Exhibit 10.5


 


AMENDMENT TO EMPLOYMENT AGREEMENT


 


THIS AMENDMENT
TO EMPLOYMENT AGREEMENT (this “Amendment”) is made the 3rd day of November,
2006, by and between ENCORE MEDICAL CORPORATION, a Delaware corporation, with
its principal office located at 9800 Metric Boulevard, Austin, Texas 78758 (the
“Company”) and KENNETH W. DAVIDSON, an individual residing at 24107 Highway 71,
Spicewood, TX 78669 (the “Employee”).


 


WHEREAS, the
Employee and the Company entered into an Employment Agreement dated
October 1, 2003 (the “Agreement”), which ended on September 30, 2006; and


 


WHEREAS, the
Employee and the Company desire to amend the Agreement to: (i) extend the
initial term of the Agreement, (ii) provide that the Agreement shall
automatically renew for successive one-year periods after the expiration of the
initial term, unless notice of non-renewal is provided, (iii) provide for an
annual increase of at least five percent (5%) in the Employee’s base salary,
(iv) describe certain bonus and equity awards to be provided to the Employee,
(v) set forth certain benefits provided to the Employee upon termination of
employment with the Company, and (vi) add certain additional provisions, all to
the benefit of the Employee; and


 


WHEREAS, the
Employee and the Company agree and acknowledge that neither this Amendment, its
implementation or the operation thereof will constitute “Good Reason” within
the meaning of, or otherwise result in any right to payments to Employee under
that certain Change of Control Severance Agreement dated May 27, 2005
between the Employee and the Company (the “Severance Agreement”); and


 


WHEREAS, the
Employee and the Company desire to memorialize in this Amendment their
agreements regarding such changes to the Agreement; and


 


WHEREAS,  pursuant to Section 4.7 of the Agreement, the Agreement may
be amended or modified in writing by the parties; and


 


WHEREAS, the
recitals set forth above are hereby incorporated into and made a part of this
Amendment.


 


NOW,
THEREFORE, in consideration of the premises and other mutual promises and
covenants contained in this Amendment and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties, intending to be legally bound, hereby amend the Agreement as follows:


 


1.                                       Section
1.1 (Employment Term) is amended and restated in its entirety to read as
follows:


 


1.1                                 Employment
Term. The Company hereby employs the Employee for a primary term commencing
on the date set forth above and, subject to earlier termination as provided in Section
1.5 hereof, ending December 31, 2009 (the “Initial Term”); provided that the term will be renewed for successive
one-year periods (each, a “Renewal Term” and together with the Initial
Term, the “Employment Term”) unless either party gives written notice to
the other of its intent not to renew at least one hundred eighty (180) days
prior to the expiration of the Initial Term or Renewal Term then in effect, as
applicable, on the terms and subject to the conditions set forth in this
Agreement. Employee agrees to accept such employment and to perform the
services specified herein, all upon the terms and conditions hereinafter
stated.


 


 

















 


2.                                       The
second sentence of Section 1.4.1 (Salary) shall be replaced with the following:


 


The Base
Salary shall be subject to review on no less than an annual basis and, for
reviews occurring on or after November 3, 2006, Employee shall be entitled to
at least a five percent (5%) increase in Employee’s Base Salary on each annual
review.


 


3.                                       Section
1.4.4 (Bonus Program) shall be applicable only to fiscal years ending on or
before December 31, 2006 and, beginning in 2007, bonus opportunities shall be
provided in accordance with Section 1.4.5 of the Agreement.


 


4.                                       Section
1.4 (Compensation) is amended by adding the following sections at the end
thereof:


 


1.4.5                        Bonus.  With
respect to each calendar year during the Employment Term beginning in 2007,
Employee shall be eligible to earn (i) an annual bonus award (an “Annual Bonus”)
targeted at sixty-seven percent (67%) of Employee’s Base Salary (the “Annual
Bonus Opportunity”), based only upon the achievement of objective performance
targets of the Company established by the Company and contingent upon Employee’s
continued employment through the specified payment date, and (ii) a supplemental
bonus award (a “Supplemental Bonus”) targeted at one hundred percent (100%) of
Employee’s Base Salary (the “Supplemental Bonus Opportunity”), based only upon
the achievement of objective stretch incentive targets of the Company
established by the Company, and contingent upon Employee’s continued employment
with the Company through the specified payment date. The Annual Bonus and
Supplemental Bonus shall be paid no later than two and one-half (21⁄2) months
following the end of the calendar year to which such bonuses relate.


 


1.4.6                        Equity Awards. On the
closing date of the merger of the Company with Grand Slam Acquisition Corp.
pursuant to that certain Merger Agreement dated June 30, 2006 by and among the
Company, Grand Slam Holdings LLC and Merger Sub, the Company shall grant
Employee an amount of stock options to purchase common stock of the Company
(the “Initial Stock Option Grant”) under the Encore Medical Corporation 2006
Stock Incentive Plan (the “Stock Plan”) as may be adopted on such date. The amount
of such stock options shall be determined by the Chief Executive Officer of the
Company in his reasonable discretion. The terms and conditions of such stock
option grants shall be as set forth in the Stock Plan and such time-based and
performance-based stock option award agreements as are set forth for other
senior executives of the Company.


 


5.                                       Section
1.5 (Termination) is amended and restated in its entirety to read as follows:


 


1.5                                 Termination


 


The Employment
Term and Employee’s employment hereunder may be terminated by either party at
any time and for any reason; provided that each party will be required to give
the other party at least thirty (30) days advance written notice of any such
termination.  Notwithstanding any other provision of this Agreement, the
provisions of this Section 1.5 and the stock option award agreements shall
exclusively govern Employee’s rights upon termination of employment with the
Company and its affiliates.


 


1.5.1                        By the
Company For Cause or By Employee Resignation Without Good Reason.


 


(a)                                  The
Employment Term and Employee’s employment hereunder may be terminated by the
Company for Cause (as defined in Section 1.5.1(b) below) and 


 


 


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shall terminate automatically upon Employee’s
resignation without Good Reason (as defined in Section 1.5.3(b) below).


 


(b)                                 For
purposes of this Agreement, “Cause” shall mean (i) Employee’s willful and
continued failure to substantially perform Employee’s duties hereunder (other
than any such failure resulting from Employee’s Disability or any such failure
subsequent to Employee being delivered notice of the Company’s intent to
terminate Employee’s employment without Cause or delivering to the Company a
notice of Employee’s intent to terminate for Good Reason) following written
notice by the Company to Employee which specifically identifies such failure
and Employee not curing such failure within thirty (30) days following receipt
of such notice (for the avoidance of
doubt, unsatisfactory performance by the Employee of his duties shall not be
deemed to be a failure to substantially perform), (ii) 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, (iii) Employee’s willful malfeasance or willful misconduct which is
materially and demonstrably injurious to the Company, (iv) any act of fraud by Employee in the performance of Employee’s duties hereunder, or (v) Employee’s material breach of the
provisions of Articles 2 and 3 of this Agreement. For purpose of the definition
of Cause set forth above, no act or failure to act shall be considered “willful”
unless done or omitted to be done by Employee
in bad faith or without reasonable belief that Employee’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 of directors of the Company (the “Board”)
shall be conclusively presumed to be done, or omitted to be done, by Employee in good faith and in the best
interests of the Company.


 


(c)                                  If
Employee’s employment is terminated by the Company for Cause, or if Employee
resigns without Good Reason, Employee (or his dependents or beneficiaries, as
applicable) shall be entitled to receive:


 


(i)                                     the
Base Salary through the date of termination in a lump sum payment, to be paid
on the tenth (10th) business day following such termination;


 


(ii)                                  reimbursement
for any unreimbursed business expenses properly incurred by Employee in
accordance with Company policy prior to the date of Employee’s termination in a
lump sum payment, to be paid on the tenth (10th) business day
following such termination;


 


(iii)                               any
earned but unpaid Annual Bonus and Supplemental Bonus with respect to the most
recently completed calendar year prior to the date on which such termination
occurs, in each case, to be paid no later than two and one-half (21⁄2) months
following the end of such calendar year;


 


(iv)                              any
accrued and unused vacation pay in a lump sum payment, to be paid on the tenth
(10th) business day following such termination; and


 


(v)                                 such
employee benefits, if any, as to which Employee (or his dependents or
beneficiaries, as applicable) may be entitled under the employee benefit plans
of the Company or its affiliates pursuant to the terms of such plans (the amounts
described in clauses (i) through (v) above being referred to as the “Accrued
Rights”).


 


 


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Following such termination of Employee’s
employment by the Company for Cause or resignation by Employee without Good
Reason, except as set forth in this Section 1.5.1(c) and any stock option
award agreements or otherwise required by law, Employee shall have no further
rights to any compensation or any other benefits under this Agreement.


 


1.5.2                        Disability
or Death.


 


(a)                                  The
Employment Term and Employee’s employment hereunder shall terminate upon
Employee’s death and may be terminated by the Company if Employee becomes
physically or mentally incapacitated and is therefore unable for a period of
six (6) consecutive months or for an aggregate of nine (9) months in any
eighteen (18) consecutive month period to perform Employee’s duties with
reasonable accommodation (such incapacity is hereinafter referred to as “Disability”).


 


(b)                                 Upon
termination of Employee’s employment hereunder for either Disability or death,
Employee or Employee’s estate, dependents or beneficiaries, as applicable,
shall be entitled to receive the Accrued Rights.


 


Following
Employee’s termination of employment due to death or Disability, except as set
forth in this Section 1.5.2(b) and any stock option award agreements or
otherwise required by law, Employee shall have no further rights to any
compensation or any other benefits under this Agreement.


 


1.5.3                        By the
Company Without Cause or Resignation by Employee for Good Reason.


 


(a)                                  The
Employment Term and Employee’s employment hereunder may be terminated by the
Company without Cause or by Employee’s resignation for Good Reason. Notwithstanding
anything to the contrary herein, written notice of intent not to renew or any
failure to renew the Initial Term or any Renewal Term shall not constitute
either a termination by the Company without Cause or a basis for the Employee
to terminate for Good Reason.


 


(b)                                 For
purposes of this Agreement, “Good Reason” shall mean (i) any reduction in
Employee’s Base Salary, Annual Bonus Opportunity, Supplemental Bonus
Opportunity or any material employee benefits, (ii) any substantial diminution
in Employee’s position or duties, adverse change in reporting lines or assignment
of duties materially inconsistent with Employee’s position (other than in
connection with an increase in responsibility or a promotion), including but
not limited to no longer reporting to the Board of Directors of the Company,
its successor or its ultimate parent company in connection with a corporate
transaction, (iii) a failure on the part of the Company to grant or cause to be
granted to Employee any of the Equity Awards set forth in Section 1.4.6 herein,
(iv) any material failure on the part of the Company to comply with and satisfy
the terms of Sections 1.4.1, 1.4.2, 1.4.3 and 1.4.5 of this Agreement, or (v) the Company requiring the Employee to be
based at any office location other than the Company’s executive offices in the
Austin, Texas SMSA, except for travel reasonably required in the performance of
the Employee’s responsibilities; provided that the events
described in (i), (ii), (iii), (iv) or (v) above shall constitute Good Reason
only if the Company fails to cure such event within thirty (30) days after
receipt from Employee of written notice of the event which constitutes Good
Reason.


 


(c)                                  If
Employee’s employment is terminated by the Company without Cause (other than by
reason of death or Disability) or if Employee resigns for Good Reason, Employee
(or his dependents or beneficiaries, as applicable) shall be entitled to
receive:


 


 


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(i)                                     the
Accrued Rights; provided, that, for purposes of this subparagraph 1.5.3(c)(i),
the Accrued Rights shall be deemed to include the amount set forth in
subparagraph 1.5.1(c)(iii) if the Employee remained employed by the
Company for the entire calendar year for which the bonus amounts were
applicable, regardless of whether the amount was “earned” pursuant to the
Annual Bonus Plan;


 


(ii)                                  a
lump sum, to be paid on the tenth (10th) business day after such
termination, equal to the sum of: (i) the most recent Annual Bonus, if any,
awarded to Employee, or, if such termination occurs in 2006 or 2007, then the
Annual Bonus Opportunity and (ii) the most recent Supplemental Bonus, if any,
awarded to Employee, or, if such termination occurs in 2006 or 2007, then the
Supplemental Bonus Opportunity; and


 


(iii)                               subject
to Employee’s continued compliance with the provisions of Articles 2 and 3
herein, continued payment of the Base Salary, payable in regular installments
in accordance with the Company’s usual payment practices, until twelve (12) months  after the date
of such termination; provided, that the aggregate amount described in clauses
(ii) and (iii) shall be reduced by the present value of any other cash
severance payable to Employee under any other plans, programs or arrangements
of the Company or its affiliates other than the Severance Agreement; provided,
further that the amounts described in clauses (ii) and (iii) shall be
considered “similar payments” to those described in Sections 2(b)(i) and (ii)
of the Severance Agreement, for the purpose of avoiding duplication thereof.


 


Following
Employee’s termination of employment by the Company without Cause (other than
by reason of Employee’s death or Disability) or by Employee’s resignation for
Good Reason, except as set forth in this Section 1.5.3(c) and any stock option
award agreements or otherwise required by law, Employee shall have no further
rights to any compensation or any other benefits under this Agreement.


 


1.5.4                        Notice of Termination.  Any purported termination of
employment by the Company or by Employee (other than due to Employee’s death)
shall be communicated by written Notice of Termination to the other party
hereto in accordance with Section 4.1 hereof.  For purposes of this
Agreement, a “Notice of Termination” shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of employment under the provision so indicated.


 


6.                                       Article
4 (Miscellaneous) is amended by adding the following new sections at the end
thereof to read as follows:


 


4.8                                 Tax Matters; Golden
Parachute.


 


(a)                                  Section 4.8(b) shall
apply if, and only if the Employee does not receive any payments or benefits
under the Severance Agreement; provided, further, in no event shall Section
4.8(b) duplicate any payment or benefit otherwise provided under the Severance
Agreement.


 


(b)                                 Subject to Section
4.8(a), in the event it shall be determined that any payment or benefit to
Employee by the Company, any affiliate of the Company, any person who acquires ownership
or effective control of the Company or ownership of a substantial portion of
the Company assets (within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the “Code”), and the regulations thereunder) or any
affiliate of such Person (the “Change in Control Payments”), is or will 


 


 


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be subject to
the excise tax imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are collectively referred to as the “Excise Tax”),
then  Employee shall be entitled to
receive an additional payment (a “280G Reimbursement Payment”) in an
amount such that after payment by Employee of all taxes (including any interest
or penalties imposed with respect to such taxes), including any income tax,
employment tax or Excise Tax, imposed upon the 280G Reimbursement Payment,
Employee retains an amount of the 280G Reimbursement Payment equal to the Excise
Tax imposed upon the Change in Control Payments. The 280G Reimbursement Payment
shall be paid on the thirtieth (30th) day from the date that Employee is deemed
to have “excess parachute payments” as defined in Section 280G of the Code. All
mathematical determinations, and all determinations as to whether any of the
Change in Control Payments are “parachute payments” (within the meaning of
Section 280G of the Code), that are required to be made hereunder, including
determinations as to whether a 280G Reimbursement Payment is required and the
amount of such 280G Reimbursement Payment shall be made by the Company’s
accounting firm (the “Accounting Firm”), which shall provide its
determination (the “Determination”), together with detailed supporting
calculations regarding the amount of any 280G Reimbursement Payment and any
other relevant matter, both to the Company and Employee by no later than ten
(10) days following the date of employment termination or, if applicable, such
earlier time as is requested by the Company or Employee (if Employee reasonably
believes that any of the Change in Control Payments may be subject to the
Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by
Employee, it shall furnish Employee and the Company with an opinion reasonably
acceptable to Employee and the Company that no Excise Tax is payable (including
the reasons therefor) and that Employee has substantial authority not to report
any Excise Tax on his federal income tax return. Any determination by the
Accounting Firm shall be binding upon the Company and Employee, absent manifest
error. As a result of uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that 280G Reimbursement Payments not made by the Company should
have been made (“Underpayment”), or that 280G Reimbursement Payments
will have been made by the Company which should not have been made (“Overpayments”).
In either such event, the Accounting Firm shall determine the amount of the
Underpayment or Overpayment that has occurred. In the case of an Underpayment,
the amount of such Underpayment (together with any interest and penalties
payable by Employee as a result of such Underpayment) shall be promptly paid by
the Company to or for the benefit of Employee. In the case of an Overpayment,
Employee shall, at the direction and expense of the Company, take such steps as
are reasonably necessary (including the filing of returns and claims for
refund), follow reasonable instructions from, and procedures established by,
the Company, and otherwise reasonably cooperate with the Company to correct
such Overpayment, provided, however, that (i) Employee shall not in any
event be obligated to return to the Company an amount greater than the net
after-tax portion of the Overpayment that he has retained or has recovered as a
refund from the applicable taxing authorities and (ii) if a 280G
Reimbursement Payment is determined to be payable, this provision shall be interpreted
in a manner consistent with an intent to make Employee whole, on an after-tax
basis, from the application of the Excise Tax, it being understood that the
correction of an Overpayment may result in Employee repaying to the Company an
amount which is less than the Overpayment. The cost of the Accounting Firm in
connection with any such Determination shall be paid by the Company.


 


4.9                                 No Set Off, No
Mitigation, No Offset. The Company’s obligation to pay Employee the amounts
provided and to make the arrangements provided hereunder shall not be subject
to set-off, counterclaim or recoupment of amounts owed by Employee to the
Company or its affiliates other than any amounts as may be owed by Employee
with respect to the Retention Bonus Amount under the Company’s Annual Bonus
Plan. Employee shall not be required to mitigate the amount of any payment
provided for 


 


 


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pursuant to
this Agreement nor shall the amount be reduced on account of any payments
received by Employee from any other party.


 


4.10                           Indemnification. The
Company and its successors and/or assigns will indemnify, hold harmless, and
defend Employee to the fullest extent permitted by applicable law with respect
to any claims that may be brought against Employee arising out of or related to
any action taken or not taken in Employee’s capacity as an employee, officer or
director of the Company or any of its affiliates, including, without
limitation, the advancement of legal fees and expenses, as such fees and
expenses are incurred by Employee. In addition, Employee shall be covered, in
respect of Employee’s activities as an officer or director of the Company or
any of its subsidiaries, by the Company’s (or any of its subsidiaries’)
Directors and Officers liability policy or other comparable policies, if any,
obtained by the Company’s (or any of its subsidiaries’) successors, to the
fullest extent permitted by such policies.


 


4.11                           Dispute Resolution. Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in Austin, Texas under the
Employment Dispute Resolution Rules of the American Arbitration Association (“AAA”)
then currently in effect, as modified herein. Arbitration proceedings shall take
place in Austin, Texas, before a single neutral arbitrator who shall be a
lawyer. The arbitrator’s award shall be final and judgment may be entered upon
such award by a court of competent jurisdiction. This arbitration procedure
will be governed by the Federal Arbitration Act as will any actions to compel,
enforce or vacate proceedings, awards, orders of the arbitration or settlement
under this procedure. Each party shall
be responsible for and directly pay its own fees and expenses of counsel and
other experts retained in connection with such dispute or controversy, on a
current basis as they may be incurred.


 


In all other
respects, the provisions of the Agreement are hereby ratified and confirmed,
and they shall continue in full force and effect. The Employee acknowledges and
agrees that the changes provided in this Amendment, their implementation and
the operation thereof shall not constitute “Good Reason” as defined in the
Severance Agreement, or otherwise result in any rights to payments to Employee under
such Severance Agreement.


 


 


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IN WITNESS
WHEREOF, the Company has caused this Amendment to be executed by its duly
authorized officer and the Employee has hereto set his/her hand as of the date
and year first above written.


 


	
   

  	
   

  	
  COMPANY:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ENCORE MEDICAL CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Harry L. Zimmerman

  
	
   

  	
   

  	
  Harry L.
  Zimmerman, Executive Vice President and 

  General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Kenneth W. Davidson

  
	
   

  	
   

  	
  KENNETH W. DAVIDSON

  



 


 


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