Exhibit 10.23


 


ENCORE MEDICAL
CORPORATION


ANNUAL BONUS PLAN


 


ENCORE MEDICAL CORPORATION (the “Company”) hereby
establishes this ENCORE MEDICAL CORPORATION ANNUAL BONUS PLAN (the “Plan”) as
of this 3rd day of November, 2006, in accordance with the terms provided
herein.


 


Section 1. Bonus Purposes. The
Company’s main purposes in establishing the Bonus Plan are to maintain a
competitive level of compensation and to align the interests of the Company’s
employees with those of the Company’s shareholders and with the strategic
objectives of the Company.


 


Section 2. Effective Date. The
effective date of this Plan is November 3, 2006. The Plan will remain in effect
from year to year through 2011 and until the payment of any benefits earned for
such year (each calendar year shall be referred to herein as a “Plan Year”)
until formally amended or terminated in accordance with Section 11.


 


Section 3. Eligibility. Each
of the senior executive officers of the Company who are specified on Schedule A
shall participate in the Plan. Each Plan participant shall be notified in
writing of their participation and given a Plan document for their reference.


 


Section 4. Administration of the
Plan. The Compensation Committee of the Board of Directors of the Company
(the “Committee”) shall administer the Plan. The Committee has responsibility
for all aspects of Plan administration, including interpreting and construing
the Plan, approving and notifying Plan participants, ruling on any disagreement
between Plan Participants, the Company, and any other interested parties, and
maintaining final authority to modify or terminate the Plan. The interpretation
and construction by the Committee of any provisions of the Plan shall be final.
No member of the Committee shall be liable for any action or determination made
in good faith on the Plan. The Committee may, in its discretion, designate
another party to administer the Plan.


 


Section 5. Bonus amounts. The
following bonus amounts shall be administered under the Plan:


 


•                  Target Bonus Amount;


•                  Supplemental Bonus Amount; and


•                  Retention Bonus Amount.


 


Section 6. Definitions. The
following provides the definition of certain terms, as are used in the Plan:


 


(a)                                  “Cause” shall have the meaning set forth in the individual
participant’s Employment Agreement with the Company.


 


(b)                                 “Disability” shall have the meaning set forth in the
individual participant’s Employment Agreement with the Company.


 


(c)                                  “EBITDA” shall mean “Consolidated EBITDA”, as defined in
that certain Credit Agreement dated as of November 3, 2006 among Encore Medical
Finance, LLC, as Borrower, Encore Medical Holdings, LLC, Bank Of America, N.A.,
as Administrative Agent, Swing Line Lender and L/C Issuer, The Other Lenders
Party Hereto, Credit Suisse Securities (USA) LLC, as Syndication Agent, General


 

















 


Electric Capital
Corporation, as Documentation Agent, and Banc Of America Securities LLC and
Credit Suisse Securities (USA) LLC, as Lead Arrangers and Book Runners.


 


(d)                                 “Free Cash Flow” shall mean cash flow from operations as
presented in the statement of cash flows


 


(x)                                   increased,
without duplication, by


 


(1)                                  cash
payments for interest expense on borrowed money,


 


(2)                                  the
cash tax cost incurred with respect to interest income and


 


(3)           cash flows from
discontinued operations to the extent that such amounts are not reflected as a
source of cash from operations in the statement of cash flows, and


 


(y)                                 decreased,
without duplication, by


 


(1)                                  uses
of cash reflected as investing activities, excluding purchases of held to
maturity securities, and excluding amounts expended on acquisitions of
businesses, assets or product lines from third parties,


 


(2)                                  cash
received for interest income on invested cash or cash equivalents,


 


(3)                                  the
cash tax benefit realized during the period with respect to interest expense on
borrowed money and stock based compensation,


 


(4)                                  minority
interest expense, and


 


(5)           uses of cash from
discontinued operations to the extent that such amounts are not included as a
use of cash from operations in the statement of cash flows.


 


For purposes of
calculating Free Cash Flow, all amounts will be determined in accordance with
GAAP, will consider changes in outstanding checks to be an operating cash flow
and will exclude the effects of any sources or uses of cash outside the
ordinary course of business (e.g., receivable financing).


 


(e)                                  “GAAP” shall mean accounting principles generally accepted
in the United States of America as applicable to the Company, subject to
regulation by the Securities and Exchange Commission as in effect on the effective
date of the Plan, and to the extent that alternative accounting treatments are
permissible within those accounting principles, in accordance with the Company’s
historical accounting policies.


 


(f)                                    “Good Reason” shall have the meaning set forth in the
individual participant’s Employment Agreement with the Company.


 


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Section 7. Determination of Bonus
Amounts.


 


(a)                                  Target
Bonus Amount. For each Plan Year from 2007 through 2011, a participant
shall be eligible to earn a Target Bonus Amount equal to 67% of the participant’s
base salary in effect during such Plan Year, calculated on a weighted average
monthly basis using the base salary in effect on the first day of each month,
contingent upon (i) the satisfaction of the Free Cash Flow and EBITDA targets
for such Plan Year specified on Schedule B, as determined by the Committee, and
(ii) the Participant’s continued employment with the Company through the
specified payment date for such Target Bonus Amount.


 


(b)                                 Supplemental
Bonus Amount. For each Plan Year from 2007 through 2011, a participant
shall be eligible to earn a Supplemental Bonus Amount equal to 100% of the
participant’s base salary in effect during such Plan Year, calculated on a
weighted average monthly basis using the base salary in effect on the first day
of each month, contingent upon (i) the satisfaction of the Free Cash Flow and
EBITDA targets for such Plan Year specified on Schedule C, as determined by the
Committee, and (ii) the participant’s continued employment with the Company
through the specified payment date for such Supplemental Bonus Amount.


 


(c)                                  Retention
Bonus Amount. Each participant shall be eligible to receive a Retention
Bonus Amount in the amount specified in the participant’s notice of
participation, provided that such Retention Bonus Amount must be repaid to the
Company if the participant’s employment with the Company is terminated prior to
January 1, 2008, other than by reason of a termination by the Company without
Cause, by the participant for Good Reason, or as a result of the participant’s
death or Disability.


 


Section 8. Payments. No bonus
amount shall be earned and a participant shall have no vested interest or
entitlement to any bonus amount hereunder prior to its actual payment.


 


(a)                                  Target
Bonus Amount and Supplemental Bonus Amount. The Target Bonus Amount and the
Supplemental Bonus Amount, if earned, shall be paid in cash to a participant. Payments
shall be made within 21⁄2 months following the end of a Plan Year. In the event
that a participant’s employment is terminated as a result of the participant’s
death or Disability prior to any specified payment date for the Target Bonus
Amount or Supplemental Bonus Amount, the participant shall be deemed to be
employed through the specified payment date for all purposes hereunder and
shall be entitled to the Target Bonus Amount or Supplemental Bonus Amount at
the same time it is paid to other Plan participants.


 


(b)                                 Retention
Bonus Amount. The Retention Bonus Amount shall be paid in cash to the
participant upon the closing of the transactions contemplated in that certain
Agreement and Plan of Merger by and among Grand Slam Holdings, LLC, Grand Slam
Acquisitions Corp. and the Company, dated as of June 30, 2006. As a condition to
payment, the participant shall agree in writing that such amount, if subject to
repayment under Section 7(c), may be withheld from any amounts otherwise due to
a participant, including without limitation salary, upon a participant’s
separation from service with the Company; provided, however, that repayment at
the time of separation from service shall be limited to the net after-tax
portion of the Retention Bonus Amount that was originally received by the
participant, and the balance of the Retention Bonus Amount shall be repaid at


 


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the time the
participant receives a refund of the taxes paid with respect to the Retention
Bonus Amount.


 


Section 9. No Rights to
Employment. Nothing in the Plan shall confer any right on any employee to
continue in the employ of the Company. Except as may be provided in an
agreement with the participant or as otherwise provided herein, in the event
that a participant’s employment is terminated for any reason prior to payment
of a Target Bonus Amount or Supplemental Bonus Amount, such Target Bonus Amount
and Supplemental Bonus Amount shall not be earned and shall be forfeited by the
participant without any further action required by the Company. Except as
provided in Section 7(c), in the event that a participant’s employment is
terminated for any reason prior to payment of a Retention Bonus Amount, such
bonus amount shall not be earned and shall be forfeited by the participant
without any further action required by the Company.


 


Section 10. Amendment or Termination of this Plan. The
Company shall have the right to amend or terminate the Plan at any time by
written action approved by the Committee; provided, however, no such amendment
may reduce the bonus opportunity or adversely affect the targets provided
herein through 2011 or the payment of any such amounts earned, except with
respect to amendments that are necessary to comply with applicable law, rule or
regulation. The Company shall notify affected employees in writing of any amendment
or Plan termination.


 


Section 11. Successors. In addition
to any obligations imposed by law upon a successor to the Company, the Company
shall require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the assets of the
Company to expressly assume the Plan and agree to perform obligations hereunder
in the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.


 


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