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
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.
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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:
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(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.
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(a) Termination of employment. If any Change of Control of the
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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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(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
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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;
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(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
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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.
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The Executive covenants and agrees as follows:
(a) Provision of services when Change of Control is threatened. If
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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
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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),
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(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
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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
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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
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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.
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4. Notice of Termination.
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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.
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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.
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(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.
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7. Assignment; Successors in Interest.
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(a) General. Except with the prior written consent of the Executive,
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(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
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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.
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(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
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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
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Nick Cindrich, Chairman of the Board
EXECUTIVE
/s/ Kenneth W. Davidson
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KENNETH W. DAVIDSON
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