Document:

Exhibit 10.11.9

 

 

EXECUTION VERSION

 

NINTH AMENDMENT TO, AND WAIVER UNDER, CREDIT AGREEMENT

 

THIS
NINTH AMENDMENT TO, AND WAIVER UNDER, CREDIT AGREEMENT (this “Ninth
Amendment”) is made and entered into as of March 3, 2008, by and among the
financial institutions identified on the signature pages hereof (such
financial institutions, together with their respective successors and assigns,
are referred to hereinafter each individually as a “Lender” and
collectively as the “Lenders”), WELLS FARGO FOOTHILL, INC., a California
corporation, as arranger and administrative agent for the Lenders (in such
capacities, together with any successor arranger and administrative agent, “Agent”),
and TRC COMPANIES, INC., a Delaware corporation (the “Administrative
Borrower”), on behalf of all Borrowers.

 

WITNESSETH:

WHEREAS,
the Administrative Borrower, the Administrative Borrower’s Subsidiaries party
thereto, the Lenders and Agent are parties to that certain Credit Agreement,
dated as of July 17, 2006 (as amended as of October 31, 2006, as of November 29,
2006, as of December 29, 2006, as of January 31, 2007, as of July 30,
2007, as of September 25, 2007, as of November 28, 2007, and as of December 14,
2007, and as the same may be further amended, modified, supplemented or amended
and restated from time to time, the “Credit Agreement”);

 

WHEREAS,
pursuant to Section 5.9 of the Credit Agreement, Borrowers are
obligated to keep their and their Restricted Subsidiaries’ Inventory and
Equipment (other than vehicles and Equipment out for repair or maintained with
customers in the ordinary course of business) only at the locations specified
on Schedule 4.5; provided, however, that Administrative
Borrower may amend Schedule 4.5 so long as such amendment occurs by
written notice to Agent not less than 30 days prior to the date on which such
Inventory or Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as, at the time
of such written notification, the applicable Borrower provides Agent a
Collateral Access Agreement with respect thereto (provided that a Collateral
Access Agreement shall only be required to be delivered if books and records
are maintained at such location);

 

 WHEREAS, TRC Environmental Corporation moved
certain of its Inventory and Equipment, from 2313 W. Sam Houston Parkway North,
Houston, Texas 77043 and 1500 City West Boulevard, Houston, Texas 77042 to
10011 Meadowglen, Houston, Texas 77042, without providing to Agent the notice
and Collateral Access Agreement required by Section 5.9 of the
Credit Agreement (the “Applicable Default”);

 

WHEREAS,
the Administrative Borrower has requested Agent and the Lenders to waive the
Applicable Default, and Agent and the Lenders have agreed to do so subject to
the terms and conditions set forth herein; and

 

WHEREAS,
Agent, the Lenders and the Borrowers have agreed to amend the Credit Agreement,
all as herein provided subject to the terms and conditions set forth herein;

 

NOW,
THEREFORE, in consideration of
the agreements and provisions herein contained, the parties hereto do hereby
agree as follows:

 

Section 1.              Definitions.  Any capitalized terms used but not otherwise
defined herein shall have the meanings ascribed to such terms in the Credit
Agreement.

 

 

Section 2.              Waiver Under Credit Agreement.  Subject to the satisfaction of the terms and
conditions set forth herein, Agent and the Required Lenders hereby waive the
Applicable Default; provided that the foregoing waiver shall be
rescinded and no longer effective as of March 31, 2008 if the Borrowers
fail to deliver to Agent a Collateral Access Agreement with respect to the
Collateral located at 10011 Meadowglen, Houston, Texas 77042 on or prior to April 30,
2008.

 

Section 3.              Amendments to the Credit
Agreement.  Subject to the
terms and conditions set forth herein, the Credit Agreement is hereby amended,
as of the Effective Date (defined below), as follows:

 

3.01.       Section 6.1.  Section 6.1 of the Credit
Agreement is hereby amended as follows:

 

(a) the
word “and” at the end of clause (e) thereof is hereby deleted;

 

(b) the
period at the end of clause (f) thereof is hereby replaced by “; and”; and

 

(c) the
following new clause (g) is hereby added at the end thereof: “(g) Indebtedness
in the form of promissory notes from Administrative Borrower to each of Federal
Partners, L.P., Peter R. Kellogg, Lee I. Kellogg and Charles Kirkland Kellogg,
in an aggregate principal amount not to exceed $600,000 so long as such
Indebtedness is (i) not secured by any of the assets of any Borrower or
any Guarantor or any of their respective Subsidiaries and (ii) subordinated
to the Obligations on terms satisfactory to Agent.”

 

3.02.       Schedule 4.5.  Schedule 4.5 to the Credit Agreement
is hereby amended as follows:

 

(a)           The following locations under TRC
Environmental Corporation are hereby deleted from Schedule 4.5: 2313 W. Sam Houston Parkway North, Houston, Texas
77043 and 1500 City West Boulevard, Houston, Texas 77042; and

 

(b)           The following location under TRC
Environmental Corporation is hereby added to Schedule 4.5: 10011 Meadowglen, Houston, Texas 77042.

 

Section 4.              Representations
and Warranties.  In order to induce
Agent and the Lenders to enter into this Ninth Amendment, the Administrative
Borrower, for itself and on behalf of all of the other Borrowers, hereby
represents and warrants that:

 

4.01.       No Default.  At and as of the date of this Ninth Amendment
and at and as of the Effective Date and both prior to (other than with respect
to the Applicable Default) and after giving effect to this Ninth Amendment, no
Default or Event of Default exists and is continuing.

 

4.02.       Representations and
Warranties True and Correct. 
At and as of the date of this Ninth Amendment and both prior to (other
than with respect to the Applicable Default) and after giving effect to this
Ninth Amendment, each of the representations and warranties contained in the
Credit Agreement and other Loan Documents is true and correct in all material
respects.

 

4.03.       Corporate Power,
Etc.  Administrative
Borrower (a) has all requisite corporate power and authority to execute
and deliver this Ninth Amendment and to consummate the 

 

 

transactions
contemplated hereby for itself and, in the case of Administrative Borrower, on
behalf of all of the other Borrowers, and (b) has taken all action,
corporate or otherwise, necessary to authorize the execution and delivery of
this Ninth Amendment and the consummation of the transactions contemplated
hereby for itself and, in the case of Administrative Borrower, on behalf of all
of the other Borrowers.

 

4.04.       No Conflict.  The execution, delivery and performance by
Administrative Borrower (on behalf of itself and all of the other Borrowers) of
this Ninth Amendment will not (a) violate any provision of federal, state,
or local law or regulation applicable to any Borrower, the Governing Documents
of any Borrower, or any order, judgment or decree of any court or other
Governmental Authority binding on any Borrower, (b) conflict with or
result in any breach of, or constitute (with due notice or lapse of time or
both) a default under any material contractual obligation of any Borrower, (c) result
in or require the creation or imposition of any Lien of any nature whatsoever
upon any properties or assets of any Borrower, other than Permitted Liens, or (d) require
any approval of any Borrower’s interestholders or any approval or consent of
any Person under any material contractual obligation of any Borrower, other
than consents or approvals that have been obtained and that are still in force
and effect.

 

4.05.       Binding Effect.  This Ninth Amendment has been duly executed
and delivered by the Administrative Borrower (on behalf of itself and all of
the other Borrowers) and constitutes the legal, valid and binding obligation of
the Administrative Borrower (on behalf of itself and all of the other
Borrowers), enforceable against the Administrative Borrower (on behalf of
itself and all of the other Borrowers) in accordance with its terms, except as
such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, relating to or affecting the enforcement of creditors’ rights
generally, and (b) the application of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

Section 5.              Conditions.  This Ninth Amendment shall be
effective upon the fulfillment by the Borrowers, in a manner satisfactory to
Agent and the Lenders, of all of the following conditions precedent set forth
in this Section 5 (such date, the “Effective Date”):

 

5.01.       Execution of the
Ninth Amendment.  Each of the
parties hereto shall have executed an original counterpart of this Ninth
Amendment and shall have delivered (including by way of telefacsimile or
electronic mail) the same to Agent.

 

5.02.       Subordination
Agreement and Subordinated Notes.  Agent shall have received (a) a fully
executed Subordination Agreement executed by each of Federal Partners, L.P.,
Peter R. Kellogg, Lee I. Kellogg and Charles Kirkland Kellogg and acknowledged
by Administrative Borrower, in form and substance satisfactory to Agent, and (b) fully
executed Subordinated Notes executed by Administrative Borrower in favor of
Federal Partners, L.P., Peter R. Kellogg, Lee I. Kellogg and Charles Kirkland
Kellogg (collectively, the “Subordinated Notes”) and all other documents
executed in connection with the Subordinated Notes (collectively, the “Subordinated
Loan Documents”), each in form and substance satisfactory to Agent.

 

5.03.       Representations and
Warranties.  As of the Effective
Date, the representations and warranties set forth in Section 4
hereof shall be true and correct.

 

 

5.04.       Compliance with Terms. 
Borrowers shall have complied in all respects with the terms hereof and
of any other agreement, document, instrument or other writing to be delivered
by Borrowers in connection herewith.

 

5.05.       Delivery
of Other Documents.  Agent shall have received all other
instruments, documents and agreements as Agent may reasonably request, in form
and substance reasonably satisfactory to Agent.

 

Section 6.              Subordinated Loan Documents.  Borrowers shall deliver to Agent
promptly after execution thereof any amendments, supplements or modifications
to any of the Subordinated Loan Documents.

 

Section 7.              Miscellaneous.

 

7.01.       Continuing Effect.  Except as specifically provided herein, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect in accordance with their respective terms and are hereby ratified and
confirmed in all respects.

 

7.02.       No Waiver;
Reservation of Rights.  This Ninth
Amendment is limited as specified and the execution, delivery and effectiveness
of this Ninth Amendment shall not operate as a modification, acceptance or
waiver of any provision of the Credit Agreement, or any other Loan Document,
except as specifically set forth herein. 
Notwithstanding
anything contained in this Ninth Amendment to the contrary, Agent and the
Lenders expressly reserve the right to exercise any and all of their rights and
remedies under the Credit Agreement, any other Loan Document and applicable law
in respect of any Default or Event of Default.

 

7.03.       References.

 

(a)           From and after the Effective Date, (i) the Credit Agreement, the other Loan Documents and
all agreements, instruments and documents executed and delivered in connection
with any of the foregoing shall each be deemed amended hereby to the extent
necessary, if any, to give effect to the provisions of this Ninth Amendment and
(ii) all of the terms and provisions of this Ninth Amendment are hereby
incorporated by reference into the Credit Agreement, as applicable, as if such
terms and provisions were set forth in full therein, as applicable.

 

(b)           From and after the Effective Date, (i) all
references in the Credit Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder”
or words of like import referring to the Credit Agreement shall mean the Credit
Agreement as amended hereby and (ii) all references in the Credit
Agreement, the other Loan Documents or any other agreement, instrument or
document executed and delivered in connection therewith to  “Credit Agreement”, “thereto”, “thereof”, “thereunder”
or words of like import referring to the Credit Agreement shall mean the Credit
Agreement as amended hereby.

 

7.04.       Governing Law.  THIS NINTH AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

7.05.       Severability.  The provisions of this Ninth Amendment are
severable, and if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, 

 

 

then
such invalidity or unenforceability shall affect only such clause or provision,
or part thereof, in such jurisdiction and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or provision
in this Ninth Amendment in any jurisdiction.

 

7.06.       Counterparts.  This Ninth Amendment may be executed in any
number of counterparts, each of which counterparts when executed and delivered
shall be an original, but all of which shall together constitute one and the
same instrument.  Delivery of an executed
counterpart of this Ninth Amendment by telefacsimile or electronic mail shall
be equally effective as delivery of a manually executed counterpart.  A complete set of counterparts shall be
lodged with the Administrative Borrower, Agent and each Lender.

 

7.07.       Headings.  Section headings in this Ninth Amendment
are included herein for convenience of reference only and shall not constitute
a part of this Ninth Amendment for any other purpose.

 

7.08.       Binding Effect;
Assignment.  This Ninth
Amendment shall be binding upon and inure to the benefit of Borrowers, Agent
and the Lenders and their respective successors and assigns; provided, however,
that the rights and obligations of Borrowers under this Ninth Amendment shall
not be assigned or delegated without the prior written consent of Agent and the
Lenders.

 

7.09.       Expenses.  Borrowers agree to pay Agent upon demand, for
all reasonable expenses, including reasonable fees of attorneys and paralegals
for Agent and the Lenders (who may be employees of Agent or the Lenders),
incurred by Agent and the Lenders in connection with the preparation,
negotiation and execution of this Ninth Amendment and any document required to
be furnished herewith.

 

7.10.       Integration.  This Ninth Amendment, together with the other
Loan Documents, incorporates all negotiations of the parties hereto with
respect to the subject matter hereof and is the final expression and agreement
of the parties hereto with respect to the subject matter hereof.

 

[Signature
page follows]

 

 

 

IN
WITNESS WHEREOF, the parties hereto have caused this Ninth Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

 

	
   

  	
  ADMINISTRATIVE
  BORROWER: 

  
	
   

  	
   

  
	
   

  	
  TRC
  COMPANIES, INC., a Delaware corporation, as 

  
	
   

  	
  Administrative
  Borrower, on behalf of itself and all other Borrowers

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/
  Martin H. Dodd

  
	
   

  	
  Name:

  	
  Martin H. Dodd

  
	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  AGENT AND LENDERS: 

  
	
   

  	
   

  
	
   

  	
  WELLS FARGO FOOTHILL, INC., 

  
	
   

  	
  as Agent and as a Lender

  
	
   

  	
  By:

  	
  /S/ Jason
  P. Shanahan

  
	
   

  	
  Name:

  	
  Jason P. Shanahan

  
	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  TEXTRON FINANCIAL CORPORATION,

  
	
   

  	
  as a Lender

  
	
   

  	
  By:

  	
  /S/ Chris
  Grivakis

  
	
   

  	
  Name:

  	
  Chris Grivakis

  
	
   

  	
  Title:

  	
  Senior Account Executive

  
					

 

 

[SIGNATURE PAGE OF NINTH
AMENDMENT]Exhibit 10.6

 

NONSTATUTORY STOCK
OPTION AGREEMENT

 

This NONSTATUTORY STOCK OPTION AGREEMENT (this “Agreement”),
dated as of March [      ],
2008 (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)           “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.

 

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

 

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

 

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

 

(r)            “Performance Period” shall mean the five-year period commencing January 1,
2008 and ending December 31, 2012.

 

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

 

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

 

(u)           “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

 

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

  
	
  December 31, 2008

  	
   

  	
  25%

  
	
  December 31, 2009

  	
   

  	
  20%

  
	
  December 31, 2010

  	
   

  	
  18.33%

  
	
  December 31, 2011

  	
   

  	
  18.33%

  
	
  December 31, 2012

  	
   

  	
  18.34%

  

 

(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, 2008

  	
   

  	
  25% times Performance
  Percentage

  
	
  December 31, 2009

  	
   

  	
  20% times Performance
  Percentage

  
	
  December 31, 2010

  	
   

  	
  18.33% times Performance
  Percentage

  
	
  December 31, 2011

  	
   

  	
  18.33% times Performance
  Percentage

  
	
  December 31, 2012

  	
   

  	
  18.33% times Performance
  Percentage

  

 

3

 

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 2008 the
EBITDA Base Case is 245 and the EBIDTA Target is 253.  If the actual EBITDA achieved for 2008 was
249, 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 shall thereupon expire and terminate.

 

(c)           The Option Shares in the Second 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 Second Performance-

  Based Target is Satisfied

  	
   

  	
  Percentage of Second
  Performance-Based 

  Tranche Option Shares that Vest

  
	
  December 31, 2008

  	
   

  	
  25% times Enhanced
  Performance Percentage

  
	
  December 31, 2009

  	
   

  	
  20% times Enhanced
  Performance Percentage

  
	
  December 31, 2010

  	
   

  	
  18.33% times Enhanced
  Performance Percentage

  
	
  December 31, 2011

  	
   

  	
  18.33% times Enhanced
  Performance Percentage

  
	
  December 31, 2012

  	
   

  	
  18.33% times Enhanced
  Performance Percentage

  

 

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

 

4

 

(i) Enhanced EBITDA Factor.  The Enhanced EBITDA Factor is determined in
the same manner as the EBITDA Factor as described in Section (c)(i) above
using the Enhanced EBITDA Base Case and the Enhanced EBITDA Target set forth on
Attachment B.

 

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

 

Any Option Shares in the Second
Performance-Based Tranche which the Optionee does not earn the right to
exercise shall thereupon expire and terminate.

 

(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 and the Second Performance-Based Tranche for
the year in which such Change of Control is consummated and for any subsequent
Performance Periods 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 as described above
to establish the vesting of the Option Shares shall be determined from the books
and records of the Company by the Chief Financial Officer of the Company and
any such determination that is reviewed and approved by the Board 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 

 

5

 

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.

 

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 

 

6

 

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 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 the 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 

 

7

 

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 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 

 

8

 

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 

 

9

 

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.

 

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 shall be final and binding.

 

 

	
   

  	
  OPTIONEE:

  
	
   

  	
   

  
	
   

  	
   

  

 

 

[Signature Page to Option
Agreement]

 

 

ATTACHMENT A

First Performance-Based Tranche

 

 

ATTACHMENT B

 

Second Performance-Based Tranche

 

13

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