Employment Agreement Of H. Allen Hughes, Jr.

EMPLOYMENT AGREEMENT


This Agreement is made as of July 31, 2002 by and between RME Acquisition Corp., a Minnesota corporation (the "Company"), and H. Allen Hughes, Jr., a resident of Tennessee ("Executive").


WHEREAS, the Company has acquired the business (the "Business") and substantially all of the assets of Rehab Med Equip, Inc., a Tennessee corporation ("RME"); and


WHEREAS, Executive has served as chairman of the board and chief executive officer of RME; and


WHEREAS, the Company wishes to employ Executive in connection with the Business, and Executive desires to accept that employment pursuant to the terms and conditions of this Agreement;


NOW, THEREFORE, for the consideration described below, the parties agree as follows:


I. Employment


1.1 Employment As Executive. The Company hereby agrees to employ Executive as a General Manager of the Company for a three-year period commencing on the date hereof, renewable automatically for successive one-year periods, unless terminated by either Executive or the Company in accordance with Article III of this Agreement (such actual period of employment being referred to as the "Employment Period"). Executive accepts such employment pursuant to the terms of this Agreement. Executive shall perform such duties and responsibilities as may be determined from time to time by the Vice President of Marketing of Empi Corp., the parent corporation of the Company ("Empi"), to whom he shall report.


1.2 Exclusive Services. Executive agrees to devote his full business time, attention, and energy to performing his duties and responsibilities to the Company under this Agreement during the Employment Period.


1.3 Base of Operations. Executive's principal base of operations for the performance of his duties and responsibilities under this Agreement shall be the offices of the Company in Collegedale, Tennessee, or within the area covered by a 35-mile radius of such location.


Compensation, Benefits, and Perquisites


2.1 Salary. During the Employment Period, the Company shall pay Executive a salary at the annual rate of $103,600, payable in accordance with the Company's normal payroll payment schedule for salaried employees, but not less often than monthly. The President of Empi may review the salary periodically and may in his sole discretion increase it to reflect performance and other factors, although the Company is not obligated to provide for any


increases. Executive's salary is subject to reduction only in connection with an across-the board reduction in salaries applicable to senior management of the Company and Empi generally.


2.2 Incentive Bonus. During the Employment Period, Executive shall be eligible to earn an annual incentive bonus of up to 35% of salary, based on meeting certain objectives, both on an individual and Company basis, established by the Vice President of Marketing of Empi with Executive's input at the beginning of each fiscal year of the Company.


2.3 Vacations. Executive shall be entitled to paid vacation of four weeks a year, to be scheduled in accordance with the policies of the Company.


2.4 Employee Benefits. Executive shall be entitled to the benefits which the Company generally provides to its other employees from time to time under applicable Company plans and policies. Executive's participation in such benefit plans shall be on the same basis as applies to other employees of the Company and subject to the terms of applicable law, plan documents, and insurance policies; provided, that the Company shall credit to Executive, for purposes of eligibility to participate in, and for purposes of determining vesting under, all benefit plans (other than the annual incentive bonuses for fiscal 2002), all prior service of Executive recognized by RME prior to the date hereof. Executive shall pay any contributions which are generally required of employees to receive any such benefits.


2.5 Employment Taxes and Withholding. Executive recognizes that the compensation and benefits provided by the Company under this Agreement may be subject to federal, state, or local income taxes. All such taxes shall be the responsibility of the Executive. To the extent that federal, state, or local law requires withholding of taxes on compensation and benefits provided under this Agreement, the Company shall withhold the necessary amounts from the amounts payable to Executive under this Agreement.


2.6 Company Responsibility for Insured Benefits. In connection with this Article II, the Company may provide certain benefits in the form of premiums of insurance coverage. The Company is not itself promising to pay the benefit an insurance company is obligated to pay under the policy the insurance company has issued. If an insurance company does not or cannot pay benefits it owes to Executive or his beneficiaries under the insurance policy, neither Executive nor his personal representative or beneficiary shall have any claim for benefits against the Company.


2.7 Expenses. Executive shall be entitled to receive reimbursement from the Company (in accordance with the policies and procedures then in effect for the Company's employees) for all reasonable travel and other expenses incurred by him in connection with his services under this Employment Agreement.


2.8 Indemnification. The Company shall indemnify Executive and hold him harmless from any and all claims and liabilities arising out of his employment and service as an employee and officer, or in any other applicable capacity, to the extent consistent with Company policies on indemnification for employees and officers generally, including those in the


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Company's by-laws, insurance policies covering directors' and officers' liability and other relevant documents and policies.


III. Termination of Executive's Employment


3.1 Termination of Employment. Except for termination of Executive's employment by reason of Executive's disability, Executive's employment under this Agreement may be terminated by Executive or the Company at any time for any reason by providing written notice to the other party of such termination. If Executive terminates this Agreement for any reason, he agrees to provide 90 days notice prior to the effective date of termination (the "Termination Date"). This Agreement shall terminate in its entirety immediately upon the death of Executive.


3.2 Severance. (a) If Executive's employment hereunder is terminated by the Company without cause (as defined below) or by Executive for good reason (as defined below), the Company will pay to Executive (i) his salary through the Termination Date and for a period of one year after the Termination Date and (ii) h ...