Exhibit 10.2
SECOND AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
SECOND
AMENDED AND RESTATED EMPLOYMENT AGREEMENT effective as of the 1
st day of January, 2005 (“Agreement”), by
and between HANGER ORTHOPEDIC GROUP, INC., a Delaware corporation
(the “Company”), and THOMAS F. KIRK (the
“Executive”).
WHEREAS,
the parties executed an initial Employment Agreement on January 2,
2002 (“Original Agreement”), which Original Agreement
was amended by the Amended and Restated Employment Agreement, dated
April 22, 2003, (“First Amended Agreement”);
WHEREAS,
the parties hereto desire to amend the First Amended Agreement to
clarify and restate certain terms therein as set forth in this
Agreement and to reflect changes required by the provisions of
Internal Revenue Code Section 409A, to be retroactively effective
to January 1, 2005; and
WHEREAS,
the Company desires to employ the Executive and to incentivize the
Executive to remain in the employ of the Company, subject to the
terms and conditions set forth below.
NOW,
THEREFORE, in consideration of the promises and mutual agreements
set forth below, both parties agree as follows:
1.
Employment, Term
.
1.1
Employment
. The Company agrees to employ the Executive in
the position and with the responsibilities, duties, and authority
set forth in Section 2.
1.2
Term .
The term of the Executive’s employment under this
Agreement shall commence as of the effective date of the Original
Agreement and shall terminate on the fifth anniversary of the
effective date thereof, unless extended or sooner terminated in
accordance with this Agreement. In the event the Executive
continues to be employed by the Company following the fifth
anniversary of the effective date of the Original Agreement, this
Agreement shall automatically renew for successive one (1) year
terms, unless terminated pursuant to Section 1.3, Section 6 or
Section 7 of this Agreement.
1.3
Automatic
Extension . As of the fifth anniversary date of
the Original Agreement, and as of each anniversary subsequent
thereto (“Automatic Renewal Date”), unless either party
shall have given thirty (30) days’ prior written notice of
non-extension prior to such Automatic Renewal Date, the term of
this Agreement shall be extended automatically for a period of one
year. In the event that the Company gives written notice of
non-extension, such notice shall be considered a Termination
without Cause under the provisions of Section 6.4, unless otherwise
mutually agreed between the Parties.
1.4
Office .
The Executive's principal office will be located in
Bethesda, Maryland.
2.
Position, Duties
.
The
Executive shall serve the Company in the positions of President and
Chief Operating Officer and shall be recommended by the Company to
the Nominating Committee of the Board of Directors to be the next
person nominated to be a member of the Board of Directors as soon
as possible, but no later than March 15, 2003. The Executive shall
faithfully and diligently perform the duties appropriate to said
position, which, in addition to those responsibilities assigned to
him from time to time by the Chief Executive Officer and the Board
of Directors of the Company (the “Board of Directors”),
shall include, among other things, responsibility for all of the
Company’s operating units, divisions, partially or
wholly-owned subsidiaries, and corporate staff units, including,
but not limited to, information technology, human resources,
materials management and purchasing, real estate, legal,
regulatory, compliance, and strategic planning/corporate
development. The Executive shall devote his full business time and
attention to the performance of his duties and responsibilities
hereunder.
3.
Salary, Incentive
Bonus, Stock Options, Other Benefits .
3.1
Salary .
During the term of this Agreement, the Company shall
pay to the Executive a minimum base salary at the rate of Four
Hundred Fifty Thousand Dollars ($450,000.00) per annum, payable in
accordance with the standard payroll practices of the Company (the
“Base Salary”). The Base Salary shall be increased to
Four Hundred Sixty-Three Thousand Five Hundred Dollars
($463,500.00) effective January 1, 2006. The Executive shall be
entitled to such increases in Base Salary during the term hereof as
shall be determined and approved by the Compensation Committee of
the Board of Directors in its sole discretion, taking account of
the performance of the Company and the Executive, and other factors
generally considered relevant to the salaries of executives holding
similar positions with enterprises comparable to the
Company.
3.2
Bonus .
In addition to the Base Salary, the Executive shall
participate in the Company’s current bonus plan for senior
corporate officers (the “Bonus Plan”), as approved by
the Compensation Committee of the Board of Directors in each
calendar year during the term of this Agreement. The
Executive’s target bonus is seventy-five percent (75%) of the
Base Salary (the “Target Bonus”) and is contingent on
the Executive meeting certain performance criteria and the Company
achieving certain year-end financial criteria, and up to one
hundred fifty percent (150%) of the Base Salary (the “Maximum
Bonus”) if the Employee exceeds certain performance criteria
and the Company exceeds certain year-end financial criteria all as
determined in the reasonable discretion of the Board of Directors
and its Compensation Committee. The Executive shall be entitled to
such increases in the “Target Bonus” and the
“Maximum Bonus” during the term hereof as shall be
determined and approved by the Compensation Committee of the Board
of Directors in its sole discretion, taking account of the
performance of the Company and the Executive, and other factors
generally considered relevant to the salaries of executives holding
similar positions with enterprises comparable to the Company. The
bonus shall be payable upon or within a reasonable period of time
after the receipt of the Company’s audited financial
statements for the applicable calendar year in accordance with the
Company’s normal practices. In the event that the Executive
is employed for less than the full calendar year in the year that
his employment under this Agreement terminates (“Termination
Year”), the bonus payable to the Executive shall be subject
to Sections 6 and 7 of this Agreement and calculated based on the
Executive meeting certain performance criteria and the Company
achieving certain year-end financial criteria, all as determined by
the Compensation Committee of the Board of Directors, in its sole
discretion. Such bonus shall be pro-rated for the portion of the
Termination Year during which the Executive was employed by the
Company. With respect to the bonus for the Termination Year, any
bonus payable pursuant to this Section 3.2 shall be payable to the
Executive on the date on which such bonus payment would otherwise
have been paid to the Executive as if the Termination Date (as
defined herein) had not occurred.
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3.3
Stock Options
.
(a)
As an incentive for the Executive’s future performance in
improving shareholder value, the Company shall grant to the
Executive options to purchase three hundred fifty thousand
(350,000) shares of the Company’s common stock, $0.01 par
value per share (the “Stock”), with such options being
valued at the closing price of the Stock on the effective date of
the Original Agreement. The Company shall also grant to the
Executive options to purchase a minimum of one hundred thousand
(100,000) shares of Stock on each of the first, second, and third
anniversaries of the Original Agreement. The Executive may
participate in future awards of options to purchase Stock or
restricted shares in a manner consistent with any stock option plan
or restricted share plan adopted by the Company for its senior
corporate officers. Option or restricted share grants subsequent to
the foregoing initial three year period shall be based upon targets
adopted annually by the Board of Directors, which targets may be
derived from budgets generated by the Company’s management,
and the determination as to the amount of such options or
restricted shares, if any, shall be at the sole discretion of the
Board of Directors.
(b)
The options or restricted shares provided in subparagraph (a) of
this Section 3.3 shall be evidenced by a stock option agreement or
restricted share grant agreement (“Stock Agreement”)
between the Executive and the Company, which Stock Agreement shall
provide for a vesting schedule of four (4) years, in equal parts,
of the options or restricted shares granted thereunder.
Notwithstanding any provisions now or hereafter existing under any
stock incentive plan of the Company, all options or restricted
shares granted to the Executive shall vest in full immediately upon
the Termination Date except for termination of employment pursuant
to Section 6.3 hereof, and the Executive (or his estate or legal
representative, if applicable) shall thereafter have twelve (12)
months from the Termination Date to exercise such options, if
applicable.
(c)
Notwithstanding any provisions now or hereafter existing under any
stock option plan or restricted share plan of the Company, in the
event of a Change in Control (as hereinafter defined), all options
or restricted shares provided to the Executive pursuant to Section
3.3(a) of the Original Agreement or any Stock Agreement shall be
granted and shall immediately fully vest as of the date of such
Change in Control with such options or restricted shares being
valued at the closing price of the Company’s common stock on
the day prior to the day of the Change in Control.
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(d) For
purposes of this Agreement, a “Change in Control” shall
be deemed to exist if:
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(i)
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a person, as
defined in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934 (other than the Executive or a group including the
Executive), either (A) acquires twenty percent (20%) or more of the
combined voting power of the outstanding securities of the Company
having the right to vote in elections of directors and such
acquisition shall not have been approved within sixty (60) days
following such acquisition by a majority of the Continuing
Directors (as hereinafter defined) then in office, or (B) acquires
fifty percent (50%) or more of the combined voting power of the
outstanding securities of the Company having a right to vote in
elections of directors; or
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(ii)
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Continuing
Directors shall for any reason cease to constitute a majority of
the Board of Directors of the Company; or
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(iii)
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the Company
disposes of all or substantially all of the business of the Company
to a party or parties other than a subsidiary or other affiliate of
the Company pursuant to a partial or complete liquidation of the
Company, sale of assets (including stock of a subsidiary of the
Company) or otherwise; or
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(iv)
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the Board of
Directors approves the Company’s consolidation or merger with
or into any other person (other than a wholly-owned subsidiary of
the Company), or any other person’s consolidation or merger
with or into the Company, which results in all or part of the
outstanding shares of Stock being changed in any way or converted
into or exchanged for stock or other securities or cash or any
other property.
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(e)
For purposes of this Agreement, the term “Continuing
Director” shall mean a member of the Board of Directors who
either was a member of the Board of Directors on the date hereof or
who subsequently became a Director of the Company and whose
election, or nomination for election, was approved by a vote of at
least two-thirds (2/3) of the Continuing Directors then in
office.
3.4
Senior Corporate Officer
Benefits . The Executive shall be entitled to participate
in benefit plans now existing or hereinafter adopted by the Board
of Directors for the senior corporate officers of the Company. Upon
a Change in Control, any interest of the Executive in any future
Supplemental Executive Retirement Plan or deferred compensation
plan shall immediately vest.
3.5
Car Allowance and Parking .
The Executive shall be provided with (a) a luxury-class automobile
leased by the Company under the same terms and conditions as
enjoyed by other senior corporate officers of the Company, which
terms shall include reimbursement for all fuel, toll, maintenance,
insurance and upkeep costs associated with the vehicle, and (b) a
reserved parking space at the Company’s headquarters. Upon
termination of the Executive’s employment under this
Agreement for any reason, the Company may, at its option, demand
the prompt return of the automobile, or, upon the mutual agreement
of the Executive and the Company, the Executive may assume the
lease for the automobile.
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3.6
Parachute Penalties .
For all payments made or required to be made pursuant
to the terms of this Agreement, including any payments made with
respect to the Executive’s termination of employment for any
reason, the Company shall determine and pay the Executive, as soon
as practicable, an amount sufficient to cover the gross-up of any
excise, income and other taxes resulting from the imposition of the
parachute penalties of the Internal Revenue Code or applicable
state tax laws. Such determination and payment by the Company shall
be made no later than December 31 of the second calendar year
following the calendar year in which the Executive’s date of
termination occurs, with such date of termination to be the last to
occur of termination pursuant to the terms of this Agreement or the
date of “separation from service” as set forth in
Proposed Treasury Regulation Section 1.409A-1(h) (the
“Termination Date”).
3.7
Local Residence .
During the term of this Agreement and for thirty (30)
days following the Termination Date, the Company agrees to provide
(a) the Executive with a leased, furnished residence of the
Executive’s choosing of not less than two thousand (2,000)
square feet located within a three mile radius of the
Company’s headquarters, and (b) all of the Executive’s
utilities (excluding telephone fees and charges), fees, maintenance
costs, insurance premiums and garage charges incurred in connection
with the Executive’s occupancy of such residence.
3.8
Other . The
Company agrees to: (a) provide the Executive with a desktop and/or
laptop computer for his use while working at the Company’s
headquarters and the Executive’s local residence, (b)
reimburse the Executive for up to Three Thousand Dollars ($3,000)
per year for out-of-pocket expenses incurred by the Executive for
financial and tax planning, (c) provide or reimburse the
Executive’s costs for a life insurance policy for the
Executive in a minimum amount of two times the Base Salary in
addition to the one times the Base Salary provided in the base
benefit package, payable to a beneficiary of the Executive’s
choosing, (d) reimburse the Executive’s travel costs between
Bethesda, Maryland and the Executive’s primary residence
until such time as the local residence described in Section 3.7 is
occupied by the Executive and (e) provide or reimburse the
Executive’s costs for a supplemental long term disability
insurance policy.
4.
Expense
Reimbursement .
During
the term of this Agreement, the Company shall reimburse the
Executive for all reasonable and necessary out-of-pocket expenses
incurred by him in connection with the performance of his duties
hereunder, upon presentation of proper accounts in accordance with
the Company’s policies and practices for senior corporate
officers.
5.
Pension and Welfare
Benefits; Vacation .
5.1
Benefit Plans .
During the term of this Agreement, the Executive
will be eligible to participate in all employee benefit plans and
programs (including, without limitation, 401(k), medical, dental,
life, and disability plans of the Company) offered by the Company
from time to time to its senior corporate officers, subject to the
provisions of such plans and programs as in effect from time to
time. The Executive shall be reimbursed for all deductibles,
co-payments and other out-of-pocket expenses, excluding premium
payments, related to all medical, dental, prescription and vision
benefits offered by the Company.
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5.2
Vacation . The
Executive shall be entitled to five (5) weeks vacation per
year.
6. Termination of Employment
.
6.1 Death .
(a)
The Executive’s employment shall be terminated by the
Executive’s death. In the event of the death of the
Executive, the Company shall pay to the estate or other legal
representative of the Executive the Base Salary and vacation as
accrued through the Termination Date (at the annual rate then in
effect) and the bonus provided for in Section 3.2 for the
Termination Year (as well as any then earned but unpaid bonus for
the year preceding the Termination Year, if applicable).
(b)
In addition to the payments described in Section 6.1(a), the
Company shall pay a death benefit of an additional twenty-four (24)
months of Base Salary and an additional bonus payment
(“Additional Bonus Payment”) equal to two (2) times the
Target Bonus for the Termination Year. Such payment shall be made
in one (1) lump sum payment, with such payment to be made to the
estate or other legal representative of the Executive within
forty-five (45) days after receipt by the Company of notice of
Executive’s death. Rights and benefits of the estate or other
legal representative of the Executive under the benefit plans and
programs of the Company shall be determined in accordance with the
provisions of such plans and programs.
6.2
Disability .
(a)
If the Executive shall become incapacitated by reason o
