-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G9V6fd8O1bocSarwIMiJkwVZKkRQ3vgoX/5OMBZwrWWSM5WCJuEJQFXp+5JmOPF0 4cLExbIAirrqlNKhLFPc6A== 0000950134-02-004318.txt : 20020430 0000950134-02-004318.hdr.sgml : 20020430 ACCESSION NUMBER: 0000950134-02-004318 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020429 GROUP MEMBERS: JAY ALIX SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: HANGER ORTHOPEDIC GROUP INC CENTRAL INDEX KEY: 0000722723 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SPECIALTY OUTPATIENT FACILITIES, NEC [8093] IRS NUMBER: 840904275 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-40189 FILM NUMBER: 02625364 BUSINESS ADDRESS: STREET 1: TWO BETHESDA METRO CENTER STREET 2: SUITE 1300 CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019860701 MAIL ADDRESS: STREET 1: TWO BETHESDA METRO CENTER STREET 2: SUITE 1300 CITY: BETHESDA STATE: MD ZIP: 20814 FORMER COMPANY: FORMER CONFORMED NAME: SEQUEL CORP DATE OF NAME CHANGE: 19890814 FORMER COMPANY: FORMER CONFORMED NAME: CELLTECH COMMUNICATIONS INC DATE OF NAME CHANGE: 19860304 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: JAY ALIX & ASSOCIATES INC CENTRAL INDEX KEY: 0001171521 IRS NUMBER: 382439073 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 2000 TOWN CENTER STREET 2: SUITE 2400 CITY: SOUTHFIELD STATE: MI ZIP: 48075 BUSINESS PHONE: 2483584420 SC 13D 1 k69039sc13d.txt SCHEDULE 13D SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. )* HANGER ORTHOPEDIC GROUP, INC. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $.01 par value - -------------------------------------------------------------------------------- (Title of Class of Securities) 41043F208 - -------------------------------------------------------------------------------- (CUSIP Number) Ivan R. Sabel Chairman and Chief Executive Officer Two Bethesda Metro Center Suite 1300 Bethesda, MD 20814 (301) 986-0701 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) April 18, 2002 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. / / Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Section 240.13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO. - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS/I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Jay Alix & Associates, Inc. 38-243-9073 - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS (See Instructions) OO. To date, there has been no purchase and therefore no need for funds. - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Jay Alix & Associates, Inc. is a Michigan corporation. - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF -0- SHARES ----------------------------------------------------------------- 8 SHARED VOTING POWER BENEFICIALLY 1,202,436 OWNED BY EACH ----------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER REPORTING -0- PERSON ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER WITH 1,202,436 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,202,436 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON (See Instructions) CO - -------------------------------------------------------------------------------- CUSIP NO. - -------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS/I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Jay Alix - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (See Instructions) (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS (See Instructions) OO. To date, there has been no purchase and therefore no need for funds. - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------- 7 SOLE VOTING POWER NUMBER OF -0- SHARES ----------------------------------------------------------------- 8 SHARED VOTING POWER BENEFICIALLY 1,202,436 OWNED BY EACH ----------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER REPORTING -0- PERSON ----------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER WITH 1,202,436 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,202,436 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (See Instructions) [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.9% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON (See Instructions) IN - -------------------------------------------------------------------------------- ITEM 1. SECURITY AND ISSUER. The title of the class of equity securities to which this statement relates is Common Stock, par value $.01 per share ("Common Stock"), of Hanger Orthopedic Group, Inc., a Delaware corporation (the "Company"). The address of the Company's principal executive office is Two Bethesda Metro Center, Suite 1300, Bethesda, Maryland 20814. ITEM 2. IDENTITY AND BACKGROUND. This statement is being filed by Jay Alix & Associates, Inc. and by its sole shareholder, Jay Alix (collectively "JA&A"). The corporate headquarters for JA&A is 2000 Town Center, Suite #2400, Southfield, Michigan 48075. JA&A provides turnaround and restructuring services, and other consultation services, to distressed companies and their equity owners. JA&A has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). JA&A has not, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. This statement is being filed to report the grant by the Company to JA&A on December 12, 2001 of the right and option to purchase from the Company all or part of an aggregate of One Million Two Hundred Two Thousand Four Hundred Thirty-Six (1,202,436) shares of Common Stock. This option will become exercisable on June 18, 2002 (60 days from the date of event which requires filing of this Schedule 13D). From and after June 18, 2002, JA&A may exercise the option in whole or in part at any time prior to the expiration of this option on May 31, 2007, at a price of $1.40 per share. ITEM 4. PURPOSE OF TRANSACTION. The options were granted to JA&A as partial consideration for services rendered to the Company by JA&A pursuant to a letter agreement dated January 23, 2001 (the "Letter Agreement") between the Company and JA&A. By granting these options, the Company sought to provide JA&A an additional incentive inherent in the ownership of the Company's Common Stock. JA&A may, from time to time, acquire additional Common Stock of the Company. JA&A may also dispose of some or all of the Company Common Stock that it beneficially owns, periodically, by public or private sale (registered or unregistered and with or without the simultaneous sale of newly-issued Common Stock by the Company), pledge, expiration of options or otherwise, including, without limitation, sales of Common Stock by JA&A pursuant to Rule 144 under the Securities Act of 1933, as amended, or otherwise. JA&A reserves the right not to acquire Common Stock or not to dispose of all or part of such Common Stock if it determines such acquisition or disposal is not in its best interests at that time. Other than as described above, JA&A does not have any current plans or proposals which relate to, or would result in, (a) any acquisition or disposition of securities of the Company, (b) any extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries, (c) any sale or transfer of a material amount of assets of the Company or any of its subsidiaries, (d) any change in the present board of directors or management of the Company, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the Board, except that, from time to time, the Company might add additional directors if it finds qualified candidates willing to serve, (e) any material change in the Company's present capitalization or dividend policy, (f) any other material change in the Company's business or corporate structure, (g) any changes in the Company's Articles of Incorporation or Bylaws or other actions which may impede the acquisition of control of the Company by any person, (h) causing a class of securities of the Company to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association, (i) a class of the Company's equity securities becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended, or (j) any action similar to those enumerated above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. The number and percentage of Common Shares beneficially owned by JA&A as of April 18, 2002 are as follows:
Number Percent ------ --------- Jay Alix & Associates, Inc. 1,202,436 (1) 5.9% (2) and Jay Alix
(1) The shares shown above as beneficially owned by Jay Alix & Associates, Inc. and Jay Alix consist of 1,202,436 shares that JA&A has the right to acquire within 60 days after April 18, 2002 pursuant to the exercise of options granted to it under a Non-Qualified Stock Option Agreement. (2) Based on the 19,156,712 shares of Common Stock reported as outstanding as of March 19, 2002 in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001. JA&A has been granted the option to purchase up to 1,202,436 shares of the Company's Common Stock, at a purchase price of $1.40 per share, pursuant to a Non-Qualified Stock Option Agreement dated December 12, 2001. Jay Alix & Associates, Inc. and Jay Alix share voting and investment power over the 1,202,436 shares of Common Stock reported above as beneficially owned by them. There have not been any transactions in the Company's Common Stock effected by JA&A. No person is known to have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, the Common Stock beneficially owned by JA&A. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The options granted to JA&A are described in Item 5 and are subject to the terms of a Non-Qualified Stock Option Agreement between JA&A and the Company. The options are not transferable other than to a successor by operation of law or a transferee of all or substantially all of the assets of JA&A. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 1. Hanger Orthopedic Group, Inc. Non-Qualified Stock Option Agreement dated December 12, 2001, between Hanger Orthopedic Group, Inc. and Jay Alix & Associates, Inc. 2. Letter agreement dated January 23, 2001, between Jay Alix & Associates, Inc. and Hanger Orthopedic Group, Inc. 3. Agreement of Joint Filing between Jay Alix & Associates, Inc. and Jay Alix dated as of April 29, 2002. Signature After reasonable inquiry and to the best of my knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: April 29, 2002 JAY ALIX & ASSOCIATES, INC. By: /s/ Melvin R. Christiansen --------------------------------- Melvin R. Christiansen Its: Treasurer Dated: April 29, 2002 /s/ Jay Alix -------------------------------------- JAY ALIX Exhibit Index Description Exhibit No. 1 Hanger Orthopedic Group, Inc. Non-Qualified Stock Option Agreement dated December 12, 2001, between Hanger Orthopedic Group, Inc. and Jay Alix & Associates, Inc. 2 Letter Agreement dated January 23, 2001, between Jay Alix & Associates, Inc. and Hanger Orthopedic Group, Inc. 3 Agreement of Joint Filing between Jay Alix & Associates, Inc. and Jay Alix dated as of April 29, 2002. EX-1 3 k69039ex1.txt STOCK OPTION AGREEMENT EXHIBIT 1 HANGER ORTHOPEDIC GROUP, INC. Non-Qualified Stock Option Agreement THIS AGREEMENT is made as of December 12, 2001, by and between HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and Jay Alix & Associates, Inc. (the "Optionee"). W I T N E S S E T H: ------------------- WHEREAS, the Company desires to grant to the Optionee a non-qualified stock option to purchase One Million Two Hundred Two Thousand Four Hundred Thirty-Six (1,202,436) shares of the Company's common stock, par value $.01 per share (the "Common Stock"), in consideration for services rendered to the Company by the Optionee pursuant to the terms of the letter agreement, dated January 23, 2001 (the "Letter Agreement"), between the Company and the Optionee. NOW, THEREFORE, the parties hereto, intending to be legally bound, do agree as follows: 1. Grant of Option. Subject to the terms and conditions of this Agreement, the Company hereby grants to Optionee the right and option to purchase from the Company all or part of an aggregate of One Million Two Hundred Two Thousand Four Hundred Thirty-Six (1,202,436) shares of Common Stock. This option is not intended to qualify as an incentive stock option within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended. 2. Option Price and Time of Exercise. The per-share purchase price at which the shares subject to option hereunder may be purchased by Optionee pursuant to its exercise of this option shall be $1.40, which price equals the average closing price per share of the Common Stock on the New York Stock Exchange for all trading days during the period from December 23, 2000 through January 23, 2001, as required under the terms of the Letter Agreement. The Optionee's right to exercise this option shall not vest until June 18, 2002, from and after which time the Optionee may exercise this option in whole or in part at any time prior to the expiration of this option on May 31, 2007 (the "Option Period"). The right to exercise this option shall be cumulative to the extent not theretofore exercised. 3. Method of Exercise and Payment for Shares. This option shall be exercised by written notice from the Optionee and delivered to the Company at its principal office, specifying the number of shares to be acquired upon such exercise and delivering therewith by wire transfer of funds or a certified check in an amount equal to the exercise price of the option multiplied by the number of shares of Common Stock to be acquired upon such exercise of the option by the Optionee. 4. Non-transferability of Option; Restricted Securities. This option is not transferable by Optionee, except only after the written consent of the Company, which shall not be unreasonably withheld, in connection with a merger of the Optionee or a transfer by the Optionee of all or substantially all of its assets (including this option), in which event this option may be transferred by the Optionee to such successor after the issuance of the written consent of the Company. The shares of Common Stock acquired by Optionee upon any exercise of this option shall be "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act of 1933 and Optionee shall be required to comply with and satisfy all applicable laws in any resale transactions conducted by Optionee which involve any such shares of Common Stock so acquired by Optionee under this option. 5. Merger, Consolidation, Acceleration of Option Vesting. (a) Effect of Transaction. Upon the occurrence of any of the following events, if the notice required by Section 5(b) hereof shall have first been given, the option granted hereunder shall automatically terminate and be of no further force and effect whatsoever, without the necessity for any additional notice or other action by the Company: (i) the merger, consolidation or liquidation of the Company or the acquisition of its assets or stock pursuant to a nontaxable reorganization, unless the surviving or acquiring corporation, as the case may be, shall assume all outstanding options of the Company or substitute new options for them pursuant to Section 425(a) of the Code; (ii) the dissolution or liquidation of the Company; (iii) the appointment of a receiver for all or substantially all of the Company's assets or business; (iv) the appointment of a trustee for the Company after a petition has been filed for the Company's reorganization under applicable statutes; or (v) the sale, lease or exchange of all or substantially all of the Company's assets and business. (b) Notice of Such Occurrences. At least 30 days' prior written notice of any event described in Section 6(a) hereof, except the transactions described in subsections 5(a)(iii) and (iv) as to which no notice shall be required, shall be given by the Company to the Optionee. If the Optionee is so notified, it may exercise all or a portion of the entire unexercised portion of this option at any time before the occurrence of the event requiring the giving of notice, regardless of whether such event occurs prior to June 18, 2002. Such notice shall be deemed to have been given when delivered personally to the Optionee or when mailed to the Optionee by registered or certified mail, postage prepaid, at the Optionee's last address known to the Company. 6. Adjustments Upon Certain Events. If the Company shall at any time increase or decrease the number of its outstanding shares of Common Stock by means of the payment of a stock dividend, a stock split or subdivision of shares, a consolidation or combination of shares, or through a reclassification of the then outstanding shares of Common Stock, then the aggregate number of shares of Common Stock subject to this Option and the exercise price of this Option shall be adjusted proportionately. 7. Binding Effect, Entire Agreement. Subject to the limitations stated above, this Agreement shall be binding upon and inure to the benefit of the Optionee (and its successor as provided in Section 4 of this Agreement) and the Company. This Agreement constitutes the entire agreement between the parties and cannot be altered, modified, or changed in any way unless made in writing and signed by the party against whom such alteration, modification, or change is asserted. This Agreement shall be governed by the laws of the State of Delaware. IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by its President and attested by its Secretary, and the Optionee has affixed its signature hereto. HANGER ORTHOPEDIC GROUP, INC. By: /s/ George McHenry ------------------------------------- George McHenry Executive Vice President & Chief Financial Officer ACCEPTED BY: JAY ALIX & ASSOCIATES, INC. By: /s/ Melvin R. Christiansen ------------------------------------- Melvin R. Christiansen Treasurer EX-2 4 k69039ex2.txt LETTER AGREEMENT DATED 01/23/01 EXHIBIT 2 January 23, 2001 Mr. Ivan R. Sabel, CPO Chairman and Chief Executive Officer Hanger Orthopedic Group, Inc. Two Bethesda Metro Center, Suite 1200 Bethesda, MD 20814 Dear Van: Since the date of our original agreement (December 11, 2000), you have requested certain additions to the scope of work and that specificity be added relative to the Phase II work. In addition, we have concluded our conflicts check and have updated that information in the Disclosures section. You acknowledge that Phase I has been satisfactorily completed and that this agreement replaces in its entirety the agreement dated December 11, 2000. This letter outlines the understanding between Jay Alix & Associates, a Michigan corporation ("JA&A") and Hanger Orthopedic Group, Inc. ("Hanger" or the "Company") of the objective, tasks, work product and fees for the engagement of JA&A to provide financial and operational consulting services to the Company. - -------------------------------------------------------------------------------- OBJECTIVE - -------------------------------------------------------------------------------- Assist the Company in improving its financial position by identifying operational and financial improvement opportunities, and to assist management in the implementation of actions to capture the benefits of these opportunities. - -------------------------------------------------------------------------------- TASKS - -------------------------------------------------------------------------------- The focus of this engagement will be on pursuing the opportunities for operational and financial improvement identified in Phase I, while establishing the basic controls and processes to support improved financial management. Specifically we will concentrate on the following initiatives: 1. Accounts Receivable Reduction 2. Materials Management and Purchasing Cost Reductions 3. Inventory Management 4. General and Administrative Expense Reduction 5. Centralized Claims Processing Center 6. Supply Distribution Services and Fixed Cost Reduction 7. Shared Fabrication Roll-Out and Associated Cost Reduction 8. Marketing and Revenue Growth 9. Evaluation and (if desired) Divestment of PreFabrication 10. Negotiating and Securing Funds (if desired) 11. Financial Interim Management Our methodology will be simple and hands-on, utilizing existing resources to the maximum extent possible. Based on this understanding, we anticipate a continuum of work involving diagnosis, analysis, modeling, and implementation, all occurring more or less at the same time. The specific tasks where assistance will be provided include the following: - - Develop a plan to pursue the opportunities identified in Phase I through the use of the Profit Improvement Teams approach. - - Develop the goals, measurements, structure and composition of the Profit Improvement Teams that will be made up of the Company's employees that will pursue the identified opportunities. - - Assist in selecting members for a Steering Committee (suggested composition is one member from the Company and JA&A) and Profit Improvement Teams, and assist in structuring their organizations. - - Develop and provide training for Profit Improvement Teams' leaders. - - Organize and lead the Profit Improvement Teams' kickoff meeting. - - Assist the Company in developing a communications program, including key messages and communications vehicles targeted at employees, customers, vendors and others. - - Actively participate as facilitators to the Profit Improvement Teams and assist in monitoring and reporting on their progress. - - Provide oversight assistance during the implementation process for initiatives approved by the Steering Committee and pursued by the Profit Improvement Teams. - - Assist in measuring financial and other benefits derived from the Profit Improvement Team process. - - Assist in other matters as may be mutually agreed upon. - -------------------------------------------------------------------------------- WORK PRODUCT - -------------------------------------------------------------------------------- Our work product will be in the form of: - - Information to be discussed with you and others, as you may direct. - - Written reports, analysis worksheets, and analytical models to support decision-making and communications, as we deem necessary or as you may request. - -------------------------------------------------------------------------------- STAFFING - -------------------------------------------------------------------------------- Tom Kirk will be the principal with overall responsibility for overseeing the engagement strategy, the fieldwork and design, and assuring the engagement objectives are met and the tasks are satisfactorily completed. Tom will be supported by Mike Lacusta, Marta Angueira, and Dennis Currier who will be on-site engagement senior associates responsible for the day-to-day review and implementation activities. Tom and this team may also be supported by other JA&A staff to conduct financial analysis, cash flow modeling and other analytical and/or implementation activities. If additional resources are required, we will discuss the purpose in utilizing these resources with you and will obtain your approval before proceeding. For certain additional resources, we occasionally retain independent contractors with specialized skills and abilities to assist us. Based on our current understanding of the situation, implementation of the total plan could require an estimated twelve (12) months, depending on the extent of initiatives undertaken. Should we be requested to provide services beyond this period, we reserve the right to negotiate a new agreement. - -------------------------------------------------------------------------------- TIMING, FEES AND EXPENSES - -------------------------------------------------------------------------------- We will commence this engagement immediately upon receipt of a signed engagement letter and retainer. Hourly Fees and Expenses. This engagement will be staffed with professionals at various levels, as the tasks require. Our fees will be based on the hours charged at our hourly rates that are: Principals $500 -$620 Senior Associates $385 -$495 Associates $285 -$375 Accountants and Consultants $200 -$280 These hourly billing rates will be in effect until December 31, 2001, after which we reserve the right to revise our rates. We will charge for our time when traveling to or from the assignment general area. Daily commuting time within the general area is excluded. In addition to the fees set forth above, the Company shall pay directly or reimburse JA&A upon receipt of periodic billings, for all reasonable out-of-pocket expenses incurred in connection with this assignment such as travel, lodging, postage, telephone and facsimile charges. We will submit semi-monthly invoices for the costs of the services rendered and expenses incurred, which will be due upon receipt. We will require a retainer of $200,000 to be applied against the time charges and expenses specific to the engagement. We will offset the semi-monthly invoices against the retainer and payments will replenish the retainer to the agreed upon amount. Any unearned portion of the retainer will be returned to you at the termination of the engagement. Contingent Success Fees. As we mentioned during our meeting on Wednesday, we typically work for fees and expenses plus a success fee that aligns our incentives with yours. A- We will employ the JA&A Profit Improvement Team process to identify and implement initiatives using a cross-functional employee team approach that will be facilitated by JA&A. This process will identify a number of opportunities that will reduce expenses, improve productivity, enhance margins, increase sales or generate one-time cash or balance sheet benefits. Team initiatives will be presented to the Steering Committee for approval including an explanation of the project, its benefits and how they will be measured and other relevant information. It is understood that the JA&A Profit Improvement Team process provides a mechanism to focus attention on achieving profitability and liquidity gains. The Profit Improvement Team process drives implementation of improvements both that are identified by Team members as well as improvements that are already identified but not yet implemented or substantially completed as of the date of this letter. It is agreed that improvements eligible for payment of success fees are authorized for inclusion in the cumulative value at the time of approval and pursuant to this paragraph include both improvements. It is agreed that one full year of recurring benefits shall be counted where such full year is measured at the rate of annual benefit following full implementation of the initiative. One-time financial benefits shall include agreed upon reductions in working capital, reductions in approved capital spending, and asset sales. The Company agrees to pay a success fee equal to the following schedule based upon the cumulative value of transactions that are submitted and approved for implementation by the Steering Committee:
---------------------------- --------------------------------------------------- SUCCESS FEE BASED ON SUCCESS FEE PAYMENT CUMULATIVE (% OF IMPROVEMENT) VALUE* IN COVERED TRANSACTIONS ---------------------------- --------------------------------------------------- First $2.0 Million None ---------------------------- --------------------------------------------------- ---------------------------- --------------------------------------------------- $2.0 to $5.25 Million 8% of cum. value over $2 Million up to $5.25 Million ---------------------------- --------------------------------------------------- $5.25 to $8.5 Million $260,000 + 10.0% of cum. value over $5.25 Million up to $8.5 Million ---------------------------- --------------------------------------------------- $8.5 to 11.75 Million $585,000 + 12.0% of cum. value over $8.5 Million up to $11.75 Million ---------------------------- --------------------------------------------------- $11.75 to 15.0 Million $975,000 + 14.0% of cum. value over $11.75 Million up to $15.0 Million ---------------------------- --------------------------------------------------- > $15.0 Million $1,430,000 + 15.0% of cum. value over $15 Million ---------------------------- ---------------------------------------------------
* Excluding restructuring, one-time or extraordinary charges B.-- If the Company requests that a member(s) of the JA&A team participate in securing new debt or equity, a Contingent Success Fee will be payable at closing equal to 50 basis points of the existing principal amount of any restructured or new debt each time that debt replaces or augments the existing debt agreements of the Company. For purposes of this Contingent Success Fee, "restructured or new debt" includes any debt that is secured by a first lien on specific property or equipment of the Company, any "Subordinated Debt" that is secured by any lien on unspecified property or equipment of the Company or a second or junior lien on specified property or equipment of the Company, or any unsecured debt. This would include the modification, amendment or renegotiation of the Company's current senior secured, subordinated debt, lease and contract obligations, and trade debt. For new equity the Contingent Success Fee will equal 50 basis points on the amount of new equity. C.-- If the Company requests that a member(s) of the JA&A team provide investment banking services which culminate with the closing of a transaction, a Contingent Success Fee will be payable at closing equal to 1 1/2 per cent of the Total Consideration of the transaction. For purposes of this Contingent Success Fee, "Total Consideration" shall mean the value of the cash received and the fair market value of securities or other assets received plus all assumed debt. With respect to the sale of less than 100% of the stock or assets of the Company, Total Consideration will be calculated based upon the implied total value of such transaction(s). The following options for payment apply to success fees and the Company shall declare its choice in writing at the commencement of this engagement: PAYMENT OPTION A- We will submit monthly invoices for the approved success fees as described above, and payment will be due upon receipt of the invoice. PAYMENT OPTION B- We will submit monthly invoices for the approved success fees as described above. One-half of the invoice amount will be paid in cash upon receipt of the invoice. The remaining one-half will be paid within thirty days of the date of the invoice through an award of options on the Company's stock. All options shall be granted at the average closing price for the period beginning December 23, 2000 and ending January 23, 2001. The number of options will be determined by multiplying the remaining balance times 1.5 and dividing the product by the price as defined above. The options shall be exercisable beginning with the 6th month following each award and shall expire five (5) years from the termination of JA&A's engagement. - -------------------------------------------------------------------------------- RELATIONSHIP OF THE PARTIES - -------------------------------------------------------------------------------- The parties intend that an independent contractor relationship will be created by this agreement. JA&A is not to be considered an employee or agent of the Company and the employees of JA&A are not entitled to any of the benefits that the Company provides for the Company's employees. The Company also agrees not to solicit, recruit or hire any employees or agents of JA&A for a period of two years subsequent to the completion and/or termination of this agreement. - -------------------------------------------------------------------------------- CONFIDENTIALITY - -------------------------------------------------------------------------------- JA&A agrees to keep confidential all information obtained from the Company. JA&A agrees that neither it nor its directors, officers, principals, employees, agents or attorneys will disclose to any other person or entity, or use for any purpose other than specified herein, any information pertaining to the Company or any affiliate thereof which is either non-public, confidential or proprietary in nature ("Information") which it obtains or is given access to during the performance of the services provided hereunder. JA&A may make reasonable disclosures of Information to third parties in connection with their performance of their obligations and assignments hereunder. In addition, JA&A will have the right to disclose to others in the normal course of business its involvement with the Company. Information includes data, plans, reports, schedules, drawings, accounts, records, calculations, specifications, flow sheets, computer programs, source or object codes, results, models, or any work product relating to the business of the Company, its subsidiaries, distributors, affiliates, vendors, customers, employees, contractors and consultants. The Company acknowledges that all advice (written or oral) given by JA&A to the Company in connection with JA&A's engagement is intended solely for the benefit and use of the Company (limited to its management) in considering the transactions to which it relates. The Company agrees that no such advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time in any manner or for any purpose other than accomplishing the tasks and programs referred to herein or in discussions with the Company's lenders or debt holders, without JA&A's prior approval (which shall not be unreasonably withheld) except as required by law. This agreement will survive the termination of the engagement. - -------------------------------------------------------------------------------- FRAMEWORK OF THE ENGAGEMENT - -------------------------------------------------------------------------------- The Company acknowledges that it is hiring JA&A purely to assist and advise the Company in business planning and restructuring. JA&A's engagement shall not constitute an audit, review or compilation, or any other type of financial statement reporting or consulting engagement that is subject to the rules of the AICPA, the SSCS, or other such state and national professional bodies. - -------------------------------------------------------------------------------- INDEMNIFICATION OF JA&A - -------------------------------------------------------------------------------- In engagements of this nature, it is our practice to receive indemnification. Accordingly, in consideration of our agreement to act on your behalf in connection with this engagement, you agree to indemnify, hold harmless, and defend us (including our principals, employees and agents) from and against all claims, liabilities, losses, damages and reasonable expenses as they are incurred, including reasonable legal fees and disbursements of counsel, and the costs of our professional time (our professional time will be reimbursed at our rates in effect when such future time is required), relating to or arising out of the engagement, including any legal proceeding in which we may be required or agree to participate but in which we are not a party. We, our principals, employees and agents may, but are not required to, engage a single firm of separate counsel of our choice in connection with any of the matters to which this indemnification agreement relates. This indemnification agreement does not apply to actions taken or omitted to be taken by us in bad faith. In addition to the foregoing indemnification, if any JA&A personnel assume any senior management positions under the terms of this agreement, they will be deemed to be officers of the Company, and they shall be individually covered by the same indemnification and directors' and officers' liability insurance as is applicable to other officers of the Company. If any JA&A personnel are deemed to be officers of the Company, the Company agrees that it will use its best efforts to specifically include and cover any JA&A appointees under the Company's policy for directors' and officers' insurance. In the event that the Company is unable to include JA&A appointees under the Company's policy or does not have first dollar coverage as outlined in the preceding paragraph in effect for at least $10 million, (e.g., such policy is not reserved based on actions that have been or are expected to be filed against Officers and Directors alleging prior acts that may give rise to a claim), it is agreed that JA&A will attempt to purchase a separate directors' and officers' policy that will cover its employees and agents only and that the cost of same shall be invoiced to the Company as an out of pocket cash expense. If JA&A is unable to purchase such directors' and officers' insurance, then we reserve the right to terminate this agreement. - -------------------------------------------------------------------------------- TERMINATION AND SURVIVAL - -------------------------------------------------------------------------------- The agreement may be terminated at any time by written notice by one party to the other; provided, however, that notwithstanding such termination JA&A will be entitled to any fees and expenses, due under the provisions of the agreement. It is agreed that unless JA&A is terminated for cause (as defined below) that it shall be entitled to all Contingent Success Fees for approved initiatives through the date of termination plus any initiatives that have been identified prior to the date of termination and are subsequently consummated by the Company within six months after the termination of the agreement, JA&A shall be compensated by the Company in accordance with the provisions in the Contingent Success Fee section above. Further, if JA&A terminates this agreement with the mutual consent of the Company or if this agreement is terminated by the Company for any reason other than cause before the cumulative total of the hourly fees paid for this engagement as of the date of termination, equals $600,000, JA&A shall be due the difference between $600,000 and the cumulative total of the hourly fees paid as of the date of termination. Such difference shall be paid within thirty (30) days from the date of termination. If JA&A terminates the agreement, it shall be entitled to all hourly fees and expenses earned through the date of termination by JA&A and if such termination should occur, all Contingent Success Fees in accordance with the provisions in the Contingent Success Fee section above for initiatives approved through the date of termination. Cause shall mean a JA&A representative acting on behalf of the Company is convicted of a felony or it is determined in good faith by the Board of Directors of the Company, and after 30 days notice and opportunity to cure either: (i) a JA&A representative willfully engages in misconduct injurious to the Company, (ii) a JA&A representative breaches any of his or its material obligations under this Agreement; or; (iii) a JA&A representative willfully disobeys a lawful direction of the Board of Directors of the Company. Such payment obligations shall inure to the benefit of any successor or assignee of JA&A. The obligations of the parties under the Indemnification of JA&A, Confidentiality and Termination and Survival sections of this agreement shall survive the termination of the agreement as well as the other sections of this agreement that expressly provide that they shall survive termination of this agreement. - -------------------------------------------------------------------------------- GOVERNING LAW - -------------------------------------------------------------------------------- This letter agreement is governed by and construed in accordance with the laws of the State of New York with respect to contracts made and to be performed entirely therein and without regard to choice of law or principles thereof. If we have any dispute arising between us, including any dispute with respect to this agreement, its interpretation, performance or breach, and are unable to agree on a mutually satisfactory resolution with 30 days, either party may require the matter to be settled by binding arbitration. If such arbitration shall occur, it shall be in New York City. We shall attempt for two weeks to agree on a single arbitrator. If that effort shall fail, each party shall appoint one arbitrator. The two arbitrators so chosen shall attempt for two weeks to select a third. If they are unable to agree, the American Arbitration Association in New York City shall choose the third. The arbitration shall occur using the rules and procedures of the American Arbitration Association. The decision of the arbitrator(s) shall be final, binding and non-appealable. - -------------------------------------------------------------------------------- DISCLOSURES - -------------------------------------------------------------------------------- We know of no fact or situation that would represent a conflict of interest for us with regard to the Company. We do wish to disclose the following information: - Jay Alix, a principal in Jay Alix & Associates, is also the Managing Principal of Questor Partners Fund, L.P. ("QPF") and Questor Partners Fund II, L.P. ("QPF II"), a $300 million fund and an $860 million fund, respectively, both investing in special situations and underperforming companies. - All of the principals of JA&A, including Jay Alix, own general and/or limited partnership interests in one or more of the following related entities: QPF, QPF II, Questor Side-by-Side Partners, L.P., Questor Side-by-Side Partners II, L.P., and Questor Side-by-Side Partners II 3(c)(1), L.P. - Bankers Trust Co., a lender to the Company, is affiliated with an investor in QPF and QPF II. - Comerica Bank, a lender to the Company, is an investor in QPF and QPF II and is a former client of JA&A. - Fleet National Bank, a lender to the Company, is affiliated with an investor in QPF II. - Chase Manhattan Bank, a lender to the Company, is affiliated with an investor in QPF and QPF II. While we are not currently aware of any other relationships that connect us to any party in interest, because JA&A is a consulting firm that serves clients on a national basis in numerous cases, both in and out of court, it is possible that JA&A may have rendered services to or have business associations with other entities which had or have relationships with the Company, including creditors of the Company. JA&A has not and will not represent the interests of any of these aforementioned entities in this case involving the Company. - -------------------------------------------------------------------------------- SEVERABILITY - -------------------------------------------------------------------------------- If any portion of the letter agreement shall be determined to be invalid or unenforceable, we each agree that the remainder shall be valid and enforceable to the maximum extent possible. - -------------------------------------------------------------------------------- ENTIRE AGREEMENT - -------------------------------------------------------------------------------- All of the above contains the entire understanding of the parties relating to the services to be rendered by JA&A and may not be amended or modified in any respect except in writing signed by the parties. JA&A will not be responsible for performing any services not specifically described in this letter or in a subsequent writing signed by the parties. - -------------------------------------------------------------------------------- NOTICES - -------------------------------------------------------------------------------- All notices required or permitted to be delivered under this letter agreement shall be sent, if to us, to the address set forth at the head of this letter, to the attention of Mr. Melvin R. Christiansen, and if to you, to the address for you set forth above, to the attention of your General Counsel, or to such other name or address as may be given in writing to the other party. All notices under the agreement shall be sufficient if delivered by facsimile or overnight mail. Any notice shall be deemed to be given only upon actual receipt. If these terms meet with your approval, please sign and return the enclosed copy of this proposal and wire transfer the amount to establish the retainer. We look forward to working with you. Sincerely yours, /s/ Thomas F. Kirk JAY ALIX & ASSOCIATES Thomas F. Kirk Principal Acknowledged and Agreed to: Hanger Orthopedic Group, Inc. By: /s/ Ivan R. Sabel --------------------------------------------------------------- Its: CEO --------------------------------------------------------------- Dated: 2/1/01 --------------------------------------------------------------- EX-3 5 k69039ex3.txt AGREEMENT OF JOINT FILING EXHIBIT 3 AGREEMENT OF JOINT FILING Jay Alix & Associates, Inc. and Jay Alix hereby agree that the Schedule 13D to which this Agreement is attached as an exhibit may be filed on behalf of each such person. JAY ALIX & ASSOCIATES, INC. Dated: April 29, 2002 By: /s/ Melvin R. Christiansen ------------------------------------- Melvin R. Christiansen Its: Treasurer Dated: April 29, 2002 /s/ Jay Alix ------------------------------------------ JAY ALIX -----END PRIVACY-ENHANCED MESSAGE-----