Exhibit 10.2


 


FORM OF NONSTATUTORY STOCK OPTION AGREEMENT


 


This AGREEMENT (this “Agreement”) is made as
of             ,
2006 by and between Encore Medical Corporation, a Delaware corporation (the “Company”),
and [              ]
(“Optionee”) to become effective at the effective time, as defined in Section
1.1 of the Merger Agreement (the “Effective Time”). As a condition precedent to
the Company’s grant of the Option (as defined in Section 2 of this Agreement)
to Optionee, Optionee is executing and delivering a counterpart of the
Stockholders Agreement and thereby agrees to be bound by the Stockholders’
Agreement.


 


1.                                       Certain Definitions. Capitalized
terms used, but not otherwise defined, in this Agreement will have the meanings
given to such terms in the Company’s 2006 Stock Incentive Plan (the “Plan”). As
used in this Agreement:


 


(a)                                  “Code”
means the Internal Revenue Code of 1986, as amended.


 


(b)                                 “Company”
has the meaning specified in the introductory paragraph of this Agreement; provided,
that to the extent that any class of equity securities of a member of the
Company’s controlled group becomes publicly traded on an established securities
market, the term “Company” shall be deemed to refer to such publicly traded
entity.


 


(c)                                  “Compensation
Committee” means the Executive Compensation Committee of the Board.


 


(d)                                 “Disability”
shall have the meaning set forth in the Optionee’s employment agreement with
the Company or, if there is no employment agreement, it shall mean the Optionee
is disabled as determined under Section 409A(a)(2)(C) of the Code.


 


(e)                                  “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.


 


(f)                                    “Effective
Time” has the meaning specified in the introductory paragraph of this
Agreement.


 


(g)                                 “Fair
Market Value” has the meaning specified in the Plan, except as expressly set
forth herein.


 


(h)                                 “First
Performance-Based Tranche” has the meaning specified in Section 2 of this
Agreement.


 


 





















 


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


 


(x)                                   increased,
without duplication, by


 


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


 


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


 


(iii)          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


 


(iv)                              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,


 


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


 


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


 


(vii)                           minority
interest expense, and


 


(viii)        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).


 


(j)                                     “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 date of this Agreement, and to the
extent that alternative accounting treatments are permissible within those
accounting principles, in accordance with the Company’s historical accounting
policies.


 


(k)                                  “Grand
Slam” shall mean Grand Slam Holdings, LLC, a Delaware limited liability
company.


 


 


2

















 


(l)                                     “Good
Reason” shall have the meaning set forth in the Optionee’s employment agreement
with the Company or, if there is no employment agreement, it shall mean,
without an Optionee’s consent, (i) a material reduction in the Optionee’s
compensation below the amount of compensation in effect on the date of this
Agreement, or (ii) a material reduction in the Optionee’s duties or authority,
in each case which is not cured within thirty (30) days following the Company’s
or its subsidiary’s, as applicable, receipt of written notice from such
Optionee describing the event constituting Good Reason.


 


(m)                               “IRR”
shall mean the Company’s annually compounded internal rate of return, based on
(i) the Company’s independent auditor’s appraisal of the per share value
of the Company as of each anniversary of the Closing, in the case of
determining the IRR performance goal, and (ii) on the applicable sale
price in the case of a Change in Control, assuming the Company is valued on a
going-concern basis as though it were a publicly traded company with reasonable
liquidity and without a controlling shareholder, and taking into account all
dividends, distributions and other proceeds received by Grand Slam, but
excluding any fees paid to Blackstone pursuant to that certain Monitoring
Agreement by and between the Company and Blackstone dated November 3,
2006, or any successor thereto, and based upon the assumption that all shares
available for or subject to award under the Plan are outstanding shares of
Company common stock.


 


(n)                                 “Merger
Agreement” means the Agreement and Plan of Merger dated June 30, 2006 by
and among Grand Slam, Grand Slam Acquisition Corporation, a Delaware
corporation, and Encore Medical Corporation.


 


(o)                                 “Option”
has the meaning specified in Section 2 of this Agreement.


 


(p)                                 “Optionee”
has the meaning specified in the introductory paragraph of this Agreement.


 


(q)                                 “Option
Price” has the meaning specified in Section 2 of this Agreement.


 


(r)                                    “Option
Shares” has the meaning specified in Section 2 of this Agreement.


 


(s)                                  “Performance
Period” shall mean the five-year period commencing
January 1, 2007 and ending December 31, 2011.


 


(t)                                    “Plan”
has the meaning specified in Section 1 of this Agreement.


 


(u)                                 “Second
Performance-Based Tranche” has the meaning specified in Section 2 of this
Agreement.


 


(v)                                 “Stockholders’
Agreement” shall mean that certain Management Stockholders Agreement between
Optionee, the Company, and such other persons and entities listed therein,
dated November 3, 2006.


 


(w)                               “Termination
for Cause” means the termination by the Company of Optionee’s employment with
the Company for “cause” as defined in the employment agreement between the
Company and the Optionee or, if there is no employment agreement, the
termination 


 


 


3

















 


by the Company of Optionee’s employment as a
result of (A) Optionee’s willful and continued failure to substantially
perform Optionee’s duties (other than any such failure resulting from Optionee’s
Disability or any such failure subsequent to Optionee being delivered notice of
the Company’s intent to terminate Optionee’s employment without Cause)
following written notice by the Company to Optionee which specifically
identifies such failure and Optionee not curing such failure within thirty (30)
days following receipt of such notice (for
the avoidance of doubt, unsatisfactory performance by the Optionee of his duties shall not be deemed to be a
failure to substantially perform),
(B) conviction of, or a plea of nolo  contendere to, (x) a
felony (other than traffic-related) under the laws of the United States or any
state thereof or any similar criminal act in a jurisdiction outside the United
States or (y) a crime involving moral turpitude that could be injurious to the
Company or its reputation, (C) Optionee’s willful malfeasance or willful
misconduct which is materially and demonstrably injurious to the Company, or
(D) any act of fraud by Optionee in the performance of Optionee’s duties. For
purpose of the definition of Termination for Cause set forth above, no act or
failure to act shall be considered “willful” unless done or omitted to be done
by Optionee in bad faith or without reasonable belief that Optionee’s action
was in the best interests of the Company and its affiliates. Any act, or
failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board shall be conclusively presumed to be done, or omitted to
be done, by Optionee in good faith and in the best interests of the Company.


 


(x)                                   “Third
Performance-Based Tranche” has the meaning specified in Section 2 of this
Agreement.


 


2.                                       Grant of Stock Option. Subject to
and upon the terms, conditions, and restrictions set forth in this Agreement
and in the Plan, the Company hereby grants to Optionee an option (the “Option”)
to purchase          shares of the
Company’s common stock (the “Option Shares”) at a price (the “Option Price”) of
$        per share, which is the Fair Market
Value per share on the Effective Date. The Option may be exercised from time to
time in accordance with the terms of this Agreement. Subject to adjustment as
hereinafter provided, (a) one-fourth of the Option Shares (        
shares) constitute, and may be purchased pursuant to the provisions of the “Time-Based
Tranche”, (b) one-fourth of the Option Shares (        
shares) constitute and may be purchased pursuant to the provisions of the First
Performance-Based Tranche, (c) one-fourth of the Option Shares (        
shares) constitute and may be purchased pursuant to the provisions of the
Second Performance-Based Tranche and (d) one-fourth of the Option Shares (        
shares) constitute and may be purchased pursuant to the provisions of the Third
Performance-Based Tranche.


 


3.                                       Term of Option. The term of the Option
shall commence at the Effective Time and, unless earlier terminated in
accordance with Section 7 hereof, shall expire ten (10) years from the
Effective Time.


 


4.                                       Right to Exercise. Unless
terminated as hereinafter provided, the Option shall become exercisable only as
follows:


 


(a)                                  The
Option shall become exercisable with respect to 20% of the Time-Based Tranche (       
shares) on the first anniversary of the Effective Time and an additional 1/60
of the Time-Based Tranche on each monthly anniversary thereafter if Optionee 


 


4

















 


remains in the continuous employ of the
Company, any Subsidiary or Affiliate as of each such date.


 


(b)                                 The
Optionee may earn the right to exercise the option to purchase 20% of the First
Performance-Based Tranche (       shares) on each
December 31 of the Performance Period, provided, that (i)
Optionee shall have remained in the continuous employ of the Company, any
Subsidiary or Affiliate as of each such date, and (ii) the Company shall have
achieved certain specified annual performance targets for both EBITDA and Free
Cash Flow, as such terms are defined herein, and as such targets are attached
hereto as Attachment A. Except as set forth in Section 4(e), below, any
shares included in the First Performance-Based Tranche as to which Optionee
does not earn the right to exercise the related Option Shares shall thereupon
expire and terminate; provided, however, that notwithstanding
anything in this sentence to the contrary, Options under the First
Performance-Based Tranche may also vest and become exercisable on a “catch-up”
basis, such that in any subsequent fiscal year during the Performance Period if
(i) the cumulative actual performance for prior years for the First
Performance-Based Tranche equals or exceeds cumulative annual performance
targets for the First Performance-Based Tranche for such years, and (ii) the
relevant performance targets were achieved in at least fifty percent of the
completed years within the Performance Period, then all prior First
Performance-Based Tranche Options to which such performance targets applied and
which did not previously vest shall also vest and become exercisable.


 


(c)                                  The
Optionee may earn the right to exercise the option to purchase 20% of the Second
Performance-Based Tranche (        shares)
on each December 31 during the Performance Period, provided, that
(i) the Optionee shall have remained in the continuous employ of the Company,
any Subsidiary or Affiliate as of each such date, and (ii) the Company shall
have achieved certain specified annual performance targets for both EBITDA and
Free Cash Flow, as such terms are defined herein, and as such targets are
attached hereto as Attachment B. Except as set forth in Section 4(e),
below, any shares included in the Second Performance-Based Tranche as to which
Optionee does not earn the right to exercise the related Option Shares shall
thereupon expire and terminate; provided, however, that
notwithstanding anything in this sentence to the contrary, Options under the
Second Performance-Based Tranche may also vest and become exercisable on a “catch-up”
basis, such that in any subsequent fiscal year if (i) the cumulative actual
performance for prior years for the Second Performance-Based Tranche equals or
exceeds cumulative annual performance targets for the Second Performance-Based
Tranche for such years, and (ii) the relevant performance targets were achieved
in at least fifty percent of the completed years within the Performance Period,
then all prior Second Performance-Based Tranche Options to which such
performance targets applied and which did not previously vest shall also vest
and become exercisable.


 


(d)                                 The
Optionee may earn the right to exercise the option to purchase 20% of the Third
Performance-Based Tranche (        
shares) on each December 31 during the Performance Period, provided, that
(i) the Optionee shall have remained in the continuous employ of the Company,
any Subsidiary or Affiliate as of each such date, and (ii) the Company shall
have achieved specified annual performance targets for IRR, as such term is
defined herein, and as such targets are attached hereto as Attachment C. Except
as set forth in Section 4(e), below, any shares included in the Third
Performance-Based Tranche as to which Optionee does not earn the right to
exercise the related Option shares shall thereupon expire and terminate; 


 


 


5

















 


provided,
however, the Options represented by the Third Performance-Based Tranche
may also vest and become exercisable on a “catch-up” basis, such that if (i) in
any subsequent fiscal years the IRR performance goal is achieved, and (ii) the
relevant IRR performance goals were achieved in at least fifty percent of the
completed years within the Performance period, all prior Options in the Third
Performance-Based Tranche which did not previously vest shall also vest and
become exercisable. Notwithstanding the first sentence of this Section 4(d), if
Grand Slam sells its entire interest in the Company through a public vehicle
prior to the vesting or forfeiture of the Third Performance-Based Tranche,
other than upon a Change in Control, the following provisions will apply:


 


(i)                                     If the sale
achieves both (x) an IRR of at least 221⁄2% and (y) a return on investment to
Grand Slam of at least two (2) times its initial investment from the closing of
the acquisition of the Company under and pursuant to the Merger Agreement (the “Investment”)
through the date of the sale, as determined by the Company’s accountants
(collectively the “Condition”), then the Third Performance-Based Tranche
Options, to the extent not vested for the years elapsed within the Performance
Period, will be added to the Time-Based Tranche and will vest contingent upon
the Optionee’s continued employment with the Company or any Subsidiary on a
pro-rata monthly or annual basis, as would then normally be applicable to the
Time-Based Tranche, through the remainder of the years within the Performance
Period; or


 


(ii)                                  If the Condition is
not achieved upon such sale, then the Third Performance-Based Tranche options,
to the extent not vested for the years elapsed within the Performance Period,
will be split equally and added into the First and Second Performance-Based
Tranche Options, respectively, and will vest contingent upon the criteria and
other conditions applicable to those First and Second Performance-Based Tranche
Options for the remainder of the Performance Period.


 


(e)                                  Notwithstanding
the foregoing, (i) the Option Shares of the Time-Based Tranche granted hereby
shall become immediately exercisable upon the occurrence of a Change in Control
if Optionee remains in the continuous employ of the Company or any Subsidiary
until the date of the consummation of such Change in Control, (ii) the Option
Shares of the First Performance-Based Tranche granted hereby shall become
immediately exercisable upon the occurrence of a Change in Control if the
Optionee remains in the continuous employ of the Company or any Subsidiary
until the date of consummation of such Change in Control and the performance
targets applicable for such Tranche were achieved in (x) at least fifty percent
of the completed years that have elapsed in the Performance Period prior to or
upon the Change in Control and (y) the last completed year of the Performance
Period at the time of the Change in Control, (iii) the Option shares of
the Second Performance-Based Tranche granted hereby shall become immediately
exercisable upon the occurrence of a Change in Control if Optionee remains in the
continuous employ of the Company or any Subsidiary until the date of
consummation of such Change in Control and the performance goals for such
Tranche were 


 


 


6

















 


achieved in (x) at least fifty percent of the
completed years that have elapsed in the Performance Period prior to or upon
the Change in Control and (y) the last completed year of the Performance Period
at the time of the Change in Control, and (iv) the Option Shares of the Third
Performance-Based Tranche granted hereby shall become immediately exercisable
upon the occurrence of a Change in Control if Optionee remains in the
continuous employ of the Company or any Subsidiary until the date of such
Change in Control and (x) Grand Slam has received at least a two times return
on its Investment from the Effective Date through the Change in Control, as
determined by the Company’s accountants and (y) the IRR performance goal
specified on Attachment C has been achieved for the portion of the Performance
Period that has elapsed prior to the Change in Control.


 


(f)                                    Notwithstanding anything herein to the
contrary, if Optionee is on an approved leave of absence, as provided in the
last paragraph of Section 7 hereof, Optionee will be considered as still in
continuous employ of the Company, a Subsidiary or an Affiliate for purposes of
this Plan.


 


(g)                                 Optionee
shall be entitled to the privileges of ownership with respect to Option shares
purchased and delivered to Optionee upon the exercise of all or part of this Option,
subject to Section 8 hereof.


 


5.                                       Option Nontransferable. Optionee
may not transfer or assign all or any part of the Option other than by will or
by the laws of descent and distribution. This Option may be exercised, during
the lifetime of Optionee, only by Optionee, or in the event of Optionee’s legal
incapacity, by Optionee’s guardian or legal representative acting on behalf of
Optionee in a fiduciary capacity under state law and court supervision. Notwithstanding
anything herein to the contrary, Optionee may transfer or assign all or any
part of the Option to “family members” (as defined in the General Instructions
to Form S-8 of the Securities Act of 1933) or trusts, partnerships or similar
entities for the benefit of such family members, for estate planning purposes
or in connection with the disposition of Optionee’s estate.


 


6.                                       Notice of Exercise; Payment.


 


(a)                                  To
the extent then exercisable, the Option may be exercised in whole or in part by
written notice to the Company stating the number of Option Shares for which the
Option is being exercised and the intended manner of payment. The date of such
notice shall be the exercise date. Payment equal to the aggregate Option Price
of the Option Shares being purchased pursuant to an exercise of the Option must
be tendered in full with the notice of exercise to the Company in one or a
combination of the following methods as specified by Optionee in the notice of
exercise:  (i) cash in the form of
currency or check or by wire transfer as directed by the Company, (ii) solely following an IPO in Shares
otherwise being traded on an established securities market, through the
surrender to the Company of Shares owned by Optionee for at least six months as
valued at their Fair Market Value on the date of exercise, (iii) through net
exercise, using Shares to be acquired upon exercise of the Option, such Shares
being valued at their Fair Market Value (which for such purpose shall have the
meaning set forth in the Stockholders’ Agreement) on the date of exercise, or
(iv) through such other form of consideration as is deemed acceptable by the
Board.


 


 


7

















 


(b)                                 As
soon as practicable upon the Company’s receipt of Optionee’s notice of exercise
and payment, the Company shall direct the due issuance of the Option Shares so
purchased.


 


(c)                                  As
a further condition precedent to the exercise of this Option in whole or in
part, Optionee shall comply with all regulations and the requirements of any
regulatory authority having control of, or supervision over, the issuance of
the shares of common stock
and in connection therewith shall execute any documents which the Board shall
in its sole discretion deem necessary or advisable.


 


7.                                       Termination of Agreement. The
Agreement and the Option granted hereby shall terminate automatically and
without further notice on the earliest of the following dates:


 


(a)                                  After
Optionee’s termination due to Optionee’s death or Disability, all unvested
Time-Based Options will be forfeited immediately, and all vested Options from
any Tranche shall remain exercisable until the lesser of (i) one (1) year
following the Optionee’s date of termination or (ii) the remaining term of the
Option; provided, however, that it shall be a condition to the
exercise of the Option in the event of Optionee’s death that the Person
exercising the Option shall (i) have agreed in a form satisfactory to the
Company to be bound by the provisions of this Agreement and the Stockholders
Agreement and (ii) comply with all regulations and the requirements of any
regulatory authority having control of, or supervision over, the issuance of
the shares of common stock
and in connection therewith shall execute any documents which the Board shall
in its sole discretion deem necessary or advisable. Unvested Options from the
First, Second and Third Performance-Based Tranches shall remain outstanding for
the twelve (12) month period following the date of such termination by reason
of death or Disability. To the extent applicable performance targets are achieved,
or a Change in Control occurs, within such twelve (12) month period following
the date of termination due to Optionee’s death or Disability (each, a “Post-Termination
Vesting Event”), the appropriate number of Options will vest as of such
Post-Termination Vesting Event, and remain exercisable for twelve (12) months
following such Post-Termination Vesting Event (but not beyond the remaining
term of the Option). On the twelve (12) month anniversary of the date of
termination of employment by reason of death or Disability, all remaining
unvested options from the First, Second and Third Performance-Based Tranches
will be forfeited;


 


(b)                                 After
Optionee’s termination by the Company without Cause or by the Optionee for Good
Reason, all unvested Time-Based Option will be forfeited immediately, and all
vested Options from any Tranche shall remain exercisable until the lesser of
(i) ninety (90) calendar days following the Optionee’s date of termination or
(ii) the remaining term of the Option. Unvested options from the First, Second
and Third Performance-Based Tranches shall remain outstanding for the twelve
(12) month period following the date of such termination by reason of
termination by the Company without Cause or by the Optionee for Good Reason. To
the extent a Post-Termination Vesting Event occurs within such twelve (12)
month period, the appropriate number of Options will vest as of such
Post-Termination Vesting Event, and remain exercisable for ninety (90) calendar
days following such Post-Termination Vesting Event (but not beyond the
remaining term of the Option). On the twelve (12) month anniversary of the date
of termination of employment by reason of termination by the Company without
Cause or by the 


 


 


8

















 


Executive with Good Reason, all remaining
unvested options from the First, Second and Third Performance-Based Tranches
will be forfeited;


 


(c)                                  The
date of Optionee’s Termination for Cause, upon which all vested and unvested
Options will be forfeited immediately and terminate;


 


(d)                                 After
Optionee’s termination without Good Reason, all unvested options will be
forfeited immediately, and all vested Options from any Tranche shall remain
exercisable until the lesser of (i) ninety (90) calendar days following the
Optionee’s date of termination or (ii) the remaining term of the Option; or


 


(e)                                  Ten
(10) years from the Effective Time.


 


Notwithstanding the foregoing, in all
termination events other than a termination of the Optionee’s employment for
Cause, if the last day to exercise vested Options occurs after the date on
which the Company’s common stock is publicly traded on a national stock
exchange and during a lock-up period or securities law blackout period, the
otherwise applicable post-termination Option exercise period shall continue,
but not beyond the remaining term of the Option, until thirty (30) calendar
days after the first day when the terminating Optionee is no longer precluded
from selling stock acquired upon exercise of Options for either of such reasons.
Notwithstanding anything to the contrary herein, nothing herein shall prohibit
the Optionee from exercising his or her vested Options through net exercise,
using Shares to be acquired upon exercise of the Option, during any lock-up or
securities law blackout period to the extent not prohibited by law.


 


In the event that Optionee’s employment is
terminated in the circumstances described in Section 7(c) hereof, this
Agreement shall terminate at the time of such termination notwithstanding any
other provision of this Agreement and Optionee’s Option will cease to be
exercisable to the extent exercisable as of such termination and will not be or
become exercisable after such termination. Optionee shall be deemed to be an
employee of the Company or any Subsidiary if on a leave of absence approved in
writing by the Board or the Chief Executive Officer of the Company to the
extent consistent with Section 409A of the Code.


 


8.                                       Stockholders Agreement. Optionee
agrees that any Option Shares that Optionee receives pursuant to this Agreement
or under the Plan are subject to the terms and conditions set forth in the
Stockholders Agreement.


 


9.                                       Initial Public Offering. Option
Shares acquired on exercise of any Option will be subject to the terms and
conditions of the Stockholders’ Agreement.


 


10.                                 No
Employment Contract. Nothing contained in this Agreement shall
(a) confer upon Optionee any right to be employed by or remain employed by the
Company or any Subsidiary, or (b) limit or affect in any manner the right of the
Company or any Subsidiary to terminate the employment or adjust the
compensation of Optionee.


 


11.                                 Dividend
Equivalents. Upon the payment of any ordinary or extraordinary
cash dividend (or similar distributions) to holders of Company common stock,
the Optionee will be credited with dividend equivalent rights with respect to
the Options as follows. Dividend 


 


 


9

















 


equivalents
relating to vested Options shall be paid to the Optionee in cash at the same
time dividends are paid to holders of Company common stock. Dividend
equivalents relating to unvested Options will be credited to a notional account
maintained on the books of the Company for the benefit of the Optionee, which
account shall not accrue interest. The Optionee will become vested in such
account at the same time as the Options to which the dividend equivalents
relate vest and become exercisable, and such vested amounts shall be payable in
cash upon the applicable vesting date, and in no event later than 2 1⁄2 months
following the end of the calendar year in which the applicable vesting date
occurs. Unvested amounts held in such account shall be forfeited by the
Optionee upon the date of any termination of employment; provided, however,
that if such termination results in the continuation of unvested Options from
the First, Second and Third Performance-Based Tranches, as provided in Sections
7(a) and 7(b), above, forfeiture of dividend equivalents shall be delayed until
the twelve (12) month anniversary of such termination, and to the extent that
any Options vest during such 12-month period, such related dividend equivalents
shall also vest and be paid to the Executive in cash on the twelve (12) month
anniversary of such termination or, if the Options are forfeited, such related
dividend equivalents shall also be forfeited.


 


12.                                 Taxes and
Withholding. The Company or any Subsidiary may withhold, or
require Optionee to remit to the Company or any Subsidiary, an amount
sufficient to satisfy federal, state, local or foreign taxes (including the
Optionee’s FICA obligation) in connection with any payment made or benefit
realized by Optionee or other person under this Agreement or otherwise, and if
the amounts available to the Company or any Subsidiary for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that Optionee or such other person make
arrangements satisfactory to the Company or any Subsidiary for payment of the
balance of such taxes required to be withheld. Optionee may elect to have such withholding obligation
satisfied by surrendering to the Company or any Subsidiary a portion of the
Option Shares that are issued or transferred to Optionee upon the exercise of
an Option (but only to the extent of the minimum withholding required by law),
and the Option Shares so surrendered by Optionee shall be credited against any
such withholding obligation at the Fair Market Value (which for such
purpose shall have the meaning set forth in the Stockholders’ Agreement) of such Shares on the
date of such surrender.


 


13.                                 Compliance with Law. The Company
shall make reasonable efforts to comply with all applicable federal and state
securities laws; provided, however, that notwithstanding any
other provision of this Agreement, the Option shall not be exercisable if the
exercise thereof would result in a violation of any such law.


 


14.                                 Adjustments.


 


(a)                                  The
Board shall make or provide for such substitution or adjustments in the number
of Option Shares covered by this Option, in the Option Price applicable to such
Option, and in the kind of shares covered thereby and/or such other equitable
substitution or adjustments as the Board may determine to prevent dilution or
enlargement of Optionee’s rights that otherwise would result from (a) any stock
dividend, extraordinary cash-dividend, stock split, combination of shares,
recapitalization, or other change in the capital structure of the Company, (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reclassification, reorganization, partial or complete liquidation, or other
distribution of assets or issuance of rights 


 


 


10

















 


or warrants to purchase securities, or (c)
any other corporate transaction or event having an effect similar to any of the
foregoing. In the case of a Change in Control, such substitutions and
adjustments include, without limitation, canceling any and all Options in
exchange for cash payments equal to the excess, if any, of the value of the
consideration paid to a shareholder of an Option Share over the Option Price
per share subject to such Option in connection with such an adjustment event.


 


(b)                                 To
the extent that any equity securities of any member of the Company’s controlled
group become publicly traded, at such time all Options shall be exchanged, in a
manner consistent with Section 409A and 424 of the Code, for options with the
same intrinsic value in the publicly-traded entity, and all Shares shall be
exchanged for shares of common stock with the same aggregate value of the
publicly-traded entity.


 


15.                                 Relation to Other Benefits. Any
economic or other benefit to Optionee under this Agreement shall not be taken
into account in determining any benefits to which Optionee may be entitled
under any profit-sharing, retirement or other benefit or compensation plan
maintained by the Company or any Subsidiary and shall not affect the amount of
any life insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Company or any Subsidiary.


 


16.                                 Amendments. Any amendment to the
Plan shall be deemed to be an amendment to this Agreement to the extent that
the amendment is applicable hereto; provided, however, that no amendment shall
adversely affect the rights of Optionee under this Agreement without Optionee’s
prior written consent.


 


17.                                 Severability. If one or more of the
provisions of this Agreement is invalidated for any reason by a court of
competent jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof
shall continue to be valid and fully enforceable.


 


18.                                 Relation to Plan. This Agreement is
subject to the terms and conditions of the Plan. In the event of any
inconsistent provisions between this Agreement and the Plan, the Plan shall
govern. The Board acting pursuant to the Plan, as constituted from time to
time, shall, except as expressly provided otherwise herein, have the right to
determine any questions which arise in connection with the Option or its
exercise.


 


19.                                 Successors and Assigns. The
provisions of this Agreement shall inure to the benefit of, and be binding
upon, the successors, administrators, heirs, legal representatives and assigns
of Optionee, and the successors and assigns of the Company.


 


20.                                 Governing Law. The interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of Delaware, without giving effect to the principles of conflict of
laws thereof and all parties, including their successors and assigns, consent
to the jurisdiction of the state and federal courts of Delaware.


 


21.                                 Prior Agreement. As of the
Effective Time, this Agreement supersedes any and all prior and/or
contemporaneous agreements, either oral or in writing, between the parties
hereto, or between either or both of the parties hereto and the Company, with
respect to the 


 


 


11

















 


subject matter
hereof. Each party to this Agreement acknowledges that no representations,
inducements, promises, or other agreements, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, pertaining to the
subject matter hereof, which are not embodied herein, and that no prior and/or
contemporaneous agreement, statement or promise pertaining to the subject
matter hereof that is not contained in this Agreement shall be valid or binding
on either party.


 


22.                                 Notices. For all purposes of this
Agreement, all communications, including without limitation notices, consents,
requests or approvals, required or permitted to be given hereunder will be in
writing and will be deemed to have been duly given when hand delivered or
dispatched by electronic facsimile transmission (with receipt thereof
confirmed), or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid, or
three business days after having been sent by a nationally recognized overnight
courier service such as Federal Express, UPS, or Purolator, addressed to the
Company (to the attention of the Secretary of the Company) at its principal
executive offices and to Optionee at his principal residence, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.


 


23.                                 Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an original
but all of which together will constitute one and the same agreement.


 


 


12

















 


IN WITNESS WHEREOF, the Company has caused
this Agreement to be executed on its behalf by its duly authorized officer and
Optionee has executed this Agreement, as of the day and year first above
written.


 


	
   

  	
  ENCORE MEDICAL CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name & Title

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OPTIONEE

  
	
   

  	
  Name:

  
					



 


 


13