Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

This EMPLOYMENT AGREEMENT is dated as of September 1, 2014 (“Agreement”) by and
between HANGER PROSTHETICS & ORTHOTICS, INC., a Delaware corporation (the
“Company”), and SAMUEL M. LIANG (the “Executive”). In consideration of the
promises and mutual agreements set forth below, both parties agree as follows:

 

1.                                      Employment; Term.

 

(a)                                 The Company agrees to employ the Executive
and the Executive accepts such employment by the Company upon the terms and
conditions set forth in this Agreement, for the period beginning on September 1,
2014 (the “Commencement Date”) and ending upon termination pursuant to Section 4
or Section 5 (the “Employment Period”).

 

(b)                                 The parties acknowledge the letter agreement
between the Executive and MEDRAD, a business Bayer Medical Care Division of
Bayer Healthcare, dated as of April 26, 2010, and the Group Executive Employment
Agreement, effective as of July 1, 2011, between the Executive and Bayer
Healthcare LLC (collectively, the “Bayer Agreements”). The Executive represents
and warrants that the Bayer Agreements do not and will not in any way prevent
the Executive from serving in the roles described in Section 2 below and that
Executive is not subject to any restrictive covenants (including, without
limitation, covenants not to compete and covenants not to solicit) that would
prevent the Executive from entering into this Agreement or providing services on
the Company’s behalf. The Executive agrees not to use or disclose in the course
of the Executive’s employment with the Company any confidential information or
trade secrets of any other Person.

 

2.                                      Services.

 

During the Employment Period, the Executive agrees (i) to devote the Executive’s
best efforts and full business time and attention to the business affairs of
Hanger, Inc. (“Hanger”) and the Company and the performance of his duties and
responsibilities hereunder (except for reasonable vacation periods subject to
the reasonable approval of the Company or reasonable periods of illness or other
incapacity); (ii) to render such services as Hanger’s Chief Executive Officer,
the Board of Directors of Hanger (the “Board of Directors”) or the Company, as
applicable, may from time to time direct; provided, however, that the Executive
recognizes and agrees that the Company or Hanger may change the Executive’s job
description as set forth in this Section 2 as a result of a good faith
restructuring of the Company’s or Hanger’s operations; (iii) that the Executive
will not, except with the prior written consent of the Company or Hanger, become
engaged in or render services for any business other than the business of the
Company or Hanger; and (iv) that the Executive will follow the written policies
and procedures of the Company and Hanger, as set forth by the Company and Hanger
from time to time, as well as all applicable federal and state healthcare laws,
rules and regulations.  The Executive shall faithfully and diligently perform
the duties appropriate to the position of Executive Vice President of Hanger and
the Executive shall faithfully and diligently perform the duties appropriate to
the position of President of the Company, which, in addition to those
responsibilities assigned to him from time to time by Hanger’s Chief Executive
Officer or the Board of Directors, shall include, among other things,
responsibility for the overall performance of the Company and the Company’s
subsidiaries.

 

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3.                                      Salary, Incentive Bonus, Stock Options,
Other Benefits.

 

In consideration for the valuable services to be rendered by the Executive and
for the Executive’s agreement not to disclose or use Confidential Information of
the Company as described in Section 6 and not to compete against the Company as
described in Section 7, the Company hereby agrees as follows:

 

3.1                               Salary.  The Company will pay the Executive a
minimum base salary at the rate of Four Hundred Twenty-Five Thousand Dollars
($425,000.00) per annum, payable in accordance with the standard payroll
practices of the Company (the “Base Salary”).  The Executive shall be entitled
to such increases in Base Salary during the Employment Period as shall be
determined and approved by the Compensation Committee of the Board of Directors
in its sole discretion, taking account of the performance of Hanger, the Company
and the Executive, and other factors generally considered relevant to the
salaries of executives holding similar positions with enterprises comparable to
Hanger.

 

3.2                               Bonuses.

 

(a)                                 In addition to the Base Salary, the
Executive shall participate in Hanger’s current bonus plan for senior corporate
officers (the “Bonus Plan”), as approved by the Compensation Committee of the
Board of Directors in each calendar year during the term of this Agreement.  The
Executive’s target bonus is sixty percent (60%) of the Base Salary (the “Target
Bonus”) and is contingent on the Executive meeting certain performance criteria
and Hanger and the Company achieving certain year-end financial criteria, and up
to one hundred twenty percent (120%) of the Base Salary (the “Maximum Bonus”) if
the Executive exceeds certain performance criteria and Hanger and the Company
exceed certain year-end financial criteria all as determined in the reasonable
discretion of the Board of Directors and its Compensation Committee.  The
Executive shall be entitled to such increases in the “Target Bonus” and the
“Maximum Bonus” during the term hereof as shall be determined and approved by
the Compensation Committee of the Board of Directors in its sole discretion,
taking account of the performance of Hanger, the Company and the Executive, and
other factors generally considered relevant to the salaries of executives
holding similar positions with enterprises comparable to Hanger. 
Notwithstanding the foregoing, in the event that the Executive, Hanger or the
Company fail to attain their minimum respective criteria in any given year, the
Board of Directors and its Compensation Committee may, in their reasonable
discretion, decline to award any bonus to the Executive. For the avoidance of
doubt, (I) so long as the Executive remains continuously employed with the
Company from the Commencement Date through December 31, 2014, the Executive’s
bonus will be calculated as if the Executive had been employed by the Company
for the entire calendar year of 2014, and (II) the performance criteria for the
part of 2014 following the Commencement Date shall be established within sixty
(60) days following the Commencement Date.

 

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(b)                                 The bonus described in Section 3.2(a) shall
be payable between January 1 and March 15 (inclusive) of the calendar year
following the calendar year for which the bonus is determined in accordance with
the Company’s normal practices.  For calendar year 2014, so long as the
Executive is employed with the Company through December 31, 2014, the
Executive’s bonus shall be calculated as if the Executive had been employed with
the Company for all of 2014. In the event that the Executive is employed for
less than the full calendar year in the year in which his Termination Date
occurs (“Termination Year”), the bonus payable to the Executive shall be subject
to Sections 4 and 5 of this Agreement and calculated based on the Executive
meeting certain performance criteria and Hanger achieving certain year-end
financial criteria, all as determined by the Compensation Committee of the Board
of Directors, in its sole discretion.  Such bonus shall be pro-rated for the
portion of the Termination Year during which the Executive was employed by the
Company.  With respect to the bonus for the Termination Year, any bonus payable
pursuant to this Section 3.2(b) shall be payable to the Executive between
January 1 and March 15 (inclusive) of the calendar year following the calendar
year for which the bonus is determined in accordance with the Company’s normal
practices.

 

(c)                                  The Company has paid to the Executive, and
the Executive acknowledges receipt of, a one-time bonus in the form of a lump
sum cash payment of Twenty Thousand Dollars ($20,000.00), less all applicable
payroll taxes and other normal deductions (“Sign-On Bonus”), upon the terms and
conditions set forth in the Promissory Note executed by the Executive as maker
and in favor of the Company as holder, in the form attached hereto as
Exhibit A-1, pursuant to which the Executive shall be obligated to repay the
Sign-On Bonus to the Company immediately upon the termination of the Executive’s
employment with the Company pursuant to Section 4.3 or Section 4.5 prior to
May 1, 2015.

 

3.3                               Stock Options & Restricted Stock.

 

(a)                                 In addition to the compensation described in
Section 3.1 and Section 3.2 of this Agreement, the Executive may have the
opportunity to receive options to purchase stock or restricted shares of stock
of Hanger in a manner consistent with any stock option or restricted share plan
adopted by Hanger. The determination as to the amount of stock, if any, to be
purchased under such stock option or restricted share plan shall be subject to
the sole discretion of the Board of Directors of Hanger or a committee thereof.

 

(b)                                 As an incentive for the Executive’s future
performance in improving shareholder value, the Company granted to the
Executive, and the Executive acknowledges receipt of: (i) a special, time-based
grant of Three Hundred Thousand Dollars ($300,000.00) worth of restricted shares
of Hanger stock (“Special Grant”); and (ii) a grant for the calendar year 2014
of Four Hundred Thousand Dollars ($400,000.00) worth of restricted shares of
Hanger stock, half of which is time-based and half of which is performance-based
(“2014 Grant”).  The vesting schedule for the Special Grant and the 2014 Grant
shall conform to the vesting schedule described in Section 3.3(c) of this
Agreement and the Stock Agreement (as hereinafter defined). The Special Grant
and the 2014 Grant shall be subject to such other terms and conditions as
reasonably determined by Hanger’s Board of Directors or a committee thereof,
consistent with the terms and conditions of the applicable stock incentive plan
and restricted share grant agreement(s).

 

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(c)                                  The options or restricted shares provided
in Section 3.3(a) and Section 3.3(b) shall be evidenced by one or more stock
option agreements or restricted share grant agreements (each, a “Stock
Agreement”) between the Executive and Hanger, which Stock Agreement(s) shall
provide for a vesting schedule of four (4) years, in equal parts, of the options
or restricted shares granted thereunder.  Notwithstanding any provisions now or
hereafter existing under any stock incentive plan of Hanger, all options or
restricted shares granted to the Executive shall vest in full immediately upon
the Termination Date except for termination of employment pursuant to
Section 4.3 or Section 4.5 hereof, and the Executive (or his estate or legal
representative, if applicable) shall thereafter have twelve (12) months from
such Termination Date to exercise such options, if applicable.

 

(d)                                 Notwithstanding any provisions now or
hereafter existing under any stock option plan or restricted share plan of
Hanger, in the event of a Change in Control (as hereinafter defined), all
options or restricted shares provided to the Executive pursuant to
Section 3.3(a) and Section 3.3(b) of this Agreement or any Stock Agreement shall
be granted and shall immediately fully vest as of the date of such Change in
Control with such options or restricted shares being valued at the closing price
of Hanger’s common stock on the day prior to the day of the Change in Control.

 

(e)                                  For purposes of this Agreement, a “Change
in Control” shall be deemed to exist if:

 

(i)                                     a person, as defined in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934 (other than the Executive
or a group including the Executive), either (A) acquires twenty percent (20%) or
more of the combined voting power of the outstanding securities of Hanger having
the right to vote in elections of directors and such acquisition shall not have
been approved within sixty (60) days following such acquisition by a majority of
the Continuing Directors (as hereinafter defined) then in office, or
(B) acquires fifty percent (50%) or more of the combined voting power of the
outstanding securities of Hanger having a right to vote in elections of
directors; or

 

(ii)                                  Continuing Directors shall for any reason
cease to constitute a majority of the Board of Directors; or

 

(iii)                               Hanger disposes of all or substantially all
of the business of Hanger to a party or parties other than a subsidiary or other
affiliate of Hanger pursuant to a partial or complete liquidation of Hanger,
sale of assets (including stock of a subsidiary of Hanger) or otherwise; or

 

(iv)                              the Board of Directors approves Hanger’s
consolidation or merger with or into any other Person (other than a wholly-owned
subsidiary of Hanger), or any other Person’s consolidation or merger with or
into Hanger, which results in all or part of the outstanding shares of Stock
being changed in any way or converted into or exchanged for stock or other
securities or cash or any other property.

 

(f)                                   For purposes of this Agreement, the term
“Continuing Director” shall mean a member of the Board of Directors who either
was a member of the Board of Directors on the date hereof or who subsequently
became a Director of Hanger and whose election, or nomination for election, was
approved by a vote of at least two-thirds (2/3) of the Continuing Directors then
in office.

 

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3.4                               Benefits.  The Executive also shall be
entitled to (i) an automobile allowance in the amount of One Thousand Dollars
($1,000.00) per month and the provision of, or reimbursement for, parking of
such automobile at the Company’s headquarters, (ii) five (5) weeks of vacation
per year, and (iii) sick leave, medical and other benefits, including, without
limitation, participation in the Company’s Supplemental Executive Retirement
Program (“SERP”) and appropriate directors and officers liability insurance (to
the extent commercially reasonable for the Company to obtain such insurance),
all of which are consistent with those received by other similarly-situated
members of the Board of Directors and/or senior executives of Hanger and its
subsidiaries as determined in the sole discretion of the Compensation Committee
of the Board of Directors. For 2014, the Executive’s level of contribution in
the SERP shall be twenty percent (20%) of the Executive’s Base Salary. Following
2014, the Executive’s level of contribution in the SERP shall be determined by
Hanger’s Board of Directors or a committee thereof. The Executive shall receive
the life insurance equal to whatever the Company provides to its employees, plus
additional life insurance in an amount equal to Four Hundred Fifty Thousand
Dollars ($450,000.00), with the premiums for such policy to be paid by the
Company, and the Executive shall also receive the option to participate in the
Company’s supplemental life and accidental death and dismemberment policies,
with the premiums for such policies to be paid by the Executive, all in
accordance with the terms and conditions of such policies as generally applied
by the Company.

 

3.5                               Determination of Cap or Payment.

 

(a)                                 Notwithstanding any other provision of this
Agreement, if any portion of any payment under this Agreement, or under any
other agreement or arrangement with the Executive or plan of the Company or one
of its subsidiaries or affiliates (in the aggregate, “Total Payments”), would
constitute an “excess parachute payment” and would, but for this Section 3.5,
result in the imposition on the Executive of an excise tax under Code
Section 4999 (the “Excise Tax”), then the Total Payments to be made to the
Executive shall either be (i) delivered in full, or (ii) reduced to 299.99% of
the Executive’s “base amount” for purposes of Code Section 280G so that no
portion of such Total Payments would be subject to the Excise Tax, whichever of
the foregoing results in the receipt by the Executive of the greatest benefit on
an after-tax basis (taking into account the applicable federal, state and local
income taxes and the Excise Tax).

 

(b)                                 Within forty (40) days following a
termination or notice by one party to the other of its belief that there is a
payment or benefit due the Executive that will result in an excess parachute
payment, the Company shall obtain, at its expense, the opinion (which need not
be unqualified) of nationally recognized tax counsel (“Tax Counsel”) selected by
the Compensation Committee of the Board of Directors, which sets forth (i) the
“base amount” within the meaning of Code Section 280G; (ii) the aggregate
present value of the payments in the nature of compensation to the Executive as
prescribed in Code Section 280G(b)(2)(A)(ii); (iii) the amount and present value
of any “excess parachute payment” within the meaning of Code Section 280G(b)(1);
and (iv) the net after-tax proceeds to the Executive, taking into account the
tax imposed under Code Section 4999 if (x) the Total Payments were delivered in
full or (y) the Total Payments were reduced in accordance with Section 3.5(a). 
Such opinion shall be addressed to the Company and the Executive and shall be
binding upon the Company and the Executive.  If such opinion determines that
clause (a)(ii) above applies, then the payments or benefits under this agreement
or any other payment or benefit determined by Tax Counsel to be includable in
the Total Payments shall be reduced or eliminated so that under the bases of
calculations set forth in such opinion there will be no excess parachute
payment.  In such event, payments or benefits included in the Total Payments
shall be reduced or eliminated by applying the following principles, in order: 
(1) the payment or benefit with the higher ratio of the parachute payment value
to present economic value (determined using reasonable actuarial assumptions)
shall be reduced or eliminated before a payment or benefit with a lower ratio;
(2) the payment or benefit with the later payment date shall be reduced or
eliminated before a payment or benefit with an earlier payment date; and
(3) cash payments shall be reduced prior to non-cash benefits; provided that if
the foregoing order of reduction or elimination would violate Code Section 409A,
then the reduction shall be made pro rata among the payments or benefits to be
received by the Executive (on the basis of the relative present value of the
parachute payments).

 

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(c)                                  For purposes of this Agreement, (i) the
value of any noncash benefits or any deferred payment or benefit shall be
determined in accordance with the principles of Code Sections 280G(d)(3) and
(4), and (ii) the Executive shall be deemed to pay federal income tax and
employment taxes at the highest stated rate of federal income and employment
taxation, and state and local income taxes at the highest stated rate of
taxation in the state or locality of the Executive’s domicile (determined in
both cases in the calendar year in which the termination or notice described in
Section 3.5(b) is given, whichever is earlier), net of the maximum reduction in
federal income taxes that may be obtained from the deduction of such state and
local taxes.

 

(d)                                 If such Tax Counsel so requests in
connection with the opinion required by this Section 3.5, the Company shall
obtain, at its expense, and the Tax Counsel may rely on, the advice of a firm of
recognized executive compensation consultants as to (1) the reasonableness of
any item of compensation to be received by the Executive solely with respect to
its status under Code Section 280G, or (2) the fair market value of any non-cash
benefit.  Such firm shall be selected by the Compensation Committee of the Board
of Directors.

 

(e)                                  This Section 3.5 shall be amended to comply
with any amendment or successor provision to Code Sections 280G or 4999.  If
such provisions are repealed without successor, then this Section 3.5 shall be
cancelled without further effect.

 

3.6                               Relocation.  The Executive shall relocate the
Executive’s and his family’s primary residence to within fifty (50) miles of
Austin, Texas on or before December 31, 2016. The Executive shall receive the
following benefits subject to the following terms and conditions in connection
with the Executive’s relocation:

 

(a)                                 In order to defray the temporary living and
travel costs associated with the Executive’s delayed relocation, the Company has
paid to Executive, and the Executive acknowledges receipt of, a one-time travel
bonus in the form of a lump sum cash payment of Fifty Thousand Dollars
($50,000.00), less all applicable payroll taxes and other normal deductions
(“Travel Bonus”), upon the terms and conditions set forth in the Promissory Note
executed by the Executive as maker and in favor of the Company as holder, in the
form attached hereto as Exhibit A-2, pursuant to which the Executive shall be
obligated to repay the Travel Bonus to the Company immediately upon the
termination of the Executive’s employment with the Company pursuant to
Section 4.3 or Section 4.5 prior to May 1, 2015.

 

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(b)                                 Provided that the Executive relocates the
Executive’s and his family’s primary residence to within fifty (50) miles of
Austin, Texas on or before September 30, 2016, within thirty (30) days after the
date of the relocation (“Relocation Date”) and the Executive’s provision of
notice thereof to the Company, the Company will pay the Executive a one-time
bonus in the form of a lump sum cash payment of Two Hundred Thousand Dollars
($200,000.00), less all applicable payroll taxes and other normal deductions
(“Relocation Bonus”), upon the terms and conditions set forth in the Promissory
Note to be executed by the Executive as maker and in favor of the Company as
holder, in the form attached hereto as Exhibit A-3, pursuant to which the
Executive shall be obligated to repay the Relocation Bonus to the Company
immediately upon the termination of the Executive’s employment with the Company
pursuant to Section 4.3 or Section 4.5 prior to the one (1) year anniversary
date of the Relocation Date.

 

(c)                                  The relocation benefits set forth in the
Company’s Senior Executive AVX Relocation Policy, a copy of which is attached
hereto as Exhibit B, consistent with the relocation policies and procedures of
the Company for executives, as previously disclosed by the Company to the
Executive.

 

4.                                      Termination of Employment.

 

4.1                               Death. The Executive’s employment shall be
terminated by the Executive’s death.  In the event of the death of the
Executive, the Company shall pay to the estate or other legal representative of
the Executive the Base Salary (at the annual rate in effect) and vacation as
accrued through the Termination Date and the bonus provided for in Section 3.2
for the Termination Year (as well as any then earned but unpaid bonus for the
year preceding the Termination Year, if applicable).  Except as otherwise
provided in this Agreement, the rights and benefits of the estate or other legal
representative of the Executive under the benefit plans and programs of the
Company shall be determined in accordance with the provisions of such plans and
programs.

 

4.2                               Disability.

 

(a)                                 “Disability” means, for purposes of this
Agreement, that the Executive is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
which can be expected to result in death or can be expected to last for a
continuous period of not less than twelve (12) months as determined by an
independent physician reasonably satisfactory to the Executive and the Company,
whose fees shall be paid by the Company.

 

(b)                                 If the Executive shall incur a Disability,
the employment of the Executive shall be terminated.  In the event of such
termination, the Company shall pay to the Executive the Base Salary (at the
annual rate then in effect) and vacation accrued through the Termination Date
and the bonus provided for in Section 3.2 for the Termination Year (as well as
any then earned but unpaid bonus for the year preceding the Termination Year, if
applicable). Except as otherwise provided under this Agreement, the rights and
benefits of the Executive or his transferee under the benefit plans and programs
of the Company shall be determined in accordance with the provisions of such
plans and programs.

 

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4.3                               Due Cause.  The employment of the Executive
hereunder may be terminated by the Company at any time for Due Cause (as
hereinafter defined).  In the event of such termination, the Company shall pay
to the Executive the Base Salary (at the annual rate then in effect) and
vacation accrued through the Termination Date and not theretofore paid to the
Executive.  Except as otherwise provided under this Agreement, the rights and
benefits of the Executive or his transferee under the benefit plans and programs
of the Company shall be determined in accordance with the provisions of such
plans and programs.  For purposes hereof, “Due Cause” shall mean any of: (i) the
repeated failure or refusal of the Executive to follow in all material respects
specific lawful directives of the Chief Executive Officer of Hanger, the Board
of Directors or the Company (except due to sickness, injury or disabilities),
(ii) gross inattention to duty or any other willful, reckless or grossly
negligent act (or omission to act) by the Executive, which, in the good faith
judgment of the Chief Executive Officer of Hanger or the Board of Directors,
materially injures the Company, including the repeated failure to follow in all
material respects the lawful written policies and procedures of the Company,
(iii) a material breach of this Agreement by the Executive after written notice
of such breach and a failure to cure within thirty (30) days of such notice, or
(iv) the commission by the Executive of a felony or other crime involving moral
turpitude or an act of financial dishonesty against Hanger and/or the Company.

 

4.4                               Termination by the Company Without Cause.

 

(a)                                 The Company may terminate the Executive’s
employment at any time, for whatever reason it deems appropriate or without
reason; provided, however, that in the event that such termination is not
pursuant to Section 4.1 (Death); Section 4.2 (Disability); Section 4.3 (Due
Cause); Section 4.5 (Voluntary Termination); or Section 4.6 (Retirement), the
Company shall pay to the Executive the Base Salary (at the annual rate then in
effect) and vacation accrued through the Termination Date and the bonus provided
for in Section 3.2 for the Termination Year (as well as any then earned but
unpaid bonus for the year preceding the Termination Year, if applicable).

 

(b)                                 In addition to the payments described in
Section 4.4(a), the Company shall pay to the Executive, on the date that is six
(6) months and one day after the Termination Date, a lump sum in an amount equal
to eighteen (18) months of the monthly Base Salary (at the annual rate in effect
immediately prior to termination) and an additional bonus payment equal to one
and one-half (1.5) times the Target Bonus for the Termination Year
(collectively, the “Severance Payment”). In addition, the Company shall for
eighteen (18) months following the Termination Date, (i) reimburse the Executive
for his reasonable costs of medical and dental coverage as provided under COBRA,
(ii) reimburse the Executive for his reasonable costs incurred in maintaining
his life and disability coverage, and (iii) reimburse the Executive for similar,
applicable benefits granted to the Executive in Section 3.4, each at levels
substantially equivalent to those provided by the Company to the Executive
immediately prior to the termination of his employment (including such other
benefits as shall be provided to senior corporate officers of the Company in
lieu of such benefits from time to time during the eighteen (18) month payment
period), on the same basis, including the Company’s payment of premiums and
contributions, as such benefits are provided to other senior corporate officers
of the Company or were provided to the Executive prior to the termination;
provided, however, that no further contribution to the SERP shall be made to the
benefit of the Executive following the Termination Date, in accordance with the
SERP’s terms. Reimbursements of expenses which provide for nonqualified deferred
compensation under Code Section 409A, if any, shall not be paid before six
(6) months and one day after the Executive’s Termination Date.  The amount of
expenses eligible for reimbursement, or in-kind benefits provided, during a
taxable year of the Executive may not affect the expenses eligible for
reimbursement, or in-kind benefits to be provided in any other taxable year. 
Reimbursements shall be paid on or before the last day of the Executive’s
taxable year following the taxable year in which the expense was incurred.  The
right to reimbursement hereunder is not subject to liquidation or exchange for
another benefit.

 

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In addition, for a period of eighteen (18) months immediately following the
Executive’s Termination Date, the Executive will be provided with outplacement
services commensurate with those provided to other senior corporate officers of
the Company through a vendor selected by the Company. Except as otherwise
provided under this Agreement, the rights and benefits of the Executive or his
transferee under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs.

 

(c)                                  Notwithstanding Section 4.4(b), in the
event that (i) the Executive is not a Specified Employee, then the Company shall
pay to the Executive the Severance Payment within forty-five (45) days from the
Termination Date and the six (6) month delay for reimbursements shall cease to
apply, or (ii) the Executive is a Specified Employee and the death of the
Executive occurs within six (6) months following the Termination Date, the
Company shall pay to the Executive’s estate any unpaid portion of the amounts
due to be paid to the Executive pursuant to Section 4.4(b) within forty-five
(45) days following the Executive’s death.  If the Executive’s estate or legal
representative fails to notify the Company of the death of the Executive such
that the Company is unable to make timely payment hereunder, then the Company
shall not be treated as in breach of this Agreement and shall not be liable to
the estate or legal representative for any losses, damages, or other claims
resulting from such late payment.

 

(d)                                 Notwithstanding anything in this Agreement
to the contrary, the Executive shall not be entitled to any payments under
Section 4.4(b) unless the Executive has first duly and timely executed (and not
revoked) a form of mutual agreement and general release acceptable to the
Company releasing both the Company and the Executive from certain claims the
other party may have in connection with the Executive’s employment with the
Company and the termination thereof, to the extent permitted by law.

 

4.5                               Voluntary Termination.  The Executive may
terminate his employment with the Company at any time and the Company shall pay
to the Executive the Base Salary (at the annual rate then in effect) and
vacation accrued through the Termination Date and the bonus provided for in
Section 3.2 for the Termination Year (as well as any then earned but unpaid
bonus for the year preceding the Termination Year, if applicable).  In the event
the Executive terminates the Executive’s employment under this Section 4.5,
written notice of at least thirty (30) days shall be provided to the Company in
accordance with the provisions of Section 9. Except as otherwise provided under
this Agreement, the rights and benefits of the Executive or his transferee under
the benefit plans and programs of the Company shall be determined in accordance
with the provisions of such plans and programs.

 

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4.6                               Retirement.

 

(a)                                 In the event of the Executive’s Retirement
(as defined in Section 4.6(b)), the Company shall pay to the Executive the Base
Salary (at the annual rate then in effect) and vacation accrued through the date
of Retirement and the bonus provided for in Section 3.2 for the Termination Year
(as well as any then earned but unpaid bonus for the year preceding the
Termination Year, if applicable).  Except as otherwise provided under this
Agreement, the rights and benefits of the Executive or his transferee under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs.

 

(b)                                 “Retirement” shall mean the Executive’s
voluntary termination of employment at or after age sixty-five (65), provided
the Executive has given the Company written notice of the Executive’s intent to
retire no less than one (1) year prior to the scheduled Termination Date and the
Executive has, as of the scheduled Termination Date, been continuously employed
with Hanger, including any of its direct or indirect subsidiaries, for a period
of no less than ten (10) years.

 

5.                                      Change In Control and Termination
Provisions.

 

If within a two (2) year period following any Change in Control there occurs:

 

(a)                                 any termination of the Executive (other than
as set forth in Section 4.1 (Death), Section 4.2 (Disability), Section 4.3 (Due
Cause), Section 4.5 (Voluntary Termination) or Section 4.6 (Retirement) of this
Agreement);

 

(b)                                 a material diminution of the Executive’s
authority and responsibilities, as compared to the Executive’s authority and
responsibilities immediately prior to the Change in Control;

 

(c)                                  any reduction in the Base Salary or Bonus
Plan targets (as distinguished from the payments received thereunder), as
compared to such Base Salary or such targets as of the date immediately prior to
the Change in Control;

 

(d)                                 any failure to provide the Executive with
benefits: (1) at least as favorable as those enjoyed by similarly-situated
senior corporate officers of the Company under the Company’s pension, life
insurance, medical, health and accident, disability or other written employee
plans under which the form and/or amounts of benefits are prescribed in
applicable documents or (2) granted to the Executive by this Agreement;

 

(e)                                  any relocation of the Executive’s principal
site of employment to a location more than fifty (50) miles from the Executive’s
principal place of employment as of the date immediately prior to the Change in
Control; or

 

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(f)                                   any material breach of this Agreement by
the Company; then, at the option of the Executive, exercisable by the Executive
within ninety (90) days after the occurrence of any of the foregoing events, the
Executive may resign his employment with the Company (or, if involuntarily
terminated, give notice of his intention to collect benefits under this
Agreement) by delivering a notice in writing (the “Notice of Termination”) to
the Company, and the Executive shall be entitled to receive the Base Salary (at
the annual rate then in effect) and vacation accrued to the Termination Date and
the bonus provided for in Section 3.2 for the Termination Year (as well as any
then earned but unpaid bonus for the year preceding the Termination Year, if
applicable).  In addition, the Company shall pay to the Executive on the date
that is six (6) months and one day after the Termination Date the Severance
Payment.  In addition, the Company shall, for eighteen (18) months following the
Termination Date, (i) reimburse the Executive for his reasonable costs of
medical and dental coverage as provided under COBRA, (ii) reimburse the
Executive for his reasonable costs incurred in maintaining his life and
disability coverage, and (iii) reimburse the Executive for similar, applicable
benefits granted to the Executive in Section 3.4, each at levels substantially
equivalent to those provided by the Company to the Executive immediately prior
to the termination of his employment (including such other benefits as shall be
provided to senior corporate officers of the Company in lieu of such benefits
from time to time during the eighteen (18) month period), on the same basis,
including the Company’s payment of premiums and contributions, as such benefits
are provided to other senior corporate officers of the Company or were provided
to the Executive prior to the termination; provided, however, that no further
contribution to the SERP shall be made to the benefit of the Executive following
the Termination Date, in accordance with the SERP’s terms. Reimbursements of
expenses which provide for nonqualified deferred compensation under Code
Section 409A, if any, shall not be paid before six (6) months and one day after
the Executive’s Termination Date.  The amount of expenses eligible for
reimbursement, or in-kind benefits provided, during a taxable year of the
Executive may not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided in any other taxable year.  Reimbursements shall be paid
on or before the last day of the Executive’s taxable year following the taxable
year in which the expense was incurred.  The right to reimbursement hereunder is
not subject to liquidation or exchange for another benefit.

 

In addition, for a period of eighteen (18) months immediately following the
Executive’s Termination Date, the Executive will be provided with outplacement
services commensurate with those provided to other senior corporate officers of
the Company through a vendor selected by the Company.  Except as otherwise
provided under this Agreement, the rights and benefits of the Executive or his
transferee under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs.

 

(g)                                  Notwithstanding the prior provisions of
this Section 5, in the event that (i) the Executive is not a Specified Employee,
then the Company shall pay to the Executive the Severance Payment within
forty-five (45) days from the Termination Date and the six (6) month delay for
reimbursements shall cease to apply, or (ii) the Executive is a Specified
Employee and the death of the Executive occurs within six (6) months following
the Termination Date, the Company shall pay to the Executive’s estate any unpaid
portion of the amounts due to be paid to the Executive pursuant to this
Section 5 within forty-five (45) days following the Executive’s death.  If the
Executive’s estate or legal representative fails to notify the Company of the
death of the Executive such that the Company is unable to make timely payment
hereunder, then the Company shall not be treated as in breach of this Agreement
and shall not be liable to the estate or legal representative for any losses,
damages, or other claims resulting from such late payment.

 

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(h)                                 Notwithstanding anything contained in this
Agreement to the contrary, the Executive shall not be entitled to any payments
under this Section 5 unless the Executive has first duly and timely executed
(and not revoked) the form of mutual agreement and general release acceptable to
the Company releasing both the Company and the Executive from certain claims the
other party may have in connection with the Executive’s employment with the
Company and the termination thereof, to the extent permitted by law.

 

6.                                      Confidential Information.

 

6.1                               Unless the Executive secures the Company’s
written consent, the Executive will not, for a period of twenty-four (24) months
after the Termination Date, disclose, use, disseminate, lecture upon, or publish
Confidential Information, whether or not such Confidential Information was
developed by him.

 

6.2                               “Confidential Information” means information
disclosed to the Executive or known by him as a result of his employment with
the Company, not generally known in the industry, about the Company’s and/or
Hanger’s (including any direct or indirect subsidiary of Hanger) services,
products, or customers, including, but not limited to, clinical programs,
procedures and protocols, research, operating manuals, business methods,
financial strategic planning, client retention, customer and supplier lists,
data processing, insurance plans, risk management, marketing, contracting,
selling and employees; provided, however, that Confidential Information shall
not include any information that (i) the Executive can demonstrate was known to
him prior to the date of this Agreement; or (ii) is now, or becomes in the
future, available to Persons who are not legally required to treat such
information as confidential unless such information was acquired through
wrongful acts or omissions of which the Executive is aware.

 

6.3                               In the event the Executive is compelled to
disclose any Confidential Information pursuant to an order of a court or other
governmental or legal body of competent jurisdiction, the Executive must provide
written notice of such order as soon as reasonably practicable to permit the
Company, at its own cost and expense, but with the Executive’s assistance and
cooperation, to object to such disclosure.

 

7.                                      Non-Compete.

 

7.1                               In the event the Employment Period is
terminated under Sections 4.3, 4.5, 4.6 or 5, then this Section 7 will apply to
the Executive. In the event the Employment Period is otherwise terminated, such
as pursuant to Section 4.4, then no part of this Section 7 will apply to the
Executive.

 

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7.2                               The Executive will not, during the Executive’s
term of employment and for a period of twenty-four (24) months after the
Termination Date, directly or indirectly (i) engage, whether as principal,
agent, investor, representative, stockholder (other than as the holder of not
more than five percent (5%) of the stock or equity of any corporation the
capital stock of which is publicly traded), employee, consultant, volunteer or
otherwise, with or without pay, in any activity or business venture anywhere
within the continental United States that is competitive with the Business on
the Termination Date, (ii) solicit or entice or endeavor to solicit or entice
away from the Company and/or Hanger (including any direct or indirect subsidiary
of Hanger) any director, officer, employee, agent or consultant of the Company
and/or Hanger (including any direct or indirect subsidiary of Hanger), either on
his own account or for any Person, firm, corporation or other organization,
regardless of whether the Person solicited would commit any breach of such
Person’s contract of employment by reason of leaving the Company’s service;
(iii) solicit or entice or endeavor to solicit or entice away any of the clients
or customers of the Company and/or Hanger (including any direct or indirect
subsidiary of Hanger) as of the Termination Date for the purpose of competing in
the Business, either on his own account or for any other Person, firm,
corporation or organization; (iv) employ or otherwise utilize (whether as a
consultant, advisor or otherwise) any Person who was a director, officer, or
employee of the Company and/or Hanger (including any direct or indirect
subsidiary of Hanger) at any time during the two (2) years preceding the
Termination Date, unless such Person’s employment was terminated by the Company
and/or Hanger (including any direct or indirect subsidiary of Hanger); or
(v) employ or otherwise utilize (whether as a consultant, advisor or otherwise)
any Person who is or may be likely to be in possession of any Confidential
Information.  The parties hereto agree that if, in any proceeding, the Court or
other authority shall refuse to enforce covenants set forth in this Section 7,
because such covenants cover too extensive a geographic area or too long a
period of time, any such covenant shall be deemed appropriately amended and
modified in keeping with the intention of the parties to the maximum extent
permitted by law.

 

7.3                               Since a material purpose of this Agreement is
to protect the Company’s investment in the Executive and to secure the benefits
of the Executive’s background and general experience in the industry, the
parties hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of Section 6 or this Section 7 and that
any such breach will cause the Company irreparable harm.  Therefore, in the
event of a breach by the Executive of any of the provisions of Section 6 or this
Section 7, the Company or its successors or assigns may, in addition to other
rights and remedies existing in its favor, apply to any court of law or equity
of competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions of this
Agreement.

 

7.4                               The Executive specifically authorizes and
permits the Company to provide any Person with which the Executive serves (or
may serve) as an employee, director, owner, stockholder, consultant, partner
(limited or general) or otherwise with a copy of this Agreement or a general
description of some or all of the terms of this Agreement.

 

8.                                      Miscellaneous.

 

8.1                               Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law.  The parties agree that (i) the provisions of this Agreement
shall be severable in the event that any of the provisions hereof are for any
reason whatsoever invalid, void or otherwise unenforceable, (ii) such invalid,
void or otherwise unenforceable provisions shall be automatically replaced by
other provisions which are as similar as possible in terms to such invalid, void
or otherwise unenforceable provisions but are valid and enforceable and
(iii) the remaining provisions shall remain enforceable to the fullest extent
permitted by law.

 

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8.2                               This Agreement embodies the complete agreement
and understanding among the parties and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.

 

8.3                               This Agreement is intended to bind and inure
to the benefit of and be enforceable by the Executive and the Company, and their
respective successors and assigns.

 

8.4                               Assignment.

 

8.4.1                     By the Company and/or Hanger. The Company shall
require any successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company and/or Hanger to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.  As used in this
Section, the “Company” shall mean the Company and/or Hanger as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law and this Agreement shall be binding upon and inure to the
benefit of, the Company, as so defined.  The Company and the Executive agree
that the Company may not assign this Agreement without the express, written
consent of the Executive.

 

8.4.2                     By the Executive. The Executive may not assign this
Agreement or any part thereof without the prior written consent of a majority of
the Board of Directors; provided, however, that nothing herein shall preclude
one or more beneficiaries of the Executive from receiving any amount that may be
payable following the occurrence of his legal incompetency or his death and
shall not preclude the legal representative of his estate from receiving such
amount or from assigning any right hereunder to the person or persons entitled
thereto under his will or, in the case of intestacy, to the person or persons
entitled thereto under the laws of intestacy applicable to his estate.  The term
“beneficiaries,” as used in this Agreement, shall mean a beneficiary or
beneficiaries so designated to receive any such amount or, if no beneficiary has
been so designated, the legal representative of the Executive (in the event of
his incompetency) or the Executive’s estate.

 

8.5                               All questions concerning the construction,
validity and interpretation of the Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Delaware.  All disputes under
this Agreement shall be submitted to and governed by binding arbitration with an
arbitrator from the American Arbitration Association; except only that the
Company may seek relief in a court of competent jurisdiction in the event of a
claimed violation of Section 6 or Section 7 of this Agreement. Any such
arbitration shall occur in or around Austin, Texas, or such other location as
may be mutually acceptable to the Parties.  In deciding any dispute, the
arbitrator shall be required to (i) apply the terms and conditions of this
Agreement to such dispute; and (ii) set forth in writing the award and a summary
of those facts considered by the arbitrator to be material to the decision. Each
party shall bear its own attorneys’ fees and litigation costs.  This agreement
to arbitrate shall be enforceable under the Federal Arbitration Act and may be
specifically enforced in court.

 

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8.6                               Any provision of this Agreement may be amended
or waived only with the prior written consent of the Company and the Executive. 
Notwithstanding anything in this Agreement to the contrary, the Company shall
unilaterally have the right to amend this Agreement to comply with Section 409A
of the Code.

 

8.7                               This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.  The parties further agree
that facsimile signatures or signatures scanned into .pdf (or similar) format
and sent by e-mail shall be deemed original signatures.

 

9.                                      Notices.

 

Any notice to be given hereunder shall be in writing and delivered personally or
sent by certified mail, postage prepaid, return receipt requested, addressed to
the party concerned at the address indicated below or at such other address as
such party may subsequently be designated by like notice:

 

If to the Company:

 

Hanger, Inc.
Suite 300
10910 Domain Drive
Austin, Texas 78758
Attention: Vice President, Human Resources

 

If to the Executive:

 

Samuel M. Liang

3 Spring Lake Drive

Far Hills, New Jersey 07931

 

With a copy to:

 

Rick Steiner Fell & Benowitz LLP

90 Broad Street, 23rd Floor

New York, New York 10004

Attention: Robert J. Benowitz, Esq.

 

10.                               Withholding.

 

Anything to the contrary notwithstanding, all payments required to be made by
the Company hereunder to the Executive or his beneficiaries, including his
estate, shall be subject to withholding of such amounts relating to taxes as the
Company may reasonably determine it should withhold pursuant to any applicable
law or regulation.  In lieu of withholding such amounts, in whole or in part,
the Company may, in its sole discretion, accept other provisions for payment of
taxes as permitted by law, provided it is satisfied in its sole discretion that
all requirements of law affecting its responsibilities to withhold such taxes
have been satisfied.

 

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11.                               Survivorship.

 

The respective rights and obligations of the parties hereunder shall survive any
termination of this Agreement to the extent necessary to the intended
preservation of such rights and obligations.

 

12.                               Definitions.

 

12.1                        “Business” shall mean any competitive business of
any of the following: (a) fabricating, distributing, wholesaling or retailing of
orthotics or prosthetics, or the operation of clinics to fit patients for
orthotics or prosthetics; (b) the development and commercialization of devices
that utilize neuromuscular electrical stimulation to provide voluntary movement
and function to a neuromuscular impaired extremity; (c) the design, manufacture
and sale of vending machines and/or automated cabinets for use in the
distribution of orthotic and prosthetic products and/or the prosthetic and
orthotic distribution system business whereby vending machines and/or automated
cabinets containing prosthetic and orthotic products are placed in hospitals,
doctors’ offices, physical therapists’ offices and/or other medical facilities;
(d) orthotic and prosthetic network management, care and administration; (e) the
business of providing rehabilitative products (cold therapy, continuous passive
motion, or similar products) and services directly to patients; (f) integrated
clinical programs for sub-acute and long-term care rehabilitation providers
(including, without limitation, skilled nursing facilities, home health
agencies, outpatient clinics and other rehabilitation providers), combining
innovative medical technology with evidence-based clinical protocols and
advanced therapist training; and/or (g) or any other related businesses in which
the Company and/or Hanger (including any direct or indirect subsidiary of
Hanger) is engaged during and at the termination of the Employment Period.

 

12.2                        “Person” shall mean and include an individual, a
partnership, a joint venture, a corporation, a limited liability company, a
trust, an unincorporated organization and a governmental entity or any
department or agency thereof.

 

12.3                        “Termination Date” shall mean (i) if the Executive’s
employment is terminated by the Company for any reason whatsoever, other than
death or Disability, the Executive’s last day of work; (ii) if the Executive’s
employment is terminated by reason of death or Disability, the date of death of
the Executive or the effective date of the Disability, as the case may be; and
(iii) if the Executive’s employment is terminated by the Executive, the
expiration date of the applicable notice period that is required pursuant to
this Agreement.  Notwithstanding the foregoing, no Termination Date shall be
earlier than the date as of which the Executive has incurred a “separation from
service” within the meaning of Internal Revenue Code (“Code”) Section 409A, as
determined by applying the default rules thereof.

 

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12.4                        The Executive will be a “Specified Employee” if the
Executive is a key employee (as defined in Code Section 416(i) but without
regard to Code Section 416(i)(5)) of the Company or an affiliate of the Company
(within the meaning of Code Section 414(b) or (c)) any of the stock of which is
publicly traded on an established securities market or otherwise, as determined
at the time of the Executive’s “separation from service”.  The Executive is a
key employee under Code Section 416(i) if the Executive meets the requirements
of Code Section 416(i)(1)(A)(i), (ii) or (iii), applied in accordance with the
regulations under Code Section 416, but disregarding Code Section 416(i)(5), at
any time during the twelve (12) month period ending on an identification date. 
For purposes of determining whether the Executive is a key employee,
compensation shall mean wages within the meaning of Code Section 3401(a) but
determined without regard to any rules that limit the amount of remuneration
included in wages based on the nature or location of the employment or services
performed.  If the Executive is a key employee as of an identification date, the
Executive is treated as a key employee for the twelve (12) month period
beginning on the first day of the fourth month following the identification
date.  The identification date for this Agreement shall be December 31 of each
year, such that if the Executive satisfies the foregoing requirements for key
employee status as of December 31 of a year, the Executive shall be treated as a
key employee for the twelve (12) month period starting April 1 of the following
calendar year.

 

If, in a transaction constituting a “change in control” of the Company, as
determined by Code Section 409A, the Company is merged with or acquired by
another entity, and immediately following such change in control of the Company
the stock of either the Company or the acquirer or successor in such transaction
is publicly traded on an established securities market or otherwise, then for
the period between the date of such transaction and the next specified employee
effective date of the acquirer or survivor, the acquirer or survivor shall
combine the lists of the specified employees of each entity participating in the
transaction and re-order the list to identify the top 50 key employees (as well
as 1% and 5% owners that are considered key employees) in accordance with
Treasury Regulation §1.409A-1(i)(6)(i)

 

[The next page is the signature page.]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.

 

 

HANGER PROSTHETICS & ORTHOTICS, INC.

 

 

 

 

 

 

 

By:

/s/ Vinit Asar

 

 

Vinit Asar

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

/s/ Samuel M. Liang

 

 

Samuel M. Liang

 

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