-----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, UMbeq46x6M3tL8quXQskFP9VeXqdCLqGMc2eTndpWI4kcAa9wHTvut5MYa3gvvOA R1z6HGdx6F9gRr8lq1tFiw== 0000889812-99-002104.txt : 19990713 0000889812-99-002104.hdr.sgml : 19990713 ACCESSION NUMBER: 0000889812-99-002104 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19990712 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/A SEC ACT: SEC FILE NUMBER: 005-40189 FILM NUMBER: 99662866 BUSINESS ADDRESS: STREET 1: 7700 OLD GEORGETOWN RD 2ND FL CITY: BETHESDA STATE: MD ZIP: 20814 BUSINESS PHONE: 3019860701 MAIL ADDRESS: STREET 1: 7700 OLD GEORGETOWN RD 2ND FL STREET 2: 7700 OLD GEORGETOWN RD 2ND FL 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: CHASE VENTURE CAPITAL ASSOCIATES L P CENTRAL INDEX KEY: 0001015240 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 380 MADISON AVENUE STREET 2: 12TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2126223100 MAIL ADDRESS: STREET 1: 380 MADISON AVENUE STREET 2: 12TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D/A 1 AMENDMENT NO. 17 TO SCHEDULE 13D ----------------------------- OMB APPROVAL ----------------------------- OMB Number: 3235-0145 Expires: August 31, 1999 Estimated average burden hours per response......14.90 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 17)* HANGER ORTHOPEDIC GROUP, INC. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $0.01 par value - -------------------------------------------------------------------------------- (Title of Class of Securities) 41043F-208 - -------------------------------------------------------------------------------- (CUSIP Number) Harvey M. Eisenberg, Esq. O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza - 41st Floor New York, New York 10112 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) July 1, 1999 - -------------------------------------------------------------------------------- (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 of this statement 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). POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. CUSIP No. 41043F-208 - -------------------------------------------------------------------------------- 1. Names of Reporting Persons. IRS Identification Nos. of above persons (entities only). Chase Venture Capital Associates, LP 13-337-6808 2. Check the Appropriate Box if a Member of a Group (See Instructions) (a) (b) 3. SEC Use Only 4. Source of Funds (See Instructions) WC 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) 6. Citizenship or Place of Organization California Number of Shares 7. Sole Voting Power 0 Beneficially Owned by Each 8. Shared Voting Power 0 Reporting Person With 9. Sole Dispositive Power 0 10. Shared Dispositive Power 0 11. Aggregate Amount Beneficially Owned by Each Reporting Person 0 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) 13. Percent of Class Represented by Amount in Row (11) 0% 14. Type of Reporting Person (See Instructions) PN Preliminary Note - ---------------- The information set forth in Item 3 herein has been adjusted to reflect an indirect transfer by Chase Venture Capital Associates, L.P. ("CVCA") of all of the shares of Common Stock, par value $0.01 per share (the "Common Stock") and warrants to purchase shares of the Common Stock of Hanger Orthopedic Group, Inc. (the "Issuer") to Chase Equity Associates, L.P. ("CEA"). Item 1. Security and Issuer. - ---------------------------- This statement relates to the Common Stock, par value $0.01 per share, of the Issuer. The Issuer's principal executive offices are located at 7700 Old Georgetown Road, Bethesda, Maryland 20814. 2 CUSIP No. 41043F-208 Item 2. Identity and Background. - --------------------------------- The response to Item 2 is amended in its entirety to read as follows: This statement is being filed by CVCA, a California limited partnership, whose principal office is located at 380 Madison Avenue, 12th Floor, New York, New York 10017. CVCA is engaged in the venture capital and leveraged buyout business. The general partner of CVCA is Chase Capital Partners, a New York general partnership ("CCP"), which is also engaged in the venture capital and leveraged buyout business, and whose principal office is located at the same address as CVCA. Set forth below are the names of each general partner of CCP who is a natural person. Each such general partner is a U.S. citizen, whose principal occupation is general partner of CCP and whose business address (except for Mr. Soghikian) is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New York 10017. John R. Baron Christopher C. Behrens Mitchell J. Blutt, M.D. Arnold L. Chavkin I. Robert Greene Michael R. Hannon Donald J. Hofmann Stephen P. Murray John M. B. O'Connor Brian J. Richmand Shahan D. Soghikian Jonas Steinman Jeffrey C. Walker Damion E. Wicker, M.D. Mr. Soghikian's address is c/o Chase Capital Partners, 50 California Street, Suite 2940, San Francisco, CA 94111. Jeffrey C. Walker is the managing general partner of CCP. The remaining general partners of CCP are Chase Capital Corporation, a New York corporation ("Chase Capital"), CCP Principals, L.P., a Delaware limited partnership ("Principals") and CCP European Principals, L.P., a Delaware limited partnership ("European Principals"), each of whose principal office is located at 380 Madison Avenue, 12th Floor, New York, New York 10017. Chase Capital is a wholly owned subsidiary of The Chase Manhattan Corporation. The general partner of each of Principals and European Principals is Chase Capital. Chase Capital, Principals and European Principals are each engaged in the venture capital and leveraged buyout business. Set forth in Schedule A hereto and incorporated herein by reference are the names, business addresses and principal occupations or employment of each executive officer and director of Chase Capital, each of whom is a U.S. citizen. The Chase Manhattan Corporation ("Chase") is a Delaware corporation engaged (primarily through subsidiaries) in the commercial banking business with its principal office located at 270 Park Avenue, New York, New York 10017. Set forth in Schedule B hereto and incorporated herein by reference are the names, business addresses, principal occupations and employment of each executive officer and director of Chase, each of whom is a U.S. citizen. To CVCA's knowledge, the response to Items 2(d) and (e) of Schedule 13D is negative with respect to CVCA and all persons to whom information is required hereunder by virtue of CVCA's response to Item 2. Insofar as the requirements of Items 3-6 inclusive of this Schedule 13D Statement require that, in addition to CVCA, the information called for therein should be given with respect to each of the persons listed in this Item 2, including CCP, CCP's individual general partners, Chase Capital, Chase Capital's executive officers and directors, Principals, and Principals' controlling partner, European Principals and European Principals' controlling partner, Chase and Chase's executive officers and directors, the information provided in Items 3-6 with respect to CVCA should also be 3 CUSIP No. 41043F-208 considered fully responsive with respect to the aforementioned persons who have no separate interests in the Issuer's Common Stock which is required to be reported thereunder. Although the definition of "beneficial ownership" in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), might also be deemed to constitute these persons beneficial owners of the Issuer's Preferred Stock acquired by CVCA, neither the filing of this statement nor any of its contents shall be deemed an admission that any of such persons is a beneficial owner of the Issuer's Preferred Stock acquired by CVCA or a member of a group together with CVCA either for the purpose of Schedule 13D of the Exchange Act or for any other purpose with respect to the Issuer's Common Stock. Item 3. Source and Amount of Funds or Other Consideration. - ----------------------------------------------------------- The response to Item 3 is amended in its entirety to read as follows: Transactions Involving the Issuer - --------------------------------- On February 28, 1989, CVCA, the Issuer, Hanger Acquisition Corporation, a Delaware corporation ("HAC"), J.E. Hanger, Inc., a Delaware corporation ("Hanger"), Ronald J. Manganiello ("Manganiello") and Joseph M. Cestaro ("Cestaro") entered into a Stock Exchange Agreement (the "Exchange Agreement"). A copy of the Exchange Agreement is filed as Exhibit 1 hereto. Pursuant to the Exchange Agreement, the Issuer agreed to issue (at an exchange ratio of 100:1 on a pre-split basis or 25:1 on a post-split basis) to CVCA and Messrs. Manganiello and Cestaro (the "Exchanging Stockholders") newly issued capital stock of Hanger owned by each of the Exchanging Stockholders. The transactions contemplated by the Exchange Agreement were consummated as of May 15, 1989 (the "Closing"). Immediately after the Closing, Hanger became a wholly owned subsidiary of the Issuer. Prior to the Closing, CVCA (which was entitled pursuant to the Exchange Agreement, to become the owner of 1,690,281.25 shares of the Issuer's Common Stock, 105,800 shares of the Issuer's Class A Preferred Stock, par value $.01 (the "Class A Preferred Stock"), and 140,574 shares of the Issuer's Class B Preferred Stock, $.01 par value (the "Class B Preferred Stock") convertible at any time on a share-for-share basis into Common Stock) entered into a Beneficial Ownership Agreement dated as of May 9, 1989 (the "Beneficial Ownership Agreement") with Exeter Capital, L.P. ("Exeter"), whereby CVCA sold to Exeter, at CVCA's pro rata cost basis therein, beneficial ownership of shares of Hanger capital stock which upon the Closing of the Exchange Agreement were exchanged for beneficial ownership of 416,822.75 shares of the Issuer's Common Stock and 24,926 shares of Class A Preferred Stock. CVCA received $427,642.15 and $29,379.60 (inclusive of $714.70 of accrued dividends) from Exeter as full payment for the beneficial interest in shares of Hanger capital stock. The Beneficial Ownership Agreement is filed as Exhibit 11 hereto. On May 9, 1989, CEA, a California Limited Partnership (whose general partner is also CCP) and Exeter entered into a Participation Agreement (the "Participation Agreement") whereby Exeter acquired a 36.34773% undivided participation in $5,600,000 of Hanger's 1989 Subordinated Notes (as defined herein) purchased by CEA on February 28, 1989 and May 9, 1989. The purchase price for such participation was $2,035,472.88, which is equal to CEA's pro rata original cost for the 1989 Subordinated Notes. Immediately after the Closing, pursuant to a Stock Redemption Agreement (the "Stock Redemption Agreement") dated as of May 15, 1989 by and between CVCA and the Issuer, CVCA sold to the Issuer 105,373 shares of Common Stock at an aggregate purchase price equal to $108,108.15, representing CVCA's original cost basis in such shares. The purpose of such sale was to provide the Issuer with a reserve of Common Stock for possible future issuance upon exercise of a warrant to purchase the Issuer's Common Stock granted as of May 15, 1989 to CorreStates Bank, N.A., which was formerly known as Philadelphia National Bank and First Pennsylvania Bank, N.A. (the "Bank") in connection with a Bank Credit Agreement (the "Bank Credit Agreement") dated as of such date by and among the Issuer, its subsidiaries and the Bank. The Stock Redemption Agreement is filed as Exhibit 12 hereto. Except for the beneficial interest in the capital stock of Hanger acquired by Exeter from CVCA, all of the capital stock of Hanger exchanged by CVCA and the other Exchanging Stockholders upon the Closing was indirectly acquired by them pursuant to a transaction effected in the form of a leveraged buyout. On February 28, 1989, CVCA and CEA and Messrs. Manganiello and Cestaro (who were then principal management stockholders of Hanger (hereinafter the "Hanger Management")), entered into a Stock and Note Purchase Agreement (the "Hanger Investment Agreement") with HAC. The Hanger Investment Agreement is filed as Exhibit 18 hereto. HAC was formed by CVCA to effect the acquisition of Hanger. CVCA and the Hanger Management purchased for cash newly issued common stock, Class A preferred stock and Class B preferred stock of HAC. The HAC capital stock purchased by CVCA included common stock 4 CUSIP No. 41043F-208 purchased for $1,734,155, Class A preferred stock for $121,670, and Class B preferred stock for $144,223. In addition, CEA purchased for cash a $7,400,000 nonconvertible 15% Senior Demand Bridge Note (the "Senior Bridge Note") of HAC payable on demand, and a 14% $5,400,000 nonconvertible Subordinated Note of HAC (including the notes described in the following sentence, the "1989 Subordinated Notes"). On May 9, 1989, pursuant to a First Amendment to the Hanger Investment Agreement, CEA purchased an additional $200,000 of principal amount of the 1989 Subordinated Notes. On May 15, 1989 (immediately before the Closing), pursuant to a Second 1989 Amendment to the Hanger Investment Agreement, CEA agreed to extend the time of principal repayment to the 1989 Subordinated Notes and to subordinate the 1989 Subordinated Notes to all obligations owing to the Bank pursuant to the Bank Credit Agreement. The terms of such subordination are set forth in a Subordination Agreement, dated as of May 15, 1989, between CEA and the Bank. The Subordination Agreement, as amended, is filed hereto as Exhibit 19-19.6. The principal amount of the 1989 Subordinated Notes described above are payable in four equal semi-annual installments on the first business day of September 1996, March 1997, September 1997 and March 1998. CVCA's and CEA's total cash investment in the capital stock, and the Senior Bridge Note and 1989 Subordinated Notes were $2,000,048 and $13,000,000, respectively. On May 25, 1989, in connection with the Closing of the transactions contemplated by the Exchange Agreement, the Issuer and its subsidiaries, including Hanger, entered into the Bank Credit Agreement with the Bank whereby certain of the proceeds of borrowing thereunder were used to repay all of the outstanding principal amount and accrued interest on the Senior Bridge Note. On February 28, 1989, HAC, Hanger, the Issuer and all of the securityholders and a warrant holder of Hanger (the "Hanger Securityholders") entered into an Amendment (the "Amendment") to a Stock and Warrant Purchase Agreement (as amended, the "Hanger Purchase Agreement") dated January 12, 1989 by and among the Issuer (as purchaser), Hanger and the Hanger Securityholders (as sellers). Pursuant to the Amendment, the Issuer assigned all of its right, title, interest and obligations in the Hanger Purchase Agreement to HAC. On February 28, 1989, HAC consummated the acquisition of all of the outstanding capital stock of Hanger pursuant to the terms of the Hanger Purchase Agreement. Effective as of April 11, 1989, HAC merged with and into Hanger (the "Merger"). Pursuant to the Merger, CVCA received 67,611.25 shares of Hanger common stock representing approximately 93.4% of the outstanding common stock, 1,058 shares of Hanger's outstanding Class A preferred stock representing approximately 24.3% of the outstanding Class A preferred stock, and 5,622.96 shares of Hanger Class B preferred stock representing all of the outstanding Class B preferred stock. Hanger, as a successor by merger to HAC, became obligated to CEA on the $7,400,000 Senior Bridge Note and the $5,600,000 1989 Subordinated Notes. On February 12, 1990, the Issuer, CVCA, Messrs. Manganiello and Cestaro, Ivan R. Sabel ("Sabel") and Richard A. Stein ("Stein") (CVCA and Messrs. Manganiello, Cestaro, Sabel and Stein are collectively referred to as the "Purchasers") entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") whereby the Issuer issued and sold to the Purchasers an aggregate of 100 shares of the Issuer's Class D Preferred Stock, par value $.01 per share (the "Class D Preferred Stock") and 100 shares of the Issuer's Class E Preferred Stock, $.01 par value (the "Class E Preferred Stock") for a purchase price of $6,173 per share and $2,922.67 per share, respectively. Pursuant to the Stock Purchase Agreement, CVCA acquired 91.4661 shares of Class D Preferred Stock and 80.5356 shares of Class E Preferred Stock. A copy of the Stock Purchase Agreement, including Schedule A thereto which sets forth the shares of Class D Preferred Stock and Class E Preferred Stock acquired by each of the Purchasers, is filed as Exhibit 15 hereto. The purpose of the Purchasers' investment in the Class D Preferred Stock and Class E Preferred Stock was to provide equity capital to the Issuer for use in connection with the acquisition as of February 13, 1990 from unaffiliated parties of all of the outstanding common stock of three companies engaged in the same line of business as the Issuer (hereinafter the "Scott Acquisition"). Information concerning the Scott Acquisition is reported in the Issuer's Current Report on Form 8-K dated February 13, 1990. In connection with these transactions and pursuant to a third amendment to the Hanger Investment Agreement dated as of February 12, 1990, CEA loaned $500,000 to Hanger in consideration for a nonconvertible 14% Subordinated Promissory Note of Hanger (the "First 1990 Subordinated Note"). The first two years' interest on the First 1990 Subordinated Note will be deferred and added to the principal amount, which is payable in four equal semi-annual installments on March 1, 1997, September 1, 1997, March 1, 1998 and September 1, 1998. Other terms and provisions of the First 1990 Subordinated Note are substantially the same as the terms and provisions of the 1989 Subordinated Notes as set forth in the Hanger Investment Agreement as amended. Pursuant to a First Amendment to Subordination Agreement dated as of February 12, 1990, the First 1990 Subordinated Note also has been subordinated to all obligations owing to the Bank under the Bank Credit Agreement. CVCA and Exeter entered into a First Amended and Restated Beneficial Ownership Agreement (the "Restated Beneficial Ownership Agreement") dated as of March 1, 1990 in the form filed as Exhibit 11.1 hereto whereby 5 CUSIP No. 41043F-208 CVCA sold to Exeter, at CVCA's pro rata cost basis therein, 20.8268 shares of the Issuer's Class D Preferred Stock and 18.9742 shares of the Issuer's Class E Preferred Stock. CVCA received $128,563.84 plus accrued dividends of $838.31 from February 12 - March 1, 1990 and $55,455.52 plus accrued dividends of $361.60 from February 12 - March 1, 1990 from Exeter as full payment for the Class D Preferred Stock and Class E Preferred Stock, respectively. CEA and Exeter also entered into a First Amended and Restated Participation Agreement (the "Restated Participation Agreement") as of March 1, 1990 whereby Exeter acquired a 36.34773% undivided participation in the First 1990 Subordinated Note. The purchase price for such participation was $181,738.65 plus $1,185.04, which represented CEA's pro rata cost basis plus accrued interest from February 12 - March 1, 1990. Effective June 19, 1990, the parties to the Hanger Investment Agreement entered into a fourth amendment to such agreement. The fourth amendment was entered into to induce the Bank to amend certain provisions of the Bank Credit Agreement. In connection with such fourth amendment, CEA and the Bank also entered into a Second 1989 Amendment to the Subordination Agreement which required CEA to defer certain cash interest payments in the event certain financial covenants set forth in the Bank Credit Agreement are not satisfied. On November 8, 1990, the Issuer, Hanger, CVCA, CEA and Messrs. Manganiello and Cestaro entered into a fifth amendment to the Hanger Investment Agreement whereby CEA loaned $2,450,000 to Hanger in consideration for a seven year non-convertible 14% Subordinated Promissory Note of Hanger (the "Second 1990 Subordinated Note" and together with the First 1990 Subordinated Note, the "1990 Subordinated Notes"). Pursuant to such fifth amendment, interest on all of the 1989 and 1990 Subordinated Notes accrues and compounds semi-annually, but is not payable in cash until all amounts owing under the Bank Credit Agreement are paid in full. The purpose of the loan was to primarily provide the Issuer with capital for use in connection with the acquisition as of November 8, 1990 of substantially all of the assets of Ralph Storrs, Inc. (hereinafter the "Storrs Acquisition"). Information concerning the Storrs Acquisition is contained in the Issuer's Current Report on Form 8K, filed on November 21, 1990 and amended January 15, 1991. The fifth amendment to the Hanger Investment Agreement provided for the following with respect to the Second 1990 Subordinated Note: (i) a placement fee which ranges from a minimum of $24,500 (in the event the loan is repaid within 90 days) to a maximum of $294,000 (in the event the loan is repaid after 360 days); and, (ii) the issuance by the Company to CVCA (or its designee) of warrants to purchase shares of common stock of the Company in an amount equal to 5% of the then outstanding shares on and after 271 days after November 8, 1990 and warrants equal to an additional 5% of the then outstanding shares on and after 361 days after November 8, 1990, if at either date the Second 1990 Subordinated Note is not repaid in full. The exercise price of the warrants (the "Contingent Warrants") will be the market price of the common stock at the time of the grant of the Contingent Warrants; provided, however, that in the event the Company engages in an underwritten public offering pursuant to which the Company sells at least $5,000,000 of its common stock within 90 days of the date of the grant of such warrants and such public offering price is greater than the market value of the common stock on the date of the grant of such warrants, then the exercise price of such warrants shall be increased to such higher public offering price. The fifth amendment also provided for (i) the relative payment priorities between the Second 1990 Subordinated Note on the one hand and the 1989 Subordinated Notes and First 1990 Subordinated Note on the other hand and (ii) the transfer of the 1989 Subordinated Notes and First 1990 Subordinated Notes from CEA to CVCA. CVCA, CEA and the Bank also entered into a Third Amendment to the Subordination Agreement dated as of November 8, 1990, whereby CVCA agreed, as and when necessary to enable the Issuer and its subsidiaries to satisfy certain net worth covenants with the Bank, to exchange that portion of the 1989 and First 1990 Subordinated Notes held by CVCA for shares of the Issuer's Class F Preferred Stock, par value $.01 per share (the "Class F Preferred Stock"). The terms and conditions of the Class F Preferred Stock are set forth at pages 29-35 of Exhibit 3.1 hereto and incorporated herein by reference. CVCA, CEA and Exeter also entered into an Amendment Agreement dated as of November 8, 1990 (amending the Amended Participation Agreement and the Amended Beneficial Ownership Agreement) which is filed as Exhibit 11.3 hereto and incorporated herein by reference. The Amendment Agreement provides for Exeter's acquisition of (i) a 21.73% participation in the Second 1990 Subordinated Note issued to CEA in connection with the financing of the Storrs acquisition, (ii) 24.16% of any placement fee received pursuant to the fifth amendment to the Hanger Investment Agreement and (iii) 24.16% of any Contingent Warrants which may subsequently be issued to CEA or its designee. Exeter paid CEA $532,394 (or 21.73% of the face amount of the Second 1990 Original Subordinated Note) for its interests described above. 6 CUSIP No. 41043F-208 On March 1, 1991, the Issuer, Hanger, CVCA, CEA and Messrs. Manganiello and Cestaro entered into a sixth amendment to the Hanger Investment Agreement (filed as Exhibit 18.6 hereto) whereby CEA loaned $800,000 to Hanger in consideration for a seven year non-convertible 14% Subordinated Promissory Note of Hanger (the "First 1991 Subordinated Note" and together with the 1989 Subordinated Notes and the 1990 Subordinated Notes, the "Original Subordinated Notes"). Interest on the First 1991 Original Subordinated Note accrues and compounds semi-annually, but is not payable in cash until all amounts owing under the Bank Credit Agreement are paid in full. The purpose of the loan was to primarily provide the Issuer with capital to pay certain expenses associated with the Issuer's proposed public offering. Information concerning the public offering is contained in the Issuer's Final Prospectus, dated April 30, 1991 (the "Final Prospectus"). The sixth amendment to the Hanger Investment Agreement provided for the following with respect to the First 1991 Subordinated Note: (i) a placement fee which ranges from a minimum of $8,000 (in the event the loan is repaid within 90 days) to a maximum of $96,000 (in the event the loan is repaid after 360 days); and, (ii) a $10,000 closing fee. The sixth amendment also provided for the relative payment priorities between the Second 1990 Original Subordinated Note on the one hand and the 1989 Subordinated Notes and First 1990 Subordinated Note on the other hand. CVCA, CEA and the Bank also entered into a Fourth Amendment to the Subordination Agreement dated as of March 1, 1991, whereby CEA agreed to waive certain acceleration rights with respect to the First 1991 Subordinated Note if the Issuer and its subsidiaries failed to satisfy certain net worth covenants with the Bank. CVCA, CEA and Exeter also entered into an Amendment Agreement dated as of March 1, 1991 (amending the Amended Participation Agreement and the Amended Beneficial Ownership Agreement) which is filed as Exhibit 11.4 hereto and incorporated herein by reference. The Amendment Agreement provides for Exeter's acquisition of (i) a 24.16% participation in the First 1991 Subordinated Note issued to CEA and (ii) 24.16% of any placement fee (but not closing fee) received pursuant to the sixth amendment to the Hanger Investment Agreement. Exeter paid CEA $193,280 (or 24.16% of the face amount of the First 1991 Subordinated Note) for its interests described above. On March 20, 1991, the Issuer, Hanger, CVCA, CEA and Messrs. Manganiello and Cestaro entered into a seventh amendment to the Hanger Investment Agreement. The seventh amendment to the Hanger Investment Agreement provided for the following with respect to the Second 1990 and First 1991 Subordinated Notes: (i) the transfer of such notes from CEA to CVCA (resulting in CVCA holding all of the Original Subordinated Notes), (ii) amending such notes to become convertible into Class F Preferred Stock, at the option of the holder of such notes (provided that CVCA had previously agreed with the Issuer to not convert any Original Subordinated Notes into Class F Preferred Stock until May 3, 1991) and (iii) the terms upon which the placement fees associates with such notes will be paid if such notes are partially or fully converted into Class F Preferred Stock. The seventh amendment also provided for the relative payment priorities among all of the Original Subordinated Notes. On May 31, 1991, CVCA and the Issuer entered into a letter agreement amending the relative payment priorities among all of the Original Subordinated Notes. See Exhibit 18.8. CVCA, CEA and the Bank also entered into a Fifth Amendment to the Subordination Agreement dated as of November 8, 1990, whereby CVCA agreed, as and when necessary to enable the Issuer and its subsidiaries to satisfy certain net worth covenants with the Bank, to exchange that portion of the Original Subordinated Notes held by CVCA (including the Second 1990 and First 1991 Subordinated Notes) for shares of the Issuer's Class F Preferred Stock. CVCA, CEA and Exeter also entered into an Amendment Agreement dated as of March 20, 1991 (amending the Amended Participation Agreement and the Amended Beneficial Ownership Agreement) which is filed as Exhibit 11.5 hereto and incorporated herein by reference. The Amendment Agreement provides for, among other things, Exeter's consent to the foregoing transactions. On May 1, 1991, all of the holders of Class B Preferred Stock and Class D Preferred Stock converted all such shares into Common Stock on the terms set forth in the Issuer's Restated Certificate of Designations, Preferences and Rights of Preferred Stock. CVCA received 140,574 and 419,285 shares of Common Stock upon conversion of 140,574 shares of Class B Preferred Stock and 70.6393 shares of Class D Preferred Stock, respectively. Exeter received beneficial ownership of 123,619 shares of Common Stock upon conversion of 20.8268 shares of Class D Preferred Stock. On April 30, 1991, the Issuer's Registration Statement on Form S-2 for the sale of 2,750,000 shares of its Common Stock was declared effective. On May 7, 1991 and pursuant to the Registration Statement and Final Prospectus, the Issuer sold 2,750,000 shares of its Common Stock for $5.00 per share. CVCA purchased 200,000 of such shares for 7 CUSIP No. 41043F-208 $5.00 per share, through the Issuer's underwriter, PaineWebber Incorporated. Effective June 1, 1991, CVCA sold Exeter 48,320 of such shares for $5.00 per share. See Exhibit 11.6. Shortly after the public offering was completed, the Issuer repaid the Bank all amounts owing to the Bank. As a result of such prepayment, CVCA and Exeter expected that all of the Original Subordinated Notes would pay interest currently. A portion of the Original Subordinated Notes and related original placement fees equaling approximately $955,000 was repaid from the proceeds of the public offering on May 30, 1991. CVCA and Exeter waived all prepayment penalties otherwise owing with respect to such prepayments. Since the Second 1990 Subordinated Note was not repaid prior to August 6, 1991 (i.e., 271 days after the date of such note), the Company issued warrants as of that date to CVCA and Exeter entitling them to purchase a total of 225,914 and 71,969 shares, respectively (equal to 5% of the then outstanding shares of Common Stock and rights to acquire Common Stock at an exercise price equal to or less than $5.20 per share). Such warrants are exercisable by CVCA and Exeter on or before December 31, 2001 at an exercise price initially equal to $4.16 per share. In the event the Company engages in an underwritten public offering pursuant to which it sells at least $5 million of its Common Stock within 90 days of the date of grant of the warrants and the public offering price is greater than $4.16, then the exercise price of any such warrants will be increased to such higher public offering price. These warrants issued to CVCA and Exeter are included as Exhibits 20 and 20.1 hereto. Since the Second 1990 Subordinated Note was not repaid prior to November 5, 1991 (i.e., 361 days after the date of such note), the Company became obligated to issue warrants as of that date to CVCA and Exeter entitling them to purchase a total of 244,735 and 77,964 shares, respectively (equal to 5% of the then outstanding shares of Common Stock and rights to acquire Common Stock at an exercise price equal to or less than $9.56 per share). Such warrants will be exercisable by CVCA and Exeter on or before December 31, 2001 at an exercise price initially equal to $7.65 per share. In the event the Company engages in an underwritten public offering pursuant to which it sells at least $5 million of its Common Stock within 90 days of the date of grant of the warrants and the public offering price is greater than $7.65, then the exercise price of any such warrants will be increased to such higher public offering price. Forms of these warrants issued to CVCA and Exeter are included as Exhibits 21 and 21.1 hereto. As of February 20, 1992, the Issuer, Hanger, CVCA, CEA and Messrs. Manganiello and Cestaro entered into an eighth amendment to the Hanger Investment Agreement (filed as Exhibit 18.7 hereto) whereby the Original Subordinated Notes were amended to make interest payable currently and eliminate their convertibility to Class F Preferred Stock, CVCA, CEA and the Bank also entered into a Sixth Amendment to the Subordination Agreement, dated as of February 20, 1992 (filed as Exhibit 19.6 hereto), whereby the Bank authorized the transactions contemplated in the eighth amendment to the Hanger Investment Agreement. As of February 20, 1992, CVCA transferred of record to Exeter all of the Issuer's securities and the portion of the Original Subordinated Notes beneficially owned by Exeter. In connection therewith, Exeter became a party to the Hanger Investment Agreement, the Stockholders Agreement, the Subordination Agreement, the Amended and Restated Registration Rights Agreement and the Manager Options and Additional Manager Options (as such terms are defined in Section 6 hereof). The agreements which effected the foregoing transactions were a letter agreement, dated as of February 20, 1992, between CVCA and Exeter (which is attached hereto as Exhibit 11.7) and an Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of February 20, 1992, among CVCA, CEA, Exeter, the Issuer and Messrs. Manganiello, Sabel and Stein (which is attached hereto as Exhibit 5.3). On April 13, 1992, CVCA, Exeter and the Issuer entered into an Amendment to Warrants (attached hereto as Exhibit 22) whereby the Warrants previously issued to CVCA and Exeter in connection with the Storrs financing were amended to permit the exercise price payable thereunder to be paid in cash, securities of the Issuer or Original Subordinated Notes. On May 8, 1992, the Issuer's Registration Statement on Form S-2 for the sale of 1,850,000 shares of its Common Stock was declared effective. On May 15, 1992, pursuant to such Registration Statement, the Issuer sold 1,850,000 shares of its Common Stock for $8.00 per share. On May 15, 1992, the Issuer used a portion of the proceeds from such public offering to repay the Original Subordinated Notes in full and redeem all of the outstanding Class A Preferred Stock and Class E Preferred Stock, including such preferred shares held by CVCA and Exeter. CVCA and Exeter waived all prepayment penalties due upon the early prepayment of the Original Subordinated Notes. 8 CUSIP No. 41043F-208 On November 1, 1996, the Issuer, Paribas Principal Inc. ("PPI") and CVCA entered into a Senior Subordinated Note Purchase Agreement dated as of November 1, 1996 in the form filed as Exhibit 23 hereto (the "1996 Note Purchase Agreement") whereby PPI and CVCA each loaned $4,000,000 to the Issuer in consideration for an eight year 8% Senior Subordinated Note of the Issuer in the original principal amount of $4,000,000 (the "1996 Subordinated Note") and 800,000 warrants to purchase 800,000 shares of the Issuer's Common Stock (the "1996 Warrants"). Pursuant to such 1996 Note Purchase Agreement, interest on the 1996 Subordinated Note accrues and compounds semi-annually and is payable on each June 30 and December 31, commencing June 30, 1997, either (i) entirely in cash in an amount equal to 8% of the unpaid principal amount of the 1996 Subordinated Note when due or (ii) at the Issuer's option, in a combination of (x) cash in an amount at least equal to 3.2% per annum of the unpaid principal amount of the 1996 Subordinated Note when due and (y) newly issued senior subordinated notes (the "Subsequent 1996 Subordinated Notes"), in an aggregate principal amount equal to the remaining amount of accrued interest on the 1996 Subordinated Notes for such period (which includes all Subsequent 1996 Subordinated Notes which may have been issued prior to such period). The 1996 Subordinated Note and all Subsequent 1996 Subordinated Notes are subordinated to loans in an aggregate amount of up to $88 million (the "1996 Senior Bank Debt) made to the Issuer by Banque Paribas, as agent for a syndicate of bank's. Pursuant to the 1996 Warrants issued to CVCA in the form filed as Exhibit 24 hereto, the 1996 Warrants are exercisable by CVCA at any time and from time to time after November 1, 1996 provided that CVCA may not exercise any 1996 Warrant if after giving effect to such exercise the total number of shares of Common Stock issued upon exercise thereof would exceed the product of (x) (i) .45, if such date of exercise is on or prior to November 1, 1997; or (ii) .50 if such date of exercise is on or prior to May 1, 1998 but after November 1, 1997; or (iii) 1.00 if such date is after May 1, 1998 and (y) the total number of shares of Common Stock issuable upon exercise thereof as of November 1, 1996 (as adjusted pursuant to Article 5 thereof). The exercise price of the 1996 Warrants shall be $6.375 with respect to the 335,150 shares of Common Stock and $4.00865 with respect to 464,850 shares of Common Stock issuable upon exercise of the 1996 Warrants. Although the 1996 Warrants initially entitle CVCA to purchase 800,000 shares of the Issuer's Common Stock, the 1996 Warrants also provide that in the event that the Issuer shall have repaid in full all amounts outstanding under the 1996 Note Purchase Agreement, the number of shares of Common Stock issuable upon exercise of the 1996 Warrants shall be reduced by that number of shares which is equal to the product of (x) (i) .55, if such date of repayment is on or prior to November 1, 1997 or .50, if such date of repayment is on or prior to May 1, 1998 but after November 1, 1997; and (y) the total number of shares of Common Stock issuable upon exercise thereof on November 1, 1996 (as adjusted pursuant to Article 5 thereof). The purpose of the loan was to provide the Issuer with capital to be used solely to refinance debt outstanding under the Bank Credit Agreement, pay related fees, commissions and expenses, finance ongoing working capital requirements and other general corporate purposes of the Issuer and its subsidiaries. On July 31, 1997, the Issuer sold five million shares of Common Stock in an underwritten public offering resulting in approximately $51 million of net proceeds to the Issuer. On August 5, 1997, the Issuer applied the net proceeds of the public offering to the repayment of the 1996 Subordinated Note including accrued interest thereon for a total amount of $4,180,106.67. As a result of the Issuer's repayment of the 1996 Subordinated Note, the 1996 Warrant was amended to reflect the reduction in the aggregate number of shares of the Issuer's Common Stock issuable upon exercise of the 1996 Warrant from 800,000 shares to 360,000 shares. On July 30, 1998, the Issuer's Registration Statement on Form S-2 for the sale of 3,300,000 shares of its Common Stock was declared effective. On August 4, 1998 and pursuant to the Issuer's Registration Statement and Final Prospectus, dated July 29, 1998 (the "1998 Registration Statement and Final Prospectus"), CVCA sold 800,000 shares of the Issuer's Common Stock for $17.00 per share. Information concerning the public offering is contained in the 1998 Registration Statement and Final Prospectus. On July 1, 1999, CVCA indirectly transferred all of its shares of Common Stock and Warrants to purchase shares of Common Stock of the Issuer to CEA. In connection with this transaction, CVCA now beneficially owns less than 5% of the outstanding voting securities of Hanger. Source of Funds - --------------- The funds provided by CVCA for the purchase of HAC capital stock, the Issuer's capital stock and the 1996 Warrants, and the funds provided by CEA for the purchase of the Senior Bridge Note and by CVCA for the purchase of all 9 CUSIP No. 41043F-208 of the Original Subordinated Notes and the 1996 Subordinated Note were obtained from CVCA's and CEA's respective contributed capital, which includes funds that are held available for such purposes. The purchase price of $17,972 paid by Mr. Stein to acquire his shares of Class D Preferred Stock and Class E Preferred Stock from the Issuer was borrowed from CVCA. A note and a stock pledge agreement (filed as Exhibit 16 hereto) evidence such borrowing, which has since been repaid. Disclaimer of Group Status - -------------------------- As noted above, Messrs. Manganiello and Cestaro together with CVCA were Exchanging Stockholders under the Exchange Agreement. They each received the Issuer's Common Stock and Class A Preferred Stock upon consummation of the transactions contemplated by the Exchange Agreement, although only CVCA received the Issuer's Class B Preferred Stock. In connection with the Exchange Agreement and the Closing of the transactions contemplated thereby, CVCA entered into certain agreements with the Hanger Management as well as certain members of key management and principal stockholders of the Issuer (the "Issuer's Management"). Exeter became a party to such agreements when it acquired record ownership of the Hanger Securities previously held of record by CVCA but beneficially owned by Exeter. The terms of these agreements, which are summarized elsewhere in this statement, provided generally that the Hanger Management and the Issuer's Management agree with CVCA and the Issuer as to restrictions on transferability of their stockholdings, certain rights to participate with CVCA and Exeter in certain private sales arranged by CVCA or Exeter or registration of their stockholdings along with CVCA or Exeter for sale pursuant to the Securities Act of 1933 as amended (the "1933 Act"), and agreements to cooperate and rights to participate in transactions involving a merger, consolidation or reorganization of the Issuer or a sale of all or substantially all of the Issuer's business. In addition, Messrs. Manganiello, Cestaro, Sabel and Stein together with CVCA, were the Purchasers of the Issuer's Class D Preferred Stock and Class E Preferred Stock pursuant to the Stock Purchase Agreement and Mr. Stein has pledged his shares of Common Stock and Class E Preferred Stock to CVCA as security for CVCA's financing of the purchase price thereof. As disclosed under Item 6(a)(ii) of this Statement, Messrs. Manganiello, Sabel and Stein also have been granted options to currently purchase a total of 762,015 shares of Common Stock held of record by CVCA and Exeter. Notwithstanding the existence of these agreements, CVCA's decision to acquire the HAC securities, its decision to enter into the Exchange Agreement with respect to acquisition of the Issuer's equity securities at Closing, and CVCA's decision to purchase the Issuer's Class D Preferred Stock and Class E Preferred Stock, are decisions made unilaterally by CVCA. The purpose and overall effect of the foregoing agreements is to facilitate CVCA's ability to exercise control over the Issuer and its management. In CVCA's opinion, none of these agreements materially affect their respective rights to vote and dispose of the Issuer's Common Stock, although certain of the agreements may afford the other parties thereto an opportunity to elect to participate with CVCA and Exeter in certain transactions initiated by CVCA and Exeter, including a sale of the Issuer's business or a disposition of a majority of CVCA's and Exeter's holdings of the Issuer's equity securities. Prior to execution of the Exchange Agreement and the Hanger Investment Agreement on February 28, 1989, neither CVCA nor Exeter had any contractual or other relationship with the Hanger Management, the Issuer's Management or others with respect to beneficial ownership of the Issuer's Common Stock. Prior to May 9, 1989, CVCA and Exeter did not have any contractual or other agreement with respect to beneficial or record ownership of the Issuer's equity securities. As a result of the repayment of all of the Original Subordinated Notes and the redemption of all of the Class A and Class E Preferred Stock on May 15, 1992, Exeter is no longer a creditor of the Issuer or any of its subsidiaries and substantially all of CVCA's and Exeter's restrictive covenants in the Stockholders Agreement have terminated. As a result of these changes, and the dilution of CVCA's and Exeter's percentage ownership of the Issuer caused by the May 8, 1992 public offering of 1,850,000 shares, CVCA and Exeter decided that it was no longer in their best interests to act as a group. Accordingly, effective May 15, 1992, CVCA and Exeter each disclaim that it is acting as a group with each other. Therefore, Exeter has filed its own, separate Schedule 13D with respect to its ownership of the Issuer's securities. CVCA disclaims that it is member of a group with any other persons either for purposes of this Schedule 13D or for any other purpose related to its beneficial ownership of the Issuer's securities. 10 CUSIP No. 41043F-208 Item 5. Interest in Securities of the Issuer. - --------------------------------------------- The response to Item 5 is amended in its entirety to read as follows: Effective as of July 1, 1999 and in connection with an indirect transfer of all of its shares of Common Stock and Warrants to purchase shares of Common Stock of the Issuer to CEA, CVCA is no longer the beneficial owner of any shares of the Issuer's Common Stock. Based upon the cash investment made by CVCA in the respective classes of HAC securities (and without taking into consideration the purchase of Hanger debt securities by CEA or CVCA or the receipt or forfeiture of any shares of Common Stock pursuant to the agreements described in Item 6(a) below), the effective cost per share to CVCA of the Issuer's Class A Preferred Stock, Class B Preferred Stock and Common Stock received in the Exchange may be deemed to be approximately $1.15, $1.04, and $1.04, respectively. CEA paid $7,400,000 for the Senior Bridge Note, which was repaid on the date of Closing, and CEA paid an aggregate of $5,600,000 for the 1989 Subordinated Notes. Effective as of February 12, 1990, CVCA invested an additional $800,000 in the Issuer in connection with CVCA's purchase of 91.4661 shares of Class D Preferred Stock at a purchase price of $6,173 per share and its purchase of 80.5356 shares of Class E Preferred Stock at a purchase price of $2,922.68 per share. This investment is exclusive of $17,972 loaned by CVCA to Mr. Stein for his acquisition of Class D Preferred Stock and Class E Preferred Stock pursuant to the Stock Purchase Agreement, and CEA's purchase for $500,000 of the First 1990 Original Subordinated Note. On November 8, 1990, CEA purchased for $2,450,000 the Second 1990 Subordinated Note and transferred the 1989 Subordinated Notes and First 1990 Subordinated Note to CVCA. In connection with such financing, CEA and Exeter received the Contingent Warrants, without charge, because the Second 1990 Subordinated Note was not repaid within 270 and 360 days after its issuance. See, Item 3 above. On March 1, 1991, CEA purchased for $800,000 the First 1991 Subordinated Note. On March 20, 1991, CEA transferred the Second 1990 and First 1991 Subordinated Notes to CVCA. On May 7, 1991, CVCA purchased for $5.00 per share 200,000 of the Issuer's publicly-registered Common Stock from Paine Webber Incorporated, the Issuer's underwriter. Effective June 1, 1991, Exeter purchased from CVCA 48,320 of such shares for $5.00 per share. On May 15, 1992, the Issuer repaid all outstanding Original Subordinated Notes and redeemed all outstanding shares of Class A and Class E Preferred Stock. CVCA's aggregate cost basis in the Issuer's equity securities described above was reduced by approximately $640,326.41 due to its sale to Exeter of a participation in the Class A Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Common Stock acquired in the Exchange. During the months of September 1992 through January 18, 1993, CVCA sold the following shares of Common Stock in Rule 144 transactions: Date Shares Price ------------ ------------- ------------- 9/30 10,000 8.750 11/18 25,000 8.500 11/19 10,000 8.500 12/3 5,000 8.630 12/3 5,000 8.750 12/3 5,000 8.880 1/7 5,000 8.500 1/8 5,000 8.500 11 CUSIP No. 41043F-208 1/12 30,000 8.380 1/13 10,000 8.500 1/14 10,000 8.500 1/20 10,000 8.250 On August 7, 1996, CVCA sold 226,109 shares of Common Stock to Mr. Manganiello upon the exercise of his New Manager Option and Additional Manager Option (each as defined in Item 6(a) below) at an exercise price of $3.875 per share. Mr. Manganiello paid the exercise price of such options through the cancellation of his remaining New Manager Options and Additional Manager Options to acquire 143,048 additional shares of Common Stock of the Issuer owned by CVCA. On August 9, 1996, CVCA sold 33,000 shares of Common Stock to Mr. Stein and 67,000 shares of Common Stock to Mr. Sabel upon the exercise of a portion of their New Manager Option (as defined in Item 6(a) below) at an exercise price of $3.875 per share. Mr. Stein paid the purchase price of his options through the cancellation of New Manager Options to acquire 20,878 additional shares of Common Stock of the Issuer owned by CVCA and Mr. Sabel paid the exercise price of his options through the cancellation of New Manager Options to acquire 42,429 additional shares of Common Stock of the Issuer owned by CVCA. As of August 7, 1996, Mr. Stein and Mr. Sabel continue to collectively own New Manager Options to purchase 17,761 shares of Common Stock of the Issuer owned by CVCA and Additional Manager Options to purchase 170,735 shares of Common Stock of the Issuer owned by CVCA, in each case, having an exercise price of $3.875 and expiring on December 31, 1997. On January 7, 1997, CVCA sold 40,448 shares of Common Stock to Mr. Stein and 69,429 shares of Common Stock to Mr. Sabel upon their exercise of remaining New Manager Options and Additional Manager Options. Mr. Stein paid the purchase price of his options through the cancellation of Additional Manager Options to acquire 52,246 additional shares of Common Stock of the Issuer owned by CVCA and Mr. Sabel paid the exercise price of his options through the cancellation of Additional Manager Options to acquire 89,680 additional shares of Common Stock of the Issuer owned by CVCA. On November 1, 1996, CVCA purchased for $4,000,000 the 1996 Subordinated Note and the 1996 Warrants. On August 5, 1997, the Issuer repaid the 1996 Subordinated Note and as a result thereof, the 1996 Warrants were amended to reflect the reduction in the aggregate number of shares of the Issuer's Common Stock issuable upon their exercise from 800,000 shares to 360,000. On August 4, 1998 and pursuant to the Issuer's Registration Statement and Final Prospectus, CVCA sold 800,000 shares of the Issuer's Common Stock for $17.00 per share. Information concerning the public offering is contained in the 1998 Registration Statement and Final Prospectus. Except as reported in Item 6 below and incorporated herein by reference, there have been no transactions in the Common Stock during the past sixty days which are required to be reported in this Statement. No person other than CVCA has the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of the Common Stock owned beneficially by CVCA. Item 6. Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer. - -------------------------------------------------------------------------------- The response to Item 6(a)(ii) is amended in its entirety to read as follows: (i) Issuance of Options By CVCA and Exeter Effective as of August 13, 1990, CVCA and Exeter (the "Optioners") granted to Messrs. Manganiello, Cestaro, Sabel and Stein (the "Managers") options (the "Manager Options") to purchase a total of 496,250 shares of the Issuer's Common Stock owned beneficially by the Optioners at an exercise price of $6.00 per share. Upon exercise of the Manager Options, the Optioners will transfer 27.5% of the exercise price of each Manager Option (approximately $1.65 per share) to the Issuer, thereby enabling the Issuer to receive up to the same approximate maximum amount it would have been 12 CUSIP No. 41043F-208 entitled to receive upon exercise of the maximum amount of options that might have been granted and exercised under the Incentive Plan. Manager Options for 82,500 shares were canceled upon the resignation of Mr. Cestaro as President of JEH effective March 31, 1991. On March 14, 1991, the Optioners granted to Messrs. Manganiello, Sabel and Stein additional options to purchase from CVCA and Exeter a total of 348,265 shares of Common Stock owned by CVCA and Exeter, of which options for 248,265 shares are exercisable at a price of $6.00 per share and 100,000 shares are exercisable at a price of $8.00 per share. Such additional options are hereinafter called the "Additional Manager Options." The Manager Options and Additional Manager Options generally become exercisable on a cumulative basis to the extent of 33 1/3% at the end of each of the first three years following the date of grant so long as the optionee continues to be employed by the Issuer. The options become fully exercisable upon an earlier sale of the Issuer or termination of the optionee's employment by reason of optionee's death or disability. The Manager Options expired on May 13, 1994 without being exercised. Exeter and CVCA entered into an Amendment Agreement, dated as of August 13, 1990 and an Amendment Agreement, dated March 20, 1991 (both amending the Amended Participation Agreement and the Amended Beneficial Ownership Agreement) whereby Exeter became obligated to sell 24.16% of any shares sold to the Managers upon exercise of the Manager Options and Additional Manager Options. On February 20, 1992, pursuant to an agreement attached hereto as Exhibit 5.3, Exeter assumed such obligations directly. On May 16, 1994, pursuant to the Stock Option Agreements attached hereto as Exhibit 5.4, CVCA granted Messrs. Manganiello, Sabel and Stein new Manager Options (the "New Manager Options") for the same number of shares of Common Stock and at the same exercise price as the prior Manager Options granted by CVCA (exclusive of Exeter's portion), and with an expiration date of May 16, 1995. The New Manager Options are fully vested as of the date of granting. The Additional Manager Options had an original expiration date of December 14, 1994; their expiration date was later extended to December 14, 1995 pursuant to an agreement attached hereto as Exhibit 5.5, provided that such extension had no effect on the expiration date of the exercise period relating to the 24.16% portion of each Additional Manager Option for which Exeter is solely responsible. Pursuant to the Third Amendment to Stock Option and Vesting Agreements and Amendment Agreement attached hereto as Exhibit 5.6, CVCA agreed to (i) reduce the exercise price of the Additional Manager Options (excluding that portion of such options for which Exeter is solely responsible) and the New Manager Options to $3.875 per share and (ii) extend the expiration date of the Additional Manager Options (excluding that portion of such options for which Exeter is solely responsible) and the New Manager Options to March 22, 1996. Pursuant to the Fourth Amendment to Stock Option and Vesting Agreements and Amendment Agreement attached hereto as Exhibit 5.7, CVCA agreed to (i) extend the expiration date of the New Manager Option and the Additional Manager Option (excluding that portion of such options which Exeter is solely responsible) of Mr. Manganiello to March 22, 1997 and (ii) provide for the payment of the exercise price of the New Manager Option and the Additional Manager Option (excluding that portion of such Options which Exeter is solely responsible) of Mr. Manganiello with cash and/or the reduction in the number of shares of common stock issuable upon the exercise of the subject option. Pursuant to the Fifth Amendment to Stock Option and Vesting Agreements and Amendment Agreement attached hereto as Exhibit 5.8, CVCA agreed to (i) extend the expiration date of the New Manager Options of Messrs. Sabel and Stein to March 22,1997 with respect to 67,000 shares underlying the New Manager Options of Mr. Sabel and 33,000 shares underlying the New Manager Options of Mr. Stein with the expiration date for the balance of 51,500 shares for Mr. Sabel and 29,568 shares for Mr. Stein that underlie their respective New Manager Options being extended to December 31, 1997; (ii) extend the expiration date of the Additional Manager Options (excluding that portion of such options for which Exeter is solely responsible) of Messrs. Sabel and Stein to December 31, 1997; and (iii) provide for the payment of the exercise price of each such New Manager Option and Additional Manager Option (excluding that portion of such options for which Exeter is solely responsible) of Messrs. Sabel and Stein with cash and/or the reduction in the number of shares of common stock issuable upon the exercise of the subject option. In August 1996, (i) Mr. Manganiello exercised his New Manager Option and Additional Manager Option to purchase 226,109 shares of Common Stock from CVCA at an exercise price of $3.875 per share; (ii) Mr. Stein exercised a 13 CUSIP No. 41043F-208 portion of his new Manager Option to purchase 33,000 shares of common stock from CVCA at an exercise price of $3.875 per share and (iii) Mr. Sabel exercised a portion of his New Manager Option to purchase 67,000 shares of common stock from CVCA at an exercise price of $3.875 per share. Mr. Manganiello paid the exercise price of such options through the cancellation of his remaining New Manager Options and Additional Manager Options to acquire 143,048 additional shares of Common Stock of the Issuer owned by CVCA; Mr. Stein paid the purchase price of his options through the cancellation of New Manager Options to acquire 20,878 additional shares of Common Stock of the Issuer owned by CVCA; and Mr. Sabel paid the exercise price of his options through the cancellation of New Manager Options to acquire 42,429 additional shares of Common Stock of the Issuer owned by CVCA. As of August 7, 1996, Mr. Stein and Mr. Sabel continue to collectively own New Manager Options to purchase 17,761 shares of Common Stock of the Issuer owned by CVCA and Additional Manager Options to purchase 170,735 shares of Common Stock of the Issuers owned by CVCA, in each case, having an exercise price of $3.875 and expiring on December 31, 1997. On January 7, 1997, CVCA sold 40,448 shares of Common Stock to Mr. Stein and 69,429 shares of Common Stock to Mr. Sabel upon their exercise of remaining New Manager Options and Additional Manager Options. Mr. Stein paid the purchase price of his options through the cancellation of Additional Manager Options to acquire 52,246 additional shares of Common Stock of the Issuer owned by CVCA and Mr. Sabel paid the exercise price of his options through the cancellation of Additional Manager Options to acquire 89,680 additional shares of Common Stock of the Issuer owned by CVCA. On July 30, 1998, the Issuer's Registration Statement on Form S-2 for the sale of its Common Stock was declared effective. On August 4, 1998 and pursuant to the 1998 Registration Statement and Final Prospectus, CVCA sold 800,000 shares of the Issuer's Common Stock for $17.00 per share. Information concerning the public offering is contained in the 1998 Registration Statement and Final Prospectus. On July 1, 1999, CVCA indirectly transferred all of the shares of Common Stock and warrants to purchase shares of Common Stock of the Issuer to CEA. The transfer of the shares of Common Stock and warrants to purchase shares of Common Stock was made in connection with the purchase by CEA of 50,000 shares of the Issuer's 7% Redeemable Preferred Stock (the "Redeemable Preferred Stock") for an aggregate purchase price of $50 million. In connection with such purchase, the Issuer has informed CEA that it intends to seek from its shareholders approval of an amendment to its certificate of incorporation to (a) increase its number of authorized shares of Common Stock and (b) authorize a new class of non-voting common stock. The Issuer has also informed CEA that it intends to seek approval from its shareholders of the Redeemable Preferred Stock becoming convertible into shares of non-voting common stock of the Issuer. Prior to such approvals, the Redeemable Preferred Stock is not convertible. After shareholder approval, the Issuer may, at its election, cause the Redeemable Preferred Stock to become convertible into shares of non-voting common stock. In addition, the Issuer and CEA have agreed that, simultaneously with the creation of a class of non-voting common stock, they will amend the warrants held by CEA to permit CEA to exercise such warrants for shares of non-voting common stock. CEA is subject to regulation under Regulation Y of the Board of Governors of the Federal Reserve System. Accordingly, in connection with the transfer of the shares of Common Stock and warrants to purchase Common Stock, CEA agreed not to exercise any warrant held by it if after giving effect to such exercise CEA would own in excess of the maximum amount of Common Stock as is permissible under applicable law. As a result of the transactions and agreements described above and applicable banking regulations, neither CVCA nor CEA beneficially own more than 5% of any equity security that is registered under Section 12 of the Securities Exchange Act of 1934, as amended. The terms of the 7% Redeemable Preferred Stock are set forth in a certificate of designations, a copy of which is filed as Exhibit 25 to this Amendment to Schedule 13D. The agreements providing for the amendment of the warrants are set forth in the Securities Purchase Agreement dated as of June 16, 1999, among CEA, the Issuer and the other parties thereto, a copy of which is filed as Exhibit 26 to this Amendment to Schedule 13D. Each of such documents is incorporated by reference herein. 14 CUSIP No. 41043F-208 Item 7. Material to be Filed as Exhibits. - ------------------------------------------ *1. Stock Exchange Agreement dated February 28, 1989, by and among the Issuer, HAC, Hanger, CVCA and Messrs. Manganiello and Cestaro, including certain exhibits thereto listed separately below. *2. Stockholders' Agreement, dated as of May 15, 1989, by and among the Issuer, CVCA, CEA, Messrs. Manganiello and Cestaro, Gerald E. Bisbee, Jr., Ivan R. Sabel, and Richard A. Stein. *2.1. Amendment No. 1 to Stockholders' Agreement dated as of February 12, 1990. *2.2 Amendment Agreement, dated as of August 13, 1990, between the Issuer, CVCA, CEA, and Messrs. Manganiello, Sabel, Cestaro and Stein, amending for the second time, among other things, the Stockholders' Agreement. *2.3 Stock Forfeiture Memorandum, dated as of October 30, 1990, between the Issuer, CVCA, Exeter, the Bank and Messrs. Manganiello and Cestaro. *2.4 Amendment No. 3 to Stockholders' Agreement, dated as of November 8, 1990. *3. Certificate of Designations, Preferences and Rights of the Issuer's Preferred Stock. *3.1 Restated Certificate of Designations, Preferences and Rights of Issuer's Preferred Stock. *4. Management Incentive Stock Option Plan (Terminated by Exhibit 2.2). *5. Chemical Stock Forfeiture Agreement dated as of May 15, 1989, by and between the Issuer and CVCA (Terminated by Exhibit 2.2). *5.1 Form of Stock Option and Vesting Agreements, each dated as of August 13, 1990, between CVCA on the one hand and each of Messrs. Manganiello, Sabel, Cestaro and Stein on the other hand (filed as Exhibits A-D to Exhibit 2.2 above). *5.2 Stock Option and Vesting Agreements, each dated as of March 14, 1991, between CVCA on the one hand and each of Messrs. Manganiello, Sabel and Stein on the other hand. *5.3 Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of February 20, 1992, by and among CVCA, CEA, Exeter, the Issuer and Messrs. Manganiello, Sabel and Stein. *5.4 Stock Option Agreements, each dated as of May 16, 1994, between CVCA on the one hand and each of Messrs. Manganiello, Sabel and Stein on the other hand. *5.5 Second Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of May 16, 1994, by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. *5.6 Third Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of September 22, 1994, by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. *5.7 Fourth Amendment to Stock Option and Vesting Agreements and Amendments and Amendment Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. - ---------- * Previously filed. 15 CUSIP No. 41043F-208 *5.8 Fifth Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. *6. Management Stock Forfeiture Agreement, dated as of May 15, 1989, by and among CVCA and Messrs. Bisbee, Sabel, Stein, Manganiello and Cestaro (Terminated by Exhibit 2.2). *7. Guaranty Agreement, dated as of May 15, 1989, executed by the Issuer and its subsidiaries in favor of CEA. *7.1 First Amendment to Guaranty Agreement dated as of February 12, 1990. *7.2 Second Amendment to Guaranty Agreement, dated as of November 8, 1990. *7.3 Third Amendment to Guaranty Agreement, dated as of March 1, 1991. *7.4 Fourth Amendment to Guaranty Agreement, dated as of March 20, 1991. *7.5 Fifth Amendment to Guaranty Agreement, dated as of February 20, 1992. *8. Registration Agreement dated as of May 15, 1989, by and among the Issuer, CVCA, Bank, and Messrs. Bisbee, Sable, Stein, Manganiello and Cestaro. *8.1 First Amendment to Registration Agreement dated as of February 12, 1990. *8.2 Amended and Restated Registration Rights Agreement dated as of November 8, 1990. *9. The Issuer's Principal Stockholders' Agreement dated as of February 28, 1989, by and among Gerald E. Bisbee, Jr., Ivan R. Sabel, Miles Lerman, Gershon A. Stern, Capital Orthopedics, Inc., Richard A. Stein, and HAC. *10. Agreement dated as of February 28, 1989, by and among the Issuer, Miles Lerman, and Gershon A. Stern. *11. Beneficial Ownership Agreement dated as of May 9, 1989 by and between CVCA and Exeter. *11.1 First Amended and Restated Beneficial Ownership Agreement dated as of March 1, 1990 by and between CVCA and Exeter. *11.2 Amendment Agreement dated as of August 13, 1990, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.3 Amendment Agreement dated as of November 8, 1990, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.4 Amendment Agreement dated as of March 1, 1991, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.5 Amendment Agreement dated as of March 20, 1991, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.6 Stock Purchase Agreement, dated as of June 1, 1991, between CVCA and Exeter. - ---------- * Previously filed. 16 CUSIP No. 41043F-208 *11.7 Letter Agreement, dated as of February 20, 1992, between CVCA and Exeter. *12. Stock Redemption Agreement dated as of May 15, 1989 by and between CVCA and the Issuer. *13. Letter, dated April 15, 1989, from CVCA to the Issuer. *14. Agreement dated as of May 15, 1989 by and between CVCA and Exeter with respect to filing Schedule 13D. *15. Stock Purchase Agreement dated as of February 12, 1990 by and among the Issuer, CVCA and Messrs. Manganiello, Cestaro, Sabel and Stein. *16. Note and Stock Pledge Agreement dated as of February 12, 1990 between CVCA and Mr. Stein. *17. Warrant Agreement dated as of May 15, 1989 by and among the Issuer, Bank and CVCA. *18. Stock and Note Purchase Agreement, dated as of February 28, 1989, among Hanger, CEA, CVCA and Messrs. Manganiello and Cestaro. *18.1 First Amendment to Stock and Note Purchase Agreement dated as of May 9, 1989. *18.2 Second Amendment to Stock and Note Purchase Agreement dated as of May 15, 1989. *18.3 Third Amendment to Stock and Note Purchase Agreement dated as of February 12, 1990. *18.4 Fourth Amendment to Stock and Note Purchase Agreement dated as of June 19, 1990. *18.5 Fifth Amendment to Stock and Note Purchase Agreement dated as of November 8, 1990, among the previous parties to the Stock and Note Purchase Agreement and the Issuer. *18.6 Sixth Amendment to Stock and Note Purchase Agreement dated March 1, 1991. *18.7 Seventh Amendment to Stock and Note Purchase Agreement dated March 20, 1991. *18.8 Letter Agreement, dated May 31, 1991, between Hanger and CVCA. *18.9 Eighth Amendment to Stock and Note Purchase Agreement dated as of February 20, 1992. *19. Subordination Agreement dated as of May 15, 1989, between the Bank and CEA and acknowledged by the Issuer and each of the Issuer's subsidiaries. *19.1 First Amendment to Subordination Agreement, dated as of February 12, 1990. *19.2 Second Amendment to Subordination Agreement, dated as of June 19, 1990. *19.3 Third Amendment to Subordination Agreement, dated as of November 8, 1990, among the previous parties to the Subordination Agreement and CVCA. *19.4 Fourth Amendment to Subordination Agreement, dated as of March 1, 1991. - ---------- * Previously filed. 17 CUSIP No. 41043F-208 *19.5 Fifth Amendment to Subordination Agreement, dated as of March 20, 1991. *19.6 Sixth Amendment to Subordination Agreement, dated as of February 20, 1992. *20. Warrant, dated as of August 6, 1991, issued by the Company to CVCA. *20.1 Warrant, dated as of August 6, 1991, issued by the Company to Exeter. *21. Form of Warrant, dated as of November 5, 1991, issued by the Company to CVCA. *21.1 Form of Warrant dated as of November 5, 1991, issued by the Company to Exeter. *22. Amendment to Warrants dated as of February 20, 1992, among the Issuer, CVCA and Exeter. *23. Senior Subordinated Note Purchase Agreement dated as of November 1, 1996 between the Issuer, PPI and CVCA. *24. Warrant dated November 1, 1996 issued by the Issuer to CVCA. 25. Certificate of Designations, Preferences, and Rights of the Issuer's 7% Redeemable Preferred Stock. 26. Securities Purchase Agreement dated June 16, 1999, among CEA, the Issuer, and other parties. SCHEDULE A - ---------- Item 2 information for executive officers and directors of Chase Capital Corporation. SCHEDULE B - ---------- Item 2 information for executive officers and directors of The Chase Manhattan Corporation. SIGNATURE - --------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. CHASE VENTURE CAPITAL ASSOCIATES, L.P. By: Chase Capital Partners, Its General Partner By:/s/ Mitchell J. Blutt ----------------------------- Name: Mitchell J. Blutt Title: Executive Partner of Chase Capital Partners July 8, 1999 - ------------ Date - ---------- * Previously filed. 18 CUSIP No. 41043F-208 SCHEDULE A ---------- CHASE CAPITAL CORPORATION ------------------------- EXECUTIVE OFFICERS ------------------ Chairman & Chief Executive Officer William B. Harrison, Jr.* President Jeffrey C. Walker** Executive Vice President Mitchell J. Blutt, M.D.** Vice President & Secretary Gregory Meridith* Assistant Secretary Anthony J. Horan * Assistant Secretary Denise G. Connors* Assistant Secretary Robert C. Carroll* DIRECTORS --------- William B. Harrison, Jr.* Jeffrey C. Walker** - ---------- * Principal occupation is employee and/or officer of Chase. Business address is c/o Chase Manhattan Corporation, 270 Park Avenue, New York, New York 10017. ** Principal occupation is employee of Chase and/or general partner of Chase Capital Partners. Business address is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, NY 10017. 19 CUSIP No. 41043F-208 SCHEDULE B ---------- THE CHASE MANHATTAN CORPORATION EXECUTIVE OFFICERS* ------------------- Walter V. Shipley, Chairman of the Board William B. Harrison, Jr., President and Chief Executive Officer Donald L. Boudreau, Vice Chairman of the Board James B. Lee, Jr., Vice Chairman of the Board Joseph G. Sponholz, Vice Chairman of the Board Denis J. O'Leary, Executive Vice President John J. Farrell, Director, Human Resources Frederick W. Hill, Director Corporate Marketing and Communication William H. McDavid, General Counsel DIRECTORS** ----------- - -------------------------------------------------------------------------------- NAME PRINCIPAL OCCUPATION OR EMPLOYMENT; BUSINESS OR RESIDENCE ADDRESS - -------------------------------------------------------------------------------- Hans W. Becherer Chairman of the Board Chief Executive Officer Deere & Company 8601 John Deere Road Moline, IL 61265 - -------------------------------------------------------------------------------- Frank A. Bennack, Jr. President and Chief Executive Officer The Hearst Corporation 959 Eighth Avenue New York, New York 10019 - -------------------------------------------------------------------------------- Susan V. Berresford President The Ford Foundation 320 E. 43rd Street New York, New York 10017 - -------------------------------------------------------------------------------- M. Anthony Burns Chairman of the Board, President and Chief Executive Officer Ryder System, Inc. 2800 NW 82nd Avenue Miami, Florida 33166 - ---------- * Principal occupation is executive officer and/or employee of The Chase Manhattan Bank. Business address is c/o The Chase Manhattan Bank, 270 Park Avenue, New York, New York 10017. Each executive officer of Chase is a U.S. citizen. ** Each of the persons named below is a citizen of the United States of America 20 CUSIP No. 41043F-208 - -------------------------------------------------------------------------------- NAME PRINCIPAL OCCUPATION OR EMPLOYMENT; BUSINESS OR RESIDENCE ADDRESS - -------------------------------------------------------------------------------- H. Laurence Fuller Co-Chairman of the Board and Chief Executive Officer Amoco Corporation 200 East Randolph Drive Chicago, Illinois 60601 - -------------------------------------------------------------------------------- William H. Gray, III President and Chief Executive Officer The College Fund/UNCF 9860 Willow Oaks Corporate Drive P.O. Box 10444 Fairfax, Virginia 22031 - -------------------------------------------------------------------------------- William B. Harrison, Jr. President and Chief Executive Officer The Chase Manhattan Corporation 270 Park Avenue, 8th Floor New York, New York 10017-2070 - -------------------------------------------------------------------------------- Harold S. Hook Retired Chairman and Chief Executive Officer American General Corporation 2929 Allen Parkway Houston, Texas 77019 - -------------------------------------------------------------------------------- Helene L. Kaplan Of Counsel Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue - Room 29-72 New York, New York 10022 - -------------------------------------------------------------------------------- Thomas G. Labrecque Retired President and Chief Operating Officer The Chase Manhattan Corporation 270 Park Avenue New York, New York 10017 - -------------------------------------------------------------------------------- Henry B. Schacht Director and Senior Advisor E.M. Warburg, Pincus & Co., LLC 466 Lexington Avenue, 10th floor New York, New York 10017 - -------------------------------------------------------------------------------- Walter V. Shipley Chairman of the Board The Chase Manhattan Corporation 270 Park Avenue New York, New York 10017 - -------------------------------------------------------------------------------- Andrew C. Sigler Retired Chairman of the Board and Chief Executive Officer Champion International Corporation One Champion Plaza Stamford, Connecticut 06921 21 CUSIP No. 41043F-208 - -------------------------------------------------------------------------------- John R. Stafford Chairman, President and Chief Executive Officer American Home Products Corporation 5 Giralda Farms Madison, New Jersey 07940 - -------------------------------------------------------------------------------- Marina v.N. Whitman Professor of Business Administration and Public Policy The University of Michigan School of Public Policy 411 Lorch Hall, 611 Tappan Street Ann Arbor, MI 48109-1220 - -------------------------------------------------------------------------------- 22 EXHIBIT INDEX ------------- *1. Stock Exchange Agreement dated February 28, 1989, by and among the Issuer, HAC, Hanger, CVCA and Messrs. Manganiello and Cestaro, including certain exhibits thereto listed separately below. *2. Stockholders' Agreement, dated as of May 15, 1989, by and among the Issuer, CVCA, CEA, Messrs. Manganiello and Cestaro, Gerald E. Bisbee, Jr., Ivan R. Sabel, and Richard A. Stein. *2.1. Amendment No. 1 to Stockholders' Agreement dated as of February 12, 1990. *2.2 Amendment Agreement, dated as of August 13, 1990, between the Issuer, CVCA, CEA, and Messrs. Manganiello, Sabel, Cestaro and Stein, amending for the second time, among other things, the Stockholders' Agreement. *2.3 Stock Forfeiture Memorandum, dated as of October 30, 1990, between the Issuer, CVCA, Exeter, the Bank and Messrs. Manganiello and Cestaro. *2.4 Amendment No. 3 to Stockholders' Agreement, dated as of November 8, 1990. *3. Certificate of Designations, Preferences and Rights of the Issuer's Preferred Stock. *3.1 Restated Certificate of Designations, Preferences and Rights of Issuer's Preferred Stock. *4. Management Incentive Stock Option Plan (Terminated by Exhibit 2.2). *5. Chemical Stock Forfeiture Agreement dated as of May 15, 1989, by and between the Issuer and CVCA (Terminated by Exhibit 2.2). *5.1 Form of Stock Option and Vesting Agreements, each dated as of August 13, 1990, between CVCA on the one hand and each of Messrs. Manganiello, Sabel, Cestaro and Stein on the other hand (filed as Exhibits A-D to Exhibit 2.2 above). *5.2 Stock Option and Vesting Agreements, each dated as of March 14, 1991, between CVCA on the one hand and each of Messrs. Manganiello, Sabel and Stein on the other hand. *5.3 Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of February 20, 1992, by and among CVCA, CEA, Exeter, the Issuer and Messrs. Manganiello, Sabel and Stein. *5.4 Stock Option Agreements, each dated as of May 16, 1994, between CVCA on the one hand and each of Messrs. Manganiello, Sabel and Stein on the other hand. *5.5 Second Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of May 16, 1994, by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. *5.6 Third Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of September 22, 1994, by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. *5.7 Fourth Amendment to Stock Option and Vesting Agreements and Amendments and Amendment Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. - ---------- * Previously filed. 23 *5.8 Fifth Amendment to Stock Option and Vesting Agreements and Amendment Agreement, dated as of October 27, 1995 by and among CVCA, CEA, the Issuer and Messrs. Manganiello, Sabel and Stein. *6. Management Stock Forfeiture Agreement, dated as of May 15, 1989, by and among CVCA and Messrs. Bisbee, Sabel, Stein, Manganiello and Cestaro (Terminated by Exhibit 2.2). *7. Guaranty Agreement, dated as of May 15, 1989, executed by the Issuer and its subsidiaries in favor of CEA. *7.1 First Amendment to Guaranty Agreement dated as of February 12, 1990. *7.2 Second Amendment to Guaranty Agreement, dated as of November 8, 1990. *7.3 Third Amendment to Guaranty Agreement, dated as of March 1, 1991. *7.4 Fourth Amendment to Guaranty Agreement, dated as of March 20, 1991. *7.5 Fifth Amendment to Guaranty Agreement, dated as of February 20, 1992. *8. Registration Agreement dated as of May 15, 1989, by and among the Issuer, CVCA, Bank, and Messrs. Bisbee, Sable, Stein, Manganiello and Cestaro. *8.1 First Amendment to Registration Agreement dated as of February 12, 1990. *8.2 Amended and Restated Registration Rights Agreement dated as of November 8, 1990. *9. The Issuer's Principal Stockholders' Agreement dated as of February 28, 1989, by and among Gerald E. Bisbee, Jr., Ivan R. Sabel, Miles Lerman, Gershon A. Stern, Capital Orthopedics, Inc., Richard A. Stein, and HAC. *10. Agreement dated as of February 28, 1989, by and among the Issuer, Miles Lerman, and Gershon A. Stern. *11. Beneficial Ownership Agreement dated as of May 9, 1989 by and between CVCA and Exeter. *11.1 First Amended and Restated Beneficial Ownership Agreement dated as of March 1, 1990 by and between CVCA and Exeter. *11.2 Amendment Agreement dated as of August 13, 1990, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.3 Amendment Agreement dated as of November 8, 1990, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.4 Amendment Agreement dated as of March 1, 1991, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.5 Amendment Agreement dated as of March 20, 1991, amending among other things, the First Amended and Restated Beneficial Ownership Agreement. *11.6 Stock Purchase Agreement, dated as of June 1, 1991, between CVCA and Exeter. - ---------- * Previously filed. 24 *11.7 Letter Agreement, dated as of February 20, 1992, between CVCA and Exeter. *12. Stock Redemption Agreement dated as of May 15, 1989 by and between CVCA and the Issuer. *13. Letter, dated April 15, 1989, from CVCA to the Issuer. *14. Agreement dated as of May 15, 1989 by and between CVCA and Exeter with respect to filing Schedule 13D. *15. Stock Purchase Agreement dated as of February 12, 1990 by and among the Issuer, CVCA and Messrs. Manganiello, Cestaro, Sabel and Stein. *16. Note and Stock Pledge Agreement dated as of February 12, 1990 between CVCA and Mr. Stein. *17. Warrant Agreement dated as of May 15, 1989 by and among the Issuer, Bank and CVCA. *18. Stock and Note Purchase Agreement, dated as of February 28, 1989, among Hanger, CEA, CVCA and Messrs. Manganiello and Cestaro. *18.1 First Amendment to Stock and Note Purchase Agreement dated as of May 9, 1989. *18.2 Second Amendment to Stock and Note Purchase Agreement dated as of May 15, 1989. *18.3 Third Amendment to Stock and Note Purchase Agreement dated as of February 12, 1990. *18.4 Fourth Amendment to Stock and Note Purchase Agreement dated as of June 19, 1990. *18.5 Fifth Amendment to Stock and Note Purchase Agreement dated as of November 8, 1990, among the previous parties to the Stock and Note Purchase Agreement and the Issuer. *18.6 Sixth Amendment to Stock and Note Purchase Agreement dated March 1, 1991. *18.7 Seventh Amendment to Stock and Note Purchase Agreement dated March 20, 1991. *18.8 Letter Agreement, dated May 31, 1991, between Hanger and CVCA. *18.9 Eighth Amendment to Stock and Note Purchase Agreement dated as of February 20, 1992. *19. Subordination Agreement dated as of May 15, 1989, between the Bank and CEA and acknowledged by the Issuer and each of the Issuer's subsidiaries. *19.1 First Amendment to Subordination Agreement, dated as of February 12, 1990. *19.2 Second Amendment to Subordination Agreement, dated as of June 19, 1990. *19.3 Third Amendment to Subordination Agreement, dated as of November 8, 1990, among the previous parties to the Subordination Agreement and CVCA. *19.4 Fourth Amendment to Subordination Agreement, dated as of March 1, 1991. - ---------- * Previously filed. 25 CUSIP No. 41043F-208 *19.5 Fifth Amendment to Subordination Agreement, dated as of March 20, 1991. *19.6 Sixth Amendment to Subordination Agreement, dated as of February 20, 1992. *20. Warrant, dated as of August 6, 1991, issued by the Company to CVCA. *20.1 Warrant, dated as of August 6, 1991, issued by the Company to Exeter. *21. Form of Warrant, dated as of November 5, 1991, issued by the Company to CVCA. *21.1 Form of Warrant dated as of November 5, 1991, issued by the Company to Exeter. *22. Amendment to Warrants dated as of February 20, 1992, among the Issuer, CVCA and Exeter. *23. Senior Subordinated Note Purchase Agreement dated as of November 1, 1996 between the Issuer, PPI and CVCA. *24. Warrant dated November 1, 1996 issued by the Issuer to CVCA. 25. Certificate of Designations, Preferences, and Rights of the Issuer's 7% Redeemable Preferred Stock. 26. Securities Purchase Agreement dated June 16, 1999, among CEA, the Issuer, and other parties. - ---------- * Previously filed. 26 EX-99.25 2 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS 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. TABLE OF CONTENTS Article I Number of Shares and Designations....................................1 Article II Definitions.........................................................1 Article III Voting Rights.....................................................10 3.1. General.............................................................10 3.2. Special Election of Directors.......................................10 3.3. Protective Provisions...............................................11 3.4. Covenants in Related Documents......................................13 Article IV Dividends and Distributions........................................13 4.1. Cumulative Dividends................................................13 4.2. Restrictions on Dividends, Etc......................................14 4.3. Participating Dividends.............................................14 Article V Liquidation.........................................................15 5.1. Redeemable Preferred Stock..........................................15 5.2. Additional Payments.................................................15 5.3. Insufficient Funds..................................................15 Article VI Redemption.........................................................15 6.1. Change of Control...................................................15 6.2. Redemption of Redeemable Preferred Stock at Corporation's Option....18 6.3. Mandatory Redemption................................................18 6.4. Redemption at Holder's Option.......................................19 6.5. Warrants............................................................20 6.6. Additional Payments.................................................21 Article VII Conversion........................................................21 7.1. Optional Conversion.................................................21 7.2. Mandatory Conversion................................................22 7.3. Adjustment of Conversion Price......................................22 7.4. Mechanics...........................................................27 7.5. Reservation of Shares...............................................28 Article VIII Certain Regulatory Matters.......................................29 CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF 7% REDEEMABLE PREFERRED STOCK -------------------------- Pursuant to Section 151 of 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 (the "Corporation"), hereby certifies that the following resolution was duly adopted by the Board of Directors of the Corporation as required by Section 151 of the Delaware General Corporation Law at a meeting duly called and held on June 23, 1999. RESOLVED, that a series of the class of authorized preferred stock, $.01 par value per share, of the Corporation is hereby created and that the designations, powers, preferences and relative, participating optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are hereby fixed as follows: Article I Number of Shares and Designations 60,000 of the shares of the Corporation's preferred stock, $.01 par value per share, are hereby designated 7% Redeemable Preferred Stock. Article II Definitions As used herein, the following capitalized terms have the following meanings: "Affiliate" means, with respect to any Person, (a) a director, officer, member or general partner of such Person or any Person identified in clause (c) below, (b) a spouse, parent, sibling or descendant of such Person (or a spouse, parent, sibling or descendant of any director or officer of such Person or the general partner or managing member of such Person) and (c) any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For the purpose of the above definition, the term "control" (including, with correlative meaning, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Securities, by contract or otherwise. "Affiliate Transaction" has the meaning ascribed to it in Section 3.3. "Amended Charter" means the Amended and Restated Certificate of Incorporation, as amended by the Charter Amendment. "Applicable Dividend Rate" means 7% per annum; provided that the Applicable Dividend Rate shall be automatically increased to 10% per annum from and after the occurrence of an Event of Non-Compliance until such time as such Event of Non-Compliance shall have been cured or shall otherwise cease to exist. "Applicable Law" means, with respect to any Person, all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to such Person or any of its assets or property or to which such Person or any of its assets or property is subject, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which such Person is a party or by which it or any of its assets or properties is or may be bound or subject. "By-laws" means the By-laws of the Corporation, as amended and in effect from time to time. "Board" and "Board of Directors" means the Board of Directors of the Corporation. "Certificate of Designations" means a certificate of designations, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions filed by the Corporation with respect to any of its Securities. "Change of Control" has the meaning ascribed to the term "Change of Control" in the Indenture. "Change of Control Offer" has the meaning ascribed to it in Section 6.1(a). "Change of Control Purchase Price" has the meaning ascribed to it in Section 6.1(a). "Change of Control Payment Date" has the meaning ascribed to it in Section 6.1(b). "Charter Amendment" means the amendment to the Corporation's certificate of incorporation, in substantially the form attached as Exhibit B to the Securities Purchase Agreement, together with such changes as the parties to the Securities Purchase Agreement may agree. "Chase" means Chase Equity Associates, L.P., a California limited partnership. "Common Stock" means shares of Voting Common Stock, Non-Voting Common Stock and all other classes of capital stock of the Corporation hereafter authorized that are not limited to a fixed sum or percentage of par or stated value in respect to the rights of the holders thereof to participate in dividends or in the distribution of assets upon any liquidation, dissolution or winding up of the Corporation; provided that, the Redeemable Preferred Stock shall not be deemed to be Common Stock. 2 "Common Stock Equivalents" means all shares of Common Stock outstanding, all shares of Common Stock issuable (without regard to any present restrictions on such issuance) upon the conversion, exchange or exercise of all Securities of the Corporation that are convertible, exchangeable or exercisable for Common Stock and all Common Stock appreciation rights, phantom Common Stock rights and other rights to acquire, or to receive or be paid an amount based on the value (less any exercise, conversion or purchase price) of, the Common Stock. With respect to the Redeemable Preferred Stock, as of any date, "Common Stock Equivalents" means the shares of Common Stock issuable in accordance with this Certificate of Designations upon the conversion of all of the outstanding shares of Redeemable Preferred Stock on such date (calculated by assuming that the Convertibility Effective Date had occurred and that such shares of Redeemable Preferred Stock were converted into shares of Non-Voting Common Stock which were then immediately converted into shares of Voting Common Stock). "Common Stock Rights" means options, rights, warrants or other rights to acquire shares of Common Stock or Securities directly or indirectly convertible into, exercisable for or otherwise entitling any Person to receive any shares of Common Stock. "Conversion Price" means $15.50, subject to adjustment in accordance with Section 7.3. "Convertibility Effective Date" means the first date on which (a) the Corporation shall have obtained the approval of its stockholders for the effectiveness of the convertibility of shares of Redeemable Preferred Stock into shares of Non-Voting Common Stock in accordance with Article VII, (b) the Charter Amendment shall have become effective in accordance with the laws of the State of Delaware and (c) the Corporation shall have delivered to the Holders of the Redeemable Preferred Stock notice of its election to have the Redeemable Preferred Stock become convertible in accordance with Article VII. "Corporation" has the meaning ascribed to it in the first paragraph of this Certificate of Designations. "Corporation Redemption" has the meaning ascribed to it in Section 6.2(a). "Corporation Redemption Notice" has the meaning ascribed to it in Section 6.2(a). "Corporation Redemption Date" has the meaning ascribed to it in Section 6.2(a). "Dividend Accrual Period" means, with respect to a share of Redeemable Preferred Stock, (i) the initial period from and including the Original Issuance Date of such share to but excluding the first Dividend Payment Date occurring after such Original Issuance Date, (ii) a period from and including each Dividend Payment Date to but excluding the next succeeding Dividend Payment Date while such share remains outstanding and (iii) the final period ending on, but excluding, the date such share ceases to be outstanding and beginning on, and including, the Dividend Payment Date immediately preceding such date. "Dividend Payment Date" means each March 31, June 30, September 30 and December 31, commencing September 30, 1999. 3 "Equity Incentive Plans" means any stock option, issuance, appreciation rights or other equity incentive plan; provided, however, that the maximum number of shares of Common Stock Equivalents issuable thereunder shall not exceed 2,362,013 shares and equivalents (subject to pro rata adjustment in the event of any stock dividend or distribution paid in shares of Common Stock or any stock split or subdivision, reverse stock split or combination or other similar pro rata recapitalization event affecting the Common Stock). "Event of Non-Compliance" means any one of the following events, occurrences or conditions: (i) any failure by the Corporation, after the fifth anniversary of the Original Issuance Date, to (A) pay on each of two consecutive Dividend Payment Dates the full amount of cash dividends accrued on the Redeemable Preferred Stock for the Dividend Accrual Period ending on such Dividend Payment Date or (B) declare and set aside funds on the Preferred Record Date for the payment of the full amount of cash dividends that will be accrued on the Redeemable Preferred Stock for the then current Dividend Accrual Period if the Corporation failed to pay the full amount of cash dividends accrued on the Redeemable Preferred Stock for the Dividend Accrual Period ending on the immediately preceding Dividend Payment Date; (ii) any failure by the Corporation to perform or comply in any respect with any term, provision or covenant contained in any Related Document and, with respect to any such failure that can be remedied or cured, ten days shall have elapsed after the time that the Corporation becomes aware of such failure; (iii) any representation or warranty made by the Corporation in any Certificate of Designations or in any Related Document proves to have been false or incorrect or misleading in any material respect at the time made; (iv) the Corporation or any of its Significant Subsidiaries shall (A) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency or similar law, (B) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (C) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for any such Person or for any substantial part of its property or assets, (D) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (E) make a general assignment for the benefit of creditors, (F) fail generally to pay its debts as they become due or (G) take any action in furtherance of any of the foregoing; (v) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (A) relief in respect of the Corporation or any of its Significant Subsidiaries, or of any substantial part of their respective property or assets, under Title 11 of the United States Code or any other federal, state or foreign bankruptcy, insolvency or similar law, (B) the appointment of a receiver, trustee, custodian, sequestrator or similar official for any such Person or for any substantial part of its property or (C) the winding-up or liquidation of any such Person, 4 and such proceeding, petition or order shall continue unstayed and in effect for a period of 30 consecutive days; (vi) the Corporation fails to redeem any share of Redeemable Preferred Stock on the Corporation Redemption Date, the Mandatory Redemption Date or any other applicable redemption date (without giving effect to Section 6.4(e)); or (vii) a final judgment for the payment of money in an amount in excess of $5 million shall be rendered by a court or other tribunal against the Corporation or any of its Subsidiaries and shall remain undischarged for a period of 30 consecutive days during which such judgment and any levy or execution thereof shall not have been effectively stayed or vacated. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force. "Fair Value" means with respect to (i) any Security that is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the-counter market or (ii) any property or assets other than cash or Securities, the fair value thereof determined in good faith jointly by the Corporation and the Requisite Senior Holders; provided, however, that, if the parties are not able to agree within a reasonable period of time (not to exceed thirty (30) days) what amount constitutes Fair Value, then the Fair Value will be determined pursuant to the Valuation Procedure. "Governmental Authority" shall mean any Federal, state, municipal or other government, governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any political subdivision thereof, or of any other country. "Holder Redemption" has the meaning ascribed to it in Section 6.3. "Holder Redemption Date" has the meaning ascribed to it in Section 6.3. "Holder Redemption Price" means, at any time, for each outstanding share of Redeemable Preferred Stock, the product of the Market Price of a share of Voting Common Stock multiplied by the number of Common Stock Equivalents issuable upon conversion of such share of Redeemable Preferred Stock assuming that the Convertibility Effective Date had occurred prior to such time. "Holders" means the holders of shares of the Redeemable Preferred Stock and/or the Non-Voting Common Stock, as the context shall require. "Holders Director Election Notice" has the meaning ascribed to it in Section 3.2(d). "Holders Director Removal Notice" has the meaning ascribed to it in Section 3.2(d). 5 "Indebtedness" has the meaning ascribed to it in the Indenture; provided, however, that Indebtedness shall not include any shares of capital stock of the Corporation or any of its Subsidiaries. "Indenture" means the Indenture dated as of June 16, 1999, among the Corporation and the other signatories thereto governing the Corporation's 11 1/4 % Senior Subordinated Notes, as such Indenture is in effect on the Original Issuance Date. "Investor Rights Agreement" means the Investor Rights Agreement dated as of the Original Issuance Date, among the Corporation and the other parties named therein, as amended, modified or supplemented from time to time. "Junior Stock" means all shares of capital stock ranking junior to the Redeemable Preferred Stock with respect to dividends or a Liquidation. "Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest of any kind whatsoever in or on such asset (including the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction), (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of Securities, any purchase option, call, appreciation right or similar right of a third party with respect to such Securities. "Liquidation" means any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation. "Liquidation Amount" means with respect to each share of Redeemable Preferred Stock, the Original Cost of such share plus an amount equal to all accrued and unpaid dividends on such share, whether or not declared. "Mandatory Redemption" has the meaning ascribed to it in Section 6.3. "Mandatory Redemption Date" means the eleventh anniversary of the Original Issuance Date. "Market Price" means, as to any Security, the average of the closing prices of such Security's sales on the New York Stock Exchange and on all other United States securities exchanges on which such Security is at the time listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such Security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such Security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar or successor organization, in each such case averaged over a period of 21 days consisting of the day as of which "Market Price" is being determined and the 20 consecutive trading days prior to such day. With respect to any Security that is not listed on any domestic securities exchange or 6 quoted in the NASDAQ System or the domestic over-the-counter market, the "Market Price" of such Security shall be the Fair Value thereof. "Minimum Price Event" means, on any date after the third anniversary of the Original Issuance Date, that the Market Price of the Voting Common Stock as of such date is equal to or greater than 175% of the Conversion Price in effect on such date (without giving effect to any adjustment pursuant to the second sentence of Section 7.3(a)). "Non-Voting Common Stock" means shares of the Corporation's Non-Voting Common Stock, par value $.01 per share, to be authorized by the Corporation pursuant to the Charter Amendment. "Original Cost" means, with respect to any share of Redeemable Preferred Stock, as of any particular date, the amount originally paid for such share when it was originally issued. In the event of any change (by way of any recapitalization, subdivision or recombination) in the number or kind of shares of Redeemable Preferred Stock, the Original Cost immediately prior to such change shall be ratably adjusted. "Original Issuance Date" means, with respect to a share of Redeemable Preferred Stock, the date on which such share was first issued. "Paribas" means Paribas North America, Inc. "Person" shall be construed broadly and shall include without limitation an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a Governmental Authority. "Preferred Record Date" has the meaning ascribed to it in Section 4.1. "Public Offering" means an offering of shares of Voting Common Stock in an underwritten offering registered under the Securities Act. "Put Effective Date" has the meaning ascribed to it in Section 6.4(a). "Put Right" has the meaning ascribed to it in Section 6.4(a). "Redeemable Preferred Stock" means the Corporation's 7% Redeemable Preferred Stock. "Regulated Stockholder" means Chase, Paribas and any other Person (i) that is subject to the provisions of Regulation Y of the Board of Governors of the Federal Reserve System, 12 C.F.R. Part 225 (or any successor to such Regulation) ("Regulation Y"), (ii) that holds equity Securities of the Corporation and (iii) has given written notice to the Corporation that such Person is a Regulated Stockholder. "Related Documents" means, collectively, the Securities Purchase Agreement, the Investor Rights Agreement, this Certificate of Designations, the Certificate of Incorporation of the Corporation in effect on the date hereof, the Amended Charter and the By-laws. 7 "Relinquishing Holder" means Paribas and its transferees and any other Holder of a share of Redeemable Preferred Stock that delivers a written notice to the Corporation to the effect that such Holder elects not to be entitled to vote with respect to any matter referred to in Section 3.2 or Section 3.3(c). "Requisite Senior Holders" means the Holders of a majority of the outstanding shares of Redeemable Preferred Stock at the time in question. "Sale of the Corporation" means (i) the sale of all or substantially all of the Corporation's assets, (ii) the sale or transfer of the outstanding capital stock of the Corporation or (iii) the merger or consolidation of the Corporation with or into another Person, in each case, in one or a series of related transactions, and in clauses (ii) and (iii) above, under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Corporation, immediately prior to such transaction, own less than a majority in voting power of the outstanding capital stock of the Corporation or the surviving or resulting corporation or acquirer, as the case may be, immediately following such transaction. A sale (or multiple related sales) of one or more Subsidiaries of the Corporation (whether by way of merger, consolidation, reorganization or sale of all or substantially all assets or Securities) which constitutes all or substantially all of the consolidated assets of the Corporation shall be deemed a Sale of the Corporation. "Securities" means "securities" as defined in Section 2(1) of the Securities Act. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force. "Securities Purchase Agreement" means the Securities Purchase Agreement dated as of June 16, 1999, between the Corporation and the Holders named therein, as amended from time to time. "Significant Subsidiary" means, with respect to any Person, any Subsidiary of such Person that satisfies the criteria for a "significant subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Exchange Act. "Subsidiary" of any Person means any other Person (i) whose Securities having a majority of the general voting power in electing the board of directors or equivalent governing body of such other Person (excluding Securities entitled to vote only upon the failure to pay dividends thereon or the occurrence of other contingencies) are, at the time as of which any determination is being made, owned by such Person either directly or indirectly through one or more other entities constituting subsidiaries or (ii) more than a 50% interest in the profits or capital of whom is, at the time as of which any determination is being made, owned by such Person either directly or indirectly through one or more other entities constituting subsidiaries. "Valuation Procedure" means the following procedure to determine the Fair Value (the "valuation amount"). The valuation amount shall be determined by an Appraiser selected by the Requisite Senior Holders, and set forth in a written notice delivered to the Corporation (the "appraiser selection notice"); provided that the Corporation may object to such Appraiser by 8 delivering a written notice of such objection to each Holder of shares of Redeemable Preferred Stock (the "appraiser objection notice"). If the Corporation does not deliver an appraiser objection notice within 10 days after delivery by the Requisite Senior Holders of the appraiser selection notice, then the Appraiser set forth in the appraiser selection notice shall be the Appraiser. If the Corporation delivers an appraiser objection notice, then the Appraiser will be selected by an arbitrator located in the City of New York, New York, selected by the American Arbitration Association (or if such organization ceases to exist, the arbitrator shall be chosen by a court of competent jurisdiction). The arbitrator shall select the Appraiser (within ten (10) days of its appointment) from a list, jointly prepared by the Corporation and the Requisite Senior Holders, of not more than six Appraisers of national standing in the United States, of which no more than three may be named by the Corporation and no more than three may be named by the Requisite Senior Holders. The arbitrator may consider, within the ten-day period allotted, arguments from the parties regarding which Appraiser to choose, but the selection by the arbitrator shall be made in its sole discretion from the list of six. The Corporation and the Requisite Senior Holders shall submit to the Appraiser their respective calculations of the valuation amount, and any supporting arguments and other data as they may desire, within 30 days of the appointment of the Appraiser, and the Appraiser shall as soon as practicable thereafter make its own calculation of the valuation amount. The final valuation amount for purposes hereof shall be the average of the two valuation amounts closest together, as determined by the Appraiser, from among the valuation amounts submitted by the Corporation and the Requisite Senior Holders and the valuation amount calculated by the Appraiser. The determination of the final valuation amount by such Appraiser shall be final and binding upon the parties. The Corporation shall pay the fees and expenses of the Appraiser and arbitrator (if any) used to determine the valuation amount. If required by any such Appraiser or arbitrator, the Corporation shall execute a retainer and engagement letter containing reasonable terms and conditions, including, without limitation, customary provisions concerning the rights of indemnification and contribution by the Corporation in favor of such investment banking firm or arbitrator and its officers, directors, partners, employees, agents and Affiliates. As used herein, "Appraiser" means (a) with respect to a determination of the Market Price of a Security, an investment banking firm experienced in the industry in which the Corporation participates and (b) with respect to a determination of any other valuation amount, a firm of the type generally considered to be qualified in making determinations of the type required. "Voting Common Stock" means the Corporation's Common Stock, par value $.01 per share. "Voting Securities" of a Person means all classes of capital stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. 9 Article III Voting Rights 3.1. General. Except as may be required by law or as otherwise provided below, the Holders of shares of Redeemable Preferred Stock shall not be entitled to vote on any matter to be voted on by the stockholders of the Corporation, including any vote to elect directors of the Corporation. 3.2. Special Election of Directors. From and after the occurrence of an Event of Non-Compliance, the Holders of Redeemable Preferred Stock (other than the Relinquishing Holders) shall have the exclusive and special right, voting together as a single class, but separately from all other classes of capital stock, to elect two directors to the Board. One of such directors shall be entitled to serve on each committee of the Board. The Corporation shall take all necessary and desirable actions in connection with and in furtherance of such rights. Without limiting the generality of the foregoing, the following procedures shall apply: (a) At such time as the Holders of shares of Redeemable Preferred Stock (other than the Relinquishing Holders) have the right to elect directors as provided in this Section 3.2, the size of the Board shall be automatically increased by two directors. (b) The Holders of Redeemable Preferred Stock (other than the Relinquishing Holders) may exercise their rights pursuant to this Section 3.2 at a special meeting of such Holders or by delivering a notice to the Corporation, at any annual meeting of shareholders or by written consent in accordance with the laws of the State of Delaware. (c) At any time when the Holders of shares of Redeemable Preferred Stock (other than the Relinquishing Holders) have the right to elect directors as provided in this Section 3.2, upon delivery of a written request by any Holder of Redeemable Preferred Stock (other than the Relinquishing Holders), the President, any Vice President, the Secretary or any Assistant Secretary of the Corporation shall call a special meeting of the Holders of shares of Redeemable Preferred Stock for the purpose of electing directors. Such meeting shall be held at the earliest practicable date at the principal executive office of this Corporation or at such other location as the Holder(s) of Redeemable Preferred Stock (other than the Relinquishing Holders) submitting a written request shall designate. At any meeting held for the purpose of electing directors at which the Holders of Redeemable Preferred Stock (other than the Relinquishing Holders) shall have the right to elect two directors as provided in this Section 3.2, the presence, in person or by proxy, of the holders of a majority of the number of shares of Redeemable Preferred Stock at the time outstanding (excluding those shares held by the Relinquishing Holders) shall be required to constitute a quorum of such class for the election of any director by the Holders of the Redeemable Preferred Stock (other than the Relinquishing Holders) as a class. (d) During any period that the Holders of shares of Redeemable Preferred Stock (other than the Relinquishing Holders) shall have the right to vote as a class for directors as provided in this Section 3.2, (i) each director so elected shall hold office until such Holders elect a successor 10 director but in no event beyond the termination of the right of the Holders of shares of Redeemable Preferred Stock (other than the Relinquishing Holders) to vote as a class to elect directors and (ii) any vacancies in the Board so elected by the Holders of shares of Redeemable Preferred Stock (other than the Relinquishing Holders) shall be filled only by a vote of a majority (which majority may consist of only a single director) of the remaining directors thereof elected by the Holders of shares of Redeemable Preferred Stock or may be filled by the vote of holders of a majority of the number of shares of Redeemable Preferred Stock at the time outstanding (excluding those shares held by the Relinquishing Holders). (e) Upon the Corporation becoming aware of the occurrence of an Event of Non-Compliance, it will deliver a notice to each Holder of Redeemable Preferred Stock. 3.3. Protective Provisions. (a) For so long as any shares of Redeemable Preferred Stock are outstanding, without first obtaining the affirmative written consent or approval of the Requisite Senior Holders, the Corporation shall not, and shall not permit any Subsidiary to: (i) in any manner authorize, create, designate, issue or sell any shares of any class or series of capital stock of the Corporation (including any shares of treasury stock) or rights, options, warrants or other Securities convertible into or exercisable or exchangeable for capital stock or any debt Security which by its terms is convertible into or exchangeable for any equity Security or has any other equity feature or any Security that is a combination of debt and equity, which, in each case, as to the payment of dividends, distribution of assets or redemptions, including, without limitation, distributions to be made upon a Liquidation, is senior to or on a parity with the Redeemable Preferred Stock or which in any manner adversely affects the Holders of Redeemable Preferred Stock; (ii) in any manner alter or change the terms, designations, powers, preferences, or the qualifications, limitations or restrictions, of the Redeemable Preferred Stock or the relative, participating, optional or other special rights of the Holders of the Redeemable Preferred Stock in their capacity as such; (iii) reclassify the shares of any class or series of capital stock of the Corporation into shares of any other class or series of capital stock (i) ranking, either as to payment of dividends, distributions of assets or redemptions, including, without limitation, distributions to be made upon a Liquidation, senior to or on a parity with the Redeemable Preferred Stock or (ii) which in any manner adversely affects the terms, designations, powers or preferences of the Redeemable Preferred Stock or the relative, participating, optional or other special rights of the Holders of Redeemable Preferred Stock in their capacity as such; (iv) amend, alter or repeal any of the provisions of (i) this Certificate of Designations, (ii) the Certificate of Incorporation of the Corporation (as amended, modified or restated from time to time) or (iii) the By-laws of the Corporation, if such amendment, alteration or repeal would have an adverse effect on the terms, designations, 11 powers, preferences of the Redeemable Preferred Stock or the relative, participating, optional or other special rights of the Holders of the Redeemable Preferred Stock in their capacity as such; (v) agree to or permit to exist, or permit any Subsidiary to agree to or permit to exist, any provision in any agreement or understanding that would impose any restriction on the ability of the Corporation to honor the exercise of any rights of the Holders of the Redeemable Preferred Stock, other than limitations contained in the Indenture and the Credit Agreement on the Corporation's ability to make payments pursuant to Section 6.4; (vi) agree or otherwise commit to take any of the actions set forth above. (b) For so long as any shares of Redeemable Preferred Stock are outstanding, the Corporation shall not take any of the actions set forth in Section 3.3(a) in a manner that treats any Holder of a share of Redeemable Preferred Stock different in any material respect from any other Holder without first obtaining the prior written consent of such other Holder. (c) For so long as any shares of Redeemable Preferred Stock are outstanding, without first obtaining the affirmative written consent or approval of the holders of a majority of the number of shares of Redeemable Preferred Stock at the time outstanding (other than the Relinquishing Holders), the Corporation shall not, and shall not permit any Subsidiary to: (i) permit any Subsidiary to issue any capital stock to any Person other than the Corporation or a direct or indirect wholly owned Subsidiary of the Corporation; (ii) enter into or permit to exist any transaction or series of related transactions, including, without limitation, any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with or for the benefit of any Affiliate of the Company (an "Affiliate Transaction"), unless such Affiliate Transaction is permitted by the terms and conditions of the Indenture; provided that in lieu of delivering to the Trustee (as defined in the Indenture) a favorable opinion as to the fairness to the Corporation of any such Affiliate Transaction, the Holders of Redeemable Preferred Stock shall have received a copy of such opinion; (iii) directly or indirectly create, incur, assume, guarantee, acquire, become liable, contingently or otherwise, with respect to, or otherwise become responsible for payment of Indebtedness which is not permitted by the terms and conditions of the Indenture; (iv) merge, consolidate or amalgamate with any Person, except that any wholly-owned Subsidiary of the Corporation may be merged or consolidated with or into any Person in connection with any acquisition permitted under Section 3.3(j); (v) acquire or dispose of any business or assets in a single transaction or a series of related transactions with an aggregate value in such transaction or series of 12 related transactions in excess of $100 million (including all assumed debt, all cash payments, and the fair market value of all Securities or other property issued as consideration); (vi) engage in any business other than one or more of the businesses in which the Corporation or any of its Subsidiaries are engaged in on the Original Issuance Date or any business reasonably related thereto; (vii) effect, approve or authorize any Liquidation or any recapitalization or reorganization of the Company or any Subsidiary; or (viii) agree or otherwise commit to take any of the actions set forth above. 3.4. Covenants in Related Documents. For so long as any shares of Redeemable Preferred Stock are outstanding, the Corporation shall, and, if applicable, shall cause each of its Subsidiaries to, comply with and perform its obligations under each Related Document. Article IV Dividends and Distributions 4.1. Cumulative Dividends. (a) During each Dividend Accrual Period, dividends shall accrue on a daily basis at the Applicable Dividend Rate on the Liquidation Amount as of the beginning of the Dividend Accrual Period. Accrued dividends shall be payable in cash, on each Dividend Payment Date, when, as, and if declared by the Board of Directors of the Corporation, out of funds legally available for that purpose, to the Holders of Redeemable Preferred Stock, before any dividends shall be declared and paid or set aside for any Junior Stock. Dividends shall accrue and compound at the Applicable Dividend Rate regardless of whether the Board of Directors of the Corporation has declared a dividend payment or whether there are any profits, surplus or other funds of the Corporation legally available for dividends. Any dividends which accrue pursuant to this Section 4.1 during a Dividend Accrual Period and which shall not have been paid shall be classified as "accrued dividends" and shall remain "accrued and unpaid dividends" until paid or otherwise canceled pursuant to this Certificate of Designations. (b) Any accrued dividends that are not paid in cash on the applicable Dividend Payment Date and all accrued dividends on such accrued but unpaid dividends shall not be payable thereafter in cash and, instead, shall be added to the Liquidation Amount. Dividends on each share of Redeemable Preferred Stock shall accrue pursuant to this Section 4.1 from and including the Original Issuance Date to, but excluding, the date such share is redeemed in full and all accrued but unpaid dividends thereon are also paid in full or such share is fully converted into shares of Non-Voting Common Stock pursuant to Article VII. Upon conversion of any share of Redeemable Preferred Stock, all accrued and unpaid dividends on such share of Redeemable Preferred Stock shall be canceled. All payments due under this Section to any Holder shall be made to the nearest cent. The dividends payable with respect to the Redeemable Preferred Stock 13 on each Dividend Payment Date shall be paid to the Holders of shares of the Redeemable Preferred Stock as they appear on the stock records of the Corporation on such date (the "Preferred Record Date") as shall be fixed by the Board of Directors, which Preferred Record Date shall be not more than 60 days prior to the applicable Dividend Payment Date and shall not precede the date upon which the resolution fixing such Preferred Record Date is adopted. 4.2. Restrictions on Dividends, Etc. (a) For so long as any shares of Redeemable Preferred Stock are outstanding, the Corporation shall not (i) pay, declare or set funds apart for payment of, any dividend or make any other distribution or other payment on or with respect to any Junior Stock or (ii) redeem, repurchase, retire or otherwise acquire any Junior Stock, any Securities convertible into or exchangeable or exercisable directly or indirectly for Junior Stock or any appreciation, phantom or other similar rights to receive payment based on the value of the Common Stock; except (A) repurchases and redemptions of shares of Redeemable Preferred Stock and shares of Common Stock in accordance with the terms hereof and of the Amended Charter, as applicable, (B) dividends payable solely in shares of the class or series upon which such dividends are declared or paid, (C) dividends payable in shares of Common Stock with respect to any such Junior Stock, together with cash in lieu of fractional shares or (D) if there are no accrued and unpaid dividends in respect of any shares of Redeemable Preferred Stock for the then current Dividend Accrual Period, dividends or distributions to holders of Junior Stock or redemptions or repurchases of shares of Junior Stock to the extent that, after giving effect to prior or concurrent dividend payments with respect to the Redeemable Preferred Stock, such dividends, distributions, redemptions or repurchases are permitted under the Indenture. (b) No dividend or distribution shall be paid to the Holders of Redeemable Preferred Stock in any form of consideration other than cash unless the Requisite Senior Holders at the time of the distribution, approve such distribution (including the valuation of the consideration being distributed). (c) If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Redeemable Preferred Stock, such payment shall be distributed ratably among the Holders of the Redeemable Preferred Stock according to the respective amounts which would be payable with respect to the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. 4.3. Participating Dividends. In addition to all dividends payable pursuant to Section 4.1, whenever the Corporation shall declare or pay any cash dividends on its Common Stock, at the option of the Corporation, the Holders of the Redeemable Preferred Stock shall be entitled to receive such dividends on a ratable basis based upon the Common Stock Equivalents issuable, directly or indirectly, in respect of the Redeemable Preferred Stock. Dividends payable pursuant to this Section 4.3 shall not reduce any dividends payable pursuant to Section 4.1. If the Corporation shall exercise its option not to declare or pay any dividend pursuant to the first sentence of this Section 4.3, the amount of such dividend which should have been declared or paid to the Holders of Redeemable 14 Preferred Stock will be included in the Missed Dividend Amount (in addition to all non-cash dividends). Article V Liquidation 5.1. Redeemable Preferred Stock. (a) In the event of any Liquidation occurring prior to the Convertibility Effective Date, before any payment shall be made to the holders of any Junior Stock, the Holders of shares of Redeemable Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders an amount per share equal to the greater of (i) the Liquidation Amount and (ii) the Holder Redemption Price. (b) In the event of any Liquidation occurring after the Convertibility Effective Date, before any payment shall be made to the holders of any Junior Stock, the Holders of shares of Redeemable Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to its stockholders an amount per share equal to the greater of (i) the Liquidation Amount and (ii) the amount that such Holder would have received, calculated by assuming such share was converted into shares of Non-Voting Common Stock immediately prior to such Liquidation. 5.2. Additional Payments. In the event of any Liquidation, before any payment shall be made to the holders of any Junior Stock, the former Holders of shares of Redeemable Preferred Stock that has been redeemed pursuant to Section 6.2 or Section 6.3 shall be entitled to receive the amounts payable to them pursuant to Section 6.6. 5.3. Insufficient Funds. If, upon any Liquidation, the assets of the Corporation available for distribution shall be insufficient to pay the Persons entitled to receive the full amount to which such Persons are entitled to receive pursuant to Section 5.1 and Section 5.2, then such Persons shall share ratably in any distribution of assets according to the respective amounts which would be payable to such Persons upon such distribution with respect to the amounts payable to such Persons pursuant to such Sections. Article VI Redemption 6.1. Change of Control. (a) Upon the occurrence of a Change of Control, the Corporation shall be obligated to make, in accordance with the procedures set forth in this Section 6.1, an offer to purchase (the "Change of Control Offer") the outstanding Redeemable Preferred Stock on the terms and conditions set forth in this Section 6.1 for a price per share equal to 101% of the Liquidation 15 Amount thereof as of the Change of Control Payment Date (the "Change of Control Purchase Price"). (b) Within 30 days of the occurrence of a Change of Control, the Corporation shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to each Holder of Redeemable Preferred Stock, at the address appearing in the register maintained by or on behalf of the Corporation, a notice stating: (i) that the Change of Control Offer is being made pursuant to this Section 6.1 and that all shares of Redeemable Preferred Stock validly tendered will be accepted for payment; (ii) the Change of Control Purchase Price and the purchase date (which shall be a business day not earlier than 30 days nor later than 60 days from the date such notice is mailed (the "Change of Control Payment Date")); (iii) that any share of Redeemable Preferred Stock not validly tendered will continue to accrue dividends; (iv) that, unless the Corporation defaults in the payment of the Change of Control Purchase Price therefor, any share of Redeemable Preferred Stock accepted for payment pursuant to the Change of Control Offer shall cease to accrue dividends on the Change of Control Payment Date; (v) that Holders accepting the offer to have their Redeemable Preferred Stock purchased pursuant to a Change of Control Offer will be required to surrender their certificates representing shares of Redeemable Preferred Stock to the Corporation at the address specified in the notice prior to the close of business on the business day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their acceptance if the Corporation receives, not later than the close of business on the third business day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the number of shares of Redeemable Preferred Stock delivered for purchase, and a statement that such Holder is withdrawing its election to have such Redeemable Preferred Stock purchased; (vii) that Holders whose Redeemable Preferred Stock is being purchased only in part will be issued new certificates representing the number of shares of Redeemable Preferred Stock equal to the unpurchased portion of the certificates surrendered; and (viii) any other procedures that a Holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance. (c) The Corporation will comply with any securities laws and regulations, to the extent such laws and regulations are applicable to the purchase of the Redeemable Preferred Stock in 16 connection with a Change of Control Offer. Without limiting the foregoing, in the event that a Change of Control occurs and the Holders of Redeemable Preferred Stock exercise their right to require the Corporation to purchase Redeemable Preferred Stock, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time, the Corporation will comply with the requirements of Rule 14e-1 as then in effect with respect to such purchase. (d) On the Change of Control Payment Date, the Corporation shall, to the extent lawful, (i) accept for payment the number of shares of Redeemable Preferred Stock validly tendered pursuant to the Change of Control Offer and (ii) promptly mail to each Holder of shares so accepted the Change of Control Purchase Price therefor and execute and issue a new Redeemable Preferred Stock certificate representing the number of shares of Redeemable Preferred Stock equal to any unpurchased shares represented by a certificate surrendered. Unless the Corporation defaults in the payment for the shares of Redeemable Preferred Stock accepted for payment pursuant to the Change of Control Offer, dividends shall cease to accrue with respect to shares of Redeemable Preferred Stock so accepted and all rights of Holders of such tendered shares shall terminate, except for the right to receive payment therefor, on the Change of Control Payment Date. (e) If any restriction or limitation contained in any agreement or instrument evidencing or governing any Indebtedness of the Corporation or any of its Subsidiaries would prevent the Corporation from making a Change of Control Offer or paying the applicable Change of Control Purchase Price (including any limitation on dividends or distributions by Subsidiaries), then, upon a Change of Control, prior to the mailing of the notice to Holders described in Section 6.1(b) above, but in any event within 30 days following any Change of Control, to the extent required to permit the purchase of Redeemable Preferred Stock pursuant to this Section 6.1, the Corporation shall be required to (i) cause the obligors thereunder to repay in full all obligations under such Indebtedness or (ii) cause such obligors to obtain the requisite consent from the holders of such Indebtedness to permit the purchase of the Redeemable Preferred Stock as described above and the transactions contemplated hereunder. (f) (i) If the Corporation has issued any outstanding Junior Stock, and the Corporation is required to make a Change of Control Offer or to make a distribution with respect to such Junior Stock in the event of a Change of Control, the Corporation shall not consummate any such offer or distribution with respect to such Junior Stock until such time as the Corporation shall have paid the applicable Change of Control Purchase Price in full to the Holders of Redeemable Preferred Stock that have validly accepted the Corporation's Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to Holders of the Redeemable Preferred Stock and (ii) the Corporation will not issue Junior Stock with change of control provisions requiring the payment of such Junior Stock prior to the payment of the Redeemable Preferred Stock in the event of a Change of Control under this Section 6.1. (g) The Corporation will not be required to make a Change of Control Offer upon a Change of Control if a third party makes such Change of Control Offer contemporaneously with or upon a Change of Control in the manner, at the times and otherwise in compliance with the requirements of this Section 6.1 and purchases all Redeemable Preferred Stock validly tendered and not withdrawn under such Change of Control Offer. 17 6.2. Redemption of Redeemable Preferred Stock at Corporation's Option. (a) At any time and from time to time, the Corporation may elect to redeem all (but not less than all) of the outstanding shares of Redeemable Preferred Stock (a "Corporation Redemption") at a price per share equal to the Liquidation Amount thereof on the Corporation Redemption Date by giving notice to the Holders thereof of such election (the "Corporation Redemption Notice"), whereupon such Holders shall sell and transfer such shares of Redeemable Preferred Stock to the Corporation on such business day (the "Corporation Redemption Date") as shall be determined by the Corporation and set forth in the Corporation Redemption Notice, but in any event not earlier than 30 days and not later than 50 days after the date on which the Corporation Redemption Notice is delivered to such Holders. (b) The closing of the Corporation's redemption of the Redeemable Preferred Stock pursuant to Section 6.2(a) shall take place at 10:00 a.m. New York City time on the Corporation Redemption Date at the Corporation's principal executive office or place of business. The Corporation Redemption Notice shall specify the Corporation Redemption Date and the location of the Corporation's principal executive office or place of business where the closing will occur. At the closing, the Corporation shall pay to each of the Holders of the Redeemable Preferred Stock, against the Corporation's receipt from such Holder of the certificate or certificates representing the shares of such Redeemable Preferred Stock then held by such Holder, an amount equal to the aggregate payment due pursuant to this Section 6.2 for all such shares, by wire transfer of immediately available funds, or if such Holder shall not have specified wire transfer instructions to the Corporation prior to the closing, by certified or official bank check made payable to the order of such Holder. (c) Anything contained in this Section 6.2 to the contrary notwithstanding, the outstanding shares of Redeemable Preferred Stock shall remain (i) subject to optional or mandatory conversion pursuant to Article VII and (ii) subject to redemption pursuant to Section 6.4, in each case, at all times on or prior to the Corporation Redemption Date. 6.3. Mandatory Redemption. (a) The Corporation shall redeem (the "Mandatory Redemption") all of the shares of the Redeemable Preferred Stock then outstanding on the Mandatory Redemption Date for an amount per share equal to the Liquidation Amount thereof as of the Mandatory Redemption Date. If the funds of the Corporation legally available for the redemption of shares of Redeemable Preferred Stock shall be insufficient to permit the payment of the amounts due to such Holders on the Mandatory Redemption Date, then the Holders of Redeemable Preferred Stock shall share in any legally available funds ratably according to the respective amounts which would be payable with respect to such shares if all amounts payable thereon, including amounts payable pursuant to Section 6.4 and Section 6.6, were paid in full. As soon as practicable after the Corporation has funds legally available therefor, the Corporation shall make the remaining payments required under this Section. (b) The closing of the Corporation's redemption pursuant to Section 6.3(a) shall take place at 10:00 a.m. New York City time on the Mandatory Redemption Date at the Corporation's principal executive office or place of business. At the closing, the Corporation shall pay to each 18 Holder of the Redeemable Preferred Stock, against the Corporation's receipt from such Holder of the certificate or certificates representing the shares of such Redeemable Preferred Stock then held by such Holder, an amount equal to the aggregate payment due pursuant to this Section 6.3 for all such shares, by wire transfer of immediately available funds, or if such Holder shall not have specified wire transfer instructions to the Corporation prior to the closing, by certified or official bank check made payable to the order of such Holder. 6.4. Redemption at Holder's Option. (a) Each holder of shares of Redeemable Preferred Stock shall have the right (the "Put Right") to require the Corporation to redeem its shares of Redeemable Preferred Stock in accordance with the further provisions of this Section 6.4. The Put Right shall become exercisable, if at all, commencing on the earliest of (the "Put Effective Date") (i) the 15-month anniversary of the Original Issuance Date; (ii) the earliest date at which (A) the Charter Amendment and/or (B) the approval of the effectiveness of convertibility of the Redeemable Preferred Stock in accordance with Article VII have been submitted to the Corporation's stockholders for a vote and the stockholders have failed to approve either such matter; and (iii) such time as the Corporation shall be obligated to deliver a notice of a Change of Control Offer pursuant to Section 6.1(b). Notwithstanding the foregoing, the Put Right shall cease to be exercisable upon the occurrence of the Convertibility Effective Date. The redemption price of each share of Redeemable Preferred Stock redeemed pursuant to the Put Right of the Holder thereof shall be equal to the Holder Redemption Price. (b) Each Holder's rights under Section 6.4(a) may be exercised from time to time after the Put Effective Date by giving notice of such election to the Corporation (the "Holder Redemption Notice"), whereupon such Holder shall sell and transfer such shares of Redeemable Preferred Stock on such business day (the "Holder Redemption Date") as shall be determined by such Holder and set forth in the Holder Redemption Notice, but in any event not earlier than 10 days and not later than 50 days after the date on which the applicable Holder Redemption Notice is delivered to the Corporation. Each Holder Redemption Notice shall set forth the number of shares of the Redeemable Preferred Stock that the Holder desires to have the Corporation redeem on such Holder Redemption Date. (c) The closing of the Corporation's redemption of the Redeemable Preferred Stock pursuant to Section 6.4(a) shall take place at 10:00 a.m. New York City time on the Holder Redemption Date at the Corporation's principal executive office or place of business. At the closing, the Corporation shall pay to the applicable Holder, against the Corporation's receipt from such Holder of the certificate or certificates representing the shares of Redeemable Preferred Stock referred to in the Holder Redemption Notice, an amount equal to the aggregate payment due pursuant to Section 6.4(a) for all shares being redeemed, by wire transfer of immediately available funds, or if such Holder shall not have specified wire transfer instructions to the Corporation prior to the closing, by certified or official bank check made payable to the order of such Holder. (d) Each Holder shall be entitled to exercise its Put Right with respect to a share of Redeemable Preferred Stock at any time and from time to time following the commencement of 19 a Change of Control Offer in lieu of exercising its rights to tender its shares of Redeemable Preferred Stock to the Corporation in connection with such Change of Control Offer. (e) If any restriction or limitation contained in any agreement or instrument evidencing or governing any Indebtedness of the Corporation or any of its Subsidiaries would prevent the Corporation from paying the Holder Redemption Price (including any limitation on dividends or distributions by Subsidiaries), then, upon delivery of a Holder Redemption Notice to the Corporation, to the extent required to permit the purchase of Redeemable Preferred Stock pursuant to this Section 6.4, the Corporation shall be required to use its best efforts to cause the obligors on such Indebtedness to obtain the requisite consent from the holders of such Indebtedness to permit the purchase of the Redeemable Preferred Stock as described above and the transactions contemplated hereunder. If the Corporation is not able to obtain the requisite consents from such holders, it shall use its best efforts to refinance its outstanding Indebtedness so as to permit the purchase of the Redeemable Preferred Stock as described above and the transactions contemplated hereunder. If, after using its best efforts, the Corporation is not able to obtain the requisite consent or refinance its outstanding Indebtedness, then, to the extent that the Corporation is restricted from paying the Holder Redemption Price, it shall have no obligation to do so and the applicable Holder(s) shall be entitled to revoke the exercise of their Put Rights (which may be exercised again at any time pursuant to this Section 6.4). Such revocation may be exercised by delivering a notice to the Corporation at any time prior to the payment in full of the Holder Redemption Price. 6.5. Warrants. If, at any time on or after the Convertibility Effective Date, the Corporation shall redeem the outstanding shares of Redeemable Preferred Stock pursuant to Section 6.2, then, in addition to the cash redemption price payable pursuant to Section 6.2 in respect of the shares of Redeemable Preferred Stock being redeemed, the Corporation shall also issue warrants to the Holders of Redeemable Preferred Stock unless either (i) the Corporation Redemption Notice is delivered after the third anniversary of the Original Issuance Date and a Minimum Price Event has occurred during the thirty days immediately preceding the delivery of such Corporation Redemption Notice or (ii) a Corporation Redemption Notice is given at any time after the fifth anniversary of the Original Issuance Date. Such warrant initially shall be exercisable for that number of shares of Non-Voting Common Stock equal to the number of shares of Non-Voting Common Stock issuable upon conversion of such Holder's Redeemable Preferred Stock immediately prior to the redemption thereof. The initial exercise price per share of Non-Voting Common Stock for such warrant shall be equal to the Conversion Price in effect immediately prior to the redemption of the Redeemable Preferred Stock pursuant to Section 6.2. Such warrant shall have customary cashless exercise provisions, customary anti-dilution protections economically identical to the anti-dilution protections applicable to the Redeemable Preferred Stock and shall otherwise be in form and substance reasonably acceptable to the Corporation and the Requisite Senior Holders. The warrant shall be delivered to the Holder at the closing of the Corporation Redemption in exchange for the certificate representing the shares of Redeemable Preferred Stock surrendered by such Holder. 20 6.6. Additional Payments. If, at any time prior to the Convertibility Effective Date, the Corporation shall redeem the shares of Redeemable Preferred Stock pursuant to either Section 6.2 or Section 6.3, then, in addition to the redemption price received in such redemption, each Holder of Redeemable Preferred Stock shall have the right to receive, at such time (the "Additional Payment Date"), on or after the date of such redemption, as such Holder shall elect, an additional payment in respect of such share of Redeemable Preferred Stock equal to the Additional Payment Amount. The "Additional Payment Amount", with respect to any share of Redeemable Preferred Stock, shall be the amount, if any, by which (a) the Holder Redemption Price for such share, determined as of the Additional Payment Date as if such share had not previously been redeemed, exceeds (b) the redemption price paid for such share upon redemption pursuant to Section 6.2 or 6.3, as the case may be. If the Convertibility Effective Date occurs following any redemption pursuant to Section 6.2 or 6.3, then the Corporation shall be entitled to pay the Additional Payment Amount by issuing shares of Non-Voting Common Stock having an aggregate Market Price as of the Additional Payment Date equal to the Additional Payment Amount. A Holder shall exercise its rights under this Section 6.6 by delivering a written notice to the Company to such effect, indicating the name of the Holder from whom the shares of Redeemable Preferred Stock had been redeemed and the number of shares of Redeemable Preferred Stock redeemed by the Company from such Holder. Notwithstanding anything to the contrary set forth herein, any election pursuant to this Section 6.6 may be revoked at any time after the Additional Payment Date if the Corporation does not pay the Additional Payment Amount on the Additional Payment Date. Article VII Conversion 7.1. Optional Conversion. From and after the Convertibility Effective Date, shares of Redeemable Preferred Stock shall be convertible at the option of the Holder thereof into shares of Non-Voting Common Stock in accordance with the following. (a) Subject to and in compliance with the applicable provisions of this Article VII, each Holder of shares of Redeemable Preferred Stock shall have the right, at such Holder's option, at any time and from time to time from and after the Convertibility Effective Date, to convert each such share of Redeemable Preferred Stock held by such Holder into that number of fully paid and nonassessable shares of Non-Voting Common Stock equal to the quotient of (x) the Liquidation Amount as of the date of conversion of such share of Redeemable Preferred Stock plus the Missed Dividend Amount as of such date with respect to such share, divided by (y) the Conversion Price, as last adjusted and then in effect. The Corporation shall give the Holders reasonable prior notice of a Sale of the Corporation, including the price and material terms and conditions thereof, in order to provide the Holders reasonable opportunity to consider whether to convert shares of the Redeemable Preferred Stock into shares of Non-Voting Common Stock at or prior to such Sale of the Corporation. If the price or material terms or conditions of such transaction thereafter change, the Corporation shall promptly deliver written notice to the Holders specifying such changes. 21 (b) The term "Missed Dividend Amount" means, to the extent that a Holder does not receive dividends or other distributions pursuant to Section 4.3 (whether in cash or otherwise), the Fair Value of all non-cash dividends or distributions plus the amount of all cash dividends or distributions that such Holder would have received in respect of the Common Stock Equivalents held by such Holder in respect of each share of Redeemable Preferred Stock held by such Holder immediately prior to the record date for such Common Stock dividend (without giving effect to any prior application of this Section 7.1(b)). 7.2. Mandatory Conversion. From and after the Convertibility Effective Date, shares of Redeemable Preferred Stock shall be convertible at the option of the Corporation into shares of Non-Voting Common Stock in accordance with the following: (a) At any time from and after the third anniversary of the Original Issuance Date (if the Convertibility Effect Date shall have occurred), the Corporation may elect to have all (but not less than all) of the then outstanding shares of Redeemable Preferred Stock converted into that number of fully paid and nonassessable shares of Non-Voting Common Stock into which such shares would have been convertible in the event of an optional conversion at such time pursuant to Section 7.1; provided that during the thirty days immediately preceding the delivery by the Corporation of a notice of conversion in accordance with Section 7.4(b), a Minimum Price Event shall have occurred. (b) Notwithstanding anything to the contrary set forth in this Section 7.2, the Corporation may not exercise its rights under this Section 7.2 until such time as a shelf registration statement with respect to the shares of Non-Voting Common Stock or the shares of Voting Common Stock issuable upon the exercise thereof shall have been declared effective by the Securities and Exchange Commission in accordance with the Investor Rights Agreement. 7.3. Adjustment of Conversion Price. The Conversion Price shall be subject to adjustment from time to time as follows: (a) The Conversion Price will be increased by $1.00 if the Convertibility Effective Date is prior to September 30, 1999. The Conversion Price will be reduced by (i) $1.00 if the Convertibility Effective Date is after December 31, 1999 and by an additional (ii) $1.00 for every 90 days after December 31, 1999 if the Convertibility Effective Date shall not have occurred prior to any such reduction. 22 (b) If the Corporation shall, at any time or from time to time after the Original Issuance Date, issue any shares of Common Stock or Common Stock Rights (other than pursuant to an Equity Incentive Plan) without consideration or for a consideration per share less than (x) the Market Price of a share of Voting Common Stock or (y) except in the case of an issuance pursuant to a Public Offering, the Conversion Price in effect immediately prior to the issuance of such Common Stock or Common Stock Right, then the Conversion Price in effect immediately prior to each such issuance shall forthwith be lowered to a price equal to the product of: (i) the Conversion Price in effect immediately prior to such calculation, multiplied by (ii) a fraction, (A) the numerator of which is the sum of (I) the total number of shares of Common Stock outstanding (including any shares of Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii) upon the issuance of a Common Stock Right having a per share exercise price, conversion price or exchange price equal to or lower than the Market Price of a share of Voting Common Stock) immediately prior to such issuance and (II) the number of additional shares of Voting Common Stock which the aggregate offering price (determined in the manner provided in Sections 7.3(d)(i) and (ii)) of the number of shares of Common Stock so offered (including any shares of Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii)) would purchase at the greater of the Market Price of a share of Voting Common Stock and the Conversion Price in effect immediately prior to such issuance, and (B) the denominator of which is the total number of shares of Common Stock outstanding (including any shares of Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii) upon the issuance of a Common Stock Right having a per share exercise price, conversion price or exchange price equal to or lower than the Market Price of a share of Voting Common Stock) immediately after the issuance of such Common Stock. (c) If the Corporation shall, at any time or from time to time after the Original Issuance Date, directly or indirectly, redeem, purchase or otherwise acquire any shares of Common Stock or any Common Stock Right for a consideration per share greater than the Market Price of a share of Voting Common Stock (plus, in the case of Common Stock Rights, the additional per share consideration required to be paid to the Corporation upon exercise, conversion or exchange), then the Conversion Price in effect immediately prior to each such issuance shall forthwith be lowered to a price equal to the product of: (i) the Conversion Price in effect immediately prior to such calculation, multiplied by (ii) a fraction, (A) the numerator of which is the quotient of (I) the difference of (x) the product of the total number of shares of Common Stock outstanding (including any shares of Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii) upon the issuance of a Common Stock Right having an exercise price, conversion price or exchange price equal to or lower than the Market Price of a share of Voting Common Stock) immediately prior to such issuance, multiplied by the Market Price of a share of Voting Common Stock immediately prior to such event minus (y) the aggregate consideration paid by the Corporation in such event (plus, in the case of Common Stock 23 Rights, the aggregate additional consideration to be paid by the Corporation upon exercise, conversion or exchange) divided by (II) the number of shares of Common Stock outstanding (including any shares of Common Stock deemed to have been issued pursuant to Section 7.3(d)(iii) upon the issuance of a Common Stock Right having an exercise price, conversion price or exchange price equal to or lower than the Market Price of a share of Voting Common Stock) immediately after the issuance of such Common Stock and (B) the denominator of which is the Market Price of a share of Voting Common Stock immediately prior to such event. (d) For the purposes of any adjustment of the Conversion Price pursuant to Section 7.3(b) or (c) above, the following provisions shall be applicable: (i) In the case of the issuance of Common Stock for cash in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor after deducting therefrom any discounts, commissions or placement fees payable by the Corporation to any underwriter or placement agent in connection with the issuance and sale thereof. (ii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the Fair Value thereof. (iii) In the case of the issuance of Common Stock Rights: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the aggregate consideration (determined in the manner provided in Sections 7.3(d)(i) and (ii)), if any, received by the Corporation upon the issuance of such options or rights plus the minimum aggregate purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such Securities convertible into or exchangeable for Common Stock or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable Securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such Securities, options, or rights were issued and for a consideration equal to the aggregate consideration received by the Corporation for any such Securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the additional aggregate consideration, if any, to be received by the Corporation upon the conversion or exchange of such Securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in Sections 7.3(d)(i) and (ii)); 24 (C) on any change in the number of shares or the exercise, conversion or exchange price of Common Stock deliverable upon exercise of any such options or rights or conversions of or exchange for such Securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights or Securities not exercised or converted prior to such change or options or rights related to such Securities not exercised or converted prior to such change been made upon the basis of the number of shares and price after giving effect to such change; and (D) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable Securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, Securities or options or rights related to such Securities been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such Securities, or upon the exercise of the options or rights related to such Securities and subsequent conversion or exchange thereof; provided that no such readjustment shall be made to the extent that such expiration or termination is in connection with or related to any settlement, including any cash settlement, of any such options, rights, conversion rights or exchange rights. (e) If, at any time after the Original Issuance Date, the number of shares of Common Stock outstanding is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, following the record date for the determination of holders of Common Stock entitled to receive such stock dividend, subdivision or split-up (or if no record date is set, the date such stock dividend, subdivision of stock split is consummated), then, following the record date for such event, the Conversion Price shall be appropriately decreased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Redeemable Preferred Stock, in each case, shall be increased in proportion to such increase in outstanding shares. (f) If, at any time after the Original Issuance Date, the number of shares of Common Stock outstanding is decreased by a combination of the outstanding shares of Common Stock, then, following the record date for such combination, the Conversion Price shall be appropriately increased so that the number of shares of Non-Voting Common Stock issuable on conversion of each share of Redeemable Preferred Stock, in each case, shall be decreased in proportion to such decrease in outstanding shares. (g) If any capital reorganization of the Corporation, any reclassification of the stock of the Corporation (other than a change in par value or from no par value to par value or from par value to no par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or any consolidation or merger of the Corporation shall occur, then each share of Redeemable Preferred Stock after such reorganization, reclassification, consolidation, or merger shall be convertible into the kind and number of shares of stock or other Securities or property of the Corporation or of the corporation resulting from such consolidation or surviving such merger 25 to which the holder of the number of shares of Non-Voting Common Stock deliverable (immediately prior to the time of such reorganization, reclassification, consolidation or merger) upon conversion of such share of Redeemable Preferred Stock would have been entitled upon such reorganization, reclassification, consolidation or merger. The provisions of this clause shall similarly apply to successive reorganizations, reclassifications, consolidations or mergers. (h) If any event occurs of the type contemplated by the provisions of this Section 7.3 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features, but excluding any issuance of Common Stock or Common Stock Rights pursuant to an Equity Incentive Plan), then the Corporation's Board of Directors, in the good faith exercise of its fiduciary duties to the Holders of Redeemable Preferred Stock, shall make an appropriate reduction in the Conversion Price so as to protect the rights of the Holders of the Redeemable Preferred Stock. (i) All calculations under this paragraph shall be made to the nearest one hundredth (1/100) of a cent. In no event will the Conversion Price be reduced below the par value of the Common Stock. (j) In any case in which the provisions of this Section 7.3 shall require that an adjustment shall become effective immediately after a record date of an event, the Corporation may defer until the occurrence of such event issuing to the Holder of any share of Redeemable Preferred Stock converted after such record date and before the occurrence of such event the number of shares of capital stock issuable upon such conversion by reason of the adjustment required by such event in excess of the number of shares of capital stock issuable upon such conversion before giving effect to such adjustments; provided, however, that the Corporation shall deliver to such Holder an appropriate instrument evidencing such Holder's right to receive such excess shares. (k) Whenever the Conversion Price shall be adjusted as provided in this Section 7.3, the Corporation shall make available for inspection during regular business hours, at its principal executive offices or at such other place as may be designated by the Corporation, a statement, signed by its chief executive officer and certified by the Corporation's independent public accountants, showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment. The Corporation shall also cause a copy of such statement to be sent by first class certified mail, return receipt requested and postage prepaid, to each Holder of Redeemable Preferred Stock at such Holder's address appearing on the Corporation's records. Where appropriate, such copy may be given in advance and may be included as part of any notice required to be mailed under the provisions of Section 7.3(k). (l) If the Corporation shall propose to take any action of the types described in Sections 7.3(e), (f) or (g), the Corporation shall give notice to each Holder of shares of Redeemable Preferred Stock, in the manner set forth in Section 7.3(k), which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other Securities or property which shall be deliverable or purchasable upon the occurrence of such action or 26 deliverable upon conversion of shares of Redeemable Preferred Stock. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 10 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action. (m) In the event that the Requisite Senior Holders consent in writing to limit, or waive in its entirety, any anti-dilution adjustment to which the Holders of the Redeemable Preferred Stock would otherwise be entitled hereunder, the Corporation shall not be required to make any adjustment whatsoever with respect to any Redeemable Preferred Stock in excess of such limit or at all, as the terms of such consent may dictate. 7.4. Mechanics. (a) Any Holder of shares of Redeemable Preferred Stock electing to convert the shares or any portion thereof in accordance with Section 7.1 shall give written notice to the Corporation. Such notice shall state that such Holder elects to convert shares of Redeemable Preferred Stock, the number of such shares that it elects to convert, the applicable Expected Conversion Date and the name or names in which such holder wishes the certificate or certificates for shares of Non-Voting Common Stock to be issued. A Holder may make any notice of conversion, whether such conversion is in connection with a Sale of the Corporation or otherwise, conditional upon the happening of any event or the passage of time. A Holder may rescind any notice of conversion prior to the Conversion Date. (b) If the Corporation is entitled to have all of the shares of Redeemable Preferred Stock converted into Non-Voting Common Stock pursuant to Section 7.2, it may give a written notice to all Holders of Redeemable Preferred Stock. Such notice shall state that the Corporation elects to convert all of the outstanding shares of Redeemable Preferred Stock into Non-Voting Common Stock and the Expected Conversion Date, which shall be not more than 30 days and not less than 10 days after delivery of such notice. If any Holder desires to have a certificate or certificates representing the shares of Non-Voting Common Stock issued in a name or names other than the name in which the shares being converted are issued, then, at least two business days prior to the Conversion Date, such Holder shall deliver a notice to such effect to the Corporation. (c) On or prior to the date indicated in any notice of conversion delivered pursuant to Section 7.4(a) or 7.4(b) (as applicable, the "Expected Conversion Date"), the applicable Holder or, in the case of a notice pursuant to Section 7.4(b), all Holders of shares of Redeemable Preferred Stock shall surrender the certificate or certificates representing such shares of Redeemable Preferred Stock to be converted, duly endorsed, at the office of the Corporation or any transfer agent for such shares. On the Expected Conversion Date, the Corporation shall issue and deliver to or upon the order of such Holder, against delivery of the certificates representing the shares of Redeemable Preferred Stock that have been converted, a certificate or certificates for the number of shares of Non-Voting Common Stock to which such Holder shall be entitled (in the number(s) and denomination(s) designated by such Holder), and, the case of a partial conversion pursuant to Section 7.1, the Corporation shall deliver to such Holder a 27 certificate or certificates for the number of shares of Redeemable Preferred Stock that such Holder has not elected to convert. (d) The Corporation shall pay any documentary, stamp or similar issue or transfer tax due on the issuance of Non-Voting Common Stock upon the conversion of Redeemable Preferred Stock or due on the issuance of a new certificate or certificates for any shares of Redeemable Preferred Stock not converted. Subject to the prior satisfaction or waiver of any conditions set forth in any notice of conversion (as permitted under Section 7.4(a)), the conversion right with respect to any shares of Redeemable Preferred Stock shall be deemed to have been exercised on the latest of (i) the date upon which the certificates representing the shares of Non-Voting Common Stock shall have been so delivered, (ii) the date on which all of the conditions set forth in any notice of exercise (as permitted by Section 7.4(a)) shall have been satisfied or waived and (iii) the Expected Conversion Date (such date, the "Actual Conversion Date") and the person or persons entitled to receive the shares of Non-Voting Common Stock issuable upon conversion shall be treated for all purposes as the record Holder or Holders of such Non-Voting Common Stock on and after that date. (e) No fractional shares of Non-Voting Common Stock or scrip shall be issued upon conversion of shares of Redeemable Preferred Stock. The number of full shares of Non-Voting Common Stock issuable upon conversion of Redeemable Preferred Stock shall be computed on the basis of the aggregate number of shares of such Redeemable Preferred Stock to be converted. Instead of any fractional shares of Non-Voting Common Stock which would otherwise be issuable upon conversion of any such shares, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to the product of (i) the Market Price of a share of Voting Common Stock and (ii) such fractional interest. The holders of fractional interests shall not be entitled to any rights as stockholders of the Corporation in respect of such fractional interests. (f) Upon issuance of shares in accordance with this Section, each share of Non-Voting Common Stock issued shall be duly authorized, validly issued, fully paid and non-assessable, with no personal liability attaching to the ownership thereof and free from all taxes or Liens with respect thereto due to any action or failure to act by or on behalf of the Corporation. (g) The Corporation shall take all such actions as may be necessary to assure that all shares issued pursuant to this Section may be so issued without violation of any Applicable Law or any requirements of any securities exchange upon which such shares may be listed (except for official notice of issuance which will be immediately transmitted by the Corporation upon issuance). The Corporation shall not close its books against the transfer of shares in any manner which would interfere with the timely conversion of any shares. 7.5. Reservation of Shares. From and after the Convertibility Effective Date, the Corporation shall at all times reserve and keep available out of its authorized but unissued shares of each class of capital stock or its treasury shares, solely for the purpose of issuance upon the conversion of shares of Redeemable Preferred Stock and the exercise of the warrants which may be issued pursuant to 28 Section 6.4, such number of shares of such class as are then issuable upon the conversion of the shares of Redeemable Preferred Stock or the exercise of such warrants. Article VIII Certain Regulatory Matters The Corporation shall not redeem, purchase, acquire or take any other action affecting outstanding shares of any capital stock entitled to general voting rights if, after giving effect to such redemption, purchase, acquisition or other action, a Regulated Stockholder would own (i) more than 4.99% of any class of Voting Securities of the Corporation (other than any class of Voting Securities that is (or is made prior to any such redemption, purchase, acquisition or other action) convertible into a class of non-Voting Securities that are otherwise identical to the Voting Securities and convertible into such Voting Securities on terms reasonably acceptable to such Regulated Stockholder) or (ii) more than 24.99% of the total equity of the Corporation or more than 24.99% of the total value of all capital stock and subordinated debt of the Corporation (in each case determined by assuming such Regulated Stockholder (but no other holder) has exercised, converted or exchanged all of its options, warrants and other convertible or exchangeable Securities). * * * * 29 IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed by an authorized officer of the Corporation as of the 25th day of June, 1999. By: _____________________________ Name: Ivan R. Sabel Title: President 30 EX-99.26 3 SECURITIES PURCHASE AGREEMENT Exhibit 26 SECURITIES PURCHASE AGREEMENT dated as of June 16, 1999 among HANGER ORTHOPEDIC GROUP, INC. and THE PURCHASERS NAMED HEREIN TABLE OF CONTENTS Article I DEFINED TERMS; RULES OF CONSTRUCTION.............................1 1.1 Defined Terms....................................................1 1.2 Rules of Construction............................................5 Article II PURCHASE AND SALE OF SHARES; CLOSING............................6 2.1 Certificate of Amendment.........................................6 2.2 Authorization of Issuance of Preferred Shares....................6 2.3 Sale of Securities...............................................6 2.4 Closing..........................................................6 2.5 Closing Deliveries...............................................7 2.6 Use of Proceeds..................................................7 Article III REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY...............7 3.1 Offering Memorandum..............................................7 3.2 Capitalization...................................................8 3.3 Organization, Power and Authority and Good Standing..............9 3.4 Authorization, Execution, Enforceability and Consents............9 3.5 Reports and Financial Information...............................11 3.6 Compliance with Laws............................................11 3.7 Absence of Changes..............................................12 3.8 Taxes...........................................................12 3.9 Title to Assets.................................................12 3.10 Proceedings.....................................................12 3.11 Contracts.......................................................13 3.12 Insurance.......................................................13 3.13 ERISA...........................................................13 3.14 Accounting......................................................14 3.15 Investment Company..............................................14 3.16 Solvency........................................................14 3.17 Private Sale....................................................14 3.18 Brokers.........................................................14 3.19 Regulatory Matters..............................................15 3.20 Y2K.............................................................15 3.21 Incorporation of NovaCare Purchase Agreement....................16 3.22 Certificates of Officers........................................16 Article IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............16 4.1 Authorization of the Documents..................................16 4.2 Investment Representations......................................16 Article V CONDITIONS TO CLOSING...........................................17 5.1 Conditions to Purchasers' Obligations...........................17 5.2 Conditions to the Company's Obligations.........................19 Article VI INDEMNIFICATION................................................19 6.1 Survival of Representations, Warranties, Agreements and Covenants, Etc............................................19 6.2 Indemnification.................................................19 Article VII TRANSFER OF SECURITIES........................................21 7.1 Restriction on Transfer.........................................21 7.2 Restrictive Legends.............................................22 7.3 Notice of Transfer..............................................22 7.4 Transfer Pursuant to Rule 144...................................23 Article VIII ADDITIONAL AGREEMENTS OF THE COMPANY.........................23 8.1 Escrow of Proceeds of Senior Subordinated Notes.................23 8.2 Conduct Pending Closing.........................................23 8.3 Existing Warrants and Common Stock..............................24 8.4 Amendment of By-laws............................................25 Article IX MISCELLANEOUS..................................................25 9.1 Fees............................................................25 9.2 Further Assurances..............................................26 9.3 Remedies........................................................26 9.4 Successors and Assigns........................................26 9.5 Entire Agreement...............................................26 9.6 Notices.........................................................27 9.7 Amendments, Modifications and Waivers...........................28 9.8 Governing Law; Waiver of Jury Trial............................28 9.9 No Third Party Reliance.........................................28 9.10 Submission to Jurisdiction......................................29 9.11 Severability....................................................29 9.12 Independence of Agreements, Covenants, Representations and Warranties................................................29 9.13 Counterparts; Facsimile Signatures..............................30 ii SCHEDULES AND EXHIBITS SCHEDULES Schedule I - Purchasers, Purchase Price and Fees Schedule 3.2(d) - Options and Warrants Schedule 3.2(e) - Preemptive Rights and Rights of First Refusal Schedule 3.2(f) - Liens Schedule 3.2(g) - Redemption Rights Schedule 3.2(h) - Registration Rights Schedule 3.6 - Orders Schedule 3.10 - Proceedings Schedule 3.20 - Y2K EXHIBITS Exhibit A - Certificate of Designations for Redeemable Preferred Stock Exhibit B - Form of Charter Amendment Exhibit C - Investor Rights Agreement Exhibit D - Regulation Y Letter iii SECURITIES PURCHASE AGREEMENT dated as of June 16, 1999 among HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation (the "Company"), and the Purchasers listed on Schedule I (collectively, the "Purchasers"). The Company is in the business of developing, acquiring and operating orthotic and prosthetic patient-care centers in the United States (the "Business"). The Company desires to raise $60,000,000 in preferred equity financing, and the Purchasers are willing to purchase certain shares of the Company's preferred stock in connection therewith, all on the terms and subject to the conditions set forth herein. ACCORDINGLY, in consideration of the foregoing and the covenants, agreements, representations and warranties contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, the parties hereto hereby agree as follows: ARTICLE I DEFINED TERMS; RULES OF CONSTRUCTION 1.1 DEFINED TERMS. ------------- Capitalized terms used and not otherwise defined in this Agreement have the meanings given to them below or in the other locations of this Agreement specified below (or, if not defined herein, have the meanings ascribed to them in the Certificate of Designations): "Agreement" shall have the meaning given to such term in Section 1.2. "Amended Charter" means, at any time prior to the effectiveness of the Charter Amendment, the Certificate of Incorporation of the Company as in effect on the date hereof and, thereafter, as amended by the Charter Amendment. "Applicable Securities" means the shares of Redeemable Preferred Stock, the Warrants and the Reserved Common Shares. "Board" means the Board of Directors of the Company. "Business" has the meaning given to it in the Preamble to this Agreement. "Business Day" means any day other than a Saturday, Sunday or a day on which all United States securities exchanges on which Securities issued by the Company are listed, are authorized or required to be closed. "Certificate of Designations" means the certificate of designations, powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the Redeemable Preferred Stock, in substantially the form set forth in Exhibit A. "Certificate of Incorporation" means the Certificate of Incorporation of the Company as amended and restated and in effect from time to time prior to the effectiveness of the Charter Amendment. "Charter Amendment" means the amendment to the Company's Certificate of Incorporation, in substantially the form attached as Exhibit B. "Claim" means any claim, demand, assessment, judgment, order, decree, action, cause of action, litigation, suit, investigation or other Proceeding. "Closing" has the meaning given to it in Section 2.4. "Closing Date" has the meaning given to it in Section 2.4. "Closing Certificate" has the meaning given to it in Section 6.1. "Code" means the Internal Revenue Code of 1986, as amended, or any similar Federal law then in force, and the rules and regulations promulgated thereunder, all as the same may from time to time be in effect. "Commission" means the Securities and Exchange Commission or any successor or replacement thereto. "Company" has the meaning given to it in the caption to this Agreement. "Company Indemnified Persons" has the meaning given to it in Section 6.2(b). "Chase" shall mean Chase Equity Associates, L.P., a California limited partnership. "Credit Agreement" shall mean the Credit Agreement dated as of the date hereof, among the Company, The Chase Manhattan Bank, as Administrative Agent, Collateral Agent and Issuing Bank, Bankers Trust Company, as Syndication Agent, Paribas (f/k/a Banque Paribas), as Documentation Agent, and the Lenders party thereto. "Documents" means this Agreement, the Certificate of Designations, the Investor Rights Agreement and the Regulation Y Letters. "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, or any similar Federal law in force, and the rules and regulations promulgated thereunder, all as the same may be amended. "Equity Incentive Plans" has the meaning given to it in the Certificate of Designations. 2 "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal Statute then in force, and the rules and regulations promulgated thereunder, all as the same may from time to time be in effect. "Final Memorandum" means the final offering memorandum dated June 9, 1999, to be used in connection with the sale of the Senior Subordinated Notes. "Fundamental Documents" means the documents by which any Person (other than an individual) establishes its legal existence or which govern its internal affairs. The Fundamental Documents of the Company are the Certificate of Incorporation (prior to the effectiveness under Delaware Law of the Charter Amendment), the Amended Charter (after the effectiveness under Delaware Law of the Charter Amendment) and the By-laws of the Company. "GAAP" means United States generally accepted accounting principles. "Indemnified Persons" means any of the Company Indemnified Persons or any of the Purchaser Indemnified Persons, as the context may require. "Indemnifying Persons" means any of the Purchasers or the Company, as the context may require. "Insurance Policies" has the meaning given to it in Section 3.12. "Intellectual Property Rights" means all industrial and intellectual property rights, including, without limitation, patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, know-how, trade secrets, proprietary processes and formulae, confidential information, franchises, licenses, inventions, instructions, marketing materials, trade dress, logos and designs and all documentation and media constituting, describing or relating to the foregoing, including manuals, memoranda and records. "Investor Rights Agreement" means the Investor Rights Agreement among the Company and the Purchasers, in substantially the form set forth in Exhibit C. "Knowledge" has the meaning given to it in Section 1.2. "Liability" means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether due or to become due, regardless of when asserted. "Loss" means any loss (including diminution in value of Securities), Liability, Claim, cost, damage, deficiency, Tax (including any Taxes imposed with respect to any indemnity payments for any such Loss), penalty, fine or expense, whether or not arising out of any Claims by or on behalf of any party to this Agreement or any third party, including interest, penalties, reasonable attorneys' fees and expenses and all amounts paid in investigation, defense or settlement of any of the foregoing which any 3 such party may suffer, sustain or become subject to, as a result of, in connection with, relating or incidental to or by virtue of any indemnifiable event or condition. "Material Adverse Effect" means, with respect to any Person, a material adverse effect on the business, condition (financial and otherwise), operations, results of operations, assets (including levels of working capital and components thereof), Liabilities, and prospects of such Person. "Material Agreements" has the meaning given to it in Section 3.10. "NovaCare Purchase Agreement" means the Stock Purchase Agreement dated as of April 2, 1999 by and among NovaCare, Inc., NC Resources, Inc., the Company and HPO Acquisition Corp., as in effect on the date hereof (after giving effect to Amendment No. 1 dated May 19, 1999). "Paribas" means Paribas North America, Inc. "Permits" has the meaning given to it in Section 3.6(b) "Person" has the meaning given to it in the Certificate of Designations. "Preliminary Memorandum" means the preliminary offering memorandum dated May 21, 1999 used in connection with the offering of the Senior Subordinated Notes. "Proceeding" means any legal, administrative or arbitration action, suit, complaint, charge, hearing, inquiry, investigation or proceeding. "Purchaser" has the meaning given to it in the caption to this Agreement and any Person succeeding to the rights of a Purchaser pursuant to the terms hereof. "Purchaser Indemnified Person" has the meaning given to it in Section 6.2(a). "Redeemable Preferred Stock" means the Corporation's 7% Redeemable Preferred Stock, par value $.01 per share. "Regulation Y Letter" means letters from the Company to Chase and Paribas, in substantially the form attached as Exhibit D. "Reserved Common Shares" means shares of Common Stock that will be reserved from and after the Convertibility Effective Date for issuance upon the conversion of the Redeemable Preferred Stock or the exercise of the Warrants, as the case may be. "Securities" has the meaning given to it in the Certificate of Designations. 4 "Senior Subordinated Notes" means the Company's 11 1/4% Senior Subordinated Notes due 2009 issued on the date hereof. "Senior Subordinated Notes Purchase Agreement" means the Purchase Agreement dated as of June 9, 1999, among the Company and the Initial Purchasers signatory thereto. "Subsidiary" has the meaning given to it in the Certificate of Designations. "Tax" means any Taxes and the term "Taxes" means, with respect to any Person, (A) all income taxes (including any tax on or based upon net income, or gross income, or income as specially defined, or earnings, or profits, or selected items of income, earnings or profits) and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property or windfall profits taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts imposed by any taxing authority (domestic or foreign) on such Person and (B) any Liability for the payment of any amount of the type described in the immediately preceding clause (A) as a result of (i) being a "transferee" (within the meaning of Section 6901 of the Code or any other Applicable Law) of another Person, (ii) being a member of an affiliated, combined or consolidated group or (iii) a contractual arrangement or otherwise. "Trustee" has the meaning given to it in the Indenture. "Warrants" means the warrants to purchase shares of Common Stock that may be issuable upon the redemption of the Redeemable Preferred Stock in accordance with the Certificate of Designations. 1.2 RULES OF CONSTRUCTION. ---------------------- The term this "Agreement" means this agreement together with all schedules and exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. In this Agreement, the term "Knowledge" of any Person means (i) actual knowledge of such Person (including the actual knowledge of the executive officers, key employees and directors of such Person) and (ii) that knowledge which could have been acquired by such Person after making such due inquiry and exercising such due diligence as a prudent businessperson would have made or exercised in the management of his or her business affairs, including due inquiry of those key employees and professionals of such Person who could reasonably be expected to have actual knowledge of the matters in question. The use in this Agreement of the term "including" means "including, without limitation." The words "herein," "hereof," "hereunder" and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All 5 references to sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require or permit. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1. ARTICLE II PURCHASE AND SALE OF SHARES; CLOSING 2.1 CERTIFICATE OF AMENDMENT. ------------------------ Prior to the Closing, the Company shall file with the Secretary of State of the State of Delaware the Certificate of Designations. The Certificate of Designations designates 60,000 shares of Redeemable Preferred Stock and sets forth the powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof. 2.2 AUTHORIZATION OF ISSUANCE OF PREFERRED SHARES. --------------------------------------------- The Company has authorized the issuance at the Closing of an aggregate of 60,000 shares of Redeemable Preferred Stock. 2.3 SALE OF SECURITIES. ------------------ At the Closing, subject to the satisfaction or waiver of the conditions set forth in Article V, the Company shall issue and sell to each Purchaser, and each Purchaser shall severally purchase from the Company, that number of shares of Redeemable Preferred Stock set forth opposite its name on Schedule I for the aggregate purchase price set forth opposite its name. 2.4 CLOSING. ------- The closing (the "Closing") hereunder with respect to the issuance and sale of the Preferred Shares being purchased by each Purchaser at the Closing and the consummation of the related transactions contemplated hereby shall, subject to the satisfaction or waiver of the applicable conditions set forth in Section 5.1, take place at 6 the offices of Haythe & Curley, 237 Park Avenue, New York, New York 10017 at 10:00 a.m., local time, on the date of the closing of the transactions contemplated by the NovaCare Purchase Agreement, or at such other time, date or place as agreed to by the parties. 2.5 CLOSING DELIVERIES. ------------------ At the Closing, the Company shall deliver to each Purchaser purchasing shares of Redeemable Preferred Stock a certificate, registered in such Purchaser's name, representing the shares of Redeemable Preferred Stock purchased by such Purchaser at the Closing, against receipt by the Company of a wire transfer, of immediately available funds to an account or accounts designated by the Company, of an aggregate amount equal to the purchase price for the shares of Redeemable Preferred Stock being purchased by such Purchaser at the Closing (such date, the "Closing Date"). 2.6 USE OF PROCEEDS. --------------- The proceeds received by the Company from the sale of all shares of Redeemable Preferred Stock shall be used by the Company solely as set forth under "Sources and Uses of Funds" in the Final Memorandum. ARTICLE III REPRESENTATIONS AND WARRANTIES ABOUT THE COMPANY The Company represents and warrants to each Purchaser as follows: 3.1 OFFERING MEMORANDUM. -------------------- (a) Neither the Preliminary Memorandum as of the date thereof nor the Final Memorandum nor any amendment or supplement thereto as of the date thereof and at all times subsequent thereto up to the Closing Date contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 3.1 do not apply to statements or omissions made in reliance upon and in conformity with information relating to either of the Purchasers furnished to the Company in writing by the Purchasers expressly for use in the Preliminary Memorandum, the Final Memorandum or any amendment or supplement thereto. (b) The statistical and market-related data included in the Final Memorandum are based on or derived from sources which the Company and the Subsidiaries believe to be reliable and accurate. 7 3.2 CAPITALIZATION. -------------- The authorized capital stock of the Company immediately after the Closing shall consist of: (a) 25,000,000 duly authorized shares of Common Stock, of which (i) 18,852,824 shares shall be duly and validly issued and outstanding, fully paid and nonassessable, with no personal Liability attached to the ownership thereof, (ii) 133,495 shares shall be held by the Company as treasury shares, (iii) 1,893,914 shares shall be duly and validly reserved for issuance pursuant to outstanding options, (iv) 468,099 shares shall be duly and validly reserved for issuance pursuant to options that may be granted after the date hereof to employees of the Company pursuant to the Company's Equity Incentive Plans and (v) 830,650 shares shall be duly and validly reserved for issuance pursuant to outstanding warrants. (b) 10,000,000 duly authorized shares of Preferred Stock, 60,000 of which shall be duly and validly issued and outstanding, fully paid and nonassessable, with no personal Liability attached to the ownership thereof, all of which shall be held of record and beneficially by the Purchasers and in the amounts set forth on Schedule I, free and clear of all Liens. All of the outstanding shares of Preferred Stock shall be designated Redeemable Preferred Stock. (c) All Reserved Common Shares, if and when issued, will be duly and validly issued and outstanding, fully paid and nonassessable, with no personal Liability attached to the ownership thereof. (d) Schedule 3.2(d) contains a list of all outstanding warrants, options, agreements, convertible securities and other commitments pursuant to which the Company is or may become obligated to issue, sell or otherwise transfer any Securities of the Company, which list names all Persons entitled to receive such Securities, indicates whether or not such Securities are entitled to any anti-dilution or similar adjustments upon the issuance of additional Securities of the Company or otherwise, sets forth the shares of capital stock and other Securities required to be issued thereunder (calculated after giving effect to all such anti-dilution and other similar adjustments resulting from the issuance of the shares of Redeemable Preferred Stock and, if applicable, the other Applicable Securities) and the exercise or conversion price thereof, as applicable. (e) Except as set forth on Schedule 3.2(e) there are no preemptive rights, rights of first refusal or other similar rights to purchase or otherwise acquire shares of capital stock or other Securities of the Company pursuant to any Applicable Law, any Fundamental Document of the Company or any agreement to which the Company is a party or may be bound. (f) Except as set forth on Schedule 3.2(f) or as contemplated by the Documents and the Fundamental Documents of the Company, there is no Lien (such as a right of first refusal, right of first offer, proxy, voting trust or voting agreement) with 8 respect to the sale or voting of any Securities of the Company (whether outstanding or issuable upon the conversion, exchange or exercise of outstanding Securities). (g) Except as set forth on Schedule 3.2(g), other than as required by the Certificate of Designations, there are no obligations to redeem, repurchase or otherwise acquire shares of capital stock or other Securities of the Company pursuant to any Applicable Law, any Fundamental Document of the Company or any agreement to which the Company is a party or may be bound. (h) Except as contemplated by the Investor Rights Agreement or as set forth on Schedule 3.2(h), no Person has any right to cause the Company to effect the registration under the Securities Act of any shares of Common Stock or any other Securities of the Company. (i) Except as set forth on Schedule 2 to the Senior Subordinated Notes Purchase Agreement, the Company does not have any Subsidiaries. Except for the Subsidiaries or as disclosed in the Final Memorandum, the Company does not own, directly or indirectly, any shares of capital stock or any other equity or long-term debt Securities or have any equity interest in any Person. (j) All Securities issued by the Company have been either issued in transactions in accordance with or exempt from registration under the Securities Act and the rules and regulations promulgated thereunder and all applicable state securities or "blue sky" laws, and the Company has not violated the Securities Act or any applicable state securities or "blue sky" laws in connection with the issuance of any such Securities. There are no restrictions upon the voting rights associated with, or the transfer of, any of the capital stock of the Company, except as provided by (i) United States or state securities laws or (ii) the terms and provisions of the Documents. 3.3 ORGANIZATION, POWER AND AUTHORITY AND GOOD STANDING. ---------------------------------------------------- (a) Each of the Company and the Subsidiaries is duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization and has all requisite corporate (or partnership or limited liability company) power and authority to own its properties and conduct its business as now conducted and as described in the Final Memorandum. (b) Each of the Company and the Subsidiaries is duly qualified to do business as a foreign entity in good standing in all other jurisdictions where the ownership or leasing of its properties or the conduct of its business requires such qualification, except where the failure to be so qualified would not, individually or in the aggregate, have a Material Adverse Effect. 3.4 AUTHORIZATION, EXECUTION, ENFORCEABILITY AND CONSENTS. ------------------------------------------------------ (a) The Company has all requisite corporate power and authority to execute, deliver and perform each of its obligations under this Agreement and each other Document. This Agreement and each other Document has been duly and validly 9 authorized by the Company. This Agreement has been duly executed and delivered by the Company and this Agreement constitutes and, when executed and delivered by the Company (assuming the due authorization, execution and delivery by the other parties thereto), each other Document to which it is a party, will constitute, a valid and legally binding agreement of the Company, enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (b) The authorization, reservation, issuance, sale and delivery, as applicable, of the shares of Redeemable Preferred Stock and, subject to the effectiveness of the Charter Amendment, the other Applicable Securities, have been duly and validly authorized by all requisite action on the part of the Company. The shares of Redeemable Preferred Stock and the other Applicable Securities (if issued), will be duly and validly issued and outstanding, fully paid and nonassessable, with no personal Liability attaching to the ownership thereof and not subject to any preemptive rights, rights of first refusal or other similar rights of the stockholders of the Company. (c) No consent, approval, authorization, Permit or Order of any Governmental Authority or third party is required for the issuance and sale by the Company of the Applicable Securities to the Purchasers or the consummation by the Company of the other transactions contemplated hereby or by any other Document, except in the case of the Reserved Shares, for the approval of the shareholders of the Company. None of the Company or the Subsidiaries is (i) in violation of its Fundamental Documents, (ii) in breach or violation of any Applicable Law, or (iii) in breach of or default under (nor has any event occurred which, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any Permit or Material Agreement to which the Company or any of its Subsidiaries is a party or to which any of their respective properties or assets is subject. (d) The execution, delivery and performance by the Company of this Agreement and each other Document, and the consummation of the transactions contemplated hereby and thereby, including the authorization, reservation, issuance, sale and delivery, as the case may be, of the shares of Redeemable Preferred Stock and, subject to the effectiveness of the Charter Amendment, the other Applicable Securities, will not (a) violate any Applicable Law or (b) conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute (with due notice or lapse of time, or both) a default or give rise to any right of termination, cancellation or acceleration, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries, under, any provision of the Fundamental Documents of the Company or any of its Subsidiaries or any Material Agreement or Permit to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries or their assets or properties are or may be bound. 10 3.5 REPORTS AND FINANCIAL INFORMATION. ---------------------------------- (a) The audited consolidated financial statements of the Company and the Subsidiaries included in the Final Memorandum present fairly in all material respects the financial position, results of operations and cash flows of the Company and the Subsidiaries at the dates and for the periods to which they relate and have been prepared in accordance with GAAP applied on a consistent basis, except as otherwise stated therein. The summary and selected financial and statistical data in the Final Memorandum present fairly in all material respects the information shown therein and have been prepared and compiled on a basis consistent with the audited financial statements included therein, except as otherwise stated therein. PricewaterhouseCoopers LLP (the "Independent Accountants") is an independent public accounting firm within the meaning of Rule 2-01 of Regulation S-X. (b) The pro forma financial statements (including the notes thereto) and the other pro forma financial information included in the Final Memorandum (i) comply as to form in all material respects with the applicable requirements of Regulation S-X promulgated under the Exchange Act, (ii) have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, and (iii) have been properly computed on the bases described therein; the assumptions used in the preparation of the pro forma financial data and other pro forma financial information included in the Final Memorandum are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. 3.6 COMPLIANCE WITH LAWS. --------------------- (a) Schedule 3.6 sets forth a list of all Orders to which the Company or any of its Subsidiaries or any of their respective assets or properties is bound. (b) The Company and each of the Subsidiaries holds all material licenses, certificates and permits from Governmental Authorities ("Permits") which are necessary to the conduct of their businesses. (c) To the Knowledge of the Company, there is no proposed change in any Applicable Law which would require the Company or any of the Subsidiaries to obtain any material Permits in order to conduct the business of the Company and the Subsidiaries as each is presently conducted and as presently proposed to be conducted which the Company or such Subsidiary does not currently possess. (d) To the Company's knowledge, there is no Applicable Law which would prohibit or restrict the Company or any of the Subsidiaries from, or otherwise materially adversely affect the Company or any of the Subsidiaries in, conducting each of their businesses in any jurisdiction in which each is now conducting business or which it proposes to conduct business. (e) Neither the Company nor any of the Subsidiaries has infringed any Intellectual Property Rights of any Person. To the Knowledge of the Company, no 11 Person has infringed any owned or licensed Intellectual Property Rights of the Company or any of its Subsidiaries. 3.7 ABSENCE OF CHANGES. ------------------- Since the date of the most recent financial statements appearing in the Final Memorandum, except as described therein, (i) none of the Company or the Subsidiaries has incurred any Liabilities or obligations, direct or contingent, or entered into or agreed to enter into any transactions or contracts (written or oral) not in the ordinary course of business, (ii) none of the Company or the Subsidiaries has purchased any of its outstanding capital stock, nor declared, paid or otherwise made any dividend or distribution of any kind on its capital stock (other than with respect to any of such Subsidiaries, the purchase of, or dividend or distribution on, capital stock owned by the Company) and (iii) there has not been any material change in the capital stock or long-term indebtedness of the Company or its Subsidiaries. 3.8 TAXES. ------ Each of the Company and the Subsidiaries has filed all necessary federal, state and foreign income and franchise Tax returns, and has paid all Taxes required to be paid by it prior to or as of the Closing; and other than tax deficiencies which the Company or any Subsidiary is contesting in good faith and for which the Company or such Subsidiary has provided adequate reserves, there is no material Tax deficiency that has been proposed, asserted or assessed against the Company or any of the Subsidiaries. 3.9 TITLE TO ASSETS. ---------------- (a) Each of the Company and the Subsidiaries has good and marketable title to all real property and good title to all personal property described in the Final Memorandum as being owned by it and good and marketable title to a leasehold estate in the real and personal property described in the Final Memorandum as being leased by it free and clear of all Liens or restrictions, except as described in the Final Memorandum. (b) All leases, contracts and agreements to which the Company or any of the Subsidiaries is a party or by which any of them is bound are valid and enforceable against the Company or such Subsidiary, and are valid and enforceable against the other party or parties thereto and are in full force and effect. (c) The Company and the Subsidiaries own or possess adequate licenses or other rights to use all Intellectual Property Rights necessary to conduct the businesses now or proposed to be operated by them as described in the Final Memorandum. 3.10 PROCEEDINGS. ------------ Except as set forth on Schedule 3.10, there is not pending or, to the Knowledge of the Company, threatened any Proceeding to which the Company or any of the Subsidiaries is a party, or to which the property or assets of the Company or any of the Subsidiaries are subject, before or brought by any Governmental Authority. 12 3.11 CONTRACTS. ---------- (a) Neither the Company nor any of its Subsidiaries is a party to (a) notes, bonds, mortgages, indentures, or material Permits or (b) other material written or oral contracts, agreements, instruments and other understandings, (i) involving annual amounts in excess of $10 million, (ii) that are material to the Company or any of its Subsidiaries, (iii) that are material to the financial condition or results of the operations of the Company and its Subsidiaries or (iv) that would have been required to be described in a prospectus pursuant to the Securities Act (collectively, the "Material Agreements"), except for those Material Agreements that are described in the Final Memorandum. (b) Each Material Agreement constitutes a valid and binding obligation of the Company and/or Subsidiary party thereto and to the Knowledge of the Company is enforceable against such other party in accordance with its terms. Each of the Company and the Subsidiaries have in all material respects performed all of the obligations required to be performed by each of them to date pursuant to the Material Agreements, and there exists no default, or any event which upon the giving of notice or the passage of time, or both, would give rise to a claim of a default in the performance by the Company and the Subsidiaries or, to the Knowledge of the Company, any other party to any of the Material Agreements, except where such default or event, individually or in the aggregate, has not had nor could it reasonably be expected to have a Material Adverse Effect. 3.12 INSURANCE. ---------- Each of the Company and the Subsidiaries carries insurance in such amounts and covering such risks as is adequate for the conduct of its business and the value of its properties. The Company has not received any notice that (i) any of such policies has been or will be canceled or terminated or will not be renewed on substantially the same terms as are now in effect or (ii) the premium on any of such policies will be materially increased on the renewal thereof. 3.13 ERISA. ------ The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. 13 3.14 ACCOUNTING. ----------- The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. 3.15 INVESTMENT COMPANY. ------------------- Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 3.16 SOLVENCY. --------- Immediately after the consummation of the transactions contemplated by this Agreement, the fair value and present fair saleable value of the assets of each of the Company and the Subsidiaries (each on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; none of the Company or the Subsidiaries (each on a consolidated basis) is, nor will any of the Company or the Subsidiaries (each on a consolidated basis) be, after giving effect to the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts (contingent or otherwise) as they mature or (iii) otherwise insolvent. 3.17 PRIVATE SALE. ------------- Assuming the accuracy of the representations of the Purchasers in Section 4.2, the offering, sale, and issuance of the Applicable Securities, as the case may be, will be, exempt from registration under the Securities Act and applicable state securities laws and the rules and regulations promulgated thereunder. Neither the Company nor any Person authorized or employed by the Company as agent, broker, dealer or otherwise in connection with the offering, sale or issuance of the Applicable Securities has offered the same for sale to, or solicited any offers to buy the same from, or otherwise approached or negotiated with respect thereto, any Person or Persons other than the Purchasers. 3.18 BROKERS. -------- In connection with this transaction, and the closing fee payable to the Purchasers in an amount equal to the amount set forth on Schedule I, none of the Company, any of the Company's Subsidiaries or any of their respective officers, directors, stockholders or employees (or any affiliate of the foregoing) has employed any broker or finder or incurred any actual or potential Liability or obligation, whether direct or indirect, for any 14 brokerage fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. 3.19 REGULATORY MATTERS. ------------------- Neither the Company nor any Subsidiary has engaged in any activities which are prohibited, or are cause for civil penalties of mandatory or permissive exclusion from Medicare or Medicaid, under Section 1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal CHAMPUS statute, or the regulations promulgated pursuant to such statutes or regulations or related state or local statutes or which are prohibited by any private accrediting organization from which the Company or any of its Subsidiaries seeks accreditation or by generally recognized professional standards of care or conduct. Neither the Company nor to the Knowledge of the Company any other Person who has a direct or indirect control interest in the Company or any Subsidiary or who is an officer, director, [agent or managing employee] of the Company or any Subsidiary: (1) has had a civil monetary penalty assessed against it under Section 1128A of the Social Security Act ("SSA"); (2) has been excluded from participation under the Medicare program or a Federal Health Care Program (as that term is defined in SSA Section 1128(B)(f)); or (3) has been convicted (as that term is defined in 42 C.F.R. (S) 1001.2) of any of the categories of offenses described in SSA Section 1128(a) and (b)(1), (2) and (3). 3.20 Y2K. ---- (a) Except as set forth on Schedule 3.20(a), all computer hardware and software owned, licensed or used by the Company (collectively, the "Computer Products") has been designed to be used prior to, during and after the calendar year 2000 AD, and will operate during each such time period without error relating to date data and date-dependent data, specifically including any error relating to, or the product of, date data which represents or references different centuries or more than one century. (b) Without limiting the generality of the foregoing, and at no additional cost to the Company, except as set forth on Schedule 3.20(b): (i) each Computer Product will not abnormally end or provide invalid or incorrect results as a result of date data, specifically including date data which represents or references different centuries or more than one century; (ii) each Computer Product has been designed to ensure year 2000 compatibility, including, but not limited to, date data century recognition, calculations which accommodate same century and multi-century formulas and date values and date data interface values that reflect the century; and (iii) each Computer Product (A) manages and manipulates data involving dates, including single century formulas and multi-century formulas, and will not cause an abnormally ending scenario within the application or generate incorrect values or invalid results involving such dates, (B) provides that all date-related user interface functionalities and data fields include the indication 15 of century and (C) provides that all date-related data interface functionalities include the indication of century. (c) At Purchaser's request and upon reasonable notice, the Company will provide written evidence sufficient to demonstrate adequate testing and conversion of each Computer Product to meet the foregoing requirements. 3.21 INCORPORATION OF NOVACARE PURCHASE AGREEMENT. --------------------------------------------- The Company hereby makes to the Purchasers each of the representations and warranties contained in Section II of the NovaCare Purchase Agreement, and such representations and warranties, as so made by the Company, shall be incorporated into this Agreement by reference as if set forth in full herein. 3.22 CERTIFICATES OF OFFICERS. ------------------------- Any certificate signed by any officer of the Company or any Subsidiary and delivered to any Purchaser or to counsel for the Purchasers shall be deemed a joint and several representation and warranty by the Company and each of the Subsidiaries to each Purchaser as to the matters covered thereby. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS Each Purchaser represents and warrants to the Company as to itself severally, and not jointly as to any other Purchaser, as of the date hereof, as follows: 4.1 AUTHORIZATION OF THE DOCUMENTS. ------------------------------- Such Purchaser has all requisite power and authority to execute, deliver and perform the Documents to which it is a party and the transactions contemplated thereby, and the execution, delivery and performance by such Purchaser of the Documents to which it is a party have been duly authorized by all requisite action by such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and this Agreement constitutes and, when executed and delivered by such Purchaser (assuming the due authorization, execution and delivery by the other parties thereto), each other Document to which such Purchaser is a party will constitute, a valid and binding obligation of such Purchaser, enforceable against such Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws and subject to general principles of equity. 4.2 INVESTMENT REPRESENTATIONS. --------------------------- Solely for establishing that the sale or issuance of the Redeemable Preferred Stock and, if applicable, the other Applicable Securities (if any), to such Purchaser, is exempt from the registration requirements of the Securities Act and comparable provisions of state blue-sky laws and not in any way to mitigate the responsibility or Liability of the Company for any breach of the representations and warranties made by it in this 16 Agreement, on which such Purchaser is relying in full in connection with its decision to invest in the Company: (a) Such Purchaser is acquiring the shares of Redeemable Preferred Stock for its own account, for investment and not with a view to the distribution thereof in violation of the Securities Act or applicable state securities laws. (b) Such Purchaser understands that (i) the Applicable Securities have not been registered under the Securities Act or applicable state securities laws by reason of their issuance by the Company in a transaction exempt from the registration requirements of the Securities Act and applicable state securities laws and (ii) the Applicable Securities must be held by such Purchaser indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt from such registration. (c) Such Purchaser further understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to such Purchaser) promulgated under the Securities Act depends on the satisfaction of various conditions, and that, if applicable, Rule 144 may afford the basis for sales of Securities acquired hereunder in limited amounts. (d) Such Purchaser has not employed any broker or finder in connection with the transactions contemplated by this Agreement. (e) Such Purchaser is an "accredited investor" (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act). Such Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the risks and merits of this investment. Such Purchaser's representations in this subsection shall in no way limit the enforceability of any representations made by the Company in any of the Documents to which it is a party. (f) Such Purchaser was not formed for the purpose of consummating the transactions contemplated hereby. ARTICLE V CONDITIONS TO CLOSING 5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS. -------------------------------------- The obligation of each Purchaser to purchase and pay for the Securities to be purchased hereunder at the Closing is subject to the satisfaction of the following conditions precedent (unless waived by such Purchaser): (a) The Company shall have filed the Certificate of Designations with and such filing shall have been accepted by the Secretary of State of the State of Delaware. 17 (b) The Company shall have duly issued and delivered to each Purchaser a certificate for the number of shares of Redeemable Preferred Stock purchased by such Purchaser. (c) The Company shall have duly executed and delivered to each Purchaser the Investor Rights Agreement. (d) The Company shall have executed and delivered to Chase and Paribas a Regulation Y Letter. (e) The Company shall have performed its obligations under, and shall have complied with, all the covenants and agreements set forth in this Agreement and all representations and warranties contained in Article III shall be true and correct in all material respects (except those representations and warranties that are qualified as to materiality, which shall be true and correct in all respects) as of the date hereof and at and as of the Closing Date with the same effect as if such representations and warranties had been made at and as of the Closing Date, and each Purchaser shall have received a certificate to that effect signed by an officer of the Company. (f) Each Purchaser shall have received an opinion from Freedman, Levy, Kroll & Simonds, counsel to the Company, in a form acceptable to the Purchasers. (g) Each Purchaser shall have received a certificate from the Secretary or an Assistant Secretary of the Company, dated as of the Closing Date, certifying (i) that true and complete copies of the Fundamental Documents of the Company as in effect on the Closing Date are attached thereto, (ii) as to the incumbency and genuineness of the signatures of each Person executing this Agreement and the other Documents on behalf of the Company and (iii) the genuineness of the resolutions (attached thereto) of the board of directors or similar governing body of the Company authorizing the execution, delivery and performance of this Agreement and the other Documents to which the Company is a party and the consummation of the transactions contemplated hereby and thereby. (h) The Company shall have filed with the Secretary of State of the State of Delaware a certificate of cancellation canceling all series of preferred stock other than the Redeemable Preferred Stock. (i) The Company shall have paid to each Purchaser a closing fee equal to the amount set forth opposite such Purchaser's name on Schedule I and shall have paid all fees and expenses of O'Sullivan Graev & Karabell, LLP, counsel to Chase, and White & Case, counsel to Paribas. (j) Each of the conditions to the obligations of the Company under the NovaCare Purchase Agreement shall have been satisfied, the Company shall not have delivered a notice of mandatory redemption to the holders of the Senior Subordinated Notes, each of the conditions to the Lenders' obligations set forth in the Credit Agreement shall have been satisfied or waived and each Purchaser shall have received a certificate from an officer of the Company certifying to the foregoing. 18 5.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. ---------------------------------------- The obligation of the Company to issue the shares of Redeemable Preferred Stock to the Purchasers at the Closing is subject to the satisfaction of the following conditions precedent (unless waived by the Company). (a) Each Purchaser shall have delivered to the Company by wire transfer, of immediately available funds to an account or accounts designated by the Company, an aggregate amount equal to the purchase price for the shares of Redeemable Preferred Stock being purchased by such Purchaser. (b) Each of the conditions to the obligations of the Company under the NovaCare Purchase Agreement shall have been satisfied, the Company shall not have delivered a notice of mandatory redemption to the holders of the Senior Subordinated Notes and each of the conditions to the Lenders' obligations set forth in the Credit Agreement shall have been satisfied or waived. ARTICLE VI INDEMNIFICATION 6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AGREEMENTS AND COVENANTS, ETC. ----------------------------------------------------------------------- All statements contained in this Agreement or any other Document or any closing certificate delivered by the Company or the Purchasers, pursuant to this Agreement or in connection with the transactions contemplated by this Agreement (each, a "Closing Certificate"), shall constitute representations and warranties by the Company, or the Purchasers, as applicable, under this Agreement. Notwithstanding any investigation made at any time by or on behalf of any party hereto, all representations and warranties contained in this Agreement or made in writing by or on behalf of the Company, or a Purchaser, in connection with the transactions contemplated by this Agreement shall survive the Closing until the third anniversary of the Closing Date, provided however, that the representations and warranties contained in Sections 3.2, 3.3 and 3.4 shall survive the Closing indefinitely, the representation and warranties contained in 3.8 shall survive the Closing and continue in full force and effect until the sixtieth day after the expiration of the statute of limitations applicable to the matters covered thereby and the representations and warranties contained in Section 3.20 shall survive the Closing until such time as they survive under the NovaCare Purchase Agreement. 6.2 INDEMNIFICATION. ---------------- (a) In addition to all other rights and remedies available to the Purchasers, the Company shall indemnify, defend and hold harmless each Purchaser and its affiliates and their respective partners, officers, directors, employees, agents and representatives (collectively, the "Purchaser Representatives"; and together with such Purchaser, the "Purchaser Indemnified Persons") against all Losses (without giving effect to any qualification as to materiality), and none of the Purchaser Indemnified Persons shall be liable to the Company or any other stockholder of the Company for or with respect to any and all Losses, together with all costs and expenses (including legal and accounting fees 19 and expenses) related thereto or incurred in enforcing this Article VI, (i) arising from the untruth, inaccuracy or breach of any of the representations or warranties of the Company contained in any Document or Closing Certificate or any facts or circumstances constituting any such untruth, inaccuracy or breach, (ii) arising from the breach of any covenant or agreement of the Company contained in any Document or Closing Certificate or any facts or circumstances constituting such breach, or (iii) arising from any Claim, except for any Claim made by the Company against such Purchaser pursuant to Section 6.2(b) (whenever made), resulting from or caused by any transaction, status, event, condition, occurrence or situation relating to, arising out of or in connection with (A) the status of, or conduct of the business and affairs of, the Company or (B) the execution, delivery and performance of this Agreement and the other Documents and the related documents and agreements contemplated hereby and thereby. Notwithstanding the foregoing, and subject to the following part of this sentence, upon judicial determination, which is final and no longer appealable, that the act or omission giving rise to the indemnification pursuant to Section 6.2(a)(iii) resulted primarily out of or was based primarily upon the indemnified party's gross negligence, fraud or willful misconduct, (unless such action was based upon the indemnified party's reliance in good faith upon any of the representations, warranties, covenants or promises made by the Company herein, or in the Documents), the Company shall not be responsible for any Losses sought to be indemnified in connection therewith, and the Company shall be entitled to recover from the indemnified party all amounts previously paid in full or partial satisfaction of such indemnity, together with all costs and expenses of the Company reasonably incurred in effecting such recovery, if any. (b) In addition to all other rights and remedies available to the Company, each Purchaser severally as to itself only and not as to any other Purchaser, shall indemnify, defend and hold harmless the Company and its officers, directors, employees, agents and representatives (collectively, the "Company Indemnified Persons,") against all Losses, together with all reasonable out-of-pocket costs and expenses (including legal and accounting fees and expenses) related thereto or incurred in enforcing this Article VI, (i) arising from the untruth, inaccuracy or breach of any of the representations or warranties of such Purchaser contained in any Document or Closing Certificate or any facts or circumstances constituting such untruth, inaccuracy or breach or (ii) arising from the breach of any covenant or agreement of such Purchaser contained in any Document or Closing Certificate or any facts or circumstances constituting such breach. (c) If for any reason the indemnity provided for in this Section is unavailable to any Indemnified Person or is insufficient to hold each such Indemnified Person harmless from all such Losses arising with respect to the transactions contemplated by this Agreement, then the Indemnifying Persons shall contribute to the amount paid or payable for such Losses in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnifying Persons on the one hand and such Indemnified Person on the other but also the relative fault of the Indemnifying Persons and the Indemnified Person as well as any relevant equitable considerations. In addition, the Indemnifying Persons shall reimburse any Indemnified Person upon demand for all reasonable expenses (including reasonable fees of legal counsel) incurred by such Indemnified Person in connection with investigating, preparing for or defending any such 20 action or claim. The indemnity, contribution and expenses reimbursement obligations that the Indemnifying Persons have under this Article VI shall be in addition to any Liability that the Indemnifying Persons may otherwise have. The Indemnifying Persons further agree that the indemnification and reimbursement commitments set forth in this Agreement shall apply whether or not the Indemnified Person is a formal party to any such Claim. (d) Any indemnification of an Indemnified Person by Indemnifying Persons pursuant to this Section shall be effected by wire transfer of immediately available funds from the Indemnifying Persons to an account designated by the Indemnified Person within 15 days after the determination thereof. (e) All indemnification rights hereunder shall survive the execution and delivery of the Documents and the consummation of the transactions contemplated herein and therein indefinitely, regardless of any investigation, inquiry or examination made for or on behalf of, or any knowledge of the Purchaser and/or any of the other Indemnified Parties or the acceptance by the Purchaser of any certificate or opinion. (f) By executing this Agreement, the Company (i) agrees that no Purchaser Indemnified Person shall have any Liability to the Company or its Subsidiaries pursuant to this Agreement, the other Documents or the transactions contemplated hereby or thereby (the "Covered Conduct") except (A) as provided in Section 6.2(b), and (B) to the extent that a court of competent jurisdiction shall have determined by final judgment, no longer subject to appeal, that the losses resulting from such Covered Conduct primarily resulted from or were based primarily upon such Purchaser Indemnified Person's willful misconduct or gross negligence, (ii) agrees that it will not make under any circumstances, and it will cause it Subsidiaries not to make under any circumstances, any claim against any Purchaser Indemnified Person, with respect to a Claim or Loss with respect to which such Person is entitled to indemnification hereunder, for any special, indirect or consequential damages in respect of any breach or wrongful conduct (whether the claim therefore is based on contract, tort or duty imposed by law) in connection with, arising out of or in any way related to, the transactions contemplated by and the relationship established by this Agreement, the other Documents or the transactions contemplated hereby or thereby, or any act, omission or event occurring in connection therewith, and (iii) waives, releases and agrees not to sue upon, and it agrees to cause its Subsidiaries not to sue upon any such Claim, for any such damages, whether or not accrued and whether or not known or suspected to exist in any such party's favor. ARTICLE VII TRANSFER OF SECURITIES 7.1 RESTRICTION ON TRANSFER. ------------------------ The Applicable Securities shall not be transferable except upon the conditions specified in this Article VII, which conditions are intended to insure compliance with the provisions of the Securities Act in respect of the transfer thereof. 21 7.2 RESTRICTIVE LEGENDS. -------------------- Each certificate evidencing the Applicable Securities and each certificate for any such securities issued to subsequent transferees of any such certificate shall (unless otherwise permitted by the provisions of Section 7.3 hereof) be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR APPLICABLE STATE BLUE SKY LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE SECURITIES PURCHASE AGREEMENT DATED AS OF JUNE 16, 1999, AMONG THE ISSUER HEREOF AND CERTAIN OTHER SIGNATORIES THERETO, AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE ISSUER HEREOF." 7.3 NOTICE OF TRANSFER. ------------------- (a) The holder of any Applicable Securities, by acceptance thereof agrees, prior to any transfer of any Applicable Securities, to give written notice to the Company of such holder's intention to effect such transfer and to comply in all other respects with the provisions of this Section 7.3. Each such notice shall describe the manner and circumstances of the proposed transfer and shall be accompanied by the written opinion, addressed to the Company, of counsel for the holder of Applicable Securities, as to whether in the opinion of such counsel (which opinion and counsel shall be reasonably satisfactory to the Company) such proposed transfer involves a transaction requiring registration of such Applicable Securities under the Securities Act; provided, however, that (i) in the case of a holder of Applicable Securities which is a partnership, no such opinion of counsel shall be necessary for a transfer by such holder of Applicable Securities to a partner of such holder of Applicable Securities, or a retired partner of such holder who retires after the date hereof, or the estate of any such partner or retired partner, if in each case the transferee agrees in writing to be subject to the terms of this Article VII to the same extent as if such transferee were originally a signatory to this Agreement, (ii) in the case of a holder of Applicable Securities which is a corporation, no such opinion of counsel shall be necessary for a transfer by such holder of Applicable Securities to an Affiliate, officer or director of such corporation and (iii) no such opinion shall be required in connection with a transfer pursuant to Rule 144 (as amended from time to time) promulgated under the Securities Act (or successor rule thereto), provided, 22 that the Company, shall be provided with customary written representations relating to such transaction. (b) If in the opinion of such counsel (if such opinion is required hereunder) the proposed transfer of Applicable Securities may be effected without registration under the Securities Act, the holder of Applicable Securities shall thereupon be entitled to transfer Applicable Securities in accordance with the terms of the notice delivered by it to the Company. (c) Each certificate or other instrument evidencing the securities issued upon the transfer of any Applicable Securities (and each certificate or other instrument evidencing any untransferred balance of such securities) shall bear the legend set forth in Section 7.2 hereof unless (i) in the opinion of such counsel registration of future transfer is not required by the applicable provisions of the Securities Act or (ii) the Company shall have waived the requirement of such legends; provided, however, that such legend shall not be required on any certificate or other instrument evidencing the securities issued upon such transfer in the event such transfer shall be made in compliance with the requirements of Rule 144 (as amended from time to time) promulgated under the Securities Act (or successor rule thereto). 7.4 TRANSFER PURSUANT TO RULE 144. ------------------------------ The Company agrees to make publicly available the current information with respect to the Company that is required by Rule 144(c) under the Securities Act and otherwise to take any other action or to execute any certificates necessary to permit a transfer by any holder of Applicable Securities to qualify for the exemption set forth in Rule 144. Without limiting the foregoing, if such information is not publicly available, then, upon a holder's request, the Company will provide such information to such holder or any prospective purchaser designated by such holder. ARTICLE VIII ADDITIONAL AGREEMENTS OF THE COMPANY 8.1 ESCROW OF PROCEEDS OF SENIOR SUBORDINATED NOTES. ------------------------------------------------ The Company will deposit the net proceeds from the sale of the Senior Subordinated Notes with the Trustee in a special account established under the Indenture, pending the closing of the transactions contemplated by the NovaCare Purchase Agreement. Upon the Closing, the Company will apply the net proceeds from the sale of the Senior Subordinated Notes as set forth under "Sources and Uses of Funds" in the Final Memorandum. 8.2 CONDUCT PENDING CLOSING. ------------------------ (a) From the date hereof to the Closing Date, the Company shall, and shall cause each Subsidiary to, carry on its business in the ordinary course consistent with past practice and use reasonable efforts to preserve intact its current business organization, keep available the services of its current officers and employees and preserve its 23 relationships with customers, suppliers, licensors, licensees and others having significant business dealings with it. Without limiting the generality of the foregoing, from the date hereof to the Closing Date, the Company shall not and shall cause each Subsidiary not to (except as expressly permitted by this Agreement or with the Purchaser's consent) (i) take any action or omit to take any action which would or reasonably could be expected to cause any of the representations and warranties contained in Article III to be untrue as of the Closing Date as if made as of the Closing Date or (ii) take any action which is not expressly permitted under Section 3.3 of the Certificate of Designations. (b) The Company shall use its best efforts to ensure that all conditions to the Closing set forth in Section 5.1 are satisfied on or prior to the Closing Date, including executing and delivering all documents required to be delivered by the Company at the Closing and taking any and all actions which may be necessary on its part to cause each other party to the Documents to so execute and deliver each Document. 8.3 EXISTING WARRANTS AND COMMON STOCK. ----------------------------------- (a) The Company acknowledges and consents to any transfer by Chase Venture Capital Associates, L.P. ("CVCA") of any and all shares of Common Stock of the Company and/or any and all warrants to purchase shares of Common Stock of the Company held by CVCA to Chase or any of Chase's affiliates. (b) Simultaneously with the effectiveness of the Charter Amendment, the Company shall amend each outstanding warrant to purchase shares of Common Stock held by Chase or any of its affiliates to cause such warrant to be exercisable for (i) shares of Non-Voting Common Stock or (ii) shares of Voting Common Stock (to the extent that shares of Non-Voting Common Stock could be converted by such holder into shares of Voting Common Stock). Each such amendment shall contain such other terms and conditions as shall be reasonably satisfactory to Chase and the Company. (c) If the Convertibility Effective Date has not occurred prior to December 31, 1999, the Company shall create a new series of non-voting preferred stock (the "Junior Preferred Stock"). The Junior Preferred Stock shall be substantially similar to the Non-Voting Common Stock, except that upon any Liquidation of the Company, (i) the holders thereof shall be entitled to a receive before any payment shall be made to the holders of any shares of Common Stock the greater of (A) $1.00 per share and (B) the amount that such holders would have received assuming that the Charter Amendment had been approved prior to such Liquidation and such holders had exercised their warrants to purchase shares of Non-Voting Common Stock) and (ii) the shares of Junior Preferred Stock shall rank junior to the Redeemable Preferred Stock. Without limiting the foregoing, the Junior Preferred Stock shall not be redeemable, the holders of Junior Preferred Stock shall be entitled to receive dividends to the same extent as the holders of shares of Voting Common Stock are entitled to receive dividends, the holders of shares of Junior Preferred Stock shall not have any preference over shares of Common Stock with respect to the payment of dividends and the Junior Preferred Stock shall contain such other terms and conditions as are reasonably satisfactory to the Purchasers and the Company. If the Charter Amendment shall not have become effective on or prior to 24 December 31, 1999, the Company shall amend each outstanding warrant to purchase shares of Common Stock held by Chase or any of its affiliates to cause such warrant to be exercisable from and after such date for shares of either (x) Junior Preferred Stock or (y) shares of Voting Common Stock to the extent that shares of Non-Voting Common Stock, if issued, could have been converted by such holder into shares of Voting Common Stock. (d) Prior to the Convertibility Effective Date, Chase will not exercise any warrant held by it if after giving effect to such conversion, Chase would own in excess of the maximum amount of Voting Common Stock as is permissible under Applicable Law. 8.4 AMENDMENT OF BY-LAWS. --------------------- The Company shall amend the by-laws of the Company to provide for the rights granted to the Investors pursuant to the Certificate of Designations and the Investor Rights Agreement. Without limiting the foregoing, the by-laws of the Company shall provide (a) for the directors elected by the Investors pursuant to the Certificate of Designations to be included on the Board's committees from and after the occurrence of an Event of Non-Compliance, (b) for the board observation rights in accordance with the terms and conditions set forth in the Investor Rights Agreement and (c) that meetings of the Board or any committee thereof may be held by telephone conference call. ARTICLE IX MISCELLANEOUS 9.1 FEES. ----- (a) The Company will pay, and save the Purchasers harmless against all Liability, whether or not the Closing hereunder occurs, for the payment of, (i) all costs and other expenses incurred from time to time by the Company in connection with the Company's performance of and compliance with all agreements and conditions contained herein on its part to be performed or complied with (including the reasonable costs and expenses of counsel incurred in connection with the review and preparation of the Documents), (ii) the actual and reasonable out-of-pocket costs and expenses incurred by the Purchasers in connection with the transactions contemplated hereby, including reasonable fees, expenses and charges of O'Sullivan Graev & Karabell, LLP (counsel to Chase) and White & Case (counsel to Paribas), (iii) the reasonable costs and expenses (including fees, expenses and charges of counsel) incurred by the Purchasers in connection with any amendment or waiver of, or enforcement of, any Document relating to the transactions contemplated hereby and (iv) the reasonable costs and expenses incurred by each Purchaser in any filing with any Governmental Authority with respect to its investment in the Company or in any other filing with any Governmental Authority with respect to the Company that mentions such Purchaser. (b) The Company further agrees that it will pay, and will save the Purchasers harmless from, any and all Liability with respect to any stamp or similar taxes which may be determined to be payable in connection with the execution and delivery 25 and performance of the Documents or any modification, amendment or alteration of the terms or provisions of the Documents, and that it will similarly pay and hold the Purchasers harmless from all issue taxes in respect of the issuance of any Applicable Securities to the Purchasers. (c) The Company further agrees to pay to each Purchaser the fees set forth in Schedule I opposite such Purchaser's name. (d) Notwithstanding anything to the contrary set forth in this Agreement, any fees, expenses, costs or charges which are payable by the Company pursuant to this Section 9.1 may be paid by the applicable Purchaser by set-off by reducing the consideration to be paid at the Closing in respect of the shares of Redeemable Preferred Stock to be purchased by such Purchaser. Notwithstanding any such set-off, such shares shall be fully paid and non-assessable. 9.2 FURTHER ASSURANCES. ------------------- The Company shall duly execute and deliver, or cause to be duly executed and delivered, at its own cost and expense, such further instruments and documents and to take all such action, in each case as may be necessary or proper in the reasonable judgment of the Purchasers to carry out the provisions and purposes of the Agreement and the other Documents. 9.3 REMEDIES. --------- In case any one or more of the representations, warranties, covenants and/or agreements set forth in this Agreement shall have been breached by the Company, the Purchasers (or any Purchaser) may proceed to protect and enforce its or their rights either by suit in equity and/or by action at law, including an action for damages as a result of any such breach and/or an action for specific performance of any such covenant or agreement contained in this Agreement. 9.4 SUCCESSORS AND ASSIGNS. ----------------------- This Agreement shall bind and inure to the benefit of the Company and the Purchasers and their respective successors, assigns, heirs and personal representatives. Upon any transfer of any Applicable Securities, the transferee shall be bound by, and entitled to the benefits of, this Agreement with respect to such transferred Securities in the same manner as the transferring Purchaser. 9.5 ENTIRE AGREEMENT. ----------------- This Agreement and the other writings referred to herein or delivered pursuant hereto which form a part hereof contain the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 26 9.6 NOTICES. -------- All notices and other communications delivered hereunder (whether or not required to be delivered hereunder) shall be deemed to be sufficient and duly given if contained in a written instrument (a) personally delivered, (b) sent by telecopier, (c) sent by nationally-recognized overnight courier guaranteeing next Business Day delivery or (d) sent by first class registered or certified mail, postage prepaid, return receipt requested, in each case addressed as follows: if to the Company, to: Hanger Orthopedic Group, Inc. 7700 Old Georgetown Road Bethesda, MD 20814 Telephone: (301) 986-0701 Telecopier: (301) 652-8307 Attention: Mr. Richard Stein, Secretary with a copy to: Freedman, Levy, Kroll & Simonds 1050 Connecticut Avenue, NW, Suite 825 Washington, DC 20036-5366 Telephone: (202) 457-5102 Telecopier: (202) 457-5151 Attention: Jay W. Freedman, Esq. if to any Purchaser, to him, her or it at his, her or its address set forth on Schedule I attached hereto; with a copy to: O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, NY 10112 Telephone: (212) 408-2400 Telecopier: (212) 728-5950 Attention: Harvey M. Eisenberg, Esq. or to such other address as the party to whom such notice or other communication is to be given may have furnished to each other party in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (i) when delivered, if personally delivered, (ii) when sent, if sent by telecopy on a Business Day (or, if not sent on a Business Day, on the next Business Day after the date sent by telecopy), (iii) on the next Business Day after dispatch, if sent by nationally recognized, overnight courier guaranteeing next Business Day delivery, and (iv) on the fifth Business Day following 27 the date on which the piece of mail containing such communication is posted, if sent by mail. 9.7 AMENDMENTS, MODIFICATIONS AND WAIVERS. -------------------------------------- The terms and provisions of this Agreement may not be modified or amended, nor may any of the provisions hereof be waived, temporarily or permanently, except pursuant to a written instrument executed by the Company and the Requisite Senior Holders; provided however that any such amendment, modification or waiver that would adversely affect the rights hereunder of any Purchaser, in its capacity as a Purchaser, without similarly affecting the rights hereunder of all Purchasers, in their capacities as Purchasers, shall not be effective as to such Purchaser without its prior written consent. No waiver by any party shall operate or be construed as a waiver of any subsequent breach by any other party. 9.8 GOVERNING LAW; WAIVER OF JURY TRIAL. ------------------------------------ All questions concerning the construction, interpretation and validity of the Documents shall be governed by and construed and enforced in accordance with the domestic laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether in the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. In furtherance of the foregoing, the internal law of the State of Delaware will control the interpretation and construction of the Documents, even if under such jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily or necessarily apply. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT OR ANY DOCUMENTS RELATED HERETO. 9.9 NO THIRD PARTY RELIANCE. ------------------------ Anything contained herein to the contrary notwithstanding, the representations and warranties of the Company contained in this Agreement (a) are being given by the Company as an inducement to the Purchasers to enter into this Agreement and the other Documents (and the Company acknowledges that the Purchasers have expressly relied thereon) and (b) are solely for the benefit of the Purchasers. Accordingly, no third party (including, without limitation, any holder of capital stock of the Company) or anyone 28 acting on behalf of any thereof other than the Purchasers, and each of them, shall be a third party or other beneficiary of such representations and warranties and no such third party shall have any rights of contribution against the Purchasers or the Company with respect to such representations or warranties or any matter subject to or resulting in indemnification under this Agreement or otherwise. 9.10 SUBMISSION TO JURISDICTION. --------------------------- Any legal action or proceeding with respect to this Agreement or the other Documents may be brought in the courts of the State of New York and the United States of America for the Southern District of New York and, by execution and delivery of this Agreement, the Company hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Company hereby irrevocably waives, in connection with any such action or proceeding, any objection, including, without limitation, any objection to the venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any such action or proceeding in such respective jurisdictions. The Company hereby irrevocably consents to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its address as set forth herein. Nothing herein shall affect the right of the Purchasers to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company in any other jurisdiction. 9.11 SEVERABILITY. ------------- It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. 9.12 INDEPENDENCE OF AGREEMENTS, COVENANTS, REPRESENTATIONS AND WARRANTIES. ---------------------------------------------------------------------- All agreements and covenants hereunder shall be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant, the fact that such action or condition is permitted by another agreement or covenant shall not affect the occurrence of such default, unless expressly permitted under an exception to such initial covenant. In addition, all representations and warranties hereunder shall be given independent effect so that if a particular representation or warranty proves to be incorrect or is breached, the fact that another representation or 29 warranty concerning the same or similar subject matter is correct or is not breached will not affect the incorrectness of or a breach of a representation and warranty hereunder. 9.13 COUNTERPARTS; FACSIMILE SIGNATURES. ----------------------------------- This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. Facsimile counterpart signatures to this Agreement shall be acceptable and binding. * * * * 30 IN WITNESS WHEREOF, the parties hereto have executed this Securities Purchase Agreement as of the date first above written. HANGER ORTHOPEDIC GROUP, INC. By: ______________________________ Name: Title: PURCHASERS CHASE EQUITY ASSOCIATES, L.P. By: Chase Capital Partners, its General Partner By: ______________________________ Name: Title: PARIBAS NORTH AMERICA, INC. By: ______________________________ Name: Title: 31 SCHEDULE I
- ------------------------------------------------------------------------------------------------------------------------- AGGREGATE NAME AND ADDRESS NUMBER OF SHARES PRICE OF SHARES CLOSING FEE - ------------------------------------------------------------------------------------------------------------------------- CHASE EQUITY ASSOCIATES, L.P. 50,000 $50,000,000 $500,000 c/o Chase Capital Partners 380 Madison Avenue, 12th Floor New York, NY 10017 Attention: Eric Green Tel: (212) 622-3100 Fax: (212) 622-3101 - ------------------------------------------------------------------------------------------------------------------------- PARIBAS NORTH AMERICA, INC. 10,000 $10,000,000 $100,000 787 7th Avenue, 32nd Floor New York, NY 10019 Attention: Donald Ercole Tel: (212) 841-2540 Fax: (212) 841-2363 - ------------------------------------------------------------------------------------------------------------------------- TOTAL 60,000 $60,000,000 $600,000 - -------------------------------------------------------------------------------------------------------------------------
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