exv4w7



 






Exhibit 4.7




INDEMNIFICATION ESCROW AGREEMENT




     This INDEMNIFICATION ESCROW AGREEMENT (this “Agreement”), dated as of October 4, 2004,
is made and entered into by and among Encore Medical Corporation, a Delaware corporation (the
“Acquiror”), MPI HOLDINGS, LLC, a Delaware limited liability company (“MPI”),
solely in its capacity as the initial Holder Representative (MPI and any of its successors in such
capacity being sometimes referred to herein in such capacity as the “Holder
Representative”) and JPMorgan Chase Bank, a New York corporation (the “Escrow Agent”).



W I T N E S S E T H :




     WHEREAS, the Acquiror, Empi, Inc. a Minnesota corporation (the “Company”), Encore
Medical Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Acquiror
(“Merger Sub”), MPI, solely in its capacity as the initial Holder Representative, and the
Company Principal Shareholders have entered into that certain Agreement and Plan of Merger, dated
as of August 8, 2004 and attached hereto as Exhibit A (the “Merger Agreement”;
capitalized terms used herein and not otherwise defined having the meanings assigned to them in the
Merger Agreement), which provides for, among other things, the merger of Merger Sub with and into
the Company, with the Company being the surviving corporation;



     WHEREAS, pursuant to the terms of the Merger Agreement, the Stock Portion of the Merger
Consideration shall be delivered by the Acquiror to the Escrow Agent to be held in escrow (i) as
security for the indemnification obligations in favor of Acquiror under Article XIII of the Merger
Agreement and (ii) as a security for any amount payable to the Acquiror pursuant to Section 1.5(d)
of the Merger Agreement to the extent provided in Section 1.5(d) of the Merger Agreement; and



     WHEREAS, Acquiror and the Holder Representative desire that the Escrow Agent hold and dispose
of such escrowed property, and the Escrow Agent is willing to do so, on the terms and conditions
hereinafter set forth;



     NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein,
the parties hereto agree as follows:



     1.   Appointment of Escrow Agent. By its signature below, Escrow Agent
acknowledges receipt of the Escrow Shares (as defined below). The Escrow Agent is hereby
constituted and appointed the escrow agent hereunder.



     2.   Escrow Property. Simultaneously with the execution of this Agreement,
Acquiror shall deliver to and deposit with the Escrow Agent, in accordance with the Merger
Agreement, a stock certificate in the name of the Escrow Agent (or its nominee) representing eight
million (8,000,000) shares of Acquiror Common Stock (the “Escrow Shares”). The Escrow
Agent agrees to hold in escrow, in accordance with this Agreement, the Escrow Shares together with
any dividends or other distributions (other than cash dividends or distributions) made on the
Escrow Shares and such cash, stock or other property into which Escrow Shares may be changed
pursuant to any merger consideration or similar transaction involving the Acquiror and any
substitutions of cash for such Escrow Shares pursuant to Section 6 of this Agreement, in each case
with the benefit of any earnings thereon (collectively, the “Escrow Property”). The Escrow
Agent hereby agrees to take appropriate measures to safeguard the certificates(s) evidencing Escrow
Shares in accordance with customary custodial practices and to retain the other Escrow Property in
an account.



     3.   Investment of Cash. During the term of this Agreement, any Escrow
Property received in the form of cash shall be invested and reinvested by the Escrow Agent in one
of the following investments as per the joint instruction of Acquiror and the Holder
Representative:




	 	•  	JPMorgan Chase Bank Money Market Account;
	 
	 	•  	A trust account with JPMorgan Chase Bank;
	 
	 	•  	A money market mutual fund, including without limitation the JPMorgan Fund or any
other mutual fund for which the Escrow Agent or any affiliate of the Escrow Agent
serves as investment manager,




 









 












administrator, shareholder servicing agent and/or
custodian or subcustodian, notwithstanding that (i) the Escrow Agent or an affiliate of
the Escrow Agent receives fees from such funds for services rendered, (ii) the Escrow
Agent charges and collects fees for services rendered pursuant to this Escrow
Agreement, which fees are separate from the fees received from such funds, and (iii)
services performed for such funds and pursuant to this Escrow Agreement may at times
duplicate those provided to such funds by the Escrow Agent or its affiliates.



In the absence of investment instructions, the Escrow Property shall be invested in a JPMorgan
Chase Bank Money Market Account. The Escrow Agent shall have no liability for any loss sustained
as a result of any investment in an investment indicated herein. Subject to Section 8(b), 60% of
all interest earned and other income earned on the Escrow Property shall become part of the Escrow
Property. The Escrow Agent shall distribute 40% of all interest earned and other income earned on
the Escrow Property (excluding amounts to be distributed pursuant to Section 8(b)) to the holders
of the Common Shares and Options pro rata at their respective mailing addresses and in accordance
with their Applicable Percentages, both as set forth on Exhibit B. Such distribution shall
be made by December 31st of each year.




     4.   Transfer of Escrow Shares Following Determination Date.
Immediately following the date on which the Holder Representative finally determines and
delivers to Acquiror its calculation of the Closing Date Net Working Capital, the Closing Date
Funded Debt and the Closing Date Cash and Cash Equivalents (the “Determination Date”), the
Acquiror and the Holder Representative shall deliver to the Escrow Agent (if required by Section
1.5(d) of the Merger Agreement) joint written instructions setting forth how the Escrow Shares (if
any) are to be delivered to the Acquiror, which instructions shall be based on the terms set forth
in Section 1.5 of the Merger Agreement. As promptly as practicable following receipt of such joint
written instruction, the Escrow Agent shall deliver to the Acquiror the number of Escrow Shares (if
any) as specified in such joint written instruction by delivering the stock certificate
representing the Escrow Shares to the Acquiror’s stock transfer agent in exchange for a stock
certificate in the name of the Escrow Agent (or its nominee) representing the number of remaining
Escrow Shares to be retained as Escrow Property as set forth in the joint written instructions
delivered to the Escrow Agent.



     5.   Payment of Damages.



     (a) The Escrow Property shall be available to pay, in accordance with the procedures set forth
herein, any Damages for which a Purchaser Indemnitee is entitled to indemnification pursuant to
Article XIII of the Merger Agreement (subject to the limitations therein); provided,
however, that any claims by a Purchaser Indemnitee for indemnification under Article XIII
of the Merger Agreement must be made before the Distribution Date (as defined herein).



     (b) If a Purchaser Indemnitee determines in good faith that it is entitled to indemnification
for Damages pursuant to Section 13.2 of the Merger Agreement, the Acquiror may deliver to the
Escrow Agent and the Holder Representative a written request for the payment of such Damages amount
(a “Payment Request”), which Payment Request shall identify in reasonable detail the facts
and circumstances with respect to the subject matter of such Damages claim and the section of the
Merger Agreement for which indemnification is sought and the amount and method of computing the
amount of Damages. Any Third Party Action shall be identified as such in the Payment Request.
Within thirty (30) days after the Holder Representative receives a Payment Request, the Holder
Representative shall deliver to the Escrow Agent and the Acquiror a written notice (a “Response
Notice”) stating whether the Holder Representative objects to the Payment of all or any portion
of the Damages amount set forth in the Payment Request and advising of the allocation of shares
and/or cash to be delivered. In the event the Holder Representative does not deliver a Response
Notice within 30 days after its receipt of a Payment Request, it will be deemed not to have
objected to any portion of the Damages amount set forth in the Payment Request and the Escrow Agent
shall pay such Damages amount to Acquiror in accordance with Section 5(c) below. The Escrow Agent
will be prohibited from paying any Damages amount in dispute as set forth in the Response Notice,
unless (i) the Holder Representative delivers a written notice (an “Amended Response
Notice”) to the Escrow Agent stating that the Holder Representative has withdrawn its objection
with respect to all or any part of the objections set forth in the Response Notice or (ii) Acquiror
delivers to the Escrow Agent and the Holder Representative a copy of a final, non-appealable order
of a court of competent jurisdiction (a “Final Order”) determining that Acquiror is
entitled to payment of such Damages amount under the Merger Agreement and directing the Escrow
Agent to disburse an amount set forth in such order (provided that the Escrow Agent shall be entitled to receive from the claiming
party, with a copy to the non-claiming party, a letter, on which the Escrow Agent may conclusively
rely, to the effect that the order of the court is final and binding, unless the non-claiming party
provides written notice to the Escrow Agent and the claiming party that the order of the Court is
not final and binding within 15 days of receipt of the Final Order by the Escrow Agent and the
non-claiming party). In the event there is a dispute between Acquiror and the Holder
Representative as to whether an order from a court is a Final Order, the Escrow Agent shall have
the right to interplead all interested parties in accordance with



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Section 11(a). Upon receipt of
an Amended Response Notice from the Holder Representative or a Final Order, as applicable, the
Escrow Agent shall thereafter act in accordance with Section 5(c) below.




     (c) If the Escrow Agent has received a Response Notice (or fails to receive a Response Notice
as specified above), an Amended Response Notice or a Final Order, and if such Response Notice (or
Payment Request in the event Escrow Agent has not received a Response Notice as specified above),
Amended Response Notice or Final Order indicates that a Purchaser Indemnitee is entitled to payment
in respect of all or any portion of a Damages amount set forth in a Payment Request, then the
Escrow Agent shall release Escrow Property and deliver to the Purchaser Indemnitee a number of
Escrow Shares or cash held in escrow in an amount equal to the amount due to the Purchaser
Indemnitee as indicated in such Response Notice (or Payment Request in the event Escrow Agent has
not received a Response Notice as specified above), Amended Response Notice or Final Order (the
“Payment Amount”) (it being understood and agreed that the Holder Representative shall
designate in writing the mix of Escrow Shares and/or cash to be released by the Escrow Agent in
respect of such Payment Amount (a “Payment Instruction Notice”). If such Response Notice,
Amended Response Notice or Final Order indicates that the Purchaser Indemnitee is not entitled to
all or any portion of the Damages amount set forth in the Payment Request, then the Escrow Agent
shall hold the amount of Escrow Shares and/or cash to which the Purchaser Indemnitee is determined
not to be entitled in accordance with the terms of this Agreement until such amounts are
distributed (i) to the holders of Common Shares and Options pursuant to Section 7 below, (ii) to
any Purchaser Indemnitee in respect of another Payment Request pursuant to this Section 5 or (iii)
as specified in joint written instructions from the Holder Representative and the Acquiror. For
purposes hereof, in the event a Purchaser Indemnitee is to receive Escrow Shares in respect of any
Payment Amount or any portion thereof, such Purchaser Indemnitee shall be entitled to receive a
number of Escrow Shares equal to (x) such Payment Amount or portion thereof, divided by (y) the
average closing price for one share of Escrow Shares for the ten (10) Business Day period ending on
the Business Day immediately preceding the date on which such shares are released by the Escrow
Agent. The Response Notice (or Payment Request in the event the Escrow Agent has not received a
Response Notice as specified above), Amended Response Notice or Final Order shall specify the
amount of shares and/or cash to which the Purchaser Indemnitee is entitled (it being understood
that the Escrow Agent will not be responsible for the calculations associated therewith). In the
event any Escrow Shares are to be delivered to the Acquiror pursuant to this Section 5, the Escrow
Agent shall deliver to the Acquiror such number of Escrow Shares (if any) as specified in the
Response Notice (or Payment Request in the event the Escrow Agent has not received a Response
Notice as specified above), Amended Response Notice or Final Order by delivering the stock
certificate representing the Escrow Shares then held by the Escrow Agent as Escrow Property to
Acquiror’s stock transfer agent in exchange for a stock certificate in the name of the Escrow Agent
(or its nominee) representing the number of remaining Escrow Shares to be retained as Escrow
Property as set forth in such Response Notice (or Payment Request in the event the Escrow Agent has
not received a Response Notice as specified above), Amended Response Notice or Final Order
delivered to the Escrow Agent.



     6.   Substitution of Escrow Property. At any time, the Holder
Representative shall have the right to replace Escrow Shares with cash by providing a written
notice to the Escrow Agent and the Acquiror setting forth the number of Escrow Shares to be so
replaced (a “Replacement Notice”). As promptly as practicable after delivery of a
Replacement Notice, the Escrow Agent shall deliver to the Holder Representative (or its designee),
the number of Escrow Shares specified in the Replacement Notice in exchange for the delivery by the
Holder Representative (or its designee) of cash in an amount equal to the product of (x) the number
of such Escrow Shares to be replaced and (y) 4.702 (the “Closing Stock Price”);
provided, however, that the Closing Stock Price shall be proportionately reduced or
increased, as applicable, to account for any stock split, subdivision, stock dividend,
recapitalization, merger, combination or similar transaction (a “Capital Stock Event”) in
respect of the Escrow Shares occurring after the date hereof. The Escrow Agent shall effect the
delivery of Escrow Shares pursuant to this Section 6 by delivering the stock certificate
representing the Escrow Shares then held by the Escrow Agent as Escrow Property to Acquiror’s stock
transfer agent in exchange for: (i) stock certificates for and in the name of the persons
designated by the Holder Representative in writing representing the number of Escrow Shares as
specified in the Replacement Notice; and (ii) a stock certificate in the name of the Escrow Agent
(or its nominee) representing the number of remaining Escrow Shares to be retained as Escrow
Property as set forth in such Replacement Notice. The Acquiror agrees to (i) provide the Holder
Representative written notice of any Capital Stock Event setting forth in reasonable detail the
terms and conditions thereof and (ii) to cause its stock transfer agent to deliver as promptly as
practicable a stock certificate in the name of the Escrow Agent (or its nominee) representing such
new number of shares or other securities in which the Escrow Shares then held as Escrow Property shall have been
converted into, or shall otherwise reflect to account for dividends or distributions, pursuant to
the Capital Stock Event in exchange for the delivery by the Escrow Agent of the stock certificate
representing the Escrow Shares held by the Escrow Agent as Escrow Property immediately prior to the
Capital Stock Event. The parties hereto further agree to provide such reasonable cooperation and
take such actions as may be reasonably requested by the other parties in connection with a sale or
registration of Escrow Shares made in conjunction with the replacement of Escrow Shares with cash
pursuant to this Section 6.



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     7.   Distribution of Escrow Property.



     (a) Promptly after the first anniversary of the date of this Agreement (the “Distribution
Date”), the Escrow Agent shall distribute the Escrow Property, in accordance with the written
instructions of the Holder Representative, to the holders of the Common Shares and Options listed
in Exhibit B at their respective mailing addresses pro rata in accordance with their
Applicable Percentages as set forth on Exhibit B; provided, however, that
in the event that (i) prior to the Distribution Date, Acquiror delivers a Payment Request seeking
indemnification for Damages pursuant to Section 13.2 of the Merger Agreement (a “Pending
Claim”) and such claim is unresolved as of the Distribution Date, the Escrow Agent shall not
distribute and will continue to hold pursuant hereto Escrow Property having a value equal to the
Damages payment sought with respect to such Pending Claim that is unresolved (the “Reserved
Property”) (it being understood and agreed that the Holder Representative shall, in such event,
have the right to designate the mix of Escrow Shares and/or cash to be released pursuant to this
Section 7). For purposes of calculating the Reserved Property, each Escrow Share shall be valued
at the average closing price for one share of Acquiror Common Stock for the ten (10) Business Day
period ending on the Business Day immediately preceding the Distribution Date. The Reserved
Property shall remain in escrow following the Distribution Date pending resolution of the
applicable Pending Claims and, upon resolution of the applicable Pending Claim, shall be either (i)
distributed in whole or in part to Acquiror as appropriate following resolution of the applicable
Pending Claim in accordance with Section 5 or (ii) distributed in whole or in part to the holders
of Common Shares and Options listed in Exhibit B as provided in this Section 7. In the
event that (i) the Holder Representative or Acquiror delivers to the Escrow Agent a Final Order
that determines or provides that the Purchaser Indemnitees are or are not, as the case may be,
entitled to payment or reimbursement of some or all of the Damages requested in any Pending Claim
or (ii) the Holder Representative and Acquiror deliver to the Escrow Agent joint written
instructions signed by Acquiror and the Holder Representative indicating that the Purchaser
Indemnitees are or are not, as the case may be, entitled to some or all of the Damages requested in
any Pending Claim, the Escrow Agent will disburse the Reserved Property or portion thereof held in
respect of the Damages subject to such Pending Claim to (A) the holders of the Common Shares and
Options listed in Exhibit B at their respective mailing addresses pro rata in accordance
with their Applicable Percentages as set forth in Exhibit B and as specified in written
instructions of the Holder Representative and/or (B) Acquiror, in each case, as specified in such
Final Order or joint written instructions. At such time as all Pending Claims have been finally
resolved in accordance with this Agreement and there remains any Reserved Property, all remaining
Reserved Property shall be delivered or paid to the holders of the Common Shares and Options at
their respective mailing addresses listed in Exhibit B pro rata in accordance with their
Applicable Percentages as set forth in Exhibit B and as specified in the written
instructions of the Holder Representative. A Pending Claim shall be considered to be resolved at
such time as (i) one of the parties has delivered to the Escrow Agent a Final Order determining the
extent (if any) to which the Acquiror is entitled to indemnification under Section 13.2 of the
Merger Agreement for the Damages pursuant to such Pending Claim or (ii) the Acquiror and the Holder
Representative provide to the Escrow Agent joint written instructions signed by Acquiror and the
Holder Representative advising the Escrow Agent that such Pending Claim has otherwise been
resolved, which such joint written instruction indicates the extent (if any) to which the Acquiror
is entitled to indemnification under Section 13.2 of the Merger Agreement for the Damages pursuant
to such Pending Claim.



     (b) In the event a Final Order is delivered to the Escrow Agent pursuant to this Agreement,
the Escrow Agent shall be entitled to receive from the claiming party, with a copy to the
non-claiming party, a letter, on which the Escrow Agent may conclusively rely, to the effect that
the order of the court is final and binding, unless the non-claiming party provides written notice
to the Escrow Agent and the claiming party that the order of the Court is not final and binding
within 15 days of receipt of the Final Order by the Escrow Agent and the non-claiming party. In
the event there is a dispute between Acquiror and the Holder Representative as to whether an order
from a court is a Final Order, the Escrow Agent shall have the right to interplead all interested
parties in accordance with Section 11(a).



     (c) The Escrow Agent shall effect the delivery of Escrow Shares (if any) pursuant to this
Section 7 by delivering the stock certificate representing the Escrow Shares then held by the
Escrow Agent as Reserved Property to the Acquiror’s stock transfer agent in exchange for: (i) in
the case where Escrow Shares held as Reserved Property are to be delivered to the holders of the
Common Shares and Options, stock certificates for and in the name of the persons designated by the
Holder Representative in writing representing the number of Escrow Shares as specified in the Final
Order or joint written instructions signed by Acquiror and the Holder Representative delivered to
the Escrow Agent; and (ii) in the case where Escrow Shares are to remain as Reserved Property, a
stock certificate in the name of the Escrow Agent (or its nominee) representing the number of remaining Escrow Shares to be retained as Reserved
Property as specified in the Final Order or joint written instructions signed by Acquiror and the
Holder Representative delivered to the Escrow Agent.



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     (d) Acquiror hereby agrees to cause its stock transfer agent to deliver as promptly as
practicable stock certificates to the Escrow Agent and otherwise take such necessary actions to
effect the exchange of stock certificates representing Escrow Shares or other securities as
contemplated by this Agreement.



     8.   Voting of Shares and Dividends.



     (a) If a meeting or written action of the Acquiror’s stockholders occurs while this Agreement
is in effect and Escrow Shares are held as Escrow Property, the Acquiror shall promptly send to the
Holder Representative and the Escrow Agent copies of any notices, proxies and proxy materials in
connection with such meeting or written action when such materials are sent to the stockholders of
the Acquiror, and the Escrow Agent shall vote the Escrow Shares in accordance with the written
instructions of the Holder Representative.



     (b) All cash dividends and distributions made with respect to the Escrow Shares shall be
distributed, promptly upon receipt, to the holders of Common Shares and Options listed in
Exhibit B at their respective mailing addresses, pro rata in accordance with their
Applicable Percentages as set forth on Exhibit B.



     9.   Tax Matters. For tax purposes, all interest and other income earned on
the Escrow Property (other than cash dividends and distributions received by the holders of Common
Shares and Options pursuant to Section 8(b)) shall be reported as taxable income of the holders of
Common Shares and Options pro rata in accordance with their Applicable Percentage as set forth on
Exhibit B. Any cash dividends or distributions made in respect of Escrow Shares and
received by the holders of Common Shares and Options pursuant to Section 8(b) shall be reported for
tax purposes as taxable income of the applicable recipient. Acquiror shall file tax returns and
the Escrow Agent shall file a Form 1099 INT consistent with such treatment. Payment of any
interest and other income earned on the Escrow Property will, and the distribution of any other
amounts under this escrow may, be subject to U.S. backup withholding tax unless a properly
completed IRS Form W-8 or W-9 certification is submitted to the Escrow Agent by the person entitled
to receive such payment. An IRS Form W-8 or W-9 certification shall be submitted for each holder
of Common Shares and Options, as well as for each of Acquiror and the Holder Representative to the
Escrow Agent on or before the date the Escrow Property is deposited into escrow.



     10.   Security Procedures. In the event funds transfer instructions are
given (other than in writing at the time of execution of this Escrow Agreement, as indicated in
Section 2 herein) whether in writing, by telecopier or otherwise, the Escrow Agent is authorized to
seek confirmation of such instructions by telephone call-back to the person or persons designated
on schedule 1 hereto (“Schedule 1”), and the Escrow Agent may rely upon the confirmation of
anyone purporting to be the person or persons so designated. The persons and telephone numbers for
call-backs may be changed only in a writing actually received and acknowledged by the Escrow Agent.
If the Escrow Agent is unable to contact any of the authorized representatives identified in
Schedule 1, the Escrow Agent is hereby authorized to seek confirmation of such instructions by
telephone call-back to any one or more of the executive officers of the other parties hereto
(“Executive Officers”), which shall include the titles of Partner, Managing Director,
Principal, President or Vice President, as the Escrow Agent may select. Such Executive Officer
shall deliver to the Escrow Agent a fully executed Incumbency Certificate, and the Escrow Agent may
rely upon the confirmation of anyone purporting to be any such Executive Officer. The Escrow Agent
and the beneficiary’s bank in any funds transfer may rely solely upon any account numbers or
similar identifying numbers provided by the Acquiror or the Holder Representative to identify (i)
the beneficiary, (ii) the beneficiary’s bank or (iii) an intermediary bank. The Escrow Agent may
apply any of the escrowed funds for any payment order it executes using any such identifying
number, even when its use may result in a person other than the beneficiary being paid, or the
transfer of funds to a bank other than the beneficiary’s bank or an intermediary bank so
designated. The parties to this Escrow Agreement acknowledge that these security procedures are
commercially reasonable.



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     11. Duties of the Escrow Agent.



          (a) Duties in General.



               (1) The Escrow Agent undertakes to perform only such duties as are expressly set forth herein
(and required by applicable law), which the parties agree are ministerial in nature. The Escrow
Agent shall have no duty to inquire as to the provisions of any other agreement. The Escrow Agent
may consult with counsel of its choice and shall be protected in any action taken or omitted in
connection with the advice or opinion of such counsel.



               (2) If the Escrow Agent becomes involved in litigation with respect to this Agreement for any
reason, it is hereby authorized to deposit the Escrow Property with the clerk of such court in
which such litigation is pending, or to interplead all interested parties in any court of competent
jurisdiction and to deposit with the clerk of such court the Escrow Property. Upon the happening of
either of the above, the Escrow Agent shall be fully relieved and discharged of any further duties
hereunder.



               (3) If the Escrow Agent should at any time be confronted with inconsistent instructions,
claims or demands by the parties hereto, the Escrow Agent shall be entitled to refrain from taking
any action and its sole obligation shall be to keep safely all property held in escrow until it
shall be directed otherwise in writing by all of the other parties hereto or by a final order or
judgment of a court of competent jurisdiction. The Escrow Agent shall have the right to interplead
such parties in any state or federal court located in the State of New York (or if such court does
not have jurisdiction, any other court of competent jurisdiction), to deposit the Escrow Property
with the clerk of such court, and to request that such court determine the respective rights of the
parties with respect to this Agreement, and upon doing so, the Escrow Agent automatically shall be
released from any obligations or liability as a consequence of any claims or demands hereunder.



          (b) Exculpation. Except for the Escrow Agent’s own willful misconduct, bad faith or
gross negligence: (i) the Escrow Agent shall have no liability of any kind whatsoever for its
performance of any duties imposed upon the Escrow Agent under this Agreement or for any of its acts
or omissions hereunder; (ii) the Escrow Agent shall not be responsible for any of the acts or
omissions of the other parties hereto; (iii) the Escrow Agent shall not be liable to any Person not
a party hereto for damages, losses or expenses arising out of this Agreement; and (iv) the Escrow
Agent may rely and/or act upon any written instrument, document or request believed by the Escrow
Agent in good faith to be genuine and to be executed and delivered by the proper Person, and may
assume in good faith the authenticity, validity and effectiveness thereof and shall not be
obligated to make any investigation or determination as to the truth and accuracy of any
information contained therein. Anything in this Agreement to the contrary notwithstanding, in no
event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any
kind whatsoever (including but not limited to lost profits).



          (c) No Additional Duties. The Escrow Agent shall have no duties except those that are
expressly set forth herein, and it shall not be bound by any notice of a claim or demand hereunder,
or any waiver, modification, amendment, termination or rescission of this Agreement, unless
received by it in writing.



          (d) Miscellaneous. The Escrow Agent may execute any of its powers or responsibilities
hereunder and exercise any rights hereunder either directly or by or through its agents or
attorneys. The Escrow Agent shall not be responsible for and shall not be under a duty to examine
or pass upon the validity, binding effect, execution or sufficiency of this Agreement or of any
agreement amendatory or supplemental hereto.



     12.   Fees and Expenses of Escrow Agent. For the Escrow Agent’s services
hereunder, Acquiror, on the one hand, and the Holder Representative, on the other hand, severally
and not jointly, each agree to (i) pay to the Escrow Agent fifty percent (50%) of the fees of
$3,500 per year (payable for the first year promptly following execution and delivery of this
Agreement) and (ii) reimburse the Escrow Agent upon request for fifty percent (50%) of all
reasonable expenses, disbursements and advances, including reasonable attorneys’ fees, incurred or
made by it in connection with carrying out its duties hereunder (it being understood and agreed
that all such fees, expenses, disbursements and advances payable by the Holder Representative shall
be Holder Allocable Expenses).



     13.   Indemnification of the Escrow Agent. In consideration of its
acceptance of the appointment as Escrow Agent, Acquiror and the Holder Representative each agree to
indemnify and hold the Escrow Agent harmless as to fifty percent (50%) of any loss, liability or
expense incurred by the Escrow Agent without gross negligence, bad faith or



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willful misconduct by the Escrow Agent by reason of its having accepted the same or in
carrying out any of the terms hereof. The foregoing indemnities shall survive the resignation or
removal of the Escrow Agent or the termination of this Agreement.




     14.   Resignation of the Escrow Agent. The Escrow Agent, and any successor
Escrow Agent, may resign at any time as Escrow Agent hereunder by giving at least fifteen (15)
Business Days written notice to the other parties hereto. Upon such resignation and the
appointment of a successor Escrow Agent, the resigning Escrow Agent shall be absolved from any
duties as Escrow Agent hereunder. Upon their receipt of notice of resignation from the Escrow
Agent, the Acquiror and the Holder Representative shall use their reasonable best efforts jointly
to designate a successor Escrow Agent. If the Acquiror and the Holder Representative do not agree
upon a successor Escrow Agent within fifteen (15) Business Days after the receipt by the parties of
the Escrow Agent’s resignation notice, the Escrow Agent may petition any court of competent
jurisdiction for the appointment of a successor Escrow Agent or other appropriate relief and any
such resulting appointment shall be binding upon all parties hereto. By mutual agreement, the
Acquiror and the Holder Representative shall have the right at any time upon not less than seven
(7) Business Days written notice to terminate the appointment of the Escrow Agent, or any successor
Escrow Agent, as Escrow Agent hereunder. Notwithstanding anything to the contrary in the
foregoing, the Escrow Agent, or any successor Escrow Agent, shall continue to act as Escrow Agent
until a successor is appointed and qualified to act as Escrow Agent.



     15.   Notices. All notices and other communications required or permitted
pursuant to this Agreement shall be in writing and be deemed to have been duly given when delivered
personally (which shall include delivery by Federal Express or other nationally recognized,
reputable overnight courier service that issues a receipt or other confirmation of delivery) to the
party for whom such communication is intended, or three (3) business after the date mailed by
certified mail, return receipt requested, postage prepaid, as follows:



	 	 	 
	

	 	If to Acquiror:
	 
	 	 
	

	 	Encore Medical Corporation
	

	 	9800 Metric Boulevard
	

	 	Austin, Texas 78758
	

	 	Attention: Harry L. Zimmerman
	

	 	Telecopy No. (512) 834-6310
	 
	 	 
	

	 	with copies to:
	 
	 	 
	

	 	Jackson Walker LLP
	

	 	100 Congress Avenue, Suite 1100
	

	 	Austin, Texas 78701
	

	 	Attention: Lawrence A. Waks
	

	 	Telecopy No. (512) 236-2002
	 
	 	 
	

	 	and
	 
	 	 
	

	 	If to the Holder Representative:
	 
	 	 
	

	 	MPI Holdings, LLC
	

	 	c/o The Carlyle Group
	

	 	520 Madison Avenue
	

	 	New York, New York 10022
	

	 	Attention: W. Robert Dahl
	

	 	Telecopy No.: (212) 381-4901
	 
	 	 
	

	 	with copies to:
	 
	 	 
	

	 	Latham & Watkins LLP
	

	 	555 Eleventh Street, N.W.
	

	 	Suite 1000
	

	 	Washington, D.C. 20004-1304
	

	 	Attention: Daniel T. Lennon
	

	 	Telecopy No.: (202) 637-2201
	 
	 	 





7









 






	 	 	 
	

	 	and
	 
	 	 
	

	 	If to the Escrow Agent:
	 
	 	 
	

	 	JPMorgan Chase Bank
	

	 	4 New York Plaza, 21st Floor
	

	 	Attention: Joe Morales
	

	 	Telecopy No.: 212-623-6168






     or to such other address as such party shall specify by written notice to the other parties
hereto. Any notice sent to Escrow Agent shall also be sent to the other parties to this
Agreement.



     16.   Assignment; Successors and Assigns. No party to this Agreement shall
assign this Agreement or any part hereof without the prior written consent of the other parties.
Subject to the foregoing, this Agreement shall bind and inure to the benefit of the parties hereto
and their respective, heirs, personal representatives, successors and permitted assigns.



     17.   Entire Agreement. This Agreement, and with respect to the Acquiror
and the Holder Representative, the Merger Agreement, embody the entire agreement and understanding
of the parties concerning the Escrow Property, and, in the event of any inconsistency between this
Agreement and the Merger Agreement, this Agreement shall control.



     18.   Amendments. This Agreement may be amended only by a writing signed by
each of the parties hereto.



     19.   Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except the choice of law rules utilized in that
state (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law).



     20.   Jurisdiction; Waiver of Jury Trial. The parties hereto irrevocably
submit to the non-exclusive jurisdiction of (i) the New York State Courts and (ii) the United
States Court for the Southern District of New York for the purposes of any action arising out of
this Agreement or any of the transactions contemplated hereby. The parties hereto further agree
that service of any process, summons, notice or document hand delivered or sent by U.S. registered
mail to such party’s respective address set forth in Section 8 shall be effective service of
process for any action in New York with respect to any matters to which it has submitted to
jurisdiction as set forth in the immediately preceding sentence. The parties hereto irrevocably
and unconditionally waive any objection to the laying of venue of any action arising out of this
Agreement or the transactions contemplated hereby in (i) the New York State Courts or (ii) the
United States District Court for the Southern District of New York, and hereby further irrevocably
and unconditionally waive and agree not to plead or claim in any such court that any such action
brought in any such court has been brought in an inconvenient forum. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR THE ACTIONS OF THE PARTIES HERETO IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.



     21.   Captions; Counterparts. The captions in this Agreement are for
convenience only and shall not be considered a part of or affect the construction or interpretation
of any provision of this Agreement. This Agreement may be executed in two or more counterparts and
delivered via facsimile transmission, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.



[The remainder of this page is intentionally left blank]




8









 








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


	 	 	 	 	 
	 	ENCORE MEDICAL CORPORATION

 	 
	 	By:  	/s/
Harry L. Zimmerman	 
	 	 	Name:  	Harry L. Zimmerman 	 
	 	 	Title:  	Executive Vice President – General Counsel 	 
	 



	 	 	 	 	 
	 	MPI HOLDINGS, LLC

 	 
	 	By:  	
/s/ W. Robert Dahl	 
	 	 	Name:  	W. Robert Dahl 	 
	 	 	Title:  	Managing Director 	 
	 



	 	 	 	 	 
	 	JPMORGAN CHASE BANK, N.A.,

as Escrow Agent

 	 
	 	By:  	
/s/ Debra DeMarco	 
	 	 	Name:  	Debra DeMarco 	 
	 	 	Title:  	Vice President 	 
	 





 









 






Schedule 1




Telephone Number(s) for Call-Backs and

Person(s) Designated to Confirm Funds Transfer Instructions




If to Acquiror:



	 	 	 
	Name

	 	Telephone Number






This information will be
furnished to the SEC upon request.




1.

2.

3.



If to Holder Representative:



	 	 	 
	Name:

	 	Telephone Number






This information will be
furnished to the SEC upon request.




1.

2.

3.


Telephone call-backs should be made to each of Acquiror and Holder Representative if joint
instructions are required pursuant to this Agreement.




 








 






EXHIBIT A




Merger Agreement




 








 






EXHIBIT B




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Holders of	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Common	 	Applicable	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Shares and	 	Percentages	 	 	 	 	 	 	 	 	 	 	 	 	 	 	International	 
	Options	 	(%)	 	 	Street	 	 	City	 	 	State, ZIP	 	 	Address	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 





Stockholders




This information will be furnished to the SEC upon request.




Optionees




This information will be furnished to the SEC upon request.