<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HANGER ORTHOPEDIC GROUP, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- -------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- -------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
- -------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -------------------------------------------------------------------------------
(5) Total fee paid:
- -------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- -------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- -------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- -------------------------------------------------------------------------------
(3) Filing party:
- -------------------------------------------------------------------------------
(4) Date filed:
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<PAGE> 2
PRELIMINARY PROXY SOLICITING MATERIAL DATED MARCH 10, 2000
HANGER ORTHOPEDIC GROUP, INC.
TWO BETHESDA METRO CENTER
SUITE 1200
BETHESDA, MARYLAND 20814
March 31, 2000
Dear Stockholder:
We are pleased to invite you to attend our Annual Meeting of Stockholders.
This year it will be held on Tuesday, May 16, 2000, at 10:00 a.m., local time,
at the Hyatt Regency Bethesda Hotel, One Bethesda Metro Center, Bethesda,
Maryland. The primary business of the meeting will be to elect directors, vote
on a proposed amendment to the Certificate of Designations relating to the
Company's outstanding 7% Redeemable Preferred Stock and ratify the selection of
independent accountants.
A Notice of the Annual Meeting and the Proxy Statement follow. You will
also find enclosed a proxy card. We invite you to attend the meeting in person,
but if this is not feasible, we think it advisable for you to be represented by
proxy. Therefore, if you cannot attend the meeting, we urge you to sign the
enclosed proxy card and mail it promptly in the return-addressed,
postage-prepaid envelope provided for your convenience.
Sincerely,
/s/ Ivan R. Sabel
Ivan R. Sabel
Chairman of the Board
and Chief Executive Officer
<PAGE> 3
HANGER ORTHOPEDIC GROUP, INC.
TWO BETHESDA METRO CENTER
SUITE 1200
BETHESDA, MARYLAND 20814
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
Notice is hereby given that the Annual Meeting of Stockholders of Hanger
Orthopedic Group, Inc., a Delaware corporation ("Hanger" or the "Company"), will
be held at the Hyatt Regency Bethesda Hotel, One Bethesda Metro Center,
Bethesda, Maryland on Tuesday, May 16, 2000, at 10:00 a.m., local time, for the
following purposes:
1. To elect nine persons to serve as directors of the Company for the
ensuing year;
2. To approve a proposed amendment to the Certificate of Designations
relating to the Company's outstanding 7% Redeemable Preferred Stock;
3. To ratify the selection of PricewaterhouseCoopers LLP as the
independent accountants for the Company for the current fiscal year; and
4. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on March 17, 2000, are
entitled to notice of, and to vote at, the Annual Meeting.
By order of the Board of Directors,
/s/ Richard A. Stein
Richard A. Stein
Secretary
March 31, 2000
YOUR VOTE IS IMPORTANT
PLEASE DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY SO THAT YOUR
SHARES MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES.
MAIL THE PROXY TO US IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
THE GIVING OF THE PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE IN PERSON SHOULD
YOU ATTEND THE MEETING.
<PAGE> 4
HANGER ORTHOPEDIC GROUP, INC.
TWO BETHESDA METRO CENTER
SUITE 1200
BETHESDA, MARYLAND 20814
PROXY STATEMENT
GENERAL
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Hanger Orthopedic Group, Inc., a Delaware corporation
("Hanger" or the "Company"), of proxies of stockholders to be voted at the
Annual Meeting of Stockholders to be held at the Hyatt Regency Bethesda Hotel,
One Bethesda Metro Center, Bethesda, Maryland at 10:00 a.m., local time, on
Tuesday, May 16, 2000, and any and all adjournments thereof.
Any stockholder executing a proxy retains the right to revoke it at any
time prior to its being exercised by giving notice to the Secretary of the
Company.
This Proxy Statement and the accompanying proxy are being mailed or given
on or about April 12, 2000 to stockholders of record of the Company on March 17,
2000.
VOTING SECURITIES
As of March 17, 2000, a total of 18,910,002 shares of common stock of the
Company, par value $.01 per share ("Common Stock"), which is the only class of
voting securities of the Company, were issued and outstanding. At the Annual
Meeting or any adjournment thereof, all holders of record of the Common Stock as
of the close of business on March 17, 2000, will be entitled to one vote for
each share held upon the matters listed in the Notice of Annual Meeting.
Cumulative voting is not permitted.
Shares of Common Stock represented by proxy at the Annual Meeting will be
voted according to the instructions, if any, given in the proxy. Unless
otherwise instructed, the person or persons named in the proxy will vote (1) FOR
the election of the nine nominees for director listed herein (or their
substitutes in the event any of the nominees is unavailable for election); (2)
FOR the approval of the proposed amendment to the Certificate of Designations
relating to the Company's outstanding 7% Redeemable Preferred Stock; (3) FOR the
ratification of the selection of PricewaterhouseCoopers LLP as the independent
accountants for the Company for the current fiscal year; and (4) in their
discretion, with respect to such other business as may properly come before the
meeting.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the inspectors of election appointed by the Company for the meeting. The number
of shares represented at the meeting in person or by proxy will determine
whether or not a quorum is present. The inspectors of election will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote by the inspectors of election with
respect to that matter.
The cost of soliciting proxies will be borne by the Company. Proxies may be
solicited by directors, officers or regular employees of the Company in person
or by telephone.
PROPOSAL ONE -- ELECTION OF DIRECTORS
Nine directors are to be elected at the Company's Annual Meeting of
Stockholders, each to serve for one year or until his successor is elected and
qualified. Proxies will be voted at the Annual Meeting, unless authority is
withheld, FOR the election of the nine persons named below, all of whom
currently are directors of the Company. The Company does not contemplate that
any of the persons named below will be unable or
<PAGE> 5
will decline to serve; however, if any such nominee is unable or declines to
serve, the persons named in the accompanying proxy will vote for a substitute,
or substitutes, in their discretion. The following table sets forth information
regarding the nominees.
<TABLE>
<CAPTION>
BECAME
NAME POSITION WITH THE COMPANY AGE DIRECTOR
---- ------------------------- --- --------
<S> <C> <C> <C>
Ivan R. Sabel, CPO.................... Chairman of the Board, President, 55 1986
Chief Executive Officer and Director
Mitchell J. Blutt, M.D................ Director 43 1989
Edmond E. Charrette, M.D.............. Director 65 1996
Thomas P. Cooper, M.D................. Director 56 1990
Robert J. Glaser, M.D................. Director 81 1993
C. Raymond Larkin, Jr................. Director 51 1999
Risa J. Lavizzo-Mourey, M.D........... Director 45 1998
Brigadier General William L. McCulloch
(USMC Retired)...................... Director 79 1991
H.E. Thranhardt, CPO.................. Director 60 1996
</TABLE>
Ivan R. Sabel has been Chairman of the Board of Directors and Chief
Executive Officer of Hanger since August 1995. He has served as President of
Hanger since October 14, 1999, and also served in that capacity from November
1987 through July 1, 1999. Mr. Sabel also served as the Chief Operating Officer
of Hanger from November 1987 until August 1995. Prior to that time, Mr. Sabel
had been Vice President -- Corporate Development from September 1986 to November
1987. From 1968 until joining Hanger in 1986, Mr. Sabel was the founder, owner
and President of Capital Orthopedics, Inc. before that company was acquired by
Hanger. Mr. Sabel is a Certified Prosthetist and Orthotist ("CPO"), a 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.
Mitchell J. Blutt, M.D. has served as an Executive Partner of Chase Capital
Partners (and its predecessor organizations), the private capital investment
fund 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 healthcare
sector) and serves as a director and the President of Latin Healthcare
Investment Management Co., LLC (a group composed of Ascendant Healthcare
International and The Global Environmental Fund which manages and directs the
investment activities of the Latin Healthcare Investment Fund). Previously, he
was the
2
<PAGE> 6
Executive Vice President and Chief Medical Officer of Advantage-Health
Corporation (a multi-hospital rehabilitation and post-acute care system) from
June 1994 to March 1996. From 1988 to May 1994, Dr. Charrette served as the
Corporate Medical Director and Senior Vice President of Medical Affairs of
Advantage Health Corporation.
Thomas P. Cooper, M.D. has been the Chief Executive Officer of Senior
Psychology Services Management, Inc., which provides mental health services to
patients in long term care facilities, since 1991 and serves as an Adjunct
Professor at the Columbia University Business School. From May 1989 to January
1997, Dr. Cooper served as the President and Chief Executive Officer of Mobilex
U.S.A., a provider of mobile diagnostic services to long term care facilities.
Dr. Cooper was the founder of Spectrum Emergency Care, a provider of emergency
physicians to hospitals, and Correctional Medical Systems, a provider of health
services to correctional 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. Dr. Glaser was a founding
member of the Institute of Medicine at the National Academy of Sciences and is a
director of Alza Corporation (principally engaged in pharmaceutical research).
He is a director of Maxygen, Inc., a company engaged in molecular evolution gene
research and development. He was a director of Hewlett-Packard Company from 1971
to 1991, and has continued to serve as a consultant to that company on health
matters.
C. Raymond Larkin, Jr. has served as principal of 3(x)NELL, LLC, a
partnership 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. (manufactures and
markets surgical instruments).
Risa J. Lavizzo-Mourey, M.D., M.B.A., has been the Sylvan Eisman Professor
of Medicine at the University of Pennsylvania School of Medicine since July 1997
and has served as the Director of the Institute on Aging at the University of
Pennsylvania since December 1995. From February 1998 to present, Dr.
Lavizzo-Mourey has served as a Member of the Institute of Medicine; from August
1996 to present, on the American Board of Internal Medicine; and from March 1995
to present, on the Board of Regents of the American College of Physicians. From
March 1997 to March 1998, Dr. Lavizzo-Mourey also served as a Member of the
United States Presidential Advisory Commission on Consumer Protection and
Quality of Care in Health Care. From April 1992 to April 1994, Dr.
Lavizzo-Mourey further served in each of the following positions: Chairperson of
the Quality of Care Working Group White House Task Force on Health Care Reform;
Deputy Administrator of the Agency on Health Care Policy and Research of the
U.S. Department of Health and Human Services; and as a Member of the Senior
Executive Service of the Public Health Service of the U.S. Department of Health
and Human Services. Dr. Lavizzo-Mourey also currently serves on the Boards of
Directors of Kapson Senior Quarters (assisted living health care company),
Beverly Enterprises (long-term and sub-acute health care company), Managed Care
Solutions (management services for long-term health care organizations) and
Medicus Systems (medical information software company).
Brig. Gen. William L. McCulloch (USMC Retired) has served as the President
of Association Communication and Marketing Services, a public relations firm,
since October 1989. Previously, Gen. McCulloch was the Executive Director of
AOPA, the trade association of the orthotic and prosthetic industry, from
October 1976 to September 1989. In 1975, Gen. McCulloch retired from active
military service after serving 30 years as a U.S. Marine infantry officer.
H.E. Thranhardt, CPO is the former President and Chief Executive Officer of
J.E. Hanger, Inc. of Georgia ("JEH"). He served in that capacity from January 1,
1977 to November 1, 1996, on which date JEH was acquired by Hanger. Mr.
Thranhardt, who commenced his employment with JEH in 1958, has occupied
leadership positions in numerous professional O&P associations, including
Chairman of the Board of the
3
<PAGE> 7
Orthotics and Prosthetics National Office in 1994 and 1995, President of AOPA in
1992 and 1993, President of the American Board for Certification in Orthotics
and Prosthetics in 1979 and 1980 and President of The American Academy of
Orthotics and Prosthetics in 1976 and 1977.
MANAGEMENT RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE NOMINEES
AS DIRECTORS OF THE COMPANY.
There are no family relationships between any of the nominees.
The Board of Directors has an Audit Committee, which met one time during
1999 and presently consists of C. Raymond Larkin, Jr. (Chair), William L.
McCulloch and Risa J. Lavizzo-Mourey, M.D. The Audit Committee is responsible
for meeting with the Company's independent accountants to review the proposed
scope of the annual audit of the Company's books and records, reviewing the
findings of the independent accountants upon completion of the annual audit, and
reporting to the Board of Directors with respect thereto. The Board of Directors
also has a Compensation Committee, which conducted two meetings during 1999. It
presently consists of Robert J. Glaser, M.D. (Chair), Thomas P. Cooper, M.D. and
Edmond E. Charrette, M.D., and is responsible for advising the Board on matters
relating to the compensation of officers and key employees and certain of the
Company's employee benefit plans. The Board of Directors also has a Nominating
Committee, which conducted one meeting in 1999, consists of Risa J.
Lavizzo-Mourey, M.D. (Chair), Robert J. Glaser M.D. and Thomas P. Cooper, M.D.,
and is responsible for advising the Board on matters relating to the
identification of nominees to the Board of Directors. The Board of Directors met
six times during 1999. Each incumbent director attended at least 75% of the
aggregate number of meetings of the Board and committee(s) on which he or she
served during 1999 except Risa J. Lavizzo-Mourey, M.D. and H.E. Thranhardt, each
of whom were unable to attend two meetings of the Board of Directors.
COMPENSATION AND RELATED MATTERS
The following Summary Compensation Table sets forth the annual salary
(column c) and bonus (column d) paid and options granted (column g) during each
of the past three years to the Company's Chief Executive Officer and the four
other highest compensated executive officers of the Company and its subsidiaries
in 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------
Annual Compensation Payouts
------------------------------------------ Awards -------
(e) ------------------------- (h)
(c) (d) Other Annual (f) (g) LTIP
(a) (b) Salary Bonus(1) Compensation(2) Restricted Stock Options Payouts
Name and Principal Position Year ($) ($) ($) Award(s)($) (#)(3) ($)
--------------------------- ---- -------- -------- --------------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel................ 1999 $468,389 $300,586 150,000
Chairman, President & 1998 419,478 260,000 -- 100,000 --
Chief Executive Officer
of the Company 1997 385,000 293,333 -- -- 167,667 --
Richard A. Stein............. 1999 $282,719 $165,536 -- 75,000 --
Executive Vice
President -- 1998 201,567 130,000 -- -- 50,000 --
Finance, Secretary & 1997 185,000 146,667 -- -- 80,333 --
Treasurer of the Company
John McNeill................. 1999 $229,038 $296,343 -- -- 7,500 --
Vice President -- 1998 243,000 347,601 -- -- 27,500 --
Integrations of the 1997 230,000 320,896 -- -- --
Company
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------------------
Annual Compensation Payouts
------------------------------------------ Awards -------
(e) ------------------------- (h)
(c) (d) Other Annual (f) (g) LTIP
(a) (b) Salary Bonus(1) Compensation(2) Restricted Stock Options Payouts
Name and Principal Position Year ($) ($) ($) Award(s)($) (#)(3) ($)
--------------------------- ---- -------- -------- --------------- ---------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Richmond L. Taylor(4)........ 1999 $162,500 $ 87,506 -- -- 150,000 --
Executive Vice President
of the Company and
Chief Operating Officer
of Hanger Prosthetics &
Orthotics, Inc. and
NovaCare O&P, Inc.
James G. Cairns, Jr.(5)...... 1999 $166,048 -- -- -- -- --
President and Chief 1998 66,667 -- -- -- 15,000 --
Operating Officer of
Seattle Orthopedic
Group, Inc.
</TABLE>
- ---------------
(1) With respect to 1999, the above reported bonuses were paid in late 1999 or
early 2000 and related to 1999 performance. With respect to 1998, the above
reported bonuses were paid on January 8, 1999 and related to 1998
performance. With respect to 1997, the above reported bonuses were paid on
September 23, 1997 and January 27, 1998 and related to 1997 performance.
(2) Does not report the approximate cost to the Company of an automobile
allowance furnished to the above persons, which amounts do not exceed the
lesser of either $50,000 or 10% of the total of the person's annual salary
and bonuses for 1999.
(3) Reports the number of shares underlying options granted during each of the
respective years.
(4) Sets forth Mr. Taylor's compensation since July 1, 1999, on which date the
Company acquired NovaCare Orthotic & Prosthetics, Inc.
(5) Sets forth Mr. Cairns' compensation since August 1, 1998, as of which date
the Company acquired Model + Instrument Development Corporation.
The following Option Grants Table sets forth, for each of the named
executive officers, information regarding individual grants of options granted
in 1999 and their potential realizable value. Information regarding individual
option grants includes the number of options granted, the percentage of total
grants to employees represented by each grant, the per-share exercise price and
the expiration date. The potential realizable value of the options are based on
assumed annual 0%, 5% and 10% rates of stock price appreciation over the term of
the option.
5
<PAGE> 9
OPTION GRANTS TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(4)
------------------------------------------------------- -----------------------------------
OPTIONS % OF TOTAL OPTIONS EXERCISE
GRANTED GRANTED TO EMPLOYEES PRICE EXPIRATION
NAME (#)(1) IN FISCAL YEAR(2) ($/SH)(3) DATE 0% 5%($) 10%($)
---- ------- -------------------- --------- ---------- --- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ivan R. Sabel....... 150,000 12.05% $ 14.75 4/29/09 $0 $1,391,429 $3,526,155
Richard A. Stein.... 75,000 6.02 14.75 4/29/09 0 695,715 1,763,078
John McNeill........ 7,500 0.01 16.50 5/14/09 0 77,826 197,226
Richmond L. Taylor.. 150,000 12.05 14.1875 7/1/09 0 1,338,366 3,391,683
James G. Cairns,
Jr................ -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) The stock options were granted on April 29, 1999 under the Company's 1991
Stock Option Plan and become exercisable cumulatively as to 25%, 50%, 75%
and 100% after the first, second, third and fourth anniversaries,
respectively, after the date of grant.
(2) Based on options for a total of 1,245,000 shares granted to all employees in
1999.
(3) The exercise price is equal to the fair market value on the date of grant of
the option.
(4) The potential realizable values shown in the columns are net of the option
exercise price. These amounts assume annual compounded rates of stock price
appreciation of 0%, 5%, and 10% from the date of grant to the option
expiration date, a term of ten years. These rates have been set by the U.S.
Securities and Exchange Commission and are not intended to forecast future
appreciation, if any, of the Company's Common Stock. Actual gains, if any,
on stock option exercises are dependent on several factors including the
future performance of the Company's Common Stock, overall stock market
conditions, and the optionee's continued employment through the vesting
period. The amounts reflected in this table may not actually be realized.
The following Aggregate Option Exercises and Fiscal Year-End Option Value
Table sets forth, for each of the named executive officers, information
regarding (i) the number of shares acquired during 1999 upon the exercise of
options and the value realized in connection therewith, and (ii) the number and
value of unexercised options held at December 31, 1999.
AGGREGATE OPTION EXERCISES AND FISCAL
YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
(a) (c) (d) (e)
(b) Number of Unexercised Value of Unexercised In-The-
Number of Options at FY-End(#) Money Options at FY-End($)
Shares Acquired on
Name Exercise Value Realized($) Exercisable/Unexercisable Exercisable/Unexercisable(6)
---- ------------------ ----------------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Ivan R. Sabel........ 85,250 $1,114,228 66,750/342,000(1) $ 64,906/$303,594
Richard A. Stein..... 42,250 552,559 33,250/170,500(2) $ 31,969/$149,531
John McNeill......... 8,541 100,256 41,876/ 17,917(3) $ 129,169/ --
Richmond L. Taylor... -- -- -- /150,000(4) --/ --
James G. Cairns,
Jr................. -- -- 3,750/ 11,250(5) --/ --
</TABLE>
- ---------------
(1) The above-reported options entitle Mr. Sabel to purchase from the Company
(i) 33,500 shares at a price of $3.50 per share through February 21, 2006
under an option granted on February 21, 1996; (ii) 33,500 shares at a price
of $6.125 per share through November 1, 2006 under an option granted on
November 1, 1996; (iii) 50,250 shares at a price of $6.125 per share through
March 14, 2007 under an option granted on March 14, 1997; (iv) 37,500 shares
at a price of $13.25 per share through September 19, 2007 under an option
granted on September 19, 1997; (v) 37,500 shares at a price of $11.3125 per
share through December 17, 2007 under an option granted on December 17,
1997; (vi) 100,000 shares at a price of
6
<PAGE> 10
$22.3125 per share through December 15, 2008 under an option granted on
December 15, 1998; and (vii) 150,000 shares at a price of $14.75 per share
through April 29, 2009 under an option granted on April 29, 1999.
(2) The above-reported options entitle Mr. Stein to purchase from the Company
(i) 16,500 shares at a price of $3.50 per share through February 21, 2006
under an option granted on February 21, 1996; (ii) 16,500 shares at a price
of $6.125 through November 1, 2006 under an option granted on November 1,
1996; (iii) 24,750 shares at a price of $6.125 through March 14, 2007 under
an option granted on March 14, 1997; (iv) 18,750 shares at a price of $13.25
per share through September 19, 2007 under an option granted on September
19, 1997; (v) 18,750 shares at a price of $11.3125 per share through
December 17, 2007 under an option granted on December 17, 1997; (vi) 50,000
shares at a price of $22.3125 per share through December 15, 2008 under an
option granted on December 15, 1998; and (vii) 75,000 shares at a price of
$14.75 per share through April 29, 2009 under an option granted on April 29,
1999.
(3) The above-reported options entitle Mr. McNeill to purchase from the Company
(i) 100,000 shares at a price of $6.125 per share through November 1, 2006
under an option granted on November 1, 1996; (ii) 7,500 shares at a price of
$13.25 per share through September 19, 2007 under an option granted on
September 19, 1997; (iii) 20,000 shares at a price of $11.313 per share
through December 17, 2007 under an option granted on December 17, 1997; and
(iv) 7,500 shares at a price of $16.50 per share through May 14, 2009 under
an option granted on May 14, 1999.
(4) The above-reported options entitle Mr. Taylor to purchase from the Company
150,000 shares at a price of $14.1875 per share through July 1, 2009 under
an option granted on July 1, 1999.
(5) The above-reported options entitle Mr. Cairns to purchase from the Company
15,000 shares at a price of $17.375 per share through August 14, 2008 under
an option granted on August 14, 1998.
(6) Market value of underlying shares at December 31, 1999, minus the exercise
price.
No Long-Term Incentive Plan Awards Table is set forth herein because no
long-term incentive plan awards were made to the above-named executive officers
during 1999.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The employment and non-compete agreements, dated as of April 29, 1999,
between Hanger and Ivan R. Sabel, Chairman, President 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, through April 29,
2004, on which date new agreements will be entered into or the current
agreements will automatically renew each year for successive one-year periods
unless either party notifies the other to the contrary. Pursuant to those
agreements, Mr. Sabel's annual base compensation is $495,000. Any increase in
his base salary will be determined by the Board of Directors. Mr. Sabel will
receive annual bonuses of 75% to 150% of his base salary with a guarantee of no
less than 62.5% for the first six months pro-rated and for the next 12 months.
The bonus compensation will be determined by the Board of Directors based upon
growth in revenues and pre-tax earnings, the targets for which will be
established by the Board of Directors. Mr. Sabel was granted an option as of the
date of his employment agreement to purchase 150,000 shares of Hanger Common
Stock at an exercise price of $14.75 per share, which was the closing sale price
of the Company's Common Stock on the date of grant of the option. Mr. Sabel also
will be granted options to purchase 100,000 shares of Hanger Common Stock on
each of the first, second and third anniversaries of his employment in the event
the Company achieves certain targeted results of operations with the exercise
price of such stock options to be equal to the then current market price of
Hanger's 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 during the
first four years 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. Mr. Sabel's employment agreement also contains
severance provisions which provide that upon the termination of his employment
without cause (as defined in the agreement) or upon his death or
7
<PAGE> 11
disability, Mr. Sabel or his estate will receive severance compensation for a
period of 24 months at a rate equal to his base salary and one-half of his bonus
received for the calendar year immediately preceding such event of termination,
death or disability, as well as all stock options granted to Mr. Sabel prior to
such event will immediately vest and become exercisable within one year from the
date of such event. Mr. Sabel's employment agreement further provides that if
his employment is terminated within two years after a change in control (as
defined in the agreement) of the Company and the occurrence of a material
diminution of his responsibilities, a reduction of his compensation or benefits,
a relocation of his principal site of employment more than 25 miles from his
then current location, or any material breach of his employment agreement by the
Company, then within 30 days after the occurrence of any such triggering events
Mr. Sabel may resign and receive a continuation of his benefits for a period of
18 months and severance compensation equal to 18 months of base pay then in
effect and 150% of the bonus awarded to him for the calendar year immediately
preceding such resignation, payable at his option either ratably over such
18-month period or in a lump sum payable with in 90 days of his resignation.
Mr. Stein's arrangement is similar to Mr. Sabel's, except that his base
salary is $325,000, the bonus range is 65% to 125% of base salary, a stock
option to purchase 75,000 shares of Hanger Common Stock at an exercise price of
$14.75 per share was granted to him as of the date of his employment agreement
with Hanger, with additional options to purchase 50,000 shares to be granted on
each of the first, second and third anniversaries of his employment in the event
the Company achieves the applicable certain targeted results of operations with
the exercise price of such option to be equal to the then current market price
of Hanger's 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, his severance
compensation will be for a period of 18 months in the event of termination of
employment without cause, death or disability, and in the event of the
occurrence of any triggering events after a change in control (as defined in the
agreement), Mr. Stein may resign and receive a continuation of his benefits for
a period of 12 months and severance compensation equal to 12 months of base pay
then in effect and 100% of the bonus awarded to him for the calendar year
immediately preceding such resignation, payable at this option either ratably
over such 12-month period or in a lump sum payable with in 90 days of his
resignation.
John McNeill entered into an employment agreement with the Company dated as
of November 1, 1996 in connection with the Company's acquisition of J. E.
Hanger, Inc. of Georgia. Prior to July 1, 1999, Mr. McNeill served as the
President and Chief Operating Officer of Hanger Prosthetics and Orthotics, Inc.,
a subsidiary of the Company. Pursuant to understandings reached with Mr.
McNeill, his base annual salary was reduced from $234,000 to $212,500 effective
October 1, 1999 and will be further reduced to $127,500 effective October 1,
2000.
Richmond L. Taylor entered into a five-year employment agreement with
Hanger that became effective upon effectiveness of the Company's acquisition of
NovaCare O&P on July 1, 1999, with Mr. Taylor serving as an Executive Vice
President and the Chief Operating Officer of the Company's 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 will be 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
the Company achieves 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.
James G. Cairns, Jr. entered into an employment agreement with the Company
dated as of August 1, 1998 in connection with the Company's acquisition of Model
+ Instrument Development Corporation. The agreement provides for Mr. Cairns'
employment at a base salary of $165,000 per year until termination of employment
in accordance with the terms of the agreement.
8
<PAGE> 12
COMPENSATION COMMITTEE REPORT
The following description of the Company's executive compensation practices
and policies is presented on behalf of the Compensation Committee of the
Company's Board of Directors (the "Committee"). The fundamental philosophy of
the Company's executive compensation program is to offer competitive
compensation reflecting both individual and Company performance.
The components of executive compensation consist of annual salaries,
short-term compensation incentives or bonuses and stock option grants as a
long-range incentive. The Committee seeks to reasonably compensate executives in
amounts that fairly reward the executive officers for their performance as
reflected by corporate accomplishments and create adequate incentives for their
continued contributions to the Company's success.
On April 29, 1999, the Company entered into new five-year employment
agreements with Ivan R. Sabel, Chairman of the Board, President and Chief
Executive Officer, and Richard A. Stein, Executive Vice President, Chief
Financial Officer, Secretary and Treasurer of the Company. Under the agreements,
the annual base salaries payable to Messrs. Sabel and Stein were increased to
$495,000 and $325,000, respectively. In addition, on that date, Messrs. Sabel
and Stein were granted options to acquire 150,000 shares and 75,000 shares,
respectively, at an exercise price of $14.75 per share, which was the closing
sale price of the Common Stock on the date of grant of the options. Under their
employment agreements, Messrs. Sabel and Stein will receive annual bonuses of
75% to 150% in the case of Mr. Sabel and 65% to 125% in the case of Mr. Stein of
their base salaries with a guarantee of no less than 62.5% for the first six
months and for the next 12 months, depending upon the Company's growth in
revenues and pre-tax earnings. The determinations to effect such salary
increases, option grants and bonus arrangements were largely in recognition of
the fact that on April 2, 1999, the Company had entered into an agreement to
acquire NovaCare O&P, as a result of which the Company became the leading
provider of O&P services in the United States. The acquisition was consummated
on July 1, 1999, and more than doubled the number of the Company's patient care
centers and certified O&P practitioners, significantly expanding the executive
responsibilities of Messrs. Sabel and Stein.
The bonuses paid to the executive officers of the Company based on 1999
performance reflected the fact that the Company achieved total net sales of
$ for the year ended December 31, 1999, compared to $ for the
prior year, and earned $ of net income in the year ended December 31,
1999, compared to $ in the prior year. The bonus awards also reflected
the Company's successful acquisition of NovaCare O&P on July 1, 1999, primarily
as a result of which the Company very substantially increased its number of
patient care centers from 256 at the end of 1998 to 623 at the end of 1999 and
the number of states (including the District of Columbia) in which it operates
from 31 at the end of 1998 to 43 at the end of 1999. In addition, the bonus
awards were in recognition of the negotiation and consummation of the financing
relating to the acquisition, including the establishment of a new bank facility
that provided approximately $230 million of revolving credit and term loans, the
sale of $150 million principal amount of 11.25% Senior Subordinated Notes due
2009 and the sale of $60 million of 7% Redeemable Preferred Stock. Describe
successful integration and restructuring activities.
On July 1, 1999, in connection with the Company's acquisition of NovaCare
O&P, the Company entered into five-year employment agreements with certain
former NovaCare O&P officials that became executive officers of the Company. The
agreement with Richmond L. Taylor, who became Executive Vice President and the
Chief Operating Officer of the Company's patient-care services subsidiaries,
provided for an annual salary of $325,000 and annual bonuses of 60% to 125% of
his base salary with a guarantee of not less than 53.85% for the first six
months pro rated and for the next 12 months, depending upon the Company's growth
in revenues and pre-tax earnings. On July 1, 1999, Mr. Taylor was granted on
option to purchase 150,000 shares of Common Stock at an exercise price of
$14.1875 per share, which was the closing sale price of the Common Stock on July
1, 1999.
The agreement with Mr. Sabel also provides that he will be granted options
to purchase 100,000 shares of Common Stock on each of the first, second and
third anniversaries of his employment in the event the Company achieves certain
targeted results of operations. Mr. Stein's agreement provides that he will
receive additional options to purchase 50,000 shares of Common Stock on each of
the first, second and third
9
<PAGE> 13
anniversaries of his employment in the event the Company achieves certain
targeted results of operations. The exercise prices of such options will be
equal to the then current market price of the Common Stock on the date of grant.
Section 162(m) of the Internal Revenue Code provides that publicly-held
companies may not deduct in any taxable year compensation in excess of $1
million paid to the chief executive officer and the four other most highly
compensated executive officers of the Company which is not "performance-based"
as defined in that section. Stock options granted under the Company's 1991 Stock
Option Plan with an exercise price at base equal to the fair market value of the
Company's Common Stock on the date of grant qualifies as "performance-based
compensation." Compensation currently paid by the Company which is not
"performance-based" is significantly less than the amount of the deduction limit
and such compensation therefore qualifies for deductibility under Section
161(m).
By: The Compensation Committee of the
Board of Directors
Robert J. Glaser, M.D., Chairman
Edmond E. Charrette, M.D.
Thomas P. Cooper, M.D.
STOCK OPTIONS
1991 STOCK OPTION PLAN. The Company's 1991 Stock Option Plan (the "1991
Plan") provides for the grant of both "incentive stock options" under Section
422A of the Internal Revenue Code of 1986, as amended (the "Code"), as well as
nonqualified stock options. The 1991 Plan is administered by the Committee and
provides for the grant of options to officers and key employees of Hanger to
purchase up to an aggregate of 8,000,000 shares of Common Stock at not less than
100% of fair market value on the date granted. As of March 17, 2000, incentive
stock options and nonqualified stock options granted under the 1991 Plan to
purchase a total of 3,682,693 shares of Common Stock under the 1991 Plan, at
prices ranging from $10.25 to $20.8125 per share, were outstanding and held by a
total of 280 persons. Of such options, options relating to 1,078,329 shares of
Common Stock were exercisable as of that date.
1993 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN. Under the Company's 1993
Non-Employee Directors Stock Option Plan (the "1993 Plan"), directors of the
Company who are not employed by the Company or any affiliate of the Company are
eligible to receive options under the 1993 Plan. A total of 250,000 shares of
Common Stock were reserved for possible issuance upon the exercise of options
under the 1993 Plan. On September 21, 1999, an option for 5,000 shares was
granted to each of the six eligible directors, for a total of 30,000 shares, at
an exercise price of $14.00 per share (which was equal to the closing sale price
of the shares on the New York Stock Exchange on the date of grant). Under the
1993 Plan, an option to purchase 5,000 shares is granted automatically on an
annual basis to each eligible director on the third business day following the
date of each Annual Meeting of Stockholders at which the eligible director is
elected. The exercise price of each option is equal to 100% of the closing sale
price of the shares as reported by the New York Stock Exchange on the date the
option is granted. Each option will becomes exercisable in four equal annual
installments, commencing on the first anniversary of the date of grant. As of
March 17, 2000, options for a total of 147,500 shares were outstanding under the
1993 Plan, of which options for 72,500 shares were exercisable as of that date.
NONQUALIFIED STOCK OPTIONS. Hanger has granted nonqualified stock options
other than pursuant to the 1991 Plan and the 1993 Plan to certain officers and
other persons which permit such persons to acquire shares of Common Stock
generally at not less than 100% of fair market value on the date granted. As of
March 17, 2000, nonqualified stock options granted other than pursuant to the
1991 Plan and the 1993 Plan to purchase a total of 13,250 shares of Common
Stock, at prices ranging from $3.00 to $12.00 per share, were outstanding and
held by a total of five persons. All of such nonqualified stock options are
presently exercisable.
10
<PAGE> 14
DIRECTORS' FEES
Directors who are not officers or employees of the Company receive an
annual fee of $7,500 plus $1,000 for each meeting attended. In addition,
directors serving on committees of the Board receive a fee of $1,000 per
committee meeting attended.
WARRANTS
In connection with the Company's purchase on November 8, 1990, of the
Manufacturing Division of Ralph Storrs, Inc. ("Storrs"), the Company effected a
$2.45 million, seven-year loan (the "Loan") from Chemical Venture Capital
Associates, L.P., a predecessor to Chase Venture Capital Associates, L.P.
("CVCA"), in connection with which the Company was required to issue to CVCA
warrants to purchase shares of the Company's Common Stock in the event the Loan
was not repaid prior to certain dates. Because the Loan was not repaid prior to
August 6, 1991 (i.e., 271 days after the date of the Loan), the Company,
pursuant to its loan agreement with CVCA dated November 8, 1990, issued warrants
to CVCA entitling it to purchase 297,883 shares of Common Stock at a price of
$4.16 per share. Because the Loan was not repaid prior to November 5, 1991
(i.e., 361 days after the date of the Loan), the Company, pursuant to its
November 8, 1990 loan agreement with CVCA, issued to CVCA additional warrants
entitling it to purchase 322,699 shares of Common Stock at a price of $7.65 per
share. The warrants are exercisable on or before December 31, 2001, and the
exercise prices are equal to the market value of the Common Stock on the dates
of grant of the warrants. In May 1997, warrants for 71,969 shares were exercised
at $4.16 per share, which resulted in the issuance of 11,694 shares.
On November 1, 1996, in connection with the Company's acquisition of J.E.
Hanger, Inc. of Georgia, the Company entered into a Senior Subordinated Note
Purchase Agreement with CVCA providing for the issuance of a Senior Subordinated
Note (the "Senior Subordinated Note") in the principal amount of $4 million and
detachable warrants to purchase 800,000 shares of Common Stock. The fair market
value of the Common Stock on the date of grant on the warrants was $6.125 per
share. The Company used the net proceeds of its public offering of Common Stock
in July 1997 to repay the Senior Subordinated Note, as a result of which the
warrants were amended to reduce the number of underlying shares to 360,000
shares. These detachable warrants, which are exercisable on or before November
1, 2004, have an exercise price of $4.01 as to 209,183 shares and an exercise
price of $6.38 as to 150,818 shares.
ISSUANCE OF 7% REDEEMABLE PREFERRED STOCK
On July 1, 1999, CVCA transferred all of its Common Stock and warrants to
purchase shares of Common Stock of the Company to CVCA's affiliate, Chase Equity
Associates, L.P. ("CEA"). Also on July 1, 1999, the Company issued a total of
60,000 shares of 7% Redeemable Preferred Stock (the "Redeemable Preferred
Stock") for $1,000 a share, or a total purchase price of $60 million, of which
50,000 shares were sold for $50 million to CEA. The Redeemable Preferred Stock
is convertible, at the holder's option, into shares of non-voting Common Stock
of the Company (which under certain circumstances may be subsequently converted
into voting Common Stock) at a conversion price of $16.50 per share, subject to
adjustment. The Company is entitled to require that the shares be converted into
non-voting Common Stock on and after July 2, 2000, if the average closing price
of the Company's Common Stock for 20 consecutive trading days is equal to or
greater than 175% of the conversion price. The Redeemable Preferred Stock will
be mandatorily redeemable on July 1, 2010 at a redemption price equal to the
liquidation preference plus all accrued and unpaid dividends. In the event of a
change in control of the Company, it 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 payment. The Redeemable Preferred Stock was issued
by the Company in connection with it's acquisition of NovaCare O&P on July 1,
1999. Reference is made to Proposal 2 described below, in which it is proposed
that the Certificate of Designations relating to the Redeemable Preferred Stock
be amended to eliminate the present provision prohibiting the Company from
effecting a merger with another company without the prior approval of the
holders of a majority of the outstanding Redeemable Preferred Stock, and
providing that the Company will be obligated to offer to repurchase the
outstanding Redeemable Preferred Stock in the event of certain
11
<PAGE> 15
mergers in the same fashion that the Certificate of Designations now requires a
repurchase offer by the Company in the event of a change in control of the
Company.
PROPOSAL TWO -- PROPOSED AMENDMENT TO CERTIFICATE OF DESIGNATIONS
RELATING TO 7% REDEEMABLE PREFERRED STOCK
As stated above, the Company issued a total of 60,000 shares of Redeemable
Preferred Stock on July 1, 1999. The Certificate of Designations relating to the
Redeemable Preferred Stock contains a provision that provides that the Company
may not effect a merger with another company without the prior approval of the
holders of a majority of the outstanding Redeemable Preferred Stock. The Company
proposes to amend the Certificate of Designations to eliminate that provision.
The Company requests that common stockholders approve the proposed
amendment to the Certificate of Designations relating to the Redeemable
Preferred Stock, a copy of which is attached as Exhibit A to this Proxy
Statement. The proposed amendment will ensure compliance with the rule of the
New York Stock Exchange that prohibits an issuer of securities from restricting
or reducing the per share voting rights of a listed class of common stock. The
amendment further provides that the Company will be obligated to offer to
purchase the outstanding Redeemable Preferred Stock in the event of certain
mergers in the same fashion that the Certificate of Designations now requires a
repurchase offer by the Company in the event of a change in control of the
Company. In that regard, the Certificate of Designations provides that upon the
occurrence of a change in control, the Company is obligated to offer to purchase
the outstanding Redeemable Preferred Stock for a price per share equal to 101%
of its liquidation value, which is defined to be its original cost plus an
amount equal to all accrued and unpaid dividends.
The proposed amendment has been approved by the Board of Directors of the
Company as well as by the holder of a majority of the outstanding shares of
Redeemable Preferred Stock. In order to become effective, the proposed amendment
must be approved by the holders of a majority of the Company's outstanding
Common Stock. Because the Redeemable Preferred Stock is outstanding, the
proposed amendment to the Certificate of Designations relating to the Redeemable
Preferred Stock is treated under Delaware law in the same fashion as a proposed
amendment to the Certificate of Incorporation of the Company. The amendment will
become effective upon the filing by the Company of the amendment with the
Secretary of State of the State of Delaware.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE AMENDMENT
TO THE CERTIFICATE OF DESIGNATIONS RELATING TO THE REDEEMABLE PREFERRED STOCK.
PROPOSAL THREE -- INDEPENDENT ACCOUNTANTS
The Company's Board of Directors has appointed the accounting firm of
PricewaterhouseCoopers LLP to serve as the Company's independent accountants for
the current fiscal year ending December 31, 2000. The firm has served in that
capacity for the Company's past 12 fiscal years. A resolution will be presented
at the Annual Meeting to ratify the appointment by the Company's Board of
Directors of PricewaterhouseCoopers LLP to serve as the Company's independent
public accountants for the current fiscal year. A majority vote is required for
ratification. A representative of PricewaterhouseCoopers LLP may be present at
the Annual Meeting to answer any questions concerning the Company's financial
statements and to make a statement if he desires to do so.
12
<PAGE> 16
PRINCIPAL STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned as of March 17, 2000 by: (i) each person known by Hanger to
be the beneficial owner of 5% or more of such class of securities, (ii) each
director and nominee for director of Hanger, (iii) each of the above-listed
officers and (iv) all directors, nominees and officers of Hanger as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
DIRECTORS, OFFICERS AND 5% SHARES OF OUTSTANDING
STOCKHOLDERS COMMON STOCK(1) COMMON STOCK(1)
-------------------------- --------------- ---------------
<S> <C> <C>
Chase Equity Associates, L.P.(2)............................ 4,656,992 20.45%
Lord Abbett(3).............................................. 1,539,280 8.14
Mitchell J. Blutt, M.D.(4).................................. -- --
Thomas P. Cooper, M.D.(5)................................... 29,250 0.15
Edmond E. Charrette, M.D.(6)................................ 27,500 0.15
Robert J. Glaser, M.D.(7)................................... 28,500 0.15
C. Raymond Larkin, Jr....................................... -- --
Risa J. Lavizzo-Mourey, M.D.(8)............................. 3,250 0.02
Brigadier General William L. McCulloch (USMC Retired)(9).... 28,500 0.15
Ivan R. Sabel, CPO(10)...................................... 255,850 1.34
H.E. Thranhardt, CPO(11).................................... 280,725 1.48
Richard A. Stein(12)........................................ 131,129 0.69
James L. Cairns(13)......................................... 27,838 0.15
John McNeill(14)............................................ 44,376 0.23
Richard L. Taylor(15)....................................... -- --
All directors, nominees and officers as a group (3
persons)(16).............................................. 1,006,218 5.3
</TABLE>
- ---------------
(1) Assumes in the case of each stockholder listed in the above list that all
presently exercisable warrants or options held by such stockholder were
fully exercised by such stockholder, without the exercise of any warrants
or options held by any other stockholders.
(2) Includes 830,649 shares of non-voting Common Stock subject to exercisable
warrants to purchase shares from the Company and 3,030,303 shares of
non-voting Common Stock into which the Redeemable Preferred Stock held by
CEA is convertible. Reference is made to note (4) below for information
relating to a director of the Company that is affiliated with CEA. The
address of CEA is 380 Madison Avenue (12th Floor), New York, New York
10017.
(3) The address of Lord Abbett & Co. is 90 Hudson Street, Jersey Street, N.J.
07302.
(4) Does not include the shares reported above as owned by CEA. Dr. Blutt is an
Executive Partner of Chase Capital Partners, the sole general partner of
CVCA. He disclaims beneficial ownership of the shares beneficially owned by
CVCA.
(5) Includes 22,750 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(6) Includes 7,500 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(7) Includes 27,500 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(8) Includes 1,250 shares subject to exercisable options to purchase shares
from the Company and excludes 8,750 shares subject to unvested options that
have not yet become exercisable.
(9) Includes 15,000 shares subject to exercisable options to purchase shares
from the Company and excludes 12,500 shares subject to unvested options
that have not yet become exercisable.
(10) Includes 137,750 shares subject to exercisable options to purchase shares
from the Company and excludes 271,000 shares subject to unvested options
that have not yet become exercisable.
13
<PAGE> 17
(11) Consists of 184,027 shares owned directly by Mr. Thranhardt, 3,750 shares
subject to exercisable options to purchase shares from the Company, 35,543
shares owned indirectly by him as trustee for members of his family, and
57,405 shares owned indirectly by him as general partner of a family
partnership; does not include 11,250 shares subject to unvested options
that have not yet become exercisable.
(12) Includes 68,500 shares subject to exercisable options to purchase shares
from the Company, and excludes 135,250 shares subject to unvested options
that have not yet become exercisable.
(13) Includes 3,750 shares subject to exercisable options to purchase shares
from the Company, and excludes 11,250 shares subject to unvested options
that have not yet become exercisable.
(14) Includes 44,376 shares subject to exercisable options to purchase shares
from the Company, and excludes 15,417 shares subject to unvested options
that have not yet become exercisable.
(15) Excludes 150,000 shares subject to unvested options that have not yet
become exercisable.
(16) Includes a total of 482,126 shares subject to exercisable options held by
directors and the above listed officers of the Company to purchase shares
from the Company and excludes a total of 657,917 shares subject to unvested
options held by such persons that have not yet become exercisable.
14
<PAGE> 18
STOCK PERFORMANCE CHART
The following chart compares the Company's cumulative total stockholder
return with the S&P 500 Index, a performance indicator of the overall stock
market, and Company-determined peer group index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
AMONG HANGER ORTHOPEDIC GROUP, INC., S&P 500 INDEX &
PEER GROUP INDEX
[STOCK PERFORMANCE CHART]
<TABLE>
<CAPTION>
HANGER ORTHOPEDIC GROUP,
INC. COMMON STOCK S&P 500 INDEX PEER GROUP INDEX
------------------------ ------------- ----------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 91.67 137.58 171.25
1996 216.67 169.17 201.82
1997 429.17 225.60 281.82
1998 750.00 290.09 195.97
1999 333.33 351.12 76.52
</TABLE>
Assumes $100 invested on January 1, 1994.
(1) Total return assumes reinvestment of dividends and based on market
capitalization.
(2) Fiscal year ending December 31.
(3) The seven issuers of common stock included in the peer group index are
American Homepatient, Inc., US Oncology, Inc. (which previously was named
American Oncology Resources, Inc.), Healthsouth Corporation, NovaCare, Inc.,
Orthodontic Centers of America, Inc., Renal Care Group, Inc. and Total Renal
Care Holdings, Inc. Concentra Managed Care, Inc., which previously was
included in the peer group, was acquired by another corporation in 1999.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission. Statements of Changes of Beneficial Ownership of Securities
on Form 4 are required to be filed by the tenth day of the month following the
month during which the change in beneficial ownership of securities occurred.
The Company believes that all reports of securities ownership and changes in
such ownership required to be
15
<PAGE> 19
filed during 1999 were timely filed except that the Company inadvertently did
not file a Form 3 (reporting the ownership of no shares of Common Stock) on
behalf of Raymond C. Larkin within ten days after he was elected as a member of
the Board of Directors at the Annual Meeting of Stockholders on September 16,
1999. The Form 3 was filed on January 18, 2000.
YEAR 2001 STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2001 Annual
Meeting, which presently is expected to be held in May 2001, must be received by
the Secretary of the Company, Two Bethesda Metro Center, Suite 1200, Bethesda,
Maryland 20814, no later than December 1, 2000, in order for them to be
considered for inclusion in the 2001 Proxy Statement. A shareholder desiring to
submit a proposal to be voted on at next year's Annual Meeting, but not desiring
to have such proposal included in next year's Proxy Statement relating to that
meeting, should submit such proposal to the Company by February 16, 2001 (i.e.,
at least 45 days prior to the expected date of the mailing of the Proxy
Statement). Failure to comply with that advance notice requirement will permit
management to use its discretionary voting authority if and when the proposal is
raised at the Annual Meeting without having had a discussion of the proposal in
the Proxy Statement.
OTHER MATTERS
Management is not aware of any other matters to be considered at the Annual
Meeting. If any other matters properly come before the Annual Meeting, the
persons named in the enclosed Proxy will vote said Proxy in accordance with
their discretion.
By Order of the Board of Directors
HANGER ORTHOPEDIC GROUP, INC.
/s/ Richard A. Stein
Richard A. Stein
Secretary
March 31, 2000
16
<PAGE> 20
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER
SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS
OF
7% REDEEMABLE PREFERRED STOCK
OF
HANGER ORTHOPEDIC GROUP, INC.,
A DELAWARE CORPORATION
(THE "CERTIFICATE OF DESIGNATIONS")
------------------------------------------------------------
PURSUANT TO SECTION 242 THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
------------------------------------------------------------
Hanger Orthopedic Group, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was duly adopted
by the Board of Directors of the Corporation and was approved by the holders of
a majority of the outstanding shares of Common Stock of the Corporation and by
the holder of a majority of the outstanding shares of 7% Redeemable Preferred
Stock of the Corporation in accordance with the provisions of Section 242 of the
Delaware General Corporation Law at a meeting duly called and held on May 16,
2000.
RESOLVED, that the Certificate of Designations setting forth the terms of
the Redeemable Preferred Stock of the Corporation shall be amended as follows:
Section 1. The definition of "Change of Control" set forth in Article
II of the Certificate of Designations is hereby deleted in its entirety and
replaced with the following:
"Change of Control" means (a) a "Change of Control" (as defined in
the Indenture) or (b) a Merger Change of Control.
Section 2. Article II of the Certificate of Designations is hereby
amended by adding a new definition thereto which shall read in its entirety
as follows:
"Merger Change of Control" means a merger, consolidation or
amalgamation between the Corporation or any wholly-owned Subsidiary and
any other Person, except a merger or consolidation of any Subsidiary
with or into any Person in connection with any acquisition permitted
under Section 3.3(c)(v)."
Section 3. Section 3.3 of the Certificate of Designations is hereby
amended by deleting Section 3.3(c)(iv) and replacing it with "Intentionally
Omitted."
A-1
<PAGE> 21
IN WITNESS WEREOF, the Corporation had caused this Certificate of Amendment
to signed as of the 16th day of May, 2000.
HANGER ORTHOPEDIC GROUP, INC.
By:
------------------------------------
Name: Ivan R. Sabel
Title: Chairman of the Board,
President and Chief Executive
Officer
A-2
<PAGE> 22
PROXY
HANGER ORTHOPEDIC GROUP, INC.
7700 OLD GEORGETOWN ROAD
BETHESDA, MARYLAND 20814
This proxy is solicited by the Board of Directors for the ANNUAL
MEETING OF STOCKHOLDERS of Hanger Orthopedic Group, Inc. (the "Company"), a
Delaware corporation, on May 16, 2000, 10:00 a.m., local time.
The undersigned appoints Ivan R. Sabel and Richard A. Stein, and each
of them, a proxy of the undersigned, with full power of substitution, to vote
all shares of Common Stock, par value $.01 per share, of the Company which the
undersigned is entitled to vote at the Annual Meeting of Stockholders to be
held on May 16, 2000, or at any adjournment thereof, with all powers the
undersigned would have if personally present.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS VOTING FOR THE FOLLOWING PROPOSALS: Please mark your votes as
indicated in this example [X]
<S> <C> <C>
MITCHELL J. BLUTT, M.D., EDMOND E. CHARRETTE, M.D., THOMAS P. COOPER,
1. To Elect Directors WITHHOLD M.D., ROBERT J. GLASER, M.D., C. RAYMOND LARKIN, JR., RISA J. LAVIZZO-
FOR all nominees AUTHORITY MOUREY, M.D., BRIG. GEN. WILLIAM L. MCCULLOCH (USMC RET.), IVAN R.
listed to the right to vote for all SABEL, CPO, AND H.E. THRANHARDT, CPO.
(except as marked to the nominees listed to
contrary) the right (INSTRUCTION: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, WRITE
[ ] [ ] THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW).
-----------------------------------------------------------------
2. Proposal to amend the Certificate of 3. Proposal to ratify the selection of 4. In their discretion, the Proxies are
Designations relating to the 7% Redeemable PricewaterhouseCoopers LLP as the authorized to vote upon such other
Preferred Stock independent accountants for the business as properly may come before
Company for the current fiscal year. the meeting.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ]
Sign exactly as your name appears
hereon. When signing in a
------------ representative or fiduciary capacity,
| indicate title. If shares are held
| jointly, each holder should sign.
|
|
|
Date , 2000
------------------------
-------------------------------------
-------------------------------------
Signature of Stockholder(s)
THE SHARES WILL BE VOTED AS DIRECTED
ABOVE, AND WITH RESPECT TO OTHER
MATTERS OF BUSINESS PROPERLY BEFORE
THE MEETING AS THE PROXIES SHALL
DECIDE. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSALS 1,
2 AND 3
</TABLE>
