EMPI INC, 10-K405, 1997-03-31

EMPI INC
10-K405, 1997-03-31
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 0-9387
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EMPI, INC.
(Exact name of registrant as specified in its charter)

MINNESOTA 41-1310335
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

599 CARDIGAN ROAD
ST. PAUL, MINNESOTA 55126
(Address of principal executive offices) (Zip code)

Registrant's telephone number, including area code (612) 415-9000
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Securities registered pursuant to Section 12 (b) of the Act: NONE
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Securities registered pursuant to Section 12 (g) of the Act:

NO PAR VALUE COMMON STOCK
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(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 21, 1997, was approximately $156,932,666.

The number of shares outstanding of the registrant's class of common stock as of
March 21, 1997, was 8,259,614 shares of no par value common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held May 13, 1997, are incorporated by reference into Part III.

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ITEM 1. BUSINESS

GENERAL

Empi, Inc. ("Empi" or the "Company") is one of the largest medical device
companies in rehabilitative medicine in the United States. The Company is a
leading supplier of electrotherapy products, iontophoretic drug delivery
products, orthotic products, and incontinence treatment products to the physical
therapy, sports medicine, and incontinence treatment markets, worldwide. Empi
designs, develops, and produces products which are supported by clinical outcome
studies collected by the Company.

Empi was organized as a Minnesota corporation in October 1977. The Company's
corporate headquarters is located at 599 Cardigan Road, St. Paul, Minnesota
55126, telephone (612) 415-9000.

COMPANY STRATEGY

Empi has established five major strategic initiatives to guide and manage the
Company's business.

(1) MARKET LEADERSHIP

Empi seeks to be the leader in its chosen markets by continuing to broaden
the Company's product offerings with the highest quality products and with
superior customer service. In 1996, the Company added to its orthotics
product line by introducing the Protonics-TM- functional active resistance
knee orthosis as well as new models of the Advance Dynamic ROM-Registered
Trademark- devices. Empi also expanded catalog offerings by adding such
items as a therapeutic ultrasound system, a clinic-based electrical
stimulation system, and the Total Gym-Registered Trademark- Therapy System.
The Company also organized a number of continuing education programs for
clinicians and physical therapists during 1996. In 1997 the Company
intends to develop new products, pursue additional marketing partnerships,
and increase public awareness and customer education programs to reinforce
its leadership position in the physical therapy market. In addition, Empi
intends to continue to explore new market opportunities which diversify its
business.

(2) REIMBURSEMENT

The Company is committed to maintaining reimbursement for all its products
as well as extending the availability of coverage for its incontinence
therapies. Empi has invested significant resources to establish a strong
medical billing and patient care service organization that verifies
coverage and reimbursement levels on behalf of the patient. Empi plans to
continue to work with leading physicians to publish outcome studies which
support the effectiveness of the Company's products. In 1996 the Company
presented the first outcomes-based study of Empi's Epix XL-Registered
Trademark- TENS device in the CLINICAL JOURNAL OF PAIN and the ARCHIVES
OF PHYSICAL MEDICINE AND REHABILITATION. Using evidence from well
constructed randomized clinical studies the Company intends to continue to
aggressively seek reimbursement from the Health Care Financing
Administration (HCFA) for its incontinence products. Empi was extremely
disappointed with HCFA's decision, May 1996, not to grant reimbursement
status for pelvic floor stimulation to treat urinary incontinence.
Following such decision, the Company was, however, able to expand regional
coverage for its incontinence products through new agreements with key
Health Maintenance Organizations. Empi also promotes its products as being
highly effective, low cost alternatives to surgery or medication.

(3) NATIONAL ACCOUNTS

Today's U.S. healthcare market has never been more dynamic. Empi
recognized the importance of being in a position to respond to those
dynamics in 1994 when it formed its National Accounts department, whose
charter is to leverage the Company's market position by negotiating
preferred supplier agreements with prominent national and regional provider
networks, payor groups, and managed care organizations. This group is also
responsible for raising the awareness and acceptance level for Empi's
products with key decision makers in Medicare, Medicaid, state workers
compensation agencies, and private insurance plans. To further this
effort, the Company hired a director of national accounts in 1996 to
oversee the development and implementation of the Company's objectives.

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(4) ORGANIZATIONAL DEVELOPMENT

Empi recognizes the necessity to grow, develop, and strengthen the
Company's organizational talent pool. In 1996, the Company dedicated
substantial training resources to establish a consultative selling approach
with our field sales representatives as well as our internal sales and
marketing employees. During the year, Empi integrated the organization's
domestic sales and marketing functions while strengthening the functional
leadership team, at the director level. In 1997, the Company intends to
focus on refining its sales and marketing approach to the incontinence
market and improving time-to-market performance in new product development.

(5) PROFITABILITY

Empi has made consistent improvements in earnings per share performance in
1995 and 1996 by rigorously managing expenses and making wise capital
investments in order to favorably leverage its top line revenue growth.
The Company remains dedicated to providing strong returns to shareholders
by efficiently managing its sales and marketing organization, management
information systems, operating expenses, gross margins, and pricing
strategies. The Company plans to continue to seek opportunities to
leverage its existing distribution base by broadening and diversifying its
product offerings.

PRODUCTS

ELECTROTHERAPY

TENS DEVICES: Physicians and physical therapists have treated their
patients' chronic and acute pain with electrical stimulation, often
referred to as "transcutaneous electrical nerve stimulation" or "TENS," for
over 20 years. Although TENS may not be effective for every patient or
every condition, medical professionals have generally accepted TENS as an
effective treatment for chronic or acute pain resulting from a variety of
medical conditions. TENS devices are most frequently used to treat
persistent orthopedic conditions such as low back pain, joint stiffness and
muscle spasm. Physicians have also prescribed TENS for pain resulting from
a variety of other conditions including abdominal surgery, post-operative
pain, arthritis, tendonitis, phantom limb pain and childbirth. TENS
devices generally reduce pain while the device is being used, as well as
for a period of time following usage, but do not cure the cause of the
pain.

TENS devices consist of a small, portable, battery-powered electrical pulse
generator which is connected via wires to electrodes placed at or near the
site of the patient's pain. The devices are small enough to fit into a
shirt pocket and weigh approximately 5 ounces, allowing patients to
alleviate pain conveniently at home or elsewhere. The electrodes are
attached to the skin with an interface layer of conductive gel. The
stimulator produces low voltage pulses of electricity which can be
delivered continuously or intermittently in different wave forms. Empi's
leading TENS product, Epix XL, is a market leader due to its pre-programmed
features and high intensity capability.

Two theories have been advanced to explain the manner in which TENS
alleviates pain. The "gate control theory" postulates that the electrical
impulses from TENS devices block or interfere with the neurological
transmission of pain signals from the site of the injury to the brain. A
second theory suggests that the electrical impulses prompt the release of
endogenous endorphins, the body's natural pain suppressing agents. Neither
theory has conclusive support in the scientific literature. Under either
theory, TENS relieves pain without the costs and risks associated with
surgery or the undesirable side effects and physiological problems of
prolonged drug use which can include addiction, stupor, depression,
disorientation, nausea and ulcers.

NMES DEVICES: Medical professionals also use electrical stimulation to
activate and exercise muscles for rehabilitative purposes. "Neuromuscular
electrical stimulation" or "NMES" has proven effective in producing
controlled, involuntary muscle contractions which can maintain the strength
and mobility of a limb or prevent deterioration of muscle tissues in
patients who are unable to perform voluntary muscle contraction.
Physicians have prescribed neuromuscular stimulation in a variety of
circumstances intended to improve muscle tone, increase joint mobility and
accelerate recovery from traumatic injury. Common conditions for which
NMES therapy may be prescribed include common knee injuries, swelling,
spasticity and improper gait.

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ACCESSORIES: The Company meets the needs of the customer by supplying
accessories such as electrodes, cables, conductive gel, skin care
products, batteries and other accessories, which are either manufactured by
Empi or purchased from other vendors for resale. The Company has exclusive
rights to distribute several unique models of electrodes.

Empi believes that the U.S. market for TENS, NMES, and Accessories is in
excess of $100 million, and the Company anticipates the market to grow, in
unit volume, by approximately 5% per annum.

IONTOPHORETIC DRUG DELIVERY

IONTOPHORESIS: Iontophoresis is a process which uses electric current to
assist drug transfer through the skin. Iontophoretic applications include
the delivery of local anesthesia and anti-inflammatory medication for
tissue treatment. For many applications, use of iontophoresis can be
advantageous when compared to a syringe because it allows medications to be
dispersed without invading the joint space. It can also avoid many of the
systemic and other side effects frequently associated with oral medications
or injections.

The Company has developed both a proprietary iontophoresis device and
patented buffered electrode capable of delivering small molecule drugs that
can be ionized, such as drugs for arthritis, bursitis, tendonitis and
related conditions. The system is controlled by a microprocessor and uses
continuous low voltage electrical current which delivers charged drug
particles through the skin's surface. The Company estimates that the
current market for human iontophoresis systems is approximately $30 million
and that the market defined in sales dollars is growing at a rate of
approximately 10% per annum. The Company is continually investigating
alternate uses of this technology in new medical markets.

The Company received FDA 510 (k) clearance in July 1990 for its
Dupel-Registered Trademark- iontophoresis device and in November 1991 for
its buffered electrode. The Company introduced its iontophoresis system,
for human use, to the marketplace in the first quarter of 1992. During
1996, Empi developed and test marketed the Relion-TM- iontophoresis drug
delivery system for use in the equine veterinary marketplace. Relion was
tested over several months and appears to offer veterinarians a useful
system for local delivery of a variety of drugs for the treatment of
horses. In February of 1997 the Company launched Relion in the U.S. and
International marketplace through regional veterinary distributors.

ORTHOTICS/OEM

ORTHOTICS: The Advance Dynamic ROM orthoses product line is used to
correct joint range of motion limitations at the wrist, elbow, knee or
ankle. The Company's Advance Dynamic ROM orthosis is based on the
principle that particular connective tissue will remodel over time in
response to the type and amount of physical stress it receives. The
Advance Dynamic ROM orthosis addresses the permanent or plastic component
of connective tissue deformation to achieve long-term range of motion
improvement. It does this by gently delivering low-load stress at the
joint's end-range over a prolonged period of time. The Company's Advance
Dynamic ROM orthosis product line consists of models for the elbow, wrist,
knee and ankle joints and was introduced in the first quarter of 1995.
Range of motion limitations, generally referred to as contractures, often
result following long periods of restricted motion or when scar adhesions
form following trauma. The dynamic orthoses line fits very well with the
Company's focus on cost effective treatments used outside the clinic
setting. The Company estimates that the current ROM orthotics market is
approximately $30 million and that the growth potential over the next few
years is estimated at 15% per year.

During the second quarter of 1996, Empi entered into an agreement with
Inverse Technology Corporation to market Protonics, a functional active
resistance orthosis, to physicians and physical therapists. The innovative
design of Protonics addresses neuromuscular disorders in patients with knee
dysfunction problems by helping to strengthen muscles, ligaments and
tendons surrounding the knee joint through resistive exercise. The
addition of Protonics is part of the Company's strategy to become a leader
in the growing therapeutic bracing market. After a brief test marketing
period, Protonics was launched nationally in the fourth quarter of 1996.

The Company also has a national distribution agreement to market
Pronex-TM-, a cervical traction device used to relieve chronic neck pain by
relaxing muscle tension and spasms and by mechanical separation of the
cervical vertebrae. Pronex is sold to physical therapists and patients.

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OEM: To further leverage the Company's sales force, Empi teamed up with
Rehab Med+Equip in 1995 to offer a broad line of catalog items to physical
therapy clinics and the home health care industry. The catalog contains
over 250 products. New to the catalog this year is a therapeutic
ultrasound system, a clinic-based electrical stimulation system, and the
Total Gym Therapy System.

The Total Gym Therapy System is a complete body exercise system that allows
therapists to accurately assess early, post-surgery or post-injury, lower
body function in a closed chain, partial weight bearing position. It is
effective for quantitative clinical testing of functional abilities and
allows therapists to design comprehensive, injury specific rehabilitation
protocols that achieve proprioceptive response.

INCONTINENCE TREATMENT

FEMALE URINARY INCONTINENCE PRODUCTS: In 1987, the Company began a
research project relating to the application of its electro-therapeutic
technology to the treatment of female urinary incontinence. In July 1991,
the Company received FDA 510 (k) clearance for Innova-Registered Trademark-
PFS, the Company's female pelvic floor rehabilitation system. Urinary
incontinence is the involuntary loss of urine so severe as to have social,
psychological or hygienic consequences. According to the 1996 Agency for
Health Care Policy and Research (AHCPR) guidelines, "the U.S. spends $16
billion a year to care for people with urinary incontinence, up from $10
billion in 1990." At least 50% of the 1.5 million men and women in nursing
homes suffer from incontinence. This condition is often a principal reason
that leads families of the elderly to commit them to full-time care.
Current treatments for female urinary incontinence range from surgical
procedures with a three to four day hospital stay and costs of $6,000 to
$13,000, to behavioral therapy or pharmacologic therapy. Products designed
to manage the problem of urinary incontinence include incontinence
appliances such as catheters, collection devices, and urethral plugs as
well as incontinence disposables such as adult diapers or briefs, padded
undergarments and bed pads designed to keep urine away from the patient's
skin. Innova PFS is designed to cure or control stress, urge and mixed
incontinence. Stress incontinence, the most common form, is the inability
of the sphincter to hold back urine when there is a sudden increased
pressure on the bladder. Leakage of urine commonly occurs with activities
such as coughing, sneezing, lifting and exercising. Urge incontinence
occurs when the bladder is irritated and contracts spontaneously causing a
sudden need to urinate. Mixed incontinence is a combination of both stress
and urge incontinence. Traditionally, urge incontinence has been treated
with pharmacological therapy. Many patients are intolerant of the
medication's side effects. Stress incontinence is poorly treated by
pharmacological treatment and therefore, in most cases, has resulted in
surgical intervention.

Innova PFS is composed of an externally worn, microprocessor-based
neuromuscular stimulator that activates a proprietary multi-channel vaginal
or rectal electrode. The device automatically delivers timed dosages of
stimulation for the treatment of stress, urge and mixed incontinence during
twenty-minute treatment sessions. The treatment sessions are generally
performed twice a day in the convenience and privacy of the home. The
regular use of Innova PFS can improve or cure stress, urge or mixed
incontinence; published studies indicate a success rate of 60-90%. The
cost of treatment with Innova PFS is approximately six to nine hundred
dollars, including physician fees.

The Company believes electro-therapeutic pelvic muscle stimulation will
eventually be selected as one of the first choice treatments before more
invasive treatments due to its noninvasive nature, lower cost, lower risk
and lack of side effects. The recent AHCPR guidelines, for the treatment
of adult urinary incontinence, gives pelvic floor electrical stimulation
(PFS) a "B" strength of evidence recommendation for stress, urge and mixed
incontinence. This is the same rating currently enjoyed by available
surgical alternatives. While there are other pelvic muscle stimulation
devices available, Innova PFS has been proven to be safe and effective
based on controlled clinical studies, which have been published in peer-
reviewed journals. The Company has designed an intravaginal electrode which
it believes has several significant advantages over other electrodes,
including the patented ComfortPulse-Registered Trademark- technology which
makes the electrode more comfortable and effective during treatment. The
Company added three new electrode models in the last year, for both male
and female use.

It is estimated that more than 13 million women in the United States suffer
from urinary incontinence. The Company believes that, for various reasons,
electro-therapeutic treatment will not be appropriate for a portion of
these women. The Company's initial target market includes women aged 35-65
who, when properly diagnosed, would benefit from electrical stimulation
therapy. The Company estimates that there are at least 6 million women in
this target market. One of the biggest business risks facing the Company
is establishment of broad reimbursement coverage for Empi's Innova PFS
system. The Company is also investigating the use of Innova for

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the treatment of post-prostatectomy incontinence, fecal incontinence and
interstitial cystitis. Studies using Innova to treat these conditions are under
review.

MANUFACTURING

Empi manufactures most of its electrotherapy devices and its Advance ROM
orthotic devices, as well as some components and related accessories, at its
Clear Lake, South Dakota facility. Manufacturing activities at the Clear Lake
facility include electronic and mechanical assembly, electrode fabrication and
assembly, and fabric sewing processes.

The Company's products are comprised of a variety of components including metal
or plastic cases, plastic subassemblies, die cast metal parts, injection-molded
plastic parts, printed circuit boards, electronic components, alkaline and
rechargeable nickel cadmium batteries, battery chargers, leadwires, electrodes
and other components. These parts are purchased from outside suppliers and some
are manufactured by others on a custom basis for the Company.

Many of the component parts and raw materials used by the Company in its
manufacturing and assembly operations are available from more than one
supplier. However, several component parts and accessory products are currently
purchased through a single supply source. If these components were no longer
available, the Company believes it could develop alternative sources that would
avoid any material adverse effect upon the Company's operations.

CUSTOMERS, MARKETING AND SALES

The Company's primary customers are patients, physical therapists/clinics, U.S.
distributors, and International distributors. These customers represented 61%,
30%, 4%, and 5%, respectively, of Empi's net sales for fiscal 1996. As of
year-end 1996, Empi had approximately 115 sales representatives, in the field,
selling rehabilitation products domestically on a direct basis to physicians,
physical therapists and their patients. The Company currently serves over
12,000 physical therapy clinics and hospital physical therapy departments. The
Company also provides its customers a network for direct billing to insurance
claims offices, Medicare carriers, HMO's and other managed healthcare programs.
On February 24, 1997 Empi announced the launch of its new Relion-TM-
iontophoresis product line for veterinary use. The new Relion iontophoresis
line was developed for equine use and will be marketed through distributors.

Empi has also invested in both telemarketing and direct mail programs to contact
patients who use its TENS and NMES devices to help them meet their needs in
reordering accessory products. Telemarketing and direct sales programs are also
used to contact home healthcare dealers who purchase the Company's products for
resale to hospitals, clinicians and patients.

Responding to the consolidation of provider networks and larger payor groups,
which have gained leverage in coverage and reimbursement decisions, the Company
established a national accounts group in 1994 to address those coverage and
reimbursement issues and to gain preferred supplier agreements with the leading
provider and payor groups.

Empi believes that combining the Company's direct sales force, state-of-the-art
patient care services, clinic customer service, third party billing services,
and national account service gives the Company a distinct competitive advantage
in today's market place.

The Company sells its products internationally through distributors and dealers.
At the end of 1996 Empi had 21 International distributors covering 27 countries,
worldwide. A Japanese distributor agreement with Nihon Medix, of Tokyo , Japan
was finalized and signed in April 1996. The Company introduced the Advance ROM
orthoses product line in Germany in May 1996 and plans to introduce the Advance
ROM and Protonics in additional countries, in 1997.

No individual customer accounted for 10 percent or more of total revenue for
1996, 1995, or 1994, respectively.

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COMPETITION

ELECTROTHERAPY

The Company believes that its two strongest competitors in the electrotherapy
market are Rehabilicare, Inc. and Staodyn, Inc., and also believes that the
principal competitive factors in the electrotherapy marketplace are price,
product quality and service. Empi believes its competitive advantage in the
electrotherapy marketplace to be higher quality products and superior customer
service.

IONTOPHORETIC DRUG DELIVERY

The Company feels its primary competitors in the iontophoretic market are IOMED,
Inc., Life-Tech, Inc. and Henley International, Inc.

ORTHOTICS/OEM

The Company's major competitors in the orthosis market are Dynasplint and
DeRoyal/LMB. In the cervical traction market, the Company faces three main
competitors: Saunders, Staodyn and Lossing.

INCONTINENCE TREATMENT

Several companies are developing new treatment products designed to cure or
control incontinence problems, including injectable biomaterials, improved drug
therapy, other electro-therapeutic devices and muscle contraction biofeedback
devices. Each of these treatment approaches is aimed at eliminating or reducing
a patient's reliance on incontinence appliances or disposable diapers. Utah
Medical, BMR and Stimtech all have pelvic floor stimulation devices on the
market. Currently, none of these devices have published placebo-controlled
clinical studies to support the effectiveness of their product claims.

PRODUCTS AND TECHNOLOGIES UNDER DEVELOPMENT

Empi's current research and development efforts are principally directed towards
the development of next generation products and technologies related to the
Company's electrotherapy, iontophoresis, orthotics and incontinence businesses,
enhancement of existing products, and manufacturing process developments to
improve product performance and costs. In 1996 research and development focused
on developing a low cost incontinence pelvic floor stimulation system, a new
TENS device with data collection capabilities, expanding the iontophoresis
technology into new markets, new models for the Advance ROM, and other new
therapeutic braces.

In fiscal 1996, 1995, and 1994, the Company's research and development expenses
(including clinical studies) were $3,476,000, $3,424,000, and $3,432,000
respectively. These expenses are expected to increase in future years.

BACKLOG

As of February 28, 1997, Empi did not have a material backlog situation and does
not expect to experience a material backlog situation in the foreseeable future.

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PATENTS AND TRADEMARKS

The Company currently owns numerous U.S. patents issued between 1982 and 1996.
These patents cover various aspects and features of Empi's electrotherapy
devices and associated electrodes, incontinence devices and associated
electrodes, and range of motion orthotic devices. A number of patents and
trademarks were obtained as a result of the Nortech and PHD acquisitions which
cover various aspects of electrodes, stimulators and surface sEMG equipment. In
addition, numerous patent applications have been filed on various aspects of
range of motion orthotic devices, incontinence electrodes, and iontophoresis
electrodes. The initial life of each patent issued to the Company is either 14
or 17 years from the date of issue.

Although the Company generally seeks patent protection when possible, it does
not consider patent protection to be a significant, competitive advantage in the
marketplace for electro-therapeutic devices; however, patent protection may be
of significance with various aspects of the Company's incontinence electrode
technology and its orthosis technology. There is no assurance that any of the
Company's existing patents or any patents obtained in the future will provide
substantial protection, or be of commercial benefit to the Company, or that
their validity will not be successfully challenged; and there is also no
assurance that the Company's products will not infringe upon any patents held by
others.

The Company has also registered and filed applications to register various
trademarks with the U.S. Patent and Trademark Office and appropriate offices in
foreign countries. There is no assurance that the Company's assertion of
trademark protection will prevent competitors from infringing on the Company's
trademarks.

GOVERNMENT REGULATIONS AND REIMBURSEMENT

GOVERNMENT REGULATIONS

Medical device development, testing, manufacturing, labeling and marketing are
regulated under the Federal Food, Drug and Cosmetic Act (the "ACT"), as amended,
and additional regulations promulgated thereunder. These statutes and
regulations require that manufacturers adhere to certain standards designed to
assure product safety and effectiveness.

The FDA's "Good Manufacturing Practices of Medical Devices" regulation
establishes standards for the Company's manufacturing processes, requires
maintenance of certain records and provides for unscheduled inspections of the
Company facilities. Certain requirements of state, local and foreign
governments must also be complied with in the manufacture and marketing of the
Company's products. The Company believes its operations meet the requirements
of these regulations.

New medical devices require regulatory approval prior to market introduction. In
the United States, new medical devices are subject to either the 510(k)
Pre-Market Notification regulation or the Pre-Market Approval (PMA) regulation;
the pathway is dependent on the device's nature and intended use. International
registration and approval requirements vary and are country dependent. Most
regulatory approvals require submission of extensive documentation, engineering,
pre-clinical testing and manufacturing information to demonstrate compliance
with the pertinent regulations. In some cases, product electronics, appearance
or labeling must be modified in order to comply with the foreign regulations.
In addition, some products may require extensive clinical testing to obtain
regulatory approval. The Company anticipates the FDA may require submission of
additional clinical testing concerning iontophoretic drug delivery. In this
regard, the Company is preparing the necessary clinical trial data to support
the ongoing sale of its iontophoresis product, Dupel.

The Company contracts with an outside certification authority to review the
conformance of its quality assurance system to two recognized international
quality system standards, ISO-9001 and EN 46001. Continued certification is
essential for compliance with the Medical Device Directive in the European
Union. The Company received this certification in 1996.

REIMBURSEMENT

A significant portion of the Company's revenues are paid by third-party payors,
such as Medicare, workers compensation, private insurance companies and health
maintenance organizations, on behalf of the patients who rent or purchase the
Company's products. The Company maintains a large support staff that verifies
third-party payor coverage prior to each purchase and bills the third-party
payor directly. When appropriate, the Company's

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staff obtains appropriate letters of medical necessity from the prescribing
physician and sends such letters to the third-party payor. Delays in obtaining
appropriate documentation and the time required for claims processing by the
third-party payors have a significant impact on the Company's outstanding
receivables.

Empi's dependence on third-party payors exposes the Company to the risk of
government regulations limiting the amount that such third-party payors may pay
for the Company's products. The Company anticipates a continuing dependence on
third-party payors with respect to new products, such as its pelvic floor
stimulation device. The process to establish reimbursement for new technology
in the current medical marketplace is costly and time consuming.

EMPLOYEES

As of February 28, 1997, the Company had 549 employees. Of these, 171 were
engaged in production and production support, 37 in research and development,
127 in sales and marketing, 157 in sales operations, and 57 in various
administrative capacities.

None of the Company's employees is represented by a labor union, and the Company
believes that it has an amicable and positive working relationship with its
employees.

CAUTIONARY STATEMENTS

As provided for under the Private Securities Litigation Reform Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected and in the future could affect the Company's
actual results of operations and cause such results to differ materially from
those anticipated in forward-looking statements made in this document and in the
Company's Annual Report by or on behalf of the Company.

The Company's goals are: (i) to expand medical device offerings by bringing
additional products to its existing markets; (ii) to take its existing
technology to markets currently not served by the Company; and (iii) to evaluate
entering other markets not currently served by the Company with new or existing
technologies. These objectives will be pursued through internal development
efforts or through acquisition of technology, products, or entities, depending
upon Company resources and the availability of acquisition opportunities. The
Company's efforts will also be focused on maintaining its position as a leader
in the rehabilitation medical device market. As the Company's future sales
growth depends upon its ability to continually offer new products acceptable to
the marketplace, any inability of the Company to develop new products
internally, or to acquire technology or distribution rights from other product
manufacturers, could have a material and adverse impact on future sales.

The Company will continue to seek to diversify its product offerings and to
enter into new markets. However, markets for the Company's current and future
products are highly competitive and subject to continuing technological change
and development. Some of the Company's products also compete against drugs,
therapies, surgical procedures or new medical devices that may result from
future technological or medical advances. Future sales growth will depend to
some degree upon the ability of the Company to continue to successfully market
its current and future products in this competitive environment. In addition,
the Company's products are regulated under the federal Food, Drug and Cosmetic
Act, and the Company is required to secure clearance from the U.S. Food and Drug
Administration (FDA) prior to marketing new products. Lack of clearance or
delays in securing clearance could negatively impact sales of new products.

The Company continues to develop a broader market acceptance of its incontinence
treatment products, the Innova PFS and Innova sEMG systems. To date, the
Company has been unable to secure reimbursement approval from Medicare for its
Innova PFS system, and there is no assurance that such approval will be
obtained. The Company believes that significant sales growth for these products
is dependent upon obtaining Medicare reimbursement approval. If the Company is
unable to generate significant sales of Innova PFS, its future sales growth
would be materially and adversely affected.

9
<PAGE>

More than 68 percent of the Company's sales are derived from its electrotherapy
product lines, which are used by patients and reimbursed by Medicare carriers,
workers' compensation programs, managed care and private insurance payors.
While the Company's electrotherapy product sales increased 5 percent in 1996, it
anticipates continued pressure from regulatory agencies and insurance companies
to reduce reimbursement for electrotherapy products. This pressure will make it
difficult for the Company to continue to increase sales of its electrotherapy
products in 1997. Any change in reimbursement policies or payment levels could
adversely affect the Company's revenues.

The Company's primary financial goal in 1997 is to increase its revenue growth
rate while continuing to enhance profitability. To accomplish this goal, the
Company will focus on its mission: the development, licensing or distribution
of non-invasive, biomedical products that provide the best medical value,
combining cost effectiveness and therapeutic outcomes. If the Company is not
successful in the development, licensing or distribution of such devices, its
financial goals likely will not be met.

The Company currently purchases, and will in the future purchase, products,
parts and components from vendors. The Company attempts wherever practical, to
have more than a single source of supply for each product, part and component.
The Company does, in some situations, have only one supplier for a product, part
or component. If a supplier was unable or unwilling to supply any such product,
part or component in a timely manner, the Company's business could be adversely
affected.

ITEM 2. PROPERTIES

On June 14, 1996, the Company and Cardigan Investments Limited Partnership
entered into an office/light manufacturing lease for a 93,666 square foot
building that now serves as the Company's corporate headquarters. The term of
the lease is ten (10) years, with two (2) options to renew for five (5) years
each and commenced on October 11, 1996. The building is located at 599 Cardigan
Road, Shoreview, Minnesota 55126. Simultaneously, the Company vacated the other
two office building locations which were located in Fridley and Arden Hills,
Minnesota.

The Company owns two properties in Clear Lake, South Dakota. One location is a
24,000 square foot manufacturing facility on 4 acres of property, and the other
is a 10,000 square foot warehouse on 1.3 acres.

ITEM 3. LEGAL PROCEEDINGS

There are no material legal proceedings to which the Company is a party or of
which any of its property is the subject other than ordinary, routine litigation
incidental to the Company's business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

There were no matters submitted to a vote of shareholders during the fourth
quarter ended December 31, 1996.

10
<PAGE>

EXECUTIVE OFFICERS OF THE COMPANY

Each executive officer is elected to office by the Board of Directors and holds
the office until his or her successor is elected and qualified. There are no
family relationships among any of the Company's Directors or Officers.

The following table sets forth information with regard to the executive officers
of the Company as of March 26, 1997:

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS
NAME AND AGE OF OFFICER EXPERIENCE PAST FIVE YEARS
- ----------------------- --------------------------------------------------------------
<S> <C>
Donald D. Maurer (60) Founder of the Company in 1977. Chairman of the Company since
December 1977 and Chief Scientific Officer since October
1994. Chief Executive Officer of the Company from April
1979 to September 1994. Mr. Maurer held the additional
position of President from April 1979 to December 1988
and from February 1993 to September 1994. Mr. Maurer is also
a director of Angeion, Inc.

Joseph E. Laptewicz (48) President, Chief Executive Officer and Acting Chief
Financial Officer since March 1997. President and Chief
Executive Officer of the Company from October 1994 to
February 1997. President and Chief Executive Officer of
Schneider (USA), Inc., manufacturer of products for
interventional medicine from April 1992 to September 1994
and Executive Vice President from July 1991 to March 1992.

Robert W. Clapp (47) Vice President of Manufacturing of the Company since
March 1993. Mr. Clapp served in the capacity of Vice
President of Manufacturing at Dacomed Corp., a medical
products manufacturer and distributor, from February 1987
to March 1993.

Shawn F. Featherston (43) Vice President of Sales Operations since July 1996. Mr.
Featherston served as Vice President of Human Resources
of the Company from January 1996 to June 1996. Prior to
that, his position with the Company was Director of Human
Resources from January 1993 to December 1995. Prior to
joining the Company, he served as Human Resources
Consulting Manager for McGladry and Pullen from January
1989 to December 1992.

Gary D. Sullivan (47) Vice President of Marketing of the Company since February
1995. Prior to joining the Company, Mr. Sullivan was
Director of Sales and Marketing at Schneider (USA) Inc.,
a division of Pfizer, Inc., from October 1993 to February
1995. From November 1991 to October 1993, he served as
Director of Marketing for Cordis Corp., a manufacturer of
medical devices. Mr. Sullivan worked as an Associate at
Lumsden Company, an executive search firm specializing in
bio-technology, pharmaceuticals and diagnostics, from
October 1989 to November 1991.

</TABLE>

11
<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Marketsm under the symbol EMPI. High and low bid prices for each
quarter of fiscal years ended December 31, 1996 and 1995 are presented below.

1996 1995
HIGH LOW HIGH LOW
First. . . . . . . . . . . . . $25 7/8 $16 1/4 $12 1/8 $ 7

Second . . . . . . . . . . . . $20 1/4 $12 1/2 $16 5/8 $11 5/8

Third. . . . . . . . . . . . . $15 1/2 $11 1/4 $21 1/8 $15

Fourth . . . . . . . . . . . . $21 3/4 $14 $27 1/8 $18 1/2

The Company had 627 common shareholders of record at March 21, 1997. The
Company has never paid a cash dividend and does not anticipate the payment of
cash dividends in the foreseeable future since earnings are expected to be
retained to finance the Company's growth.

12
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

SELECTED SIX-YEAR FINANCIAL DATA
EMPI, INC.

<TABLE>
<CAPTION>
(IN THOUSANDS, YEAR ENDED DECEMBER 31
EXCEPT PERCENTAGES AND PER SHARE AMOUNTS) 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Net sales. . . . . . . . . . . . . . . . . . . . . $ 70,630 $ 67,342 $ 61,304 $ 66,377 $ 33,355 $ 21,819
Gross profit . . . . . . . . . . . . . . . . . . . 52,171 49,654 45,574 49,523 25,143 15,841
Percent of sales. . . . . . . . . . . . . . 73.9% 73.7% 74.3% 74.6% 75.4% 72.6%
Operating expenses . . . . . . . . . . . . . . . . 37,751 37,319 39,377 34,198 18,834 12,421
Percent of sales. . . . . . . . . . . . . . 53.5% 55.4% 64.2% 51.5% 56.5% 56.9%
Operating income . . . . . . . . . . . . . . . . . 14,420 12,335 6,197 15,325 6,309 3,420
Percent of sales. . . . . . . . . . . . . . 20.4% 18.3% 10.1% 23.1% 18.9% 15.7%
Net income . . . . . . . . . . . . . . . . . . . . 9,357 8,002 3,356 9,334 4,049 2,041
Percent of sales. . . . . . . . . . . . . . 13.3% 11.9% 5.5% 14.1% 12.1% 9.4%
Net income per share . . . . . . . . . . . . . . . $ 1.08 $ 0.90 $ 0.39 $ 1.08 $ 0.48 $ 0.29
Weighted average
shares outstanding. . . . . . . . . . . . . 8,660 8,899 8,611 8,660 8,438 6,930

BALANCE SHEET DATA
Cash and security investments. . . . . . . . . . . $ 20,064 $ 21,039 $ 12,062 $ 6,981 $ 6,858 $ 8,950
Working capital. . . . . . . . . . . . . . . . . . 41,187 42,512 34,344 30,434 22,076 18,013
Total assets . . . . . . . . . . . . . . . . . . . 59,841 60,737 52,708 50,185 34,551 22,300
Long-term debt . . . . . . . . . . . . . . . . . . 333 1,468 1,800 1,603 2,016 30
Shareholder's equity . . . . . . . . . . . . . . . 53,657 53,079 45,000 41,355 27,265 20,105

OTHER INFORMATION
Cash flow from operations. . . . . . . . . . . . . $ 13,885 $ 11,456 $ 8,655 $ 2,311 $ 2,910 $ 923
Cash flow from operations per share. . . . . . . . 1.60 1.29 1.01 0.27 0.34 0.13
Book value per share . . . . . . . . . . . . . . . $ 6.53 $ 6.12 $ 5.25 $ 4.87 $ 3.34 $ 2.57
Common stock outstanding . . . . . . . . . . . . . 8,220 8,669 8,570 8,500 8,174 7,836
</TABLE>

QUARTERLY FINANCIAL DATA (UNAUDITED)
EMPI, INC.

YEAR ENDED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

DECEMBER 31, 1996
Net sales . . . . . . . . . . . . . . . . . . . . $ 16,892 $ 16,937 $ 17,758 $ 19,043
Operating income. . . . . . . . . . . . . . . . . 3,123 3,292 3,640 4,365
Net income. . . . . . . . . . . . . . . . . . . . 2,237 2,173 2,392 2,555
Net income per share. . . . . . . . . . . . . . . 0.25 0.25 0.28 0.30

DECEMBER 31, 1995
Net sales . . . . . . . . . . . . . . . . . . . . $ 16,524 $ 16,274 $ 17,273 $ 17,271
Operating income. . . . . . . . . . . . . . . . . 2,695 2,985 3,266 3,389
Net income. . . . . . . . . . . . . . . . . . . . 1,708 1,939 2,124 2,231
Net income per share. . . . . . . . . . . . . . . 0.20 0.22 0.24 0.24

</TABLE>

ALL SHARE AND PER SHARE DATA HAVE BEEN RESTATED TO REFLECT A 3-FOR-2 STOCK
SPLIT, EFFECTIVE AUGUST 1991, AND A 2-FOR-1 STOCK SPLIT, EFFECTIVE JUNE 1993.

13
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
reflected in the financial statements as a percent of sales:

PERCENT OF SALES

YEAR ENDED DECEMBER 31
1996 1995 1994
- -------------------------------------------------------------------------------
Net sales. . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of sales. . . . . . . . . . . 26.1 26.3 25.7
Gross profit . . . . . . . . . . . 73.9 73.7 74.3
Selling, general and
administrative. . . . . . . . 48.6 50.3 58.6
Research and development . . . . . 4.9 5.1 5.6
Operating income . . . . . . . . . 20.4 18.3 10.1
Other income (expense) net . . . . 1.2 1.2 (.1)
Income before taxes. . . . . . . . 21.6 19.5 10.0
Income tax provision . . . . . . . 8.3 7.6 4.5
Net income . . . . . . . . . . . . 13.3 11.9 5.5
-------------------------------------------
-------------------------------------------

GENERAL

Empi, Inc., the "Company," meets the needs of the rehabilitation, orthopedic
and incontinence treatment medical markets through the development,
manufacturing and marketing of innovative, cost effective, biomedical
products and services to continuously improve the quality of life for
patients with functional disabilities.

Currently, the Company has four main product groups: electrotherapy,
iontophoretic drug delivery, orthotic/OEM and incontinence treatment.

The Company's electrotherapy rehabilitation products include: TENS
(transcutaneous electrical nerve stimulation) devices for the treatment of
chronic and acute pain, NMES (neuromuscular electrical stimulation) devices
for restoring muscle tone and mobility, and related TENS and NMES
accessories. These devices work by delivering carefully programmed,
low-voltage pulses of electrical energy.

During the past four years, the Company has broadened and enhanced its
product lines through a number of collaborations with other companies, as
well as the introduction of new, internally developed products.

In 1992, the Company developed a proprietary iontophoretic drug delivery
system, Dupel-Registered Trademark-, that can deliver local anesthesia and
anti-inflammatory medications non-invasively through the skin. The
iontophoretic drug delivery product line was expanded by the introduction of
Relion-TM- in the first quarter of 1997, for use in the veterinary market.

In 1995, the Company developed a line of orthotic products, the Advance
Dynamic ROM orthoses, which are used to correct range of motion limitations
resulting from surgery or immobilization following an injury. The current
year brought an expansion of the Advance product line with orthoses for
amputee patients.

Also in 1995, through the establishment of cooperative marketing agreements,
the Company began distributing PRONEX-Registered Trademark-, an orthotic
device used for cervical traction, and the Total Gym line of exercise
systems, as well as a full line of catalog products for both physical therapy
clinics and home health care. In 1996, the Protonics orthosis for functional
knee rehabilitation was introduced into the Company's orthoses product line
as a distributed product.

14
<PAGE>

The Company's premier product for the treatment of incontinence is the
Innova-Registered Trademark- PFS (pelvic floor stimulation) system,
introduced in 1992. Innova PFS treats urinary incontinence using a
proprietary vaginal electrode that is programmed to cause contractions,
thereby strengthening pelvic floor muscles. The Company diversified its
incontinence product line in 1993 by manufacturing and marketing the Innova
sEMG (surface electromyography) system for teaching proper pelvic floor
muscle movement and control. In 1996, the Company introduced a proprietary
rectal electrode for use with the Innova PFS system to treat both female and
male incontinence.

The Company currently serves more than 12,000 physical therapy facilities and
has a network for direct billing to insurance claims offices, Medicare
carriers, HMOs and other managed health care programs. The Company benefits
from this direct link to both patients and third-party payors, and considers
its direct sales force, patient follow-up and insurance billing system to be
distinct competitive advantages. An additional link to third-party payors
was added in 1994 with the creation of a specialized sales force that calls
on managed care organizations and third-party payors. These national account
managers address coverage and reimbursement issues and seek to establish
purchase contracts for the Company's products. At the end of 1996, the
Company had seven national account managers.

RESULTS OF OPERATIONS

SALES

The Company achieved record net sales for 1996. Net sales grew by 5 percent
over the prior year to $70.6 million. Electrotherapy sales accounted for 69
percent of total sales and increased by 5 percent over 1995 levels.
Electrotherapy pricing generally remained consistent from 1995 to 1996 in the
Company's retail and wholesale rehabilitation markets. Drug delivery product
sales increased by 3 percent over the prior year, with increased volumes
partially offset by lower prices resulting from increased competition.
Orthotics/OEM product sales grew by 7 percent over 1995 levels and were enhanced
by the September 1996 introduction of Protonics. Incontinence sales for 1996
increased 26 percent from a relatively small sales base in 1995.

As of year end 1996, the Company had approximately 115 sales representatives
selling products domestically on a retail basis. International sales, as a
percentage of total sales, were 5 percent in 1996 and 6 percent in 1995. The
majority of international sales are generated through distribution agreements
with retailers located in Germany, Canada, and Spain. During 1995, the Company
closed its Canadian sales office. All Canadian sales are now being handled by
one master distributor located in Quebec.

The Company's 1995 sales increased by 10 percent to $67.3 million from $61.3
million in 1994. Sales of the Company's electrotherapy products and related
accessories increased 2 percent, from $45.4 million to $46.1 million. The
iontophoresis product line sales increased 21 percent in 1995 compared with
1994. The product line with the strongest relative sales growth was the
orthotic/OEM product line, with a 106 percent increase in 1995 over 1994.
Sales in 1995 of the incontinence product line increased 5 percent as
compared with 1994. The Company's sales increase in 1995 was primarily
attributable to the growth of the Company's newer rehabilitation products.
The Dupel, Advance Dynamic ROM and PRONEX products accounted for most of the
dollar gains in sales. While incontinence sales increased slightly from prior
year levels, lack of consistent reimbursement continued to adversely impact
growth of the Company's incontinence product line.

GROSS PROFIT

Gross profit as a percentage of sales was 73.9 percent in 1996, compared with
73.7 percent in 1995. Continued manufacturing efficiency improvements were
partially offset by reduced margins on iontophoretic drug delivery products
caused by pricing pressures. Lower-margin wholesale sales were 9 percent of
total sales for 1996, compared with 11 percent for 1995.

Gross profit for 1995 was 73.7 percent of sales, compared with 74.3 percent for
1994. The primary contributors to the lower gross profit percentage for 1995
were higher manufacturing and distribution costs related to the increase in the
volume of products shipped.

15
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $34.3 million, or 48.6 percent
of sales, for 1996, versus $33.9 million, or 50.3 percent of sales, in 1995.
This improvement resulted from the Company's continued expense control programs,
including the consolidation of two corporate locations and reductions in
incentive compensation and administrative expenses.

Selling, general and administrative expenses, stated as a percentage of sales
for 1995 and 1994, were 50.3 percent and 58.6 percent, respectively. Selling,
general and administrative expenses for 1995 totaled $33.9 million, compared
with $35.9 million in 1994. In 1994, the Company incurred one-time charges for
a write-down of goodwill, an incremental increase in its bad debt provision and
costs associated with a reduction in its work force. After adjusting for 1994's
one-time charges, total selling, general and administrative spending in 1995 was
flat compared with 1994.

RESEARCH AND DEVELOPMENT

Research and development expenses increased slightly to $3.5 million in 1996
from $3.4 million in 1995, or 4.9 percent of 1996 sales as compared with 5.1
percent of 1995 sales. The Company's 1996 research and development efforts
were focused on developing next-generation electrotherapy devices, expanding the
orthotics product line, designing new incontinence treatment products and
developing iontophoretic drug delivery system applications for new markets.

Research and development expenses were $3.4 million for both 1995 and 1994.
Stated as a percentage of sales, research and development expenses for 1995 were
5.1 percent, compared with 5.6 percent for 1994. The Company's research and
development expenses in 1995 were spread relatively evenly among the
electrotherapy, orthotic and iontophoretic drug delivery product groups, with
slightly higher expenditures for incontinence treatment products and other new
product research and development.

OTHER INCOME AND EXPENSES

Interest income was $1.0 million in 1996, up from $798,000 in 1995. The higher
interest income is the result of the Company's strengthened cash position.
Interest expense for 1996 was $69,000, versus $114,000 in 1995. The primary
contributor to interest expense was an interest-bearing note issued to partially
finance the Company's 1992 acquisition of Nortech, a division of Medtronic, Inc.
In the third quarter of 1996, the Company repaid the remaining debt and retired
the note. In the first quarter of 1996, the Company recorded a one-time gain in
excess of $200,000 from the settlement of a trade dress infringement lawsuit,
and in the fourth quarter of 1996 recorded $378,000 in non-recurring expenses
relating to the Company's relocation to a new corporate facility.

In 1995, other income included a one-time gain of $42,000 from the sale of its
UROFITNESS-TM- CENTER, and a one-time gain of $70,000 on the sale of MedAmicus,
Inc. common stock. Interest income was $798,000 in 1995, compared with $311,000
in 1994. Interest expense was $114,000 in 1995 and $168,000 in 1994.

NET INCOME

Net income in 1996 improved to $9.4 million, an increase of $1.4 million, or
17 percent. The improvement resulted from higher sales levels, combined with
strong expense controls. As a result of the higher net income and the
Company's stock buyback program, 1996 earnings per share increased from $.90
to $1.08, reflecting a 20 percent increase over 1995. Earnings per share in
1996 increased by approximately $.02 per share as a result of the stock
buyback program. Net income in 1995 was $8.0 million, compared with $3.4
million in 1994. Higher sales, combined with relatively flat spending and no
major one-time charges, in addition to the improvement in other income, were
the main reasons for the increase in net income for 1995.

16
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's financial position remains very strong. Cash and security
investments were $20.1 million as of December 31, 1996, a decrease of
approximately $1.0 million from the year ended December 31, 1995. Due to its
strong cash position, the Company decided to cancel its $7.0 million line of
credit in 1995. The Board of Directors approved a $4.0 million stock buyback
program commencing in 1995. During 1996, the Board of Directors authorized an
additional $10.0 million to buy back and retire shares. Some of the shares
repurchased under the program will be used to cover stock issuances in
connection with the Company's stock option and stock purchase plans. The Company
bought back and retired 778,000 warrants and shares of common stock at a total
cost of $9.9 million during 1996. During 1995, the Company bought back and
retired 62,000 shares of common stock at a total cost of $1.2 million. The
Company intends to continue its stock repurchase program in 1997. As of
December 31, 1996, the Company's working capital was $41.1 million and its
current ratio was 8.0 to 1.0. Cash flows generated from operations were $13.9
million in 1996, $11.5 million in 1995, and $8.7 million in 1994.

Accounts receivable remained relatively flat on a 5 percent sales increase,
reflecting sound collection efforts in 1996. Inventories decreased
approximately $1.0 million, or 11 percent, in 1996. Lower raw material balances
accounted for the majority of the inventory reduction. Expenditures for
property, plant, and equipment were $4.1 million in 1996, up 121 percent over
1995 expenditures. Leasehold improvements and other equipment purchases related
to the move to the new corporate facility accounted for approximately $2.5
million of 1996's capital outlays. The Company believes its cash and cash
equivalents and short-term investments, together with cash flow from operations,
will be sufficient to meet the Company's currently projected needs for working
capital and capital requirements for the foreseeable future.

OUTLOOK

The statements contained in this Outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
Investors are cautioned that such forward-looking statements involve risks and
uncertainties, which are described below.

17
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to List of Financial Statements and Financial Statement Schedule,
along with such financial statements, immediately following the signature pages
of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 regarding the Company's directors included
in the Company's Proxy Statement for the Annual Meeting of Shareholders to be
held May 13, 1997 under the caption "Election of Directors" is incorporated
herein by reference.

The information required by Item 10 regarding the Company's executive officers
is set forth in Part I of this report.

The information required by Item 10 regarding compliance with Section 16(a) of
the Exchange Act included in the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held May 13, 1997 under the caption "Compliance
with Section 16 (a) of the Exchange Act" is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 regarding executive compensation included in
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
May 13, 1997 under the caption "Executive Compensation" is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT

The information required by Item 12 regarding voting securities and principal
holders thereof included in the Company's Proxy Statement for the Annual Meeting
of Shareholders to be held May 13, 1997 under the caption "Principal
Shareholders and Management Ownership" is incorporated herein by reference 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 included in the Company's Proxy Statement
for the Annual Meeting of Shareholders to be held on May 13, 1997 under the
caption "Certain Transactions" is incorporated herein by reference.

18
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A) (1) AND (2) -- FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.

See Index to Consolidated Financial Statements and Schedules, which begins
on Page F-1 immediately following the signature pages to this report.

(3) -- Exhibits.

(3.1) Restated Articles of Incorporation, as amended.

(3.2) Bylaws together with amendment adopted June 12, 1986, have
been filed as Exhibit 3.2 to the Company's Report on Form 10-K
for the fiscal year ended December 31, 1987, and are included
herein by reference pursuant to Rule 12b-32.

(4.1) Certificate for shares of Common Stock has been filed as
Exhibit 4.1 to the Company's Registration Statement on Form S-2,
Registration No. 33-42568, and is incorporated herein by
reference pursuant to Rule 12b-32.

(10.1) Employment agreement with Donald D. Maurer, dated May 1, 1993
has been filed as Exhibit 10.3 to the Company's Report on Form
10-K for the fiscal year ended December 31, 1993, and is
incorporated herein by reference pursuant to Rule 12b-32.*

(10.2) Empi, Inc. 1987 Stock Option Plan together with Forms of
incentive and non-qualified option agreements has been filed as
Exhibit 10.7 to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1987, and is incorporated herein by
reference pursuant to Rule 12b-32.*

(10.3) Amendment to Empi, Inc. 1987 Stock Option Plan has been filed as
Exhibit 10.8 to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1992, and is incorporated herein by
reference pursuant to Rule 12b-32.*

(10.4) Amendment to Empi, Inc. 1987 Stock Option Plan dated
December 22, 1992 has been filed as Exhibit 10.13 to the
Company's Report on Form 10-K for the fiscal year ended
December 31, 1993, and is incorporated herein by reference
pursuant to Rule 12b-32.*

(10.5) Amendment to Empi, Inc. 1987 Stock Option Plan dated February 9,
1995, has been filed as Exhibit 10.16 to the Company's Report on
Form 10-K for the fiscal year ended December 31, 1994, and is
incorporated herein by reference pursuant Rule 12b-32.*

(10.6) Empi, Inc. 1992 Employee Stock Purchase Plan has been filed as
Exhibit 10.9 to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1992, and is incorporated herein by
reference pursuant to Rule 12b-32.*

(10.7) Employment agreement with Joseph E. Laptewicz, dated October 1,
1994 has been filed as Exhibit 10 to the Company's Report on
Form 10-Q for the quarter ended September 30, 1994, and is
incorporated herein by reference pursuant to Rule 12b-32.*

(10.8) Lease dated July 14, 1996, between the Company and Cardigan
Investments, a limited Partnership covering office/light
manufacturing space in Shoreview, Minnesota has been filed as
Exhibit 10 to the Company's Report on Form 10-Q for the quarter
ended September 30, 1996, and is included herein by reference
pursuant to Rule 12b-32.

(10.9) Empi, Inc. 1997 Employee Stock Purchase Plan.

(11) Statement re: computation of per share earnings.

19
<PAGE>

ITEM 14. -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K - CONTINUED

(21) A list of Subsidiaries of the Company has been filed as
Exhibit 21 to the Company's Report on Form 10-K for the fiscal
year ended December 31, 1993, and is incorporated herein by
reference pursuant to Rule 12b-32.

(23) Consent of Independent Auditors.

(24) Power of Attorney for Joseph E. Laptewicz Jr., Donald D.
Maurer, Warren S. West, Scott R. Anderson, Harold G. Olson and
Everett F. Carter. (Included on signature page of this report.)

(27) Financial Data Schedule (Filed only in electronic format.)

* Management contract or compensatory plan.

(B) REPORTS ON FORM 8-K

No Reports on Form 8-K were filed during the quarter ended
December 31, 1996.

The response to this portion of Item 14 (a) (3) is submitted as a
separate section of this Report.

(D) FINANCIAL STATEMENT SCHEDULE

See Index to Consolidated Financial Statements and Financial Statement
Schedule which begins on Page F-1 immediately following the signature pages
of this Report.

20
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

EMPI, INC.

March 26, 1997 By
/s/ Joseph E. Laptewicz Jr.
----------------------------------
Joseph E. Laptewicz Jr., President
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

(Power of Attorney)

Each person whose signature appears below constitutes and appoints Donald D.
Maurer and Joseph E. Laptewicz Jr. as his true and lawful attorneys-in-fact
and agents, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this Annual Report on Form 10-K
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, each acting alone, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all said attorneys-in-fact and agents, each acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue thereof.

March 26, 1997
/s/ Joseph E. Laptewicz Jr.
----------------------------------
Joseph E. Laptewicz Jr., President,
Chief Executive Officer and
Director (Principal Executive
Officer) and Acting Chief Financial
Officer

March 26, 1997
/s/ Donald D. Maurer
----------------------------------
Donald D. Maurer, Chairman and Chief
Scientific Officer

March 26, 1997
/s/ Scott R. Anderson
___________________________________
Scott R. Anderson, Director

March 26, 1997
/s/ Warren S. West
___________________________________
Warren S. West, Director

March 26, 1997

___________________________________
Kenneth F. Tempero, Director

March 26, 1997
/s/ Harold G. Olson
___________________________________
Harold G. Olson, Director

March 26, 1997
/s/ Everett F. Carter
___________________________________
Everett F. Carter, Director

21
<PAGE>

ANNUAL REPORT ON FORM 10-K

ITEM 8, ITEM 14 (a) (1) AND (2), AND ITEM 14 (d)

LIST OF FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE

YEAR ENDED DECEMBER 31, 1996

EMPI, INC.

ST. PAUL, MINNESOTA

F-1
<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS

EMPI, INC.

YEARS ENDED DECEMBER 31, 1996 AND 1995

F-2
<PAGE>

FORM 10-K -- ITEM 14 (a) (1) and (2)

EMPI, INC.

INDEX TO LIST OF CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

1. FINANCIAL STATEMENTS PAGE
----

Report of Independent Auditors................................. F-4

Consolidated Balance Sheets -- December 31, 1996 and 1995...... F-5

Consolidated Statements of Operations -- Years ended
December 31, 1996, 1995 and 1994............................. F-6

Consolidated Statements of Shareholders' Equity -- Years ended
December 31, 1996, 1995 and 1994............................. F-7

Consolidated Statements of Cash Flows -- Years ended
December 31, 1996, 1995 and 1994............................. F-8

Notes to Consolidated Financial Statements --
December 31, 1996............................................ F-9

2. FINANCIAL STATEMENT SCHEDULE

Schedule II -- Valuation and Qualifying Accounts...............F-14

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

F-3
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Empi, Inc.

We have audited the accompanying consolidated balance sheets of Empi, Inc. as
of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1996. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Empi, Inc. at
December 31, 1996 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.

/s/ Ernst & Young LLP

Minneapolis, Minnesota
January 30, 1997

F-4
<PAGE>

EMPI, INC. CONSOLIDATED BALANCE SHEETS

DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1996 1995
- ------------------------------------------------------------------------------

ASSETS
Current assets:
Cash and cash equivalents $ 2,849 $ 5,949
Short-term investments 15,216 13,090
Accounts receivable, less allowances
$5,062--1996; $5,966--1995 15,944 15,846
Inventories 7,320 8,269
Deferred income taxes 5,002 4,842
Other 707 706
-----------------------------
Total current assets 47,038 48,702

Equipment and improvements:
Equipment 10,995 10,144
Furniture and fixtures 1,630 1,147
Leasehold improvements 3,287 1,187
-----------------------------
15,912 12,478
Less accumulated depreciation and amortization 8,822 7,349
-----------------------------
7,090 5,129
Other assets 3,714 4,906
Long-term investments 1,999 2,000
-----------------------------
Total assets $59,841 $60,737
-----------------------------
-----------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,455 $ 1,924
Employee compensation 1,792 1,955
Commissions payable 596 747
Current portion of long-term debt 287 676
Income taxes 386 634
Other 335 254
-----------------------------
Total current liabilities 5,851 6,190

Long-term debt, less current portion 333 1,468

Shareholders' equity:
Common stock, no par value:
Authorized shares - 25,000,000
Issued and outstanding shares - 8,219,940 in 1996
and 8,668,659 in 1995 15,331 24,110
Retained earnings 38,326 28,969
-----------------------------
Total shareholders' equity 53,657 53,079
-----------------------------
Total liabilities and shareholders' equity $59,841 $60,737
-----------------------------
-----------------------------

SEE ACCOMPANYING NOTES.

F-5
<PAGE>

EMPI, INC. CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) 1996 1995 1994
- -------------------------------------------------------------------------------

Net sales $70,630 $67,342 $61,304
Cost of goods sold 18,459 17,688 15,730
-------------------------------------
Gross profit 52,171 49,654 45,574

Operating expenses:
Selling, general and administrative 34,275 33,895 35,945
Research and development 3,476 3,424 3,432
-------------------------------------
37,751 37,319 39,377
-------------------------------------
Income from operations 14,420 12,335 6,197
Other income (expense), net 795 783 (38)
-------------------------------------
Income before income taxes 15,215 13,118 6,159
Income tax expense 5,858 5,116 2,803
-------------------------------------
Net income $ 9,357 $ 8,002 $ 3,356
-------------------------------------
-------------------------------------
Net income per common and common
equivalent share $ 1.08 $ .90 $ .39
-------------------------------------
-------------------------------------
Weighted average common and common
equivalent shares outstanding during
the year 8,660 8,899 8,611
-------------------------------------
-------------------------------------

SEE ACCOMPANYING NOTES.

F-6
<PAGE>

EMPI, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

COMMON STOCK RETAINED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) SHARES AMOUNT EARNINGS
- --------------------------------------------------------------------------------
Balance January 1, 1994 8,500,443 $ 23,744 $ 17,611
Exercise of stock options and warrants 48,525 90 -
Tax benefits of stock options - (21) -
Employee stock purchase plan 21,403 220 -
Net income - - 3,356
-------------------------------------

Balance December 31, 1994 8,570,371 24,033 20,967
Exercise of stock options and warrants 57,025 470 -
Tax benefits of stock options - 105 -
Employee stock purchase plan 103,263 722 -
Purchase and retirement of stock (62,000) (1,220) -
Net income - - 8,002
-------------------------------------

Balance December 31, 1995 8,668,659 24,110 28,969
Exercise of stock options and warrants 60,384 411 -
Tax benefits of stock options - 311 -
Employee stock purchase plan 18,897 359 -
Purchase and retirement of stock (528,000) (8,160) -
Purchase and retirement of warrant rights - (1,700) -
Net income - - 9,357
-------------------------------------

Balance December 31, 1996 8,219,940 $ 15,331 $ 38,326
-------------------------------------
-------------------------------------

SEE ACCOMPANYING NOTES.

F-7
<PAGE>

EMPI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31
(IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income $ 9,357 $ 8,002 $ 3,356
Adjustments to reconcile net income to
net cash provided by operating activities:
Permanent impairment of investments - - 170
Depreciation and amortization 3,506 3,512 4,020
Provision for deferred income taxes (160) (566) (1,729)
Gain on sale of long-term investments - (70) -
Loss on sale of equipment 101 56 4
Provision for loss on accounts receivable 2,216 2,565 4,395
Changes in operating assets and liabilities:
Accounts receivable (2,314) (1,586) 578
Inventories 949 (782) (1,344)
Other (50) 25 (348)
Accounts payable and accrued expenses 217 145 (514)
Income taxes payable 63 155 67
---------------------------------
Net cash provided by operating activities 13,885 11,456 8,655

INVESTING ACTIVITIES
Maturities of short-term investments 14,624 2,100 2,497
Purchase of short-term investments (16,750) (9,881) (7,306)
Maturities of long-term investments 3,000 1,080 -
Purchase of long-term investments (2,999) (1,909) (1,021)
Additions to other assets (233) (115) (450)
Acquisition of Nortech - - (1,115)
Purchase of equipment and improvements (4,123) (1,864) (1,744)
Proceeds from sale of equipment 110 79 8
---------------------------------
Net cash used in investing activities (6,371) (10,510) (9,131)

FINANCING ACTIVITIES
Payments on long-term debt (1,524) (619) (413)
Purchase and retirement of common stock
and warrant rights (9,860) (1,220) -
Proceeds from exercise of common stock options 770 1,190 310
---------------------------------
Net cash used in financing activities (10,614) (649) (103)
---------------------------------
Net increase (decrease) in cash and
cash equivalents (3,100) 297 (579)
Cash and cash equivalents at beginning of year 5,949 5,652 6,231
---------------------------------
Cash and cash equivalents at end of year $ 2,849 $ 5,949 $ 5,652
---------------------------------
---------------------------------

SEE ACCOMPANYING NOTES

F-8
<PAGE>

EMPI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

The Company develops, manufactures and distributes non-invasive biomedical
devices and accessories for applications in the rehabilitation, orthopedic
and incontinence markets. The primary market for the company's products is in
the United States. The Company also does a small percentage of business in
Canada, Europe and the Far East.

BASIS OF PRESENTATION

The consolidated financial statements include the Company and its
wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.

CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.

INVESTMENTS

Investments in marketable equity securities and debt securities are
classified as available-for-sale. Available-for-sale securities are carried
at fair value with the unrealized gains and losses, net of tax, reported as a
separate component of shareholders' equity. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities, interest and dividends are included in investment income.

INVENTORIES

Inventories are valued at the lower of cost (first-in, first-out method) or
market.

EQUIPMENT AND IMPROVEMENTS

Equipment and improvements are stated on the basis of cost. Depreciation and
amortization of equipment and improvements are computed on the straight-line
method for book purposes (accelerated methods for income tax purposes) over
estimated useful lives of 25 years for building improvements, seven to eight
years for furniture and fixtures, five years for equipment, and three years
for computers.

OTHER ASSETS

Other assets consist primarily of intangible assets including goodwill of
$2,820,000, a $3,000,000 non-compete agreement with Medtronic, Inc., costs
paid to wholesale distributors for territorial distribution rights and patent
costs. These assets are being amortized on a straight-line basis over their
estimated useful lives ranging from four to seven years. Accumulated
amortization was $5,887,000 and $4,333,000 at December 31, 1996 and 1995,
respectively. The Company reduced the carrying amount of its goodwill by
$700,000 at December 31, 1994, due to indicators of an impairment of the
asset.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying amount

F-9
<PAGE>

EMPI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EARNINGS PER SHARE

Earnings per share is based on the weighted average number of common shares
outstanding plus common share equivalents resulting from dilutive stock
options and warrants. Primary and fully diluted earnings per share are
approximately the same.

NOTE 2. INVESTMENTS

Investments consist of the following: (IN THOUSANDS)

Cash Short- Long-
Type Equivalents Term Term Total
- --------------------------------------------------------------------------------
DECEMBER 31, 1996
Preferred stock $ - $ 5,000 $ - $ 5,000
Bonds - 10,216 1,999 12,215
Other 1,319 - - 1,319
----------------------------------------------------------
$ 1,319 $ 15,216 $ 1,999 $ 18,534
----------------------------------------------------------
----------------------------------------------------------
DECEMBER 31, 1995
Preferred stock $ 500 $ 6,000 $ - $ 6,500
Bonds - 5,619 2,000 7,619
Commercial paper 887 1,000 - 1,887
Other 882 471 - 1,353
----------------------------------------------------------
$ 2,269 $ 13,090 $ 2,000 $ 17,359
----------------------------------------------------------
----------------------------------------------------------

At December 31, 1996 and 1995, the cost of investments approximated market
value. During 1994, the Company recognized a loss of $170,000 due to a
decline in the value of an equity security deemed to be other than temporary.
The security was sold in 1995 and a gain of $70,000 was recognized.

Interest income included in other income was $1,039,000, $798,000, and
$311,000 for the years ended December 31, 1996, 1995 and 1994, respectively.

NOTE 3. INVENTORIES

Inventories consist of the following:

December 31
(IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
Finished goods $5,399 $5,873
Work in process 678 632
Raw materials 1,243 1,764
------------------------
$7,320 $8,269
------------------------
------------------------

Note 4. Borrowings

Long-term borrowings consist of:
December 31
(IN THOUSANDS) 1996 - 1995
- --------------------------------------------------------------------------------
Notes payable $620 $2,144
Less current maturities 287 676
------------------------
$333 $1,468
------------------------
------------------------

F-10
<PAGE>

EMPI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

On November 18, 1992, the Company issued a promissory note for $2 million in
conjunction with the acquisition of the Nortech division of Medtronic, Inc.
The note is repayable in five annual installments of $400,000, with the first
payment occurring on November 11, 1994. The note bears interest at 7 percent
with accrued interest payable semi-annually. In the event of default, the
payor has the right to convert the remaining principal balance, along with
accrued interest, into shares of the Company's Common Stock at $14.20 per
share. On September 27, 1996, the Company paid to Medtronic, Inc. the
remaining principal balance of this promissory note in addition to accrued
interest.

Notes payable now includes $620,000 of debt issued in conjunction with dealer
acquisitions and non-compete agreements.

Annual maturities of long-term debt are: 1997--$287,000, 1998--$266,000, and
1999--$67,000.

Total interest paid for the years ended December 31, 1996, 1995 and 1994 was
$79,000, $121,000 and $168,000, respectively. Interest expense included in
other income (expense) was $69,000, $114,000 and $168,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.

NOTE 5. INCOME TAXES

At December 31, 1996, the Company has a net operating loss carryforward of $1
million for income tax purposes, resulting from the Company's 1993
acquisition of Physical Health Devices, Inc., which will expire in the year
2007. The Company's ability to utilize the net operating loss carryforward
will be subject to Internal Revenue Code Section 382 limitations. For
financial reporting purposes, a valuation allowance of $332,000 and $382,000
at December 31, 1996 and 1995, respectively, has been recognized to offset
the deferred tax asset related to the carryforward. If realized, the tax
benefit for this item will reduce the goodwill related to the acquisition of
Physical Health Devices, Inc.

Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1996
and 1995 are as follows:

(IN THOUSANDS) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $3,716 $3,829
Net operating loss carryforward 332 382
Amortization of non-compete agreement 592 476
Self-insurance medical accrual 74 105
Vacation accrual 160 168
Inventory 257 239
Other 415 332
-----------------
Total deferred tax assets 5,546 5,531
Deferred tax liabilities (165) (255)
-----------------
Net deferred tax assets 5,381 5,276
Valuation allowance for deferred tax assets (379) (434)
-----------------
$5,002 $4,842
-----------------
-----------------

(IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $5,040 $4,811 $3,804
State 978 871 728
Deferred:
Federal (118) (504) (1,547)
State (42) (62) (182)
-----------------------------
$5,858 $5,116 $2,803
-----------------------------
-----------------------------

F-11
<PAGE>

EMPI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Reconciliation of the statutory federal income tax rate to the Company's
effective tax rate follows:

1996 1995 1994
-----------------------------
Statutory rate 34% 34% 34%
Increase (decrease) resulting from:
State taxes, net of federal tax benefit 4 4 5
Amortization of goodwill .5 1 6
Other - - 1
-----------------------------
Effective rate 38.5% 39% 46%
-----------------------------
-----------------------------

Total income taxes paid during the years ended December 31, 1996, 1995 and
1994 were $5,876,000, $5,469,000, and $4,485,000, respectively.

In 1996 and 1995, income tax benefits of $311,000 and $105,000, respectively,
were allocated to stockholders' equity. Such benefits were attributable to
employee stock option transactions.

NOTE 6. STOCK OPTIONS

The Company has a qualified and nonqualified stock option plan for officers,
key employees and non-employee directors. The options are granted at fair
market value and are exercisable over periods up to 10 years from grant date
in various increments. Shares reserved for issuance upon the exercise of
warrants and options were 1,005,440 at December 31, 1996

At December 31, 1996 and 1995 options for 213,275 and 158,000 shares,
respectively were exercisable.

Option activity in the stock option plan is summarized as follows:

Qualified Non-Qualified Weighted
Option Option Average Exercise
Shares Shares Price
- -------------------------------------------------------------------------------

Balance
January 1, 1995 393,820 304,757
Granted 77,015 31,568 $ 8.73
Canceled/expired (16,700) (2,500) 21.21
Exercised (42,025) (15,000) 9.42
-------------------------------
Balance
December 31, 1995 412,110 318,825
Granted 77,104 26,846 21.36
Canceled/expired (96,013) (30,806) 15.13
Exercised (44,479) (15,905) $ 6.82
-------------------------------
Balance
December 31, 1996 348,722 298,960

The Company also has an Employee Stock Purchase Plan. The Plan enables
employees to contribute up to 10 percent of their compensation toward the
purchase of the Company's common stock at 85 percent of market value. At
December 31, 1996, 300,000 shares are reserved for future employee purchases
of stock under the Plan.

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company has adopted the disclosure-only provisions of SFAS
123 but applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for its plans. Accordingly, compensation cost
for stock options is measured as the excess, if any, of the quoted market
price of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. The Company recognized no
compensation expense in 1996, 1995 or 1994 under APB 25.

F-12
<PAGE>

EMPI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

If the Company had elected to recognize compensation cost for the stock
option plan and employee stock purchase plan based on the fair value at the
grant dates for awards under those plans, consistent with the method
prescribed by SFAS 123, net income and earnings per share would have been
changed to the pro forma amounts indicated below:

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 1995
- --------------------------------------------------------------------------------
Net income As reported $ 9,357 $ 8,002
Pro forma 9,051 7,613

Earnings per share As reported $ 1.08 $ .90
Pro forma 1.05 .86

Note: The pro forma effect on net income for 1996 and 1995 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995.

The fair value of stock options used to compute pro forma net income and
earnings per share disclosures is the estimated present value at grant date
using a Black-Scholes option-pricing model with the following weighted
average assumptions for 1996 and 1995: dividend yield of 0%; expected
volatility of 61.44%; a risk free interest rate of 5.66% and an expected
holding period of 3.83 years. The weighted average values of the options
granted are $10.47 and $4.48 for 1996 and 1995, respectively.

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different than those of traded options, and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.

NOTE 7. CAPITAL STOCK

On May 11, 1994, the Board of Directors and shareholders authorized an
additional 10,000,000 shares of common stock.

In 1996, the Company purchased and retired 250,000 warrant rights for $1.7
million which were originally issued in conjunction with the 1992 acquisition
of the Nortech division of Medtronic, Inc.

NOTE 8. LEASES

The Company leases office space under noncancelable operating leases. These
leases expire on various dates through 2006.

Future minimum payments under all lease arrangements subsequent to 1996 are:
1997--$567,000, 1998--$564,000, 1999--$564,000, 2000--$564,000,
2001--$564,000, and thereafter--$2,706,000.

Rent expense for the years ended December 31, 1996, 1995 and 1994 was
$660,000, $526,000, and $552,000, respectively.

NOTE 9. RETIREMENT PLAN

The Company has a Retirement Profit Sharing and Savings Plan under Section
401(k) of the Internal Revenue Code. The Plan allows employees to defer up to
10% of their income on a pre-tax basis through contributions to the Plan. For
every dollar the employee contributes up to 6% of their income, the Company
will contribute $.50. In 1996, 1995 and 1994, the Company's matching
contribution was $404,000, $421,000 and $377,000, respectively.

F-13
<PAGE>

EMPI, INC. SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------
Additions
-----------------------
(1) (2) (3)

Charged to Other
Beginning Of Charged to Costs Accounts -- Deductions -- Balance at End
Description Period and Expenses Describe Describe of Period
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended
December 31, 1996:
Allowance for
doubtful accounts $ 5,966 $ 2,416 $ -0- $ 3,320 $ 5,062

Inventory reserve 2,757 766 -0- 754 2,769
-------- -------- ------- -------- --------

Total $ 8,723 $ 3,182 $ -0- $ 4,074 $ 7,831
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------

Year ended
December 31, 1995:
Allowance for
doubtful accounts $ 7,684 $ 2,565 $ -0- $ 4,283 $ 5,966

Inventory reserve $ 2,490 875 -0- 608 2,757
-------- -------- ------- -------- --------

Total $ 10,174 $ 3,440 $ -0- $ 4,891 $ 8,723
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------

Year ended
December 31, 1994:
Allowance for
doubtful accounts $ 5,289 $ 4,395 $ -0- $ 2,000 $ 7,684

Inventory reserve 2,593 555 -0- 658 2,490
-------- -------- ------- -------- --------

Total $ 7,882 $ 4,950 $ -0- $ 2,658 $10,174
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
</TABLE>

(1) Provisions for write-off of uncollectable receivables and inventory
adjustments.

(2) Represents reserves related to acquisitions.

(3) Represents write-offs of doubtful accounts, net of recoveries, and
write-offs and disposals of inventory.

F-14

<PAGE>
EXHIBIT 3.1 -- AMENDED ARTICLES OF INCORPORATION

ARTICLES OF AMENDMENT
AND RESTATED ARTICLES OF INCORPORATION
OF
EMPI, INC.

The undersigned hereby certifies that Restated Articles of Incorporation of
Empi, Inc. in the form attached hereto as Exhibit A were adopted pursuant to
Minnesota Statutes Chapter 302A at a meeting of the shareholders of the
corporation duly convened and held on the 9th day of July, 1990, which
Restated Articles supersede the original Articles and all amendments to them.

I swear that the foregoing is true and accurate and that I have the authority
to sign this document on behalf of the corporation.

July 11, 1990

/s/ Donald D. Maurer
Donald D. Maurer,
Chief Executive Officer<PAGE>

<PAGE>

EXHIBIT A

RESTATED ARTICLES OF INCORPORATION
OF
EMPI, INC.

ARTICLE 1 - NAME

1.1) The name of the corporation shall be Empi, Inc.

ARTICLE 2 - REGISTERED OFFICE

2.1) The registered office of the corporation is located at 1275 Grey Fox
Road, St. Paul, Minnesota 55112.

ARTICLE 3 - CAPITAL STOCK

3.1) AUTHORIZED SHARES; ESTABLISHMENT OF CLASSES AND SERIES. The
aggregate number of shares the corporation has authority to issue
shall be 15,000,000 shares, which shall have a par value of $.01 per
share solely for the purpose of a statute or regulation imposing a
tax or fee based upon the capitalization of the corporation, and
which shall consist of 10,000,000 common shares and 5,000,000
undesignated shares. The Board of Directors of the corporation is
authorized to establish from the undesignated shares, by resolution
adopted and filed in the manner provided by law, one or more classes
or series of shares, to designate each such class or series (which
may include but is not limited to designation as additional common
shares), and to fix the relative rights and preferences of each such
class or series.

Each share of Common Stock, $.10 par value, which is issued and
outstanding on the effective date of these Restated Articles of
Incorporation shall be reclassified into one common share, and each
certificate representing a share or shares of Common Stock, $.10 par
value, shall represent the same number of common shares.

3.2) ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell
and deliver shares of any class or series of the corporation to such
persons, at such times and upon such terms and conditions as the Board
shall determine, valuing all nonmonetary consideration and
establishing a price in money or other consideration, or a minimum
price, or a general formula or method by which the price will be
determined.

3.3) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is
further authorized from time to time to grant and issue rights to
subscribe for, purchase, exchange securities for, or convert
securities into, shares of the corporation of any class or series,
and to fix the terms, provisions and conditions of such rights,
including the exchange or conversion basis or the price at which such
shares may be purchased or subscribed for.

3.4) ISSUANCE OF SHARES TO HOLDERS OF ANOTHER CLASS OR SERIES. The Board
is further authorized to issue shares of one class or series to holders
of that class or series or to holders of another class or series to
effectuate share dividends or splits.

ARTICLE 4 - RIGHTS OF SHAREHOLDERS

4.1) NO PREEMPTIVE RIGHTS. No shares of any class or series of the
corporation shall entitle the holders to any preemptive rights to
subscribe for or purchase additional shares of that class or series
or any other class or series of the corporation now or hereafter
authorized or issued.

4.2) NO CUMULATIVE VOTING RIGHTS. There shall be no cumulative voting by
the shareholders of the corporation.

<PAGE>

ARTICLE 5 - WRITTEN ACTION BY DIRECTORS

5.1) Any action required or permitted to be taken at a Board meeting may
be taken by written action signed by all of the directors or, in cases
where the action need not be approved by the shareholders, by written
action signed by the number of directors that would be required to
take the same action at a meeting of the Board at which all directors
were present.

ARTICLE 6 - MERGER, EXCHANGE, SALE OF ASSETS AND DISSOLUTION

6.1) Where approval of shareholders is required by law, the affirmative
vote of the holders of at least a majority of the voting power of all
shares entitled to vote, or such greater percentage as may be required
by Article 10, shall be required to authorize the corporation (i) to
merge into or with one or more other corporations, (ii) to exchange
its shares for shares of one or more other corporations, (ii) to
exchange its shares for shares of one or more other corporations,
(iii) to sell, lease, transfer or otherwise dispose of all or
substantially all of its property and assets, including its good will,
or (iv) to commence voluntary dissolution.

ARTICLE 7 - AMENDMENT OF ARTICLES OF INCORPORATION

7.1) Except as provided otherwise in Article 10, any provision contained in
these Articles of Incorporation may be amended, altered, changed or
repealed by the affirmative vote of the holders of at least a majority
of the voting power of the shares present and entitled to vote at a
duly held meeting or such greater percentages as may be otherwise
prescribed by the laws of the State of Minnesota.

ARTICLE 8 - LIMITATION OF DIRECTOR LIABILITY

8.1) To the fullest extent permitted by Chapter 302A, Minnesota Statutes,
as the same exists or may hereafter be amended, a director of this
corporation shall not be personally liable to the corporation or its
shareholders for monetary damages for breach of fiduciary duty as a
director.

ARTICLE 9 - PROHIBITION ON CERTAIN
STOCK PURCHASE BY THE CORPORATION

9.1) The Corporation may not purchase, directly or indirectly, any of its
securities at a price higher than the average sale price during the
immediately preceding twenty trading days from any person who holds
more than fifteen percent of the voting power of the class of the
securities to be purchased and has held any of such securities to be
purchased and has held any of such securities for less than two years,
unless (i) such purchase has been approved by the affirmative vote of
the holders of a majority of the outstanding voting power of the
corporation or (ii) the corporation makes an offer to acquire, of at
least equal value, to all holders of any securities of such class and
to all holders of any class into which such securities may be
converted.

9.2) When two or more persons act as a partnership, syndicate, or other
group for the purpose of acquiring, voting, holding or disposing of
securities of the corporation, such partnership, syndicate or group
shall be deemed a "person" for purposes of this Article 9.

ARTICLE 10 - RELATED PERSON BUSINESS TRANSACTIONS

10.1) Whether or not a vote of shareholders is otherwise required, the
affirmative vote of the holders of not less than two-thirds of the
voting power of the outstanding "voting shares" (as hereinafter
defined) of the corporation shall be required for the approval or
authorization of any "Related Person Business Transaction" (as
hereinafter defined) involving the corporation or the approval or
authorization by the corporation in its capacity as a shareholder of
any Related Person Business Transaction involving a "Subsidiary" (as
hereinafter defined) which requires the approval or authorization of
the shareholders of the Subsidiary; provided, however, that such
two-thirds voting requirement shall not be applicable if:

(a) The "Continuing Directors" (as hereinafter defined) by a
majority vote have expressly approved the Related Person
Business Transaction; or

<PAGE>

(b) The Related Person Business Transaction is a merger,
consolidation, exchange of shares or sale of all or
substantially all of the assets of the corporation, and the
cash or fair market value of the property, securities or
other consideration to be received per share by holders
of Common Stock of the Corporation or other than the
"Related Person" (as hereinafter defined) in the Related
Person Business Transaction is an amount at least equal to
the "Highest Purchase Price" (as hereinafter defined).

10.2) For the purposes of this Article 10:

(a) The term "Related Person Business Transaction" shall mean (i)
any merger or consolidation of the corporation or a Subsidiary
with or into a Related Person, (ii) any exchange of shares of the
corporation or a Subsidiary for shares of a Related Person which,
in the absence of this Article, would have required the
affirmative vote of at least a majority of the voting power
of the outstanding shares of the corporation entitled to vote
or the affirmative vote of the corporation, in its capacity as a
shareholder of the Subsidiary, (iii) any sale, lease, exchange,
transfer, or other disposition (in one transaction or a series of
transactions), including without limitation a mortgage or any
other security device, of all or any "Substantial Part" (as
hereinafter defined) of the assets either of the corporation or
of a Subsidiary to or with a Related Person, (iv) any sale,
lease, transfer, or other disposition (in one transaction or a
series of transactions) of all or any Substantial Part of the
assets of a Related Person to or with the corporation or a
Subsidiary, (v) the issuance, sale, transfer or other disposition
to a Related Person of any securities of the corporation (except
pursuant to stock dividends, stock splits, or similar
transactions which would not have the effect of increasing the
proportionate voting power of a Related Person) or of a
Subsidiary (except pursuant to a pro rata distribution to all
holders of Common Stock of the corporation), (vi) any
recapitalization or reclassification that would have the effect
of increasing the proportionate voting power of a Related Person,
and (vii) any agreement, contract, arrangement, or understanding
providing for any of the transactions described in this
definition of Related Person Business Transaction.

(b) The term "Related Person" shall mean and include (i) any person
or entity which, together with its "Affiliates" and "Associates"
(both as hereinafter defined), "beneficially owns" (as
hereinafter defined) in the aggregate 15 percent or more of the
outstanding voting shares of the corporation, and (ii) any
Affiliate or Associate (other than the corporation or a wholly
owned subsidiary of the corporation) of any such person or
entity. Two or more persons or entities acting as a syndicate
or group, or otherwise, for the purpose of acquiring, holding,
or disposing of voting shares of the corporation shall be deemed
to be a "person" or "entity" as the case may be.

(c) The term "Affiliate", used to indicate a relationship
with a specified person or entity, shall mean a person or
entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under
common control with, the person or entity specified.

(d) The term "Associate", used to indicate a relationship
with a specified person or entity, shall mean (i) any entity
of which such specified person or entity is an officer or
partner or is, directly or indirectly, the beneficial owner of
10 percent or more of any class of equity securities, (ii) any
trust or other estate in which such specified person or entity
has a substantial beneficial interest or as to which such
specified person or entity serves as trustee or in a similar
fiduciary capacity, (iii) any relative or spouse of such
specified person, or any relative of such spouse, who has the
same home as such specified person or who is a director or
officer of the corporation or any Subsidiary, and (iv) any
person who is a director or officer of such specified entity
or any of its parents or subsidiaries (other than the
corporation or a wholly-owned subsidiary of the corporation).

(e) The term "Substantial Part" shall mean 30 percent or more
of the fair market value of the total assets of the person or
entity in question, as reflected on the most recent balance
sheet of such person or entity existing at the time the
shareholders of the corporation would be required to approve
or authorize the Related Person Business Transaction involving
the assets constituting any such Substantial Part.

(f) The term "Subsidiary" shall mean any corporation, a
majority of the equity securities of any class of which are
owned by the corporation, by another Subsidiary, or in the
aggregate by the corporation and one or more of its
Subsidiaries.

<PAGE>

(g) The term "Continuing Director" shall mean (i) a director
who was a member of the Board of Directors of the corporation
on June 12, 1986; and (ii) a director who became a director
before any Related Person involved in the Related Person
Business Transaction in question became a Related Person of
(iii) any person becoming a director whose election, or
nomination for election by the corporation's shareholders, was
approved by a vote of a majority of the Continuing Directors;
provided, however, that in no event shall a Related Person
involved in the Related Person Business Transaction in
question be deemed to be a Continuing Director.

(h) The term "voting shares" shall mean shares of capital
stock of a corporation entitled to vote generally in the
election of directors, considered for the purposes of this
Article as one class.

(i) The term "Highest Purchase Price" shall mean the highest
amount of cash or the fair market value of the property,
securities or other consideration paid by the Related Person
for a share of Common Stock of the corporation at any time
while such person or entity was a Related Person or in the
transaction which resulted in such person or entity becoming a
Related Person; provided, however, that the Highest Purchase
Price shall be appropriately adjusted to reflect the
occurrence of any reclassification, recapitalization, stock
split, reverse stock split or other readjustment in the number
of outstanding shares of Common Stock of the corporation, or
the declaration of a stock dividend thereon, between the last
date upon which the Related Person paid the Highest Purchase
Price and the effective date of the merger, consolidation or
exchange of shares or the date of distribution to shareholders
of the corporation of the proceeds from the sale of all or
substantially all of the assets of the corporation.

(j) (i) A person or entity "beneficially owns" voting
shares of the corporation if such person or entity,
directly or indirectly, through any contract,
arrangement, understanding, relationship, or
otherwise has or shares (A) voting power which
includes the power to vote, or to direct the voting
of such voting shares, or (B) investment power which
includes the power to dispose, or to direct the
disposition of, such voting shares. Any person or
entity which, directly or indirectly, creates or
uses a trust, proxy, power of attorney, pooling
arrangement or any other contract, arrangement, or
device with the purpose or effect of divesting such
person or entity of beneficial ownership of voting
shares of the corporation or preventing the vesting
of such beneficial ownership as part of a plan or
scheme to avoid becoming a Related Person shall be
deemed for purposes of this Article 10 to be the
beneficial owner of such voting shares. All voting
shares of the corporation beneficially owned by a
person or entity, regardless of the form which such
beneficial ownership takes shall be aggregated in
calculating the number of voting shares of the
corporation beneficially owned by such person or
entity. Any voting shares of the corporation that
any person or entity has the right to acquire
pursuant to any agreement, contract, arrangement, or
understanding, or upon exercise of any conversion
right, warrant or option, or pursuant to the
automatic termination of a trust, discretionary
account or similar arrangement, or otherwise shall
be deemed beneficially owned by such person or
entity. Any voting shares of the corporation not
outstanding which any person or entity has a right
to acquire shall be deemed to be outstanding for the
purpose of computing the percentage of outstanding
voting shares of the corporation beneficially owned
by such person or entity but shall not be deemed to
be outstanding for the purposes of computing the
percentage of outstanding voting shares of the
corporation beneficially owned by any other person
or entity.

(ii) Notwithstanding the foregoing provisions of
subparagraph (j) (i) above:

(A) A member of a national securities exchange shall not
be deemed to be a beneficial owner of voting shares of
the corporation held directly or indirectly by it on
behalf of another person or entity solely because such
member is the record holder of such voting shares and,
pursuant to the rules of such exchange, may direct the
vote of such voting shares, without instruction, on
other than contested matters or matters that may affect
substantially the rights or privileges of the holders
of the voting shares of the corporation to be voted,
but is otherwise precluded by the rules of such
exchange from voting without instruction;

<PAGE>

(B) A commercial bank, broker or dealer or insurance
company which in the ordinary course of business is a
pledgee of voting shares of the corporation under a
written pledge agreement shall not be deemed to b
the beneficial owner of such pledged voting shares
until the pledgee has taken all formal steps
necessary to declare a default and determines that
the power to vote or to direct the vote or to
dispose or to direct the disposition of such pledged
securities will be exercised, provided that the
pledge agreement is bona fide and was not entered
into with the purpose nor with the effect of
changing or influencing the control of the
corporation nor in connection with any transaction
having such purpose or effect and, prior to default,
does not grant to the pledgee the power to vote or
to direct the vote of the pledged voting shares of
the corporation; and

(C) A person or entity engaged in business as an
underwriter of securities who acquires voting shares
of the corporation through its participation in good
faith in a firm commitment underwriting registered
under the Securities Act of 1933, or comparable
successor law, rule or regulation, shall not be
deemed to be the beneficial owner of such voting
shares until the expiration of forty days after the
date of such acquisition.

10.3) For the purposes of this Article 10 the Continuing
Directors by a majority vote shall have the power to make a good
faith determination, on the basis of information known to them, of:
(a) the number of voting shares of the corporation that any person
or entity "beneficially owns" (b) whether a person or entity is an
Affiliate or Associate of another, (c) whether the assets subject
to any Related Person Business Transaction constitute a Substantial
Part, (d) whether any business transaction is one in which a
Related Person has an interest, (e) whether the cash or fair market
value of the property, securities or other consideration to be
received per share by holders of Common Stock of the corporation
other than the Related Person in a Related Person Business
Transaction is an amount at least equal to the Highest Purchase
Price, and (f) such other matters with respect to which a
determination is required under this Article 10.

10.4) Notwithstanding Article 7 hereof, the provisions set
forth in this Article 10 including this Section 10.4, may not be
repealed or amended in any respect unless such action is approved
by the affirmative vote of the holders of not less than two-thirds
of the voting power of the outstanding voting shares of the
corporation.

<PAGE>

ARTICLES OF AMENDMENT OF ARTICLES OF INCORPORATION
OF
EMPI, INC.

Pursuant to the provisions of Minnesota Statutes, Section 302A.135, the
Amendment of the Articles of Incorporation of Empi, Inc., amending and
restating Article 3, as set forth on Exhibit A attached hereto was duly
adopted by the shareholders of the corporation on the 11th day of May 1994.

I swear that the foregoing is true and accurate and that I have the authority
to sign this document on behalf of the corporation.

Dated: May 24, 1994

/s/ Donald D. Maurer
Donald D. Maurer, President
Empi, Inc.

<PAGE>

EXHIBIT A

ARTICLE 3 - CAPITAL STOCK

3.1) AUTHORIZED SHARES; ESTABLISHMENT OF CLASSES AND SERIES. The
aggregate number of shares the corporation has authority to issue shall
be 25,000,000 shares, which shall have a par value of $.01 per share
solely for the purpose of a statute or regulation imposing a tax or fee
based upon the capitalization of the corporation, and which shall
consist of 20,000,000 common shares and 5,000,000 undesignated shares.
The Board of Directors of the corporation is authorized to establish
from the undesignated shares, by resolution adopted and filed in the
manner provided by law, one or more classes or series of shares, to
designate each such class or series (which may include but is not
limited to designation as additional common shares), and to fix the
relative rights and preferences of each such class or series.

3.2) ISSUANCE OF SHARES. The Board of Directors of the corporation is
authorized from time to time to accept subscriptions for, issue, sell
and deliver shares of any class or series of the corporation to such
persons, at such times and upon such terms and conditions as the Board
shall determine, valuing all nonmonetary consideration and establishing
a price in money or other consideration, or a minimum price, or a
general formula or method by which the price will be determined.

3.3) ISSUANCE OF RIGHTS TO PURCHASE SHARES. The Board of Directors is
further authorized from time to time to grant and issue rights to
subscribe for, purchase, exchange securities for, or convert securities
into, shares of the corporation of any class or series, and to fix the
terms, provisions and conditions of such rights, including the exchange
or conversion basis or the price at which such shares may be purchased
or subscribed for.

3.4) ISSUANCE OF SHARES TO HOLDERS OF ANOTHER CLASS OR SERIES. The
Board is further authorized to issue shares of one class or series to
holders of that class or series or to holders of another class or
series to effectuate share dividends or splits.

<PAGE>

STATE OF MINNESOTA
SECRETARY OF STATE
NOTICE OF CHANGE OF REGISTERED OFFICE/
REGISTERED AGENT

1. Corporate Name:

Empi, Inc.

2. Registered Office Address (No. & Street): List a complete street
address or rural route and rural route box number. A post office box is
not acceptable.

599 Cardigan Road, St. Paul, MN 55126-3965

3. Registered Agent (Registered agents are required for foreign
corporations but optional for Minnesota corporations):

None

In compliance with Minnesota Statutes, Section 302A.123, 303.10, 308A.025,
317A.123 or 322B.135 I certify that the above listed company has resolved to
change the company's registered office and/or agent as listed above.

I certify that I am authorized to execute this certificate and I further
certify that I understand that by signing this certificate I am subject to
the penalties of perjury as set forth in Minnesota Statutes Section 609.48 as
if I had signed this certificate under oath.

/s/ Joseph E. Laptewicz, Jr.
Signature of Authorized Person

<PAGE>
EXHIBIT 10.9 -- PROPOSED 1997 EMPLOYEE STOCK PURCHASE PLAN

EXHIBIT A

ARTICLE I - ESTABLISHMENT OF PLAN

1.01) ADOPTION BY BOARD OF DIRECTORS. By action of the Board of
Directors of Empi, Inc. (the "Corporation") on February 7, 1996,
and subject to approval by its shareholders, the Corporation has
adopted an employee stock purchase plan pursuant to which eligible
employees of the Corporation and certain of its Subsidiaries may be
offered the opportunity to purchase shares of Stock of the
Corporation. The terms and conditions of the Plan are set forth in
this plan document, as amended from time to time as provided
herein. The Corporation intends that the Plan shall qualify as an
"employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended from time to time, (the "Code")
and shall be construed in a manner consistent with the requirements
of Code Section 423 and the regulations thereunder.

1.02) SHAREHOLDER APPROVAL AND TERM. This Plan shall become effective
January 1, 1997, and shall terminate on December 31, 2001;
provided, however, that the Plan shall be subject to approval by
the shareholders of the Corporation within twelve (12) months after
the Plan was adopted by the Board or, if earlier, at the next
Annual Meeting of the Shareholders, in the manner provided under
Code Section 423 and the regulations thereunder; and provided,
further, that the Board of Directors may extend the term of the
Plan for such period as the Board, in its sole discretion, deems
advisable. In the event that the shareholders fail to approve the
Plan at such annual shareholders' meeting, this Plan shall not
become effective and shall have no force or effect.

ARTICLE II - PURPOSE

2.01) PURPOSE. The primary purpose of the Plan is to provide an
opportunity for Eligible Employees of the Corporation to become
shareholders of the Corporation, thereby providing them with an
incentive to remain in the Corporation's employ, to improve
operations, to increase profits and to contribute more
significantly to the Corporation's success.

ARTICLE III - DEFINITIONS

3.01) "ADMINISTRATOR" means the Compensation and Stock Option Committee
(the "Committee") appointed by the Board of Directors. The
Administrator may, in its sole discretion, authorize the officers
of the Corporation to carry out the day-to-day operation of the
Plan. In its sole discretion, the Board may take such actions as
may be taken by the Administrator, in addition to those powers
expressly reserved to the Board under this Plan.

3.02) "BOARD OF DIRECTORS" OR "BOARD" means the Board of Directors of
Empi, Inc.

3.03) "COMPENSATION" means the Participant's gross cash compensation to
be paid during the Phase, including overtime, commissions, bonuses
and taxable automobile allowances, but excluding disability
payments, severance pay and other payments excluded from the
definition of "covered compensation" under the Corporation's
Retirement Profit Sharing and Savings Plan.

3.04) "CORPORATION" means Empi, Inc., a Minnesota corporation.

3.05) "DISABILITY" means the Participant's inability to engage in any
substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to
result in death or which has lasted or can be expected to last for
a continuous period of not less than twelve (12) months, as
determined by a physician acceptable to the Corporation or
Subsidiary.

3.06) "ELIGIBLE EMPLOYEE" means any employee who is a full-time or
part-time employee of the Corporation or one of its Subsidiaries
and, as of the date set forth in Section 6.01, has been employed by
the Corporation or Subsidiary for at least thirty (30) days and is
customarily employed for more than twenty (20) hours per week.

3.07) "ENROLLMENT PERIOD" means the period determined by the
Administrator for purposes of accepting elections to participate during
a Phase from Eligible Employees.

45
<PAGE>

3.08) "PARTICIPANT" means an Eligible Employee who has been granted an
option and is participating during a Phase through payroll
deductions or by electing to pay a lump sum amount, subject to the
limitations set forth in Section 9.03.

3.09) "PHASE" means the period beginning on the date that the option
was granted, otherwise referred to as the commencement date of the
Phase, and ending on the date that the option is exercised,
otherwise referred to as the termination date of the Phase. Phases
shall be numbered consecutively, beginning with Phase 1.

3.10) "PLAN" means the Empi, Inc. 1997 Employee Stock Purchase Plan.

3.11) "STOCK" means the voting Common Stock of the Corporation.

3.12) "SUBSIDIARY" OR "SUBSIDIARIES" means any corporation defined as a
subsidiary of the Corporation in Code Section 424(f), or any
successor provision, as of the effective date of the Plan, and such
other corporations that qualify as subsidiaries of the Corporation
under Code Section 424(f), or any successor provision, as the Board
approves to participate in this Plan from time to time.

ARTICLE IV - ADMINISTRATION

4.01) ADMINISTRATION. Except for those matters expressly reserved
to the Board pursuant to any provisions of the Plan, the
Administrator shall have full responsibility for administration of
the Plan, which responsibility shall include, but shall not be
limited to, the following:

(a) The Administrator shall, subject to the provisions of the Plan,
establish, adopt and revise such rules and procedures for
administering the Plan, and shall make all other determinations as
it may deem necessary or advisable for the administration of the
Plan;

(b) The Administrator shall, subject to the provisions of the Plan,
determine all terms and conditions that shall apply to the grant
and exercise of options under this Plan, including, but not
limited to, the number of shares of Stock that may be granted,
the date of grant, the exercise price and the manner of exercise
of an option. The Administrator may, in its discretion, consider
the recommendations of the management of the Corporation when
determining such terms and conditions;

(c) The Administrator shall have the exclusive authority to interpret
the provisions of the Plan, and each such interpretation or
determination shall be conclusive and binding for all purposes
and on all persons, including, but not limited to, the
Corporation and its Subsidiaries, the shareholders of the
Corporation and its Subsidiaries, the Administrator, the Board,
the officers and the employees of the Corporation and its
Subsidiaries, and the Participants and the respective
successors-in-interest of all of the foregoing; and

(d) The Administrator shall keep minutes of its meetings or other
written records of its decisions regarding the Plan and shall,
upon requests, provide copies to the Board.

ARTICLE V - PHASES OF THE PLAN

5.01) PHASES. The Plan shall be carried out in one or more Phases of
twelve (12) months each. Unless otherwise determined by the
Administrator, in its discretion, Phases shall commence on January
1 of each calendar year during the term of the Plan, with the first
Phase beginning January 1, 1997, and ending December 31, 1997. No
two Phases shall run concurrently.

5.02) LIMITATIONS. The Administrator may, in its discretion, limit
the number of shares available for option grants during any Phase
as it deems appropriate. Without limiting the foregoing, in the
event all of the shares of Stock reserved for the grant of options
under Section 12.01 is issued pursuant to the terms hereof prior to
the commencement of one or more Phases or the number of shares of
Stock remaining is so small, in the opinion of the Administrator,
as to render administration of any succeeding Phase impracticable,
such Phase or Phases may be canceled or the number of shares of
Stock limited as provided herein. In addition, if, based on the
payroll deductions or the lump sum payments elected by Participants
at the beginning of a Phase, the Administrator determines that the
number of shares of Stock which would be purchased at the end of a
Phase exceeds the number of shares of Stock remaining reserved
under Section 12.01 hereof for issuance under the Plan, or if the
number of shares of Stock for which options are to be granted
exceeds the number of shares designated for option grants by the
Administrator for such Phase, then the Administrator shall make a
pro rata allocation of the shares of Stock remaining available in
as nearly uniform and equitable a manner as the

46
<PAGE>

Administrator shall consider practicable as of the commencement
date of the Phase or, if the Administrator so elects, as of the
termination date of the Phase. In the event such allocation is
made as of the commencement date of a Phase, the payroll deductions
or lump sum payments which otherwise would have been made by or on
behalf of Participants shall be reduced accordingly.

ARTICLE VI - ELIGIBILITY

6.01) ELIGIBILITY. Subject to the limitations of Section 9.03, each
employee who is an Eligible Employee on the first of December
immediately prior to the commencement of a Phase shall be eligible
to participate in such Phase. If, in the discretion of the
Administrator, any Phase commences on a date other than January 1,
whether an employee is an Eligible Employee shall be determined on
a date selected by the Administrator, which date shall be at least
thirty (30) days prior to the commencement date of the Phase.

ARTICLE VII - PARTICIPATION

7.01) PARTICIPATION. Participation in the Plan is voluntary. An
Eligible Employee who desires to participate in any Phase of the
Plan must complete the Plan enrollment form provided by the
Administrator and deliver such form to the Administrator or its
designated representative during the Enrollment Period established
by the Administrator prior to the commencement date of the Phase.
The Administrator may, in its discretion and subject to rules of
uniform application, provide that an Eligible Employee's election
to participate in a Phase shall apply to all subsequent Phases of
the Plan.

ARTICLE VIII - PAYMENT

8.01) ENROLLMENT. Each Participant shall designate on the Plan
enrollment form a percentage of such Participant's Compensation to
be paid on an after-tax basis during the Phase. Such percentage
shall be at least one percent (1%) but not more than ten percent
(10%) of such Participant's Compensation to be paid during such
Phase, or such other maximum percentage as the Administrator may
establish from time to time, and must be designated in whole
percentages. In order to be effective, such Plan enrollment form
must be properly completed and received by the Administrator by the
due date indicated on such form, or by such other date established
by the Administrator. Each Participant shall also indicate on the
Plan enrollment forms whether the percentage of Compensation
elected by such Participant shall be paid by payroll deductions
during the Phase or in a lump sum payment prior to the termination
of the Phase. Participants must elect either payroll deductions or
a lump sum payment and not a combination of both payment methods.
Participants cannot change the payment method after the due date
for submitting the Plan enrollment form established by the
Administrator.

8.02) PAYROLL DEDUCTIONS. Payroll deductions for a Participant shall
commence on the first paycheck issued for the payroll period which
begins on or immediately after the commencement date of the Phase
and shall terminate on the last paycheck issued for the payroll
period which begins on or immediately prior to the termination date
of that Phase, unless the Participant elects to discontinue payroll
deductions or exercises his or her right to withdraw all
accumulated payroll deductions previously withheld during the Phase
as provided in Article 10 hereof. The authorized payroll
deductions shall be made over the pay periods of such Phase by
deducting from the Participant's Compensation for each such pay
period that percentage specified by the Participant in the Plan
enrollment form.

8.03) LUMP SUM PAYMENTS. Unless otherwise determined by the
Administrator, lump sum payments must be received by the
Corporation on a date prior to the termination of the Phase as
established by the Administrator, and must be in such form as
approved by the Administrator. If payment is not made by such due
date or is made in an unauthorized form, the option granted
pursuant to Article IX shall lapse in its entirety, and any amounts
paid to the Corporation shall be returned to the Participant,
without interest, as soon as administratively feasible. During the
last month of the Phase, a Participant may decrease the percentage
of his or her Compensation designated to be paid in a lump sum
payment by completing and filing such forms as the Administrator
may require.

8.04) INCREASES OR DECREASES DURING A PHASE. In addition to the right
to discontinue or withdraw payroll deductions during a Phase as
provided in Article X, a Participant may increase or decrease the
percentage of Compensation designated to be deducted as payroll
deductions during a Phase by completing and filing such forms as
the Administrator may require. Such increase or decrease shall be
effective with the next payroll period beginning after the date
that the Administrator receives such forms and shall apply to all
remaining Compensation paid during the Phase. The Participant may
exercise the right to increase or decrease his or her payroll
deductions only once during each Phase.

<PAGE>

8.05) CHANGE IN COMPENSATION DURING A PHASE. In the event that the
Participant elects to make payroll deductions during a Phase and
such Participant's Compensation is discontinued or reduced during
the Phase for any reason, such that the amount actually withheld on
behalf of the Participant as of the termination date of the Phase
is less than the amount anticipated to be withheld as determined on
the commencement date of the Phase, then the extent to which the
Participant may exercise his or her option shall be based on the
amounts actually withheld on his or her behalf. In the event of a
change in the pay period of any Participant, such as from biweekly
to monthly, an appropriate adjustment shall be made to the
deduction in each new pay period so as to insure the deduction of
the proper amount authorized by the Participant.

ARTICLE IX - OPTIONS

9.01) GRANT OF OPTION. Subject to Article X, a Participant who has
elected to participate in the manner described in Article VIII and
who is employed by the Corporation or a Subsidiary as of the
commencement date of a Phase shall be granted an option as of such
date to purchase that number of whole shares of Stock determined by
dividing the total amount to be credited to the Participant's
account by the option price per share set forth in Section 9.02(a)
below. The option price per share for such Stock shall be
determined under Section 9.02 hereof, and the number of shares
exercisable shall be determined under Section 9.03 hereof.

9.02) OPTION PRICE. Subject to the limitations hereinbelow, the
option price for such Stock shall be the lower of the amounts
determined under paragraphs (a) and (b) below:

(a) Eighty-five percent (85%) of the closing price for a share of the
Corporation's Stock as reported on the NASDAQ National Market
System or on an established securities exchange as of the
commencement date of the Phase; or

(b) Eighty-five percent (85%) of the closing price for a share of the
Corporation's Stock as reported on the NASDAQ National Market
System or on an established securities exchange as of the
termination date of the Phase.

In the event that the commencement or termination date of a Phase
is a Saturday, Sunday or holiday, or in the event there was no
trade of the Corporation's Stock on such applicable date, the
amounts determined under the foregoing subsections shall be
determined using the price as of the last preceding trading day.

If the Corporation's Stock is not listed on the NASDAQ National
Market System or on an established securities exchange, then the
option price shall equal the lesser of (i) eighty-five percent
(85%) of the fair market value of a share of the Corporation's
Stock as of the commencement date of the Phase; or (ii)
eighty-five percent (85%) of the fair market value of such stock
as of the termination date of the Phase. Such "fair market
value" shall be determined by the Board.

9.03) LIMITATIONS. No employee shall be granted an option hereunder:

(a) Which permits his or her rights to purchase Stock under all
employee stock purchase plans of the Corporation or its
Subsidiaries to accrue at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) of fair market value of such Stock
(determined at the time such option is granted) for each calendar
year in which such option is outstanding at any time;

(b) If such employee would own and/or hold, immediately after the
grant of the option, Stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of
stock of the Corporation or of any Subsidiary. For purposes of
determining stock ownership under this paragraph, the rules of
Section 424(d), or any successor provision, of the Code shall
apply.

9.04) EXERCISE OF OPTION. In addition to a Participant's right of
withdrawal provided in Section 10.01, any Participant may, by
written notice to the Corporation at any time during the last month
of the Phase, elect, effective as of such termination date, not to
exercise the option for any or all of the shares Stock subject to
the option or may elect to reduce the amount of Compensation used
to exercise the option, in which event such option shall be
exercised or shall lapse in whole or in part in accordance with the
Participant's election.

If a Participant fails to give such written notice to the
Corporation, such Participant's option for the purchase of the
shares of Stock will be exercised automatically on the termination
date of that Phase, subject to the timely

48
<PAGE>

and appropriate receipt of any lump sum payment elected by such
Participant. Except as otherwise provided for lump sum payments in
Section 9.05, in no event shall a Participant be allowed to
exercise an option for more shares of Stock than can be purchased
with the payroll deductions accumulated or lump sum payment made by
the Participant during such Phase, whether or not such amounts are
less than the full percentage amount that such Participant elected
to contribute at the beginning of such Phase.

9.05) DELIVERY OF SHARES. As promptly as practicable after the
termination of any Phase, the Corporation's transfer agent or other
authorized representative shall deliver to each Participant herein
certificates for that number of whole shares of Stock purchased
upon the exercise of the Participant's option. The Corporation
may, in its sole discretion, arrange with the Corporation's
transfer agent or other authorized representative to establish, at
the direction of the Participant, individual securities accounts to
which will be credited that number of whole shares of Stock that
are purchased upon such exercise, such securities account to be
subject to such terms and conditions as may be imposed by the
transfer agent or authorized representative.

Any accumulated payroll deductions or portion of a lump sum payment
remaining after the exercise of the Participant's option shall be
returned to the Participant, without interest; provided, however,
that the Corporation may, under rules of uniform application,
retain such remaining amount in the Participant's bookkeeping
account and apply it toward the purchase of shares of Stock in the
next succeeding Phase, unless the Participant requests a withdrawal
of such amount pursuant to Section 10.01.

If the Participant elected to make a lump sum payment and the final
amount of such lump sum payment cannot be determined by the end of
the Phase, the Corporation shall have the right to deduct from the
first paycheck issued for the payroll period which begins on or
immediately after the commencement date of the next Phase any
amount that may remain due and payable for the shares of Stock
purchased upon the exercise of the Participant's option.

ARTICLE X - WITHDRAWAL OR DISCONTINUATION

10.01) Withdrawal. At any time during a Phase, a Participant may
request a withdrawal of all accumulated payroll deductions, or
during the last month of the phase may request a withdrawal of all
lump sum payments, then credited to the Participant's bookkeeping
account by completing and returning such forms as the Administrator
may require. As soon as administratively feasible after the
Administrator's receipt of such forms, all payroll deductions or
lump sum payments credited to the bookkeeping account for the
Participant during that Phase will be paid to such Participant,
without interest. No further lump sum payments or payroll
deductions will be made by or on behalf of the Participant in any
Phase until the Participant completes a new Plan enrollment form as
provided in Section 8.01 above. If, during a Phase, the
Participant requests a withdrawal, the option granted to the
Participant under that Phase of the Plan shall immediately lapse
and shall not be exercisable. Partial withdrawals are not
permitted, except as provided in Section 9.04.

10.02) DISCONTINUATION. A Participant may also request that the
Administrator discontinue any further payroll deductions that would
otherwise be made during the remainder of the Phase by completing
and filing such forms as the Administrator may require. The
Participant's request shall be effective as of the beginning of the
next payroll period immediately following the date that the
Administrator receives such forms. Upon the effective date of the
Participant's request, the Corporation will discontinue making
payroll deductions for such Participant for that Phase.

ARTICLE XI - TERMINATION OF EMPLOYMENT

11.01) DEATH. If a Participant dies prior to the period commencing
three (3) months before the termination date of a Phase, the
payroll deductions credited to the Participant's bookkeeping
account for such Phase, if any, shall be paid to the Participant's
validly designated beneficiary as soon as administratively feasible
after the Participant's date of death. If the Participant elected
to make a lump sum payment at the end of the Phase, such election
shall terminate and shall be of no further force and effect. Any
option granted to such Participant under the Plan shall immediately
lapse and shall not be exercisable.

If there is no living and validly designated beneficiary on the
date of the Participant's death, the Corporation shall deliver the
payroll deductions credited to the Participant's bookkeeping
account, if any, to the representative of the Participant's estate.
If, to the knowledge of the Corporation, no such representative
has been appointed as of the date such amounts are to be paid, the
Corporation may, in its discretion, pay such

49
<PAGE>

amounts to the spouse of the Participant or to any one or more
dependents or relatives of the Participant. If no such spouse,
dependent or relative is known to the Corporation, the Corporation
may, in its discretion, pay such amounts to such other person as
the Corporation may designate.

11.02) DISABILITY. If a Participant's employment terminates with the
Corporation or Subsidiary because of Disability prior to the period
commencing three (3) months before the termination date of a Phase,
the payroll deductions credited to the Participant's bookkeeping
account for such Phase, if any, shall be returned to the
Participant, without interest, as soon as administratively feasible
after such termination. If the Participant elected to make a lump
sum payment at the end of the Phase, such election shall terminate
and shall be of no further force and effect. Any option granted to
such Participant under the Plan shall immediately lapse and shall
not be exercisable.

If a Participant's employment terminates with the Corporation or
Subsidiary because of Disability during the last three (3) months
of a Phase, such Participant shall remain a Participant hereunder
until the earlier of (i) the Participant's death, and (ii) the
termination of the Phase and the distribution of the shares of
Stock and/or cash payments, as the case may be.

11.03) OTHER TERMINATIONS. If a Participant's employment with
the Corporation or Subsidiary terminates for any reason other than
death or Disability prior to the last month of a Phase, the payroll
deductions credited to such Participant's bookkeeping account for
such Phase, if any, shall be returned to the Participant, without
interest, as soon as administratively feasible after such
termination. If such Participant elected to make a lump sum
payment at the end of the Phase, such election shall terminate and
shall be of no further force and effect. Any option granted to
such Participant under the Plan shall immediately lapse and shall
not be exercisable.

If a Participant's employment terminates with the Corporation or
Subsidiary for any reason other than death or Disability during the
last month of a Phase, such Participant shall remain a Participant
hereunder until the earlier of (i) the Participant's death, and
(ii) the termination of the Phase and the distribution of the
shares of Stock and/or cash payments, as the case may be.

11.04) EXERCISE BY ESTATE OR BENEFICIARY. If a Participant:

(a) Dies during the last three (3) months of a Phase while an active
employee;

(b) Terminates employment with the Corporation because of Disability
during the last three (3) months of a Phase and subsequently dies
before the termination of the Phase in which the Participant
terminated employment; or

(c) Terminates employment for any other reason during the last month
of a Phase and subsequently dies before the termination of the
Phase in which the Participant terminated employment; then, in
any of such events, the Participant's option may be exercised by
the Participant's validly designated beneficiary as of the
termination date of the Phase by using the payroll deductions
credited to the deceased Participant's bookkeeping account to
purchase the shares of Stock or by paying to the Company in a
timely and authorized form the lump sum payment, if any, elected
by the deceased Participant at the commencement of the Phase. If
there is no living and validly designated beneficiary as of the
termination date of the Phase, the option will lapse unexercised
on the such termination date; provided, however, that if a
representative of such Participant's estate has been duly
appointed on or before the termination date of the Phase, such
representative may exercise the option on behalf of the
Participant's estate. If such beneficiary or representative, as
the case may be, exercises the Participant's option pursuant to
this Section 11.04, the beneficiary or the representative shall
have the same rights to exercise the option in whole or in part
on behalf of the Participant as if the Participant had survived
to the termination date of the Phase and shall be entitled to
receive any shares of Stock and/or cash payments as a result of
such exercise.

If the option lapses without exercise pursuant to this Section
11.04, any payroll deductions credited to the Participant's
bookkeeping account as of such Participant's death will be paid
to the representative of the Participant's estate, without
interest, as soon as administratively feasible after the
termination of the Phase. If, to the knowledge of the
Corporation, no such representative has been appointed as of the
date such amounts are to be paid, the Corporation may, in its
discretion, pay such amounts to the spouse of the Participant or
to any one or more dependents or relatives of the Participant.
If no such spouse, dependent or relative is known to the
Corporation, the Corporation may, in its discretion, pay such
amounts to such other person as the Corporation may designate.

50
<PAGE>

11.05) DEATH AFTER EXERCISE OF OPTION. In the event a Participant dies
after exercise of the Participant's option but prior to delivery of
the Stock and/or cash payments, as the case may be, as a result of
the exercise of the option, any such Stock and/or cash payments
shall be delivered by the Corporation to the representative of the
Participant's estate. If no such representative has been appointed
as of the date such Stock and/or cash payments are to be delivered,
such Stock and/or cash payments shall be held by the Corporation
until it receives written notification from the Participant's
estate of such appointment, at which time such Stock and/or cash
payments shall be delivered to such representative.
Notwithstanding the foregoing, if no Stock is to be transferred,
the Corporation may, in its discretion, deliver the cash payments
in accordance with the provisions Section 11.04 as if the
Participant died prior to the exercise of the option and the option
lapsed without exercise.

11.06) DESIGNATION OF BENEFICIARY. A Participant may file with the
Corporation a written designation of a beneficiary who is to
receive any payroll deductions credited to the Participant's
bookkeeping account under any Phase of the Plan or who shall have
the right to exercise the Participant's option and become entitled
to any Stock and/or cash payments upon such exercise, as the case
may be, as provided in this Article XI. The Participant may change
his or her beneficiary designation at any time by written notice to
the Corporation. The Corporation may, in its discretion, require
proof of the identity of a beneficiary or proof of the existence of
a valid beneficiary designation prior to the delivery of any Stock
or cash payments pursuant to this Article XI.

The Corporation will not be responsible for or be required to give
effect to the disposition of any cash payments or Stock or the
exercise of any option in accordance with any will or other
testamentary disposition made by such Participant or in accordance
with the provisions of any law concerning intestacy, or otherwise.
No person shall, prior to the death of a Participant, acquire any
interest in any Stock, in any option or in the payroll deductions
credited to the Participant's bookkeeping account during any Phase
of the Plan.

11.07) In the event that any Subsidiary ceases to be a Subsidiary of the
Corporation, the employees of such Subsidiary shall be considered
to have terminated their employment for purposes of Section 11.03
hereof as of the date the Subsidiary ceased to be a Subsidiary of
the Corporation.

ARTICLE XII - STOCK RESERVED FOR OPTIONS

12.01) Three Hundred Thousand (300,000) shares of Stock, which may be
authorized but unissued shares of the Corporation (or the number
and kind of securities to which said 300,000 shares may be adjusted
in accordance with Section 14.01 hereof) are reserved for issuance
upon the exercise of options to be granted under the Plan. Shares
subject to the unexercised portion of any lapsed or expired option
may again be subject to option under the Plan.

12.02) The Participant shall have no rights as a shareholder with
respect to any shares of Stock subject to the Participant's option
until the date of the issuance of a stock certificate evidencing
such shares as provided in Section 9.05. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash,
securities or other property), distributions or other rights for
which the record date is prior to the date such stock certificate
is actually issued, except as otherwise provided in Section 14.01
hereof.

51
<PAGE>

ARTICLE XIII - ACCOUNTING AND USE OF FUNDS

13.01) Payroll deductions and lump sum payments made by Participants
shall be credited to bookkeeping accounts established by the
Corporation for each such Participant under the Plan. A
Participant may not make any other cash payments into such account.
Such account shall be solely for bookkeeping purposes and shall
not require the Corporation to establish any separate fund or trust
hereunder. All funds from payroll deductions and lump sum payments
received or held by the Corporation under the Plan may be used,
without limitation, for any corporate purpose by the Corporation,
which shall not be obligated to segregate such funds from its other
funds. In no event shall Participants be entitled to interest on
the amounts credited to such bookkeeping accounts.

ARTICLE XIV - ADJUSTMENT PROVISION

14.01) Subject to any required action by the shareholders of the
Corporation, in the event of an increase or decrease in the number
of outstanding shares of Stock or in the event the Stock is changed
into or exchanged for a different number or kind of shares of stock
or other securities of the Corporation or another corporation by
reason of a reorganization, merger, consolidation, divestiture
(including a spin-off), liquidation, recapitalization,
reclassification, stock dividend, stock split, combination of
shares, rights offering or any other change in the corporate
structure or shares of the Corporation, the Board (or, if the
Corporation is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation),
in its sole discretion, shall adjust the number and kind of
securities subject to and reserved under the Plan and, to prevent
the dilution or enlargement of rights of those Eligible Employees
to whom options have been granted, shall adjust the number and kind
of securities subject to such outstanding options and, where
applicable, the exercise price per share for such securities.

In the event of the sale by the Corporation of substantially all of
its assets and the consequent discontinuance of its business, or in
the event of a merger, exchange, consolidation, reorganization,
divestiture (including a spin-off), liquidation, reclassification
or extraordinary dividend (collectively referred to as a
"transaction"), after which the Corporation is not the surviving
corporation, the Board may, in its sole discretion, provide for one
or more of the following:

(a) The acceleration of the exercisability of outstanding options
granted at the commencement of the Phase then in effect, to the
extent of the accumulated payroll deductions made as of the date
of such acceleration pursuant to Article 8 hereof, and, with
respect to those Participants who elected to make lump sum
payments, the opportunity to make all or a portion of such
payments for the exercise of their options;

(b) The complete termination of this Plan and a refund of amounts
credited to the Participants' bookkeeping accounts hereunder; or

(c) The continuance of the Plan only with respect to completion of
the then current Phase and the exercise of options thereunder.
In the event of such continuance, Participants shall have the
right to exercise their options as to an equivalent number of
shares of stock of the corporation succeeding the Corporation by
reason of such transaction.

In the event of a transaction where the Corporation survives,
then the Plan shall continue in effect, unless the Board takes
one or more of the actions set forth above. The grant of an
option pursuant to the Plan shall not limit in any way the right
or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes in its capital or
business structure or to merge, exchange or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its
business or assets.

ARTICLE XV - NONTRANSFERABILITY OF OPTIONS

15.01) Options granted under any Phase of the Plan shall not be
transferable and shall be exercisable only by the Participant
during the Participant's lifetime. After the Participant's death,
the option shall be exercisable only by the Participant's validly
designated beneficiary or the representative of the Participant's
estate as provided in Article XI.

15.02) Neither payroll deductions granted to a Participant's account,
nor any rights with regard to the exercise of an option or to
receive Stock under any Phase of the Plan may be assigned,
transferred, pledged or otherwise disposed of in any way by the
Participant. Any such attempted assignment, transfer, pledge or
other disposition shall be null and void and without effect, except
that the Corporation may, at its option, treat such act as an
election to withdraw in accordance with Section 10.01.

52
<PAGE>

ARTICLE XVI - AMENDMENT AND TERMINATION

16.01) The Plan may be terminated at any time by the Board of Directors,
provided that, except as permitted in Section 14.01 hereof, no such
termination shall take effect with respect to any options then
outstanding. The Board may, from time to time, amend the Plan as it
may deem proper and in the best interests of the Corporation or as
may be necessary to comply with Code Section 423, or any successor
provision, or other applicable laws or regulations; provided,
however, no such amendment shall, without the consent of a
Participant, materially adversely affect or impair the right of a
Participant with respect to any outstanding option; and provided,
further, that no such amendment shall, unless the shareholders of
the Corporation have approved the same, directly or indirectly:

(a) Increase the total number of shares for which options may be
granted under the Plan (except as provided in Section 14.01
herein);

(b) Modify the group of Subsidiaries whose employees may be eligible
to participate in the Plan or materially modify any other
requirements as to eligibility for participation in the Plan; or

ARTICLE XVII - NOTICES

17.01) All notices, forms, elections or other communications in
connection with the Plan or any Phase thereof shall be in such form
as specified by the Corporation from time to time, and shall be
deemed to have been duly given when received by the Participant or
his or her personal representative or by the Corporation or its
designated representative, as the case may be.

<PAGE>

EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Year Ended December 31
----------------------
1996 1995 1994
------ ------ ------
Primary earnings per share:

Average shares outstanding 8,220 8,588 8,537

Net effect of dilutive stock options and
warrants -- based on the treasury stock
method using average market price 440 311 74
------ ------ ------
8,660 8,899 8,611
------ ------ ------
------ ------ ------

Net income $9,357 $8,002 $3,356
------ ------ ------
------ ------ ------

Per share amount $ 1.08 $ .90 $ .39
------ ------ ------
------ ------ ------

Fully-diluted earnings per share:

Average shares outstanding 8,220 8,588 8,537

Net effect of dilutive stock options and
warrants -- based on the treasury stock
method using closing market price 477 581 74
------ ------ ------
8,697 9,169 8,611
------ ------ ------
------ ------ ------

Net income $9,357 $8,002 $3,356
------ ------ ------
------ ------ ------

Per share amount $ 1.08 $ .87 $ .39
------ ------ ------
------ ------ ------

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Form S-8, Registration Statement
Nos. 33-28177, 33-42510, 33-49614, 33-49616, 333-02199 and 333-18549 dated
May 4, 1989, August 23, 1991, July 10, 1992, July 10, 1992, April 3, 1996 and
December 23, 1996, respectively, and in Registration Statement No. 33-57780 on
Form S-3 dated February 3, 1993, of our report dated January 30, 1997, with
respect to the consolidated financial statements and schedule of Empi, Inc.
included in this Annual Report (Form 10-K) for the year ended December 31, 1996.

/s/ Ernst & Young, LLP

Minneapolis, Minnesota
March 24, 1997

E-20

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FOURTH
QUARTER 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2849
<SECURITIES> 15216
<RECEIVABLES> 21006
<ALLOWANCES> 5062
<INVENTORY> 7320
<CURRENT-ASSETS> 47038
<PP&E> 15912
<DEPRECIATION> 8822
<TOTAL-ASSETS> 59841
<CURRENT-LIABILITIES> 5851
<BONDS> 333
0
0
<COMMON> 15331
<OTHER-SE> 38326
<TOTAL-LIABILITY-AND-EQUITY> 59841
<SALES> 70630
<TOTAL-REVENUES> 70630
<CGS> 18459
<TOTAL-COSTS> 18459
<OTHER-EXPENSES> 37751
<LOSS-PROVISION> 2216
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> 15215
<INCOME-TAX> 5858
<INCOME-CONTINUING> 9357
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9357
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08

</TABLE>