Exhibit 10.4

 

EXHIBIT D: FORM OF STOCK OPTION AGREEMENT

 

NONSTATUTORY STOCK OPTION AGREEMENT

 

This NONSTATUTORY STOCK OPTION AGREEMENT (this “Agreement”), dated as of 
[          ], 2011 (the “Effective Date”), is made by and between DJO
Global, Inc., a Delaware corporation (the “Company”), and Michael Mogul (the
“Optionee”).

 

WHEREAS, the Company desires to grant the Optionee a nonqualified stock option
in recognition of the Optionee’s service to the Company and to further align the
Optionee’s interests with those of the Company’s stockholders.

 

NOW THEREFORE, the parties to this Agreement, hereby agree as follows:

 

1.            Certain Definitions.  Capitalized terms used, but not otherwise
defined, in this Agreement will have the meanings given to such terms in the
Company’s 2007 Incentive Stock Plan (the “Plan”).  As used in this Agreement:

 

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

 

(b)           “Blackstone” means each of Blackstone Capital Partners V L.P. a
Cayman Islands limited partnership, Blackstone Family Investment Partnership V
L.P., a Cayman Islands limited partnership, Blackstone Family Investment
Partnership V-A L.P., a Cayman Islands limited partnership, Blackstone
Participation Partnership V L.P., a Cayman Islands limited partnership and each
of their respective Affiliates.

 

(c)           “Change in Control” means (i) the sale or disposition, in one or a
series of related transactions, of all or substantially all of the assets of the
Company to any “person” or “group” (as such terms are defined in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) other than a sale or disposition
where Blackstone retains all or substantially all of the assets of the Company,
or (ii) any person or group, other than Blackstone, is or becomes the
‘beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of more than 50% of the total voting power of the voting
stock of the Company, including by way of merger, consolidation or otherwise
(other than an offering of stock to the general public through a registration
statement filed with the Securities and Exchange Commission); or (iii) the
approval by the stockholders of the Company of a plan of complete liquidation of
the Company.

 

(d)           “Code” means the Internal Revenue Code of 1986, as amended.

 

(e)           “Company” has the meaning specified in the introductory paragraph
of this Agreement or its successors; provided, that to the extent that any class
of equity securities of a member of the Company’s controlled group becomes
publicly traded on an established securities market, the term “Company” shall be
deemed to refer to such publicly traded entity.

 

(f)            “Compensation Committee” means the Executive Compensation
Committee of the Board.

 

(g)           “Credit Agreement” means that certain Credit Agreement dated
November 20, 2007, by and between DJO Finance LLC (f/k/a ReAble Therapeutics
Finance LLC), DJO Holdings LLC (f/k/a ReAble Therapeutics Holdings LLC), Credit
Suisse and certain other lenders.

 

(h)           “Disability” shall mean the Optionee is disabled as determined
under Section 409A(a)(2)(C) of the Code.

 

(i)            “Fair Market Value” has the meaning specified in the Plan, except
as expressly set forth herein.

 

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(j)            “First Market Return Tranche” has the meaning specified in
Section 2 of this Agreement.

 

(k)           “Good Reason” has the meaning assigned to the term “Constructive
Termination” in the employment agreement signed between Optionee and the Company
dated May 31, 2011.

 

(l)          “MOIC” shall mean the multiple of Blackstone’s aggregate invested
equity capital in the Company since its initial investment in the Company
through the date of determination as determined by the Board based on an
analysis provided by the Company’s management and based on the applicable sale
price of Blackstone’s aggregate investment in the Company taking into account
all dividends, distributions, and other proceeds received by Blackstone, but
excluding any fees paid to Blackstone pursuant to that certain Monitoring
Agreement by and between the Company and Blackstone dated November 3, 2006, as
amended from time to time, or any successor thereto, and based on the assumption
that all shares available for or subject to award under the Plan are outstanding
shares of Company common stock.  The Company hereby represents that the invested
capital on the date hereof equals $792 million.

 

(m)           “Option” has the meaning specified in Section 2 of this Agreement.

 

(n)           “Option Price” has the meaning specified in Section 2 of this
Agreement.

 

(o)           “Option Shares” has the meaning specified in Section 2 of this
Agreement.

 

(p)           “Second Market Return Tranche” has the meaning specified in
Section 2 of this Agreement.

 

(q)            “Stockholders Agreement” shall mean that certain stockholders
agreement applicable to the Optionee, as amended from time to time.

 

(r)           “Termination for Cause” shall mean the termination by the Company
of Optionee’s employment with the Company, pursuant to which the Company
delivers notice to the Optionee that Optionee’s employment with the Company has
terminated, as a result of (i) the Optionee’s willful and continued failure to
substantially perform Optionee’s duties (other than any such failure resulting
from the Optionee’s Disability or any such failure subsequent to the Optionee
being delivered notice of the Company’s intent to terminate the Optionee’s
employment without Cause), (ii) conviction of, or a plea of nolo contendere to,
(A) a felony (other than traffic-related) under the laws of the United States or
any state thereof or any similar criminal act in a jurisdiction outside the
United States or (B) a crime involving moral turpitude that could be injurious
to the Company or its reputation, (iii) the Optionee’s willful malfeasance or
willful misconduct which is materially and demonstrably injurious to the
Company, or (iv) any act of fraud by the Optionee in the performance of the
Optionee’s duties.

 

2.            Grant of Stock Option.  Subject to and upon the terms, conditions,
and restrictions set forth in this Agreement and in the Plan, the Company has
granted to Optionee an option (the “Option”) to purchase 800,000 shares of the
Company’s common stock (the “Option Shares”) at a price (the “Option Price”) of
$ 16.46 per share, which is the Fair Market Value per share on the Effective
Date.  The Option may be exercised from time to time in accordance with the
terms of this Agreement.  Subject to adjustment as hereinafter provided,
(a) 266,667 of the Option Shares constitute the “Time-Based Tranche”,
(b) 266,666 of the Option Shares constitute the First Market Return Tranche, and
(c) 266,666 of the Option Shares constitute the Second Market Return Tranche.

 

3.            Term of Option.  The term of the Option shall commence on the
Effective Date and, unless earlier terminated in accordance with Section 7
hereof, shall expire ten (10) years from the Effective Date.

 

4.            Right to Exercise.  Unless terminated as hereinafter provided, the
Option shall become exercisable only as follows:

 

(a)           The Option Shares in the Time-Based Tranche shall become vested
and exercisable in increments of 25% each on the first through fourth
anniversary dates of the Effective Date, provided the Optionee remains in the
continuous employ of the Company, any subsidiary or Affiliate as of the
applicable anniversary date.

 

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(b)           The Option Shares in the First Market Return Tranche shall become
vested and exercisable on such date, if any, prior to the expiration of the term
hereof, that both of the following two conditions are satisfied:  (i) 
Blackstone shall have disposed of some or all of its holdings of common stock in
the Company; and (ii)  Blackstone shall have realized a MOIC in the Company of
at least 2.25 times.

 

(c)           The Option Shares in the Second Market Return Tranche shall become
vested and exercisable on such date, if any, prior to the expiration of the term
hereof, that both of the following two conditions are satisfied:  (i) 
Blackstone shall have disposed of some or all of its holdings of common stock in
the Company; and Blackstone shall have realized a MOIC in the Company of at
least 2.50 times.

 

(d)           Notwithstanding the foregoing, the unvested Option Shares of the
Time-Based Tranche granted hereby shall become immediately exercisable upon the
occurrence of a Change in Control if Optionee remains in the continuous employ
of the Company or any subsidiary until the date of the consummation of such
Change in Control.

 

(e) Notwithstanding anything herein to the contrary, if the Optionee is on an
approved leave of absence, as provided in the last paragraph of Section 7
hereof, the Optionee will be considered as still in continuous employ of the
Company, a subsidiary or an Affiliate for purposes of this Plan.

 

(f) The Optionee shall be entitled to the privileges of ownership with respect
to Option shares purchased and delivered to Optionee upon the exercise of all or
part of this Option, subject to Section 8 hereof.

 

5.            Option Nontransferable.  The Optionee may not transfer or assign
all or any part of the Option other than by will or by the laws of descent and
distribution.  This Option may be exercised, during the lifetime of the
Optionee, only by the Optionee, or in the event of the Optionee’s legal
incapacity, by the Optionee’s guardian or legal representative acting on behalf
of the Optionee in a fiduciary capacity under state law and court supervision. 
Notwithstanding anything herein to the contrary, the Optionee may transfer or
assign all or any part of the Option to “family members” (as defined in the
General Instructions to Form S-8 of the Securities Act of 1933) or trusts,
partnerships or similar entities for the benefit of such family members, for
estate planning purposes or in connection with the disposition of Optionee’s
estate.

 

6.            Notice of Exercise; Payment.

 

(a)           To the extent then exercisable, the Option may be exercised in
whole or in part by written notice to the Company stating the number of Option
Shares for which the Option is being exercised and the intended manner of
payment.  The date of such notice shall be the exercise date.  Payment equal to
the aggregate Option Price of the Option Shares being purchased pursuant to an
exercise of the Option must be tendered in full with the notice of exercise to
the Company in one or a combination of the following methods as specified by the
Optionee in the notice of exercise:  (i) cash in the form of currency or check
or by wire transfer as directed by the Company, (ii) solely following an IPO in
Shares otherwise being traded on an established securities market, through the
surrender to the Company of Shares owned by the Optionee for at least six months
as valued at their Fair Market Value on the date of exercise, (iii) through net
exercise, using Shares to be acquired upon exercise of the Option, such Shares
being valued at their Fair Market Value (which for such purpose shall have the
meaning set forth in the Stockholders Agreement) on the date of exercise, or
(iv) through such other form of consideration as is deemed acceptable by the
Board.

 

(b)           As soon as practicable upon the Company’s receipt of the
Optionee’s notice of exercise and payment, the Company shall direct the due
issuance of the Option Shares so purchased.

 

(c)           As a further condition precedent to the exercise of this Option in
whole or in part, the Optionee shall comply with all regulations and the
requirements of any regulatory authority having control of, or supervision over,
the issuance of the shares of common stock and in connection therewith shall
execute any documents which the Board shall in its sole discretion deem
necessary or advisable.

 

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7.            Termination of Agreement.  The Agreement and the Option granted
hereby shall terminate automatically and without further notice on the earliest
of the following dates:

 

(a)           After the Optionee’s termination due to the Optionee’s death or
Disability, all unvested Time-Based Options will be forfeited immediately and
terminate and all vested Options from any Tranche shall remain exercisable until
the lesser of (i) one (1) year following the Optionee’s date of termination or
(ii) the remaining term of the Option; provided, however, that it shall be a
condition to the exercise of the Option in the event of the Optionee’s death
that the Person exercising the Option shall (i) have agreed in a form
satisfactory to the Company to be bound by the provisions of this Agreement and
the Stockholders Agreement and (ii) comply with all regulations and the
requirements of any regulatory authority having control of, or supervision over,
the issuance of the shares of common stock and in connection therewith shall
execute any documents which the Board shall in its sole discretion deem
necessary or advisable.  Unvested Options from the First and Second Market
Return Tranches shall remain outstanding for the twelve (12) month period
following the date of such termination by reason of death or Disability.  To the
extent applicable market return targets are achieved within such twelve (12)
month period following the date of termination due to the Optionee’s death or
Disability ( a “Post-Termination Vesting Event”), the appropriate number of
Options will vest as of such Post-Termination Vesting Event, and remain
exercisable for twelve (12) months following such Post-Termination Vesting Event
(but not beyond the remaining term of the Option).  On the twelve (12) month
anniversary of the date of termination of employment by reason of death or
Disability, all remaining unvested options from the First and Second Market
Return Tranches will be forfeited;

 

(b)           After the Optionee’s termination by the Company without Cause or
by the Optionee for Good Reason, all unvested Time-Based Options will be
forfeited immediately and terminate and all vested Options from any Tranche
shall remain exercisable until the lesser of (i) ninety (90) calendar days
following the Optionee’s date of termination or (ii) the remaining term of the
Option.  Unvested options from the First and Second Market Return Tranches shall
remain outstanding for the twelve (12) month period following the date of such
termination by reason of termination by the Company without Cause or by the
Optionee for Good Reason.  To the extent a Post-Termination Vesting Event occurs
within such twelve (12) month period, the appropriate number of Options will
vest as of such Post-Termination Vesting Event, and remain exercisable for
ninety (90) calendar days following such Post-Termination Vesting Event (but not
beyond the remaining term of the Option).  On the twelve (12) month anniversary
of the date of termination of employment by reason of termination by the Company
without Cause or by the Executive with Good Reason, all remaining unvested
options from the First and Second Market Return Tranches will be forfeited;

 

(c)           The date of the Optionee’s Termination for Cause, upon which all
vested and unvested Options will be forfeited immediately and terminate;

 

(d)           After the Optionee’s termination without Good Reason, all unvested
options will be forfeited immediately and terminate and all vested Options from
any Tranche shall remain exercisable until the lesser of (i) ninety (90)
calendar days following the Optionee’s date of termination or (ii) the remaining
term of the Option; or

 

(e)           Ten (10) years from the Effective Date.

 

Notwithstanding the foregoing, in all termination events other than a
termination of the Optionee’s employment for Cause, if the last day to exercise
vested Options occurs after the date on which the Company’s common stock is
publicly traded on a national stock exchange and during a lock-up period or
securities law blackout period, the otherwise applicable post-termination Option
exercise period shall continue, but not beyond the remaining term of the Option,
until thirty (30) calendar days after the first day when the terminating
Optionee is no longer precluded from selling stock acquired upon exercise of
Options for either of such reasons.  Notwithstanding anything to the contrary
herein, nothing herein shall prohibit the Optionee from exercising his or her
vested Options through net exercise, using Shares to be acquired upon exercise
of the Option, during any lock-up or securities law blackout period to the
extent not prohibited by law.

 

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In the event that the Optionee’s employment is terminated in the circumstances
described in Section 7(c) hereof, this Agreement shall terminate at the time of
such termination notwithstanding any other provision of this Agreement and the
Optionee’s Option will cease to be exercisable to the extent exercisable as of
such termination and will not be or become exercisable after such termination. 
The Optionee shall be deemed to be an employee of the Company or any subsidiary
if on a leave of absence approved in writing by the Board or the Chief Executive
Officer of the Company to the extent consistent with Section 409A of the Code.

 

8.            Stockholders Agreement.  The Optionee agrees that any Option
Shares that the Optionee receives pursuant to this Agreement or under the Plan
are subject to the terms and conditions set forth in the Stockholders Agreement.

 

9.            No Employment Contract.  Nothing contained in this Agreement shall
(a) confer upon the Optionee any right to be employed by or remain employed by
the Company or any subsidiary, or (b) limit or affect in any manner the right of
the Company or any subsidiary to terminate the employment or adjust the
compensation of the Optionee.

 

10.          Dividend Equivalents.  Upon the payment of any ordinary or
extraordinary cash dividend (or similar distributions) to holders of Company
common stock, the Optionee will be credited with dividend equivalent rights with
respect to the Options as follows.  Dividend equivalents relating to vested
Options shall be paid to the Optionee in cash at the same time dividends are
paid to holders of Company common stock.  Dividend equivalents relating to
unvested Options will be credited to a notional account maintained on the books
of the Company for the benefit of the Optionee, which account shall not accrue
interest.  The Optionee will become vested in such account at the same time as
the Options to which the dividend equivalents relate vest and become
exercisable, and such vested amounts shall be payable in cash upon the
applicable vesting date, and in no event later than 2½ months following the end
of the calendar year in which the applicable vesting date occurs.  Unvested
amounts held in such account shall be forfeited by the Optionee upon the date of
any termination of employment; provided, however, that if such termination
results in the continuation of unvested Options from the First and Second Market
Return Tranches, as provided in Sections 7(a) and 7(b), above, forfeiture of
dividend equivalents shall be delayed until the twelve (12) month anniversary of
such termination, and to the extent that any Options vest during such twelve
(12) month period, such related dividend equivalents shall also vest and be paid
to the Optionee in cash on the twelve (12) month anniversary of such termination
or, if the Options are forfeited, such related dividend equivalents shall also
be forfeited.

 

11.          Taxes and Withholding.  The Company or any subsidiary may withhold,
or require the Optionee to remit to the Company or any subsidiary, an amount
sufficient to satisfy federal, state, local or foreign taxes (including the
Optionee’s FICA obligation) in connection with any payment made or benefit
realized by the Optionee or other person under this Agreement or otherwise, and
if the amounts available to the Company or any subsidiary for such withholding
are insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that Optionee or such other person make arrangements
satisfactory to the Company or any subsidiary for payment of the balance of such
taxes required to be withheld.  The Optionee may elect to have such withholding
obligation satisfied by surrendering to the Company or any subsidiary a portion
of the Option Shares that are issued or transferred to the Optionee upon the
exercise of an Option (but only to the extent of the minimum withholding
required by law), and the Option Shares so surrendered by Optionee shall be
credited against any such withholding obligation at the Fair Market Value (which
for such purpose shall have the meaning set forth in the Stockholders Agreement)
of such Shares on the date of such surrender.

 

12.          Compliance with Law.  The Company shall comply with all applicable
federal and state securities laws.

 

13.          Adjustments.

 

(a)           The Board shall make or provide for such substitution or
adjustments in the number of Option Shares covered by this Option, in the Option
Price applicable to such Option, and in the kind of shares covered thereby
and/or such other equitable substitution or adjustments as the Board may
determine to prevent dilution or enlargement of the Optionee’s rights that
otherwise would result from (i) any stock dividend, extraordinary cash-dividend,
stock split, combination of shares, recapitalization, or other change in the
capital

 

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structure of the Company, (ii) any merger, consolidation, spin-off, split-off,
spin-out, split-up, reclassification, reorganization, partial or complete
liquidation, or other distribution of assets or issuance of rights or warrants
to purchase securities, or (iii) any other corporate transaction or event having
an effect similar to any of the foregoing.  In the case of a Change in Control,
such substitutions and adjustments include, without limitation, canceling any
and all Options in exchange for cash payments equal to the excess, if any, of
the value of the consideration paid to a shareholder of an Option Share over the
Option Price per share subject to such Option in connection with such an
adjustment event.

 

(b)           To the extent that any equity securities of any member of the
Company’s controlled group become publicly traded, at such time all Options
shall be exchanged, in a manner consistent with Sections 409A and 424 of the
Code, for options with the same intrinsic value in the publicly-traded entity,
and all Shares shall be exchanged for shares of common stock with the same
aggregate value of the publicly-traded entity.

 

14.          Relation to Other Benefits.  Any economic or other benefit to
Optionee under this Agreement shall not be taken into account in determining any
benefits to which Optionee may be entitled under any profit-sharing, retirement
or other benefit or compensation plan maintained by the Company or any
subsidiary and shall not affect the amount of any life insurance coverage
available to any beneficiary under any life insurance plan covering employees of
the Company or any subsidiary.

 

15.          Amendments.  Any amendment to the Plan shall be deemed to be an
amendment to this Agreement to the extent that the amendment is applicable
hereto.

 

16.          Severability.  If one or more of the provisions of this Agreement
is invalidated for any reason by a court of competent jurisdiction, any
provision so invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall continue to be
valid and fully enforceable.

 

17.          Relation to Plan.  This Agreement is subject to the terms and
conditions of the Plan.  In the event of any inconsistent provisions between
this Agreement and the Plan, the Plan shall govern.  The Board acting pursuant
to the Plan, as constituted from time to time, shall, except as expressly
provided otherwise herein, have the right to determine any questions which arise
in connection with the Option or its exercise.

 

18.          Successors and Assigns.  The provisions of this Agreement shall
inure to the benefit of, and be binding upon, the successors, administrators,
heirs, legal representatives and assigns of Optionee, and the successors and
assigns of the Company.

 

19.          Governing Law.  The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the State of New York, without
giving effect to the principles of conflict of laws thereof and all parties,
including their successors and assigns, consent to the jurisdiction of the state
and federal courts of New York.

 

20.          Prior Agreement.  As of the Effective Date, this Agreement
supersedes any and all prior and/or contemporaneous agreements, either oral or
in writing, between the parties hereto, or between either or both of the parties
hereto and the Company, with respect to the subject matter hereof.  Each party
to this Agreement acknowledges that no representations, inducements, promises,
or other agreements, orally or otherwise, have been made by any party, or anyone
acting on behalf of any party, pertaining to the subject matter hereof, which
are not embodied herein, and that no prior and/or contemporaneous agreement,
statement or promise pertaining to the subject matter hereof that is not
contained in this Agreement shall be valid or binding on either party.

 

21.          Notices.  For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof confirmed), or five business days after
having been mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or three business days after having been sent by a
nationally recognized overnight courier service such as Federal Express, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive offices and to Optionee at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.

 

22.          Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its
behalf by its duly authorized officer and the Optionee has executed this
Agreement, as of the day and year first above written.

 

 

 

DJO GLOBAL, INC.:

 

 

 

 

 

 

 

DONALD ROBERTS

 

Executive Vice President, General Counsel and Secretary

 

 

I hereby agree to be bound by the terms of the Plan, this Agreement and the
Stockholder’s Agreement.  I hereby further agree that all the decisions and
determinations of the Board or an officer as provided in this Agreement shall be
final and binding.

 

 

 

OPTIONEE:

 

 

 

 

 

 

 

MICHAEL MOGUL

 

Chief Executive Officer

 

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