<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, Inc.
- --------------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(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:
------------------------------------------------------------------------
/ / 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.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
EMPI-Registered Trademark-
599 CARDIGAN ROAD
ST. PAUL, MINNESOTA 55126
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1999
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 Company's
corporate headquarters, 599 Cardigan Road, St. Paul, Minnesota on Wednesday,
April 28, 1999, 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 One directors, each to a term expiring in 2002.
3. To approve an amendment to the Company's 1997 Stock Option Plan to
increase the annual formula grants to non-employee directors.
4. To approve the appointment of Ernst & Young LLP as the Company's
independent auditors.
5. To consider and act upon such other business as may properly come before
the Meeting or any adjournments thereof.
Shareholders of record on March 11, 1999, 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. WHETHER OR NOT YOU 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 17, 1999
<PAGE>
PROXY STATEMENT
OF
EMPI-Registered Trademark-
599 CARDIGAN ROAD
ST. PAUL, MINNESOTA 55126
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 28, 1999
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 Wednesday, April 28, 1999, 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 17, 1999.
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 11, 1999, at which time the
Company had issued and outstanding 6,176,019 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 11, 1999, 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
NAME (AND ADDRESSES OF 5% BENEFICIALLY COMMON STOCK
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. . . . . . . . . . . . . . . . . . 1,282,991 (2) 20.8%
Woodland Partners LLC
60 South Sixth Street, Suite 3750
Minneapolis, Minnesota 55402. . . . . . . . . . . . 662,700 (3) 10.7%
U.S. Bancorp
601 Second Avenue South
Minneapolis, Minnesota 55402. . . . . . . . . . . . 354,200 (4) 5.7%
Scott R. Anderson. . . . . . . . . . . . . . . . . . 9,000 (5) .1%
Bradley J. Beard . . . . . . . . . . . . . . . . . . 1,250 (5) *
Everett F. Carter . . . . . . . . . . . . . . . . . 5,375 (5) *
M. Nazie Eftekhari . . . . . . . . . . . . . . . . . 1,250 (5) *
Joseph E. Laptewicz, Jr. . . . . . . . . . . . . . . 56,811 (6) .9%
Donald D. Maurer. . . . . . . . . . . . . . . . . . 56,845 .9%
Kenneth F. Tempero. . . . . . . . . . . . . . . . . 12,000 (7) .2%
Robert W. Clapp. . . . . . . . . . . . . . . . . . . 20,980 (5) .3%
Deborah L. Jensen. . . . . . . . . . . . . . . . . . 6,110 (8) .1%
Patrick D. Spangler. . . . . . . . . . . . . . . . . 752 (5) *
H. Philip Vierling . . . . . . . . . . . . . . . . . 22,422 (9) .4%
All directors and executive officers as a
group (13 persons) . . . . . . . . . . . . . . . . . 196,007 (10) 3.1%
</TABLE>
_______________________________
* Less than .1%
(1) Each person listed herein, except Kopp Investment Advisors, Inc., Woodland
Partners LLC and U.S. Bancorp, 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") filed a Schedule 13G dated February
1, 1999, with the Securities and Exchange Commission on behalf of itself,
Kopp Holding Company and LeRoy C. Kopp. KIA is wholly-owned by Kopp
Holding Company, which is wholly-owned by Mr. Kopp. 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 purpose of showing beneficial ownership.
KIA serves as investment advisor for the accounts of individual clients,
and 1,282,991 shares are held in a fiduciary or representative capacity.
KIA has shared voting power over all 1,282,991 shares.
2
<PAGE>
(3) Woodland Partners LLC ("Woodland") filed a Schedule 13G dated February 8,
1999, with the Securities and Exchange Commission. Woodland serves as
investment advisor for the accounts of individual clients. Woodland has
the following powers over the shares indicated: sole voting power, 572,800;
shared voting power, 89,900; and sole dispositive power, 662,700.
(4) U.S. Bancorp filed a Schedule 13G dated February 11, 1999, with the
Securities and Exchange Commission. U.S. Bancorp is a parent holding
company for the following subsidiaries: U.S. Bank National Association,
U.S. Bank Trust National Association and Zapp National Bank. According to
its Schedule 13G, U.S. Bancorp has the following powers over the shares
indicated: sole voting power, 354,100; and sole dispositive power, 328,200.
(5) 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, 8,000; Bradley J. Beard, 1,250; Everett F.
Carter, 3,500; M. Nazie Eftekhari, 1,250; Robert W. Clapp, 18,988; and
Patrick D. Spangler, 752.
(6) Includes (a) 9,000 shares issuable pursuant to options exercisable within
60 days of the record date and (b) 2,815 shares held jointly by Mr.
Laptewicz and his spouse.
(7) Includes (a) 11,500 shares issuable pursuant to options exercisable within
60 days of the record date and (b) 500 shares held in an Individual
Retirement Account for the benefit of Dr. Tempero.
(8) Includes (a) 5,724 shares issuable pursuant to options exercisable within
60 days of the record date and (b) 310 shares held in the Empi, Inc.
Retirement, Profit Sharing and Savings Plan over which Ms. Jensen has no
voting power.
(9) Includes (a) 17,772 shares issuable pursuant to options exercisable within
60 days of the record date, (b) 3,058 shares held in the Empi, Inc.
Retirement, Profit Sharing and Savings Plan over which Mr. Vierling has no
voting power and (c) 1,592 shares held jointly by Mr. Vierling and his
spouse.
(10) Includes in total for the directors and executive officers as a group (a)
80,178 shares issuable pursuant to options exercisable within 60 days of
the record date, (b) 3,657 shares held in the Empi, Inc. Retirement, Profit
Sharing and Savings Plan over which the participants have no voting power,
(c) 500 shares held in an Individual Retirement Account and (d) 4,407
shares held jointly with a spouse.
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 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. Two directors to serve as members
of Class One will be elected at the 1999 Annual Meeting. Directors who are
members of Class Two and Class Three will continue to serve for the terms for
which they were elected at prior Annual Meetings.
Accordingly, the Board recommends that the number of directors be set at
seven and that two Class One directors be elected at the Meeting. Under
applicable Minnesota law, approval of the proposals to set the number of
directors at seven and elect the Class One directors 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 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 Meeting. The Board of Directors nominates Dr. Kenneth F.
Tempero for reelection as a Class One director of the Company. If elected,
Dr. Tempero will serve for a three-year term as a Class One director and
until his successor is duly elected and qualified. Donald D. Maurer, a
current Class One Director of the Company, declined to stand for reelection.
The Board of Directors also nominates H. Philip Vierling as a Class One
director of the Company. If elected, Mr. Vierling will serve his initial
term for three years as a Class One director and until his successor is duly
elected and qualified.
3
<PAGE>
Unless authority is withheld, the proxies solicited hereby will be voted
for the election of Dr. Kenneth F. Tempero and H. Philip Vierling as Class
One directors, each for a term of three years. If, prior to the Meeting, it
should become known that Dr. Tempero or Mr. Vierling each will be unable to
serve as a director after the Meeting by reason of death, incapacity or other
unexpected occurrence, the proxies will be voted for such substitute nominee
as is selected by the Board of Directors or, alternatively, not voted for any
to serve. Following is information about the nominees and all other current
directors of the Company.
<TABLE>
<CAPTION>
NAME AND AGE OF PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE
NOMINEES AND PAST FIVE YEARS AND DIRECTORSHIPS DIRECTOR
CURRENT DIRECTORS IN PUBLIC COMPANIES SINCE
----------------- ----------------------------------------- --------
<S> <C> <C>
Donald D. Maurer (62) Chairman Emeritus of the Company since November 1997. Chief 1977
(Class One, term Scientific Officer of the Company from October 1994 to October 1997.
ending in 1999) Chairman of the Company from October 1977 to October 1997. Chief
Executive Officer of the Company from April 1979 to September 1994.
Mr. Maurer held the additional position of President from February
1993 to September 1994. Mr. Maurer is a director of Angeion, Inc.
Dr. Kenneth F. Tempero (59) Independent business and drug development consultant since May 1996. 1993
(Class One, term Chairman and Chief Executive Officer of MGI PHARMA, INC., an
ending in 1999) acquirer, developer and marketer of pharmaceuticals, from August 1987
to April 1996. Mr. Tempero is a director of Endorex Corporation.
H. Philip Vierling (43) President and Chief Operating Officer of the Company since March
(Nominee Class One) 1999. Vice President of Sales and Marketing from February 1998 to
February 1999. Vice President of Marketing from May 1997 to January
1998. Mr. Vierling was Director of Business Development for the Company
from January 1995 to April 1997 and Director of Marketing from May 1993
to December 1994.
Scott R. Anderson (59) Chairman of the Company from November 1997 to February 1999. 1993
(Class Two, term President and Chief Executive Officer of North Memorial Medical
ending in 2000) Center, a general, acute medical center, since 1981. Mr. Anderson is
a director of Telident, Inc.
M. Nazie Eftekhari (44) Chairman and Chief Executive Officer of The Araz Group, a national 1997
(Class Two, term developer of diversified managed care services, since 1984.
ending in 2000)
Joseph E. Laptewicz, Jr. (49) Chairman and Chief Executive Officer of the Company since March 1999. 1994
(Class Two, term President and Chief Executive Officer of the Company from October
ending in 2000) 1994 to February 1999. Mr. Laptewicz held the additional position of
Acting Chief Financial Officer from March 1997 to July 1997.
President and Chief Executive Officer of Schneider (USA), Inc., a
manufacturer of products for interventional medicine, from April 1992
to September 1994. Mr. Laptewicz is a director of Angiodynamics,
Inc., a subsidiary of E-Z-EM, Inc. and Advanced Neuromodulation
Systems, Inc.
Bradley J. Beard (39) Vice President of Fairview Health Systems, a regional health care 1998
(Class Three, term services company, since June 1985. Administrator of the Institute
ending in 2001) for Athletic Medicine, a provider of orthopedic, chiropractic and
sports physical therapy for Fairview Health Systems, since 1984.
Everett F. Carter (71) Retired since June 1997. Chairman of Wadia Digital, Inc., a 1985
(Class Three, term manufacturer of audio equipment, from April 1996 to June 1997.
ending in 2001) President and Chief Executive Officer of Wadia Digital, Inc. from
August 1991 to March 1996.
</TABLE>
4
<PAGE>
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 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;
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 1998 were Everett Carter, M.
Nazie Eftekhari and Donald Maurer. The Audit Committee met three times
during 1998 to review the procedures and recommendations of the Company's
independent auditors. Members of the Compensation and Stock Option Committee
through 1998 were Scott Anderson and M. Nazie Eftekhari. During fiscal year
1998, the Compensation and Stock Option Committee held one meeting and acted
in writing one time. Members of the Corporate Governance Committee through
1998 were Kenneth Tempero, Committee chairman, and Everett Carter. The
Corporate Governance Committee met with the Chairman of the Board one time
during 1998. Committee membership has not changed in 1999 with the exception
of the addition of Bradley Beard to the Corporate Governance Committee.
The Board of Directors held four formal meetings and acted in writing
two times during the last fiscal year. 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.
Pursuant to the Company's 1997 Stock Option Plan, 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 grant date. 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. Subject to shareholder approval of
Proposal #3, the Annual Grant will be an option to purchase 1,500 shares.
All options granted 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, disability or retirement) or (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. If a non-employee director retires from the Company, having reached
age sixty and completed a minimum of five years of service, the option shall
become 100% exercisable and shall terminate on its original expiration date.
5
<PAGE>
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.
The Committee approves all base salaries.
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 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 1998, base salaries were recommended to the Committee by the Chief
Executive Officer after consultation with the Company's Director of Human
Resources, who determined a salary scale for each executive officer's
position based on commercially available compensation surveys of a mix of
medical and high technology 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 are targeted to be 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 based on pre-tax income of the Company and/or individual
performance goals. No incentive is paid for the achievement of individual
performance goals unless certain levels of corporate performance are
achieved. In 1998, the corporate performance goal was exceeded. 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.
6
<PAGE>
STOCK OPTION PROGRAM
The stock option program is the Company's long-term incentive plan for
executive officers and other key 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 50,160 shares during fiscal
1998. 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 seven years and have exercise restrictions which lapse over a
four year period.
CHIEF EXECUTIVE OFFICER COMPENSATION
During fiscal 1998, Mr. Laptewicz received a base salary increase of
$66,108, a 25.8% increase over his 1997 base salary, reflecting the Company's
performance and his leadership role in achieving such performance. His base
salary at the end of the 1998 fiscal year was $322,008. Mr. Laptewicz earned
in fiscal 1998 a bonus of $249,556 under the Management Incentive
Compensation Plan due to the Company's achievement of significantly
above-average earnings results in fiscal 1998 in comparison to other
companies in the medical device manufacturing industry. Stock options
granted to Mr. Laptewicz during fiscal 1998 are consistent with the design of
the overall program and are shown in the Summary Compensation Table.
Scott R. Anderson, Committee Chairman
M. Nazie Eftekhari
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,
1998, 1997 and 1996, all cash and noncash compensation paid or to be paid by
the Company to Joseph E. Laptewicz, Jr., the Company's Chairman and Chief
Executive Officer, and each of the other four most highly compensated
executive officers of the Company whose total cash compensation exceeded
$100,000 during fiscal year 1998 in all capacities in which they served.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------ ---------------------- ---------
RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
POSITION YEAR ($)(1) ($)(2) ($)(3) ($) (#)(4) ($) ($)(5)
- ------------------------ ------- ------- ------- ------------- ---------- -------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Joseph E. Laptewicz, Jr. 1998 322,008 249,556 -- -- 30,240 -- 5,000
Chairman and Chief 1997 255,900 135,033 -- -- 22,000 -- 4,750
Executive Officer 1996 240,000 151,080 -- -- 12,000 -- 4,750
H. Philip Vierling (6) 1998 123,083 34,463 -- -- 5,930 -- 4,405
President and Chief 1997 100,253 23,750 -- -- 3,116 -- 3,589
Operating Officer
Robert W. Clapp 1998 128,000 35,840 -- -- 5,970 -- 5,000
Vice President, 1997 121,650 31,325 -- -- 7,780 -- 4,750
Manufacturing 1996 114,650 28,920 -- -- 4,800 -- 4,750
Deborah L. Jensen (7) 1998 113,000 31,640 -- -- 5,010 -- 4,153
Vice President, 1997 98,746 25,427 -- -- 7,446 -- 3,284
Regulatory Affairs,
Quality Assurance
and Clinical Research
Patrick D. Spangler (8) 1998 140,000 39,200 -- -- 3,010 -- 2,800
Vice President of 1997 60,583 15,600 -- -- 25,000 -- --
Finance, Chief
Financial Officer and
Assistant Secretary
</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, all of which are described above under the
caption "Compensation and Stock Option Committee Report on Executive
Compensation." All 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 purchasable upon the
exercise of the Stock options granted during the fiscal year. The Company
granted Mr. Spangler options to purchase 25,000 shares upon initial
employment.
(5) Reflects Company matching contributions to the EMPI, Inc. Retirement,
Profit Sharing and Savings Plan.
(6) The Company has employed Mr. Vierling in various capacities since February
1986. Mr. Vierling became Vice President, Marketing in May 1997. Mr.
Vierling assumed the position of President and Chief Operating Officer in
March 1999.
(7) Ms. Jensen has been employed with the Company since October 1995. Ms.
Jensen was promoted to Vice President, Regulatory Affairs, Quality
Assurance and Clinical Research in April 1997.
(8) Mr. Spangler joined the Company in July 1997 as Vice President of Finance,
Chief Financial Officer and Assistant Secretary. The 1997 compensation
amounts reflect compensation from July 1997 through December 1997.
8
<PAGE>
OPTION GRANTS DURING 1998
The following table provides information related to options granted to
the named executive officers during the 1998 fiscal year. The Company has
not granted any stock appreciation rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM (3)
- ------------------------------------------------------------------------------------------------- -----------------------------
% OF TOTAL
OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(1) FISCAL YEAR ($/SH.)(2) DATE 5% ($) 10% ($)
- ------------ ---------- --------------- ----------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph E. Laptewicz, Jr. . . 30,240 27.69% $17.75 01/12/05 218,515 509,233
H. Philip Vierling . . . . . . . 5,930 5.43% $17.75 01/12/05 42,850 99,860
Robert W. Clapp. . . . . . . . 5,970 5.47% $17.75 01/12/05 43,139 100,533
Deborah L. Jensen. . . . . . . 5,010 4.59% $17.75 01/12/05 36,202 84,367
Patrick D. Spangler . . . . . . 3,010 2.76% $17.75 01/12/05 21,750 50,688
</TABLE>
_______________________________
(1) These options were granted on January 12, 1998 and become exercisable at
the rate of 25% per year on each anniversary beginning one year from the
grant date.
(2) Exercise price is the fair market value of the Company's Common Stock,
defined as the closing price on the date the option is granted.
(3) Potential realizable values shown above represent potential gains based
upon annual compound price appreciation of 5% and 10% from the date of
grant through the full option term of 7 years. The actual values of these
option grants are dependent upon the future performance of the Company and
its Common Stock and overall market conditions. There is no assurance that
the actual values realized will approximate the amounts reflected in this
table.
OPTION EXERCISES DURING 1998 AND OPTION VALUES AT THE END OF 1998
The following table provides information related to options exercised by
the named executive officers during the 1998 fiscal year and the number and
value of options held at fiscal year-end. The Company does not have any
outstanding stock appreciation rights.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
NUMBER OF UNEXERCISED OPTIONS AT MONEY OPTIONS AT FY-END
FY-END(#) ($)(1)
-------------------------------- -----------------------------
SHARES VALUE
ACQUIRED ON REALIZED
NAME EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph E. Laptewicz, Jr. . . 132,500 1,799,763 11,500 125,240 53,375 1,531,740
H. Philip Vierling . . . . . 5,500 61,500 12,128 13,150 123,121 115,269
Robert W. Clapp. . . . . . . 10,018 113,689 10,345 20,211 67,501 186,572
Deborah L. Jensen. . . . . . -- -- 3,861 12,595 19,586 82,595
Patrick D. Spangler. . . . . 6,250 34,375 -- 21,760 -- 160,104
</TABLE>
_______________________________
(1) Value per share 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 AGREEMENT
The Company has entered into an employment agreement with Joseph E.
Laptewicz. Such agreement provides for compensation in the event his
employment with the Company is terminated under certain circumstances. The
primary provisions of the agreement follow.
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
provided for an annual base salary of $200,000 with reviews by the Board of
Directors annually thereafter. Effective January 1, 1999, the Board of
Directors increased Mr. Laptewicz's annual base salary to $333,000. 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, or if the
Company terminates Mr. Laptewicz's employment without cause, 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. 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 which, absent
termination of Mr. Laptewicz's employment, he could have earned 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 non-qualified stock options he holds. 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.
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 non-employee 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
non-employee directors and executive officers, the Company believes that all
filing requirements applicable to its non-employee directors and executive
officers were complied with in a timely manner for the fiscal year ended
December 31, 1998.
10
<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,
1993, and a reinvestment of all dividends. Included in the Company's 1998
peer group are the following companies: Medical Graphics Corp., Mentor
Corp., Orthofix International N.V., OrthoLogic Corp., Rehabilicare, Inc. and
Utah Medical Products, Inc. Orthofix International N.V. and OrthoLogic
Corp., orthopedic companies of comparable size, were added to the Company's
peer group for 1998. Utah Medical Products, Inc., a competitor of the
Company's incontinence product line, was also added to the peer group for
1998. Biomet, Inc., Staodyn, Inc. and Uromed, Corp. were included in the
Company's 1997 peer group, but are no longer included in 1998. Staodyn, Inc.
merged with Rehabilicare, Inc. in March of 1998. The Company believes that
both Biomet, Inc. and Uromed, Corp. are no longer companies with similar
product offerings or of comparable size.
[GRAPH]
<TABLE>
<CAPTION>
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Empi, Inc. $ 100.00 $ 42.77 $ 122.89 $ 93.98 $ 95.18 $ 120.48
S&P 500 Index $ 100.00 $ 101.32 $ 139.40 $ 171.40 $ 228.59 $ 293.91
Peer Group $ 100.00 $ 120.14 $ 245.57 $ 265.85 $ 302.21 $ 218.05
</TABLE>
11
<PAGE>
APPROVAL OF AN AMENDMENT TO 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") and reserved 500,000 shares of Common
Stock for issuance pursuant to the 1997 Plan. This plan was approved by the
shareholders at the 1997 Annual Shareholders Meeting held May 13, 1997. On
December 9, 1998, the Board of Directors adopted an amendment to the 1997
Plan to increase the automatic formula option annual grant to non-employee
directors from 500 shares to 1,500 shares (the "Amendment"). Upon
shareholder approval of this amendment, each non-employee director shall be
granted on the date of each Annual Meeting of the Shareholders a
non-qualified option to purchase 1,500 shares of the Company's Common Stock
at a per share exercise price equal to 100% of 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.
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 Patrick D. Spangler, the Company's
Chief Financial Officer.
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 non-qualified 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 non-qualified stock
options. As of March 11, 1999, the Company has approximately 500 employees,
of whom 13 are officers and/or directors, and six (6) 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 non-qualified 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 non-qualified 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 non-qualified stock option to immediate
family members or to certain family trusts or family limited partnerships.
12
<PAGE>
Generally, under the form of the option agreement which the
Administrator uses 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 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 non-qualified 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 provides for automatic
non-qualified 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 May 13, 1997 (the date
the 1997 Plan was approved by the shareholders) shall automatically be
granted a non-qualified 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. Pursuant to the Amendment, each non-employee
director shall be granted on the date of each Annual Meeting of the
Shareholders a non-qualified option to purchase 1,500 shares of the Company's
Common Stock at a per share exercise price equal to 100% of 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 non-qualified 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 non-qualified options,
non-employee directors are entitled to receive additional non-qualified 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)
13
<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 non-qualified
stock option is granted to the optionee pursuant to the 1997 Plan. Upon
exercise of the non-qualified 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 non-qualified 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 and
cannot be determined at this time. The table below shows the total number of
shares underlying stock options that will be granted to non-employee
directors pursuant to the automatic formula grant, if the Amendment is
approved by shareholders:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
NAME/POSITION UNDERLYING OPTIONS TO BE RECEIVED
- --------------------- ---------------------------------
<S> <C>
KENNETH TEMPERO, DIRECTOR. . . . . . . . . . . 1,500
SCOTT R. ANDERSON, DIRECTOR. . . . . . . . . . 1,500
EVERETT F. CARTER, DIRECTOR. . . . . . . . . . 1,500
</TABLE>
VOTE REQUIRED
The Board of Directors recommends that the shareholders approve the
Amendment to the 1997 Plan to provide for increased annual formula grants to
non-employee directors. Under applicable Minnesota law, approval of the
Amendment to 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.
14
<PAGE>
APPROVAL OF SELECTION OF AUDITORS
(PROPOSAL #4)
Upon recommendation of the Audit Committee, the Company's Board of
Directors has selected Ernst & Young LLP as independent auditors for the
Company for the fiscal year ending December 31, 1999. The firm has acted as
independent auditors for the Company since January 1981, and the Board of
Directors considers it highly qualified. Although it is not required to do
so, the Board of Directors wishes to submit the selection of Ernst & Young
LLP for shareholder approval at the Meeting. If the shareholders do not give
approval, the Board will reconsider its selection.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THIS APPOINTMENT.
INDEPENDENT AUDITORS
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 which
is requested to be included in the Proxy Statement for such meeting must be
received by the Company before November 16, 1999.
Any other shareholder proposals intended to be presented at the Annual
Meeting of Shareholders in the year 2000 must be received by the Company at
its principal executive office no later than January 30, 2000.
ANNUAL REPORT TO SHAREHOLDERS
A copy of the Company's Annual Report to Shareholders for the fiscal
year ended December 31, 1998, 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,
1998, 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. PATRICK D. SPANGLER
AT THE COMPANY'S PRINCIPAL ADDRESS.
BY ORDER OF THE BOARD OF DIRECTORS
Thomas R. King
Secretary
Dated: March 17, 1999
St. Paul, Minnesota
15
<PAGE>
EXHIBIT A
EMPI, INC.
1997 STOCK OPTION PLAN
(AS AMENDED DECEMBER 9, 1998, EFFECTIVE APRIL 28, 1999)
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 an 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 an 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.
16
<PAGE>
(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.
(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.
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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.
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 10 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 pursuant to
Section 9 of the 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
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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.
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.
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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 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
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<PAGE>
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 1,500 shares of Common Stock on
the date of each annual meeting of the
shareholders thereafter, so long as the
Incumbent Director continues to serve on
the Board.
b. Each New Director shall be granted a
nonqualified stock option to purchase
1,500 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
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<PAGE>
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.
(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. Except as otherwise
provided in Section 13, 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.
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<PAGE>
(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 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.
23
<PAGE>
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 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,
24
<PAGE>
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.
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
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<PAGE>
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--APRIL 28, 1999
The undersigned, a shareholder of Empi, Inc., hereby appoints JOSEPH E.
LAPTEWICZ, JR. and PATRICK D. SPANGLER, and each of them, as proxy 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 Company's corporate headquarters,
599 Cardigan Road, St. Paul, Minnesota, on Wednesday, April 28, 1999 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 BOTH NOMINEES (EXCEPT / / WITHHOLD AUTHORITY TO VOTE
Directors: AS FOR BOTH NOMINEES LISTED BELOW
MARKED TO THE CONTRARY BELOW)
Class One, three-year term: Dr. Kenneth F. Tempero and H. Philip Vierling
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR A NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME ABOVE.)
(3) Approve an amendment to the Company's 1997 Stock Option Plan.
/ / FOR / / AGAINST / / ABSTAIN
(4) Approve the appointment of Ernst & Young LLP as the Company's independent
auditors.
/ / FOR / / AGAINST / / ABSTAIN
(5) 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. If no direction is made, this proxy will be voted for
both directors named in Proposal 2 and for Proposals 1, 3 and 4.
<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 , 1999
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(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.)
