Document:

Exhibit 10.1

 

NONSTATUTORY
STOCK OPTION AGREEMENT

 

This NONSTATUTORY STOCK OPTION AGREEMENT (this “Agreement”), dated as
of March7, 2009 (the “Effective Date”), is made by and between DJO
Incorporated, a Delaware corporation (the “Company”), and [                 ]
(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)            “EBITDA” shall mean,
for any applicable period, “Consolidated EBITDA” as defined in the Credit
Agreement for such period, excluding forward cost savings as determined by the
Board.

 

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

 

(k)           “First
Performance-Based Tranche” has the meaning specified in Section 2 of this
Agreement.

 

(l)        “Free
Cash Flow” shall mean, for any applicable period, EBITDA (as defined above) for
such period minus capital expenditures during such period and increased or
decreased, as the case may be, by the change in Operating Working Capital
during such period.

 

(m)          “Good
Reason” shall mean a material reduction in the Optionee’s compensation below
the amount of compensation in effect on the date of this Agreement which is not
cured within thirty (30) days following the Company’s or its subsidiary’s, as
applicable, receipt of written notice from such Optionee describing the event
constituting Good Reason.

 

(n)           “IRR”
shall mean, as determined by the Board based on an analysis provided by the
Company’s management, Blackstone’s annually compounded internal rate of return
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.

 

(o)           “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.  It being
understood that the invested capital on the date here of equals $792 million.

 

(p)           “Operating
Working Capital” as of any date shall mean the difference between current
assets (excluding cash and investments, interest and tax accounts) and current
liabilities (excluding debt, interest and tax accounts).  Accrued liabilities related to restructuring
charges added back for the purposes of computing EBITDA are also excluded from
current liabilities to compute Operating Working Capital.

 

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

 

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

 

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

 

2

 

(t)             “Second
Performance-Based Tranche” has the meaning specified in Section 2 of this
Agreement.

 

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

 

(v)           “Termination
for Cause” shall mean the termination by the Company of Optionee’s employment
with the Company 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 [      ]
shares of the Company’s common stock (the “Option Shares”) at a price (the “Option
Price”) of $[      ]
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) [        ] of the
Option Shares constitute the “Time-Based Tranche”, (b) [       ] of the Option
Shares constitute the First Performance-Based Tranche, and (c) [      ]
of the Option Shares constitute the Second Performance-Based 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
accordance with the schedule set forth immediately below, provided the Optionee
remains in the continuous employ of the Company, any Subsidiary or Affiliate as
of each such date.

 

	
  Vesting Date

  	
   

  	
  Percentage of Time-Based Tranche Option

  Shares that Vest

  	
   

  
	
  March 7,
  2010

  	
   

  	
  25

  	
  %

  
	
  March 7,
  2011

  	
   

  	
  20

  	
  %

  
	
  March 7,
  2012

  	
   

  	
  18.33

  	
  %

  
	
  March 7,
  2013

  	
   

  	
  18.33

  	
  %

  
	
  March 7,
  2014

  	
   

  	
  18.34

  	
  %

  

 

3

 

(b)           The
Option Shares in the First Performance-Based Tranche shall become vested and
exercisable as of the date of the certification of the satisfaction of each
such Annual Performance Target in accordance with the schedule set forth
immediately below:

 

	
  Vesting Date if First Performance-Based

  Target is Satisfied

  	
   

  	
  Percentage of First Performance-Based

  Tranche Option Shares that Vest

  
	
  December 31,
  2009

  	
   

  	
  25% times Performance Percentage

  
	
  December 31,
  2010

  	
   

  	
  20% times Performance Percentage

  
	
  December 31,
  2011

  	
   

  	
  18.33% times Performance Percentage

  
	
  December 31,
  2012

  	
   

  	
  18.33% times Performance Percentage

  
	
  December 31,
  2013

  	
   

  	
  18.33% times Performance Percentage

  

 

For purposes of the foregoing schedule, the
Performance Percentage is the weighted average of the EBITDA Factor, weighted
at seventy percent (70%), and the Free Cash Flow Factor, weighted at thirty
percent (30%), where the EBITDA Factor and Free Cash Flow Factor are determined
as follows:

 

(i) The EBITDA
Factor.  The EBITDA Factor is determined
in accordance with the schedule set forth on Attachment A.  If the actual EBITDA achieved is less than
the EBITDA Base Case for the applicable year set forth on Attachment A, then
the EBITDA Factor is zero percent (0%). 
If the actual EBITDA achieved is equal to or exceeds the EBITDA Base
Case for the applicable year as set forth on Attachment A, then the EBITDA
Factor shall equal eighty percent (80%) plus an additional percentage between
zero percent (0%) and twenty percent (20%) determined in linear proportion to
the portion of the difference between the EBITDA Base Case and the EBITDA Target
that is actually achieved.  For example,
for 2009 the EBITDA Base Case is $            
million and the EBIDTA Target is $           
million.  If the actual EBITDA achieved
for 2009 was $           
million, then the EBITDA Factor would equal eighty percent (80%) for achieving
the EBITDA Base Case plus ten percent (10%) because half of the difference
between the EBITDA Base Case and the EBITDA Target was actually achieved.  Accordingly, the EBITDA Factor in this
example would be ninety percent (90%).

 

(ii) Free Cash Flow
Factor.  The Free Cash Flow Factor is
determined in the same manner as the EBITDA Factor as described in Section (c)(i) above
using the Free Cash Flow Base Case and Free Cash Flow Target set forth on
Attachment A.

 

Any Option Shares in the First
Performance-Based Tranche which the Optionee does not earn the right to
exercise at any of the dates set forth above shall remain capable of vesting at
any of the later dates set forth above in the following manner.  If the Option Shares in the First
Performance-Based Tranche on any of the dates set forth above (the “Current
Date”) vest in any percentage between 80% and 100% on such date (the “Current
Vesting Percentage”), then the Option Shares in the First Performance-Based
Tranche that were subject to vesting at any earlier date set forth above that
did not vest at such earlier date in the same or a greater percentage as the
Current Vesting Percentage shall vest and be exercisable on the Current Date at
the same percentage as the Current Vesting Percentage.  Any Option Shares in the First

 

4

 

Performance-Based Tranche that have not
vested by the latest date set forth above shall thereupon expire and terminate.

 

(c)           The
Option Shares in the Second Performance-Based Tranche shall become vested and
exercisable on such date, if any, prior to the expiration of the term hereof,
that all of the following three conditions are satisfied:  (i)  Blackstone shall have disposed of
some or all of its holdings of common stock in the Company; (ii) Blackstone
shall have realized an IRR on its aggregate investment in the common stock of
the Company of at least 22.5%; and (iii) Blackstone shall have realized a
MOIC in the Company of at least 2.5 times.

 

(d)           Notwithstanding
the foregoing, (i) the 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, and (ii) the
Option Shares of the First Performance-Based Tranche for the year in which such
Change of Control is consummated and for any subsequent year in Attachment A
shall become immediately exercisable if the Optionee remains in the continuous
employ of the Company or any Subsidiary until the date of 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.

 

(g) All of the financial
factors utilized to establish the vesting of the Option Shares in the First
Performance-Based Tranche shall be determined by the Board based on an analysis
provided by the Company’s management and any such determination shall be final
and binding on Optionee for all purposes under this Agreement.

 

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

 

5

 

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.

 

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 Performance-Based 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 performance targets
are achieved, or a Change in Control occurs, within such twelve (12) month
period following the date of termination due to the Optionee’s death or
Disability (each, 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 Performance-Based 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
Performance-Based 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

 

6

 

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 Performance-Based 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.

 

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

 

7

 

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
21⁄2 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
Performance-Based 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 make reasonable efforts to
comply with all applicable federal and state securities laws; provided,
however, that notwithstanding any other provision of this Agreement, the Option
shall not be exercisable if the exercise thereof would result in a violation of
any such law.

 

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 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.

 

8

 

(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

 

9

 

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.

 

10

 

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 INCORPORATED:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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:

  
	
   

  	
   

  
	
   

  	
   

  

 

11Exhibit 10.2

 

AMENDMENT NUMBER ONE

TO

NONSTATUTORY STOCK OPTION AGREEMENT

 

This Amendment
Number One to Nonstatutory Stock Option Agreement (“Amendment”), dated as of March 7,
2009, is made by and between DJO Incorporated, a Delaware corporation (the “Company”)
and                  
(the “Optionee”).

 

WHEREAS, the Company and Optionee have
previously entered into that certain Nonstatutory Stock Option Agreement (the “Agreement”)
dated              ,
2008 under which the Company granted Optionee an option to purchase shares of
Common Stock on terms and conditions set forth therein;

 

WHEREAS, the Company and Optionee desire to
amend the Agreement and thereby amend the terms of the option granted pursuant
to the Agreement in the manner set forth in this Amendment;

 

NOW, THEREFORE, the parties hereby agree as
follows.  Capitalized terms used but not
defined herein shall have the meanings ascribed to them in the Agreement.

 

1.              Amendment of
Certain Definitions.

 

(a)           A new Section 1(n) is
hereby inserted to read as follows:

 

“(n)         “IRR” shall mean, as determined by the Board based on an
analysis provided by the Company’s management, Blackstone’s annually compounded
internal rate of return 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.”

 

(b)           A
new Section 1(o) is hereby inserted to read as follows:

 

“(o)         “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.  It being understood that the invested capital
on the date here of equals $792 million.”

 

 

(c)           Sections
1(n) and (o) and all other subsections of Section 1 as they
existed prior to the preceding amendments shall not be deleted, but are hereby “renumbered”
in an appropriate fashion.

 

2.              Amendment to
First Performance-Based Tranche of Vesting.

 

(a)           Section 4(b) of the
Agreement is hereby amended to substitute the attached version of Attachment A
for the version thereof previously attached to the Agreement.  Each reference in Section 4(b) of
the Agreement to “Attachment A” shall be considered as a reference to
Attachment A attached to this Amendment.

 

(b)           The
last paragraph in section 4(b) is hereby amended in its entirety to read
as follows:

 

“Any Option Shares
in the First Performance-Based Tranche which the Optionee does not earn the
right to exercise at any of the dates set forth above shall remain capable of
vesting at any of the later dates set forth above in the following manner.  If the Option Shares in the First
Performance-Based Tranche on any of the dates set forth above (the “Current
Date”) vest in any percentage between 80% and 100% on such date (the “Current
Vesting Percentage”), then the Option Shares in the First Performance-Based Tranche
that were subject to vesting at any earlier date set forth above that did not
vest at such earlier date in the same or a greater percentage as the Current
Vesting Percentage shall vest and be exercisable on the Current Date at the
same percentage as the Current Vesting Percentage.  Any Option Shares in the First
Performance-Based Tranche that have not vested by the latest date set forth
above shall thereupon expire and terminate.”

 

3.             Amendment
to Second Performance-Based Tranche of Vesting.  Section 4(c) of the Agreement is
hereby amended in its entirety to read as follows:

 

“(c)         The
Option Shares in the Second Performance-Based Tranche shall become vested and
exercisable on such date, if any, prior to the expiration of the term hereof,
that all of the following three conditions are satisfied:  (i)  Blackstone shall have disposed of
some or all of its holdings of common stock in the Company; (ii) Blackstone
shall have realized an IRR on its aggregate investment in the common stock of
the Company of at least 22.5%; and (iii) Blackstone shall have realized a
MOIC in the Company of at least 2.5 times.”

 

3.             Section 4(d) of
the Agreement is hereby amended in its entirety to read as follows:

 

“(d)  Notwithstanding the
foregoing, (i) the 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, and (ii) the Option Shares of
the First Performance-Based Tranche for the year in which such Change of
Control is consummated and for any subsequent year in the Performance Period
shall become immediately exercisable if the Optionee remains in the continuous
employ of the Company or any Subsidiary until the date of consummation of such
Change in Control.”

 

4.             Section 4(g) of
the Agreement is hereby amended in its entirety to read as follows:

 

“(g) All of the financial
factors utilized to establish the vesting of the Option Shares in the First
Performance-Based Tranche shall be determined by the Board based on an analysis
provided by the Company’s management and any such determination shall be final
and binding on Optionee for all purposes under this Agreement.”

 

5.             Counterparts.  This Amendment 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.

 

6.             Effect
of Amendment.  Except as specifically
amended by this Amendment, the Agreement remains in force and unmodified and
its terms and provisions, as amended hereby, remain in full force and effect.

 

 

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

 

 

	
   

  	
  DJO INCORPORATED:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DONALD ROBERTS

  
	
   

  	
  Executive Vice President, General Counsel and Secretary

  

 

 

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

 

 

	
   

  	
  OPTIONEE:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00158-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00158-of-00352.parquet"}]]