<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
EMPI
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
EMPI-REGISTERED TRADEMARK-
599 CARDIGAN ROAD
SHOREVIEW, MINNESOTA 55126
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 1997
TO THE SHAREHOLDERS OF EMPI, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Empi, Inc. (the "Company") will be held at the Minneapolis
Marriott City Center, 30 South Seventh Street, Minneapolis, Minnesota on
Tuesday, May 13, 1997 at 3:30 p.m. local time, for the following purposes:
1. To set the number of directors at seven (7).
2. To elect two Class Two directors to terms expiring in 2000.
3. To approve the Company's 1997 Stock Option Plan.
4. To consider and act upon such other business as may properly come before
the Meeting or any adjournments thereof.
Shareholders of record on March 21, 1997, are the only persons entitled to
notice of and to vote at the Meeting and any adjournments thereof.
Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
A PROXY FOR THE MEETING IS ENCLOSED HEREWITH. IF YOU DO NOT EXPECT TO BE
PRESENT AT THE MEETING, PLEASE FILL IN, SIGN AND DATE THE PROXY, WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By Order of the Board of Directors
Empi, Inc.
Thomas R. King
Secretary
March 26, 1997
<PAGE>
PROXY STATEMENT
OF
EMPI-REGISTERED TRADEMARK-
599 CARDIGAN ROAD
SHOREVIEW, MINNESOTA 55126
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 13, 1997
The enclosed proxy is solicited by the Board of Directors of Empi, Inc. (the
"Company") for use at the Annual Meeting of Shareholders (the "Meeting") to be
held on Tuesday, May 13, 1997, and at any adjournment thereof, for the purposes
set forth in the Notice of Annual Meeting.
The cost of soliciting proxies, including the cost of preparing, assembling
and mailing proxies and soliciting materials, as well as the cost of forwarding
such materials to the beneficial owners of stock, will be borne by the Company.
Directors, officers and regular employees of the Company may, without
compensation other than their regular compensation, solicit proxies personally
or by telephone. The Proxy Statement and accompanying form of Proxy will be
first mailed to shareholders on or about March 26, 1997.
Any shareholder executing a proxy may revoke it at any time prior to its
exercise at the Meeting by giving written notice of such revocation to the
Company's Secretary or any other officer of the Company, by filing a new written
proxy with an officer of the Company or by voting the shares in person at the
Meeting. Proxies will be voted in accordance with the choice specified thereon
by shareholders. Proxies which are signed by shareholders but which lack
specification for a particular proposal will be voted in favor of such proposal.
The record date for determining the shareholders entitled to vote at the
Meeting was the close of business on March 21, 1997, at which time the Company
had issued and outstanding 8,259,614 shares of Common Stock, no par value, the
only voting securities of the Company. Each shareholder is entitled to one vote
for each share of Common Stock held. The presence at the Meeting in person or by
proxy of the holders of a majority of the outstanding shares of Common Stock
entitled to vote shall constitute a quorum for the transaction of business. If a
shareholder abstains from voting as to any matter, then the shares held by such
shareholder shall be deemed present at the Meeting for purposes of determining a
quorum and for purposes of calculating the vote with respect to such matter, but
shall not be deemed to have been voted in favor of such matter. An abstention as
to any proposal will therefore have the same effect as a vote against the
proposal. If a broker returns a "non-vote" proxy, indicating a lack of
discretionary authority on the part of the broker to vote on a particular
matter, then the shares covered by such non-vote shall be deemed present at the
Meeting for purposes of determining a quorum but shall not be deemed to be
represented at the Meeting for purposes of calculating the vote required for
approval of such matter.
1
<PAGE>
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following information concerning ownership of the Common Stock of the
Company is furnished as of the record date, March 21, 1997, with respect to (i)
all persons known by the Company to be the owner, of record or beneficially, of
more than 5% of the outstanding Common Stock of the Company; (ii) each of the
directors and nominees for election to the Board of Directors of the Company;
(iii) the executive officers of the Company named in the Summary Compensation
Table as set forth under the caption "Executive Compensation"; and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the shareholders listed in the table have sole voting and investment
powers with respect to the shares indicated.
<TABLE>
<CAPTION>
SHARES PERCENT OF
BENEFICIALLY COMMON STOCK
NAME (AND ADDRESSES OF 5% OWNERS) OR IDENTITY OF GROUP (1) OWNED OWNERSHIP
- ---------------------------------------------------------- ----------- -----------------
<S> <C> <C>
Kopp Investment Advisors, Inc. Group
6600 France Avenue South, Suite 672
Edina, MN 55435........................................................... 2,954,317(2) 35.8%
Scott R. Anderson......................................................... 4,750(3) *
Everett F. Carter......................................................... 4,375(3) *
Joseph E. Laptewicz, Jr................................................... 59,119(4) .7%
Donald D. Maurer.......................................................... 284,761(5) 3.4%
Harold G. Olson........................................................... 8,300(3) .1%
Kenneth F. Tempero........................................................ 13,500(6) .2%
Warren S. West............................................................ 30,550(7) .4%
Timothy E. Briggs......................................................... 79,280(8) 1.0%
Gary D. Sullivan.......................................................... 14,790(9) .2%
Robert W. Clapp........................................................... 9,206(3) .1%
All directors and executive officers as a group (11 persons).............. 517,500(10) 6.1%
</TABLE>
- ------------------------
* Less than .1%
(1) Each person listed herein except Kopp Investment Advisors, Inc. is either a
nominee or a member of the Board of Directors or an executive officer of the
Company.
(2) Kopp Investment Advisors, Inc. ("KIA"), the Kopp Investment Advisors, Inc.
Profit Sharing Plan, the Kopp Family Foundation, LeRoy C. Kopp Individual
Retirement Account, and LeRoy C. Kopp filed a Schedule 13G dated January 28,
1997 with the Securities and Exchange Commission. Such beneficial owners
filed such 13G as a "Group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934. The Company is relying on such 13G for the purposes of
showing beneficial ownership.
KIA serves as investment advisor for the accounts of individual clients. KIA
has the following powers over the shares indicated: sole voting power,
133,000; sole dispositive power, 20,000; and shared dispositive power,
2,808,317. The KIA Profit Sharing Plan, the Kopp Family Foundation, and Mr.
Kopp's Individual Retirement Account have sole voting and dispositive power
over 4,000 shares, 45,000 shares and 75,000 shares, respectively. Mr. Kopp
controls the Kopp Family Foundation, KIA and his Individual Retirement
Account, and he is the sole trustee of the KIA Profit Sharing Plan. The
share amounts detailed above are as of March 21, 1997.
(3) Includes for the following persons the number of shares indicated, which
shares are subject to stock options exercisable within 60 days of the record
date: Scott R. Anderson, 3,750; Everett F. Carter, 2,500; Harold G. Olson,
2,500; and Robert W. Clapp, 9,206.
2
<PAGE>
(4) Includes (a) 54,250 shares issuable pursuant to options exercisable within
60 days of the record date, (b) 2,815 shares held jointly by Mr. Laptewicz
and his spouse and (c) 1,714 shares held in the Empi, Inc. Retirement,
Profit Sharing and Savings Plan over which Mr. Laptewicz has no voting
power.
(5) Includes (a) 98,150 shares issuable pursuant to options exercisable within
60 days of the record date, (b) 1,034 shares held in an Individual
Retirement Account for the benefit of Mr. Maurer's spouse, (c) 1,315 shares
held jointly by Mr. Maurer and his spouse and (d) 5,500 shares owned by Mr.
Maurer's son.
(6) Includes (a) 10,500 shares issuable pursuant to options exercisable within
60 days of the record date and (b) 3,000 shares held in an Individual
Retirement Account for the benefit of Dr. Tempero.
(7) Includes (a) 2,500 shares issuable pursuant to options exercisable within 60
days of the record date, (b) 1,000 shares held in an Individual Retirement
Account for the benefit of Mr. West and (c) 27,050 held in the Elizabeth A.
West Living Trust of which Mr. West's spouse is beneficiary and co-trustee
with Mr. West.
(8) Includes (a) 7,650 shares issuable pursuant to options currently
exercisable, (b) 6,103 shares held in the Empi, Inc. Retirement, Profit
Sharing and Savings Plan over which Mr. Briggs has no voting power, (c)
1,200 and 600 shares held in Individual Retirement Accounts for the benefit
of Mr. Briggs and his spouse, respectively, (d) 42,842 shares held jointly
by Mr. Briggs and his spouse and (e) 200 shares owned by Mr. Briggs'
children.
(9) Includes (a) 12,500 shares issuable pursuant to options exercisable within
60 days of the record date and (b) 566 shares held in the Empi, Inc.
Retirement, Profit Sharing and Savings Plan over which Mr. Sullivan has no
voting power.
(10) Includes in total for the directors and executive officers as a group (a)
211,374 shares issuable pursuant to options exercisable within 60 days of
the record date, (b) 8,697 shares held in the Empi, Inc. Retirement, Profit
Sharing and Savings Plan over which the participants have no voting power,
(c) 6,834 shares held in Individual Retirement Accounts, (d) 27,050 shares
held in trust, (e) 46,972 shares held jointly with a spouse and (f) 5,700
shares owned by dependent children.
ELECTION OF DIRECTORS
(PROPOSALS #1 AND #2)
The Bylaws of the Company provide that the Board of Directors shall consist
of not less than three and not more than seven directors and that the number of
directors to be elected shall be determined by the shareholders at each Annual
Meeting. The Bylaws of the Company also provide for the election of three
classes of directors with terms staggered so as to require the election of only
one class of directors each year. Only directors who are members of Class Two
will be elected at the Annual Meeting. Directors who are members of Class One
and Class Three will continue to serve for the terms for which they were elected
at prior Annual Meetings. Warren S. West, a current Class Two director of the
Company, declined to stand for reelection.
Accordingly, the Board recommends that the number of directors be set at
seven and that two Class Two directors be elected at the Annual Meeting. Under
applicable Minnesota law, approval of the proposals to set the number of the
directors at seven and elect the Class Two directors require the affirmative
vote of the holders of the greater of (i) a majority of the voting power of the
shares represented in person or by proxy at the Annual Meeting with authority to
vote on such matter, or (ii) a majority of the voting power of the minimum
number of shares that would constitute a quorum for the transaction of business
at the Annual Meeting. The Board of Directors nominates Scott R. Anderson and
Joseph E. Laptewicz, Jr. for reelection as Class Two directors of the Company.
If elected, Messrs. Anderson and Laptewicz will serve for three-year terms as
Class Two directors and until their successors are duly elected and qualified.
3
<PAGE>
Unless authority is withheld, the proxies solicited hereby will be voted for
the election of Scott R. Anderson and Joseph E. Laptewicz, Jr. as Class Two
directors for terms of three years. If, prior to the Annual Meeting, it should
become known that Messrs. Anderson or Laptewicz will be unable to serve as a
director after the Annual Meeting by reason of death, incapacity or other
unexpected occurrence, the proxies will be voted for such substitute nominees as
are selected by the Board of Directors, or, alternatively, not voted for any to
serve. Following is information about the nominees and all other directors of
the Company.
<TABLE>
<CAPTION>
NAME AND AGE OF PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE PAST FIVE YEARS AND DIRECTOR
NOMINEES AND CURRENT DIRECTORS DIRECTORSHIPS IN PUBLIC COMPANIES SINCE
- --------------------------------- --------------------------------------------------------------------- -----------
<S> <C> <C>
Donald D. Maurer (60) Chairman of the Company since October 1977 and Chief Scientific 1977
(Class One, term ending in Officer since October 1994. Chief Executive Officer of the Company
1999) 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 a director of Angeion,
Inc.
Dr. Kenneth F. Tempero (57) Independent business and drug development consultant since May 1996. 1993
(Class One, term ending in Chairman and Chief Executive Officer of MGI PHARMA, INC., an
1999) acquirer, developer and marketer of pharmaceuticals from August 1987
to April 1996. Mr. Tempero is a director of Endorex Corporation.
Scott R. Anderson (57) President and Chief Executive Officer of North Memorial Medical 1993
(Class Two, term ending in Center, a general, acute medical center, since 1981. Mr. Anderson is
1997) a director of Telident, Inc.
Joseph E. Laptewicz, Jr. (48) President, Chief Executive Officer and Acting Chief Financial Officer 1994
(Class Two, term ending in since March 1997. President and Chief Executive Officer of the
1997) Company from October 1994 to February 1997. President and Chief
Executive Officer of Schneider (USA), Inc., a manufacturer of
products for interventional medicine from April 1992 to September
1994 and Executive Vice President from July 1991 to March 1992.
Warren S. West (67) Independent management consultant since July 1990. Executive Vice 1980
(Class Two, term ending in President from March 1988 to June 1990 of Eye Technology, Inc., a
1997) manufacturer of intraocular lenses.
Everett F. Carter (69) Chairman of Wadia Digital, Inc., a manufacturer of audio equipment, 1985
(Class Three, term ending in since April 1996. President and Chief Executive Officer of Wadia
1998) Digital, Inc. from August 1991 to March 1996.
Harold G. Olson (73) President of Comelex Corporation, a rebuilder of compressors for 1985
(Class Three, term ending in industrial and commercial use, since 1976.
1998)
</TABLE>
BOARD AND COMMITTEE MEETINGS
The Board of Directors formed Audit and Compensation Committees in March
1984. A Stock Option Committee, which is vested with the same authority as
the Board with respect to the granting of options and the administration of
the Company's stock option plans, was formed in June 1987. The Compensation
Committee, which is responsible for establishing compensation policies and
overseeing compensation plans with respect to both executives and
non-employee directors, and the Stock Option Committee merged in 1992. The
Corporate Governance Committee was formed in August 1996. The primary
responsibilities of the Corporate Governance Committee include working with
management on an annual basis to achieve management succession planning;
4
<PAGE>
self-evaluation of the Board of Directors; and serving as the Company's
Nominating Committee on an as-needed basis.
Members of the Audit Committee through 1996 were Harold Olson and Warren
West. The Audit Committee met once during 1996 to review the procedures and
recommendations of the Company's independent auditors. Since January 1997,
members of the Audit Committee are Scott Anderson, Everett Carter and Kenneth
Tempero. Members of the Compensation and Stock Option Committee through 1996
were Scott Anderson, Everett Carter and Kenneth Tempero. During fiscal year
1996, the Compensation and Stock Option Committee held one meeting and took
action in writing two times. Since January 1997, members of the Compensation and
Stock Option Committee are Harold Olson, Kenneth Tempero and Warren West.
Kenneth Tempero was the only member of the Corporate Governance Committee
through 1996. The Corporate Governance Committee met with the Chairman of the
Board two times during 1996. Since January 1997, members of the Corporate
Governance Committee are Scott Anderson, Everett Carter and Kenneth Tempero.
The Board of Directors held five formal meetings during the last fiscal year
and took action in writing two times. All current directors attended at least
75% of the aggregate number of meetings of the Board of Directors plus the
meetings of each of the committees on which each director served.
COMPENSATION OF DIRECTORS
Directors who are not full-time employees of the Company receive an annual
retainer of $3,000, a fee of $1,000 for each Board meeting attended and $500 for
each committee meeting attended. In addition to the preceding compensation, the
Chairman of the Corporate Governance Committee receives an annual retainer of
$2,000, prorated in the initial year of the Committee.
Pursuant to the Company's 1987 Stock Option Plan and the 1997 Stock Option
Plan (Proposal #3), each non-employee director of the Company is automatically
granted an option to purchase 5,000 shares of Common Stock on the date of such
non-employee's initial election, which option is exercisable to the extent of
1,250 shares on each anniversary date of the date of grant. On the date of each
Annual Meeting of Shareholders, each incumbent non-employee director is
automatically granted an option to purchase 500 shares of the Company's Common
Stock ("Annual Grant"), which option is exercisable on the first anniversary
date of the date of grant; provided, however, that a non-employee director may
not receive an Annual Grant until the Annual Meeting on or following the third
anniversary of such non-employee director's initial election. The automatic
options have an exercise price per share equal to 100% of the fair market value
of the Company's Common Stock on the date of grant and expire on the earlier of
(i) three months after the optionee ceases to be a director (except by death or
disability) and (ii) seven years. If a non-employee director ceases to be a
director because of a disability, the option may be exercised, to the extent
such option was exercisable on the date of termination, at any time within
twelve months after the non-employee director ceases to be a director because of
a disability or on the date on which the option, by its terms, expires,
whichever is earlier. In the event of the death of a non-employee director (i)
during the term of directorship, (ii) within three months following termination
of directorship for any reason other than disability, or (iii) within twelve
months following termination of directorship because of disability, the option
shall become immediately exercisable and shall not expire until the original
expiration date of the option.
EXECUTIVE COMPENSATION
COMPENSATION AND STOCK OPTION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
PHILOSOPHY
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") is composed entirely of independent, non-employee directors. The
Committee is responsible for recommending to the Board the amount and type of
compensation, with the exception of base salaries, for the Chief Executive
Officer and each of the other executive officers of the Company, and the
administration of the Company's stock-based benefit plans. Base salaries are
approved by the Committee.
The Committee has implemented a compensation program which it believes is
fair to the shareholders, uses a basic philosophy of keeping the compensation
mix weighted toward performance, and is competitive in the Company's industry.
The goals of the Company's executive compensation program are to provide
compensation
5
<PAGE>
that will attract and retain the management talent required to
achieve Company goals and objectives; to reward performance which results in
achievement of Company goals and objectives; and to encourage consistent,
long-term growth in shareholder value.
The Company's executive officer compensation program includes three key
components: base salary, annual cash incentive compensation based on
corporate goals and objectives, and long-term incentive compensation in the
form of options to acquire Common Stock. In addition, executive officers are
entitled to participate in the Company's benefit plans such as the 401(k)
Retirement, Profit Sharing and Savings Plan, the 1997 Employee Stock Purchase
Plan and health, dental, life, and disability insurance plans generally
available to other employees of the Company.
In recognition of Code Section 162(m) of the Internal Revenue Code (the
"IRC"), which limits the deductibility of certain executive compensation to
$1 million, the Committee will, to the extent programs can be excluded from
the $1 million limit and to the extent no pre-existing, contractual
obligations exist, take the necessary action to secure tax deductibility
under the IRC.
BASE SALARY
For 1996, base salaries were recommended to the Committee by the Chief
Executive Officer after consultation with the Company's Vice President of
Human Resources, who determined a salary scale for each executive officer's
position based on commercially available compensation surveys of a mix of
high technology and medical companies of comparable size to the Company.
These compensation surveys include companies located throughout the nation,
and generally provide information pertaining to salary ranges as well as to
total compensation ranges. Based on these surveys, base salaries of the
executive officers, including the Chief Executive Officer, are set slightly
below or at the midpoint of their respective salary ranges. The Committee's
philosophy is that a large percentage of the executive officer's total
compensation should be based on the overall financial performance of the
Company.
ANNUAL INCENTIVE COMPENSATION
The Management Incentive Compensation Plan (the "Incentive Plan") is the
Company's annual incentive plan for executive officers and other key
management personnel. The Incentive Plan is intended to provide a direct cash
incentive to executives and managers for the achievement of corporate
performance and/or individual performance goals. In fiscal 1996, the
corporate performance goal was pre-tax income for the Company as set forth in
its annual budget plan. No incentive is paid for the achievement of
individual performance goals unless certain levels of corporate performance
are achieved. The Incentive Plan has various levels of participants, each
with a different incentive amount as a percentage of their base salary.
Potential payouts are then based on the Company's financial performance, and,
for certain levels, the individual's performance versus a set of personal,
measurable objectives, approved by senior management. Target bonus award
levels are set to be competitive within the Company's industry and to
emphasize overachievement.
STOCK OPTION PROGRAM
The stock option program is the Company's long-term incentive plan for
executive officers and other key management personnel. The objective is to
provide incentive to encourage consistent, long-term growth in shareholder value
and to encourage and assist executive officers and other key employees to
acquire and maintain an ownership position in the Company. The Company's stock
option program uses a formula plan developed by an independent consulting firm
to determine the number of options to be granted based on compensation,
individual performance and the market value of the Company's Common Stock. In
addition, in determining the number of options to be granted to executive
officers and other key employees, the Committee takes into account the number of
options then held by such executive officers and employees. Stock options are
also granted from time to time based upon an individual's potential
contributions to Company performance. Named executive officers received stock
option grants to purchase an aggregate of 40,800 shares during fiscal 1996.
Generally, stock options are granted at an exercise price equal to fair market
value of the Company's Common Stock on the date of grant, have terms up to ten
years and have exercise restrictions which lapse over a four or five year
period.
6
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1996, Mr. Laptewicz received a base salary increase of
$34,000, a 16.5% increase over his 1995 base salary. Such increase was
determined using the methodology discussed in the "Base Salary" section above.
His base salary at the end of the 1996 fiscal year was $240,000. Mr. Laptewicz
earned in fiscal 1996 a bonus of $121,080 under the Management Incentive
Compensation Plan due to the Company meeting its corporate performance goals. In
addition, a special bonus of $30,000 was granted to Mr. Laptewicz at the time of
his performance review due to the Company exceeding its performance targets.
Stock options granted to Mr. Laptewicz during fiscal 1996 are consistent with
the design of the overall program and are shown in the Summary Compensation
Table.
Dr. Kenneth F. Tempero,
Committee Chairman
Harold G. Olson
Warren S. West
Members of the Compensation and Stock
Option Committee
7
<PAGE>
EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
The following table sets forth, for the fiscal years ended December 31,
1996, 1995, and 1994, all cash and noncash compensation paid or to be paid by
the Company to Joseph E. Laptewicz, Jr., the Company's President and Chief
Executive Officer, and to each of the other four most highly compensated
executive officers of the Company whose total cash compensation exceeded
$100,000 during fiscal year 1996 in all capacities in which they served.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS PAYOUTS
ANNUAL COMPENSATION ------------------------ ---------
---------------------------------- RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
FISCAL SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) (1) ($) (2) ($) (3) ($) (#) (4) ($) ($) (5)
- ---------------------------------- ---- --------- -------- ------------- ------------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donald D. Maurer 1996 250,007 126,129 -- -- 12,000 -- 4,750
Chairman of the Board & 1995 216,801 132,899 -- -- 25,000 -- 4,620
Chief Scientific Officer (6) 1994 210,486 -- -- -- 35,000 -- 4,620
Joseph E. Laptewics, Jr. 1996 240,000 151,080 -- -- 12,000 -- 4,750
President, Chief Executive 1995 206,000 161,278 -- -- 5,000 -- 4,620
Officer and Acting Chief 1994 50,000 -- -- -- 200,000 -- --
Financial Officer (6)
Timothy E. Briggs 1996 125,000 44,144 -- -- 2,000 -- 4,750
Former Executive Vice 1995 123,241 52,883 -- -- 5,000 -- 3,913
President, Chief Financial 1994 119,652 -- -- -- 13,328 -- 4,620
Officer & Ass't Secretary
Gary D. Sullivan 1996 125,000 31,531 -- -- 10,000 -- 4,750
Vice President, Sales & 1995 114,583 35,120 -- -- 25,000 -- 992
Marketing (7)
Robert W. Clapp 1996 114,650 28,920 -- -- 4,800 -- 4,750
Vice President, 1995 108,150 33,148 -- -- 5,000 -- 3,569
Manufacturing 1994 103,958 -- -- -- 8,024 -- 4,616
</TABLE>
- ------------------------------
(1) Includes all before-tax contributions to the Empi, Inc. Retirement, Profit
Sharing and Savings Plan, a qualified section 401(k) plan.
(2) Reflects bonus amounts earned pursuant to the Company's Management Incentive
Compensation Plan and any additional bonuses, all of which are described
above under the caption "Compensation and Stock Option Committee Report on
Executive Compensation." For fiscal years 1996 and 1995, all of the bonuses
earned were paid during the next fiscal year.
(3) No other Annual Compensation for the named executive officers is required to
be disclosed pursuant to the applicable rules of the Securities and Exchange
Commission.
(4) Represents the number of shares of common stock purchaseable upon the
exercise of the stock options. Mr. Sullivan was granted options for 25,000
shares upon initial employment by the Company. Mr. Laptewicz was granted
200,000 shares in conjunction with his employment agreement.
(5) Reflects Company matching contributions to the Empi, Inc. Retirement, Profit
Sharing and Savings Plan.
(6) Mr. Laptewicz became employed by the Company in October 1994 and replaced
Mr. Maurer as President and Chief Executive Officer. Mr. Maurer assumed the
position of Chief Scientific Officer and continues to serve as Chairman of
the Board.
(7) In February 1995, the Company employed Mr. Sullivan as the Vice President of
Marketing. He assumed the position of Vice President of Sales and Marketing
in August 1996.
8
<PAGE>
OPTION GRANTS DURING 1996
The following table provides information related to options granted to the
named executive officers during the 1996 fiscal year. The Company has not
granted any stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL
- ------------------------------------------------------------------------------------------------ RATES
% OF TOTAL OF STOCK PRICE
OPTIONS APPRECIATION FOR
GRANTED TO EXERCISE OPTION TERM (3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED (1) FISCAL YEAR ($/SH) (2) DATE 5% ($) 10% ($)
- ---------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Donald D. Maurer........................ 12,000 11.77% $ 22.75 01/31/06 171,688 435,092
Joseph E. Laptewicz, Jr................. 12,000 11.77% $ 22.75 01/31/06 171,688 435,092
Timothy E. Briggs....................... 2,000 1.96% $ 22.75 01/31/06 28,615 72,515
Gary D. Sullivan........................ 10,000 9.81% $ 22.75 01/31/06 143,074 362,576
Robert W. Clapp......................... 4,800 4.71% $ 22.75 01/31/06 68,675 174,037
</TABLE>
- ------------------------
(1) These options were granted on January 31, 1996 and become exercisable at the
rate of 25% per year on each anniversary beginning one year from the grant
date.
(2) Exercise price is the fair market value of the Company's Common Stock,
defined as the closing price on the date the option is granted.
(3) Potential realizable values shown above represent potential gains based upon
annual compound price appreciation of 5% and 10% from the date of grant
through the full option term of ten years. The actual values of these option
grants is dependent upon the future performance of the Company and its
Common Stock and overall market conditions. There is no assurance that the
actual values realized will approximate the amounts reflected in this table.
OPTION EXERCISES DURING 1996 AND OPTION VALUES AT THE END OF 1996
The following table provides information related to options exercised by the
named executive officers during the 1996 fiscal year and the number and value of
options held at fiscal year-end. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY
SHARES VALUE OPTIONS AT FY-END (#) OPTIONS AT FY-END ($) (1)
ACQUIRED ON REALIZED -------------------------- --------------------------
NAME EXERCISE (#) ($) (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Donald D. Maurer................. -- -- 62,300 87,100 233,800 598,725
Joseph E. Laptewicz, Jr.......... -- -- 50,000 167,000 556,250 1,726,875
Timothy E. Briggs................ 24,000 274,992 39,482 29,046 313,832 183,982
Gary D. Sullivan................. -- -- 5,000 30,000 61,875 247,500
Robert W. Clapp.................. -- -- 6,506 20,318 31,242 152,227
</TABLE>
- ------------------------
(1) Value is equivalent to the fair market value of the Company's Common Stock
at the date of exercise or fiscal year-end, less the exercise price.
9
<PAGE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Donald Maurer and
Joseph Laptewicz. Prior to his resignation, the Company also had an employment
agreement with Timothy Briggs. Such agreements provide for compensation in the
event their employment with the Company is terminated under certain
circumstances. The primary provisions of the agreements follow.
MR. MAURER:
Mr. Maurer's May 1, 1993 agreement has a term of five years and provided for
an initial annual base salary of $200,000, subject to annual review by the Board
of Directors. Effective January 1, 1997, Mr. Maurer's annual base salary
increased to $260,000. The agreement provides that in the event the Company
terminates Mr. Maurer's employment without cause, in the event he resigns after
the Company takes certain actions causing substantial detriment to him or in the
event he resigns for any reason within one year of a "Change in Control" as
defined in the employment agreement, Mr. Maurer shall be entitled to receive
cash payments from the date of termination through April 30, 1998 equal to (A)
his base salary and automobile allowance in effect on the date of termination,
payable semi-monthly, and (B) an annual incentive bonus equal to the greater of
(i) the average incentive bonus earned by Mr. Maurer for the last three years of
his employment, or (ii) the amount of annual incentive bonus determined pursuant
to the Company's incentive bonus plan in effect on the date of Mr. Maurer's
termination or resignation. Mr. Maurer shall also be entitled to participate in
all of the Company's benefit plans following termination under the circumstances
described above until April 30, 1998. In addition, upon termination in the
manner described above, Mr. Maurer shall be entitled to exercise fully all
outstanding incentive and nonqualified stock options held by him. For purposes
of determining the period during which Mr. Maurer can exercise such options, his
employment with the Company shall be deemed to continue until April 30, 1998.
MR. LAPTEWICZ:
The initial term of Mr. Laptewicz's October 1, 1994 agreement was two years
with automatic term renewals equal to one year unless such agreement is
terminated earlier as provided in such agreement. The agreement initially
provides for an annual base salary of $200,000 with reviews by the Board of
Directors annually thereafter. Effective January 1, 1997, Mr. Laptewicz's annual
base salary increased to $255,000. If the Company and Mr. Laptewicz are unable
to agree to the terms of a new employment agreement at the expiration of an
employment term, Mr. Laptewicz shall receive severance payments in an aggregate
amount equal to his annual base salary in effect prior to expiration of the
employment term, payable over a period of twelve months. The agreement provides
that in the event the Company terminates Mr. Laptewicz's employment without
cause, Mr. Laptewicz shall be entitled to receive his monthly base salary in
effect prior to his termination for a period of twelve months. In the event Mr.
Laptewicz's employment is terminated in connection with a "Change in Control,"
as defined in the employment agreement, or he voluntarily resigns within one
year after such Change in Control, Mr. Laptewicz shall be entitled to receive
two times his annual base salary and the amount of incentive bonus to which,
absent termination of Mr. Laptewicz's employment, could have been earned by him
during the year in which his employment was terminated. If terminated in
connection with a Change in Control, Mr. Laptewicz shall be entitled to exercise
fully all outstanding incentive and nonqualified stock options held by him. Mr.
Laptewicz has agreed not to compete with the Company for a one-year period
following termination of the agreement for any reason.
For the employment agreements referred to above, a "Change in Control"
generally is deemed to have occurred if (i) any person acquires securities of
the Company representing 25% or more of the voting power of the Company's
then outstanding securities, (ii) a majority of the Company's Board of
Directors becomes comprised of individuals who are not currently members nor
nominated by current members, (iii) the Company merges or consolidates with
another corporation and the Company's securities outstanding before the
merger or consolidation represent less than 75% of the voting power of the
securities outstanding immediately following the merger, or (iv) the Company
liquidates itself or sells or disposes of substantially all of its business
or assets.
10
<PAGE>
MR. BRIGGS:
Upon his resignation effective February 28, 1997 and in accordance with his
employment agreement dated March 1, 1990 expiring on March 1, 1997, Mr. Briggs
received a cash payment equal to his 1996 annual base salary of $125,000. In
addition, pursuant to the terms of the agreement, Mr. Briggs is entitled to
participate in the Company's hospital and medical plans for a one-year period,
provided he pays the employee portion of the costs.
CERTAIN TRANSACTIONS
The spouse of Timothy E. Briggs, former Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company, is a Senior Vice
President, Director and 5.02% shareholder of Padilla Speer Beardsley ("PSB"), a
public relations firm located in Minneapolis, Minnesota. PSB rendered public
relation services to the Company during fiscal 1996 for which it received
compensation of $60,205 on terms customary in the public relations industry. The
Company intends to continue having PSB perform public relation services in 1997.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's Common Stock, to file with the Securities and Exchange
Commission (the "SEC") initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Upon the receipt of the appropriate information, the Company has prepared
all Forms 3, 4 and 5 for its directors and executive officers subject to their
review and signing prior to filing with the SEC. Based solely on the information
provided to the Company by individual directors and executive officers, the
Company believes that all filing requirements applicable to its directors and
executive officers have been complied with for the fiscal year ended
December 31, 1996.
11
<PAGE>
COMPARATIVE STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the S&P 500 Index and an index of peer companies selected by the
Company and approved by the Compensation and Stock Option Committee. The
comparison assumes $100 was invested in the Company's Common Stock, the S&P 500
Index and the index of peer companies on December 31, 1991, and a reinvestment
of all dividends. Included in the Company's 1996 peer group are the following
companies: Aequitron Medical, Inc., Danninger Medical Tech., Inc., Maxxim
Medical, Inc., Medical Graphics Corp., Mentor Corp., Rehabilicare, Inc., and
Staodyn, Inc. American Medical Electronics, Inc. was included in the Company's
peer group through 1995, but has since been acquired.
[CHART]
<TABLE>
<CAPTION>
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Empi, Inc....................................... $ 100.00 $ 111.94 $ 123.88 $ 52.99 $ 152.24 $ 116.42
S&P 500 Index................................... $ 100.00 $ 107.62 $ 118.46 $ 120.03 $ 165.13 $ 203.05
Peer Group...................................... $ 100.00 $ 73.41 $ 86.98 $ 78.41 $ 153.60 $ 182.57
</TABLE>
12
<PAGE>
APPROVAL OF THE COMPANY'S 1997 STOCK OPTION PLAN
(PROPOSAL #3)
GENERAL
On January 30, 1997, the Board of Directors adopted the Empi, Inc. 1997
Stock Option Plan (the "1997 Plan") subject to shareholder approval, and
reserved 500,000 shares of Common Stock for issuance pursuant to the 1997 Plan.
The Company's 1987 Stock Option Plan (the "1987 Plan") is scheduled to expire
June 15, 1997, with respect to future incentive stock option grants. Upon
shareholder approval of the 1997 Plan, no future options will be granted under
the 1987 Plan. There are currently options to purchase 680,890 shares at
exercise prices ranging from $7.50 to $28.00 per share outstanding under the
1987 Plan.
SUMMARY OF 1997 STOCK OPTION PLAN
A general description of the basic features of the 1997 Plan is presented
below, but such description is qualified in its entirety by reference to the
full text of the 1997 Plan, a copy of which may be obtained without charge upon
written request to Joan E. Coplien, the Company's Treasurer.
PURPOSE. The purpose of the 1997 Plan is to promote the success of the
Company by facilitating the employment and retention of competent personnel and
by furnishing incentive to directors, officers and employees of the Company and
consultants and advisors to the Company, upon whose efforts the success of the
Company will depend to a large degree.
TERM. Incentive stock options may be granted pursuant to the 1997 Plan
during a period of ten (10) years from the date the 1997 Plan was adopted by the
Board of Directors (until January 30, 2007), and nonqualified stock options may
be granted until the 1997 Plan is discontinued or terminated by the Board of
Directors.
ADMINISTRATION. With the exception of the stock options automatically
issued to Non-Employee Directors as described below, the 1997 Plan is
administered by the Board of Directors or the Compensation and Stock Option
Committee of the Board of Directors, all of the members of which are "Non-
Employee Directors" as defined in Rule 16b-3 of the Securities Exchange Act of
1934 (collectively referred to as the "Administrator"). The 1997 Plan gives
broad powers to the Administrator to administer and interpret the 1997 Plan,
including the authority to select the individuals to be granted options and to
prescribe the particular form and conditions of each option granted.
ELIGIBILITY. All employees of the Company or any subsidiary are eligible to
receive incentive stock options pursuant to the 1997 Plan. All employees,
officers and directors of and consultants and advisors to the Company or any
subsidiary are eligible to receive nonqualified stock options. As of March 21,
1997, the Company has approximately 550 employees, of which 19 are officers
and/or directors, and four (4) directors who are not employees.
OPTIONS. When an option is granted under the 1997 Plan, the
Administrator, at its discretion, specifies the per share exercise price and
the number of shares of Common Stock which may be purchased upon exercise of
the option. The per share exercise price of an incentive stock option may not
be less than 100% of the fair market value of the Company's Common Stock, as
that term is defined in the 1997 Plan. Unless otherwise determined by the
Administrator, the per share exercise price of a nonqualified stock option
generally will not be less than 100% of the fair market value of the
Company's Common Stock on the date of grant. The period during which an
option may be exercised and whether the option will be exercisable
immediately, in stages, or otherwise is set by the Administrator. Generally,
incentive and nonqualified stock options will be exercisable for seven (7)
years from the date of grant. Optionees may pay for shares upon exercise of
options with cash, certified check or Common Stock of the Company valued at
the stock's then "fair market value" as defined in the 1997 Plan. Each option
granted under the 1997 Plan is generally nontransferable during the lifetime
of the optionee; however, the Administrator may, in its sole discretion,
permit the transfer of a nonqualified stock option to immediate family
members or to certain family trusts or family limited partnerships.
Generally, under the form of the option agreement which the Administrator
will use for options granted under the 1997 Plan, if the optionee's employment
or other relationship with the Company terminates before the expiration of the
option for reasons other than death or retirement, the optionee may exercise the
option for one month after
13
<PAGE>
such termination or until the option's original expiration date, whichever is
earlier. If the optionee terminates his or her employment with the Company
because of retirement, the option will immediately become fully exercisable
and the optionee may exercise the option until its original expiration date,
unless the optionee, directly or indirectly, engages in competition with the
Company, in which case the option shall terminate immediately. "Retirement"
generally means termination of employment after reaching age 55 and after
completing a minimum of ten (10) years of service with the Company or a
subsidiary. "Competition" includes engaging in, having an ownership interest
in or participating in the financing, operation, management or control of any
business that is in direct competition with the Company's principal business
activities. If the termination of the optionee's employment or other
relationship is because of death, the option typically is exercisable until
its original expiration date or until six months after the optionee's death,
whichever is earlier. The Administrator may impose additional or alternative
conditions and restrictions on the incentive or nonqualified stock options
granted under the 1997 Plan; however, each incentive option generally must
contain such limitations and restrictions upon its exercise as are necessary
to ensure that the option will be an incentive stock option as defined under
the Internal Revenue Code ("Code") Section 422.
GRANTS TO NON-EMPLOYEE DIRECTORS. The 1997 Plan will provide for automatic
nonqualified stock option grants to each director who is not an employee of the
Company (a "Non-Employee Director"). Each Non-Employee Director who is elected
for the first time as a director on or after the date the 1997 Plan is approved
by the shareholders shall automatically be granted a nonqualified option to
purchase 5,000 shares of the Company's Common Stock at a per share exercise
price equal to 100% of the fair market value of the Company's Common Stock on
the date of the Non-Employee Director's initial election. In addition, each
Non-Employee Director shall be granted on the date of each Annual Meeting of the
Shareholders a nonqualified option to purchase 500 shares of the Company's
Common Stock at a per share exercise price equal to 100% if the fair market
value of the Common Stock on the date of such Annual Meeting; provided that the
Non-Employee Director continues to serve on the Board and that new Non-Employee
Directors are not eligible for these annual option grants until the date of the
annual shareholders' meeting which coincides with or immediately follows the
third anniversary of the new director's initial election to the Board. A
Non-Employee Director shall not receive more than one option pursuant to the
formula plan in any one fiscal year. All options granted pursuant to these
provisions shall be exercisable for seven (7) years after the date of grant. All
options granted upon the Non-Employee Director's initial election become
exercisable to the extent of 25% of the shares subject to the option on each of
the four succeeding anniversaries of the date of grant. All options granted upon
the Non-Employee Director's reelection become fully exercisable on the first
anniversary of the date of grant.
If the Non-Employee Director ceases to be a director for reasons other
than disability, retirement or death, any nonqualified stock option granted
pursuant to the formula plan shall remain exercisable for three months after
the date the Non-Employee Director's membership on the Board terminates or
its original expiration date, whichever is earlier. If the Non-Employee
Director ceases to be a director because of disability, such option shall
remain exercisable for twelve months after the date the Non-Employee
Director's membership on the Board terminates because of disability or its
original expiration date, whichever is earlier. If the Non-Employee
Director's membership on the Board terminates because of retirement (reaching
age 60 and completing a minimum of five years of service on the Board), such
option will immediately become fully exercisable and the Non-Employee
Director may exercise such option until its original expiration date.
Finally, in the event of the Non-Employee Director's death, such option shall
immediately become fully exercisable and shall remain exercisable until its
original expiration date.
In addition to the automatic grants of nonqualified options, Non-Employee
Directors are entitled to receive additional nonqualified stock options pursuant
to the 1997 Plan in the sole discretion of the Administrator.
AMENDMENT. The Board of Directors may from time to time suspend or
discontinue the 1997 Plan or revise or amend it in any respect; provided,
however, that no such revision or amendment may impair the terms and
conditions of any outstanding option to the material detriment of the
optionee without the consent of the optionee, except as authorized in the
event of a sale, merger, consolidation or liquidation of the Company. The
1997 Plan may not be amended in any manner that will cause incentive stock
options to fail to meet the requirements of Code Section 422, or be amended
in any manner that will: (i) materially increase the number of shares subject
to the 1997 Plan (except as provided in the case of stock splits,
consolidations, stock dividends or similar events); (ii) change the
designation of the class of employees eligible to receive options; (iii)
decrease the price at which options will be granted; or (iv)
14
<PAGE>
materially increase the benefits accruing to optionees under the 1997 Plan
without the approval of the shareholders if such approval is required to comply
with Code Section 422 or Rule 16b-3.
The Board of Directors will equitably adjust the maximum number of shares of
the Company's Common Stock reserved for issuance under the 1997 Plan, the number
of shares covered by each outstanding option and the per share exercise price in
the event of stock splits or consolidations, stock dividends or other
transactions in which the Company receives no consideration. The Board of
Directors or the Administrator may also provide for the protection of optionees
in the event of a merger, liquidation or reorganization of the Company, the sale
of the Company's assets or similar transactions.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1997 PLAN. Under present law, an
optionee will not realize any taxable income on the date a nonqualified stock
option is granted to the optionee pursuant to the 1997 Plan. Upon exercise of
the nonqualified stock option, however, the optionee must report, in the year of
exercise, compensation taxable as ordinary income to the extent of the
difference between the fair market value of the Company's Common Stock on the
date of exercise and the exercise price. Upon a subsequent sale of the shares,
any resulting gain or loss will be treated as capital gain or loss. The Company
will be entitled to an income tax deduction for the fiscal year in which
nonqualified stock options are exercised equal to the amount of ordinary income
reported by those optionees exercising such options.
Incentive stock options granted pursuant to the 1997 Plan are intended to
qualify for favorable tax treatment to the optionee under Code Section 422.
Under Code Section 422, an employee realizes no taxable income when the
incentive stock option is granted. If the employee has been an employee of the
Company or any subsidiary at all times from the date of grant until three months
before the date of exercise, the employee will realize no taxable income when
the option is exercised. If the employee does not dispose of shares acquired
upon exercise for a period of two years from the date of grant and one year
after the receipt of the shares, the employee may sell the shares and report any
gain as capital gain. The Company is not entitled to any income tax deduction
with respect to either the grant or exercise of an incentive stock option. If
the employee should dispose of the shares prior to the expiration of the
two-year or one-year periods described above, the employee will be deemed to
have received compensation taxable as ordinary income in the year of the early
sale in an amount equal to the lesser of (i) the difference between the fair
market value of the Company's Common Stock on the date of exercise and the
exercise price of the shares, or (ii) the difference between the sale price of
the shares and the exercise price of shares. In the event of such an early sale,
the Company will be entitled to an income tax deduction equal to the amount of
ordinary income reported by the employee. The foregoing discussion ignores the
impact of the alternative minimum tax, which may particularly be applicable to
the year in which an incentive stock option is exercised.
PLAN BENEFITS
Except for the automatic grants to Non-Employee Directors, future grants of
stock options are subject to the discretion of the Administrator. However, since
no options have been granted under the 1997 Plan, the future benefits under the
1997 Plan cannot be determined at this time.
VOTE REQUIRED
The Board of Directors recommends that the shareholders approve the 1997
Plan. Under applicable Minnesota law, approval of the 1997 Plan requires the
affirmative vote of the holders of the greater of (i) a majority of the voting
power of the shares represented in person or by proxy at the Annual Meeting with
authority to vote on such matter, or (ii) a majority of the voting power of the
minimum number of shares that would constitute a quorum for the transaction of
business at the Annual Meeting.
15
<PAGE>
INDEPENDENT AUDITORS
The firm of Ernst & Young LLP has been the independent auditors of the
Company since January 1981. A representative of Ernst & Young LLP is expected to
be in attendance at the Meeting and will be afforded the opportunity to make a
statement, if desired. The representative will also be available to respond to
appropriate questions.
OTHER BUSINESS
Management knows of no other matters to be presented at the Meeting. If any
other matter properly comes before the Meeting, the appointees named in the
proxies will vote the proxies in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any appropriate proposal submitted by a shareholder of the Company and
intended to be presented at the next Annual Meeting of Shareholders subsequent
to the Meeting for which the Company is presently soliciting proxies must be
received by the Company before November 26, 1997.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal year
ended December 31, 1996, accompanies this Notice of Annual Meeting and Proxy
Statement. No part of such Annual Report is incorporated herein, and no part
thereof is to be considered proxy soliciting material.
FORM 10-K
THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED, UPON WRITTEN REQUEST OF ANY SUCH PERSON, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996, AS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE FINANCIAL STATEMENTS
AND THE FINANCIAL STATEMENT SCHEDULES THERETO. THE COMPANY WILL FURNISH TO ANY
SUCH PERSON ANY EXHIBIT DESCRIBED IN THE LIST ACCOMPANYING THE FORM 10-K, UPON
THE PAYMENT, IN ADVANCE, OF REASONABLE FEES RELATED TO THE COMPANY'S FURNISHING
SUCH EXHIBIT(S). REQUESTS FOR COPIES OF SUCH REPORT AND/OR EXHIBIT(S) SHOULD BE
DIRECTED TO MR. JOSEPH E. LAPTEWICZ, JR. AT THE COMPANY'S PRINCIPAL ADDRESS.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas R. King
Secretary
Dated: March 26, 1997
Shoreview, Minnesota
16
<PAGE>
EXHIBIT A
EMPI, INC.
1997 STOCK OPTION PLAN
SECTION 1.
DEFINITIONS
As used herein, the following terms shall have the meanings indicated below:
(a) "Committee" shall mean a Committee of two or more directors who shall be
appointed by and serve at the pleasure of the Board. As long as the Company's
securities are registered pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended, then, to the extent necessary for compliance with Rule
16b-3, or any successor provision, each of the members of the Committee shall be
a "Non-Employee Director." For purposes of this Section 1(a), "Non-Employee
Director" shall have the same meaning as set forth in Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended.
(b) The "Company" shall mean Empi, Inc., a Minnesota corporation.
(c) "Fair Market Value" as of any day shall mean (i) if such stock is
reported by the NASDAQ National Market or NASDAQ SmallCap Market or is listed
upon an established stock exchange or exchanges, the reported closing price of
such stock by the NASDAQ National Market or NASDAQ SmallCap Market or on such
stock exchange or exchanges on such date or, if no sale of such stock shall have
occurred on such date, on the next preceding day on which there was a sale of
stock; (ii) if such stock is not so reported by the NASDAQ National Market or
NASDAQ SmallCap Market or listed upon an established stock exchange, the average
of the closing "bid" and "asked" prices quoted by the National Quotation Bureau,
Inc. (or any comparable reporting service) on such date or, if there are no
quoted "bid" and "asked" prices on such date, on the next preceding date for
which there are such quotes; or (iii) if such stock is not publicly traded as of
such date, the per share value as determined by the Board, or the Committee, in
its sole discretion by applying principles of valuation with respect to the
Company's Common Stock.
(d) "Incumbent Director" means a Non-Employee Director who is serving as a
member of the Board of Directors of the Company as of the effective date of the
Plan.
(e) The "Internal Revenue Code" is the Internal Revenue Code of 1986, as
amended from time to time.
(f) "New Director" means a Non-Employee Director who becomes a member of the
Board of Directors of the Company on or after the effective date of the Plan.
(g) "Non-Employee Director" shall mean members of the Board who are not
employees of the Company or any Subsidiary.
(h) "Option Stock" shall mean Common Stock of the Company (subject to
adjustment as described in Section 13) reserved for options pursuant to this
Plan.
(i) The "Optionee" means an employee of the Company or any Subsidiary to
whom an incentive stock option has been granted pursuant to Section 9; a
consultant or advisor to or director (including a Non-Employee Director),
employee or officer of the Company or any Subsidiary to whom a nonqualified
stock option has been granted pursuant to Section 10; and a Non-Employee
Director to whom a nonqualified stock option has been granted pursuant to
Section 11.
(j) "Parent" shall mean any corporation which owns, directly or indirectly
in an unbroken chain, fifty percent (50%) or more of the total voting power of
the Company's outstanding stock.
17
<PAGE>
(k) The "Plan" means the Empi, Inc. 1997 Stock Option Plan, as amended
hereafter from time to time, including the form of Option Agreements as they may
be modified by the Board from time to time.
(l) A "Subsidiary" shall mean any corporation of which fifty percent (50%)
or more of the total voting power of outstanding stock is owned, directly or
indirectly in an unbroken chain, by the Company.
SECTION 2.
PURPOSE
The purpose of the Plan is to promote the success of the Company and its
Subsidiaries by facilitating the retention of competent personnel and by
furnishing incentive to officers, directors, employees, consultants, and
advisors upon whose efforts the success of the Company and its Subsidiaries will
depend to a large degree.
It is the intention of the Company to carry out the Plan through the
granting of stock options which will qualify as "incentive stock options" under
the provisions of Section 422 of the Internal Revenue Code, or any successor
provision, pursuant to Section 9 of this Plan, and through the granting of
"nonqualified stock options" pursuant to Section 10 of this Plan. Adoption of
this Plan shall be and is expressly subject to the condition of approval by the
shareholders of the Company within twelve (12) months before or after the
adoption of the Plan by the Board of Directors. Any incentive stock options
granted after adoption of the Plan by the Board of Directors shall be treated as
nonqualified stock options if shareholder approval is not obtained within such
twelve-month period.
SECTION 3.
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the date of adoption by the Board of
Directors, subject to approval by the shareholders of the Company as required in
Section 2.
SECTION 4.
ADMINISTRATION
The Plan shall be administered by the Board of Directors of the Company
(hereinafter referred to as the "Board") or by a Committee which may be
appointed by the Board from time to time (collectively referred to as the
"Administrator"). The Administrator shall have all of the powers vested in it
under the provisions of the Plan, including but not limited to exclusive
authority (where applicable and within the limitations described in the Plan) to
determine, in its sole discretion, whether an incentive stock option or
nonqualified stock option shall be granted, the individuals to whom, and the
time or times at which, options shall be granted, the number of shares subject
to each option and the option price and terms and conditions of each option. The
Administrator shall have full power and authority to administer and interpret
the Plan, to make and amend rules, regulations and guidelines for administering
the Plan, to prescribe the form and conditions of the respective stock option
agreements (which may vary from Optionee to Optionee) evidencing each option and
to make all other determinations necessary or advisable for the administration
of the Plan. The Administrator's interpretation of the Plan, and all actions
taken and determinations made by the Administrator pursuant to the power vested
in it hereunder, shall be conclusive and binding on all parties concerned.
No member of the Board or the Committee shall be liable for any action taken
or determination made in good faith in connection with the administration of the
Plan. In the event the Board appoints a Committee as provided hereunder, any
action of the Committee with respect to the administration of the Plan shall be
taken pursuant to a majority vote of the Committee members or pursuant to the
written resolution of all Committee members.
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<PAGE>
SECTION 5.
PARTICIPANTS
The Administrator shall from time to time, at its discretion and without
approval of the shareholders, designate those employees, officers, directors
(including Non-Employee Directors), consultants, and advisors of the Company or
of any Subsidiary to whom nonqualified stock options shall be granted pursuant
to Section 9 of the Plan; provided, however, that consultants or advisors shall
not be eligible to receive stock options hereunder unless such consultant or
advisor renders bona fide services to the Company or Subsidiary and such
services are not in connection with the offer or sale of securities in a capital
raising transaction; and provided, further, that Non-Employee Directors shall be
granted nonqualified stock options pursuant to Section 11 of the Plan without
any further action by the Administrator. The Administrator shall, from time to
time, at its discretion and without approval of the shareholders, designate
those employees of the Company or any Subsidiary to whom incentive stock options
shall be granted under this Plan. The Administrator may grant additional
incentive stock options or nonqualified stock options under this Plan to some or
all participants then holding options or may grant options solely or partially
to new participants. In designating participants, the Administrator shall also
determine the number of shares to be optioned to each such participant. The
Board may from time to time designate individuals as being ineligible to
participate in the Plan.
SECTION 6.
STOCK
The Stock to be optioned under this Plan shall consist of authorized but
unissued shares of Option Stock. Five Hundred Thousand (500,000) shares of
Option Stock shall be reserved and available for options under the Plan;
provided, however, that the total number of shares of Option Stock reserved for
options under this Plan shall be subject to adjustment as provided in Section 13
of the Plan. In the event that any outstanding option under the Plan for any
reason expires or is terminated prior to the exercise thereof, the shares of
Option Stock allocable to the unexercised portion of such option shall continue
to be reserved for options under the Plan and may be optioned hereunder.
SECTION 7.
DURATION OF PLAN
Incentive stock options may be granted pursuant to the Plan from time to
time during a period of ten (10) years from the effective date as defined in
Section 3. Nonqualified stock options may be granted pursuant to the Plan from
time to time after the effective date of the Plan and until the Plan is
discontinued or terminated by the Board. Any incentive stock option granted
during such ten-year period and any nonqualified stock option granted prior to
the termination of the Plan by the Board shall remain in full force and effect
until the expiration of the option as specified in the written stock option
agreement and shall remain subject to the terms and conditions of this Plan.
SECTION 8.
PAYMENT
Optionees may pay for shares upon exercise of options granted pursuant to
this Plan with cash, personal check, certified check, Common Stock of the
Company valued at such Stock's then Fair Market Value, or such other form of
payment as may be authorized by the Administrator. The Administrator may, in its
sole discretion, limit the forms of payment available to the Optionee and may
exercise such discretion any time prior to the termination of the option granted
to the Optionee or upon any exercise of the option by the Optionee.
With respect to payment in the form of Common Stock of the Company, the
Administrator may require advance approval or adopt such rules as it deems
necessary to assure compliance with Rule 16b-3, or any successor provision,
as then in effect, of the General Rules and Regulations under the Securities
Exchange Act of 1934, if applicable.
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<PAGE>
SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Each incentive stock option granted pursuant to this Section 9 shall be
evidenced by a written stock option agreement (the "Option Agreement"). The
Option Agreement shall be in such form as may be approved from time to time by
the Administrator and may vary from Optionee to Optionee; provided, however,
that each Optionee and each Option Agreement shall comply with and be subject to
the following terms and conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement shall
state the total number of shares covered by the incentive stock option. To
the extent required to qualify the Option as an incentive stock option under
Section 422 of the Internal Revenue Code, or any successor provision, the
option price per share shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock per share on the date the
Administrator grants the option; provided, however, that if an Optionee owns
stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or of its Parent or any
Subsidiary, the option price per share of an incentive stock option granted
to such Optionee shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Common Stock per share on the date of the grant
of the option. The Administrator shall have full authority and discretion in
establishing the option price and shall be fully protected in so doing.
(b) TERM AND EXERCISABILITY OF INCENTIVE STOCK OPTION. The term during
which any incentive stock option granted under the Plan may be exercised
shall be established in each case by the Administrator. To the extent
required to qualify the Option as an incentive stock option under Section
422 of the Internal Revenue Code, or any successor provision, in no event
shall any incentive stock option be exercisable during a term of more than
ten (10) years after the date on which it is granted; provided, however,
that if an Optionee owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or of its
parent or any Subsidiary, the incentive stock option granted to such
Optionee shall be exercisable during a term of not more than five (5) years
after the date on which it is granted.
The Option Agreement shall state when the incentive stock option becomes
exercisable and shall also state the maximum term during which the option
may be exercised. In the event an incentive stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the Option Agreement.
The Administrator may accelerate the exercisability of any incentive stock
option granted hereunder which is not immediately exercisable as of the date
of grant.
(c) OTHER PROVISIONS. The Option Agreement authorized under this
Section 9 shall contain such other provisions as the Administrator shall
deem advisable. Any such Option Agreement shall contain such limitations and
restrictions upon the exercise of the option as shall be necessary to ensure
that such option will be considered an "incentive stock option" as defined
in Section 422 of the Internal Revenue Code or to conform to any change
therein.
SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Each nonqualified stock option granted pursuant to this Section 10 shall be
evidenced by a written Option Agreement. The Option Agreement shall be in such
form as may be approved from time to time by the Administrator and may vary from
Optionee to Optionee; provided, however, that each Optionee and each Option
Agreement shall comply with and be subject to the following terms and
conditions:
(a) NUMBER OF SHARES AND OPTION PRICE. The Option Agreement shall
state the total number of shares covered by the nonqualified stock option.
Unless otherwise determined by the Administrator, the option price per share
shall be one hundred percent (100%) of the Fair Market Value of the Common
Stock per share on the date the Administrator grants the option; provided,
however, that the option
20
<PAGE>
price may not be less than eighty-five percent (85%) of the Fair
Market Value of the Common Stock per share on the date of grant.
(b) TERM AND EXERCISABILITY OF NONQUALIFIED STOCK OPTION. The term
during which any nonqualified stock option granted under the Plan may be
exercised shall be established in each case by the Administrator. The Option
Agreement shall state when the nonqualified stock option becomes exercisable
and shall also state the maximum term during which the option may be
exercised. In the event a nonqualified stock option is exercisable
immediately, the manner of exercise of the option in the event it is not
exercised in full immediately shall be specified in the stock option
agreement. The Administrator may accelerate the exercisability of any
nonqualified stock option granted hereunder which is not immediately
exercisable as of the date of grant.
(c) WITHHOLDING. The Company or its Subsidiary shall be entitled to
withhold and deduct from future wages of the Optionee all legally required
amounts necessary to satisfy any and all withholding and employment-related
taxes attributable to the Optionee's exercise of a nonqualified stock
option. In the event the Optionee is required under the Option Agreement to
pay the Company, or make arrangements satisfactory to the Company respecting
payment of, such withholding and employment-related taxes, the Administrator
may, in its discretion and pursuant to such rules as it may adopt, permit
the Optionee to satisfy such obligation, in whole or in part, by electing to
have the Company withhold shares of Common Stock otherwise issuable to the
Optionee as a result of the option's exercise equal to the amount required
to be withheld for tax purposes. Any stock elected to be withheld shall be
valued at its Fair Market Value, as of the date the amount of tax to be
withheld is determined under applicable tax law. The Optionee's election to
have shares withheld for this purpose shall be made on or before the date
the option is exercised or, if later, the date that the amount of tax to be
withheld is determined under applicable tax law. Such election shall be
approved by the Administrator and otherwise comply with such rules as the
Administrator may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations
under the Securities Exchange Act of 1934, if applicable.
(d) OTHER PROVISIONS. The Option Agreement authorized under this
Section 10 shall contain such other provisions as the Administrator shall
deem advisable.
SECTION 11.
NONQUALIFIED STOCK OPTIONS FOR NON-EMPLOYEE DIRECTORS
(a) GRANT OF NONQUALIFIED STOCK OPTIONS. All grants of nonqualified stock
options to Non-Employee Directors under this Section 11 shall be automatic and
nondiscretionary and shall be made strictly in accordance with the following
provisions:
(1) The Administrator shall not have any discretion to select the
Non-Employee Directors that shall be eligible for nonqualified stock options
or to determine the number of shares of Common Stock to be subject to such
options, the option price per share or the date of grant.
(2) INITIAL GRANTS. Each New Director shall be granted a nonqualified
stock option to purchase 5,000 shares of Common Stock on the date that the
New Director first becomes elected to the Board of Directors of the Company.
(3) ANNUAL GRANTS.
a. Each Incumbent Director shall be granted a nonqualified stock
option to purchase 500 shares of Common Stock on the date of the
annual meeting of the shareholders of the Company immediately
following the effective date of the Plan, and on the date of each
annual meeting of the shareholders thereafter, so long as the
Incumbent Director continues to serve on the Board.
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<PAGE>
b. Each New Director shall be granted a nonqualified stock option to
purchase 500 shares of Common Stock on the date of the annual
meeting coincident with or immediately following the third
anniversary of the date that the New Director was elected to the
Board of Directors and on the date of each annual meeting
thereafter, so long as the New Director continues to serve on the
Board.
(b) OPTION PRICE. The option price per share for all nonqualified stock
options granted pursuant to Sections 11(a) above shall be one hundred percent
(100%) of the Fair Market Value of a share of Common Stock on the date the
nonqualified stock option is granted.
(c) DURATION AND EXERCISE OF OPTIONS.
(1) DURATION OF OPTIONS. Except as otherwise provided in this Plan, the
period during which any nonqualified stock option granted to Non-Employee
Directors under this Section 11 may be exercised shall be seven (7) years
after the date that the option is granted.
(2) EXERCISABILITY OF NONQUALIFIED STOCK OPTIONS.
a. In no event shall any nonqualified stock options granted to
Non-Employee Directors be exercisable prior to the date that this
Plan is approved by the shareholders of the Company. If
shareholder approval of the Plan is not obtained within twelve
(12) months following its adoption by the Board, any nonqualified
stock options previously granted to Non-Employee Directors shall
be revoked.
b. All nonqualified stock options granted to Non-Employee Directors
pursuant to Section 11(a)(2) shall become exercisable to the
extent of twenty-five percent (25%) of the shares subject to the
nonqualified stock option on each of the four succeeding
anniversaries of the date that the option is granted. If the
Non-Employee Director does not purchase in any year the full
number of shares which the Non-Employee Director is entitled to
purchase in that year, the Non-Employee Director shall be
entitled to purchase in any subsequent year such previously
unpurchased shares, subject to the expiration of such
nonqualified stock option as specified in Section 11(c)(1) above.
c. All nonqualified stock options granted to Non-Employee Directors
pursuant to Section 11(a)(3) shall become fully exercisable on
the first anniversary of the date that the option is granted. If
the Non-Employee Director does not purchase in any year the full
number of shares which the Non-Employee Director is entitled to
purchase in that year, the Non-Employee Director shall be
entitled to purchase in any subsequent year such previously
unpurchased shares, subject to the expiration of such
nonqualified stock option as specified in Section 11(c)(1) above.
(d) PAYMENT OF OPTION PRICE. Upon the exercise of any nonqualified stock
option granted to a Non-Employee Director pursuant to this Section 11, the
purchase price for such shares of Common Stock subject to such option shall be
paid in cash or certified check, unless the Administrator, in its sole
discretion and subject to any applicable rules or regulations it may adopt,
allows such payment to be made, in whole or in part, by the transfer from the
Non-Employee Director to the Company of previously acquired shares of Common
Stock. Any Common Stock so transferred shall be valued at its Fair Market Value
on the day immediately preceding the effective exercise of the nonqualified
stock option. For purposes of this Section 11(d), "previously acquired shares of
Common Stock" shall include shares of Common Stock that are already owned by the
Non-Employee Director at the time of exercise.
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<PAGE>
(e) RIGHTS AS A SHAREHOLDER. The Non-Employee Director shall have no
rights as a shareholder with respect to any shares of Common Stock subject to a
nonqualified stock option until the Non-Employee Director becomes the holder of
record of such shares. Except as provided in Section 13, no adjustments shall be
made for dividends or other cash distributions or for other rights that have a
record date preceding the date the Non-Employee Director becomes the holder of
record of such shares of Stock.
(f) TERMINATION OF STATUS AS A DIRECTOR. In the event that a Non-Employee
Director's membership on the Board terminates, the following provisions shall
apply:
(1) If the Non-Employee Director's membership on the Board terminates
for any reason other than the Non-Employee Director's retirement, death or
disability, the Non-Employee Director shall be entitled to exercise any
nonqualified stock option granted to such Non-Employee Director pursuant to
this Section 11 to the extent such option was exercisable as of the date of
such termination for a period of three (3) months following the date of such
termination unless the Option, by its terms, expires before the end of such
three-month period. To the extent that the nonqualified stock option is not
exercisable as of the date the Non-Employee Director's membership on the
Board terminates for any reason other than retirement, death or disability,
or to the extent the Non-Employee Director does not exercise such Option
within the period specified in this Section 11(f)(1), all rights of the Non-
Employee Director under such Option shall be forfeited.
(2) If the Non-Employee Director's membership on the Board terminates
because of disability, the Non-Employee Director shall be entitled to
exercise any nonqualified stock option to the extent such option was
exercisable as of the date such Non-Employee Director's membership on the
Board is terminated by reason of disability for a period of twelve (12)
months following the date of such termination unless the option, by its
terms, expires before the end of such twelve-month period. To the extent
that such Option was not exercisable as of the date the Non-Employee
Director's membership on the Board terminates because of disability, or if
the Non-Employee Director does not exercise the nonqualified stock option
within the twelve-month period specified in this Section 11(f)(2), all
rights of the Non-Employee Director under the option shall be forfeited. For
purposes of this Section 11(f)(2), "disability" shall mean a mental or
physical condition of the Non-Employee Director, resulting from illness,
injury or disease which, as determined by the Board, causes the Non-Employee
director to resign from the Board and is reasonably expected to be of long
and indefinite duration or result in death.
(3) If the Non-Employee Director's membership on the Board terminates
because of retirement, any nonqualified stock option granted to the
Non-Employee Director pursuant to this Section 11 shall become immediately
exercisable to the extent of one hundred percent (100%) of the shares
subject to the nonqualified stock option and shall terminate on the date
such option will, by its terms, expire. To the extent the Non-Employee
Director does not exercise such option within the period specified in this
Section 11(f)(3), all rights of the Non-Employee Director under such option
shall be forfeited. For purposes of this Section 11(f)(3) "retirement" shall
mean termination of the Non-Employee Director's membership on the Board
after reaching age 60 and completing a minimum of five (5) years of service
on the Board.
(4) If the Non-Employee Director dies (i) while a member of the Board,
(ii) within the three (3) months following the termination of the
Non-Employee Director's membership on the Board in the case of Section
11(f)(1) above, (iii) within the twelve (12) months following the
termination of the Non-Employee Director's membership on the Board in the
case of Section 11(f)(2) above, or (iv) at any time after the Non-Employee
Director's retirement from the Board in the case of Section 11(f)(3) above,
any nonqualified stock option
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<PAGE>
granted to such Non-Employee Director shall become immediately exercisable
in full and may be exercised by the Non-Employee Director's estate or any
person who acquired the right to exercise any nonqualified stock option
granted to such Non-Employee Director pursuant to this Section 11 by
bequest or inheritance until the date such Option expires as specified
in Section 11(c)(1) above.
SECTION 12.
TRANSFER OF OPTION
No incentive stock option shall be transferable, in whole or in part, by the
Optionee other than by will or by the laws of descent and distribution and,
during the Optionee's lifetime, the option may be exercised only by the
Optionee. If the Optionee shall attempt any transfer of any incentive stock
option granted under the Plan during the Optionee's lifetime, such transfer
shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate.
The Administrator may, in its sole discretion, permit the Optionee to
transfer any or all nonqualified stock options to any member of the Optionee's
"immediate family" as such term is defined in Rule 16a-1(e) promulgated under
the Securities Exchange Act of 1934, or any successor provision, or to one or
more trusts whose beneficiaries are members of such Optionee's "immediate
family" or partnerships in which such family members are the only partners;
provided, however, that the Optionee receives no consideration for the transfer
and such transferred nonqualified stock option shall continue to be subject to
the same terms and conditions as were applicable to such nonqualified stock
option immediately prior to its transfer.
SECTION 13.
RECAPITALIZATION, SALE, MERGER, EXCHANGE OR LIQUIDATION
In the event of an increase or decrease in the number of shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company, the
number of shares of Option Stock reserved under Section 6 hereof and the number
of shares of Option Stock covered by each outstanding option and the price per
share thereof shall be adjusted by the Board to reflect such change. Additional
shares which may be credited pursuant to such adjustment shall be subject to the
same restrictions as are applicable to the shares with respect to which the
adjustment relates.
Unless otherwise provided in the stock option agreement, in the event of an
acquisition of the Company through the sale of substantially all of the
Company's assets and the consequent discontinuance of its business or through a
merger, consolidation, exchange, reorganization, reclassification, extraordinary
dividend, divestiture or liquidation of the Company (collectively referred to as
a "transaction"), all outstanding options shall become immediately exercisable,
whether or not such options had become exercisable prior to the transaction;
provided, however, that if the acquiring party seeks to have the transaction
accounted for on a "pooling of interests" basis and, in the opinion of the
Company's independent certified public accountants, accelerating the
exercisability of such options would preclude a pooling of interests under
generally accepted accounting principles, the exercisability of such options
shall not accelerate. In addition to the foregoing, or in the event a pooling of
interests transaction precludes the acceleration of the exercisability of
outstanding options, the Board may provide for one or more of the following:
(a) the complete termination of this Plan and cancellation of
outstanding options not exercised prior to a date specified by the Board
(which date shall give Optionees a reasonable period of time in which to
exercise the options prior to the effectiveness of such transaction);
(b) that Optionees holding outstanding incentive or nonqualified options
shall receive, with respect to each share of Option Stock subject to such
options, as of the effective date of any such transaction, cash in an amount
equal to the excess of the Fair Market Value of such Option Stock on the
date immediately
24
<PAGE>
preceding the effective date of such transaction over the option price
per share of such options; provided that the Board may, in lieu
of such cash payment, distribute to such Optionees shares of stock of the
Company or shares of stock of any corporation succeeding the Company by
reason of such transaction, such shares having a value equal to the cash
payment herein; or
(c) the continuance of the Plan with respect to the exercise of options
which were outstanding as of the date of adoption by the Board of such plan
for such transaction and provide to Optionees holding such options the right
to exercise their respective options as to an equivalent number of shares of
stock of the corporation succeeding the Company by reason of such
transaction.
The Board may restrict the rights of or the applicability of this Section 13
to the extent necessary to comply with Section 16(b) of the Securities Exchange
Act of 1934, the Internal Revenue Code or any other applicable law or
regulation. The grant of an option pursuant to the Plan shall not limit in any
way the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of 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.
SECTION 14.
SECURITIES LAW COMPLIANCE
No shares of Common Stock shall be issued pursuant to the Plan unless and
until there has been compliance, in the opinion of Company's counsel, with all
applicable legal requirements, including without limitation, those relating to
securities laws and stock exchange listing requirements. As a condition to the
issuance of Option Stock to Optionee, the Administrator may require Optionee to
(i) represent that the shares of Option Stock are being acquired for investment
and not resale and to make such other representations as the Administrator shall
deem necessary or appropriate to qualify the issuance of the shares as exempt
from the Securities Act of 1933 and any other applicable securities laws, and
(ii) represent that Optionee shall not dispose of the shares of Option Stock in
violation of the Securities Act of 1933 or any other applicable securities laws.
As a further condition to the grant of any incentive or nonqualified stock
option or the issuance of Option Stock to Optionee, Optionee agrees to the
following:
(a) In the event the Company advises Optionee that it plans an
underwritten public offering of its Common Stock in compliance with the
Securities Act of 1933, as amended, and the underwriter(s) seek to impose
restrictions under which certain shareholders may not sell or contract to
sell or grant any option to buy or otherwise dispose of part or all of their
stock purchase rights of the underlying Common Stock, Optionee will not, for
a period not to exceed 180 days from the prospectus, sell or contract to
sell or grant an option to buy or otherwise dispose of any incentive or
nonqualified stock option granted to Optionee pursuant to the Plan or any of
the underlying shares of Common Stock without the prior written consent of
the underwriter(s) or its representative(s).
(b) In the event the Company makes any public offering of its securities
and determines in its sole discretion that it is necessary to reduce the
number of issued but unexercised stock purchase rights so as to comply with
any states securities or Blue Sky law limitations with respect thereto, the
Board of Directors of the Company shall have the right (i) to accelerate the
exercisability of any incentive or nonqualified stock option and the date on
which such option must be exercised, provided that the Company gives
Optionee prior written notice of such acceleration, and (ii) to cancel any
options or portions thereof which Optionee does not exercise prior to or
contemporaneously with such public offering.
(c) In the event of a transaction (as defined in Section 13 of the Plan)
which is treated as a "pooling of interests" under generally accepted
accounting principles, Optionee will comply with Rule 145 of the Securities
Act of 1933 and any other restrictions imposed under other applicable legal
or accounting principles if Optionee is an "affiliate" (as defined in such
applicable legal and accounting principles) at the time of the transaction,
and Optionee will execute any documents necessary to ensure compliance with
such rules.
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<PAGE>
The Company reserves the right to place a legend on any stock certificate
issued upon exercise of an option granted pursuant to the Plan to assure
compliance with this Section 14.
SECTION 15.
RIGHTS AS A SHAREHOLDER
An Optionee (or the Optionee's successor or successors) shall have no rights
as a shareholder with respect to any shares covered by an option until the date
of the issuance of a stock certificate evidencing such shares. 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 13 of the Plan).
SECTION 16.
AMENDMENT OF THE PLAN
The Board may from time to time, insofar as permitted by law, suspend or
discontinue the Plan or revise or amend it in any respect; provided, however,
that no such revision or amendment, except as is authorized in Section 13, shall
impair the terms and conditions of any option which is outstanding on the date
of such revision or amendment to the material detriment of the Optionee without
the consent of the Optionee. Notwithstanding the foregoing, no such revision or
amendment shall (i) materially increase the number of shares subject to the Plan
except as provided in Section 13 hereof, (ii) change the designation of the
class of employees eligible to receive options, (iii) decrease the price at
which options may be granted, or (iv) materially increase the benefits accruing
to Optionees under the Plan without the approval of the shareholders of the
Company if such approval is required for compliance with the requirements of any
applicable law or regulation. Furthermore, the Plan may not, without the
approval of the shareholders, be amended in any manner that will cause incentive
stock options to fail to meet the requirements of Section 422 of the Internal
Revenue Code.
SECTION 17.
NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the Optionee to
exercise such option. Further, the granting of an option hereunder shall not
impose upon the Company or any Subsidiary any obligation to retain the Optionee
in its employ for any period.
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[LOGO]
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS--MAY 13, 1997
The undersigned, a shareholder of Empi, Inc., hereby appoints JOSEPH E.
LAPTEWICZ, JR. and DONALD D. MAURER and each of them as proxies with full power
of substitution, to vote on behalf of the undersigned the number of shares which
the undersigned is then entitled to vote, at the Annual Meeting of the
Shareholders of Empi, Inc. to be held at the Minneapolis Marriott City Center,
30 South Seventh Street, in Minneapolis, Minnesota on Tuesday, May 13, 1997 at
3:30 p.m. local time, and at any and all adjournments thereof with all the
powers the undersigned would possess if personally present, upon the matters
indicated below.
(1) Set the number of directors at seven:
/ / FOR / / AGAINST / / ABSTAIN
(2) Election of / / For all nominees (except as / / WITHHOLD AUTHORITY to vote
Directors: marked to the contrary below) for all nominees listed below
Class Two, three year term: Scott R. Anderson and Joseph E. Laptewicz, Jr.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST ABOVE.)
(3) Approval of the Company's 1997 Stock Option Plan
/ / FOR / / AGAINST / / ABSTAIN
(4) OTHER MATTERS: In their discretion, the appointed proxies are authorized to
vote upon such other business as may properly come before the meeting or any
adjournment thereof.
<PAGE>
The undersigned hereby revokes all previous proxies relating to the shares
covered hereby and acknowledges receipt of the Notice and Proxy Statement
relating to the Annual Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS. It will be
voted on the proposals set forth on
this form as directed by the
shareholder, but IF NO DIRECTION IS
GIVEN for a particular proposal, it
will be voted FOR such proposal.
Dated , 1997
---------------------------------------
---------------------------------------
---------------------------------------
(Shareholder must sign exactly as the
name appears at left. When signed as a
corporate officer, executor,
administrator, trustee, guardian, etc.,
please give full title as such. Both
joint tenants must sign.)
