Document:

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                                                                   EXHIBIT 10.35

                             EMPLOYMENT AGREEMENT
                             --------------------

     THIS EMPLOYMENT AGREEMENT (this "Agreement") made and effective as of the
1/st/ day of October, 2000, by and between ENCORE MEDICAL CORPORATION, a
Delaware corporation (the "Company"), and KENNETH W. DAVIDSON (the "Employee").

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

                                   ARTICLE 1
                                  EMPLOYMENT

     1.1   Employment Term. The Company hereby employs the Employee for a
           ---------------
primary term commencing on the date set forth above and, subject to earlier
termination as provided in Section 1.5 hereof, ending December 31, 2003 (the
"Employment Term"). Employee agrees to accept such employment and to perform the
services specified herein, all upon the terms and conditions hereinafter stated.

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

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

     1.4   Compensation
           ------------

           1.4.1  Salary. The Company shall pay to the Employee a base salary at
                  ------
a rate of not less than Two Hundred Thousand Dollars ($200,000) per year, or at
such greater rate as the Board of Directors of the Company shall from time to
time determine (the "Base Salary"). The Base Salary shall be subject to review
on no less than an annual basis, beginning January 1, 2001. Such salary is to be
payable in installments in accordance with the payroll policies of the Company
in effect from time to time during the Employment Term.

           1.4.2  Other Benefits. The Employee shall be entitled to such
                  --------------
vacation days, sick days, insurance and other fringe benefit programs (including
pension, profit-sharing, bonus and stock plans, if any) as are established for
all other executive employees of the Company, on the same basis as such other
employees are entitled thereto, it being understood that the
<PAGE>

establishment, termination, or change of any such program shall be at the
instance of the Company, in exercise of its sole discretion, from time to time,
and any such termination or change in any such program shall not affect this
Agreement.

     1.5   Termination.
           -----------

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

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

                                   ARTICLE 2
                 NON-COMPETITION AND DISCLOSURE OF INFORMATION

     2.1   Non-competition. Employee acknowledges that his services to be
           ---------------
rendered hereunder are of a special and unusual character which have a unique
value to Company, the loss of which cannot adequately be compensated by damages
in an action at law. In view of the unique value to Company of the services of
Employee for which Company has contracted

                                      -2-
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hereunder, and because of the confidential information to be obtained by or
disclosed to Employee, and as a material inducement to Company to enter into
this Agreement, and to pay to Employee the compensation referred to in Section
1.4 hereof, Employee covenants and agrees that during Employee's employment
hereunder and for a period of one (1) year after he ceases to be employed by
Company, Employee shall not (a) directly or indirectly, solicit business from,
divert business from, or attempt to convert to other methods of using the same
or similar products or services as provided by Company, any client, account or
location of Company with which Employee has had any contact as a result of his
employment by Company hereunder; (b) engage in or carry on, directly or
indirectly, either for himself, as a member of a partnership, or as a
stockholder (except as limited partner or stockholder of less than one percent
(1%) of the issued and outstanding limited partnership interests or stock of a
publicly held partnership or corporation whose gross assets exceed $1,000,000),
as an investor, lender, guarantor, landlord, manager, officer, or director of
any person, partnership, corporation, or other entity (other than the Company or
its subsidiaries), or as an employee, agent, associate, broker, or consultant of
any person, partnership, corporation, or other entity (other than the Company or
its subsidiaries), any business (or segment of a business if such business
operates in more than one segment of the orthopedic industry) that competes with
any operations of the Company, as they exist at the time of Employee's
termination, within an one hundred (100)-mile radius of any geographic area
where Company is actually engaged in business, or maintains sales or service
representatives or employees; or (c) directly or indirectly, solicit for
employment or employ any employee of Company. In the event this Agreement is
terminated by the Company without cause, Employee may elect, by providing
written notice to the Company, to shorten the term of this non-compete to six
(6) months, provided, however, in that event, the Company's obligation to pay
severance pay to the Employee pursuant to Section 1.5.2 shall be reduced to an
amount equal to six (6) months base pay.

     2.2   Disclosures of Information. The Employee acknowledges that in the
           --------------------------
course of his employment by the Company, he will receive certain trade secrets,
programs, methods of operation, financial information, lists of customers, and
other confidential information and knowledge concerning the businesses of the
Company (hereinafter collectively referred to as "Information") that the Company
desires to protect. As a material inducement to Company to enter into this
Agreement, and to pay to Employee the compensation referred to in Section 1.4
hereof, Employee covenants and agrees that he shall not, at any time during or
following the term of his employment hereunder, directly or indirectly, divulge
or disclose, for any purpose whatsoever, any of such Information which has been
obtained by or disclosed to him as a result of his employment by Company. The
Employee further agrees that he will at no time use the Information in competing
with the Company. Upon termination of this Agreement, the Employee shall
surrender to the Company all lists, books, financial information, records,
literature, products, papers, documents, writings, and other property produced
by him or coming into his possession by or through his employment relating to
the Information, and the Employee agrees that all such materials will at all
times remain the property of the Company. In the event of a breach or threatened
breach by Employee of any of the provisions of this Article 2, Company, in
addition to and not in limitation of any other rights, remedies or damages
available to Company at law or in equity, shall be entitled to a permanent
injunction in order to prevent or to restrain any such breach by Employee, or by
Employee's partners, agents, representatives,

                                      -3-
<PAGE>

servants, employers, employees and/or any and all persons directly or indirectly
acting for or with him.

     2.3   Accounting for Profits. Employee covenants and agrees that if he
           ----------------------
shall violate any of his covenants or agreements under Article 2 hereof, Company
shall be entitled to an accounting and repayment of all profits, compensation,
commissions, remunerations or benefits which Employee directly or indirectly has
realized and/or may realize as a result of, growing out of or in connection with
any such violation; such remedy shall be in addition to and not in limitation of
any injunctive relief or other rights or remedies to which Company is or may be
entitled at law or in equity or under this Agreement.

     2.4   Reasonableness of Restrictions.
           ------------------------------

           2.4.1  Employee has carefully read and considered the provisions of
Article 2 hereof and, having done so, agrees that the restrictions set forth in
such Article (including, but not limited to, the time period of restriction and
the geographical areas of restriction set forth in Article 2 hereof) are fair
and reasonable and are reasonably required for the protection of the interest of
Company, its officers, directors and other employees.

           2.4.2  In the event that, notwithstanding the foregoing, any of the
provisions of Article 2 hereof shall be held to be invalid or unenforceable, the
remaining provisions thereof shall nevertheless continue to be valid and
enforceable as though the invalid or unenforceable parts had not been included
therein. In the event that any provision of Article 2 relating to time period
and/or areas of restriction shall be declared by a court of competent
jurisdiction to exceed the maximum time period or areas such court deems
reasonable and enforceable, said time period and/or areas of restriction shall
be deemed to become and thereafter be the maximum time period and/or areas which
such court deems reasonable and enforceable.

                                   ARTICLE 3
                              EMPLOYEE INVENTIONS

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

     3.2   Assignment. Employee hereby assigns and agrees to assign to the
           ----------
Company, its successors and assigns, Employee's entire right, title, and
interest in and to any of said

                                      -4-
<PAGE>

inventions. All of said inventions shall forthwith and without further
consideration become and be the exclusive property of the Company, it successors
and assigns.

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

                                   ARTICLE 4
                                 MISCELLANEOUS

     4.1   Notices. All notices, requests, consents, and other communications
           -------
under this Agreement shall be in writing and shall be deemed to have been
delivered on the date personally delivered or on the date mailed, postage
prepaid, by certified mail, return receipt requested, or telegraphed or telexed
and confirmed if addressed to the respective parties as follows: (a) if to the
Employee to the address set forth below, and (b) if to the Company to Encore
Medical Corporation, 9800 Metric Blvd., Austin, Texas 78758 ATTENTION: Chairman
of the Board. Either party hereto may designate a different address by providing
written notice of such new address to the other party hereto.

     4.2   Specific Performance. The Employee acknowledges that a remedy at law
           --------------------
for any breach or attempted breach of Section 1.3 and Article 2 of this
Agreement will be inadequate, and agrees that the Company shall be entitled to
specific performance and injunctive and other equitable relief in case of any
such breach or attempted breach, and further agrees to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
injunctive or any other equitable relief. In the event the Company brings legal
action to enforce its rights hereunder, the Employee shall pay all of the
Company's court costs and legal fees and expenses arising out of such action if
the Company prevails in such action.

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

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

                                      -5-
<PAGE>

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

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

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

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

                                  COMPANY:
                                  -------

                                  ENCORE MEDICAL CORPORATION

                                  By:  /s/ Nick Cindrich
                                       -----------------
                                           Nick Cindrich, Chairman of the Board

                                  EMPLOYEE:

                                  /s/ Kenneth W. Davidson
                                  -----------------------
                                  KENNETH W. DAVIDSON
                                  6133 Pasadena Pt. Blvd.
                                  Gulfport, FL 33707

                                      -6-<PAGE>

                                                                   EXHIBIT 10.36

                              SEVERANCE AGREEMENT

     THIS SEVERANCE AGREEMENT (this "Agreement"), is made this 1st day of
October, 2000, by and between ENCORE(R) 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 resident at
6133 Pasadena Pt. Blvd, Gulfport, FL 33707 (the "Employee" or the "Executive").

                                  WITNESSETH

     WHEREAS, the Employee is employed by the Company as its Chief Executive
Officer and President pursuant to an employment agreement dated October 1, 2000
(such employment agreement as it may be amended or supplemented from time to
time and any successor agreement being referred to as the "Employment
Agreement"); and

     WHEREAS, the Board of Directors of the Company (the "Board") has approved
the Company entering into severance agreements with key executives of the
Company; and

     WHEREAS, the Employee is a key executive of the Company and has been
selected by the Board of Directors of the Company to be offered a severance
agreement; and

     WHEREAS, the Board believes that if the Company should receive or learn of
any proposal from a third person concerning a possible business combination with
the Company, or an acquisition of equity securities or a substantial portion of
the assets of the Company, it is important that the Company should be able to
rely upon the Executive to continue in his position and that the Board should be
able to receive and rely upon his advice as to the best interests of the Company
and its shareholders, without concern that the Executive might be distracted by
any personal uncertainties and risks created by such a proposal; and

     WHEREAS, should the Company receive any such proposals, in addition to the
Executive's regular duties, he may be called upon to assist in the assessment of
such proposal, to advise management and the Board whether such proposals would
be in the best interests of the Company and its shareholders, and to take such
other actions as the Board may determine to be appropriate; and

     WHEREAS, the Company wishes to be assured that it will have the continued
dedication of the Executive and the availability of his advice and counsel
despite the possibility, threat or occurrence of a bid to take over control of
the Company; and

     WHEREAS, the Company wishes to induce the Executive to remain in the
employment of the Company under such circumstances; and

     WHEREAS, the Executive is willing to give the Company such assurances and
to enter into the other covenants contained in this Agreement; and
<PAGE>

     NOW, THEREFORE, in consideration of the premises and of the mutual promises
and covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:

     1.   Definitions.
          -----------

     As used in this Agreement, the following terms shall have the meanings set
forth below:

          (a)  "Cause" shall have the same meaning as "discharge for cause" as
     defined in Section 1.5.2 of the Employment Agreement as well as include the
     repeated violation by the Executive of his obligations under this Agreement
     which are demonstrably willful and deliberate on the part of the Executive
     and which are not redeemed in a reasonable period of time after receipt of
     written notice from the Company.

          (b)  "Change in Control" means any of the following events:

               (i)   the acquisition by any person, including a "group" as
          defined in Section 13(d)(3) of the Securities Exchange Act of 1934, of
          beneficial ownership of shares of capital stock or other voting
          securities of the Company that have thirty-three and one third percent
          (33-1/3%) or more of either (A) the then outstanding shares of the
          Company's common stock or (B) the combined voting power of the
          Company's then outstanding voting securities that are entitled to vote
          generally for the election of the Board;

               (ii)  the sale or other disposition by the Company to an
          unrelated third party of all or substantially all of the Company's
          assets;

               (iii) the consummation of a reorganization, merger, or
          consolidation involving the Company if as a result of such transaction
          persons who were shareholders of the Company immediately before the
          reorganization, merger or consolidation do not immediately thereafter
          own, directly or indirectly, more than fifty percent (50%) of the
          combined voting power of the then outstanding voting securities of the
          reorganized, merged or consolidated Company that are entitled to vote
          generally for the election of the board of such entity; or

               (iv)  the failure for any reason of individuals who constitute
          the Incumbent Board to continue to constitute at least a majority of
          the Board.

          (d)  "Disability" means the total and permanent inability of the
     Executive due to illness, accident or other physical or mental incapacity
     to perform the usual duties of his employment under the Employment
     Agreement for a substantially continuous period of one hundred eighty (180)
     days, as determined by a physician selected by the Company and acceptable
     to the Executive or the Executive's legal representative (which agreement
     as to acceptability will not be unreasonably withheld).

          (e)  "Good Reason" means any of the following:

                                      -2-
<PAGE>

               (i)   the assignment to the Executive of any duties inconsistent
          in any respect with the Executive's position (including status,
          offices, titles and reporting requirements), authority, duties or
          responsibilities contemplated by the Employment Agreement, or any
          other action by the Company which results in a diminution in such
          position, authority, duties or responsibilities, excluding for this
          purpose an isolated, insubstantial and inadvertent action that is not
          taken in bad faith and that is remedied by the Company promptly after
          receipt of notice thereof from the Executive;

               (ii)  the reduction in the overall level of the Executive's
          compensation or benefits;

               (iii) the Company's requiring the Executive to be based at any
          office or location other than the Company's executive offices in the
          Austin, Texas SMSA, except for travel reasonably required in the
          performance of the Executive's responsibilities;

               (iv)  any significant increase in the travel requirements of the
          Executive's position; for the purposes of this clause (iv) a
          "significant" increase would include any circumstances under which the
          Executive is or will be required, during any six-month period, to
          spend more than twice the number of nights away from home as were
          necessary during the previous six-month period; or

               (v)   an inability on the part of the Executive to carry out the
          duties of his position in good faith as a result of a major
          disagreement between the Executive and other executives of the Company
          who have been appointed after a Change of Control concerning strategic
          or policy issues affecting the Company or its business as a whole.

          (f)  "Incumbent Board" means those individuals who are members of the
     Board on the date of this Agreement and any person who subsequently becomes
     a member of the Board and whose election, or whose nomination for election
     by the Company shareholders, was approved by a vote of at least a majority
     of the directors then comprising the Incumbent Board.

     2.   Termination payments.
          --------------------

          (a)  Termination of employment. If any Change of Control of the
               -------------------------
     Company occurs after the date of this Agreement and subsequently, on or
     before the third anniversary of such Change of Control, the Executive's
     employment by the Company or its successor in interest is terminated

               (i)   by the Company or its successor in interest for any reason
          other than (A) for Cause, or (B) because of the Executive's death or
          Disability, or

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<PAGE>

               (ii)  by the Executive for Good Reason,

          (a "Termination Event") then the Executive will be entitled to
          receive, and the Company will pay or provide, the benefits set forth
          in subsection (b) below.

          (b)  Severance benefits. Upon the occurrence of a Termination Event
               ------------------
     described in subsection (a) above then, in addition to the performance of
     its obligations under the Employment Agreement but in the case of amounts
     payable under clauses (i) and (ii) without duplication of any similar
     payments then due and payable under the Employment Agreement:

               (i)   The Company will pay to the Executive within thirty (30)
          days after the Termination Event an amount equal to the sum of:

                     (A)  his highest full base annual salary in effect within
                          one (1) year of the Termination Event, plus

                     (B)  the amount of any bonus, payable in cash only
                          notwithstanding the terms of any bonus plan, with
                          respect to any year that has then ended which was or
                          would have accrued to the Executive under any bonus
                          plan then in effect but which has not yet been paid to
                          him, plus

                     (C)  an amount, payable in cash only notwithstanding the
                          terms of any bonus plan, equal to the product of (aa)
                          the average of the bonus paid or payable to the
                          Executive for the two preceding years (whether same
                          was paid in cash or its equivalent value) multiplied
                          by (bb) a fraction of which the numerator is the
                          number of weeks that have elapsed in the then current
                          year through the date of termination and the
                          denominator is 52, plus

                     (D)  an amount equal to the product of (aa) the number of
                          unused vacation days accrued by the Executive through
                          the date of termination multiplied by (bb) a fraction
                          the numerator of which is the Executive's highest base
                          salary in effect within one (1) year of the
                          Termination Event and the denominator of which is 250;

               (ii)  The Company will contribute in cash to any retirement or
          saving plan in which the Executive is participating, within thirty
          (30) days after the date of termination, the maximum amount which the
          Company is permitted to contribute based on the payments made pursuant
          to paragraph (i) above and, at the Executive's election, will buy back
          the stock held by the Executive in any such plan at its then fair
          market value, depositing said value in cash into said plan;

                                      -4-
<PAGE>

               (iii) The Company will pay in cash to the Executive within thirty
          (30) days after the date of termination a severance payment in an
          amount equal to the sum of

                     (A)  three hundred percent (300%) of his full base annual
                          salary at the highest rate in effect within one (1)
                          year of the Termination Event, plus

                     (B)  three hundred percent (300%) of the average bonus paid
                          or payable to him for the two (2) preceding years
                          (whether same was paid in cash or its equivalent
                          value);

          provided that if the amount payable by the Company to the Executive
          under this clause (iii), without regard to any other payments or
          benefits payable to the Executive under this Agreement or the
          Employment Agreement, would constitute an "excess parachute payment"
          for the purposes of Sections 280G and 4999 of the Internal Revenue
          Code then the amount payable by the Company under this Section 2b as a
          severance benefit will be "grossed up" by the amount necessary in
          order to reimburse Executive for any taxes due as a result of such an
          "excess parachute payment" as per section 6 hereof.

               (iv)  The Company will amend or revise all stock option plans and
          restricted stock awards to which the Executive is a party, or grant
          appropriate waivers of any restrictions contained in such plans and
          awards, so as to remove all restrictions upon the exercise by the
          Executive of such options or upon the ability of the Executive to sell
          any shares of stock that are subject to any such options or awards.
          As part of such amendments or revisions, the Company will accelerate
          the vesting period for Executive to an immediate one hundred (100%)
          and shall allow the Executive the option to exercise his options or
          stock awards either within ninety (90) days of his effective
          termination date and such option remain as an incentive stock option
          or before the termination of the original option or stock award period
          and have such options be converted automatically into non-qualified
          stock options for purposes of the Internal Revenue Code.

               (v)   The Company will prepay in full if at all possible, and if
          not possible, ensure to the satisfaction of Executive maintenance in
          full force and effect for the benefit of the Executive and his spouse
          and dependents (if covered prior to the date of termination) in each
          case for a period from the date of termination until the later of the
          death of the Executive or his spouse, during their period of their
          eligibility, all employee life, health, accident, disability, medical
          and other employee welfare benefits plans provided by the Company in
          which the Executive or his spouse or his dependents are participating
          at the time of the Executive's termination under the same terms and
          conditions as then in effect; provided, that if the Executive's or his
          spouse's or his dependents continued

                                      -5-
<PAGE>

          participation is not permitted under the general terms of such plans,
          the Company shall arrange to provide substantially similar benefits;

               (vi)  The Company will maintain for the benefit of the Executive
          such policy of liability insurance, providing protection to him as an
          officer, director, agent or employee of the Company or its
          subsidiaries, as may from time to time be purchased by the Company for
          officers and directors generally as authorized by or in furtherance of
          the indemnification provisions contained in the Company's bylaws.
          Neither the insurance nor the Executive's right to indemnification
          thereunder may be canceled by the Company without his permission for a
          period of five years following the date of termination under this
          Agreement; provided, however, that the Company may obtain a substitute
          insurance policy as long as the rights of indemnity to the Executive
          are at least equivalent to the most favorable rights provided under
          the policy in effect immediately prior to the date of termination.

          (b)  The Executive shall have no duty to mitigate, whether by seeking
     other employment or otherwise, any loss or damage suffered by him as a
     result of any failure by the Company to make any payment, or provide any
     benefit, to him under this Section 2.

3.   Agreements of Executive.
     -----------------------

          The Executive covenants and agrees as follows:

          (a)  Provision of services when Change of Control is threatened. If
               ----------------------------------------------------------
     any person begins a tender or exchange offer for voting securities of the
     Company, or circulates a proxy to shareholders of the Company or takes any
     other action for the purposes of effecting a Change of Control of the
     Company, then notwithstanding the terms of the Employment Agreement or any
     other agreement between the Executive and the Company the Executive will
     not voluntarily leave the employment of the Company and will render the
     services contemplated in the recitals to this Agreement until either (i)
     such person has abandoned or terminated his efforts to effect a Change of
     Control or (ii) three months have elapsed since the date on which a Change
     of Control has occurred.

          (b)  Noncompetition. Without limiting the terms of any similar
               --------------
     provision in the Employment Agreement or any other agreement between the
     Executive and the Company, if the Executive's employment with the Company
     is terminated under any circumstances that entitle the Executive to receive
     the payments and other benefits provided in Section 2, then for a period of
     one year (or six (6) months should Executive make the election in the last
     sentence of Section 2.1 of the Employment Agreement) from the Termination
     Event the Executive will not:

               (i)   have any interest in, whether as proprietor, officer,
          director or otherwise (but excluding an interest by way of employment
          only),

                                      -6-
<PAGE>

               (ii)  act as an agent, broker or distributor for, or as an
          adviser or consultant to,

               (iii) be employed in any senior managerial or executive position
          by any corporation, partnership, limited liability company or other
          business organization in which he has responsibility for,

     any business (regardless of the form in which such business is conducted)
     which is engaged, or which he reasonably expects to become engaged, in the
     business of designing, manufacturing, distributing or selling artificial
     joints and limbs and other orthopedic implant devices in the United States;
     provided that the ownership by the Executive of not more than two percent
     (2%) of the shares of any publicly traded corporation or twenty percent
     (20%) of a privately held company shall not constitute a violation of this
     subsection (b).

          (c)  Publications by Executive. Without limiting the terms of any
               -------------------------
     similar provision in the Employment Agreement or any other agreement
     between the Executive and the Company, if the Executive's employment with
     the Company is terminated under any circumstances that entitle the
     Executive to receive the payments and other benefits provided in Section 2,
     then

               (i)   the Executive will refrain from making any disparaging
          comments about the Company or any of its affiliates, and

               (ii)  for a period of one (1) year from the Termination Event the
          Executive will not without the prior written permission of the Company
          write or publish, or assist in the writing or publication of, any
          books, articles or other materials that would adversely affect the
          interests of the Company or its affiliates.

          (d)  Remedies. The Executive acknowledges that any violation of this
               --------
     Section may cause irreparable harm to the Company, and that damages are not
     an adequate remedy, and the Executive therefore agrees that the Company
     shall be entitled to an injunction by any appropriate court in the
     appropriate jurisdiction, enjoining, prohibiting and restraining the
     Executive from the continuance of any such violation, in addition to any
     monetary damages which might occur by reason of the violation of this
     Agreement.

          (e)  Independent. The covenants set forth in the foregoing
               -----------
     subsections (a), (b), (c), and (d) shall be deemed and shall be construed
     as separate and independent covenants, and should any part or provision of
     such covenants be held invalid, void or unenforceable by any court of
     competent jurisdiction, such invalidity, voidness, or unenforceability
     shall in no way render invalid, void, or unenforceable any other part or
     provision thereof or any separate covenant not declared invalid, void, or
     unenforceable. This Agreement shall in that case be construed as if the
     void, invalid or unenforceable provisions were omitted.

                                      -7-
<PAGE>

4.   Notice of Termination.
     ---------------------

     Any termination of the Executive's employment by the Company or its
successor in interest or by the Executive shall be communicated by a written
notice of termination to the other party, and shall specify the provision of
this Agreement relied upon and shall set forth in reasonable detail the
circumstances claimed to provide a basis for termination.  The date of
termination shall be the date on which the notice of termination is delivered if
by the Executive or thirty (30) days after the date of the notice of termination
if given by the Company.  All applicable benefits to Executive hereunder shall
be triggered if said notice of termination is given within the three (3)-year
period specified in Section 2(a) hereof.

5.   Litigation Expenses.
     -------------------

     The Company shall pay reasonable legal fees and expenses incurred by the
Executive as a result of his seeking to obtain or enforce any right or benefit
provided by this Agreement, promptly and from time to time, at his request as
such fees and expenses are incurred.

6.   Excess Parachute Payments.
     -------------------------

          (a)  If any federal excise tax is imposed under Section 4999 of the
     Internal Revenue Code of 1986, as amended (an "Excise Tax") on the
     Executive with respect to any payments or benefits provided under Section
     2, the Company hereby agrees, subject to the exceptions and limitations set
     forth below, to pay the Executive such additional amount (the "Additional
     Amount") as is necessary to cause the Executive to realize the same net
     amount after the imposition of all federal income tax, estate tax and
     Excise Tax imposed on payments and benefits under Section 2 (and on such
     Additional Amount payable under this Section 6) that he would have realized
     had such federal income tax, estate tax, and Excise Tax not been imposed
     upon him with respect to such payments and benefits under Section 2 and
     this Section 6; provided, however, that no such Additional Amount shall be
     due with respect to

               (i)   any penalties, interest, or similar charges, if any,
          assessed with respect to or arising out of any income tax, estate tax,
          or Excise Tax due unless the Company delays the payment contemplated
          herein to the Executive or

               (ii)  any income tax or estate tax which would be owing by the
          Executive in the absence of the imposition of the Excise Tax.

          (b)  The Company shall have the right to contest, but the Executive
     shall have no duty to contest, the assessment of any such taxes, but in any
     event, the Executive agrees to cooperate in any contest the Company chooses
     to make provided the Company shall pay the costs of any such contest.

                                      -8-
<PAGE>

7.   Assignment; Successors in Interest.
     ----------------------------------

          (a)  General. Except with the prior written consent of the Executive,
               -------

               (i)   no assignment by operation of law or otherwise by the
          Company of any of its rights and obligations under this Agreement may
          be made other than to an entity in common control with or a successor
          to all or a substantial portion of the business of the Company (but
          then only if such entity assumes by operation of law or by specific
          assumption executed by the transferee and delivered to the Executive
          all obligations and liabilities of the Company under this Agreement);

               (ii)  no transfer by operation of law or otherwise by the Company
          of all or a substantial part of its business or assets shall be made
          unless the obligations and liabilities of the Company under this
          Agreement are assumed in connection with such transfer either by
          operation of law or by specific assumption executed by the transferee
          and delivered to the Executive; and

               (iii) in any such event the Company shall remain liable for the
          performance of all of its obligations under this Agreement (which
          liability shall be a primary obligation for full and prompt
          performance rather than a secondary guarantee of collectibility of
          damages).

     Except for any transfer or assignment of rights under this Agreement, in
     whole or in part, upon the death of the Executive to his heirs, devisees,
     legatees or beneficiaries or except with the prior written consent of the
     Company, no assignment or transfer by operation of law or otherwise may be
     made by the Executive of any of his rights under this Agreement.

          (b)  Binding Nature. This Agreement shall be binding upon the parties
               --------------
     to this Agreement and their respective legal representatives, heirs,
     devisees, legatees, beneficiaries and successors and assigns; shall inure
     to the benefit of the parties to this Agreement and their respective
     permitted legal representatives, heirs, devisees, legatees, beneficiaries
     and other permitted successors and assigns (and to or for the benefit of no
     other person or entity, whether an employee or otherwise, whatsoever); and
     any reference to a party to this Agreement shall also be a reference to a
     permitted successor or assign.

8.   Miscellaneous.
     -------------

          (a)  This Agreement may not be varied, altered, or changed except by
     instrument in writing executed by the parties hereto. The failure of any
     party to this Agreement at any time or times to require performance of any
     provision of this Agreement shall in no manner affect the right to enforce
     the same. No waiver by any party to this Agreement of any provision (or of
     a breach of any provision) of this Agreement, whether by conduct or
     otherwise, in any one or more instances shall be deemed or construed either
     as a further or continuing waiver of any such provision or

                                      -9-
<PAGE>

     breach or as a waiver of any other provision (or of a breach of any other
     provision) of this Agreement.

          (b)  Wherever possible each provision of this Agreement shall be
     interpreted in such manner as to be effective and valid but if any one or
     more of the provisions of this Agreement shall be invalid, illegal or
     unenforceable in any respect for any reason, the validity, legality or
     enforceability of any such provisions in every other respect and of the
     remaining provisions of this Agreement shall not be impaired.

          (c)  This Agreement shall be governed by and interpreted in accordance
     with the laws of the State of Texas (without giving effect to any choice of
     law provisions) and enforceable in a court of competent jurisdiction in
     Travis County, Texas.

          (d)  This Agreement and any benefits accruing to Executive hereunder
     shall be supplemental and additional to any and all benefits accruing to
     Executive pursuant to the Employment Agreement and any and all Stock Option
     or Stock Award Plans applicable to Executive.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Executive has hereunto set his hand as of
the date and year first written above.

                                        COMPANY

                                        ENCORE MEDICAL CORPORATION

                                        By: /s/ Nick Cindrich
                                            -----------------
                                            Nick Cindrich, Chairman of the Board

                                        EXECUTIVE

                                        /s/ Kenneth W. Davidson
                                        -----------------------
                                        KENNETH W. DAVIDSON

                                      -10-

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