus is a part.
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, we believe that a holder of old notes,
but not a holder who is an affiliate of Hanger Orthopedic Group within the
meaning of Rule 405 of the Securities Act, who exchanges old notes for new
notes in the exchange offer, generally may offer the new notes for resale,
sell the new notes and otherwise transfer the new notes without further
registration under the Securities Act and without delivery of a prospectus
that satisfies the requirements of Section 10 of the Securities Act. We also
believe that a holder may offer, sell or transfer the new notes only if the
holder acquires the new notes in the ordinary course of its business and is
not participating, does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the new
notes.
Any holder of old notes using the exchange offer to participate in a
distribution of new notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired old notes directly from
Hanger Orthopedic Group, but not as a result of market-making activities or
other trading activities. Consequently, the holder must comply with the
registration and prospectus delivery requirements of the Securities Act in the
absence of an exemption from such requirements.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where such old notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities may be a
statutory underwriter and must acknowledge that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with the resale
of new notes received in exchange for old notes. The letter of
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<PAGE>
transmittal which accompanies this prospectus states that by so acknowledging
and by delivering a prospectus, a participating broker-dealer will not be
deemed to admit that it is an underwriter within the meaning of the Securities
Act. A participating broker-dealer may use this prospectus, as it may be
amended from time to time, in connection with resales of new notes it receives
in exchange for old notes in the exchange offer. We will make this prospectus
available to any participating broker-dealer in connection with any resale of
this kind for a period of 30 days after the expiration date of the exchange
offer. See "Plan of Distribution."
Each holder of the old notes who wishes to exchange old notes for new notes
in the exchange offer will be required to represent and acknowledge, for the
holder and for each beneficial owner of such old notes, whether or not the
beneficial owner is the holder, in the letter of transmittal that:
. the new notes to be acquired by the holder and each beneficial
owner, if any, are being acquired in the ordinary course of
business,
. neither the holder nor any beneficial owner is an affiliate, as
defined in Rule 405 of the Securities Act, of Hanger Orthopedic
Group or any of its subsidiaries,
. any person participating in the exchange offer with the intention or
purpose of distributing new notes received in exchange for old
notes, including a broker-dealer that acquired old notes directly
from Hanger Orthopedic Group, but not as a result of market-making
activities or other trading activities, cannot rely on the no-action
letters referenced above and must comply with the registration and
prospectus delivery requirements of the Securities Act, in
connection with a secondary resale of the new notes acquired by such
person,
. if the holder is not a broker-dealer, the holder and each beneficial
owner, if any, are not participating, do not intend to participate
and have no arrangement or understanding with any person to
participate in any distribution of the new notes received in
exchange for old notes, and
. if the holder is a broker-dealer that will receive new notes for the
holder's own account in exchange for old notes, the old notes to be
so exchanged were acquired by the holder as a result of market-
making or other trading activities and the holder will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resale of such new notes received in the
exchange offer. However, by so representing and acknowledging and by
delivering a prospectus, the holder will not be deemed to admit that
it is an underwriter within the meaning of the Securities Act.
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are changed so
that the new notes received by holders who make all of the above
representations in the letter of transmittal are not or would not be, upon
receipt, transferrable by each such holder without restriction under the
Securities Act, we will, at our cost:
. file a shelf registration statement covering resales of the old
notes,
. use our reasonable best efforts to cause the shelf registration
statement to be declared effective under the Securities Act at the
earliest possible time, and
. use our reasonable best efforts to keep effective the shelf
registration statement until the earlier of two years after June 16,
1999, or the time when all of the applicable old notes are no longer
outstanding.
We will, if and when we file the shelf registration statement, provide to
each holder of the old notes copies of the prospectus which is a part of the
shelf registration statement, notify each holder when the shelf registration
statement has become effective and take other actions as are required to
permit unrestricted resales of the old notes. A holder that sells old notes
pursuant to the shelf registration statement generally must be named as a
selling security-holder in the related prospectus and must deliver a
prospectus to purchasers, will be subject to civil liability provisions under
the Securities Act in connection with these sales and will be bound by the
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<PAGE>
provisions of the registration rights agreement which are applicable to the
holder, including certain indemnification obligations. In addition, each
holder of old notes must deliver information to be used in connection with the
shelf registration statement and provide comments on the shelf registration
statement in order to have its old notes included in the shelf registration
statement and benefit from the provisions regarding any liquidated damages
described below.
If we are required to file the shelf registration statement and
(1)either
. the shelf registration statement has not become effective or been
declared effective on or before the 125th calendar day following
June 16, 1999, or
. the shelf registration statement has been declared effective and
such shelf registration statement ceases to be effective, except as
specifically permitted in the registration rights agreement, without
being succeeded promptly by an additional registration statement
filed and declared effective, or
(2) the shelf registration statement fails to become effective, the interest
rate borne by the old notes will be increased in accordance with the following
table:
<TABLE>
<CAPTION>
INITIAL INCREASE
EVENT IN INTEREST RATE
----- ----------------
<S> <C>
1. Shelf registration statement not 0.5% per annum for the first 90 days
declared effective on or prior to 125th immediately following this 125 day period,
day following June 16, 1999 or shelf such interest rate increasing by an
registration statement ceases to be additional 0.5% at the beginning of each
effective subsequent 90-day period
2. Shelf registration statement has been Additional 0.5% per annum for the first 90
declared effective but ceased to be days commencing on the day such shelf
effective on or before two years after registration statement ceases to be
June 16, 1999 effective, such interest rate increasing by
an additional 0.5% at the beginning of each
subsequent 90-day period
</TABLE>
However, in no event will the interest rate borne by the outstanding notes be
increased by an aggregate of more than 1.0%.
The sole remedy available to the holders of the old notes will be the
immediate assessment of cash interest on the old notes as described above. Any
amounts of additional interest due as described above will be payable in cash
on the same interest payments dates as the old notes.
TERMS OF THE EXCHANGE OFFER
Upon the exchange offer registration statement being declared effective, we
will offer the new notes in exchange for surrender of the old notes. We will
keep the exchange offer open for at least 30 days, or longer if required by
applicable law, after the date notice of the exchange offer is mailed to the
holders of the old notes.
Upon the terms and subject to the conditions contained in this prospectus
and in the letter of transmittal which accompanies this prospectus, we will
accept any and all old notes validly tendered and not withdrawn before 5:00
p.m., New York City time, on the expiration date of the exchange offer. We
will issue an equal principal amount of new notes in exchange for the
principal amount of old notes accepted in the exchange offer. Holders may
tender some or all of their old notes under the exchange offer. Old notes may
be tendered only in integral multiples of $1,000.
The form and terms of the new notes will be the same as the form and terms
of the old notes except that:
. the new notes will have been registered under the Securities Act and
therefore will not bear legends restricting their transfer, and
. the new notes will not contain certain terms providing for an
increase in the interest rate on the old notes under specific
circumstances which are described in the registration rights
agreement.
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<PAGE>
The new notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture governing the old notes.
In connection with the exchange offer, holders of old notes do not have any
appraisal or dissenters' rights under law or the indenture governing the old
notes. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Securities and Exchange Commission related to such offers.
We shall be deemed to have accepted validly tendered old notes when, as and
if we have given oral or written notice of acceptance to U.S. Bank Trust
National Association, exchange agent for the exchange offer. The exchange
agent will act as agent for the tendering holders for the purpose of receiving
the new notes from us.
If any tendered old notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events specified in this
prospectus or if old notes are submitted for a greater principal amount than
the holder desires to exchange, the certificates for the unaccepted old notes
will be returned without expense to the tendering holder. If old notes were
tendered by book-entry transfer in the exchange agent account at The
Depository Trust Company in accordance with the book-entry transfer procedures
described below, these non-exchanged old notes will be credited to an account
maintained with The Depositary Trust Company as promptly as practicable after
the expiration date of the exchange offer.
We will pay all charges and expenses, other than transfer taxes in certain
circumstances, in connection with the exchange offer. See "--Fees and
Expenses." Holders who tender old notes in the exchange offer will therefore
not need to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
old notes in the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on November 29, 1999, unless we, in our reasonable discretion, extend the
exchange offer, in which case the expiration date will be the latest date and
time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange agent of
any extension by oral or written notice and will make a public announcement of
the extension before 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
. to delay accepting any old notes, to extend the exchange offer or to
terminate the exchange offer if, in our reasonable judgement, any of
the conditions described below under "--Conditions" shall not have
been satisfied, by giving oral or written notice of the delay,
extension or termination to the exchange agent, or
. to amend the terms of the exchange offer in any manner.
We will promptly announce any such event making a timely release to Dow
Jones News Service and may or may not do so by other means as well.
PROCEDURES FOR TENDERING
You may tender your own old notes in the exchange offer. To tender in the
exchange offer, a holder must do the following:
. complete, sign and date the letter of transmittal, or a facsimile of
the letter of transmittal,
. have the signatures thereon guaranteed if required by the letter of
transmittal, and
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. except as discussed in "--Guaranteed Delivery Procedures," mail or
otherwise deliver the letter of transmittal, or facsimile, together
with the old notes and any other required documents, to the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date
of the exchange offer.
The exchange agent must receive the old notes, a completed letter of
transmittal and all other required documents at the address listed below under
"--Exchange Agent" before 5:00 p.m., New York City time, on the expiration
date for the tender to be effective. You may deliver your old notes by using
the book-entry transfer procedures described below, as long as the exchange
agent receives confirmation of the book-entry transfer before the expiration
date.
The Depository Trust Company has authorized its participants that hold old
notes on behalf of beneficial owners of old notes through The Depository Trust
Company to tender their old notes as if they were holders. To effect a tender
of old notes, The Depository Trust Company participants should either:
(1) complete and sign the letter of transmittal (or a manually signed
facsimile of the letter), have the signature thereon guaranteed if required
by the instructions to the letter of transmittal, and mail or deliver the
letter of transmittal (or the manually signed facsimile) to the exchange
agent according to the procedure described in "Procedures for Tendering" or
(2) transmit their acceptance to The Depository Trust Company through its
automated tender offer program for which the transaction will be eligible
and follow the procedure for book-entry transfer its described in "--Book-
Entry Transfer."
By tendering, each holder will make the representations contained in the
fourth paragraph above under the heading "--Resale of the New Notes." Each
participating broker-dealer must acknowledge that it will deliver a prospectus
in connection with any resale of such new notes. See "Plan of Distribution."
The tender by a holder and the acceptance of the tender by us will
constitute the agreement between the holder and us set forth in this
prospectus and in the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD
ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES OR BOOK-ENTRY
CONFIRMATION SHOULD BE SENT TO HANGER ORTHOPEDIC GROUP. HOLDERS MAY REQUEST
THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS ON THEIR BEHALF.
Any beneficial owner whose old notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct it to tender
on the beneficial owner's behalf. See "Instructions to Registered Holder
and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
included with the letter of transmittal. If the beneficial owner wishes to
tender on his own behalf, such owner must, prior to completing and executing
the letter of transmittal and delivering such beneficial owner's old notes,
either make appropriate arrangements to register ownership of the old notes in
such owner's name or obtain a properly completed bond power from the
registered holder. The transfer of registered ownership may take considerable
time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution (within the meaning of Rule
17A d-5 under the Exchange Act) unless the old notes are tendered:
. by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal, or
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<PAGE>
. for the account of an eligible guarantor institution.
If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, the guarantee must be by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an eligible
guarantor institution.
If a letter of transmittal is signed by a person other than the registered
holder of any old notes listed in the letter of transmittal, the old notes
must be endorsed or accompanied by a properly completed bond power and signed
by the registered holder as the registered holder's name appears on the old
notes.
If a letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the old
notes at the book-entry transfer facility, The Depository Trust Company, for
the purpose of facilitating the exchange offer. Subject to the establishment
of the accounts, any financial institution that is a participant in the book-
entry transfer facility's system may make book-entry delivery of old notes by
causing the book-entry transfer facility to transfer the old notes into the
exchange agent's account with respect to the old notes in accordance with that
facility's procedures. Although delivery of the old notes may be effected
through book-entry transfer into the exchange agent's account at the book-
entry transfer facility, an appropriate letter of transmittal properly
completed and duly executed or an agent's message with any required signature
guarantee and all other required documents the exchange agent at its address
listed below on or before the expiration date of the exchange offer, or, if
the guaranteed delivery procedures described below are complied with, within
the time period provided under such procedures. Delivery of documents to the
book-entry transfer facility does not constitute delivery to the exchange
agent.
The term "agent's message" means a message transmitted by The Depositary
Trust Company to, and received by, the exchange agent, which states that The
Depository Trust Company has received an express acknowledgment from the
participant in The Depository Trust Company tendering the old notes stating:
. the aggregate principal amount of old notes which have been tendered
by such participant,
. that such participant has received and agrees to be bound by the
term of the letter of transmittal and
. that we may enforce such agreement against the participant.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered old notes and withdrawal of tendered old
notes will be determined by us in our sole discretion, which determination
will be final and binding. We reserve the absolute right to reject any and all
old notes not properly tendered or any old notes if our acceptance would, in
the opinion of our counsel, be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular old
notes. Our interpretation of the terms and conditions of the exchange offer,
including the instructions in the letter of transmittal, will be final and
binding on everyone. Unless waived, any defects or irregularities in
connection with tenders of old notes must be cured within a period of time
that we determine.
Neither Hanger Orthopedic Group, the exchange agent nor any other person
shall incur any liability for failure to give notice of any defect or
irregularity with respect to any tender of old notes. Tenders of old notes
will not be deemed to have been made until the defects or irregularities
mentioned above have been cured or waived. Any old notes received by the
exchange agent that are deffectively tendered and the defects or
irregularities have not been cured or waived will be returned by the exchange
agent to the tendering holders,
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unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date of the exchange offer.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its old notes and:
. whose old notes are not immediately available,
. who cannot deliver the holder's old notes, the letter of transmittal
or any other required documents to the exchange agent prior to the
expiration date, or
. who cannot complete the procedures for book-entry transfer, before
the expiration date,
may effect a tender if:
. the tender is made through an eligible guarantor institution,
. before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly
executed notice of guaranteed delivery by facsimile transmission,
mail or hand delivery containing the name and address of the holder,
the certificate number(s) of the old notes and the principal amount
of old notes tendered, stating that the tender is being made and
guaranteeing that, within three New York Stock Exchange trading days
after the expiration date, the letter of transmittal (or facsimiles
thereof) together with the certificate(s) representing the old notes
(or a confirmation of book-entry transfer of the old notes into the
exchange agent's account at the book-entry transfer facility), and
any other documents required by the letter of transmittal will be
deposited by the eligible guarantor institution with the exchange
agent, and
. the exchange agent receives, within three New York Stock Exchange
trading days after the expiration date, a properly completed and
executed letter of transmittal or facsimile, as well as the
certificate(s) representing all tendered old notes in proper form
for transfer or a confirmation of book-entry transfer of such old
notes into the exchange agent's account at the book-entry transfer
facility, and all other documents required by the letter of
transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
expiration date of the exchange offer.
To withdraw a tender of old notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth below prior to 5:00 p.m., New York City time,
on the expiration date. Any notice of withdrawal must:
. specify the name of the person having deposited the old notes to be
withdrawn,
. identify the old notes to be withdrawn including the certificate
number(s) and principal amount of such old notes or, in the case of
old notes transferred by book-entry transfer, the name and number of
the account at the book-entry transfer facility to be credited and
otherwise comply with the procedures of the transfer agent,
. be signed by the holder in the same manner as the original signature
on the letter of transmittal by which the old notes were tendered,
including any required signature guarantees, or be accompanied by
documents of transfer sufficient to have the trustee under the
indenture governing the old notes register the transfer of the old
notes into the name of the person withdrawing the tender, and
. specify the name in which any such old notes are to be registered,
if different from that of the person who deposited the notes.
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If certificates for old notes have been delivered or otherwise
identified to the exchange agent, then, before the release of the
certificates, the withdrawing holder must also submit the serial
numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an eligible
guarantor institution unless the holder is an eligible guarantor
institution.
All questions as to the validity, form and eligibility, including time of
receipt, of such notices will be determined by us, which determination will be
final and binding on everyone. Any old notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer, and no new
notes will be issued, unless the old notes so withdrawn are validly
retendered. Any old notes which have been tendered but which are not accepted
for exchange will be returned to the holder of the notes without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn old notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time before the expiration date.
CONDITIONS
Despite any other term of the exchange offer, we shall not be required to
accept for exchange, or exchange new notes for, any old notes and may
terminate the exchange offer as provided in this prospectus before the
acceptance of the old notes, if:
. any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange
offer which, in our reasonable judgment, might materially impair our
ability to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us, or any material
adverse development has occurred in any existing action or
proceeding with respect to us or any of our subsidiaries,
. any law, statute, rule or regulation is proposed, adopted or
enacted, which in our reasonable judgment, might materially impair
our ability to proceed with the exchange offer or materially impair
the contemplated benefits of the exchange offer to us, or
. any governmental approval has not been obtained, which approval we
reasonably deem necessary for the consummation for the exchange
offer as contemplated by this prospectus.
The conditions listed above are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any of these conditions. We
may waive these conditions in our reasonable discretion in whole or in part at
any time and from time to time. The failure by us at any time to exercise any
of the above rights will not be deemed a waiver of such right and such right
will be deemed an ongoing right which may be asserted at any time and from
time to time.
If we determine in our reasonable discretion that any of the conditions
are not satisfied, we may:
. refuse to accept any old notes and return all tendered old notes to
the tendering holders,
. extend the exchange offer and retain all old notes tendered before
the expiration of the exchange offer, subject, however, to the
rights of holders to withdraw these old notes (See "--Withdrawal of
Tenders" above), or
. waive unsatisfied conditions with respect to the exchange offer and
accept all properly tendered old notes which have not been
withdrawn. If this waiver constitutes a material change to the
exchange offer, we will promptly disclose the waiver by means of a
prospectus supplement that will be distributed to the registered
holders. We will also extend the exchange offer for a period of five
to ten business days, depending upon the significance of the waiver
and the manner of disclosure to the registered holders, if the
exchange offer would otherwise expire during such five to ten
business day period.
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EXCHANGE AGENT
U.S. Bank Trust, National Association has been appointed as exchange agent
for the exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to U.S. Bank Trust addressed as follows:
For Information by Telephone:
(800) 934-6802
By Hand or Overnight Delivery Service:
U.S. Bank Trust National Association
180 East 5th Street
St. Paul, MN 55101
Attention: Specialized Finance Dept.
By Facsimile Transmission:
(651) 244-1537
(Telephone Confirmation)
(651) 244-1215
U.S. Bank Trust also acts as trustee under the indenture governing the
notes.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. We will, however, pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection with providing the services.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us. Such expenses include fees and expenses of U.S. Bank Trust as
exchange agent and as trustee under the indenture governing the notes,
accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes
as reflected in our accounting records on the date of exchange. Accordingly,
no gain or loss for accounting purposes will be recognized by us. The expenses
of the exchange offer and the unamortized expenses related to the issuance of
the old notes will be amortized over the term of the notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of old notes who are eligible to participate in the exchange offer
but who do not tender their old notes will not have any further registration
rights, and their old notes will continue to be subject to restrictions on
transfer. Accordingly, such old notes may be resold only:
. to Hanger Orthopedic Group, upon redemption of these notes or
otherwise,
. so long as the old notes are eligible for resale pursuant to Rule
144A under the Securities Act, to a person inside the United States
whom the seller reasonably believes is a qualified institutional
buyer within the meaning of Rule 144A in a transaction meeting the
requirements of Rule 144A,
. in accordance with Rule 144 under the Securities Act, or under
another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel reasonably
acceptable to us,
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. outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act, or
. under an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state of
the United States.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement
under the Securities Act.
OTHER
Participation in the exchange offer is voluntary and holders of old notes
should carefully consider whether to accept the terms and condition of this
offer. Holders of the old notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take with respect to
the exchange offer.
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DESCRIPTION OF THE NEW CREDIT FACILITY AND THE REDEEMABLE PREFERRED STOCK
New Credit Facility
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to certain agreements setting forth the
principal terms and conditions of the new credit facility. Capitalized terms
used but not otherwise defined in the following discussion have the meaning
ascribed to them in the new credit facility.
The new credit facility was provided on July 1, 1999 by a syndicate of banks
and other financial institutions led by The Chase Manhattan Bank, as
administrative agent and collateral agent, Chase Securities Inc., as lead
arranger, Bankers Trust Company, as syndication agent, and Paribas, as
documentation agent. The new credit facility provides senior secured financing
of up to $300 million, consisting of a $100 million tranche A term facility
and a $100 million revolving credit facility, each with a maturity of six
years, and a $100 million tranche B term facility with a maturity of seven
years and six months.
The tranche A term facility, the tranche B term facility and the revolving
credit facility initially bear interest (subject to performance based
stepdowns applicable to the tranche A term facility and the revolving credit
facility) at a rate equal to LIBOR plus (a) in the case of the tranche A term
facility and the revolving credit facility, 2.5% or, at our option, the
alternate base rate (as defined in the new credit facility) plus 1.5% or (b)
in the case of the tranche B term facility, 3.5% or, at our option, the
alternate base rate plus 2.5%.
In addition to paying interest on outstanding principal under the new credit
facility, we are required to pay a commitment fee to the lenders under the
revolving credit facility in respect of the unutilized commitments thereunder
at a rate equal to 0.5% per annum.
The tranche A term facility and the tranche B term facility amortize in
quarterly amounts based upon the annual amounts shown below:
<TABLE>
<CAPTION>
Tranche A Term Tranche B Term
Facility Facility
-------------- --------------
(dollars in millions)
<S> <C> <C>
Fiscal Year 1999............................... $ 0.0 $ 0.0
Fiscal Year 2000............................... 10.0 1.0
Fiscal Year 2001............................... 20.0 1.0
Fiscal Year 2002............................... 20.0 1.0
Fiscal Year 2003............................... 20.0 1.0
Fiscal Year 2004............................... 20.0 1.0
Fiscal Year 2005............................... 10.0 47.5
Fiscal Year 2006............................... 0.0 47.5
Fiscal Year 2007............................... 0.0 0.0
------ ------
Total........................................ $100.0 $100.0
====== ======
</TABLE>
Our obligations under the new credit facility are unconditionally and
irrevocably guaranteed by each of our domestic (and, to the extent no adverse
tax consequences would result, foreign) subsidiaries. In addition, the new
credit facility is collateralized by first priority security interests in
substantially all of our tangible and intangible assets and each of our
existing and subsequently acquired or organized domestic (and, to the extent
no adverse tax consequences would result, foreign) subsidiaries, including all
the capital stock of, or other equity interests in, each of our direct or
indirect subsidiaries and each of our subsequently acquired or organized
direct or indirect subsidiaries (which, in the case of a foreign subsidiary,
shall in each case be limited to 65% of such capital stock or equity
interests, as the case may be).
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Subject to certain exceptions, the new credit facility is subject to
mandatory prepayment with (a) 100% of the proceeds of asset sales, (b) 50% of
our excess cash flow (as defined in the new credit facility), (c) 100% of the
proceeds of equity offerings and (d) 100% of the proceeds from the issuance of
debt obligations (other than the 11 1/4 % Senior Subordinated Notes).
The new credit facility contains a number of covenants that, among other
things, restrict our ability to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay other indebtedness, pay
certain restricted payments and dividends, create liens on assets, make
investments, loans or advances, make certain acquisitions engage in mergers or
consolidations, make capital expenditures, enter into sale and leaseback
transactions, or engage in certain transactions with subsidiaries and
affiliates and otherwise restrict corporate activities. In addition, under the
new credit facility, we are required to comply with specified financial ratios
and tests, including minimum fixed charge coverage and interest coverage
ratios and a maximum leverage ratio. The new credit facility also contains
certain customary events of default.
The Redeemable Preferred Stock
The description set forth below does not purport to be complete and is
qualified in its entirety by reference to the Certificate of Designations
setting forth the principal terms and conditions of our 7% Redeemable
Preferred Stock, par value $0.01 per share.
Of the funds we used to finance our acquisition of NovaCare O&P on July 1,
1999, $60 million was raised from the private sale of the Redeemable Preferred
Stock to an affiliate of Chase Capital Partners (an affiliate of The Chase
Manhattan Bank) and Paribas North America (an affiliate of Paribas). The
Redeemable Preferred Stock, which was issued for $1,000 per share, is entitled
to receive dividends at an annual rate of 7.0%, compounded quarterly, and such
dividends, whether or not declared, accumulate and compound until declared and
paid. The dividend rate will increase to 10.0% if certain events of non-
compliance occur.
At our annual meeting held in September 1999, our stockholders approved a
proposal making the Redeemable Preferred Stock convertible into non-voting
common stock. The Redeemable Preferred Stock is convertible at the holder's
option into shares of a non-voting class of our common stock at a conversion
price of $16.50 per share, subject to adjustment. We plan to cause the
Redeemable Preferred Stock to be converted into shares of non-voting common
stock following the third anniversary of the issuance of the Redeemable
Preferred Stock if the average closing price of the common stock for 30
consecutive trading days is equal or greater than 175% of the conversion
price. The non-voting common stock is convertible at the option of the holders
upon the occurrence of certain events into shares of voting common stock.
The Redeemable Preferred Stock will be mandatorily redeemable on the 11th
anniversary of the issuance of such stock at a redemption price equal to the
liquidation preference plus all accrued and unpaid dividends. In the event of
a change of control of us, we will offer to redeem all the outstanding shares
of Redeemable Preferred Stock at a redemption price equal to 101% of the sum
of the per share liquidation preference thereof plus all accrued and unpaid
dividends through the date of the change of payment.
Upon the occurrence of an event of non-compliance, holders of the Redeemable
Preferred Stock will have the right to elect two board members. The
Certificate of Designations relating to the Redeemable Preferred Stock
contains customary covenants, including, among others (i) approval of
affiliate transactions, (ii) approval of merger and acquisition transactions
and sales of assets in excess of $100 million, (iii) incurrence of
indebtedness based on covenants consistent in nature with those found in the
11 1/4% Senior Subordinated Notes and (iv) approval of the issuance of any
pari passu or senior equity securities.
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DESCRIPTION OF THE NOTES
The new notes, like the old notes, will be issued under an indenture (the
"Indenture") among Hanger Orthopedic Group, the Guarantors, and U.S. Bank
Trust National Association, as Trustee (the "Trustee"). The new notes are the
same as the old notes except that the new notes will not bear legends
restricting their transfer and will not contain certain terms providing for an
increase in the interest rate under the circumstances described in the
Registration Rights Agreement.
The following is a summary of the material provisions of the Indenture. It
does not include all of the provisions of the Indenture. We urge you to read
the Indenture because it defines your rights. The terms of the Notes include
those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended. A copy of the
Indenture may be obtained from the Company or the Initial Purchasers. You can
find definitions of certain capitalized terms used in this description under
"--Certain Definitions." For purposes of this section, references to only
Hanger Orthopedic Group do not include its subsidiaries.
The notes will be unsecured obligations of Hanger Orthopedic Group, ranking
subordinate in right of payment to all Senior Debt of Hanger Orthopedic Group.
Hanger Orthopedic Group will issue the notes in fully registered form in
denominations of $1,000 and integral multiples thereof. The Trustee will
initially act as paying agent and registrar for the notes. The notes may be
presented for registration or transfer and exchange at the offices of the
registrar. We may change any paying agent and registrar without notice to
holders of the notes (the "Holders"). We will pay principal (and premium, if
any) on the notes at the Trustee's corporate office in New York, New York. At
our option, interest may be paid at the Trustee's corporate trust office or by
check mailed to the registered address of Holders. Any notes that remain
outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated
as a single class of securities under the Indenture.
Principal, Maturity and Interest
The notes are limited in aggregate principal amount to $300.0 million, of
which $150.0 million were issued and are outstanding. The notes will mature on
June 15, 2009. Additional notes may be issued from time to time, subject to
the limitations set forth under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness." Interest on the notes will accrue at the rate of
11 1/4% per annum and will be payable semiannually in cash on each June 15 and
December 15 commencing on December 15, 1999, to the persons who are registered
Holders at the close of business on the June 1 and December 1 immediately
preceding the applicable interest payment date. In addition, interest payable
on December 15, 1999 will include approximately $18,493 of additional interest
as discussed above under "The Exchange Offer--Background." Interest on the
notes will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from and including the date of issuance.
The notes will not be entitled to the benefit of any mandatory sinking fund.
Redemption
Optional Redemption. Except as described below, the notes are not redeemable
before June 15, 2004. Thereafter, we may redeem the notes at our option, in
whole or in part, upon not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of the principal amount
thereof) if redeemed during the twelve-month period commencing on June 15 of
the year set forth below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2004........................................................... 105.625%
2005........................................................... 104.219%
2006........................................................... 102.813%
2007........................................................... 101.406%
2008 and thereafter............................................ 100.000%
</TABLE>
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In addition, we must pay accrued and unpaid interest on the notes redeemed.
Optional Redemption Upon Public Equity Offerings. At any time, or from time
to time, on or prior to June 15, 2002, we may, at our option, use the net cash
proceeds of one or more Public Equity Offerings (as defined below) to redeem up
to 33% of the principal amount of the notes issued under the Indenture at a
redemption price of 111.25% of the principal amount thereof plus accrued and
unpaid interest thereon, if any, to the date of redemption; provided that:
(1) at least 67% of the principal amount of notes issued under the
Indenture remains outstanding immediately after any such redemption; and
(2) we make such redemption not more than 30 days after the consummation
of any such Public Equity Offering.
"Public Equity Offering" means an underwritten public offering of Qualified
Capital Stock of Hanger Orthopedic Group pursuant to a registration statement
filed with the Commission in accordance with the Securities Act.
Selection and Notice of Redemption
In the event that we choose to redeem less than all of the notes, selection
of the notes for redemption will be made by the Trustee either:
(1) in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed; or,
(2) on a pro rata basis, by lot or by such method as the Trustee shall
deem fair and appropriate.
No notes of a principal amount of $1,000 or less shall be redeemed in part.
If a partial redemption is made with the proceeds of a Public Equity Offering,
the Trustee will select the notes only on a pro rata basis or on as nearly a
pro rata basis as is practicable (subject to DTC procedures). Notice of
redemption will be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each Holder of notes to be redeemed at its
registered address. If any note is to be redeemed in part only, then notice of
redemption that relates to such note must state the portion of the principal
amount thereof to be redeemed. A new note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original note. On and after the redemption date,
interest will cease to accrue on notes or portions thereof called for
redemption as long as we have deposited with the paying agent funds in
satisfaction of the applicable redemption price.
Subordination
Except in connection with a special mandatory redemption of the notes, the
payment of all Obligations on the notes is subordinated in right of payment to
the prior payment in full in cash or Cash Equivalents of all Obligations on
Senior Debt of Hanger Orthopedic Group.
The holders of Senior Debt will be entitled to receive payment in full in
cash of all Obligations due in respect of Senior Debt (including interest after
the commencement of any bankruptcy or other like proceeding at the rate
specified in the applicable Senior Debt whether or not such interest is an
allowed claim in any such proceeding) before the Holders of Notes will be
entitled to receive any payment with respect to the notes in the event of any
distribution to our creditors Hanger Orthopedic Group:
(1) in a liquidation or dissolution of Hanger Orthopeidc Group;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshalling of our assets and liabilities.
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We also may not make any payment in respect of the notes if:
(1) a payment default on Designated Senior Debt occurs and is continuing;
or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity (or, in the case of any Designated Senior Debt consisting of a
guarantee, the maturity of the Indebtedness so guaranteed) and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the
Representative of any Designated Senior Debt.
The New Credit Facility will be subject to mandatory prepayment with, in
general (a) 100% of the proceeds of asset sales, (b) 50% of our excess cash
flow (as defined in the New Credit Facility), (c) 100% the proceeds of equity
offerings and (d) 100% of the proceeds from the issuance of debt obligations.
Payments on the notes may and shall be resumed:
(1) in the case of a payment default, upon the date on which such default
is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default is cured or waived (so long as no other event of
default exists) or 180 days after the date on which the applicable Payment
Blockage Notice is received, unless the maturity of any Designated Senior
Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 90 days.
The Trustee must notify holders of Senior Debt or their representative five
days in advance if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of Hanger Orthopedic Group,
Holders of the notes may recover less ratably than our creditors who are
holders of Senior Debt. See "Risk Factors--Subordination." After giving effect
to the sale on June 16, 1999 of the notes and the application of the proceeds
therefrom to the acquisition of NovaCare O&P on July 1, 1999, on a pro forma
basis, at June 30, 1999, the aggregate amount of Senior Debt outstanding would
have been approximately $206.7 million.
Guarantees
The Guarantors will jointly and severally guarantee (the "Guarantees") our
obligations under the Indenture and the notes. Each Guarantee will be
subordinated to Guarantor Senior Debt on the same basis as the Notes are
subordinated to Senior Debt. The obligations of each Guarantor under its
Guarantee will be limited as necessary to prevent the Guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
Each Guarantor may consolidate with or merge into or sell its assets to us
or another Guarantor without limitation, or with other Persons upon the terms
and conditions set forth in the Indenture. See "Certain Covenants--Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Guarantor is sold by the Company (other than a transaction subject to the
provisions described under "--Merger, Consolidation and Sale of Assets") and
the sale complies with the provisions set forth in "Certain Covenants--
Limitation on Asset Sales", or if a Guarantor's guarantee of the Credit
Agreement is released, the Guarantor's Guarantee will automatically and
unconditionally be released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to our
obligations pursuant to the notes, and the aggregate net assets, earnings
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and equity of the Guarantors and us are substantially equivalent to the net
assets, earnings and equity of Hanger Orthopedic Group on a consolidated
basis.
Holding Company Structure
Hanger Orthopedic Group is a holding company for its Subsidiaries, with no
material operations of its own and only limited assets. Accordingly, Hanger
Orthopedic Group is dependent upon the distribution of the earnings of its
Subsidiaries, whether in the form of dividends, advances or payments on
account of intercompany obligations, to service its debt obligations. In
addition, the claims of the Holders are subject to the prior payment of all
liabilities (whether or not for borrowed money) and to any preferred stock
interest of any Subsidiary that is not a Guarantor. There can be no assurance
that, after providing for all prior claims, there would be sufficient assets
available from Hanger Orthopedic Group and its Subsidiaries to satisfy the
claims of the Holders of notes.
Change of Control
Upon the occurrence of a Change of Control, each Holder will have the right
to require that we purchase all or a portion of such Holder's notes pursuant
to the offer described below (the "Change of Control Offer"), at a purchase
price equal to 101% of the principal amount thereof plus accrued interest to
the date of purchase.
Within 30 days following the date upon which the Change of Control occurred,
we must send, by first class mail, a notice to each Holder, with a copy to the
Trustee, which notice shall govern the terms of the Change of Control Offer.
Such notice shall state, among other things, the purchase date, which must be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a note purchased pursuant to a Change of
Control Offer will be required to surrender the note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the note completed, to
the paying agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment
Date.
Prior to the mailing of the notice referred to above, but in any event
within 30 days following any Change of Control, we covenant to:
(1) repay in full and terminate all commitments under Indebtedness under
the Credit Agreement and all other Senior Debt the terms of which require
repayment upon a Change of Control or offer to repay in full and terminate
all commitments under all Indebtedness under the Credit Agreement and all
other such Senior Debt and to repay the Indebtedness owed to each lender
which has accepted such offer; or
(2) obtain the requisite consents under the Credit Agreement and all
other Senior Debt to permit the repurchase of the Notes as provided below.
We shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase notes pursuant to the
provisions described below. Our failure to comply with this covenant shall
constitute an Event of Default described in clause (3) and not in clause
(2) under "Events of Default" below.
If a Change of Control Offer is made, there can be no assurance that we will
have available funds sufficient to pay the Change of Control purchase price
for all the notes that might be delivered by Holders seeking to accept the
Change of Control Offer. In the event we are required to purchase outstanding
Notes pursuant to a Change of Control Offer, the Company expects that it would
seek third party financing to the extent it does not have available funds to
meet its purchase obligations. However, there can be no assurance that we
would be able to obtain such financing.
Neither our Board of Directors nor the Trustee may waive the covenant
relating to a Holder's right to receive and accept a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of Hanger
Orthopedic Group and its Restricted Subsidiaries to incur additional
Indebtedness, to grant liens on its property, to make Restricted Payments and
to make Asset Sales may also make more difficult or discourage a takeover of
the Hanger Orthopedic Group, whether favored or opposed by the management of
Hanger Orthopedic
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Group. Consummation of any such transaction in certain circumstances may
require redemption or repurchase of the notes, and there can be no assurance
that Hanger Orthopedic Group or the acquiring party will have sufficient
financial resources to effect such redemption or repurchase. Such restrictions
and the restrictions on transactions with Affiliates may, in certain
circumstances, make more difficult or discourage any leveraged buyout of
Hanger Orthopedic Group or any of its Subsidiaries by the management of Hanger
Orthopedic Group. While such restrictions cover a wide variety of arrangements
which have traditionally been used to effect highly leveraged transactions,
the Indenture may not afford the Holders protection in all circumstances from
the adverse aspects of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction.
We will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of notes
pursuant to a Change of Control Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Change of Control"
provisions of the Indenture, we shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached our obligations
under the "Change of Control" provisions of the Indenture by virtue thereof.
Certain Covenants
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. We will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for payment of
(collectively, "incur") any Indebtedness (other than Permitted Indebtedness);
provided, however, that if no Default or Event of Default shall have occurred
and be continuing at the time of or as a consequence of the incurrence of any
such Indebtedness, Hanger Orthopedic Group or any of its Restricted
Subsidiaries that is or, upon such incurrence, becomes a Guarantor may incur
Indebtedness (including, without limitation, Acquired Indebtedness) and any
Restricted Subsidiary of Hanger Orthopedic Group that is not or will not, upon
such incurrence, become a Guarantor may incur Acquired Indebtedness, in each
case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of Hanger Orthopedic Group is greater than (a) 2.25 to 1.0 prior to December
15, 2001 and (b) 2.5 to 1.0 on or after December 15, 2001.
For purposes of the foregoing paragraph, neither the accrual of interest nor
the accretion of discount on Indebtedness shall be deemed to be an incurrence
of Indebtedness.
Limitation on Restricted Payments. Hanger Orthopedic Group will not, and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of Hanger
Orthopedic Group) on or in respect of shares of our Capital Stock to
holders of such Capital Stock;
(2) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of Hanger Orthopedic Group or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock;
(3) make any principal payment on, purchase, defease, redeem, prepay,
decrease or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Indebtedness of Hanger Orthopedic Group or any Guarantor that is
subordinate or junior in right of payment to the Notes (other than any such
Indebtedness that is held by Hanger Orthopedic Group or a Guarantor); or
(4) make any Investment (other than Permitted Investments), including any
Designation Amount (each of the foregoing actions set forth in clauses (1),
(2), (3) and (4) being referred to as a "Restricted Payment");
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if at the time of such Restricted Payment or immediately after giving effect
thereto,
(i) a Default or an Event of Default shall have occurred and be
continuing; or
(ii) Hanger Orthopedic Group is not able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance
with the "Limitation on Incurrence of Additional Indebtedness" covenant; or
(iii) the aggregate amount of Restricted Payments (including such
proposed Restricted Payment) made subsequent to the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair market
value of such property as determined in good faith by the Board of
Directors of Hanger Orthopedic Group) shall exceed the sum of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of
Hanger Orthopedic Group earned from and after the first day of the
first full fiscal quarter following the Issue Date and on or prior to
the last day of the latest fiscal quarter for which consolidated
financial statements of Hanger Orthopedic Group are available preceding
the date the Restricted Payment occurs (treating such period as a
single accounting period); plus
(x) 100% of the aggregate net cash proceeds received by Hanger
Orthopedic Group from any Person (other than a Subsidiary of Hanger
Orthopedic Group) from the issuance and sale subsequent to the Issue
Date and on or prior to the date the Restricted Payment occurs of
Qualified Capital Stock of Hanger Orthopedic Group; plus
(y) without duplication of any amounts included in clause (iii)(x)
above, 100% of the aggregate net cash proceeds of any equity
contribution received by the Company from a holder of our Capital Stock
(excluding, in the case of clauses (iii)(x) and (y), any net cash
proceeds from a Public Equity Offering to the extent used to redeem the
notes in compliance with the provisions set forth under "Redemption--
Optional Redemption Upon Public Equity Offerings"); plus
(z) without duplication, the sum of:
(1) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to
the Issue Date whether through interest payments, principal
payments, dividends or other distributions or payments;
(2) the net cash proceeds received by Hanger Orthopedic Group or
any of its Restricted Subsidiaries from the disposition of all or
any portion of such Investments (other than to an Unrestricted
Subsidiary of Hanger Orthopedic Group); and
(3) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of such Subsidiary;
provided, however, that the sum of clauses (1), (2) and (3) above
shall not exceed the aggregate amount of all such Investments made
subsequent to the Issue Date.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of such dividend if the dividend would have been permitted on
the date of declaration;
(2) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any shares of Capital Stock of Hanger
Orthopedic Group, either (i) solely in exchange for shares of Qualified
Capital Stock of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of Hanger Orthopedic Group) of shares of Qualified Capital Stock
of Hanger Orthopedic Group; provided that, any such net proceeds pursuant
to the immediately preceding clause (2)(ii) are excluded from clause
(4)(iii)(x) of the preceding paragraph;
(3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of Hanger Orthopedic Group
or any Guarantor that is subordinate or junior in right of payment to the
Notes either (i) solely in exchange for shares of Qualified Capital Stock
of Hanger Orthopedic Group,
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or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of Hanger Orthopedic
Group) of (a) shares of Qualified Capital Stock of Hanger Orthopedic Group
or (b) Refinancing Indebtedness; provided that, any such net proceeds
pursuant to the immediately preceding clause (3)(ii)(a) are excluded from
clause (4)(iii)(x) of the preceding paragraph;
(4) so long as no Default or Event of Default shall have occurred and be
continuing, repurchases by Hanger Orthopedic Group of its Common Stock from
employees of Hanger Orthopedic Group or any of its Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment of such employees, in an aggregate amount not to exceed $1.0
million in any calendar year; and
(5) the acquisition of any shares of (i) Redeemable Preferred Stock of
Hanger Orthopedic Group constituting Qualified Capital Stock solely in
exchange for shares of Common Stock of Hanger Orthopedic Group or (ii)
Common Stock of Hanger Orthopedic Group solely in exchange for shares of
Common Stock of Hanger Orthopedic Group of another class.
In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1) and (4) shall be included
in such calculation.
Limitation on Asset Sales. Hanger Orthopedic Group will not, and will not
permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:
(1) Hanger Orthopedic Group or the applicable Restricted Subsidiary, as
the case may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by Hanger Orthopedic Group's Board
of Directors);
(2) at least 85% of the consideration received by Hanger Orthopedic Group
or the Restricted Subsidiary, as the case may be, from such Asset Sale
shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; and
(3) upon the consummation of an Asset Sale, Hanger Orthopedic Group shall
apply, or cause such Restricted Subsidiary to apply, the Net Cash Proceeds
relating to such Asset Sale within 180 days of receipt thereof either:
(a) to prepay any Senior Debt or Guarantor Senior Debt and, in the
case of any Senior Debt under any revolving credit facility, effect a
permanent reduction in the availability under such revolving credit
facility;
(b) to make an investment in properties and assets that replace the
properties and assets that were the subject of such Asset Sale or in
properties and assets that will be used in the business of Hanger
Orthopedic Group and its Restricted Subsidiaries as existing on the
Issue Date or in businesses reasonably related thereto ("Replacement
Assets"); or
(c) a combination of prepayment and investment permitted by the
foregoing clauses (3)(a) and (3)(b).
On the 181st day after an Asset Sale or such earlier date, if any, as the
Board of Directors of Hanger Orthopedic Group or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as
set forth in clause (3) of the preceding paragraph (each, an "Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Offer Trigger Date as permitted in clause (3) of the
preceding paragraph (each an "Offer Amount") shall be applied by the Company
or such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Offer Trigger Date, from all
Holders on a pro rata basis, that amount of notes equal to the Offer Amount at
a price equal to 100% of the principal amount of the notes to be purchased,
plus accrued and unpaid interest thereon, if any, to the date of purchase;
provided, however, that if at any time any non-cash consideration received by
Hanger Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic
Group, as the case may be, in connection with any Asset Sale is converted into
or sold or otherwise disposed of for cash (other than interest received with
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respect to any such non-cash consideration), then such conversion or
disposition shall be deemed to constitute an Asset Sale hereunder and the Net
Cash Proceeds thereof shall be applied in accordance with this covenant.
Hanger Orthopedic Group may defer making the Net Proceeds Offer until there
is an aggregate Offer Amount equal to or in excess of $5.0 million resulting
from one or more Asset Sales (at which time, the entire Offer Amount, and not
just the amount in excess of $5.0 million, shall be applied as required
pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of Hanger Orthopedic Group and its Restricted Subsidiaries
as an entirety to a Person in a transaction permitted under "--Merger,
Consolidation and Sale of Assets", which transaction does not constitute a
Change of Control, the successor corporation shall be deemed to have sold the
properties and assets of Hanger Orthopedic Group and its Restricted
Subsidiaries not so transferred for purposes of this covenant, and shall
comply with the provisions of this covenant with respect to such deemed sale
as if it were an Asset Sale. In addition, the fair market value of such
properties and assets of Hanger Orthopedic Group or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Offer Trigger Date, with a
copy to the Trustee, and shall comply with the procedures set forth in the
Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may elect
to tender their notes in whole or in part in integral multiples of $1,000 in
exchange for cash. To the extent Holders properly tender notes in an amount
exceeding the Offer Amount, notes of tendering Holders will be purchased on a
pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain
open for a period of 20 business days or such longer period as may be required
by law.
Hanger Orthopedic Group will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in
connection with the repurchase of notes pursuant to a Net Proceeds Offer. To
the extent that the provisions of any securities laws or regulations conflict
with the "Asset Sale" provisions of the Indenture, Hanger Orthopedic Group
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under the "Asset Sale" provisions
of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. Hanger Orthopedic Group will not, and will not cause or permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary of Hanger Orthopedic
Group to:
(1) pay dividends or make any other distributions on or in respect of its
Capital Stock;
(2) make loans or advances or to pay any Indebtedness or other obligation
owed to Hanger Orthopedic Group or any other Restricted Subsidiary of
Hanger Orthopedic Group; or
(3) transfer any of its property or assets to Hanger Orthopedic Group or
any other Restricted Subsidiary of Hanger Orthopedic Group,
except for such encumbrances or restrictions existing under or by reason of:
(a) applicable law;
(b) the Indenture or the Credit Agreement;
(c) Liens on property described in clause (6) or (7) of the definition of
Permitted Liens, but only with respect to transfers referred to in clause
(3) above;
(d) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary of Hanger
Orthopedic Group;
(e) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person or the properties or assets of the Person
so acquired;
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(f) agreements existing on the Issue Date to the extent and in the manner
such agreements are in effect on the Issue Date;
(g) any agreement entered into for the sale or disposition of all or
substantially all of the Capital Stock or property of any Restricted
Subsidiary pending the closing of such sale or disposition; or
(h) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clause (b), (c), (e) or (f) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less favorable to Hanger Orthopedic Group in any
material respect as determined by the Board of Directors of Hanger
Orthopedic Group in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in
agreements referred to in such clause (b), (c), (e) or (f).
Limitation on Capital Stock of Restricted Subsidiaries. Hanger Orthopedic
Group will not permit any of its Restricted Subsidiaries to issue any Capital
Stock (other than to Hanger Orthopedic Group or to a Wholly Owned Restricted
Subsidiary of the Company) or permit any Person (other than Hanger Orthopedic
Group or a Wholly Owned Restricted Subsidiary of Hanger Orthopedic Group) to
own any Capital Stock of any Restricted Subsidiary of Hanger Orthopedic Group.
Limitation on Liens. Hanger Orthopedic Group will not, and will not cause or
permit any of its Restricted Subsidiaries to, directly or indirectly, create,
incur, assume or permit or suffer to exist any Liens of any kind against or
upon any property or assets of Hanger Orthopedic Group or any of its
Restricted Subsidiaries whether owned on the Issue Date or acquired after the
Issue Date, or any proceeds therefrom, or assign or otherwise convey any right
to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens; and
(2) in all other cases, the Notes are equally and ratably secured, except
for:
(a) Liens existing as of the Issue Date to the extent and in the
manner such Liens are in effect on the Issue Date;
(b) Liens securing Senior Debt and Liens securing Guarantor Senior
Debt;
(c) Liens of Hanger Orthopedic Group or a Wholly Owned Restricted
Subsidiary of Hanger Orthopedic Group on assets of any Restricted
Subsidiary of Hanger Orthopedic Group;
(d) Liens securing Refinancing Indebtedness which is incurred to
Refinance any Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens: (i)
are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced; and (ii) do not extend to or cover any
property or assets of Hanger Orthopedic Group or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced; and
(e) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. Hanger Orthopedic
Group will not, and will not permit any Restricted Subsidiary that is a
Guarantor to, incur or suffer to exist Indebtedness that is senior in right of
payment to the notes or such Guarantor's Guarantee, as the case may be, and
subordinate in right of payment to any other Indebtedness of Hanger Orthopedic
Group or such Guarantor, as the case may be.
Merger, Consolidation and Sale of Assets. Hanger Orthopedic Group will not,
in a single transaction or series of related transactions, consolidate or
merge with or into any Person, or sell, assign, transfer, lease, convey or
otherwise dispose of (or cause or permit any Restricted Subsidiary of Hanger
Orthopedic Group to sell, assign, transfer, lease, convey or otherwise dispose
of) all or substantially all of Hanger Orthopedic Group's assets
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(determined on a consolidated basis for Hanger Orthopedic Group and Hanger
Orthopedic Group's Restricted Subsidiaries) whether as an entirety or
substantially as an entirety to any Person unless:
(1) either:
(a) Hanger Orthopedic Group shall be the surviving or continuing
corporation; or
(b) the Person (if other than Hanger Orthopedic Group) formed by such
consolidation or into which Hanger Orthopedic Group is merged or the Person
which acquires by sale, assignment, transfer, lease, conveyance or other
disposition the properties and assets of the Company and of Hanger
Orthopedic Group's Restricted Subsidiaries substantially as an entirety
(the "Surviving Entity"):
(x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of
Columbia; and
(y) shall expressly assume, by supplemental indenture (in form and
substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium,
if any, and interest on all of the Notes and the performance of every
covenant of the Notes, the Indenture and the Registration Rights
Agreement on the part of Hanger Orthopedic Group to be performed or
observed;
(2) immediately after giving effect to such transaction and the assumption
contemplated by clause (1)(b)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction), Hanger Orthopedic Group
or such Surviving Entity, as the case may be, (a) shall have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (b) shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant
to the "--Limitation on Incurrence of Additional Indebtedness" covenant;
(3) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (1)(b)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing;
(4) each Guarantor confirms its Guarantee; and
(5) Hanger Orthopedic Group or the Surviving Entity shall have delivered to
the Trustee an officers' certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, transfer, lease, conveyance
or other disposition and, if a supplemental indenture is required in
connection with such transaction, such supplemental indenture comply with the
applicable provisions of the Indenture and that all conditions precedent in
the Indenture relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of Hanger Orthopedic Group the Capital Stock of which constitutes
all or substantially all of the properties and assets of Hanger Orthopedic
Group, shall be deemed to be the transfer of all or substantially all of the
properties and assets of Hanger Orthopedic Group.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of Hanger
Orthopedic Group in accordance with the foregoing, in which Hanger Orthopedic
Group is not the continuing corporation, the successor Person formed by such
consolidation or into which Hanger Orthopedic Group is merged or to which such
conveyance, lease or transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, Hanger Orthopedic Group under
the Indenture and the Notes with the same effect as if such surviving entity
had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of
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"--Limitation on Asset Sales") will not, and Hanger Orthopedic Group will not
cause or permit any Guarantor to, consolidate with or merge with or into any
Person other than Hanger Orthopedic Group or any other Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States or any State thereof or the
District of Columbia;
(2) such entity assumes by supplemental indenture all of the obligations
of the Guarantor on the Guarantee;
(3) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, Hanger Orthopedic Group
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the "--Limitation on Incurrence of Additional
Indebtedness" covenant.
Any merger or consolidation of a Guarantor with and into Hanger Orthopedic
Group (with Hanger Orthopedic Group being the surviving entity) or another
Guarantor that is a Wholly Owned Restricted Subsidiary of Hanger Orthopedic
Group need only comply with clause (4) of the first paragraph of this
covenant.
The meaning of the phrase "all or substantially all" as used above varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under relevant law and is subject to judicial
interpretation. Accordingly, in certain circumstances, there may be a degree
of uncertainty in ascertaining whether a particular transaction would involve
a disposition of "all or substantially all" of the assets of Hanger Orthopedic
Group, and therefore it may be unclear whether the foregoing provisions are
applicable.
Limitations on Transactions with Affiliates. Hanger Orthopedic Group will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other
than (x) Affiliate Transactions permitted as described below and (y) Affiliate
Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of Hanger Orthopedic
Group or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $2.5 million
shall be approved by the Board of Directors of Hanger Orthopedic Group or such
Restricted Subsidiary, as the case may be, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If Hanger Orthopedic Group
or any Restricted Subsidiary of Hanger Orthopedic Group enters into an
Affiliate Transaction (or a series of related Affiliate Transactions related
to a common plan) that involves an aggregate fair market value of more than
$10.0 million, the Company or such Restricted Subsidiary, as the case may be,
shall, prior to the consummation thereof, obtain a favorable opinion as to the
fairness of such transaction or series of related transactions to Hanger
Orthopedic Group or the relevant Restricted Subsidiary, as the case may be,
from a financial point of view, from an Independent Financial Advisor and file
the same with the Trustee.
The restrictions set forth in the first paragraph of this covenant shall not
apply to:
(1) reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of Hanger
Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic Group as
determined in good faith by Hanger Orthopedic Group's Board of Directors or
senior management;
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(2) transactions exclusively between or among Hanger Orthopedic Group and
any of its Wholly Owned Restricted Subsidiaries or exclusively between or
among such Wholly Owned Restricted Subsidiaries, provided such transactions
are not otherwise prohibited by the Indenture;
(3) any agreement (including any certificate of designations relating to
Capital Stock) as in effect as of the Issue Date or with respect to any
Certificate of Designations pursuant to any agreement dated as of the Issue
Date, the date of the filing thereof, or any amendment thereto or any
transaction contemplated thereby (including pursuant to any amendment
thereto) in any replacement agreement thereto so long as any such amendment
or replacement agreement is not more disadvantageous to the Holders in any
material respect than the original agreement as in effect on the Issue
Date;
(4) the issuance to Chase Capital Partners on or about the Issue Date of
shares of Hanger Orthopedic Group's Redeemable Preferred Stock, and the
payment of dividends on such shares in accordance with the terms of such
Preferred Stock; and
(5) Restricted Payments permitted by the Indenture.
Additional Subsidiary Guarantees. If Hanger Orthopedic Group or any of its
Restricted Subsidiaries transfers or causes to be transferred, in one
transaction or a series of related transactions, any property to any Domestic
Restricted Subsidiary that is not a Guarantor, or if Hanger Orthopedic Group
or any of its Restricted Subsidiaries shall organize, acquire or otherwise
invest in another Domestic Restricted Subsidiary having total assets with a
book value in excess of $500,000, then such transferee or acquired or other
Restricted Subsidiary shall:
(1) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of Hanger Orthopedic Group's
obligations under the Notes and the Indenture on the terms set forth in the
Indenture; and
(2) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the
Indenture.
Conduct of Business. Hanger Orthopedic Group and its Restricted Subsidiaries
will not engage in any businesses which are not the same, similar or
reasonably related to the businesses in which the Company and its Restricted
Subsidiaries are engaged on the Issue Date.
Reports to Holders. The Indenture will provide that, whether or not required
by the rules and regulations of the Commission, so long as any notes are
outstanding, Hanger Orthopedic Group will deliver to the Trustee within 15
days after the filing of the same with the Commission, copies of:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if
the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
that describes the financial condition and results of operations of the
Company and its consolidated Subsidiaries (showing in reasonable detail,
either on the face of the financial statements or in the footnotes thereto
and in Management's Discussion and Analysis of Financial Condition and
Results of Operations, the financial condition and results of operations of
the Company and its Restricted Subsidiaries separate from the financial
condition and results of operations of the Unrestricted Subsidiaries of
Hanger Orthopedic Group, if any) and, with respect to the annual
information only, a report thereon by Hanger Orthopedic Group's certified
independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Hanger Orthopedic Group were required to file
such reports, in each case within the time periods specified in the
Commission's rules and regulations.
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In addition, following the consummation of the exchange offer contemplated
by the Registration Rights Agreement, whether or not required by the rules and
regulations of the Commission, Hanger Orthopedic Group will file a copy of all
such information and reports with the Commission for public availability
within the time periods specified in the Commission's rules and regulations
(unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, Hanger Orthopedic Group has agreed that, for so long as
any notes remain outstanding, it will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Events of Default
The following events are defined in the Indenture as "Events of Default":
(1) the failure to pay interest (including any Additional Interest) on
any notes when the same becomes due and payable and the default continues
for a period of 30 days (whether or not such payment shall be prohibited by
the subordination provisions of the Indenture);
(2) the failure to pay the principal of or premium on any Notes, when
such principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(3) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after Hanger Orthopedic Group receives written notice specifying
the default (and demanding that such default be remedied) from the Trustee
or the Holders of at least 25% of the outstanding principal amount of the
notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(4) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of Hanger Orthopedic Group or any Restricted Subsidiary of
Hanger Orthopedic Group, or the acceleration of the final stated maturity
of any such Indebtedness (which acceleration is not rescinded, annulled or
otherwise cured within 20 days of receipt by Hanger Orthopedic Group or
such Restricted Subsidiary of notice of any such acceleration) if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$10.0 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $10.0
million shall have been rendered against the Company or any of its
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable;
(6) certain events of bankruptcy affecting Hanger Orthopedic Group or any
of its Significant Subsidiaries; or
(7) any Guarantee of a Significant Subsidiary ceases to be in full force
and effect or any Guarantee of a Significant Subsidiary is declared to be
null and void and unenforceable or any Guarantee of a Significant
Subsidiary is found to be invalid or any Guarantor that is a Significant
Subsidiary denies its liability under its Guarantee (other than by reason
of release of such Guarantor in accordance with the terms of the
Indenture).
If an Event of Default (other than an Event of Default specified in clause
(6) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding
notes may declare the principal of and accrued interest on all the notes to be
due and payable by notice in writing to Hanger Orthopedic Group and the
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same:
(1) shall become immediately due and payable; or
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(2) if there are any amounts outstanding under the Credit Agreement,
shall become immediately due and payable upon the first to occur of an
acceleration under the Credit Agreement or 5 business days after receipt by
the Company and the Representative under the Credit Agreement of such
Acceleration Notice but only if such Event of Default is then continuing.
If an Event of Default specified in clause (6) above with respect to Hanger
Orthopedic Group occurs and is continuing, then all unpaid principal of,
and premium, if any, and accrued and unpaid interest on all of the
outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or
any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the notes may
rescind and cancel such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue amounts, which has become due otherwise than by such declaration of
acceleration, has been paid;
(4) if Hanger Orthopedic Group has paid the Trustee its reasonable
compensation and reimbursed the Trustee for its expenses, disbursements and
advances; and
(5) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the description above of Events of Default, the
Trustee shall have received an officers' certificate and an opinion of
counsel that such Event of Default has been cured or waived. No such
rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in principal amount of the notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Notes may not enforce the Indenture or the notes except as
provided in the Indenture and under the Trust Indenture Act. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless
such Holders have offered to the Trustee reasonable indemnity. Subject to all
provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, Hanger Orthopedic Group is required to provide an
officers' certificate to the Trustee promptly upon any such officer obtaining
knowledge of any Default or Event of Default (provided that such officers
shall provide such certification at least annually whether or not they know of
any Default or Event of Default) that has occurred and, if applicable,
describe such Default or Event of Default and the status thereof.
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Legal Defeasance and Covenant Defeasance
Hanger Orthopedic Group may, at its option and at any time, elect to have
its obligations and the obligations of the Guarantors discharged with respect
to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means
that Hanger Orthopedic Group shall be deemed to have paid and discharged the
entire indebtedness represented by the outstanding Notes, except for:
(1) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on the notes when such payments are due;
(2) Hanger Orthopedic Group's obligations with respect to the notes
concerning issuing temporary notes, registration of Notes, mutilated,
destroyed, lost or stolen notes and the maintenance of an office or agency
for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
Hanger Orthopedic Group's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, Hanger Orthopedic Group may, at its option and at any time,
elect to have the obligations of Hanger Orthopedic Group released with respect
to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, reorganization and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Hanger Orthopedic Group must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders cash in U.S. dollars, non-callable
U.S. government obligations, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any,
and interest on the notes on the stated date for payment thereof or on the
applicable redemption date, as the case may be;
(2) in the case of Legal Defeasance, Hanger Orthopedic Group shall have
delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that:
(a) Hanger Orthopedic Group has received from, or there has been
published by, the Internal Revenue Service a ruling; or
(b) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred;
(3) in the case of Covenant Defeasance, Hanger Orthopedic Group shall
have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit and after giving effect to the deposit or, in
the case of a Legal Defeasance, insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument to which Hanger Orthopedic Group or any of its
Subsidiaries is a party or by which Hanger Orthopedic Group or any of its
Subsidiaries is bound;
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(6) Hanger Orthopedic Group shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by Hanger
Orthopedic Group with the intent of preferring the Holders over any other
creditors of Hanger Orthopedic Group or with the intent of defeating,
hindering, delaying or defrauding any other creditors of Hanger Orthopedic
Group or others;
(7) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with;
(8) Hanger Orthopedic Group shall have delivered to the Trustee an
opinion of counsel to the effect that:
(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture; and
(b) assuming no intervening bankruptcy of Hanger Orthopedic Group
between the date of deposit and the 91st day following the date of
deposit and that no Holder is an insider of Hanger Orthopedic Group,
after the 91st day following the date of deposit, the trust funds will
not be subject to avoidance as a preference under any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (2)
above with respect to a Legal Defeasance need not be delivered if all notes
not theretofore delivered to the Trustee for cancellation (1) have become due
and payable or (2) will become due and payable on the maturity date within one
year under arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of Hanger
Orthopedic Group.
If the Trustee is unable to apply any U.S. dollars or non-callable U.S.
government obligations in accordance with the above, by reason of any order or
judgment of any court of governmental authority enjoining, restraining or
otherwise prohibiting such application, then Hanger Orthopedic Group's
obligations under the Indenture and the notes will be revived and reinstated
as though no deposit had occurred, until such time as the Trustee is permitted
to apply all such money in accordance with the terms of the Indenture,
provided that if Hanger Orthopedic Group makes any payment of principal or
redemption price of (or premium, if any) or interest on any Note following the
reinstatement of its obligations, Hanger Orthopedic Group will be subrogated
to the rights of the Holders of such notes to receive such payment from the
money held by the Trustee.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
notes, as expressly provided for in the Indenture) as to all outstanding notes
when:
(1) either:
(a) all the notes theretofore authenticated and delivered (except
lost, stolen or destroyed notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by Hanger Orthopedic Group and
thereafter repaid to Hanger Orthopedic Group or discharged from such
trust) have been delivered to the Trustee for cancellation; or
(b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and Hanger Orthopedic Group
has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the
notes to the date of deposit together with irrevocable instructions
from Hanger Orthopedic Group directing the Trustee to apply such funds
to the payment thereof;
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(2) Hanger Orthopedic Group has paid all other sums payable under the
Indenture by Hanger Orthopedic Group; and
(3) Hanger Orthopedic Group has delivered to the Trustee an officers'
certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
Modification of the Indenture
From time to time, Hanger Orthopedic Group, the Guarantors and the Trustee,
without the consent of the Holders, may amend the Indenture for certain
specified purposes, including curing ambiguities, defects or inconsistencies,
so long as such change does not, in the opinion of the Trustee, adversely
affect the rights of any of the Holders in any material respect. In
formulating its opinion on such matters, the Trustee will be entitled to rely
on such evidence as it deems appropriate, including, without limitation,
solely on an opinion of counsel. Other modifications and amendments of the
Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding notes issued under the Indenture,
except that, without the consent of each Holder affected thereby, no amendment
may:
(1) reduce the amount of notes whose Holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any notes, or change the date on which any notes may be
subject to redemption or reduce the redemption price therefor;
(4) make any notes payable in money other than that stated in the notes;
(5) make any change in provisions of the Indenture protecting the right
of each Holder to receive payment of all amounts due on such note on or
after the due date thereof or to bring suit to enforce such payment, or
permitting Holders of a majority in principal amount of notes to waive
Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
Hanger Orthopedic Group to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale;
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the notes or any
Guarantee in a manner which adversely affects the Holders; or
(8) release any Guarantor that is a Significant Subsidiary from any of
its obligations under its Guarantee or the Indenture otherwise than in
accordance with the terms of the Indenture.
Governing Law
The Indenture will provide that it, the notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
The Trustee
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the Trust Indenture Act contain certain
limitations on the rights of the Trustee, should it become a creditor of
Hanger Orthopedic Group, to obtain payments of claims in certain cases
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or to realize on certain property received in respect of any such claim as
security or otherwise. Subject to the Trust Indenture Act, the Trustee will be
permitted to engage in other transactions; provided that if the Trustee
acquires any conflicting interest as described in the Trust Indenture Act, it
must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
of Hanger Orthopedic Group or at the time it merges or consolidates with
Hanger Orthopedic Group or any of its Subsidiaries or assumed in connection
with the acquisition of assets from such Person and in each case whether or
not incurred by such Person in connection with, or in anticipation or
contemplation of, such Person becoming a Restricted Subsidiary of Hanger
Orthopedic Group or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (1) an Investment by Hanger Orthopedic Group or
any Restricted Subsidiary of Hanger Orthopedic Group in any other Person
pursuant to which such Person shall become a Restricted Subsidiary of Hanger
Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic Group, or
shall be merged with or into Hanger Orthopedic Group or any Restricted
Subsidiary of Hanger Orthopedic Group, or (2) the acquisition by Hanger
Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic Group of
the assets of any Person (other than a Restricted Subsidiary of Hanger
Orthopedic Group) which constitute all or substantially all of the assets of
such Person or comprises any division or line of business of such Person or
any other properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by Hanger
Orthopedic Group or any of its Restricted Subsidiaries (including any Sale and
Leaseback Transaction) to any Person other than Hanger Orthopedic Group or a
Wholly Owned Restricted Subsidiary of Hanger Orthopedic Group of: (1) any
Capital Stock of any Restricted Subsidiary of Hanger Orthopedic Group; or (2)
any other property or assets of Hanger Orthopedic Group or any Restricted
Subsidiary of Hanger Orthopedic Group other than in the ordinary course of
business; provided, however, that asset sales or other dispositions shall not
include: (a) a transaction or series of related transactions for which Hanger
Orthopedic Group or its Restricted Subsidiaries receive aggregate
consideration of less than $500,000; and (b) the sale, lease, conveyance,
disposition or other transfer of all or substantially all of the assets of
Hanger Orthopedic Group as permitted under "Merger, Consolidation and Sale of
Assets."
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this
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definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all shares,
interests, participations or other equivalents (however designated and
whether or not voting) of corporate stock, including each class of Common
Stock and Preferred Stock of such Person; and
(2) with respect to any Person that is not a corporation, any and all
partnership, membership or other equity interests of such Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250.0 million;
(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets
of Hanger Orthopedic Group to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with
any Affiliates thereof (whether or not otherwise in compliance with the
provisions of the Indenture);
(2) the approval by the holders of Capital Stock of Hanger Orthopedic
Group of any plan or proposal for the liquidation or dissolution of Hanger
Orthopedic Group (whether or not otherwise in compliance with the
provisions of the Indenture);
(3) any Person or Group shall be or become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 40%
of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of Hanger Orthopedic Group;
(4) any Person or Group, other than Chase, shall be or become the owner,
directly or indirectly, beneficially or of record, of shares representing
more than 25% of the aggregate ordinary voting power represented by the
issued and outstanding Capital Stock of Hanger Orthopedic Group, provided
that Chase then owns, directly or indirectly, beneficially or of record, a
lesser percentage of such aggregate voting power ; or
(5) the replacement of a majority of the Board of Directors of Hanger
Orthopedic Group over a two-year period from the directors who constituted
the Board of Directors of Hanger Orthopedic Group at the
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beginning of such period, and such replacement shall not have been approved
by a vote of at least a majority of the Board of Directors of Hanger
Orthopedic Group then still in office who either were members of such Board
of Directors at the beginning of such period or whose election as a member
of such Board of Directors was previously so approved.
"Chase" means Chase Capital Partners and its Affiliates.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of:
(1) Consolidated Net Income; and
(2) to the extent Consolidated Net Income has been reduced thereby:
(a) all income taxes of such Person and its Restricted Subsidiaries
paid or accrued in accordance with GAAP for such period (other than
income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions outside
the ordinary course of business);
(b) Consolidated Interest Expense; and
(c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in
accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending prior to the date of the
transaction giving rise to the need to calculate the Consolidated Fixed Charge
Coverage Ratio for which financial statements are available (the "Transaction
Date") to Consolidated Fixed Charges of such Person for the Four Quarter
Period. In addition to and without limitation of the foregoing, for purposes
of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges"
shall be calculated after giving effect on a pro forma basis for the period of
such calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or any
of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant to
working capital facilities, occurring during the Four Quarter Period or at
any time subsequent to the last day of the Four Quarter Period and on or
prior to the Transaction Date, as if such incurrence or repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period; and
(2) any asset sales or other dispositions or Asset Acquisitions
(including, without limitation, any Asset Acquisition giving rise to the
need to make such calculation as a result of such Person or one of its
Restricted Subsidiaries (including any Person who becomes a Restricted
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and also including any
Consolidated EBITDA (including any pro forma expense and cost reductions
calculated on a basis consistent with Regulation S-X under the Exchange
Act) attributable to the assets which are the subject of the Asset
Acquisition or asset sale or other disposition during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent
to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such asset sale or other disposition or Asset
Acquisition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four
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Quarter Period. If such Person or any of its Restricted Subsidiaries
directly or indirectly guarantees Indebtedness of a third Person, the
preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Restricted Subsidiary of such Person
had directly incurred or otherwise assumed such guaranteed Indebtedness.
Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; and
(2) notwithstanding clause (1) above, interest on Indebtedness determined
on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue
at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense; plus
(2) the product of (x) the amount of all dividends on any series of
Preferred Stock of such Person (other than dividends accrued on the
Redeemable Preferred Stock and other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including without limitation: (a) any amortization
of debt discount and amortization or write-off of deferred financing costs;
(b) the net costs under Interest Swap Obligations; (c) all capitalized
interest; and (d) the interest portion of any deferred payment obligation;
and
(2) the interest component of Capitalized Lease Obligations paid, accrued
and/or scheduled to be paid or accrued by such Person and its Restricted
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Wholly Owned
Restricted Subsidiaries for such period on a consolidated basis, determined in
accordance with GAAP; provided that there shall be excluded therefrom:
(1) after-tax gains from Asset Sales (without regard to the $500,000
limitation set forth in the definition thereof) or abandonments or reserves
relating thereto;
(2) after-tax items classified as extraordinary or nonrecurring gains;
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary of
the referent Person or is merged or consolidated with the referent Person
or any Restricted Subsidiary of the referent Person;
(4) the net income (but not loss) of any Wholly Owned Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that
income is restricted by a contract, operation of law or otherwise;
(5) the net income of any Person, other than a Wholly Owned Restricted
Subsidiary of the referent Person, except to the extent of cash dividends
or distributions paid to the referent Person or to a Wholly Owned
Restricted Subsidiary of the referent Person by such Person;
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(6) any restoration to income of any contingency reserve, except to the
extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date;
(7) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued); and
(8) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings of
the successor corporation prior to such consolidation, merger or transfer
of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding any such
charges constituting an extraordinary item or loss or any such charge which
requires an accrual of or a reserve for cash charges for any future period).
"Credit Agreement" means the Credit Agreement to be entered into on or about
the Issue Date, between Hanger Orthopedic Group, the lenders party thereto in
their capacities as lenders thereunder and The Chase Manhattan Bank, Bankers
Trust Company, and Paribas, as agents, together with the related documents
thereto (including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder (provided that such increase in borrowings is
permitted by the "Limitation on Incurrence of Additional Indebtedness"
covenant above) or adding Restricted Subsidiaries of Hanger Orthopedic Group
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement
and whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect Hanger
Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic Group
against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (1) Indebtedness under or in respect of the
Credit Agreement and (2) any other Indebtedness that, at the time of
determination, has an aggregate principal amount of at least $25.0 million and
is specifically designated in the instrument evidencing such Indebtedness as
"Designated Senior Debt" by Hanger Orthopedic Group.
"Designation Amount" means, at the time Hanger Orthopedic Group designates
any of its Subsidiaries as an "Unrestricted Subsidiary" under the Indenture,
the fair market value of the Investment of Hanger Orthopedic Group and the
Restricted Subsidiaries in such Subsidiary on such date.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable at the option of the holder thereof), or upon the
happening of any event (other than an event which would constitute a Change of
Control), matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof (except, in each case, upon the occurrence of a Change of Control) on
or prior to the final maturity date of the Notes.
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"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized or existing under the laws of the United States, any
state thereof or any territory or possession of the United States.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of Hanger Orthopedic Group
acting reasonably and in good faith and shall be evidenced by a Board
Resolution of the Board of Directors of Hanger Orthopedic Group delivered to
the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means: each of Hanger Orthopedic Group's Domestic Restricted
Subsidiaries, whether existing on the Issue Date or thereafter created. Each
Restricted Subsidiary of Hanger Orthopedic Group created subsequent to the
Issue Date will execute a supplemental indenture in which such Restricted
Subsidiary agrees to be bound by the terms of the Indenture as a Guarantor;
provided that any Person constituting a Guarantor as described above shall
cease to constitute a Guarantor when its respective Guarantee is released in
accordance with the terms of the Indenture.
"Guarantor Senior Debt" means, with respect to any Guarantor: the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" shall also include the principal of, premium, if any,
interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of:
(x) all monetary obligations of every nature of Hanger Orthopedic Group
under the Credit Agreement, including, without limitation, obligations to
pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Currency Agreements;
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Subsidiary of such Guarantor;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of such Guarantor or any Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation but
excluding any Guarantor Senior Debt held by any Person who becomes such a
shareholder as a result of the exercise of remedies under such Guarantor
Senior Debt);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
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(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holder(s)
of such obligation or their representative and the Trustee shall have
received an officers' certificate of Hanger Orthopedic Group to the effect
that the incurrence of such Indebtedness does not (or, in the case of
revolving credit indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is
made would not) violate such provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without recourse
to the Company; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money;
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all Capitalized Lease Obligations of such Person;
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(5) all Obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below;
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured;
(8) all Obligations under currency agreements and interest swap
agreements of such Person; and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if
any.
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Disqualified Capital Stock
as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock, such fair market value shall be determined
reasonably and in good faith by the Board of Directors of the issuer of such
Disqualified Capital Stock.
"Independent Financial Advisor" means a firm: (1) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in Hanger Orthopedic Group; and (2) which, in the
judgment of the Board of Directors of Hanger Orthopedic Group, is otherwise
independent and qualified to perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) with any other Person,
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whereby, directly or indirectly, such Person is entitled to receive from time
to time periodic payments calculated by applying either a floating or a fixed
rate of interest on a stated notional amount in exchange for periodic payments
made by such other Person calculated by applying a fixed or a floating rate of
interest on the same notional amount.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, Notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and its Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of Hanger Orthopedic Group or
such Restricted Subsidiary, as the case may be. If Hanger Orthopedic Group or
any Restricted Subsidiary of Hanger Orthopedic Group sells or otherwise
disposes of any Common Stock of any direct or indirect Restricted Subsidiary
of Hanger Orthopedic Group such that, after giving effect to any such sale or
disposition, Hanger Orthopedic Group no longer owns, directly or indirectly,
100% of the outstanding Common Stock of such Restricted Subsidiary, Hanger
Orthopedic Group shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Common Stock of
such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by Hanger Orthopedic Group or any of its Restricted Subsidiaries from
such Asset Sale net of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions);
(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements;
(3) repayment of Indebtedness that is secured by the property or assets
that are the subject of such Asset Sale; and
(4) appropriate amounts to be provided by Hanger Orthopedic Group or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained
by Hanger Orthopedic Group or any Restricted Subsidiary, as the case may
be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated
with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnification, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness represented by the notes issued in the Offering in an
aggregate principal amount not to exceed $150.0 million;
(2) Indebtedness incurred pursuant to the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $300.0
million less:
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(a) the amount of all mandatory principal payments actually made by
Hanger Orthopedic Group in respect of the term loans thereunder
(excluding any such payments to the extent refinanced at the time of
payment under a replaced Credit Agreement); and
(b) reduced by any required permanent repayments (which are
accompanied by a corresponding permanent commitment reduction)
thereunder;
(3) other Indebtedness of Hanger Orthopedic Group and its Restricted
Subsidiaries outstanding on the Issue Date reduced by the amount of any
scheduled amortization payments or mandatory prepayments when actually paid
or permanent reductions thereon;
(4) Interest Swap Obligations of Hanger Orthopedic Group covering
Indebtedness of Hanger Orthopedic Group or any of its Restricted
Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary of
Hanger Orthopedic Group covering Indebtedness of such Restricted
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect Hanger Orthopedic Group and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred
in accordance with the Indenture to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of Hanger Orthopedic Group and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(6) Indebtedness of a Restricted Subsidiary of Hanger Orthopedic Group to
Hanger Orthopedic Group or to a Wholly Owned Restricted Subsidiary of
Hanger Orthopedic Group for so long as such Indebtedness is held by Hanger
Orthopedic Group or a Wholly Owned Restricted Subsidiary of Hanger
Orthopedic Group, in each case subject to no Lien held by a Person other
than Hanger Orthopedic Group or a Wholly Owned Restricted Subsidiary of
Hanger Orthopedic Group (other than a Lien to collateralize Indebtedness
described in clause (2) of the definition of Permitted Indebtedness);
provided that if as of any date any Person other than Hanger Orthopedic
Group or a Wholly Owned Restricted Subsidiary of Hanger Orthopedic Group
owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness (other than a Lien to collateralize Indebtedness described in
clause (2) of the definition of Permitted Indebtedness), such date shall be
deemed the incurrence of Indebtedness not constituting Permitted
Indebtedness by the issuer of such Indebtedness;
(7) Indebtedness of Hanger Orthopedic Group to a Wholly Owned Restricted
Subsidiary of Hanger Orthopedic Group for so long as such Indebtedness is
held by a Wholly Owned Restricted Subsidiary of Hanger Orthopedic Group, in
each case subject to no Lien (other than a Lien to secure Indebtedness
described in clause (2) of the definition of Permitted Indebtedness);
provided that (a) any Indebtedness of Hanger Orthopedic Group to any Wholly
Owned Restricted Subsidiary of Hanger Orthopedic Group is unsecured and
subordinated, pursuant to a written agreement, to Hanger Orthopedic Group's
obligations under the Indenture and the notes and (b) if as of any date any
Person other than a Wholly Owned Restricted Subsidiary of Hanger Orthopedic
Group owns or holds any such Indebtedness or any Person holds a Lien in
respect of such Indebtedness (other than a Lien to secure Indebtedness
described in clause (2) of the definition of Permitted Indebtedness), such
date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by Hanger Orthopedic Group;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(9) Indebtedness of Hanger Orthopedic Group or any of its Restricted
Subsidiaries represented by letters of credit for the account of Hanger
Orthopedic Group or such Restricted Subsidiary, as the case may be, in
order to provide security for workers' compensation claims, payment
obligations in connection with self-insurance or similar requirements in
the ordinary course of business;
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(10) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of Hanger Orthopedic Group and its Restricted
Subsidiaries incurred in the ordinary course of business not to exceed
$10.0 million at any one time outstanding;
(11) Refinancing Indebtedness;
(12) Unsecured Indebtedness of Hanger Orthopedic Group payable to one or
more sellers of any Person acquired by Hanger Orthopedic Group or any
Wholly Owned Restricted Subsidiary of Hanger Orthopedic Group, incurred in
connection with such acquisition in compliance with the terms of the
Indenture, not to exceed $15.0 million in the aggregate at any one time
outstanding and in each case subordinated in right of payment to the notes
and the Guarantees;
(13) additional Indebtedness of Hanger Orthopedic Group and its
Restricted Subsidiaries in an aggregate principal amount not to exceed
$25.0 million at any one time outstanding (which amount may, but need not,
be incurred in whole or in part under the Credit Agreement); and
(14) Indebtedness represented by the Redeemable Preferred Stock,
including any additional shares issued in payment of dividends thereon.
For purposes of determining compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted
Indebtedness described in clauses (1) through (12) above or is entitled to be
incurred pursuant to the Consolidated Fixed Charge Coverage Ratio provisions
of such covenant, Hanger Orthopedic Group shall, in its sole discretion,
classify (or later reclassify) such item of Indebtedness in any manner that
complies with this covenant. Accrual of interest, accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Capital Stock in the form of additional shares of
the same class of Disqualified Capital Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Capital Stock for
purposes of the "Limitations on Incurrence of Additional Indebtedness"
covenant.
"Permitted Investments" means:
(1) Investments by Hanger Orthopedic Group or any Restricted Subsidiary
of Hanger Orthopedic Group in any Person that is or will become immediately
after such Investment a Wholly Owned Restricted Subsidiary of Hanger
Orthopedic Group or that will merge or consolidate into Hanger Orthopedic
Group or a Wholly Owned Restricted Subsidiary of Hanger Orthopedic Group;
(2) Investments in Hanger Orthopedic Group by any Restricted Subsidiary
of Hanger Orthopedic Group; provided that any Indebtedness evidencing such
Investment (other than any guarantee of Indebtedness of Hanger Orthopedic
Group described in clause (2) of the definition of Permitted Indebtedness)
is unsecured and subordinated, pursuant to a written agreement, to Hanger
Orthopedic Group's obligations under the notes and the Indenture;
(3) investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of Hanger Orthopedic
Group and its Restricted Subsidiaries in the ordinary course of business
for bona fide business purposes not in excess of $1.0 million at any one
time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of Hanger Orthopedic Group's or its Restricted
Subsidiaries' businesses and otherwise in compliance with the Indenture;
(6) additional Investments not to exceed $10.0 million at any one time
outstanding;
(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; and
(8) Investments made by Hanger Orthopedic Group or its Restricted
Subsidiaries as a result of consideration received in connection with an
Asset Sale made in compliance with the "Limitation on Asset Sales"
covenant.
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"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which Hanger Orthopedic Group or its Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of Hanger
Orthopedic Group or any of its Restricted Subsidiaries;
(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(7) purchase money Liens to finance property or assets of Hanger
Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic Group
acquired in the ordinary course of business; provided, however, that (a)
the related purchase money Indebtedness shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of
Hanger Orthopedic Group or any Restricted Subsidiary of Hanger Orthopedic
Group other than the property and assets so acquired and (b) the Lien
securing such Indebtedness shall be created within 90 days of such
acquisition;
(8) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of Hanger
Orthopedic Group or any of its Restricted Subsidiaries, including rights of
offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens securing Indebtedness under Currency Agreements; and
(13) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; provided
that:
(a) such Liens secured such Acquired Indebtedness at the time of and
prior to the incurrence of such Acquired Indebtedness by Hanger
Orthopedic Group or a Restricted Subsidiary of Hanger Orthopedic Group
and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by Hanger Orthopedic Group or
a Restricted Subsidiary of Hanger Orthopedic Group; and
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(b) such Liens do not extend to or cover any property or assets of
Hanger Orthopedic Group or of any of its Restricted Subsidiaries other
than the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of
Hanger Orthopedic Group or a Restricted Subsidiary of Hanger Orthopedic
Group and are no more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by Hanger Orthopedic Group or a Restricted Subsidiary of
Hanger Orthopedic Group.
(14) Liens on assets of Hanger Orthopedic Group securing Senior Debt
described in clause (2) of the definition of Permitted Indebtedness and
Liens on assets of any Restricted Subsidiary securing guarantees of Senior
Debt described in clause (2) of the definition of Permitted Indebtedness.
"Person" means an individual, partnership, corporation, unincorporated
organization, trust or joint venture, or a governmental agency or political
subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of Hanger Orthopedic Group
and its Restricted Subsidiaries incurred in the normal course of business for
the purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by Hanger Orthopedic Group
or any Restricted Subsidiary of Hanger Orthopedic Group of Indebtedness
incurred in accordance with the "Limitation on Incurrence of Additional
Indebtedness" covenant (other than pursuant to clauses (2), (4), (5), (6),
(7), (8), (9), (10) or (12) of the definition of Permitted Indebtedness), in
each case that does not:
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by Hanger Orthopedic Group in connection with such
Refinancing); or
(2) create Indebtedness with: (a) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the Indebtedness
being Refinanced; or (b) a final maturity earlier than the final maturity
of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of Hanger Orthopedic
Group and (y) if such Indebtedness being Refinanced is subordinate or
junior to the notes, then such Refinancing Indebtedness shall be
subordinate to the notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to Hanger Orthopedic Group or a Restricted Subsidiary of
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any property, whether owned by Hanger Orthopedic Group or any Restricted
Subsidiary at the Issue Date or later acquired, which has been or is to be
sold or transferred by Hanger Orthopedic Group or such Restricted Subsidiary
to such Person or to any other Person from whom funds have been or are to be
advanced by such Person on the security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of Hanger Orthopedic Group, whether outstanding on the Issue Date
or thereafter created, incurred or assumed, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing the same or
pursuant to which the same is outstanding expressly provides that such
Indebtedness shall not be senior in right of payment to the notes. Without
limiting the generality of the foregoing, "Senior Debt" shall also include the
principal of, premium, if any, interest (including any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law) on, and all other amounts owing in respect
of:
(x) all monetary obligations of every nature of Hanger Orthopedic Group
under the Credit Agreement, including, without limitation, obligations to
pay principal and interest, reimbursement obligations under letters of
credit, fees, expenses and indemnities;
(y) all Interest Swap Obligations; and
(z) all obligations under Currency Agreements,
in each case whether outstanding on the Issue Date or thereafter incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of Hanger Orthopedic Group to a Subsidiary of the
Company;
(2) Indebtedness to, or guaranteed on behalf of, any shareholder,
director, officer or employee of Hanger Orthopedic Group or any Subsidiary
of Hanger Orthopedic Group (including, without limitation, amounts owed for
compensation, but excluding Senior Debt held by any Person who becomes such
a shareholder as a result of the exercise of remedies under such Senior
Debt);
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services;
(4) Indebtedness represented by Disqualified Capital Stock;
(5) any liability for federal, state, local or other taxes owed or owing
by Hanger Orthopedic Group;
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such violation
shall be deemed to exist for purposes of this clause (6) if the holder(s)
of such obligation or their representative and the Trustee shall have
received an officers' certificate of Hanger Orthopedic Group to the effect
that the incurrence of such Indebtedness does not (or, in the case of
revolving credit indebtedness, that the incurrence of the entire committed
amount thereof at the date on which the initial borrowing thereunder is
made would not) violate such provisions of the Indenture);
(7) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without recourse
to Hanger Orthopedic Group; and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of Hanger Orthopedic Group.
"Significant Subsidiary", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange
Act.
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"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned, directly
or indirectly, by such Person; or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person that at the time of determination shall
be or continue to be designated an Unrestricted Subsidiary by the Board of
Directors of such Person in the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, Hanger Orthopedic Group or any other Subsidiary of the Company
that is not a Subsidiary of the Subsidiary to be so designated; provided that:
(1) Hanger Orthopedic Group would be permitted under the Indenture to
make an Investment under all applicable provisions of the "Limitation on
Restricted Payments" covenant at the time of such designation (assuming the
effectiveness of such designation) in an amount equal to the Designation
Amount, and Hanger Orthopedic Group certifies the foregoing to the Trustee;
and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any Indebtedness pursuant to which the lender has recourse
to any of the assets of Hanger Orthopedic Group or any of its Restricted
Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, Hanger
Orthopedic Group is able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with the "Limitation on
Incurrence of Additional Indebtedness" covenant; and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Wholly Owned
Subsidiary of such Person which at the time of determination is a Restricted
Subsidiary of such Person.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
The new notes initially will be represented by one or more permanent global
certificates in definitive, fully registered form. This global note will be
deposited upon issuance with The Depositary Trust Company, New York, New York
and registered in the name of a nominee of the Depository Trust Company.
THE GLOBAL NOTE. We expect that pursuant to procedures established by The
Depository Trust Company,
. upon the issuance of the global note, The Depository Trust Company or
its custodian will credit, on its internal system, the principal amount
of the individual beneficial interests represented by the global note to
the respective accounts of persons who have accounts with such
depositary, and
. ownership of beneficial interests in the global note will be shown on,
and the transfer of ownership will be effected only through, records
maintained by The Depository Trust Company or its nominee, with respect
to interests of participants, and the records of participants, with
respect to interests of persons other than participants.
Ownership of beneficial interests in the global notes will be limited to
persons who have accounts with The Depository Trust Company or persons who
hold interests through participants.
So long as The Depository Trust Company or its nominee is the registered
owner or holder of the new notes, The Depository Trust Company (or the
nominee) will be considered the sole owner or holder of the new notes
represented by the global note for all purposes under the indenture. No
beneficial owner of an interest in the global note will be able to transfer
that interest except in accordance with The Depository Trust Company's
procedures.
Payments of interest, principal and other amounts due on the global note
will be made to The Depository Trust Company or its nominee as the registered
owner. None of Hanger Orthopedic Group, the trustee or any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the global
note or for maintaining, supervising or reviewing any records relating to this
beneficial ownership interest.
We expect that The Depository Trust Company or its nominee, upon receipt of
any payment of interest, principal or other amounts due on the global note,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the global note as shown on the
records of The Depository Trust Company. We also expect that payments by
participants to owners of beneficial interests in the global note held through
such participants will be governed by standing instructions and customary
practice, as is the case with securities held for the accounts of customers
registered in the names of nominees for those customers. These payments will
be the responsibility of the participants.
Transfers between participants in The Depository Trust Company will be
effected in the ordinary way through The Depository Trust Company's settlement
system in accordance with The Depository Trust Company rules and will be
settled in same day funds.
The Depository Trust Company has advised us that it will take any action
permitted to be taken by a holder of new notes, including the presentation of
new notes for exchange as described below, only at the direction of a
participant to whose account the The Depository Trust Company interests in the
global note are credited. Further, The Depository Trust Company will take
action only as to such portion of the notes as to which the participant has
given such direction. However, if there is an Event of Default under the
indenture, the Depository Trust Company will exchange the global note for
certificated notes, which it will distribute to its participants.
The Depository Trust Company has advised us as follows: The Depository Trust
Company is a limited purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "Clearing
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Agency" registered under to the provisions of Section 17A of the Exchange Act.
The Depository Trust Company was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the Depository Trust Company system is
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly.
Although the Depository Trust Company has agreed to the foregoing procedures
in order to facilitate transfers of interests in the global note among
participants of the Depository Trust Company, it is under no obligation to
perform those procedures, and those procedures may be discontinued at any
time. Neither Hanger Orthopedic Group nor the trustee will have any
responsibility of the performance by the Depository Trust Company or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their operations.
CERTIFICATED SECURITIES. If the Depository Trust Company is at any time
unwilling or unable to continue as a depositary for the global note and a
successor depositary is not appointed by Hanger Orthopedic Group within 90
days, certificated notes will be issued in exchange for the global note.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR INFOR-
MATIONAL PURPOSES. IT IS NOT INTENDED TO BE; NOR SHOULD IT BE CONSTRUED AS
BEING, LEGAL OR TAX ADVICE. NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES
TO ANY PARTICULAR PURCHASER OF THE NOTES IS MADE. PROSPECTIVE PURCHASERS
SHOULD CON-SULT THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
The following discussion is a summary of certain United States federal
income tax considerations relevant to the purchase, ownership and disposition
of the Notes by holders thereof, based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), judicial decisions, and
administrative interpretations, all of which are subject to change at any time
by legislative, judicial or administrative action. Any such changes may be
applied retroactively in a manner that could adversely affect a holder of the
Notes. There can be no assurance that the Internal Revenue Service (the "IRS")
will not challenge the conclusions stated below, and no ruling from the IRS
has been or will be sought on any of the matters discussed below.
The following discussion does not purport to be a complete analysis of all
the potential federal income tax effects relating to the purchase, ownership
and disposition of the Notes, and, without limiting the generality of the
foregoing, this summary does not address the effect of any special rules
applicable to certain types of holders (including dealers in securities,
insurance companies, financial institutions, tax-exempt entities, and persons
who hold Notes as part of a straddle, hedge, conversion transaction, or other
integrated investment or investors in pass through entities). In addition,
this discussion is limited to holders who are the initial purchasers of the
Notes at their original issue price and hold the Notes as capital assets
within the meaning of Section 1221 of the Code. This discussion does not
address the effect of any state, local, or foreign tax laws.
U.S. Persons
The term "U.S. Person" means (i) an individual who is a citizen or resident
of the United States, (ii) a corporation or partnership created or organized
in or under the laws of the United States or any state thereof, (iii) an
estate the income of which is subject to United States federal income taxation
regardless of its source, or (iv) a trust if a court within the United States
is able to exercise primary supervision over the administration of the trust
and one or more United States persons have the authority to control all
substantial decisions of the trust.
Taxation of Interest. Any interest earned on a Note held by a U.S. Person is
generally required to be included in the holder's gross income for federal
income tax purposes at the time that the interest is paid or accrued, in
accordance with the holder's method of accounting for federal income tax
purposes.
Sale, Exchange or Disposition of Notes. In the case of a sale or exchange
(including a redemption) of a Note, the holder will recognize gain or loss
equal to the difference, if any, between the amount received (other than any
amount representing accrued but unpaid stated interest, which will be taxable
as ordinary income) and the holder's adjusted tax basis in the Note.
Any gain or loss recognized on the sale or exchange of the Note will be
treated as a capital gain or loss. Such capital gain or loss will be treated
as a long-term capital gain or loss if, at the time of the sale or exchange,
the Note has been held by the holder for more than one year; otherwise, the
capital gain or loss will be short-term. An individual's short-term capital
gain is taxed at ordinary income tax rates. An individual's capital loss is
first deductible against other capital gains and then the amount of any
remaining capital loss, up to $3,000 (or $1,500 for married persons filing
separately), is deductible against other income. An individual's capital
losses in excess of these amounts will carry over as a capital loss to
succeeding years. In addition, the recognition of capital gain on the Notes
could cause an individual to exceed certain income thresholds which, in turn,
could cause items of income otherwise not taxable to the individual to become
taxable and/or could affect the individual's ability to utilize all or a
portion of his or her personal exemptions, certain itemized deductions and
certain other deductions.
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For corporations, any capital loss can be offset only against capital gains.
Any unutilized capital loss generally can be carried back three years and
forward five years to be offset against net capital gains generated in those
years.
A U.S. Person should recognize no gain or loss on the exchange of a Note for
an Exchange Note pursuant to the Exchange Offer. Consequently, (i) the holding
period of the Exchange Note should include the holding period of the Note
exchanged therefor and (ii) the adjusted tax basis of the Exchange Note should
be the same as the adjusted tax basis of the Note exchanged therefor
immediately before the exchange.
If Additional Interest is paid, although not free from doubt, such payment
should be taxable as ordinary income at the time it accrues or is received in
accordance with such holder's regular method of accounting. It is possible,
however, that the IRS may take a different position, in which case the timing
and amount of income inclusion may be different.
Foreign Persons
The term "Foreign Person" means a person other than a U.S. Person, as
defined above.
Taxation of Interest. Interest paid by the Company to a Foreign Person will
not be subject to United States federal income or withholding tax if such
interest is not effectively connected with the conduct of a trade or business
within the United States by such Foreign Person and such Foreign Person (i)
does not actually or constructively own 10% of the total combined voting power
of stock of all classes of stock of the Company; (ii) is not a controlled
foreign corporation with respect to which the Company is a "related person"
within the meaning of the Code; and (iii) certifies, under penalties of
perjury, that such holder is not a U.S. Person and provides such holder's name
and address. A U.S. Person's adjusted tax basis in a Note generally will equal
the cost of such Note. If the foregoing conditions are not satisfied, then
interest paid on the Notes will be subject to United States withholding tax at
a rate of 30%, unless such rate is reduced or eliminated pursuant to an
applicable tax treaty.
Recently adopted Treasury Regulations that will be effective beginning
January 1, 2000 (the "Final Regulations") provide alternative methods for
satisfying the certification requirement described above. For example, the
Final Regulations generally require, in the case of Notes held by a foreign
partnership, that the certificate described above be provided by the partners
rather than by the foreign partnership, and that the partnership provide
certain information including a U.S. TIN.
Sale, Exchange or Disposition of Notes. A Foreign Person generally will not
be subject to United States federal income tax on gain recognized on a sale,
redemption or other disposition of a Note unless (i) the gain is effectively
connected with the conduct of a trade or business (or in the case of an
applicable tax treaty a permanent establishment) in the United States by the
Foreign Person or (ii) in the case of a Foreign Person who is a nonresident
alien individual and holds the Note as a capital asset, such holder is present
in the United States for 183 or more days in the taxable year and certain
other requirements are met.
Information Reporting and Backup Withholding
The Company, where required, will report to the holders of Notes and the IRS
the amount of any interest paid on the Notes in each calendar year and the
amounts of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Foreign Persons, temporary Treasury
regulations provide that the 31% backup withholding tax and certain
information reporting will not apply to such payments with respect to which
either the requisite certification, as described above, has been received or
an exemption has otherwise been established, and provided that neither the
Company nor its payment agent has actual knowledge that the holder is a United
States person or that the conditions of any other exemption are not in fact
satisfied. Under temporary Treasury regulations, these information reporting
and backup withholding requirements will apply, however, to the gross proceeds
paid to a Foreign Person on a disposition of the Notes by or through a United
States office of a United States or a foreign broker, unless the holder
certifies to the broker under penalties of perjury as to its
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name, address and status as a Foreign Person or the holder otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a disposition of
the Notes by or through a foreign office of a United States broker or a
foreign broker with any of certain types of relationships to the United States
unless such broker has documentary evidence in its file that the holder of the
Notes is not a U.S. Person, and such broker has no actual knowledge to the
contrary, or the holder establishes an exception. Neither information
reporting nor backup withholding generally will apply to a payment of the
proceeds of a disposition of the Notes by or through a foreign office of a
foreign broker not subject to the preceding sentence.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Foreign
Person's United States federal income tax liability provided that the required
information is furnished to the IRS.
The Final Regulations provide certain presumptions under which a Foreign
Person will be subject to backup withholding and information reporting unless
the Foreign Person provides a certification as to its foreign status. Foreign
Persons should consult their own tax advisors with respect to the impact, if
any of the Final Regulations.
PLAN OF DISTRIBUTION
Each holder desiring to participate in the exchange offer will be required to
represent, among other things, that
. it is not an "affiliate" (as defined in Rule 405 of the Securities Act)
of Hanger Orthopedic Group,
. it is not engaged in, and does not intend to engage in, and has no
arrangement or understanding with any person to participate in, a
distribution of the new notes, and
. it is acquiring the new notes in the ordinary course of its business.
A holder unable to make the above representations is referred to as a
restricted holder. A restricted holder will not be able to participate in the
exchange offer, and may only sell its old notes pursuant to a registration
statement containing the selling securityholder information required by Item
507 of Regulation S-K of the Securities Act, or pursuant to an exemption from
the registration requirement of the Securities Act.
Each participating broker-dealer is required to acknowledge in the letter of
transmittal that it acquired the old notes as a result of market-making
activities or other trading activities and that it will deliver a prospectus
in connection with the resale of such new notes. Based upon interpretations by
the staff of the Securities and Exchange Commission, we believe that new notes
issued pursuant to the exchange offer to participating broker-dealers may be
offered for resale, resold, and otherwise transferred by a participating
broker-dealer upon compliance with the prospectus delivery requirements, but
without compliance with the registration requirements, of the Securities Act.
We have agreed that for a period of 30 days following consummation of the
exchange offer, we will make this prospectus available to participating
broker-dealers for use in connection with any such resale. During such period
of time, delivery of this prospectus, as it may be amended or supplemented,
will satisfy the prospectus delivery requirements of a participating broker-
dealer engaged in market making or other trading activities.
Based upon interpretations by the staff of the Securities and Exchange
Commission, we believe that new notes issued pursuant to the exchange offer
may be offered for resale, resold and otherwise transferred by their holder,
other than a participating broker-dealer, without compliance with the
registration and prospectus delivery requirements of the Securities Act.
We will not receive any proceeds from any sale of new notes by broker-
dealers. new notes received by participating broker-dealers for their own
account pursuant to the exchange offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the new notes or a combination of such
methods of resale, at market prices prevailing at the time of
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resale, at prices related to such prevailing market prices or at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such participating broker-dealer and/or the purchasers of
any such new notes. Any participating broker-dealer that resells new notes
that were received by it for its own account pursuant to the exchange offer
and any broker or dealer that participates in a distribution of such new notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of new notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that
by acknowledging that it will deliver and by delivering a prospectus, a
participating broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay all expenses incidental to the exchange offer other
than commissions and concessions of any brokers or dealers and will indemnify
holders of the notes, including any broker-dealers, against certain
liabilities, including liabilities under the Securities Act, as set forth in
the registration rights agreement.
This prospectus may be used by Chase Securities Inc. in connection with
offers and sales of notes in market-making transactions. Chase Securities may
act as principal or agent in these transactions. These sales will be made at
prices related to prevailing market prices at the time of sale. Hanger
Orthopedic Group will not receive any of the proceeds of these sales. Chase
Securities has no obligation to make a market in the notes and may discontinue
its market-making activities at any time without notice, at its sole
discretion. We have agreed to indemnify Chase Securities against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that Chase Securities might be required to make in respect of
those liabilities.
Affiliates of Chase Securities own shares of our common stock and warrants
to purchase common stock representing more than 5% of our outstanding common
stock, and also own a portion of our redeemable preferred stock. Dr. Mitchell
J. Blutt, a director of Hanger Orthopedic Group, is an Executive Partner of
Chase Capital Partners, which is an affiliate of Chase Securities and The
Chase Manhattan Bank. For further information concerning relationships between
Hanger Orthopedic Group and affiliates of Chase Securities, see "Security
Ownership of Certain Beneficial Owners and Management".
Chase Securities and its affiliates perform various investment banking and
commercial banking services from time to time for us. Chase Securities is an
affiliate of The Chase Manhattan Bank which is the administrative agent and a
lender under our bank credit facility. Chase Securities acted as an initial
purchaser in the offering of the notes.
INCORPORATION OF MATERIAL DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means we can disclose
important information to you by referring you to those documents. The
information included in the following documents is incorporated by reference
and is considered to be a part of this prospectus. The most recent information
that we file with the Securities and Exchange Commission automatically updates
and supersedes more dated information. We have previously filed the following
documents with the Securities and Exchange Commission and are incorporating
them by reference into this prospectus:
. Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998, as amended by Amendment No. 1 thereto dated April 21, 1999;
. Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 1999;
. Current Report on Form 8-K reporting consummation on July 1, 1999 of our
acquisition of NovaCare O&P and related financing transactions, as filed
on July 15, 1999; and
. Current Report on Form 8-K setting forth financial statements of
NovaCare O&P at June 30, 1999 and for the year then ended, as filed on
October 22, 1999.
126
<PAGE>
We also incorporate by reference all documents subsequently filed by us
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until all of
the old notes are exchanged for new notes.
We will provide without charge to each person, including any person having a
control relationship with that person, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by reference
in this prospectus but not delivered with this prospectus. If you would like
to obtain this information from us, please direct your request, either in
writing or by telephone to Mr. Richard A. Stein, Secretary, Hanger Orthopedic
Group, Inc., Two Bethesda Metro Center - Suite 1200, Bethesda, MD 20814;
telephone (301) 986-0701. In order to insure timely delivery of the documents,
any request should be made five days before November 29, 1999, which is when
the exchange offer expires.
LEGAL MATTERS
The validity of the new notes will be passed upon for us by Freedman, Levy,
Kroll & Simonds, Washington, D.C.
EXPERTS
The audited financial statements of Hanger Orthopedic Group included in
Hanger Orthopedic Group's Annual Report on Form 10-K for the year ended
December 31, 1998, and the audited historical financial statements of NovaCare
O&P included in Hanger Orthopedic Group's Current Reports on Form 8-K filed by
Hanger Orthopedic Group on July 15, 1999 and October 22, 1999, which are
incorporated herein by reference, have been audited by PricewaterhouseCoopers
LLP, independent accountants, as indicated in their reports with respect
thereto, and are included herein in reliance on such reports given upon the
authority of that firm as experts in auditing and accounting.
127
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$150,000,000
OFFER TO EXCHANGE
11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
THAT HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 FOR OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
----------------
PROSPECTUS
----------------
Hanger Orthopedic Group, Inc.
Dated October 28, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 20. Indemnification of Directors and Officers
Hanger Orthopedic Group, Inc. (the "Company") is a Delaware corporation. In
its Certificate of Incorporation, the Company has adopted the provisions of
Section 102(b)(7) of the Delaware General Corporation Law (the "Delaware Law"),
which enables a corporation in its original certificate of incorporation or an
amendment thereto to eliminate or limit the personal liability of a director
for monetary damages for breach of the director's fiduciary duty, except (i)
for any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) pursuant to Section
174 of the Delaware law (providing for liability of directors for unlawful
payment of dividends or unlawful stock purchases or redemptions) or (iv) for
any transaction from which a director will personally receive a benefit in
money, property or services to which the director is not legally entitled.
The Company has also adopted indemnification provisions pursuant to Section
145 of the Delaware Law, which provides that a corporation may indemnify any
persons, including officers and directors, who are, or are threatened to be
made, parties to any threatened, pending or completed legal action, suit or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation), by reason of the fact
that such person was an officer, director, employee or agent of the
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorneys fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in or not opposed to the corporation's best interests and, with
respect to criminal proceedings, had no reasonable cause to believe that his
conduct was unlawful. A Delaware corporation may indemnify officers or
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against expenses (including attorney's fees) that such officer or
director actually and reasonably incurred.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits. The following exhibits are filed herewith or incorporated by
reference herein:
<TABLE>
<CAPTION>
Exhibit
Number Document
------- --------
<C> <S>
3(a) Senior Subordinated Note Purchase Agreement, dated as of June 9,
1999, among the Registrant, Deutsche Banc Securities, Inc., Chase
Securities Inc. and Paribus Corporation. (Incorporated herein by
reference to Exhibit 2(a) to the Registrant's Current Report on
Form 8-K dated July 1, 1999.)
3(b) Certificate of Incorporation, as amended, of the Registrant.
(Incorporated herein by reference to Exhibit 3.1 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1988.)
3(c) Certificate of Amendment of the Registrant's Certificate of
Incorporation as filed on
August 11, 1989 with the Office of the Secretary of State of
Delaware. (Incorporated here by reference to Exhibit 3(b) to the
Registrant's Current Report on Form 10-K dated February 13, 1990.)
3(d) Certificate of Amendment of Merger of Sequel Corporation and
Delaware Sequel Corporation. (Incorporated herein by reference to
Exhibit 3.1(a) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1988.)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3(e) Certificate of Ownership and Merger of Hangar Acquisition
Corporation and J.E. Hanger, Inc. as filed with the Office of the
Secretary of the State of Delaware on April 11, 1989. (Incorporated
herein by reference to Exhibit 2(f) to the Registrant's Current
Report of
Form 8-K dated May 15, 1989.)
3(f) Certificate of Designation, Preferences and Rights of Preferred
Stock of the Registrant as filed on February 12, 1990 with the
Office of the Secretary of State of Delaware. (Incorporated herein
by reference to Exhibit 3(a) to the Registrant's Current Report of
Form 8-K dated February 13, 1990.)
3(g) Certificate of Designation, Rights and Preferences of 7% Redeemable
Preferred Stock as filed with the Office of the Secretary of State
of Delaware on June 28, 1999. (Incorporated herein by reference to
Exhibit 2(b) to the Registrant's Current Report of Form 8-K dated
July 1, 1999.)
3(h) Certificate of Elimination of Class A, B, C, D, E and F Preferred
Stock of the Registrant as filed with the Office of the Secretary of
State of Delaware on June 18, 1999. (Incorporated herein by
reference to Exhibit 2(c) to the Registrant's Current Report on Form
8-K dated July 1, 1999.)
3(i) By-Laws of the Registrant, as amended. (Incorporated herein by
reference to Exhibit 3 to the Registrant's Current Report on Form 8-
K dated May 15, 1989.)
4(a) Indenture, dated as of June 16, 1999, among the Registrant, its
subsidiaries and U.S. Bank Trust National Association, as Trustee.
(Incorporated herein by reference to Exhibit 10(a) to the
Registrant's Current Report on Form 8-K dated July 1, 1999.)
4(b) Form of First Supplemental Indenture, dated as of August 12, 1999,
to Indenture, dated as of June 16, 1999, among the Registrant, its
subsidiaries and U.S. Bank Trust National Association, as Trustee.
(Filed with original Registration Statement on Form S-4 on
August 12, 1999.)
5 Opinion of Freedman, Levy, Kroll & Simonds (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)
8 Tax opinion of Freedman, Levy, Kroll & Simonds (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)
10(a) Registration Agreement, dated May 15, 1989, between Sequel
Corporation, First Pennsylvania Bank, N.A., Gerald E. Bisbee, Jr.,
Ivan R. Sabel, Richard A. Stein, Ronald J. Manganiello, Joseph M.
Cestaro and Chemical Venture Capital Associates. (Incorporated
herein by reference to Exhibit 10(1) to the Registrant's Current
Report on Form 8-K dated May 15, 1989.)
10(b) First Amendment dated as of February 12, 1990, to the Registration
Agreement, dated as of May 15, 1989, by and among Hanger Orthopedic
Group, Inc., First Pennsylvania Bank, N.A., Ivan R. Sabel, Richard
A. Stein, Ronald J. Manganiello, Joseph M. Cestaro and Chemical
Venture Capital Associates. (Incorporated herein by reference to
Exhibit 10(m) to the Registrant's Current Report on Form 8-K dated
February 13, 1990.)
10(c) Fifth Amendment, dated as of November 8, 1990, to the Stock and Note
Purchase Agreement, dated as of February 28, 1989 and as amended on
May 9, 1989, May 15, 1989, February 12, 1990, and June 19, 1990 by
and among J.E. Hanger, Inc., as successor to Hanger Acquisition
Corporation, Ronald J. Manganiello, Joseph M. Cestaro, Chemical
Venture Capital Associates and Chemical Equity Associates.
(Incorporated herein by reference to Exhibit 10(f) to the
Registrant's Current Report on Form 8-K filed on November 21, 1990.)
</TABLE>
- --------
* Management contract or compensatory plan.
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
10(d) Warrants to purchase Common Stock of Hanger Orthopedic Group,
Inc. issued November 1, 1996. (Incorporated herein by
reference to Exhibit 10(c) to the Registrant's Current Report
on Form 8-K filed on November 12, 1996.)
10(e) 1991 Stock Option Plan of the Registrant, as amended.
(Incorporated herein by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.)*
10(f) 1993 Non-Employee Directors Stock Option Plan of the
Registrant. (Incorporated herein by reference to Exhibit 4(b)
to the Registrant's Registration Statement on Form S-8 (File
No. 33-63191).)*
10(g) Employment and Non-Compete Agreement, dated as of November 1,
1996, and Amendment No. 1 thereto, dated January 1, 1997,
between the Registrant and H.E. Thranhardt. (Incorporated
herein by reference to Exhibit 10(p) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997.)*
10(h) Employment and Non-Compete Agreement, dated as of November 1,
1996, between the Registrant and John McNeill. (Incorporated
herein by reference to Exhibit 10(q) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997.)*
10(i) Asset Purchase Agreement, dated as of March 26, 1997, by and
between Hanger Prosthetics & Orthotics, Inc., Acor Orthopedic,
Inc., and Jeff Alaimo, Greg Alaimo and Mead Alaimo.
(Incorporated by reference to Exhibit 2 to the Current Report
on Form 8-K filed by the Registrant on April 15, 1997.)
10(j) Asset Purchase Agreement, dated as of May 8, 1997, by and
between Hanger Prosthetics & Orthotics, Inc., Fort Walton
Orthopedic, Inc., Mobile Limb and Brace, Inc. and Frank
Deckert, Ronald Deckert, Thomas Deckert, Robert Deckert and
Charles Lee. (Incorporated by reference to Exhibit 2 to the
Current Report on
Form 8-K filed by the Registrant on June 5, 1997.)
10(k) Asset Purchase Agreement, dated as of November 3, 1997, by and
between Hanger Prosthetics & Orthotics, Inc., Morgan
Prosthetic-Orthotics, Inc. and Dan Morgan. (Incorporated
herein by reference to Exhibit 10(v) to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1997.)
10(l) Asset Purchase Agreement, dated as of December 23, 1997, by
and between Hanger Prosthetics & Orthotics, Inc., Harshberger
Prosthetic & Orthotic Center, Inc., Harshberger Prosthetic &
Orthotic Center of Mobile, Inc., Harshberger Prosthetic &
Orthotic Center of Florence, Inc., FAB-CAM, Inc. and Jerald J.
Harshberger. (Incorporated herein by reference to Exhibit
10(w) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997.)
10(m) Credit Agreement, dated as of June 16, 1999, among the
Registrant, various bank lenders, and The Chase Manhattan
Bank, as administrative agent, collateral agent and issuing
bank, Chase Securities Inc., as lead arranger and book
manager, Bankers Trust Company, as syndication agent, and
Paribas, as documentation agent. (Incorporated herein by
reference to Exhibit 10(a) to the Registrant's Current Report
on Form 8-K dated July 1, 1999.)
</TABLE>
- --------
* Management contract or compensatory plan.
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
10(n) Senior Subordinated Note Purchase Agreement, dated as of June
9, 1999, relating to 11.25% Senior Subordinated Notes due
2009, among the Registrant, Deutsche Banc Securities Inc.,
Chase Securities Inc. and Paribas Corporation. (Incorporated
herein by reference to Exhibit 10(b) to the Registrant's
Current Report on Form 8-K dated July 1, 1999.)
10(o) Registration Rights Agreement, dated as of June 16, 1999, by
and among the Registrant, Deutsche Banc Securities, Inc.,
Chase Securities Inc. and Paribas Corporation, relating to the
11.25% Senior Subordinated Notes due 2009. (Incorporated
herein by reference to Exhibit 10(d) to the Registrant's
Current Report on Form 8-K dated July 1, 1999.)
10(p) Securities Purchase Agreement, dated as of June 16, 1999,
Relating to 7% Redeemable Preferred Stock, among the
Registrant, Chase Equity Associates, L.P. and Paribas North
America, Inc. (Incorporated herein by reference to Exhibit
10(e) to the Registrant's Current Report on Form 8-K dated
July 1, 1999.)
10(q) Investor Rights Agreement, dated July 1, 1999, among the
Registrant, Chase Equity Associates, L.P. and Paribas North
America, Inc. (Incorporated herein by reference to Exhibit
10(f) to the Registrant's Current Report on Form 8-K dated
July 1, 1999.)
10(r) Employment Agreement, dated as of April 29, 1999, between the
Registrant and Ivan R. Sabel. (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)*
10(s) Employment Agreement, dated as of April 29, 1999, between the
Registrant and Richard A. Stein. (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)*
10(t) Employment Agreement, dated as of July 1, 1999, between the
Registrant and Ronald G. Hiscock. (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)*
10(u) Employment Agreement, dated as of July 1, 1999, between the
Registrant and Rick Taylor. (Filed with original Registration
Statement on Form S-4 on August 12, 1999.)*
10(v) Employment Agreement, dated as of August 1, 1998, between
DOBI-Symplex, Inc., a subsidiary of the Registrant, and James
G. Cairns, Jr.*
10(w) Employment Agreement, dated as of November 1, 1996, between
the Registrant and Ron May. (Filed with original Registration
Statement on Form S-4 on August 12, 1999.)*
21 List of Subsidiaries of the Registrant. (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)
23(a) Consent of Freedman, Levy, Kroll & Simonds (Included in
Exhibits 5 and 8.)
23(b) Consent of PricewaterhouseCoopers LLP regarding the
Registrant.
</TABLE>
- --------
* Management contract or compensatory plan.
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S> <C>
23(c) Consent of PricewaterhouseCoopers LLP regarding NovaCare
Orthotics and Prosthetics, Inc. (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)
23(d) Consent of PricewaterhouseCoopers LLP regarding NovaCare
Orthotics and Prosthetics, Inc.
24 Power of Attorney. (Included on page II-7 of the original
Registration Statement on Form S-4 filed on August 12, 1999.)
25 Statement on Form T-1 of Eligibility of Trustee. (Filed with
original Registration Statement on Form S-4 on August 12,
1999.)
99(a) Form of Letter of Transmittal (Filed with original
Registration Statement on Form
S-4 on August 12, 1999.)
99(b) Form of Notice of Guaranteed Delivery (Filed with original
Registration Statement on Form S-4 on August 12, 1999.)
99(c) Form of Letter to Clients (Filed with original Registration
Statement on Form S-4 on August 12, 1999.)
99(d) Form of Letter to Nominees (Filed with original Registration
Statement on Form S-4 on August 12, 1999.)
</TABLE>
- --------
* Management contract or compensatory plan.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnifications for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 20 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the option of their counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this Registration Statement when it became effective.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Bethesda, State of Maryland, on this
27th day of October, 1999.
HANGER ORTHOPEDIC GROUP, INC.
(Registrant)
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed below by the
following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel Chairman of the Board, October 27, 1999
_________________________________ Chief Executive Officer
Ivan R. Sabel and Director (Principal
Executive Officer)
* Vice President-Finance,
_________________________________ Treasurer and Secretary
Richard A. Stein (Principal Financial
and Accounting Officer)
* Director
_________________________________
Mitchell J. Blutt, M.D.
* Director
_________________________________
Edmond E. Charrette, M.D.
* Director
_________________________________
Thomas P. Cooper, M.D.
* Director
_________________________________
Robert J. Glaser, M.D.
Director
_________________________________
C. Raymond Larkin, Jr.
* Director
_________________________________
Risa J. Lavizzo-Mourey, M.D.
* Director
_________________________________
William L. McCulloch
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
* Director
_________________________________
H.E. Thranhardt
</TABLE>
/s/ ivan r. sabel
*By:
------------------------- October 27,
1999
Ivan R. Sabel
Attorney-In-Fact
(The powers of attorney were
included in the signature
page set forth on page II-7
of the original Registration
Statement on Form S-4 filed
on August 12, 1999.)
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
HANGER PROSTHETICS & ORTHOPEDICS, INC.
/s/ Ivan R. Sabel
By: ___________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
_________________________________ (Chief Executive
Ivan R. Sabel Officer)
/s/ Richard A. Stein Vice President, October 27, 1999
_________________________________ Treasurer,
Richard A. Stein Secretary and
Director
(Chief Financial
Officer)
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
SOUTHERN PROSTHETIC SUPPLY, INC.
/s/ Ivan R. Sabel
By: ___________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
_________________________________ (Chief Executive
Ivan R. Sabel Officer)
/s/ Richard A. Stein Vice President, October 27, 1999
_________________________________ Treasurer,
Richard A. Stein Secretary and
Director
(Chief Financial
Officer)
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
SEATTLE ORTHOPEDIC GROUP, INC.
/s/ Ivan R. Sabel
By: ___________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
_________________________________ (Chief Executive
Ivan R. Sabel Officer)
/s/ Richard A. Stein Vice President, October 27, 1999
_________________________________ Treasurer,
Richard A. Stein Secretary and
Director
(Chief Financial
Officer)
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
OPNET, INC.
/s/ Ivan R. Sabel
By: ___________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
_________________________________ (Chief Executive
Ivan R. Sabel Officer)
/s/ Richard A. Stein Vice President, October 27, 1999
_________________________________ Treasurer,
Richard A. Stein Secretary and
Director
(Chief Financial
Officer)
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
EUGENE TEUFEL & SON ORTHOTICS &
PROSTHETICS, INC.
/s/Ivan R. Sabel
By: ___________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
_________________________________ (Chief Executive
Ivan R. Sabel Officer)
/s/ Richard A. Stein Vice President, October 27, 1999
_________________________________ Treasurer,
Richard A. Stein Secretary and
Director
(Chief Financial
Officer)
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
HPO ACQUISITION CORP.
/s/Ivan R. Sabel
By: ___________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
_________________________________ (Chief Executive
Ivan R. Sabel Officer)
/s/ Richard A. Stein Vice President, October 27, 1999
_________________________________ Treasurer,
Richard A. Stein Secretary and
Director
(Chief Financial
Officer)
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
NovaCare Orthotics & Prosthetics,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(Nevada), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(New York), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
NovaCare Orthotics & Prosthetics
Holdings, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
NovaCare Orthotics & Prosthetics
West, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
NovaCare Orthotics & Prosthetics
East, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(Clayton), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(Lett), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(New Jersey), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(New Mexico), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(New York), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(OTI), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(Parmeco), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(SFV), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(Virginia), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
(West Virginia), Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Technologies
Management Corp.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
AD Craig Company
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advance Orthotics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthopedic Systems, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Advanced Orthotics and Prosthetics,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Artificial Limb and Brace Center
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Central Valley Prosthetics &
Orthotics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Certified Orthopedic Appliance Co.,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Fresno Orthopedic Company
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
High Desert Institute of Prosthetics
and Orthotics
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
McFarlen & Associates, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Professional Orthotics and
Prosthetics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Professional Orthotics and
Prosthetics, Inc. of Santa Fe
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Progressive Orthopedic
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Robin-Aids Prosthetics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Salem Orthopedic & Prosthetic, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
San Joaquin Orthopedic, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-47
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Texoma Health Care Center, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Tucson Limb & Brace, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
American Rehabilitation Systems,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Atlanta Prosthetics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Bowman-Shelton Orthopedic Service,
Incorporated
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-52
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Cahill Orthopedic Laboratory, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-53
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Dale Clark Prosthetics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-54
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
E.A. Warnick-Pomeroy Co., Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-55
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Frank J. Malone & Son, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-56
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
J.E. Hanger, Incorporated
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-57
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Kroll's, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-58
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
McKinney Prosthetics/Orthotics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-59
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Meadowbrook Orthopedics, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-60
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Medical Arts O&P Services, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-61
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Northland Regional Orthotic and
Prosthetic Center, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-62
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Opus Care, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-63
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Ortho East, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-64
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Ortho-Fab Laboratories, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-65
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Orthopedic Appliances, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-66
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Orthopedic Rehabilitative Services,
Ltd.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-67
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Orthotic & Prosthetic Rehabilitation
Technologies, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-68
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Orthotic Specialists, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-69
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Orthotic and Prosthetic Associates,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-70
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Physical Restoration Laboratories,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-71
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Prosthetics-Orthotics Associates,
Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-72
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Protech Orthotic and Prosthetic
Center, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-73
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Rehabilitation Fabrication, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-74
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Reid Medical System, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-75
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Southern Illinois Prosthetic &
Orthotic of Missouri, Ltd.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-76
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Southern Illinois Prosthetic &
Orthotic, Ltd.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-77
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
T.D. Rehab Systems, Inc.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-78
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
University Orthotic & Prosthetic
Consultants, Ltd.
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-79
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Bethesda, Maryland, on October 27,
1999.
Mica Corporation
/s/ Ivan R. Sabel
By: _________________________________
Ivan R. Sabel
President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Ivan R. Sabel President and Director October 27, 1999
______________________________________ (Chief Executive Officer)
Ivan R. Sabel
/s/ Richard A. Stein Vice President, Treasurer, October 27, 1999
______________________________________ Secretary and Director
Richard A. Stein (Chief Financial Officer)
</TABLE>
II-80
<PAGE>
EXHIBIT 10(v)
-------------
EMPLOYMENT AND NON-COMPETE AGREEMENT
------------------------------------
This Agreement is made as of August 1, 1998, between DOBI-SYMPLEX, INC., a
Delaware corporation (the "Company"); and J.G. CAIRNS, JR. ("Employee"). The
Company and Employee agree as follows:
1. Employment. The Company agrees to employ Employee and Employee accepts
----------
such employment by the Company upon the terms and conditions set forth in this
Agreement, for the period beginning on the date of this Agreement and ending
upon termination pursuant to paragraph 4 (the "Employment Period").
2. Compensation and Benefits. In consideration for the valuable services
-------------------------
to be rendered by Employee and for Employee's agreement not to compete against
the Company as described in paragraph 5, the Company hereby agrees that during
the first year of the Employment Period, the Company will pay Employee a bi-
weekly gross salary at the annual rate of $165,000 per annum (the "Base
Salary"), payable at the bi-weekly gross rate of $6,346.15. Employee's Base
Salary may be adjusted annually in January of each year based on an annual
performance salary review as determined in the reasonable discretion of the
Company. Employee also shall be entitled to: (a) reimbursement for actual
business travel expenses which have been pre-approved by the Company; (b)
comparable combined paid vacation/sick leave and medical benefits consistent
with those received by other employees of the Company; and (c) other benefits
generally offered to other employees of the Company.
3. Services. During the Employment Period, Employee agrees to devote
--------
Employee's best efforts and substantially all of Employee's business time and
attention to the business affairs of the Company (except for reasonable vacation
periods subject to the reasonable approval of the Company or reasonable periods
of illness or other incapacity). During the Employment Period, Employee agrees
to render such services as the Company may from time to time direct. During the
Employment Period, Employee agrees that Employee will not, except with the prior
written consent of the Company, become engaged in or render services for any
business other than the business of the Company.
4. Termination. The Employment Period will continue from the date of this
-----------
Agreement unless terminated earlier by (a) Employee's death or permanent
disability which renders the Employee unable to perform Employee's duties
hereunder (as determined by the Company in its good faith judgment), (b) by
Employee's resignation upon prior written notice to the Company of sixty (60)
days, (c) the Company for Cause, or (d) a proper business purpose of the
Company, including but not limited to a decrease in the staffing of the office
in which Employee is working or the elimination of the position filled by
Employee. For purpose of this paragraph 4, "Cause" shall mean (i) the repeated
failure or refusal of Employee to follow the lawful directives of the Company or
its designee (except due to sickness, injury or disabilities), (ii) gross
inattention to duty or any other willful, reckless or grossly negligent act (or
omission to act) by Employee, which, in the good faith judgment of the Company,
materially injures the Company, including the repeated failure to
<PAGE>
follow the policies and procedures of the Company, (iii) a material breach of
this Agreement by Employee or (iv) the commission by Employee of a felony or
other crime involving moral turpitude or the commission by Employee of an act of
financial dishonesty against the Company.
5. Non-Compete.
-----------
(a) In the event the Employment Period is terminated under paragraphs
4(b), 4(c) or 4(d) above, then the non-compete provisions of this paragraph 5
will apply to Employee. In the event the Employment Period is otherwise
terminated, such as without Cause, then no part of this paragraph 5 will apply
to Employee.
(b) Employee recognizes and acknowledges that by virtue of accepting
employment hereunder, Employee will acquire valuable training and knowledge,
enhance Employee's professional skills and experience, and learn proprietary
trade secrets and Confidential Information of the Company. In consideration of
the foregoing and this employment contract, Employee agrees that during the
Employment Period and for two (2) years thereafter (the "Non-Compete Period"),
Employee will not directly or indirectly (whether as employee, director, owner,
stockholder, consultant, partner (limited or general) or otherwise) own, manage,
control, participate in, consult with, advertise on behalf of, render services
for or in any manner engage in any competitive business of fabricating,
manufacturing, distributing, wholesaling or retailing of orthotics or
prosthetics, or the operation of manufacturing or distribution businesses
involving orthotics or prosthetics or the operation of clinics for the provision
of orthotics or prosthetics to patients, or any other related orthotic or
prosthetic manufacturing or non-manufacturing businesses which the Company is
engaged in during and at the expiration of the Employment Period, anywhere in
the United States with respect to manufacturing or distribution activities, and
with respect to patient-care clinics at any location within a fifty (50) mile
radius of any facility operated, managed or staffed by the Company at which the
Employee performed services during the Employment Period; nor shall Employee
solicit any other Person to engage in any of the foregoing activities or
knowingly request, induce or attempt to influence any then existing patient,
customer, referral source or supplier of the Company to curtail any business
they are currently, or in the last 36 months have been, transacting with the
Company (the "Non-Compete). Nothing herein will prevent Employee from being a
passive owner of not more than 1% of the outstanding stock of any class of a
corporation which is engaged in a competitive business of the Company and which
is publicly traded, so long as Employee has no participation in the business of
such corporation. Furthermore, during the Non-Compete Period, Employee shall
not, without the Company's prior written consent, directly or indirectly,
knowingly solicit or encourage or attempt to influence any employee to leave the
employment of the Company. The termination of the Company's employees within the
scope of Employee's employment during the Employment Period shall not be
considered a violation of the terms of this Paragraph 5(b). Employee agrees that
the restraint imposed under this paragraph 5 is reasonable and not unduly harsh
or oppressive.
(c) If, at the time of enforcement of any provision of paragraph 5(b)
above, a court or arbitrator holds that the restrictions stated therein are
unreasonable or unenforceable under circumstances then existing, the Company and
Employee agree that the maximum period, scope, or geographical area reasonable
or permissible under such circumstances will be substituted for the stated
period, scope or area.
2
<PAGE>
(d) Since a material purpose of this Agreement is to protect the
Company's investment in the Employee and to secure the benefits of Employee's
background and general experience in the industry, the parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this paragraph 5. Therefore, in the event of a breach by
Employee of any of the provisions of this paragraph 5, the Company or its
successors or assigns may, in addition to other rights and remedies existing in
its favor, apply to any court of law or equity of competent jurisdiction for
specific performance and/or injunctive or other relief in order to enforce or
prevent any violations of the provisions of this Agreement.
6. Confidential Information. Employee acknowledges that the information,
------------------------
observations, data and trade secrets (collectively, "Confidential Information")
obtained by Employee during the course of Employee's performance under this
Agreement, and previously if Employee has already been an employee of the
Company, concerning the business or affairs of the Company are the property of
the Company. For purposes of this Agreement, "trade secret" means any method,
program or compilation of information which is used in the Company's business,
including but not limited to: (a) techniques, plans and materials used by the
Company, (b) marketing methods and strategies employed by the Company, and (c)
all lists of past, present or prospective patients, customers, referral sources
and suppliers of the Company. Employee agrees that Employee will not disclose to
any unauthorized Person or use for Employee's own account any of such
Confidential Information without the written consent of the Company, unless and
to the extent that the aforementioned matters become generally known to and
available for use by the public other than as a result of Employee's acts or
omissions to act or become known to Employee lawfully outside the scope of
Employee's employment under this Agreement. Employee agrees to deliver to the
Company at the termination of Employee's employment, or at any other time the
Company may request, all memoranda, notes, plans, records, reports and other
documents (and copies thereof) relating to the business of the Company which
Employee may then possess or have under Employee's control.
7. Notices. Any notice provided for in this Agreement shall be in writing
-------
and shall be either personally delivered, sent by overnight courier (e.g.,
----
Federal Express) or mailed by first class certified mail, return receipt
requested, to the recipient at the address below indicated:
To the Company: Ada Brady
c/o Hanger Orthopedic Group, Inc.
7700 Old Georgetown Road, 2nd Floor
Bethesda, Maryland 20814
To Employee: J.G. Cairns, Jr.
4137 Pleasant Beach Drive, N.E.
Bainbridge Island, Washington 98110
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered,
sent or mailed.
3
<PAGE>
8. Miscellaneous. Whenever possible, each provision of this Agreement
-------------
will be interpreted in such manner as to be effective and valid under applicable
law. The parties agree that (i) the provisions of this Agreement shall be
severable in the event that any of the provisions hereof are for any reason
whatsoever invalid, void or otherwise unenforceable, (ii) such invalid, void or
otherwise unenforceable provisions shall be automatically replaced by other
provisions which are as similar as possible in terms to such invalid, void or
otherwise unenforceable provisions but are valid and enforceable and (iii) the
remaining provisions shall remain enforceable to the fullest extent permitted by
law. This Agreement embodies the complete agreement and understanding among the
parties and supersedes and preempts any prior understandings, agreements or
representations by or among the parties, written or oral, which may have related
to the subject matter hereof in any way. This Agreement may be executed on
separate counterparts, each of which is deemed to be an original and all of
which taken together constitute one and the same agreement. This Agreement is
intended to bind and inure to the benefit of and be enforceable by Employee and
the Company, and their respective successors and assigns. Employee may not
assign Employee's rights or delegate Employee's obligations hereunder without
the prior written consent of the Company. The Company may assign its rights and
delegate its duties hereunder without the consent of Employee to Permitted
Transferees. All questions concerning the construction, validity and
interpretation of the Agreement will be governed by the internal law, and not
the law of conflicts, of the State of Washington. All disputes under this
Agreement shall be submitted to and governed by binding arbitration with an
arbitrator from the American Arbitration Association. Any provision of this
Agreement may be amended or waived only with the prior written consent of the
Company and Employee.
9. Definitions. "Person" shall mean and include an individual, a
-----------
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a governmental entity or any department or agency thereof.
"Permitted Transferee" shall mean (a) any successor by merger or consolidation
to the Company or any Permitted Transferee; (b) any purchaser of all or
substantially all of the Company's or any Permitted Transferee's assets; (c) any
parent or subsidiary corporation of the Company or Hanger Orthopedic Group,
Inc.; and (d) any lender to (i) the Company, (ii) any Permitted Transferee
and/or (iii) any affiliate of the Company or of any Permitted Transferee.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
WITNESS: EMPLOYEE:
_______________________________ _______________________________
J.G. Cairns, Jr.
Attest (Seal): DOBI-SYMPLEX, INC.
_______________________________ By:____________________________
Richard A. Stein, Secretary Ivan R. Sabel, President
4
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of Hanger Orthopedic Group, Inc. of our reports dated March 2,
1999, relating to the financial statements and financial statement schedule
appearing in Hanger Orthopedic Group, Inc's. Annual Report on Form 10-K for
the year ended December 31, 1998. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such
Registration Statement.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 27, 1999
<PAGE>
EXHIBIT 23(d)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our report dated October 13, 1999 relating to the consolidated
financial statements of NovaCare Orthotics and Prosthetics, Inc. and
subsidiaries as of June 30, 1999, and for the fiscal year then ended, which
report appears in Hanger Orthopedic Group, Inc.'s Current Report on Form 8-K
filed on October 22, 1999. We also consent to the references to our firm under
the headings "Experts" and "Selected Financial Data" in this Registration
Statement.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
October 27, 1999
