Exhibit 10.1
NONSTATUTORY STOCK OPTION
AGREEMENT
This NONSTATUTORY STOCK OPTION AGREEMENT (this
“Agreement”), dated as of March7, 2009 (the
“Effective Date”), is made by and between DJO
Incorporated, a Delaware corporation (the “Company”),
and
[ ]
(the “Optionee”).
WHEREAS , the Company desires to grant the Optionee a
nonqualified stock option in recognition of the Optionee’s
service to the Company and to further align the Optionee’s
interests with those of the Company’s
stockholders.
NOW THEREFORE , the parties to this Agreement, hereby agree as
follows:
1.
Certain Definitions . Capitalized terms
used, but not otherwise defined, in this Agreement will have the
meanings given to such terms in the Company’s 2007 Incentive
Stock Plan (the “Plan”). As used in this
Agreement:
(a)
“Board” means the Board of Directors of the
Company.
(b)
“Blackstone” means each of Blackstone Capital Partners
V L.P. a Cayman Islands limited partnership, Blackstone Family
Investment Partnership V L.P., a Cayman Islands limited
partnership, Blackstone Family Investment Partnership V-A L.P., a
Cayman Islands limited partnership, Blackstone Participation
Partnership V L.P., a Cayman Islands limited partnership and each
of their respective Affiliates.
(c)
“Change in Control” means (i) the sale or
disposition, in one or a series of related transactions, of all or
substantially all of the assets of the Company to any
“person” or “group” (as such terms are
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange
Act) other than a sale or disposition where Blackstone retains all
or substantially all of the assets of the Company, or (ii) any
person or group, other than Blackstone, is or becomes the
‘beneficial owner” (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of more than
50% of the total voting power of the voting stock of the Company,
including by way of merger, consolidation or otherwise (other than
an offering of stock to the general public through a registration
statement filed with the Securities and Exchange Commission); or
(iii) the approval by the stockholders of the Company of a
plan of complete liquidation of the Company.
(d)
“Code” means the Internal Revenue Code of 1986, as
amended.
(e)
“Company” has the meaning specified in the introductory
paragraph of this Agreement or its successors; provided, that to
the extent that any class of equity securities of a member of the
Company’s controlled group becomes publicly traded on an
established securities market, the term “Company” shall
be deemed to refer to such publicly traded entity.
(f)
“Compensation Committee” means the Executive
Compensation Committee of the Board.
(g)
“Credit Agreement” means that certain Credit Agreement
dated November 20, 2007, by and between DJO Finance LLC (f/k/a
ReAble Therapeutics Finance LLC), DJO Holdings LLC (f/k/a ReAble
Therapeutics Holdings LLC), Credit Suisse and certain other
lenders.
(h)
“Disability” shall mean the Optionee is disabled as
determined under Section 409A(a)(2)(C) of the
Code.
(i)
“EBITDA” shall mean, for any applicable period,
“Consolidated EBITDA” as defined in the Credit
Agreement for such period, excluding forward cost savings as
determined by the Board.
(j)
“Fair Market Value” has the meaning specified in the
Plan, except as expressly set forth herein.
(k)
“First Performance-Based Tranche” has the meaning
specified in Section 2 of this Agreement.
(l)
“Free Cash Flow” shall mean, for any applicable period,
EBITDA (as defined above) for such period minus capital
expenditures during such period and increased or decreased, as the
case may be, by the change in Operating Working Capital during such
period.
(m)
“Good Reason” shall mean a material reduction in the
Optionee’s compensation below the amount of compensation in
effect on the date of this Agreement which is not cured within
thirty (30) days following the Company’s or its
subsidiary’s, as applicable, receipt of written notice from
such Optionee describing the event constituting Good
Reason.
(n)
“IRR” shall mean, as determined by the Board based on
an analysis provided by the Company’s management,
Blackstone’s annually compounded internal rate of return
based on the applicable sale price of Blackstone’s aggregate
investment in the Company taking into account all dividends,
distributions, and other proceeds received by Blackstone, but
excluding any fees paid to Blackstone pursuant to that certain
Monitoring Agreement by and between the Company and Blackstone
dated November 3, 2006, as amended from time to time, or any
successor thereto, and based on the assumption that all shares
available for or subject to award under the Plan are outstanding
shares of Company common stock.
(o)
“MOIC” shall mean the multiple of Blackstone’s
aggregate invested equity capital in the Company since its initial
investment in the Company through the date of determination as
determined by the Board based on an analysis provided by the
Company’s management. It being understood that the
invested capital on the date here of equals $792
million.
(p)
“Operating Working Capital” as of any date shall mean
the difference between current assets (excluding cash and
investments, interest and tax accounts) and current liabilities
(excluding debt, interest and tax accounts). Accrued
liabilities related to restructuring charges added back for the
purposes of computing EBITDA are also excluded from current
liabilities to compute Operating Working Capital.
(q)
“Option” has the meaning specified in Section 2 of
this Agreement.
(r)
“Option Price” has the meaning specified in
Section 2 of this Agreement.
(s)
“Option Shares” has the meaning specified in
Section 2 of this Agreement.
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(t)
“Second Performance-Based Tranche” has the meaning
specified in Section 2 of this Agreement.
(u)
“Stockholders Agreement” shall mean that certain
stockholders agreement applicable to the Optionee, as amended from
time to time.
(v)
“Termination for Cause” shall mean the termination by
the Company of Optionee’s employment with the Company as a
result of (i) the Optionee’s willful and continued
failure to substantially perform Optionee’s duties (other
than any such failure resulting from the Optionee’s
Disability or any such failure subsequent to the Optionee being
delivered notice of the Company’s intent to terminate the
Optionee’s employment without Cause), (ii) conviction
of, or a plea of nolo contendere to, (A) a felony (other than
traffic-related) under the laws of the United States or any state
thereof or any similar criminal act in a jurisdiction outside the
United States or (B) a crime involving moral turpitude that
could be injurious to the Company or its reputation, (iii) the
Optionee’s willful malfeasance or willful misconduct which is
materially and demonstrably injurious to the Company, or
(iv) any act of fraud by the Optionee in the performance of
the Optionee’s duties.
2.
Grant of Stock Option . Subject to and upon
the terms, conditions, and restrictions set forth in this Agreement
and in the Plan, the Company has granted to Optionee an option (the
“Option”) to purchase [ ]
shares of the
Company’s common stock (the “Option Shares”) at a
price (the “Option Price”) of $ [ ]
per share, which
is the Fair Market Value per share on the Effective Date. The
Option may be exercised from time to time in accordance with the
terms of this Agreement. Subject to adjustment as hereinafter
provided, (a) [
] of the Option
Shares constitute the “Time-Based Tranche”,
(b) [
] of the Option
Shares constitute the First Performance-Based Tranche, and
(c) [ ] of the Option
Shares constitute the Second Performance-Based Tranche.
3.
Term of Option . The term of the
Option shall commence on the Effective Date and, unless earlier
terminated in accordance with Section 7 hereof, shall expire
ten (10) years from the Effective Date.
4.
Right to Exercise . Unless terminated as
hereinafter provided, the Option shall become exercisable only as
follows:
(a)
The Option Shares in the Time-Based Tranche shall become vested and
exercisable in accordance with the schedule set forth immediately
below, provided the Optionee remains in the continuous employ of
the Company, any Subsidiary or Affiliate as of each such
date.
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Vesting Date
|
|
Percentage of Time-Based Tranche Option
Shares that Vest
|
|
|
March 7, 2010
|
|
25
|
%
|
|
March 7, 2011
|
|
20
|
%
|
|
March 7, 2012
|
|
18.33
|
%
|
|
March 7, 2013
|
|
18.33
|
%
|
|
March 7, 2014
|
|
18.34
|
%
|
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(b)
The Option Shares in the First Performance-Based Tranche shall
become vested and exercisable as of the date of the certification
of the satisfaction of each such Annual Performance Target in
accordance with the schedule set forth immediately
below:
|
Vesting Date if First Performance-Based
Target is Satisfied
|
|
Percentage of First Performance-Based
Tranche Option Shares that Vest
|
|
December 31, 2009
|
|
25% times Performance Percentage
|
|
December 31, 2010
|
|
20% times Performance Percentage
|
|
December 31, 2011
|
|
18.33% times Performance Percentage
|
|
December 31, 2012
|
|
18.33% times Performance Percentage
|
|
December 31, 2013
|
|
18.33% times Performance Percentage
|
For purposes of
the foregoing schedule, the Performance Percentage is the weighted
average of the EBITDA Factor, weighted at seventy percent (70%),
and the Free Cash Flow Factor, weighted at thirty percent (30%),
where the EBITDA Factor and Free Cash Flow Factor are determined as
follows:
(i) The
EBITDA Factor. The EBITDA Factor is determined in accordance
with the schedule set forth on Attachment A. If the actual
EBITDA achieved is less than the EBITDA Base Case for the
applicable year set forth on Attachment A, then the EBITDA Factor
is zero percent (0%). If the actual EBITDA achieved is equal
to or exceeds the EBITDA Base Case for the applicable year as set
forth on Attachment A, then the EBITDA Factor shall equal eighty
percent (80%) plus an additional percentage between zero percent
(0%) and twenty percent (20%) determined in linear proportion to
the portion of the difference between the EBITDA Base Case and the
EBITDA Target that is actually achieved. For example, for
2009 the EBITDA Base Case is
$
million and the EBIDTA Target is
$
million. If the actual EBITDA achieved for 2009 was
$
million, then the EBITDA Factor would equal eighty percent (80%)
for achieving the EBITDA Base Case plus ten percent (10%) because
half of the difference between the EBITDA Base Case and the EBITDA
Target was actually achieved. Accordingly, the EBITDA Factor
in this example would be ninety percent (90%).
(ii) Free
Cash Flow Factor. The Free Cash Flow Factor is determined in
the same manner as the EBITDA Factor as described in
Section (c)(i) above using the Free Cash Flow Base Case
and Free Cash Flow Target set forth on Attachment A
.
Any Option Shares
in the First Performance-Based Tranche which the Optionee does not
earn the right to exercise at any of the dates set forth above
shall remain capable of vesting at any of the later dates set forth
above in the following manner. If the Option Shares in the
First Performance-Based Tranche on any of the dates set forth above
(the “Current Date”) vest in any percentage between 80%
and 100% on such date (the “Current Vesting
Percentage”), then the Option Shares in the First
Performance-Based Tranche that were subject to vesting at any
earlier date set forth above that did not vest at such earlier date
in the same or a greater percentage as the Current Vesting
Percentage shall vest and be exercisable on the Current Date at the
same percentage as the Current Vesting Percentage. Any Option
Shares in the First
4
Performance-Based Tranche
that have not vested by the latest date set forth above shall
thereupon expire and terminate.
(c)
The Option Shares in the Second Performance-Based Tranche shall
become vested and exercisable on such date, if any, prior to the
expiration of the term hereof, that all of the following three
conditions are satisfied: (i) Blackstone shall have
disposed of some or all of its holdings of common stock in the
Company; (ii) Blackstone shall have realized an IRR on its
aggregate investment in the common stock of the Company of at least
22.5%; and (iii) Blackstone shall have realized a MOIC in the
Company of at least 2.5 times.
(d)
Notwithstanding the foregoing, (i) the Option Shares of the
Time-Based Tranche granted hereby shall become immediately
exercisable upon the occurrence of a Change in Control if Optionee
remains in the continuous employ o
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