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                                                                 EXHIBIT 10.7


                              EMPLOYMENT AGREEMENT


         THIS EMPLOYMENT AGREEMENT (this "Agreement") made and effective as of
the 26th day of August, 1994, by and between ENCORE ORTHOPEDICS, INC., a Texas
corporation (the "Company"), and CRAIG L. SMITH (the "Employee");

         Whereas, Employee has heretofore entered into an Employment Agreement
with the Company and both the Company and the Employee desire to amend and
restate in its entirety such Employment Agreement.

         Now, therefore, in consideration of the mutual promises contained
herein, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Employee agree
as follows:

                                    ARTICLE 1
                                   EMPLOYMENT

         1.1 Employment Term. The Company hereby employs the Employee for a
primary term commencing on the date set forth above and, subject to earlier
termination as provided in Section 1.5 hereof, ending five (5) years from such
date (the "Employment Term"). Employee agrees to accept such employment and to
perform the services specified herein, all upon the terms and conditions
hereinafter stated.

         1.2 Duties. The Employee shall serve in the capacity as President of
the Company, or in such other capacity as the Company may in its sole
discretion direct, and shall report to, and be subject to the general direction
and control of, the officers and directors of the Company. It is further
understood and agreed that any modification in or expansion of Employee's
duties hereunder shall not, unless specifically agreed in writing by Company,
result in any modification in, increase or decrease of Employee's compensation
referred to in Section 1.4 hereof.

         1.3 Extent of Service. The Employee shall devote his full time,
attention, and energy to the business of the Company and, except as may be
specifically permitted by the Company and approved by either the Chief Executive
Officer or the Board of Directors of the Company, shall not be engaged in any
other business activity while in the employ of the Company.

         1.4      Compensation

                  1.4.1 Salary. The Company shall pay to the Employee a base
salary at a rate of not less than One Hundred Thirty Thousand Dollars
($130,000) per year, or at such greater rate as the Chief Executive Officer of
the Company shall from time to time determine (the "Base Salary"). The Base
Salary shall be subject to review on no less than an annual basis, beginning
January 1, 1995 or, at the Company's discretion, such earlier date as the
Company may designate. Such salary is to be payable in installments in
accordance with the payroll policies of the Company in effect from time to time
during the Employment Term.



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                  1.4.2 Other Benefits. The Employee shall be entitled to such
vacation days, sick days, insurance and other fringe benefit programs (including
pension, profit-sharing, and stock plans, if any) as are established for other
executive employees of the Company, on the same basis as such other executive
employees are entitled thereto, it being understood that the establishment,
termination, or change of any such program shall be at the instance of the
Company, in exercise of its sole discretion, from time to time, and any such
termination or change in any such program shall not affect this Agreement.

         1.5      Termination.

                  1.5.1 Termination by Employee. At any time after one (1) year
from the commencement of the Employment Term, Employee may terminate this
Agreement on thirty (30) days' prior written notice.

                  1.5.2 Termination by Company. Prior to the end of the
Employment Term, the Company may upon ten (10) days' prior written notice
discharge the Employee with or without cause at its sole option without any
further liability hereunder to the Employee or his estate. Provided, however, in
the event such termination was without cause, the Company shall be required to
pay the Employee, at the time of his discharge, for one (1) year's Base Salary,
in addition to any accrued, but unpaid Base Salary . The Employee will have no
further liability hereunder to the Company except pursuant to Article II and
Section 3.2 hereof. For purposes of this Agreement, a "discharge for cause"
shall mean a discharge resulting from Employee having (i) committed any act
involving moral turpitude, dishonesty, or fraud that, in the good faith opinion
of Company, causes a material harm to Company, (ii) failed or refused to follow
legal and reasonable policies or directives established and previously given to
Employee in writing by Company, (iii) willfully failed to attend to his duties
after ten (10) days prior written notice of failure to so act, (iv) committed
acts amounting to gross negligence or willful misconduct to the material
detriment of Company, or (v) otherwise materially breached any of the terms or
provisions of this Agreement after ten (10) days prior written notice of such
material breach and failure to cure such breach. Employee shall be deemed to
have been discharged for cause upon delivery to Employee of a "Notice of
Termination" stating the "Date of Termination" and specifying the particulars of
the conduct justifying discharge for cause. Furthermore, if the Employee is
terminated without cause, then the Company agrees, if requested by Employee for
the sole purpose of exercising any vested options that Employee has the right to
exercise, to loan to the Employee an amount equal to (i) the full exercise price
of all vested options that the Employee has the right to exercise less (ii) the
par value of such shares as are to be exercised. The terms of the loan shall be
that it shall be (a) secured by the stock to be purchased, (b) be otherwise
non-recourse to the Employee, (c) bear interest at the prime rate of interest as
published from time to time in The Wall Street Journal, and (d) be fully due and
payable, principal and interest, two (2) years from the date of termination.


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                                    ARTICLE 2
                  NON-COMPETITION AND DISCLOSURE OF INFORMATION

         2.1 Non-competition. Employee acknowledges that his services to be
rendered hereunder are of a special and unusual character which have a unique
value to Company, the loss of which cannot adequately be compensated by damages
in an action at law. In view of the unique value to Company of the services of
Employee for which Company has contracted hereunder, and because of the
confidential information to be obtained by or disclosed to Employee, and as a
material inducement to Company to enter into this Agreement, and to pay to
Employee the compensation referred to in Section 1.4 hereof, Employee covenants
and agrees that during Employee's employment hereunder and for a period of one
(1) year after he ceases to be employed by Company, Employee shall not (a)
directly or indirectly, solicit business from, divert business from, or attempt
to convert to other methods of using the same or similar products or services as
provided by Company, any client, account or location of Company with which
Employee has had any contact as a result of his employment by Company hereunder;
(b) engage in or carry on, directly or indirectly, either for himself, as a
member of a partnership, or as a stockholder (except as limited partner or
stockholder of less than one percent (1%) of the issued and outstanding limited
partnership interests or stock of a publicly held partnership or corporation
whose gross assets exceed $l,000,000), as an investor, lender, guarantor,
landlord, manager, officer, or director of any person, partnership, corporation,
or other entity (other than the Company or its subsidiaries), or as an employee,
agent, associate, broker, or consultant of any person, partnership, corporation,
or other entity (other than the Company or its subsidiaries), any business that
competes with any operations of the Company within an one hundred (100)-mile
radius of any geographic area where Company is actually engaged in business, or
maintains sales or service representatives or employees; or (c) directly or
indirectly, solicit for employment or employ any employee of Company. Employee
may elect, by providing written notice to the Company, to shorten the term of
this non-compete to six (6) months, provided, however, in that event, the
Company's obligation to pay severance pay to the Employee pursuant to Section
1.5.2 shall be reduced to an amount equal to six (6) months base pay.

         2.2 Disclosures of Information. The Employee acknowledges that in the
course of his employment by the Company, he will receive certain trade secrets,
programs, methods of operation, financial information, lists of customers, and
other confidential information and knowledge concerning the businesses of the
Company (hereinafter collectively referred to as "Information") that the Company
desires to protect. As a material inducement to Company to enter into this
Agreement, and to pay to Employee the compensation referred to in Section 1.4
hereof, Employee covenants and agrees that he shall not, at any time during or
following the term of his employment hereunder, directly or indirectly, divulge
or disclose, for any purpose whatsoever, any of such Information which has been
obtained by or disclosed to him as a result of his employment by Company. The
Employee further agrees that he will at no time use the Information in competing
with the Company. Upon termination of this Agreement, the Employee shall
surrender to the Company all lists, books, financial information, records,
literature, products, papers, documents, writings, and other property produced
by him or coming into his possession by or through his employment relating to
the Information, and the Employee agrees that all such materials will at all
times remain the property of the Company. In the event of a breach or


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threatened breach by Employee of any of the provisions of this Article II,
Company, in addition to and not in limitation of any other rights, remedies or
damages available to Company at law or in equity, shall be entitled to a
permanent injunction in order to prevent or to restrain any such breach by
Employee, or by Employee's partners, agents, representatives, servants,
employers, employees and/or any and all persons directly or indirectly acting
for or with him.

         2.3 Accounting for Profits. Employee covenants and agrees that if he
shall violate any of his covenants or agreements under Article II hereof,
Company shall be entitled to an accounting and repayment of all profits,
compensation, commissions, remunerations or benefits which Employee directly or
indirectly has realized and/or may realize as a result of, growing out of or in
connection with any such violation; such remedy shall be in addition to and not
in limitation of any injunctive relief or other rights or remedies to which
Company is or may be entitled at law or in equity or under this Agreement.

         2.4      Reasonableness of Restrictions.

                  2.4.1 Employee has carefully read and considered the
provisions of Article II hereof and, having done so, agrees that the
restrictions set forth in such Article (including, but not limited to, the time
period of restriction and the geographical areas of restriction set forth in
Article II hereof) are fair and reasonable and are reasonably required for the
protection of the interest of Company, its officers, directors and other
employees.

                  2.4.2 In the event that, notwithstanding the foregoing, any of
the provisions of Article II hereof shall be held to be invalid or
unenforceable, the remaining provisions thereof shall nevertheless continue to
be valid and enforceable as though the invalid or unenforceable parts had not
been included therein. In the event that any provision of Article II relating to
time period and/or areas of restriction shall be declared by a court of
competent jurisdiction to exceed the maximum time period or areas such court
deems reasonable and enforceable, said time period and/or areas of restriction
shall be deemed to become and thereafter be the maximum time period and/or areas
which such court deems reasonable and enforceable.

                                    ARTICLE 3
                               EMPLOYEE INVENTIONS

         3.1 Employee Inventions. Employee shall promptly disclose to the
Company or its designee any and all ideas, inventions, works of authorship
(including, but not limited to computer programs, software and documentation),
improvements, discoveries, developments, or innovations (hereinafter referred to
as "said inventions"), whether patentable or unpatentable, copyrightable or
uncopyrightable, made, developed, worked on, or conceived by Employee, either
solely or jointly with others, whether or not reduced to drawings, written
description, documentation, models, or other tangible form: (a) during the
Employment Term that relate to, or arise out of, any developments, services,
research, or products of, or pertain to the business of, the Company and (b) for
a period of six (6) months after termination of the Employment Term, said
inventions that relate to, or arise out of, any developments, services,
research, or products that Employee has been concerned with during the term of
his employment.


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         3.2 Assignment. Employee hereby assigns and agrees to assign to the
Company, its successors and assigns, Employee's entire right, title, and
interest in and to any of said inventions. All of said inventions shall
forthwith and without further consideration become and be the exclusive property
of the Company, it successors and assigns.

         3.3 Cooperation. Employee shall, without further compensation, do all
lawful things, including, but not limited to, maintaining invention records that
shall be the property of the Company, rendering assistance, giving of evidence
and testimony, and executing necessary documents, as requested, to enable the
Company to file and obtain patents in the United States and foreign countries on
any of said inventions, as well as to protect the Company's interest in any of
said inventions.

                                    ARTICLE 4
                                  MISCELLANEOUS

         4.1 Notices. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or telegraphed or telexed
and confirmed if addressed to the respective parties as follows: (a) if to the
Employee to the address set forth below, and (b) if to the Company to Encore
Orthopedics, Inc., 8920 Business Park Drive, Suite 380, Austin, Texas 78759
ATTENTION: President. Either party hereto may designate a different address by
providing written notice of such new address to the other party hereto.

         4.2 Specific Performance. The Employee acknowledges that a remedy at
law for any breach or attempted breach of Section 1.3 and Article II of this
Agreement will be inadequate, and agrees that the Company shall be entitled to
specific performance and injunctive and other equitable relief in case of any
such breach or attempted breach, and further agrees to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
injunctive or any other equitable relief. In the event the Company brings legal
action to enforce its rights hereunder, the Employee shall pay all of the
Company's court costs and legal fees and expenses arising out of such action if
the Company prevails in such action.

         4.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.

         4.4 Assignment. This Agreement may not be assigned by the Employee.
Neither the Employee nor his spouse shall have any right to commute, encumber,
or otherwise dispose of any right to receive payments hereunder, it being the
intention of the parties that such payments and the rights thereto are
nonassignable and nontransferable. This Agreement is only assignable by the
Company to a parent, subsidiary, successor or other affiliate of the Company.


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         4.5 Binding Effect. Subject to the provisions of Section 4.4 of this
Agreement, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, the Employee's heirs and personal representatives, and the
successors and assigns of the Company.

         4.6 Governing Law.  This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Texas.

         4.7 Entire Agreement; Amendment. This Agreement contains the entire
understanding between the parties, and there are no agreements or understandings
among the parties except as set forth herein. The Employee represents and
warrants to the Company that at the time of execution of this Agreement he is
not a party to any other employment agreement. Employee further represents and
warrants that he neither has any proprietary information of any other business
nor is he providing any other business' proprietary information to the Company.
No alteration or modification of this Agreement shall be valid except by
subsequent written instrument executed by the parties hereto. No waiver by
either party of any breach by the other party of any provision or condition of
this Agreement in one circumstance shall be deemed a waiver of such provision or
condition in any other circumstances or be deemed a waiver of any other
provision or condition. The section and paragraph headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.

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

                                         COMPANY:

                                         ENCORE ORTHOPEDICS, INC.


                                         By:  /s/ NICK CINDRICH
                                             --------------------------------
                                             Nick Cindrich
                                             Chief Executive Officer


                                         EMPLOYEE:


                                         /s/ CRAIG L. SMITH
                                         ------------------------------------
                                         Craig L. Smith



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