Exhibit 10.4

AMENDED AND RESTATED PREFERRED STOCK PURCHASE AGREEMENT

dated as of May 25, 2006

by and among

HANGER ORTHOPEDIC GROUP, INC.

and

THE PURCHASERS SIGNATORY HERETO

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AMENDED AND RESTATED PREFERRED STOCK PURCHASE AGREEMENT

        This Amended and Restated Preferred Stock Purchase Agreement is entered
into and dated as of May 25, 2006 (this “Agreement”), by and among HANGER
ORTHOPEDIC GROUP, INC., a corporation incorporated under the laws of the state
of Delaware (the “Company”), and each of LEHMAN BROTHERS INC. and CITIGROUP
GLOBAL MARKETS INC. (each, an “Initial Purchaser” and, collectively, the
“Initial Purchasers”) and the subsequent purchaser identified on the signature
pages hereto (the “Subsequent Purchaser”). The Initial Purchasers and the
Subsequent Purchaser are each referred to as a “Purchaser” and are collectively
referred to as the “Purchasers.”

        WHEREAS the parties hereto are parties to a Preferred Stock Purchase
Agreement dated as of May 3, 2006 (the “Original Purchase Agreement”). The
parties hereto now wish to amend and restate such Original Purchase Agreement in
its entirety with this Agreement.

        WHEREAS, subject to the terms and conditions set forth in this Agreement
and in accordance with the Securities Act (as defined below) and the rules and
regulations promulgated thereunder, the Company desires to issue and sell to
each Initial Purchaser, and each Initial Purchaser, severally and not jointly,
desires to purchase from the Company, certain securities of the Company pursuant
to the terms set forth herein.

        WHEREAS, subject to the terms and conditions set forth in this Agreement
and in accordance with the Securities Act and the rules and regulations
promulgated thereunder, the Initial Purchasers desire to sell to the Subsequent
Purchaser, and the Subsequent Purchaser desires to purchase from the Initial
Purchasers, certain securities of the Company pursuant to the terms set forth
herein.

        NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser,
severally and not jointly, agree as follows:

ARTICLE I.
DEFINITIONS

        1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings set forth in this Section
1.1:

            “$” means U.S. Dollars.

            “Affiliate” of a Person means any other Person that, directly or
indirectly through one or more intermediaries, controls or is controlled by or
is under common control with the first Person. Without limiting the foregoing
with respect to a Purchaser, any investment fund or managed account that is
managed by the same investment manager as such Purchaser will be deemed to be an
Affiliate of such Purchaser.

            “Ares” means Ares Corporate Opportunities Fund, L.P. and any
successor or assignee thereof.

            “Business Day” means any day except Saturday, Sunday and any day on
which banking institutions in New York City are authorized or required by law or
other governmental action to close.

            “Certificate of Designations” means the certificate of designations
of the Preferred Stock, in the form of Exhibit A.

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            “Closing” means the closing of the purchase and sale of the Shares
pursuant to Section 2.1.

            “Commission” means the U.S. Securities and Exchange Commission.

            “Common Share Equivalents” means, collectively, Options and
Convertible Securities.

            “Common Shares” means the common shares of the Company and any
securities into which such shares may hereafter be reclassified.

            “Company Counsel” means Foley & Lardner LLP, counsel to the Company.

            “Convertible Securities” means any stock or securities (other than
Options) directly or indirectly convertible into or exercisable or exchangeable
for Common Shares.

            “Debt Refinancing” means (a) the repayment in full and refinancing
of the Company’s existing credit facilities, (b) the refinancing in full of the
Company’s 10 3/8% senior notes, (c) the refinancing in full of the Company’s
11¼% senior subordinated notes, and (d) irrevocable provision for the redemption
of all the Company’s outstanding preferred stock, with the proceeds of (i) new
revolving credit and term loan facilities, and (ii) the issuance of new senior
notes.

            “Employees” means the employees of the Company and the Subsidiaries.

            “Employment Laws” means any and all applicable laws, including all
statutes, codes, ordinances, decrees, regulations, municipal by-laws, judicial
or arbitral or administrative or ministerial or departmental or regulatory
judgments, orders, decisions, rulings or awards, policies, guidelines and
general principles of common and civil law and equity, binding on or affecting
the Person referred to in the context in which the word is used and in respect
of matters pertaining to employment.

            “Exchange Act” means the Securities Exchange Act of 1934, as
amended.

            “Excluded Stock” means (a) any Common Shares or Common Share
Equivalents, restricted stock, stock options or stock appreciation rights issued
or issuable to Employees, consultants or directors of the Company pursuant to a
stock option plan, stock purchase plan, stock bonus plan, deferred compensation
plan, employee benefit plan or management grant (“Incentives”), in each case as
in effect on the Closing Date or as approved by the Company’s Board of Directors
(including a designee of Ares at any time after a designee of Ares is first
appointed to the Board of Directors) after the Closing Date and Common Shares
issued or issuable upon the exercise of any of the foregoing Incentives and
(b) Common Shares or Common Share Equivalents issued or issuable in connection
with a bona fide business acquisition by the Company of another company or
entity, not principally for the purpose of acquiring cash.

            “GAAP” means United States generally accepted accounting principles,
as recognized by the American Institute of Certified Public Accountants or the
Financial Accounting Standards Board, consistently applied and maintained on a
consistent basis for the Company and its Subsidiaries throughout the period
indicated.

            “Governmental Authority” shall mean any government or political
subdivision or any agency, authority, bureau, central bank, commission,
department or instrumentality, or any court, tribunal, grand jury or arbitrator,
in each case whether foreign or domestic.

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            “Hazardous Materials” means petroleum, petroleum products,
petroleum-derived substances, radioactive materials, hazardous wastes,
polychlorinated biphenyls, lead based paint, radon, urea formaldehyde, asbestos
or any materials containing asbestos, and any chemicals, materials or substances
regulated under Environmental Laws or defined as or included in the definition
of “hazardous substances,” “hazardous wastes,” “extremely hazardous substances,”
“hazardous materials,” “hazardous constituents,” “toxic substances,”
“pollutants,” “contaminants” or any similar denomination intended to classify or
regulate substances by reason of toxicity, carcinogenicity, ignitability,
corrosivity or reactivity under any Environmental Law.

            “Health Care Services” shall mean the provision of any services to
patients for the provision of durable medical equipment, orthotics, prosthetics,
physical and/or occupational therapy, or any other service or supply that is
billable by a provider or supplier, either as a separate service or as part of a
bundled service, to Medicare, Medicaid, any Federal Health Care Program, any
health insurance carrier, managed care organization, third party payor or
patient.

            “Indebtedness” of any Person means (a) all indebtedness representing
money borrowed which is created, assumed, incurred or guaranteed in any manner
by such Person or for which such Person is responsible or liable (whether by
guarantee of such indebtedness, agreement to purchase indebtedness of, or to
supply funds to or invest in, others or otherwise), (b) any direct or contingent
obligations of such person arising under any letter of credit (including standby
and commercial), bankers acceptances, bank guaranties, surety bonds and similar
instruments, and (c) all indebtedness pursuant to clauses (a) and (b) above of
another entity secured by any Lien existing on property or assets owned by such
Person.

            “Initial Purchasers Counsel” means Weil, Gotshal & Manges LLP,
counsel to the Initial Purchasers.

            “Intellectual Property” means (a) patents (including all reissues,
divisions, continuations, continuations-in-part, re-examinations and extensions
thereof), patent applications, utility models and design rights;
(b) unregistered trademarks, trademark registrations, trademark applications,
unregistered service marks, service mark registrations and service mark
applications; (c) unregistered copyrights, copyright registrations and copyright
applications and renewals in connection therewith, together with all
translations, adaptations, derivations and combinations thereof; (d) Internet
domain names, applications and reservations therefor, uniform resource locators
and the corresponding Internet sites; (e) any other proprietary information not
otherwise listed in (a) through (d) above relating to Linkia or the WalkAide
System; (f) any good will associated with any of the foregoing; and (g) all
copies and tangible embodiments thereof (in whatever form or medium), and
registrations, applications and renewals for any of the foregoing assets listed
above.

            “knowledge,” “known,” and words and phrases of similar import, when
used with respect to the Company mean the actual knowledge of any one of the
following: Ivan R. Sabel, Thomas F. Kirk, George E. McHenry, Richmond L. Taylor,
Ron N. May, Thomas C. Hofmeister, Jason P. Owen, Rebecca Hast, Jeff Martin and
Brian A. Wheeler.

            “Losses” means any and all damages, fines, penalties, deficiencies,
liabilities, claims, losses (including loss of value), judgments, awards,
settlements, taxes, actions, obligations and costs and expenses in connection
therewith (including, without limitation, interest, court costs and fees and
expenses of attorneys, accountants and other experts, and any other expenses of
litigation or other Proceedings (including costs of investigation, preparation
and travel) or of any default or assessment).

            “Material Contract” means any agreement that is or would be required
to be filed as an exhibit to an SEC Report pursuant to Item 601(b)(10) of
Regulation S-K of the Commission.

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            “Options” means any rights, warrants or options to, directly or
indirectly, subscribe for or purchase Common Shares or Convertible Securities.

            “Person” means an individual or corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof)
or other entity of any kind.

            “Preferred Stock” means the Company’s Series A Convertible Preferred
Stock, par value $0.01 per share, which is convertible into Common Shares.

            “Proceeding” means an action, claim, suit, grievance, arbitration,
complaint, notice of violation, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition).

            “Registration Rights Agreement” that certain Registration Rights
Agreement, dated as of the Closing Date, by and among the Company and the
Subsequent Purchaser, substantially in the form of Exhibit B, as the same may be
amended, modified or supplemented from time to time.

            “Related Person” means any Affiliate of a Purchaser and any officer,
director, partner, controlling person, employee or agent of a Purchaser or any
of its Affiliates.

            “Rule 144” and “Rule 424” means Rule 144 and Rule 424, respectively,
promulgated by the Commission pursuant to the Securities Act, as such Rules may
be amended from time to time, or any similar rule or regulation hereafter
adopted by the Commission having substantially the same effect as such Rule.

            “Securities” means the Shares and the Underlying Shares issued or
issuable (as applicable) to the applicable Purchaser pursuant to the Transaction
Documents.

            “Securities Act” means the Securities Act of 1933, as amended.

            “SEC Reports” has the meaning set forth in Section 3.1(h).

            “Shares” means the aggregate of 50,000 shares of Preferred Stock
which are being purchased by the Initial Purchasers and resold to the Subsequent
Purchaser pursuant to this Agreement.

            “Subsequent Public Financing” means any instance in which the
Company or any Subsidiary offers or sells any Common Shares or Common Share
Equivalents in a public offering registered under the Securities Act (other than
a Subsequent Private Financing).

            “Subsequent Private Financing” means any instance in which the
Company or any Subsidiary offers, sells, grants any option to purchase, or
otherwise disposes of (or announces any offer, sale, grant or any option to
purchase or other disposition of), any of its or any Subsidiary’s equity or
equity equivalent securities, including without limitation any debt, preferred
stock or other instrument or security that is, at any time during its life and
under any circumstances, convertible into or exchangeable or exercisable for
Common Shares or Common Share Equivalents, other than Excluded Stock, in any
transaction exempt from registration under the Securities Act or in a negotiated
transaction under a shelf registration statement.

            “Subsequent Purchaser Counsel” means Proskauer Rose LLP, counsel to
Ares.

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            “Trading Day” means (a) any day on which the Common Shares are
listed or quoted and traded on the Trading Market, or (b) if the Common Shares
are not then listed or quoted and traded on the Trading Market, then any
Business Day.

            “Trading Market” means the New York Stock Exchange or, at any time
the Common Shares are not listed for trading on the New York Stock Exchange, any
other national exchange or the NASDAQ, if the Common Shares are then listed or
quoted on such exchange or the NASDAQ.

            “Transaction Documents” means this Agreement, the Securities, the
Registration Rights Agreement, the Certificate of Designations, and any other
documents or agreements executed in connection with the transactions
contemplated hereunder.

            “Underlying Shares” means the Common Shares issuable upon conversion
of the Shares and in satisfaction of any other obligation or right of the
Company to issue Common Shares pursuant to the Transaction Documents, and in
each case, any securities issued or issuable in exchange for or in respect of
such securities.

            “U.S.” means the United States of America.

            All references to “the date hereof” or similar references (including
without limitation any reference to the date of this Agreement in any other
Transaction Document) shall be deemed to be a reference to May 3, 2006, the date
of the Original Purchase Agreement.

ARTICLE II.
PURCHASE AND SALE

        2.1     Closing. Subject to the terms and conditions set forth in this
Agreement, at the Closing, the Company shall issue and sell to the Initial
Purchasers, and the Initial Purchasers shall purchase from the Company, the
Shares for a purchase price of $990 per share and an aggregate purchase price of
$49,500,000 (FORTY-NINE MILLION FIVE HUNDRED THOUSAND DOLLARS) (the “Aggregate
Initial Purchase Price”), as indicated below each Initial Purchaser’s name on
the signature pages of this Agreement under the heading “Initial Purchase Price
delivered to Company.” Subject to the terms and conditions set forth in this
Agreement, at the Closing, each Initial Purchaser shall sell to the Subsequent
Purchaser, and the Subsequent Purchaser shall purchase from each Initial
Purchaser, the Shares for a purchase price of $1,000 per share and an aggregate
purchase price of $50,000,000 (FIFTY MILLION DOLLARS) (the “Aggregate Purchase
Price”), as indicated below the Subsequent Purchaser’s name on the signature
pages of this Agreement under the heading “Aggregate Purchase Price delivered to
Initial Purchasers.” The Closing shall take place at the New York offices of
Initial Purchaser’s Counsel on the closing date of the Debt Refinancing, after
the satisfaction or waiver of all of the conditions set forth in Article V
(other than those conditions that by their nature must be satisfied on the
Closing Date), or at such other location or time as the parties may agree (such
date on which the Closing occurs being hereinafter referred to as the “Closing
Date”).

        2.2     Closing Deliveries.

            (a)     At the Closing, the Company shall deliver or cause to be
delivered to each Purchaser the following:

                (i)     evidence that the Certificate of Designations has been
filed and become effective on or prior to the Closing Date with the Secretary of
State of the State of Delaware;

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                (ii)     the legal opinion of Company Counsel, customary in form
and substance and reasonably acceptable to the Purchasers and their respective
counsel, executed by such counsel;

                (iii)     a certificate dated as of the Closing Date and signed
by the chief executive officer of the Company certifying as to the fulfillment
of each of the conditions set forth in Section 5.1;

                (iv)     a letter addressed to each of the Purchasers from (i)
Company Counsel and (ii) counsel to the initial purchasers for the Company’s
issuance of new senior notes, pursuant to which the Purchasers are expressly
permitted to rely on the negative assurance letters delivered by such counsel in
connection with the Offering Memorandum; and

                (v)     any other document reasonably requested by the
Purchasers or counsel to the Purchasers.

            (b)     In addition, at the Closing, the Company shall deliver or
cause to be delivered to each Initial Purchaser the following:

                (i)     certificates representing the number of the Shares
indicated below each Initial Purchaser’s name on the signature page of this
Agreement under the heading “Shares,” registered in the name of each
corresponding Initial Purchaser.

            (c)     In addition, at the Closing, the Company shall deliver or
cause to be delivered to the Subsequent Purchaser the following:

                (i)     the letter agreement in the form of Exhibit C (the
“Board Rights Letter”), duly executed by the Company;

                (ii)     the letter agreement in the form of Exhibit E (the
“Management Rights Letter”), duly executed by the Company;

                (iii)     the Registration Rights Agreement, duly executed by
the Company; and

                (iv)     certificates representing the number of the Shares
indicated below the Subsequent Purchaser’s name on the signature page of this
Agreement under the heading “Shares,” registered in the name of the Subsequent
Purchaser.

            (d)     At the Closing, each Initial Purchaser shall deliver or
cause to be delivered to the Company the following: (i) the purchase price
indicated below such Initial Purchaser’s name on the signature page of this
Agreement under the heading “Purchase Price,” in U.S. Dollars and in immediately
available funds, by wire transfer to an account designated in writing by the
Company for such purpose; (ii) each Transaction Document to which such Initial
Purchaser is a signatory, duly executed by such Initial Purchaser and (iii) upon
consummation of the sale of the Shares to the Subsequent Purchaser, the
certificates delivered pursuant to Section 2.2(b)(i) above.

            (e)     At the Closing, the Subsequent Purchaser shall deliver or
cause to be delivered: (i) to the Initial Purchasers, the purchase price
indicated below the Subsequent Purchaser’s name on the signature page of this
Agreement under the heading “Purchase Price,” in U.S. Dollars and in immediately
available funds, by wire transfer to an account designated in writing by the
Initial Purchasers for such purpose; and (ii) to the Company and the Initial
Purchasers, each Transaction Document to which the Subsequent Purchaser and such
other Person is a signatory, duly executed by the Subsequent Purchaser.

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ARTICLE III.
REPRESENTATIONS AND WARRANTIES

        3.1     Representations and Warranties of the Company. The Company
hereby makes the following representations and warranties to thePurchasers:

            (a)    Subsidiaries. The Company does not directly or indirectly
control or own any interest in any other corporation, partnership, joint venture
or other business association or entity, other than those listed in Schedule
3.1(a) (each of which is referred to as a “Subsidiary”). Except as disclosed in
Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital
stock of each Subsidiary free and clear of any lien, charge, claim, security
interest, encumbrance, right of first refusal or other restriction
(collectively, “Liens”), other than restrictions on transfer under the
Transaction Documents or arising under U.S. federal or state securities laws and
regulations, and all the issued and outstanding shares of capital stock of each
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights.

            (b)    Organization and Qualification. Except as disclosed in
Schedule 3.1(b), each of the Company and the Subsidiaries is an entity duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite power and authority to own
and use its properties and assets and to carry on its business as currently
conducted or contemplated to be conducted, except in the case of Subsidiaries
where the failure to be in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect (as defined
below). Except as disclosed in Schedule 3.1(b), each of the Company and the
Subsidiaries is duly qualified to conduct business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (i) adversely affect in any
material respect the legality, validity or enforceability of any Transaction
Document, (ii) have or result in a material adverse effect on the results of
operations, assets, liabilities, business or condition (financial or otherwise)
of the Company and the Subsidiaries, taken as a whole, or (iii) adversely impair
in any material respect the Company’s or any Subsidiary’s ability to perform
fully on a timely basis its obligations under any Transaction Document, or (any
of (i), (ii), or (iii), a “Material Adverse Effect”).

            (c)    Authorization; Enforcement. The Company has the requisite
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents (the “Transactions”) and otherwise to
carry out its obligations hereunder and thereunder. The execution and delivery
of each of the Transaction Documents by the Company and the consummation of the
Transactions have been duly authorized by all necessary action on the part of
the Company and no further consent or action is required by the Company, its
board of directors or its stockholders. Each Transaction Document has been (or
upon delivery will have been) duly executed by the Company and, when delivered
in accordance with the terms hereof, will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms.

            (d)    No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation of the Transactions do
not and will not (i) conflict with or violate any provision of the Company’s or
any Subsidiary’s certificate or articles of incorporation, bylaws or other
organizational or charter documents, or (ii) conflict with, or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any Material Contract, or (iii) result in a violation of any law, rule,
regulation, order (including federal and state securities laws and regulations)
or the rules and regulations of any self-regulatory organization to which the
Company or its securities are subject, or by which any property or asset of the
Company or a Subsidiary is bound or affected (collectively “Laws”), or to the
Company’s knowledge any judgment injunction, decree or other restriction of any
court or governmental authority to which the Company or a Subsidiary is subject.

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            (e)    Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
or make any filing or registration with, any Governmental Authority or other
Person in connection with the execution or delivery by the Company of the
Transaction Documents or the consummation of the Transactions, other than (i)
the required filing of the Certificate of Designations pursuant to Section
2.2(a)(i), (ii) the filing with the Commission of any Registration Statement
pursuant to the Registration Rights Agreement, (iii) the application to the
Trading Market for the listing of the Underlying Shares for trading thereon on a
when issued basis, in the time and manner required thereby, and (iv) applicable
Blue Sky filings, (collectively, the “Required Approvals”).

            (f)    Issuance of the Securities. The Securities are duly
authorized and, when issued and paid for in accordance with the Transaction
Documents, will be validly issued, fully paid and nonassessable, free and clear
of all Liens and shall not be subject to preemptive rights or similar rights of
stockholders. The Company has reserved from its duly authorized capital stock a
number of Common Shares for issuance upon the conversion of the Shares not less
than the total number of Underlying Shares. None of the issuance of the Shares
to the Initial Purchasers, the subsequent sale of the Shares to the Subsequent
Purchaser or the issuance of the Underlying Shares upon conversion of the
Shares, will subject the Purchasers to any liability or obligation of any kind
in respect of or relating to the operation of the business of the Company.

            (g)    Capitalization. The number of shares and type of all
authorized, issued and outstanding capital stock of the Company is set forth in
Schedule 3.1(g). Except as set forth on Schedule 3.1(g) no securities of the
Company are entitled to preemptive or similar rights, and no Person has any
right of first refusal, preemptive right, right of participation, or any similar
right to participate in the transactions contemplated by the Transaction
Documents. All outstanding shares of capital of the Company have been duly
authorized, validly issued, fully paid and are nonassessable and have been
issued in compliance with all applicable federal and state securities and
corporate laws. Except as a result of the purchase and sale of the Securities
and except as disclosed in the SEC Reports, there are no outstanding options,
warrants, scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any Common Shares, or contracts, commitments, understandings or arrangements by
which the Company or any Subsidiary is or may become bound to issue additional
Common Shares, or securities or rights convertible or exchangeable into Common
Shares. Except as set forth in Schedule 3.1(g), the issue and sale of the
Securities will not obligate the Company to issue Common Shares or other
securities to any Person (other than the Underlying Shares to the Purchasers or
their successors or assigns upon conversion of the Shares) and will not result
in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under such securities, or to take any other
action punitive to the Company or any Subsidiary.

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            (h)    SEC Reports; Press Releases; Financial Statements. The
Company has filed all reports required to be filed by it under the Securities
Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof,
for the two years preceding the date hereof (the foregoing materials being
collectively referred to herein as the “SEC Reports” and, together with this
Agreement and the Schedules to this Agreement, the “Disclosure Materials”) on a
timely basis. The Company has delivered to the Purchasers a copy of all SEC
Reports filed within the 10 days preceding the date hereof. As of their
respective dates, the SEC Reports complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements have been
prepared in accordance with GAAP and fairly present in all material respects the
financial position of the Company and its consolidated subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
year-end audit adjustments. All Material Contracts to which the Company or any
Subsidiary is a party or to which the property or assets of the Company or any
Subsidiary are subject are included as exhibits to or specifically identified in
the applicable SEC Reports. To the knowledge of the Company, neither the Company
nor any Subsidiary has any material liabilities or obligations of any nature,
whether accrued, absolute, contingent, asserted, unasserted or otherwise, except
liabilities or obligations (i) stated or adequately reserved against in the
Company’s most recent balance sheet included within the SEC Reports (the “Base
Balance Sheet”), (ii) incurred as a result of or arising out of the transactions
contemplated under this Agreement, (iii) incurred in the ordinary course of
business consistent with prior operating history since the date of the Base
Balance Sheet or (iv) as set forth in Schedule 3.1(h). The Company does not have
pending before the Commission any request for confidential treatment of
information. The Company is in compliance with applicable requirements of the
Sarbanes-Oxley Act of 2002 and applicable rules and regulations promulgated by
the Commission thereunder in effect as of the date of this Agreement, except
where such noncompliance, individually or in the aggregate, has not resulted in,
and could not reasonably be expected to result in, a Material Adverse Effect.

            (i)    Taxes. Except as set forth in Schedule 3.1(i), the Company
and the Subsidiaries have prepared and timely filed all federal and state income
tax returns and other material tax returns that are required to be filed, and
have paid, or made provision in accordance with GAAP for the payment of, all
taxes that have or may have become due pursuant to said returns or pursuant to
any assessments that have been received by the Company or the Subsidiaries. All
tax returns are true and correct in all material respects. All taxes shown to be
due and payable by the Company or the Subsidiaries have been paid or will be
paid prior to the time they become delinquent. The Company has withheld and
collected all amounts required by applicable law to be withheld or collected and
has remitted all such amounts to the appropriate governmental entity within the
time prescribed under applicable law. No material tax returns of the Company
have been audited, and to the Company’s knowledge, no deficiency assessment or
proposed adjustment of the Company’s or the Subsidiaries material taxes is
pending.

            (j)    Material Changes. Since the date of the Base Balance Sheet,
except as specifically disclosed in the SEC Reports or as described in Schedule
3.1(j) of the Disclosure Schedule, there has been no event, occurrence or
development that, individually or in the aggregate, has resulted in, or that
could reasonably be expected to result in, a Material Adverse Effect, and
neither the Company nor any of its Subsidiaries has (i) incurred any liabilities
(contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and
(B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (ii) altered its method of accounting or the identity of its
auditors, (iii) declared or made any dividend or distribution of cash or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock or (iv) issued any equity
securities to any officer, director or Affiliate, except pursuant to existing
Company stock option plans.

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            (k)    Litigation. There is no Proceeding pending or, to the
knowledge of the Company, threatened against or affecting the Company, any
Subsidiary or any of their respective properties which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents, the Transactions or the Securities or (ii) except as disclosed in
Schedule 3.1(k), has, individually or in the aggregate, resulted in, or could,
if there were an unfavorable decision, reasonably be expected to result in, a
Material Adverse Effect. Except as disclosed in the SEC Reports, neither the
Company nor any Subsidiary, nor, to the Company’s knowledge, any director or
officer thereof (in his or her capacity as such), is or has been the subject of
any Proceeding involving a claim of violation of or liability under federal or
state securities laws or a claim of breach of fiduciary duty. There has not
been, and to the knowledge of the Company, there is not pending or contemplated,
any investigation by the Commission involving the Company or any current or
former director or officer of the Company (in his or her capacity as such). The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

            (l)    Labor Relations. The Company and the Subsidiaries (i) are in
material compliance with all terms and conditions of employment and all
Employment Laws including, pay equity, wages and hours of work, occupational
health and safety and (ii) have not and are not engaged in any unfair labor
practice and no unfair labor practice complaint, grievance or arbitration
proceeding is pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary. No collective agreement is currently in force or
is currently being negotiated by the Company, any Subsidiary or any other Person
in respect of the business of the Company or any Subsidiary or any of the
Employees. No trade union, council of trade unions, employee bargaining agency
or affiliated bargaining agent holds bargaining rights with respect to any of
the Employees by way of certification, interim certification, voluntary
recognition, or succession rights, or has applied or, to the knowledge of the
Company, threatened to apply to be certified as the bargaining agent of the
Employees. To the knowledge of the Company, there are no threatened or pending
union organizing activities involving any of the Employees. There is no labor
strike, dispute, work slowdown or stoppage pending or involving or, to the
knowledge of the Company threatened against the Company or any Subsidiary. There
are no charges pending under the Occupational Health and Safety Act (“OHSA”) in
respect of the Company or any Subsidiary. The Company and the Subsidiaries have
complied in all material respects with any orders issued under OHSA and there
are no appeals of any orders under OHSA currently outstanding.

            (m)    Employee Benefit Plans.

                (i)     Except as set forth in Schedule 3.1(m)(i), there are no
employee benefit or compensation plans, agreements, arrangements or commitments
(including “employee benefit plans,” as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”)) or any other
plans, policies, trust funds or arrangements (whether written or unwritten,
insured or self-insured) established, maintained, sponsored or contributed to
(or with respect to any obligation that has been undertaken) by the Company, any
Subsidiary or any entity that would be treated as a single employer with the
Company under Section 414(b), (c), (m) or (o) of the Internal Revenue Code of
1986, as amended (the “Code”) or Section 4001 of ERISA (an “ERISA Affiliate”)
for any employee, officer, director, consultant or stockholder or their
beneficiaries of the Company or any Subsidiary or with respect to which the
Company or any Subsidiary has liability, or makes or has an obligation to make
contributions on behalf of any such employee, officer, director, consultant or
stockholder or beneficiary (each a “Company Employee Plan” and collectively the
“Company Employee Plans”).

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                (ii)     Except as set forth in Schedule 3.1(m)(ii), and except
for medical reimbursement spending accounts under Code Section 125, each Company
Employee Plan that is an employee welfare benefit plan as defined under Section
3(l) of ERISA or a group benefits plan for employees or officers is funded
through an insurance company contract. Except as set forth in Schedule
3.1(m)(ii), each Company Employee Plan has been registered if so required, by
its terms and operation is in material compliance with all applicable laws and
all required filings, if any, with respect to such Company Employee Plan have
been timely made. Neither the Company, any Subsidiary nor any ERISA Affiliate
has at any time maintained, contributed to or been required to contribute to or
has (or has had) any liability with respect to, any plan subject to Section 412
of the Code, Section 302 of ERISA or Title IV of ERISA, including, without
limitation, any “multiemployer plan” (within the meaning of Sections 3(37) or
4001(a)(3) of ERISA or Section 414(f) of the Code), any single employer pension
plan (within the meaning of Section 4001(a)(15) of ERISA) which is subject to
Sections 4063, 4064 and 4069 of ERISA or any pension plan within the meaning of
federal or state pension standards legislation). The Company’s various
non-qualified for U.S. employees and officers deferred compensation plans
satisfy the requirements of Section 201(2) of ERISA. The events contemplated by
this Agreement (either alone or together with any other event) will not (A)
entitle any employee, director or stockholder of the Company or any Subsidiary
(whether current, former or retired) or their beneficiaries to severance pay,
unemployment compensation, or other similar payments under any Company Employee
Plan or Employment Law, (B) accelerate the time of payment or vesting or
increase the amount of benefits due under any Company Employee Plan or
compensation to any Employees or (C) result in any payments (including any
payment that could be characterized as an “excess parachute payment” (as defined
in Section 280G(b)(1) of the Code)) under any Company Employee Plan or
Employment Laws becoming due to any employee, director or stockholder of the
Company or any Subsidiary (whether current, former or retired) or their
beneficiaries. Except as set forth in Schedule 3.1(m)(ii), no amount payable
under any Company Employee Plan would fail to be deductible under Code Section
162(m).

                (iii)     Except as set forth in Schedule 3.1(m)(iii), with
respect to each of the Company Employee Plans: (1) each Company Employee Plan
that is intended to be qualified under Section 401(a) of the Code has received a
determination letter, opinion letter, advisory letter or notification letter, as
applicable, from the Internal Revenue Service (the “IRS”) regarding its
qualified status under the Code for all amendments required prior to the
Economic Growth and Tax Relief Reconciliation Act of 2001 or, if reliance is
permitted, relies on the favorable opinion letter or advisory letter of the
master and prototype or volume submitter plan sponsor of such plan, and nothing
has occurred, whether by action or by failure to act, that caused or could cause
the loss of such qualification or the imposition of any penalty or tax
liability; (2) all payments required by the Company Employee Plans, any
collective bargaining agreement or other agreement, or by applicable law
(including, without limitation, all contributions, insurance premiums or
intercompany charges) with respect to all periods through the Closing Date shall
have been made prior to the Closing Date (on a pro rata basis where such
payments are otherwise discretionary at year end) or provided for by the Company
as applicable, in accordance with the provisions of each of the Company Employee
Plans, applicable law and GAAP; (3) no action has been instituted or commenced
or, to the knowledge of the Company, has been threatened or is anticipated
against any of the Company Employee Plans (other than non-material routine
claims for benefits and appeals of such claims), any trustee or fiduciaries
thereof, the Company, any Subsidiary or any ERISA Affiliate, any director,
officer or employee thereof, or any of the assets of any trust of any of the
Company Employee Plans; (4) no Company Employee Plan is or is expected to be
under audit or investigation by the IRS, Department of Labor or any other
governmental entity and no such completed audit, if any, has resulted in the
imposition of any tax or penalty; and (5) no Company Employee Plan provides
post-retirement benefits.

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            (n)    Compliance. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (and no event has occurred that has not been
waived that, with notice or lapse of time or both, would result in a default by
the Company or any Subsidiary under), nor has the Company or any Subsidiary
received notice of a claim that it is in default under or that it is in
violation of, any indenture, loan or credit agreement or any other agreement or
instrument to which it is a party or by which it or any of its properties is
bound (whether or not such default or violation has been waived) except as,
individually or in the aggregate, has not resulted in, and could not reasonably
be expected to result in, a Material Adverse Effect, or (ii) is in violation of
any order of any Governmental Authority. Neither the Company, any Subsidiary
nor, to the Company’ knowledge, any Employee has violated the U.S. Foreign
Corrupt Practices Act, as amended. To the Company’s knowledge, no stockholder,
director, officer, employee or agent of the Company or of a Subsidiary has,
directly or indirectly, made or agreed to make, any unlawful or illegal (i)
payment, (ii) gift or (iii) political contribution to, or taken any other
unlawful or illegal action, for the benefit of any customer, supplier,
governmental employee or other Person who is or may be in a position to assist
or hinder the business of the Company or a Subsidiary.

            (o)    Regulatory Permits. The Company and the Subsidiaries possess
and are in compliance with the terms and conditions of, all certificates,
authorizations, approvals and permits necessary for the Company or any such
Subsidiary to own, lease and operate its properties or to conduct their
respective businesses as described in the SEC Reports (including, without
limitation, all certificates, authorizations, approvals and permits required
under Environmental Laws, the Federal Food, Drug and Cosmetic Act of 1938, as
amended (the “FDCA”), the Public Health Service Act of 1944, as amended (the
“PHSA”) and the regulations of the U.S. Food and Drug Administration (the “FDA”)
promulgated thereunder), (collectively, “Permits”), except where the failure to
posses or comply with a Permit, individually or in the aggregate, has not
resulted in, and could not reasonably be expected to result in, a Material
Adverse Effect, and to the Company’s knowledge neither the Company nor any
Subsidiary has received any written notice of Proceedings relating to the
revocation or modification of any Permit. The Company and its Subsidiaries are
in compliance with all Laws with respect to manufacturing, clinical research and
development, marketing and sale of all of their products, except where the
failure to comply, individually or in the aggregate, has not resulted in, and
could not reasonably be expected to result in, a Material Adverse Effect. There
are no pending or, to the knowledge of the Company, threatened actions or
proceedings by the FDA or any applicable foreign equivalent which would prohibit
or impede the sale of any product currently manufactured or sold by the Company
or any of its Subsidiaries into any market.

            (p)    Patents and Trademarks. Except as set forth in Schedule
3.1(p), the Company and the Subsidiaries own, or possess a valid and enforceable
written license to use, all Intellectual Property that is used or held for use
by the Company or its Subsidiaries in connection with their respective
businesses as described in the SEC Reports, as currently conducted
(collectively, the “Company Intellectual Property Rights”). To the Company’s
knowledge, except as set forth in Schedule 3.1(p), (i) the operation of the
business of the Company and the Subsidiaries, and the products or services in
development or which are marketed or sold (or proposed to be marketed or sold)
by the Company or any Subsidiary, do not violate any license or infringe any
Intellectual Property rights of any party and (ii) there is no unauthorized use,
infringement or misappropriation of any Company Intellectual Property Rights by
any third party. Except as set forth in Schedule 3.1(p), (i) other than with
respect to commercially available software products which the Company or the
Subsidiaries license under standard end-user object code license agreements,
there are no outstanding material licenses, agreements, claims, encumbrances or
shared ownership interests of any kind relating to any of the Company’s
Intellectual Property, (ii) neither the Company nor any the Subsidiary (A) is
obligated to make to any third party any payments related to the Company’s
Intellectual Property or (B) has agreed to indemnify any third party with
respect to any Intellectual Property. Except as set forth in Schedule 3.1(p), no
third party has made a claim in writing to the Company or any Subsidiary that
the Company or any Subsidiary has violated or, by conducting their business,
would violate any Intellectual Property rights of any other person or entity and
no such claim has been threatened in writing to the Company or any Subsidiary.
All of the Company Intellectual Property Rights which are registered or have
been filed for registration are in good standing and all of the fees and filings
due with respect thereto have been duly made. No Proceedings involving the
Company or any of its Subsidiaries, or, to the Company’s knowledge, no
Proceeding or investigation challenging or threatening the validity,
enforceability, effectiveness or ownership by the Company or any of its
Subsidiaries of any Company Intellectual Property Rights have been made or are
outstanding. Neither the Company nor any of its Subsidiaries is or, as a result
of the execution or delivery of this Agreement, or the performance of the
Company’s obligations hereunder, will be in violation of any license,
sublicense, agreement or instrument involving Intellectual Property to which the
Company or any of its Subsidiaries is a party or otherwise bound (an
“Intellectual Property Agreement”), nor will the execution or delivery of the
Transaction Documents or the consummation of the Transactions, cause the
diminution, license, transfer, termination or forfeiture of the Company’s or any
of its Subsidiaries’ rights in any Company Intellectual Property Rights. Each of
the Company and the Subsidiaries has taken commercially reasonable measures to
protect the proprietary nature of the Company Intellectual Property Rights.

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            (q)    Insurance. The Company and the Subsidiaries are insured
against such losses and risks and in such amounts as are reasonably prudent and
customary in the businesses in which the Company and the Subsidiaries are
engaged. Neither the Company nor any Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business on terms consistent with the market for the
Company’s and such Subsidiaries’ respective lines of business. Except as set
forth on Schedule 3.1(q), there are currently no Proceedings pending against the
Company or any Subsidiary under any insurance policies currently in effect and
covering the property, business or employees of the Company and the
Subsidiaries, and all premiums due and payable with respect to the insurance
policies maintained by the Company and the Subsidiaries have been paid to date.

            (r)    Transactions With Affiliates. Except as set forth in the SEC
Reports, none of the officers or directors or other Affiliates of the Company or
any Subsidiary is presently a party to any transaction with the Company or any
Subsidiary (other than for services as officers and directors), including any
contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from any officer, director, or such
Affiliate or, to the knowledge of the Company, any entity in which any officer,
director, or Affiliate has a substantial interest or is an officer, director,
trustee or partner. Except as set forth in the SEC Reports, to the knowledge of
the Company, none of the Employees of the Company or any Subsidiary is presently
a party to any transaction with the Company or any Subsidiary (other than for
services as an Employee, and other than immaterial arrangements inherited in
connection with an acquisition by the Company of a business with which that
Employee was previously associated), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any Employee or, to the knowledge of the Company, any entity in which
any Employee has a substantial interest or is an officer, director, trustee or
partner.

            (s)    Certain Fees. Except as set forth in Schedule 3.1(s), no
brokerage or finder’s fees or commissions are or will be payable by the Company
to any broker, financial advisor or consultant, finder, placement agent,
investment banker, bank or other Person with respect to the transactions
provided for in this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims (other than such fees or
commissions owed by a Purchaser pursuant to written agreements executed by such
Purchaser which fees or commissions shall be the sole responsibility of such
Purchaser) made by or on behalf of other Persons for fees of a type contemplated
in this Section that may be due in connection with the transactions contemplated
by this Agreement. The Company shall indemnify and hold harmless the Purchasers,
their employees, officers, directors, agents, and partners, and their respective
Affiliates, from and against all claims, Losses, damages, costs (including the
costs of preparation and attorney’s fees) and expenses suffered in respect of
any such claimed or existing fees, as such fees and expenses are incurred.

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            (t)    Private Placement. Neither the Company nor any Person acting
on the Company’s behalf has sold or offered to sell or solicited any offer to
buy the Securities by means of any form of general solicitation or advertising.
Neither the Company nor any of its Affiliates nor any Person acting on the
Company’s behalf has, directly or indirectly, at any time within the past six
months, made any offer or sale of any security or solicitation of any offer to
buy any security under circumstances that would (i) eliminate the availability
of the exemption from registration under Section 4(2) of the Securities Act or
Regulation D under the Securities Act in connection with the offer and sale of
the Securities to the Initial Purchasers, or the availability of exemptions from
registration under the Securities Act in connection with the subsequent resale
of the Securities by the Initial Purchasers to the Subsequent Purchaser, in each
case, as contemplated hereby or (ii) cause the offering of the Securities
pursuant to the Transaction Documents to be integrated with prior offerings by
the Company for purposes of any applicable law, regulation or stockholder
approval provisions, including without limitation under the rules and
regulations of the Trading Market.

            (u)    Listing and Maintenance Requirements. The Common Shares are
listed and posted for trading on the Trading Market and the Company has not, in
the two years preceding the date hereof, received notice from the Trading Market
to the effect that the Company is not in compliance with the listing or
maintenance requirements of such Trading Market. The Company is in compliance in
all material respects with all such listing and maintenance requirements.

            (v)    Registration Rights. Except as described in Schedule 3.1(v),
the Company has not granted or agreed to grant to any Person any rights
(including “piggy back” registration rights) to have any securities of the
Company registered with the Commission or any other governmental authority that
are currently pending and that have not been satisfied.

            (w)    Application of Takeover Protections. The Company and its
board of directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination, poison pill
(including any distribution under a rights agreement) or other similar
anti-takeover provision under the Company’s Certificate of Incorporation (or
similar charter documents) or the laws of its state of incorporation that is or
could become applicable to the Purchasers as a result of the Purchasers and the
Company fulfilling their obligations or exercising their rights under the
Transaction Documents, including without limitation the Company’s issuance of
the Securities and the Purchasers’ ownership of the Securities.

            (x)    Investment Company; FIRPTA. The Company is not, and is not an
Affiliate of, an investment company within the meaning of the Investment Company
Act of 1940, as amended. The Company is not a U.S. real property holding
corporation within the meaning of the Foreign Investment in Real Property Tax
Act of 1980.

            (y)    Material Contracts. Each Material Contract is in full force
and effect and is a legal, valid and binding obligation of the Company or any
Subsidiary, as applicable. Neither the Company nor any Subsidiary is and, to the
knowledge of the Company, no other party is, in default (and, to the knowledge
of the Company, no condition exists that, with notice or lapse of time or both,
would constitute a default by the Company or any Subsidiary) in the performance,
observance or fulfillment of any obligation, covenant or condition contained in
any such Material Contract, which default would give the other party the right
to terminate or modify in any material respect such Material Contract or would
accelerate any payment or material obligation by the Company or any Subsidiary,
nor, to knowledge of the Company is any other party to any Material Contract in
default thereunder (or, does any condition exist that, with notice or lapse of
time or both, would constitute a default by any such party), except such
defaults which, individually or in the aggregate, have not resulted in, and
could not reasonably be expected to result in, a Material Adverse Effect. The
validity, effectiveness and continuation of each of the Material Contracts will
not be adversely affected by the transactions contemplated by this Agreement or
any other Transaction Document. To the knowledge of the Company, no party to any
of the Material Contracts has exercised any option granted to it to cancel,
terminate or shorten the term of its Material Contract.

            (z)     Suppliers and Customers. Schedule 3.1(z) sets forth the ten
largest suppliers and ten largest customers of the Company and the Subsidiaries
as of the date hereof, based on the dollar amount of sales for the twelve-month
period ending December 31, 2005. Since December 31, 2004 none of these suppliers
or customers has: (i) terminated, cancelled or threatened to terminate or cancel
their business relationship with the Company or any Subsidiary; or (ii) demanded
any material modification, termination or limitation of its business
relationship with the Company or any Subsidiary.

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            (aa)    Health Regulatory Compliance.

                (i)     To the knowledge of the Company, each of the
Subsidiaries that provides orthotic and/or prosthetic patient-care services
(hereinafter “Patient Care Centers”) (a) is duly licensed to provide such
services in every jurisdiction in which it conducts business, where such
jurisdiction requires licensure of Patient Care Centers; and (b) has enrolled in
and has received a supplier billing number from the Medicare program, the
Medicaid program, the Indian Health Services program, the Tri-Care program and
the Veterans Administration program (collectively referred to hereinafter as
“Government Programs”). To the knowledge of the Company, in every jurisdiction
in which a license or board certification is required as a condition of payment
for services, each professional employee that performs orthotic and/or
prosthetic patient-care services for a Subsidiary that provides orthotic and/or
prosthetic patient-care services (hereinafter, a“Practitioner”) has the
appropriate license or board certification in such jurisdiction. Neither the
Company nor any Subsidiary (other than the Patient Care Centers) provides any
patient care services that are material to the Company and its Subsidiaries,
taken as a whole, and none of the Patient Care Centers provides any patient care
services that are material to the Company and its Subsidiaries, taken as a
whole, other than orthotic and/or prosthetic patient care services.

                (ii)     The execution and delivery of this Agreement, and each
of the Company’s and the Subsidiaries’ performance thereunder, will not
materially reduce or delay receipt of the ongoing Medicaid, Medicare, Government
Programs, insurance carrier, managed care organization or other third party
payments or reimbursements or the private payor payments or reimbursement that
each of the Company and any Subsidiary is receiving as of the date hereof.

                (iii)     Each Patient Care Center is currently operated (A)
with all material Permits necessary for enrollment under the Government
Programs; (B) is an orthotics and prosthetics supplier enrolled under titles
XVIII (Medicare) and XIX (Medicaid) of the federal Social Security Act; and (C)
is in compliance in all material respects with all Health Care Laws, including
titles XVIII and XIX of the federal Social Security Act and state health care
lawsapplicable to orthotics and prosthetics suppliers. Neither the Company nor
any Subsidiary is subject to or has been notified of an intent to impose any
material civil monetary penalties, termination or exclusion from Medicare or
Medicaid, or debarment from any Government Program, and no Company or Subsidiary
has received any written notice of any such matter.

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                (iv)     Except for Subsidiaries listed on Schedule 3.1(aa)(iv),
each Patient Care Center is enrolled in the federal Medicare, all applicable
state Medicaid programs, and the Government Programs for the provision of
orthotic and prosthetic devices and related services. Neither the Company nor
any Subsidiary nor any Practitioner has any material Liabilities to Medicare,
any state Medicaid program, any third party fiscal intermediary or carrier
administering the Government Programs, or directly to any Government Program for
the recoupment of any amounts previously paid to the Company or a Subsidiary by
Medicare, any state Medicaid program, any such third party fiscal intermediary,
carrier, or Government Program. Except as set forth on Schedule 3.1(aa)(iv),
there are no pending or threatened investigations or audits by any third party
fiscal intermediary or carrier administering Medicare, the Government Programs,
or by the Department of Health and Human Services, by the Department of Veterans
Affairs, any state Medicaid agency, intermediary or carrier, to impose a
material recoupment, set-off, or suspension of payments to, or demand a refund
from, or terminate the supplier agreements with, or asserting any claim, demand,
penalty, fine, or other sanction with respect to any of the activities,
practices or policies of, any Company or Subsidiary, and, to the knowledge of
the Company and its Subsidiaries, there are no material grounds to anticipate
any such audit or investigation. To the knowledge of the Company, no Subsidiary
that provides orthotic and/or prosthetic patient-care services has violated (in
any material respect) any condition of enrollment, or any material rule,
regulation, policy or standard of, Medicare, any state Medicaid program, or any
Government Program.

                (v)     Except as set forth on Schedule 3.1(aa)(v), to the
knowledge of the Company, neither the Company, nor any Subsidiary, nor any
Practitioner has engaged in any activities which are cause for material civil
monetary penalties or mandatory or permissive exclusion from Medicare, any state
Medicaid program, any Government Program under 42 U.S.C. Sections 1320a-7,
1320a-7a, 1320a-7b, or 1395nn, or the Federal False Claim Act, 31. U.S.C.
Section 3729, or the regulations promulgated pursuant to such statutes or for
debarment from participation in any Government Program.

                (vi)     To the knowledge of the Company, each of the Company,
the Subsidiaries, and Practitioners has complied in all material respects with
all applicable security and privacy standards regarding protected health
information under the Health Insurance Portability and Accountability Act of
1996 and all applicable state privacy Laws, and with all applicable regulations
promulgated under any such legislation.

                (vii)     To the knowledge of the Company, neither the Company
nor any Subsidiary, nor any Practitioner, has violated in any material respect
any applicable self-referral Law, including the Federal Ethics in Patient
Referrals Act, 42 U.S.C. Section 1395nn (the “Stark Law”), or any applicable
state self-referral Law.

                (viii)     To the knowledge of the Company, the Company and each
Subsidiary has conducted or will conduct all required background checks on
Employees, and to the knowledge of the Company, neither the Company nor any
Subsidiary employs any persons excluded from participation in Medicare or
Medicaid, pursuant to 42 U.S.C. Section 1320a-7, or who are debarred from
participating in government contracts.

                (ix)        To the knowledge of Company, neither the Company nor
any Subsidiary nor any Practitioner has knowingly or willfully violated in any
material respect the Federal Anti-Kickback Statute, 42 U.S.C. Section 1320-7b(b)
(known as the “Anti-Kickback Statute”).

            (bb)    Product Warranty; Product Liability. Each product
manufactured, sold or delivered by the Company or any of the Subsidiaries in
conducting business has been in conformity in all material respects with all
product specifications and all express and implied warranties of the Company or
any Subsidiary. Neither the Company nor any of the Subsidiaries has any
liability for replacement or repair of any such products or other damages in
connection therewith or any other customer or product obligations not reserved
against on the balance sheet (if required to be reserved under GAAP).

            (cc)    Environmental Matters.

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                (i)     All of the current and past operations of the Company,
the Subsidiaries and any real property currently owned, operated, used or leased
by the Company or any Subsidiary (the “Real Property”) comply and have at all
times complied with all federal, state and local laws, judgments, decrees,
orders, consent agreements, authorizations, permits, licenses, rules,
regulations, codes, ordinances, common or decision law (including, without
limitation, principles of negligence and strict liability) relating to the
pollution, protection, investigation, remediation, monitoring, damages to, or
restoration of the environment (including, without limitation, natural
resources) or the health or safety matters of humans and other living organisms
(the “Environmental Laws”), except where the failure to comply, individually or
in the aggregate, has not resulted in, and could not reasonably be expected to
result in, a Material Adverse Effect. All real property formerly owned,
operated, used or leased by the Company or any Subsidiary (the “Former Real
Property”) complied at all times during the term of the Company’s or such
Subsidiary’s ownership, operation, use or lease thereof with all applicable
Environmental Laws, except where the failure to comply, individually or in the
aggregate, has not resulted in, and could not reasonably be expected to result
in, a Material Adverse Effect.

                (ii)     Except as set forth in Schedule 3.1(cc)(ii), (A) the
Company has no knowledge of any claim, and neither it nor any Subsidiary has
received written notice of a complaint, loss order, claim, request for
information, violation or citation, and to the Company’s knowledge no proceeding
has been instituted or threatened raising a claim against the Company or any
Subsidiary or any predecessor thereto or any of their respective Real Property,
Former Real Property or other assets indicating or alleging any damage to the
environment or any liability or obligation under or violation of any
Environmental Law, except where any such claim, complaint, loss order, claim,
request for information, violation, citation or proceeding, individually or in
the aggregate, has not resulted in, and could not reasonably be expected to
result in, a Material Adverse Effect, and (B) to the knowledge of the Company,
neither the Company nor any Subsidiary is subject to any order, decree or
injunction of any Governmental Authority under any applicable Environmental Law.

                (iii)     Except as set forth in Schedule 3.1(cc)(iii), (A)
neither the Company nor any Subsidiary has used and, to the Company’s knowledge,
no other Person has used any portion of any Real Property or Former Real
Property during the term of the Company’s or any Subsidiary’s ownership,
operation, use or lease thereof for the generation, handling, processing,
treatment, storage or disposal of any Hazardous Materials except in accordance
with applicable Environmental Laws, except where any such use, individually or
in the aggregate, has not resulted in, and could not reasonably be expected to
result in, a Material Adverse Effect; (B) neither the Company nor any Subsidiary
owns or operates any underground tank and to the Company’s knowledge there are
no underground tanks or other underground storage receptacles, or any friable
asbestos-containing materials or other Hazardous Materials located in any
portion of any Real Property not in compliance with applicable Environmental
Laws in all material respects and (C) neither the Company nor any Subsidiary
nor, to the Company’s knowledge, any other Person, has caused or suffered to
occur any releases of Hazardous Materials on, at, in, under, above, to, from or
about any Real Property or Former Real Property during the term of the Company’s
or any Subsidiary’s ownership, operation, use or lease thereof, except where any
such release, individually or in the aggregate, has not resulted in, and could
not reasonably be expected to result in, a Material Adverse Effect. The Company
has not contractually, by operation of law, including the Environmental Laws, or
otherwise assumed or succeeded to any environmental liabilities of any
predecessors or any other person or entity, except as, individually or in the
aggregate, has not resulted in, and could not reasonably be expected to result
in, a Material Adverse Effect.

            (dd)    Export Controls. None of the Company, any Subsidiary or, to
the Company’s knowledge, the Employees have violated any law pertaining to
export controls, technology transfer or industrial security including, without
limitation, the Export Administration Act, as amended, the International
Emergency Economic Powers Act, as amended, the Arms Export Control Act, as
amended, the National Industrial Security Program Operating Manual, as amended,
or any regulation, order, license or other legal requirement issued pursuant to
the foregoing (including, without limitation, the Export Administration
Regulations and the International Traffic in Arms Regulations), except where any
such violation, individually or in the aggregate, has not resulted in, and could
not reasonably be expected to result in, a Material Adverse Effect. Neither the
Company, any Subsidiary nor, to the Company’s knowledge, any Employee is the
subject of a Proceeding by a Governmental Authority that restricts such person’s
ability to engage in export transactions.

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            (ee)    Disclosure. All disclosure provided to the Purchasers
regarding the Company, its business and the transactions contemplated hereby,
including the Schedules to this Agreement, furnished by or on behalf of the
Company is true and correct in all material respects. No event or circumstance
has occurred or information exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed (assuming for this purpose that the Company’s
reports filed under the 1934 Act are being incorporated into an effective
registration statement filed by the Company under the 1933 Act).

            (ff)    Class of Shares. When issued and delivered pursuant to this
Agreement, the Shares will not be of the same class (within the meaning of Rule
144A(d)(3) under the Securities Act) as securities of the Company that are
listed on a national securities exchange registered under Section 6 of the
Exchange Act or that are quoted in a U.S. automated inter-dealer quotation
system.

        3.2     Representations and Warranties of the Initial Purchasers. Each
Initial Purchaser hereby, as to itself only and for no other Initial Purchaser,
represents and warrants to the Company as follows:

            (a)     Investment Intent. Such Initial Purchaser is not acquiring
the Securities with a view to any distribution thereof or with any present
intention of offering or selling any of the Shares in a transaction that would
violate the Securities Act or any state securities laws or any other applicable
jurisdiction, without prejudice, however, to such Initial Purchaser’s right at
all times to sell or otherwise dispose of all or any part of such Securities in
compliance with applicable federal or state securities laws. Nothing contained
herein shall be deemed a representation or warranty by such Initial Purchaser to
hold the Securities for any period of time. Such Initial Purchaser understands
that the Securities have not been registered under the Securities Act, and
therefore the Securities may not be sold, assigned or transferred in the U.S.
other than pursuant to (i) a registration statement under the Securities Act, or
(ii) an exemption from such registration requirements.

            (b)     Purchaser Status. Such Initial Purchaser is a “qualified
institutional buyer” (a “QIB”) within the meaning of the rules and regulations
promulgated by the Commission under the Securities Act with such knowledge and
experience in financial and business matters as are necessary in order to
evaluate the merits and risks of an investment in the Securities.

            (c)     General Solicitation. Such Initial Purchaser is not
purchasing the Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

            (d)     Reliance on Exemptions. Such Initial Purchaser understands
that the Securities are being offered and sold to it in reliance on specific
exemptions from the registration requirements of U.S. federal and state
securities laws and that the Company is relying in part upon the truth and
accuracy of, and such Initial Purchaser’s representations and warranties set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Initial Purchaser to acquire the Securities.

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            3.3     Representations and Warranties of the Subsequent Purchaser.
The Subsequent Purchaser hereby represents and warrants to the Company and to
the Initial Purchasers as follows:

            (a)    Organization; Authority. The Subsequent Purchaser is an
entity duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization with the requisite corporate, limited
liability company or partnership power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations hereunder and thereunder. The execution,
delivery and performance by the Subsequent Purchaser of the Transaction
Documents to which it is a party have been duly authorized by all necessary
corporate or, if the Subsequent Purchaser is not a corporation, such
partnership, limited liability company or other applicable like action, on the
part of the Subsequent Purchaser. Each of the Transaction Documents to which the
Subsequent Purchaser is a party has been duly executed by the Subsequent
Purchaser and, when delivered by the Subsequent Purchaser in accordance with
terms hereof, will constitute the valid and legally binding obligation of the
Subsequent Purchaser, enforceable against it in accordance with its terms.

            (b)    Investment Intent. The Subsequent Purchaser is acquiring the
Securities as principal for its own account for investment purposes and not with
a view to distributing or reselling such Securities or any part thereof in
violation of applicable securities laws, without prejudice, however, to the
Subsequent Purchaser’s right at all times to sell or otherwise dispose of all or
any part of such Securities in compliance with applicable federal or state
securities laws. Nothing contained herein shall be deemed a representation or
warranty by the Subsequent Purchaser to hold the Securities for any period of
time. The Subsequent Purchaser understands that the Securities have not been
registered under the Securities Act, and therefore the Securities may not be
sold, assigned or transferred in the U.S. other than pursuant to (i) a
registration statement under the Securities Act, or (ii) an exemption from such
registration requirements.

            (c)    Purchaser Status and Non-Reliance on Initial Purchasers. The
Subsequent Purchaser is a QIB with such knowledge and experience in financial
and business matters as are necessary in order to evaluate the merits and risks
of an investment in the Securities. The Subsequent Purchaser further
acknowledges, represents and warrants, only to each Initial Purchaser, that: (i)
the Initial Purchasers may be, and the Subsequent Purchaser are proceeding on
the assumption that the Initial Purchasers are, in possession of material,
non-public information concerning the Company (the “Information”) which is not
or may not be known to the Subsequent Purchaser and that the Initial Purchasers
have not disclosed to the Subsequent Purchaser; (ii) the Subsequent Purchaser is
voluntarily assuming all risks associated with the purchase of the Securities
and warrants and represents that (x) the Initial Purchasers have not made, and
the Subsequent Purchaser disclaims the existence of or its reliance on, any
representation by the Initial Purchasers concerning the Company or the
Securities and (y) the Subsequent Purchaser are not relying on any disclosure or
non-disclosure made or not made by the Initial Purchasers, or the completeness
thereof, in connection with or arising out of the purchase of the Securities
from the Initial Purchasers, and therefore have no claims against the Initial
Purchasers with respect thereto; and (iii) if any such claim may exist, the
Subsequent Purchaser, recognizing its disclaimer of reliance and the Initial
Purchasers’ reliance on such disclaimer as a condition to entering into this
Agreement, covenants and agrees not to assert it against any Initial Purchaser
or any Related Person whether under applicable securities law or otherwise,
based on the Initial Purchasers’ knowledge, possession or non-disclosure to the
Subsequent Purchaser of the Information.

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        In addition, the Subsequent Purchaser acknowledges to and agrees with
the Initial Purchasers only that it has conducted to its satisfaction, its own
independent investigation of the condition, operations and business of the
Company and the Subsidiaries and, in making its determination to proceed with
the transactions contemplated by this Agreement, the Subsequent Purchaser has
relied on the results of its own independent investigation and the
representations and warranties of the Company contained herein and not on any
information provided or deemed to have been provided by the Initial Purchasers.
Nothing contained in this Section 3.3(c) shall limit in any respect any of the
representations, warranties or agreements of the Company in this Agreement or
otherwise, or the right of the Subsequent Purchaser to rely thereon.

            (d)    General Solicitation. The Subsequent Purchaser is not
purchasing the Securities as a result of any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.

            (e)    Reliance on Exemptions. The Subsequent Purchaser understands
that the Securities are being offered and sold to it in reliance on one or more
specific exemptions, including under Rule 144A promulgated under the Securities
Act, from the registration requirements of U.S. federal and state securities
laws and that each of the Company and the Initial Purchasers is relying in part
upon the truth and accuracy of the Subsequent Purchaser’s representations and
warranties set forth herein in order to determine the availability of such
exemption.

ARTICLE IV.
OTHER AGREEMENTS OF THE PARTIES

        4.1     Transfer Restrictions.

            (a)     The Securities may only be disposed of pursuant to an
effective registration statement under the Securities Act or pursuant to an
available exemption from the registration requirements of the Securities Act,
and in compliance with any applicable state securities laws. In connection with
any transfer of Securities other than (i) pursuant to an effective registration
statement, (ii) to the Company, (iii) pursuant to Rule 144(k) or (iv) the
initial resale of the Securities by the Initial Purchasers to the Subsequent
Purchaser, except as otherwise set forth herein, the Company may require the
transferor to provide to the Company an opinion of counsel selected by the
transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register on the books of the Company
and with its transfer agent, without any such legal opinion, any transfer of
Securities by a Purchaser to an Affiliate of such Purchaser.

            (b)     The Purchasers agree to the imprinting on any certificate
evidencing Securities, except as otherwise permitted by Section 4.1(c), of a
restrictive legend in substantially the form as follows, together with any
additional legend required by (i) any applicable state securities laws and (ii)
any securities exchange upon which such Securities may be listed:

  “NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING, THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE SECURITIES MAY
BE PLEDGED TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 501(A) UNDER
THE SECURITIES ACT IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT SECURED BY SUCH
SECURITIES.”

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            (c)     Certificates evidencing Securities shall not be required to
contain such legend or any other legend (i) following any sale of Securities
pursuant to an effective Registration Statement covering the resale of such
Securities under the Securities Act, or (ii) following any sale of such
Securities pursuant to Rule 144, or (iii) if such Securities are eligible for
sale under Rule 144(k), or (iv) if such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the Staff of the Commission). At such time as a legend
is no longer required for certain Securities, the Company will, no later than
three Trading Days following the delivery by a Purchaser to the Company or the
Company’s transfer agent of a legended certificate representing such Securities,
deliver or cause to be delivered to such Purchaser a certificate representing
such Securities that is free from all restrictive and other legends. The Company
may not give instructions to any transfer agent of the Company that enlarge the
restrictions on transfer set forth in this Section. For so long as any Purchaser
owns Securities, the Company will not effect or publicly announce its intention
to effect any exchange, recapitalization or other transaction that effectively
requires or rewards physical delivery of certificates evidencing the Common
Shares.

            (d)     The Company acknowledges and agrees that a Purchaser may
from time to time pledge or grant a security interest in some or all of the
Securities in connection with a bona fide margin agreement or other loan or
financing arrangement secured by the Securities and, if required under the terms
of such agreement, loan or arrangement, such Purchaser may transfer pledged or
secured Securities to the pledgees or secured parties. Such a pledge or transfer
would not be subject to approval of the Company and no legal opinion of the
pledgee, secured party or pledgor shall be required in connection therewith.
Further, no notice shall be required of such pledge. At the appropriate
Purchaser’s expense, the Company will execute and deliver such reasonable
documentation as a pledgee or secured party of Securities may reasonably request
in connection with a pledge or transfer of the Securities, including, so long as
the Company is obligated to maintain a resale Registration Statement with
respect to the Underlying Shares, the preparation and filing of any required
prospectus supplement under Rule 424(b)(3) of the Securities Act or other
applicable provision of the Securities Act to appropriately amend the list of
Selling Stockholders thereunder.

        4.2     Furnishing of Information. The Company covenants that it will
take such action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell such Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144.

        4.3     Integration. The Company shall not, and shall use its best
efforts to ensure that no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers, or
that would be integrated with the offer or sale of the Securities for purposes
of the rules and regulations of the Trading Market.

        4.4     Reservation and Listing of Securities.

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            (a)     The Company shall maintain a reserve from its duly
authorized Common Shares for issuance pursuant to the Transaction Documents in
such amount as may be required to fulfill its obligations in full under the
Transaction Documents.

            (b)     The Company shall (i) prepare and timely file with the
Trading Market an additional shares listing application covering all of the
Underlying Shares issued or issuable under the Transaction Documents, (ii) use
best efforts to cause such Underlying Shares to be approved for listing on the
Trading Market as soon as practicable thereafter, (iii) provide to the
Purchasers evidence of such listing, and (iv) use best efforts to maintain the
listing of such Underlying Shares on such Trading Market.

        4.5     Subsequent Financings. From the date hereof until the earlier of
(i) the termination of this Agreement or (ii) after the sale of the Shares to
the Subsequent Purchaser, the date that the Subsequent Purchaser owns less than
1,984,126 Common Shares, on an as-converted basis (subject to appropriate
adjustment for stock splits, subdivisions, dividends or distributions payable in
Common Shares (or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly Common Shares), combinations or
other similar recapitalizations or events, and including all Common Shares
issuable upon conversion of the Shares), the Company will not, directly or
indirectly, effect any Subsequent Public Financing or any Subsequent Private
Financing unless the Company shall have first complied with this Section 4.5.

            (a)     If at any time the Company, directly or indirectly, desires
to consummate a Subsequent Private Financing, the Company shall first deliver to
the Subsequent Purchaser a written notice (the “Initial Financing Notice”),
which Initial Financing Notice shall set forth in reasonable detail the general
parameters of the intended Subsequent Private Financing, the Company’s
preference, if any, for equity or exchangeable or convertible debt financing,
the minimum and maximum amounts of such financing and the Company’s intended use
of the funds received from any such Subsequent Private Financing. Upon receipt
of such Initial Financing Notice, the Subsequent Purchaser shall have 20 days to
provide the Company with a commitment letter (subject to specified terms and
conditions as set forth thereon) proposing terms with respect to such Subsequent
Private Financing (the “Purchaser’s Offer”). The Company may, at its option,
elect to (A) accept the terms set forth in the Purchaser’s Offer within the
period set forth in the Purchaser’s Offer, in which case the Company and the
Subsequent Purchaser shall consummate a Subsequent Private Financing pursuant to
the terms specified in the Purchaser’s Offer, subject in all cases to the
preparation, execution and delivery by the Company and the Subsequent Purchaser
choosing to participate in such Subsequent Private Financing of definitive
documentation relating to such Subsequent Private Financing reasonably
satisfactory in form and substance to the Subsequent Purchaser participating in
such Subsequent Private Financing and their respective counsel, or (B) choose to
seek alternative offers with respect to such Subsequent Private Financing from
third parties, in which case the Company may not consummate any such Subsequent
Private Financing with any third party unless (x) such Subsequent Private
Financing shall be on terms more favorable to the Company and the Subsidiaries
than the terms set forth in the Purchaser’s Offer, (y) the Company complies with
the remainder of this Section 4.5 and (z) the Company Offer (as defined below)
is delivered within 60 days of the delivery of the Purchaser’s Offer. If the
Subsequent Purchasers does not deliver a Purchaser’s Offer within the 20-day
period provided for above, then the Company may seek offers with respect to such
Subsequent Private Financing from third parties, in which case the Company may
not consummate any such Subsequent Private Financing with any third party unless
(x) the Company complies with the remainder of this Section 4.5 and (y) the
Company Offer (as defined below) is delivered within 60 days of the expiration
of such 20-day period.

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            (b)     If the Company desires, directly or indirectly, to
consummate a Subsequent Private Financing (and has not accepted a Purchaser’s
Offer or no Purchaser’s Offer has been delivered pursuant to Section 4.5(a)
above) and the Company has obtained a written term sheet or commitment letter
from a third party with respect to a Subsequent Private Financing that is
generally consistent with the terms set forth in the Initial Financing Notice,
then the Company shall deliver to the Subsequent Purchaser a written notice (the
“Company Offer”) of any proposed or intended issuance or sale or exchange of the
securities being offered either to such third party or in such Subsequent
Private Financing (the “Offered Securities”), which Company Offer shall
(A) identify and describe the Offered Securities, (B) describe the price and
other terms upon which they are to be issued, sold or exchanged, and the number
or amount of the Offered Securities to be issued, sold or exchanged, (C)
identify the Persons or entities to which or with which the Offered Securities
are to be offered, issued, sold or exchanged and (D) offer to issue and sell to
or exchange with the Subsequent Purchaser (x) up to their Pro Rata Portion (as
defined below) of the Offered Securities, and (y) in the event there is more
than one Subsequent Purchaser, with respect to any Subsequent Purchaser that
elects to purchase its Pro Rata Portion, any additional portion of the Offered
Securities attributable to the Pro Rata Portions of other Subsequent Purchasers
as such Subsequent Purchaser shall indicate it will purchase or acquire should
the other Subsequent Purchasers subscribe for less than their Pro Rata Portions
(the “Undersubscription Amount”). The term “Pro Rata Portion” means, as to each
Subsequent Purchaser, a fraction, the numerator of which is equal to the number
of Common Shares held by such Subsequent Purchaser (on a fully diluted
as-converted basis), and the denominator of which is all issued and outstanding
Common Shares, in each case as determined on the date the Company Offer is
delivered pursuant to this Section 4.5(b).

            (c)     To accept a Company Offer, in whole or in part, a Subsequent
Purchaser must deliver a written notice to the Company prior to the end of the
10-Trading Day period after the Company Offer is delivered, setting forth the
portion of the Subsequent Purchaser’s Pro Rata Portion that such Subsequent
Purchaser elects to purchase and, if such Subsequent Purchaser shall elect to
purchase all of its Pro Rata Portion, the Undersubscription Amount, if any, that
such Subsequent Purchaser elects to purchase (in either case, the “Notice of
Acceptance”). If the Pro Rata Portions subscribed for by all Subsequent
Purchasers are less than the total of all of the Pro Rata Portions, then each
Subsequent Purchaser who has set forth an Undersubscription Amount in its Notice
of Acceptance shall be entitled to purchase, in addition to the Pro Rata Portion
subscribed for, the Undersubscription Amount it has subscribed for; provided,
however, that if the Undersubscription Amounts subscribed for exceed the
difference between the total of all the Pro Rata Portions and the Pro Rata
Portions subscribed for (the “Available Undersubscription Amount”), each
Subsequent Purchaser who has subscribed for any Undersubscription Amount shall
be entitled to purchase only that portion of the Available Undersubscription
Amount as the Pro Rata Portion of such Subsequent Purchaser bears to the total
Pro Rata Portions of all Subsequent Purchasers that have subscribed for
Undersubscription Amounts, subject to rounding by to the extent reasonably
necessary.

            (d)     The Company shall have 30 Trading Days from the expiration
of the period set forth in Section 4.5(c) above, subject to extension as
provided in Section 4.5(f) to issue, sell or exchange all or any part of such
Offered Securities as to which a Notice of Acceptance has not been given by the
Subsequent Purchasers (the “Refused Securities”), but only to the offerees
described in the Company Offer and only upon terms and conditions (including,
without limitation, unit prices and interest rates) that are not more favorable
to the acquiring Person or Persons (the “3rd Party Purchasers”) or less
favorable to the Company than those set forth in the Company Offer.

            (e)     In the event the Company shall propose to sell less than all
of the Refused Securities (any such sale to be in the manner and on the terms
specified in Section 4.5(d) above), then each Subsequent Purchaser may, at its
sole option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that shall
be not less than the number or amount of the Offered Securities that the
Subsequent Purchasers elected to purchase pursuant to Section 4.5(c) above
multiplied by a fraction, (A) the numerator of which shall be the number or
amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to Subsequent
Purchasers pursuant to Section 4.5(c) above prior to such reduction) and (B) the
denominator of which shall be the original amount of the Offered Securities. In
the event that any Subsequent Purchaser so elects to reduce the number or amount
of Offered Securities specified in its Notice of Acceptance, the Company may not
issue, sell or exchange more than the reduced number or amount of the Offered
Securities unless and until the Company shall have again complied with the
provisions of this Section 4.5.

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            (f)     The sale by the Company and purchase by the Subsequent
Purchasers in a Subsequent Private Financing of the number or amount of Offered
Securities specified in the Notices of Acceptance, as such number or amount may
be reduced pursuant to Section 4.5(e), shall be made pursuant to a purchase
agreement and any related ancillary documentation substantially in the same form
and substance as the stock purchase agreement and any related ancillary
documentation (the “Financing Documentation”) that the Company enters into with
the 3rd Party Purchasers, and shall close at substantially the same time as the
3rd Party Purchasers financing; provided, however, that such Financing
Documentation shall not contain any provision that treats any of the Subsequent
Purchasers less favorably than, or that affects any Subsequent Purchaser
differently than any 3rd Party Purchaser. The Company shall deliver a final
version of the Financing Documentation to the Subsequent Purchasers (and, upon
request, their counsel) not later than 7 Trading Days prior to the proposed
closing date of the 3rd Party Purchasers financing. In the event a Subsequent
Purchaser is unwilling to proceed with the proposed financing on the terms and
conditions set forth in the definitive Financing Documentation, it shall have
the right to withdraw its Notice of Acceptance by delivering a written notice of
such withdrawal not later than the second Trading Day prior to the proposed
closing date, and any Offered Securities that had been subject to such Notice of
Acceptance shall thereafter be deemed to be Refused Securities. Notwithstanding
the 30 day period provided for in Section 4.5(d), the Company shall have 5
Trading Days from the delivery of any withdrawal notice to issue, sell or
exchange all or any part of the Refused Securities.

            (g)     Any Offered Securities not acquired by the Subsequent
Purchasers or other persons in accordance with Section 4.5(d) above may not be
issued, sold or exchanged until they are again offered to the Subsequent
Purchasers under the procedures specified in this Agreement.

            (h)     In the event that the Company desires to consummate a
Subsequent Public Financing, it shall use all commercially reasonable efforts to
allow each Subsequent Purchasers to participate in such Subsequent Public
Financing and to purchase up to such portion of the number of Common Shares
and/or Common Share Equivalents offered thereunder equal to a fraction, the
numerator of which is equal to the number or Common Shares held by such
Subsequent Purchaser (on a fully-diluted and as-converted basis), and the
denominator of which is equal to all issued and outstanding Common Shares, in
each case as determined on the date of the commencement of the public offering.

        4.6 Fundamental Changes. In addition to any other rights provided by law
or set forth herein, from and after the date of this Agreement and for so long
as Ares, together with all of its Affiliates, owns at least 1,984,126 Common
Shares (subject to appropriate adjustment for stock splits, subdivisions,
dividends or distributions payable in Common Shares (or other securities or
rights convertible into, or entitling the holder thereof to receive directly or
indirectly Common Shares), combinations or other similar recapitalizations or
events, and including all Common Shares issuable upon conversion of the Shares),
neither the Company nor any Subsidiary shall, without first obtaining the
written consent of Ares:

            (a)     dissolve or liquidate the Company;

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            (b)     purchase, redeem (other than pursuant to the Company’s stock
option plan or similar employee incentive plan as described in Schedule
3.1(m)(i) giving the Company the right to repurchase shares at cost upon the
termination of an employee’s or director’s services not to exceed $250,000 in
any 12 month period or $500,000 in the aggregate) or set aside any sums for the
purchase or redemption of, or declare or pay any cash dividend, or declare or
pay any dividends or make any distributions of cash, property or securities of
the Company in respect to any Common Shares or any other class of its capital
stock or any other securities that are convertible into or exercisable for such
stock, other than a stock buy-back program applied pro-rata among all
stockholders of the Company;

            (c)     acquire any other corporation or business concern, whether
by acquisition of assets, capital stock, merger or otherwise, and whether in
consideration of the payment of cash, the issuance of capital stock or
otherwise, other than acquisitions of up to $50,000,000 per annum;

            (d)     enter into (i) the sale, disposition, license or transfer,
directly or indirectly, of any assets or property (including any Company
Intellectual Property Rights) with a value equal to or greater than $100,000,000
or that are otherwise material to the Company or its business; (ii) any
acquisition by any person (or group of affiliated or associated persons) of
beneficial ownership of a majority of the equity of the Company (whether or not
newly-issued shares) in a single transaction or a series of related
transactions; (iii) the redemption or repurchase of shares representing a
majority of the voting power of the outstanding shares of capital stock of the
Company; or (iv) any other change of control of 50% or more of the outstanding
voting power of the Company; provided, however, that nothing contained in
Sections 4.6(d)(i), (ii) or (iv) shall prevent the Board of Directors of the
Company from taking any action in connection with the events or matters
described therein if the Board of Directors determines in good faith after
consultation with legal counsel that the taking of such action is required to
fulfill its fiduciary obligations or is required for the Board of Directors or
the Company to comply with any applicable Laws; provided, further, however, that
nothing contained in this Section 4.6(d) shall prevent the Company from taking
any action described above if the holders of the Common Shares are entitled to
vote on such action under any applicable Laws or any rules of the Trading Market
and such action is submitted to those holders for approval.

            (e)     fail to maintain its corporate existence, or change the
nature of the Company’s principal business to any business which is
fundamentally distinct and separate from the principal business currently
conducted by the Company;

            (f)     create, incur, assume or suffer to exist any Indebtedness,
other than (i) trade Indebtedness incurred to finance the purchase of equipment,
components and other similar property and operating assets, in each case, in the
ordinary course of business consistent with past practice, and any extensions,
refinancings and renewals of any of the foregoing, provided that such
extensions, refinancings or renewals do not or will not impose more burdensome
terms, conditions or obligations upon the Company or any Subsidiary or increase
the commitments or loan amounts thereunder; and (ii) inter-company Indebtedness
between the Company and any wholly-owned Subsidiary incurred in the ordinary
course of business and consistent with past practice; and (iii) any other
Indebtedness permitted under the indenture governing the new senior notes to be
issued in connection with the Debt Refinancing as in effect on the date of
issuance;

            (g)     create, incur, assume or suffer to exist any Lien upon any
of its property, assets or revenues, whether now owned or hereafter acquired,
other than: (i) Liens incurred by the Company or the Subsidiaries, permitted
under the financings permitted under Section 4.6(f) above; (ii) Liens arising
from taxes, assessments, charges or claims that are not yet due or that remain
payable without penalty; and (iii) Liens on real property that do not materially
affect the value of such property and do not materially interfere with the use
made and currently proposed to be made of such property by the Company and the
Subsidiaries; or

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            (h)     enter into any agreement to do any of the foregoing or cause
or permit any Subsidiary of the Company directly or indirectly to take any
actions described in clauses (a) through (h) above.

        4.7     Access. In addition to any other rights provided by law or set
forth herein, from and after the date of this Agreement and for so long as Ares
together with its Affiliates owns at least 1,984,126 Common Shares, on an
as-converted basis (subject to appropriate adjustment for stock splits,
subdivisions, dividends or distributions payable in Common Shares (or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly Common Shares), combinations or other similar
recapitalizations or events, and including all Common Shares issuable upon
conversion of the Shares), the Company shall, and shall cause each of the
Subsidiaries, to give Ares and its representatives, at the request of the
Purchasers, access, during reasonable business hours, to (a) all properties,
assets, books, contracts, commitments, reports and records relating to the
Company and the Subsidiaries, and (b) the management, and, to the extent within
the control of the Company, the accountants, lenders, customers and suppliers of
the Company and the Subsidiaries; provided, however, that the Company shall not
be required to provide Ares access to any information or Persons if the Company
reasonably determines that access to such information or Persons cannot be
provided to the Purchasers in a manner that would avoid the adverse affect on
the attorney-client privilege between the Company and its counsel or the
disclosure of trade secrets, material nonpublic information or other
confidential or proprietary information, as applicable.

        4.8     Use of Proceeds; Debt Repayment. The Company shall use
substantially all of the net proceeds from the sale of the Securities hereunder
to redeem or repurchase existing preferred stock or as otherwise consented to by
the Subsequent Purchaser. Within 60 days after Closing, all existing preferred
stock and all outstanding debt described in the definition of Debt Refinancing
shall have been redeemed or repaid in full.

        4.9     D & O Insurance; Board. So long as any Purchaser has a designee
on the Company’s board of directors, the Company shall maintain directors’ and
officers’ liability insurance providing coverage in such amounts and on such
terms as is customary for a publicly traded company of similar size to the
Company but in no event in an amount less than $15,000,000. Such insurance shall
include coverage for all directors of the Company, including any director
designated by any Purchaser. The Company shall use its reasonable best efforts
to ensure that meetings of its board of directors are held at least four times
each year.

        4.10     Properties, Business Insurance. The Company shall obtain and
maintain and cause each of its Subsidiaries to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties, contingencies and other risks and hazards and
of such types and in such amounts as is customary for companies similarly
situated.

        4.11     Exclusivity. From and after the date hereof and up to and
through the Closing, neither the Company nor its agents shall, directly or
indirectly, solicit, initiate, respond to, except as required by law, or
encourage any proposal or offer from any other party relating to any equity or
equity linked financing transaction, or any sale of all or any material part of
the Company’s or any Subsidiary’s business or assets, including, without
limitation, any asset sale, exclusive license, merger, reorganization or other
form of business combination having an effect or result similar to the
transaction contemplated herein, or any transaction that would otherwise be
inconsistent with the transactions contemplated by this Agreement. The Company
will promptly notify the Purchasers in writing describing any contact between
the Company or a Subsidiary or any of their respective agents or representatives
and any other person or entity regarding any such discussion, offer, proposal or
inquiry prior to and including the Closing Date, and in all cases the Purchasers
will be given the opportunity to match the terms of any alternative transaction
that the Company is required by law to consider prior to and including the
Closing Date.

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        4.12     Indemnification.

            (a)     Indemnification of Purchasers. The Company shall indemnify,
to the fullest extent lawful, and hold harmless (a) each Purchaser and Related
Person from and against any and all Losses, as incurred, directly or indirectly
arising out of, based upon or relating to (i) any breach by the Company of any
of the representations, warranties or covenants made by the Company in this
Agreement or any other Transaction Document, or any allegation by a third party
that, if true, would constitute such a breach or (ii) any Proceeding brought by
or against any Person, directly or indirectly, in connection with or as a result
of any of the Transactions, and (b) each Initial Purchaser from and against any
and all Losses, as incurred, directly or indirectly arising out of, base upon or
relating to (i) any untrue statement or alleged untrue statement of a material
fact contained in this Agreement or any other Transaction Document or the
Offering Memorandum (as hereinafter defined) or arising out of or based upon the
omission or alleged omission to state in this Agreement, the Offering Memorandum
or any other Transaction Document a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (ii) any termination by the Company of, or failure by the
Company to consummate the Transactions. The indemnification and expense
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability that the Company may otherwise have and shall be
binding upon and inure to the benefit of any successors, assigns, heirs and
personal representatives of the applicable Purchasers and any such Related
Persons of such Purchasers. If the Company breaches its obligations under any
Transaction Document, then, in addition to any other liabilities the Company may
have under any Transaction Document or applicable law, the Company shall pay or
reimburse the Purchasers on demand for all costs of collection and enforcement
(including reasonable attorneys fees and expenses). Without limiting the
generality of the foregoing, the Company specifically agrees to reimburse the
Purchasers on demand for all costs of enforcing the indemnification obligations
in this paragraph.

            (b)     Exculpation by the Company. The Company agrees that no
Initial Purchaser shall have any liability to the Company or any person
asserting claims on behalf of or in right of the Company in connection with this
Agreement or the Initial Purchasers’ position as Initial Purchasers hereunder,
except for liabilities determined in a final judgment by a court of competent
jurisdiction to have resulted directly from any acts or omissions undertaken or
omitted to be taken by such Initial Purchaser through its gross negligence or
willful misconduct.

            (c)     Exculpation by the Subsequent Purchaser. The Subsequent
Purchaser agrees that no Initial Purchaser shall have any liability to the
Subsequent Purchaser or any person asserting claims on behalf of or in right of
the Subsequent Purchaser in connection with this Agreement or the Initial
Purchasers’ position as Initial Purchasers hereunder, except for liabilities
determined in a final judgment by a court of competent jurisdiction to have
resulted directly from any acts or omissions undertaken or omitted to be taken
by such Initial Purchaser through its gross negligence or willful misconduct.

            (d)     Non-Exclusive Remedy. For purposes of clarity, the
provisions contained in this Section 4.12 shall not constitute the exclusive
remedies of any Purchaser hereunder.

        4.13     Approvals; Further Assurances; Taking of Actions. The Company
shall use its commercially reasonable best efforts to (i) take or cause to be
taken all actions, and to do or cause to be done all other things, necessary,
proper or advisable to consummate the transactions contemplated by the Agreement
and any other Transaction Document as promptly as practicable, and (ii) obtain
in a timely manner all necessary waivers, consents and approvals and effect all
necessary registrations and filings, including without limitation the approval
of the Trading Market. The Purchasers and the Company shall cooperate with each
other in connection with the making of all such filings, including providing
copies of all such documents to the non-filing party and its advisors prior to
filing. The Purchasers and the Company shall use their respective commercially
reasonable efforts to furnish to each other all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable law in connection with the transactions contemplated by this
Agreement and any other Transaction Document. The Company shall give any notices
to third parties, and use their commercially reasonable efforts to obtain any
third party consents related to or required in connection with or to consummate
the transactions contemplated hereby.

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        4.14     Covenants relating to Debt Refinancing. The Company shall
use its best efforts to consummate the Debt Refinancing on commercially
reasonable terms.  If at any time the Company believes that it will be unable to
consummate the debt refinancing referred to in clauses (i) and (ii) of the
definition of Debt Refinancing on or before June 15, 2006, the Company shall (a)
promptly notify the Subsequent Purchaser and give the Subsequent Purchaser the
opportunity to identify financing sources, and (b) cooperate with any such
sources identified to consummate the Debt Refinancing.  If the debt refinancing
referred to in clauses (i) and (ii) of the definition of Debt Refinancing are
not consummated on or prior to June 15, 2006, the Company will not, prior to
December 31, 2006, consummate any direct or indirect equity financing
(including, but not limited to, any Subsequent Private Financing or Subsequent
Public Financing) without first giving the Purchaser the opportunity to provide
such financing on the terms provided in Section 4.5(a), mutatis, mutandis,
without regard to (a) any references to the other provisions of Section 4.5
contained therein or (b) any provisions relating to the delivery of the Company
Offer.  This Section 4.14 shall survive any termination of this Agreement.

        4.15     Cash Dividends. In connection with the negotiation of any
agreement or instrument relating to debt that the Company may incur from time to
time, the Company shall use commercially reasonable efforts to retain its
ability to pay dividends in cash on the Shares.

ARTICLE V.
CONDITIONS

        5.1     Conditions Precedent to the Obligations of the Purchasers. The
obligation of each Purchaser to acquire Securities at the Closing is subject to
the satisfaction or waiver by such Purchaser, at or before the Closing, of each
of the following conditions:

            (a)    Representations and Warranties. The representations and
warranties of each of the Company and, in the case of the Initial Purchasers
obligations, the Subsequent Purchaser, contained herein shall be true and
correct in all material respects (without giving effect to any qualifications as
to materiality therein) as of the date when made and as of the Closing as though
made on and as of such date;

            (b)    Performance. Each of the Company and, in the case of the
Initial Purchasers obligations, the Subsequent Purchaser, shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by the Transaction Documents to be performed, satisfied
or complied with by it at or prior to the Closing, including, without
limitation, delivering or causing the delivery of those items required to be
delivered pursuant to Section 2.2;

            (c)    No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents;

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            (d)    Certificate of Designations. The Certificate of Designations
shall have been duly adopted and executed and filed with the Secretary of State
of the State of Delaware. The Company shall not have adopted or filed any other
document designating terms, relative rights or preferences of the Shares. The
Certificate of Designations shall be in full force and effect as of the Closing
under the laws of Delaware and shall not have been amended or modified, and a
copy of the Certificate of Designations certified by the Secretary of State of
the State of Delaware shall have been delivered to Purchaser Counsel.

            (e)    Adverse Changes. Since the date of execution of this
Agreement, no event or series of events shall have occurred that has had or
reasonably could be expected to have or result in a Material Adverse Effect; and

            (f)    No Suspensions of Trading in Common Shares; Listing. Trading
in the Common Shares shall not have been suspended by the Commission or the
Trading Market (except for any suspensions of trading of not more than one
Trading Day solely to permit dissemination of material information regarding the
Company) at any time since the date of execution of this Agreement, and the
Common Shares shall have been at all times since such date listed for trading on
the Trading Market.

            (g)    Consummation of Debt Refinancing. The Company shall
substantially concurrently consummate the debt refinancing referred to in
clauses (i) and (ii) of the definition of Debt Refinancing, which shall provide
for aggregate funded and committed indebtedness of the Company and its
Subsidiaries not exceeding $500,000,000 at an average cost not exceeding 10.0%,
and not more than $430,000,000 of new indebtedness to be funded at Closing.

        5.2     Conditions Precedent to the Obligations of the Company. The
obligation of the Company to sell Securities at the Closing is subject to the
satisfaction or waiver by the Company, at or before the Closing, of each of the
following conditions:

            (a)    Representations and Warranties. The representations and
warranties of the Purchasers contained herein shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made on and as of such date;

            (b)    Performance. The Purchasers shall have performed, satisfied
and complied in all material respects with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Purchasers at or prior to the Closing, including, without
limitation, delivering or causing the delivery of those items required to be
delivered pursuant to Section 2.2(b); and

            (c)    No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction that
prohibits the consummation of any of the transactions contemplated by the
Transaction Documents.

            (d)    Consummation of Debt Refinancing. The Company shall
substantially concurrently consummate the debt refinancing referred to in
clauses (i) and (ii) of the definition of Debt Refinancing.

ARTICLE VI.
MISCELLANEOUS

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        6.1     Termination.

            (a)     This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing Date:

                (i)     By the mutual consent of the Company, the Initial
Purchasers and the Majority Purchasers;

                (ii)     By (x) any party hereto if the Closing has not been
consummated by July 15, 2006; or (y) the Majority Purchasers (as to all
Purchasers) if the Company is in material breach of its obligations under this
Agreement and such breach continues for more than five (5) Trading Days after
the Company has received written notice of such breach.

                (iii)     By the Subsequent Purchaser (as to all Purchasers), if
the final offering memorandum with respect to the Company’s proposed new senior
notes offering (the “Offering Memorandum”), as delivered by the Company to the
Purchasers prior to the Closing, contains any information concerning periods
covered by the SEC Reports in existence as of the date of this Agreement, which
information evidences that such SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.

                (iv)     Sections 4.12 and 4.14 and Article VI of this Agreement
shall survive any termination of this Agreement.

            (b)     No termination of this Agreement shall affect the right of
any party to sue for any breach by the other party (or parties).

        6.2     Fees and Expenses. Whether or not the Closing occurs, the
Company shall pay to Ares the reasonable legal, accounting, consulting, travel
and all other out-of-pocket expenses incurred by it in connection with due
diligence and the preparation and negotiation of the Transaction Documents and
otherwise in connection with the Transactions, from time to time at Ares’
request. The Company shall satisfy this obligation by directing funds to
Purchaser Counsel at the Closing or paying such amount to Ares at Ares’s
request. In addition, at the Closing the Company shall pay to Ares a fee equal
to one percent (1%) of the Aggregate Purchase Price. The Company shall pay all
transfer agent fees, stamp taxes and other taxes and duties levied in connection
with the issuance of any Securities. In addition, whether or not the Closing
occurs, you hereby agree to reimburse each of the Initial Purchasers and their
respective Affiliates, promptly upon demand, for all reasonable out-of-pocket
costs and expenses incurred by them in connection with the transactions
contemplated by this Agreement, whether incurred prior or subsequent to the date
hereof, including, without limitation, travel expenses, professional fees or
other expenses incurred in connection with their due diligence investigation of
the Company and the reasonable fees and disbursements of Initial Purchasers
Counsel.

        6.3     Entire Agreement. The Transaction Documents, together with the
Exhibits and Schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, including but not
limited to the Original Purchase Agreement, which the parties acknowledge have
been merged into such documents, exhibits and schedules. At or after the
Closing, and without further consideration, the Company will execute and deliver
to the Purchasers such further documents as may be reasonably requested in order
to give practical effect to the intention of the parties under the Transaction
Documents. The Company acknowledges that no Purchaser has made any
representations, warranties, promises or commitments other than as set forth in
this Agreement, including any promises or commitments for any additional
investment by any such Purchaser in the Company.

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        6.4     Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in this Section prior to 4:30 p.m. (New York City
time) on a Trading Day, (ii) the Trading Day after the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile number
specified in this Agreement later than 4:30 p.m. (New York City time) on any
date and earlier than 11:59 p.m. (New York City time) on such date, (iii) the
Trading Day following the date of sending, if sent by nationally recognized
overnight courier service, specifying next business day delivery or (iv) upon
actual receipt by the party to whom such notice is required to be given if
delivered by hand. The address for such notices and communications shall be as
follows:

  If to the Company: HANGER ORTHOPEDIC GROUP, INC.
Two Bethesda Metro Center
Suite 1300
Bethesda, MD 20814
Attn: Corporate Secretary
Phone:(301) 986.0701
Fax:(301) 986.0702

  With a copy to: With a copy to:
FOLEY & LARDNER LLP
3000 K Street, N.W.
Suite 500
Washington, DC 20007
Attn: Jay W. Freedman
Phone: (202) 295-4008
Fax: 202-672-5399

  If to the Purchasers: To the address set forth under such Purchaser’s name on
the signature pages attached hereto.

        or such other address as may be designated in writing hereafter, in the
same manner, by such Person by two Trading Days’ prior notice to the other party
in accordance with this Section 6.4.

        6.5     Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by the Company and the Subsequent Purchaser(s) who, if prior to the
Closing, have agreed to purchase not less than two-thirds of the Shares pursuant
to Section 2.1 of this Agreement, and if after the Closing Date, hold not less
than two-thirds of the Securities on a fully diluted as-converted basis (the
“Majority Purchasers”), or, in the case of a waiver, by the Majority Purchasers;
and, if prior to the sale of the Shares to the Subsequent Purchaser(s), the
Initial Purchasers. Any waiver executed by the Majority Purchasers shall be
binding on the Company and all holders of Securities. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right. Notwithstanding the foregoing,
Section 4.12 may not be amended or waived absent the consent of each of the
parties hereto.

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        6.6     Construction. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

        6.7     Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Any Purchaser may assign
its rights under this Agreement to any Person to whom such Purchaser assigns or
transfers any Securities, provided such transferee agrees in writing to be
bound, with respect to the transferred Securities, by the provisions hereof and
of the applicable Transaction Documents that apply to the “Purchasers.”
Notwithstanding the foregoing, no Purchaser may assign any of its rights under
(i) Section 4.5(“Subsequent Financings”), Section 4.6 (“Fundamental Changes”),
Section 4.7 (“Access”), Section 4.9 (“D&O Insurance; Board”) or Section 4.12
(“Indemnification”) of this Agreement, (ii) the Board Rights Letter or (iii) the
Management Rights Letter, to any Person that is not an Affiliate of any of the
Purchasers without the Company’s prior written consent (which consent shall not
be unreasonably withheld). In the event of any assignment of the rights of the
Subsequent Purchaser to more than one Person in accordance with this section,
the provisions of this Agreement shall be deemed amended to reflect more than
one Subsequent Purchaser, mutatis mutandis. Notwithstanding anything to the
contrary herein, Securities may be pledged to any Person in connection with a
bona fide margin account secured by such Securities.

        6.8     No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except that each Related Person is an intended third party
beneficiary of Section 4.12 and (in each case) may enforce the provisions of
such Section directly against the parties with obligations thereunder.

        6.9     Governing Law; Venue; Waiver of Jury Trial. ALL QUESTIONS
CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK. EACH PARTY AGREES THAT ALL LEGAL
PROCEEDINGS CONCERNING THE INTERPRETATIONS, ENFORCEMENT AND DEFENSE OF THE
TRANSACTIONS CONTEMPLATED BY ANY OF THE TRANSACTION DOCUMENTS (WHETHER BROUGHT
AGAINST A PARTY HERETO OR ITS RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS,
STOCKHOLDERS, EMPLOYEES OR AGENTS) SHALL BE COMMENCED EXCLUSIVELY IN THE STATE
AND U.S. FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF MANHATTAN.
EACH PARTY HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF
THE STATE AND U.S. FEDERAL COURTS SITTING IN THE CITY OF NEW YORK, BOROUGH OF
MANHATTAN FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION
HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN
(INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THIS AGREEMENT), AND HEREBY
IRREVOCABLY WAIVES, AND AGREES NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING,
ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH
COURT, THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS
BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF
VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF
DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS
AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT
SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED
TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTION DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. IF EITHER PARTY SHALL
COMMENCE AN ACTION OR PROCEEDING TO ENFORCE ANY PROVISIONS OF THIS AGREEMENT OR
ANY TRANSACTION DOCUMENT, THEN THE PREVAILING PARTY IN SUCH ACTION OR PROCEEDING
SHALL BE REIMBURSED BY THE OTHER PARTY FOR ITS REASONABLE ATTORNEYS FEES AND
OTHER REASONABLE COSTS AND EXPENSES INCURRED WITH THE INVESTIGATION, PREPARATION
AND PROSECUTION OF SUCH ACTION OR PROCEEDING.

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        6.10     Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery, exercise
and/or conversion of the Securities, as applicable.

        6.11     Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.

        6.12     Severability. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt in good faith to agree
upon a valid and enforceable provision that is a reasonable substitute therefor,
and upon so agreeing, shall incorporate such substitute provision in this
Agreement.

        6.13     Rescission and Withdrawal Right. Notwithstanding anything to
the contrary contained in (and without limiting any similar provisions of) the
Transaction Documents, whenever any Purchaser exercises a right, election,
demand or option under a Transaction Document and the Company does not timely
perform its related obligations within the periods therein provided, then such
Purchaser may rescind or withdraw, in its sole discretion from time to time upon
written notice to the Company, any relevant notice, demand or election in whole
or in part without prejudice to its future actions and rights.

        6.14     Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any Proceeding for specific performance of any such obligation the defense that
a remedy at law would be adequate.

        6.15     Adjustments in Share Numbers and Prices. In the event of any
stock split, subdivision, dividend or distribution payable in Common Shares (or
other securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, Common Shares), combination or other similar
recapitalization or event occurring after the date hereof, each reference in
this Agreement to a number of shares or a price per share shall be amended to
appropriately account for such event.

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SIGNATURE PAGES FOLLOW]

34

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        IN WITNESS WHEREOF, the parties hereto have caused this Amended and
Restated Preferred Stock Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.

HANGER ORTHOPEDIC GROUP, INC.

  By:___________________________________       Name:       Title:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES OF PURCHASER(S) FOLLOW.]

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INITIAL PURCHASER:
  LEHMAN BROTHERS INC.

  By:___________________________________       Name:       Title:

Initial Purchase Price       delivered to Company:    $29,700,000
  Shares:         30,000

  Address for Notice:

  Lehman Brothers Inc.

  745 Seventh Avenue
New York, NY
Phone: (212) 526.7000
Fax: (212) 520.0421
Attention: Office of the General Counsel

  With a copy to:

  Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Phone: (212) 310.8000
Fax.: (212) 310-8007
Attention: Rod Miller

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INITIAL PURCHASER:
  CITIGROUP GLOBAL MARKETS INC.

  By:___________________________________       Name:       Title:

  Initial Purchase Price       delivered to Company:    $19,800,000
Shares:         20,000

  Address for Notice:

  Citigroup Global Markets Inc.

  388 Greenwich Street
New York, NY 10013
Phone: (212) 816.6000
Fax: (212) 816.7912
Attention: General Counsel

  With a copy to:

  Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Phone: (212) 310.8000
Fax.: (212) 310-8007
Attention: Rod Miller

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SUBSEQUENT PURCHASER:
  ARES CORPORATE OPPORTUNITIES FUND, L.P.
  By:  ACOF MANAGEMENT, L.P.,         Its General Partner
          By:  ACOF OPERATING MANAGER, L.P.,                 Its General Partner
                  By:  ARES MANAGEMENT, INC.,                         Its
General Partner
                          By:______________________________

  Aggregate Purchase Price       delivered to Initial Purchasers:    $50,000,000
  Shares:         50,000

  Address for Notice:

  Ares Corporate Opportunities Fund, L.P.
C/O Ares Management, Inc.
1999 Avenue of the Stars
Suite 1900
Los Angeles, California 90067
Phone: (310) 201.4100
Fax: (310) 201.4157
Attention: Bennett Rosenthal and
                 Adam Stein

  With a copy to:

  Proskauer Rose LLP
1585 Broadway
New York, NY 10036-8299
Facsimile No.: (212) 969-2900
Attn: Michael A. Woronoff, Esq. and
                Adam J. Kansler, Esq.