Document:

exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) made and effective as of the
30th day of August, 2004, by and between ENCORE MEDICAL CORPORATION, a Delaware
corporation (the “Company”), and WILLIAM W. BURKE (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, 2006 (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 Executive
Vice-President and Chief Financial Officer, 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 Chief Executive Officer 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 Chief Executive
Officer 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 and Forty Thousand Dollars ($240,000) 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. 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

 

 

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.

          1.4.3 2004 Bonus. The Employee shall be entitled to a guaranteed bonus
for the year ended December 31, 2004 of Seventy Thousand Dollars ($70,000) to
be paid at such time as is determined by the Compensation Committee of the
Company to be the time payable for all senior management bonuses due for 2004.

          1.4.4 Relocation. In the event that Employee relocates his principal
residence to either Austin, Texas, or such other location as is in the future
designed by the Company as its corporate headquarters within two (2) years from
the date of this Agreement, the Company will provide Seventy-Five Thousand
($75,000) to assist with relocation expenses. This will be provided to
Employee when the Employee’s move actually takes place.

     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, an amount equal to (a) one (1) year’s
Base Salary and (b) an amount equal to the bonus that the Employee earned in
the prior fiscal year of the Company, 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. In the event such
termination was with cause, the Company shall only be required to pay the
Employee, at the time of his discharge, an amount equal to any accrued, but
unpaid Base Salary. For purposes of this Agreement, a “discharge for cause”
shall mean a discharge resulting from Employee having (i) failed or refused to
follow legal and reasonable policies or directives established and previously
given to Employee in writing by Company, (ii) willfully failed to attend to his
duties after ten (10) days prior written notice of failure to so act, (iii)
committed acts amounting to gross negligence or willful misconduct to the
material detriment of Company, or (iv) 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.

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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 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 $l,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.

     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,

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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, 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.

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     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 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: Chief
Executive Officer. 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.

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     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,
	 	 	A Delaware corporation
	 
	 	 	 	 
	

	 	By:
	 	/s/Kenneth W. Davidoson
	

	 	 	 	
 
	

	 	 	 	Kenneth W. Davidson,
	

	 	 	 	Chief Executive Officer
	 
	 	 	 	 
	 	 	EMPLOYEE:
	 
	 	 	 	 
	 	 	/s/ William W. Burke
	 	 	
 
	 	 	WILLIAM W. BURKE
	 
	 	 	 	 
	 	 	Address: 4200 Potomac Ave.

	

	 	 	 	     Dallas, TX 75205

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Exhibit 10.2

ENCORE MEDICAL CORPORATION

1996 INCENTIVE STOCK PLAN

     1. Purpose. The purpose of the Encore Medical Corporation 1996 Incentive
Stock Plan is to promote the interests of Encore Medical Corporation and its
shareholders by enabling selected key employees of the Company and its
Subsidiaries to participate in the long-term growth of the Company by receiving
the opportunity to acquire shares of the Company’s Stock and to provide for
additional compensation based on appreciation in the Company’s Stock. The Plan
provides a means to attract and retain key employees of merit and is intended
to stimulate the efforts of such employees by providing an opportunity for
capital appreciation and recognizing outstanding service to the Company, thus
contributing to the long-term growth and profitability of the Company.

     2. Defined Terms. The following defined terms have the meanings set forth
below:

          (a) “Act” means the Securities Exchange Act of 1934, as amended from time
to time.

          (b) “Award” or “Awards,” except where referring to a particular category
of grant under the Plan, includes Incentive Stock Options, Non-Qualified Stock
Options, Stock Appreciation Rights, Restricted Stock Awards, Unrestricted Stock
Awards, Deferred Stock Awards, Performance Unit Awards and Other Stock-Based
Awards.

          (c) “Board” means the Board of Directors of the Company.

          (d) “Code” means the Internal Revenue Code of 1986, as amended, and any
successor code and related rules, regulations and interpretations.

          (e) “Committee” means the Management Compensation and Organization
Committee of the Board (or any successor committee as described in Section 5
below); such Committee shall consist of at least two members of the Board, each
of whom shall be a Non-Employee Director.

          (f) “Company” means Encore Medical Corporation.

          (g) “Deferred Stock Award” shall have the meaning set forth in Section
11(a), and Stock issued pursuant to such an Award shall be deemed “Deferred
Stock.”

          (h) “Disability” means permanent and total disability, as determined under
procedures established by the Committee for purposes of the Plan.

          (i) “Fair Market Value” on a specified date shall be the average of the
closing prices of the Stock on the NASDAQ Stock Market’s National Market System
or whichever other exchange the Company’s stock is being traded on the last
three trading days prior to the day immediately following the specified date.

          (j) “Incentive Stock Option” means any Stock Option intended to be and
designated as an “incentive stock option” within the meaning of Section 422 of
the Code.

          (k) “Non-Employee Director” shall have the meaning set forth in Rule
16b-3, promulgated under the Act, or any successor definition promulgated by
the Securities and Exchange Commission under the Act.

          (l) “Non-Qualified Stock Option” means any Stock Option that is not an
Incentive Stock Option.

          (m) “Other Stock-Based Award” shall have the meaning set forth in Section
13(a).

          (n) “Performance Unit Award” shall have the meaning set forth in Section
12(a).

          (o) “Plan” means the Encore Medical Corporation 1996 Incentive Stock Plan,
as amended from time to time.

          (p) “Restricted Stock Award” shall have the meaning set forth in Section
9(a).

          (q) “Retirement” means a severance from the active employment of the
Company or its Subsidiaries by reason of retirement pursuant to the provisions
of any profit sharing, pension or other retirement plan of the Company or its
Subsidiaries, or any contract between the Company or any of its Subsidiaries
and the participant.

          (r) “Rule 16b-3” means Rule 16b-3, as promulgated by the Securities and
Exchange Commission under Section 16(b) of the Act, as amended from time to
time.

          (s) “Stock” means the common stock, $.001 par value, of the Company.

          (t) “Stock Appreciation Right” shall have the meaning set forth in Section
8(a).

 

 

          (u) “Stock Option” means any option to purchase shares of Stock granted
pursuant to Section 7.

          (v) “Subsidiary” means any corporation a majority of whose stock the
Company owns or controls, either directly or indirectly through another
corporation or series of corporations, domestic or foreign.

          (w) “Unrestricted Stock Award” shall have the meaning set forth in Section
10.

     3. Stock Subject to the Plan.

          (a) Shares Issuable. The maximum number of shares of Stock reserved and
available for distribution pursuant to Awards under the Plan shall be four
million five hundred thousand (4,500,000) shares. Such shares of Stock may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. If (i) an Award expires or terminates for any reason without being
exercised in full or is satisfied without the distribution of Stock, or (ii)
Stock distributed pursuant to an Award is forfeited or reacquired by the
Company, or is surrendered upon exercise of an Award, the Stock subject to such
Award or so forfeited, reacquired or surrendered shall again be available for
distribution for purposes of the Plan.

          (b) Changes in Capitalization. In the event of a stock dividend,
spin-off, stock split, any increase or decrease in the number of issued shares
of Stock resulting from a subdivision or combination of shares effected without
receipt of consideration by the Company or any other change in corporate
structure or other distribution of stock or property (except ordinary cash
dividends) affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number of and kind of shares of stock or securities
underlying Awards that may thereafter be granted, (ii) the number and kind of
shares remaining subject to outstanding Awards and (iii) the option or purchase
price in respect of such shares. In the event of any such change in
capitalization of the Company, the Committee may make such additional
adjustments in the number and class of shares of Stock or other securities with
respect to which outstanding Awards are exercisable and with respect to which
future Awards may be granted as the Committee in its sole discretion shall deem
equitable or appropriate, subject to the provisions of Section 18 below. In
the event the Stock is changed into the same number of shares with a different
par value or without par value, the shares resulting from any such change shall
be deemed to be the Stock within the meaning of the Plan. Except (i) as
expressly provided in the preceding sentences or (ii) for any distribution or
adjustment made with respect to outstanding shares of Restricted Stock in
connection with a distribution or adjustment made with respect to all other
outstanding shares of Stock, any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Stock subject to any Award. The existence of the
Plan and the Awards granted pursuant to the Plan shall not affect in any way
the right or power of the Company to make or authorize any adjustment,
reclassification, reorganization or other change in its capital or business
structure, any merger or consolidation of the Company, any issue of debt or
equity securities having preferences or priorities as to the Stock or the
rights thereof, the dissolution or liquidation of the Company, any sale or
transfer of all or any part of its business or assets, or any other corporate
act or proceeding.

          (c) Substitute Awards. The Company may grant Awards under the Plan in
substitution for stock and stock-based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary,
as the result of a merger or consolidation of the employing corporation with
the Company or a Subsidiary or the acquisition by the Company or a Subsidiary
of property or stock of the employing corporation. The Committee may direct
that the substitute Awards be granted on such terms and conditions as the
Committee considers appropriate in the circumstances.

     4. Eligibility. Participants in the Plan will be such officers and other
key employees of the Company and its Subsidiaries who are responsible for or
contribute to the management, growth or profitability of the Company and its
Subsidiaries and who are selected from time to time by the Committee, in its
sole discretion. In the case of Awards payable in Stock, no participant shall
be granted during any fiscal year the right to acquire pursuant to Awards
granted under the Plan more than 1,000,000 shares of Stock. In the case of
Awards payable in cash, no participant shall be granted Awards entitling the
participant to receive more than $10,000,000 in compensation during the life of
the Plan or during the period within which Awards may be payable under the
Plan.

     5. Administration of the Plan. The Plan shall be administered by the
Board, the Committee or such other committee of the Board, composed of not less
than two Non-Employee Directors who shall be appointed by the Board and who
shall serve at the pleasure of the Board. (All references to the Committee
hereinafter shall also be deemed to refer to the Board.) The Committee shall
have the power and authority to grant Awards consistent with the terms of the
Plan, including the power and authority:

     (i) to select the officers and other key employees of the Company and
its Subsidiaries to whom Awards may from time to time be granted;

     (ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Unrestricted Stock Awards,
Deferred Stock Awards, Performance Units Awards, and any Other Stock-Based
Awards, or any combination of the foregoing, granted to any one or more
participants;

     (iii) to determine the number of shares to be covered by any Award;

     (iv) to establish the terms and conditions of any Award, including,
but not limited to:

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     (A) the share price;

     (B) any restriction or limitation on the grant, vesting or
exercise of any Award including, but not limited to, the
attainment (and certification of the attainment) of one or more
performance goals based on one or more (or any combination) of
the following business criteria that may apply to the
individual participant, a Company business unit, or the Company
as a whole: revenues, net income (before or after tax),
earnings, earnings per share, shareholders’ equity, return on
equity, assets, return on assets, capital, return on capital,
book value, economic value added, operating margins, profit
margins, cash flow, shareholder return, expenses, sales or
market share, expense management, return on investment,
improvements in capital structure, net revenue per employee,
profitability of an identifiable business unit or product, or
stock price, or shall be based on any one or more (or any
combination) of the foregoing business criteria before the
effect of acquisitions, divestitures, accounting changes,
restructuring or other special charges or extraordinary items,
to the extent the Committee specifies, when granting the Award,
that the effect of any such extraordinary items shall be
disregarded; and

     (C) any waiver of vesting, acceleration or forfeiture
provisions regarding any Stock Option or other Award and the
Stock relating thereto, based on such factors as the Committee
shall determine; and

          (v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the Participant, and whether and to
what extent the Company shall pay or credit amounts equal to interest (at rates
determined by the Committee), dividends or deemed dividends on such deferrals.

Subject to the provisions of the Plan, the Committee shall have full and
conclusive authority to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of the respective Award agreements and to make all other
determinations necessary or advisable for the proper administration of the
Plan. The Committee’s determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, Awards under the Plan (whether or not such persons are similarly
situated). Any determination made by the Committee pursuant to the provisions
of the Plan with respect to any Award shall be made in its sole discretion at
the time of the grant of the Award or, unless in contravention of any express
term of the Plan, at any time thereafter. All decisions by the Committee made
pursuant to the provisions of the Plan shall be final and binding on all
persons, including the Company and Plan participants.

     6. Limitations on Term and Date of Awards.

          (a) Duration of Awards. Subject to Section 19(c) below, no restrictions
or limitations on any Award shall extend beyond ten years from the grant date,
except that deferrals of the receipt of Stock or other benefits under the Plan
elected by participants may extend beyond such date.

          (b) Term. No Award shall be granted more than ten years after the
effective date of the Plan as specified in Section 20 below, but then
outstanding Awards may extend beyond such date.

     7. Stock Options. Stock Options may be granted alone or in addition to
other Awards and may be of two types: Incentive Stock Options and
Non-Qualified Stock Options. Each Stock Option shall be clearly identified as
to its status as an Incentive Stock Option or a Non-Qualified Stock Option at
the date of grant. To the extent that any Stock Option denominated as an
Incentive Stock Option does not qualify as an “incentive stock option” within
the meaning of Section 422 of the Code, it shall constitute a separate
Non-Qualified Stock Option. Stock Options granted under the Plan shall be
subject to the following terms and conditions and shall be evidenced by option
agreements, which shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:

          (a) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant and set
forth in the option agreement but shall be (i) in the case of Incentive Stock
Options, not less than 100% of the Fair Market Value on the date of grant and
(ii) in the case of Non-Qualified Stock Options, not less than 50% of Fair
Market Value on the date of grant; provided, however, that the option price per
share of Stock purchasable under a Non-Qualified Stock Option may also be the
par value per share of Stock. If an officer or key employee owns or is deemed
to own (by reason of the attribution rules applicable under Section 424(d) of
the Code) more than 10% of the combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation, and an Incentive Stock
Option is granted to such officer or key employee, the option price shall be no
less than 110% of the Fair Market Value on the date of grant. The grant of a
Stock Option shall occur on the date the Committee by resolution designates an
officer or employee to receive a grant of a Stock Option, determines the number
of shares of Stock covered by the Stock Option and specifies the terms and
provisions of the option agreement.

          (b) Option Term. Unless an option agreement provides for a shorter
exercise period, any Stock Option shall be exercisable not later than ten years
after the Stock Option is granted; provided, however, that if an Incentive
Stock Option is granted to an employee who owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any Subsidiary
or parent corporation, the term of such Incentive Stock Option shall be no more
than five years from the date of grant.

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          (c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions, and in such amounts, as the
Committee shall specify in the option agreement. Notwithstanding the
foregoing, subsequent to the grant of a Stock Option, the Committee, at any
time before the complete expiration of such Stock Option, may accelerate the
time or times at which such Stock Option may be exercised in whole or in part.
Except as provided in subsections (f), (g), (h) and (i) below, a Stock Option
may not be exercised by the holder unless the holder is then, and continually
after the grant of the Stock Option has been, an employee of the Company or one
of its Subsidiaries.

          (d) Method of Exercise. Stock Options may be exercised at any time during
the option period by giving written notice of exercise to the Company
specifying the number of shares to be purchased. Except as provided in
subsection (k) below, such notice shall be accompanied by payment in full of
the purchase price, either by certified or bank check or other instrument
acceptable to the Committee, or by delivery of shares of Stock as provided in
this subsection. As determined by the Committee, in its discretion, at (or, in
the case of Non-Qualified Stock Options, at or after) the time of grant,
payment in full or part may also be made in the form of shares of Stock not
then subject to restrictions (but which may include shares the disposition of
which constitutes a disqualifying disposition for purposes of obtaining
incentive stock option treatment under the Code). Shares of Stock so
surrendered shall be valued at Fair Market Value on the exercise date. Except
as provided in subsection (k) below, no shares of Stock shall be issued until
full payment therefor has been made. An optionee shall have all of the rights
of a shareholder of the Company, including the right to vote the shares and the
right to receive dividends, with respect to shares subject to a Stock Option
when the optionee has given written notice of exercise, has paid in full for
such shares and, if requested, has given the representation described in
Section 19(c) below.

          (e) Transferability of Options. Options considered to be “Incentive Stock
Options” under the Plan shall not be transferable by the optionee otherwise
than by will or under the laws of descent and distribution and shall be
exercisable, during his or her lifetime, only by him or her or by the guardian
or legal representative of the optionee. Options which are deemed to be “Non
qualified” Stock Options under the Plan and other grants under the Plan shall
only be transferable by the optionee either (i) by will or under the laws of
descent and distribution, or (ii) to optionee’s spouse, parents, children,
grandchildren, brothers, sisters, or to a partnership or corporation controlled
by any of the aforementioned parties. Such permitted transfer may be by will
or intestate succession or by inter vivos transfer.

          (f) Termination by Death. If an optionee’s employment with the Company or
any Subsidiary terminates by reason of death, any Stock Option held by such
optionee may thereafter be exercised, to the extent exercisable at the time of
death (or on such accelerated basis as the Committee shall at any time
determine), by the legal representative or legatee of the optionee, for a
period of one year (or such other period as the Committee shall specify at or
after the time of grant) from the date of death or until the expiration of the
stated term of the Stock Option, whichever period is the shorter.

          (g) Termination by Disability. If an optionee’s employment with the
Company or any Subsidiary terminates by reason of Disability, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of termination (or on such accelerated
basis as the Committee may at any time determine) for a period of one year (or
such other period as the Committee shall specify at or after the time of grant)
from the date of such termination or until the expiration of the stated term of
the Stock Option, whichever period is the shorter. Except as otherwise
provided by the Committee at the time of grant, the death of an optionee during
such exercise period shall extend such period for one year following death, or
until the expiration of the stated term of the Stock Option, whichever period
is the shorter.

          (h) Termination by Retirement. If an optionee’s employment with the
Company or any Subsidiary terminates by reason of Retirement, any Stock Option
held by such optionee may thereafter be exercised by the optionee, to the
extent it was exercisable at the time of Retirement (or on such accelerated
basis as the Committee may at any time determine) for a period of (i) in the
case of Incentive Stock Options, three months, and (ii) in the case of
Non-Qualified Stock Options, one year (or such other period as the Committee
shall specify at or after the time of grant), from the date of Retirement or
until the expiration of the stated term of the Stock Option, whichever period
is the shorter. Except as otherwise provided by the Committee at the time of
grant, the death of an optionee during such exercise period shall extend such
period for one year following death, or until the expiration of the stated term
of the Stock Option, whichever period is the shorter.

          (i) Other Termination. Unless otherwise determined by the Committee, if
an optionee’s employment with the Company or any Subsidiary terminates for any
reason other than death, Disability or Retirement, the Stock Option held by
such optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination, for a period of thirty (30) days from
the date of such termination or until the expiration of the stated term of the
Stock Option, whichever period is the shorter.

          (j) Form of Settlement. The Committee may provide in the option agreement
that upon receipt of written notice of exercise, the Committee may elect to
settle all or a part of the portion of any Stock Option so exercised by paying
the optionee an amount, in cash or Stock, equal to the excess of the Fair
Market Value of the Stock over the exercise price (the “Spread Value”)
(determined on the date the Stock Option is exercised).

          (k) Procedure for Certain Credit Assisted Transactions. To the extent not
inconsistent with the provisions of Section 422 of the Code or Rule 16b-3, any
optionee desiring to obtain credit from a broker, dealer or other “creditor” as
defined in Regulation T issued by the Board of Governors of the Federal Reserve
System (provided that such broker, dealer or creditor has been approved by the
Committee) to assist in exercising a Stock Option may deliver to such creditor
an exercise notice properly executed by such optionee with respect to such
Stock Option, together with instructions to the Company to deliver the
resulting Stock to the creditor for deposit into a designated account. Upon
receipt of such exercise notice and related instructions in a form acceptable
to the Company, the

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Company shall confirm to the creditor that it will deliver to the creditor the
Stock covered by such exercise notice and instructions promptly following
receipt of the exercise price from the creditor. To the extent not
inconsistent with the provisions of Section 422 of the Code or Rule 16b-3, upon
request the Company may in its discretion, but shall not be obligated to,
deliver to the creditor shares of Stock resulting from an assisted exercise
prior to receipt of the option price for such shares if the creditor has
delivered to the Company, in addition to the other documents contemplated
hereby, the creditor’s agreement to pay the Company such exercise price in cash
within five days after delivery of such shares. The credit assistance
contemplated hereby may include a margin loan by the creditor secured by the
Stock purchased upon exercise of a Stock Option or an immediate sale of some or
all of such Stock by the creditor to obtain or recover the option price that
the creditor has committed to pay to the Company.

          (l) Special Provisions Relating to Incentive Stock Options. At the time
any Incentive Stock Option granted under the Plan is exercised, the Company
shall be entitled to legend the certificates representing the shares of Stock
purchased pursuant to such Incentive Stock Option to clearly identify them as
representing shares purchased upon exercise of an Incentive Stock Option that
may be subject to income tax withholding requirements as set forth in Section
15 below. Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the affected optionee, to disqualify any Incentive Stock
Option under Section 422 of the Code.

     8. Stock Appreciation Rights.

          (a) General. A Stock Appreciation Right is an Award entitling the
recipient to receive an amount in cash or shares of Stock (or forms of payment
permitted under subsection (d) below) or a combination thereof having a value
equal to (or if the Committee shall so determine at time of grant, less than)
the excess of the Fair Market Value of a share of Stock on the date of exercise
over the Fair Market Value of a share of Stock on the date of grant (or over
the option exercise price, if the Stock Appreciation Right was granted in
tandem with a Stock Option) multiplied by the number of shares with respect to
which the Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment.

          (b) Grant and Exercise. Stock Appreciation Rights may be granted in
tandem with, or independently of, any Stock Option granted under the Plan. In
the case of a Stock Appreciation Right granted in tandem with a Non-Qualified
Stock Option, such Stock Appreciation Right may be granted either at or after
the time of grant of such option. In the case of a Stock Appreciation Right
granted in tandem with an Incentive Stock Option, such Stock Appreciation Right
may be granted only at the time of grant of such option. A Stock Appreciation
Right or applicable portion thereof granted in tandem with a Stock Option shall
terminate and no longer be exercisable upon the termination or exercise of the
related Stock Option, except that a Stock Appreciation Right granted with
respect to less than the full number of shares covered by a related Stock
Option shall not be reduced until the exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.

          (c) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions as shall be determined from time to time by the
Committee, including the following:

               (i) Stock Appreciation Rights granted in tandem with Stock Options shall
be exercisable only at such time or times and to the extent that the related
Stock Option shall be exercisable. Upon the exercise of a Stock Appreciation
Right, the applicable portion of any related Stock Option shall be surrendered.

               (ii) Stock Appreciation Rights granted in tandem with a Stock Option shall
be transferable only with such Stock Option. Stock Appreciation Rights shall
not be transferable otherwise than by will or the laws of descent and
distribution. All Stock Appreciation Rights shall be exercisable during the
participant’s lifetime only by the participant or the participant’s legal
representative or guardian.

               (iii) Stock Appreciation Right granted in tandem with an Incentive Stock
Option may be exercised only when the market price of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such option.

          (d) Form of Settlement. Subject to Section 19(c) below, shares of Stock
issued upon exercise of a Stock Appreciation Right shall be free of all
restrictions under the Plan, except as otherwise provided in this subsection
(d). The Committee may provide at time of grant of a Stock Appreciation Right
that such shares shall be in the form of Restricted Stock or rights to acquire
Deferred Stock or may reserve the right to provide so at any time after the
date of grant. Any such shares and any shares subject to rights to acquire
Deferred Stock shall be valued at Fair Market Value on the date of exercise of
the Stock Appreciation Right without regard to any restrictions or deferral
limitations.

          (e) Rules Relating to Exercise. Where a Stock Appreciation Right relates
to an Incentive Stock Option, the Committee may prescribe, by rule of general
application, such other measure of value as it may determine but not in excess
of an amount consistent with the qualification of such Stock Option as an
“incentive stock option” under Section 422 of the Code.

     9. Restricted Stock.

          (a) General. A Restricted Stock Award is an Award entitling the recipient
to acquire shares of Stock, subject to such conditions, including the right of
the Company during a specified period or periods to repurchase such shares at
their original price or to

- 5 -

 

require forfeiture of such shares (if no cash consideration was paid) upon the
participant’s termination of employment, as the Committee may determine at the
time of grant. Shares of Restricted Stock may be granted or sold in respect of
past services or other valid consideration.

          (b) Award Agreement and Certificates. A participant who is granted a
Restricted Stock Award shall have no rights with respect to such Award unless
the participant shall have accepted the Award within sixty days (or such
shorter period as the Committee may specify) following the Award date by
executing and delivering to the Company a Restricted Stock Award agreement in
such form as the Committee shall determine and by making payment to the Company
by certified or bank check or other instrument acceptable to the Committee for
any cash consideration required to be paid in connection with such Restricted
Stock Award. Each participant receiving a Restricted Stock Award shall be
issued a certificate in respect of such shares of Restricted Stock. Such
certificate shall be registered in the name of the participant and deposited
with the Company or its designee, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable to such Award,
substantially in the following form:

“This certificate and the shares of stock represented
hereby are subject to the terms and conditions
(including forfeiture and restrictions against transfer)
contained in the Encore Medical Corporation 1996
Incentive Stock Plan and an agreement entered into
between the registered owner and Encore Medical
Corporation. Release from such terms and conditions
shall be obtained only in accordance with the provisions
of the Plan and the Agreement, copies of which are on
file in the office of the Secretary of Encore Medical
Corporation, located in its corporate headquarters in
Austin, Texas.

The Committee may require that, as a condition of any Restricted Stock Award,
the participant shall have delivered to the Company a stock power, endorsed in
blank, relating to the Stock covered by such Award.

          (c) Rights as a Shareholder. Upon complying with subsection (b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Stock, including voting and dividend rights, subject to
nontransferability restrictions, Company repurchase or forfeiture rights and
any other condition described in this Section 9 or contained in the Restricted
Stock Award agreement. The Restricted Stock Award agreement may require or
permit the immediate payment, waiver, deferral, or investment of dividends paid
on the Restricted Stock.

          (d) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged, or otherwise encumbered or disposed of except as
specifically provided herein and in the Restricted Stock Award agreement. The
Committee shall specify the date or dates (which may depend upon or be related
to the attainment of performance goals or such other factors or criteria as the
Committee shall determine) on which the non-transferability of the Restricted
Stock and the obligation to forfeit or resell such shares to the Company shall
lapse. The Committee may provide for the lapse of such restrictions in
installments and at any time may accelerate such date or dates and otherwise
waive or, subject to Section 18 below, amend any terms and conditions of the
Award. Except as otherwise may be provided in the Award agreement or
determined by the Committee at any time after the date of grant, in the event
of termination of employment of a participant with the Company and its
Subsidiaries for any reason (including death), the participant or the
participant’s legal representative shall resell to the Company, at the cash
consideration paid therefor, all Restricted Stock, and the Company shall
purchase such shares at that price, or if no cash consideration was paid, all
shares of Restricted Stock awarded to the participant shall automatically be
forfeited to the Company. Any shares of Stock or other securities of the
Company or any other entity that are issued as a distribution on, or in
exchange for, Restricted Stock or into which Restricted Stock is converted as a
result of a recapitalization, stock dividend, distribution of securities, stock
split or combination of shares or a merger, consolidation or sale of
substantially all of the assets of the Company shall be subject to the
restrictions set forth in the Restricted Stock Award agreement, which shall
inure to the benefit of any surviving or successor corporation that is the
issuer of such securities. Upon the lapse of the restrictions applicable to a
participant’s Restricted Stock, certificates for shares of Stock free of any
restrictive legend shall be delivered to the participant or his legal
representative or guardian.

          (e) Section 83(b) Election. Any Restricted Stock Award agreement may
provide that the participant may not elect to be taxed with respect to such
Award in accordance with Section 83(b) of the Code.

     10. Unrestricted Stock. The Committee may, in its sole discretion, grant
or sell to any participant shares of Stock free of restrictions under the Plan
(“Unrestricted Stock”). Shares of Unrestricted Stock may be granted or sold in
respect of past services or other valid consideration. Any purchase of
Unrestricted Stock by a recipient must take place within sixty days after the
time of grant of the right to purchase such shares.

     11. Deferred Stock Awards.

          (a) General. A Deferred Stock Award is an Award entitling the recipient
to acquire shares of Stock without payment in one or more installments at a
future date or dates, all as determined by the Committee. The Committee may
also condition such acquisition on the attainment of specified performance
goals or such other factors or criteria as the Committee shall determine.

          (b) Award Agreement. A participant who is granted a Deferred Stock Award
shall have no rights with respect to such Award unless within sixty days of the
grant of such Award (or such shorter period as the Committee may specify) the
participant shall have accepted the Award by executing and delivering to the
Company a Deferred Stock Award agreement.

- 6 -

 

          (c) Restriction on Transfer. Deferred Stock Awards and rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered. Rights with respect to such Awards shall be exercisable
during the participant’s lifetime only by the participant or the participant’s
legal representative or guardian.

          (d) Rights as a Shareholder. A participant receiving a Deferred Stock
Award will have rights of a shareholder only as to shares actually received by
the participant under the Plan and not with respect to shares subject to the
Award but not actually received by the participant. A participant shall be
entitled to receive a certificate for shares of Stock only upon satisfaction of
all conditions specified in the Deferred Stock Award agreement.

          (e) Elective Deferral. A participant may elect to further defer receipt
of the Stock payable under a Deferred Stock Award (or an installment of the
Award) for a specified period or until a specified event, subject in each case
to the Committee’s approval and under such terms as determined by the
Committee. Subject to any exceptions adopted by the Committee, such election
must generally be made at least 12 months prior to completion of the deferral
period for the Award (or for such installment of the Award).

          (f) Termination. Except as may otherwise be provided in the Deferred
Stock Award agreement, a participant’s rights in all Deferred Stock Awards
shall automatically terminate thirty (30) days after the participant’s
termination of employment with the Company or any of its Subsidiaries for any
reason excluding death, in which case the participant’s rights shall
automatically terminate one (1) year after such termination. Unless otherwise
provided in the terms of an Award, at any time prior to the participant’s
termination of employment, the Committee may in its discretion accelerate,
waive, or, subject to Section 18 below, amend any or all of the restrictions or
conditions imposed under any Deferred Stock Award.

          (g) Payments in Respect of Deferred Stock. Without limiting the right of
the Committee to specify different terms, the Deferred Stock Award agreement
may either make no provisions for, or may require or permit the immediate
payment, deferral, or investment of amounts equal to, or less than, any cash
dividends that would have been payable on the Deferred Stock had such Stock
been outstanding, all as determined by the Committee in its sole discretion.

     12. Performance Unit Awards.

          (a) General. A Performance Unit Award is an Award entitling the recipient
to acquire cash or shares of Stock, or a combination of cash and shares of
Stock, upon the attainment of specified performance goals. The Committee in
its sole discretion shall determine whether and to whom Performance Unit Awards
shall be made, the performance goals applicable under each such Award, the
periods during which performance is to be measured and all other limitations
and conditions applicable to a Performance Unit Award. Performance goals may
vary from participant to participant and between groups of participants and
shall be based upon such Company, business unit or individual performance
factors or criteria as the Committee may deem appropriate, including those
factors described in Section 5(iv)(B) above. Performance periods may overlap
and participants may participate simultaneously with respect to Performance
Unit Awards that are subject to different performance periods and different
performance goals. The Committee may adjust the performance goals and periods
applicable to a Performance Unit Award to take into account changes in law and
accounting and tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the inclusion or exclusion of the impact of
extraordinary or unusual items, events or circumstances in order to avoid
windfalls or hardships. Performance Units may be awarded independent of or in
connection with the grant of any other Award under the Plan.

          (b) Award Agreement. A participant shall have no rights with respect to a
Performance Unit Award unless within sixty days of the grant of such Award (or
such shorter period as the Committee may specify) the participant shall have
accepted the Award by executing and delivering to the Company a Performance
Unit Award agreement.

          (c) Restrictions on Transfer. Performance Unit Awards and all rights with
respect to such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered, and if exercisable over a specified period, shall be
exercisable during the participant’s lifetime only by the participant or the
participant’s legal representative or guardian.

          (d) Rights as a Shareholder. A participant receiving a Performance Unit
Award will have rights of a shareholder only as to shares of Stock actually
received by the participant under the Plan and not with respect to shares
subject to the Award but not actually received by the participant. A
participant shall be entitled to receive a certificate evidencing the
acquisition of shares of Stock under a Performance Unit Award only upon
satisfaction of all conditions specified in the Performance Unit Award
agreement.

          (e) Termination. Unless otherwise provided in the terms of an Award,
except as may otherwise be provided by the Committee at any time prior to the
termination of employment, a participant’s rights and all Performance Unit
Awards shall automatically terminate thirty (30) days after the participant’s
termination of employment by the Company and its Subsidiaries for any reason
excluding death, in which case the participant’s rights shall automatically
terminate one (1) year after such termination.

          (f) Acceleration; Waiver. At any time prior to the participant’s
termination of employment with the Company and its Subsidiaries, by death or
disability [or retirement], the Committee may in its sole discretion
accelerate, waive, or, subject to Section 18 below, amend any or all of the
goals, restrictions or conditions imposed under any Performance Unit Award.

          (g) Exercise. The Committee in its sole discretion shall establish
procedures to be followed in exercising any Performance Unit Award, which
procedures shall be set forth in the Performance Unit Award agreement. The
Committee may at any time

- 7 -

 

provide that payment under a Performance Unit Award shall be made, upon
satisfaction of the applicable performance goals, without any exercise by the
participant. Except as otherwise specified by the Committee, (i) a Performance
Unit granted in tandem with a Stock Option may be exercised only while the
Stock Option is exercisable, and (ii) the exercise of a Performance Unit
granted in tandem with any Award shall reduce the number of shares of Stock
subject to the related Award on such basis as is specified in the Performance
Unit Award agreement.

     13. Other Stock-Based Awards.

          (a) General. The Committee may grant other Awards under which Stock is or
may in the future be acquired (“Other Stock-Based Awards”). Such Awards may
include, without limitation, debt securities convertible into or exchangeable
for shares of Stock upon such conditions, including attainment of performance
goals, as the Committee shall determine. Subject to the purchase price
limitations in subsection (b) below, such convertible or exchangeable
securities may have such terms and conditions as the Committee may determine at
the time of grant. However, no convertible or exchangeable debt shall be
issued unless the Committee shall have provided (by the Company’s right of
repurchase, right to require conversion or exchange, or other means deemed
appropriate by the Committee) a means of avoiding any right of the holders of
such debt to prevent a Company transaction by reason of covenants in such debt.

          (b) Purchase Price; Form of Payment. The Committee may determine the
consideration, if any, payable upon the issuance or exercise of an Other
Stock-Based Award. The Committee may permit payment by certified check, bank
check or other instrument acceptable to the Committee or by surrender of other
shares of Stock (excluding shares then subject to restrictions under the Plan).

          (c) Forfeiture of Awards; Repurchase of Stock; Acceleration or Waiver of
Restrictions. The Committee may determine the conditions under which an Other
Stock-Based Award shall be forfeited or, in the case of an Award involving a
payment by the recipient, the conditions under which the Company may or must
repurchase such Award or related Stock. The Committee may in its sole
discretion, at any time prior to a participant’s termination of employment with
the Company and its Subsidiaries, by death or disability [or retirement],
accelerate, waive, or, subject to Section 18 below, amend any or all of the
limitations or conditions imposed under any Other Stock-Based Award.

          (d) Award Agreements. Unless otherwise provided in the terms of an Award,
a participant shall have no rights with respect to any Other Stock-Based Award
unless within sixty days after the grant of such Award (or such shorter period
as the Committee may specify) the participant shall have accepted the Award by
executing and delivering to the Company an Other Stock-Based Award agreement.

          (e) Restrictions on Transfer. Other Stock-Based Awards may not be sold,
assigned, transferred, pledged, or encumbered except as may be provided in the
Other Stock-Based Award agreement. However, in no event shall any Other
Stock-Based Award be transferred other than by will or by the laws of descent
and distribution or be exercisable during the participant’s lifetime by other
than the participant or the participant’s legal representative or guardian.

          (f) Rights as a Shareholder. A recipient of any Other Stock-Based Award
will have rights of a shareholder only at the time and to the extent, if any,
specified by the Committee in the Other Stock-Based Award agreement.

          (g) Deemed Dividend Payments; Deferrals. Without limiting the right of
the Committee to specify different terms, an Other Stock-Based Award agreement
may require or permit the immediate payment, waiver, deferral, or investment of
dividends or deemed dividends payable or deemed payable on Stock subject to the
Award.

     14. Supplemental Grants.

          (a) Loans. The Company may in its sole discretion make a loan to the
recipient of an Award hereunder, either on or after the date of grant of such
Award. Such loans may be either in connection with exercise of a Stock Option,
a Stock Appreciation Right or an Other Stock-Based Award, in connection with
the purchase of shares under any Award, or in connection with the payment of
any federal, state and local income taxes in respect of income recognized under
an Award. The Committee shall have full authority to decide whether to make a
loan hereunder and to determine the amount, term, and provisions of any such
loan, including the interest rate (which may be zero) charged in respect of any
such loan, whether the loan is to be secured or unsecured, the terms on which
the loan is to be repaid and the conditions, if any, under which it may be
forgiven. However, no loan hereunder shall provide or reimburse to the
borrower the amount used by him for the payment of the par value of any shares
of Stock issued, have a term (including extensions) exceeding ten years in
duration or be in amount exceeding the total exercise or purchase price paid by
the borrower under an Award or for related Stock under the Plan plus an amount
equal to the cash payment permitted in subsection (b) below.

          (b) Cash Payments. The Committee may, at any time and in its discretion,
authorize a cash payment, in respect of the grant or exercise of an Award under
the Plan or the lapse or waiver of restrictions under an Award, which shall not
exceed the amount that would be required in order to pay in full the federal,
state and local income taxes due as a result of income recognized by the
recipient as a consequence of (i) the receipt of an Award or the exercise of
rights thereunder and (ii) the receipt of such cash payment. The Committee
shall have complete authority to decide whether to make such cash payments in
any case, to make provisions for such payments either simultaneously with or
after the grant of the associated Award, and to determine the amount of any
such payment.

- 8 -

 

     15. Withholding. Whenever the Company proposes or is required to issue or
transfer shares of Stock under the Plan, the Company shall have the right to
require the recipient to remit to the Company an amount sufficient to satisfy
any federal, state and local withholding tax requirements prior to the delivery
of any certificate or certificates for such shares. If a participant
surrenders shares of Stock acquired pursuant to the exercise of an Incentive
Stock Option in payment of the option price of a Stock Option or the purchase
price under another Award, and such surrender constitutes a disqualifying
disposition for purposes of obtaining incentive stock option treatment under
the Code, the Company shall have the right to require the participant to remit
to the Company an amount sufficient to satisfy any federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such shares. Whenever under the Plan payments are to be made
in cash, such payments shall be net of an amount sufficient to satisfy any
federal, state and local withholding tax requirements. A recipient may elect,
with respect to any Non-Qualified Stock Option, Stock Appreciation Right,
Restricted Stock Award, Unrestricted Stock Award, Deferred Stock Award,
Performance Unit Award or Other Stock-Based Award that is paid in whole or in
part in Stock, to surrender or authorize the Company to withhold shares of
Stock (valued at Fair Market Value on the date of surrender or withholding of
the shares) in satisfaction of all such withholding requirements. The
Committee shall have the discretion to provide (by general rule or a provision
in the specific Award agreement) that, at the election of the recipient,
“federal, state and local withholding tax requirements” shall be deemed to be
any amount designated by the recipient that does not exceed his estimated
federal, state and local tax obligations associated with the transaction,
including FICA taxes to the extent applicable.

     16. Merger; Liquidation. If the Company shall be the surviving
corporation in any merger, recapitalization or similar reorganization, the
holder of each outstanding Stock Option shall be entitled to purchase, at the
same times and upon the same terms and conditions as are then provided in the
Stock Option, the number and class of shares of Stock or other securities to
which a holder of the number of shares of Stock subject to the Stock Option at
the time of such transaction would have been entitled to receive as a result of
such transaction, and a corresponding adjustment shall be made in connection
with determining the value of any related Stock Appreciation Right. In the
event of any such change in capitalization of the Company, the Committee may
make such additional adjustments in the number and class of shares of stock or
other securities with respect to which outstanding Awards are exercisable and
with respect to which future Awards may be granted as the Committee in its sole
discretion shall deem equitable or appropriate, subject to the provisions of
Section 18 below. In the event of dissolution or liquidation of the Company or
a merger in which the Company is not the surviving corporation, the Committee
in its sole discretion may, as to any outstanding Awards, make such
substitution or adjustment in the aggregate number of shares reserved for
issuance under the Plan and in the number or purchase price (if any) of shares
subject to such Awards as it may determine, or accelerate, amend, or terminate
such Awards upon such terms and conditions as it shall provide, which, in the
case of the termination of the vested portion of any Award, shall require
payment or other consideration that the Committee deems equitable in the
circumstances.

     17. Unfunded Status of Plan. With respect to the portion of any Award
that has not been exercised and any payments in cash, Stock or other
consideration not received by a participant, a participant shall have no rights
greater than those of a general creditor of the Company unless the Committee
shall otherwise expressly determine in connection with any Award or Awards. In
its sole discretion, the Committee may authorize the creation of trusts or
other arrangements to meet the Company’s obligations to deliver Stock or make
payments with respect to Awards, provided that the existence of such trusts or
other arrangements is consistent with the “unfunded” status of the Plan.

     18. Amendments and Termination. The Board may amend, alter or discontinue
the Plan, but no amendment, alteration or discontinuance shall be made that
would impair the rights of an optionee under a Stock Option or a recipient of
another Award theretofore granted without the optionee’s or recipient’s
consent; provided, however, that any alteration or amendment that would require
shareholder approval in order for the Plan to continue to meet any applicable
legal or regulatory requirements shall be effective only if it is approved by
the shareholders of the Company in the manner required thereby. Unless
otherwise provided in the terms of an Award, the Committee may at any time
decrease or cancel any outstanding Award (or provide substitute Awards at the
same or a reduced exercise or purchase price or with no exercise or purchase
price, but such price, if any, must satisfy the requirements that would apply
to the substitute or amended Award if it were then initially granted under the
Plan) for the purpose of satisfying changes in law or for any other lawful
purpose, but no such action shall adversely affect rights under any outstanding
Award without the recipient’s consent.

     19. General Provisions.

          (a) Transfers. For purposes of the Plan, the transfer to the employment
by the Company from a Subsidiary or from the Company to a Subsidiary, or from
one Subsidiary to another, shall not be deemed a termination of employment.

          (b) Leaves of Absence. The Committee may in its discretion determine
whether a leave of absence constitutes a termination of employment for purposes
of the Plan and the impact, if any, of such leave of absence on Awards
previously granted to a holder who takes a leave of absence.

          (c) Restrictions on Delivery and Sale of Shares. Each Award granted under
the Plan is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the Stock covered by such Award upon any securities exchange or under any state
or federal law is necessary or desirable as a condition of or in connection
with the granting of such Award or the purchase or delivery of Stock
thereunder, the delivery of any or all shares pursuant to such Award may be
withheld unless and until such listing, registration or qualification shall
have been effected. If a registration statement is not in effect under the
Securities Act of 1933, as amended, or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Awards then outstanding, the Committee may require, as a condition of any
delivery of Stock pursuant to an Award, that the recipient of Stock represent,
in writing, that the shares received pursuant to the Award are being acquired
for investment and not with a view to distribution and agree that the Stock
will not be disposed of except pursuant to an effective registration statement,
unless the Company shall have received an opinion of counsel that such
disposition is exempt from such requirement under the Securities Act of 1933,

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as amended, and any applicable state securities laws. The Company may endorse
on certificates representing shares delivered pursuant to an Award such legends
referring to the foregoing representations or restrictions or any applicable
restrictions on resale as the Company, in its discretion, shall deem
appropriate.

          (d) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements, subject to shareholder approval if such
approval is required; such arrangements may be either generally applicable or
applicable only in specific cases. The adoption of the Plan does not confer
upon any employee any right to continued employment with the Company or a
Subsidiary, or affect the right of the Company or any Subsidiary to terminate
the employment of any of its employees at any time.

          (e) Governing Law. The Plan and all Awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Texas.

     20. Effective Date. The Plan shall become effective on November 8, 1996,
the date of its adoption by the Board, subject, however, to the approval of the
Plan by the shareholders of the Company at their next Annual Meeting, or sooner
if presented for approval by the shareholders prior to such Annual Meeting.
Subject to approval by the shareholders, and to the requirement that no Stock
may be issued hereunder prior to such approval, Awards may be granted hereunder
on and after adoption of the Plan by the Board. Unless shareholder approval is
obtained by November 7, 1997, this Plan and any Award granted hereunder shall
become void thereafter.

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