Exhibit 10.1


 


ASSET
PURCHASE AGREEMENT


 


This Asset Purchase Agreement (the “Agreement”) is entered into as of August 8,
2005 (the “Effective Date”), by and between Encore Medical, L.P., a Delaware
limited partnership (“Seller”), and dj Orthopedics, LLC, a Delaware limited
liability company (“Buyer”).


 


R
E  C  I  T  A  L  S


 


WHEREAS, Seller
manufactures, markets and sells a line of orthopedic soft goods under the brand
name “Encore” and other trademarks, as shown in the Encore Soft Goods product
catalog attached hereto as Exhibit A;


 


WHEREAS, the patents,
trademarks and other registered intellectual property used by Seller in the
conduct of such orthopedics soft goods business are owned by an affiliate of
Seller, Encore Medical Asset Corporation, a Nevada corporation (“Seller’s IP
Affiliate”);


 


WHEREAS, Buyer
manufactures, markets and sells products and services in the orthopedic and
spine markets and is interested in acquiring substantially all of the assets,
including the relevant intellectual property owned by Seller’s IP Affiliate,
and operations of Seller’s business relating to its orthopedic soft goods shown
in Exhibit A, with the exception of the Chattanooga brand products or
other non Chattanooga brand products listed on pages 37 through 39 of said
catalog, (hereinafter, the “Acquired Business”); and


 


WHEREAS, pursuant to the
terms and conditions of this Agreement, Buyer desires to acquire, and Seller
and Seller’s IP Affiliate desire to sell, the assets and operations of the
Acquired Business.


 


A
G  R  E  E  M  E  N  T


 


NOW, THEREFORE, in
consideration of the mutual representations, warranties, covenants and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:


 


ARTICLE 1


 


Purchase
and Sale of Assets


 


1.1                                 Purchase
and Sale of Assets.  Subject to the
terms and conditions of this Agreement, at the Closing (as defined below)
Seller shall sell, transfer, convey, assign and deliver to Buyer, free and
clear of any and all liens, pledges, claims, security interests, encumbrances,
charges, restrictions or liabilities of any kind, and Buyer shall purchase,
acquire and accept from Seller, all of Seller’s, and Seller’s IP Affiliate’s,
as applicable, right, title and interest in and to the following properties and


 





















 


assets insofar as they
are used in or relate to the Acquired Business as of the Closing Date
(collectively, the “Purchased Assets”):


 


(a)                                  Those
items of manufacturing equipment and other fixed assets owned by Seller that
are listed on Schedule 1.1(a) and that are owned by Seller and used
by Seller’s manufacturing vendor, Border Opportunity Saver Systems, Inc.
in connection with the Acquired Business;


 


(b)                                 Those
customer and vendor agreements and contracts, licenses and other agreements,
whether oral or written, as listed or described on Schedule 1.1(b) hereto
(all such agreements and contracts being referred to herein as the “Contracts”),
to which Seller is a party and which Buyer has agreed to assume pursuant to Section 1.3
below, and any rights associated therewith or deposits or other prepayments
made by Seller thereunder; provided, however, that any such Contracts listed on
Schedule 1.1(b) which are marked by an asterisk will only be assumed
if such agreement is shown to be, within thirty (30) days of the Closing Date
or such longer period as Buyer shall agree, to be a valid and binding agreement
of Seller on terms and conditions reasonably acceptable to Buyer;


 


(c)                                  All
rights in and to the patents, patent applications, trademarks, trade names, copyrights,
and other proprietary intellectual property listed or described on Schedule 1.1(c) hereto,
as well as engineering drawings and designs, manufacturing processes and
techniques, technical data and information, trade secrets and other proprietary
information and know-how related to the Acquired Business, excluding the name “Encore”
and any derivations thereof, (hereinafter the “Intellectual Property”);


 


(d)                                 All
inventories of finished goods, work in progress and raw materials relating to
the Acquired Business, including but not limited to those items listed or
described on Schedule 1.1(d) hereto to the extent that they exist on
the Closing Date (collectively, the “Inventory”);


 


(e)                                  Originals
or copies of all customer lists, supplier lists, sales files, business
development information, databases, price lists and pricing records and
schedules, accounting records, sales literature, FDA premarket notification
documentation and general intangibles relating to the Acquired Business,
licenses to conduct the Acquired Business (to the extent transferable), and any
other books, documents, instruments and records, or copies thereof, used by the
Seller to conduct the Acquired Business (collectively, the “Other Assets”); and


 


(f)                                    All
goodwill associated with the Acquired Business.


 


1.2                                 Consideration.  In consideration for the sale, assignment,
transfer and delivery of the Purchased Assets, Buyer shall do the following:


 


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(a)                                  Pay
Seller in readily available funds at the Closing pursuant to wire transfer
instructions provided by Seller to Buyer prior to the Closing Date the sum of
Ten Million Dollars ($10,000,000) as adjusted pursuant to Section 1.8
hereof; and


 


(b)                                 Assume
the Assumed Liabilities (defined below in Section 1.3).


 


1.3                                 Assumption
of Liabilities.  Buyer agrees to
assume all obligations to be performed after the Closing under the Contracts
set forth on Schedule 1.1(b) hereto (the “Assumed Liabilities”),
including, but not limited to, rebate obligations and administrative fees, and
those open purchase orders listed on Schedule 1.1(b) and except for
said obligations under the Contracts and open purchase orders, Buyer expressly
does not, and shall not, assume or be deemed to assume, under this Agreement or
otherwise by reason of the transactions contemplated hereby, any of the
liabilities, obligations or commitments of Seller of any nature whatsoever,
whether relating to the Acquired Business or otherwise.


 


1.4                                 Assignment
of Contracts.  Seller and Buyer agree
to cooperate in securing any required third party consents to the assignment or
novation, as applicable, of the Contracts prior to the Closing or as soon
thereafter as practicable.  As to any
Contracts on which required consents are not obtained prior to Closing, the
Contracts shall, pending such consent, be performed by Buyer as a subcontractor
to Seller with a complete pass-through to Buyer of the terms, conditions,
rights and obligations under the Contract, subject to further agreement of the
parties pursuant to the Transition Agreement (as defined below).


 


1.5                                 Collection
of Accounts Receivable.  Existing
accounts receivable relating to customers of the Acquired Business are not
being transferred to Buyer pursuant to this Agreement.  The parties, therefore, agree to cooperate in
the allocation of payments from customers of the Acquired Business received
after the Closing Date.  Seller shall
promptly remit to Buyer any payments received from such customers attributable
to sales of products occurring on or after the Closing Date, and Buyer shall
likewise remit promptly to Seller any payments received relating to sales of
products that occurred before the Closing Date. 
To the extent that payments received by either party do not specifically
reference a specific invoice that is being paid, such payments shall be applied
to the oldest invoice owed by such customer, whether to Seller or Buyer.  The parties agree to cooperate in the
collection of accounts receivable that are outstanding as of the date of
closing and shall, as appropriate, make their books and records available to
the other party so as to permit the monitoring of and compliance with this
provision.


 


1.6                                 Allocation
of Purchase Price.  Schedule 1.6
hereto sets forth the parties’ agreement on the allocation of the purchase
price under this Agreement among the Purchased Assets.  Each party agrees to follow such allocation
in all reports and returns filed with applicable taxing authorities.


 


1.7                                 Excluded
Assets.  Any asset of the Acquired
Business owned by Seller and Seller’s IP Affiliate not specifically enumerated
in Sections 1.1(a) – (f) shall be excluded from the Purchased Assets.


 


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1.8                                 Purchase
Price Adjustments.


 


(a)                                  Rebates.  The Purchase Price shall be decreased by Six
Hundred Seventy One Thousand and Four Dollars and Thirty-Three Cents
($671,004.33) relating to an estimate of the fair market value of rebate
obligations being assumed by Buyer to group purchasing organizations for
purchases by such organizations occurring prior to the Closing Date.


 


(b)                                 Rebate
Deposit.  The Purchase Price shall be
increased by Two Hundred Forty-Five Thousand Four Hundred and Eight Dollars and
Twenty-Nine Cents ($245,408.29) representing the amount of Seller’s deposit with
Cardinal Health.


 


(c)                                  Inventory
Prepayments .  The Purchase Price
shall be increased by Forty-Four Thousand Three Hundred and Seventy Four
Dollars and Twenty Cents ($44,374.20) reprenting the amount of Seller’s
prepayment for inventory to be delivered by Ex Am Ltd under purchase order No. 5821
dated January 31, 2005.  The rights
to the deposit as well as the obligations of Seller under such purchase order
are being assumed by Buyer.


 


(d)                                 Administrative
Fees.  The Purchase Price shall be
decreased by One Hundred Twenty Eight Thousand Dollars ($128,000), relating to
an estimate of the fair market value of the administrative fees obligations
being assumed by Buyer.


 


ARTICLE 2


 


Representations
and Warranties


of
the Seller


 


The Seller represents and
warrants to the Buyer as follows:


 


2.1                                 Organization
and Good Standing.  The Seller is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Delaware.  The
Seller is duly qualified to transact business and is in good standing in every
jurisdiction in which the character of its business makes such qualification
necessary, except for where the failure to be so qualified would not have a
material adverse effect on the Seller or on its business, assets, properties, prospects,
financial condition or results of operations, all of which jurisdictions are
listed on Schedule 2.1 attached hereto. 
The Seller has all necessary power and authority, including all
necessary licenses and permits, to carry on its business as it is now being
conducted, and to own or lease and operate its properties and assets.


 


2.2                                 Authorization
and Approvals.  The Seller has all
requisite power and authority to enter into this Agreement and to perform its
obligations hereunder.  Seller’s IP
Affiliate has all requisite corporate power and authority to perform its
obligations hereunder.  This Agreement
has been duly executed and delivered by the Seller and constitutes the legal,
valid and binding obligation of Seller, enforceable in accordance with its
terms, except as may be limited by bankruptcy, reorganization, insolvency,
moratorium or other laws relating to or affecting the enforcement of creditors’
rights and remedies generally; and except as enforcement may be limited by
general


 


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principles of
equity.  This Agreement has been, or will
be prior to the Closing Date, duly and validly authorized by and approved by
all requisite action on the part of the Seller’s partners, and as to Seller’s
IP Affiliate, on the part of such company’s Board of Directors..  No further approvals or consents by, or
filings with, any federal, state, municipal, foreign or other court or
governmental or administrative body, agency or other third party is required in
connection with the execution and delivery by the Seller of this Agreement, or
the consummation by the Seller or Seller’s IP Affiliate of the transactions
contemplated hereby, except for those which, if not obtained, would not have a
material adverse impact on the ability of the Seller to carry on the Acquired
Business as currently conducted or the ability of the Seller to execute and
deliver this Agreement or to consummate the transactions contemplated hereby.


 


2.3                                 No
Conflicts.  Except as set forth on Schedule 2.3
attached hereto, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (a) violate any
provision of the charter or Bylaws or other organizational document of the
Seller, (b) violate, or be in conflict with, or constitute a default (or
other event which, with the giving of notice or lapse of time or both, would
constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under any of the terms, conditions or provisions
of any material lease, license, promissory note, contract, agreement, mortgage,
deed of trust or other instrument or document to which the Seller is a party or
by which the Seller or any of its or Seller’s IP Affiliate’s properties or
assets may be bound, (c) violate any order, writ, injunction, decree, law,
statute, rule or regulation of any court or governmental authority
applicable to the Seller or any of its or Seller’s IP Affiliate’s properties or
assets or (d) give rise to a declaration or imposition of any claim, lien,
charge, security interest or encumbrance of any nature whatsoever upon any of
the assets of the Seller or Seller’s IP Affiliate.


 


2.4                                 Taxes.  The Seller has paid or caused to be paid
within the time and in the manner prescribed by law all Federal, state and
local taxes of any type, including without limitation, income, franchise, gross
receipts, sales or property taxes, payable or due from and owed by the Seller
for all periods ending on or prior to the date hereof except for taxes which
are accrued but not yet due and payable. 
The Seller has collected all sales, use and value added taxes required
to be collected, and has remitted, or will remit on a timely basis, such
amounts to the appropriate governmental authorities and has furnished properly
completed exemption certificates for all exempt transactions.  None of the assets of the Seller are subject
to any liens in respect of taxes (other than for current taxes not yet due and
payable).


 


2.5                                 Fixed
Assets. The fixed assets set forth on Schedule 1.1(a) hereto are
in good operating condition and repair, normal wear and tear excepted, and are
adequate for the uses to which they are being put.  The fixed assets on Schedule 1.1(a) hereto
constitute substantially all of the fixed assets actually used by Seller in the
conduct of the Acquired Business (excepting for computer hardware and software,
racking and certain warehouse equipment) and, except for such excluded assets,
constitute all of the fixed assets needed to conduct such business in the
manner in which Seller is currently conducting the business.  None of such fixed assets is in need of
maintenance or repairs, except for ordinary, routine maintenance and repairs.


 


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2.6                                 Contracts.  Schedule 2.6 hereto contains a complete,
current and correct list of all material contracts, commitments, obligations or
agreements of the Seller, whether written or oral, formal or informal, relating
to the Acquired Business.  To the
knowledge of the Seller, all parties to such Contracts have fully performed all
obligations required to be performed on or prior to the date hereof, and no
event has occurred which would constitute a default (or any event which, with
the giving of notice or lapse of time or both, would constitute a default)
under any term or provision of any of the Contracts and thereby allow a party
thereto to terminate or claim damages therefor. 
Each of the Contracts is in full force and effect and is the legal,
valid and binding obligation of the Seller and, to the knowledge of the Seller,
of the other parties thereto, enforceable in accordance with its terms, except
as may be limited by bankruptcy, reorganization, insolvency, moratorium or
other laws relating to or affecting the enforcement of creditors’ rights and
remedies generally and except as enforcement may be limited by general
principles of equity.  Except as set
forth in Schedule 1.1(b), the Seller is not a party to any Contract that
restricts Seller, or after the Closing Date Buyer, from carrying on the
Acquired Business or any part thereof, or from competing in any line of
business with any person, corporation or entity, except for the non-compete
covenant of Seller under this Agreement.


 


2.7                                 Inventory.  All inventory of the Acquired Business, as of
July 2, 2005, whether constituting finished goods, work in progress or raw
material, is shown on Schedule 1.1(d). 
All of such inventory is usable and saleable in the ordinary course of
business within a reasonable period of time, subject to a reserve for inventory
reasonably anticipated to be or become excess or obsolete in an aggregate
amount shown on Schedule 1.1(d). 
The net inventory balances shown on Schedule 1.1(d) are stated
at amounts representing the lower of cost or market value.


 


2.8                                 Title
to Assets.  Except as set forth on Schedule 2.8,
Seller has good, valid and marketable title to all Purchased Assets, except
registered Intellectual Property as to which Seller’s IP Affiliate has good,
valid and marketable title.  Except as
set forth on Schedule 2.8, all such assets are free and clear of title
defects or objections, liens, claims, charges, pledges, security interests,
easements, title retention agreements or other encumbrances of any kind or
nature whatsoever, except for liens, taxes and assessments not yet due and
liens of landlords, warehousemen, mechanics and materialmen arising by law or
in the ordinary course of business that do not materially adversely affect the
Purchased Assets or the operation of the Acquired Business.


 


2.9                                 Financial
Statements. Seller has delivered to Buyer the following financial
statements of the Acquired Business, all of which are attached to this
Agreement as Schedule 2.9:  (i) unaudited
statements of operating results for the years ended December 31, 2003 and
2004 and balance sheets at December 31, 2003 and 2004, and (ii) an
unaudited balance sheet as of July 2, 2005, and statement of operating
results for the six (6) months then ended (all of such financial
statements are collectively referred to herein as the “Financial Statements”).  The Financial Statements (i) have been
prepared in conformity with generally accepted accounting principles
consistently applied with prior periods (except that footnotes have not been
prepared), and (ii) fairly present the financial condition and results of
operations of the Seller as of the dates and for the periods indicated therein.


 


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2.10                           Intellectual
Property.


 


(a)                                  Schedule 1.1(c) hereto
sets forth a complete list of all registered (and material unregistered)
trademarks, trade names, patents, patent applications and invention disclosures
which are presently used in the Acquired Business (the “Intellectual Property”).  Except as set forth on Schedule 1.1(c), (i) each
of the items of Intellectual Property is valid and registered in the name of
the Seller’ IP Affiliate on the Principal Register of the United States Patent
and Trademark Office and in the foreign countries indicated thereon or is
licensed by Seller under a valid and effective license arrangement, the
principal terms of which are described on Schedule 1.1(c), (ii) the
Seller has no knowledge of any infringement by others, (iii) to Seller’s
knowledge, the continued use of such items in the Acquired Business will not
result in any infringement of the rights of others, (iv) the Seller or
Seller’s IP Affiliate is the sole legal owner or licensee, as applicable, of
such items in all jurisdictions in which Seller uses, has used or plans to use
any such item and Seller has no knowledge of any claim by any other person that
such person is the legal owner or licensee of such item; and (v) neither
the Seller nor Seller’s IP Affiliate has granted any license or right to use
any Intellectual Property to any other person.


 


(b)                                 Except as set forth on Schedule 2.10, the
Intellectual Property and other items of proprietary intellectual property
listed or described on Schedule 1.1(c) constitute all such
intellectual property used by Seller in the conduct of the Acquired Business
and there is no other intellectual property of Seller, Seller’s IP Affiliate
or, to Seller’s knowledge, of a third party required to conduct the Acquired
Business in the manner in which it is now conducted or proposed to be conducted
by Seller.


 


(c)                                  Seller
has no knowledge of any infringement, illicit copying, misappropriation or
violation of any third party intellectual property rights that has occurred, or
would reasonably be expected to occur, with respect to Seller’s use of the
Intellectual Property.


 


(d)                                 There
are no material agreements requiring the Seller to make payments or provide any
consideration for, or restricting the Seller’s right to use, any intellectual
property rights of third parties in the Acquired Business other than licenses
disclosed on Schedule 1.1(c).


 


2.11                           Licenses
and Permits.  Schedule 2.11
attached hereto contains a complete, current and correct list of all
governmental licenses, including but not limited to clearances and approvals,
as applicable, granted by the U.S. Food and Drug Administration, permits,
franchises, rights and privileges, if any, necessary for or material to the
present conduct of the Acquired Business (the “Licenses”).  The Seller possesses all such Licenses, and
each of the Licenses is in full force and effect.  There are no pending or, to the best
knowledge of the Seller, threatened claims or proceedings challenging the
validity of or seeking to revoke or discontinue, any of the Licenses.


 


2.12                           Customer
and Supplier Relationships.  Schedule 2.12
identifies the customers and suppliers of the Acquired Business that transacted
at least $25,000 of business with Seller in 2004 and indicates the level of
business done with each such customer or supplier during the twelve months
ended June 30, 2005 and any commitments by Seller for purchases under any
such contracts amounting to at least $25,000 over the next twelve (12)
months.  Seller has delivered to Buyer
prior


 


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to the date hereof true
and correct copies of such contracts, including all schedules and exhibits
thereto, and no changes have been made or agreed to in any terms of such
contracts from the terms shown in the copies delivered to Buyer except as
described in Schedule 2.12.  Except
for the transaction contemplated by this Agreement, Seller has received no
notice nor is in possession of any actual knowledge which might reasonably
indicate that any of the current customers, subcontractors or suppliers of the
Acquired Business intends to cease retaining, purchasing from, selling to or
dealing with the Seller in the manner in which such transactions have
previously occurred, nor has the Seller received any notice or is in possession
of any actual knowledge which might reasonably lead it to believe that any
current client, customer, subcontractor or supplier of the Acquired Business
intends to alter in any material respect the amount of such retention,
purchases or sales or the extent of dealings with the Seller or would alter in
any material respect any such retention, purchases, sales or dealings in the
event of the consummation of the transactions contemplated hereby.   Seller is current and in full compliance in
all material respects with its obligations to its suppliers and subcontractors
of the Acquired Business.


 


2.13                           Compliance
With Laws.  Seller has conducted the
Acquired Business in compliance with, and is not in violation of, applicable
laws, statutes, ordinances, rules, regulations, orders and other requirements
of all national governmental authorities, and of all territories, states,
municipalities and other political subdivisions and agencies thereof, having
jurisdiction over the Seller and its business, including without limitation all
such laws, regulations, ordinances and requirements relating to insurance,
environment, antitrust, consumer protection, labor and employment, zoning and
land use, immigration, health, and occupational safety,  except where the failure to be in compliance
would not have a material adverse effect on the Acquired Business.  The Seller has not received any written
notification of any asserted present or past failure by Seller to comply with
any laws, statutes, ordinances, rules, regulations, orders or other
requirements, the failure of which would have a material adverse effect on the
assets or operations of the Acquired Business.


 


2.14                           Litigation.


 


(a)                                  Except
as set forth on Schedule 2.14, there is no pending or, to the best
knowledge of the Seller, threatened action, suit, arbitration proceeding,
investigation or inquiry before any court or governmental or administrative
body or agency, or any private arbitration tribunal, against, relating to or
affecting the Acquired Business, or the transactions contemplated by this
Agreement, nor to the best knowledge of the Seller, are there any facts or
circumstances which could reasonably lead to or provide the basis for any such
threatened action, suit, arbitration proceeding, investigation or inquiry.


 


(b)                                 There
is not in effect any order, judgment or decree of any court or governmental or
administrative body or agency enjoining, barring, suspending, prohibiting or
otherwise limiting Seller or any officer, director or employee of Seller from
conducting or engaging in any aspect of the Acquired Business, or requiring
Seller or any officer, director or employee of Seller to take certain action
with respect to any aspect of the Acquired Business.


 


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(c)                                  The
Seller is not in violation of or in default under any order, judgment, writ,
injunction or decree of any court or governmental or administrative body or
agency.


 


2.15                           Brokers
and Finders.  Other than Cleary
Oxford & Associates, Seller has not engaged or authorized any broker,
finder, investment banker or other third party to act on its behalf, directly
or indirectly, as a broker, finder, investment banker or in any other like
capacity in connection with this Agreement or the transactions contemplated
hereby, nor has Seller consented to or acquiesced in anyone so acting.


 


2.16                           Product
Liability and Warranties.  Schedule 2.16
sets forth the policies of product liability insurance maintained by Seller and
covering the products of the Acquired Business, including the insurer, policy
limits, deductibles and term.  Except as
set forth on Schedule 2.16, each product of the Acquired Business
designed, manufactured, sold, or delivered by the Seller has been produced and
sold in conformity in all material respects with all applicable contractual
commitments and all express and implied warranties. Seller does not have any
knowledge of the existence or of any liability (and, to the knowledge of the
Seller, there is no basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand giving rise to any
liability) for replacement or repair thereof or other damages in connection
therewith.  No product or service of the
Acquired Business designed, manufactured, sold, or delivered by the Seller is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale.


 


2.17                           Absence
of Certain Changes.   Since July 2, 2005, Seller has conducted
the Acquired Business in the ordinary course consistent with past practice and,
except as disclosed in Schedule 2.17, there has not been:


 


(a)                                  any event, occurrence or development of a
state of circumstances or facts relating to the Purchased Assets or the
Acquired Business which, individually or in the aggregate, has had or could
reasonably be expected to have a material adverse effect thereon;


 


(b)                                 any sale, lease, license or other
disposition of any assets or properties of the Acquired Business, other than in
the ordinary course of business consistent with past practices;


 


(c)                                  any creation or assumption by Seller of
any lien, encumbrance or other charge on any of the Purchased Assets;


 


(d)                                 any material condemnation, seizure,
damage, destruction or other casualty loss (whether or not covered by
insurance) affecting any of the Purchased Assets;


 


(e)                                  any material change or notice of pending
material change in the level or nature of business to be done with Seller by
any customer or supplier of the Acquired Business except for the transactions
contemplated by this Agreement;


 


(f)                                    any notice of default or any other claim,
allegation or other assertion that Seller has been or will be in breach or
violation of any provision of any contract, agreement or


 


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instrument
to which Seller is a party and which is included in the Purchased Assets or the
Assumed Liabilities; or


 


(g)                                 any change in accounting methods,
principles or practices.


 


ARTICLE 3


 


Representations and Warranties


of
Buyer


 


Buyer represents and warrants to the Seller as follows:


 


3.1                                 Organization
and Power.  Buyer is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate power and
authority to own, lease and operate its properties, and to carry on its
business, as such is now being conducted.


 


3.2                                 Authorization
and Enforceability of Agreements. 
Buyer has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder.  This Agreement has been duly executed and
delivered by Buyer and constitutes the legal, valid and binding obligation of
Buyer, enforceable in accordance with its terms, except as may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws relating to or
affecting the enforcement of creditors’ rights and remedies generally and
except as enforcement may be limited by general principles of equity.  This Agreement been duly and validly
authorized by and approved by all requisite corporate action on the part of
Buyer.  No further approvals or consents
by, or filings with, any federal, state, municipal, foreign or other court or
governmental or administrative body, agency or other third party is required in
connection with the execution and delivery by Buyer of this Agreement or the
consummation by Buyer of the transactions contemplated hereby, except for those
which, if not obtained, would not have a material adverse impact on the ability
of Buyer to execute and deliver this Agreement, or to consummate the
transactions contemplated hereby.


 


3.3                                 No
Conflicts.  Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (a) violate any provisions of the charter or
Bylaws of Buyer, (b) violate, or be in conflict with, or constitute a
default (or other event which, with the giving of notice or lapse of time or
both, would constitute a default) under, or give rise to any right of
termination, cancellation or acceleration under any of the terms, conditions or
provisions of any material lease, license, promissory note, contract,
agreement, mortgage, deed of trust or other instrument or document to which
Buyer is a party or by which Buyer or any of its properties or assets may be
bound, (c) violate any order, writ, injunction, decree, law, statute, rule or
regulation of any court or governmental authority applicable to Buyer or any of
its properties or assets or (d) give rise to a declaration or imposition
of any claim, lien, charge, security interest or encumbrance of any nature
whatsoever upon any of the assets of Buyer’s businesses.


 


3.4                                 Brokers
and Finders.  Buyer has not engaged
or authorized any broker, finder, investment banker or other third party to act
on behalf of Buyer, directly or indirectly, as a broker,


 


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finder, investment banker
or in any other like capacity in connection with this Agreement or the
transactions contemplated hereby, or consented to or acquiesced in anyone so
acting, and Buyer does not know of any claim for compensation from any such
broker, finder, investment banker or other third party for so acting on behalf
of Buyer or of any basis for such a claim.


 


ARTICLE 4


 


Closing



 


4.1                                 Closing.  The actions and deliveries described below in
this Article 4 shall be deemed the “Closing” of the transactions
contemplated by this Agreement and the date on which such actions and
deliveries occur shall be the “Closing Date”.


 


4.2                                 Actions
and Deliveries of Seller.  At the
Closing, Seller shall take the following actions and deliver the following
documents:


 


(a)                                  Closing
Certificate.  Seller shall deliver a
certificate, dated the Closing Date and signed by an authorized representative
of Seller, stating that each of the representations and warranties of Seller
contained in Article 2 hereof and in any schedule, exhibit or other
document delivered hereunder is true and correct in all material respects;


 


(b)                                 Assignment
and Assumption Agreement.  Seller
shall execute and deliver to Buyer an Assignment and Assumption Agreement in
such form and containing such terms and conditions as said parties shall agree
that assigns the Contracts to Buyer and provides for the assumption by Buyer of
the Assumed Liabilities, all as provided herein;


 


(c)                                  Bill
of Sale.  Seller shall execute and
deliver to Buyer a Bill of Sale in such form as the parties shall agree that
conveys all of Seller’s right, title and interest to the Purchased Assets to
Buyer as provided for in this Agreement;


 


(d)                                 Transition
Services Agreement.  Seller shall
execute and deliver a transition services agreement covering the provision of
certain services on behalf of Buyer for a period following the Closing in such
form as is mutually agreeable to the parties (“Transition Services Agreement”);


 


(e)                                  Consents.  Seller shall deliver, or have previously
delivered, such consents and approvals of third parties to the transactions
contemplated hereunder as the parties shall have mutually agreed;


 


(f)                                    Patent
and Trademark Assignments.  Seller’s
IP Affiliate shall execute and deliver to Buyer patent and trademark
assignments in such form as Buyer deems reasonably acceptable relating to the
patents and registered trademarks included within the Purchased Assets; and


 


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(g)                                 Absence
of Liens.  Seller shall deliver to
Buyer a UCC search report dated as of a recent date issued by the appropriate
state and county officials in Texas indicating that there are no filings under
the Uniform Commercial Code on file in such state or with such counties
indicating any lien on the Purchased Assets, except for (i) the liens
which Buyer has approved, in its sole discretion, and (ii) liens with
respect to which Seller has delivered releases duly executed by the lender or
other creditor which is the holder of such liens.


 


4.3                                 Actions
and Deliveries of Buyer.  At the
Closing, Buyer shall take the following actions and deliver the following
documents and consideration:


 


(a)                                  Closing
Certificate.  Buyer shall deliver a
certificate, dated the Closing Date and signed by an authorized officer of
Buyer, stating that each of the representations and warranties of Buyer
contained in Article 3 hereof and in any schedule, exhibit or other
document delivered hereunder is true and correct in all material respects;


 


(b)                                 Assignment
and Assumption Agreement.  Buyer
shall execute and deliver to Seller an Assignment and Assumption Agreement in
such form and containing such terms and conditions as said parties shall agree
that assigns the Contracts to Buyer and provides for the assumption by Buyer of
the Assumed Liabilities, all as provided herein;


 


(c)                                  Transition
Services Agreement.  Buyer shall execute and deliver the Transition
Services Agreement;


 


(d)                                 Purchase
Price.  Buyer shall deliver to Seller
by wire transfer the purchase price provided for in Section 1.2(a) hereof.


 


4.4                                 Simultaneous
Transactions.   All transactions to
be effectuated at the Closing shall be deemed to have taken place
simultaneously, and no such transaction shall be deemed to have been completed
until all transactions are completed and all documents delivered.


 


ARTICLE 5


 


Certain
other Covenants and Agreements


 


5.1                                 Consents
and Filings Each party shall use all commercially reasonable efforts to
obtain or make, as the case may be, as soon as possible, all filings and
requests for governmental approvals as may be required to be obtained or made
by it in order to enable such party to perform its obligations under this
Agreement.


 


5.2                                 Announcements.  No party will issue any press release or
otherwise make any other public statement with respect to the transactions
contemplated hereby without the prior written consent of the other party (which
consent shall not be unreasonably withheld or delayed), except as and to the
extent that such party determines in good faith that it is so obligated by law
or stock exchange rules, in which case such party shall give notice to the
other party in advance of such


 


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party’s intent to make such announcement or issue such
press release and the parties hereto shall use all reasonable efforts to cause
a mutually agreeable release or announcement to be issued.


 


5.3                                 Delivery
of Books and Records.  At the
Closing, Seller will deliver to Buyer the original or copies of all contracts,
books and records that are directly and solely related to the Purchased Assets
and Assumed Liabilities which are requested by Buyer.


 


5.4                                 Current
Inventory, Marketing Materials etc. 
Notwithstanding anything herein to the contrary, Buyer may, and may
permit Buyer’s sales representatives and distributors to, continue to sell the
items of Inventory purchased hereunder that bear the mark “Encore” and any
other marks not transferred to Buyer pursuant to Section 1.1(c) hereof
(the “Excluded Marks”) and to sell products produced from work in process
inventory and raw materials purchased hereunder that, as of the Closing, bear
the Excluded Marks, until the earlier of the exhaustion of such Inventory, work
in process and raw materials or six months after the Closing Date.  As soon as practicable, but no later than
ninety (90) days after the Closing, Buyer shall ensure that promotional or
marketing materials relating to the Acquired Business and existing on the
Closing Date that bear the Excluded Marks are either (i) destroyed, (ii) relabeled
to remove the Excluded Marks or (iii) labeled in a prominent fashion with
a notice in form satisfactory to the parties that the Acquired Business has
been sold to Buyer.


 


5.5                                 Cooperation
and Further Assurance.  After the
Closing, the parties shall cooperate in good faith to facilitate the transfer
of the Purchased Assets and the Acquired Business in the manner contemplated
hereunder with minimum disruption for the parties. Each party shall provide the
other such reasonable access to its books, records and employees as may be
required to carry out the purposes of this section 5.5.  In addition, each party will execute such
further documents and instruments as the other may reasonably request to
reflect the transactions contemplated hereunder and to vest in Buyer full title
to the Purchased Assets.


 


5.6                                 Transfer
Taxes.  All sales, use, transfer,
stamp, conveyance, or other similar taxes, duties, excises or governmental
charges imposed by any governmental authority, domestic or foreign, with
respect to the sale or transfer of the Purchased Assets shall be borne entirely
by Seller.


 


5.7                                 Transaction
Expenses.  Each party shall pay its
own expenses incident to preparing for, entering into and carrying out this
Agreement and the transactions contemplated hereby, whether or not the Closing
occurs.  Without limiting the foregoing,
Seller shall be solely responsible for the fees and costs of its broker, Cleary
Oxford & Associates.


 


5.8                                 Bulk
Sales.  Buyer hereby waives
compliance by Seller with the provisions of any applicable state bulk transfer
statutes and Seller covenants and agrees to pay and discharge when due all
undisputed claims of creditors asserted against Buyer or any affiliate thereof
by reason of any failure of Seller to comply, and to indemnify Buyer and any
affiliate thereof fully in respect thereof, which indemnity shall survive the
Closing and shall not be subject to the limitations of sections 6.1 and 6.4.


 


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5.9                                 Non-compete
Covenant.


 


(a)                                  In
consideration of the purchase price paid by Buyer hereunder and the other
covenants and agreements contained herein, Seller hereby agrees, for a period
of five (5) years following the Closing Date, that neither it nor any
direct or indirect subsidiary, parent or other company or business entity
affiliated with Seller (the “Encore Group”), shall disclose any confidential
information or trade secrets of the Acquired Business.


 


(b)                                 In
addition, for a period of five (5) years following the Closing Date (the “Non-Compete
Period”), Seller agrees that except as set forth in 5.9(c), neither it nor any
member of the Encore Group shall  engage,
directly or indirectly, in any business activity competitive with the Acquired
Business in the United States or anywhere else in the world.


 


(c)                                  Notwithstanding
the provisions of 5.9(b), excluded from the foregoing non-compete covenant are
the sale and distribution by members of the Encore Group of orthopedic soft
goods or related products manufactured or distributed by entities other than members
of the Encore Group which are competitive with the Acquired Business, (the “Excluded
Products”); provided, however, that the Encore Group shall not during the
Non-Compete Period, distribute, or seek to distribute, any such Excluded
Product through group purchasing organizations or through those third party
distributors identified on Schedule 5.9(c) attached hereto (the “Third
Party Distributors”) except in such cases as when the Excluded Products are
sold or offered to the group purchasing organizations or sold through the Third
Party Distributors for a non-acute care setting as part of a bundled group of
products where the anticipated sales volume of the Excluded Products to such
purchasers is expected to be no more than fifteen percent (15%) of the overall
value of the amounts to be sold in the bundled arrangement.


 


(d)                                 It
is specifically acknowledged that the product lines listed on Schedule 5.9(d) shall
be deemed to not be competitive with the Acquired Business.


 


(e)                                  Notwithstanding
the provisions hereof to the contrary, the parties acknowledge and agree that
the Encore Group shall not be precluded from (a) owning up to and
including five percent (5%) of the outstanding capital stock or other equity
interests of a publicly held entity which competes with the Acquired Business
or (b) owning an interest in excess of five percent (5%) of the
outstanding capital stock or other equity interests of any entity which
competes with the Acquired Business, but only if such interest is acquired (i) as
a creditor in bankruptcy or (ii) as part of the acquisition of another
business and Buyer consents to such acquisition or the Encore Group uses its
best efforts to immediately dispose of any such competing interest within six (6) months
from the date of such acquisition.


 


(f)                                    This
non-compete covenant and agreement shall be binding on Seller and its
successors and assigns. Seller’s obligations under this section 5.9 shall
survive the Closing and continue for the full duration of the five (5)-year
period mentioned above and shall not be subject to the limitations on liability
set forth in section 6.4 below.


 


5.10                           Other
Agreements.  Seller and Buyer agree,
with respect to Excluded Products that are currently manufactured by the
Acquired Business for distribution through other Encore Group sales


 


14





















 


channels outside of the
Acquired Business, that during the Non-Compete Period the parties shall
consider in good faith the possibility of Buyer supplying products for the EMPI
or Chattanooga product lines, or other business operations of Seller, which
Buyer has the capability of manufacturing. 
In addition, with respect to Excluded Products that are allowed to be
sold through group purchasing organizations or Third Party Distributors
pursuant to the provisions of 5.9(c), Buyer shall during the Non-Compete Period
be given a first opportunity to supply to Seller or other members of the Encore
Group such Excluded Products provided Buyer (i) can meet all of the price,
quality, timeliness and other reasonable requirements of such bundled sale and (ii) has
not been specifically excluded from supplying such products by action of the
group purchasing organization or Third Party Distributor.  Neither party shall be obligated in any
respect to enter into such supply arrangements.


 


5.11                           Returns.  Buyer is not acquiring or assuming Seller’s
liability for product returns relating to sales to customers occurring prior to
the Closing Date which arise due to damage-in-transit, short shipments, or product
warranty claims (collectively, the “Customary Returns”), or which Seller
allows, in its own discretion.  Seller,
therefore, agrees that with respect to any such product returns occurring on or
before the date that is four (4) months after the Closing Date that relate
to sales by Seller prior to the Closing Date, Seller shall be responsible and
shall reimburse Buyer (i) for the original invoiced amount on such returns
as to which the customer is not seeking a replacement product, or (ii) for
Buyer’s full cost of goods on any products shipped to such customer in
replacement of said returned product. 
During the four (4)-month period after the Closing Date, Buyer shall not
accept any returns other than Customary Returns unless authorized by Seller if
such returns would require Seller to compensate Buyer under the provisions of
this Section.  Seller shall pay Buyer
amounts required under this Section 5.11 within 30 days of Buyer’s invoice
to Seller for such amounts.


 


ARTICLE 6


 


Survival
of Representations, Warranties,


Covenants
and Related Agreements; Indemnification


 


6.1                                 Survivability
Period.  The warranties and
representations made by the Seller, or by Buyer, in this Agreement or in any
document, certificate, schedule or instrument delivered in connection
herewith shall survive the Closing and shall continue in effect,
notwithstanding any investigation by or on behalf of any party, for twelve (12)
months following the Closing, except that representations and warranties set
forth in Sections 2.4 and 2.8 shall survive the Closing in accordance with
applicable statute of limitations (the “Liability Period”).


 


6.2                                 Indemnity
by the Seller.  The Seller shall
indemnify, defend and hold harmless, Buyer and the officers, directors, agents,
affiliates and representatives of Buyer or any of them (the “Buyer Indemnitees”)
from and against, and shall reimburse the Buyer Indemnitees for any loss,
liability, damage or expense, including reasonable attorneys’ fees and costs of
investigation incurred as a result thereof, that the Buyer Indemnitees shall
incur or suffer (collectively “Buyer’s Recoverable Losses”), arising out of or
resulting from (a) any representation or warranty of Seller contained in Article 2
or in any document, certificate, schedule or instrument delivered by or on
behalf of the


 


15





















 


Seller pursuant hereto,
being untrue or inaccurate when made; (b) a breach or default by Seller of
or under any agreement or covenant under or pursuant to this Agreement; or (c) the
use or possession of the Purchased Assets, or the operation of the Acquired
Business, on or before the Closing Date (other than the Assumed Liabilities).


 


6.3                                 Indemnity
by Buyer.  Buyer shall indemnify,
defend and hold harmless the Seller and the officers, directors, agents,
affiliates and representatives of Seller or any of them (the “Seller
Indemnitees”) from and against, and shall reimburse the Seller Indemnitees for
any loss, liability, damage or expense, including reasonable attorneys’ fees
and cost of investigation incurred as a result thereof, that the Seller
Indemnities shall incur or suffer (collectively, “Seller’s Recoverable Losses”)
resulting from (a) any representation or warranty of Buyer contained in Article 3
or in any document, certificate, schedule or instrument delivered by or on
behalf of Buyer pursuant hereto, being untrue or inaccurate when made; (b) a
breach or default by Buyer of or under any agreement or covenant under or
pursuant to this Agreement; or (c) the use or possession of the Purchased
Assets, or the operation of the Acquired Business, after the Closing Date.


 


6.4                                 Limitations
on Liability.  Seller shall not be
obligated for Buyer’s Recoverable Losses under section 6.2(a) above
unless and until such loss, individually, or in the aggregate, shall have
exceeded Twenty-Five Thousand Dollars ($25,000), in which case such liability
shall be for all amounts in excess thereof. Additionally, Seller shall not be
obligated for Buyer’s Recoverable Losses under section 6.2(a) above
to the extent such losses exceed $10,000,000 in the aggregate.


 


6.5                                 Claims
for Indemnification; Disputes


 


(a)                                  Claims
for Indemnification.  Any party
hereto shall give Seller or Buyer, as the case may be (the “Indemnitor”),
written notice (the “Claim Notice”) of any claim (including the receipt of any
demand) or the commencement of any action with respect to which indemnity may
be sought (the “Claim” or the “Claims). 
The Claim Notice shall state (i) the aggregate amount of Buyer’s
Recoverable Losses or Seller’s Recoverable Losses (in either case, “Recoverable
Losses”) as to which indemnification is being sought (which amount may be
estimated and updated from time to time), (ii) the components of the
amount of Recoverable Losses for which indemnification is being sought (which
components may be estimated and updated from time to time); and (iii) the
specific grounds upon which the Claim for indemnification is being made.  The right to indemnification for a Claim
shall be deemed to be accepted by the Indemnitor unless, within 30 days after
the Indemnitor’s receipt of the Claim Notice, the Indemnitor shall notify the
claimant in writing that it objects to the right to indemnification with
respect to the Claim.


 


(b)                                 Resolution
of Disputes.  The parties shall
undertake in good faith to have their representatives promptly meet and attempt
to resolve all disputes regarding indemnification.  If the parties are unable to resolve such
disputes within 45 days, the resolution of the disputes shall be referred to
and settled by binding arbitration before a single arbitrator to be held in San
Diego, California, if arbitration is sought by Seller, or in Austin, Texas, if
arbitration is sought by Buyer, and conducted in accordance with the then
current Commercial Arbitration Rules of the American Arbitration
Association.  The parties agree that
arbitration under this Section 6.5(b) shall be the exclusive means of
resolving disputes hereunder and that the arbitrator shall have the authority
to


 


16





















 


require money damages or
issue injunctions in connection with such arbitrations.  Judgment upon the award may be entered in any
court of competent jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement, as the case may
be.  The successful or prevailing party
shall be entitled to recover all attorneys’ fees, expert witness fees and other
costs incurred in such action, in addition to any other relief to which it may
be entitled.


 


ARTICLE 7


 


General
Provisions


 


7.1                                 Entire
Agreement; Modifications; Waiver. 
This Agreement and the agreements ancillary hereto, supersede any and
all agreements heretofore made, written or oral, relating to the subject matter
hereof, and constitute the entire agreement of the parties relating to the
subject matter hereof.  This Agreement
may be amended only by an instrument in writing signed by Buyer and
Seller.  Inspection of documents or the
receipt of information pursuant to this Agreement shall not constitute a waiver
of any representation, warranty, covenant or condition hereunder.  No waiver shall be binding unless executed in
writing by the party making such waiver.


 


7.2                                 Severability.  If any clause or provision of this Agreement
shall be held invalid or unenforceable by the final determination of a court of
competent jurisdiction, and all appeals therefrom shall have failed or the time
for such appeals shall have expired, such clause or provision shall be deemed
eliminated from this Agreement but the remaining provisions shall nevertheless
be given full force and effect.


 


7.3                                 Successors
and Assigns.  Neither party hereto
may assign or transfer all or a portion of its rights or obligations under this
Agreement without the prior written consent of the other party.  Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of each of the parties hereto,
and their respective successors and assigns.


 


7.4                                 Counterparts.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.


 


7.5                                 Governing
Law.  This Agreement shall be
construed and interpreted in accordance with the internal substantive laws of
the State of Texas.


 


7.6                                 Notices.  All notices required or desired to be given
hereunder shall be given in writing and signed by the party so giving notice,
and shall be effective when personally delivered, one business day after
transmission if sent by facsimile or other overnight delivery service and
appropriate confirmation is received, or five (5) days after being
deposited in the United States mail, as certified or registered mail, return
receipt requested, first class postage and fees prepaid, addressed as set forth
below.  Any party from time to time may
change such party’s address for giving notice by giving notice thereof in the
manner outlined above:


 


17





















 


If to Buyer:


 


dj Orthopedics, LLC


2985 Scott Street


Vista, California 92081


Attention:                                         Donald
M. Roberts


Facsimile:                                            (760)
734-3566


 


If to the Seller:


 


Encore Medical, L.P.


9800 Metric Boulevard


Austin, Texas 78758


Attention:                                         Harry
Zimmerman


Facsimile:                                            (512)
834-6310


 


7.7                                 Recitals,
Schedules and Exhibits.  The
recitals, schedules and exhibits to this Agreement are incorporated herein and,
by this reference, made a part hereof as if fully set forth at length herein.


 


7.8                                 Section Headings.  The section headings used herein are
inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.


 


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


 


	
   

  	
  DJ ORTHOPEDICS, LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
    /s/ Donald
  M. Roberts

  	
   

  
	
   

  	
   

  	
  Name:

  	
    Donald M. Roberts

  	
   

  
	
   

  	
   

  	
  Title:

  	
      Senior
  VP and General Counsel

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ENCORE MEDICAL L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Encore Medical GP, Inc.,
  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: 

  	
  /s/
  Harry L. Zimmerman

  	
   

  
	
   

  	
   

  	
  Name:

  	
    Harry L.
  Zimmerman

  	
   

  
	
   

  	
   

  	
  Title:

  	
      Executive
  Vice President-General Counsel

  	
   

  
											



 


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